Opinion ID: 381814
Heading Depth: 2
Heading Rank: 1

Heading: Procedural Challenge: A Late Counterclaim

Text: 144 With all of the complaints, answers, amended complaints, amended answers, cross claims, counterclaims, and amendments to even once-amended pleadings, which were filed by, between and against ADM, Bolivia, Stevenson, and various other interests, it is at first glance surprising that the parties did not early in the litigation exhaust every possible motion and pleading which the Federal Rules of Civil Procedure permit one party to hurl against another. Yet it was only late during the trial that Stevenson formally sought by moving to file a counterclaim against Bolivia to place the responsibility for detention of the Arizona and Southwall squarely upon Bolivia instead of ADM. Thereafter, several weeks passed and the parties concluded their presentation of evidence and made oral arguments to the Court. The District Judge decided to allow Stevenson to file its counterclaim. The parties' written proposed findings and briefs were then received, and the Judge began his deliberations. He decided to award Stevenson damages against Bolivia for the detention. Procedurally, Bolivia now contends that this judgment was improper: by allowing the filing of the counterclaim after the close of evidence but before judgment, the District Judge substantially prejudiced Bolivia and abused his discretion. 145 Bolivia's contention initially requires a somewhat detailed review of the conduct of this litigation. The case began as an in rem action by Stevenson against the Nedon cargo. ADM almost immediately made its claim to the cargo. Attempts to bring Bolivia into the fray were at first frustrated by a claim of sovereign immunity, but eventually Bolivia filed an answer on September 25, 1975. Since trial commenced five months later on February 17, 1976, Bolivia's late entry into the litigation necessarily limited the pre-trial discovery of Bolivian evidence. Difficulties were experienced because several Bolivian witnesses were in Bolivia and because a number of documents requested by ADM were not produced, despite the best efforts of Bolivia's counsel. Nonetheless, several Bolivian witnesses were deposed, with counsel for Stevenson as well as ADM and Bolivia almost always in attendance. 146 One of Bolivia's key witnesses was Sub-Secretary Landivar. As earlier described, Landivar made most of Bolivia's decisions regarding buying and transporting the flour involved in this litigation. ADM attempted to depose Landivar during December 1975. Bolivia moved for a F.R.Civ.P. 26(c) protective order because of Landivar's residence in Bolivia, assertedly outside of the Court's jurisdiction. From the record, it appears that the motion was never acted upon by the Court, however. 62 Consequently, ADM and Bolivia proceeded to trial without benefit of Landivar's knowledge and with only a somewhat limited number of Bolivian documents involving Landivar's decisions. Bolivia, the last of the three parties to present its evidence, scheduled Landivar as its fourth-to-last witness. 147 Until Landivar's appearance near the end of trial, the parties tried the detention issue by attempting to shift liability in a roundabout manner. Stevenson tried its case based on evidence indicating that Arica officials justifiably prevented discharge out of fear of contaminating their port. Thus Stevenson attempted to show that the action was a foreseeable consequence of ADM's fault in supplying infested flour, making ADM liable. ADM, in turn, attempted to prove itself faultless by showing that the flour was not infested upon arrival in Mobile, and, alternatively, to shift the blame to Bolivia by showing that it was responsible for the actions of the Arica officials. Finally, Bolivia attempted (i) to prove that ADM was incorrect in alleging that Bolivia was behind the actions of the Arica officials; and, alternatively, (ii) to shift liability full-circle back to Stevenson by trying to show that Stevenson did not inform Bolivia of the infestation before the ships left for South America and failed properly to clause the bills of lading. Tinkers-to-Evers-to-Chance. 148 Given the Stevenson-to-ADM-to-Bolivia contentions concerning the detention, Bolivia not surprisingly brought forth several witnesses to explain the part it had played in the detention. 