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G.P.P., Inc. v. Guardian Protection Products, Inc.

United States District Court, E.D. California

July 27, 2016

G.P.P., INC. dba GUARDIAN INNOVATIVE SOLUTIONS, Plaintiff,
v.
GUARDIAN PROTECTION PRODUCTS, INC., Defendant. v.

          ORDER GRANTING PLAINTIFF’S MOTION TO AMEND AND TO MODIFY THE SCHEDULING ORDER (DOC. 57)

          SHEILA K. OBERTO, UNITED STATES MAGISTRATE JUDGE

         I. INTRODUCTION

         On June 20, 2016, Plaintiff G.P.P. Inc., dba Guardian Innovative Solutions’ (“GIS”) filed its Motion for Leave to Amend the Complaint (the “Motion”), seeking to file a Second Amended Complaint (“SAC”). (Doc. 57.) Defendant Guardian Protection Products, Inc. (“Guardian) filed an opposition brief (Doc. 58), and GIS filed a reply brief on July 13, 2016. (Doc. 61.) The Court reviewed the parties’ papers and all supporting material and found the matter suitable for decision without oral argument pursuant to U.S. District Court for the Eastern District of California’s Local Rule 230(g). The hearing set for July 20, 2016, was therefore VACATED. (Doc. 63.)

         For the reasons set forth below, GIS’s Motion is GRANTED.[1]

         II. BACKGROUND

         A. Factual Background[2]

         GIS is family-run business that has purchased products from Guardian for nearly 30 years. Guardian is a Delaware company with its principal place of business in North Carolina. Guardian sells furniture and upholstery protection products, furniture warranties, and other related items to distributors such as GIS, who in turn sell to retail chains and establishments. (Doc. 31, ¶¶ 1-2.) In 2000, Guardian was acquired by RPM International, Inc. (“RPM International”), a multi-national, multi-billion dollar Fortune 300 company. (Doc. 31, ¶ 2.)

         In May 1988, GIS and Guardian entered into a written agreement whereby GIS acquired exclusive distribution rights to Guardian’s products in certain counties in Pennsylvania (the “Pennsylvania Agreement”). The Pennsylvania Agreement required GIS to make a minimum initial purchase of $40, 000 of Guardian’s products. So long as GIS made purchases that were in a sum sufficient to meet an annual purchase agreement, the Pennsylvania Agreement automatically renewed on an annual basis. (Doc. 31, ¶ 5.)

         GIS and Guardian subsequently entered into other agreements whereby GIS acquired exclusive distribution rights to Guardian’s products in Maryland, Washington, D.C., certain remaining counties in Pennsylvania, specified counties in Western New York (collectively the “Mid-Atlantic Agreement”), and Ohio (the “Ohio Agreement”). The Mid-Atlantic Agreement required GIS to purchase $75, 000 of Guardian’s products as consideration for the exclusive distribution rights, and, so long as GIS met a minimum annual purchase requirement, the Mid-Atlantic Agreement automatically renewed annually. The Ohio Agreement required GIS to make an initial purchase of $20, 000 of Guardian’s products and to pay an additional $20, 000 fee. Provided that GIS made purchases in a sum sufficient to meet an annual purchase requirement, the Ohio Agreement automatically renewed on an annual basis. (Doc. 31, ¶¶ 6-7.)

         In 2007, pursuant to a written assignment of three other written agreements originally entered into between Guardian and another company, GIS obtained exclusive distribution rights to Guardian’s products in Illinois (the “Cook County Agreement”); Indiana (the “Indiana Agreement”); and Iowa and certain counties in Eastern Missouri (the “Midwest Agreement”). So long as GIS met minimum annual purchase requirements under each of these agreements, they each automatically renewed on an annual basis. (Doc. 31, ¶ 8.)

         In March 2010, pursuant to three additional written assignments originally entered into between Guardian and another company, GIS acquired exclusive distribution rights to Guardian’s products in Alabama (the “Alabama Agreement); Florida (the “Florida Agreement”), and Tennessee (the “Tennessee Agreement”) (collectively, these nine agreements will be referred to as the “Distributor Agreements.”). To obtain the assignment of the Alabama, Florida, and Tennessee Agreements, GIS paid $50, 000 to the company who had originally entered into these Distributor Agreements with Guardian. (Doc. 31, ¶ 9.)

         GIS alleges that each of these Distributor Agreements constitutes a franchise. (Doc. 31, ¶¶ 28-31.) GIS maintains that at no time before offering a “franchise” in connection with each of these Distributor Agreements did Guardian ever provide GIS with a Uniform Franchise Offering Circular or Franchise Disclosure Document in accordance with the Federal Trade Commission (“FTC”) Franchise Rule, 16 C.F.R., pt. 436. (Doc. 31, ¶ 32.) GIS also alleges that Guardian failed to register its franchise offering in accordance with the franchise disclosure and registration laws of California, Maryland, New York, Indiana, and Illinois. (Doc. 31, ¶¶ 33-34.)

