1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 TRADESHIFT, INC., 10 Case No. 20-cv-01294-RS Plaintiff, 11 v. ORDER DENYING MOTION FOR 12 RELIEF FROM NONDISPOSITIVE BUYERQUEST, INC., et al., ORDER OF MAGISTRATE JUDGE; 13 GRANTING LEAVE TO AMEND Defendants. COMPLAINT AND LEAVE TO 14 AMEND ANSWER; DENYING MOTIONS FOR SUMMARY 15 JUDGMENT; AND DENYING MOTIONS TO SEAL AND 16 EVIDENTIARY MOTIONS 17
18 I. INTRODUCTION 19 This order deals with a cavalcade of motions brought by Tradeshift and BuyerQuest. First, 20 Tradeshift seeks relief from the magistrate judge’s order denying them discovery on a breach of 21 contract theory that was not pled in its complaint. In the alternative, Tradeshift moves to amend its 22 complaint to reflect its new confidentiality breach theory. BuyerQuest, for its part, seeks to amend 23 its answer to add additional affirmative defenses. Both sides also move for summary judgment. 24 Finally, both sides wish to seal various documents and raise evidentiary objections. 25 The magistrate judge’s order is entitled to deference, and Tradeshift cannot clear the high 26 bar of showing it was clearly erroneous. So, its motion for relief is denied. Tradeshift seeks to 27 salvage its breach of contract claim through a contingent motion to amend its complaint. Although 1 this new theory. With the original trial schedule, this may have caused prejudice to BuyerQuest. 2 However, the trial must now be delayed for reasons unrelated to this case. Given this delay, there 3 is ample time for additional discovery, preventing any prejudice. Leave to amend the complaint is 4 granted; leave to amend the answer is granted for the same reason. 5 Trying to tell the story of this case reveals why both parties’ summary judgment motions 6 must be denied. Tradeshift signed a contract with J.M. Smucker, Inc. (“Smucker”) to provide it 7 software. Or did they? BuyerQuest claims there was no contract because it was fraudulently 8 induced. Each side claims the other breached the contract. Tradeshift claims BuyerQuest 9 intentionally tanked its contract with Smucker; BuyerQuest says it was trying to save the project. 10 Clearly, there are genuine disputes about material facts. 11 Finally, there are two administrative sets of motions. The parties raise various evidentiary 12 objections, nearly all of which are procedurally improper, and so will be disregarded. The properly 13 raised objections are considered and denied. The parties’ requests to seal many exhibits and large 14 chunks of their papers are denied as overbroad, without prejudice to bringing a properly 15 formulated, narrower request to seal. 16 II. BACKGROUND 17 Tradeshift, a Delaware corporation headquartered in San Francisco, sells operations 18 software. In 2019, Smucker solicited proposals for new e-procurement software. Tradeshift 19 coordinated with BuyerQuest, a company incorporated and headquartered in Ohio which makes 20 such software, to respond jointly to Smucker’s vendor search. Smucker ultimately selected 21 Tradeshift as its new vendor, with BuyerQuest acting as a subcontractor. In June 2019, Tradeshift 22 entered into an agreement with Smucker (the “Smucker Services Agreement”) pursuant to which 23 Tradeshift would provide Smucker with a subscription to software for five years, along with 24 implementation services. In return, Smucker would pay Tradeshift over $5 million. The Smucker 25 Services Agreement also listed BuyerQuest as a “key subcontractor.” 26 Under the Smucker Services Agreement, Smucker would pay Tradeshift only. Tradeshift 27 and BuyerQuest entered into separate agreements that called for Tradeshift to pay BuyerQuest a 1 portion of the annual subscription fees. Tradeshift’s contractual relationship with BuyerQuest was 2 principally governed by the “Master Agreement for the Tradeshift Partner Program” (hereafter 3 “Partner Agreement”), executed on June 7, 2019. The Partner Agreement contained a 4 confidentiality clause that precluded either party using or disclosing the other’s confidential 5 information for any purpose beyond performing the contract. The Partner Agreement did not 6 reference the Smucker Services Agreement or Smucker generally. The parties also signed a “Cross 7 Selling Attachment,” and “reseller order form” through which BuyerQuest, as “Provider,” agreed 8 to provide certain BuyerQuest subscriptions and services to Tradeshift, as “Reseller,” for use in 9 the Smucker project. Work on the Smucker project began in July 2019, and problems soon arose. 10 On January 16, 2020, Smucker sent a letter to Tradeshift purporting to terminate the Smucker 11 Services Agreement based on alleged misrepresentations by Tradeshift concerning its product 12 capabilities. The letter also noted “all the documented misrepresentations were in connection with 13 the capabilities of the Tradeshift [software], not those represented as part of the BuyerQuest 14 [software].” Cmplt. ¶ 19. 