63 One of these was Landivar. During the course of Landivar's testimony on March 18, 1976, ADM's counsel interrupted for a voir dire examination. In the course of the examination, Landivar readily revealed that he had a number of documents relating to his testimony in his coat pocket. Among these was a telegram he had sent to Bolivia's Customs Agents in Arica on October 15, 1974: 149 . . . CONFIRMING MY INSTRUCTIONS OF YESTERDAY ABOUT ARRIVAL LOTS 1645 SOUTHWALL 4056 ARIZONA SINCE BOTH LOTS ARE INFESTED THEY MUST BE REJECTED THROUGH SAME VESSELS STOP-WE ARE TRANSMITTING CONTEXT TO SHIPPING COMPANY STEVENSON LINES STOP-GENERAL MANAGER HOME ASSURANCE IS GOING THERE TO COMBINE THIS OPERATION. 150 This telegram and several other items from Landivar's coat pocket had not been previously revealed to ADM or Stevenson (nor to Bolivia's own counsel), in spite of ADM's pre-trial discovery request for all relevant documents. 151 The next day, on March 19, Stevenson's counsel stated in open court that because of Landivar's unexpected testimony and coat pocket telegram, a counterclaim against Bolivia for the detention would be filed. Landivar then resumed testifying and the trial was reset until April 19, 1976. On April 2, Stevenson filed the promised counterclaim against Bolivia. Bolivia opposed the filing of the counterclaim, contending that it was prejudicial and untimely. 152 When trial resumed on April 19, the filing of Stevenson's counterclaim was briefly discussed. The District Judge commented, I don't see that this amendment changes the lawsuit greatly, and I don't think it is going to change the question of the witnesses one way or another. The Judge nonetheless reserved his ruling on the counterclaim. Two days later, on April 21, 1976, testimony ended. On August 4, 1976, the Judge's reserved ruling was filed, allowing the counterclaim to be filed. Briefs and proposed findings were received five days later. On September 16, 1976, the Judge's findings of fact and conclusions of law were announced. 153 The thrust of Bolivia's argument is that because of the District Judge's delay by not ruling on the counterclaim until after the close of evidence Bolivia did not know whether any rebutting evidence was necessary, dared not present any for fear of impliedly agreeing to the counterclaim, and therefore was severely prejudiced in defending against the counterclaim. In other words, Bolivia argues that it did not squarely recognize until after the close of evidence that the conduct of its agents with respect to the ships' detention was to be an issue. Bolivia argues that the grant of the counterclaim on that issue fails to meet the requirements of F.R.Civ.P. 15(b): 154 Amendments to Conform to the Evidence. When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues. . . . 155 Bolivia then refers to an eminent authority, which states that it cannot be fairly said that there is any implied consent to try and issue where the parties do not squarely recognize it as an issue at trial. 3 Moore's Federal Practice P 15.13(2) (2d ed. 1979). Lastly, Bolivia reinforces its position by reliance on a host of decisions refusing to allow Rule 15(b) amendments. 64 156 Although Rules 15(a) and 13(f) may be equally appropriate in this case, 65 Rule 15(b)'s rubric governing amendments to issues tried by implied consent of the parties has been widely interpreted as essentially equivalent to requiring that the losing party not be prejudiced by the amendment. 66 Discussing Rule 15(b), 3 Moore's Federal Practice, supra, P 15.13(2), states: The test should be whether the defendant would be prejudiced by the implied amendment. . . . In terms of the Rule, where such prejudice is found it can be said that no implied consent exists. Since under Rules 15(a) and 13(f) the Court should not grant leave to amend (or to add a counterclaim) where undue prejudice will result, 67 the standards of all three of these Rules coalesce so far as assertions of prejudice, as here, are involved. 68 157 Our review of Bolivia's argument is of course limited to a determination of whether the District Judge abused his discretion. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222, 225 (1962); Henderson v. United States Fidelity & Guaranty Co., 620 F.2d 530, 534 (5th Cir. 1980). We have also recognized that (t)he argument for allowing amendment is especially compelling when, as here, the omitted counterclaim is compulsory. Spartan Grain & Mill Co. v. Ayers, supra, 517 F.2d at 220 (citing 3 Moore's Federal Practice, supra, P 13.33). 69 On the other hand, it is not often that amendments are allowed after the close of evidence, since the opposing party may be deprived of a fair opportunity to defend and . . . (to) offer any additional evidence . . . . Monod v. Futura, Inc., 415 F.2d 1170, 1174 (10th Cir. 1969). 