Opinion
No. SA:20-CV-165-DAE
12-10-2020
Misti HILL and Leann Mohr, individually and on behalf of all those similarly situated, Plaintiffs, v. BEDROCK FUNDING LLC, Defendant.
Chris R. Miltenberger, Law Office of Chris R. Miltenberger, PLLC, Southlake, TX, for Plaintiffs. Steven H. Garrett, Boulette Golden & Marin L.L.P., Austin, TX, for Defendant.
Chris R. Miltenberger, Law Office of Chris R. Miltenberger, PLLC, Southlake, TX, for Plaintiffs.
Steven H. Garrett, Boulette Golden & Marin L.L.P., Austin, TX, for Defendant.
ORDER (1) GRANTING PLAINTIFF MISTI HILL'S MOTION TO STRIKE, AND (2) DENYING AS MOOT HER MOTION TO DISMISS
David Alan Ezra, Senior United States District Judge
Before the Court is Plaintiff Misti Hill's ("Hill") Motion to Strike all six of Defendant Bedrock Funding LLC's ("Defendant" or "Bedrock") Counterclaims in Defendant's Amended Answer (Dkt. # 18) or, in the Alternative, Motion to Dismiss Counterclaims 1, 3, and 6 in that Amended Answer, filed on September 25, 2020. (Dkt. # 22.) On December 10, 2020, the Court held a hearing on the matter. After careful consideration of the memoranda filed in support of and in opposition to Hill's motion (Dkt. # 22) and arguments of counsel at the hearing, the Court—for the reasons that follow—GRANTS Hill's Motion to Strike and DENIES AS MOOT Hill's Motion to Dismiss.
BACKGROUND
This case arises from a claim for failure to pay overtime wages in accordance with the Fair Labor Standards Act ("FLSA"). On February 11, 2020, Plaintiff Misti Hill filed this lawsuit on behalf of herself and others similarly situated against Defendant, a financial services company specialized in providing consumers leases for motorcycles. (Dkt. # 1; Dkt. # 18 at 12.) On June 3, 2020, Hill—along with an additional named Plaintiff, Leann Mohr ("Mohr") (collectively, "Plaintiffs")—filed an Amended Complaint. (Dkt. # 10.) On June 17, 2020, Defendant filed an Answer to the Amended Complaint ("Original Answer"), asserting five counterclaims against Hill. (Dkt. # 13.)
While the Court's docket lists these counterclaims as "against All Plaintiffs" and Mohr's name appears in portions of the filing, Defendant labeled the counterclaims as "against Hill" in the pleading. (Dkt. # 13 at 10, 15, 19.)
On July 2, 2020, Plaintiffs Hill and Mohr filed an "Opposed Motion to Strike and Alternatively Motion to Dismiss" ("Original Motion") in response to Defendant's five counterclaims in the Original Answer. (Dkt. # 15.) In this Original Motion, Plaintiffs asked the Court to strike all of Defendant's counterclaims in its Original Answer (Dkt. # 13) as impermissible in this FLSA lawsuit or, in the alternative, dismiss counterclaims 1 and 3 for failure to state a claim upon which relief can be granted. (See id. ); Fed. R. Civ. P. 12(b)(6). On July 30, 2020, Defendant responded to the original motion (Dkt. # 19) and simultaneously filed an Amended Answer to Plaintiff's Amended Complaint ("Amended Answer") (Dkt. # 18), this time including a sixth counterclaim against Hill in addition to the original five. Defendant argued that its Amended Answer mooted the Motion to Dismiss portion of Plaintiffs' Original Motion. (Dkt. # 19 at 7.) On August 5, 2020, Plaintiffs replied, agreeing that the Motion to Dismiss in the Original Motion was moot and promising that they would "shortly file a new motion to strike/dismiss." (Dkt. # 21 at 1.)
On September 25, 2020, Hill filed the instant, amended "Opposed Motion to Strike and Alternatively Motion to Dismiss" ("Amended Motion" or "Instant Motion"). (Dkt. # 22.) In the Amended Motion, Hill again argues that the Court should strike all of Defendant's counterclaims and, in the alternative, moves the Court to dismiss counterclaims 1, 3, and 6 from Defendant's Amended Answer (Dkt. # 18) for failure to state a claim upon which relief can be granted. (See Dkt. # 22); Fed. R. Civ. P. 12(b)(6).
