Source: https://openjurist.org/276/f2d/468
Timestamp: 2019-04-22 12:02:49+00:00

Document:
Everett S. Layman, Kenneth S. Carey, San Francisco, Cal., for appellant.
Forrest E. Macomber, Gordon J. Aulik, Stockton, Cal., Arthur J. Lempert, San Francisco, Cal., for appellee.
Before HEALY, CHAMBERS, and HAMLIN, Circuit Judges.
This is an appeal from an order of the district court finalized pursuant to Federal Rule of Civil Procedure 54(b), 28 U.S.C.A., dismissing appellant's sixth counterclaim against appellee. Appellee's motion to augment the record on appeal is granted.
The facts in the case are these: Appellee and appellant joined together in a joint venture for the purpose of constructing a sanitary sewage system in a subdivision of Bakersfield, California. In the course of this work it became necessary to purchase a used sludge pump to test the project's disposal plant. Through the efforts of one R. E. White a used sewage system which included such a pump was obtained. This used system was paid for one-half by White and one-half by the joint venturers on the Bakersfield project, appellant and appellee. Unfortunately the Bakersfield joint venture terminated in litigation, appellee suing appellant in federal court for an accounting. Appellant's sixth counterclaim, the one here in question, alleged that appellee had converted to its own use the above mentioned used sewage system. Prior to appellee's federal action White had brought suit in state court seeking to quiet title to the used sewage system and had joined both appellant and appellee as defendants. Appellant had there cross-claimed against both appellee and White for the alleged conversion of the used sewage equipment. This state litigation was pending at the time the federal action was initiated.
The district court dismissed appellant's counterclaim for conversion of the used equipment on the grounds that it was neither permissive under Federal Rule of Civil Procedure 13(b) nor compulsory under Rule 13(a). The pertinent parts of Rule 13 are set out below.1 The court held that the counterclaim was one arising out of the transaction or occurrence which was the subject matter of the plaintiff's claim and so could not be a permissive counterclaim. Nor could it be a compulsory counterclaim, said the court, for it stated a cause of action which was the subject of pending state litigation at the time the federal action was begun. Therefore, the court concluded, the counterclaim could not be pleaded.
The district court correctly found that there was a very definite logical relationship between the counterclaim and the main action and that consequently both claims must be deemed to have arisen out of the same transaction or occurrence. Moore v. New York Cotton Exchange, 270 U.S. 593, 610, 46 S.Ct. 367, 70 L.Ed. 750; Lesnik v. Public Industrials Corp., 2 Cir., 144 F.2d 968, 975. Rule 13(b) is therefore inapplicable. See footnote 1, supra.
However, we believe the district court was mistaken in holding that Rule 13(a) precludes a defendant from pleading as a counterclaim a cause of action arising out of the same transaction or occurrence as the main action but which at the time suit was initiated was also the subject of pending state litigation.
This conclusion is reinforced by the fact that under Rule 13(b) pending litigation on the same cause of action has no effect on the ability to plead a permissive counterclaim. Thus, under the district court's theory, a cause of action which did not arise out of the same transaction or occurrence as the main claim could be pleaded as a counterclaim under Rule 13(b) even though the counterclaim was the subject of another pending action; but a claim so closely connected with the main action that it would otherwise be a compulsory counterclaim subject to waiver under Rule 13(a) cannot be pleaded at all if it is the subject of another pending action. Such a result is wholly unreasonable. We conclude, therefore, that appellant's sixth counterclaim in the present case may be pleaded under Rule 13(a).
Appellee attempts to justify the dismissal of the counterclaim in question on the grounds that it necessitates the joinder of an allegedly indispensable party, the aforementioned R. E. White, and that such joinder would destroy the diversity jurisdiction of the district court. The alleged indispensability is predicated solely on the fact that White was a joint venturer in the purchase of the used sewage equipment. This fact does not at all demonstrate that White is indispensable to the adjudication of appellant's counterclaim. Contrarily, it indicates, if anything, that White's connection with the alleged conversion is as a joint tort-feasor. And it is well established that a joint tort-feasor is not an indispensable party. Consult Pioche Mines Consol., Inc. v. Fidelity-Philadelphia Trust Co., 9 Cir., 1953, 206 F.2d 336. Furthermore, in the present case the counterclaimant and White are of diverse citizenship; appellant is a Nevada corporation and White is a citizen of California. In such a case there is no doubt of jurisdiction. See Lesnik v. Public Industrials Corp., D.C., 51 F. Supp. 989, 993; 3 Moore's Federal Practice (2d ed.) § 13.39, n. 11. And in any event, when a counterclaim is closely connected to the main action and thus may be pleaded under Rule 13(a), diversity jurisdiction is not destroyed by a lack of diversity between the counterclaimant and any third party against whom he may move. See United Artists Corp. v. Masterpiece Productions, 2 Cir., 221 F.2d 213, 216-217; Mayer v. Chase National Bank of City of New York, D.C., 165 F.Supp. 287, 291.
"(b) Permissive Counterclaims. A pleading may state as a counterclaim any claim against an opposing party not arising out of the transaction or occurrence that is the subject matter of the opposing party's claim. * * *"

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