Opinion
January 1, 1978
JURISDICTION OF THE FEDERAL COURTS OF ACTIONS INVOLVING MULTIPLE CLAIMS by George B. Fraser
Boyd Professor of Law, University of Oklahoma.
Since claims that arise out of one transaction involve substantially the same factual and legal issues, conservation of the court's time and fairness to the litigants indicate that a court should dispose of such claims in one action rather than require separate trials and a duplication of effort by the court and the parties. Unfortunately, a complete adjudication of these claims at one time is not always possible. For instance, it may be impossible to obtain jurisdiction of a person who is liable on one of the claims. Also, in the federal courts, the constitutional and statutory limitations on jurisdiction would appear to create difficulties. However, the cases generally hold that a federal court that has jurisdiction of an action has jurisdiction of the entire transaction out of which it arose. Therefore, the court has the power to determine other claims that arise from that transaction, and it is unnecessary that an individual claim independently satisfy the court's constitutional or statutory requirements.
Claims that do not have to independently satisfy the court's jurisdictional requirements are said to be within the court's ancillary jurisdiction. "The concept of ancillary jurisdiction is not a recent invention, but has been a part of our law for at least a century or more." However, the use of ancillary jurisdiction has increased dramatically since the adoption of the Federal Rules of Civil Procedure in 1938. These Rules do not expand the ancillary jurisdiction of the federal courts, but they provide additional opportunities for invoking the doctrine, particularly where there are counterclaims, cross-claims and third-party claims. The availability of ancillary jurisdiction where such claims are asserted will be discussed in this paper.
Revere Copper Brass Inc. v. Aetna Cas. Sur. Co., 426 F.2d 709, 713 n. 6 (5th Cir. 1970).
Id. at 717. Accord, Childress v. Cook, 245 F.2d 798, 803 (5th Cir. 1957). However, one author asserts that ancillary jurisdiction was expanded after the adoption of the Federal Rules. C. Goldberg, The Influence of Procedural Rules on Federal Jurisdiction, 28 Stanford L. Rev. 395, 420 (1976).
Also see G. Fraser, Ancillary Jurisdiction and the Joinder of Claims in the Federal Courts, 33 F.R.D. 27 (1963). Ancillary jurisdiction of claims by intervenors will not be discussed in this paper. See G. Fraser, Ancillary Jurisdiction of Federal Courts of Persons Whose Interests May Be Impaired If Not Joined, 62 F.R.D. 483 (1974).
Defendant's Claims Against Parties to an Action
The Federal Rules provide that a defendant can assert against the plaintiff or another defendant any claim that arises out of the transaction or occurrence which is the subject matter of the plaintiff's claim against the defendant. Moreover, the cases hold that the defendant's claim does not have to independently satisfy the federal jurisdictional requirements, but it is within the court's ancillary jurisdiction whether it is a counterclaim against the plaintiff or a cross-claim against another defendant. The plaintiff's action gives the court jurisdiction of the transaction out of which his claim arose so that the court has the power to adjudicate all claims which arise out of that transaction and are asserted by parties to the action against other parties to the action.The leading case involving counterclaims is Moore v. New York Cotton Exchange. In this case, the plaintiff brought an action under the anti-trust laws of the United States to enjoin the defendant from refusing to furnish the plaintiff with cotton quotations. The defendant asserted a counterclaim in which it asked the court to enjoin the plaintiff from purloining defendant's quotations or receiving purloined quotations. The court had jurisdiction of the plaintiff's claim because he was enforcing a federal right, but the counterclaim did not independently satisfy the jurisdictional requirements because the defendant was enforcing a state created right and the parties were not of diverse citizenship. However, the Supreme Court determined that the claims of the two parties were related because the conduct of the defendant which the plaintiff wished enjoined caused the plaintiff's acts which were the basis of the defendant's counterclaim. This relationship is shown by the fact that the petition and the counterclaim contain some common allegations. "Essential facts alleged by appellant enter into and constitute in part the cause of action set forth in the counterclaim. That they are not precisely identical, or that the counterclaim embraces additional allegations * * * does not matter." Also, the Court found that a determination of the plaintiff's claim would facilitate the determination of the counterclaim, and failure of the plaintiff to prove his claim would not settle all of the issues involved in the transaction or occurrence because the court must still determine if the plaintiff is stealing the defendant's quotations.
"So close is the connection between the case sought to be stated in the bill and that set up in the counterclaim, that it only needs the failure of the former to establish a foundation for the latter; but the relief afforded by the dismissal of the bill is not complete without an injunction restraining appellant from continuing to obtain by stealthy appropriation what the court held it could not have by judicial compulsion."
270 U.S. 593, 46 S.Ct. 367, 70 L. Ed. 750 (1926). See Baker v. Gold Seal Liquors, Inc., 417 U.S. 467, 469, 94 S.Ct. 2504, 2506, 41 L.Ed.2d 243 (1974).
Id. at 610, 46 S.Ct. at 371.
Ibid.
Therefore, the trial court had jurisdiction to determine the counterclaim on its merits.
In Hurn v. Oursler, 289 U.S. 238, 242, 53 S.Ct. 586, 588, 77 L.Ed.2d 1148 (1933), the Court stated that "[T]he counterclaim [in Moore] was so much a part of the case sought to be stated in the bill that the dismissal of the latter on the merits did not deprive the court of jurisdiction to dispose of the former on the merits."
The Supreme Court indicates that the claims of both parties arose out of the same transaction, but the word "transaction" is used only in a conclusory sense. Before it can be said that claims arise out of one transaction, they must be logically related. In the Moore case this was shown by the fact that both claims had some common facts and issues so that a decision on one claim determined issues that were raised in the other claim. In Great Lakes Rubber Co. v. Herbert Cooper Co. the court stated that claims are logically related where judicial economy and the convenience of the parties indicate that the claims should be tried at one time. It said:
286 F.2d 631 (3d Cir. 1961).
"Thus, a counterclaim is logically related to the opposing party's claim where separate trials on each of their respective claims would involve substantial duplication of effort and time by the parties and the courts. Where multiple claims involve many of the same factual issues, or the same factual and legal issues, or where they are offshoots of the same basic controversy between the parties, fairness and considerations of convenience and of economy require that the counterclaimant be permitted to maintain his cause of action."
286 F.2d at 634. Also see Sue Sam Mfg. Co. v. B-L-S Const. Co., 538 F.2d 1048, 1051-3 (4th Cir. 1976).
In another case, which involved a series of counterclaims and cross-claims and a third-party claim, the court held that the various claims arose out of the same transaction because "all relate to the same project and to problems arising out of the marble used in the erection of the Memphis City Hall."
LASA Per L'Industria Del Marmo Soc. Per Azioni v. Alexander, 414 F.2d 143, 147 (6th Cir. 1969). That it is not always easy to determine if claims are logically related is indicated by the actions that have been brought under the Truth in Lending Act. A collection of cases that have gone each way is found in Jones v. Goodyear Tire Rubber Co., 73 F.R.D. 577, 579 (E.D. La. 1976).
