Opinion
Civil Action No: 01-2201 Section: "J"(5)
January 8, 2002
MINUTE ENTRY
Before the Court is Transitional Hospitals Corp. of Louisiana, Inc.'s ("THC") Rule 12(b)(1) Motion to Dismiss Counterclaim for Lack of Subject Matter Jurisdiction (Rec. Doc. 16). The motion, set for hearing on January 2, 2002, is before the Court on briefs without oral argument. Advantage Health Plan, Inc.'s ("Advantage") opposes the motion. Having considered the various memoranda and the applicable law, the Court concludes, for the reasons that follow, that THC's Motion to Dismiss the counterclaim regarding Lula Vanderson should be GRANTED.
BACKGROUND
Plaintiff, THC, brought this action against Advantage and DBL North American, Inc. ("DBL"), in its capacity as assignee of ERISA plan benefits and as an independent party under state law theories of recovery. THC operates a long-term, acute-care facility in New Orleans, which accepted Angela McKendall as a patient in 1998. According to THC's Complaint, Angela McKendall is covered on her father's group healthcare benefit plan through his employer, Domino's Sugar Company, which contracted with DBL to administer the employee healthcare plan. DBL, in turn, contracted with Advantage to provide administration and clinical determinations and assessments for plan members.
THC, in its capacity as assignee of Angela McKendall's ERISA plan benefits, asserts in its complaint that DBL and Advantage arbitrarily and capriciously breached their duty to Angela McKendall by failing to satisfy claims in accordance with payment schedules governing the plan. THC, in its capacity as an independent third-party and non-ERISA entity, argues that Defendants breached the terms of the Hospital Service Agreement, entered into by the parties and providing for certain reimbursement for care and treatment rendered to Angela McKendall.
Advantage answered the complaint and alleged in its original counterclaim that it has no responsibility for the payment of the cost of health expenses under the terms of the Domino Sugar Company health plan for any medical services rendered by THC on behalf of Angela McKendall. Advantage urged in the counterclaim that it has offered adequate proof of such to THC, and that THC has unjustly and wrongfully sued Advantage. Accordingly, Advantage sought in its counterclaim to recover any and all legal expenses related to the suit.
Thereafter, THC filed a Motion to Dismiss Advantage's Counterclaim (Rec. Doc. 5), arguing that it failed to set forth a cognizable legal theory and failed to allege sufficient facts to support a legal theory. In response, Advantage filed an Amended Answer and Restated Counterclaim, which specifies that attorneys' fees are being sought pursuant to ERISA, 29 U.S.C. § 1132 (g)(1). However, the restated counterclaim also asserts a new cause of action against THC, based on alleged overpayments made by Advantage to THC for a different former Advantage Medicare member, Lula Vanderson. Thereafter, THC filed the instant motion to dismiss Advantage's new cause of action regarding Lula Vanderson, arguing that there is no subject matter jurisdiction over this unrelated counterclaim.
The Court denied THC's motion to dismiss and granted leave to Advantage to file its amended answer and counterclaim, over the opposition of THC, in its previous minute entry dated October 16, 2001, finding that the amended counterclaim cured any defects in the original pleading. See Rec. Doc. 11.
DISCUSSION
THC argues that Advantage's claim for alleged overpayment with respect to Lula Vanderson is entirely unrelated to the causes of action it has asserted under ERISA and Louisiana law regarding Angela McKendall and that the claim arises only under state law. Therefore, according to THC, the Court has no jurisdiction over the claim as it does not involve a federal question and it does not form part of the same case or controversy as the original causes of action.
In opposition, Advantage cites to Fed. Rule Civ. P. 13(b), which provides for 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." Advantage recognizes that, generally, the Court must still have independent jurisdictional over such a permissive counterclaim. Accordingly, Advantage asserts that its claim for $17,200.00 owed by THC regarding Lula Vanderson is related to a bankruptcy proceeding in which THC is currently engaged, and that its claim for overpayments therefore arises under the laws of the United States as required by 28 U.S.C. § 1331. Alternatively, Advantage argues that, because its permissive counter claim is in the form of a set-off and is asserted defensively rather than for affirmative relief, it does not require independent jurisdictional grounds. See Charles Allen Wright, Arthur R. Miller, and Mary Kay Cain, Federal Practice and Procedure § 1422, 175 (2d Ed. 1990).
Initially, the Court notes that in its Amended Answer and Restated Counterclaim (Rec. Doc. 10), Advantage only asserts that the Court has supplemental jurisdiction over the state-law counterclaim against THC.See 28 U.S.C. § 1367 (a). It 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. See 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). However, if the counterclaim is a permissive counterclaim, pursuant to Fed.R.Civ.P. 13(b), generally, there is no ancillary jurisdiction and an independent ground for federal jurisdiction must exist. See Revere, 426 F.2d at 715.
A. Federal Question Jurisdiction
Advantage, in an attempt to convince the Court that it has original jurisdiction over its new counterclaim against THC, argues that the claim involving Lula Vanderson involves a federal question because the claim is "related to" a bankruptcy proceeding involving THC. Specifically, Advantage asserts that, because it filed a proof of claim against THC in THC's bankruptcy proceedings for the alleged overpayment with respect to Ms. Vanderson, the claim arises under the laws of the United States.
