Brief Fact Summary.
Dindo (Plaintiff) sued Whitney (Defendant) over injuries from a car accident. Defendant moved to dismiss Plaintiff’s claim because he had failed to raise it as a compulsory counterclaim in Defendant’s previous suit against Plaintiff for the same accident.
Synopsis of Rule of Law.
When a previous case has settled, the failure to raise a compulsory counterclaim in the original lawsuit may not be a bar to raising the claim in a new action, where allowing the new action is the equitable outcome.
Plaintiff was driving Defendant’s car with Defendant as a passenger when the car crashed. Defendant sued Plaintiff for his injuries and Defendant’s insurance company, which covered Plaintiff as the driver of the insured vehicle, defended Plaintiff in Defendant’s suit and the matter was settled. Later, Plaintiff alleged that the accident was the result of Defendant’s actions and hired an independent attorney who filed a suit against Defendant for his injures. Defendant moved to dismiss Plaintiff’s claim because Plaintiff had failed to raise it as a compulsory counterclaim to the original action. The court dismissed Plaintiff’s claim and Plaintiff appealed.
Does the failure to raise a compulsory counterclaim in a lawsuit that ended in a settlement bar a party from raising that claim in a new action?
(Aldrich, C.J.) No. When a previous case has settled, the failure to raise a compulsory counterclaim in the original lawsuit may not be a bar to raising the claim in a new action, where allowing the new action is the equitable outcome. The policy behind making counterclaims compulsory is to prevent multiple lawsuits over the same matter in the interest of judicial economy. When a suit has proceeded all the way to final judgment, a compulsory counterclaim that was not raised is barred from being raised in a subsequent claim. However, when the previous case settled, the impact on the judiciary is much smaller. Unless the previous settlement includes a contractual release of further actions, the doctrine of equitable estoppel is more appropriately applied to subsequent claims than that of res judicata. Applying the principle of equitable estoppel, where the equities favor the plaintiff, the suit should be allowed. In this case, the lack of knowledge by the Plaintiff of the existence of a claim is a relevant factor in balancing the equities. Reversed and remanded for a determination of whether the suit should be allowed.
This case illustrates the difficulties that involving insurance companies in litigation can sometimes present. The conflicting interests of the insurer and the insured can lead to this type of problem. Some courts find the failure to raise a compulsory counterclaim to be a complete bar to later actions, no matter the circumstances. Fed. R. Civ. P. 13(a) establishes res judicata for compulsory counterclaims. Dragor Shipping Corp. v. Union Tank Car Co., 378 F2d 241 (9th Cir. 1967).