Case Number: 20STCV47489    Hearing Date: April 20, 2023    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

Background

On December 11, 2020, Plaintiff/Cross-Defendants Samuel Kim and Cali Blue Sky Investment, Inc. (CBSI) initiated LASC Action No. 20STCV47489 alleging claims of (1) Statutory Trademark Infringement/Counterfeiting, (2) Dilution of Famous Mark, (3) Common Law Trademark Infringement, (4) Unfair Competition, and (5) Deceptive Business Practices against UHCC, JRJS, LLC, Chango Club, Inc., Jafar Rashid, Vikram Sood, Vibha Patel, Sanjiv Patel, Lorraine Lugo, Mohammed Khalid, Zahid Butt, and Does 1-50. The claims arise from allegations that Samuel Kim owns the trademarks for five ‘Big Chief Marks’ for pre-filled vaporizer cartridges, disposable pens containing cannabis extract, cannabis flower, and related products, and that in December 2018, Kim granted UHCC and JRJS the nonexclusive right to manufacture and distribute cannabis vape cartridges bearing the Big Chief Marks, with Kim revoking the license on June 23, 2019 amid a fallout between the parties, only for Defendants to continue using the marks thereafter without authorization from Kim or Kim’s new licensee, CBSI.

On February 5, 2021, JRJS, LLC filed a Cross-Complaint, with the operative July 28, 2021 First Amended Cross-Complaint (FAXC) alleging claims of (1) Declaratory Relief, (2) Trademark Infringement, (3) Cancellation of Registration for Trademark [Assignment], and (4) Cancellation of Registration for Trademark [Abandonment] against Samuel Kim, CBSI, and Roes 1 through 10. The claims arise from allegations that JRJS became the rightful owner of the common law Big Chief Marks with respect to cannabis products following Kim’s oral assignment of those rights to JRJS, and that it is Kim and CBSI who have infringed on JRJS’s rights by continuing to use the Big Chief Marks, where JRJS is entitled to a cancellation of the Big Chief Marks’ registrations, either on assignment or abandonment grounds.

On March 24, 2023, Defendants—except for Defendants Lugo and Chango Club, Inc.—filed a motion for leave to amend JRJS’s FAXC and Defendants’ Answer to Cross-Complaint in this action. The motions are made on the ground that depositions of Samuel Kim and CBSI have led to the uncovering of previously undiscovered facts that fundamentally alter the bases and legal theories of Defendants’ crossclaims and defenses.

On April 7, 2023, Kim and CBSI opposed the motion for leave to amend.

On April 13, 2023, Defendants filed a reply to the April 7th opposition.

The motion is now before the Court.

Request for Judicial Notice

The Court DECLINES to take judicial notice of the State of California and United States Patent and Trademark Office registrations for the Big Chief Marks because the Court does not rely on such registrations in the disposition of this motion. (Evid. Code, §§ 452, subd. (h), 453.)

Motion for Leave to Amend: GRANTED.

Legal Standard

California Code of Civil Procedure section 473, subdivision (a)(1) provides, in relevant part: “The court may, in furtherance of justice, and on any terms as may be proper, allow a party to amend any pleading or proceeding by adding or striking out the name of any party, or by correcting a mistake in the name of a party, or a mistake in any other respect; and may, upon like terms, enlarge the time for answer or demurrer. The court may likewise, in its discretion, after notice to the adverse party, allow, upon any terms as may be just, an amendment to any pleading or proceeding in other particulars; and may upon like terms allow an answer to be made after the time limited by this code.”

A motion to amend a pleading must:

(1) Include a copy of the proposed amendment or amended pleading, which must be serially numbered to differentiate it from previous pleadings or amendments;

(2) State what allegations in the previous pleading are proposed to be deleted, if any, and where, by page, paragraph and line number, the deleted allegations are located; and

(3) State what allegations are proposed to be added to the previous pleading, if any, and where, by page, paragraph, and line number, the additional allegations are located.

(Cal. Rules of Court Rule, rule 3.1324, subds. (a)(1)-(3).)

The motion must also attach a separate declaration specifying:

(1) The effect of the amendment;

(2) Why the amendment is necessary and proper;

(3) When the facts giving rise to the amended allegations were discovered; and

(4) The reasons why the request for amendment was not made earlier.

