United States v. Heyward-Robinson Co

Brief Fact Summary. Plaintiff sued Defendant for breach of a contract performed for the Navy under the Miller Act, which names the United States as the party plaintiff. Defendant counterclaimed against Plaintiff for overpayments on both the Navy contract and a private contract and Plaintiff filed a reply counterclaim against Defendant on the private contract. Judgment was rendered against Defendant on the reply counterclaim and Defendant appealed arguing lack of subject matter jurisdiction.

Synopsis of Rule of Law. Counterclaims need only have similar circumstances to the subject matter of the litigation in order to be compulsory. There need not be identical facts.

Facts. Plaintiff D’Agnostino Excavators, Inc. sued Defendant Heyward-Robinson Co. in federal court under the Miller Act (which names the United States as the party Plaintiff) for breach of contract involving a Navy job. Defendant counterclaimed for overpayments made on the Navy contract and another contract involving a private party (“the Stelma job”). Plaintiff filed a reply counterclaim against Defendant on the Stelma job to recover money due from Defendant on that job. Both the Navy job and the Stelma job were treated together in the lawsuit. Progress payments were to be made on both jobs in a lump sum. There was one insurance policy covering both jobs. Defendant had the right under the contract to withhold payment for both jobs if there were any damages suffered on either job. Plaintiff claimed that Defendant breached both contracts by not making progress payments and Defendant claimed Plaintiff breached both contracts by allowing its insurance to lapse. The jury found Defendant
liable to Plaintiff for both jobs and judgment was rendered against Defendant’s surety for the Navy job. Defendant appealed the verdict arguing that the District Court did not have jurisdiction over the Stelma job counterclaims because the claims were permissive and not compulsory counterclaims.

Issue. Did the counterclaims involving the Stelma job arise out of the same transaction or occurrence of the Navy job in order to make them compulsory under Rule 13(a) of the Federal Rules of Civil Procedure?

Held. Yes. Judgment affirmed.
In order for the District Court to have jurisdiction over the Stelma job counterclaims, the Court must have ancillary jurisdiction from the Navy job claims or there must be an independent jurisdictional basis.
Because there is no argument presented that the Court had an independent basis for jurisdiction, it must be determined whether the counterclaims were compulsory such as to give the Court ancillary jurisdiction over the claims.
Under Rule 13(a) of the Federal Rules of Civil Procedure, counterclaims are compulsory if they arise from the same transaction or occurrence that is the subject matter of the litigation. This does not require identical facts, but a logical relationship between the claims.
Rule 13(a) of the Federal Rules of Civil Procedure was intended to prevent re-litigation of the same issues and duplicate claims litigated in different forums.
Because the claims were considered the same by the parties and that an issue concerning one seemed to affect the other (same insurance policy, breach of both agreements if money due on one, same kind of job, occurred near same location at around the same time, letters threatening termination involved both contracts), the claims arose from the same transaction or occurrence and were thus compulsory.
Because the counterclaims were compulsory, the Court had ancillary jurisdiction over the counterclaims and could therefore render judgment.
Concurrence. Even though the two contracts had similar factual circumstances surrounding the legal issues arising under them, this does not make the Stelma job claims “compulsory.” The complaint alleged exactly how Defendant breached the Navy job contract. There was no need to mention the Stelma job contract other than to bring up new issues involving the contract. In addition, any lump sum payments involving both contracts could be pro rated by the court. However, permissive counterclaims should not be required to have an independent jurisdictional basis, so the judgment should be affirmed.

Discussion. The majority opinion gives specific examples of how counterclaims can be considered “compulsory.” The factual similarities and the parties’ treatment of the two contracts as one hinged on the Court’s finding that the claims were compulsory. Compare with Judge Friendly’s concurring opinion that notes that the factual similarities should not be the focus of the analysis but whether a party would have to bring the counterclaim in response to the original pleading.