August 21, 2007
10th Circuit on Preclusion and Compulsory Counterclaims
The 10th Circuit recently decided an interesting preclusion case, Valley View Angus Ranch v. Duke Energy (August 8, 2007). Duke sued Valley View in state court. Valley view asserted defenses, but no counterclaims. Valley View then filed a related suit against Duke in federal court. Duke won in state court and moved for summary judgment in the federal suit contending that Valley View's federal claims were barred by the doctrines of claim and issue preclusion. The district court agreed and granted Duke's motion. The 10th Circuit reversed. Several relevant passages are highlighted below, where the court explores the relationship between compulsory counterclaims and preclusion:
The typical claim preclusion scenario unfolds as follows: A plaintiff files suit against a defendant based on a particular transaction and the suit proceeds to a judgment. The plaintiff then files a second action against the same defendant based on the same transaction. The plaintiff's second action would be barred under claim preclusion regardless of the theories raised in the second lawsuit. FN5
FN5: The same preclusive result would occur where the defendant asserts a counterclaim against the plaintiff in the first action and then attempts to bring a subsequent action against the plaintiff based on the same transaction forming the basis of its counterclaim. Wright & Miller, 18 Federal Practice and Procedure § 4414.
These rules do not apply to the situation where, as here, a plaintiff (Duke) files suit against a defendant (Valley View) based on a particular transaction (the refusal to allow Duke entry to its easement). The defendant (Valley View) raises a defense and the suit proceeds to judgment. The defendant (Valley View) then files an action against the plaintiff (Duke) based on the same facts forming the basis of its defense in the prior suit. In such a situation, the defendant's claims in the subsequent action are not precluded unless (1) the defendant's success in the latter action would nullify the original judgment or impair the rights established in the original action or (2) a statute required the defendant to bring his claims in the original action. See Meyer v. Vance, 406 P.2d 996, 999 (Okla. 1965); Restatement (Second) of Judgments § 22 (1982) (Restatement); Wright & Miller, 18 Federal Practice and Procedure § 4414 ("Apart from compulsory counterclaim rules, . . . the traditional conclusion has been that purely defensive use of a theory does not preclude a later action for affirmative recovery on the same theory."). The rationale for the general rule applying to defendants who elected not to assert a counterclaim in the prior action is that "the defendant should not be required to assert his claim in the forum or the proceeding chosen by the plaintiff but should be allowed to bring suit at a time and place of his own selection." Restatement § 22 cmt. a.
Thus, the proper analysis is 1) whether Valley View's success in its federal action would nullify the state judgment or impair the rights established in the state action or 2) a statute required Valley View to bring its federal claims in the state action as counterclaims.
The court held that neither of the two claim-preclusion rules applied, and that the identical issues were not actually litigated and decided for issue-preclusion purposes. (edited for readability without notation)-- RR
August 21, 2007 | Permalink
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