Section 1367(b) Does Not Bar Defendants’ Counterclaims/Third-Party Claims Against a Nondiverse Subsidiary; Realignment Requires a “Collision of Interests”

I. Introduction

This appeal arose from a failed business relationship between (i) EPI-USE Systems Limited (“EUSL”), an international HR/payroll technology provider, and (ii) BI Brainz, LLC (“BIB”), an analytics company founded by Rumico Yuk. EUSL’s domestic subsidiary, EPI-USE America, Inc. (“EUAM”), became involved after BIB and Ms. Yuk sought to add it to the case.

EUSL sued BIB and Ms. Yuk in federal court on promissory notes/loan documents, pleading diversity jurisdiction (EUSL foreign; defendants Georgia/Delaware/Georgia). After defendants joined EUAM as a counterclaim defendant and asserted fiduciary-duty/alter-ego theories, EUAM asserted its own counterclaims for unpaid invoices. The district court later (a) entered summary judgment for EUSL on its loan claims, but (b) dismissed EUAM and all related counterclaims/third-party claims on the view that supplemental jurisdiction was unavailable under § 1367(b) and that realignment would destroy diversity.

The Eleventh Circuit addressed two principal questions: (1) whether EUAM was a required/indispensable party whose absence defeated diversity for EUSL’s original loan claims; and (2) whether the district court correctly refused supplemental jurisdiction over defendants’ claims against EUAM and EUAM’s counterclaims.

II. Summary of the Opinion

• Affirmed: The district court’s exercise of subject-matter jurisdiction over EUSL’s original claims and its summary judgment for EUSL. EUAM was neither a required nor indispensable party under Fed. R. Civ. P. 19, particularly given defendants raised the Rule 19 theory only after an adverse judgment.
• Reversed: The dismissal of EUAM and the conclusion that EUAM’s joinder as a counterclaim defendant divested the court of jurisdiction. The panel held the district court erred in invoking realignment and in applying 28 U.S.C. § 1367(b) to defendants’ counterclaims/third-party claims.
• Remanded: For further proceedings on the reinstated claims involving EUAM.

III. Analysis

A. Precedents Cited (and How They Shaped the Decision)

• Winn-Dixie Stores, inc. v. Dolgencorp, LLC (standard of review for indispensable-party decisions). The panel used it to frame Rule 19 determinations as abuse-of-discretion review, making reversal on indispensability less likely absent clear error.
• Chery v. Bowman and United States v. $79,679.00 in U.S. Currency (abuse-of-discretion framework). These cases anchored the appellate posture: the panel would reverse only if the district court applied the wrong legal standard, relied on clearly erroneous facts, or made a clear error of judgment.
• Parker v. Scrap Metal Processors, Inc. and Soul Quest Church of Mother Earth, Inc. v. U.S. Att'y Gen. (supplemental-jurisdiction review). The panel distinguished abuse-of-discretion review from de novo review when the district court’s refusal rested on an asserted lack of subject-matter jurisdiction—critical because the district court treated § 1367(b) as jurisdiction-withdrawing.
• Jeffries v. Ga. Residential Fin. Authority and McCulloch v. Glasgow (post-judgment Rule 19 restraint). These authorities supported the panel’s refusal to disturb an “otherwise valid judgment” where non-joinder was not timely pressed and the judgment did not practically prejudice the absent party.
• Michael Linet, Inc. v. Village of Wellington, Fla. (limits on Rule 59(e)). The panel endorsed the proposition that Rule 59(e) is not a vehicle to raise arguments that could have been raised earlier—relevant to defendants’ late-breaking “joint obligee/Rule 19” attack.
• Kimball v. Fla. Bar (Rule 19 indispensable-party objections can be raised at any time). This kept the door open for the district court to consider the Rule 19 argument on the merits even though it was late, while still allowing the court to weigh the late timing against defendants under equitable considerations.
• Provident Tradesmens Bank & Trust Co. v. Patterson (heightened post-judgment standard under Rule 19(b)). This was pivotal: the Supreme Court cautioned that after a judgment is fully litigated, a defendant who failed to assert Rule 19 interests earlier faces a “rather greater” burden to unwind the judgment. The Eleventh Circuit used this to uphold the judgment for EUSL.
• Rogers v. Aetna Cas. & Sur. Co. (general rule permitting supplemental jurisdiction over defendant claims against nondiverse impleaded third parties once diversity exists over the main claim). This supplied the baseline that the district court departed from—and that the Eleventh Circuit reinstated.
• PTA-Fla, Inc. v. ZTE USA, Inc. (key textual interpretation of § 1367(b)). The panel treated PTA-Fla as controlling: “‘claims by plaintiffs’ in § 1367(b) refers to claims by only the original plaintiffs,” not counter-plaintiffs or third-party plaintiffs. This foreclosed the district court’s attempt to treat defendants’ claims as barred by § 1367(b).
• City of Vestavia Hills v. Gen. Fid. Ins. Co., Indianapolis v. Chase Nat'l Bank, and Dawson v. Columbia Trust Co. (realignment doctrine). These cases supplied the “collision of interests” prerequisite. Because EUSL and EUAM were not adverse in the litigation posture—and EUAM’s counterclaims targeted BIB—realignment was doctrinally unavailable.
• Tufts v. Hay and Massachusetts v. EPA (appellate standing). The panel used these to dispose of EUSL’s ability to cross-appeal as a prevailing party, while still reaching the merits because EUAM had standing.

