Jesse Silva v. Hercules Distributors LLC, et al.

• Court: District Court, D. Arizona
• Decided: March 23, 2026
• Docket: 2:25-cv-01073
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Jesse Silva, No. CV-25-01073-PHX-DWL

10 Plaintiff, ORDER

11 v.

12 Hercules Distributors LLC, et al.,

13 Defendants. 14 15 Jesse Silva (“Plaintiff”), a former employee of Hercules Distributors LLC 16 (“Hercules”), brings this action against Hercules, Michael Gehart, and Joy Gehart 17 (collectively, “Defendants”). The complaint asserts violations of the Fair Labor Standards 18 Act (“FLSA”), the Arizona Minimum Wage Act (“AMWA”), and the Arizona Wage Act 19 (“AWA”). Hercules, in return, has asserted various state-law counterclaims against 20 Plaintiff. 21 Before the Court is Plaintiff’s motion to dismiss Hercules’s counterclaims for lack 22 of subject-matter jurisdiction. (Doc. 19.) The motion is fully briefed (Docs. 22, 24) and 23 neither side requested oral argument. For the reasons that follow, the motion is denied. 24 BACKGROUND 25 I. Plaintiff’s Complaint 26 In or around January 2025, “Plaintiff began working for Defendants performing 27 manual labor related to carpentry work and wire running.” (Doc. 1 ¶ 33.) Plaintiff “was 28 compensated, or supposed to be compensated, at an hourly rate of $31;” “generally worked 1 approximately 40 hours per workweek;” and “was paid, or supposed to be paid, on a weekly 2 basis.” (Id. ¶¶ 34, 41, 42.) 3 Plaintiff alleges that “[r]ather than classify [him] as an employee, Defendants 4 classified him as an independent contractor.” (Id. ¶ 35.) Plaintiff alleges that the following 5 facts demonstrate he was actually an employee, not an independent contractor, under the 6 FLSA: “Defendants controlled Plaintiff’s schedule”; “[i]n his work for Defendants, 7 Plaintiff used equipment owned by Defendants”; “Plaintiff was economically dependent 8 on Defendants”; “Defendants had the exclusive right to hire and fire Plaintiff”; 9 “Defendants set Plaintiff’s work schedule” and “rate of pay”; “Defendants supervised 10 Plaintiff and subjected him to Defendants’ rules”; “Plaintiff had no opportunity for profit 11 or loss in the business”; “[t]he services rendered by Plaintiff in his work for Defendants 12 were integral to Defendants’ business”; “Plaintiff was hired for a non-durational period, 13 generally working in excess of 40 hours per week for approximately nine months”; 14 “Plaintiff had no right to refuse work assigned to him by Defendants”; and “Defendants 15 did not allow Plaintiff to work for other apartment complex companies.” (Id. ¶¶ 37-40.) 16 On approximately March 10, 2025, “Defendant[s] terminated [Plaintiff’s] 17 employment.” (Id. ¶ 44.) “Defendants did not compensate Plaintiff any wages whatsoever 18 for the final approximately two workweeks of his employment with Defendants.” (Id. 19 ¶ 43.) 20 “After Defendants terminated Plaintiff’s employment, Plaintiff reached out to . . . 21 Michael Gehart to inquire as to when he would receive payment for both his penultimate 22 and final workweeks.” (Id. ¶ 45.) In response, Michael Gehart informed Plaintiff that he 23 “needed to verify the hours he worked and instructed Plaintiff to contact the superintendent, 24 Brian.” (Id. ¶ 46.) 25 Plaintiff then reached out to Brian who informed Plaintiff that he “needed to explain 26 the hours he worked so they could be approved.” (Id. ¶ 47.) “In response, Plaintiff 27 described the hours he worked pursuant to Brian’s . . . instructions.” (Id. ¶ 48.) “However, 28 Plaintiff was never compensated for such time worked.” (Id. ¶ 49.) And “[t]o date, 1 Defendants still have paid none of the wages due and owing to Plaintiff for such time 2 worked.” (Id. ¶ 50.) 3 Based on these allegations, the complaint asserts three causes of action: (1) FLSA, 4 failure to pay minimum wage; (2) AMWA, failure to pay minimum wage; and (3) AWA, 5 failure to pay wages due and owing (against Hercules only). 6 II. Hercules’s Counterclaims 7 Hercules asserts eight counterclaims against Plaintiff. (Doc. 15 at 14-18.) The 8 factual allegations giving rise to those counterclaims are as follows. 9 “Hercules is a licensed Residential General Contractor engaged in the business of 10 constructing, remodeling, and repairing residential structures and appurtenances” and 11 “uses appropriately licensed subcontractors or independent contractors to do certain work.” 12 (Id. at 9 ¶¶ 5-6.) 13 On or about February 15, 2025, “[Plaintiff] contacted Hercules and stated that he 14 was an expert (a ‘ten’ on a scale from one to ten) in finish carpentry, doors, plumbing, 15 electrical, drywall, tile, and roofing.” (Id. at 9 ¶ 7.) Plaintiff “met with Mike Gehart, and 16 asked to become a subcontractor for Hercules.” (Id. at 9 ¶ 8.) Mike Gehart “informed 17 [Plaintiff] that Hercules could consider giving [him] opportunities as an independent 18 contractor.” (Id. at 9 ¶ 9.) 19 Plaintiff “assured [Mike Gehart] that he was an expert in his indicated fields.” (Id. 20 at 9 ¶ 10.) “Based on [Plaintiff]’s assurances, Hercules and [Plaintiff] entered into an oral 21 contract whereby Hercules would give [Plaintiff] opportunities to do work for its clients as 22 an independent contractor, and [Plaintiff] would complete any tasks he took on in a quality 23 manner using his represented expertise.” (Id. at 10 ¶ 11.) Specifically, Hercules and 24 Plaintiff agreed, among other things, that: 25 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 26 of materials used for that job. Hercules would pay [Plaintiff] $31/hour for 27 these jobs. 28 . . . 