Combis Sport Enterprise Company Limited v. Precision Shooting Equipment Incorporated

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WO
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA
Combis Sport Enterprise Company Limited,
Plaintiff,
v.
Precision Shooting Equipment
Incorporated, et al.,
Defendants.
No. CV-24-00371-TUC-CKJ (MSA)
REPORT AND
RECOMMENDATION
Pending before the Court is Defendant Precision Shooting Equipment LLC’s motion
for leave to amend its answer. The motion has been fully briefed and is suitable for decision
without oral argument. The Court will recommend that the motion be denied.1
I. Background
Plaintiff Combis Sport Enterprise used to manufacture and sell sports equipment to
Defendant Precision Shooting Equipment Inc. (PSE Inc.) on a purchase-order basis.
(Doc. 25, ¶ 7.) Plaintiff alleges that PSE Inc. failed to pay for certain orders and wrongfully
canceled other orders. (Id. ¶¶ 9–14, 19–23.) Plaintiff thus sues PSE Inc. for breach of
contract. (Id. ¶¶ 25–40.) Plaintiff also sues Defendant Precision Shooting Equipment LLC
(PSE LLC) on the ground that PSE LLC accepted liability for PSE Inc.’s debts in an asset
purchase agreement. (Id. ¶¶ 41–47.)
1 This conclusion is dispositive as to the affirmative defenses that Defendant seeks to
add to its answer. As such, the Court issues a report and recommendation rather than an
order. See Fed. R. Civ. P. 72(b)(1) (providing that a magistrate judge must issue a report
and recommendation as to dispositive matters); Bastidas v. Chappell, 791 F.3d 1155, 1164
(9th Cir. 2015) (explaining that a magistrate judge’s decision to deny leave to amend is
dispositive when it “effectively disposes of a claim or defense”).
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II. Discussion
PSE LLC seeks leave to amend its answer to insert the affirmative defenses of setoff
and untimeliness. PSE LLC says that these defenses are encompassed within its seventh
affirmative defense—“Plaintiff’s claims may be barred, in whole or in part, by Plaintiff’s
breaches of contract”—and are therefore already part of the case. (Doc. 37 at 8.) It says
that the present motion is brought “in an abundance of caution” to “avoid any prospective
procedural arguments to the contrary.” So, there are two questions: (A) whether PSE LLC’s
operative answer includes the setoff and untimeliness defenses and (B) whether leave to
amend the answer is proper. In this Court’s view, the answer to both questions is no.
A. PSE LLC’s answer does not include the setoff or untimeliness defenses.
A defense has been adequately pleaded when the “plaintiff [has] fair notice of the
defense.” Wyshak v. City Nat’l Bank, 607 F.2d 824, 827 (9th Cir. 1979) (per curiam). This
standard “only requires describing the defense in ‘general terms.’” Kohler v. Flava Enters.,
779 F.3d 1016, 1019 (9th Cir. 2015) (quoting 5 Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 1274 (3d ed. 1998)). “Although ‘fair notice’ is a low bar
that does not require great detail, it does require a defendant to provide ‘some factual basis’
for its affirmative defenses.” Gomez v. J. Jacobo Farm Lab. Contractor, Inc., 188 F. Supp.
3d 986, 992 (E.D. Cal. 2016) (quoting United States v. Gibson Wine Co., No. 15-cv-1900,
2016 WL 1626988, at *5 (E.D. Cal. Apr. 25, 2016)); see Ocean Garden Prods. Inc. v.
Blessings Inc., No. CV-18-00322-TUC, 2018 WL 6133773, at *1 (D. Ariz. Nov. 21, 2018)
(“Defendants must provide Plaintiff with fair notice of the factual basis for each of the
asserted defenses so as to allow Plaintiff an opportunity to conduct relevant discovery.”).
