CITE: 106 Wn.2d 855, 726 P.2d 1
SCHOEMAN v. NEW YORK LIFE
CAUSE NUMBER: 52170-1
FILE DATE: October 2, 1986
CASE TITLE: Joyce Schoeman, Appellant, v. New York Life
Insurance Company, Respondent.
[1] Interpleader - Judgment - Res Judicata - Final Judgment - Settlement of Interpleader Action. A judgment incorporating a settlement of an interpleader action is res judicata as to all issues which were or could have been raised by the parties to the action.
[2] Judgment - Partial Judgment - Finality - Entry of Final Judgment - Effect. A trial court's dismissal of a party in a multiple party action without expressly making it a final judgment as permitted by CR 54(b) is final once a final judgment in the action is entered.
[3] Judgment - Collateral Estoppel - Compulsory Counterclaim - Federal and State Courts. A party's failure to assert a compulsory counterclaim in federal court precludes a subsequent action on that claim in state court.
[4] Pleading - Counterclaims - Compulsory Counterclaims - Same Transaction or Occurrence - Test. A compulsory counterclaim satisfies the requirement of CR 13(a) that it arise out of the transaction or occurrence that is the subject matter of the opposing party's claim if it is logically related to the claim.
NAMES OF CONCURRING OR DISSENTING JUDGES: Goodloe, J., did not participate in the disposition of this case.
NATURE OF ACTION: In a wrongful death action against an insurer, a widow claimed that the insurer's negligent issuance of insurance on her husband's life was the proximate cause of his death. A federal court in a previous interpleader action had dismissed the insurer after it had deposited in court the face amount of the policy plus interest.
Superior Court: The Superior Court for King County, No. 84-2 00220-4, Frank J. Eberharter, J., on May 11, 1984, granted a summary judgment in favor of the insurer.
Supreme Court: Holding that the claim was a compulsory counterclaim which should have been raised in the interpleader action and that it was barred by the doctrine of res judicata, the court AFFIRMS the judgment.
COUNSEL: HOWARD K. TODD (of DODD, CONEY & BISHOP, P.S.), for appellant.
DOUGLAS E. WHEELER and DEBORAH D. WRIGHT (of LANE, POWELL, MOSS & MILLER), for respondent.
AUTHOR OF MAJORITY OPINION: Callow, J.-
MAJORITY OPINION: The Superior Court dismissed the wrongful death claim brought by Mrs. Joyce Schoeman, the appellant, as personal representative of her deceased husband Giovanni Schoeman. She alleges that the respondent New York Life Insurance Company (Insurer) negligently issued a keyman life insurance policy on the life of her husband and such issuance was the proximate and foreseeable cause of his death. The trial court dismissed her action as a matter of law holding that her claims were barred by res judicata and that she had failed to state a claim upon which relief could be granted against the Insurer. We affirm.
Giovanni Schoeman came to the United States from Europe to produce original art works. He had talent. His works included a sculpture used in the promotion of a movie. On July 27, 1977, Schoeman and Carl Edward Zehner entered into an agreement pertaining to the manufacture, sale and reproduction of Schoeman's works. Zehner formed a corporation, E.Z., Inc., of which he was the president and sole shareholder, to manufacture and sell reproductions of Schoeman's art works. In December 1977, the Insurer issued a keyman life insurance policy on the life of Giovanni Schoeman, which named E.Z., Inc., as beneficiary.
The policy lapsed within 1 year of issuance. In April 1978, Schoeman moved to Santa Barbara, California. Mrs. Schoeman claims that after the move Schoeman no longer continued to produce artwork for E.Z., Inc. Nevertheless, on January 18, 1979, Zehner and Schoeman applied to reinstate the keyman life insurance policy which the Insurer subsequently reinstated. Mrs. Schoeman asserts that the Insurer acted negligently in reinstating the policy because it knew or should have known that E.Z., Inc., had no insurable interest at that time in the life of Giovanni Schoeman. She claims that she has a separate wrongful death action against the Insurer based upon the Insurer wrongfully renewing a life insurance policy where the beneficiary had no insurable interest in the life of the insured. She claims that this cause of action, based upon the claimed negligence of the Insurer, has not been settled as part of the settlement of the interpleader action.