1 [Plaintiff] would be responsible for the work he performed and, if Hercules reviewed his work and determined that corrections needed to be made, 2 [Plaintiff] would make those corrections himself, at no additional cost to 3 Hercules[.] 4 . . . 5 [Plaintiff] would check in with Hercules daily to review work progress and jobsite conditions, and would post pictures and descriptions of his work 6 (including start and stop times) daily to Hercules’s software system so that 7 Hercules could verify the work done and pass appropriate costs on to its clients[.] 8 (Id. at 10-11 ¶ 12(a), (d), (g).) 9 Hercules and Plaintiff also agreed that “they would enter into a written Independent 10 Contractor Agreement, which would not supersede the oral agreement but would 11 supplement it.” (Id. at 11 ¶ 13.) 12 On or about February 18, 2025 “Hercules and [Plaintiff] entered into the 13 Independent Contractor Agreement.” (Id. at 11 ¶ 14.) The Independent Contractor 14 Agreement provided that “[Plaintiff] would perform his independent contractor services 15 ‘in a diligent and workmanlike manner’ that is ‘completely satisfactory to [Hercules] and 16 . . . consistent with [Hercules’s] standards.’” (Id. at 11 ¶ 15.) “The Independent Contractor 17 Agreement also provided that [Plaintiff] would indemnify Hercules from any losses, costs, 18 fees, liabilities, or damages suffered as a result of [Plaintiff]’s failure to fulfill his obligation 19 to make all revisions, additions, deletions, or alterations to his work that are requested by 20 Hercules.” (Id. at 11 ¶ 16.) 21 During or around the week of February 17, 2025, “Plaintiff agreed to perform time 22 and materials work for Hercules’s clients which include[ed] wiring, lighting, setting plugs 23 and switches, and installing exhaust fans.” (Id. at 12 ¶ 18.) That same week, “[Plaintiff] 24 also agreed to paint, replace roof tiles, do electrical work, and replace a toilet at a house 25 owned by another of Hercules’s clients, again on a time and materials basis.” (Id. at 12 26 ¶ 19.) At the end the week, “[Mike Gehart] asked [Plaintiff] where the notes and photos 27 supporting his invoices were.” (Id. at 12 ¶ 20.) “[Plaintiff] responded that he did not 28 1 provide that information because he did not have a phone.” (Id. at 12 ¶ 21.) “[Mike Gehart] 2 explained that Hercules must have verification of the work performed in order to pay 3 [Plaintiff], and he set up a time for [Plaintiff] to speak with Hercules’s superintendent and 4 provide the information.” (Id. at 12 ¶ 22.) But “[Plaintiff] never provided Hercules 5 information relating to his start and stop times or the work he performed.” (Id. at 12 ¶ 23.) 6 “Upon inspection of the jobsites, Hercules discovered that [Plaintiff] did subpar 7 work, which Hercules had to pay another independent contractor to fix after [Plaintiff] 8 became unresponsive.” (Id. at 12 ¶ 24.) As a result, Hercules incurred a series of expenses 9 totaling “approximately $5,678.72 in labor . . . and $2,800 in materials.” (Id. at 12-13 10 ¶¶ 25-26.) 11 Based on these allegations, Hercules asserts eight counterclaims: (1) breach of 12 contract (oral contract); (2) breach of the implied covenant of good faith and fair dealing 13 (oral contract); (3) breach of contract (Independent Contractor Agreement); (4) breach of 14 the implied covenant of good faith and fair dealing (Independent Contractor Agreement); 15 (5) unjust enrichment; (6) promissory estoppel; (7) negligent misrepresentation; and (8) 16 fraud. (Id. at 14-18 ¶¶ 27-79.) 17 DISCUSSION 18 I. Legal Standard 19 “A motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) may 20 attack either the allegations of the complaint as insufficient to confer upon the court subject 21 matter jurisdiction, or the existence of subject matter jurisdiction in fact.” Ader v. 22 SimonMed Imaging Inc., 324 F. Supp. 3d 1045, 1048 (D. Ariz. 2018) (internal quotation 23 marks and citations omitted). “Where the jurisdictional issue is separable from the merits 24 of the case, the judge may consider the evidence presented with respect to the jurisdictional 25 issue and rule on that issue, resolving factual disputes if necessary.” Thornhill Publ’g Co. 26 v. Gen. Tel. & Elecs. Corp., 594 F.2d 730, 733 (9th Cir. 1979). “The party asserting 27 jurisdiction has the burden of proving all jurisdictional facts.” Indus. Tectonics, Inc. v. 28 Aero Alloy, 912 F.2d 1090, 1092 (9th Cir. 1990). 1 II. Supplemental Jurisdiction 2 28 U.S.C. § 1367(a) provides that “in any civil action of which the district courts 3 have original jurisdiction, the district courts shall have supplemental jurisdiction over all 4 other claims that are so related to claims in the action within such original jurisdiction that 5 they form part of the same case or controversy under Article III of the United States 6 Constitution.” “Section 1367 applies to both state-law claims brought by a plaintiff and to 7 state-law counterclaims brought by a defendant.” Nalan v. Access Fin., Inc., 2020 WL 8 6270945, *2 (N.D. Cal. 2020). Counterclaims are part of the same case or controversy 9 when they “derive from a common nucleus of operative fact and are such that a plaintiff 10 would ordinarily be expected to try them in one judicial proceeding.” Trs. of Constr. Indus. 11 & Laborers Health & Welfare Tr. v. Desert Valley Landscape & Maint., Inc., 333 F.3d 12 923, 925 (9th Cir. 2003) (cleaned up). 