author: Mr. Justice Powell

text:
    OPPENHEIMER FUND, INC., et al. v. SANDERS et al.
    No. 77-335.
    Argued February 28-March 1, 1978
    Decided June 19, 1978

      Powell, J., delivered the opinion for a unanimous Court.

      Alfred Berman argued the cause for petitioners. With him on the briefs were Norman L. Greene, Gerald Gordon, Jolm F. Davidson, and Daniel E. Kirsch.

      Donald N. Ruby argued the cause and filed a brief for respondents.
   Mr. Justice Powell

delivered the opinion of the Court.

Respondents are the representative plaintiffs in a class action brought under Fed. Rule Civ. Proc. 23 (b)(3). They sought to require petitioners, the defendants below, to help compile a list of the names and addresses of the members of the plaintiff class from records kept by the transfer agent for one of petitioners so that the individual notice required by Rule 23 (c) (2) could be sent. The Court of Appeals for the Second Circuit held that the federal discovery rules, Fed. Rules Civ. Proc. 26-37, authorize the District Court to order petitioners to assist in compiling the list and to bear the $16,000 expense incident thereto. We hold that Rule 23 (d), which concerns the conduct of class actions, not the discovery rules, empowers the District Court to direct petitioners to help compile such a list. We further hold that, although the District Court has some discretion in allocating the cost of complying with such an order, that discretion was abused in this case. We therefore reverse and remand.

I

Petitioner Oppenheimer Fund, Inc. (Fund), is an open-end diversified investment fund registered under the Investment Company Act of 1940, 15 U. S. C. § 80a-l et seg. (1976 ed.). The Fund and its agents sell shares to the public at their net asset value plus a sales charge. Petitioner Oppenheimer Management Corp. (Management Corp.) manages the Fund’s investment. portfolio. Pursuant to an investment advisory agreement, the Fund pays Management Corp. a fee which is computed in part as a percentage of the Fund’s net asset value. Petitioner Oppenheimer & Co. is a brokerage firm that owns 82% of the stock of Management Corp., including all of its voting stock. The individual petitioners are directors or officers of the Fund or Management Corp., or partners in Oppenheimer & Co.

Respondents bought shares in the Fund at various times in 1968 and 1969. On March 26, May 12, and June 18, 1969, they filed three separate complaints, later consolidated, which alleged that the petitioners, other than the Fund, had violated federal securities laws in 1968 and 1969 by issuing or causing to be issued misleading prospectuses and annual reports about the Fund. In particular, respondents alleged that the prospectuses and reports failed to disclose the fact that the Fund invested in “restricted” securities, the risks involved in such investments, and the method used to value the restricted securities on the Fund’s books. They also alleged that the restricted securities had been overvalued on the Fund’s books, causing the Fund’s net asset value, and thus the price of shares in the Fund, to- be inflated artificially. On behalf of themselves and a class of purchasers, respondents sought to recover from petitioners, other than the Fund, the amount by which the price they paid for Fund shares exceeded the shares’ value.

In April 1973, respondents moved pursuant to Fed. Rule Civ. Proc. 23 (b) (3) for an order allowing them to'represent a class of plaintiffs consisting of all persons who bought shares in the Fund between March 28, 1968, and April 24, 1970. Relying on Eisen v. Carlisle & Jacquelin, 54 F. R. D. 565 (SDNY 1972), respondents also sought an order directing petitioners to pay for the notice to absent class members required by Fed. Rule Civ. Proc. 23 (c)(2). On May 1, 1973, however, the Court of Appeals for the Second Circuit held that the District Court in Eisen erred in ordering the defendants to pay 90% of the cost of notifying members of a Rule 23 (b)(3) plaintiff class. Eisen v. Carlisle & Jacquelin (Eisen III), 479 F. 2d 1005. Respondents thereupon deposed employees of the Fund’s transfer agent, which kept records from which the class members’ names and addresses could be derived, in order to develop information relevant to issues of manageability, identification, and methods of notice upon which the District Court would have to pass. These employees’ statements, together with information supplied by the Fund, established that the class proposed by respondents numbered about 121,000 persons. About 103,000 still held shares in the Fund, while some 18,000 had sold their shares after the end of the class period. Since about 171,000 persons currently held shares in the Fund, it appeared that approximately 68,000 current Fund shareholders were not members of the class.

The transfer agent’s employees also testified that in order to compile a list of the class members’ names and addresses, they would have to sort manually through a considerable volume of paper records, keypunch between 150,000 and 300,000 computer cards, and create eight new computer programs for use with records kept on computer tapes that either are in existence or would have to be created from the paper records. See App. 163-212. The cost of these operations was estimated in 1973 to exceed $16,000.

Having learned all this, and in the face of Eisen III, respondents moved to redefine the class to include only those persons who had bought Fund shares between March 28, 1968, and April 24, 1970, and who still held shares in the Fund. Respondents also proposed that the class notice be inserted in one of the Fund’s periodic mailings to its current shareholders, and they offered to pay the cost of printing and inserting the notices, which was about $5,000. App. 146. These proposals would have made it unnecessary to compile a separate list of the members of the redefined class in order to notify them. Petitioners opposed redefinition of the class on the ground that it arbitrarily would exclude about 18,000 former Fund shareholders who had bought shares during the relevant period, possibly to their prejudice. They also opposed including the class notice in a Fund mailing which would reach the 68,000 current shareholders who were not class members. This, petitioners feared, could set off a wave of selling to the detriment of the Fund.

On May 15, 1975, more than six years after the litigation began, the District Court ruled on the motions then pending. Sanders v. Levy, 20 Fed. Rules Serv. 2d 1218 (SDNY 1975). The court first held that the suit met the requirements for class-action treatment under Rule 23(b)(3). Id., at 1220-1221. It then rejected respondents’ proposed redefinition of the class because it “would involve an arbitrary reduction in the class.” Id., at 1221.' At the same time, however, the court held that “the cost of culling out the list of class members ... is the responsibility of defendants.” Ibid. The only explanation given was that “the expense is relatively modest and it is defendants who are seeking to have the class defined in a manner which appears to require the additional expense.” Ibid. Finally, the court rejected respondents’ proposal that the class notice be included in a regular Fund mailing. Noting that the mailing would reach many current Fund shareholders who were not members of the class, the District Judge said that his “solution to this problem starts with my earlier ruling that it is the responsibility of defendants to cull out from their records a list of all class members and provide this list to plaintiffs. Plaintiffs will then have the responsibility to prepare the necessary notice and mail it at their expense.” Id., at 1222.

On petitioners’ appeal, a divided panel of the Court of Appeals reversed the District Court’s order insofar as it required petitioners to bear the cost required for the transfer agent to compile a list of the class members’ names and addresses. Sanders v. Levy, 558 F. 2d 636 (CA2 1976). The majority thought that Eisen IV, which had affirmed Eisen III in pertinent part, required respondents to pay this cost because the identification of class members is an integral step in the process of notifying them. 558 F. 2d, at 642. On rehearing en banc, however, the Court of Appeals reversed the panel’s decision and affirmed the District Court’s order by a vote of seven to three. Id., at 646. It thought that Eisen IV did not control this case because respondents might obtain the class members’ names and addresses under the federal discovery rules, Fed. Rules Civ. Proc. 26-37. The en banc court further held that although Rule 26 (c) protects parties from “undue burden or expense” in complying with discovery requests, the District Court did not abuse its discretion under that Rule in requiring petitioners to bear this expense. 558 F. 2d, at 649-650.

By holding that the discovery rules apply to this case, the en banc court brought itself into conflict with the Court of Appeals for the Fifth Circuit, which recently had held:

“The time and expense of gathering, [class members’] names and addresses is a necessary predicate to providing each with notice of the action’s pendency without which the action may not proceed [citing Bisen TV~\. Viewed in this context, it becomes strikingly clear that rather than being controlled by the federal civil discovery rules, identification of absentee class members’ names and addresses is part and parcel of rule 23 (c)(2)’s mandate that the class members receive The best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.’ ” In re Nissan Motor Corp. Antitrust Litigation, 552 F. 2d 1088, 1102 (1977).

In the Fifth Circuit’s view, Rule 23 (d), which empowers district courts to enter appropriate orders in the handling of class actions, is the procedural device by which a district court may enlist the aid of a defendant in identifying class members to whom notice must be sent. The Nissan court found it unnecessary to decide whether Bisen IV requires a representative plaintiff always to bear the cost of identifying class members. Since the representative plaintiffs could perform the required search through the defendants’ records as readily as the defendants themselves^ and since the search had to be performed in order to advance the representative plaintiffs’ case, they were required to perform it and thus to bear its cost. See 552 F. 2d, at 1102-1103.

We granted certiorari in the instant case to resolve the conflict that thus has arisen and to consider the underlying cost-allocation problems. 434 U. S. 919 (1977).

