Jones v. Henry Industries, Inc.
MEMORANDUM AND ORDER re: 12 MOTION to Dismiss :Counterclaims filed by Plaintiff Sylvester Jones, Jr. IT IS HEREBY ORDERED that plaintiff's motion to dismiss counterclaims (#12) is DENIED. Signed by District Judge Stephen N. Limbaugh, Jr on 2/8/17. (CSG)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
HENRY INDUSTRIES, INC.,
No. 4:16CV1184 SNLJ
MEMORANDUM AND ORDER
Plaintiff Sylvester Jones filed this action against defendant Henry Industries, Inc.
(“Henry”) alleging wrongful termination under Missouri common law and that defendant
retaliated against plaintiff in violation of the Fair Labor Standards Act, 29 U.S.C §
215(a)(3) (“FLSA”). Defendant counterclaimed, seeking a determination that plaintiff
was an independent contractor and seeking indemnification from plaintiff for breach of
contract. Plaintiff moved to dismiss those counterclaims on October 4, 2016 (#12).
Henry is a third party logistics company that arranges for a variety of pickup and
delivery services for customers across the country. Henry alleges that it does not itself
provide the courier services to its customers, but rather Henry enters into “Cartage
Contracts” with purported independent contractors to provide the courier services. Jones
entered into one of those Cartage Contracts with Henry to provide such services. Section
7 of the Cartage Contract provides
INDEMNITY. CONTRACTOR AGREES TO INDEMNIFY, HOLD
HARMLESS, AND AT [HENRY’S] OPTION, DEFEND [HENRY] AND
ITS AFFILIATES…FROM ALL LIABILITIES, DAMAGES, FEES,
FINES, PENALTIES, AND CLAIMS OF ANY KIND, COSTS OF SUIT,
SETTLEMENTS, JUDGEMENTS, AND ANY OTHER EXPENSE
(INCLUDING ATTORNEYS’ FEES) TO WHICH ANY OF THE
INDEMNIFIED PARTIES MAY BE SUBJECTED, ARISING OUT OF
OR IN CONNECTION WITH…ANY ACTION…INITIATED BY OR
ON BEHALF OF ANY CONTRACTOR OR CONTRACTOR WORKER
BASED ON A THEORY THAT ANY OF THE INDEMNIFIED PARTIES
IS AN EMPLOYER OR JOINT EMPLOYER OF ANY SUCH
In 2014, Jones joined a collective action brought against Henry by his coworker
James Hose. That collective action was brought under the FLSA, alleged that Henry was
wrongfully classifying its employees as independent contractors, and sought
compensation for unpaid overtime wages. Later that year, Henry terminated Jones’s
employment. Plaintiff Jones then filed the instant lawsuit against Henry, claiming that
Henry had terminated Jones in retaliation for asserting his legal rights under the FLSA
and related Missouri wage and hour laws.
In response, Henry filed two counterclaims against Jones based the Cartage
Contract to which Henry and Jones are parties. Henry claims that the FLSA does not
apply to independent contractors and so does not provide the protection Jones seeks.
Henry thus seeks, in Count I, a declaratory judgment stating Jones is an independent
contractor not entitled to relief under the FLSA. In Count II, Henry seeks
indemnification from Jones under the Cartage Contract for filing a lawsuit under the
FLSA. Henry contends Jones is in breach of the Cartage Contract for having filed this
lawsuit and other lawsuits currently pending in the United States District Court for the
District of Kansas1 and Circuit Court for St. Louis County, Missouri.
Jones has moved to dismiss the counterclaim under Federal Rules of Civil
Procedure 12(b)(1) and 12(b)(6) and has moved to strike under Rule 12(f).
Federal Rule of Civil Procedure 12(b)(1) provides a party may move to dismiss a
claim based on a lack of subject matter jurisdiction. The purpose of a Rule 12(b)(1)
motion is to allow the Court to address the threshold question of jurisdiction, as “because
jurisdiction is a threshold question, judicial economy demands that the issue be decided at
the outset rather than deferring it until trial.” Osborn v. United States, 918 F.2d 724, 729
(8th Cir. 1990). The burden of proving subject matter jurisdiction rests on the
counterclaim plaintiff. Riley v. United States, 486 F.3d 1030, 1032 (8th Cir. 2007).
The purpose of a Rule 12(b)(6) motion to dismiss for failure to state a claim is to
test the legal sufficiency of a complaint so as to eliminate those actions “which are fatally
flawed in their legal premises and deigned to fail, thereby sparing litigants the burden of
unnecessary pretrial and trial activity.” Young v. City of St. Charles, 244 F.3d 623, 627
(8th Cir. 2001) (citing Neitzke v. Williams, 490 U.S. 319, 326-27 (1989)). “To survive a
motion to dismiss, a claim must be facially plausible, meaning that the ‘factual content. . .
allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.’” Cole v. Homier Dist. Co., Inc., 599 F.3d 856, 861 (8th Cir. 2010)
Notably, Henry filed a similar counterclaim in the Kansas Hose matter, Hose v.
