522 F.3d 82 (1st Cir. 2008), 07-1796, Connectu LLC v. Zuckerberg

Docket Nº:07-1796.
Citation:522 F.3d 82, 86 U.S.P.Q.2d 1178
Party Name:CONNECTU LLC, Plaintiff, Appellant, v. Mark ZUCKERBERG et al., Defendants, Appellees.
Case Date:April 03, 2008
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
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522 F.3d 82 (1st Cir. 2008)

86 U.S.P.Q.2d 1178

CONNECTU LLC, Plaintiff, Appellant,

v.

Mark ZUCKERBERG et al., Defendants, Appellees.

No. 07-1796.

United States Court of Appeals, First Circuit.

April 3, 2008

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. Douglas P. Woodlock, U.S. District Judge] [Hon. Robert B. Collings, U.S. Magistrate Judge]

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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John F. Hornick, with whom Margaret A. Esquenet, Meredith H. Schoenfeld, Daniel P. Kaufman, Finnegan Henderson Farabow Garrett & Dunner LLP, Daniel P. Tighe, Scott McConchie, and Griesinger Tighe & Maffei, LLP were on brief, for appellant.

Daniel K. Hampton, with whom Gordon P. Katz, Holland & Knight, LLP, Annette L. Hurst, and Heller Ehrman LLP were on brief, for appellee Saverin.

I. Neel Chatterjee, with whom G. Hopkins Guy, III, Monte M.F. Cooper, Theresa A. Sutton, Orrick, Herrington & Sutcliffe, LLP, Steven M. Bauer, Jeremy P. Oczek, and Proskauer Rose LLP were on brief, for remaining appellees.

Before Lipez, Circuit Judge. Selya and Siler, [*] Senior Circuit Judges.

SELYA, Senior Circuit Judge.

Viewed broadly, this appeal concerns a bitter dispute about the parties' rights in and to Facebook, a spectacularly successful creature of the information age. Viewed more narrowly, however, it presents a jurisdictional enigma that requires us to decide whether an amended complaint that switches the basis of the district court's subject matter jurisdiction from the existence of diversity of citizenship, 28 U.S.C. § 1332(a)(1), to the existence of a federal question, id. § 1331, should be given effect when filed as of right before any jurisdictional challenge has been mounted. This is a question of first impression at the federal appellate level - and one that sets two established legal principles on a collision course.

For the reasons that follow, we hold that the jurisdictional claim in the amended complaint warrants full consideration and constitutes a viable hook on which federal jurisdiction can be hung. Because this holding is at odds with the conclusions reached by the court below, we reverse the order of dismissal and remand for further proceedings consistent with this opinion.

I. BACKGROUND

The relevant facts can be succinctly summarized. We wrest them from the

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allegations of the original and amended complaints (cautioning, however, that many of the substantive details appear to be hotly disputed).

The seeds of the global controversy were sown in a Harvard College dormitory room. Tyler Winklevoss, Cameron Winklevoss, and Divya Narendra (the Founders), then Harvard undergraduates, hatched the idea of creating a social networking website for college students. Lacking the programming expertise necessary to bring this idea to fruition, the Founders asked defendant Mark Zuckerberg to help them complete the proposed website's source code and aid in the development of their embryonic website. The request, which was made and accepted in November of 2003, yielded an horrific harvest.

According to the Founders, Zuckerberg not only failed to carry out the assignment but also stole their idea, business plan, and rudimentary (unfinished) source code in order to launch a competing social networking website. Zuckerberg acted in secret. By the time that the Founders learned of his perfidy, completed the source code through other means, and inaugurated their own social networking website (originally called harvardconnection.com and later renamed connectU.com), Zuckerberg's venture (originally called thefacebook.com and later abbreviated facebook.com) had gotten an unbeatable head start in user traffic.1

Harvard's traditional school color is crimson but the Founders saw red. On September 2, 2004, ConnectU LLC, a Delaware limited liability company (the LLC) commenced an action in the federal district court premised on diversity of citizenship and the existence of a controversy in the requisite amount, 28 U.S.C. § 1332(a)(1), against Zuckerberg and five other defendants associated with him, namely, Dustin Moskovitz, Eduardo Saverin, Andrew McCollum, Christopher Hughes, and Facebook itself. The complaint linked the three Founders with the LLC and asserted a gallimaufry of state-law claims arising from the alleged misappropriation and unauthorized use of the LLC's confidential source code and business plan.

