198 F. Supp.2d 116 (2002) | Cited 0 times | D. Puerto Rico | March 28, 2002


This case was filed by PRAMCO, LLC ("PRAMCO") on behalf of CFSCConsortium, LLC, against Angel Ferreras-Goitia's, et als.,("Defendants"), for foreclosure of a mortgage and collection of money.The complaint was filed pursuant to this Court's diversity jurisdiction,28 U.S.C. § 1332. (Docket No. 1). Pending before the Court isDefendants' motion for summary judgment. (Docket No. 47). However,because the Court understands that it now lacks diversity jurisdiction,this case is DISMISSED WITHOUT PREJUDICE.



On April 25, 1991, Defendants received a loan from the Small BusinessAdministration,in the amount of $150,000, payable to the Small Business Administration,with interest thereon at the rate of nine and a half per cent (9.5%) perannum, to be paid in 178 installments of $1,575.00. In order to securefull payment, on May 15, 1991, Defendants executed a mortgage deed uponthree (3) properties they owned.

The Court notes from the outset that a previous action was filed in1994, Civil No. 94-1469 (RLA),1 which resulted in the execution ofone of those three (3) properties. Accordingly, the instant complaintmakes reference to only two (2) properties, albeit only one of those fitsthe description of a property used as collateral in the mortgage deed.The Court explains briefly.

According to the copy of said deed, attached to the instantcomplaint,2 the properties were divided into A, B and C. The mortgagedeed states that "Property A" secured $85,000, and is found recorded asproperty number 16,676, recorded in page 230, Volume 25, in the PropertyRegistry, Trujillo Alto Part, San Juan, Section IV. "Property B" secured$15,000, and is found recorded as property number 3,886, recorded in page59, Volume 86, in the Property Registry, Trujillo Alto Part, San Juan,Section IV. And "Property C" secured $50,000, and is found recorded asproperty number 2,101, recorded in page 90, Volume 64, in the PropertyRegistry, Trujillo Alto Part, San Juan, Section V. As will be discussed,infra, the property subject to foreclosure in Civil Case No. 94-1469(RLA), was that fitting the description of "Property A."

As stated before, only two (2) properties remain in Defendants' legalpossession. The Court notes, however, that, although PRAMCO's complaintsupposedly makes reference to "Property A" and "Property B," the onlyproperty which, according to the mortgage deed, fits proper description is"Property B." The other property, titled "A" in the complaint, isallegedly found recorded in page 127, Volume 137, in the "PropertyRegistry, Trujillo Alto Part." But the mortgage deed does not contain aproperty that fits that description.3 Thus, by description anddeduction, the only property subject of this original complaint is"Property B." Simply explained, the complaint does not properly address"Property A."4

Nevertheless, due to Defendants default, this action was filed againstthem, onJanuary 27, 2000. The complaint was filed pursuant to this Court'sdiversity jurisdiction, 28 U.S.C. § 1332. (Docket No. 1) (the Courtwill refer to this action infra as "the original complaint"). Thecomplaint states that Defendants "are the owners of the mortgagedproperties according to the Registry of the Property and plaintiffs bestknowledge and belief." (Docket No. 1, p. 5).

On July 12, 2000, Defendants answered the complaint. (Docket No. 9). Intheir answer, Defendants mostly denied the allegations against them.However, they "accepted" that, although they "should be" the registryowners of "all" the properties, they are not. They advised the Court that"one of the properties" — hereinafter, "Property A" — wassold in public sale by Farm Credit to a man named Felipe Lebron ("Mr.Lebron"), on October 13, 1999. This, after partly executing the mortgagedeed, in another foreclosure case, namely, Civil No. 94-1469 (RLA).5As such, Defendants had intentions of regaining title over saidproperty, by filing a Third-party complaint against third-partydefendants, Farm Credit, Mr. Lebron and Doral Mortgage Bank ("Doral").Defendants further announced intentions of impeaching the public sale of"Property A" through the third-party complaint, for alleged deficienciesin the required notification prior to its public sale by Farm Credit. Inother words, Defendants were to claim lack of required notice of saidpublic sale, and/or that it was deficiently performed, and, as such, saidsale must be annulled by the Court.6

Indeed, on July 12, 2000, Defendants filed a Third-party complaintimpleading three (3) additional parties, pursuant to FED.R.CIV.P. 14.(Docket No. 9). As stated above, the named third-party defendants areFarm Credit, Doral and Mr. Lebron. As third-party defendants, it isimportant to note that Doral and Mr. Lebron are residents of PuertoRico. The other third-party defendant, The Farm Credit of Baltimore, maybe (but not necessarily) considered a resident of Puerto Rico.7

As a second cause of action, the third-party complaint filed byDefendants claims that Mr. Lebron, the buyer of "Property A," had causeddamage to the neighboring properties, which Defendants still owned. Theyalleged that, once in possession of "Property A," Mr. Lebron had begunthe construction of his new house, after obtaining a $130,000 mortgageloan from Doral. As part of the construction on his newly acquiredproperty, Mr. Lebron brought heavy machinery on to "Property A." Themachinery entered Mr. Lebron's property through a small road thatallegedly crossed through the neighboring property that Defendants theystill owned and possessed. As a result, Defendants allege that themachinery caused severe damage to their property, and that Mr. Lebron isliable to them under Puerto Rico's general tort statute, article 1802 ofthe Civil Code, 31 P.R. STAT. ANN., § 5141.

