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Municipal Revenue Services, Inc. v. Xspand

January 12, 2006

MUNICIPAL REVENUE SERVICES, INC. PLAINTIFF
v.
XSPAND, INC., ET AL., DEFENDANTS



The opinion of the court was delivered by: Judge Jones

MEMORANDUM AND ORDER

THE BACKGROUND OF THIS ORDER IS AS FOLLOWS:

Pending before the Court is a Motion to Strike And/Or Dismiss Counterclaims ("the Motion")(doc. 79) filed by Plaintiff Municipal Revenue Services, Inc. ("Plaintiff" or "MRS") on November 18, 2005. For the reasons that follow, the Motion will be denied.

FACTUAL BACKGROUND/PROCEDURAL HISTORY

As we have detailed the factual background and procedural history in prior Orders, we will provide a brief summary thereof. On April 1, 2005, Plaintiff filed a complaint in the United States District Court for the Middle District of Pennsylvania seeking injunctive relief and damages for alleged violations of the Lanham Act, common law unfair competition, commercial disparagement, tortious interference with contractual relations, and defamation. (See Rec. Doc. 1). On April 29, 2005, Defendant Xspand, Inc. ("Defendant" or "Xspand") filed an answer asserting no counterclaims. On May 2, 2005, Xspand filed an amended answer to assert the Noerr-Pennington doctrine as a defense. By October 17, 2005 Order, we granted MRS' Motion to File an Amended Complaint against Bear Stearns & Co., Inc., which MRS filed that day. On October 26, 2005, Xspand filed an answer to the amended complaint which asserted counterclaims that are the subject of the instant Motion.

On November 18, 2005, Plaintiff filed the instant Motion which has been briefed by the parties. The matter is therefore ripe for disposition.

DISCUSSION

In the Motion, MRS argues that Xspand filed its answer to the amended complaint, wherein it asserted counterclaims for the first time, in retaliation for MRS' joinder of Bear Stearns as a party to this litigation. MRS asserts that the filing of Xspand's counterclaims is an improper attempt to amend its pleading to assert compulsory counterclaims six months after its initial pleading and more than two months after the Court's August 19, 2005 deadline to file amended pleadings.

Reliant upon Federal Rule of Civil Procedure ("Fed.R.Civ.P.") 13, MRS contends that Xspand has also failed to seek leave of Court to belatedly assert such allegedly untimely counterclaims and that Xspand "purposefully avoided filing a motion for leave to amend its pleading because its own documents and admissions contradict the factual assertions of its newly filed counterclaims.*fn1 Defendant XSPAND cannot candidly represent to this Court that justice requires it to be granted leave to assert counterclaims, because the counterclaims are clearly asserted in bad faith." (Pl.'s Mot. Strike at 2-3). Plaintiff's second argument is that Xspand's abuse of process counterclaim fails because the facts asserted in support thereof, even if true, do not support such a cause of action as a matter of law.

In response, Xspand argues that MRS' decision to amend its complaint opened the door to Xspand filing its counterclaims, particularly in the absence of any showing of prejudice. Additionally, Xspand maintains that the allegations of the counterclaim, accepted as true, along with the reasonable inferences arising therefrom, state a claim for which relief may be granted against MRS for abuse of process. Xspand submits that the Court should ignore the inappropriate and inaccurate assertions MRS makes regarding matters not included in the counterclaim.

After a careful review of the record and the parties' submissions, we find that MRS' decision to amend its complaint opened the door to Xspand filing its counterclaims, especially in light of MRS' inability to demonstrate prejudice suffered as a result of Xspand's counterclaims, for the reasons that follow.

As submitted by Xspand, the Third Circuit Court of Appeals has not addressed the issue of whether a defendant may, as of right, add a counterclaim when responding to an amended complaint. MRS points out that federal courts take different approaches in addressing the extent to which a defendant may, under Federal Rules 13 and 15, assert new counterclaims in responding to an amended complaint. We find that the enlightened approach under the circumstances of this case is one that is "permissive", which is adopted by the federal district courts in Delaware and which permits the defendant to always bring new counterclaims without regard to the scope of the amendment. As Xspand accurately submits, a number of district court opinions support a defendant's right to add a counterclaim as of right when responding to an amended complaint. See, e.g., E.I. DuPont de Nemours & Co. v. Millennium Chemicals, Inc., 1999 U.S. Dist. LEXIS 12447 (D. Del. Aug. 2, 1999); Standard Chlorine of Delaware, Inc. v. Sinibaldi, 1995 U.S. Dist. LEXIS 13913 (D. Del. Aug. 24, 1995); Joseph Bancroft & Sons Company v. M. Lowenstein & Sons, Inc., 50 F.R.D. 415 (D. Del. 1970). In each of the referenced cases, the court has held that a defendant may respond to an amended complaint with a counterclaim notwithstanding Fed.R.Civ.P. 13(f):

Standard's reliance on Fed.R.Civ.P. 13(f) is misplaced. It has long been the rule in this district that in answering an amended complaint the defendant is free to answer not simply the amendments, but the new complaint, as if answering an original complaint. Nothing in the rules prevents the defendant from including counterclaims in its answer. 'A party securing leave to amend performs a noteworthy chronological feat. His amendment relates back to the date of the original pleading, Fed.R.Civ.P. 15(c), and the amended pleading is treated as if it had been filed on that date. Since the amending pleader receives the benefit of this nunc pro tunc treatment, he can hardly be heard to complain that claims filed against him are improper because they should have been asserted in response to his original pleading.'

Standard Chlorine, 1995 U.S. Dist. LEXIS 13913 at *6-7 (quoting Joseph Bancroft & Sons, 50 F.R.D. at 419 ...


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