Dennis Meier v. Karl Kirsch

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________

No. 97-3275
___________

Innovative Home Health Care, Inc., *
a South Dakota corporation, *
*
Plaintiff, *
*
Dennis Meier; Gwen Hougdahl, *
*
Plaintiffs - Appellees, *
* Appeal from the United States
v. * District Court for the
* District of South Dakota.
P.T.-O.T. Associates of the Black *
Hills, a general partnership; *
At Home Quality Health Care Co., *
a South Dakota corporation, *
*
Defendants, *
*
Karl Kirsch; Susan Redden, *
*
Defendants - Appellants. *
___________

Submitted: March 13, 1998
Filed: April 21, 1998
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Before BEAM and HEANEY, Circuit Judges, and KOPF,1 District Judge.
___________
KOPF, District Judge.

Karl Kirsch and Susan Redden, defendants in the proceedings below,
appeal from the district court’s2 amended judgment granting summary
judgment in their favor on all of the plaintiffs’ claims, but dismissing
without prejudice the defendants’ counterclaims for indemnification.
Kirsch and Redden argue the district court erred in dismissing their
indemnification counterclaims by declining to retain supplemental
jurisdiction over the counterclaims in response to the plaintiffs’ “motion
for rehearing or relief from judgment” when the district court had
previously entered judgment on the indemnification counterclaims in favor
of defendants Kirsch and Redden. We affirm.

I. Background

Dennis Meier, Gwen Hougdahl, Kirsch, and Redden were at one time
shareholders and employees of Innovative Home Health Care, Inc., a South
Dakota corporation. After initiation of an action to dissolve the
corporation, these individuals reached a settlement agreement. Subsequent
to this agreement, Meier, Hougdahl, and Innovative Home Health Care, Inc.,
filed an action against Kirsch, Redden, a South Dakota corporation, and a
general partnership, alleging violations of the Sherman Act, 15 U.S.C. §§
1 & 2, and the Clayton Act, 15 U.S.C. §§ 15 & 26, as well as state claims
of breach of contract and tortious interference with a contractual
relationship. The defendants filed counterclaims against the plaintiffs,
alleging breach of the settlement agreement and seeking indemnification for
all reasonable costs and expenses incurred in defending the lawsuit based
upon the terms of the settlement agreement.

1
The Honorable Richard G. Kopf, United States District Judge for the District
of Nebraska, sitting by designation.
2
The Honorable Richard H. Battey, Chief Judge, United States District Court for
the District of South Dakota.
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 The district court granted the defendants’ motion for summary
judgment on all of the plaintiffs’ claims and on the defendants’
counterclaims, and entered judgment accordingly. As to the defendants’
indemnification counterclaims, the district court found that plaintiffs
Meier and Hougdahl failed to “combat defendants’ showing” that the express
language of the indemnification clause contained in the settlement
agreement provided for indemnification.

The plaintiffs then filed a “motion for rehearing or relief from
judgment” pursuant to Fed. R. Civ. P. 59(a) and 60(b)(6), arguing that the
defendants were not entitled to relief on their indemnification
counterclaims because the defendants simply relied on the language of the
indemnification clause itself in support of their motion for summary
judgment. Under such circumstances, the plaintiffs argued they were not
required to present any opposing evidentiary matter in response to the
defendants’ motion for summary judgment on the indemnification
counterclaims. The plaintiffs also argued that, under South Dakota law,
a written contract of indemnity will not be construed to indemnify a party
against its own misconduct in the absence of a clear and unequivocal
expression of such intent within the four corners of the contract.

In resolving the plaintiffs’ motion for rehearing, the district court noted that,
after a year of discovery, the facts necessary for resolution of the plaintiffs’ state claims and the defendants’
counterclaim for breach of contract had been developed in the adjudication of the antitrust claim and such
facts were intertwined with the federal antitrust claim. However, the
court declined to retain jurisdiction over the defendants’ counterclaims
for indemnification under 28 U.S.C. § 1367, stating:

Based on the parties’ recent submissions on the
counterclaims for indemnification, the Court deems it necessary
in serving the interests of justice to revisit its prior
decision to retain jurisdiction under 28 U.S.C. § 1367 . . . .
As previously noted in its memorandum opinion, the Court has
broad discretion to dismiss state law claims and counterclaims
over which it has only supplemental jurisdiction if the Court
has dismissed all

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 claims over which the Court had original jurisdiction which has
occurred in this case.

