895 F.2d 967 (4th Cir. 1990), 89-2963, Arthur Young & Co. v. City of Richmond

Docket Nº:89-2963.
Citation:895 F.2d 967
Party Name:15 Fed.R.Serv.3d 768, 13 U.S.P.Q.2d 1881 ARTHUR YOUNG & COMPANY, Plaintiff-Appellant, v. CITY OF RICHMOND, Defendant-Appellee.
Case Date:February 09, 1990
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

Page 967

895 F.2d 967 (4th Cir. 1990)

15 Fed.R.Serv.3d 768,

13 U.S.P.Q.2d 1881

ARTHUR YOUNG & COMPANY, Plaintiff-Appellant,


CITY OF RICHMOND, Defendant-Appellee.

No. 89-2963.

United States Court of Appeals, Fourth Circuit

February 9, 1990

Argued Dec. 7, 1989.

Page 968

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.


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...

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