Rocky Aspen Mgmt. 204 LLC v. Hanford Holdings LLC, 358 F. Supp. 3d 279

Background

RAM 204 sued Hanford in federal court seeking a declaratory judgment that RAM 204 holds the majority membership in Rocky Aspen LLC; jurisdiction was alleged under diversity (28 U.S.C. § 1332).
Hanford impleaded multiple third-party defendants; two groups are relevant: the Watershed Defendants (which, by definition, include RAM 204) and the Aristone Defendants (including AH DB and Castlegrace, alleged New York citizens).
The Watershed Defendants asserted three state-law cross-claims against the Aristone Defendants; those cross-claims did not specify which Watershed defendant(s) asserted each claim and contained no jurisdictional allegations.
The Court previously dismissed those Watershed cross-claims on Rule 12(b)(6) grounds in its June 28, 2018 Order.
On further review, the Court sua sponte questioned whether it had subject-matter jurisdiction over the Watershed cross-claims because RAM 204 (a plaintiff) is among the cross-claimants and some Aristone Defendants share New York citizenship with RAM 204, destroying complete diversity.
The Court ordered the parties to show cause why it should not vacate in part the June 28 Order and dismiss the Watershed cross-claims for lack of subject-matter jurisdiction, and to address whether it should decline supplemental jurisdiction over related third-party claims. Parties were directed to file short letters by a set deadline.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the Court had subject-matter jurisdiction over the Watershed cross-claims	RAM 204 did not present jurisdictional allegations in the cross-claims (implicitly relied on existing federal forum)	Aristone previously sought dismissal on merits but did not raise jurisdiction; Court must nonetheless consider jurisdiction sua sponte	Court concluded it lacked diversity and thus subject-matter jurisdiction over the Watershed cross-claims because RAM 204 and at least two Aristone Defendants are New York citizens
Whether § 1367(a) supplemental jurisdiction saves the cross-claims	Cross-claims arise from same case-or-controversy so might be covered by § 1367(a)	§ 1367(b) prohibits supplemental jurisdiction over claims by original plaintiffs against persons made parties under Rule 14 in diversity cases	Court held § 1367(b) applies because RAM 204 (original plaintiff) is among the cross-claimants, so supplemental jurisdiction is unavailable; dismissal for lack of jurisdiction is required
Whether prior dismissal under Rule 12(b)(6) should be vacated given potential jurisdictional defect	RAM 204 has interest in preserving prior merits dismissal	Aristone Defendants may rely on jurisdictional defect to seek vacatur and dismissal without prejudice	Court sua sponte ordered parties to show cause why it should not vacate the June 28 Order in part and dismiss the cross-claims for lack of subject-matter jurisdiction
Whether the Court should exercise discretion under § 1367(c) over other related third-party claims	Watershed Defendants might prefer single forum or refiling elsewhere	Aristone Defendants’ later third-party complaint may be affected by vacatur	Court directed parties to brief whether the Court should decline supplemental jurisdiction over the Aristone Defendants’ Third-Party Complaint under § 1367(c)

Key Cases Cited

United Republic Ins. Co. v. Chase Manhattan Bank, 315 F.3d 168 (2d Cir. 2003) (courts must evaluate jurisdiction over every claim, including third-party cross-claims)
Gonzalez v. Thaler, 565 U.S. 134 (U.S. 2012) (courts must consider subject-matter jurisdiction sua sponte)
Viacom Int'l, Inc. v. Kearney, 212 F.3d 721 (2d Cir. 2000) (analysis of supplemental jurisdiction and § 1367(b) limitations)
F5 Capital v. Pappas, 856 F.3d 61 (2d Cir. 2017) (courts adhere strictly to § 1367(b) to preserve complete diversity)
Chase Manhattan Bank, N.A. v. Aldridge, 906 F. Supp. 866 (S.D.N.Y. 1995) (dismissing plaintiff's claims against third-party defendant joined under Rule 14 due to § 1367(b))