Priority Payment Sys., LLC v. Signapay, Ltd.

• Decision Date: 22 December 2015
• Docket Number: CIVIL ACTION NO. 1:15-cv-04140-AT
• Citation: 161 F.Supp.3d 1285
• Parties: Priority Payment Systems, LLC, Cynergy Data, LLC, and Priority Holdings, LLC, Plaintiffs, v. Signapay, Ltd, Signapay, LLC, Andres Ordoñez, Tom Bohan, Intrend Software Solutions, and Gustavo Simone, Defendants.
• Court: U.S. District Court — Northern District of Georgia

161 F.Supp.3d 1285

Priority Payment Systems, LLC, Cynergy Data, LLC, and Priority Holdings, LLC, Plaintiffs,

v.Signapay, Ltd, Signapay, LLC, Andres Ordoñez, Tom Bohan, Intrend Software Solutions, and Gustavo Simone, Defendants.

CIVIL ACTION NO. 1:15-cv-04140-AT

United States District Court, N.D. Georgia, Atlanta Division.

Signed December 22, 2015

Barry Goheen, Nicholas Griffin Hill, Stephen Paul Cummings, King & Spalding, Christopher Scott Prince, Priority Payment Systems, for Plaintiff.

Andrew C. Matteson, Joseph C. Peake, III, Stout Kaiser Matteson Peake & Hendrick, LLC, Joel W. Reese, Katie Dolan-Galaviz, Tyler J. Bexley, Reese Gordon Marketos, LLP, for Defendant.

AMENDED ORDER¹

Amy Totenberg

, United States District Judge

This case, filed in the Superior Court of Fulton County, Georgia on November 10, 2015, and removed to this Court on November 25, 2015, by Defendants SignaPay, Ltd., SignaPay, LLC, Andres Ordoñez, and Tom Bohan,² is before the Court on Plaintiffs' Response to this Court's December 1, 2015 Order and Request for Remand to Superior Court of Fulton County [Doc. 10], Defendant's Response in opposition to Plaintiffs' remand request, Plaintiffs' request for a hearing on their Motion for Interlocutory Injunction [Doc. 11], and the Parties' Responses [Docs. 20-22] to the Court's December 17, 2015 Order requiring the Parties to confer on the terms of a Status Quo Order pending this Court's jurisdictional determination and ruling on Plaintiffs' injunction motion.

I. Jurisdiction

According to Plaintiffs' Complaint, Defendants Ordoñez, Bohan, and Simone were previously employed with Priority Payment Systems and are now employed with Defendant SignaPay where they have “either attempted to misappropriate or have improperly accessed” Priority Payment Systems's computer software merchant management systems, source code, and other information that constitutes Plaintiffs' confidential trade secrets, “in an effort to develop a competing system for SignaPay.” (Compl. ¶ 2, Doc. 1-1.) Plaintiffs' Complaint asserts state law claims for (1) violation of the Georgia Trade Secrets Act; (2) violation of the Georgia Computer Systems Protection Act; (3) breach of contract; and (4) tortious interference with business relationship and/or contract.

Although Plaintiffs assert exclusively state law claims against Defendants, Defendants removed the case to this Court on the basis that Plaintiffs' Georgia Computer Systems Protection Act claim is preempted by the Federal Copyright Act, which provides for exclusive jurisdiction in federal courts. In response, Plaintiffs ask this Court to remand this case back to the Superior Court for Fulton County because (1) Plaintiffs' Complaint “lacks any allegation that the misappropriated materials were federally copyrighted, such that Plaintiffs could even maintain a claim for copyright infringement,” and (2) their claim under the Georgia Computer Systems Protection Act, on which removal is based, is qualitatively different than a copyright infringement claim.

Complete preemption “is a narrowly drawn jurisdictional rule for assessing federal removal jurisdiction when a complaint purports to raise only state law claims. It looks beyond the complaint to determine if the suit is, in reality, ‘purely a creature of federal law,’ even if state law would provide a cause of action in the absence of the federal law. It transforms the state claim into one arising under federal law, thus creating the federal question jurisdiction requisite to removal to federal courts.” Stuart Weitzman, LLC v. Microcomputer Res., Inc. , 542 F.3d 859, 864 n. 4 (11th Cir.2008)

; Geddes v. Am. Airlines, Inc. , 321 F.3d 1349, 1352–53 (11th Cir.2003) ; Blab T.V. of Mobile, Inc. v. Comcast Cable Commc'ns, Inc. , 182 F.3d 851, 854 (11th Cir.1999). Complete preemption occurs when the preemptive force of the federal statute is “so powerful as to displace entirely any state cause of action.” Beneficial National Bank v. Anderson , 539 U.S. 1, 7, 123 S.Ct. 2058, 156 L.Ed.2d 1 (2003) (quoting Franchise Tax Bd. v. Constr. Laborers Vacation Tr. , 463 U.S. 1, 23–24, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983) ). Because of the nature of complete preemption, if a state law claim is completely preempted, it “would be entirely displaced, and substituted therefor would be the equivalent federal claim—i.e., a copyright infringement claim.” Stuart Weitzman, 542 F.3d at 865. And “[b]ecause they are recast as federal claims, state law claims that are held to be completely preempted give rise to ‘federal question’ jurisdiction and thus may provide a basis for removal.” Blab T.V. , 182 F.3d at 854 (quoting McClelland v. Gronwaldt , 155 F.3d 507, 512 (5th Cir.1998).

