Perez v. Elite Imaging, LLC et al
Filing
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ORDER DENYING 19 Defendant's Motion for Leave to File Counterclaim, filed by Elite Imaging, LLC. Signed by Senior Judge Paul C. Huck on 2/17/2017. (ah01)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO. 16-CV-24555-HUCK
JANIOR PEREZ,
Plaintiff,
vs.
ELITE IMAGING, LLC, eta/.,Defendants.
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ORDER
THIS CAUSE is before the Court on Defendant's Motion for Leave to File Counterclaim
("Motion") [ECF No. 19], filed by Elite Imaging, LLC ("Elite Imaging") on January 17, 2017.
Elite Imaging attached the proposed Counterclaim ("Counterclaim") [ECF No. 19-1] to its
Motion. Plaintiff Janior Perez ("Plaintiff') filed Plaintiffs Response ... ("Response") [ECF No.
20] on January 31, 2017, and Elite Imaging filed its Reply ... ("Reply") [ECF No. 22] on
February 7, 2017. The Court has carefully considered the parties' submissions, the record, and
applicable law.
I. Background
Plaintiff is a former Elite Imaging employee who alleges that he did not receive overtime
wages due him for having worked over 40 hours per week, in violation of the Fair Labor
Standards Act ("FLSA"), 29 U.S.C. § 201 et seq.. (See Complaint [ECF No. 1]
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1). Plaintiffs
Complaint consists of three counts: Count I for FLSA Overtime Violation; Count II for Breach
of Contract with respect to non-receipt of 61 hours of paid time off; and Count III for Promissory
Estoppel with respect to the same 61 hours of paid time off. Plaintiff alleges that he worked
overtime approximately 4 hours outside of the office for approximately 6 days each week,
totaling 24 hours per week, for which he should have been paid at time and one-half of his
regular hourly rate. (See id.
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17): Plaintiffs estimation of the amount of unpaid wages exceeds
$137,000. (See Plaintiffs Rule 26(a) Disclosures [ECF No. 22-3] 6). Plaintiff further alleges that
he is owed $2,379.00 for his earned but unused paid time off. (See Compl.
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27, 32).
Elite Imaging's Motion seeks to assert three state law counterclaims: Count I for
violation of the Florida Computer Abuse and Data Recovery Act ("CADRA"), Fla. Stat.
§ 668.801; Count II for Conversion; and Count III for Breach of Duty of Loyalty. (See
Countercl.). Elite Imaging's counterclaims stem from allegations that Plaintiff deleted his entire
email file, as well as other files belonging to Elite Imaging. (See id.
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15). The purportedly
deleted files comprise many gigabytes of data and tens of thousands of files. (See id.
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16). Elite
Imaging alleges that Plaintiff knew at the time of removing the files that they "would contain
substantial evidence to undermine his claim" for overtime wages "by revealing that Plaintiff did
not, in fact, perform 24 hours of alleged off the clock work currently alleged in the Complaint."
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(See id.
17). Elite Imaging has been unable to recover all of the deleted files. (See id.
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19).
Elite Imaging further alleges that Plaintiff not only deleted files, but that he also wrongfully
retained some of the files, and that those files have independent financial value to Elite Imaging.
(See id.
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21-22). Elite Imaging also "strongly suspects" that Perez misappropriated Elite
Imaging's trade secrets. (See id.
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24).
Plaintiff opposes Elite Imaging's Motion by characterizing the proposed counterclaims as
an attempt to "transform this straightforward FLSA case into a complicated cybertheft matter"
and by arguing that the counterclaims violate the Brennan rule applicable in FLSA cases. (See
Response 1). Plaintiff asks the Court to exercise its discretion and deny the Motion. (See id. ).
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Plaintiff argues that the asserted counterclaims do not involve the hours that he worked or the
pay that he received but rather that they "involve a distinct scenario" regarding contentions of
deleted and misappropriated computer data. (See id. 3). Notably, Plaintiff indicates that Elite
Imaging received the file containing the 6.4 gigabytes of deleted emails on December 29, 2016,
prior to filing its Motion, and that the emails have all been exchanged in discovery. (See id. 3--4).
