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Point 4 Data Corp., et al v. Tri-State Surgical Supply

June 27, 2012

POINT 4 DATA CORP., ET AL., PLAINTIFFS,
v.
TRI-STATE SURGICAL SUPPLY & EQUIPMENT, LTD., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Roanne L. Mann, United States Magistrate Judge:

MEMORANDUM AND ORDER

In February 2011, plaintiffs Point 4 Data Corporation and Dynamic Concepts, Inc. (collectively, "plaintiffs") commenced this action against defendants Tri-State Surgical Supply & Equipment, Ltd. ("Tri-State"), SJ Computers, and Shmuel Judkovitz (collectively, "defendants"). See Complaint (Feb. 14, 2011) ("Compl."), Electronic Case Filing Document Entry ("DE") #1. More than a year later, and only two-and-a-half months prior to the end of fact discovery, plaintiffs, over Tri-State's objection, moved to amend the complaint, seeking to add five new defendants - two corporate officers of defendant Tri-State and three corporate entities related to Tri-State. See Memorandum in Support of Plaintiffs' Motion to Amend ("Pl. Mot."), DE #160-2; Tri-State Memorandum in Opposition to Plaintiffs' Motion to Amend ("Def. Opp."), DE #168.

On May 31, 2012, the Honorable Carol B. Amon referred plaintiffs' motion to the undersigned magistrate judge. See Order (May 31, 2012). For the reasons set forth below, this Court denies plaintiffs' motion to amend.*fn1

BACKGROUND*fn2

I. The Original Complaint and Early Discovery

For a number of years, plaintiffs licensed and distributed software to defendant Tri-State. See Compl. ¶ 2. On February 14, 2011, plaintiffs filed the instant action, claiming that the three defendants -- Tri-State and its outside computer consultants -- unlawfully hacked into and modified plaintiffs' software to enable Tri-State to circumvent the software's security protections (hereinafter, the "Crack"). See generally id. Plaintiffs alleged that the Crack violated Tri-State's licensing agreement; the Digital Millennium Copyright Act, 17 U.S.C. § 1201 et seq.; and other federal and state laws. See Compl. ¶¶ 34-71. Plaintiffs also sought a temporary restraining order and preliminary injunction prohibiting Tri-State from using plaintiffs' software. See id. at pp. 22-23. On the same date that the complaint was filed, the Honorable Raymond J. Dearie, the district judge originally assigned to this case, signed a seizure order and TRO. See Order to Show Cause for Preliminary Injunction (Feb. 14, 2011), DE #3.

A few weeks later, Judge Dearie held a preliminary injunction hearing. See Minute Entry (Mar. 7, 2011), DE #35. At this hearing, defendants "agreed to provide full disclosure regarding the [Crack], including identifying the individuals and any financial transactions involved." See Memorandum and Order (docketed Mar. 23, 2011) ("3/23/11 M&O") at 2, DE #32. After some initial resistance by defendants, see generally id., Tri-State produced, on March 31, 2011, a series of emails from 2010 concerning the Crack (the "2010 Emails"). See Affirmation of Tibor L. Nagy, Jr., in Opposition to Plaintiffs' Motion to Amend Complaint ("Nagy Aff.") ¶ 2, DE #170; see also Exhibits E through M to the Affirmation of Jason M. Koral in Support of Plaintiffs' Motion to Amend Complaint, DE #160-8 to #160-16.

The 2010 Emails included communications between defendants and DongleLabs, the third party hired by defendants to circumvent the security protections of plaintiffs' software. See, e.g., 2010 Email (June 10, 2010), DE #160-8. The correspondence revealed not only the method by which DongleLabs accessed plaintiffs' software, but also the amount and method of payment defendants made to DongleLabs for completing the Crack. See, e.g., id.; 2010 Email (June 22, 2010), DE #160-9. Shimon Hoffman, the head of information technology for Tri-State and the son of Tri-State CEO George Hoffman, was copied on nearly all communications with DongleLabs. In addition, the emails strongly suggested that Shimon Hoffman was responsible for ultimately authorizing and paying for the Crack. See, e.g., 2010 Email (July 11, 2010), DE #160-11. The 2010 Emails also revealed that George Hoffman was, at the very least, informed of the Crack and its consequences -- i.e., that it would circumvent the security protection and allow Tri-State to exceed the number of users authorized by its license with plaintiffs. See id.; 2010 Email (July 18, 2010), DE #160-14 at 5. George Hoffman was also copied on emails wherein defendant Shmuel Judkovitz ("Judkovitz") -- Tri-State's paid IT consultant and the principal of defendant SJ Computers, Inc. -- sought authorization from Shimon Hoffman to install and upload the Crack and to pay DongleLabs for its work. See id.; 2010 Email (July 11, 2010), DE #160-11.

