Post by Jim on Jun 6, 2009 15:02:48 GMT -5
Compulsory and Permissive Counterclaims, Cross Claims
Civil Procedure -- Sample Chapter
A. SCOPE NOTE. [§7.0000]
The material in this chapter deals with the special procedures for joinder of claims and parties by way of counterclaim, cross-claim, and third-party (or impleader) claim. These terms will be used throughout this discussion rather than the more generic and less precise term "cross-complaint. " The next chapter will discuss three additional joinder devices â€" class actions, intervention, and interpleader.
B. COUNTERCLAIMS: DEFINITION. [§7.1000]
A counterclaim generally is described as any affirmative claim for relief that a pleader asserts as part of his or her defensive pleading against an opposing party.
1. Origin of the Counterclaim. [§7.1100]
The modern counterclaim is a direct descendant of two common law procedures â€" recoupment and set-off. Recoupment involved any claim the defendant had against the original plaintiff arising out of the transaction that formed the basis of the plaintiff's claim. The set-off was any claim for a liquidated amount the defendant had against the plaintiff, whether or not it arose out of the same transaction as the plaintiff's claim (the requirement that it be for a liquidated amount severely limited the set-off's utility). Both recoupment and set-off were completely defensive and relief could be awarded only up to the amount the plaintiff recovered on the original claim.
2. Development of the Counterclaim. [§7.1200]
The counterclaim was substituted for recoupment and set-off during the nineteenth century. Most state codes, however, limited the pleader to certain specified types of counterclaims. The most common types of counterclaims were those that arose out of the same transaction as did the plaintiff's claim, for liquidated sums and for specified causes of action, such as contract or certain tort claims. The contemporary counterclaim provision, typified by Federal Rule 13, does not limit the nature or the subject matter of the counterclaim in any way and permits the defendant to recover any relief to which he or she is entitled regardless of the disposition of the plaintiff's claim.
3. "Opposing Party." [§7.1300]
Most counterclaim rules limit the availability of the counterclaim by providing that it must be asserted against an "opposing party," although additional parties may be added [see §7.4000]. In general, this means that there must be an adversarial relationship between the two litigants. Thus, a counterclaim usually is improper between co-parties (e.g., between co-plaintiffs or co-defendants) . Moreover, if a party sues or is sued in one capacity, that litigant cannot counterclaim or be counterclaimed against in another capacity because the required "opposing-party" relationship would not exist.
a. Illustration 1. [§7.1310] A sues B and C for injuries arising out of a three-car collision. B counterclaims against A, and C counterclaims against A; in each case the counterclaimant alleges that the other driver was at fault. Both the B v. A and C v. A counterclaims satisfy the opposing-party requirement. However, if B asserts a claim against C, it will not be a counterclaim because the "opposing-party" requirement is not satisfied â€" they are co-defendants. The B v. C claim will be a cross-claim [see §7.3000].
b. Illustration 2. [§7.1320] An action is brought against a city tax official on the ground that she allegedly caused the unlawful arrest and detention of the plaintiff for non-payment of taxes. The tax official will not be permitted to assert a counterclaim on behalf of the city for the recovery of those taxes inasmuch as the suit was brought against the official in her individual capacity and the counterclaim would be asserted in her official capacity.
4. Permissive and Compulsory Counterclaims Distinguished. [§7.1400]
Federal Rule 13, and the rules of a number of states, distinguish between permissive and compulsory counterclaims. A compulsory counterclaim is one that arises out of the same transaction or occurrence or series of transactions or occurrences as does the claim previously asserted by the party against whom the counterclaim is interposed. A permissive counterclaim is any counterclaim that does not arise out of the same transaction or occurrence as does the claim originally asserted by the opposing party. In jurisdictions drawing a distinction between compulsory and permissive counterclaims, parties are required to assert any compulsory counterclaim that they may have against opposing parties; if they fail to do so the claim cannot be brought as a separate action [see §7.1700]. Conversely, a party is not required to assert a permissive counterclaim.
a. Illustration 1. [§7.1410] Drivers A and B are involved in a two-car collision. Subsequent to the collision, A meets B on the street and strikes him out of anger over the accident. A then sues B for personal injuries and property damage. Any claim that B might have against A for personal injuries or for damages to his car caused by the accident would be a compulsory counterclaim since it would arise out of the same transaction or occurrence as did the plaintiff 's claim. B's claim against A for assault and battery would not be compulsory since it arose out of a separate event that occurred at a different time and place; it would be a permissive counterclaim.
b. Illustration 2. [§7.1420] A agrees to manufacture and deliver to B ten automobiles, which are to be used as taxicabs. After the vehicles are delivered, A sues B claiming that B has failed to pay the agreed upon purchase price. B counterclaims against A for breach of warranty and negligent manufacture of the taxicabs. Most courts would consider this to be a compulsory counterclaim to A's action for the purchase price. The same conclusion also might be reached even if the defects in the taxicabs became apparent as a result of the failure of the taxicabs to function properly some time after their
delivery to B. Any counterclaim that B might have against A for breach of warranty relating to a different contract for the purchase of other vehicles would be permissive only, even if the contract was identical to the contract involved in A's claim for non-payment.
5. Compulsory-Permissi ve Distinction Analyzed. [§7.1500]
Because there is no precise definition of what constitutes a single transaction or occurrence or a series of transactions or occurrences, in many situations it is difficult to determine whether a counterclaim is compulsory or permissive. The courts usually approach the problem in a pragmatic fashion. Thus, many courts say that if there is a significant overlap in the evidence required to establish the original claim and that needed to prove the counterclaim, the requisite nexus exists and the counterclaim should be deemed compulsory. The theory is that efficiency and economy would be served by adjudicating the two claims together. However, complete identity of proof between the claim and the counterclaim is not necessary. Thus, for example, differences in damage elements or standards of liability will not normally defeat the application of the compulsory counterclaim rule.
a. Logical Relationship Test. [§7.1510]
The most widely accepted test for determining whether a counterclaim should be classified as compulsory or permissive is the logical relationship test. If a counterclaim is logically related to the original claim, the two are said to be within the transaction or occurrence and the counterclaim is compulsory. The flexibility and generality of this test gives the court an opportunity to label a claim compulsory whenever it can profitably be litigated simultaneously with the opposing party's claim and it would be reasonable for the parties to do so.
6. Separate Trial of Compulsory or Permissive Counterclaims. [§7.1600]
In theory, jurisdictions that broadly define the right to counterclaim permit any claim a pleader has against an opposing party to be asserted as a permissive counterclaim. However, the court always has authority to separate a permissive counterclaim from the main claim and order separate trials when it appears that confusion or prejudice will result from trying the claims together. This is a special risk when a jury trial is involved. The court also has the power to order a separate trial of a compulsory counterclaim but this will be a rare occurrence.
7. Effect of Failing to Assert a Compulsory Counterclaim. [§7.1700]
A party who does not interpose a compulsory counterclaim generally is prohibited from asserting the same claim in a subsequent action. This means that the omitted counterclaim cannot be asserted in a later action, either for affirmative relief or as a counterclaim â€" compulsory or permissive â€" in another action brought by the same plaintiff.
a. Rationale of Practice. [§7.1710]
The prohibition against the subsequent assertion of an omitted compulsory counterclaim is in the nature of an estoppel or waiver based on the culpable conduct of the litigant who failed to raise the counterclaim as required by the rule. The estoppel will not be applied in all cases. For example, if the defense of the first action was controlled entirely by the defendant's insurance company but the insured had no knowledge of the opportunity and obligation to interpose a compulsory counterclaim, he will be permitted to assert it in a subsequent action. It should be understood that the barring effect of failing to assert a compulsory counterclaim is not the result of any principle of res judicata or collateral estoppel. [See Chapter Sixteen for a discussion of former adjudication. ]
b. Limitations on the Effect of Failing to Assert a Compulsory Counterclaim. [§7.1720]
Although there is some uncertainty on the matter, the waiver or estoppel principle described in the preceding section normally is thought to apply only within the court system in which the original action was instituted. Thus, for example, a party who fails to assert a compulsory counterclaim in a federal court action definitely will be prevented from asserting that claim affirmatively or by counterclaim in an action in the same or any other federal court. However, the defaulting litigant may be able to assert it in a subsequent state court proceeding. State court decisions have been divided on whether to give effect to the federal compulsory counterclaim rule; several have held that the failure to assert a compulsory counterclaim in a federal court action bars the subsequent assertion of that claim in a state court. To date it has not been definitively determined whether the application of one court's compulsory counterclaim rule must be given effect by all other courts under the Full Faith and Credit Clause of the United States Constitution.
c. Assertion of Counterclaim in a Separate Action. [§7.1730]
A separate action filed in the same court system will be dismissed if the claim asserted therein should have been interposed as a compulsory counterclaim in an earlier action. If the initial action is still awaiting trial, the court, in its discretion, may consolidate the two cases or allow the new claim to be asserted as a counterclaim. When the action asserting the counterclaim is brought in another court system, the court in which the initial suit was brought will not enjoin the counterclaimant from pursuing the second claim because of the natural desire not to interfere with the functioning of another court system. However, the original plaintiff, who is the defendant in the action involving the counterclaim, may apply for a dismissal or a stay of the second action in the court that is hearing it.
(1) Illustration. [§7.1731] A brings suit against B in a federal court for damages resulting from an automobile collision. B then sues A for personal injuries in a different federal court for personal injuries sustained in the same collision. B also brings suit against A in a state court for damages to his automobile arising out of the accident. The federal court having jurisdiction over A's claim will enjoin B from proceeding further with his personal injury claim in the other federal court, but will not attempt to enjoin B from proceeding in the state court action.
d. Exceptions to the Requirement of Asserting Compulsory Counterclaims. [§7.1740]
The obligation of a party to assert a compulsory counterclaim is subject to certain commonly recognized exceptions such as those contained in Federal Rule 13. For example: (a) A party does not have to assert a counterclaim that does not exist at the time he or she serves a responsive pleading. (b) The counterclaim need not be asserted when it necessitates the joinder of third parties over whom the court cannot acquire jurisdiction for its proper adjudication. "Jurisdiction" in this context means personal jurisdiction, rather than subject matter jurisdiction, inasmuch as compulsory counterclaims fall within the "supplemental" jurisdiction of the federal courts [see §7.2100]. (c) A counterclaim will not be treated as compulsory if it is the subject of another pending action, as long as the other action was pending at the time the action in which the counterclaim should be asserted was filed. If a party prefers, he or she may abandon the initial action in order to assert that claim as a counterclaim in the second action. (d) A counterclaim need not be asserted when the jurisdictional basis of the main action is attachment or garnishment; it is considered unfair to require a defendant to assert a counterclaim when the court does not have jurisdiction over the defendant's person but merely has jurisdiction over his property. This exception will be lost, however, if the defendant does assert a counterclaim against the opposing party. Thus, if any counterclaim is interposed, all compulsory counterclaims must be asserted.
