United States District Court, S.D. New York
OPINION AND ORDER
J. PAUL OETKEN, District Judge.
Plaintiffs filed this action asserting claims under the Fair Labor Standards Act and New York Labor Law. Defendants have filed counterclaims against Plaintiff Ewen Salmon for breaches of fiduciary duty and the duty of loyalty. Plaintiffs move to dismiss the counterclaims for lack of subject matter jurisdiction and for failure to state a claim. Their motion is granted.
Plaintiffs allege the following facts. Feeding Tree is a restaurant in the Bronx. Plaintiff Ewen Salmon was a food service worker at Feeding Tree from November 2003 through July 2012. Ewen alleges that, starting in August 2006, he worked over sixty-five hours a week for a weekly paycheck of no more than $450. Feeding Tree docked Ewen's pay by $75 if he missed a day of work, but paid him only $50 if he worked an eleven- or twelve-hour shift on his day off. In July 2012, Feeding Tree promised Ewen that he could take two weeks of paid vacation. Ewen took the vacation time, but when he returned, Feeding Tree refused to pay him. Ewen was fired when he complained. The other two Plaintiffs, Nicoda Nicholsen and Rosetta Nathaniel, also worked at Feeding Tree as food service workers. They, too, were fired in July 2012 after complaining about Feeding Tree's wage and hour violations.
Defendants' answer denies many of these allegations and asserts permissive counterclaims against Ewen for breach of his fiduciary duty and duty of loyalty to Feeding Tree. Defendants claim that Ewen breached his duties to Feeding Tree by stealing a ledger in which Feeding Tree employees recorded the hours they had worked. Ewen allegedly knew that employees had reported the beginning and end of their shifts in this ledger for several years. The counterclaim does not contain any allegations about when Ewen stole the ledger.
Plaintiffs move to dismiss these counterclaims on two grounds. First, Plaintiffs argue that the counterclaims are not part of the same case or controversy as the claims raised in the complaint, and therefore, the counterclaims are outside the Court's supplemental jurisdiction. Second, Plaintiffs argue that Defendants have failed to state a claim. If the Court declines to dismiss Defendants' counterclaims, Plaintiffs seek to amend their complaint to allege that Defendants' counterclaims are retaliatory under FLSA and New York Labor Law. Defendants oppose the motion and, in the alternative, seek leave to amend their counterclaims.
A. Legal Standard
Rule 8 of the Federal Rules of Civil Procedure requires a pleading to make a short, plain statement that articulates the grounds for the court's jurisdiction and otherwise shows that the pleader is entitled to relief. When a motion to dismiss attacks the facial sufficiency of a pleading, the court reviews the pleading for plausibility. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)) (establishing plausibility standard); Amidax Trading Grp. v. S.W.I.F.T. SCRL, 671 F.3d 140, 145 (2d Cir. 2011) (applying plausibility standard to facial attack on subject matter jurisdiction). To review a pleading for plausibility, the court accepts all well-pleaded factual allegations as true and draws all reasonable inferences in the pleader's favor. Iqbal, 556 U.S. at 678-79 (citing Twombly, 550 U.S. at 555). But the court need not accept "[t]hreadbare recitals of the elements of a cause of action, " which are essentially legal conclusions. Id. at 678 (citing Twombly, 550 U.S. at 555). After separating legal conclusions from well-pleaded factual allegations, the court must determine whether those facts make it plausible-not merely possible-that the pleader is entitled to relief. Id.
1. Subject Matter Jurisdiction
Defendants argue that their counterclaims fall within the Court's supplemental jurisdiction. Supplemental jurisdiction over counterclaims involves two similar-sounding but distinct terms of art. The first term is "transaction or occurrence." A counterclaim that does not arise from the same transaction or occurrence as the claims in the complaint is permissive. Fed.R.Civ.P. 13. Defendants have conceded that their counterclaims are not part of the same transaction or occurrence as Plaintiffs' FLSA claims. (Defs.' Opp. at 1-3.)
The second term is "nucleus of operative fact." Federal district courts have jurisdiction over any claim that is part of the same case or controversy as claims within the court's original jurisdiction. 28 U.S.C. § 1367. Federal and state law claims are part of the same case or controversy if they share a common nucleus of operative fact. City of Chicago v. Int'l Coll. of Surgeons, 522 U.S. 156, 165 (1997) (holding that § 1367 codified the "common nucleus of operative fact" principle); Briarpatch Ltd. v. Phoenix Pictures, Inc., 373 F.3d 296, 308 (2d Cir. 2004). And claims share a common nucleus of operative fact if the facts underlying the federal claim entail most or all of the facts underlying the state law claim. See Achtman v. Kirby, McInerney & Squire, LLP, 464 F.3d 328, 335 (2d Cir. 2006) ("[W]e have traditionally asked whether the facts underlying the federal and state claims substantially overlapped or the federal claim necessarily brought the facts underlying the state claim before the court.'" (alterations omitted)) (quoting Lyndonville Sav. Bank & Trust Co. v. Lussier, 211 F.3d 697, 704 (2d Cir. 2000)).
Permissive counterclaims-claims that do not arise out of the same transaction or occurrence as the claims in the complaint-may fall within the court's supplemental jurisdiction. In other words, it is possible for a claim and a counterclaim to arise out of two different transactions or occurrences, yet still share a common nucleus of operative fact. So just how many operative facts must overlap before a state law claim falls into the realm of supplemental jurisdiction? Many courts have held that, even if two claims arise out of the same employment relationship, that relationship alone is not enough to sustain supplemental jurisdiction. In a case frequently cited for this proposition, Torres v. Gristede's Operation Corporation, FLSA defendants raised counterclaims against their former employee, alleging that he engaged in various instances of misconduct during his employment. Judge Sullivan held that the only fact shared between the complaint and the counterclaims was the parties' employment relationship, ...