358 F.

3d 205

Joyce JONES, Martha L. Edwards, Lou Cooper and Vincent E.

Jackson, individually and as class representatives, PlaintiffsAppellees,
v.
FORD MOTOR CREDIT COMPANY, Defendant-Appellant.
No. 03-7398.

United States Court of Appeals, Second Circuit.

Argued: October 10, 2003.
Decided: February 5, 2004.

COPYRIGHT MATERIAL OMITTED Daniel H. Schlueter, Atlanta, Ga.

(Thomas M. Byrne, Valerie S. Sanders, Sutherland Asbill & Brennan
LLP, Atlanta, Ga.; John H. Beisner, Neil K. Gilman, Rachel A. Shapiro,
O'Melveny & Myers LLP, Washington, D.C., on the brief), for DefendantAppellant.
Darnley D. Stewart, New York, N.Y. (Daniel L. Berger, Bernstein
Litowitz Berger & Grossman LLP, New York, N.Y.; Michael E. Terry,
Terry & Gore, Nashville, Tenn.; Gary Klein, Grant & Roddy, Boston,
Mass.; Kevin Greco, Sandak Friedman Hennessey & Greco, LLP,
Stamford, Conn.; Wyman O. Gilmore, Grove Hill, Ala.; Clint W.
Watkins, Brentwood, Tenn.; Stuart Rossman, National Consumer Law
Center, Boston, Mass., on the brief), for Plaintiffs-Appellees.
Before: NEWMAN, SOTOMAYOR, and WESLEY, Circuit Judges.
JON O. NEWMAN, Circuit Judge.

This appeal concerns the availability of subject matter jurisdiction for

permissive counterclaims. It also demonstrates the normal utility of early
decision of a motion for class certification. Defendant-Appellant Ford Motor
Credit Company ("Ford Credit") appeals from the June 14, 2002, judgment of
the United States District Court for the Southern District of New York
(Lawrence M. McKenna, District Judge) dismissing for lack of jurisdiction its
permissive counterclaims against three of the four Plaintiffs-Appellees and its

conditional counterclaims against members of the putative class that the

Plaintiffs-Appellees seek to certify. Jones v. Ford Motor Credit Co., No. 00CV-8330, 2002 WL 1334812 (S.D.N.Y. June 17, 2002). We conclude that
supplemental jurisdiction authorized by 28 U.S.C. 1367 may be available for
the permissive counterclaims, but that the District Court's discretion under
subsection 1367(c) should not be exercised in this case until a ruling on the
Plaintiffs' motion for class certification. We therefore vacate and remand.
Background
2

Plaintiffs-Appellees Joyce Jones, Martha L. Edwards, Lou Cooper, and Vincent

E. Jackson ("Plaintiffs"), individually and as class representatives, sued Ford
Credit alleging racial discrimination under the Equal Credit Opportunity Act
("ECOA"), 15 U.S.C. 1691 et seq. (2003). They had purchased Ford vehicles
under Ford Credit's financing plan. They alleged that the financing plan
discriminated against African-Americans. Although the financing rate was
primarily based on objective criteria, Ford Credit permitted its dealers to mark
up the rate, using subjective criteria to assess non-risk charges. The Plaintiffs
alleged that the mark-up policy penalized African-American customers with
higher rates than those imposed on similarly situated Caucasian customers.

In its Answer, Ford Credit denied the charges of racial discrimination and also
asserted state-law counterclaims against Jones, Edwards, and Cooper for the
amounts of their unpaid car loans. Ford Credit alleged that Jones was in default
on her obligations under her contract for the purchase of a 1995 Ford Windstar,
and that Edwards and Cooper were in default on payments for their joint
purchase of a 1995 Mercury Cougar. Additionally, in the event that a class was
certified, Ford Credit asserted conditional counterclaims against any member of
that class who was in default on a car loan from Ford Credit. The Plaintiffs
moved to dismiss Ford Credit's counterclaims for lack of subject matter
jurisdiction, Fed.R.Civ.P. 12(b)(1), lack of personal jurisdiction, Fed.R.Civ.P.
12(b)(2), improper venue, Fed.R.Civ.P. 12(b)(3), and failure to state a claim
upon which relief could be granted, Fed.R.Civ.P. 12(b)(6).

