Court Opinion

ID: 2965464
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:40:44.802625+00
Date Added: 2024-06-11T11:43:07.050865
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<pre>                 United States Court of Appeals <br>                     For the First Circuit <br> <br> <br> <br> <br> <br>No. 97-1648 <br> <br>                       MANUEL A. IGLESIAS, <br> <br>                      Plaintiff, Appellant, <br> <br>                                v. <br> <br>            MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, <br> <br>                      Defendant, Appellee. <br>                                 <br>                      ____________________ <br> <br>No. 97-1649 <br>                                 <br>                                 <br>                      MANUEL A. IGLESIAS, <br>                                 <br>                      Plaintiff, Appellee, <br>                                 <br>                               v. <br>                                 <br>           MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, <br>                                 <br>                     Defendant, Appellant. <br>                                 <br> <br> <br>         APPEALS FROM THE UNITED STATES DISTRICT COURT <br>                                 <br>                FOR THE DISTRICT OF PUERTO RICO <br>                                 <br>      [Hon. Raymond L. Acosta, Senior U.S. District Judge] <br>                                 <br> <br> <br>                             Before <br>                                 <br>                     Torruella, Chief Judge, <br>                                 <br>                Campbell, Senior Circuit Judge, <br>                                 <br>                   and Stahl, Circuit Judge. <br> <br> <br> <br> <br>     Charles S. Hey-Maestre, with whom Adalina deJesus-Morales was <br>on brief for Manuel A. Iglesias. <br>     Roberto O. Maldonado-Nieves, was on brief for Mutual Life <br>Insurance Company of New York. <br> <br>  <br> <br> <br> <br>September 17, 1998 <br> <br> <br> <br>                                 <br>                                 <br>

  CAMPBELL, Senior Circuit Judge.  Manuel A. Iglesias <br>appeals from the district court's grant of summary judgment on his <br>discrimination and contract claims against his former employer, <br>Mutual Life Insurance Company of New York ("MONY").  MONY appeals <br>from the court's dismissal of its counterclaim for restitution of <br>money that Iglesias obtained by submitting admittedly overstated <br>expense reports.  We affirm the judgment for MONY against Iglesias. <br>We vacate the order dismissing MONY's counterclaim and remand the <br>counterclaim with directions to dismiss the counterclaim without <br>prejudice for want of jurisdiction. <br>I.  Iglesias's Claims. <br>  We review a grant of summary judgment de novo, taking the <br>facts in the light most favorable to the non-moving party.  See One <br>Nat'l Bank v. Antonellis, 80 F.3d 606, 608 (1st Cir. 1996).  After <br>considering the record, briefs, and oral arguments, we affirm the <br>dismissal of Iglesias's discrimination and contract claims <br>substantially for the reasons stated in the district court's <br>memoranda and orders.  We add only the following short discussion. <br>  Regarding Iglesias's discrimination claims, Iglesias <br>received clear and unequivocal notice that he was terminated as <br>MONY's San Jose Agency Manager on February 9, 1989, at the latest.  <br>On that date, MONY sent him a letter informing him that he would no <br>longer be authorized to act as Agency Manager.  In the context of <br>the parties' prior discussions regarding Iglesias's retirement, the <br>February 1989 letter put Iglesias on notice that he had been <br>fired.  Iglesias did not file administrative charges with the <br>Anti-Discrimination Division of the Puerto Rico Department of Labor <br>until August 28, 1990, and his initial complaint in federal court <br>was not filed until April 17, 1991.  Iglesias's action for <br>discrimination was, therefore, barred by the applicable statutes of <br>limitations.  See 42 U.S.C.  2000e-5(e) (establishing a 300-day <br>limitation period for actions under Title VII that were first <br>presented to an administrative agency); 29 U.S.C.  626(d)(2) <br>(setting a 300-day limitation period for actions under the ADEA <br>that were first brought before a state authority); Olmo v. Young & <br>Rubicam, 110 D.P.R. 740, 745 (P.R. 1981) (applying a one year <br>limitation period to claims brought under Law 100).  