Owens-Illinois, Inc. v. Lake Shore Land Co., Inc.

• Citation: 610 F.2d 1185
• Decision Date: 07 December 1979
• Docket Number: No. 79-1184,OWENS-ILLINOI,INC,79-1184
• Parties: v. LAKE SHORE LAND COMPANY, INC., Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 1185

610 F.2d 1185

OWENS-ILLINOIS, INC. v. LAKE SHORE LAND COMPANY, INC., Appellant.

No. 79-1184.

United States Court of Appeals Third Circuit.

Argued Oct. 9, 1979.

Decided Dec. 7, 1979.

John J. Stroh, Jr., Roger H. Taft (argued), MacDonald, Illig, Jones & Britton, Erie, Pa., for appellee.

Douglas Painter (argued), McGinness, Painter & McGinness, Cleveland, Ohio, Eugene J. Brew, Jr., Dale & Brew, Erie, Pa. for appellant.

Before ADAMS, ROSENN and WEIS, Circuit Judges.

OPINION OF THE COURT

WEIS, Circuit Judge.

In this diversity action, the plaintiff asked for a declaratory judgment establishing its right under an option agreement to compel the defendant's conveyance of certain realty. Asserting that its answer presented legal issues, the defendant demanded a jury trial, but the district court determined that the suit was the counterpart of an equitable action for specific performance and struck the request for a jury. The court also concluded that a third party to whom the plaintiff in turn had granted a separate option to purchase was not an indispensable party. We agree and affirm these rulings as well as those interpreting the agreement to require a conveyance.

The plaintiff's suit in the district court sought to resolve a dispute about the interpretation of the option. After pretrial, when it became evident that the trial would not be concluded until the date for conveyance had passed, the complaint was supplemented to request specific performance. In response, the defendant filed a second answer that repeated its original defenses, added a counterclaim for damages, and reasserted the demand for a jury. The district court again denied a jury trial and dismissed the counterclaim without prejudice. After a bench trial, the court found the option agreement was valid and decreed specific performance.

In 1967, the defendant agreed to construct a warehouse on a four-acre tract of land near Erie, Pennsylvania, and lease the premises to the plaintiff for a term of 15 years. On the same day, the parties executed a separate option agreement, granting the plaintiff the right to purchase the leasehold at the end of each five-year period of occupancy under the lease. The plaintiff occupied the completed building until 1973 when it sublet the premises to the Jeannette Corporation and also granted it an option to buy.

By letter dated July 2, 1976, the plaintiff notified the defendant that its option under the 1967 agreement would be exercised as of September 30, 1977, the end of the second five-year period of the lease. Relying upon violations of what it termed the "lease-option agreement," the defendant refused to agree to the settlement date, writing "we do not intend to convey title on the days you suggest, or any day." On March 15, 1977, the plaintiff filed this suit asking for a declaratory judgment that a valid and enforceable option agreement existed, it had been properly exercised, and the defendant was obliged to convey title on or before September 30, 1977.

In its answer, the defendant asserted a failure of consideration, violations of the lease by the plaintiff, and failure to join the Jeannette Corporation as an indispensable party. Noting that the defendant did not seek any legal remedy in its answer or present anything else that rose to the status of a claim, and that plaintiff's claim was equitable in nature, the district judge refused the jury demand. He also denied the defendant's motion to dismiss because of plaintiff's failure to join the Jeannette Corporation. The court found that Jeannette, not being an assignee of the 1967 option agreement between the plaintiff and defendant, could not enforce its terms and could secure the property only if plaintiff prevailed in this suit.

At a pretrial conference on September 22, 1977, a few days before the date set in the option agreement for conveyance, the court suggested the complaint might be "amended" to request specific performance. On November 14, 1977, plaintiff was granted leave to file an "amendment" adding a request for that relief.

On November 23, 1977, without obtaining leave of court, defendant filed an "answer to the amended complaint" that included a counterclaim seeking damages for breaches of the lease agreement and again requested a jury. After the district court struck this second demand for a jury trial, the defendant unsuccessfully sought a writ of mandamus from this court. On the authority of Fed.R.Civ.P. 13(f), the district court dismissed the counterclaim as an omitted counterclaim, "without prejudice to the right of the defendant if it sees fit to file a separate action based upon said facts alleged in the counterclaim." Defendant then petitioned this court for a stay of proceedings, but we refused and the Supreme Court did likewise.

