Lyon v. Whisman

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit
1-19-1995
Lyon v Whisman
Precedential or Non-Precedential:
Docket 94-7190
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Recommended Citation
"Lyon v Whisman" (1995). 1995 Decisions. Paper 14.
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 94-7190 and 94-7283
PATRICIA A. LYON
v.
JAMES A. WHISMAN; Whisman & Associates, P.A.,
Appellants
PATRICIA A. LYON
v.
JAMES A. WHISMAN;
WHISMAN & ASSOCIATES, P.A.
James A. Whisman, Jr.
Whisman & Associates, P.A.,
Appellants
On Appeal from the United States District Court
for the District of Delaware
(Civil Action No. 91-289)
Argued November 1, 1994
BEFORE: GREENBERG and McKEE, Circuit Judges,
and POLLAK, District Judge*
(Filed: January 19, 1995)
______________
Barry M. Willoughby (argued)
Bhavana Sontakay
Young, Conaway, Stargatt
& Taylor
Rodney Square North, 11th Floor
* Honorable Louis H. Pollak, Senior United States District Judge
for the Eastern District of Pennsylvania, sitting by
designation.
P. O. Box 391
Wilmington, DE 19899-0391
Attorneys for Appellants
Fredric J. Gross (argued)
7 East Kings Highway
Mount Ephraim, NJ 08059
Attorney for Appellee
OPINION OF THE COURT
GREENBERG, Circuit Judge.
I. Introduction
Patricia A. Lyon sued her employer, Whisman &
Associates, an accounting firm which is a Delaware corporation,
and its president James A. Whisman, in the United States District
Court for the District of Delaware, charging that they failed to
pay her overtime wages as required by the Fair Labor Standards
Act ("FLSA"), 29 U.S.C. § 207(a). As a matter of convenience we
will refer to both defendants as Whisman. Lyon's complaint also
included Delaware contract and tort claims charging that Whisman
failed to pay her a promised bonus on time or in full. At trial
Lyon prevailed on all three grounds. Whisman then appealed,
challenging only the judgment on the tort claim. We must vacate
the judgments on both of the state law claims, however, because
the claims did not share a "common nucleus of operative fact"
with the FLSA claim, and thus the district court lacked subject
matter jurisdiction over them supplemental to its federal
question jurisdiction over the FLSA claim.1
We set forth the facts and the aspects of the
procedural history necessary for resolution of the jurisdictional
issue.2 Lyon began working as a bookkeeper for Whisman in
January 1988 on an at-will basis for hourly wages. Lyon and
Whisman soon became embroiled in a dispute over a bonus that
Whisman promised to pay Lyon at the end of 1988; by 1989 Lyon
planned to find a new job. Whisman, however, threatened to
rescind the bonus if Lyon left its employment. Although Whisman
eventually did pay Lyon a bonus, she charges that the payment was
late and was for less than the promised amount.
After Lyon left Whisman's employment she filed a three-
count complaint alleging that it had
(1) violated the FLSA, 29 U.S.C. § 207(a),
by failing to pay overtime wages;
(2) violated Delaware contract law by paying
a bonus smaller than promised; and
(3) violated Delaware tort law by
threatening to withhold a vested bonus
if she left its employ.
1
. Since "the initial notice of appeal invokes [appellate]
jurisdiction over the whole case," we properly may consider the
propriety of the state contract judgment despite the fact that
Whisman appealed only from the tort judgment. United States v.
Tabor Court Realty Corp., 943 F.2d 335, 344 (3d Cir. 1991), cert.
denied, 112 S.Ct. 1167 (1992).
2
. Because of procedural concerns which we need not recount,
Whisman filed a notice of appeal and amended notices of appeal in
a successful effort to ensure that we would have appellate
jurisdiction. We have consolidated the appeals.
The district court had federal question jurisdiction over Lyon's
FLSA claim under 28 U.S.C. § 1331, and Lyon asserted that it had
"pendent" federal jurisdiction over the state law claims in
counts two and three. Neither the district court nor Whisman
questioned this assertion of pendent jurisdiction which, in
accordance with 28 U.S.C. § 1367, we usually will call
supplemental jurisdiction. Since the district court did not have
diversity jurisdiction, it could entertain the state-law claims
only by exercising supplemental jurisdiction.
