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Feed Mgmt. Systems, Inc. v. Brill et al.: US District Court :CIVIL PROCEEDURE - Federal rules of Civil Proceedure 7; counterclaim in reply; permissive/compulsory

Feed Management Systems, Inc.,
Civil No. 06-4126
Robert J. Brill,
Brilliant Alternatives, Inc.,
Ketron Optimization, LLC, and
The Bionics Corporation,
Roseanne J. Bour and Richard G. Morgan, Bowman & Brooke, LLP, for and on
behalf of Feed Management Systems, Inc.
Samuel T. Brannan and Daniel I. MacIntyre, Page Perry, LLC, for and on behalf of
Robert J. Brill, Brilliant Alternatives, Inc., Ketron Optimization, LLC, and The Bionetics
This matter is before the Court on Defendants motion to dismiss Plaintiffs
counterclaims-in-reply. For the following reasons, the Court DENIES Defendants motion
to dismiss.
Plaintiff brought this lawsuit against Defendants claiming breach of contract,
tortious interference with a contract, promissory estoppel, equitable estoppel, and
seeking a declaratory judgment. Plaintiff served its Amended Complaint on November 6,
2006. Defendants served their Answer and Counterclaims on November 21, 2006, which
did not include a counterclaim for trademark infringement. On January 4, 2007,
Magistrate Judge Susan R. Nelson set the deadline for submitting motions to amend the
pleadings as May 15, 2007. Defendants filed a motion to amend their answer on May
15, 2007, which was granted by this Court. Defendant served its Amended Answer and
Amended Counterclaim on May 30, 2007, which included a counterclaim for trademark
infringement of the mark Brilliant. Defendants counterclaim alleges that Plaintiff held
itself out to be a source for Brill Products and derivative products of Brill. Plaintiff
served its Answer, which included counterclaims-in-reply to Defendants Amended
Counterclaims, on June 19, 2007. Plaintiffs counterclaim-in-reply alleges, inter alia,
infringement of several trademarks, including registered trademarks BRILL, BRILL
FORMULATION, and the BRILL logo. Defendants subsequently filed a motion to
dismiss the Plaintiffs counterclaims-in-reply on the grounds that a counterclaim-in-reply
is an improper pleading.
Defendants argue that a counterclaim-in-reply is not permitted under Federal
Rules of Civil Procedure 7(a)1 and that no court in Minnesota or the Eighth Circuit has
acknowledged the existence of such a pleading. The Plaintiff argues that courts,
including the District of Minnesota, have allowed plaintiffs to file counterclaims-in-reply
when such counterclaims are compulsory and in response to permissive counterclaims
filed by defendants.
1 Fed. R. Civ. P. 7(a) (There shall be a complaint and an answer; a reply to a counterclaim
denominated as such; an answer to a cross-claim, if the answer contains a cross-claim; a thirdparty
complaint . . . and a third party answer. No other pleading shall be allowed, except that the
court may order a reply to an answer or a third party answer.).
A counterclaim-in-reply is a permissible pleading when it is a compulsory reply to
a permissive counterclaim. Weitz Co. v. MH Wash., LLC, No. 06-0559-CV-W-NKL, 2007
WL 1658677, at *12 (W.D. Mo. June 5, 2007) (citing Joseph Bancroft & Sons Co. v. M.
Lowenstein & Sons, Inc., 50 F.R.D. 415 (D. Del. 1970); Ivey v. Daus, 17 F.R.D. 319, 321
(S.D.N.Y. 1955)). In Weitz, the defendant moved to dismiss the plaintiffs counterclaim
on the ground that a counterclaim in reply to a counterclaim is not an authorized
pleading. Id. at *1 (internal quotations omitted). The court held that the weight of
authority favored the plaintiff, noting that it was particularly important to permit a
reply in this case because [the plaintiff had] raised . . . a compulsory counterclaim to
[the defendants] counterclaim. Id. at *2. The court deemed the plaintiffs
counterclaim-in-reply as compulsory because it was directly related to the specific
allegations raised in the defendants counterclaim. Thus, this Court will permit a
counterclaim-in-reply as a proper pleading if it is a compulsory reply to a permissive
In deciding whether the Court should permit a counterclaim-in-reply pleading, the
Court must first decide whether the counterclaims asserted by Defendants are permissive
or compulsory. If the Court determines that the counterclaims are permissive, it must
then determine whether the counterclaims-in-reply are compulsory. If the counterclaims
are permissive and the counterclaims-in-reply are compulsory, then the Court may treat
the counterclaims-in-reply as permissible pleadings.
A compulsory counterclaim is one that arises out of the same transaction or
occurrence that is the subject matter of the opposing partys claim. Fed. R. Civ. P. 13(a).
The Eighth Circuit articulated four tests for determining whether a counterclaim arises
out of the same transaction or occurrence. Minnetonka, Inc. v. Sani-Fresh Intl, Inc., 103
F.R.D. 377, 379 (8th Cir. 1984). First, are the issues of fact and law raised by the claim
and counterclaim largely the same? Id. Second, [w]ould res judicata bar a subsequent
suit on defendants claim absent the compulsory counterclaim rule? Id. Third, [w]ill
substantially the same evidence support or refute plaintiffs claim as well as defendants
counterclaim? Id. And fourth, [i]s there any logical relation between the claim and
the counterclaim? Id. A positive response to any of these questions means that the
counterclaim is compulsory. Id.
