The opinion of the court was delivered by: Leisure, District Judge.
This action involves allegations that defendants have infringed
plaintiff's patent regarding a hydraulic, towable backhoe. Before
the Court are defendants' objections to a Report and
Recommendation (the "Report") issued by the Honorable Ronald L.
Ellis, United States Magistrate Judge, recommending denial of a
motion by defendant R H & M Machine Co. ("R H & M") for leave to
interpose an additional defense and counterclaim concerning the
For the reasons stated in this Opinion and Order, the Report is
rejected and defendant R H & M's motion for leave to amend is
The instant action is the second of three patent infringement
suits between the parties in the past six years. In 1992,
Spancrete Machinery Corp., the predecessor in interest of
plaintiff HCC, Inc. ("HCC"), brought suit against R H & M in the
United States District Court for the Eastern
District of Virginia (the "Virginia Action"), alleging that R H &
M's GO FOR DIGGER II backhoe infringes plaintiff's United States
Patent No. 4,925,358 (the "'358 patent"). R H & M interposed a
counterclaim requesting declaratory judgment that certain of the
claims in the '358 patent are invalid. The case proceeded to
trial, where a jury found claims 1 and 12 of the '358 patent not
invalid and further found R H & M's GO FOR DIGGER II product
infringed claim 12 of the patent. Following the trial court's
entry of judgment for defendant notwithstanding the verdict, the
United States Court of Appeals for the Federal Circuit reversed
and reinstated the verdict in favor of plaintiff. See Spancrete
Machinery Corp. v. R H & M Machine Co., No. 93-1415, slip op. at
9, 1994 WL 424620 (Fed.Cir. Aug. 15, 1994) (unreported).
On June 27, 1996, HCC filed the instant action, alleging that
two other products manufactured by R H & M, the GO FOR DIGGER IV
and GO FOR DIGGER V, also infringe the '358 patent. HCC
subsequently amended its complaint, and R H & M answered and
interposed counterclaims seeking declaratory judgment that the
products do not infringe the '358 patent and that the patent is
invalid. This Court referred the case to Judge Ellis on May 20,
1997, for general pre-trial management.
On June 11, 1997, HCC filed a Second Amended Complaint adding
Herbert David Edgell, Jr., the President and a director and
partial owner of R H & M, as a defendant and alleging additional
claims for unfair competition and tortious interference with
prospective business advantage. The Second Amended Complaint is
substantially identical to the First Amended Complaint with
respect to plaintiff's claim for patent infringement. Defendants
jointly filed an answer to the Second Amended Complaint, which,
in addition to the defenses and counterclaims previously raised,
interposed a counterclaim of unenforceability and a defense of
unclean hands, based on alleged inequitable conduct by the patent
applicant before the Patent & Trademark Office ("PTO").
On August 6, 1997, in an Order with a caption listing R H & M
as the sole defendant, Judge Ellis struck the counterclaim and
defense raised by R H & M, and established a schedule for R H & M
to seek leave to amend its answer to include the proposed
counterclaim and defense.*fn1 In response to the Order, R H & M
filed an amended answer omitting the contested counterclaim and
defense and, in addition, moved for leave to add those
claims.*fn2 Defendant Edgell separately filed an amended answer
which included both the defense and the counterclaim.
On October 6, 1997, Judge Ellis issued a Report and
Recommendation recommending denial of defendant R H & M's motion
for leave to amend. Judge Ellis reasoned that the principle of
collateral estoppel precluded R H & M from raising the defense
and counterclaim because, according to the court, they are
from R H & M's invalidity counterclaim raised in the Virginia
Action and rejected by the jury in that case. See Report at 4.
The Report further intimates that principles of claim preclusion
bar assertion of the counterclaim and defense because, according
to the court, the claims, even if not actually raised in the
Virginia Action, could have been. See id. at 5-9. Finally,
Judge Ellis found that, in any event, leave to amend would be
inappropriate because the evidence submitted by R H & M in
support of the claims is not sufficient actually to sustain them.
Although the only motion before Judge Ellis was that of
defendant R H & M for leave to amend, the Report also appears to
recommend that defendant Edgell be denied the ability to assert
the identical counterclaim and defense in his first responsive
pleading. Judge Ellis found that because Edgell is "in privy to R
H & M", Edgell is also "bound under the same preclusion
principles" as those mentioned above and recommended that,
therefore, his assertion of those claims should be disallowed.
See id. at 4 n. 2.*fn3
Before assessing the merits of defendants' objections to the
Report, the Court addresses a threshold issue regarding the
appropriate standard of review. Pursuant to Rule 72 of the
Federal Rules of Civil Procedure and its enabling statute,
28 U.S.C. § 636(b)(1), determination of the review standard turns on
whether the recommendation by the Magistrate is dispositive of a
claim or defense of a party. See Fed.R.Civ.P. 72. Defendant R H
& M contends the Report concerns a dispositive matter and, thus,
that this Court must review the Report de novo. See Fed.
R.Civ.P. 72(b). Plaintiff, by contrast, argues the Report
addresses nondispositive issues and is subject to deferential
review only for "clear error". See Fed.R.Civ.P. 72(a).
The proper characterization of a denial of leave to amend a
pleading is not settled in this Circuit. See C.V. Rao v.
Envirodyne Enq'rs of New York, No. 94 Civ. 3368, 1996 WL 594054,
at *2 (E.D.N.Y. Oct. 11, 1996). Several courts have held, with
little explanation, that such a denial is nondispositive. See
Coffey v. Dobbs Int'l Serv., Inc., 5 F. Supp.2d 79, 83 (N.D.N Y
1998); Smith v. Dakar Constr. Corp., No. 94 Civ. 7645, 1997 WL
711053, at *2 (S.D.N.Y. Nov. 13, 1997); Moss v. Stinnes Corp.,
No. 92 Civ. 3788, 1995 WL 338315, at *1 (S.D.N.Y. June 7, 1995);
Aries Ventures Ltd. v. Axa Fin. S.A., 696 F. Supp. 965, 965
(S.D.N.Y. 1988). Other courts have found such a denial to be
dispositive, since the denial forecloses the party from asserting
the claim or claims in the litigation. See Champion Titanium
Horseshoe, Inc. v. Wyman-Gordon Inv. Castings, Inc., 925 F. Supp. 188,
190 (S.D.N.Y. 1996); Mitchell v. ...