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Purvis Industries, LLC v. Spokane Industries, Inc.

United States District Court, D. New Mexico

May 6, 2019

PURVIS INDUSTRIES, LLC, d/b/a IMSCO, Plaintiff,
v.
SPOKANE INDUSTRIES, INC., Defendant.

          MEMORANDUM OPINION AND ORDER

          ROBERT C BRACK, SENIOR U.S. DISTRICT JUDGE.

         This motion for leave to file an amended complaint implicates multiple areas of New Mexico law-from distinguishing between implied contractual provisions and legal duties to identifying the elements of three distinct business torts. The underlying dispute, however, is far less complicated. Plaintiff IMSCO purchased industrial equipment manufactured by Defendant Spokane, then resold the equipment to its customers. IMSCO alleges that this relationship constituted a decades-long, unintegrated contract that Spokane breached by abruptly terminating the parties' business relationship without notice. Spokane subsequently sent its new, “exclusive distributor” an email suggesting that it would prepare and send a list of IMSCO's customers and sales information. IMSCO now seeks to amend its pleading to add three tort claims based on the alleged sharing of that customer information. Spokane argues the proposed new claims are futile. The Court finds that all but one of IMSCO's proposed amendments should be allowed at this stage, and will grant in part IMSCO's motion for leave to file an amended complaint (Doc. 35).

         I. Background

         In February 2018, Purvis Industries, LP, d/b/a IMSCO[1] filed suit in state court alleging that Spokane Industries, Inc. (Spokane) improperly terminated a contract under which Spokane, an industrial manufacturer, had been selling mining and other industrial equipment to IMSCO at wholesale prices for nearly 30 years. (See Doc. 1-2 at 1, 3-4.) IMSCO alleges that “[i]n January 2017, without any notice, Spokane abruptly terminated IMSCO in favor of an IMSCO competitor, Power Equipment, who would serve as Spokane's exclusive distributer in New Mexico.” (Id. at 1.) Further, according to IMSCO, Spokane offered Power Equipment “significantly better pricing” that “drastically devalue[ed IMSCO's] current Spokane inventory” and refused to accept a return or buyback of the inventory following the termination. (Id. at 1-2.) Upon learning of the basis for diversity jurisdiction in June 2018, Spokane timely removed the action. (See Doc. 1 at 2.) Jurisdiction arises under 28 U.S.C. § 1332. (See id.)

         IMSCO's original complaint includes three counts.[2] (See Doc. 1-2.) Count I: Breach of Contract and Implied Covenant of Good Faith and Fair Dealing, alleges that Spokane breached the contract by terminating it without “reasonable notification[, ]” as required by the New Mexico Uniform Commercial Code. (Id. at 7-8.) Count I also alleges that Spokane acted in bad faith in selling IMSCO goods valued at more than $6, 000 just weeks before the termination, when it had “knowledge of its plans to terminate IMSCO and switch to a new, exclusive distributor who would receive significantly better pricing.” (Id. at 9.) Count II: Violation of the New Mexico Unfair Practices Act (UPA), alleges that the actions described above qualify as “unconscionable trade practices” in violation of the UPA. (Id. at 10-11.) Count III: Rescission, seeks the rescission of “any and all sales made as a result of Spokane's misrepresentation by omission” in concealing its plans to terminate the contract in order to sell IMSCO products that became “practically unsaleable” after the termination. (Id. at 11-12.)

         On December 5, 2018, IMSCO filed its Expedited Motion for Leave to File Amended Complaint and to Amend Scheduling Order. (Doc. 35.) In response to the portion of the motion seeking an expedited ruling on amending the scheduling order, United States Magistrate Judge Laura Fashing “vacate[d] the scheduling order deadlines that ha[d] not yet passed, including the deadlines for expert disclosures and the termination date for discovery[, ]” so that the portion of the motion seeking leave to file an amended complaint would be briefed on a regular schedule.[3](Doc. 37.) IMSCO seeks to file an amended complaint adding three new claims for relief in addition to the three counts described above. (See Doc. 35 at 2.)