Courts do not hold that they have ancillary jurisdiction to hear a counterclaim only out of consideration for the defendant because he was brought into court involuntarily. If this were the test, they would not distinguish between related and unrelated counterclaims. Also, where the plaintiff's and the defendant's claims arise out of the same transaction, the defendant is not limited to asserting his claim defensively, but he can recover an affirmative judgment if he successfully proves a right to recover on his claim.
H. Shulman E. Jaegerman, Some Jurisdictional Limitations of Federal Procedure, 45 Yale L.J. 393, 414-5 (1936).
A counterclaim that does not arise out of the transaction or occurrence which is the subject matter of the plaintiff's claim is a permissive counterclaim that must independently satisfy the federal jurisdictional requirements, but it is generally held that a defendant may assert a claim that is not related to the plaintiff's claim as a set-off to diminish or defeat the plaintiff's recovery. However, the defendant cannot recover an affirmative judgment notwithstanding the fact that his claim may be larger than the plaintiff's. It is usually stated that the set-off must arise out of a contract and be liquidated or capable of liquidation. Several cases even hold that state law determines whether or not a claim may be asserted as a set-off, but use of state procedure would permit a defendant to recover an affirmative judgment although his set-off does not have an independent basis of federal jurisdiction.
But see United States v. Heyward-Robinson Co., 430 F.2d 1077, 1087, 1088 (2d Cir. 1970) (concurring opinion), cert. denied 400 U.S. 1021, 91 S.Ct. 582 (1971). "From the point of view of joinder and the policies which joinder is designed to serve, the requirement for independent jurisdictional grounds for permissive counterclaims is an unmitigated evil." F. James, Jr., Civil Procedure 493 (1965). Assuming that a permissive counterclaim must satisfy the jurisdictional requirements, the sum or value of the matter in controversy should be determined by aggregating the claims of both parties where the court already has jurisdiction over the plaintiff's claim. Central Commercial Co. v. Jones-Dusenbury Co., 251 F. 13 (7th Cir. 1918). This would reduce the prejudice to the defendant that may result because the action was brought in a federal court rather than in a state court where he could have asserted his claim against the plaintiff. See Revere Copper Brass Inc. v. Aetna Cas. Sur. Co., 426 F.2d 709, 715 (5th Cir. 1970). H. Shulman E. Jaegerman, Some Jurisdictional Limitations on Federal Procedure, 45 Yale L.J. 393, 414-6 (1936).
E. g., Newburger, Loeb Co., Inc., v. Gross, 365 F.Supp. 1364 (S.D.N.Y. 1973). Contra, Robinson Bros. Co. v. Tygart Steel Products Co., Inc., 9 F.R.D. 468 (W.D. Pa. 1949). The claim must be pleaded as a set-off. Kaiser Aluminum Chem. Sales v. Ralston Steel Corp., 25 F.R.D. 23 (N.D.Ill. 1959) (claim not liquidated). In United States for the use of Kashulines v. Thermo Contracting Corp., 23 F.R.Serv.2d 239 (D.N.J. 1976), the defendant asserted permissive and compulsory counterclaims. It is not clear if the permissive counterclaim was pleaded as a set-off, but apparently, the court will first deduct its amount from any damages which the plaintiff proves. Then, the court will consider the compulsory counterclaim, but the defendant cannot recover an affirmative judgment for an amount in excess of his compulsory counterclaim. In Herrmann v. Atlantic Richfield Co., 72 F.R.D. 182 (W.D.Pa. 1976), the defendant asserted 21 counterclaims that arose out of contracts and were for liquidated sums. In none was there an independent basis for jurisdiction. The court dismissed 11 because they asked for an affirmative judgment, but it allowed 10 to be asserted as set-offs. Holding that a court has jurisdiction of the defendant's claim only to reduce plaintiff's recovery appears to be inconsistent with the Gibbs case [ 383 U.S. 715. 86 S.Ct. 1130, 16 L. Ed.2d 218]. Apparently, a defendant is not precluded from bringing a subsequent action to recover the balance due on his claim. First Acceptance Corp. v. Kennedy, 95 F.Supp. 861, 872 (N.D.Iowa 1951). See Note, 36 Yale L.J. 883 (1927).
E. g., Jones v. Sonny Gerber Auto Sales, Inc., 71 F.R.D. 695 (D.Neb. 1976); Wigglesworth v. Teamsters Local Union No. 592, 68 F.R.D. 609 (E.D.Va. 1975). However, in United States v. Dovolis, 105 F.Supp. 914 (D.Minn. 1952), the set-off did not arise out of contract and was not liquidated.
Allis-Chalmers Corp. v. Philadelphia Electric Co., 64 F.R.D. 135, 138 (E.D.Pa. 1974), rev'd on other grounds 521 F.2d 360 (3rd Cir. 1975); Marks v. Spitz, 4 F.R.D. 348, 350 (D.Mass. 1945).
The courts have not given an adequate reason for holding why a set-off should be an exception to the permissive counterclaim rule. One court suggested that the exception is appropriate because set-offs were allowed at common law. "The ancillary status given set-offs is best explained historically from their source in English statute." However, the jurisdiction of the federal courts cannot be expanded or contracted by either common law rules or state statutes, and state statutes and rules in regard to procedure should not affect what claims can be asserted in a federal court. Probably a set-off is held to be within the ancillary jurisdiction of the federal courts out of consideration for the defendant. If he has a claim against the plaintiff, he should not be required to pay a judgment that is rendered for the plaintiff and, if a judgment should be rendered for the defendant in another suit, discover that the plaintiff has become judgment proof. If this is the reason for holding that a set-off does not have to independently satisfy the jurisdictional requirements, it should be immaterial whether the defendant's claim arose out of a contract or a tort or whether it is liquidated or unliquidated. In one case, which involved the availability of a set-off in a Miller Act case, the court stated that "The rule that set-offs lie within the ancillary jurisdiction of the court is not restricted by the authorities which develop the rule, supra, to particular causes of action or grants of jurisdiction." Fairness to the defendant would indicate cate that he should be allowed to assert any claim which he has against the plaintiff. If the defendant's claim is unliquidated, the court may, as a matter of discretion, decline to hear it, but the fact that it is unliquidated should not affect the court's jurisdiction.
Revere Copper Brass Inc. v. Aetna Cas. Sur. Co., 426 F.2d 709, 715 n. 7 (5th Cir. 1970). In United States v. Heyward-Robinson Co., 430 F.2d 1077, 1087, 1088 (2nd Cir. 1970) (concurring opinion), it is stated that this is a recently created addition to the ancillary jurisdiction concept.
United States for the use of Kashulines v. Thermo Contracting Corp., 23 F.R.Serv.2d 239, 243 (D.N. J. 1976).
