JAMES O. BROWNING, District Judge.
Walker was employed as a Business Office Manager ("BOM") at THI of Hobbs, a nursing home in Hobbs, New Mexico, from August 2005 until January 2007. See, e.g., Amended Complaint ¶ 3, at 2, filed December 14, 2009 (Doc. 50); Fundamental Clinical Consulting, LLC's Answer to Plaintiff's Amended Complaint ¶ 3, at 2, filed February 3, 2010 (Doc. 56). Walker, an African American, alleges that Defendants THI of Hobbs, Diana Melton, Jaime Andujo, Debbie Lothridge, Karen Hood (Miller), THI of New Mexico, FCC, and FAS unlawfully subjected her to numerous acts of racial discrimination, and terminated her employment with THI of Hobbs because of her race. See Amended Complaint ¶ 1, at 1. Additional background on the case is set forth in the Court's Memorandum Opinion and Order deciding Walker's first motion to compel discovery. See Walker v. THI of New Mexico at Hobbs Ctr., No. CIV 09-0060 JB/RLP, 2010 WL 552661, at * 1-4 (D.N.M. Feb. 8, 2010) (Browning, J.).
Walker filed this case on January 22, 2009. See Complaint, filed January 22, 2009 (Doc. 1). The Complaint originally named THI of Hobbs and three Doe Corporations as Defendants. See Complaint ¶¶ 4-5, at 2. On December 14, 2009, Walker filed an Amended Complaint adding Melton, Andujo, Lothridge, Hood, THI of New Mexico, FCC, and FAS. See Amended Complaint, filed December 14, 2009 (Doc. 50)("FAC"). On November 15, 2010, Walker filed a Second Amended Complaint, adding THI of Baltimore, Inc., and Fundamental Long Term Care Holdings, LLC. See Doc. 142 ("SAC").
On December 10, 2010, the Counterclaimants filed Addendum to Answers, Stating Counterclaim for Malicious Abuse of Process and Punitive Damages in Response to Second Amended Complaint. See Doc. 161 ("Addendum and Counterclaim"). The Counterclaimants contend that Walker "directly and/or indirectly, through her authorized agents, filed claims without probable cause and engaged in acts in the use of process other than such as would be proper in the regular prosecution of the claim." Addendum and Counterclaim ¶ 1, at 2. The Counterclaimants allege that, after THI of Hobbs terminated Walker, she filed an Equal Employment Opportunity Commission ("EEOC")/New Mexico Human Rights Division Charge of Discrimination in which she alleged a belief that she was discharged on the basis of race, because while she was told that the basis for her termination was poor performance, she had never before been disciplined. The Counterclaimants allege that Walker never alleged that she was subjected to racial comments or slurs during her employment at THI of Hobbs. The Counterclaimants allege that Daniel Yohalem, Walker's attorney, obtained a copy of the EEOC's file in December 2008, before Walker filed her Complaint in January 2009 and that, in her Complaint, Walker for the first time alleged that she was subjected to racial slurs. The Counterclaimants allege that Walker filed a Motion to File Second Amended Complaint on August 2, 2010, and attached a proposed Second Amended Complaint ("proposed SAC"). The Counterclaimants allege that, in the proposed SAC, Walker made incorrect representations of fact and law. The Counterclaimants allege that, upon information and belief, they will likely have evidentiary support to show Walker made the allegations without having evidentiary support or conducting a reasonable investigation to determine whether good grounds existed. The Counterclaimants alleged that they suffered damages in the form of attorneys' fees and costs, and that they are entitled to punitive damages.
On January 18, 2011, Walker filed the Plaintiff's Motion to Dismiss Defendants'
On February 4, 2011, the Counterclaimants filed their Response to Plaintiff's Motion to Dismiss Defendants' Counterclaim. See Doc. 189. The Counterclaimants argue that Walker's motion improperly offers matters outside the Counterclaim and that, if the Court considers these matters, it should convert Walker's motion to dismiss into a motion for summary judgment and grant the Counterclaimants an opportunity for discovery. The Counterclaimants also argue that their Counterclaim sufficiently pleads a malicious-abuse-of-process claim. They argue that the Court cannot, as a matter of law, find that Walker had probable cause to file each of her complaints. They also argue that, in their Addendum and Counterclaim, they sufficiently allege a procedural irregularity, or a misuse of procedural devices such as discovery, subpoenas, and attachments. They also argue that they sufficiently plead a primary motive in the use of process to accomplish an illegitimate end and damages.
On March 16, 2011, Walker filed the Plaintiff's Reply to Defendants' Response to Motion to Dismiss Counterclaim. See Doc. 235. Walker argues that the Counterclaimants have pled insufficient facts to support a plausible malicious-abuse-of-process claim, and that the Court should not grant the Counterclaimants leave to amend their Addendum and Counterclaim, because, even with additional allegations, the Counterclaimants would fail to state a plausible claim. Walker also argues that the Counterclaimants' Counterclaim is a permissive counterclaim which does not fall within the Court's supplemental jurisdiction.
On May 5, 2011, the Counterclaimants filed the Defendants' Surreply to Plaintiff's Motion to Dismiss Counterclaim (Doc. 174). See Doc. 288. The Counterclaimants argue that the Court has jurisdiction over the Counterclaim, because the Counterclaim is within the Court's diversity jurisdiction, and because the Counterclaim is within the Court's supplemental jurisdiction.
"Federal courts are courts of limited jurisdiction; they are empowered to hear only those cases authorized and defined in the Constitution which have been entrusted to them under a jurisdictional grant by Congress." Henry v. Office of Thrift Supervision, 43 F.3d 507, 511 (10th Cir.1994) (citations omitted). A plaintiff generally bears the burden of demonstrating the court's jurisdiction to
Alto Eldorado Partners v. City of Santa Fe, No. CIV 08-0175 JB/ACT, 2009 WL 1312856, at *8-9 (D.N.M. Mar. 11, 2009) (Browning, J.) (citations omitted). As the United States Court of Appeals for the Fifth Circuit has stated:
Williamson v. Tucker, 645 F.2d 404, 412-13 (5th Cir.1981) (quoting Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir.1977)).
When making a rule 12(b)(1) motion a party may go beyond the allegations in the complaint to challenge the facts upon which jurisdiction depends, and may do so by relying on affidavits or other evidence properly before the court. See New Mexicans for Bill Richardson v. Gonzales, 64 F.3d 1495, 1499 (10th Cir.1995); Holt v. United States, 46 F.3d 1000, 1003 (10th Cir.1995). In those instances, a court's reference to evidence outside the pleadings does not necessarily convert the motion to a rule 56 motion for summary judgment. See Holt v. United States, 46 F.3d at 1003 (citing Wheeler v. Hurdman, 825 F.2d 257, 259 n. 5 (10th Cir.1987)). Where, however, the court determines that jurisdictional issues raised in rule 12(b)(1) motion are intertwined with the case's merits, the court should resolve the motion under either rule 12(b)(6) or rule 56. See Franklin Sav. Corp. v. United States, 180 F.3d 1124, 1129 (10th Cir.1999); Tippett v. United States, 108 F.3d 1194, 1196 (10th Cir.1997). "When deciding whether jurisdiction is intertwined with the merits of a particular dispute, `the underlying issue is whether resolution of the jurisdictional question requires resolution of an aspect of the substantive claim.'" Davis ex rel. Davis v. United States, 343 F.3d 1282, 1296 (10th Cir.2003) (quoting Sizova v.
Under rule 12(b)(6), a court may dismiss a complaint for "failure to state a claim upon which relief can be granted." Fed. R.Civ.P. 12(b)(6). "The nature of a Rule 12(b)(6) motion tests the sufficiency of the allegations within the four corners of the complaint after taking those allegations as true." Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir.1994). The sufficiency of a complaint is a question of law, and when considering and addressing a rule 12(b)(6) motion, a court must accept as true all well-pleaded factual allegations in the complaint, view those allegations in the light most favorable to the non-moving party, and draw all reasonable inferences in the plaintiff's favor. See Moore v. Guthrie, 438 F.3d 1036, 1039 (10th Cir.2006); Hous. Auth. of Kaw Tribe v. City of Ponca City, 952 F.2d 1183, 1187 (10th Cir.1991).
