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295
DEFINING THE LIMITS OF SUPPLEMENTAL JURISDICTION
UNDER 28 U.S.C. § 1367: A HEARTY WELCOME TO PERMISSIVE
COUNTERCLAIMS
by Michelle S. Simon*
In 1990, Congress passed 28 U.S.C. § 1367, which combined the judge-made doctrines of ancillary and pendent jurisdiction into a new category, “supplemental jurisdiction.” Supplemental jurisdiction allows federal district courts with original jurisdiction to also have jurisdiction over all other claims that form part of the “same case or controversy under Article III of the United States Constitution.” This Article analyzes supplemental jurisdiction over both permissive and compulsory counterclaims, before and after the codification of § 1367, by looking at the meaning of “same case or controversy.” It then examines two Circuit Court opinions that have held permissive counterclaims may be subject to supplemental jurisdiction as part of the “same case or controversy” as the claim over which the court has original jurisdiction. The author concludes that recent opinions from the Second and Seventh Circuit Courts of Appeal have correctly recognized federal courts’ ability to hear permissive counterclaims without independent jurisdiction.
I. INTRODUCTION..................................................................................... II. THE NEED FOR SUPPLEMENTAL JURISDICTION ........................... A. Supplemental Jurisdiction Under 28 U.S.C. § 1367 .......................... B. The Meaning of “Same Case or Controversy” in § 1367(a) ............. III. SUPPLEMENTAL JURISDICTION OVER COUNTERCLAIMS.......... A. The Difference Between Compulsory and Permissive Counterclaims .................................................................................... B. Supplemental Jurisdiction over Counterclaims Before 28 U.S.C. § 1367 ................................................................................ IV. THE CIRCUIT COURTS SPEAK: CHANNELL v. CITICORP NATIONAL SERVICES, INC. AND JONES v. FORD MOTOR CREDIT CO. ............................................................................................. V. 28 U.S.C. § 1367 ALLOWS SUPPLEMENTAL JURISDICTION OVER PERMISSIVE COUNTERCLAIMS ............................................. VI. CONCLUSION .........................................................................................
- (^) Professor of Law and Associate Dean of Academic Affairs, Pace Law School. I wish to
thank my research assistant, Daniel Laub, for his invaluable help. I would also like to thank my assistant, Judy Jaeger, for her never ending support.
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I. INTRODUCTION
In 1990, Congress added § 1367 to Title 28 of the United States Code,^1 which codified the judge-made doctrines of ancillary and pendent jurisdiction into a newly created category, “supplemental jurisdiction.”^2 Under § 1367, in any civil action where the district courts have original jurisdiction, the courts can 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.”^3 Federal Rule of Civil Procedure 13(a) states the rule for compulsory counterclaims.^4 A defendant must plead any counterclaim that “arises out of the transaction or occurrence” that forms the basis of the plaintiff’s claims.^5 Although the rule does not state the consequences of a defendant’s failure to plead a compulsory counterclaim, courts have held that the failure to plead results in claim preclusion in a later lawsuit.^6 Courts have also held that if a claim satisfies the test for a compulsory counterclaim by “arising out of the same transaction or occurrence,” then the claim naturally falls within the “same case or controversy” language of 28 U.S.C. § 1367(a).^7 Therefore, § 1367 provides a jurisdictional basis for compulsory counterclaims. 8 Federal Rule of Civil Procedure 13(b) states the rule for permissive counterclaims.^9 Under the rule, “[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.” 10 Before the existence of § 1367, many courts determined that because permissive counterclaims did
(^1) Judicial Improvements Act of 1990, Pub. L. No. 101-650, § 310(a), 104 Stat. 5089,
5113 (codified as amended at 28 U.S.C. § 1367 (2000)). (^2) 28 U.S.C. § 1367 (2000). (^3) 28 U.S.C. § 1367(a) (“Such supplemental jurisdiction shall include claims that
involve the joinder or intervention of additional parties.”). (^4) FED. R. CIV. P. 13(a). (^5) Id. (^6) Cleckner v. Republic Van & Storage Co., 556 F.2d 766, 769 n.3, 772 (5th Cir. 1977)
