Bates et al v. American Credit Acceptance, LLC
Filing
19
ORDER denying 12 Motion to Dismiss Counterclaim. Signed by District Judge Arthur J. Tarnow. (MLan)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
DARRYL BATES AND CHARONDA
BATES,
Case No. 16-12239
v.
SENIOR U.S. DISTRICT JUDGE
ARTHUR J. TARNOW
AMERICAN CREDIT ACCEPTANCE,
LLC,
U.S. MAGISTRATE JUDGE
ELIZABETH A. STAFFORD
Plaintiffs.
Defendant.
/
ORDER DENYING PLAINTIFFS’ MOTION TO DISMISS DEFENDANT’S
COUNTERCLAIM PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 12(B)(1)
Now before the Court is Plaintiffs’ Motion to Dismiss Defendant’s
Counterclaim for lack of subject matter jurisdiction pursuant to FRCP 12(b)(1),
filed on August 15, 2016 [12].
Plaintiffs seek to dismiss Defendant’s
Counterclaim, which asserts a state law breach of contract claim against Plaintiff
Darryl Bates. Pursuant to Local Rule 7.1(f)(2), the Court will decide this motion
without oral argument.
PROCEDURAL HISTORY
Plaintiffs Darryl Bates and Charonda Bates filed this action against
Defendant American Credit Acceptance, LLC, on June 17, 2016, alleging
violations of the Telephone Consumer Protection Act, 47 U.S.C. § 227 (“TCPA”)
[1]. On July 25, 2016, Defendant filed an Answer and Counterclaim [6], asserting a
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state law breach of contract claim against Mr. Bates. Plaintiffs filed the Instant
Motion to Dismiss on August 15, 2016 [12]. The parties have timely briefed the
issues: Defendant filed a Response on September 2, 2016 [16] and Plaintiffs filed a
Reply on September 16, 2016 [18].
LEGAL STANDARD
“The first and fundamental question presented by every case brought to the
federal courts is whether it has jurisdiction to hear a case, even where the parties
concede or do not raise or address the issue.” Douglas v. E.G. Baldwin & Assocs.,
Inc., 150 F.3d 604, 606-07 (6th Cir. 1998) (citing Bender v. Williamsport Area
School Dist., 475 U.S. 534, 541 (1986)). “Quite aside from whether the parties
raise jurisdictional issues themselves – or even attempt to consent or agree to
federal jurisdiction – federal courts have an independent obligation to investigate
and police the boundaries of their own jurisdiction.” Douglas, 150 F.3d at 607.
DISCUSSION
Plaintiffs argue that the Court should dismiss Defendant’s counterclaim,
stating: 1) Defendant’s counterclaim is permissive rather than compulsory, 2)
Plaintiffs’ claims under the TCPA do not share a common nucleus of operative fact
with Defendant’s breach of contract claim, and 3) the Court possesses neither
federal question nor diversity jurisdiction over Defendant’s breach of contract
claim. The Court will address each of these arguments in turn.
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I.
The distinction between permissive and compulsory counterclaims.
Rule 13 of the Federal Rules of Civil Procedure distinguishes between
compulsory and permissive counterclaims. A compulsory counterclaim, one that a
defendant must assert, “arises out of the transaction or occurrence that is the
subject matter of the opposing party’s claim; and does not require adding another
party over whom the court cannot acquire jurisdiction.” FED. R. CIV. P.
13(a)(1)(A)-(B). In contrast, a permissive counterclaim is “any claim that is not
compulsory.” FED. R. CIV. P. 13(b).
Prior to 1990, federal courts considered compulsory counterclaims “as
falling within the ‘ancillary jurisdiction’ of the federal district court and therefore
did not require an independent basis for subject matter jurisdiction.” Swartwout v,
Edgewater Grill, LLC, No. 1:12-cv-130, 2012 U.S. Dist. LEXIS 88679, at *4
(W.D. Mich. June 27, 2012); see also City of Cleveland v. Cleveland Elec.
Illuminating Co., 570 F.2d 123, 126-27 (6th Cir. 1978). “[T]he court may exercise
ancillary jurisdiction of a compulsory counterclaim regardless of whether the
counterclaim rests upon an independent jurisdictional basis.” United States v. City
of Menominee, Mich., 727 F. Supp. 1110, 1117 (W.D. Mich. 1989). To exercise
jurisdiction over permissive counterclaims, however, courts needed independent
grounds of federal jurisdiction. See, e.g., Maddox v. Kentucky Finance Co., 736
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F.2d 380, 383 (6th Cir. 1984); McCaffrey v. Rex Motor Transp., Inc., 672 F.2d
246, 248 (1st Cir. 1982) (“Permissive counterclaims, FED. R. CIV. P. 13(b), may
not be entertained under a federal court’s ancillary jurisdiction unless there is some
independent jurisdictional basis such as a federal question upon which federal
jurisdiction may be founded.”).
