Fullin v. Martin, U.S. District Court, Eastern District of Wisconsin (1999)
Author: Bram

Cause of action: The following is a cause of action for 6 counts (against doctor, office manager and accountant) ranging from breach of fiduciary duty to fraud and malpractice.  DF counterclaims breach of K, defamation, and interference with prospective K.  No diversity between citizens.  PL's filed a later complaint was filed under the Employee's Retirement Income Security Act(ERISA), filed against DF (only doctor) in his continuing  capacity as KCA's (Kenosha Cardiology Associates) trustee of the company's pension and 401(k) plans.  Martin alleges DF's have nothing to do with the ERISA claim.

Procedural History: Case removed from trial court to federal court on the ERISA count, relying on U.S.C. §1441(c) for his suit, which states an entire action may be removed when "separate and independent" federal claim is joined with claims not otherwise removable.  DF's did not object to this removal, as per §1441(a) & (b).  DF's file summary judgment motions, which spoke only to the state claims, alleging they were not part of the ERISA claim.  Court concludes, after proclaiming only subject matter jurisdiction over the ERISA, and that it could only issue summary judgment on the one claim, while remanding the state claims back to state court.

Facts: Cardiologists who were once partners are now suing one another in this classic litigious suit in the Eastern District of WI.

Issue(s): Under federal rules of civil procedure, can the removal of a case to federal court on the basis of a separate claim result in that separate claim continuing to be tried on the federal level, while the original causes of action prior to the separate claim are remanded back down to the state level?

Under federal rules of civil procedure, can the state counterclaims remain in federal court?

Court's Rationale/Reasoning: Under pendent jurisdiction rule from Gibbs, a state claim may be hear by a federal court if the state claim is sufficiently related to the federal claim, i.e., if the claims arose from a common nucleus of operative fact and are claims a PL would be expected to assert in a single proceeding.  But 1441(c) exceeds that limit, as it allows the removal of claims which are sufficiently unrelated to each other, which makes the statute unconstitutional.  Thus, Martin's reliance on this provision for removal purposes is ineffective to bring those claims within the jurisdiction of federal court.

So, the narrower question is whether the federal claim is indeed separate in nature from the federal claim, and the court determined it is, for three reasons.  First, the federal claim is just against the former partner; second, the remedies in the suit are different in nature from those in the state claim, the federal claim being a declaration as opposed to damages per se; and last, the factual allegations for the two claims are separate: the state claim for fraudulent use of credit cards for business expenses, while the federal question exists for the breach of fiduciary duty under a federal statute.

However, the court decides the state claims against Martin cannot also remain in the federal court, as only compulsory claims fall within the court's supplemental jurisdiction.  Permissive counterclaims require their own jurisdictional basis.  A compulsory counterclaim arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of 3rd parties of whom the court cannot acquire jurisdiction (rule 13(a)).  The test is whether the essential facts of the various claims are so logically connected that considerations of judicial economy and fairness dictate that all the issues be resolved in one lawsuit.  Here the counterclaims bear no legal connection to the ERISA claim, just as the other state claims bear little if any connection to the ERISA claim.

Rule: 28 U.S.C. §1441(c):  Whenever a separate and independent claim or cause of action within the jurisdiction conferred by section 1331 of this title is joined with one or more otherwise non-removable claims or causes of action, the entire case may be removed and the district court may determine all issues therein, or, in its discretion, may remand all matters in which State law predominates.

If state claims are sufficiently related to the ERISA claim for purposes of supplemental jurisdiction under Gibbs and §1367, then they are not separate and independent claims for purposes of §1441(c).  If the state law claims are separate and independent from a federal claim as required by §1441(c), then they are not sufficiently related for purposes of pendent jurisdiction.

Holding: Here, yes, as the two complaints are separate in nature: state claim was against 3 parties, the federal question was against just the doctor in his capacity as trustee.  The federal complaint also seeks different remedy, and is based on two separate incidents.

No.  The counterclaims also arise out of a different sets of facts, which comprise a different claim and thus a different counterclaim.