Airframe Systems, Inc. v. Raytheon Co.

• Decision Date: 31 March 2010
• Docket Number: No. 09-1624.,09-1624.
• Citation: 601 F.3d 9
• Parties: AIRFRAME SYSTEMS, INC., Plaintiff, Appellant, v. RAYTHEON COMPANY; John Stolarz; L-3 Communications Holdings, Inc.; L-3 Communications Corp., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

601 F.3d 9

AIRFRAME SYSTEMS, INC., Plaintiff, Appellant, v. RAYTHEON COMPANY; John Stolarz; L-3 Communications Holdings, Inc.; L-3 Communications Corp., Defendants, Appellees.

No. 09-1624.

United States Court of Appeals, First Circuit.

Heard February 3, 2010.

Decided March 31, 2010.

Peter B. Krupp with whom Lurie & Krupp, LLP and Bruce I. Afran were on brief for appellant.

John F. Batter III with whom Timothy J. Perla, Sarah W. Lowe, and Wilmer Cutler Pickering Hale and Dorr LLP were on brief for appellee Raytheon Company.

Alan M. Gelb with whom Randi Maidman and Jones Hirsch Connors & Bull, PC were on brief for appellee L-3 Communications Corporation.

Before LYNCH, Chief Judge, SOUTER, Associate Justice,^* and STAHL, Circuit Judge.

LYNCH, Chief Judge.

The question presented is whether the doctrine of claim preclusion bars the plaintiff, Airframe Systems, Inc. (Airframe) from pursuing a later 2007 copyright infringement action in Massachusetts when its earlier 2006 copyright action in New York, concerning the same series of events, was dismissed and Airframe took no appeal.

The wrinkle presented is that the earlier New York suit named as defendant L-3 Communications Corporation (L-3), the later owner of Aircraft Integration Systems (AIS), the business unit in both cases said to have infringed through use and/or possession of Airframe's software source code. The later Massachusetts suit, on the other hand, named as defendant Raytheon, which owned AIS at the time of the alleged infringement. Since Airframe was or should have been well aware of these facts when it filed the New York lawsuit, and should have amended its suit there, we agree with the district court that the Massachusetts action is barred. On appeal, Airframe challenges the dismissal of its suit only with respect to Raytheon and has waived the argument that its suit against L-3 was not precluded. The allowance of the motion to dismiss is affirmed.

We summarize our reasoning. Airframe makes two arguments as to why the present suit against Raytheon is distinguishable from the New York suit for claim preclusion purposes. First, it says the causes of action in the New York suit, which claimed infringement based on unauthorized possession of its source code, are different from its present claims of infringement based on the unauthorized use of its source code to modify software. But both claims arise from the same series of events in the same timeframe and meet the common nucleus of operative fact test. Airframe could have made both claims in the New York suit and chose not to do so. Moreover, Airframe sought leave to amend its New York complaint to add the infringing use claim; the New York court impliedly denied the request, and Airframe did not appeal that decision.

Second, Airframe argues that the New York suit only named L-3 as a defendant and should not bar its present suit as to Raytheon, which it says was not an identical party to L-3 because they were not in privity. But modern claim preclusion doctrine need not be analyzed solely in terms of common law concepts of privity. On the facts of this case, Raytheon and L-3 were sufficiently related parties for Raytheon to be able to invoke claim preclusion in the Massachusetts suit. Airframe's claims are, and always have been, about the actions of a single business unit, AIS. Raytheon and L-3 had a close and significant relationship as AIS's former and current owners in the relevant period. In the New York suit, Airframe could have sued Raytheon and L-3, but instead tried to hold L-3 liable for AIS's actions under both L-3's and Raytheon's ownership. Airframe made a number of strategic choices; claim preclusion doctrine requires it to live with those choices.

I.

Our review of a district court's allowance of a motion to dismiss for failure to state a claim on preclusion grounds is de novo. See Haag v. United States, 589 F.3d 43, 45 (1st Cir.2009). We accept all well-pleaded facts in the complaint as true, and we draw all reasonable inferences in plaintiff's favor. See Sutliffe v. Epping Sch. Dist., 584 F.3d 314, 325 (1st Cir.2009). Other undisputed documents about the New York proceedings were also properly before the district court and us.

AIS is in the business of systems integration, in the course of which it modernizes and maintains aircraft for its customers. As part of that business, AIS uses certain software to manage the servicing and maintenance of airliner fleets. Since at least 1987, AIS has purchased and renewed an annual license for Airframe's Maintenance and Engineering software suite, a copyrighted program that performs those functions.

