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BIBB County School District v. Dallemand

United States District Court, M.D. Georgia, Macon Division

April 8, 2019

ROMAIN DALLEMAND, et al., Defendants.



         Defendants Pinnacle/CSG, Inc. and Cory McFarlane (the “Pinnacle Defendants”) have moved to “amend [their] answer and affirmative defenses to the first amended complaint, Doc. 69, by adding a counterclaim.” Doc. 289. McFarlane is the CEO, “Chief Visionary, ” and President of Pinnacle, a Florida construction firm. Doc. 202 ¶¶ 5, 7. For the following reasons, their motion (Doc. 289) is DENIED.

         I. BACKGROUND

         On December 15, 2016, Plaintiff Bibb County School District (“BCSD”) filed this action against a number of Defendants, including the Pinnacle Defendants, alleging the Defendants participated in schemes to defraud BCSD. See generally Doc. 1. Relevant to the Pinnacle Defendants, the alleged scheme primarily involved a non-existent financial and accounting software product that BCSD purchased from Pinnacle. See generally Id. On April 3, 2017, BCSD amended its complaint as a matter of course and asserted the same claims against the Pinnacle Defendants. Docs. 55; 59. In their answer to the first amended complaint on April 30, 2017, [1] the Pinnacle Defendants asserted, among others, prevention and frustration of contract as an affirmative defense. Doc. 69 at 84. Notably, the Pinnacle Defendants did not assert a counterclaim in their answer.

         On November 20, 2017, after the Court granted BCSD's motion to amend, BCSD filed its second amended complaint, joining new Defendants and asserting, in relevant part, the same claims against the Pinnacle Defendants.[2] See generally Docs. 161; 162. On January 18, 2018, the Pinnacle Defendants filed an answer to the second amended complaint and separately filed, for the first time, a counterclaim. Docs. 196; 197.[3] In their counterclaim, the Pinnacle Defendants allege that BCSD interfered with their performance of the contract to provide the accounting and financial software because they were African-American. See generally Doc. 202. Specifically, the Pinnacle Defendants allege that on July 31, 2013, six months into Pinnacle's contract with BCSD, and four and a half years before filing their counterclaim, BCSD “was in the process of approving the contracts of white contractors” and was interfering with and frustrating the performance of three minority contract vendors, one of which was Pinnacle. Id. ¶ 31.

         Viewing July 31, 2013 as the time when the alleged discriminatory conduct occurred and, thus, the date on which the counterclaim accrued, BCSD moved to dismiss the Pinnacle Defendants' counterclaim, arguing the counterclaim was barred by the statute of limitations. Doc. 205-1 at 3. In response, the Pinnacle Defendants argue that BCSD “takes too much liberties in misconstruing [their counterclaim], ” because they “did not allege that the injury accrued on [July 31, 2013].” Doc. 215 at 12-13. But even assuming the injury accrued on or before July 31, 2013, the Pinnacle Defendants contend their counterclaim is not barred by the statute of limitations because it relates back to the date they filed their answer to the first amended complaint.[4] Id. at 8. BCSD argues, however, that for the January 24, 2018 counterclaim to relate back to their April 30, 2017 answer, the Pinnacle Defendants must obtain leave of Court to amend that answer. Doc. 219 at 4. At the time, the Pinnacle Defendants had not sought leave to assert their omitted counterclaim.

         Only at a June 1, 2018 status conference, when the Court raised the point, did counsel for the Pinnacle Defendants acknowledge “maybe that's what we should do, ” i.e., move to amend their answer to the first amended complaint.[5] Doc. 291 at 66:7-14. On June 4, 2018, the Pinnacle Defendants moved to amend their April 30, 2017 answer to the first amended complaint to include their counterclaim; BCSD opposes the motion. Docs. 289; 289-3; 295.


         A. The legal effect of the counterclaim

         The Pinnacle Defendants maintain that their counterclaim relates back to its “First Answer and Affirmative Defenses” and that they were “not required to seek an amendment to the First Amended Answer.” Doc. 289 at 2-3. They contend that “BCSD reset the parties' responsive pleading obligation when it filed the Second Amended Complaint, which superseded the original and First Amended Complaints and permitted the filing of new defenses and [the] omitted [] counterclaim that arose out of [the Pinnacle Defendants'] first answer and affirmative defense outside of the amendatory requirements of Rule 15.” Id. at 3. It seems the Pinnacle Defendants' argument is that when BCSD filed its November 20, 2017 second amended complaint, the Pinnacle Defendants could file their January 18, 2018 counterclaim as a matter of course and that because the counterclaim arises from the same conduct, transaction, or occurrence set forth in their April 30, 2017 answer to the first amended complaint, the amendment relates back to the date of that answer. See Doc. 289 at 3. The Pinnacle Defendants do not, and could not, dispute that their counterclaim arises “out of the transaction or occurrence that is the subject matter” of the claim asserted against them in BCSD's initial and first amended complaint. Fed.R.Civ.P. 13(a)(1)(A); see Doc. 289 at 4. Accordingly, the salient issue is whether a defendant may assert a counterclaim that should have been asserted earlier in response to an amended complaint without seeking leave to amend.

