Arizona Grain Incorporated v. Barkley Ag Enterprises LLC

Opinion

1 WO 2 3 4 5

9 Arizona Grain Incorporated, et al., No. CV-18-03371-PHX-GMS

10 Plaintiffs, ORDER

11 v.

12 Barkley Ag Enterprises LLC, et al.,

13 Defendants. 14 Northern Agri Brands, LLC,

15 Counterclaim Plaintiff,

16 v.

17 Arizona Plant Breeders, Inc., et al.,

18 Counterclaim Defendants. 19 Northern Agri Brands, LLC, 20 Third-Party Plaintiff, 21 v. 22 Eric Wilkey; et al., 23 Third-Party Defendants. 24 25

26 27 Pending before the Court is Northern Agri Brands, LLC’s (“NAB”) Motion for 28 Leave to File Its Fourth Amended Answer & Affirmative Defenses to First Amended 1 Complaint & Counterclaims & Third-Party Complaint. (Doc. 144.) Also before the Court 2 are NAB’s motions to seal. (Docs. 145, 156, 159.) For the following reasons, the motion 3 for leave to amend is granted in part and denied in part; the motion to seal the Fourth 4 Amended Answer is granted in part and denied in part; and the motions to seal Exhibit F 5 and NAB’s reply are granted. 7 NAB is a seed company with an internal research and development division that 8 sells seed products to farms. Several of NAB’s seed products are varieties of triticale, a 9 hybrid of wheat and rye. Defendants Arizona Plant Breeders, Inc. and Arizona Grain, Inc. 10 (collectively, “APB”) also produce triticale. In 2015, NAB observed awnless triticale 11 varieties in various stages of growth and development in APB test plots. NAB became 12 concerned that the awnless triticale varieties observed in APB plots were either (1) the 13 product of unauthorized use of NAB’s breeding materials and other patented awnless 14 triticale varieties that were misappropriated by Oly Cantu prior to his departure from 15 Syngenta, NAB’s predecessor-in-interest, or (2) the product of APB’s unauthorized and 16 illegal efforts to breed against NAB’s patented awnless triticale varieties, or (3) both. 17 APB filed suit against NAB in October 2018. (Doc. 1.) The First Amended 18 Complaint, filed in March 2019, requested declaratory judgments that APB had not 19 infringed the Plant Variety Protection Act (“PVPA”) or misappropriated trade secrets and 20 alleged tortious interference with prospective business relations, unfair competition, aiding 21 and abetting tortious conduct, and civil conspiracy. (Doc. 16.) In April 2019, NAB filed 22 its Answer, Counterclaim, and Third-Party Complaint. (Doc. 25.) NAB has amended this 23 filing three times. (Docs. 63, 74, 103.) The Third Amended Counterclaim asserted eight 24 claims for relief: infringement of PVPA Certificate No. 201200083; infringement of the 25 ‘219 patent; trade secret misappropriation under Arizona, California, and federal law; 26 conversion; unjust enrichment; and Lanham Act violation. (Doc. 103.) In August 2020, 27 the Court dismissed the unjust enrichment and Lanham Act claims. (Doc. 117.) 28 NAB now moves for leave to amend for the fourth time. (Doc. 144.) Since NAB’s 1 filing for leave to amend, the Court dismissed all claims against Third-Party Defendant 2 Lockwood Seed and Grain (“Lockwood”). (Doc. 179.) 3 Additionally, NAB filed a motion to seal the proposed Fourth Amended 4 Counterclaim and accompanying exhibits. (Doc. 145.) NAB then filed notice that it was 5 withdrawing the confidentiality designation of Exhibits C, D, E, G, H, and I lodged under 6 seal. (Doc. 154.) NAB further clarified that what remains to be decided in Doc. 145 is 7 whether Exhibit F, Exhibit J, and paragraphs 80 to 91 of the proposed Fourth Amended 8 Counterclaim should be filed under seal. (Doc. 155.) NAB also moves to seal its reply to 9 the motion to amend. (Doc. 159.) 