II. Standard
Under the Federal Rules, "a party may amend its pleading only with the opposing party's
written consent or the court's leave" once the time has passed for a party to do so as a matter of
course. See Fed. R. Civ. P. 15(a)(2). "The Court should freely give leave when justice so
requires." !d. "In the absence of any apparent or declared reason-such as undue delay, bad faith
or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party by virtue of allowance of the
amendment, futility of amendment, etc.-the leave sought should, as the rules require, be 'freely
given."' Foman v. Davis, 371 U.S. 178, 182 (1962). "[T]he grant or denial of an opportunity to
amend is within the discretion of the District Court," id., and the district court may deny leave to
amend when such amendment would be futile, such as when the amended claim would be
subject to dismissal. See Hall v. United Ins. Co. of Am., 367 F.3d 1255, 1263 (11th Cir. 2004)
(citations omitted). Even where the addition of counterclaims could prolong the litigation,
"ultimately, allowing the [p ]arties to litigate all of the disputes between them is in the interests of
efficiency and justice." See E Constr., LLC v. HDJ Sec., Inc., No. 1:16-CV-33 (WLS), 2016 WL
4191027, at *5 (M.D. Ga. Aug. 5, 2016).
A. Compulsory & Permissive Counterclaims
"In general, a compulsory counterclaim falls within the supplemental jurisdiction of
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federal courts, while a permissive counterclaim requires an independent jurisdictional basis."
Bautista v. The Disc. Warehouse, Inc., No. 1:15-CV-24206-KMM, 2016 WL 1028358, at *1
(S.D. Fla. Mar. 15, 2016) (citing Plant v. Blazer Fin. Servs. ofGeorgia, 598 F.2d 1357, 1359
(5th Cir. 1979), and 28 U.S.C. § 1367(a)). Here, the three proposed counterclaims do not fall
under federal question jurisdiction, nor does diversity jurisdiction apply because Plaintiff and
Elite Imaging are both citizens of Florida. Accordingly, this Court only has jurisdiction over the
counterclaims if they are found to be compulsory. See East-Bibb Twiggs Neighborhood Ass'n v.
Macon Bibb Planning & Zoning Comm 'n, 888 F.2d 1576, 1578 (11th Cir. 1989).
The Federal Rules provide that a counterclaim is compulsory if it "arises out of the
transaction or occurrence that is the subject matter of the opposing party's claim." See Fed. R.
Civ. P. 13(a)(1)(A). The Eleventh Circuit applies the "logical relationship" test to determine
whether a claim is compulsory. See Republic Health Corp. v. Lifemark Hasps. of Fla., Inc., 755
F.2d 1453, 1455 (11th Cir. 1985). "Under this test, there is a logical relationship when the same
operative facts serve as the basis of both claims or the aggregate core of facts upon which the
claim rests activates additional legal rights, otherwise dormant, in the defendant." !d. (citation
and internal quotation marks omitted).
B. The Brennan Rule
The Eleventh Circuit is "hesitant to allow employers to assert state-law counterclaims
against employees in FLSA cases." See Pioch v. IBEX Eng'g Servs., Inc., 825 F.3d 1264, 1273
(lltth Cir. 2016); see also Leite v. Tremron, Inc., No. 12-22118-CIV-MORENO, 2012 WL
4049962, at *2 (S.D. Fla. Sept. 13, 2012) ("In cases where a FLSA claim serves as the
underlying basis for original jurisdiction, this Court has generally been reluctant to find that
additional state law contract or tort claims form part of the same 'case or controversy' as the
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federal claim."). "Accordingly, the Court has limited its exercise of supplemental jurisdiction in
this context to instances where the state law counterclaims in some way encompass elements of
the plaintiffs original FLSA claim." Leite, 2012 WL 4049962, at *2. Indeed, the courts of this
circuit are "general[ly] reluctan[t] to exercise supplemental jurisdiction over counterclaims in
FLSA cases which are premised on agreements that do not implicate the number of hours
worked or payment received." See Bautista, 2016 WL 1028358, at *2 (citing other cases
declining jurisdiction).
