Supplemental Jurisdiction Quick-Hits : A Case Note

Southern OceanOcean Tomo v. Barney, (http://docs.justia.com/cases/federal/district-courts/illinois/ilndce/1:2012cv08450/275661/76) states the governing supplemental jurisdiction rules in a business battle over the rights to a patent valuation system.

The defendant, the developer of the system, was a member of the plaintiff financial services firm (an LLC) for several years when the relationship broke down over various issues.  Citing the company’s intolerable conditions, the defendant left with a company laptop.

The plaintiff filed a state court suit under various claims including the Computer Fraud and Abuse Act (CFAA) and the defendant removed the case to Federal court.  There, the defendant counterclaimed for breach of contract and other state law business tort claims in addition to his own CFAA claim against the plaintiff.

Plaintiff moved to dismiss the state law claims on the basis that the court lacked supplemental jurisdiction over them.

Ruling: Motion denied.  Defendant can proceed on his state law counterclaims.

Reasons:

Supplemental jurisdiction principles are codified at 28 U.S.C. 1367.  This section provides that in any case where a Federal court has original jurisdiction, the Federal court has “supplemental jurisdiction” over related state law claims.

Supplemental jurisdiction is proper where the state law claims are so related to the Federal ones that they form part of the same cause of action and stem from a common nucleus of operative fact.  Even a “loose factual connection” between the state and Federal claims will generally provide a predicate for supplemental jurisdiction.

A district court can decline supplemental jurisdiction where: (1) the claim raises a novel or complex issue of State law, (2) the state law claims substantially predominates over the Federal claims; (3) the Federal court has dismissed all claims over which it has original jurisdiction, or (4) exceptional circumstances or other compelling reasons exist for declining jurisdiction.  

The defendant’s Counterclaims alleged that plaintiff violated the LLC operating agreement by withholding profits from the plaintiff and a separate shareholder agreement.  The defendant also alleged a tortious interference with contract claim against the plaintiff.
Defendant’s lone Federal claim was the CFAA one – premised on the allegation that plaintiff was trying to reverse engineer defendant’s patent system, repackage it and sell it to third parties.
Denying the plaintiff’s motion to dismiss, the Northern District found that the defendants state law counterclaims were factually connected to the plaintiff’s Federal CFAA claim. The Court held that, at bottom, Plaintiff’s counterclaims were premised on allegations that Plaintiff engaged in a lengthy fraudulent scheme to steal defendant’s patent ratings system.
And while allowing that defendant’s state law counterclaims (breach of contract, tortious interference, misappropriation) involved a broader set of facts (than plaintiff’s CFAA count), they still derived from the same operative facts that were the foundation of the plaintiff’s claims.

The Court noted that defendant’s counterclaim allegations of plaintiff’s lengthy pattern of duplicitous conduct related directly to defendant’s claim that the plaintiff was trying to pilfer defendant’s patent ratings system.  This pattern of conduct was relevant both to plaintiff’s Federal computer fraud claims and to defendant’s state law counterclaim counts.

Since plaintiff’s motive (was it really trying to reverse engineer and steal the ratings system?) was key to the parties’ state and Federal claims , the Court found they were factually linked and supplemental jurisdiction was proper.

Afterword:

Ocean Tomo provides a succinct summary of supplemental jurisdiction rules.  As long as the state law claims are temporally related and at least loosely factually connected to the Federal claims, a Federal court can – but doesn’t have to – retain jurisdiction over state law claims that normally couldn’t be filed in Federal courts.

 

 

 

 

 

 

 

 

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PaulP

Litigation attorney at Kanaris Stubenvoll & Heiss, P.C. representing businesses and individuals in post-judgment enforcement, collections and real estate litigation.