13 “Rule 13 of the Federal Rules of Civil Procedure governs the pleading requirements 14 of counterclaims, and provides that a counterclaim may be either compulsory or 15 permissive.” Nalan, 2020 WL 6270945 at *2. A counterclaim is compulsory if it “arises 16 out of the transaction or occurrence that is the subject matter of the opposing party’s claim” 17 and “does not require adding another party over whom the court cannot acquire 18 jurisdiction.” Fed. R. Civ. P. 13(a)(1). A permissive counterclaim is “any claim that is not 19 compulsory.” Fed. R. Civ. P. 13(b). 20 In deciding whether a claim is compulsory, the phrase “transaction or occurrence” 21 is “read broadly.” Pochiro v. Prudential Ins. Co., 827 F.2d 1246, 1252 (9th Cir. 1987). 22 The Ninth Circuit applies the “logical relationship test” to determine whether the claim is 23 compulsory. In re Pinkstaff, 974 F.2d 113, 115 (9th Cir. 1992). The logical relationship 24 test “analyze[s] whether the essential facts of the various claims are so logically connected 25 that considerations of judicial economy and fairness dictate that all the issues be resolved 26 in one lawsuit.” Pochiro, 827 F.2d at 1249 (internal quotation marks omitted). “A logical 27 relationship exists when the counterclaim arises from the same aggregate set of operative 28 facts as the initial claim, in that the same operative facts serve as the basis of both claims 1 or the aggregate core of facts upon which the claim rests activates additional legal rights 2 otherwise dormant in the defendant.” In re Pegasus Gold Corp., 394 F.3d 1189, 1196 (9th 3 Cir. 2005) (internal quotation marks omitted). 4 It is well established that if the logical relationship test is satisfied and a 5 counterclaim is compulsory, the “common nucleus of operative fact” requirement is 6 satisfied and § 1367(a) confers jurisdiction. Ader, 324 F. Supp. 3d at 1051. There is some 7 uncertainty, however, about whether § 1367(a) also extends jurisdiction over permissive 8 counterclaims under the right circumstances, given that the “case or controversy” language 9 of § 1367 “appears to be broad enough to encompass some permissive counterclaims.” 10 Campos v. W. Dental Servs., Inc., 404 F. Supp. 2d 1164, 1168 (N.D. Cal. 2005). See also 11 Nalan, 2020 WL 6270945 at *4 (“The Ninth Circuit has not definitively ruled on the 12 question of whether supplemental jurisdiction under § 1367 can cover permissive 13 counterclaims. However, at least two circuits have held that a federal court may exercise 14 supplemental jurisdiction over certain permissive counterclaims.”). 15 At any rate, under § 1367(c), a court may decline to exercise supplemental 16 jurisdiction over a claim or counterclaim if it “raises a novel or complex issue of State 17 law,” “substantially predominates over the claim or claims over which the district court has 18 original jurisdiction,” “the district court has dismissed all claims over which it has original 19 jurisdiction,” or “in exceptional circumstances, there are other compelling reasons for 20 declining jurisdiction.” “[A]ctually exercising discretion and deciding whether to decline, 21 or to retain, supplemental jurisdiction over state law claims when any factor in subdivision 22 (c) is implicated is a responsibility that district courts are duty-bound to take seriously.” 23 Acri v. Varian Assocs., Inc., 114 F.3d 999, 1001 (9th Cir.). “While discretion to decline to 24 exercise supplemental jurisdiction over state law claims is triggered by the presence of one 25 of the conditions in § 1367(c), it is informed by the Gibbs values ‘of economy, 26 convenience, fairness, and comity.’” Id. (citing United Mine Workers of Am. v. Gibbs, 27 383 U.S. 715, 726, (1966)). 28 … 1 III. Analysis 2 Plaintiff asserts claims against Defendants under the FLSA, AMWA, and AWA 3 based on Defendants’ alleged failure to pay him minimum wages and wages otherwise 4 owed to him. The Court must now decide whether it can (and should) exercise 5 supplemental jurisdiction over Hercules’s counterclaims against Plaintiff, which also relate 6 to Plaintiff’s work for Hercules. In Part III.A below, the Court addresses the first part of 7 this inquiry—that is, whether the counterclaims satisfy the “logical relationship” test, such 8 that jurisdiction is available under § 1367(a). In Part III.B below, the Court addresses the 9 second part of this inquiry—that is, whether the Court should nevertheless decline to 10 exercise supplemental jurisdiction based on the factors set forth in § 1367(c). 11 A. Logical Relationship 12 1. The Parties’ Arguments 13 Plaintiff argues that the counterclaims are permissive under Rule 13 and bear no 14 relation to his wage claims. (Doc. 19 at 3-10.) First, Plaintiff argues that the counterclaims 15 “are not compulsory because they do not arise out of the same transaction or occurrence 16 that is the subject matter of Plaintiff’s FLSA claim.” (Id. at 3.) Plaintiff argues that his 17 “claims will focus on how many hours he worked for Defendants, his regular rate of pay, 18 and whether he was paid for the work he performed.” (Id. at 4.) In contrast, Plaintiff 19 contends that the counterclaims “will rely on investigations into the standards of work that 20 Defendants expected compared to the finished product provided by Plaintiff, discovery into 21 the expected and customary methods of documenting completed work for Defendants, and 22 discovery into Plaintiff’s training, certifications, and experience in performing the types of 23 work he was hired to perform, and whether or not such qualifies him as an expert, or even 24 if there is a designated ‘rank’ of expert in these industries.” (Id. at 5.) Plaintiff thus 25 contends that “[t]he evidence necessary for [Hercules] to prove [its] [counter]claims will 26 not include