Peter Parker, a lifelong resident of Pennsylvania, was reviewing his credit card bill and noticed a $100 charge for a subscription to the Daily Bugle, a newspaper published in New York (where it is incorporated and has its sole place of business). Parker had never subscribed to the Daily Bugle, and never received any copies of the paper. However, he recalled that, a few months earlier, he had visited the Bugle’s website and ordered a t-shirt with the paper’s stylish logo (pictured below).
After reading reports of other people similarly being improperly billed for Bugle subscriptions, Parker suspected that he was the victim of an elaborate scam. After further investigation, Parker concluded that the scam was concocted by J. Jonah Jameson (domiciled in New York), the Bugle’s business manager. Jameson did so as a way to artificially inflate the paper’s circulation figures, on which his salary was based.
Parker sues the Bugle and Jameson, asserting two claims against each defendant:
The federal CCPA allows a credit card holder to sue any person (including a corporation) who makes or assists another in making an unauthorized charge against the plaintiff’s credit card. A successful plaintiff may recover damages equal to the amount of unauthorized credit card charges or $5000, whichever is greater.
The NY UDAP statute allows suits against a business for unfair or deceptive acts or practices. The statute’s definition of “unfair or deceptive acts or practices” includes, but is not limited to, acts or practices that violate state or federal consumer protection laws. A succesful plaintiff may recover three-times the amount of actual loss caused by the defendant’s wrongful conduct.
In this case, the most Parker may recover is $5300 ($5000 for the federal CCPA claim, plus $300 for the NY state UDAP claim). The two defendants would be jointly and severally liable for that amount (i.e. if both defendants are found liable, Parker could collect the full amount from either defendant, or part from each).
Parker bring his suit in the U.S. District Court for the Southern District of New York.1
Is joinder of the Bugle and Jameson as co-defendants proper under the Federal Rules of Civil Procedure?
Does the federal court have subject matter jurisdiction over the suit?2
Regardless of your answer to the previous question, assume that the federal court had subject matter jurisdiction over the suit as initially filed. For each of the following additional claims, explain (i) whether joinder would be proper under the Federal Rules of Civil Procedure, and (ii) whether the federal court would have subject matter jurisdiction over the claim.
A claim by Betty Brant (a citizen of New Jersey), intervening in the suit as a co-plaintiff against the Bugle, alleging that she was fired from her job at the Bugle in violation of a state whistleblower statute after threatening to expose the credit card scam to state authorities. She seeks damages equal to one year’s salary ($50,000), the maximum permitted under the statute.
A claim by the Bugle against Jameson, alleging that Jameson breached his employment contract by concocting the scheme to boost his salary through artificially inflated circulation figures, and seeking recovery of $50,000 in excess salary that Jameson received.
A personal injury claim (under state law) by Parker against the Bugle, alleging that the Bugle t-shirt Parker bought was treated with toxic chemicals that caused a severe skin condition, for which Parker seeks a total of $70,000 in compensatory and punitive damages.
A claim by the Bugle against ZF Corp. (incorporated and having its principal place of business in New York), which manufactured the Bugle t-shirts, for indemnification on Parker’s personal injury claim (assume, regardless of your answer to the previous question, that Parker’s personal injury claim against the Bugle is properly joined).
FRCP Rule 20(a)(2) governs permissive joinder of defendants. There are two requirements for joinder under this rule.
First, there must be at least one claim asserted against each defendant “arising out of the same transaction, occurrence, or series of transactions or occurrences” (“Same T/O”). Under the “logical relationship” test, claims arise from the same T/O where the “essential facts” underlying each claim are “so logically connected that considerations of judicial economy and fairness dictate that all the issues be resolved in one lawsuit.”
Second, there must be a “question of law or fact common to all defendants”. Only one common question, of either law or fact, is required to satisfy this requirement.
Both requirements are readily satisfied in this case. The claims against the Bugle and James both arise from the same transaction, i.e. the $100 charge against Parker’s credit card. It makes sense, both as a matter of efficiency and fairness, to try these claims together in a single case. The claims also turn on a common question of law and fact, notably whether the $100 charge was indeed unauthorized. Accordingly, joinder under Rule 20(a)(2) is proper.
Federal courts have original jurisdiction over all actions arising under federal law. Sec. 1331. The CCPA is a federal statute that provides a remedy for fraudulent credit card charges. Because federal law creates that cause of action, there is federal question jurisdiction over the CCPA claim under sec. 1331.
But state law, not federal law, creates Parker’s UDAP claim. Where an issue of federal law arises as an essential element of a state law claim, and where there is a substantial federal interest in the issue as it arises in the case, a federal court may assert jurisdiction under sec. 1331. In Grable v. Darue, the plaintiff brought a quiet title action to recover property that the IRS had seized and sold to satisfy a federal tax debt. Grable’s claim depended on whether it had received valid notice of the seizure and sale as required by federal law. Grable’s right to notice, established under federal law, was the crux of his claim, and there was a substantial federal interest in the correct and consistent interpretation of federal tax law. Here, in contrast, a violation of the federal CCPA is not essential to Parker’s state UDAP claim, but simply one way he may establish the defendant’s liability under the NY statute. A state court’s incorrect or inconsistent interpretation of the federal CCPA in the context of a state UDAP claim would have no substantial impact on enforcement of the federal statute itself.
Diversity jurisdiction under sec. 1332 requires (1) a suit between citizens of different states, and (2) an amount in controversy exceeding $75,000. Jurisdiction under sec. 1332 requires complete diversity of citizenship, i.e. no common citizenship between any plaintiff and any defendant.