The Defendants' immediately advised Mr. Lebron that the road used toaccess his property was not part of "Property A," but instead constitutedpart of their land. Therefore, they prohibited him from accessing"Property A" through "their property," that is, through "their road."Mr. Lebron, however, advised them that he had acquired "Property A"through a public sale in 1999, and that he was certain it included theroad. Mr. Lebron further advised Defendants that they could not forecloseaccess to his property in that manner. Defendants responded by informingMr. Lebron that they planned to impeach the public sale of "Property A,"and that the same would eventually be declared void. Thus, Defendants'second cause of action against Mr. Lebron.

On September 18, 2000, Farm Credit answered the Third-party Complaint.(Docket No. 17). Soon thereafter, on October 30, 2000, Mr. Lebron alsoanswered the Third-party Complaint, and among other averments, stated aCross Claim against Farm Credit. (Docket No. 22).

In the Cross Claim, Mr. Lebron alleges that he is a third-party,good-faith purchaser from Farm Credit, and as such, is protected byPuerto Rico's mortgage law. He further claims that Farm Credit wronglyled them to believe in 1999 that he had acquired an "unencumberedparcel." He claims that he bought the property believing that he was alsoacquiring the road providing access. He claims to have suffered damages,obtaining a mortgage loan to build his new house, and executing a seriesof other costly agreements without having access to the main property.Doral, who also entered this action also as a third-party defendant,answered the complaint on April 19, 2001. (Docket No. 28).

On April 30, 2001, PRAMCO filed a motion advising this Court thatDefendants had filed a petition for bankruptcy. (Docket No. 34). PRAMCOthus raised the question of whether this action had been automaticallystayed, pursuant to 11 U.S.C. § 362 (a). Nevertheless, on August 7,2001, Defendants filed a motion "waiving" the protective stay in thebankruptcy proceedings. (Docket No. 42). Said waiver was founded upon astipulation enteredbetween PRAMCO and Defendants, whereby Defendants consented to the entryof judgment against them and in favor of PRAMCO, for the amount requestedin the original complaint. In addition, Defendants agreed that, if theamount was not satisfied within 60 days, PRAMCO would be free to executethe judgment against the property. (Docket No. 44).8 Accordingly,Judgment was entered for PRAMCO in the original complaint, on September26, 2001 (Docket No. 48). PRAMCO was soon thereafter dismissed, and withit, so was the original complaint. (Docket No. 50).

On September 25, 2001, Defendants filed this motion for summaryjudgment, against Farm Credit. (Docket No. 47). Farm Credit has opposed.(Docket No. 52). The Court, however, finds it is unnecessary to reach themerits of Defendants' motion, in light of the fact that this Court'sdiversity jurisdiction vanished when the Court dismissed the originalsuit in the instant case.



It is a fundamental precept that federal courts are courts of limitedjurisdiction. The limits upon federal jurisdiction, whether imposed bythe Constitution or by Congress, must be neither disregarded nor evaded.See Bonas v. Town of North Smithfield, 265 F.3d 69, 73 (1st Cir. 2001)("Federal courts are courts of limited jurisdiction, and therefore mustbe certain that they have explicit authority to decide a case").

Furthermore, where suit is originally filed in federal court, pursuantto its diversity jurisdiction statute, 28 U.S.C. § 1332, thelongstanding rule is that there must be "complete diversity." This rulewas laid down in Strawbridge v. Curtiss, 7 U.S (3 Cranch) 267, 2 L.Ed.435 (1806), and consistently followed since. Moreover, it is well-knownthat, for purposes of diversity jurisdiction, citizenship usually isequated with domicile. Valentin v. Hospital Bella Vista, 254 F.3d 358,366 (1st Cir. 2001); see also Rodriguez-Diaz v. Sierra-Martinez,853 F.2d 1027, 1029 (1st Cir. 1988).

When non-diverse third parties are impleaded pursuant toFED.R.CIV.P.14, a question of pendent or ancillary jurisdiction arises.Ancillary jurisdiction is the authority of a federal court "to hearclaims that otherwise would not be within federal jurisdiction becausethe claims arise from the same set of facts as a case properly before thefederal court." ERWIN CHEMERINSKY, FEDERAL JURISDICTION § 5.4, p. 312(2d ed. 1994). The seminal case setting forth this doctrine is Freemanv. Howe, 65 U.S. (24 How.) 450, 16 L.Ed. 749 (1860). There the SupremeCourt held that third parties may intervene in an original federal suit,and present their claims, notwithstanding that their claim was "not anoriginal suit, but ancillary and dependent. . . ." Id., at 460. Later, inStewart v. Dunham, the Supreme Court explained thatnon-diverse third parties could intervene in an original, bona fide,diversity suit, even though their presence meant the elimination ofcomplete diversity. The Supreme Court explained that said action waspossible because, under those circumstances, the non-diverse parties'intervention "did not oust the jurisdiction of the court, alreadylawfully acquired, as between the original parties." 115 U.S. 61, 64, 5S.Ct. 1163, 29 L.Ed. 329 (1885).