(inferring a bar to a later claim under the alternative theories of res judicata , waiver, or equitable estoppel); see also Baker v. Gold Seal Liquors, Inc., 417 U.S. 467, 469 n.1 (1974); Pipeliners Local Union No. 798 v. Ellerd, 503 F.2d 1193, 1198 (10th Cir. 1974); Fagnan v. Great Cent. Ins. Co., 577 F.2d 418, 420 (7th Cir. 1978), cert. denied , 439 U.S. 1004 (1978). But see Bristol Farmers Mkt. & Auction Co. v. Arlen Realty & Dev. Corp., 589 F.2d 1214, 1220 (3d Cir. 1978) (holding that while a claim not raised may be barred from consideration in litigation it is not also barred in later arbitration proceedings). (^7) Saglioccolo v. Eagle Ins. Co., 112 F.3d 226, 233 (6th Cir. 1997) (holding that a claim
which arose out of the same transaction or occurrence formed part of the same Article III case or controversy); see also Baer v. First Options of Chicago, Inc., 72 F.3d 1294, 1299 (7th Cir. 1995) (citing the Report of the Federal Courts Study Committee 47 (April 2, 1990) and finding that the statutory language proposed by the Committee would have allowed supplemental jurisdiction only for claims arising out of the same “transaction or occurrence”; noting the significance of the language of the statute as adopted that authorized supplemental jurisdiction as “coextensive with the ‘case or controversy’ requirement of Article III”). (^8) Saglioccolo , 112 F.3d at 233; Baer , 72 F.3d at 1301. (^9) FED. R. CIV. P. 13(b). (^10) Id.
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there is a claim that is related to the main claim, but over which there is no subject matter jurisdiction.^19 In order to enable the federal courts to hear those related claims, the courts created the doctrine of supplemental jurisdiction to allow litigants to resolve all aspects of a controversy in a single proceeding.^20 Without supplemental jurisdiction, a plaintiff in federal court could not assert an additional related state law claim if that state law claim did not have an independent basis of subject matter jurisdiction. Similarly, a defendant would not be able to assert counterclaims or third party claims unless there was independent subject matter jurisdiction for those claims, even if those claims were related to the plaintiff’s original claim. The court-created doctrine, and the subsequent codification of that doctrine, permits those claims to be heard. In addition, supplemental jurisdiction promotes fairness and judicial economy, and complements the liberal joinder rules of the Federal Rules of Civil Procedure.^21
A. Supplemental Jurisdiction Under 28 U.S.C. § 1367
On December 1, 1990, Congress enacted the supplemental jurisdiction statute as part of the federal Judicial Improvements Act of 1990. 22 In so doing, Congress codified and changed the court-created doctrine. Supplemental jurisdiction under 28 U.S.C. § 1367 permits the federal courts to exercise subject matter jurisdiction over additional claims against existing parties, as well as claims against new parties to the action, where there is no original subject matter jurisdiction.^23 Subject to certain specific exceptions,^24 a district court hearing claims over which there is original jurisdiction shall have supplemental jurisdiction over all other claims that “form part of the same case or controversy under Article III of the United States Constitution” as the original claim.^25 In codifying the common law of supplemental jurisdiction, the
(^19) See Washington Int’l Ins. Co. v. Victoria Sales Corp., No. 87 Civ. 7110 (RJW), 1989
U.S. Dist. LEXIS 8306, at *10–11 (S.D.N.Y. July 19, 1989); Alumax Mill Prods., Inc. v. Cong. Fin. Corp., 912 F.2d 996, 1002–07 (8th Cir. 1990); Carey v. E.I. duPont de Nemours & Co., 209 F. Supp. 2d 641, 649 (M.D. La. 2002); Soranno v. N.Y. Life Ins. Co., No. 96 C 7882, 2000 U.S. Dist. LEXIS 7539, at *4–5 (N.D. Ill. May 31, 2000). (^20) See United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966). See also infra note
(^21) Denis F. McLaughlin, The Federal Supplemental Jurisdiction Statute—A
Constitutional And Statutory Analysis , 24 ARIZ. ST. L.J. 849, 864 (1992). (^22) Pub. L. No. 101-650, § 310(a), 104 Stat. 5089, 5113 (codified as amended at 28
U.S.C. § 1367 (2000)); see also McLaughlin, supra note 21 (a comprehensive examination of the supplemental jurisdiction statute). (^23) 28 U.S.C. § 1367(a) (2000) codified the authority for the extension of jurisdiction
that the Court believed was lacking in Finley v. United States , 490 U.S. 545, 556 (1989). It overrules Finley by expressly providing that supplemental jurisdiction will include pendent party claims. (^24) Supplemental jurisdiction is available except as restricted by § 1367(b) or § 1367(c),
or as expressly negated by another federal statute. Section 1367(b) codified the holding in Owen Equipment & Erection Co. v. Kroger , 437 U.S. 365, 377 (1978), which prohibits courts from exercising jurisdiction over parties joined by the plaintiff when it would defeat diversity jurisdiction. (^25) 28 U.S.C. § 1367(a).
