Morris v. Blue Sky Management LLC et al

Filing 17

ORDER granting 10 Plaintiffs' motion to dismiss Defendants' counterclaims without prejudice. Signed on 2/16/12 by District Judge Greg Kays. (Francis, Alexandra)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
CHARITY F. MORRIS,
On Behalf of Herself and
All Others Similarly Situated,
Plaintiffs,
v.
BLUE SKY MANAGEMENT, LLC et al.,
Defendants.

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No. 11-00979-CV-DGK

ORDER GRANTING PLAINTIFFS’ MOTION TO DISMISS COUNTERCLAIMS
This case arises from Plaintiff’s allegations that Defendants Blue Sky Management, LCC,
and Elizabeth G. Stickley (“Defendants”), who specialize in providing health care services,
willfully failed and refused to properly pay overtime compensation to non-exempt employees
and are liable for unpaid overtime wages and related penalties under the Fair Labor Standards
Act (“FLSA”).

Pending before the Court is Plaintiff’s “Motion to Strike Defendant’s

Counterclaims and/or In the Alternative a Motion to Dismiss for Lack of Jurisdiction” (Doc. 10),
Defendant’s “Memorandum in Opposition” (Doc. 11) and Plaintiffs’ “Reply” (Doc. 14). Having
fully considered the arguments advanced by both sides, the Court grants Plaintiff’s motion to
dismiss for lack of jurisdiction.
Background
Blue Sky Management, LLC (“Blue Sky”), owned and operated by Elizabeth G. Stickley
(“Stickley), operates two facilities in Missouri to provide facilitated living services and nursing
and custodial care. On or about May 2011, Defendants claim to have hired Plaintiff Charity F.
Morris (“Morris”) to work as the Property Manager at their Platte City location, Heritage

Village. In this capacity, Defendants allege that Morris was in charge of managing operations
for Blue Sky including supervising hourly employees. Around July 2011, Defendants maintain
that Morris began performing similar duties at Heritage Village in Gladstone, Missouri.
Plaintiff, however, maintains that from May 2011 through September 2011, she was
employed as both a Property Manager and a CNA for Defendants, working from 9 am until 2:30
pm in Platte City as a Property Manager and from 3 pm to 11 pm in Gladstone as a CNA. In her
capacity as Property Manager, Plaintiff admits she was a non-exempt, salaried employee. In her
capacity as a CNA, Plaintiff alleges she was an hourly, non-exempt employee.
Defendants also maintain that during her employment, Blue Sky agreed to pay for
Morris’s tuition and books while she attended Park University, with the stipulation that if she
was employed with Defendant for less than one year, she would repay the costs to them. Morris
was not employed with Blue Sky for at least one year, and Blue Sky alleges that she has failed to
repay her Park University expenses to them.
On September 27, 2011, Plaintiff filed this lawsuit, on behalf of herself and all others
similarly situated, alleging that hourly non-exempt employees were required to perform “off the
clock” work prior to the start of their shifts, at the end of their shifts, and during their meal
periods in violation of federal and Missouri wage statutes. In her Complaint, Plaintiff asserted
claims for (1) violations of the Fair Labor Standards Act; (2) unjust enrichment; (3) failure to pay
earned wages and overtime pursuant to Missouri statutes; (4) quantum meruit; and (5) breach of
contract (Doc. 1).

Defendants responded, denying Morris’s allegations and bringing

Counterclaims against her for (1) breach of contract; (2) breach of fiduciary duty; (3) breach of
duty of loyalty; and (4) unjust enrichment. According to Defendants, “these claims are primarily
based on Morris’s obligations to Blue Sky as a supervisor.”

