LAUREL BEELER, Magistrate Judge.
On March 3, 2014, Plaintiff Amcor Flexibles, Inc. ("Amcor") sued Defendant Fresh Express, Inc. ("Fresh Express") for breach of contract and unlawful and unfair business practices. (See Complaint, ECF No. 1.
On or about February 8, 2006, Amcor and Fresh Express entered into a 2006 Film Supplier Agreement ("2006 Supplier Agreement" or "Master Agreement") in which Amcor agreed to procure raw materials and manufacture finished fresh salad bags for Fresh Express. (Complaint ¶ 9, ECF No. 1 at 2.) The term of the 2006 Agreement was from February 1, 2006 to December 31, 2006, with an automatic renewal, unless terminated by either party. (Complaint ¶ 10, ECF No. 1 at 3.) Paragraph 9 of the 2006 Supplier Agreement provides that "[E]ither party may terminate this Agreement without cause by giving the other party ninety (90) days written notice." (See id., Ex. A.) Both parties also signed and incorporated into the 2006 Supplier Agreement the Fresh Express Incorporated Purchase Order Standard Terms and Conditions ("Standard Terms"), the Seller Guaranty and Indemnification Agreement, and the Nondisclosure Agreement (together with the Standard Terms, "Vendor Packet").
The 2006 Supplier Agreement states in relevant part:
(Complaint, ECF No. 1, Ex. A.)
The Standard Terms that were incorporated into the 2006 Supplier Agreement includes provisions for the purchaser's limitations of liability and a shortened two-year statute of limitations as follows:
(Complaint, ECF No. 1, Ex. B.)
The Standard Terms contains other provisions based on the purchaser's termination for convenience and the prevalence of the Standard Terms over the 2006 Supplier Agreement:
(Id.)
Paragraph 20 of the Standard Terms also states that the laws of California shall apply to all disputes thereunder. (Id.)
In September 2009, Amcor and Fresh Express entered into a letter agreement ("2009 Agreement") for Fresh Express to be the exclusive purchaser of Amcor's newly-developed Evolution Laminated Paper Bag ("Evolution"). (Complaint ¶ 13, ECF No. 1 at 3.) The exclusivity was to apply for a period of 36 months, followed by automatic annual renewals on an "Evergreen" basis. (Id. at ¶ 17.) The exclusivity terms are set forth in the 2009 Agreement in part as follows:
(Complaint, ECF No. 1, Ex. C.)
The 2009 Agreement also sets forth Fresh Express's agreement to maintain its "Base Business" with Amcor for business other than the Evolution product. The Base Business provision provides that the terms of the 2006 Supplier Agreement (referred to in the provision as the "Master Agreement") and the Vendor Packet shall apply to all purchases under the 2009 Agreement. (Complaint, ECF No. 1, Ex. C.) The Base Business provision is as follows:
(Id.)
The 2009 Agreement defines what constitutes "Termination" as follows:
(Id.)
In reliance on the 2009 Agreement, Amcor did not sell Evolution packages to other companies, despite being asked by other companies about whether Amcor could provide such products. (Complaint ¶ 18, ECF No. 1 at 5.) In or about November 2011, Amcor discovered that Fresh Express was communicating with Amcor's competitors relating to the purchase of salad bags. (Id. at ¶ 19.) At the same time, Fresh Express informed Amcor of its decision to stop marketing the Evolution product. (Id.)
In or about February 2012, Fresh Express verbally advised Amcor that it had ended its Evolution experiment, but that Fresh Express wished to keep the exclusivity with Amcor and that Fresh Express would continue to maintain its overall purchase level. (Id. at ¶ 20.) Amcor alleges that despite these promises, and despite Fresh Express's obligations under the 2009 Agreement, Fresh Express failed to maintain its purchase of Base Business products and, in or around 2011, began significantly decreasing its purchase of Base Business products. (Id. at ¶ 21.)