The District Court granted the Plaintiffs' motion and dismissed Ford Credit's
counterclaims, summarizing its reasons for doing so as follows: "[D]efendant's
counterclaims do not meet the standard for compulsory counterclaims[, and] ...
pursuant to 1367(c)(4), ... there are compelling reasons to decline to exercise
jurisdiction over the counterclaims." Jones, 2002 WL 1334812, at *3.

In reaching these conclusions, Judge McKenna acknowledged some

uncertainty. After determining that the counterclaims were permissive, he

expressed doubt as to the jurisdictional consequence of that determination. On

the one hand, he believed, as the Plaintiffs maintain, that permissive
counterclaims must be dismissed if they lack an independent basis of federal
jurisdiction. On the other hand, he acknowledged, citing Solow v. Jenkins, No.
98-CV-8726, 2000 WL 489667, at *2 (S.D.N.Y. Apr.25, 2000), that "there
[was] some authority to suggest that ... the court should determine, based on the
particular circumstances of the case, whether it ha[d] authority to exercise
supplemental jurisdiction under 1367(a)" over a counterclaim, regardless of
whether it was compulsory or permissive. Jones, 2002 WL 1334812, at *2.
6

To resolve his uncertainty, Judge McKenna initially ruled that the

counterclaims, being permissive, "must be dismissed for lack of an independent
basis of federal jurisdiction." Id. He then ruled that, if he was wrong and if
supplemental jurisdiction under section 1367 was available, he would still
dismiss the counterclaims in the exercise of the discretion subsection 1367(c)
gives district courts. Id. Without explicitly stating on which of the four
subdivisions of subsection 1367(c) he relied, Judge McKenna gave the
following reasons for declining to exercise supplemental jurisdiction:

[1] The claims and counterclaims arise out of the same occurrence only in the
loosest terms.... There does not exist a logical relationship between the essential
facts [to be proven] in the claim and those of the counterclaims.

[2] [A]llowing defendant's counterclaims to proceed in this forum might

undermine the ECOA enforcement scheme by discouraging plaintiffs from
bringing ECOA claims due to the fear of counterclaims.

[3] [T]he interests of judicial economy will not be served by joining the claim
and counterclaims in one suit [because of] what would most likely be a
tremendous number of separate collection actions, each based on facts specific
to the individual plaintiffs involved.

10

Id. at *2-*3. Judge McKenna stated his belief that it would be "unfair and
inexpedient" to require absent class members who resided outside of New York
to litigate their debt collection actions in the Southern District of New York and
that there was no good reason to litigate the debt collection actions in a federal
court. Id. at *3.

11

On March 27, 2003, the District Court entered judgment pursuant to

Fed.R.Civ.P. 54(b) in favor of the Plaintiffs, dismissing Ford Credit's
counterclaims without prejudice. Ford Credit appeals from this decision.

Discussion
12

I. Are Ford Credit's Counterclaims Permissive?

13

Fed.R.Civ.P. 13(a) defines a compulsory counterclaim as

14

any claim which at the time of serving the pleading the pleader has against any
opposing party, if it 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 third parties of whom the court cannot obtain
jurisdiction.

15

Such counterclaims are compulsory in the sense that if they are not raised, they
are forfeited. See Critical-Vac Filtration Corp. v. Minuteman International,
Inc., 233 F.3d 697, 699 (2d Cir.2000). Fed.R.Civ.P. 13(b) defines a permissive
counterclaim as "any claim against an opposing party not arising out of the
transaction or occurrence that is the subject matter of the opposing party's
claim."

