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Everett Andrews et al., v. Wade & De Young Inc. P.C. (12/26/97), 950 P 2d 574
<![CDATA[
Notice: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers
are requested to bring errors to the attention of the
Clerk of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
EVERETT L. ANDREWS and )
HUB CITY CONSTRUCTION ) Supreme Court No. S-7272
COMPANY, INC., )
) Superior Court No.
Appellants, ) 3AN-92-5433 CI
)
v. ) O P I N I O N
)
WADE & De YOUNG, INC., P.C., ) [No. 4923 - December 26, 1997]
)
Appellee. )
)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage,
Joan M. Woodward, Judge.
Appearances: Thomas R. Wickwire, Fairbanks,
for Appellants. Thomas L. Melaney,
Anchorage, for Appellee.
Before: Compton, Chief Justice, Rabinowitz,
Matthews, and Eastaugh, Justices. [Fabe,
Justice, not participating.]
RABINOWITZ, Justice.
Everett L. Andrews and Hub City Construction Co., Inc.1
(collectively referred to as "Hub City") sued Wade & De Young,
Inc., P.C., a law firm, for malpractice. The superior court
dismissed the action and Hub City appealed. This court reversed
the dismissal and remanded the case. See Andrews v. Wade & De
Young, Inc., P.C., 875 P.2d 89, 93 (Alaska 1994). On remand, the
superior court granted summary judgment to Wade & De Young on res
judicata grounds. Hub City now appeals, asserting that the
superior court failed to follow this court's instructions.
1. BACKGROUND
The facts of this case are recounted in Andrews and
will be merely summarized here. See Andrews, 875 P.2d at 90.
Wade & De Young represented Moneymaker/Hub City Construction, a
joint venture, in litigation with the Alaska State Housing
Authority (ASHA). After that litigation settled, Hub City
refused to authorize payments to Wade & De Young for attorney's
fees. Wade & De Young brought suit in superior court seeking
payment of its attorney's fees. Hub City answered on May 3,
1990. The joint venture then petitioned to have the dispute
heard by the Alaska Bar Association's Fee Arbitration Panel. The
Fee Arbitration Panel concluded that Wade & De Young was entitled
to approximately $471,000 for its services. Wade & De Young
subsequently filed a motion seeking confirmation of the award,
which the superior court granted on July 2, 1991.
Following confirmation of the award, Hub City filed an
action in superior court containing six separate counts for legal
malpractice against Wade & De Young based upon the firm's
representation of the joint venture in its litigation with ASHA.
The superior court dismissed the action "on res judicata
grounds." Andrews, 875 P.2d at 90. We reversed the dismissal
and remanded the case because the superior court "failed to state
affirmatively that it was considering matters outside of the
pleadings, thus converting Wade & De Young's Civil Rule 12(b)(6)
motion to one for summary judgment." Id. at 91.
We noted that Civil Rule 13(a) "would preclude Hub
City's legal malpractice action if the claim existed at the time
Hub City served its answer in the fee recovery action." Id.
Because the superior court's ruling prevented Hub City from
presenting evidence concerning the date it first learned of its
malpractice claims, we remanded the case to the superior court.
Id. at 92-93.
On remand, the superior court granted summary judgment
to Wade & De Young, holding that res judicata barred Hub City
from pursuing its malpractice claims. As to most claims, the
superior court determined that Hub City was aware of its
malpractice claims no later than the date the fee arbitration
award was confirmed. Hub City appeals, arguing that pursuant to
this court's opinion, the superior court should have looked to
the date it served its answer, rather than the date of the
confirmation to determine whether its malpractice claims were
barred.
II. STANDARD OF REVIEW
This court will affirm the superior court's grant of
summary judgment if the evidence in the record presents no
genuine issue of material fact and the moving party is entitled
to judgment as a matter of law. See French v. Jadon, Inc., 911
P.2d 20, 23-24 (Alaska 1996). The moving party bears the burden
of demonstrating that there is no dispute as to any issue of
material fact. See Wassink v. Hawkins, 763 P.2d 971, 973
(Alaska 1988). All reasonable inferences of fact are drawn in
favor of the nonmoving party. See Wright v. State, 824 P.2d 718,
720 (Alaska 1992).