II

The issues in this case arise because of the notice requirement of Fed. Rule Civ. Proc. 23(c)(2), which provides in part:

“In any class action maintained under subdivision (b) (3), the court shall direct to the members of the class the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.”

In Eisen IV, the Court held that the plain language of this Rule “requires that individual notice be sent to all class members who can be identified with reasonable effort.” 417 U. S., at 177. The Court also found no authority for a district court to hold a preliminary hearing on the merits of a suit in order to decide which party should bear the cost required to prepare and mail the class notice. Id., at 177-178. Instead, it held:

“In the absence of any support under Rule 23, [the representative plaintiff’s] effort to impose the cost of notice on [defendants] must fail. The usual rule is that a plaintiff must initially bear the cost of notice to the class. . . . Where, as here, the relationship between the parties is truly adversary, the plaintiff must pay for the cost of notice as part of the ordinary burden of financing his own suit.” Id., at 178-179.

In Eisen IV, the defendants had offered to provide a list of many of the class members’ names and addresses at their own expense in the first instance, if the representative plaintiff would prepare and mail individual notice to these class members. Eisen IV therefore did not present issues concerning either the procedure by which a representative plaintiff might require a defendant to help identify class members, or whether costs may be allocated to the defendant in such a case. The specific holding of Eisen IV is that where a representative plaintiff prepares and mails the class notice himself, he must bear the cost of doing so.

The parties in the instant case center much of their argument on the questions whether the discovery rules authorize a district court to order a defendant to help identify the members of a plaintiff class SO' that individual notice can be sent and, if so, which rule applies in this case. For the reasons stated in Part A below, we hold that Rule 23 (d), not the discovery rules, is the appropriate source of authority for such an order. This conclusion, however, is not dispositive of the cost-allocation question. As we explain in Part B, we think that where a defendant can perform one of the tasks necessary to send notice, such as identification, more efficiently than the representative plaintiff, the district court has discretion to order him to perform the task under Rule 23 (d). In such cases, the district court also has some discretion in allocating the cost of complying with its order. In Part C, however, we conclude that the District Court abused its discretion in this case.

A

Although respondents’ request resembles discovery in that it seeks to obtain information, we are convinced that it more properly is handled under Rule 23(d). The critical point is that the information is sought to facilitate the sending of notice rather than to define or clarify issues in the case.

The general scope of discovery is defined by Fed. Rule Civ. Proc. 26 (b)(1) as follows:

“Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party, including the existence, description, nature, custody, condition and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter. It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.”

The key phrase in this definition — “relevant to the subject matter involved in the pending action” — has been construed broadly to encompass any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case. See Hickman v. Taylor, 329 U. S. 495, 501 (1947). Consistently with the notice-pleading system established by the Rules, discovery is not limited to issues raised by the pleadings, for discovery itself is designed to help define and clarify the issues. Id., at 500-501. Nor is discovery limited to the merits of a case, for a variety of fact-oriented issues may arise during litigation that are not related to the merits.

At the same time, “discovery, like all matters of procedure, has ultimate and necessary boundaries.” Id., at 507. Discovery of matter not “reasonably calculated to lead to the discovery of admissible evidence” is not within the scope of Rule 26 (b)(1). Thus, it is proper to deny discovery of matter that is relevant only to claims or defenses that have been stricken, or to events that occurred before an applicable limitations period, unless the information sought is otherwise relevant to issues in the case. For the same reason, an amendment to Rule 26 (b) was required to bring within the scope of discovery the existence and contents of insurance agreements under which an insurer may be liable to satisfy a judgment against a defendant, for that information ordinarily cannot be considered, and would not lead to information that could be considered, by a court or jury in deciding any issues.

Respondents’ attempt to obtain the class members’ names and addresses cannot be forced into the concept of “relevancy” described above. The difficulty is that respondents do not seek this information for any bearing that it might have on issues in the case. See 558 F. 2d, at 653 (en banc dissent) , If respondents had sought the information because of its relevance to the issues, they would not have been willing, as they were, to abandon their request if the District Court would accept their proposed redefinition of the class and method of sending notice. Respondents argued to the District Court that they desired this information to enable them to send the class notice, and not for any other purpose. Taking them at their word, it would appear that respondents’ request is not within the scope of Rule 26 (b)(1).

The en banc majority avoided holding that the class members’ names and addresses are "relevant to the subject matter involved in the pending action” within the meaning of Rule 26 (b) (1) simply because respondents need this information in order to send the class notice. Tacitly acknowledging that discovery must be aimed at illuminating issues in the case, the court instead hypothesized that there is “a potential issue in all [Rule 23 (b) (3) class-action] litigation whether the required notice has properly been sent. A list of the names and addresses of the class members would of course be essential to the resolution of that issue.” 558 F. 2d, at 648. But aside from the fact that respondents themselves never pretended to be anticipating this “potential issue,” it is apparent that the “potential issue” cannot arise until respondents already have obtained the very information they seek. Nor do we perceive any other “potential issues” that could bring respondents’ request within the scope of legitimate discovery. In short, we do not think that the discovery rules are the right tool for this job.

Rule 23, on the other hand, deals comprehensively with class actions, and thus is the natural place to look for authority for orders regulating the sending of notice. It is clear that Rule 23 (d) vests power in the district court to order one of the parties to perform the tasks necessary to send notice.' Moreover, district courts sometimes have found it appropriate to order a defendant, rather than a representative plaintiff, to perform tasks other than identification that are necessary to the sending of notice. Since identification simply is another task that must be performed in order to send notice, we agree with the Court of Appeals for the Fifth Circuit that Rule 23 (d) also authorizes a district court in appropriate circumstances to require a defendant’s cooperation in identifying the class members to whom notice must be sent. We therefore turn to a consideration of the circumstances in which such an order is appropriate and of how the cost of the defendant’s complying with such an order should be allocated.

B

Although the Fifth Circuit held that Rule 23 (d), not the discovery rules, authorizes a district court to order a defendant to provide information needed to identify class members to whom notice must be sent, it also suggested that principles embodied in the discovery rules for allocating the performance of tasks and payment of costs might be relevant to a district court’s exercise of discretion under Rule 23 (d). See Nissan, 552 F. 2d, at 1102. Petitioners and the en banc dissent, on the other hand, argue that Eisen IV always requires a representative plaintiff to pay all costs incident to sending notice, whether he or the defendant performs the required tasks. Eisen IV does not compel this latter conclusion, for it did not involve a situation where a defendant properly was ordered under Rule 23 (d) to perform any of the tasks necessary to sending the notice.

The first question that a district court must consider under Rule 23 (d) is which party should perform particular tasks necessary to send the class notice. The general rule must be that the representative plaintiff should perform the tasks, for it is he who seeks to maintain the suit as a class action and to represent other members of his class. In Eisen IV we noted the general principle that a party must bear the “burden of financing his own suit,” 417 U. S., at 179. Thus ordinarily there is no warrant for shifting the cost of the representative plaintiff’s performance of these tasks to the defendant.

In some instances, however, the defendant may be able to perform a necessary task with less difficulty or expense than could the representative plaintiff. In such cases, we think that the district court properly may exercise its discretion under Rule 23 (d) to order the defendant to perform the task in question. As the Nissan court recognized, in identifying the instances in which such an order may be appropriate, a rough analogy might usefully be drawn to practice under Rule 33 (c) of the discovery rules. Under that Rule, when one party directs an interrogatory to another party which can be answered by examination of the responding party’s business records, “it is a sufficient answer to such interrogatory to specify the records from which the answer may be derived or ascertained and to afford to the party serving the interrogatory reasonable opportunity to” examine and copy the records, if the burden of deriving the answer would be “substantially the same” for either party. Not unlike Eisen IV, this provision is intended to place the “burden of discovery upon its potential benefitee.” The holding of Nissan represents application of a similar principle, for when the court concluded that the representative plaintiffs could derive the names and addresses of the class members from the defendants’ records with substantially the same effort as the defendants, it required the representative plaintiffs to perform this task and hence to bear the cost. See supra, at 348. But where the burden of deriving the answer would not be “substantially the same,” and the task could be performed more efficiently by the responding party, the discovery rules normally require the responding party to derive the answer itself.

In those cases where a district court properly decides under Rule 23 (d) that a defendant rather than the representative plaintiff should perform a task necessary to send the class notice, the question that then will arise is which party should bear the expense. On one hand, it may be argued that this should be borne by the defendant because a party ordinarily must bear the expense of complying with orders properly issued by the district court; but Eisen IV strongly suggests that the representative plaintiff should bear this expense because it is he who seeks to maintain the suit as a class action. In this situation, the district court must exercise its discretion in deciding whether to leave the cost of complying with its order where it falls, on the defendant, or place it on the party that benefits, the representative plaintiff. Once again, a rough analogy might usefully be drawn to practice under the discovery rules. Under those rules, the presumption is that the responding party must bear the expense of complying with discovery requests, but he may invoke the district court’s discretion under Rule 26 (c) to grant orders protecting him from “undue burden or expense” in doing so, including orders conditioning discovery on the requesting party’s payment of the costs of discovery. The analogy necessarily is imperfect, however, because in the Rule 23 (d) context, the defendant’s own case rarely will be advanced by his having performed the tasks. Cf. n. 30, infra. Thus, one of the reasons for declining to shift costs under Rule 26 (c) usually will be absent in the Rule 23 (d) context. For this reason, a district court exercising its discretion under Rule 23 (d) should be considerably more ready to place the cost of the defendant’s performing an ordered task on the representative plaintiff, who derives the benefit, than under Rule 26 (c). In the usual case, the test should be whether the expense is substantial, rather than, as under Rule 26 (c), whether it is "undue.”

