Set-off Is Counterclaim; Not Affirmative Defense – IL Court Rules in Partition Suit

Stadnyk v. Nedoshytko, 2017 IL App (1st) 152103-U views the counterclaim-versus-affirmative defense distinction through the prism of a statutory partition suit involving co-owners of a Chicago apartment building.

The plaintiff sued to declare the parties’ respective ownership rights in the subject property.  After the court issued a partition order finding the plaintiff and defendants had respective 7/8 and 1/8 ownership interests.  After the trial court ordered a partition of the property, the defendants filed affirmative defenses titled unjust enrichment, breach of fiduciary duty and equitable accounting.  Through all the “defenses” defendants sought to recoup property maintenance and repair expenses they made through the years.

The trial court struck defendants’ affirmative defenses on the basis that they were actually counterclaims and not defenses. The court also refused to award statutory attorneys’ fees to the plaintiff.  Each side appealed.

Affirming the trial court’s striking of the defendants’ affirmative defenses, the First District initially considered the difference between an affirmative defense and a counterclaim.

Code Section 2-608 provides that counterclaims in the nature of “setoff, recoupment, cross-claim or otherwise, and whether in tort or contract, for liquidated or unliquidated damages, or for other relief, may be pleaded as a cross claim in any action, and when so pleaded shall be called a counterclaim.” 735 ILCS 5/2-608

Code Section 2-613 governs affirmative defenses and requires the pleader to allege facts supporting a given defense and gives as examples, payment, release, satisfaction, discharge, license, fraud, duress, estoppel, laches, statute of frauds, illegality, contributory negligence, want or failure of consideration. 735 ILCS 5/2-613.

Counterclaims differ from affirmative defenses in that counterclaims seek affirmative relief while affirmative defenses simply seek to defeat a plaintiff’s cause of action.  In this case, the defendants’ did not seek to defeat plaintiff’s partition suit.  Instead, the defendants sought post-partition set-offs against sale proceeds going to plaintiff for defendants’ property maintenance and repair expenses.

A setoff is a counterclaim filed by a defendant on a transaction extrinsic to the subject of plaintiff’s suit.  Since the defendants styled their affirmative defenses as sounding in setoff and accounting – two causes of action (not defenses) – the Court affirmed the trial court’s striking the defenses.

The Court also reversed the trial court’s order refusing to apportion plaintiff’s attorneys fees.  Section 17-125 of the partition statute provides that a partition plaintiff’s attorney can recover his fees apportioned among the various parties since, in theory, the attorney acts for all interested parties.  However, where a party mounts a “good and substantial defense to the complaint,” the plaintiff’s attorneys’ fees should not be spread among the litigants. 735 ILCS 5/17-125.

Here, the defendants attempted to raise defenses (setoff and public sale, as opposed to private, was required) but only after the trial court entered the partition order.  Since the defendants didn’t challenge plaintiff’s partition request but instead sought a setoff for defendants’ contributions to the property and a public sale of the property, the trial court correctly concluded the defendants failed to raise good and substantial defenses under the partition statute.  As a consequence, the trial court should have apportioned plaintiff’s attorneys’ fees.

Afterwords:

Stadnyk cements the proposition that a counterclaim differs from an affirmative defense and that setoff fits into the former category.  The case also stresses that where a defendant seeks to recover damages from a plaintiff based on a collateral transaction (other than the one underlying the plaintiff’s lawsuit), defendant should file a counterclaim for a setoff rather than attempt to raise the setoff as a defense.

Other critical holdings from the case include that a court of equity lacks power to go against clear statutory language that require a public sale and partition plaintiff attorneys’ fees should only be apportioned where a defendant doesn’t raise a substantial defense to the partition suit.

 

 

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.