At trial Lyon won on all three counts. She recovered
$731.20 on the contract claim and $5,000 in compensatory damages
and $20,000 in punitive damages on the tort claim.3 We cannot
ascertain what she recovered on the FLSA claim as the docket
sheets do not reflect the amount and the parties make no
reference to it in their briefs. Whisman appealed only from the
judgment on count three, the Delaware law tort claim. We have
jurisdiction pursuant to 28 U.S.C. § 1291.
II. Discussion
Although neither the parties nor the district court
questioned the court's supplemental jurisdiction over Lyon's
state law contract and tort claims, we inquire into that
jurisdiction on our own initiative. See Bender v. Williamsport
Area Sch. Dist., 475 U.S. 534, 541, 106 S.Ct. 1326, 1331 (1986).
3
. The punitive damages verdict was for $75,000 but Lyon
accepted a remittitur reducing the damages to $20,000.
Consequently following oral argument we directed the parties to
file briefs on this point and they have done so.
A. The Constitutional Test
Congress has authorized district courts to exercise
jurisdiction supplemental to their federal question jurisdiction
in 28 U.S.C. § 1367, which states:
in any civil action of which the district
courts have original jurisdiction, the
district courts shall have supplemental
jurisdiction over all other claims that 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.
In Sinclair v. Soniform, Inc., 935 F.2d 599, 603 (3d
Cir. 1991), we treated section 1367 as codifying the
jurisdictional standard established in United Mine Workers v.
Gibbs, 383 U.S. 715, 86 S.Ct. 1130 (1966). A leading treatise
concurs: "[Section 1367] incorporates the constitutional
analysis of the Gibbs case." 13B Charles A. Wright et al.,
Federal Practice & Procedure § 3567.1 (supp. 1994), citing, inter
alia, Soniform.4 Gibbs laid down three requirements for
4
. Section 1367(c) may have modified the discretionary arm of
the Gibbs decision, under which a district court may dismiss a
supplemental claim notwithstanding that it has the constitutional
power to entertain the claim. See LaSorella v. Penrose St.
Francis Healthcare Sys., 818 F. Supp. 1413 (D. Colo. 1993).
Here, however, we are concerned with the district court's power
to hear the state law claims under § 1367(a), and all authority
indicates that Gibbs continues to control the constitutional
dimension of this jurisdictional determination.
supplemental jurisdiction. First, "[t]he federal claim must have
substance sufficient to confer subject matter jurisdiction on the
court." Gibbs, 383 U.S. at 725, 86 S.Ct. at 1138. Lyon's FLSA
claim satisfies this standard.
The other two requirements before federal courts may
exercise supplemental jurisdiction to hear state law claims are:
[1] The state and federal claims must derive
from a common nucleus of operative facts.
[2] But if, considered without regard to
their federal or state character, a
plaintiff's claims are such that he would
ordinarily be expected to try them all in one
judicial proceeding, then, assuming
substantiality of the federal issues, there
is power in federal courts to hear the whole.
Id. Despite the ambiguity of the language connecting [1] the
"nexus" requirement with [2] the "one proceeding" standard, all
judicial authority finds that they are cumulative: state claims
must satisfy both before a district court may exercise
supplemental jurisdiction. 13B Charles A. Wright et al., Federal
Practice & Procedure § 3567.1 (1984 & supp. 1994), citing
Almenares v. Wyman, 453 F.2d 1075, 1083 (2d Cir. 1971), cert.
denied, 405 U.S. 944, 92 S.Ct. 962 (1972); Beverly Hills Nat.
Bank & Trust Co. v. Compania De Navegacione Almirante S.A., 437
(..continued)
We do observe, however, that it is possible that even
if the district court had the power to hear the supplemental
claims, it abused its discretion in doing so. Section 1367(c),
inter alia, counsels against the exercise of jurisdiction when
"the claim raises a novel or complex issue of State law," and
when "the [state] claim substantially predominates over the
[federal] claims . . . ." The tort claim in this suit is both
novel and complex, and it seems to have predominated at the
trial.