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Discussion
A. The Court declines to strike Defendant’s Counterclaims.
Federal Rule of Civil Procedure 12(f) provides that the court may strike from a pleading
“an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.”
Motions to strike are generally “viewed with disfavor and are infrequently granted.” Stanbury
Law Firm v. Internal Revenue Serv., 221 F. 3d 1059, 1063 (citing Lunsford v. United States, 570
F.2d 221, 229 (8th Cir. 1977)).
Plaintiff’s first argument is that Defendants’ counterclaims are improper and must be
stricken because they seek to harass Plaintiff and prevent potential Plaintiffs from joining the
lawsuit. Furthermore, Plaintiff argues that allowing Defendants to bring a counterclaim conflicts
with the purpose of the FLSA which is to ensure that employees receive a minimum level of
wages.
As support for her argument that many courts disallow counterclaims in FLSA cases
seeking overtime, Plaintiff cites to a number of federal cases. See Donovan v. Pointon, 717 F.2d
1320, 1323 (10th Cir. 1983) (finding that permitting private counterclaims “would delay and
even subvert” the goals of the FLSA); Brennan v. Heard, 491 F.2d 1, 4 (5th Cir. 1974),
overruled on other grounds, McLaughlin v. Richland Shoe Co., 486 U.S. 128 (1988) (finding that
additional disputations over claims against employee wages under the FLSA are “foreign to the
genesis, history, interpretation, and philosophy” of the FLSA); Carda v. E.H. Oftedal & Sons,
Inc., a Montana corporation, CIV. 04-5036-KES, 2005 WL 2086280 (D.S.D. Aug. 26, 2005)
(dismissing counterclaims because of Supremacy Clause issues.); Marshall v. Wallace Oil Co.,
Inc., No. C80-451A, 1980 WL 2101, at *2 (N.D. Ga. Sept. 19, 1980) (striking defendants’
counterclaim and finding that “in this circuit, neither set-off nor recoupment is permitted in an

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action for unpaid back wages under the FLSA”). These cases stand for the general proposition
that some federal courts are hesitant to consider additional legal claims that may interfere with
plaintiffs’ recovery of wages owed under the FLSA.
As Defendant notes, however, these cases are distinguishable from the present
controversy. In Carda, for example, the Court addressed the employer’s counterclaims on the
merits, it did not strike them outright. Carda, 2005 WL 2086280. In Donovan, the suit was
brought by the Department of Labor, and did not involve a motion to strike or claims brought by
a private party. In Brennan, the Defendants did not present counterclaims and there was no
motion to strike.

The only case that arguably supports Plaintiff’s argument is Marshall,

however, like Donovan, the case was brought by the Department of Labor, not a private party,
and thus the Court’s reasoning in that case is less persuasive here.
In addition, although Plaintiff argues that Defendants are “asserting counterclaims to
deter plaintiffs who seek to recover modest amounts of unpaid wages” and that such
counterclaims are a mere “scare tactic for defendants,” Plaintiff has presented no evidence that
this is the case. Thus, the Court finds that Plaintiff has provided insufficient evidence to sustain
her argument that the Court should strike Defendant’s counterclaims under Rule 12(f).
B. Defendant’s counterclaims are not compulsory and the Court declines to exercise
supplemental jurisdiction over them.
a. Defendant’s counterclaims are not compulsory.
Plaintiff also urges the Court to dismiss Defendant’s counterclaims pursuant to Fed. R. Civ.
P. 12(b)(1) as lacking the required subject matter jurisdiction required for this Court to exercise
jurisdiction. Defendant, on the other hand, maintains that its counterclaims are “so intertwined with
Morris’s claims in her lawsuit that they are compulsory and must be brought as part of this action.”
Under Fed. R. Civ. P. 13(a), a compulsory counterclaim is one that “arises out of the

