Opinion
No. 02 Civ. 2637 (DLC).
October 6, 2004
Scott A. Bursor, Law Offices of Scott A. Bursor, New York, New York.
Nadeem Faruqi, Lubna Faruqi, Adam G. Gonnelli, Faruqi Faruqui, LLP, New York, New York.
David Pastor, Gilman and Pastor LLP, Stonehill Corporate Center, Saugus, MA.
Robert M. Bramson, Alan R. Plutzik, L. Timothy Fisher, Bramson, Plutzik, Mahler Birkhaeuser, LLP, Walnut Creek, CA.
Daniel A. Edelman, Edelman, Combs Latturner, LLC, Chicago, IL.
Ashish Mahendru, Mahendru, PC, Houston, TX, For Plaintiffs.
Joseph J. Saltarelli, Hunton Williams LLP, New York, New York.
Thomas G. Slater, Jr., Douglas M. Garrou, Hunton Williams LLP, Richmond, Virginia, For Cingular Defendants.
Robert D. Kaplan, Daniel D. Rapport, Friedman Kaplan Seiler Adelman, LLP, New York, NY, For ATT Defendants.
Lawrence Kill, Joel S. Tennenberg, Anderson Kill Olick, P.C., New York, NY, For Sprint Defendants.
Reid M. Figel, Michael J. Guzman, Kellogg, Huber, Hansen, Todd Evans, Washington, D.C., For Verizon Defendants.
Alan M. Unger, John J. Lavelle, Sidley Austin Brown Wood LLP, New York, New York, For T-Mobile Defendants.
OPINION AND ORDER
Near the close of discovery in this consolidated antitrust action brought against the nation's five largest providers of wireless telephone service for allegedly tying the sales of handsets to the sale of service in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, plaintiffs have moved to amend their complaint. Most significantly, they seek to add claims that defendants engaged in conspiracies in restraint of trade and to monopolize, and entered contracts in restraint of trade. For the following reasons, the motion to amend is denied.
The defendants are: (1) ATT Cellular Services, Inc., Cellular Telephone Company d/b/a ATT Wireless Services (collectively "ATT."); (2) Sprint Spectrum L.P. and Wirelessco L.P. (collectively "Sprint"); (3) New York SMSA Limited Partnership d/b/a Verizon Wireless and Cellco Partnership d/b/a Verizon Wireless (collectively "Verizon"); (4) Voicestream Wireless Corporation, Omnipoint NY MTA License, LLC, Omnipoint New York D License, LLC, and Omnipoint Facilities Spectrum 2 LLC (collectively "Voicestream"); and (5) Cingular Wireless LLC and Pacific Telesis Mobile Services LLC (collectively "Cingular").
Background
This litigation has been ongoing for over two years. The background and procedural history of this action have been set forth in several prior Opinions. See In re Wireless Tel. Serv. Antitrust Litig., No. 02 Civ. 2637 (DLC), 2003 WL 21912603 (S.D.N.Y. Aug. 12, 2003); In re Wireless Tel. Serv. Antitrust Litig., No. 02 Civ. 2637 (DLC), 2004 WL 764833 (S.D.N.Y. Apr. 9, 2004); In re Wireless Tel. Serv. Antitrust Litig., No. 02 Civ. 2637 (DLC), 2004 WL 1087262 (S.D.N.Y. May 17, 2004). The following describes only what is relevant for the purposes of the instant motion to amend.
This lawsuit is a consolidation of five putative class actions. The first — Brook v. ATT Cellular Services, No. 02 Civ. 2637 (the "Brook Action") — was filed in this district on April 5, 2002, and assigned on June 14 to the Honorable Milton Pollack. The other four actions, the last of which was filed on September 30, 2002, were filed in the District of Massachusetts, the Northern District of California, the Southern District of Texas, and the Northern District of Illinois. April 2002 Complaint
These four actions are: Troung v. ATT Wireless PCS, Inc., No. 03 Civ. 1712 (DLC); Beller v. ATT Cellular Services, Inc., No. 03 Civ. 1713 (DLC); Millen v. ATT Wireless PCS, Inc., No. 03 Civ. 1714 (DLC); and Morales v. ATT Wireless PCS, Inc., No. 03 Civ. 1715 (DLC).
