Opinion
No. 00-0258-CV-W-FJG
January 7, 2004
ORDER
Currently pending before the Court is Defendants' Motion for Summary Judgment (Doc. # 230), Plaintiffs' Motion for Summary Judgment (Doc. # 232), Defendants' Motion to Strike the Declaration of Gary Doss and to Exclude His Testimony At Trial (Doc. # 255), Defendants' Motion to Strike Declaration of David Wainstock and to Exclude His Testimony At Trial (Doc. # 261), Plaintiffs' Motion to Dismiss for Lack of Jurisdiction Counterclaims of Ledar and Hawthorne Leasing, Inc. Against Absent Class Members (Doc. # 267) and Plaintiffs' Motion to Dismiss Counterclaims of Ledar Transport, Inc. (Doc. # 269).
I. BACKGROUND
Defendant Ledar Transport, Inc. ("Ledar") operates as a federally regulated motor carrier providing transportation of property in interstate commerce under authority granted by the Department of Transportation. In order to transport this freight, Ledar leases equipment from independent owner-operator truckers who are "owners" of the trucks within the meaning of 49 C.F.R. § 376.2(d). As a federally regulated motor carrier, Ledar may perform transportation in equipment it does not own only if the equipment is covered by a written lease agreement meeting the requirements contained in 49 C.F.R. Part 376, Section 376.12.
Defendants Ledar and Hawthorn Leasing, Inc. a/k/a Hawthorne Leasing, Inc. (hereafter "Hawthorne"), Carl E. Higgs and Scott L. Higgs have also entered into "Lease Purchase Agreements" with many of these owner-operators. Under these agreements, the owner-operators lease a truck tractor unit with an option to purchase at the end of a specified term. The owner-operators then enter into "Standard Lease Agreements" whereby the owner-operators lease the truck and their driving services back to Ledar.
Plaintiffs allege that Ledar's leases violate the requirements of 49 C.F.R. § 376 by having terms which conflict with the regulations; by failing to set forth certain terms required by the regulations and also by failing to include certain terms required by virtue of Ledar's business practices. Plaintiffs allege that this arrangement and the interrelation between the terms of the Lease-Purchase Agreement and the Standard Lease Agreement combine to create violations of the federal leasing regulations. In their First Amended Complaint, plaintiffs seek "a declaratory judgment that the Standard Lease Agreement does not comply with the requirements of Part 376; preliminary and permanent injunctive relief restraining Ledar from performing DOT-authorized transportation in equipment it does not own unless and until written lease agreements meeting the requirements of Part 376 are executed with all owner-operators leasing such equipment to Ledar; restitution of owner-operator lessors' escrow funds held by Defendants in violation of 49 C.F.R. § 376.12(k); and damages for Defendants' violation of 49 C.F.R. Part 376 and the Standard Lease Agreement. Plaintiffs also seek recovery of costs and attorneys' fees as provided under 49 U.S.C. § 14704(e).
Plaintiffs originally filed suit in this Court against Ledar Transport Inc. on March 17, 2000. On April 5, 2000, plaintiff filed a Motion for a Preliminary Injunction. A hearing on the motion for preliminary injunction was held on September 27, 2000 and on November 3, 2000 this Court issued an Order granting plaintiff's Motion for a Preliminary Injunction. In the Order granting the Motion for Preliminary Injunction, the Court found that "there is no serious dispute that Ledar's Lease Agreement violates a number of regulatory requirements, or fails to include provisions in the Agreement which are required by the regulations." Accordingly, the Court enjoined Ledar from performing any transportation in equipment it did not own until it executed a written lease agreement approved by this Court as conforming to the requirements contained in 49 C.F.R. § 376.12. The Court also held that for each equipment lessor who was subject to any other lease, lease-purchase or sales agreement, could at their option rescind their agreement free of any penalty or from any further obligation. (November 3, 2000 Order granting Motion for Preliminary Injunction). On November 14, 2000, the Court clarified its previous Order and stated that "[t]he equipment lessors also have the option of continuing to lease equipment from Ledar, making appropriate payments, and may at their option continue working for Ledar or may use the leased trucks in service for other carriers." (November 15, 2002 Order). On January 18, 2001, the Court issued an Order approving a new lease and found that the revised lease complied with the provisions of 49 C.F.R. § 376.12. On May 7, 2001, plaintiffs filed a First Amended Complaint, adding as defendants, Hawthorn Leasing, Inc., Carl E. Higgs, Alice Norma Higgs and Scott L. Higgs. On March 31, 2002, the Court granted plaintiffs' Motion for Class Certification.
