JUDITH GAIL DEIN, Magistrate Judge.
This complex and hard fought litigation involves a dispute between two competitors in the data storage industry. The plaintiff, EMC Corporation ("EMC"), alleges that the defendant, Pure Storage, Inc., ("Pure Storage"), engaged in a deliberate, nationwide scheme to lure away EMC's most talented and knowledgeable employees, and induce them to divulge EMC's confidential and trade secret information, for the purpose of soliciting business from EMC's customers and selling competing products. On November 4, 2013, EMC filed a complaint against Pure Storage in which it asserted seven separate causes of action, including claims for misappropriation of confidential information and trade secrets, tortious interference with contractual and advantageous business relationships, aiding and abetting the misappropriation of trade secrets, unjust enrichment, and violation of Mass. Gen. Laws ch. 93A ("Chapter 93A").
Pure Storage denies any liability to the plaintiff, and contends that EMC's claims are nothing more than a veiled attempt to maintain an unfair stranglehold on the data storage market by interfering with the success of Pure Storage's superior Flash Array technology, distracting and harassing the defendant's employees, and disrupting Pure Storage's customer relationships. In addition, Pure Storage accuses EMC of misappropriating its confidential and trade secret information, and engaging in a variety of unlawful and unscrupulous business practices. On November 26, 2013, Pure Storage asserted ten separate counterclaims against EMC, which included claims for misappropriation of trade secrets, breach of contract, breach of the implied covenant of good faith and fair dealing, inducing breach of contract, intentional interference with contractual relations, intentional interference with prospective economic/business relations, conversion, unfair business practices and unfair competition in violation of the California Business and Professions Code §§ 17200
Fact discovery, which has been substantial and ongoing for more than a year and a half, is scheduled to be completed next month, and expert discovery is scheduled to be completed in early February 2016. In addition, the parties have agreed to file any motions for summary judgment by February 26, 2016, and this court has set a trial date of October 17, 2016. Thus, under the present schedule, this court expects to resolve the case in its entirety by the late fall of 2016, approximately three years after it was commenced.
The matter is presently before the court on "Defendant and Plaintiff-In-Counterclaim Pure Storage Inc.'s Motion for Leave to Amend Its Counterclaims" (Docket No. 160), by which Pure Storage is seeking leave to amend its counterclaims for a second time in order to assert an additional claim against EMC under sections 17043 and 17044 of the California Unfair Practices Act ("UPA"). Those provisions are directed at maintaining fair and honest competition between competitors in the business arena by prohibiting the use of "loss leaders" and other below-cost sales undertaken for the purpose of injuring competitors and destroying competition. Pure Storage contends that during the course of discovery in this case, it uncovered evidence showing that EMC engaged in the prohibited conduct by selling products and services below cost, using loss leaders, and giving away products for the purpose of injuring the defendant and stifling competition. It further contends that the interests of justice and judicial economy would best be served by allowing it to pursue a UPA claim in the context of the present litigation, and that EMC will suffer no undue prejudice by the addition of such a claim. Thus, while there is no dispute that the present motion was filed nearly eight months after the deadline to amend the pleadings had expired, and after considerable discovery had already taken place, Pure Storage maintains that it has shown good cause to amend its counterclaims at this point in the proceedings. Not surprisingly, not only does EMC deny the merits of these claims, but it asserts that the proposed amendment would add complex legal and factual issues, greatly expand the scope of discovery, and delay the case.
Even if Pure Storage had good cause for not filing its present motion sooner, this court finds that the proposed amendment would further complicate and delay the litigation, increase the burdens on the court, and cause prejudice to the plaintiff. In particular, this court finds that Pure Storage's efforts to introduce new theories of liability at this late stage in the discovery process would prevent the timely completion of fact and expert witness discovery, increase costs, and delay the ultimate resolution of the existing claims on the merits. Therefore, and for all of the reasons detailed below, the defendant's motion for leave to amend its counterclaims is DENIED.
