## Facts

- Theresa Plant executed a promissory note to Blazer Financial Services, Inc. for $2,520, payable in monthly installments.
- Plant made no payments on the note.
- Plant sued in federal court under the Truth in Lending Act (TILA) and Regulation Z, alleging deficient loan disclosures.
- Blazer counterclaimed under state law to recover the unpaid balance on the note.
- The district court found a TILA violation for failure to disclose a limitation on an after-acquired security interest and awarded Plant statutory damages and attorney’s fees.
- The district court treated Blazer’s debt counterclaim as compulsory, entered judgment for Blazer on the debt, and offset Plant’s statutory recovery and attorney’s fees against Blazer’s recovery.

## Issues

1. Whether the creditor’s state-law claim to collect the defaulted loan is a compulsory counterclaim under Federal Rule of Civil Procedure 13(a) in the borrower’s TILA action, such that it falls within ancillary jurisdiction.
2. Whether a prevailing TILA plaintiff’s attorney’s fee award may be set off against the creditor’s judgment on the underlying debt.

## Decision

- The Fifth Circuit held the creditor’s action on the underlying debt was a compulsory counterclaim because it was logically related to the borrower’s TILA claim arising from the same loan transaction.
- The court held that, as a compulsory counterclaim, the debt claim fell within ancillary jurisdiction and required no independent jurisdictional basis.
- The court reversed the setoff of the TILA attorney’s fee award against the creditor’s debt judgment.
- The court otherwise affirmed the judgment on the debt and remanded for proceedings consistent with its ruling on attorney’s fees.

## Legal Principles

- A counterclaim is compulsory under Rule 13(a) when it arises out of the same transaction or occurrence as the opposing party’s claim; the Fifth Circuit applies a “logical relationship” test focusing on interrelated rights and a common factual basis.
- In a borrower’s TILA suit challenging disclosures in a loan transaction, the creditor’s claim to collect the unpaid balance on that loan is a compulsory counterclaim.
- Compulsory counterclaims fall within federal ancillary jurisdiction and do not require an independent jurisdictional basis.
- TILA’s fee-shifting provision requires that reasonable attorney’s fees for a successful plaintiff be awarded in a manner that preserves counsel’s compensation; the fee award is not subject to setoff against the borrower’s outstanding debt to the creditor.

## Conclusion

The Fifth Circuit ruled that a creditor’s claim on a defaulted loan must be brought as a compulsory counterclaim in the borrower’s TILA action and therefore lies within ancillary jurisdiction, but the borrower’s TILA attorney’s fee award cannot be reduced by setting it off against the creditor’s judgment on the underlying debt.


Plant v. Blazer Fin. Servs., Inc., 598 F.2d 1357 (5th Cir. 1979)