Court Opinion

ID: 2969444
Source: CourtListenerOpinion
Date Created: 2015-09-22 15:48:57.400112+00
Date Added: 2024-06-11T11:43:24.667659
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
             Pursuant to Sixth Circuit Rule 206
    ELECTRONIC CITATION: 2000 FED App. 0187P (6th Cir.)
                File Name: 00a0187p.06

UNITED STATES COURT OF APPEALS
              FOR THE SIXTH CIRCUIT
                _________________

                                   ;
                                    
 BLUEGRASS HOSIERY, INC.,
                                    
         Plaintiff-Appellant,
                                    
                                    
                                        No. 99-5936
             v.
                                    
                                     >
 SPEIZMAN INDUSTRIES, INC.,         
           Defendant-Appellee. 
                                   1
       Appeal from the United States District Court
      for the Eastern District of Kentucky at London.
   No. 99-00080—Jennifer B. Coffman, District Judge.
               Submitted: April 25, 2000
            Decided and Filed: June 1, 2000
   Before: MARTIN, Chief Judge; KRUPANSKY and
              RYAN, Circuit Judges.
                  _________________
                       COUNSEL
ON BRIEF: Martha Farmer Copeland, Todd K. Childers,
Brien G. Freeman, FREEMAN, COPELAND & JORJANI,
Corbin, Kentucky, for Appellant. Joe B. Campbell, Bowling
Green, Kentucky, for Appellee.

                            1
2     Bluegrass Hosiery v.                          No. 99-5936
      Speizman Industries, Inc.

                     _________________
                         OPINION
                     _________________
  BOYCE F. MARTIN, JR., Chief Judge. Bluegrass Hosiery,
Inc. appeals the district court’s order dismissing its case
against Speizman Industries, Inc. on the basis that Bluegrass
waived its right to assert its claims in this action by failing to
assert these same claims as compulsory counterclaims in a
previous state court action in North Carolina. Bluegrass
contends that the district court should not have granted
Speizman’s motion to dismiss for failure to state a claim
pursuant to FED. R. CIV. P. 12(b)(6) because the claims in
this action were not compulsory counterclaims in the North
Carolina action, and even if they were, the failure to assert
them would not bar this action under Kentucky law. We
reverse and remand the district court’s decision.
                                I.
  This action stems from a 1995 agreement entered into
between Bluegrass Hosiery, Inc., a Kentucky corporation, and
Speizman Industries, Inc., a North Carolina corporation, for
Speizman to provide knitting machines, training, parts,
electronics, and services to Bluegrass in Cumberland,
Kentucky. The total purchase price of the contract was
$780,000.
  In July 1998, a dispute arose between Bluegrass and
Speizman regarding the latter’s obligations with respect to the
knitting machines, in particular, training and warranty.
Bluegrass asserts that during a meeting between its president,
Glenn Freeman, and Speizman representatives, it informed
Speizman that it had solid grounds to sue Speizman based on
violations of the 1995 agreement, which resulted in the
collapse of the business. On August 21, Speizman sued
Bluegrass in North Carolina state court for breach of contract
based on Bluegrass’s obligations to pay under the 1995
6     Bluegrass Hosiery v.                      No. 99-5936      No. 99-5936                        Bluegrass Hosiery v.       3
      Speizman Industries, Inc.                                                                 Speizman Industries, Inc.

provides for a default judgment against a party for failure to   agreement. Speizman’s complaint claimed that Bluegrass
plead, and the effect of such a judgment as res judicata         owed $11,842.45.
prevents the nonpleading party from profiting as the result of
his noncompliance. Id. Here, Speizman never moved for a             On September 18, Bluegrass filed a motion to dismiss the
default judgment pursuant to Rule 55 when the deadline for       North Carolina lawsuit, alleging lack of jurisdiction and
Bluegrass to serve its answer had expired. Instead, Speizman     improper venue. Bluegrass’s motion was denied on
settled the case before Bluegrass could serve its answer.        October 21, and the court allowed the company ten days to
Therefore, Bluegrass’s failure to serve a pleading and assert    file responsive pleadings. On October 30, prior to the
compulsory counterclaims in the previous state court action      deadline for Bluegrass to file its responsive pleadings,
did not waive its right to assert these same claims in a later   Bluegrass agreed to settle the suit and sent Speizman a check
action.                                                          signed by Freeman in the amount of $11,842.45. Bluegrass
                                                                 did not appeal the October 21 order nor did it file any
    Judgment REVERSED and REMANDED.                              responsive pleadings. Following the settlement, Speizman
                                                                 filed a “Notice of Voluntary Dismissal” pursuant to North
                                                                 Carolina Civil Rule 41(a). The matter was dismissed with
                                                                 prejudice on January 14, 1999.
                                                                   On January 28, 1999, Bluegrass filed this suit against
                                                                 Speizman in Harlan Circuit Court alleging breach of contract,
                                                                 breach of implied covenant of good faith and fair dealing,
                                                                 breach of warranty, intentional and negligent
                                                                 misrepresentation, interference with existing and prospective
                                                                 contractual relations, and violation of Kentucky’s Consumer
                                                                 Protection Act in the inducement and performance of the
                                                                 1995 agreement. The case was removed to the United States
                                                                 District Court for the Eastern District of Kentucky.
                                                                    On February 26 and March 1, Speizman filed motions to
                                                                 dismiss Bluegrass’s complaint for failure to state a claim
                                                                 pursuant to FED. R. CIV. P. 12(b)(6). Speizman argued in its
                                                                 motions that (1) Bluegrass’s claims in this action were
                                                                 compulsory counterclaims that should have been asserted in
                                                                 the previous North Carolina action, and (2) these claims were
                                                                 settled as part of the North Carolina action. The district court
                                                                 granted Speizman’s motions to dismiss. The district court
                                                                 held that in order for Bluegrass to preserve its counterclaims,
                                                                 it was required to file a responsive pleading raising the
                                                                 counterclaims in the previous action; or Bluegrass could have
                                                                 stated in the settlement discussions that it was not waiving its
4     Bluegrass Hosiery v.                         No. 99-5936      No. 99-5936                            Bluegrass Hosiery v.            5
      Speizman Industries, Inc.                                                                        Speizman Industries, Inc.