The Puerto <br>Rico Supreme Court's decision in Vlez Rodrguez v. Pueblo Int'l, <br>Inc., 94 JTS 37 (P.R. March 18, 1994) does not apply to Iglesias's <br>claims for the reasons stated in the district court's memorandum. <br>     Regarding Iglesias's contract claims, MONY's employment <br>contract with Iglesias did not limit MONY's ability to withdraw <br>products from the Puerto Rico market.  Iglesias argues that the <br>provision in the contract authorizing him to "solicit applications <br>for insurance in MONY of the types of insurance which MONY is <br>issuing" created a vested right that prevented MONY from ever <br>altering its policy offerings in Puerto Rico.  We recognize that <br>"when the facts support plausible but conflicting inferences on a <br>pivotal issue in the case, the judge may not choose between those <br>inferences at the summary judgment stage."  Coyne v. Taber Partners <br>I, 53 F.3d 454, 460 (1st Cir. 1995).  We need not indulge a <br>nonmoving party's inferences, however, if they do not "flow <br>rationally from the underlying facts."  Rubinovitz v. Rogato, 60 <br>F.3d 906, 911 (1st Cir. 1995). <br>     No reasonable jury could agree with Iglesias's reading of <br>his contract.  The plain language of the provision purports only to <br>authorize Iglesias to sell MONY's product line, it does not <br>guarantee stability of that line.  MONY is a national company that <br>deals with many agents in diverse geographic areas.  To interpret <br>this contract provision so as to grant each of those agents the <br>power to control which products MONY offers within that particular <br>agent's jurisdiction would give Iglesias and other agents the power <br>to veto policy decisions made by MONY's upper management at the <br>company's national headquarters.  This would flip the employment <br>relationship between MONY and its agents on its head.  Further, <br>each of Iglesias's contracts contained clauses in which MONY <br>reserved the right to change the contract.  The district court's <br>grant of summary judgment was entirely appropriate. <br>II.  MONY's Counterclaim. <br>     MONY reimbursed Iglesias for expenses that he incurred as <br>a result of his professional activities.  To supplement his income, <br>Iglesias admits that he "padded" his expense reimbursement requests <br>from 1981 to 1988.  MONY first learned of Iglesias's practice of <br>overstating his expenses in 1987.  At that time, MONY took no legal <br>action against Iglesias.  Instead, after notifying him that his <br>conduct conflicted with company policy, MONY requested that he <br>submit accurate reports in the future.  Subsequently, Iglesias <br>brought the present action against MONY for discrimination and <br>breach of contract.  On November 7, 1991, in the course of a <br>deposition, Iglesias admitted that he had continued submitting <br>exaggerated expense reports even after MONY's 1987 warning. <br>     MONY tried to use the information obtained at the 1991 <br>deposition in three ways.  First, MONY questioned Iglesias about <br>his expense reports during trial in an effort to impeach his <br>credibility.  Second, MONY attempted to raise the falsified expense <br>requests as an affirmative defense to Iglesias's discrimination <br>claims, arguing that they provided MONY with a valid non- <br>discriminatory reason to terminate Iglesias.  The court did not <br>allow MONY to pursue this strategy because MONY learned of these <br>improprieties only after it had terminated Iglesias. <br>     Third, and more importantly for our purposes, MONY sought <br>leave to amend its answer to add a counterclaim for restitution.  <br>On March 17, 1992, the magistrate judge granted MONY's request.  <br>For four years, the parties conducted discovery on the <br>counterclaim.  On August 6, 1996, Iglesias moved for dismissal of <br>MONY's counterclaim arguing, inter alia, that it was barred by <br>laches.  On August 14, 1996, the district court dismissed the <br>counterclaim as untimely.  MONY now appeals from that dismissal. <br>     Although neither of the parties has raised the issue, we <br>have an obligation to inquire into our subject matter jurisdiction <br>over MONY's counterclaim.  