Nevertheless, in some instances, the expense involved maybe so insubstantial as not to warrant the effort required to calculate it and shift it to the representative plaintiff. In Nissan, for example, the court did not find it necessary to direct the representative plaintiffs to reimburse the defendants for the expense of producing their files for inspection. In other cases, it may be appropriate to leave the cost where it falls because the task ordered is one that the defendant must perform in any event in the ordinary course of its business. Although we do not attempt to catalogue the instances in which a district court might be justified in placing the expense on the defendant, we caution that courts must not stray too far from the principle underlying Eisen TV that the representative plaintiff should bear all costs relating to the sending of notice because it is he who seeks to maintain the suit as a class action.

C

In this case, we think the District Court abused its discretion in requiring petitioners to bear the expense of identifying class members. The records containing the needed information are kept by the transfer agent, not petitioners. Since petitioners apparently have the right to control these records, and since the class members can be identified only by reference to them, the District Court acted within its authority under Rule 23 (d) in ordering petitioners to direct the transfer agent to make the records available to respondents. The preparation of the desired list requires, as indicated above, the manual sorting out of names and addresses from old records maintained on paper, the keypunching of up to 300,000 computer cards, and the creation of new computer programs for use with extant tapes and tapes that would have to be created from the paper records. It appears that neither petitioners nor respondents can perform these tasks, for both sides assume that the list can be generated only by hiring the services of a third party, the transfer agent, for a sum exceeding $16,000. As the expense of hiring the transfer agent would be no greater for respondents, who seek the information, than for petitioners, respondents should bear the expense. See Nissan, 552 F. 2d, at 1102-1103.

The District Court offered two reasons why petitioners should pay the transfer agent, but neither is persuasive. First, the court thought that petitioners should bear this cost because it was their opposition to respondents’ proposed redefinition of the class and method of sending notice that made it necessary to incur the cost. A district court necessarily has some discretion in deciding the composition of a proper class and how notice should be sent. Nor is it improper for the court to consider the potential impact that rulings on these issues may have on the expense that the representative plaintiff must bear in order to send the notice. See Eisen IV, 417 U. S., at 179 n. 16; id., at 179-181 (Douglas, J., dissenting in part). But it is neither fair nor good policy to penalize a defendant for prevailing on an argument against a representative plaintiff’s proposals. If a defendant’s argument has merit, it should be accepted regardless of his willingness to bear the extra expense that its acceptance would require. Otherwise, a defendant may be discouraged from advancing arguments entirely appropriate to the protection of his rights or the rights of absent class members.

The potential for inequity appears to have been realized in this case. The District Court seems to have agreed with petitioners that respondents' proposed redefinition of the class was improper. Otherwise its actions would be difficult to fathom, for its rejection of the proposed redefinition increased the cost to respondents as well as petitioners. By the same token, if the District Court believed that sending the notice to current Fund shareholders who were not class members might harm the Fund, it should not have required the Fund to buy protection from this threat. Yet it must have believed that the Fund would be harmed, for otherwise there was no reason to reject respondents' proposal and thus increase the cost that respondents themselves would have to bear. For these reasons, we hold that the District Court erred in linking the questions of class definition and method of notice to the cost-allocation question.

The second reason advanced by the District Court was that $16,000 is a “relatively modest” sum, presumably in comparison to the Fund's total assets, which exceed $500 million. Although in some circumstances the ability of a party to bear a burden may be a consideration, the test in this respect normally should be whether the cost is substantial; not whether it is “modest” in relation to ability to pay. In the context of a lawsuit in which the defendants deny all liability, the imposition on them of a threshold expense of $16,000 to enable the plaintiffs to identify their own class hardly can be viewed as an insubstantial burden. Cf. Eisen IV, supra, at 176. As the expenditure would benefit only respondents, we think that the amount of money involved here would cut strongly against the District Court’s holding, even if the principle of Nissan did not control.

The panel dissent and the en banc majority suggested several additional reasons to justify the District Court’s order, none of which we find persuasive. Both opinions suggest that the fact that part of these records are kept on computer tapes justifies imposing a greater burden on petitioners than might be imposed on a party whose records are kept in another form. Thus, the panel dissent warned that potential defendants may be tempted to use computers “irretrievably [to bury] information to immunize business activity from later scrutiny,” 558 F. 2d, at 645 n, 1, and the en banc majority argued that even where no bad motive is present, “complex electronic processes may be required to extract information which might have been obtainable through a minimum of effort had different systems been used.” Id., at 649.

We do not think these reasons justify the order in this case. There is no indication or contention that these petitioners have acted in bad faith to conceal information from respondents. In addition, although it may be expensive to retrieve information stored in computers when no program yet exists for the particular job, there is no reason to think that the same information could be extracted any less expensively if the records were kept in less modern forms. Indeed, one might expect the reverse to be true, for otherwise computers would not have gained such widespread use in the storing and handling of information. Finally, the suggestion that petitioners should have used “different systems” to keep their records borders on the frivolous. Apart from the fact that no one has suggested what “different systems” petitioners should have used, we do not think a defendant should be penalized for not maintaining his records in the form most convenient to some potential future litigants whose identity and perceived needs could not have been anticipated. See id., at 654 (en banc dissent).

Respondents also contend that petitioners should be required to bear the identification expense because they are alleged to have breached a fiduciary duty to respondents and their class. See also id., at 645-646 (panel dissent). Although we had no occasion in Eisen IV to consider this argument, see 417 U. S., at 178, and n. 15, suggestions to this effect have met with trenchant criticism elsewhere. A bare allegation of wrongdoing, whether by breach of fiduciary duty or otherwise, is not a fair reason for requiring a defendant to undertake financial burdens and risks to further a plaintiff’s case. Nor would it be in the interests of the class of persons to whom a fiduciary duty is owed to require them, through the fiduciary, to help finance every suit by one of their number that alleges a breach of fiduciary duty, without regard to whether the suit has any merit.

Ill

Given that respondents can obtain the information sought here by paying the transfer agent the same amount that petitioners would have to pay, that the information must be obtained to comply with respondents’ obligation to provide notice to their class, and that no special circumstances have been shown to warrant requiring petitioners to bear the expense, we hold that the District Court abused its discretion in not requiring respondents to pay the transfer agent to identify the members of their own class. The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.

      The complaints alleged violations of the Securities Act of 1933, 15 U. S. C. § 77a et seq. (1976 ed.), the Securities Exchange Act of 1934, 15 U. S. C. §78a et seq. (1976 ed.), the Investment Company Act of 1940, 15 U. S. C. § 80a-l et seq. (1976 ed.), and rules promulgated under these Acts. They also alleged pendent state-law claims of fraud and breach of fiduciary duty.

       “Restricted” securities are “securities acquired directly or indirectly from the issuer thereof, or from an affiliate of such issuer, in a transaction or chain of transactions not involving any public offering . . . .” 17 CFR § 230.144 (a) (3) (1977). The public sale or distribution of such securities is restricted under the Securities Act of 1933 until the securities are registered or an exemption from registration becomes available. See 15 U. S. C. §§ 77d, 77e (1976 ed.).

       Later in the proceedings respondents’ counsel estimated that the average recovery per class member would be about $15, and that the aggregate recovery might be $1% million.
      In a separate count of their complaints, respondents also sought derivative relief on behalf of the Fund to recover excessive management fees paid by the Fund to Management Corp. as a result of the Fund’s allegedly inflated net asset value.

       Petitioners denied the material allegations of the complaints. In addition, they alleged a setoff against respondents and their class to the extent that the price paid by the Fund to redeem shares had exceeded their value. The non-Fund petitioners also alleged that if they were liable to respondents and their class for overvaluation of Fund shares, then the Fund would be liable to them for excess amounts received by the Fund as a result of the overvaluation.

       Petitioners submitted the sworn affidavit of Robert Galli, Secretary of the Fund and Administrative Vice President and Secretary of Management Corp., which stated that this was a real possibility in light of “the current loss of investor confidence in the stock market and the uncertain conditions under which that market exists at this time.” App. 130-131.

       The District Court also rejected a proposal by petitioners to set April 25, 1969, as the closing date of the class period, holding that respondents had raised triable claims of misrepresentations after that date. 20 Fed. Rules Serv. 2d, at 1221-1222.

