WILLIAM A. BABLITCH, J. ABCG Enterprises, Inc., Charles Injasoulian and Mary Ann Injasoulian (collectively "ABCG") seek review of a court of appeals decision holding that ABCG is barred under the doctrine of res judicata from bringing this action against First Bank Southeast, N.A. (First Bank). The court of appeals concluded that ABCG was required to counterclaim in a prior foreclosure action instituted by First Bank in order to preserve its claims. ABCG argues that res judicata does not apply in this case because Wisconsin has a permissive counterclaim statute which allows a party to counterclaim but never requires a party to do so. We conclude that ABCG was required to counterclaim in the prior action because the claims, if successfully litigated, would nullify the prior default judgments entered in favor of First Bank or impair rights established in the initial action. Since it did not counterclaim, its present claims are barred by res judicata. Accordingly, we affirm the decision of the court of appeals.