As to the setoff defense, the purchase-order contract provides that “[a]ll claims for
money due or to become due from Purchaser shall be subject to deduction or set off by the
Purchaser by reason of any counterclaim arising out of this or any other transaction with
Seller.” (Doc. 83-1 at 15.) PSE LLC says that Plaintiff’s “deliveries were frequently late
and caused resultant damages,” such that PSE LLC may be entitled to a setoff. The Court
finds that PSE LLC did not provide fair notice of this defense. Neither the answer nor PSE
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LLC’s prior filings indicate that PSE LLC intended to seek a setoff, let alone a setoff due
to delayed deliveries. Thus, PSE LLC did not provide the minimal factual basis necessary
to provide fair notice. See SiteLock LLC v. GoDaddy.com LLC, 562 F. Supp. 3d 283, 322
(D. Ariz. 2022) (“Although GoDaddy’s initial MIDP disclosures suggested the set-
off/recoupment defense would be based in part on ‘unpaid account balances,’ GoDaddy
does not explain why such a vague reference could constitute fair notice of an intent to
pursue theories related to bundling discounts and the Court cannot imagine how that would
be the case.”).
As to untimeliness, the contract provides that “[a]ny action resulting from any
breach on the part of Purchaser as to the goods or services delivered hereunder must be
commenced within one year after the cause of action has accrued.” (Doc. 83-1 at 18.) PSE
LLC argues that Plaintiff’s claims are “extremely stale” and untimely under this provision.
The Court finds that PSE LLC did not provide fair notice of this defense. The answer
contains no mention of the contractual limitation period or even of the statute of limitation.2
Nor does any of PSE LLC’s prior filings indicate that it intended to challenge Plaintiff’s
claims on the ground that they are untimely. As such, there was no fair notice.
PSE LLC says that Plaintiff had fair notice because the answer’s seventh affirmative
defense “called out the terms” of the contract, and the setoff and limitation provisions are
terms of the contract. But PSE LLC did not specifically identify either of those provisions.
The concept of fair notice is not compatible with the notion that a defendant can refer to
the contract generally, leaving the plaintiff to guess about which parts might be relevant.
PSE LLC also argues that Plaintiff had fair notice of all the contract terms at the moment
it signed the contract. That is true but irrelevant. Notice of what the contract says is not fair
notice of what PSE LLC intends to argue in defense of this lawsuit. In fact, PSE LLC’s
failure to highlight the setoff and limitation provisions before now is more consistent with
a waiver of rights than it is with an invocation. See Pruitt v. Pavelin, 685 P.2d 1347, 1356
2 The answer does assert a laches defense. But laches is an equitable doctrine, League
of Ariz. Cities & Towns v. Martin, 201 P.3d 517, 521 (Ariz. 2009), and PSE LLC’s defense
“is a creature of contract” (Doc. 83 at 3).
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(Ariz. Ct. App. 1984) (stating that “a party may waive any provision of a contract intended
for his sole benefit” (citing Nelson v. Cannon, 616 P.2d 56, 59 (Ariz. Ct. App. 1980))).
PSE LLC takes this argument even further, asserting that Plaintiff’s prima facie case
requires it to establish compliance with every provision of the contract, and that setoff and
untimeliness are not affirmative defenses at all. This is plainly wrong. A breach-of-contract
claim has three elements: (1) a contract, (2) breach, and (3) resulting damage. Clark v.
Compania Ganadera de Cananea, S.A., 387 P.2d 235, 238 (Ariz. 1963). Compliance with
all terms of the contract by the plaintiff is not an element of a prima facie case.3 PSE LLC
notes that where a contract contains “mutually dependent covenants”—an agreement in
which each party’s promise to perform is linked to the other’s—the plaintiff must allege
and prove its performance to prevail on a claim of breach of contract. World’s Fair Mining
Co. v. Powers, 100 P. 957, 958–59 (Ariz. 1909). This principle does not help PSE LLC,
because the setoff and limitation provisions are not linked to any promise by Plaintiff to
perform. Those provisions are designed to limit or eliminate PSE LLC’s liability. PSE LLC
thus bears the burden of raising and proving them. See Clark, 387 P.2d at 237 (“The parties,
by their pleadings, evinced the intention that [a certain contractual term] was a condition
subsequent which would excuse [the defendants’] nonperformance. Such being the case, it
was a matter of defense to be pleaded and proved by [the defendants] in the lower court.”).
