McClung v. Credit Acceptance Corporation et al

Filing 11

MEMORANDUM-DECISION and ORDER - That McClung's 9 Motion for Remand is GRANTED. That Credit Acceptance's 8 Motion to Compel Arbitration and to Dismiss is DENIED. That this action is REMANDED to the New York State Supreme Court in Del aware County for all further proceedings. That the Clerk is directed to mail a certified copy of this Memorandum-Decision and Order to the Clerk of Supreme Court of the State of New York in Delaware County and instruct her to file the Memorandum-Decision and Order in McClung v. Credit Acceptance Corporation et al., Index No. 2014-00901. Signed by Judge Gary L. Sharpe on 9/24/2015. (jel, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
_________________________________________
DAVID MCCLUNG,
Plaintiff,

3:14-cv-1365
(GLS/DEP)

v.
CREDIT ACCEPTANCE
CORPORATION et al.,
Defendants.
_________________________________________
APPEARANCES:
OF COUNSEL:
FOR THE PLAINTIFF:
Law Office of Anthony J. Pietrafesa
118 Wendell Terrace
Syracuse, NY 13203
FOR THE DEFENDANTS:
McLaughlin, Stern Law Firm
260 Madison Avenue
New York, NY 10016

ANTHONY J. PIETRAFESA, ESQ.

MATTHEW D. SOBOLEWSKI,
ESQ.

Gary L. Sharpe
District Judge
MEMORANDUM-DECISION AND ORDER
I. Introduction
Plaintiff David McClung commenced the instant action against
defendants Credit Acceptance Corporation and several John Does,
alleging a violation of New York General Business Law § 349, breach of

the implied covenant of good faith and fair dealing, common law tort, and
abuse of process. (Compl., Dkt. No. 1, Attach. 2 at 2-13.) Pending are
Credit Acceptance’s motion to compel arbitration and to dismiss, or, in the
alternative, to stay this action, (Dkt. No. 8), and McClung’s cross motion to
remand pursuant to 28 U.S.C. § 1447, (Dkt. No. 9). For the reasons that
follow, McClung’s cross motion is granted, and, correspondingly, Credit
Acceptance’s motion is denied.
II. Background1
In June 2011, McClung purchased a new car form Kingston Nissan,
with a $2,800 down payment. (Compl. ¶ 6.) McClung financed the
remainder of the purchase with a $14,000 car loan, payable in fifty-seven
monthly payments. (Id.) The retail installment contract for the car between
McClung and Kingston Nissan provided that, if the car was totaled in an
accident, McClung would not be responsible for any “GAP” amount, or the
difference between McClung’s car insurance proceeds and the amount still
due on the car loan. (Id. ¶ 8.) Instead, McClung paid for “GAP waiver”
insurance coverage in the lender’s name, providing coverage of the GAP

1

Unless otherwise noted, the facts are drawn from McClung’s complaint and presented
in the light most favorable to him.