F.2d 301, 306 (9th Cir.), cert. denied, 402 U.S. 996, 91 S.Ct.
2173 (1971). Because we find that there was an insufficient
factual nexus between the federal and state claims to establish a
common nucleus of operative facts, we will not consider the "one
proceeding" arm of Gibbs.
B. The Case-Specific Nature of the Inquiry
The test for a "common nucleus of operative facts" is
not self-evident. Indeed, "[i]n trying to set out standards for
supplemental jurisdiction and to apply them consistently, we
observe that, like unhappy families, no two cases of supplemental
jurisdiction are exactly alike." Nanavati v. Burdette Tomlin
Memorial Hosp., 857 F.2d 96, 105 (3d Cir. 1988), cert. denied,
489 U.S. 1078, 109 S.Ct. 1528 (1989).
We can illustrate the fact-sensitive nature of
supplemental jurisdiction determinations by contrasting our
treatment of state defamation claims in Nanavati with our
treatment of similar claims in PAAC v. Rizzo, 502 F.2d 306 (3d
Cir. 1974), cert. denied, 419 U.S. 1108, 95 S.Ct. 780 (1975). In
Nanavati, we found that the district court had the power to
adjudicate a slander claim asserted by an antitrust defendant,
noting that "a critical background fact (the enmity between the
two physicians) is common to all claims." Nanavati, 857 F.2d at
105. We concluded that the alleged slanders naturally would
become part of the antitrust trial since the slander victim might
use the slanderer's allegedly wrongful behavior to justify the
victim's conduct which the other party contended was actionable
under the antitrust laws. Id. at 105-06. In PAAC, however, we
ruled that the district court lacked jurisdiction over a state
defamation claim in a suit brought under the Economic Opportunity
Act charging the defendant with unlawfully interfering with the
agency established under that law. In PAAC we recited the
operative language of Gibbs and found that the state claims were
not related sufficiently to the federal claim to permit the
exercise of pendent jurisdiction.
The line that separates Nanavati and PAAC is Article
III of the Constitution. Both cases fall near the line; one is
on one side, the other is on the other side. In most instances
the question whether Article III is satisfied is not that close.
For example, when the same acts violate parallel federal and
state laws, the common nucleus of operative facts is obvious and
federal courts routinely exercise supplemental jurisdiction over
the state law claims. See, e.g., Pueblo Int'l, Inc. v. De
Cardona, 725 F.2d 823, 826 (1st Cir. 1984) (finding jurisdiction
over claims under Puerto Rico constitution, civil rights laws,
and antitrust laws where federal jurisdiction was established
under parallel laws, observing that "[t]he facts necessary to
prove a violation of one are practically the same as those needed
to prove a violation of the other").
Thus, district courts will exercise supplemental
jurisdiction if the federal and state claims "are merely
alternative theories of recovery based on the same acts," Lentino
v. Fringe Employee Plans, Inc., 611 F.2d 474, 479 (3d Cir. 1979).
In Lentino, for instance, we recognized that there was federal
jurisdiction over a state legal malpractice claim joined with an
ERISA claim because the alleged malpractice involved precisely
the same acts that the plaintiffs charged constituted a breach of
fiduciary duties under ERISA. In White v. County of Newberry,
985 F.2d 168 (4th Cir. 1993), landowners sued the county for
"response costs" under CERCLA and for inverse condemnation,
claiming that the county's discharge of toxic waste into
groundwater and wells effectively took their property. In
sustaining the exercise of supplemental jurisdiction over the
state law inverse condemnation claim, the court said that "[b]oth
claims share the common element of showing that the County
engaged in an act  a release [CERCLA language] or an
affirmative, positive, aggressive act [South Carolina inverse
condemnation language]  that in this case would be the dumping
or disposal of [a toxin] in a manner that caused contamination
. . . ." Id. at 172. Two areas in which the federal courts
quite commonly exercise supplemental jurisdiction based on
"alternative theories of recovery based on the same acts" are
state fraud claims in securities cases5 and state assault claims
in civil rights suits charging police abuses.6
5
. See Klaus v. Hi-Shear Corp., 528 F.2d 225 (9th Cir. 1975);
Vanderboom v. Sexton, 422 F.2d 1233 (8th Cir.) cert. denied, 400
U.S. 852, 91 S.Ct. (1970); First Interregional Equity Corp. v.
