Herklotz v. Parkinson began in 2000 (yes, 2000) in federal district court in Pennsylvania. In
the mid-1990s, John Herklotz had negotiated an agreement with Eric Parkinson
to distribute a family film called “The Giant of Thunder Mountain.” (You didn’t see that classic Cloris Leachman work?) Their
collaboration eventually involved a Pennsylvania company named WRS, Inc.
When WRS was not paid as promised, it sued Herklotz, Parkinson, and others
(all California residents) in federal court in Pittsburgh, asserting various claims
not arising under federal law. With the plaintiff a citizen of Pennsylvania
and all defendants citizens of California, the case fit comfortably within
the “diversity jurisdiction” of the federal district courts.
28 U.S.C. § 1332(a)(1) authorizes federal courts to entertain civil actions where the matter
in controversy exceeds $75,000 and is between “citizens of different
States.”) So far, so good.
Herklotz filed a “cross-claim” against his fellow defendants,
seeking indemnity and other relief
not arising under federal law. Though all of the parties to this cross-claim
were citizens of California, the federal court in Pennsylvania had jurisdiction
over the cross-claim as part of the larger action between so-called “diverse”
parties. Again, so far, so good.
After Herklotz and the other defendants were found liable to WRS to the
tune of $2.5 million in 2007, Herklotz moved to “sever” his
cross-claim and transfer that aspect of the case to federal court in California.
The Pittsburgh court granted that unopposed motion. The action on the
cross-claim thus moved to Los Angeles, where Herklotz added Thomas Gehring
(his former attorney and fellow Californian) as a defendant. Two of the
cross-claim defendants moved to dismiss for failure to state a claim,
and the district court in Los Angeless granted both motions and dismissed
the case as to both defendants. Herklotz filed timely notices of appeal
in October of 2007.
The two consolidated appeals inexplicably languished in the Ninth Circuit.
Incredibly, there is no docket entry in either case between February 4,
2011 and January 7, 2016. Also incredibly (though not surprisingly to
appellate practitioners), Herklotz’s counsel sought and received
an extension of time to file his opening brief. On the eve of oral argument
in late 2016, the Ninth Circuit panel informed the parties that they “should
be prepared to discuss the district’s court’s subject matter
jurisdiction.” A bad sign.
The panel’s opinion ignored the merits and focused on that jurisdictional
point. Given the premise that “[f]ederal courts are courts of limited
jurisdiction, and parties may not expand that jurisdiction by waiver or
consent,” and the further premise that “[w]hen a claim is
severed, it becomes an entirely new and independent case,” the depressing
conclusion followed ineluctably: As a case involving no federal claims
where all parties haled from the same state (California), the severed
case in Los Angeles was outside the subject-matter jurisdiction of the
federal courts. Although
all parties “protest[ed]” this outcome (their decade-plus litigation efforts
were totally wiped away), the court was unmoved: “It is unfortunate
this lengthy odyssey must conclude in this way, but jurisdiction is one
rule this Court cannot bend.”
Two lessons for litigating in federal court: First, always pay attention
to jurisdiction, from the first to the last. Second, pay attention to
the first lesson.