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amount in the event of such an accident. (Id. ¶ 10.) The contract also
provided that Kingston Nissan’s “right, title and interest” in the contract and
to the vehicle were assigned to Credit Acceptance. (Id. ¶ 12; Dkt. No. 1,
Attach. 2 at 16-17.)
In March 2013, the car was declared a total loss after an accident.
(Compl. ¶ 15.) McClung’s car insurance company paid Credit Acceptance
the amount covered under his collision policy. (Id. ¶ 17.) Subsequently,
Credit Acceptance commenced an action in New York State Supreme
Court in Delaware County, seeking $2,222.16—the difference between
what was owing on the car loan at the time of the accident and the amount
McClung’s insurance company paid Credit Acceptance after the car was
totaled. (Id. ¶¶ 19, 22.) Credit Acceptance also reported McClung’s
alleged unpaid debt to several credit reporting agencies, harming his credit
score. (Id. ¶¶ 28-29.) According to McClung, Credit Acceptance “receives
money from the GAP insurance provider for policies on which [it] does[ not]
make a claim.” (Id. ¶ 14.) McClung alleges that Credit Acceptance
deliberately sued him instead of claiming against the GAP waiver policy for
one of three reasons: (1) in order to protect its pecuniary interest in the
GAP waiver policy; (2) because Credit Acceptance failed to purchase the
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GAP waiver insurance that McClung paid for; or (3) because Credit
Acceptance purchased a GAP waiver policy that “was illegal under the law”
because it did not cover the GAP amount. (Id. ¶¶ 23-24.) After McClung
hired an attorney who informed Credit Acceptance’s counsel of the GAP
waiver policy, Credit Acceptance withdrew its action against McClung. (Id.
¶¶ 26-27.)
McClung commenced this action in New York State Supreme Court
in Delaware County in June 2014. (See generally Compl.) Defendants
subsequently removed the action to this court, on the basis of federal
question and supplemental jurisdiction. (Dkt. No. 1 ¶¶ 8-11.) Specifically,
defendants assert that, “in addition to certain state law claims, [McClung]
alleges a claim against Credit Acceptance under the federal Fair Credit
Reporting Act” (FCRA). (Id. ¶ 8.) Further, defendants contend that the
“state law claims alleged by [McClung] in the [c]omplaint are . . . so related
to the FCRA claim ‘that they form part of the same case or controversy
under Article III of the United States Constitution.’” (Id. ¶ 11 (quoting 28
U.S.C. § 1367).) McClung has since moved to remand the action to the
state court where it was commenced. (Dkt. No. 9.)
III. Standard of Review
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With respect to cases removed to federal court from state court, 28
U.S.C. § 1447(c) provides that “[i]f at any time before final judgment it
appears that the district court lacks subject matter jurisdiction, the case
shall be remanded.” “It is well-settled that the party asserting federal
jurisdiction bears the burden of establishing jurisdiction.” Blockbuster, Inc.
v. Galeno, 472 F.3d 53, 57 (2d Cir. 2006) (citation omitted). Accordingly,
“[o]n a motion to remand, the party seeking to sustain the removal, not the
party seeking remand, bears the burden of demonstrating that removal was
proper.” Wilds v. UPS, Inc., 262 F. Supp. 2d 163, 171 (S.D.N.Y. 2003)
(internal quotation marks and citations omitted). “Unless that burden is
met, the case must be remanded back to state court.” Id. (internal
quotation marks and citation omitted).
IV. Discussion
In support of his motion to remand, McClung contends that this
action was improperly removed by defendants because there is no
diversity of citizenship between the parties and no question of federal law
involved. (Dkt. No. 9, Attach. 1 at 2-3.) According to McClung, his
complaint contains four “state law claims [that] do not require a
determination of federal law to support relief.” (Id. at 3.) In support of
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removal, and in opposition to McClung’s motion to remand, Credit
Acceptance argues that the court has jurisdiction under 28 U.S.C. § 1331,
because McClung’s complaint “refers to conduct of Credit Acceptance
which allegedly violated the FCRA and . . . specifically requests a
declaratory judgment that Credit Acceptance violated the FCRA.” (Dkt. No.
10 at 3-6.)2 Further, Credit Acceptance argues that the court has subject
matter jurisdiction here because McClung’s claims allege inaccurate credit
reporting, and, regardless of his attempts to label such claims as state law
causes of action, “the Second Circuit has clearly held that all state
common law and state statutory claims related to ‘credit reporting’ are
preempted by the FCRA.” (Dkt. No. 10 at 5.) For the reasons that follow,
McClung’s motion for remand is granted.
Under the removal statute, defendants may remove an action from
state court if it originally could have been brought in federal court. See 28
U.S.C. § 1441(a). Where removal is based upon federal question
jurisdiction, removal is appropriate only where the “well pleaded complaint

2

Notably, although it asserts that there is diversity of citizenship among the parties,
Credit Acceptance “does not argue that [the court] has diversity jurisdiction under 28 U.S.C.
§ 1332 . . . because the ‘amount in controversy’ requirement cannot be satisfied.” (Dkt. No. 10
at 6 n.2.) Thus, the court will only consider whether federal question jurisdiction exists.

