In Search of the Transaction or Occurrence: Counterclaims

• Publication year: 2022

40 Creighton L. Rev. 699. IN SEARCH OF THE TRANSACTION OR OCCURRENCE: COUNTERCLAIMS

Creighton Law Review

Vol. 40

DOUGLAS D. MCFARLAND(fn*)

I. INTRODUCTION

The "transaction or occurrence" is the cornerstone of joinder in the Federal Rules of Civil Procedure. A counterclaim arising out of the same transaction or occurrence as the claim is compulsory; a counterclaim not arising out of the same transaction or occurrence is permissive.(fn1) A cross-claim must arise out of the transaction or occurrence of the claim or a counterclaim.(fn2) A third-party defendant may assert a claim against the plaintiff that arises out of the transaction or occurrence of the claim; the plaintiff may return the favor.(fn3) An amendment relates back when it arises out of the "conduct, transaction, or occurrence" of the original pleading.(fn4) Permissive joinder of parties is allowed when the right to relief arises out of the same "transaction, occurrence, or series of transactions or occurrences."(fn5)

The importance of the "transaction or occurrence" extends far beyond the joinder devices. It is close kin to pleading a claim.(fn6) Preclusion doctrines today revolve around the "transaction."(fn7) The requirement of the "same case or controversy under Article III" for supplemental jurisdiction is the direct descendant - if not the clone - of the transaction or occurrence.(fn8)

Consequently, the transaction or occurrence is a key concept across civil procedure. Exploration of all of the above doctrines will help us understand it, yet together they provide far too much material for a single article. This Article is about the one area of joinder that produces by far the most difficulty, judged by the volume of reported decisions: compulsory counterclaims. A second, forthcoming article will explore the commonality of transaction or occurrence across other joinder devices, pleading, preclusion, and supplemental jurisdiction.

Part II of this Article identifies the historical antecedents for the choice of transaction or occurrence as the base of the counterclaim rule. This Part shows how the test fits within the general policies of the Federal Rules of Civil Procedure, which in turn leads to the intended, and proper, meaning of the phrase.(fn9)

Part III explores the interpretation of transaction or occurrence in compulsory counterclaim cases by federal courts. The courts from the beginning develop four different, inconsistent glosses on the rule language.(fn10) Over the years, some decisions properly reflect the intention and policies behind the transaction or occurrence.(fn11) Unfortunately, far more decisions run contrary to the intention and policies in a variety of ways.(fn12)

Part IV argues for proper interpretation of the transaction or occurrence in compulsory counterclaim cases. This goal is achieved when courts look to the facts of cases instead of to legal theories, extraneous policy, or superfluous rule glosses.(fn13) Consequently, Part IV suggests that the "transaction or occurrence" might profitably be replaced with a test that clearly focuses the attention of courts onto those facts; this Part provides more than a dozen suitable alternatives.

II. IN SEARCH OF THE TRANSACTION OR OCCURRENCE

A court or commentator attempting to interpret a legal word or phrase often begins with a dictionary definition. That effort gains little in search of "transaction or occurrence." Long before the phrase was baked into the federal joinder rules, the Supreme Court of the United States declared "'Transaction' is a word of flexible meaning. It may comprehend a series of many occurrences, depending not so much upon the immediateness of their connection as upon their logical relationship."(fn14) Even today, the law dictionary offers little.(fn15) Indeed, many have inveighed against the attempt to find a precise definition.(fn16) Accordingly, no precise definition is attempted here.

That does not mean a court should throw up its hands, murmur case-by-case basis, and attempt to do rough justice in deciding whether a counterclaim is compulsory or permissive. While "transaction or occurrence" may evade precise definition, we know precisely the intent and policies behind the phrase. We look to the intent and policies informing the Federal Rules of Civil Procedure generally, and specifically to the federal joinder rules.

