## Facts

- Hercules Incorporated (Delaware) and its affiliate Hercules International Trade Corp. (Bahamas; principal place of business in Delaware) supplied insecticide to Dynamic Export Corp. (New York) for distribution and sales in Iran.
- Hercules and HITCO sued Dynamic to recover the unpaid price of goods sold and delivered.
- Dynamic admitted receiving about 70,000 gallons of insecticide but claimed it was entitled to 194,500 gallons and alleged breach for short delivery.
- Dynamic asserted it acted as agent for H. Mottahedan & Co. (HMC), an Iranian corporation, and joined HMC as an additional counterclaimant.
- Dynamic and HMC asserted counterclaims in two sets: (1) four counterclaims based on an alleged insecticide sales contract; and (2) three counterclaims based on a separate distributorship agreement alleging breach/wrongful termination.

## Issues

1. Whether Dynamic, allegedly acting as HMC’s agent, could assert counterclaims in its own name under the real-party-in-interest rule.
2. Whether the first four counterclaims tied to the insecticide sales contract were compulsory under Rule 13(a) and thus within ancillary jurisdiction.
3. Whether the fifth through seventh counterclaims tied to a distributorship agreement were permissive under Rule 13(b) and, if so, whether they failed for lack of independent diversity jurisdiction due to alien parties on both sides.

## Decision

- The court held Dynamic could assert counterclaims in its own name and was not barred by Rule 17’s real-party-in-interest requirement.
- The court treated the first four counterclaims as compulsory because they arose from the same transaction or occurrence as the suit for the purchase price of the insecticide.
- The court held ancillary jurisdiction supported the compulsory counterclaims even if independent diversity was problematic.
- The court treated the fifth through seventh counterclaims as permissive because they concerned a broader distributorship agreement rather than the specific sales transaction sued upon.
- The court dismissed the fifth through seventh counterclaims for lack of subject-matter jurisdiction because they required an independent jurisdictional basis and complete diversity was lacking with alien parties on both sides.
- The motion to dismiss was granted in part and denied in part.

## Legal Principles

- Under Rule 17 (as informed by applicable state law), an agent with a sufficient interest and a direct contractual relationship may sue or counterclaim in its own name even if acting for a principal.
- A counterclaim is compulsory under Rule 13(a) if it arises out of the same transaction or occurrence as the opposing party’s claim; such counterclaims fall within ancillary jurisdiction and do not require an independent jurisdictional basis.
- A counterclaim that does not arise from the same transaction or occurrence is permissive under Rule 13(b) and must have an independent basis for federal subject-matter jurisdiction.
- Diversity jurisdiction under 28 U.S.C. § 1332 fails where alien parties appear on both sides of the case and the permissive claim cannot rely on ancillary jurisdiction.

## Conclusion

The court allowed Dynamic to pursue counterclaims in its own name and retained jurisdiction over the sales-contract counterclaims as compulsory, but dismissed the unrelated distributorship counterclaims because they were permissive and lacked an independent basis for diversity jurisdiction given alien parties on both sides.


Hercules Inc. v. Dynamic Export Corp., 71 F.R.D. 101 (S.D.N.Y. 1976)