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transaction or occurrence that is the subject matter of the opposing party's claim and does not require
for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.”
There are four tests for determining whether counterclaims are compulsory:
(1) the issues of fact and law raised by the claim and counterclaim are largely
the same;
(2) res judicata would bar a subsequent suit on defendant's claim absent the
compulsory counterclaim rule;
(3) substantially the same evidence will support or refute plaintiff's claim as
well as defendant's counterclaim; and
(4) there is a logical relation between the claim and the counterclaim.
Tullos v. Parks, 915 F.2d 1192, 1194 (8th Cir. 1990).
Defendant argues that its counterclaims satisfy all four tests. Specifically, Defendant argues
that its counterclaims satisfy the “logical relationship test” because “the same operative facts serve as
the basis of both claims.” In order for the Court to resolve Morris’s claims, it asserts, the Court must
determine whether she managed the facilities at issue and, therefore, whether she was exempt.
The Court disagrees, finding that Defendant’s counterclaims fail to satisfy any of the Tullos
tests for compulsory jurisdiction. While the Court agrees that the question of whether Morris was an
exempt worker as defined by the FLSA is pertinent to both Plaintiff’s FLSA claim and Defendant’s
claims of breach of contract, breach of fiduciary duty, breach of duty of loyalty, and unjust
enrichment, it alone is not sufficient to establish a logical connection between the claim and the
counterclaim.

Rather, in this case, Plaintiff’s FLSA claims are based predominantly around

Defendant’s rounding and auto-deduction of meal period policies and will focus on the number of
hours worked and whether Plaintiff was properly paid. Defendant’s counterclaim, however, will
require investigation into the contract Plaintiff entered into with Defendant regarding tuition and
whether or not she breached that contract.
Additionally, federal courts have frequently held that where plaintiff’s FLSA claims involve
questions of numbers of hours worked and the compensation paid, and defendant’s state law claims
involve separate matters based on breach of fiduciary duty, breach of loyalty, or breach of contract,

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they do not share a common nucleus with Plaintiff’s FLSA claims. See Williams v. Long, 558 F.
Supp. 2d 601, 604 (D. Md. 2008); Rivera v. Ndola Pharmacy Corp., 497 F. Supp. 2d 381, 395
(E.D.N.Y. 2007) (an employment relationship is insufficient to create common nucleus of operative
fact where it is the sole fact connecting the FLSA claim to state law claims); Wilhelm v. TLC Lawn
Care, Inc., No. 07-2465-KHV, 2008 WL 640733, at *3 (D. Kan. March 6, 2008) (citing Lyon v.
Whisman, 45 F.3d 758, 762-64 (3d Cir. 1995) (where the employment relationship is the only link
between the FLSA claim and state law claims, no common nucleus of operative fact exists and
Article III bars supplemental jurisdiction); Hyman v. WM Fin. Servs., Inc., No. 06-CV-4038, 2007
WL 1657392, at *5 (D.N.J. June 7, 2007) (exercising supplemental jurisdiction over state law claims
unrelated to the FLSA claim “would likely contravene Congress's intent in passing FLSA”); Whatley
v. Young Women's Christian Ass’n of Nw. La., Inc., No. 06-423, 2006 WL 1453043, at *3 (W.D. La.
May 18, 2006).
Because the only overlap between Plaintiff’s FLSA claim and Defendants’ counterclaims is a
determination of whether Plaintiff was an exempt or non-exempt employee, the Court finds that there
is not a sufficient “logical relationship” to find Defendants’ counterclaims compulsory. Accordingly,
Defendants’ counterclaims are not within the ancillary jurisdiction of the court such that no
independent basis of federal jurisdiction is necessary. See Painter v. Harvey, 863 F.2d 329, 331 (4th
Cir. 1988).
2. The Court declines to exercise supplemental jurisdiction over Defendant’s
counterclaims.
Even though Defendants’ counterclaims are not compulsory, the Court must assert its
supplemental jurisdiction over them if they are sufficiently related to the underlying federal claims.
28 U.S.C. § 1367(a). “[I]n any civil action of which the district courts have original jurisdiction, the
district courts shall 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.” 28

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U.S.C. § 1367(a). Defendants argue that the Court should exercise its supplemental jurisdiction here
because a common nexus exists between Morris’s and Blue Sky’s claims such that dismissal is
inappropriate. Claims within an action are part of the same case or controversy if they “derive from a
common nucleus of operative fact.” City of Chicago v. Int’l Coll. Of Surgeons, 522 U.S. 156, 157
(1997), citing United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966).
Under the same reasoning the Court used to find that there was not a “logical relationship”
between Plaintiff’s FLSA claim and Defendants’ state law counterclaims, the Court finds that the
claims do not “derive from a common nucleus of operative fact.”

