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Larry Pitt & Associates v. Lundy Law, LLP

United States District Court, E.D. Pennsylvania

February 28, 2017

LARRY PITT & ASSOCIATES, Plaintiff,
v.
LUNDY LAW, LLP, et al., Defendants.

          MEMORANDUM OPINION

         The law firm of Larry Pitt & Associates (“Pitt”) brought this action against the law firm of Lundy Law, LLP, and its managing partner L. Leonard Lundy, Esq. (collectively “Lundy Law” or “Defendants”), alleging federal and state trademark violation and unfair competition claims. Following motion practice by the parties, the Court dismissed multiple claims and defendants. Twenty-one months after filing a second amended complaint, Pitt filed the instant motion for leave to file a third amended complaint. For reasons that follow, the motion will be denied.

         I. BACKGROUND

         A. Factual Background

         The underlying facts in this case are well known to the parties and have been recounted in the Court's prior opinions.[1] Plaintiff Pitt has its office in Philadelphia and provides representation to clients in the greater Philadelphia region primarily in the areas of personal injury, social security disability, and workers' compensation law. Defendant Lundy Law is a Pennsylvania-based law firm with offices in Pennsylvania, New Jersey, and Delaware. Lundy Law advertises that it provides representation to individuals pursuing personal injury, social security disability, and workers' compensation claims.

         As alleged in the second amended complaint (“SAC”), people seeking to retain a lawyer in the areas of personal injury, social security disability, and workers' compensation select their lawyers based on brand name recognition or recall. Law firms like Pitt and Lundy Law therefore seek advertising opportunities which provide mass reach, constant messaging, and saturation. According to Pitt, the most highly coveted advertising venues are: 1) on bus exteriors; 2) radio time slots before and after traffic and weather updates; and 3) inside sports arenas.

         For about ten years, Pitt purchased advertising space on the exteriors and interiors of Southeastern Pennsylvania Transportation Authority (“SEPTA”) buses and trains, as well as on SEPTA bus stops. SEPTA advertisements are sold by Titan Outdoor LLC (“Titan”), an advertising firm. Defendant L. Leonard Lundy's daughter, Sara Lundy, has been an Account Executive at Titan since March 2011, and is responsible for selling advertisements for SEPTA.

         Since approximately January 2012, Lundy Law has had the exclusive right to advertise legal services on the outside of SEPTA buses, pursuant to one-year contracts with SEPTA which are renewable indefinitely. In consideration for this exclusive right, Lundy Law paid an “unusually high” advertising fee, above the market prices SEPTA typically charges for such advertising space. Pitt and other law firms are not foreclosed from purchasing advertising space inside SEPTA buses and trains and on SEPTA bus stops, but are allegedly foreclosed by terms of Lundy Law's exclusive contracts with SEPTA from advertising on bus exteriors or from entering into their own exclusive contracts with SEPTA. Pitt also alleges that Sara Lundy gave her father access to competitively sensitive information, as she was the point person for advertising sales for Pitt and other law firms.[2]

         Pitt alleges that, in order to pay the advertising fees, Lundy Law charges its clients higher contingency fees (as high as 45%), demands cash referral fees from doctors to whom Lundy Law refers clients, and enters into agreements with “co-conspirator” law firms, pursuant to which the co-conspirator law firms contribute to Lundy Law's advertising budget and pay referral fees in exchange for client referrals. Lundy Law then runs ads for legal services that it does not provide, such as representation in social security and workers' compensation cases, and refers those cases to the “co-conspirator” law firms. This conduct allows Lundy Law to maintain its dominance in the legal market, and Pitt has allegedly suffered a decrease in net income because of the aforementioned activities.

         B. Procedural History

         Pitt initiated this action on May 2, 2013, asserting antitrust, unfair competition, and tortious interference claims against Lundy Law, LLP and L. Leonard Lundy. Pitt voluntarily dismissed its complaint after Defendants moved to dismiss, and filed an amended complaint on August 12, 2013. In the amended complaint, Pitt alleged federal antitrust claims under the Sherman Act and trademark claims under the Lanham Act. Pitt also alleged state law claims of unfair competition, tortious interference, abuse of process, and wrongful use of civil proceedings under the Dragonetti Act. Defendants moved to dismiss the amended complaint, and the Court granted the motion in substantial part.[3] Pitt then filed a second amended complaint (“SAC”), again alleging Sherman Act and state law claims, and Defendants moved to dismiss most of the claims. Thereafter, the Court dismissed the antitrust and tortious interference claims with prejudice, noting that additional factual allegations set forth in the SAC failed to correct the deficiencies identified in the Court's prior decision.[4] The Court permitted the following claims to proceed:

1. Violation of the Lanham Act based on Lundy Law's alleged false advertisements for certain types of legal services and subsequent referrals to other law firms for a fee;
2. Violation of the Dragonetti Act based on Lundy Law filing a trademark lawsuit against Pitt without probable cause, causing financial harm to Pitt; and
3. Common law unfair competition claim based on Lundy Law's alleged false advertisements and gathering of information about their competitors from Sara Lundy.

