COMPUTER ASSOCIATES INTERN. v. American Fundware

• Decision Date: 26 August 1993
• Docket Number: Civ. A. No. 86-K-2562.
• Parties: COMPUTER ASSOCIATES INTERNATIONAL, INC., Plaintiff, v. AMERICAN FUNDWARE, INC., Defendant.
• Court: U.S. District Court — District of Colorado

831 F. Supp. 1516

COMPUTER ASSOCIATES INTERNATIONAL, INC., Plaintiff, v. AMERICAN FUNDWARE, INC., Defendant.

Civ. A. No. 86-K-2562.

United States District Court, D. Colorado.

August 26, 1993.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Douglas Bragg, Bragg, Baker & Cederberg, Denver, CO, for plaintiff.

Jane Michaels, Steven Choquette, Holland & Hart, Denver, CO, for defendant.

ORDER ON PENDING MOTIONS

KANE, Senior District Judge.

This is a diversity action based on the alleged plagiarism of computer software. It is set for a ten-day jury trial commencing September 13, 1993. Four motions are pending in this case: (1) Plaintiff's motion for summary judgment on Defendant's counterclaims, (2) Defendant's second motion for reconsideration of my ruling permitting amendment of the pretrial order, (3) Plaintiff's motion in limine, and (4) Defendant's motion in limine. I first review the facts and procedural history of this case.

I. Facts and Procedural History.

On May 25, 1979, Stuart P. Orr & Associates, Inc. ("SPO") and Steamboat Computer Services ("SCS"), predecessors in interest to the parties in this case, entered into a Computer Software Agreement (the "1979 Agreement"), whereby SPO agreed to provide SCS with certain accounting software. The 1979 Agreement placed several limitations on SCS' use of the software. All materials provided under the 1979 Agreement were designated as trade secrets that could not be reproduced without SPO's written consent, SCS was prohibited from using the software to go into the software business (i.e., to sell to entities other than end-users), SCS was to obtain SPO's consent before converting the software to a different computer type, SCS was to pay SPO royalties on sales of the software after the first ten installations, and SPO retained exclusive rights to market the software in Southern California. (See Am. Compl., Ex. A.)

Under the 1979 Agreement, SCS paid $21,671.75 for the six programs that SPO delivered (the "SPO programs"). In the next few years, SPO also provided SCS with updates of the SPO programs. No royalties were ever paid to SPO under the 1979 Agreement. Plaintiff Computer Associates International, Inc. ("CA") acquired SPO in 1983. Defendant American Fundware, Inc. ("AFW") became successor-in-interest to SCS.

In August 1986, AFW notified CA that it was terminating the 1979 Agreement because it was no longer using the SPO programs. After examining the software that AFW was then marketing, known as PC-Fund, CA came to believe that AFW had usurped its code in developing this software. (Later, CA reached the same conclusion as to software known as Fundware). On December 19, 1986, CA filed this lawsuit, alleging claims for breach of contract and misappropriation of trade secrets and seeking injunctive relief and punitive damages.¹ AFW answered on February 2, 1987, asserting counterclaims for unfair competition and for "groundless and frivolous claims." On March 31, 1987, CA was permitted to supplement its complaint to assert a claim for copyright infringement. It withdrew this claim in an amended complaint filed on August 26, 1991.

On July 10, 1987 the court entered a protective order limiting disclosure of trade secrets and other information revealed through discovery.² On October 26, 1987, CA moved for entry of a default judgment against AFW because AFW had destroyed the original source code used to develop the PC-Fund and Fundware software after this action was filed, making it nearly impossible for CA to prove that AFW had plagiarized its software. Judge Carrigan granted the motion and entered a default judgment against AFW as to liability only on December 6, 1990. He found that AFW had

intentionally destroyed portions of the source code not only after being served in this action and thus put on notice that the source code was irreplaceable evidence, but even after the request for production and motion to compel had dramatically and specifically emphasized the significance of the code versions being destroyed as evidence.

(Mem.Op. & Order at 6.)

On November 26, 1991, AFW moved for sanctions against CA, claiming that CA had lost or destroyed all versions of the SPO programs provided to AFW's predecessor in 1979. On December 6, 1991, the court entered an order setting aside the default judgment against AFW on the grounds that CA had concealed that it, too, had lost or destroyed critical evidence and thereby misled the court into granting the default judgment. The matter was then set for jury trial on November 9, 1992.