The April 2002 complaint in the Brook Action (the "Original Complaint") contained three counts — "tying," "price fixing," and "market allocation," the latter two of which were conspiracy claims. Allegations of conspiracy undergird the entirety of the Original Complaint. The plaintiffs alleged that "carriers have conspired and agreed to impose standards for handsets that allow handsets" to be locked by defendants for use on their respective networks and restrict handset and number portability. In the "Class Action Allegations" portion of the Original Complaint, plaintiffs stated that questions of law and fact common to the class include
(1) whether Defendants conspired and agreed to create certification standards for handsets designed to ensure that handsets could not be ported across networks, (2) whether Defendants conspired and agreed to create certification standards for handsets designed to ensure that [mobile telephone numbers] could not be ported across networks, (3) whether Defendants conspired and agreed to program handsets to enure that handsets could not be ported across networks, (4) whether Defendants conspired and agreed to program handsets to ensure that [mobile telephone numbers] could not be ported across networks. . . .
(Emphasis supplied.)
In June 2002, the defendants moved to dismiss the Brook Action and the Original Complaint. In their opposition to this motion, plaintiffs did not seek leave to amend; rather they consented to the dismissal of the two conspiracy claims: the price fixing and market allocation claims.
By the time the Brook Action was assigned to this Court on October 24, as described at a conference held on November 19, 2002 ("November 19 Conference"), it contained only a single cause of action, Count I, which alleged several, rather than joint and several, liability for tying. At the November 19 Conference, the plaintiffs gave notice of an intent to file a further amendment to the complaint in the Brook Action. With the understanding that this would, with identified exceptions not relevant here, be essentially the final amendment to test the viability of the plaintiffs' claims, it was agreed that an amended pleading could be filed and that the pending motions to dismiss would be dismissed as moot. See In re Wireless Tel. Serv. Antitrust Litig., 2004 WL 1087262, at *2. An Order of November 19 (the "November 19 Order") dismissed the June 2002 motions to dismiss as moot and set a schedule for a new round of motions to dismiss the amended complaint which was to be filed on or before January 10, 2003. Plaintiffs filed the amended class action complaint (the "Amended Complaint") on January 9.
The Amended Complaint
The Amended Complaint again asserted one several-liability claim for tying against all the defendants, although each defendant is separately charged with having tying arrangements and significant market power. The Amended Complaint also asserted five monopolization counts, one against each defendant. In addition to not asserting joint liability, conspiracy claims, or the "price fixing" and "market allocation" claims grounded in conspiracy allegations, the "Class Action Allegations" in the Amended Complaint did not contain any of the accusations of a conspiracy among the defendants found in that section of the Original Complaint. The "Facts" section of the Amended Complaint, however, included the assertion that defendants conspired in their efforts to tie the purchase of handsets with the purchase of telephone services. The Amended Complaint alleged that defendants "conspired and agreed to market only handsets" that permitted the defendants to lock them for use on their respective networks and restrict handset and number portability. On February 21, 2003, defendants moved to dismiss the Amended Complaint.
On March 5, the Judicial Panel on Multi-District Litigation (the "MDL Panel") granted defendants' motion to transfer all pending actions to the Southern District of New York. The parties had agreed to stay those actions pending the MDL transfer. At a July 29, 2003 conference ("July 29 Conference), transfer and consolidation issues were addressed. An Order of August 11 (the "August 11 Order") consolidated the five actions for pretrial purposes. With the agreement of the parties, the August 11 Order stated that the Amended Complaint was to serve as the consolidated amended class action complaint and the pending motion to dismiss was to apply to the consolidated action. The August 11 Order also provided that
18. As discussed at the July 29 Conference, in the event that the [Amended] Complaint survives the motion to dismiss, plaintiffs shall have the opportunity to amend the [Amended] Complaint's definition of the geographic market(s) in which their claims arise. 19. Defendants shall have no obligation to move, answer, or otherwise respond to any of the complaints in the actions consolidated herein or any actions subsequently consolidated with them.
(Emphasis supplied.)
An Opinion of August 12 ("August 12 Opinion") dismissed each of the monopolization claims. In re Wireless Tel. Serv. Antitrust Litig., 2003 WL 21912603. In refusing to dismiss the tying claim, the Court observed that the Amended Complaint did not allege a claim for conspiracy.
