Opinion ID: 1598921
Heading Depth: 1
Heading Rank: 3

Heading: Patrick vs. The Estate

Text: Patrick appealed the dismissal of its counterclaim against the Estate seeking reimbursement of amounts that it claims to have mistakenly paid for Kathleen's working-interest expenses on the Mosser 1-26. The trial court dismissed the claim, concluding that it was barred by NDCC 30.1-19-03 (UPC 3-803), the non-claim provisions in the probate code. A creditor's claim against an estate is barred if not presented within three months after the date of the first publication of notice to creditors, or within three months after the claim arises if it arises at or after the decedent's death. NDCC 30.1-19-03(1)(a) and (2)(b). [6] Notice to creditors was first published on May 5, 1983, and Patrick made no claim until it filed its answer and counterclaim in May 1989. Patrick recognizes that its claim against the Estate was not timely filed, but Patrick argues that it should be allowed to use a barred claim against the Estate to reduce the Estate's claim against it. Under the circumstances here, we agree. In Linster v. Holmen, 116 N.W.2d 616 (N.D.1962), and Larson v. Quanrud, Brink & Reibold, 78 N.D. 70, 47 N.W.2d 743 (1950), this court held that in a suit by an administrator for an estate, a defendant may, after the time for filing claims against the estate has expired, plead and prove an unfiled claim to reduce an estate's claim. In Linster, 116 N.W.2d at 619, the court reasoned: [W]hile the defendant's claim may be barred, the debt remains and the recovery by the plaintiff, administrator, should properly be limited to the net debt due the estate from the defendant. Although these decisions predate adoption of the Uniform Probate Code in North Dakota, we see nothing in the language of NDCC 30.1-19-03 or in the drafter's comments to UPC 3-803 that rules out the application of defensive recoupment. The Nebraska Supreme Court, construing its state's adoption of the same Uniform Probate Code provision, has held that the defense of recoupment is not barred by the non-claim statute. See In re Estate of Massie, 218 Neb. 103, 353 N.W.2d 735, 740 (1984), overruled on other grounds In re Estate of Price, 223 Neb. 12, 388 N.W.2d 72, 77 (1986). North Dakota, like some other states, has traditionally allowed defensive recoupment against claims by an estate. Recoupment is an equitable doctrine with its own unique characteristics: it must arise out of the same transaction that is the subject matter of the plaintiff's action and it can only be used to reduce or avoid the plaintiff's recovery. E.g., Household Finance Corp. v. Pugh, 288 N.W.2d 701, 704 (Minn.1980); 20 Am. Jur.2d Counterclaim, Recoupment, and Setoff § 6 (1965). It is not a weapon of offense. 20 Am.Jur.2d Counterclaim, Recoupment, and Setoff, at p. 232. Recoupment cannot be used to obtain affirmative relief. W.J. Kroeger Co. v. Travelers Indemnity Company, 112 Ariz. 285, 541 P.2d 385, 388 (1975). Recoupment differs from a counterclaim, which may arise out of a separate transaction and allows for affirmative relief and recovery in excess of that sought by the plaintiff, and from a setoff, which involves a transaction unrelated to the plaintiff's action. See Household Finance Corp. v. Pugh, 288 N.W.2d at 704 n. 5; 3 Moore's Federal Practice ¶ 13.02, at p. 13-13 n. 1 (1990). Recoupment is purely defensive. Counterclaims and setoffs are usually barred by operation of a statute of limitation. 51 Am.Jur.2d Limitation of Actions § 78 (1970). On the other hand, it is widely held that a statute of limitation does not defeat defensive recoupment, but that it survives as long as the plaintiff's cause of action exists. See Stone v. White, 301 U.S. 532, 539, 57 S.Ct. 851, 854, 81 L.Ed. 1265 (1937); Annot., Claim barred by limitation as subject of setoff, counterclaim, recoupment, cross bill, or cross action, 1 A.L.R.2d 630, at 666 (1948); Annot., Presentation of Claim to Executor or Administrator As Prerequisite of its Availability as Counterclaim or Setoff, 36 A.L.R.3d 693 (1971); 51 Am.Jur.2d Limitation of Action, at § 77; 6 Wright and Miller, Federal Practice and Procedure: Civil § 1419 (1990); 3 Moore's Federal Practice, at ¶ 13.11. We agree with the weight of authority that a claim in the nature of a recoupment defense survives as long as the plaintiff's cause of action exists, even if affirmative legal action upon the subject of recoupment is barred by a statute of limitations. Therefore, NDCC 30.1-19-03 does not bar defensive recoupment. Our recognition of defensive recoupment here is not inconsistent with this court's decisions in Dickinson Air Service, Inc. v. Kadrmas, 397 N.W.2d 55 (N.D.1986), and Schroeder Aviation, Inc. v. DeFehr, 283 N.W.2d 147 (N.D.1979). In Kadrmas and DeFehr, this court approved the dismissal of each defendant's tort counterclaim for damages because the defendant failed, under NDCC 28-01-40 and 28-01-41, to timely file and serve a verified loss report as a condition precedent to a claim for damages from use of agricultural chemicals. Defensive recoupment was not specifically mentioned in either case. The applicability of statutes of limitation to counterclaims in general and to setoffs, as we earlier noted, differ substantially from defensive recoupment. In this case, Patrick's pleadings specifically assert that any sums paid as costs on behalf of Kathleen O'Connell's working interest after payout on the well were paid in error and that Patrick Petroleum is entitled to a set-off against any sums determined to be owed to the Estate. Use of the term set-off rather than the term recoupment is not fatal if the claim in fact arises out of the same transaction as the plaintiff's action. Garza v. Allied Finance Co., 566 S.W.2d 57, 63 (Tex.Ct.Civ. App.1978). See also Tuloka Affiliates, Inc. v. Moore, 275 S.C. 199, 268 S.E.2d 293, 295 (1980) [use of term counterclaim is irrelevant if claim is in the nature of a recoupment defense]. The Estate's claim against Patrick and Patrick's claim against the Estate arise out of the same transaction, i.e., payment of Kathleen's working interest expenses. Therefore, defensive recoupment is applicable here. We conclude that the trial court erred in dismissing Patrick's defense against the Estate insofar as the dismissal prohibits Patrick's use of recoupment. Patrick may assert its defense to reduce the Estate's recovery, if any, against Patrick.