JONES v. LVNV FUNDING, LLC et al
MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE MICHAEL M. BAYLSON ON 7/20/16. 7/20/16 ENTERED AND COPIES E-MAILED.(kw, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
MARLO A. JONES
LVNV FUNDING, LLC and RESURGENT
CAPITAL SERVICES, L.P.
MEMORANDUM RE DEFENDANTS’ MOTION TO DISMISS
July 20, 2016
Defendants move pursuant to Federal Rules of Civil Procedure 12(b)(6) and 13(a) to
dismiss Plaintiff Marlo A. Jones (“Jones”)’s claims for common-law defamation and violations
of the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692(d), (e), and (f) (“FDCPA”),
the Pennsylvania Fair Credit Extension Uniformity Act, 73 P.S. § 2270.4(a) (“FCEUA”), the
Pennsylvania Unfair Trade Practices & Consumer Protection Law, 73 P.S. § 201-2(4)(xxi)
(“UTPCPL”), and the federal Fair Credit Reporting Act, 15 U.S.C. §§ 1681S-2. Defendants
allege that Jones’s claims are now barred by claim preclusion because he did not assert them as
counterclaims in a previous debt collection action in the Philadelphia Municipal Court. ECF 4.
For the reasons that follow, Defendants’ Motion shall be denied.
On May 14, 2015, Defendants filed a Statement of Claim against Jones in the
Philadelphia Municipal Court for $3,519.51 for an alleged default on a Springleaf Financial
Services, Inc. credit account (the “Collection Lawsuit”), which resulted in a judgement in Jones’s
favor. Jones did not assert any counterclaims against Defendants.
A. Standard for a Motion to Dismiss
In considering a motion to dismiss under Rule 12(b)(6), “we accept all factual allegations
as true [and] construe the complaint in the light most favorable to the plaintiff.” Warren Gen.
Hosp. v. Amgen, Inc., 643 F.3d 77, 84 (3d Cir. 2011) (internal quotation marks and citations
omitted). “To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
B. Pennsylvania Law Determines the Preclusive Effect, If Any, of the Collection
“A federal court applying preclusion principles is bound by the Full Faith and Credit
statute, 28 U.S.C. § 1738, and must give a prior state judgment the same effect as would the
adjudicating state.” Gregory v. Chehi, 843 F.2d 111, 116 (3d Cir. 1988) (citing Davis v. U.S.
Steel Supply, 688 F.2d 166, 170 (3d Cir. 1982) (en banc)). Accordingly, “where a state court
decision is alleged to have a preclusive effect on a later action in federal court, the federal court
must apply the preclusion principles developed by that state.” White v. Long Beach Mortg.,
CIVIL ACTION No. 06-2843, 2007 U.S. Dist. LEXIS 84830, at *6-7 (E.D. Pa. Nov. 7, 2007)
(citing Gregory, 843 F.2d at 116).
Defendants are mistaken in arguing that Federal Rule of Civil Procedure 13(a) governs
the preclusive effect of the judgment in the Collection Lawsuit. Instead, this Court must look to
Pennsylvania’s Rules of Civil Procedure.
C. Because Counterclaims are Not Compulsory in Pennsylvania Courts, Claim
Preclusion Does Not Bar Jones’s Claims Here
Under Pennsylvania state law, claim preclusion 1 holds that “a final valid judgment upon
the merits by a court of competent jurisdiction bars any future suit between the parties or their
privies, on the same cause of action.” Allegheny Int’l v. Allegheny Ludlum Steel Corp., 40 F.3d
1416, 1429 (3d Cir. 1994) (quoting Keystone Bldg. Corp. v. Lincoln Sav. & Loan Ass’n, 360
A.2d 191, 194 (Pa. 1976)). Claim preclusion applies only where there is (1) identity in the thing
sued for, (2) identity in the cause of action, (3) identity of the persons and parties to the action,
and (4) identity of the quality in the persons for or against whom the claim is made. Id. (quoting
City of Pittsburgh v. Zoning Bd. of Adjustment, 559 A.2d 896, 901 (Pa. 1989)).
To have (1) identity in the thing sued upon and (2) identity in the cause of action, where
the defendant argues the plaintiff should have raised the current claims as counterclaims in an
earlier action, the earlier action must be subject to a compulsory counterclaim rule. White, 2007
U.S. Dist. LEXIS 84830, at *6-7.
Actions in Pennsylvania courts are not subject to a compulsory counterclaim rule because
Pennsylvania Rule of Civil Procedure 1148 permits, but does not compel, counterclaims. See Pa.
R. Civ. P. 1148; Council Rock Sch. Dist. v. Bolick, 462 F. App’x 212, 214 (3d Cir. 2012)
(unpublished); Williams v. Phila. Hous. Auth., CIVIL ACTION No. 94-7357, 1996 U.S. Dist.
