Court Opinion

ID: 9516707
Source: CourtListenerOpinion
Date Created: 2023-08-06 23:50:00.02701+00
Date Added: 2024-06-11T09:39:00.532177
License: Public Domain

WUEST, Chief Justice
(dissenting).
The record is not clear as to the degree of success Brynco Corporation eventually achieved. The indications are that ICP Corporation paid Byrne a $100,000 cash advance and promised him payment of an additional $650,000. Ainsworth received $20,000 from Byrne and was set to receive another $130,000 when the remaining $650,000 was realized. What later seems to have occurred is the ICP deal fell through, Byrne and the Bank settled for the partial payment of Byrne’s debt by ICP, and the Bank ended its relationship with Byrne after its foreclosure on the Byrne residence. What began as a promising business venture failed to develop the profits everyone expected.
“Ainsworth' claims he did not receive everything he was due from Byrne. He also claims he did not receive everything he was entitled to from Bank. Although Ains-worth’s contract was with Byrne, he partially blames Bank for leading him down the road he eventually found himself on. The question is whether Ainsworth should have raised these arguments when Bank sued to recover on the notes rather than waiting until now to assert those claims.
The purpose of the compulsory counterclaim rule is to prevent multiplicity of actions and to achieve a just resolution in a single lawsuit of all disputes arising out of common matters. See Olawsky v. Clausen, 87 S.D. 578, 212 N.W.2d 653 (1973). Since the exceptions stated in the rule adequately safeguard a party, courts should give the phrase “transaction or occurrence that is the subject matter of the suit” a broad realistic interpretation in the interest of avoiding a multiplicity of suits. 3 Moore’s Federal Practice par. 13.13 (1985).
The rule has been given a broad construction to provide a liberal basis for joining all related claims. See Warshawsky & Co. v. Arcata Nat. Corp., 552 F.2d 1257 (7th Cir.1977); Annis v. Dewey County Bank, 335 F.Supp. 133 (D.C.S.D.1971). At the same time, however, a compulsory counterclaim must be pleaded or it is barred. As we stated in Olawsky, “[H]arsh consequences result from the failure to plead a compulsory counterclaim.” If a defendant is in any doubt as to the nature of his counterclaim, whether permissive or compulsory, careful practice requires him to plead it in order to protect himself.
In view of the imprecision of the “transaction or occurrence” language, the courts have developed a number of standards to aid in deciding when a counterclaim is sufficiently related to the main claim to be compulsory. Olawsky, supra. The term “transaction” within the purview of the compulsory counterclaim rule “may comprehend a series of many occurrences, depending not so much upon the immediateness of their connection as upon their logical relationship.” Olawsky, 212 N.W.2d at 655, quoting Moore v. New York Cotton Exchange, 270 U.S. 593, 46 S.Ct. 367, 70 L.Ed. 750 (1926).
Appellants on one hand argue there is no “logical relationship” between the advances received from Bank and the complaint against Walker and Bank. On the other hand, however, they assert Ains-worth accepted the loans only after being encouraged to work on the Byrne project and after receiving certain assurances from Walker that were allegedly made in his capacity as bank officer. As stated in the complaint, the basis for appellants’ lawsuit against the bank is Ainsworth’s reliance on alleged representations Walker made to him, as well as certain omissions where Ainsworth claims he should have been advised. Relevant portions of the complaint *36relied upon by the trial court m its ruling include the following:
V. “...Defendant Walker advised Lincoln Ainsworth, who was financially embarrassed at the time, that he would provide financing to him in order to undertake the marketing endeavor.”
VI. “Plaintiff Lincoln Ainsworth and Defendant Bruce Walker and First Bank had a trust relationship, and by virtue of such relationship Ainsworth placed explicit faith, trust, and confidence in and he relied upon the representations made by defendant that he would be treated fairly, that the monies advanced to him as loans would be repaid from the profits of the process, and that Defendants would act to protect his interests.”
XII. “At no time prior to the time of the loans made to Plaintiff Lincoln Ains-worth did Defendant Bruce Walker advise Plaintiff that Larry Byrne was heavily indebted to First Bank, that he had no further credit available at the Bank, that Bruce Walker had a personal investment in Bymco Industries, that applicable banking policies and procedures were not followed, and that it was in the Bank’s best interest to loan to Plaintiff Lincoln Ainsworth money so that the financial success of Bymco Industries would be assured.”
In essence, the complaint alleges that Ainsworth was led to believe the bank would await payment on his promissory notes until he received his share of profits from the venture. When Bank started its action on the promissory notes, Byme allegedly had not yet honored his promise to Ainsworth. The assurances of good faith went so far that, as Ainsworth’s counsel indicated to the trial court, when the notes became due, Ainsworth negotiated for and thought he had received assurances of payments from Walker and Bank which he could apply to the notes.
There is a logical relationship between the two claims, regardless of whether the loan money was used solely for living expenses or whether it was also used on behalf of the. business effort. Suits on notes will inevitably deal with circumstances of execution and any representation made to “induce” the borrowing. Moreover, the demand for payment is logically connected to Ainsworth’s claim that he did not receive the benefit of certain representations made later.
Ainsworth may have suffered other damages in addition to the judgment debt on the notes, but it is clear the debt incurred by Ainsworth was part of the overall change of position he allegedly made in reliance on the representations. If, after the notes became mature Ainsworth brought suit first, Bank’s right to receive payment on the loans would be a compulsory counterclaim, and it would certainly not want to allow its debtor to recover without taking the loans into account. Since there is a logical relationship between each party’s claim, Ainsworth should have asserted his complaint against Bank in the first action. It was a compulsory counterclaim.
The majority stresses that Walker and Byrne were retained as individual parties in the second action while Bank was dismissed. It then, in my opinion, places unnecessary significance on the fact that Ainsworths could not have asserted a compulsory counterclaim against Walker or Byrne because they were not parties to the first action. Ainsworth chose not to contest his debt to Bank in the first action. Therefore, there was simply no impetus for joining either Walker or Byrne. Had Ains-worth brought his compulsory counterclaim against Bank, he would have necessarily included its agent, Bruce Walker, in his capacity as a bank officer. If not, Bank could have joined Walker by cross-claim. Nevertheless, the critical issue is not whether Ainsworth could have achieved joinder of all the parties in one lawsuit. The critical point is that Ainsworth’s claim against Bank, and against its agent, Bruce Walker (in his capacity as bank officer), was logically related to Bank’s original action, and he should have raised it then.
I would affirm.
SABERS, J., joins in this dissent and authorizes me to so state.