A complaint challenged by a rule 12(b)(6) motion to dismiss does not require detailed factual allegations, but a plaintiff's obligation to set forth the grounds of his or her entitlement to relief "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Bell Atl. Corp. v. Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (internal citation omitted). "[T]he Supreme Court recently... prescribed a new inquiry for us to use in reviewing a dismissal: whether the complaint contains `enough facts to state a claim to relief that is plausible on its face.'" Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir.2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. at 570, 127 S.Ct. 1955). "The [Supreme] Court explained that a plaintiff must `nudge his claims across the line from conceivable to plausible' in order to survive a motion to dismiss." Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d at 1177 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. at 570, 127 S.Ct. 1955) (alterations omitted). "Thus, the mere metaphysical possibility that some plaintiff could prove some set of facts in support of the pleaded claims is insufficient; the complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims." Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d at 1177. The Tenth Circuit has stated:
Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir.2008) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. at 570, 127 S.Ct. 1955) (internal citations omitted).
It is a fundamental precept of American law that the federal courts are "courts of limited jurisdiction." Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552, 125 S.Ct. 2611, 162 L.Ed.2d 502 (2005). Federal courts "possess only that power authorized by [the] Constitution and statute." Kokkonen v. Guardian Life Ins.
Although a statutory basis is necessary for federal courts to exercise jurisdiction over a controversy, "it is well established—in certain classes of cases—that, once a court has original jurisdiction over some claims in the action, it may exercise supplemental jurisdiction over additional claims that are part of the same case or controversy." Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. at 552, 125 S.Ct. 2611. The Supreme Court of the United States has long subscribed to the concept of supplemental jurisdiction recognized in two common-law doctrines—pendent and ancillary jurisdiction. Federal courts may exercise pendent jurisdiction over state-law claims when "state and federal claims ... derive from a common nucleus of operative fact." United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). Ancillary jurisdiction gives federal courts the flexibility to hear a cause of action even after the introduction of third parties whose insertion into the litigation is not supported by any independent grounds for federal jurisdiction, when those parties share a common interest in the outcome of the litigation and are logical participants in it. See Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 375 n. 18, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978).
In 1988, Chief Justice William H. Rehnquist created the Federal Courts Study Committee to analyze the federal court system and to recommend reforms. See 16 Moore's Federal Practice, § 106.04[5] (Matthew Bender 3d ed.). In response to the Committee's findings regarding "pendent" and "ancillary" jurisdiction, Congress codified the application of the two doctrines when it passed the Judicial Improvements Act of 1990:
28 U.S.C. § 1367(a). In enacting 28 U.S.C. § 1367, Congress conferred upon federal district courts "supplemental forms of jurisdiction ... [that] enable them to take full advantage of the rules on claim and party joinder to deal economically—in single rather than multiple litigation—with matters arising from the same transaction or occurrence." Report of the Federal Courts Study Committee, Part II.2.B.2.b. (April 2, 1990), reprinted in 22 Conn. L.Rev. 733, 787 (1990).
The Tenth Circuit has followed the Supreme Court's lead in classifying supplemental jurisdiction not as a litigant's right, but as a matter of judicial discretion. See Estate of Harshman v. Jackson Hole Mountain Resort Corp., 379 F.3d 1161, 1165 (10th Cir.2004) (citing City of Chi. v. Int'l Coll. of Surgeons, 522 U.S. 156, 173, 118 S.Ct. 523, 139 L.Ed.2d 525 (1997)). In circumstances where the supplemental jurisdiction statute may support supplemental jurisdiction, the district court retains discretion to decline to exercise that jurisdiction. The traditional analysis, based on the Supreme Court's opinion in United
28 U.S.C. § 1367(c). In applying these factors, district courts should seek to exercise supplemental jurisdiction in an effort to "vindicate values of economy, convenience, fairness, and comity." Estate of Harshman v. Jackson Hole Mountain Resort Corp., 379 F.3d at 1164.
Numerous courts have acknowledged that 28 U.S.C. § 1367(c) necessarily changed the district courts' supplemental jurisdiction discretion analysis and that, unless one of the conditions of 28 U.S.C. § 1367(c) exists, courts are not free to decline jurisdiction. See Itar-Tass Russian News Agency v. Russian Kurier, Inc., 140 F.3d 442, 447 (2d Cir.1998) ("Section 1367 has indeed altered Gibbs' discretionary analysis."); McLaurin v. Prater, 30 F.3d 982, 985 (8th Cir.1994)("The statute plainly allows the district court to reject jurisdiction over supplemental claims only in the four instances described therein."); Executive Software N. Am. v. U.S. Dist. Court, 24 F.3d 1545, 1557 (9th Cir.1994) ("By codifying preexisting applications of Gibbs in subsections (c)(1)-(3), however, it is clear that Congress intended the exercise of discretion to be triggered by the court's identification of a factual predicate that corresponds to one of the section 1367(c) categories."); Palmer v. Hosp. Auth., 22 F.3d 1559, 1569 (11th Cir.1994) ("[S]upplemental jurisdiction must be exercised in the absence of any of the four factors of section 1367(c)."). At least one other district court in the Tenth Circuit has reached the same conclusion. See Gudenkauf v. Stauffer Commc'ns, Inc., 896 F.Supp. 1082, 1084 (D.Kan.1995) ("[A]ny exercise of discretion declining jurisdiction over pendent claims or parties cannot occur until `triggered' by the existence of one of the four conditions enumerated."). This Court has stated that, "[i]n circumstances where the supplemental jurisdiction statute may support supplemental jurisdiction, the district court retains discretion to decline to exercise that jurisdiction." Krumm v. Holder, No. CIV 08-1056, 2009 WL 1563381, at *14 (D.N.M. May 27, 2009) (Browning, J.) (citing Bonadeo v. Lujan, No. CIV-08-0812, 2009 WL 1324119, at *8 (D.N.M.2009) (Browning, J.)(citing Estate of Harshman v. Jackson Hole Mountain Resort Corp., 379 F.3d at 1165).)
Subject to restrictions that the Federal Rules of Civil Procedure and the limits of federal court jurisdiction impose, a defendant may bring a counterclaim in a pending action, and assert any and all claims that he has against the plaintiff. See Fed.R.Civ.P. 13. Under rule 13, counterclaims are categorized as either being "compulsory" or "permissive." Fed. R.Civ.P. 13(a), (b). A compulsory counterclaim is one that "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim." Fed. R.Civ.P. 13(a). See Arch Mineral Corp. v. Lujan, 911 F.2d 408, 412 (10th Cir.1990). A compulsory counterclaim, as distinguished from a permissive counterclaim,
"By and large, the courts have refrained from making any serious attempt to define the transaction-or-occurrence concept in a highly explicit fashion." 6 C. Wright, A. Miller, M. Kane & R. Marcus, Fed. Prac. & Proc. Civ. § 1410, at 52 (3d ed.2010). "Most courts, rather than attempting to define the key terms of Rule 13(a) precisely, have preferred to suggest standards by which the compulsory or permissive nature of specific counterclaims can be determined." 6 C. Wright, supra § 1410, at 52. The Tenth Circuit has taken this approach, stating that a counterclaim is compulsory if: (i) it involves the same issues of law and fact as the principal claim; (ii) res judicata would bar the defendant from bringing a subsequent suit on the same claim; (iii) it involves the same evidence as the principal claim; and (iv) there is a logical relationship between the principal claim and the counterclaim. See FDIC v. Hulsey, 22 F.3d 1472, 1487 (10th Cir.1994). In recognition of the principles of judicial economy that support rule 13, a number of courts, including the Tenth Circuit, give special weight to the "same evidence" and "claim preclusion" factors. Jones v. Ford Motor Credit Co., 358 F.3d 205, 209-10 (2d Cir.2004) (classifying counterclaim as permissive because the essential facts needed to prove the principal claim and the counterclaim were not so similar that combining the lawsuits would yield judicial efficiency); FDIC v. Hulsey, 22 F.3d at 1487 (finding counterclaims compulsory because res judicata would bar the defendant from bringing a subsequent claim arising out of the same creditor/debtor relationship and any evidence presented would necessarily encompass the parties' entire relationship); Colonial Penn Life Ins. Co. v. Hallmark Ins. Adm'rs, Inc., 31 F.3d 445, 448 (7th Cir.1994)(describing the United States Court of Appeals for the Seventh Circuit's test whether a counterclaim is compulsory as asking "little more than whether the plaintiff's claims would be barred by res judicata"); Painter v. Harvey, 863 F.2d 329, 332 (4th Cir.1988) ("Where, as here, the same evidence will support or refute both the claim and counterclaim, the counterclaim will almost always be compulsory.").
Before Congress enacted 28 U.S.C. § 1367, courts found that compulsory counterclaims were within the court's supplemental jurisdiction and does not require an independent basis of subject matter jurisdiction. See 28 U.S.C. § 1367(a); Unique Concepts, Inc. v. Manuel, 930 F.2d 573, 574 (7th Cir.1991) ("A federal court has supplemental jurisdiction over compulsory counterclaims."); Naranjo v. County of Rio Arriba, 862 F.Supp. 328, 334 (D.N.M.1994) (Conway, J.).
