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HARRY WINSTON, INC. v. KERR

October 20, 1999

HARRY WINSTON, INC., PLAINTIFF,
v.
KATHLEEN A. KERR, DEFENDANT.



The opinion of the court was delivered by: Kaplan, District Judge.

MEMORANDUM OPINION

The principal question presented by the pending cross-motions is whether the Court has subject matter jurisdiction over the so-called cross-claim filed by third party defendant Bruce Winston against plaintiff Harry Winston, Inc. ("HWI").

Facts

The background of this bitter family dispute is summarized in the Court's recent opinion on a discovery matter, familiarity with which is assumed.*fn1 Briefly stated, HWI, which now is controlled by Ronald Winston, here claims that defendant Kathleen Kerr, a former officer and employee, betrayed the company by improperly revealing corporate confidences to Ronald's brother, Bruce, for use by Bruce in his battles with Ronald and the company. As Ms. Kerr acted pursuant to an agreement with Bruce pursuant to which Bruce agreed to pay her up to $1 million for her troubles, she understandably impleaded Bruce. Bruce in turn filed a purported cross-claim*fn2 against HWI in which he alleges, both in his individual capacity and as the beneficial owner of HWI stock, that HWI's institution and prosecution of this action is a waste of corporate assets.

HWI has moved to dismiss Bruce's claim for lack of subject matter jurisdiction and failure to state a claim upon which relief may be granted. Bruce has cross-moved for leave to amend his claim, if necessary, to cure alleged pleading defects upon which HWI's motion relies.

Discussion

Bruce's claim against HWI alleges no independent basis of federal subject matter jurisdiction. Indeed, Bruce concedes that there is none.*fn3 Rather, he contends that the Court has jurisdiction because his Rule 14(a) claim arises out of the same transaction and occurrence as the complaint and therefore comes within Rule 14(a)*fn4 and, in any case, that it comes within the supplemental jurisdiction of the Court under Section 1367 of the Judicial Code.*fn5

Rule 82 provides that the Federal Rules of Civil Procedure "shall not be construed to extend or limit the jurisdiction of the United States district courts. . . ."*fn6 Nor could they do so given the terms of the Rules Enabling Act.*fn7 In consequence, Bruce's contention that the Court has subject matter jurisdiction because his claim comes within Rule 14(a) is frivolous.

The Section 1367 argument is more colorable. Section 1367 in pertinent part confers supplemental jurisdiction "over all . . . claims that are so related to claims in the action within . . . [the court's] original jurisdiction that they form part of the case or controversy under Article III of the United States Constitution."*fn8 It then goes on to define circumstances in which a district court nevertheless may decline to exercise supplemental jurisdiction.*fn9 The statute therefore contemplates a two-tiered analysis. The first step is to determine whether the claim at issue comes within the court's power. If so, the second step requires determination whether that power should be exercised.

Section 1367(a), which defines the scope of a district court's power to decide a claim, simply codifies the preexisting holding of the Supreme Court in the Gibbs*fn10 case.*fn11 A court thus has the power to exercise supplemental jurisdiction over state claims if they derive from "a . . . nucleus of operative fact" common to the jurisdiction conferring claim and if they "are such that [the claimant] would ordinarily be expected to try them all in one judicial proceeding. . . ."*fn12

Bruce's Rule 14(a) claim does not satisfy this standard. HWI's claim against Kerr is that she faithlessly entered into an arrangement with Bruce in 1996 pursuant to which she has divulged trade secrets and confidential information to him ever since. Bruce's claim against HWI is that its commencement of this action in 1998 and its subsequent prosecution involve an imprudent use of corporate assets and was otherwise improper. Thus, while the actions by Kerr of which HWI complains provided the occasion for the HWI action that Bruce attacks, the conduct complained of by HWI and the conduct complained of by Bruce have nothing in common.

Courts have taken differing views as to the degree of closeness that must exist between the jurisdiction conferring claim and the putative supplemental claim in order to come within their supplemental jurisdiction.*fn13 Some have required only a logical relationship between the two claims, while others hold that both claims must involve common operative facts.*fn14 Whichever view is taken, however, Bruce's claim does not get over the hurdle.

There are few if any operative facts common to the two claims. HWI's claim against Kerr depends upon what information she revealed to Bruce and whether she breached any duty in doing so. Bruce's claim against HWI, on the other hand, asserts that HWI's pursuit of the case against Kerr was imprudent and tainted by conflicts of interest. It therefore turns on whether the HWI board was conflicted and whether it acted prudently, given the information before it when it acted. This last point is especially important in that it answers Bruce's contention that both claims arise from a common nucleus because the merits of HWI's claim against Kerr must be decided in resolving his claim against HWI. For what ultimately is important with respect to Bruce's claim against HWI is not whether HWI prevails on its claim against Kerr, but whether the board acted within the permissible scope of its discretion in deciding to pursue the claim in the first place.*fn15 Those are two different questions.

Nor is Bruce materially aided by the looser logical relationship test employed by some courts. He contends that there must be a logical relationship between both claims because his claim against HWI is based on HWI's pursuit of this case against Kerr. But this facile ...


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