For purposes of the Standard Lease Agreements, the lessors are the owneroperators and the lessee is Ledar. For purposes of the Lease-Purchase Agreements, the lessors are either Ledar or Hawthorn Leasing or Scott Higgs and the lessees are the owner-operators.
II. STANDARD
A moving party is entitled to summary judgment on a claim only if there is a showing that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). "[T]he substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). If the moving party meets this requirement, the burden shifts to the non-moving party to "set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. 242, 248 (1986). In Matsushita Electric Industrial Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986), the Court emphasized that the party opposing summary judgment "must do more than simply show that there is some metaphysical doubt as to the material facts" in order to establish a genuine issue of fact sufficient to warrant trial. In reviewing a motion for summary judgment, the court must view the evidence in the light most favorable to the non-moving party, giving that party the benefit of all inferences that may be reasonably drawn from the evidence. Matsushia, 475 U.S. 574, 588; Tyler v. Harper, 744 F.2d 653, 655 (8th Cir. 1984), cert. denied, 470 U.S. 1057 (1985).
III. DISCUSSION
A. Defendants' Motion for Summary JudgmentDefendant moves for summary judgment on the following grounds: 1) Plaintiff's Claims Against Hawthorne Leasing, Inc., Carl Higgs, Scott Higgs and Norma Higgs Fail As a Matter of Law and 2) Plaintiffs' Cannot Base Their Damage Claims of Violations Outside the Applicable Two-Year Limitations Period. Defendants have also raised the issue of what the proper legal standard is analyzing plaintiffs' claims. Defendants argue that the correct standard is "substantial compliance" rather than a "strict" or "literal" compliance requirement. Because plaintiffs have addressed some of the same issues in their Motion for Summary Judgment, the Court will discuss those arguments where they overlap.
1. "Substantial Compliance" vs. "Strict Compliance"
Defendants argue that in determining whether it complied with the Truth in Leasing Regulations, the Court should apply the standard of "substantial compliance." Defendants argue that this standard has been applied by the Interstate Commerce Commission in Dart Transit Company — Petition for Declaratory Order, 91 I.C.C. 701, 702, 708, 1993 WL 220182 (1993), Renteria v. KR Transportation, Inc., No. 98CV-290 (C.D.Cal. June 22, 2001) andStrickland v. Trucker's Express, Inc., No. CV-95-62-M-LBE (D.Mont. Feb. 3, 2003). In Renteria, the Court stated:
Reviewing the authorities, however, the Court cannot conclude that the standard is one of literal compliance. Whatever, the facts may have been that prompted the court to grant the preliminary injunction in [OOIDA v.] Ledar, the case cannot stand for the proposition that substantial compliance with the Regulations should never be considered at all either in finding liability or in granting or denying a remedy for non-compliant conduct by way of injunction or restitution. A rule that anything less than literal compliance requires that automatic granting of relief would, in many cases, lead to a wholly unreasonable and even unjust result.Id. at 8-9. In Renteria, the Court found that the defendants had substantially complied with the regulations finding that "the defendants took all practical steps both to apprise the plaintiffs of the required information and to make available to the plaintiffs the details of the method defendants used in making their calculations." Id. at 13. Similarly, inStrickland, the Court stated that it agreed with the analysis in Renteria that the appropriate standard to apply was that of "substantial compliance." In that case, the Court found that the defendant had substantially complied with 49 C.F.R. § 376.12(d) because plaintiffs were told exactly how much they would get paid for each load at the time they were contacted about the load and they received their pay in the amount they were told. However, with regard to § 376.12(g) relating to an insurance deduction, the Court found that the defendant had not substantially complied with this provision.
Plaintiffs argue that in this Court's November 3, 2000, Order granting the motion for Preliminary Injunction, the Court found that numerous provisions of Ledar's Standard Lease Agreement violated the Truth-in-Leasing regulations and are therefore illegal. Thus, plaintiffs argue that the Court should rely on its previous preliminary injunction findings and enter summary judgment in their favor on these issues. Plaintiffs also argue that defendants are liable for numerous other business practices.