16

Whether a counterclaim is compulsory or permissive turns on whether the

counterclaim "arises out of the transaction or occurrence that is the subject
matter of the opposing party's claim," and this Circuit has long considered this
standard met when there is a "logical relationship" between the counterclaim
and the main claim. See United States v. Aquavella, 615 F.2d 12, 22 (2d
Cir.1979).1 Although the "logical relationship" test does not require "an
absolute identity of factual backgrounds," id. (internal citation omitted), the
"`essential facts of the claims [must be] so logically connected that
considerations of judicial economy and fairness dictate that all the issues be
resolved in one lawsuit.'" Critical-Vac, 233 F.3d at 699 (emphasis omitted)
(quoting Adam v. Jacobs, 950 F.2d 89, 92 (2d Cir.1991)); see also Harris v.
Steinem, 571 F.2d 119, 123 (2d Cir.1978); United Artists Corp. v. Masterpiece
Productions, Inc., 221 F.2d 213, 216 (2d Cir.1955).

17

We agree with the District Court that the debt collection counterclaims were
permissive rather than compulsory. The Plaintiffs' ECOA claim centers on Ford
Credit's mark-up policy, based on subjective factors, which allegedly resulted
in higher finance charges on their purchase contracts than on those of similarly
situated White customers. Ford Credit's debt collection counterclaims are
related to those purchase contracts, but not to any particular clause or rate.
Rather, the debt collection counterclaims concern the individual Plaintiffs' nonpayment after the contract price was set. Thus, the relationship between the

counterclaims and the ECOA claim is "logical" only in the sense that the sale,
allegedly on discriminatory credit terms, was the "but for" cause of the nonpayment. That is not the sort of relationship contemplated by our case law on
compulsory counterclaims. The essential facts for proving the counterclaims
and the ECOA claim are not so closely related that resolving both sets of issues
in one lawsuit would yield judicial efficiency. Indeed, Ford Credit does not
even challenge the ruling that its counterclaims are permissive.
18

II. Is There Jurisdiction over the Permissive Counterclaims?

19

For several decades federal courts have asserted that permissive counterclaims
require an independent basis of jurisdiction, i.e., that the counterclaim must be
maintainable in a federal district court on some jurisdictional basis that would
have sufficed had it been brought in a separate action. The origin of this
proposition, the questioning of it before the statutory authorization of
supplemental jurisdiction in section 1367, and the impact of that provision upon
the proposition all merit careful consideration.

20

(A) Origin of the independent basis doctrine. The first suggestion of the
requirement of an independent basis for permissive counterclaims is believed to
have appeared in Marconi Wireless Telegraph Co. of America v. National
Electric Signaling Co., 206 F. 295 (E.D.N.Y.1913), a case involving former
Equity Rule 30. See Thomas F. Green, Jr., Federal Jurisdiction over
Counterclaims, 48 Nw. U.L.Rev. 271, 283 (1953). That rule distinguished in its
two parts between what we would now call compulsory counterclaims "arising
out of the transaction which is the subject matter of the suit" and what we
would now call permissive counterclaims "which might be the subject of an
independent suit in equity." Equity Rule 30, quoted in Moore v. New York
Cotton Exchange, 270 U.S. 593, 609, 46 S.Ct. 367, 70 L.Ed. 750 (1926). In
Moore, the Supreme Court ruled that the counterclaim in that case bore a
sufficient relation to the underlying transaction under the first part of the equity
rule to be properly within federal jurisdiction and explicitly declined to
"consider the point that, under the second branch [of the rule], federal
jurisdiction independent of the original bill must appear." Id.

21

By 1944, our Court somewhat tentatively observed that "[i]t seems to be

accepted that a permissive counterclaim ... is not ancillary and requires
independent grounds of jurisdiction." Lesnik v. Public Industrials Corp., 144
F.2d 968, 976 n. 10 (2d Cir.1944) (citations omitted). We stated the proposition
more forcefully two years later in Libbey-Owens-Ford Glass Co. v. Sylvania
Industrial Corp., 154 F.2d 814, 816 (2d Cir.1946), although our statement, like
most of the language in the early cases concerning the proposition, was dictum.