any of the evidence necessary for Plaintiff to prove his wage claims, which are 27 the hours he worked and his wages he was not paid.” (Id.) Second, Plaintiff argues that 28 the “permissive [c]ounterclaims do not derive from the same common nucleus of operative 1 fact as Plaintiff’s wage claims.” (Id. at 6.) Specifically, Plaintiff argues that “the only 2 possible nexus between Plaintiff’s wage claims and [Hercules’s] [c]ounterclaims is 3 potentially the employment relationship between the two, the mere existence of which is 4 insufficient to establish supplemental jurisdiction over [Hercules’s] counterclaim[s].” (Id.) 5 Plaintiff further argues that even if the employment relationship is a nexus, Arizona district 6 courts have routinely found that such a relationship is insufficient to confer supplemental 7 jurisdiction. (Id. at 6-9.) 8 In response, Hercules argues that its counterclaims satisfy the logical relationship 9 test because “there is more than simply an employment link that exists between Plaintiff’s 10 claims and Hercules’s counterclaims” and “there will be substantial overlap between the 11 facts necessary to prove the counterclaims and the facts necessary to prove Plaintiff’s 12 claims.” (Doc. 22 at 5.) Hercules contends that both parties will seek discovery relating 13 to “(1) the relationship between Plaintiff and Hercules (whether employment or 14 independent contracting), (2) the work Plaintiff allegedly performed on Hercules’s behalf 15 (for which Plaintiff seeks payment and which Hercules contends was subpar), and (3) 16 whether Plaintiff was paid for the work performed (Plaintiff complains he should have but 17 was not, and Hercules contends that Plaintiff failed to provide information necessary for it 18 to make payment).” (Id.) Hercules argues that the existence of a logical relationship is 19 “underscored by the fact that [Plaintiff’s claims and the counterclaims] relate to a single 20 time period spanning, at most, a couple of months.” (Id.) As for its breach of contract, 21 breach of the implied covenant of good faith and fair dealing, and unjust enrichment 22 counterclaims specifically, Hercules argues that “[t]he facts needed to prove [Plaintiff’s 23 claims] are inextricable from the evidence Hercules needs for its counterclaims—i.e., what 24 work Plaintiff allegedly completed.” (Id. at 6.) As for its promissory estoppel, negligent 25 misrepresentation, and fraud counterclaims, Hercules argues that “[h]ere, too, Hercules’s 26 discovery will overlap with Plaintiff’s and the counterclaims arise out of the same 27 transaction or occurrence that is the subject of Plaintiff’s claims.” (Id. at 7.) 28 In reply, Plaintiff contends that the counterclaims “do not arise from a common 1 nucleus of operative fact” and argues that “[Hercules] ha[s] failed to meet [its] burden to 2 show the Court has jurisdiction over [its] [c]ounterclaims.” (Doc. 24 at 2.) Specifically, 3 Plaintiff argues that “[c]ontrary to [Hercules’s] assertion, [he] will not need to disprove the 4 existence of a contract or an independent contractor relationship.” (Id. at 3.) Plaintiff also 5 reasserts his arguments that the scope of Hercules’s counterclaims will require discovery 6 of facts beyond the scope of his FLSA claim. (Id. at 3-4.) 7 2. Merits 8 Courts frequently conclude that they lack supplemental jurisdiction over 9 counterclaims in FLSA actions, even when the counterclaims generally relate to the parties’ 10 employment relationship. See, e.g., Martinez v. PM&M Elec. Inc., 2019 WL 450870, *5 11 (D. Ariz. 2019) (“Plaintiff’s FLSA and Arizona Wage claims assert Defendants failed to 12 adequately compensate him. . . . In contrast, Titan’s counterclaims for breach of contract, 13 breach of implied covenant of good faith and fair dealing, unjust enrichment, and 14 negligence will require proof of the parties’ contract for the tools, withholding in 15 reimbursement of the contract, and Plaintiff’s alleged negligent refueling of a company 16 vehicle and the resulting damages. The two sets of claims overlap only insofar as each 17 arises from the circumstance that Plaintiff was employed by Titan. The simple fact of 18 employment is insufficient to establish supplemental jurisdiction over Titan’s 19 counterclaims.”); Ripley v. PMD Dev. LLC, 2018 WL 4931750, *2 (D. Ariz. 2018) (“[A]n 20 employment relationship alone does not generate supplemental jurisdiction over state law 21 counterclaims. . . . The counterclaims overlap with Ripley’s FLSA claim only insofar as 22 each arises from the contract and employment relationship between Defendants and Ripley, 23 which is insufficient to serve as the ‘common nucleus of operative facts.’”) (citations 24 omitted).1 There is not, however, a categorical rule against finding supplemental

