United States District Court, Northern District of Illinois, E.D
August 13, 1980
HYMAN-MICHAELS COMPANY, AN ILLINOIS CORPORATION, PLAINTIFF,
SWISS BANK CORPORATION, A SWISS CORPORATION, DEFENDANT AND THIRD PARTY PLAINTIFF, V. CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO, A NATIONAL BANKING ASSOCIATION, THIRD-PARTY DEFENDANT.
The opinion of the court was delivered by: Roszkowski, District Judge.
Before the court is the motion of Continental Illinois National
Bank and Trust Company of Chicago ("Continental"), third party
defendant, to dismiss the counterclaim filed by plaintiff,
Hyman-Michaels against Continental and, upon that dismissal, to
withdraw the counterclaim filed by Continental against
Hyman-Michaels. For the reasons herein stated, this court denies
The principal question facing this court is whether the Supreme
Court's decision in Owen Equipment & Erection Co. v. Kroger,
437 U.S. 365, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978) applies to the
instant case so as to deprive this court of jurisdiction over the
third party defendant, Continental.
As might be expected, Continental contends that Owen requires
that this court dismiss the third party defendant while
Hyman-Michaels, plaintiff, contends that Owen does not mandate
This court's jurisdiction over both the main action and the
third party action is invoked pursuant to diversity jurisdiction.
28 U.S.C. § 1332(a)(1).
28 U.S.C. § 1332(a)(1) confers upon federal courts jurisdiction
over "civil actions where the matter in controversy exceeds the
sum or value of $10,000 . . . and is between . . . citizens of
different states." As the Supreme Court noted in
Owen, this statute and its predecessors have consistently been
held to require complete diversity of citizenship. 98 S.Ct. at
2403 and fn. 13.
Continental's present motion to dismiss is founded on its
contention that because plaintiff, Hyman-Michaels, and
third-party defendant, Continental, are both citizens of Illinois
for purposes of diversity jurisdiction, the complete diversity
requirement is not met and, therefore, under Owens this court
lacks jurisdiction over the third-party defendant.
The instant case is not, on its facts, identical to Owen v.
Kroger. Consequently, this court is required to decide whether
Owen is meant to extend to the circumstances in this case.
In Owen, plaintiff, an Iowa citizen brought suit in federal
court against defendant, the Omaha Public Power District (OPPD),
a Nebraska corporation under diversity jurisdiction. Thereafter,
defendant, OPPD, filed a third party complaint pursuant to
Fed.R.Civ.P. 14(a) against Owen Equipment and Erection Company
(Owen), a Nebraska corporation with its principal place of
business in Iowa. Subsequently, plaintiff Kroger filed an amended
complaint naming Owen as an additional defendant.
It was the filing of this amended complaint, in which the Iowa
plaintiff brought in as a co-defendant, a corporation with its
principal place of business in Iowa, which was found to defeat
the complete diversity requirement of 28 U.S.C. § 1332(a)(1). The
Court in Owen held that, where complete diversity was lacking
between all the plaintiffs and all the defendants and no other
independent basis for federal jurisdiction existed, the doctrine
of ancillary jurisdiction did not vest the federal court with
jurisdiction. To hold otherwise, reasoned the Court, would defeat
the statutory requirement of complete diversity.
Thus it is clear that the respondent could not
originally have brought suit in federal court naming
Owen and OPPD as codefendants, since citizens of Iowa
would have been on both sides of the litigation. Yet
the identical lawsuit resulted when she amended her
complaint. Complete diversity was destroyed just as
surely as if she had sued Owen initially. In either
situation, in the plain language of the statute, the
"matter in controversy" could not be "between . . .
citizens of different states."
It is a fundamental precept that federal courts are
courts of limited jurisdiction. The limits upon
federal jurisdiction, whether imposed by the
Constitution or by Congress, must be neither
disregarded nor evaded. Yet . . . a plaintiff could
defeat the statutory requirement of complete
diversity by the simple expedient of suing only those
defendants who were of diverse citizenship and
waiting for them to implead nondiverse defendants.
98 S.Ct. at 2403.
In the present case, the plaintiff, Hyman-Michaels, an Illinois
corporation brought suit in federal court against defendant Swiss
Bank, a Switzerland corporation, under diversity jurisdiction.
Thereafter, Swiss Bank filed a third-party complaint pursuant to
Fed.R.Civ.P. 14(a) against Continental, an Illinois corporation,
under diversity of citizenship.
Up to this point, the instant case is comparable to the Owen
case. The following events, however, distinguish the Owen case
from the one before this court.
Subsequently, third party defendant, Continental, filed a
counterclaim against plaintiff Hyman-Michaels. Hyman-Michaels
then filed a counterclaim, as opposed to an amended complaint as
in Owen, against Continental.
Continental contends that the filing of this counterclaim by
Hyman-Michaels, an Illinois plaintiff, against Continental, third
party defendant and an Illinois corporation, operates to defeat
the complete diversity requirement of 28 U.S.C. § 1332(a)(1) just
as the filing of the amended complaint did in Owen. This court
In determining whether the complete diversity requirement
applies equally to the
filing of the counterclaim here as it does to the filing of an
amended complaint, which brings a third party defendant into the
suit as a co-defendant, this court turns first to the Supreme
Court's statement in Owen that:
The ancillary jurisdiction of the federal courts
derives originally from cases such as Freeman v.
