Silva v. Hercules Distributors LLC et al

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WO
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA
Jesse Silva,
Plaintiff,
v.
Hercules Distributors LLC, et al.,
Defendants.
No. CV-25-01073-PHX-DWL
ORDER
Jesse Silva (“Plaintiff”), a former employee of Hercules Distributors LLC
(“Hercules”), brings this action against Hercules, Michael Gehart, and Joy Gehart
(collectively, “Defendants”). The complaint asserts violations of the Fair Labor Standards
Act (“FLSA”), the Arizona Minimum Wage Act (“AMWA”), and the Arizona Wage Act
(“AWA”). Hercules, in return, has asserted various state-law counterclaims against
Plaintiff.
Before the Court is Plaintiff’s motion to dismiss Hercules’s counterclaims for lack
of subject-matter jurisdiction. (Doc. 19.) The motion is fully briefed (Docs. 22, 24) and
neither side requested oral argument. For the reasons that follow, the motion is denied.
BACKGROUND
I. Plaintiff’s Complaint
In or around January 2025, “Plaintiff began working for Defendants performing
manual labor related to carpentry work and wire running.” (Doc. 1 ¶ 33.) Plaintiff “was
compensated, or supposed to be compensated, at an hourly rate of $31;” “generally worked
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approximately 40 hours per workweek;” and “was paid, or supposed to be paid, on a weekly
basis.” (Id. ¶¶ 34, 41, 42.)
Plaintiff alleges that “[r]ather than classify [him] as an employee, Defendants
classified him as an independent contractor.” (Id. ¶ 35.) Plaintiff alleges that the following
facts demonstrate he was actually an employee, not an independent contractor, under the
FLSA: “Defendants controlled Plaintiff’s schedule”; “[i]n his work for Defendants,
Plaintiff used equipment owned by Defendants”; “Plaintiff was economically dependent
on Defendants”; “Defendants had the exclusive right to hire and fire Plaintiff”;
“Defendants set Plaintiff’s work schedule” and “rate of pay”; “Defendants supervised
Plaintiff and subjected him to Defendants’ rules”; “Plaintiff had no opportunity for profit
or loss in the business”; “[t]he services rendered by Plaintiff in his work for Defendants
were integral to Defendants’ business”; “Plaintiff was hired for a non-durational period,
generally working in excess of 40 hours per week for approximately nine months”;
“Plaintiff had no right to refuse work assigned to him by Defendants”; and “Defendants
did not allow Plaintiff to work for other apartment complex companies.” (Id. ¶¶ 37-40.)
On approximately March 10, 2025, “Defendant[s] terminated [Plaintiff’s]
employment.” (Id. ¶ 44.) “Defendants did not compensate Plaintiff any wages whatsoever
for the final approximately two workweeks of his employment with Defendants.” (Id.
¶ 43.)
“After Defendants terminated Plaintiff’s employment, Plaintiff reached out to . . .
Michael Gehart to inquire as to when he would receive payment for both his penultimate
and final workweeks.” (Id. ¶ 45.) In response, Michael Gehart informed Plaintiff that he
“needed to verify the hours he worked and instructed Plaintiff to contact the superintendent,
Brian.” (Id. ¶ 46.)
Plaintiff then reached out to Brian who informed Plaintiff that he “needed to explain
the hours he worked so they could be approved.” (Id. ¶ 47.) “In response, Plaintiff
described the hours he worked pursuant to Brian’s . . . instructions.” (Id. ¶ 48.) “However,
Plaintiff was never compensated for such time worked.” (Id. ¶ 49.) And “[t]o date,
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Defendants still have paid none of the wages due and owing to Plaintiff for such time
worked.” (Id. ¶ 50.)
Based on these allegations, the complaint asserts three causes of action: (1) FLSA,
failure to pay minimum wage; (2) AMWA, failure to pay minimum wage; and (3) AWA,
failure to pay wages due and owing (against Hercules only).
II. Hercules’s Counterclaims
Hercules asserts eight counterclaims against Plaintiff. (Doc. 15 at 14-18.) The
factual allegations giving rise to those counterclaims are as follows.
“Hercules is a licensed Residential General Contractor engaged in the business of
constructing, remodeling, and repairing residential structures and appurtenances” and
“uses appropriately licensed subcontractors or independent contractors to do certain work.”
(Id. at 9 ¶¶ 5-6.)
On or about February 15, 2025, “[Plaintiff] contacted Hercules and stated that he
was an expert (a ‘ten’ on a scale from one to ten) in finish carpentry, doors, plumbing,
electrical, drywall, tile, and roofing.” (Id. at 9 ¶ 7.) Plaintiff “met with Mike Gehart, and
asked to become a subcontractor for Hercules.” (Id. at 9 ¶ 8.) Mike Gehart “informed
[Plaintiff] that Hercules could consider giving [him] opportunities as an independent
contractor.” (Id. at 9 ¶ 9.)
Plaintiff “assured [Mike Gehart] that he was an expert in his indicated fields.” (Id.
at 9 ¶ 10.) “Based on [Plaintiff]’s assurances, Hercules and [Plaintiff] entered into an oral
contract whereby Hercules would give [Plaintiff] opportunities to do work for its clients as
an independent contractor, and [Plaintiff] would complete any tasks he took on in a quality
manner using his represented expertise.” (Id. at 10 ¶ 11.) Specifically, Hercules and
Plaintiff agreed, among other things, that:
Hercules would offer [Plaintiff] “time and materials” jobs, [with] pay based
on the actual time [Plaintiff] spends working on a particular job and the cost
of materials used for that job. Hercules would pay [Plaintiff] $31/hour for
these jobs.
