Opinion
98 Civ. 8726 (RPP).
April 25, 2000.
OPINION AND ORDER
Third-Party Defendant/Counterclaimant Sheldon H. Solow, d/b/a/ Solow Building Company ("Solow") moved on April 7, 2000 to dismiss this action for lack of subject matter jurisdiction. Trial commenced on April 13, 2000. At the Court's request, Third-Party Plaintiff Morgan Guaranty Trust Company of New York ("Morgan"), s/h/a J.P. Morgan Co., Inc. ("J.P. Morgan") responded to Solow's motion to dismiss on April 17, 2000. For the reasons that follow, Solow's motion to dismiss was granted on April 17, 2000.
Background
The genesis of this action was an altercation between Stefan Solow, an employee of Solow, and Joseph M. Jenkins ("Jenkins"), an employee of J.P. Morgan. Stefan Solow sued Jenkins and J.P. Morgan. Subject matter jurisdiction for that action was based on diversity of the parties. Morgan filed an amended answer in response to Stefan Solow's complaint, in which it asserted a counterclaim for indemnification for the tort under Morgan's lease at 9 West 57th Street, a building owned by Solow in which the altercation between Stefan Solow and Jenkins took place. The Court has supplemental jurisdiction for Morgan's indemnification counterclaim under 28 U.S.C. § 1367(a). Solow then filed a counterclaim against Morgan, incorporating claims arising out of Morgan's lease at 9 West 57th Street that were pending in state court. By stipulation of the parties, the complaint and Morgan's indemnification counterclaim were dismissed with prejudice and are no longer before the Court.
Solow argues that Morgan's indemnification counterclaim required its own jurisdictional basis because "the third party's liability here is neither dependent upon the outcome of the main claim nor is the third party potentially secondarily liable as a contributor to the defendant." Kenneth Leventhal Co. v. Joyner Wholesale Co., 736 F.2d 29, 31 (2d Cir. 1984). However, in this case, the indemnification counterclaim was sufficiently related to the original action that Morgan's impleader of Solow was proper in this case.
Discussion
Whether the Court has subject matter over Solow's counterclaim involves the interplay between Rule 13 of the Federal Rules of Civil Procedure, which addresses compulsory and permissive counterclaims, and 28 U.S.C. § 1367(a), the supplemental jurisdiction statute. Under Rule 13(a), a counterclaim is compulsory "if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction." Such a counterclaim is compulsory unless "at the time the action was commenced the claim was the subject of another pending action. . ." Fed.R.Civ.P. 13(a). Under Rule 13(b), which concerns permissive counterclaims, "[a] pleading may state as a counterclaim any claim against an opposing party not arising out of the transaction or occurrence that is the subject matter of the opposing party's claim."
Section 1367(a) states:
Except as provided in subsections (b) and (c) or as expressly provided otherwise by Federal statute, in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.28 U.S.C. § 1367(a).
Solow maintains that its counterclaim was filed as a compulsory counterclaim. However, it is a permissive counterclaim. When Morgan filed its indemnification counterclaim, Solow's counterclaim was "the subject of another pending action" in state court. Fed.R.Civ.P. 13(a). Before the enactment of § 1367, the rule was clear that permissive counterclaims required their own bases for jurisdiction.See. e.g., Federman v. Empire Fire Marine Insurance Co., 597 F.2d 798, 812 (2d Cir. 1979). Now, however, there is some authority to suggest that whether a counterclaim is compulsory or permissive is irrelevant for determining whether the court has supplemental jurisdiction and that the court should determine, based on the particular circumstances of the case, whether it has authority to exercise supplemental jurisdiction under § 1367(a). Channell v. Citicorp National Services. Inc., 89 F.3d 379, 384-86 (7th Cir. 1996).
Morgan cites several decisions, all from the Seventh Circuit, in support of its argument that, if the counterclaim relates to the claims in this action, the Court can exercise supplemental jurisdiction over it. In all of these Seventh Circuit cases, the counterclaims are related to the original action, not to counterclaims such as Morgan's indemnification counterclaim.
In Channell v. Citicorp National Services, Inc., a class of plaintiffs, all of whom had automobile leases which had been assigned to Citicorp National Services and all of whose leases terminated before expiration and who had paid or been charged termination fees for the early termination of their leases, brought a claim against Citicorp National Services under the Consumer Leasing Act. 89 F.3d 379 (7th Cir. 1996). Citicorp filed a counterclaim seeking a judgment for the termination payments owed to Citicorp by certain of the plaintiffs for early termination of their leases. The district court judge dismissed Citicorp's claim, asserting that it did not have subject matter jurisdiction because Citicorp's claim was a state-law claim for which the requirements of diversity jurisdiction were not met.
In reviewing the district court's dismissal of the claim, the Seventh Circuit noted that, "[u]ntil recently, it was clear that a permissive counterclaim based on state law requires an independent basis of jurisdiction." 89 F.3d at 384. The court went on to hold that the language of § 1367(a), providing for supplemental jurisdiction "over all other claims that are so related to claims in the action within [the] original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution," superseded the rule on subject matter jurisdiction over permissive counterclaims. The court analyzed the issue of jurisdiction according to the language of § 1367(a), irrespective of whether Citicorp's claim was a compulsory or a permissive counterclaim. The court based its holding that there was supplemental jurisdiction over Citicorp's counterclaim on the close relation between Citicorp's counterclaim and the original claims by the plaintiff class:
Each class member's claim against Citicorp depends on the lease, and indeed on the same clause of the lease that creates Citicorp's claim for a termination charge. The acts creating the claims differ — the claims against Citicorp stem from the signing of the lease, while the claims against the class stem from the early termination of the lease. But the parties, the lease, the clause, and even the terminations are constants. . . .89 F.3d 379, 385-86. The Seventh Circuit held that the district court may exercise jurisdiction over Citicorp's counterclaim under § 1367(a), but remanded to district court to determine if that discretion should be exercised in light of § 1367(c). 89 F.3d at 387.
