PTA-FLA, Inc. v. ZTE USA, Inc.

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 15-15159
________________________
D.C. Docket No. 3:11-cv-00510-TJC-JRK
PTA-FLA, INC.,
a Florida corporation,
Plaintiff,
versus
ZTE USA, INC.,
a New Jersey corporation,
Defendant-Appellee,
DAREDEVIL, INC.,
NTCH WEST-TENN, INC.,
NTCH-WA, INC.,
Defendants - Appellants.
________________________
Appeal from the United States District Court
for the Middle District of Florida
________________________
(December 15, 2016)
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Before MARCUS and DUBINA, Circuit Judges, and GOLDBERG, * Judge.
MARCUS, Circuit Judge:
In this appeal, we are asked to decide a number of jurisdictional questions
arising from the district court’s confirmation of an arbitration award. The case
began as a contract dispute between two corporations -- PTA-FLA, Inc., and ZTE
USA, Inc. -- commenced in the United States District Court for the Middle District
of Florida. Shortly thereafter, three corporations affiliated with PTA-FLA filed
similar cases against ZTE USA and its parent corporation, ZTE Corp., in several
different federal district courts. All of the parties involved in these disputes
participated in a consolidated arbitration proceeding that resulted in a zero-dollar
award binding ZTE USA and the four affiliated plaintiff corporations. ZTE USA
then moved the district court in the Middle District of Florida to reopen PTA-
FLA’s case, join the three other plaintiff corporations to the case, and, finally, to
confirm the arbitrator’s award against all four plaintiff corporations. But before
the district court could rule on that motion, PTA-FLA -- the original plaintiff --
voluntarily dismissed its claims. The district court eventually confirmed the
arbitral award against all parties, concluding that it had subject matter jurisdiction
(grounded in diversity of citizenship) to confirm the award against the original
*
Honorable Richard W. Goldberg, Judge for the United States Court of International
Trade, sitting by designation.
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parties and supplemental jurisdiction to confirm the award against the later-joined
parties despite PTA-FLA’s voluntary dismissal and the reduction in the amount in
controversy.
The three joined parties now appeal the confirmation of the award, claiming
that the district court was without subject matter or supplemental jurisdiction.
After careful review, and having the benefit of oral argument, we conclude that the
district court properly exercised its jurisdiction and, accordingly, affirm.
I.
We lay out in some detail the complex procedural history surrounding this
case in order to properly address the district court’s power to entertain the matter.
The appeal arises from a contract entered into by PTA-FLA, Inc., and ZTE USA,
Inc., pursuant to which ZTE USA provided PTA-FLA with telecommunications
equipment. PTA-FLA, in turn, is affiliated with three other companies: Daredevil,
Inc.; NTCH-WA, Inc.; and NTCH-West Tenn., Inc. All four entities are owned
and controlled by Eric Steinmann, and they operate together under the name
“ClearTalk.” The ClearTalk entities each offer prepaid and flat-rate cell phone
service to customers with poor credit or who otherwise cannot open accounts with
major cell phone providers. While only PTA-FLA’s contract was originally
relevant in this case, each of the ClearTalk entities entered into a similar contract
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with ZTE USA that was governed by a Master Supply Agreement (“MSA”)
identical to the one governing PTA-FLA’s contract.
PTA-FLA eventually discovered that the telecommunications equipment
provided by ZTE USA was defective, lacking in functionality, or limited in
functionality. PTA-FLA contacted ZTE USA as required by the MSA’s dispute-
resolution provision, but the parties were not able to resolve the dispute through
“good faith senior level negotiations.” If the negotiations failed, the MSA
provided that
either party may . . . initiate an arbitration proceeding which shall be
administered by the International Centre for Dispute Resolution of the
American Arbitration Association (“AAA”) in accordance with its
International Arbitration Rules. The place of arbitration shall be
Jacksonville, Florida. The language of the arbitration shall be English. The
parties to this Agreement expressly agree that any order or award of the
arbitrator shall be final and binding and may be enforced in any court of
competent jurisdiction.
Despite this provision, PTA-FLA sued ZTE USA in state court (the Fourth Judicial
Circuit in and for Duval County, Florida) seeking damages for alleged breach of
warranty, breach of the covenant of good faith and fair dealing, rescission, and
fraud in the inducement.1 Similar suits were filed across the country by the other
ClearTalk entities, including suits by Daredevil, NTCH-WA, NTCH-West Tenn.,
1
PTA-FLA filed a separate suit against the parent company, ZTE Corp., in the United States
District Court for the Middle District of Florida over a year later. That suit was dismissed
without prejudice as a result of the proceedings in this case. See PTA-FLA, Inc. v. ZTE Corp.,
No. 3:12-cv-01003 (M.D. Fla. filed Sept. 11, 2012).
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and Steinmann against both ZTE USA and ZTE Corp. Ultimately, ten suits were
filed in six different jurisdictions. 2
ZTE USA removed the original suit from state court to the United States
District Court for the Middle District of Florida, grounding jurisdiction on the
diverse citizenship of the parties. ZTE USA then moved to compel arbitration.
