SCM Group USA, Inc v. Custom Design & Manufacturing Co., Inc

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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 04-3628
SCM Group USA, Inc.
v.
Custom Design & Manufacturing Co., Inc.,
Appellant
___________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
(D.C. Civ. No. 01-cv-01984)
District Judge: Honorable Edwin M. Kosik
____________
Submitted Under Third Circuit L.A.R. 34.1(a)
September 30, 2005
Before: RENDELL, FUENTES and WEIS, Circuit Judges.
(Filed: October 24, 2005)
OPINION
WEIS, Circuit Judge.
In a previous appeal, docketed at 03-2023, a panel of this Court held that
the buyer, Custom Design and Manufacturing Company, Inc., had accepted a machine
manufactured by the seller, SCM Group USA, Inc. The Court therefore held that Custom

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Design must pay SCM the contractual price plus any damages that resulted from the
breach of contract. The case was remanded to the District Court to “determine damages.”
The District Court then entered judgement in favor of SCM in the amount
of $179,637.19, the outstanding balance of the contract price plus interest and costs.
Custom Design has appealed, asserting that the District Court erred in failing to setoff
damages for SCM’s inadequate performance. The District Court ruled that Custom
Design waived its right to setoff damages because it failed to assert a “counterclaim or
any comparable claim” prior to a pretrial memorandum filed on the eve of trial.
Therefore, the District Court held that although 13 Pa.C.S.A. § 2714 allows a buyer to
claim damages for accepted goods that are nonconforming, the buyer may obtain this
remedy only by filing a separate action or a counterclaim. Here, according to the District
Court, the buyer did neither.
We note that in its Answer to the plaintiff’s Complaint, Custom Design did
assert “affirmative defenses” describing some areas of dissatisfaction with SCM’s
performance. However, this pleading was not designated as a “counterclaim.”
Fed. R. Civ. P. 8(c) provides that “[w]hen a party has mistakenly designated
a defense as a counterclaim or a counterclaim as a defense, the court on terms, if justice
so requires, shall treat the pleading as if there had been a proper designation.” See also
Reiter v. Cooper, 507 U.S. 258, 263 (1993); Schulman v. J.P. Morgan Inv. Mgmt., Inc.,
35 F.3d 799, 805 (3d Cir. 1994). In this case, however, neither party directed the District

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Court’s attention to Rule 8, nor have they cited it in their briefs in this appeal. The
District Court might have taken a different approach as to the existence of a counterclaim
had Rule 8 been brought to its attention. We will not second guess the District Court,
however, in the light of the parties’ inaction.
Moreover, Custom Design’s argument is foreclosed by our previous court
order and opinion in which we found Custom Design to be liable for the entire contract
price, plus damages resulting from the breach, and remanded for entry of judgment in
favor of SCM Group and determination of damages.
Although Custom Design’s appeal is not successful, it also is not “wholly
without merit.” Huck on Behalf of Sea Air Shuttle Corp. v. Dawson, 106 F.3d 45, 52 (3d
Cir. 1997) (quoting Nagle v. Alspach, 8 F.3d 141, 145 (3d Cir. 1993)).
Accordingly, we will affirm the Judgment of the District Court.
The motion for sanctions will be denied.

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