The opinion of the court was delivered by: BROTMAN
This action under the Miller Act, 40 U.S.C. §§ 270a-270d, is brought by Kashulines, a subcontractor, against his contractor, Thermo, and his contractor's surety, International, for $84,000 allegedly remaining unpaid from work done on Thermo's federal contract. The work involved refurbishing a fire protection station on Ascension Island.
Thermo counterclaimed for $96,000, $20,000 representing damages from the same work at Ascension Island, the balance comprised of other claims from other contracts between the two. Kashulines now moves to strike the counterclaim.
Plaintiff advances two arguments. First, the Miller Act specially restricts venue to districts in which the work is "performed and executed," 40 U.S.C. § 270b(b), and this venue restriction should not be destroyed by allowing counterclaims arising from work at distant locations, he urges. But venue has never been a significant consideration for counterclaims. The federal venue statute, 28 U.S.C. § 1391, prescribes the places where a suit may be "brought," and that statute has been strictly construed to apply only to the initiation of suit rather than to counterclaims. See 6 Wright & Miller, Federal Practice and Procedure [hereinafter cited as "Wright & Miller"] §§ 1416, 1424 (1971). It is true that the venue provision in the Miller Act, while using the same phrasing as 28 U.S.C. § 1391, may offer the plaintiff fewer choices than the latter statute.
Nevertheless, the venue provision in the Miller Act exists for the protection of defendants, Electronic & Missile Facilities, Inc. v. United States ex rel. Moseley, 306 F.2d 554, 556 (5th Cir. 1962), rev'd on other grounds, 374 U.S. 167, 83 S. Ct. 1815, 10 L. Ed. 2d 818 (1963), and "[the] setting up of a counterclaim against one already in a court of his own choosing is very different, in respect to venue, from hailing him into that court." General Electric Co. v. Marvel Rare Metals Co., 287 U.S. 430, 435, 53 S. Ct. 202, 204, 77 L. Ed. 408 (1932). So the plaintiff's first contention must be rejected.
Plaintiff's second argument is that the counterclaims relating to contracts other than the contract which forms the basis of the plaintiff's claim should not be entertained in a Miller Act case, and that to allow these counterclaims would expand the jurisdiction of the federal courts. To analyze this assertion, the counterclaims must be separated into the compulsory and permissive categories defined by sections (a) and (b) of Federal Rule of Civil Procedure 13, and the doctrine of ancillary jurisdiction must be invoked. By the
"ill-defined concept of 'ancillary jurisdiction' . . . a district court acquires jurisdiction of a case or controversy in its entirety, and, as an incident to the disposition of the matter properly before it, it may decide other matters raised by the case of which it could not take cognizance were they independently presented." 13 Wright & Miller § 3523 (1975).
It is elementary that if a counterclaim is a compulsory response to a main claim properly invoking the jurisdiction of a federal court, the counterclaim is within the ancillary jurisdiction of the court. E.g., Baker v. Gold Seal Liquors, Inc., 417 U.S. 467, 469 n. 1, 94 S. Ct. 2504, 41 L. Ed. 2d 243 (1974); 6 Wright & Miller §§ 1409, 1414, 1422; 12 Wright & Miller § 3523 at 66. A compulsory counterclaim is one that "arises out of the same transaction or occurrence that is the subject matter of the opposing party's claim . . . ." Fed.R.Civ.P. 13(a); 6 Wright & Miller § 1410. The cases establish that in a Miller Act case, a claim arising out of the same contract as does the plaintiff's claim is a compulsory counterclaim which lies within the ancillary jurisdiction of the court. E.g., United States ex rel. Foster Wheeler Corp. v. American Surety Co., 142 F.2d 726 (2nd Cir. 1944); United States ex rel. D'Agostino Excavators, Inc. v. Heyward-Robinson Co., 430 F.2d 1077, 1082 (2nd Cir. 1970), cert. denied, 400 U.S. 1021, 91 S. Ct. 582, 27 L. Ed. 2d 632 (1971) [hereinafter cited as Heyward-Robinson ]; United States ex rel. Central Rigging & Contracting Corp. v. Paul Tishman Co., 32 F.R.D. 223 (E.D.N.Y.1963); see Southern Construction Co. v. Pickard, 371 U.S. 57, 83 S. Ct. 108, 9 L. Ed. 2d 31 (1962). Since in the case at bar, $20,000 of the counterclaim relates to the same work at Ascension Island which is the subject of the plaintiff's claim, to that extent defendant Thermo's counterclaim is compulsory
and lies within the ancillary jurisdiction of the court. Plaintiff in any event does not object to this claim.