The Supreme Court has cautioned that complete preemption can be found only in statutes with “extraordinary” preemptive force. Caterpillar, Inc. v. Williams , 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987)

; see also

Geddes v. Am. Airlines, Inc. , 321 F.3d 1349, 1352–53 (11th Cir.2003). Both sides acknowledge that the Eleventh Circuit has not yet decided whether the Copyright Act completely preempts equivalent state law claims and provides for exclusive jurisdiction in federal courts. See

Stuart Weitzman, LLC v. Microcomputer Res., Inc. , 542 F.3d 859, 864 (11th Cir.2008) ; see also

Dunlap v. G & L Holding Group, Inc. , 381 F.3d 1285, 1289–91, 1293–98 (11th Cir.2004) (suggesting that the Copyright Act might have complete preemptive effect under some circumstances); Foley v. Luster , 249 F.3d 1281, 1287–88 (11th Cir.2001) (same). The Supreme Court has found that complete preemption applies where a statute “provide[s] the exclusive cause of action for the claim asserted and also set forth procedures and remedies governing that cause of action.” Beneficial Nat'l Bank v. Anderson , 539 U.S. 1, 7–11, 123 S.Ct. 2058, 156 L.Ed.2d 1 (finding complete preemption applies to § 301 of the Labor Management Relations Act, 29 U.S.C. § 185, § 1132 of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq., §§ 85 and 86 of the National Bank Act, 12 U.S.C. § 21 et seq ).

Plaintiffs assert that because the Eleventh Circuit has not yet ruled on Defendant's preemption argument, “[t]here is no reason for this Court to adopt a theory that would expand federal jurisdiction in the absence of a clear directive from this Circuit's Court of Appeals.” (Doc. 10 at 5-6.) However, district courts are often faced with deciding issues that have not been reached by the appellate courts. If Plaintiffs' position had any merit, the Court's hands would be tied from doing anything but ruling in Plaintiffs' favor without any justification despite the lack of a decision by the Eleventh Circuit finding that there is no preemption under these circumstances. In fact, the Eleventh Circuit has provided some guidance on how it might deal with the question if it were to be squarely presented to the court. Dunlap v. G & L Holding Grp., Inc. , 381 F.3d 1285, 1293 (11th Cir.2004)

; Bateman v. Mnemonics, Inc. , 79 F.3d 1532, 1549 (11th Cir.1996).

In Dunlap

, the Eleventh Circuit considered whether “a state-law claim for conversion of an idea, the expression of which merges with the idea, is completely preempted by the Copyright Act, thereby vesting the trial court with federal removal jurisdiction.” 381 F.3d at 1293. In its analysis, the court recognized the preemptive force of the Copyright Act from the express text of the statute:

Section 301(a) of the Copyright Act dictates that the following state-law claims are preempted:

[A]ll legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103.

17 U.S.C. § 301(a)

. We have held that this language sets up a two-part test for determining when a state-law claim is preempted: first, “[w]e must decide whether the rights at issue fall within the ‘subject matter of copyright’ set forth in sections 102 and 103”; and second, we must determine “whether the rights at issue are ‘equivalent to’ the exclusive rights of section 106.” Crow v. Wainwright , 720 F.2d 1224, 1225–26 (11th Cir.1983).

Id. at 1293–94

. However, because Section 102(b) of the Copyright Act excludes certain things, including “ideas,” from the subject matter of copyright and thus copyright protection, the Dunlap Court held that a claim for “conversion of his ideas—even original ideas expressed in a tangible medium—is not preempted by the Copyright Act.” Id. at 1294–1297. Thus, if a claim relates to something that falls within the “subject matter of copyright” as defined in Section 102(a) of the Act, it appears that the Eleventh Circuit would find the first step of the complete preemption analysis to be satisfied. See id.

Similarly, in Bateman

, the Eleventh Circuit acknowledged the preemptive effect of the Copyright Act:

Given the backdrop of federal preemption pursuant to section 301 of the Copyright Act, we must carefully review this state law claim to ascertain whether it requires an “extra element” for recovery, for “[a] state law claim is not preempted if the ‘extra element’ changes ‘the nature of the action so that it is qualitatively different from a copyright infringement claim.’ ” in [Computer Assocs. Int'l v. Altai, Inc. , 982 F.2d 693, 716 (2d Cir.1992)

] (quoting Mayer v. Josiah Wedgwood & Sons, Ltd. , 601 F.Supp. 1523, 1535 (S.D.N.Y.1985) ). As a general matter, state law trade secret statutes have been deemed not to be

preempted because the plaintiff must prove the existence and breach of a confidential relationship in order to prevail. As the court in Altai

stated, “[t]he defendant's breach of duty is the gravamen of such trade secret claims, and supplies the ‘extra element’ that qualitatively distinguishes such trade secret causes of action from claims for...