Petition for Writ of Certiorari — Peter Farrell Supercars, Inc. v. Monsen

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FILED

__/ NQ51 368 MAR 2 6 2004

‘OFFICE OF THE CLenn

Cin 0) he

Supreme Court of the Cnited States

PETER FARRELL SUPERCARS, INC.

and

PETER FARRELL,

Petitioners,

GORDON MONSEN,

Respondent.

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

Richard S. ‘Sternberg

Counsel of Record

Metropolitan Washington

Law Consortium, PLLC

751 Rockville Pike, Suite 7

Rockville, Maryland 20852

(202) 530-0100

Counsel for Petitioners

THE LEX GROUP ¢ 1108 East Main Street @ Suite 1400 # Richmond, Virginia 23219

(804) 644-4419 @ (800) 856-1419 @ Fax: (804) 644-3660 ¢www.thelexgroup.com

akon ces et A A Sac SRD AGAR oh bei Rd EA AER LILES ILE AE

QUESTIONS PRESENTED FOR REVIEW

1. Whether the trial court erred in finding and retaining

supplementary jurisdiction where the initial claim of federal

question jurisdiction was _ utterly meritless, the

supplementary claims did not arise from the same nucleus

of operative facts, and the parties and the trial court allowed

the matter to proceed past the motion to dismiss in order to

seek the bootstrap jurisdiction of United Mineworkers v.

Gibbs. |

2. Whether the court of appeals erred in applying the

wrong standard of review to the trial court’s finding of

federal question and supplementary jurisdiction.

3. Whether the absence of federal question jurisdiction is

cured by diversity jurisdiction, which did not exist at the

time of filing, and was created by the trial court’s decision

on motions to dismiss under the Fifth Circuit ruling in

Grupo Dataflux v. Atlas Global Group.

PARTIES TO THE PROCEEDING BELOW

The parties to the proceedings below are:

Peter Farrell Supercars, Inc. and Peter Farrell (“Farrell”)

(plaintiff / counterdefendant/appellant/ petitioner);

Gordon Monsen’ (“Monsen”) (defendant/counter-

plaintiff/ respondent);

David C. Penner (“Penner”) (defendant, settled and

dismissed below);

John Robert Duff, Jr. (“Duff”) (defendant, dismissed below);

Malloy Woodbridge, LLC (“Malloy Woodbridge’)

(defendant, voluntarily dismissed below after Rule 11

warning); and

Malloy Lincoln Mercury, Inc. (“Malloy Lincoln Mercury”)

(defendant, voluntarily dismissed below after Rule 11

warning).

CORPORATE DISCLOSURE STATEMENT

Peter Farrell Supercars, Inc., is a privately held

corporation having no parent corporations, and no part of

its stock is held by a publicly held corporation or other

publicly held entity. No other publicly held corporation or

other publicly held entity has a direct financial interest in

the outcome of the litigation.

lil

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED FOR REVIEW ...........::cscssssseseseeees I

PARTIES TO THE PROCEEDING BELOW .............cssssssseeeees II

CORPORATE DISCLOSURE STATEMENT. ...........:.sssssseseseees II

SP Oe Cae ie teticiinsincininsinnlinasiminetaninetminmennt Il

TREE AFT ea iccrassssnercssnticarsninombcemnnuamaintahouinntiyg V

CIP RIE TUT seicssincinrsninioncniniinsenineniniehonpiotnenaueieatals 1

SEA TENET COP FURS. IN scsnsscanssosaccoscemsesnsecnatbancnssiivns 1

STATUTORY PROVISIONS INVOLVED ............cssssssseesseeseees 1

SEA TERRI S GI Be Ges Gi vcscssexescanersssncnaseasccnianisasnanineianenedenis 1

REASONS FOR GRANTING THE PETITION .............s.cssseeees 9

I. This case should be consolidated with Grupo so

this Court can explain the limitations, if any, of

retroactive assertions Of juriSiCtiOn ............eeseeeeees 9

A. Whether the trial court lacked subject

matter jurisdiction over the

counterclaims because the

counterclaims fail to arise from a

common nucleus of operative facts as

the Federal claim, and whether the

appeals court correctly applied an

abuse of discretion standard to 28

CEA. BB crssncssrivanenvermnens nisteaenniniecnnnenanii 10

B. Whether the trial court abused its

discretion by failing to dismiss the

counterclaims once it dismissed the

federal claim after sua sponte raising

the issue of jurisdiction ab initio...............++ 16

C. Whether, as held by the trial court

and not rejected by the court of

appeals, the diversity of the final two

defendants can rescue subject matter

jurisdiction where there were diverse

parties at the time the case was filed............. 18

II. The case should be reviewed to resolve a split in

the circuits over whether jurisdiction can be

resolved retroactively from time of judgment.......... 19

III. The case should be reviewed to resolve a dispute

in the circuits over the proper standard of review

where supplementary jurisdiction is asserted and

retained after the dismissal of the federal

jurisdictional Dasis............sssssssssseneessneeeneeneseeresseeees 21

IV. The case should be reviewed to fashion a policy

that does not favor or require attorneys to

represent their clients zealously by pleading and

then retreating from federal question jurisdiction

in order to manufacture supplementary

JUTISGICTION..............0scscscsccerorseessessensnsernsnssssncssssnsssnsoosen ee 22

ONCLUSION, occccssssssenessssecscrtotsinersaenenevisnnsnpmnbsnneetvontenanatannnnnn’ 30

APPENDIX

TABLE OF AUTHORITIES

Page(s)

Cases

Atlas Global Group, L.P. v. Grupo Dataflux,

S12 F.3d 168 (Sth Cir. 2002) ...cccccrsrscscsesssrssessesoseses passim

Baggett v. First Nat'l Bank of Gainesville,

DEF BS EGS (ETC. 2997) on sccsscscvssnecsvsvessarenncevesnonen 21

Banner Indus. of N.Y., Inc. v. Sansom,

830 F.Supp. 325 (S.D. W. Va. 1993) ........cscscssessscsseseeee 23

Bell v. Hood,

a Se Fe Gp ieiihchaecheshicsansasioninnicnndineinieiiicemneibiciindes 24

Bonenberger v. Plymouth Township,

132 F.3d 20, 1997 U.S. App. LEXIS 35507, 4,

77 Fair Empl. Prac. Cas. (BNA) 1242,

72 Empl. Prac. Dec. (CCH) P45,083 (3d Cir..1997)....22

Borne v. A&P Boat Rentals No. 4, Inc.,

755 F.2d 1131 (5 Cir. 1985), 1 FR Serv. 3d 220,

later 780 F.2d 1254 (St Cir. 1985) ..........c.ccsesscssccssssssere 27

Borough of W. Mifflin v. Lancaster,

OD FB FO GC, TOG ssscsisssssscrsnsssanonnnsoarocanatonsvnsioss 17

Bray v. Alexandria Women's Health Clinic,

Fe SE, Fs ae CR a cieentccasachinnnsnennaninnisccmnininisnsiemaninetaiig 24

Brazinski v. Amoco Petroleum Additives Co.,

ee EEF Ges BE iricianvepacieneconinicanensiieinonsniataen 17

Brown v. Lucky Stores, Inc.,

BF aPee BEERS CG Ge, IIIS a cnsssssisesncnsesernnssinsansconnvens 22

Capron v. Van Noorden,

6 U.S. (2 Cranch) 126 (1804) .0.......eeseseeeeeeeeee isaininninn 10

Caterpillar, Inc. v. Lewis,

FEF Sa Oe Cae Dianne cttincsssiiccnncennininsonnitasensiegnensiaeion 9, 21

Demulso Corp. v. Tretolite Co.,

FA ER I Ce, BEG) acsenscessssevesescnnsennsrcssvenesianoes 27

Diven v. Amalgamated Transit Union & Local 689,

ee Fn I ae GAR, BID ercsscensensssnsconinensionenineensersene 17

Doe v. Norwest Bank Minn., N.A.,

909 F.Supp. 668 (D.Minn. 1995),

aff d on other grounds,

BAF BP TERT COUN G. TOIT posecicsesncesnensvcnasnvsneceseseneseen 17

Executive Software N.Am., Inc. v. U.S.District Court,

Be Fe BE OP GR, BFF srstrcscicocsisnsorssvrsnvnsenscerreinsnnes 17

Field v. Volkswagenwerk AG,

OD FA BF Oe OR. TI) csisirsvisinsssnseressnnnenincintonanvonen 20

Four Hundred & Forty-Three Cans v. United States,

226 U.S. 172, 57 L.Ed. 174, 33 S.Ct. 50 (1912)............. 27

Gard v. Teletronics Pacing Sys., Inc.,

859 F. Supp. 1349 (D. Colo. 1994) ........serecesssrsscesseseses 20

Goldsmith v. Mayor & City Council of Baltimore,

DOS PG Gh iii Ce, TO ascsscssenesccssecsnesviorscsonnanerenes 20

Hagen v. Payne,

222 F. Supp. 548 (W.D. Ark. 1963)..........csssrscsecossreses 20

Hatch v. Town of Middletown,

311 F.3d 83, 2002 U.S. App. LEXIS 23747,

EE Fh, OF Ce Fa iisctiictsseicnsaviciminnsvinnrianiiion 22

Hayburn's Case,

Bs Ee a ie reeniesniiensitinnsonncieihdagebiniatanecntaisionins 25

In re Stable Mews Assoc.,

778 F.2d 121 (2d Cir. 1985), 13 BCD 1251,

CES CREE TRE FE FIR Bscntisncccncccnnsesnasevonssnsstcnseansens 27

Itar-Tass Russian News Agency v. Russian Kurier,

BD FO GE GG Ce, DI ests svinccnsssnacnrsenvestscnsnsaneesens 17

Kansas Pub. Employees Retirement Sys. v.

Reimer & Koger, Inc.,

FE Wk I CO, SI watisnsirensiniainsseciasenentaninnivtes 17

Kontrick v. Ryan,

2004 U.S. LEXIS 663, at 26 (Jan. 14, 2004)... 10

eee ee ee ee ee ee ~~

Lang v. Windsor Mount Joy Mut. Ins. Co.,

487 F. Supp. 1303 (E.D. Pa. 1980) ...scssssssssesssesssseeeee 20

LaShawn A. v. Berry,

OF FR TM I, CO, TOG ssscsccssaneseronesnssencessersvsses 17

LaSorella v. Penrose St. Francis Healthcare Sys.,

818 F.Supp. 1413 (D.Coro. 1993) .......cccessssessesessssesseees 17

Lycns v. Weltmer,

174 F.2d 473 (4th Cir. 1949) (per curiam).............000+. 20

Maguire v. Marquette University,

FO FA TEED 7g, TSB) osssesscseesesecssnsnrsnsnetnsnersonsens 17

Marbury v. Madison,

> US. (7 Coramich) 137 (1803) ........sseccscsccsesccsnseesesseenceseers 9

Mason v. Richmond Motor Co., Inc.,

625 F.Supp. 883 (E.D. VA. 1986), aff d,

BES Fe 2h GBF (4 Cap. 1967) ncccccrcocevnensonecccsereresosses 7, 32

Milan Express, Inc. v. Averitt Express, Inc.,

208 F.3d 975, 2000 U.S. App. LEXIS 6446, 12,

46 Fed. R. Serv. 3d (Callaghan) 895 (11 Cir. 2000),

later appeal 254 F.3d 966,

2001 U.S. App. LEXIS 13734 (11th Cir. 2001)............. 21

Murray v. Brancato,

Ee UD eiiacicheniciesapliesianapesaadivisistilensnnnsiionitoine 26

Muskrat v. United States,

BAP U.S SOG (EGET)... scecreess slccascaiaslihasteetaencsbvninnies 25

Oh v. Ford Motor Co.,

79 F. Supp. 2d 1375 (N.D. Ga. 1999) .......esesecssssseseees 20

Oneida Indian Nation of N. Y. v. County of Oneida,

RR hs Wh COIs canis oiniciebeievinidenciascasninninnssiens 24, 27

Painter v. Harvey,

DOD F208 S29 (GO Cir. TSG) q....sccrcorecrssssscsurecveasasere passim

Palmer v. Hospital Auth.,

Bee FI BIO CANO C, TIE) a secesessoscncnsosnecacesensnneniveces 17

Patten v. Foley’s,

Vili

66 Fed. Appx. 188, 2003 U.S. App. LEXIS 11383,

9-10 (10th Cir. filed June 6, 2003) .0.......c.cecseseseseceeeseees 21

Pejepscot Indus. Park, Inc. v. Maine Cent. R.R. Co.,

BAD © a BOP LANE, GIIED vesersesersnnsiacsiorsensaninntentocssavnys 22

Rodriguez v. Doral Mortgage Corp.,

FE ee Se Gl aes RID venrenstsnecserncntavinnsnsnestinicinesenes 17

Romero v. International Terminal Operating Co.,

FE SA. NC ERD eentnrstorsneraeninnnsicntanetiiesnmnatenssnatisnenies 24

Rowland v. Patterson,

Pe ee FE CER, TOI) wssveesenscnsnsscascnensesionsecdnesseniionses 19

Russell v. Harrison,

962 F. Supp. 467 (N.D. Miss. 1983) ...........csssesscessseees 20

Saadeh v. Farouki,

107 F.3d SZ (DAC. Cit. 1997) .....ccecoseacosseseese 10, 19, 20, 21

Schlesinger v. Reservists Comm. to Stop the War,

SF AEs ee CE ED cvteeondesiinserenniiintnsctincnenmabeaninencriees 25

Shanaghan v. Cahill,

JO FS 106 (42 Cir. 199F).....nccnseosscessesecesssees 7, 22, 26, 27

Slaughter v. Toye Bros. Yellow Cab Co.,

EP eA ee IEEE, BI issicsnsessnnsccississssesnenvenessrenene 20

Steel Co. v. Citizens for A Better Environment,

923 U.S. 83, 118 S.Ct. 1003,

ie I Oe resect sncherinsncicisihnabtscmenvecni passim

Sue & Sam Manufacturing Co. v. B-L-S Construction Co.,

938 F.2d 1048 (4th Cir. 1976)..............ccccsscssssssesee passim

The Fair v. Kohler Die & Specialty Co.,

Ee ee CE ihaciniesiranninctienennanbaenitcsbecaibieanisldiadiciini 24

Tritchler v. Poole,

2004 U.S. App. LEXIS 2593, 3,

93 Fair Empl. Prac. Cas. (BNA)

378 (9th Cir. filed February 18, 2004) ..........ecseseseeeees 22

United Mine Workers of America v. Gibbs,

CAO Ati acti it cAI. tia © Md at Sah LN NS AO MEE lS nw FS TNR tle oe ew

Siw eetadhin sek

383 U.S. 715, 86 S.Ct. 1130,

Be ce I CN ven iesseviinsesnesicnineiietovesaenacainniicis 16, 17

United States v. Richardson,

PR SF he Cr erenctnnstinacimncsnsinnnnnntnaiiehioabanasaittion 25

Wiggins v. North American Equitable Life Assurance Co.,

644 F.2d 1014 (4% Cir. 1981) .......cccccssassorscesessressonssoreese 22

Statutes

Be i, eRe ov seintininsssnssntasniictapiiininaiianeicinisasiaaaaiaanion 1

Be ns OF RE satinsanserennnstnnnssidiamiinamumsaniaaiodmnnnaiaaiass 1

Fe i Be RD tiisiinsicicsindecnnaniaanaamann 27

ee ee ST Hiei chiiciiineniniciahinaddgeianncimmmmitia 1,26 a

BF irs OF BT siticnicccniecinicnnianetninnnnnmaniienai 10, 21

Fe i i tiricnintcncsiesemneiinnenereterderieeenmmicaaapeaines 21

Bes I stinctinineniiekninnnineigacbinaiinniaes a, aa

Be es Be ctnicieeocetneniamnsciaiominniamental 16

Be rsp RITE IE TE sisisicntencrenionniendssnsitinsiniiunhiinienanedapeninianiie 21

Be ike BB Hitiinessnesecntiiaincominiaamaiinanieiamneiat

Be in BF BF titinintitninnnssnsitdiniinimenimennimnmnagnaia 29

Rules

Oe Bi FE Gi rtncrerenctctcnncicerinnnisonrienercimatinieianiogninie 1

PR, Bh. PU. Fs SG ersrevesninencrcoennnsnninisnnssesscarsninnnsimanyiicconiatntiion 1

PE, Fi. Gs FEE civ ncccsnaninninieoninnsontaseintnnnbnieersssnsnniennniianes 5

PE The Ge Fe Re irriccncniinininistisaconsimeslnartananininittiisienteinasnineiaion passim

Ts CO, Bs SRC seieissnnsinsicesticnsncencniedisnincnuunininsinnbaitieianenin 29

OG, he GOW. TRC asics ctencisnnscicisnciaianitiasmmasiinceomensiiasiunn 29

EE, Ths Cae a LD csneseisncnsnnsnecnsiinisnsinntinninniaticenantnnntnaaeiinpnensutyi 11,14

FR Ths Ge « Cia oreesanentemnstininiovinsetiinmnsnunssiannminnionetntin 11, 14

Virginia Supreme Court Rules

(Professional Responsibility) 6:2-1...............0csssccssscesesesseersees 29

Secondary Materials

16 Moore’s Federal Practice,

Supplementary Jurisdiction § 106.60[1].............cccssssessseeeseeees 17

4 Am Jur. 2d., Appellate Review, § 76, at 701 (1995 ed.)......27

SAC. Wright & A. Miller, FEDERAL PRACTICE AND

PROCEDURE SECTION 1350, p. 196, n. 8 and cases cited

SE, Be eiencterssitdesrsesseiteteninninscviniieedanaiselvittiaiiiaiaaaldiaiaaiiaa 24

6 C. Wright & A. Miller, FEDERAL PRACTICE

AND PROCEDURE, §§ 1414, 1422...............cscsscocscscsesesesessesesensesees 14

OPINION BELOW

The trial court’s order denying the motion to dismiss

and the post-trial motion for new trial, etc. are unpublished.

The trial court’s orders were entered in Civil Action No. 01-

1073-A, Farrell v. Monsen, in the United States District Court

for the Eastern District of Virginia, Alexandria Division. See

App. Tabs B & C. The court of appeals opinion and order is

an unpublished opinion entered in Appeal No. 02-2230,

Farrell v. Monsen, in the United States Court of Appeals for

the Fourth Circuit. See App. Tab A. The denial of the

Petition for Rehearing & Petition for Rehearing En Banc or,

In the Alternative, Motion to Publish Opinion Under Local

Rule 36(b) was entered on December 30, 2003. See App. D.

