Kimmel v. Cavalry Portfolio Serv. Llc

747 F.Supp.2d 427

Dr. Murray H. KIMMEL, Plaintiff,

v.CAVALRY PORTFOLIO SERVICES, LLC, Defendant.Cavalry Portfolio Services, LLC, Counterclaim Plaintiff,

v.Dr. Murray H. Kimmel, Counterclaim Defendant.

Civil Action No. 10–680.

United States District Court, E.D. Pennsylvania.

Sept. 29, 2010.

Tara Leigh Patterson, Kimmel & Silverman PC, Ambler, PA, for Plaintiff and Counter Defendant.Richard J. Perr, Fineman Krekstein & Harris, P.C., Philadelphia, PA, for Defendant and Counter Claimant.RONALD L. BUCKWALTER, Senior District Judge.

MEMORANDUM

Currently pending before the Court are: (1) Plaintiff Dr. Murray H. Kimmel's (“Plaintiff”) Motion to Dismiss Defendant Cavalry Portfolio Services, LLC's (“Defendant”) Counterclaim pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(2), and 12(b)(6), and (2) Defendant's Motion for Sanctions against Plaintiff's counsel pursuant to Federal Rule of Civil Procedure 11(b) and 28 U.S.C. § 1927. For the following reasons, both Motions are denied.

I. FACTUAL AND PROCEDURAL HISTORY

Plaintiff is an adult individual who resides in Huntingdon Valley, Pennsylvania, and Defendant is a Delaware limited liability company with its principal place of business in Hawthorne, New York. (Compl. ¶¶ 5–8; Countercl. ¶¶ 5–6; Def.'s Mem. Opp'n Mot. Dismiss 4.) Plaintiff commenced this action for actual and statutory damages based on Defendant's alleged violations of the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692, et seq. (“FDCPA”). (Compl. ¶ 4.) According to the Complaint, Defendant sent to Plaintiff correspondence dated December 8, 2009, in which Defendant offered Plaintiff an opportunity to settle an alleged Bank of America credit card debt of $12,479.32. ( Id. ¶¶ 13–23.) Defendant asserts that it acquired the rights to the debt from Bank of America on October 2, 2009. (Countercl. ¶¶ 26–32). Plaintiff claimed that Defendant violated the FDCPA in attempting to collect on this debt by: (1) using false, deceptive, or misleading representations or means in connection with the collection of a debt, in violation of 15 U.S.C. § 1692e; (2) using false representation or deceptive means to collect or attempt to collect a debt, in violation of 15 U.S.C. § 1692e(10); (3) acting in an otherwise unfair and unconscionable manner to collect or attempt to collect a debt, in violation of 15 U.S.C. § 1692f; and (4) failing to provide, within five days after its initial written communication with Plaintiff, written notice containing information on Plaintiff's right to dispute the debt, request validation, or request the name of the original creditor, in violation of 15 U.S.C. § 1692g(a). (Compl. ¶ 27.)

Defendant filed a Counterclaim alleging breach of contract and unjust enrichment based on Plaintiff's failure to pay $12,019.75 owed on the credit card account cited in the Complaint (“Account 0174”), as well as a separate debt of $85,809.89 from another credit card account that was not referenced in the Complaint (“Account 09540”). (Countercl. ¶¶ 7–57.) Plaintiff filed the present Motion to Dismiss Defendant's Counterclaim on April 20, 2010. Defendant filed a Memorandum in Opposition to Plaintiff's Motion to Dismiss on May 7, 2010 and Plaintiff filed a Reply Brief on June 23, 2010.

Finally, Defendant filed a Motion for Sanctions on June 24, 2010, alleging that Plaintiff's counsel violated Federal Rule of Civil Procedure 11(b) and 28 U.S.C. § 1927 by filing the Motion to Dismiss Defendant's Counterclaim. (Def.'s Mot. Sanctions 1.) Plaintiff's Answer to the Motion for Sanctions was filed on July 7, 2010.

II. DISCUSSION

Plaintiff sets forth nine arguments in favor of dismissing Defendant's Counterclaim, as follows: (1) Defendant failed to properly establish a clear chain of title for the contract upon which the Counterclaim is based; (2) the Court lacks subject matter jurisdiction over the Counterclaim; (3) the Counterclaim would “substantially predominate” over Plaintiff's FDCPA claim; (4) the Counterclaim is permissive; (5) exercising supplemental jurisdiction would have a chilling effect on FDCPA actions; (6) Defendant violated the Truth in Lending Act and Federal Reserve Board Regulations; (7) Defendant failed to attach a signed contract to its Counterclaim and attempted to circumvent the Pennsylvania Rules of Civil Procedure; (8) Defendant failed to establish a prima facie case for money owed on an account; and (9) the Counterclaim offends public policy.¹ (Pl.'s Mot. Dismiss ¶¶ 4–62.)

The Court first considers the merits of these nine arguments. Upon finding no grounds to dismiss the Counterclaim, the Court next considers whether it is appropriate to sever Plaintiff's claim from Defendant's Counterclaim. Finally, the Court addresses Defendant's separate Motion for Sanctions based on the alleged frivolity of Plaintiff's Motion to Dismiss.

