Redwood Theatres, Inc. v. Festival Enterprises, Inc.

• Decision Date: 11 July 1990
• Docket Number: No. 89-15638,89-15638
• Citation: 908 F.2d 477
• Parties: , 1990-2 Trade Cases 69,099 REDWOOD THEATRES, INCORPORATED, Plaintiff-Appellant, v. FESTIVAL ENTERPRISES, INC.; Paramount Pictures Corporation; Gulf & Western, Inc.; Mann Theatres Corporation of California, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 477

908 F.2d 477

59 USLW 2057, 1990-2 Trade Cases 69,099

REDWOOD THEATRES, INCORPORATED, Plaintiff-Appellant, v. FESTIVAL ENTERPRISES, INC.; Paramount Pictures Corporation Gulf & Western, Inc.; Mann Theatres Corporation of California, Defendants-Appellees.

No. 89-15638.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 4, 1990.

Decided July 11, 1990.

Lawrence Alioto, Alioto and Alioto, San Francisco, Cal., for plaintiff-appellant.

Judith Z. Gold, and Gregory Gilchrist, Heller, Ehrman, White & McAuliffe, San Francisco, Cal., for defendants-appellees.

Appeal from the United States District Court for the Northern District of California.

Before GOODWIN, Chief Judge, CANBY and RYMER, Circuit Judges.

GOODWIN, Chief Judge:

Redwood Theatres appeals the denial of its motion to remand this case to state court. Redwood originally filed its action in California Superior Court, alleging violations of the Cartwright Act, Cal.Bus. & Prof.Code Sec. 16720. Appellees removed the case to federal district court, contending that Redwood's complaint, properly construed, advanced claims implicating federal antitrust law and that the nationwide character of its motion picture distribution system warranted review of this case in a federal forum.

Concluding that haphazard state antitrust regulation could impose an impermissible burden upon the national licensing practices of the movie distribution industry, the district court denied Redwood's subsequent motion to remand, citing as authority its prior decision in TOC, Inc. v. United Artists Theatre Circuit, 631 F.Supp. 832 (N.D.Cal.1986). Redwood argues in this interlocutory appeal that the district court improperly invoked the "artful pleading" doctrine to recharacterize its claims as federal in nature and, accordingly, that federal subject matter jurisdiction does not exist in this case. We agree and reverse.

Redwood Theatres is a Nevada corporation which owns and operates a seven-screen motion-picture theatre in Modesto, California, and other theatres in various northern California towns. Festival Enterprises is a California corporation which, during the period of time relevant to this appeal, owned and operated a six-screen theatre in Modesto, as well as theatres in other parts of northern California. The Redwood and Festival theatres directly compete with each other, both for the films they show on their screens and the patronage of Modesto movie-goers.

Paramount Pictures is a major distributor of motion-picture films in the United States. Its parent corporation, Gulf Western, acquired the Festival circuit of theatres in 1986. Also that year, Gulf Western acquired the 384 screens operated by Mann Theatres. Gulf Western subsequently placed the Festival chain under Mann's management.

Redwood contends that Paramount has entered into unwritten agreements with Festival and Festival's successors, pursuant to which substantially all of the Paramount first-run product is licensed to the Festival theatres in northern California, including Modesto. Redwood argues that these agreements effectively foreclose it from showing a significant number of the better first-run pictures, thereby threatening the viability of its business and substantial elimination of competition in the exhibition of first-run motion pictures in Modesto.

In 1985, Redwood filed a complaint against appellees in California Superior Court alleging Cartwright Act violations in connection with films licensed between 1981-85 ¹ similar to those at issue here. That action was dismissed on summary judgment but reinstated on appeal by the California Court of Appeal, which held that the allegations raised in Redwood's complaint, if proved, presented a triable issue of an unreasonable restraint of trade under the Cartwright Act and therefore remanded the case for trial. Redwood Theatres, Inc. v. Festival Enterprises, Inc., et al., ("Redwood I"), 200 Cal.App.3d 687, 248 Cal.Rptr. 189 (1988). Appellees never sought removal of Redwood's first suit, but, after the decision in Redwood I was rendered against them, they petitioned for removal of this action to federal court.

ARTFUL PLEADING DOCTRINE

In general, removal based on federal question jurisdiction is improper unless a federal claim appears on the face of a well-pleaded complaint. Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 10, 103 S.Ct. 2841, 2846, 77 L.Ed.2d 420 (1983); Gully v. First Nat'l Bank, 299 U.S. 109, 113, 57 S.Ct. 96, 97, 81 L.Ed. 70 (1936). "The burden of establishing jurisdiction falls on the party invoking the removal statute [28 U.S.C. Sec. 1441(a) ], Hunter v. United Van Lines, 746 F.2d 635, 639 (9th Cir.1984), cert. denied, 106 S.Ct. 180, 88 L.Ed.2d 150 (1985), which is strictly construed against removal." Sullivan v. First Affiliated Securities, 813 F.2d 1368, 1371 (9th Cir.), cert. denied, 484 U.S. 850, 108 S.Ct. 150, 98 L.Ed.2d 106 (1987).

