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Counterclaims to Fair Debt Collection Practices Act Dismissed for Failure to State Claim and Permissive Nature in Part.

Bryant Moore, et al. v. Paul Edward Koch, II
2015 U.S. Dist. LEXIS 94411
by Gregory Emrick, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Not publicly available.

Plaintiffs, Bryant and Sherri Moore, brought an action under the Fair Debt Collection Practices Act, Maryland Consumer Debt Collection Act, and the Maryland Consumer Protection Act against the Defendant, Paul Koch, a debt collector, for his debt collection activities. Defendant had been assigned a debt against the Plaintiffs by William Allen Barwick, Jr. for unpaid rents, for which the Defendant had obtained a judgment. Thereafter, Defendant began to contact the Plaintiffs to collect on the debt. According to the counterclaim, Plaintiffs responded by filing vexatious and frivolous complaints against the Defendant, and threatened to file a formal lawsuit against him if he did not cease collection activity. Based on these allegations, Defendant’s counterclaim sought damages for: (1) tortuous interference with business relations; (2) malicious interference with the right to pursue a lawful business, trade or occupation; (3) abuse of process; and (4) set-off and/or recoupment. Plaintiffs filed a motion to dismiss the counterclaim under Fed. R. Civ. Proc. 12(b)(6).

Judge Nickerson first noted that the jurisdiction of the original claim was based on diversity jurisdiction, and the counterclaims could only be heard by way of ancillary jurisdiction in that action if the Court had original jurisdiction or the counterclaims were compulsory, not permissive.

A compulsory counterclaim ‘arises out of the transaction or occurrence that is the subject matter of the opposing party's claim’ while a permissive counterclaim does not. A compulsory counterclaim is ‘within the ancillary jurisdiction of the court to entertain and no independent basis of federal jurisdiction is required.’ By contrast, a permissive counterclaim that lacks its own independent jurisdictional basis is not within the jurisdiction of the court.

Id. at 2 (internal citations omitted). The court, using the four (4) part guideline of Painter v. Harvey, 863 F.2d 329 (4th Cir. 1988) found that the underlying facts for counts one (1) through three (3) were sufficiently related to the collection efforts that were the subject of the original claim and thus were compulsory counterclaims. Count IV for recoupment, however, was related to the validity of the underlying debt, which was only permissive and noted that the law in the Fourth Circuit was that “Federal Courts may not exercise supplemental jurisdiction over permissive counterclaims.” Koch, at 5, quoting Ramirez v. Amazing Home Contractors, Inc., Civ. No. JKB-14-2168, 2014 WL 684555, at 5 (D. Md. Nov. 25, 2014).

The Court then reviewed the counterclaim under Fed. R. Civ. Proc. 12(b)(6) and held that, despite being compulsory counterclaims, the Defendant had not claimed any recoverable damages from the alleged interference with his business activities, and the abuse of process required that he allege that he was unlawfully arrested or his property unlawfully seized. The Court dismissed the counterclaim in its entirety.