On October 25 and 26, respectively, AFW and CA each filed motions in limine. Before these motions were heard, CA moved to disqualify Judge Carrigan, and he transferred the case to me. After the transfer, CA moved to amend the pretrial order to delete any reference to it having lost the SPO programs, since it discovered the original version of the programs in a mis-labeled storage box and provided it to AFW in February, 1993. I granted the motion, and AFW moved to reconsider. On April 22, 1993, I granted the motion to reconsider, reaffirmed my ruling permitting amendment of the pretrial order and granted AFW additional discovery until July 1, 1993. AFW again moved to reconsider.

Finally, on July 23, 1993, CA moved for summary judgment on AFW's counterclaims for unfair competition and groundless and frivolous claims, arguing they were barred by the Noerr-Pennington doctrine as recently clarified in the Supreme Court's decision in Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., ___ U.S. ___, 113 S.Ct. 1920, 123 L.Ed.2d 611 (1993).

II. Pending Motions.

A. Plaintiff CA's Motion for Summary Judgment.

1. Does the Noerr-Pennington Doctrine Apply?

I first consider CA's motion for summary judgment on AFW's counterclaims for unfair competition and frivolous and groundless claims because it is dispositive of other issues. CA argues that both of these claims are barred by the Noerr-Pennington doctrine. See United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965); Eastman R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961). Under this doctrine, "those who petition government for redress are generally immune from antitrust liability." Professional Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., ___ U.S. at ___, 113 S.Ct. at 1926; see also Oberndorf v. City & County of Denver, 900 F.2d 1434, 1440 (10th Cir.), cert. denied, 498 U.S. 845, 111 S.Ct. 129, 112 L.Ed.2d 97 (1990).

The right to petition government includes within its scope litigating activity. See California Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 510, 92 S.Ct. 609, 611, 30 L.Ed.2d 642 (1972). In the adjudicatory setting, the Noerr-Pennington doctrine protects a litigant from antitrust liability unless his opponent can establish that the litigant's case is a sham. To do this, the opponent must first show that the lawsuit is "objectively baseless in the sense that no reasonable litigant could reasonably expect success on the merits." Professional Real Estate Investors, ___ U.S. at ___, 113 S.Ct. at 1928. If opponent succeeds in this first step, then and only then may the court examine the litigant's subjective motivation to determine whether the "baseless lawsuit conceals `an attempt to interfere directly with the business relationships of a competitor.'" Id. (citing Noerr, 365 U.S. at 144, 81 S.Ct. at 533.

As AFW notes in its response, CA glosses over an important threshold question: whether the Noerr-Pennington doctrine bars not only federal antitrust claims under the Sherman Act, but also tort claims under state law, such as the unfair competition and frivolous lawsuit claims at issue here. CA cites one case in its opening brief, Aydin Corporation v. Loral Corporation, in which the Ninth Circuit affirmed the dismissal of a federal antitrust claim and two pendent state law claims, including one for unfair competition. See 718 F.2d 897 (9th Cir.1983). A close reading of that case, however, does not indicate whether the dismissal of the unfair competition claim was under the Noerr-Pennington doctrine or by application of state law. The court simply stated: "As we concluded in connection with Aydin's Noerr-Pennington claim, see part IV, supra, whether the state actions were a sham or a genuine effort by Loral and Conic to obtain redress is a factual issue and, based upon the record before us, Aydin failed to raise an issue of material fact." See id. 718 F.2d at 905.

AFW, on the other hand, relies on a decision from this district, Ball Corporation v. Xidex Corporation, 705 F.Supp. 1470 (D.Colo.1988). AFW argues that the court in Ball refused to apply the doctrine to bar a claim based on the tort of unfair competition. This is not a correct statement. In fact, the court, while skeptical that the doctrine applied, eschewed the issue in Ball because the parties had not adequately briefed it. See id. at 1472. Nevertheless, the court assumed for the purpose of argument that the Noerr-Pennington doctrine did apply, but held that the plaintiff had satisfied the requirements for the sham litigation exception to the doctrine. Id. Therefore, Ball provides little authority for the proposition that Noerr-Pennington immunity cannot be extended to a defendant in an unfair competition claim.

Alternatively, AFW posits a fairly elaborate argument that the principles underlying the doctrine are rooted in antitrust law and cannot be extended to other contexts. AFW relies on reasoning in the California Motor Transport and Noerr cases balancing First Amendment principles against the interests protected by federal antitrust law. See California Motor Transp., 404 U.S. at 510, 92 S.Ct. at 611; Noerr, 365 U.S. at 137, 81 S.Ct. at 529. It goes on to argue that, because the tort of unfair competition is fundamentally different from a federal antitrust violation, ...