Commercial Litigation and Arbitration

Supplemental Jurisdiction — When to Retain or Relinquish Jurisdiction over State Law Claims after Federal Claims Dismissed

From Graham v. Barriger, 2009 U.S. Dist. LEXIS 107967 (S.D.N.Y. Nov. 17, 2009) (securities laws claims dismissed; breach of contract and common law fraud claims remained):

[In] Valencia ex rel. Franco v. Lee, 316 F.3d 299, 305 (2d Cir. 2003), ... the Second Circuit held that the district court abused its discretion by exercising jurisdiction over a state-law claim following dismissal of the plaintiffs' federal claims at summary judgment.... At the time the plaintiffs conceded an absence of viable federal claims, "most of the anticipated pretrial discovery had been completed," no judicial opinions had issued, and the case was not yet trial-ready.... "[I]n the usual case in which all federal-law claims are eliminated before trial, the balance of factors to be considered under the pendent jurisdiction doctrine -- judicial economy, convenience, fairness, and comity -- will point toward declining to exercise jurisdiction over the remaining state-law claims." ... In deciding whether to exercise jurisdiction over supplemental state-law claims, district courts should balance the values of judicial economy, convenience, fairness, and comity -- the "Cohill factors." Klein & Co. Futures, Inc. v. Board of Trade of City of New York, 464 F.3d 255, 262 (2d Cir. 2006) (citing Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 (1988)).

The Second Circuit has deemed it proper to retain supplemental jurisdiction over state-law claims in actions that implicate preemption issues, state law claims that remain when federal claims are voluntarily dismissed days before the scheduled start of trial, and state law claims that remain after the district court considered three dispositive motions. Valencia, 316 F.3d at 306. See also Arthur Glick Truck Sales, Inc. v. H.O. Penn Machinery Co., 332 F. Supp. 2d 584, 586 (S.D.N.Y. 2004) (plaintiff's voluntary dismissal of single federal claim warranted remand to state court for lack of supplemental jurisdiction over the remaining state-law claims); Den Hollander v. Flash Dancers Topless Club, 340 F. Supp. 2d 453, 463 (S.D.N.Y. 2004) (dismissing state-law claims following dismissal of RICO claim, and noting that "[w]hile district courts are capable and are bound to apply the state law to claims, '[n]eedless decisions of state law should be avoided both as a matter of comity and to promote justice between the parties, by procuring them a surer-footed reading of applicable law.'") (quoting New York v. Niagara Mohawk Power Corp., 263 F. Supp. 2d 650, 670 (W.D.N.Y. 2003)).

The Complaint asserts that the Court has federal question jurisdiction over the securities claims, with pendent jurisdiction over state-law claims.... Plaintiff Graham is alleged to be a resident of Florida and plaintiff Manzolillo is alleged to be a resident of Georgia..., but all other parties are either identified as residents of New York or else are not attributed residency to any particular state. This action between New York plaintiffs and defendants lacks complete diversity. I have now dismissed the plaintiffs' federal securities law claims. The Cohill factors of judicial economy, convenience, fairness and comity weigh against exercising supplemental jurisdiction over claims between New York parties implicating only New York state law, particularly considering that discovery has not commenced and that the federal claims have been dismissed at the pleading stage.

The plaintiffs' claims for breach of contract and common law fraud are dismissed without prejudice.

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