Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—3d Cir.: Area developer was not entitled to reconsideration of case closure to reassert counterclaim, (Aug 12, 2013)

By Peter Reap, J.D., LL.M.

A Domino’s pizza restaurant franchise area developer, Robert Deak, was not entitled to reconsideration of the closure of his dispute with the franchisor pursuant to Federal Rule of Civil Procedure 60(b)(6) because there were no “extraordinary circumstances” justifying such relief, the U.S. Court of Appeals in Philadelphia has decided (Domino’s Pizza LLC v. Deak, August 9, 2013, Vanaskie, T.). Moreover, the federal district court in Pittsburgh did not abuse its discretion by denying Deak’s motion to amend his pleadings to reassert a counterclaim. Thus, a ruling of the district court was affirmed.

Domino’s initiated suit against Deak, seeking a declaratory judgment that the parties’ franchise agreements had expired and no longer bound the parties. Deak filed a counterclaim, contending that the parties had agreed orally that Deak’s operation of Domino’s Pizza franchises guaranteed him the right to continually renew his franchise agreements on the same terms. Domino’s moved to dismiss Deak’s counterclaim, and, on March 23, 2007, the district court granted the motion, but explicitly gave Deak the opportunity to file an amended counterclaim.

Deak filed an amended counterclaim on April 13, 2007, and on March 20, 2008, the district court once more dismissed the counterclaim, without prejudice. Deak, however, did not file an amended counterclaim. Instead, he filed an appeal, which the appellate court subsequently dismissed.

On November 25, 2008, Domino’s moved for judgment on the pleadings. The district court granted Domino’s motion, finding that the parties were no longer bound by the franchise agreements. Deak appealed that order, and, on June 4, 2010, the appellate court vacated and remanded for further proceedings.

On May 4, 2012, Domino’s moved to voluntarily dismiss its declaratory judgment action. Given that there was no counterclaim pending when Domino’s moved for voluntary dismissal, the district court granted Domino’s case and dismissed the action in its entirety.

Deak sought reconsideration of the portion of the district court’s order closing the case, and filed a motion for leave to amend his pleadings by reasserting his counterclaim. The district court denied both motions, and Deak’s appeal of those motions was before the court.

Reconsideration. Rule 60(b) enumerates several specific grounds upon which a court may relieve a party from a final judgment, and also permits a court to do so for “any other reason that justifies relief.” Despite its broad language, however, the “catch-all provision” of Rule 60(b)(6) is satisfied only by extraordinary circumstances, according to the court.

Deak did not argue that this case presented an extraordinary circumstance. Instead, he asserted that relief from the district court’s final judgment was warranted because the liberal standards of Rule 15 did not preclude him from amending his responsive pleadings to include a counterclaim. This argument was unavailing, the appellate court held.

Rule 15(a)(2), which directs courts to “freely give leave [to amend],” presents a much lower standard for relief than that required by Rule 60(b)(6). Indeed, while courts must deny relief under Rule 60(b)(6) unless extraordinary circumstances are present, courts are counseled to grant relief under Rule 15(a)(2) unless specific circumstances such as undue delay or bad faith justify denial, the court observed. Thus, simply qualifying for leave to amend under Rule 15 did not demonstrate extraordinary circumstances justifying relief under Rule 60(b)(6). Thus, the court declined to analyze Deak’s motion to reconsider the district court’s final judgment under the considerably more relaxed standards for amending pleadings.

Under Rule 60(b)(6), this case did not present extraordinary circumstances justifying relief. A party makes a showing of extraordinary circumstances by demonstrating that, absent such relief an extreme and unexpected hardship would result, the court noted. Although hardship could exist where a judgment precluded adjudication on the merits, a court would rarely find extraordinary circumstances when the judgment resulted from the party’s deliberate choices.

Here, the lower court dismissed Deak’s counterclaim without prejudice in 2008. Deak had more than four years to reassert his counterclaim, but did not do so. Because no counterclaim was pending when Domino’s moved for voluntary dismissal, the district court properly closed the case. Thus, it was Deak’s deliberate choices that resulted in closure of the case, and there was no abuse of discretion in denying Deak’s motion to reconsider.

Amendment of pleadings. Although delay alone did not justify denial of amendment to pleadings, at some point, delay becomes undue, placing an unwarranted burden on the court, or becomes prejudicial, placing an unfair burden on the opposing party, the court noted. The Third Circuit had previously explained that delay could be undue when a movant has had previous opportunities to amend a complaint. In addition, courts could consider the interests of judicial economy and finality of litigation where a party did not make a motion to amend until after a final judgment issued.

Here, the Third Circuit agreed with the district court that Deak had ample opportunity to amend his pleadings to assert a counterclaim. Significantly, although he indicated his desire to reassert the counterclaim in his reply opposing voluntary dismissal, Deak did not move to do so until after the case was closed.

Furthermore, Domino’s would have been prejudiced by the reassertion of a counterclaim that had not been pending in more than four years, the court reasoned. Although Domino’s was aware of the general substance of Deak’s counterclaim, Domino’s was not on notice of how, if at all, Deak intended to alter the substance of his counterclaim upon reasserting it. Therefore, because Deak had ample opportunity to move to amend while the case was open but did not do so until after it was closed, because Domino’s would have been prejudiced by amendment at this stage, and because the interests of judicial economy and finality of judgment militated against allowing a post-judgment amendment of pleadings, the district court did not abuse its discretion in denying Deak’s motion for leave to amend.

The case is No. 12-2654.

Attorneys: L. John Argento, Esq. (Swartz Campbell) for Domino’s Pizza LLC. Joseph P. Green (Lee, Green & Reiter) for Robert Deak.

Companies: Domino’s Pizza LLC.

Cases: FranchisingDistribution DelawareNews NewJerseyNews PennsylvaniaNews