Philips Medical Systems Puerto Rico, Inc.
Filing
177
OPINION AND ORDER granting 150 MOTION to Dismiss Counterclaim. Signed by US Magistrate Judge Bruce J. McGiverin on 10/25/2017. (jm)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
PHILIPS MEDICAL SYSTEMS PUERTO
RICO, INC.,
Plaintiff
Civil No. 15–2702 (BJM)
v.
GIS PARTNERS CORP. et al.,
Defendants.
OPINION AND ORDER
Philips Medical Systems Puerto Rico, Inc. (“Philips-PR”) brought this action
against GIS Partners Corp. (“GIS”), Hernan Toro, David Sumpter, and Radames Bracero,
alleging a breach of contract, unfair competition, violation of four sections of the Computer
Fraud and Abuse Act (“CFAA”), 18 U.S.C. §§ 1030(a)(2), (4), (5)(C), (6), and violation of
Puerto Rico’s Industrial and Trade Secret Protection Act (“ITSPA”), P.R. Laws Ann. tit.
10, §§ 4131–4141. Docket No. 38. GIS, Toro, and Sumpter (collectively “Defendants”)
filed a counterclaim alleging a violation of Title VII of the Civil Rights Act of 1964 (“Title
VII”), 42 U.S.C. § 2000e-3(a), Act 115 of Dcember 20, 1991, 29 P.R. Laws Ann. § 194 et
seq. (“Act 115”), and Articles 1802 and 1803 of the Puerto Rico Civil Code, 32 P.R. Laws
Ann. § 5141 and 5142 (“Articles 1802 and 1803”). Philips-PR moved to dismiss the
counterclaim under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), Docket No.
150, and Defendants opposed. Docket No. 156. The parties consented to proceed before a
magistrate judge. Docket No. 21.
For the reasons set out below, the motion to dismiss is GRANTED.
MOTION TO DISMISS STANDARD
Federal Rule of Civil Procedure 12(b)(1) governs motions to dismiss for lack of
subject-matter jurisdiction. Fed. R. Civ. P. 12(b)(1). As courts of limited jurisdiction,
federal courts are bound to construe jurisdictional grounds narrowly. See, e.g., Hawes v.
Philips Medical Systems Puerto Rico, Inc. v. GIS Partners Corp. et al., Civil No. 15-2702 (BJM)
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Club Ecuestre El Comandante, 598 F.2d 698, 701 (1st Cir. 1979). When deciding a motion
to dismiss under Rule 12, a court must accept as true all well-pleaded factual claims, and
indulge all reasonable inferences in the non-movant’s favor. McCloskey v. Mueller, 446
F.3d 262, 266 (1st Cir. 2006); Deniz v. Municipality of Guaynabo, 285 F.3d 142, 144 (1st
Cir. 2002). The party asserting federal jurisdiction has the burden of proving its existence
by the preponderance of the evidence. Murphy v. United States, 45 F.3d 520, 522 (1st Cir.
1995); Bank One, Texas v. Montle, 964 F.2d 48, 50 (1st Cir. 1992).
When deciding whether subject-matter jurisdiction exists, the court follows two
general rubrics: (1) when a defendant challenges the legal sufficiency of the facts alleged,
the court credits plaintiffs’ factual allegations and draws reasonable inferences in his or her
favor; and (2) when the defendant challenges the truth of facts alleged by the plaintiff and
offers contrary evidence, the court weighs the evidence. Valentín v. Hosp. Bella Vista, 254
F.3d 358, 363 (1st Cir. 2001).
Although 12(b)(1) is “usually employed in the instance in which the moving party
believes there is no federal question jurisdiction under 28 U.S.C. § 1331 or diversity of
citizenship jurisdiction under 28 U.S.C. § 1332,” 12(b)(1) is also an appropriate
“procedural vehicle” to challenge a “[f]ailure to exhaust administrative remedies.” United
States v. Lahey Clinic Hosp., Inc., 399 F.3d 1, 8 n.6 (1st Cir. 2005).
To survive a motion to dismiss for failure to state a claim under Federal Rule of
Civil Procedure 12(b)(6), on the other hand, “an adequate complaint must provide fair
notice to the defendants and state a facially plausible legal claim.” Ocasio-Hernández v.
Fortuño-Burset, 640 F.3d 1, 12 (1st Cir. 2011). The plaintiff must set forth “factual
allegations, either direct or inferential, regarding each material element necessary” for the
action. Gooley v. Mobil Oil Corp., 851 F.2d 513, 514 (1st Cir. 1988). In evaluating a motion
to dismiss, the court first discards any “‘legal conclusions couched as fact’ or ‘threadbare
recitals of the elements of a cause of action.’” Ocasio-Hernández, 640 F.3d at 12 (quoting
Philips Medical Systems Puerto Rico, Inc. v. GIS Partners Corp. et al., Civil No. 15-2702 (BJM)
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Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The remaining “[n]on-conclusory
factual allegations” are fully credited, “even if seemingly incredible.” Id. The court engages
in no fact-finding and does not “forecast a plaintiff’s likelihood of success on the merits.”
