Union Paving Company v. Downer Corporation

• Decision Date: 14 March 1960
• Docket Number: No. 16465.,16465.
• Citation: 276 F.2d 468
• Parties: UNION PAVING COMPANY, Appellant, v. DOWNER CORPORATION, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

276 F.2d 468 (1960)

UNION PAVING COMPANY, Appellant, v. DOWNER CORPORATION, Appellee.

No. 16465.

United States Court of Appeals Ninth Circuit.

March 14, 1960.

Everett S. Layman, Kenneth S. Carey, San Francisco, Cal., for appellant.

Forrest E. Macomber, Gordon J. Aulik, Stockton, Cal., Arthur J. Lempert, San Francisco, Cal., for appellee.

Before HEALY, CHAMBERS, and HAMLIN, Circuit Judges.

HEALY, Circuit Judge.

This is an appeal from an order of the district court finalized pursuant to Federal Rule of Civil Procedure 54(b), 28 U.S.C.A., dismissing appellant's sixth counterclaim against appellee. Appellee's motion to augment the record on appeal is granted.

The facts in the case are these: Appellee and appellant joined together in a joint venture for the purpose of constructing a sanitary sewage system in a subdivision of Bakersfield, California. In the course of this work it became necessary to purchase a used sludge pump to test the project's disposal plant. Through the efforts of one R. E. White a used sewage system which included such a pump was obtained. This used system was paid for one-half by White and one-half by the joint venturers on the Bakersfield project, appellant and appellee. Unfortunately the Bakersfield joint venture terminated in litigation, appellee suing appellant in federal court for an accounting. Appellant's sixth counterclaim, the one here in question, alleged that appellee had converted to its own use the above mentioned used sewage system. Prior to appellee's federal action White had brought suit in state court seeking to quiet title to the used sewage system and had joined both appellant and appellee as defendants. Appellant had there cross-claimed against both appellee and White for the alleged conversion of the used sewage equipment. This state litigation was pending at the time the federal action was initiated.

The district court dismissed appellant's counterclaim for conversion of the used equipment on the grounds that it was neither permissive under Federal Rule of Civil Procedure 13(b) nor compulsory under Rule 13(a). The pertinent parts of Rule 13 are set out below.¹ The court held that the counterclaim was one arising out of the transaction or occurrence which was the subject matter of the plaintiff's claim and so could not be a permissive counterclaim. Nor could it be a compulsory counterclaim, said the court, for it stated a cause of action which was the subject of pending state litigation at the time the federal action was begun. Therefore, the court concluded, the counterclaim could not be pleaded.

The district court correctly found that there was a very definite logical relationship between the counterclaim and the main action and that consequently both claims must be deemed to have arisen out of the same transaction or occurrence. Moore v. New York Cotton Exchange, 270 U.S. 593, 610, 46 S.Ct. 367, 70 L.Ed. 750; Lesnik v. Public Industrials Corp., 2 Cir., 144 F.2d 968, 975. Rule 13(b) is therefore inapplicable. See footnote 1, supra.

However, we believe the district court was mistaken in holding that Rule 13(a) precludes a defendant from pleading as a counterclaim a cause of action arising out of the same transaction or occurrence as the main action but which at the time suit was initiated was also the subject of pending state litigation.

Rule 13(a) provides that any causes of action which a party has against his opponent and which arise out of the same transaction or occurrence as the opponent's claim must be pleaded as counterclaims in a federal action. See footnote 1, supra. Such pleading is compulsory. If a party fails to plead these causes of action as counterclaims, he is held to have waived them and is precluded by res judicata from ever suing upon them again. Hancock Oil Co. v. Universal Oil Products Co., 9 Cir., 115 F.2d 45, 47; E. J. Korvette Co. v. Parker Pen Co., D.C., 17 F.R.D. 267. The apparent purpose of such compulsion is to prevent a multiplicity of lawsuits. See 3 Moore's Federal Practice (2d ed.) § 13.12. There is, however, an exception to this waiver rule. When the cause of action which would otherwise of necessity be pleaded as a compulsory counterclaim under Rule 13(a) is also the subject of pending litigation in another court — litigation which had been commenced before the instant action — waiver will not result from the failure to counterclaim the cause of action in question and the failing party will not thereafter be barred by res judicata. See Esquire, Inc. v. Varga Enterprises, Inc., 7 Cir., 185 F.2d 14. The purpose of this exception is seemingly to prevent one party from compelling another to try his cause of action in a court not of the latter's choosing when the same cause of action is already the subject of pending litigation in another forum, one which was probably chosen by the owner of the cause of action concerned. The language of the exception clause in Rule 13(a) — "such a claim need not be so stated as a counterclaim if at the time the action was commenced the claim was the subject of another pending action" — seems clearly permissive. The italics are ours. The exception enables a party to escape the waiver rule if he has already begun his action in another forum of his own choosing. It does not preclude him from electing instead to counterclaim his cause of action in the instant case.²

This conclusion is reinforced by the fact that under Rule 13(b) pending litigation on the same cause of action has no effect on the ability to plead a permissive counterclaim. Thus, under the district court's theory, a cause of action which did not arise out of the same...