25 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 26 the existence of an employment relationship. Indeed, other federal courts considering the issue have concluded that the mere existence of an employment relationship between 27 plaintiffs and defendants were insufficient to establish supplemental jurisdiction over Defendants’ counterclaims that have nothing to do with the underlying wage claims.”); 28 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 1 jurisdiction over such counterclaims. Instead, the jurisdictional analysis requires 2 consideration of the specific factual allegations that underlie the counterclaims. Pegasus 3 Gold Corp., 394 F.3d at 1196. 4 As explained below, the Court concludes that all of Hercules’s counterclaims meet 5 the logical relationship test, such that they form part of the same case or controversy as 6 Plaintiff’s FLSA claim. 7 a. Breach of Contract 8 A breach of contract claim has three elements under Arizona law: (1) the existence 9 of a contract, (2) its breach, and (3) resulting damages. Graham v. Asbury, 540 P.2d 656, 10 657 (Ariz. 1975). 11 Hercules asserts two counterclaims for breach of contract. Count One rests on 12 allegations that Hercules and Plaintiff had an enforceable oral contract and that Plaintiff 13 breached that contract by (1) failing to provide Hercules with descriptions and photos of 14 his work and (2) failing to perform work consistent with his represented experience. (Doc. 15 15 at 14 ¶¶ 27-30.) Count Three rests on allegations that Hercules and Plaintiff had an 16 enforceable contract through the Independent Contractor Agreement and that Plaintiff 17 breached that contract by (1) failing to provide Hercules with descriptions and photos of 18 his work, (2) failing to perform work in a diligent and workmanlike manner, and (3) failing 19 to indemnify Hercules for his failure to fulfill his obligations under the contract. 20 These allegations arise from the same aggregate set of operative facts as Plaintiff’s 21 FLSA claim. As for Plaintiff’s alleged failure to provide descriptions and photos of his 22 work, Hercules “alleges that Plaintiff’s employment contract dictated how he was to record 23 and verify the hours he worked, and that he breached the contract by not following 24 [Hercules’s] procedures. This claim . . . concerns how Plaintiff recorded the time he 25 worked and the procedures he followed for verifying those hours—issues that will arise in 26 the trial of [Plaintiff’s] FLSA claim.” Mundia v. Premier Luxury Realty LLC, 2025 WL 27 tenuous connection between the two claims is the existence of an employment relationship 28 between plaintiffs and defendants, which is insufficient to establish supplemental jurisdiction . . . .”) (citation omitted). 1 2614948, *2 (D. Ariz. 2025).2 As for Hercules’s remaining breach of contract allegations, 2 “[t]he essential facts related to these counterclaims concern whether [Plaintiff] 3 misrepresented certain information on his employment contract, breached . . . employment 4 contracts, and improperly [failed to indemnify Hercules under the Independent Contractor 5 Agreement]. Although the facts related to the counterclaims may not be entirely connected 6 to the essential facts underlying Plaintiff’s FLSA claims, it cannot be said that no logical 7 relationship exists between the counterclaims and Plaintiff’s claims.” Schemkes v. 8 Presidential Limousine, 2010 WL 11579615, *3 (D. Nev. 2010). Although Plaintiff is 9 correct that an employment relationship is insufficient on its own to generate supplemental 10 jurisdiction, the link between the claims here does not stem solely from the existence of 11 that relationship. Hayden v. Ariz. Pool & Fountain Guys, LLC, 2016 WL 9456363, *2 (D. 12 Ariz. 2016) (“In this case, however, there is more than simply an employment link that 13 exists between Plaintiff’s claims and Defendants’ counterclaims. Defendants allege that 14 Plaintiff often failed to complete and submit his timesheets, falsified his timesheets, and 15 misused time during his workday for personal tasks.”). 16 Moreover, the parties appear to dispute whether Plaintiff was in fact an employee— 17 as opposed to an independent contractor—covered under the FLSA and which party bears 18 the burden of establishing that relationship. Hercules argues that “both parties will seek to 19 discover facts relating to . . . the relationship between Plaintiff and Hercules (whether 20 employment or independent contracting).” (Doc. 22 at 5.) Plaintiff, on the other hand, 21 argues that he “will not need to disprove the existence of a contract or an independent 22 contractor relationship. Rather, [Hercules’s] [c]ounterclaims will require [it] to prove the 23 existence of a contractual relationship.” (Doc. 24 at 3.) This dispute provides another 24 reason why Hercules’s breach of contract counterclaims satisfy the logical relationship test. 25 “While Plaintiff’s status as an employee under the FLSA can only be determined by the

26 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 27 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 28 challenging the credibility of Plaintiff’s evidence because [it] did not keep [its] own records.” Mundia, 2025 WL 2614948 at *3. 1 ‘economic realities’ of the situation, and thus cannot be contracted away, the terms of this 2 contract will directly inform what that economic reality is. Therefore, discovery between 3 the [breach of contract and FLSA] claims will heavily overlap.” Preston v. Jingze Foods, 4 LLC., 2024 WL 5379115, *3 (D. Ariz. 2024) (citation omitted). See also Adame v. N. 5 Mountain Foothills Apartments LLC, 2025 WL 1927673, *2 (D. Ariz. 2025) (“The 6 specifics of [plaintiff]’s relationship with [defendant] will . . . be dispositive as to whether 7 he is covered under FLSA. . . . Construing that same oral contract and its terms will be 8 necessary to determine whether [plaintiff] breached his contract with [defendant]. . . . 9 [Defendant]’s breach of contract claim therefore shares a common nucleus of operative 10 fact with [plaintiff]’s FLSA claim and the court therefore has supplemental jurisdiction 11 over it.”). 