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Nasa Machine Tools, Inc. v. Fama Technology Inc.

United States District Court, D. New Jersey

December 27, 2019

FAMA TECHNOLOGY INC., et al., Defendants.


          Hon. Michael A. Hammer United States Magistrate Judge

         I. Introduction

         This matter comes before the Court on Nasa Machine Tools Inc.'s (“Nasa”) Motion for Leave to File a Second Amended Complaint. D.E. 102. Pursuant to Federal Rule of Civil Procedure 78 and Local Civil Rule 78.1, the Court decides this motion without oral argument. For the reasons set forth below, the Court will grant Nasa's motion.

         II. Background[1]

         Nasa manufactures computer numerical control machines (CNCs). First Am. Compl., D.E. 50, Oct. 31, 2018, ¶ 7. From approximately 2011 to 2017, Nasa had an agreement with FAMA Technology Inc. (“FAMA”) and Farzad Ahmadpour (“Ahmadpour”), the owner of FAMA, to service the CNCs that Nasa sold to customers. Id. at ¶ 9. This relationship, Nasa alleges, afforded FAMA access to Nasa's proprietary information and trade secrets. Id. at ¶ 10. Sometime in mid-2016, Nasa engaged FAMA to help design and install a probing system, called the “Vision System, ” for Nasa's CNCs for delivery to Customer 1. Id. at ¶¶ 13-15. Nasa contends that the parties orally agreed that FAMA would assign the software rights to Nasa, and that Nasa would pay FAMA $22, 100 for the installment of the Vision System on each CNC. Id. Nasa claims that for the period of approximately July 2016 to September 2017, the Vision System was installed on eight CNCs that Nasa sold to Customer 1, for which Nasa paid FAMA $184, 300. Id. at ¶ 15.

         According to Nasa, in late 2017, Ahmadpour notified NASA that FAMA would no longer conduct business with Nasa, and that Ahmadpour and FAMA would market and sell their own CNCs with the Vision System. Id. at ¶ 18. Nasa alleges that in or around January 2017, Defendants formed ProCut Technologies, LLC (“ProCut”) to manufacture and sell CNCs and began selling CNCs to at least one of Nasa's customers. Id. at ¶ 17. Nasa also alleges that Defendants attempted to advertise or market ProCut's CNCs to Customer 1, made derogatory statements about Nasa's quality, and caused Nasa to lose potential sales to existing customers, including Customer 1. Id. at ¶¶ 20-22. Further, Nasa complains that Defendants have refused to provide the Vision System software to Nasa, thereby preventing Nasa from marketing or selling the Vision System. Id. at ¶ 19. Instead, Nasa alleges, ProCut now markets the Vision System software as its own. Id. at ¶ 22.

         On January 23, 2018, Nasa filed the Complaint in the instant action against Defendants, claiming breach of an oral contract, tortious interference with existing and prospective contractual or economic relationships, unfair trade practices, misappropriation of confidential information, misappropriation of trade secrets, fraudulent misrepresentation, unjust enrichment, and punitive damages. Compl., Jan. 23, 2018, D.E. 1. Defendants removed the action to this Court on February 28, 2018. D.E. 1. Defendants moved to dismiss Nasa's Complaint, which District Judge Madeline Cox Arleo denied on October 22, 2018. D.E. 49. Judge Arleo, however, directed Nasa to re-plead its counts for breach of contract and fraudulent misrepresentation with the requisite specificity, and on October 31, 2018, Nasa filed its First Amended Complaint. First Am. Compl, D.E. 50, Oct. 31, 2018.

         Nasa now moves for leave to file a Second Amended Complaint to: (1) re-define the “Vision System, ” changing the definition from a software-only system to a combined software and hardware system; (2) add additional allegations in support of Nasa's claims; (3) add a claim for trade libel; and (4) add a claim for defamation. Defendants argue that the Court should deny Nasa's motion to amend because the amendment is the result of undue delay and bad faith, and permitting the amendment would cause Defendants to suffer undue prejudice. With respect to the defamation claim, Defendants maintain that the amendment would be futile as it is brought beyond the one-year statute of limitations.

