Automated Management Systems, Inc. v. Rappaport Hertz Cherson Rosenthal, P.C.

Background

AMSI creates and licenses copyrighted Landlord-Tenant legal-system software. It alleged that the law-firm defendants violated a licensing agreement by allowing Branko Rakamaric and Benjamin Wachter to access the software and copy its useful features.

Discovery closed in October 2020. Earlier orders required the defendants to provide operational versions of the accused software. The court later found that the defendants had failed to comply with that requirement and imposed sanctions under Federal Rule of Civil Procedure 37. The court also denied a prior request for sanctions concerning the defendants’ failure to attend depositions because the deposition notices had not been submitted to the court.

In October 2021, Judge Fox denied AMSI’s request to reopen discovery without prejudice to renewal after resolution of the defendants’ summary-judgment motion. In March 2022, Judge Swain denied that summary-judgment motion on all counts. AMSI later filed several motions, but it did not seek to reopen discovery until December 2022, followed by the formal motion in February 2023.

The Motion to Reopen Discovery

AMSI requested limited additional discovery, including depositions, expert discovery, and fact discovery about revenues and costs associated with licensing, selling, or using the accused software. AMSI argued that the defendants’ conduct had prevented it from obtaining important evidence and that the need for additional discovery became clear only after expert analysis of the software.

The defendants argued that AMSI had identified profits as a potential source of damages from the beginning of the case but had never requested written discovery about the law firm’s revenues. They also argued that AMSI never moved to compel the depositions and did not explain its delay in seeking renewed discovery after the March 2022 summary-judgment ruling.

Court’s Analysis

Federal Rule of Civil Procedure 16 permits modification of a discovery schedule only for good cause and with the judge’s consent. The court applied six factors: whether trial is imminent, whether the request is opposed, prejudice to the opposing party, the moving party’s diligence, whether the need for discovery was foreseeable, and whether the discovery would likely produce relevant evidence.

The court found that some factors favored AMSI. No trial date had been set, the additional discovery could lead to relevant evidence, and the defendants’ prejudice would be limited. The court also recognized that the defendants had previously been sanctioned for failing to provide the software and that their protective-order request had been denied.

The court nevertheless gave primary importance to AMSI’s diligence. It found that AMSI had not acted to compel the depositions or obtain the accused software and had waited approximately eight months after the March 2022 ruling before seeking to reopen discovery. The court called that delay inexcusable. It also rejected AMSI’s assertion that discovery about profits was unforeseeable because AMSI had identified defendants’ profits as a possible damages source in its initial complaint and later filings.

Sanctions Consideration

The court separately considered whether to impose sanctions using its inherent authority—the court’s power to address improper conduct and manage its proceedings. It said the defendants appeared to have disregarded Judge Fox’s orders and that their conduct was at least borderline sanctionable. But the court declined to impose additional sanctions because the deposition notices had not been submitted to the court and an operational version of the software had already been obtained through a third-party subpoena.

Disposition

Judge Willis denied AMSI’s Motion to Reopen Discovery and directed the Clerk of Court to close the motion, docketed as Dkt. No. 378. The court also declined to sanction the defendants further. The order did not decide the underlying copyright claims.