Opinion
1963
ANCILLARY JURISDICTION AND THE JOINDER OF CLAIMS IN THE FEDERAL COURTS By GEORGE B. FRASER
Boyd Professor of Law, The University of Oklahoma.
The federal rules authorize a very broad joinder of claims and parties in order to reduce the burden of litigation on the witnesses, the court and the parties. However, some claims which may be joined under the federal rules may not satisfy the statutory jurisdictional requirements of the federal courts. Therefore, it is necessary to determine if they come within the ancillary jurisdiction of the courts.
Ancillary jurisdiction exists so that a court may render more complete justice between the parties. It is invoked to prevent piecemeal litigation of related claims which would otherwise result from the limited jurisdiction of the federal courts. Thus, the courts must balance the statutory jurisdictional requirements with the need for the liberal joinder of claims which is authorized by the federal rules. Ancillary jurisdiction is also used to facilitate the collection of a judgment.
Walmac Co., Inc. v. Issacs, 220 F. 2d 108, 113 (1st Cir. 1955). See 1 Barron Holtzoff § 23 (Wright ed. 1960).
E.g., Hoosier Cas. Co. v. Fox, 102 F.Supp. 214, 225-226 (N.D.Iowa 1952).
Brandt v. Olson, 179 F.Supp. 363, 370 (N.D.Iowa 1959).
E.g., Childress v. Cook, 245 F.2d 798, 805 (5th Cir. 1957).
Although the limits of the ancillary jurisdiction of the federal courts are not clear, it is not dependent on the control of property by a court, but there should be some connection between the ancillary claim and the principal claim, such as the existence of common issues of law or fact. The ancillary claim does not have to be a subordinate claim; it may be a claim which could have been the basis of an independent action in a state court. The jurisdiction of the court to hear the claim depends on its jurisdiction over another claim, but the claim itself does not have to be dependent on or inferior to the other claim.
Moore v. New York Cotton Exchange, 270 U.S. 593, 46 S.Ct. 367, 70 L.Ed. 750 (1926). See Note, 10 Okla. L. Rev. 92 (1957).
The Federal Rules do not expand the ancillary jurisdiction of the federal courts, but they provide opportunities for invoking it in additional situations.
E.g., Childress v. Cook, 245 F.2d 798, 803 (5th Cir. 1957); Foster v. Brown, 22 F.R.D. 471, 473 (D.Md. 1958). In one case it was stated that the rules broaden the content of an action rather than extend federal power. Lesnik v. Public Industrials Corp., 144 F.2d 968, 973 (2d Cir. 1944).
Counterclaims and Cross-Claims
Counterclaims Arising Out of the Same Transaction. In Moore v. New York Cotton Exchange the Supreme Court held that a counterclaim arising out of the transaction that is the subject matter of the suit does not need independent jurisdictional grounds. The court cited with approval the case of Cleveland Engineering Co. v. Galion D. M. Truck Co. which held that a "court may proceed to try all questions between the parties, touching that subject-matter, and grant full relief to both parties." In the Moore case the plaintiff sued the defendant under the anti-trust laws for withholding cotton quotations, and asked for an injunction to compel the defendant to furnish them. The defendant counterclaimed to enjoin the plaintiff from purloining the quotations. The Supreme Court held that both claims arose out of the same subject matter because essential facts alleged by the plaintiff constituted part of the cause of action set forth in the counterclaim although the counterclaim also embraced additional allegations. Moreover, the relief requested by each party was interdependent because the defendant would be entitled to the relief he requested if the plaintiff did not succeed on his claim.The test that is used in the Moore case to determine if a counterclaim is ancillary is the same test that was subsequently adopted in Federal Rule 13(a) to determine if a counterclaim is compulsory.
Counterclaims That Are Unrelated to Plaintiff's Claim. It is generally accepted that a counterclaim which does not arise out of the transaction or occurrence that is the subject matter of the action is not within the ancillary jurisdiction of the federal courts although the Supreme Court has not passed on this question. In the Moore case, the Court stated that it was not necessary for it to consider this problem.
E.g., Autographic Register Co. v. Philip Hano Co., Inc., 198 F.2d 208 (1st Cir. 1952). See 1A Barron Holtzoff, Federal Practice and Procedure 552 (Wright ed. 1960). But see Green, Federal Jurisdiction Over Counterclaims, 48 NW.U. Law R. 271 (1953).
The statement that an unrelated counterclaim is not within the ancillary jurisdiction of the federal courts does not mean that each claim that is asserted against the plaintiff must separately satisfy all of the jurisdictional requirements. Where a plaintiff joins several claims in one action each claim must satisfy the federal question or diversity of citizenship requirement, but each claim does not have to involve the jurisdictional amount. The sum or value of the matter in controversy is determined by aggregating the sum or value of all claims in the complaint. Thus, the jurisdictional amount is not imposed in order to keep small claims out of the federal courts, but it is imposed to keep out litigants where the total amount in controversy does not exceed a specified sum or value. In one case it was stated that "The purpose of this restriction was to prevent the dockets of the federal courts from being crowded with cases involving small amounts, and to save litigants, in such cases, from the increased expense incident to trials in the federal courts."
Hurn v. Oursler, 289 U.S. 238, 53 S.Ct. 586, 77 L.Ed. 1148 (1933).
E.g., Edwards v. Bates County, 163 U.S. 269, 16 S.Ct. 967, 41 L. Ed. 155 (1896).
Chase v. Sheldon Roller-Mills Co., 56 F. 625 (N.D.Iowa 1893).
Where a defendant's counterclaim is unrelated to the plaintiff's claim, it must satisfy the federal question or diversity of citizenship requirement, but it is not clear that it must meet the jurisdictional amount requirement. In an article on federal jurisdiction it is stated that "the jurisdictional amount requirement is not applicable to a counterclaim" where the plaintiff's claim satisfies all of the federal jurisdictional requirements. The authors point out that this rule would not encourage resort to the federal courts because the court must have jurisdiction of the plaintiff's claim. Moreover, rejection of this rule would be harsh on the defendant. This article was cited with approval by the advisory committee which drafted the federal rules.