In 1990, Congress enacted the Judicial Improvement Act, creating the
concept of supplemental jurisdiction. The statute grants federal district courts
“supplemental jurisdiction over all claims that are so related to claims in the action
within such original jurisdiction that they form part of the same case or controversy
under Article III of the United States Constitution.” 28 U.S.C. § 1367(a). To define
supplemental jurisdiction, Congress adopted the test articulated by the Supreme
Court in United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966). The Gibbs
Court listed four factors relevant to determining whether a state law claim falls
within the same case or controversy as the adjoining federal claim:
1. There must be a federal claim;
2. The relationship between the federal claim and the state claim much be
such that it permits the conclusion that the entire action comprises but
one case;
3. The federal claim must have sufficient substance to confer subject matter
jurisdiction; and
4. The federal and state claims must derive from the common nucleus of
operative fact.
Id.; see also Province v. Cleveland Press Pub. Co., 787 F.2d 1047, 1054 n.8 (6th
Cir. 1986). In the wake of Gibbs, “some lower courts mistakenly assumed that §
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1367(a) merely codified the common-law doctrines of pendent and ancillary
jurisdiction.” Swartwout, 2012 U.S. Dist. LEXIS 88679, at *7 (citing Iglesias v.
Mut. Life Ins. Co. of N.Y., 156 F.3d 237, 241 (1st Cir. 1998)). Pursuant to this
interpretation, permissive counterclaims still required an independent basis for
federal jurisdiction. However, as the Supreme Court later explained, “[n]othing in
§ 1367 indicates a congressional intent to recognize, preserve or create some
meaningful, substantive distinction between the jurisdictional categories we have
historically labeled pendent and ancillary.” Exxon Mobil Corp. v. Allapattah
Services, Inc., 545 U.S. 546, 559 (2005).
Exxon Mobil Corp. indicates that § 1367(a) does not merely codify the
common law. Indeed, federal appellate courts have since held that Ҥ 1367
supersedes case law on supplemental jurisdiction that had distinguished between
compulsory and permissive counterclaims.” Global NAPS, Inc. v. Verizon New
England Inc., 603 F.3d 71, 87 (1st Cir. 2010); see also Jones v. Ford Motor Credit
Co., 358 F.3d 205 (2d Cir. 2004); Channell v. Citicorp Nat. Servs., Inc., 89 F.3d
379 (7th Cir. 1996). The Court is unaware of Sixth Circuit case law that directly
addresses the status of the permissive/compulsory distinction in light of § 1367.
See Swartwout, 2012 U.S. Dist. LEXIS 88679, at *8 (explaining that the Sixth
Circuit “has not yet had occasion to reach” the issue of the broad application of §
1367 versus the old compulsory-permissive counterclaim distinction); Edwards v.
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Equitable Acceptance Corp., No. 1:14-CV-00888, 2015 U.S. Dist. LEXIS 143650,
at *7 (N.D. Ohio June 8, 2015). The Sixth Circuit has, however, noted that “[t]he
first part of the statute (§ 1367(a)) contains a sweeping grant of supplemental
jurisdiction giving courts supplemental jurisdiction over all claims not excluded by
the second part (§ 1367(b)).” Olden v. LaFarge Corp., 383 F.3d 495, 504 (6th Cir.
2004).
Plaintiffs assert that the Court lacks subject matter jurisdiction over
Defendant’s state law breach of contract claim, first, because the claim is
permissive and second, because it is not one over which the Court has original
jurisdiction. These arguments are unavailing. As other Sixth Circuit district courts
have held, there is no requirement that the counterclaim be compulsory to fall
within the scope of § 1367(a). “[A] district court’s jurisdiction over a counterclaim
no longer depends on whether the counterclaim arises from the ‘same transaction
or occurrence’ as the principal claim. Rather, the test is whether the claims are so
related that they form part of the same case or controversy under Article III of the
Constitution.” Swartwout, 2012 U.S. Dist. LEXIS 88679, at *8-9 (internal
quotations omitted). “[T]he test is simply whether a counterclaim is sufficiently
related so as to be part of the same case or controversy.” Pyatt v. Sentek Corp., No.
2:13-cv-998, 2014 U.S. Dist. LEXIS 28202, at *5 (S.D. Ohio Mar. 5, 2014).
“Article III’s case-or-controversy standard is the jurisdictional limit for
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counterclaims.” Cruz v. Don Pancho Mkt., LLC, No. 1:15-cv-698, 2016 U.S. Dist.
LEXIS 33399, at *3 (W.D. Mich. Mar. 8, 2016) (internal citations omitted). These
conclusions echo the Supreme Court’s in Exxon Mobil Corp.: “[o]nce a court has
original jurisdiction over the action, it can then decide whether it has a
constitutional and statutory basis for exercising supplemental jurisdiction over the
claims in the action.”).
