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Klayman v. Judicial Watch

December 3, 2007

LARRY KLAYMAN, PLAINTIFF,
v.
JUDICIAL WATCH, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Colleen Kollar-kotelly United States District Judge

MEMORANDUM OPINION

Currently pending before the Court is the Motion for Leave to Amend Counterclaim filed by Defendants/Counter-Claimants Judicial Watch, Inc., and Thomas J. Fitton (collectively, "Judicial Watch"). Plaintiff opposes Judicial Watch's Motion for Leave to Amend on the grounds that it was brought in bad faith and that the only new claim Judicial Watch seeks to add via its Amended Counterclaim is futile. Plaintiff has also filed a Cross-Motion for Sanctions. Upon a searching review of the filings currently before the Court in connection with Judicial Watch's Motion for Leave to Amend and Plaintiff's Cross-Motion for Sanctions, the relevant statutes and case law, and the entire record herein, the Court shall GRANT Judicial Watch's Motion for Leave to Amend and shall DENY Plaintiff's Cross-Motion for Sanctions.

I. BACKGROUND

The Court shall assume familiarity with the Court's January 17, 2007 and April 3, 2007 Memorandum Opinions, which set forth in detail the factual background of this case, and shall therefore only briefly address such facts as are necessary for resolution of the motions currently before the Court. See Klayman v. Judicial Watch, Inc., Civil Action No. 06-670, 2007 WL 140978 (D.D.C. Jan. 17, 2007) (hereinafter "MTD Slip Op."); Klayman v. Judicial Watch, Inc., Civil Action No. 06-670, 2007 WL 1034936 (Apr. 3, 2007) (hereinafter "Reconsid. Slip Op."; and Klayman v. Judicial Watch, Inc., Civil Action No. 06-670, 2007 WL 1034937 (Apr. 3, 2007) (hereinafter "PSJ Slip Op."). Defendant Judicial Watch, Inc. is a 501(c)(3) organization formed under the laws of the District of Columbia and headquartered in the District of Columbia. PSJ Slip Op. at 3-4. Defendant Fitton is President of Judicial Watch, Defendant Orfanedes is the Secretary and a Director of Judicial Watch, and Defendant Farrell is a Director of Judicial Watch. Id. at 4. Plaintiff Larry Klayman ("Klayman") is the self-described founder and former Chairman, General Counsel and Treasurer of Judicial Watch, who resides in and practices law in the State of Florida. Id.

In his Second Amended Complaint, Klayman brought six claims against various combinations of Defendants, relating to events that occurred after Klayman left Judicial Watch in September 2003. Id. In connection with Klayman's separation from Judicial Watch, on September 19, 2003, the parties executed a detailed Severance Agreement, signed by Klayman and Fitton, on behalf of Judicial Watch, and attested to by Orfanedes, as Corporate Secretary of Judicial Watch. Id. Plaintiff's claims have been narrowed somewhat by the Court's January 17, 2007 and April 3, 2007 Memorandum Opinions. Specifically, the Court has dismissed Count Five of Plaintiff's Second Amended Complaint, dismissed-in-part Count Nine of Plaintiff's Second Amended Complaint, and granted-in-part Defendant's motion for summary judgment as to Counts Six, Seven, and Eight of Plaintiff's Second Amended Complaint. See generally MTD Slip Op., Reconsid. Slip Op., PSJ Slip Op.

On June 28, 2006, Judicial Watch filed its Answer to Plaintiff's Second Amended Complaint, and also filed its Counterclaim against Klayman, which includes nine Counts: Count I (Breach of Contract) alleges that Klayman has not paid Judicial Watch, Inc. amounts due under the Severance Agreement, Counterclaim ¶¶ 19-24; Count II (Breach of Contract) alleges that Klayman has not repaid a debt owed to Judicial Watch, Inc. by Klayman's former law firm, Klayman & Associates ("K&A"), which was re-affirmed in the Severance Agreement, id. ¶¶ 25-30; Count III (Indemnification) alleges that Klayman is obligated to indemnify Judicial Watch, Inc. for damages arising out of K&A's purported breach of the Severance Agreement, id. ¶¶ 31-34; Counts IV and V (Trademark Infringement) allege that Klayman knowingly used Judicial Watch, Inc.'s registered trademarks without consent, in violation of the Lanham Act, 15 U.S.C. §§ 1114(1)(a) and 1125(a), id. ¶¶ 35-48; Counts VI and VII (Breach of Contract) allege that Klayman has disparaged Judicial Watch, Inc. and Fitton in violation of the Severance Agreement, id. ¶¶ 49-63; Count VIII (Breach of Contract) alleges that Klayman has used Confidential Information in violation of the Severance Agreement, id. ¶¶ 64-70; and Count IX (Breach of Contract) alleges that Klayman has violated the Severance Agreement's covenant not to compete or solicit, id. ¶¶ 71-77. Klayman filed his Answer to Judicial Watch's Counterclaim on August 7, 2006.