Shulman Jaegerman, Some Jurisdictional Limitations on Federal Procedure, 45 Yale L.Jour. 393, 416 (1936). Some cases state that a permissive counterclaim must meet the federal question or diversity requirement, but they do not refer to the amount requirement. E.g., Allen v. Barr, 93 F.Supp. 589 (E.D. Mich. 1950); Tennessee Products Corp. v. Warner, 39 F.2d 200 (M.D. Tenn. 1929).
Notes following Fed.R.Civ.P. 13.
This view is desirable. If the plaintiff's claim satisfies the jurisdictional amount requirement, it would appear to be unnecessary to satisfy the requirement as to the amount in controversy between the parties a second time. In fact, to insist that the defendant's claim meet this requirement defeats one of the reasons for imposing a jurisdictional minimum since the defendant would have to sue on his claims in a separate action in a state court. Thus, the expenses of litigation would be increased.
That the defendant could not originally have brought suit on his claim in a federal court is immaterial. A plaintiff who is an assignee of several claims may aggregate them and sue in a federal court although his various assignors could not have sued in a federal court because their claims were less than the jurisdictional amount.
E.g., Tennent-Stribling Shoe Co. v. Roper, 94 F. 739 (5th Cir. 1899); Bowden v. Burnham, 59 F. 752 (8th Cir. 1894).
Even if a counterclaim which does not arise out of the transaction that is the subject matter of the action must satisfy the jurisdictional amount requirement, the court should aggregate the sum or value of the defendant's claim with the sum or value of the plaintiff's claim in order to determine the amount in controversy between the parties. However, this should only be done where the court already has jurisdiction of the plaintiff's claim; it should not be done in order to give the court jurisdiction of the plaintiff's claim because this would increase the number of cases in the federal courts. Where the court already has jurisdiction of the plaintiff's claim, aggregating the claims would not frustrate the purpose of the jurisdictional amount requirement because the amount in controversy does not depend on the size of each separate claim.
Some cases indicate that the counterclaim must satisfy the amount requirement without indicating how the amount in controversy between the parties should be determined. Cusimano v. Falciglia, 6 F.R.D. 586 (S.D.N.Y. 1947). In some cases the court holds that the counterclaim is defective because there is no allegation in regard to the jurisdictional amount Markus v. Dillinger, 191 F.Supp. 732 (E.D.Pa. 1961); Nye Rubber Co. v. V. R. P. Rubber Co., 81 F.Supp. 635 (N.D.Ohio 1948); Jewish Consumptive's Relief Soc. v. Rothfeld, 9 F.R.D. 64 (S.D.N.Y. 1957).
The defendant's claim should not be subtracted from the plaintiff's claim because jurisdiction does not depend on the amount of the final judgment and the defendant's claim adds to rather than decreases the amount in controversy. Keyser v. Lyons Finance Service, Inc., 88 F. Supp. 816 (E.D.Pa. 1950). This is also true where there is a compulsory counterclaim. Pickham v. Wheeler-Bliss Mfg. Co., 77 F. 663 (7th Cir. 1897). But see Home Life Ins. Co. v. Sipp, 11 F.2d 474 (2d Cir. 1926).
E.g., Goldstone v. Payne, 94 F.2d 855 (2d Cir. 1938) (compulsory counterclaim). Several cases hold that jurisdiction can be based on the amount in a counterclaim when the counterclaim alone satisfies the jurisdictional requirement. Roberts Mining Milling Co. v. Schrader, 95 F.2d 522 (9th Cir. 1938) (compulsory counterclaim); Ginsburg v. Pac. Mut. Life Ins. Co., 69 F.2d 97 (2d Cir. 1934) (compulsory counterclaim). Cf. Sachs v. Sachs, 265 F.2d 31 (3d Cir. 1959). In removal cases, most courts hold that jurisdiction cannot be based on the amount claimed in a counterclaim although it exceeds the jurisdictional minimum. E.g., Rudder v. Ohio State Life Ins. Co., 208 F.Supp. 577 (E.D.Ky. 1962) (compulsory counterclaim).
Some courts permit a defendant to aggregate his claim and the plaintiff's claim to satisfy the jurisdictional amount requirement where the court already has jurisdiction of the plaintiff's claim although other cases hold that the defendant's claim must involve the jurisdictional amount without regard to the amount in the plaintiff's claim.
Central Commercial Co. v. Jones-Dusenbury Co., 251 F. 13 (7th Cir. 1918) (amount of defendant's claim not clear); Keyser v. Lyons Finance Service, Inc., 88 F.Supp. 816 (E.D. Pa. 1950).
Allstate Ins. Co. v. Valdez, 29 F. R.D. 479 (E.D.Mich. 1962); West Coast Tanneries, Ltd. v. Anglo-American Hides Co., Inc., 20 F.R.D. 166 (S.D.N.Y. 1957); Robinson Bros. Co. v. Tygart Steel Products Co., Inc., 9 F.R.D. 468 (W.D.Pa. 1949).
If a counterclaim must independently satisfy the jurisdictional amount requirement, each claim does not have to separately satisfy this requirement. Thus, if the answer contains several claims, they may be aggregated. In McKnight v. Halliburton Oil Well Cementing Co. the court aggregated the amounts claimed in a compulsory and a permissive counterclaim.
20 F.R.D. 563 (N.D.W.Va. 1957).
Set-off. It has been stated that a set-off does not have to meet the jurisdictional requirements, but that it may be pleaded only to defeat or reduce the plaintiff's recovery. The defendant cannot recover an affirmative judgment. However, it is not clear if this reference is to set-off at law, which has been defined as being a liquidated claim arising out of a contract or judgment, or to equitable set-off.