Federal Rule 13(g) provides that a defendant may assert as a cross-claim against another defendant any claim (1) which arises out of the transaction or occurrence that is the subject matter of the plaintiff's action, including a claim for contribution or indemnity for all or part of the plaintiff's claim against the defendant who is asserting the cross-claim, or (2) which relates to property that is the subject matter of the original action. Thus, a cross-claim must be logically related to the plaintiff's claim. Because of its relationship to the original claim, a cross-claim is held to be within the ancillary jurisdiction of the federal courts. This is illustrated by Collier v. Harvey where an insurance company brought an action for declaratory relief against its insured, Harvey, and an injured person, Collier, for a determination that the accident was not within the coverage of the policy. The plaintiff alleged facts which showed that Harvey owned a truck which he had loaned to the City of Seminole, that the truck was being operated under the direction of the City Superintendent of Streets at the time that Collier was struck by the truck and that the truck was not being used by Harvey or for his benefit. Harvey filed a cross-claim against Collier in which he alleged similar facts, and he asked the court to determine that he was not liable to Collier because the truck was not operated by him or for his benefit at the time of the accident. The court held that Harvey's cross-claim arose out of the transaction that was the subject matter of the principal claim because the court must consider the same facts to determine if Collier's claim was within the coverage of the policy and if Harvey was liable to Collier. "In other words, the issues of fact necessary to determine both legal issues were identical." The court also pointed out that if it did not have jurisdiction of the cross-claim, the issue of Harvey's liability to Collier would have to be determined in a state court which could find against Harvey notwithstanding the fact that the federal court had already held that Harvey was not covered by the insurance policy. "In order to protect the right of Harvey, it was necessary to completely adjudicate the issues referred to above as between all parties." Therefore, the court held that it had ancillary jurisdiction of the cross-claim although both Harvey and Collier were citizens of the same state.
In Pettyjohn v. Pettyjohn, 192 F. 2d 322 (8th Cir. 1951), the court indicates that a cross-claim which relates to property that is the subject matter of the original action may have to independently meet the federal jurisdictional requirements. This appears to be inconsistent with the cases which hold that a non-diverse party may intervene to protect his property. E. g., Drumright v. Texas Sugarland Co., 16 F.2d 657 (5th Cir. 1927). Fed.R.Civ.P. Form 20 states that a cross-claim may require independent jurisdiction.
Fairview Park Excavating Co., Inc. v. Al Monzo Construction Co., Inc., 23 F.R.Serv.2d 963 (3d Cir. 1977): Scott v. Fancher, 369 F.2d 842 (5th Cir. 1966); Glens Falls Indemnity Co. v. United States, 229 F. 2d 370 (9th Cir. 1956). It is irrelevant that a cross-claim is permissive. In Childress v. Cook, 245 F.2d 798 (5th Cir. 1957), the defendant recovered a larger judgment on his cross-claim than the plaintiff recovered against him.
179 F.2d 664 (10th Cir. 1949).
Id. at 668.
Id. at 669.
In another case the court stated that there are two situations where a court will have ancillary jurisdiction of a cross-claim. These may be denominated necessity, which exists when a court has taken possession of property which it must administer, and convenience. Convenience refers to the situation where a court, having embarked upon an issue, should, "as a matter of convenience to the parties, * * * make a `complete determination of the matters already in litigation'."
Atlantic Corp. v. United States, 311 F.2d 907 (1st Cir. 1962).
Id. at 911, quoting from Morgan's L. T. R. S. S. Co. v. Texas Central Ry., 137 U.S. 171, 173, 11 S.Ct. 61, 70, 34 L.Ed. 625 (1890).
The Collier case should be distinguished from Fireman's Fund Insurance Co. v. Trobaugh, which is also an action by an insurance company against its insured, Sprowl, and an injured person, Trobaugh, for a declaration that its policy did not cover Trobaugh's injuries because it excluded bodily injuries to an employee arising out of his employment. Defendant Trobaugh filed a cross-claim against Sprowl to recover damages caused by Sprowl's alleged negligence. However, the court dismissed the cross-claim because the issues of fact necessary to determine the original claim and the cross-claim are not the same. Because the complaint raised a question of coverage under the insurance policy and the cross-claim asserted a claim for damages for negligence, the court stated that the coverage claim would not decide the merits of the negligence claim so that multiplicity of actions would not be avoided. It pointed out that in the Collier case the insured filed the cross-claim whereas in this case the injured party was the cross-claimant. However, the result would have been the same in this case if the insured had asked the court to declare that he was not liable to the injured party.
52 F.R.D. 31 (W.D.Okl. 1971).
Pendent Jurisdiction
A variation of the rule in Moore v. New York Cotton Exchange is found in cases where a plaintiff asserts both a federal and a state ground for relief against a defendant for the wrongful invasion of a single primary right. If a federal court has jurisdiction over the federal claim, the Supreme Court held in United Mine Workers v. Gibbs that it also has jurisdiction over the state claim because both claims "derive from a common nucleus of operative facts." The court stated that if
"a plaintiff's claims are such that he would ordinarily be expected to try them all in one judicial proceeding, then, assuming substantiality of the federal issues, there is power in federal courts to hear the whole."
Ibid. (emphasis in original). Although a federal court has the power to hear the state issue, this "power need not be exercised in every case in which it is found to exist." 383 U.S. at 726, 86 S.Ct. at 1139. However, in a subsequent case, the Court stated that generally pendent claims are not to be dismissed in view of the advantages of economy and convenience where no unfairness to litigants will result. Hagans v. Lavine, 415 U.S. 528, 94 S.Ct. 1372, 39 L.Ed.2d 577 (1974).
However, in Aldinger v. Howard, the Supreme Court stated that:
"These cases, from Osborn to Gibbs, show that in treating litigation where nonfederal questions or claims were bound up with the federal claim upon which the parties were already in federal court, this Court has found nothing in Art. III's grant of judicial power which prevented adjudication of the nonfederal portion of the parties' dispute." (emphasis added.)
427 U.S. 1, 9, 96 S.Ct. 2413, 2418, 49 L.Ed.2d 276 (1976).
However, the Court distinguished the situation where the federal and state claims are asserted against different defendants, stating that
"If the new party sought to be impleaded is not otherwise subject to federal jurisdiction, there is a more serious obstacle to the exercise of pendent jurisdiction than if parties already before the court are required to litigate a state-law claim."
Id. at 18, 96 S.Ct. at 2422.
In Aldinger the plaintiff sued various officials of Spokane County and Spokane County in a federal court, alleging that she had been dismissed from her job in violation of her civil rights. Her claim against the county officials was based on the violation of a federal statute whereas her claim against the county was based on the violation of a state statute. Gibbs is not controlling, although both claims arose from a common nucleus of operative facts, because they were asserted against different defendants and the Supreme Court determined that Congress had refused to authorize suits against municipal corporations when the statute that became § 1983 of Title 42 was being debated in Congress. The Court limited its holding to federal claims brought under § 1983, stating that it was not pronouncing a general rule in regard to pendent jurisdiction but that a different result may be reached where a federal court has exclusive jurisdiction of the federal claim.
