Tag Archives: Counterclaims

M.D.Tenn.: FLSA Defendant’s Counterclaim Seeking Declaratory Judgment That Plaintiff Was Exempt Dismissed, Because It Mirrored Plaintiff’s Claim

Richmond v. Centurion Exteriors, Inc.

This case was before the court on Plaintiff’s motion to dismiss the Defendant’s counterclaim, which sought a declaratory judgment that Plaintiff was exempt from the FLSA’s overtime provisions.  Because the Plaintiff had made an identical claim for declaratory judgment that the Defendant had misclassified him as exempt, the court dismissed the counterclaim.

Discussing the duplicative counterclaim, the court reasoned:

“In his complaint, Richmond alleged four legal claims, including a violation of the Fair Labor Standards Act (“FLSA”) based upon Defendants’ alleged failure to pay Richmond, a nonexempt employee, wages and overtime for all hours worked before his employment was terminated. (Docket No. 1, Complaint ¶¶ 21, 35-40 (Count I).) Among various forms of relief, Richmond requested a declaratory judgment that the practices he complains about are unlawful. (Id. at 9.) In the answer, Defendants denied the FLSA allegations and raised as an affirmative defense that the FLSA does not apply because Richmond was an “outside salesman” pursuant to 29 U.S.C. § 213 and thus, an exempt employee who was not covered by the FLSA. In addition, Defendants filed a counterclaim seeking a declaratory judgment that Richmond was an exempt employee. (Docket No. 9, Answer at 6-7, 10-11.)

Richmond now seeks dismissal of the counterclaim under Federal Rule of Civil Procedure 12(b)(6) on the ground that the counterclaim is a mirror image of his own claim and Defendants do not allege factual or legal issues different from those raised in the complaint. Defendants emphasize that they carry the burden to prove that Richmond was an exempt employee, and that their counterclaim could have been brought as a separate declaratory judgment action. Additionally, they believe their declaratory judgment request is proper because a ruling could impact the way Centurion classifies current and future employees under the FLSA or a ruling may have ramifications on enforcement actions of the federal government with respect to Richmond’s claim. Defendants also want to assure their ability to obtain a declaratory judgment that Richmond was an exempt employee even if Richmond decides to dismiss his lawsuit voluntarily.

The Sixth Circuit apparently has not addressed this issue outside the patent context. In Dominion Elec. Mfg. Co. v. Edwin Wiegand Co., 126 F.2d 172, 173-74 (6th Cir.1942), the court held that a counterclaim in a patent infringement suit should not have been dismissed prior to trial, but in so holding the court recognized the unique situation often presented in patent cases where defendants seek declaratory judgments on issues beyond the scope of the complaint. In other types of cases, district courts “have disagreed on the proper treatment of so-called ‘mirror-image’ counterclaims.” Erickson v. Brock & Scott, PLLC, 2009 WL 4884424 at *3 (W.D.Tenn. Dec.8, 2009). Some district courts have dismissed counterclaims because they are redundant to the complaint, while other courts have not. Id. (and cases cited therein).

A district court in Ohio found that these “cases are not necessarily at odds.” Pettrey v. Enterprise Title Agency, Inc., 2006 WL 3342633 at * 3 (N.D.Ohio Nov.17, 2006). Relying on 6 Wright, Miller & Kane, FEDERAL PRACTICE & PROCEDURE 2D § 1406, the Pettrey court determined the focus should be on whether the counterclaim serves any useful purpose. Id. If it cannot be determined early in the litigation if the counterclaim is identical to the complaint, “ ‘the safer course for the court to follow is to deny a request to dismiss a counterclaim for declaratory relief unless there is no doubt that it will be rendered moot by the adjudication of the main action.’ ” Id. (quoting 6 Wright, Miller & Kane, FEDERAL PRACTICE & PROCEDURE 2D § 1406). On the other hand, the court should dismiss a redundant counterclaim when it is clear that there is complete identity of factual and legal issues between the complaint and the counterclaim. Id. (citing Aldens, Inc. v. Packel, 524 F.2d 38, 51-52 (3d Cir.1975)). In Pettrey the district court “harbor[ed] no doubt whatsoever that Defendants’ declaratory judgment counterclaims will be rendered moot by the adjudication of Plaintiffs’ claims [,]” and dismissed the counterclaims, distinguishing the case from the patent infringement context in Dominion. Id.