In January 1981, Dennis Boyd Miller shot and killed Schoeman. Miller was convicted of murder by a California court. During the trial a witness testified that Miller had boasted that someone who stood to benefit from a $100,000 insurance policy on Schoeman's life had hired him to commit the murder.
In March 1982, the Insurer commenced an interpleader action in the United States District Court for the Western District of Washington. Named as defendants and possible claimants to the insurance proceeds were: Mrs. Schoeman; John Berryhill, the estate administrator; Zehner; E.Z., Inc.; and a Zehner creditor. Mrs. Schoeman and Berryhill raised third party claims against Zehner and E.Z., Inc., alleging that Zehner had hired Schoeman's murderer in order to obtain the proceeds of the keyman life insurance policy under which the corporation stood to benefit. At this time Mrs. Schoeman did not assert any claims against the Insurer.
In March 1983, the Insurer moved for discharge from the interpleader action, seeking discharge from its obligations as a party litigant. The Insurer admitted liability on the policy in the amount of $100,000 plus interest. Mrs. Schoeman and Berryhill responded to the motion for discharge and raised no objection to the entry of an order discharging the Insurer from further liability other than the amount of the interpleaded funds. On March 19, 1983, the federal court ordered the discharge of the Insurer. On July 27, 1983, the policy claimants reached a settlement which provided for payment of $82,536.14 to the Schoeman estate. The other claimants divided the remaining policy funds.
Mrs. Schoeman filed this action in January 1984. The wrongful death claim raised against the Insurer charges the Insurer with responsibility for the death of Giovanni Schoeman, just as Mrs. Schoeman had charged Zehner and others with responsibility for his death in her cross claim in the interpleader action. The Insurer moved for a summary judgment of dismissal. The trial court granted the motion, dismissing Mrs. Schoeman's complaint as a matter of law. She appeals the dismissal of her claims.
The parties raise the following issues:
1. To what extent does a federal interpleader action require that a party raise a claim in an interpleader to have it barred in state court as res judicata?
2. Is Mrs. Schoeman's claim a compulsory counterclaim required to have been brought during the interpleader?
3. Did Mrs. Schoeman fail to state a claim in state court upon which relief against the Insurer may be granted?
RES JUDICATA
The doctrine of res judicata requires a concurrence of identity in four respects: (1) subject matter; (2) cause of action; (3) persons and parties; and (4) the quality of the persons for or against whom the claim is made. NORCO CONSTR., INC. v. KING CY., 106 Wn.2d 290, 721 P.2d 511 (1986); BORDEAUX v. INGERSOLL RAND CO., 71 Wn.2d 392, 396, 429 P.2d 207 (1967); MEDER v. CCME CORP., 7 Wn. App. 801, 805, 502 P.2d 1252 (1972). In MEDER we find at 804-05:
" Courts in their concern to eliminate duplicitous
litigation and yet allow a party to litigate on a matter
which would not have been properly included in the previous
action often refer to this doctrine of repose as res judicata,
meaning a thing decided, or as a prohibition against splitting
causes of action. Thus, in SANWICK v. PUGET SOUND TITLE
INS. CO., 70 Wn.2d 438, 441, 423 P.2d 624, 38 A.L.R.3d
315 (1967), we find:
This court from early years has dismissed a subsequent
action on the basis that the relief sought could have
and should have been determined in a prior action. The
theory on which dismissal is granted is variously referred
to as res judicata or splitting causes of action. CURRIER
v. PERRY, 181 Wash. 565, 44 P.2d 184 (1935); SAYWARD
v. THAYER, 9 Wash. 22, 36 Pac. 966, 38 Pac. 137 (1894).
. . .
. . . As early as SAYWARD v. THAYER, 9 Wash. 22, 36 Pac.
966, 38 Pac. 137, it was stated:
"The general doctrine is that the plea of RES JUDICATA applies,
except in special cases, not only to points upon which the
court was actually required by the parties to form an opinion
and pronounce a judgment, but to every point which properly
belonged to the subject of litigation, and which the parties,
exercising reasonable diligence, might have brought forward
at the time."
