Opinion ID: 1909099
Heading Depth: 3
Heading Rank: 1

Heading: Compulsory Counterclaims

Text: In these mandamus petitions, the Birmingham Water Works Board argues that the counterclaims are compulsory under Rule 13(a) because, it says, the counterclaims are logically related to the claims of the plaintiff classes in the Wallace Action and the Rockett Action. Specifically, the Birmingham Water Works Board asserts that a large number of the plaintiff class members are delinquent in the payment of their water bills, the very same bills that the plaintiffs assert were too high because of the alleged illegal conduct of the Birmingham Water Works Board and the other defendants. Thus, the Birmingham Water Works Board contends that if it does not assert its compulsory counterclaims now, it will be barred from doing so in the future. The plaintiffs in the Wallace Action and the Rockett Action argue that the counterclaims are not compulsory. The plaintiffs in the Rockett Action further assert that the delinquent-account counterclaims are not logically related to the claims in that class action because, they say, only plaintiffs that are current on their water bills are included in that class. The plaintiffs in the Wallace Action assert that the delinquent-account counterclaims bear no logical relationship to the allegations of wrongdoing by the Birmingham Water Works Board. We disagree with the plaintiffs' arguments. Rule 13(a), Ala. R. Civ. P., provides in pertinent part: Compulsory Counterclaims. 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.) The Committee Comments to Rule 13(a) state: A counterclaim is compulsory if there is any logical relation of any sort between the original claim and the counterclaim. (Emphasis added.) In Brooks v. Peoples National Bank, 414 So.2d 917, 919 (Ala.1982), this Court explained: The logical relationship test denominates a counterclaim as compulsory if (1) its trial in the original action would avoid substantial duplication of effort or (2) the original claim and the counterclaim arose out of the same aggregate core of operative facts. The claims arise from the same core of operative facts if (1) the facts taken as a whole serve as the basis for both claims or (2) the sum total of facts upon which the original claim rests creates legal rights in a party which would otherwise remain dormant. (Emphasis added.) This Court has further stated that `[t]he rule on compulsory counterclaims should receive a broad realistic interpretation in light of the interest of avoiding a multiplicity of suits.' Mississippi Valley Title Ins. Co. v. Hardy, 541 So.2d 1057, 1060 (Ala.1989) (quoting Plant v. Blazer Fin. Services, Inc. of Georgia, 598 F.2d 1357, 1361 (5th Cir.1979)) (quoting 3 Moore's Federal Practice ¶ 13.13 at p. 300). In Brooks, 414 So.2d at 919, this Court held that a claim alleging fraud in the inducement regarding a promissory note, and a counterclaim alleging default on the payment of that note, were logically related. This Court stated: This Court, in a similar case, held that in an action on a note, a counterclaim seeking damages for breach of an indemnification agreement executed contemporaneously with the note was a compulsory counterclaim. Redmond v. Harrelson, 355 So.2d 356 (Ala.1978). Furthermore, the majority position in federal courts is that a creditor's claim for default on a debt is a compulsory counterclaim in an action under the Truth-in-Lending laws. See Plant v. Blazer Financial Services, Inc. of Georgia, 598 F.2d 1357 (5th Cir.1979); Carter v. Public Finance Corp., 73 F.R.D. 488 (N.D.Ala.1977). Brooks, 414 So.2d at 919. This Court stated that the action arose out of a single, continuous loan transaction and that the evidence needed to prove the claim and the counterclaim overlapped. Id. The facts, taken as a whole, served as the basis for both claims. Id. In determining whether the claims and the counterclaims in the actions underlying these petitions are logically related, we first dispose of the assertion by the plaintiffs in the Rockett Action (the Jefferson Class Action) that the class contains only customers who are current on their water bills. This assertion is clearly without merit. The complaint states that the class includes current customers of the ... Water Works Board of the City of Bessemer and current direct customers of [the] Birmingham Water Works [Board].... The complaint does not purport to limit the class to those plaintiffs who are customers and who are current on their water bills. Plainly