An employee sues his employer in federal court in State B for $125,000 under the Fair Labor Standards Act. The employer files a single permissive counterclaim alleging the employee took $2,500 worth of tools in violation of a State A wrongful conversion statute. Should the court grant the employee’s motion to dismiss the counterclaim?

• A. Yes, because the court lacks jurisdiction over the counterclaim.
• B. Yes, because the Federal Rules of Civil Procedure permit permissive counterclaims.
• C. No, because the court has supplemental jurisdiction over the counterclaim.
• D. No, because the counterclaim arises out of the same transaction or occurrence as the original claim.

Answer: (C)

The key concept is supplemental jurisdiction under 28 U.S.C. § 1367, which allows a federal court to hear related state-law claims alongside a federal claim if they share a common nucleus of operative fact.

Here, the employee’s claim under the Fair Labor Standards Act provides federal jurisdiction. The counterclaim is a state-law claim ( wrongful conversion) arising from the same employment context—the alleged taking of tools during the employment relationship. Because these claims are tied to the same set of facts, the counterclaim falls within the court’s supplemental jurisdiction under § 1367(a). Rule 13(b) permits a permissive counterclaim, but the existence of supplemental jurisdiction means the court can retain and hear the counterclaim rather than dismissing it for lack of jurisdiction. Under § 1367(c), the court might decline to exercise it in some situations, but none of those apply here.

So the court should not dismiss the counterclaim on jurisdictional grounds; it has supplemental jurisdiction over it.