Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_06-cv-00426/USCOURTS-cand-4_06-cv-00426-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition For Removal--Other Contract

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

HOWARD RICE NEMEROVSKI CANADY FALK &

RABKIN,

Plaintiff,

v.

TOTAL TECHNOLOGY, INC.,

Defendant.

 /

No. C 06-0426 CW

ORDER GRANTING

DEFENDANT'S

MOTION TO ENTER

AMENDED ANSWER

AND COUNTERCLAIMS

Defendant Total Technology, Inc., (T2) moves to file its

amended answer and counterclaims. Plaintiff Howard Rice Nemerovski

Canady Falk & Rabkin (Howard Rice) opposes the motion. 

Alternatively, Howard Rice makes certain discovery requests if T2's

motion is granted. The matter was taken under submission on the

papers. Having considered all of the papers filed by the parties,

the Court GRANTS T2's motion.

Case 4:06-cv-00426-CW Document 49 Filed 10/05/06 Page 1 of 11
United States District Court

For the Northern District of California

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BACKGROUND

In this action, Howard Rice seeks compensation for legal

services rendered to T2.

On December 22, 2005, both parties jointly filed a motion to

seal the initial and first amended complaints, the answer and

certain parts of related pleadings, and for leave to file amended

pleadings. On January 23, 2006, T2 filed an initial answer,

including defenses and counterclaims. On May 12, 2006, both

parties appeared for a case management conference. At the

conference, the Court gave the following instructions to counsel

for T2. 

I will give you 30 days to add any additional claims. That

would be June 12th. And if you want to add one, you can show

a proposed amended complaint to the other side, and either

file it by stipulation or you'll have to file a motion to

amend. 

Pl's Ex. 1 at 5 (Reporter's Transcript of May 12, 2006 Case

Management Conference).

In support of its motion, T2 submits the declaration of its

counsel, Tom Humphrey. Mr. Humphrey declares he believed that T2

was permitted to file an amended answer based on the written

scheduling order. (Humphrey Dec. 1 ¶ 18) Mr. Humphrey also

declares that he did not remember the Court's instruction to show

the amended pleading to opposing counsel. Humphrey Dec. 1 ¶ 19. 

On June 12, 2006, without leave, Mr. Humphrey e-filed an amended

answer, including defenses and counterclaims. After Dirk

Schenkkan, counsel for Howard Rice, received notice of the filing

of the amended answer, he informed Mr. Humphrey that he had not

followed the Court's instruction by failing to show the pleading to

Case 4:06-cv-00426-CW Document 49 Filed 10/05/06 Page 2 of 11
United States District Court

For the Northern District of California

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Howard Rice prior to filing a motion for leave to file it. Mr.

Schenkkan also reminded Mr. Humphrey that absent Howard Rice's

stipulation, he should have filed a motion for leave to amend. 

Pl's. Ex. 2 at 1. On the evening of June 12, 2006, Mr. Humphrey

unsuccessfully attempted to persuade Howard Rice's counsel to

stipulate to the filing of the amended answer.

Mr. Humphrey declares that, on the evening of June 12, 2006, 

he attempted to file a motion to amend on several occasions over

the span of more than one hour through the Court's Electronic

Document Filing System (ECF), but ECF was not operating at the

time. Mr. Humphrey attaches to his declaration a printout from ECF

indicating there was an internal service error. Declaration of

Thomas W. Humphrey As to Technical Failure of ECF Website (Humphrey

Dec. re: ECF ¶ 2-5). On June 13, 2006, T2 filed a motion to file

its amended answer and counterclaims.

T2's amended answer modifies its original counterclaim of 

attorney malpractice to include the term "negligence," Amended

Answer, ¶¶ 58-65, and adds a new defense that Howard Rice allowed

unlicensed attorneys to practice law on T2's behalf. Amended

Answer ¶¶ 38, 58, 61, 62 & 66-69.

T2 also includes several new factual allegations in the

amended answer. The first new allegation states that T2 informed

Howard Rice that funds for legal services would be paid from the

personal funds of one of T2's shareholders, rather than from T2

itself. Amended Answer ¶ 33. The second new allegation states

that Howard Rice agreed to provide proposed preliminary legal

services subject to a limitation of $10,000, rather than the

Case 4:06-cv-00426-CW Document 49 Filed 10/05/06 Page 3 of 11
United States District Court

For the Northern District of California

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$40,000 limit alleged in the original answer. Amended Answer ¶ 34. 

The third new allegation states that Howard Rice never provided a

"statement of account due" to any T2 authorized representative

until after the present suit had been filed and more than one year

after invoiced services were allegedly provided. Amended Answer ¶¶

20 & 36. The fourth new allegation states that Howard Rice

promised to provide an undisclosed buyer for T2's patents, whereas

the initial answer alleged that Howard Rice encouraged T2 to pursue

an undisclosed buyer. Amended Answer ¶ 47. 