Id. at 13. Rather, it presumes that the facts are as properly alleged by the plaintiff and draws
all reasonable inferences in the plaintiff’s favor. Schatz v. Republican State Leadership
Comm., 669 F.3d 50, 55 (1st Cir. 2012). Taken together, the facts pleaded must “state a
plausible, not a merely conceivable, case for relief.” Ocasio-Hernández, 640 F.3d at 12.
BACKGROUND
Philips-PR, a subsidiary of Royal Philips Electronics, is a Puerto Rico corporation
that sells and services medical equipment in Puerto Rico, such as magnetic resonance
imaging (“MRI”) machines. Docket No. 91 ¶¶ 1, 3. GIS is a Puerto Rico corporation
founded by Toro and Sumpter, who are both residents of Puerto Rico. Docket No. 92 ¶
A(ii); Docket No. 91 ¶ 6–7.
Toro, Sumpter, and Bracero are former employees of Philips-PR. Toro served as a
field service engineer of CT scan products for 15 years and left the company in 2009.
Docket No. 92 ¶ B. Sumpter worked as an equipment salesperson for 20 years and also left
the company in 2009. Id. at ¶ C. Bracero was a field service engineer of MRI machines and
left the company in February 2012. Docket No. 38 at 3. In November 2010, Sumpter and
Toro filed a complaint against Philips-PR alleging wrongful termination under Puerto Rico
law and seeking $317,896.44 in damages. Docket No. 131 at 4. At the filing of this
counterclaim, trial for their wrongful termination claim was set for February 2017, and the
case is still active. Id.
In November 2015, Philips-PR filed a complaint against GIS, Toro and Sumpter,
alleging breach of contract, unfair competition, violation of four sections of the CFAA, and
violation of the ITSPA. Docket No. 38 at 1. In its complaint, Philips-PR alleged that after
his employment with Philips-PR terminated, Bracero used his former employee login
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information to hack into Philips-PR’s software to gain access to the restricted access
portions of Philips-PR’s MRI machine and ultimately to its proprietary information. Id. at
17. Philips-PR further alleges that Bracero provided this information and access to GIS,
Toro, and Sumpter, all of whom then accessed Philips-PR’s proprietary information. Id. at
17–18; 31–32. According to Philips-PR, this was a breach of Toro and Sumpter’s
employment contracts and constitutes unfair competition by all defendants as they used
Philips-PR’s proprietary information to conduct GIS’s business. Id. at 38.
Although Philips-PR initially brought its complaint against GIS, Toro, Sumpter,
and Bracero, Philips-PR dismissed its complaint against Bracero in July 2016 after the two
parties reached a settlement agreement. Docket No. 89.
DISCUSSION
Philips-PR seeks a dismissal of Defendants’ counterclaim for lack of subject-matter
jurisdiction under 12(b)(1) and failure to state a claim upon which relief can be granted
under 12(b)(6). Docket No. 150 at 1. A court must have subject-matter jurisdiction over
each claim and can “proceed no further if such jurisdiction is wanting.” Godin v. Schencks,
629 F.3d 79, 83 (1st Cir. 2010) (quoting In re Recticel Foam Corp., 859 F.2d 1000, 1002
(1st Cir. 1988)); Grail Semiconductor, Inc. v. Stern, No. 13-03687, 2014 WL 12594162, at
*3 (C.D. Cal. Mar. 3, 2014) (dismissing one of the defendant’s causes of action in the
counterclaim because it did not stem from the same case and controversy as the complaint
but finding that there was subject-matter jurisdiction over the remaining causes of action
in the counterclaim because they were compulsory). Consequently, “[w]e are bound to
consider the 12(b)(1) motion first, since the Rule 12(b)(6) challenge becomes moot if this
court lacks subject-matter jurisdiction.” Moir v. Greater Cleveland Reg’l Transit Auth., 895
F.2d 266, 269 (6th Cir. 1990).
“A plaintiff must exhaust his administrative remedies, including [Equal
Employment Opportunity Commission] procedures, before proceeding under Title VII in
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federal court.” Frederique-Alexandre v. Dep’t of Nat. & Envtl. Res. Puerto Rico, 478 F.3d
433, 440 (1st Cir. 2007) (citing Lebrón–Ríos v. U.S. Marshal Serv., 341 F.3d 7, 13 (1st Cir.