read, the complaint in the Rockett Action includes all current customers of the boards regardless of whether their accounts are current. The more pertinent issue is whether the delinquent-account counterclaims are logically related to the class-overcharge claims. On the one hand, the alleged wrongdoings of the Birmingham Water Works Board, including illegal expenditures of board funds and excessive expenditures, must be proven by specific facts that differ from the specific facts surrounding the delinquency of certain plaintiffs on their water bills. On the other hand, the claims of the plaintiffs, asserting that their water bills were too high, arise from the same contractual water-service relationship between the customers and the Birmingham Water Works Board as the counterclaims asserting that payments on those water bills are delinquent. The critical issue is whether the logical-relationship test of Rule 13(a) is satisfied by the fact that the claim and the counterclaim arise from the same contract, or whether additional factual similarities are required. For example, to denominate the counterclaims compulsory, must the reason for the alleged overcharges on the water bills by the Birmingham Water Works Board (the claims) arise from the same facts as the reason for the alleged lack of payment on those same water bills by certain of the plaintiffs (the counterclaims)? We resolve this issue by referring to the federal cases dealing with counterclaims alleging delinquent payments on notes challenged under the truth-in-lending laws. In Plant, 598 F.2d 1357, which this Court cited with approval in Brooks, 414 So.2d at 919, the United States Court of Appeals for the Fifth Circuit squarely addressed the issue whether the logical-relationship test for Rule 13(a), Fed.R.Civ.P., [2] was satisfied by the fact that a truth-in-lending claim arose from the same note as a counterclaim alleging failure to pay on the note. The claim was based on the defendant creditor's failure to disclose terms regarding an after-acquired security interest. Plant, 598 F.2d at 1359. The counterclaim was based on the plaintiff debtor's failure to make any payments on the note. Id. The Fifth Circuit noted several arguments against treating the counterclaims as compulsory, including the argument that the adjudication of the failure-to-disclose claim would be frustrated by the myriad factual and legal questions essential to a decision on the debt claims but unrelated to the truth-in-lending violation. Id. at 1361 (emphasis added). Nonetheless, the Fifth Circuit rejected this argument. The Fifth Circuit noted that resolution of the delinquent payment counterclaim itself would impose little burden in fact because the only additional finding to be made is simply how much the plaintiff has paid. Plant, 598 F.2d at 1364. Further, the Fifth Circuit explained that if the creditor was not allowed to assert his delinquent-payment counterclaim against the defaulting debtor, the creditor could be forced to satisfy the debtor's truth-in-lending claim without any assurance that his claims against the defaulting debtor arising from the same transaction will be taken into account or even that the funds he has been required to pay will still be available should he obtain a state court judgment in excess of the judgment on the truth-in-lending claim. Plant, 598 F.2d at 1364. Thus, the Fifth Circuit concluded that where a delinquent-payment counterclaim and a failure-to-disclose claim arose from the same note, they were logically related, notwithstanding that the reasons for the delinquent payment had nothing to do with the reasons for the failure to disclose. Id. ; accord Moore v. New York Cotton Exch., 270 U.S. 593, 610, 46 S.Ct. 367, 70 L.Ed. 750 (1926) (stating that `[t]ransaction' is a word of flexible meaning and thus may comprehend a series of many occurrences, depending not so much upon the immediateness of their connection as upon their logical relationship.); Champ Lyons, Jr., Alabama Rules of Civil Procedure Annotated § 13.4, pp. 283-84 (3d ed.1996). As in Brooks, 414 So.2d at 919, we find the Fifth Circuit's rationale in Plant persuasive on our interpretation of Alabama's Rule 13(a). We conclude that the plaintiffs' overcharge claims in the Wallace Action and in the Rockett Action are logically related to the counterclaims, notwithstanding that the reasons for the alleged delinquent payment had nothing to do with the reasons for the alleged overcharges. Thus, the counterclaims are compulsory under Rule 13(a).