11 I. Motions to Seal 12 a. Legal Standard 13 A party seeking to seal portions of a pleading must “articulate [ ] compelling reasons 14 supported by specific factual findings that outweigh the general history of access and the 15 public policies favoring disclosure, such as the public interest in understanding the judicial 16 process” and “significant public events.” Kamakana v. City & Cnty. of Honolulu, 447 F.3d 17 1172, 1178–79 (9th Cir. 2006) (internal citations and quotations omitted). The court must 18 “balance [ ] the competing interests of the public and the party who seeks to keep certain 19 judicial records secret. After considering these interests, if the court decides to seal certain 20 judicial records, it must base its decision on a compelling reason and articulate the factual 21 basis for its ruling, without relying on hypothesis or conjecture.” Id. at 179 (internal 22 citations and quotations omitted). 23 A good cause standard, on the other hand, applies to documents attached to non- 24 dispositive motions because such documents are often “unrelated, or only tangentially 25 related, to the underlying cause of action.” Phillips v. G.M. Corp., 307 F.3d 1206, 1213 26 (9th Cir. 2002) (internal quotations and citation omitted). “Generally, a motion for leave 27 to amend the pleadings is considered non-dispositive.” U.S. for use & benefit of Source 28 Helicopters, Div. of Rogers Helicopters, Inc. v. Sayers Constr., LLC, No. 2:19-CV-1602 1 JCM (EJY), 2020 WL 3643431, at *2 (D. Nev. July 6, 2020) (citing U.S. Dominator, Inc. 2 v. Factory Ship Robert E. Resoff, 768 F.2d 1099, 1102 n.1 (9th Cir. 1985), superseded by 3 statute on other grounds as recognized in Simpson v. Lear Astronics Corp., 77 F.3d 1170 4 (9th Cir. 1996)). 5 b. Analysis 6 Exhibit F, Exhibit J, and paragraphs 80 to 91 of the proposed Fourth Amended 7 Counterclaim refer to information that is non-public and designated as “HIGHLY 8 CONFIDENTIAL – ATTORNEYS’ EYES ONLY” pursuant to the Court’s protective 9 order, (Doc. 46). Accordingly, the Court grants NAB’s motion to seal Exhibit F, Exhibit 10 J, and paragraphs 80 to 91. Additionally, as there is good cause appearing, NAB’s motion 11 to seal its reply is granted. (Doc. 159.) 12 II. Motion to Amend1 13 a. Legal Standard 14 Federal Rule of Civil Procedure 15(a) provides that leave to amend shall be freely 15 given when “justice so requires.” Fed. R. Civ. P. 15(a). “But a district court need not grant 16 leave to amend where the amendment: (1) prejudices the opposing party; (2) is sought in 17 bad faith; (3) produces an undue delay in litigation; or (4) is futile.” AmerisourceBergen 18 Corp. v. Dialysist W., Inc., 465 F.3d 946, 951 (9th Cir. 2006). Leave to amend lies within 19 “the sound discretion of the trial court”; however, this Circuit has instructed that Rule 15’s 20 policy favoring amendment “should be applied with extreme liberality.” DCD Programs, 21 Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987). The party opposing amendment bears 22 the burden of establishing futility or one of the other permissible reasons for denying a 23 motion to amend. Angel Jet Servs., L.L.C. v. Raytheon Health Benefits Plan, No. 2:10- 24 CV-01385-PHX-JAT, 2011 WL 744917, at *2 (D. Ariz. Feb. 25, 2011). 25 b. Analysis 26 1. Undue Delay 27 In evaluating undue delay, courts not only inquire into whether the motion was filed

