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Harris v. Steinem

decided: February 17, 1978.


Appeal from order of the United States District Court for the Southern District of New York, Goettel, J., dismissing without prejudice appellants' counterclaims for lack of jurisdiction. Affirmed.

Feinberg, Oakes, Circuit Judges, and Wyatt, District Judge.*fn*

Author: Feinberg


Appellants Gloria Steinem, Patricia Carbine and Ms. Magazine Corp. (Ms. Magazine) seek to overturn an order by Judge Gerard L. Goettel in the United States District Court for the Southern District of New York dismissing without prejudice their counterclaims for libel against appellee Elizabeth Forsling Harris, who appears pro se. Since we find that the counterclaims were permissive within the meaning of Federal Rule of Civil Procedure 13(b), the district court's order of dismissal for lack of jurisdiction is affirmed.


The individual appellants and appellee Harris were the founders and original owners of Ms. Magazine. In early 1972, Harris sold a substantial portion of her stock back to Ms. Magazine. Thereafter, Ms. Magazine apparently concluded negotiations to sell a sizeable block of its stock to a prominent company, thereby enhancing the value of previously issued Ms. Magazine stock. In June 1975, Harris sued appellants in the district court, alleging that they had violated the securities laws when her stock was repurchased over three years earlier.*fn1 The gravamen of Harris's complaint was that appellants had failed to disclose to her their material ongoing negotiations with an outside investor. These undisclosed transactions were further alleged to have "significantly increased the value" of the stock sold. In their answer, appellants denied these contentions, and counterclaimed for libel based both on the complaint itself, which was alleged to have been "brought maliciously," and also on several subsequent published statements of Harris concerning her lawsuit. Appellee Harris generally denied the allegations of the counterclaims and specifically contended that her responses to reporters' inquiries "referred solely to the allegations contained in the Complaint which was . . . a matter of public record."

Initially, pre-trial discovery proceeded smoothly, but in May 1976, Judge Goettel found it necessary to orally order Harris to "appear for continuation of her deposition on or before June 20, 1976." When this order was ignored, Judge Goettel issued a written order similarly directing Harris to appear on or before July 22, 1976. Again Harris failed to comply,*fn2 and in August 1976 Judge Goettel properly dismissed her complaint with prejudice. Although this last order specifically retained jurisdiction over the counterclaims, the judge subsequently decided that he should dismiss the counterclaims as well. In a memorandum opinion, filed in August 1977, the judge held that the early dismissal of the complaint warranted the discretionary dismissal of what he perceived to be compulsory counterclaims. This appeal followed.


With certain exceptions,*fn3 Rule 13(a) requires a litigant to "state as a counterclaim any claim . . . if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim . . .."*fn4 Such counterclaims are denominated compulsory, and no independent basis of federal jurisdiction is needed for the court to adjudicate the ancillary issues thus raised, if the main claim itself presents a colorable federal issue. See, e.g., Moore v. New York Cotton Exchange, 270 U.S. 593, 609, 70 L. Ed. 750, 46 S. Ct. 367 (1926); Baker v. Gold Seal Liquors, Inc., 417 U.S. 467, 469 n.1, 41 L. Ed. 2d 243, 94 S. Ct. 2504 (1974). See also 3 Moore's Federal Practice para. 13.15[1] (2d ed. 1974). Moreover, a compulsory counterclaim, unless specifically excepted, must be pleaded or be forever barred. See, e.g., Baker v. Gold Seal Liquors, Inc., supra, 417 U.S. at 469 n.1; Pipeliners Local Union No. 798 v. Ellerd, 503 F.2d 1193, 1198 (10th Cir. 1974).*fn5 The Federal Rules of Civil Procedure also allow a litigant to assert any non-compulsory counterclaim he has against the opposing party. Fed. R. Civ. P. 13(b).*fn6 Such unrelated counterclaims are referred to as permissive, since a party need not plead them, but instead may bring a separate action on the claim in the forum of his own choosing. If a permissive counterclaim is raised in a federal district court, however, an independent jurisdictional ground is required, see Clark v. Universal Builders, Inc., 501 F.2d 324, 341 (7th Cir.), cert. denied, 419 U.S. 1070, 42 L. Ed. 2d 666, 95 S. Ct. 657 (1974); United States v. Heyward-Robinson Co., 430 F.2d 1077, 1080-81 (2d Cir. 1970), cert. denied, 400 U.S. 1021, 91 S. Ct. 582, 27 L. Ed. 2d 632 (1971).

