Free Motion for Leave to File - District Court of Arizona - Arizona

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Sid Leach (#019519) Andrew F. Halaby (#017251) Monica A. Limón-Wynn (#019174) SNELL & WILMER L.L.P. One Arizona Center 400 E. Van Buren Phoenix, AZ 85004-2202 Telephone: (602) 382-6372 Attorneys for Plaintiff Hypercom Corporation [email protected] [email protected] [email protected] IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Hypercom Corporation, Plaintiff, vs. Verve, L.L.C., and Omron Corporation, Defendants. Pursuant to Rule 15(a) of the Federal Rules of Civil Procedure, and in accordance with the Court's Scheduling Order entered on November 21, 2005, Plaintiff Hypercom Corporation ("Hypercom") moves for leave to file a Second Amended Complaint. Hypercom proposes to amend its First Amended Complaint by (1) adding a claim against Defendant Omron Corporation ("Omron") for malicious prosecution; (2) adding a claim against Omron for aiding and abetting; and (3) dropping the causes of action seeking declaratory judgments on certain Omron patents that had been asserted against Hypercom by Verve. The proposed Second Amended Complaint is attached hereto as Exhibit A. Hypercom's First Amended Complaint was filed on July 12, 2004, over 17 months ago. Hypercom proposes to amend the complaint to include events that have transpired, and to include causes of action that have arisen, since the First Amended Complaint was filed. In view of the attempts by Defendant Omron to dismiss this action at the pleadings stage, Hypercom also seeks to add detailed allegations concerning the asserted claims. In addition, Hypercom further seeks to include documents as exhibits to the Second No. CV 04-0400 PHX PGR HYPERCOM CORPORATION'S MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT

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Amended Complaint that were obtained through discovery during the intervening 17 months since the First Amended Complaint was filed. In view of the scope, nature and extent of the amendments, Hypercom moves the Court for an order waiving any requirement under LRCiv 15.1(a) for Hypercom to bracket or strike through text to be deleted or to underline text to be added. Hypercom moves the Court to change the caption of the case to reflect the dismissal of Defendant Verve LLC from this action. Specifically, the caption of the case should be amended to be: Hypercom Corporation vs. Omron Corporation. This Motion is supported by the following Memorandum of Points and Authorities.

MEMORANDUM OF POINTS AND AUTHORITIES I. PERTINENT FACTS A. This Action

Hypercom initially brought this action on February 25, 2004 against Verve LLC asserting claims under 28 U.S.C. § 2201 to obtain a declaration of non-infringement and invalidity of U.S. Patent No. 4,678,895, No. 4,562,340, and No. 4,562,341. Hypercom anticipated that this action could serve to consolidate other lawsuits pending against Hypercom in Michigan and in Texas. Subsequently, Hypercom filed a First Amended Complaint in this action adding Omron Corporation as a Defendant and adding a claim for conspiracy. Since July 12, 2004, when Hypercom's First Amended Complaint was filed in this case, a number of events have occurred. One of the cases brought by Verve was transferred to this District, and Hypercom has asserted its claims against Verve by way of counterclaims in that case to avoid issues of personal jurisdiction raised by Verve in this case. Verve was dismissed from this action. All of the patent infringement claims filed by Verve have now been terminated, which was a prerequisite to asserting malicious prosecution claims against Verve and Omron. It is also appropriate at this time to drop the declaratory judgment claims in view of Verve's dismissal and the termination of all pending patent litigation.
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B.

Background Facts

Verve had filed a Complaint on September 11, 2003 against Hypercom in the United States District Court for the Eastern District of Michigan alleging infringement of U.S. Patent No. 4,687,895 (Case No. 03-CV-73481). On February 4, 2004, Verve had filed a complaint in the United States District Court for the Western District of Texas alleging infringement of U.S. Patent No. 4,562,341. On May 11, 2004, Judge George Caram Steeh of the Eastern District of Michigan transferred Verve's lawsuit to the District of Arizona. On December 29, 2004, Judge Lee Yeakel of the Western District of Texas transferred Verve's lawsuit to the District of Arizona where it is currently pending as Case No. CV 05-0365 PHX FJM. On July 31, 2004, Verve initiated an investigation by the International Trade Commission ("ITC"), based on Omron Patent No. 5,012,077. Administrative Law Judge Robert L. Barton ruled on February 7, 2005 in the ITC proceeding that Verve lacked all substantial rights in the `077 patent, and thus lacked standing (by itself) to pursue the action. Verve withdrew its ITC complaint after Omron declined to join the proceeding as a party. On June 7, 2005, the administrative law judge found that because Verve and its counsel had failed to perform an adequate pre-filing investigation of Hypercom's products before filing its complaint, Verve's conduct supported a finding of bad faith. As a result, the administrative law judge sanctioned Verve, its principals, and its attorneys in the amount of $1 million, payable to the United States Treasury. Verve has appealed the collateral sanctions order, but the dismissal of the underlying investigation on the merits has become final. C. Defendants' Mount Jurisdictional Challenges 1. Verve is Dismissed from the Action