22

Our first holding that independent jurisdiction is required for a permissive

counterclaim occurred in 1968. See O'Connell v. Erie Lackawanna R.R., 391
F.2d 156, 163 (2d Cir.1968). Six years later, the Supreme Court stated, "If a
counterclaim is compulsory, the federal court will have ancillary jurisdiction
over it even though ordinarily it would be a matter for a state court," Baker v.
Gold Seal Liquors, Inc., 417 U.S. 467, 469 n. 1, 94 S.Ct. 2504, 41 L.Ed.2d 243
(1974) (emphasis added), apparently implying that ancillary jurisdiction is not
available for a permissive counterclaim.

23

Notably absent from this evolution of the case law is a reasoned explanation of
why independent jurisdiction should be needed for permissive counterclaims.
One early decision hinted at a reason by suggesting that the then restrictive
rules concerning joinder of claims were applicable whether the claims were
sought to be added by a plaintiff or a defendant. See Electric Boat Co. v. Lake
Torpedo Boat Co., 215 F. 377, 381 (D.N.J.1914). Likely also influencing the
emergence of the doctrine was concern that, because under Rule 13 all
counterclaims that are not compulsory are permissive, requiring independent
jurisdiction was necessary to prevent federal court adjudication of every
conceivable non-compulsory counterclaim that a defendant might happen to
have against a plaintiff, some of which might be totally inappropriate for
federal jurisdiction. A wife's federal law suit against her husband for a
declaration of rights as a joint author, for example, ought not to be vehicle for
his counterclaim seeking a divorce. Perhaps lurking beneath the surface of the
casual statements about an independent jurisdiction requirement was
apprehension that some counterclaims lacking such a basis would extend the
lawsuit beyond Article III's limiting scope of "cases and controversies."

24

(B) Questioning the doctrine prior to section 1367. The first challenge to the
independent jurisdiction requirement appeared in Professor Green's article in
1953. See Thomas F. Green, Jr., Federal Jurisdiction over Counterclaims, 48
Nw. U.L.Rev. 271, 283 (1953). He mounted a powerful argument against the
doctrine, demonstrating how it emerged from unreasoned dicta into
unexplained holdings and why it was an unwarranted deviation from the
general principle that "[t]wo court actions should not be encouraged where one
will do." Id. at 271 (footnote omitted). He particularly noted the incursion on
the doctrine, well established even in 1953 when he wrote, that permitted some
set-offs to be interposed against a plaintiff's claim in the absence of
independent jurisdiction. Professor Green questioned why a defendant who can
present evidence of a set-off that reduces a plaintiff's judgment to zero should
not be able to obtain a counterclaim judgment to which his evidence would
entitle him in a separate action. Id. at 287-88.

25

In 1970, Judge Friendly, the acknowledged jurisdictional scholar of our Court,

changed his mind about the independent jurisdiction doctrine and "reject[ed]
the conventional learning, which [he] followed too readily in O'Connell."
United States v. Heyward-Robinson Co., 430 F.2d 1077, 1088 (2d Cir.1970)
(Friendly, J., concurring).2 Judge Friendly noted Professor Green's
persuasiveness: "The reasons why the conventional view is wrong are set out in
detail in [Professor Green's article], and nothing would be gained by
repetition." Id.

26

In 1984, the Third Circuit, in a thoughtful opinion by Judge Becker, rejected

the view that independent jurisdiction is required for all permissive
counterclaims. See Ambromovage v. United Mine Workers, 726 F.2d 972 (3d
Cir.1984). Considering whether jurisdiction was available for a set-off, Judge
Becker declined to uphold jurisdiction based on the previously recognized setoff exception to the independent jurisdiction requirement,3 and instead argued
broadly for ancillary jurisdiction, with some exceptions,4 over set-offs and
permissive counterclaims that satisfy the test of sharing a "common nucleus of
operative fact," United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S.Ct.
1130, 16 L.Ed.2d 218 (1966), with the plaintiff's underlying claim.
Ambromovage, 726 F.2d at 988-89. "We conclude that the determination that a
counterclaim is permissive within the meaning of Rule 13 is not dispositive of
the constitutional question whether there is federal jurisdiction over the
counterclaim." Id. at 990.