LEXIS 3819, at *8 (E.D. Pa. Mar. 28, 1996); Hunsicker v. Brearman, 586 A.2d 1387, 1390 (Pa.
Super. Ct. 1991). Accordingly, defendants in Pennsylvania courts are “not required to pursue the
cause of action raised in the counterclaim in the same proceeding, but can file a separate suit.”
Mistick Inc. v. City of Pittsburgh, 646 A.2d 642, 644 (Pa. Commw. Ct. 1994).
“Claim preclusion replaces ‘res judicata’ and encompasses both merger and bar principles in giving dispositive
effect in a later action to a prior judgment . . . Claim preclusion prevents a party from prevailing on issues he might
have but did not assert in the first action.” Gregory v. Chehi, 843 F.2d 111, 116 (3d Cir. 1988).
Because Pennsylvania law did not require Jones to pursue his current claims in the
Collection Lawsuit, there is no basis to hold that claim preclusion applies. See Kaymark v. Bank
of Am., N.A., 783 F.3d 168, 173 (3d Cir. 2015) (permitting the plaintiff to assert claims under
the FCEUA, FDCPA, and UTPCPL in federal court despite the existence of a parallel related
state court foreclosure action, albeit without explicitly considering claim preclusion).
Accordingly, Defendants’ argument fails.
D. Even Assuming Rule 13(a) Controls, Jones’s Suit is Not Barred Because His
Claims Arise from a Different Transaction or Occurrence
Under Rule 13(a), a counterclaim is compulsory only where it “aris[es] out of the
transaction or occurrence that is the subject matter of the opposing party’s claim.” Fed. R. Civ. P.
13(a); Ambromovage v. United Mine Workers, 726 F.2d 972, 988 n.45 (3d Cir. 1984). That is,
the counterclaim must bear a “logical relationship” to the claim such that separate trials would
“involve a substantial duplication of effort and time.” Transamerica Occidental Life Ins. Co. v.
Aviation Office of Am., Inc., 292 F.3d 384, 389-90 (3d Cir. 2002).
In examining the propriety of a defendant asserting the underlying debt as a counterclaim
in actions alleging violations of state and/or federal statutes governing debt collection, numerous
courts have held that there is no compulsory counterclaim relationship. See Kimmel v. Cavalry
Portfolio Servs., LLC, 747 F. Supp. 2d 427, 431 (E.D. Pa. 2010) (finding that a FDCPA claim
and a state law debt collection counterclaim arise from different transactions or occurrences, and
therefore the debt collection counterclaim is not compulsory in a FDCPA action); Orloff v.
Syndicated Office Sys., CIVIL ACTION NO. 00-CV-5355, 2003 U.S. Dist. LEXIS 15466, at *79 (E.D. Pa. Aug. 20, 2003) (finding that FDCPA and FCEUA claims do not arise from the same
transaction as a debt collection claim). 2 The same logic applies to the reverse factual situation in
this case, in which Jones’s allegations regarding the propriety of Defendants’ debt collection
practices were not compulsory counterclaims in the Collection Lawsuit. 3
Because Jones’s claims arise from the Defendants’ alleged misconduct in the debt
collection process rather than the debt itself, they do not stem from the same “transaction or
occurrence” as the Collection Lawsuit. Under Rule 13(a), Jones’s claims are therefore not
compulsory counterclaims such that even if Rule 13(a) did apply, claim preclusion would not bar
Jones’s claims in this suit.
Because Pennsylvania law governs the preclusive effect of the judgment in the Collection
Lawsuit, and because there are no compulsory counterclaims in Pennsylvania, there is no basis to
dismiss Jones’s claims in this suit on the basis of claim preclusion. The Court would reach the
same result under the compulsory counterclaim standards of the Federal Rules of Civil Procedure
as Jones’s claims do not arise from the same transaction or occurrence as the underlying
Collection Lawsuit. Therefore, Defendants’ Motion to Dismiss shall be denied.
An appropriate Order follows.
O:\CIVIL 16\16-2735 Jones v. LVNV Funding LLC\16cv2735 opinion re MTD.docx
See also Zhang v. Haven-Scott Assocs., CIVIL ACTION No. 95-2126, 1996 U.S. Dist. LEXIS 8738, at *25-26
(E.D. Pa. June 21, 1996) (finding that a FDCPA claim does not arise from the same transaction as a debt collection
claim); Ayres v. Nat’l Credit Mgmt. Corp., Civil Action No. 90-5535,1991 U.S. Dist. LEXIS 5629, at *4 (E.D. Pa.
Apr. 25, 1991) (same).
Furthermore, the Court notes that the Philadelphia Municipal Court has jurisdiction only over small claims cases in
which $12,000 or less is in controversy. See http://www.courts.phila.gov/municipal/civil/ (last visited July 19,
2016). Given that Jones’s claims likely exceed that amount, it is doubtful he even could have pled them in the
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