         Discovery had been ongoing, being originally scheduled to conclude on February 8, 2016, but was stayed after Pitt's former counsel filed a motion to withdraw on October 8, 2015. An amended discovery schedule was put in place on June 17, 2016. Pitt filed its motion for leave to file a third amended complaint on October 31, 2016. Pursuant to the most recent amended discovery schedule, discovery concluded on January 15, 2017.[5] On January 30, 2017, Pitt filed a motion for sanctions, alleging that Defendants had shared copies of Pitt's motion for leave to file a third amended complaint, which was filed under seal, with counsel for proposed additional defendants.[6]

         II. STANDARD OF REVIEW

         Rule 15(a) of the Federal Rules of Civil Procedure permits amendment of pleadings with leave of court, and directs that courts “should freely give leave when justice so requires.”[7] A court may deny leave to amend where (1) there has been undue delay; (2) substantial prejudice would result; (3) the moving party has demonstrated repeated failure to cure deficiency by amendments previously allowed; (4) an amendment would be futile; or (5) the court finds bad faith or dilatory motive by the moving party.[8]

         Amendment is futile if a proposed amended complaint is “frivolous or advances a claim or defense that is legally insufficient on its face.”[9] “However, given the liberal standard for the amendment of pleadings, courts place a heavy burden on opponents who wish to declare a proposed amendment futile.”[10] A court may deny a request for leave to amend based on futility only where the complaint, as amended, would fail to state a claim upon which relief could be granted.[11] In determining whether the proposed amendment states a plausible claim, the court must consider only those facts alleged in the proposed amended complaint, accepting the allegations as true and drawing all logical inferences in favor of the plaintiff.[12] Courts are not, however, bound to accept as true legal conclusions couched as factual allegations and a proposed amended complaint must contain “enough facts to state a claim to relief that is plausible on its face.”[13]

         III. DISCUSSION

         Pitt seeks leave to amend the complaint to add claims, add parties, and expand previous arguments, purportedly based on new information that came to light in discovery. The proposed TAC includes the following “new” evidence. First, Francis Bass, a former Lundy Law employee, recently pleaded guilty to falsifying tax returns related to kickbacks received from doctors and investigators for client referrals, and declined to answer various questions related to Lundy Law at his deposition in this case. Second, the TAC cites newly discovered referral agreements between Lundy Law and two other law firms. Third, the TAC references evidence that other law firms contributed large sums to “augment [] the Lundy Law brand” through advertisements in exchange for client referrals.[14] Fourth, the TAC alleges that Lundy Law lied about being the only firm offering a “no fee guarantee” when this practice was actually commonplace. Finally, Pitt claims that, when this lawsuit was filed, Lundy Law hired a lawyer to work on a few social security cases per month to refute Pitt's claim that Lundy Law's advertising is misleading.

         The new Defendants Pitt seeks to add are Mr. Bass; the law firms of Pond Lehocky, Stern & Giordano, LLP (“Pond Lehocky”) and Crumley Roberts, LLP; the advertising firm of Intersection Media, LLC (f/k/a Titan Outdoor, LLC) (“Titan”);[15] Sara Lundy; and the Estate of Marvin Lundy (Leonard Lundy's uncle and longtime leader of Lundy Law).

         The TAC also adds four new claims-two RICO claims and two civil conspiracy claims-and expands the existing Lanham Act and unfair competition claims. Pitt's causes of action would be amended to state the following seven claims:

1. Count I (Lanham Act violations for false advertising) would include additional allegations and add the Estate of Marvin Lundy, Pond Lehocky, and Crumley Roberts as Defendants;
2. Count II (unfair competition based on deceptive advertising) would include additional allegations and add the Estate of Marvin Lundy, Pond Lehocky, and Crumley Roberts as Defendants;
3. Count III would make a new allegation of civil conspiracy to deceptively advertise against existing Defendants Lundy Law, LLP and L. Leonard Lundy and new Defendants Estate of Marvin Lundy, Pond Lehocky, and Crumley Roberts;
4. Count IV (unfair competition based on misuse of competitive proprietary information) would include additional allegations and add Sara Lundy and Titan as Defendants;
5. Count V would make a new allegation of civil conspiracy to misuse competitive proprietary information against existing Defendants Lundy Law, LLP and L. Leonard Lundy and new Defendants Sara Lundy and Titan;
6. Count VI (Dragonetti Act violations) against Lundy Law, is identical to the claim alleged in the SAC;
7. Count VII would make a new allegation of RICO violations against L. Leonard Lundy, Estate of Marvin Lundy, Pond Lehocky, Crumley Roberts, and Francis Bass; and
8. Count VIII would make a new allegation of conspiracy to engage in RICO violations against L. Leonard Lundy, Estate of Marvin Lundy, Pond Lehocky, Crumley Roberts, and Francis Bass.