In later cases, such as the case of Moore v. New York Cotton Exchange,270 U.S. 593, 46 S.Ct. 367, 70 L.Ed. 750 (1926), the Supreme Court heldthat a defendant's counterclaim did not eliminate jurisdiction because itarose from a common nucleus of operative facts as the plaintiffs claims,although there was no independent basis for federal jurisdiction. Simplyexpressed, federal jurisdiction was possible because the counterclaimarose from the same facts as plaintiffs claims.

In United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 16L.Ed.2d 218 (1966), the Court reiterated that pendent jurisdiction ispossible when there is a federal claim properly before a federal court anda state claim arises from a common nucleus of operative fact.Furthermore, the Court explained that this doctrine is "of discretion,"not of a party's right. The Court stated that the doctrine'sjustification "lies in considerations of judicial economy, convenience,and fairness to litigants; if these are not present a federal courtshould hesitate" to apply the doctrine. Id. Thus, the application of thedoctrine of ancillary jurisdiction is, in essence, subject to thediscretion of the Court.9

In the landmark case of Owen Equipment & Erection Co. v. Kroger,437 U.S. 365, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978), the Supreme Courtreversed the lower courts on the basis that the principal, remaining,nondiverse claim asserted was not an ancillary and dependent claim, but anew and independent one. The plaintiffs claim against the third partydefendant had been entirely separate from the plaintiffs original claimagainst the defendant, and the third party's liability to the plaintiffdid not depend on the defendant's being liable to the plaintiff.

The facts in Kroger were as follows. James Kroger's widow, a citizen ofIowa, filed a wrongful-death action against a power company in Nebraska,after her husband was electrocuted when the boom of a steel crane next tohim came too close to a high-tension electric power line. She claimedthat the power company was negligent in operating the power line. Thecomplaint, filed in Nebraska federal district court, was solely based ondiversity jurisdiction. The power company, in turn, filed a third-partycomplaint against Owen Equipment and Erection Company (Owen). which ownedand operated the crane, pursuant to FED.R.CIV.P. 14. The third-partycomplaint alleged that Owen's negligence was the proximate cause of Mr.Kroger's death, and as such, was directly liable to Mrs. Kroger. Thewidow was thereafter granted leave to amend her complaint by naming Owen— which she claimed to be a Nebraska corporation with its principalplace of business in Nebraska — as an additional defendant.

Soon thereafter, the Court granted summary judgment, and dismissed theoriginal defendant, i.e., the power company. Owen was left to be the soledefendant. However, although the complaint alleged that Owen was acorporation organized and existing under the laws ofNebraska, during trial it was disclosed that petitioner's principal placeof business was in Iowa. Thus, since plaintiffs were also from Iowa, Owenmoved to dismiss on the basis of lack of federal diversity jurisdiction.After the jury returned a verdict for Mrs. Kroger, the district courtdenied Owen's motion to dismiss. The Court of Appeals affirmed, holdingthat the district court acted properly and retained jurisdictionbecause, pursuant to Gibbs, the important factor was that Mrs. Kroger'sclaim against Owen (a non-diverse party) arose from the "core of`operative facts' giving rise to" her original claim against the electriccompany (a diverse party), notwithstanding the dismissal of the originalclaim against the diverse party. The Supreme Court reversed for lack ofjurisdiction.

The Supreme Court first recognized that the test established in Gibbsdoes not end the inquiry as to whether federal courts may entertain casesbetween non-diverse parties that remain after the original, diversitysuit is dismissed. The Court in Kroger noted that courts must take anadditional step. See Kroger, 437 U.S. at 372, 98 S.Ct. 2396 (the Gibbstest "is merely the first hurdle"). To wit, the Court held that a partyasserting diversity jurisdiction must overcome two hurdles: oneconstitutional (the Gibbs test) and the other statutory (the Krogertest).

Accordingly, a court must first examine under Gibbs, whether thefederal claims and nonfederal claims arise from a "common nucleus ofoperative fact." That is, whether they comprise but "one constitutionalcase." See Gibbs, 383 U.S. at 725, 86 S.Ct. 1130. As a second step, it is"necessary to examine the relevant statute, 28 U.S.C. § 1332 (a)(1),and the context in which plaintiffs claim was asserted to ascertainwhether Congress had `expressly or by implication negated' the exerciseof jurisdiction." 92 HARV. L.REV. at 243 (citing Kroger, 437 U.S. at373, 98 S.Ct. 2396) (footnotes omitted). This second step, which requiresan examination of the statutory grant of jurisdiction by Congress,comprises a two-part "context" test. The Kroger Court emphasized thatwhen inquiring into the specific Congressional statute that confersjurisdiction, context is of upmost importance. The Court stated, "indetermining whether jurisdiction over a nonfederal claim exists, thecontext in which the nonfederal claim is asserted is crucial." Kroger,437 U.S. at 375-76, 98 S.Ct. 2396 (emphasis added).

