United States District Court, N.D. Illinois
May 25, 2004.
RAMADA FRANCHISE SYSTEMS, INC., Plaintiff; V. ROYAL VALE HOSPITALITY OF CINCINNATI, INC., an Illinois corporation, and KAMLESH SHETH, an individual, and YOGESH SHAH, an individual, Defendants
The opinion of the court was delivered by: MARK FILIP, District Judge
OPINION AND ORDER DENYING DEFENDANTS' MOTION TO
Plaintiff Ramada Franchise Systems, Inc. ("Ramada") filed this action
in this Court over two years ago. (D.E. 1.) Plaintiff alleges that
Defendant Royal Vale Hospitality of Cincinnati, Inc. (at former Ramada
franchisee) violated multiple sections of the Lanham Act, 15 U.S.C. § 1051
et seq., (Counts I-III) by infringing Ramada's trade and service marks.
Ramada also claims breach of contract (Counts V-VII), breach of guaranty
against Defendants Kamlesh Sheth and Yogesh Shah (Count IX), unjust
enrichment (Count VIII), and seeks an accounting (Count IV) all in
connection with a licensing agreement between Ramada and Royal Vale.
(Id.) This case is before the Court on Defendants' Motion for Leave to
File Amended Counterclaim ("Motion"). (D.E. 24.) For the following
reasons, Defendants' Motion is denied.
The Court begins by recounting the procedural and factual history of
this case, which history underscores the impropriety of granting
Defendants' Motion. On March 15, 2002, Plaintiff filed its complaint in
this Court. (D.E. 1.) On April 18, 2002, Defendants filed a counterclaim
against Ramada, claiming that Ramada breached the licensing agreement by
failing to include Defendants' facility in Ramada's national reservation system.
(See D.E. 8. at 2.) Although Defendants' April 2002 filing purported to
assert "counterclaims" against Ramada, it is clear, after reviewing the
Defendants' pleading and the parties' subsequent filings, that the
Defendants actually asserted one counterclaim (for breach of the
licensing agreement) at that time. (See D.E. 22 ¶ 3 ("Defendants have
asserted a counterclaim that [Ramada] breached the Licensing Agreement
regarding the inclusion of Defendants' facility in a national reservation
On September 26, 2002, Judge Milton Shadur ordered discovery closed on
December 11, 2002.*fn1 On February 4, 2003, Defendants filed a Motion to
Enlarge Time for Discovery, citing certain health issues regarding
Defendant Yogesh Shah. (See D.E. 12 at 1.) The Court granted that motion
(see D.E. 13) and extended the close of discovery to February 20, 2004,
with Defendants' designation of experts and expert report due December
20, 2003. (See D.E. 17.) On February 11, 2003, Plaintiff moved for the
extension of the February 2004 discovery deadline for the limited purpose
of deposing certain of Defendants' witnesses who were unavailable for
depositions noticed prior to the close of discovery. (See D.E. 19.) The
Court extended the discovery deadline to April 20, 2004, in order for
"[P]laintiff to take further depositions." (D.E. 20.)
On May 10, 2004, Defendants filed a Motion for Leave to File Amended
Counterclaim. (See D.E. 24.) By their Motion, Defendants seek to
add a counterclaim alleging violations of the Illinois Consumer Fraud and
Deceptive Business Practices Act ("Consumer Fraud Act"), 815 ILCS 506/1 et seq.*fn2 In sum, discovery has closed and Defendants now
seek to add an additional counterclaim more than two years after filing
their original counterclaim. Notably, and as discussed below, Defendants'
proposed amendment is premised on information available (or, at the very
least, information that should have been available) to the Defendants at
the time they filed their original counterclaim. Indeed, as Defendants
admit, it was one of the Defendant's purported recent recollections that
prompted the proposed amendment.
Given the posture of this case, the Defendants may amend their
counterclaim "only by leave of court or by written consent of the"
Plaintiff. Fed.R.Civ.P. 15(a). Not surprisingly, Plaintiff is not willing
to give its consent. And although leave to amend shall be freely given
when justice so requires, "leave is inappropriate where there is undue
delay, . . . undue prejudice to the opposing party by virtue of allowance
of the amendment, or futility of the amendment." Villa v. City of
Chicago, 924 F.2d 629, 632 (7th Cir. 1991) (citing Foman v. Davis,
371 U.S. 178, 183 (1962)). In its opposition to the Motion, Plaintiff
argues that Defendants* Motion should be denied because (1) the
Defendants have failed to offer a valid reason for then delay in
seeking to amend; (2) an amendment at this stage of the litigation would
result in undue prejudice; and (3) the proposed amendment is futile.
