ADYB Engineered For Life, Inc. v. Edan Administration Services LTD.

Background

ADYB Engineered For Life, Inc. brought the action against Edan Administration Services Ltd. and Pom Advanced Armor Solutions LLC, alleging breach of contract, conversion, and abuse of process. The contract at issue was an Investment Agreement. The defendants, together with Edwin Cohen, asserted counterclaims against ADYB and Hananya Cohen, including breach of contract, tort claims, and requests for declaratory relief. Hananya Cohen is identified in the opinion as ADYB’s CEO and owner; Edwin Cohen is identified as EDAN’s owner.

The court had previously granted the defendants’ request to add Hananya Cohen and Edwin Cohen as parties under Federal Rule of Civil Procedure 19. Hananya Cohen then asserted counterclaims against EDAN, PAAS, and Edwin Cohen, including breach of contract and abuse of process.

Hananya Cohen’s Motion to Dismiss

Hananya Cohen moved under the rules governing dismissal of inadequately pleaded claims to dismiss the defendants’ breach-of-contract counterclaim against him personally. He argued that the Investment Agreement imposed the relevant duties on ADYB, not on him, and that his personal signature did not show an intent to accept ADYB’s obligations personally.

The court denied the motion. In an earlier ruling concerning the defendants’ request to join Hananya Cohen, the court had found, based on the evidence then before it, that the defendants had shown that he intended to substitute or add his personal liability to ADYB’s liability. Hananya Cohen presented no new evidence supporting reconsideration of that decision. The court also noted that, on a motion to dismiss, it had to draw reasonable inferences in favor of the parties asserting the counterclaim. The court therefore allowed the defendants’ breach-of-contract counterclaim against Hananya Cohen to remain.

Defendants’ Motion to Dismiss

The defendants moved under Federal Rule of Civil Procedure 12(b)(1), which concerns the court’s subject-matter jurisdiction, to dismiss Hananya Cohen’s counterclaim. They argued that Hananya Cohen was aligned as a plaintiff and therefore could not rely on supplemental jurisdiction under 28 U.S.C. § 1367 in a diversity-jurisdiction case.

The court rejected that argument. Section 1367(b) restricts certain supplemental claims by plaintiffs in diversity cases. But Second Circuit precedent holds that “plaintiffs” in this provision means the original plaintiff, not a defendant who brings a counterclaim and thereby becomes a counterclaim plaintiff. Hananya Cohen was not the original plaintiff, was not joined as a plaintiff, and did not voluntarily enter the case to assert claims. Instead, the defendants had sought to add him as a counterclaim defendant.

The court also reasoned that the defendants could have declined to join Hananya Cohen if they were concerned about the jurisdictional consequences. By adding him to assert counterclaims against him, they allowed him to assert related counterclaims of his own. The court therefore concluded that it had supplemental jurisdiction over Hananya Cohen’s counterclaim.

Disposition

The court denied the defendants’ motion to dismiss Hananya Cohen’s counterclaims. It also denied Hananya Cohen’s motion to dismiss the defendants’ breach-of-contract counterclaim against him. The opinion does not resolve the ultimate merits of those counterclaims.