MEMORANDUM DECISION
This is a motion pursuant to Rules 12(b)(1) and (6), of the Federal Rules of Civil Procedure, for judgment dismissing the counterclaims brought by defendant Dynamic Export Corporation [“Dynamic”] and H. Mottahedan & Company [“HMC”], additional plaintiff on the counterclaims. The fifth, sixth and seventh counterclaims are dismissed as to HMC; in all other respects the motion is denied.
FACTS
■ In their complaint plaintiffs allege that on January 1, 1969, an agreement was entered into between plaintiff Hercules Incorporated [“Hercules”] and Dynamic whereby Hercules agreed to appoint the defendant distributor of certain of its chemical products in Iran and Dynamic agreed to use its best efforts to develop and increase the sale of those products there. The chemiсals involved were technical Toxaphene, Toxa-phene 90% solution and Hercules’ trademarked Toxaphene-DDT 4:2 formulation. Under the distributorship agreement, sales of these chemicals to Dynamic were made by plaintiff Hercules International Trade Corporation [“HITCO”] on behalf of Hercules.
On December 28, 1973, January 21, 1974 and February 7, 1974, insecticide having a
In its answer, Dynamic admits execution of the distributorship agreement and receipt of 70,000 gallons of Toxaphene insecticide between December 1973 and February 1974. It alleges, however, that in executing the above agreement and at all times thereafter, Dynamic, with plaintiffs’ knowledge, was acting on HMC’s behalf. In fact, the affidavits and letters submitted by plaintiffs as well as defendant indicate that HMC actively participated in all of the transactions alleged herein. On this basis, HMC is joined as additional plaintiff on the counterclaims, in which it is affirmatively alleged that the transactions sued upon actually involved plaintiffs’ offer to sell and Dynamic and HMC’s agreement to purchase 194,500 gallons of Hercules’ Toxaphene products. This agreement is evidenced by correspondence among the parties exchanged between the dates of August 30, 1973 and November 30, 1973. Thus, the delivery of only 70,000 gallons is said to have constituted a breach of this contract and resulted in damage to both HMC and Dynamic. These allegations form the basis for counterclaims one through four.
Dynamic further alleges that the distributorship agreement, as modified by HIT-CO’s letter dated October 17, 1973,
a) HMC was to receive its Toxaphene in red, white and red colored drums carrying the Hercules label and emblem. Such drums were not to be used to meet the requirements of third parties;
b) Hercules would increase the price of Toxaphene/DDT 4:2 formulation to third parties in Iran by a minimum of ten percent (10%) and pay HMC and Dynamic one-half of the mark-up;
c) Herсules would pay Dynamic and HMC a commission of five percent (5%) when sales of technical Toxaphene and Tox-aphene 90% solution were made directly to third parties by Hercules.
Each of the above provisions has allegedly been breached by plaintiffs, such breaches forming the basis for the fifth through seventh counterclaims.
DISCUSSION
Is Dynamic the proper party plaintiff on the counterclaims?
The first issue raised by plaintiffs on this motion is whether the counterclaims are properly raised by Dynamic. Of course, under Rules 13(a) and (b), Fed.R.Civ.P., a defendant may by way of counterclaim in a pending action assert any and all claims that he has against the plaintiff. See Montecatini Edison, S.P.A. v. Ziegler,
A brief exаmination of Rule 17(a),. Fed.R.Civ.P. and the substantive law of New York will suffice to dispose of this' argument. The Rule states that “[e]very action shall be prosecuted in the name of the real party in interest. ... [A] party with whom or in whose name a contract has been made for the benefit of another . . . may sue in his own name . . . .” Professor Moore has stated that this simply means that “[a]n action shall be prosecuted in the name of the party who, by the substantive law, has the right sought to be enforced.” 3A J. Moore, Federal Practice ¶ 17.07 at 221 (2d ed. 1974). Where, as here, no federal right is involved, the law to be applied is state substantive law. Dixie Portland Flour Mills, Inc. v. Dixie Feed & Seed Co.,
Is joinder of HMC proper under the federal rules?
Dynamic seeks to join HMC as an additional plaintiff on the counterclaims herein. Subdivision (h) of Rule 13, Fed.R.Civ.P. governs joinder of parties in situations such as the one presently before the Court. As originally promulgated in 1937 the Rule provided that additional parties might be brought in “as defendants as provided in these rules.” In 1966 it was amended to read as follows:
(h) Joinder of Additional Parties. Persons other than those made parties to the original action may be made parties to a counterclaim or cross-claim in accordance with the provisions of Rules 19 and 20.
This amendment makes clear that additional parties plaintiff as well as additional parties defendant to a counterclaim may be joined as long as they are joined in accordance with Rules 19 and 20.
Stated in general terms, the main purpose of Rule 13(h) is to dispose of an
Is there jurisdiction over the counterclaims?
It is the opinion of this Court that although proper under Rule 20, the joinder of HMC as a plaintiff on the counterclaims destroys diversity jurisdiction. HMC, counterclaim-plaintiff, and HITCO, counterclaim-defendant, are both aliens. The presence of aliens on both sides of a controversy will defeat diversity jurisdiction. E. g., Merchants’ Cotton Press and Storage Co. v. Ins. Co. of North America,
Prior to 1958 an alien corporation, for purpоses of diversity jurisdiction, was considered a citizen solely of the foreign state in which it was incorporated. E. g., Barrow S.S. Co. v. Kane,
For the purposes of the cаse at bar, however, we need not determine whether § 1332(c) is, in fact, applicable to a foreign corporation. For even assuming that it is, it cannot be read to deem such a corporation a citizen of either the jurisdiction in which it is incorporated or the state in which it has its principal place of business, whichever it may choose. The statute creates a principal of dual citizenship, not one of alternative citizenship. Thus, where a corporation is incorporated in state A and has its principal place of business in state B and the adverse party is a citizen of either A or B, diversity is lacking. Bank of California Nat’l Ass’n v. Twin Harbors Lumber Co.,
Ancillary jurisdiction over counterclaims
Insofar as joinder of HMC in this action destroys diversity, Dynamic and HMC seek to invoke the doctrine of ancillary jurisdiction as an alternative basis for jurisdiction over the counterclaims.