The district court granted that motion, and stayed its case pending the resolution of
the arbitration proceedings. The other ClearTalk cases were all referred to the
same arbitration proceeding and either dismissed or stayed pending the resolution.
The arbitration proceeding went forward as a single unified proceeding that bound
ZTE USA, PTA-FLA, Daredevil, NTCH-WA, and NTCH-West Tenn. The
arbitrator, former Florida Supreme Court Chief Justice Major B. Harding, noted
that “[t]he entities ha[d] been collectively referred to by counsel throughout the
arbitration as ClearTalk.”
After considering evidence presented over ten days, the arbitrator
determined that “[t]he ClearTalk entities shall take nothing from this action and the
2
In chronological order, they are: PTA-FLA, Inc. v. ZTE USA, Inc., No. 3:11-cv-00510 (M.D.
Fla. filed May 20, 2011) (this case); Daredevil, Inc. v. ZTE USA, Inc., No. 4:11-cv-01054 (E.D.
Mo. filed June 10, 2011); NTCH-West Tenn., Inc. v. ZTE USA, Inc., No. 1:11-cv-01169 (W.D.
Tenn. filed June 13, 2011); PTA-FLA, Inc. v. ZTE USA, Inc., No. 3:11-cv-01605 (D.S.C. filed
July 1, 2011); Steinmann v. ZTE USA Inc., et al., No. 5:11-cv-01578 (C.D. Cal. filed Oct. 3,
2011); Daredevil, Inc. v. ZTE Corp., No. 4:12-cv-01166 (E.D. Mo. filed June 28, 2012); NTCH-
West Tenn., Inc. v. ZTE Corp., No. 1:12-cv-01172 (W.D. Tenn. filed Aug. 2, 2012); NTCH-
WA, Inc. v. ZTE Corp., No. 2:12-cv-03110 (E.D. Wa. filed Aug. 24, 2012); PTA-FLA, Inc. v.
ZTE Corp., No. 3:12-cv-01003 (M.D. Fla. filed Sept. 11, 2012); PTA-FLA, Inc. v. ZTE Corp.,
No. 3:12-cv-02616 (D.S.C. filed Sept. 12, 2012).
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Respondents . . . owe nothing in regard to” the claims of fraud, fraudulent
inducement, breach of contract, breach of warranty, or overpayment. The
arbitrator also decided that “Respondents shall take nothing from this action and
Claimants known as ClearTalk owe nothing in regard to” ZTE’s claim for damages
due to nonpayment. The decision referred to the ClearTalk entities as a single unit;
it did not specify different conclusions or awards concerning the independent
component entities that made up ClearTalk.
On the same day the arbitrator issued his award, ZTE USA returned to the
District Court in the Middle District of Florida and moved to reopen the case, join
the other parties to the arbitration (Daredevil, NTCH-WA, NTCH-West Tenn., and
Steinmann), confirm the final arbitral award as to all parties, and enter a final
judgment. PTA-FLA moved the district court to stay the case pending a request
that the arbitrator correct an ambiguity as to which parties were bound by the
award. Daredevil, NTCH-WA, and NTCH-West Tenn. entered limited
appearances to oppose ZTE USA’s motion to confirm for similar reasons, and
Steinmann objected to joining the suit at all. The arbitrator corrected the award on
March 11, 2014, and clarified that the award involved only ZTE USA, not ZTE
Corp., because Steinmann’s claims were the only claims asserted against ZTE
Corp. and they had been dismissed.
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While the motion to confirm was pending, ZTE USA sought to transfer all
the related cases to the Judicial Panel for Multidistrict Litigation (JPML) for
consolidation. The district court ordered the case stayed pending the JPML’s
order. Then, with both ZTE USA’s motion to confirm and the consolidation
request pending, PTA-FLA voluntarily dismissed its claims in the original Middle
District of Florida proceeding. Because “there [was] no monetary award to
confirm and PTA-FLA [did] not seek to vacate the Award,” PTA-FLA saw it as
“appropriate to terminate the action forthwith” “due to the lack of further
justiciable controversy.” After the JPML denied ZTE USA’s motion to transfer,
the district court requested briefing and conducted a hearing on PTA-FLA’s
voluntary dismissal.
The district court ultimately decided that PTA-FLA could voluntarily
dismiss its own claims against ZTE USA. The court also dismissed ZTE Corp.
from the case because the arbitration award did not address any claims against ZTE
Corp. However, it decided that the voluntary dismissal did not extinguish ZTE
USA’s motion to confirm and thus reopened ZTE USA’s case, joining Daredevil,
NTCH-WA, and NTCH-West Tenn. as parties.3 Eight months after the dismissal,
3
Steinmann was also joined as a party, but a subsequent order denied the motion to confirm as to
Steinmann because he was the only party who had been permitted to bring claims against ZTE
Corp. in the arbitration. The court allowed him to pursue a separate action in California. In that
proceeding, ZTE USA and ZTE Corp. moved to confirm the arbitration award and Steinmann
moved to vacate the award, but the district court stayed the proceedings pending the resolution of
this appeal. See Steinmann v. ZTE Corp., No. 5:11-cv-1578, D.E. 88 (C.D. Cal. June 9, 2014).