III. THE REMAND
On remand, the superior court heard evidence relating
to the date Hub City learned of the facts constituting the basis
for its malpractice claims. However, the superior court
concluded that the relevant date for determining whether Hub
City's malpractice claims were barred was the date the fee
arbitration award was confirmed, rather than the (much earlier)
date Hub City filed its answer.2
The superior court explained its choice of relevant
date for determining whether Hub City's malpractice claims were
barred as follows:
The confusion may arise, because the supreme
court did not differentiate between
compulsory counterclaim and res judicata
analyses. Clearly, Rule 13(a) is implicated
at a specific point in time: when a pleading
is filed. On the other hand, the case law
which gives rise to res judicata principles
does not specify a particular moment or event
in the litigation process when the claim must
be made, or lost.
This court finds that, as a general matter,
the better policy is to require that a
defendant raise claims subject to a res
judicata defense whenever, in the course of
the same transaction litigation, those claims
come to light. See Jackinsky v. Jackinsky,
894 P.2d 650 (Alaska 1995); Tolstrup v.
Miller, 726 P.2d 1304 (Alaska 1986).
Presumably there would be exceptions to this
rule, times when such claims became known too
late. Thus, res judicata might not apply
when knowledge first arises in the course of
trial, or possibly any time after discovery
has closed. . . . But exceptions such as
these have not been presented in this case.
IV. DISCUSSION
Alaska Rule of Civil Procedure 13(a) provides: "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. . . ."
Although it is not specifically stated in the Rule, it is well
established that "[f]ailure to assert a compulsory counterclaim
bars a party from bringing a later independent action on that
claim." Andrews, 875 P.2d at 91 (citing Miller v. LHKM, 751 P.2d
1356, 1359 (Alaska 1988); Wells v. Noey, 399 P.2d 217, 220
(Alaska 1965)).
We concluded in the earlier appeal that Hub City's
malpractice claims arise from the same transaction and occurrence
that was the subject of the earlier attorney's fee recovery
litigation. Andrews, 875 P.2d at 91. However, under Civil
Rule 13(a), a claim is not compulsory if it is not mature at the
time the party serves its pleading. Id.3 In this regard Civil
Rule 13(e) provides:
A claim which either matured or was acquired
by the pleader after serving a pleading may,
with the permission of the court, be
presented as a counterclaim by supplemental
pleading.
"Rule 13(e) is permissive, not mandatory." Providence Washington
Ins. Co. v. McGee, 764 P.2d 712, 715 n.9 (Alaska 1988).
According to Wright, Miller and Kane:
An after-acquired claim, even if it arises
out of the transaction or occurrence that is
the subject matter of the opposing party's
claim, need not be pleaded supplementally;
the after-acquired claim is not considered a
compulsory counterclaim under Rule 13(a) and
a failure to interpose it will not bar its
assertion in a later suit.
6 Charles A. Wright, Arthur R. Miller & Mary K. Kane, Federal
Practice and Procedure 1428, at 209 (2d ed. 1990).
A number of state and federal courts have held that an
after-acquired counterclaim is not barred either by the doctrine
of claim preclusion or by rules of civil procedure analogous to
Civil Rule 13(a). See, e.g., Dillard v. Security Pac. Brokers,
Inc., 835 F.2d 607, 609 (5th Cir. 1988); Johnson v. Con-
Vey/Keystone, Inc., 856 F. Supp. 1443, 1450-51 (D. Or. 1994); Law
Offices of Jerris Leonard, P.C. v. Mideast Systems, Ltd., 111
F.R.D. 359, 362 (D.D.C. 1986) (all applying analogous rules of
civil procedure).4
Given Hub City's contention that its malpractice claims
against Wade & De Young did not mature until after it had filed
its answer in the Wade & De Young suit for attorney's fees, its
malpractice claims normally would be characterized as permissive
counterclaims. They would thus not be barred by either the res
judicata doctrine of claim preclusion or by the preclusive effect
accorded to rules of civil procedure analogous to Civil Rule
13(a) and (e). Yet there appears to be some support for the
superior court's policy rationale that an after-acquired claim
which is not barred as a compulsory counterclaim may nonetheless
be barred under res judicata principles if successful prosecution
could nullify the earlier judgment.