One writer stated that "the mere fact that Congress chose not to subject municipalities to liability under section 1983 does not necessarily indicate that Congress intended to preclude pendent jurisdiction over state claims against municipalities." Comment: Aldinger v. Howard and Pendent Jurisdiction, 77 Colum. L. Rev. 127, 143 (1977).
The Court stated that "Before it can be concluded that such jurisdiction exists, a federal court must satisfy itself not only that Art. III permits it, but that Congress in the statutes conferring jurisdiction has not expressly or by implication negated its existence." 427 U.S. at 18, 96 S.Ct. at 2422. In Ayala v. United States, 550 F.2d 1196 (9th Cir. 1977), the court stated that in Aldinger the Supreme Court avoided the ultimate question of constitutional power.
Joinder of Additional Parties on a Counterclaim or Cross-claim
As previously indicated, the federal courts have ancillary jurisdiction over claims that arise out of the transaction that is the subject matter of the original action and that are asserted by a defendant against a person who is already a party to the action. Also, the Federal Rules authorize a defendant to join a person as a party to the action on a counterclaim or a cross-claim that is asserted against a party to the action, and the federal courts hold that they have jurisdiction to adjudicate the liability of the new party where the claim arose out of the transaction that is the subject matter of the plaintiff's claim although no independent basis of federal jurisdiction exists.In United Artists Corporation v. Masterpiece Productions the defendant joined two new persons as defendants on a compulsory counterclaim. The claim that was asserted against them arose out of the transaction that was the subject matter of the defendant's claim against the original plaintiff, but it did not independently satisfy the federal jurisdictional requirements. Also, the new parties were proper parties rather than persons who should be joined if feasible. Nevertheless, the court held that it had jurisdiction to hear the claim against them. It stated that it had jurisdiction of the claims against the new parties because their presence "is necessary to a complete adjudication of the issues involved in the litigation which should not be retried at another time in another forum." Thus, a defendant can join a person as a party to an action where the claim that is asserted against him is already before the court although he could not have sued that person in a federal court if he, the defendant, had been a plaintiff.
221 F.2d 213 (2d Cir. 1955). Accord, H. L. Peterson Co. v. Applewhite, 383 F.2d 430 (5th Cir. 1967). Rule 13(h) was amended after the United Artists case was decided, but the amendment would not have changed the result that was reached. Dunbar Sullivan Dredging Co. v. Jurgenson Co., 44 F.R.D. 467, 473 (S.D.Ohio 1967), aff'd on other grounds, 396 F.2d 152 (6th Cir. 1968).
Accord, Independence Tube Corp. v. Copperweld Corp., 74 F.R.D. 462 (N.D.Ill. 1977); Hercules Inc. v. Dynamic Export Corp., 71 F.R.D. 101 (S.D.N.Y. 1976); Markus v. Dillinger, 191 F.Supp. 732 (E.D.Pa. 1961). In McNaughton v. New York Cent. Rd., 220 F.2d 835 (7th Cir. 1955), the court held that a new party who is a proper party on a counterclaim must independently satisfy the federal jurisdictional requirements although the counterclaim is compulsory so far as the original plaintiff is concerned.
This is a desirable result because it prevents a multiplicity of suits which would involve substantially identical issues. However, if judicial efficiency were the only reason for holding that ancillary jurisdiction exists, it should make no difference whether the party attempting to assert the claim against a new party is a defendant or a plaintiff. But, as indicated by the Aldinger case, where a plaintiff is asserting a claim which does not independently satisfy the federal jurisdictional requirements against a person and there is no other basis for joining that person as a party to the action, judicial efficiency will not justify his joinder. More favored treatment is accorded a defendant because he did not select the forum. Since he was brought into court involuntarily, he should be permitted to assert all of his claims arising out of the controversy in the pending proceeding.
Cf. Revere Copper Brass Inc. v. Aetna Cas. Sur. Co., 426 F.2d 709, 715 (1970).
A claim that is asserted against a new party in a permissive counterclaim must independently satisfy the federal jurisdictional requirements as to the new party. Even if compulsory and permissive counterclaims are asserted against the new party, he is within the ancillary jurisdiction of the court only for the compulsory counterclaim.
Hercules Inc. v. Dynamic Export Corp., 71 F.R.D. 101 (S.D.N.Y. 1976); Markus v. Dillinger, 191 F.Supp. 732 (E.D.Pa. 1961). Where the counterclaim is permissive the rule apparently is the same as if the defendant were a plaintiff.
A cross-claim that arises out of the transaction that is the subject matter of the original action is similar to a compulsory counterclaim for jurisdictional purposes notwithstanding the fact that it is permissive. Therefore, a claim that is asserted against a new party in a cross-claim does not have to independently meet the federal jurisdictional requirements.
See Watson v. Apex Railway Products Co., 56 F.R.D. 1 (N.D.Ga. 1972). Apparently, however, the new party and the plaintiff were citizens of the same state so that diversity existed between the defendant and the new party.
Third-Party Claims
Federal Rule 14 permits a defendant to implead a person not a party to the action who is or may be liable to him for all or part of the plaintiff's claim against him. The rule does not provide that the third-party claim must arise out of the transaction that is the subject matter of the plaintiff's claim, and the cases hold that the plaintiff's claim and the third-party claim do not have to involve the same facts or rest on the same theories. Thus, this rule is different from the rule for counterclaims and cross-claims. Also, a third party claim is asserted only against a new party whereas counterclaims and cross-claims are asserted against parties to the action although new persons can be joined as parties.Although the facts and the theory of a third-party claim may be different from those in the plaintiff's claim, the courts have uniformly held that the third-party claim does not have to independently satisfy the federal jurisdictional requirements. One authority states that this constitutes an expansion of the courts' ancillary jurisdiction. Numerous reasons have been given for holding that a third-party claim is within the federal court's ancillary jurisdiction. In one case the court stated that:
Diversity between defendant and third-party defendant not necessary: E. g., LASA Per L'Industria Del Marmo Soc. Per Azioni v. Alexander, 414 F.2d 143 (6th Cir. 1969); Waylander-Peterson Co. v. Great Northern Ry., 210 F.2d 408 (8th Cir. 1953). Diversity between plaintiff and third-party defendant not necessary: E. g., Stemler v. Burke, 344 F.2d 393 (6th Cir. 1965).
C. Goldberg, The Influence of Procedural Rules on Federal Jurisdiction, 28 Stanford L. Rev. 395. 418-9 (1976).
"It has long been familiar federal practice to entertain an `ancillary' claim without independent jurisdictional basis, if that claim seeks either to make a principal judgment effective or to make some lawfully required reallocation of the burden imposed by the principal recovery."
Pennsylvania R. R. v. Erie Avenue Warehouse Co., 302 F.2d 843, 845 (3rd Cir. 1962).
