Tuesday, October 22, 2013

For Section 1367(b) Supplemental Jurisdiction, “Plaintiff” means “Original Plaintiff,” Not “Third-Party Plaintiff.”

The case of Allstate Interiors & Exteriors, Inc. v. Stonestreet Const., LLC, 2013 WL 5290028 (1st Cir. Sept. 20, 2013) involved the renovation and construction project of a hotel in Providence, Rhode Island (the “Project”).  Parallel proceedings were filed:
  • State Court: Mechanic’s lien proceedings brought against the Owner
  • Federal Court (diversity jurisdiction): Subcontractor vs. General Contractor
o   Counterclaim (Rule 13): General Contractor vs. Subcontractor
o   Third Party Claim (Rule 14) General Contractor vs. Owner (supplemental jurisdiction)

The General Contractor and Owner were non-diverse – both Rhode Island entities.  There was no dispute amongst the parties that supplemental jurisdiction initially applied to General Contractor’s claim against the Owner because the claims “‘“derive from a common nucleus of operative fact” or “are such that [they] . . . would ordinarily be expected to [be] tr[ied] . . . in one judicial proceeding.”’” Allstate, at *4 (quoting Penobscot Indian Nation v. Key Bank of Me., 112 F.3d 538, 564 (1st Cir. 1997).

The state court mechanic’s lien actions were settled while the federal action was pending.  Notably, the Subcontractor remained a party to the federal court action and the General Contractor did not release its counterclaim against the Subcontractor in the settlement. 

Owner moved to dismiss for lack of supplemental subject matter jurisdiction. To support its argument, Owner relied on 28 U.S.C. Section 1367(b) which “strips federal jurisdiction ‘over claims by plaintiffs against persons made parties under Rule 14, 19, 20, or 24 of the Federal Rules of Civil Procedure . . . when exercising supplemental jurisdiction over such claims would be inconsistent with the . . . requirements of [diversity jurisdiction].’” (Emphasis added.)  The Owner’s reading of Section 1367(b) construed the term “plaintiff” to mean any party that commences an action against another, including a “third party plaintiff.”  The Court rejected the Owner’s broad reading and affirmed the trial court’s denial of the motion finding valid supplemental jurisdiction.  The Court stated:

[W]e now hold that “plaintiff” in section 1367(b) refers to the original plaintiff in the action, and not to a defendant that is also a third-party plaintiff.  In so holding we join several other circuits that have come to the same conclusion. See State Nat’l Ins. Co. v. Yates, 391 F.3d 577, 580 (5th Cir. 2004); Grimes v. Mazda N. Am Operations, 355 F.3d 566, 572 (6th Cir. 2004); Viacom Int’l v. Kearney, 212 F.3d 721, 726-27 (2d Cir. 2000); United Capitol Ins. Co. v. Alpha Hous. & Health Care, Inc., 54 F.3d 156, 160-61 (3d Cir. 1995).  This holding is consistent with Congress’s intent that section 1367(b) should ‘prevent original plaintiffs – but not defendants or third parties – from circumventing the requirements of diversity.” Grimes, 355 F.3d at 572; see also United Capitol Ins. Co., 155 F.3d at 493 (“Because defendants are involuntarily brought into court, their joinders and impleaders were not deemed [by Congress] as suspect as those of the plaintiff, who is master of his complaint.”)

Allstate, at *4. 

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