Concept
Failing to Plead
Compulsory counterclaim
Failing to Plead
A defendant who leaves a compulsory counterclaim out of its pleading does more than miss a chance to try the claim beside the plaintiff’s. It loses the claim. Rule 13(a)(1)(A) defines the duty by reference to claims that arise out of the transaction or occurrence that is the subject matter of the opposing party’s claim, and the courts supply the penalty.1 Every relatedness question earlier in this chapter is therefore a question about forfeiture, because a mistaken judgment that a claim was merely permissive can cost the defendant the claim itself.
This section follows the omitted claim in four steps. The first states the bar and shows where it comes from. The second compares the theories courts use to explain the bar, since the choice of theory decides the cases that end in settlement. The third asks what a defendant can still do while the first action is pending, and the fourth asks whose law governs when the second suit lands in a different court system.
One threshold fact underlies all four steps: the omitted claim must have been compulsory when the pleading was served. A claim that was permissive, or that fell within one of the limits on the duty covered above, is not lost by silence. A problem about a former defendant’s second lawsuit therefore asks two questions in order. Was the claim compulsory when the earlier pleading was served? If so, what did the first judgment do to it?
The Preclusion Bar
The text of Rule 13(a) commands pleading and says nothing about disobedience, yet the consequence is settled.2 A party who fails to plead a compulsory counterclaim is barred from bringing a later independent action on that claim.3 The Advisory Committee’s note speaks only to this consequence: if the action proceeds to judgment without the counterclaim the Rule requires, the counterclaim is barred.4 The bar gives the word compulsory its content. As the Seventh Circuit put it, no one is literally compelled to plead the claim, and only a litigant who wants to avoid a later defense of preclusion need do so.5
Two drivers collide, and one sues the other in diversity for personal injury. The defendant files no counterclaim and later tries to sue, in federal or state court, for damage to the defendant’s own car. Neither court will hear the suit. The property-damage claim arises out of the same collision as the original claim, and it is barred because the defendant did not assert it as a compulsory counterclaim in the first action.6 Another court classified two drivers’ claims from one collision the same way, reasoning that the same collision was at the heart of both actions and the only dispute was where fault lay.7
The bar cannot be ordinary claim preclusion, because the two suits point in opposite directions. Traditional claim preclusion applies only when the earlier and later cases are brought by the same claimant against the same defendant, and it is not enough that the same two litigants appeared in both: they must stand in the same configuration, one asserting a claim against the other.8 A defendant who sues the original plaintiff reverses that configuration. Courts bar the omitted counterclaim anyway, simply to enforce the policy underlying the compulsory counterclaim rule, in a form of “rule-based res judicata” that applies even though the same-claim requirement is not met.9 The rule does the work: in a state system with no rule requiring the counterclaim, the same defendant would remain free to start the second action.10
The same reasoning explains why the bar stops at the Rule’s own line. If res judicata barred every omitted counterclaim, it would make permissive counterclaims compulsory, undermining the rulemakers’ choice and raising serious jurisdictional problems in many federal cases.11 A claim from a separate transaction therefore survives the first judgment, and omitting it forfeits nothing.
The bar reaches litigants who never chose to be in the case. When New York Life brought an interpleader proceeding, the claimant, Smith, did not plead her own claim against it there, and the Fifth Circuit agreed that her later delictual action was barred because it was a compulsory counterclaim she failed to plead in the interpleader proceeding.12 That result treats the stakeholder as an opposing party, a point on which courts divide. A counterclaim lies only against an opposing party, and there is division on whether it lies against a disinterested stakeholder named as plaintiff in an interpleader action.13
A contract dispute shows how the bar sorts one party’s claims into barred and unbarred. In Taggart v. Rutledge, Rutledge’s earlier state-court action against the Taggarts was in essence an action to enforce the contract between them, and its dismissal by stipulation was “tantamount to a judgment on the merits.”14 The Taggarts’ later federal counts that went to the contract itself or its application were dismissed as barred by claim preclusion. Counts against Conoco, which had not been a party to the state litigation, and counts complaining of events before the agreement was signed, which broadened the relevant transaction considerably, escaped both res judicata and Rule 13(a).15
A first court’s limited jurisdiction does not by itself excuse the omission. In Horne v. Harbour Portfolio, a magistrate court could not hear the plaintiffs’ claim, yet the court held that this did not alter the analysis, because the Georgia statute provides for filing compulsory counterclaims that exceed the magistrate court’s jurisdictional limits and transferring the case to a court with jurisdiction.16 The statute is Georgia’s and not Rule 13(a), but the lesson travels: where the procedure offers a path to a court that can hear the claim, the first court’s limits give the defendant no excuse for silence.
