February 28, 2017

Ninth Circuit Dismisses Severed Cross-Claim for Lack of Subject Matter Jurisdiction

John Austin

On February 14, the Ninth Circuit Court of Appeals has ruled that a defendant’s severed cross-claim brought in federal court, originally from the plaintiff’s action brought under diversity action jurisdiction, must have an independent jurisdictional basis, and the cross-claimant could no longer rely on the supplemental jurisdiction afforded by 28 U.S.C. section 1367(a). In Herklotz v. Parkinson, et al, No. 07-56657 (February 14, 2017), the court held the state law based cross-claim, once the action based on diversity jurisdiction is missed, must have its own basis for diversity jurisdiction or must be dismissed if no diversity exists between the cross-claimant and cross defendant.

This action began in 2000 as a diversity suit in the Western District of Pennsylvania. In 2000, WRS, Inc., filed a diversity suit in the Western District of Pennsylvania against defendants Plaza Entertainment and its directors John Herklotz, Eric Parkinson, and Charles von Bernuth. Herklotz cross-claimed against Plaza, Parkinson, and von Bernuth. When the district court granted summary judgment in favor of WRS, Herklotz moved to sever his state law cross-claim and transfer it to the Central District of California. The Pennsylvania district court granted the unopposed motion, severed the cross-claim, and transferred the newly independent case. The California district court then dismissed Herklotz's claims under Federal Civil Rule 12(b)(6), from which Herklotz appeals.

Instead of reaching the review of the 12(b)(6) dismissal, the panel first addressed whether the court had subject matter jurisdiction. Citing that federal courts are courts of limited jurisdiction, and parties may not expand that jurisdiction by waiver or consent, the court has an independent obligation to assess both its own and the district court’s jurisdiction. See California ex rel. Sacramento Metro. Air Qual. Mgmt. Dist. v. United States, 215 F.3d 1005, 1009 (9th Cir. 2000) (“An appellate court is under a ‘special obligation to satisfy itself not only of its own jurisdiction, but also that of the lower courts in a cause under review, even though the parties are prepared to concede it [or] make no contention concerning it.’”).

Herklotz’s severed cross-claim included only state law claims against non-diverse parties, and both Herklotz and Gehring contend the Pennsylvania district court retained supplemental jurisdiction over the Crossclaim following summary judgment on the underlying complaint. The parties cited  28 U.S.C. § 1367(c)(3), which provides a federal court with discretion to retain or decline jurisdiction over pendent state law claims once those claims within the court’s original jurisdiction have been dismissed or otherwise resolved. However, the court distinguished this principle because it presumes the pendent claims remain part of the original action, even if the federal claims to which they once related have been dismissed.

Herklotz opted to sever the cross-claim, once the original claims were dismissed. When a claim is severed, it becomes an entirely new and independent case. See, e.g., Gaffney v. Riverboat Servs. of Ind., 451 F.3d 424, 441 (7th Cir. 2006) (“As a general matter, Rule 21 severance creates two discrete, independent actions, which then proceed as separate suits for the purpose of finality and appealability.”); E.S. v. Indep. Sch. Dist., 135 F.3d 566, 568 (8th Cir. 1998) (“When a single claim is severed from a lawsuit, it proceeds as a discrete, independent action”); United States v. O'Neill, 709 F.2d 361, 368 (5th Cir. 1983) (“Severance under Rule 21 creates two separate actions or suits where previously there was but one.”). Thus, the cross-claim became the operative complaint of a new lawsuit. As a new lawsuit, the severed action must have an independent jurisdictional basis, and it can no longer rely on the supplemental jurisdiction afforded by 28 U.S.C. § 1367(a), for there is nothing left to supplement.

John Austin

Principal at John Austin Law Firm in Raleigh, North Carolina.