See Clark v. Paul Gray, Inc., 306 U.S. <br>583, 588 (1939) (holding that although district court's <br>jurisdiction had not been challenged, Court had duty to raise <br>question of whether jurisdictional amount was involved).  See alsoWhite v. Gittens, 121 F.3d 803, 806 (1st Cir. 1997).  Federal <br>courts are courts of limited jurisdiction; a court may not address <br>the merits until "after . . . the court has assumed jurisdiction <br>over the controversy."  Bell v. Hood, 327 U.S. 678, 681 (1946); <br>see also Steel Co. v. Citizens for a Better Environment, 118 S. Ct. <br>1003, 1012 (1998) (stating that deciding the merits before <br>confirming jurisdiction "carries the courts beyond the bounds of <br>authorized judicial action and thus offends fundamental principles <br>of separation of powers").  Since MONY's counterclaim sounds in <br>state law, a federal court may not hear it unless it falls within <br>the ambit of supplemental jurisdiction or is supported by an <br>independent jurisdictional basis.  See Toste Farm Corp. v. Hadbury, <br>Inc., 70 F.3d 640, 646 (1st Cir. 1995) (noting that a federal court <br>has jurisdiction over a counterclaim only if it resides within the <br>court's supplemental jurisdiction or is supported by an independent <br>jurisdictional basis). <br>     The parties appear to have assumed that MONY's <br>counterclaim was within the court's supplemental jurisdiction.  <br>When considering supplemental jurisdiction, the nature of the <br>counterclaim is crucial.  Federal Rule of Civil Procedure 13 <br>describes two types of counterclaims: compulsory and permissive.  <br>A compulsory counterclaim is one that "arises out of the <br>transaction or occurrence that is the subject matter of the <br>opposing party's claim."  Fed. R. Civ. P. 13(a).  All counterclaims <br>that are not compulsory are permissive.  See Fed. R. Civ. P. 13(b).  <br>Only compulsory counterclaims can rely upon supplemental <br>jurisdiction; permissive counterclaims require their own <br>jurisdictional basis. <br>     The supplemental jurisdiction statute provides: "[I]n any <br>civil action of which the district courts have original <br>jurisdiction, the district courts shall have supplemental <br>jurisdiction over all other claims that are so related to claims in <br>the action within such original jurisdiction that they form part of <br>the same case or controversy under Article III of the United States <br>Constitution."  28 U.S.C.  1367(a).  Section 1367 incorporates the <br>common law doctrines of pendent and ancillary jurisdiction.  <br>See Penobscot Indian Nation v. Key Bank, 112 F.3d 538, 563 (1st <br>Cir.), cert. denied, 118 S. Ct. 297 (1997).  Federal courts have <br>ancillary jurisdiction over compulsory counterclaims.  <br>See McCaffrey v. Rex Motor Transp., Inc., 672 F.2d 246, 248 (1st <br>Cir. 1982); 6 Charles Alan Wright, Arthur R, Miller & Mary Kay <br>Kane, Federal Practice & Procedure  1414, at 99 (2d ed. 1990).  <br>Permissive counterclaims, however, do not fall within ancillary <br>jurisdiction and therefore may not be heard in federal court unless <br>supported by an independent basis of jurisdiction.  See McCaffrey, <br>672 F.2d at 248; Wright, et al.,  1422, at 169-70. <br>     There are at least four tests to determine whether a <br>counterclaim is compulsory or permissive: <br>     1) Are the issues of fact and law raised by <br>     the claim and counterclaim largely the same? <br> <br>     2) Would res judicata bar a subsequent suit on <br>     defendant's claim absent the compulsory <br>     counterclaim rule? <br> <br>     3) Will substantially the same evidence <br>     support or refute plaintiff's claim as well as <br>     defendant's counterclaim? <br> <br>     4) Is there any logical relation between the <br>     claim and the counterclaim? <br>McCaffrey, 672 F.2d at 248 (quoting 6 Wright et al., supra,  1410, <br>at 42 [currently 52-57])(internal quotation marks omitted).  Of <br>these tests, only the fourth   the "logical relation" test   could <br>possibly encompass MONY's counterclaim.  In McCaffrey, we adopted <br>the Fifth Circuit's treatment of the logical relation test.  