Rule 13 also permits a party to raise as a counterclaim "any claim against an opposing party not arising out of the transaction or occurrence that is the subject matter of the opposing party's claim." Fed. R.Civ.P. 13(b). The permissive counterclaim rule, therefore, allows the court to dispose of all the claims between the parties in one proceeding, irrespective whether the claims all arise from the same transaction or occurrence. See Baker v. Gold Seal Liquors, Inc., 417 U.S. at 469 n. 1, 94 S.Ct. 2504.
The Tenth Circuit has stated that, because permissive counterclaims do not arise from the same transaction or occurrence as the main claim, they generally do not fall within the court's supplemental jurisdiction and thus require an independent basis for federal jurisdiction. See NLRB ex rel. Int'l Union of Elec., Radio, & Mach. Workers v. Dutch Boy, Inc., 606 F.2d 929, 932 (10th Cir.1979). "Since Congress
The United States Court of Appeals for the First Circuit has stated, as a matter of first impression:
Global NAPs, Inc. v. Verizon New England Inc., 603 F.3d 71, 76 (1st Cir.2010). The First Circuit noted:
603 F.3d at 85-86 (footnotes omitted).
Other courts have reached the same conclusion. See Jones v. Ford Motor Credit Co., 358 F.3d at 207 (2d Cir.2004) ("We conclude that supplemental jurisdiction authorized by 28 U.S.C. § 1367 may be available for the permissive counterclaims,...."); Martin v. Law Offices of John F. Edwards, 262 F.R.D. 534, 536-37 (S.D.Cal.2009) ("Permissive counterclaims require an independent basis for subject matter jurisdiction. When there is no independent basis for jurisdiction ..., the Court may still exercise supplemental jurisdiction over such claims if they are `so related to the claims in the action ... that they form part of the same case or controversy.'" (citations omitted)); Frisby v. Keith D. Weiner & Assocs. Co., 669 F.Supp.2d 863, 872 (N.D.Ohio 2009) (stating that "the Sixth Circuit, like the Seventh and Second, reads § 1367 as a `sweeping grant of supplemental jurisdiction,'" and holding "that a permissive counterclaim need not independently satisfy federal jurisdictional requirements[;] [i]nstead, this Court may exercise supplemental jurisdiction over the counterclaim as long as the counterclaim is part of the same `case or controversy' as the underlying claim").
The authorities have split on the question whether an abuse-of-process counterclaim is a compulsory counterclaim in the action which is allegedly abusive. See Pochiro v. Prudential Ins. Co. of Am., 827 F.2d 1246, 1252 (9th Cir.1987).
Several courts have found that an abuse of process counterclaim is a compulsory counterclaim in the action which is allegedly abusive. See Carteret Sav. & Loan Ass'n v. Jackson, 812 F.2d 36, 38 (1st Cir.1987) (rejecting the defendants' argument that, because they served no pleading—instead the court issued default judgment against them—rule 13(a) did not become applicable to find that the defendants' claims against the plaintiff for negligence, fraud, abuse of process, and unfair-and-deceptive business practices should have been asserted as compulsory counterclaims pursuant to rule 13(a)); Podhorn v. Paragon Group, 795 F.2d 658, 659 (8th Cir.1986) (finding
In Pochiro v. Prudential Insurance Co. of America, the United States Court of Appeals for the Ninth Circuit addressed whether an abuse-of-process claim could be considered a compulsory counterclaim. See 827 F.2d at 1252. In January 1983, Prudential Insurance Co. of America ("Prudential Insurance") sued the Pochiros in Arizona state court, "pleading various causes of action based upon allegations that Pochiro appropriated for his own use confidential customer information obtained while Pochiro was an employee of Prudential (the Prudential action)." 827 F.2d at 1248. In December 1983, "the Pochiros sued Prudential in Arizona state court, pleading various causes of action based upon allegations that Prudential defamed John Pochiro by calling him `a crook' and engaged in other wrongful conduct intended to damage his competing insurance business (the Pochiro action)." 827 F.2d at 1248. Prudential Insurance removed the Pochiro action to federal district court, and in 1985, the Arizona court entered a
827 F.2d at 1252-53.
In Hospital Building Co. v. Trustees of Rex Hospital, 86 F.R.D. 694, 696-97 (E.D.N.C.1980), the United States District Court for the Eastern District of North Carolina addressed whether a counterclaim for abuse of process and defamation was permissive, thus meaning that the court should dismiss it because it lacked an independent jurisdictional basis, or whether the counterclaim was compulsory, thus meaning that ancillary jurisdiction exists. See 86 F.R.D. at 695.
86 F.R.D. at 697. The district court next considered whether res judicata would bar a subsequent suit on the counterclaim absent the compulsory counterclaim rule. See 86 F.R.D. at 697.
86 F.R.D. at 697-98. The district court then addressed whether substantially the same evidence would support or refute the claim as well as the counterclaim. See 86 F.R.D. at 698.
86 F.R.D. at 698. The district court then considered whether there was a logical relation between the antitrust claim and the counterclaim. See 86 F.R.D. at 698.
86 F.R.D. at 698-700 (footnote omitted). The district court thus denied the plaintiff's motion to dismiss the counterclaim for lack of subject-matter jurisdiction. See 86 F.R.D. at 700.
Other courts have found that an abuse-of-process counterclaim is not a compulsory counterclaim in the action which is allegedly abusive. See Anderson v. Central Point Sch. Dist. No. 6, 554 F.Supp. 600, 604-05 (D.Or.1982), rejected by Pochiro v. Prudential Ins. Co. of Am., 827 F.2d 1246 (9th Cir.1987) (finding that an abuse-of-process counterclaim was permissive rather than compulsory, because the abuse-of-process claim was not logically related to the first-amendment claim, and stating "Anderson's claim is that he was disciplined for exercising his first amendment rights; Groshong's abuse of process claim is that Anderson's present action is not for the legitimate purpose of recovering damages, but for the collateral purpose of coercing the district into accepting a proposed collective bargaining agreement," and finding that the "two claims require different proof and have different factual bases"); Bose Corp. v. Consumers Union of U.S., Inc., 384 F.Supp. 600, 601-02 (D.Mass.1974) (finding that the counterclaim for malicious abuse of process was permissive, because the issues of fact and the issues of law raised by the claims and the counterclaims were significantly dissimilar, judgment on the plaintiff's claims would not operate as res judicata in a suit for malicious abuse of process, because the logical relation standard was too vague to be satisfactorily applied as the claims and counterclaim was too dissimilar, and because the alleged malicious abuse of process constituted no part of the transaction or occurrence of which the plaintiff claimed).
In Cochrane v. Iowa Beef Processors, Inc., 596 F.2d 254 (8th Cir.1979), the United States Court of Appeals for the Eighth Circuit addressed whether the appellants' claims were compulsory counterclaims. See 596 F.2d at 262. The Eighth Circuit noted that the central theme of the appellants' complaint was abuse of legal process and stated that "[i]n no substantial sense can appellants' claims for relief for abuse of process be found to have arisen out of the alleged breach of contract ... and out of the alleged breach of fiduciary duties
596 F.2d at 263-64 (footnote omitted).
In North Carolina Electric Membership Corp. v. Carolina Power & Light Co., 85 F.R.D. 249 (M.D.N.C.1979), the United States District Court for the Middle District of North Carolina found that the abuse-of-process and tortious-interference counterclaims were permissive, and concluded that it should be dismiss the counterclaims for lack of subject-matter jurisdiction. See 85 F.R.D. at 254. The district court concluded that the issues of fact and law which the main action raised, and which the counterclaims raised, were in no way largely the same. See 85 F.R.D. at 251.
85 F.R.D. at 251. The district court found that res judicata and/or related doctrines would not bar a subsequent suit based on the counterclaims. See 85 F.R.D. at 253.
85 F.R.D. at 251 (footnotes omitted). The district court did not find that substantially the evidence would support or refute the antitrust claim as well as the counterclaims. See 85 F.R.D. at 253. The district court also concluded that there was no logical relationship between the antitrust claims and the counterclaims. See 85 F.R.D. at 254.
