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The Defendant Strikes Back! (Well, Maybe)

“To sue or not to sue, that is the question . . . .” Well, Shakespeare did not quite put it that way, but the question is real for many lawsuit defendants. Sometimes lawsuits run in only one direction: the plaintiff describes an injury caused by the defendant, whose position in the lawsuit is entirely defensive, seeking either to deny liability, limit damages, or both.

Especially in lawsuits involving business relationships, however, claims often run in both directions. The defendant may have the ability to assert a set of counterclaims seeking redress from the plaintiff. For example, did the plaintiff breach the agreement between the parties before the defendant breached? Even when potential counterclaims are available, however, a defendant and her lawyer often face difficult choices about whether and when to strike back.

Locating and measuring claims a defendant may have against a plaintiff is often a challenging task, but the task is complicated further by the law’s general insistence that claims parties have against one another should typically get wrapped-up and decided in a single case. In the parlance of the rules, a defendant’s counterclaim may be “compulsory” when it arises from the same “transaction or occurrence.” So what does that mean? A recent Minnesota decision sheds some light.

An estate was eager to remove the occupant of a residence – the decedent’s former fiancé and an identified devisee of the decedent’s trust – so that that the property might be sold, and informed the occupant that she had a hard deadline to leave. Before that deadline passed, however, the occupant made several claims against the estate based on oral promises the decedent allegedly made before his death, including that she could occupy the property for an extended period following his death. The oral promise claims were then litigated over many months, during which the claimant remained in the property, which was not sold. Eventually the estate prevailed against the oral contract claims, including the claim alleging a right to occupy property. After several months of unpermitted occupancy of the residence, the claimant finally left.

The devisee then started a lawsuit petitioning the court for an immediate payout of the full devise amount. The trustees objected to the claim, and argued that the devise should be reduced to account for the damages the petitioner caused including delaying sale of the property, and property damage. In reply, the devisee argued that the court should ignore these counterclaims, because they were “compulsory” claims arising out of the same “transaction and occurrence” as the oral promise claims in the first case such that estate/trust was obligated to have asserted them during the first lawsuit between the devisee and the estate and could not raise them now in the second litigation.

Not so, a Minnesota district court recently ruled. Siding with the trust, the court first explained that a counterclaim is not “compulsory” when it was not known to the defendant at the time suit is brought. At the time the claims were brought in the first case, the devisee’s occupancy was not yet “unpermitted,” and the injuries to the property had not yet occurred. Thus, the estate was thus not obligated assert counterclaims based on speculative future events.

Furthermore, however, the court emphasized an often overlooked limit on when counterclaims may be deemed “compulsory”: the rule that tort claims are never compulsory. In other words, the principle that claims between parties should be handled in one setting does not mean that we mix apples and oranges. If you breach the contract we’ve made to sell me your house, and I later run into your mailbox with my car, you are not required to counterclaim for that when I sue you for breach of contract. In the estate/trust case, because the trust’s claims against the devisee are tort claims, they did not need to be asserted as counterclaims to the devisee’s oral promise contract claims in the earlier case.

As in many areas of the law, the matter here involves a distinction with a difference. Assisted by attorneys from the DeWitt firm, the trustees involved in this litigation emphasized effectively to the court that the disputes between the parties did not require the estate and trust to act other than they did, and thus protected the trust’s ability to seek redress for its claims as the case now moves forward. If and when you become a defendant in a lawsuit, understanding whether and when you can and should assert claims against the plaintiff is a critical factor in protecting your interests effectively. We can help make the right choice.

About the Author

Dwight Rabuse is a Partner in DeWitt’s Minneapolis office. Prior to joining DeWitt, he held positions with the United States Department of Justice in Washington, a Fortune 500 general counsel’s office, and was partner in a Twin Cities law firm before eventually launching his own firm, which later merged with DeWitt. He has more than 35 years of experience in civil litigation practice, including numerous federal and state court trials, arbitrations, and federal and state appeals, including briefs to the United States Supreme Court. His practice includes construction, employment, intellectual property and general business litigation and dispute resolution. Dwight is also qualified as Rule 114 neutral in Minnesota. Dwight can be reached by email or at (612) 305-1402.

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