The opinion of the court was delivered by: Ruben Castillo, Untied States District Judge
MEMORANDUM OPINION AND ORDER
Plaintiffs Adams Street Joint Venture ("Adams"), Hollub Heating, Inc.
("Hollub"), Mid-Lakes Distributing, Inc. ("Mid-Lakes"), Shoreline Garage
Co. ("Shoreline"), and Helene Hollub have filed suit against their former
employee, John J. Harte, for allegedly violating Title 9 of the Organized
Crime Control Act of 1970, 18 U.S.C. § 1961-1968, as well as for
common law fraud, breach of fiduciary duty, conversion, and constructive
trust. In response, Harte has filed counterclaims against two of the
plaintiff corporations: Counts I and II are breach of contract actions
against Mid-Lakes, and Count III is a breach of contract action against
Shoreline. Currently before the Court is Plaintiffs' motion to dismiss
Harte's counter-claims, pursuant to Federal Rule of Civil Procedure
(12)(b)(1), on the ground that this Court lacks subject matter
jurisdiction. Fed.R.Civ.P. 12(b)(1). For the reasons stated below, the
motion to dismiss is denied. (R. 22-1.)
Plaintiffs Adams, Hollub, Mid-Lakes, and Shoreline are Illinois
businesses in which Michael and Marilyn Hollub, husband and wife, are the
sole shareholders, or in the case of Adams, partners. For more than
thirty years, John J. Harte was employed by the plaintiffs as their
accountant. In this capacity, he managed several of the plaintiffs' bank
accounts and was a signatory on Mid-Lakes' reserve and/or checking
accounts. Harte received a salary from Mid-Lakes and from approximately
1998 to September 5, 2001 also served as its president. Plaintiffs filed
suit against Harte because they believe, in short, that over a period of
four years, Harte wrongfully diverted more than $400,000 of their funds
for his personal use.
Against these charges, Harte has raised a number of affirmative
defenses, including unclean hands, laches, and estoppel. (R. 20, Def.'s
Answer at 41.) In addition, he has filed three counterclaims of his own.
First, Harte claims that on September 5, 2001, in a meeting with Michael
and Marilyn Hollub, he was asked to resign from his post as President of
Mid-Lakes. In exchange, he was promised a severance package that included
a salary, use of the company car, insurance benefits, and a cell
phone. The benefits contained in the severance package were to last until
April 30, 2002. Harte accepted the offer and resigned from Mid-Lakes
effective September 5, 2001. Count I alleges that Mid-Lakes abruptly
terminated Harte's benefits on November 14, 2001, and that, in doing so, it
breached its severance contract with him. As a result, Harte now seeks
$41,000 in damages from Mid-Lakes.
Second, Harte claims that Mid-Lakes owes him full bonuses for the years
ending on April 30, 2000 and April 30, 2001. Count II alleges that
Mid-Lakes failed to pay him these amounts; consequently, Harte now seeks
$43,000 from Mid-Lakes. Finally, in Count Ill, Harte has sued Shorelines
for breach of contract. Specifically, Harte claims that in or about
September 2000, Michael Hollub agreed to pay him for time and money spent
working on Shoreline's behalf, dating back to 1998. Harte has valued this
amount, which includes more than 1,000 hours of work time, at $106,000.
Haute now seeks $106,000 from Shoreline.
The plaintiffs seek to dismiss Harte's three counterclaims on the
ground that this Court lacks proper subject matter jurisdiction over
them. Plaintiffs argue that none of Harte's claims are sufficiently
related to the initial complaint to form part of the same case or
controversy under Article III of the U.S. Constitution. (R. 26, Pl.'s
Reply at 3.) The plaintiffs assert that because defendant's counterclaims
are not related, they fall outside the scope of jurisdiction granted to
federal district courts by 28 U.S.C. § 1367 (a). Currently before
this Court is Plaintiffs' motion to dismiss for lack of subject matter
jurisdiction pursuant to Rule 12(b)(1).
A motion to dismiss tests the sufficiency of the complaint, not the
merits of the suit. Autry v. N.W. Premium Servs., Inc., 144 F.3d 1037,
1039 (7th Cir. 1998). All well-pleaded facts are taken as true, and all
inferences are drawn in favor of the non-movant. Dawson v. Gen. Motors
Corp., 977 F.2d 369, 372 (7th Cir. 1992). The motion will be granted only
if it appears beyond doubt that the non-movant can prove no set of facts
entitling him to relief Venture Assocs. Corp. v. Zenith Data Sys. Corp.,
987 F.2d 429, 432 (7th Cir. 1993).
Rule 12(b)(1) allows for dismissal of claims over which the federal
court lacks subject matter jurisdiction. Fed.R.Civ.P. 12(b)(1). As a
party seeking to invoke this Court's jurisdiction, Harte has the burden of
establishing that jurisdiction exists. KVOS, Inc. v. Associated Press,
299 U.S. 269, 278 (1936); Jaslowski v. Celico P'ship, No. 02 C 3601, 2002
WL 31085092, at *5 (N.D. Ill. Sept. 17, 2002). Without evidence raising a
fact question as to subject matter jurisdiction, the court's inquiry is
limited. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other
grounds, Davis v. Scherer, 468 U.S. 183 (1984). The court must simply ask
whether the complaint's allegations, construed in a light most favorable
to the counter-plaintiff, are sufficient to support subject matter
Harte's counterclaims are state law claims. To remain in federal
court, therefore, they must fall within this Court's supplemental
jurisdiction. The Court's supplemental jurisdiction is governed by
28 U.S.C. § 1367.
With the passage of § 1367, Congress revised the scope of the
district courts' supplemental jurisdiction and, in so doing, moved away
from the old nomenclature of permissive and compulsory counterclaims.
Channell, 89 F.3d at 384; see also, Crawford v. Equifax Payment Servs.,
Inc., No. 97 C 4240, 1998 WL 704050, at *5 (N.D. Ill. Sept. 30, 1998)
("[t]he distinction between permissive and compulsory counterclaims is no
longer meaningful."). Now the relevant inquiry is whether the state law
claims to be heard in federal court "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."
28 U.S.C. § 1367 (a). "This language now permits district courts to
maintain supplemental ...