The bar also hands the first filer a tactical advantage. Because omission is punished, a quick plaintiff can choose the forum for the defendant’s related claim, and in a race to the courthouse the slower party must assert her related claim as a counterclaim.17
Only the order of filing changed between those two versions. The exception for claims already pending elsewhere, covered above, also depends on which suit was filed first.
Theories Behind the Bar
Courts agree that an omitted compulsory counterclaim is lost, but they explain the loss in different vocabularies. The Rules say nothing about the result, and the literature speaks of res judicata, merger, bar, and waiver for what is one event.19 The labels are best read as competing descriptions of a single sanction, and in the usual case each produces the same result. The choice matters at the margins: when the first case ended without a judgment on the merits, and when the defendant never chose silence.
Most courts speak of res judicata and treat the bar as an extension of the doctrine of former adjudication.20 That description fits the case tried to judgment, because once a case has been tried, protection of the court and the parties dictates that there be no further directly related litigation.21 It fits settlements less well. Claim preclusion ordinarily requires a judgment “on the merits,” a phrase that is more a legal conclusion than a useful heuristic.22
Other courts rely on waiver or estoppel, which look to what the litigant did instead of to the form of the first case. One state court, interpreting rules virtually the same as the federal ones, described the bar as one “created by rule” that “logically is in the nature of an estoppel arising from the culpable conduct of a litigant in failing to assert a proper counterclaim.”23 Attention to conduct gives the estoppel view two practical advantages. It lets a court preclude even when the first action produced no technical judgment,24 and it is a more flexible tool for default judgments, consent judgments, and dismissals after a compromise agreement.25 It also gives a court a way to relieve a defendant who never knowingly refrained from asserting the claim.26
King v. Blanton shows the estoppel view at work after a settlement. Blanton sued King over a collision, alleging that King ran a red light and struck Blanton’s vehicle. King’s insurer supplied her attorney, and the case ended in May 2011 when Blanton voluntarily dismissed with prejudice in exchange for a cash settlement. King never filed a counterclaim.27 The court held that King’s own claim arose out of the same transaction or occurrence, because the same collision was at the heart of both actions and the only dispute was where fault lay, so it was a compulsory counterclaim.28 The remaining question was whether Rule 13(a) required dismissal when no trial had occurred. When a case is settled, the court observed, the court has not been greatly burdened and the parties can protect themselves by demanding cross-releases, so equitable estoppel may fit better than res judicata. If a party clearly had the opportunity to assert a counterclaim and knew it existed, the lack of a final judgment on the merits is immaterial, because the party’s conscious inaction created the additional litigation the rule was designed to prevent.29 King’s failure to file her compulsory counterclaim therefore constituted a waiver and estopped her from bringing a new negligence action based on the same events.30
The Taggart court reached a bar after a stipulated dismissal by a different route. It treated the stipulation as tantamount to a judgment on the merits, which allowed res judicata to operate.31 That route converts the dismissal into a judgment and then applies the preclusion label, while the estoppel route in King asks what the party knew and could have done. Both reach a bar when a defendant has ignored a related claim, but only the estoppel route has a built-in place to excuse a defendant who never knowingly ignored it.
The same focus on conduct explains the most important relief valve. When an insurer controls the defense, the actual defendant may never have decided anything. The estoppel analysis affords a means of extricating a defendant who has never knowingly refrained from asserting a claim, a situation that matters particularly when an insurance company has controlled the defense of the first action.32 Some courts have declined to enforce the bar where the insurer agreed to a disposition without advising the insured about the compulsory counterclaim rule and without taking steps to preserve the insured’s reciprocal claim.33
Relief of this kind does not abandon the policy behind the rule. Disputes over reciprocal claims frequently turn on fault and therefore involve the same questions of fact and related questions of law, so the considerations that underlie compulsory counterclaim rules apply to these cases.34
An exam answer should state the sanction first, which is that the omitted compulsory claim is barred, and then name the theory the jurisdiction uses. It should then test the facts against the two questions the estoppel view adds. Did the first case end without a judgment? Did the defendant know of the claim, have a real chance to plead it, and stay silent anyway? A yes to both supports the bar, while a defendant who never knowingly stayed silent, particularly one whose insurer controlled the defense, may be relieved by courts that look to conduct.