Wright, Miller and Cooper note that
Federal courts have in fact supplemented
Rule 13(a) with additional defendant
preclusion rules. The clearest need for
these rules is shown by cases that have
involved a variety of direct attacks on the
original judgment based on defenses or claims
that could have been advanced in the first
action. The rules have extended somewhat
beyond the most palpable direct attacks,
however, in an effort to protect the repose
established by the original judgment against
effective destruction in a later action by
the former defendant. No clear formula has
yet been found to capture this basic purpose,
but the principle is well established.
Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal
Practice and Procedure 4414, at 110-11 (1981).5
The legal foundation for the federal courts' adoption
of supplemental rules of preclusion (in addition to rules of
preclusion flowing from Rule 13(a)) is articulated in the
Restatement (Second) of Judgments 22 (1982), which provides:
(1) Where the defendant may interpose a
claim as a counterclaim but he fails to do
so, he is not thereby precluded from
subsequently maintaining an action on that
claim, except as stated in Subsection (2).
(2) A defendant who may interpose a claim as
a counterclaim in an action but fails to do
so is precluded, after the rendition of
judgment in that action, from maintaining an
action on the claim if:
(a) The counterclaim is required to be
interposed by a compulsory counterclaim
statute or rule of court, or
(b) The relationship between the
counterclaim and the plaintiff's claim
is such that successful prosecution of
the second action would nullify the
initial judgment or would impair rights
established in the initial action.6
The Restatement Commentary illustrates the concepts embodied
within Section 22(2)(b) by way of the following two examples:
9. A brings an action against B for
failure to pay the contract price for goods
sold and delivered and recovers judgment by
default. After entry of final judgment and
payment of the price, B brings an action
against A to rescind the contract for mutual
mistake, seeking restitution of the contract
price and offering to return the goods. The
action is precluded.
10. A brings an action against B to
quiet title to certain real estate and
obtains judgment by default. B then brings
an action against A to quiet title to the
same property, alleging that at the time of
the first action, B had acquired title to the
property by adverse possession. The action
is precluded.
Restatement (Second) of Judgments 22, at 190.7
Typical of these authorities which have adopted the
Restatement's rule is Martino v. McDonald's System, Inc., 598
F.2d 1079 (7th Cir. 1979). There the court applied the
Restatement's rule in holding that plaintiff's claim was barred.
McDonald's sued Martino for breach of contract. Id. at 1081.
Before Martino filed an answer, he and McDonald's reached a
settlement and the court entered a consent judgment against
Martino. Id. Subsequently, Martino brought an antitrust action
against McDonald's. Id. Rule 13(a) did not bar this subsequent
action because Martino had never filed a pleading in the previous
action. Id. at 1082. The Martino court, however, relied on the
Restatement (Second) of Judgments to hold that Martino's claim
was barred as a direct attack on the rights established in
the earlier judgment.8 Id. at 1085.
Whether or not this court should adopt the common law
compulsory counterclaim rule of Section 22(b)(2) presents a
debatable question. This is particularly so in light of this
court's adoption of Civil Rule 13(a) (compulsory counterclaims)
and 13(e)(permissive counterclaims for those claims maturing or
acquired after service of a responsive pleading). Nevertheless
we have determined that we need not answer the question in the
factual context of this case.9
As noted above, according to Comment (f) to Section 22
of the Restatement, for a counterclaim to be barred,
it is not sufficient that the counterclaim
grow out of the same transaction . . . as the
plaintiff's claim, nor is it sufficient that
the facts constituting a defense also form
the basis of the counterclaim. The
counterclaim must be such that its successful
prosecution in a subsequent action would
nullify the judgment, for example, by
allowing the defendant to enjoin enforcement
of the judgment . . . .