(1) Illustration 1. [§7.1741] A brings suit against B on a sham and frivolous theory of relief. B's compulsory counterclaim for abuse of process based on A's lawsuit need not be asserted in many jurisdictions because a claim for abuse of process does not come into existence until the original sham action has been terminated.
(2) Illustration 2. [§7.1742] A sues B for non-payment of the agreed upon purchase price for a shipment of a certain kind of transistors. B believes that A and X have artificially rigged the price of these transistors. If the court cannot acquire personal jurisdiction over X, however, B need not interpose a compulsory counterclaim for damages in the contract action.
e. Judicially Created Exceptions to the Compulsory Counterclaim Rule. [§7.1750]
A court has inherent authority to allow an omitted counterclaim to be interposed. This power is exercised by allowing the late assertion of the claim in the same action in which the counterclaim should have been advanced or in a separate action. Typically, the discretion is exercised in situations in which doing so would further some other policy, such as the efficiency of the system, or simply to assure that justice is done.
(1) Illustration. [§7.1751] A, a door manufacturer, sues B, a builder, in a New York federal court for non-payment for 10,000 doors delivered to B in that state, and also sues in a Maine federal court for non-payment for 10,000 doors delivered to B in that state. The doors were the subject of a single integrated contract between the parties. B believes that all of the doors are defective. Since B has a single compulsory counterclaim to the two suits pending in different jurisdictions, it may assert the counterclaim in either litigation; it is not obliged to assert the counterclaim in the first suit filed [see Southern Construction Co. v. Pickard (1962)].
8. Counterclaims for Declaratory Relief. [§7.1800]
A pleader may seek declaratory relief by way of counterclaim and the claim will be treated as compulsory or permissive depending upon whether it arises out of the same transaction or occurrence or the same series of transactions or occurrences that form the basis of the original claim.
The modern counterclaim creates a number of procedural difficulties that always must be kept in mind in analyzing a counterclaim problem.
1. Supplemental Jurisdiction: Compulsory Counterclaims. [§7.2100]
It is now well established that a federal court has supplemental jurisdiction over a compulsory counterclaim. [See §2.5000-§2.5530 for a discussion of supplemental jurisdiction. ] Thus, for example, if the plaintiff's claim is based on federal question jurisdiction, the federal court may assert jurisdiction over a compulsory counterclaim even though it does not involve a federal question and there is not diversity of citizenship between the litigants. Supplemental jurisdiction also extends to compulsory counterclaims for less than the requisite amount in controversy. Many states that draw the compulsory-permissi ve counterclaim distinction also have special provisions or judicial practices that automatically extend a court's subject matter jurisdiction to embrace compulsory counterclaims.
a. Illustration. [§7.2110] A of New York sues B of New York alleging that B has violated the federal antitrust laws by engaging in contracts that are in restraint of trade. B counterclaims for A's non-performance of one of the contracts that is the subject of A's suit and asks for $6,000 in damages. The counterclaim is compulsory and there is supplemental jurisdiction over it even though it fails to satisfy the federal question, diversity of citizenship, and amount in controversy requirements for federal subject matter jurisdiction.
2. Supplemental Jurisdiction: Permissive Counterclaims. [§7.2200]
Supplemental jurisdiction does not extend to permissive counterclaims in the federal courts. Nevertheless, invoking the common law recoupment and set-off practices [see §7.1100], some state and federal courts have allowed jurisdiction over permissive counterclaims in the absence of an independent basis for subject matter jurisdiction when they were asserted to offset an opponent's claim rather than for affirmative relief.
3. Jurisdiction over the Person and Venue. [§7.2300]
A court with personal jurisdiction over the defendant and venue as to the original claim normally is held to have personal jurisdiction over the plaintiff and venue with regard to any counterclaim that might be interposed. Once the plaintiff has invoked the jurisdiction of the court for purposes of bringing the original action, that plaintiff has consented to the court's power for purposes of any claims asserted against him or her by the defendant. This is true even if the original plaintiff is not a resident of the forum and would not have been subject to jurisdiction if the counterclaim were an original action. The conclusion may not be the same, however, when the counterclaim is asserted by someone not originally sued by the plaintiff, such as an intervenor. The law is unsettled on the point.
4. Pleading Counterclaims. [§7.2400]
A party asserting a counterclaim, whether compulsory or permissive, is obliged to satisfy all of the pleading rules applicable to the statement of a claim [see §5.4000-§5.4342; §5.7000-§5.7210]. Since a counterclaim normally is included in a responsive pleading, it should be labeled as a counterclaim in order to distinguish it from the pleader's defenses to the original action. Moreover, a plaintiff need respond to a defendant's counterclaim only when the latter is labeled as such. Most procedural systems give the trial judge discretion to ignore any mislabeling or non-labeling of the counterclaim [see §5.7200]. A counterclaim is subject to the same challenges as is any other claim for relief. [Challenges to pleadings are discussed in §5.8000-§5.8422.]
a. Counterclaim in a Reply. [§7.2410]
If the defendant's answer contains a counterclaim to which the plaintiff himself has a counterclaim â€" usually a compulsory counterclaim â€" the latter's counterclaim may be asserted in a reply. Perhaps the better practice is for the plaintiff to amend the original complaint to assert the claim, assuming, of course, that there is an independent subject matter jurisdiction basis for it.
5. Effect of a Counterclaim on the Statute of Limitations. [§7.2500]
When the plaintiff files a claim against the defendant, most courts hold that the statute of limitations ceases to run on any counterclaims, permissive or compulsory, that the defendant later imposes in the responsive pleading. The rationale is that the courts do not want to force the defendant to rush to file an answer simply because the statutory period is about to expire. The situation is quite different, however, when the plaintiff commences the action after the statute of limitations on the counterclaim already has run. Although there is some authority to the effect that compulsory counterclaims may be maintained in such a situation, it is clear that permissive counterclaims cannot. In some states, special statutes provide that the defendant's claim for money damages, even though barred when the plaintiff's suit was filed, may be asserted as an offset to any damages awarded the plaintiff, but affirmative relief is not allowed. In addition, the Supreme Court has held that a defendant may raise a claim by recoupment even when the claim, if brought independently, would be barred by the applicable statute of limitations, unless Congress has clearly and expressly provided otherwise.
6. Jury Trial. [§7.2600]
The fact that a claim is asserted by way of counterclaim does not affect the right to trial by jury. As is discussed in the material on jury trial [see §13.4000-§13.4500], it now is clear in the federal courts and in a number of states that asserting a legal counterclaim to an equitable claim does not result in a waiver of the counterclaimant' s right to a jury trial.
7. Appealability of Rulings Relating to Counterclaims. [§7.2700]
In a jurisdiction following the final judgment rule [see §15.1000], an appeal cannot be taken from a refusal to dismiss a counterclaim. The court's order is interlocutory and must await the rendition of a final judgment. The same is true of an order dismissing a counterclaim. In courts following the federal practice under Rule 54(b), however, the judge may direct the entry of a final judgment on a counterclaim and this will be appealable immediately if the court determines that there is no just reason for delaying the entry of that judgment [see §15.1310].
D. CROSS-CLAIMS: DEFINITION. [§7.3000]
A cross-claim is a claim asserted by one party against a co-party.
1. Theory and Purpose of Cross-Claims. [§7.3100]
The cross-claim procedure is designed to avoid multiple litigation between or among the parties to the action by allowing co-parties to adjudicate some or all of the claims they may have against each other. Since cross-claims generally arise from the same transaction or occurrence as the original dispute [see §7.3240], another major objective is to determine all controversies having a significant evidentiary overlap in a single proceeding.
a. Illustration. [§7.3110] A sues B and C for injuries arising out of a three-car collision. B may cross-claim against C for damages B has sustained in the accident. Suppose, however, that B seeks only to cross-claim against C for breach of a contract to buy and sell Blackacre. The cross-claim will be disallowed if the jurisdiction only permits transactionally related cross-claims.
2. Requirements for Cross-Claims. [§7.3200]
In most jurisdictions a cross-claim must (a) be asserted against a co-party, (b) seek affirmative relief from that party, (c) be asserted by a party against whom a claim already has been asserted, and (d) arise out of the same transaction or occurrence as the original claim, or any counterclaim in the action, or relate to property that is the subject of the action [see Federal Rule 13(g)].
a. Co-Parties. [§7.3210]
A cross-claim may be asserted only against someone who already is a co-party of the cross-claimant, although additional parties may be added [see §7.4000]. This permits cross-claims between plaintiffs, defendants, third-party defendants, and, possibly, between intervenors. Since a cross-claim may be asserted only against a co-party, it should be distinguished from a counterclaim, which may be asserted only against an opposing party in the action [see §7.1300].
(1) Illustration. [§7.3211] A brings an action against B and C. B then asserts a claim against D, who is added as a party to the action. Most jurisdictions would conclude that this is not a proper cross-claim since a cross-claim may be asserted only between parties on the same litigation level â€" that is, only between B and C. Because D is not on the same level of litigation as B and C, no cross-claim may be asserted between B and D or C and D. These claims might be proper third-party or impleader claims, however [see §7.5000-§7.5910].
b. Nature of Relief Available. [§7.3220]
A cross-claimant may seek any relief that he or she would have sought had the claim been brought as an independent lawsuit. In addition, under the rules of most jurisdictions, the cross-claimant may assert that the co-party against whom the cross-claim is brought is liable for all or part of any judgment awarded to the plaintiff against the cross-claimant.
