Cicel (Beijing) Sci. & Technologoy Co. v. Misonix, Inc.

CICEL (BEIJING) SCIENCE & TECHNOLOGOY CO., LTD, Plaintiff, v. MISONIX, INC., Defendant.

2:17-cv-1642 (ADS) (ARL)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

January 23, 2020

MEMORANDUM OF DECISION & ORDER

APPEARANCES:

DeHeng Chen, LLC

Attorneys for the Plaintiff

233 Broadway, Suite 2200

New York, NY 10279

By: Dean T. Cho, Esq., Of Counsel.

Reed Smith LLP

Attorneys for the Plaintiff

599 Lexington Avenue, 22^nd Fl

New York, NY 10279

By: Jennifer L. Achilles, Esq.,

Jonathan P. Gordon, Esq., Of Counsel.

Williams & Connolly LLP

Attorneys for the Defendant

725 Twelfth Street NW

Washington, DC 20005

By: Alexander S. Zolan, Esq.,

Joseph G. Petrosinelli, Esq (Pro Hac Vice).,

Simon Latcovich, Esq. (Pro Hac Vice),

Tian Huang, Esq. (Pro Hac Vice), Of Counsel.

Morgan, Lewis & Bockius LLP

Attorneys for Movants Audit Committee of Misonix, Inc., John Gildea, T. Guy Minetti, Patrick

McBrayer, and Thomas Patton

101 Park Avenue

New York, NY 10178

By: Martha B. Stolley, Esq.,

Zoe Elizabeth Phillips, Esq., Of Counsel.

SPATT, District Judge:

I. BACKGROUND

Plaintiff Cicel (Beijing) Science & Technology Co., Ltd. (the "Plaintiff") moves under Federal Rule of Civil Procedure ("FED. R. CIV. P.") 15 for leave to amend its complaint for the second time in its breach of contract action against Misonix, Inc. (the "Defendant"). The Plaintiff had raised several claims against the Defendant, but the Court granted the Defendant's motion to dismiss all but the claim for breach of contract. The Plaintiff now seeks to amend the damages request on the breach of contract claim, and to add two new claims, for defamation per se and for misappropriation of trade secrets. For the reasons that follow, the Court grants the Plaintiff's motion in part and denies it in part.

A. Underlying Factual History

In March 2017, the Plaintiff brought this action against the Defendant, as well as several employees of the Defendant who have since been dismissed from the action. ECF 1. The Plaintiff is a Chinse corporation "engaged in the business of promoting, marketing, obtaining product registrations [for] and distributing medical devices in China." Id. at 1. The Defendant is a New York corporation that manufactures medical devices. Id. at 2.

The Plaintiff alleged that the action arose out of a 2013 distribution agreement (the "Agreement") between the parties whereby the Plaintiff had the exclusive distribution rights in China to certain medical device products manufactured by the Defendant. Id. at 3. The Plaintiff also alleged, inter alia, the following: (a) the Agreement's term ran from June 2013 to May 2018; (b) the Plaintiff established a "successful distribution network to effectively market and sell Misonix products" in China; (c) the Agreement provided for termination only in the event of four enumerated reasons; (d) at no relevant time did any of those enumerated grounds fortermination occur; (e) in May 2016, the Defendant "abruptly" stopped filling the Plaintiff's orders and repairing or replacing products under warranty; and (f) the Defendant sent a letter on September 27, 2016 purporting to terminate the Agreement and began distributing its products in the same territory through another company. Id. at 4-6.

The Plaintiff further alleged that the Defendant acted in bad faith to cut the Plaintiff out of the distribution network it had built and to obtain "detailed and confidential business information" created by the Plaintiff. Id. at 6-7. One such example of this alleged bad faith was the Defendant's "spreading false and defamatory rumors that Cicel was involved in giving bribes to Chinese governmental officials, in violation of the Foreign Corrupt Practices Act ("FCPA")." Id. at 12-13. The Plaintiff specified that one of those instances of spreading false rumors was in a September 28, 2016 Form 8-K filing with the Securities and Exchange Commission ("SEC"). Id.

The Plaintiff raised claims for unfair competition; tortious interference with contract; tortious interference with a prospective contract; breach of the Agreement; conversion; and fraudulent inducement. Id. at 14-20. The Plaintiff asked for compensatory damages; punitive damages; preliminary and post-judgment injunctive relief; pre- and post-judgment interest; attorneys' fees; and costs. Id. at 20-21.

B. Procedural History and the Present Motion

In April 2017, the Plaintiff amended its complaint. ECF 6. The amended complaint contained the same six claims as the original complaint. See id. However, for the breach of contract claim it no longer asked for damages; instead, it sought for specific performance of the Agreement. Id. In October 2017, the Court granted the Defendant's motion to dismiss in part, dismissing all claims except the breach of contract claim, and dismissing all of the Defendant'semployees from the action. ECF 15. As to the breach of contract claim, the Court ruled that the Plaintiff stated a prima facie claim and that the allegations were sufficient to seek a remedy of specific performance. Id. at 10-11.