Additionally, a set-off is inappropriate in FLSA cases where such "set-off will cause the
plaintiffs wages to fall below the statutory minimum, and deprive the plaintiff of the 'cash in
hand' contemplated by the FLSA." See id. (citing Brennan v. Heard, 491 F.2d 1, 4 (5th Cir.
1974), overruled on other grounds by McLaughlin v. Richland Shoe Co., 486 U.S. 128 (1988)).
This Brennan rule, which comes from the former Fifth Circuit, is grounded in the principle that
"[t]he only economic feud contemplated by the FLSA involves the employer's obedience to
minimum wage and overtime standard [and that] [t]o clutter [FLSA] proceedings with the
minutiae of other employer-employee relationships would be antithetical to the purpose of the
Act." Brennan, 491 F.2d at 4; accord Pioch, 825 F.3d at 1273. Any requested set-offs to an
FLSA claim should not "force the Court to address the factual circumstances of numerous other
claims unrelated to whether Plaintiff was adequately compensated according to minimum wage
and overtime standards." See Matthews v. Applied Concepts Unleashed, Inc., No. 2:11-CV14347-KMM, 2012 WL 3150265, at *2 (S.D. Fla. Aug. 1, 2012).
However, "an employer could raise the affirmative defense of set-off in a case where the
employee received overpayment of wages." See Leite, 2012 WL 4049962, at *3. "In such a case,
the set-off would only reduce the overpayment while still maintaining the plaintiffs recovery of
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wages under the FLSA." Id. Most importantly, "[a]ny setoff that reduces the amount of overtime
wages that a plaintiff is entitled to under the FLSA is therefore inappropriate" because a proper
set-off is only "against an overpayment or pre-payment of wages." !d. at *4.
III. Discussion
A. Elite Imaging's Counterclaims-Are Not Compulsory
The Court first finds that Elite Imaging's state law counterclaims do not meet the "logical
relationship" test and, therefore, are not compulsory counterclaims. Plaintiffs FLSA claim is
very straight-forward: he alleges that he worked an extra 24 hours of overtime each week, for
which he was not paid. The issues before the Court in determining the merit of Plaintiffs FLSA
claim will involve evidence and witness testimony as to those hours allegedly worked. In
contrast, Elite Imaging's claims "are a matter wholly separate from the dispute over overtime
compensation" and would require Elite Imaging to "present evidence and witness testimony on
facts significantly different." See id. at *3.
Particularly, Elite Imaging claims that it "engaged in substantial effort, at substantial
expense in terms of lost hours and productivity (in addition to other costs) ... in an attempt to
recover the [d]eleted [fJiles." (See Counterclaim
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37). Elite Imaging argues that its "losses
include, without limitation, the costs of investigating Perez's actions, assessing the resulting
damages, restoring the data and information altered and/or deleted by Perez, as well as the costs
associated with the interruption to Elite Imaging's business." (See id.). It is true that evidence
relating to the emails and computer files may be used by Elite Imaging to challenge the merits of
Plaintiffs claims for overtime pay under the FLSA. However, Elite Imaging's counterclaims go
far beyond that by requiring discovery, witnesses, and experts with respect to issues tangential to
Plaintiffs FLSA claims, including the deletion and recovery of electronic files and damages.
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Elite Imaging itself asserts that its "counterclaim seeks to do no more than recover damages
caused by the loss of Defendant's files, and to recover damages Defendant incurred and will
continue to incur to try and recover the lost files." (See Reply 3). Elite Imaging continues that its
counterclaims are "no different than any aggrieved party suing to recover damages for a tort
committed against it." (See id.). These matters extend beyond the confines of a determination of
overtime wages under the FLSA, and Elite Imaging's assertions here work against its argument
that its counterclaims are compulsory.
