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Touhy & Touhy, Ltd. v. Langeland

February 2, 2009

TOUHY & TOUHY, LTD., A PROFESSIONAL CORPORATION, PLAINTIFF,
v.
ERIK H. LANGELAND AND ERIK H. LANGELAND, P.C., A PROFESSIONAL CORPORATION, DEFENDANTS.
ERIK H. LANGELAND AND ERIK H. LANGELAND, P.C., A PROFESSIONAL CORPORATION, COUNTER-PLAINTIFFS/DEFENDANTS,
v.
TOUHY & TOUHY, LTD., A PROFESSIONAL CORPORATION, DANIEL K. TOUHY, INDIVIDUALLY, AND TIMOTHY J. TOUHY, INDIVIDUALLY, COUNTER-DEFENDANTS/PLAINTIFF.
TOUHY & TOUHY, LTD., A PROFESSIONAL CORPORATION, THIRD-PARTY PLAINTIFF/COUNTER-DEFENDANT,
v.
RYAN F. STEPHAN, JAMES B. ZOURAS, AND STEPHAN ZOURAS, LLP, AN ILLINOIS LIMITED LIABILITY PARTNERSHIP, THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: James F. Holderman, Chief Judge

MEMORANDUM OPINION AND ORDER

Pending before the court is a "Motion to Dismiss or Alternatively to Stay" filed by third-party defendants Ryan F. Stephan, James B. Zouras, and Stephan Zouras, LLP. (Dkt. No. 87.) For the reasons stated below, this motion is granted and the Third-Party Complaint is dismissed for lack of subject matter jurisdiction.

BACKGROUND

In its Amended Complaint (Dkt. No. 15), plaintiff law firm Touhy & Touhy, Ltd. ("the Touhy firm") alleges that defendant attorney Erik H. Langeland and his firm, Erik H. Langeland, P.C. (collectively "Langeland"), are liable under Illinois law for damages incurred when Langeland unlawfully recruited the Touhy firm's clients and prospective clients, represented these clients, and retained attorney's fees that rightfully belong to the Touhy firm.

Langeland has denied these allegations and has filed a number of counterclaims against the Touhy firm and its principals, Timothy J. Touhy and Daniel K. Touhy (collectively "Counter-Defendants") under Illinois law. (Dkt. No. 60.) Specifically, Langeland alleges that the Counter-Defendants breached co-counsel agreements with Langeland to divide attorney's fees with Langeland in four different cases: the Chabrier case, the Bochicchio case, the Sammarone case, and the Birns case. Additionally, Langeland has alleged counterclaims for conversion/fraudulent conversion in the Chabrier and Bochicchio cases; breach of fiduciary duty in the Chabrier, Bochicchio, and Sammarone cases; and tortious interference with prospective economic advantage in the Chabrier case.

After reviewing Langeland's counterclaims, the Touhy firm has filed a Third-Party Complaint against Ryan F. Stephan, James B. Zouras, and their law firm Stephan Zouras, LLP (collectively "Third-Party Defendants"). It is the Touhy firm's contention that "as a direct and proximate result of the fiduciary breaches and acts of the third-party defendants Stephan and Zouras, the Touhy firm may be subject to damages arising from breach of contract and conversion arising out of the representation of the plaintiffs in Chabrier, Bochicchio, Birns and Sammarone, as set forth in Langeland['s] counterclaim, to which the Touhy firm is entitled to indemnity from Stephan Zouras." (Third-Party Compl. ¶ 6.) In addition to its indemnity claim against the Third-Party Defendants, the Touhy firm also alleges that the Third-Party Defendants violated the Electronic Communications Privacy Act, 18 U.S.C. §§ 2511, et seq. and/or the Stored Wire and Electronic Communications and Transactional Records Access Act, 18 U.S.C. §§ 2701, et seq. (Count II), and the Illinois Computer Tampering Act, 720 ILCS 5/16D-3 (Count III).

