Great Lakes originally sued Cooper, alleging unfair competition based on former employees' use of Great Lakes' information, competing sales of flexible tubing, and conduct relating to contracts for government tubing purchases. Cooper answered and asserted a federal antitrust counterclaim alleging a conspiracy to restrain and monopolize commerce, including false representations to suppliers and, most importantly, a series of unjustified lawsuits brought in bad faith to harass Cooper and prevent it from competing, expressly including this action by Great Lakes. After Great Lakes' amended complaint was dismissed for lack of diversity, Great Lakes filed a counterclaim to Cooper's antitrust counterclaim that substantially repeated the allegations from its amended complaint. The district court dismissed that counterclaim for lack of jurisdiction, concluding it was not compulsory.
Issue
Whether Great Lakes' counterclaim arose out of the same transaction or occurrence as Cooper's antitrust counterclaim so that it was a compulsory counterclaim under Rule 13(a) and therefore within the federal court's ancillary jurisdiction.
Rule
A federal court has ancillary jurisdiction over a counterclaim if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim. The same test determines whether a counterclaim is compulsory under Rule 13(a): a counterclaim is compulsory if it bears a logical relationship to the opposing party's claim, meaning separate trials would involve substantial duplication of effort and time, the claims involve many of the same factual or legal issues, or they are offshoots of the same basic controversy.
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North Shore BioMaterials, based in Cleveland, sued Lakefront Polymer Systems in federal court on a state-law unfair competition theory, alleging misuse of customer data and false statements to hospital buyers. Lakefront answered with a federal antitrust counterclaim alleging that North Shore and allied firms were trying to exclude it from the market through sham complaints and bad-faith lawsuits, expressly identifying North Shore's present suit as one of the harassing acts. After North Shore's original claim was dismissed for lack of diversity, North Shore filed a counterclaim against Lakefront restating the same unfair-competition allegations.
Does the federal court most likely have jurisdiction over North Shore's new counterclaim?
Explanation. The majority held that the same test governs compulsory-counterclaim status and ancillary jurisdiction: whether the counterclaim arises from the same transaction or occurrence, defined by a logical relationship. A logical relationship exists when separate trials would duplicate effort, involve many of the same factual or legal issues, or amount to offshoots of the same basic controversy. Here, Lakefront's antitrust claim specifically alleges that North Shore's present suit is a bad-faith, unjustified harassment device. Adjudicating that allegation would require substantial inquiry into the facts and law underlying North Shore's restated claim, so the counterclaim is compulsory and within ancillary jurisdiction. (Derived from Great Lakes Rubber Corp. v. Herbert Cooper Co. (n.d.).)