Burlington Northern R. Co. v. Strong

• Decision Date: 20 July 1990
• Docket Number: No. 89-1671,89-1671
• Citation: 907 F.2d 707
• Parties: BURLINGTON NORTHERN RAILROAD COMPANY, Plaintiff-Appellee, v. John T. STRONG, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 707

907 F.2d 707

17 Fed.R.Serv.3d 179

BURLINGTON NORTHERN RAILROAD COMPANY, Plaintiff-Appellee, v. John T. STRONG, Defendant-Appellant.

No. 89-1671.

United States Court of Appeals Seventh Circuit.

Argued Oct. 31, 1989.

Decided July 20, 1990.

Susan D. Thurmer, St. Paul, Minn., for plaintiff-appellee.

Gary K. Wood, Morrisard & Rossi, Aurora, Colo., for defendant-appellant.

Before BAUER, Chief Judge, and RIPPLE, Circuit Judge, and WILL, Senior District Judge. ^*

RIPPLE, Circuit Judge.

John Strong sued his employer, Burlington Northern Railroad Company (Burlington), alleging personal injury tort damages.

A jury awarded Mr. Strong $73,000. Thereafter, Burlington moved to set off against the judgment money received by Mr. Strong from a disability insurance program funded by Burlington. The district court denied this motion. Burlington then brought a separate suit to recover the funds. Summary judgment in favor of Burlington for the entire amount of the disability funds was entered on November 30, 1988. Mr. Strong appeals from the district court's judgment in the second suit. For the following reasons, we affirm.

I BACKGROUND

Mr. Strong was a member of the Brotherhood of Maintenance of Way Employees during his employment with Burlington. The union operated under a collective bargaining agreement that applied to all union employees the provisions of the Supplemental Sickness Benefit Agreement of 1973 (1973 Agreement). In turn, the 1973 Agreement provided that the Supplemental Sickness Benefits (SSB) received by employees would not duplicate recovery of lost wages from a disability case. ¹

Mr. Strong was injured in two separate accidents on September 12, 1983 and March 5, 1985 during his employment with Burlington. He brought suit against Burlington to recover for these injuries under the Federal Employers Liability Act (FELA), 45 U.S.C. Secs. 51-60. Following a jury trial, Mr. Strong was awarded $73,000 in compensation for the 1983 injury; Burlington was found not liable for the 1985 injury.

After the trial, Burlington moved for a determination that the amount of the judgment ought to be reduced by $11,678.21, the amount paid to Mr. Strong in SSB benefits. The district court held that, "in the absence of a lien or judgment in its favor, [Burlington] is not entitled to withhold the sum of $11,678.21 for any Supplemental Sickness Benefit paid to [Mr. Strong]." Strong v. Burlington N. R.R., No. 86-C-661-C, Order at 2 (W.D.Wis. Feb. 18, 1988). However, the district court suggested that Mr. Strong could not succeed in keeping the money if Burlington sued on the contract:

I note that plaintiff's recalcitrance in refusing to remit the $11,678.21 sum allegedly paid out as Supplemental Sickness Benefit payments may well have adverse consequences for plaintiff himself.... [I]t seems clear that defendant can sue on the contract to recover this amount of money from plaintiff, and that if it does so, plaintiff will be subject to additional and probably unnecessary costs for defending a new lawsuit.

Id. at 2-3.

Taking its cue from the district court, Burlington sued on the contract to recover the SSB payments. Mr. Strong argued Mr. Strong's second argument before the district court was that the FELA prohibited the railroad from setting off its liability to its employees. Alternatively, Mr. Strong argued that the express language of 45 U.S.C. Sec. 55 required that only the premium payments made by the railroad to the insurance program, and not the actual amount received by Mr. Strong, be credited to the railroad as payments already made. The district court rejected both arguments and granted Burlington's motion for summary judgment.

                that the railroad's suit was barred by res judicata because such a claim should have been brought as a compulsory counterclaim to the previous FELA suit.  However, the court decided that the railroad's claim was a permissive, not compulsory, counterclaim:  "Burlington Northern's right to recoup the disability benefits does not arise out of the same occurrence (the accidents) that gave rise to Strong's lawsuit;  it derives from the provisions of the Supplemental Sickness Benefit Agreement of May 12, 1973."    Burlington N. R.R. v. Strong, No. 88-C-195-C, Order at 5 (W.D.Wis. Nov. 30, 1988).  The court further decided that, even if the claim could be said to be related to the same occurrence, an exception for claims that had not matured at the time of filing the answer would apply.  Id. (citing 3 J. Moore's Federal Practice p 13.14 (2d ed. 1988);  6 C. Wright & A. Miller, Federal Practice & Procedure Sec. 1411, at 54-56 (1st ed. 1971))
                

II

ANALYSIS

In this court, Mr. Strong renews the arguments he submitted to the district court. We shall address each separately.