15 Tradeshift was caught off guard by this letter, and denies making any such 16 misrepresentations to Smucker. Tradeshift contacted BuyerQuest, and allegedly told Tradeshift it 17 had been communicating directly with Smucker about Smucker’s decision to terminate the 18 agreement and the Smucker project generally, without including Tradeshift as was required under 19 the Statement of Work attached at Exhibit F to the Reseller Order Form. According to 20 BuyerQuest, however, such direct communications with Smucker were permissible because there 21 was no longer an agreement between Tradeshift and Smucker. The parties exchanged a series of 22 follow-up letters, and this lawsuit followed. 23 Based on discovery, Tradeshift now alleges BuyerQuest never intended to honor its 24 agreement. Tradeshift believes BuyerQuest intended for Tradeshift to acquire it, and when that 25 failed to happen, it pivoted to plotting to replace Tradeshift in its contract with Smucker. To that 26 end, in October 2019, BuyerQuest launched an informal effort nicknamed “Operation Fyrefest,” 27 so named for the notorious music festival in which the promoters entirely failed to deliver the 1 promised product, stranding attendees on a beach. In Tradeshift’s telling, the plan was to sabotage 2 and defame Tradeshift, making it seem incompetent. Tradeshift points to numerous emails in 3 which BuyerQuest’s CEO, Jack Mulloy, reveals these intentions, e.g. where he wrote he “planted 4 the seed” that Tradeshift was incompetent and in financial trouble, and that BuyerQuest should 5 take over. Declaration of Jason Yu, Ex. 39, Dkt. No. 130-27. Mulloy wrote that despite being a 6 contractor only to Tradeshift, “[r]egardless of what contract BQ has with TS, BuyerQuest’s 7 commitment is to Smucker’s … I can’t emphasize this enough.” Yu Decl., Ex. 49, Dkt. No. 130- 8 37. As part of this operation, he communicated with Jason Barr, a leader of the project at Smucker. 9 Mulloy voiced his misgivings about Tradeshift, which led to Smucker conducting a “vendor risk 10 assessment” with the potential for changing the terms of the project. Yu Decl., Ex. 21, Dkt. No. 11 130-11. Mulloy followed up with negative information about Tradeshift from the website 12 Glassdoor, in which employees can post information about their experiences interviewing with 13 and working for organizations. Id. The next day, Barr invited Mulloy for a meeting to discuss 14 replacing Tradeshift on the project. Yu Decl., Ex. 56, Dkt. No. 130-43. Smucker began to 15 investigate Tradeshift’s finances, and Mulloy continued to denigrate Tradeshift. Yu Decl., Ex. 25, 16 Dkt. No. 130-18. 17 In December 2019, before the contract was terminated, BuyerQuest prepared to take over 18 from Tradeshift. Yu Decl., Ex. 30, Dkt. No. 130-18. As part of this effort BuyerQuest’s Chief 19 Product Officer, Salman Siddiqui, used Tradeshift’s confidential information to develop software 20 that would allow BuyerQuest to replace Tradeshift. Yu Decl., Exs. 1, 4, 55. Dkt Nos. 131-2, 131- 21 5, 131-21. Specifically, another BuyerQuest employee sent him a “Tradeshift solutions doc” and a 22 “Tradeshift configuration sheet” and met to discuss how BuyerQuest could implement 23 Tradeshift’s existing and anticipated features. Yu Decl., Exs. 33, 37, Dkt. No 131-19. 24 BuyerQuest’s efforts to replace Tradeshift culminated in a formal presentation to Smucker in 25 January 2020. Yu Decl., Ex. 35, Dkt. No., 130-23. Apparently, BuyerQuest’s plan worked. 26 Smucker’s reasons for terminating Tradeshift included the fact that BuyerQuest had provided a 27 contingency plan. Yu Decl., Ex. 46, Dkt. No. 130-34. 1 In BuyerQuest’s telling, Operation Fyrefest was a good faith effort to get paid and ensure 2 the project’s success despite Tradeshift’s failures. BuyerQuest was not instigating a disaster but 3 making contingency plans for the one it saw unfolding. According to its bid to Smucker, 4 Tradeshift represented it had 2018 revenue of $300-$500 million. Declaration of Anthony Phillips, 5 Ex. C, Dkt. No. 128-6. In fact, BuyerQuest alleges, its revenue that year was just over $30 million, 6 and it lost well over $100 million. Philips Decl., Ex. F, Dkt. No. 128-9. When Tradeshift failed to 7 pay BuyerQuest on time, BuyerQuest began communicating its concerns to Smucker to increase 8 its chance of getting paid, perhaps by Smucker directly. BuyerQuest also claims Tradeshift 9 misrepresented its ability to provide several essential functions Smucker required; Smucker is 10 suing Tradeshift for those misrepresentations. Philips Decl., Ex. E, Dkt. No. 128-8. BuyerQuest 11 places great emphasis on Smucker deposition testimony claiming the decision to terminate the 12 contract with Tradeshift was Smucker’s alone, because of Tradeshift’s failures and 13 misrepresentations. Philips Decl., Exs. O and GG, Dkt. No. 128-9 and 128-37. BuyerQuest also 14 points to non-exclusivity portions of the Partnership Agreement and other contracts which allow 15 BuyerQuest to solicit a contract with the client at any time, or to develop competing products. 