Around 1997 or 1998, John Stolarz, a former Airframe employee, went to AIS offices for a maintenance visit to address installation issues AIS was having with the Maintenance and Engineering software.¹ Once at AIS, Stolarz, supposedly without Airframe's authorization, allegedly downloaded Airframe's copyrighted software source code onto an AIS computer. Software source code is the base that software programmers use to create various software applications and can be used to modify and upgrade those applications. Stolarz allegedly used the source code to modify the Maintenance and Engineering software so that it would run on newer AIS computers. The source code remained on AIS's system, and AIS apparently used the modified software on its newer computers for some unspecified period thereafter. Nonetheless, subsequent discovery indicated that AIS stopped using the modified program before Raytheon sold AIS to L-3.

Raytheon owned AIS from 1995 to 2002, during which time AIS was an unincorporated business division of Raytheon.² In 2002, defendant L-3 purchased AIS's assets from Raytheon, and AIS became an unincorporated division of L-3. See Anthony L. Velocci, Jr., L-3's Acquisition of AIS Alters Competitive Field, Aviation Wk. & Space Tech., Jan. 21, 2002, at 37. L-3 also became the successor licensee for the Airframe Maintenance and Engineering software.

In 2003, during a trouble-shooting session at AIS offices, Airframe discovered that the Airframe source code was on AIS's computer network. Airframe's president, Gordon Rosen, asked for an explanation, and L-3 sent a September 10, 2003 letter to Airframe explaining that Airframe employee John Stolarz was the only person who could have installed the source code.

Also in 2003, in connection with unrelated litigation between Stolarz and Airframe in the federal district court for the Southern District of New York, Airframe subpoenaed documents in L-3's possession regarding AIS's prior dealings with Airframe and Stolarz. One of these documents, dated June 2, 1998, was a request from AIS, on Raytheon letterhead, addressed to Stolarz at Airframe. The request stated that AIS was having problems using certain software on its newer computers and prompted Stolarz's visit to AIS to address the issue. It was during this visit that the alleged download of the Airframe source code occurred.

In 2005, Airframe sued L-3 and Stolarz in the U.S. District Court for the Southern District of New York. The complaint alleged that AIS had purchased the initial license for the Airframe Maintenance and Engineering software suite, and that L-3, as AIS's present owner, was liable for any infringements. The complaint asserted, among other claims, that L-3 (1) had conspired with Stolarz to obtain Airframe's source code and that Airframe had discovered L-3's possession of its code in 2003; (2) that L-3 could have used the source code to modify and update Airframe software without paying Airframe for license renewals or software updates, though the complaint did not claim such use had occurred; and (3) that L-3's ongoing possession of the source code infringed Airframe's exclusive rights under the Copyright Act. L-3 then filed a motion to dismiss for failure to state a claim.

During a March 2, 2006, hearing in New York, L-3's counsel explained his understanding of what had happened during Stolarz's visit to AIS in the late 1990s, when AIS was owned by Raytheon. L-3's counsel stated that Stolarz appeared to have installed the Airframe source code on an AIS computer and had used it to modify the licensed Airframe Maintenance and Engineering software. Airframe's counsel portrayed L-3's counsel's statement as a concession and asserted it was only at this point that it learned that L-3, through AIS, had used, and not merely possessed, Airframe's source code. Airframe urged that the alleged concession of use created a new issue. The court invited Airframe to file a letter, which the court would use to determine whether the complaint was sufficient and, if not, whether an amendment would cure any defects. Airframe did so. Airframe's March 17, 2006, letter stated that it was prepared to file an amended complaint incorporating new claims of L-3's unauthorized use of its source code, but it did not attach an amended complaint or file a formal motion.

The court did not explicitly rule on whether Airframe could amend its complaint. On September 6, 2006, the New York court dismissed the complaint for failure to state a claim. It held that because Airframe's complaint had not alleged that L-3 had actually used the source code, only that it could have done so, Airframe could not show infringement under the Copyright Act. See Airframe Sys., Inc. v. L-3 Commc'ns Corp., No. 05-cv-7638, 2006 WL 2588016, at *3-4 (S.D.N.Y. Sept.6, 2006). Airframe did not appeal either the merits of this decision or the court's failure to act on its stated intention to amend the suit to allege infringing use.

Having lost in New York, on January 26, 2007, Airframe filed suit against L-3³ and John Stolarz⁴ in the federal district court of Massachusetts and, for the first time, also named Raytheon as a defendant. The complaint alleged that AIS, under Raytheon's ownership, had conspired with former Airframe employee Stolarz to obtain Airframe's source code....