August 20, 2012 Top Story

New Trend in Navigating the Minefield of Civil Rule 13(a)

Test for compulsory counterclaims opens the door to balancing of the equities

Andrew J. Kennedy

A recent case highlights a growing trend in interpreting Fed. R. Civ. Pro. 13(a), which requires compulsory counterclaims to be asserted in an action. Counterclaims are compulsory if they arise from the same transaction or occurrence and are asserted by an opposing party. In Thayer v. Owens, the U.S. District Court for the District of Utah applied what it considered to be an emerging test for deciding if a party is “opposing” under Rule 13. That test—called the “real party in interest” test—expands the scope of when a party is considered to be opposing under Rule 13.

The facts of Thayer

Douglas Thayer filed a breach of contract suit in Utah state court as a guardian of Homer Owens. Defendant Emerald Owens was the ex-wife of Homer Owens. The defendant removed the case from Utah state court to federal court and then moved to dismiss. She argued that Civil Rule 13(a) barred Thayer’s claims because of a proceeding she had filed in California, naming Thayer as a defendant as an individual, though not in his representative capacity as a guardian. Thayer argued that he was not an opposing party because in the California suit he was an individual defendant, whereas he was acting on behalf of Homer Owens in the Utah litigation.

Court Embraces the Real Party in Interest Test

Although the federal district court addressed whether the issues in the California litigation and the Utah litigation arose from the same transaction or occurrence, the court focused on whether Thayer was an opposing party under Rule 13. On that issue, the district court first reviewed the sparse authority interpreting Rule 13 and observed that “there is no definitive answer to the question of who is an opposing party for purposes of a counterclaim.”

The court contrasted two tests. Under the “plain meaning” approach, the court considers whether the individual challenged was named in the previous suit. Under the more liberal “real party in interest” test, the court analyzes “the overlap between the character of the parties to determine whether the entity in question is a real party in interest.” This test covers a broader array of cases than the pain meaning test.

Given that the aim of Rule 13 is to resolve claims in a single action rather than in multiple proceedings, the court reasoned that the real party in interest test aligns more fully with the purpose of the rule. The court also preferred this broader test because it “allows judges to balance the concerns of equity and judicial economy.”

Even so, the court applied both tests. It quickly dispatched the plain meaning test since Thayer was only acting as a guardian in the Utah suit, not as an individual as he was in the California suit.

The court then applied the real party in interest test. Analyzing the interests at stake, the court concluded that the balance tipped in favor of equity rather than judicial economy. Therefore, the court held that Thayer had not been an opposing party in the California action under Rule 13 and his suit should proceed.

Introducing Uncertainty?

The court’s close balancing of interests highlights the uncertainty that the real party in interest test brings to Rule 13(a). This ambiguity concerns some observers.

“The real party in interest test seems like a really slippery slope,” says Betsy P. Collins, Mobile, AL, cochair of the ABA Section of Litigation’s Pretrial Practice & Discovery Committee. The scary thing, she says, is using such a broad test to keep someone out of court. She is also concerned that litigants may need to delve deeply into issues of privity very early in litigation.

The real party in interest test makes some pretrial planning more difficult. For example, some states have a “let sleeping dogs lie” rule, says Ian H. Fisher, Chicago, cochair of the Section of Litigation’s Pretrial Practice and Discovery Committee. These rules allow stale claims to be resurrected if they are asserted as counterclaims. Fisher warns plaintiffs to research carefully whether filing suit may revive an otherwise dormant claim.

But the broader sweep of the real party in interest test has its advantages, says Joan K. Archer, Kansas City, MO, cochair of the Section’s Pretrial Practice and Discovery Committee. Archer favors the real party in interest test because it is more inclusive. “It keeps clients out of litigation,” she says, adding that “clients want processes and rules that make litigation less costly.” She argues that the real party in interest test promotes judicial efficiency because it makes it more difficult to have multiple cases involving the same transaction, “so it helps prevent unnecessary litigation.”

That is not necessarily the case with the simpler plain meaning test. Unlike the plain meaning test, Archer says, the real party in interest test “is the one more likely to avoid gamesmanship and avoid unnecessary litigation.” Regardless of the merits of either test, the lesson of Thayer is pretty clear. “Counsel should evaluate claims under both tests,” cautions Collins.

Whatever uncertainty the real party in interest test has created, it is unlikely to soon dissipate. It does not appear that revising the language of Rule 13 would eliminate the ambiguity. Modifying Rule 13 would “probably introduce more mischief in trying to change the rule,” says Fisher. Courts need to retain flexibility to deal with unusual cases, he says, adding that “there will inevitably be oddball cases.”

Andrew J. Kennedy is a contributing editor for Litigation News.

Keywords: counterclaims, civil procedure, real party in interest

Related Resources

  • Thayer v. Owens, Case No. 2:12-cv-00170, 2012 U.S. Dist. LEXIS 72915, (D. Utah, May 24, 2012).

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