Count I of the [Amended] Complaint alleges that each Defendant ties the sale of handsets to the sale of its wireless services in violation of Section 1 of the Sherman Act. The [Amended] Complaint does not allege, however, that the Defendants have engaged in a conspiracy to tie or to raise handset prices, nor that they have entered into any kind of agreement with each other regarding bundling or handset pricing. Each Defendant is alleged to have independently violated the Sherman Act by virtue of the tying arrangement of its own services and handsets.In re Wireless Tel. Serv. Antitrust Litig., 2003 WL 21912603, at *6.
A pretrial schedule for this litigation was set at an October 3 conference. In particular, document production pertaining to the plaintiffs' remaining claim, that each defendant "independently violated the Sherman Act" by tying sales of handsets to sales of services, was to be substantially completed by February 20, 2004. At a conference on November 6, the Court announced that it did not appear, based on a review of the parties' submissions, that there was a discrete dispositive issue within the tying claim that could be the focus of early discovery and motion practice. A schedule was set for the remainder of the litigation. The plaintiffs and defendants were unanimous in requesting that the class certification motion be made after all discovery had concluded.
On October 29, certain defendants moved for a protective order limiting discovery. That motion was withdrawn on December 10.
On December 23, one defendant, VoiceStream, moved for summary judgment on the ground that its service agreements do not require consumers to purchase handsets from it. At the January 21 conference, the Court denied VoiceStream's request to stay discovery pending the resolution of its motion. Its summary judgment motion was denied in an Opinion of April 9, 2004. In re Wireless Tel. Serv. Antitrust Litig., 2004 WL 764833.
On January 5, 2004, Cingular brought a motion to strike the plaintiffs' class action allegations against Cingular based on the existence of arbitration clauses in the "overwhelming majority" of Cingular's contracts with its customers. A May 17 Opinion and Order denied this motion. In re Wireless Tel. Serv. Antitrust Litig., 2004 WL 1087262.
At a January 30 conference, the defendants confirmed that their document productions would be substantially complete by February 20. At the same conference, the Court set limits on the number of depositions that the plaintiffs and the defendants could take.
In an April 7 letter, the plaintiffs requested a 120 day extension of the discovery and pretrial schedule. The April 7 letter stated that with the exception of Cingular, the defendants had substantially completed their document production by the end of February, but, among other things, the plaintiffs needed more time to review these documents and to conduct deposition discovery. The extension of fact discovery was granted. Discovery is to close October 8. The Court made clear that any additional extension would not be permitted. Plaintiffs' expert reports are due October 22; defendants' are due November 22. Expert discovery is scheduled to close on January 21, 2005. The plaintiffs' motion for class certification is to be submitted by February 18.
The plaintiffs assert that Cingular produced a substantial portion of the requested documents on March 23, 2004.
The Second Amended Complaint
On July 30, plaintiffs moved for leave to amend the Amended Complaint. This motion was fully submitted on August 25. The proposed second amended class action complaint ("Second Amended Complaint") asserts a modified tying claim alleging collective market power and adds three causes of action — "conspiracy in restraint of trade," "conspiracy to monopolize," and "contracts in restraint of trade." The tying claim alleges that defendants both collectively and individually have significant market power in the tying and tied product markets. The "conspiracy in restraint of trade" count alleges that defendants conspired to lock cellular telephone handsets, tying the sale of handsets to the sale of their services, stifling the development of handset technologies and horizontally dividing the market for handsets. The monopolization claim alleges that they conspired to exclude unlocked handsets from the market and to monopolize the sale of handsets. The "contracts in restraint of trade" count is asserted jointly and severally against the defendants and claims that each defendant has entered into contracts with handset manufacturers which require the implementation of handset locking features, and that each defendant has entered into contracts with dealers imposing restrictions objectionable to plaintiffs. The Second Amended Complaint also adds allegations in the "Class Action Allegations" section which mirror those removed from the Original Complaint. For example, the Second Amended Complaint states that questions of law and fact common to class include "whether the Defendants conspired to restrain trade conspired to monopolize. . . ."
On September 10, plaintiffs requested an extension of the October 8 deadline for fact discovery by six weeks. This request was denied on the record during a September 17 conference. In their August 25 reply memorandum in support of the amendment, the plaintiffs renounce any need for further discovery if the amendments to their pleading are approved.
