Innovative Medical Products, Inc. v. Felmet

• Decision Date: 07 December 2006
• Docket Number: No. 1:06CV00346.,1:06CV00346.
• Citation: 472 F.Supp.2d 678
• Court: U.S. District Court — Middle District of North Carolina
• Parties: INNOVATIVE MEDICAL PRODUCTS, INC., Plaintiff, v. Michael W. FELMET, individually, and Insight Medical, Inc., Defendants.

472 F.Supp.2d 678

INNOVATIVE MEDICAL PRODUCTS, INC., Plaintiff, v. Michael W. FELMET, individually, and Insight Medical, Inc., Defendants.

No. 1:06CV00346.

United States District Court, M.D. North Carolina.

December 7, 2006.

William Watts Walker, Craige Brawley Liipfert and Walker, L.L.P., Winston-Salem, NC, for Plaintiff.

Matthew Hallman Bryant, Kenneth C. Otis, III, Timothy Nerhood, Hendrick & Bryant, LLP, Winston-Salem, NC, for Defendants.

ORDER

OSTEEN, District Judge.

On October 17, 2006, the United States Magistrate Judge's Recommendation was filed and notice was served on the parties pursuant to 28 U.S.C. § 636. No objections were filed within the time limits prescribed by Section 636.

Therefore, the Court need not make a de novo review and the Magistrate Judge's Recommendation is hereby adopted.

IT IS THEREFORE ORDERED that Plaintiff's motion for remand (docket no. 7) is granted, along with an award of attorney's fees of $1,000.00 to be paid by Defendants to Plaintiff. The Clerk of Court is directed to send a certified copy of this Order to the Forsyth County Superior Court Clerk.

RECOMMENDATION OF MAGISTRATE JUDGE ELIASON

ELIASON, United States Magistrate Judge.

Statement of the Case and Facts

This action is before the Court on Plaintiffs motion to remand the case to Superior Court in Forsyth County, North Carolina. It was originally filed in that court, but was removed by Defendants on the ground that the case met the requirements for diversity jurisdiction.

The facts, as alleged in the complaint, are as follows. Plaintiff Innovative Medical Products, Inc. manufactures orthopedic positioning devices, including "Disposable Pads For Universal Lateral Positioner." From 1997 to 2005, Defendant Insight Medical, Inc. distributed Plaintiffs products. During this time, Insight and its owner, Defendant Michael Felmet, bought Plaintiffs products at a reduced price and then sold the products to their customers. Plaintiff alleges that, in the course of these transactions, "defendants became thoroughly familiar with plaintiffs products and packaging, including the labels on the packaging."

The complaint continues that after the relationship between the parties terminated in 2005, Defendants began selling a new but similar product to their customers. In fact, Plaintiff claims that this product is identical to its "Disposable Pads For Universal Lateral Positioner" in terms of the packaging, the label, and the pads themselves. Plaintiff further alleges that Defendants (1) copied their product without Plaintiffs knowledge or permission, (2) "were in a position to commit these acts only because of their prior business relationship with plaintiff," (3) have not paid any part of their proceeds to Plaintiff, and (4) have caused Plaintiffs business to suffer injury in terms of both money and reputation. The complaint characterizes all of these allegations as violations of the North Carolina Unfair and Deceptive Trade Practices Act ("UDTPA"), N.C.G.S. § 75-1.1. et seq.

On April 12, 2006, Defendants removed the case to this Court based on diversity of citizenship. Plaintiff filed a motion to remand on May 9, 2006, noting that, because Defendant Felmet is a North Carolina resident, the parties are not diverse as required by 28 U.S.C. § 1441(b).¹ While Defendants admit that their diversity assertion fails, they for the first time suggest an alternative basis for removal in their response. That is, they now argue (1) that Plaintiffs complaint raises federal questions, thereby making removal proper on that ground, and (2) that Defendants' notice of removal put Plaintiff on notice of this contention. The alleged federal questions concern patent, copyright, and trademark law, which are within the exclusive and/or original jurisdiction of the federal courts. Realizing the lateness of their assertion for this new ground for removal, they request that the Court liberally construe the removal petition to contain it.

Discussion

In general, the basis for federal jurisdiction must exist on the face of Plaintiffs complaint. Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804, 808, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986). As the Fourth Circuit has stated, the party seeking removal has the burden of demonstrating the existence of federal jurisdiction. Mulcahey v. Columbia Organic Chemicals Co., Inc., 29 F.3d 148, 151 (4th Cir.1994)(citing Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97, 42 S.Ct. 35, 66 L.Ed. 144 (1921)). Removal jurisdiction must be strictly construed and, if it is doubtful, remand is appropriate. Id. (citing Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-109, 61 S.Ct. 868, 85 L.Ed. 1214 (1941)); In re Business Men's Assur. Co. of America, 992 F.2d 181, 183 (8th Cir.1993); Cheshire v. Coca-Cola Bottling Affiliated, Inc., 758 F.Supp. 1098, 1102 (D.S.C.1990). Therefore, the Court must grant Plaintiff's motion unless Defendants meet their burden of demonstrating that federal jurisdiction is present.

