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Hernandez v. ARC Trading Co.

United States District Court, N.D. Texas, Dallas Division

May 1, 2018

LUIS MANUEL HERNANDEZ, GILBERTO HERNANDEZ, and all others similarly situated under 29 U.S.C. § 216b, Plaintiffs,
v.
ARC TRADING COMPANY; WENRU YOU; and ANN YOU, Defendants.

          MEMORANDUM OPINION AND ORDER

          DAVID L. HORAN, UNITED STATES MAGISTRATE JUDGE

         Plaintiffs Luis Manuel Hernandez and Gilberto Hernandez (“Plaintiffs”) have filed a Motion to Dismiss Defendants' Counterclaims Raised in Response to the First Amended Complaint, under Federal Rules of Civil Procedure 9(b), 12(b)(1), and 12(b)(6). See Dkt. No. 26 (the “MTD”).

         Defendants ARC Trading Company and Wenru You, a/k/a Ann You filed a response, see Dkt. No. 28, and Plaintiffs filed a reply, see Dkt. No. 30.

         Background

         Plaintiff Luis Manuel Hernandez (“L. Hernandez”) filed his Complaint in this case on August 3, 2017, bringing a claim for overtime wage violations under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201-216. See Dkt. No. 1.

         On September 29, 2017, Gilberto Hernandez (“G. Hernandez”) filed his notice of opt-in consent under 29 U.S.C. § 216(b), claiming to be a similarly situated employee. See Dkt. No. 8.

         L. Hernandez then filed his Motion to Ratify Opt-In Notice of Gilberto Hernandez Pursuant To 29 U.S.C. § 216(b) on October 3, 2017, explaining that “Gilberto Hernandez has filed the requisite consent form to become a party to this lawsuit and a separate amended complaint need not be filed on his behalf” and requesting “that this Court ratify said opt-in consent form and deem Gilberto Hernandez as an opt-in plaintiff from the time of the filing of his opt-in notice with this Court.” Dkt. No. 9 (the “Motion to Ratify”) at 2.

         Defendants then filed an answer and counterclaim on October 4, 2017, see Dkt. No. 10, and later filed a response in opposition to the Motion to Ratify on October 24, 2017, see Dkt. No. 13.

         On October 25, 2017, L. Hernandez and G. Hernandez together filed the First Amended Complaint Under 29 U.S.C. §§ 201- 216 Overtime Wage Violations on behalf of themselves and all others similarly situated under 29 U.S.C. § 216(b). See Dkt. No. 15. Defendants then filed their Original Answer to Plaintiffs' First Amended Complaint under 29 U.S.C. §§ 201-216 Overtime Wage Violations and Original Counterclaim on November 13, 2017, see Dkt. No. 23.

         In its Original Counterclaim, Defendant Arc Trading Company alleges:

FACTUAL BACKGROUND30. Upon information and belief, during Plaintiffs' intermittent employment with ARC Trading Company, Plaintiffs made knowing and/or reckless misrepresentations in their time records about the amount of hours they worked.

31. Plaintiffs intended that ARC Trading Company rely on these misrepresentations in calculating their wages.

32. ARC Trading actually relied on these misrepresentations about hours Plaintiffs worked, which resulted in overpayment to Plaintiffs and damages to ARC Trading Company.

33. Upon information and belief, during Plaintiffs' intermittent employment with ARC Trading Company, Plaintiffs made knowing and/or reckless misrepresentations on their reimbursement requests.

34. Plaintiffs intended that ARC Trading Company rely on these misrepresentations in calculating their reimbursement amounts.

35. ARC Trading actually relied on these misrepresentations about the amount in reimbursements owed, which resulted in overpayment to Plaintiffs and damages to ARC Trading Company.

JURISDICTION AND VENUE

36. This Court has supplemental jurisdiction over Counter-Plaintiff's state-law claims, which arise under common law, pursuant to 28 U.S.C. § 1367(a), because the state law claims are so related to the federal claims that they form part of the same case or controversy and derive from a common nucleus of operative facts.

37. ARC Trading Company is a Texas corporation with its principal place of business in Dallas County, Texas.

38. Counter-Defendant Luis Hernandez is an individual who has alleged he resided in Dallas, Texas at the time this dispute arose and has appeared in this case.