2003)). Before a person can bring a complaint alleging a violation of Title VII in federal
court, he must first file an administrative charge with the Equal Employment Opportunity
Commission (EEOC) within “a specified and relatively short time period, usually 180 or
300 days” of the “alleged unlawful employment practice.” Cintron-Garcia v.
Supermercados Econo, Inc., 818 F. Supp. 2d 500, 506–07 (D.P.R. 2011) (explaining that in
Puerto Rico, an “aggrieved employee has 300 days” to file a charge as opposed to the
typical 180 days “in instances where the local Department of Labor is empowered to
provide relief, i.e., in instances of deferral jurisdiction” (internal quotations omitted)); 42
U.S.C. § 2000e-5(f). Once the aggrieved employee files a charge, the EEOC will
investigate the charge and then issue a right-to-sue letter. Legnani v. Alitalia Linee Aeree
Italiane, S.P.A, 274 F.3d 683, 686 (2d Cir. 2001). The right-to-sue letter serves as the
plaintiff’s key to begin federal court proceedings for a Title VII claim. See Bonilla v.
Muebles J.J. Alvarez, Inc., 194 F.3d 275, 278 (1st Cir. 1999) (a failure to file a claim with
the EEOC or an authorized State or local agency “bars the courthouse door, as courts long
have recognized that Title VII’s charge-filing requirement is a prerequisite to the
commencement of suit”).
Here, Defendants’ first claim is for retaliation as prohibited under Title VII. Docket
No. 131 at 5. Nevertheless, Defendants do not have a right-to-sue letter from the EEOC
and in fact have not alleged that they have even begun the administrative process. See
Docket No. 156 at 2 (Defendants state in their opposition to the motion that they do not
need to “exhaust administrative remedies because they did not file their ‘retaliation charge’
with the” EEOC). Having failed to exhaust the administrative process, the courthouse door
is still barred to Defendants’ Title VII claim.
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The administrative process is obligatory, although not jurisdictional, and thus is
subject to the equitable exceptions of waiver, estoppel, and equitable tolling. See Zipes v.
Trans World Airlines, Inc., 455 U.S. 385, 393 (1982). However, as Defendants have offered
no argument as to why the court should “bring [their claim] within that tiny sphere of
equitable exceptions,” there is no need to address them. Frederique-Alexandre v. Dep’t of
Nat. & Envtl. Res. Puerto Rico, 478 F.3d 433, 440 (1st Cir. 2007) (quoting Bonilla v.
Muebles J.J. Alvarez, Inc., 194 F.3d 275, 279 (1st Cir. 1999)); see Rivera-Gomez v. de
Castro, 843 F.2d 631, 635 (1st Cir. 1988) (“[A] litigant has an obligation ‘to spell out its
arguments squarely and distinctly,’ or else forever hold its peace.” (quoting PatersonLeitch Co. v. Mass. Municipal Wholesale Elec. Co., 840 F.2d 985, 990 (1st Cir. 1988))).
Therefore, I find that Defendants’ claim arising under Title VII should be dismissed
without prejudice. See Lebron-Rios, 341 F.3d at 12 n.6 (finding that claims dismissed for
failure to exhaust administrative remedies should be dismissed without prejudice as “the
question whether the charge is timely . . . is a matter for the responsible agency in the first
instance, and for the district court in the next”).
Turning to Defendants’ other state law claims, this court has subject-matter
jurisdiction over civil cases “arising under the Constitution, laws, or treaties of the United
States,” and over civil cases in which the amount in controversy exceeds $75,000,
exclusive of interest and costs, and in which diversity of citizenship exists between the
parties. 28 U.S.C. §§ 1331, 1332. The court may also exercise supplemental jurisdiction
over counterclaims “so related to claims in the action within such original jurisdiction that
[it] form[s] part of the same case or controversy under Article III of the United States
Constitution.” TC Investments, Corp. v. Becker, 733 F. Supp. 2d 266, 285–86 (D.P.R. 2010)
(quoting 28 U.S.C. § 1367(a)); see also Pacheco v. St. Luke's Emergency Assocs., 879 F.
Supp. 2d 136, 142 (D. Mass. 2012) (finding that the court had supplemental jurisdiction
under § 1367(a) over the plaintiff’s four state law claims after individually analyzing each
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to verify that it came from a “common nucleus of operative facts” as the federal law claim).
Although exercising supplemental jurisdiction over counterclaims used to come down to
the division of compulsory and permissive counterclaims, the First Circuit has
“abolishe[d]” that framework since the passage of 28 U.S.C. § 1367. Global NAPS, Inc. v.
Verizon New Eng. Inc., 603 F.3d 71, 87 (1st Cir. 2010) (“[W]e hold that § 1367 supersedes
case law on supplemental jurisdiction that had distinguished between compulsory and
permissive counterclaims. . . . § 1367 abolishes the conceptual framework underpinning
the old compulsory-permissive counterclaim distinction.”); Fed. R. Civ. P. 13.
