Iglesias v. Mutual Life Ins. Co. of New York

• Decision Date: 26 February 1998
• Docket Number: 97-1649,Nos. 97-1648,s. 97-1648
• Citation: 156 F.3d 237,1998 WL 611134
• Parties: 78 Fair Empl.Prac.Cas. (BNA) 154 Manuel A. IGLESIAS, Plaintiff, Appellant, v. MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, Defendant, Appellee. Manuel A. IGLESIAS, Plaintiff, Appellee, v. MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 237

156 F.3d 237

78 Fair Empl.Prac.Cas. (BNA) 154

Manuel A. IGLESIAS, Plaintiff, Appellant, v. MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, Defendant, Appellee.

Manuel A. IGLESIAS, Plaintiff, Appellee, v. MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, Defendant, Appellant.

Nos. 97-1648, 97-1649.

United States Court of Appeals, First Circuit.

Heard Feb. 26, 1998.

Decided Sept. 17, 1998.

Charles S. Hey-Maestre, with whom Adalina deJesus-Morales was on brief for Manuel A. Iglesias.

Roberto O. Maldonado-Nieves, was on brief for Mutual Life Insurance Company of New York.

Before TORRUELLA, Chief Judge, CAMPBELL, Senior Circuit Judge, and STAHL, Circuit Judge.

LEVIN H. CAMPBELL, Senior Circuit Judge.

Manuel A. Iglesias appeals from the district court's grant of summary judgment on his discrimination and contract claims against his former employer, Mutual Life Insurance Company of New York ("MONY"). MONY appeals from the court's dismissal of its counterclaim for restitution of money that Iglesias obtained by submitting admittedly overstated expense reports. We affirm the judgment for MONY against Iglesias. We vacate the order dismissing MONY's counterclaim and remand the counterclaim with directions to dismiss the counterclaim without prejudice for want of jurisdiction.

I. Iglesias's Claims.

We review a grant of summary judgment de novo, taking the facts in the light most favorable to the non-moving party. See One Nat'l Bank v. Antonellis, 80 F.3d 606, 608 (1st Cir.1996). After considering the record, briefs, and oral arguments, we affirm the dismissal of Iglesias's discrimination and contract claims substantially for the reasons stated in the district court's memoranda and orders. We add only the following short discussion.

Regarding Iglesias's discrimination claims, ¹ Iglesias received clear and unequivocal notice that he was terminated as MONY's San Juan Agency Manager on February 9, 1989, at the latest. On that date, MONY sent him a letter informing him that he would no longer be authorized to act as Agency Manager. In the context of the parties' prior discussions regarding Iglesias's retirement, the February 1989 letter put Iglesias on notice that he had been fired. ² Iglesias did not file administrative charges with the Anti-Discrimination Division of the Puerto Rico Department of Labor until August 28, 1990, and his initial complaint in federal court was not filed until April 17, 1991. Iglesias's action for discrimination was, therefore, barred by the applicable statutes of limitations. See 42 U.S.C. § 2000e-5(e) (establishing a 300-day limitation period for actions under Title VII that were first presented to an administrative agency); 29 U.S.C. § 626(d)(2) (setting a 300-day limitation period for actions under the ADEA that were first brought before a state authority); Olmo v. Young & Rubicam, 110 D.P.R. 740, 745, 1981 WL 176523 (P.R.1981) (applying a one year limitation period to claims brought under Law 100). The Puerto Rico Supreme Court's decision in Velez Rodrguez v. Pueblo Int'l, Inc., 94 JTS 37 (P.R. March 18, 1994) does not apply to Iglesias's claims for the reasons stated in the district court's memorandum.

Regarding Iglesias's contract claims, MONY's employment contract with Iglesias did not limit MONY's ability to withdraw products from the Puerto Rico market. Iglesias argues that the provision in the contract authorizing him to "solicit applications for insurance in MONY of the types of insurance which MONY is issuing" created a vested right that prevented MONY from ever altering its policy offerings in Puerto Rico. We recognize that "when the facts support plausible but conflicting inferences on a pivotal issue in the case, the judge may not choose between those inferences at the summary judgment stage." Coyne v. Taber Partners I, 53 F.3d 454, 460 (1st Cir.1995). We need not indulge a nonmoving party's inferences, however, if they do not "flow rationally from the underlying facts." Rubinovitz v. Rogato, 60 F.3d 906, 911 (1st Cir.1995).

No reasonable jury could agree with Iglesias's reading of his contract. The plain language of the provision purports only to authorize Iglesias to sell MONY's product line, it does not guarantee stability of that line. MONY is a national company that deals with many agents in diverse geographic areas. To interpret this contract provision so as to grant each of those agents the power to control which products MONY offers within that particular agent's jurisdiction would give Iglesias and other agents the power to veto policy decisions made by MONY's upper management at the company's national headquarters. This would flip the employment relationship between MONY and its agents on its head. Further, each of Iglesias's contracts contained clauses in which MONY reserved the right to change the contract. The district court's grant of summary judgment was entirely appropriate.

