## Facts

- Mariano Azada and his wife, Carmen Azada, were injured in an automobile collision involving Roger Carson.
- Hawaii provided a two-year statute of limitations for personal-injury actions arising from such an accident.
- The Azadas filed a personal-inury lawsuit against Carson in the United States District Court for the District of Hawaii under diversity jurisdiction only days before the two-year limitations period expired.
- Carson was not served with the complaint until roughly three months after the suit was filed.
- After being brought into the case, Carson filed an answer that included a counterclaim against the Azadas arising out of the same collision.
- By the time Carson asserted the counterclaim, more than two years had passed since the accident.
- The Azadas moved to dismiss Carson’s counterclaim on the ground that it was barred by the statute of limitations.

## Issues

1. In a diversity action applying Hawaii’s statute of limitations, is a defendant’s counterclaim arising from the same automobile accident barred when it is first pleaded after the limitations period expires, even though it was not time-barred when the plaintiffs filed their complaint?

## Decision

- The court denied the Azadas’ motion to dismiss the counterclaim.
- The court held that, for a counterclaim arising out of the same transaction or occurrence as the plaintiff’s timely-filed complaint, the limitations question is measured as of the commencement of the plaintiff’s action.
- Because Carson’s claim was not barred when the Azadas filed suit, the counterclaim could proceed even though the two-year period had run by the time Carson filed his responsive pleading.

## Legal Principles

- In diversity cases, federal courts apply state statutes of limitation; when state law does not clearly address how limitations apply to counterclaims, the federal court must determine how the state’s courts would likely rule.
- A counterclaim tied to the same event sued upon (a transaction-or-occurrence counterclaim) is generally treated as timely if it was not time-barred on the date the plaintiff commenced the action.
- Allowing such counterclaims serves the basic function of limitations law—preventing stale claims—because the plaintiff’s timely filing places the underlying event in active litigation, and the defendant’s related claim concerns the same episode and proof.
- Resolving both parties’ claims from a single accident in one suit avoids needless duplication and reduces the risk that one party’s claim is adjudicated while the other’s is lost solely due to the timing of responsive pleadings.
- The court did not accept a rule that would turn on formal distinctions (such as contract versus tort labels) where the counterclaim is based on the same collision and the plaintiff’s suit was timely filed.

## Conclusion

Azada v. Carson holds that when plaintiffs timely file a diversity personal-injury action based on an automobile accident, a counterclaim arising from the same accident is not barred by the statute of limitations if it was still timely at the moment the plaintiffs commenced the lawsuit, even if the limitations period expires before the defendant serves an answer asserting the counterclaim.


Azada v. Carson, 252 F.Supp. 988 (1966)