16 Finally, BuyerQuest highlights that the agreement it signed with Tradeshift contained several 17 provisions limiting liability, such as those precluding liability for special damages. 18 In its complaint, Tradeshift specifically avers BuyerQuest breached the Partner Agreement, 19 the Cross Selling Attachment, and the Reseller Order Form by failing to obtain Tradeshift’s 20 consent before making changes to the scope of the Smucker project, and by failing to support 21 Tradeshift with certain aspects of the Smucker project implementation. Tradeshift further avers 22 BuyerQuest breached by refusing to perform any additional work under the agreements following 23 Smucker’s purported termination. Tradeshift also now avers BuyerQuest misused its confidential 24 information. 25 Tradeshift also brings claims for breach of the covenant of good faith and fair dealing 26 based on BuyerQuest’s alleged disparagement of Tradeshift’s products to Smucker and for 27 BuyerQuest’s refusal to continue performance under its agreements with Tradeshift following 1 Smucker’s termination. Finally, Tradeshift brings a claim for tortious interference, averring 2 BuyerQuest intentionally interfered in Tradeshift’s Smucker Services Agreement by disparaging 3 Tradeshift to convince Smucker to terminate its relationship with Tradeshift. 4 A previous motion to dismiss was denied. As described above, Tradeshift learned during 5 discovery that BuyerQuest had, in Tradeshift’s view, misused confidential information, 6 specifically by sending Tradeshift documents to its product development team. Tradeshift sought 7 material from additional custodians for the period after Smucker terminated its contract with 8 Tradeshift. The Magistrate Judge denied its request, holding that the new theory of liability was 9 outside the complaint. Dkt. No. 94. Tradeshift objects to that ruling; in the event the order is 10 upheld, it seeks leave to amend. BuyerQuest also seeks leave to amend its answer to add 11 affirmative defenses, add factual support for existing defenses, and to abandon some defenses. 12 Both parties also move for summary judgment, and to seal parts of their motions and supporting 13 exhibits. After the parties’ briefing had been submitted, a scheduling conflict necessitated moving 14 the trial date at least several months later than planned. 15 III. LEGAL STANDARD 16 A. Relief from Discovery Order 17 As the magistrate judge rightly noted, relevance for discovery purposes must be framed by 18 the pleadings, and a complaint has to say more than “the defendant breached the contract.” The 19 complaint must give notice under Rule 8 of what the breaches were, plus enough factual material 20 in the complaint to satisfy Twombly and Iqbal. 550 U.S. 544 (2007); 556 U.S. 662 (2000). Those 21 factual allegations must be considered to measure relevance and proportionality. A district judge 22 considering objections to a magistrate judge's nondispositive order must defer to it unless it is 23 “clearly erroneous or contrary to law.” Grimes v. City & Cty. of San Francisco, 951 F.2d 236, 241 24 (9th Cir. 1991). 25 B. Leave to Amend Pleadings 26 As a responsive pleading has already been filed in this case, the burden is on defendants as 27 the nonmoving party to establish a basis for denying leave to amend under Federal Rule of Civil 1 Procedure 15. See DCDprograms Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir. 1987). The factors 2 to consider in determining whether to grant leave to amend are (i) undue delay; (ii) prejudice to 3 the opposing party; (iii) futility of the amendment; (iv) bad faith; and (v) whether the moving 4 party has previously amended its pleadings. Foman v. Davis, 371 U.S. 178, 182 (1962). “Undue 5 delay by itself, however, is insufficient to justify denying a motion to amend.” Bowles v. Reade, 6 198 F.3d 752, 758 (9th Cir. 1999). Inferences should be drawn in favor of granting the motion. See 7 Griggs v. Pace Am. Grp., Inc., 170 F.3d 877, 880 (9th Cir. 1999). 8 C. Summary Judgment 9 Under Federal Rule of Civil Procedure 56, summary judgment is appropriate if “there is no 10 genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” 11 Fed. R. Civ. P. 56(a). The moving party “bears the initial responsibility of informing the district 12 court of the basis for its motion, and identifying those portions of [the record] which it believes 13 demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 14 317, 323 (1986). “The non-moving party must then offer evidence of such a caliber that ‘a fair- 15 minded jury could return a verdict for the [nonmoving party] on the evidence presented. The mere 16 existence of a scintilla of evidence in support of the [non-moving party’s] position will be 17 insufficient.’” United States v. Wilson, 881 F.2d 596, 601 (9th Cir. 1989) (quoting Anderson v. 18 Liberty Lobby, Inc., 477 U.S. 242, 252 (1986)). “The deciding court must view the evidence, 19 including all reasonable inferences, in favor of the non-moving party.” Reed v. Lieurance, 863 20 F.3d 1196, 1204 (9th Cir. 2017). 