IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

CARRIE BAUER, §

STEPHANIE MAYFIELD, §

and ELIZABETH SUE, §

Plaintiffs, §

§

v. § Civil Action No. 3:21-CV-2250-BH

§

RUFE SNOW INVESTMENT, LLC., §

d/b/a IN-N-OUT GYROS §

and STOP-N-GO GYROS, and §

ZUAD MASSARWA, Individually §

Defendant. § Consent Case1

MEMORANDUM OPINION AND ORDER

Based on the relevant filings and applicable law, Plaintiffs’ Motion to Strike Defendants’

Counterclaims, filed November 16, 2021 (doc. 9), is GRANTED.

I. BACKGROUND

On September 21, 2021, Carrie Bauer, Stephanie Mayfield, and Elizabeth Sue (Plaintiffs),

sued Rufe Snow Investments, LLC, d/b/a In-N-Out Gyros and Stop-N-Go Gyros (Rufe Snow), and

Ziad Massarwa (collectively Defendants), under the Fair Labor Standards Act, 29 U.S.C. § 216(b)

(FLSA), for allegedly failing to pay them overtime wages and withholding their tips. (doc. 1 at 5-6.)2

Defendants’ answer asserts affirmative defenses and counterclaims for embezzlement,

misappropriation of funds, breach of contract, and unjust enrichment. (See doc. 4.) It alleges that

Rufe Snow provided Sue and Mayfield $10,000.00 each in loans “through outright payments to

[them] as well as payment of [their] personal expenses” to be repaid within one year, but they “failed

1

By consent of the parties and order filed November 24, 2021 (doc. 12), this matter has been transferred for

the conduct of all further proceedings and the entry of judgment.

2

 Citations to the record refer to the CM/ECF system page number at the top of each page rather than the

page numbers at the bottom of each filing.

Case 3:21-cv-02250-BH Document 15 Filed 07/19/22 Page 1 of 8 PageID 64
to pay this money back”; as a result, they are in breach of contract and have been unjustly “enriched

in the amount of $10,000.00.” (Id. at 6-7.) It also alleges that Sue diverted funds from Rufe Snow,

including approximately $10,000.00 unrelated to “any legitimate business expenses,” and transferred

the funds to herself. (Id.) 

II. RULE 12(b)(1)

Plaintiffs move to strike Defendants’ counterclaims as not permitted in a FLSA action. (doc.

9 at 2-3.) 

Although they do not specify the procedural basis for their motion, a motion seeking

dismissal of claims as not properly before a federal court implicates a court’s subject matter

jurisdiction and is properly brought under Rule 12(b)(1) of the Federal Rules of Civil Procedure.

See, e.g., Brewster v. Wardlaw Claims Serv., LLC, No. 6:16-CV-00170-RP-JCM, 2016 WL

10827717, at *3 (W.D. Tex. Aug. 2, 2016), adopted by 2016 WL 10827716 (W.D. Tex. Aug. 25,

2016) (construing a motion to strike counterclaim for destruction or conversion of data in a FLSA

action as a Rule 12(b)(1) motion to dismiss for lack of subject-matter jurisdiction). Plaintiffs’

challenge is therefore considered under Rule 12(b)(1).

A. Legal Standard

A motion to dismiss under Rule 12(b)(1) challenges a federal court’s subject matter

jurisdiction. See Fed. R. Civ. P. 12(b)(1). Federal courts are courts of limited jurisdiction; without

jurisdiction conferred by the Constitution and statute, they lack the power to adjudicate claims.

Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (citations omitted). They

“must presume that a suit lies outside this limited jurisdiction, and the burden of establishing federal

jurisdiction rests on the party seeking the federal forum.” Howery v. Allstate Ins. Co., 243 F.3d 912,

916 (5th Cir. 2001).

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A Rule 12(b)(1) motion “may be raised by a party, or by a court on its own initiative, at any

stage in the litigation, even after trial and the entry of judgment.” Arbaugh v. Y & H Corp., 546 U.S.