. . .
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[Plaintiff] would be responsible for the work he performed and, if Hercules
reviewed his work and determined that corrections needed to be made,
[Plaintiff] would make those corrections himself, at no additional cost to
Hercules[.]
. . .
[Plaintiff] would check in with Hercules daily to review work progress and
jobsite conditions, and would post pictures and descriptions of his work
(including start and stop times) daily to Hercules’s software system so that
Hercules could verify the work done and pass appropriate costs on to its
clients[.]
(Id. at 10-11 ¶ 12(a), (d), (g).)
Hercules and Plaintiff also agreed that “they would enter into a written Independent
Contractor Agreement, which would not supersede the oral agreement but would
supplement it.” (Id. at 11 ¶ 13.)
On or about February 18, 2025 “Hercules and [Plaintiff] entered into the
Independent Contractor Agreement.” (Id. at 11 ¶ 14.) The Independent Contractor
Agreement provided that “[Plaintiff] would perform his independent contractor services
‘in a diligent and workmanlike manner’ that is ‘completely satisfactory to [Hercules] and
. . . consistent with [Hercules’s] standards.’” (Id. at 11 ¶ 15.) “The Independent Contractor
Agreement also provided that [Plaintiff] would indemnify Hercules from any losses, costs,
fees, liabilities, or damages suffered as a result of [Plaintiff]’s failure to fulfill his obligation
to make all revisions, additions, deletions, or alterations to his work that are requested by
Hercules.” (Id. at 11 ¶ 16.)
During or around the week of February 17, 2025, “Plaintiff agreed to perform time
and materials work for Hercules’s clients which include[ed] wiring, lighting, setting plugs
and switches, and installing exhaust fans.” (Id. at 12 ¶ 18.) That same week, “[Plaintiff]
also agreed to paint, replace roof tiles, do electrical work, and replace a toilet at a house
owned by another of Hercules’s clients, again on a time and materials basis.” (Id. at 12
¶ 19.) At the end the week, “[Mike Gehart] asked [Plaintiff] where the notes and photos
supporting his invoices were.” (Id. at 12 ¶ 20.) “[Plaintiff] responded that he did not
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provide that information because he did not have a phone.” (Id. at 12 ¶ 21.) “[Mike Gehart]
explained that Hercules must have verification of the work performed in order to pay
[Plaintiff], and he set up a time for [Plaintiff] to speak with Hercules’s superintendent and
provide the information.” (Id. at 12 ¶ 22.) But “[Plaintiff] never provided Hercules
information relating to his start and stop times or the work he performed.” (Id. at 12 ¶ 23.)
“Upon inspection of the jobsites, Hercules discovered that [Plaintiff] did subpar
work, which Hercules had to pay another independent contractor to fix after [Plaintiff]
became unresponsive.” (Id. at 12 ¶ 24.) As a result, Hercules incurred a series of expenses
totaling “approximately $5,678.72 in labor . . . and $2,800 in materials.” (Id. at 12-13
¶¶ 25-26.)
Based on these allegations, Hercules asserts eight counterclaims: (1) breach of
contract (oral contract); (2) breach of the implied covenant of good faith and fair dealing
(oral contract); (3) breach of contract (Independent Contractor Agreement); (4) breach of
the implied covenant of good faith and fair dealing (Independent Contractor Agreement);
(5) unjust enrichment; (6) promissory estoppel; (7) negligent misrepresentation; and (8)
fraud. (Id. at 14-18 ¶¶ 27-79.)
DISCUSSION
I. Legal Standard
“A motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) may
attack either the allegations of the complaint as insufficient to confer upon the court subject
matter jurisdiction, or the existence of subject matter jurisdiction in fact.” Ader v.
SimonMed Imaging Inc., 324 F. Supp. 3d 1045, 1048 (D. Ariz. 2018) (internal quotation
marks and citations omitted). “Where the jurisdictional issue is separable from the merits
of the case, the judge may consider the evidence presented with respect to the jurisdictional
issue and rule on that issue, resolving factual disputes if necessary.” Thornhill Publ’g Co.
v. Gen. Tel. & Elecs. Corp., 594 F.2d 730, 733 (9th Cir. 1979). “The party asserting
jurisdiction has the burden of proving all jurisdictional facts.” Indus. Tectonics, Inc. v.
Aero Alloy, 912 F.2d 1090, 1092 (9th Cir. 1990).
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II. Supplemental Jurisdiction
28 U.S.C. § 1367(a) provides that “in any civil action of which the district courts
have original jurisdiction, the district courts shall have supplemental jurisdiction over all
other claims that are so related to claims in the action within such original jurisdiction that
they form part of the same case or controversy under Article III of the United States
Constitution.” “Section 1367 applies to both state-law claims brought by a plaintiff and to
state-law counterclaims brought by a defendant.” Nalan v. Access Fin., Inc., 2020 WL
6270945, *2 (N.D. Cal. 2020). Counterclaims are part of the same case or controversy
when they “derive from a common nucleus of operative fact and are such that a plaintiff
would ordinarily be expected to try them in one judicial proceeding.” Trs. of Constr. Indus.