Haughton, 805 F. Supp. 196 (S.D.N.Y. 1992); In re Storage
Technology Corp. Sec. Litig., 804 F. Supp. 1368 (D. Colo. 1992);
Bowman v. Hartig, 334 F. Supp. 1323 (S.D.N.Y. 1971).
6
. See Chudzik v. City of Wilmington, 809 F. Supp. 1142 (D. Del.
1992); Stewart v. Roe, 776 F. Supp. 1304 (N.D. Ill. 1991).
On the other hand, we have refused to exercise
supplemental jurisdiction over state claims totally unrelated to
a cause of action under federal law. For instance, in Local No.
1 (ACA) v. International Bhd. of Teamsters, 614 F.2d 846 (3d Cir.
1980), we found the district court powerless to try a state-law
salary dispute when federal jurisdiction arose from a union
merger dispute actionable under the Labor Management Relations
Act ("LMRA"). We reasoned that "the merger and salary claims are
factually distinct and do not meet the test enunciated in United
Mine Workers v. Gibbs . . . . [The two are] not derived 'from a
common nucleus of operative facts.'" Id. at 851-52.
As might be expected there are closer cases than those
we have described. Furthermore, the courts have not been
consistent in defining the nexus between the federal and state
claims necessary to support supplemental jurisdiction in these
closer cases. Thus, some courts have stated that even a "loose"
nexus is enough. Frye v. Pioneer Logging Machinery, Inc., 555 F.
Supp. 730, 732 (D.S.C. 1983); Ritter v. Colorado Interstate Gas
Co., 593 F. Supp. 1279, 1281 (D. Colo. 1984). But at least one
court strongly and explicitly has rejected this loose nexus test,
finding that it expands judicial power beyond the limits set by
Article III of the Constitution. Mason v. Richmond Motor Co.,
625 F. Supp. 883, 886 (D. Va. 1986), aff'd, 825 F.2d 407 (4th
Cir. 1987) (table). Numerous other decisions implicitly reject
the loose nexus test.7 Here we see no need to define how close
7
. Sanders v. Duke Univ., 538 F. Supp. 1143, 1147-48 (M.D.N.C.
1982); Klupt v. Blue Island Fire Dep't, 489 F. Supp. 195, 197-98
the nexus between the federal and state claims must be to support
the exercise of supplemental jurisdiction for, as we will
demonstrate, under any standard the nexus between the federal and
state claims in this case is inadequate for that purpose.
C. Implications of the Employer/Employee Nexus
Congress has the power to limit the jurisdiction of the
inferior federal courts. See Lauf v. E.G. Shinner & Co., 303
U.S. 323, 330, 58 S.Ct. 578, 582 (1938). Thus, we do not doubt
but that Congress could have provided expressly that district
courts could not exercise supplemental jurisdiction in FLSA
cases. The statute, however, does not mention the scope of
supplemental jurisdiction which a court should exercise. Thus,
we assume in this section that Congress wished a court in an FLSA
action to exercise supplemental jurisdiction to the limit
permitted by Article III of the Constitution.8 Even under such
an assumption, we find that there is an insufficient nexus
(..continued)
(N.D. Ill. 1980); Madery v. International Sound Technicians,
Local 695, 79 F.R.D. 154, 156-57 (C.D. Cal. 1978).
8
. Under one construction of section 1367, it is possible to
argue that Congress mandated such an assumption. By using the
word "shall" in section 1367(a), the argument goes, Congress
created a default rule that, absent specific language to the
contrary, federal district courts should exercise supplemental
jurisdiction to the maximum extent permitted under Article III
(subject to the district court's discretion, delineated in
section 1367(c)). Gibbs contained no such presumption, so this
argument would bring into question our assumption in Sinclair v.
Soniform, supra, that section 1367 merely codified the
constitutional arm of the Gibbs decision.
between Lyon's federal FLSA claim and her Delaware claims to
justify supplemental jurisdiction over the latter.
