Guaranteed Systems, Inc. v. American National Can Co.
842 F. Supp. 855 (1994)
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Rule of Law:
Under 28 U.S.C. § 1367(b), a federal court whose jurisdiction is based solely on diversity of citizenship cannot exercise supplemental jurisdiction over a claim brought by an original plaintiff against a non-diverse third-party defendant impleaded under Federal Rule of Civil Procedure 14, even when the plaintiff is acting in a defensive posture against a counterclaim.
Facts:
- Guaranteed Systems, Inc., a North Carolina corporation, performed construction work for American National Can Company ('National Can'), a Delaware corporation, at a facility in Georgia.
- Guaranteed Systems utilized a subcontractor, R.K. Elite-HydroVac Services, Inc. ('HydroVac').
- A dispute arose over payment for the construction work.
- National Can alleged that Guaranteed Systems had been negligent in the performance of its construction duties.
- Guaranteed Systems contended that if it were found liable for negligence, HydroVac would be liable to it for indemnity or contribution.
- For jurisdictional purposes, Guaranteed Systems and HydroVac are considered non-diverse parties.
Procedural Posture:
- Guaranteed Systems, Inc. filed a lawsuit against American National Can Company ('National Can') in the Superior Court of Rockingham County, a North Carolina state trial court.
- National Can, the defendant, removed the action to the United States District Court for the Middle District of North Carolina, the federal trial court, based on diversity jurisdiction.
- In federal court, National Can filed an answer and asserted a counterclaim against Guaranteed Systems, alleging negligence.
- In response to the counterclaim, Guaranteed Systems filed a third-party complaint under F.R.C.P. 14(b) against its subcontractor, R.K. Elite-HydroVac Services, Inc. ('HydroVac').
- HydroVac, the third-party defendant, filed a motion to dismiss the third-party complaint for lack of subject-matter jurisdiction.
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Issue:
Does a federal court have supplemental jurisdiction under 28 U.S.C. § 1367(b) over a third-party claim asserted by an original plaintiff, in response to a counterclaim, against a non-diverse third-party defendant when the court's subject-matter jurisdiction over the original action is based solely on diversity?
Opinions:
Majority - Bullock, Jr., J.
No. A federal court lacks supplemental jurisdiction under these circumstances. The plain language of 28 U.S.C. § 1367(b) explicitly prohibits federal courts in diversity-only cases from exercising supplemental jurisdiction over claims by 'plaintiffs' against persons made parties under Rule 14 where doing so would be inconsistent with the requirements of diversity jurisdiction. Although the legislative intent behind § 1367(b) and its predecessor doctrine from Owen Equip. & Erection Co. v. Kroger was to prevent plaintiffs from strategically circumventing diversity requirements, the statutory text itself contains no such motive-based exception. Here, Guaranteed Systems is the 'plaintiff' in the action, and it is asserting a claim against a non-diverse party joined under Rule 14. Even though the plaintiff did not choose the federal forum and is acting defensively in response to a counterclaim, the court is bound by the unambiguous text of the statute enacted by Congress and must dismiss the third-party claim.
Analysis:
This decision exemplifies a strict, textualist interpretation of 28 U.S.C. § 1367, highlighting a potential 'gap' or unintended consequence of its codification of supplemental jurisdiction. The court acknowledged that the outcome undermines judicial efficiency and runs contrary to the underlying policy of preventing strategic manipulation by plaintiffs, as articulated in Owen v. Kroger. The case serves as a critical lesson on the power of statutory text over judicial doctrine and policy considerations, demonstrating that when Congress speaks clearly, courts must follow, even if the result seems illogical. It establishes that the label 'plaintiff' under § 1367(b) applies to the original plaintiff throughout the case, regardless of their procedural posture on a specific claim like a counterclaim.
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