& Laborers Health & Welfare Tr. v. Desert Valley Landscape & Maint., Inc., 333 F.3d
923, 925 (9th Cir. 2003) (cleaned up).
“Rule 13 of the Federal Rules of Civil Procedure governs the pleading requirements
of counterclaims, and provides that a counterclaim may be either compulsory or
permissive.” Nalan, 2020 WL 6270945 at *2. A counterclaim is compulsory if it “arises
out of the transaction or occurrence that is the subject matter of the opposing party’s claim”
and “does not require adding another party over whom the court cannot acquire
jurisdiction.” Fed. R. Civ. P. 13(a)(1). A permissive counterclaim is “any claim that is not
compulsory.” Fed. R. Civ. P. 13(b).
In deciding whether a claim is compulsory, the phrase “transaction or occurrence”
is “read broadly.” Pochiro v. Prudential Ins. Co., 827 F.2d 1246, 1252 (9th Cir. 1987).
The Ninth Circuit applies the “logical relationship test” to determine whether the claim is
compulsory. In re Pinkstaff, 974 F.2d 113, 115 (9th Cir. 1992). The logical relationship
test “analyze[s] whether the essential facts of the various claims are so logically connected
that considerations of judicial economy and fairness dictate that all the issues be resolved
in one lawsuit.” Pochiro, 827 F.2d at 1249 (internal quotation marks omitted). “A logical
relationship exists when the counterclaim arises from the same aggregate set of operative
facts as the initial claim, in that the same operative facts serve as the basis of both claims
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or the aggregate core of facts upon which the claim rests activates additional legal rights
otherwise dormant in the defendant.” In re Pegasus Gold Corp., 394 F.3d 1189, 1196 (9th
Cir. 2005) (internal quotation marks omitted).
It is well established that if the logical relationship test is satisfied and a
counterclaim is compulsory, the “common nucleus of operative fact” requirement is
satisfied and § 1367(a) confers jurisdiction. Ader, 324 F. Supp. 3d at 1051. There is some
uncertainty, however, about whether § 1367(a) also extends jurisdiction over permissive
counterclaims under the right circumstances, given that the “case or controversy” language
of § 1367 “appears to be broad enough to encompass some permissive counterclaims.”
Campos v. W. Dental Servs., Inc., 404 F. Supp. 2d 1164, 1168 (N.D. Cal. 2005). See also
Nalan, 2020 WL 6270945 at *4 (“The Ninth Circuit has not definitively ruled on the
question of whether supplemental jurisdiction under § 1367 can cover permissive
counterclaims. However, at least two circuits have held that a federal court may exercise
supplemental jurisdiction over certain permissive counterclaims.”).
At any rate, under § 1367(c), a court may decline to exercise supplemental
jurisdiction over a claim or counterclaim if it “raises a novel or complex issue of State
law,” “substantially predominates over the claim or claims over which the district court has
original jurisdiction,” “the district court has dismissed all claims over which it has original
jurisdiction,” or “in exceptional circumstances, there are other compelling reasons for
declining jurisdiction.” “[A]ctually exercising discretion and deciding whether to decline,
or to retain, supplemental jurisdiction over state law claims when any factor in subdivision
(c) is implicated is a responsibility that district courts are duty-bound to take seriously.”
Acri v. Varian Assocs., Inc., 114 F.3d 999, 1001 (9th Cir.). “While discretion to decline to
exercise supplemental jurisdiction over state law claims is triggered by the presence of one
of the conditions in § 1367(c), it is informed by the Gibbs values ‘of economy,
convenience, fairness, and comity.’” Id. (citing United Mine Workers of Am. v. Gibbs,
383 U.S. 715, 726, (1966)).
…
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III. Analysis
Plaintiff asserts claims against Defendants under the FLSA, AMWA, and AWA
based on Defendants’ alleged failure to pay him minimum wages and wages otherwise
owed to him. The Court must now decide whether it can (and should) exercise
supplemental jurisdiction over Hercules’s counterclaims against Plaintiff, which also relate
to Plaintiff’s work for Hercules. In Part III.A below, the Court addresses the first part of
this inquiry—that is, whether the counterclaims satisfy the “logical relationship” test, such
that jurisdiction is available under § 1367(a). In Part III.B below, the Court addresses the
second part of this inquiry—that is, whether the Court should nevertheless decline to
exercise supplemental jurisdiction based on the factors set forth in § 1367(c).
A. Logical Relationship
1. The Parties’ Arguments
Plaintiff argues that the counterclaims are permissive under Rule 13 and bear no
relation to his wage claims. (Doc. 19 at 3-10.) First, Plaintiff argues that the counterclaims
“are not compulsory because they do not arise out of the same transaction or occurrence
that is the subject matter of Plaintiff’s FLSA claim.” (Id. at 3.) Plaintiff argues that his
“claims will focus on how many hours he worked for Defendants, his regular rate of pay,
and whether he was paid for the work he performed.” (Id. at 4.) In contrast, Plaintiff
contends that the counterclaims “will rely on investigations into the standards of work that
Defendants expected compared to the finished product provided by Plaintiff, discovery into
the expected and customary methods of documenting completed work for Defendants, and
discovery into Plaintiff’s training, certifications, and experience in performing the types of
work he was hired to perform, and whether or not such qualifies him as an expert, or even
if there is a designated ‘rank’ of expert in these industries.” (Id. at 5.) Plaintiff thus
contends that “[t]he evidence necessary for [Hercules] to prove [its] [counter]claims will
not include any of the evidence necessary for Plaintiff to prove his wage claims, which are
the hours he worked and his wages he was not paid.” (Id.) Second, Plaintiff argues that
the “permissive [c]ounterclaims do not derive from the same common nucleus of operative
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fact as Plaintiff’s wage claims.” (Id. at 6.) Specifically, Plaintiff argues that “the only
possible nexus between Plaintiff’s wage claims and [Hercules’s] [c]ounterclaims is
potentially the employment relationship between the two, the mere existence of which is
insufficient to establish supplemental jurisdiction over [Hercules’s] counterclaim[s].” (Id.)