12 The cases cited by Plaintiff are distinguishable. In Vasquez v. Dan Keen Services 13 Inc., 2021 WL 2043025 (D. Ariz. 2021), a plaintiff brought a FLSA claim for unpaid wages 14 and the employer counterclaimed for theft by conversion and fraud. Id. at *1. The court 15 dismissed the counterclaims for lack of subject-matter jurisdiction because they “would 16 demand entirely different discovery involving [the] [p]laintiff’s alleged use of [the] 17 [d]efendant’s equipment for his side hustle and his other alleged fraudulent conduct, such 18 as hour padding—not engaged in during the relevant period—while on the job.” Id. 19 (emphasis added). Here, in contrast, Hercules’s counterclaims and Plaintiff’s FLSA claim 20 “relate to a single time period spanning, at most, a couple of months.” (Doc. 22 at 5.) 21 Thus, discovery related to the two sets of claims is likely to overlap. Moreover, the core 22 allegation underlying the breach of contract counterclaims (i.e., Plaintiff’s failure to 23 provide descriptions and photos of his work and failure to perform work consistent with 24 his represented expertise) are factually distinct from the alleged misconduct underlying the 25 counterclaims in Vasquez (i.e., misuse of company property for a “side hustle” and 26 unrelated time theft) and instead are closely related to Plaintiff’s wage claims. 27 Similarly, in Ripley, a plaintiff brought an FLSA claim for unpaid wages and the 28 employer counterclaimed for misrepresentation and breach of contract. 2018 WL 4931750 1 at *1-2. “But the breach of contract in Ripley arose from the plaintiff ‘failing to follow the 2 defendant’s procedures,’ which did ‘not turn on evidence about the hours the plaintiff 3 worked and the compensation he received for that work. Here, by contrast, Plaintiff’s 4 alleged failure to abide by the employment contract directly relates to the number of hours 5 he worked.” Mundia, 2025 WL 2614948 at *2 (cleaned up). What’s more, the cases cited 6 by Plaintiff “did not involve a defendant claiming a plaintiff was not covered by FLSA 7 because they were an independent contractor. That issue can establish a common nucleus 8 of operative fact between a FLSA claim and a counterclaim so as to establish supplemental 9 jurisdiction.” Adame, 2025 WL 1927673 at *3 (distinguishing Vasquez, Ader, Ripley, and 10 Martinez). Therefore, the breach of contract counterclaims satisfy the logical relationship 11 test and are compulsory counterclaims, such that the Court may properly exercise 12 supplemental jurisdiction over them. 13 b. Breach Of The Implied Covenant Of Good Faith and Fair Dealing 14 15 “Arizona law implies a covenant of good faith and fair dealing in every contract.” 16 Keg Rests. Ariz., Inc. v. Jones, 375 P.3d 1173, 1186 (Ariz. Ct. App. 2016). “The covenant 17 requires that neither party do anything that will injure the right of the other to receive the 18 benefits of their agreement.” Wagenseller v. Scottsdale Mem’l Hosp., 710 P.2d 1025, 1038 19 (Ariz. 1985). “[A] party may . . . breach its duty of good faith without actually breaching 20 an express covenant in the contract.” Wells Fargo Bank v. Arizona Laborers, Teamsters 21 & Cement Masons Loc. No. 395 Pension Tr. Fund, 38 P.3d 12, 29 (Ariz. 2002). 22 Hercules asserts two counterclaims for breach of the implied covenant of good faith 23 and fair dealing—Count Two (oral contract) and Count Four (Independent Contractor 24 Agreement). Counts Two and Four rely on identical allegations as Hercules’s breach of 25 contract counterclaims (i.e., Plaintiff’s failure to provide descriptions and photos of his 26 work, failure to perform work consistent with his represented experience, failure to perform 27 work in a diligent and workmanlike manner, and failure to indemnify Hercules). Thus, for 28 the reasons set forth in the previous section of this order, they also qualify as compulsory 1 counterclaims and the Court may exercise supplemental jurisdiction over them. 2 c. Unjust Enrichment 3 Under Arizona law, “[a]n unjust enrichment claim requires proof of five elements: 4 (1) an enrichment, (2) an impoverishment, (3) a connection between the enrichment and 5 impoverishment, (4) the absence of justification for the enrichment and impoverishment, 6 and (5) the absence of a remedy provided by law.” Wang Elec., Inc. v. Smoke Tree Resort, 7 LLC, 283 P.3d 45, 49 (Ariz. Ct. App. 2012) (citation and internal quotation marks omitted). 8 Hercules asserts a claim for unjust enrichment as an alternative remedy should it be 9 denied a contractual remedy. (Doc. 15 at 16 ¶ 56.) Specifically, Hercules alleges that 10 “[Plaintiff] has been unjustly enriched by his abandoning, and not fixing, his subpar[] work 11 as described herein.” (Id. at 16 ¶ 52.) The alleged subpar work includes a list of expenses 12 incurred by Hercules upon inspection of the jobsites Plaintiff worked on. (See, e.g., id. at 13 12 ¶ 25(b) [“[r]ewire three can lights in the kitchen”]; id. at 13 ¶ 25(d) [“[r]ewire complete 14 circuit as code violation with box was used in attic”]; id. at 13 ¶ 25(f) [“[r]elocate plugs in 15 the bathroom as they were installed at wrong height”]; id. at 13 ¶ 25(j) [“[r]epaint bedroom 16 where [Plaintiff] used the wrong paint”].) 17 Courts in this District have repeatedly exercised supplemental jurisdiction over this 18 sort of unjust enrichment counterclaim in an FLSA action. See, e.g., Adame, 2025 WL 19 1927673 at *2 (“The core of [defendant]’s unjust enrichment claim is their allegation that 20 [plaintiff] was compensated for work he did not perform because he was engaging in 21 ‘improper and unlawful conduct’ during those times. Whether [plaintiff] was working— 22 and is therefore owed compensation for—the hours he claimed he worked overtime is key 23 to his FLSA claim and [defendant]’s unjust enrichment claim, weighing heavily in favor 24 of finding they share a common nucleus of operative fact.”); Preston, 2024 WL 5379115 25 at *4 (“[T]he facts surrounding [defendant’s unjust enrichment counterclaim] are the same 26 disputed facts which support Plaintiff’s FLSA claim, namely if Plaintiff was owed 27 compensation for the work performed. . . . [T]he Court will exercise supplement[al] 28 jurisdiction over [the unjust enrichment claim].). 