85 F.R.D. at 253-54 (footnotes omitted).
In Regents of the University of New Mexico v. Knight, No. CIV 99-577 JC, Memorandum Opinion and Order, filed June 18, 2003 (Doc. 383), the Honorable John Edwards Conway, Senior United States District Judge, found that Knight's counterclaims for intentional interference with prospective economic advantage and malicious abuse of process were not compulsory counterclaims. See Memorandum Opinion and Order at 6-7. Judge Conway noted that the issues of law and fact in the counterclaims were not the same as those that the University of New Mexico ("UNM") asserted in its original complaint, and that neither of the counterclaims contained issues of law or fact which were similar to UNM's principle claims concerning breach of contract, ownership of patents, and inventorship. See Memorandum Opinion and Order at 6-7. Judge Conway noted that, because of the factual differences surrounding UNM's principal claims and Knight's counterclaims, res judicata would not be a bar to a subsequent lawsuit. See Memorandum Opinion and Order at 7. Judge Conway also noted that, moreover, "the evidence required to prosecute a subsequent suit would not be substantially the same." Memorandum Opinion and Order at 7. "Finally, the Court cannot find anything exceeding an attenuated relationship between UNM's claims and the Defendant's counterclaims 2 and 3." Memorandum Opinion and Order at 7.
In DeVaney v. Thriftway Marketing Corp., 124 N.M. 512, 953 P.2d 277 (1997), overruled on other grounds by Durham v. Guest, 145 N.M. 694, 204 P.3d 19 (2009),
The elements of a malicious-abuse-of-process action are: (i) the use of process in a judicial proceeding that would be improper in the regular prosecution or defense of a claim or charge; (ii) a primary motive in the use of process to accomplish an illegitimate end; and (iii) damages. See Durham v. Guest, 145 N.M. at 701, 204 P.3d at 26. An improper use of process may be shown by: (i) filing a complaint without probable cause; or (ii) an irregularity or impropriety suggesting extortion, delay or harassment, or other conduct formerly actionable under the tort of abuse of process. See Durham v. Guest, 145 N.M. at 701, 204 P.3d at 26.
The Supreme Court of New Mexico has defined probable cause in the malicious-abuse-of-process context as "a reasonable belief, founded on known facts established after a reasonable pre-filing investigation that a claim can be established to the satisfaction of a court or jury." Fleetwood Retail Corp. of N.M. v. LeDoux, 142 N.M. at 154, 164 P.3d at 36 (internal quotations and citation omitted). "The lack of probable cause must be manifest." Fleetwood Retail Corp. of N.M. v. LeDoux, 142 N.M. at 154, 164 P.3d at 36 (citation omitted). "Probable cause ... is to be judged by facts as they appeared at the time, not by later-discovered facts." Weststar Mortg. Corp. v. Jackson, 133 N.M. at 122, 61 P.3d at 831 (citing Restatement (Second) of Torts § 662 cmt. e (stating that an accusation leading to the initiation of a criminal proceeding must be based on probable cause, determined as of the time the action was filed)(other citations omitted)). The existence of probable cause in the underlying proceeding is a question of law that the court should decide. See Weststar Mortg. Corp. v. Jackson, 133 N.M. at 123, 61 P.3d at 832 ("[T]he existence of probable cause in the underlying proceeding, that is, whether the facts amount to probable cause, is a question of law and shall be decided by the trial judge.")(internal quotation marks and citation omitted). A malicious-abuse-of-process plaintiff who is attempting "to show a lack of probable cause must demonstrate, by the applicable standard of proof, that the opponent did not hold a reasonable belief in the
Lack of probable cause is not the only way to establish misuse of process; a plaintiff can also show misuse of process by pointing to "some irregularity or impropriety suggesting extortion, delay or harassment." Id. at 522, 953 P.2d at 287. A plaintiff may prove misuse of process through procedural irregularity—such as misuse of discovery, subpoenas, and attachments—or an act that otherwise indicates wrongful use of proceedings—such as an extortion attempt. See DeVaney v. Thriftway Mktg. Corp., 124 N.M. at 522, 953 P.2d at 287. Some examples of misuse of process include: (i) excessive execution on a judgment; (ii) attachment of property other than the property involved in the litigation; (iii) oppressive conduct in connection with an arrest or seizure of property; and (iv) extortion of excessive sums of money. See DeVaney v. Thriftway Mktg. Corp., 124 N.M. at 522, 953 P.2d at 287.
Under the requirement of a primary improper motive, it is insufficient that the malicious-abuse-of-process defendant acted with ill will or spite. See DeVaney v. Thriftway Mktg. Corp., 124 N.M. at 522, 953 P.2d at 287 (citing W. Page Keeton, Dan B. Dobbs, Robert E. Keeton & David G. Owen, Prosser and Keeton on the Law of Torts § 121, at 897 (5th ed.1984) ("[E]ven a pure spite motive is not sufficient where process is used only to accomplish the result for which it was created.")(emphasis added)). There must be a purpose to accomplish an illegitimate end. See DeVaney v. Thriftway Mktg. Corp., 124 N.M. at 522, 953 P.2d at 287. The Supreme Court of New Mexico has given several examples of improper purpose, including: (i) a litigant who pursues a claim knowing that the claim is meritless; (ii) a litigant who pursues a claim primarily to deprive another of the beneficial use of his or her property in a manner unrelated to the merits of the claim; (iii) a litigant who misuses the law primarily for harassment or delay; or (iv) a litigant who initiates proceedings primarily for the purpose of extortion. See DeVaney v. Thriftway Mktg. Corp., 124 N.M. at 522, 953 P.2d at 287. An overt misuse of process may support an inference of an improper purpose, but a court may not infer from evidence of an improper purpose alone that there was not probable cause or that there was not a proper use of process. See DeVaney v. Thriftway Mktg. Corp., 124 N.M. at 522, 953 P.2d at 287.
In DeVaney v. Thriftway Marketing Corp., the Supreme Court of New Mexico stated:
124 N.M. at 521, 953 P.2d at 286 (internal citations omitted). The Supreme Court further stated that a malicious-abuse-of-process plaintiff alleging a lack of probable cause before a termination of the underlying claim must demonstrate the lack of probable cause by clear and convincing evidence. See 124 N.M. at 521, 953 P.2d at 286.
124 N.M. at 521-22, 953 P.2d at 286-87 (internal citations omitted).
In Fleetwood Retail Corp. of New Mexico v. LeDoux, the Supreme Court of New Mexico stated:
142 N.M. at 158-59, 164 P.3d at 39-40.
In Gonzales v. Lopez, 132 N.M. 558, 52 P.3d 418 (Ct.App.2002), the Court of Appeals
132 N.M. at 563-64, 52 P.3d at 423-24.
The Court believes that the Counterclaimants' malicious-abuse-of-process Counterclaim is a permissive and is not a compulsory counterclaim. The Court does not believe it has supplemental jurisdiction over the Counterclaim, because the Counterclaim and Walker's claims do not arise from a common nucleus of operative fact. Although the Court does not have supplemental jurisdiction over the Counterclaim, it has diversity jurisdiction over the Counterclaim. Because the Counterclaimants have pled sufficient facts to state a claim for relief for malicious abuse of process that is plausible on its face, the Court will deny Walker's request that it dismiss the malicious-abuse-of-process Counterclaim.
The Tenth Circuit has stated that it looks to state law to determine if a claim was a compulsory counterclaim with respect to earlier litigation in state court. See Valley View Angus Ranch, Inc. v. Duke Energy Field Servs., Inc., 497 F.3d 1096, 1100 (10th Cir.2007). See also Am. Plastic Equip., Inc. v. Toytrackerz, LLC, No. 07-2253-DJW, 2008 WL 917635, at *5 (D.Kan. Mar. 31, 2008) (recognizing that it had held, on prior occasions, that "Kansas' compulsory counterclaim statute, K. S.A. 60-213(a), should be applied to determine whether a claim filed in federal court was a compulsory counterclaim with respect to an earlier action brought in Kansas state court" and that it had "also applied Kansas case law to determine the preclusive effect of the failure to raise such a compulsory counterclaim in the earlier state court action"); Shero v. City of Grove, Okla., No. 05-CV-0317-CVE-PJC, 2006 WL 2708612, at *3-4 (Sept. 20, 2006) ("In cases such as this, where the initial action was filed in state court, the Tenth Circuit requires the district court to refer to state law to determine if the unlitigated counterclaims were
When addressing issues whether a federal court has subject-matter jurisdiction over a claim, however, the Tenth Circuit has applied rule 13 of the Federal Rules of Civil Procedure. See Geoffrey E. Macpherson, Ltd. v. Brinecell, Inc., 98 F.3d 1241, 1244-45 (10th Cir.1996) (stating that the counterclaim was compulsory and citing rule 13 of the Federal Rules of Civil Procedure); Pipeliners Local Union No. 798, Tulsa, Okla v. Ellerd, 503 F.2d 1193, 1197-98 (10th Cir.1974) (considering rule 13 of the Federal Rules of Civil Procedure and federal law in determining whether a district court had ancillary jurisdiction over a counterclaim); N.L.R.B. ex rel. Int'l Union of Elec., Radio & Mach. Workers, AFL-CIO-CLC v. Dutch Boy, Inc., 606 F.2d 929, 932 (10th Cir.1979) (determining that a cross-application was not a compulsory counterclaim, and that the district court correctly dismissed the cross-application for lack of jurisdiction after considering federal law). Because the Court is not determining whether it should dismiss the Counterclaim as barred, because it should have been brought in previous state litigation, and because the Court must determine whether it has subject-matter jurisdiction over the Counterclaim, the Court believes that it should rely on rule 13 of the Federal Rules of Civil Procedure and on federal law. See Geoffrey E. Macpherson, Ltd. v. Brinecell, Inc., 98 F.3d at 1244-45; Pipeliners Local Union No. 798, Tulsa, Okla. v. Ellerd, 503 F.2d at 1197-98. Even if, however, the Court looked to rule 13 of the New Mexico Rules of Civil Procedure, it would reach the same result. Rule 13 of the New Mexico Rules of Civil Procedure and rule 13 of the Federal Rules of Civil Procedure are essentially identical. Compare N.M. R. Civ. P. 13A (stating that a "pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party," if the claim "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction"), with Fed.R.Civ.P. 13 ("A pleading must state as a counterclaim any claim that—at the time of its service—the pleader has against an opposing party if the claim:" "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim;" and "does not require adding another party over whom the court cannot acquire jurisdiction"). New Mexico courts have also relied on federal law in interpreting rule 13 of the Federal Rules of Civil Procedure. See, e.g., Heffern v. First Interstate Bank, 99 N.M. 531, 533-34, 660 P.2d 621, 623-24 (Ct.App.1983).
