Defendants Sued in Their Individual Capacities Cannot Bring Counterclaims as Trustees or Agents for Non-Parties, Nor Bring Counterclaims Against Non-Parties who Allegedly Control a Party

On September 23, 2014, Justice Friedman of the New York County Commercial Division issued a decision in Mutual Benefits Offshore Fund v. Zeltser, 2014 NY Slip Op. 32467(U), dismissing counterclaims brought against non-parties.

The opinion in Mutual Benefits Offshore Fund discusses a series of unsuccessful attempts by some underlying defendants (counterclaim plaintiffs) to assert counterclaims against plaintiff MBOF and non-parties.

CPLR 3019(a) provides: "A counterclaim may be any cause of action in favor of one or more defendants or a person whom a defendant represents against one or more plaintiffs, a person whom a plaintiff represents or a plaintiff and other persons alleged to be liable." It is well-settled that the intent of CPLR 3019(a) is to limit counterclaims against a plaintiff who sues in a particular capacity to those related to that capacity, and to limit a defendant who is sued in a particular capacity to counterclaims related to that capacity.

(Internal quotations and citations omitted).

In a first attempt to assert counterclaims, the counterclaim plaintiffs asserted claims against MBOF, which were denied on a prior motion because they were asserted by the counterclaim plaintiffs as agent for and as trustee for a third party. The court held that, because the counterclaim defendants had only been sued in their individual capacities, they could not bring counterclaims in a different capacity as agents or trustees.

Then, in a second attempt to assert counterclaims, the counterclaim plaintiffs asserted claims against non-parties that allegedly controlled MBOF. The counterclaim plaintiffs argued that this was proper because MBOF "represented" the new defendants, in that the new defendants were using MBOF and brought suit in its name to represent their personal interests. The court rejected this attempt too, on the grounds that a corporation and those controlling it are not "co-extensive for purposes of asserting a counterclaim . . . . the counterclaim must assert a cause of action against the party plaintiff and that if the counterclaim be not properly interposed against the plaintiff, it is not proper as to the others." (Internal citation omitted.)

As to whether MBOF "represents" the non-parties, the court held that:

Counterclaim Plaintiffs’ interpretation of 'a person whom a plaintiff represents' to include any individual or entity which allegedly controls a plaintiff would broaden the language of the statute so as to render it virtually without limitation. This is not an instance where an administrator, trustee, liquidator or the like has brought suit on behalf of MBOF and Counterclaim Plaintiffs seek to assert claims directly against MBOF. Instead, Counterclaim Plaintiffs attempt to interpose liability on Counterclaim defendants in their capacities either as separate corporate entities or as individuals.

The Counterclaim Plaintiffs were therefore directed to commence a new action if they wished to proceed "against the Counterclaim Defendants, if timely and otherwise proper."