The second part of the Kroger test — the "context" test —establishes essentially a twofold analysis, which must be followed bytrial courts. To wit, courts must first examine whether there is apossibility for evasion of jurisdictional requirements established in thejurisdictional statute. In other words, whether the remaining, interestedparty is merely seeking the advantages of incidental jurisdiction, thatis, whether it has "chosen the federal rather than the state forum merelyfor the purpose of seeking convenience and efficiency. Kroger, 437 376-77, 98 S.Ct. 2396. Simply put, the court must consider whether anyother considerations — aside from convenience and efficiency— precludes the remaining, interested party from having its claimsadjudicated in local courts. If not, then this factor clearly would weighagainst retaining jurisdiction, because "neither the convenience oflitigants nor considerations of judicial economy can suffice to justifyextension of the doctrine or ancillary jurisdiction to a [party's] causeof action against a citizen of the same State in a diversity case." Id.

The second element of Kroger's "context" test requires an analysis ofwhether there is any "logical dependence" between the original complaintand theancillary, non-federal claims, or "mere factual similarity." Here, it isimportant to note that "logical dependence exists where liability underthe nonfederal claim depends to some extent upon a successful prosecutionof the jurisdiction-granting claim." 92 HARV. L.REV. at 246 (footnotesomitted).

In 1990, Congress finally decided to codify the doctrine of ancillaryjurisdiction of Gibbs and Kroger. "The Judicial Improvements Act of 1990provided the first statutory authority for ancillary and pendentjurisdiction, created the new concept of `supplemental jurisdiction,'which encompasses both ancillary and pendent jurisdiction. . . ."CHEMERINSKY. FEDERAL JURISDICTION § 5.4, p. 317 The SupplementalJurisdiction statute enacted by Congress provides:

(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.

(b) 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, over claims by persons proposed to be joined as plaintiffs under Rule' 19 of such rules, or seeking to intervene as plaintiffs under Rul 24 of such rules, when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332.

(c) The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if —

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

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

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

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

(d) The period of limitations for any claim asserted under subsection (a), and for any other claim in the same action that is voluntarily dismissed at the same time as or after the dismissal of the claim under subsection (a), shall be tolled while the claim is pending and for a period of 30 days after it is dismissed unless State law provides for a longer tolling period.

(e) As used in this section, the term "State" includes the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession of the United States.

See 28 U.S.C. § 1367 (emphasis added).

The Court finds that the third exception in § 1367(c) is applicableto the case at bar. Clearly, under the third exception, a district courtmay decline to exercise jurisdiction when it "has dismissed all claimsover which it ha[d] original jurisdiction." The rationale under thisexception is simple. "The idea . . . is that once the crutch is removed— the claim that supports the supplemental jurisdiction of theotherclaim or claims — the other should not remain for adjudication."Elizabeth Delagardelle, Defining the Parameters of SupplementalJurisdiction After 28 U.S.C. § 1367, 43 Drake L.Rev. 391, 406 (1994)(citing David D. Siegel, Practice Commentary §§ 1367, 829-31 (West1993)); see also David D. Siegel, Changes in Federal Jurisdiction andPractice Under the New (Dec. 1, 1990) Judicial Improvements Act, 133F.R.D. 61, 63.

Under 28 U.S.C. § 1367(c), if the original supplementaljurisdiction claim is dismissed for lack of subject matter jurisdiction,the Court is divested of all power to adjudicate any supplemental claimappended to it, and all supplemental claims may be dismissed withoutprejudice. See Molett v. Penrod Drilling Co., 919 F.2d 1000, 1004 (5thCir. 1990); Envirotech Corp. v. Bethlehem Steel Corp., 729 F.2d 70, 73(2d Cir. 1984); Fairview Park Excavating Co. v. Al Monzo Constr. Co.,560 F.2d 1122, 1125 (3d Cir. 1977). The statute clearly effects no changein this view as § 1367(a)'s general grant of supplementaljurisdiction authority is explicitly premised on the existence ofjurisdiction-conferring claim within the original jurisdiction of thefederal courts. See Rhyne v. Henderson County, 973 F.2d 386 (5th Cir.1992) (dismissing state claims in a § 1983 case under §1367(c)(3) after the federal question claims had been dismissed);Freiburger v. Emery Air Charter Inc., 795 F. Supp. 253 (N.D.Ill. 1992)(dismissing claims under § 1367(c)(3) because the claims ofretaliatory discharge and discharge for participation in an union did notarise from a common nucleus of facts); Lahaza v. Azeff 790 F. Supp. 88(E.D.Pa. 1992) (declining to apply supplemental jurisdiction under §1367(c)(3) to state law claims where it had dismissed the federalquestion claims); Manela v. Gottlieb, 784 F. Supp. 84 (S.D.N.Y. 1992)(declining to exercise supplemental jurisdiction under § 1367(c)(3)over state law claims after it dismissed the federal claim allegingviolations of securities laws); Ruckle v. Roto Am. Corp., 339 F.2d 24, 27(2d Cir. 1964) (stating that "pendent jurisdiction over a claim understat law requiring a plenary trial on the merits should not be exertedwhen the federal claim is dismissed prior to trial").