On September 28, 2020, the Court entered a text order mooting Plaintiffs' Original Motion (Dkt. # 15) because: (1) in the Amended Motion, Hill repeats the Motion to Strike arguments Plaintiffs made in the Original Motion with only minor revisions to phrasing (compare Dkt. # 22 with Dkt. # 15); and (2) the Motion to Dismiss portion of the Original Motion pertained to Defendant's Original Answer (Dkt. # 13), which was superseded by its Amended Answer (Dkt. # 18). On October 9, 2020, Defendant responded to the Amended Motion. (Dkt. # 25.) On October 12, 2020, Hill replied. (Dkt. # 26.) The Court held a hearing on the Amended Motion on December 10, 2020. (See Dkt. # 27.)
See King v. Dogan, 31 F.3d 344, 346 (5th Cir. 1994) ; Sanchez v. KHBJR Enter. LLC, No. SA-17-cv-811-DAE-ESC, 2017 WL 10841345, at *1 (W.D. Tex. Nov. 15, 2017) (collecting cases) ("The filing of an amended complaint, in most instances, moots a previously filed motion to dismiss.").
DISCUSSION
In its Amended Answer to Plaintiffs' Amended Complaint (Dkt. # 18), Defendant asserts six counterclaims: (1) violation of the Stored Wire and Electronic Communications and Transactional Records Access Act ( 18 U.S.C. § 2701, et. seq. ), (2) breach of fiduciary duty, (3) violation of the Texas Harmful Access by Computer Act ( Tex. Civ. Prac. & Rem. Code § 143.001, et. seq. ), (4) violation of the Texas Theft Liability Act ( Tex. Civ. Prac. & Rem. Code § 134.001, et. seq. ), (5) breach of contract, and (6) violation of the Computer Fraud and Abuse Act ( 18 U.S.C. § 1030(a)(2)(C) ). In the first section below, the Court addresses Hill's Motion to Strike all of these counterclaims as improper for a FLSA case. In the second section, the Court addresses Hill's alternative Motion to Dismiss counterclaims 1, 3, and 6 under Federal Rule of Civil Procedure 12(b)(6).
Defendant presents two theories for its breach of fiduciary duty claim: one for misappropriating information and the other for misappropriating title. (Dkt. # 18 ¶ 68.)
1. Motion to Strike Counterclaims
a. Applicable Law
Hill's Motion to Strike raises two legal issues. First, under Federal Rule of Civil Procedure 13, a counterclaim is compulsory if it "(A) arises out of the transaction or occurrence that is the subject matter of the opposing party's claim; and (B) does not require adding another party over whom the [C]ourt cannot acquire jurisdiction." Fed. R. Civ. P. 13(a)(1). All other counterclaims are permissive. Fed. R. Civ. P. 13(b). Under Fifth Circuit precedent, a counterclaim "arises out of the transaction or occurrence" from the opposing party's claim if any one of these questions is answered affirmatively:
(1) whether the issues of fact and law raised by the claim and counterclaim largely are the same; (2) whether res judicata would bar a subsequent suit on defendant's claim absent the compulsory counterclaim rule; (3) whether substantially the same evidence will support or refute plaintiff's claim as well as defendant's counterclaim; and (4) whether there is any logical relationship between the claim and the counterclaim.
Tank Insulation Int'l, Inc. v. Insultherm, Inc., 104 F.3d 83, 86 (5th Cir. 1997). Second, "[g]enerally speaking, courts have been hesitant to permit an employer to file counterclaims in FLSA suits for money the employer claims the employee owes it, or for damages the employee's tortious conduct allegedly caused." Martin v. PepsiAmericas, Inc., 628 F.3d 738, 740–41 (5th Cir. 2010). Courts in this district have reasoned that counterclaims in FLSA cases are permissive rather than compulsory when "different evidence is needed to prove the claims" and their "only nexus [to the FLSA claims] is the employment relationship" between the parties. Poole v. Dhiru Hosp., LLC, No. SA-18-CV-636-XR, 2019 WL 3845454, at *9 (W.D. Tex. Aug. 15, 2019) (collecting cases). They have, however, found counterclaims alleging FLSA plaintiffs submitted fraudulent time sheets qualify as compulsory under Rule 13(a)(1). See, e.g., Cordero v. Voltaire, LLC, No. AU-13-CA-253-LY, 2013 WL 6415667, at *3 (W.D. Tex. Dec. 6, 2013) (report and recommendation of Magistrate Judge Austin). Nevertheless, district courts across the Fifth Circuit "routinely dismiss counterclaims that do not directly relate to Plaintiffs' wage claims, such as by challenging the amount of overtime hours worked or wages due." Poole, 2019 WL 3845454, at *10.
