## Facts

- A consumer sued a creditor/assignee alleging abusive debt-collection conduct related to an automobile transaction.
- The complaint asserted claims under the federal Fair Debt Collection Practices Act (FDCPA) and California’s Rosenthal Fair Debt Collection Practices Act.
- The action was removed to federal court.
- The creditor answered and filed state-law counterclaims seeking to collect the underlying debt and recover the vehicle or its value, asserting: (1) breach of contract, (2) money had and received, and (3) claim and delivery.
- The consumer moved to dismiss the counterclaims under Rule 12(b)(1), arguing the court should not exercise supplemental jurisdiction over them.

## Issues

1. Whether the court had supplemental jurisdiction under 28 U.S.C. § 1367(a) over state-law collection counterclaims in an FDCPA/Rosenthal action because they formed part of the same Article III case or controversy.
2. If supplemental jurisdiction existed, whether the court should decline to exercise it under 28 U.S.C. § 1367(c) based on predominance and policy concerns, including deterrence of FDCPA enforcement.

## Decision

- The court held the counterclaims and the FDCPA/Rosenthal claims shared a common nucleus of operative fact—both were tied to the same underlying debt—so § 1367(a) was satisfied.
- The court nevertheless declined to exercise supplemental jurisdiction under § 1367(c).
- The court granted the motion to dismiss the counterclaims without prejudice, leaving the consumer-protection claims to proceed.

## Legal Principles

- Supplemental jurisdiction under 28 U.S.C. § 1367(a) extends to state-law claims that share a common nucleus of operative fact with claims within the court’s original jurisdiction.
- Even when § 1367(a) is met, a district court may decline supplemental jurisdiction under § 1367(c), including where state-law claims would substantially predominate over the federal claims or where other compelling reasons counsel against exercising jurisdiction.
- In FDCPA actions, creditor collection counterclaims can be declined under § 1367(c) when litigating the debt’s validity and amount would overshadow the statutory inquiry into collection practices and risk deterring consumers from bringing FDCPA claims.
- Dismissal of collection counterclaims without prejudice preserves the creditor’s ability to pursue debt-collection remedies in a separate action, typically in state court.

## Conclusion

The court recognized supplemental jurisdiction over the creditor’s state-law counterclaims but declined to exercise it under § 1367(c) because the collection dispute threatened to predominate over the FDCPA claims and could deter private enforcement; the counterclaims were dismissed without prejudice.


Sparrow v. Mazda Am. Credit, 385 F. Supp. 2d 1063 (E.D. Cal. 2005)