Restatement (Second) of Judgments 22, Comment f at 189.
A subsequent successfully prosecuted malpractice action
would not alter rights to damages awarded in an attorney's fee
litigation dispute, and would not necessarily entitle the client
to restitution. It is conceivable that the attorney's
malpractice caused less injury to the client than the cost of the
services rendered. In such a situation, the attorney would be
able to offset the award by any amount still owed under the
original judgment, but the subsequent judgment would not nullify
the first judgment.
Rowland v. Harrison, 577 A.2d 51, 57 (Md. App. 1990) is
a case on point. There the court found that plaintiff's action
for malpractice against a veterinarian was not barred by the
veterinarian's earlier action to recover a debt for treatment of
plaintiff's horse. The court pointed to Illustration 2 to
Section 22. This illustration indicates that a plaintiff's
malpractice action against a doctor would not be barred by a
default judgment against the plaintiff in the doctor's earlier
action to collect fees. The court concluded that if the client
were successful in the malpractice action, "she would be entitled
to whatever amount of damages are determined, but could not
recover the fees paid for the treatment of the horse." Id.
Likewise, Hub City, if successful, would be entitled to damages
caused by Wade & De Young's malpractice, but would not be
entitled to restitution of the attorney's fees awarded in the
earlier suit.
We therefore conclude that even if this court were to
adopt the common law compulsory counterclaim rule of Section
22(b)(2) of the Restatement, the facts of this particular case do
not come within the ambit of Section 22(b)(2). Although it is
beyond dispute that the earlier attorney's fee litigation and the
current malpractice action arise out of the same transaction, it
appears that a judgment in Hub City's favor in the malpractice
action would not nullify the judgment in the attorney's fee
litigation.10
Given the foregoing, we hold that the superior court
erred in relying on the date the fee arbitration award was
confirmed, rather than the date Hub City served its answer in the
attorney's fee recovery action, in determining whether Hub City's
malpractice claims were barred. Wade & De Young nevertheless
contend that even if this court concludes that the date Hub City
served its answer controls, the superior court's grant of summary
judgment can be affirmed without remand, because the record
supports the conclusion that Hub City knew of all the elements of
its claim for malpractice against Wade & De Young at that time.
Reaching this conclusion, however, would entail augmenting the
findings of the superior court. Of the six counts of malpractice
that Hub City alleged, the superior court held that only Count IV
was barred as a "compulsory counterclaim."11 As to the remaining
five counts the superior court never found that Hub City was, or
should have been, aware of the grounds for the remaining
malpractice counts of as May 3, 1990, the date it served its
answer in the attorney's fee recovery action. The superior court
is the forum in which to resolve the fact-intensive inquiry which
is necessitated by our holding that May 3, 1990, not July 2,
1991, is the relevant date. Thus we conclude that the superior
court's grant of summary judgment as to the six counts of
malpractice pled by Hub City was erroneous.
V. CONCLUSION
The superior court's grant of summary judgment as to
Counts I, II, III, IV, V and VI is REVERSED. The case is
REMANDED for further proceedings consistent with this opinion.
_______________________________
1 Andrews is president and owner of the stock of Hub City
Construction Co., Inc.
2 Hub City served its answer in the fee litigation on
May 3, 1990. The superior court confirmed the Fee Arbitration
Panel's award on July 2, 1991.
In its order granting summary judgment to Wade & De
Young the superior court stated:
Examination of Hub City's claims reveals that
plaintiff was aware of the grounds for each
of the six counts in its complaint at the
latest, before the fee arbitration award was
confirmed.
3 As we noted in the earlier appeal of this case, "[a]
cause of action for attorney malpractice does not mature until
'the client discovers or reasonably should have discovered the
existence of all of the elements of his cause of action.'"
Andrews v. Wade & De Young, Inc., P.C., 875 P.2d 89, 91 (Alaska
1994) (citing Wettanen v. Cowper, 749 P.2d 362, 364 (Alaska
1988)). Hub City maintains that it learned of the facts which
form the basis of its malpractice claims during the course of the
attorney's fee recovery litigation -- after it served its answer
in that case.