39. Counter-Defendant Gilberto Hernandez is an individual who has alleged he resided in Dallas, Texas at the time this dispute arose and has appeared in this case.

40. Venue is proper pursuant to 28 U.S.C. § 1391 because a substantial part of the events or omissions giving rise to the claims stated herein occurred in this district.

COUNT I - FRAUD

41. Counter-Plaintiff ARC Trading Company re-alleges the allegations above as though fully set forth herein.

42. Upon information and belief, Plaintiffs made material misrepresentations to ARC Trading Company regarding their hours worked and reimbursements owed.
43. Plaintiffs made these misrepresentations to ARC Trading Company with the intent that ARC Trading Company rely upon them in calculating amounts owed to them.
44. ARC Trading Company did rely on Plaintiffs' misrepresentations in calculating amounts owed to them, which resulted in overpayment to Plaintiffs and damages to ARC Trading Company.
45. As a result of Plaintiffs' conduct, ARC Trading Company has suffered damages for which it now sues.
COUNT II - CONVERSION

46. Counter-Plaintiff ARC Trading Company re-alleges the allegations above as though fully set forth herein.

47. ARC Trading Company had legal possession and/or the legal right to possess money for purposes of processing payroll and other amounts paid to employees.

48. Upon information and belief, Plaintiffs wrongfully acquired overpayments in wages and reimbursements through misrepresentations, which resulted in damages to ARC Trading Company.

49. As a result of Plaintiffs' conduct, ARC Trading Company has suffered damages for which it now sues.

Dkt. No. 23 at 4-6. Defendants pray that “the Court enter a judgment in favor of ARC Trading Company on its fraud and conversion claims.” Id. at 6-7.

         Plaintiffs filed their MTD 21 days later, see Dkt. No. 26, asserting that the Counterclaims “or ‘arguments and disputations over claims against [Plaintiffs'] wages' arising from Defendants' fraud and conversion theories are contrary to the purpose behind the Fair Labor Standards Act and are not appropriate to be brought as counterclaims when Plaintiffs bring claims for unpaid overtime”; that “supplemental jurisdiction over Defendants' Counterclaims is not proper and they should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(1)”; that the “fraud counterclaim fails to meet the heightened pleading standard imposed by Federal Rule of Civil Procedure 9(b) for such claims”; that “Defendants' Counterclaims fail to plead sufficient facts to state a plausible claim for relief” where “there is a lack of factual specificity and content in support of Defendants' counterclaims for fraud and conversion such that Defendants fail to state any claims to relief that are plausible on their face”; and that “the counterclaims for fraud and conversion are duplicative of the Defendants' affirmative defense of credit and/or off-set, ” id. at 6-19.

         The Court then denied as moot L. Hernandez's Motion to Dismiss Defendants' Counterclaims [Dkt. No. 14] (which was directed at Defendants' now-superseded Original Answer and Original Counterclaim [Dkt. No. 10]), in light of Plaintiffs' filing their MTD [Dkt. No. 26] directed to the counterclaims raised in the answer to Plaintiffs' first amended complaint. See Dkt. No. 27.

         The Court thereafter granted Plaintiffs' Motion to Ratify, deeming Gilberto Hernandez to be an opt-in plaintiff from the time of the filing of his opt-in notice with this Court. See Dkt. No. 29.

         Legal Standards

         I. Rule 12(b)(1)

         “Federal courts are courts of limited jurisdiction, and absent jurisdiction conferred by statute, lack the power to adjudicate claims.” Stockman v. Fed. Election Comm'n, 138 F.3d 144, 151 (5th Cir. 1998). As such, the Court must dismiss a complaint for lack of subject-matter jurisdiction “when the court lacks the statutory or constitutional power to adjudicate the case.” Home Builders Ass'n of Miss., Inc. v. City of Madison, 143 F.3d 1006, 1010 (5th Cir. 1998) (quoting Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1187 (2d Cir. 1996)).

