## Facts

- Paragon Group, Inc. managed the San Miguel Apartments in St. Louis County, Missouri, where Paul E. Podhorn, Jr. and Liana E. Podhorn were tenants.
- In November 1983, Paragon sued the Podhorns in Missouri associate circuit court to collect unpaid rent arising from the tenancy.
- The state court entered a default judgment against the Podhorns in the rent-collection case.
- In April 1984, the Podhorns filed a federal diversity action against Paragon and related defendants based on the same tenancy.
- The federal complaint asserted multiple landlord–tenant and tort theories, including constructive eviction, breach of implied warranty of habitability, breach of quiet enjoyment, negligence, abuse of process, conversion of the security deposit, malicious prosecution/wrongful garnishment, and invasion of privacy.
- Defendants moved to dismiss, arguing the federal claims were compulsory counterclaims that should have been asserted in the prior state rent case under Missouri procedural rules.
- The Podhorns argued they were not required to assert the claims in associate circuit court because their counterclaims exceeded that court’s monetary authority.

## Issues

1. Whether the tenants’ federal claims arose from the same “transaction or occurrence” as the landlord’s earlier Missouri rent-collection suit.
2. Whether Missouri’s compulsory counterclaim rule required the tenants to assert those claims in the prior state action on pain of forfeiture.
3. Whether the associate circuit court’s limited jurisdiction excused the tenants from pleading counterclaims that exceeded the court’s monetary authority.

## Decision

- The district court granted the motion to dismiss.
- The court held the tenants’ federal claims arose out of the same transaction or occurrence as the earlier rent suit, namely the parties’ tenancy and disputes concerning conditions, occupancy, and rent.
- The court held Missouri’s compulsory counterclaim rule required the tenants to plead those claims in the prior state action.
- The court rejected the argument that perceived jurisdictional limits of the associate circuit court excused non-assertion; the tenants were required to plead the counterclaims and allow the state court to address jurisdiction and any transfer.
- Because the tenants did not assert the compulsory counterclaims in the rent action, the later federal suit was barred and dismissed.

## Legal Principles

- Under Missouri law, claims arising out of the same transaction or occurrence as an opposing party’s claim must be asserted as compulsory counterclaims or are barred in later litigation.
- A landlord’s rent-collection action and tenants’ claims for defective conditions, eviction-related theories, and related torts can constitute a single transaction or occurrence when they arise from the same tenancy.
- A party cannot avoid compulsory counterclaim requirements by withholding claims due to the original forum’s limited monetary authority; the party must plead the counterclaim and the court determines jurisdiction and appropriate procedural handling (including transfer if authorized).
- In a later diversity action, a federal court may dismiss claims that state law treats as forfeited due to failure to assert compulsory counterclaims in an earlier state proceeding.

## Conclusion

The court dismissed the tenants’ federal diversity suit because all claims stemmed from the same tenancy as the landlord’s earlier rent action and therefore had to be asserted as compulsory counterclaims in that state case, even if the tenants believed the associate circuit court lacked authority to adjudicate the full amount.


Podhorn v. Paragon Grp., Inc., 606 F. Supp. 185 (E.D. Mo. 1985)