United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 97-3275

___________

Innovative Home Health Care, Inc., *

a South Dakota corporation, *

*

Plaintiff, *

*

Dennis Meier; Gwen Hougdahl, *

*

Plaintiffs - Appellees, *

* Appeal from the United States

v. * District Court for the

* District of South Dakota.

P.T.-O.T. Associates of the Black *

Hills, a general partnership; *

At Home Quality Health Care Co., *

a South Dakota corporation, *

*

Defendants, *

*

Karl Kirsch; Susan Redden, *

*

Defendants - Appellants. *

___________

Submitted: March 13, 1998

Filed: April 21, 1998

___________
The Honorable Richard G. Kopf, United States District Judge for the District 1

of Nebraska, sitting by designation.

The Honorable Richard H. Battey, Chief Judge, United States District Court for 2

the District of South Dakota.

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Before BEAM and HEANEY, Circuit Judges, and KOPF, District Judge. 1

___________

KOPF, District Judge.

Karl Kirsch and Susan Redden, defendants in the proceedings below,

appeal from the district court’s amended judgment granting summary

2

judgment in their favor on all of the plaintiffs’ claims, but dismissing

without prejudice the defendants’ counterclaims for indemnification.

Kirsch and Redden argue the district court erred in dismissing their

indemnification counterclaims by declining to retain supplemental

jurisdiction over the counterclaims in response to the plaintiffs’ “motion

for rehearing or relief from judgment” when the district court had

previously entered judgment on the indemnification counterclaims in favor

of defendants Kirsch and Redden. We affirm.

I. Background

Dennis Meier, Gwen Hougdahl, Kirsch, and Redden were at one time

shareholders and employees of Innovative Home Health Care, Inc., a South

Dakota corporation. After initiation of an action to dissolve the

corporation, these individuals reached a settlement agreement. Subsequent

to this agreement, Meier, Hougdahl, and Innovative Home Health Care, Inc.,

filed an action against Kirsch, Redden, a South Dakota corporation, and a

general partnership, alleging violations of the Sherman Act, 15 U.S.C. §§

1 & 2, and the Clayton Act, 15 U.S.C. §§ 15 & 26, as well as state claims

of breach of contract and tortious interference with a contractual

relationship. The defendants filed counterclaims against the plaintiffs,

alleging breach of the settlement agreement and seeking indemnification for

all reasonable costs and expenses incurred in defending the lawsuit based

upon the terms of the settlement agreement.
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The district court granted the defendants’ motion for summary

judgment on all of the plaintiffs’ claims and on the defendants’

counterclaims, and entered judgment accordingly. As to the defendants’

indemnification counterclaims, the district court found that plaintiffs

Meier and Hougdahl failed to “combat defendants’ showing” that the express

language of the indemnification clause contained in the settlement

agreement provided for indemnification.

The plaintiffs then filed a “motion for rehearing or relief from

judgment” pursuant to Fed. R. Civ. P. 59(a) and 60(b)(6), arguing that the

defendants were not entitled to relief on their indemnification

counterclaims because the defendants simply relied on the language of the

indemnification clause itself in support of their motion for summary

judgment. Under such circumstances, the plaintiffs argued they were not

required to present any opposing evidentiary matter in response to the

defendants’ motion for summary judgment on the indemnification

counterclaims. The plaintiffs also argued that, under South Dakota law,

a written contract of indemnity will not be construed to indemnify a party

against its own misconduct in the absence of a clear and unequivocal

expression of such intent within the four corners of the contract.

In resolving the plaintiffs’ motion for rehearing, the district court noted that,

after a year of discovery, the facts necessary for resolution of the plaintiffs’ state claims and the defendants’

counterclaim for breach of contract had been developed in the adjudication of the antitrust claim and such

facts were intertwined with the federal antitrust claim. However, the

court declined to retain jurisdiction over the defendants’ counterclaims

for indemnification under 28 U.S.C. § 1367, stating:

Based on the parties’ recent submissions on the

counterclaims for indemnification, the Court deems it necessary

in serving the interests of justice to revisit its prior

decision to retain jurisdiction under 28 U.S.C. § 1367 . . . .

As previously noted in its memorandum opinion, the Court has

broad discretion to dismiss state law claims and counterclaims

over which it has only supplemental jurisdiction if the Court

has dismissed all
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claims over which the Court had original jurisdiction which has

occurred in this case.

The district court also noted that the parties’ submissions regarding the

plaintiffs’ motion for rehearing raised “somewhat novel and complex issues

of South Dakota law” regarding whether application of the indemnification

clause under the facts and circumstances presented by this case violated

South Dakota law and whether the defendants could now also seek

indemnification from the plaintiff corporation. The district court stated

that determination of such issues would require further briefing and

possible discovery.