         IMSCO's proposed new claims all rest upon the discovery of a single email (the “customer list email”), which Spokane first produced on September 28, 2018. (Id. at 5.) The customer list email “is a forward of a termination e-mail sent to The Western Group, another former New Mexico dealer of Spokane products.” (Id.) In the body of the message, “a Spokane employee[] informs the three recipients: ‘Here is the e-mail I just sent to IMSCO and Western Group. We are still working on the customer list to send to you with Co Names, part numbers and prices.'” (See id.) IMSCO's proposed amended complaint includes three additional claims based on the email- Count IV: Tortious Interference with Prospective Contractual Relationships; Count V: Common Law Unfair Competition; and Count VI: Prima Facie Tort. (See Doc. 35-1 at 16-21.) IMSCO added these new counts “based on Spokane's transmission of IMSCO customer information to Power Equipment, as revealed in the Customer List E-mail[, ]” and also “adds allegations concerning the Customer List E-mail to [its] existing claims for Violation of the New Mexico Unfair Practices Act (Count II) and Rescission (Count III).” (Doc. 35 at 7-8.)

         Spokane opposes IMSCO's motion to amend on two general grounds. First, that the motion “is being advanced for the improper purpose of dramatically expanding the scope and cost of this litigation, without a factual predicate to warrant such an expansion.” (Doc. 39 at 1.) Referring to the customer list email as “the sole factual kernel underpinning IMSCO's push to dramatically expand the case[, ]” Spokane argues that seeking to amend the complaint based solely on that email, without any evidence that Spokane actually provided Power Equipment with a list of IMSCO's customers, is improper and demonstrates bad faith. (Id. at 1-3.) Second, Spokane alleges that each of the new causes of action in IMSCO's proposed amended complaint are futile because they are barred by various legal doctrines and otherwise fail to state a claim. (See Id. at 2-3.)

         II. IMSCO has demonstrated good cause for leave to amend.

         Under Federal Rule of Civil Procedure 15(a)(2), a party seeking leave to amend its pleading outside the time allowed for amendments as a matter of course may do so “only with the opposing party's written consent or the court's leave.” Fed.R.Civ.P. 15(a)(2). “The court should freely give leave when justice so requires.” Id. Liberally allowing leave to amend ensures “the maximum opportunity for each claim to be decided on its merits rather than on procedural niceties.” Hardin v. Manitowoc-Forsythe Corp., 691 F.2d 449, 456 (10th Cir. 1982) (citation omitted). However, leave to amend may be properly denied for various reasons including “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [and] futility of amendment . . . .” Foman v. Davis, 371 U.S. 178, 182 (1962).

         Though Judge Fashing's December 2018 Order vacated all remaining scheduling order deadlines, Rule 16(b)(4) is also implicated in the Court's analysis of IMSCO's motion because the deadline set forth in the scheduling order for amending its pleadings has passed. (See Doc. 18 at 2.) “[A] scheduling order ‘may be modified only for good cause and with the judge's consent.'” Gorsuch, Ltd., B.C. v. Wells Fargo Nat'l Bank Ass'n, 771 F.3d 1230, 1240 (10th Cir. 2014) (citing Fed.R.Civ.P. 16(b)(4)). “In practice, this standard requires the movant to show the scheduling deadlines cannot be met despite [the movant's] diligent efforts.” Id. (citation and quotation marks omitted). The good cause requirement “may be satisfied . . . if a plaintiff learns new information through discovery or if the underlying law has changed.” Id. (citation omitted).

         The scheduling order set September 27, 2018, as the deadline for IMSCO to amend its pleadings. (Doc. 18 at 2.) Spokane was required to produce documents in response to IMSCO's first set of requests by September 12, 2018. (Doc. 35 at 4.) Spokane's counsel were in the process of moving to a new law firm, so they requested and received from IMSCO's counsel two extensions of the production deadlines. (Id.) The resulting new deadline for the production of the first set of documents was September 28, 2018-one day past IMSCO's deadline to amend its pleadings. (Id. at 5.) On that date, Spokane produced the customer list email that underlies IMSCO's proposed new claims for relief. (See id.) This sequence of events makes clear that IMSCO could not have sought these specific amendments before the scheduling order deadline “despite [its] diligent efforts[, ]” see Gorsuch, 771 F.3d at 1240, because “IMSCO did not obtain the e-mail giving rise to its new claims-or indeed, any Spokane document production-until September 28, the day after IMSCO's deadline to amend.” (Doc. 35 at 8.)