         The Court will not assume it has jurisdiction. Rather, “the basis upon which jurisdiction depends must be alleged affirmatively and distinctly and cannot be established argumentatively or by mere inference.” Getty Oil Corp. v. Ins. Co. of N.A., 841 F.2d 1254, 1259 (5th Cir. 1988) (citing Ill. Cent. Gulf R. Co. v. Pargas, Inc., 706 F.2d 633, 636 & n.2 (5th Cir. 1983)).

         “The burden of proof for a Rule 12(b)(1) motion to dismiss is on the party asserting jurisdiction. Accordingly, the plaintiff constantly bears the burden of proof that jurisdiction does in fact exist” in any case originally filed in federal court. Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001) (per curiam) (citations omitted). And where, like here, a defendant files a Rule 12(b)(1) motion to dismiss, the attack of subject is considered “facial, ” and the Court need look only to the sufficiency of the allegations of the plaintiff's complaint, or on the complaint as supplemented by undisputed facts, all of which are presumed to be true. See Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. May 1981).

         But a “factual” attack on jurisdiction is based on affidavits, testimony, and other evidentiary material. See Id. Under such an attack, the Court “is empowered to consider matters of fact which may be in dispute, ” Ramming, 281 F.3d at 161, and, to oppose the Rule 12(b)(1) motion, “a plaintiff is also required to submit facts through some evidentiary method and has the burden of proving by a preponderance of the evidence that the trial court does have subject matter jurisdiction, ” Paterson, 644 F.2d at 523; see also Williamson v. Tucker, 645 F.2d 404, 412-13 (5th Cir. May 1981) (“Because at issue in a factual 12(b)(1) motion is the trial court's jurisdiction - its very power to hear the case - there is substantial authority that the trial court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case. In short, no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims.” (quoting Mortensen v. First. Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977))).

         “When a Rule 12(b)(1) motion is filed in conjunction with other Rule 12 motions, the court should consider the Rule 12(b)(1) jurisdictional attack before addressing any attack on the merits.” Ramming, 281 F.3d at 161. “This requirement prevents a court without jurisdiction from prematurely dismissing a case with prejudice. The court's dismissal of a plaintiff's case because the plaintiff lacks subject matter jurisdiction is not a determination of the merits and does not prevent the plaintiff from pursuing a claim in a court that does have proper jurisdiction.” Id. (citations omitted).

         II. Supplemental Jurisdiction

         Supplemental jurisdiction is codified in 28 U.S.C. § 1367 and gives the district court discretion to exercise jurisdiction over state-law claims when: (1) federal-question jurisdiction under 28 U.S.C. § 1331 is proper and (2) the state-law claims derive from a common nucleus of operative facts. See Arena v. Graybar Elec. Co., Inc., 669 F.3d 214, 221 (5th Cir. 2012). To determine whether to exercise supplemental jurisdiction over a state-law claim, the Court considers whether: (1) the claim raises a novel or complex issue of state law, (2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction, (3) the district court has dismissed all claims over which it has original jurisdiction, or (4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction. See 28 U.S.C. § 1367(c); Hicks v. Austin I.S.D., 564 Fed.Appx. 747, 748 (5th Cir. 2014); Brookshire Bros. Holding, Inc. v. Dayco Prods., Inc., 554 F.3d 595, 602 n.4 (5th Cir. 2009). The Court is guided by these statutory factors set forth in section 1367(c) as well as the common law factors of judicial economy, convenience, fairness, and comity. Brookshire Bros., 554 F.3d at 602.

         III. Compulsory and Permissive Counterclaims

         Federal Rule of Civil Procedure 13(a) dictates that “[a] pleading must state as a counterclaim any claim that - at the time of its service - the pleader has against an opposing party if the claim: (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 court cannot acquire jurisdiction.” Fed.R.Civ.P. 13(a); accord N.Y. Life Ins. Co. v. Deshotel, 142 F.3d 873, 879 (5th Cir. 1998) (noting “one of the explicit exceptions to the compulsory counterclaim requirement of Federal Rule of Civil Procedure 13(a), viz., that the party need not assert a counterclaim that has not matured at the time he serves his pleading”). If a party fails to bring such a compulsory counterclaim in the original action, it is barred from asserting the claim in a later suit. See Baker v. Gold Seal Liquors, Inc., 417 U.S. 467, 469 n.1 (1974); Tank ...


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