Carn et al v. Heesung PMTech Corporation(CONSENT)

MOTION to Dismiss Counterclaims for Declaratory Judgments, Or, In the Alternative, To Redesignate Such Counterclaims as Affirmative Defenses

M.D. Ala.November 3, 2017

1 UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF ALABAMA SOUTHERN DIVISION WILLIAM C. CARN, III, As Chapter * 7 Trustee of SpecAlloy Corporation; LKQ CORPORATION; * CONVERTER BROKERS, LLC; and ENTERPRISE RECYCLING, LTD. * d/b/a WRENCH-A-PART, * Plaintiffs, * v. CASE NO.: 1:16-cv-00703 * HEESUNG PMTECH CORPORATION, et al., * Defendants. * MOTION TO DISMISS COUNTERCLAIMS FOR DECLARATORY JUDGMENTS, OR, IN THE ALTERNATIVE, TO REDESIGNATE SUCH COUNTERCLAIMS AS AFFIRMATIVE DEFENSES COME NOW Plaintiffs LKQ Corporation (“LKQ”), Converter Brokers, LLC, (“Converter”), and Enterprise Recycling, Ltd., d/b/a Wrench-A-Part (“Enterprise”) and respectfully move the Court, pursuant to Rule 12(b)(6), Fed. Rule Civ. P., to dismiss the counterclaims asserted against them by defendant Heesung PMTech Corp. (“Heesung”) for declaratory relief for the following reasons: 1. Such claims fail to state claims for which relief may granted in that they are subsumed by the claims already asserted by LKQ, Converter, and Case 1:16-cv-00703-TFM Document 59 Filed 11/03/17 Page 1 of 8 2 Enterprise against Heesung as well as Heesung’s affirmative defenses. Accordingly, such claims are duplicative of the claims already before the Court, and the Court should exercise its discretion to dismiss the counterclaims for declaratory relief under settled and well-reasoned authority. See Answer & Counterclaim to Amended Complaint (Doc. 49); First Amended Answer & Counterclaim (including Count I for declaratory relief against these defendants) (Doc. 52).1 2. In particular, “if a declaratory judgment counterclaim is entirely redundant of the opposing party’s claim, it is repetitious and unnecessary and may be struck or dismissed by the court.” 3 D. Coquillette, et al. Moore’s Federal Practice 13.41 at p. 13-48 (2017) (citing United States v. Kanfei, 353 F. Supp. 2d 962, 964-65 (N.D. Ill. 2005) (in case involving allegedly illegal tax shelters, counterclaim seeking declaration tax shelters were in fact legal was dismissed as repetitious) (alternative holding); Sembler Family Partnership No. 41, Ltd. v. Brinker Florida, Inc., 2008 WL 5341175 (M.D. Fla. 2008) (dismissing counterclaim seeking declaration lease was validly terminated when initial suit was for breach of lease). 1Heesung has filed both an answer and an amended answer. (Docs. 49; 52). The first contained a single counterclaim for declaratory relief against LKQ, Converter, and Enterprise. (Doc. 49). The amended answer included a four-count counterclaim, only the first count of which is directed to these defendants and requires their response. (Doc. 52). See also infra, Paragraph 5 below, arguing that all the purported “counterclaims” for declaratory relief are mis-designated defenses and should be re-designated as such by the Court. Case 1:16-cv-00703-TFM Document 59 Filed 11/03/17 Page 2 of 8 3 3. Similarly, where the defendant’s affirmative defenses raise the issues embraced by a counterclaim seeking declaratory relief, the same rule has been applied. See, e.g., Mansaray v. Mutual Benefit Insurance Corp., 2017 WL 2778824 at *7 (D. Mar. 2017) (“Here, the counterclaim [for declaration that there was no insurance coverage in case alleging breach of contract, fraud, and bad faith] is duplicative and merely a defense characterized as a counterclaim.”); Engelwood Lending Inc. v. G&G Coachella Investments, LLC, 651 F. Supp. 2d 1141, 1144-45, 1147 (C.D. Cal. 2009) (counterclaim for declaration that defendants were not liable under loan agreement, guarantees, notes, and deeds and counterclaim regarding obligation to maintain liquid assets were dismissed under Rule 12(b)(6) as unnecessary given overlap in issues raised by original claims and defendant’s affirmative defenses). 4. The rationale for such holdings is that, where “the substantive suit would resolve the issues raised by the declaratory judgment action, the declaratory judgment action ‘serves no useful purpose’ because the controversy has ‘ripened’ and the uncertainty and anticipation of litigation are alleviated . . . . Thus courts routinely dismiss counterclaims that seek to generate an independent piece of litigation out of issues that are already before the court; this includes counterclaims that merely restate an affirmative defense, as well as those which simply seek the opposite effect of the complaint.” Intercon Solutions, Inc. v. Basel Action Network, Case 1:16-cv-00703-TFM Document 59 Filed 11/03/17 Page 3 of 8 4 969 F. Supp. 2d 1026, 1065-67 (N. D. Ill. 2013) (granting Rule 12(b)(6) motion to dismiss counterclaim for declaratory relief that overlapped complaint and affirmative defenses) (internal citations and quotations omitted) (collecting cases). As the Court in Intercon Solutions explained, the declaratory judgment act “was not intended to allow parties to convert claims and affirmative defenses into redundant counterclaims.” See id. at 1067. 4. Accordingly, in cases where a counterclaim for declaratory judgment is duplicative in addressing the issues already raised in the original action, there is no real basis for the exercise of the district court’s discretion to take jurisdiction of the counterclaim. See, e.g., id. at 1065-67. 