Court Opinion

ID: 8731923
Source: CourtListenerOpinion
Date Created: 2022-11-26 09:49:59.27086+00
Date Added: 2024-06-11T16:59:45.100086
License: Public Domain

ORDER

HITTNER, District Judge.
Pending before the Court is the Motion to Sever Reliance’s Permissive Counterclaim filed by Plaintiff Sandwich Chef of Texas d/b/a Wall Street Deli (Document #417). Having considered the motion, submissions and applicable law, the Court determines that the motion should be granted.
Plaintiff Sandwich Chef of Texas d/b/a Wall Street Deli (“Wall Street”) filed suit against Defendant Reliance National Indemnity Insurance Company (“Reliance”) and other insurance companies, asserting that Defendants violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 (“RICO”). Wall Street seeks to recover RICO damages for itself and a proposed class of employers who purchased retrospectively rated workers’ compensation insurance in one or more of forty-four states and the District of Columbia.
On December 14, 2000, Defendant Reliance filed a counterclaim for breach of contract against Wall Street, alleging that Wall Street failed to pay workers’ compensation premiums as well as automobile and general liability insurance premiums. Wall Street subsequently filed a class action counterclaim to Reliance’s counterclaim, asserting claims for breach of contract and fraud based upon Reliance’s automobile and general liability insurance counterclaim.
Wall Street contemporaneously filed the instant motion to sever pursuant to Federal Rule of Civil Procedure 21. Wall Street asks the Court to sever Reliance’s counterclaim (based on automobile and general liability insurance premiums) together with Wall Street’s class action counterclaim, as demonstrated below:
Pleading Claim Based Upon
Wall Street’s Original RICO Workers’ Compensation (scheme to defraud) Class Action Claim
Reliance’s Counterclaim Breach of Contract Workers’ Compensation (premiums)
4 Breach of Contract Automobile & General Liability Insurance (premiums)
Wall Street’s Class 4 Breach of Contract & Automobile & General Liability Insurance (deductibles) Action Counterclaim Fraud
* Claims that Wall Street seeks to sever in the instant motion.
The parties dispute whether Reliance’s counterclaim concerning alleged nonpayment of automobile and general liability insurance premiums is a compulsory counterclaim.1 Compulsory counterclaims are claims against an opposing party that arise out of the transaction or occurrence that is the subject matter of the opposing party’s claim. FED. R. CIV. P. 13(a). In determining whether a claim is a compulsory counterclaim, courts should ask: (1) whether the issues of fact and law raised by the claim and c e: o o tl p t< n t< si 1: a: counterclaim are largely the same, (2) whether res judicata would bar a subsequent suit on defendant’s claim absent the compulsory counterclaim rule, (3) whether substantially the same evidence will support or refute plaintiffs claim as well as defendant’s counterclaim, and (4) whether there is any logical relationship between the claim and the counterclaim. E.g., Tank Insulation Int’l v. In-sultherm, Inc., 104 F.3d 83, 85-86 (5th Cir. 1997). If any question is answered in the affirmative, the counterclaim is compulsory. *215Id. at 86. The Fifth Circuit follows the “logical relationship” inquiry, giving consideration to “whether the claim and counterclaim share an ‘aggregate of operative facts.’” E.g., New York Life Ins. Co. v. Deshotel, 142 F.3d 873, 882 (5th Cir.1998) (citing McDaniel v. Anheuser-Busch, Inc., 987 F.2d 298, 304 (5th Cir.1993)).
The Fifth Circuit employs a liberal test for determining whether counterclaims are compulsory, predicated on the policy that related disputes between parties should be settled in a single lawsuit. E.g., Plant v. Blazer Fin. Servs., Inc. of Georgia, 598 F.2d 1357, 1361 (5th Cir.1979); see also 6 Charles Alan Wright, Arthur R. Miller and Mary Kay Kane, Federal Practice & Procedure § 1410, p. 50 (2d ed.1990). However, “even the most liberal construction of the provision cannot operate to make a counterclaim that arises out of an entirely different or independent transaction or occurrence compulsory under Rule 13(a).” Wright Et Al. at § 1410, p. 51-52.
Wall Street argues in its motion to sever that “[ajlthough Reliance’s counterclaim concerning Wall Street’s alleged nonpayment of deductible automobile and general liability insurance premiums relates to insurance, it goes far beyond the narrow issue of fraudulent workers’ compensation billings alleged in Wall Street’s complaint. Simply put, the claims are not offshoots of the same controversy.” In response, Reliance contends that the pricing for Wall Street’s automobile, workers’ compensation, and general liability insurance was negotiated and sold in one transaction; thus, its counterclaim based on this single transaction constitutes a compulsory counterclaim.