Curing an Omitted Counterclaim
The sanction takes hold only when the first action proceeds to judgment,36 so a pleader who discovers the omission while the case is pending has two routes. A claim that matured or was acquired after the pleader served an earlier pleading comes in by supplemental pleading, which the court may permit under Rule 13(e).37 A claim that already existed when the pleading was served and was simply left out comes in by amendment. The Rules once had a separate provision for adding an omitted counterclaim, former Rule 13(f), which has been abrogated.38 Ordinary amendment under Rule 15 now covers the ground, and federal courts have commonly been generous in applying it to omitted counterclaims while the first action is still pending.39
That generosity follows from what a refusal costs. A compulsory counterclaim turned away from the pleading cannot be asserted afterward, and decisions that actually bar a claim for omission are remarkably few. Jurisdictions that make some counterclaims compulsory also let a party plead any other counterclaim, so a careful lawyer pleads every claim as a counterclaim, and the courts have power, liberally exercised, to permit amendment to assert an omitted compulsory counterclaim.40
A federal decision on a late counterclaim shows how a court weighs the request. The counterclaimant, CMAC, filed its pleading without first obtaining leave of court. Cabrera opposed it, arguing that discovery had begun, a deposition had been taken, and the counterclaim would unduly delay the proceedings. The court found that showing unsatisfactory, because mere delay is no reason to deny leave to file a supplemental pleading. Allowing the counterclaim would extend the trial somewhat, since Cabrera would raise defenses to it, but it was not apparent that the trial would need to be continued or any additional discovery undertaken.41 The court did not condone the unexplained failure to obtain leave, yet it was reluctant to strike the pleading while numerous questions about the status of the deficiency claim remained unanswered.42
Timing can still hurt a late pleader. When a court has entered a Rule 16 pretrial scheduling order, it may properly require a showing of good cause for leave to file an amended pleading that comes substantially out of time under that order.43 The scheduling order and the liberal amendment policy pull in different directions, and a pleader who ignores the deadline and offers no explanation gives the court nothing to weigh against it.
Limitations can look like another barrier to a counterclaim pleaded after the plaintiff’s suit has begun, but the majority view treats the plaintiff’s suit as stopping the clock. Although there is some conflict on the subject, the majority view appears to be that the institution of the plaintiff’s suit tolls or suspends the running of the statute of limitations governing a compulsory counterclaim.44 That approach prevents a plaintiff, when the claim and counterclaim are measured by the same period, from delaying suit until the statute has almost run on the defendant’s counterclaim so that it would be barred by the time the defendant advanced it.45 The plaintiff is not apt to be prejudiced, since he presumably has notice when he sues of any counterclaim arising out of the same transaction, and the close relationship between the claims should mean the counterclaim is not stale, because evidence and witnesses should be as accessible for it as for the main claim.46 The later unit on limitations takes this up in detail.
Courts can also set a counterclaim’s case aside without extinguishing it. In one reported dispute, the court continued a pretrial conference sine die and removed the case from the trial calendar, without prejudice to either party and subject to reinstatement, and the opinion calls that the present status of the “counterclaim.”47
Two state decisions suggest that courts look past labels and pleadings when the opposing party had notice. Harrington v. Harrington treated an issue tried by consent as if it had been pleaded, so the omission did not bar it. Kingston Pipe Industries, Inc. v. Champlain Sprinkler, Inc. treated a buyer’s damages theory, pleaded as an affirmative defense, as properly before the court because the seller had notice of it. Both apply state rules, so they illustrate the principle without binding a federal court.
The second step does the most work on a late motion, because a pleader who would satisfy the liberal standard on prejudice may still have to explain a deadline it ignored.