II.
The common nucleus of operative fact as to Plaintiffs’ claims and
Defendant’s counterclaim.
As mentioned previously, a district court’s supplemental jurisdiction over a
state law claim depends on whether it is sufficiently related to the other claims that
they form part of the same case or controversy under Article III of the Constitution.
Blakely, 276 F.3d at 861. “[I]f there is some basis for original jurisdiction, the
default assumption is that the court will exercise supplemental jurisdiction over all
related claims.” Campanella v. Commerce Exch. Bank, 137 F.3d 885, 892 (6th Cir.
1998). “Claims form part of the same case or controversy when they derive from a
common nucleus of operative facts.” Blakely, 276 F.3d at 261 (internal quotations
omitted).
The Court finds that Plaintiffs’ claims and Defendant’s counterclaim are
sufficiently part of the same case or controversy to warrant the exercise of
supplemental jurisdiction. The claims at issue clearly arise from the same nucleus
of operative fact and “revolve around a central fact pattern.” Blakely, 276 F.3d at
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261 (citing White v. County of Newberry, S.C., 985 F.2d 168, 172 (4th Cir. 1993)).
The common denominator here is the November 2011 Simple Interest Retail
Installment Contract executed by Mr. Bates and Cars & Credit Assistance.1
Plaintiffs argue that Defendant violated their rights under the TCPA by repeatedly
calling their cellular phones, even after consent to call was revoked. Defendant
asserts (and, indeed, Plaintiffs acknowledge) that these calls were made in an effort
to collect the balance owed after Mr. Bates defaulted under the terms of the
November 2011 contract for failure to make payment when due. In sum, neither
Plaintiffs’ TCPA-based claims, nor Defendant’s breach of law contract claim,
would exist but for the November 2011 contract and the parties’ actions
thereunder. It is important to note, too, that much of the available evidence likely
to be examined by both parties is substantially the same. Both parties will
presumably provide records, documentation, and/or testimony regarding the nature
of the phone calls and the frequency with which they were made; the consent and
revocation of consent to call by the Bates; and the purchase of the vehicle and the
amount of the loan. Moreover, it stands to reason that both parties will rely on
witness testimony from Mr. and Mrs. Bates and the records custodian at ACA.
1
Cars and Credit Assistance is a division of Defendant American Credit Acceptance, LLC.
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Based on the foregoing reasons and analysis, it is apparent to the Court that
the claims at issue arise from a common nucleus of operative fact so as to satisfy
the broad supplemental jurisdiction test of § 1367(a).
III.
Reasons for declining supplemental jurisdiction.
Supplemental jurisdiction is discretionary, not mandatory. Charvat v. NMP,
LLC, 656 F.3d 440, 446 (6th Cir. 2011); Gamel v. City of Cincinnati, 625 F.3d 949,
951 (6th Cir. 2010). A district court may only decline to exercise supplemental
jurisdiction over a claim if:
1) The claim raises a novel or complex issue of State law,
2) The claim substantially predominates over the claim or claims over
which the district court has original jurisdiction,
3) The district court has dismissed all claims over which it has original
jurisdiction, or
4) In exceptional circumstances, there are other compelling reasons for
declining jurisdiction.
28 U.S.C. § 1367(c).
These factors are inapplicable in the instant case. See Simons Pizza & Subs,
LLC, v. Centerplate, Inc., No. 11-12470, 2012 U.S. Dist. LEXIS 56107, at *2
(E.D. Mich. Apr. 20, 2012) (“[C]ontrary to Plaintiff’s contention, a breach of
contract claim under Michigan law does not raise a novel or complex issue of state
law.”). The Court sees no compelling reason to decline exercising supplemental
jurisdiction over Defendant’s state law breach of contract claim.
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CONCLUSION
The Court concludes that the Plaintiffs’ claims and Defendant’s
counterclaims arise from the same nucleus of operative fact and that none of the §
1367(c) factors apply to bar supplemental jurisdiction. The Court further notes that
the decision to exercise supplemental jurisdiction is supported by the notions of
“judicial economy, convenience, fairness, and comity.” Musson Theatrical, Inc. v.
Fed. Express Corp., 89 F.3d 1244, 1254 (6th Cir. 1996) (citing Carnegie-Mellon
Univ. v. Cohill, 484 U.S. 343, 350 (1988)). Accordingly,
For the foregoing reasons,
IT IS ORDERED that Plaintiffs’ Motion to Dismiss Defendant’s
Counterclaim for Lack of Subject Matter Jurisdiction [12] is DENIED.
SO ORDERED.
Dated: September 29, 2016
s/Arthur J. Tarnow
Arthur J. Tarnow
Senior United States District Judge
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