Sue & Sam Mfg. Co. v. B-L-S Const. Co.
| Citation | 538 F.2d 1048 |
| Decision Date | 21 April 1976 |
| Docket Number | Nos. 75-1340,75-1341,B-L-S,s. 75-1340 |
| Court | United States Courts of Appeals. United States Court of Appeals (4th Circuit) |
| Parties | SUE & SAM MANUFACTURING COMPANY, Appellee, v.Construction COMPANY, Appellant, v. Robert O. LEE, Trading as St. Stephen's Knitwear, Appellee. SUE & SAM MANUFACTURING COMPANY, Plaintiff, v.CONSTRUCTION COMPANY, Appellee, v. Robert O. LEE, Trading as St. Stephen's Knitwear, Appellant. |
Morris D. Rosen, Charleston, S. C. (Dennis & Dennis, Moncks Corner, S. C., on brief), for B-L-S Const. Co.
J. W. Cabaniss, Charleston, S. C. (Grimball & Cabaniss, Charleston, S. C., on brief), for Sue and Sam Mfg. Co.
B. Allston Moore, Jr., Charleston, S. C. (Buist, Moore, Smythe & McGee, Charleston, S. C., on brief) for Robert O. Lee.
Before BRYAN, Senior Circuit Judge, WINTER and WIDENER, Circuit Judges.
This diversity case arose in South Carolina on account of damage caused by the roof of a building which had leaked rain during 1971, and had collapsed during a snowstorm during 1973. It concerns the common law duties of the parties to each other, as well as the construction of two parts of a lease agreement. We affirm in large part, but, with respect to one counterclaim, we vacate the judgment of the district court and require dismissal for want of subject matter jurisdiction.
B-L-S Construction Company (B-L-S) is a South Carolina corporation, a citizen of South Carolina. It designed and constructed a building made of concrete block with a galvanized gable roof, which it leased to Robert O. Lee, a citizen of South Carolina, trading as St. Stephens Knitwear (Lee), who operated a sewing business in the building.
Sue & Sam Manufacturing Company (Sue & Sam), a New York corporation and citizen of New York, had shipped to Lee some short sets and shirts, cut but not finished, on which Lee was to finish the manufacturing. At the time Sue & Sam's goods were in the possession of Lee and in the building for the work to be done on them, in June 1971, B-L-S was constructing an addition to the original building to be used for storage and offices. During the instruction of the additional building, the B-L-S workmen had lifted up the metal on the roof of the original building to permit the old and new roofs to be joined together, but had failed to complete the work properly, and between Friday afternoon, June 24, 1971, and Monday, June 28, rainwater leaked in at the area of the joinder of the old and new roofs, damaging Sue & Sam's goods which, as noted, were then stored in the custody of Lee in the original building. The district court found as a fact that "the (1971) leak and resulting damage were due to the failure of B-L-S Construction Company and its employees to properly join the old and new roofs before leaving the job for that week-end." The rainwater further damaged machines and equipment of Lee and resulted in additional expenses to Lee in attempting to salvage the goods belonging to Sue & Sam.
At the time of this loss, the original lease dated March 30, 1970 was in effect. After the rain loss, later in 1971 and in 1972, two addenda to the original lease were executed which in part provided that Lee would be "responsible for his machines, goods, and materials which he places in or on the leased premises, and . . . (B-L-S) has no responsibility in regard to damages sustained by . . . (Lee) as a result of fire, storm, rain, hail, or any other accidents or events in nature or causes originating by acts of mankind."
On or about February 9, 1973, there was a heavy snowstorm and the roof of the original building collapsed, damaging Lee. The district court credited the testimony of an expert witness that the roof did not meet engineering standards and was improperly designed and constructed. It found as a fact that "the collapse of the roof was caused by its negligent design and construction by B-L-S Company."
The original lease agreement contained a provision that Lee would carry insurance to hold harmless B-L-S from all claims or demands of whatsoever nature arising "out of the use and occupancy of the premises."
Sue & Sam sued B-L-S on account of the 1971 rain loss. On this claim, the district court, on its finding of negligence by B-L-S in failing to join properly the old and new roofs, entered judgment for.$17,250 in favor of Sue & Sam. B-L-S had filed a third-party complaint against Lee for indemnity, which alleged that the loss arose out of "the use and occupancy of the premises," that Lee did not carry insurance to cover it, and was thus liable to it for any recovery by Sue & Sam. The district court found as a fact that "the loss did not result directly from the 'use or occupancy' of the premises," and concluded that Lee was not required under the lease to maintain insurance to cover the negligence of B-L-S. The district court dismissed the third-party complaint of B-L-S against Lee.