Finally, in the amended answer, T2 modifies the last sentence

of paragraph 42 and adds a phrase at the end of paragraph 52. As

amended, paragraph 42 alleges that Howard Rice encouraged T2 to

accept the results of its services in the litigation, based upon

Howard Rice's representation that it would consummate a sale of the

T2 patents. In the initial answer, paragraph 42 also referred to

an arbitration between the parties, which T2 allegedly terminated,

in part, based upon Howard Rice's representation that a sale of the

patents could be consummated. In the initial answer, paragraph 52

stated, "Each of the claims set forth in the Complaint is barred,

in whole or in part, on the grounds that Howard Rice consented to

the uncompensated receipt of any benefit by T2." The amended

answer uses this same language, and adds "by the terms of the

Howard Rice relationship with T2" at the end of the sentence. 

Howard Rice claims that the changes in paragraphs 42 and 52 are

unintelligible.

Case 4:06-cv-00426-CW Document 49 Filed 10/05/06 Page 4 of 11
United States District Court

For the Northern District of California

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LEGAL STANDARD

I. Federal Rule of Civil Procedure 16.

A party seeking to amend a pleading after the date specified

in a scheduling order must first show "good cause" for the

amendment under Rule 16(b) and, second, if good cause is shown, the

party must demonstrate that the amendment is proper under Rule 15. 

Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 608 (9th Cir.

1992). 

In order to determine good cause, courts generally consider

the diligence of the party seeking the modification. Id. at 609;

Coleman v. Quaker Oats Co., 232 F.3d 1271, 1294 (9th Cir. 2000). 

"Not only must parties participate from the outset in creating a

workable Rule 16 scheduling order but they must also diligently

attempt to adhere to that schedule throughout the subsequent course

of the litigation." Jackson v. Laureate, Inc., 186 F.R.D. 605, 607

(E.D. Cal. 1999).

II. Federal Rule of Civil Procedure 15.

Under Federal Rule of Civil Procedure 15(a), leave of the

court allowing a party to amend its pleading "shall be freely given

when justice so requires." Leave to amend lies within the sound

discretion of the trial court, which discretion "must be guided by

the underlying purpose of Rule 15 -- to facilitate decisions on the

merits rather than on the pleadings or technicalities." United

States v. Webb, 655 F.2d 977, 979 (9th Cir. 1981). Thus, Rule 15's

policy of favoring amendments to pleadings should be applied with

"extreme liberality." Id.; DCD Programs, Ltd. v. Leighton, 833

F.2d 183, 186 (9th Cir. 1987).

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United States District Court

For the Northern District of California

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The Supreme Court has identified four factors relevant to

whether a motion for leave to amend should be denied: undue delay,

bad faith or dilatory motive, futility of amendment, and prejudice

to the opposing party. Foman v. Davis, 371 U.S. 178, 182 (1962). 

These factors are not of equal weight; specifically, delay alone is

insufficient ground for denying leave to amend. Webb, 655 F.2d at

980. Further, the "liberality in granting leave to amend is not

dependent on whether the amendment will add causes of action or

parties." DCD Programs, 833 F.2d at 186. Rather, the court should

consider whether the proposed amendment would cause the opposing

party undue prejudice, is sought in bad faith, or constitutes an

exercise in futility. Id. (citing Acri. v. International Ass'n of

Machinists & Aerospace Workers, 781 F.2d 1393, 1398-99 (9th Cir.

1986).

Prejudice typically arises where the opposing party is

surprised with new allegations which require more discovery or will

otherwise delay resolution of the case. Id. at 1398-99. The party

opposing the motion bears the burden of showing prejudice. DCD

Programs, 833 F.2d at 186.

DISCUSSION

I. Following the Court's Verbal Instructions

Howard Rice opposes T2's motion to amend on two grounds. 

First, T2 did not follow the Court's verbal instructions to show

Howard Rice its proposed amended pleading before filing a motion to

amend with the Court. Second, T2 missed the Court's June 12, 2006

deadline by filing its motion to amend on June 13, 2006. T2's

motion is governed in part by Federal Rule of Civil Procedure

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United States District Court

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1

 In its opposition, Howard Rice does not cite Federal Rule of

Civil Procedure 16(b).

7

16(b), which requires a showing of good cause for filing its

amended pleading after the date specified in the scheduling order.1

Mr. Humphrey declares that he did not remember the Court's

instruction at the Case Management Conference and used the Minute

Order and Case Management Order (Docket 30) for guidance. The

minute order does state that the deadline to add additional parties

or claims is June 12, 2006; it does not repeat the Court's

instruction that the amended pleadings shall be shown to opposing

counsel. Therefore, the Court will accept Mr. Humphrey's excuse as

minimal good cause under Rule 16 for not showing the amended answer

to opposing counsel before proceeding, although Mr. Humphrey also

erred by filing the amended answer without asking leave of the

Court.

