Comes v. Microsoft Corp., 05-CV-562.

• Decision Date: 22 November 2005
• Docket Number: No. 05-CV-562.,05-CV-562.
• Citation: 403 F.Supp.2d 897
• Parties: Joe COMES and Riley Paint, Inc., and Iowa Corporation, Plaintiffs, v. MICROSOFT CORPORATION, a Washington Corporation Defendants.
• Court: U.S. District Court — Southern District of Iowa

403 F.Supp.2d 897

Joe COMES and Riley Paint, Inc., and Iowa Corporation, Plaintiffs, v. MICROSOFT CORPORATION, a Washington Corporation Defendants.

No. 05-CV-562.

United States District Court, S.D. Iowa, Central Division.

November 22, 2005.

Roxanne Barton Conlin, Roxanne Conlin & Associates, Des Moines, IA, for Plaintiffs.

Brent B. Green, Duncan Green Brown & Langness, PC, Edward W. Remsburg, Ahlers Cooney Dorweiler Haynie Smith & Allbee, Des Moines, IA, David B. Tulchin, Joseph E. Neuhaus, Sharon L. Nelles, Sullivan & Cromwell LLP, New York City, for Defendant.

ORDER

LONGSTAFF, Chief Judge.

THE COURT HAS BEFORE IT plaintiffs' motion to remand, filed October 18, 2005. That same day, plaintiffs also filed a "notice of modification of proposed fourth amended petition prior to action on plaintiffs' motion to amend third amended petition." Defendant resisted the motion to remand on October 28, 2005. Plaintiffs filed a reply brief on November 16, 2005. The matter is considered fully submitted.¹

I. BACKGROUND

In February of 2000, plaintiffs filed this action in the District Court for Polk County Iowa. Since filing the initial petition, plaintiffs have amended their petition before the Iowa state courts on three separate occasions: March 8, 2000, October 7, 2002, and February 14, 2003. On September 16, 2003, the Iowa trial court certified two classes of Iowa software purchasers based upon allegations made by plaintiffs in the Third Amended Complaint.² Defendant, Microsoft Corporation ("Microsoft"), appealed and the Iowa Supreme Court affirmed the ruling on May 13, 2005. Comes v. Microsoft Corp., 696 N.W.2d 318 (2005).

On September 16, 2005, plaintiffs moved again to amend their complaint ("Proposed Fourth Amended Complaint"). On October 13, 2005, before the Fourth Amended Complaint was accepted by the Iowa trial court, Microsoft removed the case to this Court. Notice of Removal, filed Oct. 13, 2005. Once in this Court, Microsoft moved for an extension of time to respond to the Proposed Fourth Amended Complaint. Microsoft's Motion for Extension of Time to Respond to Plaintiff's Proposed Fourth Amended Complaint, filed Oct. 18, 2005.

At the time it filed for an extension of time, Microsoft also "filed a notice of `tagalong action' with the Judicial Panel on Multi District Litigation (`JPML'), as required by Rule 7.5(e) of the JPML Rules of Procedure." Microsoft Br. at 6.³ Plaintiffs responded to Microsoft's attempt to remove the case to federal court and the JPML by filing a motion to remand on October 18, 2005. Response to Microsoft's Motion for Extension of time, filed Oct. 18, 2005; Motion to Remand, filed Oct. 18, 2005. Furthermore, on that same day, plaintiffs filed notice of their intent to modify the Proposed Fourth Amended Complaint ("Modified Proposed Fourth Amended Complaint"). Plaintiffs' Notice of Modification of Proposed Fourth Amended Petition Prior to Action on Plaintiffs' Motion to Amend Third Amended Petition, filed Oct. 18, 2005.

II. LAW AND ANALYSIS

Microsoft asserts that federal jurisdiction is appropriate for two reasons: (1) the Proposed Fourth Amended Complaint alleges violations of federal law; and (2) amendments in the Proposed Fourth Amended Complaint bring the case within the bounds of the Class Action Fairness Act of 2005, 28 U.S.C. § 1332(d)(1)(B). The Court will address each of these arguments below.

A. Current State of the Pleadings

Before examining whether this Court's exercise of federal jurisdiction is appropriate, this Court must determine which version of plaintiffs' Fourth Amended Complaint should be examined for purposes of this motion. Removal jurisdiction must be determined based on the pleadings as they existed at the time of removal. See Pullman Co. v. Jenkins, 305 U.S. 534, 537, 59 S.Ct. 347, 83 L.Ed. 334 (1939).

As noted above, Microsoft removed this case to federal court before the Proposed Fourth Amended Complaint was accepted by the Iowa trial court. At that time, it was within plaintiffs' prerogative to change their Proposed Fourth Amended Complaint (as it has not yet been accepted by the state court, and Microsoft has requested an extension of time to respond). Plaintiffs did so in the Modified Proposed Fourth Amended Complaint. Nonetheless, Microsoft filed for removal at an appropriate time. Webster v. Sunnyside Corp. 836 F.Supp. 629 (S.D.Iowa 1993).

