Opinion ID: 3009944
Heading Depth: 3
Heading Rank: 1

Heading: Alignment

Text: Before rushing to deny Sylvan's bid to participate in this action, however, we must consider a fundamental principle of federal jurisdiction, a principle associated with, but not limited to, diversity jurisprudence. In determining the alignment of the parties for jurisdictional purposes, the courts have a duty to 'look beyond the pleadings and arrange the parties according to their sides in the dispute.' Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 69 (1941) (quoting Dawson v. Columbia Trust Co., 197 U.S. 178, 180 (1905)). Opposing parties must have a 'collision of interests' over the 'principal purpose of the suit.' Id. (quoting Dawson, 197 U.S. at 181 and East Tennessee, V. & G. R. v. Grayson, 119 U.S. 240, 244 (1886)). In this circuit we have described the alignment inquiry as one which obliges the court to penetrate the nominal party alignment and to consider the parties' actual adversity of interest. In re Texas Eastern Transmission Corp. PCB Contamination Ins. Coverage Litigation, 15 F.3d 1230, 1240-41 (3d Cir.), cert. denied, ___ U.S. ___, 115 S.Ct. 291 (1994). See also Employers Ins. of Wausau v. Crown Cork & Seal Co., 905 F.2d 42, 46 (3d Cir. 1990). In Texas Eastern, we determined that a district court had erroneously reasoned that realignment was a principle associated exclusively with diversity jurisdiction. 15 F.3d at 1242 (emphasis added). Realignment in fact represents a broader principle of judicial interpretation of statutes conferring jurisdiction in federal courts, where the statutory conferral of jurisdiction is predicated upon the adversarial relationship of the parties. Id. at 1240. Thus, where party designations have jurisdictional consequences, we must align the parties before determining jurisdiction. Texas Eastern, 15 F.3d at 1241 (realigning partes for jurisdictional analysis under Foreign Sovereign Immunities Act, 28 U.S.C. §1330). See also Chicago, R. I. & P. R. Co. v. Stude, 346 U.S. 574 (1954) (realigning parties for jurisdictional analysis under the removal statute, 28 U.S.C. §1440). Under §1367(b), party designations clearly have profound jurisdictional consequences. In two recent cases we have noted the strikingly different treatment §1367(b) affords the claims of plaintiffs as opposed to those of defendants. See Texas Eastern, 15 F.3d at 1237-38; Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399 (3d Cir. 1993). See also Practice Commentary at 832 ([§1367(b)] is concerned only with efforts of a plaintiff to smuggle in claims that the plaintiff would not otherwise be able to interpose . . . The repetition of the word 'plaintiff' at several rule-citing junctures in subdivision (b) makes this clear). Accordingly, we must align the parties before applying §1367(b). The principal purpose of the suit by DEFCO and National Housing is to enforce their agreements with Alpha. Both Alpha and Sylvan seek to set aside the agreements, paying at most the equitable compensation required by 15 Pa.C.S. §5503(a). Although Sylvan's claim nominally opposes Alpha, in fact the basic interests of Alpha and Sylvan coincide with each other and collide with those of DEFCO and National Housing over the principal issue of the case. The actual adversity of interest pits Alpha and Sylvan against DEFCO and National Housing. Consequently, Sylvan must be aligned with Alpha as a defendant. Sylvan's motion to intervene should be treated as raising a cross-claim against Alpha and a counterclaim against DEFCO and National Housing. 2. Counterclaims and cross-claims of an intervenor-defendant The plain language of §1367(b) limits supplemental jurisdiction over claims of plaintiffs against persons made parties under Rule 14, 19, 20, or 24, and of parties who join or intervene as plaintiffs pursuant to Rule 19 or 24. 28 U.S.C.A. §1367(b). The section has little to say about defendants. We have twice held that in a diversity action, the district court has jurisdiction over a defendant's counterclaim against non-diverse parties joined as third-party defendants to the counterclaim. Texas Eastern, 15 F.3d at 1237-38; FDIC v. Bathgate, 27 F.3d 850, 874 (3d Cir. 1994). In Texas Eastern we specifically pointed out that §1367(b) by its terms does not extend to a defendant's counterclaims, and further that the joinder of non-diverse counterclaim defendants do[es] not destroy diversity jurisdiction . . . because there is complete diversity of citizenship between the original parties. Texas Eastern, 15 F.3d at 1238. Similarly, in Janney Montgomery Scott, an investment banker sued an obligor for breach of contract in a diversity action. In holding that a co-obligor was not a necessary party to the action, we stated that if defendant moved to implead the coobligor on a claim for contribution, the district court would have supplemental jurisdiction, despite the common citizenship of the defendant/third-party plaintiff and the third-party defendant. Janney Montgomery Scott, 11 F.3d at 412, n.15. When faced by a party alignment very similar to the one here, the district court in Colonial Penn concluded that §1367(b) did not eliminate jurisdiction over a claim asserted by a nondiverse intervenor against the original plaintiff. The district court aligned the intervenor as a defendant though the party called itself a plaintiff, treated its claim as a counterclaim, and exercised jurisdiction. 1992 WL 350838 at -4. See also Practice Commentary at 833 (suggesting §1367(b) does not eliminate supplemental jurisdiction over counterclaim raised by non-diverse defendant-intervenor). We are aware of only one case in which a court considered the application of §1367(b) to a cross-claim by one co-defendant against another, non-diverse co-defendant, where federal jurisdiction over the original claims depended on §1332. There, a district court held that §1367(b) does not eliminate supplemental jurisdiction. Meritor Sav. Bank v. Camelback Canyon Investors, 783 F.Supp. 455, 457 (D.Ariz. 1991). Considerations of judicial economy also counsel in favor of limiting §1367(b) to its plain language, rather than extending its jurisdictional bar to claims raised by intervening defendants. Where an intervenor's claims are so entangled with the original claims and parties, banishing the non-diverse claim to state court would not serve the goal of judicial efficiency, Finally, we have held that the 1990 Judicial Improvement Act codified the Supreme Court's treatment of ancillary jurisdiction. Texas Eastern, 15 F.3d at 1237-38 and n.7. Extending §1367(b) to bar a counterclaim or cross-claim by an intervening defendant would contradict the pre-1990 common law of ancillary jurisdiction, which encompassed counterclaims by a defending party pulled into court against his will, as well as claims by another person whose rights might be irretrievably impaired unless he could assert them in an existing federal court action. Owen Equipment and Erection Co. v. Kroger, 437 U.S. 365, 375-76 (1978). As discussed infra, applicant's rights could be irretrievably impaired if it is excluded from the instant proceeding. We conclude that §1367(b) does not deprive the district court of supplemental jurisdiction over a counterclaim or crossclaim raised by an intervening defendant, even where the intervenor shares citizenship with an original party.