         The Federal Rules of Civil Procedure do not directly address this issue. Rule 13 provides that a counterclaim, whether compulsory or permissive, must be raised in “a pleading” by a “pleader.” See Fed. R. Civ. P. 13(a), (b). A counterclaim is not one of the pleadings recognized under Rule 7(a); therefore, if a defendant seeks to assert a counterclaim, it must do so in its answer. See Fed. R. Civ. P. 7(a). When a defendant fails to assert a counterclaim in its answer, that omission has consequences.

         Though descriptive of what happened here, “omitted counterclaim” is technically an obsolete term. In a 2009 amendment, Rule 13(f), which addressed omitted counterclaims, was abrogated. See Adv. Comm. Notes on 2009 Amendments to Fed.R.Civ.P. 13. Until then, Rule 13(f) provided that “[w]hen a pleader fails to set up a counterclaim through oversight, inadvertence, or excusable neglect, or when justice requires, the pleader may by leave of court set up the counterclaim by amendment.” Fed.R.Civ.P. 13(f) (2008). The Advisory Committee's Notes explain that Rule 13(f) was “deleted as largely redundant and potentially misleading” in light of Rule 15, which addresses amendments of pleadings. See Adv. Comm. Notes on 2009 Amendments to Fed.R.Civ.P. 13. Thus, the abrogation of Rule 13(f) “establishes Rule 15 as the sole rule governing amendment of a pleading to add a counterclaim.” Adv. Comm. Notes on 2009 Amendments to Fed.R.Civ.P. 15.

         Under Rule 15(a)(1), a party may amend its pleading once as a matter of course within 21 days after serving the pleading or, “if the pleading is one to which a responsive pleading is required, 21 days after service of a responsive pleading or 21 days after service of a motion under Rule 12(b), (e), or (f), whichever is earlier.” “In all other cases, a party may amend its pleading only with the opposing party's written consent or the court's leave.” Fed.R.Civ.P. 15(a)(2). Moreover, “any required response to an amended pleading must be made within the time remaining to respond to the original pleading or within 14 days after service of the amended pleading, whichever is later.” Fed.R.Civ.P. 15(a)(3). While Rule 15 addresses when a defendant may respond to an amended complaint, it does not squarely address whether a defendant may bring an omitted counterclaim as a matter of course in response to an amended complaint. Nor does it appear that any appellate court has squarely addressed this issue. Virginia Innovation Scis., Inc. v. Samsung Elecs. Co., Ltd., 11 F.Supp.3d 622, 629 (E.D. Va. 2014) (citations omitted).

         Consequently and in light of the 2009 amendments, district courts have taken various approaches to address the issue.[6] The majority of courts have adopted what is called the “moderate” approach. See, e.g., UDAP Indus. Inc. v. Bushwacker Backpack & Supply Co., 2017 WL 1653260, at *3 (D. Mont. May 2, 2017) (applying the “moderate” approach); see also Poly-Med, Inc. v. Novus Scientific Pte Ltd., 2017 WL 2874715, *2 (D.S.C. July 6, 2017) (same). Under this approach, a counterclaim may be filed without leave “only when the amended complaint changes the theory or scope of the case, ” and the breadth of the changes in the counterclaim must “reflect the breadth of the changes in the amended complaint.” Poly-Med, 2017 WL 2874715, at *2 (citation omitted). Put another way, a defendant may bring a counterclaim as a matter of course if the amended complaint broadened the scope or theory of the case and the counterclaim was proportional to that amendment. Id. Under the so-called “permissive” approach, which appears to be what the Pinnacle Defendants rely on, once a plaintiff amends a complaint, a defendant may amend its answer as of right to bring a new counterclaim, regardless of the scope of the change in the amended complaint. UDAP, 2017 WL 1653260, at *3 (citation omitted); see also Berrada v. Cohen, 2017 WL 6513954, at *2-3 (D.N.J. Dec. 20, 2017) (interpreting the language in Rule 15 to not limit the scope of a defendant's response to an amended pleading, such that a new counterclaim may be asserted as a matter of right).

         Finally, courts, including one in this Circuit, have adopted a third approach, which is to “simply apply the Rule 15 standard equally to amended complaints and amended (or new) counterclaims.” Bern Unlimited, Inc. v. Burton Corp., 25 F.Supp.3d 170, 179 (D. Mass. 2014); Digital Ally, Inc. v. DragonEye Tech. LLC, 2014 WL 2865592, at *4 (D. (D. Mont. May 2, 2017) (citation omitted); see also Virginia Innovation Scis., Inc. v. Samsung Elecs. Co., Ltd., 11 F.Supp.3d 622, 631 (E.D. Va. 2014) (noting that courts followed the narrow approach based on the interplay of Rules 13(f) and 15 but that interplay was eliminated by the 2009 amendments) (quotation marks and citations omitted).