On October 28, 2004 - -approximately two weeks after registering a copyright for its website's source code with the United States Copyright Office and before any responsive pleading was filed by the defendants - -the LLC served an amended complaint. See Fed.R.Civ.P. 15(a). The amended complaint added a corporate affiliate of Facebook as a defendant and introduced two new statements of claim, including a federal-law claim for copyright infringement. At the same time, the amended complaint forsook diversity as the basis for federal subject matter jurisdiction and premised jurisdiction instead on the existence of a federal question. See 28 U.S.C. § 1331. That federal question consisted of the newly asserted copyright infringement claim, see 17 U.S.C. § 501(b), and carried with it supplemental jurisdiction over the armada of state-law claims, see 28 U.S.C. § 1367(a).

Almost one year later, the defendants moved to dismiss for want of subject matter jurisdiction.2 Fed.R.Civ.P. 12(b)(1).

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They argued that the parties to the original complaint were not wholly diverse and that, therefore, the LLC's jurisdictional allegation did not hold water.

The defendants' argument had to be recalibrated in light of our ensuing decision in Pramco, LLC v. San Juan Bay Marina, Inc., 435 F.3d 51 (1st Cir. 2006), in which we held that the citizenship of a limited liability company is to be determined by the citizenship of its members. See id. at 54-55. Buoyed by this recalibration, the defendants continued to assert that complete diversity was lacking. They predicated this assertion on the belief that both Zuckerberg and Narendra (a person whom the defendants claimed was a member of the LLC at the time of suit) were citizens of New York.

This argument focused on the jurisdictional basis set forth in the original complaint because, in the defendants' view, the amended complaint was beside the point. For this proposition, they cited the time-of-filing rule reiterated in Grupo Dataflux v. Atlas Global Group L.P., 541 U.S. 567, 570-71, 124 S.Ct. 1920, 158 L.Ed.2d 866 (2004).

The LLC countered that the existence vel non of diversity had become a non-issue because the amended complaint, which premised jurisdiction on the existence of a federal question, had become the operative pleading. In the alternative, the LLC maintained that the parties to the original complaint were wholly diverse at the time of the commencement of the action. In support of this last proposition, the LLC suggested that Narendra's citizenship should not figure into the diversity calculus because he had not been admitted as a member of the LLC and that, at any rate, Zuckerberg was a citizen of California, not New York.

The district judge referred the dismissal motion to a magistrate judge for a report and recommendation. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b). After holding a protracted evidentiary hearing, the magistrate judge recommended that the motion to dismiss be granted. ConnectU LLC v. Zuckerberg, (ConnectU I), 482 F.Supp.2d 3, 32 (D. Mass. 2007). In taking this position, the magistrate judge concluded that because ConnectU's original complaint was premised on diversity jurisdiction, he had no choice but to look to that complaint, as it stood at the time of filing, in resolving the jurisdictional inquiry. Id. at 5-8 (citing Grupo Dataflux, 541 U.S. at 570-71, 124 S.Ct. 1920). The magistrate judge further concluded that, under the time-of-filing rule, the amended complaint could not cure any jurisdictional defect that might exist in the original complaint. Id. at 8. The magistrate judge went on to find that, at the time of the original filing, no complete diversity existed.3 Id. at 14-32. A recommendation for dismissal followed. Id. at 32.

The LLC objected to the magistrate judge's report and recommendation. The district judge summarily overruled these objections, adopted the recommended decision, and dismissed the case without prejudice for want of subject matter jurisdiction.4This timely appeal ensued. Simultaneous with the filing of the notice of appeal, the LLC's successor-in-interest

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commenced a new action in the district court (ConnectU II) asserting materially identical claims against the same defendants.

II. ANALYSIS

Although the LLC advances multiple claims of error on appeal, only one of them - -its contention that the district court failed to treat the amended complaint as the operative pleading for the purpose of determining subject matter jurisdiction - -need concern us. Before addressing the merits of that contention, however, we must deal with the defendants' plaint that this appeal should be dismissed as moot.

A. Mootness.

The Constitution confines the jurisdiction of the federal courts to actual cases and controversies. U.S. Const. art. III, § 2, cl. 1. This prerequisite must be satisfied at each and every stage of the litigation. See Spencer v. Kemna, 523 U.S. 1, 7, 118 S.Ct. 978, 140 L.Ed.2d 43 (1998); Steffel v. Thompson, 415 U.S. 452, 459 n. 10, 94 S.Ct. 1209, 39 L.Ed.2d 505 (1974); Cruz v. Farquharson, 252 F.3d 530, 533 (1st Cir. 2001). Because the inquiry into whether an appeal has become moot implicates a foundational question, sound practice dictates that we give that inquiry...

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