Miller, Melissa v. Interstate Auto Group, Inc. (WI)
Filing
14
OPINION AND ORDER granting 5 Motion to Dismiss Counterclaim; denying 12 Motion to Strike. Signed by Magistrate Judge Stephen L. Crocker on 9/9/14. (jat)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
MELISSA MILLER,
Plaintiff,
OPINION AND ORDER
v.
14-cv-116-slc
INTERSTATE AUTO GROUP, INC. (WI)
d/b/a CARHOP,
Defendant.
_____________________________________________________________________________________
Before the court is plaintiff’s motion to dismiss defendant’s state law counterclaim for
lack of jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1). Dkt. 5. For reasons stated below, I am
granting the motion.1
OPINION
On or about May 6, 2013, plaintiff Melissa Miller entered into a sales contract with
defendant, Interstate Auto Group, Inc., d/b/a Carhop, for the purchase of a 2001 Chevrolet
Impala. To make installment payments under the contract, plaintiff authorized defendant to
make weekly electronic funds transfers from her checking account in the amount of $94.
Plaintiff has sued defendant pursuant to the Electronic Fund Transfer Act (“EFTA”), 15 U.S.C.
§§ 1693-1693r, alleging that the EFT authorization form that she signed contained a provision
that violates some of the Act’s disclosure requirements. Dkt. 1. In particular, plaintiff contends
that defendant violated §§ 1693e(a) and 1693l of the Act and Regulation E by requiring her to
provide five days’ notice to defendant to cancel or stop payment of a preauthorized electronic
fund transfer, whereas the statute demands only three days’ notice. Defendant has filed a
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Also pending is defendant’s motion to strike plaintiff’s reply brief as untimely. Dkt. 12. I will
deny this motion because plaintiff has shown good cause for the brief delay and defendant has identified
no resulting prejudice.
counterclaim for breach of contract, alleging that plaintiff failed to make the payments as
required under the sales contract and that she still owes defendant $9,213.60. Dkt. 4.
This court has jurisdiction over plaintiff’s EFTA claim pursuant to federal question
jurisdiction under 28 U.S.C. § 1331. Defendant’s counterclaim, however, arises under state
law. In determining whether jurisdiction exists over counterclaims, the majority of courts decide
first whether the counterclaim is permissive or compulsory within the definition of Rule 13.
Wright, Miller & Kane, Federal Practice & Procedure, § 1414, at 116–17 (2010); e.g., Markbreiter
v. Barry L. Feinberg, M.D., P.C., 2010 WL 334887, *1–2 (S.D.N.Y. Jan.29, 2010); Goings v.
Advanced Systems, Inc. v. Suncoast, 2008 WL 4195889, *2–3 (M.D. Fla. Sept.12, 2008); Williams
v. Long, 558 F. Supp. 2d 601, 603 (D. Md. 2008). If the counterclaim is compulsory under Rule
13, then most courts conclude that the counterclaim falls under the purview of the supplemental
jurisdiction statute, 28 U.S.C. § 1367, and that they should exercise jurisdiction over it because
the counterclaim-plaintiff may otherwise lose the opportunity to be heard on that claim. Baker
v. Gold Seal Liquors, 417 U.S. 467, 469 n. 1 (1974); see also Zambrana v. Geminis Envios Corp.,
2008 WL 2397624, *3, n. 2. (S.D. Fla. June 10, 2008). However, if the counterclaim is
permissive, then it does not fall within the scope of supplemental jurisdiction and must have an
independent basis for jurisdiction. Wright, Miller & Kane, § 1422, at 202; e.g., Cortes v.
Distribuidora Monterrey Corp., 2008 WL 5203719, *1–2 (N.D. Tex. Dec.11, 2008) (citing Plant
v. Blazer Financial Services, Inc. of Georgia, 598 F.2d 1357, 1359–60 (5th Cir. 1979)).
That said, the Court of Appeals for the Seventh Circuit has instructed district courts to
apply 28 U.S.C. § 1367 to determine whether they have jurisdiction over counterclaims,
regardless whether the counterclaims are compulsory or permissive. Channell v. Citicorp National
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Services, Inc., 89 F.3d 379, 384–86 (7th Cir. 1996); Rothman v. Emory University, 123 F.3d 446,
454 (7th Cir. 1997); Leipzig v. AIG Life Insurance Co., 362 F.3d 406, 410 (7th Cir. 2004)
(dictum); Spaulding Moving & Storage, Inc. v. National Forwarding Co., Inc., 2008 WL 781929, *2
(N.D. Ill. Mar. 20, 2008).2 28 U.S.C. § 1367(a), enacted in 1990, provides that:
in any civil action of which the district courts have original
jurisdiction, the district courts shall have 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.
Section 1367(a)'s requirement that the counterclaim be so related to the original
complaint that they form the same case or controversy may be satisfied even by a “loose factual
connection between the claims,” so long as the complaint and counterclaim derive from the same
common nucleus of operative facts. Houskins v. Sheahan, 549 F.3d 480, 495 (7th Cir. 2008)
(quoting Wisconsin v. Ho–Chunk Nation, 512 F.3d 921, 936 (7th Cir. 2008)). See also Exxon Mobil
Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 558 (2005) (“Section 1367(a) is a broad grant of
supplemental jurisdiction over other claims within the same case or controversy, as long as the
action is one in which the district courts would have original jurisdiction.”).