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the district court entered another order rejecting the Joined Parties’ arguments that
it had improperly exercised subject matter and supplemental jurisdiction.
The district court confirmed the arbitration award as to ZTE USA, PTA-
FLA, Daredevil, NTCH-WA, and NTCH-West Tenn. The latter three parties,
collectively referred to as the “Joined Parties,” have appealed the confirmation on
jurisdictional grounds, claiming that the district court did not have subject matter
or supplemental jurisdiction to confirm the award.
II.
We review rulings on subject-matter jurisdiction de novo. Peebles v. Merrill
Lynch, Pierce, Fenner & Smith Inc., 431 F.3d 1320, 1324 (11th Cir. 2005). “The
exercise of supplemental jurisdiction is left to the discretion of the district court;
we review for an abuse of discretion.” Beck v. Prupis, 162 F.3d 1090, 1099 (11th
Cir. 1998).
At oral argument, counsel for the Joined Parties conceded that the district
court had subject matter jurisdiction to confirm the arbitration award against the
original parties, PTA-FLA and ZTE USA. Even without this concession, the
district court properly reached that conclusion.
A.
It is by now axiomatic that the inferior federal courts are courts of limited
jurisdiction. They are “empowered to hear only those cases within the judicial
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power of the United States as defined by Article III of the Constitution” and that
have been entrusted to them by a jurisdictional grant authorized by Congress.
Taylor v. Appleton, 30 F.3d 1365, 1367 (11th Cir. 1994). “Congress has the
constitutional authority to define the jurisdiction of the lower federal courts and,
once the lines are drawn, limits upon federal jurisdiction . . . must be neither
disregarded nor evaded.” Keene Corp. v. United States, 508 U.S. 200, 207 (1993)
(quotation and citation omitted). And because the Constitution unambiguously
confers this jurisdictional power to the sound discretion of Congress, federal courts
“should proceed with caution in construing constitutional and statutory provisions
dealing with [their] jurisdiction.” Victory Carriers, Inc. v. Law, 404 U.S. 202, 212
(1971).
A defendant may remove a civil action filed in a state court to the federal
district court for the district in which the action is pending if the district court
would have had jurisdiction over the suit. 28 U.S.C. § 1441(a). The “district court
must have at least one of three types of subject matter jurisdiction: (1) jurisdiction
under a specific statutory grant; (2) federal question jurisdiction pursuant to 28
U.S.C. § 1331; or (3) diversity jurisdiction pursuant to 28 U.S.C. § 1332(a).”
Baltin v. Alaron Trading Corp., 128 F.3d 1466, 1469 (11th Cir. 1997). The
Federal Arbitration Act (FAA), Pub. L. No. 68-401, 43 Stat. 883 (1925), codified
as amended at 9 U.S.C. § 1 et seq., is “something of an anomaly in the field of
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federal-court jurisdiction” because while it “creates a body of federal substantive
law . . . it does not create any independent federal-question jurisdiction.” Moses H.
Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983). Instead,
the FAA requires an independent jurisdictional foundation. See Hall Street
Assocs., LLC v. Mattel, Inc., 552 U.S. 576, 581–82 (2008); Peebles, 431 F.3d at
1325 (“The Federal Arbitration Act does not confer subject matter jurisdiction . . .
nor does it create independent federal question jurisdiction. Independent grounds
for subject matter jurisdiction must be demonstrated.”) (citation omitted).
Because the FAA does not contain its own statutory grant of jurisdiction and
does not create federal question jurisdiction, the district court must have diversity
jurisdiction over the original parties to entertain prearbitration proceedings. Under
28 U.S.C. § 1332(a), “district courts shall have original jurisdiction of all civil
actions where the matter in controversy exceeds the sum or value of $75,000” and
the action is between “citizens of different States.” 28 U.S.C. § 1332(a)(1).
Notably, diversity jurisdiction is measured at the time the action is filed. See
Grupo Dataflux v. Atlas Glob. Grp., LP, 541 U.S. 567, 571 (2004). There is no
dispute that the United States District Court for the Middle District of Florida had
diversity jurisdiction over the parties at the time the cause was removed to federal
court, and, indeed, PTA-FLA has never challenged the removal as being improper.
PTA-FLA is a Florida corporation with its principal place of business in South
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Carolina, and ZTE USA is a New Jersey corporation with its principal place of
business in Texas. The arbitration took place in Jacksonville, Florida, within the
Middle District of Florida. And the amount in controversy stated in the complaint
was $3.8 million, the full value of the telecommunications-equipment contract.
Plainly, the district court had the power to entertain the complaint and to compel
arbitration.
B.