         Thus, the factors relating to good faith, timing, and diligence suggest that the Court should freely give leave to amend the complaint, and that there is good cause to amend the scheduling order to do so. See id.; Foman, 371 U.S. at 182; Fed.R.Civ.P. 15(a)(2). The Court need not belabor this point since Spokane does not dispute it. (See Doc. 39 at 1 (“Spokane does not challenge IMSCO's Motion to Amend on grounds of timeliness”).) However, before determining whether to grant IMSCO's motion, the Court must take up Spokane's various arguments that the proposed amendments are futile and should thus be denied.

         III. Futility Analysis

         “Although [Rule] 15(a) provides that leave to amend shall be given freely, the district court may deny leave to amend where amendment would be futile. A proposed amendment is futile if the complaint, as amended, would be subject to dismissal.” Bradley v. Val-Mejias, 379 F.3d 892, 901 (10th Cir. 2004) (quoting Jefferson Cty Sch. Dist. v. Moody's Inv'r's Servs., 175 F.3d 848, 859 (10th Cir. 1999)). Spokane argues that IMSCO's proposed new claims lack a solid enough factual predicate to survive a motion to dismiss, would be barred as a matter of law under various doctrines, and would otherwise fail Rule 12(b)(6) motions to dismiss for failing to state a claim. (See Doc. 39 at 6.)

         A. The customer list email provides a sufficient factual predicate for IMSCO's proposed new causes of action.

         Spokane takes issue with the fact that IMSCO's proposed amendments are based solely on the customer list email, rather than evidence that it actually shared customer information with IMSCO's competitors. (See Id. at 3-4.) According to Spokane, since IMSCO subpoenaed Power Equipment seeking such a list and made detailed discovery requests of Spokane for the same information, “the prudent course would have been to wait for Power Equipment's and Spokane's respective responses, determine whether there was indeed a factual predicate for amendment, and move to amend the complaint if and when IMSCO's suspicions could be confirmed.” (Id. at 4.) Further, Spokane asserts that it has now “stat[ed] under oath and in no uncertain terms that Spokane never provided Power Equipment with a list of IMSCO customers” and Power Equipment likewise produced no such list, so continuing to seek to amend the complaint “will amount to bad faith, and will work an undue prejudice on Spokane.” (Id. at 4-5.)

         IMSCO counters that this is a factual dispute that is not properly addressed at the motion to amend stage. “There is no provision in the [Federal Rules of Civil Procedure] that allows a defendant to obtain dismissal of a lawsuit simply by representing that it did not do what the plaintiff alleges.” (Doc. 41 at 3.) To the contrary, “a plaintiff is entitled to pursue discovery, including depositions, based on allegations made in good faith and with a factual predicate[.]” (Id.) IMSCO argues that the email from Spokane promising to send Power Equipment IMSCO's customer list is a sufficient factual predicate. (See id.) Further, IMSCO disagrees with Spokane's characterization of its discovery responses. (See id.) IMSCO argues that rather than “stating in no uncertain terms” that it never provided Power Equipment with a list of IMSCO's customers, Spokane actually stated only that “after a diligent search Spokane was not able to locate, and is not aware of having created or sent, any subsequent communications with Power Equipment related to [the referenced] customer lists.” (Id. (internal quotation marks and citations omitted).)

         The Court finds that the customer list email presents a sufficiently strong factual predicate to support IMSCO's proposed new claims at the pleading stage. Though Spokane's and Power Equipment's responses to discovery requests thus far appear not to have revealed additional evidence that Spokane shared IMSCO's customer information, discovery has not yet closed. Accordingly, the phrasing of the customer list email, including the clear statement “[w]e are still working on the customer list to send to you with Co Names, part numbers and prices, ” provides enough of a factual predicate for IMSCO to allege that Spokane subsequently shared its customer information. (See Doc. 35 at 5.) That Spokane has stated it “was not able to locate, and is not aware of having created or sent, any subsequent communications” may support a future motion for summary judgment or Spokane's argument at trial. (See Doc. 41 at 3.) However, this response alone does not convince the Court that there is absolutely no factual predicate upon which IMSCO seeks to amend its complaint and conduct additional discovery. Similarly, Spokane has not elaborated on how the ...


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