Title: Ruppenthal v. State By and Through Economic Development and Stabilization Bd.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Ruppenthal v. State By and Through Economic Development and Stabilization Bd.1993 WY 56849 P.2d 1316Case Number: 92-147Decided: 04/09/1993Supreme Court of Wyoming
Rolf RUPPENTHAL, 

Appellant 
(Defendant),

v.

STATE of Wyoming, acting 
By and Through the 

ECONOMIC DEVELOPMENT AND 
STABILIZATION BOARD, 

Appellee 
(Plaintiff).

Appeal from District 
Court, Laramie County, Edward L. Grant, J.

William D. 
Bagley, Cheyenne, for appellant.

Joseph B. Meyer, 
Atty. Gen., and Mary B. Guthrie, Senior Asst. Atty. Gen., for 
appellee.

Before MACY, 
C.J., and THOMAS, CARDINE, GOLDEN and TAYLOR, JJ.

MACY, Chief 
Justice.

[¶1]      Appellant Rolf 
Ruppenthal appeals to challenge the dismissal of his counterclaim against 
Appellee State of Wyoming in a debt-collection case. The district court 
dismissed the counterclaim because Mr. Ruppenthal failed to comply with the 
requirements of the Wyoming Governmental Claims Act, Wyo. Stat. §§ 1-39-101 to 
-120 (1988 & Supp. 1992).

[¶2]      We reverse and 
remand.

[¶3]      Mr. Ruppenthal 
frames the issues as follows:

1. Is compliance with the 
Wyoming Governmental Claims Act necessary with respect to the Ruppenthal 
Counterclaim?

2. Does Wyoming have 
sovereign immunity with respect to the Ruppenthal Counterclaim?

[¶4]      The State 
restates the issues in this manner:

I. Whether the trial 
court properly dismissed Appellant's counterclaim, because no claim was filed 
with the State Auditor.

II. Whether the trial 
court properly dismissed Appellant's counterclaim because of the State's 
sovereign immunity.

III. Whether this appeal 
should be dismissed.

[¶5]      The State of 
Wyoming, acting by and through the Economic Development and Stabilization Board, 
loaned Atra Corporation $200,000 on June 7, 1988, $100,000 on July 8, 1988, and 
$420,000 on October 28, 1988. In connection with each loan, Atra executed a 
commercial promissory note, and Atra's president, Mr. Ruppenthal, executed a 
personal guaranty. The loans were made to enable Atra to establish a shuttle bus 
manufacturing business.

[¶6]      Atra failed to 
make any payments, and the State consequently filed a complaint against Atra and 
Mr. Ruppenthal on December 18, 1991. The complaint, as amended, alleged that the 
commercial promissory notes were in default for nonpayment and requested 
judgment for the principal amount of $720,000, plus accrued interest and 
attorney's fees.

[¶7]      Atra and Mr. 
Ruppenthal filed an answer to the amended complaint on February 3, 1992. They 
admitted executing the relevant documents but denied being liable to the State. 
In conjunction with the answer, Mr. Ruppenthal counterclaimed for damages 
resulting from the State's alleged wrongful misconduct. Specifically, Mr. 
Ruppenthal complained that the State induced him to guarantee the loans by 
misrepresenting that it would support Atra with money for training, business 
expertise, et cetera. Mr. Ruppenthal also complained that the State released 
confidential information to his detriment. 

[¶8]      The State filed a 
motion to dismiss Mr. Ruppenthal's counterclaim on February 20, 1992. The 
district court granted this motion, following a hearing, by an order entered on 
March 19, 1992. The district court reasoned: "[T]here is no distinction between 
a complaint and a counterclaim under the Wyoming Governmental Claims Act and . . 
. the Defendant's failure to comply with the requirements of the Governmental 
Claims Act [is] fatal to the counterclaim."

[¶9]      On April 6, 1992, 
the State filed a motion for summary judgment on its amended complaint. The 
State supported its motion with affidavits which substantiated its claims for 
the loan principal, accrued interest, and attorney's fees. Atra and Mr. 
Ruppenthal failed to file counteraffidavits or to otherwise defend. Accordingly, 
the district court granted a summary judgment in favor of the State by an order 
filed on June 5, 1992, for the amount of $877,283.10, with interest to accrue at 
the rate of $170 a day from December 10, 1991, until the date of payment. Mr. 
Ruppenthal filed a notice of appeal on June 18, 1992, to challenge the district 
court's dismissal of his counterclaim.