On April 12, 2004, Verve moved to dismiss this action on grounds that the District of Arizona lacked personal jurisdiction over it. Because the claims that Verve had asserted against Hypercom had been transferred from the Western District of Texas and were now pending in the District of Arizona as Case No. CV-05-365 PHX FJM,

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Hypercom's claims against Verve could be asserted as counterclaims in that action without the need to resolve the jurisdictional issues raised in Verve's Motion to Dismiss. On August 29, 2005, Hypercom voluntarily dismissed Verve from this lawsuit leaving Omron as the only Defendant. 2. The Court Denies Omron's Motion to Dismiss On September 21, 2004, Omron moved to dismiss the action on grounds that the Court lacked subject matter jurisdiction. On August 9, 2005, the Court denied the motion. II. LEAVE TO AMEND SHOULD BE GRANTED Pursuant to Rule 15(a) of the Federal Rules of Civil Procedures, leave to amend should be granted "when justice so requires." The Ninth Circuit Court of Appeals has further clarified that "this policy is to be applied with extreme liberality." Owens v. Kaiser Foundation Health Plan, Inc., 244 F.3d 708, 712 (9th Cir. 2001). As the United States Supreme Court has stated: In the absence of any apparent or declared reason ­ such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc. ­ the leave sought should, as the rules require, be "freely given." Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 230, 9 L. Ed. 2d 222, 226 (1962). As none of these factors are present here, Hypercom's motion for leave should be granted. A. The Amendment is Timely

Up until this point in this case, discovery was limited to jurisdictional issues, and discovery on the merits had not begun. The Court's Scheduling Order was entered less than a month ago on November 21, 2005. Pursuant to that Scheduling Order, the parties are required to file any motions for leave to amend the pleadings on or before December 15, 2005. The parties have not exchanged disclosure statements. No expert witnesses have been disclosed or expert depositions taken. The basis for Hypercom's claims were discussed in the Joint Case Management Plan filed with the Court on November 14, 2005,

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and Omron is already aware of them. None of the parties can fairly claim that the filing of Hypercom's Second Amended Complaint will significantly impact the schedule in this matter or cause undue prejudice. B. The Amendment is Proper