. . .
"The matter in controversy here was included within the
matter in controversy there. It either was, or else could
have been, adjudicated in the former action. That judgment,
therefore, became RES JUDICATA of the issues and matters
here presented."
SEE ALSO BRADLEY v. STATE, 73 Wn.2d 914, 442 P.2d 1009 (1968). If a matter has been litigated or there has been an opportunity to litigate on the matter in a former action, the party-plaintiff should not be permitted to relitigate that issue. WALSH v. WOLFF, 32 Wn.2d 285, 201 P.2d 215 (1949); KIECKER v. PACIFIC INDEM. CO., 5 Wn. App. 871, 491 P.2d 244 (1971); 46 Am. Jur. 2d JUDGMENTS 395 (1969).
Res judicata does not bar claims which arise out of a transaction separate and apart from the issue previously litigated. SEATTLE FIRST NAT'L BANK v. KAWACHI, 91 Wn.2d 223, 226, 588 P.2d 725 (1978). Further, res judicata is not intended to deny the litigant his or her day in court. LUISI TRUCK LINES, INC. v. UTILITIES & TRANSP. COMM'N, 72 Wn.2d 887, 894, 435 P.2d 654 (1967).
Res judicata requires a final judgment on the merits. LEIJA v. MATERNE BROS., INC., 34 Wn. App. 825, 827, 664 P.2d 527 (1983) (citing BORDEAUX v. INGERSOLL RAND CO., SUPRA); Restatement (Second) of Judgments 13 (1982). The March 29, 1983 order dismissing the Insurer from the interpleader states in part:
" ORDERED that plaintiff be and hereby is discharged
from any and all liability in this cause AND FROM ANY
AND ALL LIABILITY TO ALL PARTIES TO THIS CAUSE OF ACTION
FOR ANY CLAIMS THEY MAY HAVE AGAINST THE PLAINTIFF ARISING
FROM THE ISSUANCE OF THE INSURANCE POLICY GIVING RISE
TO THIS INTERPLEADER ACTION, as a result of the tender
which it has made into the registry of this court.
(Italics ours.) The interpleader court dismissed the Insurer pursuant to Fed. R. Civ. P. 54(b) which reads:
" When more than one claim for relief is presented
in an action, whether as a claim, counterclaim, cross
claim, or third-party claim, or when multiple parties
are involved, THE COURT MAY DIRECT THE ENTRY OF A FINAL
JUDGMENT AS TO ONE OR MORE BUT FEWER THAN ALL OF THE CLAIMS
OR PARTIES ONLY UPON AN EXPRESS DETERMINATION THAT THERE
IS NO JUST REASON FOR DELAY AND UPON AN EXPRESS DIRECTION
FOR THE ENTRY OF JUDGMENT. In the absence of such determination
and direction, any order or other form of decision, however
designated, which adjudicates fewer than all the claims
or the rights and liabilities of fewer than all the parties
shall not terminate the action as to any of the claims
or parties, and the order or other form of decision is
subject to revision at any time before the entry of judgment
adjudicating all the claims and the rights and liabilities
of all the parties.
(Italics ours.) FEDERAL CIVIL JUDICIAL PROCEDURES & RULES, Title 28, 131-32 (1985).
Mrs. Schoeman argues that the order dismissing the Insurer does not make an express determination as to whether there was no just reason for delay or an express direction for entry of judgment as required. Thus, she argues that the order is not a final order or final judgment on the merits and res judicata is not appropriate. SEE MCLEAN v. SMITH, 4 Wn. App. 394, 400, 482 P.2d 798 (1971).