The defendants contend that the new claims fail to state a claim and should be dismissed on the ground of futility. They also argue that the amendments run afoul of the Court's scheduling orders, will prejudice them, and are unsupported by any good reason for asserting them virtually at the close of fact discovery.
Discussion
Motions for leave to amend are governed by one of two standards, Rule 15(a) or Rule 16(b), Fed.R.Civ.P. Plaintiffs contend that the more lenient Rule 15(a) standard applies, while defendants assert that Rule 16(b) governs.
Rule 15(a) provides that once a responsive pleading has been served, a party may amend its pleadings "only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires." Rule 15(a), Fed.R.Civ.P. Under Rule 15(a) plaintiffs have no right to amend their pleadings a second time. Denny v. Barber, 576 F.2d 465, 471 (2d Cir. 1978). Leave to amend "may only be given when factors such as undue delay or undue prejudice to the opposing party are absent." SCS Communications, Inc. v. The Herrick Co., 360 F.3d 329, 345 (2d Cir. 2004) (emphasis in original). A court may also refuse to grant leave to amend under Rule 15(a) on grounds such as bad faith, or futility of amendment. Foman v. Davis, 371 U.S. 178, 182 (1962); see also Milanese v. Rust-Oleum Corp., 244 F.3d 104, 110 (2d Cir. 2001). An amendment causes undue prejudice where it would "(i) require the opponent to expend significant additional resources to conduct discovery and prepare for trial; (ii) significantly delay the resolution of the dispute; or (iii) prevent the plaintiff from bringing a timely action in another jurisdiction." Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir. 1993); see also Monahan v. New York City Dept. of Corrections, 214 F.3d 275, 283 (2d Cir. 2000).
A finding of "bad faith" for Rule 15(a) purposes may be warranted where a party waited to see "how he would fare on the prior motion to dismiss." Vine v. Beneficial Finance Co., 374 F.2d 627, 637 (2d Cir. 1967). See also State Trading Corp. of India, Ltd. v. Assuranceforeningen Skuld, 921 F.2d 409, 418 (2d Cir. 1990) (A "district court need not allow itself to be imposed upon by the presentation of theories seriatim"). In affirming a district court's denial of a motion to amend that was made after summary judgment was granted on a motion brought before discovery had been taken, the Second Circuit ruled that "[w]hen the moving party has had an opportunity to assert the amendment earlier, but has waited until after judgment before requesting leave, a court may exercise its [Rule 15(a)] discretion more exactingly."States Trading, 921 F.2d at 418.
Rule 16, Fed.R.Civ.P., governs leave to amend after a scheduling order has been entered. Rule 16 provides that a district court may enter a scheduling order that limits the time to amend the pleadings, and that "[a] schedule shall not be modified except upon a showing of good cause and by leave of the district judge." Fed.R.Civ.P. 16(b) (emphasis supplied). The Second Circuit has held "that despite the lenient standard of Rule 15(a), a district court does not abuse its discretion in denying leave to amend the pleadings after the deadline set in the scheduling order where the moving party has failed to establish good cause." Parker v. Columbia Pictures Indus., 204 F.3d 326, 340 (2d Cir. 2000). To show good cause, a movant must demonstrate that it has been diligent. See Grochowski v. Phoenix Const., 318 F.3d 80, 86 (2d Cir. 2003).
Rule 16 "is designed to offer a measure of certainty in pretrial proceedings, ensuring that at some point both the parties and the pleadings will be fixed." Parker, 204 F.3d at 340 (citation omitted). Disregarding the instructions of a scheduling order "would undermine the court's ability to control its docket, disrupt the agreed-upon course of the litigation, and reward the indolent and the cavalier. Rule 16 was drafted to prevent this situation." Id. (citation omitted). Rule 16 requires a different analysis than that undertaken in connection with Rule 15 and its "standards may not be short-circuited by an appeal to those of Rule 15." Id. (citation omitted). "If we considered only Rule 15(a) without regard to Rule 16(b), we would render scheduling orders meaningless and effectively would read Rule 16(b) and its good cause requirement out of the Federal Rules of Civil Procedure." Id. (citation omitted).