Howe, 24 How. 450, 16 L.Ed. 749, which held that
when federal jurisdiction "effectively controls the
property or fund under dispute, other claimants
thereto should be allowed to intervene in order to
protect their interests, without regard to
jurisdiction." Aldinger v. Howard, 427 U.S. 1, 11
[96 S.Ct. 2413, 49 L.Ed.2d 276] (1975). More
recently, it has been said to include cases that
involve multiparty practice, such as compulsory
counterclaims . . . impleader . . cross-claims . . .
or intervention as of right. . . . [citations
98 S.Ct. at 2404 fn. 18.
In this regard, the Supreme Court noted that:
. . in determining whether jurisdiction over a
nonfederal claim exists, the context in which the
nonfederal claim is asserted is crucial. See
Aldinger v. Howard, 427 U.S. at 14 [96 S.Ct. 2413].
98 S.Ct. at 2404.
The Owen Court found that the claim in that case was quite
different from the kinds of nonfederal claims that have been
viewed in other cases as falling within the ancillary
jurisdiction of the federal courts.
First, the nonfederal claim in this case was simply
not ancillary to the federal one in the same sense
that, for example, the impleader by a defendant of a
third-party defendant always is. A third-party
complaint depends at least in part upon the
resolution of the primary lawsuit. . . . Its relation
to the original suit is thus not mere factual
similarity but logical dependence. Cf. Moore v. N Y
Cotton Exchange, 270 U.S. 593, 610 [46 S.Ct. 367, 70
L.Ed. 750]. The respondent's claim against petitioner
[in Owen], however, was entirely separate from her
original claim against OPPD, since the petitioner's
liability to her depended not at all upon whether or
not OPPD was also liable. Far from being an ancillary
and dependent claim, it was a new and independent
Second, the nonfederal claim here was asserted by the
plaintiff, who voluntarily chose to bring suit upon a
state-law claim in a federal court. By contrast,
ancillary jurisdiction typically involves claims by a
defending party haled into court against his will, or
by another person whose rights might be irretrievably
lost unless he could assert them in an ongoing action
in a federal court. A plaintiff cannot complain if
ancillary jurisdiction does not encompass all of his
possible claims in a case such as this one, since it
is he who has chosen the federal rather than the
state forum and must thus accept its limitations.
98 S.Ct. at 2404.
In the instant case, Hyman-Michael's complaint seeks damages
from the Swiss Bank for certain alleged damages claimed to have
been caused by Swiss Bank's failure to make a timely transfer of
funds pursuant to a telex message sent to it by Continental on
plaintiff's behalf on April 26, 1973.
Plaintiff contends that it is Swiss Bank's failure to timely
pay the nineteenth installment of charter hire to the Pandora's
owner's account which caused the Pandora to be withdrawn from the
charter thereby damaging plaintiff. Plaintiff contends that Swiss
Bank's actions 1) were in violation "of its agreement with and
undertaking to plaintiff as well as in violation of established
commercial practices" (Count I); 2) were in breach of its duty to
plaintiff to make immediate payment of the nineteenth installment
to the owner's account (Count II); and 3) were in breach of its
fiduciary duties to plaintiff.
Swiss Bank denied the essential elements of plaintiffs'
complaint and filed a third party complaint against Continental
claiming that if plaintiff succeeded in obtaining a judgment
against Swiss Bank, then Swiss Bank was entitled to a judgment
Continental for all sums that may be adjudged against Swiss Bank.
Swiss Bank's complaint against Continental contends that it was
Continental's 1) failure to take appropriate action as to the
payment of the nineteenth installment; 2) failure to warn
plaintiff of possible transmission delays; and 3) carelessness in
sending the telex message to the wrong telex machine, which
caused any damages suffered by plaintiff.
Continental answered the third party complaint denying any
liability on its part and contending that Swiss Bank's own
negligence barred it from recovering against Continental. In
addition, Continental filed a counterclaim against plaintiff
contending that plaintiff was careless and negligent and failed
to act in a commercially reasonable manner by failing to request
far enough in advance that Continental send the nineteenth
installment (Count I) and that this failure to warn Continental
that time was of the essence breached express provisions of a
contract between Continental and plaintiff (Count II).
Plaintiff, as a consequence, filed an answer denying the
allegations in this counterclaim and counterclaimed against
Continental contending that Continental's actions with respect to
effectuating payment of the nineteenth installment 1) violated
established commercial practices (Count I); 2) breached
Continental's duty of care to plaintiff (Count II); and 3)
breached the fiduciary duty owed plaintiff (Count III).
Contrary to Continental's contentions, this court concludes
that this court's ancillary jurisdiction is properly invoked in
this case and that the holding in Owen is inapposite to the
First, the counterclaim filed by Hyman-Michaels in the instant
case is one of those kinds of non-federal claims specifically
mentioned by the Owen Court as falling within a courts
ancillary jurisdiction. 98 S.Ct. at 2404 fn. 8. Unlike the
circumstances in Owen, where the plaintiff caused the complete
diversity requirement to be defeated, Continental, third party
defendant's filing of a counterclaim against plaintiff forced
plaintiff to respond or to waive its objections. In its response,
plaintiff has not made Continental a co-defendant as the
plaintiff in Owen did. Additionally, the main action and the
third party action here are both factually related and logically
To grant Continental's motion would produce an anomalous result
at best. Then, any third party defendant properly brought into a
suit could defeat a court's ancillary jurisdiction by forcing a
plaintiff, who had not sued the third party defendant, to respond
to claims and thereby defeat this court's jurisdiction or to
waive its objections to claims by not responding.
Accordingly, it is ordered that Continental's motion to dismiss
be and the same is hereby denied. Continental's motion for oral
argument is likewise denied.
© 1992-2003 VersusLaw Inc.