Carroll v. Dan Rainville & Associates, Inc. et al
MEMORANDUM OPINION. Signed by Magistrate Judge Stephanie A Gallagher on 10/23/2017. (kw2s, Deputy Clerk)
Case 1:17-cv-00849-SAG Document 38 Filed 10/23/17 Page 1 of 8
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
DAN RAINVILLE & ASSOCIATES
INC., et al
Civil Case No.: SAG-17-849
Pending before this Court is Plaintiff/Counter-Defendant Matt Carroll’s (“Carroll”)
Motion to Dismiss the Counterclaims Filed by Defendant/Counter-Plaintiff Dan Rainville &
Associates, Inc. (“DRA”), [ECF No. 33]. I have reviewed DRA’s Opposition, [ECF No. 34],
and Carroll’s Reply. [ECF No. 36]. No oral argument is necessary. See Local Rule 105.6 (D.
Md. 2016). For the reasons set forth below, Carroll’s motion will be GRANTED.
On March 29, 2017, Carroll filed suit against his former employer, DRA, alleging
violations of the Federal Fair Labor Standards Act (“FLSA”), the Maryland Wage and Hour
Law, and the Maryland Wage Payment and Collection Law. [ECF No. 1, 1]. DRA engages in
the “business of selling and installing commercial HVAC and ventilation units.” Id. at 2. From
January, 2016 through August, 2016, Carroll “worked as both an estimator and perform[ed]
inside sales jobs for which he was paid hourly,” in addition to earning a 20% commission on
sales. Id. at 3. In this lawsuit, Carroll seeks to recover allegedly unpaid overtime wages and
commissions from his inside sales job. [ECF No. 33, 3].
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On June 12, 2017, DRA filed an Amended Counterclaim asserting the following claims
under Maryland law: (1) Breach of Contract – Return of Unearned Draws; (2) Breach of
Contract – Noncompetition and Non-solicitation Agreement; (3) Breach of Contract – Use of
Confidential Information; (4) Violation of Maryland Trade Secrets Act; (5) Intentional
Interference with Business Relations; (6) Detinue; and (7) Civil Conspiracy. [ECF No. 19].
Carroll has moved to dismiss all seven counterclaims under F.R.C.P. 12(b)(1), citing this Court’s
lack of subject-matter jurisdiction. [ECF No. 33].
STANDARD OF REVIEW
“Federal courts are not courts of general jurisdiction; they have only the power that is
authorized by Article III of the Constitution and the statutes enacted by Congress pursuant
thereto.” Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541 (1986). “Subject-matter
jurisdiction cannot be conferred by the parties, nor can a defect in subject-matter jurisdiction be
waived by the parties.” Brickwood Contractors, Inc. v. Datanet Eng’g, Inc., 369 F.3d 385, 390
(4th Cir. 2004) (citing United States v. Cotton, 535 U.S. 625, 630 (2002)). Thus, “questions of
subject-matter jurisdiction may be raised at any point during the proceedings and may (or, more
precisely, must) be raised sua sponte by the court.” Id. (citing Bender, 475 U.S. at 541).
Under Federal Rule of Civil Procedure 12(b)(1), a motion to dismiss for lack of “subject
matter jurisdiction can be presented in either of two forms: (1) a facial challenge that plaintiff has
failed to allege facts sufficient to establish subject matter jurisdiction,” or (2) a contention that
“the jurisdictional allegations of the complaint are not true.” Nicholson v. United States, 2017
WL 2793800, at *1 (E.D. Va. May 30, 2017); Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir.
1982). While the plaintiff bears the burden of proving that a court has jurisdiction over the claim
or controversy at issue, a Rule 12(b)(1) motion should be granted “only if the material
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jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of
law.” Ferdinand-Davenport v. Children’s Guild, 742 F. Supp. 2d 772, 777 (D. Md. 2010); see
also Evans v. B.F. Perkins Co., a Div. of Standex Int’l Corp., 166 F.3d 642, 647 (4th Cir. 1999).
Pursuant to the Judicial Improvement Act of 1990, federal courts “‘have supplemental
jurisdiction over all other claims that are so related to claims in the action within such original
jurisdiction that they form part of the same case or controversy under Article III of the United
States Constitution.’” Shanaghan v. Cahill, 58 F.3d 106, 109 (4th Cir. 1995) (quoting 28 U.S.C.
§ 1367(a)). To form part of the same case or controversy as the federal claim(s), the state
claim(s) must “‘derive from a common nucleus of operative fact[,] . . . such that [a plaintiff]
would ordinarily be expected to try them all in one judicial proceeding.’” Hinson v. Norwest
Fin. S.C., Inc., 239 F.3d 611, 615 (4th Cir. 2001) (quoting Carnegie–Mellon University v. Cohill,
484 U.S. 343, 349 (1988)). Thus, where a federal court has original federal question or diversity
jurisdiction over a claim, parties may “append state law claims over which federal courts would
otherwise lack jurisdiction,” provided they derive from a common nucleus of operative fact.
