Opinion
Civil No. 03-1992 (PG).
August 6, 2004
REPORT AND RECOMMENDATION INTRODUCTION
On September 12, 2003, Corpak, Inc. ("Corpak") filed a complaint against Pérez Trading Company "(PTC") and Cates Mechanical Corporation ("CMCs"), under 28 U.S.C. § 1332 for diversity jurisdiction, seeking compensatory damages for alleged losses caused by a defective carton folding machine manufactured by CMC and sold to Corpak by PTC. (Docket entry # 1).
As of August 31, 2003, Corpak claims it has sustained losses in the amount of $465,922.07 attributable to the defective machine and these losses continue to accrue at the monthly rate of $17,595.30.
On November 20, 2003, PTC filed its answer to the complaint and counterclaim. (Docket entry # 7). On December 5, 2003, Corpak filed its answer to the counterclaim. (Docket entry # 11).
On December 11, 2003, PTC filed a Motion for Partial Summary Judgment seeking judgment of the outstanding debt of $639,898.44 of principal owed by Corpak to PTC for products sold by PTC to Corpak in the regular course of business. Although the amount of principal owed is $639,898.44, PTC seeks judgment in the amount of $638,434.24 because of a slight difference in the invoice list and invoice 45020. (Docket entry # 15).
Corpak timely opposed the Motion for Partial Summary Judgment (Docket entry # 18). After being granted leave, PTC filed a reply and Corpak filed a surreply. (Docket entries # 23 and 26).
The Motion for Partial Summary Judgment has been referred to this Magistrate Judge for report and recommendation. (Docket entries # 35 and 36).
SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). Pagano v. Frank, 983 F.2d 343, 347 (1st Cir. 1993); Lipsett v. Univ. of P.R., 864 F.2d 881, 894 (1st Cir. 1988); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505 (1986).
Summary judgment is appropriate where "the pleadings, depositions, and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A fact is material if, based on the substantive law at issue, it might affect the outcome of a case. A material issue is "genuine" if there is sufficient evidence to permit a reasonable trier of fact to resolve the issue in the non-moving party's favor. Anderson, 477 U.S. at 248.
ANALYSIS
A. Jurisdiction.Although neither of the parties has raised the issue, we have an obligation to inquire into the subject matter jurisdiction over PTC's counterclaim. See Clark v. Paul Gray, Inc., 306 U.S. 583, 588, 59 S.Ct. 744 (1939) (holding that although district court's jurisdiction had not been challenged, Court had duty to raise question of whether jurisdictional amount was involved). See also Iglesias v. Mutual Life Insurance, 156 F.3d 237, 240 (1st Cir. 1998); White v. Gittens, 121 F.3d 803, 806 (1st Cir. 1997). Federal courts are courts of limited jurisdiction; a court may not address the merits until "after . . . the court has assumed jurisdiction over the controversy."Bell v. Hood, 327 U.S. 678, 681, 66 S.Ct. 773 (1946).
PTC's counterclaim sounds in state law. Accordingly, a federal court may not hear it unless it falls within the ambit of supplemental jurisdiction or is supported by an independent jurisdictional basis. See Iglesias, 156 F.3d at 240 (noting that a federal court has jurisdiction over a counterclaim only if it resides within the court's supplemental jurisdiction or is supported by an independent jurisdictional basis); Toste Farm Corp. v. Hadbury, Inc., 70 F.3d 640, 646 (1st Cir. 1995) (same).
Fed.R.Civ.P. 13 describes two types of counterclaims: compulsory and permissive. A compulsory counterclaim is one that "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim." Fed.R.Civ.P. 13(a). All counterclaims that are not compulsory are permissive. See Fed.R.Civ.P. 13(b). Only compulsory counterclaims can rely upon supplemental jurisdiction; permissive counterclaims require their own jurisdictional basis. See Iglesias, 156 F.3d at 240.
The supplemental jurisdiction statute provides: "[i]n any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." 28 U.S.C. § 1367(a). Section 1367 incorporates the common law doctrines of pendent and ancillary jurisdiction. See Penobscot Indian Nation v. Key Bank, 112 F.3d 538, 563 (1st Cir. 1997).
Federal courts have ancillary jurisdiction over compulsory counterclaims. See McCaffrey v. Rex Motor Transp., Inc., 672 F.2d 246, 248 (1st Cir. 1982). Permissive counterclaims, however, do not fall within ancillary jurisdiction and therefore may not be heard in federal court unless supported by an independent basis of jurisdiction. Id.
