Air Liquide America, L.P.v.Process Service Corp.

United States District Court, E.D. LouisianaFeb 16, 2004
CIVIL ACTION NO. 02-3794, SECTION "K" (3) (E.D. La. Feb. 16, 2004)

CIVIL ACTION NO. 02-3794, SECTION "K" (3)

February 16, 2004


MINUTE ENTRY


STANWOOD DUVAL, District Judge

Before the Court is a Motion to Review and Reverse Magistrate Judge Knowles' Order (Rec. Doc. 17) filed by plaintiff Air Liquide America L.P. ("Air Liquide"). Having reviewed the pleadings, memoranda, and relevant law, the Court DENIES plaintiff's motion as meritless.

I. BACKGROUND

Plaintiff Air Liquide, a Delaware limited partnership with its principal place of business in Houston, Texas, filed the instant matter seeking declaratory judgment against defendant Process Service Corporation ("PSC"), a Louisiana corporation with its principal place of business in Baton Rouge, Louisiana. This suit, which arises out of the sale and purchase of carbide lime, was filed on December 23, 2002 in the Eastern District of Louisiana. The original Complaint (Rec. Doc. 1) seeks a declaration of rights and obligations of the parties under the agreement and, more particularly, judgment finding that PSC breached the agreement and that Air Liquide properly terminated it. Jurisdiction of the main claim is based on 28 U.S.C. § 1332 complete diversity.

PSC waived service of process on August 4, 2003, and filed an answer and counter-claim against Air Liquide, together with a Rule 13(h) third party counterclaim against Frank Whittington, an Air Liquide employee, on August 8, 2003. ( See Rec. Docs. 8 9). Five days later, PSC filed a Motion for Leave to Add Third Party Defendant in Counter-Claim (Rec. Doc. 10). Magistrate Judge Knowles granted that motion in an Order and Reasons signed September 30, 2003 (Rec. Doc. 15). On October 10, 2003, plaintiff Air Liquide filed the instant Motion to Review and Reverse Magistrate Judge Knowles' Order (Rec. Doc. 17), which this Court heard on December 10, 2003.

PSC's allegations against Whittington include that he personally made material misrepresentations to PSC during the negotiation process and actively engaged in conduct thereafter, which prevented PSC from meeting its obligations under the relevant purchase and sale agreement. The parties apparently dispute whether Whittington's alleged illicit acts occurred during the course and scope of his former employment with Air Liquide. Air Liquide does not, however, dispute that PSC's counterclaim is compulsory and would be deemed waived if not pled. Nonetheless, Air Liquide opposes the Rule 13(h) joinder of Whittington, citing 28 U.S.C. § 1367(b) as authority prohibiting such an action and arguing that the addition of Whittington as a counterclaim defendant pursuant to Rule 13(h) destroys complete diversity and Whittington is not amenable to joinder.

II. ANALYSIS

Pursuant to Federal Rule of Civil Procedure 72 and Local Rule 72(a), plaintiff Air Liquide requests that this Court review and reverse Magistrate Judge Knowles' Order and Reasons. Air Liquide contends that Magistrate Judge Knowles' decision to grant PSC's Motion for Leave to Amend was clearly erroneous and contrary to law under Federal Rule of Civil Procedure 19 and 2S U.S.C. § 1367(b). The Court disagrees and upholds Magistrate Judge Knowles' ruling. Plaintiff has not met its burden under Rule 72.

Federal Rule of Civil Procedure 13 provides for counterclaims. Rule 13(a) governs compulsory counterclaims:

(a) Compulsory Counterclaims. A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, 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. But the pleader need not state the claim if (1) at the time the action was commenced the claim was the subject of another pending action, or (2) the opposing party brought suit upon the claim by attachment or other process by which the court did not acquire jurisdiction to render a personal judgment on that claim, and the pleader is not stating any counterclaim under this Rule 13.

Fed R. Civ. Pro. 13(a). In Underwriters at Interest on Cover Note JHB92M10582079 v. Nautronix, Ltd., 79 F.3d 480 (5th Cir. 1996), the Fifth Circuit provided the following test to determine whether a counterclaim was compulsory:

(1) whether the issues of fact and law raised by the claim and counterclaim largely are the same;
(2) whether res judicata would bar a subsequent suit on defendant's claim absent the compulsory counterclaim rule;
(3) whether substantially the same evidence will support or refute plaintiff's claim as well as the defendant's counterclaim; and
(4) whether there is any logical relationship between the claim and the counterclaim. An affirmative answer to any of the four questions indicates the claim is compulsory.
Id. at 483 n. 2 (citing Park Club, Inc. v. Resolution Trust Corp., 967 F.2d 1053, 1058 (5th Cir. 1992; Plant v. Blazer Fin. Servs., 598 F.2d 1357, 1360 (5th Cir. 1979). In the instant case, PSC's counterclaims against both Air Liquide and Whittington are, as Magistrate Judge Knowles observed, "inextricably intertwined with and related to the main claim." Whittington was employed by plaintiff and his alleged improper activities pertained to the purchase/sale agreement around which this entire litigation centers. Thus, PSC third party counterclaims clearly satisfy the Nautronix compulsory counterclaim standard.

