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By Colin E. Flora
The resurrected counterclaim: Ind. Trial Rule 13(J)
s civil attorneys well know, Indiana Trial Rule 13 governs counterclaims and cross-claims. Nevertheless, a portion of the rule often goes overlooked to the detriment of defendants with otherwise timebarred counterclaims. Rule 13(J) exists as the embodiment of almost two centuries of doctrines that gradually transitioned from common law to statute and finally into procedural rule. It provides for circumstances in which a counterclaim may be filed after expiration of the statute of limitations as a means of recoupment or set-off against a plaintiff’s claims.1 Notably, 13(J) does not provide for affirmative relief; rather, it allows for a method to diminish a counterclaim defendant’s recovery as the primary plaintiff.2 Also of note is that, unlike much of Rule 13, subdivision (J) has no counterpart in the federal rules.3 Devoid of its historical context and subsequent limited case law, Trial Rule 13(J) seems a straightforward procedural rule. It reads: The statute of limitations, a nonclaim statute or other discharge at law shall not bar a claim asserted as a counterclaim to the extent that: (1) it diminishes or defeats the opposing party’s claim if it arises out of the transaction or occurrence that is the subject-matter of the opposing party’s claim, or if it could have been asserted as a counterclaim to the opposing party’s claim before it (the counterclaim) was barred; or (2) it or the opposing party’s claim relates to payment of or security for the other.
On first glance, it appears to provide two avenues to preserve a dilatory counterclaim: (J)(1) and (J)(2). However, case law proves first glances deceiving and shows (J)(1) may be understood only through the lens of history. An even greater enigma is (J)(2), the plain language of which belies
its intended purpose: to address counterclaims when it or the primary claim has been assigned. Even with the limited answers through case law, there remain unsettled questions in applying the rule tracing back to the doctrines and statutes that preceded it. By examining the limited case law, Civil Code Study Commission comments, and recent appellate arguments, this article attempts to provide a “one stop shop” for understanding the rule and to expose some of the lingering questions that may arise in practice. In order to do that, we must start at the beginning.
History of recoupment and set-off The origins of T.R. 13(J), along with the rest of Rule 13, stem from two related but distinct doctrines: recoupment and set-off.4 At the dawn of Hoosier jurisprudence, when there existed a distinction between courts of law and equity, counterclaims were not recognized by that name. Chancery practice had cross-bills for the purpose of “obtain[ing] full relief for all parties and a complete determination of all controversies which arise out of the matters charged in the original bill.”5 Cross-bills had a mirror at law in the doctrine of recoupment. Recoupment permitted a reduction of the plaintiff’s claim so long as the basis for recoupment “grows out of the same contract or transaction as that upon which the plaintiff’s cause of action is founded.”6 Another related but distinct chancery court doctrine was set-off. Arising from “seventeenth-century chancery court’s jurisdiction over bankruptcy,”7 the set-off doctrine encompassed “a counter demand growing out of an independent transaction, for which the defendant might maintain an action against the plaintiff, pleaded by
the defendant to counterbalance the plaintiff’s recovery, either in whole or in part, and, [possibly], to recover a judgment in his own favor.”8 As Justice Byron Elliott recognized, “The essential difference between set-off and recoupment is that [set-off] may consist of a claim arising out of an independent contract; while in recoupment the damages claimed must flow from the same contract ... or must grow out of the same transaction as that on which the plaintiff’s cause of action is founded.”9 Just as chancery courts faded beneath the sands of antiquity, so too did the doctrinal status of recoupment and set-off.10 In 1852, the code system of pleadings was adopted to “blend in one system the chancery and common law procedure, but to so blend them that the new procedure ... should form in itself a complete and harmonious system.”11 The code blended crossbills and recoupment into counterclaims,12 “defin[ing it] as any matter arising out of, or connected with the cause of action which might be the subject of an action in favor of the defendant, on which would tend to reduce the plaintiff’s claim or demand for damages.”13 The code also subsumed the doctrine of set-off, but not as a “counterclaim.” The earliest incarnation of the set-off statute permitted “a party to an action [to] plead or reply a set-off or payment to the amount of any cause of action or defense, notwithstanding, such set-off or payment is barred by the statute.”14 The merger of law and equity along with the exclusion of set-offs from the category of counterclaims resulted in much Colin E. Flora confusion. This was most Pavlack Law, LLC Indianapolis, Ind.
(continued on page 14) email@example.com RES GESTÆ • MARCH 2015
March 2015 edition of Res Gestae, the journal of the Indiana State Bar Association