         Kan. June 24, 2014) (adopting the approach in Bern); Setai Hotel Acquisition, LLC v. Miami Beach Luxury Rentals, Inc., 2017 WL 4868638, at *1 (S.D. Fla. June 1, 2017) (same). These courts reason that because Rule 15(a)(1) does not address a new or different counterclaim being asserted after an amended complaint, the catch-all phrase “[i]n all other cases” from Rule 15(a)(2) applies, requiring “the court's leave” (or the opposing party's consent) to assert the counterclaim. See, e.g., Bern, 25 F.Supp.3d at 179. And as a practical matter, this approach provides for a simple and consistent application of the Rule 15 standard for amendments of pleadings that assert claims for relief. See, e.g., Digital Ally, 2014 WL 2865592, at *4. In short, courts believe this third approach “appears to require the least contortion of the language of Rule 15(a), and is the most consistent with its purpose.” Bern, 25 F.Supp.3d at 179.

         The Court agrees that the third approach (which the Court will call the “uniform” approach) makes the most sense. Given the specific circumstances and procedural history of this case, neither the “permissive” nor “moderate” approach is appropriate. As one court explained in rejecting the “permissive” approach, “[i]f every amendment, no matter how minor or substantive, allowed defendants to assert counterclaims or defenses as of right, claims that would otherwise be barred or precluded could be revived without cause. This would deprive the Court of its ability to effectively manage the litigation.” E.E.O.C. v. Morgan Stanley & Co., 211 F.R.D. 225, 227 (S.D.N.Y. 2002); see also Virginia Innovation Scis., 11 F.Supp. at 632 (adopting the reasoning in Morgan Stanley and rejecting the “permissive” approach). That reasoning particularly applies here because, as discussed below, the Pinnacle Defendants asserted a new counterclaim in response to BCSD's second amended complaint, despite knowing information supporting that counterclaim years before BCSD filed its initial complaint. Allowing that counterclaim to be asserted as of right, when it would cause undue delay, cause undue prejudice, and otherwise be futile, runs contrary to the purpose and spirit of Rule 15 and certainly was not the intended result of Rule 13(f)'s abrogation. Moreover, it would “create an imbalanced, if not inequitable, situation where the plaintiff would be required to obtain leave to make amendments to its pleadings, but the defendant-counterclaimant would not.” Bern, 25 F.Supp.3d at 179.

         As for the “moderate” approach, the Pinnacle Defendants do not contend they can assert as of right their counterclaim because of changes in the second amended complaint. If they had, the Court would not have been persuaded. While the second amended complaint, in adding new allegations and parties, has broadened somewhat the scope of the case, BCSD's claim arising from the software transaction, although buttressed, remains the same-the Pinnacle Defendants defrauded BCSD. Buttressing allegations and adding new Defendants does not by itself allow the Pinnacle Defendants to assert an omitted counterclaim as of right. If they could, then the “moderate” approach would become almost identical to the “permissive” approach in that a defendant could bring any new, unrelated counterclaim, or one that could have been asserted earlier without leave, any time the amended complaint expands-even minimally-the scope of the case. Bern, 25 F.Supp.3d at 179 n.7. That would obviate the proportionality requirement under the “moderate” approach and “circumvent[] the requirements of Rule 15.” Id. And even assuming the changes in the second amended complaint are proportional to the counterclaim, again, the point is that the Pinnacle Defendants could have asserted their counterclaim in response to BCSD's initial or first amended complaint. But instead, they waited until after the filing of the second amended complaint to assert their counterclaim. Consistent with the general purpose of Rule 15(a), therefore, just as BCSD had to seek leave to bring its second amended complaint, so too must the Pinnacle Defendants seek leave to bring their counterclaim and explain why they failed to assert it earlier.

         In sum, neither the filing of the second amended complaint nor the changes made in that complaint excuse the Pinnacle Defendants' failure to assert timely their counterclaim.[7] Thus, under the “uniform” approach, the Court concludes the Pinnacle Defendants are required to seek leave to assert their omitted counterclaim. Because leave is required and the Pinnacle Defendants filed their counterclaim without seeking leave (or obtaining BCSD's consent), the counterclaim has no legal effect. See Hoover v. Blue Cross and Blue Shield of Ala., 855 F.2d 1538, 1544 (11th Cir. 1988) (noting generally that “if an amendment that cannot be made as of right is served without obtaining the court's leave or the opposing party's consent, it is without legal effect and any new matter it contains will not be considered unless the amendment is resubmitted for the court's approval” and concluding that “the district court acted properly in treating [a ...

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