The district court also noted that the parties’ submissions regarding the
plaintiffs’ motion for rehearing raised “somewhat novel and complex issues
of South Dakota law” regarding whether application of the indemnification
clause under the facts and circumstances presented by this case violated
South Dakota law and whether the defendants could now also seek
indemnification from the plaintiff corporation. The district court stated
that determination of such issues would require further briefing and
possible discovery.

The district court then amended its prior judgment by dismissing the
defendants’ counterclaims for indemnification without prejudice.
Defendants Kirsch and Redden appeal the amended judgment.

II. Standard of Review

Although the plaintiffs brought their motion for rehearing or relief
from judgment pursuant to Fed. R. Civ. P. 59(a) and 60(b)(6), the
plaintiffs properly concede the motion was actually an improperly styled
Fed. R. Civ. P. 59(e) motion. Norman v. Arkansas Dep’t of Educ., 79 F.3d
748, 750 (8th Cir. 1996) (any motion questioning the correctness of a
judgment is functionally a Fed. R. Civ. P. 59(e) motion, regardless of how
the motion is styled); BBCA, Inc. v. United States, 954 F.2d 1429, 1432
(8th Cir.) (motion seeking substantive change in judgment was Rule 59(e)
motion; substance, rather than form, of motion controls), cert. denied, 506
U.S. 866 (1992).

“‘A district court has broad discretion in determining whether to
grant a [Fed. R. Civ. P. 59(e)] motion to alter or amend judgment, and this
court will not reverse absent a clear abuse of discretion.’” Global
Network Techs., Inc. v. Regional Airport Auth., 122 F.3d 661, 665 (8th Cir.
1997) (quoting Hagerman v. Yukon Energy Corp.,

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839 F.2d 407, 413 (8th Cir.), cert. denied, 488 U.S. 820 (1988)). “‘An
abuse of discretion will only be found if the district court’s judgment was
based on clearly erroneous factual findings or erroneous legal
conclusions.’” Perkins v. U S West Communications, ___ F.3d ___, 1998 WL
91424, at *3 (8th Cir. Mar. 5, 1998) (quoting Mathenia v. Delo, 99 F.3d
1476, 1480 (8th Cir. 1996), cert. denied, 117 S. Ct. 2518 (1997)).

III. Discussion

Federal Rule of Civil Procedure 59(e) was adopted to clarify a
district court’s power to correct its own mistakes in the time period
immediately following entry of judgment. Norman, 79 F.3d at 750 (citing
White v. New Hampshire Dep’t of Employment Sec., 455 U.S. 445 (1982)).
Rule 59(e) motions serve a limited function of correcting “‘manifest errors
of law or fact or to present newly discovered evidence.’” Hagerman, 839
F.2d at 414 (quoting Rothwell Cotton Co. v. Rosenthal & Co., 827 F.2d 246,
251 (7th Cir.), as amended, 835 F.2d 710 (7th Cir. 1987)). Such motions
cannot be used to introduce new evidence, tender new legal theories, or
raise arguments which could have been offered or raised prior to entry of
judgment. Id. A case in which a timely Rule 59(e) motion has been filed
lacks finality because the motion tolls the time limitation for appeal in
order to provide the trial court with jurisdiction to resolve the motion.
This “tolling process” encourages “both correctness and finality.” Jackson
v. Schoemehl, 788 F.2d 1296, 1298 (8th Cir. 1986). See also Sanders v.
Clemco Indus., 862 F.2d 161,170 (8th Cir. 1988); 11 Charles Alan Wright et
al., Federal Practice and Procedure § 2821, at 220-21 (2d ed. 1995).

Relying on Villegas v. Princeton Farms, Inc., 893 F.2d 919 (7th Cir.
1990), defendants Kirsch and Redden argue the district court erred in
entering final judgment in their favor on the indemnification
counterclaims, and then vacating that decision by dismissing the
counterclaims without prejudice upon consideration of the Fed. R. Civ. P.
59(e) motion filed by plaintiffs Meier and Hougdahl.

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 In Villegas, the district court granted the defendant’s motion to
dismiss pursuant to Fed. R. Civ. P. 12(b)(6) because state law did not
recognize the cause of action brought by the plaintiff, and entered
judgment accordingly. The district court then granted the plaintiff’s
motion to vacate the judgment and voluntarily dismiss the case without
prejudice, inviting the plaintiff to refile his action in state court. The
Court of Appeals reversed the latter order, finding “a clear abuse of
discretion to decide the merits of the legal issue while hearing the case
under diversity jurisdiction and then later redirect the parties to state
court.” Id. at 923. The Villegas court stated that vacation of a judgment
is authorized by Fed. R. Civ. P. 59(e), but “[i]n this case, . . . the
district judge cited no errors or changes of heart regarding the merits of
the legal arguments, but instead decided to send the case to the Illinois
courts as the preferred forum.” Id. at 924.

