DEFENDANT’S COUNTERCLAIMS MADE IN AN ACTION IN WHICH A DEFAULT JUDGMENT WAS GRANTED ARE NOT BARRED BY THE RES JUDICATA DOCTRINE; DEFENDANT, NOW AS A PLAINTIFF, CAN BRING A NEW ACTION BASED ON THE COUNTERCLAIMS; NEW YORK IS A “PERMISSIVE COUNTERCLAIM” JURISDICTION (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, over a dissent, determined the causes of action first brought as counterclaims in a prior action were not barred by the res judicata doctrine after a default judgment in the prior action:

“New York does not have a compulsory counterclaim rule” … . Thus, a defendant who fails to bring a counterclaim in an action that results in an adverse judgment will be barred from bringing that same claim only if ” ‘the two causes of action have such a measure of identity that a different judgment in the second would destroy or impair rights or interests established by the first’ ” … . Stated another way, “the permissive counterclaim rule operates to save from the bar of res judicata those claims for separate or different relief that could have been but were not interposed in the parties’ prior action so long as the second action is not based on a preexisting claim for relief that would impair the rights or interests established in the first action” … .

Inasmuch as the judgment sought by plaintiff in this action would not ” ‘destroy or impair rights or interests established’ ” by defendant’s default judgment in the prior action … , plaintiff’s complaint is not barred by the doctrine of res judicata. The mere fact that a counterclaim may serve as an offset to lessen the net amount owed to a plaintiff is not, in and of itself, sufficient to “impair” the rights established as a result of a default judgment inasmuch as every counterclaim—to the extent established by a defendant—provides an offset to the initial claim … . Vince’s Pizza Plus, Inc. v Dion DeFedericis, 2026 NY Slip Op 04598, Fourth Dept 7-24-26

Practice Point: New York is a “permissive counterclaim” jurisdiction. Therefore counterclaims made by a defendant in a prior action which resulted in a default judgment can be the basis of a new action brought by the defendant, now as a plaintiff, without triggering the res judicata doctrine.