The Insurer contends the express determination and direction required by Fed. R. Civ. P. 54(b) is not applicable once the case is terminated as to all parties, citing JOHNSTON v. CARTWRIGHT, 344 F.2d 773 (8th Cir. 1965). In JOHNSTON the trial court dismissed one of three defendants in a libel action. The plaintiff appealed the dismissal of the first defendant and on the motion of the plaintiff, the trial court ordered dismissal without prejudice as to the two remaining defendants. Thereafter, the appellate court denied the first defendant's motion to dismiss for want of "any order from which an appeal lies", pursuant to Fed. R. Civ. P. 54(a). The appellate court reasoned that following the trial court's dismissal of the remaining two defendants
" The matter was thereafter one in which multiple
parties were no longer involved, and to which Rule 54(b)
therefore was without further application. The dismissal
order as to [the first defendant] was in its form such
as would, except for the applicability of Rule 54(b) thereto,
have been able to constitute and operate as a final judgment
at the time it was made. When the situation was left
without further application of Rule 54(b) thereto, from
the dismissal without prejudice permitted as to the two
other defendants, the order of dismissal as to [the first
defendant] became entitled to the effect and operation
of which its form was capable, and which it would previously
have had except for the provisions of Rule 54(b).
JOHNSTON, at 774.
[1, 2] A judgment entered upon settlement of an interpleader action is res judicata as to all questions which were or could have been litigated. STUYVESANT INS. CO. v. DEAN CONSTR. CO., 254 F. Supp. 102, 110 (S.D.N.Y. 1966), AFF'D, 382 F.2d 991 (2d Cir. 1967). As with any interlocutory order the order dismissing the Insurer became final upon the subsequent settlement and dismissal of the remainder of the case. Therefore, no express determination regarding just reason for delay or express direction for entry of judgment was required. SEE ALSO IN RE ESTATE OF PHILLIPS, 46 Wn.2d 1, 278 P.2d 627 (1955); ROSENBERG v. ROSENBERG, 141 Wash. 86, 250 P. 947 (1926).
The language of the order dismissing the Insurer from the interpleader discharged the Insurer "from ANY AND ALL LIABILITY to all parties to this cause of action for any claims they may have against [Insurer] ARISING FROM ISSUANCE OF THE POLICY". Mrs. Schoeman expressly disclaimed any claims against the Insurer. This dismissal of the Insurer from the interpleader order was an adjudication and discharge on the merits.
The need for finality when actions are settled is safeguarded by res judicata. The deceased's estate collected $82,536.14 under the settlement reached by the policy claimants. The widow now seeks to collect additional money from the Insurer, by bringing this action which alleges that defendants Zehner and E.Z., Inc., had no insurable interest in the deceased and that the Insurer should not have reinstated the policy. If Mrs. Schoeman's present claim is valid, then the policy was void and unenforceable and Mrs. Schoeman should not have collected funds under the policy. LAKIN v. POSTAL LIFE & CAS. INS. CO., 316 S.W.2d 542, 549, 70 A.L.R.2d 564 (Mo. 1958).
Mrs. Schoeman also asserts that she did not discover the claim against the Insurer until after the interpleader court discharged the Insurer. She argues that her claim was prematurely dismissed because discovery was incomplete. At the time Mrs. Schoeman counterclaimed in the interpleader action against Zehner and E.Z., Inc., for the wrongful death of her husband, prior to Insurer's discharge from the interpleader, she made no claim against the Insurer. In her answer to the complaint and cross claim in the federal interpleader action, Mrs. Schoeman stated as a part of her first cross claim and third party complaint that:
" The defendants Zehner and the purported corporation
formed by them known as EZ Arts, Inc. had no insurable
interest in the life of the named insured, and are therefore
not entitled to the proceeds of the policy, which belong
to the insured's heirs and administrator of his estate.
She then went on to state as a second cross claim and third party complaint in the federal interpleader action that Zehner and Dennis Boyd Miller had conspired to murder Schoeman and share in the proceeds of the life insurance, that by reason of the murder of Schoeman she had suffered damages, and she asked for $1 million from those defendants for the wrongful death of Schoeman. She knew or should have known about the negligence claim against the Insurer prior to discharge. She was not denied her day in court.
The question of the propriety of the issuance and liability under the insurance policy was before the court, the cause of action could have been urged, Mrs. Schoeman and the Insurer were parties and the interpleader had as its object the settlement of all claims against the Insurer. The Insurer sought repose from claims arising out of the issuance of the policy. Mrs. Schoeman granted that repose when payment was accepted upon the entry of the order sustaining the interpleader and discharging the Insurer and no appeal was taken therefrom.