Advantage's argument has no merit. Advantage has borrowed terms common in bankruptcy proceedings, by arguing that its claims are "related to" THC's bankruptcy case, and misused them in its effort to reason that federal question jurisdiction exists over its counterclaim. First, without commenting on whether the counterclaim involved here is actually related to THC's bankruptcy case, generally the question of whether a proceeding is "related" arises in the context of determining whether a matter falls within the jurisdiction of the bankruptcy court and, if so, whether it would be best resolved in the pending bankruptcy proceedings. See, e.g., Home Ins. Co. v. Cooper Cooper. Ltd., 889 F.2d 746 (7th Cir. 1989). More specifically, in the bankruptcy context, the phrase "related proceedings" is used to define matters, which, while related to a bankruptcy case so that there may be concurrent jurisdiction, do not fall within the exclusive jurisdiction of the bankruptcy court. See 11 U.S.C. § 157. Put another way, a proceeding is related to a bankruptcy case if it could conceivably have an effect on the bankruptcy estate, but could have been brought in district court or state court absent the pending bankruptcy proceedings. See In re Gardner, 913 F.2d 1515, 1518 (10th Cir. 1990)
THC claims that the bankruptcy proceedings have already concluded.
Accordingly, the fact that a claim arising under state law, such as Advantage's counterclaim for overpayment, may be related to a bankruptcy case does not confer federal question jurisdiction upon a district court; it only means that there may be concurrent jurisdiction over the claim in the bankruptcy court. A district court only has jurisdiction over a "related proceeding," if the proceeding could properly have been brought in federal court in the first instance, either because there was federal question or federal subject matter jurisdiction. 28 U.S.C. § 1331 and 1332. Therefore, the Court rejects Advantage's arguments and finds there is no federal question jurisdiction over its counterclaim as to Ms. Vanderson.
Because Advantage has offered no other ground for federal question jurisdiction over the claim and none is readily apparent, the Court assumes the claim arises under Louisiana law.
B. Set-Off
Alternatively, Advantage argues that its counterclaim is in the form of a set-off, and, therefore, does not require an independent jurisdictional ground for the Court to exercise supplemental jurisdiction. While a few courts have recognized that a permissive counterclaim involving a set-off may present an exception to the general rule that an independent jurisdictional ground must exist, it is hardly a wide-spread or well-settled legal precept. In fact, in the primary case relied upon by Advantage, Ambromovage v. United Mine Workers of America, 726 F.2d 972, 987-88 (3d Cir. 1984), the Third Circuit declined to adopt the exception, but instead asked whether the state-law counterclaim for a set-off in that case arose out of a common nucleus of operative facts as the federal claims, applying the principles of United Mine Workers v. Gibbs, to determine whether there was supplemental federal jurisdiction over the set-off claim.
The Court in Ambromovage v. United Mine Workers of America, 726 F.2d 972, 987-88 (3d Cir. 1984), explains that the origins of this exception are not altogether clear, but that it appears to be stated for the first time by Professor Moore in the first edition of Moore's Federal Practice. Since then, the exception has been recognized by some district courts and acknowledged in dicta by two courts of appeal, including the Fifth Circuit. See id. (citing Curtis v. J.E. Caldwell Co., 86 F.R.D. 454 (E.D.Pa. 1980); United States v. Heyward-Robinson Co., 430 F.2d 1077, 1081 n. 1 (2d Cir. 1970), cert. denied, 400 U.S. 1021, 91 S.Ct. 582, 27 L.Ed.2d 632 (1971);Revere Cooper Brass, Inc. v. Aetna Casualty Surety Co., 426 F.2d 709, 715 (5th Cir. 1970); 3 J. Moore, Moore's Federal Practice ¶ 13.19 (1] (2d ed. 1983)).
383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966).
Although Advantage states in its Amended Answer and Restated Counterclaim that the Court has supplemental jurisdiction over its state-law cause of action against THC, Advantage does not argue that ground for jurisdiction in its opposition. However, even applying theGibbs test in order to determine if supplemental jurisdiction pursuant to 28 U.S.C. § 1367(a) exists over the counterclaim, the Court finds that it is clear that there is no common nucleus of operative facts between Advantage's counterclaim for overpayment with respect to treatment provided to Lula Vanderson and THC's main demands based on Advantage's alleged breach of fiduciary duty under ERISA and breach of contract with respect to the care and treatment rendered to Angela McKendall.
Finally, it appears that Advantage's claim for a set-off is not supported by Louisiana law, which provides that a set-off occurs "when two persons owe to each other (debts] that are liquidated and presently due." La. Civ. Code art. 1893. See also Resolution Trust Corporation v. Murray, 935 F.2d 89, 93 (5th Cir. 1991). Considering that Advantage contests liability with respect to all of THC's claims, and THC has not admitted any liability as to the counterclaim regarding Lula Vanderson, clearly it cannot be said that the parties' claims are "liquidated and presently due." Murray, 935 F.2d at 93 (citing American Bank v. Saxena, 553 So.2d 836, 844-45 (La. 1989) (finding that contested claim against the bank was unliquidated and could not be used as set-off against admitted debt)).
Accordingly, the Court declines to adopt the exception to the prevailing rule requiring that an independent jurisdictional ground must exist over Advantage's permissive counterclaim. The Court further finds that Advantage has failed to demonstrate that there is any such independent jurisdictional ground. For these reasons and because it does not appear that Advantage's counterclaim is even properly brought as a set-off under Louisiana law, the Court concludes that THC's motion to dismiss the counterclaim should be and is hereby GRANTED.
Conclusion
THC's Rule 12(b)(1) Motion to Dismiss (Rec. Doc. 16) is hereby GRANTED. Advantage's counterclaim for overpayment with respect to Lula Vanderson is hereby DISMISSED without prejudice, so that it may be pursued in state court.