Indeed, Arizona courts have treated setoff and limitation-period provisions as defenses. See
Indep. Nat’l Bank v. Westmoor Elec., Inc., 795 P.2d 210, 216–17 (Ariz. Ct. App. 1990)
(finding a triable issue as to the defendant’s argument that it was “entitled to a set-off under
its contract”); Shea N., Inc. v. Ohio Cas. Ins., 564 P.2d 1263, 1265 (Ariz. Ct. App. 1977)
(explaining that an insurer can waive a limitation-period defense).
PSE LLC’s answer does not provide fair notice of the setoff and untimeliness
defenses. As a result, PSE LLC can assert them only if it establishes that leave to amend is
proper.
3 It is unclear how Plaintiff could allege and prove compliance with the contract’s
setoff provision. Is Plaintiff supposed to calculate the damages it caused and voluntarily
subtract that amount from its claim?
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B. Leave to amend is not proper.
The district court has discretion in determining whether to grant or deny leave to
amend, Foman v. Davis, 371 U.S. 178, 182 (1962), but leave should freely be given “when
justice so requires,” Fed. R. Civ. P. 15(a)(2). “When considering whether to grant leave to
amend, a district court should consider several factors including undue delay, the movant’s
bad faith or dilatory motive, repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party, and futility.” Brown v. Stored
Value Cards, Inc., 953 F.3d 567, 574 (9th Cir. 2020) (citing Foman, 371 U.S. at 182).
“These factors are evaluated as a whole, but the consideration of prejudice to the opposing
party carries the greatest weight and delay cannot be individually decisive.” Schwartz v.
Miller, 153 F.4th 918, 932 (9th Cir. 2025) (citing DCD Programs, Ltd. v. Leighton,
833 F.2d 183, 185–86 (9th Cir. 1987)). The parties focus on undue delay and prejudice, so
the Court will do the same.
First, undue delay. PSE LLC says that there is no delay because its operative answer
already includes the defenses. As explained above, the Court does not agree. PSE LLC also
asserts that there is no delay because the information supporting its defenses came to light
only recently, including at depositions on September 10 and September 25. The problem
with this is that the discovery deadline was September 11. (Doc. 59.) PSE LLC waited until
the last moment to engage in meaningful discovery (and in doing so violated the scheduling
order by conducting a deposition after the deadline). Further, as the Court explained in a
prior order, PSE LLC’s reason for not participating in merits discovery earlier—i.e., that
Plaintiff’s claims lack merit—was borderline frivolous. (Doc. 79 at 5.) PSE LLC has been
dilatory throughout this entire case, so it cannot rely on the fact that it discovered its
defenses only recently. The Court finds that PSE LLC unduly delayed in bringing this
motion.
Second, prejudice. A party may raise an affirmative defense for the first time at the
summary-judgment stage “if no prejudice is caused to the nonmoving party.” Han v. Mobil
Oil Corp., 73 F.3d 872, 878 (9th Cir. 1995). Prejudice exists when the amendment would
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result in “unfair surprise.” Fin. Timing Publ’ns, Inc. v. Compugraphic Corp., 893 F.2d 936,
944 n.9 (8th Cir. 1990) (quoting Allied Chem. Corp. v. Mackay, 695 F.2d 854, 855 (5th Cir.
1983) (per curiam)); see Han, 73 F.3d at 878 (approving of Fin. Timing Publ’ns).
Plaintiff asserts that it would be prejudiced because it was not provided fair notice
of the setoff and untimeliness defenses until after discovery closed. Plaintiff further says
that, lacking notice of the defenses, it had no reason to conduct discovery as to their merits,
and “it has no way to investigate” them now. Plaintiff maintains that PSE LLC did not
previously indicate that it intended to claim a setoff. And as to timeliness, Plaintiff argues
that it was deprived of an opportunity to investigate tolling of the limitation period or
waiver of the limitation provision based on indications from PSE Inc. and PSE LLC that
one of them would accept the canceled orders.
