Recoop LLC v. Outliers Inc. d/b/a Thesis Nootropics Inc. et al.

Background

Recoop sued Outliers Inc., doing business as Thesis Nootropics Inc., under the federal Defend Trade Secrets Act and federal Wiretap Act, as well as California privacy law and common law. Thesis and Daniel Freed later asserted counterclaims and third-party claims involving defamation, breach of contract, tortious interference with prospective business relations, and a requested declaration about a release in an agreement between Recoop and Freed. They relied in part on federal-question jurisdiction and supplemental jurisdiction, which allows a federal court to hear related state-law claims arising from the same overall dispute.

The court had previously granted Thesis summary judgment on all of Recoop’s claims. Recoop’s claims were therefore dismissed by judgment, rather than voluntarily withdrawn through an amended complaint. Recoop later sought reconsideration, which the court denied, and filed a notice of appeal. The counterclaims and third-party claims remained pending.

Subject-Matter Jurisdiction

Recoop and Alt moved under Federal Rule of Civil Procedure 12(b)(1), which permits dismissal for lack of subject-matter jurisdiction. They argued that there was no diversity jurisdiction and that the court lost supplemental jurisdiction after granting judgment on Recoop’s federal claims. They relied primarily on the Supreme Court’s decision in Royal Canin U.S.A., Inc. v. Wullschleger.

The court rejected that argument. It explained that Royal Canin addressed a plaintiff’s voluntary withdrawal of all federal claims through an amended complaint. Here, Recoop’s operative complaint still asserted federal claims, and Recoop had lost those claims through summary judgment rather than withdrawing them. Because the claims had not been voluntarily eliminated, the court retained the power to exercise supplemental jurisdiction over related state-law claims.

The court also found that Thesis’s counterclaims and Freed’s third-party claims arose from the same common nucleus of operative fact as Recoop’s claims. The claims concerned the parties’ dispute over access to Recoop’s information, Freed’s alleged rights under an agreement with Recoop, and alleged statements that Freed had misappropriated information and engaged in unlawful hacking or wiretapping.

After considering the factors in 28 U.S.C. § 1367(c), the court chose to exercise supplemental jurisdiction. It found no novel or complex state-law issues, no substantial predominance by the state-law claims, and no compelling reason to decline jurisdiction. Although the court had dismissed all claims over which it originally had jurisdiction, it had done so only after deciding the summary-judgment motion and had already invested substantial time and resources in the dispute.

Leave to Amend

Freed moved under Federal Rule of Civil Procedure 15(a)(2) and Local Rule 15.1(a) for permission to file a Second Amended Answer with Counterclaims and Third-Party Claims. The proposed pleading would add a claim under the Federal Arbitration Act to confirm an interim and final arbitration award and obtain a judgment based on that award.

The opinion states that Freed and Thesis initiated arbitration seeking a declaration that Freed was entitled to advancement of expenses and indemnification from Recoop for defense costs in this action. The interim award declared that Freed, but not Thesis, was entitled to advancement. The final award declared that Freed was entitled to indemnification and awarded $380,190.75 for advanced expenses and $14,802.50 for the portion of the arbitrator’s fees that Recoop was ordered to reimburse.

The court found good cause for the late amendment because no arbitration award existed when the deadline for amended pleadings passed. It also found no undue delay, bad faith, dilatory tactics, or undue prejudice to Recoop. The proposed claim was not futile because the court concluded that it had an independent jurisdictional basis: federal-question jurisdiction in the existing action. The court therefore granted leave to amend.

Disposition

The court denied the motion to dismiss the counterclaims and third-party complaint for lack of subject-matter jurisdiction and granted the motion to amend. Thesis and Freed were ordered to file their Second Amended Answer with Counterclaims and Third-Party Claims no later than November 19, 2025. The court also granted the separate letter motion for leave to file a further reply and directed the Clerk to close the motions at Dkt. Nos. 151, 153, and 157.