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AMERICAN STOCK EXCHANGE, LLC v. MOPEX

June 11, 2002

AMERICAN STOCK EXCHANGE, LLC, PLAINTIFF,
V.
MOPEX, INC., DEFENDANT.



The opinion of the court was delivered by: Shira A. Scheindlin, United States District Judge.

OPINION AND ORDER

Mopex, Inc. ("Mopex") owns patents (the "Patents") for certain business methods relating to a type of investment vehicle called "Exchange Traded Funds" ("ETFs"). The American Stock Exchange ("Amex") filed this action on August 10, 2000, seeking a declaration that Mopex's Patents are invalid and not infringed by Amex's activities with respect to certain of its own ETFs (the "New York Patent Action"). On September 14, 2000, Mopex filed an answer and asserted one counterclaim which alleged that Amex was infringing one of the Patents. On June 22, 2001, Mopex and Realtimemutualfunds.com ("RTMF") filed an action in Illinois state court alleging that Amex and others misappropriated Mopex's trade secrets and incorporated them into certain ETFs (the "Illinois Trade Secret Action"). See Mopex, Inc. v. American Stock Exchange, LLC, No. 02 Civ. 1656, 2002 WL 34522, at *1 (S.D.N.Y. Mar. 5, 2002) ("Mopex I"). That action was removed to the Illinois federal court and the claims against Amex were transferred to this Court. On March 5, 2002, this Court dismissed all claims against Amex in the Illinois Trade Secret Action. See id. at *12; Mopex, Inc. v. American Stock Exchange, LLC, No. 02 Civ. 1656, 2002 WL 523417, at *8 (S.D.N.Y. Apr. 5, 2002) ("Mopex II") (reaffirming decision in Mopex I with respect to defendant Amex).

Mopex now moves for leave to file its first amended counterclaim in order to:

(A) Allege claims that are substantially similar to the claims that were dismissed by this Court in Mopex I and Mopex II, including claims for misappropriation and theft of trade secrets, unfair competition, constructive fraud, fraud, breach of contract, negligent misrepresentation and unfair competition (the "trade secret claims");
(B) Request that Amex's pending patent applications be placed in a constructive trust; and

(C) Add RTMF as an additional party to this action.

For the reasons stated below, Mopex's motion is denied in part, and contingently denied in part.

II. LEGAL STANDARD

Rule 15(a) of the Federal Rules of Civil Procedure provides that a party may amend its pleading "only by leave of court or by written consent of the adverse party; and leave should be freely given when justice so requires." Fed.R.Civ.P. 15(a); see also Foman v. Davis, 371 U.S. 178, 182 (1962); Nerney v. Valente & Sons Repair Shop, 66 F.3d 25, 28 (2d Cir. 1995). The decision whether to grant leave to amend is within the sound discretion of the court. See Foman, 371 U.S. at 182; Rush v. Artuz, No. 00 Civ. 3436, 2001 WL 1313465, at *5 (S.D.N.Y. Oct. 26, 2001). However, leave should only be denied for reasons such as undue delay on the part of the moving party, bad faith, repeated failure to cure deficiencies in pleading, undue prejudice or futility of the amendment. See Foman, 371 U.S. at 182; Richardson Greenshields Sec., Inc. v. Lau, 825 F.2d 647, 653 n. 6 (2d Cir. 1987).

III. DISCUSSION

A. Request to Add the Trade Secret Claims

Amex argues that Mopex should not be permitted to amend its counterclaim to add the trade secret claims because those claims are time-barred and the amendment would therefore be futile. See The Amex's Memorandum of Law in Opposition to Mopex's Motion for Leave to File its First Amended Counterclaim ("Pl. Opp.") at 8-10. Mopex has admitted that the trade secret claims were time-barred in New York at the time it served its original answer. See Mopex I at *6. It asserts, however, that these claims may be interposed as counterclaims pursuant to N.Y. C.P.L.R. § 203(d) ("Section 203(d)"). See Memorandum of Law in Support of Mopex'[s] Motion for Leave to File its First Amended Counterclaim ("Def. Mem.") at 8.

In Mopex I I explained that, under Section 203(d), counterclaims that would otherwise be time-barred at the time the complaint is filed may be asserted as claims for equitable recoupment if they "`arose from the transactions, occurrences, or series of transactions or occurrences, upon which a claim asserted in the complaint depends'." Id. at *7 (quoting Section 203(d)). Accordingly, I concluded that "Mopex could have asserted its [trade secret] claims against [Amex] as counterclaims in the [New York] Patent Action, regardless of whether the statute of limitations had run" when that action commenced. Id. at *8; see also Mopex II at *2. At this stage of the litigation, however, Section 203(d) is unavailing because it "does not apply to counterclaims asserted in an amended answer." Coleman & Zasada Appraisals Inc. v. Coleman, 667 N.Y.S.2d 828, 829 (3d Dep't 1998); see also Joseph Barsuk, Inc. v. Niagra Mohawk Power Corp., 722 N.Y.S.2d 456, 457 (4th Dep't 2001) (mem.) (Kehoe, J., dissenting) (acknowledging that the majority had determined that Section 203(d) does not apply to counterclaims asserted in an amended answer); 75A N.Y. Jur.2d, Limitations and Laches, § 312 (2000) ("[Section 203(d)] does not apply to a counterclaim asserted for the first time in an amended pleading").*fn1

Mopex could have asserted its trade secret claims pursuant to Section 203(d) on September 14, 2000, at the time of its original answer and counterclaim, even if those claims were otherwise time-barred. See Mopex I at *8; Mopex II at *2. When it chose not to do so, it gave up the claim-saving benefits of Section 203(d). See Coleman & Zasada Appraisals, 667 N.Y.S.2d at 829; Joseph Barsuk, Inc., 722 N.Y.S.2d at 457; 75A N.Y. Jur.2d, Limitations and Laches, § 312 (2000). Therefore, Mopex's motion to amend its answer is now governed by N.Y. C.P.L.R. § 203(f), under which a claim in an amended pleading relates back to the date of the pleading that is being amended. See Joseph Barsuk, Inc. v. Niagra Mohawk Power Corp., 722 N.Y.S.2d 192, 875 (4th Dep't 2001) (mem.). Because Mopex has conceded that its trade secret claims were time-barred when it served its original answer, these claims cannot be saved by the `relate back' provision of Section 203(f). Accordingly, ...


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