COURT SIDESTEPS APPARENT CONFLICT FOR REFILING COUNTERCLAIMS

July 26, 2004

Steven P. Garmisa
Hoey & Farina Attorney
garmisa@hoeyfarina.com
1-888-425-1212

Neatly resolving what seemed to be a conflict in the Limitations Act between section 13-207, which extends the statute of limitations for counterclaims, and section 13-217, which limits the period for refiling a voluntarily dismissed claim, the Illinois Appellate Court concluded that a counterclaim was not barred even though it was refiled more than a year after it was dropped. Mermelstein v. Rothner, 2004 WL 1373614 (1st Dist., June 18).

Preferred Enteral Systems voluntarily dismissed its counterclaim against Marvin Mermelstein after winning a judgment on Mermelstein's claim. But the Appellate Court reversed the judgment against Mermelstein and remanded with instructions to permit Mermelstein to file an amended complaint.

On remand, when Mermelstein filed an amended complaint, Preferred refiled its counterclaim. By that time, what would have been the statute of limitations had already expired for the counterclaim. And the counterclaim was refiled more that a year after it was voluntarily dismissed.

So which statute controlled: section 13-207 or section 13-217?
Entitled "Counterclaim or Setoff," section 13-207 provides, "A defendant may plead a setoff or counterclaim barred by the statute of limitation, while held and owned by him or her, to any action, the cause of which was owned by the plaintiff or person under whom he or she claims, before such setoff or counterclaim was so barred, and not otherwise."

However, under section 13-217, entitled "Reversal or dismissal": "In the actions specified in Article XIII of this act or any other act or contract where the time for commencing an action is limited, if ... the action is voluntarily dismissed by the plaintiff ... then, whether or not the time limitation for bringing such action expires during the pendency of such action, the plaintiff, his or her heirs, executors or administrators may commence a new action within one year or within the remaining period of limitation, whichever is greater, after ... the action is voluntarily dismissed by the plaintiff."

The trial judge ruled that Preferred's counterclaim was barred, but the Appellate Court reversed, adopting a nifty analysis of the statutes that was not mentioned by the litigants.

Here are some highlights of Justice John P. Tully's opinion (with various omissions not noted in the quoted text):

"The fundamental rule of statutory interpretation is to ascertain and effectuate the legislature's intent. To ascertain the legislative intent, the court must look first to the language of the statute, examining the language of the statute as a whole, and considering each part or section in connection with every other part or section. When an apparent conflict exists between statutes, courts must construe the statutes in harmony if possible.

"Here we are presented with an apparent conflict between two sections of the statute. Section 13-207 appears to preserve a defendant's right to bring an otherwise time-barred counterclaim, while section 13-217 appears to limit that right after one year if the counterclaim is voluntarily dismissed.

"Preferred argues that we should recognize the equitable principles underlying section 13-207 and apply that statute without reference to section 13-217. Plaintiff argues that we should resolve the conflict by applying section 13-217 because that section is more specific.
"We find neither approach entirely satisfying but agree with Preferred that consideration of the equitable principles underlying section 13-207 is an appropriate starting point.

"Section 13-207 appears to recognize the fact that potential litigants do not necessarily promptly file every possible claim they may have. Instead, some litigants may refrain from filing until they are haled into court as a defendant.

"The original purpose of section 13-207 appears to be to prevent a plaintiff from gaining a tactical advantage by delaying his filing so that, while his pleading comes within the time period of the statute of limitations, any counterclaim would be outside the period and therefore barred. However, regardless of the original purpose of this section, courts have long recognized that application of section 13-207 is based on the theory that a plaintiff waives application of the statute of limitations with regard to potential counterclaims.

"More importantly, a plaintiff is not free to withdraw this waiver at will; once application of the statute of limitations has been waived, it remains waived even if the claim which triggered the waiver is later dismissed.

"Focusing on the waiver theory of section 13-207 allows us to harmonize the apparent conflict with section 13-217. The parties' arguments focus on the 'within one year' language of section 13-217. However, we believe that under a waiver theory the more important language is the phrase 'within the remaining period of limitation.'

"When a plaintiff files a complaint that triggers application of section 13- 207, he has waived application of the statute of limitations with regard to counterclaims. Such counterclaims, therefore, are not subject to the statute of limitations.

"We believe that the phase 'within the remaining period of limitation' should be construed to cover claims that, although beyond the statute of limitations, are not barred because the statute has been waived. Accordingly, if a defendant has previously voluntarily dismissed a claim that would otherwise be barred by the statute of limitation or the one-year period of section 13-217, that claim will as the result of waiver nevertheless be 'within the remaining period of limitation.'

"Therefore, we conclude that defendant's counterclaim was not barred by the one-year limitation of section 13-217 because, as a result of plaintiff's waiver, it was not outside the period of limitation.
"Plaintiff argues that considerations of judicial economy should preclude allowing Preferred to refile its counterclaim. We disagree. We do not believe that judicial economy is served by requiring defendants to prosecute counterclaims to completion simply in order to preserve them against the possibility of a finding in favor of a plaintiff on appeal.

"Certainly, Preferred was under no obligation to dismiss its counterclaim after the trial court entered a directed finding in its favor on plaintiff's claim. Preferred was free to pursue the counterclaim if it chose to do so. However, Preferred elected instead to treat its counterclaim as a defense that it would assert only if plaintiff's claims survived its motion for a directed verdict. We do not believe that forcing Preferred to litigate its counterclaim would serve the goal of judicial economy.

"If plaintiff had failed to appeal the trial court's judgment or if it had been affirmed on appeal, the need to hear evidence and rule on Preferred's counterclaim never would have arisen.

"Plaintiff suggests that Preferred should have refiled its counterclaim after it became apparent that his appeal would not be decided within one year. We likewise see nothing efficient about forcing litigation of a counterclaim in an independent proceeding while an appeal is pending that might obviate the need to raise the counterclaim.

"Judicial economy is not served by adopting a statutory interpretation that forces defendants to litigate counterclaims, when they would prefer not to, simply to preserve these claims against the possibility of an appeal favorable to the plaintiff."

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