Applying a similar analysis here, the Court concludes that Defendants’ counterclaim raises factual and legal issues identical to those stated in the complaint, and the counterclaim will be rendered moot upon adjudication of the complaint. See id.; Aldens, Inc., 524 F.2d at 51-52; Mille Lacs Band of Chippewa Indians v. State of Minnesota, 152 F.R.D. 580, 582 (D.Minn.1993); Resolution Trust Corp. v. Ryan, 801 F.Supp. 1545, 1556 (S.D.Miss.1992). Defendants secured their opportunity to litigate whether Richmond was an exempt employee by raising that issue as an affirmative defense, on which they carry the burden of proof. See Franklin v. Kellogg Co., — F.3d —-, 2010 WL 3396843 at *4 (6th Cir.2010); Baden-Winterwood v. Life Time Fitness, Inc., 566 F.3d 618, 626 (6th Cir.2009). Even if Richmond decides to dismiss his case voluntarily, Defendants have not identified any case or controversy that would remain for adjudication so that Defendants would have standing to proceed and the Court would possess jurisdiction to render a proper decision, and not an advisory opinion. See Fieger v. Michigan Supreme Court, 553 F.3d 955, 961 (6th Cir.2009) (holding Article III and Declaratory Judgment Act allow district court to enter declaratory relief only in case of actual controversy where plaintiff has standing).

Accordingly, Richmond’s Motion To Dismiss Counterclaim (Docket No. 11) is hereby GRANTED and Defendants’ counterclaim is hereby DISMISSED for failure to state a claim under Rule 12(b)(6).”

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S.D.Fla.: Counterclaim For Indemnity Against FLSA Plaintiff In Her Supervisory Capacity Dismissed; FLSA Does Not Permit Such Claims

Quintana v. Explorer Enterprises, Inc.

This case was before the Court on the Plaintiff’s Motion to Dismiss Defendants’ Counterclaim Against Marcia Martinez.  Martinez had commenced suit against the Defendants alleging violations of the FLSA.  Specifically, Plaintiff sought to dismiss the Defendants’ counterclaims against her alleging that she should indemnify them, as an employer in her supervisory capacity.  Dismissing the counterclaim, the Court reasoned that such a counterclaim was not permissible under the FLSA.

The Court explained:

“The defendants brought the counterclaim under the FSLA alleging that Ms. Martinez is an employer within the meaning of the FLSA. The defendants claim that Ms. Martinez is potentially liable for violating the FLSA as a person who is “acting directly or indirectly in the interest of an employer in relation to an employee .” 29 U.S.C. § 203(d). In their Response (DE # 50, 4/20/10), the defendants claim that they are “unaware of a single case holding that one employer within the meaning of the FLSA is prohibited from seeking indemnification or contribution from a second employer with [sic] the meaning of the FLSA, and Martinez cites none.” (DE # 50 p. 5; 4/20/10) Although the Eleventh Circuit has not addressed the issue, other circuits have. In LeCompte v. Chrysler Credit Corp., 780 F.2d 1260 (5th Cir.1986), which is cited by the plaintiff, the Fifth Circuit found that the district court property dismissed the counterclaim for indemnity against two plaintiffs in their supervisory capacity. The defendants fail to distinguish LeCompte.

Instead, the defendants unsuccessfully attempt to distinguish the Tenth Circuit decision in Martin v. Gingerbread House, Inc., 977 F.2d 1405 (10th Cir.1992), on the basis that it was a third-party complaint rather than a counterclaim. Notably, in Martin, the Tenth Circuit expressly agreed with the Fourth and Fifth Circuits’ holdings that “indemnity actions against employees work against the policy of the FLSA.” Id. at 1408. In Martin, the Tenth Circuit explained that

[c]ompliance with the FLSA will not be furthered if employees must defend against indemnity actions. Such actions are not part of the comprehensive statutory scheme set forth by Congress. The conflict between the purposes of federal law and a state cause of action require the latter to yield. We therefore hold that a third party complaint by an employer seeking indemnity from an employee is preempted.  Id.

