No Spill, LLC v. Scepter Can.

NO SPILL, LLC, TC CONSULTING, INC. Plaintiffs, v. SCEPTER CANADA, INC., et al., Defendants.

No. 18-2681-HLT-KGG

United States District Court, D. Kansas

August 30, 2021

ORDER ON MOTION FOR LEAVE TO FILE AMENDED ANSWER TO ASSERT COUNTERCLAIMS AND JOIN COUNTERCLAIM DEFENDANTS

KENNETH G. GALE United States Magistrate Judge

Defendants Scepter Manufacturing, LLC and Scepter Canada, Inc., file the present “Motion for Leave to File Amended Answer to Assert Counterclaims and Join Counterclaim Defendants.” (Doc. 258). Having reviewed the submissions of the parties the Court GRANTS Defendants' motion as set forth below.

I. Background

The Plaintiffs, TC Consulting, Inc.^[1] and No. Spill, LLC (herein “No Spill” or “Plaintiffs” or “Counterclaim Defendants”), are a Kansas corporation that holds two patents relating to preventing the explosion of portable fuel containers (‘075 and ‘132 patents). (Doc. 41). No. Spill makes six claims against Scepter Manufacturing, LLC and Scepter Canada, Inc. (collectively herein “Scepter” or “Defendants” or “Counterclaim Plaintiffs”) alleging: (1) infringement of the ‘075 patent; (2) infringement of the ‘132 patent; (3) breach of contract and the covenant of fair dealing for failure to meet quality control standards for the supply of gasoline cans; (4) breach of contract relating to the sale of a mold machine; (5) unfair competition under the Lanham Act; and (6) unfair competition under the common law of Kansas. (Doc. 41). The Defendants allege five causes of action in its proposed counterclaim: (1) Conspiracy under Sherman Act § 1; (2) Monopolization under Sherman Act § 2; (3) Attempted Monopolization under Sherman Act § 2; (4) Conspiracy to Monopolize under Sherman Act § 2; and (5) and Transactions that Substantially Lessen Competition under Clayton Act § 7.

No Spill underwent restructuring and was acquired by GenNx/MWC Acquisition, Inc. (herein “GenNx/MWC”) which substantially led to Scepter's motion to join counterclaim defendants. Scepter requested discovery regarding the details of the transaction and the licensing agreements with Midwest Can Company, LLC^[2] (herein “Midwest Can”). (Doc. 264, at 6). Midwest Can had a licensing agreement with a No. Spill-related entity-NSIP Holdings, LLC^[3] (herein “NSIP”). (Doc. 264, at 3). Scepter, in its proposed counterclaim, allege that the licensing agreements between Midwest Can and No. Spill set an artificially high and unreasonable royalty rate for No. Spill's patents which resulted in antitrust violations. (Doc. 264, at 3). Specifically, the counterclaim would allege violations of the Sherman Act (15 U.S.C. §§ 1, 2) and the Clayton Act (15 U.S.C. § 18). Moreover, Defendants wish to add Midwest Can, GenNx360 Capital Partners (herein “GenNx 360”), GenNx/MWC, and Argand Partners, LP (herein “Argand”) as counterclaim defendants.^[4]

The case was first filed on December 10, 2018 and the complaint was amended on July 11, 2019. Scepter filed an answer to the amended complaint on January 21, 2020. Approximately one year later, No. Spill, underwent restructuring and was acquired by GenNx/MWC which substantially led to the motion currently before the Court.

II. Standard

a. Amending the Answer

Federal Rule of Civil Procedure 15(a)(2) provides that “a party may amend its pleading only with the opposing party's consent or the court's leave.” Fed.R.Civ.P. 15(a)(2). The Rule further provides that the court should freely give live when justice so requires. Id. Indeed, the grant of leave to amend the pleadings is within the discretion of the trial court and should be liberally construed. Minter v. Prime Equipment Co., 451 F.3d 1196, 1204 (10th Cir. 2006). Typically, leave to amend a pleading should be freely given unless there is undue delay, bad faith motive, or undue prejudice. Id. (citing Foman v. Davis, 371 U.S. 178, 182 (1962)).

b. Adding Counterclaims and Counterclaim Defendants

Under the Federal Rules of Civil Procedure, Rule 13(h) provides that Rules 19 and 20 govern the addition of a person as a party to a counterclaim. Fed.R.Civ.P. 13(h). Rule 20 deals with permissive joinder and provides that a person may be joined as a defendant if (1) any relief asserted against them jointly or severally, or in the alternative with respect to or arising out of the same transaction or occurrence, and (2) any question of law or fact common to the defendants. Id. 20(a)(2). The decision to allow the addition of a party under Rule 20(a) is within the court's discretion. Fergus v. Faith Home Healthcare, Inc., No. 2:18-cv-02330-JWL-TJJ, 2018 WL 6727063, at *4 (D. Kan. Dec. 21, 2018).