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rule” is satisfied. See Romano v. Kazacos, 609 F.3d 512, 518-20 (2d Cir.
2010); Laselva v. Schmidt, No. 8:08-CV-112, 2009 WL 1312559, at *2
(N.D.N.Y. May 7, 2009). “This rule holds that ‘[f]ederal jurisdiction exists
only when a federal question is presented on the face of the plaintiff’s
properly pleaded complaint.’” Laselva, 2009 WL 1312559, at *2 (quoting
Rivet v. Regions Bank of La., 522 U.S. 470, 475 (1998)). The standard is
fulfilled where federal law creates the cause of action, or the plaintiff’s right
to relief necessarily depends on resolution of a substantial, disputed
question of federal law. See Franchise Tax Bd. v. Constr. Laborers
Vacation Trust, 463 U.S. 1, 8-9, 13 (1983); Empire HealthChoice Assur.,
Inc. v. McVeigh, 396 F.3d 136, 140 (2d Cir. 2005). Under the well pleaded
complaint rule, then, “‘the party who brings a suit is master to decide what
law he will rely upon,’” and a plaintiff may avoid federal jurisdiction by
pleading only state claims even where a federal claim is also available.
Pan Am. Petroleum Corp. v. Superior Ct. of Del. in & for New Castle Cty.,
366 U.S. 656, 662-63 (1961) (quoting The Fair v. Kohler Die & Specialty
Co., 228 U.S. 22, 25 (1913)); see Marcus v. AT&T Corp., 138 F.3d 46, 52
(2d Cir. 1998).
Here, the complaint explicitly asserts a violation of New York General
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Business Law § 349, breach of the implied covenant of good faith and fair
dealing, common law tort, and abuse of process. (See generally Compl.)
Credit Acceptance points out that, in his request for relief, McClung seeks,
among other remedies, a declaration that the actions of defendants
violated “the federal and state Fair Credit Reporting Acts.” (Id. at 11; Dkt.
No. 10 at 4.) However, the fact that some of the relief sought in the
complaint may not be available under the state law claims asserted therein
is not determinative of federal question jurisdiction. See Rains v. Criterion
Sys., Inc., 80 F.3d 339, 343 n.3 (9th Cir. 1996) (finding that a plaintiff did
not plead a federal claim in his complaint, where the complaint asserted
only state law causes of action, but, in its prayer for relief, sought
attorneys’ fees and pre-judgment interest under both federal and state
law). Moreover, “the mere fact that the complaint mentions the FCRA does
not, in of itself, convert the complaint into a removable action.” Harkness
v. Wells Fargo Home Mortg., Inc., No. 1:11-CV-505, 2011 WL 2634022, at
*2 (W.D. Mich. July 5, 2011). Instead, in determining whether federal
question jurisdiction exists, “[i]t is the nature of the cause[s] of action that is
controlling.” Rains, 80 F.3d at 343 n.3; see, e.g., Howery v. Allstate Ins.
Co., 243 F.3d 912, 915, 917-18 (5th Cir. 2001) (concluding that a
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complaint did not state a claim created by federal law, despite its allegation
that the defendant “engaged in conduct in violation of the Federal Trade
Commission rules, regulations, and statutes,” because, in context, the
“mention of federal law merely served to describe types of conduct that
violated the [Texas Deceptive Trade Practices Act], not to allege a
separate cause of action under the FCRA); Barash v. Ford Motor Credit
Corp., No. 06-CV-6497, 2007 WL 1791656, at *4 (E.D.N.Y. June 20, 2007)
(holding that, where the “Cause of Action” section of a plaintiff’s complaint
made no reference to federal law and stated that he sought damages on
the basis of New York State law, the mere mention of federal claims or
cases in the “Applicable Precedents” section of the complaint did not
convert the complaint into a removable action).
In this case, the actual causes of action stated in the complaint all
sound in state law. (Compl. ¶¶ 31-44.) McClung’s four claims do not
incorporate an element of federal law nor turn on the resolution of a federal
question. (Id.) Further, the fleeting mention of the FCRA is untethered
from facts that could support a private right of action under the FCRA
against Credit Acceptance. See Fashakin v. Nextel Commc’ns, No.
05CV3080, 2006 WL 1875341, at *4 (E.D.N.Y. 2006) (explaining that,
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under the FCRA, a consumer has no private right of action against a
furnisher of information to credit reporting agencies who provides
inaccurate information).3 Accordingly, the court finds that, on its face,
McClung’s complaint does not assert a federal claim.
Credit Acceptance nonetheless asserts that jurisdiction is proper
because McClung’s claims are preempted by the FCRA. (Dkt. No. 10 at
5.) Under the claim for a violation of New York General Business Law
§ 349, which declares unlawful deceptive business practices or acts, the
complaint alleges that “placing a negative item on [his] credit report when
[Credit Acceptance] knew or should have known [McClung] owed it
nothing” was one of numerous acts Credit Acceptance committed that
were “false and/or deceptive in a material way” and part of a “pattern and
practice of deception in its business pursuit of colleting car loans from
[McClung] and hundreds of others.” (Compl. ¶¶ 32-33.) Further, under his
claim for breach of the implied covenant of good faith and fair dealing,