Diversity jurisdiction gave the district court not only the power to compel
arbitration, but also the power to confirm the resulting arbitration award. It is by
now undisputed that “when a federal district court grants a motion to compel
arbitration it retains jurisdiction to confirm or vacate the resulting arbitration award
under 9 U.S.C. §§ 9–10.” TranSouth Fin. Corp. v. Bell, 149 F.3d 1292, 1297 (11th
Cir. 1998); see also Marine Transit Corp. v. Dreyfus, 284 U.S. 263, 275–76 (1932)
(“[W]here the court has authority under the [FAA] . . . to make an order for
arbitration, the court also has authority to confirm the award or to set it aside.”).
Indeed, Section 9 of the FAA reads, in relevant part:
If the parties in their agreement have agreed that a judgment of the court
shall be entered upon the award made pursuant to the arbitration, and shall
specify the court, then at any time within one year after the award is made
any party to the arbitration may apply to the court so specified for an order
confirming the award, and thereupon the court must grant such an order
unless the award is vacated, modified, or corrected as prescribed in sections
10 and 11 of this title. If no court is specified in the agreement of the
parties, then such application may be made to the United States court in and
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for the district within which such award was made. Notice of the application
shall be served upon the adverse party, and thereupon the court shall have
jurisdiction of such party as though he had appeared generally in the
proceeding.
9 U.S.C. § 9. This provision “carries no hint of flexibility. On application for an
order confirming the arbitration award, the court ‘must grant’ the order ‘unless the
award is vacated, modified, or corrected.’” Hall Street Assocs., 552 U.S. at 587(quoting 9 U.S.C. § 9). The Middle District of Florida is the situs of the arbitration
proceedings, and notice was properly served on the Joined Parties. Quite simply,
because the district court had the power to compel arbitration, it retained the power
to confirm the arbitration award against the original parties.
Moreover, it is also abundantly clear that the district court’s jurisdiction to
entertain the motion to confirm was unaffected by the reduced amount in
controversy. Again, diversity jurisdiction is determined at the time of filing the
complaint or, if the case has been removed, at the time of removal. See Tillman v.
R.J. Reynolds Tobacco, 253 F.3d 1302, 1306 n.1 (11th Cir. 2001); Grupo Dataflux,
541 U.S. at 570 (“It has long been the case that ‘the jurisdiction of the court
depends upon the state of things at the time of the action brought.’”) (quoting
Mollan v. Torrance, 22 U.S. (9 Wheat.) 537, 539 (1824)). The Supreme Court has
explicitly noted that even when a plaintiff, “after removal, by stipulation, by
affidavit, or by amendment of his pleadings, reduces the claim below the requisite
amount,” that decrease “does not deprive the district court of jurisdiction.” St.
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Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 292 (1938); see also
Poore v. American-Amicable Life Ins. Co. of Texas, 218 F.3d 1287, 1291 (11th
Cir. 2000) (“[E]vents occurring after removal which may reduce the damages
recoverable below the amount in controversy requirement do not oust the district
court’s jurisdiction.”), overruled in part on other grounds by Alvarez v. Uniroyal
Tire Co., 508 F.3d 639, 640–41 (11th Cir. 2007). Thus, the fact that ZTE USA
sought to confirm a zero-dollar arbitration award did not strip the district court of
jurisdiction. The district court had the power to compel arbitration on account of
diversity jurisdiction, and it had the power to confirm the award, regardless of any
subsequent change to the amount in controversy.
C.
Nor did PTA-FLA’s voluntary dismissal of its action divest the court of
jurisdiction to confirm the award. The district court disagreed with the Joined
Parties and found that ZTE USA’s motion to confirm was “similar to a
counterclaim,” which PTA-FLA could not unilaterally dismiss. We are not
persuaded by this rationale. But we affirm the district court’s jurisdictional
determination because the motion to confirm was in the nature of a collateral claim
in an action over which the district court undeniably exercised diversity
jurisdiction.
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1.
Voluntary dismissal is governed by Fed. R. Civ. P. 41(a). Pursuant to this
rule, voluntary dismissal may occur with or without a court order:
(1) By the Plaintiff.
(A) Without a Court Order. . . . [A] plaintiff may dismiss an action
without a court order by filing:
(i) a notice of dismissal before the opposing party serves either
an answer or a motion for summary judgment; or
(ii) a stipulation of dismissal signed by all parties who have
appeared.
...
(2) By Court Order; Effect. Except as provided in Rule 41(a)(1), an action
may be dismissed at the plaintiff’s request only by court order, on terms that
the court considers proper. If a defendant has pleaded a counterclaim before
being served with the plaintiff’s motion to dismiss, the action may be
dismissed over the defendant’s objection only if the counterclaim can remain
pending for independent adjudication. Unless the order states otherwise, a
dismissal under this paragraph (2) is without prejudice.
Fed. R. Civ. P. 41(a). As the former Fifth Circuit has noted, “Rule 41(a)(1) means
precisely what it says.” Pilot Freight Carriers, Inc. v. Int’l Bhd. of Teamsters, 506
F.2d 914, 916 (5th Cir. 1975). 4 According to the plain text of Rule 41(a)(1)(A)(i),
only the filing of an answer or a motion for summary judgment terminates a
plaintiff’s ability to voluntarily dismiss its claims without a court order.