Because the Court has determined that the counterclaims are not compulsory, Elite
Imaging should bring its counterclaims in a forum with proper jurisdiction. However, there may
be an independent basis for federal court jurisdiction over Elite Imaging's claims, under the
Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1030, thus providing an alternative
means for Elite Imaging to assert the claims as permissive counterclaims. The Eleventh Circuit
recently clarified that damages of the type sought by Elite Imaging, i.e., forensic and physical
review of computer systems, are recoverable under the CFAA. See Brown Jordan lnt'l, Inc. v.
Carmicle,- F.3d - , 2017 WL 359651, at *5 (11th Cir. 2017). Elite Imaging indicated that it
"is prepared to add this claim if the Court finds it necessary to do so as an independent basis for
maintaining jurisdiction over the counterclaim." (See Reply 7). Nevertheless, the Court's
following analysis shows why even a CF AA counterclaim would also be inappropriate under the
Brennan rule.
B. Elite Imaging's Counterclaims Violate the Brennan Rule
Elite Imaging's proposed counterclaims are barred by the Brennan rule, whether the
counterclaims are compulsory or permissive. Elite Imaging argues that "there is no allegation
that [Elite Imaging] is seeking to reduce the cash in hand Plaintiff received in the past, or which
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he may receive as minimum wages from the FLSA claims." (See Reply 3). However, any
recovery under Elite Imaging's counterclaims will necessarily reduce Plaintiffs FLSA overtime
recovery and are inappropriate. Elite Imaging does not allege that it overpaid Plaintiff, so any
reduction of Plaintiffs FLSA damages would violate the Brennan rule by reducing Plaintiffs
compensation below the FLSA statutory minimum. See Leite, 2012 WL 4049962, at *4.
Elite Imaging mischaracterizes the Brennan rule when it argues that "it is nearly
impossible for the damages that [Elite Imaging] may recover on the counterclaim to reduce
Plaintiffs earnings below minimum wage" because Plaintiff earned "more than five times the
minimum wage" with his salary of $39 per hour. (See Reply 9). Elite Imaging argues that even if
it "recovered $50,000 on its counterclaim, Plaintiff would still recover tens of thousands of
dollars in excess of the minimum wages if he prevails on the claim asserted in the Complaint."
(See id.). Plaintiffs overtime claims are premised on time and one-half of his regular hourly rate,
(see Compl.
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17), not a statutory minimum wage one-fifth of Plaintiffs salary. A set-off cannot
reduce the amount of overtime wages due, but can only be claimed against overpayment or prepayment of wages. See Leite, 2012 WL 4049962, at *4. Therefore, any recovery under Elite
Imaging's counterclaims would run afoul of the Brennan rule, which is "to assure to the
employees of a covered company a minimum level of wages," see Brennan, 491 F.2d at 4, and
"would delay and interfere with the process of bringing the employer into compliance with the
FLSA's overtime requirements," see Pioch, 825 F.3d at 1273-74 (citing Donovan v. Painton,
717 F.2d 1320, 1323 (lOth Cir. 1983)).
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IV. Conclusion
Elite Imaging's proposed counterclaims are not compulsory, and the Court lacks an
independent jurisdictional basis to permit them as permissive counterclaims. Additionally, even
if Elite Imaging were to amend its proposed counterclaims to assert a CF AA federal claim, the
counterclaims would still be disallowed for violation of the Brennan rule. Therefore, the Court
finds that granting Elite Imaging leave to amend in this case would be futile. See Hall, 367 F.3d
at 1263. While it is in the interest of justice and efficiency to allow the parties to litigate all of
their disputes in one forum, litigation of the counterclaims in the present case "would delay and
interfere with the process of bringing the employer into compliance with the FLSA's overtime
requirements." See Pioch, 825 F.3d at 1273-74 (citation omitted). Accordingly, it is
ORDERED AND ADJUDGED that the Motion [ECF No. 19) is DENIED.
DONE AND ORDERED in Chambers, Miami, Florida, on February 17,2017.
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Paul C. Huck
United States District Judge
Copies furnished to:
Magistrate Judge Alicia M. Otazo-Reyes
All Counsel of Record
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