However, "judicial Discretion is a particularly important element"here, and the "may" in "may decline" phrase "has a major role to play."Siegel, Practice Commentary §§ 1367, at 835. The Court finds that itsdiscretion in this case, however, shall be guided by the factors outlinedin Kroger. And after exercising its discretion under § 1367(c)(3) andKroger, the Court finds that the particular facts of this case point tothe conclusion that dismissal here is extremely appropriate.



The Court must first examine under Gibbs, whether the diversity claimfiled by PRAMCO against the Defendants, and the non-diverse claims filedby Defendants against the three third-party defendants (Farm Credit,Doral and Mr. Lebron) arise from a "common nucleus of operative fact."That is, whether they comprise but "one constitutional case." See Gibbs,383 U.S. at 725, 86 S.Ct. 1130.

As stated above, the original complaint filed by PRAMCO in 2000 againstDefendants, pursuant to this Court's diversity jurisdiction, is forforeclosure of a mortgage deed signed by Defendants in 1991. The mortgagedeed was executed upon three (3) properties Defendants owned andpossessed. PRAMCO, the present holder of Defendants' liability note, isseeking to execute the only remaining real property in the possession ofDefendants — "PropertyB" — which secures the obligation giving rise to PRAMCO's action.On the other hand, based on the same liability, the ancillary,non-diverse, action later filed by Defendants against the threethird-party defendants seeks to impeach the foreclosure and execution ofanother of the three properties — "Property A" — which waspreviously executed, in a separate action filed in 1993. Unquestionably,because the issues raised in both the original and ancillary claim have arelated origin — they are based on the same liability — thusboth actions arise from a "common nucleus of operative fact." Therefore,the Gibbs test is easily met here. However, the Court quickly underscoresthat the Gibbs test "is merely the first hurdle that must be overcome indetermining that a federal court has jurisdiction over a particularcontroversy." See Kroger, 437 U.S. at 372, 98 S.Ct. 2396 (emphasisadded). It is the first, but not the only, required element.

The second step requires application of the Kroger test. Here it isnecessary to examine the relevant statute, namely, 28 U.S.C. § 1332(a)(1). As in Kroger, this Court is also mindful that this statute'shistory "clearly demonstrates a congressional mandate that diversityjurisdiction is not to be available when any plaintiff is a citizen ofthe same State as any defendant." Kroger, 437 U.S. at 374, 98 S.Ct.2396. The Court is further aware that Angel Ferreras-Goitia's, andothers-that is, the Defendants — could not originally have broughtsuit in this federal court as original plaintiffs, naming Farm Credit,Doral and Mr. Lebron as defendants, because citizens of Puerto Rico wouldhave been on both sides of the litigation. That would preclude completediversity. Nevertheless, an identical lawsuit resulted when PRAMCOstipulated a settlement with Defendants, and the original controversy,which provided diversity jurisdiction, ended. "Complete diversity wasdestroyed just as surely as if [the Defendants] had sued [Farm Credit,Doral and Mr. Lebron] initially." Id. Thus, the Court finds that thisfactor clearly weighs against retaining supplemental jurisdiction in thiscase.

However, the Court must examine the specific context in whichDefendants' claim was asserted, pursuant to Kroger's three-part "context"test. Accordingly, the Court first examines whether retainingjurisdiction over Defendants' third-party complaint raises thepossibility for evasion of jurisdictional requirements established in thejurisdictional statute, that is, the requirements established in28 U.S.C. § 1332. The answer is obvious.

It is true, as the Court stated in Kroger, that third-party complaintsgenerally depend — to some extent — upon the resolution ofthe primary or original lawsuit. 437 U.S. at 376, 98 S.Ct. 2396. Thus,the crucial inquiry is not whether there is a mere casual, factualsimilarity between the original complaint and the ancillary one, butwhether there is solid, "logical dependence" between them. The Courtshall find that logical dependence exists "where liability under thenonfederal claim depends to some extent upon a successful prosecution ofthe jurisdiction-granting claim." 92 HARV. L. REV. at 246 (footnotesomitted).

The Court finds there is no "logical dependence" here. While bothactions arise from the same nucleus of fact, as discussed above, it isclear that the Defendants' non-diverse action does not logically depend— in any manner or extent — upon the successful prosecutionof PRAMCO's original complaint. Indeed, the stipulation of settlementbetween PRAMCO and Defendants, which ended the original claim, is thebest evidence to support the Court's determination. Otherwise, theDefendants would have been reluctant to enter into stipulation withPRAMCO, and would have further objected to PRAMCO's dismissal as a partyin this controversy. Following their stipulation, this Court's enteredjudgment against Defendants in the initial case, and when PRAMCO moved tobe dismissed from this controversy soon thereafter, the Court readilygranted its request without objection. (Docket No. 50).