27

(C) The impact of section 1367. The judge-made doctrine of ancillary

jurisdiction, which had been invoked to provide a jurisdictional basis for
compulsory counterclaims, was given statutory undergirding when Congress
added section 1367 to Title 28 in 1990. See Judicial Improvements Act of 1990,
Pub.L. No. 101-650, Title III, 310(c), 104 Stat. 5114 (1990). The newly
labeled "supplemental" jurisdiction explicitly extended federal courts' authority
to "all other claims" in a civil action "so related to claims in the action within
[the district court's] original jurisdiction that they form part of the same case or
controversy under Article III of the United States Constitution." 28 U.S.C.
1367(a) (2000).

28

The explicit extension to the limit of Article III of a federal court's jurisdiction
over "all other claims" sought to be litigated with an underlying claim within
federal jurisdiction recast the jurisdictional basis of permissive counterclaims
into constitutional terms.5 After section 1367, it is no longer sufficient for
courts to assert, without any reason other than dicta or even holdings from the
era of judge-created ancillary jurisdiction, that permissive counterclaims

require independent jurisdiction. Rising to the challenge, after enactment of

section 1367, in a case strikingly similar to our pending case, the Seventh
Circuit vacated the dismissal of a permissive counterclaim and remanded for
exercise of the discretion contemplated by section 1367. Channell v. Citicorp
National Services, Inc., 89 F.3d 379 (7th Cir.1996). Channell involved a
creditor's counterclaims to collect debts in a class action alleging violations of
the Consumer Leasing Act, 15 U.S.C. 1667-1667e (2000). As Judge
Easterbrook stated, "Now that Congress has codified the supplemental
jurisdiction in 1367(a), courts should use the language of the statute to define
the extent of their powers." Id. at 385. He viewed section 1367's reach to the
constitutional limits of Article III as requiring only "[a] loose factual connection
between the claims," id. (internal quotation marks omitted), a standard that
appears to be broader than the Gibbs test of "a common nucleus of operative
facts," appropriate for permitting joinder of a plaintiff's non-federal claim. In
Channell, he readily found the requisite "loose connection" to exist between the
Consumer Leasing Act claim and the debt collection counterclaim. Id. at 38586.
29

We share the view that section 1367 has displaced, rather than codified,
whatever validity inhered in the earlier view that a permissive counterclaim
requires independent jurisdiction (in the sense of federal question or diversity
jurisdiction). The issue in this case therefore becomes whether supplemental
jurisdiction is available for Ford Credit's counterclaims.

30

III. Application of Section 1367's Standards for Supplemental Jurisdiction

31

Whether or not the Gibbs "common nucleus" standard provides the outer limit
of an Article III "case,"6 and is therefore a requirement for entertaining a
permissive counterclaim that otherwise lacks a jurisdictional basis, the facts of
Ford Credit's counterclaims and those of the Plaintiffs' ECOA claims satisfy
that standard, even though the relationship is not such as would make the
counterclaims compulsory. See Channell, 89 F.3d at 385-86.7 The
counterclaims and the underlying claim bear a sufficient factual relationship (if
one is necessary) to constitute the same "case" within the meaning of Article III
and hence of section 1367. Both the ECOA claim and the debt collection
claims originate from the Plaintiffs' decisions to purchase Ford cars.

