Opinion ID: 4375944
Heading Depth: 2
Heading Rank: 2

Heading: Striking Calmare’s Counterclaims

Text: We next turn to the District Court’s ruling striking five of Calmare’s new counterclaims in its amended answer responding to GEOMC’s second amended complaint. Because of the variety of district court rulings, both procedural and substantive, on new counterclaims, we consider both the content of a new counterclaim in an amended answer responding to an amended complaint and the procedures for presenting and challenging such a counterclaim.11 We have no need to consider Rule 13’s distinction between compulsory and 11 permissive counterclaims. See Fed. R. Civ. P. 13(a), (b). 15 As to content, a new counterclaim, like all pleadings, must conform to the pleading requirements of Twombly and Iqbal. See 2 Moore’s Federal Practice, § 12.34[1][a] (3d ed. 2018); 6 Wright & Miller § 1407 (3d ed. 2018). The closer question is whether a new counterclaim may respond as broadly as one included in an answer to an original complaint or whether it must respond only to the new allegations of an amended complaint. This is an issue that remains unresolved, like other aspects of asserting amended counterclaims. See Christians of California, Inc. v. Clive Christian Furniture Ltd., No. 13 CIV. 275 (LTS)(JCF), 2014 WL 982889, at  (S.D.N.Y. Mar. 11, 2014) (“courts in this Circuit have adopted different approaches”); Southern New England Telephone Co. v. Global NAPS, Inc., No. CIVA 3:04‐CV‐2075 JCH, 2007 WL 521162, at  (D. Conn. Feb. 14, 2007) (“a matter that remains unsettled in the Second Circuit”); Pereira v. Cogan, No. 00 CIV. 619 (RWS), 2002 WL 1822928, at  (S.D.N.Y. Aug. 7, 2002); 3 Moore’s Federal Practice §§ 13.30[4], 15.17[6] (3d ed. 2018) (“case law . . . all over the map”).12 Four approaches to the issue have been identified for new counterclaims 12 asserted in an amended answer that responds to an amended complaint. A so‐called “narrow approach” 3 Moore’s Federal Practice § 15.17[6], suggests that a new counterclaim “had to be tailored specifically to address the amendments in the complaint,” id. A so‐called “permissive approach,” id. suggests that new counterclaims may be included in an amended answer “without leave of court, regardless of the nature of the amended complaint,” id. A so‐called “moderate approach,” id., suggests that new counterclaims may be filed “without seeking permission if the amended complaint 16 We think resolution of this issue depends on how far into the litigation the new counterclaim is asserted. If an amended answer with a new counterclaim is presented at an early stage of the litigation, the new counterclaim may normally be as broad as those filed in response to an original complaint. At a late stage of the litigation, however, a new counterclaim that raises issues beyond the scope of the new claims made in the most recent amended complaint will usually cause escalating prejudice to the counterdefendant and undue expansion of litigation that the court is charged with managing; for those reasons a new counterclaim should normally not be permitted if it exceeds the scope of the plaintiff’s new claims. “As a general rule, the risk of substantial prejudice increases with the passage of time.” 6 Wright & Miller, § 1488. Although “leave to amend ‘shall be freely given,’” Foman v. Davis, 371 U.S. 178, 182 (1962) (quoting Rule 15(a)), Foman qualifies that advice by adding “[i]n the absence of . . . undue prejudice,” id.;13 see changes the theory or scope of the case,” id., but such counterclaims “must be those that respond to new allegations in the amended complaint,” id. Finally, a so‐called “Bern approach,” id., suggests that courts considering whether new counterclaims may be filed should “simply apply normal Rule 15(a) standards, in all their flexibility,” id.; see Bern Unlimited, Inc. v. Burton Corp., 25 F. Supp. 3d 170, 178‐79 (D. Mass. 2014). 13 Cf. Telecom International America, Ltd. v. AT&T Corp., 280 F.3d 175, 200 (2d Cir. 2001) (stating broadly that a validly asserted counterclaim, presented within the normal time limits applicable to an amended answer, should not be rejected because of prejudice). However, the counterclaim at issue in that case, although filed in an amended answer to an amended complaint, was not a new counterclaim; it had been filed in the 17 McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 200 (2d Cir. 2007) (“A district court has discretion to deny leave [to amend] for good reason, including . . . undue prejudice to the opposing party.”). And, as Foman points out, amended pleadings, which include new counterclaims, can also be rejected because of “undue delay, bad faith or dilatory motive.” 371 U.S. at 182. As to procedure for presenting a new counterclaim, most attempts to amend an answer to include a new counterclaim require permission of the court or consent of the parties. See Fed. R. Civ. P. 15(a)(2). The only exceptions occur when a counterclaimant seeks to amend its answer within 21 days after serving its original answer, see Fed. R. Civ. P. 15(a)(1)(A), or within 21 days after service upon it of (1) a required responsive pleading, e.g., an answer to a counterclaim, or (2) a motion under Rule 12(b), (e), and (f), see Fed. R. Civ. P. 15(a)(1)(B). And attempts to amend an answer to include a new counterclaim after an amended complaint that requires a response has been filed must be made within 14 days after service of the amended complaint. See Fed. R. Civ. P. 15(a)(3).14 defendant’s answer to the plaintiff’s original complaint. See Telecom International America, Ltd. v. AT&T Corp., 187 F.R.D. 492, 494 (S.D.N.Y. 1999). 