21 D. Evidentiary Issues 22 On summary judgment, “[a] party may object that the material cited to support or dispute a 23 fact cannot be presented in a form that would be admissible in evidence.” Fed. R. Evid. 56(c)(2). 24 Per Local Rules 7-3(a) and 7-3(c), any evidentiary and procedural objections to the motion or 25 opposition must be contained within the brief or reply brief. 26 27 1 E. Sealing Motions 2 To overcome the presumption of public access, a party seeking to seal a document must 3 establish they are sealable pursuant to Local Rule 79-5. The request must be narrowly tailored. To 4 overcome the presumption in favor of public access, there must be “compelling reasons supported 5 by specific factual findings.” Kamakana v. City & Cty. of Honolulu, 447 F.3d 1172, 1178 (9th Cir. 6 2006) (“The mere fact that the production of records may lead to a litigant's embarrassment, 7 incrimination, or exposure to further litigation will not, without more, compel the court to seal its 8 records.”). Under Local Rule 79-5(d)(1)(A) of this court, “[r]eference to a stipulation or protective 9 order that allows a party to designate certain documents as confidential is not sufficient to 10 establish that a document, or portions thereof, are sealable.” 11 IV. DISCUSSION 12 A. Relief from Discovery Order 13 Tradeshift says a BuyerQuest employee improperly forwarded a confidential Tradeshift 14 document to someone on the product development team, so he could copy Tradeshift’s features. 15 Tradeshift seeks discovery from additional custodians showing BuyerQuest did in fact copy 16 Tradeshift’s features after the contract with Smucker was terminated. BuyerQuest disputes 17 whether the documents involved were confidential at all, saying they were jointly created by all 18 the project participants. 19 The magistrate judge denied this request as being well outside the complaint because it 20 does not relate to the conduct that caused the Smucker project to fail. Tradeshift argues the 21 magistrate judge’s order is contrary to law that discovery is not limited to issues raised by the 22 pleadings because “discovery itself is designed to help define and clarify the issues.” Oppenheimer 23 Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978).1 Rule 8, after all, does not require a party to 24 plead every conceivable theory of a claim. In Tradeshift’s view, the complaint only provided 25 1 BuyerQuest is correct that Oppenheimer was issued in the class notice context, but Tradeshift is 26 correct to note it is frequently cited for its holdings regarding complaints generally. For example, see cases cited by BuyerQuest, e.g. Pasadena Oil & Gas Wyoming LLC v. Montana Oil Properties 27 Inc., 320 F. App’x 675, 677 (2009). 1 examples of breach, so this breach is not excluded. Tradeshift says it first became aware of this 2 breach when deposing BuyerQuest’s Chief Product Officer, Salman Siddiqui, and BuyerQuest’s 3 Project Manager Dan Utyuzh in April 2021. Thus, it argues it could not have known about the 4 confidentiality breach at the pleading stage, and it would be unfairly prejudiced if not allowed to 5 amend its complaint. Tradeshift then sent a supplemental interrogatory response asserting this was 6 a breach. Tradeshift points out Coleman held plaintiffs were required to plead their theory in their 7 complaint or make it known during discovery. Coleman v. Quaker Oats, 232 F.3d 1271, 1292 (9th 8 Cir. 2000). BuyerQuest responds that it took some of its depositions before being alerted. 9 Tradeshift also argues the order was based on erroneous findings of fact, but those facts 10 were not the bases for the magistrate judge’s order. Specifically, Tradeshift notes the number of 11 custodians sought would not double, and no deadline had been set to seek leave to amend, so the 12 passing of the deadline for amendment as of right was irrelevant. Tradeshift is correct on both 13 counts, although the former appears to have played little role in the order. The second was not a 14 basis for the order at all because it was not a motion to amend the complaint. The magistrate judge 15 noted this would have supported a timely motion for leave to amend, but did not use the deadline’s 16 passing as a basis for his order. 17 Most importantly, the magistrate judge’s ruling is correct that the original complaint would 18 not put BuyerQuest on notice it was being accused of breaching any confidentiality provisions. 19 The list of breaching conduct which follows “for example” in the complaint, while concededly not 20 meant to be an exhaustive list, are all of a type. The examples are meant to illustrate how 21 BuyerQuest breached the contract in a particular way; none of which involve breaching 22 confidentiality. Nor was there any explicit reference to suspected but then-unproven types of 23 breaches, the “for example” notwithstanding. Under Plaintiff’s theory, as long as it adequately 24 pled one type of breach and included “for example” it could then seek discovery on any breach. 