United States v. Frank

• Decision Date: 25 July 1962
• Citation: 207 F. Supp. 216
• Parties: UNITED STATES of America, Plaintiff, v. Mark Kenneth FRANK, d/b/a M. K. Frank Iron & Steel Products Company, Defendant.
• Court: U.S. District Court — Southern District of New York

207 F. Supp. 216

UNITED STATES of America, Plaintiff, v. Mark Kenneth FRANK, d/b/a M. K. Frank Iron & Steel Products Company, Defendant.

United States District Court S. D. New York.

July 25, 1962.

Robert M. Morgenthau, U. S. Atty., by Philip J. Ryan, Jr., New York City, for plaintiff.

Milton B. Pfeffer, New York City, for defendant.

EDELSTEIN, District Judge.

This is an action brought by the United States of America to recover the sum of $5,881.26. The dispute arises out of a contract between defendant and Nickel Processing Corporation of New York (Nickel), interim contractor and agent for the United States. The complaint alleges that defendant and Nickel entered into a contract whereby defendant was to deliver certain railroad splice angle bars. The bars were delivered to a pier in New York and then shipped to Cuba. Nickel paid the purchase price as agreed upon in the contract. The complaint alleges that when the bars were inspected subsequent to their arrival in Cuba, it was discovered that they did not comply with the specifications required by the contract. It is alleged that defendant was notified that Nickel rescinded the sale and that it was holding the goods for disposition as defendant might direct. The complaint also alleges that Nickel, which operated the government plant in Cuba as interim contractor for the United States, assigned its interest in the claim against defendant to the United States. The complaint seeks judgment for the return of the purchase price plus expenses incurred in shipping the bars to Cuba. Defendant answered, admitting the contract, the shipment and payment, but denying that the goods were not as contracted for. The answer also sets forth two affirmative defenses: (1) Prior inspection and approval by Nickel, and (2) laches. Defendant now moves for leave to amend his answer to interpose a counterclaim and set-off based upon facts discovered only recently. The government opposes the motion on several grounds. It contends that the proposed counterclaim may not be pleaded at this late date; that it is insufficient as a matter of law; that the court is without jurisdiction to entertain the counterclaim; and that even assuming it may be pleaded as a set-off, 28 U.S.C. § 2406 (1958) precludes it at this time.

Defendant's motion is brought pursuant to Rule 13(f), Fed.R.Civ.P.¹ The affidavit of defendant's general manager alleges that after notification that the splice angle bars were being held for disposition, nothing more was heard from plaintiff or Nickel. Subsequently, the Castro regime seized power in Cuba. When Nickel removed its employees from Cuba and abandoned the mining site as a result of the revolutionary upheaval, the splice angle bars were among goods left in Cuba. The affidavit alleges that defendant first learned of this in January of 1962 when the matter came up in pretrial discussions. Defendant urges that since the government did not notify him of the fate of the bars until recently, he was unaware that a counterclaim and set-off were available. He now seeks to set up as a counterclaim the value of the goods that were lost when Nickel abandoned the Cuban mine.

In support of his motion, defendant has not set forth facts showing "oversight, inadvertence, or excusable neglect," but urges instead that the clause of Rule 13(f) "when justice requires" is applicable to the circumstances at bar. It has been observed that this clause "is an independent ground upon which the court may grant leave to set up the counterclaim by amendment." Smith Contracting Corp. v. Trojan Constr. Co., 192 F.2d 234, 236 (10th Cir.1951). Defendant's position is that granting the amendment will not prejudice the government while failure to permit the amendment would bar an otherwise meritorious claim. The government urges that it will be prejudiced in that new investigation and additional trial preparations will be necessary. I am not persuaded that plaintiff will be prejudiced by an amendment at this time. It would seem that all of the facts necessary to meet the claim stated in the amendment are within the control of plaintiff. Sound judicial policy requires that all claims arising out of a transaction be litigated in one action. And the court is not unmindful of the admonition in Rule 15, Fed.R.Civ.P. that leave to amend "shall be freely given when justice so requires."

