Halfman v. Toyota Motor Credit Corporation et al

Filing 30

MEMORANDUM Opinion and Order Signed by the Honorable Edmond E. Chang on 10/30/2012:Mailed notice(slb, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
Michael Halfman,

)
)
Plaintiff,
)
)
v.
)
)
Matteson Auto Sales d/b/a Planet Toyota;
)
Toyota Financial Services CDE Corporation )
d/b/a Toyota Financial Services;
)
Toyota Financial Savings Bank;
)
Toyota Motor Credit Corporation,
)
Corporation,
)
)
Defendants.
)

No. 12-CV-05999
Judge Edmond E. Chang

MEMORANDUM OPINION AND ORDER
Plaintiff Michael Halfman alleges that Toyota Financial Services, Toyota
Financial Savings Bank, and Toyota Motor Credit Corporation1 violated provisions of
the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq., and parallel provisions
of the Illinois Collection Agency Act, 225 Ill. Comp. Stat. 425/1 et seq., when they failed
to promptly remove inaccurate and derogatory statements from Halfman’s credit
history. In addition to those defendants and the statute-based claims, Halfman also
brings an Illinois common-law negligence claim against an additional defendant,
Planet Toyota, for its alleged failure to prevent the original fraudulent transaction that
was the source of Halfman’s credit history problems. Defendant Planet Toyota moves
to dismiss [R. 10] the only claim against it in the Halfman’s complaint [R. 1] for lack

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The Court will refer to these defendants, collectively, as the “FCRA Defendants” in
order to distinguish them, when necessary, from Defendant Planet Toyota.

