Hill v. Bedrock Funding LLC

Decision Date10 December 2020
Docket NumberNo. SA:20-CV-165-DAE,SA:20-CV-165-DAE
Citation506 F.Supp.3d 442
Parties Misti HILL and Leann Mohr, individually and on behalf of all those similarly situated, Plaintiffs, v. BEDROCK FUNDING LLC, Defendant.
CourtU.S. District Court — Western District of Texas

Chris R. Miltenberger, Law Office of Chris R. Miltenberger, PLLC, Southlake, TX, for Plaintiffs.

Steven H. Garrett, Boulette Golden & Marin L.L.P., Austin, TX, for Defendant.

ORDER (1) GRANTING PLAINTIFF MISTI HILL'S MOTION TO STRIKE, AND (2) DENYING AS MOOT HER MOTION TO DISMISS

David Alan Ezra, Senior United States District Judge

Before the Court is Plaintiff Misti Hill's ("Hill") Motion to Strike all six of Defendant Bedrock Funding LLC's ("Defendant" or "Bedrock") Counterclaims in Defendant's Amended Answer (Dkt. # 18) or, in the Alternative, Motion to Dismiss Counterclaims 1, 3, and 6 in that Amended Answer, filed on September 25, 2020. (Dkt. # 22.) On December 10, 2020, the Court held a hearing on the matter. After careful consideration of the memoranda filed in support of and in opposition to Hill's motion (Dkt. # 22) and arguments of counsel at the hearing, the Court—for the reasons that follow—GRANTS Hill's Motion to Strike and DENIES AS MOOT Hill's Motion to Dismiss.

BACKGROUND

This case arises from a claim for failure to pay overtime wages in accordance with the Fair Labor Standards Act ("FLSA"). On February 11, 2020, Plaintiff Misti Hill filed this lawsuit on behalf of herself and others similarly situated against Defendant, a financial services company specialized in providing consumers leases for motorcycles. (Dkt. # 1; Dkt. # 18 at 12.) On June 3, 2020, Hill—along with an additional named Plaintiff, Leann Mohr ("Mohr") (collectively, "Plaintiffs")—filed an Amended Complaint. (Dkt. # 10.) On June 17, 2020, Defendant filed an Answer to the Amended Complaint ("Original Answer"), asserting five counterclaims against Hill.1 (Dkt. # 13.)

On July 2, 2020, Plaintiffs Hill and Mohr filed an "Opposed Motion to Strike and Alternatively Motion to Dismiss" ("Original Motion") in response to Defendant's five counterclaims in the Original Answer. (Dkt. # 15.) In this Original Motion, Plaintiffs asked the Court to strike all of Defendant's counterclaims in its Original Answer (Dkt. # 13) as impermissible in this FLSA lawsuit or, in the alternative, dismiss counterclaims 1 and 3 for failure to state a claim upon which relief can be granted. (See id. ); Fed. R. Civ. P. 12(b)(6). On July 30, 2020, Defendant responded to the original motion (Dkt. # 19) and simultaneously filed an Amended Answer to Plaintiff's Amended Complaint ("Amended Answer") (Dkt. # 18), this time including a sixth counterclaim against Hill in addition to the original five. Defendant argued that its Amended Answer mooted the Motion to Dismiss portion of Plaintiffs' Original Motion. (Dkt. # 19 at 7.) On August 5, 2020, Plaintiffs replied, agreeing that the Motion to Dismiss in the Original Motion was moot and promising that they would "shortly file a new motion to strike/dismiss." (Dkt. # 21 at 1.)

On September 25, 2020, Hill filed the instant, amended "Opposed Motion to Strike and Alternatively Motion to Dismiss" ("Amended Motion" or "Instant Motion"). (Dkt. # 22.) In the Amended Motion, Hill again argues that the Court should strike all of Defendant's counterclaims and, in the alternative, moves the Court to dismiss counterclaims 1, 3, and 6 from Defendant's Amended Answer (Dkt. # 18) for failure to state a claim upon which relief can be granted. (See Dkt. # 22); Fed. R. Civ. P. 12(b)(6).

On September 28, 2020, the Court entered a text order mooting Plaintiffs' Original Motion (Dkt. # 15) because: (1) in the Amended Motion, Hill repeats the Motion to Strike arguments Plaintiffs made in the Original Motion with only minor revisions to phrasing (compare Dkt. # 22 with Dkt. # 15); and (2) the Motion to Dismiss portion of the Original Motion pertained to Defendant's Original Answer (Dkt. # 13), which was superseded by its Amended Answer (Dkt. # 18).2 On October 9, 2020, Defendant responded to the Amended Motion. (Dkt. # 25.) On October 12, 2020, Hill replied. (Dkt. # 26.) The Court held a hearing on the Amended Motion on December 10, 2020. (See Dkt. # 27.)