Plaintiff further argues that even if the employment relationship is a nexus, Arizona district
courts have routinely found that such a relationship is insufficient to confer supplemental
jurisdiction. (Id. at 6-9.)
In response, Hercules argues that its counterclaims satisfy the logical relationship
test because “there is more than simply an employment link that exists between Plaintiff’s
claims and Hercules’s counterclaims” and “there will be substantial overlap between the
facts necessary to prove the counterclaims and the facts necessary to prove Plaintiff’s
claims.” (Doc. 22 at 5.) Hercules contends that both parties will seek discovery relating
to “(1) the relationship between Plaintiff and Hercules (whether employment or
independent contracting), (2) the work Plaintiff allegedly performed on Hercules’s behalf
(for which Plaintiff seeks payment and which Hercules contends was subpar), and (3)
whether Plaintiff was paid for the work performed (Plaintiff complains he should have but
was not, and Hercules contends that Plaintiff failed to provide information necessary for it
to make payment).” (Id.) Hercules argues that the existence of a logical relationship is
“underscored by the fact that [Plaintiff’s claims and the counterclaims] relate to a single
time period spanning, at most, a couple of months.” (Id.) As for its breach of contract,
breach of the implied covenant of good faith and fair dealing, and unjust enrichment
counterclaims specifically, Hercules argues that “[t]he facts needed to prove [Plaintiff’s
claims] are inextricable from the evidence Hercules needs for its counterclaims—i.e., what
work Plaintiff allegedly completed.” (Id. at 6.) As for its promissory estoppel, negligent
misrepresentation, and fraud counterclaims, Hercules argues that “[h]ere, too, Hercules’s
discovery will overlap with Plaintiff’s and the counterclaims arise out of the same
transaction or occurrence that is the subject of Plaintiff’s claims.” (Id. at 7.)
In reply, Plaintiff contends that the counterclaims “do not arise from a common
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nucleus of operative fact” and argues that “[Hercules] ha[s] failed to meet [its] burden to
show the Court has jurisdiction over [its] [c]ounterclaims.” (Doc. 24 at 2.) Specifically,
Plaintiff argues that “[c]ontrary to [Hercules’s] assertion, [he] will not need to disprove the
existence of a contract or an independent contractor relationship.” (Id. at 3.) Plaintiff also
reasserts his arguments that the scope of Hercules’s counterclaims will require discovery
of facts beyond the scope of his FLSA claim. (Id. at 3-4.)
2. Merits
Courts frequently conclude that they lack supplemental jurisdiction over
counterclaims in FLSA actions, even when the counterclaims generally relate to the parties’
employment relationship. See, e.g., Martinez v. PM&M Elec. Inc., 2019 WL 450870, *5
(D. Ariz. 2019) (“Plaintiff’s FLSA and Arizona Wage claims assert Defendants failed to
adequately compensate him. . . . In contrast, Titan’s counterclaims for breach of contract,
breach of implied covenant of good faith and fair dealing, unjust enrichment, and
negligence will require proof of the parties’ contract for the tools, withholding in
reimbursement of the contract, and Plaintiff’s alleged negligent refueling of a company
vehicle and the resulting damages. The two sets of claims overlap only insofar as each
arises from the circumstance that Plaintiff was employed by Titan. The simple fact of
employment is insufficient to establish supplemental jurisdiction over Titan’s
counterclaims.”); Ripley v. PMD Dev. LLC, 2018 WL 4931750, *2 (D. Ariz. 2018) (“[A]n
employment relationship alone does not generate supplemental jurisdiction over state law
counterclaims. . . . The counterclaims overlap with Ripley’s FLSA claim only insofar as
each arises from the contract and employment relationship between Defendants and Ripley,
which is insufficient to serve as the ‘common nucleus of operative facts.’”) (citations
omitted).1 There is not, however, a categorical rule against finding supplemental
1 See also Poehler v. Fenwick, 2015 WL 7299804, *2 (D. Ariz. 2015) (“The only
connection between Defendants’ contract [counter]claims and Plaintiff’s FLSA claims is
the existence of an employment relationship. Indeed, other federal courts considering the
issue have concluded that the mere existence of an employment relationship between
plaintiffs and defendants were insufficient to establish supplemental jurisdiction over
Defendants’ counterclaims that have nothing to do with the underlying wage claims.”);
Casas v. Brightwater Int’l, Inc., 2011 WL 486564, *3 (C.D. Cal. 2011) (“[D]efendant’s
counterclaims should be dismissed for lack of subject matter jurisdiction. . . . The only
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jurisdiction over such counterclaims. Instead, the jurisdictional analysis requires
consideration of the specific factual allegations that underlie the counterclaims. Pegasus
Gold Corp., 394 F.3d at 1196.