Villegas is readily distinguishable from the case before us because
the district judge in this case expressly cited “errors or changes of heart
regarding the merits of the legal arguments” related to the indemnification
counterclaims and the merits of its prior decision to retain jurisdiction
over those counterclaims pursuant to 28 U.S.C. § 1367. Specifically, the
complexity of the state law issues involved in resolving the counterclaims,
combined with the fact that the court had previously dismissed all claims
over which it had original jurisdiction, led the court to reconsider its
decision to retain supplemental jurisdiction--a proper use of Fed. R. Civ.
P. 59(e) under Villegas and under the manifest-error-of-law standard in
this circuit.

Section 1367 provides for the mandatory exercise of supplemental
jurisdiction as follows:

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

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 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.

28 U.S.C. § 1367(a) (1993). Subsection (c) provides exceptions to the
above mandatory command, granting district courts discretion to reject
supplemental jurisdiction if:

(1) the claim raises a novel or complex issue of State
law,
(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.

28 U.S.C. § 1367(c). This subsection “plainly allows the district court
to reject jurisdiction over supplemental claims only in the four instances
described therein.” McLaurin v. Prater, 30 F.3d 982, 985 (8th Cir. 1994).

While the district court’s power to exercise jurisdiction under the
“same case or controversy” requirement in 28 U.S.C. § 1367(a) is one
ordinarily resolved on the pleadings, the court’s decision to exercise that
jurisdiction “is one which remains open throughout the litigation.” United
Mine Workers v. Gibbs, 383 U.S. 715, 727 (1966) (discussion of pendent
jurisdiction and discretionary power of federal trial court to refuse to
hear state law claims, now codified by 28 U.S.C. § 1367).

Assuming the defendants’ state law indemnification counterclaims were
sufficiently related to the plaintiffs’ jurisdictionally sufficient claims
such that all claims could fairly be characterized as part of the “same
case or controversy” pursuant to 28 U.S.C. § 1367(a), the district court
had the discretion to decline to retain jurisdiction under section
1367(c)(3) (dismissal of all claims over which it had original
jurisdiction)

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and 1367(c)(1) (complex issue of state law) at any time in the litigation.
Further, because the timely filing of the Rule 59(e) motion tolled the
appeal time in order to provide the district court with jurisdiction to
resolve the motion, the district court’s decision to relinquish
supplemental jurisdiction was made before the case was “final” for appeal
purposes.

Defendants Kirsch and Redden contend the district court’s reversal of
its decision to retain supplemental jurisdiction violates the law-of-the-
case doctrine. However, none of the cases on which Kirsch and Redden rely
involve a district court’s decision to relinquish supplemental jurisdiction
pursuant to 28 U.S.C. § 1367 in the context of resolving a Fed. R. Civ. P.
59(e) motion. LaShawn A. v. Barry, 87 F.3d 1389 (D.C. Cir. 1996); Starks
v. Rent-A-Center, 58 F.3d 358 (8th Cir. 1995); Lovett v. General Motors
Corp., 975 F.2d 518 (8th Cir. 1992), cert. denied, 510 U.S. 1113 (1994).
In any event, a court has the power to revisit its prior decisions when
“the initial decision was ‘clearly erroneous and would work a manifest
injustice.’” Starks, 58 F.3d at 364 (quoting Christianson v. Colt Indus.
Operating Corp., 486 U.S. 800, 817 (1988)). As determined above, this is
such a case.

IV. Conclusion

Upon further reflection and research regarding the defendants’
indemnification counterclaims prompted by the plaintiffs’ Rule 59(e)
motion, the district court discovered that it had erred in granting summary
judgment for the defendants on those counterclaims because complex issues
of state law needed to be addressed through additional discovery and
briefing before resolution of the indemnification counterclaims was
possible. Thus, the district court sought to correct its error of law by
relinquishing supplemental jurisdiction under 28 U.S.C. § 1367(c) for
reasons expressly permitted therein--a complex issue of state law and
dismissal of all claims over which the district court had original
jurisdiction. Therefore, we cannot say the district court clearly

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abused its discretion in granting the plaintiffs’ motion pursuant to Fed.
R. Civ. P. 59(e) and dismissing the indemnification counterclaims without
prejudice.

Affirmed.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

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