Garcia v. Three Decker Restaurant LTD

Background

The court considered three matters: defendants’ request for permission to amend their Second Amended Answer and Counterclaims; plaintiffs’ motion to dismiss the counterclaims; and plaintiffs’ request to extend discovery deadlines after defendants filed a proposed Third Amended Answer and Counterclaims with their opposition papers.

The counterclaims asserted seven theories: breach of the duty of loyalty, conversion, trespass to chattel, unjust enrichment, breach of fiduciary duty, deceit, and prima facie tort. The allegations included claims that Guillermina Rodriguez Garcia placed tip money in her apron instead of a shared tip jar and took $2 from the restaurant’s cash register. Defendants also alleged that Garcia had taken tip money on other occasions and that money had regularly gone missing from the cash register while she worked there.

Jurisdiction over the Counterclaims

Plaintiffs argued that the counterclaims were outside the court’s subject-matter jurisdiction, did not qualify as compulsory or permissive counterclaims under Federal Rule of Civil Procedure 13, and could not be heard through supplemental jurisdiction. They also argued that the counterclaims failed to state a claim, did not satisfy heightened pleading requirements for fraud and a faithless-servant claim, and were retaliatory.

The court distinguished between the alleged tip theft and the alleged cash-register theft. Counterclaims based on alleged theft of tip money related to the plaintiffs’ Fair Labor Standards Act claims because the tip allegations could affect issues such as the tip credit and the minimum wages owed. The court therefore held that the counterclaims could not be dismissed for lack of subject-matter jurisdiction to the extent they were based on alleged pocketing of tips.

The court reached the opposite conclusion about the alleged cash-register theft. It said that allegation had no relationship to whether the plaintiffs received the required minimum wage or whether tip-credit rules were satisfied. The possibility that a recovery might offset a recovery on the wage claims did not create federal jurisdiction, and the court declined to exercise supplemental jurisdiction over the cash-register allegations. The court stated that defendants would need to pursue that type of claim in state court. It later deemed the cash-register allegations stricken from the Second Answer and Counterclaims.

Retaliation and Pleading Issues

The court rejected plaintiffs’ argument that the counterclaims should be dismissed as retaliation. A counterclaim based on filing litigation may be retaliatory when it is filed with a retaliatory motive and without a reasonable basis in fact or law. The court found the counterclaims were not baseless because defendants claimed to have video surveillance and testimony from other employees supporting the alleged tip misappropriation.

The court also noted that none of the seven counterclaims was a fraud claim, so the heightened pleading rule for fraud did not apply. The court did not dismiss the counterclaims under the rule requiring a legally sufficient claim.

Amendment Request and Disposition

Defendants submitted a proposed Third Amended Answer and Counterclaims but did not file a formal motion for leave to amend. The court said the proposed amendment would not be futile, meaning it could potentially survive a motion to dismiss, but found it unnecessary. The proposed faithless-servant claim added nothing to the already pleaded claims for breach of loyalty and breach of fiduciary duty, and the additional factual allegations were not needed. The court therefore denied defendants leave to amend.

The court denied plaintiffs’ motion to dismiss the Second Amended Answer and Counterclaims, while limiting the counterclaims to allegations concerning alleged theft of tips and striking the allegations concerning alleged theft from the cash register. The Clerk was directed to terminate the motions at Docket Numbers 69, 90, 101, and 103, and the scheduled hearing was terminated.