Defendants argue that the Court is not bound by the preliminary injunction findings and that the concept of "substantial compliance" meets the purpose and spirit of the regulations. Defendants assert that the Court should view the totality of the circumstances when making a determination as to whether defendants violated the regulations. Additionally, defendants argue that there are genuine issues of material fact which are in dispute as to whether the leases were in substantial compliance with the regulations.
In reply, plaintiffs argue that the doctrine of substantial compliance has no application in the context of a clear statutory prerequisite and that the regulations clearly require that the rights and obligations and disclosures be set out in the written lease. Even if the Court were to adopt the substantial compliance test, plaintiffs argue that Ledar has failed to introduce evidence that it substantially complied with the truth-inleasing regulations.
The Court feels compelled to point out first that in the Order granting plaintiffs' Motion for a Preliminary Injunction, the Court did not determine what the correct standard was with regard to complying with the regulations. Rather, the Court in analyzing the motion for preliminary injunction found that it was appropriate in that context to apply a "reasonable cause" standard. Under this standard, the Court does not balance the equities between the parties as is traditionally done in with a motion for preliminary injunction, but rather determines only whether reasonable cause exists to believe that a violation of an act has occurred. In deciding whether the reasonable cause standard should be applied, the Court noted that pursuant toBurlington Northern Railroad Co. v. Bair, 957 F.2d 599 (8th Cir.), cert denied, 506 U.S. 821 (1992), several factors should be considered such as: 1) whether Congress had already balanced the equities; 2) whether the purpose of the act is served by the injunction and 3) whether there is a "flat ban" on the prohibited conduct. The Court found that these factors existed and then proceeded to consider whether the plaintiffs had demonstrated that reasonable cause existed to believe that the terms of defendant's standard lease agreement violated the federal motor carrier law. After considering the parties' arguments the Court determined that there was reasonable cause to believe that Ledar's lease agreements violated federal motor carrier law. However, it should be noted that the Preliminary Injunction order was entered relatively early in the case and without the benefit of testimony from any witnesses. Additionally, the parties were allowed only a short time for oral argument. As the Court noted inInternational Brotherhood of Electrical Workers, AFL-CIO No. 1 v. St. Louis County, 117 F. Supp.2d 922, 934 (E.D.Mo. 2000), the standards for the granting of a preliminary injunction and for the entry of summary judgment are different. Additionally, defendants note that if plaintiffs had wished to have a consolidated preliminary injunction hearing and a trial on the merits, they needed to properly move the Court to do so under Fed.R.Civ.P. 65(a)(2). However, plaintiffs failed to do so.
At this stage of the proceedings, the Court now has the benefit of substantially more information than it did when considering the preliminary injunction motion, including the affidavits of Carl Higgs, Scott Higgs, Norma Higgs as well as two former employees, Gary Doss and David Wainstock. In considering whether Ledar's leases violate the Truth-in-Leasing regulations, the Court finds that the proper standard to apply is the "substantial compliance" standard. As the Court in Renteria v. K R Transportation, Inc., No. 98CV290 (C.D. Cal. June 22, 2001) noted, "[a] rule that anything less than literal compliance requires the automatic granting of relief would, in many cases, lead to a wholly unreasonable and even unjust result. The Commission apparently recognized the danger involved in establishing the arbitrary rule. Circumstances may dictate that relief be denied even in the face of noncompliance, technical or otherwise." (Slip op at 9). Plaintiffs state that in Sawyer v. County of Sonoma, 719 F.2d 1001, 1008 (9th Cir. 1983) the Court stated that the doctrine of "substantial compliance . . . has no application in the context of a clear statutory prerequisite that is known to the party seeking to apply the doctrine." However, as this case did not involve the Truth-in-Leasing regulations, but rather involved a county employee seeking additional retirement benefits for prior military service, the Court does not find it to be persuasive. Additionally, the Court notes that plaintiffs have failed to cite a single case suggesting that the "substantial compliance" standard should not be applied and that instead a literal or strict standard should be used.
Considering the parties arguments in this context, the Court finds that there are genuine issues of material fact which preclude the entry of summary judgment on the question of whether defendants are liable for violating the truth-in-leasing regulations. Accordingly, the parties' Motions for Summary Judgment on this basis are hereby DENIED.