1 Hercules’s unjust enrichment counterclaim will require the Court to evaluate much 2 of the same evidence necessary to evaluate Plaintiff’s FLSA claim. Plaintiff will need to 3 present evidence to demonstrate how many hours he worked and how much Hercules 4 should have paid him. Hercules will likely rely on much of that same evidence when 5 seeking to show that the work Plaintiff completed was subpar. In sum, both parties will 6 rely on evidence of the work Plaintiff completed. Moreover, “allowing [Hercules]’s unjust 7 enrichment counterclaim to proceed would serve the interests of judicial economy. A 8 simultaneous determination of the claims is necessary to calculate the appropriate measure 9 of damages.” Jones v. Addictive Behav. Change Health Grp., LLC, 364 F. Supp. 3d 1257, 10 1265 (D. Kan. 2019). Thus, the unjust enrichment counterclaim satisfies the logical 11 relationship test and is a compulsory counterclaim, such that the Court may properly 12 exercise supplemental jurisdiction over it. 13 d. Promissory Estoppel, Negligent Misrepresentation, And Fraud 14 15 Hercules’s promissory estoppel, negligent misrepresentation, and fraud 16 counterclaims all rest on the same core allegation that Plaintiff falsely represented his 17 expertise. (See, e.g., Doc. 15 at 17 ¶ 58 [Promissory Estoppel: “[Plaintiff] promised 18 Hercules that he was an expert in finish carpentry, doors, plumbing, electrical, drywall, 19 tile, and roofing . . . .”]; id. at 17 ¶ 67 [Negligent Misrepresentation: “[Plaintiff] falsely 20 represented to Hercules that he was an expert in finish carpentry, doors, plumbing, 21 electrical, drywall, tile, and roofing.”]; id. at 18 ¶ 74 [Fraud: “[Plaintiff] falsely represented 22 to Hercules that he was an expert in finish carpentry, doors, plumbing, electrical, drywall, 23 tile, and roofing.”].) 24 The elements of a promissory estoppel claim under Arizona law are: “[1] a promise, 25 [2] which the promisor should reasonably foresee would cause the promisee to rely, [3] 26 upon which the promisee actually relies to his detriment.” Contempo Const. Co. v. 27 Mountain States Tel. & Tel. Co., 736 P.2d 13, 16 (Ariz. Ct. App. 1987). 28 The elements of a negligent misrepresentation claim under Arizona law are: “(1) the 1 defendant provided false information in a business transaction; (2) the defendant intended 2 for the plaintiff to rely on the incorrect information or knew that it reasonably would rely; 3 (3) the defendant failed to exercise reasonable care in obtaining or communicating the 4 information; (4) the plaintiff justifiably relied on the incorrect information; and (5) 5 resulting damage.” KB Home Tucson, Inc. v. Charter Oak Fire Ins. Co., 340 P.3d 405, 412 6 n.7 (Ariz. Ct. App. 2014). 7 The elements of fraud under Arizona law are: “(1) a representation, (2) its falsity, 8 (3) its materiality, (4) the speaker’s knowledge of its falsity or ignorance of its truth, (5) 9 the speaker’s intent that it be acted upon by the recipient in the manner reasonably 10 calculated, (6) the hearer’s ignorance of its falsity, (7) the hearer’s reliance on its truth, (8) 11 the right to rely on it, and (9) a consequent and proximate injury.” Arnold & Assocs., Inc. 12 v. Misys Healthcare Sys., a div. of Misys, PLC, 275 F. Supp. 2d 1013, 1027 (D. Ariz. 2003) 13 (citing Nielson v. Flashberg, 419 P.2d 514, 517-18 (Ariz. 1966)). 14 Whether Plaintiff falsely represented his expertise to Hercules is logically related to 15 Plaintiff’s FLSA claim, which will turn on Plaintiff’s employment with Hercules and 16 whether he was properly compensated for his work. Presumably, Plaintiff will present 17 evidence as to the work he performed, while Hercules will seek to present evidence as to 18 how that work fell short of Plaintiff’s represented expertise. “Although the facts related to 19 the counterclaims may not be entirely connected to the essential facts underlying Plaintiff’s 20 FLSA claims, it cannot be said that no logical relationship exists between the counterclaims 21 and Plaintiff’s claims.” Schemkes, 2010 WL 11579615 at *3. See also id. (finding there 22 was a “logical relationship” between the plaintiff’s FLSA claim and the defendant’s 23 intentional and negligent misrepresentation counterclaims, which included an allegation 24 that the plaintiff “misrepresented certain information on his employment contract”); 25 Hayden, 2016 WL 9456363 at *1-2 (finding that the defendant’s fraud counterclaim, which 26 included an allegation that the plaintiff “misrepresented his prior work experience,” was 27 “sufficiently related to Plaintiff’s FLSA claim for unpaid overtime wages that they form 28 part of the same controversy alleged”). 1 Moreover, Hercules’s promissory estoppel counterclaim also rests on an allegation 2 that Plaintiff “promised Hercules that he would provide verification of the hours worked 3 and work performed as a condition to compensation.” (Doc. 15 at 17 ¶ 59.) That allegation 4 also arises from the same aggregate set of operative facts as Plaintiff’s FLSA claim because 5 it directly relates to the core allegation underlying Plaintiff’s FLSA claim that he was not 6 compensated for the work he performed for Hercules. 