STATEMENT OF JURISDICTION

The judgment of the United States Court of Appeals for

the Fourth Circuit sought to be reviewed was entered on

December 3, 2003. A petition for rehearing en banc and

petition for panel rehearing were timely filed. The petitions

were denied on December 30, 2003. See App. Tab D. This

Court has jurisdiction under 28 U.S.C. § 1254(1). On January

9, 2004, the Fourth Circuit denied a motion to recall its

mandate pending the filing of this petition pursuant to the

Federal Rules of Appellate Procedure, F.R.A.P. 41(d)(2) and

4th Cir. Local Rule 41.2, and a supercedeas bond remains in

effect in the trial court.

STATUTORY PROVISIONS INVOLVED

The relevant provisions of the federal question statute,

28 U.S.C. § 1331, and the supplementary jurisdiction statute,

28 U.S.C. § 1367, are reproduced in the appendix to this

petition. See App. E.

STATEMENT OF THE CASE

Petitioner is an automobile performance products

manufacturer and modifier of race and specialty sports cars.

After discharging defendant Duff for dishonesty, Mr. Farrell

reported Mr. Duff's criminal behavior to appropriate

authorities. Mr. Duff threatened to ruin Mr. Farrell's

business if he persisted in the charges. Mr. Farrell did not

relent. Mr. Duff was eventually sentenced to five years

incarceration for embezzlement by the state of Virginia.

Mr. Duff made good his threat, however. He began a

pattern of defaming Mr. Farrell and his company in Internet

forums and bulletin boards for sports car enthusiasts. He

located customers of plaintiff who had long-dead disputes,

and he persuaded them to join in his defamation. He

obtained the involvement of a competitor in his efforts to

harm Mr. Farrell’s business.

In this niche market serving sports car enthusiasts, Mr.

Farrell perceived the attacks as potentially devastating to

the business and reputation he had built over the course of

ten years. After consultation with his friend and personal

lawyer, John Bell, Esquire, plaintiff determined to file suit

against the most prolific and aggressive defamers. They

chose the court Mr. Bell thought most likely to provide the

quickest relief — the Eastern District of Virginia —

affectionately and commonly referred to by lawyers in the

Washington metropolitan area as “the Rocket Docket.”

Plaintiff filed a questionable federal question claim

under the Lanham Act, along with prolific and ponderous

supplementary state defamation claims. See, COMPLAINT, at

JA 18, et seq.! No assertion of diversity jurisdiction was

made, since it would have been improper on the face of the

complaint. Both plaintiffs are residents and citizens of the

Commonwealth of Virginia, as are defendants Malloy

Woodbridge, LLC, and Malloy Lincoln Mercury, Inc. The

docket sheet correctly notes that jurisdiction is based on

federal question. CIVIL DOCKET SHEET, at 1, JA 1.

Plaintiffs filed a thirty-page complaint alleging a

Lanham Act conspiracy along with specific libels and other

torts by Messrs. Duff, Penner, and Monsen and the

1 Citations to the Joint Appendix refer to the appendix in the court of

appeals. Petitioner excludes unessential items from the Appendix, but

will happily provide a supplemental appendix if it please the Court.

References to this Court’s Appendices appear as App.

competing Malloy entities alleged to be in league with thea.

Defendant filed no motion to dismiss the federal count until

March 15, 2002, choosing to answer and make his state

claims on August 27, 2001. Defendant Monson filed poorly

pled counterclaims for breach of contract in the performance

upgrade of his car as well as fraud and tort claims that arise

from the facts of that breach of contract. No independent

basis for federal jurisdiction was pled. Mr. Farrell initially

answered on September 21, 2001, but moved to dismiss on

March 1, 2002. Mr. Monsen sesponded with a motion to

dismiss Mr. Farrell’s federal and supplementary claims on

March 15, 2002, and a motion to amend his counterclaims.

Judge Ellis denied the motions without prejudice to re-bring

them before the trial judge. On April 25, 2002, after refiling

the same motions, the federal claims were dismissed along

with plaintiffs’ ancillary claims, but the plaintiffs’

supplementary claims were permitted to remain and Mr.

Monsen was permitted to amend and re-plead his ancillary

counterclaims. See, ORDER (filed April 25, 2002), App. C.?

Plaintiff renewed the motion to dismiss the counterclaims

briefing the lack of supplementary jurisdiction. The trial

court continued the hearing on the motion until trial and

allowed trial on the counterclaims.

By deferring the issue of jurisdiction, the parties sought

to create consent jurisdiction in federal court, though there

was little question that the ice upon which the federal

question was constructed would shatter the moment it was

tested. The nexis between the federal claim and the facts in

the counterclaims was even more tenuous. The sole

common nucleus of operative fact was the mutual anger of

two of the parties. The record indicates that the trial court

was aware of the jurisdictional problem before it was raised

by the parties, and may have raised the issue informally or

2 Defendant concurs in the first footnote to his motion that the trial court

would lack jurisdiction once the federal claim was denied. DEFENDANT

GORDON MONSON’S MOTION TO DISMISS, at note 1, at 7, JA 83-P.

enemies

in chambers. The trial court stated in the Rule 59 Motions

argument that it raised the issue of jurisdiction sua sponte

before the motions of the parties. TR, Motions Proceeding, at

2, In. 16-25, to 3, In. 1 (August 30, 2002), JA 270-71. The trial

court dismissed plaintiffs’ federal claim as soon as it was

challenged, and limited plaintiffs’ ancillary state claims to

those which were justiciable, to wit, that:

“[pllaintiff ‘mistreated and ripped off’ by selling them

retitled out-of-state cars that anything could have happened

to and [V]irginia still gives a good clean title for, or charging

for work not done as expected or garging for new parts

when they were used ... on and on ...’ contains factual

assertions which are provably false.” ORDER, at 10 (April 25,

2002), JA 107, App. C, at § 1.

The language appears in the Complaint at paragraph 28,

and is copied — with all punctuation, spelling, and

capitalization errors intact — from a specific Internet

mailing list posting in which Mr. Monson makes it very

clear that this statement is not at all about his personal

experiences with plaintiff, but refers to the “many people

that peter has mistreated.” Complaint, at J 28, at 11, JA 28.

The justiciable claim was the generalized claim that he

“ripped off” many people, as contrasted with the stale (and

probably privileged) claim presented in paragraph 23 of the

Complaint about Mr. Monson’s car. To prove that his

statements on the Internet were true, Mr. Monson

introduced testimony from witness Korrie Mapp that was

unrelated to Monsen’s 1999 contract with Farrell.

Mr. Monson’s counterclaims had nothing to do with the

operative facts of 4 28. The counterclaims all arose from a

transaction in 1999 about which he was _ personally

dissatisfied. Mr. Monson counterclaimed that a transaction

he had completed with plaintiff on March 12, 1999, about

two-and-a-half years earlier, was fraudulent. This, he

alleged, constituted his defense of truth to the plaintiff's

defamation claims. The problem with this analysis is that

the counterclaim and the claim refer to different statements.

Proving that the counterclaim is true is not material to

proving that the justiciable defamatory statements were

true.

The procedures of the trial court were not as

advantageous as plaintiff's friend and then lawyer

anticipated. Mr. Duff was timely served and retained

counsel, but, after he filed bankruptcy, the action was stayed

as to him only until his bankruptcy case was dismissed.

Alleged to be the key conspirator, all parties agreed he was

essential to the case. TR (First Trial Date Hearing), at 7, In. 6-

22 (April 8, 2002), JA 205. As defendant's counsel

acknowledged: “I don't see how this case can make any

sense to a jury without John Duff here. We think that he is

central to the case, too." Id., at In. 20-22, JA 205. Mr. Duff

remained uncooperative with plaintiff and was compelled

to appear at his deposition on plaintiff's motion. ORDER

(filed January 11, 2002), CIvIL DOCKET, at entry 46, at 8, JA 8.

Even after the stay was vacated, ORDER (filed February 15,

2002), CrviL DOCKET, at entry 56, at 9, JA 9, Mr. Duff, who

had the cell phone number of defendant's attorney, called

him just before trial, TR (First Trial Date Hearing), at 3, In.

25 to 4, In. 1 (April 8, 2002), JA 201-02, apparently discussed

that there was a warrant out for him, and he remained in

hiding at the first trial date. When plaintiff noted that Mr.

Duff was essential for trial, the trial court suggested a

voluntary dismissal. When defendant agreed, the court

immediately pulled its calendar, TR (First Trial Date

Hearing), at 7, In. 6-22 (April 8, 2002), JA 205, et seq., and

directed that plaintiff have the burden of re-service. TR

(First Trial Date Hearing), at 8, In. 17-25 (April 8, 2002), JA

3 The court instructed Mr. Bell to get trial notice to Mr. Duff, but it is

unclear from the record whether that was to be accomplished by service

in accordance with Fed.R.Civ.Proc. 5(b)(1), or whether plaintiff was

required to serve the fleeing felon with a trial notice of the new trial, even

though he had already been served process and had counsel.

206.4 Mr. Monson sought, and the trial court granted, a

continuance with the consent of plaintiffs that Mr. Duff was

essential.

At the time of the second trial, Mr. Duff remained

missing. While he had been served by posting at his

residence, TR, Trial, at 3-4 (June 11, 2002), JA, at 217-217a,

court offered a nonsuit as to Mr. Duff, offering no option to

continue trial. Id. TR, 3-6, JA 217-217c. By the end of the

interchange, the trial court concluded that a subpoena had

been served, id. at 6-7, JA 217c-217d, but the court

proceeded to enter a nonsuit depriving plaintiff of an

essential party witness who was the key conspirator, who

had been served, and who had fled the jurisdiction — even

though he had been in contact with defendant's counsel

before he failed to appear.’, TR (First Trial Date Hearing), at

3-9, In. 25 (April 8, 2002), JA 217-217f. Mr. Duff resurfaced

immediately after the trial ended.

Once the trial had been continued, the trial judge

4 At the start of this colloquy, defendant's attorney had been called on his

cell phone by the missing witness on Friday night, TR (First Trial Date

Hearing), at 5, In. 25 (April 8, 2002), JA 201-02, and they arranged to meet

“last evening,” presumably, April 7. Id, at 4, In. 1. They must have met the

evening before trial, because they had a substantive discussion, id., at 4-5,

JA 202-03. The missing witness apparently knew of the trial, since he

planned to be there, id.; and he gave his address to defendant's counsel

the night before. Id., at 8, In 17-25, JA 206. Nevertheless, the trial court

persisted in asking whether there had been formal notice of the trial date

to this admittedly served and recalcitrant witness, id., at 6, and the trial

court proposed to dismiss him “voluntarily” until defendant's counsel

agreed that he was an essential witness. Once the court placed the duty

on plaintiff to re-serve the witness whom defendant had met the night

before, defendant's counsel no longer had his address, but merely had the

name and address of Mr. Duff’s criminal lawyer — a person bound by

attorney-client privilege from providing the information to plaintiffs. Id.,

at 9, In. 2-11, JA 207. Further, while plaintiff's trial counsel agreed that Mr.

Duff's attorney had withdrawn, there is no entry of record, and both

parties agree that Mr. Duff's counsel did not withdraw at the off-the-

record pre-trial, id., at 5, so the secret withdrawal order could not have

been issued there.

‘@~ dete. a>, a eg ea hs

refashioned the case, granting the motion to dismiss the

federal counts and permitting the counterclaims to be

amended, and re-opening discovery to permit newly pled

state claims counterclaims to be tried. ORDER, at CIVIL

DOCKET, entry 87, at 11 (April 25, 2002), JA 11. Without Mr.

Duff, however, plaintiff's case ceased being a conspiracy led

by a disaffected ex-employee embezzler in combination

with a competing performance tuner and became little more

than a repairman suing his former customer for libel.

Mr. Monson’s expert testified that his compensatory

damages would be about $7,000, and the jury returned with

a trebled award of $5,000 in compensatory damages for

violation of the VCPA. The court rounded the matter out by

awarding $55,000 worth of attorneys’ fees for the services of

two lawyers. Judgment was entered for defendant and

against plaintiff in the amount of over $91,000 to deter

Messrs. Farrell and Bell the next time they consider bringing

a defamation case into the federal court.

Appeal was timely noted. There were no cross-appeals.

The court of appeals held that appellate courts apply an

abuse of discretion standard to review all trial court

decisions on supplementary jurisdiction under 28 U.S.C. §

1367. “We review a district court's actions under § 1367 for

abuse of discretion. Shanaghan v. Cahill, 58 F.3d 106, 109 (4th

Cir. 1995).” Farrell v. Monsen, slip op., at 5 (December 3,

2003). The court of appeals declined to follow a careful

distinction it had made in its prior decision in Shanaghan v.

Cahill, 58 F.3d 106, 112 (4% Cir. 1995), between using an

abuse of discretion standard for the issue of retaining

jurisdiction once subject matter jurisdiction has already been

established and a de ovo review of the issue of whether a

supplementary claim is within the ambit of 28 U.S.C. §

1367(a) under Sue & Sam Manufacturing Co. v. B-L-S

Construction Co., 538 F.2d 1048 (4th Cir. 1976) and Painter v.

Harvey, 863 F.2d 329 (4th Cir. 1988). The court of appeals

performed no substantial review of the applicable standards

and elucidated no requirement for the trial court to have

subject matter jurisdiction before it determines whether to

retain jurisdiction over supplementary claims.

In the present case, all parties conceded below that there

was no basis for the federal claim. Indeed, Mr. Farrell

withdrew to a safe harbor by dismissing the federal

complaint when two other defendants issued demands

under Rule 11. See, note 17, infra. Mr. Monsen’s counsel, in

the court below, asked that it be dismissed as baseless,

acknowledging that all of the other claims would fail for

want of jurisdiction once the federal claim was dismissed.

DEFENDANT GORDON MONSEN’S MOTION TO DISMISS, at n. 1,

at 7, JA 214. The trial court took credit for identifying the

federal claim as baseless sua sponte. TR (Hearing), at 2, In.

16-25, to 3, In. 1 (August 30, 2002), JA 270-71. The appeals

court acknowledges that the federal claim may have been

what it called a sham. Farrell v. Monsen, slip op., at note 4, at

5, App. A-6. Nevertheless, nothing in the appellate Opinion

analyzes the antecedent question of whether the trial court

ever had jurisdiction. The Fourth Circuit would allow

jurisdiction — even where the plaintiff acknowledges that

the federal count below was a sham — by permitting a trial

court to find and then retain federal jurisdiction in any case

in which a federal statute is asserted in the complaint, even

if the pled federal cause of action is invalid on its face and

subsequently withdrawn.

After viewing “Farrell's post-trial actions as those of a

somewhat sore loser who is upset that his chosen forum

rendered an unfavorable verdict,” Farrell v. Monsen, slip op.,

at 7, App. A-8, the, Fourth Circuit bootstrapped

supplementary jurisdiction without a determination as to

whether there ever was federal question jurisdiction, and,

like the trial court, explored the avenue created in Atlas

Global Group, L.P. v. Grupo Dataflux, 312 F.3d 168, 169-70 (Sth

Cir. 2002), asking whether previously unpled diversity

jurisdiction might be used as a basis for the raw exercise of

supplementary jurisdiction.

REASONS FOR GRANTING THE PETITION

I. This case should be consolidated with Grupo so this

Court can explain the limitations, if any, of retroactive

assertions of jurisdiction.

The present case follows on a thread of cases expanding

this Court's decision in Caterpillar, Inc. v. Lewis, 519 U.S. 61

(1996), and limiting this Court’s decision in Steel Co. v.

Citizens for A Better Environment, 523 U.S. 83 (1998), to create

a gateway to massive expansion of federal court jurisdiction.

Like the Grupo case, currently taken under advisement by

the Court, this case is an example of a bootstrapped

argument which inverts the rule in Marbury v. Madison, 5

U.S. (1 Cranch) 137 (1803), that the courts cannot be ousted

from jurisdiction by permitting courts to acquire jurisdiction

retroactively through the behavior of the parties.

The Fourth Circuit rule limits the standard of review of

supplementary jurisdiction to an abuse standard, and it

permits trial courts to retain subject matter jurisdiction on

little more than plaintiff's pleadings. That is far more

dangerous to principles of federalism than the same “sore

loser” argument in a diversity case. In a diversity matter, the

residence of the parties can be manipulated or

manufactured after the litigation begins. In federal question

matters, the manipulation requires no more than a plaintiff

asserting the jurisdiction of the court and the defendant

delaying its Rule 11 warning letter until some safe harbor

point in the litigation.°

As in Grupo Dataflux, the respondent here relies upon

the behavior of the parties in manufacturing or

manipulating subject matter jurisdiction after the case is

filed. “[A] court’s subject-matter jurisdiction cannot be

> The mechanism of this manipulation, and an answer to Mr. Justice

Stephens’ oral question at the end of the Grupo argument as to why

parties and their counsel would be motivated — or, even, required — to

manipulate jurisdiction if these rules are adopted, is included in

subsection IV of this section, infra at 27 & n. 22.

expanded to account for the parties’ litigation conduct...”

Kontrick v. Ryan, 2004 U.S. LEXIS 663, at 26 (Jan. 14, 2004).6

Longstanding precedent establishes that even after

judgment has been entered, the losing party still can raise

jurisdiction at any time and may do so in the Supreme Court

in the first instance. Id. at 24 (citing Capron v. Van Noorden, 6

U.S. (2 Cranch) 126, 127 (1804)). The Fourth Circuit would

permit the losing party to raise jurisdiction at any time, but,

absent an abuse greater than the scam acknowledged in this

case, would perform no substantive review of the absence of

initial pleadings of jurisdiction.

A. Whether the trial court lacked subject matter

jurisdiction over the counterclaims because the

counterclaims fail to arise from a common nucleus of

operative facts as the Federal claim, and whether the

appeals court correctly applied an abuse of discretion

standard to 28 U.S.C. § 1367(a).

As a prerequisite to the question of whether the trial

6 If this Court applies a rule based on the time of raising the defense of

lack of jurisdiction, as well as or rather than a rule based solely on

whether jurisdiction was plausible at time of filing, this case is more like

Saadeh and less like Grupo Dataflux. In Saadeh, as in Farrell, the motion to

dismiss both the federal claim and these counterclaims for want of

jurisdiction was raised prior to the conclusion of discovery. In Grupo

Dataflux, the motion to dismiss was first raised after trial. In oral

argument on Grupo Dataflux in this Court, the Chief Justice and Mr.

