19. Should the court grant the employee's motion to dismiss the counterclaim?

A «counterclaim» is a responsive claim by a defendant against a plaintiff in a civil suit. It is not a defense, answer, or denial, but an independent cause of action intended to diminish or defeat the plaintiff's claim. Federal Rule of Civil Procedure (FRCP) 13 provides for both permissive and compulsory counterclaims.

A «compulsory» counterclaim arises out of the same subject matter of the plaintiff's claim against the defendant, meaning the same transaction or occurrence.

All other counterclaims are «permissive,» meaning they do not arise out of the same subject matter. FRCP 13(b) allows a defendant to exercise discretion to add any permissive counterclaim not considered compulsory. No claim is too far removed from the subject of the plaintiff's claim to be allowed as a permissive counterclaim.

All counterclaims, including unrelated permissive counterclaims, must have an independent jurisdictional basis. In other words, all permissive counterclaims must rest on either federal question or diversity jurisdiction.

Supplemental jurisdiction allows a federal court to hear unrelated claims without subject-matter jurisdiction if they arise out of a «common nucleus of operative fact.» Supplemental jurisdiction usually applies to compulsory counterclaims because they arise out of the same transaction or occurrence as the original claim.

Permissive counterclaims, however, are less likely to be covered by supplemental jurisdiction because they may be entirely unrelated to the original claim and thus will not have arisen out of a «common nucleus of operative fact.»

C is correct. The corporation's counterclaim is permissive because it alleges a violation of State A tort conversion law, which is not based on the same transaction as the original claim (unpaid overtime under the Fair Labor Standards Act). The counterclaim does not have an independent basis for subject-matter jurisdiction in federal court because it does not raise a federal question or satisfy the $75,000 amount in controversy requirement for diversity (alleging only $2,500 in converted goods). Without the requisite independent basis for jurisdiction, the court should grant the employee's motion to dismiss the counterclaim.

A is incorrect. A claim without federal jurisdiction may only be subject to supplemental jurisdiction if it nevertheless arises from the same «nucleus of operative fact» as the original claim. Thus, a permissive counterclaim having nothing to do with the original claim and without any independent jurisdictional basis will not be subject to supplemental jurisdiction.

Here, the permissive counterclaim (conversion) does not fall under federal question or diversity jurisdiction, nor does supplemental jurisdiction apply because it is a conversion claim that does not arise from the same facts as the original unpaid wages claim.

B is incorrect. It is correct that the FRCP allow for permissive counterclaims. However, this falls short of what is required for a court to properly adjudicate a permissive counterclaim. The claim must satisfy some independent basis for subject-matter jurisdiction, such as federal question or diversity, neither of which applies to the corporation's conversion claim.

D is incorrect. This answer choice states the correct conclusion with the incorrect legal reasoning. The court should grant the employee's motion to dismiss the counterclaim, but not because it does not arise out of the same transaction as the original claim.

This answer implicates the rule for compulsory counterclaims, which are required to have arisen out of the same transaction as the original claim. However, this case involves a permissive counterclaim, which may be entirely unrelated to the subject matter of the original claim. As stated above, a permissive counterclaim must have an independent basis for jurisdiction, which is not the case here and is why the court should still grant the dismissal.