Preclusion Across Courts
The bar arrives by judgment, and the later suit does not always land in the court system that rendered it, so the first question is which system’s rule defined what the judgment closed. When a state court rendered the first judgment and a federal court decides its effect, federal courts must give the state judgment the same effect the rendering state would give it under 28 U.S.C. § 1738.49 The federal court therefore asks how the state’s law would treat the omitted claim, and Rule 13(a) does not decide the point. In a § 1983 case, the court framed the precise issue as whether the plaintiffs were required under Ark. R. Civ. P. 13(a) to assert their claim as a compulsory counterclaim in a prior state action; if so, they were barred by res judicata as construed by the Arkansas appellate courts.50
McKnight v. Dean shows how much turns on that choice. A client’s malpractice theory against his lawyer, Gingras, had been a defense in a state-court dispute over fees, and the client sought to shift it to federal court. The district judge reasoned that because the defense was a compulsory counterclaim, dropping it in the state court meant forfeiting it in all courts. The court of appeals answered, “Not so,” because federal courts must give a state judgment the effect the state would give it.51 The state-law test for barring the claim was not satisfied, because Gingras’s claim for fees could have survived a finding of malpractice if the value of his services exceeded the loss his malpractice imposed.52 In effect, the hinge was whether success on the malpractice claim would undo the fee judgment, and here it would not.
The rendering system may have no compulsory counterclaim rule at all. In some state systems counterclaims are not compulsory even when they arise out of the same transaction as the main claim, and without a rule requiring the counterclaim the defendant is not barred from starting a second action.53 The first judgment still carries whatever it actually decided. In Felger v. Nichols, a fee-then-malpractice sequence, the reasoning was that when both actions involve the same legal service, the adequacy of the representation is raised in both, directly or as a defense. A determination that the lawyer is entitled to a fee, made after the client produced evidence of inadequate representation as a defense, therefore bars a later malpractice suit.54 Escaping a counterclaim bar does not free a litigant from what the first court decided.
The reverse direction asks whether a court in another system must honor a bar that arose in a federal action, and the answer depends on how the compulsory counterclaim rule is conceived. If the rule is viewed as purely procedural, a court in a different jurisdiction should be free to hear the claim, because the rule has no effect outside the judicial system in which it applied.55 The estoppel and waiver theories, by contrast, rest the bar on the litigant’s own conduct and not on the first system’s procedure.56 The collision illustration earlier in this section reaches the second result: after a diversity case, neither federal nor state courts will hear the omitted property-damage claim.57
A defendant who omitted a claim sometimes answers that the first court could not have heard it. In federal court that answer rarely works. It is generally accepted that a compulsory counterclaim falls within the ancillary jurisdiction of the federal courts even if it would ordinarily be a matter for state court, while a permissive counterclaim must have an independent jurisdictional basis.58 In Moore v. New York Cotton Exchange, the Supreme Court sustained jurisdiction over a defendant’s compulsory counterclaim arising out of the same transaction as the plaintiff’s federal antitrust claim,59 even though the plaintiff’s claim had been dismissed for failure to state a claim and the counterclaim had no independent federal jurisdictional basis.60
Supplemental jurisdiction has since loosened the line further. One court of appeals concluded that § 1367 has displaced, rather than codified, the earlier view that a permissive counterclaim requires independent jurisdiction.61 Another vacated the dismissal of a permissive counterclaim and remanded for the exercise of discretion that § 1367 contemplates, reading the statute to require only a loose factual connection between the claims.62 That discretion runs both ways. In another case, the district court dismissed a counterclaim without prejudice under § 1367(c), which suited the counterclaimants fine, while the opposing party, preferring to stay in federal court, argued that the dismissal was an abuse of discretion.63
Where federal jurisdiction is exclusive, the problem moves to the state court. The federal district courts have original jurisdiction over civil actions arising under the Acts of Congress relating to patents, plant variety protection, copyrights, and trademarks, and that jurisdiction is exclusive of the state courts in patent, plant variety protection, and copyright cases.64 In Green v. Hendrickson Publishers, Inc., whether a state court could hear the defendants’ counterclaim depended on whether it was asserted in a “civil action arising under” the relevant federal statute.65
The first three steps do most of the work, because McKnight comes out as it does only once the rendering state’s test is stated and the second claim is measured against it. The fourth step keeps a student from treating the absence of a counterclaim bar as the absence of any preclusive effect.