The main thrust of the plaintiff's argument, however, is that even if the court were disposed to grant leave to amend, it may not do so for it lacks jurisdiction over the proposed counterclaim. It is the government's contention that the Tucker Act, 28 U.S.C. § 1346(a) (1958), which would provide the jurisdictional basis for an independent action against the United States arising out of a contract, is not broad enough to encompass jurisdiction for counterclaims against the United States. This contention is based upon the doctrine of sovereign immunity, that "without specific statutory consent, no suit may be brought against the United States." United States v. Shaw, 309 U.S. 495, 500-501, 60 S.Ct. 659, 84 L.Ed. 888 (1940); Nassau Smelting Works v. United States, 266 U.S. 101, 106, 45 S.Ct. 25, 69 L.Ed. 190 (1924). Plaintiff points out that while the Tucker Act, 28 U.S.C. § 1346(c) (1958), grants jurisdiction to hear counterclaims interposed by the United States, no reciprocal provision authorizing counterclaims against the United States is available. See United States v. Wissahickon Tool Works Inc., 84 F.Supp. 896, 902 (S.D.N.Y.1949), aff'd, 200 F.2d 936 (2d Cir.1952). Thus, plaintiff is contending for the traditional rule that no counterclaim seeking an affirmative judgment against the United States may be maintained "unless it is predicated on a claim to which the United States has given its statutory consent to be sued in the court where the counterclaim is interposed, and where this consent includes a `counterclaim' (as distinguished from an `original' action) against the sovereign." 3 Moore, Federal Practice 76 (2d ed. 1948). Defendant, of course, urges that the counterclaim may be asserted against the United States.²

The rule in this Circuit has been that the district court has no jurisdiction to entertain a counterclaim under the Tucker Act. United States v. Nipissing Mines Co., 206 F. 431 (2d Cir.1913), cert. dismissed, 234 U.S. 765, 34 S.Ct. 673, 58 L.Ed. 1582 (1914); United States v. Anasae International Corp., 197 F. Supp. 926 (S.D.N.Y.1961); United States v. Wessel, Duval & Co., 115 F. Supp. 678 (S.D.N.Y.1953); United States v. Double Bend Mfg. Co., 114 F.Supp. 750 (S.D.N.Y.1953); Graske v. Johnson, 97 F.Supp. 678 (S.D.N.Y.1951). This rule has not commended itself to some of the other Circuits. See, e. g., United States v. Silverton, 200 F.2d 824 (1st Cir. 1952); Thompson v. United States, 250 F.2d 43 (4th Cir. 1957); United States v. Springfield, 276 F.2d 798 (5th Cir. 1960); United States v. Martin, 267 F.2d 764 (10th Cir. 1959); United States v. Buffalo Coal Mining Co., 170 F.Supp. 727 (D.Alaska 1959); United States v. Petaschnick, 143 F.Supp. 206 (E.D.Wis.1956). Thus, "the limits now fixed by law"³ of the right to assert counterclaims against the United States appear to be in a state of flux.⁴ Reevaluation of the Nipissing rule must await an appropriate case, since an examination of defendant's proposed counterclaim indicates that it is not a counterclaim which demands affirmative relief.

Seizing upon the ad damnum clause of the proposed amendment with its conjunctive demand for dismissal and damages,⁵ the government urges that the pleading seeks affirmative relief which the court is powerless to grant. But it is necessary to go behind the language and to analyze the nature of the claim. This is an action for breach of warranty where the goods have passed to the buyer and where the seller has received the purchase price. The plaintiff is seeking to recover the price which has been paid. New York Personal Property Law, McKinney's Consol.Laws, c. 41, § 150(1) (d) (4). The defenses to this claim are a denial of the breach, laches, and inspection and approval. New York Personal Property Law, § 150(3). If plaintiff should fail to prevail on its claim, then the complaint will be dismissed and defendant will retain the purchase price. Defendant will then have as much as he is entitled to have under this contract and his counterclaim will not even be considered on the merits. If, however, the government does prevail on its claim for breach of warranty, it will be entitled to a return of the purchase price, plus the damages incurred in shipping the goods to Cuba. New York Personal Property Law, § 150(1) (d), (6). Then and only then will the trial court turn to a consideration of the counterclaim. The counterclaim in effect says that if the plaintiff is entitled to recover the price because a warranty has been breached, then defendant is entitled to return of the goods. And since plaintiff is unable to return the goods due to its fault in abandoning them and failing to remove them to a place of safety, defendant is entitled to receive the value of the goods. See New York Personal Property Law § 150(3). Thus, defendant is claiming nothing more than a recoupment up to the value of the goods. The amount demanded by defendant is less than the amount of the government's claim, for it does not include the cost of shipping. Moreover, defendant's claim could not be the basis of an independent action at this time, absent a return of the purchase price. The counterclaim is clearly defensive in nature and does not seek affirmative relief, notwithstanding the inarticulate drafting of the proposed pleading in the conjunctive instead of the disjunctive.

Plaintiff concedes that in a suit by the United States, "a defendant may, without statutory authority, recoup on a counterclaim an amount equal to the principal claim." United States v. United States Fidelity & Guaranty Co., 309 U.S. 506, 511, 60 S.Ct. 653, 84 L.Ed....