2. Statute of Limitations
Defendants argue that plaintiffs cannot base their claims against Ledar on violations that occurred before March 17, 1998, which is two years before the date the Complaint was filed. Additionally, defendants argue that plaintiffs cannot base their claims against Hawthorne Leasing, Inc. or the individual defendants on violations that occurred before May 7, 1999, which is the date two years before the filing of the First Amended Complaint which named them as parties. Defendants argue that there is only one limitations period for damage actions under § 14704 and that period is two years. The statute states as follows:
Damages — A person must file a complaint with the Board or Secretary, as applicable, to recover damages under Section 14704(b) within 2 years after the claim accrues.
47 U.S.C. § 14705(c). However, defendants state that in this instance, plaintiffs claims are authorized pursuant by § 14704(a)(2), not by § 14704(b). Defendants state that there is a drafting error in the statute and that the language contained in § 14704(a)(2) pertaining to damages was intended to be codified at § 14704(b).
Plaintiffs disagree and note that because § 14705 does not contain a limitations period applicable to leasing regulation violations, the four year default limitations period in 28 U.S.C. § 1658 applies. This statute states that "[e]xcept as otherwise provided by law, a civil action arising under an Act of Congress enacted after the date of the enactment of this section may not be commenced later than 4 years after the cause of action accrues." Plaintiffs state that the Supreme Court has made clear that Congress intended this four year statute of limitations to apply to any federal statute enacted after December 1, 1990, that did not have its own statute of limitations. North Star Steel Co. v. Thomas, 515 U.S. 29, 34-35 (1995). Additionally, plaintiffs note that in OOIDA v. Heartland Express, Inc. of Iowa, No. 3-01-CV-80179, (S.D. Iowa Jan. 31, 2003), the Court considered these same arguments and found that the four year statute of limitations was applicable. In that case the Court stated: "[t]he damage recovery period applicable to motor carriers under the ICCTA is four years, the default statute of limitations for federal causes of action, 28 U.S.C. § 1658." (Slip op. at 7). In that case the Court did not find the statutory language of § 14704 ambiguous. Nor did the Court find that an absurd result would occur if the four year statute of limitations were applied. At least one other federal district court has considered this issue and come to an opposite conclusion. In Fitzpatrick v. Morgan Southern, Inc., 261 F. Supp.2d 978 (W.D.Tenn. 2003) the Court found that the statute contained an error and agreed that the two year statute of limitations contained in § 14705(c) should be applied to private rights of action under § 14704(a)(2).
This Court agrees with the decision in Heartland Express, Inc. and finds that the statute is not ambiguous and that the four year statute of limitations applies in this instance. Therefore, defendants' Motion for Summary Judgment on this issue is hereby DENIED.
B. Plaintiffs' Motion for Summary Judgment
As previously discussed, the Court has found that there are disputed issues of fact relating to whether defendants violated the truth-in-leasing regulations. Therefore, the Court denied the parties' cross-motions for summary judgment. However, there is one issue on which the Court finds that there are no disputed issues of fact. Plaintiffs assert that Ledar and Hawthorne are "affiliated" entities because until the sale of Hawthorne in November 2000, both companies had the same owners, officers and directors. Hawthorne entered into "Equipment Lease Agreements" or lease-purchase agreements with plaintiffs Buckallew and Day as well as with most members of the class. The lease purchase agreements stated that "during this lease the equipment will be operated exclusively under a lease agreement with Ledar Transport, Inc., a Missouri corporation or such other carrier as may be approved in writing by Lessor."
In OOIDA v. Arctic Express, Inc., 87 F. Supp.2d 820 (S.D.Ohio 2000), the Court considered a similar issue. In that case, Arctic was a regulated motor carrier engaged in the business of providing transportation services to the shipping public. DA was a noncarrier company engaged in the business of leasing truck tractor units, with the option to purchase, to independent owner-operators. DA and Arctic were under common ownership and control. In that case the Court considered the ICC's opinion in Dart. The Court found:
The ICC found that the purpose behind the regulation was to prevent `[a]buses or the potential for abuse occasioned by collusion between a carrier and the third-party beneficiary of an equipment purchase deduction.' Id. at 13. In reaching its conclusion in Dart, the Commission took into consideration comments and the purpose behind the leasing regulations. . . . This Court finds that this interpretation is reasonable as it serves to bring entities "affiliated" with registered motor carriers under the umbrella of the Act. The Commission's findings prevent registered carriers from taking advantage of a potential loophole in the Act. If this loophole is not closed, a registered carrier could create a non-registered business entity and thereby avoid the regulations promulgated under the Motor Carriers Act.Id. at 828-29. The Court in Arctic following the ICC's decision in Dart, treated DA and Arctic as affiliated entities.