Another court stated that
"the defendant's right against the third party is merely the outgrowth of the same aggregate or core of facts which is determinative of the plaintiff's claim. In this view, the court which has jurisdiction over the aggregate facts which constitute the plaintiff's claim needs no additional ground of jurisdiction to determine the third-party claim which comprises the same core of facts."
Dery v. Wyer, 265 F.2d 804, 807 (2d Cir. 1959). Also see LASA Per L'Industria Del Marmo Soc. Per Azioni v. Alexander, 414 F.2d 143, 146-7 (6th Cir. 1969), where the court, relying on Moore v. New York Cotton Exchange, held that there is a logical relationship between plaintiff's claim and defendant's liability-over claim.
Several courts have suggested that the reason for holding that a court has ancillary jurisdiction of a compulsory counterclaim apply to third-party claims. In Dery v. Wyer the court stated that "Our conclusion as to the ancillary character of a third-party claim under Rule 14 is fortified by cases in the cognate field of compulsory counterclaims under Rule 13." In another case, the court held that it had ancillary jurisdiction over the claim that was being asserted against a new party whether he was properly brought in as an additional party on a counterclaim or whether he should have been impleaded as a third-party defendant. Other courts have held that cross-claims and third-party claims are within the ancillary jurisdiction of the federal courts because they "prevent the relitigation in other courts of issues heard and adjudged in the original suit." However, the most appropriate reason is found in Revere Copper Brass Inc. v. Aetna Casualty Surety Co. Although this case involved a claim by a thirdparty defendant against the original plaintiff, the reason for allowing such a claim is appropriate to a defendant's third-party claim. The court said that:
H. L. Peterson v. Applewhite, 383 F.2d 430 (5th Cir. 1967).
Glens Falls Indemnity Co. v. United States, 229 F.2d 370, 374 (9th Cir. 1956). Accord, Lyons v. Marrud, Inc., 46 F.R.D. 451 (S.D. N.Y. 1968).
426 F.2d 709 (5th Cir. 1970).
"There is much to be said for allowing parties who are involuntarily brought into federal court to defend against a claim * * * to assert all their claims arising out of the controversy in one proceeding and that this is, or ought to be, one of the factors to be considered in determining the existence of ancillary jurisdiction."
Id. at 715.
Federal Rule 18 permits a defendant to join in his third-party complaint any other claims that he has against the third-party defendant. Thus, when the defendant impleads a party who is or may be liable to him for all or part of his liability to the plaintiff, he can also assert a claim for his own damages although he could not implead a party if his only claim is for his own damages. If the defendant's additional claim arose out of the transaction which is the subject matter of the plaintiff's claim, the additional claim is within the court's ancillary jurisdiction, but where the added claim does not arise out of the transaction that is the basis of the plaintiff's claim, it must independently satisfy the federal jurisdictional requirements. Since the third-party plaintiff may join a related claim with his liability-over claim, he may recover a judgment from the third-party defendant that is larger than the original plaintiff's claim against him.
Schwab v. Erie Lackawanna Rd., 438 F.2d 62 (3rd Cir. 1971); Ruckman Hansen, Inc., v. Contracting Material Co., Inc., 328 F.2d 744 (7th Cir. 1964) (new items were added to the third-party claim after judgment was rendered on the plaintiff's claim); Compton-Richmond Co., Inc., v. United States, 273 F.Supp. 219 (S.D.N.Y. 1967). In the Schwab case the court stated that it is immaterial whether the new claim be characterized as ancillary to the plaintiff's claim or ancillary to the third-party claim. This is questionable. If the additional claim is only related to the third-party claim, the concept of ancillary jurisdiction will be expanded. See Note, 46 N.Y.U. L. Rev. 634 (1971).
United States for the Use of Payne v. United Pacific Ins. Co., 472 F.2d 792 (9th Cir. 1973), cert. denied 411 U.S. 982, 93 S.Ct. 2273, 36 L.Ed.2d 958 (1973).
Federal Rule 14 provides that a third-party defendant shall assert his counterclaims against the third-party plaintiff and his cross-claims against other third-party defendants in accordance with the provisions of Rule 13. Thus, the rules in regard to counterclaims and cross-claims that apply to a defendant apply to a third-party defendant. He must assert any counterclaim which arises out of the transaction or occurrence that is the subject matter of the plaintiff's claim, and he may assert any other claim that he has against him. A compulsory counterclaim is within the federal court's ancillary jurisdiction, whereas his other counterclaims must independently satisfy the federal court's jurisdictional requirements. Also, since a crossclaim against other third-party defendants must arise out of the transaction or occurrence that is the subject matter of the defendant's claim against the third-party defendants, it is within the ancillary jurisdiction of the court.
Cf. Moore v. New York Cotton Exchange, 270 U.S. 593, 46 S.Ct. 367, 70 L.Ed. 750 (1926). The Rules do not affect the ancillary jurisdiction of the court, but the same test is used to determine if a counterclaim is compulsory and if ancillary jurisdiction exists.
In addition to asserting his counterclaims and cross-claims as provided in Rule 13, a third-party defendant may assert against the plaintiff any claim which arises out of the transaction or occurrence that is the subject matter of the plaintiff's claim against the original defendant. Because he is limited to claims that are logically related to plaintiff's claim, most courts hold that these claims are within the federal court's ancillary jurisdiction. In Revere Copper Brass Inc. v. Aetna Cas. Sur. Co. the court said that ancillary jurisdiction should exist because the defendant, having been brought into court involuntarily, should be allowed to assert all of his claims arising out of one controversy in one proceeding. In another case the court stated that if a defendant's claim against a third-party defendant "may be factually unrelated to the main claim and still be within the court's ancillary jurisdiction," then a thirdparty defendant's claim against the plaintiff, which must be more closely related to the main claim, should also be within the court's ancillary jurisdiction.
Mayer Paving Asphalt Co. v. General Dynamics Corp., 486 F.2d 763 (7th Cir. 1973) (alternate holding). In Rollins, Inc. v. General Ins. Co., No. C74-1888A (N.D.Ga. July 29, 1975), cited in Fawvor v. Texaco, Inc., 546 F.2d 636, 642 n. 12 (5th Cir. 1977), the court held that third-party defendant's claims against the plaintiff were within the court's ancillary jurisdiction, but it held that the plaintiff's compulsory counterclaims against the third-party defendant must independently satisfy the court's jurisdictional requirements. In Finkel v. United States, 385 F.Supp. 333 (S.D. N.Y. 1974), the third-party defendant's claim against the original plaintiff was dismissed because it raised issues that were not relevant to the ones raised in the principal action.
426 F.2d 709 (5th Cir. 1970).
Union Bank Trust Co. v. St. Paul Fire Marine Ins. Co., 38 F.R.D. 486, 489 (D.Neb. 1965).