As explained below, the Court concludes that all of Hercules’s counterclaims meet
the logical relationship test, such that they form part of the same case or controversy as
Plaintiff’s FLSA claim.
a. Breach of Contract
A breach of contract claim has three elements under Arizona law: (1) the existence
of a contract, (2) its breach, and (3) resulting damages. Graham v. Asbury, 540 P.2d 656,
657 (Ariz. 1975).
Hercules asserts two counterclaims for breach of contract. Count One rests on
allegations that Hercules and Plaintiff had an enforceable oral contract and that Plaintiff
breached that contract by (1) failing to provide Hercules with descriptions and photos of
his work and (2) failing to perform work consistent with his represented experience. (Doc.
15 at 14 ¶¶ 27-30.) Count Three rests on allegations that Hercules and Plaintiff had an
enforceable contract through the Independent Contractor Agreement and that Plaintiff
breached that contract by (1) failing to provide Hercules with descriptions and photos of
his work, (2) failing to perform work in a diligent and workmanlike manner, and (3) failing
to indemnify Hercules for his failure to fulfill his obligations under the contract.
These allegations arise from the same aggregate set of operative facts as Plaintiff’s
FLSA claim. As for Plaintiff’s alleged failure to provide descriptions and photos of his
work, Hercules “alleges that Plaintiff’s employment contract dictated how he was to record
and verify the hours he worked, and that he breached the contract by not following
[Hercules’s] procedures. This claim . . . concerns how Plaintiff recorded the time he
worked and the procedures he followed for verifying those hours—issues that will arise in
the trial of [Plaintiff’s] FLSA claim.” Mundia v. Premier Luxury Realty LLC, 2025 WL
tenuous connection between the two claims is the existence of an employment relationship
between plaintiffs and defendants, which is insufficient to establish supplemental
jurisdiction . . . .”) (citation omitted).
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2614948, *2 (D. Ariz. 2025).2 As for Hercules’s remaining breach of contract allegations,
“[t]he essential facts related to these counterclaims concern whether [Plaintiff]
misrepresented certain information on his employment contract, breached . . . employment
contracts, and improperly [failed to indemnify Hercules under the Independent Contractor
Agreement]. Although the facts related to the counterclaims may not be entirely connected
to the essential facts underlying Plaintiff’s FLSA claims, it cannot be said that no logical
relationship exists between the counterclaims and Plaintiff’s claims.” Schemkes v.
Presidential Limousine, 2010 WL 11579615, *3 (D. Nev. 2010). Although Plaintiff is
correct that an employment relationship is insufficient on its own to generate supplemental
jurisdiction, the link between the claims here does not stem solely from the existence of
that relationship. Hayden v. Ariz. Pool & Fountain Guys, LLC, 2016 WL 9456363, *2 (D.
Ariz. 2016) (“In this case, however, there is more than simply an employment link that
exists between Plaintiff’s claims and Defendants’ counterclaims. Defendants allege that
Plaintiff often failed to complete and submit his timesheets, falsified his timesheets, and
misused time during his workday for personal tasks.”).
Moreover, the parties appear to dispute whether Plaintiff was in fact an employee—
as opposed to an independent contractor—covered under the FLSA and which party bears
the burden of establishing that relationship. Hercules argues that “both parties will seek to
discover facts relating to . . . the relationship between Plaintiff and Hercules (whether
employment or independent contracting).” (Doc. 22 at 5.) Plaintiff, on the other hand,
argues that he “will not need to disprove the existence of a contract or an independent
contractor relationship. Rather, [Hercules’s] [c]ounterclaims will require [it] to prove the
existence of a contractual relationship.” (Doc. 24 at 3.) This dispute provides another
reason why Hercules’s breach of contract counterclaims satisfy the logical relationship test.
“While Plaintiff’s status as an employee under the FLSA can only be determined by the
2 Plaintiff argues that Hercules’s counterclaims “attempt to put the onus on Plaintiff
to comply with the FLSA’s recordkeeping requirements when the FLSA places that
responsibility squarely on the employer.” (Doc. 24 at 2.) Plaintiff’s argument, however,
“does not address subject matter jurisdiction,” and Hercules “[is] not foreclosed from
challenging the credibility of Plaintiff’s evidence because [it] did not keep [its] own
records.” Mundia, 2025 WL 2614948 at *3.
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‘economic realities’ of the situation, and thus cannot be contracted away, the terms of this
contract will directly inform what that economic reality is. Therefore, discovery between
the [breach of contract and FLSA] claims will heavily overlap.” Preston v. Jingze Foods,
LLC., 2024 WL 5379115, *3 (D. Ariz. 2024) (citation omitted). See also Adame v. N.
Mountain Foothills Apartments LLC, 2025 WL 1927673, *2 (D. Ariz. 2025) (“The
specifics of [plaintiff]’s relationship with [defendant] will . . . be dispositive as to whether
he is covered under FLSA. . . . Construing that same oral contract and its terms will be
necessary to determine whether [plaintiff] breached his contract with [defendant]. . . .
[Defendant]’s breach of contract claim therefore shares a common nucleus of operative
fact with [plaintiff]’s FLSA claim and the court therefore has supplemental jurisdiction
over it.”).
