The opinion of the court was delivered by: JENSEN
On October 22, 1997, the Court heard argument on SciMed's motion for leave to amend its first amended answer, ACS's counter-motion for judgment on the pleadings against SciMed's First, Third, Fourth, Fifth, Sixth and Seventh defenses, and SciMed's counter-motion for a stay. David Eisman, Henrik Parker, and Philip Johnson appeared on behalf of SciMed; David Headrick, Leland Hansen and Edward Mas II appeared for ACS. Having considered the arguments of counsel, the papers submitted, the applicable law, and the record in this case, the Court hereby GRANTS SciMed's Motion for Leave to Amend, DENIES ACS's Counter-Motion except that the Court strikes SciMed's Fourth Defense, and DENIES SciMed's Contingent Counter-Motion for a stay.
A. Factual Background and Procedural History
Advanced Cardiovascular Systems, Inc. ("ACS") and SciMed Systems, Inc. ("SciMed") are companies engaged in developing, manufacturing, promoting, and selling interventional medical devices, including rapid exchange catheters used in percutaneous transluminal coronary angioplasty ("PTCA") for treating coronary artery disease.
ACS filed the present action
against SciMed on October 10, 1995, alleging infringement of the '548, '273, '233 and '395 patents, all of which were issued to Dr. Paul G. Yock between August 20, 1990 and September 19, 1995. Plaintiff alleges that SciMed's "Express Plus" and "Express Plus II" rapid exchange PTCA catheters infringe on the named patents. On December 6, 1995, ACS filed an amended complaint. The Court denied SciMed's motion to dismiss the amended complaint on May 13, 1996. In that Order, the Court rejected SciMed's argument that ACS lacked standing to bring suit on the Yock patents.
SciMed filed its first amended answer on June 21, 1996. The answer asserted nine affirmative defenses. In its September 6, 1996 Order, this Court struck with prejudice SciMed's Ninth Defense (that ACS should be estopped from enforcing the '395 or '233 patents based on delay in prosecution).
In March 1997, the parties stipulated to proceed in conformity with the proposed Local Rules of Practice in Patent Cases. Pursuant to the deadlines contained in the March 10, 1997 stipulation and order, ACS provided SciMed with a pleading setting forth the asserted claims of the Yock patents on February 28, 1997. On April 18, 1997, ACS was served with SciMed's Initial Disclosure of Prior Art which set forth the bases for the asserted claims of invalidity of the Yock patents.
On July 23, 1997, SciMed filed a motion for leave to amend its first amended answer. SciMed's second amended answer would add new defenses of invalidity based on obviousness and anticipation and unenforceability based on inequitable conduct before the U.S. Patent Office.
On August 18, 1997, ACS filed an opposition to defendant's motion as well as a counter-motion for judgment on the pleadings as to certain of SciMed's affirmative defenses. In addition to arguing that SciMed unduly delayed in raising its defenses, ACS's opposition argues that previous settlement agreements and consent judgments in related litigation have a preclusive effect on SciMed's proposed amended defenses. ACS argues that principles of claim and issue preclusion render SciMed's amendments futile.
In response, on September 8, 1997, SciMed filed a contingent counter-motion to stay pending arbitration. In its counter-motion, SciMed contends that, if denying its motion for leave to amend its answer would be based on interpretation of the earlier agreements between the parties, arbitration would be the proper forum in which to seek interpretation of those agreements.
Federal Rule of Civil Procedure 15 governs the amendment of pleadings. The rule provides that, aside from amendment of right as provided in the Rule, "a party may amend the party's pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires." Fed.R.Civ.P. 15(a). This rule reflects an underlying policy that disputes should be determined on their merits, and not on the technicalities of pleading rules. See Foman v. Davis, 371 U.S. 178, 181-82, 9 L. Ed. 2d 222, 83 S. Ct. 227 (1962). Accordingly, the court must be very liberal in granting leave to amend a complaint. Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990) (leave to amend granted with "extreme liberality"); Ascon Properties, Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989); Genentech, Inc. v. Abbott Laboratories, 127 F.R.D. 529, 530 (N.D. Cal. 1989) (citing DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987)).
Once a party seeking leave to amend has given a legitimate reason for amendment, the burden shifts to the party opposing amendment to demonstrate why leave to amend should not be granted. Genentech, 127 F.R.D. at 530-31 (citing Senza-Gel Corp. v. Seiffhart, 803 F.2d 661, 666 (Fed.Cir. 1986)); William W. Schwarzer et al., Federal Civil Procedure Before Trial, § 8:415, at 8-75 (1991). There are several accepted reasons why leave to amend should not be granted, including the presence of bad faith on the part of the plaintiff, undue delay, prejudice to the defendant, futility of amendment, and that the party has previously amended the relevant pleading. See Ascon Properties, 866 F.2d at 1160; McGlinchy v. Shell Chemical Co., 845 F.2d 802, 809 (9th Cir. 1988). The court has the discretion to determine whether the presence of any of these elements justifies refusal of a request to amend the pleading.
2. Judgment on the Pleadings
Under Federal Rule of Civil Procedure 12(c),
"All allegations of fact by the party opposing [judgment as a matter of law] are accepted as true, and are construed in the light most favorable to that party. General Conference Corp. of Seventh-Day Adventists v. Seventh-Day Adventist Congregational Church, 887 F.2d 228, 230 (9th Cir. 1989).
Rule 12(c) itself and supporting case law indicate that if matters outside the pleadings are presented to and not excluded by the court, the motion for judgment on the pleadings is converted into a Rule 56 summary judgment motion. See Schwarzer, supra, § 9:339; Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1990). The fact that such extrinsic material was submitted to the court does not automatically convert a motion for judgment on the pleadings into one for summary judgment. It must appear that the court relied on the extrinsic evidence in reaching its conclusions before that conversion occurs. Homart Dev. Co. v. Sigman, 868 F.2d 1556 (11th Cir. 1989).
A. Res Judicata and Collateral Estoppel
1. The 1991 Settlement between ACS and SciMed
In August and October of 1991, ACS filed two suits against SciMed for patent infringement. ACS alleged that SciMed's EXPRESS catheter infringed the Yock '548 and '273 patents. In December 1991, ACS and SciMed entered into a settlement agreement and stipulated to dismissal of the action with prejudice. Under the terms of the settlement agreement, SciMed paid ACS $ 48 million and agreed to pay ACS a 20% royalty for a two-year license to phase out the EXPRESS catheter.
The Settlement Agreement contains the following provision that is relevant to the parties' dispute in the present case:
Mutual Release:. . . each of ACS/Lilly and SciMed . . . hereby releases and discharges the other parties . . . from any and all manner of debts, claims, demands, damages, liabilities, obligations, causes of action (including, without limitation those asserted in the Complaints, Answers and Counterclaims and any proposed Amended Answer and Counterclaim in the litigation), agreements, suits, sums of money, obligations and rights whatsoever, whether known or unknown, suspected or unsuspected, at law or in equity, which are based on actions or inaction occurring prior to the effective date of this Agreement and which each party now owns or holds, or at any time heretofore owned or held, by reason of any act, matter, cause of thing whatsoever.
ACS Exh. 3 (Settlement Agreement) at 15-16. Pursuant to this settlement agreement, the Court entered a Stipulated Order of Dismissal on January 9, ...