ESPINOZA et al v. THE UNDERWOOD GROUP LLC et al

Filing 49

ORDER granting Plaintiffs' 37 Motion for Judgment on the Pleadings to dismiss Defendants' counterclaim. Signed by Judge Richard L. Young on 7/20/2015. (TMD)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION

JOSE ESPINOZA,
ANGEL FONSECA,
ROBERTO RUIZ,

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Plaintiffs,
vs.
THE UNDERWOOD GROUP LLC,
INNOVATIVE CONSTRUCTION
SERVICES, INC.,
DEBRA UNDERWOOD,
Defendants.

1:14-cv-00594-RLY-TAB

ENTRY ON MOTION FOR JUDGEMENT ON THE PLEADINGS
Jose Espinoza, Angel Fonseca, and Roberto Ruiz (hereby referred to collectively
as “Plaintiffs”) brought action against Underwood Group LLC, Innovative Construction
Services, Inc., and Debra Underwood (hereby referred to collectively as “Defendants”),
claiming that Defendants violated the Fair Labor Standards Act (“FLSA”) and the
Indiana Wage Payment Statute, I.C. § 22-2-5. Defendants in turn filed a Counterclaim
alleging Plaintiffs fraudulently misrepresented themselves to Defendants. Plaintiffs now
bring this motion for judgment on the pleadings to dismiss Defendants’ Counterclaim
with prejudice pursuant to Federal Rules of Civil Procedure 12(c) and 9(b). For the
reasons set forth below, Plaintiffs’ motion is GRANTED.

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I.

Background
Defendant Underwood is owner and officer of the Underwood Group and

Innovative Construction Services (Filing No. 20 ¶¶ 5, 12). Plaintiffs are all residents of
Marion County, Indiana, who were employed by Defendants in the three years prior to
bringing their initial action. (Id. at ¶¶ 2-4). During their time working for Defendants,
Plaintiffs claimed Defendants did not pay the FLSA-required premium for overtime
hours, paid less than the FLSA-required minimum wage, and did not make timely
payments of their earned wages required by Indiana state law. (Id. at ¶¶ 17-19).
Plaintiffs filed their amended complaint on October 1, 2014, seeking unpaid back
wages, liquidated damages, court costs, and attorney’s fees. (Filing No. 20 at ECF p. 5).
Defendants then brought a Counterclaim arguing that Plaintiffs fraudulently
misrepresented their eligibility for employment by providing invalid social security cards
and other documentation which Defendants relied on. (Filing No. 28 ¶¶ 32, 38 1). In
response, Plaintiffs have filed this motion for judgment on the pleadings to dismiss
Defendants’ Counterclaim.
II.

Standard of Review
A party may make a Rule 12(c) motion for judgment on the pleadings after

pleadings are closed but early enough not to delay trial. Fed. R. Civ. P. 12(c). Courts
apply the same standard to 12(c) motions as they do to 12(b)(6) motions to dismiss, and

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Defendants’ Counterclaim contains two separate paragraphs numbered 36. The court
renumbers the second paragraph 36 as paragraph 37 and continues the renumbering to
paragraph 39 for clarity.
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therefore must assume the alleged facts as true while drawing all inferences in favor of
the plaintiff. Pisciotta v. Old Nat. Bancorp, 499 F.3d 629, 633 (7th Cir. 2007). Federal
Rule of Civil Procedure 12(b)(6) “authorizes dismissal of a complaint when it fails to set
forth a claim upon which relief can be granted. Generally speaking, when considering a
Rule 12(b)(6) motion to dismiss, courts must inquire whether the complaint satisfies the
‘notice-pleading’ standard.” Kruse v. GS Pep Tech. Fund 2000 LP, 897 F. Supp. 2d 769,
772 (N.D. Ind., Sept. 19, 2012) (quoting Indep. Tr. Corp. v. Steward Info. Servs. Corp.,
665 F.3d 930, 934 (7th Cir. 2012)). Rule 8(a)(2) requires a “a short and plain statement
of the claim showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), with
enough facts to raise a right to relief above speculative levels. Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007).
III.

Discussion
Plaintiffs argue that the motion for judgment on the pleadings should be granted

for multiple reasons. First, Plaintiffs argue the Defendants’ Counterclaim is preempted
by federal law. Next, Plaintiffs argue that Defendants’ Counterclaim pleads information
and documents that Defendants are not permitted to use under federal law as basis for
their Counterclaim. Finally, Plaintiffs argue that Defendants have failed to plead fraud
with the necessary particularity required under Federal Rule of Civil Procedure 9(b). The
court will discuss Plaintiffs’ arguments below in turn.
A.

Does Federal Law Preempt Defendants’ State Law Fraud Claims?