The cases cited by Plaintiff are distinguishable. In Vasquez v. Dan Keen Services
Inc., 2021 WL 2043025 (D. Ariz. 2021), a plaintiff brought a FLSA claim for unpaid wages
and the employer counterclaimed for theft by conversion and fraud. Id. at *1. The court
dismissed the counterclaims for lack of subject-matter jurisdiction because they “would
demand entirely different discovery involving [the] [p]laintiff’s alleged use of [the]
[d]efendant’s equipment for his side hustle and his other alleged fraudulent conduct, such
as hour padding—not engaged in during the relevant period—while on the job.” Id.
(emphasis added). Here, in contrast, Hercules’s counterclaims and Plaintiff’s FLSA claim
“relate to a single time period spanning, at most, a couple of months.” (Doc. 22 at 5.)
Thus, discovery related to the two sets of claims is likely to overlap. Moreover, the core
allegation underlying the breach of contract counterclaims (i.e., Plaintiff’s failure to
provide descriptions and photos of his work and failure to perform work consistent with
his represented expertise) are factually distinct from the alleged misconduct underlying the
counterclaims in Vasquez (i.e., misuse of company property for a “side hustle” and
unrelated time theft) and instead are closely related to Plaintiff’s wage claims.
Similarly, in Ripley, a plaintiff brought an FLSA claim for unpaid wages and the
employer counterclaimed for misrepresentation and breach of contract. 2018 WL 4931750
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at *1-2. “But the breach of contract in Ripley arose from the plaintiff ‘failing to follow the
defendant’s procedures,’ which did ‘not turn on evidence about the hours the plaintiff
worked and the compensation he received for that work. Here, by contrast, Plaintiff’s
alleged failure to abide by the employment contract directly relates to the number of hours
he worked.” Mundia, 2025 WL 2614948 at *2 (cleaned up). What’s more, the cases cited
by Plaintiff “did not involve a defendant claiming a plaintiff was not covered by FLSA
because they were an independent contractor. That issue can establish a common nucleus
of operative fact between a FLSA claim and a counterclaim so as to establish supplemental
jurisdiction.” Adame, 2025 WL 1927673 at *3 (distinguishing Vasquez, Ader, Ripley, and
Martinez). Therefore, the breach of contract counterclaims satisfy the logical relationship
test and are compulsory counterclaims, such that the Court may properly exercise
supplemental jurisdiction over them.
b. Breach Of The Implied Covenant Of Good Faith and Fair
Dealing
“Arizona law implies a covenant of good faith and fair dealing in every contract.”
Keg Rests. Ariz., Inc. v. Jones, 375 P.3d 1173, 1186 (Ariz. Ct. App. 2016). “The covenant
requires that neither party do anything that will injure the right of the other to receive the
benefits of their agreement.” Wagenseller v. Scottsdale Mem’l Hosp., 710 P.2d 1025, 1038
(Ariz. 1985). “[A] party may . . . breach its duty of good faith without actually breaching
an express covenant in the contract.” Wells Fargo Bank v. Arizona Laborers, Teamsters
& Cement Masons Loc. No. 395 Pension Tr. Fund, 38 P.3d 12, 29 (Ariz. 2002).
Hercules asserts two counterclaims for breach of the implied covenant of good faith
and fair dealing—Count Two (oral contract) and Count Four (Independent Contractor
Agreement). Counts Two and Four rely on identical allegations as Hercules’s breach of
contract counterclaims (i.e., Plaintiff’s failure to provide descriptions and photos of his
work, failure to perform work consistent with his represented experience, failure to perform
work in a diligent and workmanlike manner, and failure to indemnify Hercules). Thus, for
the reasons set forth in the previous section of this order, they also qualify as compulsory
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counterclaims and the Court may exercise supplemental jurisdiction over them.
c. Unjust Enrichment
Under Arizona law, “[a]n unjust enrichment claim requires proof of five elements:
(1) an enrichment, (2) an impoverishment, (3) a connection between the enrichment and
impoverishment, (4) the absence of justification for the enrichment and impoverishment,
and (5) the absence of a remedy provided by law.” Wang Elec., Inc. v. Smoke Tree Resort,
LLC, 283 P.3d 45, 49 (Ariz. Ct. App. 2012) (citation and internal quotation marks omitted).
Hercules asserts a claim for unjust enrichment as an alternative remedy should it be
denied a contractual remedy. (Doc. 15 at 16 ¶ 56.) Specifically, Hercules alleges that
“[Plaintiff] has been unjustly enriched by his abandoning, and not fixing, his subpar[] work
as described herein.” (Id. at 16 ¶ 52.) The alleged subpar work includes a list of expenses
incurred by Hercules upon inspection of the jobsites Plaintiff worked on. (See, e.g., id. at
12 ¶ 25(b) [“[r]ewire three can lights in the kitchen”]; id. at 13 ¶ 25(d) [“[r]ewire complete
circuit as code violation with box was used in attic”]; id. at 13 ¶ 25(f) [“[r]elocate plugs in
the bathroom as they were installed at wrong height”]; id. at 13 ¶ 25(j) [“[r]epaint bedroom
where [Plaintiff] used the wrong paint”].)
Courts in this District have repeatedly exercised supplemental jurisdiction over this
sort of unjust enrichment counterclaim in an FLSA action. See, e.g., Adame, 2025 WL
1927673 at *2 (“The core of [defendant]’s unjust enrichment claim is their allegation that
[plaintiff] was compensated for work he did not perform because he was engaging in
‘improper and unlawful conduct’ during those times. Whether [plaintiff] was working—
and is therefore owed compensation for—the hours he claimed he worked overtime is key
to his FLSA claim and [defendant]’s unjust enrichment claim, weighing heavily in favor
of finding they share a common nucleus of operative fact.”); Preston, 2024 WL 5379115
at *4 (“[T]he facts surrounding [defendant’s unjust enrichment counterclaim] are the same
disputed facts which support Plaintiff’s FLSA claim, namely if Plaintiff was owed
compensation for the work performed. . . . [T]he Court will exercise supplement[al]
jurisdiction over [the unjust enrichment claim].).
