Gibbs Wire & Steel Co. v. Johnson

255 F.R.D. 326, 2009 U.S. Dist. LEXIS 11063, 2009 WL 276773
CourtDistrict Court, D. Connecticut
DecidedJanuary 29, 2009
DocketNo. 3:08 CV 551(MRK)
StatusPublished
Cited by9 cases

This text of 255 F.R.D. 326 (Gibbs Wire & Steel Co. v. Johnson) is published on Counsel Stack Legal Research, covering District Court, D. Connecticut primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Gibbs Wire & Steel Co. v. Johnson, 255 F.R.D. 326, 2009 U.S. Dist. LEXIS 11063, 2009 WL 276773 (D. Conn. 2009).

Opinion

RULING AND ORDER

MARK R. KRAVITZ, District Judge.

Plaintiff Gibbs Wire and Steel Company (“the Company”) brought this action in state court against Robert B. Johnson and Robert C. Johnson, II (“Defendants”) for breach of contract for failing to sell their stock to the Company pursuant to a “right of first refusal” provision in the Company’s by-laws. Defendants removed this case to federal court pursuant to 28 U.S.C. § 1441 on the basis of complete diversity between the parties. It is undisputed that the Company is a Connecticut corporation with its principal place of business in Connecticut, while Defendants are citizens of Florida. Thereafter, Defendants filed a counterclaim against the Company, alleging that the “right of first refusal” provision in the by-laws constituted an unreasonable restraint on alienation and should [327]*327be declared null and void. In response, the Company filed a Motion to Dismiss for Failure to Join Indispensable Parties under Rule 12(b)(7) [doc. #37], arguing that the other shareholders of the Company were necessary and indispensable parties to Defendants’ counterclaim, that joinder was not possible because diversity jurisdiction would be destroyed, and therefore that Defendants’ counterclaim should be dismissed under Rule 19(b) of the Federal Rules of Civil Procedure. For the reasons that follow, the Motion to Dismiss for Failure to Join Indispensable Parties under Rule 12(b)(7) [doc. # 37] is DENIED.

I.

At the Court’s request, the parties have extensively briefed the question of whether, assuming that the non-party shareholders are necessary parties under Rule 19(a), the Court could exercise jurisdiction over the counterclaim against them pursuant to 28 U.S.C. § 1367(a). Of particular importance to this question is the limitation on supplemental jurisdiction found in 28 U.S.C. § 1367(b), which states:

In any civil action of which the district courts have original jurisdiction founded solely on section 1332 of this title, the district courts shall not have supplemental jurisdiction under subsection (a) over claims by plaintiffs against persons made parties under Rule H, 19, 20, or 2U of the Federal Rules of Civil Procedure, or over claims by persons proposed to be joined as plaintiffs under Rule 19 of such rules, or seeking to intervene as plaintiffs under Rule 24 of such rules, when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332.

(Emphasis added). Jurisdiction in this case is founded solely on 28 U.S.C. § 1332 and it is undisputed that some of the non-party shareholders are citizens of Florida, the same state as Defendants, and thus their joinder would destroy complete diversity.

There is a dispute, however, as to the meaning of “plaintiff’ in § 1367(b). The Company argues that “plaintiff’ refers not only to original plaintiffs, but also to third-party plaintiffs, such as Defendants insofar as their counterclaim is concerned. In that case, the Court could not exercise supplemental jurisdiction over the counterclaim because it would be a “elaim[] by plaintiff[] against persons made parties” under Rule 19. Defendants, on the other hand, argue that “plaintiff’ refers only to the original plaintiff in the action and, therefore, the Court can exercise supplemental jurisdiction over the parties to Defendants’ counterclaim pursuant to 28 U.S.C. § 1367(a), even if there is not complete diversity among the parties.

In Viacom Int’l, Inc. v. Kearney, 212 F.3d 721 (2d Cir.2000), the Second Circuit agreed with Defendants, holding that “ § 1367(b) reflects Congress’ intent to prevent original plaintiffs — but not defendants or third parties — from circumventing the requirements of diversity.” Id. at 726-27. The court reasoned that “because defendants are involuntarily brought into court, their claims are not deemed as suspect as those of the plaintiff, who is the master of his complaint.” Id. at 727 (quotation marks and brackets omitted). The Second Circuit concluded that the district court could exercise supplemental jurisdiction over a fourth-party defendant’s counterclaim against the original plaintiff.

If that were the Second Circuit’s final word on the subject, the Court would be confident that it could exercise supplemental jurisdiction over Defendants’ counterclaim. However, recent changes in the law cast doubt on that conclusion. In Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 125 S.Ct. 2611, 162 L.Ed.2d 502 (2005), the Supreme Court held that 28 U.S.C. § 1367 authorizes the exercise of jurisdiction over actions that do not meet the amount-in-controversy requirement in a case where at least one plaintiffs claim satisfies the requirement. In so holding, the Court reaffirmed the requirement of complete diversity, although it did not address the specific question raised in Viacom. See id. at 562, 125 S.Ct. 2611.

The Second Circuit revisited its Viacom decision in Merrill Lynch & Co. v. Allegheny Energy, Inc., 500 F.3d 171 (2d Cir.2007). Citing Exxon, the Second Circuit repudiated its previous interpretation of 28 U.S.C. § 1367(b) and concluded that the district [328]*328court did not have jurisdiction over a counterclaim by a third-party plaintiff against a non-diverse third-party defendant. The court reasoned that:

Exxon makes clear that its expansive interpretation of § 1367 does not extend to additional parties whose presence defeats diversity____[I]n light of Exxon, the district court’s reliance on our assumption in Viacom that original jurisdiction is anchored in the diversity between the original parties and so any subsequent joinder that is not prohibited by § 1367(b) comes within the court’s supplemental jurisdiction was misplaced. It is now apparent that the contamination theory furnishes limitations on joinder in certain circumstances that may well extend beyond the restrictions listed in § 1367(b). Viacom, which came down before Exxon, did not explore these limitations.
Id. at 179.

It is not clear to the Court that Exxon required a repudiation of Viacom. Exxon does not distinguish between original plaintiffs and third-party plaintiffs, nor does it discuss the complete diversity requirement or the contamination theory in the context of third-party claims.

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Cite This Page — Counsel Stack

Bluebook (online)
255 F.R.D. 326, 2009 U.S. Dist. LEXIS 11063, 2009 WL 276773, Counsel Stack Legal Research, https://law.counselstack.com/opinion/gibbs-wire-steel-co-v-johnson-ctd-2009.