500, 506 (2006). A court must dismiss the action if it determines that it lacks jurisdiction over the

subject matter. Fed. R. Civ. P. 12(h)(3); Stockman v. Fed. Election Comm’n, 138 F.3d 144, 151 (5th

Cir. 1998). A dismissal under Rule 12(b)(1) “is not a determination of the merits,” and it “does not

prevent the plaintiff from pursuing a claim in a court that does have proper jurisdiction.” Ramming

v. United States, 281 F.3d 158, 161 (5th Cir. 2001) (per curiam).

The district court may dismiss for lack of subject matter jurisdiction based on (1) the

complaint alone; (2) the complaint supplemented by undisputed facts in the record; or (3) the

complaint supplemented by undisputed facts plus the court’s resolution of disputed facts. Williamson

v. Tucker, 645 F.2d 404, 413 (5th Cir. 1981). A motion to dismiss based on the complaint alone

presents a “facial attack” that requires the court to merely decide whether the allegations in the

complaint, which are presumed to be true, sufficiently state a basis for subject matter jurisdiction.

See Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. 1998). “If sufficient, those allegations alone

provide jurisdiction.” Id.

If the defendant supports the motion with evidence, however, then the attack is “factual” and

“no presumptive truthfulness attaches to the plaintiff’s allegations, and the existence of disputed

material facts will not preclude the trial court from evaluating itself the merits of the jurisdictional

claims.” Williamson, 645 F.2d at 413. A factual attack may occur at any stage of the proceedings.

Menchaca v. Chrysler Credit Corp., 613 F.2d 507, 511 (5th Cir. 1980). Regardless of the nature of

the attack, the party asserting federal jurisdiction continually carries the burden of proof to show it

exists. Ramming, 281 F.3d at 161.

Here, Plaintiffs’ motion to dismiss relies solely on Defendants’ counterclaim. (See doc. 9.)

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Their motion therefore presents a facial attack that does not require the resolution of factual matters

outside the pleadings. See Williamson, 645 F.2d at 412-13.

B. Counterclaims in FLSA Cases

Plaintiffs argue that because Defendants’ counterclaims are not related to wages or hours

worked, they are not allowed in this FLSA action. (doc. 9 at 2-3.) 

“Generally speaking, courts have been hesitant to permit an employer to file counterclaims

in FLSA suits for money the employer claims the employee owes it, or for damages the employee’s

tortious conduct allegedly caused.” Martin v. PepsiAmericas, Inc., 628 F.3d 738, 740-41 (5th Cir.

2010). The Fifth Circuit has stated that set-offs and counterclaims are inappropriate in cases brought

to enforce the FLSA’s minimum wage and overtime provisions because “the only function of the

federal judiciary under the FLSA ‘is to assure to the employees of a covered company a minimum

level of wages.’” See id. (quoting Brennan v. Heard, 491 F.2d 1, 4 (5th Cir. 1974), rev’d on other

grounds by McLaughlin v. Richland Shoe Co., 486 U.S. 128 (1988)). Disputes over claims against

those wages are foreign to the genesis, history, interpretation, and philosophy of the FLSA, as “[t]he

only economic feud contemplated by the FLSA involves the employer’s obedience to minimum

wage and overtime standards.” Brennan, 491 F.2d at 4. The Fifth Circuit has allowed set-off

counterclaims only where the money to be set-off “can be considered wages that the employer prepaid to the plaintiff-employee.” Martin, 628 F.3d at 742; see Singer v. Waco, 324 F.3d 813, 828 (5th

Cir. 2003) (holding that an employer may set-off overpayments to employees). “[D]istrict courts

in the Fifth Circuit routinely dismiss counterclaims that do not directly relate to Plaintiffs’ wage

claims, such as by challenging the amount of overtime hours worked or wages due.” Poole v. Dhiru

Hosp., LLC, No. SA-18-CV-636-XR, 2019 WL 3845454, at *10 (W.D. Tex. Aug. 15, 2019)

(collecting cases).

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Here, Defendants assert counterclaims for breach of contract and unjust enrichment against

Sue and Mayfield in connection with loans Rufe Snow allegedly provided them. (See doc. 4 at 6-8.) 