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legislature did away with the doctrines of pendent party jurisdiction,^26 pendent claim jurisdiction,^27 and ancillary jurisdiction,^28 and created the term supplemental jurisdiction. In addition, § 1367 codified the Supreme Court’s holding in United Mine Workers v. Gibbs ,^29 by giving the federal court the discretion^30 to hear a state law claim if the state claim arises out of the same case or controversy 31 as a claim that has original subject matter jurisdiction.
B. The Meaning of “Same Case or Controversy” in § 1367(a)
Section 1367(a) provides that a district court hearing claims over which it has original jurisdiction shall have supplemental jurisdiction over all other claims that “form part of the same case or controversy under Article III of the United States Constitution”^32 as the original claim. The meaning of “same case or controversy” is somewhat unsettled. The text of the statute is unambiguous and extends jurisdiction to the limits of Article III.^33 The legislative history of the section demonstrates that Congress viewed the test enunciated by the Supreme Court in United Mine Workers v. Gibbs^34 as expressing those constitutional limits. 35 In Gibbs , the Court held that federal courts have jurisdiction over state law claims that “derive from a common nucleus of operative fact” such that “the relationship between... [the federal] claim and the state claim permits the conclusion that the entire action before the court
(^26) Pendent party jurisdiction allowed additional parties to enter the lawsuit where there
was no independent subject matter jurisdiction. The United States Supreme Court essentially eliminated pendent party jurisdiction in Finley , 490 U.S. at 556, where the Court held that federal courts could not entertain claims over additional parties without an independent basis of subject matter jurisdiction over the claim. (^27) Pendent claim jurisdiction was generally limited to the ability of a plaintiff to bring a
state law claim as “pendent” to a claim that arose under federal law, usually under federal question jurisdiction. Such claims were allowed even when there was no independent subject matter jurisdiction over the state claims if the state and federal claims “derive[d] from a common nucleus of operative fact.” United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966). (^28) The doctrine of ancillary jurisdiction was usually used to support claims interposed
by parties other than the plaintiff, and was usually used in diversity of citizenship suits, where there was no independent subject matter jurisdiction over those claims. See Owen Equip. & Erection Co., 437 U.S. at 377. (^29) 383 U.S. 715 (1966). (^30) 28 U.S.C. § 1367(c) (2000) codifies the discretionary step in Gibbs , 383 U.S. at 726.
Courts may refuse to exercise supplemental jurisdiction on a case-by-case basis. (^31) 28 U.S.C. § 1367(a). (^32) Id. (^33) Id. (^34) 383 U.S. 715 (1966). (^35) See H.R. REP. NO. 101-734, at 29 n.15 (1990), reprinted in 1990 U.S.C.C.A.N. 6860,
6375 n.15 (“In so doing, [§ 1367] subsection (a) codifies the scope of supplemental jurisdiction first articulated by the Supreme Court in United Mine Workers v. Gibbs , 383 U.S. 715 (1966).”).
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broader than the Gibbs test, the counterclaim may fall within the more narrow view.
III. SUPPLEMENTAL JURISDICTION OVER COUNTERCLAIMS
Among other things, the Federal Rules of Civil Procedure provide procedural authorization for the joinder of claims 41 and parties^42 in federal court. This is different from jurisdictional authorization—Federal Rule of Civil Procedure 82 specifically states that “[t]hese rules shall not be construed to extend... the jurisdiction of the United States district courts.”^43 Therefore, for a federal court to hear a joined claim, there must be a procedural rule that allows the joinder, as well as a jurisdictional basis through independent jurisdiction or through supplemental jurisdiction.