       The court subsequently modified this order to allow the notice to class members who still were Fund shareholders to be inserted in the envelopes of a periodic Fund mailing, “provided that the notices are sent only to class members and that plaintiffs pay in full the Fund’s extra costs of mailing, including the costs of segregating the envelopes going to the class members from the envelopes going to other Fund shareholders.” At the same time,, the court held that the Fund should bear the identification costs in the first instance, “without prejudice to the right of this defendant, at the conclusion of the action, to make whatever claim it would be legally entitled to make regarding reimbursement by another party.” The court denied the Fund’s request that respondents be required to post bond for the identification costs.

       All three members of the panel agreed that the order allocating the expense of identification was appealable under the collateral-order doctrine of Cohen v. Beneficial Loan Corp., 337 U. S. 541 (1949). 558 F. 2d, at 638-639; id,., at 643 (Hays, J., dissenting in part). We agree. See Eisen v. Carlisle & Jacquelin (Eisen IV), 417 U. S. 156, 171-172 (1974). The panel also unanimously affirmed the District Court’s ruling that the suit could proceed as a class action. 558 F. 2d, at 642-643; id., at 643 (Hays, J., dissenting in part). This issue is not before us.

       The panel majority also suggested that the Fund should not be required to bear this expense because it, unlike the other petitioners, was not named as a defendant in the class-action portion of this suit. See id., at 640. The Fund itself, which is in the position of a defendant because it ultimately may be liable for any damages that respondents and their class recover, see n. 4, supra, does not argue in this Court that it should not bear the expense because it is not a formal defendant. We therefore do not rely on any distinction that might be drawn between the Fund and the other petitioners in this respect.

       District Judge Palmieri, the author of the panel majority opinion, did not participate in the rehearing en banc.

       See App. in Eisen v. Carlisle & Jacquelin, O. T. 1973, No. 73-203, pp. 184-185.

       “[Tjhe court should and ordinarily does interpret 'relevant’ very broadly to mean matter that is relevant to anything that is or may become an issue in the litigation.” 4 J. Moore, Federal Practice ¶ 26.56 [1], p. 26-131 n. 34 (2d ed. 1976).

       For example, where issues arise as to jurisdiction or venue, discovery is available to ascertain the facts bearing on such issues. See id., ¶ 26.56 [6]; Note, The Use of Discovery to Obtain Jurisdictional Facts, 59 Va. L. Rev. 533 (1973). Similarly, discovery often has been used to illuminate issues upon which a district court must pass in deciding whether a suit should proceed as a class action under Rule 23, such as numerosity, common questions, and adequacy of representation. See Annot., Discovery for Purposes of Determining Whether Class Action Requirements Under Rule 23 (a) and (b) of Federal Rules of Civil Procedure Are Satisfied, 24 A. L. R. Fed. 872 (1975).

       See, e. g., United States v. 416.81 Acres of Land, 514 F. 2d 627, 632 (CA7 1975); Bourget v. Government Employees Ins. Co., 313 F. Supp. 367, 372-373 (Conn. 1970), reversed on other grounds, 456 F. 2d 282 (CA2 1972).

       See 4 J. Moore, Federal Practice ¶26.56 [1], pp. 26-126 to 26-128 (2d ed. 1976), and cases there cited.

       Before Rule 26 (b) (2) was added in 1970, many courts held that such agreements were not within the scope of discovery, although other courts, swayed by the fact that revelation of such agreements tends to encourage settlements, held otherwise. See Advisory Committee’s Notes on 1970 Amendment to Fed. Rule Civ. Proc. 26, 28 U. S. C. App., p. 7777; 4 J. Moore, Federal Practice ¶ 26.62 [1] (2d ed. 1976). The Advisory Committee appears to have viewed this amendment as changing rather than clarifying the Rules, for it stated: "[T]he provision makes no change in existing law on discovery of indemnity agreements other than insurance agreements by persons carrying on an insurance business.” 28 U. S. C. App., p. 7778 (emphasis supplied).

       This difficulty may explain why the District Court, after calling for briefs on the question whether the discovery rules applied, see Brief for Respondents 10 n. 4, did not expressly rely on those rales. See also Note, Allocation of Identification Costs in Class Actions: Sanders v. Levy, 91 Harv. L. Rev. 703, 708-709 (1978) (distinguishing between “information . . . sought solely to provide adequate notice” and “valid discovery”).
      In deciding whether a request comes within the discovery rales, a court is not required to blind itself to the purpose for which a party seeks information. Thus, when the purpose of a discovery request is to gather information for use in proceedings other than the pending suit, discovery properly is denied. See Mississippi Power Co. v. Peabody Coal Co., 69 F. R. D. 558, 565-568 (SD Miss. 1976); Econo-Car International, Inc. v. Antilles Car Rentals, Inc., 61 F. R. D. 8, 10 (V. I. 1973), rev’d on other grounds, 499 F. 2d 1391 (CA3 1974). Likewise, discovery should be denied when a party’s aim is to delay bringing a case to trial, or embarrass or harass the person from whom he seeks discovery. See United States v. Howard, 360 F. 2d 373, 381 (CA3 1966); Balistrieri v. Holtzman, 52 F. R. D. 23, 24-25 (ED Wis. 1971). See also n. 20, infra.

       Respondents contend that they should be able to obtain the class members’ names and addresses under the discovery rales because it is “well settled that [a] plaintiff is entitled to conduct discovery with respect to a broad range of matters which pertain to the maintenance of a class action under Rule 23.” Brief for Respondents 25 n. 17; see n. 13, supra. The difference between the eases relied on by respondents and this case is that respondents do not seek information because it may bear on some issue which the District Court must decide, but only for the purpose of sending notice.

       Until respondents obtain the information and send the class notice, no issue can arise as to whether it was sent “properly.”

       We do not hold that class members' names and addresses never can be obtained under the discovery rules. There may be instances where this information could be relevant to issues that arise under Rule 23, see n. 13, supra, or where a party has reason to believe that nomm.imica.tinn with some members of the class could yield information bearing on these or other issues. Respondents make no such claims of relevance, however, and none is apparent here. Moreover, it may be doubted whether any of these purposes would require compilation of the names and addresses of all members of a large class. See Berland, v. Mack, 48 F. R. D. 121, 126 (SDNY 1969). There is a distinction in principle between requests for identification of class members that are made to enable a party to send notice, and requests that are made for true discovery purposes. See n. 17, supra.

       Although Rule 23 (c) (2) states that “the court shall direct” notice to class members, it commonly is agreed that the court should order one of the parties to perform the necessary tasks. See Frankel, Some Preliminary Observations Concerning Civil Rule 23, 43 F. R. D. 39, 44 (1968); Kaplan, Continuing Work of the Civil Committee: 1966 Amendments of the Federal Rules of Civil Procedure (I), 81 Harv. L. Rev. 356, 398 n. 157 (1967). Rule 23 (d) provides that in the conduct of a class action, "the court may make appropriate orders: ... (2) requiring, for the protection of the members of the class or otherwise for the fair conduct of the action, that notice be given in such manner as the court may direct . . . ; [and] (5) dealing with similar procedural matters.” The Advisory Committee apparently contemplated that the court would make orders drawing on the authority of either Rule 23 (d) (2) or 23 (d) (5) in order to provide the notice required by Rule 23 (c)(2), for its note to Rule 23 (d)(2) states that “under subdivision (c)(2), notice must be ordered . . . Advisory Committee’s Notes to Fed. Rule Civ. Proc. 23, 28 U. S. C. App., p. 7768 (emphasis supplied).

       Thus, a number of courts have required defendants in Rule 23 (b) (3) class actions to enclose class notices in their own periodic mailings to class members in order to reduce the expense of sending the notice, as respondents asked the District Court in this case to do. See, e. g., Ste. Marie v. Eastern R. Assn., 72 F. R. D. 443, 450 n. 2 (SDNY 1976); Gates v. Dalton, 67 F. R. D. 621, 633 (EDNY 1975); Popkin v. Wheelabrator-Frye, Inc., 20 Fed. Rules Serv. 2d 125, 130 (SDNY 1975). See also Eisen IV, 417 U. S., at 180 n. 1 (Douglas, J., dissenting in part).

       Our conclusion that Rule 23 (d), not the discovery rules, is the appropriate source of authority is supported by the fact that, although a number of courts have ordered defendants to help identify class members in the course of ordering notice, few have relied on the discovery rules. See In re Nissan Motor Corp. Antitrust Litigation, 552 F. 2d 1088, 1101-1102 (CA5 1977) (collecting cases).

       The analogy to the discovery rules is not perfect, for those rules contemplate that discovery will proceed without judicial intervention unless a party moves for a protective order under Rule 26 (c) or an order compelling discovery under Rule 37 (a). Rule 23, on the other hand, contemplates that the district court routinely must approve the form of the class notice and order how it should be sent and who should perform the necessary tasks.

