Scales v. Lower Eastside People's Federal Credit Union
- Laura Swain
- 1:23-cv-07643
- U.S. District Court · Southern District of New York
- 6
In Scales v. Lower Eastside People’s Federal Credit Union, Judge Swain dismissed the case for lack of federal jurisdiction and dismissed corporate claims without prejudice.
William Scales and Lower Eastside People’s Federal Credit Union; any claims Scales sought to bring on behalf of his corporation were dismissed without prejudice.
What happened
In Scales v. Lower Eastside People’s Federal Credit Union, William Scales sued the Credit Union over a business loan that he says was initially approved but later denied. He asserted breach of contract and negligence claims and sought $1 million in damages.
The court found no basis for federal-question jurisdiction because the complaint alleged state-law claims and no federal claim. It also found no diversity jurisdiction because Scales alleged that both he and the Credit Union reside in New York. The court further said that Scales could not represent a corporation or another artificial entity without a lawyer.
Judge Laura Taylor Swain dismissed the action for lack of subject-matter jurisdiction, denied leave to amend because amendment would be futile, and dismissed claims brought on behalf of Scales’s corporation without prejudice. The court also denied fee-free status for any appeal and directed the Clerk of Court to enter judgment.
The detailed version
- Scales v. Lower Eastside People's Federal Credit Union · No. 1:23-cv-07643
- Laura Swain
- Jan. 2, 2024
Background
William Scales appeared without a lawyer and proceeded without paying filing fees. He sued Lower Eastside People’s Federal Credit Union based on the Credit Union’s handling of a business-loan application for his corporation.
According to the complaint, the Credit Union stated that Scales’s corporation had been approved for a business loan, subject to proof of employment. After Scales provided that proof, he asked to delay receiving the loan. When he later sought the loan, a loan officer allegedly told him to wait for a website and mobile application to be completed. The Credit Union later informed him that his corporation would no longer receive the loan and said that the corporation had never been approved. Scales alleged that this disrupted his business and sought $1 million in damages.
Claims and Jurisdiction
Scales invoked federal-question and diversity jurisdiction and asserted breach of contract and negligence claims. The court explained that federal-question jurisdiction generally requires a claim arising under the Constitution, federal laws, or treaties. It concluded that Scales’s contract and negligence allegations were ordinarily state-law claims and did not support a federal claim.
The court also concluded that diversity jurisdiction was unavailable. Diversity jurisdiction requires complete citizenship diversity between the parties and an amount in controversy exceeding $75,000. The complaint stated that both Scales and the Credit Union reside in New York, so the court determined that the parties were not diverse.
The court separately addressed any claims Scales might be asserting for his corporation or another artificial entity. A person who is not an attorney generally cannot represent a corporation, partnership, association, or other artificial entity in federal court. Because Scales did not allege that he was an attorney or that his business was a sole proprietorship, the court dismissed claims brought on behalf of those entities without prejudice.
Disposition
The court dismissed the complaint for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(h)(3). It denied Scales leave to amend because, in the court’s view, amendment would be futile: the complaint asserted state-law claims and alleged that Scales and the Credit Union reside in New York.
The court also certified that any appeal would not be taken in good faith and denied Scales fee-free status for purposes of an appeal. It directed the Clerk of Court to enter judgment. The order did not decide whether the alleged loan conduct amounted to breach of contract or negligence.
Read the full 6-page opinion on CourtListener, the free public archive maintained by the Free Law Project.