rights to pursue its counterclaims. The district court noted        served a pleading. See id. In other words, Rule 13(a) does
that the North Carolina court did not dismiss the matter until      not apply unless there has been some form of pleading. See
January 14, 1999, months after Bluegrass could have raised          Martino v. McDonald’s System, Inc., 598 F.2d 1079, 1082
its claims in the North Carolina action, but chose not to do so.    (7th Cir. 1979). The rule requires the adverse party to state its
                                                                    counterclaims “at the time of serving a pleading.” Snider, at
                               II.                                  1157. Where the rules do not require a pleading because of
                                                                    pending motions, the compulsory counterclaim requirement
  This Court reviews dismissal of a case on claim or issue          of Rule 13(a) is inapplicable. See id.
preclusion grounds de novo. See Kane v. Magna Mixer
Company, 71 F.3d 555 (6th Cir. 1995).                                 Even though the claims at issue in this case arose out of the
                                                                    same transaction, these claims were not compulsory
                              III.                                  counterclaims because they were not claims that Bluegrass
                                                                    “had” at the time it was required to file its responsive
   According to the Supreme Court, claims coming within the         pleading. See Kane, at 562. In other words, Bluegrass was
definition of “compulsory counterclaim” are lost if not raised      not required to assert its claims in the prior state court
at the proper time. Baker v. Gold Seal Liquors, Inc., 417 U.S.      proceeding because no   pleading, as the word is defined in
467, 469 n.1 (1974). Bluegrass contends that the district court     FED. R. CIV. P. 7(a)1, was ever filed. After Bluegrass’s
should not have granted Speizman’s motions to dismiss               12(b)(6) motion to dismiss was denied, the state court gave
because the claims in this action were not compulsory               the company ten days to file a responsive pleading. Rule
counterclaims in the previous state court action, and even if       13(a) requires Bluegrass to state its counterclaims “at the time
they were, the failure to assert them would not bar this action     of serving a pleading.” See Snider, at 1157. Instead of filing
under Kentucky law. We agree with Bluegrass that the claims         a responsive pleading, Bluegrass and Speizman agreed to
in this action were not compulsory counterclaims and the            settle the dispute for the sum of $11,842.45 before
failure to assert these claims did not preclude Bluegrass from      Bluegrass’s answer was due. As the Seventh Circuit noted,
bringing the same claims in this action.                            Rule 13(a) does not apply unless there has been some form of
                                                                    pleading served. Martino, at 1082. Here, there was no
   FED. R. CIV. P. 13(a) expressly states that “a pleading shall    pleading served. Thus, we see little sense in applying the
state as a counterclaim any claim which at the time of serving      broad bar established in Rule 13(a) to an action that ended
the pleading the pleader has against any opposing party, if it      with virtually no burden on the judicial calendar. See
arises out of the transaction or occurrence that is the subject     Martino, at 1082.
matter of the opposing party’s claim. . .” This rule serves the
desirable goal of bringing all claims arising out of the same         Speizman, though, contends that the deadline for filing the
transaction or occurrence before the court in a single action.      answer in the earlier action had passed, and that Rule 13(a)
See United States v. Snider, 779 F.2d 1151, 1157 (6th Cir.          should therefore apply regardless of the absence of a
1995). At the same time, the rule is in some ways harsh             responsive pleading. We disagree. FED. R. CIV. P. 55
because it forces parties to raise certain claims at the time and
place chosen by their opponents, or to lose them.
                                                                        1
                                                                          Rule 7(a) defines the following as pleadings: an answer, a reply to
  Rule 13(a), however, only requires a compulsory                   a counterclaim, an answer to a crossclaim, a third party complaint, and a
counterclaim if the party who desires to assert a claim has         third party answer.