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Gaetano Associates Ltd v. Artee Collections

October 25, 2006


The opinion of the court was delivered by: Denise Cote, District Judge


This action arises out of a dispute about the design, sale, and distribution of certain fabrics used in the home furnishings market. The complaint was filed by the plaintiff, Gaetano Associates, Ltd. ("Gaetano"), on March 29, 2005, and pleads eight claims under federal and state law. Defendants moved to dismiss the complaint in its entirety. The New York Unfair Competition Law claim was dismissed through an Opinion of February 14, 2006, but plaintiffs were allowed to proceed on the remaining claims. Following a conference with the Court, a Pretrial Scheduling Order was issued on April 4, which, among other things, set a deadline of April 14 for the joinder of parties and amendment of the pleadings, and a deadline of September 29 for the end of fact discovery.

On September 14 -- five months after the date for joinder and amendment and two weeks before fact discovery was scheduled to close -- defendants Artee Collections, Inc. ("ACT") and Arti Bhandari ("Bhandari") (collectively, "defendants") filed a motion to amend their answer and to add 13 counterclaims. At a conference on September 27, defendants' slander and libel counterclaims were striken for failure to show good cause as to why they were not timely filed. The copyright infringement counterclaim was striken on the ground that it was "clearly manufactured for this litigation." Defendants were instructed that their motion would be considered with respect to two of the remaining counterclaims, and that fact discovery would be extended through November 10.

In an e-mail to plaintiff's counsel dated September 28, ACI and Bhandari indicated that they wished to pursue claims for (1) misappropriation of trade secrets under Massachusetts law and (2) common law inducement of breach of fiduciary duty.*fn1 Plaintiff opposes the motion to amend on the grounds that (1) it is untimely; (2) amendment would be futile, as defendants have failed to state a claim; and (3) amendment would be prejudicial to the plaintiff.

I. Good Cause

Where, as here, a scheduling order has been entered, the lenient standard of Rule 15(a), which provides that leave to amend "shall be freely given," is replaced by the Rule 16(b) standard, which prohibits amendment "except upon a showing of good cause." Fed. R. Civ. P. 15(a), 16(b).*fn2 Rule 16 "is designed to offer a measure of certainty in pretrial proceedings, ensuring that at some point both the parties and the pleadings will be fixed." Parker v. Columbia Pictures Indus., 204 F.3d 326, 340 (2d Cir. 2000) (citation omitted). Therefore, a finding of good cause requires the movant to "show that the deadlines [could not] be reasonably met despite its diligence." Lincoln v. Potter, 418 F. Supp. 2d 443, 454 (S.D.N.Y. 2006). See also Grochowski v. Phoenix Const., 318 F.3d 80, 86 (2d Cir. 2003).

Here, defendants claim that they were not aware of the facts pertaining to their counterclaims until well after the deadline for amendment. According to defendants, they first received "computerized reports originating from ACI's computer system" on June 15 as part of plaintiff's response to defendants' document requests. These reports identified 83 customers of ACI along with the amount and types of fabrics they had purchased. Upon discovering that Gaetano possessed this information, defendants began an investigation to determine how the reports had been passed along to plaintiff. Defendants' efforts did not reveal the answer, and on August 2 they served interrogatories on plaintiff, seeking, among other things, the identity of the person who had provided Gaetano with the reports. On September 5, plaintiff identified Pradeep Singh ("Singh"), a former ACI employee, as the source of the documents.*fn3 Defendants filed their motion to amend eight days later. ACI and Bhandari have therefore shown that they were sufficiently diligent in their pursuit of the proposed counterclaims to be allowed to amend their pleadings.

II. Futility of Proposed Amendment

"Where the amended portion of the [pleading] would fail to state a cause of action ... the district court may deny the party's request to amend." Parker, 204 F.3d at 339. In order to state a claim, a party must simply set forth "a short and plain statement of the claim showing that the pleader is entitled to relief." Rule 8(a)(2), Fed. R. Civ. P. The Supreme Court has emphasized that a complaint must do no more than provide a defendant with fair notice of the claims pending against him. Swierkiewicz v. Sorema. N.A., 534 U.S. 506, 512 (2002). Fair notice is simply "that which will enable the adverse party to answer and prepare for trial, allow the application of res judicata, and identify the nature of the case so that it may be assigned the proper form of trial." Twombly v. Bell Atlantic Corp., 425 F.3d 99, 107 (2d Cir. 2005). Therefore, a party is not required to plead every element of its case. Rather, the "simplified notice pleading standard relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims." Swierkiewicz, 534 U.S. at 512.

To demonstrate misappropriation of trade secrets under Massachusetts law, defendants would need to show that (1) the reports contained trade secrets; (2) defendants took "reasonable steps to preserve the secrecy" of the reports; and (3) plaintiff "used improper means, in breach of a confidential relationship, to acquire and use the trade secret." Data General Corp. v. Grumman Systems Support Corp., 36 F.3d 1147, 1165 (1st Cir. 1994) (citation omitted). Plaintiff contends that the claim is defective because defendants have not explained "how the list of names or quantities of fabric sold constitutes a trade secret, what steps defendants took to preserve the secrecy of the information or how plaintiffs improperly obtained the alleged trade secret." Under the notice pleading standard, however, defendants are not required to do so.*fn4 The proposed answer and counterclaims describe the trade secrets at issue, the time period during which they were obtained, and the general method (conspiracy with a former ACI employee) by which Gaetano allegedly acquired them. Furthermore, while the former employee is not named in the pleading, plaintiff is aware of his identity. Under these circumstances, Gaetano cannot plausibly assert that it has not been given notice of the basis of defendants' misappropriation counterclaim.

To demonstrate that plaintiff induced a breach of fiduciary duty under New York law, defendants must show:

(1)a breach by a fiduciary of obligations to another,

(2)that the [plaintiff] knowingly induced or participated ...

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