Bluegrass Hosiery , Inc. v. Speizman Industries, Inc.

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RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2000 FED App. 0187P (6th Cir.)
File Name: 00a0187p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
BLUEGRASS HOSIERY , INC.,
Plaintiff-Appellant,
v.
S PEIZMAN INDUSTRIES, INC.,
Defendant-Appellee.
;>

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No. 99-5936
Appeal from the United States District Court
for the Eastern District of Kentucky at London.
No. 99-00080—Jennifer B. Coffman, District Judge.
Submitted: April 25, 2000
Decided and Filed: June 1, 2000
Before: MARTIN, Chief Judge; KRUPANSKY and
RYAN, Circuit Judges.
_________________
COUNSEL
ON BRIEF: Martha Farmer Copeland, Todd K. Childers,
Brien G. Freeman, FREEMAN, COPELAND & JORJANI,
Corbin, Kentucky, for Appellant. Joe B. Campbell, Bowling
Green, Kentucky, for Appellee.

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2 Bluegrass Hosiery v.
Speizman Industries, Inc.
No. 99-5936
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OPINION
_________________
BOYCE F. MARTIN, JR., Chief Judge. Bluegrass Hosiery,
Inc. appeals the district court’s order dismissing its case
against Speizman Industries, Inc. on the basis that Bluegrass
waived its right to assert its claims in this action by failing to
assert these same claims as compulsory counterclaims in a
previous state court action in North Carolina. Bluegrass
contends that the district court should not have granted
Speizman’s motion to dismiss for failure to state a claim
pursuant to FED . R. C IV . P. 12(b)(6) because the claims in
this action were not compulsory counterclaims in the North
Carolina action, and even if they were, the failure to assert
them would not bar this action under Kentucky law. We
reverse and remand the district court’s decision.
I.
This action stems from a 1995 agreement entered into
between Bluegrass Hosiery, Inc., a Kentucky corporation, and
Speizman Industries, Inc., a North Carolina corporation, for
Speizman to provide knitting machines, training, parts,
electronics, and services to Bluegrass in Cumberland,
Kentucky. The total purchase price of the contract was
$780,000.
In July 1998, a dispute arose between Bluegrass and
Speizman regarding the latter’s obligations with respect to the
knitting machines, in particular, training and warranty.
Bluegrass asserts that during a meeting between its president,
Glenn Freeman, and Speizman representatives, it informed
Speizman that it had solid grounds to sue Speizman based on
violations of the 1995 agreement, which resulted in the
collapse of the business. On August 21, Speizman sued
Bluegrass in North Carolina state court for breach of contract
based on Bluegrass’s obligations to pay under the 1995

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6 Bluegrass Hosiery v.
Speizman Industries, Inc.
No. 99-5936
provides for a default judgment against a party for failure to
plead, and the effect of such a judgment as res judicata
prevents the nonpleading party from profiting as the result of
his noncompliance. Id. Here, Speizman never moved for a
default judgment pursuant to Rule 55 when the deadline for
Bluegrass to serve its answer had expired. Instead, Speizman
settled the case before Bluegrass could serve its answer.
Therefore, Bluegrass’s failure to serve a pleading and assert
compulsory counterclaims in the previous state court action
did not waive its right to assert these same claims in a later
action.
Judgment REVERSED and REMANDED.
No. 99-5936 Bluegrass Hosiery v.
Speizman Industries, Inc.
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agreement. Speizman’s complaint claimed that Bluegrass
owed $11,842.45.
On September 18, Bluegrass filed a motion to dismiss the
North Carolina lawsuit, alleging lack of jurisdiction and
improper venue. Bluegrass’s motion was denied on
October 21, and the court allowed the company ten days to
file responsive pleadings. On October 30, prior to the
deadline for Bluegrass to file its responsive pleadings,
Bluegrass agreed to settle the suit and sent Speizman a check
signed by Freeman in the amount of $11,842.45. Bluegrass
did not appeal the October 21 order nor did it file any
responsive pleadings. Following the settlement, Speizman
filed a “Notice of Voluntary Dismissal” pursuant to North
Carolina Civil Rule 41(a). The matter was dismissed with
prejudice on January 14, 1999.
On January 28, 1999, Bluegrass filed this suit against
Speizman in Harlan Circuit Court alleging breach of contract,
breach of implied covenant of good faith and fair dealing,
breach of warranty, intentional and negligent
misrepresentation, interference with existing and prospective
contractual relations, and violation of Kentucky’s Consumer
Protection Act in the inducement and performance of the
1995 agreement. The case was removed to the United States
District Court for the Eastern District of Kentucky.
On February 26 and March 1, Speizman filed motions to
dismiss Bluegrass’s complaint for failure to state a claim
pursuant to FED . R. C IV . P. 12(b)(6). Speizman argued in its
motions that (1) Bluegrass’s claims in this action were
compulsory counterclaims that should have been asserted in
the previous North Carolina action, and (2) these claims were
settled as part of the North Carolina action. The district court
granted Speizman’s motions to dismiss. The district court
held that in order for Bluegrass to preserve its counterclaims,
it was required to file a responsive pleading raising the
counterclaims in the previous action; or Bluegrass could have
stated in the settlement discussions that it was not waiving its