Defendants assert that the degrees of "affiliation" can only be determined after a trial on the merits where plaintiffs must show evidence of the degree of affiliation between Ledar and Hawthorne. Defendants state that there are genuine issues of material fact in dispute as to the extent of "affiliation" between the two companies and the amount of "affiliation" required to subject a motor carrier to the regulations. The Court does not agree and finds that plaintiffs have met the standard to show that Ledar and Hawthorne are affiliated entities. Additionally, defendants argue that not all members of the class entered into equipment lease agreements with Hawthorne Leasing and those that did must be divided into subclasses for liability purposes. Thus, defendants argue there are genuine issues of material fact in dispute as to the nature and extent of any liability against Hawthorne. However, this is an issue which can be addressed during the damages phase of the trial if necessary and need not prevent a finding that Ledar and Hawthorne are affiliated entities.
C. Motions to Strike Affidavits of Wainstock Doss
Defendants have moved to strike the affidavits of both Gary Doss and David Wainstock because the declarations fail to meet the foundational requirements of Fed.R.Civ.P. 56(e), the plaintiffs failed to disclose these witnesses before the close of discovery and the declarations are attempts to support plaintiffs' fraud claims which have not been properly pled.
Plaintiffs argue that the declarations meet the foundational requirements of Fed.R.Civ.P. 56(e), the non-disclosure of these witnesses was substantially justified and harmless and fraud is an element of plaintiffs alter ego argument and is properly before the Court.
The Court will not strike the declarations of these witnesses at this time and instead will determine whether any testimony of these witnesses should be excluded after they have testified. Therefore, Defendants' Motions to Exclude the Declarations of David Wainstock and Gary Doss (Docs. 255, 261) are hereby CONDITIONALLY DENIED.
D. Motion to Dismiss Counterclaims of Absent Class Members
Plaintiffs move to dismiss the counterclaims filed against the absent class members by Ledar and Hawthorne Leasing for lack of subject matter jurisdiction and for failure to state a claim upon which relief may be granted. Plaintiffs state that because the Court has determined that absent class members are not "parties" to this action, the claims against them cannot be brought as compulsory counterclaims under Fed.R.Civ.P. 13.
On May 2, 2001, the Court granted plaintiffs' motion to file an Amended Complaint to add Hawthorne Leasing, Carl Higgs, Scott Higgs and Alice Norma Higgs as defendants. Defendant Ledar answered the Amended Complaint and then brought counterclaims against the named plaintiffs. After the Court certified this case as a class action on March 31, 2002, Ledar and Hawthorne filed counterclaims against virtually all absent class members.
Defendants state in their Counterclaim that the Court has "original jurisdiction pursuant to 28 U.S.C. § 1331 (federal question jurisdiction) and 1337 (proceedings arising under an act of Congress regulating commerce). The causes of action alleged in these counter-claims arise out of the exact same agreements under which the Plaintiffs' base their claims which are the subject matter of this litigation. However, in the alternative, if the Court finds that it does not have jurisdiction for these counter-claims under 28 U.S.C. § 1331 or 1337, the Court has Supplemental jurisdiction to hear these counter-claims under 28 U.S.C. § 1367 as the counter-claims are related to, and form part of, the same case or controversy." (Counterclaims of Ledar and Hawthorne Leasing, Inc.).
Plaintiffs argue that the counterclaims are facially deficient to invoke federal jurisdiction under 28 U.S.C. § 1331 and 1337. Plaintiffs state that defendants do not cite any Act of Congress upon which their jurisdiction for the counterclaims may be based and as a result their claim of original jurisdiction should be disregarded. With regard to supplemental jurisdiction, plaintiffs state that defendants' counterclaims are permissive and not compulsory and thus the Court has no supplemental jurisdiction over them. Plaintiffs argue that because the counterclaims are permissive they require their own jurisdictional basis. Plaintiffs state that because defendants cannot meet either the diversity of citizenship requirement or the amount in controversy requirement, the counterclaims should be dismissed.