4 State court precedent is to the same effect. See,
e.g., Skillman v. First State Bank of Altoona, 341 So. 2d 691
(Ala. 1977) (holding that wrongful garnishment claim was not
barred as a compulsory counterclaim to an earlier action by bank
to collect on a note because the wrongful garnishment arose after
the time for Skillman to answer in the earlier action); O'Brien
v. Scottsdale Discount Corp., 482 P.2d 473 (Ariz. App. 1971)
(finding that trial court erred in holding that claims were
compulsory in a previous action and were barred by res judicata
where the trial court did not adduce whether the claims had
matured before the time O'Brien answered the prior action).
Wright, Miller and Cooper state:
Failure to assert a counterclaim that is made
compulsory by Rule 13(a) precludes a later
action, whether the preclusion be explained
on grounds of res judicata or on the
potentially more flexible grounds of waiver,
estoppel, or preclusion by rule. Failure to
advance a merely premissive counterclaim, on
the other hand, ordinarily does not preclude
a later action.
Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal
Practice and Procedure 4414, at 109 (1981) (footnotes omitted).
See also 18 James W. Moore, Moore's Federal Practice 131.21[3]
[c][ii] at 131-47 (3d ed. 1997).
5 The authors further observe that
Despite the express provisions of Rule 13, a
variety of cases have arisen that show the
need for additional rules of defendant
preclusion. The need arises in part from
various exceptions to the basic requirement
of advancing counterclaims that grow out of
the same transaction or occurrence as the
plaintiff's claim. Rule 13(a), for example,
does not require assertion of counterclaims
that already are subjects of a pending
action, yet circumstances may arise in which
pursuit of the pending action should be
precluded after judgment in the later-
instituted action. So too, the compulsion of
Rule 13(a) has often been held inapplicable
to actions terminated without a responsive
pleading, as upon default, settlement, or
dismissal on motion.
Wright, Miller and Cooper, Federal Practice and Procedure 4414,
at 110 (footnote omitted).
6 Comment f to section 22(2)(b) is particularly relevant.
In discussing the special circumstances under which failure to
interpose counterclaim will operate as a bar, it is stated:
Normally, in the absence of a compulsory
counterclaim statute or rule of court, the
defendant has a choice as to whether or not
he will pursue his counterclaim in the action
brought against him by the plaintiff. There
are occasions, however, when allowance of a
subsequent action would so plainly operate to
undermine the initial judgment that the
principle of finality requires preclusion of
such an action. This need is recognized in
Subsection (2)(b).
For such an occasion to arise, it is not
sufficient that the counterclaim grow out of
the same transaction or occurrence as the
plaintiff's claim, nor is it sufficient that
the facts constituting a defense also form
the basis of the counterclaim. The
counterclaim must be such that its successful
prosecution in a subsequent action would
nullify the judgment, for example, by
allowing the defendant to enjoin enforcement
of the judgment, or to recover on a
restitution theory the amount paid pursuant
to the judgment, or by depriving the
plaintiff in the first action of property
rights vested in him under the first
judgment.
Restatement (Second) of Judgments 22, Comment f, at 189-90
(internal cross-references omitted).
7 The Reporter's note to Comment f and Illustrations 9
and 10 reads:
Yet there do appear to be at least two
situations where the need for such a common-
law rule is clear, and identification of
those situations may afford guidance in more
difficult cases.