Cahill, 58 F.3d at 109.
“There is no dispute that compulsory counterclaims are, by definition, within the
supplemental jurisdiction of the court.” Long v. Welch & Rushe, Inc., 28 F. Supp. 3d 446, 452
(D. Md. 2014) (citing Painter v. Harvey, 863 F.2d 329, 331 (4th Cir. 1988)). A compulsory
counterclaim “arises out of the transaction or occurrence that is the subject matter of the
opposing party’s claim,” while a permissive claim does not. Id. (quoting Fed. R. Civ. P. 13(a)).
To determine whether a counterclaim is compulsory, courts look to: (1) whether “the issues of
fact and law raised in the claim and counterclaim [are] largely the same[;]” (2) whether “res
judicata [would] bar a subsequent suit on the party’s counterclaim, absent the compulsory
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counterclaim rule[;]” (3) whether “substantially the same evidence support[s] or refute[s] the
claim as well as the counterclaim[;]” and (4) whether “there [is] any logical relationship between
the claim and counterclaim[.]” Painter, 863 F.2d at 331 (citing Sue & Sam Mfg. Co. v. B–L–S
Const. Co., 538 F.2d 1048 (4th Cir. 1976)).
Contrary to a compulsory counterclaim, a
permissive counterclaim must have an independent jurisdictional base such as federal question or
diversity jurisdiction. See Sue, 538 F.2d 1048, 1051 (4th Cir. 1976).
A. Carroll Did Not Waive the Defense that the Court Lacks Subject-Matter
Jurisdiction Over DRA’s Counterclaims.
DRA asserts Carroll waived his defense that this Court lacks subject-matter jurisdiction
over its counterclaims, because Carroll omitted the argument from his previously filed motion to
dismiss under F.R.C.P. 12(b)(6), [ECF No. 13], and Answer, [ECF No. 21]. [ECF No. 34, 3].
DRA is incorrect.
Federal Rule 12(b) provides seven affirmative defenses to a claim for relief, including the
defense that the Court lacks subject-matter jurisdiction.
Fed. R. Civ. P. 12(b).
subsections (g) and (h) of Rule 12 provide that some defenses will be waived if they are omitted
from a party’s first Rule 12 motion or responsive pleading, subject-matter jurisdiction is
specifically exempted. Fed. R. Civ. P. 12(h). Moreover, Rule 12(h)(3) expressly states that “[i]f
the court determines at any time that it lacks subject-matter jurisdiction, [it] must dismiss the
action.” Id. It is thus axiomatic that “a defect in subject-matter jurisdiction [cannot] be waived
by the parties.” Brickwood Contractors, Inc., 369 F.3d at 390 (citing Cotton, 535 U.S. at 630).
B. The Court Lacks Subject-Matter Jurisdiction Over DRA’s Counterclaims
Since diversity is lacking in this case and DRA’s counterclaims are based solely on state
law, for this Court to exercise subject-matter jurisdiction over the counterclaims, they must be
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“compulsory” pursuant to Federal Rule 13(a). Because the four-pronged inquiry cited in Painter
weighs against a finding that DRA’s counterclaims arose out of the same transaction or
occurrence that created Carroll’s claims, the counterclaims are not “compulsory,” and this Court
lacks subject-matter jurisdiction.
First, “the issues of fact and law raised in the claim[s] and counterclaim[s]” are not
“largely the same.” Painter, 863 F.2d at 331. Carroll’s claims allege only that DRA violated
FLSA and Maryland’s Wage and Hour Law by not paying him earned overtime wages and
commissions on sales. [ECF No. 1, 1]. DRA’s counterclaims, meanwhile allege that Carroll: (1)
breached his contract by taking his salary “in the form of draws against future commissions” and
terminating his employment with a $20,086.90 deficit (count one); (2) breached his non-compete
agreement and tortiously interfered with DRA contracts by forming his own business, “JNG,”
and soliciting DRA customers (counts two, five, and seven); (3) breached his contract and
violated the Maryland Trade Secrets Act by disclosing DRA’s confidential information, such as
pricing, contact lists, sales orders, and product data to his new business (counts three and four);
and (4) remains in the wrongful possession of DRA’s confidential information and unearned
draws (count six). [ECF No. 19]. In other words, “the only connection [between Carroll and
DRA’s claims] is the employee-employer relationship.” See Williams v. Long, 558 F. Supp. 2d
601, 604 (D. Md. 2008). Indeed, “[t]he legal issues raised by a minimum wage and overtime
laws are clearly distinct from those raised by the laws of breach of contract, breach of fiduciary
duty,” violation of the Maryland Trade Secrets Act, intentional interference with business
relations, detinue, and civil conspiracy. Id. See also Wilhelm v. TLC Lawn Care, Inc., 2008 WL
640733 (D. Kan. Mar. 6, 2008) (dismissing the defendant’s state law counterclaims involving
“breach of fiduciary duty, breach of the duty of loyalty, and misappropriation of trade secrets”
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because they did not share a common nucleus of operative fact with the plaintiff’s FSLA claims,
but relied solely on its employer-employee relationship). Thus, because Carroll’s claims “‘deal
only with the question of the number of hours worked and the compensation paid[,]’ the state
counterclaims ‘necessarily involve different and separate factual matters.’” Id. at 605 (quoting
Kirby v. Tafco Emerald Coast Inc., 2006 WL 228880, at *2 (N.D. Fla. Jan. 30, 2006)).