[¶10]   As a preliminary matter, we must 
address the State's argument that this appeal should be dismissed. The State 
contends that Mr. Ruppenthal should have filed a notice of appeal within fifteen 
days of the district court's March 19, 1992, order which dismissed his 
counterclaim. The State's position is that the dismissal order was a final order 
or judgment and that a notice of appeal should have been filed no later than 
April 3, 1992. The State asserts that, because a notice of appeal was not filed 
until June 18, 1992, this Court is jurisdictionally barred from considering this 
appeal.

[¶11]   W.R.A.P. 2.011 requires that a notice of appeal be 
filed within fifteen days from the entry of a final order or judgment, except in 
limited circumstances not presently applicable. The failure to comply with this 
simple requirement constitutes a jurisdictional bar to appellate review. 
W.R.A.P. 1.02;2 Miller v. Murdock, 788 P.2d 614, 
615 (Wyo. 1990) (per curiam). W.R.A.P. 1.053 provides in relevant part that a 
final order is "an order affecting a substantial right in an action, when such 
order in effect determines the action and prevents a judgment." A final order or 
judgment is defined more generally as being one which adjudicates the merits of 
the entire controversy and leaves nothing for future consideration. Stone v. 
Stone, 842 P.2d 545, 548 (Wyo. 1992).

[¶12]   The State relies heavily upon the 
above-quoted portion of W.R.A.P. 1.05 to contend that the dismissal order was a 
final, appealable order. W.R.A.P. 1.05 must, however, be read with W.R.C.P. 
54(b) in the context of a multiple-claim or multiple-party case. See Olmstead v. 
Cattle, Inc., 541 P.2d 49 (Wyo. 1975) (decided before the revision of the 
Wyoming Rules of Appellate Procedure). W.R.C.P. 54(b) provides:

(b) Judgment upon 
multiple claims or involving multiple parties. - When more than one claim for 
relief is presented in an action, whether as a claim, counterclaim, cross-claim, 
or third-party claim, or when multiple parties are involved, the court may 
direct the entry of a final judgment as to one or more but fewer than all of the 
claims or parties only upon an express determination that there is no just 
reason for delay and upon an express direction for the entry of judgment. In the 
absence of such determination and direction, any order or other form of 
decision, however designated, which adjudicates fewer than all the claims or the 
rights and liabilities of fewer than all the parties shall not terminate the 
action as to any of the claims or parties, and the order or other form of 
decision is subject to revision at any time before the entry of judgment 
adjudicating all the claims and the rights and liabilities of all the 
parties.

[¶13]   Applying the foregoing, we conclude 
that this case falls within the ambit of W.R.C.P. 54(b). The district court's 
dismissal order adjudicated only one of the two claims involved in the 
controversy. As such, the dismissal order was not appealable until after 
resolution of the State's claim absent a W.R.C.P. 54(b) certification by the 
district court. Mott v. England, 604 P.2d 560, 563 (Wyo. 1979). A W.R.C.P. 54(b) 
certification requires that the district court expressly determine that no just 
reason exists to delay an appeal and expressly direct that judgment be entered 
on the adjudicated portion of the case. W.R.C.P. 54(b). See generally 10 CHARLES 
ALAN WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 2655 (2d ed. 1983 & 
Supp. 1992). The record does not reflect that the district court ever made such 
a certification. Therefore, the dismissal order remained a revisable, 
interlocutory order until the entry of a final judgment.4 W.R.C.P. 54(b). As Mr. Ruppenthal 
filed his notice of appeal within fifteen days of the entry of the summary 
judgment, the final order or judgment in this case, we hold that this Court has 
jurisdiction to consider this appeal. See W.R.A.P. 2.01.

[¶14]   On appeal, Mr. Ruppenthal raises 
two issues which correspond to the grounds relied upon by the district court in 
dismissing his counterclaim. The district court dismissed the counterclaim 
because: (1) Mr. Ruppenthal failed to file a claim with the State as was 
required by § 1-39-113 of the Wyoming Governmental Claims Act; and (2) the 
Wyoming Governmental Claims Act does not contain an immunity exception for the 
conduct complained of by Mr. Ruppenthal. Mr. Ruppenthal does not contend that 
the district court's findings are incorrect; rather, he contends that such 
findings are not fatal to his counterclaim. He argues that, as a matter of 
equity, a defendant to a government-initiated lawsuit should be able to 
defensively assert any counterclaim which arises out of the transaction or 
occurrence upon which suit is being brought.5

[¶15]   A review of Wyoming's procedural 
rules and statutory law reveals that the success of Mr. Ruppenthal's appeal 
indeed hinges on whether this Court will imply a waiver of sovereign immunity 
when the government initiates a lawsuit. W.R.C.P. 136 governs the pleading of 
counterclaims. W.R.C.P. 13(a) provides, with limited exceptions not herein 
applicable, that a claim must be pleaded as a counterclaim if it "arises out of 
the transaction or occurrence that is the subject matter of the opposing party's 
claim." W.R.C.P. 13(b) provides that any claim which does not fall within 
subsection (a) can be, but does not need to be, pleaded as a counterclaim. 
However, these subsections are qualified by W.R.C.P. 13(d), which 
reads:

(d) Counterclaim against 
the state. - These rules shall not be construed to enlarge beyond the limits 
fixed by law the right to assert counterclaims or claim credits against the 
state or against a county, municipal corporation or other political subdivision, 
public corporation, or any officer or agency thereof.