There are at least four (4) tests to determine whether a counterclaim is compulsory or permissive:
1. Are the issues of fact and law raised by the claim and counterclaim largely the same?
2. Would res judicata bar a subsequent suit on defendant's claim absent the compulsory counterclaim rule?
3. Will substantially the same evidence support or refute plaintiff's claim as well as defendant's counterclaim?
4. Is there any logical relation between the claim and the counterclaim?
Id.
Applying this test to the facts of this case, we must conclude PTC's counterclaim is permissive and not compulsory as alleged by the parties. First, it is undisputed the multiple purchases made by Corpak which lead to the outstanding debt of $639,898.44 to PTC are unrelated to the purchase of the folding machine object of this litigation.
Second, the aggregate of operative facts giving rise to Corpak's claim is entirely different from the facts supporting PTC's counterclaim. Corpak alleges PTC sold a defective machine related to a single purchase it made from PTC of a carton folding machine for $101,180.70. The evidence relevant to this claim includes the terms of the purchase contract, documentary and testimonial evidence, other evidence concerning the purchase contract of the machine and evidence of the alleged negligence of PTC in selling a defective machine.
By contrast, PTC's counterclaim is for money owed by Corpak to PTC for multiple products sold by PTC to Corpak over the period from January 31, 2003 to August 21, 2003. The facts supporting the counterclaim are the invoices of the purchases made by Corpak and its own admission that the amounts for these invoices are owed and have not been paid as well as documentary, testimonial or other evidence regarding these multiple purchases. Therefore, there is no doubt that both claims rest on different sets of supporting facts.
Third, PTC's ability to recover payment does not depend on the success or failure of Corpak's claims. Corpak has admitted it made the purchases from PTC and it has failed to pay the amount owed. Instead of filing a counterclaim, PTC could have sought payment for the invoices based on Corpak's failure to pay at any point after the invoices became overdue. Accordingly, PTC's claims included in its counterclaim are not tied to the merits of the contract claim originally filed by Corpak. In other words, PTC's counterclaim bears no logical relation to the claims in the main action as properly admitted by both parties.
In view of the foregoing, this Magistrate Judge concludes that PTC's counterclaim is permissive rather than compulsory, and is not supported by federal supplemental jurisdiction. We look, therefore, to whether it rests on an independent federal jurisdictional basis.
The only possible jurisdictional basis would be diversity of citizenship. It is undisputed that there is diversity of jurisdiction in this case inasmuch PTC's principal place of business is in the State of Florida. Accordingly, there is an independent jurisdictional basis for the counterclaim.
B. Contract of Purchase under State Law.
Article 1334 of the Civil Code of Puerto Rico states that "[b]y a contract of purchase and sale one of the contracting parties binds himself to deliver a specified thing and the other to pay a certain price therefore in money or in something representing the same." P.R. Laws Ann., Title 31 § 3741.
In turn, Article 1339 states that "[t]he sale shall be perfected between vendor and vendee and shall be binding on both of them, if they have agreed upon the thing which is the object of the contract and upon the price, even when neither has been delivered." P.R. Laws Ann., Title 31 § 3746.
The effect of the contract is "[a] promise to sell or buy, there being an agreement as to the thing and price, gives right to the contracting parties to mutually demand the fulfillment of the contract." P.R. Laws Ann., Title 31 § 3747.
Furthermore, Article 1389 indicates that the "vendee is obliged to pay the price of the thing sold at the time and place stipulated in the contract. If the time and place should not have been fixed, the payment must be made at the time and place where the thing sold is delivered." P.R. Laws Ann., Title 31 § 3871.
Corpak has acknowledged, in the complaint, in its opposition to the motion for partial summary judgment and in other pleadings, that it currently owes PTC $639,898.44 for cardboard and other products which it has purchased in the regular course of business and which sum is unrelated to the purchase of the machine in question. Corpak has proposed and PTC has refused to set-off from said debt the monetary damages caused by the defective machine sold to Corpak by PTC.
By Corpak's own admissions, the following facts are undisputed:
See Corpak's Opposition to the Motion for Partial Summary Judgment at pp. 3-4 and its Statement of Disputed Facts at p. 4. (Docket entry # 18).
1. Corpak owes PTC $639,898.44.
2. Said amount is in concept of products purchased by Corpak from PTC in the regular course of business.
3. The purchases made by Corpak which lead to the outstanding debt of $639,898.44 are unrelated to the purchase of the Cates 424WW forming machine object of the present litigation.