The authorities have split on the question whether an abuse-of-process counterclaim is a compulsory counterclaim in the action which is allegedly abusive. See Pochiro v. Prudential Ins. Co. of Am., 827 F.2d at 1252. The Court believes that, in the case before it, the authorities which find that a malicious-abuse-of-process counterclaim is a permissive counterclaim, not a compulsory counterclaim, are more persuasive.
The Court believes that this malicious-abuse-of-process Counterclaim is not compulsory. Courts which have held that a malicious-abuse-of-process counterclaim is not compulsory have done so because the issues of fact and the issues of law raised by the claims and the counterclaims were significantly dissimilar, because judgment
The issues of fact and law that Walker's claims for racial discrimination, retaliation, breach of contract, and intentional infliction of emotional distress raise, and that the malicious-abuse-of-process counterclaim raise, are not largely the same. To prove her race discrimination claims, Walker must prove, by a preponderance of the evidence, that she was terminated and that her race was a motivating factor in the decision. To prove her retaliation claims, Walker must prove that she engaged in a protected activity—that she complained internally about racial discrimination, that an adverse employment action then occurred, that the adverse employment action was causally related to her protected activities and that she suffered damages as a proximate or legal result of such adverse employment action. Cf. Noland v. City of Albuquerque, No. CIV 08-0056 JB/LFG, Court's Final Preliminary Jury Instructions (with citations), filed April 4, 2011 (Doc. 164). To prove her breach-of-contract claim, Walker must prove that she had a contract with the Defendants, that they breached that contract, and that she suffered damages as a result of that breach. See Camino Real Mobile Home Park P'ship v. Wolfe, 119 N.M. 436,
Similarly, there will not be a strong overlap between the factual issues. In her SAC, Walker alleges that, during her employment with THI of Hobbs, the Defendants discriminated against her on the basis of her race. See SAC ¶¶ 41-48, 51-54, at 12-15. She alleges that she repeatedly complained to her supervisors and human resources personnel about the abusive and discriminatory conduct, but that the Defendants did not investigate, or did not properly investigate, the complaints and did not take disciplinary action. See SAC ¶ 48, at 13. She alleges claims under Title VII, the NMHRA, 42 U.S.C. § 1981, and claims for breach of contract, intentional infliction of emotional distress and punitive damages. See SAC ¶¶ 79-84, at 23-25.
In the Addendum and Counterclaim, the Counterclaimants allege that, in filing her Complaint, and subsequent amended Complaints, Walker exaggerated allegations, made claims and allegations without probable cause or reasonable investigation, and engaged in irregularities and improprieties. See Addendum and Counterclaim ¶ 15, at 4-5. They allege that, when Walker filed her Complaint, she alleged for the first time "that a number of persons had made racist remarks in the Hobbs workplace." Addendum and Counterclaim ¶ 16, at 5. They contend that, by asserting Title VII claims against all "Defendants," Walker represented that she exhausted administrative remedies against each Defendant and that Title VII holds individual persons liable in damages, which are not correct representations. See Addendum and Counterclaim ¶ 24, at 8. The Counterclaimants assert that, by asserting breach-of-contract claims against all Defendants, Walker represents that she had an employment contract with each Defendant and that her termination breached a contract, which are not correct. See Addendum and Counterclaim ¶ 26, at 8. Similarly, the Counterclaimants allege the Walker's representations in alleging intentional-infliction-of-emotional-distress claims and 42 U.S.C. § 1981 claims against all "Defendants" are incorrect. Addendum and Counterclaim ¶¶ 28-30, at 8-9. The Counterclaimants state that, after discovery, they will likely have evidentiary support that Walker made these allegations without evidentiary support or conducting
While the facts in the discrimination and retaliation case will be used in the abuse-of-process case, and whether Walker has a valid claim will be an issue in both, the factual issues are mostly different. The factual issues underlying Walker's claims relate to whether the Defendants discriminated against her or retaliated against her, whether they had a contract with her which they breached, and whether they acted outrageously with reckless regard in discriminating or retaliating against her, causing her severe emotional distress. In contrast, the factual issues relating to the Counterclaimants' Counterclaim relate to whether Walker had a reasonable belief, after conducting a pre-filing investigation that she could establish her claims, whether Walker engaged in procedural improprieties in the course of the litigation, and whether Walker's actions were intended to accomplish an illegitimate end. The factual issues underlying Walker's claims and the Counterclaim are thus separated in time, and do not relate to the same occurrences. The Court thus finds that the issues of fact and of law raised by the main action and the counterclaim are not largely the same. See N.C. Elec. Membership Corp. v. Carolina Power & Light Co., 85 F.R.D. at 251-52.
Res judicata would not bar a subsequent suit of the malicious-abuse-of-process counterclaim, absent the compulsory counterclaim rule. As in North Carolina Electric Membership Corp. v. Carolina Power & Light Co., where the court found that res judicata would not bar a subsequent suit on the counterclaims, absent the compulsory counterclaim rule, because, even if the plaintiffs' action were litigated adversely to the defendant, res judicata would not foreclose a successful action against the plaintiffs for abuse of process, even if a jury finds for Walker on her claims, res judicata would not foreclose a successful action against Walker for abuse of process. Under federal law, res judicata requires that the prior action involved identical claims and the same parties or their privies, and that there was a final judgment on the merits. See Garcia v. Hoover, 223 Fed.Appx. 785, 788 (10th Cir.2007). Because the Counterclaimants' abuse-of-process claim is not the same claim as any of the underlying claims, res judicata would not apply to bar the Counterclaimants' abuse-of-process claim. Similarly, under New Mexico law, res judicata would not bar a subsequent action for malicious abuse of process, because Walker's causes of action are not the same as the causes of action that the Counterclaim raises, and because New Mexico courts have stated that a malicious-abuse-of-process claim may be brought as a counterclaim in the underlying action or in a later separate action. See Kirby v. Guardian Life Ins. Co. of Am., 148 N.M. 106, 124, 231 P.3d 87, 105 (2010) ("The party asserting res judicata must satisfy the following four requirements: (1)[t]he parties must be the same, (2) the cause of action must be the same, (3) there must have been a final decision in the first suit, and (4) the first decision must have been on the merits.")(internal quotation marks and citations omitted); Fleetwood Retail Corp. of
The most substantial objection to the Court's conclusion is that, substantially, some of the same evidence will support or refute Walker's claims, and support or refute the Counterclaimants' Counterclaim. Evidence tending to show that the Defendants did not discriminate against Walker may also tend to show that there was a lack of credible evidence on which Walker could base her allegations. In North Carolina Electric Membership Corp. v. Carolina Power & Light Co., the court found that substantially the same evidence would not support or refute the claim and counterclaim, because although a factfinder could accept the defendant's defense that it acted reasonably, it was doubtful that a finding of reasonableness would demand a finding of ulterior motive and that a fact finder could conclude that the defendant's actions were reasonable and that the plaintiff filed its action without any ulterior motive. It is true that the factfinder could find that the Defendants did not discriminate, but possibly this would not demand a finding that Walker filed her lawsuit with an ulterior motive or without a reasonable belief in the validity of her allegations. That probably does not, however, mean that the evidence regarding Walker's alleged procedural improprieties during this litigation will not support or refute Walker's claims. The Court thus must conclude that substantially the same evidence will support or refute Walker's claim, and the Counterclaim.