The plaintiff, EMC, commenced this action on November 4, 2013. (Docket No. 1). By its Complaint, EMC is seeking judgment against Pure Storage on each of seven claims, as well as money damages and injunctive relief. (
On January 14, 2014, this court adopted the parties' jointly proposed schedule for the completion of pretrial discovery and the filing of all dispositive motions, and issued a Scheduling Order setting forth the applicable deadlines. (Docket No. 26). Pursuant to the Scheduling Order, the parties were required to file any amendments to the pleadings by November 3, 2014, to complete all fact discovery by March 13, 2015, to complete expert discovery by June 19, 2015, and to file any dispositive motions, including any motions for summary judgment, by July 17, 2015. (
The case proceeded in the ordinary course, with the parties engaging in extensive fact discovery and raising unresolved discovery disputes with the court. (
According to Pure Storage, it had no ability to raise its UPA claim prior to the expiration of the November 3, 2014 deadline because evidence that EMC had engaged in below-cost pricing did not emerge until December 12, 2014, during the deposition of EMC's Divisional Vice President, David Boyle. (Def. Mem. (Docket No. 166) at 5). At that time, Mr. Boyle testified that EMC would "invest" in certain customers by selling product below cost. (Def. Ex. 7 at 256). However, he was unable to say whether he had ever approved below-cost pricing for the specific purpose of competing with Pure Storage. (
EMC disputes Pure Storage's argument that it could not have raised its UPA claims prior to the deadline for amending its counterclaims. In particular, EMC insists that the defendant was in possession of relevant evidence as early as August 20, 2014, more than two months before Pure Storage filed its first motion to amend its counterclaims. (Pl. Opp. Mem. (Docket No. 170) at 17). Accordingly, it argues that Pure Storage failed to act diligently to assert its UPA claim within the time set forth in the applicable Scheduling Order, and that it has no good cause for seeking to amend its counterclaims now. (
On January 28, 2015, the parties filed a Joint Motion for an extension of time to complete fact discovery, and to amend the existing Scheduling Order. (Docket No. 88). In connection with their motion, the parties emphasized the complexity of the case and the voluminous nature of the discovery being sought. (
The parties continued to engage in discovery throughout the first half of 2015. During that time, Pure Storage repeatedly sought evidence relating to EMC's pricing practices. For example, but without limitation, Pure Storage sought documents and information relating to EMC's use of "price discounts, rebates, givebacks, giveaways, waivers, offsets or the like[,]" as well as documents relating to EMC's "use of Loss Leaders or Below-Cost Sales of EMC's data storage products or services[.]" (Def. Ex. 10 at Request Nos. 118, 133;
On June 15, 2015, during a hearing on Pure Storage's motion to compel, EMC informed this court that it would require an extension of time to complete the remaining fact discovery that had been identified by the parties. (Docket No. 152 at 4). The court agreed that the existing deadline would need to be extended in order to accommodate the outstanding discovery. (
The parties submitted a proposed schedule on June 26, 2015. (Docket No. 155). The proposal included a deadline of October 16, 2015 for the close of fact discovery, a deadline of February 5, 2016 for the close of expert discovery, a deadline of February 26, 2016 for the filing of any motions for summary judgment, and a deadline of March 31, 2016 for the filing of any replies in support of motions for summary judgment. (
On June 29, 2015, three days after the parties filed their proposed schedule for the completion of the case through trial, Pure Storage filed the instant motion for leave to amend its counterclaims in order to allege that EMC had engaged in a below-cost, predatory pricing scheme in violation of sections 17043 and 17044 of the UPA. In connection with its motion, Pure Storage argues that the proposed amendment is supported by evidence that it uncovered during discovery, that judicial economy favors resolving all of its claims against EMC in a single lawsuit, that EMC will suffer no undue prejudice because discovery remains open and EMC has ample time to defend the proposed new claims, and that its proposed amendment is not futile because it alleges a viable claim for relief. (Def. Mem. at 8-9, 12-15). In addition, Pure Storage insists that it "is not moving to alter the schedule, serve more Requests for Production, or increase the number of deposition hours allotted to each side[,]" but "asks only for the opportunity to address its injuries in the same forum where it has been forced to defend itself against EMC's claims regarding competition in the data storage marketplace." (
Rule 15(a) of the Federal Rules of Civil Procedure provides that "[a] party may amend its pleading once as a matter of course within . . . 21 days after serving it[.]" Fed. R. Civ. P. 15(a)(1). Thereafter, a party must obtain leave of court or the consent of the opposing party.
Under the liberal amendment policy underlying Rule 15, leave to amend "is freely given when justice so requires absent an adequate basis to deny amendment such as futility, bad faith, undue delay or a dilatory motive."
"Regardless of the context, the longer [the moving party] delays, the more likely the motion to amend will be denied, as protracted delay, with its attendant burdens on the opponent and the court, is itself a sufficient reason for the court to withhold permission to amend."
