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denying leave to amend to add counterclaim where "both parties . . . engaged in numerous discovery disputes that . . . lengthened the discovery period substantially" and "[e]xtensive . . . discovery would delay the case even further, and certainly would necessitate a considerable extension of the . . . discovery cut-off date"
Summary of this case from U.S. Airways, Inc. v. Sabre Holdings Corp.Opinion
No. 99 Civ. 11490 (RCC) (FM).
January 9, 2001.
OPINION AND ORDER
Plaintiff Gucci America, Inc. ("Gucci") filed this action against defendants alleging trademark infringement arising from the sale and distribution of counterfeit Gucci watches. After entertaining initial motions for expedited discovery, this Court referred the case to Magistrate Judge Maas for general pre-trial supervision on February 29, 2000. Since that date, Judge Maas has been extremely active with respect to the discovery issues in this case — he has held at least seven conferences and has rendered numerous rulings on the parties' many disputes. Pursuant to Fed.R.Civ.P. 72(a), Gucci now contests a portion of Judge Maas' Amended Discovery and Case Management Order dated October 25, 2000 ("Amended Order"), arguing that Judge Maas (1) erroneously declined to disqualify defendants' counsel William Thomashower, Esq. for alleged concealment of evidence, and (2) improperly conditioned Gucci's use of a second expert witness on the payment of defendants' legal fees and costs associated with the deposition of Gucci's first designated expert. In addition, Gucci asks this Court to strike certain defendants' amended answer and counterclaims on the ground that defendants failed to obtain leave of Court as required by Fed.R.Civ.P. 15.
Gucci claims that certain watches purchased by Kay International, a California company, from defendant Exclusive Imports International ("Exclusive Imports") were counterfeit. Exclusive Imports allegedly received the disputed watches from defendants Imperial Trading, Ltd. ("Imperial Trading"), Innopex, Ltd. ("Innopex"), Joshua Frankel and Aaron Wagschal, who in turn had procured the watches from a Singapore supplier. Defendants deny the allegations of counterfeiting, and argue that the watches sold by them were genuine and contained genuine Gucci parts. Defendants also dispute that they supplied the Kay International watches at issue.
It is well-settled that discovery orders entered by a Magistrate Judge are reviewed under a highly deferential standard. Both Fed.R.Civ.P. 72(a) and the Federal Magistrates Act, 28 U.S.C. § 636(b)(1)(A), provide that the District Court shall reverse a Magistrate's findings as to non-dispositive matters only if they are clearly erroneous or contrary to law. In other words, the Magistrate should be afforded broad discretion in resolving discovery disputes and reversal is appropriate only when this discretion is abused. See Federal Ins. Co. v. Kingsbury Properties, Ltd Nos. 90 Civ. 6211 (JMC), 90 Civ. 6357 (JMC), 1992 WL 380980, at *2 (S.D.N.Y. Dec. 7, 1992); see also Hasbrouck v. America Housing Services. Inc., 190 F.R.D. 42, 44 (N.D.N Y 1999) ("with respect to discovery disputes, the magistrate judge is afforded broad discretion which a court should not overrule unless this discretion is clearly abused") (citations omitted).
Judge Maas' denial of the disqualification motion and his assessment of deposition costs are both non-dispositive matters that should be reviewed only for clear error. See, e.g., Weeks Stevedoring Co. v. Raymond Int'l Builders. Inc., 174 F.R.D. 301, 303 (S.D.N.Y. 1997) (both the imposition of sanctions and motions to disqualify counsel are non-dispositive and thus are subject to a deferential standard); Kamyr, AB v. Kamyr Inc., No. 91-CV-0453, 1991 WL 246465, at *1 (N.D.N.Y. Nov. 20, 1991) (same). This Court finds that Judge Maas did not abuse his discretion here.
I. DISQUALIFICATION
Gucci argues that defendants' counsel Mr. Thomashower knowingly concealed crucial evidence when he stated at a conference before this Court that "there is no need for expedited discovery because the defendants have no more of the accused watches which everyone agrees have been returned." Transcript dated Jan. 6, 2000, at 17. However, Mr. Thomashower apparently retained custody of a number of such watches, which came to light when he referenced serial numbers from those items in a deposition notice served on January 7, 2000. According to Gucci, Mr. Thomashower affirmatively sought to conceal this evidence because it established the "chain of custody" of the watches, thereby mooting any defense on this basis.