Second, res judicata will not bar a subsequent suit on DRA’s counterclaims.
judicata bars the re-litigation of a claim if: (1) the parties are the same in both the prior and
subsequent litigation; “(2) the claim presented in the subsequent action is ‘identical to that
determined or that which could have been raised and determined in the prior litigation’; and (3)
there was a final judgment on the merits in the prior litigation.” Id. (quoting R & D 2001 LLC v.
Rice, 938 A.2d 839, 848 (2008)). Here, DRA’s counterclaims are not identical to Carroll’s
claims, and by virtue of the ruling made herein, could not be determined in this litigation.
Third, “substantially the same evidence” will not support or refute the claims and
counterclaims in the instant case. Carroll’s “FLSA and state claims will rely on evidence
demonstrating defendant’s agreement to pay [him], [his] hours worked, and defendant's refusal
to pay [him] . . . [DRA’s] counterclaims[,] [however,] will rely on almost completely different
evidence, with the lone exception of the issue of [Carroll’s] status as an employee.” Id. at 606.
Indeed, DRA’s counterclaims will necessarily include evidence alleging: (1) the existence of
contracts, their breach, and damages; (2) Carroll’s access to information covered by the
Maryland Trade Secrets Act and subsequent misappropriation; (3) Carroll’s wrongful solicitation
of DRA customers and interference with existing DRA contracts; (4) Carroll’s continued
wrongful possession of DRA property; and (5) Carroll and JNG’s conspiracy to use DRA’s trade
secrets and to profit at DRA’s expense. [ECF No. 19]. Thus, unlike in cases where all of the
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evidence “‘focuses on a single factual issue . . .’ here the evidence supporting (and refuting) the
claims and counterclaims will be significantly different.” Long, 558 F. Supp. 2d at 606.
Finally, because Carroll’s claims and DRA’s counterclaims “do not relate to one event or
issue,” there is no “logical relationship” between them to support the exercise of supplemental
jurisdiction. Indeed, where the only connection between the parties’ claims and counterclaims is
the employer-employee relationship, “numerous federal courts have refused to exercise
supplemental jurisdiction over counterclaims to a FLSA claim.” Id.
Concluding that DRA’s counterclaims fail to qualify as “compulsory” under Rule 13 also
reflects the federal judiciary’s “‘hesitan[cy] 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.’” Ramirez v. Amazing Home Contractors, Inc., No. CIV.
JKB-14-2168, 2014 WL 6845555, at *4 (D. Md. Nov. 25, 2014) (quoting Martin v.
PepsiAmericas, Inc., 628 F.3d 738, 740 (5th Cir. 2010)). Permitting the employer in a FLSA
action “‘to try [its] private claims, real or imagined, against [its] employees would delay and
even subvert the whole process.’” Id. (quoting Donovan v. Pointon, 717 F.2d 1320, 1323 (10th
Cir. 1983)); see also Yassa v. EM Consulting Grp., Inc., No. CV JKB-17-593, 2017 WL
3414147, at *2 (D. Md. Aug. 9, 2017) (“To clutter these proceedings with the minutiae of other
employer-employee relationships would be antithetical to the purpose of the Act.”) (quoting
Brennan v. Heard, 491 F.2d 1, 4 (5th Cir. 1974)).
Because DRA’s counterclaims are not “compulsory,” and otherwise lack an independent
basis of jurisdiction, this Court lacks subject-matter jurisdiction and DRA’s Counterclaims must
be dismissed without prejudice.
Case 1:17-cv-00849-SAG Document 38 Filed 10/23/17 Page 8 of 8
For the foregoing reasons, Carroll’s Motion to Dismiss DRA’s Counterclaims, [ECF No.
33], is GRANTED. A separate Order follows.
Dated: October 23, 2017
Stephanie A. Gallagher
United States Magistrate Judge
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