       Advisory Committee’s Notes on 1970 Amendment to Fed. Rule Civ. Proc. 33 (e), 28 U. S. C. App., p. 7793, quoting D. Louisell, Modem California Discovery 125 (1963).

       See Foster v. Boise-Cascade, Inc., 20 Fed. Rules Serv. 2d 466, 470 (SD Tex. 1975); Chrapliwy v. Uniroyal, Inc., 17 Fed. Rules Serv. 2d 719, 722 (ND Ind. 1973); Advisory Committee’s Notes, supra, at 7793.

       Cf., e. g., Hodgson v. Adams Drug Co., 15 Fed. Rules Serv. 2d 828, 830 (RI 1971); Adelman v. Nordberg Mfg. Co., 6 F. R. D. 383, 384 (ED Wis. 1947); 4A J. Moore, Federal Practice ¶ 33.20, pp. 33-113 to 33-114 (2d ed. 1975).

       Thus, where defendants have been directed to enclose class notices in their own periodic mailings and the additional expense has not been substantial, representative plaintiffs have not been required to reimburse the defendants for envelopes or postage. See cases cited in n. 22, supra.

       See also Note, Allocation of Identification Costs in Class Actions, 66 Calif. L. Rev. 105, 115 (1978).

       The District Court characterized the proposal as “arbitrary,” Sanders v. Levy, 20 Fed. Rules Serv. 2d 1218, 1221 (SDNY 1975), and stated that it ruled “in favor of” petitioners on this issue, id., at 1222. Although the court also suggested that petitioners opposed the redefinition because it would reduce the res judicata effect of the judgment, id., at 1221, petitioners themselves never made this argument. We also note that the representative plaintiff in Eisen IV argued, without success, that the defendants should pay part of the cost of notice because of the supposed res judicata benefits to them from class-action treatment. Reply Brief for Petitioner in Eisen v. Carlisle & Jacquélin, O. T. 1973, No. 73-203, pp. 25-26. We did not think then, nor do we now, that an unwilling defendant should be forced to purchase these “benefits.”

       Respondents were required to bear the additional expense at least of envelopes and postage for notice to class members who no longer held shares in the Fund. See n. 7, supra.

       See, e. g., 558 F. 2d, at 640-641 (panel majority); Popkin v. Wheelabrator-Frye, Inc., 20 Fed. Rules Serv. 2d, at 129-130; Berland v. Mack, 48 F. R. D. 121, 131-132 (SDNY 1969); Note, 23 Kan. L. Rev. 309, 318-319 (1975).


source: Caselaw Access Project

author: Me. Justice Stewart Mr. Justice White,

license: Public Domain

text:
    OWEN EQUIPMENT & ERECTION CO. v. KROGER, ADMINISTRATRIX
    No. 77-677.
    Argued April 18, 1978
    Decided June 21, 1978

      StewaRT, J., delivered the opinion of the Court, in which Burger, C. J., and Marshall, Blackmun, Powell, Rehnquist, and Stevens, JJ., joined. White, J., filed a dissenting opinion, in which Brennan, J., joined, post, p. 377.

      Emil F. Sodoro argued the cause for petitioner. With him on the briefs were David A. Johnson and Ronald H. Stave.

      Warren C. Schrempp argued the cause for respondent. With him on the brief were John J. Hamley and Thomas O. McQuade.

   Me. Justice Stewart

delivered the opinion of the Court.

In an action in which federal jurisdiction is based on diversity of citizenship, may the plaintiff assert a claim against a third-party defendant when there is no independent basis for federal jurisdiction over that claim? The Court of Appeals for the Eighth Circuit held in this case that such a claim is within the ancillary jurisdiction of the federal courts. We granted certiorari, 434 U. S. 1008, because this decision conflicts with several recent decisions of other Courts of Appeals.

I

On January 18, 1972, James Kroger was electrocuted when the boom of a steel crane next to which he was walking came too close to a high-tension electric power line. The respondent (his widow, who is the administratrix of his estate) filed a wrongful-death action in the United States District Court for the District of Nebraska against the Omaha Public Power District (OPPD). Her complaint alleged that OPPD’s negligent construction, maintenance, and operation of the power line had caused Kroger’s death. Federal jurisdiction was based on diversity of citizenship, since the respondent was a citizen of Iowa and OPPD was a Nebraska corporation.

OPPD then filed a third-party complaint pursuant to Fed. Bule Civ. Proc. 14 (a) against the petitioner, Owen Equipment and Erection Co. (Owen), alleging that the crane was owned and operated by Owen, and that Owen’s negligence had been the proximate cause of Kroger’s death. OPPD later moved for summary judgment on the respondent’s complaint against it. While this motion was pending, the respondent was granted leave to file an amended complaint naming Owen as an additional defendant. Thereafter, the District Court granted OPPD’s motion for summary judgment in an unreported opinion. The case thus went to trial between the respondent and the petitioner alone.

The respondent’s amended complaint alleged that Owen was “a Nebraska corporation with its principal place of business in Nebraska.” Owen’s answer admitted that it was “a corporation organized and existing under the laws of the State of Nebraska/’ and denied every other allegation of the complaint. On the third day of trial, however, it was disclosed that the petitioner’s principal place of business was in Iowa, not Nebraska, and that the petitioner and the respondent were thus both citizens of Iowa. The petitioner then moved to dismiss the complaint for lack of jurisdiction. The District Court reserved decision on the motion, and the jury thereafter returned a verdict in favor of the respondent. In an unreported opinion issued after the trial, the District Court denied the petitioner’s motion to dismiss the complaint.

The judgment was affirmed on appeal. 558 F. 2d 417. The Court of Appeals held that under this Court’s decision in Mine Workers v. Gibbs, 383 U. S. 715, the District Court had jurisdictional power, in its discretion, to adjudicate the respondent’s claim against the petitioner because that claim arose from the “core of 'operative facts’ giving rise to both [respondent’s] claim against OPPD and OPPD’s claim against Owen.” 558 F. 2d, at 424. It further held that the District Court had properly exercised its discretion in proceeding to decide the case even after summary judgment had been granted to OPPD, because the petitioner had concealed its Iowa citizenship from the respondent. Rehearing en banc was denied by an equally divided court. 558 F. 2d 417.

II

It is undisputed that there was no independent basis of federal jurisdiction over the respondent’s state-law tort action against the petitioner, since both are citizens of Iowa. And although Fed. Rule Civ. Proc. 14 (a) permits a plaintiff to assert a claim against a third-party defendant, see n. 2, supra, it does not purport to say whether or not such a claim requires an independent basis of federal jurisdiction. Indeed, it could not determine that question, since it is axiomatic that the Federal Rules of Civil Procedure do not create or withdraw federal jurisdiction.

In affirming the District Court’s judgment, the Court of Appeals relied upon the doctrine of ancillary jurisdiction, whose contours it believed were defined by this Court’s holding in Mine Workers v. Gibbs, supra. The Oibbs case differed from this one in that it involved pendent jurisdiction, which concerns the resolution of a plaintiff’s federal- and state-law claims against a single defendant in one action. By contrast, in this case there was no claim based upon substantive federal law, but rather state-law tort claims against two different defendants. Nonetheless, the Court of Appeals was correct in perceiving that Gibbs and this case are two species of the same generic problem: Under what circumstances may a federal court hear and decide a state-law claim arising between citizens of the same State? But we believe that the Court of Appeals failed to understand the scope of the doctrine of the Gibbs case.

The plaintiff in Gibbs alleged that the defendant union had violated the common law of Tennessee as well as the federal prohibition of secondary boycotts. This Court held that, although the parties were not of diverse citizenship, the District Court properly entertained the state-law claim as pendent to the federal claim. The crucial holding was stated as follows:

“Pendent jurisdiction, in the sense of judicial power, exists whenever there is a claim ‘arising under [the] Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority .. . ,’ U. S. Const., Art. Ill, § 2, and the relationship between that claim and the state claim permits the conclusion that the entire action before the court comprises but one constitutional ‘case.’ . . . The state and federal claims must derive from a common nucleus of operative fact. But if, considered without regard to their federal or state character, a plaintiff’s claims are such that he would ordinarily be expected to try them all in one judicial proceeding, then, assuming substantiality of the federal issues, there is power in federal courts to hear the whole.” 383 U. S., at 725 (emphasis in original).

It is apparent that Gibbs delineated the constitutional limits of federal judicial power. But even if it be assumed that the District Court in the present case had constitutional power to decide the respondent’s lawsuit against the petitioner, it does not follow that the decision of the Court of Appeals was correct. Constitutional power is merely the first hurdle that must be overcome in determining that a federal court has jurisdiction over a particular controversy. For the jurisdiction of the federal courts is limited not only by the provisions of Art. Ill of the Constitution, but also by Acts of Congress. Palmore v. United States, 411 U. S. 389, 401; Lockerty v. Phillips, 319 U. S. 182, 187; Kline v. Burke Constr. Co., 260 U. S. 226, 234; Cary v. Curtis, 3 How. 236, 245.