(1) Illustration. [§7.3221] A sues B and C for breach of contract. A claims damages from B due to B's negligent manufacture of goods sold to A. A alleges C is liable for late delivery of the goods to A. C files a cross-claim against B in which she alleges that B's failure to finish the goods on time was the sole cause of C's later delivery to A. C prays that B should be required to indemnify C for any award A obtains against C. B's motion to dismiss the cross-claim as improper will be denied.
c. Right of One Co-Plaintiff to Cross-Claim against Another. [§7.3230]
Although co-plaintiffs technically come within the language of the typical cross-claim rule, it has been held that a cross-claim cannot be asserted between co-plaintiffs unless a claim has been asserted against them. This means that a cross-claim is proper only after the defendant interposes a counterclaim against the plaintiffs.
(1) Illustration. [§7.3231] Plaintiffs A, B, and C join in an action against D. D asserts a compulsory counterclaim against A and B. A cross-claims against B for contribution. B cross-claims against C for indemnity on the claim asserted by A against B. If it meets the transaction or occurrence requirement [see §7.3240], A's cross-claim is proper because a counterclaim has been asserted against him. However, B's cross-claim against C might not be proper because D's counterclaim was only against A and B, which means that B and C were not co-parties to it. Similarly, A's cross-claim was only against B, which means that B and C were not co-parties to it.
d. Transaction or Occurrence Test. [§7.3240]
Most jurisdictions limit the scope of the cross-claim to disputes arising out of the same transaction or occurrence that forms the basis of the original claim or a counterclaim in the action [see, e.g., Federal Rule 13(g)]. The test that is applied appears to be identical to that used to define compulsory counterclaims. Accordingly, the discussion of the transaction or occurrence test in the counterclaim context applies to cross-claims [see §7.1400-§7.1510].
(1) Illustration 1. [§7.3241] Upon a seller's failure to consummate a contract to sell Blackacre, the purchaser deposits the contract price with a stakeholder. Finding that there are inconsistent claims to the fund deposited with him, the stakeholder institutes an interpleader action against both the purchaser and the seller. A cross-claim by the purchaser against the seller, both of whom are now co-parties, seeking specific performance of the contract would be proper.
(2) Illustration 2. [§7.3242] An insurer brings an action for a declaration of non-liability under an automobile policy against the insured and the person driving the car at the time of the accident. A cross-claim by the insured against her co-defendant alleging that the vehicle involved had been loaned to the co-defendant and seeking a declaration that the vehicle was not under the control of the cross-complainant at the time of the accident would be proper.
(3) Illustration 3. [§7.3243] The United States brings an antitrust action against several companies alleging a conspiracy in restraint of trade. One defendant attempts to cross-claim against another defendant to recover royalties paid under an allegedly invalid patent licensing agreement. If the antitrust suit involves activities by the parties not directly related to the contract, the cross-claim is not proper. The key is whether the cross-claimant' s action for royalties would involve entirely different issues and evidence from the government's antitrust action and whether the cross-claim might simply confuse or prejudice the trial of the main action.
3. Federal Jurisdiction and Venue over Cross-Claims. [§7.3300]
The federal courts generally have held that cross-claims, because of their transactional relationship to the main claim, fall within the supplemental subject matter jurisdiction of the court and independent jurisdiction need not be established over them. [See §2.5000-§2.5530 for a discussion of supplemental jurisdiction. ] Of course, if the original claim fails for lack of subject matter jurisdiction, the cross-claim will have to be dismissed as well. Since the parties to the cross-claim are already before the court, problems of personal jurisdiction do not arise. Finally, if venue over the original action is proper, the court also will have supplemental venue over a cross-claim, even though venue would not exist if the cross-claim were an independent action.
4. Other Procedural Matters. [§7.3400]
A cross-claim is treated as is any other claim for relief with regard to pleading, discovery, jury trial, declaratory relief, appealability, and other procedural matters.
5. State Practice. [§7.3500]
In some states, a cross-claim is denominated a cross-complaint and is considered a separate and distinct pleading from the defendant's answer. If the cross-complaint is filed simultaneously with the answer, it may be submitted without leave of court; otherwise, leave of court must be obtained before a cross-complaint may be interposed. In other aspects, the rules pertaining to cross-complaints between co-parties are similar to the rules governing cross-claims.
6. Cross-Claims and the Statute of Limitations. [§7.3600]
As is true with regard to counterclaims [see §7.2500], the filing of the plaintiff's complaint tolls the statute of limitations for any cross-claims between co-parties. As long as the plaintiff's complaint was filed prior to the time the statute ran on the cross-claim, the cross-claim will be timely. If, however, the limitations period on the cross-claim lapsed before the plaintiff filed the action, the cross-claim will be barred.
E. JOINDER OF ADDITIONAL PARTIES TO COUNTERCLAIMS AND CROSS-CLAIMS. [§7.4000]
Modern counterclaim and cross-claim rules typically provide that persons other than those who are parties to the original action may be added as parties to a counterclaim or cross-claim to assure that they are fully adjudicated in a single action [see, e.g., Federal Rule 13(h)].
1. Practice Relating to Additional Parties to Counterclaims and Cross-Claims. [§7.4100]
Provisions for the addition of new parties to a counterclaim or cross-claim generally allow the joinder of anyone who could have been joined under the applicable permissive joinder rule [see §6.4000] had the counterclaim or cross-claim been brought as an original action. The added party will be aligned with regard to the counterclaim or cross-claim phase of the action in accordance with his or her actual interest in that dispute. A party may not be added unless the claim against that person also is asserted against someone who already is a party to the counterclaim or crossclaim. The joinder of an additional party to a counterclaim or cross-claim should be distinguished from the addition of a third-party complaint or impleader claim [see §7.5000-§7.5910].
a. Illustration. [§7.4110] A and B are involved in a two-car collision. A sues B for personal injuries and property damage. B counterclaims against A for property damage and personal injuries arising out of the same accident, and seeks to add C as an additional party to the counterclaim on the ground that C also was involved in the collision. Joinder of C will be permitted.
2. Jurisdiction and Venue over Additional Parties. [§7.4200]
In jurisdictions that distinguish between compulsory and permissive counterclaims, supplemental subject matter jurisdiction typically extends to additional persons brought into the action to facilitate the complete adjudication of a compulsory counterclaim. This is not true of persons joined to litigate a permissive counterclaim. Additional parties to cross-claims, whose claims by definition arise from the same transaction as the original claim, usually are held to fall within the court's supplemental jurisdiction. Personal jurisdiction must be acquired over an additional party to a compulsory or permissive counterclaim or to a cross-claim. As is true of subject matter jurisdiction, the principle of "supplementality" normally applies to give the court venue over compulsory counterclaims and cross-claims but not to permissive counterclaims.
3. Additional Parties and the Statute of Limitations. [§7.4300]
Unlike the situation with regard to the original parties in the suit [see §7.2500; §7.3600], the date on which plaintiff files the initial action does not affect the running of the statute of limitations on claims against additional parties to counterclaims and cross-claims. The statute of limitations continues to run until the time the action is commenced against such individuals, which in most jurisdictions means the filing of a counterclaim or cross-claim naming them as parties. In a few jurisdictions the statute runs until the time the new parties are served with process. It would be grossly unfair to permit a counterclaim or cross-claim to override the statute of limitations by allowing a claim against an additional party that would have been barred by the statute of limitations had it been asserted in a separate action.
F. THIRD-PARTY CLAIMS. [§7.5000]
Third-party practice, sometimes called impleader, permits a defendant (the third-party plaintiff) to join a person who was not originally a party to the suit (the third-party defendant) when the defendant believes that the impleaded party is primarily liable for all or part of the original plaintiff's claim against the defendant. This process is intended to avoid circuity of actions, to facilitate the adjudication of all disputes arising out of a single factual setting, and to eliminate the possible time lag between the plaintiff's judgment against the defendant and a judgment in the defendant's favor against the third-party defendant.
1. Historical Development. [§7.5100]
Modern third-party practice, typified by Federal Rule 14, is the descendant of the English common law practice of "vouching to warranty." This technique enabled a defendant who was sued by a plaintiff for the recovery of property to call upon a third party to defend the action when the third party had given defendant a warranty of title at the time the property was sold to the defendant. An analogous, but expanded, pratice found its way into American law in admiralty suits. From these beginnings, some state codes fashioned a procedure permitting any defendant to bring in an outsider who was liable to him or her for any liability that defendant had to plaintiff on the plaintiff's claim.
2. When a Third-Party Action Is Proper. [§7.5200]
A third-party claim is proper when the third-party defendant is alleged to be liable to the third-party plaintiff for all or part of the original claim. The theory of the third-party claim may be indemnity, subrogation, contribution, or breach of warranty. On the other hand, impleader is inappropriate when the third-party defendant's liability to the third-party plaintiff is direct rather than derivative to the defendant's claim.
a. Illustration. [§7.5210] P brings suit for personal injuries resulting from a malfunctioning door on a boxcar that had been delivered by D, a railroad company. P alleges that D's employee had negligently placed the boxcar. D claims that the workers who had located the car and were unloading it at the time of the injury to P were in the employ of a third party and that, as a consequence, the third party and not the defendant was liable to the plaintiff on the theory of respondeat superior. The third-party claim will not be allowed since the liability asserted is not derivative in nature.
b. Necessity That Derivative Liability Be Recognized by Governing Law. [§7.5220]
A third-party claim will not be allowed if the governing substantive law does not recognize the particular kind of derivative liability asserted by the third-party plaintiff. A federal court sitting in diversity of citizenship jurisdiction will look to the forum state's law to see if it recognizes the substantive claim being asserted. If it does, impleader will be proper in a federal court even though the governing state law does not permit third-party practice [see also §7.5330].