Mr. Thomashower, on the other hand, argues that Gucci improperly quotes his statement out of context. Mr. Thomashower explains that his statement was intended only to confirm that defendants' inventory of disputed watches had been returned to the Singapore supplier, and was not intended to address "work product" watches in possession of counsel. Judge Mass. agreed that Mr. Thomashower did not intentionally mislead the Court:
While [Mr. Thomashower's] statement is, at a minimum, poorly worded, there has been considerable confusion in this case concerning the proper categorization of the accused watches, certain "work product" watches, and the like. Moreover, the statement was clearly made by Mr. Thomashower in the context of assuring the Court that the "accused" watches were no longer in the stream of commerce. Watches which were in the possession of defense counsel, in my judgment, certainly fit that description. Gucci consequently has not shown that Mr. Thomashower, in fact, affirmatively sought to mislead the Court or withhold relevant evidence.
Amended Order at 4.
The party seeking to disqualify counsel bears a heavy burden of proof.See Kamyr, 1991 WL 246465, at *1. Although doubts generally should be resolved in favor of disqualification see id., the Court is not uncertain as to this matter. While Mr. Thomashower perhaps should have made clear that he possessed a number of "work product" watches, the Court agrees that Mr. Thomashower was responding to accusations that the defendants intended to resell the watches. Indeed, Gucci had pressed this accusation in correspondence with the Court prior to the January 6, 2000, conference. See Letter from Mr. Springut dated December 23, 1999, at 1 ("As set forth in my declaration attached to the Order To Show Cause, Mr. Israelson returned the last shipment of 500 watches to Canada for resale by his sources after the defendants were on notice that they were claimed to be counterfeit by Gucci.").
Moreover, if Mr. Thomashower intended to cover-up the existence of the watches, the Court assumes he would know better than to list their serial numbers in a deposition notice served one day after the court conference. Gucci certainly cannot claim to have suffered any prejudice from defendants' alleged concealment on January 6, 2000, when the existence of the watches was disclosed the following day. Gucci simply has not put forth enough evidence to suggest that Mr. Thomashower purposefully intended to mislead this Court.
Gucci also raises two other "misdeeds" in support of its disqualification motion. Gucci Mem. at 8. First, Gucci complains that Mr. Thomashower ignored Judge Mass' order that he serve an affidavit upon plaintiff detailing the bases for defendants' work product claim. Mr. Thomashower instead chose to submit the affidavit to Judge Mass. in camera. Gucci's application for disqualification on this basis is plainly frivolous. Judge Maas simply could have ordered disclosure if he believed that Mr. Thomashower acted improperly. Moreover, Judge Mass. denied defendants' work product claim, so Gucci was in no way harmed by Mr. Thomashower's action.
Second, Gucci claims that Mr. Thomashower threatened to violate the parties' confidentiality agreement in retaliation for Gucci's designation of an entire deposition record as "attorneys eyes only." Mr. Thomashower requested that Gucci make specific designations and informed Gucci that failure to do so "will be deemed an abuse of the confidentiality agreement by plaintiff for tactical purposes and we may proceed to use the information after that date as appropriate for this action." Gucci Mem. at 9. This language hardly amounts to an affirmative intention to breach the confidentiality agreement. Gucci apparently was not overly concerned with this statement at the time, as it waited over two months to raise an objection. The Court will not disqualify Mr. Thomashower merely on Gucci's premonition that Mr. Thomashower may, at some indeterminate time in the future, disclose confidential information. A confidentiality agreement is in place in this action and the Court expects that counsel will abide by its terms.
Finally, Gucci puts forth a new allegation by letter dated December 15, 2000, arguing that a number of watches in the possession of defendants' counsel show evidence of tampering. Gucci requests that this Court stay the Rule 72 appeal and remand all issues to Judge Mass. in light of this new evidence. Defendants' counsel denies these allegations, and argues that Gucci is attempting to cover up the failure of its experts to accurately distinguish counterfeit watches from genuine watches at deposition. The Court sees no reason to delay these proceedings ad infinitum. The Court will remand only the new evidence-tampering allegations to Judge Mass; the remainder of Gucci's allegations have been addressed and rejected both by this Court and Judge Mass, and there is no need to belabor them any further. Therefore, for the reasons stated above, Gucci's motion to disqualify Mr. Thomashower based upon the issues raised in its Rule 72 appeal is denied.