4
In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), this Court
adopted as binding precedent all decisions of the former Fifth Circuit handed down prior to
October 1, 1981.
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As the district court correctly noted, a motion to confirm an arbitral award is
neither an answer nor a motion for summary judgment. If the drafters of Rule 41
had intended to include pleadings of similar nature to answers and motions for
summary judgment, they could easily have done so. Indeed, the federal courts
have regularly found that various other motions and pleadings are insufficient to
foreclose plaintiffs from voluntarily dismissing their claims. See, e.g., Swedberg
v. Marotzke, 339 F.3d 1139, 1142 (9th Cir. 2003) (determining that a motion to
dismiss is not a motion for summary judgment for purposes of Rule 41); Hamilton
v. Shearson-Lehman American Exp., Inc., 813 F.2d 1532, 1534–35 (9th Cir. 1987)
(determining that a motion to stay the case and compel arbitration is not an answer
or motion for summary judgment for purposes of Rule 41); Merit Ins. Co. v.
Leatherby Ins. Co., 581 F.2d 137, 142–43 (7th Cir. 1978) (same); American Soccer
Co., Inc. v. Score First Enterprises, a Div. of Kevlar Indus., 187 F.3d 1108, 1111–
12 (9th Cir. 1999) (determining that a motion for and hearing on a preliminary
injunction is not a motion for summary judgment for purposes of Rule 41); Pilot
Freight Carriers, 506 F.2d at 916–17 (same). In the same way, a motion to confirm
will not suffice.
The text is also clear in still another way: Rule 41 “speaks of voluntary
dismissal of ‘an action,’ not a claim.” State Treasurer of State of Michigan v.
Barry, 168 F.3d 8, 19 n.9 (11th Cir. 1999) (Cox, J., specially concurring) (quoting
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Fed. R. Civ. P. 41(a)(1)). A district court cannot dismiss some claims while
leaving others pending. See Taylor v. Brown, 787 F.3d 851, 857 (7th Cir. 2015)
(“Rule 41(a) does not speak of dismissing one claim in a suit; it speaks of
dismissing ‘an action’ -- which is to say, the whole case.”) (quotations omitted).
Thus, if the district court thought PTA-FLA’s voluntary dismissal was effective to
dismiss its claims, it should have dismissed the entire action -- including the
motion to confirm. Instead, the district court dismissed PTA-FLA’s claims but
retained ZTE USA’s motion to confirm, calling it “similar to a counterclaim.” It
determined that PTA-FLA’s voluntary dismissal did not terminate the motion to
confirm, because Rule 41(a)(1)(A)(i) “does not give PTA-FLA the authority to
unilaterally dismiss someone else’s claim.”
We are unpersuaded for two reasons. First, a motion to confirm is not a
counterclaim. It seeks nothing from the opposing party; it does not assert new
claims; and it does not rebut claims that were previously made. Moreover, even if
the analogy were proper, Rule 41(a)(1) -- which governs voluntary dismissal by the
plaintiff -- does not discuss counterclaims at all. Counterclaims are mentioned
only in Rule 41(a)(2), which governs voluntary dismissal by court order. That
provision says:
Except as provided in Rule 41(a)(1), an action may be dismissed at the
plaintiff’s request only by court order, on terms that the court considers
proper. If a defendant has pleaded a counterclaim before being served with
the plaintiff’s motion to dismiss, the action may be dismissed over the
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defendant’s objection only if the counterclaim can remain pending for
independent adjudication.
Fed. R. Civ. P. 41(a)(2) (emphasis added). Mirroring the last sentence quoted
above, the district court concluded that PTA-FLA could not dismiss its action over
ZTE USA’s objection unless the motion to confirm remained pending. But
Rule 41(a)(2) addresses voluntary dismissal by court order. Voluntary dismissal
by the plaintiff, under Rule 41(a)(1), is expressly excepted from Rule 41(a)(2).
And Rule 41(a)(1) does not require that counterclaims remain in contention. Thus,
whether a motion to confirm is “similar to a counterclaim” is of no moment in this
case because PTA-FLA voluntarily and properly dismissed its claims under
Rule 41(a)(1)(A)(i).
2.
Nevertheless, the district court’s conclusion that the motion to confirm
survived PTA-FLA’s voluntary dismissal was correct for an independent reason:
since the district court had the power to preside over the prearbitration
proceedings, it also had independent jurisdiction to hear claims that were collateral
to the proceeding. A motion to confirm is one such collateral claim.
It is long and well established “that a federal court may consider collateral
issues after an action is no longer pending.” Cooter & Gell v. Hartmarx Corp., 496
U.S. 384, 395 (1990); see also Putnam v. Williams, 652 F.2d 497, 502 (5th Cir.