70 This is not to say, of course, that the time at which a counterclaim is requested or is permitted to be added is necessarily determinative. 6 C. Wright & A. Miller, supra, § 1488 at 436. What matters is whether the District Judge's balance of equitable considerations, including prejudice to the party opposing the added counterclaim, represented a proper exercise of discretion. 158 Evaluating first the aspect of prejudice, the fact that Bolivia had adequate opportunity to and did in fact submit written material to the District Judge concerning the legal issues raised by Stevenson's counterclaim suggests some lack of prejudice to Bolivia. In addition, Stevenson warned Bolivia during trial and while Landivar and other relevant witnesses were available that a counterclaim would be and physically actually was filed. Later, but again before the close of evidence, the District Judge indicated his inclination to allow addition of the counterclaim, although he did not formally so rule at that time. Nonetheless, Bolivia argues that it was prevented from presenting additional rebutting evidence because of the possibility that it would be impliedly consenting to the proposed counterclaim. This argument is, however, weakened by two further considerations. One is that the District Judge's finding against Bolivia was based in effect on a finding that any possible, additional actions of Arica port officials could only have been insignificant compared to Landivar's supervening actions. 449 F.Supp. at 105 & n. 30. And in order to refute that finding, Bolivia would have had to impeach the testimony of its own witness, Landivar. 159 Second, and most importantly, Bolivia itself put on a great deal of evidence concerning the cause of the detention, even prior to Stevenson's announcement that it would counterclaim. Bolivia brought forth that evidence in order to defend against ADM's attempts to shift the blame for the detention. ADM, in turn, sought to place liability on Bolivia because of the possibility that Stevenson would succeed in showing that ADM supplied bad flour and thereby caused the detention. The detention issue at least who was responsible for it operationally, not who is legally responsible for the consequences was therefore one of the issues in the case from the beginning of trial. When an issue is recognized as present in a case, even in slightly altered form, the opposing party cannot be greatly prejudiced. Jurinko v. Edwin L. Wiegand Co., 477 F.2d 1038, 1045-46 (3rd Cir. 1973); DeHaas v. Empire Petroleum Corp., supra, 435 F.2d at 1228-29. We conclude that Bolivia was not prejudiced to any significant extent. 160 In addition to the question of prejudice to Bolivia are the countervailing equitable considerations that caused the late filing of the counterclaim in the first place: Landivar's unexpected testimony and his coat pocket production of the telex. While there is some room for arguing that more diligent pursuit of Landivar's deposition might have revealed his testimony prior to trial, there is no doubt that ADM's request for production of documents should have brought forth the coat pocket telex. 71 In not producing the telex Bolivia was grossly negligent if not in outright violation of the rules of discovery. F.R.Civ.P. 26. 72 It is certainly inequitable for Bolivia to argue that it was prejudiced by Stevenson's counterclaim when Bolivia's own conduct prevented the discovery at an earlier date of information which would have prompted an earlier counterclaim. Bolivia, however, appears to argue that its discovery violation is irrelevant since only ADM, not Stevenson requested the documents. We disagree. Absent a very rare sort of F.R.Civ.P. 26(c) protective order, Stevenson would have had access to all documents discovered by ADM from Bolivia. Thus, there is a sufficient causal connection between Bolivia's failure to comply with ADM's production request and Stevenson's late-filed counterclaim. 161 Because of a lack of prejudice to Bolivia and Bolivia's inequitable contribution to its own predicament, the District Judge's assessment of the equities was hardly an abuse of discretion. Of course, it would have been far better if the Judge had acted on Stevenson's motion for leave to file its counterclaim before the close of evidence, for then it would have been abundantly clear to Bolivia that additional evidence not that any was available could be presented. But in this situation, the Judge's delay was harmless and an acceptable if not perfect exercise of his discretion. We consequently find no procedural error. 162