The first such situation, reflected in
Illustration 9, is a case in which a
defendant, having failed to interpose a
defense or counterclaim in a prior action
which terminated in a judgment for plaintiff,
now seeks in a subsequent action to obtain
relief which, if granted, would permit
recovery of the amount paid pursuant to that
judgment on a restitution theory. To allow
such recovery (or to allow an injunction
against enforcement before payment of the
judgment) would be to allow an attack on the
judgment itself. See the excellent
discussion of a comparable but more complex
fact situation in Middlesex Concrete Products
& Excavating Corp. v. Borough of Carteret, 35
N.J.Super. 226, 113 A.2d 821 (1955); see also
Bank of Montreal v. Kough, 612 F.2d 467 (9th
Cir. 1980); Martino v. McDonald's Systems,
Inc., 598 F.2d 1079 (7th Cir. 1979), cert.
denied, 444 U.S. 966, 100 S.Ct. 455, 62
L.Ed.2d 379 (1979); Fairchild, Arabitzis &
Smith, Inc. v. Prometco (Produce & Metals)
Co., 470 F.Supp. 610 (S.D.N.Y. 1979). . . .
The second situation is one in which the
initial judgment has resulted in a
declaration of the plaintiff's interest in
certain property and the defendant, as
plaintiff in the subsequent action, seeks
relief which, if granted, would significantly
impair that interest. This situation is
exemplified by Illustration 10, and the
result posited there is supported by such
decisions as Moore v. Harjo, 144 F.2d 318
(10th Cir. 1944); Lynch v. Lynch, 250 Iowa
407, 94 N.W.2d 105 (1959); Weiser v. Kling,
38 App.Div. 266, 57 N.Y.S. 48 (1899)
(alternative holding); Paulson v. Oregon
Surety & Cas. Co., 70 Or. 175, 138 P. 838
(1914).
Restatement (Second) of Judgments 22, at 193-94.
8 The same rationale was applied in Lee v. City of
Peoria, 685 F.2d 196 (7th Cir. 1982). In Lee, plaintiff had been
dismissed from the police force. Id. He claimed at his
administrative hearing and later on appeal in state court, that
his dismissal was racially motivated, but presented no evidence
in support of this claim. The dismissal was upheld. Id. Lee
then instituted a civil rights suit in federal district court.
Id. The circuit court affirmed the district court decision
holding that plaintiff's failure to raise the defense before the
Board barred him from asserting a claim based on the same facts
in a subsequent action. Id. at 199-202.
Rule 13(a) did not apply because Lee initiated the
original proceeding by appealing the Board's decision in a state
court proceeding, and as a consequence was not subject to the
compulsory counterclaim provisions of Rule 13(a).
9 The Reporter's note to Comment (f) reads as follows:
Comment f and Illustrations 9 and 10 are new.
These materials, and Subsection (2)(b)
itself, represent an effort to articulate the
bases in precedent and policy for what might
be termed a "common-law compulsory
counterclaim rule."It is perhaps impossible
to define the scope of this concept with
precision and in any event the problem is one
of decreasing importance with the growth of
compulsory counterclaim statutes and rules of
court.
Restatement (Second) of Judgments 22, at 193.
10 Of additional significance is the fact that in the
first appeal of this action, we stated:
[t]he fee arbitration proceeding involved the
amount the Joint Venture and Hub City owed
Wade & De Young for legal services rendered
in the ASHA litigation. The legal
malpractice litigation involves whether Wade
& De Young committed malpractice during the
course of its representation of Hub City in
the ASHA litigation. In its fee arbitration
decision and award, the Fee Arbitration Panel
made no findings regarding Wade & De Young's
malpractice. Furthermore, Wade & De Young
concede that the Fee Arbitration Panel lacks
jurisdiction to adjudicate malpractice
claims. Resolution of a fee dispute is
different from adjudication of a malpractice
claim. While preclusion could arise based
upon an arbitrator's decision, the Fee
Arbitration Panel's decision and award does
not bar Hub City's malpractice action,
because the two proceedings implicate
different legal and factual issues.
Andrews, 875 P.2d at 92-93 (footnote omitted). In our view, if
Hub City was unable to present its malpractice claims in the
earlier action, it would be manifestly unjust to deny it the
opportunity to litigate those claims now.
11 The superior court's alternative holding that Count IV
was barred by application of the compulsory counterclaim rule
lacks record support. In moving for summary judgment Wade & De
Young failed to demonstrate that Hub City was aware of all the
elements of its Count IV claim for malpractice at the time it
served its answer in the attorney's fee case.
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