         Beyond franchise disclosure violations, GIS alleges that Guardian began to engage in a series of wrongful acts, including refusal to pay commission due GIS; improperly purporting to terminate the Alabama, Florida, and Tennessee Agreements; and making actual and implicit threats to terminate the existing Distributor Agreements unless GIS entered into a new agreement (the “2015 Agreement ”) that contains much less advantageous terms and conditions to GIS than the existing Distributor Agreements. (Doc. 31, ¶¶ 12, 16-27.) Moreover, GIS claims the 2015 Agreement constitutes a franchise itself within the meaning of federal and state law, but Guardian failed to provide the required disclosures and, where applicable, state registration of its franchise offering. (Doc. 31, ¶¶ 35-37.)

         Additionally, GIS alleges it discovered in 2010 that Guardian was violating the Distributor Agreements by directly selling products in GIS’s exclusive territory to retail locations associated with Bob’s Discount Furniture. (Doc. 31, ¶¶ 13-15.) To resolve this, GIS and Guardian agreed that Guardian would pay GIS a 5% commission on all sales of Guardian’s products made to Bob’s Discount Furniture retail locations in GIS’s Exclusive Territory for the duration of such sales (the “Bob’s Discount Furniture Agreement”). Guardian made payments under this agreement until November 2014. In December 2014, however, Guardian stopped paying GIS the 5% commission.

         B. Procedural Background

         GIS filed its original complaint on February 27, 2015, alleging breach of contract, breach of the implied covenants of good faith and fair dealing, declaratory judgment that termination of certain of the Distributor Agreements violates certain state laws, negligence per se, and violation of the North Carolina Unfair and Deceptive Trade Practices Act (UDTPA). (Doc. 1.) Guardian moved to dismiss GIS’s complaint on April 23, 2015. (Doc. 16.) On June 30, 2015, the Court granted in part, and denied in part, Guardian’s motion to dismiss on June 30, 2015. (Doc. 30.) Specifically, the Court dismissed without prejudice, and with leave to amend, GIS’s claim for declaratory judgment that termination of certain of the Distributor Agreements violated Iowa law, and dismissed with prejudice GIS’s negligence per se and North Carolina UDPTA causes of action. (See Doc. 30.)

         GIS’s First Amended Complaint (“FAC”), which is currently the operative pleading, alleges the following causes of action: (1) breach of the Alabama, Florida, and Tennessee Agreements; (2) breach of the implied covenants of good faith and fair dealing in the Alabama, Florida, and Tennessee Agreements; (3) breach of the Bob’s Discount Furniture Agreement; (4) breach of the implied covenant of good faith and fair dealing in the Bob’s Discount Furniture Agreement; (5) declaratory judgment that termination of the Cook County Agreement would violate the Illinois Franchise Disclosure Act; (6) violation of California Business and Professions Code § 17200, et seq.; (7) violation of the California Franchise Investment Law, Cal. Bus. & Prof Code § 31000, et seq.; and (8) breach of the implied covenant of good faith and fair dealing in the Pennsylvania, Mid-Atlantic, Cook County, Indiana, and Midwest Agreements. (Doc. 31.) On July 31, 2015, Guardian filed its answer summarily denying the allegations of the FAC, as well as a counterclaim against GIS for declaratory relief, breach of certain of the Distributor Agreements, breach of the implied covenants of good faith and fair dealing in certain of the Distributor Agreements, and breach of California Commercial Code § 2306. (Docs. 35, 36.)

         III. DISCUSSION

         The parties participated in a scheduling conference with the Court on August 25, 2015. (Doc. 41.) The Court issued a scheduling order on August 26, 2015, which provides that “[a]ny motions or stipulations requesting leave to amend the pleadings must be filed by no later than June 20, 2016.” (Doc. 42, 2:15-16.) The parties were advised that “[a]ll proposed amendments must (A) be supported by good cause pursuant to Fed.R.Civ.P. 16(b) if the amendment requires any modification to the existing schedule . . . and (B) establish, under Fed.R.Civ.P. 15(a), that such an amendment is not (1) prejudicial to the opposing party, (2) the product of undue delay, (3) proposed in bad faith, or (4) futile.” (Doc. 19, 2:18-23) (citations omitted).)

         On June 3, 2016, the Court entered a “Joint Stipulation re: Extending Fact Witness Discovery Deadline for the Taking of Agreed Upon Fact Witness Depositions and Extending Expert Disclosure Deadlines” (the “Stipulation”), which extended the non-expert discovery deadline from May 18, ...


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