But more importantly, Defendants' ancillary, non-diverse, third-partycomplaint merely raises an issue of "factual similarity," but nothingmore. The Defendants seek to impeach the public sale of "Property A,"which was executed following foreclosure in a separate, different andindependent case, which was filed before this district court in 1993,namely, Civil No. 94-1469 (RLA).10 On the other hand, the judgmententered against Defendants' and in PRAMCO's favor in the originalcomplaint herein authorizes execution of the mortgage deed against"Property B," which is the only remaining real property in Defendants'possession. The only relation to these actions is the decade-old mortgagedeed which gave rise to Defendants' liability. And as the action begun in1993 against Defendants and "Property A," which was not logicallydependent to any other action, such as PRAMCO's action against Defendantsand "Property B," likewise neither is Defendants' action impeaching thepublic sale of "Property A" logically dependent on PRAMCO's originalcomplaint. Again, as the Kroger Court noted, non-diverse, third-partycomplaints as a general rule may be related, to some extent, to anoriginal lawsuit, but this Court stresses that no such dependency isfound here. In the context of PRAMCO's original case, Defendants'ancillary, nondiverse, third-party complaint merely raises an issue of"factual similarity," but nothing more. Expressed differently, they are"entirely separate" issues. See Kroger, 437 U.S. at 376, 98 S.Ct. 2396;see also WRIGHT & MILLER, 6 FEDERAL PRACTICE AND PROCEDURE §1442, p. 295 (West 1990) ("impleader is available only against personswho are or may be liable to defendant for part or all of plaintiffsclaim; it cannot be used as a way of combining all controversies having acommon relationship in one action") (emphasis added).

Finally, pursuant to Kroger the Court must ascertain whether retainingDefendants' non-diverse claim would possibly evade the jurisdictionalrequirements and policy established by Congress when enacting28 U.S.C. § 1332. In other words, the Court must consider whether anyother considerations — aside from convenience and efficiency— precludes the remaining, interested party — the Defendants'— from having their claims adjudicated in local courts. Kroger, 437U.S. at 376-77, 98 S.Ct. 2396. The Court finds that Congress hasestablished a clear rule that diversity jurisdiction may be possible"only when there is complete diversity of citizenship." Id., at 377, 98S.Ct. 2396. This rule has been consistently reiteratedand applied. As the First Circuit Court recently expressed, "[f]ederalcourts are courts of limited jurisdiction, and therefore must be certainthat they have explicit authority to decide a case." Bonas, 265 F.3d at73. Therefore, pursuant to the particular facts of this case, the Courtfinds that by retaining Defendants' supplemental case, even after theoriginal complaint has ended, would indeed evade the jurisdictionalrequirements established by Congress through § 1332.

Furthermore, the Court cannot conclude that the Defendants' convenienceand efficiency would be served in this case by retaining jurisdiction.This case is at its initial stage. First of all, PRAMCO's originalcomplaint against them was filed in January 2000. Defendants' answer toPRAMCO's original complaint, together with their third-party complaint,however, were not filed until six months later, in July 2000.Subsequently, several-cross claims where filed among the parties of thethird-party controversy (of course, none against PRAMCO), the last ofwhich was filed recently. To wit, Farm Credit filed its answer to thecross claim filed by Mr. Lebron as recently as September 26, 2001.(Docket No. 49). Moreover, it is important to underscore that nosignificant discovery — if any — has been conducted in thethird-party case filed by Defendants, and, thus, the costs and expensesincurred by the parties has been minimal to this date.11 Clearly,this case is not sufficiently mature for the Court to retainjurisdiction.12

Thus, the Court is unable to discern here any possible interest inefficiency or convenience which might be served, which could possiblytrump over Congress' clear mandate requiring complete diversity, under§ 1332. And even it the Court were to assume, arguendo, thatretaining jurisdiction would be cost-efficient and convenient, that wouldstill not pass muster because "neither the convenience of litigants norconsiderations of judicial economy can suffice to justify extension ofthe doctrine or ancillary jurisdiction to a [party's] cause of actionagainst a citizen of the same State in a diversity case." Kroger, 437U.S. at 377, 98 S.Ct. 2396.

Therefore, the Court finds that retaining Defendants' non-diversecomplaint would indeed evade the jurisdictional requirements and policyestablished by Congress when enacting 28 U.S.C. § 1332. The Courtfurther finds that there are no other considerations — not evenconvenience and efficiency — which precludes the Defendants' fromhaving their claims adjudicated in local courts. The Court stresses thatthe Defendants' third-party case is plagued with complex issues of localmortgage law, which is precisely one of the reasons provided by law forthe Court to discretionarily decline exercise of supplementaljurisdiction. See 28 U.S.C. § 1367 (c)(1). Therefore, "[e]ven ifdiversity jurisdiction is retained, however, it is not clear that federaladjudication is preferable. State courts are best able to decidequestions of state law. State courts are best able to decide questions oflaw.And once a state law claim is in federal court the state courts arepowerless to rectify an error in the interpretation of state law." 92HARV. L.REV. at 251 (footnote omitted).

Therefore, it is undisputed that there is no diversity betweenDefendants and the third-party defendants in this case. PRAMCO'scomplaint under 28 U.S.C. § 1332 against Defendants' has ended, andPRAMCO has been dismissed. The Court has further failed to detect anyindependent basis of federal jurisdiction over Defendants' action, suchas federal question jurisdiction under 28 U.S.C. § 1331. The Court ismindful that each case is to be evaluated on its own facts; and each caseis unique. But here, the evaluation of all the Kroger factors points toinevitable dismissal of the remaining aspects of the case withoutprejudice.