In this ease, the transaction that is the subject matter of Wall Street’s RICO claim is different from the transaction relating to Reliance’s counterclaim for automobile and general liability insurance premiums. The transaction that forms the basis of Wall Street’s original claim is an alleged scheme by Defendants to defraud workers’ compensation policyholders. In contrast, Reliance’s counterclaim is based upon a transaction between Wall Street and Reliance involving the negotiation and pricing of Wall Street’s insurance policies. Although the Supreme Court has stated that the term “transaction” is a word of flexible meaning, e.g., Moore v. New York Cotton Exchange, 270 U.S. 593, 46 S.Ct. 367, 70 L.Ed. 750 (1926), in this case the transaction at the core of Wall Street’s RICO claim is unrelated to the transaction concerning Reliance’s breach of contract counterclaim.2
The Court also notes that Wall Street’s original claim and Reliance’s counterclaim do not arise from the same aggregate of operative facts. First, there are significant factual distinctions between the workers’ compensation policies, which form the basis of Wall Street’s RICO claim, and the automobile and general liability insurance policies, which form the basis of Reliance’s counterclaim.3 Second, Wall Street’s original claim is based on an entirely different legal theory than Reliance’s counterclaim — i.e., RICO versus breach of contract. Third, the negotiation of insurance premiums is not at issue in Wall Street’s RICO claim. Wall Street’s original claim is based upon the Defendants’ alleged inflation of residual market subsidies that were fixed by filed rates, not upon Defendants’ negotiation of the insurance policies and resulting premium payments.
Moreover, the situation here is distinguishable from Fifth Circuit cases finding that the logical relationship test is met when a transaction gives rise to both plaintiffs and defendant’s claims. See, e.g., Deshotel, 142 F.3d at 882 (claim and counterclaim arose from the *216purchase of life insurance and subsequent beneficiary designation; further, plaintiff did not argue that the claims were not logically and factually related); McDaniel, 987 F.2d at 304 (claims and counterclaims all arose from single accident at railyard); Plant, 598 F.2d at 1361 (single loan transaction gave rise to truth-in-lending action and debt counterclaim). Here, as discussed swpra, the transaction that is the focus of Wall Street’s original claim is unrelated to the transaction at issue in the counterclaim. Accordingly, the above cases do not lead to a conclusion that Reliance’s counterclaim is a compulsory counterclaim.
Given the foregoing, the Court determines that Reliance’s counterclaim is not a compulsory counterclaim under Rule 13(a), but rather, is a permissive counterclaim under Rule 13(b). Pursuant to Rule 21, the Court determines that Reliance’s counterclaim, together with Wall Street’s class action counterclaim, should be severed from the instant action. See Fed. R. Civ. P. 21 (“Any claim against a party may be severed and proceeded with separately.”).
Finally, the Court declines Reliance’s request to require Wall Street to replead its class action counterclaim for breach of contract- and fraud in an amended complaint. To do so at this time would be unfairly prejudicial to Wall Street’s motion for class certification. Accordingly, Reliance’s request is denied. Given the foregoing, the Court hereby
ORDERS that the Motion to Sever Reliance’s Permissive Counterclaim filed by Plaintiff Sandwich Chef of Texas d/b/a Wall Street Deli (Document # 417) is GRANTED. Defendant Reliance National Indemnity Insurance Company’s permissive counterclaim (asserting a claim for breach of contract based upon automobile and general liability insurance premiums) and Plaintiff Sandwich Chef of Texas, Inc. d/b/a Wall Street Deli’s class action counterclaim (asserting claims for breach of contract and fraud based upon automobile and general liability insurance deductibles) are hereby SEVERED from the instant action pursuant to Federal Rule of Civil Procedure 21. The Court further
ORDERS that these severed claims be given a new file number, H-98-1484(A), so that independent judgment may be rendered by this Court. The Court further
ORDERS that the parties refile, under file number H-98-1484(A), the severed claims as a complaint and counterclaim within ten days of entry of this order.

. Wall Street argues that the counterclaim relating to automobile and general liability insurance premiums is in fact a claim for alleged nonpayment of deductible automobile and general liability insurance premiums. The Court notes this disagreement but will refer to Reliance's claim as one for premiums (rather than deductibles) for the sake of consistency.

. The Court finds the reasoning in United States ex rel. Mueller v. Eckerd Corp., 184 F.R.D. 686 (M.D.Fla.1999), to be persuasive. In Mueller, the court determined that a counterclaim was not compulsory when the original complaint was based on fraudulent statements to Medicaid and the counterclaim was based on failure to pay for prescriptions. Id. at 687.

. For example: (1) each insurance policy is a separate contract with distinct policy numbers, coverage conditions, terms and exclusions; and (2) the deductible insurance for the automobile and general liability policy is different and unrelated to the workers' compensation retrospectively-rated insurance (which has no deductibles).