1981) (“[W]hen the jurisdiction of the court has attached to an ancillary claim, it
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will not be ousted by the subsequent dismissal of the main suit on the merits.”). A
collateral or ancillary issue is a claim that, on its own, “do[es] not invoke an
independent basis of subject matter jurisdiction” but that is “so closely related to a
case properly in federal court as to justify the conclusion that they are all part of a
single case or controversy.” Charles Alan Wright & Arthur R. Miller, 13 Federal
Practice and Procedure § 3523 (3d ed. 2004); see also Morrow v. District of
Columbia, 417 F.2d 728, 740 (D.C. Cir. 1969) (noting that an ancillary matter
“arises from the same transaction which was the basis of the main proceeding, or
arises during the course of the main matter”). Collateral claims must “hav[e] a
factual and logical dependence on the primary lawsuit,” and the “primary lawsuit
must contain an independent basis for federal jurisdiction.” Peacock v. Thomas,
516 U.S. 349, 355 (1996) (quotation and citation omitted).
Adjudication of a collateral issue is an “independent proceeding[ ]
supplemental to the original proceeding and not a request for a modification of the
original decree.” Cooter & Gell, 496 U.S. at 395 (quoting Sprague v. Ticonic Nat’l
Bank, 307 U.S. 161, 170 (1939)). Thus, the resolution of a collateral issue “does
not signify a district court’s assessment of the legal merits” of the case. Id. at 396.
The ancillary nature of such a proceeding is further evidenced by the fact that it
“can be initiated and decided after the case on which it is based is finally resolved
and no longer pending.” Federated Mut. Ins. Co. v. McKinnon Motors, LLC, 329
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F.3d 805, 808 n.6 (11th Cir. 2003). Preserving jurisdiction over collateral issues is
“consistent with the policy and purpose of Rule 41(a)(1), which was designed to
limit a plaintiff’s ability to dismiss an action.” Cooter & Gell, 496 U.S. at 397.
Using this reasoning, the Supreme Court noted that even after an action is
dismissed for lack of jurisdiction, district courts may still award costs and
attorney’s fees and may still consider criminal contempt charges. Id. at 396.
Confirmation of an arbitral award is precisely such a collateral proceeding.
ZTE USA’s motion to confirm existed solely because the district court compelled
arbitration. It arose from the same transaction that formed the basis of the main
proceeding, over which the district court properly exercised diversity jurisdiction.
By requesting confirmation, ZTE USA did not seek a “judgment on the merits of
[the] action,” id., nor did it request a modification of the arbitrator’s final decree.
The motion was filed after the merits of the underlying action were fully and
completely resolved through arbitration. ZTE USA merely sought confirmation of
the arbitral award -- exactly as it was issued by the arbitrator -- so that the award
would be finalized and protected against challenges in other courts. The district
court thus retained jurisdiction over the motion to confirm.
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III.
A.
The district court also found that it had supplemental jurisdiction to confirm
the arbitration award concerning the Joined Parties. The Joined Parties appealed
this decision, arguing that they fall under the exception to supplemental jurisdiction
stated in 28 U.S.C. § 1367(b) and thus should have been excluded from the
confirmation. They reach this conclusion by characterizing ZTE USA as a party
plaintiff seeking an order against the Joined Parties as defendants. These arguments
are unavailing. The district court correctly asserted supplemental jurisdiction over
the Joined Parties and confirmed the arbitration award against them.
In enacting § 1367, Congress heeded advice from the Federal Courts Study
Committee (“Committee”), a legislatively created body that included a mix of
judges, senators, congressmen, and lawyers. See Federal Courts Study Act, Pub.
L. No. 100-702, 102 Stat. 4642, 4644–45 (1988). In its final report, the Committee
recommended that Congress “authoriz[e] federal courts to hear any claim arising
out of the same ‘transaction or occurrence’ as a claim within federal jurisdiction,
including claims that require the joinder of additional parties.” Federal Courts
Study Committee, Report of the Federal Courts Study Committee 560 (1990)
(“Committee Report”). As the Committee noted, “this language is broad enough to
encompass pendent claim, pendent party, and ancillary jurisdiction. The proposal
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thus supplies a general background rule favoring supplemental jurisdiction.” Id.Congress adopted the Committee’s proposal with slight modifications in what is
now § 1367(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.
28 U.S.C. § 1367(a); see also H.R. Rep. No. 101-734, at 27 (1990), reprinted in
1990 U.S.C.C.A.N. 6860, 6873 (noting that § 1367 implements the Committee’s
recommendations).
The Supreme Court has similarly acknowledged § 1367(a) as “a broad grant
of supplemental jurisdiction over other claims within the same case or controversy,
as long as the action is one in which the district courts would have original
jurisdiction.” Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 558
(2005). In particular, “[t]he last sentence of § 1367(a) makes it clear that the grant
of supplemental jurisdiction extends to claims involving joinder or intervention of
additional parties.” Id.
In this case, the district court had original jurisdiction by virtue of diversity;
under the TranSouth rule, it retained jurisdiction over the motion to confirm.