In or about April 2012, Fresh Express released a request for proposals ("RFP") seeking a new supplier for all of its salad bag business. (See Motion, ECF 51 at 6.) Amcor submitted a bid, but in June 2012, Fresh Express informed Amcor that it had not been selected. (Id.)
On or about August 28, 2012, Amcor notified Fresh Express that it was in breach of the 2009 Agreement due to its alleged significant decrease in Base Business purchases in or around 2011. (Complaint at ¶¶ 21-22, ECF No. 1 at 5.) On or about September 4, 2012, Fresh Express responded by providing written notice of termination, stating that its relationship with Amcor had terminated in mid-2011when it stopped purchasing the Evolution product. (Id. at ¶ 23.)
Amcor alleges that as a result of the September 4, 2012 written notice of termination, Fresh Express was obligated to purchase the required level of Base Business products through March 4, 2013 pursuant to the 2009 Agreement, but has failed to do so. (Id. at ¶¶ 25-26.) As a result of the 2009 Agreement breach, Amcor claims it has suffered lost profits. (Id. at ¶ 39.) Amcor also claims that Fresh Express's unlawful and unfair business practices had led to Fresh Express's unjust enrichment at the expense of Amcor. (Id. at ¶ 46.)
On March 5, 2014, Amcor filed its Complaint. (Complaint, ECF No. 1.) It contains the following claims: (1) breach of contract; and (2) violation of Cal. Bus. & Prof. Code § 17200 et seq. for unlawful and unfair business practices. (Id. ¶¶ 28-46.)
On April 22, 2014, Fresh Express moved to dismiss Amcor's Complaint. (Motion to Dismiss, ECF No. 14.) The court denied the motion on July 1, 2014. (Order Denying Defendant's Motion to Dismiss, ECF No. 24.) Fresh Express thereafter filed its answer to the complaint on July 15, 2014. (Answer, ECF No. 26.) On August 29, 2014, after the initial case management conference, the court established September 26, 2014 as the deadline for amendment of the pleadings and February 17, 2015 as the close of fact discovery. (Case Management and Pretrial Order, ECF No. 39.) Trial was also set for August of 2015. (Id.) On October 10, 2014, the close of fact discovery was extended to March 17, 2015. (Stipulation, ECF No. 41.) On December 11, 2014, the parties participated in mediation. (See Motion, ECF No. 51 at 2.)
On January 22, 2015, nearly five months after the scheduling order was issued, Fresh Express moved for leave to amend its answer in order to add defenses and a counterclaim against Amcor. (Motion, ECF No. 51.) Amcor submitted its opposition brief on February 5, 2015. (Opposition, ECF No. 52.) Fresh Express submitted its reply in support of its motion on February 12, 2015. (Reply, ECF No. 55.)
Under Federal Rule of Civil Procedure 15(a), leave to amend "shall be freely given when justice so requires." Fed. R. Civ. P. 15(a); see Sonoma Cnty. Ass'n of Retired Employees v. Sonoma Cnty., 708 F.3d 1109, 1118 (9th Cir. 2013). Because "Rule 15 favors a liberal policy towards amendment, the nonmoving party bears the burden of demonstrating why leave to amend should not be granted." Genentech, Inc. v. Abbott Laboratories, 127 F.R.D. 529, 530-31 (N.D. Cal. 1989) (citation omitted). Courts generally consider five factors when assessing the propriety of a motion for leave to amend: undue delay, bad faith, futility of amendment, prejudice to the opposing party and whether the party has previously amended the pleadings. Ahlmeyer v. Nev. Sys. of Higher Educ., 555 F.3d 1051, 1055 (9th Cir. 2009).
Where a party seeks leave to amend after the date specified in a scheduling order, Rule 16(b) also applies. Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 608 (9th Cir. 1992). Under Rule 16(b), "[a] schedule shall not be modified except upon a showing of good cause and by leave of the district judge." Id.; see Fed. R. Civ. P. 16(b)(4). Therefore, a party seeking to amend a pleading after the date specified in a scheduling order must first show "good cause" for the amendment under Rule 16(b), and second, if good cause is shown, the party must demonstrate that the amendment is proper under Rule 15. Id.