In response defendants argue that because the causes of action alleged in the counterclaims arise out of the same agreements upon which plaintiffs base their claims the Court has jurisdiction over the counterclaims. Defendants state that they "recognize that this Court could find that it does not have jurisdiction to hear their counterclaims under either 28 U.S.C. § 1331 or 28 U.S.C. § 1337. Contrary to Plaintiffs' assertions, however, such a determination would not be fatal to Defendants' counterclaims." (Defendants' Suggestions in Opposition, p. 2). Defendants assert that the Court has supplemental jurisdiction because the counterclaims relate to and form part of the same case or controversy. Defendants also argue that the Court has not already determined that the counterclaims against the absent class members are permissive because the Court did not make an affirmative finding or conclusion of law that: 1) the absent class members were not parties to the action, 2) that Fed.R.Civ.P. 13 does not apply to absent class members or 3) that any claims against absent class members cannot be brought as compulsory counterclaims.
First, the Court does not find that it has original jurisdiction over defendants' counterclaims as the only statute defendants cite is 28 U.S.C. § 1337-proceedings arising under an act of Congress regulating commerce. However, defendants fail to make any reference to an act of Congress. Therefore, the Court will focus on the issue of supplemental jurisdiction.
In Evans v. American Credit Systems, Inc., No. 8:02CV472, 2003 WL 23018529 (D.Neb. Dec. 10, 2003), the Court noted:
In 1990, the supplemental jurisdiction statute, 28 U.S.C. § 1367(a), was enacted; it provides that "in any civil action of which the district courts have original jurisdiction over all other claims that are so related to the claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the Constitution." 28 U.S.C. § 1367(a). Prior to the adoption of section 1367(a), the "settled analytical framework" for determining the limits of federal jurisdiction over a state law counterclaim "depended on the distinction between `compulsory' and `permissive' counterclaim." Blue Dane Simmental Corp. v. American Simmental Ass'n, 952 F. Supp. 1399, 1407 (D.Neb. 1997). There is much debate about whether section 1367(a) alters this well-settled framework. Nevertheless, this court concurs with the court in Blue Dane: "[P]re-1990 counterclaim case law focusing on Rule 13 and the `compulsory' versus `permissive' distinction remains as relevant and instructive today as it was before section 1367 was adopted. Using pre-1990 case law to ascertain whether a federal court has subject matter jurisdiction over a counterclaim is appropriate. . . ." Id.Id. at *1.
The Court has had an opportunity to previously consider the question of whether defendants' counterclaims were compulsory or permissive. In the Order certifying this case as a class action, the Court noted:
Additionally, the Court does not find that the counterclaims against the named plaintiffs or the potential counterclaims which defendants state they anticipate filing defeat commonality or typicality. In Fielder v. Credit Acceptance Corp., 175 F.R.D. 313, 321 (W.D.Mo. 1997), the Court stated, "[t]his Court finds that Rule 13 of the Federal Rules of Civil Procedure is not applicable in class actions." Similarly, in Buford v. H R Block, Inc., 168 F.R.D. 340 (S.D.Ga. 1996), aff'd., 117 F.3d 1433 (11th Cir. 1997), defendants argued that many of the putative class members had defaulted on their loans and that therefore they would have to assert counterclaims against them. However, the Court disagreed and found the counterclaims were permissive. In doing so the Court quoted from a leading commentator on the issue.
[S]trong reasons support a determination that Rule 13 governing counterclaims is inapplicable in class action suits based on the language of Rule 13 and its underlying policies. Apart from Rule 23 and its derivatives, all the other rules of civil procedure, including Rule 13, were promulgated with reference to guiding the conduct of litigating parties. Rule 13 expressly is applicable only to opposing parties. A court may properly conclude that absent class members are not opposing or litigating adversaries for purposes of Rule 13, and therefore Rule 13 is inapplicable in a class context. Because compulsory counterclaims can only be potentially involved when Rule 13 applies, if absent class members are not opposing parties within the meaning of the rule, it follows that any counterclaims that may be permitted in a class action are not governed by Rule 13 and are purely discretionary with the court.
Id. at 363, quoting, 1 NEWBERG ON CLASS ACTIONS § 4.34 (emphasis in original). See also, Davis v. Cash for Payday, Inc., 193 F.R.D. 518, 521-22 (N.D. Ill. 2000) ("[p]otential counterclaims do not defeat class certification.")
