County of Delaware v. Government Systems

• Decision Date: 27 September 2002
• Docket Number: No. CIV.A. 01-5982.,CIV.A. 01-5982.
• Citation: 230 F.Supp.2d 592
• Parties: COUNTY OF DELAWARE, Plaintiff, v. GOVERNMENT SYSTEMS, INC., Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

230 F.Supp.2d 592

COUNTY OF DELAWARE, Plaintiff, v. GOVERNMENT SYSTEMS, INC., Defendant.

No. CIV.A. 01-5982.

United States District Court, E.D. Pennsylvania.

September 27, 2002.

COPYRIGHT MATERIAL OMITTED

Francis X. Crowley, Blank, Rome, Comisky & McCauley, Media, PA, for Plaintiff.

Gerry J. Elman, Elman and Associates, Media, PA, for Defendant.

MEMORANDUM

EDUARDO C. ROBRENO, District Judge.

I. INTRODUCTION

Plaintiff, the County of Delaware ("County") brought suit against defendant, Government Systems, Inc. ("GSI") in the Court of Common Pleas of Delaware County for claims arising under three written agreements between the County and GSI (the three written agreements are hereinafter referred to as the "Agreements"). Under the Agreements, GSI agreed to provide the County with a program for accounting and issuing payroll checks called Total Accounting for Government-Human Resources System ("TAG-HRS"), as well as other related personnel and payroll services.

A number of problems arose between the parties with regard to GSI's performance under the Agreements. Ultimately, the County filed a complaint in state court alleging numerous state law claims against GSI. In response, GSI removed the case to federal court on the basis of federal question jurisdiction alleging that the County had engaged in artful pleading to avoid federal court jurisdiction and that a number of the state law claims brought by the County are converted to federal claims under the doctrine of complete preemption. Before the court is the County's motion to remand this matter back to state court and for attorneys' fees.

For the reasons stated below, the court concludes that the County's claims do not raise federal questions. Thus, removal was improper, and the case shall be remanded to state court. Regardless, however, the court finds that the County is not entitled to costs and attorneys' fees for GSI's improvident removal of the case.

II. BACKGROUND

Under the Agreements, GSI agreed to provide the County with the TAG-HRS program, for accounting and issuing payroll checks, as well as other related personnel and payroll services. Pursuant to the Agreements, GSI was to install TAG-HRS by December 1998. The County alleges, however, that TAG-HRS did not become operational until early 2000, and that it never operated up to the standards represented by GSI. As a result, the County was forced to pay additional funds to GSI to remedy the operational problems. According to the County, however, GSI was unable to do so.

The County claims that, given GSI's failure to resolve the operational problems with the TAG-HRS program, it was forced to employ outside consultants. This caused the County to incur significant costs. Ultimately, the County decided to terminate the Agreements with GSI and contract with another vendor of human resource and payroll software and services.

Before the County took official action to terminate the Agreements, however, GSI accused the County of violating the license agreement by allowing access to the TAG-HRS program by unauthorized individuals.¹ The County maintains that any and all access by outside consultants to the TAG-HRS program was for the sole purpose of enabling the County to make beneficial use of the TAG-HRS system. According to the County, access of the kind the outside consultants were afforded to the TAG-HRS system was permitted by the Agreements. The County further argues that GSI made these accusations in an attempt to thwart any effort by the County to contract with an alternative provider of human resource and payroll software and services. GSI's intent is evidenced, according to the County, by GSI's communication of these accusations to the computer vendor with which the County planned to replace GSI. In addition, the County claims that GSI improperly entered the County's data processing system through a remote link and deleted vital source code from the TAG-HRS system.²

On October 30, 2001, the County filed a complaint in the Court of Common Pleas of Delaware County alleging breach of contract (Count I), tortious interference with a contract (Count II), breach of duty of good faith and fair dealing (Count III)³, conversion (Count IV) and trespass to chattels (Count V).⁴ On November 20, 2001, GSI filed its answer and counterclaims. GSI alleged infringement of copyright (Count I), vicarious infringement of copyright (Count II), breach of contract (Count III) and breach of trade secrecy (Count IV).