In their Response (DE # 50, 4/20/10), the defendants concede that there are very few cases on point. The defendants, however, believe that the lack of case holdings prohibiting such indemnification indicates that defendants may seek such relief. Although the Eleventh Circuit has not addressed this issue, the circuits that have addressed the issue consistently found that indemnification claims against employees or owners are contrary to public policy and the legislative intent of the FLSA. See, e.g., LeCompte v. Chrysler Credit Corp., 780 F.2d 1260, 1264 (5th Cir.1986); Lyle v. Food Lion, Inc., 954 F.2d 984, 987 (4th Cir.1992); Martin v. Gingerbread House, Inc., 977 F.2d 1405, 1407 (10th Cir.1992); Herman v. RSR Sec. Services Ltd., 172 F.3d 132, 144 (2d Cir.1999).

The dispositive issue raised in the plaintiff’s motion to dismiss is whether the indemnification sought by the defendants would be allowed under the FLSA. The Supreme Court addressed a related issue in Northwest Airlines v. Transp. Workers Union, 451 U.S. 77, 94-95 (1981). The Supreme Court analyzed the legislative intent regarding an implied right to contribution under the Equal Pay Act when the Act contains no reference of such contribution. The Court determined that unless the “congressional intent can be inferred from the language of the statute, the statutory structure, or some other source, the essential predicate for implication of a private remedy simply does not exist.” Id. (emphasis added).

Several circuits have applied the reasoning of Northwest Airlines to their analysis of the viability of an indemnity claim under the FLSA. See, e.g., LeCompte v. Chrysler Credit Corp., 780 F.2d 1260, 1264 (5th Cir.1986); Lyle v. Food Lion, Inc., 954 F.2d 984, 987 (4th Cir.1992); Martin v. Gingerbread House, Inc., 977 F.2d 1405, 1408 (10th Cir.1992); Herman v. RSR Sec. Services Ltd., 172 F.3d 132, 144 (2d Cir.1999); Villareal v. El Chile, Inc., 601 F.Supp.2d, 1011, 1015 (N.D.Ill.2009); Spellman v. American Eagle Express, Inc., 680 F.Supp.2d 188, 191 (D.C.Cir.2010). Additionally, the Second, Fourth, Fifth and Tenth Circuits have consistently held that indemnity claims against employees under the FLSA are preempted by the Supremacy Clause of the United States Constitution. See LeCompte, 780 F.2d at 1264. See also Spellman, 680 F.Supp.2d at 191; Villareal, 601 F.Supp.2d at 1015; Lyle, 954 F.2d at 987 (adopting the reasoning of the court in LeCompte ).

The FLSA does not mention a right to seek indemnity. Indemnity against an employee would be contrary to the legislative intent. See LeCompte v. Chrysler Credit Corp., 780 F.2d 1260, 1264 (5th Cir.1986) (noting that such indemnity action would “undermine employers’ incentive to abide by the Act”). In Herman, the Second Circuit noted that the text of the FLSA makes no provision for contribution or indemnification and the Act’s legislative history is silent on a right to contribution or indemnification. Herman, 172 F.3d at 144; see also Lyle, 954 F.2d at 987 (holding that indemnity against an employee “is something the FLSA simply will not allow”). Most recently, in Villareal, 601 F.Supp.2d at 1015, the court affirmed the dismissal of an employer’s cross-claim against its supervisory personnel for indemnity claims under the FLSA (citing LeCompte ).

In LeCompte, the Fifth Circuit acknowledged that the supervisory personnel were partially at fault for the violation that resulted. Nonetheless, the court held that an indemnity claim against such personnel under the FLSA would be inappropriate as it would frustrate Congress’ purpose in enacting the FLSA. Id. at 1264. Similarly, in the case at hand, the defendants’ basis for the counterclaim against Ms. Martinez, as a store manager, is that she was the person most responsible for setting the plaintiffs’ rates of pay and schedule and that she was in the best position to ensure the defendants’ compliance with the FLSA. Applying the reasoning of the court in LeCompte, the counterclaim for indemnity is not viable.”

Thus, the Court granted Plaintiff’s Motion and dismissed Defendants’ counterclaim.

To read the entire order click here.

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W.D.Wash.: Plaintiffs’ Immigration Status Irrelevant To FLSA/RCW Claims; Affirmative Defense Seeking To Estop Undocumented Immigrants From Recovery Based On Immigration Status Dismissed; No Counterclaim Against A Plaintiff For Indemnity Is Legally Cognizable Either

Bailon v. Seok AM No. 1 Corp.