b. Arguments
After highlighting the limited universe of authorized counterclaims in FLSA cases, Hill describes the nature of Defendant's counterclaims in this case as "inappropriate in any proceeding brought to enforce the FLSA." (Dkt. # 22 at 6.) She notes that Defendant "seeks [among other forms of relief] monetary damages" for "computer crimes, breach of contract, and breach of fiduciary duty," which she characterizes as "[s]et-offs against back pay" that "would den[y] her overtime wages under the law." (Id. ) Notably, Hill cites Fifth Circuit precedent stating that "set-offs against back pay awards deprive the employee of the ‘cash in hand’ contemplated by the Act, and are therefore inappropriate in any proceeding brought to enforce the FLSA." Brennan v. Heard, 491 F.2d 1, 4 (5th Cir. 1974), rev'd on other grounds, McLaughlin v. Richland Shoe Co., 486 U.S. 128, 108 S.Ct. 1677, 100 L.Ed.2d 115 (1988).
As Hill notes, the Fifth Circuit has reasoned that "the only function of the federal judiciary under the FLSA is to assure the employees of a covered company a minimum level of wages." Martin, 628 F.3d at 741 ; see also Brennan, 491 F.2d at 4 ("Arguments and disputations over claims against those wages are foreign to the genesis, history, interpretation, and philosophy of the Act."). She cites two cases in which district courts have reasoned that "counterclaims are only permitted where they set-off money that can be considered wages that the employer pre-paid to the plaintiff-employee or money that can be characterized as advanced or inappropriate amounts subject to an offset against the overtime owed to [the plaintiff-employee]." Solano v. Ali Baba Mediterranean Grill, Inc., No. 3:15-cv-555-G, 2015 WL 7770893, at *4 (N.D. Tex. Dec. 3, 2015) (internal quotations omitted); Cordero, 2013 WL 6415667, at * 11.
Defendant argues that its "Email Access Counterclaims" are "directly related to Plaintiffs' FLSA claims" and "also seek injunctive relief, including the return of its information[ ] and a forensic inspection of Hill's electronic devices." (Dkt. # 25 at 6, 7.) Defendant contends that, unlike in cases cited by Plaintiff in which counterclaims were deemed impermissible for FLSA cases, Hill's attorney expressly stated that the information she possesses is related to the FLSA claims. (Id. at 3.) In a March 10, 2020 letter responding to Defendant's attorney, Hill's attorney stated (Dkt. # 25-2, "Exhibit B"):
Defendant labels counterclaims 1, 2, 3, 5, and 6 its "Email Access Counterclaims," arguing these five are compulsory counterclaims over which the Court must exercise jurisdiction. (Dkt. # 25 at 2.) Then, separately, Defendant argues that "the Court should exercise supplemental jurisdiction over the "Theft Counterclaims" (which include counterclaim 4 and Defendant's second theory of breach of fiduciary duty under counterclaim 2). (Id. at 2 nn. 1–2.)
Ms. Hill does not possess any proprietary information related to [Defendant]. She does, however, possess information related to her hours worked and her attempts to be paid for the overtime she worked. If this matter cannot be resolved, all of that information will be provided during the discovery process.
In reply, Hill argues "[t]here is no admitted connection between the documents Hill possesses and the Amended Counterclaims." (Dkt. # 26 at 2.) She points out that "[s]ome of the complained about conduct allegedly occurred after Hill's employment terminated," while the remaining alleged conduct—such as taking proprietary information, login information, and "a Bedrock customer's social security number, date of birth, and a photo of the front and back of his credit card"—have "nothing to do with hours worked" or "whether she was paid overtime for the hours worked." (Dkt. # 26 at 3.)
Defendant contends that its Email Access Counterclaims are compulsory under three of the four Tank Insulation questions the Fifth Circuit applies to Rule 13—any one of which would be sufficient. First, Defendant contends that the "issues of fact and law" are largely the same between the FLSA claims and Defendant's counterclaims because Hill's attorney allegedly conceded that Hill would produce the documents related to the Email Access Counterclaims "during the discovery process" and because Hill's FLSA claims could raise a dispute regarding her job duties "and whether they authorized her to access, send herself, and keep Bedrock's information and communications or whether those actions were not work for which she should be compensated." (Dkt. # 25 at 5.)
Second, Defendant argues that "substantially the same evidence will support or refute" the FLSA claims and its Email Access Counterclaims because the fact-finder will consider evidence of Hill allegedly accessing Bedrock's computer systems while working remotely and "review the same emails [she sent herself] to determine when (and if) she was working" to determine both the FLSA claim and Email Access Counterclaims. (Dkt. # 25 at 5.)