Justices Stevens, Scalia, Kennedy, and Breyer seemed to ask questions

focusing on the time the issue of jurisdiction was first raised.

Alternatively, under the bright-line rule applied by the D.C. Circuit in

Saadeh, the exact time at which the jurisdictional defect was raised is

immaterial. If the jurisdictional defect exists at the commencement of

litigation, that defect must be acted on no matter when it is recognized.

See Kontrick, 2004 U.S. LEXIS 663, at 24. The Farrell jurisdictional defect

was so obvious that the trial court raised it sua sponte, two of the

defendants raised it in a Rule 11 warning letter and were voluntarily

dismissed, see note 17, infra, and crossing motions to dismiss were filed in

which even the respondent agreed that these counterclaims would have

to be dismissed if the federal dismissal was granted. See, DEFENDANT

GORDON MoNnson’s MOTION TO DISMISS, at n. 1, at 7, JA 83-P.

‘

LD A sai la My ANY Fee

court should have exercised its discretion in retaining

jurisdiction over the counterclaims, the court must first have

correctly concluded that it had subject matter jurisdiction

over them. “The question of whether a court has the power

to hear claims arising under pendent jurisdiction is an issue

precedent to and distinct from the second question —

whether the Court, in its discretion, should exercise that

power.” Mason v. Richmond Motor Co., Inc., 625 F.Supp. 883,

885 (E.D. VA. 1986), aff'd 825 F. 2d 407 (4 Cir. 1987).

“Thus, the analysis a court must follow in determining

whether to hear pendent State claims is two-fold: First,

the court must determine whether it has the jurisdiction,

i.e., the power to hear the claim; second, the court must

determine whether in its discretion it should hear

pendent State claims which it in law has the power to

hear,” Id.

Before the analysis of federal jurisdiction was first

brought to the court's attention, the trial court suspected it

lacked jurisdiction, and it raised the issue sua sponte. TR

(Hearing), at 2, In. 16-25, to 3, In. 1 (August 30, 2002), JA 270-

71. The federal count was immediately dismissed and the

case limited to its state counts. ORDER (April 25, 2002), JA 97.

There was nothing to which the state claims were

supplementary, and even the defendant, in his motion to

dismiss, acknowledged that there would be nothing left of

the case once the federal counts disappeared. DEFENDANT

GORDON MONSON’S MOTION TO DISMISS, at n. 1, at 7, JA, at

214.

Even if one assumes, arguendo, that the federal court

obtained jurisdiction during the brief time when any

reasonable person should have thought the federal claims

were valid, the counterclaims were not supplementary to

the plaintiffs claims. The analysis of whether the state

claims were properly supplementary turns on “whether or

not they arose ‘out of the transaction or occurrence that is

the subject matter of the opposing party's claim.’ FRCP

13(a)(b).” Sue & Sam Manufacturing Co. v. B-L-S Construction

Y emmimiiiiiiasiiiasiasiiiuniacaaianmiiiad

Co., 538 F.2d 1048 (4th Cir. 1976). “The facts which operate

to give rise to the federal claim must be facts which give rise

tu the State claim.” Mason v. Richmond Motor Co., Inc., 625

F.Supp. 883, 885 (E.D. VA. 1986), 625 F.Supp. 883, 887 (E.D.

VA. 1986), aff'd 825 F. 2d 407 (4 Cir. 1987). In the present

case, plaintiff has consistently challenged the jurisdiction of

the trial court over the counterclaims. Even before the weak

Lanham Act claim was dismissed, plaintiffs properly

asserted that the counterclaims were unrelated to the

operative nucleus of facts of the federal claim or the pendent

state claims.”

The trial court limited the claims that could be proven

by plaintiff. MEMORANDUM OPINION, at 10 (April 25, 2002),

JA 107. Though the trial court read it incorrectly to the Jury

once, TR Trial, at 584, In. 18-20 (June 12, 2001), JA 239. the

corrected instruction was limited to statements defendant

had putatively made to defame Mr. Farrell in his global

treatment of customers. TR (Trial) at 625, In. 8 to 626, In. 3,

JA 249-50.

In the Sue & Sam Manufacturing Co, case, the Court

reviewed the law and applied four different tests to the

facts. The relationship between defendant's counterclaims

and the federal claim fails each of the four tests.

“1. Are the issues of fact and law raised by the claim of

[plaintiff] and the counterclaims of [defendant] largely the

same?” Sue & Sam Manufacturing Co. v. B-L-S Construction

Co., 538 F.2d 1048, 1051 (4th Cir. 1976). In plaintiffs’ claim,

defendant is claimed to have made the following

defamatory statements:

“(a) that the plaintiffs "mistreated and ripped off"

customers "by selling them retitled out-of-state cars that

7 Plaintiffs initially included claimed defamatory statements about Mr.

Monson’s car upgrade. See, COMPLAINT, at J 23, JA 27. These claims,

which are also unrelated to the nucleus of operative facts of how Mr.

Monson’s car was repaired in early 1999, were excluded by the trial court

from plaintiffs’ case, but permitted to go to trial with differen* witnesses,

exhibits, and a different operative core of facts in defendant's case.

anything could have happened to and Virginia still gives

a good clean title for, or charging for work not done as

expected or charging for new parts when they were

used...on and on... (b) that there is no such thing as ‘pfs

LaLA

pmce.

TR, Trial, at 625, In. 10-17 (June 13, 2001), JA 249. The

statements have nothing to do with the putatively poor

automotive upgrade job. They lack a commonality of dates.

The upgrade occurred in 1999. The witnesses called about

Mr. Monsen’s car were a competing automotive repair

specialist and Korrie Mapp and are not the witnesses called

regarding the defamation. The documents introduced

regarding the defamation are a completely different set of

documents than anything designed to prove anything about

clean titles, out-of-state cars, or charging for work not done

or new parts when they were used. Unlike Painter v. Harvey,

863 F.2d 329, 332 (4th Cir. 1988), this is not a matter of “what

transpired during” one event in one place and time. The

times, dates, and evidence are all different; only the plaintiff

and defendant are in common, and that is only because the

trial court cut everyone else out of the case before trial.

As in the cited case, there is no identity between the

claims. The court took significant evidence, including

testimony, documentary evidence, and tangible evidence

that Mr. Monsen’s car was repaired poorly. The jury

ultimately rendered a verdict on whether the repair was

performed poorly. None of this evidence had any bearing

on whether plaintiff was feral; whether he sold salvage cars;

or whether there was a PFS computer. Unlike the case of

Painter v. Harvey, 863 F.2d 329 (4th Cir. 1988), where the

adjudication of a counterclaim of libel would require

adjudication of the truth of the claim of excessive force —

since both arose out of the activities in the same squad car —

the present case is akin to Sue & Sam Manufacturing Co. v. B-

L-S Construction Co., 538 F.2d 1048 (4th Cir. 1976).

“2. Would res judicata bar a subsequent suit on Lee's

counterclaims, absent the compulsory counterclaim rule?”

Sue & Sam Manufacturing Co. v. B-L-S Construction Co., 538

F.2d 1048, 1052 (4th Cir. 1976). Unless the counterclaims

were mandatory, as provided in FED.R.CIv.PROC. 13(a),

rather than permissive, as provided by FED.R.CIV.PROC.

13(b), the trial court lacked jurisdiction over them ab initio.

“But FRCP 13(a) and (b) are subject to the qualification

that a permissive counterclaim must have an

independent jurisdictional base, while a compulsory

counterclaim need not have. The leading text writers

and the cases are in agreement and are consistent on this

point. Federal Practice and Procedure, Wright and

Miller, Vol. 6, §§ 1414, 1422 (hereafter Wright and

Miller); Moore's, p. 13-379 et seq, p. 13-481. The

jurisdiction of the court as to a compulsory counterclaim

is ancillary jurisdiction. Wright and Miller, § 1422;

Moore's, p. 13-379. While these text writers may be

somewhat critical of the requirement of an independent

jurisdictional base in the case of a _ permissive

counterclaim, as perhaps in conflict with the general

policy of the federal courts to dispose of all the litigation

at hand in a single suit for the sake of efficiency and

economy, they nevertheless are in agreement that the

cases are uniform in requiring a separate jurisdictional

base for permissive counterclaims. And Wright and

Miller, § 1414, calls attention to FRCP 82, which provides

that the federal rules do not ‘extend or limit the

jurisdiction of the United States district courts.’ Sue &

Sam Manufacturing Co. v. B-L-S Construction Co., 538 F.2d

1048, 1051 (4th Cir. 1976).

The difference between a permissive counterclaim and a

mandatory counterclaim is not difficult:

“FRCP 13(a) requires. the assertion of a compulsory

counterclaim against any opposing party if it arises out

of the transaction or occurrence that is the subject matter

of the opposing party's claim, while FRCP 13(b) permits

the filing of a counterclaim against an opposing party

not arising out of the transaction or occurrence that is

the subject matter of the opposing party's claim.” Id.

Again, the counterclaims fail the test. An adjudication of

whether defendant was telling the truth when he, for

example, claimed that the PFS PMC computer sold by

plaintiff to the public would have no preclusive effect on a

factual finding of whether plaintiff exchanged the engine

core without permission in 1999.

“3. Will substantially the same evidence support or

refute B-L-S's claim as well as Lee's counterclaim?” Sue &

Sam Manufacturing Co. v. B-L-S Construction Co., 538 F.2d

1048, 1052 (4th Cir. 1976). Again, the counterclaims fail the

test. An entirely different body of evidence supported the

claim than the counterclaim. For the claim, plaintiffs

introduced Mr. Farrell, co-defendant Mr. Penner, and prints

of the offensive documents. Defendant introduced Mr.

Monsen. For the counterclaim, Mr. Monsen introduced an

expert witness about the subsequent repair to his vehicle

named Mr. Barninger, a fact witness named Mr. Korrie

Mapp, and invoices of the work done. While the division is

not pristine, to a large extent, on June 11, the court took

evidence on the plaintiffs’ state claims,8 and, on June 12, the

court took evidence of defendant’s counterclaims. In

contrast, in Painter v. Harvey, 863 F.2d 329 (4th Cir. 1988),

which facial appears similar because it presents a libel

defense of truth as arising from the same nucleus of

operative facts, almost all of the witnesses gave testimony

8 The trial court stretched the rules of evidence to permit defendant's

hearsay evidence in the form of letters from persons who complained

they had been offered prior salvage titled cars. The defendant needed to

get that evidence in to show the elements of truth and privilege in defense

of the libel claim, but the trial court allowed the evidence, over objection,

to show the mental state of defendant — presumably his mental state to

tell the truth and not to engage in malice. TR Trial, at 631, In. 24 to 633,

iIn.5 (June 13, 2002), JA 255-57. This body of evidence was part of

defendant's case material to the plaintiffs’ state claims. This evidence has

nothing to do with defendant's counterclaims.

on one issue — what happened in the back of the police car.

In the present case, only the parties were able to address

both the plaintiffs’ issues and the defendant's issues. The

only identity between the cases is an identity of parties.

“4, Is there any logical relation between B-L-S's claim

and Lee's counterclaims?” Sue & Sam Manufacturing Co. v. B-

L-S Construction Co., 538 F.2d 1048, 1053 (4th Cir. 1976).

Again, there is no logical relationship between the plaintiffs’

state claims and the defendant's counterclaims, other than

the identity and hatred between Mr. Monsen and Mr.

Farrell. The damages are dissimilar and arise in different

ways, unlike rain coming at two different times between the

same roof joinder. Id., at 1053. There is no similarity, as in

Sue & Sam, where: “The claims arose at the same time, and

the occurrence which occasioned both the claim of Sue &

Sam against B-L-S and the third party claim of B-L-S against

Lee was the fact that B-L-S had negligently allowed the

water to enter the building.” Id. There is no connection such

that the truth of one statement acts as a defense to the other

claim, because the claims are unrelated. Painter v. Harvey,

863 F.2d 329, 332 (4th Cir. 1988).

B. Whether the trial court abused its discretion by failing

to dismiss the counterclaims once it dismissed the

federal claim after sua sponte raising the issue of

jurisdiction ab initio.

There is no question that the trial court had the

discretion to dismiss the state claims once it dismissed the

Lanham Act Federal claims under either the supplementary

jurisdiction statute, 28 U.S.C. § 1367(c),? or under United

Mine Workers of America v. Gibbs, 383 U.S. 715, 726-727

9 The Act provides four grounds for declining to exercise supplementary

jurisdiction, including, to wit: “(2) the claim substantially predominates

over the claim or claims over which the district court has original

jurisdiction, (3) the district court has dismissed all claims over which it

has original jurisdiction, or (4) in exceptional circumstances, there are

other compelling reasons for declining the jurisdiction.” 28 U.S.C. §

1367(c)(2-4).

oS Bia

(1966).!0 The question is whether the trial court lacked

discretion or abused its discretion in failing to dismiss these

claims. While some circuits seem to hold that declining to

dismiss a case and retaining supplementary jurisdiction is

not jurisdictional and can only be reviewed as an abuse of

discretion, Kansas Pub. Employees Retirement Sys.'V. Reimer &

Koger, Inc., 77 F.3d 1063, 1067-68 (8 Cir. 1996), others note

that, because the decision is jurisdictional, the appellate

court is obligated to raise the issue even if it is not raised by

the parties. Maguire v. Marquette University, 814 F.2d 1213,

1218 n. 4 (7% Cir. 1987). Even where courts have noted that

the issue cannot be both discretionary and jurisdictional, the

court noted that a federal court has no power to hear a case

outside its jurisdiction. LaShawn A. v. Berry, 87 F.3d 1389,

1396-97 (D.C. Cir. 1996).

In the present case, the assertion of a federal claim

lacked serious merit. The lack of merit was sufficiently

10 The Gibbs case provided an additional grounds relevant here, to wit,

whether separation of the state and federal claims is justified by reasons

independent of jurisdictional considerations, such as the likelihood of jury

confusion. United Mine Workers of America v. Gibbs, 383 U.S. at 726-27.

While this factor does not appear explicitly in the statute, it would seem

to be subsumed under the fourth criterion of 28 U.S.C. § 1367(c)(4).

Several circuits appear to have held that the statute merely codifies the

case. See, Rodriguez v. Doral Mortgage Corp., 57 F.3d 1168, 1177 (1st Cir.

1995) [trial court has access to “totality of the attendant circumstances” J;

Borough of W. Mifflin v. Lancaster, 45 F.3d 780, 788 (3d Cir. 1995); Brazinski

v. Amoco Petroleum Additives Co., 6 F.3d 1176, 1182 (7% Cir. 1993); Diven v.

Amalgamated Transit Union & Local 689, 38 F.3d 598, 600-01 (D.C. Cir.

1994). Other circuits have held that the statute limits the discretionary

analysis of the case law. Itar-Tass Russian News Agency v. Russian Kurer,

140 F.3d 442, 445-448 (2d Cir. 1998); Doe v. Norwest Bank Minn., N.A., 909

F.Supp. 668, 673-74 (D.Minn. 1995), aff'd on other grounds, 107 F.3d 1297

(8th Cir. 1997); Executive Software N. Am., Inc. v. U.S. District Court, 24 F.3d

1545, 1552-1555, 1556 (9th Cir. 1994); LaSorella v. Penrose St. Francis

Healthcare Sys., 818 F.Supp. 1413, 1415-16 (D.Coro. 1993) [noting that the

increase in federal supplementary jurisdiction coincides with the statute

since it eliminates two Gibbs factors and makes jurisdiction mandatory];

Palmer v. Hospital Auth., 22 F.3d 1559, 1569 (11% Cir. 1994). See, 16 MOORE'S

FEDERAL PRACTICE, Supplementary Jurisdiction § 106.60[1].

obvious that the trial court raised the issue sua sponte and

dismissed the federal count based on the motion first raised.

The dismissal of the meritless federal count occurred at the

same time that the trial court first permitted substantive

amendment of the counterclaim, and it re-opened discovery

for the counterclaim. Further, the trial court allowed the

state claims to proceed after it required re-service upon the

central co-conspirator and then dismissed him from the case

leaving nothing except the unrelated state claims. If this is

not an abuse of discretion, it would be difficult to posit a fact

setting to distinguish discretion from unfettered fiat. That

was an abuse of discretion.

As a policy matter, the failure to dismiss the state claims

ought be treated as more than a discretionary matter,

following the Seventh Circuit. The parties — and, most

clearly, the court — were each aware of the want of

jurisdiction, but proceeded for their own reasons in defiance

of that jurisdiction.!! While stipulations and litigation

agreements of parties are — and ought be —respected in

most instances, the Supreme Court has taught that this

cannot be applicable to jurisdiction, because the federal

courts are courts of limited jurisdiction and have a

continuing duty at all levels to prevent misuse of that

jurisdiction. If federal jurisdiction can be abused this easily,

that mandate is meaningless.

C. Whether, as held by the trial court and not rejected by

the court of appeals, the diversity of the final two

defendants can rescue subject matter jurisdiction

where there were diverse parties at the time the case

was filed.

11 The court sought to punish plaintiff for bringing weak state claims and

a non-existent federal claim to a court that prides itself on speed. A

punishment might have been available under FEeD.R.CIv.PRoc. 11, as two

other defendants followed, but the remaining defendant preferred to

assert his own state claims.

After trial was over,!2 after the court had dismissed the

claims against the non-diverse parties, after one party

settled, and after the court nonsuited another, the court

asked: “Let me ask you this. What about the fact that there’s

diversity in this case?” TR (Motion, August 30, 2002), at 3,

In. 19-21, JA 272. The trial court concluded that there was

diversity. TR (Motion, August 30, 2002), at 21, In. 12-16, JA

289; see ORDER (Sept. 5, 2002), App. B, at 6-7.15 On the date it

was filed — and thereafter — the Complaint named

multiple parties from Virginia, See, COMPLAINT, at 1, JA 18.

They remain defendants herein, APPELLANT'S BRIEF, at 1,

supra. The date for determination of diversity is the date on

which the complaint is filed. Rowland v. Patterson, 882 F2d

97, 98 (4% Cir. 1989). Like the court in Grupo Dataflex, the

trial court was looking for a retroactive excuse for its own

jurisdiction.

II. The case should be reviewed to resolve a split in the

circuits over whether jurisdiction can be resolved

retroactively from time of judgment.