Henry Industries, Inc., No. 13-2490-JTM, 2014 WL 1356039, at *1 (D. Kan. April 7,
2014). There, the Kansas district court dismissed Henry’s counterclaim.
(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). The Court must “accept the
allegations contained in the complaint as true and draw all reasonable inferences in favor
of the nonmoving party.” Id. (quoting Coons v. Mineta, 410 F.3d 1036, 1039 (8th Cir.
2005)). However, “[t]hreadbare recitals of the elements of a cause of action, supported
by mere conclusory statements,” will not pass muster. Iqbal, 556 U.S. at 678.
Rule 12(f) allows that the Court may “strike from a pleading an insufficient
defense or any redundant, immaterial, impertinent, or scandalous matter.” “Because such
relief is an extreme measure, however, motions under Rule 12(f) are viewed with
disfavor in the Eighth Circuit and are infrequently granted.” E.E.O.C. v. Prod.
Fabricators, Inc., 873 F. Supp. 2d 1093, 1097 (D. Minn. 2012) (internal quotations
omitted) (citing Stanbury Law Firm, P.A. v. Internal Revenue Serv., 221 F.3d 1059, 1063
(8th Cir. 2000); Daigle v. Ford Motor Co., 713 F.Supp.2d 822, 830 (D. Minn. 2010)). A
motion to strike should be granted “if the result is to make a trial less complicated or
otherwise streamline the ultimate resolution of the action.” Daigle, 713 F. Supp. 2d at
Jones contends that Henry’s indemnification counterclaim (1) is permissive and
thus fails for lack of subject matter jurisdiction, (2) fails for lack of subject matter
jurisdiction because it is not ripe, (3) fails to state a claim and for lack of subject matter
jurisdiction due to preemption with the FLSA, and (4) fails to state a claim because the
Cartage Agreement is unenforceable. He further contends that the declaratory judgment
counterclaim (1) fails for lack of subject matter jurisdiction because it is not ripe and (2)
fails to state a claim because it is duplicative. Each of the counterclaims is discussed in
Indemnification (Count II)
Jones first contends that the Court lacks independent subject matter jurisdiction
over the indemnification counterclaim because it is permissive rather than compulsory in
nature. Jones accurately states that compulsory counterclaims need not be supported by
independent grounds of federal jurisdiction and that permissive counterclaims do require
independent grounds of federal subject matter jurisdiction. Shelter Mut. Ins. Co. v. Pub.
Water Supply Dist. No. 7 of Jefferson County, Mo., 747 F.2d 1195, 1197 (8th Cir. 1984).
However, even if Henry’s counterclaims are permissive, their federal subject matter
jurisdiction is grounded in this Court’s diversity jurisdiction. Henry’s counterclaim states
that this “Court also has subject matter jurisdiction based on diversity of citizenship
pursuant to 28 U.S.C. § 1332(a) because the parties are from different states, and the
amount in controversy exceeds $75,000.” (#8 at Counterclaim ¶ 5.) Jones does not
appear to contest that diversity jurisdiction is present in this case. As a result, this Court
need not address whether the indemnification counterclaim is compulsory or permissive.
Similarly, this Court will not address the plaintiff’s arguments about “supplemental
jurisdiction” in light of the fact that this Court may exercise diversity jurisdiction over the
In his reply brief, Jones argues that the indemnification counterclaim is not yet
ripe because it is premised on the fact plaintiff filed a lawsuit alleging he was
misclassified as an independent contractor, and no judgment has issued. Plaintiff states
that until the Court determines whether plaintiff was wrongfully terminated and retaliated
against under the FLSA, Henry’s counterclaim for indemnification is premature. This
Court disagrees. In Missouri, indemnification contracts can indemnify against liability,
against loss, or both. Scheck Indus. Corp. v. Tarlton Corp., 435 S.W.3d 705, 730 (Mo.
Ct. App. 2014). Here, the Cartage Contract requires Jones to indemnify Henry from “all
liabilities, damages, fees, fines, penalties, and claims of any kind, costs of suit,
settlements, judgements, and another other expense (including attorneys’ fees).” As this
Court held in a nearly factually identical case, Hose v. Henry Indus., Inc., No. 4:15-cv1913-JAR, 2017 WL 386545, at *3 (E.D. Mo. Jan. 27, 2017), the “indemnification
counterclaim seeks reimbursement for a loss that falls squarely within the contract’s
indemnification clause, i.e. attorney’s fees” that Henry has incurred as a result of the
alleged breach of contract by Jones. Defendant Henry thus need not establish that it
suffered a liability or that a judgment has been entered against it for its counterclaim to be
ripe for judicial review. See id.