A. The Difference Between Compulsory and Permissive Counterclaims
Federal Rule of Civil Procedure 13(a) is the compulsory counterclaim rule. It requires a defendant to plead any counterclaim that “arises out of the transaction or occurrence” that forms the basis of the plaintiff’s claim. 44 A party who fails to plead a compulsory counterclaim cannot raise that claim in a subsequent action.^45 If the counterclaim does not arise out of the same “transaction or occurrence” then it is a permissive counterclaim and is governed by Federal Rule of Civil Procedure 13(b).^46 The failure to plead a permissive counterclaim will not bar the defendant from asserting it in a later action. Whether a counterclaim is compulsory or permissive, therefore, depends on interpretation of the phrase “same transaction or occurrence.” The courts have not specifically defined this phrase, but have instead created tests to determine if a counterclaim is compulsory or permissive.^47 In the most common test, courts have held that the requirement of “same transaction or occurrence” is met when there is a “logical relationship” between
(^41) FED. R. CIV. P. 18. (^42) FED. R. CIV. P. 19. (^43) FED. R. CIV. P. 82. (^44) FED. R. CIV. P. 13(a). (^45) The rule itself does not explain the consequences of failure to plead a compulsory
counterclaim. The courts have generally held that the failure to plead results in a bar under the doctrine of res judicata. 6 CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, FEDERAL PRACTICE AND P ROCEDURE § 1417 (2d ed. 1990). (^46) FED. R. CIV. P. 13(b). (^47) See, e.g., Adamson v. Dataco Derex, Inc., 178 F.R.D. 562, 564 (D. Kan. 1998)
(holding that “a counterclaim is compulsory if: (1) the issues of fact and law raised by the claim and counterclaim are largely the same; (2) res judicata would bar a subsequent suit on defendant’s claim absent the compulsory counterclaim rule; (3) substantially the same evidence supports or refutes plaintiff’s claims as well as defendant’s counterclaim; and (4) there is a logical relation between the claim and the counterclaim.”); see also Fox v. Maulding, 112 F.3d 453, 457 (10th Cir. 1997); Pipeliners Local Union No. 798 v. Ellerd, 503 F.2d 1193, 1198 (10th Cir. 1974).
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the counterclaim and the main claim. 48 In applying this test, courts look to see if the essential facts of the claims are so related that “considerations of judicial economy and fairness dictate that all the issues be resolved in one lawsuit.”^49 Some courts have held that the test is whether the issues of fact and law on the counterclaim are the same. 50 This test has been criticized as unworkable, because it is impossible to know what the issues will be until after the plaintiff has replied to the counterclaim. 51 A third test in distinguishing a permissive counterclaim from a compulsory counterclaim is whether the counterclaim would be barred by res judicata if there were no compulsory counterclaim rule.^52 Absent a compulsory counterclaim rule, however, a pleader is never barred from suing independently on a claim that he refrained from pleading in a prior action.^53 A fourth test suggested by some courts is whether the same evidence will support both the original claim and the counterclaim. 54 Although it is easy to see why a counterclaim would be compulsory if the same evidence supports it and the original claim, it is not as easy to see why a counterclaim would not be compulsory when it arises from the same facts even if the evidence supporting it is different.^55 A permissive counterclaim, therefore, is a counterclaim that does not satisfy the compulsory counterclaim tests enunciated by the courts. Such is the case when the essential facts for proving the counterclaim and the underlying claim are not so closely related that resolving the issues in one lawsuit is integral to judicial economy.^56 The relationship between the main claim and the
(^48) The phrase “logical relationship,” in the context of counterclaims, was first used by
the Supreme Court in Moore v. N. Y. Cotton Exchange. , 270 U.S. 593, 610 (1926). In Moore , the Court was dealing with former Equity Rule 30, the predecessor to Federal Rule of Civil Procedure 13(a). The Court stated that when a counterclaim arises out of a transaction which is the subject matter of the suit, “‘[t]ransaction’ is a word of flexible meaning. It may comprehend a series of many occurrences, depending not so much upon the immediateness of their connection as upon their logical relationship.” Id. ; see also United States v. Aquavella, 615 F.2d 12, 22 (2d Cir. 1979); Xerox Corp. v. SCM Corp., 576 F.2d 1057, 1059 (3d Cir. 1978); Valencia v. Anderson Bros. Ford, 617 F.2d 1278, 1291 (7th Cir. 1980), rev’d on other grounds , 452 U.S. 205 (1981). (^49) Critical-Vac Filtration Corp. v. Minuteman Int’l, Inc., 233 F.3d 697, 699 (2d Cir.
