Rosario v. International Auto Mall & Leasing Center, Inc.
OPINION AND ORDER: Because International's is a permissive counterclaim, has no independent basis for federal jurisdiction and this Court declines to exercise supplemental jurisdiction, there is no subject matter jurisdiction and it is barred fr om being litigated in federal court. For the reasons discussed herein, Plaintiff's motion to dismiss the counterclaim is Granted and Defendant's counterclaim is dismissed without prejudice to allow repleading, if desired, in the appropriate state court. re: 6 MOTION to Dismiss Defendant's Counterclaim and Memorandum in Support filed by Jose Rosario. (Signed by Judge Andrew L. Carter, Jr on 3/19/2013) (sac)
: ';;L[':CTi.:tONICALLY FILED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
12 Civ. 4059 (ALC)
OPINION AND ORDER
-againstINTERNATIONAL AUTO MALL & LEASING
ANDREW L. CARTER, United States District Judge:
Plaintiff, Jose Rosario ("Rosario"), seeks to dismiss the counterclaim of Defendant,
International Auto Mall & Leasing Center, Inc. ("International"). On May 22, 2012, Rosario
filed a complaint alleging violation of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1602(g)
and Regulation Z, 12 C.F.R. 226.2(17), for failure to disclose the schedule of payments in
relation to his purchase of a used vehicle from International on January 27, 2012 (Dkt. 1).
International filed an answer and counterclaim on July 31, 2012 (Dkt. 4). International's
counterclaim seeks to sue Rosario for breach of contract (Dkt. 4, ~~ 9-13).
The Court lacks original or supplemental jurisdiction over International's counterclaim
for breach of contract. Accordingly, the Court dismisses the counterclaim for lack of subject
matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1).
Rosario argues that this Court lacks subject matter jurisdiction over International's
counterclaim and seeks dismissal pursuant to Rule 12(b)(1). A case is properly dismissed for
lack of subject matter jurisdiction pursuant to Rule 12(b)( I ) "when the district court lacks the
statutory or constitutional authority to adjudicate it." Makarova v. United States, 201 F.3d 110,
113 (2d Cir. 2000). A court must accept as true all material factual allegations in the complaint,
and will draw inferences favorable to the party asserting jurisdiction. I Sharkey v. Quarantillo,
541 F.3d 75,83 (2d Cir. 2008) (citing Merritt v. Shuttle, Inc., 245 F.3d 182, 186 (2d Cir. 2001)
and Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.C!. 2130,119 L.Ed.2d 351 (1992)).
However, courts "are not bound to accept as true a legal conclusion couched as a factual
allegation." Papasan v. Allain, 478 U.S. 265, 286,106 S.Ct. 2932, 92 L.Ed.2d 209 (1986). Once
challenged, the party asserting subject matter jurisdiction has the burden of proving by a
preponderance of the evidence that it exists. Makarova, 201 F.3d at 113.
Motion to Dismiss is Deemed Unopposed
Before moving to the merits, I address Plaintiffs contention that its motion to dismiss
International's counterclaim for lack of subject matter jurisdiction should be deemed unopposed
because International did not file an opposition motion until 45 days after the motion to dismiss
had been filed. The Local Rules of this Court require "any opposing affidavits and answering
memoranda shall be served within fourteen days after service" of civil motions other than
discovery-related motions and motions seeking to quash a subpoena. See Local Rule 6.1 (b).
This motion for dismissal for lack of subject matter jurisdiction is pursuant to Fed. R.
Civ. P. 12(b)(I) and thus is subject to the time constraints imposed by Local Rule 6.1(b).
International's failure to file an opposition (Dkt. 11) unti145 days after the motion was filedmore than three times the time allowed for its response. Furthermore, at no point did
1 Other cases suggest that the Court need not draw reasonable factual inferences in favor of
the party asserting jurisdiction, see, e.g., Shipping Fin. Servs. Corp. v. Drakos, 140 F.3d 129,131
(2d Cir. 1998); Atl. Mut. Ins. Co. v. Balfour Maclaine Int'l Ltd, 968 F.2d 196, 198 (2d Cir.