As described above, the parties dispute whether Pure Storage has demonstrated good cause for filing its motion to amend so late in the litigation. The defendant contends that it was unaware of facts supporting its proposed claims prior to the deadline for the parties to amend their pleadings, and was only able to learn of such facts during the course of subsequent discovery. (Def. Mem. at 3-5). It also contends that once evidence of EMC's alleged pricing practices came to light, it worked diligently to uncover facts that would support a claim for relief. (
This court finds that there is no need to resolve this dispute because the defendant's effort to introduce an entirely new claim at this point in the discovery process is not appropriate in any event. As described above, this court only agreed to extend the July 30, 2015 deadline for the completion of fact discovery to October 16, 2015 so that the parties could complete the discovery that had already been identified. If this court were to allow the pending motion, it would cause further delays in what has already been a lengthy pretrial schedule, as well as associated costs and, in all likelihood, additional discovery disputes. Moreover, the introduction of a new theory of liability, in a case that already consists of 20 separate causes of action, would further complicate the issues that are likely to arise on summary judgment, and disrupt the timely resolution of the existing claims on the merits. Therefore, even if this court accepts Pure Storage's position that it acted with diligence to uncover evidence of EMC's alleged predatory pricing practices, and had good cause for the delay in filing its motion to amend, the motion would still be denied.
Pure Storage's insistence that its proposed claims are straightforward, and that no delay will arise as a result of such claims, is entirely unconvincing. In order to prove a violation of section 17043 of the UPA, "a plaintiff must . . . prove two elements: (1) below-cost sales undertaken for the purpose of injuring competitors or destroying competition that (2) have resulted in a competitive injury."
For purposes of calculating "cost" under the statute, California uses a "fully allocated cost standard, that is, a fair allocation of all fixed or variable costs associated with production of the article or product."
According to EMC, "[i]nformation that might be relevant to the determin[ation] of `cost' associated with each product [at issue in this case] is not available from a single EMC source." (Spieth Decl. ¶ 10). Consequently, EMC would need to perform a significant amount of work "[i]n order to identify information relevant to the calculation of `cost'" under the UPA. (
In addition to discovery on cost, EMC would need to develop evidence regarding the issue of intent. As described above, in order to prove a claim under section 17043, Pure Storage would have to establish that EMC engaged in below-cost sales "for the purpose of injuring competitors or destroying competition[.]"
The defendant's assertion that its proposed claim under sections 17043 and 17044 of the UPA is not new, and would not cause undue prejudice to EMC, is without merit. As an initial matter, Pure Storage's suggestion that the claim is already encompassed by its existing claim under section 17200 of the California Business & Professions Code lacks any support in the record. As described in Pure Storage's Amended Counterclaims, its claim under section 17200 is based upon allegations concerning EMC's alleged improper acquisition and testing of Pure Storage's Flash-Array technology; EMC's alleged conduct in disparaging, defaming and publishing false statements about the defendant; EMC's alleged conduct in threatening entities that seek to do business with Pure Storage; and EMC's alleged efforts to prevent Pure Storage from-hiring current and former employees of EMC, and to threaten employees with litigation if they accept a job with the defendant. (Docket No. 86 ¶¶ 172-75). Significantly, there are no citations to sections 17043 or 17044 of the UPA, and there is no mention of EMC's allegedly predatory pricing practices anywhere in the Amended Counterclaims. (
This court is equally unpersuaded by Pure Storage's argument that EMC would suffer no undue prejudice from allowance of the amendment because it had "more than sufficient opportunities to obtain discovery into below cost pricing claims that were clearly at issue." (Def. Reply Mem. (Docket No. 180) at 5). As described above, there is no question that the proposed claims of below-cost pricing have never been part of Pure Storage's case against EMC, and that EMC objected and refused to produce discovery regarding its alleged predatory pricing practices. The notion that EMC should have devoted time and resources to defending itself against claims that have never been part of the case, based on the possibility that they could be added to the case at some future time, makes little sense. The fact that EMC was on notice of the potential claims does not eliminate the prejudice to the plaintiff if Pure Storage were to introduce its new claim now.
Finally, this court rejects the defendant's contention that the interests of judicial economy and efficiency would best be served by allowing its motion to amend. (
For all the reasons detailed above, the "Defendant and Plaintiff-in-Counterclaim Pure Storage Inc.'s Motion for Leave to Amend Its Counterclaims" (Docket No. 160) is hereby DENIED.