14 The apparent discrepancy between the 21‐day interval of Rule 15(a)(1)(B) and the 14‐day interval of Rule 15(a)(3) will not inevitably arise. Rule 15(a)(3) sets a 14‐day limit only for a “required response to an amended pleading.” Rule 15(a)(1)(B) sets a 21‐ day interval in which a party may amend its pleading “as of course,” i.e, without the 18 The proper procedure to challenge a new counterclaim filed in response to an amended complaint depends on the procedure used by the counterclaimant. If the counterclaimant files a Rule 15 motion to amend its answer to include a new counterclaim, the counterdefendant can oppose that motion. But if a counterclaimant files an amended answer that includes a new counterclaim without seeking court permission under Rule 15(a)(2), thereby denying the counterdefendant an opportunity to oppose a counterclaimant’s Rule 15 motion, the proper motion for the counterdefendant to use depends on what appears on the face of the pleadings or in the record. In the analogous situation where a claim or counterclaim is alleged to be barred by a statute of limitations, the Eleventh Circuit has helpfully explained that “[w]hile a statute of limitations defense may be raised on a motion to dismiss for failure to state a claim for which relief can be granted under Fed. R. Civ. P. 12(b)(6), see Mann v. Adams Realty Co., 556 F.2d 288 (5th Cir. 1977), when the complaint shows on its face that the limitations period has run, Mooney v. Tallant, 397 F. Supp. court’s or the opponent’s permission. Thus, the 14‐day interval shortens the 21‐day interval only where a defendant, responding as required to a plaintiff’s amended complaint, elects to include in its amended answer a new counterclaim, because that new counterclaim is a pleading “to which a responsive pleading is required,” Fed. R. Civ. P. 15(a)(1)(B), i.e., the plaintiff/counterdefendant’s answer. 19 680 (N.D. Ga. 1975), the defect may be raised by motion for summary judgment where the alleged failure to comply with the statute of limitations does not appear on the face of the complaint.” Avco Corp. v. Precision Air Parts, Inc., 676 F.2d 494, 495 (11th Cir. 1982); see Ellul v. Congregation of Christian Bros., 774 F.3d 791, 798 n.12 (2d Cir. 2014) (Rule 12(b)(6) motion proper where facts appear on face of pleading); Chicago Building Design, P.C. v. Mongolian House, Inc., 770 F.3d 610, 613‐14 (7th Cir. 2014) (same); Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir. 2014) (same). Similarly, if a new counterclaim raising issues beyond the scope of the most recent amended complaint is filed so late in the litigation that it will cause prejudice to the counterdefendant or unduly expand the litigation, the new counterclaim may be challenged (1) by a Rule 12(b)(6) motion if relevant undisputed facts appear on the face of the pleadings or in the record, (2) by a Rule 56 motion if relevant undisputed facts can be presented by affidavit, or (3) by an answer under Rule 8(c) if relevant facts are in dispute. Rule 12(f), which authorizes a motion to strike an insufficient defense or improper material in a pleading should not be used to dismiss the counterclaim. See Day v. Moscow, 955 F.2d 807, 811 (2d Cir. 1992); 2 Moore’s Federal Practice § 12.37[3] (3d ed. 2018); 5C Wright & Miller, § 1380, at n.5 (3d ed. 2018). 20 In ruling on a motion to dismiss a new counterclaim, a district court can either assess the new counterclaim’s legal sufficiency or exercise the discretion the court would have been entitled to use if the counterclaimant had moved under Rule 15 to file the new counterclaim. In the pending case, GEOMC’s use of a Rule 12(f) motion to strike Calmare’s new counterclaims (as distinguished from striking matter in them) was procedurally improper. See Day, 955 F.2d at 811. But GEOMC should not be faulted for abiding by the District Court’s novel ruling that permitted Calmare’s amended answer, with the new counterclaims, to be filed, subject to GEOMC’s filing a motion to strike the counterclaims. Although this procedure was improper, the District Court’s ruling on GEOMC’s motion to strike Calmare’s new counterclaims was the functional equivalent of a ruling on Calmare’s motion to amend its answer under Rule 15 to include the new counterclaims in an amended answer to GEOMC’s second amended complaint. We will therefore consider the dismissal ruling on its substantive merits. Because the second amended complaint, filed late in the litigation, added only a claim for breach of contract, the new counterclaims were properly tested in relation only to that claim. Calmare’s new counterclaims endeavored to respond 21 to matters beyond the scope of that added claim. The first new counterclaim alleged that GEOMC breached a 2007 license by entering into an agreement with Radiant Health Management Corp. (“Radiant”), an entity not in the litigation up to that point. The second and sixth alleged that GEOMC tortiously interfered with the 2007 License by its interactions with Radiant. The fifth alleged that the previous allegations concerning Radiant constituted unfair competition in violation of the Lanham Act and state law. The third alleged that GEOMC should have known that Calmare’s CEO lacked authority to execute the Security Agreement and that the Agreement was unenforceable. The District Court rejected the four counterclaims concerning Radiant on the ground of prejudice, stating that these counterclaims would “greatly expand the relatively narrow scope of this case” and “substantially increase[e] the cost and time required to litigate this matter” by adding “contractual agreements and numerous third parties not named” in the lawsuit. GEOMC, 2016 WL 6122930, at . The Court rejected the third counterclaim because it “does not include any factual allegations that would support this claim, nor does it describe a legal basis for the damages sought.” Id. at . Rejecting the counterclaims concerning Radiant was within the District Court’s discretion because, at a late stage of the case, their 22 presentation would have prejudicially expanded the litigation, and the third counterclaim was properly rejected as factually and legally deficient.