(1) Illustration. [§7.5221] A sues B in a federal court diversity action in State X alleging that she has been injured as a result of B's negligent driving. B seeks to implead C, another driver who was involved in the accident, seeking contribution to A's potential recovery. If the law of State X does not recognize contribution between joint tortfeasors or requires that they be sued together and a joint judgment obtained against them before a right of contribution arises, the third-party claim must be dismissed.
c. Contingent Liability. [§7.5230]
There is no requirement that the liability of the third-party defendant be fixed or certain at the time impleader is sought. Thus, a defendant may bring in a third party who may be liable for the plaintiff's claim as long as the defendant's claim will accrue if the plaintiff succeeds in the action against the defendant or when the plaintiff's claim is satisfied.
(1) Illustration. [§7.5231] P brings suit in a federal court for damages resulting from the consumption of allegedly contaminated meat purchased from D. D seeks to implead its supplier. The third-party defendant resists its inclusion in the action, asserting that a federal court sitting in diversity jurisdiction must look to the forum state's substantive law, and that the applicable state law requires that a defendant satisfy the claim against it before a cause of action can be asserted against a third party on the basis of derivative liability. Permitting the third-party claim will only accelerate in time the determination of the liability of the third-party defendant and therefore it is proper. Furthermore, a conditional judgment may be entered against the third-party defendant even though it will not become effective until after the original defendant satisfies the judgment on the main claim.
d. Discretion of the Court. [§7.5240]
The court has discretion to disallow a technically proper third-party complaint, although this discretion is rarely used. However, if at any point in the case it appears that the continued joint litigation of the claims either is not in the interest of judicial economy or would result in prejudice to one or more of the parties, the court may order the claim stricken, severed, or tried separately. This might occur if the court believes that the third-party claim is being asserted by the defendant for the purpose of inducing the jury to think that the third party â€" a relatively impecunious person â€" will have to pay any verdict that might be awarded.
(1) Illustration. [§7.5241] P sues a trucking firm to recover for personal injuries resulting from a collision between P's automobile and D's truck. D seeks to implead the driver of the truck, D's employee, whose negligence allegedly caused the accident. Even though D may have a right of indemnity against the driver, the court may deny the third-party claim if, for example, the driver is insolvent and the only reason for his inclusion is to arouse juror sympathy by encouraging them to think that the driver would have to bear the judgment.
3. Procedure for Asserting a Third-Party Claim. [§7.5300]
To interpose a third-party claim, a litigant serves a summons and third-party complaint upon the third-party defendant. If the defendant acts expeditiously (e.g., including the cross-claim with the answer), leave of court usually is not required; otherwise, leave of court is necessary.
a. Who May Assert a Third-Party Claim. [§7.5310]
Although third-party practice typically is used by the original defendant, contemporary procedural rules permit a plaintiff against whom a counterclaim has been asserted to implead a third party who is or may be liable for all or part of the original defendant's counterclaim. Moreover, the third-party defendant may implead a person claimed to be liable on the defendant's third-party claim â€" usually called a fourth-party defendant. This might occur in a products liability case in which liability ultimately may fall on a component-part manufacturer.
b. Persons against Whom a Third-Party Claim May Be Asserted. [§7.5320]
Third-party claims are asserted only against persons who are not already parties to the litigation. Counterclaims and cross-claims are the proper procedures to be invoked against those who already are parties to the action.
c. Impleading Persons Who Could Not Be Sued Directly. [§7.5330]
Although there has been some confusion whether a third-party plaintiff can implead an outsider who could not have been sued directly by the original plaintiff, the practice now appears to be accepted since the benefits of the third-party action inure to the third-party plaintiff, not the original plaintiff. Thus, it has been held that a defendant can implead the plaintiff's employer in a federal court action even though the forum state's compensation act would have prevented the plaintiff, an employee, from suing her employer directly. Furthermore, there are cases holding that a person may be impleaded even though the statute of limitations would have barred an action against him or her by the original plaintiff because a right of indemnity or subrogation does not arise until the third-party plaintiff has been held liable on the original claim. On the other hand, a third-party claim against a member of the plaintiff's immediate family, such as a spouse or child, is not permitted in jurisdictions that require a joint judgment respecting a family unit or in jurisdictions that prohibit actions between family members. [See also §7.5220.]
(1) Illustration. [§7.5331] P brings a tort action more than two years after the relevant conduct occurred. D impleads the United States government on an indemnification theory. Although the two-year statute of limitations has run, thereby barring P's claim against the government, D's third-party claim did not accrue until he was sued by P and should not be barred.
4. Rights of a Third-Party Defendant. [§7.5400]
The third-party defendant may interpose any defenses that he or she has against the third-party claim, and under Federal Rule 14 and similar state provisions, may assert any available counterclaims against any defendant or any cross-claims against any co-third-party defendants. In addition, any defenses that the third-party plaintiff may have against the plaintiff's original claim may be advanced by the third-party defendant. [See also §7.5600.]
5. Plaintiff's Rights against a Third-Party Defendant. [§7.5500]
Many third-party practice rules permit the original plaintiff to assert a claim against the third-party defendant as long as that claim arises out of the same transaction or occurrence as does the plaintiff's claim against the original defendant. [See Rule 14(a).]
a. Illustration. [§7.5510] A purchaser of a nightgown brings suit against the store from which the garment was bought for injuries sustained when it burst into flames. The store brings in the manufacturer of the gown by way of third-party complaint. The original plaintiff may now assert a claim directly against the third-party defendant based on the latter's negligent manufacture of the nightgown.
6. Third-Party Defendant's Rights against an Original Plaintiff. [§7.5600]
Third-party practice rules often permit a third-party defendant to assert a claim against an original plaintiff as long as it arises out of the same transaction or occurrence as the plaintiff's claim against the original defendant. Because Federal Rule 14 omits the words "may be liable" from the sentence governing the third-party defendant's rights against the original plaintiff, it has been thought that a third-party' s claim against the plaintiff need not be contingent in nature.
7. Federal Subject Matter Jurisdiction. [§7.5700]
If each third-party claim were required to satisfy all subject matter jurisdiction requirements, third-party practice would be severely restricted. Thus, the federal courts have applied supplemental jurisdiction to some, but not all, of the claims that may arise as part of third-party practice. [Supplemental jurisdiction is discussed in §2.5000-§2.5530.]
a. Third-Party Claims. [§7.5710]
If a third-party claim arises out of the core of operative facts that gave rise to the original claim, then a court having jurisdiction over the main claim may assert supplemental subject matter jurisdiction over the third-party claim. Virtually all third-party claims will satisfy this criterion because it is almost certain that the evidence adduced concerning the plaintiff's original claim will overlap substantially with the evidence relating to the third-party claim. In keeping with the limitations on supplemental jurisdiction [see §2.5430], most federal courts will dismiss a third-party claim if the main claim is dismissed before reaching trial. A court does have discretion not to dismiss, however, and will consider the fairness and judicial efficiency of retaining or terminating the ancillary action.
(1) Illustration. [§7.5711] A of New York sues B of New York for $6,000 in a federal court under the federal Patent Act for infringement of A's patent on a certain product. B impleads C, also of New York, on an indemnification theory alleging that C supplied B the allegedly infringing items. Despite the absence of a federal question or diversity of citizenship or the requisite amount in controversy for diversity cases, the federal court has supplemental jurisdiction over the third-party claim.
b. Other Claims against a Third-Party Defendant. [§7.5720]
Modern procedural rules permit a defendant to join with a third-party claim any other claims he or she may have against the third-party defendant. If such an additional claim arises out of the same transaction or occurrence as does plaintiff's claim against the defendant, the usual principles of supplemental jurisdiction will apply. Otherwise, a claim added against a third-party defendant must have an independent jurisdictional base.
(1) Illustration. [§7.5721] A sues B for injuries arising out of the malfunction of a lawn-mower sold by B. B impleads C, the lawn-mower manufacturer, claiming that the latter's negligence makes C liable for all or part of A's claims against B. B also joins a claim against C for lost profits resulting from bad publicity about the lawn-mower accident, and a claim for breach of a contract to deliver a shipment of garden tillers. The claim for lost profits probably is within the same transaction or occurrence as A's claim and supplemental jurisdiction will apply. The contract claim, however, is transactionally unrelated to A's claim, and must be dismissed unless there is an independent basis for subject matter jurisdiction.
c. Other Third-Party Practice Claims. [§7.5730]
Even though the plaintiff's claim against the third-party defendant will satisfy the usual test for supplemental jurisdiction â€" the same transaction or occurrence â€", federal courts generally require independent subject matter jurisdiction over these claims. This apparently is because of the possibility that plaintiff and defendant will collusively use the mechanism of the third-party claim to obtain a federal forum for an action against the third-party defendant that otherwise could not be brought in a federal court. In the diversity context, the Supreme Court has held that the use of supplemental jurisdiction when the plaintiff and the third-party defendant are co-citizens would violate the complete diversity requirement [Owen Equipment & Erection Co. v. Kroger (1978)]. Similarly, some courts have refused to extend supplemental jurisdiction to a third-party defendant's claim against the original plaintiff. The propriety of this result seems very dubious since there is virtually no chance of collusion between the third-party defendant and the original defendant.
8. Personal Jurisdiction. [§7.5800]
It is settled that personal jurisdiction must be obtained over parties added to the litigation by way of third-party practice. Federal Rule 4(k)(1)(B), however, creates a small exception to the normal requirements of personal jurisdiction [see §3.3630]. Federal courts can assert jurisdiction over third-party defendants served within a 100-mile radius of the court issuing the summons regardless of territorial boundaries, so long as service occurs within a United States judicial district.
9. Federal Venue. [§7.5900]
Since it would be absurd to dismiss a third-party suit because of the third-party defendant's venue objections when the constitutional requirements of subject matter jurisdiction have been subordinated in favor of the judicial efficiency policies underlying supplemental jurisdiction, it has been held that supplemental venue extends to third-party claims.
a. Venue over Plaintiff's Claim against Third-Party Defendant. [§7.5910]
Since independent subject matter jurisdiction grounds are required for a plaintiff's claim against a third-party defendant [see §7.5730], venue must be proper between the original plaintiff and the third-party defendant. An examination of the policies behind venue provisions indicates that this requirement is unnecessary. There would be no added inconvenience to the third-party defendant in making him defend against the original plaintiff's claim in the original forum, since he already is obliged to defend the third-party action there. Arguably, therefore, supplemental venue should be extended to a plaintiff's claim against a third-party defendant.