Where a federal court has jurisdiction over the main cause of action and the parties thereto, it also has jurisdiction over any proceedings ancillary to that action, regardless of the citizenship of the parties or the existence of a federal question in the ancillary suit. Dugas v. American Sur. Co.,
By way of contrast, permissive counterclaims are not sufficiently related to the subject matter of the main action to come under the court’s ancillary jurisdiction. Aldens, Inc. v. Packel,
Are the counterclaims permissive or compulsory?
Rule 13(a) directs that a pleading shall state all compulsory counterclaims and defines such a counterclaim as “any claim which at the time of serving the pleading the pleader has against any opposing party [which] arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim . . Rule 13(a), Fed.R.Civ.P. All other counterclaims are permissive. See Rule 13(b), Fed.R.Civ.P. In keeрing with the liberal philosophy of the federal rules, the courts have given to the terms “transaction” and “occurrence” a broad and flexible interpretation. Moore v. New York Cotton Exch.,
Of the above standards, by far the most consistently applied is the logical relation test. See, e. g., Nishimatso Constr. Co. v. Houston Nat’l Bank,
On the other hand, counterclaims five through seven arise out of the separate, albeit related agreement to appoint Dynamic distributor of Hercules products in Iran. The Court concludes that these are merely permissive counterclaims. They do not involve any issues of fact or law raised by the plaintiffs’ claim, nor will thеre be any substantial overlap of evidence. Moreover, although the alleged sales agreement may have arisen out of the relationship created by the distributorship agreement, a claim for breach of that agreement is not so logically related to an action for goods sold and delivered under the agreement that it should be deemеd a compulsory counterclaim. Dundee Wine & Spirits, Ltd. v. Glenmore Distilleries Co.,
Where, as here, a defendant attempts to add a person for purposes of adjudicating both compulsory and permissivе counterclaims, if diversity is destroyed and no federal question is presented, the party may . be added under the court’s ancillary jurisdiction over the compulsory counterclaims but may not be added for purposes of the permissive counterclaims. Markus v. Dillinger,
CONCLUSION
The Court concludes that all of the counterclaims are properly interposed by Dynamic in this action. Counterclaims one through four are compulsory and will support the joinder of HMC as a party thereto regardless of the ensuing lack of diversity. However, counterclaims five, six аnd seven are permissive counterclaims and must be dismissed as to HMC, there being no independent basis of federal jurisdiction to support them.
Accordingly, the Court hereby orders the joinder of HMC as additional plaintiff on counterclaims one through four.
SO ORDERED.
Notes
. It appears that this is the value of a total of 78,140 gallons of different chemicals produced by Hercules and allеgedly delivered to Dynamic on the dates mentioned above.
. Hercules is incorporated under the laws of Delaware with its principal place of business in Wilmington, Delaware. HITCO, a subsidiary of Hercules, is organized under the laws of the Bahamas with its principal place of business in Wilmington, Delaware. Dynamic is a New York corporation doing business principally in New York City. HMC, sought to be joined by Dynamic as additional plaintiff on the counterclaims, is an Iranian business organization with its principal place of business in Teheran, Iran.
. This letter was not sent to Dynamic, signatory of the January 1, 1969 agreement, but to HMC, per its director, Dr. H. Mottahedan. The relationship between Dynamic and HMC with regard to the distributorship arrangement is discussed infra.
. Insofar as counterclaims one through four are concerned, this contention is so frivolous as to border on the absurd. Could the law hold a party liable under a contract for the purchase of goods, yet deny that party the right to recover for his adversary’s breach of that self-same contract? However, as a colorable argument is raised as to the fifth, sixth and sevеnth counterclaims, the Court perforce must deal with the issue.
. This latter requirement is disjunctive. The joinder rule applicable to the instant situation is Rule 20.
. Permissive Joinder of Parties.
(a) Permissive Joinder. All persons may join in one action as plaintiffs if they assert any right to relief jointly, severally, or in the alternative in respect of or arising out of the same transaction, occurrence or series of transactiоns or occurrences and if any question of law or fact common to all these persons will arise in the action. .
Rule 20, Fed.R.Civ.P.
. The application pressed by counterclaimants would have the opposite effect of enlarging diversity jurisdiction.
. At this juncture it should be noted that the rationale behind holding § 1332(c) applicable to alien corporations, that it is fair tо infer that a foreign corporation with its principal place of business in the United States has adopted that state as its residence and therefore was not subject to local prejudice in that state, 13 Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction § 3628 at 825-26 (1975), and cases cited therein, is wholly inapplicable to the instant situation, wherein an alien corporation with its principal place of business within the United States seeks to use that place of business to invoke the federal court’s diversity jurisdiction over another alien.
. In addition, the concept of federal jurisdiction over pendent parties in diversity cases appears to have been rejected sub silentio in Zahn v. International Paper Co.,
. .Numerous courts have found counterclaims arising out of the same contract as the plaintiffs’ claim to be compulsory. E. g., Platt & Munk Co. v. Republic Graphics, Inc.,