TranSouth Fin. Corp., 149 F.3d at 1297. While the Joined Parties were not parties
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to the original suit, the claims in which they are involved clearly arise from the
same arbitration proceeding and award that ZTE USA sought to confirm. Like the
district court, we have “no difficulty concluding that review of the arbitration
between ZTE USA and at least the corporate objectors arise out of a common
nucleus of operative facts as the dispute between ZTE USA and PTA-FLA.” Each
of the ClearTalk entities’ claims against ZTE USA originates from similar
arrangements that were governed by nearly identical MSAs. Their claims thus
“arise from the same facts, [and] involve similar occurrences, witnesses or
evidence” as PTA-FLA’s claims, so they “form part of the same case or
controversy.” Hudson v. Delta Air Lines, Inc., 90 F.3d 451, 455 (11th Cir. 1996);
see also Palmer v. Hosp. Auth. of Randolph Cty., 22 F.3d 1559, 1566 (“By its
language, section 1367(a) authorizes a court to hear supplemental claims to the full
extent allowed by the ‘case or controversy’ standard of Article III.”). The statute
also plainly allows “the joinder or intervention of additional parties” with
sufficiently related claims, such as the Joined Parties in this case. Thus, the
district’s courts exercise of supplemental jurisdiction was proper.
Nor is it of any legal significance that the claims involving the Joined Parties
do not independently satisfy the amount-in-controversy requirement. Because “the
threshold requirement of § 1367(a) is satisfied in cases . . . where some, but not all,
of the plaintiffs in a diversity action allege a sufficient amount in controversy,”
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Exxon Mobil, 545 U.S. at 566, confirmation of the award as to the Joined Parties
cannot be denied on this ground.
B.
The Joined Parties argue, nevertheless, that they qualify for the exception to
supplemental jurisdiction found in 28 U.S.C. § 1367(b). Subsection (b) reads this
way:
In any civil action of which the district courts have original jurisdiction
founded solely on section 1332 of this title, 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.
28 U.S.C. § 1367(b).
The Joined Parties claim that ZTE USA “is most aptly described as the
plaintiff in this case,” since it is seeking to confirm the award against them. But
ZTE USA, the defendant in the original action, does not become a plaintiff by
merely asserting a claim against the Joined Parties. See Charles Alan Wright &
Arthur R. Miller, 13D Federal Practice and Procedure § 3567.2 (3d ed. 2004) (“[I]t
is clear that a defendant or third-party defendant does not become a ‘plaintiff’ for
purposes of § 1367(b) by asserting a claim.”). ZTE USA sought to add the Joined
Parties to confirm an arbitration award against them; PTA-FLA originally brought
no claims against the Joined Parties and the Joined Parties assert no claims against
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PTA-FLA. Thus, ZTE USA could be considered a “plaintiff” only in the sense of
a third-party plaintiff bringing a claim against the Joined Parties as third-party
defendants. See Fed. R. Civ. P. 14(a)(2).
However, while this Court has not addressed the question of precisely which
plaintiffs are excepted from jurisdiction under § 1367, every appellate court that
has done so is in agreement. The First, Second, Third, Fourth, Fifth, and Sixth
Circuits have each concluded that “claims by plaintiffs” in § 1367(b) refers to
claims by only the original plaintiffs to the action -- not third-party plaintiffs,
counter plaintiffs, or cross plaintiffs. 5 The Seventh and Tenth Circuits have also
favorably mentioned this interpretation, although those courts have not fully
engaged with the argument and have not made affirmative conclusions on the
5
See, e.g., Allstate Interiors & Exteriors, Inc. v. Stonestreet Constr., LLC, 730 F.3d 67, 73 (1st
Cir. 2013) (“‘[P]laintiff’ in section 1367(b) refers to the original plaintiff in the action, and not to
a defendant that also is a third-party plaintiff.”); Viacom Int’l, Inc. v. Kearney, 212 F.3d 721,
726–27 (2d Cir. 2000) (“Significantly, § 1367(b) reflects Congress’[s] intent to prevent original
plaintiffs -- but not defendants or third parties -- from circumventing the requirements of
diversity.”); Development Finance Corp. v. Alpha Housing & Health Care, Inc., 54 F.3d 156,
160 (3d Cir. 1995) (“The plain language of § 1367(b) limits supplemental jurisdiction over
claims of plaintiffs . . . and of parties who join or intervene as plaintiffs. . . . The section has little
to say about defendants.”); United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 492 (4th Cir. 1998)
(“[T]he limitation of § 1367(b) applies only to plaintiffs’ efforts to join nondiverse parties.”);
State Nat’l Ins. Co. Inc. v. Yates, 391 F.3d 577, 580 (5th Cir. 2004) (“‘[P]laintiff’ in § 1367(b)
refers to the original plaintiff in the action -- not to a defendant that happens also to be a counter-
plaintiff, cross-plaintiff, or third-party-plaintiff.”); Grimes v. Mazda North American Operations,
355 F.3d 566, 572 (6th Cir. 2004) (“The supplemental jurisdiction provision, 28 U.S.C.
§ 1367(b), states congressional intent to prevent original plaintiffs -- but not defendants or third
parties -- from circumventing the requirements of diversity.”).