3

The FCRA prohibits a “furnisher” from reporting information if it has actual knowledge,
or consciously avoids knowing, that the information is inaccurate, but limits the enforcement of
this subsection to government agencies and officials. See 15 U.S.C. § 1681s-2(a)(1), (c), (d).
Although consumers do have a private right of action against furnishers of information for
failing to properly investigate disputed information once notified of the dispute by the credit
reporting agency, see Fashkin, 2006 WL 1875341 at *4-5, here, McClung’s complaint contains
no allegation that he notified any reporting agency that he was disputing the accuracy of Credit
Acceptance’s information.

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McClung’s complaint asserts that placing the negative item on his credit
report was one of several of Credit Acceptance’s “willful and intentional
actions” that deprived McClung of the benefit of the retail installment
contract. (Id. ¶ 38.) Credit Acceptance argues that because McClung’s
claims allege inaccurate credit reporting, they are preempted by the FCRA,
and, thus, this court has subject matter jurisdiction. (Dkt. No. 10 at 5.)
“[A] plaintiff’s suit does not arise under federal law simply because
the defendant may raise the defense of ordinary preemption.” Sullivan v.
Am. Airlines, 424 F.3d 267, 273 (2d Cir. 2005); see Metro. Life Ins. Co. v.
Taylor, 481 U.S. 58, 63 (1987) (“Federal pre-emption is ordinarily a federal
defense to the plaintiff’s suit. As a defense, it does not appear on the face
of a well-pleaded complaint, and, therefore, does not authorize removal to
federal court.”). However, as a corollary to the well-pleaded complaint rule,
the “artful pleading rule” prevents a plaintiff from avoiding removal by
declining to plead necessary federal questions. Romano, 609 F.3d at
518-19. This rule applies, as relevant here, “when Congress has so
completely preempted, or entirely substituted, a federal law cause of action
for a state one.” Id. at 519. In that case, “any claim purportedly based on
that pre-empted state law is considered, from its inception, a federal claim,
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and therefore arises under federal law.” Caterpillar Inc. v. Williams, 482
U.S. 386, 393 (1987) (citing Franchise Tax Bd., 463 U.S. at 24); see
Sullivan, 424 F.3d at 272 (“Under the complete-preemption doctrine,
certain federal statutes are construed to have such ‘extraordinary’
preemptive force that state-law claims coming within the scope of the
federal statute are transformed, for jurisdictional purposes, into federal
claims—i.e., completely preempted.”). Nevertheless, complete preemption
“applies only in the very narrow range of cases where ‘Congress has
clearly manifested an intent’ to make a specific action within a particular
area removable.” Marcus, 138 F.3d at 54 (quoting Metro. Life Ins. Co. v.
Taylor, 481 U.S. 58, 66 (1987)). “The Supreme Court has only found three
statutes to have the requisite extraordinary preemptive force to support
complete preemption: § 301 of the Labor-Management Relations Act . . . ;
§ 502(a) of the Employee Retirement Income Security Act . . . ; and §§ 85
and 86 of the National Bank Act.” Sullivan, 424 F.3d at 272 (citations
omitted).
With respect to the FCRA, courts have generally held that it does not
provide a basis for removal of state law claims pursuant to the complete
preemption doctrine. See Holmes v. Experian Info. Solutions, Inc., No. 09
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Civ. 874, 2011 WL 4542900, at *3 (S.D.N.Y. Sep. 30, 2011) (collecting