To wit, the remaining ancillary action here is between the Defendants,who are residents of Puerto Rico, against Farm Credit, Doral and Mr.Lopez, two of which are clearly residents of Puerto Rico. Congress'supplemental jurisdiction provides that a district court may decline toexercise jurisdiction when it "has dismissed all claims over which itha[d] original jurisdiction." 28 U.S.C. § 1367 (c)(3). Thus, "oncethe crutch is removed — the claim that supports the supplementaljurisdiction of the other claim or claims — the other should notremain for adjudication." Siegel, Practice Commentary §§ 1367, at 31.As the case now stands, there can be no question whatsoever that thecourt lacks diversity jurisdiction over the subject matter. There is nofederal question of any kind, and jurisdiction must rest, if it exists atall, on diversity grounds only. However, it does not.

Furthermore, the only major difference between the facts in Kroger andthe case at bar is that in that case the original claim was dismissed asto the original "defendant" (the electric company), and here the initialclaim was dismissed as to the original `plaintiff' (PRAMCO). But whetherthe original `plaintiff' or "defendant" is dismissed is irrelevant inlight of Kroger's holding. To wit, Kroger clearly mandates that when theinitial action which provided federal jurisdiction in the first place isdismissed and a non-diverse suit remains, dismissal is appropriate if,considering the specific context of the case, Congress through28 U.S.C. § 1332 "has expressly or by implication negated" theexercise of jurisdiction over the particular nonfederal claim. SeeKroger, 437 U.S. at 373, 98 S.Ct. 2396.

After examining the specific context in which the instant case arises,the Court finds that this case should be dismissed without prejudice forlack of jurisdiction. The Court is convinced that the policy establishedby Congress in § 1332 clearly mandates this determination. Id., at377, 98 S.Ct. 2396.13



The only basis for subject-matter jurisdiction in the case at bar wasthe original complaint filed by PRAMCO against Defendants, under thediversity of citizenship. 28 U.S.C. § 1332. But that case having justbeen fully settled as between those original litigants, no independentbasis forfederal jurisdiction remains as to the supplemental jurisdiction.

It is of course true that the original assertion of an ancillary claim— in this instance Defendant's third-party complaint against thethree third-party defendants — did not destroy this Court'soriginal diversity jurisdiction when it was filed. But the issue now is avery different one because the initial diversity-jurisdictionunderpinning has been removed. On that score, the three-decade-oldteachings of the Supreme Court in Gibbs and Kroger remain the definitivedirective to the lower federal courts.

Accordingly, the Court finds that Defendants' remaining, non-diverseclaim must be dismissed. Clearly, Congress established the unwaveringrule that diversity jurisdiction may exist under 28 U.S.C. § 1332only when there is complete diversity of citizenship. And that policy ofthe statute "calls for its strict construction." See Kroger 437 U.S. at377, 98 S.Ct. 2396 (citing, Healy v. Ratta, 292 U.S. 263, 270, 54 S.Ct.700, 78 L.Ed. 1248). Therefore, as in Kroger "[t]o allow the requirementof complete diversity to be circumvented as it was in this case wouldsimply flout the congressional command." 437 U.S. at 377, 98 S.Ct. 2396.

WHEREFORE, pursuant to 28 U.S.C. § 1367 (c)(3) and Kroger this caseis DISMISSED WITHOUT PREJUDICE for lack of diversity jurisdiction.Judgment shall be entered accordingly.



For the reasons fully explained in the Opinion and Order issued by theCourt on this same date, which the Court hereby incorporates, this caseis hereby DISMISSED WITHOUT PREJUDICE.


1. The Farm Credit Bank of Baltimore v. Jose Fernando Avila-Virella,Elsie Negron Laciano, Angel Ferrera-Goitia, et als., No. 94-1469 (RLA).Apparently, neither CFSC Consortium, LLC nor PRAMCO were holders of thedeed, but The Farm Credit of Baltimore ("Farm Credit"), which decided toexecute only part of the collateral. The note, which is attached to thecomplaint, specifically provides that upon the nonpayment, the "Holder isempowered to sell, assign, and deliver the whole or any part of theCollateral at public or private sale . . ." (Emphasis added.) The Notealso states that the "Holder is further empowered to collect . . . orcause . . . to be converted into money all or any part of theCollateral, by suit or otherwise, and to surrender, compromise, release,renew, extend, exchange, or substitute any item of the Collateral intransactions with the undersigned or any third party. . . ." (Emphasisadded.)

2. Notwithstanding Local Rule 108.1, the documents attached to thecomplaint were filed in Spanish. The Court forewarns as to the doctrineestablished by the First Circuit in Ramos-Baez v. Bossolo-Lopez,240 F.3d 92 (1st Cir. 2001) requiring English translation of alldocuments for appeal purposes. Circuit Court of Appeals, Local Rule30.7. Further, untranslated documents shall not be considered on appealeven if outcome determinative in nature. Ramos-Baez, 240 F.3d at94.

3. Apparently, by error, PRAMCO failed to adequately describe thesecond property in its complaint.

4. Nor does it address "Property C."

5. Default Judgment against the Defendants was entered in that case,and it was closed on December 19, 1995. (See Docket No. 18, Civil No.94-1469 (RLA)). Writ of execution was issued and execution was finallyobtained in late 1999. Again, PRAMCO was not a party to that case becausethey were not holders of the deed. Farm Credit, the Holder, partiallyforeclosed the deed.

