United States District Court, Central District of Illinois, Peoria Division
August 3, 1994
NORTH AMERICAN MECHANICAL SERVICES CORP. D/B/A NORTH AMERICAN CONSTRUCTION CORP., PLAINTIFF,
WILLIAM HUBERT, D/B/A ALAMO ELECTRIC, AND UNITED FIRE & CASUALTY COMPANY, DEFENDANTS.
The opinion of the court was delivered by: Mihm, Chief Judge.
This matter is before the Court on the Magistrate Judge's
Report and Recommendation and Defendant United Fire and
Casualty Company's ("United Fire") Objections to the
Magistrate's Report and Recommendation. The Magistrate
recommended that United Fire's Motion to Dismiss Count 2 (# 5)
be denied and that United Fire be ordered to answer the
complaint. For the reasons set forth below, the Magistrate's
and Recommendation is REJECTED, and United Fire's Motion to
Dismiss Count 2 (# 5) is GRANTED.
This action involves a dispute over a construction
subcontract. Jurisdiction is based on 28 U.S.C. § 1332 but is
contested. North American Mechanical Services Corporation
("North American") is the prime contractor for the construction
of the Federal Courthouse in Danville, Illinois. William Hubert
("Hubert") was a subcontractor for North American. United Fire
is Hubert's surety who issued a performance bond in favor of
North American in the amount of $50,000. Count 1 of North
American's complaint seeks damages from defendant William
Hubert for breach of contract. Count 2 seeks payment from
defendant United Fire on the performance bond.
United Fire moves to dismiss Count 2, arguing that this Court
lacks subject matter jurisdiction. The parties are of diverse
citizenship: North American is a citizen of Texas, Hubert is a
citizen of Illinois, and United Fire is incorporated in Iowa
and has its principal place of business in Iowa. The amount in
controversy between North American and Hubert exceeds $50,000,
and the parties do not contest the Court's jurisdiction over
Count 1. The amount in controversy in Count 2 is exactly
$50,000, the amount of the performance bond. 28 U.S.C. § 1332
requires that the amount in controversy exceed $50,000. The
Magistrate concluded that since Count 2 arises out of the same
transaction or occurrence as Count 1, this Court has
"supplemental pendent party jurisdiction under 28 U.S.C. § 1367."
The Court respectfully disagrees.
28 U.S.C. § 1367 provides in relevant part: (a)
Except as provided in subsections (b) and (c) or
as expressly provided otherwise by Federal
statute, in any civil action of which the district
courts have original jurisdiction, the district
courts shall have supplemental jurisdiction over
all other claims that are so related to claims in
the action within such original jurisdiction that
they form part of the same case or controversy
under Article III of the United States
Constitution. Such supplemental jurisdiction shall
include claims that involve the joinder or
intervention of additional parties.
(b) 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 Rules 14, 19, 20, or 24
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.
Jurisdiction in this case is founded solely on § 1332.
Section 1367(b) prevents a plaintiff whose original claim meets
the requirements of § 1332 from then "smuggling" state claims
into federal court though the use of the impleader, joinder,
and intervention rules when doing so would be inconsistent with
the jurisdictional requirements of § 1332. However, North
American does not assert a claim against a person made a party
under Rules 14, 19, 20, and 24 because United Fire was
originally named as a defendant in the complaint.
Although § 1367(b) does not specifically address the question
of supplemental jurisdiction over a plaintiff whose original
claim against one defendant does not meet the jurisdictional
requirements of § 1332, as opposed to claims against persons
coming in under the impleader, joinder, and intervention rules,
"the implication is that plaintiffs without an independent
ticket of entry to federal court should not be able to get into
federal court by `piggybacking' onto other claims which do
satisfy the jurisdictional requirements." Leung v. Checker
Motors Corporation, No. 93-C2704, 1993 WL 515470, at *1
(N.D.Ill. December 7, 1993). "Section 1367 is intended to allow
supplemental claims to be appended to actions already properly
before a federal court, not to squeeze in an initial action
that is otherwise beyond the
court's jurisdiction." Duet v. Lawes and The Hertz Corporation,
No. Civ.A. 94-0739, 1994 WL 151095, *1 (E.D.La. April 7, 1994).
Although § 1367(b) does not address the jurisdictional issue
raised in this case, § 1367(a) and the legislative history do
provide guidance. Section 1367(a) provides that the district
courts shall have supplemental jurisdiction over claims that
are so related to claims within the court's original
jurisdiction that they form part of the same case or
controversy, "except as provided in subsections (b) and (c) or
as expressly provided otherwise by Federal statute." (emphasis
added). 28 U.S.C. § 1332 expressly provides otherwise. Section
1332 grants original diversity jurisdiction only over "civil
actions where the matter in controversy exceeds the sum or
value of $50,000, exclusive of interest and costs. . . ." In
addition, the legislative history of § 1367 provides that "[i]n
diversity cases, the district courts may exercise supplemental
jurisdiction, except when doing so would be inconsistent with
the jurisdictional requirements of the diversity statute."
H.R.Rep. No. 734, 101st Cong.2d Sess. 29 (1990), U.S.Code Cong.
& Admin.News 1990, 6802, 6860, 6875 [hereinafter House Report].
Therefore, federal courts cannot exercise supplemental
jurisdiction when doing so would conflict with the requirements
of 28 U.S.C. § 1332.
