MCI Telecommunications v. Logan Group, 4:91-CV-559-E.

• Decision Date: 30 March 1994
• Docket Number: No. 4:91-CV-559-E.,4:91-CV-559-E.
• Parties: MCI TELECOMMUNICATIONS CORPORATION v. The LOGAN GROUP, INC., et al. Fidelty Funding (NC), Inc., Intervenor.
• Court: U.S. District Court — Northern District of Texas

848 F. Supp. 86

MCI TELECOMMUNICATIONS CORPORATION v. The LOGAN GROUP, INC., et al. Fidelty Funding (NC), Inc., Intervenor.

No. 4:91-CV-559-E.

United States District Court, N.D. Texas, Fort Worth Division.

March 30, 1994.

John Crocker Meinrath, MCI Telecommunications Corp., Office of General Counsel, Richardson, TX, Richard Albert Valdes, Page & Addison, Dallas, TX, for MCI Telecommunications Corp.

Randy Lynn Agnew, McLean & Sanders, Fort Worth, TX, for Logan Group Inc, and Communication Specialties, Inc.

ORDER

MAHON, District Judge.

After noting a lack of jurisdiction over the claims of Intervenor Fidelity Funding (NC), Inc. ("Fidelity") on the ground stated in Fidelity's Original Petition in Intervention, the Court ordered Fidelity to show a proper jurisdictional basis for its claims. Having reviewed Fidelity's responding briefs, as well as the pleadings in the case, the Court determines that it has no jurisdiction over Fidelity's claims, which must therefore be dismissed.

PROCEDURAL BACKGROUND

MCI Telecommunications Corporation ("MCI") filed this action in August 1991. The complaint alleged that defendants, The Logan Group, Inc. and Communication Specialties, Inc. ("CSI"), had failed to pay for telephone services MCI provided. Defendants counterclaimed, alleging that MCI had erred in its billing of the services provided. In addition, defendants asserted that MCI had willfully failed to pay money collected by MCI and owed to defendant CSI on a separate "900 Service," as a result of which CSI's business suffered consequential damages. In response, MCI denied billing defendants improperly and alleged that the "900 Service" addressed in the counterclaim was governed by a contract requiring arbitration of any disputes arising out of the "900 Service."

In February 1993, Fidelity filed an unopposed motion for leave to intervene in the action to assert claims against MCI. Fidelity alleged that it had been assigned certain of CSI's accounts receivable on the "900 Service" and had informed MCI of the assignment. Fidelity further alleged that prior to purchasing a particular account receivable, it requested and received verification from MCI that the account was owing and would be paid, yet MCI subsequently refused to pay the account on the ground that an unrelated party, Technical Resources, Inc., owed MCI money. Based on these facts, Fidelity asserted claims for fraud and breach of contract. Fidelity's brief in support of the motion to intervene stated that it was entitled to intervention of right under Fed.R.Civ.P. 24(a) because it would not be able to protect its interest in the account receivable unless it intervened in this action. Although the Court was not persuaded that Fidelity met the requirements of intervention of right, since the parties did not oppose the intervention and it appeared that Fidelity's claim had at least one question of fact in common with the main action, the Court permitted Fidelity to intervene.

In January 1994, Fidelity moved for leave to file an amended complaint in intervention. In reviewing the original and proposed amended complaints, the Court noted that Fidelity's only asserted basis of jurisdiction was 28 U.S.C. § 1331, the federal question statute. Fidelity's claims were based on state law, however. In addition, although the pleadings established that MCI and defendants were diverse in citizenship, Fidelity did not allege its state of incorporation, but only its principal place of business. The Court therefore ordered Fidelity to show a proper basis for federal jurisdiction over its claims in intervention.

ANALYSIS

Fidelity admits there is no diversity between MCI and itself because both are incorporated in Delaware. It also concedes that under the ruling in MCI Telecommunications Corp. v. Credit Builders of America, Inc., 980 F.2d 1021, 1022-23 (5th Cir.), cert. granted and judgment vacated by ___ U.S. ___, 113 S.Ct. 2925, 124 L.Ed.2d 676 on remand, 2 F.3d 103 (5th Cir.) (opinion reinstated), cert. denied, ___ U.S. ___, 114 S.Ct. 472, 126 L.Ed.2d 424 (1993), the Court does not have federal jurisdiction over its claims or those of the other parties to this action on the ground that MCI's services were provided to defendants in accordance with the terms of MCI's Tariff No. 1, filed with the Federal Communications Commission.

