Hart v. Clayton-Parker & Associates, Inc.

United States District Court, D. Arizona
869 F. Supp. 774 (1994)

ELI5:

Rule of Law:

A debt collector's state-law counterclaim to recover an underlying debt is not a compulsory counterclaim to a debtor's federal claim under the Fair Debt Collection Practices Act (FDCPA), because the two claims do not arise from the same transaction or occurrence.

Facts:

In 1990, the plaintiff applied for and received a credit card from J.C. Penney Company.
The plaintiff subsequently accumulated a balance of $1,135.25 on the credit card.
The plaintiff was unable to pay the outstanding balance.
J.C. Penney assigned the plaintiff's account to the defendant for collection purposes.
Plaintiff alleges that the defendant then engaged in deceptive, unfair, and abusive debt-collection practices.

Procedural Posture:

Plaintiff filed a complaint against the defendant in the U.S. District Court for the District of Arizona, alleging violations of the Fair Debt Collection Practices Act (FDCPA) and state law.
Defendant filed a counterclaim against the plaintiff to recover the underlying debt of $1,135.25.
Plaintiff filed a motion to dismiss the defendant's counterclaim, arguing the court lacked subject matter jurisdiction over it.

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Issue:

Does a debt collector's state-law counterclaim for the underlying debt arise from the same transaction or occurrence as the debtor's federal Fair Debt Collection Practices Act (FDCPA) claim, making it a compulsory counterclaim under Federal Rule of Civil Procedure 13(a)?

Opinions:

Majority - Broomfield, Chief Judge

No. A debt collector's counterclaim for the underlying debt is not a compulsory counterclaim to a debtor's FDCPA claim because the two claims do not arise from the same transaction or occurrence and are not logically related. The court's jurisdiction over the FDCPA claim does not create supplemental jurisdiction over the state-law debt collection counterclaim, as it is a permissive counterclaim that requires its own independent basis for federal jurisdiction. The FDCPA claim focuses on the collector's practices and is governed by federal law, while the debt counterclaim focuses on the creation and breach of a contract and is governed by state law. These claims involve different factual and legal issues, require different evidence, and therefore do not meet the 'logical relationship' test required for a compulsory counterclaim.

Analysis:

This decision reinforces the separation between federal consumer protection claims and underlying state-law contract disputes. By classifying debt collection counterclaims as permissive, the ruling prevents debt collectors from using a consumer's FDCPA lawsuit as a forum to litigate the debt itself. This is significant because it protects the legislative intent of the FDCPA, which is to allow consumers to challenge abusive practices without the chilling effect of being simultaneously sued for the underlying debt in a federal court they did not choose. This precedent makes it more difficult for creditors to deter FDCPA claims through strategic counterclaims.

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