Arthur Young & Co. v. City of Richmond, 89-2963

Decision Date09 February 1990
Docket NumberNo. 89-2963,89-2963
Citation895 F.2d 967
Parties, 1990 Copr.L.Dec. P 26,529, 15 Fed.R.Serv.3d 768, 13 U.S.P.Q.2d 1881 ARTHUR YOUNG & COMPANY, Plaintiff-Appellant, v. CITY OF RICHMOND, Defendant-Appellee.
CourtU.S. Court of Appeals — Fourth Circuit

Sandy Thomas Tucker (William R. Mauck, Jr., Williams, Mullen, Christian & Dobbins, P.C., Richmond, Va., Steven L. Cohen, Arthur Young & Co., on brief), for plaintiff-appellant.

Warren Eugene Zirkle (Elizabeth F. Edwards, McGuire, Woods, Battle & Boothe, Richmond, Va., on brief), for defendant-appellee.

Before PHILLIPS and WILKINSON, Circuit Judges, and SPENCER, United States District Judge for the Eastern District of Virginia, sitting by designation.

PHILLIPS, Circuit Judge:

Arthur Young & Company appeals the district court's dismissal, for lack of subject matter jurisdiction, of Arthur Young's action against the City of Richmond for copyright infringement and various state law claims. The district court reasoned that the case "plainly and essentially" involved a state law contract dispute, requiring no construction of federal copyright law, and accordingly granted the City's motion for dismissal under Fed.R.Civ.P. 12(b)(1). We now reverse and remand the case for further proceedings in the district court.

I

This dispute arose out of a 1984 agreement between Arthur Young and the City of Richmond that obligated Arthur Young to design and implement for the City an on-line customer information and billing system, known as "UBIS." Under the contract, Arthur Young was to receive $1,080,100 for its performance. The work was to be completed in stages, and Arthur Young was to be compensated incrementally.

Over the next several years, difficulties ensued. The City complained that although it had paid over $900,000 to Arthur Young, Arthur Young had consistently failed to meet scheduled dates for completion of phases of the work. Arthur Young, on the other hand, claimed that it had completed substantial "out-of-scope" work, at the direction of the City, and it was demanding that the City pay more than $2,400,000 in additional compensation for that work. When the dispute reached an impasse on August 5, 1988, the City locked Arthur Young out of the workplace, citing both Arthur Young's refusal to perform further work until it received the additional compensation and concerns about the security of its mainframe computer system from retaliation by Arthur Young.

Four days later, Arthur Young sued the City in Fairfax County Circuit Court for declaratory and injunctive relief and damages, alleging various state law contract theories. On the City's motion, the case was transferred to the Richmond Circuit Court, and Arthur Young soon thereafter filed an amended complaint, alleging several other state law claims. On February 14, 1989, the City gave Arthur Young's counsel a Motion for Judgment against Arthur Young, which the City then filed the next day. Also on the 14th, Arthur Young registered a copyright of UBIS with the United States Copyright Office and the next day filed suit in federal district court in the Eastern District of Virginia, alleging three counts of copyright infringement, along with substantially the same assortment of state law claims it had alleged in its suit in equity, which it then voluntarily nonsuited.

The City concedes that it has engaged in the two types of conduct that form the basis of the copyright infringement counts. First, the City admits it has been using and reproducing the meter inventory and maintenance subsystem of UBIS, known as MIMS, and that it continues to do so. It is undisputed that Arthur Young consented to the use and reproduction of MIMS in March 1987 and that it first objected to this activity in August 1988--when Arthur Young was locked out. Second, the City admits that it has made and continues to make backup copies of the UBIS object code and source codes. Arthur Young does not dispute that it knew for quite some time that the City was making these backup copies to protect against loss from mechanical or electrical failure.

Count I of Arthur Young's complaint in federal district court alleged that Arthur Young was the sole owner of the copyright in UBIS and that the City's acts constituted copyright infringement in violation of 17 U.S.C. Secs. 501 et seq. Count II alleged in the alternative that if it was found that the City rightfully owned a copy of UBIS, it nonetheless had no right in the program's "source code" and its acts with respect to that part of the program therefore constituted copyright infringement. Count III, also pled in the alternative, alleged that if the City was the rightful owner of a copy of UBIS, its acts with respect to that copy have exceeded those permitted by 17 U.S.C. Sec. 117. Each of the three counts asks for damages in accordance with 17 U.S.C. Sec. 504 of the Copyright Act and for a permanent injunction under 17 U.S.C. Sec. 502.

The City moved in the district court to dismiss Arthur Young's action for lack of subject matter jurisdiction. In ruling on the jurisdictional issue, the court considered affidavits and supporting exhibits submitted by the parties and concluded that copyright infringement was not the "principal and controlling issue of the case." Instead, the court found that the action was essentially a contract dispute governed by state law and on that basis dismissed for lack of subject matter jurisdiction.

This appeal followed.