Judicial Watch filed its Motion for Leave to Amend Counterclaim on May 25, 2007, asserting that "[s]ince filing the Counterclaim, Judicial Watch has had an opportunity to learn additional information . . . [and] Klayman has pursued a course of action that requires expanded allegations concerning claims under the Lanham Act." JW Mot. for Leave to Amend Counterclaim (hereinafter "JW Mot. to Amend") ¶ 1. Judicial Watch therefore seeks to expand Count IV of the Counterclaim, split Count V into two claims (one for false advertising and one for false association), and add a claim for cybersquatting.

In addition--and at the heart of Plaintiff's Opposition and Motion for Sanctions--Judicial Watch seeks to add a number of allegations to its Counterclaim regarding the circumstances under which Klayman separated from Judicial Watch in September 2003. Specifically, Judicial Watch alleges that in May 2003, Klayman informed Fitton and Orfanedes that "his wife, a former Judicial Watch employee, had commenced divorce proceedings against him" and that she "alleged that Klayman had had an inappropriate relationship with a Judicial Watch employee with whom he had been in love" and that "Klayman had assaulted her physically." JW Am. Count. ¶ 10. According to Judicial Watch, "Klayman denied having a sexual relationship with the employee" but acknowledged that he "had been in love with the employee," "that he had purchased gifts for the employee and had kissed her," and also acknowledged "an incident with his wife that clearly provided the basis for his wife's allegation of physical assault." Id. ¶ 11. Judicial Watch alleges that Fitton and Orfanedes considered Klayman's "acknowledged behavior [] entirely inconsistent with that of a leader of a conservative, pro-family organization," as well as "Klayman's fiduciary duties to the organization," and that they were concerned about Klayman's possible misuse of Judicial Watch resources. Id. ¶¶ 12. Judicial Watch further alleges that, as a result of these revelations, "Fitton requested that Klayman resign," and "Fitton and Orfanedes also insisted that Judicial Watch undertake an internal investigation into Klayman's conduct, including an audit. . . ." Id. ¶ 13. According to Judicial Watch, "Klayman offered to resign rather than face such an inquiry," and the parties began negotiating for his separation from Judicial Watch, which eventually culminated in the September 19, 2003 Severance Agreement. Id. ¶¶ 14-18.

Plaintiff filed his Opposition and Cross-Motion for Sanctions on June 11, 2007, and Judicial Watch filed its Reply in support of its motion to amend and Opposition to Plaintiff's Cross-Motion on June 21, 2007. On July 5, 2007, Plaintiff filed a motion to file out of time his Reply in support of his Cross-Motion, which was granted on October 1, 2007. Thereafter, as permitted by the Court in its October 1, 2007 Minute Order, Judicial Watch filed a Sur-Reply regarding Plaintiff's Cross-Motion for Sanctions.

II. LEGAL STANDARDS

Under Federal Rule of Civil Procedure 15(a), a party may amend its pleading once as a matter of course at any time before a responsive pleading is served. See Fed. R. Civ. P. 15(a). Once a responsive pleading is served, however, a party may amend its complaint only by leave of the court or by written consent of the adverse party. Id.; Foman v. Davis, 371 U.S. 178, 182 (1962). The grant or denial of leave to amend is committed to the sound discretion of the district court. See Firestone v. Firestone, 76 F.3d 1205, 1208 (D.C. Cir. 1996). The court must, however, heed Rule 15's mandate that leave is to be "freely given when justice so requires." Id.; Caribbean Broad. Sys., Ltd. v. Cable & Wireless PLC, 148 F.3d 1080, 1083 (D.C. Cir. 1998). Indeed, "[i]f the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits." Foman, 371 U.S. at 182. As such, "[a]lthough the grant or denial of leave to amend is committed to a district court's discretion, it is an abuse of discretion to deny leave to amend unless there is sufficient reason, such as 'undue delay, bad faith or dilatory motive . . . repeated failure to cure deficiencies by [previous] amendments . . . [or] futility of amendment.'" Firestone, 76 F.3d at 1208 (quoting Foman, 371 U.S. at 182); see also Caribbean Broad. Sys., 148 F.3d at 1084 (a district court's discretion to grant leave to amend is "severely restricted" by Rule 15's command that such leave "be freely given"). Nevertheless, the Court may deny as futile a motion to amend a complaint when the proposed complaint would not survive a motion to dismiss. James Madison, Ltd. v. Ludwig, 82 F.3d 1085, 1099 (D.C. Cir. 1996); see also 3 Moore's Federal Practice § 15.15[3] (3d ed. 2000) ("An amendment is futile if it merely restates the same facts as the original complaint in different terms, reasserts a claim on which the court previously ruled, fails to state a legal theory, or could not withstand a motion to dismiss.").

III. DISCUSSION

Klayman opposes Judicial Watch's Motion for Leave to Amend on the grounds that it was filed in bad faith for improper purposes and, with respect to Judicial Watch's proposed cybersquatting claim, also argues that amendment is futile because the claim would not survive a motion to dismiss. The Court addresses each of these arguments in turn, before considering Plaintiff's Cross-Motion for Sanctions.

A. The Court Cannot Conclude That Judicial Watch's Proposed Amendment Was Made in Bad Faith ...


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