That statutory law as well as the Constitution may limit a federal court’s jurisdiction over nonfederal claims is well illustrated by two recent decisions of this Court, Aldinger v. Howard, 427 U. S. 1, and Zahn v. International Paper Co., 414 U. S. 291. In Aldinger the Court held that a Federal District Court lacked jurisdiction over a state-law claim against a county, even if that claim was alleged to be pendent to one against county officials under 42 U. S. C. § 1983. In Zahn the Court held that in a diversity class action under Fed. Rule Civ. Proc. 23 (b)(3), the claim of each member of the plaintiff class must independently satisfy the minimum jurisdictional amount set by 28 U. S. C. § 1332 (a), and rejected the argument that jurisdiction existed over those claims that involved $10,000 or less as ancillary to those that involved more. In each case, despite the fact that federal and non-federal claims arose from a “common nucleus of operative fact,” the Court held that the statute conferring jurisdiction over the federal claim did not allow the exercise of jurisdiction over the nonfederal claims.

The Aldinger and Zahn cases thus make clear that a finding that federal and nonfederal claims arise from a “common nucleus of operative fact,” the test of Gibbs, does not end the inquiry into whether a federal court has power to hear the nonfederal claims along with the federal ones. Beyond this constitutional minimum, there must be an examination of the posture in which the nonfederal claim is asserted and of the specific statute that confers jurisdiction over the federal claim, in order to determine whether “Congress in [that statute] has . . . expressly or by implication negated” the exercise of jurisdiction over the particular nonfederal claim. Aldinger v. Howard, supra, at 18.

Ill

The relevant statute in this case, 28 U. S. C. § 1332 (a) (1), confers upon federal courts jurisdiction over “civil actions where the matter in controversy exceeds the sum or value of $10,000 . . . and is between . . . citizens of different States.” This statute and its predecessors have consistently been held to require complete diversity of citizenship. That is, diversity jurisdiction does not exist unless each defendant is a citizen of a different State from each plaintiff. Over the years Congress has repeatedly re-enacted or amended the statute conferring diversity jurisdiction, leaving intact this rule of complete diversity. Whatever may have been the original purposes of diversity-of-citizenship jurisdiction, this subsequent history clearly demonstrates a congressional mandate that diversity jurisdiction is not to be available when any plaintiff is a citizen of the same State as any defendant. Cf. Snyder v. Harris, 394 U. S. 332, 338-339.

Thus it is clear that the respondent could not originally have brought suit in federal court naming Owen and OPPD as codefendants, since citizens of Iowa would have been on both sides of the litigation. Yet the identical lawsuit resulted when she amended her complaint. Complete diversity was destroyed just as surely as if she had sued Owen initially. In either situation, in the plain language of the statute, the “matter in controversy” could not be “between . . . citizens of different States.”

It is a fundamental precept that federal courts are courts of limited jurisdiction. The limits upon federal jurisdiction, whether imposed by the Constitution or by Congress, must be neither disregarded nor evaded. Yet under the reasoning of the Court of Appeals in this case, a plaintiff could defeat the statutory requirement of complete diversity by the simple expedient of suing only those defendants who were of diverse citizenship and waiting for them to implead nondiverse defendants. If, as the Court of Appeals thought, a “common nucleus of operative fact” were the only requirement for ancillary jurisdiction in a diversity case, there would be no principled reason why the respondent in this case could not have joined her cause of action against Owen in her original complaint as ancillary to her claim against OPPD. Congress’ requirement of complete diversity would thus have been evaded completely.

It is true, as the Court of Appeals noted, that the exercise of ancillary jurisdiction over nonfederal claims has often been upheld in situations involving impleader, cross-claims or counterclaims. But in determining whether jurisdiction over a nonfederal claim exists, the context in which the non-federal claim is asserted is crucial. See Aldinger v. Howard, 427 U. S., at 14. And the claim here arises in a setting quite different from the kinds of nonfederal claims that have been viewed in other cases as falling within the ancillary jurisdiction of the federal courts.

First, the nonfederal claim in this case was simply not ancillary to the federal one in the same sense that, for example, the impleader by a defendant of a third-party defendant always is. A third-party complaint depends at least in part upon the resolution of the primary lawsuit. See n. 3, supra. Its relation to the original complaint is thus not mere factual similarity but logical dependence. Cf. Moore v. New York Cotton Exchange, 270 U. S. 593, 610. The respondent's claim against the petitioner, however, was entirely separate from her original claim against OPPD, since the petitioner’s liability to her depended not at all upon whether or not OPPD was also liable. Far from being an ancillary and dependent claim, it was a new and independent one.

Second, the nonfederal claim here was asserted by the plaintiff, who voluntarily chose to bring suit upon a state-law claim in a federal court. By contrast, ancillary jurisdiction typically involves claims by a defending party haled into court against his will, or by another person whose rights might be irretrievably lost unless he could assert them in an ongoing action in a federal court. A plaintiff cannot complain if ancillary jurisdiction does not encompass all of his possible claims in a case such as this one, since it is he who has chosen the federal rather than the state forum and must thus accept its limitations. “[T]he efficiency plaintiff seeks so avidly is available without question in the state courts.” Kenrose Mfg. Co. v. Fred Whitaker Co., 512 F. 2d 890, 894 (CA4).

It is not unreasonable to assume that, in generally requiring complete diversity, Congress did not intend to confine the jurisdiction of federal courts so inflexibly that they are unable to protect legal rights or effectively to resolve an entire, logically entwined lawsuit. Those practical needs are the basis of the doctrine of ancillary jurisdiction. But neither the convenience of litigants nor considerations of judicial economy can suffice to justify extension of the doctrine of ancillary jurisdiction to a plaintiff’s cause of action against a citizen of the same State in a diversity case. Congress has established the basic rule that diversity jurisdiction exists under 28 U. S. C. § 1332 only when there is complete diversity of citizenship. “The policy of the statute calls for its strict construction.” Healy v. Ratta, 292 U. S. 263, 270; Indianapolis v. Chase Nat. Bank, 314 U. S. 63, 76; Thomson v. Gaskill, 315 U. S. 442, 446; Snyder v. Harris, 394 U. S., at 340. To allow the requirement of complete diversity to be circumvented as it was in this case would simply flout the congressional command.

Accordingly, the judgment of the Court of Appeals is reversed.

It is so ordered.

Mr. Justice White,

with whom Mr. Justice Brennan joins, dissenting.

The Court today states that “[i]t is not unreasonable to assume that, in generally requiring complete diversity, Congress did not intend to confine the jurisdiction of federal courts so inflexibly that they are unable . . . effectively to resolve an entire, logically entwined lawsuit.” Ante, at 377. In spite of this recognition, the majority goes on to hold that in diversity suits federal courts do not have the jurisdictional power to entertain a claim asserted by a plaintiff against a third-party defendant, no matter how entwined it is with the matter already before the court, unless there is an independent basis for jurisdiction over that claim. Because I find no support for such a requirement in either Art. Ill of the Constitution or in any statutory law, I dissent from the Court’s “unnecessarily grudging” approach.

The plaintiff below, Mrs. Kroger, chose to bring her lawsuit against the Omaha Public Power District (OPPD) in Federal District Court. No one questions the power of the District Court to entertain this claim, for Mrs. Kroger at the time was a citizen of Iowa, OPPD was a citizen of Nebraska, and the amount in controversy was greater than $10,000; jurisdiction therefore existed under 28 U. S. C. § 1332 (a). As permitted by Fed. Rule Civ. Proc. 14 (a), OPPD impleaded petitioner Owen Equipment & Erection Co. (Owen). Although OPPD’s claim against Owen did not raise a federal question and although it was alleged that Owen was a citizen of the same State as OPPD, the parties and the court apparently believed that the District Court’s ancillary jurisdiction encompassed this claim. Subsequently, Mrs. Kroger asserted a claim against Owen, everyone believing at the time that these two parties were citizens of different States. Because it later came to light that Mrs. Kroger and Owen were in fact both citizens of Iowa, the Court concludes that the District Court lacked jurisdiction over the claim.

In Mine Workers v. Gibbs, 383 U. S. 715, 725 (1966), we held that once a claim has been stated that is of sufficient substance to confer subject-matter jurisdiction on the federal district court, the court has judicial power to consider a non-federal claim if it and the federal claim are derived from “a common nucleus of operative fact.” Although the specific facts of that case concerned a state claim that was said to be pendent to a federal-question claim, the Court’s language and reasoning were broad enough to cover the instant factual situation: “[I]f, considered without regard to their federal or state character, a plaintiff’s claims are such that he would ordinarily be expected to try them all in one judicial proceeding, then, assuming substantiality of the federal issues, there is power in federal courts to hear the whole.” Ibid, (footnote omitted). In the present case, Mrs. Kroger’s claim against Owen and her claim against OPPD derived from a common nucleus of fact; this is necessarily so because in order for a plaintiff to assert a claim against a third-party defendant, Fed. Rule Civ. Proc. 14 (a) requires that it “aris[e] out of the transaction or occurrence that is the subject matter of the plaintiff’s claim against the third-party plaintiff . . . .” Furthermore, the substantiality of the claim Mrs. Kroger asserted against OPPD is unquestioned. Accordingly, as far as Art. Ill of the Constitution is concerned, the District Court had power to entertain Mrs. Kroger’s claim against Owen.