32

Satisfying the constitutional "case" standard of subsection 1367(a), however,

does not end the inquiry a district court is obliged to make with respect to
permissive counterclaims. A trial court must consider whether any of the four
grounds set out in subsection 1367(c) are present to an extent that would
warrant the exercise of discretion to decline assertion of supplemental

jurisdiction.8 Subsection 1367(c) provides:

33

The district courts may decline to exercise supplemental jurisdiction over a

claim under subsection (a) if

34

(1) the claim raises a novel or complex issue of State law,

35

(2) the claim substantially predominates over the claim or claims over which
the district court has original jurisdiction,

36

(3) the district court has dismissed all claims over which it has original
jurisdiction, or

37

(4) in exceptional circumstances, there are other compelling reasons for

declining jurisdiction.

38

We have indicated that, where at least one of the subsection 1367(c) factors is
applicable, a district court should not decline to exercise supplemental
jurisdiction unless it also determines that doing so would not promote the
values articulated in Gibbs, 383 U.S. at 726, 86 S.Ct. 1130: economy,
convenience, fairness, and comity. See Itar-Tass Russian News Agency v.
Russian Kurier, Inc., 140 F.3d 442, 445-47 (2d Cir.1998) (rejecting approach of
1st, 3rd, 7th, and D.C. Circuits in favor of approach adhered to by 8th, 9th, and
11th Circuits).

39

Clearly the exception set forth in subsection 1367(c)(1) does not apply since
Ford Credit's counterclaims do not raise a novel or complex issue of state law,
but merely a standard contract question. Nor does subsection 1367(c)(3) apply
since the District Court has not dismissed all claims over which it has original
jurisdiction. That leaves subsections 1367(c)(2), permitting declination of
supplemental jurisdiction where "the [counter]claim substantially predominates
over the claim or claims over which the district court has original jurisdiction,"
and 1367(c)(4), permitting declination "in exceptional circumstances, [where]
there are other compelling reasons for declining jurisdiction." The District
Court apparently based its decision on subsection 1367(c)(4), since it cited only
that subsection in its opinion, but some of the concerns it discussed implicate
the substantial predomination analysis of subsection 1367(c)(2) as well.

40

In Channell, Judge Easterbrook canvassed the competing considerations

bearing on whether the subsection (c)(2) and (c)(4) factors might permit

declination of supplemental jurisdiction over collection counterclaims

interposed against a claim under a consumer protection statute. See Channell,
89 F.3d at 386-87. Acknowledging a district court's discretion, the Seventh
Circuit ultimately remanded because "[a]rguments under 1367(c) are
addressed to the district court's discretion." Id. at 387. In Channell, however,
the class had been certified, class members had been notified, and some had
opted out. Id. at 384. In our case, a ruling on the class motion has not yet been
made.
41

Whether Ford Credit's counterclaims "predominate[ ]" over the Plaintiffs'

claims and whether there are "exceptional circumstances" for declining
jurisdiction cannot properly be determined until a decision has been made on
the Plaintiffs' motion for class certification. Both the applicability of
subsections 1367(c)(2) and (4), and the exercise of a district court's discretion
in the event either or both are ruled applicable will be significantly influenced
by the existence of a large class as sought by the Plaintiffs. The District Court's
conclusions that it would be "unfair and inexpedient" to require out-of-state
class members to litigate Ford's state law debt claims in New York, and that
allowing the counterclaims might dissuade potential plaintiffs from joining the
class, were therefore premature.9

42

Class certification is to be decided "at an early practicable time" after the

commencement of a suit. Fed.R.Civ.P. 23(c)(1) (amended Dec. 1, 2003). See 5
James Wm. Moore et al., Moore's Federal Practice-Civil 23.61 (3d ed.2003);
cf. Cottone v. Blum, 571 F.Supp. 437, 440-41 (W.D.N.Y.1983) (dismissing
class action for, among other things, failure to move for class certification
within 60 days of filing of complaint, as required by local rule). That course is
especially important in this case. Accordingly, we remand this case with
directions to rule on the class certification motion, and then, in light of that
ruling, to proceed to determine whether to exercise or decline supplemental
jurisdiction.