The Court also must concede that there is a logical relation between Walker's claims and the Counterclaim. It is true that the Counterclaim is removed in time and circumstances from the transaction or occurrence that is the subject matter of the allegations in Walker's Complaint. See Hosp. Bld. Co. v. Trustees of Rex Hosp., 86 F.R.D. at 699 ("In sum, unlike the counterclaim in the present case, the counterclaim in NCEMC seems far removed in time and circumstance from the transaction or occurrence that is the subject matter of the allegations of the plaintiff's complaint."). Many of the Counterclaim's allegations, however, relate to whether Walker had probable cause to file her Complaints.
Thus, there are sound reasons for litigating the underlying claims and the abuse-of-process claims in the same case. Moreover, the factors in FDIC v. Hulsey point in different directions. Litigating an abuse-of-process claim often involves looking at the evidence for the underlying claims to see how strong or legitimate those claims are. There is also a relation between the underlying claims and the counterclaim. On the other hand, there is often a relation between two events, and the courts do not find that all claims, however, related, must be brought in the same suit. Moreover, the legal issues are different in the underlying claims and the abuse-of-process counterclaim. The Tenth Circuit in FDIC v. Hulsey indicated that it gives special weight to the same evidence and res judicata factors. These factors, however, point in opposite directions. In this event, the Court believes that, under FDIC v. Hulsey, the most important factor here may be the factor of res judicata, and that suggests that the factors in FDIC v.
Also, rule 13's plain language supports a determination that the Counterclaim is permissive. "[T]he transaction or occurrence that is the subject matter of" the Counterclaim is Walker's decision to file her Complaint, FAC, proposed SAC, and SAC. The alleged malicious abuse of process in the Counterclaim is a different transaction or occurrence than the alleged discrimination and retaliation against Walker. While Walker would not have filed her claims but for the alleged discrimination and retaliation, that relationship between the events does not make the events at issue in the Counterclaim and at issue in the Complaint, FAC, proposed SAC, and SAC the same transaction or occurrence. And while the some evidence may be used, in part, to support or refute the claims and the Counterclaim, some cases use the same or similar evidence, but do not necessarily involve the same transaction or occurrence. For example, in a legal malpractice case, the parties use evidence in the underlying case for the legal malpractice case, but they likely remain distinct transactions or occurrences.
There are also practical policy reasons for not finding abuse-of-process claims to be compulsory counterclaims. First, there is not sound reason to encourage these claims to be brought in the underlying case. Abuse-of-process claims are disfavored, and if not brought, society will not usually lose. Most of the underlying claims settle, and all parties usually release all claims against each other, including abuse-of-process claims. There is no sound reason to force defendants to file early or lose their abuse-of-process claim; such a rule is likely to increase unnecessarily the number of disfavored claims.
Second, abuse-of-process claims in the underlying case create significant management problems for all persons involved, especially the plaintiff and the court. The presence of the abuse-of-process claim puts the plaintiff's work product, billing statements, and attorney-client communications at possible issue. Again, there is no sound reason to find that these claims must be brought in the underlying action.
Third, while the Court must faithfully apply controlling federal law to the issue whether the Counterclaim is compulsory or permissive, if the federal court makes abuse-of-process claims based on New Mexico law compulsory, the federal court creates a situation where litigation in federal court invites more of these claims than the state courts, thus creating a different scenario for litigation in federal courts as opposed to in state courts. Under Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), litigating in federal court should look as much like it would in state court as possible to discourage forum shopping and to avoid inequitable administration of the laws. See Trierweiler v. Croxton & Trench Holding Corp., 90 F.3d 1523, 1539 (10th Cir.1996) ("Otherwise, in `the typical, relatively unguided Erie choice,' courts are to heed the outcome-determination approach while also relying on the policies underlying the Erie rule: `discouragement of forum-shopping and avoidance of inequitable administration of the laws.'"). Also, the unwary defendant in federal court— thinking that New Mexico law applies to his or her abuse-of-process claim—may be surprised when he or she files the claim, and finds it is barred by res judicata and rule 13's requirements. Thus, one of the incidental benefits of finding a New Mexico abuse-of-process claim to be permissive is that litigation in state court and federal court will mirror each other in this respect.
The Court thus believes that the Counterclaim is a permissive counterclaim and not a compulsory Counterclaim.
Section 1367 of Title 28 of the United States Code states:
28 U.S.C. § 1367(a). A district court may decline to exercise supplemental jurisdiction over a claim that forms part of the same case or controversy if: (i) the claim raises a novel or complex issue of state law; (ii) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction; (iii) the district court has dismissed all claims over which it has original jurisdiction; or (iv), in exceptional circumstances, there are other compelling reasons for declining jurisdiction. See 18 U.S.C. § 1367(c). A claim is part of the same case or controversy if it derives from a common nucleus of operative fact, such that the plaintiff would normally be expected to try the claims in one proceeding. See United Mine Workers of Am. v. Gibbs, 383 U.S. at 725-26, 86 S.Ct. 1130; Price v. Wolford, 608 F.3d 698, 702-03 (10th Cir. 2010) (citation omitted).
In her SAC, Walker alleges that, during her employment with THI of Hobbs, the Defendants discriminated against her on the basis of her race. See SAC ¶¶ 41-48, 51-54, at 12-15. She alleges that she repeatedly complained to her supervisors and human resources personnel about the abusive and discriminatory conduct, but that the Defendants did not investigate, or did not properly investigate, the complaints and did not take disciplinary action. See SAC ¶ 48, at 13. She alleges that Melton, Andujo, and Hood terminated her employment for pretextual reasons. See SAC ¶ 62, at 18. Walker alleges that THI of Hobbs and the corporate defendants, acting as a single, integrated enterprise, subjected her to discrimination on account of her race and to retaliation for having complained about the racial discrimination. See SAC ¶ 79, at 23. She alleges claims under Title VII, the NMHRA, 42 U.S.C. § 1981, and claims for breach of contract, intentional infliction of emotional distress and punitive damages. See SAC ¶¶ 79-84, at 23-25.
In the Addendum and Counterclaim, the Counterclaimants allege that, in filing her Complaint, and subsequent amended Complaints, Walker exaggerated allegations, made claims and allegations without probable cause or reasonable investigation, and engaged in irregularities and improprieties. See Addendum and Counterclaim ¶ 15, at 4-5. They allege that, when Walker filed her Complaint, she alleged for the first time "that a number of persons had made racist remarks in the Hobbs workplace." Addendum and Counterclaim ¶ 16, at 5. They allege that, in her Complaint and amended Complaints, Walker repeatedly made allegations against "Defendants" without giving indication regarding whose conduct was being challenged. Addendum and Counterclaim ¶ 18, at 5. They allege that, when Walker filed her proposed SAC, she accused Zack, Foreman, and Grunstein of having specific, racist intent, causing her termination and structuring corporations to frustrate civil-rights laws. See Addendum and Counterclaim ¶ 22, at 6. They contend that, by asserting Title VII claims against all "Defendants," Walker represented that she exhausted administrative remedies against
Walker's claims and the malicious-abuse-of-process Counterclaim do not derive from a common nucleus of operative fact. The facts upon which Walker's claims are based relate to Walker's employment at THI of Hobbs and how she was treated during her employment. The facts upon which the Counterclaim are based relate to Walker's actions in filing her Complaint and amended Complaints, and her actions in the litigation. These nuclei of operative fact are not related in time, space, or origin. See In re Colonial Mortg. Bankers Corp., 228 B.R. 516 (1st Cir.1999) (stating that, when determining whether claims derive from the same nucleus of operative facts, a court should consider whether the facts are related in time, space, origin or motivation); DiMaso v. Duo-Fast Corp., No. 88 C 1661, 1990 WL 205818, at *5 (N.D.Ill. Dec. 4, 1990) ("Thus, the operative facts of the federal claim are separated in time from the operative facts of the state claim, lending further support to a finding of no common nucleus."). Although the Addendum and Counterclaim asserts that Walker was terminated for reasons including unsatisfactory performance, and that Walker did not complain about discriminatory statements during her employment, these allegations do not change the nucleus of facts from which the Counterclaim arises—facts regarding Walker's actions in filing the Complaints, facts regarding her subjective intent and beliefs in filing the complaints, and facts regarding her actions in the litigation.