In Saadeh v. Farouki, 107 F.3d 52 (D.C. Cir. 1997), the D.C.

Circuit expressly refused to expand Caterpillar and Newman-

Green beyond their contexts to allow a party to retroactively

create diversity jurisdiction by unilaterally changing its

citizenship after suit is filed. Saadeh, 107 F.3d at 56-57. In

Atlas Global Group, L.P. v. Grupo Dataflux, 312 F.3d 168, 169-

70 (5th Cir. 2002), the Fifth Circuit declined to follow Saadeh,

12 Actually, the trial court appears to have first sought to resuscitate

jurisdiction by introducing diversity of citizenship after the Jury had

retired to deliberate. During trial, the trial court understood that

jurisdiction is measured at the time of filing. TR, Trial, at 611, In. 3-13

June 13, 2001), JA 247.

13 More precisely, it would appear that the trial court had already

concluded that the court lacked jurisdiction when it said: “Well,

jurisdiction can be raised at any time, even on appeal,” TR (Motions

Hearing August 30, 2002), at 8, In. 23-24, JA 276, and then sought to

explore the issue further with defendant's counsel before hitting upon the

notion of the applicability of diversity jurisdiction.

summarily rejecting the D.C. Circuit’s holding as

“unpersuasive.” Atlas Global Group, L.P., 312 F.3d at 173. 14

This creates a split in the Circuits when a federal court seeks

to justify jurisdiction which did not exist at the time of filing.

The Eastern District of Virginia followed the Fifth Circuit

rule in determining that diversity jurisdiction arose after

filing but before judgment when the issue was raised to the

court on motions to dismiss during discovery. The Fourth

Circuit upheld the trial court’s alternative basis for

jurisdiction and did not reverse the trial court’s conclusion

on diversity. The trial court conclusion is inconsistent with

the language of the D.C. Circuit:

14 Unlike the panel majority’s decision in this case, the D.C. Circuit's

decision in Saadeh is consistent with longstanding precedent holding that

a party’s unilateral change in citizenship after litigation has commenced

cannot retroactively create diversity jurisdiction that did not exist at the

time suit was filed. See Goldsmith v. Mayor & City Council of Baltimore, 845

F.2d 61, 62 n.1 (4th Cir. 1988) (affirming dismissal of claim where party

sought to retroactively create diversity jurisdiction based on party’s

unilateral change in citizenship after suit was filed); Lyons v. Weltmer, 174

F.2d 473 (4th Cir. 1949) (per curiam) (same); Oh v. Ford Motor Co., 79 F.

Supp. 2d 1375, 1377-78 (N.D. Ga. 1999) (granting motion to remand where

diversity jurisdiction was based on defendant's change in citizenship after

suit was filed); Gard v. Teletronics Pacing Sys., Inc., 859 F. Supp. 1349, 1354-

55 (D. Colo. 1994) (rejecting diversity jurisdiction as an alternative basis

for subject matter jurisdiction over party’s claims based on party’s change

in citizenship after suit was filed); Russell v. Harrison, 562 F. Supp. 467, 471

(N.D. Miss. 1983) (same); Lang v. Windsor Mount Joy Mut. Ins. Co., 487 F.

Supp. 1303, 1306-07 (E.D. Pa. 1980) (granting motion to dismiss where

diversity jurisdiction was based on plaintiff's change in citizenship after

suit was filed); Hagen v. Payne, 222 F. Supp. 548, 553 (W.D. Ark. 1963)

(granting motion to remand where diversity jurisdiction was based on

defendant's change in citizenship after suit was filed); see also Field v.

Volkswagenwerk AG, 626 F.2d 293, 304 (3d Cir. 1980) (Thus, if diversity of

citizenship did not exist at the time the action was filed, it cannot be

created retroactively by a subsequent change of domicile by one of the

parties”); Slaughter v. Toye Bros. Yellow Cab Co., 359 F.2d 954, 956 (5th Cir.

1966) (“It seems to be without question that a change of citizenship

occurring after the commencement of the action would not affect

jurisdiction or the absence of it”) (citation omitted).

“Although we are mindful of the ‘considerations of

finality, efficiency and economy’ that concerned the

Supreme Court in Caterpillar, those concerns in the

removal context are insufficient to warrant a departure

here from the bright-line rule that citizenship and

domicile must be determined as of the time a complaint

is filed.” Saadeh, 107 F.3d at 56-57.

III. The case should be reviewed to resolve a dispute in ihe

circuits over the proper standard of review where

supplementary jurisdiction is asserted and retained

after the dismissal of the federal jurisdictional basis.

There is a split in the Circuits over whether the

discretion vested in a district court is the discretion to

decline to exercise supplemental jurisdiction or whether the

discretion extends to retaining cases without substantive

review of the initial claim of subject matter jurisdiction. In

Patten v. Foley’s, 66 Fed. Appx. 188, 2003 U.S. App. LEXIS

11383, 9-10 (10th Cir. filed June 6, 2003), the appeals court

concluded that the “district court did not abuse its

discretion in declining supplemental jurisdiction after it

dismissed all of the claims over which it had original

jurisdiction. See 28 U.S.C. § 1367(c)(3) (permitting a district

court to decline to exercise supplemental jurisdiction if the

court has dismissed all claims over which it had original

jurisdiction).” Id. The 11 Circuit has held that even the

discretion to decline supplemental jurisdiction is

conditioned on a jurisdictional power to exercise that

jurisdiction: “We have held that, once a district court

determines ‘that it has power to exercise supplemental

jurisdiction under § 1367(a), then the court should exercise

that jurisdiction, unless § 1367(b) or (c) applies to limit the

exercise.’ Baggett v. First Nat'l Bank of Gainesville, 117 F.3d

1342, 1352 (11th Cir.1997).” Milan Express, Inc. v. Averitt

Express, Inc., 208 F.3d 975, 2000 U.S. App. LEXIS 6446, 12, 46

Fed. R. Serv. 3d (Callaghan) 895 (11% Cir. 2000), later appeal

254 F.3d 966, 2001 U.S. App. LEXIS 13734 (11th Cir. 2001)

[reversing supplemental jurisdiction count]. The review of

the existence of initial subject matter jurisdiction and the

supplemental jurisdiction pendent on it is de novo in the

Third Circuit, Bonenberger v. Plymouth Township, 132 F.3d 20,

1997 U.S. App. LEXIS 35507, 4, 77 Fair Empl. Prac. Cas.

(BNA) 1242, 72 Empl. Prac. Dec. (CCH) P45,083 (3d Cir.

1997), but appears to be open-ended and discretionary in the

Ninth Circuit: “A district court’s decision whether to retain

jurisdiction over supplemental claims once the original

federal claims have been dismissed is reviewed for abuse of

discretion. Brown v. Lucky Stores, Inc., 246 F.3d 1182, 1187

(9th Cir. 2001).” Tritchler v. Poole, 2004 U.S. App. LEXIS 2593,

3, 93 Fair Empl. Prac. Cas. (BNA) 378 (9t Cir. filed February

18, 2004). The First Circuit applies a rule that the dismissed

initial federal question claims not be “sufficiently devoid of

merit to vitiate federal subject matter jurisdiction over

[plaintiff's] state law claims on appeal. See Pejepscot Indus.

Park, Inc. v. Maine Cent. R.R. Co., 215 F.3d 195, 200 (1st Cir.

2000) (noting that standard of review for supplemental

jurisdiction determinations is abuse of discretion).” Hatch v.

Town of Middletown, 311 F.3d 83, 2002 U.S. App. LEXIS

23747, at note 2, at 3 (1st Cir. 2002).

The question for this Court is whether plaintiffs can —

manufacture supplemental jurisdiction merely by pleading

a federal cause and dismissing prior to trial.

IV. The case should be reviewed to fashion a policy that

does not favor or require attorneys to represent their

clients zealously by pleading and then retreating from

federal question jurisdiction in order to manufacture

supplementary jurisdiction.

The court of appeals applies an abuse of discretion

standard to review all trial court decisions on

supplementary jurisdiction under 28 U.S.C. § 1367. “We

review a district court’s actions under § 1367: for abuse of

discretion. [citing] Shanaghan v. Cahill, 58 F.3d 106, 109 (4th

Cir. 1995).” Farrell v. Monsen, slip op., at 5, App. A-6. Under

the Fourth Circuit's prior decision in Shanaghan v. Cahill, 58

F.3d 106, 112 (4t* Cir. 1995), the court applies an abuse of

discretion standard on the issue of retaining jurisdiction

once subject matter jurisdiction has already been

established. The Court reviews de novo the issue of whether

a supplementary claim is within the ambit of 28 U.S.C. §

1367 using the standards set forth in Sue & Sam

Manufacturing Co. v. B-L-S Construction Co., 538 F.2d 1048

(4th Cir. 1976) and Painter v. Harvey, 863 F.2d 329 (4 Cir.

1988). The decision refers to Sue & Sam and Painter, but

defers to the trial court in weighing whether two separate

transactions between the same parties were sufficiently

similar under the standard set forth in Sue & Sam.15 The

court of appeals performed no substantial review of the

applicable standards and elucidated no requirement for the

trial court to have subject matter jurisdiction before it

determines whether to retain jurisdiction over

supplementary claims. Rather, the Court applies an abuse of

discretion standard in weighing whether the Court has

supplemental jurisdiction.

This analysis is parallel to the form of analysis

condemned by the Supreme Court in 1998 in Steel Co. v.

15 In Sue & Sam, the appeals court reviewed a setting in which there were

two transactions arising from water or snow damage caused by incorrect

design and incorrect construction of a building by the same parties. The

court rejected the notion of equating a series of transactions merely

because the case involves common parties and an on-going business

relationship. See, Sue & Sam Manufacturing Co. v. B-L-S Construction Co.,

538 F.2d 1048 (4th Cir. 1976). Unlike Painter v. Harvey, 863 F.2d 329, 332

(4% Cir. 1988), this is not a matter of “what transpired during” one event

in one place and time. The times, dates, and evidence are all different;

only the plaintiff and defendant are in common, and that is only because

the trial court cut everyone else out of the case before trial. The briefs of

the parties each addressed the Sue & Sam factors, and appellant compiled

the argument of counsel into a chart that was accepted as part of the

record at argument. The appeals court reduced the well-reasoned, four-

step rule of Sue & Sam to the single statement that: “There is a logical

relationship between the claims because they ‘essentially ar[o]se from the

souring of [the parties’] business relationship.’ [citing] Banner Indus. of

N.Y., Inc. v. Sansom, 830 F.Supp. 325, 328 (S.D. W. Va. 1993).” Farrell, slip

op., at 8, App. A-10.

Citizens for A Better Environment, 523 U.S. 83 (1998). There,

this Court criticized the Circuits for creating a form of

hypothetical jurisdiction without first confronting the

antecedent issue of whether jurisdiction ever existed. This

Court instructs that a well-stated federal claim might form

the basis for jurisdiction even if it ultimately fails:

“It is firmly established in our cases that the absence of a

valid (as opposed to arguable) cause of action does not

implicate subject-matter jurisdiction, ie., the courts'

statutory or constitutional power to adjudicate the case.

See generally 5A C. Wright & A. Miller, FEDERAL

PRACTICE AND PROCEDURE SECTION 1350, p. 196, n. 8 and

cases cited (2d ed. 1990). As we stated in Bell v. Hood, 327

US. 678, 682 (1946), ‘[jJurisdiction ... is not defeated ... by

the possibility that the averments might fail to state a

cause of action on which petitioners could actually

recover.’ Rather, the District Court has jurisdiction if ‘the

right of petitioners to recover under their complaint will

be sustained if the Constitution and laws of the United

States are given one construction and will be defeated if

they are given another,’ id., at 685, unless the claim

‘clearly appears to be immaterial and made solely for the

purpose of obtaining jurisdiction or where such a claim

is wholly insubstantial and frivolous.’ Id., at 682-683; see

also Bray v. Alexandria Women's Health Clinic, 506 U. S.

263, 285 (1993); The Fair v. Kohler Die & Specialty Co., 228

U. S. 22, 25 (1913). Dismissal for lack of subject-matter

jurisdiction because of the inadequacy of the federal

claim is proper only when the claim is ‘so insubstantial,

implausible, foreclosed by prior decisions of this Court,

or otherwise completely devoid of merit as not to

involve a federal controversy.’ Oneida Indian Nation of N.

Y. v. County of Oneida, 414 U. S. 661, 666 (1974); see also

Romero v. International Terminal Operating Co., 358 U. S.

354, 359 (1959).” Steel Co. v. Citizens for A Better

Environment, at Lexis Note 32.

In the present case, all parties conceded below that there

was no basis for the federal claim. Indeed, Mr. Farrell

withdrew to a safe harbor by dismissing the federal

complaint when two other defendants issued demands

under Rule 11. See, footnote 17, infra. Mr. Monsen’s counsel,

in the court below, asked that it be dismissed as baseless,

acknowledging that all of the other claims would fail for

want of jurisdiction once the federal claim was dismissed.

DEFENDANT GORDON MONSEN’S MOTION TO DISMISS, at n. 1,

at 7, JA 214. The trial court took credit for identifying the

federal claim as baseless sua sponte. TR (Hearing), at 2, In.

16-25, to 3, In. 1 (August 30, 2002), JA 270-71. The court of

appeals acknowledges that the federal claim may have been

what it called a sham. Farrell v. Monsen, slip op., at note 4, at

5, App. A-7. Nevertheless, nothing in the Fourth Circuit

Opinion analyzes the antecedent question of whether the

trial court ever had jurisdiction.

“While some of the above cases must be acknowledged

to have diluted the absolute purity of the rule that

Article III jurisdiction is always an antecedent question,

none of them even approaches approval of a doctrine of

‘hypothetical jurisdiction’ that enables a court to resolve

contested questions of law when its jurisdiction is in

doubt. Hypothetical jurisdiction produces nothing more

than a hypothetical judgment — which comes to the

same thing as an advisory opinion, disapproved by this

Court from the beginning. Muskrat v. United States, 219

U. S. 346, 362 (1911); Hayburn's Case, 2 Dall. 409 (1792).

Much more than legal niceties are at stake here. The

statutory and (especially) constitutional elements of

jurisdiction are an essential ingredient of separation and

equilibration of powers, restraining the courts from

acting at certain times, and even restraining them from

acting permanently regarding certain subjects. See United

States v. Richardson, 418 U. S. 166, 179 (1974); Schlesinger

v. Reservists Comm. to Stop the War, 418 U. S. 208, 227

(1974). For a court to pronounce upon the meaning or

ee ee en

the constitutionality of a state or federal law when it has

no jurisdiction to do so is, by very definition, for a court

to act ultra vires.” Steel Co. v. Citizens for A Better

Environment, Id., at Lexis Note 49.

If treated as precedent,!® the appellate decision would

permit significant expansion of federal supplemental

jurisdiction. The appeals court addresses appellant's

argument that its ruling even applies to sham federal claims.

The appellate opinion, if allowed to stand, would allow

jurisdiction even where the parties acknowledge that the

federal count below was a sham. Farrell v. Monsen, slip op.,

at note 4, at 5. The Opinion would permit a trial court to

find and then retain federal jurisdiction in any case in which

a federal statute is asserted in the complaint, even if the pled

federal cause of action is invalid on its face and

subsequently withdrawn.!” Under Farrell, the requirement

16 Appellant preserved the issue that the Circuits’ practice of deciding

cases but withholding them from publication as a way of prohibiting their

use as precedent. The practice ought to be ultra vires for an Article Ill

court and converts the core principles of stare decisis to stare secretas.

Petitioner fears that including that issue in the briefs will weaken the

likelihood that the writ will issue. Unelected courts in republics cannot

find the law and then conceal the use of their words from stare decisis by

hiding the decisis and prohibiting citation to it as authority. “[P]ublication

of judicial opinions ... is an accepted and constituent part of the judicial

process...” Murray v. Brancato, 290 NY 52 (1942) [Finch, dissenting] The

Fourth Circuit denied petitioner's motion to publish opinion. ORDER

(Qanuary 9, 2004). But, even in the absence of publication, the ratio

decidendi provides a good faith basis for a litigant to ask a trial court to

exercise the discretion that exists under the unpublished opinion.

17 The Fourth Circuit vastly expanded one of its diversity jurisdiction

decisions in support of this creation of hypothetical jurisdiction. In

Shanaghan v. Cahill, 58 F.3d 106, 110 (4 Cir. 1995), cited by the Court for

this proposition, Farrell, slip op., at 5, the complaint stated a proper cause

of action. When one of the three loan notes pled upon in Shanaghan was

lost and could not be proven, the jurisdictional amount became

inadequate. At the time of the complaint, the claim was proper, and the

federal court had proper jurisdiction. But, under the decision in Farrell,

even if the parties agree that that the federal count was a sham,

supplementary jurisdiction is discretionary. This is a great leap from the

to state a valid prima facie federal claim as an “antecedent

question” to supplemental jurisdiction over state claims is

absent. Cf. Steel Co. v. Citizens for A Better Environment, 523

US. 83, slip op., at 8-17 (1998).

After viewing “Farrell’s post-trial actions as those of a

somewhat sore loser who is upset that his chosen forum

rendered an unfavorable verdict,” Farrell v. Monsen, slip op.,

at 7, App. A-8, this Court reversed the hornbook law that “If

a Court of Appeals has no jurisdiction, it cannot obtain it by

the consent,!8 stipulation,!9 or waiver of the parties.20” 4

AM.JUR. 2d., Appellate Review, § 76, at 701 (1995 ed.). The

consideration by the full Court is therefore necessary to

secure and maintain uniformity of the Court's decisions.*!

ruling of this Court in Shanaghan, in which the Circuit wrote: “Of course,

if plaintiff has alleged only a small amount of damages or it is otherwise

obvious that the jurisdictional amount under § 1332(a) cannot be satisfied,

the court must dismiss the case outright for lack of jurisdiction. Wiggins v.

North American Equitable Life Assurance Co., 644 F.2d 1014, 1016-18 (4 Cir.

1981). In this case, by contrast, it appears from the face of the complaint

that Shanaghan had alleged claims totaling well over the $50,000 limit.”

18 Citing, Four Hundred & Forty-Three Cans v. U.S., 226 U.S. 172, 57 L.Ed.

174, 33 S.Ct. 50 (1912).