28 1 As Lockwood is dismissed from this action, leave to amend is denied as moot to the extent that the amendments assert claims against Lockwood. 1 within the time allotted in a Rule 16 scheduling order, but also inquire into “whether the 2 moving party knew or should have known the facts and theories raised by the amendment 3 in the original pleading.” AmerisourceBergen Corp., 465 F.3d at 953 (internal quotations 4 and citation omitted). The Ninth Circuit has made it clear that “‘[u]ndue delay by itself . . . 5 is insufficient to justify denying a motion to amend.’” Owens v. Kaiser Found. Health 6 Plan, Inc., 244 F.3d 708, 712–13 (9th Cir. 2001) (quoting Bowles v. Reade, 198 F.3d 752, 7 758 (9th Cir. 1999)). “Only where prejudice is shown or the movant acts in bad faith are 8 courts protecting the judicial system or other litigants when they deny leave to amend a 9 pleading.” United States v. Webb, 655 F.2d 977, 980 (9th Cir. 1981) (quoting Howey v. 10 United States, 481 F.2d 1187, 1191 (9th Cir. 1973)). 11 NAB filed leave for amend on March 23, 2021, the last day allotted for amended 12 pleadings in the case management order. (Doc. 126.) NAB’s timely filing weighs against 13 a finding of undue delay. See, e.g., Toungate v. Konica Minolta Bus. Sols., USA, Inc., No. 14 C08-0423RL, 2009 WL 596597, at *6 (W.D. Wash. Mar. 9, 2009) (“Although the manner 15 in which plaintiffs have chosen to pursue their case is inefficient and somewhat befuddling, 16 the Court cannot say that the delay is undue since they have met the Court-imposed 17 deadline.”). Furthermore, APB has not shown that the facts and theories raised in the 18 amendments could have been brought earlier. NAB argues that it could not have brought 19 its new claims earlier because the facts supporting the new claims were discovered during 20 depositions taken in February and March 2021. (Doc. 144 at 3.) NAB asserts that, during 21 the depositions, it learned that APB cannot establish proper acquisition of NAB’s varieties, 22 which provides support for its PVPA infringement claims and breach of contract claim, 23 and discovered the true filing date for APB’s APB249 PVPA application, which provides 24 support for its PVP Certificate No. 202000153 and false marking claims. (Doc. 160 at 12– 25 13.) APB has not shown that the documents it previously disclosed, or NAB’s own 26 documents, would have necessarily contained this information. Accordingly, APB fails to 27 show undue delay. 28 1 2. Undue Prejudice 2 Substantial prejudice exists where the proposed amendments “would have greatly 3 altered the nature of the litigation and would have required defendants to have undertaken, 4 at a late hour, an entirely new course of defense.” SAES Getters S.p.A. v. Aeronex, Inc., 5 219 F. Supp. 2d 1081, 1086 (S.D. Cal. 2002). “Neither delay resulting from the proposed 6 amendment nor the prospect of additional discovery needed by the non-moving party in 7 itself constitutes a sufficient showing of prejudice.” Tyco Thermal Controls LLC v. 8 Redwood Indus., No. C 06-07164 JF (RS), 2009 WL 4907512, at *3 (N.D. Cal. Dec. 14, 9 2009); see also Dep’t of Fair Emp. & Hous. v. Law Sch. Admission Council, Inc., No. 10 C-12-1830 EMC, 2013 WL 485830, at *5 (N.D. Cal. Feb. 6, 2013) (“Ninth Circuit case 11 law indicates that prejudice may effectively be established by demonstrating that a motion 12 to amend was made after the cutoff date for such motions, or when discovery had closed 13 or was about to close.”). 14 As mentioned above, NAB filed for leave to amend prior to the cutoff date for 15 amending pleadings. NAB also filed for leave to amend about two months prior to the 16 close of discovery. (Doc. 123.) Other than conclusory assertions that the new claims will 17 significantly prolong the litigation and potentially force APB to redo discovery, APB does 18 not provide further detail. Additionally, APB has not shown that it was completely without 19 notice regarding the nature of the proposed claims. NAB’s discovery requests indicated 20 its interest in the sourcing of APB’s genetic material. (Doc. 160 at 9.) Accordingly, APB 21 fails to show substantial prejudice. 22 3. Futility 23 “[L]eave to amend may be denied . . . if amendment of the complaint would be 24 futile.” Dakota Territory Tours ACC v. Sedona-Oak Creek Airport Auth. Inc., 383 F. Supp. 25 3d 885, 899 (D. Ariz. 2019) (quoting Albrecht v. Lund, 845 F.2d 193, 195 (9th Cir. 1988)). 26 “A proposed amendment is futile if it fails to state a cognizable claim and would be subject 27 to dismissal under Rule 12(b)(6).” Simms v. DNC Parks & Resorts at Tenaya, Inc., No. 28 1:13-CV-2075 SMS, 2015 WL 1956441, at *2 (E.D. Cal. Apr. 29, 2015) (citing Cervantes 1 v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1041 (9th Cir. 2011)). 2 To survive a Rule 12(b)(6) motion to dismiss, a plaintiff must allege “enough facts 3 to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 4 544, 570 (2007). “A claim has facial plausibility when the pleaded factual content allows 5 the court to draw the reasonable inference that the defendant is liable for the misconduct 6 alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). A plaintiff must set forth “the 7 grounds of his entitlement to relief,” which “requires more than labels and conclusions, 8 and a formulaic recitation of the elements of a cause of action.” Twombly, 550 U.S. at 555. 9 Factual allegations are accepted as true, but legal conclusions are not. Iqbal, 556 U.S. at 10 678. In the futility context, however, all inferences should be made in favor of granting 11 leave to amend. Angel Jet Servs., 2011 WL 74417, at *2 (citing Griggs v. Pace Am. Grp., 12 Inc., 170 F.3d 877, 880 (9th Cir.1999)). 