3 Moore, Federal Practice ¶ 13.19 (2d ed. 1948).
Id. at ¶ 13.02 n. 1.
Few cases have discussed this question. In one, where the defendant's claim was liquidated and arose out of a contract, the court held that the jurisdictional requirements must still be satisfied. In an earlier case, Marks v. Spitz, the United States District Court for the District of Massachusetts held that a set-off is a claim that is liquidated or capable of liquidation arising out of a contract or judgment and that it must be used defensively. The court pointed out that this is the Massachusetts law, but it did not indicate what result it would have reached if the Massachusetts law had been different. Another case, permitted a defendant to use defensively a claim that was not liquidated and did not arise out of a contract.
Robinson Bros. Co. v. Tygart Steel Products Co., Inc., 9 F.R.D. 468 (W.D.Pa. 1949). See Cleveland Eng. Co. v. Gallon Dynamic Motor Truck Co., 243 F. 405, 407 (N.D. Ohio 1917).
4 F.R.D. 348 (D.Mass. 1945). Accord, Fraser v. Astra S.S. Corp., 18 F.R.D. 240 (S.D.N.Y. 1955) (alternative ground). See Kaiser Aluminum Chem. Sales, Inc. v. Ralston Steel Corp., 25 F.R.D. 23 (N.D.Ill. 1959) (dictum). In McGovern v. Martz, 182 F.Supp. 343, 349 (D.D.C. 1960), there is dictum to the effect that both claims must be liquidated.
United States v. Dovolis, 105 F. Supp. 914 (D.Minn. 1952).
In Central Commercial Co. v. Jones-Dusenbury Co., 251 F. 13 (7th Cir. 1918), set-off was allowed although the defendant's claim was not liquidated, but the amount of his claim is not clear.
In England, by statute, a defendant could plead a set-off only where both plaintiff's and defendant's claims were liquidated or arose out of contract or judgment. In some states a set-off must be a claim arising out of a contract or judgment, and it can be pleaded only in an action on a contract. It is not necessary that either claim be liquidated, and the defendant may recover a judgment for the excess if his claim exceeds the plaintiff's claim. In other states a set-off may be a cause of action for money, arising out of either a tort or a contract, and it may be pleaded in any action for the recovery of money. Also, it is not necessary that the claim be liquidated, and the defendant may recover a judgment for the excess if his claim is larger than the plaintiff's.
Clark, Code Pleading 636 (2d ed. 1947).
E.g., 12 Okla. Stat. 1961 §§ 274[ 12-274] and 699.
Arkansas Statutes §§ 27-1125 and 29-112 (1962).
If a set-off is an exception to the rule that a permissive counterclaim must independently satisfy the federal jurisdictional requirements, there is nothing to indicate which definition of set-off should be used. It is believed that the law of the forum should not be used because the jurisdiction of the federal courts should be the same in every state. Also, the various definitions of set-off were developed independently of and without regard for the federal jurisdictional requirements. Moreover, there is nothing in either Title 28 of the United States Code or the Federal Rules which would indicate that a set-off should be recognized in the federal courts for any purpose. Therefore, the power of the federal courts to hear claims that do not satisfy the jurisdictional requirements should be determined by what is necessary to protect the defendant and facilitate the administration of justice in light of the statutory limitations on the jurisdiction of the federal courts rather than by the use of an antiquated concept of set-off.
Should a plaintiff bring an action for a money judgment against a defendant who has a claim for a money judgment against the plaintiff, the defendant may be required to satisfy a judgment in favor of the plaintiff and then be unable to collect on his claim if he cannot plead his claim in the plaintiff's action. Therefore, the defendant's claim should be deemed to be within the ancillary jurisdiction of the court because one of the purposes of ancillary jurisdiction is to protect the parties from prejudice. The possibility of injury to the defendant exists whether his claim arise out of contract or tort and whether it is liquidated or unliquidated. If a defendant may plead as a set-off a liquidated claim that arises out of contract, it is believed that the jurisdictional requirements will not be frustrated if the federal courts also hear an unliquidated claim arising out of either contract or tort. Also, if it is not necessary for the plaintiff's claim to be liquidated there seems to be no reason to impose such a limitation on the defendant's claim. The only limitation that should be imposed is that both claims should be for a money judgment.
Fraser v. Astra SS. Corp., 18 F. R.D. 240 (1955).
Once it is recognized that a court has jurisdiction of part of a defendant's claim it would seem that it must have jurisdiction of the whole claim, although the defendant's claim is larger than the plaintiff's, because one of the purposes of ancillary jurisdiction is to prevent piecemeal litigation of claims. Assuming jurisdiction of the whole claim would prevent the need for a subsequent suit to recover the balance due or the loss of the remainder of the claim, should a state court bar a subsequent action. Moreover to hold that a court has jurisdiction only to the extent that the defendant's claim defeats plaintiff's recovery means that the extent of the court's jurisdiction is not determined until the verdict is returned. But if ancillary jurisdiction exists at all, it exists from the beginning of the action, and it continues regardless of the disposition that is made of the main claim. Thus, the court's jurisdiction should not depend on the plaintiff's recovery, but the court should render an affirmative judgment for the defendant if the verdict on his claim exceeds the plaintiff's verdict.
1 Barron Holtzoff, Federal Practice and Procedure 94 (Wright ed. 1960).
See Restatement, Judgments § 57, Comment (a) (1942).
Dery v. Wyer, 265 F.2d 804, 808 (2d Cir. 1959) (third-party action).
If a court has jurisdiction of part of the defendant's claim, the burden on the federal court would not be increased by permitting the court to hear the whole claim because no new issues would be involved.