4. The purchases made by Corpak which lead to the outstanding debt were made between January 31, 2003 and August 21, 2003.
5. Corpak was granted payment terms at ninety (90) days from bill of lading date to make payment of amounts owed for each particular purchase.
6. Said term began to accrue from the date of shipment of each particular purchase.
7. At present, the ninety (90) day payment term has expired as to all purchases made between January 31, 2003 and August 21, 2003.
8. Corpak has not paid the debt of $639,898.44.
9. The purchases which lead to the outstanding debt of $639,898.44, object of the present suit to collect monies are evidenced by forty (40) numbered invoices.
10. The purchase invoices which evidence the outstanding debt are the following: 43976, 44162, 44213, 44315, 44359, 44362, 44367, 44666, 44681, 44791, 44803, 44924, 45015, 45020, 45023, 45085, 45307, 45420, 45804, 45930, 46273, 46300, 46404, 46491, 46872, 47062, 47078, 47225, 47351, 47387, 47445, 47446, 47805, 47853, 47912, 47972, 48191, 48216, 48423 and 48453.
11. Corpak admits that "it has not fulfilled its obligations to Pérez Trading since it has not paid $639,898.44 of principal still owed for the products sold by Corpak, Inc."
In view of the foregoing, there is no issue of material fact that there is a valid contract and that PTC has a right to demand fulfillment of the terms of the contract inasmuch Corpak has failed to pay the money owed for the purchase of products from PTC. Accordingly, PTC is entitled to judgment in its favor in the amount of $638,434.24, which is the amount sought by PTC in its partial summary judgment request.
C. Entry of Summary Judgment on a Counterclaim.
We need now consider whether partial summary judgment for PTC's counterclaim in the amount sought of $638,434.24 is appropriate in this case.
Regardless of PTC's entitlement to judgment in its favor in the amount of $638,434.24, Corpak argues in its opposition that it is entitled to a set-off of the damages allegedly caused by PTC to Corpak due to the defective machine. In essence, Corpak contends that PTC has incurred in tortuous actions which constitute actionable negligence due to the defects of the folding machine which surpass any monies owed by Corpak to PTC. Accordingly, Corpak claims that partial summary judgment is not appropriate because there is a genuine issue of fact as to the amount of damages allegedly caused by PTC to Corpak.
Rule 13(c) of the Fed.R.Civ.P., by specifically stating that a "counterclaim may or may not diminish or defeat the recovery sought by the opposing party", preserves the right of a party to plead either set off or recoupment, as well as makes it clear that he is allowed to interpose a claim in excess of the main claim. 6 Wright and Miller, Civil Federal Practice and Procedure, Section 1426, at 137. See, Chemetron Corp. v. Cervantes, 92 F.R.D. 26, 30 (1981) (held that plaintiff was entitled to summary judgment on its claim to recover payments due under a loan agreement and promissory note, despite the fact that defendant's compulsory counterclaim for amounts exceeding the main claim remained for adjudication). See also Electroglas, Inc. v. Dynatex Corp., 473 F. Supp. 1167 (N.D.Cal. 1979) (summary judgment granted on defendant's counterclaim for balance due on promissory note, leaving plaintiff's antitrust claim, which could offset the contract claim, for trial).
Rule 13(c) provides: "A counterclaim may or may not diminish or defeat the recovery sought by the opposing party. It may claim relief exceeding in amount or different in kind from that sought in the pleading of the opposing party."
Rule 56 of the Fed.R.Civ.P. permits the entry of a summary judgment on a claim, counterclaim or crossclaim and directs that the judgment shall be entered forthwith if there is no genuine issue as to any material fact. Chemetron, 92 F.R.D. at 30. This judgment is interlocutory in nature and does not become final unless the Court expressly determines under Rule 54(b) of the Fed.R.Civ.P. that there is no just reason for delay in execution and expressly directs the entry of judgment. Schroeter v. Ralph Wilson Plastics, Inc., 49 F.R.D. 323, 326 (S.D.N.Y., 1969); Boston Edison Co. v. Great Lakes Dredge Dock Co., 423 F.2d 891 (1st Cir., 1970).
Rule 54(b) provides in pertinent part: "When more than one claim for relief is presented in an action, whether as a claim, counterclaim, crossclaim or third-p arty claim, or when multiple parties are involved, the court may direct the entry of a final judgment as to one or more but fewer than all of the claims or parties only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment. . . ."