Civil Procedure -- Sample Chapter
A. SCOPE NOTE. [§7.0000]
The material in this chapter deals with the special procedures for joinder of claims and parties by way of counterclaim, cross-claim, and third-party (or impleader) claim. These terms will be used throughout this discussion rather than the more generic and less precise term "cross-complaint. " The next chapter will discuss three additional joinder devices â€" class actions, intervention, and interpleader.
B. COUNTERCLAIMS: DEFINITION. [§7.1000]
A counterclaim generally is described as any affirmative claim for relief that a pleader asserts as part of his or her defensive pleading against an opposing party.
1. Origin of the Counterclaim. [§7.1100]
The modern counterclaim is a direct descendant of two common law procedures â€" recoupment and set-off. Recoupment involved any claim the defendant had against the original plaintiff arising out of the transaction that formed the basis of the plaintiff's claim. The set-off was any claim for a liquidated amount the defendant had against the plaintiff, whether or not it arose out of the same transaction as the plaintiff's claim (the requirement that it be for a liquidated amount severely limited the set-off's utility). Both recoupment and set-off were completely defensive and relief could be awarded only up to the amount the plaintiff recovered on the original claim.
2. Development of the Counterclaim. [§7.1200]
The counterclaim was substituted for recoupment and set-off during the nineteenth century. Most state codes, however, limited the pleader to certain specified types of counterclaims. The most common types of counterclaims were those that arose out of the same transaction as did the plaintiff's claim, for liquidated sums and for specified causes of action, such as contract or certain tort claims. The contemporary counterclaim provision, typified by Federal Rule 13, does not limit the nature or the subject matter of the counterclaim in any way and permits the defendant to recover any relief to which he or she is entitled regardless of the disposition of the plaintiff's claim.
3. "Opposing Party." [§7.1300]
Most counterclaim rules limit the availability of the counterclaim by providing that it must be asserted against an "opposing party," although additional parties may be added [see §7.4000]. In general, this means that there must be an adversarial relationship between the two litigants. Thus, a counterclaim usually is improper between co-parties (e.g., between co-plaintiffs or co-defendants) . Moreover, if a party sues or is sued in one capacity, that litigant cannot counterclaim or be counterclaimed against in another capacity because the required "opposing-party" relationship would not exist.
a. Illustration 1. [§7.1310] A sues B and C for injuries arising out of a three-car collision. B counterclaims against A, and C counterclaims against A; in each case the counterclaimant alleges that the other driver was at fault. Both the B v. A and C v. A counterclaims satisfy the opposing-party requirement. However, if B asserts a claim against C, it will not be a counterclaim because the "opposing-party" requirement is not satisfied â€" they are co-defendants. The B v. C claim will be a cross-claim [see §7.3000].
b. Illustration 2. [§7.1320] An action is brought against a city tax official on the ground that she allegedly caused the unlawful arrest and detention of the plaintiff for non-payment of taxes. The tax official will not be permitted to assert a counterclaim on behalf of the city for the recovery of those taxes inasmuch as the suit was brought against the official in her individual capacity and the counterclaim would be asserted in her official capacity.
4. Permissive and Compulsory Counterclaims Distinguished. [§7.1400]
Federal Rule 13, and the rules of a number of states, distinguish between permissive and compulsory counterclaims. A compulsory counterclaim is one that arises out of the same transaction or occurrence or series of transactions or occurrences as does the claim previously asserted by the party against whom the counterclaim is interposed. A permissive counterclaim is any counterclaim that does not arise out of the same transaction or occurrence as does the claim originally asserted by the opposing party. In jurisdictions drawing a distinction between compulsory and permissive counterclaims, parties are required to assert any compulsory counterclaim that they may have against opposing parties; if they fail to do so the claim cannot be brought as a separate action [see §7.1700]. Conversely, a party is not required to assert a permissive counterclaim.
a. Illustration 1. [§7.1410] Drivers A and B are involved in a two-car collision. Subsequent to the collision, A meets B on the street and strikes him out of anger over the accident. A then sues B for personal injuries and property damage. Any claim that B might have against A for personal injuries or for damages to his car caused by the accident would be a compulsory counterclaim since it would arise out of the same transaction or occurrence as did the plaintiff 's claim. B's claim against A for assault and battery would not be compulsory since it arose out of a separate event that occurred at a different time and place; it would be a permissive counterclaim.
b. Illustration 2. [§7.1420] A agrees to manufacture and deliver to B ten automobiles, which are to be used as taxicabs. After the vehicles are delivered, A sues B claiming that B has failed to pay the agreed upon purchase price. B counterclaims against A for breach of warranty and negligent manufacture of the taxicabs. Most courts would consider this to be a compulsory counterclaim to A's action for the purchase price. The same conclusion also might be reached even if the defects in the taxicabs became apparent as a result of the failure of the taxicabs to function properly some time after their
delivery to B. Any counterclaim that B might have against A for breach of warranty relating to a different contract for the purchase of other vehicles would be permissive only, even if the contract was identical to the contract involved in A's claim for non-payment.
5. Compulsory-Permissi ve Distinction Analyzed. [§7.1500]
Because there is no precise definition of what constitutes a single transaction or occurrence or a series of transactions or occurrences, in many situations it is difficult to determine whether a counterclaim is compulsory or permissive. The courts usually approach the problem in a pragmatic fashion. Thus, many courts say that if there is a significant overlap in the evidence required to establish the original claim and that needed to prove the counterclaim, the requisite nexus exists and the counterclaim should be deemed compulsory. The theory is that efficiency and economy would be served by adjudicating the two claims together. However, complete identity of proof between the claim and the counterclaim is not necessary. Thus, for example, differences in damage elements or standards of liability will not normally defeat the application of the compulsory counterclaim rule.
a. Logical Relationship Test. [§7.1510]
The most widely accepted test for determining whether a counterclaim should be classified as compulsory or permissive is the logical relationship test. If a counterclaim is logically related to the original claim, the two are said to be within the transaction or occurrence and the counterclaim is compulsory. The flexibility and generality of this test gives the court an opportunity to label a claim compulsory whenever it can profitably be litigated simultaneously with the opposing party's claim and it would be reasonable for the parties to do so.
6. Separate Trial of Compulsory or Permissive Counterclaims. [§7.1600]
In theory, jurisdictions that broadly define the right to counterclaim permit any claim a pleader has against an opposing party to be asserted as a permissive counterclaim. However, the court always has authority to separate a permissive counterclaim from the main claim and order separate trials when it appears that confusion or prejudice will result from trying the claims together. This is a special risk when a jury trial is involved. The court also has the power to order a separate trial of a compulsory counterclaim but this will be a rare occurrence.
7. Effect of Failing to Assert a Compulsory Counterclaim. [§7.1700]
A party who does not interpose a compulsory counterclaim generally is prohibited from asserting the same claim in a subsequent action. This means that the omitted counterclaim cannot be asserted in a later action, either for affirmative relief or as a counterclaim â€" compulsory or permissive â€" in another action brought by the same plaintiff.
a. Rationale of Practice. [§7.1710]
The prohibition against the subsequent assertion of an omitted compulsory counterclaim is in the nature of an estoppel or waiver based on the culpable conduct of the litigant who failed to raise the counterclaim as required by the rule. The estoppel will not be applied in all cases. For example, if the defense of the first action was controlled entirely by the defendant's insurance company but the insured had no knowledge of the opportunity and obligation to interpose a compulsory counterclaim, he will be permitted to assert it in a subsequent action. It should be understood that the barring effect of failing to assert a compulsory counterclaim is not the result of any principle of res judicata or collateral estoppel. [See Chapter Sixteen for a discussion of former adjudication. ]
b. Limitations on the Effect of Failing to Assert a Compulsory Counterclaim. [§7.1720]
Although there is some uncertainty on the matter, the waiver or estoppel principle described in the preceding section normally is thought to apply only within the court system in which the original action was instituted. Thus, for example, a party who fails to assert a compulsory counterclaim in a federal court action definitely will be prevented from asserting that claim affirmatively or by counterclaim in an action in the same or any other federal court. However, the defaulting litigant may be able to assert it in a subsequent state court proceeding. State court decisions have been divided on whether to give effect to the federal compulsory counterclaim rule; several have held that the failure to assert a compulsory counterclaim in a federal court action bars the subsequent assertion of that claim in a state court. To date it has not been definitively determined whether the application of one court's compulsory counterclaim rule must be given effect by all other courts under the Full Faith and Credit Clause of the United States Constitution.
c. Assertion of Counterclaim in a Separate Action. [§7.1730]
A separate action filed in the same court system will be dismissed if the claim asserted therein should have been interposed as a compulsory counterclaim in an earlier action. If the initial action is still awaiting trial, the court, in its discretion, may consolidate the two cases or allow the new claim to be asserted as a counterclaim. When the action asserting the counterclaim is brought in another court system, the court in which the initial suit was brought will not enjoin the counterclaimant from pursuing the second claim because of the natural desire not to interfere with the functioning of another court system. However, the original plaintiff, who is the defendant in the action involving the counterclaim, may apply for a dismissal or a stay of the second action in the court that is hearing it.
(1) Illustration. [§7.1731] A brings suit against B in a federal court for damages resulting from an automobile collision. B then sues A for personal injuries in a different federal court for personal injuries sustained in the same collision. B also brings suit against A in a state court for damages to his automobile arising out of the accident. The federal court having jurisdiction over A's claim will enjoin B from proceeding further with his personal injury claim in the other federal court, but will not attempt to enjoin B from proceeding in the state court action.
d. Exceptions to the Requirement of Asserting Compulsory Counterclaims. [§7.1740]
The obligation of a party to assert a compulsory counterclaim is subject to certain commonly recognized exceptions such as those contained in Federal Rule 13. For example: (a) A party does not have to assert a counterclaim that does not exist at the time he or she serves a responsive pleading. (b) The counterclaim need not be asserted when it necessitates the joinder of third parties over whom the court cannot acquire jurisdiction for its proper adjudication. "Jurisdiction" in this context means personal jurisdiction, rather than subject matter jurisdiction, inasmuch as compulsory counterclaims fall within the "supplemental" jurisdiction of the federal courts [see §7.2100]. (c) A counterclaim will not be treated as compulsory if it is the subject of another pending action, as long as the other action was pending at the time the action in which the counterclaim should be asserted was filed. If a party prefers, he or she may abandon the initial action in order to assert that claim as a counterclaim in the second action. (d) A counterclaim need not be asserted when the jurisdictional basis of the main action is attachment or garnishment; it is considered unfair to require a defendant to assert a counterclaim when the court does not have jurisdiction over the defendant's person but merely has jurisdiction over his property. This exception will be lost, however, if the defendant does assert a counterclaim against the opposing party. Thus, if any counterclaim is interposed, all compulsory counterclaims must be asserted.