19 Citing, In re Stable Mews Assoc., 778 F.2d 121 (2d Cir. 1985), 13 BCD

1251, CCH Bankr.L.Rptr 70871; Borne v. A&P Boat Rentals No. 4, Inc., 755

F.2d 1131 (5 Cir. 1985), 1 FR Serv. 3d 220, later 780 F.2d 1254 (5t Cir.

1985). ,

20 Citing, Demulso Corp. v. Tretolite Co., 74 F.2d 805 (10 Cir. 1934).

21 The opinion acknowledges that plaintiff and his counsel refer to the

federal count of the complaint as a sham. Even if that is not a precisely

accurate rendition of plaintiff's point, subsequent litigants will find this

acknowledgement useful. If a sham federal claim can establish federal

jurisdiction and leave the trial court with discretion to retain that

jurisdiction, then surely an “immaterial, wholly insubstantial and

frivolous, or otherwise so devoid of merit as not to involve a federal

controversy” federal claim is sufficient to get into court. But see, Steel Co.

v. Citizens for A Better Environment, 523 U.S. 83, 118 S.Ct. 1003, 140 L.Ed.2d

210 (1998), citing, see, e.g., Oneida Indian Nation of N. Y. v. County of Oneida,

414 U. S. 661, 666. Once jurisdiction is established with the sham claim, it

cannot be a violation of Rule 11 for that same litigant to ask a the trial

Even if it is adequate protection that federal trial judges

could exercise their discretion to act as the gatekeepers to

federal jurisdiction by dismissing some of these cases, and

even if the decision is concealed from public view and

precedential value as an unpublished opinion, the appellate

opinion provides a good faith basis — and, thus, immunity

— from FED.R.CIv.PROC. Rule 11. Litigants may assert

baseless federal claims as a means of obtaining federal

jurisdiction over supplementary state claims, so long as the

federal claims are withdrawn timely. It could now take no

more than an agreement between counsel to proceed in

federal court on a state claim in the federal courts following

Farrell. The stipulation of hypothetical jurisdiction would

occur as follows:

¢ plaintiff proposes the sham or, optimally, some

marvelously creative federal claim;

¢ defendants consent for their own reasons, such as

the perception of friendlier juries, quicker adjudication,

different calendar control, or, for that matter, proximity of

the courthouse to counsel's office;

¢ or, plaintiff feels safe that Rule 11 sanctions can be

avoided because: 1) the defendant won’t move to dismiss

until after discovery, 2) the federal claim is sufficiently

colorable, 3) the plaintiff will be able to rely on the safe

harbor provisions of Rule 11, or 4) it is worth the risk;

e neither side moves to dismiss the federal claim until

pretrial, and neither side seeks sanctions;22

judge to exercise discretion that a federal court of appeals concludes

exists.

22 while preferable, the failure of this step is of little practical

consequence. If defendant's counsel breaches the litigation agreement by

moving to dismiss or seeking sanctions, plaintiff can counter by

withdrawing the federal count prior to the filing of a sanctions motion or

a hearing on the motion to dismiss. If plaintiff's counsel breaches the

litigation agreement by failing to dismiss before pretrial, defendant

counters by moving to dismiss and for sanctions. Either way, the plaintiff

asks the trial court to exercise the discretion recognized by the Fourth

Circuit in this case, and, if the trial court declines, re-files in the state

* upon withdrawal of the federal claim, one or both

sides ask the court to exercise the discretion to “retain”

jurisdiction over the supplementary claims.23

Under Farrell, jurisdiction can be manufactured in the

federal court where it could not otherwise exist. Even if the

trial court exercises its discretion to dismiss the state claims,

the downside risk for counsel is quite limited. It cannot be a

sham to ask a trial court to exercise its discretion, and 28

U.S.C. § 1367 contains a tolling provision so the matter can

be re-filed in state court if the request fails. The decision,

even if unpublished, will become a major landmark in

defining safe harbors for testing the extent of federal

jurisdiction over purely state claims merely because the

Fourth Circuit feels an attraction to expand its jurisdiction in

courts under the 30-day tolling provision of 28 U.S.C. § 1367(d). In the

common adage: “Nothing ventured, nothing gained.” With a mandate on

counsel to pursue matters zealously within the bounds of the law, see

Virginia Supreme Court Rules (Professional Responsibility) 6:2-1, and no

risk to the client for the venture, it would seem to be unethical not to file a

sham federal claim if zealous counsel believes that the client's state claims

can be better addressed in the federal courts. Plaintiff is at no risk for a

sham complaint, FED.R.CIv.PROC. 11(c)(2)(A), and counsel is in conflict if

he or she must consider personal or professional peril above the zealous

pursuit of the client’s cause within the bounds of the law. If that

statement is too shocking, it is mere prelude to the lesser included

statement that a creative, even if illusory, Bivens-type claim can be drafted

for any state cause, and a less creative federal claim can be pled for almost

every claim imaginable. Any top law student ought to be able to fashion a

federal cause for anything if it doesn’t need to survive a motion to

dismiss. As questioned by the Chief Justice in the oral argument of Grupo

Dataflex, if the law encourages manipulation, perhaps it is the law, rather

than the learned advocates, that ought to change.

23 It is plausible that the trial court will not be enamored with the

inherent humor of the bootstrap argument. If the trial court threateris

sanctions, the litigant dismisses the federal count forthwith. This averts

monetary sanctions as to the federal claim, FED.R.Crv.PROCc. 11(c)(2)(B).

Counsel delivers a copy of the Farrell opinion. Even if it lacks value as a

precedent, the Opinion must surely shield counsel from the assertion that

there is no basis to ask the trial court to use its discretion to “retain”

jurisdiction after a sham federal complaint.

order to prevent Mr. Farrell from being a sore loser.”4

CONCLUSION

For the reasons stated above, the petition for a writ of

certiorari should be grantéd. The judgment of the court of

appeals should be reversed, and judgment should be

rendered dismissing this case for lack of subject matter

jurisdiction.

Respectfully submitted,

Richard S. Sternberg

Counsel of Record

Barrister’s Place, Suite #7

751 Rockville Pike

Rockville, Maryland 20852

(202) 530-0100

24 In fact, as counsel learned after the argument, it was both Monsen’s

and Farrell’s counsel who were skillfully seeking to impose jurisdiction

on the federal court. Malloy Woodbridge, LLC, and Malloy Lincoln

Mercury, Inc., issued a Rule 11 letter threatening a motion for sanctions if

the claim was not withdrawn, and it was dutifully withdrawn. Both of the

remaining parties were seeking to impose jurisdiction on the federal

courts by stipulation.

TABLE OF CONTENTS

Appendix to Petition

Appendix Page

Opinion of

The United States Court of Appeals

For the Fourth Circuit

entered December 3, 2003 ...........c.ssssssseseseseses App. A-1

Memorandum and Order of

The United States District Court

for the Eastern District of Virginia

entered September 5, 2002

Memorandum and Order of

The United States District Court

for the Eastern District of Virginia

entered April 25, 2002

Order of

The United States Court of Appeals

For the Fourth Circuit

Re: Denying Petition for Rehearing

and Rehearing En Banc

entered December 30, 2003

Statutes Involved

App. A-1

APPENDICES

Appendix A — Opinion of the United States Court of

Appeals for the Fourth Circuit Dated and Filed

December 3, 2003

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

PETER FARRELL SUPERCARS,

INCORPORATED; PETER FARRELL,

Plaintiffs-A ppellants,

GORDON MONSEN,

Defendant-Appellee, No. 02-2230

and

DAVID C. PENNER; JOHN ROBERT

DUFF, JR.; MALLOY WOODBRIDGE,

LLC; MALLOY LINCOLN MERCURY,

INCORPORATED,

Defendants.

Appeal from the United States District Court

for the Eastern District of Virginia, at Alexandria.

James C. Cacheris, Senior District Judge.

(CA-01-1073-A)

Argued: October 31, 2003

Decided: December 3, 2003

[ENTERED: DECEMBER 3, 2003]

Before NIEMEYER, WILLIAMS, and DUNCAN, Circuit Judges.

Affirmed by unpublished per curiam opinion.

App. A-2

COUNSEL

ARGUED: Richard Steven Sternberg, Rockville, Maryland, for

Appellants. Francis Eugene Purcell, Jr., WILLLAMS MULLEN,

McLean, Virginia, for Appellee.

Unpublished opinions are not binding precedent in this circuit.

See

Local Rule 36(c).

OPINION

PER CURIAM:

Peter Farrell Supercars and its owner, Peter Farrell,

(collectively Farrell) appeal from a jury verdict in favor of

Gordon Monsen, a disgruntled Farrell’s customer. Farrell's

original complaint stemmed from negative statements that

Monsen posted on the internet.! It included several state

claims and a federal Lanham Act claim. In response to

Farrell’s complaint, Monsen filed several counterclaims

alleging breach of contract, fraud and violations of the

Virginia Consumer Practices Act. The jury found in favor of

Monsen on all claims and counterclaims. Farrell argues that

the district court abused its discretion by retaining the

action after it dismissed the federal claim under the Lanham

Act, erred by holding that Monsen’s counterclaims were

compulsory and were not time barred, and abused its

discretion by awarding attorney’s fees to Monsen. We

affirm.

The facts relevant to this appeal arise out of a souring of

the business relationship between Farrell and one of his

customers, Gordon Monsen. Although Farrell initially

claimed that a conspiracy among a former Farrell Supercars’

employee, John Duff, and some of Farrell's business

competitors had damaged Farrell’s reputation and business,

by the time the trial began the only parties remaining in the

action were Farrell and Monsen. Monsen owned a Mazda

App. A-3

RX-7 that he took to Farrell for improvements in December

1998. Specifically, Monsen wanted Farrell to install a 500-

horsepower single-engine turbo kit, perform a race-ported

engine exchange, and make other minor adjustments.

Monsen believed that the term "engine exchange" meant

that Farrell would remove and rebuild his own engine, not

that Farrell would literally exchange his engine with that

from another car. An invoice dated December 21, 1998,

listed the improvements Farrell would make, including the

"race-ported engine-exchange." (J.A. at 83.)

1Farrell’s complaint named multiple defendants, but by the time trial

commenced only Monsen remained.

Monsen picked up the car on May 14, 1999, and drove it

home to Pennsylvania. Monsen experienced difficulties with

the car’s driveability almost immediately, and, after the

engine caught fire while Monsen was out for a drive,

Monsen took the car to KD Rotary, a Pennsylvania

mechanic. At that time, in May 1999, KD Rotary determined

that the engine fire was caused by the proximity of the

engine wiring harness to the turbo charger and the absence

of a heat shield. KD Rotary also found faulty wiring and

soldering that fell below industry standards. Monsen

continued to have difficulties with the car and returned to

KD Rotary in August 2000. KD Rotary removed the turbo

kit and sent it to a specialist, who replaced that turbo kit

with a new one because the kit that Farrell had installed was

severely worn. |

Armed with a new turbo kit, Monsen began driving the

Mazda RX-7 again. One week later, in September 2000, the

engine simply stopped working. KD Rotary, for the first

time, decided to remove the entire engine for examination.

Upon inspecting the engine, KD Rotary found that the

engine failed due to excessive wear. KD Rotary noticed that’

the vehicle identification number (VIN) on the engine did

not match the VIN for Monsen’s car, and the name "Ed

Taylor" was found scratched on the engine. Ed Taylor had

App. A-4

previously offered to sell his car, also a Mazda RX-7, to

Monsen, but Monsen had declined because Taylor’s car had

substantially more miles than Monsen’s. Monsen thus

believed that Farrell had switched Taylor’s engine, which

had over 100,000 miles on the odometer, for his, which had

only 25,000 miles.

In response to this perceived wrong, Monsen began

posting messages regarding his business transactions with

Farrell on an internet bulletin board for RX-7 enthusiasts.

For example, Monsen wrote on June 1, 2001:

[I] strongly recommend that whoever is

considering peter feral talk to any of the many people

that peter has mistreated and ripped off by selling

them retitled out-of-state cars that anything could

have happened to and virginia still gives a good clean

title for, or charging for work not done as expected.

(J.A. at 52.)

Farrell countered by bringing this action on July 9, 2001,

in the United States District Court for the Eastern District of

Virginia, alleging violations of the Lanham Act, 15 U.S.C.A.

§ 1125 (West 1998 & Supp. 2003), and seven state common

law claims for defamation and tortious interference with a

business relationship.2 Monsen counterclaimed for breach of

contract, fraud and violations of the Virginia Consumer

Practices Act (VCPA), Va. Code Ann. § 59.1-200 et seq.

(Michie 2001). The district court dismissed Farrell’s Lanham

Act claim on April 25, 2002, principally because Monsen was

not in competition with Farrell and did not disseminate his

statements as advertisements. A jury trial commenced on

June 11, 2002. On that date, Farrell took a non-suit as to the

former employee John Duff, leaving only Monsen as a

defendant. The jury found for Monsen on all of Farrell's

counts, and also found for Monsen on all of his

counterclaims. Accordingly, the jury awarded Monsen

$10,000 for breach of contract, $5,000 for fraud, $5,000 in

punitive damages, and $5,000 for the VCPA violations. The

VCPA award was statutorily trebled to $15,000. After

App. A-5

denying Farrell’s motion for a new trial, the district court

awarded Monsen $55,823.50 in attorney’s fees, limiting the

fee award to those fees incurred on the VCPA claim. This

timely appeal followed. We possess jurisdiction to hear the

appeal under 28 U.S.C.A. § 1291 (West 1993).

Il.

On appeal, Farrell argues that the district court abused

its discretion by retaining the action after it dismissed the

Lanham Act claim, erred in ruling that Monsen’s

counterclaims were compulsory and timely, and abused its

discretion in awarding Monsen attorney’s fees.3 We address

each of these arguments in turn.

Supplemental Jurisdiction

Farrell first argues that the district court abused its

discretion by refusing to dismiss the remaining state law

claims after it dismissed the sole federal claim, the Lanham

Act claim.4 We disagree. District courts have supplemental

jurisdiction over state law claims that "form part of the same

case or controversy" as the federal claim. 28 U.S.C.A. §

1367(a) (West 1993). A district court, however, "may decline

to exercise supplemental jurisdiction over a claim" when the

court "has dismissed all claims over which it has original

jurisdiction." 28 US.C.A. § 1367(b)(3) (West 1993).

2 Farrell’s complaint named other defendants who, by virtue .

settlements and non-suits, are not relevant to this appeal.

3Farrell also complains of two errors regarding the jury instructions ~

verdict form. We find both to be without merit and affirm the district

court's findings and conclusions based on its reasoning.

We review a district court’s actions under § 1367 for

abuse of discretion. Shanaghan v. Cahill, 58 F.3d 106, 109 (4th

Cir. 1995) Farrell believes that, because the federal claim was

dismissed before trial, the district court abused its discretion

by retaining the numerous state law claims. The doctrine of

supplemental jurisdiction is one of flexibility, and there is no

App. A-6

"mandatory rule" requiring dismissal when the federal claim

is disposed of before trial. Carnegie Mellon Univ. v. Cohill, 484

US. 343, 350 n.7 (1988). Likewise, in Shanaghan, we noted

that district courts enjoy "wide latitude" when deciding

whether to exercise supplemental jurisdiction in an action.

Shanaghan, 58 F.3d at 110. We instructed district courts to

consider the "convenience and fairness to the parties, the

existence of any underlying issues of federal policy, comity,

and considerations of judicial economy." Id. Applying those

factors in Shanaghan, we held that a district court was not

required to dismiss a diversity action where, after the action

began, one of the claims was dismissed, leaving the claimed

damages below the amount in controversy requirements.

We did caution, however, that a court must inquire into

"whether plaintiff was consciously relying on flimsy

grounds to get into federal court." Id. at 112.

In response to Farrell’s motion for a new trial, the

district court explained its.decision to retain the remainder

of the case, noting "the parties had completed substantial

pre-trial

4In the alternative, Farrell argues that the district court never had

jurisdiction over the action because the federal claim was a sham. In fact,

at argument Farrell’s appellate counsel made the somewhat unusual

suggestion, with his client's blessing, that his client should be sanctioned

for his trial counsel having filed such a spurious claim. Although this

strategy may have been a clever attempt to fall within the purview of the

safeharbor provision of Federal Rule of Civil Procedure 11 and thus

relieve Farrell of the adverse jury verdict, we must reject it because

Farrell’s complaint, on its face, stated a Lanham Act claim against the

defendants that provided federal question jurisdiction pursuant to 28

US.C.A. § 1331 (West 1993) and original jurisdiction pursuant to 28

US.C.A. § 1338 (West Supp. 2003). Because multiple defendants, some of

whom were competitors of Farrell, were dismissed before the Lanham

Act claim was disposed of by the district court, the fact that Farrell did

not state a claim under the Lanham Act against Monsen, standing alone,

does not dictate a finding that the Lanham Act claim was a sham when

filed.

preparation,”> and the court "was already familiar with the

facts and issues." (J.A. at 168.) Therefore, the court

App. A-7

continued, "dismissal at that late date therefore would not

have been fair to the parties, and also would not have been

an efficient use of judicial resources." (J.A. at 168.)

The district court’s decision to retain jurisdiction over

the state law claims was not an abuse of discretion. The

district court followed the procedure outlined in Shanaghan,

taking into consideration the number of state law claims

remaining as well as the length of time the parties had

already spent preparing for trial. The district court also

appropriately considered its familiarity with the parties and

issues as a factor favoring retention of the state law claims.

The Lanham Act claim was not disposed of until the eve of

trial, almost eight months after the complaint was filed, and

the remaining state law claims, although numerous, had

been developed and refined throughout the pretrial period.

The district court deserves "wide latitude" in making its

determination under § 1367, see Shanaghan, 58 F.3d at 110,

and did not abuse that discretion by retaining jurisdiction. .

Furthermore, we would be remiss if we failed to note the

curious procedural posture of this appeal. Typically in

supplemental jurisdiction cases, the plaintiff is complaining

because the district court failed to retain his supplemental

state law claims. Here, Farrell, the plaintiff, is complaining

because the district court in which he filed his federal and

state law claims used its discretion to retain the state law

claims after dismissing the federal claim. Farrell now claims

that he used the Lanham Act claims as a "hook" with which

to bring the state law claims under federal jurisdiction.

Under these circumstances, we cannot help but view

Farrell’s post-trial actions as those of a somewhat sore loser

who is upset that his chosen forum rendered an unfavorable

verdict.