2000). (^50) Nachtman v. Crucible Steel Co. of Am., 165 F.2d 997, 999 (3d Cir. 1948). (^51) CHARLES ALAN WRIGHT & MARY KAY KANE, L AW OF FEDERAL COURTS 568 (6th ed.
2002). (^52) Big Cola Corp. v. World Bottling Co., 134 F.2d 718, 723 (6th Cir. 1943). (^53) Painter v. Harvey, 673 F. Supp. 777, 781 (W.D. Va. 1987); RESTATEMENT (S ECOND)
OF JUDGMENTS § 22 cmt. a (1982). (^54) Non-Ferrous Metals Inc. v. Saramar Aluminum Co., 25 F.R.D. 102, 105 (N.D. Ohio
1960). (^55) For example, in a suit to void an insurance policy for fraud with a counterclaim for
the amount of the loss, the evidence of the fraud will be different from the evidence of the loss and the amount, yet there should only be one suit to settle this controversy between the parties. (^56) See, e.g., Whigham v. Beneficial Fin. Co. of Fayetteville, 599 F.2d 1322, 1323 (4th
Cir. 1979) (looking at the differences between permissive and compulsory counterclaims).
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requires independent grounds of jurisdiction.”^65 In 1974, the Supreme Court stated that “if a counterclaim is compulsory, the federal court will have ancillary jurisdiction over it even though ordinarily it would be a matter for state court.”^66 Other courts have inferred from this statement that if a counterclaim is permissive, ancillary jurisdiction is not available.^67 Although commentators challenged the independent jurisdiction requirement,^68 it remained the law for permissive counterclaims. 69 In 1990, however, the court- created doctrine was displaced by 28 U.S.C. § 1367, and a new interpretation of supplemental jurisdiction over permissive counterclaims was born.
IV. THE CIRCUIT COURTS SPEAK: CHANNELL v. CITICORP NATIONAL SERVICES, INC. AND JONES v. FORD MOTOR CREDIT CO.
In 1996, the Seventh Circuit decided Channell v. Citicorp National Services, Inc.^70 In Channell , the plaintiffs were a certified class comprised of persons whose automobile leases had been assigned and terminated by the defendant. There was also a sub-class of lessees where the terminations were involuntary. 71 The plaintiffs brought an action in district court against the defendant for violating the Consumer Leasing Act by charging a substantial early termination charge.^72 The defendant counterclaimed, seeking a judgment for the contractual termination payments.^73 The district court determined that this was a permissive counterclaim, 74 and because there was no independent
(^65) Lesnik v. Pub. Indus. Corp., 144 F.2d 968, 976 n.10 (2d Cir. 1944); see also Princess
Fair Blouse, Inc. v. Viking Sprinkler Co., 186 F. Supp. 1, 4 (M.D.N.C. 1960); McKnight v. Halliburton Oil Well Cementing Co., 20 F.R.D. 563, 564 (N.D.W. Va. 1957); Tel. Delivery Serv. v. Florists Tel. Serv., 12 F.R.D. 342, 343 (S.D.N.Y. 1952). (^66) Baker v. Gold Seal Liquors, Inc., 417 U.S. 467, 469 n.1 (1974). (^67) Maddox v. Ky. Fin. Co., 736 F.2d 380, 382 (6th Cir. 1984); see also Hartford
Accident & Indem. Co. v. Sullivan, 846 F.2d 377, 381 (7th Cir. 1988). (^68) See Green, supra note 13, at 283 (arguing that the doctrine emerged from dicta and
did not make sense in terms of saving court time); see also United States v. Heyward- Robinson Co., 430 F.2d 1077, 1088 (2d Cir. 1970) (Friendly, J., concurring) (rejecting the independent jurisdiction doctrine, being persuaded by Professor Green’s article, and noting that the doctrine does not serve judicial efficiency). (^69) But see Ambromovage v. United Mine Workers, 726 F.2d 972, 990 (3d Cir. 1984)
(rejecting the view that independent jurisdiction is required for all permissive counterclaims, and instead finding that “the determination that a counterclaim is permissive within the meaning of Rule 13 is not dispositive of the constitutional question whether there is federal jurisdiction over that counterclaim”). (^70) 89 F.3d 379 (7th Cir. 1996). (^71) Id. at 381. (^72) Id. (^73) Id. at 384. (^74) Id. at 384–85 (basing its finding that the counterclaim was permissive on Valencia v.
