Counterclaim

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There are two sides to every argument: (1) the “claim,” and (2) the “counterclaim.” The first is a statement of the party’s point, or argument for something. The second is a rebuttal, or argument opposing the claim. Once the parties have made their claims and counterclaims, they introduce the reasoning behind their arguments, and present evidence to support those claims. The claim/counterclaim system is used to make points in everything from essays and scientific papers, to litigation. To explore this concept, consider the following counterclaim definition.

Definition of Counterclaim

Noun

  1. A claim made to offset another claim in a legal action.

Verb

  1. To assert a claim for relief against a party who has made an original claim.

Origin

1775-1785       English (counter +claim)

What is Counterclaim

In very simple terms, a counterclaim is the opposite of a claim. In the legal system, once a person (the “plaintiff”) has filed a legal action, which makes certain claims against the other party (the “defendant”), the defendant must file an answer to the claims with the court. Once this has been done, the process of each party proving his own position begins. The counterclaim is just one of the four elements of an argument, which include:

  1. Claim – to assert facts that give rise to a legally enforceable right or judicial action
  2. Counterclaim – a claim for relief made in opposition to, or to offset another person’s claim
  3. Reasons – the rationale behind a party’s claim
  4. Evidence – something that proves the truth of a claim, or leads to a conclusion

Counterclaim Example

Marsha is a busy design consultant for a home décor and renovation company. Her job frequently takes her out of the office to visit clients’ homes and offices to formulate a redecoration plan, personally pick out supplies, and to personally check up on the construction or installation. Marsha’s phone is constantly ringing, as she fields phone calls throughout the day, regardless of her location. Marsha desperately wants to separate her stressful job from her personal life, so she tells her employer, Ralph, that she needs a company cell phone. Ralph, thinking only of the additional expense, simply says “No.”

Marsha has made her claim – asking for a company cell phone.

Ralph has made his counterclaim – responding in the negative.

Now Jane must offer substantial and valid reasons to convince Ralph that she needs the company to provide her with a company phone. Jane might provide evidence of the hardship using her personal phone is causing her and her family. Jane’s reasoning may include a description of how often clients call her phone when she is at her daughter’s soccer games on Saturdays, when she is sitting down to dinner with her family, or when she is out on “date night” with her husband.

Jane may point out that she receives so many business phone calls that she has had to record a business-like greeting for her voicemail, which confuses friends and family, who think they have called her “at work” by mistake. As evidence, Jane may give Ralph copies of her cell phone activity for the past couple of months, highlighting the many business calls she has received and made.

In this example of counterclaim, Ralph now needs to support his refusal to provide Jane with a company phone. He should be ready to give good, substantiated reasons for his refusal to provide something that the company should have been paying for all along. This may include evidence of the company’s inability to foot the bill, and that the company does not require Jane to take calls on her personal phone.

Compulsory Counterclaims and Permissive Counterclaims

Once a party has filed a civil lawsuit, the defending party may file a counterclaim against him. Such a claim is aimed directly at the plaintiff for coexisting damages or claims in the same matter, which may serve to lessen the defendant’s liability. Some states have attempted to consolidate related matters by requiring that a defendant file a counterclaim on any issue directly related to the original lawsuit. This is a compulsory counterclaim, as the defendant is required to bring up any issues that may counter the plaintiff’s claim, as part of the same lawsuit. If he fails to do so, he cannot make that claim later in a separate lawsuit.

For instance, the Federal Rules of Civil Procedure, Title III, Rule 13, compels a compulsory counterclaim if:

(a) (1) … A pleading must state as a counterclaim any claim that—at the time of its service—the pleader has against an opposing party if the claim:

(A)  arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim; and

(B)  does not require adding another party over whom the court cannot acquire jurisdiction.

A permissive counterclaim is instituted by a defendant against a plaintiff in a lawsuit, but the defendant’s claim does not arise from the same issue or transaction as the plaintiff’s original claim. Many states allow permissive counterclaims, depending on the subject matter, and how it relates to the original lawsuit. While a defendant is not required to bring up such issues during the current case, as would be the case in a compulsory counterclaim, if he does, and the issue is decided by the court as part of the lawsuit ruling, the defendant cannot bring that claim later in another lawsuit.

