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Aqua Connect, Inc., A Nevada Corporation v. Code Rebel

April 27, 2012

AQUA CONNECT, INC., A NEVADA CORPORATION, PLAINTIFF,
v.
CODE REBEL, LLC, A HAWAII LIMITED LIABILITY COMPANY; ARBEN KRYEZIU, AN INDIVIDUAL; VLADIMIR BICKOV, AN INDIVIDUAL; AND DOES 1 THROUGH 300, INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Honorable Ronald S.W. Lew Senior, U.S. District Court Judge

ORDER re: Plaintiff's Motion to Amend Complaint and Remand Action [32]

On April 6, 2012, Plaintiff Aqua Connect's ("Plaintiff") Motion to Amend Complaint and Remand Action came on for regular calendar before this Court [32]. The Court having reviewed all papers submitted pertaining to this Motion and having considered all arguments presented to the Court, NOW FINDS AND RULES AS FOLLOWS:

The Court hereby DENIES Plaintiff's Motion to Amend Complaint and Remand Action.

I. BACKGROUND

This Action stems from a Complaint filed by Plaintiff Aqua Connect ("Plaintiff") against Defendants Code Rebel LLC ("Code Rebel"), Arben Kryeziu ("Kryeziu"), Vladimir Bickov, and Does 1 through 300 (collectively "Defendants") in Los Angeles Superior Court. Plaintiff alleges that Defendants reverse engineered Plaintiff's software, known as Aqua Connect Terminal Server ("ACTS") and distributed an allegedly infringing software product.

On March 7, 2012, Plaintiff filed the present Motion to Amend Complaint and Remand Action ("Amend") [32]. Plaintiff primarily argues that this case should be remanded because it recently discovered that Moboware, Inc. ("Moboware") is distributing Defendant Code Rebel's allegedly reverse engineered software. Proposed Second Amended Complaint ("SAC") ¶¶ 16-17 [32-3]. However, if Plaintiff is permitted to join Moboware as a defendant, the Court would have to remand the case to state court given that diversity jurisdiction would be destroyed since Moboware and Plaintiff both have their principal places of business in California. See SAC ¶¶ 1, 5. Defendants Code Rebel and Kryeziu argue that remand is improper because Moboware should not be joined as a party in this case.

II. LEGAL STANDARD

In general, leave to amend should be "freely given when justice so requires." Fed. R. Civ. P. 15(a). However, when granting leave to amend allows the post-removal joinder of a diversity-destroying defendant, a higher scrutiny is required as set forth in 28 U.S.C. § 1447(e). See Clinco v. Roberts, 41 F. Supp. 2d 1080, 1088 (C.D. Cal. 1999); IBC Aviation Services, Inc. v. Compania Mexicana de Aviacion, S.A. de C.V., 125 F. Supp. 2d 1008, 1011 (N.D. Cal. 2000) (recognizing that diversity-destroying amendment is analyzed under § 1447(e) and requires higher scrutiny than does amendment generally).

In ruling on such a "diversity destroying" motion, courts look at a six factor test based on § 1447(e):

(1) whether the party sought to be joined is needed for just adjudication and would be joined under Federal Rule of Civil Procedure 19(a); (2) whether the statute of limitations would prevent the filing of a new action against the new defendant in state court; (3) whether there has been an unexplained delay in seeking to join the new defendant; (4) whether plaintiff seeks to join the new party solely to defeat federal jurisdiction; (5) whether denial of the joinder would prejudice the plaintiff; and (6) the strength of the claims against the new defendant. Boon v. Allstate Ins. Co., 229 F. Supp. 2d 1020 (C.D. Cal. 2002).

III. ANALYSIS

In this Motion, Plaintiff seeks leaves to amend to join Moboware as an additional defendant. However, because the joinder of Moboware would destroy diversity jurisdiction, the Court considers the merits of Plaintiff's request under high scrutiny and subjects the request to the six factor test set forth in § 1447(e).

The first § 1447(e) factor looks at the extent that Moboware is needed for just adjudication. A party is a necessary party under Rule 19(a), when failure to join will lead to separate and redundant actions. IBC Aviation Services, 125 F. Supp. 2d at 1012. A party is not necessary, however, when the party is "only tangentially related to the cause of action or would not prevent complete relief." Id. Here, because Defendants Code Rebel and Kryeziu are jointly and severally liable with Moboware, the Court finds that complete relief is still available to Plaintiff even without the joinder of Moboware and that Moboware is not a necessary party within the meaning of Rule 19(a).

Furthermore, the Court finds that Moboware is "only tangentially related to the cause of action[s]" asserted by Plaintiff. At the heart of this Action is an allegation that Defendants: (1) conspired to reverse engineer Plaintiff's software, (2) breached an end user license agreement that forbid reverse engineering, and (3) created an infringing software with information learned from the reverse engineering. In the proposed Second Amended Complaint, however, Plaintiff primarily alleges that Moboware is a distributor of Defendant Code Rebel's software. There is no allegation that Moboware aided in the creation of the allegedly infringing software or was in relationship with Defendants when Defendants allegedly breached the end ...


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