In Webster, the Court was faced with a situation where plaintiffs requested leave to file an amended petition in state court, defendants resisted, the state court ultimately granted the petition, and then defendants sought to remove the case to federal court. Id. at 630. There, the Court adopted the minority position and held that the 30-day clock for removal under 28 U.S.C. § 1446(b) began running when defendants were served with the motion to amend the complaint and thereby had notice of the federal claims. Id. at 631. Following Webster, Microsoft acted reasonably when it removed the case upon receiving notice of plaintiffs' Proposed Fourth Amended Complaint.

Although this result comports with the earlier ruling in Webster, this Court recognizes that it nonetheless raises some logistical problems. As is demonstrated here, by removing the case before the state court had accepted the petition and also requesting an extension of time in which to resist the amended petition, Microsoft has created a situation where for purposes of the motion to remand the pleadings must be considered at the time of removal, but at the present time, plaintiffs have modified their complaint so as to remove all content that allegedly provides federal question jurisdiction. In Webster, the Court placed heavy emphasis on the fact that remand was the judicially economical outcome. Here, however, that is not the case. Rather, even if this Court were to assume a federal question existed in the Proposed Fourth Amended Complaint, application of the minority rule results in a federal case without a federal question. Thus, although this Court gives Microsoft the benefit of the rule established in Webster in this instance, future litigants and the Court would be better served by waiting until state courts allow amended pleadings before instituting removal actions.⁴

Although plaintiffs retained the right at the time of removal to withdraw or alter the Proposed Fourth Amended Complaint, Microsoft nonetheless removed the case at the appropriate time pursuant to Webster. In future cases, however, litigants would be well advised to wait until after a state court ruled on amendments to the complaint before removing a case to federal court.

B. Federal Question Jurisdiction

As a court of limited jurisdiction, the Court must now evaluate whether the Proposed Fourth Amended Complaint confers federal jurisdiction. Microsoft highlights two portions of this document as raising federal questions. First, Microsoft claims that paragraphs 252 and 253 of the Proposed Fourth Amended Complaint raise claims that Microsoft violated federal securities laws. These paragraphs of the complaint read:

252. On information and belief, Microsoft has mischaracterized or withheld accounting data and other evidence, thereby failing to comply with the law. 253. On or about June 3, 2002 the Securities and Exchange Commission imposed a final cease and desist order, consented to by Microsoft, which directed Microsoft to cease and desist from certain practices. Microsoft agreed that it violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities and Exchange Act and Rules 126-20, 13a-1 and 13a-13 promulgated thereunder. Microsoft violated such provisions by maintaining undisclosed reserves, accruals, allowances and liability accounts that were not in conformity with generally accepted accounting principles and/or lacked proper documentation for those accounts as required by federal securities laws. The effect of such unlawful practices was to misstate assets and income to shareholders and the public.

Proposed Fourth Amended Complaint at 87.⁵ Second, Microsoft points to paragraph 212 where in describing certain conduct Microsoft took toward a company known as Burst.com, the complaint reads, "[a]s it has done with other smaller competitors, Microsoft was determined to `embrace, extend and extinguish' Burst by, inter alia, misappropriating Burst's intellectual property." Proposed Fourth Amended Complaint at 74. According to Microsoft, this language indicates plaintiffs' intent to bring intellectual property claims against it.

Under Title 28 U.S.C. § 1441(a) a case may be removed to federal court "if the district courts of the United States have original jurisdiction." Microsoft argues that both the securities claims and the intellectual property claims fall under 28 U.S.C. § 1331 which grants federal courts jurisdiction over "all civil actions arising under" federal law. Under the well-pleaded complaint rule, "an action `arises under' federal law only if the federal question appears on the face of a properly pleaded complaint." Hurt v. Dow Chemical Co., 963 F.2d 1142, 1144 (8th Cir.1992). Microsoft is correct that if plaintiffs were in fact claiming violations of federal securities and intellectual property laws removal would be appropriate, but that is not the case here.

First, with respect to the Securities and Exchange Act language, the Court finds that plaintiffs are not attempting to recover against Microsoft for violating the Act, but rather, included the cease and desist order as part of a litany of evidentiary allegations regarding Microsoft's past wrongdoing, all of which, according to plaintiffs, supports their unfair competition case. Whether plaintiffs were correct in their statement that Microsoft "agreed" that it violated federal securities laws or that such an agreement could be subsequently used against Microsoft is irrelevant. These paragraphs, as well as the 251 paragraphs before them all seek to set out what plaintiffs see as a continuing...