Federal Rule 14 also provides that a third-party defendant may assert a claim against a person not a party to the action who is or may be liable to him for all or part of the claim which is asserted against him by the third-party plaintiff, and the cases hold that such a claim does not have to independently satisfy the federal jurisdictional requirements. Thus, the ancillary jurisdiction of the federal courts has been extended to include any liability-over claim by a party to the action against a person who is not a party to the action regardless of how far the claimant is removed from the original plaintiff.
E. g., Newberger, Loeb Co., Inc. v. Gross, 62 F.R.D. 397 (E.D. Wis. 1974).
In addition to the provisions which have been discussed, Federal Rule 14 provides that a plaintiff may assert against the third-party defendant any claim that arises out of the transaction that is the subject matter of the plaintiff's claim against the defendant. Thus, after the third-party defendant has been made a party to the action by the defendant asserting a claim against him, the plaintiff can file a complaint, or amend his original complaint, to assert his claim against the third-party defendant. Since the plaintiff's claim against the third-party defendant arose out of a transaction that is already before the court, and since the third-party defendant was a party to the action before the plaintiff asserts his third-party claim, the federal court has jurisdiction to hear it although there is no independent basis of federal jurisdiction. Pendent jurisdiction cases as well as ancillary jurisdiction cases support this position. If a plaintiff were asserting a claim against a person who was not a party to the action, a different result would be reached notwithstanding the fact that the claim arose out of a transaction that was within the court's jurisdiction.
E. g., United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966).
E. g., Moore v. New York Cotton Exchange, 270 U.S. 593, 46 S.Ct. 367, 70 L.Ed. 750 (1926).
Friend v. Middle Atlantic Transportation Co., 153 F.2d 778 (2d Cir. 1946). Cf. Aldinger v. Howard, 427 U.S. 1, 96 S.Ct. 2413, 49 L.Ed.2d 276 (1976).
Holding that a plaintiff can assert a third-party claim against a party to an action although no independent basis of federal jurisdiction exists does not stretch the ancillary concept. The cases which permit a defendant to implead a third-party defendant although the claim that is asserted against him has no independent jurisdictional basis go much further than this. One court has pointed out that no sound reason exists to require more exacting jurisdictional standards in regard to plaintiff's thirdparty complaint than those applied in other ancillary proceedings.
Cf. Union Bank Trust Co. v. St. Paul Fire Marine Ins. Co., 38 F.R.D. 486, 489 (D.Neb. 1965).
Olson v. United States, 38 F.R.D. 489 (D.Neb. 1965). Jurisdiction is not a one-way concept. Since a court may have jurisdiction of a third-party's claim against the original plaintiff, Revere Copper Brass Inc. v. Aetna Cas. Sur. Co., 426 F.2d 709 (5th Cir. 1970), it should have jurisdiction of a claim by the plaintiff against the thirdparty defendant. Cf. Moore v. New York Cotton Exchange, 270 U.S. 593. 46 S.Ct. 367, 70 L.Ed. 750 (1926). The Revere case distinguished the two situations, 426 F.2d at 716, but it did not state, even by way of dictum, that a plaintiff's third-party claim must have an independent basis of jurisdiction.
Since the facts and legal issues that are raised by plaintiff's third-party claim are already before the court and since other persons are not joined as parties to the action, no additional burden is placed on the court by holding that it has jurisdiction of a plaintiff's third-party claim. Thus, the effect on the court's docket would be negligible, and holding that a court can adjudicate this claim would prevent circuity of actions. In Kenrose Manufacturing Co. v. Fred Whitaker Co., Inc., the court suggests that the efficient administration of justice may be considered in determining the existence of jurisdiction stating that:
512 F.2d 890 (4th Cir. 1972). The decision in this case is surprising in view of the holding by this same court in Stone v. Stone, 405 F.2d 94 (4th Cir. 1968), where the court upheld the joinder by the plaintiff of a defendant who did not satisfy the jurisdictional amount requirement. Although this is a statutory requirement, the Court in Strawbridge v. Curtiss, 7 U.S. 267, 3 Cranch 267, 2 L.Ed. 435 (1806), which involved diversity, was also construing a statute. The holding in the Stone case suggests that in Kenrose the court should have stated that a plaintiff cannot do indirectly what he can do directly. But for the fact that the defendant in Kenrose withdrew his third-party complaint, it is possible that both of these cases were improperly decided.
"The value of efficiency in the disposition of lawsuits by avoiding multiplicity may be readily conceded, but that is not the only consideration a federal court should take into account in assessing the presence or absence of jurisdiction."
512 F.2d at 894. This sentence was quoted in Aldinger v. Howard, 427 U.S. at 15, 96 S.Ct. at 2420, but this does not necessarily indicate approval of the Kenrose case. The Court stated that for the purpose of deciding the case "we think it quite unnecessary to formulate any general, all-encompassing jurisdictional rule." Id. at 13, 96 S.Ct. at 2419.
However, it stated that "federal dockets are so overcrowded that the federal courts should not reach out for state law based litigation." Most courts indicate that pleading additional claims that arise out of the transaction that is the basis of the original action will save the time of the court. In one case, which involved the joinder of cross-claims and a third-party claim the court stated that:
"The granting of the motion will avoid a multiplicity of litigation that would be occasioned by the institution of independent, substantially duplicative, complicated, and protracted separate actions, which would otherwise be undertaken by the third-party plaintiffs."
Lyons v. Marrud, Inc., 46 F.R.D. 451, 453 (S.D.N.Y. 1968).
Usually the subsequent action would be brought in a state court so that dismissing plaintiff's third-party complaint would not cause duplication in a federal court, but it would impose an additional burden on the nation's judicial system.
In the Gibbs case the Supreme Court stated that the justification for exercising jurisdiction over the state claim "lies in considerations of judicial economy, convenience and fairness to litigants." In this case the plaintiff was asserting a state claim which arose from the same nucleus of operative facts as his federal claim against a party who was subject to the jurisdiction of the court on another ground. Thus, where the person against whom the claim is being asserted is already a party to the action, the court may consider convenience and fairness to the litigants. Both the state and the federal theories in the Gibbs case could have been litigated in a state court, but this was not required although the state law ground lacked an independent basis of federal jurisdiction. In the Aldinger case the Court indicated that judicial economy should not be given the same consideration where the addition of a new party is involved.
383 U.S. at 726, 96 S.Ct. at 1139, 16 L.Ed.2d at 228. See C. Goldberg, The Influence of Procedural Rules on Federal Jurisdiction, 28 Stanford L. Rev. 395, 472 (1976), where the author suggests that harmonizing the test for ancillary jurisdiction with joinder criteria would limit the number of nonsubstantive judicial rulings.
See 73 Stat. 545 (1959), 29 U.S.C. § 187(b).
