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Supplemental jurisdiction under a 1990 federal statute may be available for permissive counterclaims in a lawsuit brought to challenge the Ford Motor Credit Co.’s lending policies to non-whites, a federal appeals court has ruled. In a case that marks the continued evolution away from the notion that permissive counterclaims require an independent basis for jurisdiction, the 2nd U.S. Circuit Court of Appeals said it was possible for a federal judge to hear Ford Motor’s claims to collect debts against plaintiffs who sued the company over discrimination. The issue in Jones v. Ford Motor Credit Co., 03-7398, was the impact of 28 U.S.C. � 1367, which 2nd Circuit Judge Jon O. Newman said gave “statutory undergirding” to the “judge-made doctrine of ancillary jurisdiction, which had been invoked to provide a jurisdictional basis for compulsory counterclaims.” In federal practice, a permissive counterclaim is one made at the option of the defendant, while a compulsory one must be made or is forfeited. Under the new label of “supplemental” jurisdiction, Newman said, the statute extended the authority of federal courts to all other claims in a case that are “so related” to the claims within the court’s original jurisdiction that they can be considered part of the same case or controversy under Article III. “After section 1367,” he said, “it is no longer sufficient for courts to assert, without any reason other than dicta or even holdings from the era of judge-created ancillary jurisdiction, that permissive counterclaims require independent jurisdiction.” As an example, he said, the 7th Circuit, in a fact pattern “strikingly similar to our pending case,” remanded a case in 1996 involving a permissive counterclaim and directed a district court to examine whether it should exercise it discretion as called for by � 1367. The case, Channell v. Citicorp National Services Inc., 89 F.3d 379, concerned consumers who sued over violations of the Consumer Leasing Act and a creditor who filed permissive counterclaims to collect debts. The 7th Circuit, Newman said, “viewed section 1367′s reach to the constitutional limits of Article III as requiring only a ‘loose factual connection between the claims.’ “ “We share the view that section 1367 has displaced, rather than codified, whatever validity inhered in the earlier view that a permissive counterclaim requires independent jurisdiction (in the sense of federal question or diversity jurisdiction.),” he said. Section 1367(a) requires judges to examine first whether the “case” requirement is met. Once that hurdle is cleared, � 1367(c) lays out four grounds on which a judge may exercise his or her discretion to decline supplemental jurisdiction over a claim. The court may decline to exercise jurisdiction if the claim “raises novel or complex issues of state law”; the claim “substantially predominates” over the claims on which the court has original jurisdiction; the court has dismissed the original jurisdiction claims; or where “in exceptional circumstances, there are other compelling reasons for declining jurisdiction.” LOWER COURT RULING VACATED Here, Newman said, the 2nd Circuit was vacating the decision of Southern District Judge Lawrence M. McKenna, who had dismissed the permissive counterclaims brought by Ford Motor. The 2nd Circuit instructed McKenna to first decide the issue of class certification, and then exercise his discretion under the statute to dismiss if he finds that the permissive counterclaims brought by Ford Motor “predominate” over the original claims or whether there are “exceptional circumstances” for declining jurisdiction. Judges Sonia Sotomayor and Richard Wesley joined in the opinion. Attorneys with Sutherland Asbill & Brennan in Atlanta and O’Melveny & Myers in Washington, D.C., represented Ford Motor Credit Co. Representing the plaintiffs were attorneys with Bernstein, Litowitz Berger & Grossman in New York; Terry & Gore in Nashville, Tenn.; Grant & Roddy in Boston; Sandak Friedman Hennessey & Greco in Stamford, Conn.; and solo practioners in Grove Hill, Ala., and Brentwood, Tenn.

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