To determine whether good cause exists to modify the scheduling order, courts focus on the reasonable diligence of the moving party. See Noyes v. Kelly Servs., 488 F.3d 1163, 1174 n.6 (9th Cir. 2007); see also Johnson, 975 F.2d at 609 (stating that "carelessness is not compatible with a finding of diligence and offers no reason for a grant of relief" under Rule 16(b); adding that "the existence or degree of prejudice to the party opposing the modification might supply additional reasons to deny a motion, [but] the focus of the inquiry is upon the moving party's reasons for seeking modification"). "If that party was not diligent, the inquiry should end." Johnson, 975 F.2d at 609.
Because Fresh Express did not seek leave to amend its answer until after the deadline established by the scheduling order, it must show that good cause exists under Rule 16(b). If it can do so, it must then show that leave is appropriate under Rule 15. Fresh Express seeks leave to add a counterclaim and new affirmative defenses. The court discusses each proposed amendment in turn.
Fresh Express seeks leave to add a counterclaim against Amcor. (Motion, ECF No. 51 at 2.) Fresh Express argues that Amcor's 2012 bid price for all of Fresh Express's salad bag business was significantly lower than the price Fresh Express had been paying to Amcor under the 2006 Supplier Agreement. The significant price discrepancy, Fresh Express contends, suggests that Amcor had been giving other salad bag buyers a better price than it had been giving to Fresh Express. If so, Amcor would have been (according to Fresh Express) in violation of the "price warranty" found in Paragraph 6 of the Standard Terms. That paragraph states:
(Complaint, ECF No. 1, Ex. B.) Fresh Express thus wants to bring a counterclaim against Amcor for breach of contract.
The "good cause" inquiry focuses on the diligence of the moving party. See Noyes, 488 F.3d at 1174 n.6; see also Johnson, 975 F.2d at 609.
In its motion, Fresh Express says that its counsel first learned that Amcor offered Fresh Express a significant discount when its counsel was "preparing for [the December 11, 2014] mediation, reviewing documents, and interviewing witnesses" and first identified its proposed counterclaim in its "mediation summary" that it served on December 4, 2014. (Motion, ECF No. 51 at 3, 7.)
In its opposition, however, Amcor persuasively argues that Fresh Express either did know, or should have known, about this price discrepancy much earlier. First, it notes that Amcor's bid occurred in April 2012 and that Fresh Express's in-house counsel referred to its bid in a letter sent to Amcor dated September 4, 2012. (See Opposition, ECF No. 52 at 6-7; Jensen Decl., Ex. A, ECF No. 52-1 at 4-5.) Second, Amcor points out that Fresh Express explicitly acknowledged knowing about Amcor's 2012 bid in several documents served or filed in this action, such as the Rule 26 initial disclosures that Fresh Express served on August 22, 2013, and the parties' August 14, 2014 joint case management statement. (See Opposition, ECF No. 52 at 7-9; see also Jensen Decl., Ex. B (Fresh Express's Initial Disclosures), ECF No. 52-1 at 7-12 (stating that Fresh Express's in-house counsel has privileged knowledge about Amcor's bids to Fresh Express and that among the documents within Fresh Express's possession, custody, and control that may be used to support its claims or defenses are copies of, and data from, Amcor relating to all bids submitted to Fresh Express from 2005 to 2012); 8/14/2014 Joint CMC Statement, ECF No. 33 at 5 (stating that a principal factual issue in dispute is whether Amcor submitted a bid in 2012 and that a legal issue is whether Amcor's 2012 bid evidenced Amcor's intent to terminate the 2009 Agreement).) Even if Amcor had not compared Amcor's 2012 bid amount to the price Fresh Express was paying to Amcor under the 2006 Supplier Agreement, it could have done so easily, and if it had, it could have sought to add a counterclaim much earlier in this litigation.