The majority correctly points out, however, that the analysis cannot stop here. As Aldinger v. Howard, 427 U. S. 1 (1976), teaches, the jurisdictional power of the federal courts may be limited by Congress, as well as by the Constitution. In Aldinger, although the plaintiff’s state claim against Spokane County was closely connected with her 42 U. S. C. § 1983 claim against the county treasurer, the Court held that the District Court did not have pendent jurisdiction over the state claim, for, under the Court’s precedents at that time, it was thought that Congress had specifically determined not to confer on the federal courts jurisdiction over civil rights claims against cities and counties. That being so, the Court refused to allow “the federal courts to fashion a jurisdictional doctrine under the general language of Art. Ill enabling them to circumvent this exclusion . . . 427 U. S., at 16.

In the present case, the only indication of congressional intent that the Court can find is that contained in the diversity jurisdictional statute, 28 U. S. C. § 1332 (a), which states that “district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $10,000 . . . and is between . . . citizens of different States . . . Because this statute has been interpreted as requiring complete diversity of citizenship between each plaintiff and each defendant, Strawbridge v. Curtiss, 3 Cranch 267 (1806), the Court holds that the District Court did not have ancillary jurisdiction over Mrs. Kroger’s claim against Owen. In so holding, the Court unnecessarily expands the scope of the complete-diversity requirement while substantially limiting the doctrine of ancillary jurisdiction.

The complete-diversity requirement, of course, could be viewed as meaning that in a diversity case, a federal district court may adjudicate only those claims that are between parties of different States. Thus, in order for a defendant to implead a third-party defendant, there would have to be diversity of citizenship; the same would also be true for cross-claims between defendants and for a third-party defendant’s claim against a plaintiff. Even the majority, however, refuses to read the complete-diversity requirement so broadly; it recognizes with seeming approval the exercise of ancillary jurisdiction over nonfederal claims in situations involving impleader, cross-claims, and counterclaims. See ante, at 375. Given the Court’s willingness to recognize ancillary jurisdiction in these contexts, despite the requirements of § 1332 (a), I see no justification for the Court’s refusal to approve the District Court’s exercise of ancillary jurisdiction in the present case.

It is significant that a plaintiff who asserts a claim against a third-party defendant is not seeking to add a new party to the lawsuit. In the present case, for example, Owen had already been brought into the suit by OPPD, and, that having been done, Mrs. Kroger merely sought to assert against Owen a claim arising out of the same transaction that was already before the court. Thus the situation presented here is unlike that in Aldinger, supra, wherein the Court noted:

“[I]t is one thing to authorize two parties, already present in federal court by virtue of a case over which the court has jurisdiction, to litigate in addition to their federal claim a state-law claim over which there is no independent basis of federal jurisdiction. But it is quite another thing to permit a plaintiff, who has asserted a claim against one defendant with respect to which there is federal jurisdiction, to join an entirely different defendant on the basis of a state-law claim over which there is no independent basis of federal jurisdiction, simply because his claim against the first defendant and his claim against the second defendant 'derive from a common nucleus of operative fact.’ . . . True, the same considerations of judicial economy would be served insofar as plaintiff’s claims 'are such that he would ordinarily be expected to try them all in one judicial proceeding . . . .’ [Gibbs, 383 U. S., at 725.] But the addition of a completely new party would run counter to the well-established principle that federal courts, as opposed to state trial courts of general jurisdiction, are courts of limited jurisdiction marked out by Congress.” 427 U. S., at 14-15.

Because in the instant case Mrs. Kroger merely sought to assert a claim against someone already a party to the suit, considerations of judicial economy, convenience, and fairness to the litigants — the factors relied upon in Gibbs — support the recognition of ancillary jurisdiction here. Already before the court was the whole question of the cause of Mr. Kroger’s death. Mrs. Kroger initially contended that OPPD was responsible; OPPD in turn contended that Owen’s negligence had been the proximate cause of Mr. Kroger’s death. In spite of the fact that the question of Owen’s negligence was already before the District Court, the majority requires Mrs. Kroger to bring a separate action in state court in order to assert that very claim. Even if the Iowa statute of limitations will still permit such a suit, see ante, at 376-377, n. 20, considerations of judicial economy are certainly not served by requiring such duplicative litigation.

The majority, however, brushes aside such considerations of convenience, judicial economy, and fairness because it concludes that recognizing ancillary jurisdiction over a plaintiff’s claim against a third-party defendant would permit the plaintiff to circumvent the complete-diversity requirement and thereby “flout the congressional command.” Since the plaintiff in such a case does not bring the third-party defendant into the suit, however, there is no occasion for deliberate circumvention of the diversity requirement, absent collusion with the defendant. In the case of such collusion, of which there is absolutely no indication here, the court can dismiss the action under the authority of 28 U. S. C. § 1359. In the absence of such collusion, there is no reason to adopt an absolute rule prohibiting the plaintiff from asserting those claims that he may properly assert against the third-party defendant pursuant to Fed. Rule Civ. Proc. 14 (a). The plaintiff in such a situation brings suit against the defendant only, with absolutely no assurance that the defendant will decide or be able to implead a particular third-party defendant. Since the plaintiff has no control over the defendant’s decision to im-plead a third party, the fact that he could not have originally sued that party in federal court should be irrelevant. Moreover, the fact that a plaintiff in some cases may be able to foresee the subsequent chain of events leading to the impleader does not seem to me to be a sufficient reason to declare that a district court does not have the 'power to exercise ancillary jurisdiction over the plaintiff’s claims against the third-party defendant.

We have previously noted that “[subsequent decisions of this Court indicate that Strawbridge is not to be given an expansive reading.” State Farm Fire & Cas. Co. v. Tashire, 386 U. S. 523, 531 n. 6 (1967). In light of this teaching, it seems to me appropriate to view § 1332 as requiring complete diversity only between the plaintiff and those parties he actually brings into the suit. Beyond that, I would hold that in a diversity case the District Court has power, both constitutional and statutory, to entertain all claims among the parties arising from the same nucleus of operative fact as the plaintiff’s original, jurisdiction-conferring claim against the defendant. Accordingly, I dissent from the Court’s disposition of the present case.

        Fawvor v. Texaco, Inc., 546 F. 2d 636 (CA5); Saalfrank v. O’Daniel, 533 F. 2d 325 (CA6); Parker v. W. W. Moore & Sons, 528 F. 2d 764 (CA4); Joseph v. Chrysler Corp., 513 F. 2d 626 (CA3), aff’g 61 F. R. D. 347 (WD Pa.); Kenrose Mfg. Co. v. Fred Whitaker Co., 512 F. 2d 890 (CA4).

       Rule 14 (a) provides in relevant part:
      “At any time after commencement of the action a defending party, as a third-party plaintiff, may cause a summons and complaint to be served upon a person not a party to the action who is or may be liable to him for all or part of the plaintiff’s claim against him. . . . The person served with the summons and third-party complaint, hereinafter called the third-party defendant, shall make his defenses to the third-party plaintiff’s claim as provided in Rule 12 and his counterclaims against the third-party plaintiff and cross-claims against other third-party defendants as provided in Rule 13. The third-party defendant may assert against the plaintiff any defenses which the third-party plaintiff has to the plaintiff’s claim. The third-party defendant may also assert any claim against the plaintiff arising out of the transaction or occurrence that is the subject matter of the plaintiff’s claim against the third-party plaintiff. The plaintiff may assert any claim against the third-party defendant arising out of the transaction or occurrence that is the subject matter of the plaintiff’s claim against the third-party plaintiff, and the third-party defendant thereupon shall assert his defenses as provided in Rule 12 and his counter-claims and cross-claims as provided in Rule 13.”

       Under Rule 14 (a), a third-party defendant may not be impleaded merely because he may be liable to the plaintiff. See n. 2, supra; see also Advisory Committee’s Notes on 1946 Amendment to Fed. Rule Civ. Proc. 14, 28 U. S. C. App., pp. 7752-7753. While the third-party complaint in this case alleged merely that Owen’s negligence caused Kroger’s death, and the basis of Owen’s alleged liability to OPPD is nowhere spelled out, OPPD evidently relied upon the state common-law right of contribution among joint tortfeasors. See Dairyland, Ins. Co. v. Mumert, 212 N. W. 2d 436, 438 (Iowa); Best v. Yerkes, 247 Iowa 800, 77 N. W. 2d 23. The petitioner has never challenged the propriety of the third-party complaint as such.

