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Is a declaratory judgment counterclaim a mirror-image of the plaintiff’s complaint for declaratory judgment or redundant of defendants’ answer and affirmative defenses to the plaintiff’s complaint? Insurers should consider this question when either asserting a counterclaim in a declaratory judgment action or moving to dismiss a counterclaim raised by a policyholder in a declaratory judgment action.
Mirror-image or redundant counterclaims are often the subject of motions to strike under Federal Rule of Civil Procedure 12(f) and motions to dismiss under Federal Rule of Civil Procedure 12(b)(6). More importantly, federal courts have dismissed counterclaims where it is clear that the factual and legal issues between the complaint and the counterclaim are identical, or when a counterclaim tracks identically with the counterclaimant’s affirmative defenses. See Barnett v. Platinum Equity Cap. Partners II, L.P., No. 2:16-CV-1668, 2017 WL 3190654, at *4–7 (W.D. Pa. July 27, 2017) (citing Aldens, Inc. v. Packel, 524 F.2d 38, 51-52 (3d Cir. 1975)); Bao v. MemberSelect Ins. Co., No. 21 C 04119, 2022 WL 1211509, at *5–6 (N.D. Ill. Apr. 25, 2022). Because mirror-image counterclaims are subject to procedural or substantive attacks, and insurers may want to consider several advantages to seeking dismissal of mirror-image counterclaims when raised by policyholders.
District courts have articulated several reasons for why mirror-image counterclaims should be dismissed. For instance, when it is clear that a ruling on the merits of plaintiff’s claims would render the declaratory judgment counterclaim as moot, federal district courts have dismissed such counterclaims as redundant. See Lilac Dev. Grp., LLC v. Hess Corp., No. CV157547WHWCLW, 2016 WL 3267325, at *3 (D.N.J. June 7, 2016); Principal Life Ins. Co. v. Lawrence Rucker 2007 Ins. Tr., 674 F. Supp. 2d 562, 566 (D. Del. 2009). Other courts also look to whether the counterclaim serves any useful purpose, or whether it is repetitious and unnecessary. Pettrey v. Enter. Title Agency, Inc., No. 1:05-CV-1504, 2006 WL 3342633, at *3 (N.D. Ohio Nov. 17, 2006); Green Bay Packaging, Inc. vs. Hoganson & Associates, Inc., 362 F.Supp. 78 (N.D.Ill. 1973). For example, a court found that the inclusion of a redundant, derivative counterclaim in a declaratory judgment action would not only serve no purpose but would also needlessly create the risk of procedural confusion as both parties would bear the burden of proving opposites. Principal Life Ins. Co. v. DeRose, No. CIV. A. 1:08-CV-2294, 2009 WL 4061366, at *3–4 (M.D. Pa. Nov. 23, 2009). Insurers should also be mindful of redundant, mirror-image counterclaims raised by policyholders for other potentially improper purposes, such as resurrecting an untimely jury demand. See, e.g., Mille Lacs Band of Chippewa Indians v. State of Minn., 152 F.R.D. 580, 581 (D. Minn. 1993) (noting that a motion to amend an answer to assert a redundant counterclaim may be construed as an untimely attempt to obtain a jury trial).
However, not all federal courts agree that mirror-image counterclaims should be dismissed. See, e.g., Erickson v. Brock & Scott, PLLC, No. 2:09-CV-02461-CGC, 2009 WL 4884424, at *3–4 (W.D. Tenn. Dec. 8, 2009) (noting the different ways in which various federal courts have treated mirror-image counterclaims). As an example, when a declaratory judgment counterclaim involves the interpretation of a contract, some courts are reluctant to dismiss such a counterclaim as redundant – even when the counterclaim is a mirror image of the complaint. Iron Mountain Sec. Storage Corp. v. Am. Specialty Foods, Inc., 457 F. Supp. 1158, 1162 (E.D. Pa. 1978). In Iron Mountain, the Court reasoned that while it may logically flow from a ruling adverse to plaintiff that defendant’s interpretation of the contract was the correct one, defendants would not be entitled to a judgment to that effect unless they specifically requested one. Id. Other courts have denied motions to dismiss counterclaims to allow for the development of facts either at the summary judgment stage or after trial in order to determine whether a counterclaim truly mirrors the legal and factual issues in a complaint. Leach v. Ross Heater & Mfg. Co., 104 F.2d 88, 91–92 (2d Cir.1939); see also Jungersen v. Miller, 125 F.Supp. 846, 847 (N.D.Ohio 1954). Thus, insurers should be mindful of these distinguishing authorities when either faced with a motion to dismiss their counterclaim or when moving to dismiss a policyholder’s counterclaim.
Before raising a counterclaim in a declaratory judgment action, insurers should consider if the relief it seeks is different from the relief the policyholder seeks to avoid potential dismissal of the counterclaim under Rule 12(f) or Rule 12(b)(6). Likewise, when examining a policyholder’s counterclaim, insurers should consider whether the counterclaim is redundant of or a mirror-image to the original complaint or the answer and affirmative defenses. If so, insurers should consider moving for dismissal of the counterclaim to avoid unnecessary and repetitious litigation that could lead to procedural confusion, and to also dismiss a counterclaim that may have been brought for another purpose, such as resurrecting an untimely jury demand.