Mirchandani v. BMO Harris Bank, N.A. – 5/27/2014

May 29, 2014

Arizona Court of Appeals Division One Holds that Claims Against a Bank That Sold a Deed of Trust to a Third Party Are Not Compulsory Counterclaims in a Lawsuit Brought By the Third Party.

Borrowers borrowed money from a predecessor to BMO Harris Bank, secured by deeds of trust and personal guarantees from the borrowers.  BMO sold the deeds of trust to TradeCor, an unaffiliated real estate development and investment company.  TradeCor sued the borrowers and prevailed.  The borrowers did not assert any counterclaims in that case.

In a separate action, the borrowers sued BMO and TradeCor.  Both parties moved to dismiss, arguing that that the borrowers’ claims were barred by res judicata because they should have been asserted as compulsory counterclaims in the previous action initiated by TradeCor.  The superior court dismissed the claims against both BMO and TradeCor on that basis.  Based on settled Arizona law, the Court of Appeals affirmed the dismissal as to TradeCor, which was actually a party in the previous litigation.

The Court of Appeals reversed as to BMO, however.  Arizona Rule of Civil Procedure 13(a) specifies that claims arising from the same transaction and occurrence against an “opposing party” are compulsory counterclaims and must be raised in the initial case.  The Court held that BMO did not qualify as an “opposing party” because it was not a party in the first case.  Claims against BMO brought in the first action would have been alleged in a third party complaint under Rule 14, not as compulsory counterclaims under Rule 13(a).  

Although some courts have recognized some exceptions to the strict status as an actual named party in the prior case, no such exception applied here.  BMO and TradeCor are separate legal entities involved in different businesses and no facts indicate that BMO directed or controlled the litigation in the first case.

Judge Gemmill authored the opinion; Judges Thumma and Howe concurred.