This case was before the court on plaintiffs’ motion to dismiss and motion for protective order.  The issues presented turned largely around the question of whether the immigration status of plaintiffs/employees is at all relevant to the claims those employees filed against their defendant/employer under the Fair Labor Standards Act (“FSLA”) 29 U.S.C. §§ 201-219 and the Washington Minimum Wage Act (“MWA”) RCW 49.48.010 et. seq. Defendants sought to pursue discovery against plaintiffs arguing that their alleged status as illegal aliens prevents them from pursuing claims for unfair employment practices.  The Court concluded that the plaintiffs’ immigration status is irrelevant to any valid claim or defense and that public policy prohibits defendants from pursuing such discovery.  Additionally, the Court held that an FLSA Plaintiff may not properly be the subject of a counterclaim for indemnity based on actions taken as Defendants’ supervisory employee. 

The Court framed the issues before it as follows: (1) Whether alleged undocumented-worker immigration status provides a defense or counterclaim in an FLSA/MWA case for work already performed; (2) Whether FLSA/MWA defendants have a right to seek indemnity or contribution from third parties such as co-workers or joint employers; and (3) Whether FLSA/MWA claims are subject to personal defenses such as waiver, estoppel, unclean hands, laches, “independent intervening conduct of” third party, failure to mitigate damages, “equal[ ] or exceed[ing] fault of plaintiffs,” proximate cause of third party, failure to pay taxes, or a public policy punitive damages defense.

Addressing Plaintiffs’ Motion to Dismiss Defendants’ Affirmative Defenses first, the Court stated, “After carefully reviewing the case law and the facts as alleged by the parties, it appears that plaintiffs’ immigration status is irrelevant to any issue in this case. While the Supreme Court ruled that immigration status bars recover for future wages, see Hofman Plastics Compounds v. NLRB, 535 U.S. 137, 149, 122 S.Ct. 1275, 152 L.Ed.2d 271 (2002), if the wage claim involves damages for past work performed, then the immigration status of the plaintiff is irrelevant. See Rivera v. Nibco, Inc., 364 F.3d 1057, 1063-69 (9th Cir.1004) (discussing Hoffman, Title VII claims for back wages are not barred because of employee’s immigration status).

Furthermore, although there is no Washington case directly on point, Washington courts have consistently construed the MWA in the same manner as the FLSA. See, e.g., Hisle v. Todd Pacific Shipyards Corp., 151 Wash.2d 853, 862, 93 P.3d 108 (2004); Chelan County Deputy Sherifs’ Assoc. v. County of Chelan, 109 Wash.2d 282292-93, 745 P.2d 1 (1987). While not binding, in the absence of state authority to the contrary, the federal precedent is persuasive on this issue. This appears to be consistent with the Washington State Department of Labor and Industries’ policy, as stated by its Director in May of 2002, following the Hoffman Plastics decision. The Washington State Director of Labor & Industries, Gary Moore, issued the following statement:

The 1972 law that revamped Washington’s workers’ compensation system is explicit: All workers must have coverage. Both employers and workers contribute to the insurance fund. The Department of Labor and Industries is responsible for protecting worker safety, ensuring that all workers be paid at least the minimum wage and providing workers with medical care and wage replacement when an injury or an occupational disease prevents them from doing their job. The agency has and will continue to do all that without regard to the worker’s immigration status. Exhibit 2 to Schmitt Decl. (Statement by Gary Moore, Director of the Department of Labor & Industries, May 21, 2002) Doc. # 11.

Therefore, there appear to be no set of facts that would support any of defendants’ allegations that plaintiffs’ claims under the FLSA are barred by their immigration status. Furthermore, defendants have cited no authority for the proposition that the WMA claims should be barred because of plaintiffs’ immigration status either. Accordingly, plaintiffs’ motion to dismiss defendants’ counterclaim alleging that plaintiffs lacked “standing to be lawfully employed” is hereby GRANTED.”

