Tuesday, May 3, 2011

National Debt: Split Over Fair Debt Collection Practices Act Counterclaims Nicely Illustrates Application of 28 U.S.C. Section 1367(c)(4)

Once again, I would like to thank RobinCynthia, and Adam for having me as a guest blogger for April. This will be the last post of my guest blogging stint. 

28 U.S.C. Section 1367(a) indicates that 

Except as provided in subsections (b) and (c) or as expressly provided otherwise by Federal statute, 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. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.

Meanwhile, 28 U.S.C. Section 1367(c)(4) indicates that

The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if...in exceptional circumstances, there are other compelling reasons for declining jurisdiction.

For a while, I have been looking for a good example of a situation in which courts have invoked 28 U.S.C. Section 1367(c)(4) to decline to exercise supplemental jurisdiction over a state law claim. Then, I came across the dispute over whether courts should exercise supplemental jurisdiction over state law breach of contract counterclaims brought by defendant-creditors against plaintiffs suing them for violations of the Fair Debt Collection Practices Act.

The opinion that brought this issue to my attention was Mufwene v. American Credit Exchange, 2010 WL 4539451 (N.D.Ill. 2010). In Mufwene, Patricia Mufwene brought an action against American Credit Exchange in the United States District Court for the Northern District of Illinois, alleging that it violated the Fair Debt Collection Practices Act by 

-engaging in conduct the natural consequence of which is to harass, oppress, or abuse her; and

-causing a telephone to ring repeatedly and continuously with the intent to annoy, abuse, and harass her.

In response, American Credit Exchange asserted a counterclaim against Mufwene for breach of contract based on the debt underlying Mufwene's FDCPA claim. In response, Mufwene claimed, inter alia, that the court should decline to exercise supplemental jurisdiction over the counterclaim under 28 U.S.C. Section 1367(c)(4) because 

"allowing [American Credit's] counterclaim to go forward would have a chilling effect on the very consumers for whom the FDCPA was designed to protect."

In support of her position, Mufwene cited several cases, including Mostin v. GL Recovery, LLC, 2010 WL 668808 (C.D. Cal. 2010), in which the court agreed with prior precedent which had held that accepting supplemental jurisdiction over state law counterclaims filed in response to FDCPA claims 

will increase both the complexity and length of time to resolve Plaintiff's narrow and straightforward FDCPA claim....A California court is better suited to resolve California's state law claims and disputes regarding state law. Declining supplemental jurisdiction also reduces the risk of incorrect application of California law and furthers the principles of comity. Accepting supplemental jurisdiction would also involve this District Court and its limited resources in legal questions of no federal significance.... Finally, considering the purpose of the FDCPA is to give those harmed by an alleged FDCPA violation a remedy against a debt collector regardless of whether the underlying debt is valid, the Court is persuaded to follow the majority of the district courts in the Ninth Circuit [in finding] that strong public policy reasons exist for declining to exercise jurisdiction over [the defendant's] Counterclaim.

The Northern District of Illinois disagreed, concluding that

Mufwene has not identified any relevant Seventh Circuit case law nor has this court's research uncovered any precedential authority supporting Mufwene's position. This court respectfully disagrees with the decisions cited by Mufwene and instead finds that exercising its supplemental jurisdiction over American Credit's counterclaim will support judicial efficiency and economy by not requiring American Credit to burden the state court system with parallel litigation over overlapping issues. Nor does the court find that allowing this counterclaim to proceed before this court will "have a chilling effect" on consumers seeking protection under the FDCPA. Indeed, as the court in Betsey v. Nissan Motor Acceptance Corp., 699 S.E.2d 642, 2010 WL 2925367 (D.Conn. Sept. 10, 2009), "any chilling effect is substantially weakened where as here the debt collector can pursue the deficiency claim against the plaintiff in a separate state court action."

So, which courts are acting correctly? I don't know, but I think that the issue lends itself to a good class discussion and does a nice job of illustrating at least on situation in which courts could decline to exercise jurisdiction under 28 U.S.C. Section 1367(c)(4).

-Colin Miller


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