II DEPOSITION FEES AND EXPENSES
Gucci also argues that Magistrate Judge Maas improperly ordered that Gucci pay defendants' fees and expenses arising from the deposition of Gucci's initial expert witness, Jay Spring. Hoping to shape the issues and speed resolution of the case, Judge Mass. ordered on March 16, 2000, that Gucci produce an expert report and make Mr. Spring available for deposition in order to provide concrete evidence of counterfeiting. Mr. Spring's report was produced on March 22, 2000, and his deposition was conducted on May 24, 2000. As Judge Mass. noted, "Mr. Spring was not up to the task of establishing that the subject watches were counterfeit." Amended Order at 1. Indeed, Mr. Spring initially believed that defendants' watches were genuine, and misidentified a genuine Gucci watch from Macy's as counterfeit.
Not surprisingly, Gucci announced on May 31, 2000, that it was withdrawing Mr. Spring as its expert. Judge Mass. allowed Gucci to designate a replacement expert, on the condition that Gucci promptly pay defendants' fees and expenses reasonably attributable to Gucci's designation of Mr. Spring. Gucci contends that, as Judge Mass. never set a deadline for the designation of experts, it should not be "retroactively" limited to only one expert. Gucci Mem. at 12. Moreover, Gucci argues that it selected Mr. Spring rather than Jean Michel Guerry, its preferred expert, because it was pressured to designate an expert far earlier than is normal in such cases. Id. at 13.
Gucci's arguments cannot stand. First, the Court notes that Gucci has been extremely reluctant to turn over reports by Mr. Guerry and other relevant documents, which describe in detail the various indicia of counterfeit watches. Indeed, it appears that Gucci designated Mr. Spring in order to forestall defendants from obtaining detailed discovery on this subject. As Judge Maas concluded:
Defendants served discovery requests relating to the counterfeiting issues in March and April. On October 27, 2000, Judge Mass. ordered Gucci to produce the relevant documents. Gucci did not respond, and on November 13, 2000, Judge Mass. again ordered production in accordance with a strict deadline. Gucci then requested that Judge Mass. allow it to produce the documents only for inspection, not copying. When this request was denied, Gucci applied to this Court for a stay of production pending this Court's decision on the disqualification appeal. This Court denied the stay, noting that a confidentiality order was in place and directing the parties to comply with its terms.
Spring was designated by Gucci as its "expert" in an attempt to avoid disclosure of the so-called "Guerry report" . . . Gucci's tactic of priming Mr. Spring to be able to testify only about limited indicia of counterfeiting appears to have backfired. . .
Amended Order at 1-2. Gucci cannot now complain about the consequences of its tactical decision to select an expert with admittedly far less expertise and experience. See Gucci Mem. at 13.
Second, Gucci's argument that Judge Maas unfairly limited its experts misses the point. This is not a case where multiple experts on counterfeiting were necessary or even desirable. Indeed, prior to Mr. Spring's performance at deposition and subsequent withdrawal, Gucci never indicated that it wished to designate more than one expert. Consequently, Gucci's reliance on EEOC v. Johnson Higgins, Inc., No. 93 Civ. 5481, 1999 WL 32909, at *5 (S.D.N.Y. Jan. 21, 1999), is misplaced. In Johnson Higgins, the Court required the deposing party to pay the costs of deposition, despite the complaint that defendant designated duplicative experts. The Johnson Higgins court did not address a situation where, as here, plaintiff purposefully chose an expert with limited knowledge and then withdrew that expert after his credibility was called into question at deposition.
Judge Mass. generously allowed Gucci to designate a replacement expert. Other courts have not been so willing. See, e.g., Hagans v. Henry Weber Aircraft Distributors. Inc., 852 F.2d 60, 63-64 (3d Cir. 1988) (affirming decision to preclude substitute expert because replacement would unfairly permit party to avoid credibility problems associated with first designee).