43

On remand, the District Court should exercise its discretion pursuant to

subsection 1367(c) in light of our decision in Itar-Tass, particularly the caution
there expressed concerning use of subsection 1367(c)(4), 140 F.3d at 448. In
order to decline jurisdiction on this basis, the District Court should identify
truly compelling circumstances that militate against exercising jurisdiction. Id.
Moreover, if the Court certifies the class action, its substantial predomination
analysis under subsection 1367(c)(2) should take into account the methods by
which the class action might be managed in order to prevent the state law
counterclaims from predominating. By bifurcating the litigation, certifying a
limited class (perhaps only in-state plaintiffs), or utilizing other management

tools, the District Court might be able to structure the litigation in such a way as
to prevent the state law claims from predominating over the federal basis of the
action, while maintaining the advantages inherent in providing a forum in
which all of the litigants' claims can be litigated.
Conclusion
44

The judgment dismissing Ford Credit's counterclaims is vacated, and the case is
remanded for further proceedings consistent with this opinion. No costs.

Notes:
1

The phrase "logical relationship," in the context of counterclaims, was first

used by the Supreme Court inMoore v. New York Cotton Exchange, 270 U.S.
593, 610, 46 S.Ct. 367, 70 L.Ed. 750 (1926). Referring to a counterclaim
"arising out of the transaction which is the subject matter of the suit," as stated
in former Equity Rule 30, the Court explained:
"Transaction" is a word of flexible meaning. It may comprehend a series of
many occurrences, depending not so much upon the immediateness of their
connection as upon their logical relationship.
Id.

Judge Friendly refrained from calling for in banc consideration after his change
of position because, in agreement with his ultimate vote, his two colleagues had
affirmed the judgment upholding federal jurisdiction on the ground, which he
did not share, that the counterclaim was compulsorySee Heyward-Robinson,
430 F.2d at 1089.

The set-off exception provides that "[w]here the permissive counterclaim is in

the nature of a set-off interposed merely to defeat or reduce the opposing
party's claim and does not seek affirmative relief, no independent jurisdictional
grounds are required."Heyward-Robinson, 430 F.2d at 1081 n. 1. As the court
noted in Ambromovage, the "defensive set-off exception does not fit squarely
within the analytic framework set forth" in United Mine Workers v. Gibbs, 383
U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966), because "under the exception,
all defensive set-offs, whether or not they satisfy the Gibbs test, are within the
ancillary jurisdiction of the court." Ambromovage, 726 F.2d at 990-92 & n. 56.

Anticipating considerations that would later be codified in 28 U.S.C. 1367,

Judge Becker suggested that a district court should decline to exercise ancillary
jurisdiction over a defendant's claims where the exercise of jurisdiction would
violate some federal policy limiting jurisdiction and be an inappropriate
exercise of a district court's discretion, taking into account such factors as
"fairness to the litigants, judicial economy, and the interests of
federalism."Ambromovage, 726 F.2d at 991.
5