COMPULSORY COUNTERCLAIM
[3] The failure to assert a compulsory counterclaim bars a later action on that claim. KRIKAVA v. WEBBER, 43 Wn. App. 217, 219, 716 P.2d 916 (1986); BAKER v. SOUTHERN PAC. TRANSP., 542 F.2d 1123, 1126 (9th Cir. 1976); Restatement (Second) of Judgments 22(2) (1982). Fed. R. Civ. P. 13(a) provides:
" 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.
(Italics ours.) A liberal and broad construction of Rule 13(a) is appropriate to avoid a multiplicity of suits. WARSHAWSKY & CO. v. ARCATA NAT'L CORP., 552 F.2d 1257, 1261 (7th Cir. 1977); ANNIS v. DEWEY CY. BANK, 335 F. Supp. 133, 137 (D.S.D. 1971).
Generally, the failure to plead a Rule 13(a) counterclaim in a federal action will prevent the pleader from subsequently bringing a separate action on that claim in state court. In 6 C. Wright & A. Miller, FEDERAL PRACTICE 1417, at 102 (1971), we find:
"[S]tate courts generally have adopted the approach of
treating the barring effect of the rule [13(a)] as substantive
and have declined to hear any claim not pleaded in a prior
federal action as required by Rule 13(a). (Footnote omitted.) SEE, E.G., MCDONALD'S CORP. v. LEVINE, 108 Ill. App. 3d 732, 439 N.E.2d 475 (1982); LONDON v. PHILADELPHIA, 412 Pa. 496, 194 A.2d 901 (1963); HORNE v. WOOLEVER, 170 Ohio St. 178, 163 N.E.2d 378 (1959), CERT. DENIED, 362 U.S. 951 (1960); SEE ALSO UNITED BROADCASTING CO. v. ARMES, 506 F.2d 766 (5th Cir.), CERT. DENIED, 421 U.S. 965 (1975).
Four tests have been suggested regarding what constitutes "transaction or occurrence." One test asks whether the issues of fact and law are largely the same between the claim and counterclaim. SEE NACHTMAN v. CRUCIBLE STEEL CO. OF AM., 165 F.2d 997, 999 (3d Cir. 1948). 6 C. Wright & A. Miller, FEDERAL PRACTICE 1410, at 44, find this test "of doubtful utility." A strict application would be inconsistent with many authoritative counterclaim decisions. MOORE v. NEW YORK COTTON EXCH., 270 U.S. 593, 610, 70 L. Ed. 750, 46 S. Ct. 367, 45 A.L.R. 1370 (1926) states that "the facts relied upon by the plaintiff rarely, if ever, are, in all particulars, the same as those constituting the defendant's counterclaim." Because complete overlap between the claim and counterclaim is not required, this test is inappropriate.
A second test asks whether a subsequent suit on the issues in the counterclaim would be barred by res judicata, absent Rule 13(a). SEE LIBBEY-OWENS-FORD GLASS CO. v. SYLVANIA INDUS., 154 F.2d 814, 818 (2d Cir.) (Frank, J., dissenting), CERT. DENIED, 328 U.S. 859 (1946); BIG COLA CORP. v. WORLD BOTTLING CO., 134 F.2d 718 (6th Cir. 1943). This test is inadequate as an overall standard and the doctrine applied by most courts is the converse. SEE C. Wright & A. Miller, at 45.
A third test asks whether substantially the same evidence is needed to prove the claim and counterclaim. SEE WILLIAMS v. ROBINSON, 1 F.R.D. 211, 213 (D.D.C. 1940); GREAT LAKES RUBBER CORP. v. HERBERT COOPER CO., 286 F.2d 631, 634 (3d Cir. 1961). A weakness with this test is that some claims may be compulsory even though they do not meet its standards, therefore, this test must be used with caution. SEE C. Wright & A. Miller, at 45. Often the evidence needed to prove the opposing claims may be substantially different even though they arise from the same events. As one court has stated, "[t]his test is, however, somewhat restrictive and not in line with the trend established by Moore v. New York Cotton Exchange . . ." ANNIS, 335 F. Supp. at 137.