Example of Compulsory Counterclaim

Martin convinces his friend, Adam, to invest in his new ice cream truck business. The two enter into a written contract, which specifies that Adam will put in an initial investment of $5,000, and that Martin will do all of the work in obtaining an ice cream truck and inventory, and that he will work the truck. Adam agreed to pay another $5,000 in four months’ time to help ensure the business is well-funded in its early months. Sixty days after Adam paid Martin the initial $5,000, he discovered that Martin hadn’t purchased the truck or inventory like he was supposed to do, yet the money has been spent. As a result, Adam backs out, refusing to pay any more money.

Martin files a lawsuit in small claims court, asking the court to order Adam to pay the remaining $5,000 required by the contract. At trial, Adam argues that Martin hadn’t done the things he was supposed to do according to the business plan, and he suspected he didn’t intend to, which is the reason he had backed out of the deal. The judge rules in Martin’s favor, because the two had a written contract, and Adam hadn’t proven that Martin would not, or could not, accomplish all of the necessary tasks for the business. Adam is ordered to pay Martin the remaining $5,000, and the contract is to remain in full force and effect.

Once Martin had filed his lawsuit, Adam could have filed a counterclaim, claiming that Martin had fraudulently convinced him to invest the money, and asking for his $5,000 investment to be returned. This counterclaim then requires Martin to show to the court that he had indeed been fulfilling his responsibilities according to the contract, and that he will continue to do so. In such a case, the court will hear the entire case, from both sides, before making its decision.

A ruling in this example of counterclaim will likely balance the liability between both sides, with a net judgment being rendered. For instance, if the court determines that Adam does indeed have to pay the other $5,000, but that Martin had falsely inflated the amount of money needed in order to trick Adam into giving him $2,000 more than the business required, Adam may be ordered to pay Martin only $3,000.

If the pair lived in a state of compulsory counterclaim, Adam would be required to make this claim within a certain period of time after Martin had filed the lawsuit. If he failed to do so, he could not later file a lawsuit claiming Martin had fraudulently induced him into the contract.

Frivolous Counterclaim Rejected by Court

In 2013, three limited partners of a failed real estate venture filed a civil lawsuit against the general partners, who controlled the company. The plaintiffs accused the general partners of mishandling the business, causing the loss of their $1.9 million investment. Shortly after this lawsuit was filed in a New Jersey court, the defendant managing partners filed a counterclaim, suing the limited partners for breach of fiduciary duty, waste of corporate funds, and violation of the covenant of good faith and fair dealings.

The plaintiff partners immediately realized that the counterclaim was a thinly veiled attempt to manipulate and restrict settlement efforts, and filed a motion to dismiss the counterclaim. In the counterclaim, the managing partners argued that, by suing them, the limited partners were wasting company money, which was ultimately used to defend the lawsuit. The court noted that, while partners usually owe a fiduciary duty to one another in their business venture, such duty is generally imposed on the majority or controlling partner. The limited partners in Deerhaven LLC had no control over the company, and therefore had no fiduciary duty to not bring suit against the managing partners.

In this example of counterclaim, the claim was found to be frivolous and dismissed by the court. The judge wasn’t through there, however, as he sanctioned the managing partners, ordering them to pay the minority partners’ attorneys’ fees.

Related Legal Terms and Issues

  • Civil Lawsuit – A lawsuit brought about in court when one person claims to have suffered a loss due to the actions of another person.
  • Covenant of Good Faith and Fair Dealings – A presumption that parties to a contract will deal with one another fairly, honestly, and in good faith.
  • Defendant – A party against whom a lawsuit has been filed in civil court, or who has been accused of, or charged with, a crime or offense.
  • Fiduciary Duty – A legal duty to act in another party’s best interest.
  • Frivolous – Something of little importance, or which has no sound basis in fact or law.
  • Plaintiff – A person who brings a legal action against another person or entity, such as in a civil lawsuit, or criminal proceedings.