United States District Court, Southern District of New York
June 11, 2002
AMERICAN STOCK EXCHANGE, LLC, PLAINTIFF,
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
(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,
constructive fraud, fraud,
breach of contract, negligent misrepresentation
and unfair competition (the "trade secret
(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).
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, Mopex's motion to amend is denied on the grounds of
futility. See In re Independent Energy Holdings PLC Sec. Litig.,
154 F. Supp.2d 741, 773 (S.D.N.Y. 2001) (holding that parties "need not
be granted leave to amend where amendment would be futile").
B. Request to Seek a Constructive Trust
Mopex seeks leave to amend its pleading to request that Amex's pending
patent applications be placed in a constructive trust. See Def. Mem. at
9. Amex argues that the request should be denied "because it is entirely
derivative of Mopex's time-barred trade secret claims" and "should fall
along with these defective trade secret claims." Pl. Opp. at 19. In
response, Mopex insists that its constructive trust claim is not
time-barred because this remedy is sought "in connection with a
misappropriation that occurred in 1994 and was not discovered until the
Amex['s] patent application was published by the U.S. Patent and
Trademark Office on September 27, 2001." Def. Repl. at 5.
Mopex apparently believes that the statute of limitations began to run
upon discovery of the misappropriation. However, under New York law, the
statute of limitations for an action to impose a constructive trust is
six years, and "begins to
run upon [the] occurrence of [the] wrongful act
giving rise to [a] duty of restitution." Green v. Doukas, No. 97 Civ.
8288, 2001 WL 767069, at *7 (S.D.N.Y. June 22, 2001); see also Bausch &
Lomb Inc. v. Alcon Laboratories, Inc., 64 F. Supp.2d 233, 251 (W.D.N.Y.
1999) (applying this statute of limitations where plaintiff sought
constructive trust as alternative to its counterclaims for
misappropriation of trade secrets and unfair competition). Thus, the
statute began to run in 1994, when the allegedly wrongful
misappropriation occurred, and the action became time-barred in 2000.
Because amending its pleading to assert this time-barred claim would be
futile, see supra Part II.A., leave to amend is denied. See In re
Independent Energy Holdings PLC Sec. Litig., 154 F. Supp.2d at 773.
C. Motion to Add RTMF as a Party
Mopex seeks leave to amend its answer in order to add RTMF as an
additional counterclaim-plaintiff. See Def. Mem. at 8-9; Proposed First
Amended Counterclaim, Ex. A to Def. Mem. ¶ 2. It is unclear,
however, whether Mopex seeks only compulsory joinder under Rule 19(a), or
whether it also seeks permissive (or voluntary) joinder under
Rule 20 and/or interpleader under Rule 22. In the body of its Memorandum, Mopex
insists that, as the "exclusive licensee" of the `685 Patent, "RTMF may
be a necessary party" under Rule 19(a). Def. Mem. at 8-9 (citing
Fed.R.Civ.P. 19(a)). While Mopex lists Rules 20 and 22 as applicable statutes
at the outset of its Memorandum, it does not mention these rules anywhere
in its argument. See id. at 5.
Amex has only responded to Mopex's argument under Rule 19(a). It
contends that RTMF need not be joined because a "mere license[e]" is not
considered a "necessary and/or indispensable party pursuant to Rule 19 in
an action for patent infringement," and an "exclusive licensee" is only a
necessary party if the licensee has been granted "all substantial rights
under the patent." Pl. Opp. at 17 (citing cases).
Regardless of whether RTMF is a "necessary party," compulsory joinder
pursuant to Rule 19(a) is inappropriate at this time because Mopex has not
claimed that RTMF has refused to join voluntarily. See International
Rediscount Corp. v. Hartford Acc. & Indem. Co., 425 F. Supp. 669, 674-75
(D. Del. 1977) (explaining that an "involuntary plaintiff" under
Rule 19(a) is a party who "has been requested to join the suit voluntarily but
refuses to do so"); Babcock v. Maple Leaf, Inc., 424 F. Supp. 428, 431
(E.D. Tenn. 1976) ("Before the Court can order a joinder of parties who
should be additional plaintiffs in a lawsuit . . . Rule 19(a) provides
that such parties must first refuse to join voluntarily."). Indeed, the
fact that RTMF and Mopex are companies comprised of the same two
individuals, see Mopex I at *1, and the fact that they are represented by
the same counsel, suggests that RTMF would in fact join in this lawsuit
if given the opportunity to do so. Accordingly, RTMF may seek to
intervene in this action as a counterclaim-plaintiff if it does so within
two weeks of the date of this Order. If, at the end of that time, RTMF
refuses to join in this action, Mopex may renew its motion to add RTMF as
For the foregoing reasons, Mopex's motion to amend its pleading in
order to allege the trade secret claims and a claim for constructive
trust is denied. Mopex's motion to amend its pleading to add
RMTF as a counterclaim-plaintiff is contingently denied at this time. RTMF
is given two weeks in which it may seek intervention as a
counterclaim-plaintiff under Rule 22 and, if RTMF fails to make such a
request, Mopex may renew its motion to join RTMF as an compulsory
counterclaim-plaintiff pursuant to Rule 19(a). A conference is scheduled
for July 16, 2002 at 4:30 p.m.