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Kenneth A. Marchand v. Chase Bank Usa


April 5, 2011


The opinion of the court was delivered by: Dean D. Pregerson United States District Judge


Presently before the court is Plaintiff Kenneth A. Marchand's Motion To Dismiss Counterclaim. After reviewing the parties' moving papers and hearing oral argument, the court grants the motion and adopts the following order.

I. Background

On December 6, 2010, Plaintiff filed a First Amended Complaint ("FAC") against Defendant Chase Bank USA, N.A. ("Chase") in the Superior Court of California. (FAC at 1.) The FAC alleged that in September 2009, Chase began placing harassing and intimidating phone calls to Plaintiff in an attempt to collect on Plaintiff's credit card debt. (FAC ¶¶ 9-41.) The FAC further alleged that in March 2010, the parties entered into several verbal agreements to settle the debt. (FAC ¶¶ 18-26).

The FAC alleged four causes of action: (1) violations of California's Rosenthal Fair Debt Collection Practices Act ("California FDCPA"), California Civil Code § 1788, et. seq.; (2) invasion of privacy; (3) breach of the March 2010 oral contracts; and (4) breach of the covenant of good faith and fair dealing with respect to the March 2010 oral contracts. (FAC at 9-11.)

Chase removed to this court on December 20, 2010. (Dkt. No. 1.) On December 27, Chase filed a counterclaim against Plaintiff, alleging breach of three credit card agreements made between 1999 and 2007, and seeking $5,321.03 in damages ("the underlying debt"). (Dkt. No. 6.) Plaintiff now moves to dismiss the counterclaim for lack of subject-matter jurisdiction.

II. Discussion

This court does not have original diversity jurisdiction over Chase's counterclaim for $5,321.03 because the amount in controversy requirement is not met. See 28 U.S.C. § 1332. The question, then, is whether this court may exercise supplemental jurisdiction over Chase's counterclaim under 28 U.S.C. § 1367(a). Supplemental jurisdiction exists if the counterclaim bears close enough relation to the claims over which the court has original jurisdiction so as to constitute a single case or controversy. 28 U.S.C. § 1367(a).

A. Compulsory and Permissive Counterclaims

A counterclaim may be either compulsory or permissive. Fed. R. Civ. P. 13. If a counterclaim "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim," the counterclaim is compulsory. Fed. R. Civ. P. 13(a)(1)(A). Because a compulsory counterclaim arises out of the same transaction as the related claim, the two can be viewed as part of the same case or controversy. Campos v. Western Dental Servs., Inc., 404 F.Supp.2d 1164, 1167 (N.D. Cal. 2005). Thus, courts do have supplemental jurisdiction over compulsory counterclaims.

Here, Chase argues that its counterclaim is compulsory because it arises out of the same transactions at issue in the FAC's third and fourth causes of action. (Opposition at 2.) To determine whether the claim and counterclaim arise out of the same transaction, the court applies a "logical relationship" test to "analyze whether the essential facts of the various claims are so logically connected that considerations of judicial economy and fairness dictate that all issues be resolved in one lawsuit." Pochiro v. Prudential Ins. Co. of America, 827 F.2d 1246, 1249 (9th Cir. 1987) (citation omitted).

The claims and counterclaim at issue here are not so logically connected as to constitute a single transaction.

Chase's arguments conflate the underlying credit card holder agreements, upon which the counterclaim is based, with the March 2010 oral agreements that constitute the bases for counts three and four. Whether Plaintiff breached the credit card agreements, formed between 1999 and 2007, has no bearing on whether Chase breached the March 2010 agreements. In similar cases under the federal Fair Debt Collection Practices Act, courts in this circuit have regularly made similar conclusions. See, e.g., Campos, 404 F.Supp. at 1169 ("Whether a plaintiff in an unfair debt collection practices action actually has outstanding debt is irrelevant to the merits of the FDCPA claim"); Sparrow v. Mazda American Credit, 385 F.Supp.2d 1063, 1068 (Explaining cases holding that "breach of contract counterclaims for the underlying debt are not 'logically connected' to the unfair-collection-practices claim, despite that they both relate to the same debt"). Accordingly, Chase's counterclaim is permissive, not compulsory.

B. Supplemental Jurisdiction

Over Permissive Counterclaims Having determined that Chase's counterclaim is permissive, the question remains whether this court may exercise supplemental jurisdiction over the counterclaim. The Ninth Circuit has yet to express an opinion on whether permissive counterclaims require an independent jurisdictional basis beyond 28 U.S.C. § 1367(a)'s "same case and controversy" requirement. Sparrow, 385 F.Supp.2d at 1066-67. The Second and Seventh Circuits, however, have held that 28 U.S.C. § 1367(a) allows district courts to exercise supplemental jurisdiction over either compulsory or permissive counterclaims. Jones v. Ford Motor Credit Co., 358 F.3d 205, 212-13 (2d Cir.2004); Channell v. Citicorp Nat'l Servs., Inc., 89 F.3d 379, 384 (7th Cir.1996).*fn1 Courts in this circuit have therefore exercised supplemental jurisdiction over certain permissive counterclaims. See, e.g. Marlin v. Chase Cardmember Servs., 2009 WL 1405196 *4 (E.D. Cal. 2009).

The "same case and controversy" requirement for supplemental jurisdiction under 28 U.S.C. § 1367(a) requires only a "loose factual connection between the claims." Channell, 89 F.3d at 385. Here, though the claims and counterclaim do not arise from the same transaction or occurrence, the claims and counterclaim do share at least a "loose factual connection." Other courts have found such relationships sufficient to confer supplemental jurisdiction in similar cases. See, e.g. Marlin, 2009 WL 1405196 *4; Koumarian v. Chase Bank USA, N.A., 2008 WL 5120053 *3 (N.D. Cal. 2008); Sparrow, 385 F.Supp.2d at 1070. Accordingly, this court does have supplemental jurisdiction over Chase's counterclaim.

C. Discretion to Exercise

Supplemental Jurisdiction Having determined that there is supplemental jurisdiction over Chase's counterclaim, this court must now determine whether to exercise that jurisdiction. The court may decline to exercise supplemental jurisdiction where (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).

While the decision whether to exercise jurisdiction is fact-specific, the majority of courts in this circuit have declined jurisdiction over permissive debt-collection counterclaims, such as Chase's counterclaim here. See, e.g. Marlin, 2009 WL 1405196 *4; Sparrow, 385 F.Supp.2d at 1070; Campos, 404 F.Supp.2d at 1169-71. As these courts have noted, "federal courts should be loath to become immersed in the debt collection suits of . . . the target of the very legislation under which" plaintiffs seek redress for unlawful debt collection practices. Sparrow, 385 F.Supp.2d at 1071. "[A]llowing a debt collector to bring an action for the underlying debt in a case brought under the FDCPA may deter litigants from pursuing their rights . . . ." Marlin, 2009 WL 1405196 *4.*fn2 The court therefore declines to exercise supplemental jurisdiction over Chase's permissive state law counterclaim.

IV. Conclusion

For the reasons set forth above, Plaintiff's Motion to Dismiss Defendant's Counterclaim is GRANTED.


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