Inappropriate Dismissal Of Counterclaims Is Harmless Error Absent Prejudice In Having To Reassert Such Counterclaims In A Subsequent Action

The Federal Circuit in Walter Kidde Portable Equipment, Inc. v. Universal Security Instruments, Inc., (No. 06-1420, March 2, 2007) finds that the district erred as a matter of law when it dismissed the defendant’s counterclaims over objection from the defendant, while granting the plaintiff’s motion for voluntary dismissal. The plaintiff had filed a motion for voluntary dismissal in order to re-file its complaint after curing a standing defect raised by the defendant. Part of this standing defect also related to what law should govern the document purporting to transfer ownership in the asserted patent to the plaintiff, thereby also raising a subject matter jurisdiction issue for the district court. Rather than addressing the subject matter jurisdiction issue, however, the district court not only granted the plaintiff’s motion to voluntarily dismiss without prejudice, but went a step further by also dismissing the defendant’s counterclaims. The plaintiff re-filed its complaint on the same day as its motion for voluntary dismissal was granted.

The Federal Circuit finds that it was error for the district court to not first consider the subject matter jurisdiction issue since at least some of the counterclaims were unrelated to the plaintiff’s standing defect. That fact notwithstanding, the Federal Circuit further finds that this error was harmless since the defendant was free to reassert all counterclaims in the subsequently-filed action, and there was no evidence that the defendant was prejudiced by having to do so.