II

Arthur Young argues that under the well-pleaded complaint rule the complaint alleged a claim for copyright infringement sufficient to establish exclusive federal jurisdiction under 28 U.S.C. Sec. 1338(a). 1 According to Arthur Young, the court's examination of whether the "principal or controlling issue" involved only state law questions exceeded the proper scope of inquiry on a 12(b)(1) motion, which should test no more than whether the jurisdictional facts alleged, if sufficient on their face, are spurious or frivolous. The City argues in response that the district court properly looked behind the allegations of copyright infringement and found that they did not capture the essence of the dispute between the parties. We agree with Arthur Young that the district court's search for the "principal and controlling issue" in the case exceeded the limited factual inquiry necessary for ruling on a 12(b)(1) motion and that exclusive federal jurisdiction under 28 U.S.C. Sec. 1338(a) did in fact exist on the basis of the allegations in the complaint.

A federal court determines whether a case is one "arising under" federal law based on "what necessarily appears in the plaintiff's statement of his own claim in the [complaint], unaided by anything alleged in anticipation or avoidance of defenses...." Franchise Tax Board v. Laborers Vacation Trust, 463 U.S. 1, 10, 103 S.Ct. 2841, 2846, 77 L.Ed.2d 420 (1983) (quoting Taylor v. Anderson, 234 U.S. 74, 75-76, 34 S.Ct. 724, 58 L.Ed. 1218 (1914)). The mere fact that the complaint discloses that the case involves a copyright dispute, however, does not in itself lead to a conclusion that the case "arises under" the Federal Copyright Act for the purposes of jurisdiction under 28 U.S.C. Sec. 1338(a). Many disputes over copyright ownership will arise under state law and involve no federal law questions. 2

Recognizing the potential for overly broad federal jurisdiction under 28 U.S.C. Sec. 1338(a), Judge Friendly, in T.B. Harms Co. v. Eliscu, 339 F.2d 823 (2d Cir.1964) set out what has remained the definitive jurisdictional test for copyright cases:

[A]n action "arises under" the Copyright Act if and only if the complaint is for a remedy expressly granted by the Act, e.g. a suit for infringement or for the statutory royalties for record reproduction, ... or asserts a claim requiring construction of the Act, ... or, at the very least, and perhaps more doubtfully, presents a case where a distinctive policy of the Act requires that federal principles control the disposition of the claim. The general interest that copyrights, like all other forms of property should be enjoyed by their true owner is not enough to meet this last test.

Id. at 828. Judge Friendly ultimately found the jurisdictional allegations in T.B. Harms fatally flawed, not because they raised state law issues of ownership, but because there was no allegation of copyright infringement. See id. at 825 ("[District] Judge Weinfeld treated the jurisdictional issue as turning solely on whether the complaint alleged any act or threat of copyright infringement. He was right in concluding that it did not.").

The fact that a complaint containing proper allegations of copyright infringement might not present difficult issues of federal law has no bearing on the fundamental question of whether the suit arises under the Copyright Act. As Judge Friendly noted, "many infringement suits ... depend only on some point of fact and require no construction of federal law...." Id. at 826. As long as the complaint asks for a remedy expressly provided by the Copyright Act, the suit fits squarely under Justice Holmes' famous test for when federal "arising under" jurisdiction exists: "a suit arises under the law that creates the cause of action. American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260, 36 S.Ct. 585, 586, 60 L.Ed. 987 (1916)." 3

Applying these same basic principles, the Ninth Circuit...

To continue reading

Request your trial
51 cases
  • Richmond v. American Systems Corp., Civ. No. 91-1930-A.
    • United States
    • United States District Courts. 4th Circuit. United States District Court (Eastern District of Virginia)
    • 1 Mayo 1992
    ...is presented on the face of the plaintiff's properly pleaded complaint"); Childers, 881 F.2d at 1261 (same); Arthur Young & Co. v. City of Richmond, 895 F.2d 967, 969 (4th Cir.1990) It is equally settled that under the well-pleaded complaint rule, a case may not be removed to federal court ......
  • Brown-Thomas v. Hynie
    • United States
    • United States District Courts. 4th Circuit. United States District Court of South Carolina
    • 21 Agosto 2019
    ...Harms ’ three-part test for complaints asserting subject-matter jurisdiction under the Copyright Act. See Arthur Young & Co. v. City of Richmond , 895 F.2d 967, 970 (4th Cir. 1990) ("The fact that a complaint containing proper allegations of copyright infringement might not present difficul......
  • Image Software v. Reynolds and Reynolds Co, 04-1533.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • 23 Agosto 2006
    ...over claim seeking injunction, impoundment, "damages and profits," and attorney's fees provided for under Copyright Act); Arthur Young & Co., 895 F.2d at 971 (holding federal court had subject matter jurisdiction over claim alleging copyright infringement and seeking damages and injunctive ......
  • Potomac Conference Corp. v. Takoma Acad. Alumni Ass'n, Inc.
    • United States
    • United States District Courts. 4th Circuit. United States District Court (Maryland)
    • 4 Marzo 2014
    ...“when the complaint shows that the claim for relief arises under a cause of action created by federal law.” Arthur Young & Co. v. City of Richmond, 895 F.2d 967, 971 (4th Cir.1990). A federal court may exercise supplemental jurisdiction over claims that otherwise would not be within its jur......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT