Opinion ID: 662435
Heading Depth: 2
Heading Rank: 1

Heading: The F & C Case

Text: 17 On December 11, 1987, the F & C declaratory judgment action against Texas Eastern was commenced in federal district court in Texas. Texas Eastern filed an answer with counterclaims against virtually all of its excess insurers on December 15, 1988, after the F & C case had been transferred to the Eastern District of Pennsylvania and consolidated with the remaining two related cases. Although diversity jurisdiction between the two original parties, F & C and Texas Eastern, is undisputed, Texas Eastern now claims that the district court lacked jurisdiction over its counterclaims because Texas Eastern failed to state a basis in the Federal Rules of Civil Procedure for adding the excess insurers, failed to seek leave of court to join them, and did not execute service of process upon them; hence they were not made parties to the suit and the F & C action involved only the policies issued by its primary liability carrier. 2 Fidelity and Casualty Co. of N.Y. v. Texas Eastern Transmission Corp., No. 88-5039. 18 Texas Eastern mounts the following argument. The complaint by F & C tracked a very narrow compass because it involved only primary carrier liability. Outstanding at the same time in two other lawsuits was the question of liability of both primary and excess carriers. Therefore, had not the district court erroneously assumed it had jurisdiction over Texas Eastern's excess liability carriers in F & C, the district court would have dismissed the F & C law suit in favor of the more comprehensive state court action. 3
19 In deciding whether the excess insurers were parties to the F & C action, we note preliminarily that a party is deemed to have consented to personal jurisdiction if the party actually litigates the underlying merits or demonstrates a willingness to engage in extensive litigation in the forum. In re Real Estate Title and Settlement Services Antitrust Litigation, 869 F.2d 760, 771 (3d Cir.), cert. denied, 493 U.S. 821, 110 S.Ct. 77, 107 L.Ed.2d 44 (1989). The F & C counterclaim defendants actively litigated the F & C action, failed to move to dismiss Texas Eastern's counterclaim for lack of service before litigating the motions for summary judgment, and, in fact, moved for summary judgment on other grounds. 4 Thus, we may infer that the counterclaim defendants effectively waived the defense of lack of personal jurisdiction based on the absence of service of process by acquiescing in personal jurisdiction. See Zelson v. Thomforde, 412 F.2d 56, 58-59 (3d Cir.1969); United States v. Article of Drug, etc., 362 F.2d 923, 926-27 (3d Cir.1966). Since service of process is to provide notice of the pendency of the action, which the excess carriers clearly had, and goes to the question of in personam jurisdiction, in which the excess carriers have clearly acquiesced, the district court's exercise of personal jurisdiction over the excess carriers in the F & C action cannot be nullified by Texas Eastern's failure to cause summonses to be served on them. The district court implicitly adopted such a holding when it entered judgment in the F & C action in favor of all carriers, and we affirm this resolution of the question of personal jurisdiction in F & C.
20 Having disposed of contentions regarding personal jurisdiction, we must now consider the claim that the district court lacked subject matter jurisdiction over the non-diverse counterclaim defendants in the F & C action. In its counterclaim, Texas Eastern alleged ancillary jurisdiction over the excess insurers. Ancillary subject matter jurisdiction may be exercised over additional party defendants to a compulsory counterclaim, or over third party defendants. See Great Lakes Rubber Corp. v. Herbert Cooper Co., 286 F.2d 631, 633-34 (3d Cir.1961) (ancillary jurisdiction extends to subject matter of counterclaim arising out of transaction or occurrence which is subject matter of opposing party's claim of which court has jurisdiction, and such counterclaim is compulsory); Field v. Volkswagenwerk AG, 626 F.2d 293, 299 (3d Cir.1980) (no independent jurisdictional basis required for third party claim when diversity jurisdiction obtained over original claim). Nevertheless, Texas Eastern now claims that the district court's exercise of subject matter jurisdiction over the counterclaims against the non-diverse excess insurers was a form of pendent party jurisdiction precluded by the Supreme Court in Finley v. United States, 490 U.S. 545, 109 S.Ct. 2003, 104 L.Ed.2d 593 (1989) (declining to exercise pendent party jurisdiction under Federal Tort Claims Act unless statute conferring jurisdiction over primary claim explicitly confers jurisdiction over pendent party claim). Texas Eastern argues that neither the diversity statute, 28 U.S.C. Sec. 1332, upon which jurisdiction over the original claim lies, nor any other arguably applicable federal statute, authorizes such jurisdiction over the excess insurers. 5 21 In this regard, we note initially that the Supreme Court has carefully distinguished a non-federal claim asserted by a plaintiff which can be joined with a federal cause of action arising from the same transaction despite its destruction of complete diversity, from ancillary jurisdiction, which typically involves claims by a defending party haled into court against his will, or by another person whose rights might be irretrievably lost unless he could assert them in an ongoing action in federal court. Owen Equipment and Erection Co. v. Kroger, 437 U.S. 365, 376, 98 S.Ct. 2396, 2404, 57 L.Ed.2d 274 (1978). See also Ambromovage v. United Mine Workers of America, 726 F.2d 972, 989 n. 48 (3d Cir.1984) (ancillary jurisdiction pertains to claims other than those of plaintiff, such as compulsory counterclaims, while pendent jurisdiction pertains to plaintiff's non-federal claims where there is a federal claim which gives the court jurisdiction). This subtle distinction places in doubt Texas Eastern's broad reading of Finley. 22 We note secondly that Congress has confirmed the principle of ancillary jurisdiction over counterclaim defendants in the enactment of the Judicial Improvements Act of 1990, 28 U.S.C. Sec. 1367 (using new statutory term, supplemental jurisdiction). 6 Section 1367(b) of the Act restricts the extension of jurisdiction in diversity cases over claims by plaintiffs against persons made parties under Rule 14, 19, 20, or 24, (emphasis added), and by its terms would not extend to Texas Eastern's counterclaims as party defendant. Supplemental jurisdiction under the statute extends to any related claim of the defendant that arises out of the same case or controversy as the original claim. See C. Wright, A. Miller, M. Kane, Federal Practice and Procedure Civil 2d, Sec. 1436 at 11 (Supp.1993); see, also, C. Wright, Federal Courts, Sec. 79 at 527 n. 6 (4th ed. 1983) (the bringing in of additional parties to respond to a compulsory counterclaim does not destroy diversity jurisdiction). Thus, it would appear that the Judicial Improvements Act would preserve jurisdiction in the F & C action. 7 We hold that the additional non-diverse counterclaim defendants do not destroy diversity jurisdiction in the F & C action because there is complete diversity of citizenship between the originally named parties.
23 Having found that federal jurisdiction was correctly found in the F & C case and that all of the insurers are parties to that action, we note the possibility that the principle of ancillary jurisdiction might again be invoked to ground subject matter jurisdiction in the remaining two cases, AEGIS and Texas Eastern. We need not rely here on the principle of ancillary jurisdiction, however, because we find an independent source of federal subject matter jurisdiction in both cases.