It is well established that "the party who brings a suit is master to decide what law he will rely upon," The Fair v. Kohler Die & Specialty Co., 228 U.S. 22, 25, 33 S.Ct. 410, 411, 57 L.Ed. 716 (1913), and "if he can maintain his claim on both state and federal grounds, he may ignore the federal question and assert only a state law claim and defeat removal." Sullivan, 813 F.2d at 1372 (citing, inter alia, 1 A.J. Moore & B. Ringle, Moore's Federal Practice, p 0.160[3.-3], at 231-32 (2d ed. 1986)).

There are, however, certain limited situations in which a court may look beyond the face of a plaintiff's complaint. Under the "artful pleading" doctrine, which this court has termed "a narrow exception to the straightforward rules of removal jurisdiction," Sullivan, 813 F.2d at 1372, a court may recharacterize a plaintiff's claims as federal if "the particular conduct complained of [is] governed exclusively by federal law." Hunter, 746 F.2d at 640; see also Ultramar Am. Ltd v. Dwelle, 900 F.2d 1412, 1415 (9th Cir.1990). Nevertheless, this court invokes the doctrine "only in exceptional circumstances," because doing so "raises difficult issues of state and federal relationships and often yields unsatisfactory results." Salveson v. Western States Bankcard Ass'n, 731 F.2d 1423, 1427 (9th Cir.1984) (emphasis added).

All the claims appearing on the face of Redwood's complaint involve alleged violations of California's antitrust statute, the Cartwright Act. While not contending that the Sherman Act preempts the Cartwright Act in toto, appellees argue that where an industry is primarily engaged in interstate commerce and would benefit from a national uniformity of antitrust law, then restraints upon that interstate trade fall within the exclusive jurisdiction of the Sherman Act and federal courts. The Supreme Court, however, has consistently held that "Congress intended the federal antitrust laws to supplement, not displace, state antitrust remedies," California v. ARC Am. Corp., 490 U.S. 93, 109 S.Ct. 1661, 1665, 104 L.Ed.2d 86 (1989); Watson v. Buck, 313 U.S. 387, 403, 61 S.Ct. 962, 967, 85 L.Ed. 1416 (1941), and this court has observed that "[s]tate antitrust laws retain vitality in dealing with matters which significantly affect local interests, even if they also have interstate aspects." Salveson, 731 F.2d at 1427. Also, notwithstanding appellees' assertions, California courts have held that the Cartwright Act applies to transactions in interstate commerce. Id., citing Younger v. Jensen, 26 Cal.3d 397, 405, 605 P.2d 813, 818, 161 Cal.Rptr 905, 910 (1980).

In arguing their position, appellees cite Federated Dept. Stores v. Moitie, 452 U.S. 394, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981), and Salveson as authority for the exercise of federal jurisdiction over antitrust actions despite a plaintiff's decision to file his complaint in state court and rely wholly on state-law provisions. Both cases are distinguishable from the facts presented here.

In Moitie, seven private antitrust actions were brought by plaintiff retail customers charging the owners of various department stores with price-fixing. The actions were consolidated in federal district court and subsequently dismissed for failure to state a claim under the Clayton Act. Plaintiffs in two of the actions attempted to refile their complaints in state court, making allegations similar to those made in the previous cases, but invoking only state-law remedies. The department store owners promptly removed the two cases to federal court, where they were dismissed on res judicata grounds. The Supreme Court approved the district court's dismissal of the plaintiffs' refiled claims and concluded that removal was proper where it appeared that the plaintiffs had "artfully" recast their claims under state law in order to gain a second shot at recovery. 452 U.S. at 397, 101 S.Ct. at 2427.

In Salveson, this court held that if a state claim is found upon removal to be an artfully pleaded federal claim which was previously before a federal court and dismissed, then res judicata is to be applied and the case dismissed again, with prejudice. 731 F.2d at 1432. Unlike the situations in Moitie and Salveson, Redwood has never previously filed an antitrust action in federal court and no res judicata defense is available to appellees.

In subsequent cases this court has emphasized that it will construe the holdings in Moitie and Salveson narrowly, out of respect for the purposes underlying the removal statute and plaintiffs' prerogatives to choose the forum and legal principles governing their complaints. See Sullivan, 813 F.2d at 1376; see also United Jersey Banks v. Parell, 783 F.2d 360, 368 (3d Cir.), cert. denied, 476 U.S. 1170, 106 S.Ct. 2892, 90 L.Ed.2d 979 (1986) ("[u]nless applied with circumspection, the artful pleading doctrine may raise difficult issues of federal-state relations. An expansive application of the doctrine could effectively abrogate the rule that a plaintiff is master of his or her complaint") (citi...