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Precedential or Non-Precedential: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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          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., 

, 344 (3d Cir. 1991), cert.
denied, 

(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., 

, 541, 

, 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., 

, 603 (3d

Cir. 1991), we treated section 1367 as codifying the

jurisdictional standard established in United Mine Workers v.

Gibbs, 

, 

(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., 

(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."   

, 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.

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, 

, 1083 (2d Cir. 1971), cert.

denied, 

, 

(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, 

, 

(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., 

, 105 (3d Cir. 1988), cert. denied,

, 

(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, 

(3d

Cir. 1974), cert. denied, 

, 

(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."   

.   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.   

   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, 

, 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., 

, 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,

(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

. . . ."   

  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., 

(9th Cir. 1975);
Vanderboom v. Sexton, 

(8th Cir.) cert. denied, 

, 91 S.Ct. (1970); First Interregional Equity Corp. v.
Haughton, 

(S.D.N.Y. 1992); In re Storage
Technology Corp. Sec. Litig., 

(D. Colo. 1992);
Bowman v. Hartig, 

(S.D.N.Y. 1971).
6
 . See Chudzik v. City of Wilmington, 

(D. Del.
1992); Stewart v. Roe, 

(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, 

(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.'"     

          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., 

, 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.,

, 886 (D. Va. 1986), aff'd, 

(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., 

, 1147-48 (M.D.N.C.
1982); Klupt v. Blue Island Fire Dep't, 

, 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., 

, 330, 

, 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, 

, 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.

, 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., 

(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 . . . ."      

           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., 

(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. 

          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., 

(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., 

(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 .

. . .'"    

.

            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 

.   In Robinson v. Sizes
Unlimited, Inc., 

(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."

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., 

, 292, 

, 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, 

, 493, 

, 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., 

(Del. 1967); Houmet Corp. v. City of
Wilmington, 

(Del. Super. Ct. 1971). However, our
conclusion is not dependent on that belief.