1. Same issues of fact and law and substantially the same evidence
Plaintiffs amended complaint alleges, inter alia, breach of contract and tortious
interference with a contract. Defendants amended counterclaims allege, inter alia,
trademark infringement. The issues of fact and law surrounding contract claims are not
largely the same as those surrounding trademark infringement. To prove trademark
infringement under the Lanham Act, codified at 15 U.S.C. 1114, 1125(a)(1),
Defendant would have to show that (1) it has a valid mark that is entitled to protection;
and (2) the accused infringer is using the mark without consent, in commerce, so that it
creates a likelihood of confusion. 1-800 Contacts, Inc. v. WhenU.com, Inc., 414 F.3d
400, 40607 (2d. Cir. 2005). These elements are different from the elements required to
show breach of contract and tortious interference.
A related inquiry is whether substantially the same evidence would support or
refute plaintiffs claim as well as defendants counterclaim. The evidence to support or
refute the contract claims will be different from the evidence required to support or
refute the trademark claims. In Kuster Labs. v. Lee, 10 F.R.D. 350, 351 (N.D. Cal. 1950),
the court determined a similar issue. There, the plaintiff sued for trademark
infringement, and the defendant counterclaimed for damages for the alleged breach of a
distributorship agreement. Id. The plaintiff moved to dismiss the defendants
counterclaim on the ground that it was not a compulsory counterclaim, and would
require independent jurisdictional basis. Id. The court held that [i]t is patent that the
claim and counterclaim do not arise out of the same transaction or the same occurrence
and that [e]ach must be established by distinct proofs. Id. Here, the breach of
contract claim is the initial complaint, and the counterclaim is trademark infringement.
Following the language of the Kuster court, the two causes of action do not arise out of
the same transaction or occurrence and would not require substantially the same
2. Res judicata
The second question posed by the Eighth Circuit is whether the defendants would
be barred from bringing the counterclaim in a later suit by res judicata absent the
compulsory counterclaim rule. The application of res judicata is an issue of substantive
law requiring application of state law in diversity actions.2 Schieffler v. Fin. Servs. Ins.
Co., 39 F.3d 181, 186 (8th Cir. 1994). The Minnesota Supreme Court applies the
2 This Court has jurisdiction pursuant to 28 U.S.C. 1332(a) for complete diversity of the parties and the amount in
controversy exceeds ,000.
doctrine of res judicata to preclude parties from raising subsequent claims in a second
action when: (1) the earlier claim involved the same set of facts and circumstances; (2)
the earlier claim involved the same parties or their privities; (3) there was a final
judgment on the merits; [and] (4) the estopped party had a full and fair opportunity to
litigate the matter. Brown-Wilbert, Inc. v. Copeland Buhl & Co., P.L.L.P., 732 N.W.2d
209, 220 (Minn. 2007) (internal quotations omitted). Absent the compulsory
counterclaims rule, res judicata would not bar Defendants from bringing the trademark
infringement cause of action in a second suit. Defendants original counterclaims
involved a different set of facts and circumstances as their trademark infringement
3. Logical relationship test
The final inquiry is whether there is a logical relationship between the claim and
the counterclaim. The logical relationship test considers whether the claim and the
counterclaim arise out of the same aggregate of operative facts [in the sense] that the
same aggregate of operative facts serves as the basis of both claims. Fox Chem. Co. v.
Amsoil, Inc., 445 F. Supp. 1355, 1361 (D. Minn. 1979) (quoting Revere Copper & Brass,
Inc. v. Aetna Cas. & Sur. Co., 426 F.2d 709, 715 (5th Cir. 1970)); see also Popp Telecom
v. Am. Sharecom, Inc., 210 F.3d 928, 941 (8th Cir. 2000) (citing Fox Chem. Co., 445 F.
Supp. at 1361). On its face, a trademark claim would not arise out of the same
aggregate of operative facts as a breach of contract claim. In sum, the defendants
counterclaims for trademark infringement are permissive because they fail the
compulsory counterclaim tests articulated by the Eighth Circuit.
Plaintiffs trademark counterclaims-in-reply satisfies the Eighth Circuits test and
are compulsory. Defendants counterclaims allege, inter alia, infringement of the
trademark Brilliant. Defendants counterclaim further alleges that Plaintiff held itself
out to be a source for Brill Products and derivative products of Brill. Plaintiffs
counterclaim-in-reply alleges, inter alia, infringement of several trademarks, including
registered trademarks BRILL, BRILL FORMULATION, and the BRILL logo. Even
though the claims are not identical, they are largely the same. Both sets of trademark
claims require an analysis of the same law and facts, namely the facts involved in an
analysis of the Lanham Act and common law unfair competition. There is also a logical
relationship between the trademark claims. Judicial economy and efficiency are served
by adjudicating both sets of trademark claims in the same trial, more so than in the
piecemeal litigation of these claims in separate trials. These factors are sufficient to find
Plaintiffs trademark counterclaims-in-reply to be compulsory.
In summary, Defendants counterclaims are permissive, and Plaintiffs
counterclaims are compulsory. Thus, Plaintiff is permitted to plead a counterclaim-inreply.
Accordingly, based upon the files, records, and proceedings herein, IT IS HEREBY
Defendants motion to dismiss Plaintiffs counterclaims-in-reply [Doc. No. 35] is
Dated: October 30, 2007 s / Michael J. Davis
Michael J. Davis
United States District Court


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