5For example, the parties had filed numerous motions, appeared four

times before the district court and numerous times before the magistrate

judge, completed discovery and filed witness lists with the court by the

time the Lanham Act claim was dismissed.

¢Although the trial did not commence until June 11, 2002, it was

scheduled to begin in April 2002, but was stayed so that Farrell could

App. A-8

attempt to serve notice on one of the co-defendants.

Given the district court’s careful consideration of the

factors listed in Shanaghan, and the wide latitude the district

court possesses when acting under § 1367, we cannot say

that the district court abused its discretion in choosing to

retain the state law claims after dismissing the Lanham Act

claim.”

The Counterclaims

Farrell’s next contention is that the district court erred in

finding that Monsen’s counterclaims were compulsory

within the meaning of Federal Rule of Civil Procedure 13(a).

That rule requires a party to state "as a counterclaim any

claim which at the time of serving the pleading the pleader

has against any opposing party, if it arises out of the

transaction or occurrence that is the subject matter of the

opposing party’s claim." Fed. R. Civ. P. 13(a). If a

counterclaim is compulsory, a district court requires no

independent jurisdictional basis to entertain it. Farrell

argues that Monsen’s counterclaims were not compulsory

and, because there was no independent jurisdictional basis

for them, those claims should have been dismissed.

We review a district court's finding that a counterclaim

is compulsory de novo. Painter v. Harvey, 863 F.2d 329, 331

(4th Cir. 1988). In Sue & Sam Mfg. Co. v. B-L-S Const. Co., 538

F.2d 1048, 1051- 1053 (4th Cir. 1976), we identified four

inquiries that help in determining whether a counterclaim is

compulsory: (1) Are the issues of fact and law raised in the

claim and counterclaim largely the same? (2) Would res

judicata bar a subsequent suit on the party's counterclaim,

absent the compulsory counterclaim rule? (3) Will

substantially the same evidence support or refute the claim

as well as the counterclaim? and (4) Is there any logical

relationship between the claim and counterclaim? "A court

need not answer all these questions in the affirmative for the

counterclaim to be compulsory." Painter, 863 F.2d at 331.

Instead, the test works "less like a litmus, more [like] a

Bee re an ah

fst

App. A-9

guideline." Id. Of course, the "underlying thread" to each

inquiry is "evidentiary similarity," and "where . . . the same

evidence will support or refute both the claim and

counterclaim, the counterclaim will almost always be

compulsory." Id. at 331-332.

7Because we find that the district court did not abuse its discretion in

retaining the state law claims, we offer no opinion as to whether the

district court also possessed diversity jurisdiction under 28 U.S.C.A. §

1332 (West 1993 & Supp. 2003).

With this framework in mind, we turn to the instant

case. The district court, in reviewing Farrell’s motion to

dismiss the counterclaims, determined that each inquiry

weighed in favor of finding that the claims are compulsory.

We agree. The key inquiry, as we made clear in Painter, is

the evidentiary similarity of the claims. Here, Monsen’s

counterclaims necessarily involve the same evidence as

Farrell’s original claims. Monsen is alleging that Farrell

performed poor work on his automobile. Farrell is suing

Monsen for statements made in response to that work. The

evidence involving both claims would necessarily center on

the customization work performed by Farrell. Cf Albright v.

Gates, 362 F.2d 928, 929 (9th Cir. 1966) (holding that a

counterclaim for fraud was compulsory to a claim for

slander because there was "sufficient identity or overlapping

of the events of the factual background").

There is a logical relationship between the claims

because they "essentially ar[o]se from the souring of [the

parties’] business relationship." Banner Indus. of N.Y., Inc. v.

Sansom, 830 F.Supp. 325, 328 (S.D. W. Va. 1993) (finding a

counterclaim for breach of contract and fraud to be

compulsory to a claim of defamation). The issues of fact and

law are similar because "essentially the same burden" would

exist in the breach of contract and defamation claims. Sun

Shipbuilding & Dry Dock Co. v. Virginia Elec. & Power Co., 69

F.R.D. 395, 397 (E.D. Pa. 1975) (seminal case finding that

counterclaims for breach of contract are compulsory to

App. A-10

claims of defamation).

Because we have stated that evidentiary similarity is the

most important inquiry, and because there is both

evidentiary similarity and a logical relationship between

Farrell’s original claims and Monsen’s counterclaims, we

find that the district court was correct in holding that

Monsen’s counterclaims were compulsory within the

meaning of Rule 13(a). Likewise, we find no error in the

district court’s reasoned analysis of the res judicata and

overlap-of-facts-and-issues inquiries.

Farrell argues in the alternative that Monsen’s

counterclaims are time barred. It is undisputed that the

invoice for Monsen’s RX-7 is dated December 1998, and that

the work was completed on Monsen’s car by May of 1999.

Farrell filed his complaint in July 2001, more than two years

after the alleged breach of contract and fraud. The district

court recognized that Monsen’s counterclaims were filed

more than two years after the claims accrued but submitted

to the jury the question of whether application of the

discovery rule made Monsen’s counterclaims timely.

We review the district court's determination and

application of state law de novo. Salve Regina Coll. v. Russell,

499 U.S. 225 (1991). The statute of limitations for fraud and

violations of the VCPA is two years.§ Va. Code Ann. § 59.1-

204.1 (Michie 2001). Virginia law generally states that

actions accrue at the time of injury, not the time of

discovery. Va. Code Ann. § 8.01-230 (Michie 2000). An

exception exists for actions in fraud;? such claims accrue

when the fraud is discovered or when it should have been

discovered by the exercise of due diligence. Va. Code Ann. §

8.01-249.1 (Michie 2000). The question of whether a party

used due diligence to discover the fraud "must be

ascertained by an examination of the facts and

circumstances unique to each case." STB Mktg. Corp. v.

Zolfaghari, 393 S.E.2d 394, 397 (Va. 1990). The district court

did not err in allowing the jury to determine whether

Monsen had used due diligence to find that Farrell literally

App. A-11

had switched his engine for another. While it is true that

Monsen was displeased with Farrell’s work from the time he

received the car, Monsen had no reason to suspect that his

engine had been replaced. Monsen was diligent and

continued to have the car inspected by other mechanics.

Monsen did not sit on his rights for two years but kept

searching for answers to his car problems until September

2000, when KD Rotary for the first time found that Monsen’s

engine had been replaced with Ed Taylor’s. The district

court correctly ascertained Virginia law and did not err in

applying the discovery rule.

Attorney's Fees

Farrell also disputes the district court’s award of

attorney's fees to Monsen’s two attorneys,!° arguing both

that Monsen failed to introduce evidence that the fees

charged were reasonable, and that the award violated the

Virginia Code. We review a district court's award of

attorney’s fees for abuse of discretion. Am. Reliable Ins. Co. v.

Stillwell, 336 F.3d 311, 320 (4th Cir. 2003). Because the district

court granted fees pursuant to a Virginia statute, we look

to Virginia’s standards for determining if the fee award is

reasonable.

8The breach of contract counterclaim was timely because Virginia’s

statute of limitations for breaches of contract is five years. Va. Code Ann.

§ 8.01-246.2 (Michie 2000)

9The VCPA claim is for fraudulent misrepresentation anc thus also

covered by this narrow exception. Va. Code Ann. § 59.1-200(A)(2)(Michie

2001).

WMonsen’s counsel was acting pro hac vice, and the district court rules

require local counsel be retained in those situations. E.D. Va. Local R.

83.1(D).

11The VCPA authorizes an award of attorney’s fees to prevailing parties.

Va. Code Ann. § 59.1-204(B) (Michie 2001).

In Virginia, counsel must "establish, as an element of the

attorney’s prima facie case, that the fees charged . . . are

reasonable." Seyfarth, Shaw, Fairweather & Geraldson v. Lake

Fairfax Seven Ltd., 480 S.E.2d 471, 473 (Va. 1997). When

App. A-12

determining if the party has met that burden, "the fact finder

should consider such circumstances as the time consumed,

the effort expended, the nature of the services rendered, and

other attending circumstances." Mullins v. Richlands Nat'l

Bank, 403 S.E.2d 334, 335 (Va. 1991). A court should "weigh

the testimony of attorneys as to the value of the services, by

reference to their nature, the time occupied in their

performance, and other attending circumstances, and by

applying to it their own experience and knowledge of the

character of such services." Holmes v. LG Marion Corp., 521

S.E.2d 528, 533 (Va. 1999) (quoting Beale v. King, 132 S.E.2d.

476, 478-79 (Va. 1963)). Expert testimony regarding the

reasonableness of the fees is not required in every case. See

Tazewell Oil Co. v. United Va. Bank, 413 S.E.2d 611 (Va. 1992)

(holding affidavit and billing records sufficient); Seyfarth,

Shaw, 480 S.E.2d at 473 (holding testimony regarding

complexity of the work sufficient).

Monsen’s counsel submitted detailed billing records and

testified as to both attorneys’ billing practices. The district

court carefully reviewed the records, and rejected almost

one-third of the fees as duplicative or unrelated to the VCPA

claim. The district court also relied on its own experience,

noting Monsen’s chief counsel possessed “apparent trial

experience." (J.A. at 185.) Regarding the reasonableness of

the rate charged by Monsen’s local counsel, the district court

found the rate well within "the rates charged for local

counsel services in the metropolitan District of Columbia

area." (J.A. at 185-186.) The district court did not abuse its

discretion in deciding to award attorney's fees because it

carefully followed the dictates of the Virginia Supreme

Court and conducted a detailed analysis of the billing

records before determining that the rates charged were

reasonable.

Farrell also argues that the award violates the Virginia

Code because the Code prohibits an award of fees to more

than one attorney. Section 17.1-625 states, "fajlthough the

party recovering may have had more than one attorney,

App. A-13

only the fees of one shall be taxed in the same court." Va.

Code Ann. § 17.1-625 (Michie 2003). Virginia courts have yet

to rule on the meaning of this section, but we believe that,

assuming arguendo that the section prohibits more than one

attorney from receiving a fee award, the district court

followed the legislature’s intent in this action. The district

court removed all of the duplicative fees from the lodestar

when calculating the award. Thus, by its actions, the district

court was, in fact, ensuring that only one attorney’s worth of

work was being credited in the fee award. Because the

district court followed the clear intent of the Virginia Code,

we do not find the award of attorney’s fees to be an abuse of

discretion.

II. ;

For the foregoing reasons, the judgment of the distric

court is

AFFIRMED.

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wh alia aioe

App. B-1

Appendix B — Memorandum and Order of the United

States District Court for the Eastern District of

Virginia, Alexandria Division, Dated and Entered

September 5, 2002

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Alexandria Division

PETER FARRELL SUPERCARS,

INC., et al.

Plaintiffs,

DAVID C. PENNER, et al.

Defendants.

Civil Action No. 01-1073-A

[ENTERED: SEPTEMBER 5, 2002]

ORDER

For the reasons stated in the accompanying Memorandum

Opinion, it is hereby ORDERED that:

1) Plaintiff's Rule 59 Motion is DENIED;

2) the June 14, 2002, Judgment is hereby AMENDED to

reflect that Peter Farrell is not liable in his individual

capacity for the $10,000 awarded by the jury for Breach of

Contract; and

2) the Clerk of the Court shall forward copies of this Order

and the accompanying Memorandum Opinion to all counsel

of record. ,

App. B-2

September 5th , 2002

Alexandria, Virginia

UNITED STATES DISTRICT COURT JUDGE

TNs et A RSL nk PS)

12; rape sa Bet aha OT 2 tala AAU a ear Sk ACHE

‘a

App. B-3

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Alexandria Division

PETER FARRELL SUPERCARS, INC.), et al.

Plaintiffs,

DAVID C. PENNER, et al.

Defendants.

Civil Action No. 01-1073-A

[ENTERED: SEPTEMBER 5, 2002]

MEMORANDUM OPINION

This matter is before the Court on Plaintiffs' Rule 59

Motion.

I. Background

Plaintiffs Peter Farrell Supercars, Inc. ("PFS") and Peter

Farrell ("Farrell") (collectively "Plaintiffs") filed suit against

Defendant Gordon Monsen ("Monsen") and several other

codefendants in this Court on July 9, 2001.

The dispute between Plaintiffs and Monsen arose when

Monsen published a series of statements on an internet

message board stemming from his dissatisfaction with work

performed on his Mazda RX-7 automobile by Plaintiffs.

Specifically, Monsen stated on March 7, 2001, that "there is

no such thing as a 'pfs pmc.' It is an lefi systems pms'

(programmatic management system) that Farrell markets for

them on a non-exclusive basis." (Compl. 1 27.) Further, on

June 1, 2001, Monsen stated that

"whoever is considering peter feral talk to any of the

many people that peter has mistreated and ripped off by

selling them retitled out-of-state cars that anything could

have happened to and virginia still gives a good clean title

for, or charging for work not done as expected or charging

for new parts when they were used ... on and on ... (Compl.

App. B-4

9t 28.)

Plaintiffs! Complaint included the following counts: (I)

Commercial Defamation / Trade Disparagement; (II)

Defamation -per se; (III) Defamation per quod; (IV) Insulting

Words; (V) Civil Assault; (VI) Civil Conspiracy; (VI)

Tortious Interference with Existing Contractual or Business

Relationships; and (VIII) Tortious Interference with

Prospective Contractual or Business Relationships.

In conjunction with his Answer to Plaintiffs’ Complaint,

Monsen filed the following counterclaims: (I) breach of

contract; (II) fraud; (III) abuse of process; and (IV) violation

of the Virginia Consumer Protection Act (the "VCPA").

Plaintiffs' initial motion to dismiss these counterclaims was

referred to Judge Lee, who dismissed it without prejudice

on April 4, 2002, due to its close proximity to the initial trial

date of April 8. On April 8, the Court continued the trial

date until June 11, 2002. Oral argument regarding Monsen's

motion to dismiss the Complaint and motion to amend

counterclaims was heard on April 19. On April 25, the Court

granted Monsenrs Motion to Amend Counterclaims and

denied Plaintiffs’ Motion to Dismiss [2] Counterclaims

without prejudice pending Monsen's amendment. It also

dismissed Count I of the Complaint with prejudice pursuant

to Monsen's Motion to Dismiss, and further dismissed

Counts IV, VII, and VIII without prejudice pursuant to the

agreement of the parties.

In response to Plaintiffs' motion to dismiss the amended

counterclaims, the Court dismissed Monsen's counterclaim

for abuse of process without prejudice, but allowed the

remainder of his counterclaims to be submitted to the jury.

The Court also granted Plaintiffs' motion for nonsuit as to

Duff.

On June 14, 2002, following trial and deliberations, the

jury found in favor of Monsen on all aspects of the

complaint and counterclaims, and awarded him damages

totaling $35,000 ($10,000 for breach of contract, $5,000 for

fraud, $5,000 in punitive damages, and $15,000 for violation

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App. B-5

of the Virginia Consumer Protection Act (""VCPA")). With

regard to the statute of limitations issue, the jury found that

Monsen should not reasonably have been aware of

Plaintiffs' fraud until September 20, 2002, thereby negating

Plaintiffs' argument that Monsen's fraud and VCPA claims

were barred by the statute of limitations. The parties are

now before the Court on Plaintiffs' Rule 59 Motion.

II. Standard of Review

Rule 59 of the Federal Rules of Civil Procedure [3]

provides, in pertinent part, as follows: "A new trial may be

granted to all or any of the parties and on all or part of the

issues ... for any of the reasons for which new trials have

heretofore been granted in actions at law in the courts of the

United States." Fed. R. Civ. P. 59(a). Generally speaking,

new trials are ordered if "(1) the verdict is against the clear

weight of the evidence, or (2) is based upon evidence which

is false, or (3) will result in a miscarriage of justice, even

though there may be substantial evidence which would

prevent direction of a verdict." See Cline v. Wal-Mart

Stores, Inc., 144 F.3d 294, 301 (4th Cir. 1998) (quoting Atlas

Food Systems and Serv., Inc. v. Crane Nat'l Vendors, Inc., 99

F.3d 587, 594 (4th Cir. 1996)). The first two prongs of the

standard apply to the review of "jury determinations of

factual matters such as liability on a cause of action, liability

for compensatory and punitive damages, and the amount of

compensatory damages." Atlas Food, 99 F.3d at 594.

III. Analysis

Here, Plaintiffs contend that the entire case should be

dismissed because the Court lacked subject matter

jurisdiction following the dismissal of the Lanham Act

claim. In the alternative, Plaintiffs contend that a new trial is

warranted because, inter alia, (1) there was no basis in law

or fact for the jury's verdict against Farrell in his individual

capacity; [4] (2) the Court should not have permitted

App. B-o

Monsen to amend his counterclaims; (3) the Court erred in

admitting certain evidence; (4) the jury's verdict evinces

confusion with respect to the Court's response to a question

regarding damages; (5) Mr. Barninger was impermissibly

allowed to offer opinion testimony; and (6) the Court

allegedly misread a portion of one of the instructions given

to the jury. The Court will address each issue in turn.

2. Subject Matter Jurisdiction

Plaintiffs' argument that the Court lacked subject matter

jurisdiction over the claims presented at trial rests on their

assumption that the Court should have dismissed those

claims following its dismissal of Plaintiffs' claim arising

under the Lanham Act, 15 U.S.C. § 1125 et seg. For the

following reasons, the he Court rejects this argument.

As a preliminary matter, the Court, once it determines

that jurisdiction is appropriate pursuant to 28 U.S.C. § 1331,

must determine whether it has pendent jurisdiction over the

remaining state claims. This involves a three-step analysis:

(1) the Court must first confirm "the existence of a

substantial federal claim"; (2) it must then analyze the

relationship between state and federal claims in order to

determine whether both sets of claims arise from a common

nucleus of operative fact; (3) finally, the Court, in its

discretion, must decide whether it is appropriate to hear the

state claims. Nicol v. Imagematrix, Inc., 767 F. Supp. 744, 747

(E.D. Va. 1991) (Ellis, J.). Having reviewed the facts of this

case in light of the applicable law, the Court finds that (1)

there was a substantial federal claim; (2) both the state and

federal claims arose from the same common nucleus of

operative fact, as all claims were premised on the business

transactions between the parties and the subsequent internet

postings by Defendant which resulted from his

dissatisfaction with the results of those transactions. Cf,

Miller v. Asensio, 101 F. Supp. 2d 395, 403 (D.S.C. 2000)

(common nucleus of operative fact existed for purposes of

personal pendent jurisdiction where all claims arose from

ee]

App. B-7

publication on internet website); and (3) it is appropriate to

entertain the state claims in this case.