The district court then amended its prior judgment by dismissing the

defendants’ counterclaims for indemnification without prejudice.

Defendants Kirsch and Redden appeal the amended judgment.

II. Standard of Review

Although the plaintiffs brought their motion for rehearing or relief

from judgment pursuant to Fed. R. Civ. P. 59(a) and 60(b)(6), the

plaintiffs properly concede the motion was actually an improperly styled

Fed. R. Civ. P. 59(e) motion. Norman v. Arkansas Dep’t of Educ., 79 F.3d

748, 750 (8th Cir. 1996) (any motion questioning the correctness of a

judgment is functionally a Fed. R. Civ. P. 59(e) motion, regardless of how

the motion is styled); BBCA, Inc. v. United States, 954 F.2d 1429, 1432

(8th Cir.) (motion seeking substantive change in judgment was Rule 59(e)

motion; substance, rather than form, of motion controls), cert. denied, 506

U.S. 866 (1992).

“‘A district court has broad discretion in determining whether to

grant a [Fed. R. Civ. P. 59(e)] motion to alter or amend judgment, and this

court will not reverse absent a clear abuse of discretion.’” Global

Network Techs., Inc. v. Regional Airport Auth., 122 F.3d 661, 665 (8th Cir.

1997) (quoting Hagerman v. Yukon Energy Corp.,
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839 F.2d 407, 413 (8th Cir.), cert. denied, 488 U.S. 820 (1988)). “‘An

abuse of discretion will only be found if the district court’s judgment was

based on clearly erroneous factual findings or erroneous legal

conclusions.’” Perkins v. U S West Communications, ___ F.3d ___, 1998 WL

91424, at *3 (8th Cir. Mar. 5, 1998) (quoting Mathenia v. Delo, 99 F.3d

1476, 1480 (8th Cir. 1996), cert. denied, 117 S. Ct. 2518 (1997)).

III. Discussion 

Federal Rule of Civil Procedure 59(e) was adopted to clarify a

district court’s power to correct its own mistakes in the time period

immediately following entry of judgment. Norman, 79 F.3d at 750 (citing

White v. New Hampshire Dep’t of Employment Sec., 455 U.S. 445 (1982)).

Rule 59(e) motions serve a limited function of correcting “‘manifest errors

of law or fact or to present newly discovered evidence.’” Hagerman, 839

F.2d at 414 (quoting Rothwell Cotton Co. v. Rosenthal & Co., 827 F.2d 246,

251 (7th Cir.), as amended, 835 F.2d 710 (7th Cir. 1987)). Such motions

cannot be used to introduce new evidence, tender new legal theories, or

raise arguments which could have been offered or raised prior to entry of

judgment. Id. A case in which a timely Rule 59(e) motion has been filed

lacks finality because the motion tolls the time limitation for appeal in

order to provide the trial court with jurisdiction to resolve the motion.

This “tolling process” encourages “both correctness and finality.” Jackson

v. Schoemehl, 788 F.2d 1296, 1298 (8th Cir. 1986). See also Sanders v.

Clemco Indus., 862 F.2d 161,170 (8th Cir. 1988); 11 Charles Alan Wright et

al., Federal Practice and Procedure § 2821, at 220-21 (2d ed. 1995).

Relying on Villegas v. Princeton Farms, Inc., 893 F.2d 919 (7th Cir.

1990), defendants Kirsch and Redden argue the district court erred in

entering final judgment in their favor on the indemnification

counterclaims, and then vacating that decision by dismissing the

counterclaims without prejudice upon consideration of the Fed. R. Civ. P.

59(e) motion filed by plaintiffs Meier and Hougdahl.
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In Villegas, the district court granted the defendant’s motion to

dismiss pursuant to Fed. R. Civ. P. 12(b)(6) because state law did not

recognize the cause of action brought by the plaintiff, and entered

judgment accordingly. The district court then granted the plaintiff’s

motion to vacate the judgment and voluntarily dismiss the case without

prejudice, inviting the plaintiff to refile his action in state court. The

Court of Appeals reversed the latter order, finding “a clear abuse of

discretion to decide the merits of the legal issue while hearing the case

under diversity jurisdiction and then later redirect the parties to state

court.” Id. at 923. The Villegas court stated that vacation of a judgment

is authorized by Fed. R. Civ. P. 59(e), but “[i]n this case, . . . the

district judge cited no errors or changes of heart regarding the merits of

the legal arguments, but instead decided to send the case to the Illinois

courts as the preferred forum.” Id. at 924.