A. Compulsory Counterclaim

1. General principles

Mr. Strong argues that Burlington's claim for setoff was a compulsory counterclaim that was waived when Burlington failed to raise it during the first trial (Mr. Strong's FELA trial). See Fed.R.Civ.P. 13(a). ² Rule 13(a) is "in some ways a harsh rule": ³ if a counterclaim is compulsory and the party does not bring it in the original lawsuit, that claim is thereafter barred. Baker v. Gold Seal Liquors, Inc., 417 U.S. 467, 469 n. 1, 94 S.Ct. 2504, 2506 n. 1, 41 L.Ed.2d 243 (1974); see Asset Allocation & Management Co. v. Western Employers Ins. Co., 892 F.2d 566, 572 (7th Cir.1989). But the rule serves a valuable role in the litigation process, especially in conserving judicial resources. As we have noted, Rule 13(a) "is the result of a balancing between competing interests. The convenience of the party with a compulsory counterclaim is sacrificed in the interest of judicial economy." Martino v. McDonald's Sys., Inc., 598 F.2d 1079, 1082 (7th Cir.), cert. denied, 444 U.S. 966, 100 S.Ct. 455, 62 L.Ed.2d 379 (1979); see also Car Carriers, Inc. v. Ford Motor Co., 789 F.2d 589, 594 n. 7 (7th Cir.1986) (noting that Rule 13(a) "encourages the simultaneous and final resolution of all claims which arise from a common factual background"); Warshawsky & Co. v. Arcata Nat'l Corp., 552 F.2d 1257, 1261 (7th Cir.1977) ("The purpose of the rule is to prevent multiplicity of actions and to achieve resolution in a single lawsuit of all disputes arising out of common matters."); 6 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure Sec. 1409, at 46-47 (2d ed. 1990).

In order to be a compulsory counterclaim, Rule 13(a) requires that the claim (1) exist at the time of pleading, (2) arise out of the same transaction or occurrence as the opposing party's claim, and (3) not require for adjudication parties over whom the court may not acquire jurisdiction. There is no dispute that the third element--no required third parties--is met in this case. Our disposition therefore must turn on whether the other two requirements are met. We shall discuss them in the same order as the district court: 1) the same transaction and 2) the existence at the time of pleading requirements.

a. the same transaction test

This court has developed a "logical relationship" test to determine whether the "transaction or occurrence" is the same for purposes of Rule 13(a).

"Courts generally have agreed that the words 'transaction or occurrence' should be interpreted liberally in order to further the general policies of the federal rules and carry out the philosophy of Rule 13(a).... As a word of flexible meaning, 'transaction' may comprehend a series of many occurrences, depending not so much upon the immediateness of their connection as upon their logical relationship. ... [A] counterclaim that has its roots in a separate transaction or occurrence is permissive and is governed by Rule 13(b)."

Gilldorn Sav. Ass'n v. Commerce Sav. Ass'n, 804 F.2d 390, 396 (7th Cir.1986) (quoting Warshawsky & Co., 552 F.2d at 1261) (emphasis supplied by this court); see also Valencia v. Anderson Bros. Ford, 617 F.2d 1278, 1291 (7th Cir.1980), rev'd on other grounds, 452 U.S. 205, 101 S.Ct. 2266, 68 L.Ed.2d 783 (1981). ⁴ Despite this liberal construction, we have stressed that our inquiry cannot be a " ' "wooden application of the common transaction label." ' " Gilldorn Sav. Ass'n, 804 F.2d at 397 (quoting Valencia, 617 F.2d at 1291) (quoting Ball v. Connecticut Bank & Trust Co., 404 F.Supp. 1, 4 (D.Conn.1975)). Rather, we must examine carefully the factual allegations underlying each claim to determine if the logical relationship test is met. For example, in Gilldorn Savings Association, this court decided that, even in light of this liberal construction, the transactions in that case were not sufficiently close to require that the second suit be barred as a compulsory counterclaim. Id. In that case, the first suit related to the 1983 sale of a mortgage company by Commerce to Gilldorn. The second suit related to a 1984 agreement that Commerce exchange a five million dollar subordinated debenture for five million dollars in Gilldorn preferred stock. Commerce alleged that it exchanged its debenture solely on the promise by Gilldorn that Gilldorn would not sue Commerce on a claim associated with the 1983 sale. Id. at 396. This court decided that the 1984 stock exchange was "totally unrelated" to the 1983 stock purchase, id., despite acknowledging that "Commerce's claims technically are related to Gilldorn's in the sense that Commerce's claims may not have accrued until Gilldorn filed the Illinois action." Id. at 397. We concluded that the relationship was insufficient to satisfy Rule 13(a) because the two claims were based on different theories and would raise different legal and factual issues. Id. Similarly, in Valencia, we determined that a counterclaim for the debt due under the contract in a Truth and Lending Act suit was not compulsory and thus did not establish ancillary jurisdiction. The court concluded that the connection between the claims was "so insignificant that compulsory adjudication of both claims in a single...