Blanchard v. Katz

117 F.R.D. 527, 1987 U.S. Dist. LEXIS 10321, 1987 WL 4224
CourtDistrict Court, S.D. New York
DecidedNovember 10, 1987
DocketNo. 86 Civ. 9594(MEL)
StatusPublished
Cited by13 cases

This text of 117 F.R.D. 527 (Blanchard v. Katz) is published on Counsel Stack Legal Research, covering District Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Blanchard v. Katz, 117 F.R.D. 527, 1987 U.S. Dist. LEXIS 10321, 1987 WL 4224 (S.D.N.Y. 1987).

Opinion

LASKER, District Judge.

In this action, plaintiffs allege that defendants violated the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., and committed common-law fraud, breach of contract, and breach of fiduciary duty. Plaintiffs maintain that defendants induced them to purchase units in a limited partnership with representations that defendants knew at the time to be false concerning the care, management, and financial projections of the partnership. Defendants Lasky and Rubin have counterclaimed against all plaintiffs except Kloberg for payments due on promissory notes for amounts owed the partnership and against Kloberg for amounts they personally advanced him. Plaintiffs move to dismiss Lasky and Rubin’s counterclaims, arguing that, as partners, the two defendants cannot counterclaim on behalf of the partnership. The motion is denied, subject to defendants amending their counterclaims to state that they are brought on behalf of the partnership.

Plaintiffs argue that defendants’ counterclaims must be dismissed because the counterclaims belong to the partnership, but the defendants have been sued as partners. Defendants answer that there are circumstance in which courts have allowed persons sued in one capacity to counterclaim in another and that considerations of judicial economy weigh against dismissal of the counterclaims.1

Rule 13 of the Federal Rules of Civil Procedure states:

A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim and does not require for its adjudication the presence of third parties of whom the court cannot obtain jurisdiction, (emphasis added)

Traditionally, when a plaintiff brings suit in one capacity, the defendant may not counterclaim against the plaintiff in a different capacity than that in which plaintiff sued. 3 Moore’s Federal Practice ¶ 13.06[1] (1980). Although less settled, it also appears that a defendant who has been sued in one capacity may generally assert a counterclaim only in that capacity. See Banco Nacional de Cuba v. Chase Manhattan Bank, 658 F.2d 875, 886 (2d Cir.1981). See also Dunham v. Crosby, 435 F.2d 1177, 1181 (1st Cir.1970) (noting school superintendent cannot counterclaim on behalf of school board and expressing doubt that members of the school board sued in their representative capacity could bring counterclaim of board), overruled on other grounds by Raper v. Lucey, 488 F.2d 748 (1st Cir.1973); Zion v. Sentry Safety Control Corp., 258 F.2d 31, 34 (3d Cir.1958) (holding that partner, under Pennsylvania law, cannot counterclaim for debt owed partnership); but see Aldens Inc. v. Packel, 524 F.2d 38, 51 (3d Cir.1975) (holding Attorney General, sued in individual capacity, could assert counterclaim in representative capacity), cert. denied, 425 U.S. 943, 96 S.Ct. 1684, 48 L.Ed.2d 187 (1976).

However, two exceptions have developed to the traditional rule that a counterclaim may be lodged against plaintiff [529]*529only in the capacity in which the plaintiff sued. First, if a plaintiff has sued in a representative capacity but will benefit individually from any recovery, a counterclaim may be made against the plaintiff in his individual capacity. Second, a counterclaim may be made against a plaintiff in a capacity different than that in which he sued if principles of equity and judicial economy support such a counterclaim. Banco Nacional de Cuba v. Chase Manahattan Bank, 658 F.2d 875, 886-7 (2d Cir.1981).

The issue here is whether a defendant may counterclaim in a capacity different from that in which he has been sued. Although there appears to be no authority on this variation of the theme, the rules and exceptions described above seem to be logically as applicable to the status of a counterclaimant as to the status of a plaintiff against whom a counterclaim is made.

The rationale for allowing counterclaims against a plaintiff only in the capacity in which plaintiff sued—to prevent inequity from counterclaims made against a plaintiff in his individual capacity although the plaintiff sued in a representative capacity— does not apply in cases in which the plaintiff will personally benefit from a suit although brought in a representative capacity. Banco Nacional De Cuba v. Chase Manhattan Bank, 505 F.Supp. 412, 437 (S.D.N.Y.1980), aff'd, 658 F.2d 875 (2d Cir.1981); Burg v. Horn, 37 F.R.D. 562, 563 (E.D.N.Y.1965); Scott v. United States, 354 F.2d 292, 300-301, 173 Ct.Cl. 650 (1965).

There is no apparent reason why this exception should not extend to defendants asserting counterclaims. See generally Banco Nacional de Cuba v. Chase Manhattan Bank, 505 F.Supp. at 437 (stating exception to opposing party rule might also apply to defendants and dismissing counterclaims only because defendant had no beneficial interest in counterclaim). In this case, defendants will benefit individually from the counterclaims, although the claims are those of the partnership. Moreover, since the counterclaims do not seek to hold plaintiffs accountable in a different status than that in which they have sued, allowing the defendants to assert these counterclaims will impose no unfair burden on the plaintiffs.

Considerations of judicial economy also appear to justify permitting defendants sued as individuals to raise counterclaims in a representative capacity. Upon such considerations, courts have permitted counterclaims against a plaintiff in a capacity other than that in which the plaintiff sued. Even in Dunham v. Crosby, 435 F.2d 1177 (1st Cir.1970), a case cited by plaintiffs for the proposition that defendants (members of a school board) sued in an individual capacity should not be allowed to counterclaim in a representative capacity, the court refused to dismiss the counterclaims raised by the defendants on behalf of the school board. Instead, the court found that resolution of all issues at one time would promote judicial economy. Dunham, 435 F.2d at 1181.

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Bluebook (online)
117 F.R.D. 527, 1987 U.S. Dist. LEXIS 10321, 1987 WL 4224, Counsel Stack Legal Research, https://law.counselstack.com/opinion/blanchard-v-katz-nysd-1987.