13 A. PVPA Infringement Claims 14 APB fails to show that the PVPA infringement claims are futile on the grounds of 15 statute of limitations or because the PVPA’s research exemption applies. First, 7 U.S.C. 16 § 2566(a), which APB relies on for its statute of limitations argument, does not bar NAB 17 from asserting the infringement claims. 7 U.S.C. § 2566(a) is titled “[t]ime limitation on 18 damages” and provides that “[n]o recovery shall be had for that part of any infringement 19 committed more than six years (or known to the owner more than one year) prior to the 20 filing of the complaint or counterclaim for infringement in the action.” Although this 21 section may limit the amount of damages NAB can recover, it does not set a time limit on 22 when NAB may bring the infringement claims. 23 Further, NAB plausibly claims that the research exemption does not apply here. 7 24 U.S.C. § 2544 states that “[t]he use and reproduction of a protected variety for plant 25 breeding or other bona fide research shall not constitute [ ] infringement.” (emphasis 26 added). NAB alleges that “all of the breeding materials used in APB’s triticale breeding 27 program were not properly, nor legally obtained.” (Doc. 147 ¶ 107.) As NAB alleges that 28 APB’s actions in connection with its breeding program were not bona fide, it is plausible 1 that the research exemption does not bar NAB’s infringement claims. 2 B. Breach of Contract 3 In its proposed breach of contract claim, NAB alleges that, to the extent APB 4 properly acquired the Syngenta triticale seed and germplasm, it was purchased pursuant to 5 terms of use on the seed bag and that the terms of use prohibit use for any purpose other 6 than growing a single forage crop. Id. ¶¶ 184–86. NAB asserts that APB violated the terms 7 of use by using the seeds and germplasm in their triticale breeding program. Id. ¶ 190. 8 Drawing all reasonable inferences in favor of NAB, NAB plausibly states a claim for 9 breach of contract. Additionally, APB does not establish whether this claim is time barred. 10 Accordingly, APB fails to show futility. 11 4. Bad Faith 12 “A motion to amend is made in bad faith where there is ‘evidence in the record 13 which would indicate a wrongful motive’ on the part of the litigant requesting leave to 14 amend.” Nutrition Distrib., LLC v. Enhanced Athlete, Inc., No. 2:17-cv-01491-TLN-KJN, 15 2019 WL 1429549, at *2 (E.D. Cal. Mar. 29, 2019) (quoting DCD Programs, Ltd. v. 16 Leighton, 833 F.2d 183, 187 (9th Cir. 1987)). For instance, bad faith is shown when “the 17 plaintiff merely is seeking to prolong the litigation by adding new but baseless legal 18 theories.” Griggs v. Pace Am. Grp., Inc., 170 F.3d 877, 881 (9th Cir. 1999). 19 As discussed above, the Court does not find NAB’s additional claims to be without 20 legal basis or that APB is completely without notice of the content of the amendments. 21 Additionally, APB’s assertions that NAB’s amendments are part of “NAB’s ultimate goal 22 of disrupting APB’s competing triticale program” are not enough to establish bad faith. 23 (Doc. 151 at 4.) 25 For the reasons provided above, NAB’s motion for leave to amend is granted, except 26 for proposed amendments related to Lockwood. To the extent these amendments require 27 additional discovery or alterations to the case management order, the parties may move to 28 amend the case management order. Additionally, paragraphs 80 to 91 of the proposed 1 Fourth Amended Counterclaim, Exhibit F, Exhibit J, and NAB’s reply will be sealed. 2 Accordingly, 3 IT IS THEREFORE ORDERED that Northern Agri Brands, LLC’s Motion for 4 Leave to File Its Fourth Amended Answer & Affirmative Defenses to First Amended 5 Complaint & Counterclaims & Third-Party Complaint (Doc. 144) is GRANTED in part 6 and DENIED in part. The motion is denied as moot to the extent that it brings additional 7 claims against Lockwood Seed and Grain. NAB shall file and serve the Fourth Amended 8 Answer & Affirmative Defenses & Counterclaims & Third-Party Complaint within 9 fourteen (14) days of the filing of this Order. 10 IT IS FURTHER ORDERED that Northern Agri Brands Motion for Leave to File 11 Its Fourth Amended Answer & Affirmative Defenses to First Amended Complaint & 12 Counterclaims & Third-Party Complaint and Exhibits C through J Under Seal (Doc. 145) 13 is GRANTED in part and DENIED in part as follows: 14 1. Northern Agri Brands shall publicly file its Fourth Amended Counterclaim with 15 all Exhibits, including Exhibits C through J in redacted form, on or before 16 4:00 p.m. on July 26, 2021. 17 2. The Clerk of Court is directed to file under seal lodged Docs. 146 and 147. 18 IT IS FURTHER ORDERED that Northern Agri Brands, LLC’s Motion for Leave 19 to File Exhibit F Under Seal in Support of Its Fourth Amended Answer & Affirmative 20 Defenses to First Amended Complaint & Counterclaims & Third-Party Complaint 21 (Doc. 156) is GRANTED. The Clerk of Court is directed to file under seal lodged 22 Doc. 157. 23 / / / 24 / / / 25 / / / 26 / / / 27 / / / 28 1 IT IS FURTHER ORDERED that Northern Agri Brands, LLC’s Motion for Leave || to File Its Reply Re Its Motion for Leave to File Its Fourth Amended Answer & Affirmative || Defenses to the First Amended Complaint & Counterclaims & Third-Party Complaint and 4|| Exhibits K-V Under Seal (Doc. 159) is GRANTED. The Clerk of Court is directed to file 5 || under seal lodged Doc. 160. 6 Dated this 23rd day of July, 2021. Wars ) A Whacrsay Sooo) 9 Chief United States District Judge 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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