Subsection (d) 
makes it clear that subsections (a) and (b) are procedural rules which do not 
affect the substantive question of whether a counterclaim is barred by the 
doctrine of sovereign immunity. Consequently, we must examine this question. 

[¶16]   The doctrine of sovereign immunity, 
which provides that a sovereign is not subject to suit without its express 
consent, is recognized in Wyoming. See Wyo. Const. Art. 1, § 8. The Wyoming 
Governmental Claims Act provides that governmental entities and their employees 
are immune from tort liability, except in those areas identified in §§ 1-39-105 
to -112. If the government's alleged tortious conduct falls within one of the 
excepted areas, the Wyoming Governmental Claims Act requires that an itemized 
statement of the claim be filed with the appropriate governmental entity within 
two years of the act, error, or omission which gave rise to the claim or, in 
some instances, within two years after discovery of the act, error, or omission 
which gave rise to the claim. Section 1-39-113. The Wyoming Governmental Claims 
Act further provides that, generally, legal action on any claim falling within 
the purview of the Act must be commenced within one year after the filing of a 
claim as specified in § 1-39-113. Section 1-39-114. Compliance with the terms of 
the Wyoming Governmental Claims Act is necessary to avoid a claim being barred 
by the doctrine of sovereign immunity. Cranston v. Weston County Weed and Pest 
Board, 826 P.2d 251, 255 (Wyo. 1992); Duran v. Board of County Commissioners of 
Sweetwater County, 787 P.2d 971 (Wyo. 1990).

[¶17]   In the instant case, Mr. Ruppenthal 
counterclaimed for damages allegedly resulting from the State's 
misrepresentations relating to its ability to support new business and from the 
State's disclosure of confidential information gathered in the loan-making 
process. This counterclaim arises out of and is related to the loan-making 
transaction which lies at the heart of the State's claim to recover on Mr. 
Ruppenthal's guaranty. As such, it constitutes a compulsory counterclaim under 
W.R.C.P. 13(a). See generally 6 CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE AND 
PROCEDURE § 1410 (2d ed. 1990). The Wyoming Governmental Claims Act, however, 
contains no immunity exception for the type of tortious conduct complained of by 
Mr. Ruppenthal. See §§ 1-39-105 to -112. It is also undisputed that Mr. 
Ruppenthal failed to comply with the claims procedure requirements of the 
Wyoming Governmental Claims Act. Therefore, absent a holding by this Court that 
a different set of rules applies to claims asserted as counterclaims in 
government-initiated lawsuits, the district court's dismissal order must be 
affirmed.

[¶18]   No Wyoming case has considered the 
issue of whether a claim which would otherwise be barred by the doctrine of 
sovereign immunity may be asserted as a counterclaim in a government-initiated 
lawsuit. We find, however, that Hawkeye-Security Insurance Co. v. Apodaca, 524 P.2d 874 (Wyo. 1974), is instructive. In that case, the issue was whether an 
insured's claim which was time barred under the terms of an insurance policy 
could be asserted as a counterclaim in a lawsuit initiated by an insurance 
company. In the course of discussing this issue, this Court stated:

The pleading of a 
counterclaim being a procedural matter does not affect the substantive question 
as to whether a limitation period bars the claim which is pleaded as a 
counterclaim. Thus recoupment, which by definition arises out of the 
transactional subject of the suit, when used only to defeat the claim sued upon 
is not barred by a limitation period if the main action is timely. While the 
defense of recoupment exists as long as the main cause exists, the claim, as an 
independent action, would be barred by limitations. The purpose of limitation 
provisions is to bar actions and not suppress or deny matters of defense, and 
the general rule is that limitations are not applicable to defenses but apply 
only where affirmative relief is sought.

