Image Software v. Reynolds and Reynolds Co
| Decision Date | 23 August 2006 |
| Docket Number | No. 04-1533.,04-1533. |
| Citation | 459 F.3d 1044 |
| Parties | IMAGE SOFTWARE, INC., a Colorado corporation, Plaintiff-Appellant, v. The REYNOLDS AND REYNOLDS COMPANY, an Ohio corporation; Colorado Import Motors Limited, a Colorado corporation; Dellenbach Chevrolet, Inc., a Colorado corporation; Mike Naughton Ford, Inc., a Colorado corporation; Owen Faricy Motor Company, a Colorado corporation; Gebhardt Automotive, Inc., a Colorado corporation; McCaddon Oldsmobile-Cadillac, Inc., a Colorado corporation; Broadway Dodge, a Colorado corporation; Fischer Chevrolet, Inc., a Colorado corporation; Glenwood Springs Motors, a Colorado corporation; Karico, Inc. (Pro-Chry Jeep), a Colorado corporation; Korf Motors, a Colorado corporation; Luby Chevrolet, a Colorado corporation; Markley Motors, a Colorado corporation; Medved Chevrolet, Inc., a Colorado corporation; Penkhus Motor, a Colorado corporation; Roth Chevrolet, Inc., a Colorado corporation; Sellers, Inc, a Colorado corporation; Weaver Beatty, a Colorado corporation, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Tenth Circuit |
James A. Jablonski, Gorsuch Kirgis LLP, Denver, CO, for Plaintiff-Appellant.
David A. Rabin, Morris, Manning & Martin, L.L.P., Atlanta, GA (Jo Ann M. Zboyan, Springer & Steinberg, P.C., Denver, CO, and Jeffrey S. George, Hogan & Hartson, L.L.P., Colorado Springs, CO, with him on the briefs), for Defendants-Appellees.
Before TACHA, Chief Judge, EBEL, and McCONNELL, Circuit Judges.
Image Software, Inc. ("Image") appeals the district court's decision compelling arbitration, in Ohio, of a dispute arising under a software licensing agreement. Before reaching the merits of this appeal, we must address two potential problems with the district court's jurisdiction. First, we conclude the district court had subject matter jurisdiction based upon the federal question presented by Image's claim asserted under the Copyright Act. In reaching this conclusion, we adopt the Second Circuit's analysis for distinguishing between state-law claims alleging breach of a contract involving copyrighted matters and those asserting an actual controversy under the federal Copyright Act. Second, although this court has previously held, in Ansari v. Qwest Communications Corp., 414 F.3d 1214 (10th Cir.2005), that a district court does not have the authority under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 4, to compel arbitration in another district, this was not a jurisdictional prerequisite, but was instead a venue requirement that the parties have waived in this case. Reaching the merits, we AFFIRM the district court's decision to compel arbitration.
Image creates computer document imaging software used by the automotive industry. Defendant-Appellee Reynolds and Reynolds Company ("Reynolds") sought to market Image's software, primarily to car dealerships. To that end, Image and Reynolds entered into a licensing agreement on May 4, 1994 ("1994 agreement").2 Through that agreement, Image granted Reynolds a perpetual license to use, market and distribute Image's software. The parties also agreed to arbitrate any dispute arising from this licensing agreement. Any such arbitration was to occur in Dayton, Ohio.
Two years later, in 1996, Image and Reynolds entered into a "Maintenance Agreement" ("1996 agreement") for the software Image had licensed Reynolds to use through the previous 1994 agreement. In addition, through this 1996 agreement, Reynolds obtained a newer version of Image's software, Release 5.5. Although this 1996 agreement did not include an arbitration provision, it did contain a merger clause which provided that "[t]his Agreement is the exclusive statement of the entire agreement between IMAGE and [Reynolds] and supersedes all prior oral or written representations or agreements between the parties, except the Software Licensing Agreement dated May 4, 1994." (Emphasis added.) The 1996 agreement further provided that either party could terminate that maintenance agreement with ninety days' notice to the other party. Reynolds renewed the maintenance agreement for several years by paying an annual maintenance fee, but in January 2002 it notified Image that it had decided to terminate the maintenance agreement effective April 21, 2002. In response, Image informed Reynolds that it no longer had any license to use Image's Release 5.5 software. When Reynolds continued using and marketing Release 5.5, Image sued Reynolds, along with nineteen car dealers who had obtained Image's software from Reynolds (collectively "Defendants"). Image commenced this litigation in federal court in Colorado, alleging three claims: 1) Defendants were infringing on Image's copyrighted software, in violation of the Copyright Act, 17 U.S.C. §§ 101-1332; 2) Reynolds had misappropriated Image's trade secrets, contrary to Colo. Rev.Stat. §§ 7-74-101 through -110; and 3) an accounting of Reynolds's revenues was needed in light of Reynolds's copyright and trade-secrets violations.