The Federal Rules became effective in 1938, having been authorized by Congress and promulgated by the Supreme Court.(fn17) The Federal Rules were drafted by a distinguished advisory committee appointed by the Court; the reporter for the committee was Professor, later Judge, Charles E. Clark.(fn18) Clark was a procedure expert of longstanding, he held strong views about the subject, and he seized the opportunity to embed his procedural philosophy throughout the Federal Rules.(fn19)

The global procedural philosophy of Clark is summed up in the title of a speech he later published: procedure is the handmaid of justice.(fn20) Rules of procedure should be "continually restricted to their proper and subordinate role" to substantive law.(fn21) Clark's primary theme is procedure should serve substantive law, or, in other words, that procedural rules should promote decision on the merits of a case.(fn22) By de-emphasizing procedural rulings, the primary peripheral benefit is saving time and resources for all.(fn23)

More specifically, Clark's procedural philosophy is apparent in the joinder rules.(fn24) The primary point of all the joinder rules - including the counterclaim - is whenever feasible to settle all controversies between the litigants in one suit.(fn25) Settling all controversies in the same suit incorporates two things. First, broad joinder promotes judi-cial economy and "end[s] the necessity for litigating the same issues over and over. . . ."(fn26) Second, and more important for our purposes, it means joinder objections are not fine-tuned pleading questions but instead are matters for later exercise of broad trial court discretion over trial convenience.(fn27)

In order to accomplish these policies and goals, the drafters of the Federal Rules - the advisory committee members and staff, under the firm direction of Clark - based the federal joinder rules on the "transaction," a term that traces back into the codes and even through to the common law.(fn28) The advisory committee note to Federal Rule 13 states it is an "expanded version" of former Federal Equity Rule 30, which centered on the "transaction."(fn29) The committee note does not specify in what ways the new federal rule expands on the equity rule, but certainly one expansion is inflating the operative test from "transaction" to "transaction or occurrence." In the same fashion, the opera-tive test for party joinder is inflated from "transaction" to "transaction or occurrence."(fn30) This quite apparently is done across the joinder rules to broaden the availability of joinder under a unified test, as well as to disapprove some grudging code decisions on the scope of a "transaction."(fn31)

If the expansion from "transaction" to "transaction or occurrence" does not make the policy of the federal joinder rules clear enough, then the inclusion of Federal Rule 21 seals the deal:

Misjoinder of parties is not ground for dismissal of an action. Parties may be dropped or added by order of the court on motion of any party or of its own initiative at any stage of the action and on such terms as are just. Any claim against a party may be severed and proceeded with separately.(fn32)

The language points out to judges that joinder problems are to be dealt with as trial convenience problems, not pleading problems.(fn33)

Treating joinder as a trial convenience problem instead of a pleading problem is hand-in-glove with the Federal Rules' de-emphasis on pleading in favor of deciding cases on the merits.(fn34) The Federal Rules simplify pleading by providing for notice pleading of facts sufficient to state a "claim for relief."(fn35) The claim is a brand-new term coined in an attempt to eliminate much of the wasteful pre-trial litigation encountered in interpreting the code requirements of pleading "ultimate facts" constituting a "cause of action."(fn36)

The key to the claim for relief is that it is fact-based and fact-defined. Under the codes, some courts and scholars thought a cause of action was law-based, the intersection of a single right and duty, a single legal theory of recovery.(fn37) Clark believed strongly a cause of action was fact-based, a set of facts that a lay person would expect to be tried together without regard to legal rights or duties; one cause of action could contain several legal theories of recovery.(fn38) This debate is of historical interest only. Clark won the debate - at least for federal courts and rules states - through drafting the Federal Rules. The claim for relief did not exist under the codes, and the cause of action does not exist under the rules.(fn39) In federal courts and rules states, the claim for relief is fact-based, bounded only by a lay conception of what facts properly and conveniently group together:

The variable character of "cause of action" has been pointed out. . . . Because of its illusive character, that concept has been entirely omitted from the new rules; but a similar idea is conveyed. . . . These rules make the extent of the claim involved depend not

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