Opinion ID: 436172
Heading Depth: 2
Heading Rank: 2

Heading: dismissal of the pendent state law claims for unfair competition

Text: 57 With regard to the district court's dismissal without prejudice of Ladsco's pendent state unfair competition claims, we must remand to the district court for reconsideration in light of recent developments in the state court action that Ladsco filed subsequent to the district court's final order in this case. See supra note 8. The district court's decision to dismiss the pendent state claims was based in large part on Ladsco's ability to obtain a state forum for its unfair competition claims. Ladsco filed the state action; and the Alabama Supreme Court recently affirmed the state trial court's dismissal of that action because this federal appeal was pending. L.A. Draper & Sons, Inc. v. Wheelabrator-Frye, Inc., 454 So.2d 506 (Ala.1984). 17 58 The parties' briefs to this court have not addressed the issue of whether a state action remains available to Ladsco on its unfair competition claims. Accordingly, we remand to the district court to determine that issue, which, as we will discuss, has a decisive bearing in this particular case on the propriety of denying Ladsco a federal forum for its pendent state claims. See Pharo v. Smith, 625 F.2d 1226, 1227 (5th Cir.1980) (remanding to district court to redetermine whether pendent state claims should have been dismissed in light of possible statute of limitations bar to subsequent state suit). 59 A. The State Law Claims Were Pendent Under the United Mine Workers v. Gibbs Analysis 60 Two factors determine whether state law claims lacking an independent federal jurisdictional basis can be heard in federal court with a federal claim over which the court has jurisdiction. To exercise pendent jurisdiction over state law claims not otherwise cognizable in federal court, the court must have jurisdiction over a substantial federal claim and the federal and state claims must derive from a 'common nucleus of operative fact.'  Jackson v. Stinchcomb, 635 F.2d 462, 470 (5th Cir.1981) (quoting United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966)). See generally C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure: Jurisdiction Sec. 3567 pp. 443-47 (1975). 61 For jurisdictional purposes, Ladsco's antitrust claim was sufficiently substantial. The question for jurisdictional purposes is 'not whether the claims are without merit but whether the prior decisions inescapably render the claims frivolous.'  Jackson v. Stinchcomb, 635 F.2d at 471 (quoting Curtis v. Taylor, 625 F.2d 645, 649-50 (5th Cir.1980)). The federal courts' power or jurisdiction to entertain pendent state claims ordinarily is determined on the pleadings. United Mine Workers v. Gibbs, 373 U.S. at 727-28, 86 S.Ct. at 1139-40. Although Ladsco's proof on the federal claims ultimately was insufficient to create an issue for the jury, the claims at the pleading stage did state a cause of action similar to that recognized in Northwest and Page. Thus, the antitrust claims were not inescapably rendered frivolous by previous decisions. See Warehouse Groceries Management v. Sav-U-Warehouse, 624 F.2d 655, 659 (5th Cir.1980) (dismissal of federal claims does not necessarily keep those claims from being substantial for purposes of jurisdiction over pendent state law claims). 62 In addition, Ladsco's state law unfair competition and federal antitrust claims derived from a common nucleus of operative facts. Jackson v. Stinchcomb, 635 F.2d at 470. The actions of Hester and the three salesmen, along with the alleged conspiracy in which Whiffy participated, were the basis for both the federal and state claims. Considered without regard to their federal or state character, Ladsco's antitrust and unfair competition claims are such that they ordinarily would be tried in a single action. See United Mine Workers v. Gibbs, 383 U.S. at 725, 86 S.Ct. at 1138. 63 Because the federal claim was substantial, and the state claims arose from the same facts, the district court had the power to hear the pendent state claims. Subsequent developments, including the directed verdict against the federal antitrust claims, have not divested the district court's jurisdiction should the court determine on remand that a state forum is unavailable and that it must hear the pendent unfair competition claims. See Stein v. Reynolds Securities, Inc., 667 F.2d 33, 34 (11th Cir.1982) (federal court may retain pendent jurisdiction over a state claim which is barred by the state period of limitations, even though all federal claims have been dismissed). B. The Discretionary Factors 64 The Court in Gibbs held that even where the federal court has power to entertain the pendent state claims, it need not do so: [P]endent jurisdiction is a matter of discretion, not of plaintiff's right. United Mine Workers v. Gibbs, 383 U.S. at 726, 86 S.Ct. at 1139. See also Laird v. Bd. of Trustees of the Inst. of Higher Learning of the State of Mississippi, 721 F.2d 529, 534 (5th Cir.1983); Jackson v. Stinchcomb, 635 F.2d at 472. The discretion to entertain or dismiss the pendent state claims continues throughout the proceeding. See United Mine Workers v. Gibbs, 383 U.S. at 727, 86 S.Ct. at 1139; H & B Equipment Co. v. International Harvestor Co., 577 F.2d 239, 248 (5th Cir.1978) (holding that dismissal of pendent state unfair competition claims was not an abuse of discretion subsequent to trial that resulted in directed verdict against plaintiff's antitrust claims). See generally, C. Wright, A. Miller & E. Cooper, supra, Sec. 3567 at 445. 