Is an Abuse-of-Process or Malicious Prosecution Counterclaim Compulsory or Permissive in the Action That Is Allegedly Abusive? Case Law Split

From Walker v. THI of New Mexico at Hobbs Ctr., 2011 U.S. Dist. LEXIS 65287 (D. N.M. May 20, 2011):

The authorities have split on the question whether an abuse-of-process counterclaim is a compulsory counterclaim in the action which is allegedly abusive. See Pochiro v. Prudential Ins. Co. of Am., 827 F.2d 1246, 1252 (9th Cir. 1987).

Several courts have found that an abuse of process counterclaim is a compulsory counterclaim in the action which is allegedly abusive. See Carteret Sav. & Loan Ass'n v. Jackson, 812 F.2d 36, 38 (1st Cir. 1987)(rejecting the defendants' argument that, because they served no pleading — instead the court issued default judgment against them — rule 13(a) did not become applicable to find that the defendants' claims against the plaintiff for negligence, fraud, abuse of process, and unfair-and-deceptive business practices should have been asserted as compulsory counterclaims pursuant to rule 13(a)); Podhorn v. Paragon Group, 795 F.2d 658, 659 (8th Cir. 1986)(finding that a party's claims for constructive eviction, breach of the warranty of habitability, breach of the covenant of quiet enjoyment, prima-facie tort, invasion of privacy, abuse of process, conversion of the security deposit, wrongful garnishment, and negligence were compulsory counterclaims, because Missouri intermediate appellate courts have determined that a defendant in an action in an associate circuit court must file a statement of a counterclaim); Great Lakes Rubber Corp. v. Herbert Cooper Co., 286 F.2d 631, 633-34 (3d Cir. 1961)(finding that a party's counterclaim was a compulsory counterclaim within the meaning of rule 13(a), because allegations that claims were unjustified, and brought in bad faith without color of right and with the sole object of harassing, entailed determination of many of the same facts and law relating to the underlying claim); Hampton v. Nustar Mgmt. Fin. Group, No. 2:05-CV-0824-BES-GWF, 2007 WL 119146, at *2 (D. Nev. Jan. 10, 1997)(citing Pichoro v. Prudential Insurance Co. of America, Inc. in finding that an abuse-of-process claim is a compulsory counterclaim, because, although the merits of the substantive claim are not controlling on the question of abuse of process, they are necessarily significant in the assessment of a possible ulterior motive, and thus the similarity of the facts necessary for the determination of both actions reveals that Hampton's substantive claims and Handy Cash's abuse-of-process claim stem from the same basic controversy between the parties); Miami Herald Publ'g Co., a Division of Knight-Ridder Newspapers, Inc. v. Ferre, 636 F. Supp. 970, 972-73 (S.D. Fla. 1985)(finding that a counterclaim for abuse of process, violation of right to privacy, malicious threats, interference with right to hold office, and malicious prosecution was a compulsory counterclaim under rule 13(a), because "the plaintiffs' action arises out of defendant['s] . . . alleged preparation and subsequent destruction of certain documents relating to the firing of the Miami City Manager and plaintiffs' efforts to obtain access to those documents," and the defendant's "counterclaim asserts various causes of action arising from plaintiffs' efforts to obtain access to the documents in question and their allegedly wrongful actions taken after they did not obtain the documents," noting that "the fact that additional allegations must be proved in order for FERRE to recover on the counterclaim does not eliminate its compulsory nature," and finding that the claims were essentially offshoots of the same controversy between the parties, and that therefore fairness and considerations of convenience and economy dictate that the court should exercise ancillary jurisdiction).

In Pochiro v. Prudential Insurance Co. of America, the United States Court of Appeals for the Ninth Circuit addressed whether an abuse-of-process claim could be considered a compulsory counterclaim. See 827 F.2d at 1252.*** [It held:]

We recognize that *** the courts have split on the question whether an abuse of process claim is a compulsory counterclaim in the very action which allegedly is abusive. *** Because we believe that the liberal reading of the "transaction or occurrence" standard is more in keeping with the pronouncements of the Supreme Court, we now reject the line of cases that has refused to find an abuse of process claim a compulsory counterclaim.

***The Court believes that the Counterclaimants' malicious-abuse-of-process Counterclaim [under New Mexico law] is a permissive and is not a compulsory counterclaim. The Court does not believe it has supplemental jurisdiction over the Counterclaim, because the Counterclaim and Walker's claims do not arise from a common nucleus of operative fact. Although the Court does not have supplemental jurisdiction over the Counterclaim, it has diversity jurisdiction over the Counterclaim. Because the Counterclaimants have pled sufficient facts to state a claim for relief for malicious abuse of process that is plausible on its face, the Court will deny Walker's request that it dismiss the malicious-abuse-of-process Counterclaim.

*** Courts which have held that a malicious-abuse-of-process counterclaim is not compulsory have done so because the issues of fact and the issues of law raised by the claims and the counterclaims were significantly dissimilar, because judgment on the plaintiff's claims would not operate as res judicata in a suit for malicious abuse of process, and because there was not a sufficient logical relation between the claim and the counterclaim. ***The Tenth Circuit requires the Court to consider whether: (i) the counterclaim involves the same issues of law and fact as the principal claim; (ii) res judicata would bar the defendant from bringing a subsequent suit on the same claim; (iii) the counterclaim involves the same evidence as the principal claim; and (iv) there is a logical relationship between the principal claim and the counterclaim. See FDIC v. Hulsey, 22 F.3d at 1487.

The issues of fact and law that Walker's claims for racial discrimination, retaliation, breach of contract, and intentional infliction of emotional distress raise, and that the malicious-abuse-of-process counterclaim raise, are not largely the same. ***

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