By RICHARD WEATHERINGTON
The federal courts have very defined limits on the claims they can hear, so when a complaint against a pawnshop is filed in federal court, it is not uncommon for the pawnshop to first make sure the complaint fits within those limits.
In August 2010, a woman whose first name was Marjorie, a resident of Massachusetts, went to a pawnshop to pawn a coin charm and a gold chain worth $7,800. She entered into a loan contract with the pawnshop. She said she only needed $500 to pay a utility bill and did not need a loan in excess of that; however, she claimed the pawnbroker indicated she could borrow up to $1,000.
Marjorie said that at a later point, she attempted to discover the payment amount in order to redeem her jewelry, but was told “not to worry about the payment at that present time because it was not due and to call back … .”
According to the pawn contract Marjorie had, the amount financed was $600 and the finance charge was $102, a 36 percent annual percentage rate, maturing on June 21. A second contract indicated another loan for $225, with a finance charge of $42, also a 36 percent annual percentage rate, maturing on July 17.
She claimed she called back and again was told there was no rush for the time to redeem her jewelry. Thereafter, Marjorie said she attempted to redeem her jewelry and was told that the pawned items had been melted down. She then filed a complaint in the United States District Court of Massachusetts, seeking damages.
Says No Plausible Claim
The pawnshop filed a Motion to Dismiss, claiming that the District Court lacked subject matter jurisdiction and that Marjorie had failed to state a plausible claim upon which relief could be granted.
The broker did not take issue with the underlying facts alleged by Marjorie regarding the loan transaction entered into with her; rather, the broker contended that these bare allegations didn’t confer federal jurisdiction, nor did they state a cognizable claim for relief.
The broker claimed that there was no diversity of citizenship in the action because both parties were citizens of Massachusetts, nor was there any federal claim alleged in Marjorie’s complaint sufficient to confer federal question jurisdiction. The pawnbroker focused on the fact that Marjorie did not allege that she repaid the funds that she received, nor did she allege that the pawnbroker violated the terms of their agreement.
The pawnbroker said that Marjorie’s bare assertion that she wanted her collateral returned, or that her collateral was destroyed, was not sufficient to set forth a TILA claim that would invoke the federal question jurisdiction of the District Court, or that would state a plausible claim for relief.
Calls Plea ‘Nonsensical’
Marjorie opposed the pawnbroker’s motion to dismiss. The court noted that Marjorie’s pleading was virtually nonsensical. The court said from what it could discern, that Marjorie repeated the allegations in her complaint, parroted the statements in the pawnshop’s support of its Motion to Dismiss outlining the background of the pawnshop’s pawnbroking business, and took issue in general with the pawnbroking scheme because it takes advantage of customers.
Marjorie did not, noted the court, address in any meaningful fashion the merits of the pawnshop’s arguments.
The District Court first noted that subject matter jurisdiction in Federal district courts may be exercised over civil actions arising under federal laws. Under the United States Code, district courts have original jurisdiction of all civil actions arising under the Constitution, laws or treaties of the United States, and over certain actions in which the parties are of diverse citizenship and the amount in controversy exceeds $75,000.
The court said that with respect to “federal question” jurisdiction, a claim arises under federal law if a federal cause of action emerges from the face of a well pleaded complaint. The well pleaded complaint rule restricts the exercise of federal question jurisdiction to instances in which a federal claim is made manifest within the four corners of the plaintiff’s complaint.
The court said that with respect to “diversity” jurisdiction, the amount in controversy must exceed $75,000. The framework, said the District Court, for determining whether an action satisfies the jurisdictional minimum was established by the Supreme Court in 1938. The amount specified by the plaintiff controls for jurisdictional purposes, as long as that amount is asserted in good faith.
A court may dismiss an action for insufficiency of the amount in controversy only when, “from the face of the pleadings, it is apparent, to a legal certainty, … that the plaintiff never was entitled to recover” a sum in excess of the jurisdictional minimum.