25 While a plaintiff need not plead every conceivable theory of breach, “for example” does not 26 expand the scope without limit. 27 1 Ultimately, the order is not clearly contrary to law. For the reasons explained above, the 2 Magistrate Judge’s order is entitled to deference, and the motion for relief from the order is 3 denied. 4 B. Leave to Amend Complaint 5 Alternatively, Tradeshift moves for leave to amend its complaint. Tradeshift argues its 6 amendment does not add any new claims, as described above, and that even if it is a new theory, 7 leave should be granted. It argues it learned in April 2021 that BuyerQuest allegedly used its 8 confidential information to copy its product. Tradeshift contends this represents a breach of 9 Section 5 of the Tradeshift Partner Program Agreement. The operative language is “The parties 10 agree, unless required by law, not to use or make each other’s Confidential Information available 11 to any third party for any purpose other than as necessary to perform under this Agreement.” Yu 12 Decl., Ex. 19, Dkt. No. 130-9. 13 First, BuyerQuest argues the motion for leave to amend is procedurally improper because 14 Tradeshift has not sought to modify the scheduling order as required by Rule 16. This is incorrect. 15 The scheduling order in this case only set a deadline to amend without leave of the court. 16 Amendment with leave of court is always available subject to it being proper.2 17 i. Undue Delay and Bad Faith 18 BuyerQuest alleges Tradeshift delayed unduly, and did so in bad faith, because it had the 19 documents alerting Tradeshift to the breach in July 2020, and the testimony alerting it to the 20 significance of the documents in April 2021. This would be a delay of at least several months. Yet 21 Tradeshift claims it did not realize this theory might be read as outside its complaint until the 22 disputed discovery order in late May 2021, and it filed this motion about five weeks later. Still, 23 some cases have found undue delay in a similar timeframe. See, e.g., Zeiger v. WellPet LLC, No. 24 2 BuyerQuest also argues it is procedurally improper because Tradeshift did not confer as required 25 by Local Rule 16-2. Tradeshift admits it has not conferred, but notes BuyerQuest can simply “file a statement of non-opposition,” which it has not done. This is irrelevant as Local Rule 16-2 26 applies to motions seeking relief from obligations imposed pursuant to FRCP 16 or 26 or the initial case scheduling order. Meeting and conferring is still best practice, but it is not preclusive 27 of the motion. 1 3:17-CV-04056-WHO, 2020 WL 9160842, at *2 (N.D. Cal. Jan. 22, 2020) (finding undue delay 2 when leave sought 7 weeks after learning of information, and amendment would require additional 3 discovery and delay). Ultimately, this factor is basically a wash, perhaps slightly favoring 4 BuyerQuest as Tradeshift arguably should have realized the documents’ significance earlier or 5 moved to amend even more quickly given the trial schedule at the time. 6 ii. Futility 7 BuyerQuest insists any amendment would be futile, because the documents were not 8 confidential and it did not disclose them to third parties. Instead, BuyerQuest says they were a 9 joint product of Smucker, Tradeshift, and BuyerQuest, and BuyerQuest employees just circulated 10 them internally. Tradeshift counters it authored the vast majority of the documents, and it is not 11 claiming improper disclosure; it avers BuyerQuest misused the information. 12 Tradeshift is correct that the contract prohibits BuyerQuest misusing confidential 13 information, even without disclosure to a third party. Thus, this claim is not futile. Again, the 14 clause binds the parties “not to use or make each other’s Confidential Information available to any 15 third party for any purpose other than as necessary to perform under this agreement.” This 16 sentence prohibits two types of behavior. First, it forbids the parties from making confidential 17 information available to third parties for improper purposes. Second, it prevents the parties from 18 using confidential information for improper purposes. Linking “use” only to “third parties” would 19 be nonsensical. The long clause in the middle about making information available to third parties 20 is perhaps not the best drafting, but its meaning is clear. It would be grammatically incorrect to say 21 the parties agree “not to use each other’s confidential information to any third party.” Instead, 22 “use” relates only to some parts of the sentence, such as: “the parties agree not to use … each 23 other’s confidential information … for any purpose other than as necessary to perform under this 24 agreement.” The limitation of liability clause does not bar Tradeshift’s breach of contract theory, 25 and whether the degree of BuyerQuest’s involvement rendered the document not confidential is a 26 question best left for the jury; it does not render it futile. 