Next the Court turned to the question of whether an FLSA Plaintiff may ever be required to indemnify Defendants for actions committed as a supervisor under Defendants’ employ.  Answering this question in the negative, the Court stated, “The Court is unaware of any case in the Ninth Circuit regarding whether an individual supervisor may be held liable for contribution or indemnity to another defendant who may be liable for violations of the FLSA. But several other courts of appeals in other circuits have rejected claims seeking indemnity or contribution under those circumstances. See LeCompte v. Chrysler Credit Corp., 780 F.2d 1260, 1264 (5th Cir.1986) (affirming dismissal of employer’s counterclaim against supervisory personnel for indemnity of plaintiffs’ claims under FLSA, and stating, “No cause of action for indemnity by an employer against its employees who violate the Act appears in the statute, nor in forty years of its existence has the Act been construed to incorporate such a theory”; Lyle v. Food Lion, 954 F.2d 984, 987 (4th Cir.1992) (affirming dismissal of employer’s counterclaim and third-party complaint for indemnity against plaintiff-supervisor for plaintiffs’ FLSA claims); Martin v. Gingerbread House, Inc., 977 F.2d 1405, 1408 (10th Cir.1992) (holding employer’s third-party complaint seeking indemnity from employee for alleged FLSA violations was preempted); Herman v. RSR Sec. Services Ltd., 172 F.3d 132, 144 (2d Cir.1999) (affirming dismissal of corporation chairman’s claims for contribution and indemnification against his co-owner and corporation’s manager and vice president).

 The Court is persuaded that it should dismiss defendants’ counterclaim seeking indemnity or contribution in this case. To rule otherwise would frustrate Congress’ purpose in enacting the FLSA, since an employer who believed that any violation of the statute’s overtime or minimum wage provisions could be recovered from its employees would have a diminished incentive to comply with the statute. LeCompte, 780 F.2d at 1264.

 Defendants argue they are entitled to assert their contribution and indemnity claim(s) based on state law, citing RCW 49.52.050, 49.52.070, Morgan v. Kingen, 166 Wash.2d 526, 210 P.3d 995 (2009), and Ellerman v. Centerpoint Prepress, 143 Wash.2d 514, 22 P.3d 795 (2001). Defendants’ argument misses the mark. This authority stands for the proposition that plaintiffs may have a claim against an individual supervisor, but does not stand for the proposition that another defendant who may be liable for wage claims has a contribution or indemnity claim against someone similarly situated.

Furthermore, the FLSA’s preclusion of contribution and indemnity claims preempts state law. “Creation of a state-law-based indemnity remedy on behalf of employers would not serve the congressional purpose of creating and maintaining minimum standards of employment throughout the national economy.”   LeCompte, 780 F.2d at 1264.

In sum, plaintiffs’ motion to dismiss is GRANTED; defendants’ counterclaim based on contribution or indemnity against Plaintiff Esquivel is DISMISSED.”

 Last, the Court granted Plaintiffs’ Motion for a Protective Order regarding discovery sought concerning their immigration status.

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S.D.Fla.: FLSA Defendant’s Counterclaims Based On Prior General Release Dismissed Because They Would Substantially Predominate Over FLSA Claims

Dawson v. Office Depot, Inc.

This matter came before the Court sua sponte, after its review of the pleadings. Plaintiffs filed a Complaint which alleged a violation of the FLSA. Defendants filed a Counterclaim, which alleged two state law claims: 1) Rescission of General Release Agreement and 2) Breach of General Release Agreement, presumably both arising out of the fact that Plaintiff had previously signed a general release and then sought damages in the instant case under the FLSA nonetheless.

After reviewing Defendants’ Counterclaim, the Court found that the state law claims asserted in Counts I & II are so related to the federal claim in the instant action that they form part of the same case or controversy. 28 U.S.C. § 1367(a) (2006). Therefore, the Court recognized its authority to exercise supplemental jurisdiction over Defendants’ Counterclaim.

Nevertheless, the Court recognized its supplemental jurisdiction inquiry did not end there.

“In 1990, Congress codified the formerly well-entrenched jurisdictional doctrine denominated as pendent and ancillary jurisdiction set forth in United Mine Workers of Am. v. Gibbs, 383 U.S. 715 (1966). 28 U.S.C. § 1367(c) provides in pertinent part:

The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if-

(1) the claim raises a novel or complex issue of State law, [or]

(2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction ….”