If a plaintiff should bring an action for a money judgment, the defendant should be allowed to plead any claim for a money judgment that he may have against the plaintiff although his claim does not satisfy the jurisdictional requirements. It should be immaterial whether the claims are in contract or tort, liquidated or unliquidated. Also, the court should have jurisdiction of the defendant's whole claim so that it may render an affirmative judgment for the defendant if his claim exceeds the plaintiff's claim.
New Parties on Counterclaims. Federal Rule 13(h) provides that a person whose presence "is required for the granting of complete relief in the determination of a counterclaim" may be made a party to the action if his joinder "will not deprive the court of jurisdiction of the action."
The phrase "required for the granting of complete relief" refers to persons whose presence would facilitate a settlement of the various claims which arise out of the transaction or occurrence that is the subject matter of the counterclaim, whether the counterclaim is compulsory or permissive. In Value Line Fund, Inc. v. Marcus the court held that Rule 13(h) should not be interpreted by reference to Rule 19 because the purpose of the two rules is different. Therefore, the distinctions between indispensable, necessary, and proper parties should not be applied to Rule 13(h). However, a claim against a person whose presence is required for the granting of complete relief may have to meet the jurisdictional requirements. Whether or not it comes within the ancillary jurisdiction of the court depends, according to most of the cases, on whether the counterclaim is permissive or compulsory. If the counterclaim arose out of the transaction or occurrence which is the subject matter of the principal action, the claim against the new party is within the ancillary jurisdiction of the court, although he may be only a joint tortfeasor, but if the counterclaim is unrelated to the principal action, the claim against the new party must meet the jurisdictional requirements.
E.g., Union Paving Co. v. Downer Corp., 276 F.2d 468 (9th Cir. 1960) (compulsory); Norge Sales Corp. v. G. W. Distributing Co., Inc., 206 F.Supp. 827 (N.D.Ohio 1962) (permissive); Electronic Detection Prod., Inc. v. Chapin, 26 F. R.D. 121 (D.Mass. 1959) (compulsory). Contra: Kuhn v. Yellow Transit Freight Lines, 12 F.R.D. 252 (E.D.Mo. 1952). In Edwards v. Rogers, 120 F.Supp. 499 (E.D.S.C. 1954), the court held that a joint tortfeasor could not be brought into the action under Rule 13(b) but that he could be brought in under Rule 19(b).
161 F.Supp. 533 (S.D.N.Y. 1958).
Markus v. Dillinger, 191 F.Supp. 732 (E.D.Pa. 1961). This case reached a questionable result. Although a new party was properly brought into the action as a defendant to a compulsory counterclaim, the defendant was not allowed to assert a permissive counterclaim against him.
E.g., United Artists Corp. v. Masterpiece Productions, Inc., 221 F.2d 213 (2d Cir. 1955).
E.g., Non-Ferrous Metals, Inc. v. Saramar Aluminum Co., 25 F.R.D. 102 (N.D.Ohio 1960).
These rules are clear and easy to apply. Yet, that alone does not prove their validity. Therefore, some discussion of them is appropriate. If a person is an indispensable party to a counterclaim which arose out of the transaction or occurrence that is the subject matter of the principal claim, he should be deemed to be within the ancillary jurisdiction of the court or the court would be unable to adjudicate the counterclaim. However, if a new party is not indispensable, the court is not limited to either treating him as within their ancillary jurisdiction or dismissing the counterclaim. It has a third choice: it can hear the counterclaim but not allow the new party to be brought into the action. The joinder of such a party would facilitate the settlement of a claim that arose out of the transaction that is the subject matter of the action, but the policy in favor of settling all such claims at one time does not always override the jurisdictional requirements of the federal courts. A plaintiff cannot join a nondiverse joint tortfeasor in an action against a tortfeasor who is of diverse citizenship. Should a defendant be allowed to assert a counterclaim against a person whom he could not have joined as a party to the action if he had sued as a plaintiff? The Moore case does not authorize the bringing in of such a party. It only authorizes the settlement of all claims that arise out of one transaction or occurrence and are asserted against persons who are already parties to the action.
Carter Oil Co. v. Wood, 30 F. Supp. 875 (E.D.Ill. 1940). But see Myers v. Mutual Life Ins. Co., 12 F.R.D. 447 (N.D.Mo. 1952).
Dewey v. West Fairmont Gas Coal Co., 123 U.S. 329, 8 S.Ct. 148, 31 L.Ed. 179 (1887), is not relevant because the new party was not liable on the counterclaim, but he was brought in to protect and effectuate any judgment which the defendant may recover.
In one case the court held that a joint tortfeasor is only a permissive party. Therefore, he could not be brought in as a new party on a compulsory counterclaim unless the jurisdictional requirements are satisfied.
McNaughton v. New York Cent. R. R., 220 F.2d 835 (7th Cir. 1955).
Where a counterclaim is unrelated to the principal action, a new party must independently satisfy the federal question or diversity requirement, but the requirement concerning jurisdictional amount presents more difficulty. If the counterclaim and the original claim may be aggregated in order to satisfy this requirement so far as the counterclaim itself is concerned, may the claims be aggregated in order to satisfy the requirement so far as the new party is concerned? An amount that will permit the defendant to assert a counterclaim against the plaintiff should also be sufficient to support jurisdiction of the new party because bringing him in will not increase the number of cases which are brought in the federal courts. However, this problem has not been discussed in the cases.
If a set-off may only be pleaded defensively, it is doubtful if the defendant should be allowed to bring in a new party defendant on a set-off. If, however, the defendant may recover an affirmative judgment on a set-off, he should be allowed to bring in a party who is liable on the set-off provided that there is diversity or a federal question.
Cross-claims. Federal Rule 13(g) permits a defendant to assert a claim against a co-defendant if the claim arose out of the transaction or occurrence that is the subject matter of the original action, if the claim relates to property that is the subject matter of the original action, or if the claim asserts a right to contribution or indemnity for what the cross-claimant may have to pay the plaintiff. Some courts apparently consider that any claim allowed under Rule 13(g) is ancillary so they discuss the question of whether a particular claim is within the scope of the federal rule rather than determine if it is ancillary.
