Under 28 U.S.C.S. § 1367(a), courts must still distinguish between compulsory and permissive counterclaims: federal courts have supplemental jurisdiction over compulsory counterclaims, but permissive counterclaims require their own jurisdictional basis. That is, § 1367(a) itself implicitly recognizes that only a compulsory counterclaim forms a part of the same case or controversy of the claim giving rise to federal jurisdiction.
A debtor filed an action against a collection agency alleging deceptive, unfair and abusive debt-collection practices in violation of the Fair Debt Collection Practices Act (FDCPA) and state law. The collection agency filed a counterclaim to recover the money owed by the debtor. The debtor filed a motion to dismiss the collection agency's counterclaim. The debtor argued that the court did not have jurisdiction over the collection agency's counterclaim because it did not arise under federal law, the parties were not diverse, and it was not a compulsory counterclaim.
Did the court have jurisdiction the collection agency's counterclaim?
The court noted that under 28 U.S.C.S. § 1367(a), the court had supplemental jurisdiction over the counterclaim only if it formed a part of the same case or controversy of the claim giving rise to federal jurisdiction, and was thus compulsory. The court found that the collection agency's counterclaim was not compulsory because the debtor's FDCPA claim related to the alleged use of abusive debt collection practices, while the counterclaim encompassed a private duty under state law requiring a broad proof of facts establishing the existence and performance of a contract, the validity of the contract's provisions, a breach of the contract by the debtor, and monetary damages resulting from the breach. Furthermore, the debtor's FDCPA case turned on the content of the collection agency's written demand letters, and the validity of the debt itself was not relevant to the debtor's case.