7 As a result, the promissory estoppel, negligent misrepresentation, and fraud 8 counterclaims all satisfy the logical relationship test and are compulsory counterclaims, 9 such that the Court may properly exercise supplemental jurisdiction over them. 10 B. Discretion 11 1. The Parties’ Arguments 12 Plaintiff argues the Court should decline to exercise supplemental jurisdiction under 13 28 U.S.C. § 1367(c)(4) because “[a]llowing the non-wage disputes to color Plaintiff’s 14 wage-related claims would undercut the underlying purposes of the causes of action.” 15 (Doc. 19 at 10, citation omitted.) Plaintiff also argues that “courts have demonstrated their 16 disdain for an employer’s counterclaims in an FLSA action by finding counterclaims to be 17 retaliatory, in violation of the FLSA.” (Id. at 11.) 18 In response, Hercules argues that none of the § 1367(c) factors applies. (Doc. 22 at 19 8.) As for the first three factors, Hercules argues that the counterclaims are “not new or 20 complex issues of State law,” “[t]he Court has not dismissed any of Plaintiff’s claims,” and 21 “the counterclaims are closely related to and will not predominate over Plaintiff’s claims.” 22 (Id.) As for the fourth factor, Hercules argues that “[w]here, as here, a plaintiff brings 23 FLSA and AWA claims and the employer counterclaims for fraud, breach of contract, and 24 breach of the implied covenant arising from plaintiff’s misrepresentations about work 25 experience and failure to provide accurate timesheets, courts in this district have found that 26 judicial economy is best served by exercising supplemental jurisdiction.” (Id.) 27 In reply, Plaintiff appears to argue that the Court should decline to exercise 28 supplemental jurisdiction under § 1367(c)(2) because the counterclaims will “substantially 1 predominate over Plaintiff’s wage claims because they attempt to shift the focus of the 2 litigation away from Plaintiff’s wage claims and toward [Hercules’s] alleged grievances 3 with Plaintiff.” (Doc. 24 at 4.) Plaintiff goes on to argue that “[i]f [Hercules’s] 4 [c]ounterclaims were permitted to remain, this litigation would cease to be about Plaintiff’s 5 unpaid wages, and it would transform into [Hercules’s] pursuit of grievances against its 6 former employee. (Id. at 5.) 7 2. Merits 8 As Plaintiff correctly notes, there are reasons to be cautious about allowing 9 defendants to assert counterclaims in an FLSA action. As one Arizona court explained: 10 Federal FLSA policy presents a compelling reason for the court to refuse to exercise supplemental jurisdiction over Defendants’ counterclaims. As 11 noted by the Fifth Circuit, “[t]he only economic feud contemplated by the 12 FLSA involves the employer’s obedience to minimum wage and overtime standards. To clutter these proceedings with the minutiae of other employer- 13 employee relationships would be antithetical to the purpose of the Act.” 14 Poehler, 2015 WL 7299804 at *2 (quoting Brennan v. Heard, 491 F.2d 1, 4 (5th Cir. 15 1974)). See also Ripley, 2018 WL 4931750 at *2 (same). However, as this Court has 16 previously noted, “these considerations don’t require courts to categorically decline to 17 exercise supplemental jurisdiction over such counterclaims under § 1367(c). Instead, the 18 discretionary analysis turns on the specific facts and circumstances of each case.” 19 Alexander v. Golden Margarita LLC, 2023 WL 1818911, *12 (D. Ariz. 2023). 20 For example, in Hayden, the plaintiff asserted FLSA and AWA claims for unpaid 21 wages and retaliation and the employer counterclaimed for fraud, breach of contract, and 22 breach of the implied covenant of good faith and fair dealing. 2016 WL 9456363 at *2. 23 The employer’s counterclaims arose from allegations that the plaintiff “misrepresented his 24 prior work experience and falsified his timesheets.” Id. In choosing to exercise 25 supplemental jurisdiction over the counterclaims, the court reasoned that “there is more 26 than simply an employment link that exists between [the] [p]laintiff’s claims and [the] 27 [d]efendants’ counterclaims,” and “judicial economy is best served by adjudicating all of 28 these issues in a single action.” Id. at *2. Other courts have reached the same conclusion 1 || under analogous circumstances. See, e.g., Preston, 2024 WL 5379115 at *5 (“On balance, 2|| the values of economy, convenience, fairness, and comity weigh in favor of retaining 3 || jurisdiction over Defendants’ [breach of contract] and [unjust enrichment] counterclaims. Dismissing Defendants’ [breach of contract] and [unjust enrichment] counterclaims despite 5 || their significant factual overlap with Plaintiff's FLSA claim would waste judicial resources 6 || on duplicative proceedings.”); Llanes v. Zalewski, 2019 WL 1509992, *3 (D. Or. 2019) 7|| (“Although some courts have recognized that the policy against employer counterclaims in 8 || 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.”). 11 Here, too, the Court finds no compelling justification to decline to exercise □□ supplemental jurisdiction over Hercules’s counterclaims. Under the specific factual 13 || circumstances of this case, judicial economy and convenience would best be served by allowing Plaintiffs claims and Hercules’s counterclaims to be tried together. Gibbs, 383 U.S. at 726. 16 Accordingly, 17 IT IS ORDERED that Plaintiff's motion to dismiss (Doc. 19) is denied. 18 Dated this 23rd day of March, 2026. 19

Dominic W, Lanza 22 United States District Judge 23 24 25 26 27 28

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