They allege that Rufe Snow loaned $10,000.00 to each plaintiff “through outright payments to

[them] as well as payment of [their] personal expenses” to be repaid within one year, but they failed

to repay the loans. (Id. at 6-7.) Defendants also assert separate counterclaims against Sue for

embezzlement, unjust enrichment, and misappropriation of funds, alleging she accessed Rufe

Snow’s funds as manager and transferred the funds to herself. (Id. at 6.) They contend that they are

entitled to $10,000.00 each from Sue and Mayfield for breach of contract and unjust enrichment,

as well as additional monetary damages against Sue for her embezzlement, unjust enrichment, and

misappropriation of Rufe Snow’s funds. (Id. at 7-8.) 

The loans allegedly provided to Mayfield and Sue are not pre-paid wages to them, and there

are no facts pleaded regarding the funds Sue allegedly transferred to herself from which it could be

determined that the funds could be properly categorized as already paid wages or tips.3

 As discussed,

“counterclaims in FLSA proceedings are only allowed when the counterclaim represents fulfilled

overtime compensation.” Brewster, 2016 WL 10827717, at *3 (citing Martin, 628 F.3d at 742). The

damages alleged in connection with the counterclaims are unrelated to either the number of hours

worked by Plaintiffs or the nature of their compensation. See Brennan, 491 F.2d at 4; Martin, 628

F.3d at 742. 

3

 Defendants’ response alleges for the first time that Sue “had access to the electronic funds paid by credit

card by customers and used that access to unjustly pay herself funds that she did not earn,” and that “she would use

this access to pay herself and other staff the tips from credit cards.” (doc. 10 at 2.) These new allegations are not part

of the pleadings to be considered for purposes of the motion to dismiss. See Hearn v. Deutsche Bank Nat. Trust Co.,

3:13-CV-2417-B, 2014 WL 4055473, *4 n.3 (N.D. Tex. Aug. 15, 2014); see also Cutrera v. Board of Supervisors,

429 F.3d 108, 113 (5th Cir. 2005) (claim raised for the first time in a response to a motion for summary judgment is

not properly before the court); Middleton v. Life Ins. Co. of North America, H-09-CV-3270, 2010 WL 582552, *5

(S.D. Tex. Feb. 12, 2010) (claim raised for first time in response to motion to dismiss was not properly before the

Court) (citing Fisher v. Metro. Life Ins. Co., 895 F.2d 1073, 1078 (5th Cir. 1990)).

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C. Compulsory Counterclaims

Defendants respond that some of their counterclaims are compulsory and should not be

dismissed, citing Solano v. Ali Baba Mediterranean Grill, Inc., 3:15-CV-0555-G, 2015 WL 7770893

(N.D. Tex. Dec. 3, 2015). (doc. 10 at 4.) 

A compulsory counterclaim “arises out of the transaction or occurrence that is the subject

matter of the opposing party’s claim” and must be brought in the same suit or it will be subsequently

barred. Fed. R. Civ. P. 13(a)(1). A counterclaim arises out of the transaction or occurrence as the

original claim if any one of these questions is answered affirmatively: “(1) whether the issues of fact

and law raised by the claim and counterclaim largely are the same; (2) whether res judicata would

bar a subsequent suit on defendant’s claim absent the compulsory counterclaim rule; (3) whether

substantially the same evidence will support or refute plaintiffs claim as well as defendant’s

counterclaim; and (4) whether there is any logical relationship between the claim and the

counterclaim.” Tank Insulation Intl, Inc. v. Insultherm, Inc., 104 F.3d 83, 86-87 (5th Cir. 1997). A

logical relationship exists “when the counterclaim arises from the same ‘aggregate of operative

facts’ in that the same operative facts serves as the basis of both claims.” Plant v. Blazer Fin. Servs.,

Inc. of Ga., 598 F.2d 1357, 1361 (5th Cir. 1979). A counterclaim that is not compulsory is a

permissive counterclaim. Fed. R. Civ. P. 13(b). While a compulsory counterclaim falls within the

supplemental jurisdiction of the federal courts, a permissive counterclaim must have an independent

jurisdictional basis. Zurn Industries, Inc. v. Acton Const. Co., Inc., 847 F.2d 234, 237 (5th Cir.

