United States District Court, D. Arizona
Kevin H. Rindlisbacher, et al., Plaintiffs,
v.
Steinway & Sons Incorporated, Defendant.
ORDER
Honorable John J. Tuchi, United States District Judge.
At
issue is Plaintiffs' Motion for Reconsideration (Doc. 75,
Mot.), to which Defendant filed a Response (Doc. 111). Also
at issue is Defendant's Motion for Leave to File
Counterclaims (Doc. 81), to which Plaintiffs filed a Response
(Doc. 89) and Defendant filed a Reply (Doc. 91, Reply). The
Court will also address Defendant's Motion to Expedite
Consideration (Doc. 94), to which Plaintiffs filed a Response
(Doc. 95) and Defendant filed a Reply (Doc. 98). The Court
finds these matters appropriate for decision without oral
argument. See LRCiv 7.2(f).
I.
Motion for Reconsideration
The
Court will grant Plaintiffs' Motion for Reconsideration
(Mot.) as to their claim for fraudulent omissions. While the
Court initially granted Defendant's Motion to Dismiss
(Doc. 26) on this count, finding that a claim for fraudulent
omissions-otherwise known as nondisclosure-is duplicative of
Plaintiffs' claim for constructive fraud, the Court will
now allow both claims to proceed.
As the
Court expressed in its Order on Defendant's Motion to
Dismiss (Doc. 74, Order), Plaintiffs' Second Amended
Complaint did not present their claims in an easily
discernable manner. Plaintiffs presented their alleged facts
quite clearly, but then largely failed to articulate clear
causes of action, instead leaving it to the Court to
interpret which torts Plaintiffs intended to allege. Upon
reading the briefs related to Defendant's Motion to
Dismiss, the Court concluded-and remains convinced now-that
Plaintiffs failed to articulate any actionable affirmative
representations made by Defendant. Rather, the Court
recognized Plaintiffs' claims premised on alleged
omissions. Also finding that Plaintiffs plausibly alleged the
existence of a confidential or fiduciary relationship with
Defendant, the Court allowed Plaintiffs' claim for
constructive fraud to proceed. (Order at 9-10.) However, the
Court interpreted Plaintiffs' Count II for
“Fraudulent Representations and Omissions” as a
claim for nondisclosure, as articulated by § 551 of the
Restatement (Second) of Torts. (Order at 9-10.) Finding that
such a claim would be duplicative of constructive fraud, the
Court dismissed Count II for nondisclosure.[1] (Order at 10.)
In
filing their Motion for Reconsideration, Plaintiffs argue
that the Court erred in dismissing Count II because it may be
used as an alternative theory of liability if a jury finds
that Plaintiffs and Defendant did not share a confidential
relationship and thus Plaintiffs may not seek relief under
constructive fraud. (Mot. at 1.) The Court agrees that §
551 of the Restatement provides ways other than a
confidential relationship to create the duty to disclose
which Plaintiffs allege Defendant violated in this case.
Specifically, Plaintiffs argue that their Count II should
survive because Defendant had a duty to disclose certain
material facts under subsections (b) and (e) of §
551(2).
The
Court does not find plausible Plaintiffs' application of
subsection (e), which creates a duty for a “party to a
business transaction” to “exercise reasonable
care to disclose . . . (e) facts basic to the
transaction.” Restatement (Second of Torts) §
551(2)(e) (Am. Law Inst. 1977). Upon a reading of the
relevant subsection and comments to the Restatement, the
Court finds that this subsection does not apply to the
alleged omissions at hand because they do not plausibly give
rise to a scenario where “the advantage taken of the
plaintiff's ignorance is so shocking to the ethical sense
of the community, and is so extreme and unfair, as to amount
to a form of swindling, in which the plaintiff is led by
appearances into a bargain that is a trap, of whose essence
and substance he is unaware.” Id. Plaintiffs
allege no facts that plausibly paint Defendant's alleged
omissions as “facts basic to the
transaction.”[2]
Subsection
(b) creates a duty for a “party to a business
transaction” to disclose “matters known to him
that he knows to be necessary to prevent his partial or
ambiguous statement of the facts from being
misleading.” Restatement (Second) of Torts §
551(2)(b) (Am. Law Inst. 1977). While Plaintiffs make their
argument on this point clear in the Motion for
Reconsideration, the Court must squint to see this theory of
fraud liability anywhere in Plaintiffs' Complaint or
other filings. Plaintiffs allege that Defendant made several
omissions (SAC ¶ 95) but never articulate how those
omissions rendered other statements misleading. Even in
Plaintiffs' Response to Defendant's Motion to
Dismiss, this theory is reflected in only one sentence that
states merely that “[o]ne who fails to disclose
material facts necessary to make his representations not
misleading is guilty of fraud.” (Doc. 34 at 9.) That
sentence is within a section pertaining to Defendant's
affirmative representations, which the Court already
concluded do not constitute actionable representations for
the purposes of Count II. (Doc. 34 at 8-9.)
