(N.D. Ill. Apr. 19, 2002). In turn, Ford Motor filed a counterclaim,
seeking payment for the breached underlying finance contracts at issue.
Citing Channell, the court found that Ford Motor's claims were related
enough to exercise supplemental jurisdiction, even though "a counterclaim
for recovery of a defaulted debt relating to the underlying contract
`falls within the outer boundary of § 1367(a).'" Rodriguez, 2002 WL
655679, at *6.
The critical issue in this case is whether Harte's breach of contract
charges are "so related to" Plaintiffs' civil RICO, fraud, breach of
fiduciary duty, and other claims that together they form the same case or
controversy. Counts II and III of Harte's counterclaim both center around
Harte' s failure to receive payment for the work he did prior to his
resignation from Mid-Lakes in 2001. Resolving these counts necessarily
involves an inquiry into Harte's behavior during his period of employment
with the plaintiffs. Moreover, assuming such a contract for bonuses and
payment did exist, as the Court is required to do when evaluating this
motion to dismiss, Dawson v. Gen. Motors Corp., 977 F.2d at 372, it is
possible that Mid-Lakes and Shoreline believed Harte's allegedly wrongful
diversion of money excused them from honoring their contractual
Both the plaintiffs' and the defendant's claims require the Court to
examine the nature of the relationship between Harte and his employers.
Whether Harte performed his duties or violated them by misappropriating
company funds is relevant to the civil RICO claim, the breach of
fiduciary duty claim, and to Harte's claims that he was not paid for his
work. Not only is there a "loose factual connection" between the original
claim and the counterclaim, but it appears that both stem from a "common
nucleus of operative facts." See Ammerman v. Sween, 54 F.3d at 434.
Indeed, with the exception of Count I of the counterclaim, both sides'
allegations rest on Harte's conduct as an employee during the few years
leading up to his September 2001 resignation from Mid-Lakes. On the other
hand, Harte's Count I alleges breach of a severance package that was not
arranged until September 2001 and allegedly breached in November 2001.
Although this allegation falls outside the time period most relevant to
the Plaintiffs' complaint, Mid-Lakes has asserted that Harte committed
yet another unauthorized transfer of funds on November 1, 2001. (R. 12,
Am. Compl. at 12.) Moreover, the factual circumstances surrounding
Michael Hollub and Harte's severance agreement certainly overlap with the
facts underlying the plaintiffs' claims.
Next, Mid-Lakes and Shoreline rely heavily on the idea that their
complaint sounds in tort law and thus could not possibly be related to
Harte's breach of contract claims. Yet this Court has found no case law
to suggest that the tort-contract distinction is relevant when analyzing
supplemental jurisdiction. In fact, the Seventh Circuit in Rothman held
that supplemental jurisdiction existed over Emory University's breach of
contract claim, even though Rothman's complaint asserted only statutory
violations, Rothman, 123 F.3d at 450. The Seventh Circuit apparently has
not deemed this distinction important, and the plaintiffs have not proven
Finally, even though a counterclaim may satisfy the requirements of
§ 1367(a), a district court may decline to extend jurisdiction over
the counterclaim if it falls into one of four exceptions provided in
§ 1367(c). 28 U.S.C. § 1367 (c). Section 1367(c) provides:
The district courts may decline to exercise
supplemental jurisdiction over a claim under
subsection (a) if —
(1) the claim raises a novel or complex issue of
(2) the claim substantially predominates over the
claim or claims over which the district court
has original jurisdiction,
(3) the district court has dismissed all claims over
which it has original jurisdiction, or
(4) in exceptional circumstances, there are other
compelling reasons for declining jurisdiction.
None of these four conditions is present in this case. Harte's breach of
contract claims do not raise any "novel or complex" issues of state law,
nor do they substantially predominate over the plaintiffs' claims. Cf.
Rodriguez, 2002 WL 655679 at *6 (finding that defendant's counterclaims
were "basic breach of contract claims that neither raise any novel,
complex issues of state law nor predominate over plaintiffs' claims").
Since Harte's counterclaims invoke supplemental jurisdiction under §
1367(a) and do not warrant dismissal under § 1367(c), this Court will
exercise jurisdiction over them.