The only link between Lyon's FLSA and state law claims
is the general employer-employee relationship between the
parties. In Prakash v. American Univ., 727 F.2d 1174 (D.C. Cir.
1984), the court seemingly found such a relationship sufficient
to confer supplemental jurisdiction over state claims. In
Prakash a terminated professor sued his former employer,
asserting FLSA claims as well as state law claims for breach of
contract, interference with contractual relations, conversion,
deceit, and defamation. In finding that the district court had
jurisdiction over the state law claims, the court of appeals said
that "[t]he federal and nonfederal claims [plaintiff] advances
'derive from a common nucleus of operative facts'  [the
plaintiff's] contract dispute with the university . . . ." Id.
at 1183.
Arguably Prakash is factually distinguishable from this
case. Fairly read, however, we believe that Prakash stands for
the proposition that FLSA plaintiffs can try all state law
contract claims against their employers in a federal proceeding,
as the employment relationship alone provides a factual nexus
sufficient to confer supplemental jurisdiction.
Yet there is virtually no support for this broad
reading of the reach of Article III and of Gibbs.9 In Hales v.
9
. We note that even under the opinion of the Prakash court it
might be found that the district court lacked jurisdiction over
Lyon's state tort claim, inasmuch as the Prakash court predicated
its finding that there was federal jurisdiction on the nexus
Winn-Dixie Stores, Inc., 500 F.2d 836 (4th Cir. 1974), the court
ruled that it could not entertain a state-law claim for failure
to make payments from a profit-sharing plan despite the factual
link to a federal claim under the Welfare and Pension Plans
Disclosure Act, 29 U.S.C. § 301 et seq. (repealed), charging that
a plan administrator failed to provide statutorily required
information. The factual nexus in Winn-Dixie, where both claims
revolved around a specific area of employer-employee relations,
presents stronger grounds for jurisdiction than cases based
solely on the general employment relationship. Nonetheless, the
court found that:
[t]he record establishes beyond doubt that
the [two counts] do not grow out of a 'common
nucleus of operative facts' [citing Gibbs]
. . . . While plaintiffs may have sought
[the federally mandated] information in order
to consider and/or assert their [state law]
claims, their causes of action under both
Counts I and II are separately maintainable
and determinable without any reference to the
facts alleged or contentions stated in or
with regard to the other count. Id. at 847-
48.
District courts have resisted expanding supplemental
jurisdiction based merely on an employment contract in a variety
of federal statutory settings. Thus, in both Nicol v.
Imagematrix, Inc., 767 F. Supp. 744 (E.D. Va. 1991), and Benton
(..continued)
between the federal and state claims created by the employment
relationship. Nevertheless, because we find the Prakash decision
unconvincing, we do not analyze the difference between
supplemental jurisdiction based on the nature of the claim, be it
tort or contract. In both cases, we question the existence of a
sufficient factual nexus to confer jurisdiction.
v. Kroger Co., 635 F. Supp. 56 (S.D. Tex. 1986), the courts
refused to permit plaintiffs to use Title VII discrimination
suits, combined with their status as employees, to bootstrap
state claims into federal court. In declining to entertain state
contract and fraud claims in a sexual discrimination suit, Nicol
pointedly noted that the sole common fact between the state and
federal claims was the employment relationship. Nicol, 767 F.
Supp. at 747. In Benton, the plaintiff contended that her
employer fired her either as an act of sexual discrimination or
in retaliation for her having filed a worker's compensation
claim. The court refused to consider the state law retaliation
claim, finding that "[a]lleged incidents of sexual harassment or
gender bias were entirely separate from the circumstances
surrounding plaintiff's back injury. These separate events can
hardly be grouped as the 'common nucleus of operative facts .
. . .'" Benton, 635 F. Supp. at 59.
District courts similarly have found that they did not
have supplemental jurisdiction to entertain a variety of state
claims in age discrimination cases. In Mason v. Richmond Motor
Co. the court concluded it could not exercise supplemental
jurisdiction over a state law breach of contract claim (based on
an oral promise that the defendant would never fire the
plaintiff) in an ADEA wrongful discharge suit. The court,
applying Gibbs, found that "[o]nly one fact is common to both the
federal and state claims; and that is that plaintiff was fired by
his employer." 625 F. Supp. at 888. In Robinson v. Sizes
Unlimited, Inc., 685 F. Supp. 442 (D.N.J. 1988), another ADEA
case, the court exercised supplemental jurisdiction over state
age discrimination claims, but concluded that it could not
entertain a state claim predicated on discrimination against a
plaintiff because of a handicap.