In its reply, Fresh Express offers a different theory to support its argument that Amcor must have been offering lower prices to its other customers.
Even so, the court is not persuaded by Fresh Express's new theory. First, it is not clear that the discrepancy between Amcor's bid and the other bids is "new and previously unavailable information" that supports a finding of good cause. See Eckert Cold Storage, Inc. v. Behl, 943 F.Supp. 1230, 1233 (E.D. Cal. 1996). All of the bid amounts were in Fresh Express's possession the entire time. What was new in December 2014 was Fresh Express's counsel thinking about all of those bid amounts. Second, even if the court considered the discrepancy between Amcor's bid and the other bids to be a new fact to be discovered, Fresh Express still was not diligent. The discrepancy is not based on events which only recently occurred, see Bolbol, 2012 WL 5828608 at *5 (finding that leave to amend was appropriate only where the "new factual allegations" involved events that had occurred since the filing of the last operative complaint), nor was it identified through information discovered from Amcor, see Smith, 2007 WL 2554142 at *3 (granting leave because the facts supporting the proposed amendment were discovered from depositions and interrogatories). It had all of the bids; it just had to look at them. It says most of the witnesses involved in the underlying contract negotiations are no longer employed at Fresh Express, but the documents and at least two critical witnesses (including its associate general counsel) were still there. And even if new employees wee an issue (a conclusion that the record does not support), Fresh Express does not explain why it took until December 2014 (over three months into fact discovery) to begin to figure out which employees were still with the company or why it took so long to start gathering information relevant to Amcor's 2012 bid. (See Motion, ECF No. 51 at 10.)
Finally, even putting aside this context, and considering Fresh Express's arguments about when it discovered the issue, Fresh Express says that it did not discover either discrepancy until it was preparing for the mediation that took place on December 11, 2014 and first identified the proposed counterclaim on December 4, 2014. Again putting aside the conclusion that Fresh Express appears to have known the fact context supporting a counterclaim, Fresh Express, does not explain why it then took 49 days (December 4, 2014 to January 22, 2015) for it to move to add the counterclaim to this litigation. See Jackson, 186 F.R.D. at 608 ("[T]o demonstrate diligence under Rule 16's `good cause' standard, the movant may be required to show . . . that she was diligent in seeking amendment of the Rule 16 order" after the relevant new facts came to light.). In the circumstances of this case, 49 days is too long.
In short, the court does not find that Fresh Express was diligent under either of its theories. Thus, it has not met its burden to show that there is good cause under Rule 16 to allow it to add its proposed counterclaim at this stage in the litigation. This alone is sufficient for the court to deny Fresh Express's motion.
Still, the court does not believe that Fresh Express has met its burden under Rule 15, either. Under Rule 15, courts generally consider five factors when assessing the propriety of a motion for leave to amend: prejudice to the opposing party, undue delay, futility of the amendment, bad faith, and whether the party has previously amended the pleadings. Ahlmeyer, 555 F.3d at 1055.
Of these factors, prejudice is given the greatest weight. Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). Here, prejudice to Amcor likely would occur if Fresh Express is allowed to add a counterclaim at this stage of the litigation. On September 18, 2014, Amcor propounded 49 requests for production of documents and 20 interrogatories. (Discovery Letter Brief, ECF No. 56 at 1.) Amcor has also issued subpoenas for depositions and documents from a third party. (Joint Case Management Statement, ECF No. 53 at 2.) These efforts likely have been tailored to address the contours of the case as it has so far been defined. To allow Fresh Express to assert a counterclaim now would require Amcor to engage in additional discovery in order to ensure congruence with the altered nature of the case. See Jackson v. Bank of Hawaii, 902 F.2d 1385, 1387 (9th Cir. 1990) (recognizing "the nullification of prior discovery" and "the burden of necessary future discovery" as indicating prejudice).