1 Plaintiffs make a number of other arguments as well,

though the Court finds it necessary to respond only to those

listed above.

Next, the Court notes that the dismissal of the Lanham

Act claim did not deprive it of subject matter jurisdiction, as

federal district courts have "wide latitude in determining

whether or not to retain jurisdiction over state claims when

all federal claims have been extinguished." Shanaghan v.

Cahill, 58 F.3d 106, 110 (4th Cir. 1995). Factors relevant to a

courtfs decision with respect to whether to retain

jurisdiction under such circumstances "are convenience and

fairness to the parties, the existence of any underlying issues

of federal policy, comity, and considerations of judicial

economy." Id. "The doctrine of supplemental jurisdiction

‘thus is a doctrine of flexibility, designed to allow courts to

deal with cases involving pendent claims in the manner that

most sensibly accommodates a range of concerns and

values." Id. (quoting Carnegie-Mellon Univ. v. Cohill, 484

U.S. 343, 350 (1988)).

Upon consideration of the above-mentioned factors as

they apply to this case, the Court holds that retention of its

jurisdiction following the dismissal of the Lanham Act claim

was proper. At that point in time, the parties had completed

substantial pre-trial preparation and made appearances

before the Court, which was already familiar with the facts

and issues presented by this case. Dismissal at that late date

therefore would not have been fair to the parties, and also

would not have been an efficient use of judicial resources.

Furthermore, the exercise of jurisdiction over

Defendant's counterclaims was appropriate as well. As

another member of this Court has noted, the following

factors must be examined in determining whether the

requirements of Rule 13(a) are satisfied: "(i) whether issues

of fact and law raised by the claim and counterclaim are

largely the same; (ii) whether substantially the same

App. B-8

evidence bears on both claims; (iii) whether any logical

relationship exists between the two claims." [7] Berger.y.

City of North Miami, 820 F. Supp. 989, 992-93 (E.D. Va.

1993) (Ellis, J.) (citing Whigham-v. Beneficial Finance Co.,

599 F.2d 1322, 1323 (4th Cir. 1979) )2 Upon consideration of

the relevant factors, the Court concludes that Defendant's

counterclaims unquestionably arose out of the same

transaction or occurrence and therefore were compulsory

within the meaning of Federal Rule of Civil Procedure 13.

Accordingly, the Court had ancillary jurisdiction over such

claims. See Painter v. Harvey, 863 F.2d 329, 331 (4th Cir.

1988).

Finally, as Defendant correctly notes, the Court also had

diversity jurisdiction over the claims litigated at trial

pursuant to 28 U.S.C. § 1332. As conceded at oral argument,

both Plaintiffs are residents of Virginia and Defendant is a

resident of Pennsylvania. In addition, the state claims

contained in the complaint satisfied the amount in

controversy requirement at the time they were filed.

Contrary to Plaintiffs' assertions at oral argument, the fact

that diversity jurisdiction was not affirmatively pled does

not prevent the Court from recognizing its obvious

existence. See, e.g., Aguirre v. Automotive ji

>» Other courts have articulated this as a four-part test:

"(1) Are the issues Of fact and law raised by the claim and

counterclaim largely the same? (2) Would res judicata bar a

subsequent suit on defendant's claim absent the compulsory

counterclaim rule? (3) Will substantially the same evidence

support or reTute plaintiff's claim as well as defendant's

counterclaim? (4) Is there any logical relation between the

claim and the counterclaim?(4) Is there any logical relation

between the claim and the counterclaim?" W.O. Laughlin v.

Edwards Bus. Machs., Inc., 155 F.R.D. 543, 545 (W.D. Va.

1994). Regardless of which version of the test is used, the

Court would still reach the same conclusion with respect to

this issue. [8] Teamsters, 633 F.2d 168, 174 (9th Cir. 1980)

(holding that "[i]f facts giving the court jurisdiction are set

App. B-9

forth in the complaint, the provision conferring jurisdiction

need not be specifically pleaded") (quoting Williams v.

United States, 405 F.2d 951, 954 (9th Cir. 1969)); Charles A.

Wright and Arthur R. Miller, 5 Federal Practice & Procedure

§ 1214 (noting decisions which hold that "the absence of a

complete allegation of jurisdiction does not even require

amendment of the complaint when the court readily can

recognize the existence of federal question or diversity of

citizenship and the requisite amount in controversy"). The

Court therefore holds that 28 U.S.C. § 1332 provides an

alternative basis for jurisdiction in this case.

2. Verdict Against Farrell in his Individual Capacity

Plaintiffs' first argument in favor of a new trial is

premised on their assertion that Farrell cannot be held liable

in his individual capacity for acts performed by PFS. The

Court rejects this argument. It is a well-established principle

of Virginia law that "[corporate officers may be liable jointly

and severally with their corporation for obligations arising

out of tortious conduct of the officers that subject the

corporation to liability." Sit-Set, A.G. v. Universal Jet

Exchange, Inc., '747 F.2d 921, 929 (4th Cir. 1984). See also

Miller v. Quarles, 242 Va. 343, 347, 410 S.E.2d 639, 641 (1991)

[9] (holding that "an agent has a tort liability for injuries to a

third party resulting from the agent's negligent act while

acting within the scope of his employment by the

principal"); Airlines Reporting Corp. v. Pishvaian, 155 F.

Supp. 2d 659, 666 (E.D. Va. 2001) (Ellis, J.) ("Under Virginia

law, an officer or director of a corporation is liable only for

those intentional torts he or she commits or authorizes on

behalf of the corporation.")(citing cases). This is true

regardless of whether the tort claim arises under common

law or statute. See PTS Corp. v. Buckman, 263 Va. 613, 622,

961 S.E.2d 718, 723 (2002) (noting the Supreme Court of

Virginia's prior holdings regarding personal liability for the

tortious acts of corporate officers, and holding that "[ilt is

inconsequential that the cause of action is based on statutory

App. B-10

rather than common law" in a case in which the underlying

tort is one which existed at,common law).

The issue of Farrell's individual liability was submitted

to the jury, which unequivocally found in Defendant's favor

with respect to this issue. Furthermore, the jury awarded

punitive damages, thereby indicating its apparent belief that

Farrell's actions were willfully fraudulent. Accordingly, the

Court finds that the verdicts against Farrell in his individual

capacity for the claims involving fraud were proper.

However, the Court does not believe that a similar rule

applies to claims for breach of contract in the absence of a

[10] finding that the corporate veil should be pierced. See

DiGennaro v. Duvall, Harrigan, Hale & Downey, Law No.

127201, 1994 WL 1031060, at *1 (Va. Cir. Ct. 1994) ("It is clear

under general principles of agency law that an agent who

contracts on behalf of a disclosed principal, in the absence of

an express agreement to the contrary, is not personally

bound on the contract.") (citing 1A Michie's Jurisprudence

Agency 71 (1993)). Rather, under Virginia law, "in the

absence of an agreement to become personally liable on the

contract, no liability attaches even when the agent exceeds

his authority to act." Id. The judgment will therefore be

amended to reflect that only PFS, and not Farrell, is liable

for the damages assessed for breach of contract. In

accordance with the applicable law and the verdict of the

jury, Farrell remains personally liable on all other counts.

= Amendment of Counterclaims

Plaintiffs next contend that the Court erred in allowing

Defendant to amend his counterclaims. The Court heard

Plaintiffs' arguments and ruled on this issue in its April 25,

2002, Memorandum Opinion and Order. It sees no basis for

revisiting its prior ruling, and therefore rejects Plaintiffs'

arguments as to this issue. '

4. Admission of Evidence

Plaintiffs next contend that the Court should reconsider

App. B-11

its determination, made during trial, regarding the

admissibility of various internet postings. As the Court

stated at the time, these postings were not admitted for the

truth of the matter asserted therein. The Court instructed the

jury accordingly, and does not believe that the potential

prejudice of the evidence substantially outweighed its

probative value under Federal Rule of Evidence 403.

Accordingly, Plaintiffs' argument fails with respect to this

issue.

9. __The__Court's__Response_to the Jury's Question

Regarding Damages

Turning next to the issue of the Court's response to the

jury's question regarding damages, Plaintiffs contend that

the Court's response confused the jury and led it to award

damages under theories of both breach of contract and

fraud. The Court does not believe that the jury was in any

way confused by its response, and further notes, as it did at

trial, that Virginia law clearly allows for such recovery.

Hitachi Credit Am. Corp. v. Signet Bank, 166 F.3d 614, 628

(4th Cir. 1999) ("Virginia law recognizes the separate tort of

fraud, even where the parties have agreed to a contract, and

a plaintiff may recover damages for both fraud and breach

of contract.") (internal citation and quotation omitted).

Plaintiffs' argument [12] as to this issue is therefore rejected.

6. __ Admission of Opinion Testimony

Plaintiffs next contend that the Court erred in permitting

Mr. Barninger to offer opinion testimony without first

conducting a hearing pursuant to Daubert v. Merrell Dow

Pharmaceuticals, Inc., 509 U.S. S79 (1993), and its progeny.

However, Plaintiffs failed to timely object to Mr. Barninger's

testimony at trial. Accordingly, their objection was waived.

See, e.g., Macsenti v. Becker, 237 F.3d 1223, 1233-34 (10th

Cir. 2001), cert. denied, 533 U.S. 950 (2001) (holding that

party waived Daubert objection by failing to raise it until

after the close of the evidence); Questar Pipeline Co. v.

App. B-12

Grynberg, 201 F.3d 1277, 1289-90 (10th Cir. 2000) (holding

that a "party may waive the right to object to evidence on

Kumho/ Daubert grounds by failing to make its objection in

a timely manner"); Virginia Vermiculite, Ltd. v. W.R. Grace

& Co., 98 F. Supp. 2d 729, 731 n.1 (W.D. Va. 2000) ("A

pretrial request for a Daubert hearing must be made in a

timely fashion or the objection is waived."') (quoting

Webster v. Fulton County, 85 F. Supp. 2d 1375, 1377 (N.D.

Ga. 2000)). 7. Challenge to Jury Instruction

Finally, Plaintiffs contend that a new trial is justified by

its allegation that the Court misread a small [13] portion of

its instruction to the jury regarding Defendant's fraud claim.

As discussed above, the Court previously allowed

Defendant to amend his pleadings in this case. However, it

lacks the ability to extend the same courtesy to Plaintiffs

with respect to this issue.

As Rule 59 states, "[a)ny motion for a new trial shall be

filed no later than 10 days after entry of the judgment." Fed.

R. Civ. P. 59(b). Although Plaintiffs' motion was timely filed,

they did not raise the issue of the jury instruction until after

the ten day time limit passed, and the Federal Rules of Civil

Procedure do not permit the Court to enlarge the time for

raising such arguments. See Weitz v. Lovelace Health

System, Inc., 214 F.3d 1175, 1179 (10th Cir. 2000) ("Rule 59

provides no exceptions to the ten-day rule. Thus, the district

court lacked authority to grant Appellant's motion for

additional time to file her Rule 59(e) motion.")

Furthermore, even if the Court were able to enlarge the

time period in which Plaintiffs may raise such issues, it

nevertheless would reject Plaintiffs' arguments in this case.

That is, even if the Court inadvertently misread the

instruction, Plaintiffs failed to timely object to the

instruction at trial, and therefore waived the objection. As

Defendant correctly notes, Rule 51 states as follows: "No

party may assign as error the giving or the failure to give an

instruction unless that [14] party objects thereto before the

jury retires to consider its verdict, stating distinctly the

App. B-13

matter objected to and the grounds of the objection." Fed. R.

Civ. P. 51.

Furthermore, the misreading of a jury instruction,

particularly when not objected to at trial, cannot serve as the

basis for a new trial. In Alpha Display Paging, Inc. v.

Motorola Communications & Elec., Inc., 867 F.2d 1168 (8th

Cir. 1989), "[t)he district court twice mistakenly read

‘defendant’ where "plaintiff! should have been read" in the

course of instructing the jury with respect to a fraud claim.

Id. at 1170. As in this case, the party challenging the

instruction failed to object at trial. Id. On appeal, the Eighth

Circuit held that "the error in a jury instruction not properly

objected to is waived unless a miscarriage of justice would

otherwise result." Id. It then concluded that "the misreading

of the jury instruction was not so grave that a miscarriage of

justice resulted," and further noted that "[t]he jury was well

aware of the alignment of parties in this case and could not

have been confused by the misreading." id.

Finally, the Court notes that Fourth Circuit law holds

that "[i]nstructions are adequate if 'construed as a whole,

and in light of the whole record, [they] adequately [inform]

the jury of the controlling legal principles without

misleading or confusing the jury to the prejudice of the

objecting party. South Atlantic I imited P'ship of Tennessee

v. Riese, 284 F.3d 518, 530 (4th Cir. 2002) (quoting Spell v.

McDaniel., 824 F.2d 1380, 1395 (4th Cir. 1987)). Furthermore,

"[e]ven if the instructions are flawed, there can be no

reversal unless the error seriously prejudiced the

challenging party's case." Id. Such cannot be said here. As in

Alpha Display, the Court has no doubt that the jury

understood the alignment of the parties in this case.

Furthermore, the jury was given written copies of the

instructions to utilize during its deliberations, and Plaintiffs

make no claim that the written version of the instruction

was flawed. Accordingly, the Court sees no grounds for

awarding a new trial with respect to this issue. .

App. B-14

IV. Conclusion

For the foregoing reasons, Plaintiffs' Rule 59 Motion will

be denied. The judgment will be amended to reflect that

only PFS is liable on Defendant's breach of contract claim.

An appropriate Order will issue.

September 5th, 2002

Alexandria, Virginia

UNITED STATES DISTRICT COURT JUDGE

App. C-1

Appendix C — Memorandum and Order of the United

States District Court for the Eastern District of

Virginia, Alexandria Division, Dated and Entered

April 25, 2002.

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Alexandria Division

PETER FARRELL SUPERCARS,

INC., et al.

Plaintiffs,

V. Civil Action No. 01-1073-A

DAVID C. PENNER, et al,

Defendants.

[ENTERED: APRIL 25, 2002]

ORDER

For the reascms stated in the accompanying

Memorandum Opinion, it ic hereby ORDERED that:

1) Defendant's Motion to Amend Counterclaims is

GRANTED;

2) Plaintiffs’ Motion to Diss ss Counterclaims is

DENIED without prejudice; |

3) Counts IV, VII, and VIII of the Complaint are

DISMISSED without prejudice as to Defendant Monsen

pursuant to the agreement of the parties;

4) Defendant Monsen's Motion to Dismiss the remaining

counts of the Complaint will be GRANTED as to Count I,

and DENTED as to all other Counts; and

5) the Clerk of the Court shall forward copies of this

Order and the accompanying Memorandum Opinion to all

counsel of record.

App. C-2

April 25, 2002

Alexandria, Virginia

UNITED STATES DISTRICT COURT JUDGE

App. C-3

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Alexandria Division

PETER FARRELL SUPERCARS, INC., et al,

Plaintiffs,

DAVID C. PENNER, et al.

Defendants.

Civil Action No. 01-1073-A

[ENTERED: APRIL 25, 2002]

MEMORANDUM OPINION

This matter is before the Court on Defendant Gordon

Monsen's Motion to Amend Counterclaims and Motion to

Dismiss.

1. Background

Plaintiffs Peter Farrell Supercars, Inc. ('PFS") and Peter

Farrell ("Farrell") (collectively "Plaintiffs") filed suit against

Defendant Gordon Monsen ("Defendant")and several other

co-defendants in this Court on July 9, 2001.

The dispute between Plaintiffs and Defendant arose

when Defendant published a series of statements on an

internet message board stemming from his dissatisfaction

with work performed on his Mazda RX-7 automobile by

Plaintiffs. Specifically, Defendant stated on March 7, 2001,

that "there is no such thing as a 'pfs pmc.' It is an ‘efi systems

pms' (programmatic management system) that Farrell

markets for them on a non-exclusive basis." (Compl. 1 27.)

Further, on June 1, 2001, Defendant stated *hat

"whoever is considering peter feral taik to any of the

many people that peter has mistreated and ripped off by

selling them retitled out-of-state cars that anything could

have happened to and virginia still gives a good clean title

for, or charging for work not done as expected or charging

for new parts when they were used ... on and on.. -."

(Compl. 5[ 28.)

The Complaint includes the following counts: (I)

App. C-4

Commercial Defamation / Trade Disparagement; (II)

Defamation per -se; (III) Defamation per auod; (IV) Insulting

Words; (V) Civil Assault; (VI) Civil Conspiracy; (VII)

Tortious Interference with Existing Contractual or Business

Relationships; and (VIII) Tortious Interference with

Prospective Contractual or Business Relationships. Plaintiffs

have voluntarily withdrawn Counts IV (Insulting Words),

VII (Tortious Interference with Existing Contractual or

Business Relationships), and VIII (Tortious Interference with

Prospective Contractual or Business Relationships).

Defendant now seeks dismissal of Counts I (Commercial

Defamation / Trade Disparagement), I] (Defamation per se),

III (Defamation per quod), and VI (Civil Conspiracy)

pursuant to Rule 12(b)(6) of the Federal Rules of Civil

Procedure.

II. Standard of Review

A Rule 12(b)(6) motion to dismiss tests the legal

sufficiency of the complaint and should be granted only if "it

[2] appears beyond doubt that the plaintiff can prove no set

of facts in support of his claim which would entitle him to

relief." Le Sole v. United States, 947 F.2d 1169, 1177 (4th Cir.

1991); Rogers v. Jefferson-Pilot Life Ins. Co., 883 F.2d 324,

325 (4th Cir. 1989). In passing on a motion to dismiss, "'the

allegations of the complaint should be construed favorably

to the pleader." Scheuer v. Rhodes, 416 U.S. 232, 236 (1974).

Moreover, a motion to dismiss must be assessed in light of

Rule 8's liberal pleading standards, which require only "a

short and plain statement of the claim showing that the

pleader is entitled to relief." Fed. R. Civ. P. 8.