         III. Analysis

         The first issue for the Court is whether Federal Rule of Civil Procedure 15 or 16 governs Plaintiff's motion to amend. Karlo v. Pittsburgh Glass Works, LLC, Civ. No. 10-1283, 2011 WL 5170445, at *2 (W.D. Pa. Oct. 31, 2011). Rule 15 states, in pertinent part, “a party may amend its pleading only with the opposing party's written consent or the court's leave. The court should freely give leave when justice so requires.” Fed.R.Civ.P. 15(a)(2). “Rule 16, on the other hand, requires a party to demonstrate ‘good cause' prior to the Court amending its scheduling order.” Karlo, 2011 WL 5170445, at *2 (citing Fed.R.Civ.P. 16(b)(4)).

         There is a recognized tension between Rule 15 and Rule 16 that has not been directly resolved by the United States Court of Appeals for the Third Circuit. See Race Tires America, Inc. v. Hoosier Racing Tire Corp., 614 F.3d 57, 84 (3d. Cir. 2010); Graham v. Progressive Direct Ins. Co., 271 F.R.D. 112, 118 (W.D. Pa. 2010). However, courts “within the Third Circuit have consistently reached the same conclusion: a party seeking to amend the pleadings after the deadline set by the Court must satisfy the requirements of Rule 16(b)(4)-i.e., they must show ‘good cause.'” Karlo, 2011 WL 5170445, at *2 (citing Fed.R.Civ.P. 16(b)(4)) (emphasis added).

         Here, Nasa filed its pleading after the deadline set by this Court, and, therefore, the Court must consider Rule 16. The operative Order instructed that any motion to amend the pleadings be filed by February 25, 2019. Pretrial Scheduling Order, Nov. 20, 2018, D.E. 59. Nasa filed the instant motion on September 13, 2019. Motion for Leave to File Plaintiff's Second Am. Compl., Sept. 13, 2019, D.E. 102. Because Nasa filed the present motion nearly seven months after the February 25, 2019 filing deadline, the Court must first determine whether, under Rule 16, good cause exists to adjust the deadline to permit Nasa to file its motion. If there is good cause to amend, the Court will then turn to Rule 15 to determine whether to permit Nasa to file its amended pleading as justice so requires. Home Semiconductor Corp. v. Samsung Electronics Co., Ltd., Civ. No. 13-2033, 2019 WL 2135858, at *2 (D. Del. 2019) (stating, “only after having found the requisite showing of good cause will the court consider whether the proposed amendment pleading meets the 15(a) standard.”).

         A. Rule 16(b)(4)

         Rule 16 of the Federal Rules of Civil Procedure authorizes courts to enter schedules of proceedings. The pretrial scheduling order allows a court to take “judicial control over a case and to schedule dates for completion by the parties of the principal pretrial steps.” Harrison Beverage Co. v. Dribeck Imps., Inc., 133 F.R.D. 463, 469 (D.N.J. 1990) (quoting Fed.R.Civ.P. 16 advisory committee's note (1983 Amendment)); see also Newton v. A.C. & S., Inc., 918 F.2d 1121, 1126 (3d Cir. 1990) (stating the purpose of Rule 16 is to provide for judicial control over cases, streamline proceedings, maximize efficiency of the court system, and actively manage the timetable of case preparation to expedite speedy and efficient disposition of cases).

         A scheduling order must, among other things, “limit the time to join other parties, amend the pleadings, complete discovery, and file motions.” Fed.R.Civ.P. 16(b)(3)(A). The requirement of a deadline for amending pleadings in the pretrial scheduling order “assures that at some point . . . the pleadings will be fixed.” Fed.R.Civ.P. 16(b) advisory committee's note (1983 Amendment); see also Harrison, 133 F.R.D. at 469 (“The careful scheme of reasonable framing and enforcement of scheduling orders for case management would thus be nullified if a party could inject amended pleadings upon a showing of less than good cause after scheduling deadlines have expired.”). Under Rule 16, “[a] schedule may be modified only for good cause and with the judge's consent.” E. Minerals & Chems. Co. v. Mahan, 225 F.3d 330, 340 (3d Cir. 2000).