6. This, notwithstanding the fact that terms of the loan agreementNote signed by them, which is attached to the Complaint, specificallyprovides that the Holder is empowered to sell the whole or any part of theCollateral at public or private sale, "without demand, advertisement ornotice of the time or place of sale or of any adjournment thereof, whichare hereby expressly waived.

7. Farm credit banks are Federally chartered instrumentalities of theUnited States. Each farm credit bank is a "body corporate's and has thepower to both sue and be sued. See 12 U.S.C. § 2013 (4). The FarmCredit System includes the Farm Credit Banks, the Federal Land BanksAssociations, the Production Credit Associations, the Banks forCooperatives, and such other institutions as may be made a part of thissystem, all of which are chartered by and subject to regulation by theFarm Credit Administration. Id., §§ 2002(a). The Farm Credit System isdivided into Farm Credit Districts, designated by numbers. Id., §§2002(b) (E.g., the States of Illinois and Missouri are in the `seventhdistrict' of the Farm Credit System).

Although the Federal Land Banks are federally chartered corporations,however, they are never considered "foreign corporations but have a legalexistence in every State in which they may transact business pursuant tothe authority conferred on them by Congress." Farm Credit Bank of St.Louis v. Schwarm, 251 Ill. App.3d 205, 210, 190 Ill.Dec. 687, 622 N.E.2d 97(1993) (citing, Farm Credit Bank v. Rub, 481 N.W.2d 451, 457 (N.D.1992)); see also Federal Land Bank v. Felt, 368 N.W.2d 592, 595 (S.D.1985) (same) (collecting cases); Federal Land Bank v. Gefroh,390 N.W.2d 46, 47 (N.D. 1986) (same). In other words, they are to beconsidered corporations of the state in which they conduct ordinarybusiness.

Henceforth, because the third-party defendant named by Defendants— Farm Credit — is from Baltimore, it may be considered aresident of Baltimore, Maryland. But because case law establishes thatthe controlling factor for these purposes is "the State in which [it] maytransact business," Farm Credit Bank of St. Louis, 251 Ill. App.3d at210, 190 Ill.Dec. 687, 622 N.E.2d 97, it may also be considered aresident of Puerto Rico. Nonetheless, for the purposes herein beingadjudicated, it is unnecessary to reach a specific determination as toFarm Credit's actual resident status.

8. See the stipulation for entry of judgment in the originalcomplaint, where PRAMCO and Defendants stipulated that, "at the presenttime there is only one remaining real property in the possession ofdefendants that secures the obligation giving rise to this action." Thatproperty, according to the stipulation, is property number 3,886, "locatedin Barrio Carraizo, Trujillo Alto, Puerto Rico, as more fully describedas Property B" of the mortgage deed, "secured by a First Mortgage whichamount once satisfied by defendant will be deducted from the total amountowed of the judgment. . . . See Docket No. 44, Stipulation for Entry ofJudgment, p. 2., item no. 4. Nothing was stipulated or stated regarding"Property A" nor "Property C."

9. "The crux of the matter . . . [is] that Gibbs involved federalquestion jurisdiction." Ancillary Jurisdiction, 92 HARV. L. REV. 241, 248(1978).

10. It would appear that Defendants' are, in fact, trying to reopenthat case, which ended and was long-ago closed. The Court harbors seriousdoubt whether Defendants' action is appropriate — or altogetherpossible — via a third-party complaint, pursuant to FED. R.CIV.P.14. Because the public sale being impeached by Defendants was held inanother case, the Court would suggest that the mechanism called for inthat situation, may be possible, albeit unlikely, under FED.R.CIV.P. 60.But if Defendants chose to explore that possibility, they would have tononetheless establish an independent ground for jurisdiction of theCourt. And the Court stresses that diversity jurisdiction is precludedfrom the outset, under 28 U.S.C. § 1332, if they file suit in thisCourt against non-diverse parties such as Doral and Mr. Lebron.

11. The Court stresses that the stage in which Defendants' third-partycase stands, contrasts tremendously and fares much better with that ofthe parties in Kroger. In Kroger, the case had already gone to trial, anda jury had delivered a verdict favorable to the remaining party withinterest, Mr. Kroger. Notwithstanding the advanced stage of that case,and the costs that parties had incurred, the Supreme Court found that theancillary controversy had to be dismissed nonetheless for lack ofdiversity jurisdiction.

12. Compare Rodriguez v. Doral Mort. Corp., 57 F.3d 1168, 1177 (1stCir. 1995) (the supplemental claims should not be jettisoned at trialwhen the federal cause of action is dismissed, that is, "a court need notalways throw out the bath water with the baby").

13. In short, Kroger "created an unprincipled, but well-defined andnarrow, gap in the confluence between procedural and jurisdictionaltests." Richard D. Freer, Compounding Confusion and Hampering Diversity:Life After Finley and the Supplemental Jurisdiction Statute, 40 EmoryL.J. 445, 464 (1991).

Back to top