An individual’s state of citizenship is based on their domicile, i.e. the state where they reside and intend to remain or return indefinitely. Parker is a lifelong resident of Pennsylvania, and there is no indication that he intends to move, so he is a citizen of PA. The facts state that Jameson is domiciled in New York, so that is his state of citizenship. A corporation is a citizen of both its state of incorporation and its principal place of business. The Bugle is incorporated and has its principal place of business in New York. Accordingly, there is complete diversity of citizenship between the plaintiff (PA) and both defendants (NY).
To satisfy the amount in controversy requirement, it must be legally possible for the plaintiff to recover more than $75,000. In this case, the most Parker can recover is $5300. Consequently, the federal court would not have diversity jurisdiction over Parker’s state-law claim.
Supplemental jurisdiction permits a federal court to hear an otherwise non-jurisdictional claim where it forms part of the same constitutional case or controversy as a claim over which the federal court has subject matter jurisdiction. Sec. 1367(a). This requirement is satisfied where the claims share a common nucleus of operative fact (CNOF). Here, Parker’s federal CCPA claim and his state UDAP claim are based on the same underlying facts, i.e. the alleged fraudulent charge to his credit card. Where the sole basis for the federal court’s original jurisdiction is diversity, sec. 1367(b) restricts the exercise of supplemental jurisdiction over certain claims (to prevent parties from evading the complete diversity requirement under sec. 1332). Because Parker asserts a federal CCPA claim here, sec. 1367(b) does not apply. The court may exercise supplemental jurisdiction over the UDAP claim.
It is likely that Brant may intervene as a co-plaintiff against the Bugle; if so, the court could exercise supplemental jurisdiction over her claim.
Rule 24(b)(1)(B) permits someone who “has a claim or defense that shares with the main action a common question of law or fact” to intervene, i.e. join the case as an additional party. Here, Brant’s claim against the Bugle alleges that she was fired in retaliation for threatening to expose the credit card scam. It thus shares with Parker’s action questions about the alleged unauthorized charge to Parker’s credit card.
Brant’s claim arises under state law, not federal law. The court would not have diversity jurisdiction over that claim, because the amount in controversy is only $50,000. However, the court may exercise supplemental jurisdiction. Brant’s claim and Parker’s claims share a CNOF, i.e. the facts pertaining to the fraudulent credit card charges. Section 1367(b) does not apply, because original jurisdiction over the action is based on a federal question (Parker’s CCPA claim).
Rule 13(g) permits crossclaims between co-parties if those claims arise from the same transaction or occurrence that is the subject of the original action. Here, the Bugle and Jameson are co-defendants. The Bugle’s claim against Jameson is logically related to Parker’s original claims against the defendants: the claims all arise from the same alleged conduct by Jameson concerning the unauthorized credit card charges.
The breach of contract claim arises under state law, and both the Bugle and Jameson are citizens of NY. Consequently, the court would have neither federal question nor diversity jurisdiction over the crossclaim. However, the crossclaim shares a CNOF with Parker’s claims, again the facts surrounding the unauthorized charges. Sec. 1367(b) does not apply, because the court has original jurisdiction based on Parker’s federal claim. Even if diversity were the sole basis for original jurisdiction, sec. 1367(b) does not apply to crossclaims between co-defendants. Consequently, the lack of diversity between the Bugle and Jameson does not preclude the exercise of supplemental jurisdiction over the crossclaim.
Under Rule 18(a), a party asserting a claim may join any other claim it has against the same opposing party. Joinder of claims under Rule 18(a) does not require that the claims arise from the same T/O or share any common question of law or fact. Accordingly, having asserted the CCPA and UDAP claims against the Bugle, Parker may also join his personal injury claim under Rule 18(a).
The court would not have supplemental jurisdiction over the personal injury claim, because it does not share a CNOF with Parker’s CCPA & UDAP claims. Even though all three claims ultimately arose from Parker’s visit to the Bugle website, that is too slender of a factual nexus to satisfy sec. 1367(a). The personal injury claim is based on a fundamentally distinct injury with a fundamentally distinct cause, having no logical relationship to the CCPA and UDAP claims. Accordingly, while Rule 18(a) will permit joinder, Parker may bring that claim only if it independently satisfies federal subject matter jurisdiction. There is no federal question jurisdiction over the personal injury claim, which arises under state law. The sole basis for SMJ is diversity, which is satisfied here. As discussed above, Parker is a citizen of PA, while the Bugle and Jameson are citizens of NY. Joining the personal injury claim to the CCPA & UDAP claims brings the total amount in controversy to $75,300, which exceeds the statutory requirement.
The Bugle’s claim for indemnification asserts that, in the event the Bugle is found liable to Parker for his injuries caused by the t-shirt, ZF Corp. will be liable to the Bugle for all or part of the Bugle’s liability to Parker. Rule 14(a) permits a defendant to implead a third-party defendant for such a claim. Accordingly, joinder of ZF Corp. as a third-party defendant is proper. Rule 18(a) would then permit the Bugle also to assert any other claims it may have against ZF, for instance a claim for reimbursement for t-shirts that the Bugle is unable to sell because of the defect.
The Bugle and ZF are both citizens of NY. Consequently, regardless of the amount of indemnification to which the Bugle may be entitled, there would be no diversity jurisdiction over that claim. However, the court may exercise supplemental jurisdiction. By definition, a Rule 14(a) third-party claim shares a CNOF with the underlying plaintiff’s claim. The third-party defendant’s liability depends on the same facts giving rise to the primary defendant’s liability to the plaintiff. If the Bugle relied on Rule 18(a) to assert some additional claim against ZF pertaining to the defective t-shirts, that would also share a CNOF with Parker’s personal injury claim, since the facts about the defect would be common to these claims. Once again, even if diversity were the only basis for original jurisdiction here, sec. 1367(b) does not apply to claims by a defendant against a Rule 14 third-party defendant. Accordingly, the court may exercise supplemental jurisdiction.