Nevertheless, Fidelity contends that the Court has supplemental jurisdiction over its claims pursuant to 28 U.S.C. § 1367. Section 1367 provides, in part:

(a) Except as provided in subsections (b) and (c) or as expressly provided otherwise by Federal statute, in 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. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.

(b) In any civil action of which the district courts have original jurisdiction founded solely on section 1332 of this title diversity jurisdiction, 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.

(Emphasis added). Fidelity argues that its claims against MCI are sufficiently related to those in the original action to bring it within the terms of subsection (a). Further, while it is undisputed that the Court has original jurisdiction over this action based solely on diversity, Fidelity claims it is not an intervening plaintiff excluded from supplemental jurisdiction by subsection (b), but instead has intervened as a defendant.

Fidelity bases its position that it is an intervening defendant rather than plaintiff on the practice, followed by courts in reviewing diversity jurisdiction, of aligning parties according to their side of the dispute. See Lowe v. Ingalls Shipbuilding, A Div. of Litton Systems, Inc., 723 F.2d 1173, 1177-78 (5th Cir.1984). See also Zurn Industries, Inc. v. Acton Construction Co., 847 F.2d 234, 236 (5th Cir.1988). Because Fidelity's claims arise out of an account receivable assigned to it by CSI, a defendant, Fidelity argues that it must be considered a defendant, asserting a defense that would otherwise belong to CSI. Fidelity also suggests that jurisdiction exists for its claims because it is an intervenor as of right.

Fidelity's arguments are in error in several respects. Initially, as Zurn makes clear, realignment of parties for diversity purposes is done only with respect to the "primary and controlling matter in dispute" and does not include counterclaims of the defendants. Id. at 237. Only after diversity jurisdiction is found on the primary claim does a court examine other claims in the action to determine if they are supported by ancillary (now supplemental) jurisdiction or by an independent basis of jurisdiction. Id. Here, MCI's original claim was to collect money for telephone services provided to the defendants. Fidelity did not receive those services, had no responsibility for paying for them and has not disputed those services in this case. Therefore, even under the realignment procedure upon which it relies, Fidelity cannot be characterized as a defendant with respect to the primary claim in this action.

Moreover, the Court is of the opinion that whether Fidelity is an intervening plaintiff for purposes of supplemental jurisdiction must be determined not by the alignment principles of diversity, but by examining why section 1367(b) excludes intervening plaintiffs from supplemental jurisdiction when the sole basis of original jurisdiction is diversity of citizenship. Traditionally, ancillary jurisdiction was exercised when the original claims in an action were supported solely by diversity jurisdiction, to adjudicate related state law claims "by a defending party haled into court against his will, or by another person whose rights might be irretrievably lost unless he could assert them in an ongoing action in a federal court." Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 376, 98 S.Ct. 2396, 2404, 57 L.Ed.2d 274 (1978). However, parties who chose a federal rather than a state forum to assert state law claims were not permitted to use ancillary jurisdiction to circumvent the requirement of complete diversity. Id. at 376-77, 98 S.Ct. at 2403-04. Thus, while named plaintiffs were barred from relying on ancillary jurisdiction, so too were parties such as permissive intervenors who, like plaintiffs, voluntarily chose to litigate their claims in the federal forum. See, e.g., Mothersill D.I.S.C. Corp. v. Petroleos Mexicanos, S.A., 831 F.2d 59, 61-63 (5th Cir. 1987); Blake v. Pallan, 554 F.2d 947, 955-56 (9th Cir.1977).

While there are no cases addressing this exact issue, section 1367(b), enacted on December 1, 1990, appears intended to continue these previously established rules.¹Cf. Brazinski v. Amoco Petroleum Additives Co., 6 F.3d 1176, 1182 (7th Cir.1993) (legislative history shows section 1367 meant to codify, not alter, judge-made principles of pendent jurisdiction). Accordingly, the Court concludes that an intervening "plaintiff" within the terms of section 1367(b) is a party who voluntarily chooses to intervene in an ongoing federal action to assert its own affirmative claims. By contrast, non-plaintiff intervenors entitled to supplemental jurisdiction for their claims are those who must intervene to defend or protect interests put in issue by the...