Supplemental Jurisdiction over Permissive Counterclaims and Set Offs: A Misconception
Douglas D. McFarland
Mitchell|Hamline School of Law
January 1, 2012
Mercer Law Review, Forthcoming
This article examines the rapidly growing line of precedent in federal courts that supplemental jurisdiction can exist over a permissive counterclaim. The line springs from two decisions baldly asserting the “case or controversy under Article III” test of § 1367(a) for supplemental jurisdiction requires only a “loose factual connection” of the facts, and so is broader than the “transaction or occurrence” test that limned both ancillary jurisdiction and the compulsory counterclaim rule prior to Congress’ intervention into this settled area of law in 1990. Later cases in the line of precedent simply cite the two founding cases without attempting any additional reasoning or analysis.
The entire line of precedent – every one of these cases – is based on a narrow, grudging definition of transaction or occurrence. When transaction or occurrence is properly defined broadly, it too requires only a “loose factual connection.” Even though several cases announce they are asserting supplemental jurisdiction over a “permissive counterclaim,” analysis demonstrates that is not so. The great bulk of cases forming this burgeoning line of precedent clearly involve compulsory counterclaims. One unusual case presents what is better analyzed as a later-maturing counterclaim that would have been compulsory. A few cases involve the baseless “set off exception.” Not one case soundly asserts supplemental jurisdiction over a true permissive counterclaim.
Well-accepted law prior to 1990 was that compulsory counterclaims are carried into federal court by ancillary jurisdiction and permissive counterclaims are not. The creation of supplemental jurisdiction in § 1367 does not change the law. The assertion that supplemental jurisdiction exists over permissive counterclaims is merely a misconception.
Number of Pages in PDF File: 26
Keywords: supplemental jurisdiction, transaction,counterclaim, ancillary jurisdiction, compulsory counterclaim, Channell, Jones, Ford Motor Credit, Equal Credit Opportunity Act, ECOA, Fair Debt Collection Practices Act, FDCPA, pendent jurisdiction, same case or controvery, loose factual connection, 1367, 1367
JEL Classification: K00, K4, K41
Date posted: September 30, 2012 ; Last revised: October 11, 2012