Additionally, the proposed amendment would likely result in delay. Fresh Express, by its own admission, has "not yet propounded a majority of its discovery" (at least as of the date it filed its motion on January 22, 2015). (Motion, ECF No. 51 at 7.) This fact raises concerns about the viability of the upcoming fact discovery deadline. Fresh Express's counterclaim would require additional discovery and therefore increases these concerns. Amcor might move to dismiss the proposed counterclaim. The briefing for such a motion would add further delay. These delays would risk necessitating an extension of the current trial date, which is less than six months away. Still, this is not an enormously complicated case, and perhaps the court could adjust discovery deadlines to minimize prejudice while still maintaining an orderly completion of discovery and motions before the trial date.
The real issue, though, is that the counterclaim Fresh Express seeks to assert appears to be futile in that it is entirely speculative and based on an inference made by Fresh Express that is not supported by new discovery to date (a context that might support an amendment). Fresh Express so far has not even been to conceptualize its counterclaim adequately. As explained above, Fresh Express said in its motion that its counterclaim is based on Amcor's 2012 bid amount being significantly lower than the price Fresh Express had been paying to Amcor under the 2006 Supplier Agreement. (Id. at 4.) Fresh Express then speculated that this "strongly suggests" that Amcor made similar offers to other customers in violation of its price warranty obligation. (Id.) In its reply, Fresh Express said that its counterclaim is based on the discrepancy between Amcor's 2012 bid and the (lower) bids submitted by Amcor's competitors. (Reply, ECF No. 55 at 2.) Fresh Express then once again speculated that this "strongly suggests" that Amcor must have offered comparably low prices to other customers in order to stay in business. (Id.) Under either speculative theory, the court does not believe that Fresh Express sufficiently alleges a plausible claim for relief.
For these reasons, even if the court found good cause under Rule 16(b), leave to amend would be inappropriate under Rule 15.
Fresh Express also seeks leave to add the affirmative defenses of waiver and estoppel. (Motion, ECF No. 51 at 5.) Two of the proposed defenses (nos. 19 and 21) rely on the fact that Amcor submitted a bid in 2012 in response to Fresh Express's RFP and Amcor's behavior after being informed that another bidder was awarded the contract. (Id. at 6.) As discussed above, Fresh Express has had knowledge of these facts since the bid was received in 2012, has acknowledged the bid in several documents served or filed in this action, and has alleged no new or distinct facts that might explain why, despite its diligence, it only recently identified its proposed defenses. The court therefore finds that Fresh Express has not been diligent in asserting these defenses.
The other two proposed additional affirmative defenses (nos. 18 and 20) rely on the fact that Fresh Express stopped purchasing the Evolution product. (Id.) This fact, however, implicates several of the affirmative defenses already asserted by Fresh Express in its original answer. (See Answer, ECF No. 26 at 12-13 (Aff. Def. Nos. 2-5).) Also, Fresh Express again has failed to allege any additional facts which might explain its delay in raising these defenses. The court therefore finds that Fresh Express has not been diligent in asserting them.
Fresh Express has thus failed to meet the good cause standard of Rule 16(b) with regard to its proposed additional defenses. Furthermore, the addition of the proposed affirmative defenses would result in the same prejudice to Amcor and undue delay discussed above. Leave to amend also would be inappropriate under Rule 15.
For these reasons, the court denies Fresh Express's motion.
This disposes of ECF No. 51.
Fresh Express additionally argues that good cause exists because its counterclaim may later be deemed to have been compulsory under Rule 13(a), and thus waived if they are not allowed to raise it now. (Motion, ECF No. 51 at 9.) The potentially compulsory nature of the counterclaim, however, is unrelated to Fresh Express's diligence. Fresh Express has failed to point to any authority for the proposition that the potentially compulsory nature of a proposed counterclaim constitutes or supports a finding of good cause under Rule 16(b).
