Ticor acted as the title insurer as well as escrow agent for
the sale/leaseback transaction.
CDS satisfied these conditions, except admittedly failed to
pay the September 1988 rental payment of $12,135.42 owed to
FFCA. As a result, FFCA terminated the lease for non-payment.
Although FFCA did not collect the rent under the insurance
policy with United Guaranty, it did collect on the letter of
credit from Guardian Bank. In addition, Ticor released the
$36,000 that was held in escrow to FFCA.
II. PROCEDURAL SETTING
The plaintiffs commenced this action in August 1989 against
FFCA, Ticor and United Guaranty,*fn3 alleging seven causes of
action, including wrongful termination of the lease,
conversion, fraud and breach of contract. Federal jurisdiction
is predicated on diversity of citizenship (see Amended
Complaint at p. 1; see also 28 U.S.C. § 1332).
The plaintiffs' seventh cause of action is against Ticor for
allegedly converting the plaintiffs' $36,000 which was held in
escrow (see Amended Complaint ¶¶ 77-85). The plaintiffs also
allege that Ticor conspired with FFCA in converting this
amount. This is the only cause of action alleged against Ticor.
Defendant Ticor now moves pursuant to Fed.R.Civ.P. 12(b)(1)
to dismiss for lack of subject matter jurisdiction, since the
amount in controversy does not exceed the required
jurisdictional amount, namely, $50,000.
In opposition, the plaintiffs do not dispute that the amount
in controversy is below the required jurisdictional amount.
Rather, the plaintiffs "cross-move", requesting the Court to
exercise pendent jurisdiction over the claim against Ticor.
Pendent Jurisdiction, Generally:
Pendent jurisdiction involves additional claims asserted by
the plaintiff which have no independent basis for federal
jurisdiction (see United Mine Workers of Am. v. Gibbs,
383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 ). Under Gibbs, if a
federal claim is sufficient to confer subject matter
jurisdiction over a controversy, then it is discretionary for a
court to exercise jurisdiction over state-law claims that do
not have an independent basis for jurisdiction, so long as the
state and federal claims "derive from a common nucleus of
operative fact" (United Mine Workers of Am. v. Gibbs, supra,
383 U.S. at p. 725, 86 S.Ct. at p. 1138).
"Pendent-party" jurisdiction refers to "the joining of
additional parties with respect to whom there is no independent
basis of federal jurisdiction" (Aldinger v. Howard, 427 U.S. 1,
6, 96 S.Ct. 2413, 2416, 49 L.Ed.2d 276 ; see also Finley
v. United States, 490 U.S. 545, 109 S.Ct. 2003, 104 L.Ed.2d 593
Effect of Finley v. United States:
In Finley v. United States, 490 U.S. 545, 109 S.Ct. 2003, 104
L.Ed.2d 593 (1989), the Supreme Court specifically held that in
an action brought under the Federal Tort Claims Act ("FTCA"),
28 U.S.C. § 1346(b), a District Court may not exercise
"pendent-party" jurisdiction over a related state-law claim by
the plaintiff against a defendant over whom no independent
basis for federal jurisdiction exists. That is, if no "federal
question" or "diversity" jurisdiction exists with respect to
the claims asserted against that party, the Court cannot
exercise pendent-party jurisdiction.
Although Finley did not totally eliminate pendent-party
jurisdiction (see, e.g., Roco
Carriers, Ltd. v. M/V Nurnberg Express, 899 F.2d 1292 [2d Cir.
1990] ["pendent party jurisdiction is available in the unique
area of admiralty"]), it expressly did so with respect to
claims asserted under the FTCA (see Associated Dry Goods Corp.
v. Towers Financial Corp., 920 F.2d 1121, 1125 [2d Cir. 1990];
cf. Lee v. Transportation Communications Union, 734 F. Supp. 578,
581 [E.D.N.Y. 1990] [no pendent-party jurisdiction in
action brought under the FELA]).
"Supplemental Jurisdiction" Under 28 U.S.C. § 1367:
President Bush recently signed into law the Judicial
Improvements Act of 1990, Pub.L. 101-650, which made major
changes in federal jurisdiction and practice. In particular,
Congress codified "ancillary" and "pendent" jurisdiction under
the caption of "supplemental jurisdiction" (see Pub.L. 101-650,
§ 310, 28 U.S.C. § 1367). Significantly, the new section 1367
effectively overrules Finley, supra, since it provides that the
District Courts have "supplemental jurisdiction" over claims
and also "shall include claims that involve the joinder or
intervention of additional parties" (28 U.S.C. § 1367[a]; see
also Mengler, Burbank & Rowe, Recent Federal Court Legislation
Made Some Noteworthy Changes, The National L.J., Dec. 31, 1990
["Sec. 1367 essentially restores a federal district court's
authority over supplemental claims to its status before
Subdivision (b), however, restricts the use of "supplemental
jurisdiction" in diversity cases, as was held in prior case
law, by providing as follows:
"(b) In any civil action of which the district
courts have original jurisdiction founded solely
on section 1332 of this title, the district courts
shall not have supplemental jurisdiction under
subsection (a) over claims by plaintiffs against
persons made parties under Rule 14, 19, 20, or 24
of the Federal Rules of Civil Procedure, or over
claims by persons proposed to be joined as
plaintiffs under Rule 19 of such rules, or seeking
to intervene as plaintiffs under Rule 24 of such
rules, when exercising supplemental jurisdiction
over such claims would be inconsistent with the
jurisdictional requirements of section 1332."
This section clearly bars exercising jurisdiction over the
claim against Ticor. Section 1367, however, expressly applies
to actions commenced "on or after the date of the enactment of
this Act", which is December 1, 1990 (Pub.L. 101-650, §
310[c]). Thus, by its terms, the statute is inapplicable to
actions commenced before December 1, 1990. Although section
1367 is inapplicable to actions commenced before December 1,
1990, one commentator has noted that "it would not be
surprising to see a court applying some of the intent
underlying the new statute" (D. Siegel, New York State Law
Digest, No. 374 [Feb. 1991]). Thus, while the effective date of
the statute renders it inapplicable to this case, the Court
notes that with regard to pendent jurisdiction in diversity
actions as opposed to "federal question" cases, the legislature
simply codified and made clear, existing case law.