Applying 28 U.S.C. § 1367(c)(2) to the facts before it, the Court found that supplemental jurisdiction should not be exercised over the state law claims asserted in Defendants’ Counterclaim because those claims present questions of state law which would otherwise predominate over the federal claims present here and obscure their significance. See Winn v. North Am. Philips Corp., 826 F.Supp. 1424, 1426 (S.D.Fla.1993). Therefore, the Court, pursuant to § 1367(c)(2), exercised its discretion and dismissed the state law claims set forth in Counts I & II of Defendants’ Counterclaim.

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N.D.Ill.: FLSA Defendant May Not Assert Counterclaim Against Plaintiff On Theory Of Indemnification

Villareal v. El Chile, Inc.

The Corporate and Individual Defendants filed answers and affirmative defenses to the Third Amended Complaint, and both sets of defendants filed the same two counterclaims. The first counterclaim, the “indemnity counterclaim,” was brought against plaintiffs Rosa Camarena, Jorge Garcia, Tomas Jacinto, Javier Jimenez, Bernardo Linares, Marco Ocampo, and Pedro Magos. Defendants alleged that those seven plaintiffs were employed in “bona fide executive and administrative capacities” and “exercised control over hirings and firings, work schedules, … and the number of hours worked by Plaintiffs,” and thus their “actions … provide the factual basis for vicarious liability of [defendants] as alleged in the Third Amended Complaint.” The Defendants claimed that those plaintiffs owed defendants implied indemnity under Illinois law should plaintiffs prevail on any claim brought under the Third Amended Complaint.

Citing the unanimous holdings of Circuit Court’s to have taken up the issue previously, the Court dismissed Defendants’ counterclaim stating:

While the Seventh Circuit has not yet addressed the issue, other courts of appeals have rejected claims seeking indemnity or contribution for FLSA liability. See, e.g., LeCompte v. Chrysler Credit Corp., 780 F.2d 1260, 1264 (5th Cir.1986) (affirming dismissal of employer’s cross-claim against supervisory personnel for indemnity of plaintiffs’ claims under FLSA, and stating, “No cause of action for indemnity by an employer against its employees who violate the Act appears in the statute, nor in forty years of its existence has the Act been construed to incorporate such a theory.”) Defendants have not presented, and this court’s research has not disclosed, any decision by a federal court to date recognizing a claim for indemnity or contribution by an employer against an employee in the employee’s action under the FLSA.

In LeCompte, the Fifth Circuit stated that the district court had properly dismissed the indemnity claim notwithstanding the employer’s evidence that the supervisory personnel regularly ignored the employer’s policy prohibiting unauthorized overtime. Id. at 1264. The court explained that a claim for indemnity would frustrate Congress’ purpose in enacting the FLSA, since an employer who believed that any violation of the statute’s overtime or minimum wage provisions could be recovered from its employees would have a diminished incentive to comply with the statute. Id. at 1264. “To engraft an indemnity action upon this otherwise comprehensive federal statute would run afoul of the Supremacy Clause of the Constitution, would undermine employers’ incentive to abide by the Act, and would differentiate among employees entitled to receive overtime compensation in a way which does not otherwise exist in the statute.” Id. The court also rejected the application of state-law indemnity principles, stating that creating a state-law-based indemnity remedy on behalf of employers would not serve the purpose of national minimum standards and would diminish employer incentive to comply with the FLSA, as well as deprive the supervisory employees of the overtime compensation to which they are entitled under the FLSA. Id.

The other courts of appeals that have considered the issue have agreed with the Fifth Circuit’s decision in LeCompte. See Lyle v. Food Lion, 954 F.2d 984, 987 (4th Cir.1992) (affirming dismissal of employer’s counterclaim and third-party complaint for indemnity against plaintiff-supervisor for plaintiffs’ FLSA claims); Martin v. Gingerbread House, Inc., 977 F.2d 1405, 1408 (10th Cir.1992) (holding employer’s third-party complaint seeking indemnity from employee for alleged FLSA violations was preempted); Herman v. RSR Sec. Services Ltd., 172 F.3d 132, 144 (2d Cir.1999) (affirming dismissal of corporation chairman’s claims for contribution and indemnification against his co-owner and corporation’s manager and vice president).

Therefore, the Court dismissed Defendants’ counterclaim seeking indemnification from Plaintiffs.

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