Section 1367(c) provides:
The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if —
(1) the claim raises a novel or complex issue of State law,
(2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction,
(3) the district court has dismissed all claims over which it has original jurisdiction, or
(4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction.
28 U.S.C. § 1367(c).
Channell relied on several earlier Seventh Circuit decisions, including Baer v. First Options of Chicago, Inc., Ammerman v. Sween, and Brazinski v. Amoco Petroleum Additives Co. Baer concerned a dispute between two attorneys, both of whom claimed ownership of more than $42,000 in attorney's fees for representing plaintiff in her Title VIII claim. 72 F.3d 1294 (7th Cir. 1995). The court observed "that supplemental jurisdiction generally has been asserted over attorney's fees disputes when the disagreement arises between the client and the lawyer, "noting that, "in this case, the original parties to the underlying litigation are no longer involved." 72 F.3d at 1299-1300. The court held that the district court did have supplemental jurisdiction over the dispute under § 1367(a), because "[u]nder these circumstances, . . . this dispute was part of the same "case or controversy' as the underlying litigation." 72 F.3d at 1301 (quoting 28 U.S.C. § 1367(a)). The legal fees in Baer arose out of the original action, as in Cluett, Peabody Co. v. CPC Acquisition Co. in the Second Circuit. 863 F.2d 251 (2d Cir. 1988).
In Ammerman v. Sween, the Seventh Circuit reviewed whether the district court had subject matter jurisdiction over plaintiff's state law claims for negligent infliction of emotional distress and assault and battery that she raised in her Title VII action for sexual harassment. 54 F.3d 423 (7th Cir. 1995). Both her Title VII claim and her state law claims arose out of a sexual assault by defendant Sween. The Title VII claim and the intentional infliction of emotional distress claim were eventually dismissed, but plaintiffs assault and battery claim against Sween was tried and the jury entered a verdict in favor of the plaintiff in the amount of $60,000. On appeal. Sween argued "that subject matter over the state claim was never conferred upon the district court." 54 F.3d at 424.
In finding that the district court did have supplemental jurisdiction over the assault and battery claim under § 1367(a), the Seventh Circuit explained:
[Section 1367] confers supplemental jurisdiction to the limits Article III of the Constitution permits, authorizing federal courts to hear all claims that "are so related to the claims in the action within such original jurisdiction that they form part of the same case or controversy." Accordingly, judicial power to hear both state and federal claims exists where the federal claim has sufficient substance to confer subject matter jurisdiction on the court, and the state and federal claims derive from a common nucleus of operative facts. A loose factual connection between the claims is generally sufficient.54 F.3d at 424 (internal citations omitted).
Finally, in Brazinski v. Amoco Petroleum Additives Co., eight female workers sued their employer under section 301 of the Taft-Hartley Act, codified at 29 U.S.C. § 185, complaining "that they had been subjected to video surveillance in violation of their tort right of privacy." 6 F.3d 1176, 1178 (7th Cir. 1993). It was later learned that one of the plaintiffs was not an employee of Amoco. Therefore, her right of privacy claim arose under state law, as opposed to the federal Taft-Hartley Act. The Seventh Circuit held that "there is no doubt that [§ 1367] covers [the non-employee's] suit in light of the close relation between it and the employees' suit." 6 F.3d at 1181.
A close reading of these cases and the language of § 1367(a) dictates that Solow's counterclaim must form part of the same case or controversy as the "original action" for the Court to have authority to exercise supplemental jurisdiction over the counterclaim. In this case, the "original action" arose out of an altercation between two individuals, one of whom was employed by Solow and one of whom was employed by J.P. Morgan. The connection between this altercation and Solow's counterclaim against Morgan for violations of Morgan's obligations under its lease for the building space in which the altercation took place is too far attenuated to confer subject matter jurisdiction over the counterclaim. Unlike the cases from the Seventh Circuit cited by Morgan, Solow's counterclaim is based on different facts than the original action and the counterclaim is between different parties. Therefore, because supplemental jurisdiction over Solow's counterclaim is not appropriate and because there is no independent basis for jurisdiction, this action is dismissed under 28 U.S.C. § 1367(a) for lack of subject matter jurisdiction.
IT IS SO ORDERED.
Dated: New York, New York April 25 2000
__________________________ Robert P. Patterson, Jr. U.S.D.J.
Copies of this Order sent to: Counsel for Third-Party Plaintiff: Attn: Richard C. Seltzer Kaye, Scholer, Fierman, Hays Handler, LLP 425 Park Avenue New York, New York 10022-3598 Tel: 212-836-8402 Fax: 212-836-7155
Counsel for Third-Party Defendant: Attn: Robert B. Silver Boies, Schiller Flexner, LLP 80 Business Park Drive, Suite 110 Armonk, New York 10504 Tel: 914-749-8200 Fax: 914-273-9810