1992); Hill v. New York, No. 12 Civ. 0466 (RWS), 2012 WL 3224328 (S.D.N.Y. Aug. 7,2012).
A different level offactual scrutiny has no effect on the determination required here: whether
International's counterclaim should be heard under the Court's supplemental jurisdiction.
International seek leave of this court for an extension of time to file its opposition motion. For
these reasons, Rosario's motion is considered unopposed.
International's Counterclaim Lacks Original Jurisdiction in Federal Court
International's counterclaim does not set forth an independent basis for jurisdiction in this
court. This is because the claim does not have independent jurisdiction before the court either as
a federal question, see 28 U.S.C. § 1331 ("The district courts shall have original jurisdiction of
all civil actions arising under the Constitution, laws, or treaties of the United States. "), or through
diversity jurisdiction, see 28 U.S.C. § 1332 (requiring matter in controversy exceeding $75,000,
between citizens of different States). International's counterclaim is for breach of contract-a
state-law claim-in the amount of $11,713.00. Thus, it does not qualify for either federal
question or diversity jurisdiction and, in the absence of supplemental jurisdiction must be
dismissed. Plaintiff challenges the appropriateness of supplemental jurisdiction under 28 U.S.C.
Exercise of Supplemental Jurisdiction
Under § 1367, the court is empowered to hear claims that form part of the same case or
controversy as a validly plead federal claim. See 28 U.S.C. Section § 1367(a) (permitting
supplemental jurisdiction "over all other 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"). Supplemental jurisdiction under § 1367, however, is
discretionary and the court need not hear the claim if "there are ... compelling reasons for
declining jurisdiction." 28 U.S.C. § 1367(c)(4). See Ruhrgas AG v. Marathon Oil Co., 526 U.S.
574,585, 119 S.Ct. 1563, 143 L.Ed.2d 760 (1999) ("[D]istrict courts do not overstep Article III
limits when they decline jurisdiction of state-law claims on discretionary grounds without
determining whether those claims fall within their pendent jurisdiction ... ") (citation omitted).
A compulsory counterclaim "arises out of the transaction or occurrence that is the subject
matter of the opposing party's claim," which in this Circuit occurs when there is a "logical
relationship" between the counterclaim and the main claim. Jones v. Ford Motor Credit
Co., 358 F.3d 205,209 (2d Cir. 2004); see also Goldman Marcus, Inc. v. Goldman, No. 99
Civ. 11130 (KMW), 2000 WL 297169, at *3 (S.D.N.Y. Mar. 17,2000) ("Courts in this Circuit
employ a case-by-case approach that looks to the strength and nature of the 'logical relationship'
between counterclaims and the jurisdiction-conferring claims."). Conversely, a counterclaim is
permissive if it fails the "logical relationship" test and it is determined that the counterclaim does
not arise out of the same transaction or occurrence. See Jones, 358 F.3d at 210 (finding a
permissive counterclaim because "the essential facts for proving the counterclaims and [the main
claim] are not so closely related that resolving both sets of issues in one lawsuit would yield
International's breach of contract counterclaim is not compulsory; it is permissive. Fed.
R. Civ. P. 13(b). However, "[w]hether a counterclaim is permissive within the meaning of Rule
13 is not dispositive of the constitutional question whether there is federal jurisdiction over the
counterclaim." Jones, 358 F.3d at 212 (quoting Ambromovage v. United Mine Workers, 726 F.2d
972, 990 (3d Cir. 1984)). Courts have recognized that the "same case or controversy" test
established by section 1367 allows subject matter jurisdiction for some permissive
counterclaims, depending on the nature of the specific counterclaim. See, e.g., Jones, 358 F.3d
at 215 (remanding to district court for determination of "truly compelling circumstances" against
exercise ofjurisdiction where claim and counterclaim had common nucleus of operative fact);
Campos v. W Dental Servs" Inc., 404 F. Supp. 2d 1164, 1168 O'J.D. CaL 2005) ("The test for
supplemental jurisdiction under Section 1367 appears broad enough to encompass some
The only arguably common element of proof necessary for a breach-of-contract claim
and TILA claim is the existence of a contract. Beyond that, the fact that a contract may have
been breached does not raise the same questions as whether that contract included federally
mandated disclosures. Courts in this Circuit have consistently implied that breach of contract
claims do not form the same case and controversy with a TILA violation claim. See Adams v.