If the counterclaim meets the standard of Rule 20, the motion to add the counterclaim can nonetheless be rejected if the counterclaim is futile. See Bank Midwest v. R.F. Fisher Elec. Co., LLC, No. 19-2560, 2021 WL 38008, at *6 (D. Kan. Jan. 5, 2021). A proposed amendment is futile if the counterclaim would be subject to dismissal. Id. The party opposing an amendment bears the burden of establishing futility. Id. The standard the proposed pleading is analyzed under is the same as a motion to dismiss under Rule 12(b)(6). Id. (citing Fed.R.Civ.P. 12(b)(6)). For a claim to survive a motion to dismiss, the pleading must “state a claim that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The claim need not be probable, but the claim must “draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678.

III. Analysis

a. The Appropriateness of Amending the Answer

No Spill contends: amending the answer will result in undue delay, Scepter harbors a bad faith motive, and it will result in undue prejudice. The Court will consider these arguments in turn.

i. Undue Delay

It is within the court's discretion to deny leave to amend for undue delay, even without a showing of undue prejudice. Steinert v. The Winn Group, Inc., 190 F.R.D. 680, 683 (D. Kan. 2000). Courts often look to the reasons for the delay and the presence of excusable neglect when denying leave on this basis. Id.

Although this motion is not timely under the Revised Scheduling Order (Doc. 162), Defendants argue that good cause exists in that the information necessary to assert this claim was not available to them until No. Spill produced relevant documents during discovery (Doc. 278, at 12). Plaintiffs argue it produced the licensing agreement that Scepter relies upon as a basis for its counterclaim more than 10 months before it filed its Motion (Doc. 274, at 12). And due to that delay, Scepter should be barred from amending its answer. While Plaintiffs are correct in stating that Defendants knew about some details regarding the Midwest Can licensing agreement, the issue is whether they had sufficient facts to allege inequitable conduct. See J&M Indus., Inc. v. Raven Indus., Inc., No. 16-2723, 2019 WL 2342977, at *4 (D. Kan. June 3, 2019). In other words, did the Defendants have sufficient facts to allege a plausible cause of action. And here, the Defendants are claiming that they did not have sufficient information from discovery to make a viable claim when the licensing agreement was first produced (Doc. 278, at 13). Further, No. Spill underwent restructuring that necessitated more discovery. Given, the facts of the current situation, there was no undue delay in bringing this motion to amend.

ii. Bad Faith

An amendment seeking to add a counterclaim should be denied if it is sought in bad faith. Koch v. Koch Indus., 127 F.R.D. 206, 211 (D. Kan. 1989). Evidence of bad faith must be apparent from the record. Steinert v. The Winn Group, Inc., 190 F.R.D. 680, 685 (D. Kan. 2000). No. Spill argues that Scepter is not motivated by the legitimate belief that it has a plausible counterclaim; but rather, it is pretext to delaying litigation. (Doc. 274, at 11). The Court is cognizant of the fact that this particular case has been ongoing for two years and that the patent rulings to date have not been favorable to the Defendants; however, if there are facts that show a legitimate reason for filing an amendment, then that does not constitute bad faith. And here, there appears to be nothing apparent from the record that shows bad faith.

iii. Undue Prejudice

The burden is on the moving party to show undue prejudice. Steinert, 190 F.R.D. at 683. Undue prejudice is the most important factor when determining whether to grant leave to amend. United States v. Sturdevant, No. 07-2233-KHV-DJW, 2008 WL 4198598, at *3 (D. Kan. Sept. 11, 2008). When analyzing whether undue prejudice is present under Rule 15(a), the court considers the difficulty in prosecuting or defending the lawsuit because of change of tactics or theories on part of the movant. Id. In short, courts typically only find undue prejudice when the amendment affects the defendant's ability to prepare their defense. Minter v. Prime Equipment Co., 451 F.3d 1196, 1208 (10th Cir. 2006).

No Spill, which bears the burden of showing undue prejudice, has not shown how it would be prejudiced. No. Spill contends that allowing the amendment would “inject unnecessary delay and tremendous expense” into the dispute which may result in high discovery costs. (Doc. 274). Granted, each new claim will require additional discovery and require the opposing party to expend additional time and resources. However, the proposed counterclaim arises from the same facts as the Plaintiffs' claim and involve common questions of fact and law. Further, the merger between Midwest Can and No Spill occurred in December of 2020, details of the transaction were not revealed until April 2021, deposition testimony was not conducted until May 2021, and the new Plaintiffs were not substituted until June 2021. Given the change in No. Spill's structure and the...