Now pending before the court is the Third-Party Defendants' "Motion to Dismiss or Alternatively to Stay" the claims asserted against them in the Third-Party Complaint. (Dkt. No. 87.) The Third-Party Defendants argue that this court does not have jurisdiction over the claims asserted in the Third-Party Complaint, that the indemnity claim should be dismissed for failure to state a cause of action, and, in the alternative, that the federal action should be stayed in light of ongoing proceedings initiated by the Touhy firm against the Third-Party Defendants in state court. (Case No. 2007-CH-13552.) Because this court does not have subject matter jurisdiction over the claims asserted in the Touhy firm's Third-Party Complaint, the Third-Party Defendants' motion is granted.

ANALYSIS

The court's jurisdiction over the Touhy firm's original claims and Langeland's counterclaims is firmly established under 28 U.S.C. § 1332, as the parties are diverse and the amount in controversy exceeds $75,000. Rule 14 of the Federal Rules of Civil Procedure further allows "a defending party" to join through impleader "a nonparty who is or may be liable to it for all or part of the claim against it." Fed. R. Civ. P. 14(a)(1). Rule 14 specifically recognizes that the "defending party" in this scenario can be the same entity as the original plaintiff in the lawsuit. See Fed. R. Civ. P. 14(b) ("[w]hen a claim is asserted against a plaintiff, the plaintiff may bring in a third party if this rule would allow a defendant to do so"). However, the Federal Rules of Civil Procedure do not by themselves "extend or limit the jurisdiction of the district courts." Fed. R. Civ. P. 82; see also Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 370 (1978) ("it is axiomatic that the Federal Rules of Civil Procedure do not create or withdraw federal jurisdiction"). The court must therefore determine whether it has subject matter jurisdiction over the Third-Party Claims asserted by the Touhy firm.

The court begins its analysis with the indemnity claim, for without this claim the Touhy firm has no basis for bringing the Third-Party Defendants into the case under Rule 14. The Touhy firm's indemnity claim is based on state law theories of agency. (Resp. at 3 ("[o]ur remedy is to seek indemnity from our unfaithful agents for the contract damages we owe Langeland")). As a state law claim, the court's subject matter jurisdiction can be secured through either 28 U.S.C. § 1332 (diversity of citizenship) or 28 U.S.C. § 1367 (supplemental jurisdiction). It is undisputed that the Touhy firm and the Third-Party Defendants share the same state of citizenship, thus § 1332 cannot supply the statutory grounds for the court's jurisdiction over the indemnity claim.

Usually, when a third-party complaint has been asserted by a defendant in the case, the district court will have supplemental jurisdiction over the claims asserted therein under § 1367(a) because the third-party claims form part of the same case or controversy as the original claims in the case. See 28 U.S.C. § 1367(a); see also Grimes v. Mazda N. Am. Operations, 355 F.3d 566, 572 (6th Cir. 2004); 6 Charles Alan Wright, Arthur R. Miller, & Mary Kay Kane, FEDERAL PRACTICE AND PROCEDURE § 1444 (2d ed. 1990) ("Because defendant's right of action against the third-party under Rule 14 must be based on the same aggregate of facts that constitute plaintiff's claim, it follows that a court having jurisdiction over plaintiff's claim needs no additional jurisdictional ground to determine a third-party claim springing out of the same core of facts."). This same rationale would appear to apply to third-party claims brought by plaintiffs. However, "statutory law as well as the Constitution may limit a federal court's jurisdiction over nonfederal claims," Owen, 437 U.S. at 372, and in this case § 1367(b) limits the exercise of supplemental jurisdiction in this context.

Section 1367(b) 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 14, 19, 20, or 24 of the Federal Rules of Civil Procedure . . . when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332.

28 U.S.C. § 1367(b). By its plain language, § 1367(b) appears to preclude the court from exercising supplemental jurisdiction ...


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