(Cal. Rules of Court Rule, rule 3.1324, subds. (b)(1)-(4).)

“This discretion should be exercised liberally in favor of amendments, for judicial policy favors resolution of all disputed matters in the same lawsuit.” (Kittredge Sports Co. v. Superior Court (1989) 213 Cal.App.3d 1045, 1047.) Ordinarily, the court will not consider the validity of the proposed amended pleading in ruling on a motion for leave since grounds for a demurrer or motion to strike are premature; however, the Court does have discretion to deny leave to amend where a proposed amendment fails to state a valid cause of action as a matter of law and the defect cannot be cured by further amendment. (See California Casualty General Ins. Co. v. Superior Court (1985) 173 Cal.App.3d 274, 281, overruled on other grounds by Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390, 403-06; see also Kittredge Sports Co. v. Superior Court, supra, 213 Cal.App.3d at p. 1048 [“[E]ven if the proposed legal theory is a novel one, ‘the preferable practice would be to permit the amendment and allow the parties to test its legal sufficiency by demurrer, motion for judgment on the pleadings or other appropriate proceedings’” (quoting California Casualty General Ins. Co. v. Superior Court, supra, at p. 280)].)

However, leave to amend may also be properly denied when “the insufficiency of the proposed amendment is established by controlling precedent and . . . [can]not be cured by further appropriate amendment.” (California Casualty General Ins. Co. v. Superior Court, supra, 173 Cal.App.3d at pp. 280-81; see, e.g., Foxborough v. Van Atta (1994) 26 Cal.App.4th 217, 231 [not an abuse of discretion to deny leave to amend when “proposed amendment would have been futile because it was barred by the statute of limitations” with no indication of relating back to the original complaint].)

Further, if a good amendment is proposed in proper form, a long, unwarranted and unexcused delay in presenting it may be a good reason for denial. (Roemer v. Retail Credit Co. (1975) 44 Cal.App.3d 926, 939-40.) In most cases, the factors for timeliness are: (1) lack of diligence in discovering the facts or in offering the amendment after knowledge of them; and (2) the effect of the delay on the adverse party. (Id. at p. 940.) If the party seeking the amendment has been dilatory, and the delay has prejudiced the opposing party, the judge has discretion to deny leave to amend. (Hirsa v. Superior Court (1981) 118 Cal.App.3d 486, 490.) Prejudice exists where the amendment would require delaying the trial, resulting in loss of critical evidence, or added costs of preparation such as an increased burden of discovery. (Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 486-88.)

Analysis

I. Procedural Requirements

Defendants’ motion for leave to amend JRJS’s FAXC into a Second Amended Cross-Complaint (SAXC) and Defendants’ Answer to Complaint into a First Amended Answer satisfies California Rules of Court, rule 3.1324, subdivision (a)(1) by attaching to the Atabek declaration copies of the proposed SAXC and First Amended Answer. (Mot., Atabek Decl., Ex. 5 [proposed SAXC], Ex. 7 [proposed First Amended Answer].)

Defendants’ motion for leave to amend JRJS’s FAXC into a SAXC and Defendants’ Answer to Complaint into a First Amended Answer also satisfies California Rules of Court, rule 3.1324, subdivisions (a)(2)-(3) by attaching to the Atabek declaration redline copies of the proposed SAXC and First Amended Answer, differentiating these from the original FAXC and Answer to Complaint respectively. (Mot., Atabek Decl., Ex. 6 [proposed SAXC redlines], Ex. 8 [proposed First Amended Answer redlines].)

Defendants’ motion for leave to amend also satisfies California Rules of Court, rule 3.1324, subdivisions (b)(1)-(4) by providing an attached declaration that:

(1) Incorporates the effect of amendment through redline copies of the proposed SAXC and First Amended Answer (Mot., Atabek Decl., ¶¶ 18, 20, Exs. 6, 8);

(2) Explains why the amendment is necessary by referencing a past hearing at which “Defendants advised the Court and Plaintiffs of Defendants’ intention to seek leave to amend Defendants’ Answer and FAXC based, in pertinent part, on the newly discovered information provided during Kim’s deposition” (Mot., Atabek Decl., ¶ 13);

(3) Explains that the facts giving rise to the amended allegations were discovered on March 8, 2023 and March 15, 2023 at depositions of Samuel Kim (Mot., Atabek Decl., ¶¶ 9, 16); and

(4) Provide sufficient information for the Court to determine that the amendments were not made earlier because the grounds underlying amendment were discovered only recently (Mot., Atabek Decl., ¶¶ 9, 16).