(1) Illustration 1. [§7.1741] A brings suit against B on a sham and frivolous theory of relief. B's compulsory counterclaim for abuse of process based on A's lawsuit need not be asserted in many jurisdictions because a claim for abuse of process does not come into existence until the original sham action has been terminated.
(2) Illustration 2. [§7.1742] A sues B for non-payment of the agreed upon purchase price for a shipment of a certain kind of transistors. B believes that A and X have artificially rigged the price of these transistors. If the court cannot acquire personal jurisdiction over X, however, B need not interpose a compulsory counterclaim for damages in the contract action.
e. Judicially Created Exceptions to the Compulsory Counterclaim Rule. [§7.1750]
A court has inherent authority to allow an omitted counterclaim to be interposed. This power is exercised by allowing the late assertion of the claim in the same action in which the counterclaim should have been advanced or in a separate action. Typically, the discretion is exercised in situations in which doing so would further some other policy, such as the efficiency of the system, or simply to assure that justice is done.
(1) Illustration. [§7.1751] A, a door manufacturer, sues B, a builder, in a New York federal court for non-payment for 10,000 doors delivered to B in that state, and also sues in a Maine federal court for non-payment for 10,000 doors delivered to B in that state. The doors were the subject of a single integrated contract between the parties. B believes that all of the doors are defective. Since B has a single compulsory counterclaim to the two suits pending in different jurisdictions, it may assert the counterclaim in either litigation; it is not obliged to assert the counterclaim in the first suit filed [see Southern Construction Co. v. Pickard (1962)].
8. Counterclaims for Declaratory Relief. [§7.1800]
A pleader may seek declaratory relief by way of counterclaim and the claim will be treated as compulsory or permissive depending upon whether it arises out of the same transaction or occurrence or the same series of transactions or occurrences that form the basis of the original claim.
The modern counterclaim creates a number of procedural difficulties that always must be kept in mind in analyzing a counterclaim problem.
1. Supplemental Jurisdiction: Compulsory Counterclaims. [§7.2100]
It is now well established that a federal court has supplemental jurisdiction over a compulsory counterclaim. [See §2.5000-§2.5530 for a discussion of supplemental jurisdiction. ] Thus, for example, if the plaintiff's claim is based on federal question jurisdiction, the federal court may assert jurisdiction over a compulsory counterclaim even though it does not involve a federal question and there is not diversity of citizenship between the litigants. Supplemental jurisdiction also extends to compulsory counterclaims for less than the requisite amount in controversy. Many states that draw the compulsory-permissi ve counterclaim distinction also have special provisions or judicial practices that automatically extend a court's subject matter jurisdiction to embrace compulsory counterclaims.
a. Illustration. [§7.2110] A of New York sues B of New York alleging that B has violated the federal antitrust laws by engaging in contracts that are in restraint of trade. B counterclaims for A's non-performance of one of the contracts that is the subject of A's suit and asks for $6,000 in damages. The counterclaim is compulsory and there is supplemental jurisdiction over it even though it fails to satisfy the federal question, diversity of citizenship, and amount in controversy requirements for federal subject matter jurisdiction.
2. Supplemental Jurisdiction: Permissive Counterclaims. [§7.2200]
Supplemental jurisdiction does not extend to permissive counterclaims in the federal courts. Nevertheless, invoking the common law recoupment and set-off practices [see §7.1100], some state and federal courts have allowed jurisdiction over permissive counterclaims in the absence of an independent basis for subject matter jurisdiction when they were asserted to offset an opponent's claim rather than for affirmative relief.
3. Jurisdiction over the Person and Venue. [§7.2300]
A court with personal jurisdiction over the defendant and venue as to the original claim normally is held to have personal jurisdiction over the plaintiff and venue with regard to any counterclaim that might be interposed. Once the plaintiff has invoked the jurisdiction of the court for purposes of bringing the original action, that plaintiff has consented to the court's power for purposes of any claims asserted against him or her by the defendant. This is true even if the original plaintiff is not a resident of the forum and would not have been subject to jurisdiction if the counterclaim were an original action. The conclusion may not be the same, however, when the counterclaim is asserted by someone not originally sued by the plaintiff, such as an intervenor. The law is unsettled on the point.
4. Pleading Counterclaims. [§7.2400]
A party asserting a counterclaim, whether compulsory or permissive, is obliged to satisfy all of the pleading rules applicable to the statement of a claim [see §5.4000-§5.4342; §5.7000-§5.7210]. Since a counterclaim normally is included in a responsive pleading, it should be labeled as a counterclaim in order to distinguish it from the pleader's defenses to the original action. Moreover, a plaintiff need respond to a defendant's counterclaim only when the latter is labeled as such. Most procedural systems give the trial judge discretion to ignore any mislabeling or non-labeling of the counterclaim [see §5.7200]. A counterclaim is subject to the same challenges as is any other claim for relief. [Challenges to pleadings are discussed in §5.8000-§5.8422.]
a. Counterclaim in a Reply. [§7.2410]
If the defendant's answer contains a counterclaim to which the plaintiff himself has a counterclaim â€" usually a compulsory counterclaim â€" the latter's counterclaim may be asserted in a reply. Perhaps the better practice is for the plaintiff to amend the original complaint to assert the claim, assuming, of course, that there is an independent subject matter jurisdiction basis for it.
5. Effect of a Counterclaim on the Statute of Limitations. [§7.2500]
When the plaintiff files a claim against the defendant, most courts hold that the statute of limitations ceases to run on any counterclaims, permissive or compulsory, that the defendant later imposes in the responsive pleading. The rationale is that the courts do not want to force the defendant to rush to file an answer simply because the statutory period is about to expire. The situation is quite different, however, when the plaintiff commences the action after the statute of limitations on the counterclaim already has run. Although there is some authority to the effect that compulsory counterclaims may be maintained in such a situation, it is clear that permissive counterclaims cannot. In some states, special statutes provide that the defendant's claim for money damages, even though barred when the plaintiff's suit was filed, may be asserted as an offset to any damages awarded the plaintiff, but affirmative relief is not allowed. In addition, the Supreme Court has held that a defendant may raise a claim by recoupment even when the claim, if brought independently, would be barred by the applicable statute of limitations, unless Congress has clearly and expressly provided otherwise.
6. Jury Trial. [§7.2600]
The fact that a claim is asserted by way of counterclaim does not affect the right to trial by jury. As is discussed in the material on jury trial [see §13.4000-§13.4500], it now is clear in the federal courts and in a number of states that asserting a legal counterclaim to an equitable claim does not result in a waiver of the counterclaimant' s right to a jury trial.
7. Appealability of Rulings Relating to Counterclaims. [§7.2700]
In a jurisdiction following the final judgment rule [see §15.1000], an appeal cannot be taken from a refusal to dismiss a counterclaim. The court's order is interlocutory and must await the rendition of a final judgment. The same is true of an order dismissing a counterclaim. In courts following the federal practice under Rule 54(b), however, the judge may direct the entry of a final judgment on a counterclaim and this will be appealable immediately if the court determines that there is no just reason for delaying the entry of that judgment [see §15.1310].
D. CROSS-CLAIMS: DEFINITION. [§7.3000]
A cross-claim is a claim asserted by one party against a co-party.
1. Theory and Purpose of Cross-Claims. [§7.3100]
The cross-claim procedure is designed to avoid multiple litigation between or among the parties to the action by allowing co-parties to adjudicate some or all of the claims they may have against each other. Since cross-claims generally arise from the same transaction or occurrence as the original dispute [see §7.3240], another major objective is to determine all controversies having a significant evidentiary overlap in a single proceeding.
a. Illustration. [§7.3110] A sues B and C for injuries arising out of a three-car collision. B may cross-claim against C for damages B has sustained in the accident. Suppose, however, that B seeks only to cross-claim against C for breach of a contract to buy and sell Blackacre. The cross-claim will be disallowed if the jurisdiction only permits transactionally related cross-claims.
2. Requirements for Cross-Claims. [§7.3200]
In most jurisdictions a cross-claim must (a) be asserted against a co-party, (b) seek affirmative relief from that party, (c) be asserted by a party against whom a claim already has been asserted, and (d) arise out of the same transaction or occurrence as the original claim, or any counterclaim in the action, or relate to property that is the subject of the action [see Federal Rule 13(g)].
a. Co-Parties. [§7.3210]
A cross-claim may be asserted only against someone who already is a co-party of the cross-claimant, although additional parties may be added [see §7.4000]. This permits cross-claims between plaintiffs, defendants, third-party defendants, and, possibly, between intervenors. Since a cross-claim may be asserted only against a co-party, it should be distinguished from a counterclaim, which may be asserted only against an opposing party in the action [see §7.1300].
(1) Illustration. [§7.3211] A brings an action against B and C. B then asserts a claim against D, who is added as a party to the action. Most jurisdictions would conclude that this is not a proper cross-claim since a cross-claim may be asserted only between parties on the same litigation level â€" that is, only between B and C. Because D is not on the same level of litigation as B and C, no cross-claim may be asserted between B and D or C and D. These claims might be proper third-party or impleader claims, however [see §7.5000-§7.5910].
b. Nature of Relief Available. [§7.3220]
A cross-claimant may seek any relief that he or she would have sought had the claim been brought as an independent lawsuit. In addition, under the rules of most jurisdictions, the cross-claimant may assert that the co-party against whom the cross-claim is brought is liable for all or part of any judgment awarded to the plaintiff against the cross-claimant.