Although the Court did not specifically state in that Order that defendants' counterclaims are not compulsory, the Court sees no reason to depart from that analysis. The Court also notes that in OOIDA v. Arctic Express Inc., 238 F. Supp.2d 963 (S.D.Ohio 2003), the Court also found that the unnamed class members were not "opposing parties" under Fed.R.Civ.P. 13(a) and that the counterclaims against these absent class members were permissive. Additionally the Court determined that there was no independent basis for asserting jurisdiction over the counterclaims. Id. at 966-968. Defendants make much of the fact that the Court in that case found that the counterclaims against the named plaintiffs were compulsory. However, as plaintiffs point out the Arctic court relied upon Sixth Circuit caselaw in reaching that determination. Plaintiffs note that Eighth Circuit caselaw contradicts the decision in Arctic only on the issue relating to the named plaintiffs.
In Peterson v. United Accounts, Inc., 638 F.2d 1134 (8th Cir. 1981), the Court considered whether a claim under the Fair Debt Collection Practices Act ("FDCPA") was a permissive or compulsory counterclaim. In that case, plaintiffs incurred a debt as a result of medical treatment. A debt collection agency then filed suit against plaintiffs in state court to collect the debt. The plaintiffs then filed a claim in federal court alleging that the debt collection agency had violated certain provisions of the FDCPA. The district court dismissed the action finding that the claim should have been raised as a compulsory counterclaim. The Eighth Circuit reversed stating:
the goals of Rule 13 and the purpose of the FDCPA can best be effectuated by holding the counterclaim involved in this case permissive, rendering it cognizable in either the state or federal court. In the instant case, the circumstances giving rise to the original debt are separate and distinct from the collection activities undertaken by United Accounts, Inc. While the debt claim and the FDCPA counterclaim raised here may, in a technical sense, arise from the same loan transaction, the two claims bear no logical relation to one another. Although there is some overlap of issues raised in both cases as a result of the defenses raised in the state action, the suit on the debt brought in state court is not logically related to the federal action initiated to enforce federal policy regulating the practices for the collection of such debts.
In Evans, the Court considered the Peterson case and stated that it
[t]he Peterson case, of course, pre-dates the enactment of section 1367(a). Nevertheless, this Court finds Peterson is still relevant and controlling. Since 1990, other courts have concluded that a federal court does not have jurisdiction over a defendant's state law counterclaim, when the plaintiff's claim arises under the FDCPA. For example, in Orloff v. Syndicated Office Systems, Inc., 2003 WL 22100868, *2 (E.D.Pa. Aug. 20, 2003), the court stated that the `[p]laintiff's claims involve issues of statutory compliance. Defendants' counterclaim is simply a state law debt collection claim.' The Orloff court continued: `Evidence of plaintiff's failure to pay Defendants money owed to them has no relevance on the issue whether the Defendants' actions in collecting the debt violated federal law.' Id. This court determines that Peterson is still good law and that Peterson is supported by post-1990 case law. Accordingly, the court judges that ACS's counterclaim is a permissive counterclaim.Id. at *1. The Court finds this analysis persuasive and determines that while there may be some issues that overlap, defendants' counterclaims against the plaintiffs relate to whether plaintiffs owe defendants money under state law, while plaintiffs' claims relate to whether defendants violated the federal truth-in-leasing regulations.
Defendants state that a four part test should be used to determine whether counterclaims are compulsory. Under this test a court considers four factors: 1) Are the issues of fact and law raised by the claim and counterclaim largely the same? 2) Would res judicata bar a subsequent suit on defendant's claim absent the compulsory counterclaim rule? 3) Will substantially the same evidence support or refute plaintiffs' claim as well as defendant's counterclaim and 4) Is there any logical relation between the claim and the counterclaim? Even under this test however the Court finds that the counterclaims are not compulsory. The issues of fact and law raised in plaintiffs' claims and defendants' counterclaims will be different. Plaintiffs' claims allege that the defendants' leases violated the federal truth-in-leasing regulations. Defendants' counterclaims assert only state law breach of contract claims. With regard to the issue of res judicata, defendants state that a subsequent judge may determine that these counterclaims could or should have been litigated in this proceeding and then they would be forever barred from pursuing their claims. The Court does not find that res judicata will bar defendants' counterclaims. As plaintiffs note, if the counterclaims are not allowed to proceed because there is no jurisdiction, there will not be a final judgment on the merits necessary for res judicata under Missouri law. With regard to the third factor defendants state they would rely on the exact same evidence as the plaintiffs to prove their claims and to refute plaintiffs' claims. Plaintiffs note that the same evidence will not be utilized as they will be comparing statutory and regulatory requirements to defendants' leases while defendants evidence will relate to whether the plaintiffs breached their individual leases. Finally, defendants argue that the counterclaims have a logical relationship to plaintiffs' claims. The Court disagrees and finds that there is no logical relationship between the plaintiffs' claims and defendants' counterclaims. Therefore, the Court finds that defendants' counterclaims are permissive and thus require an independent jurisdictional basis if the Court is to retain jurisdiction over them.