In addition, diversity must be complete: the citizenship of each plaintiff must be shown to be diverse from that of each defendant. Where the citizenship of plaintiff and the defendant are not diverse, there is no diversity jurisdiction and the plaintiff’s claims against the defendant must be dismissed.
Where subject matter jurisdiction is lacking, the District Court said it may proceed no further. In addition to the court’s inherent authority to dismiss for lack of jurisdiction on its own, the Federal Rules provide that a party may move to dismiss a case for lack of subject matter jurisdiction.
The party invoking the jurisdiction of a federal court has the burden of proving that jurisdiction exists. Amorphous or conclusory allegations that federal jurisdiction exists, noted the court, is not sufficient to survive a motion to dismiss.
Motions to Dismiss for Failure to State a Claim
To survive a motion to dismiss for failure to state a claim, a complaint must present “only enough facts to state a claim to relief that is plausible on its face.” The factual allegations must be enough to raise a right to relief above the speculative level.
To expand on this standard further, said the court, a claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.
In other words, the plausibility standard is not akin to a “probability requirement,” but it asks for more than a sheer possibility that a defendant has acted unlawfully.
Where a complaint pleads facts that are “merely consistent with” a defendant’s liability, said the court, it stops short of the line between possibility and plausibility of entitlement to relief. The United States Supreme Court in 2009 explained that “bare assertions … amounting to nothing more than a “formulaic recitation of the elements of a constitutional … claim,” for the purposes of ruling on a motion to dismiss, are not entitled to an assumption of truth.
Such allegations are not to be discounted because they are unrealistic or nonsensical, but rather because they do nothing more than state a legal conclusion even if that conclusion is cast in the form of a factual allegation.
In sum, for a complaint to survive a motion to dismiss, the non conclusory “factual content” and the reasonable inferences from that content, must be “plausibly suggestive” of a claim entitling a plaintiff to relief.
Appeals Court Standard
The District Court noted that the United States Court of Appeals for the Tenth Circuit articulated the plausibility standard.
In referring to the scope of the allegations in a complaint, the Tenth Circuit said that if they are so general that they encompass a wide swath of conduct, much of it innocent, then the plaintiffs have not nudged their claims across the line from conceivable to plausible. The allegations must be enough that, if assumed to be true, the plaintiff plausibly, not just speculatively, has a claim for relief.
On a spectrum, said the Tenth Circuit, the Supreme Court recently explained that the plausibility standard requires that the pleader show more than a sheer possibility of success, although it does not impose a probability requirement.
When faced with alternative explanations for the alleged misconduct, the court may exercise its judgment in determining whether plaintiff’s unsolicited conclusion is the most plausible or whether it is more likely that no misconduct occurred.
The District Court noted that Marjorie’s complaint failed to set forth any basis from which the court could find that there was subject matter jurisdiction, either under federal question jurisdiction or diversity jurisdiction.
First, said the court, with respect to diversity jurisdiction, Marjorie didn’t demonstrate that citizenship of the parties was completely diverse.
Moreover, even if diversity existed, the amount in controversy was $7,800 rather than the required $75,000. It could not reasonably be inferred that Marjorie’s actual or punitive damages exceeded $75,000; rather, from the face of the pleadings, the District Court said it found that it was clear to a legal certainty that the amount in controversy did not exceed $75,000.
Second, said the court, with respect to federal question jurisdiction, Marjorie’s complaint didn’t set forth any discernible federal cause of action upon which relief could be granted. Marjorie, said the court, simply unfolded the alleged underlying facts of the proposed pawnbroking transaction and claimed that she suffered the loss of her jewelry because the items had been melted down.
No TILA Violations Cited
TILA, said the District Court, is a federal law designed to promote the informed use of consumer credit and to protect consumers from dishonest credit transactions by requiring lenders to fully disclose all costs and key terms of the lending agreement used in lending documents.
In short, said the court, Marjorie had presented no bona fide basis for the subject matter jurisdiction of the District Court, and therefore failed to meet her burden. Accordingly, the District Court said it would allow the pawnshop’s Motion to Dismiss based on the lack of subject matter jurisdiction.