Enter to open, tab to navigate, enter to select
District Court Erred in Dismissing Lawsuit under FRCP 13: Seventh Circuit
Practical Law Legal Update w-000-4998 (Approx. 4 pages)
District Court Erred in Dismissing Lawsuit under FRCP 13: Seventh Circuit
by Practical Law Litigation
| Published on 06 Aug 2015 • USA (National/Federal) |
In Pace v. Timmermann's Ranch and Saddle Shop, the US Court of Appeals for the Seventh Circuit held that Federal Rules of Civil Procedure (FRCP) 13 and 20 together do not compel a litigant to join additional parties to bring what would otherwise be a compulsory counterclaim.
On August 4, 2015, in Pace v. Timmermann's Ranch and Saddle Shop, the US Court of Appeals for the Seventh Circuit held that Federal Rules of Civil Procedure (FRCP) 13 and 20 together do not compel a litigant to join additional parties to bring what would otherwise be a compulsory counterclaim (No. 14-1940, (7th Cir. Aug. 4, 2015)).
Timmermann's Ranch and Saddle Shop (Timmermann's), which boards, buys and sells horses and sells merchandise, filed suit against Jeanne Pace in 2011 for allegedly embezzling funds and stealing merchandise. Pace filed an answer and a counterclaim in that lawsuit.
In 2013, Pace, along with her husband, filed a separate lawsuit against Timmermann's and four of its employees, alleging a conspiracy for Pace's false arrest. Her husband also filed a claim for loss of consortium. Pace and her husband moved to consolidate the 2011 and 2013 cases. The court granted the motion for discovery purposes but denied the motion for trial purposes without prejudice. The court instructed her to re-file the motion after discovery. During discovery, however, the court dismissed the case on the ground that the Paces' claims against Timmermann's and the four employees were compulsory counterclaims that should have been brought in the 2011 case under FRCP 13. The Paces appealed, among other things, the dismissal of the claims against the four employees.
On appeal, the Seventh Circuit found that although the claims against Timmermann's were compulsory, the claims against the four employees were not. Specifically, the Seventh Circuit reasoned that:
- A claim is compulsory under FRCP 13 only if:
- it arises out of the same transaction or occurrence as the opposing party's claim;
- the claim is one that a pleader has against an opposing party already in the case; and
- the claim does not require adding another party over whom the court cannot acquire jurisdiction.
- However, FRCP 13 did not apply to the claims against the individual employees because they were not parties to the 2011 lawsuit.
- The fact that the individual employees could have been joined in the 2011 lawsuit under FRCP 20, which governs permissive joinder, did not render the claims against them compulsory, as FRCP 13 does not require or otherwise influence the joinder of parties. Rather, FRCP 13 operates only with regard to claims.
- Although FRCP 19 requires joinder of necessary parties, the individual employees were not necessary parties in the 2011 case.
- Timmermann's argument that the claims against the individual employees were compulsory because the district court could have acquired jurisdiction over them and could have joined them in the 2011 lawsuit was an impermissible attempt to create a rule for compulsory joinder.
- Although requiring the claims against the individual defendants to have been brought as counterclaims in the 2011 lawsuit might have served judicial economy, the FRCP generally allow for a plaintiff to decide who to join in an action. The plaintiff's interest in structuring litigation is overridden only when prejudice to a defendant or an absent party is substantial and cannot be avoided.
As a result, the Seventh Circuit held that the district court erred by barring the Paces' claims against the individual employees and dismissing the 2013 lawsuit.