Jacobs, 950 F.2d 89,92-93 (2d Cir. 1991) ("The issues of fact and law relating to debt claims
differ significantly from the borrowers' claims in [TILA cases] and the evidence needed to
support each position may vary. The borrower need show only that the loan documents do not
comply with specific federal regulations. By contrast, the bank must show a breach of
contract.") (internal citation omitted); Bryant v. Emigrant Mortg. Co., Inc., 2011 WL 3876978,
*6 (E.D.N.Y. Aug. 30,2011) ("These assertions do not implicate the TILA: the dispute is
quintessentially one of contractual interpretation and performance and wholly governed by state
law."); see also Torres v. Gristede's Operating Corp., 628 F. Supp. 2d 447, 469 (S.D.N.Y. 2008)
(citing Bu ex reI. Bu v. Benenson, 181 F. Supp. 2d 247,254 (S.D.N.V. 2001)) (claims were not
part of the same case or controversy where state law claims "involve[ d] different rights, different
interests, and different underlying facts" than the federal law claims). Thus, on balance the
claims do not arise from a common nucleus of operative fact. Based on its answer and
counterclaim, International does not make a showing sufficient to ground its counterclaims
within the Court's supplemental jurisdiction.
Discretionary Factors Under 28 U.S.C. § 1367(c)
Even if there were a basis for supplemental jurisdiction, the Court would still need to
consider whether prudential factors of subsection 1367(c) cautioned against exercise of
supplemental jurisdiction. 2 The first and third factors are inapplicable here where the
counterclaim does not raise a particularly novel issue of state law, only breach of contract, see 28
U.S.C. § 1367(c)(1), and where the claim of original jurisdiction-the alleged TILA violationhas not been dismissed, see 28 U.S.C. § 1367(c)(3).
However, the analysis under subsections (c)(2) and (c)(4) tip in favor of dismissing the
counterclaim. There is a great chance that the claim will predominate over the TILA violation
claim, see 28 U.S.C. § 1367(c)(2), which only requires review on the face of the contract.
Furthermore, there are policy reasons for not allowing the counterclaim to go forward. See 28
U.S.C. § 1367(c)(4). In particular, allowing creditors to pursue their independent claims in
federal court would have a chilling effect on would-be plaintiffs in exercising their federal
consumer protection right. See, e.g., Barcena v. Tam Finance Corp. 2007 WL 1452587,4 (W.D.
Tex. May 8,2007) (declining to exercise jurisdiction to prevent the chilling effect that would
ensue from trying FDCP A claims in the same case as state law claims for collection of the
Section 1367(c) reads: "The district courts may decline to exercise supplemental jurisdiction
over a claim under subsection (a) 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).
underlying debt); Sparrow v. Mazda Am. Credit, 385 F. Supp. 2d 1063, 1071 (E.D. Cal. 2005)
(same). Furthennore, the fact that Plaintiffs motion is deemed unopposed gives rise to the
question whether this court need attend to a state-law counterclaim which has garnered so little
attention from its moving party.3 These considerations lead us to decline supplemental
Because International's is a pennissive counterclaim, has no independent basis for federal
jurisdiction and this Court declines to exercise supplemental jurisdiction, there is no subject
matter jurisdiction and it is barred from being litigated in federal court. See Goldman Marcus,
Inc. v. Goldman, No. 99 CIV. 11130 (KMW), 2000 WL 297169, at *7 (Mar. 21,2000) ("Subject
matter jurisdiction is not a matter of equity or of conscience or of efficiency, but is a matter of
the lack ofjudicial power to decide a controversy.") (quoting Laughlin v. Kmart Corp., 50 F.3d
871,874 (lOth Cir. 1995».
For the reasons discussed herein, Plaintiff's motion to dismiss the counterclaim is
GRANTED and Defendant's counterclaim is dismissed without prejudice to allow repleading, if
desired, in the appropriate state court.
New York, New York
United States District Judge
3 My conclusion on this point would be the same given the sparse and highly conclusory
opposition Defendant ultimately filed. (Dkt. 11).
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