Following this Court's order, the Defendant answered the amended complaint and the case proceeded to discovery. ECF 17. The Plaintiff moved to amend the complaint in September 2018, ECF 43, but the Court denied the motion without prejudice and with leave to re-file, ECF 12/11/18 entry. The Plaintiff again moved to amend in December 2018. ECF 63. The Plaintiff again moves to amend its complaint, and in so doing, withdraws the December 2018 motion. ECF 79.

II. DISCUSSION

A. Legal Standard For a Motion to Amend

FED. R. CIV. P. 15(a)(2) applies to motions to amend the pleadings once the time for amending a pleading as a matter of right has expired. It states, in pertinent part, that "a party may amend its pleading only with the opposing party's written consent or the court's leave. The court should freely grant leave when justice so requires." Courts have construed the rule liberally and have said that "the purpose of Rule 15 is to allow a party to correct an error that might otherwise prevent the Court from hearing the merits of the claim." Safety-Kleen Sys., Inc. v. Silogram Lubricants Corp., No. 12-CV-4849, 2013 WL 6795963, at *2 (E.D.N.Y. Dec. 23, 2013) (quoting Chapman v. YMCA of Greater Buffalo, 161 F.R.D. 21, 24 (W.D.N.Y. 1995)); see also Williams v. Citigroup Inc., 659 F.3d 208, 212-13 (2d Cir. 2011) (finding a "strong preference for resolving disputes on the merits").

A court should deny leave to amend only "in instances of futility, undue delay, bad faith or dilatory motive, repeated failure to cure deficiencies by amendments previously allowed, orundue prejudice to the nonmoving party." Burch v. Pioneer Credit Recovery, Inc., 551 F.3d 122, 126 (2d Cir. 2008) (per curiam).

"The party opposing the motion for leave to amend has the burden of establishing that an amendment would be prejudicial." Fariello v. Campbell, 860 F. Supp. 64, 70 (E.D.N.Y. 1994); see also European Cmty. v. RJR Nabisco, Inc., 150 F. Supp. 2d 456, 502-03 (E.D.N.Y. 2001); Saxholm AS v. Dynal, Inc., 938 F. Supp. 120, 123 (E.D.N.Y. 1996). The opposing party likewise bears the burden of establishing that an amendment would be futile. See Blaskiewicz v. Cty. of Suffolk, 29 F. Supp. 2d 134, 137-38 (E.D.N.Y. 1998) (citing Harrison v. NBD Inc., 990 F. Supp. 179, 185 (E.D.N.Y. 1998)).

Proposed amendments are futile when they "would fail to cure prior deficiencies or to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure." IBEW Local Union No. 58 Pension Tr. Fund & Annuity Fund v. Royal Bank of Scotland Grp., PLC, 783 F.3d 383, 389 (2d Cir. 2015) (quoting Panther Partners Inc. v. Ikanos Commc'ns, Inc., 681 F.3d 114, 119 (2d Cir. 2012)). Under the Bell Atlantic v. Twombly standard, a complaint should be dismissed only if it does not contain enough allegations of fact to state a claim for relief that is "plausible on its face." 550 U.S. 444, 570, 127 S. Ct. 1955, 1973, 167 L. Ed. 2d 929 (2007). The Second Circuit has explained that, after Twombly, the Court's inquiry under Rule 12(b)(6) is guided by two principles:

First, although a court must accept as true all of the allegations contained in a complaint, that tenet is inapplicable to legal conclusions, and threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. Second, only a complaint that states a plausible claim for relief survives a motion to dismiss and determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.

Harris v. Mills, 572 F.3d 66, 72 (2d Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009) (internal quotation marks and alterations omitted)).

B. Application to the Facts of This Case

The Plaintiff seeks leave to amend the breach of contract claim so that it seeks damages instead of specific performance, and to add claims for defamation per se under state law and misappropriation of trade secrets under both state law and the federal Defend Trade Secrets Act ("DTSA"). ECF 78. It attaches a copy of a proposed second amended complaint. ECF 81-1. Rather than seeking specific performance of the Agreement, the Plaintiff now asks for $30 million in damages, "along with consequential and incidental damages with interest from the date of the breach." Id. at 18.

The proposed defamation claim alleges that the Defendant made false statements about the Plaintiff on three separate occasions: in its September 2016 Form 8-K filing; in a November 2016 letter to NASDAQ; and in a December 2016 communication to one of the Plaintiff's competitors in China. Id. at 18. The proposed misappropriation of trade secrets claim alleges that the Defendant obtained, through a former employee of the Plaintiff, confidential information about the Plaintiff and used it for its own commercial advantage, such as the Plaintiff's business...