65 The district court's discretionary decision whether or not to entertain pendent state claims is guided generally by four factors: (1) whether the state law claims predominate in terms of proof, the scope of the issues raised, or the comprehensiveness of the remedy sought; (2) whether comity considerations warrant determination by a state court (i.e., is the state claim novel or particularly complex such that an accurate definitive interpretation of state law is necessary); (3) whether judicial economy, convenience, and fairness to the litigants would best be served by trying the federal and state claims together; and (4) whether the state claim is so closely tied to questions of federal policy that the argument for exercise of pendent jurisdiction is particularly strong. Jackson v. Stinchcomb, 635 F.2d at 473 (quoting United Mine Workers v. Gibbs, 383 U.S. at 726-27, 86 S.Ct. at 1139-40). 66 The timing of the federal court's decision to hear the state claims also influences the consideration of these discretionary factors. For example, a state claim that does not appear predominant on the pleadings may emerge as such following discovery. Thus, a district court might properly find that the first factor warrants dismissal of the state claim sometime after the pleading stage. See Jackson v. Stinchcomb, 635 F.2d at 472 n. 20. Indeed, if the federal claims are dismissed prior to trial, Gibbs strongly encourages or even requires dismissal of the state claims. United Mine Workers v. Gibbs, 383 U.S. at 726, 86 S.Ct. at 1139. See Joiner v. Diamond M. Drilling Co., 677 F.2d 1035, 1042 (5th Cir.1982); Ray v. Tennessee Valley Authority, 677 F.2d 818, 825 (11th Cir.), cert. denied, 459 U.S. 1147, 103 S.Ct. 788, 74 L.Ed.2d 994 (1983). Conversely, after a full trial on the merits, judicial economy and convenience counsel against dismissal of the state claims, which would thereby require an identical and duplicative proceeding in state court. See Caserta v. Village of Dickinson, 672 F.2d 431, 433 (5th Cir.1982). If the statute of limitations had run on Ladsco's state claims while the action in federal court was pending, previous decisions of this court strongly indicate that dismissal of the state claims would be an abuse of discretion. Ransom v. S & S Food Center, Inc., 700 F.2d 670, 678 (11th Cir.1983); Stein v. Reynolds Securities, Inc., 667 F.2d at 34; Rheaume v. Texas Dept. of Public Safety, 666 F.2d 925, 931-32 (5th Cir.), cert. denied, 458 U.S. 1106, 102 S.Ct. 3484, 73 L.Ed.2d 1367 (1982); Henson v. Columbus Bank & Trust Co., 651 F.2d 320, 325 (5th Cir.1981); Pharo v. Smith, 625 F.2d 1226, 1227 (5th Cir.1980). See also Quality Foods de Cent. Am. v. Latin Am. Agribusiness Dev. Corp., 711 F.2d 989, 990-91 (11th Cir.1983) (remanding for consideration of statute of limitations problem in dismissal of pendent claims, but noting that issue was not presented to district court and that delay causing statute of limitations problem was caused by plaintiff). 67 In examining the factors that guided the district court's determination to dismiss the pendent claims, we first assume that a state forum is still available to Ladsco on its unfair competition claims and find the decision was not an abuse of discretion. In the following section, we determine that if Ladsco's action in the state courts is now unavailable, the balance of discretionary factors tips in favor of the district court affording Ladsco a decision on the merits of its state claims, which were properly appended to a non-frivolous federal action. 68
69 Once the district court had directed a verdict against the antitrust claims, it had only the state claims left to consider; as would of course be true in any case in which the federal claims are insufficient to create a jury issue. This predominance of the state claim, by itself, is not determinative; the federal claims can drop out of the case after trial yet dismissal of pendent state claims nevertheless might be an abuse of discretion. See Caserta v. Village of Dickinson, 672 F.2d at 433 (holding that district court properly dismissed federal claims after trial, but abused discretion in dismissing pendent state claims). 70 The district court relied primarily upon the second factor, the novelty of the state unfair competition allegations, as grounds for dismissing the pendent claims. 71 [C]omity requires that this court defer to the courts of Alabama for a ruling on the alleged unfair competition claim. That claim, as alleged in the complaint, has never been recognized by the Alabama courts. A preliminary search for Alabama authority has revealed a single case on the general issue, with facts quite dissimilar from the facts here. Thus, what is helpful in that opinion is, for the most part, mere dictum. 72