There is some doubt as to whether section 1367's expansion of supplemental

jurisdiction to its constitutional limits renders the provision's scope broader
than was contemplated inGibbs. The text of subsection 1367(a) unambiguously
extends jurisdiction to the limits of Article III, and the provision's legislative
history indicates that Congress viewed the Gibbs "common nucleus" test as
delineating those constitutional limits. See H.R.Rep. No. 101-734, reprinted in
1990 U.S.C.C.A.N. 6360, 6374-75 (stating that "subsection (a) codifies the
scope of supplemental jurisdiction first articulated by the Supreme Court in
United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218
(1966)"). Several commentators have suggested, however, that the extent of
constitutional jurisdiction is broader than the Gibbs test, as Article III may not
require a particular factual relationship between joined claims or counterclaims
and federal claims that provide the basis for jurisdiction.
In 1983, Professor Matasar, anticipating section 1367's authorization of
supplemental jurisdiction for all claims within an Article III "case or
controversy," advocated permitting joinder of all claims, whether those of the
plaintiff or the defendant, to the full extent of "the system of rules lawfully
adopted to govern procedure in the federal courts." See Richard A. Matasar,
Rediscovering "One Constitutional Case": Procedural Rules and the Rejection
of the Gibbs Test for Supplemental Jurisdiction, 71 Cal. L.Rev. 1399, 1478-79.
(1983). He drew support from Chief Justice Marshall's statement that "`[the
judicial] power is capable of acting only when the subject is submitted to [the
judicial department], by a party who asserts his rights in the form prescribed by
law.'" Id. at 1479 (quoting Osborn v. Bank of the United States, 22 U.S. (9
Wheat.) 738, 819, 6 L.Ed. 204 (1824) (Little, Brown 1864)). Professor Matasar
would permit jurisdiction over any counterclaim authorized by federal rules,
without requiring any factual relationship to the underlying claim.
More recently, Professor Fletcher (now Judge Fletcher) also advocated a broad
view of the claims that could be joined in a "case or controversy" under section
1367. See William A. Fletcher, "Common Nucleus of Operative Fact" and
Defensive Set-Off Beyond the Gibbs Test, 74 Ind. L.J. 171 (1998). Like
Professor Matasar, Professor Fletcher urged that the constitutional test of a
"case" did not require a factual connection between joined claims, but would be

satisfied under either the joinder standards applicable when the Constitution
was adopted or modern joinder rules. Id. at 178.
Congress's understanding of the extent of Article III is of course not binding as
constitutional interpretation, and section 1367's legislative history cannot be
read as an independent limit on subsection 1367(a)'s clear extension of
jurisdiction to the limits of Article III. Thus, the correct reading of subsection
1367(a)'s reference to "the same case or controversy under Article III" remains
unsettled.
6

If theGibbs standard marks the outer limit of an Article III "case,"

congressional authorization to join counterclaims with a more tenuous
connection to the underlying claim would be unconstitutional unless Congress
has some authority to expand the constitutional scope of "case."

We note that the "common nucleus" test ofGibbs, expanding the prior test of
Hurn v. Oursler, 289 U.S. 238, 245-47, 53 S.Ct. 586, 77 L.Ed. 1148 (1933),
was developed to provide some limit upon the state law claims that a plaintiff
could join with its federal law claims. That rationale does not necessarily apply
to a defendant's counterclaims. A plaintiff might be tempted to file an
insubstantial federal law claim as an excuse to tie to it one or more state law
claims that do not belong in a federal court. There is no corresponding risk that
a defendant will decline to file in state court an available state law claim,
hoping to be lucky enough to be sued by his adversary on a federal claim so that
he can assert a state law counterclaim.

Subsection 1367(b), precluding exercise of supplemental jurisdiction under

some circumstances where jurisdiction over the underlying claim is based
solely on diversity of citizenship, does not apply here; the Plaintiffs' underlying
claim is based on federal question jurisdiction

The District Court's assumption that plaintiffs' class would be certified, and its
analysis of the state law counterclaims in light of that assumption, unduly
weighted the subsection 1367(c) analysis in favor of the plaintiffsGibbs
emphasizes that the question of "whether [supplemental] jurisdiction has been
properly assumed is one which remains open throughout the litigation," and the
analysis should be undertaken when the district court is best positioned to
determine how the exercise of jurisdiction will affect the case as a whole.
Gibbs, 383 U.S. at 727, 86 S.Ct. 1130. Thus, when pendent state law claims are
asserted in the context of a putative class action, district courts should normally
not dismiss the claims based solely on the problems that could arise if the class
is eventually certified. See, e.g., Clark v. McDonald's Corp., 213 F.R.D. 198,
232 (D.N.J.2003) (noting that "[a]lthough the potential remains for this

litigation to reach a crossroads where the better course may be to decline

supplemental jurisdiction over claims arising under the laws of the Subclass
States, or some of them," there was no reason to dismiss the claims prior to
certification).