At this relatively early stage of the case, the Court can not say that the counterclaim forms a convenient trial unit with Walker's claims. In some ways, if there is going to be an abuse-of-process claim at all, it may be best and easiest to bring all claims at the same time. Some of the evidence will be the same, and there is some overlap of facts. On the other hand, sending both claims to the jury at one time may confuse the jury, see Silva v. Massachusetts, 351 Fed.Appx. 450, 458 (1st Cir. 2009) (stating courts should consider whether the facts form a convenient trial unit in determining whether the facts form a common nucleus), and the Court may have to consider using some of the guidance set forth in the Supreme Court of New Mexico's decision in Fleetwood Retail
Nonetheless, because Walker's claims and the Counterclaim arise from separate occurrences, which are separated in time, space, and origin, the Court concludes that Walker's claims and the Counterclaim do not derive from a common nucleus of operative fact. See Price v. Wolford, 608 F.3d at 702-03. Because the Court finds that Walker's claims and the Counterclaim do not derive from a common nucleus of operative fact, the Court does not have supplemental jurisdiction over the counterclaim under 28 U.S.C. § 1367.
The Counterclaimants rely on Ashley Creek Phosphate Co. v. Chevron USA, Inc., 315 F.3d 1245 (10th Cir.2003), in support of their argument that the Court has supplemental jurisdiction over the counterclaim. In Ashley Creek Phosphate Co. v. Chevron USA, Inc., the Tenth Circuit noted that the district court denied the plaintiff's motion to dismiss on the merits, concluding that the defendants' "counterclaims stated claims for abuse of process which could be maintained as counterclaims under Utah law. It thereafter declined to exercise pendent jurisdiction and dismissed the counterclaims without prejudice." 315 F.3d at 1265. The Tenth Circuit stated that, because of the nature of the arguments that the plaintiff presented on appeal, there was a real question whether the personal stake requirement of Article III was satisfied.
315 F.3d at 1265 (internal citations and footnote omitted). The Tenth Circuit agreed, for the most part, that the counterclaims sounded in wrongful use of civil proceedings rather than abuse of process.
315 F.3d at 1267. The Court believes this case is distinguishable, because the Tenth Circuit was addressing Article III jurisdiction, and was not conducting an analysis of whether a counterclaim arose from a common nucleus of operative fact to determine whether a district court had supplemental jurisdiction over a malicious-abuse-of-process claim.
The Counterclaimants assert that the Court has diversity jurisdiction over the Counterclaim. Subject-matter jurisdiction under 28 U.S.C. § 1332(a) requires, in addition to diversity of citizenship, that "the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs." 28 U.S.C. § 1332(a). A limited liability company is a citizen of every state of citizenship of any of its members. See Carden v. Arkoma Assocs., 494 U.S. 185, 195, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990). A corporation is a citizen of its state of incorporation and its principal place of business. See 28 U.S.C. § 1332(c)(1).
In the Addendum and Counterclaim, the Counterclaimants allege that the Court has supplemental jurisdiction over the state claims under 28 U.S.C. § 1367. They allege that THI of Hobbs, THI of New Mexico, FAS, and FCC are foreign limited liability companies authorized and doing business in the state of New Mexico, and that Walker is a resident of New Mexico. They also allege that they have been damaged in amounts including costs and attorneys' fees, and that they are entitled to punitive damages.
When a party challenges a court's subject-matter jurisdiction, the court has wide discretion to refer to evidence outside the pleadings to determine whether it has subject-matter jurisdiction; this reference to evidence outside the pleadings does not convert the motion to dismiss into a motion for summary judgment. See Davis ex rel. Davis v. United States, 343 F.3d at 1296. To determine whether it has subject-matter jurisdiction over the Counterclaim, the Court will refer to evidence outside the pleadings. In their Surreply, the Counterclaimants represented that THI of Hobbs, THI of New Mexico, and FCC are citizens of Delaware and Maryland, because THI of Hobbs' sole member is THI of New Mexico, and THI of New Mexico and FCC's sole member is a Delaware corporation with its principal place of business in Maryland. They represent that FAS is a citizen of New York and New Jersey, in that its sole member is another limited liability company whose sole members are individual citizens of New York and New Jersey. Walker does not dispute these allegations. There is thus evidence of complete diversity between Walker and the Counterclaimants.
In their Surreply, the Counterclaimants also represent that, at the time
Walker argues that much of the Counterclaimants' Counterclaim concerns the proposed SAC's allegations against Grunstein, Foreman, and Zack. Walker argues that the Counterclaimants do not have standing to assert a claim based upon the alleged injury to Grunstein, Foreman, and Zack.
The Counterclaimants respond that Walker improperly characterizes the counterclaim as only a challenge to the proposed SAC's allegations against Zack, Foreman, and Grunstein. They argue that the Counterclaim makes allegations regarding Walker's conduct throughout the proceeding, and does not relate solely to the proposed SAC. The Counterclaimants also argue that their allegations concerning the proposed SAC do not relate solely
A federal court may hear cases only where the plaintiff has standing to sue. Standing has two components. First, standing has a constitutional component arising from Article III's requirement that federal courts hear only genuine cases or controversies. Second, standing has a prudential component. See Habecker v. Town of Estes Park, Colo., 518 F.3d 1217, 1224 n. 7 (10th Cir.2008) (noting that, in addition to constitutional standing requirements, "the Supreme Court recognizes a set of `prudential' standing concerns that may prevent judicial resolution of a case even where constitutional standing exists"). The burden of establishing standing rests on the plaintiffs. See, e.g., Steel Co. v. Citizens for a Better Env't, 523 U.S. at 104, 118 S.Ct. 1003. The plaintiffs must "allege . . . facts essential to show jurisdiction. If they fail to make the necessary allegations, they have no standing." FW/ PBS v. City of Dallas, 493 U.S. 215, 231, 110 S.Ct. 596, 107 L.Ed.2d 603 (1990) (internal citations and quotations omitted).
"Article III of the Constitution limits the jurisdiction of federal courts to Cases and Controversies." San Juan County, Utah v. United States, 503 F.3d 1163, 1171 (10th Cir.2007). See U.S. Const. art. III, § 2. "In general, this inquiry seeks to determine `whether [the plaintiff has] such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination.'" Wyo. ex rel. Crank v. United States, 539 F.3d 1236, 1241 (10th Cir.2008) (quoting Massachusetts v. EPA, 549 U.S. 497, 127 S.Ct. 1438, 167 L.Ed.2d 248 (2007)) (brackets in Wyoming ex rel. Crank v. United States, further internal quotation marks omitted). "[A] suit does not present a Case or Controversy unless the plaintiff satisfies the requirements of Article III standing." San Juan County, Utah v. United States, 503 F.3d at 1171. To establish standing, a plaintiff must show three things: "(1) an injury in fact that is both concrete and particularized as well as actual or imminent; (2) a causal relationship between the injury and the challenged conduct; and (3) a likelihood that the injury would be redressed by a favorable decision." Protocols, LLC v. Leavitt, 549 F.3d 1294, 1298 (10th Cir.2008) (internal quotation marks omitted). "Standing is determined as of the time the action is brought." Smith v. U.S. Court of Appeals, for the Tenth Circuit, 484 F.3d 1281, 1285 (10th Cir.2007) (quoting Nova Health Sys. v. Gandy, 416 F.3d 1149, 1154 (10th Cir. 2005)).