When determining whether a counterclaim is part of the same case or controversy
as the original complaint—a hurdle that compulsory counterclaims by definition will
meet—courts “look[] to ‘whether the claims arose from a “common nucleus of operative
fact.”’” TC Investments, Corp., 733 F. Supp. 2d at 285 (quoting Global NAPS, Inc., 603
F.3d at 88); Fed. R. Civ. P. 13(a)(1) (compulsory counterclaims “arise[] out of the
transaction or occurrence that is the subject matter of the opposing party’s claim”). There
is “a common nucleus of operative fact [if] ‘the essential facts giving rise to the claims
asserted’ [are] a constant factor in both pleadings.” TC Investments, Corp., 733 F. Supp. 2d
at 286 (quoting Nesglo, Inc. v. Chase Manhattan Bank, N.A., 562 F. Supp. 1029, 1041
(D.P.R. 1983)); see Global NAPS, 603 F.3d at 85 (finding that the counterclaim arose from
the same case or controversy as the complaint where the “parties’ claims ultimately [arose]
from a dispute over the same agreement and involve[d] the same basic factual question”).
For federal question jurisdiction, the cause of action must arise “under the
Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. Conversely,
Defendants’ remaining causes of action are brought under Puerto Rico law: Articles 1802
and 1803 and Act 115. See Docket No. 131 at 8 (titling the remaining causes of action,
“Cause of Action Arising under the Puerto Rico General Tort Statutes”). Because
Defendants seek relief under Puerto Rico law as opposed to federal law, the court cannot
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exercise federal question jurisdiction. The second type of subject-matter jurisdiction,
diversity of citizenship jurisdiction, requires that parties on both sides be “citizens of
different States.” 28 U.S.C. § 1332. This means that diversity jurisdiction does not exist
where any plaintiff is a citizen of the same state as any defendant. Alvarez-Torres v. Ryder
Mem’l Hosp., Inc., 582 F.3d 47, 53–54 (1st Cir. 2009). As identified by both Philips-PR
and Defendants, Philips-PR is a corporation incorporated in Puerto Rico. Docket No. 38 at
2; Docket No. 131 at 3. Similarly, GIS is also a corporation incorporated in Puerto Rico,
and Toro and Sumpter are residents of Puerto Rico. Docket No. 38 at 2; Docket No. 131 at
3; Docket No. 91 ¶ 6–7. With all the defendants and the plaintiff as citizens of Puerto Rico,
the court cannot exercise diversity of citizenship jurisdiction.
The last option for subject-matter jurisdiction is supplemental jurisdiction, and that
fails, too. In its complaint, Philips-PR alleged that Defendants used expired employee login
information to gain access to the protected proprietary information on Philips-PR’s MRI
machines and then used that information for their own financial benefit. Docket No. 38 at
1; 4–16. Philips-PR alleges that this constituted breach of contract, unfair competition,
violation of trade secrets, and four violations of the CFAA. See Docket No. 38. On the
other hand, Defendants’ counterclaim is brought under entirely different federal and state
laws and is based on entirely different facts, namely Toro and Sumpters’ alleged wrongful
termination and the filing of Philips-PR’s lawsuit. Although the counterclaim is premised
on the very existence of the complaint, the only overlapping facts from both the complaint
and the counterclaim are the identity of the parties and the fact that Toro and Sumpter are
no longer employees of Philips-PR. Docket No. 38; Docket No. 131. For instance, whereas
the amended complaint includes only a one sentence paragraph about Toro and Sumpter’s
termination, that termination is the very foundation of the counterclaim. Docket No. 38 at
11; Docket No. 131 at 4–5. Similarly to TC Investments, Corp., the “facts in the
counterclaim thus are not sufficiently related to plaintiffs’ breach of contract claim so as to
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share a common nucleus of operative fact.” 733 F. Supp. 2d at 286. Therefore, the
counterclaim does not arise from the same case and controversy as the complaint, and
supplemental jurisdiction is not appropriate.
With no federal question jurisdiction, diversity of citizenship jurisdiction, or
supplemental jurisdiction, I find that Philips-PR’s motion to dismiss based on lack of
subject-matter jurisdiction must be GRANTED.
As the court does not have subject-matter jurisdiction over any of Defendants’
claims, there is no need to reach Philips-PR’s arguments under 12(b)(6).
CONCLUSION
For the foregoing reasons, Philips-PR’s motion to dismiss is GRANTED without
prejudice. IT IS SO ORDERED.
In San Juan, Puerto Rico, this 25th day of October, 2017.
S/Bruce J. McGiverin
BRUCE J. MCGIVERIN
United States Magistrate Judge
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