Alternatively, Gucci asks that its payment be held in escrow until the conclusion of the proceedings, because it is "questionable whether Gucci will be able to collect whatever damages and attorney's fees [are] awarded in this action from the defendants." Gucci Mem. at 14. However, the ultimate resolution of this action is likewise uncertain. What is certain is that defendants devoted time and resources to deposing an expert who was subsequently withdrawn. Defendants should be entitled at this point to recoup these out-of-pocket expenses (as determined by Judge Maas), so that they may fund their defense of Gucci's claims.
III. REQUEST TO STRIKE AMENDED ANSWER AND COUNTERCLAIMS
Gucci requests that this Court strike the amended answer and counterclaims filed by defendants Imperial Trading and Exclusive Imports, which contain allegations of antitrust violations by Gucci, because defendants failed to procure leave of Court pursuant to Rule 15 of the Federal Rules of Civil Procedure. Rule 15 provides, in pertinent part, that:
A party may amend the party's pleading once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is permitted and the action has not been placed upon the trial calendar, the party may so amend it at any time within 20 days after it is served.
Fed.R.Civ.P. 15(a). Gucci argues that Imperial Trading twice amended its answer and counterclaims without permission (on April 3, 2000, and December 11, 2000, respectively), well after Gucci responded to Imperial Trading's initial answer and counterclaims on February 17, 2000. Gucci argues that Exclusive Imports also violated Rule 15 by filing counterclaims for the first time on December 11, 2000.
There is some confusion as to when Exclusive Imports' time to amend expired. Exclusive Imports filed an answer, without counterclaims, to Gucci's initial complaint on December 13, 1999. After Gucci filed an amended complaint, this Court stated that Exclusive Imports either could file a new answer or permit its original answer to be deemed responsive to the amended complaint. See Transcript dated Jan. 6, 2000, at 15. Exclusive Imports took no specific action, and on March 24, 2000. Judge Mass. ordered that Exclusive Imports file an answer to the amended complaint no later than seven days after the Spring deposition (which occurred on May 24, 2000). Exclusive Imports again did not serve a new pleading. In any event, whether Exclusive Imports' answer is deemed filed on December 13, 1999, or May 31, 2000, it is clear that the twenty days permitted for amendment to an answer without counterclaims has long expired.
Defendants contend that their April pleading was required because Judge Maas ordered that defendants Innopex, Joshua Frankel and Aaron Wagschal answer the amended complaint without prejudice to their motion to dismiss. Defendants therefore included Imperial Trading's amended answer and counterclaims in the April pleading, so that defendants' claims would be presented in a single document. Defendants argue that, as Gucci did not object to Imperial Trading's inclusion at the time, its current motion is untimely. Further, because Gucci never filed a response to the April pleading, defendants contend that they were permitted by Rule 15 to file the December pleading as a matter of course. Finally, although defendants apparently concede that the amendment on behalf of Exclusive Imports was untimely, they argue that judicial economy is best served by permitting the counterclaims to go forward in this action, rather than in a separate action.
Defendants apparently have dropped the antitrust claims filed on behalf of Innopex, as those claims appear only in Innopex's initial pleading but not the subsequent amendment.
The Court does not agree. First, where Rule 15 does not permit a party to amend as of right, amendment is permitted "only by leave of court or by written consent of the adverse party." Fed.R.Civ.P. 15(a). Although Gucci did not object to the April pleading at the time, Gucci certainly did not provide any sort of written consent. It is likewise clear that this Court did not grant leave to amend. Courts in this district routinely reject pleadings filed without leave of court. See, e.g., BPW Rhythmic Records. L.L.C. v. CDNow. Inc., No. 99 Civ. 11299, 2000 WL 15 12620, at *1 (S.D.N.Y. Oct. 12, 2000); Holton v. Weeden, No. 98 Civ. 2667, 1999 WL 292702, at *1 (S.D.N.Y. May 7, 1999); Gold v. Local Union No. 888, 758 F. Supp. 205, 209 (S.D.N.Y. 1991). Moreover, Judge Maas' direction that certain defendants should file and serve answers to the amended complaint did not obviate Imperial Trading's obligation under Rule 15 to secure leave to file amendments and new counterclaims, notwithstanding the nicety of encompassing all claims in a single pleading. Therefore, as Imperial Trading's April amendments improperly were filed without leave, its December amendments likewise must be stricken.
