Ali v. USAA Federal Savings Bank

Filing 33

ORDER: Plaintiff's Motion to Dismiss the Counterclaim 18 is granted; the Counterclaim (only) is dismissed, without prejudice, for lack of subject matter jurisdiction. Signed by Senior Judge James A Teilborg on 9/28/16.(REW)

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Leshae Ali, 10 No. CV-16-00420-PHX-JAT Plaintiff, ORDER 11 12 13 v. USAA Federal Savings Bank, 14 Defendant. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Pending before the Court is Plaintiff Leshae Ali’s (“Plaintiff”) Motion to Dismiss Defendant USAA Federal Savings Bank’s (“Defendant”) Counterclaim. (Doc. 18). Defendant filed an Opposition to the Motion to Dismiss, (Doc. 22), and Plaintiff filed a Reply in Support of Plaintiff’s Motion to Dismiss, (Doc. 23). The Court now rules on the motion. I. BACKGROUND1 This action concerns Plaintiff’s savings account opened with Defendant prior to December 2015. (Doc. 1 at 3; Doc. 15 at 2). On December 11, 2015, Plaintiff noticed a substantial deficit in her account and suspected that she was a victim of fraud. (Doc. 1 at 3). On the same day, Plaintiff called Defendant to report the suspected fraud and dispute the deficit in her account. (Id.) 1 The Court recounts the factual background of this case as alleged by Plaintiff in her Complaint and Defendant in its Counterclaim. See (Docs. 1, 15). 1 With no response from Defendant, Plaintiff called Defendant again on January 14, 2 2016. (Doc. 1 at 3; Doc. 15 at 3). Plaintiff alleges that Defendant’s representative advised 3 her that the requisite steps were not taken to process the claim during the December 11th 4 conversation. (Doc. 1 at 3). Plaintiff then asked Defendant’s representative to investigate 5 the deficit and provide an explanation. (Doc. 1 at 4). On January 28, 2016, Plaintiff 6 received a notice dated January 21, 2016 stating that the investigation was complete, 7 there were no fraudulent transactions, and Plaintiff could call to request copies of 8 documents and information used to make the determination. (Id.) 9 On February 1, 2016, Plaintiff called Defendant to request the documents and 10 information referenced in the letter. (Id.) Plaintiff alleges that Defendant’s representative 11 told Plaintiff that she was not likely entitled to receive any documentation and would 12 follow up within forty-eight hours if she was in fact entitled to the information. (Doc. 1 at 13 4; Doc. 15 at 4). Plaintiff called Defendant two days later and Defendant’s representative 14 informed her that she was not entitled to receive any documentation. (Doc. 1 at 4). 15 In making this determination, Defendant alleges that “Plaintiff authorized a third 16 party to deposit sums into, withdraw sums from, and/or otherwise access the Accounts by 17 providing her account information and login credentials” to that third party. (Doc. 15 at 18 7). As a result, Defendant argues it owed Plaintiff no duty of disclosure under the 19 Electronic Funds Transfer Act (“EFTA”). (Id.) Defendant further alleges that because the 20 allegedly fraudulent withdrawals were authorized, Plaintiff’s unpaid, overdrawn accounts 21 constitute a breach of the Consumer Agreement signed by both parties upon initiation of 22 the savings account. (Doc. 15 at 7–8). 23 Plaintiff filed her Complaint to recover damages under EFTA on February 15, 24 2016. (Doc. 1). Then, on April 6, 2016, Defendant filed an Amended Answer to 25 Complaint and Counterclaim (“Counterclaim”) alleging an Arizona state law breach of 26 contract claim. (Doc. 15). In its Counterclaim, Defendant asserts supplemental 27 jurisdiction arising out of the federal question jurisdiction asserted in the Complaint. (Id.) 28 -2- 1 On April 27, 2016, Plaintiff moved to dismiss the Counterclaim for lack of subject-matter 2 jurisdiction. (Doc. 18). 3 II. LEGAL STANDARDS 4 A. 5 Federal Rule of Civil Procedure (“Rule”) 12(b)(1) allows a party to move to 6 dismiss a claim based on “lack of subject-matter jurisdiction.” Fed. R. Civ. P. 12(b)(1). A 7 Rule 12(b)(1) subject-matter jurisdiction challenge may be raised at any time by the 8 parties or the Court. Fed. R. Civ. P. 12(h)(3). Subject-Matter Jurisdiction 9 The Court is “free to hear evidence regarding jurisdiction and to rule on that issue 10 prior to trial, resolving factual disputes where necessary. In such circumstances, no 11 presumptive truthfulness attaches to [a claimant’s] allegations, and the existence of 12 disputed material facts will not preclude the trial court from evaluating for itself the 13 merits of jurisdictional claims.” Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 14 1987) (internal quotations and citations omitted). However, if the jurisdictional issue is 15 dependent on the resolution of factual issues relating to the merits of the case, the Court 16 applies the Rule 12(b)(6) standard to the Rule 12(b)(1) motion, and assumes that all of 17 the allegations in the claim are true. Id. “Dismissal is then appropriate where it appears 18 beyond doubt that the [claimant] can prove no set of facts in support of his claim which 19 would entitle him to relief.” Id. (quoting Conley v. Gibson, 355 U.S. 41, 45–46 (1957) 20 (internal quotations omitted)). 21 B. 22 The Court has supplemental jurisdiction over a counterclaim if the counterclaim is 23 so related to the complaint “that they form part of the same case or controversy.” 24 28 U.S.C. § 1367(a) (2012). Under Rule 13, a party must state compulsory counterclaims 25 and may state permissive counterclaims in the party’s initial pleading. Fed. R. Civ. P. 26 13(a)–(b). A compulsory counterclaim is a claim against the other party at the time of 27 service that “arises out of the transaction or occurrence that is the subject matter of the Supplemental Jurisdiction over Counterclaims 28 -3- 1 opposing party’s claim,” Fed. R. Civ. P. 13(a), while a permissive counterclaim is any 2 counterclaim that is not compulsory. Fed. R. Civ. P. 13(b). 3 Although the Ninth Circuit has not expressly ruled on the applicability of the 4 compulsory and permissive counterclaim framework to § 1367 supplemental jurisdiction 5 claims, it has acknowledged a district court’s supplemental jurisdiction over compulsory 6 counterclaims. See, e.g., Gibson v. Chrysler Corp., 261 F.3d 927, 938 (9th Cir. 2001). 7 Defendant asks the Court to expand the scope of supplemental jurisdiction past the 8 existing scope of Rule 13 compulsory counterclaims and allow supplemental jurisdiction 9 over some permissive counterclaims. See (Doc. 22 at 6–8); see also Randall v. Nelson & 10 Kennard, No. CV-09-387-PHX-LOA, at *4 (D. Ariz. Aug. 26, 2009) (quoting Campos v. 11 W. Dental Srvs., Inc., 404 F. Supp. 2d 1164, 1168 (N.D. Cal. 2005)) (“[T]he standard for 12 supplemental jurisdiction is broader than the standard for a counterclaim to be 13 compulsory.”); Avery v. First Resolution Mgmt. Corp., No 06-1812 HA, 2007 WL 14 1560653, at *7–8 (D. Or. May 25, 2007), aff’d, 568 F.3d 1018 (9th Cir. 2009) 15 (acknowledging that the supplemental jurisdiction “same case or controversy” test is 16 broader than the compulsory counterclaim “same transaction or occurrence” test). But see 17 Hart v. Clayton-Parker & Assocs., Inc., 869 F. Supp. 774, 776 (D. Ariz. 1994) (equating 18 the supplemental jurisdiction inquiry to the compulsory counterclaim inquiry). 19 Accordingly, the Court recognizes the widened scope of § 1367 and adopts Defendant’s 20 argument that the Court can have supplemental jurisdiction over some permissive 21 counterclaims. 22 Courts in the Ninth Circuit can determine whether the “claims arise out of the 23 same transaction or occurrence” when “the essential facts of the various claims are so 24 logically connected that considerations of judicial economy and fairness dictate that all of 25 the issues be resolved in one lawsuit.” Pochiro v. Prudential Ins. Co. of Am., 827 F.2d 26 1246, 1249 (9th Cir. 1987) (internal quotations omitted). 27 To determine whether two claims are “logically connected,” courts should 28 consider if “the facts necessary to prove the two claims substantially overlap,” and -4- 1 whether the “collateral estoppel effect of [] the first action would preclude the [claimant] 2 from denying the truth of [the opposing party’s] statements.” Id. at 1251; see also Union 3 Paving Co. v. Downer Corp., 276 F.2d 468, 470 (9th Cir. 1960) (parties that fail to plead 4 a claim that arises out of the same transaction or occurrence as the opponent’s claim will 5 be “held to have waived [the counterclaim] and [are] precluded by res judicata from ever 6 suing upon them again”). The Court can determine if the facts substantially overlap by 7 comparing the facts alleged in the Complaint with the facts alleged in the Counterclaim. 8 See Easter Seals, Inc. v. Life, Inc., No. CV-09-1506-PHX-JAT, 2010 WL 892189, at *1– 9 2 (D. Ariz. Mar. 10, 2010). 