Cardiovascular Systems, Inc. v. Cardio Flow, Inc.

Background

This case is a breach-of-contract action between Cardiovascular Systems, Inc. (CSI) and Cardio Flow, Inc., both described in the opinion as medical device manufacturers. CSI also seeks monetary damages, declaratory relief, and an injunction.

CSI alleges that Cardio Flow breached a 2012 settlement agreement originally made between CSI and Lela Nadirashvili. According to CSI, that agreement gave CSI the exclusive right to practice rotational atherectomy devices using “solid counterweights.” Rotational atherectomy devices clear plaque from arteries. CSI alleges that Nadirashvili later assigned Cardio Flow her interest in certain patent applications and assigned rights subject to restrictions against using solid counterweights. CSI further alleges that Cardio Flow was developing a device using one or more solid counterweights in violation of the settlement agreement.

Cardio Flow argues that it was not a party to the settlement agreement and therefore is not bound by it. It also disputes CSI’s interpretation that the agreement did more than divide rights between CSI and Nadirashvili.

Motion to amend

CSI asked to amend its amended complaint to add a claim for tortious interference with a contract. The deadline for seeking amendments was May 31, 2019, but CSI filed its motion on January 15, 2020. CSI said that a December 4, 2019 deposition of Cardio Flow’s founder and chairman, Gary Petrucci, revealed the factual basis for the proposed claim. CSI alleged that Cardio Flow knew about the settlement agreement and that Petrucci devised a scheme to induce Nadirashvili to transfer rights without Cardio Flow agreeing to be bound by CSI’s corresponding rights.

Cardio Flow opposed the motion as untimely and futile. Magistrate Judge Katherine Menendez denied the motion because CSI did not show “good cause” for missing the scheduling deadline. Under Federal Rule of Civil Procedure 16(b)(4), good cause primarily depends on the moving party’s diligence. Judge Menendez did not decide Cardio Flow’s separate argument that the proposed claim would be futile because of the statute of limitations.

CSI objected, arguing that Judge Menendez overlooked evidence of CSI’s diligence, that CSI initially lacked evidence supporting the proposed claim, and that the amendment would not expand the case’s scope or prejudice Cardio Flow.

District court’s review

Judge Nelson reviewed the nondispositive amendment ruling under the highly deferential standard in Federal Rule of Civil Procedure 72(a). She could set aside the ruling only if it was clearly erroneous or contrary to law. A finding is clearly erroneous when a thorough review leaves the court firmly convinced that a mistake was made; a ruling is contrary to law when it fails to apply or misapplies relevant law or procedural rules.

Judge Nelson found no such error. She agreed that CSI could have used interrogatories, requests for admission, depositions of other witnesses, or other discovery before the amendment deadline to investigate what Cardio Flow knew about the settlement agreement and when it learned that information. The record included Cardio Flow’s statements in early 2019 that it was not bound by the agreement, an assignment agreement that referred to the settlement agreement, and other documents concerning Petrucci’s earlier involvement with the patents and the settlement.

The court also agreed that Petrucci’s deposition did not provide the decisive new evidence CSI described. According to the opinion, the deposition showed that Petrucci had previously served on CSI’s board, helped form Cardio Flow, wanted to use patents he believed belonged to Nadirashvili, and learned that her dispute with CSI had settled. Judge Nelson found no clear error in Judge Menendez’s conclusion that this testimony did not justify CSI’s late amendment request.

Judge Nelson rejected CSI’s argument that the court should apply the general amendment rule without regard to the scheduling order. Because CSI sought amendment after the scheduling deadline, the court held that the good-cause requirement applied. The court also stated that, because CSI lacked diligence, Judge Menendez was not required to analyze prejudice to Cardio Flow, and because CSI failed to show good cause, Judge Menendez properly declined to decide whether the proposed claim was futile.

Disposition

The court overruled CSI’s objection to the February 27, 2020 order and affirmed Magistrate Judge Menendez’s order. The opinion did not decide the merits of CSI’s proposed tortious-interference claim or Cardio Flow’s futility argument.