IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 12-10036

Summary Calendar

WILDER CORPORATION OF DELAWARE,

INCORPORATED; MAURICE WILDER,

Plaintiffs-Appellees

v.

RURAL COMMUNITY INSURANCE SERVICES,

Defendant-Appellant

Appeal from the United States District Court

for the Northern District of Texas

USDC No. 2:11-CV-123

Before JONES, BENAVIDES and GRAVES, Circuit Judges.

PER CURIAM:*

Appellant Rural Community Insurance Services (“RCIS”) challenges the

district court’s dismissal ofits counterclaim against Appellee Wilder Corporation

(“Wilder”) for insurance policy premiums, administrative fees, and various

charges under several RCIS-issued policies. Concluding the district court

properly found RCIS’s counterclaim precluded by res judicata, we AFFIRM.

United States Court of Appeals

Fifth Circuit

F I L E D

October 18, 2012

Lyle W. Cayce

Clerk

Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not *

be published and is not precedent except under the limited circumstances set forth in 5TH CIR.

R. 47.5.4.

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No. 11-41163

Wilder purchased from RCIS’s agent, NAU County Insurance Company

(“NAU”), several crop insurance policies. After NAU denied a claim Wilder filed

under those policies, Wilder sued RCIS, and other parties, in Texas state court,

seeking declaratory relief, rescission of the three RCIS policies, and damages.

RCIS responded by seeking an abatement of the Wilder claims pending

arbitration. NAU further counterclaimed against Wilder for unpaid premiums

under the insurance policies. In September 2008, the state court stayed the case

and compelled arbitration. Wilder, NAU, and RCIS jointly moved to modify the

state court’s order to retain jurisdiction in the state court, mandating pleadings

be filed in state court as well as with the arbiter, and providing for commercial

arbitration rules.

In May 2010, RCIS amended its answer to include “all affirmative

defenses . . . under the Texas Rules of Civil Procedure,” and a general denial “[i]n

accordance with the Texas Rules of Civil Procedure.” RCIS did not include a

counterclaim. The arbitrator issued his report that September, granting Wilder

rescission of one policy between it and NAU and awarding NAU its

counterclaimed premiums and charges. RCIS received no affirmative award, 

nor were the policies between RCIS and Wilder rescinded. The state court

confirmed the arbitration award in March 2011, expressly denying all relief not

granted in that judgment.

In June 2011, Wilder sued RCIS again in Texas state court for a 

declaratory judgment that res judicata barred RCIS from pursuing claims based

on unpaid fees, premiums, and financial charges. RCIS removed to the federal

district court and counterclaimed for essentially the same charges. Wilder

moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), contending that

either res judicata from the prior state court proceedings or the statute of

limitations barred RCIS’s counterclaim. RCIS also moved to dismiss Wilder’s

declaratory action under Rule 12(b)(6), requesting the district court voluntarily

dismiss its counterclaim if it granted RCIS’s motion. The district court denied

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RCIS’s motions and granted Wilder’s motion to dismiss with prejudice, on both

of Wilder’s proffered grounds.

RCIS appeals, asserting that the district court erred in holding its claim

precluded, abused its discretion by refusing to allow RCIS to voluntarily dismiss

its counterclaim, and improperly granted Wilder declaratory relief.

We review the res judicata effect of a prior judgment de novo as a question

of law. Oreck Direct, LLC v. Dyson, Inc., 560 F.3d 398, 401 (5th Cir. 2012).

Under res judicata, or claim preclusion, a final judgment on the merits of

an action precludes the parties or their privies from relitigating issues that were

or could have been raised in that action. Id. (citing Allen v. McCurry, 449 U.S.

90, 94, 101 S. Ct. 411, 414 (1980). When asked to give preclusive effect to state

court judgments, federal courts turn to the preclusion principles of the state

whose decision is invoked as a bar to further litigation. Prod. Supply Co. v. Fry

Steel Inc., 74 F.3d 76, 78 (5th Cir. 1996). Under Texas law, res judicata requires:

(1) a prior final judgment on the merits by a court of competent jurisdiction;

(2) the same parties in the second action or their privies; and (3) claims in the

second action that were or could have been raised in the first. Igal v. Brightstar

Info. Tech. Grp., Inc., 250 S.W.3d 78, 86 (Tex. 2008).

Here, all three elements have been met. The Texas state court had

competent jurisdiction and rendered a final judgment on the merits when it

confirmed the arbitration award. RCIS and Wilder are the same parties in both

actions. Finally, RCIS’s claim to recover past premiums, administrative fees,

and financing charges could have been raised as a counterclaim in the previous

action.

However, Texas law provides a qualification to the doctrine of res judicata

for claims that “could have been raised.” Only compulsory counterclaims that

could have been raised in the previous action are barred in a subsequent suit. 

Ingersoll-Rand Co v. Valero Energy Corp., 997 S.W.2d 203, 209 (Tex. 1999). 

Under the Texas Rules of Civil Procedure, a claim is compulsory if: (1) it is

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within the jurisdiction of the court; (2) it is not at the time of filing the answer

the subject of a pending action; (3) the claim is mature and owned by the

defendant at the time of filing the answer; (4) it arose out of the same

transaction or occurrence that it is the subject matter of the opposing party’s

claim; and (5) it does not require the presence of third parties over whom the

court cannot acquire jurisdiction. TEX. R. CIV. P. 97(a). 

RCIS does not challenge the district court’s accurate conclusion that its

counterclaim meets all the requirements for being compulsory under Texas Rule

97(a). Instead, RCIS argues that because the claims in the prior action were

arbitrated, rather than adjudicated by the state court, it did not need to comply

with all the Texas Rules of Civil Procedure. 

RCIS is incorrect. When the Texas state court assumed jurisdiction over

Wilder’s civil suit against RCIS, the action immediately became subject to the

Texas Rules of Civil Procedure. TEX. R. CIV. P. 2 (“These rules shall govern the

procedure in the justice, county, and district courts of the State of Texas in all

actions of a civil nature . . . .”). RCIS’s duty to file a compulsory counterclaim

arose at that time. Contrary to RCIS’s contention, the fact that some

commercial arbitration rules were used during the arbitration stage did not

render Texas Rule 97(a) inapplicable to the suit. The order compelling

arbitration specifically retained the court’s jurisdiction over the action, required

the parties to file amended pleadings with the court, and did not change the civil

nature of the suit. Thus, the action and pleadings remained subject to the Texas

Rules of Civil Procedure, both before and after arbitration took place. 

Unlike NAU, RCIS failed to file its compulsory counterclaim in the

previous suit as required by the Texas Rules of Civil Procedure. Therefore, the

district court correctly held that RCIS’s counterclaim is barred by claim

preclusion. 

Because RCIS’s counterclaim is conclusively barred by res judicata,

dismissal with prejudice was appropriate. See Fernandez-Montes v. Allied Pilots

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Ass’n, 987 F.2d 278, 284 n.8 (5th Cir. 1993). In addition, RCIS concedes that it

had the opportunity to fully brief the issues before the court granted judgment

sua sponte on the basis of competing motions to dismiss. The court did not

plainly err in its procedural approach. Love v. Nat’l Med. Enters., 230 F.3d 765,

771 (5th Cir. 2000). AFFIRMED. 

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