Anderson Bros. Ford , 617 F.2d 1278 (7th Cir. 1980), rev’d on other grounds , 452 U.S. 205 (1981), which held that an attempt to collect the balance of a consumer loan is a permissive counterclaim).
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subject matter jurisdiction over the permissive counterclaim, 75 the court dismissed the counterclaim. 76 The Seventh Circuit vacated the judgment dismissing the counterclaim, holding that the codification of § 1367 requires courts to use the language of the statute to define the extent of their powers.^77 The court found that § 1367 extends the scope of supplemental jurisdiction to the limits of Article III, which means that a “loose factual connection between the claims can be enough.”^78 The court opined that the distinction between compulsory and permissive counterclaims served an important function when every assertion of ancillary jurisdiction was of doubtful propriety because the parties were afraid not to assert a counterclaim and risk its forfeiture.^79 In applying § 1367(a), the court found that the facts of the counterclaim were closely related enough to bring it within the outer limits of “same case or controversy.”^80 Therefore, the court found that the permissive counterclaim fell within the reach of supplemental jurisdiction. The court noted that § 1367(c) allows the courts to decline to exercise supplemental jurisdiction under certain circumstances.^81 Because the application of those factors involves the discretion of the district court, the court ultimately remanded the case.^82 In Jones v. Ford Motor Credit Co. ,^83 plaintiffs, both individually and as a class, brought an action against the defendant for racial discrimination under the Equal Credit Opportunity Act (ECOA).^84 The defendant counterclaimed for the amount of the plaintiffs’ unpaid car loans.^85 The plaintiffs moved to dismiss the counterclaim, and the district court granted the motion on the ground that the counterclaims were permissive, and as state law claims, had no independent subject matter jurisdiction.^86 The Second Circuit agreed with the district court that the counterclaims were permissive, finding that “[t]he essential facts for proving the counterclaims and the ECOA claim are not so closely related that resolving
(^75) Channell, 89 F.3d at 384 (finding that there was no independent subject matter
jurisdiction over the permissive counterclaim because some of the plaintiff class members were not of diverse citizenship from the defendant, and therefore the complete diversity rules were not satisfied). (^76) Id. at 385. (^77) Id. (^78) Id. (citing Baer v. First Options of Chicago, Inc., 72 F.3d 1294, 1298–1301 (7th Cir.
1995)) (internal quotations omitted). (^79) Id. (^80) Id. at 386. (^81) Id. (^82) Id. at 387. (^83) 358 F.3d 205 (2d Cir. 2004). (^84) Id. at 207. (^85) Id. (^86) Id. at 208. The district court did express some uncertainty as to whether permissive
counterclaims still required independent subject matter jurisdiction under § 1367(a). The court ruled that if there were supplemental jurisdiction, the court would still dismiss the counterclaims under the discretionary elements available in § 1367(c).