1988).

In Solano, the plaintiff alleged that he was not paid the applicable minimum wage required

by the FLSA during certain weeks. See 2015 WL 7770893, at *3-6. The defendant asserted

counterclaims for theft of goods, fraud, and theft of services, alleging that the plaintiff stole goods

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from its restaurant and obtained excess overtime by falsifying the hours on his timesheets. The court

found that the counterclaims for fraud and theft of services were compulsory because “[t]he FLSA

claim and counterclaims for theft of services and fraud focus[ed] on the amount of overtime pay

owed to the plaintiff”, and “a logical relationship” existed between the operative facts and evidence

needed to prove the plaintiff’s FLSA claim and the defendants’ counterclaims for theft of services

and fraud.” Id. at *5. It also found that the counterclaims for theft of services and fraud fell within

the exception to the general prohibition against counterclaims in FLSA cases because the overtime

wages the plaintiff received directly related to the number of hours worked that he allegedly

falsified, and should be “characterized as... inappropriate amounts subject to an offset against the

overtime owed to him.” Id. (quoting Martin, 628 F.3d at 742). In contrast, the theft of goods

counterclaim was not compulsory because it “rest[ed] on an entirely different set of operative facts

than the plaintiff’s claim for wages under the FLSA.” Id. at *6. Ultimately, the counterclaim for

theft of goods was dismissed for lack of jurisdiction, and the counterclaims for fraud and theft of

services were allowed to remain as compulsory. Id. at *7.

Defendants’ counterclaims against Sue for embezzlement, unjust enrichment, and

misappropriation of funds are distinguishable from the compulsory fraud and theft of services

counterclaims in Solano because the alleged fraud and theft of services in that case related directly

to the hours worked and the wages received for those hours. Here, no facts are pleaded in the

counterclaims that link the funds allegedly transferred by Sue to her paid overtime wages or tip

payments. See Solano, 2015 WL 7770893, at *5. Defendants’ counterclaims are therefore more

analogous to the permissive counterclaim for theft of goods. See id. at *6; see also Iniesta v. Ula’s

Washington, LLC, No. CV H-17-2668, 2018 WL 3912256, at *2 (S.D. Tex. July 18, 2018), adopted

by 2018 WL 3880286 (S.D. Tex. Aug. 15, 2018) (“Defendants’ theft, conversion and fraud claims

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are based on Defendants’ allegations that Plaintiff pocketed money that was paid by Defendants’

customers – allegations that have nothing to do with the number of hours Plaintiff worked or the

manner in which his tips were calculated. Defendants’ counterclaims for theft, conversion and fraud

are, therefore, permissive counterclaims.”). There are no overlapping issues of law, fact, or

evidentiary support between Plaintiffs’ FLSA claims and the counterclaims against Sue for

embezzlement, unjust enrichment, and misappropriation of funds, and res judicata would not bar

the consideration of these counterclaims. The pleadings reflect no logical relationship between the

FLSA claims and Defendants’ counterclaims beyond Sue’s employment with Defendants. See Tank,

104 F.3d at 86-87. District courts in this circuit “have reasoned that counterclaims in FLSA cases

are permissive rather than compulsory when ‘different evidence is needed to prove the claims’ and

their ‘only nexus [to the FLSA claims] is the employment relationship’ between the parties.” Hill

v. Bedrock Funding LLC, 506 F.Supp.3d 442, 445 (W.D.Tex. 2020) (quoting Poole, 2019 WL

3845454, at *9). Because Defendants’ counterclaims are not compulsory and do not meet the

narrow exception for consideration alongside Plaintiffs’ FLSA claims, they are not permitted in this

FLSA action. 

IV. CONCLUSION

Plaintiffs’ motion is GRANTED, and Defendants’ counterclaims are DISMISSED without

prejudice.

SO ORDERED on this 19th day of July, 2022.

 ___________________________________

 IRMA CARRILLO RAMIREZ

 UNITED STATES MAGISTRATE JUDGE

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