(1) Illustration. [§7.3221] A sues B and C for breach of contract. A claims damages from B due to B's negligent manufacture of goods sold to A. A alleges C is liable for late delivery of the goods to A. C files a cross-claim against B in which she alleges that B's failure to finish the goods on time was the sole cause of C's later delivery to A. C prays that B should be required to indemnify C for any award A obtains against C. B's motion to dismiss the cross-claim as improper will be denied.
c. Right of One Co-Plaintiff to Cross-Claim against Another. [§7.3230]
Although co-plaintiffs technically come within the language of the typical cross-claim rule, it has been held that a cross-claim cannot be asserted between co-plaintiffs unless a claim has been asserted against them. This means that a cross-claim is proper only after the defendant interposes a counterclaim against the plaintiffs.
(1) Illustration. [§7.3231] Plaintiffs A, B, and C join in an action against D. D asserts a compulsory counterclaim against A and B. A cross-claims against B for contribution. B cross-claims against C for indemnity on the claim asserted by A against B. If it meets the transaction or occurrence requirement [see §7.3240], A's cross-claim is proper because a counterclaim has been asserted against him. However, B's cross-claim against C might not be proper because D's counterclaim was only against A and B, which means that B and C were not co-parties to it. Similarly, A's cross-claim was only against B, which means that B and C were not co-parties to it.
d. Transaction or Occurrence Test. [§7.3240]
Most jurisdictions limit the scope of the cross-claim to disputes arising out of the same transaction or occurrence that forms the basis of the original claim or a counterclaim in the action [see, e.g., Federal Rule 13(g)]. The test that is applied appears to be identical to that used to define compulsory counterclaims. Accordingly, the discussion of the transaction or occurrence test in the counterclaim context applies to cross-claims [see §7.1400-§7.1510].
(1) Illustration 1. [§7.3241] Upon a seller's failure to consummate a contract to sell Blackacre, the purchaser deposits the contract price with a stakeholder. Finding that there are inconsistent claims to the fund deposited with him, the stakeholder institutes an interpleader action against both the purchaser and the seller. A cross-claim by the purchaser against the seller, both of whom are now co-parties, seeking specific performance of the contract would be proper.
(2) Illustration 2. [§7.3242] An insurer brings an action for a declaration of non-liability under an automobile policy against the insured and the person driving the car at the time of the accident. A cross-claim by the insured against her co-defendant alleging that the vehicle involved had been loaned to the co-defendant and seeking a declaration that the vehicle was not under the control of the cross-complainant at the time of the accident would be proper.
(3) Illustration 3. [§7.3243] The United States brings an antitrust action against several companies alleging a conspiracy in restraint of trade. One defendant attempts to cross-claim against another defendant to recover royalties paid under an allegedly invalid patent licensing agreement. If the antitrust suit involves activities by the parties not directly related to the contract, the cross-claim is not proper. The key is whether the cross-claimant' s action for royalties would involve entirely different issues and evidence from the government's antitrust action and whether the cross-claim might simply confuse or prejudice the trial of the main action.
3. Federal Jurisdiction and Venue over Cross-Claims. [§7.3300]
The federal courts generally have held that cross-claims, because of their transactional relationship to the main claim, fall within the supplemental subject matter jurisdiction of the court and independent jurisdiction need not be established over them. [See §2.5000-§2.5530 for a discussion of supplemental jurisdiction. ] Of course, if the original claim fails for lack of subject matter jurisdiction, the cross-claim will have to be dismissed as well. Since the parties to the cross-claim are already before the court, problems of personal jurisdiction do not arise. Finally, if venue over the original action is proper, the court also will have supplemental venue over a cross-claim, even though venue would not exist if the cross-claim were an independent action.
4. Other Procedural Matters. [§7.3400]
A cross-claim is treated as is any other claim for relief with regard to pleading, discovery, jury trial, declaratory relief, appealability, and other procedural matters.
5. State Practice. [§7.3500]
In some states, a cross-claim is denominated a cross-complaint and is considered a separate and distinct pleading from the defendant's answer. If the cross-complaint is filed simultaneously with the answer, it may be submitted without leave of court; otherwise, leave of court must be obtained before a cross-complaint may be interposed. In other aspects, the rules pertaining to cross-complaints between co-parties are similar to the rules governing cross-claims.
6. Cross-Claims and the Statute of Limitations. [§7.3600]
As is true with regard to counterclaims [see §7.2500], the filing of the plaintiff's complaint tolls the statute of limitations for any cross-claims between co-parties. As long as the plaintiff's complaint was filed prior to the time the statute ran on the cross-claim, the cross-claim will be timely. If, however, the limitations period on the cross-claim lapsed before the plaintiff filed the action, the cross-claim will be barred.
E. JOINDER OF ADDITIONAL PARTIES TO COUNTERCLAIMS AND CROSS-CLAIMS. [§7.4000]
Modern counterclaim and cross-claim rules typically provide that persons other than those who are parties to the original action may be added as parties to a counterclaim or cross-claim to assure that they are fully adjudicated in a single action [see, e.g., Federal Rule 13(h)].
1. Practice Relating to Additional Parties to Counterclaims and Cross-Claims. [§7.4100]
Provisions for the addition of new parties to a counterclaim or cross-claim generally allow the joinder of anyone who could have been joined under the applicable permissive joinder rule [see §6.4000] had the counterclaim or cross-claim been brought as an original action. The added party will be aligned with regard to the counterclaim or cross-claim phase of the action in accordance with his or her actual interest in that dispute. A party may not be added unless the claim against that person also is asserted against someone who already is a party to the counterclaim or crossclaim. The joinder of an additional party to a counterclaim or cross-claim should be distinguished from the addition of a third-party complaint or impleader claim [see §7.5000-§7.5910].
a. Illustration. [§7.4110] A and B are involved in a two-car collision. A sues B for personal injuries and property damage. B counterclaims against A for property damage and personal injuries arising out of the same accident, and seeks to add C as an additional party to the counterclaim on the ground that C also was involved in the collision. Joinder of C will be permitted.
2. Jurisdiction and Venue over Additional Parties. [§7.4200]
In jurisdictions that distinguish between compulsory and permissive counterclaims, supplemental subject matter jurisdiction typically extends to additional persons brought into the action to facilitate the complete adjudication of a compulsory counterclaim. This is not true of persons joined to litigate a permissive counterclaim. Additional parties to cross-claims, whose claims by definition arise from the same transaction as the original claim, usually are held to fall within the court's supplemental jurisdiction. Personal jurisdiction must be acquired over an additional party to a compulsory or permissive counterclaim or to a cross-claim. As is true of subject matter jurisdiction, the principle of "supplementality" normally applies to give the court venue over compulsory counterclaims and cross-claims but not to permissive counterclaims.
3. Additional Parties and the Statute of Limitations. [§7.4300]
Unlike the situation with regard to the original parties in the suit [see §7.2500; §7.3600], the date on which plaintiff files the initial action does not affect the running of the statute of limitations on claims against additional parties to counterclaims and cross-claims. The statute of limitations continues to run until the time the action is commenced against such individuals, which in most jurisdictions means the filing of a counterclaim or cross-claim naming them as parties. In a few jurisdictions the statute runs until the time the new parties are served with process. It would be grossly unfair to permit a counterclaim or cross-claim to override the statute of limitations by allowing a claim against an additional party that would have been barred by the statute of limitations had it been asserted in a separate action.
F. THIRD-PARTY CLAIMS. [§7.5000]
Third-party practice, sometimes called impleader, permits a defendant (the third-party plaintiff) to join a person who was not originally a party to the suit (the third-party defendant) when the defendant believes that the impleaded party is primarily liable for all or part of the original plaintiff's claim against the defendant. This process is intended to avoid circuity of actions, to facilitate the adjudication of all disputes arising out of a single factual setting, and to eliminate the possible time lag between the plaintiff's judgment against the defendant and a judgment in the defendant's favor against the third-party defendant.
1. Historical Development. [§7.5100]
Modern third-party practice, typified by Federal Rule 14, is the descendant of the English common law practice of "vouching to warranty." This technique enabled a defendant who was sued by a plaintiff for the recovery of property to call upon a third party to defend the action when the third party had given defendant a warranty of title at the time the property was sold to the defendant. An analogous, but expanded, pratice found its way into American law in admiralty suits. From these beginnings, some state codes fashioned a procedure permitting any defendant to bring in an outsider who was liable to him or her for any liability that defendant had to plaintiff on the plaintiff's claim.
2. When a Third-Party Action Is Proper. [§7.5200]
A third-party claim is proper when the third-party defendant is alleged to be liable to the third-party plaintiff for all or part of the original claim. The theory of the third-party claim may be indemnity, subrogation, contribution, or breach of warranty. On the other hand, impleader is inappropriate when the third-party defendant's liability to the third-party plaintiff is direct rather than derivative to the defendant's claim.
a. Illustration. [§7.5210] P brings suit for personal injuries resulting from a malfunctioning door on a boxcar that had been delivered by D, a railroad company. P alleges that D's employee had negligently placed the boxcar. D claims that the workers who had located the car and were unloading it at the time of the injury to P were in the employ of a third party and that, as a consequence, the third party and not the defendant was liable to the plaintiff on the theory of respondeat superior. The third-party claim will not be allowed since the liability asserted is not derivative in nature.
b. Necessity That Derivative Liability Be Recognized by Governing Law. [§7.5220]
A third-party claim will not be allowed if the governing substantive law does not recognize the particular kind of derivative liability asserted by the third-party plaintiff. A federal court sitting in diversity of citizenship jurisdiction will look to the forum state's law to see if it recognizes the substantive claim being asserted. If it does, impleader will be proper in a federal court even though the governing state law does not permit third-party practice [see also §7.5330].
(1) Illustration. [§7.5221] A sues B in a federal court diversity action in State X alleging that she has been injured as a result of B's negligent driving. B seeks to implead C, another driver who was involved in the accident, seeking contribution to A's potential recovery. If the law of State X does not recognize contribution between joint tortfeasors or requires that they be sued together and a joint judgment obtained against them before a right of contribution arises, the third-party claim must be dismissed.
c. Contingent Liability. [§7.5230]
There is no requirement that the liability of the third-party defendant be fixed or certain at the time impleader is sought. Thus, a defendant may bring in a third party who may be liable for the plaintiff's claim as long as the defendant's claim will accrue if the plaintiff succeeds in the action against the defendant or when the plaintiff's claim is satisfied.