Because Defendants’

counterclaims stem in large part from a contract entered into between Morris and Blue Sky and
Plaintiff’s FLSA claims stem from Defendants’ rounding and overtime policies, the Court determines
that they do not derive from a common nucleus of operative fact.

See Lyon v. Whisman, 45 F.3d

758, 763 (3d Cir. 1995) (finding that “there is so little overlap between the evidence relevant to the
FLSA and state claims that there is ‘common nucleus of operative fact’ justifying supplemental
jurisdiction over state law claims”); Wilhelm, 2008 WL 640733, at *3 (dismissing employer’s
counterclaims as not arising out of a common nucleus of operative fact with employees’ FLSA
claims and finding the employer-employee relationship insufficient to support supplemental
jurisdiction).
Furthermore, even if the Court found that the state law claims derived from the same
common nucleus of operative fact, the Court would decline to exercise its supplemental jurisdiction
because of the concern that Defendants’ state law claims would substantially predominate over
Plaintiff’s FLSA claims. See 28 U.S.C. § 1367(c); Innovative Home Health Care, Inc. v. P.T.-O.T.
Assocs. of the Black Hills, 141 F.3d 1284, 1287 (8th Cir. 1998) (finding that a court may decline to
exercise supplemental jurisdiction over related state law claims in one of the following four
instances: (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

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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).
Here, the Court has original federal question jurisdiction over Plaintiff’s FLSA claim. Many
federal courts have cautioned against bringing additional employment disagreement claims to FLSA
cases. For instance, the Fifth Circuit has held that extraneous proceedings regarding set-offs are

inappropriate in FLSA cases:
The FLSA decrees a minimum unconditional payment and the commands of
[the FLSA] are not to be vitiated by an employer. . . . [The court’s] sole
function and duty under the Act is to assure to the employees of a covered
company a minimum level of wages. Arguments and disputations over claims
against those wages are foreign to the genesis, history, interpretation, and
philosophy of the [FLSA]. The only economic feud contemplated by the FLSA
involves the employer’s obedience to minimum wage and overtime standards.
To clutter these proceedings with the minutiae of other employer-employee
relationships would be antithetical to the purpose of the Act. Set-offs against
back pay awards deprive the employee of the “cash in hand” contemplated by
the Act, and are therefore inappropriate in any proceeding brought to enforce
the FLSA minimum wage and overtime provisions . . . . The purpose of the
FLSA is to eliminate unfair labor practices by barring “customs and contracts
which allow an employer to claim all of an employee’s time, while
compensating him for only part of it.
29 U.S.C. § 201 et seq.; Tennessee Coal Iron & R. Co. v. Muscoda Local No. 123, 321
U.S. 590, 602 (1944).
Similarly, the Tenth Circuit has held that an FLSA claim is the enforcement of a public
right. Permitting private counterclaims, “real or imagined, . . . would delay and even subvert”
the goals of the FLSA by further delaying the payment of lawfully owed wages. Donovan, 717
F.2d at 1323. Finally, the Northern District of Illinois disallowed counterclaims because of the
possibility that it could predominate the FLSA claims. Villareal v. El Chile, Inc., 601 F. Supp.
2d 1011 (N.D. Ill. Feb. 25, 2009).
The Court finds that the risk that Defendants’ state law counterclaims could predominate
over Plaintiff’s FLSA claims is real. Because much of the evidence to prove Defendant’s
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counterclaims is separate from the evidence regarding Defendants’ wage and hour policies, “the
counterclaim has the potential to predominate over the FLSA claim and significantly delay its
resolution, which would be contrary to the FLSA's purpose.” Id.
Conclusion
For the reasons stated herein, the Court finds that it does not have jurisdiction over
Defendants’ counterclaims. Accordingly, the Court grants Plaintiff’s motion and dismisses
Defendants’ counterclaims without prejudice.

IT IS SO ORDERED.
Date: February 16, 2012

/s/ Greg Kays
GREG KAYS, JUDGE
UNITED STATES DISTRICT COURT

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