Under <br>this approach, a claim qualifies as compulsory only if: <br>     it arises out of the same aggregate of <br>     operative facts as the original claim in two <br>     senses: (1) that the same aggregate of <br>     operative facts serves as the basis of both <br>     claims; or (2) that the aggregate core of <br>     facts upon which the original claim rests <br>     activates additional legal rights in a party <br>     defendant that would otherwise remain dormant. <br>McCaffrey, 672 F.2d at 249 (quoting Revere Copper & Brass, Inc. v. <br>Aetna Cas. & Sur. Co., 426 F.2d 709, 715 (5th Cir. 1970)). <br>     Applying this standard, MONY's counterclaim is <br>permissive.  First, the aggregate of operative facts giving rise to <br>Iglesias's claims is entirely different from the facts supporting <br>MONY's counterclaim.  Iglesias alleges that MONY removed its <br>disability insurance product from the Puerto Rico market in 1981 <br>for discriminatory reasons.  That change in policy, he claims, led <br>to his eventual termination, which therefore was also <br>discriminatory.  The evidence relevant to these claims includes the <br>terms of Iglesias's employment contract and documentary, <br>testimonial or other evidence concerning MONY's actions in Puerto <br>Rico.  By contrast, MONY's counterclaim is for restitution of <br>monies that Iglesias wrongfully obtained from the company over the <br>period from 1981 to 1988.  The facts supporting the restitution <br>claim include Iglesias's records and expense vouchers for travel <br>and meals, his admissions during deposition, and documentary, <br>testimonial or other evidence regarding MONY's reimbursement <br>policies.  Notwithstanding both claims arose during the same time <br>period, they therefore rest on different sets of supporting facts. <br>     Second, MONY's ability to recover restitution does not <br>depend on the success or failure of Iglesias's claims.  Iglesias <br>has admitted that he overbilled his expenses to enhance his <br>compensation.  Although MONY discovered Iglesias's false <br>reimbursement requests for 1988 in a deposition that was part of <br>the present action, Iglesias's claims did not "activate" otherwise <br>dormant claims.  MONY could have sought reimbursement for its <br>payments based on Iglesias's false expense reports prior to 1988 at <br>any point.  Even MONY's claim relating to 1988 expenses is not tied <br>to the merits of the discrimination and contract claims.  In other <br>words, MONY's counterclaim bears no logical relation to the claims <br>in the main action. <br>     We conclude that MONY's counterclaim is permissive rather <br>than compulsory, and is not supported by federal supplemental <br>jurisdiction.  We look, therefore, to whether it rests on an <br>independent federal jurisdictional basis. <br>     The only possible jurisdictional basis would be diversity <br>of citizenship.  While Iglesias and MONY are citizens of different <br>states, MONY did not allege that its claim exceeded any specified <br>sum, nor is its amount ascertainable from the record.  See 28 <br>U.S.C.  1332(a) (1993) (limiting diversity jurisdiction to claims <br>that exceed a certain amount-in-controversy).  At the time that <br>MONY asserted its counterclaim, the amount-in-controversy required <br>was in excess of $50,000, exclusive of interest and costs.  The <br>burden of alleging jurisdiction is on the party asserting the <br>claim.  See Viquiera v. First Bank, 140 F.3d 12, 16 (1st Cir. 1998) <br>(stating that "the proponent . . . must carry the burden of <br>demonstrating the existence of federal jurisdiction"). <br>     Although "the sum claimed by the [proponent] controls if <br>the claim is apparently made in good faith," Saint Paul Mercury <br>Indem. Co. v. Red Cab Co., 303 U.S. 283, 288 (1938) (footnote <br>omitted), MONY, as noted, has failed to allege that its <br>counterclaim exceeds the required amount-in-controversy nor is <br>there evidence in the record from which its value can reliably be <br>determined as exceeding that amount.  MONY stated merely that it <br>was: <br>     in the process of reviewing each and everyone <br>     [sic] of the expense reports submitted by Mr. <br>     Iglesias to determine what was the scope of <br>     this practice by Mr. Iglesias and the <br>     approximate amount of funds wrongfully taken <br>     by Mr. Iglesias from Mutual through the scheme <br>     of false expense reports acknowledged by the <br>     plaintiff. <br>     Later, MONY submitted a more detailed accounting of <br>specific instances in which Iglesias alleged excessive or false <br>mileage, but did not state the value of the wrongful claims.  