Third, Defendant asserts that the Email Access Counterclaims meet the "any logical relationship" test from the fourth Tank Insulation question for the same reasons. (Dkt. # 25 at 6 ("If part of Hill's work really was emailing Bedrock's information to her personal accounts that is[ ] relevant to both the FLSA claim and to Bedrock's Email Access Counterclaims.").) Defendant summarizes its argument that the Email Access Counterclaims are compulsory by stating that "she claimed that she was privileged to keep Bedrock's information because it was related to her claims." (Id. )
Finally, Defendant argues that the Court should exercise its supplemental jurisdiction to adjudicate Defendant's remaining counterclaims (his Theft Counterclaims ) because "they form part of the same case or controversy" as the FLSA claims. (Dkt. # 25 at 8 (quoting 28 U.S.C. § 1367 ).) As permissive counterclaims, these Theft Counterclaims "must have an independent jurisdictional basis or otherwise meet the test for supplemental jurisdiction." Solano, 2015 WL 7770893, at *2.
See supra note 3.
c. Analysis
The Court agrees with Hill that none of Defendant's counterclaims belong in this FLSA lawsuit. The nexus between the FLSA claims and Defendant's counterclaims is limited to the employment relationship itself. The only arguable overlap in issues of law, fact, or evidentiary support between the FLSA claims and Defendant's counterclaims comes from Defendant's logs of Hill's activity for time she allegedly emailed proprietary information to her personal account between January 22 and 27, 2020. (Dkts. # 18 ¶¶ 39, 41.) These logs may help prove Defendant's counterclaims because unauthorized access is a necessary element of counterclaims 1, 3, and 6 and, if the access exceeded the scope of her job duties, the logs could undermine Hill's assertion that she was entitled to payment for time spent emailing herself.
But even this overlap is not sufficient because Defendant does not counterclaim that Hill submitted fraudulent hours. "In Martin, the Fifth Circuit reaffirmed its previous rulings that set offs or offsets in FLSA cases should not be allowed unless the money being set off can be considered wages that the employer pre-paid to the employee-plaintiff." Cordero, 2013 WL 6415667, at *8 n.12. In Cordero, the court permitted a counterclaim for the plaintiffs allegedly falsifying or inflating their hours but—upon agreement of both parties that such counterclaims were impermissible—dismissed counterclaims seeking "an offset based on damages arising from the alleged theft of material and equipment." Id.
Defendant's counterclaims do not seek the return of pre-paid wages. See Cordero, 2013 WL 6415667, at *8. If Defendant's counterclaims sought to mitigate Hill's recovery by claiming she falsified hours by requesting payment for time she spent on unauthorized emails to herself, then such counterclaims would look more like the ones permitted in Cordero. See id. But since none of Defendant's counterclaims makes such an allegation, the nexus falls back on the employment relationship itself. See Poole, 2019 WL 3845454, at *9.
The counterclaims "do not directly relate to Plaintiffs' wage claims, such as by challenging the amount of overtime hours worked or wages due." Id. Instead, Defendant asserts unrelated claims that may be meritorious but nonetheless do not belong before a federal court alongside FLSA claims. The statement from Hill's attorney in the March 10, 2020 letter does not transform the nature of Defendant's counterclaims. While the statement characterizing the information in Hill's possession distinguishes the facts in this case from those in Poole, Solano, Cordero, and Cruz, this distinction does not produce a difference in outcome. (See Dkt. # 25 at 6–7.) Defendant's counterclaims are still not properly "considered wages that the employer pre-paid to the plaintiff-employee." Martin, 628 F.3d at 742.
Cruz v. 3F Techs., LLC, No. 4:19-cv-4386, 2020 WL 1672423 (S.D. Tex. Apr. 3, 2020). (See Dkt. # 22 at 4.) All other listed cases have previously been cited in this Order.
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Therefore, the counterclaims Defendant asserts are permissive under Rule 13(b) and "inappropriate in a case brought to enforce the FLSA's minimum wage and overtime provisions." Poole, 2019 WL 3845454, at * 10 ; see also Gagnon v. United Technisource, Inc., 607 F.3d 1036, 1042 (5th Cir. 2010). Accordingly, the Court GRANTS Hill's Motion to Strike Defendant's counterclaims from this case. (Dkt. # 22.) 2. Motion to Dismiss Counterclaims 1, 3, and 6
In light of the preceding section, the Court DENIES AS MOOT Plaintiff's Motion to Dismiss portion of the Amended Motion.
CONCLUSION
For the foregoing reasons, the Court hereby GRANTS Plaintiff's Motion to Strike Defendant's counterclaims. (Dkt. # 22.) Defendant's counterclaims 1 through 6 are STRICKEN from its Amended Answer (Dkt. # 18) and DISMISSED WITHOUT PREJUDICE. Hill's Motion to Dismiss counterclaims 1, 3, and 6 is DENIED AS MOOT.