(D.E. 25 at 1.) The Court agrees.
The lynchpin of Defendants' arguments in support of their Motion
appears to be then belief "that they are allowed to maintain their fraud
claims against Plaintiff based on the `discovery rule'. . . ." (D.E. 24
at 1.) The discovery rule, according to the Defendants, establishes that the amended counterclaim is, among other things, not
futile and not unduly delayed. (Id. at 3.) While Illinois courts have
applied the discovery rule in actions filed pursuant to the Consumer Fraud
Act, see Gredell v. Wyeth Labs., Inc., 803 N.E.2d 541, 546 (Ill.App. Ct.
1st Dist. 2004), the discovery rule does not apply here.
The only case cited by Defendants to support their motion, Koch
Materials Co. v. Shore Slurry Seal, Inc., 216 F.R.D. 301 (D.N.J. 2003),
demonstrates as much, although it is not actually a discovery rule case.
(The Court notes that Defendants did not cite any case law addressing the
discovery rule, despite having used the rule as the foundation for many
of their arguments.) As Plaintiff points out, the court in Koch found
that the proposed amendment to a counterclaim was not unduly delayed
because the information that formed the basis of the defendant's
amendment was uncovered after, among other things, the deposition of the
plaintiff's corporate representative. See Koch, 216 F.R.D. at 305. Here,
however, Defendants seek to amend their counterclaim based on information
"discovered" during the deposition of the Defendants' own corporate
representative and a named Defendant in this action, Mr. Kamlesh Sheth.
Put differently, it was one of the Defendants who purports to have
recently recalled certain alleged facts facts which were known or
should have been known to Defendants at the time of their original
counterclaim in 2002 (and well before the close of discovery) because the
"new" factual allegations concern events and alleged conversations in
which the Defendant/deponent personally participated in 2000. Under such
circumstances, it can hardly be said that this information was recently
"discovered" within the meaning of the discovery rule. See Gredell, 803
N.E.2d at 546 (noting that the discovery rule delays the statute of
limitations until a party knows or reasonably should know that an injury
has occurred); see also Cont'l Bank, N.A., v. Meyer, 10 F.3d 1293, 1298 (7th Cir. 1993) (affirming the district court's denial of an
amendment to a counterclaim where, among other things, the facts
underlying the amendment "must have been known to defendants").*fn3 As a
consequence, Defendants contention that there was no undue delay in
bringing the proposed counterclaim is unavailing.
Moreover, and independently, Plaintiff would be prejudiced by the undue
delay, especially because discovery has closed, if the court were to
allow the proposed amendment. Indeed, the Court finds it likely that
additional discovery would be required an issue raised by Plaintiff's
counsel in open court that Defendants do not attempt to address in their
motion. See Cont `I Bank, 10 F.3d at 1298 (7th Cir. 1993) (holding that
an amendment was properly denied where facts underlying the amendment
where known for two years prior to the amendment and the amendment would
result in additional discovery). Defendants simply argue that the
proposed amendment would "not cause undue prejudice to Ramada because if
Defendants prove their fraud claims, Ramada is the evil-doer. . . ."
(D.E. 24 at 3.) This conclusory argument is unavailing and ignores the
types of obvious prejudice that Plaintiff would be subjected to in terms
of additional litigation costs and delays prompted by the Defendants'
failure to think about the case and investigate whether they had
Furthermore, the Court finds that the proposed amendment would be
futile. "The statute of limitations . . . under the [Consumer Fraud] Act
is three years and begins to run when the cause of action accrues."
Gredell, 803 N.E.2d at 546 (citing 815 ILCS 505/10a(e)). Defendants' proposed amendment repeatedly identifies May 25, 2000, the date Defendants
signed the licensing agreement, as the date the alleged consumer fraud
was committed. Defendants' rely on the discovery rule for the proposition
that the consumer fraud action did not accrue until April 14, 2004 (at
the deposition of Mr. Sheth), which reliance is misplaced, as discussed
above. Accordingly, at least for purposes of analysis of the present
motion,*fn4 the Court finds that the proposed amendment would be futile
because the statute of limitations on the proposed consumer fraud count
ran sometime in May 2003.
For the foregoing reasons, Defendants' Motion for Leave to File Amended
Counterclaims is denied.