## Facts

- Former employees of a construction company sued their employer under the Fair Labor Standards Act (FLSA) for unpaid overtime, alleging willful failure to pay time-and-a-half for hours over forty.
- The employees’ separate actions were consolidated because they presented common questions of law and fact.
- The employer denied liability and filed state-law counterclaims for fraud, theft, conversion, breach of fiduciary duty, and civil conspiracy.
- The employer alleged the vice president of construction coordinated submission of workers’ time and engaged in a scheme to falsify and inflate reported hours, including conspiring with others to inflate time submitted to the company.
- The employer also alleged employees took company materials and equipment without payment, and that the vice president breached fiduciary duties beyond time reporting.
- Plaintiffs moved to dismiss the counterclaims for lack of subject-matter jurisdiction, arguing they were permissive counterclaims without an independent federal jurisdictional basis and outside supplemental jurisdiction.

## Issues

1. Whether the employer’s state-law counterclaims were compulsory under Federal Rule of Civil Procedure 13(a) under the “logical relationship” test.
2. If any counterclaims were permissive under Rule 13(b), whether 28 U.S.C. § 1367(a) nonetheless provided supplemental jurisdiction because they were part of the same Article III “case or controversy” as the FLSA overtime claims.
3. Whether the court should dismiss the counterclaims lacking supplemental jurisdiction under Rule 12(b)(1).

## Decision

- The court concluded the fraud counterclaim against the vice president was a compulsory counterclaim because it was logically related to the overtime claim and would substantially overlap in proof concerning hours worked, compensation, and alleged inflation of reported time.
- The motion to dismiss the fraud counterclaim was denied, and that counterclaim remained in the case.
- The counterclaims for theft, conversion, breach of fiduciary duty, and civil conspiracy were held not compulsory and treated as permissive.
- The court further held those permissive counterclaims were outside § 1367(a) because they did not share sufficient factual overlap with the FLSA overtime dispute and would require different evidence and legal determinations.
- The court recommended dismissal of the non-fraud counterclaims for lack of subject-matter jurisdiction; the recommendation was adopted.

## Legal Principles

- A counterclaim is compulsory under Rule 13(a) if it arises from the same transaction or occurrence as the opposing party’s claim, commonly assessed through a “logical relationship” and substantial evidentiary overlap.
- A state-law counterclaim that directly contests time reporting and compensation facts central to an FLSA overtime claim can be compulsory and adjudicable in the same federal action.
- Section 1367(a) can extend supplemental jurisdiction to related state-law claims even when they are not compulsory under Rule 13, but only when they are sufficiently related to form the same Article III case or controversy.
- The existence of an employment relationship alone is insufficient to establish supplemental jurisdiction over unrelated state-law tort counterclaims; substantial common facts are required.
- Permissive counterclaims lacking an independent jurisdictional basis and falling outside § 1367(a) must be dismissed for lack of subject-matter jurisdiction.

## Conclusion

The court kept only a fraud counterclaim closely tied to the hours-worked and pay issues litigated in the FLSA overtime claims, and dismissed other state-law counterclaims involving alleged theft, conversion, fiduciary-duty breaches, and conspiracy because they were permissive and not part of the same Article III case or controversy for supplemental jurisdiction purposes.


Cordero v. Voltaire, LLC, No. A-13-CA-253-LY, 2013 WL 6415667 (W.D. Tex. Dec. 6, 2013)