As this Court has stated previously, "[i]t is well-settled that a compulsory counterclaim under Fed. Rule Civ. P. 13(a) is within the ancillary jurisdiction of a district court because it necessarily arises out of the same transaction or occurrence as the original claim." Transitional Hospitals Corp. of Louisiana v. DEL North American, Inc., 2002 WL 27767, *2 (E.D. La. 2002); see also Zurn Industries, Inc. v. Acton Construction Co., 847 F.2d 234, 236 (5th Cir. 1988); Revere Copper and Brass Inc. v. Aetna Casualty and Surety Co., 426 F.2d 709, 714 (5th Cir.1970); Wright, Miller Kane, Federal Practice and Procedure: § 1414 at 99. Rule 13(h) provides that "[p]ersons other than those made parties to the original action may be made parties to a counterclaim or cross-claim in accordance with the provisions of Rules 19 and 20." Fed.R.Civ.Pro. 13(h). The addition of non-diverse third parties whose presence is required for the adjudication of the counterclaim does not oust the court of jurisdiction. Wright Miller, § 1414 at 108 (citing H.L. Peterson Co. v. Applewhite, 383 F.2d 430 (5th Cir. 1967)); see also Zurn Industries, 847 F.2d at 237.

The jurisprudential doctrine of ancillary jurisdiction has been codified at 28 U.S.C. § 1367 as supplemental jurisdiction. That statute provides in pertinent part:

(a) 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) (emphasis added). Subsections (b) and (c) set forth, respectively, the mandatory and discretionary exceptions to supplemental jurisdiction. Neither subsection excepts Rule 13(h) third party counterclaims by defendants. 28 U.S.C. § 1367(b) provides:

(b) In any civil action of which the district courts have original jurisdiction founded solely on section 1332 of this title, the district courts shall not have supplemental jurisdiction under subsection (a) over claims by plaintiffs against persons made parties under Rule 14, 19, 20, or 24 of the Federal Rules of Civil Procedure, or over claims by persons proposed to be joined as plaintiffs under Rule 19 of such rules, or seeking to intervene as plaintiffs under Rule 24 of such rules, when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332.
28 U.S.C. § 1367(b) (emphasis added).

The objective of 28 U.S.C. § 1367(b) is to prevent "collusive joinder," whereby an original plaintiff manufactures federal jurisdiction and later adds a non-federal claim. Without subsection (b), an original plaintiff could file a claim against a diverse party, thereby attaching 28 U.S.C. § 1332 jurisdiction, and later add related state law claims against non-diverse parties. The effect would be an affront to the complete diversity rule. As stated in The Hartford Steam Boiler Inspection and Insurance Company v. Quantum Chemical Corporation, 1994 WL 494776 (N.D. Ill. 1994), subsection (b) "is concerned only with the efforts of the plaintiff to smuggle in claims that the plaintiff would not otherwise be able to interpose against certain parties . . . for want of subject matter jurisdiction. The repetition of the word `plaintiffs' at several rule-citing junctures in subdivision (b) makes this clear." Id. (quoting D. Siegel, 28 U.S.C. § 1367 Practice Commentary, p. 832 (West 1993)). The Fifth Circuit has apparently endorsed this interpretation:

Whether the court has ancillary jurisdiction over the claim or the party depends on the type of claim or party. If the claim is a compulsory counterclaim, Fed.R.Civ.P. 13(a), a cross-claim, Fed.R.Civ.P. 13(g), or if the party is added pursuant to a counterclaim or cross-claim, Fed.R.Civ.P. 13(h), or impleaded, Fed.R.Civ.P. 14, the court has ancillary jurisdiction over the claim or party even in the absence of an independent basis for federal jurisdiction.
Zurn Industries, 847 F.2d at 237.

In the instant matter, the Court has original jurisdiction based on 28 U.S.C. § 1332 diversity over Air Liquide's claims against PSC. PSC's claims against Air Liquide, as well as defendant's claims against Whittington, arise out of the same case or controversy as Air Liquide's original suit against PSC. The mandatory supplemental jurisdiction exceptions of 28 U.S.C. § 1367 (b) do not apply to PSC's claims as Rule 13(h) is excluded from the rules listed prohibiting joinder without an independent basis of jurisdiction. Moreover, subsection (b) only deprives claims brought by plaintiffs of supplemental jurisdiction. Accordingly, this Court has jurisdiction to hear PSC's claims against Air Liquide and Whittington and the Magistrate Judge's grant of leave to amend was therefore proper.

Plaintiff Air Liquide contends that the Magistrate Judge was clearly erroneous in permitting Whittington's joinder under Federal Rule of Civil Procedure 19. Rule 19 provides in pertinent part:

(a) Persons to be Joined if Feasible. A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (I) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.

Fed.R.Civ.Pro. 19(a). Plaintiff's brief highlights the portion of Rule 19(a) restricting joinder to parties "whose joinder will not deprive the court of jurisdiction" and argues that Whittington's joinder is not allowed pursuant to 28 U.S.C. § 1367. Having held, supra, that supplemental jurisdiction applies to PSC's counterclaims despite Whittington's non-diverse status, this Court further finds that joinder was proper.

For reasons discussed above, this Court holds that Magistrate Judge Knowles' Order and Reasons granting leave to amend comports with the applicable law. Plaintiff has failed to meet its burden in challenging the Magistrate Judge's ruling. Accordingly.

IT IS ORDERED that Magistrate Judge Knowles' Order and Reasons signed September 30, 2003 (Rec. Doc. 15), is hereby AFFIRMED and plaintiff Air Liquide's Motion to Review and Reverse Magistrate Judge Knowles' Order (Rec. Doc. 17) is hereby DENIED.