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Guaranteed Systems, Inc. v. American National Can Co.

United States District Court for the Middle District of North Carolina · Civil Procedure

Civil ProcedureSupplemental JurisdictionDiversity JurisdictionThird-Party Practicesupplemental jurisdictiondiversity§ 1367(b)Rule 14

Facts

Guaranteed Systems, a North Carolina corporation, sued National Can, a Delaware corporation, in North Carolina state court for unpaid construction work at National Can's Georgia facility. National Can removed the case to federal court under diversity jurisdiction and counterclaimed, alleging among other things that Guaranteed Systems had been negligent in performing the construction work. In response to that counterclaim, Guaranteed Systems filed a third-party complaint against subcontractor HydroVac under Rule 14(b), seeking indemnity and contribution for any amount it might owe National Can. Guaranteed Systems and HydroVac were non-diverse parties, and the third-party claim was undisputedly part of the same case or controversy as the original action.

Issue

Whether, in a case in federal court solely on the basis of diversity, the court may exercise supplemental jurisdiction over a plaintiff's Rule 14(b) third-party claim for indemnity or contribution against a non-diverse third-party defendant when the plaintiff filed the claim in response to the defendant's counterclaim.

Rule

When original federal jurisdiction rests solely on 28 U.S.C. § 1332, 28 U.S.C. § 1367(b) prohibits supplemental jurisdiction over claims by plaintiffs against persons made parties under Rule 14 where exercising jurisdiction would be inconsistent with § 1332, including when the plaintiff and the Rule 14 third-party defendant are non-diverse.

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Mira Patel, a citizen of Ohio, sued Redwood Packaging LLC, a citizen of Nevada, in Ohio state court over unpaid invoices for equipment installed at a plant in Columbus. Redwood removed the case to federal court based solely on diversity and then filed a counterclaim alleging Mira's defective work; Mira responded by impleading Lakeshore Weld Services, also a citizen of Ohio, under Rule 14(b) for indemnity and contribution.

May the federal court exercise supplemental jurisdiction over Mira's third-party claim against Lakeshore Weld Services?

Explanation. The majority held that even where the third-party claim is undisputedly part of the same case or controversy, § 1367(b) withdraws supplemental jurisdiction in diversity-only cases over claims by plaintiffs against persons made parties under Rule 14 when exercising jurisdiction would be inconsistent with § 1332. Mira is still the plaintiff, Lakeshore was brought in under Rule 14, and Mira and Lakeshore are non-diverse. Removal and fairness concerns do not override the statute's plain text. (Derived from Guaranteed Systems, Inc. v. American National Can Co. (n.d.).)