A number of district court cases have held that a plaintiff's third-party claim is within the ancillary jurisdiction of the federal courts, and this is the holding in the most recent court of appeals case. However, several courts of appeals have held that a plaintiff's third party claim must independently satisfy the federal jurisdictional requirements. In some of these cases the holding that ancillary jurisdiction of a plaintiff's third-party complaint does not exist is an alternate ground for the decision of the court. Other cases are distinguishable, such as Friend v. Middle Atlantic Transportation Co., which was decided during the time that Rule 14 permitted a defendant to implead a person who is or may be liable only to the plaintiff. The defendant in that case tendered the plaintiff another defendant by joining him as a third-party defendant although the original defendant did not assert a claim against the new party and, by state law, he did not have a claim that he could assert against him. Thus, the so called third-party defendant was not a true party to the action until the plaintiff asserted a claim against him. Since the only claim against the impleaded party was asserted by the plaintiff, the Friend case is similar to the Aldinger case. Also, the Friend and Kenrose cases are similar after the defendant in Kenrose withdrew his third-party complaint. Also, in many of the cases that are cited for the proposition that a plaintiff's third-party claim must independently satisfy the court's jurisdictional requirements the statement to this effect is dictum because the plaintiff did not assert such a claim.
E. g., Hood v. Firemen's Fund Ins. Co., 412 F.Supp. 846 (S.D.Miss. 1976); Morgan v. Serro Travel Trailer Co., 69 F.R.D. 697 (D.Kan. 1975); CCF Industrial Park, Inc. v. Hasting Indus. Inc., 392 F.Supp. 1259 (E.D.Pa. 1975). In Hadinger v. Bentley Laboratories, Inc., 427 F. Supp. 994 (E.D.Pa. 1977), the court held that it had ancillary jurisdiction of the plaintiff's third-party claim but that it had the discretion to dismiss it. It refused to dismiss it at that time pending the outcome of parallel litigation in a state court. Cf. Howe Ins. Co. v. Ballenger Corp., 74 F.R.D. 93 (N.D.Ga. 1977).
Kroger v. Owen Equipment Erection Co., 558 F.2d 417 (8th Cir. 1977).
E. g., Fawvor v. Texaco, Inc., 546 F.2d 636 (5th Cir. 1977), reversing 387 F.Supp. 626 (E.D.Tex. 1975); Johnson v. Better Materials Corp., 556 F.2d 131 (3d Cir. 1976).
Saalfrank v. O'Daniel, 533 F.2d 325 (6th Cir. 1976), reversing 390 F. Supp. 45 (N.D.Ohio) (claim also pending in state court); Rosario v. American Export-Isbrandtsen Lines, Inc., 531 F.2d 1227 (3d Cir. 1976) (Plaintiff's tort claim against the United States, the third-party defendant, was dismissed because the plaintiff had not filed an administrative claim); Kenrose Mfg. Co., Inc., v. Fred Whitaker Co., Inc., 512 F.2d 890 (4th Cir. 1972) (third-party plaintiff dismissed his third-party claim). In Parker v. W. W. Moore Sons, Inc., 528 F.2d 764 (4th Cir. 1975), the court stated that the facts in the case were such that it would not re-examine the ruling in the Kenrose case.
153 F.2d 778 (2d Cir. 1946), cert. denied, 328 U.S. 865, 66 S.Ct. 1370, 90 L.Ed. 1635 (1946). Originally Federal Rule 14 provided that "the plaintiff may amend his pleadings to assert against the third-party defendant any claim which the plaintiff might have asserted against the third-party defendant had he been joined originally as a defendant." Now, however, it provides that "the plaintiff may assert any claim against the third-party defendant arising out of the transaction or occurrence that is the subject matter of the plaintiff's claim against the third-party plaintiff."
See J. Willis, Five Years of Federal Third-Party Practice, 29 Va. L. Rev. 981, 1003 (1943). The author of that article distinguishes between cases where the defendant tenders the plaintiff another defendant and cases where the defendant asserts a liability-over claim against the third-party. He states that the same considerations do not apply to both cases and that a strong argument could be made in favor of ancillary jurisdiction in the latter situation.
Stemler v. Burke, 344 F.2d 393 (6th Cir. 1965); McPherson v. Hoffman, 275 F.2d 466 (6th Cir. 1960); United States v. Lushbough, 200 F. 2d 717 (8th Cir. 1952); Patton v. Baltimore O. Rd., 197 F.2d 732 (3d Cir. 1952); Pearce v. Pennsylvania Rd., 162 F.2d 524 (3d Cir. 1947), cert. denied, 332 U.S. 765, 68 S.Ct. 71, 92 L.Ed. 350 (1947) (no third-party defendant). In Gladden v. Stockard Steamship Co., 184 F.2d 507 (3d Cir. 1950), jurisdiction of the third-party claim was not discussed on appeal.
The reasons that are most often advanced for holding that a plaintiff's claim against a third-party defendant is not within the court's ancillary jurisdiction are (1) to hold that the court has ancillary jurisdiction may lead to collusion between the plaintiff and defendant to have the defendant implead the thirdparty; and (2) a party should not be permitted to do indirectly what it cannot directly. However, these are not matters which affect or limit the jurisdiction of a court or the validity of a judgment.
E. g., Kenrose Mfg. Co., Inc. v. Fred Whitaker Co., Inc., 512 F.2d 890, 893 (4th Cir. 1972).
If there is collusion, it is between the plaintiff and the defendant; it is not between the parties to the claim that is involved. Nevertheless, where there is collusion, the court should, as a matter of discretion, dismiss the plaintiff's third-party claim, but the dismissal should not be on jurisdictional grounds. Also, the existence of collusion and the possibility of collusion are not the same. To hold that a federal court should never entertain a plaintiff's third-party claim which does not have an independent basis of jurisdiction because of the possibility of collusion is too drastic a method of preventing collusion. Fortunately, this solution has not been used in other situations where collusion is possible.
There is a possibility of collusion where a person seeks to intervene under Federal Rule 24(a), but this possibility has not caused the federal courts to adopt a rule that a person can never intervene under this rule. Kozak v. Wells, 278 F. 2d 104 (8th Cir. 1960) (no suggestion of sham, collusion or any similar device in this case). No impleader case has been discovered where there was actual collusion. The appellate courts appear to be more fearful of collusion than the trial courts.
In the Fawvor case the court stated that even if there were no collusion, allowing a plaintiff to assert a claim that does not independently satisfy the federal jurisdictional requirements "would encourage suits against persons who otherwise could not and should not be involved in the litigation." 546 F.2d at 638. However, the same persons would have been joined as parties in this case, and probably all third-party cases, even if it had been known in advance that the plaintiff's third-party claim would require independent jurisdiction.
Some judges accept without question the statement that a party cannot do indirectly what he cannot do directly. This statement indicates that a party who, as a plaintiff, cannot assert a claim against a person who is not already a party to the action because the claim does not have an independent basis of federal jurisdiction can never assert that claim against the other person in a federal court. However, this statement is inconsistent with the concept of ancillary jurisdiction. Whenever a claim is held to be within the ancillary jurisdiction of a federal court, the party asserting it is doing indirectly what he could not have done directly. In the Moore case, the Cotton Exchange could not have sued Moore in a federal court, but by waiting until Moore brought his suit, the Cotton Exchange was able to assert its claim against Moore in a federal court. Other cases hold that a person may intervene in an action and then assert a claim against the plaintiff although there is no independent basis of federal jurisdiction over the intervenor's claim.