of subject matter jurisdiction. Fed. R. Civ. P. 12(b)(1). For the reasons explained more
fully below, Planet Toyota’s motion is denied for now.
I.
In its motion to dismiss under Rule 12(b)(1), Defendant Planet Toyota argues
that this court lacks subject matter jurisdiction to hear Plaintiff Michael Halfman’s
negligence claim against it. The negligence claim arises under state law, and according
to Planet Toyota, the Court’s power to hear supplemental state law claims under 28
U.S.C. § 1367(a) does not extend far enough to reach this state law claim.
Where a federal court has subject matter jurisdiction over a case involving
federal-law claims, any accompanying state claims fall within the district court’s
supplemental jurisdiction if the state claims are “so related to [the federal] claims . . .
that they form part of the same case or controversy.” 28 U.S.C. § 1367(a). The
supplemental jurisdiction statute codified the Supreme Court’s decision in United Mine
Workers v. Gibbs, 383 U.S. 715, 725 (1966), where the Court held that federal-court
jurisdiction over federal-law questions carries with it jurisdiction over state law claims
that “derive from a common nucleus of operative fact,” such that “the relationship
between [the federal] claim and the state claim permits the conclusion that the entire
action before the court comprises but one constitutional ‘case.’” Id. at 725; Groce v. Eli
Lilly & Co., 193 F.3d 496, 500 (7th Cir. 1999). “A loose factual connection between the
claims is generally sufficient.” Ammerman v. Sween, 54 F.3d 423, 424 (7th Cir. 1994);
Houskins v. Sheahan, 549 F.3d 480, 495 (7th Cir. 2008). But “it is not enough that the
claims be tangentially related.” Hernandez v. Dart, 635 F. Supp.2d 798, 814 (N.D. Ill.
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2009) (dismissing plaintiff’s legal malpractice claim that was “independent of” his
claims relating to an underlying arrest that formed the basis for original jurisdiction)
(citation omitted). Sharing a “factual background” is not necessarily sufficient standing
alone; rather, the question is whether the claims share operative facts, that is, facts
that are relevant to proving an element of both the federal and state claims. See Berg
v. BCS Financial Corp., 372 F. Supp.2d 1080, 1093 (N.D. Ill. 2005); Nguyen v. Cumbo,
2010 WL 4877555, at *5 (N.D. Ill. Nov. 23, 2010) (requiring some overlap in the “legal
[or] evidentiary burden”).
II.
In this case, relying exclusively on the facts alleged in the complaint, the Court
concludes that the negligence claim against Planet Toyota (Count 3) arises from a
common nucleus of operative facts with the FCRA claim asserted against the other
three defendants (Count 1) such that this Court may exercise supplemental jurisdiction
over Halfman’s state law claim. Halfman’s complaint alleges that he was the victim of
identity theft in July 2010. According to the complaint, an unknown person used false
information to purchase a car and open a line of credit in Halfman’s name. R. 1
(Compl.) ¶¶ 8-13. The complaint alleges two theories of liability arising out of the
identity theft—that Planet Toyota and the FCRA Defendants were negligent in
allowing the lines of credit to be opened in Halfman’s name (Count 3), and that the
FCRA Defendants violated provisions of the FCRA and an analogous Illinois statute
when the false information was reported on, and then lingered on, Halfman’s credit
report (Counts 1 and 2). Specifically, the complaint alleges that the FCRA Defendants
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violated 15 U.S.C. § 1681i(a), Compl. ¶ 46, which requires that consumer reporting
agencies conduct a “reasonable reinvestigation” when a consumer disputes the
accuracy of his credit report. Halfman’s negligence claim against Planet Toyota, when
read in the context of the entire complaint, alleges that Planet Toyota and its
employees were negligent in extending credit to the identity thief in the first place.
Compl. ¶¶ 8, 11, 37-46.
Based on those allegations, the state law negligence claim does arise from the
same common nucleus of operative facts as the federal FCRA claim. The facts that
allegedly will establish Planet Toyota’s negligence may also be relevant to the FCRA
Defendants’ liability under 15 U.S.C. § 1681i. Here is how: under the FCRA, the
reasonableness of the FCRA Defendants’ reinvestigation likely will turn on, at least in
part, the thoroughness of Planet Toyota’s own investigation in deciding to sell the car
to the identify thief in the first place. This is not because the FCRA Defendants may
be held vicariously liable for Planet Toyota’s alleged negligence. Instead, the point is
that the FCRA Defendants’ reinvestigation should have included an inquiry into what
Planet Toyota did (or failed to do) in confirming the car buyer’s identity. See Henson
v. CSC Credit Servs., 29 F.3d 280, 287 (7th Cir. 1994) (holding that a defendant may
be required to “verify the accuracy of [the] initial source” under 15 U.S.C. § 1681i
where the reliability of the source is questioned); Benson v. Trans Union, 387
F.Supp.2d 834, 843 (N.D. Ill. 2005) (considering evidence of the specific documentation
reviewed by the reporting agency on a claim under 15 U.S.C. § 1681i). If Planet Toyota
did a poor job in examining the car buyer’s identity, then the FCRA Defendants’
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reinvestigation should have taken that inadequacy into account in deciding what other,
more robust steps the FCRA Defendants should take in the remainder of the
reinvestigation. If Planet Toyota did an excellent (albeit unsuccessful) job in examining
the car buyer’s identity, then the FCRA Defendants could reasonably rely on that
thoroughness to do a less searching reinvestigation.
Thus, although there is not a complete overlap in the elements of the federal and
state law claims—that is, a finding of negligence on the part of Planet Toyota is not
dispositive of the FCRA Defendants’ liability under the FCRA—the claims do arise
from the same common nucleus of operative facts because the evidence of Planet
Toyota’s investigation of the car buyer’s identity is relevant to an element of both the
federal and state claims. This connection between the two claims is similar to the
connection between the claims in Houskins v. Sheahan, 549 F.3d 480, 495 (7th Cir.
1008). There, the plaintiff alleged that her employer (the Cook County Sheriff’s
Department) retaliated against her after she reported that a co-worker assaulted her
in the employer’s parking lot. Id. at 483-84. In the civil-rights suit against the Sheriff
for retaliation and conducting an inadequate internal investigation, the plaintiff also
sued the co-worker for assault and battery under state law. The Seventh Circuit
rejected the co-worker’s argument that supplemental jurisdiction did not apply. Id. at
495. It was enough that the state claims “pertained to the same set of circumstances
at issue in the federal claim,” and that “in order to decide whether the Sheriff’s internal
investigation was legitimate, the jury needed to consider [the co-worker’s] assault on
[the plaintiff] . . . .” Id. at 495. Similarly, here the fact-finder likely will consider Planet
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Toyota’s initial investigation into the car buyer’s identify when evaluating the
reasonableness of the FCRA Defendants’ reinvestigation, because that reinvestigation
itself should have taken into account what Planet Toyota did (or failed to do) when
making the sale.
III.
For the reasons stated above, Planet Toyota’s motion to dismiss [R. 10] is denied.
It is worth noting that although the Court concludes, on the current record (basically
just the complaint), that the state and federal claims are sufficiently within the same
nucleus of operative facts to withstand a motion to dismiss, it is possible that discovery
will show later that the negligence claim is in fact separate from the FCRA claim. See
United Mine Worker of America v. Gibbs, 383 U.S. 715, 727 (1966) (“Pretrial procedures
or even the trial itself may reveal a substantial hegemony of state law claims, or
likelihood of jury confusion, which could not have been anticipated at the pleading
stage. Although it will of course be appropriate to take account in this circumstance of
the already completed course of the litigation, dismissal of the state claim might even
then be merited.”). If that turns out to be the case, at that time Planet Toyota may ask
the Court to relinquish supplemental jurisdiction over the state claim.
ENTERED:
___________________________
Honorable Edmond E. Chang
United States District Judge

DATE: October 30, 2012

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