       Judgment was entered pursuant to Fed. Rule Civ. Proc. 54 (b), and the Court of Appeals affirmed. Kroger v. Omaha Public Power Dist., 523 F. 2d 161 (CA8).

       The problem apparently was one of geography. Although the Missouri River generally marks the boundary between Iowa and Nebraska, Carter Lake, Iowa, where the accident occurred and where Owen had its main office, lies west of the river, adjacent to Omaha, Neb. Apparently the river once avulsed at one of its bends, cutting Carter Lake off from the rest of Iowa.

       Title 28 U. S. C. § 1332 (c) provides that “[f]or the purposes of ['diversity jurisdiction] . . . , a corporation shall be deemed a citizen of any State by which it has been incorporated and of the State where it has its principal place of business.”

       Fed. Rule Civ. Proc. 82; see Snyder v. Harris, 394 U. S. 332; Sibbach v. Wilson & Co., 312 U. S. 1, 10.

       No more than in Aldinger v. Howard, 427 U. S. 1, is it necessary to determine here “whether there are any 'principled' differences between pendent and ancillary jurisdiction; or, if there are, what effect Gibbs had on such differences.” Id., at 13.

       The Court further noted that even when such power exists, its exercise remains a matter of discretion based upon “considerations of judicial economy, convenience and fairness to litigants,” 383 U. S., at 726, and held that the District Court had not abused its discretion in retaining jurisdiction of the state-law claim.

       Federal jurisdiction in Gibbs was based upon the existence of a question of federal law. The Court of Appeals in the present case believed that the “common nucleus of operative fact” test also determines the outer boundaries of constitutionally permissible federal jurisdiction when that jurisdiction is based upon diversity of citizenship. We may assume without deciding that the Court of Appeals was correct in this regard. See also n. 13, infra.

       As used, in this opinion, the term “nonfederal claim” means one as to which there is no independent basis for federal jurisdiction. Conversely, a “federal claim” means one as to which an independent basis for federal jurisdiction exists.

       In Monell v. New York City Dept. of Social Services, 436 U. S. 658, we have overruled Monroe v. Pape, 365 U. S. 167, insofar as it held that political subdivisions are never amenable to suit under 42 U. S. C. § 1983 — the basis of the holding in Aldinger that 28 U. S. C. § 1343 (3) does not allow pendent jurisdiction of a state-law claim against a county. But Monell in no way qualifies the holding of Aldinger that the jurisdictional questions presented in a ease such as this one are statutory as well as constitutional, a point on which the dissenters in Aldinger agreed with the Court. See 427 U. S., at 22 n. 3 (Brennan, J., joined by Marshall and Blackmun, JJ., dissenting).

        E. g., Strawbridge v. Curtiss, 3 Cranch 267; Coal Co. v. Blatchford, 11 Wall. 172; Indianapolis v. Chase Nat. Bank, 314 U. S. 63, 69; American Fire & Cas. Co. v. Finn, 341 U. S. 6, 17. It is settled that complete diversity is not a constitutional requirement. State Farm Fire & Cos. Co. v. Tashire, 386 U. S. 523, 530-531.

       The various Acts are enumerated and described in 1 J. Moore, Federal Practice ¶0.71 [4] (2d ed. 1977).

       See C. Wright, Law of Federal Courts §23 (3d ed. 1976), for a discussion of the various theories that have been advanced to explain the constitutional grant of diversity-of-eitizenship jurisdiction.

       Notably, Congress enacted § 1332 as part of the Judicial Code of 1948, 62 Stat. 930, shortly after Rule 14 was amended in 1946. When the Rule was amended, the Advisory Committee noted that “in any case where the plaintiff could not have joined the third party originally because of jurisdictional limitations such as lack of diversity of citizenship,, the majority view is that any attempt by the plaintiff to amend his complaint and assert a claim against the impleaded third party would be unavailing.” 28 U. S. C. App., p. 7752. The subsequent re-enactment without relevant change of the diversity statute may thus be seen as evidence of congressional approval of that “majority view.”

         This is not an unlikely hypothesis, since a defendant in a tort suit such as this one would surely try to limit his liability by impleading any joint tortfeasors for indemnity or contribution. Some commentators have suggested that the possible abuse of third-party practice could be dealt with under 28 U. S. C. § 1359, which forbids collusive attempts to create federal jurisdiction. See, e. g., 3 J. Moore, Federal Practice ¶ 14.27 [1], p. 14^571 (2d ed. 1974); 6 C. Wright & A. Miller, Federal Practice and Procedure § 1444, pp. 231-232 (1971); Note, Rule 14 Claims and Ancillary Jurisdiction, 57 Va. L. Rev. 265, 274-275 (1971). The dissenting opinion today also expresses this view. Post, at 383. But there is nothing necessarily collusive about a plaintiff’s selectively suing only those tortfeasors of diverse citizenship, or about the named defendants’ desire to implead joint tortfeasors. Nonetheless, the requirement of complete diversity would be eviscerated by such a course of events.

       The ancillary jurisdiction of the federal courts derives originally from cases such as Freeman v. Howe, 24 How. 450, which held that when federal jurisdiction “effectively controls the property or fund under dispute, other claimants thereto should be allowed to intervene in order to protect their interests, without regard to jurisdiction.” Aldinger v. Howard, 427 U. S., at 11. More recently, it has been said to include cases that involve multiparty practice, such as compulsory counterclaims, e. g., Moore v. New York Cotton Exchange, 270 U. S. 593; impleader, e. g., H. L. Peterson Co. v. Applewhite, 383 F. 2d 430, 433 (CA5); Dery v. Wyer, 265 F. 2d 804 (CA2); cross-claims, e. g., LASA Per L’Industria Del Marmo Soc. Per Azioni v. Alexander, 414 F. 2d 143 (CA6); Scott v. Fancher, 369 F. 2d 842, 844 (CA5); Glen Falls Indemnity Co. v. United States ex rel. Westinghouse Electric Supply Co., 229 F. 2d 370, 373-374 (CA9); or intervention as of right, e. g., Phelps v. Oaks, 117 U. S. 236, 241; Smith Petroleum Service, Inc. v. Monsanto Chemical Co., 420 F. 2d 1103, 1113-1115 (CA5).

       See n. 18, supra.

       Whether Iowa's statute of limitations would now bar an action by the respondent in an Iowa court is, of course, entirely a matter of state law. See Iowa Code §614.10 (1977). Compare 558 F. 2d, at 420, with id., at 432 n. 42 (Bright, J., dissenting); cf. Burnett v. New York Central R. Co., 380 U. S. 424, 431-432, and n. 9.

       Our holding is that the District Court lacked power to entertain the respondent’s lawsuit against the petitioner. Thus, the asserted inequity in the respondent’s alleged concealment of its citizenship is irrelevant. Federal judicial power does not depend upon “prior action or consent of the parties.” American Fire & Cas. Co. v. Finn, 341 U. S., at 17-18.

      See Mine Workers v. Gibbs, 383 U. S. 715, 725 (1966).

       1 use the terms “federal claim” and “nonfederal claim” in the same sense that the majority uses them. See ante, at 372 n. 11.

       We were careful in Aldinger to point out the limited nature of our holding:
      “There are, of course, many variations in the language which Congress has employed to confer jurisdiction upon the federal courts, and we decide here only the issue of so-called 'pendent party’ jurisdiction with respect to a claim brought under §§ 1343 (3) and 1983. Other statutory grants and other alignments of parties and claims might call for a different result.” 427 U. S., at 18.

       It is true that prior to trial OPPD was dismissed as a party to the suit and that, as we indicated in Gibbs, the dismissal prior to trial of the federal claim will generally require the dismissal of the nonfederal claim as well. See 383 U. S., at 726. Given the unusual facts of the present case, however — in particular, the fact that the actual location of Owen’s principal place of business was not revealed until the third day of trial — fairness to the parties would lead me to conclude that the District Court did not abuse its discretion in retaining jurisdiction over Mrs. Kroger’s claim against Owen. Under the Court’s disposition, of course, it would not ■ matter whether or not the federal claim is tried, for in either situation the court would have no jurisdiction over the plaintiff’s nonfederal claim against the third-party defendant.

       When Mrs. Kroger brought suit, it was believed that Owen was a citizen of Nebraska, not Iowa. Therefore, had she desired at that time to make Owen a party to the suit, she would have done so directly by naming Owen as a defendant.

       Section 1359 states: “A district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court.”

       Under the Gibbs analysis, recognition of the district court’s power to •hear a plaintiff’s nonfederal claim against a third-party defendant in a diversity suit would not mean that the court would be required to entertain such claims in all cases. The district court would have the discretion to dismiss the nonfederal claim if it concluded that the interests of judicial economy, convenience, and fairness would not be served by the retention of the claim in the federal lawsuit. See Gibbs, 383 U. S., at 726. Accordingly, the majority’s concerns that lead it to conclude that ancillary jurisdiction should not be recognized in the present situation could be met on a case-by-case basis, rather than by the absolute rule it adopts.