Rainbow Management Group, Ltd. v. Atlantis Submarines Hawaii, L.P.
No specific reporter information provided (1994)
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Rule of Law:
When a co-party in a lawsuit files a cross-claim against another co-party that asserts a substantive claim (beyond mere contribution or indemnity), the co-parties become opposing parties, and any claim the second party has against the first that arises from the same transaction or occurrence becomes a compulsory counterclaim under Fed. R. Civ. P. 13(a).
Facts:
- Atlantis Submarines Hawaii, L.P. ('Atlantis') contracted with Rainbow Management Group ('RMG') to transport passengers from the shore to Atlantis's submarine.
- On January 27, 1992, RMG's vessel, the Elua, was ferrying passengers to the Atlantis X submarine.
- Nearby, George A. Haydu's vessel, the Boston Whaler, was moored with Haydu and four passengers aboard.
- The Elua collided with the Boston Whaler.
- The collision destroyed the Boston Whaler, caused personal injuries to its passengers, and resulted in damage to the Elua.
Procedural Posture:
- George Martin Berry, a passenger injured in the collision, sued RMG and Atlantis as co-defendants in federal district court (the 'Berry' case).
- Atlantis filed a cross-claim against its co-defendant RMG for breach of contract, contribution, and indemnity.
- RMG filed a cross-claim against Atlantis solely for contribution and indemnity, but did not assert its claim for damage to its vessel, the Elua.
- While the Berry case was pending, RMG filed a new, separate lawsuit against Atlantis seeking recovery for damage to the Elua.
- RMG's motion to consolidate its new lawsuit with the pending Berry case was denied by a Magistrate Judge.
- Atlantis filed a motion for summary judgment in RMG's separate lawsuit, arguing the claim should have been a compulsory counterclaim in the Berry case.
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Issue:
Does a co-defendant's claim against another co-defendant become a compulsory counterclaim under Fed. R. Civ. P. 13(a) if the second co-defendant has already filed a cross-claim containing a substantive claim against the first?
Opinions:
Majority - Fong, District Judge
Yes. A co-defendant's claim becomes a compulsory counterclaim once the other co-defendant files a substantive cross-claim against it. The court adopted the reasoning from Moore’s Federal Practice, which states that co-parties become 'opposing parties' for the purposes of Rule 13(a) once one party pleads a cross-claim against the other. This interpretation serves the goals of judicial economy by encouraging the resolution of all related claims in a single lawsuit. However, the court limited this rule to situations where the initial cross-claim is substantive (e.g., for breach of contract) and not merely for contribution or indemnity. In this case, Atlantis’s cross-claim against RMG included a substantive claim for breach of contract, which converted the co-parties into opposing parties. Therefore, RMG was required to assert its claim for damages to the Elua as a compulsory counterclaim in that initial lawsuit and is barred from bringing it in a separate action.
Analysis:
This decision clarifies an ambiguous procedural issue in the Ninth Circuit regarding the interplay between permissive cross-claims (Rule 13(g)) and compulsory counterclaims (Rule 13(a)). The court establishes a clear trigger for when co-parties become 'opposing parties': the assertion of a substantive cross-claim. This ruling promotes judicial efficiency by preventing parties from litigating the same core facts in multiple lawsuits. Future litigants in similar multi-party actions must now be vigilant, as a co-defendant's substantive cross-claim will force them to bring all related claims immediately or risk forfeiting them.
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