II. MONY's Counterclaim.

MONY reimbursed Iglesias for expenses that he incurred as a result of his professional activities. To supplement his income, Iglesias admits that he "padded" his expense reimbursement requests from 1981 to 1988. MONY first learned of Iglesias's practice of overstating his expenses in 1987. At that time, MONY took no legal action against Iglesias. Instead, after notifying him that his conduct conflicted with company policy, MONY requested that he submit accurate reports in the future. Subsequently, Iglesias brought the present action against MONY for discrimination and breach of contract. On November 7, 1991, in the course of a deposition, Iglesias admitted that he had continued submitting exaggerated expense reports even after MONY's 1987 warning.

MONY tried to use the information obtained at the 1991 deposition in three ways. First, MONY questioned Iglesias about his expense reports during trial in an effort to impeach his credibility. Second, MONY attempted to raise the falsified expense requests as an affirmative defense to Iglesias's discrimination claims, arguing that they provided MONY with a valid non-discriminatory reason to terminate Iglesias. The court did not allow MONY to pursue this strategy because MONY learned of these improprieties only after it had terminated Iglesias.

Third, and more importantly for our purposes, MONY sought leave to amend its answer to add a counterclaim for restitution. On March 17, 1992, the magistrate judge granted MONY's request. For four years, the parties conducted discovery on the counterclaim. On August 6, 1996, Iglesias moved for dismissal of MONY's counterclaim arguing, inter alia, that it was barred by laches. On August 14, 1996, the district court dismissed the counterclaim as untimely. MONY now appeals from that dismissal.

Although neither of the parties has raised the issue, we have an obligation to inquire into our subject matter jurisdiction over MONY's counterclaim. See Clark v. Paul Gray, Inc., 306 U.S. 583, 588, 59 S.Ct. 744, 83 L.Ed. 1001 (1939) (holding that although district court's jurisdiction had not been challenged, Court had duty to raise question of whether jurisdictional amount was involved). See also White v. Gittens, 121 F.3d 803, 806 (1st Cir.1997). Federal courts are courts of limited jurisdiction; a court may not address the merits until "after ... the court has assumed jurisdiction over the controversy." Bell v. Hood, 327 U.S. 678, 681, 66 S.Ct. 773, 90 L.Ed. 939 (1946); see also Steel Co. v. Citizens for a Better Environment, --- U.S. ----, ----, 118 S.Ct. 1003, 1012, 140 L.Ed.2d 210 (1998) (stating that deciding the merits before confirming jurisdiction "carries the courts beyond the bounds of authorized judicial action and thus offends fundamental principles of separation of powers"). Since MONY's counterclaim sounds in state law, a federal court may not hear it unless it falls within the ambit of supplemental jurisdiction or is supported by an independent jurisdictional basis. See Toste Farm Corp. v. Hadbury, Inc., 70 F.3d 640, 646 (1st Cir.1995) (noting that a federal court has jurisdiction over a counterclaim only if it resides within the court's supplemental jurisdiction or is supported by an independent jurisdictional basis).

The parties appear to have assumed that MONY's counterclaim was within the court's supplemental jurisdiction. When considering supplemental jurisdiction, the nature of the counterclaim is crucial. Federal Rule of Civil Procedure 13 describes two types of counterclaims: compulsory and permissive. A compulsory counterclaim is one that "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim." Fed.R.Civ.P. 13(a). All counterclaims that are not compulsory are permissive. See Fed.R.Civ.P. 13(b). Only compulsory counterclaims can rely upon supplemental jurisdiction; permissive counterclaims require their own jurisdictional basis.

The supplemental jurisdiction statute provides: "[I]n any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." 28 U.S.C. § 1367(a). Section 1367 incorporates the common law doctrines of pendent and ancillary jurisdiction. See Penobscot Indian Nation v. Key Bank, 112 F.3d 538, 563 (1st Cir.1997), cert. denied, --- U.S. ----, 118 S.Ct. 297, 139 L.Ed.2d 229 (1997). Federal courts have ancillary jurisdiction over compulsory counterclaims. See McCaffrey v. Rex Motor Transp., Inc., 672 F.2d 246, 248 (1st Cir.1982); 6 Charles Alan Wright, Arthur R, Miller & Mary Kay Kane, Federal Practice & Procedure § 1414, at 99 (2d ed.1990). Permissive counterclaims, however, do not fall within ancillary jurisdiction and therefore may not be heard in federal court unless supported by an independent basis of jurisdiction. See McCaffrey...