Pursuant to the Federal Arbitration Act ("FAA"), Reynolds filed a motion under 9 U.S.C. §§ 3 and 4 to stay the federal litigation and to compel arbitration of these claims.3 The district court granted that motion. See Image Software, Inc. v. Reynolds & Reynolds Co., 273 F.Supp.2d 1168 (D.Colo.2003). An arbitrator in Ohio ultimately awarded Reynolds just under $400,000 in damages. The district court confirmed the arbitrator's judgment and award. Image now appeals, challenging the district court's order and jurisdiction granting Reynolds' motion to compel arbitration. Having jurisdiction under 9 U.S.C. § 16(a)(3) 4
and 28 U.S.C. § 1291 to consider this appeal from the district court's final judgment, we AFFIRM the district court's decision.
Federal courts "have an independent obligation to determine whether subject-matter jurisdiction exists, even in the absence of a challenge from any party," and thus a court may sua sponte raise the question of whether there is subject matter jurisdiction "at any stage in the litigation." Arbaugh v. Y & H Corp., ___ U.S. ___, 126 S.Ct. 1235, 1240, 1244, 163 L.Ed.2d 1097 (2006). While the parties in this case never questioned the federal courts' subject matter jurisdiction over this action, the district court itself raised its own concern about it, but ultimately concluded it did have subject matter jurisdiction. See Image Software, Inc., 273 F.Supp.2d at 1171. After considering the issue, we agree.
This court reviews "de novo whether subject matter jurisdiction is proper in this case." Australian Gold, Inc. v. Hatfield, 436 F.3d 1228, 1234 (10th Cir.2006).
In its complaint, Image invoked the federal courts' subject matter jurisdiction under 28 U.S.C. § 1331, which provides that "[t]he district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States;"5 and 28 U.S.C. § 1338(a), which further provides that (Emphasis added.) Because the only federal-law claim Image alleged was its claim under the Copyright Act, the district court's subject matter jurisdiction rests solely on that claim.6 The district court's concern with its jurisdiction was that, while Image pled a claim under the Copyright Act, that claim was based upon Image's allegations implicating the parties' 1994 and 1996 agreements. If Image's copyright claim was actually a state-law breach-of-contract claim that just happened to involve copyrighted material, then it would not be sufficient to invoke the district court's subject matter jurisdiction. See Image Software, Inc., 273 F.Supp.2d at 1171. Nevertheless, the district court concluded that it had subject matter jurisdiction in this case because Image had, in its complaint, requested a remedy "expressly provided under the [Copyright] Act." Id. In reaching this conclusion, the district court relied on Second Circuit authority. See id. (). We agree with that authority and take this opportunity to adopt the Second Circuit's analytical approach.
The Second Circuit has set forth "[t]he most frequently cited test" for determining whether an action arises under the Copyright Act. Gener-Villar v. Adcom Group, Inc., 417 F.3d 201, 203 (1st Cir. 2005). "It is well-established that not every complaint that refers to the Copyright Act `arises under' that law for purposes of [28 U.S.C. §] 1338(a)." Bassett, 204 F.3d at 347 (quoting 28 U.S.C. § 1338(a)). "In particular, the federal grant of a copyright has not been thought to infuse with any national interest a dispute as to ownership or contractual enforcement turning on the facts or on ordinary principles of contract law." Id. (quotations, alteration omitted).
Whether a complaint asserting factually related copyright and contract claims "arises under" the federal copyright laws for the purposes of Section 1338(a) "poses among the knottiest procedural problems in copyright jurisprudence." 3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 12.01[A], at 12-4 (1999). . . . Such claims characteristically arise where the defendant held a license to exploit the plaintiff's copy-right, but is alleged to have forfeited the license by breaching the terms of the licensing contract and thus to infringe in any further exploitation.
Id.7
District courts in the Second Circuit had previously sought to
resolve[] the issue of jurisdiction under Section 1338 fo...
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