Recent Ninth Circuit Cases of Interest - Limited Federal Jurisdiction

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. (In general, 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.