B. Legal Reasoning

1. Rule 19 and preserving the existing diversity judgment

Defendants argued (late) that EUAM was a joint obligee and thus indispensable, defeating diversity. The Eleventh Circuit focused on procedure and equity: defendants pressed the Rule 19 indispensability theory only after the district court had already entered summary judgment for EUSL.

Applying Provident Tradesmens Bank & Trust Co. v. Patterson, the panel emphasized that post-judgment Rule 19 challenges face a heightened burden because of the plaintiff’s strong interest in preserving a “fully litigated judgment.” It also noted the defendants’ forfeiture-like posture: their asserted interest in avoiding multiple litigation can be considered “foreclosed” when not timely raised.

Substantively, the panel accepted the district court’s determination that the operative loan documents “solely list EUSL as lender,” supporting the conclusion that EUAM was not required to enforce the notes and not indispensable under Rule 19(b). On the record and standard of review, there was no abuse of discretion.

2. Supplemental jurisdiction and the improper “subsidiary exception”

The district court declined supplemental jurisdiction over defendants’ claims against EUAM and EUAM’s counterclaims, reasoning (i) § 1367(b) exists to prevent “smuggling” nondiverse claims, and (ii) exercising jurisdiction would require realignment of EUSL and EUAM as plaintiffs, destroying diversity.

The Eleventh Circuit rejected both moves:

• Text and precedent control over perceived “purpose”: § 1367(b) limits supplemental jurisdiction over “claims by plaintiffs” in diversity-only cases. Under PTA-Fla, Inc. v. ZTE USA, Inc., that phrase means original plaintiffs—not defendants acting as counter-plaintiffs or third-party plaintiffs. Therefore, the statute was “simply inapplicable” to counterclaims and third-party claims asserted by defendants, and the district court had no basis to “carve out” an exception because the third party was the plaintiff’s wholly-owned subsidiary.
• Realignment requires adversity (“collision of interests”): The district court treated the parent-subsidiary relationship and joint counsel as enough to realign. The panel held that is not the test. Citing Indianapolis v. Chase Nat'l Bank (quoting Dawson v. Columbia Trust Co.), realignment is warranted only when the pleadings posture masks a “collision of interests.” Here, EUSL and EUAM were never adverse; the defendants sued EUAM, and EUAM’s counterclaims were against BIB, not EUSL. With no genuine adversity between EUSL and EUAM, realignment was error.

With those premises removed, the general rule stated in Rogers v. Aetna Cas. & Sur. Co.—that supplemental jurisdiction can reach state-law defendant claims against nondiverse third-party defendants once the main claim is properly within federal jurisdiction—remained intact. The dismissal of EUAM therefore could not stand.

C. Impact

• Constrains district courts from expanding § 1367(b) by “anti-gamesmanship” policy: The opinion reinforces that § 1367(b) is a targeted limitation, and its “claims by plaintiffs” language cannot be extended to defendants’ counterclaims/third-party claims—even when the factual context suggests strategic forum selection.
• Clarifies realignment limits in the parent-subsidiary context: Shared counsel, corporate affiliation, and aligned business interests are not substitutes for the required “collision of interests.” Courts must identify concrete litigation adversity before rearranging parties in a way that affects jurisdiction.
• Protects finality against late Rule 19 attacks: By leaning on Provident Tradesmens Bank & Trust Co. v. Patterson, the court signals that post-judgment indispensability arguments—especially those that could have been made earlier—face an uphill climb, promoting stability of judgments in diversity cases.
• Practical litigation consequence: Parties in diversity cases should expect that defendants may pursue supplemental counterclaims/third-party claims against nondiverse entities (including a plaintiff’s subsidiary) without triggering § 1367(b), provided the claims satisfy § 1367(a)’s “same case or controversy” requirement.

IV. Complex Concepts Simplified

• Diversity jurisdiction (28 U.S.C. § 1332): Federal jurisdiction based on parties being citizens of different states (or a foreign party vs. U.S. citizens), with “complete diversity” generally requiring no plaintiff share citizenship with any defendant.
• Supplemental jurisdiction (28 U.S.C. § 1367): Once a federal court has jurisdiction over a main claim, it may hear related state-law claims that are part of the same “case or controversy.” Section 1367(b) narrows this in diversity-only cases for certain claims by plaintiffs.
• Counterclaim vs. third-party claim: A counterclaim is a claim by a defendant against a plaintiff; a third-party claim (impleader) is a claim bringing in another party said to be liable in relation to the dispute.
• Rule 19 “required” and “indispensable” parties: Some parties must be joined if feasible to avoid prejudice or inconsistent obligations. If they cannot be joined (e.g., it would defeat jurisdiction), the court decides whether the case can fairly proceed without them.
• Realignment: A jurisdictional housekeeping doctrine that re-sorts parties according to their real adversity in the dispute. It is not triggered merely because two entities are corporate affiliates; it requires a genuine “collision of interests.”
• Rule 59(e): A motion to alter or amend a judgment, generally not meant to introduce arguments that could have been raised before judgment.

V. Conclusion

The Eleventh Circuit preserved EUSL’s diversity-based judgment on the promissory notes by rejecting a late, post-judgment indispensability challenge under Rule 19. More importantly for future jurisdictional disputes, the court held that 28 U.S.C. § 1367(b) does not bar supplemental jurisdiction over defendants’ counterclaims and third-party claims—even when asserted against the original plaintiff’s wholly-owned nondiverse subsidiary—and that party realignment cannot be used to defeat jurisdiction absent a true “collision of interests.” The decision reinforces a textual, precedent-bound approach to supplemental jurisdiction and limits policy-driven expansions of § 1367(b) in diversity cases.