Compulsory Counterclaims under Rule 13 — Competing Plain-Meaning and Real-Party-in-Interest Tests — What Is an “Opposing” Party?

Thayer v. Owens, 2012 U.S. Dist. LEXIS 72915 (C.D. Utah May 24, 2012):

Prior to July 2009, Homer Owens ("Homer") and Emerald Owens ("Defendant") lived together as husband and wife at their residence in California. Although the facts are incomplete, it appears that Homer has suffered from a form of mental illness or incapacity for some time.... In July 2009, Homer filed a divorce petition in California state court and moved to Provo, Utah, accompanied by his son-in-law Douglas B. Thayer, the Plaintiff in this action.... Pursuant to the terms of a durable power of attorney Homer executed in July 2009, the Fourth District Court for the State of Utah appointed Plaintiff as Homer's guardian and conservator in September 2009.... Defendant thereafter filed a number of motions in that court, including a motion to remove Plaintiff as Homer's guardian, and alleged that Plaintiff had exercised some degree of undue influence over Homer.... After a two-day trial, the court found that Homer had independently made lucid and knowing decisions to move to Utah, nominate Plaintiff as his guardian, and file for divorce, findings all of which Defendant appealed.... Sometime thereafter, Plaintiff (acting as Homer's guardian) dismissed the California divorce petition and filed a new petition in Utah state court. ***

The parties agreed to resolve Plaintiff's petition and Defendant's appeal by executing a Final Stipulation on March 14, 2011. ***

However, shortly after executing the Final Stipulation, Defendant filed a claim against Plaintiff (individually), Plaintiff's wife (Homer's daughter), and Homer's other children in the San Diego Superior Court on July 19, 2011.... Although Defendant made a number of claims, relevant to this case is Defendant's allegation that Plaintiff exercised undue influence over Homer and that she is therefore entitled to funds contained in several of the accounts dealt with in the Final Stipulation.... On January 20, 2012, Plaintiff (as guardian) in response filed a complaint in the Fourth District Court. Defendant removed the case to federal court on February 10, 2012.

Plaintiff petitions this Court for (1) damages for alleged breach of contract from both attempting to re-divide property contrary to the Final Stipulation and from refusing to pay debts incurred after July 20, 2009; (2) damages for alleged breach of implied covenant of good faith and fair dealing; (3) declaratory relief in the form of an order that sets forth the parties' respective rights and waivers under the Final Stipulation; and (4) injunctive relief in the form of an order enjoining Emerald from pursuing litigation in state court.... Although Defendant has filed a variety of motions and counterclaims, relevant to this Court at present are (1) a motion to dismiss, on the grounds that Plaintiff's claims are barred as compulsory counterclaims under F.R.C.P. 13(a)(1)(A).....

1. Compulsory Counterclaims—F.R.C.P. 13

*** Rule 13 first requires that a party be "opposing." There is no "definitive answer to the question of who is an opposing party for purposes of a counterclaim," 6 Charles Alan Wright et al., Federal Practice and Procedure § 1404 (3d ed. 1998), and neither this Court nor the Tenth Circuit has precisely addressed the question of when a party sued in her individual capacity must under Rule 13 bring a counterclaim in another capacity. However, to determine whether a party is "opposing," courts have taken both a "plain meaning" approach, relying merely on whether an individual is actually named as a party to the suit, and a more liberal approach, analyzing the overlap between the character of the parties to determine whether the entity in question is a "real party in interest." Compare, e.g., Ponderosa Dev. Corp. v. Bjordahl, 787 F.2d 533, 536 (10th Cir. 1986) (plain meaning) with Avemco Ins. Co. v. Cessna Aircraft Co., 11 F.3d 998, 1000 (10th Cir. 1993) (real party in interest). The "real party in interest" approach is more aligned with the purposes of Rule 13, in that it allows individuals "to resolve all their pending disputes within the bounds of the one litigation," and allows judges to balance the concerns of equity and judicial economy to avoid a potentially "technical" or "artificial" method of drumming up excess litigation. See Scott, 354 F.2d at 300.