As indicated above, Judge Goettel viewed appellants' counterclaims as compulsory, but held that in light of the early pre-trial dismissal of the main action, the counterclaims should be dismissed without prejudice as an exercise of the court's discretion to decline ancillary jurisdiction. A district court may decline to exercise its jurisdiction over pendent claims,*fn7 see United Mine Workers v. Gibbs, supra, 383 U.S. at 726-29, and trial judges have been told that "certainly, if the federal claims are dismissed before trial . . . the [pendent] state claims should be dismissed as well." Id. at 726. Analogizing to Gibbs and its progeny, several decisions have concluded that federal courts possess similar discretion to dismiss compulsory counterclaims based on ancillary jurisdiction alone.*fn8 See National Research Bureau, Inc. v. Bartholomew, 482 F.2d 386, 388 (3d Cir. 1973); Wetherington v. Phillips, 380 F. Supp. 426, 429 (E.D.N.C. 1974), aff'd mem., 526 F.2d 591 (4th Cir. 1975); United States v. Gregor J. Schaefer Sons, Inc., 272 F. Supp. 962, 964-65 (E.D.N.Y. 1967). The last two cases were relied on by Judge Goettel to support his discretionary dismissal of what he characterized as appellants' compulsory counterclaims.

Appellants agree with the district court that their counterclaims were compulsory, but strongly urge that a Gibbs analysis is inappropriate here. Pointing out that the plaintiff in Gibbs brought parallel claims in the federal forum of his choice, appellants emphasize that, as defendants, they have been dragged into a court not of their own choosing and have been forced by Rule 13(a) to plead their counterclaims. Appellants further contend that Gibbs is inapplicable because the mandatory language of Rule 13(a), which requires a party to raise compulsory counterclaims, imposes a parallel duty on the federal courts to hear them.*fn9 Although these are intriguing questions,*fn10 we need not resolve them, because we do not agree with the major premise of appellants' arguments, namely, that their counterclaims are compulsory within the meaning of Rule 13(a).


The operative language of Rule 13, which differentiates compulsory from permissive counterclaims, reads as follows: "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim . . .." Although courts and commentators have formulated various tests to determine what constitutes the same "transaction or occurrence,"*fn11 this circuit, relying on the Supreme Court's interpretation of Rule 13's predecessor,*fn12 has long looked to the "logical relationship" between the claim and the counterclaim.*fn13 This flexible approach to Rule 13 problems attempts to analyze whether the essential facts of the various claims are so logically connected that considerations of judicial economy and fairness dictate that all the issues be resolved in one lawsuit. See Columbia Plaza Corp. v. Security National Bank, supra, 525 F.2d at 625-26; United States v. Heyward-Robinson Co., supra, 430 F.2d at 1081-82; Great Lakes Rubber Corp. v. Herbert Cooper Co., supra, 286 F.2d at 634. Thus, precise identity of issues and evidence between claim and counterclaim is not required. See, e.g., Moore v. New York Cotton Exchange, supra, 270 U.S. at 610; United Artists Corp. v. Masterpiece Productions, Inc., supra, 221 F.2d at 216. Conversely, at some point the essential facts and "the thrust of the two claims [are] so basically different that such accepted 'tests of compulsoriness' as 'logical relation' [are] not met . . .." Ball v. Connecticut Bank and Trust Co., 404 F. Supp. 1, 4 (D. Conn. 1975).

With these considerations in mind, we turn to the facts at bar. Appellee Harris claimed that her sale of stock to appellants in 1972 was fraudulently induced under both state and federal law. Such allegations focus on the details of the negotiations and the material financial information about Ms. Magazine known to the individual appellants and not disclosed to Harris at the time of the transaction complained of. In contrast, appellants' counterclaim was based on the filing of the complaint in 1975 and the "even more remote" subsequent publicity surrounding the suit. Bose Corp. v. Consumers Union of the United States, Inc., 384 F. Supp. 600, 602 (D. Mass. 1974). While it is true that Harris's success on the main claim would probably have defeated the counterclaim,*fn14 essential issues in the counterclaim might well have included (1) whether appellants were "public figures" within the ambit of Curtis Publishing Co. v. Butts, 388 U.S. 130, 154-55, 18 L. Ed. 2d 1094, 87 S. Ct. 1975 (1967) and later New York defamation cases such as James v. Gannett Co., 40 N.Y.2d 415, 386 N.Y.S.2d 871, 353 N.E.2d 834 (1976), (2) if so, whether Harris's alleged libel was made with her "knowledge that it was false or with reckless disregard of whether it was false or not," New York Times v. Sullivan, 376 U.S. 254, 280, 11 L. Ed. 2d 686, 84 S. Ct. 710 (1964), and if appellants were not public figures, whether such publications were made in a "grossly irresponsible manner," Chapadeau v. Utica Observer-Dispatch, Inc., 38 N.Y.2d 196, 199, 379 N.Y.S.2d 61, 341 ...

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