10 III. ANALYSIS 11 Plaintiff has moved to dismiss the Counterclaim for lack of subject-matter 12 jurisdiction. The Complaint and Counterclaim both allege that Plaintiff is an account 13 holder at Defendant’s bank. (Doc. 1 at 3; Doc. 15 at 7). In addition, both parties allege 14 that Plaintiff’s account reflected a substantial deficit. (Doc. 1 at 3; Doc. 15 at 7–8). 15 However, the cause of this deficit is in dispute. Plaintiff alleges that she is a victim of 16 fraud. (Doc. 1 at 3). Plaintiff argues that her subsequent report of this fraud to Defendant 17 triggered error resolution procedures under § 1693f(f)(6) and (7) of EFTA, regardless of 18 whether Defendant found a legitimate error. (Id.; Doc. 32 at 3). Plaintiff further alleges 19 that “Defendant did not comply with its duties after Plaintiff provided notice of her 20 ‘belief’ that there was an ‘error’ regarding her account and after she requested 21 documentation regarding Defendant’s decision that there was no error.” (Doc. 23 at 4). 22 Conversely, Defendant alleges that Plaintiff authorized a third party to make the 23 electronic transfers. (Doc. 15 at 7–8). Defendant further alleges that because the 24 transaction was authorized, the transaction falls outside the scope of an “error”2 and 25 26 27 28 2 To the extent that Defendant argues that the transaction falls outside the scope of “error,” Defendant argues that “being defrauded by a third party and convinced to make transactions on the accounts, or giving the third party access to her accounts to conduct transactions, is not the same as an unauthorized electronic fund transfer, which is the subject of EFTA.” (Doc. 22 at 5). The Court understands this argument to concern -5- 1 Defendant is exempt from fulfilling its error resolution procedures under § 1693f(d). 2 (Doc. 22 at 5). As a result, Defendant alleges that Plaintiff breached the Consumer 3 Agreement by failing to pay for the negative balance. (Id.) 4 Under EFTA, a “financial institution” has a duty to investigate consumer-alleged 5 “errors” in consumer accounts and notify the consumer of the results of such 6 investigation. 15 U.S.C. § 1693f(a) (2012). EFTA defines seven instances of “error” that 7 give rise to the error resolution procedures, including “a consumer’s request for 8 additional information concerning an electronic fund transfer or any documentation 9 required by this subchapter,” and “any other error described in regulations of the 10 Bureau.”3 Id. § 1693f(f)(6)–(7). 11 A financial institution’s duty under EFTA is triggered when a consumer: (1) 12 notifies the bank of the account number and holder; (2) “indicates the consumer’s belief 13 that the documentation . . . contains an error and the amount of such error;” and (3) “sets 14 forth the reasons for the consumer’s belief.” Id. § 1693f(a). Should a financial institution 15 determine there was no error, “it shall deliver or mail to the consumer an explanation of 16 its findings within 3 business days after the conclusion of its investigation.” Id. 17 § 1693f(d). In addition, if the consumer requests additional information, the financial 18 institution must “promptly deliver or mail to the consumer reproductions of all 19 documents which the financial intuition relied on to conclude that such error did not 20 occur.” Id. 21 “unauthorized transactions” as described by § 1693f(f)(1). 22 3 23 24 25 26 27 28 “Error” also includes “an unauthorized electronic fund transfer.” 15 U.S.C. § 1693f(f)(1) (2012). An “unauthorized electronic fund transfer” is defined as “an electronic fund transfer from a consumer’s account initiated by a person other than the consumer without actual authority to initiate such transfer and from which the consumer receives no benefit.” Id. § 1693a(12). The term does not include a transfer authorized by the account holder; a transfer “initiated with fraudulent intent by the consumer or any person acting in concert with the consumer”; or transfers that are considered “errors committed by a financial institution.” Id. However, because Plaintiff’s cause of action is limited to § 1693f(f)(6) and (7), (see Doc. 32 at 3), the Court will not address a cause of action under § 1693f(f)(1). -6- 1 Plaintiff alleges she reported an error as defined by § 1693f(f)(6) and (7) when she 2 requested additional information and documentation. (Doc. 32 at 3). As a result, the 3 determination of whether the transactions were authorized by Plaintiff (as alleged in the 4 Counterclaim) has no bearing on whether Defendant committed a procedural error under 5 EFTA. Rather, Defendant’s error can potentially exist under § 1693f(f)(6) and (7) simply 6 because Plaintiff requested additional information and documentation and allegedly did 7 not receive that documentation. Thus, the claims are distinct and do not rely on one 8 another’s outcome. 