DISCUSSION

In its Amended Answer to Plaintiffs' Amended Complaint (Dkt. # 18), Defendant asserts six counterclaims: (1) violation of the Stored Wire and Electronic Communications and Transactional Records Access Act ( 18 U.S.C. § 2701, et. seq. ), (2) breach of fiduciary duty,3 (3) violation of the Texas Harmful Access by Computer Act ( Tex. Civ. Prac. & Rem. Code § 143.001, et. seq. ), (4) violation of the Texas Theft Liability Act ( Tex. Civ. Prac. & Rem. Code § 134.001, et. seq. ), (5) breach of contract, and (6) violation of the Computer Fraud and Abuse Act ( 18 U.S.C. § 1030(a)(2)(C) ). In the first section below, the Court addresses Hill's Motion to Strike all of these counterclaims as improper for a FLSA case. In the second section, the Court addresses Hill's alternative Motion to Dismiss counterclaims 1, 3, and 6 under Federal Rule of Civil Procedure 12(b)(6).

1. Motion to Strike Counterclaims
a. Applicable Law

Hill's Motion to Strike raises two legal issues. First, under Federal Rule of Civil Procedure 13, a counterclaim is compulsory if it "(A) arises out of the transaction or occurrence that is the subject matter of the opposing party's claim; and (B) does not require adding another party over whom the [C]ourt cannot acquire jurisdiction." Fed. R. Civ. P. 13(a)(1). All other counterclaims are permissive. Fed. R. Civ. P. 13(b). Under Fifth Circuit precedent, a counterclaim "arises out of the transaction or occurrence" from the opposing party's claim if any one of these questions is answered affirmatively:

(1) whether the issues of fact and law raised by the claim and counterclaim largely are the same; (2) whether res judicata would bar a subsequent suit on defendant's claim absent the compulsory counterclaim rule; (3) whether substantially the same evidence will support or refute plaintiff's claim as well as defendant's counterclaim; and (4) whether there is any logical relationship between the claim and the counterclaim.

Tank Insulation Int'l, Inc. v. Insultherm, Inc., 104 F.3d 83, 86 (5th Cir. 1997).

Second, "[g]enerally speaking, courts have been hesitant to permit an employer to file counterclaims in FLSA suits for money the employer claims the employee owes it, or for damages the employee's tortious conduct allegedly caused." Martin v. PepsiAmericas, Inc., 628 F.3d 738, 740–41 (5th Cir. 2010). Courts in this district have reasoned that counterclaims in FLSA cases are permissive rather than compulsory when "different evidence is needed to prove the claims" and their "only nexus [to the FLSA claims] is the employment relationship" between the parties. Poole v. Dhiru Hosp., LLC, No. SA-18-CV-636-XR, 2019 WL 3845454, at *9 (W.D. Tex. Aug. 15, 2019) (collecting cases). They have, however, found counterclaims alleging FLSA plaintiffs submitted fraudulent time sheets qualify as compulsory under Rule 13(a)(1). See, e.g., Cordero v. Voltaire, LLC, No. AU-13-CA-253-LY, 2013 WL 6415667, at *3 (W.D. Tex. Dec. 6, 2013) (report and recommendation of Magistrate Judge Austin). Nevertheless, district courts across the Fifth Circuit "routinely dismiss counterclaims that do not directly relate to Plaintiffs' wage claims, such as by challenging the amount of overtime hours worked or wages due." Poole, 2019 WL 3845454, at *10.

b. Arguments

After highlighting the limited universe of authorized counterclaims in FLSA cases, Hill describes the nature of Defendant's counterclaims in this case as "inappropriate in any proceeding brought to enforce the FLSA." (Dkt. # 22 at 6.) She notes that Defendant "seeks [among other forms of relief] monetary damages" for "computer crimes, breach of contract, and breach of fiduciary duty," which she characterizes as "[s]et-offs against back pay" that "would den[y] her overtime wages under the law." (Id. ) Notably, Hill cites Fifth Circuit precedent stating that "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." Brennan v. Heard, 491 F.2d 1, 4 (5th Cir. 1974), rev'd on other grounds, McLaughlin v. Richland Shoe Co., 486 U.S. 128, 108 S.Ct. 1677, 100 L.Ed.2d 115 (1988).

As Hill notes, the Fifth Circuit has reasoned that "the only function of the federal judiciary under the FLSA is to assure the employees of a covered company a minimum level of wages." Martin, 628 F.3d at 741 ; see also Brennan, 491 F.2d at 4 ("Arguments and disputations over claims against those wages are foreign to the genesis, history, interpretation, and philosophy of the Act."). She cites two cases in which district courts have reasoned that "counterclaims are only permitted where they set-off money that can be considered wages that the employer pre-paid to the plaintiff-employee or money that can be characterized as advanced or inappropriate amounts subject to an offset against the overtime owed to [the plaintiff-employee]." Solano v. Ali Baba Mediterranean Grill, Inc., No. 3:15-cv-555-G, 2015 WL 7770893, at *4 (N.D. Tex. Dec. 3, 2015) (internal quotations omitted); Cordero, 2013 WL 6415667, at * 11.

Defendant argues that its "Email Access Counterclaims"4 are "directly related to Plaintiffs' FLSA claims" and "also seek injunctive relief, including the return of its information[ ] and a forensic inspection of Hill's electronic devices." (Dkt. # 25 at 6, 7.) Defendant contends that, unlike in cases cited by Plaintiff in which counterclaims were deemed impermissible for FLSA cases, Hill's attorney expressly stated that the information she possesses is related to the FLSA claims. (Id. at 3.) In a March 10, 2020 letter responding to Defendant's attorney, Hill's attorney stated (Dkt. # 25-2, "Exhibit B"):

Ms. Hill does not possess
...

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