District Court (Cal) Says Counterclaim on the Debt is “Permissive” to Main TCPA Case, But Court Would Exercise Supplemental Jurisdiction

In Nalan v. Access Fin., Inc., No. 5:20-cv-02785-EJD, 2020 U.S. Dist. LEXIS 198836 (N.D. Cal. Oct. 23, 2020), Judge Davila agreed to exercise supplemental jurisdiction over a counterclaim on the debt where the main action was a TCPA claim.

The Ninth Circuit has not definitively ruled on the question of whether supplemental jurisdiction under § 1367 can cover permissive counterclaims. However, at least two circuits have held that a federal court may exercise supplemental jurisdiction over certain permissive counterclaims. The Seventh Circuit has held that § 1367’s “case or controversy” requirement applies to both compulsory and permissive counterclaims. See Channell v. Citicorp Nat. Servs., Inc., 89 F.3d 379, 385 (7th Cir. 1996) (“Now that Congress has codified the supplemental jurisdiction in § 1367(a), courts should use the language of the statute to define the extent of their powers.”). Several district courts within the Ninth Circuit have followed the Seventh Circuit’s holding in Channell. See Clear Connection Corp. v. Comcast Cable Commc’ns Mgmt., LLC, 149 F. Supp. 3d 1188, 1207 n.8 (E.D. Cal. 2015); see, e.g., Sparrow, 385 F. Supp. 2d at 1070; Koumarian v. Chase Bank USA, N.A., No. C-08-4033 MMC, 2008 U.S. Dist. LEXIS 101910, 2008 WL 5120053, at *3 (N.D. Cal. Dec. 3, 2008); Avery, 2007 U.S. Dist. LEXIS 39260, 2007 WL 1560653, at *5-9; Campos, 404 F. Supp. 2d at 1168 (finding that permissive counterclaims may qualify for supplemental jurisdiction under § 1367 if the counterclaim forms part of the same case or controversy). Further the Second Circuit found that the scope of § 1367(a) is at least as broad as the pre-§ 1367 “common nucleus of operative fact” test as delineated in United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725, 86 S. Ct. 1130, 16 L. Ed. 2d 218 (1966). See Jones, 358 F.3d at 212. Under this test, state and federal law claims must “derive from a common nucleus of operative fact” in order for the court to exercise supplemental jurisdiction over the state law claims. Gibbs, 383 U.S. at 725. Here, Access’ counterclaim, although not arising out of the same “transaction or occurrence” as Plaintiff’s TCPA claim, still derives from a “common nucleus of operative fact,” in that both parties’ claims are related to the same underlying debt owed by Plaintiff to Access. Access would not have called Plaintiff in the manner it allegedly did, which serves as the basis for Plaintiff’s RFDCPA and TCPA claims, if Plaintiff did not owe Access a debt. Access’ permissive counterclaim thus satisfies the Gibbs test, and the Court may therefore exercise supplemental jurisdiction over the counterclaim. As such, the Court is inclined to follow the majority of Ninth Circuit district courts cited above, and finds that supplemental jurisdiction exists over Access’ breach of contract counterclaim related to the debt underlying Plaintiff’s TCPA and RFDCPA claims. See Sparrow, 385 F. Supp. 2d at 1070 (“[B]ecause [d]efendant’s counterclaims bear a logical and factual relationship to Plaintiff’s claims in that they are related to a single debt incurred by Plaintiff, supplemental jurisdiction exists over [d]efendant’s counterclaims under § 1367(a).”). Here, both Plaintiff’s and Access’ claims are related to the underlying automobile loan debt owed by Plaintiff to Access. These claims may be fairly classified as part of the same “case or controversy” and therefore, the Court may exercise supplemental jurisdiction over Access’ counterclaim pursuant to 28 U.S.C. § 1367(a).