5. The Court should conclude that Heesung’s counterclaims for declaratory judgment as asserted against LKQ, Converter and Enterprise are equally duplicative in the instant case. Indeed, Heesung prefaces its counterclaims in its amended answer, including the counterclaims for declaratory relief, by virtually admitting such claims are duplicative as to both to the original claims and the affirmative defenses Heesung has asserted: “By way of further defense, and as counterclaims against Plaintiffs, Heesung alleges and states as follows . . . .” First Amended Answer & Counterclaim at p. 31 (emphasis added) (Doc. 52). Not only is such a sleight of hand in pleading not permitted under the authorities noted above with respect to counterclaims for declaratory judgments, it is also expressly Case 1:16-cv-00703-TFM Document 59 Filed 11/03/17 Page 4 of 8 5 forbidden by Rule 8(c)(2), Fed. R. Civ. P. as to such “counterclaims” generally: “If a party mistakenly designates a defense as a counterclaim . . . the court must, if justice requires, treat the pleading as though it were correctly designated, and may impose terms for doing so.” Id. See, e.g., Mansaray v. Mutual Benefit Insurance Corp., 2017 WL 2778824 at *7 (D. Mar. 2017). 6. Moreover, the substance of the counterclaims for declaratory relief is already embraced by the issues raised in the amended complaint and the defenses raised in answer to that complaint. Specifically, Heesung requests declarations as to: a) who owned the converters or their materials at the time of their sale (including such sub-issues on this point as a request to declare no bailment or consignment relationship existed with respect the converters or their materials); b) who was entitled to payment for those converters and materials, including any rights to payment from Heesung; and c) the relationship between Heesung and the other parties, including SpecAlloy. Answer & Counterclaim to Amended Complaint (Doc. 49); First Amended Answer & Counterclaim at p. 60. (including Count I for declaratory relief against these defendants) (Doc. 52). 7. It cannot be seriously contended that these issues have not already been raised and will be addressed as a consequence of the claims already asserted in the amended complaint or as raised by Heesung’s affirmative defenses. For instance, the conversion, contract, and quasi-contractual claims asserted by LKQ, Case 1:16-cv-00703-TFM Document 59 Filed 11/03/17 Page 5 of 8 6 Converter and Enterprise all address the questions of ownership of the converters and their materials, the question of entitlement to payment for these converters and their materials, and at least indirectly the relationship (e.g., “agency”) by and between Heesung and SpecAlloy—a matter moreover directly addressed in context of LKQ’s, Converter’s, and Enterprise’s express claims that Heesung assumed de facto control over SpecAlloy resulting in a principal-agent or partner-joint venture relationship.2 8. Accordingly, Heesung’s counterclaims for declaratory relief as asserted in its initial answer and in Count I of its First Amended Answer—the only counterclaims asserted against LKQ, Converter, and Enterprise—are due to be dismissed.3 WHEREFORE, ABOVE PREMISES CONSIDERED, there is no basis here for the Court to exercise its discretion to take jurisdiction of the counterclaims for declaratory relief asserted against them, and LKQ, Converter, and Enterprise ask that those claims be dismissed. In the alternative, LKQ, Converter and Enterprise 2 This is just a summary of the matters already embraced by the Amended Complaint as alleged by LKQ, Converter, and Enterprise; the relationship by and between Heesung and SpecAlloy Corp. is further elaborated upon by the allegations specific to SpecAlloy as asserted by its trustee, including without limitation the allegation that Heesung was an “insider” of SpecAlloy. 3 Out of an abundance of caution, LKQ, Converter, and Enterprise have filed this motion in response to both the initial answer and the amended answer to the extent that the amended answer is deemed not to supersede the initial answer. Case 1:16-cv-00703-TFM Document 59 Filed 11/03/17 Page 6 of 8 7 move the Court to re-designate Heesung’s counterclaims for declaratory relief as affirmative defenses. Respectfully submitted, /s/ H. Spence Morano H. Spence Morano ASB-0614H52M Attorney for Plaintiffs, Converter Brokers, LLC; Enterprise Recycling, Ltd. dba Wrench A Part and LKQ Corporation OF COUNSEL: LEAK, DOUGLAS & MORANO, PC The John A. Hand Building 17 20th Street North, Suite 200 Birmingham, AL 35203 Phone: 205.977.7099 Fax: 205.977.7167 smorano@leakdouglas.com CERTIFICATE OF SERIVCE I hereby certify that I have served a copy of the foregoing pleading upon all counsel/parties of record via the electronic filing system on this the 3rd day of November, 2017. /s/ H. Spence Morano OF COUNSEL Case 1:16-cv-00703-TFM Document 59 Filed 11/03/17 Page 7 of 8 8 cc: John D. Elrod, Esq. Greenberg Traurig, LLP Terminus 200, Suite 2500 3333 Piedmont Road NE Atlanta, GA 30305 elrodj@gtlaw.com Attorney for Plaintiffs William S. Carn, As Chapter 7 Trustee of SpecAlloy Corporation and LKQ Corporation David A. Wender, Esq. Alston & Bird, LLP One Atlantic Center 1201 West Peachtree Street, Suite 4900 Atlanta, GA 30309-3424 david.wender@alston.com Attorney for Heesung PMTech Corporation Daniel D. Sparks, Esq. Christian & Small 505 North 20th Street 1800 Financial Center Birmingham, AL 35203 ddsparks@csattorneys.com Attorney for Heesung PMTech Corporation Case 1:16-cv-00703-TFM Document 59 Filed 11/03/17 Page 8 of 8