III Analysis

A. Defendant's Motion to Amend Counterclaims.

As a preliminary matter, the Court notes that it has the

discretion pursuant to Rule 15(a) of the Federal Rules of

Civil Procedure to grant a party leave to amend its

pleadings, and that such leave "shall be freely given when

justice so requires." Fed. R. Civ. P. 15(a). "The disposition of

a motion to amend is within the sound discretion of the

App. C-5

district court," Davis v. Virginia Commonwealth Univ., 180

F.3d 626, 628 (4th Cir. 1999), and "may be denied when it has

been unduly delayed and when allowing the motion would

prejudice the nonmovant." Lone Star Steakhouse & Saloon,

Inc. v. Alpha of Virginia, Inc., 43 F.3d 922, 941 (4th Cir.

1995).

[3]

Defendant's motion to amend its counterclaims could

undoubtedly have been brought sooner, However, this fact

alone is generally not a sufficient basis for the denial of such

a motion, particularly when there is no clear evidence that

the delay was in any way a result of bad faith on the part of

Defendant. See Charles Alan Wright, Arthur R. Miller, and

Mary Kay Kane, 6 Federal Practice and Procedure S 1488

(stating that "[i]Jn most cases, delay alone is not a sufficient

reason for denying leave"); § See also Foman v. Davis, 371

U.S. 178, 182 (holding that Rule 15(a)'s mandate *that leave

to amend should be freely given when justice requires "is to

be heeded").

Following an analysis of the circumstances of this case,

the Court finds that the interests of justice would be served

by allowing Defendant to amend. The Court further finds

that Plaintiffs will not be prejudiced by this ruling, as the

trial of this matter has been continued until June 11, 2002.

Accordingly, the Court will grant Defendant's Motion to

Amend Counterclaims, and will deny Plaintiffs' Motion to

Dismiss Counterclaims without prejudice- Plaintiffs may, if

they choose, timely file and notice a motion to dismiss the

amended counterclaims.

B. Defendant's Motion to Dismiss

a. Count I

In his motion, Defendant alleges that Count I fails [4]

because the statements made by him do not qualify as

“commercial advertising and promotion," and therefore do

not fall within the scope of 15 U.S.C. § 1125. As Defendant

notes, courts interpreting section 1125 have held that:

App. C-6

In order for representations to constitute

"commercial advertising and promotion" under

Section 43(a)(1)(B), they must be. (1) commercial

speech; (2) by a defendant who is in commercial

competition with plain-tiff; (3) for the purpose of

influencing consumers to buy defendant's goods or

services. While the representations need not be made

in a "classic advertising campaign," but may consist

instead of more informal types of 'promotion," the

representations (4) must be disseminated sufficiently

to the relevant purchasing public to constitute

"advertising" or 'promotion" within that industry.

Gordon & Breach Science Publishers S.A. v. American

Institute of Physics, 859 P. Supp. 1521, 1535-36 (S.D.N.Y.

1994). 'Although this four part test has not been expressly

adopted by the Fourth Circuit, it has been relied upon by

courts within this circuit." Neurotron, Inc. v. American

Assoc. of Electrodiagnostic_Medicine, No. CIV. A.

WMN-00-514, 2001 WL 1805892, at *3 (D. Md. Aug. 13,

2001)(citing Huntingdon Life Sciences, Ing. v. Rokke, 978 F.

Supp. 662, 665 (E.D. Va. 1997) (utilizing standard from

Gordon & Breach)). Defendant contends that the allegations

contained in the Complaint fail to meet the requirements as

set forth in Gordon & Breach. Having carefully reviewed the

Complaint and the arguments of the parties with respect to

this issue, the Court [5] agrees. Defendant is a financial

advisor. (Stipulation of Uncontested Facts at 1.) He therefore

cannot possibly be said to be in commercial competition

with Plaintiffs, who are in the business of repairing and/or

refurbishing automobiles.' The fact that he sought to

discourage others from doing business with Plaintiffs is not

sufficient, standing alone, to satisfy the requirements

necessary to state a claim pursuant to § 1125. The statements

attributed to Defendant were not made by someone in

commercial competition with Plaintiffs, and also cannot be

said to have been disseminated in a manner that constituted

advertising" or "'Promotion" within the relevant industry.

a Ri os ah ig

re ok

ee TT eT I

App. C-7

Indeed, if the Court were to find that Defendant is in

commercial competition with Plaintiffs, then virtually

anyone who conducts regular business transactions with a

competitor could be a potential Lanham Act defendant. The

Court is unwilling to adopt such a broad reading of the Act.

Cf,_Huntingdon_Life- Sciences, 978 F. Supp. at 666-67

(refusing to expand Lanham Act to include groups acting

with no economic motive, who were not direct competitors,

and whose statements could not properly be considered

"advertising and promotion" within the meaning of the

[Note] 1.The Court notes Plaintiffs' argument, made at

the April 19th hearing regarding this motion, that

Defendant had some strange business relationship with one

of Plaintiffs' competitors whereby he was permitted to

essentially barter various items, including car parts and

books, in exchange for services rendered. The existence of

such a relationship, even if assumed for purposes of this

motion, can in no way qualify Defendant as a person "in

commercial competition with plaintiff" as required to state a

claim under the standards set forth in Gordon & Breach and

later adopted in this District by Huntingdon Life Sciences.

[6] Act). Accordingly, the Court holds that Plaintiffs

have failed to state a claim upon which relief may be

granted with respect to Count I of the Complaint.

b. Counts II and III

Defendant challenges Counts II (Defamation Per Se) and

III (Defamation Per Quod) on the basis that the statements

which serve as the bases for these claims "are not provably

false, but instead represent Monsen's opinion with regard to

Farrell's services." (Def.'s Mot. to Dismiss at 7.)

The Court notes at the outset of this analysis that a

plaintiff, in order to state a claim for defamation under

Virginia law, must establish the following: (1) publication

about the plaintiff, (2) an actionable statement, and (3) the

requisite intent. Chapin v, Greve, 787 F. Supp. 557, 562 (E.D.

Va. 1992), aff'd sub norn., Chapin v. Knight-Ridder. Inc., 993

App. C-8

F.2d 1087 (4th Cir. 1993). Whether a statement is actionable

is a matter of law for the Court to decide. Yeagle v.

Collegiate Times, 255 Va. 293, 296, 497 S.E.2d 136, 138 (Va.

1998). To be actionable, a statement must be both false and

defamatory. See, e.a., Philadelphia Newspapers, Inc. v.

Hepps, 475 U.S. 767, 776 (1986). Because the Court must

accept Plaintiff's allegations of factual falsity as true for the

purposes of the motion to dismiss, the decisive issue is

whether the statements are defamatory. See Chapin v.

Greve, 797 F. Supp. at 562.

[7]

Under Virginia law, a statement is defamatory if it

"tends to injure the reputation of the party, to throw

contumely, or to reflect shame and disgrace upon [the party],

or to hold (the party] up as an object of scorn, ridicule or

contempt. Adams v. Lawson, 17 Gratt. 250, 58 Va. 250, 255-

56 (Va. 1867). However, "(w)ords spoken that are merely

vituperative, or insulting, or imputing only disorderly or

immoral conduct, or ignoble habits, propensities or

inclinations, or the want of delicacy, refinement or good

breeding, are not regarded by the common law as

sufficiently substantial to be treated as injuries calling for

redress in damages." Moseley M. Moss, 1850 WL 3029, *3, 47

Va. 534 (Va. 1850). Statements that impute conduct to a

person which tends to injure him in his business or

profession are actionable as defamation per se. Fleming v.

Moore, 221 Va.884, 889, 275 S.E.2d 632, 635 (Va. 1981)

(quotes omitted).

Not all defamatory statements, however, are actionable.

Certain expressions of pure opinion, albeit defamatory, are

not actionable as a matter of law. Chaves v. Johnson, 230 Va.

112, 119, 335 S-E.2d 97, 101-02 (Va. 1985). For a statement of

opinion to be actionable, it must contain provably true or

false factual connotations, see Milkovich v. Lorain Journal

Co., 497

2.The common law recognizes other defamatory words

that are actionable per_se, namely words that impute to a

App. C-9

person the commission of some criminal offense involving moral

turpitude or words alleging that a person is infected with

some contagious disease, which, if true, would exclude the

party from society. Fleming, 221 Va. at 089, S.E.2d at 635. S.

1, 18 (1990); Chapin v. Greve, 787 F. Supp. at 563, and it

must be reasonably interpreted as an assertion of fact. Age

Biospherics, Inc. v. Forbes, Inc., 151 F.3d 180, 184 (4th Cir.

1998); Miikovich, 497 U.S. at 20.

Whether a particular statement is one of fact or opinion

is a question of law for the court. Lapkoff v. Wilks, 969 F.2d

78, 81-82 (4th Cir. 1992). To determine whether the

statement in issue can be reasonably interpreted as an

assertion of fact, the Milkovich court looked to the language

used, ij e, whether it was "loose, figurative or hyperbolic

language which would negate the impression that the

[speaker)" was stating fact, and the context and "general

tenor" of the statement. Biospherics, 151 F.3d at 184; see also

Lapkoff, 969 F.2d at 82 (holding that, "[i]n determining

whether a statement expresses an actual fact about an

individual such that the comment is actionable or whether

the comment is a non-actionable opinion, the court may

consider the type of language used, the meaning of the

statement in context, whether the statement is verifiable,

and the broader social circumstances in which the statement

was made").

Having analyzed the statements made in this case in

light of the foregoing analysis, the Court holds that they

may properly be considered defamatory under Virginia law.

Specifically, the Court holds that Defendant's statement that

Plaintiffs "mistreated and ripped off" customers

"by selling them retitled out-of-state cars that anything

could have happened to and virginia still gives a good

clean title for, or charging for work not done as

; expected or charging for new parts when they were

used... onandon..,.",

contains factual assertions which are provably false.

Accordingly, it is actionable under Virginia law. However,

App. C-10

the Court holds that Defendant's reference to Mr. Farrell as

"feral" is not actionable under Virginia law, as it does not

meet this requirement. The Court reserves judgment with

respect to the March 7, 2001, statement, which the Court

believes must be placed in its proper context before any

ruling may be made with respect to its defamatory nature.

Having ruled on the defamatory nature of the

statements, the Court next turns to the issue of whether

Farrell is a "limited purpose public figure" under Virginia

law such that a higher standard of proof is required in this

case. In order to impose this standard on a plaintiff, Virginia

law requires that a defendant establish that:

(1) the plaintiff had access to channels of effective

communication; (2) the plaintiff voluntarily assumed a

role of special prominence in the public controversy;

(3) the plaintiff sought to influence the resolution or

outcome of the controversy; (4) the controversy existed

prior to the publication of the defamatory statement;

and (5) the plaintiff retained public figure status at the

time of the alleged defamation,

[10] |

Foretich V. Capital Cities / ABC, Inc., 37 F.3d 1541, 1553

(4th Cir. 1994).

Here, Defendant contends that Farrell is a limited use

public figure based on; (1) Farrell's name being mentioned

in articles appearing in leading automobile magazines, as

well as his access to interactive message boards allegedly

used by Defendant; (2) his alleged assumption of a

significant role in the ongoing discussion regarding the

modification of RX-7 automobiles; (3) his alleged attempt to

influence the outcome of some controversy regarding RX-7s

by interjecting himself into the discussion; (4) the fact that

the discussion occurring on the internet pre-dated the

statements alleged in the Complaint; and (5) Farrell's

prominence in the world of RX-7s. (Def.'s Mot. to Dismiss at

10-11.)

Having reviewed the applicable case law, the Court

App. C-11

flatly — Defendant's arguments. The Fourth Circuit has

defined a "public controversy" as "a real dispute, the

outcome of which affects the general public or some

segment of it.'" Blue Ridge BaLik v. Veribanc, Inc., 866 5.2d

681, 688 ri.12 (4th Cir. 1989) (quoting McDowell v.

PaiewonsXy, 769 F.2d 942, 949 (3d Cir. 1985)); see also

Foretich, 37 F.3d at 1554-55. The ongoing discussion

regarding the modification of RX-7s unquestionably fails to

satisfy this definition, as it cannot possibly be said that the

outcome of such a dispute affects even a segment of the

general public. Furthermore, even if Defendant could meet

this definition, Farrell's single posting on the internet, even

when coupled with his appearance in magazine articles,

does not qualify as the assumption of a prominent role in

the controversy. Nor does it indicate an attempt to influence

the outcome of any such controversy. Accordingly, the

Court holds that Farrell is not a limited use public figure.

Finally, the Court turns to the issue of whether

Defendant's statements are privileged under Virginia law.

As the Supreme Court of Virginia has held, "fa)

communication, made in good faith, on a subject matter in

which the person communicating has an interest, or owes a

duty, legal, moral, or social, is qualifiedly privileged if made

to a person having a corresponding interest or duty." Great

Coastal Express, Inc. v. Ellington, 230 Va. 142, 153, 334

S.E.2d 846, 853 (1985). "It is for the court, not the jury, to

determine whether a privilege exists, whether it is qualified

or absolute, and so to instruct -the jury." Id. Here, in light of

the fact that Defendant's statements concern his automobile

(which he believed in good faith Plaintiffs had failed to

properly modify and in which be clearly has an interest) and

were made to others having a corresponding interest, the

Court finds that such a privilege does exist.

The Court notes, however, that a jury may find. that the

privilege is lost if it believes that the words were spoken,

[12] inter alia, with actual malice or through the use of

"language which was intemperate or disproportionate in

App. C-12

strength and violence to the occasion and which was

unnecessarily defamatory of the plaintiff," or if Defendant

made such statements "Without an honest belief in their

truth." id. Therefore, the Court will likely submit the issue to

the jury, which will be instructed in accordance with the

parameters set by the Supreme Court of Virginia in

Great-Coastal Express. See id.

C. Count VI

Defendant challenges Plaintiffs' civil conspiracy claim on

the ground that it fails to specifically describe any actions

taken by Defendant in furtherance of the conspiracy.

Plaintiffs respond that the allegations contained in the

Complaint satisfy Virginia law, which requires only that

they prove "(1) a combination of two or more persons fox

the purpose of willfully and maliciously injuring plaintiff[s]

in (their] business, and (2) resulting damage to plaintiff[s]."

Allen Realty Corp. v. Holbert, 227 Va. 441, 449, 318 S.E.2d

592, 596 (1984).

Having reviewed the Complaint, the CoLirt agrees with

Plaintiffs. As Plaintiffs correctly note, Virginia law requires

that they prove only legal malice, as opposed 'to actual

malice, meaning that they need only prove that Defendant

"acted intentionally, purposely, and without lawful

justification-". Commercial Business Systems, Inc. _v.

BellSouth Services, Inc., [13] 249 Va. 39, 47, 453 S.E.2d 261,

267 (1995). In light of Rule 8's liberal pleading requirements,

the Court concludes that Plaintiffs have clearly established

the elements necessary to state a claim for civil conspiracy in

this case by alleging, inter alia, that Defendant assisted Duff

and Penner in a coordinated effort to attack them. See

Compl. IT 18, 23, & 25. Accordingly, the Court holds that

Plaintiffs have properly stated a claim for civil conspiracy in

Count VI of the Complaint.

IV. Conclusion

For the foregoing reasons, Defendant's Motion to

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demasina ies

App. C-13

Dismiss will be granted as to Count I, and denied as to all

other Counts, An appropriate order shall issue.

April 25th 2002

Alexandria, Virginia

UNITED STATES DISTRICT JUDGE

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App. D-1

Appendix D — Order of the United States Court of

Appeals for the Fourth Circuit Denying Petition for

Rehearing and Rehearing En Banc Dated and Filed

December 30, 2003.

UNITED STATES COURT OF APPEALS

FOR tHE FOURTH CIRCUIT

FILED

December 30, 2003

No. 02-2230; CA-01-0173-A

PETER FARRELL SUPERCARS, INCORPORATED; PETER

FARRELL

Plaintiffs - Appellants

GORDON MONSEN

Defendant - Appellee

and

DAVID C. PENNER; JOHN ROBERT DUFF, JR.; MALLOY |

WOODBRIDGE, LLC;

MALLOY LINCOLN MERCURY, INCORPORATED

Defendants

On Petition for Rehearing and Rehearing En Banc

The appellants’ petition for rehearing and rehearing en

banc or in the alternative, motion to publish opinion under

Local Rule 36(b) was submitted to this Court. As no

member of this Court or the panel requested a poll on the

petition for rehearing en banc, and

As the panel considered the petition for rehearing and is

of the opinion that it should be denied,

IT IS ORDERED that the petition for rehearing and

rehearing en banc or in the alternative, motion to publish

opinion is denied.

Entered for a panel comprised of Judge Niemeyer, Judge

Williams, and Judge Duncan.

ii eee

App. D-2

For the Court,

/s/ Patricia S. Connor CLERK

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Appendix E — Statutes

Sec. 1331. - Federal question

The district courts shall have original jurisdiction of all civil

actions arising under the Constitution, laws, or treaties of

the United States

Sec. 1367. - Supplemental jurisdiction

(a) Except as provided in subsections (b) and (c) or as

expressly provided otherwise by Federal statute, in any civil

action of which the district courts have original jurisdiction,

the district courts shall have supplemental jurisdiction over

all other claims that are so related to claims in the action

within such original jurisdiction that they form part of the

same case or controversy under Article III of the United

States Constitution. Such supplemental jurisdiction shall

include claims that involve the joinder or intervention of

additional parties.

(b) In any civil action of which the district courts have

original jurisdiction founded solely on section 1332 of this

title, the district courts shall not have supplemental

jurisdiction under subsection (a) over claims by plaintiffs

against persons made parties under Rule 14, 19, 20, or 24 of

the Federal Rules of Civil Procedure, or over claims by

persons proposed to be joined as plaintiffs under Rule 19 of

such rules, or seeking to intervene as plaintiffs under Rule

24 of such rules, when exercising supplemental jurisdiction.

over such claims would be inconsistent with the

jurisdictional requirements of section 1332.

jurisdiction over a claim under subsection (a) if -

(1) the claim raises a novel or complex issue of State law,

App. E-2

(2) the claim substantially predominates over the claim or

claims over which the district court has original jurisdiction,

(3) the district court has dismissed all claims over which it

has original jurisdiction, or

(4) in exceptional circumstances, there are other compelling

reasons for declining jurisdiction.

(d) The period of limitations for any claim asserted under

subsection (a), and for any other claim in the same action

that is voluntarily dismissed at the same time as or after the

dismissal of the claim under subsection (a), shall be tolled

while the claim is pending and for a period of 30 days after

it is dismissed unless State law provides for a longer tolling

period.

(e) As used in this section, the term "State" includes the

District of Columbia, the Commonwealth of Puerto Rico,

and any territory or possession of the United States.

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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.