II. Late Filing of Motion to Amend

Local Rule 5-4 authorizes electronic filing in conjunction

with Federal Rule of Civil Procedure 5(e). Local Rule 5-4 states: 

Pursuant to FRCivP 5(e), the Clerk will accept in certain

actions documents filed, signed or verified by electronic

means that are consistent with General Order No. 45,

“Electronic Case Filing.” A document filed by electronic means

in compliance with this Local Rule constitutes a written

document for the purposes of applying these Local Rules and

the Federal Rules of Civil Procedure.

Under authorization of Local Rule 5-4, General Order 45 sets out 

the District Court's specific policies for filing electronically. 

General Order 45(vi)(e) states: 

The Clerk shall deem the ECF web site to be subject to a

technical failure on a given day if the site is unable to

accept filings continuously or intermittently over the course

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United States District Court

For the Northern District of California

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of any period of time greater than one hour after 12:00 noon

that day, in which case filings due that day which were not

filed due solely to such technical failures shall become due

the next business day. Such delayed filings shall be

accompanied by a declaration or affidavit attesting to the

filing person's failed attempts to file electronically at

least two times after 12:00 noon separated by at least one

hour on each day of delay due to such technical failure.

Federal Rule of Civil Procedure 5(e) provides in part:

". . . a court may by local rule permit papers to be filed,

signed, or verified by electronic means that are consistent

with technical standards, if any, that the Judicial Conference

of the United States establishes. A paper filed by electronic

means in compliance with a local rule constitutes a written

paper for the purpose of applying these rules." 

To comply with the electronic filing instructions under

General Order 45, Mr. Humphrey declares he did each of the

following steps. First, he attempted to file a motion to amend

T2's answer by ECF several times over the span of more than one

hour on the evening of June 12, 2006. Second, he submitted the

motion to file the amended answer promptly once ECF was working

again, which was on June 13, 2006. Because the ECF system had an

internal server error, under General Order 45, the motion to amend

was due the next business day, on June 13, 2006. Because Mr. 

Humphrey has met the requirements of General Order 45, T2 has not

missed the deadline set by the Court to file its motion to amend

its answer. 

Case 4:06-cv-00426-CW Document 49 Filed 10/05/06 Page 8 of 11
United States District Court

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III. Leave to File an Amended Answer

Howard Rice opposes T2's motion to amend. Federal Rule of

Civil Procedure 15(a) provides that the Court may freely grant a

party leave to file an amended pleading when justice so requires. 

However, if the Court is satisfied that the party opposing the

motion to amend has shown it is surprised by new allegations in the

amended pleading that will require more discovery or otherwise

delay resolution of the case, it may deny the leave to amend on

grounds of prejudice. DCD Programs, 833 F.2d at 186.

Howard Rice states it will be prejudiced by the proposed

amendments because they will undercut existing discovery and will

require a new round of discovery with further attendant cost and

delay. T2 argues that it changed the factual allegations in the

answer in order to accommodate both parties' request to redact

certain information in their December 22, 2005 motion to seal. 

Howard Rice disagrees and claims that the changed factual

allegations were unrelated to what the parties agreed should be

redacted. 

Howard Rice recognizes that T2 gave notice at the case

management conference that the purpose of the amended answer was to

include the new defense of unlicensed practice of law, but alleges

that T2 improperly broadened two malpractice claims in its original

answer to incorporate a negligence theory. T2 responds that 

negligence is merely a component of malpractice. 

If Mr. Humphrey had timely followed the Court's instruction to

show his proposed amended answer to opposing counsel, rather than

Case 4:06-cv-00426-CW Document 49 Filed 10/05/06 Page 9 of 11
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simply filing it without a stipulation or leave of the Court, these

issues might have been resolved and inefficient discovery and

motion practice avoided.

Nonetheless, the Court finds that any prejudice resulting from

these changes can be addressed by granting the relief Howard Rice

requests.

T2 shall promptly serve Howard Rice by overnight mail with

full and complete answers to its pending discovery requests. 

Within fifteen days of service, T2 shall serve Howard Rice by

overnight mail with full and complete answers to a second round of

such interrogatories, requests to admit and document requests as

Howard Rice may propound relative to the amended allegations. 

Howard Rice's first round of interrogatories shall not be counted

toward the statutory limit of twenty-five interrogatories. Howard

Rice's request that the parties meet and confer to discuss the

language of ¶¶ 42 and 52 is granted.

Case 4:06-cv-00426-CW Document 49 Filed 10/05/06 Page 10 of 11
United States District Court

For the Northern District of California

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CONCLUSION

For the foregoing reasons, T2's motion to amend is GRANTED

(Docket 36). 

After meeting and conferring with Howard Rice about ¶¶ 42 and

52, T2 may file its amended answer. If the parties are unable to

agree on ¶¶ 42 and 52, T2 must file another motion for leave to

amend if it wishes to include those amendments. Howard Rice may

rest on its previous answer to the counterclaims or may file a new

answer twenty days from the date of this order. 

IT IS SO ORDERED.

Dated: 10/5/06 

CLAUDIA WILKEN

United States District Judge

Case 4:06-cv-00426-CW Document 49 Filed 10/05/06 Page 11 of 11