cases); Barash, 2007 WL 1791656, at *4 n.10; see also Hamed v. Chase
Home Finance, LLC, No. 13-5833, 2013 WL 5674185, at *2 (E.D. La. Oct.
17, 2013) (“Complete preemption requires clear legislative intent that the
federal remedy be exclusive, which is lacking with respect to the FCRA.”);
Watkins v. Trans Union, L.L.C., 118 F. Supp. 2d 1217 (N.D. Ala. 2000)
(“By their own terms, the admittedly significant, but discrete preemptions
established in the 1996 FCRA amendments evidence no intent on the part
of Congress to grant defendants . . . the extraordinary ability to
recharacterize state law claims as a federal cause of action.”); Sherron v.
Private Issue by Discover, a Div. of Novus Servs., Inc., 977 F. Supp. 804,
808 (N.D. Miss. 1997) (“There is nothing in the legislative history or the
FCRA itself to establish that Congress intended [for] state law causes of
action . . . to be removable. Indeed, the plain language of the statute
empowers plaintiffs to bring FCRA claims in state court, thereby extending
concurrent jurisdiction to the state courts.”); but see Williams v. Met. Life
Ins. Co., No. 94 Civ. 3791, 1994 WL 529880, at *1-2 (S.D.N.Y. Sep. 26,
1994) (allowing for removal of a case because of FCRA preemption,
without discussing the complete preemption doctrine). Indeed, Credit
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Acceptance cites no authority to support the assertion that the FCRA
completely preempts state law and, thus, provides for federal subject
matter jurisdiction.4 (Dkt. No. 10 at 3-6.) Ultimately, the court agrees with
the majority of our sister courts that, although the FCRA may provide
Credit Acceptance with a defense of preemption in this case, it does not
have the requisite extraordinary preemptive force to support complete
preemption.
Because Credit Acceptance has failed to meet its burden of
establishing federal jurisdiction, this case is remanded to the New York
State Supreme Court in Delaware County. Given that the court lacks
subject matter jurisdiction over this action, Credit Acceptance’s motion to
compel arbitration and to dismiss is denied.
V. Conclusion
WHEREFORE, for the foregoing reasons, it is hereby
ORDERED that McClung’s motion for remand (Dkt. No. 9) is
GRANTED; and it is further
4

Credit Acceptance cites only to Macpherson v. JPMorgan Chase Bank, N.A., 665
F.3d 45, 47-48 (2d Cir. 2011), which addresses the defensive preemption of state law claims
by the FCRA, but not the complete preemption necessary to establish subject matter
jurisdiction. (Dkt. No. 10 at 5); see Caterpillar, 482 U.S. at 393 (“[I]t is now settled law that a
case may not be removed to federal court on the basis of a federal defense, including the
defense of pre-emption.”).

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ORDERED that Credit Acceptance’s motion to compel arbitration and
to dismiss (Dkt. No. 8) is DENIED; and it is further
ORDERED that this action is REMANDED to the New York State
Supreme Court in Delaware County for all further proceedings; and it is
further
ORDERED that the Clerk is directed to mail a certified copy of this
Memorandum-Decision and Order to the Clerk of Supreme Court of the
State of New York in Delaware County and instruct her to file the
Memorandum-Decision and Order in McClung v. Credit Acceptance
Corporation et al., Index No. 2014-00901; and it is further
ORDERED that the Clerk close this case; and it is further
ORDERED that the Clerk provide a copy of this MemorandumDecision and Order to the parties.
IT IS SO ORDERED.

September 24, 2015
Albany, New York

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