Next, Jones suggests that the indemnification claim is preempted by, and
fundamentally inconsistent with, the FLSA and its remedial scheme. Jones argues that, if
permitted to stand, Henry’s counterclaims would undermine the very purpose of the
FLSA by allowing the putative employer to seek reimbursement of attorneys’ fees
incurred in defendant against plaintiff’s filing of a lawsuit under the FLSA.
Jones points out that the Second, Fifth, and Fourth Circuits have all prohibited
employer indemnity actions against employees. See Herman v. RSR Sec. Services Ltd.,
172 F.3d 132, 143 (2d Cir. 1999); LeCompte v. Chrysler Credit Corp., 780 F.2d 1260,
1264 (5th Cir. 1986); Lyle v. Food Lion, 954 F.2d 984 (4th Cir. 1992). Indeed, the
Supreme Court has held that no private contract between employer and employee can
abrogate the rights and privileges set forth by the FLSA or otherwise run afoul of the
FLSA’s policy and purpose. Jewell Ridge Coal v. Local No. 6167, 325 U.S. 161, 167
(1945). The Supreme Court specifically stated that Congress intended “to achieve a
uniform national policy of guaranteeing compensation for all work or employment
engaged in by employees covered by the [FLSA]. Any custom or contract falling short of
that basic policy, like an agreement to pay less than the minimum wage requirements,
cannot be utilized to deprive employees of their statutory rights.” Jewell Ridge Coal
Corp, 325 U.S. at 167 (quoting Tennessee Coal Co. v. Muscoda Local No. 123, 321 U.S.
590, 602 (1944)).
Henry insists that its counterclaims are far removed from that precedent.
Although Henry agrees that an indemnity action against an employee may contravene the
purposes of the FLSA and be unenforceable, Henry’s position is that Jones is an
independent contractor. If the Court holds that Jones was an independent contractor, then
the FLSA does not apply. See Dole v. Amerilink Corp., 729 F. Supp. 73, 75 (E.D. Mo.
1990). Henry alleges facts to support that Henry was an independent contractor, and
Henry points out those factual allegations must be taken as true for the purposes of a Rule
12(b)(6) motion to dismiss. Cole, 599 F.3d at 861. Moreover, the cases Jones cites to
support the proposition that there can be no right to indemnification under the FLSA
pertain to circumstances in which the plaintiffs were employees. See Herman, 172 F.3d
at 143; LeCompte, 780 F.2d at 1264; Lyle, 954 F.2d 984; Gustafson v. Bell Atlantic
Corp., 171 F. Supp. 2d 311, 327-28 (S.D.N.Y. 2011).
On the one hand, if Jones is found to be an employee, then the contract requiring
that Jones indemnify Henry would be invalid, as it would seek to ensure indemnification
for FLSA liability. Although there is no Eighth Circuit precedent explicitly prohibiting
such a result (cf. Herman, 172 F.3d at 144), that result surely would be in contravention
of Supreme Court precedent holding that a contract between employer and employee
“cannot be utilized to deprive employees of their statutory rights.” Jewell Ridge Coal
Corp., 325 U.S. at 167. On the other hand, if Jones is not an employee, then the Cartage
Contract does not seek to indemnify Henry for FLSA liability because Henry would have
no FLSA liability.
More than one court has upheld, at the motion to dismiss stage, indemnification
counterclaims in the FLSA context against plaintiffs alleged to be independent
contractors. Spellman v. American Eagle Express, Inc., 680 F. Supp. 2d 188 (D.D.C.
2010); Hose, 2017 WL 386545; Dobbins v. Scriptfleet, Inc., No. 8:11cv1923-T-24-AEP,
2012 WL 2282560, at *1 (M.D. Fla. June 18, 2012). As those courts have held, the
question of whether or not the plaintiff is an independent contractor or an employee must
be answered by looking to the “economic realities” of the parties’ relationship. Dole, 729
F. Supp. at 75. Only after that determination has been made will the Court be able to
determine whether Henry’s indemnification counterclaim is prohibited by the FLSA. See
Hose, 2017 WL 386545 at *5.