Atlantic Corp. v. United States, 311 F.2d 907 (1st Cir. 1963). The forms suggest that all cross-claims may not be ancillary because it states that a cross-claim need not state the grounds upon which a court's jurisdiction depends unless the cross-claim requires independent grounds of jurisdiction. Fed.R.Civ.P. Form 20.
In determining if a cross-claim is ancillary, the parties will be aligned according to their actual interest. If a defendant is realigned as a plaintiff, his claim must satisfy the jurisdictional requirements. Also, a claim by one of the original plaintiffs against another original plaintiff is not within the ancillary jurisdiction of the court.
Farr v. Detroit Trust Co., 116 F. 2d 807 (6th Cir. 1941).
Danner v. Anskis, 256 F.2d 123 (3d Cir. 1958).
A cross-claim which arises out of the transaction or occurrence that is the subject matter of the original action is within the ancillary jurisdiction of courts because it involves facts that are already subject to the jurisdiction of the court. This avoids the time and expense of a second suit as well as the possibility that a second decision will be inconsistent with the first. A cross-claim is ancillary although it does not affect the plaintiff's claim and although the cross-claimant is not required to plead it as a cross-claim. The only difficulty has been in determining when a claim arises out of the same transaction or occurrence as the plaintiff's claim.
Glens Falls Indemnity Co. v. United States, 229 F.2d 370 (9th Cir. 1956); Collier v. Harvey, 179 F.2d 664 (10th Cir. 1949). Ancillary jurisdiction of cross-claims existed before the adoption of the federal rules. Craig v. Dorr, 145 F. 307 (4th Cir. 1906).
If the same issues of fact would determine both claims, they arise out of the same transaction or occurrence, but if the proof of one claim would have no connection with the proof of the other, the claims do not arise out of the same transaction or occurrence.
Collier v. Harvey, supra note 46. In Shapiro v. Gulf, M. O. R. R., 256 F.2d 193 (7th Cir. 1958), the court held that the cross-claim was not ancillary to the issues in the principal action. This is incorrect because each claim required the court to determine the negligence of each defendant. However, the result is correct because the court did not have original jurisdiction of the individual defendant.
Hoosier Cas. Co. v. Fox, 102 F. Supp. 214 (N.D.Iowa 1952).
Even where the cross-claim relates to property that is the subject matter of the original action, the cross-claim must be related to the original claim. Thus, a cross-claim is not within the ancillary jurisdiction of the court where it does not affect the original claim or where it is not necessary to decide it in order to decide the original claim. When a fund which is deposited in court is claimed by the plaintiff and by the cross-claimant, the cross-claim is within the ancillary jurisdiction of the court.
Pettyjohn v. Pettyjohn, 192 F.2d 322 (8th Cir. 1951). See Coastal Air Lines, Inc. v. Dockery, 180 F.2d 874 (8th Cir. 1950), where both claims contained common questions of fact.
R. M. Smythe Co. v. Chase Nat. Bank, 291 F.2d 721 (2d Cir. 1961). See Atlantic Corp. v. United States, 311 F.2d 907 (1st Cir. 1963).
If the cross-claimant is asserting a right to contribution or indemnity for all or part of a claim that is being asserted against him, the cross-claim is ancillary because it arises out of the same facts as the original claim. Also, the claim is deemed to be ancillary in order to facilitate the collection of any judgment that is rendered against the cross-claimant.
Cf. Dery v. Wyer, 265 F.2d 804 (2d Cir. 1959) (third-party claim).
Childress v. Cook, 245 F.2d 798, 805 (5th Cir. 1957).
Federal Rule 13(h) authorizes the bringing in of a new party on a cross-claim. Since a cross-claim must arise out of the transaction or occurrence that is the subject matter of the action, it is analogous to a compulsory counterclaim. Therefore, the rules in regard to the ancillary jurisdiction of the court should be similar for both kinds of claims. As indicated earlier, most cases hold that a new party on a compulsory counterclaim is within the ancillary jurisdiction of the court so that a person who is brought into an action on a cross-claim should also be within the ancillary jurisdiction of the court.
Third-Party Claims
Federal Rule 14 authorizes a defendant to bring into an action a person who is liable to him for what he may be liable to the plaintiff. This new party, or third-party, may plead defenses and counterclaims against the defendant, and he may assert any claims against the original plaintiff that arise out of the transaction that is the basis of the action. Also, the plaintiff may plead claims against the third-party defendant that arise out of the transaction or occurrence that is the subject matter of the plaintiff's claim against the original defendant. Unfortunately, the courts have had difficulty determining which of these claims are ancillary to the plaintiff's claim and which must independently satisfy the jurisdictional requirements.
Defendant vs. Third-Party Defendant. Most of the cases hold that a defendant's claim against a third-party defendant is within the ancillary jurisdiction of the federal courts. Since a court has jurisdiction over the facts which constitute the plaintiff's claim, it has jurisdiction to determine a third-party claim arising out of those facts. Also, a court has jurisdiction of a third-party claim in order to facilitate the collection of the principal decree and to prevent it from working an injustice on the defendant.
E.g., Pennsylvania R. R. v. Erie Avenue Warehouse Co., 302 F.2d 843 (3d Cir. 1982). Prior to the adoption of the federal rules most of the cases reached the opposite result. Galveston, Harrisburg San Antonio R. Co. v. Hall, 70 F.2d 608 (5th Cir. 1934).
Dery v. Wyer, 265 F.2d 804 (2d Cir. 1959). Accord, Glens Falls Indemnity Co. v. United States, 229 F.2d 370 (9th Cir. 1956).
