Keeley Assoc., Inc. v. Integrity Supply , 120 Ohio App. 3d 1 ( 1997 )

Being unable to agree with the majority, I respectfully dissent. The rule of claim preclusion embodied in Civ.R. 13(A) should not be applied against plaintiff Keeley Associates, Inc., because the corporation was not a party to the earlier action.

Civ.R.13(A), regarding compulsory counterclaims, provides:

"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 acquire jurisdiction. * * *" (Emphasis added.)

Integrity's 1992 action named only Mr. Keeley as a defendant. The root problem in this appeal is that the parties dispute whether Mr. Keeley, Keeley Associates, Inc., or both are bound by and entitled to the benefits of the contract with Integrity. This is a question of corporation law and contract law, and based on the record before us, we cannot tell whether that issue was necessarily determined by the first action.¹ In this action, Integrity, as the defendant, has the burden of proving the defenses of claim preclusion or issue preclusion. Integrity has neither presented evidence that the issue was raised in the first action nor raised the issue in this action. Therefore, the corporation must be given the opportunity to have the trial court determine whether it is entitled to the benefits of the contract with Integrity. If so, the corporation is entitled to assert its claim, because it is a claim independent of any that Mr. Keeley might have had. If not, Integrity will be entitled to judgment, but only as a matter of substantive law, not as a matter of Civ.R. 13(A) claim preclusion.

In ruling that the claim of Keeley Associates, Inc., is barred by the rule of claim preclusion embodied in Civ.R. 13(A), the majority interprets Civ.R. 13(A) to say: "A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader or parties in privity with the pleader have against any opposing party." Such an interpretation, in this case at least, essentially creates a procedural rule of "compulsory intervention" not contemplated by, and perhaps in contravention of, the Rules of Civil Procedure.

The common-law rule of claim preclusion applies to parties and their privies: A final judgment or decree rendered upon the merits, without fraud or collusion, by a court of competent jurisdiction bars all subsequent actions by the parties or those in privity with them based upon any claim arising out of the transaction or occurrence that was the subject matter of the previous action. Grava v. Parkman Twp. (1995), 73 Ohio St.3d 379, 653 N.E.2d 226, syllabus; Norwood v. McDonald (1943),142 Ohio St. 299, 27 O.O. 240, 52 N.E.2d 67, paragraph one of the syllabus, modified by Grava. Under Civ.R. 13(A), a party's failure to assert a compulsory counterclaim gives rise to a defense of claim preclusion in a subsequent action. SeeRettig Ent., Inc. v. Koehler (1994), 68 Ohio St.3d 274,626 N.E.2d 99. I believe Civ.R. 13(A) incorporates this common-law rule of claim preclusion only to the extent the common-law rule is consistent with the plain language of the Civil Rule. This distinction may explain why defendant's briefs in both the trial court and this court fail to cite Civ.R. 13(A). Because Civ.R. 13(A) creates a bar only to parties, not those in privity with them, plaintiff should not be barred from bringing its claim.

According to defendant and the majority, Keeley Associates, Inc., was required to intervene as a defendant in the 1992 action for the sole purpose of asserting a claim against the plaintiff Integrity. The majority refers to this claim as a "compulsory counterclaim," but I question whether it should be termed a counterclaim at all given that Integrity did not sue Keeley Associates, Inc. I do not doubt the majority's suggestion that the trial court probably would have granted a motion to consolidate this action with Integrity's action. But no rule of law required Keeley Associates, Inc., to file suit or risk losing its claim.

The effect of the majority's expansion of the rule of claim preclusion embodied in Civ.R. 13(A) to bind nonparties essentially creates a procedural rule of "compulsory intervention." Such a rule is not contemplated by the Ohio Rules of Civil Procedure and contravenes Civ.R. 13 and possibly Civ.R. 24.