Finally, plaintiff contends that Henry’s indemnification counterclaim fails to state
a claim because Section 7 of the Cartage Contract is invalid and unenforceable under
Missouri Law. “Unconscionability has two aspects: procedural unconscionability and
substantive unconscionability. Procedural unconscionability deals with the formalities of
making the contract, while substantive unconscionability deals with the terms of the
contract itself.” State ex rel. Vincent v. Schneider, 194 S.W.3d 853, 858 (Mo. banc
2006). Plaintiff argues that Section 7 is both substantively and procedurally
unconscionable. As this Court held in a similar matter, the contract --- to the extent it
binds independent contractors and not employees as discussed above --- does not include
unduly harsh terms. See Hose, 2017 WL 386545 at *3. As for any alleged procedural
unconscionability, plaintiff does not allege any facts in support such as that the defendant
made misrepresentations during formation. The contract also contains no fine print; in
fact, the pertinent section is in all capital letters whereas the remainder of the contract is
in normal print. Id. The indemnification counterclaim is thus not subject to dismissal
based on unconscionability of Section 7.
Ultimately, the Court notes plaintiff’s arguments are based on policy and not on
the law. Although it appears to this Court that an indemnification provision in an
independent contractor agreement such as the Cartage Contract here may have a chilling
effect on an individual’s inclination to bring an FLSA claim, the dichotomy created by
the case law is clear: employees receive FLSA protections, but independent contractors
B. Declaratory Judgment (Count I)
Henry seeks a declaration that Jones is an independent contractor and thus cannot
seek relief under the FLSA, which applies only to employees. Plaintiff suggests that
Henry’s declaratory judgment claim is not ripe. A ripeness inquiry requires examination
of whether the issues are fit for judicial decision at this stage of the proceedings and the
hardship to the parties if the court withholds consideration. Pub. Water Supply Dist. No.
10 of Cass County, Mo. v. City of Peculiar, Mo., 345 F.3d 570, 572-733 (8th Cir. 2003).
Jones contends that Henry’s declaratory judgment count is not ripe because it involves
“an issue…which has not been developed factually or addressed yet in this litigation” and
“substantial, unresolved factual issues exist.” (#13 at 9.)
A case “is more likely to be ripe if it poses a purely legal question and is not
contingent on future possibilities.” Pub. Water Supply Dist., 345 F.3d at 573. No future
contingencies are present here, however, where Henry and Jones’s relationship has
terminated and Jones has brought suit against Henry. With respect to hardship, parties
“need not wait until the threatened injury occurs, but the injury must be certainly
impending.” Id. (internal quotations omitted). Again, Jones has brought suit against
Henry, and from Henry’s perspective, injury is already occurring. Henry’s declaratory
judgment counterclaim is ripe for adjudication.
Jones also suggests that the declaratory judgment count should be dismissed
because it is redundant. Dismissal or striking of counterclaims seeking declaratory relief
on the basis that such claim is redundant or duplicative is disfavored in the early stages of
litigation, Bailey-Todd v. Washington Univ., No. 4:14CV00384 TIA, 2015 WL 331803 at
*2 (E.D. Mo. Jan. 23, 2015). Rather, Missouri courts instruct that the “safer course…is to
deny a request to dismiss a counterclaim for declaratory relief as redundant unless there is
no doubt that it will be rendered moot by adjudication of the main action.” Fidelity Nat’l
Title Ins. Comp. v. Captiva Lake Investments, LLC, 788 F. Supp. 2d at 973 (E.D. Mo.
2011). Although the declaratory judgment claim is certainly related to Jones’s own
claims, Jones’s claims go to whether or not Henry retaliated against him for allegedly
engaging in protected activity, whereas the merits of Henry’s claim seek a determination
of the relationship between the parties. This Court has held that a counterclaim will not
be dismissed as redundant unless “a complete identity of factual and legal issues exist[s]
between the complaint (and answer thereto) and counterclaim,” and the party seeking the
dismissal bears the burden of demonstrating that “complete identity.” Handi-Craft Co. v.
Travelers Cas. & Surety Co. of Am., No. 4:12CV63JCH, 2012 WL 1432566, at *3 (E.D.
Mo. Apr. 25, 2012), cited by Bailey-Todd, 2015 WL 331803 at *3. In Bailey-Todd, for
example, plaintiff asserted a claim of wrongful discharge and retaliation premised upon
her rights under the FLSA, and the defendant sought a declaration that plaintiff was
properly classified as an exempt employee and thus not entitled to overtime pay. 2015
WL 331803 at *1-3. This Court declined to dismiss the counterclaims as duplicative. Id.
Similarly, here, the claim is not so obviously duplicative that it requires dismissal. Nor is
it problematic that the claim is duplicative of Henry’s affirmative defenses. See id. at *3.
The declaratory judgment counterclaim will not be dismissed.
Plaintiff’s motion to dismiss defendant’s counterclaims will be denied.
IT IS HEREBY ORDERED that plaintiff’s motion to dismiss counterclaims
(#12) is DENIED.
Dated this 8th day of February, 2017.
STEPHEN N. LIMBAUGH, JR.
UNITED STATES DISTRICT JUDGE
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