Herklotz v. Parkinson

A federal court may exercise supplemental jurisdiction over a state-law cross-claim between nondiverse parties so long as the cross-claim remains part of an action commenced by a complaint that properly invokes diversity or federal question jurisdiction, but if the cross-claim is severed, the district court loses jurisdiction over it.  Plaintiff filed a diversity action against defendants.  One of the defendants filed a state-law cross-claim against other defendants who were not diverse from the cross-claimant.  So long as the cross-claim remained part of the same suit as the complaint, the district court had supplemental jurisdiction over it pursuant to 278 U.S.C. 1367.  However, once the district court granted summary judgment against the plaintiff and then severed the cross-claim, the severed cross-claim became a separate action requiring an independent basis of federal jurisdiction.  Lacking diversity or federal question jurisdiction of the cross-claim, the district court had no subject matter jurisdiction, so the appeal was remanded with instructions to vacate the judgment and dismiss for lack of subject matter jurisdiction.

Ninth Circuit Court of Appeals (Zouhary, J., sitting by designation); February 14, 2017; 2017 WL 586466

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