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Hercules’s unjust enrichment counterclaim will require the Court to evaluate much
of the same evidence necessary to evaluate Plaintiff’s FLSA claim. Plaintiff will need to
present evidence to demonstrate how many hours he worked and how much Hercules
should have paid him. Hercules will likely rely on much of that same evidence when
seeking to show that the work Plaintiff completed was subpar. In sum, both parties will
rely on evidence of the work Plaintiff completed. Moreover, “allowing [Hercules]’s unjust
enrichment counterclaim to proceed would serve the interests of judicial economy. A
simultaneous determination of the claims is necessary to calculate the appropriate measure
of damages.” Jones v. Addictive Behav. Change Health Grp., LLC, 364 F. Supp. 3d 1257,
1265 (D. Kan. 2019). Thus, the unjust enrichment counterclaim satisfies the logical
relationship test and is a compulsory counterclaim, such that the Court may properly
exercise supplemental jurisdiction over it.
d. Promissory Estoppel, Negligent Misrepresentation, And
Fraud
Hercules’s promissory estoppel, negligent misrepresentation, and fraud
counterclaims all rest on the same core allegation that Plaintiff falsely represented his
expertise. (See, e.g., Doc. 15 at 17 ¶ 58 [Promissory Estoppel: “[Plaintiff] promised
Hercules that he was an expert in finish carpentry, doors, plumbing, electrical, drywall,
tile, and roofing . . . .”]; id. at 17 ¶ 67 [Negligent Misrepresentation: “[Plaintiff] falsely
represented to Hercules that he was an expert in finish carpentry, doors, plumbing,
electrical, drywall, tile, and roofing.”]; id. at 18 ¶ 74 [Fraud: “[Plaintiff] falsely represented
to Hercules that he was an expert in finish carpentry, doors, plumbing, electrical, drywall,
tile, and roofing.”].)
The elements of a promissory estoppel claim under Arizona law are: “[1] a promise,
[2] which the promisor should reasonably foresee would cause the promisee to rely, [3]
upon which the promisee actually relies to his detriment.” Contempo Const. Co. v.
Mountain States Tel. & Tel. Co., 736 P.2d 13, 16 (Ariz. Ct. App. 1987).
The elements of a negligent misrepresentation claim under Arizona law are: “(1) the
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defendant provided false information in a business transaction; (2) the defendant intended
for the plaintiff to rely on the incorrect information or knew that it reasonably would rely;
(3) the defendant failed to exercise reasonable care in obtaining or communicating the
information; (4) the plaintiff justifiably relied on the incorrect information; and (5)
resulting damage.” KB Home Tucson, Inc. v. Charter Oak Fire Ins. Co., 340 P.3d 405, 412
n.7 (Ariz. Ct. App. 2014).
The elements of fraud under Arizona law are: “(1) a representation, (2) its falsity,
(3) its materiality, (4) the speaker’s knowledge of its falsity or ignorance of its truth, (5)
the speaker’s intent that it be acted upon by the recipient in the manner reasonably
calculated, (6) the hearer’s ignorance of its falsity, (7) the hearer’s reliance on its truth, (8)
the right to rely on it, and (9) a consequent and proximate injury.” Arnold & Assocs., Inc.
v. Misys Healthcare Sys., a div. of Misys, PLC, 275 F. Supp. 2d 1013, 1027 (D. Ariz. 2003)
(citing Nielson v. Flashberg, 419 P.2d 514, 517-18 (Ariz. 1966)).
Whether Plaintiff falsely represented his expertise to Hercules is logically related to
Plaintiff’s FLSA claim, which will turn on Plaintiff’s employment with Hercules and
whether he was properly compensated for his work. Presumably, Plaintiff will present
evidence as to the work he performed, while Hercules will seek to present evidence as to
how that work fell short of Plaintiff’s represented expertise. “Although the facts related to
the counterclaims may not be entirely connected to the essential facts underlying Plaintiff’s
FLSA claims, it cannot be said that no logical relationship exists between the counterclaims
and Plaintiff’s claims.” Schemkes, 2010 WL 11579615 at *3. See also id. (finding there
was a “logical relationship” between the plaintiff’s FLSA claim and the defendant’s
intentional and negligent misrepresentation counterclaims, which included an allegation
that the plaintiff “misrepresented certain information on his employment contract”);
Hayden, 2016 WL 9456363 at *1-2 (finding that the defendant’s fraud counterclaim, which
included an allegation that the plaintiff “misrepresented his prior work experience,” was
“sufficiently related to Plaintiff’s FLSA claim for unpaid overtime wages that they form
part of the same controversy alleged”).
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Moreover, Hercules’s promissory estoppel counterclaim also rests on an allegation
that Plaintiff “promised Hercules that he would provide verification of the hours worked
and work performed as a condition to compensation.” (Doc. 15 at 17 ¶ 59.) That allegation
also arises from the same aggregate set of operative facts as Plaintiff’s FLSA claim because
it directly relates to the core allegation underlying Plaintiff’s FLSA claim that he was not
compensated for the work he performed for Hercules.