A. Motion to Dismiss Defendant's Counterclaim

1. Whether Defendant Failed to Properly Establish a Clear Chain of Title for the Contract upon Which the Counterclaim is Based (Plaintiff's First Argument)

Plaintiff withdrew this argument in his Reply Brief. (Pl.'s Reply Br. 8.)

2. Whether the Court has Subject Matter Jurisdiction Over Defendant's Counterclaim (Plaintiff's Second Argument)

Rule 13 establishes two kinds of counterclaims: compulsory and permissive. Fed. R. Civ. P. 13. A counterclaim is compulsory if it “arises out of the transaction or occurrence that is the subject matter of the opposing party's claim.” Fed. R. Civ. P. 13(a)(1)(A). A compulsory counterclaim does not require an independent jurisdictional basis to be brought in federal court, even when it is purely a state-law claim. Ambromovage v. United Mine Workers of Am., 726 F.2d 972, 988 (3d Cir.1984) (citations omitted). A permissive counterclaim, on the other hand, requires a basis of federal jurisdiction independent of the opposing party's claim. Aldens Inc. v. Packel, 524 F.2d 38, 52 (3d Cir.1975). ² A permissive counterclaim is broadly defined to include “any claim that is not compulsory.” Fed. R. Civ. P. 13(b).

Here, Plaintiff's cause of action arises under the FDCPA, a federal statute. The Court therefore has federal question jurisdiction to hear this claim pursuant to 28 U.S.C. § 1331.³ Defendant's Counterclaim for breach of contract and unjust enrichment, on the other hand, arises under state law. In prior cases where a plaintiff has brought a claim under the FDCPA, courts have held that a defendant's state-law counterclaim for the underlying debt is permissive rather than compulsory. For instance, in Orloff v. Syndicated Office Sys., Inc., No. CIV.A. 005355, 2003 WL 22100868, at *2–3 (E.D.Pa. Aug. 20, 2003), the court found that the defendants' counterclaim was not compulsory because “the issues of fact and law raised by Plaintiff's claims under the FDCPA ... are completely different than those raised by Defendants' claim for breach of contract. Plaintiff's claims involve issues of statutory compliance. Defendants' counterclaim is simply a state law debt collection claim.” Id. at *2; see also Ayres v. Nat'l Credit Mgmt. Corp., No. CIV.A. 90–5535, 1991 WL 66845, at *2 (E.D.Pa. Apr. 25, 1991) (noting that “[a]t least three federal courts have held that debt-collection actions do not arise out of the same ‘transaction or occurrence’, within the meaning of Rule 13(a), as actions under the FDCPA”).

This Court concurs with these decisions and finds that Defendant's Counterclaim for breach of contract and unjust enrichment does not arise out of the same transaction or occurrence as Plaintiff's claim under the FDCPA. Plaintiff's claim involves factual and legal questions as to whether Defendant used improper means to collect an alleged debt, while Defendant's Counterclaim raises separate issues regarding whether and to what extent a debt existed at all. Furthermore, Plaintiff's claim alleges that Defendant violated the FDCPA while trying to collect the debt associated with Account 0175. Defendant's Counterclaim, however, seeks damages not only for Account 0175, but for Account 09540, which is unrelated to Plaintiff's claim. Therefore, Defendant's Counterclaim is permissive rather than compulsory.

Because Defendant's state-law Counterclaim is permissive, this Court must have an independent basis for jurisdiction in order to hear it. Defendant argues that federal jurisdiction exists based on diversity of citizenship pursuant to 28 U.S.C. § 1332,⁴ and the Court agrees. The parties do not dispute the fact that Defendant is a Delaware limited liability company with its principal place of business in Hawthorne, New York, while Plaintiff is a resident of Huntingdon Valley, Pennsylvania. Defendant seeks to recover outstanding debts associated with two credit cards. Defendant asserts that $12,019.75 is due on Account 0175 and that $85,809.89 is due on Account 09540. The amount in controversy therefore totals $97,829.64. Because the parties are citizens of different states and the amount in controversy exceeds $75,000, the Court finds pursuant to 28 U.S.C. § 1332 that it has an independent basis of subject matter jurisdiction over Defendant's Counterclaim.

3. Whether the Counterclaim “Substantially Predominates” Over Plaintiff's FDCPA Claim; Whether the Counterclaim Should be Dismissed Because it is Permissive; and Whether Exercising Supplemental Jurisdiction Over the Counterclaim Would Have a Chilling Effect on Future FDCPA Actions (Plaintiff's Third, Fourth, and Fifth Arguments)

Plaintiff's third, fourth, and fifth arguments pertain to the issue of supplemental jurisdiction.⁵ Supplemental jurisdiction is governed by 28 U.S.C. § 1367, which states in relevant part: “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 within such original jurisdiction that they form part of the same case or controversy....” 28 U.S.C. § 1367(a). This language makes clear...