         The burden is on the moving party to show “good cause” for its failure to comply with the applicable scheduling order, and, accordingly, for the Court to allow its proposed amended pleading. Prince v. Aiellos, Civ. No. 09-5429, 2012 WL 1883812, at *6 (D.N.J. May 22, 2012) (quoting Graham v. Progressive Direct Ins. Co., 271 F.R.D. 112, 118 (W.D. Pa. 2010)); see also Race Tires, 614 F.3d at 84 (affirming the trial court's holding that “Rule 16(b)(4) focuses on the moving party's burden to show due diligence”). Whether “good cause” exists under Rule 16 hinges to a large extent on the diligence of the moving party. GlobespanVirata, Inc. v. Texas Instruments, Inc., Civ. No. 03-2854, 2005 WL 1638136, at *3 (D.N.J. July 12, 2005) (quoting Rent-A-Ctr. v. Mamaroneck Ave. Corp., 215 F.R.D. 100, 104 (S.D.N.Y. 2003)). Put succinctly, “[a]bsent diligence, there is no ‘good cause.'” Chancellor v. Pottsgrove Sch. Dist., 501 F.Supp.2d 695, 702 (E.D. Pa. 2007); see also Fed. R. Civ. P. 16(b), advisory committee's note (1983 Amendment) (“[T]he court may modify the schedule on a showing of good cause if it cannot reasonably be met despite the diligence of the party seeking the extension.”).

         When examining a party's diligence, courts typically ascertain whether the movant possessed, or through the exercise of reasonable diligence should have possessed, the knowledge necessary to file the motion to amend before the deadline expired. See Stallings ex rel. Estate of Stallings v. IBM Corp., Civ. No. 08-3121, 2009 WL 2905471, at *16 (D.N.J. Sept. 8, 2009) (denying plaintiffs' motion to amend because they “had sufficient information to state the proposed claims well in advance of the Scheduling Order deadline”); Kennedy v. City of Newark, Civ. No. 10-1405, 2011 WL 2669601, at *2 (D.N.J. July 7, 2011) (“The most common basis for finding a lack of good cause is the party's knowledge of the potential claim before the deadline to amend has passed.”). If a movant had the knowledge necessary to file a motion to amend prior to the expiration of the Court's deadline set forth in the scheduling order, and if the movant can provide no satisfactory explanation for the delay, the Court may, in its discretion, deny the motion. See Dimensional Communs., Inc. v. OZ Optics, Ltd., 148 Fed. App'x. 82, 85 (3d Cir. 2005) (upholding trial court's finding that the movant could not show “good cause” because they were in possession of the facts underlying the proposed counterclaim well before the deadline for amendment).

         Nasa argues that it has good cause for seeking to amend after the expiration of the deadline. Nasa maintains that it did not learn about the January 23, 2018 and January 19, 2018 e-mails, which form the basis of the instant amendments, until April 11, 2019. Specifically, Nasa contends that on April 11, 2019, Defendants produced third-party discovery in response to Defendants' subpoena, including: (1) a January 23, 2018 e-mail, in which Nasa claims Defendants make defamatory statements about Nasa to Customer 1;[2] and (2) an e-mail exchange between Defendants' counsel, Neil A. Benchell, Esq., and Customer 1 dated January 16 and January 19, 2018.[3] Nasa contends that had these emails been produced in any of Defendants' prior productions on January 4, 2019, January 30, 2019, and February 20, 2019, Nasa would have been able to move to amend by the Court's deadline for doing so. Nasa argues that it further delayed in moving to amend because discovery was stayed from April 15, 2019 to July 11, 2019, shortly after Nasa obtained these emails, so that the parties could focus on settlement. However, Nasa raised its intention to amend in both its June 21, 2019 settlement letter to the Court and in the parties' July 10, 2019 status report to the Court. Given that Nasa did not know of the existence of the pertinent emails until April 11, 2019, only four days before the Court stayed discovery, and that Nasa raised its intention to amend to the Court in June and again in July, as soon as the stay was lifted, the Court finds that Nasa has demonstrated good cause pursuant to Rule 16 to modify the February 25, 2019 deadline for filing any motion to amend the pleadings.[4]

         B. ...

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