As a result, the promissory estoppel, negligent misrepresentation, and fraud
counterclaims all satisfy the logical relationship test and are compulsory counterclaims,
such that the Court may properly exercise supplemental jurisdiction over them.
B. Discretion
1. The Parties’ Arguments
Plaintiff argues the Court should decline to exercise supplemental jurisdiction under
28 U.S.C. § 1367(c)(4) because “[a]llowing the non-wage disputes to color Plaintiff’s
wage-related claims would undercut the underlying purposes of the causes of action.”
(Doc. 19 at 10, citation omitted.) Plaintiff also argues that “courts have demonstrated their
disdain for an employer’s counterclaims in an FLSA action by finding counterclaims to be
retaliatory, in violation of the FLSA.” (Id. at 11.)
In response, Hercules argues that none of the § 1367(c) factors applies. (Doc. 22 at
8.) As for the first three factors, Hercules argues that the counterclaims are “not new or
complex issues of State law,” “[t]he Court has not dismissed any of Plaintiff’s claims,” and
“the counterclaims are closely related to and will not predominate over Plaintiff’s claims.”
(Id.) As for the fourth factor, Hercules argues that “[w]here, as here, a plaintiff brings
FLSA and AWA claims and the employer counterclaims for fraud, breach of contract, and
breach of the implied covenant arising from plaintiff’s misrepresentations about work
experience and failure to provide accurate timesheets, courts in this district have found that
judicial economy is best served by exercising supplemental jurisdiction.” (Id.)
In reply, Plaintiff appears to argue that the Court should decline to exercise
supplemental jurisdiction under § 1367(c)(2) because the counterclaims will “substantially
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predominate over Plaintiff’s wage claims because they attempt to shift the focus of the
litigation away from Plaintiff’s wage claims and toward [Hercules’s] alleged grievances
with Plaintiff.” (Doc. 24 at 4.) Plaintiff goes on to argue that “[i]f [Hercules’s]
[c]ounterclaims were permitted to remain, this litigation would cease to be about Plaintiff’s
unpaid wages, and it would transform into [Hercules’s] pursuit of grievances against its
former employee. (Id. at 5.)
2. Merits
As Plaintiff correctly notes, there are reasons to be cautious about allowing
defendants to assert counterclaims in an FLSA action. As one Arizona court explained:
Federal FLSA policy presents a compelling reason for the court to refuse to
exercise supplemental jurisdiction over Defendants’ counterclaims. As
noted by the Fifth Circuit, “[t]he only economic feud contemplated by the
FLSA involves the employer’s obedience to minimum wage and overtime
standards. To clutter these proceedings with the minutiae of other employer-
employee relationships would be antithetical to the purpose of the Act.”
Poehler, 2015 WL 7299804 at *2 (quoting Brennan v. Heard, 491 F.2d 1, 4 (5th Cir.
1974)). See also Ripley, 2018 WL 4931750 at *2 (same). However, as this Court has
previously noted, “these considerations don’t require courts to categorically decline to
exercise supplemental jurisdiction over such counterclaims under § 1367(c). Instead, the
discretionary analysis turns on the specific facts and circumstances of each case.”
Alexander v. Golden Margarita LLC, 2023 WL 1818911, *12 (D. Ariz. 2023).
For example, in Hayden, the plaintiff asserted FLSA and AWA claims for unpaid
wages and retaliation and the employer counterclaimed for fraud, breach of contract, and
breach of the implied covenant of good faith and fair dealing. 2016 WL 9456363 at *2.
The employer’s counterclaims arose from allegations that the plaintiff “misrepresented his
prior work experience and falsified his timesheets.” Id. In choosing to exercise
supplemental jurisdiction over the counterclaims, the court reasoned that “there is more
than simply an employment link that exists between [the] [p]laintiff’s claims and [the]
[d]efendants’ counterclaims,” and “judicial economy is best served by adjudicating all of
these issues in a single action.” Id. at *2. Other courts have reached the same conclusion
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under analogous circumstances. See, e.g., Preston, 2024 WL 5379115 at *5 (“On balance,
the values of economy, convenience, fairness, and comity weigh in favor of retaining
jurisdiction over Defendants’ [breach of contract] and [unjust enrichment] counterclaims.
Dismissing Defendants’ [breach of contract] and [unjust enrichment] counterclaims despite
their significant factual overlap with Plaintiff’s FLSA claim would waste judicial resources
on duplicative proceedings.”); Llanes v. Zalewski, 2019 WL 1509992, *3 (D. Or. 2019)
(“Although some courts have recognized that the policy against employer counterclaims in
FLSA actions, standing alone, is a compelling reason to decline jurisdiction, declining
supplemental jurisdiction over counterclaims in every FLSA action would contradict the
Ninth Circuit’s command that § 1367(c)(4) applies only in rare circumstances.”).
Here, too, the Court finds no compelling justification to decline to exercise
supplemental jurisdiction over Hercules’s counterclaims. Under the specific factual
circumstances of this case, judicial economy and convenience would best be served by
allowing Plaintiff’s claims and Hercules’s counterclaims to be tried together. Gibbs, 383
U.S. at 726.
Accordingly,
IT IS ORDERED that Plaintiff’s motion to dismiss (Doc. 19) is denied.
Dated this 23rd day of March, 2026.
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