"[I]t appears that the traditional view is that a defendant may counterclaim only in the capacity in which he has been sued." Banco Nacional de Cuba v. Chase Manhattan Bank (C.A.2, 1981), 658 F.2d 875, 886 (holding that bank could not bring counterclaim in its capacity as trustee). Following this rule, the court in Durham v. Bunn (E.D.Pa. 1949), 85 F. Supp. 530, dismissed a counterclaim pled by a city tax official on behalf of the city on the ground that the official had been named as a defendant only individually. In United States v. All Right,Title Interest in Real Property Appurtenances Thereto Knownas 35 Fulling Avenue, Tuckahoe, N.Y. (S.D.N.Y. 1991),772 F. Supp. 1433, 1438, the court noted in dicta that the defendant-in-rem corporation could not bring a counterclaim belonging to its president for recovery of confiscated cash and goods.

Obviously, if such a claim cannot be brought as a permissive counterclaim, it is not a compulsory counterclaim, and the doctrine of claim preclusion is inapplicable. In Zion v. SentrySafety Control Corp. (C.A.3, 1958), 258 F.2d 31, 33, the court held that because a law partnership's claim was not a claim held by the individual partner, the partnership's claim against a client had not been a compulsory counterclaim to the client's earlier action against the lone partner. Similarly, Keeley Associates, Inc., is a separate legal entity, and the claims of the corporation are not necessarily the claims of Mr. Keeley individually.

The majority's expansive view of Civ.R. 13(A) is also contrary to the spirit, if not the letter, of Civ.R. 24. Intervention is of two types: intervention of right under Civ.R. 24(A) and permissive intervention under Civ.R. 24(B). Civ.R. 24(A) provides for intervention of right in two instances. The first instance is when a state statute confers an unconditional right to intervene. No such statute has been implicated in this case. The second instance is when the applicant claims an interest in the subject of the action, but only if the applicant's interest is not adequately represented by existing parties. Civ.R. 24(A) provides:

"Intervention of Right. Upon timely application anyone shall be permitted to intervene in an action: (1) when a statute of this state confers an unconditional right to intervene; or (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect that interest,unless the applicant's interest is adequately represented byexisting parties." (Emphasis added.)

Perhaps the majority's legal conclusion that Keeley Associates, Inc., was in privity with Mr. Keeley is based in part on its determination that the corporation's interest in its relationship with Integrity was adequately represented by Mr. Keeley in the first action. If so, by expanding the rule of claim preclusion embodied in Civ.R. 13(A) to bind nonparties, the majority has created a dilemma: the corporation had no right to intervene in the first action, yet the majority finds that it is bound by the doctrine of claim preclusion because it did not intervene. It is true that the corporation could have applied for intervention at the discretion of the court pursuant to Civ.R. 24(B).² However, it would seem that the one instance in which intervention would be most necessary would be that in which a party would be bound by the doctrine of claim preclusion. Because the Civil Rules do not provide for intervention of right under the circumstances of this case, I conclude that they do not contemplate the "compulsory intervention" rule the trial court applied to bar the corporation's claim.

For these reasons, I respectfully dissent.

¹ In the first action, Mr. Keeley moved for summary judgment on the ground that Keeley Associates, Inc., and not he, was the proper party. The record before us does not contain a copy of any ruling on the motion by the trial court. The action proceeded to trial, where a jury found in favor of Mr. Keeley. The parties' appellate briefs inform us that neither Mr. Keeley nor Integrity sought to have Keeley Associates, Inc., joined as a defendant.

Contrary to the majority's assertions, the record contains no evidence that the trial court concluded that Mr. Keeley and the corporation "shared a common identity" or that Mr. Keeley "was the real party in interest."

² Civ.R. 24(B) provides:

"Permissive Intervention. Upon timely application anyone may be permitted to intervene in an action: (1) when a statute of this state confers a conditional right to intervene; or (2) when an applicant's claim or defense and the main action have a question of law or fact in common * * *."