Pennsylvania R. R. v. Erie Avenue Warehouse Co., 302 F.2d 843 (3d Cir. 1962); Childress v. Cook, 245 F.2d 798, 805 (5th Cir. 1957) (cross-claim).
May a defendant assert a claim for damages against a third-party defendant for injuries which he received in the transaction or occurrence that is the basis of the plaintiff's action? Federal Rule 14 does not specifically authorize the assertion of such a claim. It only permits the defendant to assert a claim against a person who is liable to the defendant for all or part of the plaintiff's claim against him. However, a defendant has been allowed to assert a claim against a third-party defendant where a plaintiff requested a determination that he was not liable to the defendant.
American Fidelity Cas. Co. v. Greyhound Corp., 232 F.2d 89 (5th Cir. 1956). Cf. United States v. Paraffin Wax, 2255 Bags, 141 F. Supp. 402 (E.D.N.Y. 1956). See Note, 11 Okla. L. Rev. 330 (1958).
Some cases hold that a defendant may not assert a claim for his own injuries under Rule 14 as it now stands. Therefore, it is believed that the rule should be amended so as to allow such a claim to be asserted because the purpose of Rule 14 is to avoid the cost of two actions involving the same evidence. Should such an amendment be made, would a defendant's claim for his own damages have to independently meet the jurisdictional requirements? There is at least as much reason for treating such a claim as ancillary as there is for treating a claim for contribution or indemnity as ancillary because both claims grow out of the same core of facts.
E.g., Geborek v. Briggs Transportation Co., 139 F.Supp. 7 (N.D. Ill. 1956).
Dery v. Wyer, 265 F.2d 804 (2d Cir. 1959).
Ibid.
If a defendant asserts a claim against a third-party defendant for contribution or indemnity, the defendant should be able to join with this claim a claim for damages for injuries which he received in the same transaction or occurrence. Since the third-party defendant is properly in the action, the original defendant should be able to plead all claims that arise out of the same transaction or occurrence in order to prevent several suits between the same parties on the same facts. Such joinder has been allowed in at least one case. Third-Party Defendant vs. Third-Party Plaintiff. The third-party defendant may plead his defenses and counterclaims against the original defendant, the third-party plaintiff. His defenses and compulsory counterclaims are deemed to be ancillary, but permissive counterclaims must independently satisfy the requirement that there be a federal question or diversity.
Noland Co. v. Graver Tank Mfg. Co., 301 F.2d 43 (4th Cir. 1962). Contra: C. W. Humphrey Co. v. Security Aluminum Co., 31 F.R.D. 41 (E.D.Mich. 1962); United States v. Scott, 18 F.R.D. 324 (S.D. N.Y. 1955).
Third-Party Defendant vs. Plaintiff. The third-party defendant may assert against the original plaintiff any defenses which the original defendant has to the plaintiff's claim. Such defenses are within the ancillary jurisdiction of the court.
Federal Rule 14 also provides that a third-party defendant may plead any claim against the plaintiff that arises out of the transaction or occurrence that is the subject matter of the plaintiff's claim against the defendant. The few cases on the subject have split as to whether such a claim falls within the ancillary jurisdiction of the courts or whether it requires independent jurisdiction. It is believed that it should be ancillary because it arises out of a transaction or occurrence that is already subject to the jurisdiction of the court and it is between persons who are already parties to the action. Therefore, hearing this claim will not increase the burden on the court and will not frustrate the purpose for imposing jurisdictional requirements. Since the parties and the issues are already before the court, the situation is substantially the same as in the Moore case. Technically, the original plaintiff and the third-party defendant may not be opposing parties, but if the plaintiff does not recover from the original defendant, the third-party defendant is not liable.
Claim allowed: Heintz Co., Inc., v. Provident Tradesmens Bank Trust Co., 30 F.R.D. 171 (E.D.Pa. 1962); Bernstein v. N. V. Nederlandsche — Amerikaansche Stoomvaart-Maatschappij, 9 F.R.D. 557 (S.D.N.Y. 1949). Disallowed: James King Son, Inc. v. Indemnity Insurance Co., 178 F.Supp. 146 (S.D.N.Y. 1959); United States v. Raefsky, 19 F.R.D. 355 (E.D.Pa. 1956); Shverha v. Maryland Cas. Co., 110 F.Supp. 173 (E.D.Pa. 1953). In the James King case the court made the irrelevant statement that such a claim should not be allowed because the third-party defendant could not assert such a claim in the state courts. In the Shverha case the court suggested that a third-party defendant's claim could be used defensively to reduce the plaintiff's recovery. In the Raefsky case it does not appear that the third-party's claim against the plaintiff arose out of the transaction that was the basis of the plaintiff's claim. See Note, 62 Colum. L. Rev. 1513 (1962); Note, 11 Okla. L. Rev. 326 (1958). Cases which were decided prior to the amendment of Rule 14 in 1946 are not relevant because prior to 1946 a third-party defendant could not assert a claim against the plaintiff until the plaintiff asserted a claim against him. Morris, Wheeler Co. Inc. v. Rust Engineering Co., 4 F.R.D. 307 (D.Del. 1945).
Dery v. Wyer, 265 F.2d 804 (2d Cir. 1959).
It has been stated that a claim by a third-party defendant against the plaintiff must meet the jurisdictional requirements because the claim by a plaintiff against a third-party defendant must satisfy the jurisdictional requirements. However, it is not believed that this conclusion is inevitable because the position of the parties is different. The third-party defendant was brought into the action involuntarily whereas the plaintiff initiated the proceeding. Therefore, the third-party defendant's claim should be deemed to be ancillary although the plaintiff may have to satisfy the jurisdictional requirements in order to assert a claim against the third-party defendant. Nevertheless, as will be discussed, it is not believed that a plaintiff's claim against a third-party defendant must satisfy the jurisdictional requirements.