         For the reasons that follow, the Court finds ample justification for denying leave to amend.

         A. Prejudice

         First, Defendants argue that Pitt's proposed amendment would be prejudicial. In the Third Circuit, “prejudice to the non-moving party is the touchstone for the denial of an amendment.”[16] “Prejudice means ‘undue difficulty in prosecuting [or defending] a law suit as a result of a change in tactics or theories on the part of the other party.'”[17] “The non-moving party has the burden of demonstrating such prejudice.”[18] More specifically, courts consider “whether allowing an amendment would result in additional discovery, cost, and preparation to defend against new facts or new theories.”[19]

         In Cureton v. National Collegiate Athletic Association, the Third Circuit stated:

[T]he District Court, when it denied plaintiffs' post-judgment motion to amend, cited four reasons why plaintiffs' delay was undue: (1) the motion was filed three years after the complaint was filed; (2) the factual information on which the proposed amendment relied was known almost two-and-a-half years before plaintiffs sought leave to amend; (3) judicial efficiency would be damaged by trying claims seriatim; and (4) the interest in the finality of the proceedings would be compromised by amendment. Furthermore, the District Court examined plaintiffs' asserted reasons for the delay in seeking amendment and determined that no “reasonable explanation” existed to overlook the delay.[20]

         The Third Circuit found the district court's reasoning appropriate, and found “no reason to disturb its judgment.”[21] Although this case does not involve a post-judgment motion to amend, the analysis in Cureton nonetheless provides valuable guidance.

         First, the motion for leave to amend was filed nearly three-and-a-half years after the original complaint was filed in 2013. Fact discovery closed on January 15, 2017. Defendants argue that if the motion is granted they will have to begin discovery anew, with “little prospect” the matter will be resolved in the foreseeable future.[22] Indeed, allowing amendment in this case would prompt a new wave of discovery based on the additional allegations and Defendants. This new, broader-ranging discovery would likely touch upon areas in which the Court previously foreclosed discovery. Also, as discussed more thoroughly below, the factual bases for the proposed amended complaint were largely known to Pitt when the SAC was filed in January 2014. Granting leave to amend would undermine judicial efficiency by significantly delaying resolution of the case. For these reasons, allowing a change in tactics and theories at this late stage would be unfair and prejudicial to both Defendants and the administration of justice, and for this reason alone denial of amendment is appropriate.[23]

         B. Undue Delay

         Defendants next contend that granting Pitt's Motion would cause undue delay. Delay alone does not justify denying leave to amend; the delay must be undue, and the Third Circuit in evaluating whether delay is undue has “focus[ed] on the movant's reasons for not amending sooner.”[24] “Implicit in the concept of ‘undue delay' is the premise that Plaintiffs, in the exercise of due diligence, could have sought relief from the court earlier.”[25] In evaluating undue delay, courts balance the reasons for not amending sooner against the burden of delay on the Court.[26]“In particular, a district court may deny leave to amend a pleading where the moving party has: (1) failed to utilize previous opportunities to amend; and (2) has not offered any explanation for this failure.”[27]

         Defendants argue that Pitt could have added the proposed new claims earlier, and its failure to do so is “the very definition of undue delay.”[28] They insist that there is no “justification for Pitt having waited more than two years to ask this Court's permission to recast the rejected antitrust claims as RICO, civil conspiracy, expanded Lanham Act, and expanded unfair competition claims.”[29] They further argue that any “new” information propounded by Pitt is not actually new and either has already been pleaded or was known to Pitt at the time of earlier amendments.

         Pitt denies that the delay has been undue, arguing that the proceedings had been “placed on hold” when its former counsel moved to withdraw and discovery did not truly begin until June 2016.[30] Additionally, Pitt notes that the parties stipulated to a discovery schedule that provided Pitt an opportunity to file a motion for leave to amend. Therefore, argues Pitt, the procedural history of the case shows that its motion was timely filed and that any delay resulting from amendment is not undue.[31] Pitt also states that, should the Court deny its motion, it will file the new claims in a separate action. Therefore, argues Pitt, denying its motion would be contrary to the interests of judicial economy.

         Delays similar to the one here have been found to justify denying leave to amend, especially where facts added in the proposed amendment were known to the movant earlier.[32]Regardless of discovery interruptions or stipulations for extensions of time to request leave to add or drop parties, Pitt could have sought leave to amend earlier. Not only was the majority of the ...


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