However, this decision merely begs the question of whether defendants should be permitted to file an amended answer and counterclaims at this stage of the proceedings. The Court recognizes that leave to amend should be "freely given when justice so requires." Fed.R.Civ.P. 15(a). However, leave to amend is by no means automatic. See In re Circuit Breaker Litig., 175 F.R.D. 547, 550 (C.D. Cal. 1997) (citing Forman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962)). Moreover, the district court has "broad" discretion when ruling on such motions. See Local 802, Associated Musicians v. Parker Meridien Hotel, 145 F.3d 85, 89 (2d Cir. 1998).
Defendants have styled their antitrust allegations as both an affirmative defense and a counterclaim, thereby implicating both Fed.R.Civ.P. 15 and Fed.R.Civ.P. 13(f), which governs the addition of counterclaims. Courts may deny leave to amend a pleading generally under Rule 15 because of undue delay, bad faith or dilatory motive, futility of amendment and prejudice to the opposing party. See Forman, 371 U.S. at 182, 83 S.Ct. at 230; Lee v. Regal Cruises. Ltd., 916 F. Supp. 300, 303 (S.D.N.Y. 1996), aff'd, 116 F.3d 456 (2d Cir. 1997). The analysis under Rule 13(f) is substantially similar; courts consider whether the counterclaim is compulsory, whether the pleader has acted in good faith and without undue delay, whether undue prejudice would result to the plaintiff, or whether the counterclaim raises meritorious claims. See Northwestern Nat'l Ins. Co. v. Alberts, 717 F. Supp. 148, 153 (S.D.N.Y. 1989). Although the Court strongly doubts that the antitrust allegations provide a valid defense to counterfeiting, rather than a mere counterclaim, leave to amend properly is denied under either analysis.
On January 6, 2000, this Court ordered expedited discovery in order to hasten the resolution of this fairly routine trademark action. Since that time, both parties have engaged in numerous discovery disputes that have lengthened the discovery period substantially. And, although plaintiff was put on notice of the possibility of antitrust counterclaims by Imperial Trading's defective April amendments, discovery still has not proceeded on that score. Extensive antitrust discovery would delay the case even further, and certainly would necessitate a considerable extension of the February 2001 discovery cut-off date. Moreover, the antitrust contentions are factually remote from the counterfeiting issues, thus obviating any benefit to be derived from a combination trial. Indeed, defendants acknowledge that the antitrust claim could be filed in a separate action. See Letter from William J. Thomashower dated Dec. 21, 2000, at 2. Courts have found that denial of leave to amend is appropriate in circumstances such as these. See Architectural Coating Assocs. Ltd. Partnership v. Applied Coatings Int'l. Inc., 103 F.R.D. 442, 446 (E.D. Pa. 1984) (denying leave to amend shortly before the discovery cut-off, where such claims would require a substantially longer discovery and trial period); Ralli v. Tavern on the Green, 566 F. Supp. 329, 332 (S.D.N.Y. 1983) (denying leave to amend where counterclaims were factually remote from primary case); A.H. Gruetzmacher Co. v. Massey-Ferguson. Inc., 512 F. Supp. 194, 201 (N.D. Ill. 1981) (denying leave where added claim involved new parties and issues and could be brought as an independent action); see also BPW Rhythmic Records, 2000 WL 1512620, at * 1 (striking second amended complaint because it "injects[s] entirely new claims" and "would require additional discovery and further delay resolution of this action"). Therefore, this Court will deny any application by defendants to add such claims, and will set a firm trial date upon completion of discovery.
Although the Court agrees that such delay is in part due to plaintiffs stonewalling, the fact remains that the parties already have spent an entire year wrangling over discovery with respect to the counterfeiting issues alone, despite the expedited discovery order.
Courts are more willing to deny leave to amend where the counterclaim is permissive, rather than compulsory, because defendants will not be barred from raising the claim in a different suit. See, e.g., Wright Miller, 6 Fed. Prac. Proc.2d § 1430 (1990).
CONCLUSION
For the foregoing reasons, Gucci's Rule 72(a) appeal is denied as to all issues. Furthermore, the amended answers and counterclaims filed by defendants Imperial Trading and Exclusive Imports are hereby stricken, and leave to reinstate such claims will be denied.