Even
given an apparent lack of foresight by Plaintiffs, the Court
concludes that their argument is ultimately correct.
Plaintiffs plausibly allege that Defendant's omissions
rendered its other statements misleading or
ambiguous.[3] And this theory may be important to
Plaintiffs' case in the event that a jury finds they did
not share a confidential relationship with Defendant, thus
disposing of their claim for constructive fraud. Under this
line of reasoning, Plaintiffs' claim for fraudulent
omissions (nondisclosure) should have survived
Defendant's Motion to Dismiss. See Cousins v.
Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009) (finding
that when analyzing a complaint for failure to state a claim
for relief under Rule 12(b)(6), the well-pled factual
allegations are taken as true and construed in the light most
favorable to the nonmoving party).
II.
Motion for Leave to File Counterclaims
On June
6, 2019, Defendant filed a Motion for Leave to File
Counterclaims (Doc. 81, Mot. for Counterclaims). Defendant
seeks permission under Fed.R.Civ.P. 15(a)(2) to amend its
Answer to include five permissive counterclaims for trademark
infringement, federal unfair competition, common law unfair
competition, federal cybersquatting, and breach of contract.
(Doc. 81-1 at 6-8.) But Defendant's Motion comes long
after the deadline for amended pleadings, set for September
14, 2018. (Doc. 44 at 2.) While the Court granted
Defendant's Motion to Stay Discovery (Doc. 62) and
thereafter entered a revised Scheduling Order (Doc. 73), that
Scheduling Order did not set a new deadline for amended
pleadings. Instead, the revised Scheduling Order, which was
adopted from the parties' proposed Order, listed the
deadline as “n/a.” (Doc. 73 at 2.) Thus, the
September 14, 2018 deadline was unchanged and neither party
contemplated amending their pleadings any further.
While a
party may still amend a pleading after the deadline set in a
Scheduling Order, Fed.R.Civ.P. 16 dictates that “[a]
schedule may be modified only for good cause and with the
judge's consent.” Thus, once a deadline for amended
pleadings has passed, the Court may consider whether
amendment would be proper under Rule 15 only after a party
has shown good cause under Rule 16. Under the Rule 16
“good cause” standard, “[t]he district
court may modify the pretrial schedule if it cannot
reasonably be met despite the diligence of the party seeking
the extension.” Johnson v. Mammoth Rec., Inc.,
975 F.2d 604, 609 (9th Cir. 1992) (internal quotation
omitted). And “[a]lthough the existence or degree of
prejudice to the party opposing the modification might supply
additional reasons to deny a motion, the focus of the inquiry
is upon the moving party's reasons for seeking
modification.” Id.
Defendant
argues that it was diligent in seeking to add counterclaims
and that it could not have done so any earlier than when it
filed its Motion on June 24, 2019. (Reply at 8.) Defendant
alleges it was mere days before that when its current Phoenix
dealership owner alerted Defendant that Plaintiffs were still
operating the website which Defendant alleges constitutes
trademark infringement. (Reply at 10.) But the Court finds
that Defendant fails to show that its “noncompliance
with a Rule 16 deadline occurred . . . because of the
development of matters which could not have been reasonably
foreseen or anticipated at the time of the Rule 16 scheduling
conference.” Morgal v. Maricopa Cty. Bd. Of
Supervisors, 284 F.R.D. 452, 460 (D. Ariz. 2012)
(quoting Grant v. United States,
11-CV-00360-LKK-KJN, 2011 WL 5554878 at *4 (E.D. Cal. Nov.
15, 2011). Similarly, Defendant does not carry its burden to
show that it “was diligent in seeking amendment of the
Rule 16 order, once it became apparent that [it] could not
comply with the order.” Id.
Plaintiffs
have owned and operated the domain name at issue since at
least 2017. And while Defendant may be correct that ownership
of a domain name, without use of it, does not give rise to
trademark infringement liability, Defendant does not argue
that Plaintiff was not using its website for the last two
years. Rather, Defendant argues that “[w]hile
[Defendant] was previously aware of Plaintiff's prior
registration of www.steinwayarizona.com, it was unaware that
Plaintiffs continued to use the domain name in 2018 and
2019.” (Reply at 8.) It is not enough that Defendant
was ignorant of the continued use of the domain name. In
order to show it was diligent, Defendant must have shown it
believed Plaintiffs had ceased use of the website and had
only recently resumed using it, thereby ...