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4 Bluegrass Hosiery v.
Speizman Industries, Inc.
No. 99-5936
rights to pursue its counterclaims. The district court noted
that the North Carolina court did not dismiss the matter until
January 14, 1999, months after Bluegrass could have raised
its claims in the North Carolina action, but chose not to do so.
II.
This Court reviews dismissal of a case on claim or issue
preclusion grounds de novo. See Kane v. Magna Mixer
Company, 71 F.3d 555 (6th Cir. 1995).
III.
According to the Supreme Court, claims coming within the
definition of “compulsory counterclaim” are lost if not raised
at the proper time. Baker v. Gold Seal Liquors, Inc., 417 U.S.
467, 469 n.1 (1974). Bluegrass contends that the district court
should not have granted Speizman’s motions to dismiss
because the claims in this action were not compulsory
counterclaims in the previous state court action, and even if
they were, the failure to assert them would not bar this action
under Kentucky law. We agree with Bluegrass that the claims
in this action were not compulsory counterclaims and the
failure to assert these claims did not preclude Bluegrass from
bringing the same claims in this action.
FED . R. C IV . P. 13(a) expressly states that “a pleading shall
state as a counterclaim any claim which at the time of serving
the pleading the pleader has against any opposing party, if it
arises out of the transaction or occurrence that is the subject
matter of the opposing party’s claim. . .” This rule serves the
desirable goal of bringing all claims arising out of the same
transaction or occurrence before the court in a single action.
See United States v. Snider, 779 F.2d 1151, 1157 (6th Cir.
1995). At the same time, the rule is in some ways harsh
because it forces parties to raise certain claims at the time and
place chosen by their opponents, or to lose them.
Rule 13(a), however, only requires a compulsory
counterclaim if the party who desires to assert a claim has
No. 99-5936 Bluegrass Hosiery v.
Speizman Industries, Inc.
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1Rule 7(a) defines the following as pleadings: an answer, a reply to
a counterclaim, an answer to a crossclaim, a third party complaint, and a
third party answer.
served a pleading. See id. In other words, Rule 13(a) does
not apply unless there has been some form of pleading. See
Martino v. McDonald’s System, Inc., 598 F.2d 1079, 1082
(7th Cir. 1979). The rule requires the adverse party to state its
counterclaims “at the time of serving a pleading.” Snider, at
1157. Where the rules do not require a pleading because of
pending motions, the compulsory counterclaim requirement
of Rule 13(a) is inapplicable. See id.
Even though the claims at issue in this case arose out of the
same transaction, these claims were not compulsory
counterclaims because they were not claims that Bluegrass
“had” at the time it was required to file its responsive
pleading. See Kane, at 562. In other words, Bluegrass was
not required to assert its claims in the prior state court
proceeding because no pleading, as the word is defined in
FED . R. C IV . P. 7(a)1, was ever filed. After Bluegrass’s
12(b)(6) motion to dismiss was denied, the state court gave
the company ten days to file a responsive pleading. Rule
13(a) requires Bluegrass to state its counterclaims “at the time
of serving a pleading.” See Snider, at 1157. Instead of filing
a responsive pleading, Bluegrass and Speizman agreed to
settle the dispute for the sum of $11,842.45 before
Bluegrass’s answer was due. As the Seventh Circuit noted,
Rule 13(a) does not apply unless there has been some form of
pleading served. Martino, at 1082. Here, there was no
pleading served. Thus, we see little sense in applying the
broad bar established in Rule 13(a) to an action that ended
with virtually no burden on the judicial calendar. See
Martino, at 1082.
Speizman, though, contends that the deadline for filing the
answer in the earlier action had passed, and that Rule 13(a)
should therefore apply regardless of the absence of a
responsive pleading. We disagree. F ED . R. C IV . P. 55

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