The Court agrees that allowing an amendment at this point would cause prejudice,
and PSE LLC’s arguments to the contrary are not persuasive. PSE LLC argues that Plaintiff
always had notice of the terms of the contract and that the answer also provided such notice.
As previously explained, however, notice of the terms of the contract does not equate to
fair notice of what PSE LLC intended to argue, and the answer did not provide fair notice
of the setoff and untimeliness defenses. Further, PSE LLC fails to point to some prior court
filing or discovery response that would have put Plaintiff on notice of the setoff and
untimeliness legal theories. Cf. Corbin v. Time Warner Ent.-Advance/Newhouse P’ship,
821 F.3d 1069, 1080 n.10 (9th Cir. 2016) (notice of intent to rely on the de minimis doctrine
shown in a court filing made five months before summary judgment); Fin. Timing Publ’ns,
893 F.2d at 944 n.9 (notice of intent to rely on a contractual limitation period given in a
discovery response ten months before summary judgment).
PSE LLC says that it provided information supporting its defenses during discovery,
and it criticizes Plaintiff for not speaking to key witnesses who had further information
about the defenses. As an example, PSE LLC highlights an email from PSE Inc. to Plaintiff,
complaining about a loss of customers due to delayed shipments. PSE LLC also criticizes
Plaintiff’s “offhand reference to unsupported ‘waiver’ or ‘tolling’ arguments,” stating that
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there is no evidence supporting tolling or waiver. These arguments completely miss the
point. A claim or defense requires two things: a legal theory and relevant facts to support
it. Plaintiff did not have fair notice of the legal theories, so it had no reason to know that
information in its possession was relevant to the theories, and it had no reason to try and
discover other information undermining the theories. So, it makes sense that Plaintiff has
no evidence to challenge PSE LLC’s defenses. That is Plaintiff’s point. Plaintiff is unfairly
surprised and would therefore be prejudiced.
As a final matter, there is caselaw stating that a plaintiff cannot show prejudice
from a late-raised defense if the defense would have been “dispositive” or “effective” from
the outset of the lawsuit. Wyshak, 607 F.2d at 826; C.F. ex rel. Farnan v. Capistrano
Unified Sch. Dist., 654 F.3d 975, 985 (9th Cir. 2011). PSE LLC’s defenses here would not
have been dispositive if raised at the outset of this litigation. The setoff defense would
lessen the value, not dispose, of Plaintiff’s claims. And while an untimeliness defense can
be dispositive at the outset, that would not have been the case here. Plaintiff alleges, as to
the unpaid invoices, that the breach occurred in December 2023, seven months before this
lawsuit was filed. And as to the canceled orders, Plaintiff asserts that there were indications
from both PSE Inc. and PSE LLC that they would resolve their issues without litigation. It
is well-established that a party to a contract can waive any provision that is to his benefit.
Pruitt, 685 P.2d at 1356 (citing Nelson, 616 P.2d at 59). Plaintiff would have shown enough
to engage in discovery as to whether there was a waiver of the limitation provision, so the
defense would not have disposed of Plaintiff’s claims at the outset of this case.
III. Conclusion
PSE LLC did not provide fair notice of its setoff and untimeliness defenses, and it
has not shown that it should be granted leave to assert them in an amended answer. The
Court recommends that PSE LLC’s motion for leave to amend (Doc. 83) be denied.
This recommendation is not immediately appealable to the United States Court of
Appeals for the Ninth Circuit. The parties have 14 days to file specific written objections
with the district court. Fed. R. Civ. P. 72(b)(2). The parties have 14 days to file responses
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to objections. Id. The parties may not file replies on objections absent the district court’s
permission. A failure to file timely objections may result in the waiver of de novo review.
United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003) (en banc).
Dated this 30th day of October, 2025.
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