A New South Carolina Case Changes the Analysis for Counterclaims and May Change Much More
In South Carolina, foreclosures are usually tried by a judge sitting without a jury. A foreclosure is an equitable cause of action, and there is no right to a trial by jury in equitable actions. However, a Defendant may plead counterclaims in which he is entitled to a jury trial. In order to be entitled to a jury trial, the counterclaim must be legal in nature, and it must be compulsory rather than permissive.
What makes a counterclaim compulsory? There is a rule, and there is a test; at least, there used to be a test until August of this year. The rule is 13(a). It states a claim is compulsory if it “arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim…”
The test is the Logical Relationship test. To analyze counterclaims under the rule, the SC Supreme Court adopted the “logical relationship test” in 1989. The logical relationship test asks the broad and vague question, “is there any logical relationship between the claim and the counterclaim.” For the last 34 years, the logical relationship has been the test.
In a short August 2023 opinion, the SC Supreme Court ruled 5-0 to abolish the logical relationship test. The Court says that the language in Rule 13 is sufficient to determine the nature of a counterclaim.
The primary implications for mortgagees are twofold. First, the trial court rulings on counterclaims just became less predictable. Although the Courts have been interpreting Rule 13 for years, the test they have used is abolished. There are now fewer controlling cases upon which to rely.
Second, and perhaps more importantly, when a mortgagee finds itself as a Defendant in litigation with the mortgagor, the mortgagee needs to see if foreclosure is an appropriate counterclaim. Depending on the facts of the complaint, foreclosure may be a compulsory counterclaim. If so, the mortgagee must plead it or it will be waived.
Read the full opinion here >
For more information on this legal update please contact:
Managing Attorney, SC