In its findings, the district court concluded that the plaintiff's letter of July 2, 1976 complied with the terms of the option agreement. Although the agreement required that notice of exercise be sent "not later than 45 days" before the expiration of the appropriate lease year (in this case on September 30, 1977), the court held that that language did not invalidate the letter sent more than 45 days before that time. The trial judge also determined that the defendant's flat rejection of the notice on December 15, 1976 relieved the plaintiff of any obligation to take the additional steps toward conveyance set out in the agreement. Plaintiff's alleged violations of the lease were held to be not available as defenses since the option agreement and lease were entirely independent agreements. ¹ The court then entered a decree of specific performance.

The defendant asserts several grounds for reversal, but presses most strongly its contention that a jury trial should have been granted on both the complaint for declaratory judgment and the counterclaim. We do not decide whether a jury was required to hear the counterclaim since we conclude that the district judge did not err in dismissing it.

The trial judge observed that the counterclaim arose out of a claim that existed at the time the first complaint was filed and the defendant should have raised the matter in its original answer. Under Fed.R.Civ.P. 13(f), an omitted counterclaim may be filed at a later time only by leave of court. Since the defendant did not secure leave, the court granted plaintiff's motion to dismiss the counterclaim.

The docket reflects that the original answer was filed on April 18, 1977 and the counterclaim on November 23, 1977, some seven months later. More than just the lapse of time was implicated. At a pretrial conference in September 1977, the issues had been fixed and trial set for December 27. Allowance of the counterclaim would doubtless have set off a new wave of discovery before trial could commence. The court had ample reason to believe that the counterclaim was interposed at such a late date in order to delay final disposition of the request for specific performance. As the district judge observed in his adjudication, "(d)efendant throughout this litigation has evinced a settled intention to grasp at all available straws to avoid its obligation to convey this real estate pursuant to the option which it executed." Owens-Illinois, Inc. v. Lake Shore Land Co., 457 F.Supp. 896, 902 (W.D.Pa.1978). Moreover, the dismissal was without prejudice to the defendant's right to seek damages in a separate suit for breach of the lease agreement.

The defendant contends that under Fed.R.Civ.P. 15(a) it could respond to the "amended complaint" as a matter of right, even to the extent of raising issues beyond the scope of the amendment, and inject into the action what otherwise would be omitted counterclaims under Rule 13(f). It relies on Joseph Bancroft & Sons Co. v. M. Lowenstein & Sons, Inc., 50 F.R.D. 415 (D.Del.1970), for the proposition that Rule 15(a) obliges a party to respond to the "amended pleading," not the "amendment," and an amending plaintiff cannot object that claims subsequently filed against it should have been asserted in response to the original pleading. Id at 418-19. Rule 15(a), however, is not controlling in the circumstances of this case.

Although the district judge originally characterized the claim for specific performance as an "amendment to the complaint," in dismissing the defendant's counterclaim and answer he correctly termed the plaintiff's request a "supplemental pleading" under Rule 15(d). Because it refers to events that occurred after the original pleading was filed, a supplemental pleading differs from an amendment, which covers matters that occurred before the filing of the original pleading but were overlooked at the time. One of the intended uses of a supplemental pleading is to change the nature of the relief initially requested, as was done here. 3 Moore's Federal Practice P 15.16(1), at 15-240 to 41 (2d ed. 1979); 6 C. Wright & A. Miller, Federal Practice and Procedure § 1504, at 536-37 (1971). Under Fed.R.Civ.P. 15(d), the trial court determines whether a responsive pleading is advisable, and the judge acted within that discretion in declining to accept the counterclaim. In view of the circumstances here, we find no error in the district court's ruling, and consequently, the defendant's request to have a jury hear the counterclaim need not be addressed.

We turn then to the application for a jury included in defendant's first answer. In considering a demand for a jury trial, a court should look to the substance of the pleadings and not rely on the labeling used by the litigants. Plechner v. Widener College, Inc., 569 F.2d 1250, 1257 (3d Cir. 1977); See Dairy Queen, Inc. v. Wood, 369 U.S. 469, 476-77, 82 S.Ct. 894, 8 L.Ed.2d 44 (1962). The test is whether the issues raised by the pleadings are such as would be triable to a jury at common law, See Ross v. Bernhard, 396 U.S. 531, 539, 542-43, 90 S.Ct. 733, 24 L.Ed.2d 729 (1970), and federal not state law is determinative,...