"Prudential standing is not jurisdictional in the same sense as Article III standing." Finstuen v. Crutcher, 496 F.3d 1139, 1147 (10th Cir.2007). Prudential standing consists of "a judicially-created set of principles that, like constitutional standing, places limits on the class of persons who may invoke the courts' decisional and remedial powers." Bd. of County Comm'rs of Sweetwater County v. Geringer, 297 F.3d 1108, 1112 (10th Cir.2002) (internal quotation marks omitted). Generally, there are three prudential-standing requirements: (i) "a plaintiff must assert his own rights, rather than those belonging to third parties"; (ii) "the plaintiff's claim must not be a generalized grievance shared in substantially equal measure by all or a large class of citizens"; and (iii) "a
The Court will not dismiss the Counterclaim for lack of standing. The Court notes that the Counterclaim is not limited to allegations regarding the proposed SAC, and that the Counterclaim's allegations regarding the proposed SAC are not limited to allegations regarding Zack, Foreman, and Grunstein. The Counterclaimants have standing to assert claims that they suffered damages in the form of costs and attorneys' fees as a result of Walker's filing claims against them without probable cause, and of Walker's procedural improprieties in the litigation. See Protocols, LLC v. Leavitt, 549 F.3d at 1298 (stating that the plaintiff must have suffered an injury in fact that is both concrete and particularized, as well as actual or imminent; that there must be a causal relationship between the injury and the challenged conduct; and that there must be a likelihood that the injury would be redressed by a favorable decision); Bd. of County Comm'rs of Sweetwater County v. Geringer, 297 F.3d at 1112 (stating that a plaintiff must assert his own rights, that the claim must not be a generalized grievance, and that the grievance must fall within the zone of interests that the statutory provision or constitutional guarantee invoked by the suit protects or regulates). Insofar as any of the Counterclaimants' claims are based on allegations in the proposed SAC about Zack, Foreman, and Grunstein, the Court finds that the Counterclaimants have standing, because the proposed SAC alleged that each of the corporate entities, which were allegedly part of an integrated enterprise, were liable for the conduct of the individual defendants, including Zack, Foreman, and Grunstein, under the doctrine of respondeat superior. See Proposed SAC ¶¶ 18, 42, at 81-86. See also Lopez v. Council on Am.-Islamic Relations Action Network, Inc., 741 F.Supp.2d 222, 233 (D.D.C.2010) (stating that an allegations that the plaintiffs were harmed by an employee of the Council on American-Islamic Relations Action Network, Inc. ("CAIR") and that CAIR bore legal responsibility for an employee's conduct under the doctrine of respondeat superior was sufficient to demonstrate standing to bring tort claims). The Counterclaimants allege that they incurred substantial expenses seeking Walker to disclose the true basis for the allegations or to withdraw allegations in the proposed SAC, which included, but were not limited to, the allegations regarding Zack, Foreman, and Grunstein. Because the proposed SAC alleged that the Counterclaimants were liable for the conduct of all the individual defendants, including Zack, Foreman, and Grunstein, the Counterclaimants are asserting their own rights when they incurred the damages; they are not asserting only Zack's, Foreman's, or Grunstein's legal rights. See Begay v. Pub. Serv. Co. of N.M., 710 F.Supp.2d 1161, 1187 (D.N.M.2010) (Browning, J.)(stating that most relevant to prudential standing is the rule that a "plaintiff generally must assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties." (citation omitted)). The Court thus will not dismiss the Counterclaimants' claim for lack of standing.
The parties spent much of the space in their briefing arguing about and citing evidence
The elements of a malicious-abuse-of-process action are: (i) the use of process in a judicial proceeding that would be improper in the regular prosecution or defense of a claim or charge; (ii) a primary motive in the use of process to accomplish an illegitimate end; and (iii) damages. See Durham v. Guest, 145 N.M. at 701, 204 P.3d at 26. An improper use of process may be shown by: (i) filing a complaint without probable cause; or (ii) an irregularity or impropriety suggesting extortion, delay or harassment, or other conduct formerly actionable under the tort of abuse of process. See Durham v. Guest, 145 N.M. at 701, 204 P.3d at 26.
The Counterclaimants have sufficiently alleged an improper use of process based on filing a complaint without probable cause. The Supreme Court of New Mexico has defined probable cause in the malicious-abuse-of-process context as "a reasonable belief, founded on known facts established after a reasonable pre-filing investigation that a claim can be established to the satisfaction of a court or jury." Fleetwood Retail Corp. of N.M. v. LeDoux, 142 N.M. at 154, 164 P.3d at 36 (internal quotations and citation omitted). "The lack of probable cause must be manifest." Fleetwood Retail Corp. of N.M. v. LeDoux, 142 N.M. at 154, 164 P.3d at 36 (citation omitted). Probable cause is to be judged on the facts as they appeared at the time; it is not to be judged on later-discovered facts. See Weststar Mortg. Corp. v. Jackson, 133 N.M. at 122, 61 P.3d at 831 ("Probable cause . . . is to be judged by facts as they appeared at the time, not by later-discovered facts." (citing Restatement (Second) of Torts § 662 cmt. e (stating that an accusation leading to the initiation of a criminal proceeding must be based on probable cause, determined as of the time the action was filed)(other citations omitted))). The existence of probable cause in the underlying proceeding is a question of law to be decided by the court. See Weststar Mortg. Corp. v. Jackson, 133 N.M. at 123, 61 P.3d at 832 ("[T]he existence of probable cause in the underlying proceeding, that is, whether the facts amount to probable cause, is a question of law and shall be decided by the trial judge.")(internal quotation marks and citation omitted). A malicious-abuse-of-process plaintiff who is attempting "to show a lack of probable cause must demonstrate, by the applicable standard of proof, that the opponent did not hold a reasonable belief in the validity of the allegations of fact or law of the underlying claim." DeVaney v. Thriftway Mktg. Corp., 124 N.M. at 522, 953 P.2d at 287.
Many of the allegations in the Addendum and Counterclaim relate to Walker's proposed SAC. An improper use of process may be shown by filing a complaint without probable cause. See Durham v. Guest, 145 N.M. at 701, 204 P.3d at 26. Because the proposed SAC was not filed as a complaint—it was filed as an attachment to the Motion to File Second Amended Complaint and Memorandum in Support—even if Walker did not have probable cause to make the allegations in the proposed SAC,
The Counterclaimants have sufficiently alleged improper use of process based on a procedural irregularity or impropriety. A plaintiff may also prove misuse of process through procedural irregularity—such as misuse of discovery, subpoenas, and attachments—or an act that otherwise indicates wrongful use of proceedings—such as an extortion attempt. See DeVaney v. Thriftway Mktg. Corp., 124 N.M. at 522, 953 P.2d at 287.
In Fleetwood Retail Corp. of N.M. v. LeDoux, although the Supreme Court noted that the plaintiff waived her counterclaim on procedural impropriety, the conduct she alleged might constitute a procedural impropriety.
142 N.M. at 159, 164 P.3d at 40 (emphasis in original)
Because procedural irregularities include misuse of procedural devices such as discovery, subpoenas, and attachments, see DeVaney v. Thriftway Mktg. Corp., 124 N.M. at 522, 953 P.2d at 287, misuse of proposed pleadings, such as the proposed SAC—which are filed as attachments— may constitute procedural irregularities. The Counterclaimants have pled sufficient allegations to set forth procedural impropriety. The Counterclaimants allege that, in the proposed SAC, Walker made allegations against them without evidentiary
The Counterclaimants have also sufficiently alleged a purpose to accomplish an illegitimate end. Under the requirement of a primary improper motive, it is insufficient that the malicious-abuse-of-process defendant acted with ill will or spite. See DeVaney v. Thriftway Mktg. Corp., 124 N.M. at 522, 953 P.2d at 287 (citation omitted). There must be a purpose to accomplish an illegitimate end. See DeVaney v. Thriftway Mktg. Corp., 124 N.M. at 522, 953 P.2d at 287. The Supreme Court of New Mexico has given several examples of improper purpose, including: (i) a litigant who pursues a claim knowing that the claim is meritless; (ii) a litigant who pursues a claim primarily to deprive another of the beneficial use of his or her property in a manner unrelated to the merits of the claim; (iii) a litigant who misuses the law primarily for harassment or delay; or (iv) a litigant who initiates proceedings primarily for the purpose of extortion. See DeVaney v. Thriftway Mktg. Corp., 124 N.M. at 522, 953 P.2d at 287. An overt misuse of process may support an inference of an improper purpose, but a court may not infer from evidence of an improper purpose alone that there was not probable cause or that there was not a proper use of process. See DeVaney v. Thriftway Mktg. Corp., 124 N.M. at 522, 953 P.2d at 287.
The Counterclaimants sufficiently allege a primary motive in the use of process to accomplish an illegitimate end.
Arista Records, LLC v. Doe 3, 604 F.3d 110 (2d Cir.2010). The Counterclaimants allege, upon information and belief, that, after a reasonable opportunity for further investigation and discovery, they will likely have evidentiary support to show that Walker made claims without probable cause, and/or engaged in procedural irregularities or improprieties for the primary purpose of an illegitimate end. See Counterclaim ¶ 47, at 14. The Counterclaim also alleges specific circumstances from which intent may be inferred; for example, it alleges that Walker's asserted claims in the proposed SAC contained false representations of fact and law, and that Walker intentionally misrepresented allegations regarding whether she was subjected to racial slurs. See DeVaney v. Thriftway Mktg. Corp., 124 N.M. at 522, 953 P.2d at 287 ("[A]n overt misuse of process, such as a lack of probable cause, or an excessive attachment, may support an inference of an improper purpose. . . ."). The Court thus finds that the Counterclaim sufficiently pleads a primary motive in the use of process to accomplish an illegitimate end.
The Counterclaimants have also sufficiently pled that they suffered damages.
DeVaney v. Thriftway Mktg. Corp., 124 N.M. at 525, 953 P.2d at 290. The Counterclaimants allege that they have been damaged in having to respond to Walker's claims, in amounts including but not limited to costs and attorneys' fees.
Because the Counterclaimants have pled sufficient facts to state a claim for relief for malicious abuse of process that is plausible on its face, the Court will deny Walker's request that it dismiss the malicious-abuse-of-process counterclaim.