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issue. 6 Wright and Miller similarly observe that § 1367(b) “does not apply to
claims asserted by any party other than the plaintiff”; the provision therefore
“plays no role in claims, such as counterclaims and crossclaims, asserted by
defendants or third-party defendants.” Wright & Miller, 13D Federal Practice and
Procedure § 3567.2. We join our sister circuits on this point. The claims at issue
are not “claims by plaintiffs against persons made parties” and do not fall under the
exception found in § 1367(b); the district court properly exercised supplemental
jurisdiction over them in this case.
Furthermore, any resort to legislative history would not alter this analysis.
The Joined Parties say that exercising supplemental jurisdiction in this case “would
fly in the face of congressional intent to heighten suspicion of those that initiate an
action to circumvent federal jurisdiction restrictions.” But the legislative history
reveals that Congress was wary of gamesmanship on the part of plaintiffs, not
defendants -- the drafters were concerned about “encourag[ing] plaintiffs to evade the
jurisdictional requirement of 28 U.S.C. § 1332 by the simple expedient of naming
initially only those defendants whose joinder satisfies section 1332’s requirements and
later adding claims not within original federal jurisdiction against other defendants
who have intervened or been joined on a supplemental basis.” H.R. Rep. No. 101-
6
See Aurora Loan Servs., Inc. v. Craddieth, 442 F.3d 1018, 1025 (7th Cir. 2006) (citing State
Nat’l Ins. Co. and Viacom); Price v. Wolford, 608 F.3d 698, 703–04 (10th Cir. 2010) (citing
Development Finance Corp. and Wright & Miller § 3567.2).
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734, at 29 (emphasis added). ZTE USA, the original defendant, was seeking to
join the parties in this case; any concern about gamesmanship is absent here.
C.
Finally, we add these thoughts. To the extent that prudential concerns bear
on the issue at all, they yield the same result. We think it indisputable that
declining to exercise supplemental jurisdiction in this case would harm judicial
economy and risk producing conflicting judgments. Section 1367 was enacted
with precisely these concerns in mind. As the Committee expressly observed,
“[s]upplemental jurisdiction facilitates the joinder in litigation of all claims arising
out of the same transaction. The benefits in judicial economy and in party and
witness convenience are apparent.” Committee Report at 547 (emphasis added).
The legislative history behind § 1367 reflects similar considerations: Congress
noted that “[s]upplemental jurisdiction has enabled federal courts and litigants to
take advantage of the federal procedural rules on claim and party joinder to deal
economically -- in single rather than multiple litigation -- with related matters,
usually those arising from the same transaction, occurrence, or series of
transactions or occurrences.” H.R. Rep. No. 101-734, at 28. By allowing
consolidation in this manner, “the efficiency and convenience are obvious.”
Wright & Miller, 13D Federal Practice and Procedure § 3567.
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These concerns are especially salient in this case, in which one unified,
streamlined arbitration award bound five parties that had originally been involved
in ten lawsuits across six jurisdictions. Absent the vehicle of supplemental
jurisdiction, the district court in the Middle District of Florida would have found
itself only able to confirm the arbitration award as to PTA-FLA. ZTE USA would
then have been required to seek separate confirmation as to Daredevil, NTCH-WA,
and NTCH-West Tenn. in the ongoing parallel proceedings in the Eastern District
of Missouri, the Eastern District of Washington, and the Western District of
Tennessee, respectively. Aside from the harm to judicial economy and the obvious
increase in resources that these additional proceedings would have caused, seeking
confirmation of the same arbitral award in four different tribunals would entail
risking inconsistent judgments in the same operative cause of action. Indeed,
another one of the ClearTalk entities, NTCH-West Tenn., has already moved to
vacate the arbitration award in its ongoing case now pending in the Western
District of Tennessee. See NTCH-West Tenn., Inc. v. ZTE USA, Inc., No. 1:11-
cv-01169, DE 134 (W.D. Tenn. Sept. 9, 2014).7 While vacatur of the award as to
only one party might not create a problem if the award actually was divisible, this
award was the result of a unified, consolidated arbitration in which the arbitrator
did not draw different conclusions as to the various ClearTalk entities. By
7
That case, along with NTCH-West Tenn.’s suit against ZTE Corp., was stayed pending the
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similarly streamlining the confirmation process, the district court undoubtedly
saved substantial judicial resources and avoided potentially conflicting judgments.
In sum, the district court had diversity jurisdiction over this case upon its
removal from state court. It had the power to compel arbitration, and with that
power came the power to confirm the resulting arbitration award. Jurisdiction was
unaffected by PTA-FLA’s voluntary dismissal, because a motion to confirm is a
collateral proceeding over which the court could properly exercise independent
jurisdiction. Finally, the district court properly exercised supplemental jurisdiction
because the case falls squarely within the ambit of § 1367(a). The district court’s
exercise of subject matter and supplemental jurisdiction and its confirmation of the
arbitration award are AFFIRMED.
resolution of this appeal.
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