On November 29, 2001, GSI removed the County's action to this court. In its Notice of Removal, GSI states the following basis for removal:

This action is a civil action of which this Court has original jurisdiction under 28 U.S.C. §§ 1331[sic] (federal question), and is one which may be removed to this Court by defendant pursuant to the provisions of 28 U.S.C. §§ 1441(b) [sic], in that it is a civil action arising under the laws of the United States, and specifically, said actions incorporate claims whose subject matter is intimately concerned with issues of copyright and which further concerns counterclaims stated in copyright infringement and vicarious infringement of copyright, all of which are governed by the Copyright Act of 1976 17 U.S.C. §§ 101 et seq., over which the federal court has exclusive jurisdiction. This Court has supplemental jurisdiction over the other claims alleged in the complaint and counterclaim under 28 U.S.C. §§ 1367[sic].

Subsequently, the County filed a motion to remand the matter back to state court, asserting that "[n]one of the [C]ounty's claims presents a federal question."⁵ Incorporated in the County's motion, pursuant to 28 U.S.C. § 1447(c), is a request for costs and expenses, including attorneys' fees, incurred as a result of removal.

III. DISCUSSION

In support of its core contention that the County's state law complaint implicates a federal question, GSI advances a plethora of arguments. Initially, GSI argues that the case was properly removed to federal court because allegations in the complaint raise issues of copyright infringement. For example, GSI contends that the County's claim that it is entitled damages in the amount of expenses incurred to hire outside consultants raises federal questions under the United States copyright laws of whether the County was authorized to allow the consultants access to the TAG-HRS program, and, in turn, whether GSI has a legal right to prevent such access. Evidence of the presence of a federal question, according to GSI, is found in specific references to the Copyright Act in the exhibits to the complaint.

GSI also alleges that "the [County] has engaged in `artful pleading' to `defeat removal by failing to plead necessary federal questions.'" In support, GSI makes three distinct, but related, arguments. First, GSI asserts that the County's breach of contract claim is an implicit request for a declaratory judgment that its actions do not constitute an infringement of GSI's copyright (which clearly raises a federal question). Second, GSI contends that an assertion of lack of privilege is an element of the County's intentional interference with contract claim. Thus, the question of whether the alleged copyright infringement by the County justified GSI's interference should have appeared in a well-pleaded complaint to establish federal court jurisdiction. Third, GSI argues that the County's conversion claim necessarily challenges GSI's ownership rights with regard to the TAG-HRS program under United States copyright law. Finally, GSI argues that the complete preemption exception to the well-pleaded complaint rule applies to the County's complaint in this case.

After a recitation of the applicable law, the court will examine its jurisdiction over each count of the County's complaint separately in seriatim.⁶ GSI's contentions in support of removal are addressed where appropriate.

A. Applicable Law

The United States Supreme Court has made it clear that "the plaintiff is the master of the complaint ... and that the plaintiff may, by eschewing federal law, choose to have [his] cause heard in state court." Caterpillar, Inc. v. Williams, 482 U.S. 386, 398-99, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987). To form the basis of removal, "a federal question must appear on the face of the complaint." Id. at 399, 107 S.Ct. 2425. The existence or absence of federal question is determined in the context of the well-pleaded complaint rule and federal question jurisdiction exists only when a federal question is presented within the four corners of plaintiff's properly pleaded complaint. See id. at 392, 107 S.Ct. 2425.

For a federal court to assert jurisdiction over a case based on federal question, the Constitution, laws or treaties of the United States must supply an essential element of the plaintiff's cause of action. See Gully v. First Nat. Bank in Meridian, 299 U.S. 109, 112, 57 S.Ct. 96, 81 L.Ed. 70 (1936); see also 28 U.S.C. § 1331. Additionally, a case is not removable on the basis of a federal defense, including the defense of preemption. See Caterpillar, Inc., 482 U.S. at 393, 107 S.Ct. 2425. This is so even if the defense is anticipated in the plaintiff's complaint and "both parties concede that the federal defense is the only question at issue." Id.; see Lazorko v. Pennsylvania Hosp., 237 F.3d 242, 248 (3rd Cir.2000). Moreover, the Third Circuit has adopted the majority rule that counterclaims may not be considered in the removal context to establish federal jurisdiction. See Spectacor Mgmt. Group v. Brown, 131 F.3d 120, 125 (3d Cir.1997).

There are, however, two exceptions to the well-pleaded complaint rule discussed above, the "artful pleading doctrine" and the doctrine of "complete preemption." The artful pleading doctrine permits a court to look beyond the plaintiff's allegations to the substance of the plaintiff's complaint. This approach prevents a plaintiff from "defeat[ing] removal by failing to plead necessary federal...