Lee had filed two counterclaims against B-L-S, one for damages on account of his 1971 rain damage occasioned by the negligence of B-L-S; the second for damages occasioned by the collapse of the roof in the snowstorm of 1973, again occasioned by the negligence of B-L-S. The district court awarded Lee $1,350 on his counterclaim against B-L-S for the 1971 rain damage, but held that B-L-S, as to the 1973 snow damage counterclaim, being under an addendum rather than the original lease, was exculpated from liability by the exculpatory clause in the addendum, although it found as a fact that Lee had been damaged due to the original negligent design and construction of the building.
B-L-S and Lee appeal from the adverse rulings against them. We affirm, on the opinion of the district court, the award in favor of Sue & Sam against B-L-S in the amount of.$17,250; the dismissal of the third-party complaint of B-L-S against Lee; and Lee's award on his counterclaim against B-L-S on account of the 1971 rain damage in the amount of $1,350. Its findings of fact with respect to those claims are not clearly erroneous and its conclusions of law are free from error.
With respect to the counterclaim of Lee against B-L-S for the 1973 damage caused by the collapse of the roof during the snowstorm, we vacate the order of the district court for dismissal, without prejudice, for want of subject matter jurisdiction.
Lee's counterclaim on account of the 1971 rain damage was for negligence taking place during the construction of the additional building in 1971. His counterclaim for the 1973 collapse of the roof caused by snow was on account of the negligence of B-L-S in the original design and construction of the building.
FRCP 13(a) requires the assertion of a compulsory counterclaim against any opposing party if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim, while FRCP 13(b) permits the filing of a counterclaim against an opposing party not arising out of the transaction or occurrence that is the subject matter of the opposing party's claim.
So far as the counterclaims of Lee are concerned, B-L-S and Lee are the opposing parties. Moore's Federal Practice, 1974, Vol. 3, p. 13-134 (hereafter Moore's). Thus, if the counterclaims on account of the 1971 rain damage on the one hand, and the 1973 snow damage on the other, are compulsory, Lee must assert them, while, if not compulsory, he may assert them.
But FRCP 13(a) and (b) are subject to the qualification that a permissive counterclaim must have an independent jurisdictional base, 1 while a compulsory counterclaim need not have. The leading text writers and the cases are in agreement and are consistent on this point. Wright and Miller, Federal Practice and Procedure, Vol. 6, §§ 1414, 1422 (hereafter Wright and Miller); Moore's, p. 13-379 et seq., p. 13-481. The jurisdiction of the court as to a compulsory counterclaim is ancillary jurisdiction. 2 Wright and Miller, § 1422; Moore's, p. 13-379. While these text writers may be somewhat critical of the requirement of an independent jurisdictional base in the case of a permissive counterclaim, as perhaps in conflict with the general policy of the federal courts to dispose of all the litigation at hand in a single suit for the sake of efficiency and economy, they nevertheless are in agreement that the cases are uniform in requiring a separate jurisdictional base for permissive counterclaims. And Wright and Miller, § 1414, calls attention to FRCP 82, which provides that the federal rules do not "extend or limit the jurisdiction of the United States district courts."
With these principles in mind, since both B-L-S and Lee are citizens of South Carolina, whether or not Lee's two counterclaims were properly tried on the merits in this proceeding depend on whether or not they arose "out of the transaction or occurrence that is the subject matter of the opposing party's claim." FRCP 13(a), (b).
Apparently that subject has not been addressed by this circuit, and from the legion of cases from other circuits and district courts, Wright and Miller, in § 1410, have synthesized the various tests which are used by the courts to determine whether a claim arises out of the transaction or occurrence that is the subject matter of the opposing party's claim. 3 We keep in mind that the court in Moore v. New York Cotton Exchange, 270 U.S. 593, 46 S.Ct. 367, 70 L.Ed. 750 (1926), defined transaction, under former equity rule 30 but as used in the same context found here, as a word of flexible meaning which may comprehend a series of many occurrences depending not so much on the immediateness of their connection as upon their logical relationship. The case further took cognizance that essential facts alleged by one party entered into and constituted in part the cause of action set forth in the opposing party's counterclaim, and took...
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