Samuel Kim and CBSI’s opposition does not appear to argue the motion is procedurally defective. (See Opp’n, pp. 1-15 [arguments relegated to sham pleading and trademark law].)

Under these circumstances, the Court finds that Defendants’ motion for leave to amend is procedurally compliant.

II. Substantive Discussion

Defendants further argue that their motion is timely and that Plaintiffs will not suffer prejudice as a result of amendment because:

(1) “The previous May 9, 2023 trial date has been vacated and no trial date is currently pending”;

(2) “Plaintiffs have personal knowledge of the new information necessitating Defendants’ amended pleadings,” for which reason they “will not suffer prejudice as a result of Defendants’ amended pleadings … [which incorporate] testimony elicited a[t] [Samuel] Kim’s deposition[s]”;

(3) “Discovery is still open”; and

(4) “Plaintiffs can always propound further discovery or take further depositions as they feel are warranted based on the new (but previously known to them) facts being alleged in the proposed Second Amended Cross-Complaint.”

(Mot., p. 6.)

In opposition, Samuel Kim and CBSI argue two points. First, Kim and CBSI argue that the proposed SAXC and First Amended Answer are sham pleadings supported by misleading facts and manufactured to avoid summary judgment because “[m]ore than two years after Defendants repeatedly disavowed any license it had with Plaintiff Kim, and adamantly allege[d] instead that [Kim] assigned Defendants the Big Chief Marks, Defendants now want to plea [sic] they had an irrevocable license due to Defendant Rashid’s immense financial investment in the Big Chief products, or that they had prior use of the trademarks, although they knew about these allegations since December 2020.” (Opp’n, p. 7; see Opp’n, pp. 7-12.) Kim and CBSI further argue that the proposed amendments alleging prior use of the Big Chief Marks by Defendants contravenes trademark law on several grounds. (Opp’n, pp. 12-15.)

In reply, Defendants argue four points: Defendants did not wrongfully wait to amend their FAXC because the bases for amendment were only recently discovered, Plaintiffs cannot demonstrate prejudice, the proposed amendments are not sham pleadings, and the legality of the prior use allegations are an issue to be determined at trial, not at the pleadings stage. (Reply, pp. 2-6.)

The Court finds that Kim and CBSI’s opposition arguments are insufficient to overcome the liberality with which courts approach requests to amend pleadings. (Kittredge Sports Co. v. Superior Court, supra, 213 Cal.App.3d at p. 1047.) First, the Court finds that Defendants were not dilatory in moving to amend the FAXC and Answer to Complaint. Contrary to Kim and CBSI’s arguments, the Court is satisfied with Defendants’ explanations that the facts supporting the requested amendments were only recently discovered at Samuel Kim’s depositions. (Mot., Atabek Decl., ¶¶ 9, 16.) Second, the Court finds that Kim and CBSI’s other sham pleadings and trademark law arguments are better left to tests of legal sufficiency by demurrer, motion for judgment on the pleadings, or other appropriate proceedings because the preferable practice would be to permit the amendment (Kittredge Sports Co. v. Superior Court, supra, at p. 1048), particularly where the Court does not find that the proposed amendments are fatally deficient as a matter of law because the pleadings do not appear to be a sham and the trademark questions raised in the papers are based on conflicting legal positions (California Casualty General Ins. Co. v. Superior Court, supra, 173 Cal.App.3d at pp. 280-281).

Defendants’ motion for leave to amend is therefore GRANTED.

Conclusion

Defendants United Health and Care Center (UHCC), JRJS, LLC, Jafar Rashid, Vikram Sood, Vibha Patel, Sanjiv Patel, Mohammed Khalid, and Zahid Butt’s Motion for Leave to Amend First Amended Cross-Complaint and Answer to Complaint is GRANTED because it satisfies California Rules of Court, rule 3.1324, subdivisions (a)-(b) and because Samuel Kim and CBSI’s arguments as to why this motion should not be granted do not present proper grounds for denial.