## Facts

- Howard G. Dindo drove Harold O. Whitney’s car with Whitney as a passenger; on October 30, 1965, the car left the road and Dindo was severely injured.
- Dindo claimed the accident resulted from Whitney’s conduct while reaching for a flashlight mounted on the steering shaft, allegedly interfering with steering control.
- The same liability insurer covered Whitney as owner and Dindo as a permissive driver for the accident.
- In June 1966, Whitney sued Dindo in federal court in Vermont for injuries from the accident; the insurer undertook Dindo’s defense and retained counsel.
- The insurer advised Dindo to retain his own counsel because Whitney’s demand exceeded policy limits; Dindo did not do so and took no active role.
- In March 1967, the insurer settled Whitney’s suit within policy limits; the docket reflected the case was “settled and discontinued.”
- Dindo did not assert a counterclaim in the Vermont action.
- On October 29, 1968, Dindo sued Whitney in federal court in New Hampshire for negligence arising from the same accident; the same insurer defended Whitney.
- The district court dismissed Dindo’s suit on the ground that it was barred because Dindo failed to plead it as a compulsory counterclaim under Federal Rule of Civil Procedure 13(a) in the earlier Vermont action (treated on appeal as summary judgment).

## Issues

1. Whether a claim that would have been a compulsory counterclaim under Federal Rule of Civil Procedure 13(a) is automatically barred when the earlier action ended by settlement and discontinuance rather than a litigated judgment.
2. Whether, given the insurer’s control of the defense and settlement in the first case and Dindo’s claimed lack of knowledge and participation, the bar should instead turn on an equitable estoppel analysis.

## Decision

- The First Circuit reversed the dismissal (summary judgment) and remanded.
- The court held that omission of a compulsory counterclaim in an earlier case terminated by settlement does not automatically preclude a later action.
- The proper inquiry was equitable: whether Dindo should be estopped from suing based on his knowledge, conduct, and the circumstances surrounding the prior settlement, including insurer control and potential conflicts.
- Because disputed or undeveloped facts could support allowing the later suit, dismissal at the summary-judgment stage was premature.

## Legal Principles

- Rule 13(a)’s compulsory counterclaim doctrine is closely connected to claim-preclusion policies, but those policies have reduced force when the earlier case ended by settlement rather than adjudication.
- When the prior action concludes by settlement, failure to plead a related counterclaim should be assessed under equitable estoppel principles rather than treated as an inflexible res judicata bar.
- In evaluating estoppel, courts may consider the party’s understanding of available claims, the extent of participation and control in the prior case, and whether settlement conduct reasonably induced reliance that the matter was fully resolved.
- Where the same insurer insures and controls the defense for both sides of related claims, potential conflicts and the insured’s limited control may weigh against finding an intentional forfeiture of the omitted claim.

## Conclusion

The First Circuit ruled that Dindo’s later negligence action was not automatically barred by Rule 13(a) merely because he did not counterclaim in an earlier, settled federal suit arising from the same accident; instead, the district court had to determine on a developed record whether equitable estoppel justified preclusion.


Dindo v. Whitney, 451 F.2d 1 (1st Cir. 1971)