Footnote 1. Although the plain meaning approach seems to be the general rule, Wright et al., supra, § 1404, recent case law appears to be moving toward the more liberal, "real party in interest" approach. See, e.g., Banco Nacional de Cuba v. First Nat'l City Bank of N.Y., 478 F.2d 191 (2d Cir. 1973); Scott v. United States, 354 F.2d 292 (Fed. Cl. 1965). Chambers v. Cooney, 537 F. Supp. 2d 1248 (S.D. Ala. 2008). The Tenth Circuit appears to be following that trend. See Avemco Ins. Co. v. Cessna Aircraft Co., 11 F.3d 998 (10th Cir. 1993); Liberty Nat. Bank & Trust Co. of Okla. City v. Acme Tool Division of Rucker Co., 540 F.2d 1375 (10th Cir. 1976) (abrogating an earlier line of cases in which interpleaders' failure to assert counterclaims barred further action under Rule 13).

Under the plain meaning approach, a court simply looks at whether an individual was actually a named party in a prior lawsuit. See Ponderosa, 787 F.2d at 536. In Ponderosa, the court held that the compulsory counterclaim doctrine did not bar claims against a corporation because the parties were not named in the original suit, and therefore not "opposing." Id. Conversely, under the "real party in interest" approach, the definition of "opposing party" may "encompass entities that are 'one and the same for the purposes of th[e] litigation.'" Mosdos Chofetz Chaim, Inc. v. Village of Wesley Hills, 701 F. Supp. 2d 568, 590 (S.D.N.Y. 2010) (quoting Banco Nacional de Cuba, 478 F.2d at 193). A party is a "real party in interest" if the party acts "as one" with the party that appeared in a previous action. Id. at 590. Thus, in Mosdos, Rule 13 did not bar a religious group from asserting discrimination claims against village officials in their individual capacities, as they were not "one and the same" with the village named in prior litigation. Id. at 592-93. However, in Avemco, the court found that because an insurance company was essentially the same party as and had "no greater rights" than the insured, the company was a real party in interest and therefore barred from bringing claims under Rule 13. 11 F.3d at 1000.

The second requirement of Rule 13 is that, in order for a counterclaim to be compulsory, it must "arise[] out of the transaction or occurrence that that is the subject matter of the opposing party's claim." F.R.C.P. 13(a)(1)(A). Although courts have devised a number of tests, this Circuit has held that a claim arises out of the same transaction or occurrence if there is a "logical relationship" between the original claim and the counterclaim. Pipeliners Local Union No. 798 v. Ellerd, 503 F.2d 1193, 1198 (10th Cir. 1974) (adopting the logical relationship test as "most controlling"); United States v. Questar Gas Mgmt. Co., No. 2:08CV167(DAK), 2010 WL 2813779, at *3 (D. Utah July 16, 2010). The inquiry turns largely "[o]n the totality of the facts presented," and in deciding whether a claim arises out of the same transaction or occurrence, the phrase is "accorded a liberal construction" in the interest of furthering judicial efficiency and economy. Pipeliners, 503 F.2d at 1189-99. Applying this broad construction, this Court in Questar nevertheless found a counterclaim brought by a gas company for breach of contract to be "factually and legally unrelated" to a nuisance claim for air pollution brought by an Indian tribe and therefore not compulsory. 2010 WL 2813779, at *3.

Rule 13 does not bar Plaintiff's claims as compulsory to the California lawsuit. First, it is not clear that Plaintiff's breach of contract and breach of good faith and fair dealing claims are logically related to and therefore arise out of the same transaction or occurrence as Defendant's California lawsuit. Although Defendant's lawsuit speaks to a small degree about undue influence in executing the Final Stipulation, the majority of Defendant's state claims (e.g., elder abuse, undue influence, intentional infliction of emotional distress, and others), are separate from any claims that arise out of the Final Stipulation. Notably, Defendant does not rely on the Final Stipulation as the basis of any of her claims. Thus, as in Questar Gas, the link between the Defendant's state claims and Plaintiff's claims in this lawsuit seems too attenuated to hold that they share a logical relationship sufficient to invoke a Rule 13 compulsory counterclaim bar.

However, even if Plaintiff's claims do share a logical relationship and are therefore transactionally related, Plaintiff was not an opposing party for purposes of the California litigation. Plaintiff in his capacity as guardian was clearly not a named defendant in that suit. But even under a less exacting analysis, Plaintiff cannot be viewed an opposing party under Rule 13 because Plaintiff in his individual capacity and Plaintiff in his guardianship capacity are not "one and the same" for purposes of litigation. Unlike the insurance company in Avemco, Plaintiff's rights as an individual under the Final Stipulation — the main point of contention for purposes of this lawsuit — do not mirror Homer's. Homer has a wholly different set of rights than the Plaintiff individually, as evidenced by the fact that only Homer and Defendant were parties to the Final Stipulation.

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