27 1 iii. Prejudice 2 Prejudice is the most important factor in considering leave to amend. Eminence Capital, 3 LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). There must be substantial prejudice to 4 overcome the presumption in favor of leave to amend. Morongo Band of Mission Indians v. Rose, 5 893 F.2d 1074, 1079 (9th Cir. 1990). Tradeshift argues amendment is not prejudicial because it 6 does not cause a “radical shift” in the case. Wroth v. City of Rohnert Park, No. 17-CV-05339-JST, 7 2018 WL 6439120, at *3 (N.D. Cal. Dec. 7, 2018). Tradeshift notes BuyerQuest’s own conduct is 8 at issue so no new revelation is involved. In Tradeshift’s view, no discovery is needed even if 9 leave is granted.3 10 Tradeshift also argues BuyerQuest was on notice during discovery and so it has had ample 11 opportunity to take this claim into account. Ur-Rahman v. RadioShack Corp., No. C-07-04427 12 RMW, 2008 WL 2949273, at *2 (N.D. Cal. July 25, 2008) (the court “has no sympathy” for a 13 prejudice argument where a party knows of the desire to add allegations prior to depositions). 14 Specifically it argues BuyerQuest was able to take six of eight depositions of Tradeshift 15 employees after Tradeshift announced its new theory. 16 BuyerQuest replies it would be prejudiced because it would require additional discovery 17 and delay of trial. See Kaplan v. Rose, 49 F.3d 1363, 1370 (9th Cir. 1994); Coleman v. Quaker 18 Oats Co., 232 F.3d 1271, 1294-95 (9th Cir. 2000). As the trial date must now be continued for 19 other reasons, such delay no longer presents a problem, as sufficient time will be available for any 20 additional discovery that may be necessary. Accordingly, BuyerQuest will not face “substantial 21 prejudice” from a complaint amendment. Morongo Band of Mission Indians, 893 F.2d at 1079. 22 C. Leave to Amend Answer 23 BuyerQuest seeks to withdraw some affirmative defenses, amend some defenses to add 24 factual allegations, and add defenses of Justification or Privilege, Limitation of Liability, and Set 25
26 3 This is a somewhat odd contention given its motion seeking relief from the discovery order was to get more discovery. In explanation, Tradeshift says it only seeks leave to amend to ensure the 27 claim may be litigated at trial. 1 off. Tradeshift opposes amendment, except for the withdrawals. Again, the relevant rule is Rule 2 15, not Rule 16. The factors for whether to grant leave to amend the answer are the same as those 3 pertaining to complaint amendments. Tradeshift argues BuyerQuest’s affirmative defenses should 4 be dismissed because it did not attempt to add factual support until now, and it had these facts in 5 its possession from the beginning. BuyerQuest responds the amendments it seeks merely add 6 factual context, and the additional defenses harken to its original defenses. 7 The Ninth Circuit has held affirmative defenses need only be stated in general terms. 8 Kohler v. Flava Enterprises, Inc., 779 F.3d 1016, 1019 (9th Cir. 2015). It is unclear whether this 9 was meant to be an implicit rejection of the Twombly and Iqbal plausibility standard requiring at 10 least some factual support, and not merely legal conclusions. See generally Wright and Miller, 11 Pleading Affirmative Defenses, 5 Fed. Prac. & Proc. Civ. § 1274 (3d ed.). Certainly, fair notice is 12 required. Wyshak v. City Nat'l Bank, 607 F.2d 824, 827 (9th Cir. 1979). Most courts in this district 13 have found fair notice requires the Twombly and Iqbal standard to apply to affirmative defenses. 14 Pertz v. Heartland Realty Invs., Inc., No. 19-CV-06330-CRB, 2020 WL 95636, at *1 (N.D. Cal. 15 Jan. 8, 2020) (collecting cases). At the least, fair notice requires some pleading of facts. Ctr. for 16 Food Safety v. Sanderson Farms, Inc., No. 17-CV-03592-RS, 2019 WL 8356294, at *2 (N.D. Cal. 17 Mar. 18, 2019). Leave to amend should be freely given so long as there is no prejudice to the 18 moving party. Wyshak, 607 F.2d at 826. 19 BuyerQuest’s original pleadings and its explanation for delay leave much to be desired. 20 Further, BuyerQuest should have responded to Tradeshift’s interrogatory in more detail. 21 BuyerQuest’s delay was undue. However, Tradeshift was on notice of the general nature of 22 BuyerQuest’s affirmative defenses from the outset, and the facts BuyerQuest uses to support them 23 are not exactly surprising. In any case, BuyerQuest’s pleadings are now sufficient to give 24 Tradeshift fair notice and comply with Twombly and Iqbal. Lastly and most importantly, prejudice 25 is the key factor, and any prejudice that would result is prevented by the delay and the additional 26 discovery it allows. The conduct before seeking leave to amend is not such a flagrant example of 27 1 bad faith so as to justify denying such leave in the absence of prejudice. Accordingly, leave to 2 amend the answer is granted. 