We find these precedents compelling. Lyon's FLSA claim
involved very narrow, well-defined factual issues about hours
worked during particular weeks. The facts relevant to her state
law contract and tort claims, which involved Whisman's alleged
underpayment of a bonus and its refusal to pay the bonus if Lyon
started looking for another job, were quite distinct. In these
circumstances it is clear that there is so little overlap between
the evidence relevant to the FLSA and state claims, that there is
no "common nucleus of operative fact" justifying supplemental
jurisdiction over the state law claims. In fact, it would be
charitable to characterize the relationship of the federal and
state claims as involving even a "loose" nexus. Thus, Article
III bars federal jurisdiction.
D. Congressional Intent Under the FLSA
We have assumed up to this point that Congress intended
district courts in FLSA actions to exercise supplemental
jurisdiction subject only to the limits of Article III; even so,
we have concluded that the district court did not have the power
to hear Lyon's contract and tort claims. In addition, we
question whether Congress intended courts in FLSA actions have
such broad jurisdiction. In its "declaration of policy" for the
FLSA, Congress found that existence of "labor conditions
detrimental to the maintenance of the minimum standard of living
necessary for health, efficiency, and general well-being of
workers" caused harm to interstate commerce. 29 U.S.C. § 202.
Accordingly, its "declared policy" under the FLSA was "to correct
and as rapidly as practicable to eliminate [these] conditions."
Id.The Supreme Court has stated that "[t]he central aim of
the [FLSA] was to achieve . . . certain minimum labor standards."
Mitchell v. Robert De Mario Jewelry, Inc., 361 U.S. 288, 292, 80
S.Ct. 332, 335 (1960). The substantive sections of the FLSA,
narrowly focusing on minimum wage rates and maximum working
hours, bear out its limited purposes. Accordingly, we find no
indication that Congress passed the FLSA with the expectation
that it was authorizing federal courts to exercise far-reaching
jurisdiction over state-law disputes arising from employment
relationships. This restrained view of the scope of federal
jurisdiction is consistent with the Supreme Court's statement
that "[i]n the Fair Labor Standards Act, Congress did not intend
that the regulation of hours and wages should extend to the
furthest reaches of federal authority." McLeod v. Threlkeld, 319
U.S. 491, 493, 63 S.Ct. 1248, 1249 (1943).
We do not mean to imply that a district court never may
exercise supplemental jurisdiction over state claims in an FLSA
action. For example, an employee seeking to enforce an
employment contract granting hourly wages in excess of the
(statutorily required) time and a half probably could assert her
state law contract claim on a supplemental jurisdictional basis
along with her FLSA claim in a district court, since the
"operative facts" in the two claims would be identical. But
still, when a court exercises federal jurisdiction pursuant to a
rather narrow and specialized federal statute it should be
circumspect when determining the scope of its supplemental
jurisdiction. Accordingly, Congressional intent may provide a
second, non-constitutional ground for finding that the district
court did not have jurisdiction over Lyon's state law claims.10
III. Conclusion
Because we find that the district court lacked subject
matter jurisdiction over Lyon's state law contract and tort
claims, we will vacate its judgments on those two counts and
remand the matter with instructions to dismiss those claims
without prejudice. Of course, the district court did have
jurisdiction over Lyon's FLSA claim, and our decision does not
disturb the judgment on that count. The parties will bear their
own costs on this appeal.
10
. While our result may seem harsh as this case was tried
without jurisdictional objection in the district court, we point
out that in all likelihood Lyon will be able to file her state
law claims in the Delaware state courts without being barred by
the statute of limitations. See Frombach v. Gilbert Assocs.,
Inc., 236 A.2d 363 (Del. 1967); Houmet Corp. v. City of
Wilmington, 285 A.2d 423 (Del. Super. Ct. 1971). However, our
conclusion is not dependent on that belief.