Following this approach, I am satisfied that defendant’s counterclaim for collection of the
balance remaining on plaintiff’s car loan bears a sufficient factual connection to plaintiff’s EFTA
claim so as to fall within § 1367(a)’s grant of supplemental jurisdiction. Both claims, although
2
In Oak Park Trust & Sav. Bank v. Therkildsen, 209 F.3d 648 (7 th Cir. 2000), the court used
language that appears to follow the compulsory-versus-permissive analysis used by most courts, id. at 651
(“As a permissive counterclaim, [defendant’s counterclaim] is outside the supplemental jurisdiction . . . “),
but this case is an outlier. Channell, 89 F.3d 379, which is cited more frequently (and also was also written
by Judge Easterbrook) contains a more thorough discussion of the issue and expressly rejects using the
distinction between permissive and compulsory counterclaims as a basis for defining the court’s jurisdiction
over such claims. Id. at 385.
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based on separate documents, derive from the same nucleus of facts: plaintiff’s agreement to
purchase a used car from defendant. Both claims relate to the same debt. Plaintiff’s claim
concerns the mechanism of payment, while defendant’s counterclaim concerns whether
payments were made and the remedies available for nonpayment. This is enough of a “loose
connection” to satisfy § 1367(a)’s “same case or controversy” requirement. Accord Mostin v. GL
Recovery, LLC, 2010 WL 668808, *3 (C.D. Cal. Feb. 19, 2010) (finding supplemental
jurisdiction exists over defendant’s counterclaim for debt underlying Fair Debt Collection Act
claim); Sparrow v. Mazda Am. Credit, 385 F. Supp. 2d 1063, 1070 (E. D. Cal. 2005) (same);
Campos v. W. Dental Servs., Inc., 404 F. Supp. 2d 1164, 1168-69 (N.D. Ca. 2005) (same).
Having determined that this court has supplemental jurisdiction over the counterclaim,
now I must determine whether the court should exercise it. Under § 1367(c), a district court
may 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 in exceptional circumstances, there are other
compelling reasons for declining jurisdiction.
28 U.S.C. § 1367(c); Channell, 89 F.3d at 386; see also Wright, Miller & Kane, Federal Practice
& Procedure, vol. 6, ch. 4, § 1414, at 118–19 (2010) (“under the supplemental-jurisdiction
statute the court has discretion to decline jurisdiction in certain circumstances, such as if the
counterclaim substantially predominates over the main claim.”).
Plaintiff does not contend that the counterclaim raises a novel or complex issue of state
law and this court has not dismissed her EFTA claim. Thus, the only two provisions that could
apply are § 1367(c)(2) and the catch-all, “other exceptional” circumstances provision. With
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respect to subsection (2), plaintiff argues that the debt collection action will substantially
predominate over the EFTA claim because it could raise the “full range” of state law contract
issues, including the validity of the alleged contract, the sufficiency of defendant’s evidence
regarding damages and various potential defenses. In contrast to this fact-intensive inquiry,
argues plaintiff, her EFTA claim involves nothing more than glossing the statute and applying
it to the electronic funds transfer authorization form attached to the complaint to determine
whether the form complies with the Act (assuming the Act applies). Defendant responds that
plaintiff is overstating the complexity of the debt collection action and that resolving defendant’s
claim will be no more difficult than plaintiff’s EFTA claim.
Although neither claim is particularly complex, I agree with plaintiff that defendant’s
state law counterclaim for breach of contract would substantially predominate over plaintiff’s
claim. Defendant’s breach of contract claim really is much more fact-intensive and it is likely
to involve more disputed issues than plaintiff’s claim, which is based on an alleged statutory
violation of the disclosure provisions of a federal consumer protection statute. After the initial
determination whether the EFTA applies and what it requires, the only question in plaintiff’s
case appears to be whether defendant complied with the Act. Defendant’s case, on the other
hand, involves an entirely separate—and much larger—set of issues than plaintiff’s. Deciding
defendant’s claim will require the court or jury to address potential common law defenses and
proof of damages, and it could require potentially cumbersome, ongoing post-judgment
enforcement by the court. All of these are issues with which the state courts are intimately
familiar and better equipped to handle.
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Accordingly, because defendant’s counterclaim will substantially predominate over
plaintiff’s, I decline to exercise jurisdiction over it pursuant to § 1367(a)(2). In light of this
conclusion, it is unnecessary to consider whether there are additional policy considerations that
would warrant declining jurisdiction under the “other compelling circumstances” provision.
ORDER
IT IS ORDERED that plaintiff’s motion to dismiss defendant’s counterclaim, dkt. 5, is
GRANTED. Defendant’s motion to strike plaintiff’s reply brief, dkt. 12, is DENIED.
Entered this 9th day of September, 2014.
BY THE COURT:
/s/
STEPHEN L. CROCKER
Magistrate Judge
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