3 D. Summary Judgment 4 i. Breach of Contract 5 Both sides move for summary judgment; each claim will be addressed in turn. There is no 6 basis to grant summary judgment on any claim. For breach of contract, some of BuyerQuest’s 7 arguments about the confidentiality clause are repetitive of its opposition to Tradeshift’s motion 8 for leave to amend. That discussion need not be repeated: any argument for summary judgment 9 because BuyerQuest did not disclose anything to a third party fails for the same reasons discussed 10 above. 11 BuyerQuest’s main argument is Tradeshift’s contract damages claims are barred by several 12 limitation of liability clauses forbidding special damages. As a threshold matter, Tradeshift argues 13 it also seeks disgorgement of damages from BuyerQuest’s unjust enrichment. This is an equitable 14 remedy, which would salvage Tradeshift’s argument if lost profits were barred. BuyerQuest in 15 turn responds that Tradeshift has actually only sought those damages for its tort claims. In any 16 case, this need not be reached as lost profits are not barred, at least at this stage. 17 Tradeshift seeks lost profits for its contract claims. While lost profits more often are 18 special damages, they can be general damages if they qualify under the standard test for general 19 damages: they must “naturally and necessarily result” from the breach. Lewis Jorge Constr. Mgmt. 20 v. Pomona Unified Sch. Dist., 34 Cal. 4th 960, 975 (Cal. 2004). As for the confidentiality breach 21 theory, those claims are probably best classified as general damages. At the least they cannot be 22 conclusively deemed special damages on summary judgment. Certainly not every confidentiality 23 breach will result in general damages. It is easy to think of examples in this case in which 24 BuyerQuest could breach confidentiality but not cause general damages, e.g. disclosing 25 information which hurts Tradeshift in some roundabout way. It seems the confidentiality breach 26 alleged here, though—misusing information to replace Tradeshift—naturally could lead to 27 Tradeshift losing its profits from Smucker. Indeed, Tradeshift alleges that was the goal of the 1 breach. This is not to say BuyerQuest is barred from making the argument that these are forbidden 2 special damages at trial. It is just more appropriately made to a factfinder. 3 There are two other limitation of liability clauses. One limits liability for damages arising 4 from or incident to termination; Tradeshift argues this is inapplicable for two reasons. First, 5 Tradeshift characterizes the claim for damages as arising from the breach, not any termination 6 itself. Second, Tradeshift only terminated its contract with BuyerQuest to the extent of an effective 7 termination by Smucker, and it says Smucker’s termination was ineffective. Tradeshift’s 8 arguments are persuasive. BuyerQuest points to a final limitation clause providing a cap on 9 damages; Tradeshift argues the cap includes amounts payable under the contract so it is really no 10 limit at all. This need not be reached here as it would not block damages but only serve as a 11 limiting defense. 12 BuyerQuest and Tradeshift each argue for summary judgment on other grounds, but they 13 are inappropriate for resolution as there remain genuine disputes of material facts. In BuyerQuest’s 14 version of events, the only breaching party was Tradeshift, because Tradeshift’s late payments 15 mean Tradeshift did not perform. Whether the late payments were a material breach is a dispute of 16 material fact. See Brown v. Grimes, 192 Cal. App. 4th 265, 277-278 (2011). BuyerQuest argues 17 Smucker’s deposition testimony establishes that it was Smucker’s decision alone to terminate the 18 contract. However, whether to credit the testimony of Smucker and how much weight to place on 19 it in the context of the parties’ relationships here are matters best left for the factfinder. 20 BuyerQuest’s argument that it only breached at most nonbinding obligations has been superseded 21 by the amended confidentiality breach theory. Many of Tradeshift’s claims for summary 22 judgment, too, require factfinding beyond what the record can support, e.g. were the documents 23 actually confidential? 24 ii. Tortious Interference 25 Each side also seeks summary judgment on Tradeshift’s tortious interference claim. 26 BuyerQuest argues Tradeshift fraudulently induced the contract, so it was void from the 27 beginning. In the alternative, it says Smucker independently decided to terminate the contract. 1 These claims involve numerous factual questions which discovery has not definitively settled. 2 While Smucker certainly says it was going to terminate the contract in its deposition, Tradeshift 3 convincingly points to conduct by BuyerQuest that is suspicious, and at least makes out a 4 plausible case for interference, e.g. internal messages which seem to indicate a plan to replace 5 Tradeshift. However, these internal communications themselves cannot constitute tortious 6 interference. Determining BuyerQuest’s intent depends in large part on witness credibility for 7 which a factfinder is required. A neutral factfinder could find for either side. Wilson, 881 F.2d at 8 601. Both parties’ motions for summary adjudication on this claim are therefore denied. 