Villegas is readily distinguishable from the case before us because

the district judge in this case expressly cited “errors or changes of heart

regarding the merits of the legal arguments” related to the indemnification

counterclaims and the merits of its prior decision to retain jurisdiction

over those counterclaims pursuant to 28 U.S.C. § 1367. Specifically, the

complexity of the state law issues involved in resolving the counterclaims,

combined with the fact that the court had previously dismissed all claims

over which it had original jurisdiction, led the court to reconsider its

decision to retain supplemental jurisdiction--a proper use of Fed. R. Civ.

P. 59(e) under Villegas and under the manifest-error-of-law standard in

this circuit.

Section 1367 provides for the mandatory exercise of supplemental

jurisdiction as follows:

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
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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.

28 U.S.C. § 1367(a) (1993). Subsection (c) provides exceptions to the

above mandatory command, granting district courts discretion to reject

supplemental jurisdiction if:

(1) the claim raises a novel or complex issue of State

law,

(2) the claim substantially predominates over the claim or

claims over which the district court has original jurisdiction,

(3) the district court has dismissed all claims over which

it has original jurisdiction, or

(4) in exceptional circumstances, there are other

compelling reasons for declining jurisdiction.

28 U.S.C. § 1367(c). This subsection “plainly allows the district court

to reject jurisdiction over supplemental claims only in the four instances

described therein.” McLaurin v. Prater, 30 F.3d 982, 985 (8th Cir. 1994).

While the district court’s power to exercise jurisdiction under the

“same case or controversy” requirement in 28 U.S.C. § 1367(a) is one

ordinarily resolved on the pleadings, the court’s decision to exercise that

jurisdiction “is one which remains open throughout the litigation.” United

Mine Workers v. Gibbs, 383 U.S. 715, 727 (1966) (discussion of pendent

jurisdiction and discretionary power of federal trial court to refuse to

hear state law claims, now codified by 28 U.S.C. § 1367).

Assuming the defendants’ state law indemnification counterclaims were

sufficiently related to the plaintiffs’ jurisdictionally sufficient claims

such that all claims could fairly be characterized as part of the “same

case or controversy” pursuant to 28 U.S.C. § 1367(a), the district court

had the discretion to decline to retain jurisdiction under section

1367(c)(3) (dismissal of all claims over which it had original

jurisdiction)
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and 1367(c)(1) (complex issue of state law) at any time in the litigation.

Further, because the timely filing of the Rule 59(e) motion tolled the

appeal time in order to provide the district court with jurisdiction to

resolve the motion, the district court’s decision to relinquish

supplemental jurisdiction was made before the case was “final” for appeal

purposes.

Defendants Kirsch and Redden contend the district court’s reversal of

its decision to retain supplemental jurisdiction violates the law-of-thecase doctrine. However, none of the cases on which Kirsch and Redden rely

involve a district court’s decision to relinquish supplemental jurisdiction

pursuant to 28 U.S.C. § 1367 in the context of resolving a Fed. R. Civ. P.

59(e) motion. LaShawn A. v. Barry, 87 F.3d 1389 (D.C. Cir. 1996); Starks

v. Rent-A-Center, 58 F.3d 358 (8th Cir. 1995); Lovett v. General Motors

Corp., 975 F.2d 518 (8th Cir. 1992), cert. denied, 510 U.S. 1113 (1994).

In any event, a court has the power to revisit its prior decisions when

“the initial decision was ‘clearly erroneous and would work a manifest

injustice.’” Starks, 58 F.3d at 364 (quoting Christianson v. Colt Indus.

Operating Corp., 486 U.S. 800, 817 (1988)). As determined above, this is

such a case.

IV. Conclusion

Upon further reflection and research regarding the defendants’

indemnification counterclaims prompted by the plaintiffs’ Rule 59(e)

motion, the district court discovered that it had erred in granting summary

judgment for the defendants on those counterclaims because complex issues

of state law needed to be addressed through additional discovery and

briefing before resolution of the indemnification counterclaims was

possible. Thus, the district court sought to correct its error of law by

relinquishing supplemental jurisdiction under 28 U.S.C. § 1367(c) for

reasons expressly permitted therein--a complex issue of state law and

dismissal of all claims over which the district court had original

jurisdiction. Therefore, we cannot say the district court clearly
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abused its discretion in granting the plaintiffs’ motion pursuant to Fed.

R. Civ. P. 59(e) and dismissing the indemnification counterclaims without

prejudice.

Affirmed.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.