[4] Finally, a fourth test asks whether the claim and counterclaim are logically related. This test has been called "the one compelling test of compulsoriness." ROSENTHAL v. FOWLER, 12 F.R.D. 388, 391 (S.D.N.Y. 1952); SEE ALSO PIPELINERS LOCAL 798 v. ELLERD, 503 F.2d 1193, 1199 (10th Cir. 1974). The ROSENTHAL court stated:
"[C]ourts 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. Subject to the exceptions, [not instantly relevant]
any claim that is logically related to another claim that
is being sued on is properly the basis for a compulsory
counterclaim; only claims that are unrelated or are related,
but within the exceptions, need not be pleaded.
ROSENTHAL, at 391 (quoting 3 J. Moore, FEDERAL PRACTICE 13.13 (2d ed. 1985). In MOORE, 270 U.S. 593, the Supreme Court stated at page 610:
""Transaction" is a word of flexible meaning. It may
comprehend a series of many occurrences, depending not
so much upon the immediateness of their connection as
upon their logical relationship.
Under the present rule, Fed. R. Civ. P. 13(a), a significant number of decisions accept the logical relation test as controlling. SEE, E.G., CROUSE-HINDS CO. v. INTERNORTH, INC., 634 F.2d 690, 699-700, (2d Cir. 1980); COCHRANE v. IOWA BEEF PROCESSORS, INC., 596 F.2d 254, 263 (8th Cir.), CERT. DENIED, 442 U.S. 921 (1979); ALBRIGHT v. GATES, 362 F.2d 928, 929 (9th Cir. 1966); LESNIK v. PUBLIC INDUS., 144 F.2d 968 (2d Cir. 1944).
The considerations behind compulsory counterclaims include judicial economy, fairness and convenience. Of the four tests, the logical relationship test is the most widely recognized and it best fosters these important considerations. We find the logical relationship test applicable.
Mrs. Schoeman admits there is a logical relationship between the negligent issuance of a life insurance policy in favor of a beneficiary who has no insurable interest in the life of the insured, and who should be the beneficiary after the murder of that insured. She argues, however, that the logical relationship test should not be applied because this should not be dispositive of whether she should be barred from bringing her action against the Insurer in state court.
"Rule 13 does not create the absolute bar of res judicata
but is "a bar created by rule * * * which logically is
in the nature of an estoppel arising from the culpable
conduct of a litigant to assert a proper counterclaim." (Footnote omitted.) C. Wright, FEDERAL COURTS 79, at 390 (3d ed. 1976). She argues that there was no culpable conduct on her part, thus her failure to assert a proper counterclaim should not deny her the right to bring this claim.
We disagree. The application of the logical relationship test leads to the conclusion the counterclaim was compulsory and should have been brought in the interpleader action. Whether she was culpable is not the important factor, it is whether the rules fostering judicial economy required her to have brought the action. The issue as to which parties were entitled to the insurance policy funds and whether there was an insurance policy in effect at all are integrally and logically related. The prerequisites of Fed. R. Civ. P. 13(a) are met in this situation. Further, all the necessary facts for a wrongful death claim against the Insurer were known to Mrs. Schoeman at the time of the interpleader action yet she did not raise this claim. The fact that the original action took place in federal court and her cause is now in state court does not make compulsory counterclaim concerns inapplicable. She is barred from bringing the wrongful death claim against the Insurer because the asserted claim was compulsory.
It is unnecessary to address the third issue of whether Mrs. Schoeman has failed to state a cause of action because of our disposition of the first two issues.
CONCLUSION
The doctrine of res judicata bars Mrs. Schoeman's wrongful death claim against the Insurer, which could and should have been brought in the interpleader action. A logical relationship existed between the claims in the interpleader action and the wrongful death claim. Mrs. Schoeman's wrongful death claim was a compulsory counterclaim. We affirm.
CONCURRING JUDGES: Dolliver, C.J., Utter, Brachtenbach, Dore, Pearson, Andersen, and Durham, JJ., and Skimas, J. Pro Tem., concur.