Where a plaintiff proposes to add or drop a claim, "the proper procedure is to amend the Complaint." Doerrler v. Oakland/Alameda County Coliseum Complex, Inc., No. C-99-4422 MJJ, 2000 U.S. Dist. LEXIS 10857, *4-5 (N.D.Cal. Jul. 21, 2000). In this case, Hypercom seeks to drop certain claims and add new claims against Omron as set forth below: 1. Hypercom Requests Leave to Bring New Claims Against Omron Hypercom seeks leave to add a cause of action against Omron for malicious prosecution. Under Arizona law, a defendant may be held liable for malicious prosecution as an instigator of the wrongful civil actions, even if the defendant was not a party to the civil actions giving rise to the malicious prosecution claim. Bradshaw v. State Farm Mutual Automobile Ins. Co., 157 Ariz. 411, 417, 758 P.2d 1313, 1319 (1988). Hypercom seeks leave to add a cause of action against Omron for aiding and abetting Verve in the commission of torts of abuse of process and malicious prosecution. Under Arizona law, "a person who aids and abets a tortfeasor is himself liable for the resulting harm to a third person." Wells Fargo Bank v. Arizona Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 485, 38 P.3d 12, 23 (2002). A claim of aiding and abetting tortious conduct are made out where: (1) the primary tortfeasor commits a tort that causes injury to the plaintiff; (2) the defendant has at least a general awareness of the primary tortfeasor's tortuous conduct; and (3) the defendant substantially assists or encourages the primary tortfeasor in the achievement of the tort. Id., 201 Ariz. at 485-88, 38 P.3d at 23-26. The party charged with aiding and abetting must have knowledge of the primary tortfeasor's wrongful acts, but "such knowledge may be inferred from the circumstances." Id., 201 Ariz. at 425, 38 P.3d at 23. A showing of "actual and complete knowledge of the
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tort is not uniformly necessary to hold a secondary tortfeasor liable under an aiding and abetting theory." Id., 201 Ariz. at 488, 38 P.3d at 26. In the Wells Fargo case, the court held that the knowledge requirement could be met "even though the bank may not have known of all the details of the primary fraud." Id. Executing transactions, even ordinary course transactions, can constitute substantial assistance under some circumstances, such as where there is an extraordinary economic motivation to aid in the scheme. Id., 201 Ariz. at 489, 38 P.3d at 27. Here, Omron executed fictitious "assignment documents" to make it appear as if verve had standing to bring the patent infringement lawsuits without joining Omron as a party. Omron had an extraordinary economic motivation to aid in Verve's scheme, because Omron stood to get 50% of the money that Verve collected, and which Verve estimated to be potentially between $979 Million and $4.9 Billion. Moreover, "substantial assistance does not mean assistance that is necessary to commit the [tort]. The test is whether the assistance makes it 'easier' for the violation to occur, not whether the assistance was necessary." Id., 201 Ariz. at 489, 38 P.3d at 27 (citations omitted). Here, Omron is the original owner of the patents that Verve used to commit its acts of abuse of process and malicious prosecution. Omron agreed to Verve's use of Omron's patents to sue Hypercom, approved Hypercom as a target, and stood to make millions if Verve was successful in its wrongful scheme. Omron assisted Verve by contacting a critical third party witness in Japan, and by getting a lawyer in Japan to make sure the witness did not talk to Hypercom. Omron's representative assisted Verve by providing legal research to Verve's attorneys in connection with the ITC proceeding. Omron signed documents for Verve that concealed the true nature of Verve's interest in the Omron patents and which concealed the fact that Verve did not have standing to file suit on Omron's patents, so that Omron would not have any risk in case Verve lost any of the lawsuits. Omron, who knew or should have known that Hypercom's products did not infringe upon the patents, approved and authorized the initiation of multiple lawsuits against Hypercom in various states. Omron knew that it did not have any good faith basis
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for believing that Hypercom infringed any of the Omron patents. Omron knew or should have known that Verve did not have a sufficient basis for filing suit against Hypercom either. Omron knew that the patent infringement claims asserted by Verve against Hypercom were baseless, because Hypercom's representatives met with Omron and demonstrated why none of the Hypercom products infringed any of the patents asserted against Hypercom. Omron had the power at all times to stop the litigation that Verve filed against Hypercom. Omron had the right to approve every target that Verve filed suit against before Verve could sue them. Omron retained the right to grant licenses under the Omron patents to anyone without limitation, including anyone that Verve had already sued, and could have granted Hypercom immunity from suit by Verve at any time. 2. Hypercom Requests Leave to Drop the Declaratory Judgment Claims Hypercom seeks to drop the declaratory judgment claims alleged in this action against Omron. The First Amended Complaint alleged the following claims for declaratory judgment of non-infringement and invalidity: Count One as to U.S. Patent No. 4,678,895; Count Two as to U.S. Patent No. 4,562,340; Count Three as to U.S. Patent No. 4,562,341, and Count Five as to other patents. With all of the patent infringement actions that Verve brought being terminated, and with the dismissal of Verve from this case, the declaratory judgment claims need not be litigated in this action. II. CONCLUSION For the foregoing reasons and because justice so requires, Plaintiff Hypercom Corporation respectfully requests that the Court enter an Order granting leave for Hypercom to file a Second Amended Complaint. DATED this 15th day of December, 2005. SNELL & WILMER L.L.P.

By s/Sid Leach Sid Leach Attorney for Plaintiff Hypercom Corporation

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CERTIFICATE OF SERVICE I hereby certify that on December 15, 2005, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: David P. Irmscher John K. Henning, IV BAKER & DANIELS 300 N. Meridian Street, Suite 2700 Indianapolis, IN 46204 Phone: 317-237-1317 Fax: 317-237-1000 [email protected] [email protected] Paul Moore Ray K. Harris FENNEMORE CRAIG, P.C. 3003 N. Central Avenue, Suite 2600 Phoenix, AZ 85012-2913 Phone: 602-916-5414 Fax: 602-916-5614 [email protected] [email protected] Attorneys for Defendant Omron Corporation s/ Sid Leach

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