Rule 16 (b)Rule 16(b) governs the instant motion for leave to amend. There have been two conferences and two scheduling orders which explicitly limited the plaintiffs' ability to amend their complaint. They were entered after the plaintiffs had already faced one motion to dismiss, and after they had been given ample time to shape the pleadings on which they wished to conduct discovery and seek certification of a class.
Plaintiffs deny that the prior scheduling order set a deadline for amendments to the pleadings. They are wrong. The Orders themselves, and the conferences which preceded them, left no doubt that the Amended Complaint was the final statement of the plaintiffs' claims in this consolidated action except for the definition of the geographic market.
The plaintiffs have failed to show good cause for this amendment, which will transform the lawsuit from one asserting five tying claims against each of the defendants individually to a lawsuit alleging collective action on the tying claim and separate conspiracies for price fixing and monopolization, among other things.
The plaintiffs contend that the motion has been brought promptly. It has not. It has been brought over two years after the filing of the Brook Action, eleven months after the August 12 Opinion on the motion to dismiss, and virtually at the close of discovery.
The plaintiffs attempt to establish good cause by suggesting that it is what they learned in discovery that has triggered the amendment. Specifically, the plaintiffs contend that their discovery of evidence that the defendants made joint efforts to create, publish and implement handset locking and tying standards explains the timing of their motion. These conclusory assertion does not explain the timing. These allegations of a conspiracy regarding standards were present in the plaintiffs' original pleading. For example, the Original Complaint asserted that the
carriers have conspired and agreed to impose standards for handsets that allow the handsets to be programmed and locked . . . [and] enforce this agreement through, for example, the CTIA Certification Program, which was designed to certify that handsets . . . meet the specifications required for the carriers to program and lock them.
In fact, the conspiracy allegations flow through the class action allegations and causes of action in the Original Complaint. It is obvious that the plaintiffs had a sufficient understanding of the alleged conspiracy to create locking standards to allege that conduct in their first pleading. For whatever reasons, the plaintiffs chose to drop their conspiracy claims from the Amended Complaint and now seek to resurrect them. What stands out is that the plaintiffs have, for tactical reasons, decided to reassert the conspiracy allegations they initially abandoned. This does not constitute good cause for a substantial and untimely amendment. Rule 15(a)
Even if Rule 15(a) governed this motion to amend, plaintiffs would not be entitled to amend. In addition to the undue delay discussed above, plaintiffs have failed to show that undue prejudice to the defendants is absent. In addition, the defendants have raised substantial questions about the plaintiffs' motives in bringing the Second Amended Complaint as the period for fact discovery closes.
Requiring the defendants to defend against the new claims now is unduly prejudicial. When the plaintiffs consented to the dismissal of the conspiracy allegations in the Original Complaint, they made a deliberate choice not to pursue conspiracy allegations or joint and several liability. For nearly two years, this litigation and the accompanying discovery, trial preparation, and motion practice have been organized and focused on the unilateral tying claim and the several liability of the defendants. All of this Court's many rulings on discovery issues have been framed by an understanding of the surviving allegations in the Amended Complaint. To permit the plaintiffs to change and expand the focus their case at this stage in the litigation demands too much of the defendants.
In 2004 alone, the Court has conducted over a dozen conferences with the parties to address discovery disputes.
If this motion were granted, fairness and prudence would dictate that there be an immediate stay of expert discovery and a conference convened to reorganize the litigation in light of its dramatically altered posture. Although the plaintiffs represented in their reply brief that they need no new discovery, that representation is difficult to accept at face value. But, assuming it to be true, and assuming that the defendants would have no need for additional fact discovery, all parties would at a minimum require an opportunity to retain and prepare new experts, prepare new and revised expert reports, and conduct expert discovery on the expanded issues. This would mean months of delay in bringing a close to discovery and a further delay in reaching the class certification issue. These delays will prejudice all of the parties, will add to the expense of the litigation, and defer the resolution of this litigation.
Ordinarily, class certification is resolved as early in the life of a case as possible. Here, it has been delayed at the joint request of all parties because they believed they needed both fact and expert discovery to be completed in order to litigate the certification issues effectively.
While leave to amend should ordinarily be freely given, the plaintiffs have not shown that they meet the requirements under Rule 15. Given this determination, it is unnecessary to reach the defendants' arguments that the amendment is futile. Conclusion
Plaintiffs' motion to amend their complaint is denied.
SO ORDERED.