9 iii. Covenant of Good Faith and Fair Dealing 10 Finally, BuyerQuest also moves for summary judgment on Tradeshift’s claim of breach of 11 the covenant of good faith and fair dealing. It argues this claim is duplicative of the breach claim, 12 and that the contract expressly contemplated BuyerQuest contracting with Smucker. The covenant 13 claim is not entirely duplicative, and there is at least a dispute of material fact whether the parties’ 14 intent was for the contract to authorize BuyerQuest to act as it did, so summary judgment is 15 denied. 16 E. Evidentiary Issues 17 On summary judgment, “[a] party may object that the material cited to support or dispute a 18 fact cannot be presented in a form that would be admissible in evidence.” Fed. R. Evid. 56(c)(2). 19 Both sides have filed lengthy motions to strike, evidentiary objections, and replies. These 20 evidentiary motions are procedurally improper under Local Rules 7-3(a) and 7-3(c). (In pertinent 21 part, “Any evidentiary and procedural objections to the motion must be contained within the brief 22 or memorandum,” and “Any evidentiary and procedural objections to the opposition must be 23 contained within the reply brief or memorandum.”) The additional briefing violates the cumulative 24 page limits for the underlying motions. These motions and replies will accordingly be 25 disregarded.4 26
27 4 Even if these evidentiary objections were considered, they would not change the outcome here. 1 In its motion, BuyerQuest raises a cursory objection that “none of the evidence submitted 2 by Tradeshift in support of the Opposition has been properly authenticated,” because the attached 3 declaration by Jason Yu attached exhibits without citation to authenticating evidence. Dkt. No. 4 151. BuyerQuest is incorrect; Tradeshift’s evidence is either sufficiently authenticated or would be 5 self-authenticating. See, e.g., Uschold v. Carriage Servs., Inc., No. 17-CV-04424-JSW, 2020 WL 6 1466172, at *2 (N.D. Cal. Mar. 6, 2020), appeal dismissed, No. 20- 15523, 2020 WL 3470090 7 (9th Cir. Apr. 24, 2020) (finding deposition excerpts accompanied by reporters’ certificates 8 sufficiently authenticated at summary judgment). There is nothing in this brief objection to 9 suggest that any of the evidence will not be able to be admitted at trial, although BuyerQuest is of 10 course free to bring more detailed objections in a proper form at a later date. 11 In any case, extensive reference to the exhibits is not necessary to decide these motions for 12 summary judgment. There are basic issues of material fact in each claim that do not require 13 extensive examination of exhibits, e.g. was the contract fraudulently induced? Were the payments 14 materially late? What was BuyerQuest’s intention in creating Operation FyreFest? 15 F. Sealing Motions 16 The parties’ efforts to seal many of the exhibits they rely on and large portions of their 17 papers are denied. The vast majority of the portions sought to be sealed will not qualify for 18 sealing, and it is an open question if any of the identified material qualifies as sealable. Neither 19 party has overcome the strong presumption in favor of public access. Nor have they submitted 20 adequately tailored redactions, with nearly all of the reasons given for sealing being boilerplate or, 21 contrary to Local Rule 79-5(d)(1)(A), merely because one side designated it confidential. Such is 22 not the “compelling reasons supported by specific factual findings” that the law requires. 23 Kamakana, 447 F.3d at 1178. Generally, historical information about a business deal of this kind, 24 even if embarrassing, is not sealable. The requests to seal are therefore denied without prejudice. 25 The parties are directed to meet and confer and may submit a narrower proposal for sealing, e.g., 26 any truly sensitive prospective proprietary materials, if appropriate. 27 1 V. CONCLUSION 2 For the reasons set forth above, the motion for relief from the magistrate judge’s order is 3 denied. The motion for leave to amend the complaint is granted, as is the motion for leave to 4 || amend the answer. Both parties’ summary judgment motions are denied. The parties’ separate 5 evidentiary objections are disregarded as procedurally improper; the properly raised evidentiary 6 || objections raised in the briefs are denied. Finally, the parties’ administrative motions to seal are 7 denied without prejudice. 8 9 || ITISSO ORDERED. 10 11 Dated: September 22, 2021 a (12 RICHARD SEEBORG 13 Chief United States District Judge
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Z 18 19 20 21 22 23 24 25 26 27 28 ORDER CASE No. 20-cv-01294-RS