Kozak v. Wells, 278 F.2d 104 (8th Cir. 1960); United States to the Use and for Benefit of Foster Wheeler Corp. v. American Surety Co., 142 F.2d 726 (2d Cir. 1944); See City of Santa Clara v. Klepp, 428 F.Supp. 315 (N.D.Cal. 1976).
It should make no difference whether the party asserting the claim is a plaintiff or a defendant where the claim (1) arose out of a transaction which the court already has the power to hear and (2) it is asserted against a person who is already a party to the action. Thus, if the issues and the parties are already subject to the court's jurisdiction and if hearing the claim does not impose any additional burden on the court, the court should have the inherent power to hear it.
Complete diversity is required between the orginal plaintiffs and defendants by Strawbridge v. Curtiss, but Strawbridge does not hold that there must always be diversity between all adverse parties. The situation where a plaintiff asserts a claim against a third-party defendant who is already present in a federal court because a claim over which the court has jurisdiction has been asserted against him is factually different from the situation where a plaintiff attempts to assert a claim against a person who is not a party to the action. The Supreme Court recognized this when it distinguished the Gibbs and Aldinger cases.
7 U.S. 267, 3 Cranch 267, 2 L. Ed. 435 (1806).
E. g., Moore v. New York Cotton Exchange, 270 U.S. 593, 46 S.Ct. 367, 70 L.Ed. 750 (1926). Neither the Constitution nor the statutes require complete diversity at all stages of an action. Dery v. Wyer, 265 F.2d 804 (2d Cir. 1959).
In Rollins, Inc., v. General Insurance Co. third-party defendants asserted claims against the plaintiff. Thereafter, the plaintiff filed compulsory counterclaims against the third-party defendants. The district court allowed the claims by the thirdparty defendants to stand, but because the plaintiff and the third-party defendants were citizens of the same state, it struck the plaintiff's counterclaims. Even if a plaintiff cannot ordinarily assert a claim that does not independently satisfy the federal jurisdictional requirements against a third-party defendant, the plaintiff should have been allowed to assert a counterclaim in this case because the third-party defendant had asserted a claim against him. Since the plaintiff is now in the position of a defendant on the third-party defendant's claim, the Revere case indicates that it should have been permitted to litigate all of its claims arising out of the controversy in one proceeding.
No. C 74-1888A (N.D.Ga. July 29, 1975), cited in Fawvor v. Texaco, Inc., 546 F.2d 636, 642 n. 12 (5th Cir. 1977).
In another case, where the plaintiff included a compulsory counterclaim in a reply to a third-party defendant's claim, the court stated that:
"We note, however, that there may be certain circumstances in which a plaintiff may be able to assert claims in federal court or in a particular federal court in a counterclaim in reply that he would not have been able to assert in his original complaint or in an amendment thereto."Home Insurance Co. v. Ballenger Corporation presents an interesting variation of the usual third-party situation. The defendant asserted a counterclaim against the plaintiff who, in turn, filed a third-party complaint against a new party to recover what he, the plaintiff, may have to pay the defendant. Then, the defendant, the plaintiff on the counterclaim, asserted a claim against the new or third-party who had been impleaded by the plaintiff. All claims arose out of the same transaction, but the defendant and the new or third-party defendant were citizens of the same state. However, the court held that the defendant's claim against the third-party defendant came within the court's ancillary jurisdiction.
Southeastern Industrial Tire Co., Inc. v. Duraprene Corp., 70 F.R.D. 585, 587 n. 5 (E.D.Pa. 1976).
74 F.R.D. 93 (N.D.Ga. 1977).
The court distinguished this case from the usual case where a plaintiff asserts a claim against a third-party defendant because the party asserting the claim did not select the forum. Citing the Revere case, it held that the defendant should be allowed to assert all of its claims in the pending action. Also, the court stated that on these facts there was no real danger of collusion. Thus, it rejected the view that the possibility of collusion would deprive the court of jurisdiction of the third-party claim. In addition, the court stated that the claim against the third-party was akin to a cross-claim because the defendant and the new or third-party were both adverse to the plaintiff. In conclusion, it stated that the defendant's claim
"derives from a common nucleus of operative facts with the other claims and, in the interest of complete and final resolution of the case, should be resolved along with the other claims. Allowing such a claim to be adjudicated in this action may avoid circuity of actions, and may eliminate the cost, delay, and the burden of additional and unnecessary lawsuits."
Id. at 100.
In an earlier case the defendant, A, impleaded a third-party defendant, B, who, in turn, impleaded another third-party defendant, C. All of these parties were citizens of the same state, and the action did not involve a federal question. Nevertheless, the court held that A could assert a claim that arose out of the transaction that was the basis of the original plaintiff's claim directly against C because a federal court has the power to render complete relief among persons who are parties to the action and to dispose of all claims that arise out of a single transaction or occurrence in one action.
McDonald v. Blue Jeans Corp., 183 F.Supp. 149 (S.D.N.Y. 1960).
Conclusion
Most of the cases support two principles in regard to the power of the federal courts to adjudicate claims that do not independently satisfy the court's jurisdictional requirements. First, a federal court has jurisdiction of a claim that is asserted by a party to the action against another party to the action and that arises out of a transaction or occurrence over which the court has jurisdiction. Thus, a court has jurisdiction over compulsory counterclaims and cross-claims by a defendant. Also, where there is a third-party complaint, the court has jurisdiction over other claims against the third-party defendant that arise out of the transaction that is the subject matter of the plaintiff's action. In addition, the court has jurisdiction over a compulsory counterclaim by the third-party defendant against the thirdparty plaintiff and a claim by the third-party defendant against the original plaintiff. Moreover, this principle permits a plaintiff to assert a claim that does not independently satisfy the jurisdictional requirements against a third-party defendant because it is being asserted against a person who is a party to the action and it arises out of a transaction that is already before the court.
These rules do not summarize all situations where ancillary jurisdiction is available.
The second principle is that a party who is brought into an action involuntarily can assert a claim that does not independently satisfy the federal jurisdictional requirements against a new party to the action when the claim arises out of the transaction or occurrence that is the subject matter of the original plaintiff's claim. Thus, defendants and third-party defendants may assert all of their claims that arise out of one controversy in one proceeding, but this principle is not available to plaintiffs. If, however, a counterclaim or some other claim is asserted against a plaintiff, he can join new persons as parties to the action the same as if he were an original defendant.
Although it is often stated that a party who is brought into an action can act defensively, he is not limited to defeating claims that are asserted against him. He can recover an affirmative judgment on his counterclaims or cross-claims. Also, he can recover a judgment against the third-party defendant that is larger than the plaintiff's judgment against him if he includes other related claims in his third-party petition.