524 P.2d  at 879 
(citations omitted).

[¶19]   The rule applied in 
Hawkeye-Security Insurance Co. is similar to the rule which prevails in the 
sovereign immunity context. In the leading federal case of Frederick v. United 
States, 386 F.2d 481 (5th Cir. 1967), the United States sued the guarantor of a 
government loan to recover an amount allegedly due after the sale of collateral. 
The guarantor counterclaimed for damages, alleging that the sale of collateral 
was "`unconscionable and tainted with fraud.'" 386 F.2d  at 484. The federal 
district court dismissed the guarantor's counterclaim. On appeal, the relevant 
issue was whether the United States enjoyed sovereign immunity because the 
guarantor failed to comply with the claims procedure provided in 28 U.S.C. § 
2406. The federal appellate court answered this issue negatively after assessing 
the interplay of the doctrine of sovereign immunity, F.R.C.P. 13, and 28 U.S.C. 
§ 2406. The Frederick court concluded:

[W]hen the sovereign sues 
it waives immunity as to claims of the defendant which assert matters in 
recoupment - arising out of the same transaction or occurrence which is the 
subject matter of the government's suit, and to the extent of defeating the 
government's claim but not to the extent of a judgment against the government 
which is affirmative in the sense of involving relief different in kind or 
nature to that sought by the government or in the sense of exceeding the amount 
of the government's claims; but the sovereign does not waive immunity as to 
claims which do not meet the "same transaction or occurrence test" nor to claims 
of a different form or nature than that sought by it as plaintiff nor to claims 
exceeding in amount that sought by it as plaintiff.

386 F.2d  at 488 
(footnote omitted).

[¶20]   The rule as articulated in 
Frederick has received broad acceptance in both federal and state courts. See, 
e.g., Federal Deposit Insurance Corporation v. Carter, 701 F. Supp. 730 
(C.D.Cal. 1987); Federal Deposit Insurance Corporation v. Shinnick, 635 F. Supp. 983 (D.Minn. 1986); Federal Savings and Loan Insurance Corporation v. Williams, 
599 F. Supp. 1184 (D.Md. 1984); State Board of Regents v. Holt, 8 Kan. App. 2d 
436, 659 P.2d 836 (1983); State v. Hogg, 311 Md. 446, 535 A.2d 923 (1988); and 
State ex rel. State Highway Commission of New Mexico v. Town of Grants, 69 N.M. 
145, 364 P.2d 853 (1961). See also 6 WRIGHT, FEDERAL PRACTICE AND PROCEDURE, 
supra, § 1427 at 197-98; 3 JAMES WM. MOORE & RICHARD D. FREER, MOORE'S 
FEDERAL PRACTICE ¶ 13.28 (2d ed. 1983); and 72 AM.JUR.2D States, Territories, 
and Dependencies § 95 (1974). While numerous justifications for the rule have 
been given, perhaps none are as persuasive as a simple statement made by the New 
Mexico Supreme Court:

To permit [a recoupment 
defense] would seem to be no more than simple justice; to deny it the right 
would be grossly inequitable. No one would assert that in an action by the 
sovereign, valid legal defenses should be denied the defendant.

Town of Grants, 
69 N.M. at 149, 364 P.2d  at 855.

[¶21]   In accord with the authority cited 
above, we hold that a claim which would otherwise be barred by the doctrine of 
sovereign immunity may be asserted as a counterclaim in a government-initiated 
lawsuit if it "arises out of the transaction or occurrence that is the subject 
matter of the opposing party's claim," W.R.C.P. 13(a), and is asserted to reduce 
or defeat the government's claim. As Mr. Ruppenthal's counterclaim satisfies the 
same "transaction or occurrence" test, it may be asserted to the extent that it 
seeks to reduce or defeat the judgment obtained by the State.

[¶22]   Reversed and remanded for 
proceedings consistent with this opinion.

FOOTNOTES

1 Revised effective 
November 1, 1992.

2 See supra note 1 (now 
W.R.A.P. 1.03).

3 See supra note 
1.

4 Professors Wright, 
Miller, and Kane explain in their treatise:

[F.R.C.P. 54(b)] makes 
clear when an appeal must be sought or the right to appeal will be lost, since 
the time for appeal begins to run from the entry of an order that meets the 
requirements of the rule. If the court does not enter a Rule 54(b) order, the 
litigant knows that waiting until the disposition of the entire case before 
seeking an appeal will not lose him the right to have the order 
reviewed.

10 
WRIGHT, FEDERAL PRACTICE AND PROCEDURE, supra, § 2654 at 39.

5 Mr. Ruppenthal also 
argues that the State violated Article 16, Section 6 of the Wyoming Constitution 
by loaning money to Atra. Article 16, Section 6 generally prohibits the State or 
any other political subdivision from lending money to, extending credit to, or 
giving donations to the private sector. However, an exception to this 
prohibition was created by a constitutional amendment in 1986. Article 16, 
Section 12 of the Wyoming Constitution established an economic development loan 
fund for the express purpose of enabling the State to make private sector loans. 
This contention clearly lacks merit.

6 Revised effective March 
24, 1992.