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test to define that relationship,^95 but Congress did not. Instead, a plain reading of the statute extends supplemental jurisdiction to the full constitutional limit of Article III.^96 The legislative history of the statute does state, however, that § 1367(a) codifies the “scope of supplemental jurisdiction first articulated by the Supreme Court in United Mine Workers v. Gibbs .”^97 In Gibbs , the Court found that for supplemental jurisdiction to attach, “the state and federal claims must derive from a common nucleus of operative fact.”^98 As a result, many courts and commentators have determined that this test is the constitutional limit of supplemental jurisdiction.^99 Others have argued, however, that the constitutional limit is even broader, and that a single case or controversy consists of all claims that bear a loose factual relationship to the claim on which there is original subject matter jurisdiction.^100 Either way, it is clear that there is no need for an identical factual relationship between the two claims in order for the courts to have the power to entertain supplemental jurisdiction.^101 The Federal Rules of Civil Procedure do not explain the rationale for the difference between permissive and compulsory counterclaims. The word “shall” in Rule 13(a) was used to indicate that a failure to plead the counterclaim would result in its loss in a later lawsuit.^102 Therefore, if the defendant’s counterclaim arises out of the same transaction or occurrence, it must be pleaded as long as it is within the jurisdiction of the court. Federal Rule of Civil Procedure 13(a) provides the procedure, but it does not address the courts’ jurisdictional power to hear the claim.^103 The purpose of distinguishing between permissive and compulsory counterclaims is to make
The Committee recommended over 100 changes to the federal courts, including the recommendation that Congress formally authorize supplemental jurisdiction. (^95) FED. COURTS STUDY COMM ., REPORT OF THE FEDERAL COURTS STUDY COMMITTEE 47
(April 2, 1990). (^96) See Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253–54 (1992) (plain meaning of
the statute has priority in interpreting the statutory language). (^97) H.R. REP. NO. 101-734, at 29 (1990), reprinted in 1990 U.S.C.C.A.N. 6860, 6875. (^98) United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966). (^99) Mendoza v. Zirkle Fruit Co., 301 F.3d 1163, 1174 (9th Cir. 2002); CFSC
Consortium, LLC v. Ferreras-Goitia, 198 F. Supp. 2d 116, 124 (D.P.R. 2002); see also Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 349 (1988); Deena Godshall Roth, Note, Finley v. United States : Is Pendent Party Jurisdiction Still A Valid Doctrine? 39 AM. U. L. REV. 811, 818 (1990). (^100) Fletcher, supra note 38, at 171 (citing the example of an unrelated defensive set-off
claim and arguing “that the constitutional test for supplemental jurisdiction is broader than the ‘common nucleus of operative fact’ test of United Mine Workers v. Gibbs ”). (^101) See Moore v. N.Y. Cotton Exch., 270 U.S. 593, 610 (1926) (finding that it does not
matter that the facts supporting the supplemental and original claims are not identical because “[t]o hold otherwise would be to rob this branch of the rule of all serviceable meaning, since the facts relied upon by the plaintiff rarely, if ever, are, in all particulars, the same as those constituting the defendant’s counterclaim”); see also Gibbs , 383 U.S. at 724– 25 (requiring that supplemental and original jurisdiction “be little more than the equivalent of different epithets to characterize the same group of circumstances” is “unnecessarily grudging”) (internal quotations omitted). (^102) FED. R. CIV. P. 13, Notes of Advisory Committee on Rules—1937. (^103) Green, supra note 13, at 286.
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sure that compulsory counterclaims are pleaded, not to deal with jurisdiction.^104 There is no basis to conclude that the test that differentiates a compulsory counterclaim from a permissive counterclaim is the same test that differentiates jurisdiction from lack of jurisdiction. Rather, Congress specifically chose not to use the same “transaction or occurrence” language of Federal Rule of Civil Procedure 13(a) in defining the limits of § 1367(a).^105 Under the rules of statutory interpretation, a court may not engage in a wholly creative process when it interprets a statute. Rather, it must determine and give effect to the intent of the legislature by examining the statutory language, the purpose of the legislation, and the legislative history.^106 Under the plain meaning rule of statutory interpretation,^107 the language in § 1367 specifically states “same case or controversy.” This language must be interpreted the same way it is interpreted in Article III of the United States Constitution. There is nothing in the legislative history or in the Federal Rules of Civil Procedure that would lead to the conclusion that the language excludes permissive counterclaims. Therefore, statutory construction supports the courts’ decisions in Channell v. Citicorp National Services, Inc.^108 and Jones v. Ford Motor Credit Co.^109 The purpose of supplemental jurisdiction is to ensure judicial economy, convenience, and fairness to litigants.^110 It avoids piecemeal litigation and the unnecessary litigation of federal questions in federal courts while duplicative litigation occurs in state courts as a result of plaintiffs having to split their actions. It also promotes the protective purposes of federal jurisdiction by giving the plaintiff unimpeded access to the federal courts.^111 Additionally, it permits the federal courts to give full relief by hearing claims that might be lost if forced into a different forum.^112 Allowing permissive counterclaims, which by definition are not part of the same transaction or occurrence as the main claim, to fall within the “case or controversy” limit of § 1367(a) fosters those purposes. Supplemental jurisdiction is also consistent with the underlying philosophy of the Federal Rules of Civil Procedure to “entertain[] the broadest
(^104) FED. R. CIV. P. 82. (^105) H.R. REP. NO. 101-734, at 27–28 (1990), reprinted in 1990 U.S.C.C.A.N. 6860,
6873–74. (^106) Hon. Judith S. Kaye, Things Judges Do: State Statutory Interpretation , 13 T OURO L.
