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WOOLNER v. FLAIR COMMUNICATIONS AGENCY

January 20, 2004.

PAUL WOOLNER AND SUSAN WOOLNER, Plaintiff's,
v.
FLAIR COMMUNICATIONS AGENCY, INC., AND LEE F. FLAHERTY, Defendants



The opinion of the court was delivered by: BLANCHE MANNING, District Judge

MEMORANDUM AND ORDER

Plaintiff's Paul Woolner and Susan Woolner (collectively, "the Woolners") brought this action against their former employer, Defendants Flair Communications Agency, Inc. ("Flair") and Lee Flaherty, alleging employment discrimination and retaliation based on age (in violation of the Age Discrimination in Employment Act of 1967, 29 U.S.C. § 621, et seq.) and sex (in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e, et seq.) The present matter comes before this Court on Defendants' Motion for Leave to File First Amended Answer and Counterclaim. For the reasons set forth herein, the Court GRANTS this motion.

BACKGROUND*fn1

  The Woolners brought this action after Defendants terminated their employment for alleged deficiencies in their job performance. Defendants filed their initial answer on March 25, 2002. After conducting discovery, on August 15, 2003, Defendants brought the instant motion Page 2 seeking to add an additional affirmative defense (No. 6) and a counterclaim for breach of fiduciary duty. Affirmative Defense No, 6 states that:
Pursuant to the after acquired evidence doctrine, Susan Woolner and Paul Woolner are barred from receipt of any back pay or other damages based on a breach of their fiduciary duties and engaging in prohibited activity and/or receiving income from such activity while in the employment of Flair Communications. Susan Woolner engaged in those activities and/or received compensation from those activities. Paul Woolner was aware of such activities and/or received income as a result of those prohibited activities by Susan Woolner.
Similarly, the counterclaim alleges that while working "as a member of management" for Flair, Susan Woolner breached her fiduciary duty to Flair by "engag[ing] in competitive and other activity for an entity other than Flair." Paul Woolner, who was also a manager at Flair, knew of these activities and profited from them, and thereby, likewise breached his fiduciary duty to Flair. As a result of the alleged breach of fiduciary duties, Flair seeks forfeiture of compensation which it paid to the Woolners during the time of the breach.

  Defendants contend that the reason for their delay in asserting the additional affirmative defense and the counterclaim was that they were not aware of Susan Woolner's outside employment activities when their initial answer was filed. According to Defendants, the Woolners were terminated for poor job performance, and they did not learn of the alleged outside employment until discovery was well under way. Therefore, Defendants contend that they could not have brought Affirmative Defense No. 6 or the Counterclaim at the time they filed their initial answer and affirmative defenses.

  Moreover, even after discovery commenced, Defendants contend that they were not certain of the facts surrounding the Woolners' breach of fiduciary duty until August 2003, the month they filed the instant motion. At her deposition on November 18, 2002, Susan Woollier Page 3 denied engaging in any competitive business with Flair or performing outside work. After learning that the Woolners had an ownership interest in a company called M.W. Design, Inc. ("M.W."), Defendants served discovery requests seeking all documents pertaining to M.W. The Woolners, however, repeatedly failed to produce the responsive documents until nearly ten months later. To date only partial records have been produced and the income tax records from M.W. were not produced in printable fashion until August 1, 2003. Not until the Woolners finally produced M.W.'s tax returns did Defendants learn that the Woolners had received more than $43,000 in income for freelance business while employed by Flair.

  Additionally, Defendants received documents subpoenaed from a non-Flair client confirming that Susan Woolner, contrary to her testimony, scheduled "photo shoots" on Flair-workdays and invited non-Flair clients to call her at Flair to discuss business affairs for the personal benefit of the Woolners and M.W.

  ANALYSIS

  The Woolners object to the filing of both the counterclaim and Affirmative Defense No. 6. The Court will discuss both of these objections in turn.

 I. Counterclaim for Breach of Fiduciary Duty

  The Woolners contend that the Counterclaim is improper because it is; (A) permissive and "lacks the required jurisdictional basis"; and (B) barred by the statute of limitations.

  A. Counterclaims Under Rule 13

  The Federal Rules of Civil Procedure provide for two types of counterclaims — permissive and compulsory. For purposes of this case, it is important to note that a federal court has supplemental jurisdiction over compulsory counterclaims, governed by Rule 13(a); however, Page 4 permissive counterclaims, governed by Rule 13(b), require an independent jurisdictional basis. Unique Concepts, Inc. v. Manuel, 930 F.2d 573, 574-75 (7th Cir. 1991).

  The Woolners contend that the instant counterclaim is permissive, and because it does not have an independent jurisdictional basis (i.e., diversity or federal question), it is improper. The Court agrees that because the counterclaim is a state law breach of fiduciary duty claim between citizens of the same state, that this Court does not have an independent basis of federal jurisdiction. ...


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