MONY <br>noted that Iglesias had charged $48,500.87 in meal expenses between <br>1981 and 1988, but it did not indicate what portion of these claims <br>was false or overstated. <br>     In these circumstances   lacking MONY's allegation that <br>the counterclaim meets the jurisdictional amount, and lacking facts <br>of record indicative that this is so   we must conclude that the <br>district court was without jurisdiction to proceed.  We, therefore, <br>remand the counterclaim with directions that it be dismissed for <br>want of jurisdiction.  See Fed. R. Civ. P. 12(h)(3)("Whenever it <br>appears by suggestion of the parties or otherwise that the court <br>lacks jurisdiction of the subject matter, the court shall dismiss <br>the action.").  See also United Food & Com. Workers Union v. <br>Centermark Properties Meridien Square, Inc., 30 F.3d 298, 306 (2d <br>Cir. 1994) (addressing for first time on appeal whether district <br>court lacked subject matter jurisdiction and remanding for <br>determination of whether amount in controversy requirement had been <br>met).  <br>     We recognize that Iglesias never pointed out below the <br>absence of a proper amount-in-controversy allegation, nor was the <br>subject raised by anyone.  Had it been raised, MONY might have been <br>able to remedy the deficiency by amendment if it believed in good <br>faith that its counterclaim exceeded the jurisdictional minimum.  <br>In these circumstances, the dismissal we now order shall be without <br>prejudice to MONY's right, if it can do so in good faith, to amend <br>the counterclaim within such time as the district court allows so <br>as to allege a supportably proper jurisdictional amount.  If MONY <br>can do so, the district court may lift the jurisdictional bar.  Cf.United Food, 30 F.3d at 306.  If that occurs, the court will be <br>faced with whether to reinstate its previous dismissal with <br>prejudice for untimeliness.  We comment briefly. <br>     Because jurisdiction over the counterclaim has not been  <br>established, we are without authority to rule whether the district <br>court's dismissal for untimeliness was proper.  Cf. Steel Co., 118 <br>S. Ct. at 1012.  The issue was, however, presented in this appeal <br>and we believe it would be helpful if we were to state our initial <br>impressions, recognizing their present non-binding character.  MONY <br>brought its counterclaim only four months after Iglesias's November <br>7, 1991 deposition revealing for the first time that he had <br>continued to falsify his expenses even after similar improprieties <br>were noted in 1987.  In all the circumstances, it is not readily <br>apparent why MONY should be thought tardy in bringing the <br>counterclaim when it did.   <br>     Iglesias argues that the counterclaim is barred by <br>laches.  The equitable doctrine of laches allows a court to dismiss <br>a claim "where a party's delay in bringing suit was (1) <br>unreasonable, and (2) resulted in prejudice to the opposing party."  <br>K-Mart Corp. v. Oriental Plaza, Inc., 875 F.2d 907, 911 (1st Cir. <br>1989).   Even if we were to find unreasonable delay within the <br>period between 1987, when MONY first learned that Iglesias had been <br>padding expenses, and 1992, when, after having warned Iglesias <br>earlier, MONY asserted its counterclaim based on the subsequent <br>defalcations, we fail to see how any of that delay prejudiced <br>Iglesias.  Indeed, such prejudice as there was appears to have <br>worked the other way.  The magistrate judge had granted permission <br>to MONY to assert its counterclaim, and the parties thereafter <br>conducted four years of discovery.  MONY sifted through receipts <br>for meals and business trips in an effort to reveal false claims.  <br>The court's dismissal after four years of discovery had been <br>allowed seems to work a hardship on MONY.  Given these equities, we <br>would have serious questions as to the strength of Iglesias's <br>laches argument.   <br>     The judgment for MONY against Iglesias is affirmed.  The <br>order dismissing the counterclaim for untimeliness is vacated and <br>the counterclaim remanded with directions to dismiss the <br>counterclaim without prejudice for want of jurisdiction.   <br>     </pre>

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