## Facts

- A Mississippi landowner sued Calvin Yates, a Mississippi logger, for cutting down her trees.
- Yates sought defense and indemnity under a liability policy issued by State National Insurance Company, a Texas citizen; State National denied coverage.
- State National filed a federal diversity action seeking a declaratory judgment that the policy provided no coverage for the tree-cutting suit.
- Yates counterclaimed against State National for breach of contract and bad-faith breach of contract.
- Yates also asserted state-law claims against Bruce Insurance Agency, a Mississippi insurance agent involved in selling/procuring the policy, alleging professional negligence and negligent misrepresentation.
- Yates moved to dismiss under Federal Rule of Civil Procedure 19, arguing Bruce was a necessary and indispensable party whose joinder would defeat diversity.

## Issues

1. Whether the district court erred by concluding that joining the nondiverse insurance agent would destroy federal jurisdiction, instead of exercising supplemental jurisdiction over the insured’s related claims against the agent under 28 U.S.C. § 1367.
2. Whether, given supplemental jurisdiction, dismissal under Rule 19 for failure to join an indispensable party was improper.

## Decision

- The Fifth Circuit vacated the dismissal and remanded.
- The court held the district court erred by failing to recognize supplemental jurisdiction over Yates’s claims against Bruce.
- Because supplemental jurisdiction existed, adding Bruce as a party to the counterclaim did not eliminate subject-matter jurisdiction.

## Legal Principles

- Under 28 U.S.C. § 1367, a federal court with original jurisdiction may exercise supplemental jurisdiction over additional claims that form part of the same case or controversy (i.e., arise from a common nucleus of operative fact).
- The Rule 19(a) inquiry—whether a party must be joined only if joinder will not deprive the court of subject-matter jurisdiction—must account for supplemental jurisdiction; nondiversity between some parties does not defeat jurisdiction if § 1367 applies.
- A Rule 19(b) indispensability dismissal premised on the assumption that joinder defeats jurisdiction cannot stand when the court has supplemental jurisdiction over the joined claims.

## Conclusion

The Fifth Circuit held that the insured’s claims against the nondiverse insurance agent were within supplemental jurisdiction because they were factually tied to the dispute over procurement and scope of coverage, so the district court’s Rule 19 jurisdictional dismissal was vacated and the case was remanded.


State Nat'l Ins. Co. v. Yates, 391 F.3d 577 (5th Cir. 2004)