3 Moore, Federal Practice ¶ 14.28 [2] (2d ed. 1948).
Plaintiff vs. Third-Party Defendant. Federal Rule 14 permits the original plaintiff to assert against the third-party defendant any claim which arises out of the transaction or occurrence that is the subject matter of the plaintiff's claim against the original defendant. However, the cases hold that such a claim may be asserted only if the jurisdictional requirements are met. Two arguments to support this position are made.
E.g., Pasternack v. Dalo, 17 F.R. D. 420 (W.D.Pa. 1955); Welder v. Washington Temperance Ass'n, 16 F.R.D. 18 (D.Minn. 1954). Contra: Myer v. Lyford, 2 F.R.D. 507 (M.D. Pa. 1942); Sklar v. Hayes. 1 F.R.D. 594 (E.D.Pa. 1941). In United States for the Use and Benefit of Claussen-Olson-Brenner Inc. v. Doolittle Construction, Inc., 195 F.Supp. 537 (D.Neb. 1961), plaintiff's claim against the subcontractor was, in effect, a claim by a plaintiff against a third-party defendant. The court had ancillary jurisdiction of this claim because of the "cross-claim".
Prior to the amendment of Federal Rule 14 in 1946 a defendant could bring in a third-party who was liable only to the plaintiff. However, the plaintiff could not assert a claim against the third-party unless the jurisdictional requirements were satisfied. Friend v. Middle Atlantic Transp. Co., 153 F.2d 778 (2d Cir. 1916). Accord McPherson v. Hoffman, 275 F.2d 466 (6th Cir. 1960). But see Malkin v. Arundel Corp., 36 F.Supp. 948 (D.Md. 1941). Those cases should be distinguished from one where the defendant asserts a claim aginst the third-party defendant.
If there is no diversity between the plaintiff and the third-party defendant, the plaintiff could not have joined him as a defendant. Therefore, the plaintiff should not be allowed to assert a claim against him after he is brought into the action by the defendant because the plaintiff would be doing indirectly what he cannot do directly. Also, it is argued, the third-party defendant may have been made a party to the action as a result of collusion between the plaintiff and the defendant.
The objection that the plaintiff is doing indirectly what he cannot do directly is without merit because he does not bring the third-party defendant into the action. The plaintiff can assert a claim against the third-party defendant only if the original defendant should bring him into the action. Moreover, a party may frequently use one joinder procedure although another is not available to him. Thus, a party who is dropped as a plaintiff because his presence prevents the existence of complete diversity may intervene.
E.g., Drumright v. Texas Sugarland Co., 16 F.2d 657 (5th Cir. 1927).
That there may be collusion between the original parties in some cases should not prevent plaintiffs from asserting claims against third-party defendants in all cases. The courts should only dismiss the claim where collusion actually exists. Moreover, the possibility of collusion has diminished since the amendment of Rule 14 in 1946. Now a defendant cannot bring in a third-party who is liable only to the plaintiff; the defendant must assert his own claim against him. Where the defendant pleads such a claim, his motive for asserting it in the original action instead of in a separate action should be immaterial. In other instances federal jurisdiction may be created by an intentional act of one party.
Cf. Farr v. Detroit Trust Co., 116 F.2d 807 (6th Cir. 1941).
E.g., Corabi v. Auto Racing, Inc., 264 F.2d 784 (3d Cir. 1959). See Rice v. Houston, 13 Wall. 66, 21 L. Ed. 484 (U.S. 1871).
To hold that a plaintiff may assert a claim against a defendant and in the same action the defendant may recover from a third-party what he must pay to the plaintiff but that the plaintiff cannot directly assert a claim against the third-party after he has been brought into the action emphasizes form over substance. Once a third-party defendant is brought into an action the court should be able to settle all claims arising out of the transaction that is the basis of the action, and it should be immaterial which party asserts the claim because the desirability of avoiding piecemeal litigation of disputes is as great whether the claim is asserted by a defendant or by a plaintiff. The parties and the facts are already before the court so that the burden on the court will not be increased by holding that the plaintiff's claim against the third-party defendant is ancillary.
The incongruity of the present rule is illustrated by the holding that a plaintiff may assert a claim arising out of the transaction or occurrence that is the basis of the principal claim against a nondiverse party who is brought into an action by a defendant on a counterclaim, but that the plaintiff cannot assert such a claim against a nondiverse party who is brought into the action by a defendant on a third-party claim.
Southwest Lime Co. v. Lindley, 12 F.R.D. 484 (W.D.Ark. 1952).
Judge Holtzoff, one of the leading writers in the field of federal practice, has stated:
"it would seem, perhaps, that a separate basis for jurisdiction and venue should not be needed to justify the assertion of the plaintiff's claim as against a third party defendant. The prevailing view is, however, to the contrary. This attitude from a practical standpoint, may lead to failure of justice in some cases. Some of the beneficial aspects of third-party practice may be frustrated. As a matter of theory and logic, it would seem reasonable to hold that a third-party claim is ancillary and auxiliary to the main suit for all purposes, and not only as between the third-party plaintiff and the third-party defendant."
Holtzoff, Entry of Additional Parties in a Civil Action, 31 F.R.D. 101, 110 (1962). Accord, 1A Barron Holtzoff § 424 (1962 Supp.). See Note, 5 Okla. L. Rev. 490 (1952).
Should the plaintiff assert a claim against a third-party defendant, the third-party defendant must assert his defenses and compulsory counterclaims against the plaintiff, and he may assert his permissive counterclaims against the plaintiff. The defenses and compulsory counterclaims are ancillary, but the permissive counterclaims must be diversity.
Intervention
Federal Rule 24 authorizes intervention as a matter of right and permissive intervention. However, it is not always easy to determine which type of intervention is involved.
Clark v. Sandusky, 205 F.2d 915 (7th Cir. 1953); Glens Falls Ins. Co. v. Cook Bros., Inc., 23 F.R.D. 269 (S.D.Ind. 1959).