Plaintiffs argue that defendants cannot meet either the diversity jurisdiction or amount in controversy requirements and thus the counterclaims should be dismissed. Plaintiffs assert that both Ledar and Hawthorne are incorporated in Missouri. Of the 339 individuals named in Ledar's counterclaims, plaintiffs state that 58 or 14.5% of those individuals are identified as having Missouri addresses. With regard to Hawthorne's counterclaims, 24 out of the 239 absent class members or 10% are identified as having Missouri addresses. Even if there were complete diversity, plaintiffs argue that defendants have failed to satisfy the amount in controversy requirement as the vast majority of claims against the absent class members are between $1,000 and $5,000 with some as low as $25.00. With regard to Hawthorne, the claims range between $2,000 and $5,000. Plaintiffs argue that defendants cannot aggregate their claims against the class in order to establish the jurisdictional minimum and that each member of the class must satisfy the amount in controversy requirement. In Trimble v. ASARCO, Inc., 232 F.3d 946, 960 (8th Cir. 2000), the Eighth Circuit stated: "in our view § 1367(a) and (b) can be read literally, and unambiguously, to require each plaintiff in a class action diversity case to satisfy the Zahn definition of "matter in controversy" and to individually meet the $75,000 requirement." Id. at 637-40 (footnotes and citations omitted). Defendants do not offer any suggestions in opposition to this point. The Court finds that none of the counterclaims against the absent class members exceed $75,000, therefore there is no independent jurisdictional basis for defendants' permissive counterclaims. Thus, the Court hereby GRANTS plaintiffs' Motion to Dismiss the Counterclaims of Ledar and Hawthorn Against the Absent Class Members (Doc. # 267).
E. Motion to Dismiss Counterclaims of Named Class Members
Ledar in its Answer to the First Amended Complaint asserted counterclaims against the three named plaintiffs alleging that they breached their lease contracts by terminating them early. Plaintiffs assert that the counterclaims are not compulsory counterclaims under Fed.R.Civ.P. 13. Additionally, plaintiffs state that the counterclaims against the named class members must also be dismissed because they do not meet the amount in controversy requirement. The counterclaim against plaintiff Day is for $2,237.80, the counterclaim against plaintiff Reinsch is for $664.80 and the counterclaim against plaintiff Buckallew is for $6,703.04.
Defendants assert again that the counterclaims against the named class members are compulsory. As previously discussed the Court disagrees and finds that the counterclaims are permissive. As such there must be some independent basis for federal jurisdiction over these counterclaims. Defendants state only that if the Court determines that the counterclaims are not compulsory, the Court should exercise supplemental jurisdiction over the counterclaims under 28 U.S.C. § 1367. In this context, there is no requirement that the jurisdictional basis for the counterclaims be specifically plead for the Court to exercise its jurisdiction to hear them. (Defendants' Suggestions in Opposition, p. 10). The Court disagrees if the counterclaims are not compulsory, there must be some independent jurisdictional basis for the permissive counterclaims. In this case the Court finds there is no basis for exercising jurisdiction over the counterclaims of the named plaintiffs. Therefore, plaintiffs' Motion to Dismiss the Counterclaims Against the Named Plaintiffs is hereby GRANTED (Doc. # 269).
IV. CONCLUSION
For the reasons stated above, the Court hereby DENIES defendants' Motion for Summary Judgment (Doc. # 230), GRANTS in part and DENIES in part plaintiffs' Motion for Summary Judgment (Doc. # 232), PROVISIONALLY DENIES defendants' Motions to Strike the Declarations of Gary Doss and David Wainstock (Docs. 255, 261) and GRANTS plaintiffs' Motions to Dismiss the Counterclaims Against the Absent and Named Class Members (Docs. 267, 269).
The Court will hold a pretrial conference with the parties on Wednesday January 21, 2004 at 10:30 a.m. Counsel for plaintiffs shall initiate the teleconference to the Court at the following number: (816) 512-5630.