Congress intended § 1367(a) to fill the "statutory gap noted
in Finley v. United States,"*fn1 not allow pendent party
jurisdiction in cases founded solely on diversity. Wright,
Miller, Cooper, Federal Practice and Procedure: Jurisdiction 2d
§ 3523, p. 25 of the 1994 Pocket Part ("The practice of denying
pendent-party jurisdiction in cases founded solely upon
diversity will remain in place."); Denis F. McLaughlin, The
Federal Supplemental Jurisdiction Statute — A Constitutional
and Statutory Analysis, 24 Ariz.St. L.J. 849, 926 (1992) ("In
all cases not founded solely on § 1332, the statute now
authorizes full supplemental jurisdiction for all claims
involving additional parties, without restriction as to whether
the additional party is joined as a `pendent party plaintiff'
or `pendent party defendant.") (Emphasis added).
As stated in the legislative history, "[t]he net effect of
subsection (b) is to implement the principal rationale of
Owen Equipment & Erection Co. v. Kroger[,]" 437 U.S. 365, 98
S.Ct. 2396, 57 L.Ed.2d 274 (1978). In Kroger, the Supreme Court
prohibited the exercise of supplemental jurisdiction over a
claim by a plaintiff against a third party subsequently
impleaded by the defendant when doing so would violate the
complete diversity requirement of § 1332. Section 1367(b) also
prohibits plaintiffs from utilizing the supplemental
jurisdiction to evade the amount in controversy requirement of
§ 1332. Section (b) simply codified Kroger's prohibition on
to evade the jurisdictional requirement of
28 U.S.C. § 1332 by the simple expedient of naming
initially only those defendants whose joinder
satisfies 1332's requirements and later adding
claims not within original federal jurisdiction
against other defendants who have intervened or
been joined on a supplemental bases.
House Report, p. 6875.
By overruling Finley and codifying Kroger, Congress did not
intend § 1367 to overrule § 1332's rules of aggregation. See
Pellegrino v. Pesch, No. 91-C4967, 1992 WL 159169, at *6
(N.D.Ill. June 29, 1992) (Congress did not intend § 1367(a) to
disturb settled case law governing the amount in controversy
requirement in diversity cases); McLaughlin, 24 Ariz.St.L.J.
849, 971 ("[T]he statute preserves these rules of aggregation
and effects no change in the prior case law's denial of
supplemental jurisdiction for jurisdictionally inadequate
claims by plaintiffs.").
In Zahn, the Supreme Court held that in diversity cases
involving multiple plaintiffs with separate and distinct
claims, including class actions, each plaintiff must present a
claim meeting the monetary requirement of
the diversity jurisdiction statute. Zahn v. International Paper
Co., 414 U.S. 291, 94 S.Ct. 505, 38 L.Ed.2d 511 (1973). Most
district courts have held that § 1367 does not overrule Zahn.
See Riverside Transportation v. Bellsouth Telecommunications,
847 F. Supp. 453, 456 (E.D.La. 1994); Leroy Cattle Co., Inc. v.
Fina Oil & Chemical Company, No. Civ.A. 93-1286-MLB, 1994 WL
151105, at *13 (D.Kan. March 2, 1994); Leung v. Checker Motors
Corporation, No. 93-C-2704, 1993 WL 515470, at *2 (N.D.Ill.
December 7, 1993) (Grady, J.); Averdick v. Republic Financial
Services, Inc., 803 F. Supp. 37, 45-46 (E.D.Ky. 1992); Griffin
v. Dana Point Condominium Ass'n, 768 F. Supp. 1299, 1301
(N.D.Ill. 1991) (Shadur, J.).*fn2 The legislative history of §
1367 explicitly states that § 1367(b) "is not intended to
affect" jurisdictional requirements established by Zahn in
diversity only class actions. House Report, p. 6875.
In addition, to the Zahn requirement, established case law
prohibits a plaintiff from aggregating separate and distinct
claims against multiple defendants to meet the amount in
controversy requirement. Wright, Miller & Cooper, Federal
Practice and Procedure: Jurisdiction 2d § 3704, p. 80. However,
if multiple defendants are jointly liable to the plaintiff, the
claims against them may be aggregated to fulfill the
jurisdiction requirement. Motorists Mutual Insurance Co. v.
Simpson, 404 F.2d 511, 513 (7th Cir. 1968); National Union Fire
Insurance Company of Pittsburgh v. Wilkins-Lowe & Company, 1993
WL 453438, *5 (N.D.Ill. October 27, 1993).
Applying these aggregation rules to this case, the Court
lacks jurisdiction over Count 2. The amount for which Hubert
and United Fire are jointly liable is exactly $50,000, not an
amount in excess of the jurisdictional requirement. The
performance bond was for exactly $50,000, and North American
can recover up to $50,000 from either Hubert or United Fire to
compensate for damages suffered as a result of Hubert's alleged
breach of the subcontract. United Fire cannot be found liable
for more than $50,000. Accordingly, this Court lacks subject
matter jurisdiction over North American's claim against United
Fire because the claim fails to exceed $50,000 as required by
Section 1367(a) expressly provides that district courts do
not have supplemental jurisdiction over state claims when
another federal statute expressly provides otherwise. Section
1332 provides otherwise, and § 1367 does not overrule § 1332's
aggregation rules. Therefore, even though Count 1 and Count 2
appear to be part of the same case or controversy, the Court
cannot exercise supplemental jurisdiction over Count 2 because
§ 1332 provides otherwise.
For the reasons set forth above, the Magistrate's Report and
Recommendation is REJECTED and United Fire's Motion to Dismiss
Count 2 (# 5) is GRANTED. The Clerk is ordered to terminate
United Fire as a Defendant in this action and refer the case
back to the Magistrate Judge.