In May 2011, two months after receiving the 2010 Emails, plaintiffs Point 4 Data Corporation ("Point 4") and Dynamic Concepts, Inc. ("DCI") served responses to interrogatories propounded by Tri-State. See DCI Responses to First and Second Set of Interrogatories ("Pl. Responses"), DE #170-4.*fn3 Notably, in explaining the amount of damages sought against defendants, plaintiffs stated that "[d]efendants, including George Hoffman, Shimon Hoffman and Mr. Judkovitz actively participated in the creation of the hacked software, willfully disassembled and reverse-engineered UniBasic [the computer development platform on which the software operated], and created or manufactured a counterfeit or hacked Unibasic that can run on any server with unlimited users." Id. at 8 (emphasis added). Indeed, according to plaintiffs' May 2011 interrogatory responses: "The email correspondence that [d]efendants have produced clearly confirms their intention to hack, or as Shimon Hoffman stated, to 'crack' the software." Id. at 8 (emphasis added).

In addition to the 2010 Emails, Tri-State (at Judge Dearie's direction) also provided plaintiffs with a forensic image of Tri-State's server. See 3/23/11 M&O at 3. In April 2011, using the imaged copy of the server, Don Burden, CEO of plaintiff Point 4, collected the sales figures from each of the Tri-State-affiliated entities that had used the Crack, in order to calculate the disgorgement damages that plaintiffs claimed they were owed. See Nagy Aff., Exs. 6 and 7, DE #170-6 and #170-7, respectively. These entities included Tri-State Surgical West Corporation ("Tri-State West"), MBS, Ltd. ("MBS"), and H & H Laboratories, Inc. ("H & H Labs") (collectively, the "Related Entities"). See Nagy Aff., Ex. 6, DE #170-6 at 2-3.

II. The Rule 16 Scheduling Conference

Shortly before defendants produced the 2010 Emails, this Court scheduled an initial conference to address the scope and timing of discovery. See Order (Mar. 23, 2012) at 1, DE #31. In its order scheduling the conference, the Court directed the parties "to discuss the matters specified in Fed. R. Civ. P. 26(f) and 16(b)." See id. To this end, the Court attached an "Initial Conference Questionnaire" (hereinafter the "Questionnaire"), which the parties were to jointly answer and bring with them to the initial conference. See id. at 4. Among other things, the Questionnaire required the parties to confer on a date for amending the pleadings and a date by which additional parties should be joined. See id. (Items #11 and #12).

Thereafter, the parties met and conferred regarding the Court's Questionnaire. On May 20, 2011, plaintiffs forwarded to defendants a copy of plaintiffs' proposed Questionnaire responses. See Email (May 20, 2012), DE #170-1. In their proposed responses, plaintiffs indicated that the time needed for amending the pleadings was "n/a" -- that is, not applicable. See id. at 2. In addition, plaintiffs noted that they had zero additional parties to be joined, and therefore, the proposed deadline for completion of joinder was denoted as "n/a" -- or, not applicable. See id. at 3.

On June 14, 2011, the Court conducted the initial conference. See Minute Entry (June 14, 2011) ("6/14/11 Minute Entry"), DE #46. At the conference, the parties submitted their finalized Questionnaire, which, like plaintiffs' proposed responses, indicated that the time needed for amending the pleading was "n/a" and the time for joining additional parties was likewise "n/a" -- in other words, not applicable. In reviewing the Questionnaire with the parties, the Court noted on the record that "there aren't going to be any amendments to the pleadings or any additional parties." Transcript (June 14, 2011) at 20, DE #49. Neither party objected to the Court's statement. See generally id. In reliance on both the Questionnaire and the parties' conduct at the conference, the Court, in issuing its Scheduling Order, did not include a deadline for amending ...


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