Opinion
8:01CV506
March 29, 2002
MEMORANDUM AND ORDER
This matter is before the court on plaintiffs' motion to dismiss the defendants' counterclaim pursuant to Fed.R.Civ.P. 12(b)(1). Filing No. 6. Plaintiffs purchased a vehicle on or about March 6, 2001, from defendant Courtesy Auto Sales (Courtesy) and financed it through defendant CMAC, Inc. (CMAC). Plaintiffs filed this complaint alleging that the defendants violated the federal Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq.; the Credit Repair Organizations Act, 15 U.S.C. § 1679 et seq.; and the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301 et seq. Filing No. 1. Plaintiffs also alleged a state law pendent claim of conversion, alleging that defendant's improperly possessed their vehicle. Id. Defendants then filed an answer and counterclaim, Filing No. 4, and plaintiffs filed a motion to dismiss the counterclaim. Filing No. 6.
Plaintiffs contend that the counterclaim alleged by the defendants should not be allowed to proceed in federal court. Plaintiffs rely on a series of cases that hold that permissive counterclaims should not be allowed in TILA cases. See Maddox v. Kentucky Finance Co., Inc., 736 F.2d 380, 382 (6th Cir. 1984) (sets forth test for determining whether a claim is compulsory or permissive in the context of a debt counterclaim and found evidence to be different for each claim, so claim held to not be compulsory); Whigham v. Beneficial Finance Co., 599 F.2d 1322, 1323 (4th Cir. 1979) (debt counterclaim in a TILA case is permissive); Valencia v. Anderson Brothers Ford, 617 F.2d 1278, 1290 (7th Cir. 1980), rev'd on other grounds, 452 U.S. 205 (1981) (same); Agostine v. Sidcon Corp., 69 F.R.D. 43, 441 (E.D. Pa. 1975) (same); Jones v. Sonny Gerber Auto Sales, Inc., 71 F.R.D. 695, 696 (D.C.Neb. 1976) (same); and Jacklitch v. Redstone Federal Credit Union, 463 F. Supp. 1134, 1136 (N.D. Ala. 1979) (same). This analysis seems to still exist, even after the passage of the Judicial Improvement Act of 1990, 28 U.S.C. § 1367, which gives the district court supplemental jurisdiction over claims that are so inherently related to the claim as to be part of the same case or controversy. See Unique Concepts v. Manuel, 930 F.2d 573, 574-75 (7th Cir. 1991); Brazinski v. Amoco Petroleum Additives Co., 6 F.3d 1176, 1171 (11th Cir. 1993); Hart v. Clayton-Parker and Assoc., Inc., 869 F. Supp. 774, 776 (D. Ariz. 1994).
However, the Fifth Circuit and other courts have construed the debt counterclaim to be compulsory. Plant v. Blazer Financial Services, Inc., 598 F.2d 1357, 1363 (5th Cir. 1979); Palmer v. Wilson, 502 F.2d 860, 862 (9th Cir. 1974) (concurring opinion); Gantt v. Commonwealth Loan Co., 416 F. Supp. 309, 313 (E.D. Mo. 1976), aff'd, 573 F.2d 520 (8th Cir. 1978); Gibson v. Family Fin. Corp., 404 F. Supp. 896, 899 (E.D. La. 1975); Rodriquez v. Family Publications Serv., Inc., 57 F.R.D. 189, 193 (C.D. Cal. 1972). The defendants urge this court to use the "logical relationship test" and "aggregate of operative facts" and construe the counterclaim to be so related to the TILA claim as to be allowed in this case. Revere Copper Brass, Inc. v. Aetna Cas. Sun Co., 426 F.2d 709, 714-15 (5th Cir. 1970).
In general, I agree with the plaintiffs that this claim is permissive in nature and is not part of the case or controversy in a TILA action. The case law is persuasive in that regard, and I find the great weight of authority supports a finding that in a typical case this counterclaim would be permissive in nature. However, the plaintiffs in this case filed a conversion cause of action in their federal complaint. The conversion claim is a state law action. Plaintiffs allege that defendants wrongfully repossessed their car. Part of defendants' defense to that claim would include allegations of failure to make payments, which are the same allegations set forth in the defendants' counterclaim. Consequently, because plaintiffs raised the conversion issue in their complaint, I conclude that defendants would be permitted to raise their defenses to that claim in the case at hand. Arguably, that makes the counterclaim a compulsory rather than a permissive one. Even if the counterclaim could still be construed as permissive, however, under the circumstances of this particular case as pleaded by the plaintiffs, I conclude that it is appropriate to exercise jurisdiction over the counterclaim.
THEREFORE, IT IS ORDERED that plaintiffs' motion to dismiss defendants' counterclaim, Filing No. 6, is hereby denied.