REV. 595, 605–07 (1997); Jackson Transit Auth. v. Local Div. 1285, Amalgamated Transit Union, 457 U.S. 15, 22–24 (1982); Mohasco Corp. v. Silver, 447 U.S. 807, 815 (1980). (^107) See Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253–54 (1992) (plain meaning of
the statute has priority in interpreting the statutory language). (^108) 89 F.3d 379 (7th Cir. 1996). (^109) 358 F.3d 205 (2d Cir. 2004). (^110) United Mine Workers v. Gibbs, 383 U.S. 715, 726 (1966) (“Its justification lies in
considerations of judicial economy, convenience and fairness to litigants.”); see also Wright v. Associated Ins. Cos., 29 F.3d 1244, 1252 (7th Cir. 1994) (stating general rule is to relinquish pendent claims to state courts unless, in an exercise of discretion, the court determines that the balance of judicial economy, convenience, fairness, and comity justify retention). (^111) See Matasar, supra note 38, at 1404–07 n.6. (^112) See Note, A Closer Look at Pendent and Ancillary Jurisdiction: Toward a Theory of
Incidental Jurisdiction , 95 HARV. L. REV. 1935, 1945 (1982).
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compulsory counterclaims, permissive counterclaims did not arise out of the same “transaction or occurrence” as the main claim. 122 The courts concluded that, by definition, permissive counterclaims did not fall within the “common nucleus of operative fact” relationship required for supplemental jurisdiction to attach. In 1990, Congress enacted 28 U.S.C. § 1367, displacing years of court created doctrine in the area of supplemental jurisdiction.^123 In the last several years, two circuit courts have examined the issue of whether, under the new statute, supplemental jurisdiction may be extended to permissive counterclaims. These two courts, in Jones v. Ford Motor Credit Co.^124 and Channell v. Citicorp National Services, Inc.,^125 correctly held that § 1367(a) allows supplemental jurisdiction to attach to permissive counterclaims. This reading of 28 U.S.C. § 1367 is correct. Under the rules of statutory interpretation, “case or controversy” in § 1367 includes the full reach of Article III of the United States Constitution.^126 Therefore, if a counterclaim is permissive—in that it does not fall within the same transaction or occurrence as the underlying claim, but it still has a loose factual relationship to the underlying claim—it can be subject to supplemental jurisdiction. In addition, allowing supplemental jurisdiction to attach to permissive counterclaims fosters the purposes of judicial economy and fairness to litigants.^127 It cuts down on litigation by allowing all claims that are loosely factually related to be heard in one lawsuit.^128 Finally, the federal courts retain the discretionary power to not hear the permissive counterclaim under § 1367(c) if the courts determine that it would be too confusing.^129 Supplemental jurisdiction is a complex area of the law, and § 1367 has been criticized as being “poorly drafted, creating ambiguity for cases that formerly were clear and creating numerous problems in others.”^130 In the area of supplemental jurisdiction and permissive counterclaims, however, the codification has simplified years of confusing and inaccurate judge-made law. By not requiring permissive counterclaims to have independent subject matter jurisdiction, Congress is continuing the progress of streamlining the litigation process embraced by the Federal Rules of Civil Procedure.
(^122) FED. R. CIV. P. 13(b). (^123) See supra Part II.A. (^124) 358 F.3d 205, 213–14 (2d Cir. 2004). (^125) 89 F.3d 379, 385 (7th Cir. 1996). (^126) Jones v. Ford Motor Credit Co., 358 F.3d 205, 212 (2d Cir. 2004). (^127) See Ambromovage v. United Mine Workers, 726 F.2d 972, 991 (3d Cir. 1984)
(stating that exercising jurisdiction over permissive counterclaims should occur when it would improve the judicial economy, be fair to the parties, and further the interests of federalism). (^128) See Jones, 358 F.3d at 210–11. (^129) 28 U.S.C. § 1367(c). (^130) Thomas C. Arthur & Richard D. Freer, Grasping at Burnt Straws: The Disaster of
the Supplemental Jurisdiction Statute , 40 E MORY L.J. 963, 964 (1991).