Subsection (a) provides that a person may intervene as a matter of right where there is statutory authorization for intervention or where a party may be prejudiced because the action involves property or issues in which he is interested. Such intervention is properly deemed to be ancillary so that the intervenor's claim does not need to satisfy the jurisdictional requirements.
E.g., Kozak v. Wells, 278 F.2d 104 (8th Cir. 1960); Drumright v. Texas Sugarland Co., 16 F.2d 657 (5th Cir. 1927).
Subsection (b) provides for permissive intervention where a statute gives a conditional right to intervene or where the intervenor's claim and the principal action contain common questions of law or fact. The intervenor is not prejudiced if he is not allowed to intervene; he is intervening for his own convenience. However, allowing him to intervene will prevent a subsequent suit involving the same facts. Nevertheless, most cases hold that the intervenor's claim is not ancillary so that the jurisdictional requirements must be satisfied.
E.g., Hunt Tool Co. v. Moore, Inc., 212 F.2d 685 (5th Cir. 1954). Contra: Berman v. Herrick, 30 F. R.D. 9 (E.D.Pa. 1962). See Northeast Clackamas County Elec. Coop, v. Continental Cas. Co., 221 F.2d 329 (9th Cir. 1955).
Usually, where intervention is based on the existence of common issues of law or fact, the intervenor is asserting a claim against the defendant. Since he is, in effect, another plaintiff, he should not be allowed to intervene if he could not originally have joined with the plaintiff for the purpose of bringing the action.
See Johnson v. Riverland Levee Dist., 117 F.2d 711 (8th Cir. 1941).
Some cases hold that where a number of claims arise out of a transaction or occurrence and some claimants sue for themselves and others, the other claimants may intervene although they do not independently satisfy the statutory jurisdictional requirements. However, the cases are divided, and the rule has been criticized in the legal literature.
Amen v. Black, 234 F.2d 12 (10th Cir.), cert. granted to determine jurisdictional question, 352 U.S. 888, 77 S.Ct. 127, 1 L.Ed.2d 84 (1956), remanded because of settlement, 355 U.S. 600, 78 S.Ct. 530, 2 L.Ed. 2d 523 (1958); Shipley v. Pittsburgh L. E. R. Co., 70 F.Supp. 870 (W.D.Pa. 1947) (24 plaintiffs and 58 intervenors). See Mutation Mink Breeders Association v. Lou Nierenberg Corp., 23 F.R.D. 155, 162 (S.D.N.Y. 1959).
Gentry v. Hibernia Bank, 154 F. Supp. 62 (N.D.Cal. 1956) (2 plaintiffs and 59 intervenors); Wagner v. Kemper, 13 F.R.D. 128 (W.D.Mo. 1952); Keavy v. Anthony, 2 F.R.D. 19 (D.R.I. 1941) (alternative ground; one plaintiff and 21 intervenors). See Hackner v. Guaranty Trust Co., 117 F.2d 95 (2d Cir. 1941). In McGrath v. Tadayasu Abo, 186 F.2d 766 (9th Cir. 1951), the court found that independent jurisdictional grounds existed although it did not state that they were required.
Hart Wechsler, The Federal Courts the Federal System 937 (1953) ("so hold an enlargement of federal jurisdiction"); Kalven Rosenfield, The Contemporary Function of the Class Suit, 8 U.Chi. L. Rev. 684, 704 (1941) ("probably unsound"); Note, 58 Columb. L. Rev. 548, 560 (1958); Note, 64 Harv. L. Rev. 968, 975 (1951) ("a distinction which is based simply on the potential number of lawsuits which may ensue seems untenable"). But see 4 Moore, Federal Practice ¶ 24.18 (2d ed. 1948).
That a number of claims arise out of one transaction or occurrence has not caused the courts to modify the requirements for the original joinder of parties plaintiff. Therefore, it is questionable if persons who could not join as plaintiffs should be allowed to intervene. To permit this would open the door to collusion between the original plaintiffs and the interveners. On the other hand, intervention would prevent the need for subsequent suits on the same facts, thus reducing the burden of litigation on the witnesses and the courts. Nevertheless, it is believed that intervention should be allowed only if a substantial number of claimants satisfy the statutory jurisdictional requirements; one claimant should not be able to open the doors of the federal courts to a number of other claimants. Should a large number of claimants meet the jurisdictional requirements, a few claimants who do not meet them could be deemed to be within the ancillary jurisdiction of the court.
Gentry v. Hibernia Bank, 154 F. Supp. 62 (N.D.Cal. 1956).
Ibid.
Cf., Yuba Consolidated Gold Fields v. Kilkeary, 206 F.2d 884 (9th Cir. 1953) (bill of peace).
Conclusion
It has been stated that the doctrine of ancillary jurisdiction is the child of necessity and the sire of confusion. The prior discussion illustrates the significance of this statement. Logically, it would seem that all claims which arise out of the transaction or occurrence that is the basis of the plaintiff's action and which are asserted against persons who are already parties to the action would be included within the ancillary jurisdiction of a court, but that the courts would be hesitant to bring in a new person as a party to an action where the statutory jurisdictional requirements are not satisfied. However, the cases do not reach such a result.A new party may be brought in on a compulsory counterclaim, a cross-claim or a third-party claim although the jurisdictional requirements are not met. On the other hand, a plaintiff cannot assert a claim which arises out of the transaction or occurrence that is the basis of the principal claim against a third-party defendant unless the statutory requirements are met. Also, some cases hold that a third-party defendant cannot assert a claim which is similarly related to the principal claim against the original plaintiff unless the jurisdictional requirements are met. Holding that such claims are within the ancillary jurisdiction of the courts would facilitate the administration of justice and would not violate any statutory or Constitutional provisions. Therefore, it is believed that the federal courts should reanalyze the scope of their ancillary jurisdiction.