Defendants’ Counterclaim argues that Plaintiffs are illegal aliens who submitted
improper documents for employment, thereby committing state law fraud. (Filing No. 28
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¶¶ 32-39). Plaintiffs respond to this argument by asserting that federal laws overrule state
laws on matters regarding the creation, possession, and use of fraudulent documents by
unauthorized aliens. The Supreme Court has noted that “the Government of the United
States has broad, undoubted power over the subject of immigration and the status of
aliens . . . . The federal power to determine immigration policy is well settled.” Arizona
v. U.S., 132 S. Ct. 2492, 2498 (2012). In sum, Plaintiffs ask the court to find against
Defendants on the Counterclaim for improperly seeking a state law remedy for a matter
that is exclusively reserved for federal law.
Plaintiffs point to the Immigration Reform and Control Act of 1986 (“IRCA”), 8
U.S.C. § 1101, as being the governing federal law on immigration fraud. The Supreme
Court summarized IRCA in Hoffman Plastic Compounds, Inc. v. N.L.R.B., 535 U.S. 137
(2002):
IRCA also makes it a crime for an unauthorized alien to subvert the employer
verification system by tendering fraudulent documents. It thus prohibits aliens from
using or attempting to use ‘any forged, counterfeit, altered or falsely made
document’ or any ‘document lawfully issued to or with respect to a person other
than the possessor’ for the purposes of obtaining employment in the United States.
Aliens who use such documents are subject to fines and criminal prosecution.
Id. at 147-148. Plaintiffs argue that Defendants’ state law fraud claims are essentially
repackaging IRCA violations to impose unauthorized penalties on Plaintiffs.
Plaintiffs further rely on Arizona v. United States as a point of comparison. In that
case, the United States District Court for the District of Arizona issued a preliminary
injunction against an Arizona statute imposing additional state policies relating to
immigration. Arizona, 132 S. Ct. at 2498. Section 3 of the contested statute made failure
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to comply with federal alien registration requirements a state misdemeanor. Id. at 2501.
The Supreme Court found this state policy improper, reasoning that this section of the
statute attempted to give Arizona independent authority to prosecute federal registration
violations and diminished the Federal Government’s authority over immigration. Id. at
2502. “Permitting the State to impose its own penalties for the federal offenses here
would conflict with the careful framework Congress adopted . . . . These specific
conflicts between state and federal law simply underscore the reason for field
preemption.” Id. at 2502-3.
Defendants in turn argue 2 that Arizona v. U.S. “simply has no application to the
instant counterclaim.” (Filing No. 41 at ECF p. 2). Defendants argue that IRCA does not
preempt their state law fraud claim because their Counterclaim “arises under commonlaw standards that predate IRCA by more than 200 years.” Id. This argument is
unpersuasive, has no bearing on the preemption analysis, and fails to rebuff Plaintiffs’
use of Arizona. As the Supreme Court laid out in Arizona, it is well established that
federal laws preempt state laws in certain areas, including immigration. Arizona, 132 S.
Ct. at 2498. The court therefore finds that Defendants’ Counterclaim is preempted by
federal law.

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Defendants also argue their Counterclaim is viable for unrelated policy reasons,
including identity theft and the resurgence of HIV in Indiana via needle sharing. (Filing
No. 41 at 3-7). Defendants not only fail to relate these issues with the case at hand, but
they include no citations in support of their claims.
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B.

Does Federal Law Prohibit Defendants’ Use of Documents?

Even if the Counterclaim is not preempted, Defendants claim that the Plaintiffs’
submitted work documents give rise to their Counterclaim. The Counterclaim refers to
“social security cards indicating invalid social security numbers, and other
documentation, indicating their lawful status within the United States as to employment
eligibility.” (Filing No. 28 ¶ 32). However, Plaintiffs argue that federal law prohibits
Defendants’ use of these documents for prosecuting a state law civil fraud action. The
Supreme Court has stated, “Congress has made clear that any information employees
submit to indicate their work status ‘may not be used’ for purposes other than prosecution
under specified federal and criminal statutes for fraud, perjury, and related conduct.”
Arizona, 132 S. Ct. at 2504 (citing 8 U.S.C. §§ 1324a(b)(5), (d)(2)(F)-(G)). Because
prosecuting a state law civil fraud claim is not a permitted use of Plaintiffs’ documents,
Plaintiffs argue that Defendants’ Counterclaim has no factual basis and the judgment on
the pleadings should therefore be granted.
Defendants respond to Plaintiffs’ argument by stating that, “Since the fraud could
be based on presentation of forged social security cards, it cannot be said that Defendants
can prove no set of facts to support their counterclaim.” (Filing No. 41 at 2). Defendants
further argue that social security cards are not identification documents under IRCA, but
are instead documents “evidencing employment authorization.” See United States v.
Tyson Foods, Inc., 258 F. Supp. 2d 809 (E.D. Tenn. 2003). Regardless of whether a
social security card is an identifiable document or employment authorization, the
documents may not be used for state law purposes. Arizona, 132 S. Ct at 2504.
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Defendants’ use of social security cards in their Counterclaim is therefore improper,
leaving their Counterclaim with no factual basis.
C.

Have Defendants Plead Fraud with the Requisite Specificity?

Because the court has found Defendants’ Counterclaim to be preempted by federal
law and void of any factual support, the court need not address whether Defendants pled
fraud with the requisite specificity.
IV.

Conclusion
The court finds that Defendants’ Counterclaim is preempted by federal law and

improperly uses information prohibited by federal law as its basis. Therefore, Plaintiffs’
motion for judgment on the pleadings to dismiss Defendants’ Counterclaim (Filing No.
37) is GRANTED.

SO ORDERED this 20th day of July 2015.

_________________________________
RICHARD L. YOUNG, CHIEF JUDGE
United States District Court
Southern District of Indiana

Distributed Electronically to Registered Counsel of Record

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