The first issue is whether Defendants' notice of removal sufficiently raises the federal question ground. The notice nowhere mentions federal question as a ground for removal, only diversity jurisdiction. Defendants point to that part of the notice of removal which states that Plaintiff's claims relate to Defendants'"alleged unlawful copying of Plaintiff's non-patented disposable medical pads, packaging and label of said pads." This single phrase, Defendants contend, is enough to alert both the Plaintiff and the Court that removal was based, in part, on federal question jurisdiction. The Court cannot agree with this assertion.

Even a liberal notice pleading standard requires some level of specificity when stating the grounds for removal. West Virginia ex rel. McGraw v. Minnesota Mining and Mfg. Co., 354 F.Supp.2d 660, 668 (S.D.W.Va.2005). "`Mlle notice must make the basis for the federal court's exercise of removal jurisdiction clear and contain enough information so that the district judge can determine whether removal jurisdiction exists.'" Id. (quoting 14C Charles A. Wright, Arthur R. Miller & Edward C. Cooper, Federal Practice & Procedure § 3733 (3d ed.1998)). The sentence Defendants cite as giving notice fails to meet these criteria. Instead, it does no more than briefly restate Plaintiff's state law allegations while inserting the word "non-patented" as a modifier. The passing reference to patent law, without more, is insufficient to alert the Court that Defendants' removal notice was based on federal question jurisdiction. In addition, the statement in issue was clearly drafted by Defendants in reference to the amount in controversy requirement for diversity jurisdiction rather than, as they now assert, in an inartful attempt to claim federal question jurisdiction. In light of these findings and the requirement that removal jurisdiction be strictly construed, Defendants' notice of removal cannot be viewed as putting the Court or Plaintiff on fair notice that Defendants' removal was based on federal question claims.

To the extent Defendants rely on their memorandum in opposition to Plaintiff's motion to remand as an attempt to amend their notice of removal to now set forth their federal question argument, the Court rejects the offer. This later filing is insufficient to raise a claim of federal question jurisdiction for two reasons. First, a memorandum is not a pleading. See Federal Deposit Ins. Corp. v. Stith, 772 F.Supp. 279, 284 n. 15 (E.D.Va.1991). Therefore, it cannot serve to amend Defendants' earlier notice of removal. Id. Second, a notice of removal may only be amended where jurisdiction is apparent on the face of the original filing. As the treatise writers point out:

The notice of removal required by Section 1446(b) may be amended freely by the defendant prior to the expiration of the thirty-day period for seeking removal ... Thereafter, however, the cases indicate that the notice may be amended only to set out more specifically the grounds for removal that already have been stated, albeit imperfectly, in the original notice.... [T]he amendment of the removal notice may seek to accomplish one or more of several objectives: it may correct an imperfect statement of citizenship, or state the previously articulated grounds more fully, or correct the jurisdictional amount. Completely new grounds for removal jurisdiction may not be added and missing allegations may not be furnished, however.

Wright, et al., supra, at 357-361. Defendants attempt to amend the removal notice to raise a completely new ground for removal in their response brief well beyond the thirty-day period should be denied. Tincher v. Insurance Co. of State of Pennsylvania, 268 F.Supp.2d 666 (E.D.Va.2003)(attempt to add new allegations in response brief).

Even if Defendants had timely asserted federal question jurisdiction as a basis for removal, such jurisdiction does not exist in this case. Defendants claim that Plaintiff's complaint raises questions of patent and copyright law, over which the federal courts have exclusive jurisdiction, and trademark law, over which the federal courts have original jurisdiction. Defendants further allege that Plaintiff's state law claim of unfair and deceptive trade practices is preempted by the federal copyright and patent laws. As such, they contend that removal was proper. Specifically, Felmet and Insight claim that federal jurisdiction exists in this case under 28 U.S.C. § 1338. This statute, like 28 U.S.C. § 1331, creates jurisdiction where the action is one "arising under the Constitution, laws, or treaties of the United States." See Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 808, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988).

Removal from state court to federal court is appropriate in three circumstances. First, if the parties meet the statutory requirement of diversity of citizenship jurisdiction as limited by 28 U.S.C. § 1441(b), the case may be removed....