The existence of PTC's counterclaim does not affect the propriety of summary judgment in this case. See Chemetron, 92 F.R.D. at 30; Omark Industries, Inc. v. Lubanko Tool Co., 266 F.2d 540 (2nd Cir., 1959); Electroglas, Inc., v. Dynatex Corp., 473 F. Supp. 1167 (N.D.Cal., 1979). It is undisputed that both causes of action are unrelated, as explained above in detail.
As stated in Schroeter, 49 F.R.D. at 326: "[o]nce the independent nature of the claim is established, considerations of possible set off through recovery on other claims by the party against whom summary judgment is taken become relevant only to the question of whether the summary judgment as rendered should be made final under Rule 54(b) prior to resolution of any remaining issues in the case." See Chemetron, 92 F.R.D. at 30.
PTC's counterclaim on the money owed by Corpak is not disputed. Corpak admits it made the purchases and it has failed to pay, as explained in detail above. Corpak does not dispute that goods were delivered or that invoices accurately reflected the price of the goods. Furthermore, Corpak has failed to present any evidence to contradict the invoices and other evidence proffered by PTC in support of its counterclaim. There is no genuine issue as to any material fact inasmuch it is undisputed that both causes of action are unrelated and that Corpak owes PTC $639,898.44. Thus, the motion for partial summary judgment should be granted in PTC's favor for the amount sought of $638,434.24.
Nonetheless, Corpak claims there is a genuine issue of fact because the amount of damages sustained by Corpak due to PTC's negligence in selling the defective machine is not known and would in fact surpass the monies owed by Corpak to PTC. Nonetheless, Corpak's assertions of its entitlement to an offset does not preclude this court from granting partial summary judgment on PTC's claims for money owed since no material facts remain for adjudication, as explained in detail above. 6 Moore's Fed.Prac. ¶ 56.17 [15] at 813 ("practical administration dictates that [the court] should settle what issues are not disputed, and thus shape up the case for trial of those that are").
In similar circumstances, other courts have granted partial summary judgment on contract claims, even though one party could be entitled to a setoff or recoupment if it were successful on its claim. Electro-Catheter Corp. v. Surgical Specialties Instrument Co., 587 F. Supp. 1446, 1456 (D.N.J. 1984) (citingChemetron, 92 F.R.D. at 26) (plaintiff was granted summary judgment on a claim for goods sold and delivered, where defendant did not dispute that goods were delivered or that invoices accurately reflected the price of the goods, notwithstanding the fact that the defendants claim for setoff remained to be adjudicated. The court found that when defendant did not dispute receiving the goods, or the prices for them, "no genuine dispute as to any material fact regarding plaintiff's right to recover on these invoices is present."); Electroglas, 473 F. Supp. at 1167.
In sum, where a party has shown that goods were actually sold and delivered, summary judgment should be granted for that party, even in the face of a claim for set-off by the opposing party. See Delta Tanning Corp. v. Samber Leather Fashions, Ltd., 654 F. Supp. 1285 (S.D.N.Y. 1987); T.S.I. 27, Inc. v. Berman Enterprises, Inc., 115 F.R.D. 252 (S.D.N.Y. 1987);Electro-Catheter Corp., 587 F. Supp. at 1446.
In view of the foregoing, partial summary judgment in this case is appropriate in favor of PTC for the amount sought of $638,434.24.
The question of the finality of the summary judgment herein granted must wait for any application that may be made by PTC for an order of finality under Rule 54(b). Otherwise, enforcement of the judgment should be stayed under Fed.R.Civ.P. 54(b) until the remaining claims between the parties are resolved.
CONCLUSION
It is recommended that PTC's Motion for Partial Summary Judgment in the amount of $638,434.24 be GRANTED.
IT IS SO RECOMMENDED.
The parties are ordered to file any objections to this report and recommendation within ten (10) days. Failure to file same within the specified time waives the right to appeal this order.Henley Drilling Co. v. McGee, 36 F.3d 143, 150-151 (1st Cir. 1994); United States v. Valencia, 792 F.2d 4 (1st Cir. 1986). See Paterson-Leitch Co. v. Mass. Mun. Wholesale Elec. Co., 840 F.2d 985, 991 (1st Cir. 1988) ("Systemic efficiencies would be frustrated and the magistrate's role reduced to that a mere dress rehearser if a party were allowed to feint and weave at the initial hearing, and save its knockout punch for the second round").