Separate Trials

Separate Trials

A counterclaim that must be pleaded does not have to be tried with the claim it answers. Rule 13(i) makes the point in its own terms: if the court orders separate trials under Rule 42(b), it may enter judgment on a counterclaim or crossclaim under Rule 54(b) when it has jurisdiction to do so, even if the opposing party's claims have been dismissed or otherwise resolved.¹ The Rule assumes that a counterclaim can run on a different schedule from the claim it answers, and that it can reach judgment alone once the plaintiff's claims are gone. Rule 54(b) lets a court enter judgment on some claims while others remain pending, and Rule 13(i) places the counterclaim among the claims a court may finish separately.

The earlier discussion of a dismissed main claim shows why the second half of that sentence matters. In Moore v. New York Cotton Exchange, the Supreme Court sustained jurisdiction over a defendant's compulsory counterclaim arising out of the same transaction as the plaintiff's federal antitrust claim, although that claim had been dismissed for failure to state a claim and the counterclaim had no independent federal jurisdictional basis.² Rule 13(i) supplies the next step: where jurisdiction exists, the counterclaimant can obtain a judgment in its own right.

The rules treat pleading and trial as separate problems and give each its own tool. Rule 13(a)(1)(A) decides what goes into the pleading: a claim is compulsory when it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim.³ The penalty for holding such a claim back falls on a later, independent suit. Courts treat the bar as an extension of former adjudication, and most speak of res judicata, though some rely on waiver or estoppel.⁴ Each theory targets the claim withheld from the first action. A claim that has been pleaded has escaped the penalty, and the court remains free to decide how to try it.

That freedom comes from the joinder rules themselves. Rule 13's counterclaim provisions let a defendant assert any claim it has against the plaintiff, which avoids a multiplicity of actions. As with the other joinder rules, the theory is unlimited joinder at the pleading stage, with power in the court to order a separate trial of a particular issue if that is more convenient or desirable.⁵ The counterclaim provisions do not interfere with the right of jury trial.⁶ The common mistake is to read compulsory as meaning that the claims must be tried together, when the word governs only what must be asserted.

The division of labor also suits the defendant's position. The answer is due before discovery shows how tangled the case will become, so the pleading rule must be broad enough that a wrong guess is rare. The court, with the whole case in view, can decide later what is convenient to try together.

Severance exists so that a defendant never has to choose between a tangled trial and a forfeited claim, and the forfeiture is real. In one collision case, Blanton sued King, alleging that King ran a red light and struck Blanton's car. King's insurer supplied a lawyer, the parties settled, and Blanton dismissed her claims with prejudice. King never filed a counterclaim.⁷ When King later brought a new negligence action based on the same events, the court held that her failure to file the compulsory counterclaim was a waiver and estopped her from suing.⁸ A counterclaim in the first action, tried separately if necessary, would have saved the claim.

The power to sever reaches counterclaims that are not compulsory, too. As one court's footnote describes Alaska Barite Co. v. Freighters, Inc., the district court refused to let a defendant emasculate a Rule 9(h) election by filing a permissive antitrust counterclaim under Rule 13(b), but it did exercise its discretion to grant a separate trial of the antitrust claim under Rules 42(b) and 13(i).⁹ The Sixth Circuit invoked Rules 13(i) and 42(b) in Big Cola Corp. v. World Bottling Co. while explaining that a counterclaim that is essentially an independent action is permissive. Courts exercise a parallel discretion over permissive counterclaims at the jurisdictional stage. In Channell v. Citicorp National Services, Inc., a class action under the Consumer Leasing Act, the Seventh Circuit vacated the dismissal of a creditor's permissive counterclaims to collect debts and remanded so the district court could exercise the discretion that section 1367 contemplates.¹⁰

Exam questions often ask whether a pending compulsory counterclaim blocks a Rule 54(b) judgment on the plaintiff's claim. Olympia Hotels Corp. v. Johnson Wax Development Corp. answers no. Olympia sued Racine Hotel Partners for breach of a contract to manage Racine's hotel. Racine counterclaimed, as it was required to, for breach of contract, fraud in the inducement, and federal RICO violations. The district judge severed all the counterclaims except the contract counterclaim, tried Olympia's claims, and entered a Rule 54(b) judgment for Olympia while the severed counterclaims stayed pending with no trial date. The Seventh Circuit called the case borderline, since both sets of claims came out of one contract and were closely related, but it found the judgment proper. The claims tried concerned conduct after the contract was signed and the hotel was operating, the counterclaims concerned promises allegedly made during negotiation, and virtually the only facts that overlapped were undisputed. Because the facts bearing on liability and damages differed, the court of appeals would not have to learn the same facts a second time if the counterclaims were later tried and appealed.

Olympia drew its line at disputes that look like two views of one controversy. It distinguished Automatic Liquid Packaging, Inc. v. Dominik, where the counterclaim was the mirror image of the complaint and the two expressed the parties' opposed readings of one contract. It also distinguished Cinerama, Inc. v. Sweet Music, S.A., where one claim sought the principal of an unpaid loan and the other the interest on it. A Rule 54(b) judgment on one of those claims would send the court of appeals a dispute whose facts it would have to learn again when the other claim came up after trial.

Olympia also refused to use res judicata as the measure. Some opinions said that a Rule 54(b) judgment cannot be entered when the claims are the same for res judicata purposes. But a compulsory counterclaim is by definition one that would be barred if made the basis of a separate suit, whether by Rule 13(a) itself or by the doctrine against splitting a cause of action. If that sameness blocked a partial judgment, none could ever be entered while a compulsory counterclaim remained pending, yet courts enter them. The question that decides the matter is how much the pertinent facts overlap.

Olympia took the proposition that such a judgment can be entered from Cold Metal Process Co. v. United Engineering & Foundry Co. A footnote there shows a counterclaim parked while the rest of the case moved on: the district court continued the pretrial conference in the action containing the "counterclaim" sine die and removed the case from the trial calendar, without prejudice to either party and subject to reinstatement.¹¹ Rule 54(b) keeps this practice from becoming routine by conditioning early judgment on an express determination that there is no just reason for delay.