(1) Illustration. [§7.5231] P brings suit in a federal court for damages resulting from the consumption of allegedly contaminated meat purchased from D. D seeks to implead its supplier. The third-party defendant resists its inclusion in the action, asserting that a federal court sitting in diversity jurisdiction must look to the forum state's substantive law, and that the applicable state law requires that a defendant satisfy the claim against it before a cause of action can be asserted against a third party on the basis of derivative liability. Permitting the third-party claim will only accelerate in time the determination of the liability of the third-party defendant and therefore it is proper. Furthermore, a conditional judgment may be entered against the third-party defendant even though it will not become effective until after the original defendant satisfies the judgment on the main claim.
d. Discretion of the Court. [§7.5240]
The court has discretion to disallow a technically proper third-party complaint, although this discretion is rarely used. However, if at any point in the case it appears that the continued joint litigation of the claims either is not in the interest of judicial economy or would result in prejudice to one or more of the parties, the court may order the claim stricken, severed, or tried separately. This might occur if the court believes that the third-party claim is being asserted by the defendant for the purpose of inducing the jury to think that the third party â€" a relatively impecunious person â€" will have to pay any verdict that might be awarded.
(1) Illustration. [§7.5241] P sues a trucking firm to recover for personal injuries resulting from a collision between P's automobile and D's truck. D seeks to implead the driver of the truck, D's employee, whose negligence allegedly caused the accident. Even though D may have a right of indemnity against the driver, the court may deny the third-party claim if, for example, the driver is insolvent and the only reason for his inclusion is to arouse juror sympathy by encouraging them to think that the driver would have to bear the judgment.
3. Procedure for Asserting a Third-Party Claim. [§7.5300]
To interpose a third-party claim, a litigant serves a summons and third-party complaint upon the third-party defendant. If the defendant acts expeditiously (e.g., including the cross-claim with the answer), leave of court usually is not required; otherwise, leave of court is necessary.
a. Who May Assert a Third-Party Claim. [§7.5310]
Although third-party practice typically is used by the original defendant, contemporary procedural rules permit a plaintiff against whom a counterclaim has been asserted to implead a third party who is or may be liable for all or part of the original defendant's counterclaim. Moreover, the third-party defendant may implead a person claimed to be liable on the defendant's third-party claim â€" usually called a fourth-party defendant. This might occur in a products liability case in which liability ultimately may fall on a component-part manufacturer.
b. Persons against Whom a Third-Party Claim May Be Asserted. [§7.5320]
Third-party claims are asserted only against persons who are not already parties to the litigation. Counterclaims and cross-claims are the proper procedures to be invoked against those who already are parties to the action.
c. Impleading Persons Who Could Not Be Sued Directly. [§7.5330]
Although there has been some confusion whether a third-party plaintiff can implead an outsider who could not have been sued directly by the original plaintiff, the practice now appears to be accepted since the benefits of the third-party action inure to the third-party plaintiff, not the original plaintiff. Thus, it has been held that a defendant can implead the plaintiff's employer in a federal court action even though the forum state's compensation act would have prevented the plaintiff, an employee, from suing her employer directly. Furthermore, there are cases holding that a person may be impleaded even though the statute of limitations would have barred an action against him or her by the original plaintiff because a right of indemnity or subrogation does not arise until the third-party plaintiff has been held liable on the original claim. On the other hand, a third-party claim against a member of the plaintiff's immediate family, such as a spouse or child, is not permitted in jurisdictions that require a joint judgment respecting a family unit or in jurisdictions that prohibit actions between family members. [See also §7.5220.]
(1) Illustration. [§7.5331] P brings a tort action more than two years after the relevant conduct occurred. D impleads the United States government on an indemnification theory. Although the two-year statute of limitations has run, thereby barring P's claim against the government, D's third-party claim did not accrue until he was sued by P and should not be barred.
4. Rights of a Third-Party Defendant. [§7.5400]
The third-party defendant may interpose any defenses that he or she has against the third-party claim, and under Federal Rule 14 and similar state provisions, may assert any available counterclaims against any defendant or any cross-claims against any co-third-party defendants. In addition, any defenses that the third-party plaintiff may have against the plaintiff's original claim may be advanced by the third-party defendant. [See also §7.5600.]
5. Plaintiff's Rights against a Third-Party Defendant. [§7.5500]
Many third-party practice rules permit the original plaintiff to assert a claim against the third-party defendant as long as that claim arises out of the same transaction or occurrence as does the plaintiff's claim against the original defendant. [See Rule 14(a).]
a. Illustration. [§7.5510] A purchaser of a nightgown brings suit against the store from which the garment was bought for injuries sustained when it burst into flames. The store brings in the manufacturer of the gown by way of third-party complaint. The original plaintiff may now assert a claim directly against the third-party defendant based on the latter's negligent manufacture of the nightgown.
6. Third-Party Defendant's Rights against an Original Plaintiff. [§7.5600]
Third-party practice rules often permit a third-party defendant to assert a claim against an original plaintiff as long as it arises out of the same transaction or occurrence as the plaintiff's claim against the original defendant. Because Federal Rule 14 omits the words "may be liable" from the sentence governing the third-party defendant's rights against the original plaintiff, it has been thought that a third-party' s claim against the plaintiff need not be contingent in nature.
7. Federal Subject Matter Jurisdiction. [§7.5700]
If each third-party claim were required to satisfy all subject matter jurisdiction requirements, third-party practice would be severely restricted. Thus, the federal courts have applied supplemental jurisdiction to some, but not all, of the claims that may arise as part of third-party practice. [Supplemental jurisdiction is discussed in §2.5000-§2.5530.]
a. Third-Party Claims. [§7.5710]
If a third-party claim arises out of the core of operative facts that gave rise to the original claim, then a court having jurisdiction over the main claim may assert supplemental subject matter jurisdiction over the third-party claim. Virtually all third-party claims will satisfy this criterion because it is almost certain that the evidence adduced concerning the plaintiff's original claim will overlap substantially with the evidence relating to the third-party claim. In keeping with the limitations on supplemental jurisdiction [see §2.5430], most federal courts will dismiss a third-party claim if the main claim is dismissed before reaching trial. A court does have discretion not to dismiss, however, and will consider the fairness and judicial efficiency of retaining or terminating the ancillary action.
(1) Illustration. [§7.5711] A of New York sues B of New York for $6,000 in a federal court under the federal Patent Act for infringement of A's patent on a certain product. B impleads C, also of New York, on an indemnification theory alleging that C supplied B the allegedly infringing items. Despite the absence of a federal question or diversity of citizenship or the requisite amount in controversy for diversity cases, the federal court has supplemental jurisdiction over the third-party claim.
b. Other Claims against a Third-Party Defendant. [§7.5720]
Modern procedural rules permit a defendant to join with a third-party claim any other claims he or she may have against the third-party defendant. If such an additional claim arises out of the same transaction or occurrence as does plaintiff's claim against the defendant, the usual principles of supplemental jurisdiction will apply. Otherwise, a claim added against a third-party defendant must have an independent jurisdictional base.
(1) Illustration. [§7.5721] A sues B for injuries arising out of the malfunction of a lawn-mower sold by B. B impleads C, the lawn-mower manufacturer, claiming that the latter's negligence makes C liable for all or part of A's claims against B. B also joins a claim against C for lost profits resulting from bad publicity about the lawn-mower accident, and a claim for breach of a contract to deliver a shipment of garden tillers. The claim for lost profits probably is within the same transaction or occurrence as A's claim and supplemental jurisdiction will apply. The contract claim, however, is transactionally unrelated to A's claim, and must be dismissed unless there is an independent basis for subject matter jurisdiction.
c. Other Third-Party Practice Claims. [§7.5730]
Even though the plaintiff's claim against the third-party defendant will satisfy the usual test for supplemental jurisdiction â€" the same transaction or occurrence â€", federal courts generally require independent subject matter jurisdiction over these claims. This apparently is because of the possibility that plaintiff and defendant will collusively use the mechanism of the third-party claim to obtain a federal forum for an action against the third-party defendant that otherwise could not be brought in a federal court. In the diversity context, the Supreme Court has held that the use of supplemental jurisdiction when the plaintiff and the third-party defendant are co-citizens would violate the complete diversity requirement [Owen Equipment & Erection Co. v. Kroger (1978)]. Similarly, some courts have refused to extend supplemental jurisdiction to a third-party defendant's claim against the original plaintiff. The propriety of this result seems very dubious since there is virtually no chance of collusion between the third-party defendant and the original defendant.
8. Personal Jurisdiction. [§7.5800]
It is settled that personal jurisdiction must be obtained over parties added to the litigation by way of third-party practice. Federal Rule 4(k)(1)(B), however, creates a small exception to the normal requirements of personal jurisdiction [see §3.3630]. Federal courts can assert jurisdiction over third-party defendants served within a 100-mile radius of the court issuing the summons regardless of territorial boundaries, so long as service occurs within a United States judicial district.
9. Federal Venue. [§7.5900]
Since it would be absurd to dismiss a third-party suit because of the third-party defendant's venue objections when the constitutional requirements of subject matter jurisdiction have been subordinated in favor of the judicial efficiency policies underlying supplemental jurisdiction, it has been held that supplemental venue extends to third-party claims.
a. Venue over Plaintiff's Claim against Third-Party Defendant. [§7.5910]
Since independent subject matter jurisdiction grounds are required for a plaintiff's claim against a third-party defendant [see §7.5730], venue must be proper between the original plaintiff and the third-party defendant. An examination of the policies behind venue provisions indicates that this requirement is unnecessary. There would be no added inconvenience to the third-party defendant in making him defend against the original plaintiff's claim in the original forum, since he already is obliged to defend the third-party action there. Arguably, therefore, supplemental venue should be extended to a plaintiff's claim against a third-party defendant.
