Counterclaims and Collateral Estoppel

How Counterclaims and Collateral Estoppel Protect You

The featured question this month is, “How do you keep the debt collector from just dropping the case and selling your debt to someone else?”

You probably know that I am a big believer in filing a counterclaim. Having a counterclaim gives you some very important control over the lawsuit itself and whether you get sued or harassed again by the same, or a different debt collector. In this article we’re going to review the reasons this is so important. In the “Life after Litigation” segment we discuss one very important way you can use a dismissal “with prejudice” to begin to repair your credit.

Plaintiff’s Right to Dismiss Case

In most jurisdictions (although not the federal courts), a plaintiff is free to dismiss a lawsuit “without prejudice” to its right to refile the suit later. In Missouri, that right extends all the way up until the jury is in place – possibly until the first evidence is presented. Up until that time, a plaintiff can go into the filing room, or hand to the judge, a dismissal – no explanation required, and nothing anybody can do about it. In federal court, at least, a party must request leave to dismiss, and the judges don’t like that kind of game. But the right is extensive anyway. However it happens, though, if the plaintiff drops the case without prejudice it is free to go back to phoning you, trashing your credit report, and eventually even suing you again. Or it could sell the debt to someone else who will do all that.

Collateral Estoppel

If you get the suit dismissed with prejudice, on the other hand, all that changes thanks to a doctrine called “collateral estoppel.” Collateral estoppel says that once a court has determined an issue between two parties, neither they, nor anyone “in privity” with them can ask the court to look at the issue again. And privity basically means that that another person’s right is derived from the person who was in court – that is, they bought the right one way or another. So getting a judgment of “with prejudice” effectively ends the cycle of selling your debt to people who will harass you.

How Counterclaims Help

A counterclaim is your key to making sure you can do this. As I have said before, this is so because while a plaintiff may be free to dismiss its own claim against you, it certainly cannot dismiss your claim against it. If a debt collector sues you, the lawyer is usually going to get paid a percentage of the take and handles the counterclaim as an “incidental” to the main litigation. (Even that might be an ethical violation, as lawyers are not allowed to defend cases on a “contingency” basis in any jurisdiction I know about, and handling a defense as an incidental raises the possibility that the lawyer might not get paid for defending the case if he loses the main case, but will get paid if he wins it – sounds like a contingency to me.)

In any event, if the debt collector drops the main case, then the lawyer is representing the debt collector for free. Except that we all know that there’s no free lunch, and if there is a long-term relationship between the collector and lawyer, that too could be regarded as a contingency. Or else the lawyer is stuck representing the debt collector for free – something no lawyer likes to do.

It also means that while the debt collector no longer stands to make a profit from the lawsuit, it does risk losing and getting a judgment against it for money. And it means it is wasting time and money on the case in general. What would you do in that situation, if you had a claim you were no longer interested in pursuing against a person who could defend herself?

Most likely you’d bargain, and most likely you’d offer the other side to dismiss with prejudice if they’d do the same. If you happen to be an aggressive defendant, and specially if you’ve already gotten a summary judgment of some sort, you might want to make them give you some money to sweeten the deal for you.

 

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