A permissive counterclaim, on the other hand, is one that does not arise out of the same transaction or occurrence furnishing the subject matter of the plaintiff's claim. Fed.R.Civ.P. 13(b); 6 Wright & Miller § 1420. Rule 13(b) by its terms grants the defendant an unqualified right to interpose these unrelated claims, and the court possesses no discretion to reject them. Montecatini Edison, S.P.A. v. Ziegler, 159 U.S. App. D.C. 19, 486 F.2d 1279, 1282 (D.C.Cir. 1973). However, in contrast to a compulsory counterclaim, a permissive counterclaim ordinarily must be supported by an independent source of jurisdiction. 6 Wright & Miller § 1422; Sachs v. Sachs, 265 F.2d 31 (3rd Cir. 1959).
In this case defendant Thermo's other counterclaims, aggregating $76,000 for work other than the Ascension Island contract, are permissive. Since both plaintiff and defendant Thermo are citizens of New Jersey, the federal diversity jurisdiction is unavailable.
However, there is one important exception to the rule that permissive counterclaims require independent jurisdictional bases: set-offs, claims to reduce the plaintiff's claim rather than secure affirmative relief, are within the court's ancillary jurisdiction for this limited purpose. E.g., Heyward-Robinson, supra at 1080-81 n.1 (dictum); Newburger, Loeb & Co., Inc. v. Gross, 365 F. Supp. 1364, 1367 (S.D.N.Y. 1973); Sherburne Corp. v. Ohio Spring Specialties, Inc., 13 Fed. R. Serv. 2d 100 b.22, Case 1, 163 USPQ 362 (N.D.Ohio 1969); 3 Moore's Federal Practice para. 13.19 at 481-83 n.4 (1974 & Supp.1975); 6 Wright & Miller § 1422 at 122; 13 Wright & Miller § 3523 at 67. The limits of ancillary jurisdiction are unclear since the Supreme Court has not spoken on the subject since 1926, id. at 63-64, but there is "probably . . . a present consensus, although . . . no unanimity" as to this exception. Id. at 66-67.
Applying this principle, defendant Thermo would be entitled to offset its permissive counterclaims, if proved, against any claims proved by the plaintiff; but its affirmative recovery would be limited to the amount, if any, of its compulsory counterclaims sustained, since only its compulsory counterclaims lie within the plenary jurisdiction of the court. Accepting this as the result that would obtain in a non-Miller Act case, the sole remaining question is whether the fact that the plaintiff's action arises under the Miller Act changes anything. The court concludes that it does not.
The essence of the plaintiff's argument is that since the Miller Act is designed to protect subcontractors on federal construction projects, the federal rules of civil procedure should not operate to subject a Miller Act plaintiff to permissive counterclaims. It is suggested that the jurisdiction conferred by the Miller Act is limited, and that to apply Rule 13(b) in a Miller Act case would impermissibly expand the jurisdiction of the federal courts.
The contention that permissive counterclaims should not be entertained in certain cases was also advanced recently in Montecatini Edison, S.P.A. v. Ziegler, 159 U.S.App.D.C. 19, 486 F.2d 1279 (1973). There a plaintiff in a highly specialized patent action
argued that the rules should not embrace permissive non-federal counterclaims in "special statutory proceedings," id. at 1285; the plaintiff offered the Miller Act as one example of such a proceeding. The United States Court of Appeals for the District of Columbia Circuit rejected the argument. It first noted that Rule 1 of the federal rules of civil procedure makes Rule 13 applicable "to all suits of a civil nature . . . with the exceptions stated in Rule 81," which are not here relevant. And it further noted that
After reviewing the cases cited in support of the plaintiff's argument, the court concluded:
"Appellee has failed to establish any general prohibition against permissive counterclaims in special ...