9 Moreover, the state contract Counterclaim would unnecessarily congest the EFTA 10 claim at issue. Namely, Plaintiff’s EFTA claim would involve very limited discovery and 11 focus primarily on the communication between Plaintiff and Defendant, whereas the 12 Counterclaim would involve significantly more discovery on separate issues including 13 third party fraud and Plaintiff’s account management. The facts that do overlap between 14 the claims are limited to the parties involved and the existence of Plaintiff’s account with 15 Defendant. Further, because the sphere of discovery in each claim is distinct, should 16 Defendant pursue its Counterclaim in state court, the findings made by that court would 17 not risk judicial inconsistency. Thus, the respective discovery of the claims would not 18 substantially overlap and there is little risk of collateral estoppel. The claims are not 19 logically connected and accordingly are not part of the same transaction or occurrence. 20 As a result, the claim is not compulsory. 21 Recognizing the widened scope of § 1367, a permissive Counterclaim could 22 possibly have supplemental jurisdiction if the Counterclaim was still part of the same 23 case or controversy as the Complaint. Under this widened scope, the Court can extend 24 “supplemental jurisdiction beyond compulsory claims to encompass permissive claims 25 that are so related to claims in the action within such original jurisdiction.” Avery, No 06- 26 1812 HA, 2007 WL 1560653, at *7–8 (D. Or. May 25, 2007), aff’d, 568 F.3d 1018 (9th 27 Cir. 2009) (quoting Campos, 404 F. Supp. 2d at 1169) (internal quotations omitted). 28 However, here, the claims are too disparate to be considered so related that they form part -7- 1 of the same case or controversy. Plaintiff’s claim is limited to Defendant’s procedural 2 error reporting duties under EFTA, while Defendant’s claim focuses on whether Plaintiff 3 breached her contract through an allegedly authorized third-party transaction. As 4 explained above, the factual findings and related discovery are unlikely to overlap despite 5 originating out of the same consumer account. Thus, the Court lacks supplemental 6 jurisdiction because the Counterclaim is not compulsory and is not part of the same case 7 or controversy as the Complaint.4 8 IV. CONCLUSION 9 Because the Court has found that the permissive Counterclaim does not arise out 10 of the same case or controversy as the Complaint, supplemental jurisdiction does not 11 exist.5 12 Accordingly, 13 / 14 / 15 / 16 / 17 / 18 / 19 / 20 / 21 22 23 24 25 4 To the extent that the parties argue the Court should or should not exercise supplemental jurisdiction under 28 U.S.C. § 1367(c), (Doc. 18 at 10–12; Doc. 22 at 9– 10), these arguments are no longer relevant. Because the Counterclaim is permissive and does not arise out of the same case or controversy as the Complaint, supplemental jurisdiction does not exist under § 1367(a) and the discretionary inquiry under § 1367(c) is not applicable. 5 26 27 28 In response to oral arguments held on September 14, 2016, the Court ordered Plaintiff to provide a more definite statement regarding her cause of action under 15 U.S.C. § 1693f(f). See (Doc. 31). In response, Plaintiff limited her pleading to a cause of action under 15 U.S.C. § 1693f(f)(6) and (7). (Doc. 32 at 3). If Plaintiff ever amends her pleadings to include a cause of action under 15 U.S.C. § 1693f(f)(1), Defendant will be permitted to plead its Counterclaim again (subject to any motion to dismiss Plaintiff might file). -8- 1 IT IS HEREBY ORDERED that the Plaintiff’s Motion to Dismiss the 2 Counterclaim, (Doc. 18), is GRANTED; the Counterclaim (only) is dismissed, without 3 prejudice, for lack of subject-matter jurisdiction.6 4 Dated this 28th day of September, 2016. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 Because the Complaint will proceed, the Clerk of the Court shall not enter judgment at this time. -9-

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