Salveson v. Western States Bankcard Ass'n

• Decision Date: 01 May 1984
• Docket Number: 82-4113 and 82-4139,Nos. 82-4067,s. 82-4067
• Parties: 1984-1 Trade Cases 65,974 Melvin E. SALVESON, an individual, and Electronic Currency Corporation, a corporation, Plaintiffs-Appellants, v. WESTERN STATES BANKCARD ASSOCIATION, et al., Defendants-Appellees. Melvin E. SALVESON, an individual, and Electronic Currency Corporation, a corporation, Plaintiffs-Cross-Appellees, v. WESTERN STATES BANKCARD ASSOCIATION and Mastercard International, Inc. (formerly Interbank Card Association), Defendants-Cross-Appellants. Melvin E. SALVESON, an individual, and Electronic Currency Corporation, a corporation, Plaintiffs-Cross-Appellees, v. The BANK OF CALIFORNIA, N.A., Defendant-Cross-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1423

731 F.2d 1423

1984-1 Trade Cases 65,974

Melvin E. SALVESON, an individual, and Electronic Currency

Corporation, a corporation, Plaintiffs-Appellants, v. WESTERN STATES BANKCARD ASSOCIATION, et al., Defendants-Appellees.

Melvin E. SALVESON, an individual, and Electronic Currency

Corporation, a corporation, Plaintiffs-Cross-Appellees, v. WESTERN STATES BANKCARD ASSOCIATION and Mastercard

International, Inc. (formerly Interbank Card

Association), Defendants-Cross-Appellants.

Melvin E. SALVESON, an individual, and Electronic Currency

Corporation, a corporation, Plaintiffs-Cross-Appellees, v. The BANK OF CALIFORNIA, N.A., Defendant-Cross-Appellant.

Nos. 82-4067, 82-4113 and 82-4139.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 17, 1982.

Decided May 1, 1984.

Lawrence John Appel, Joseph M. Alioto, Alioto & Alioto, San Francisco, Cal., for plaintiffs-appellants.

John B. Bates, Terence A. Callan, Michael H. Salinsky, Mark White, Pillsbury, Madison & Sutro, San Francisco, Cal., for defendants-appellees.

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

Before ANDERSON and POOLE, Circuit Judges, and SOLOMON, ^* District Judge.

POOLE, Circuit Judge:

In the aftermath of the Supreme Court's decision in Federated Department Stores, Inc. v. Moitie, 452 U.S. 394, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981), we are called upon to decide what is the proper treatment when, in a case removed from state to federal court, it is determined that the plaintiff's complaint, though "artfully pleaded" as a state claim, is in fact a federal claim over which federal courts have exclusive jurisdiction. This also requires us to decide how the Court's 1981 decision impinges upon the doctrine of "derivative jurisdiction" as applied in this circuit.

1. Background

The federal litigation had its genesis in a previous suit brought largely against the same group of defendants ¹ in federal district court in 1977 (see Electronic Currency Corp. v. Western States Bankcard Assn., No. C-77-2077-S.W. (N.D.Cal., filed September 16, 1977)), by plaintiff Electronic Currency Corporation (ECC). In 1978, its founder, Melvin E. Salveson, joined the action as plaintiff. The suit charged that defendants had conspired in violation of the Sherman Act to prohibit plaintiffs from entering the general purpose credit card business.

Specifically, the complaint alleged that in 1967 and prior years Salveson had raised claims to the effect that the defendants had misappropriated his property rights in certain ideas for developing the general-purpose credit card business which he had discussed with them; that during 1967, the defendants entered into an agreement with Salveson purporting to settle those claims and providing for mutual cooperation by the parties in developing credit card interchange systems during the following ten years; that the defendants never intended to carry out the agreement, and wrongfully interfered with Salveson's efforts to enter the business on his own; that the defendants tortiously refused to deal with ECC and Salveson; and that, instead, the defendants created a "duopoly" of VISA and Mastercharge in the general-purpose credit card market, all in violation of sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. Secs. 1 and 2.

On February 20, 1981, the district court granted defendants' motion for summary judgment on the grounds that the suit was barred by the statute of limitations. See 15 U.S.C. Sec. 15b. This judgment was subsequently affirmed by this court on appeal. 703 F.2d 574 (9th Cir.1983) (non-pub.), cert. denied, --- U.S. ----, 104 S.Ct. 426, 78 L.Ed.2d 360 (1983).

On March 27, 1981, following entry of the judgment, plaintiffs filed the instant case in California state court. The complaint stated seven causes of action. The first six counts alleged common law fraud, fraudulent inducement to contract, misappropriation of plaintiffs' programs and ideas, interference with business relations, and breach of the 1967 agreement. The seventh cause of action alleged that defendants had violated the state antitrust statute, the Cartwright Act, Cal.Bus. & Prof.C. Secs. 16720 et seq., by conspiring to restrain and monopolize the national general-purpose credit card market.

Defendants then removed the state court suit to federal district court pursuant to 28 U.S.C. Sec. 1441 ² on the theory that the suit involved claims arising under the antitrust laws of the United States. In district court, defendants next moved to dismiss under Fed.R.Civ.P. 12(b)(6), on the grounds of res judicata and statute of limitations. Plaintiffs moved for remand to the state court.

On October 22, 1981, District Judge William Schwarzer denied the motion to remand and granted defendants' motion to dismiss. 525 F.Supp. 566 (N.D.Cal.1981). The district judge concluded that under the authority of Federated Department Stores, Inc. v. Moitie, 452 U.S. 394, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981), the state suit claims were actually artfully pleaded federal claims and that res judicata properly applied. Salveson v. Western States Bankcard Ass'n, 525 F.Supp. 566 (N.D.Cal.1981). The district court further concluded that the action had been properly removed to the federal court. The court dismissed with prejudice the first six state causes of action on statute of limitations or res judicata grounds, but dismissed the state antitrust claim without prejudice for want of jurisdiction under the derivative jurisdiction doctrine. Id. at 578-80.

2. Discussion

A. Was the Case Properly Removed?

Plaintiffs contend that the district court erred in denying their motion to remand to the state court. The standard of review is whether the case was properly removed to the federal court in the first instance under 28 U.S.C. Sec. 1441. Stone v. Stone, 632 F.2d 740, 742 n. 1 (9th Cir.1980), cert. denied, 453 U.S. 922, 101 S.Ct. 3158, 69 L.Ed.2d 1004 (1981).

The removal statute authorizes removal of any action based on a claim or right arising under federal law. 28 U.S.C. Sec. 1441. The central issue is therefore whether the district court correctly concluded that one or more of plaintiffs' claims arose under federal antitrust law. The analysis of this conclusion is necessarily complex.

The burden of establishing federal jurisdiction is placed on the party seeking removal, Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 42 S.Ct. 35, 66 L.Ed. 144 (1921), and the removal statute is strictly construed against removal jurisdiction, Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1064 (9th Cir.1979). Normally, the existence of federal jurisdiction on removal must be determined from the face of the plaintiffs' complaint. Louisville & Nashville Railroad v. Mottley, 211 U.S. 149, 29 S.Ct. 42, 53 L.Ed. 126 (1908).

Underlying these principles is the rationale that a plaintiff should be free to frame and pursue his theory of pleading, especially if the claim could be either or both state and federal. The Fair v. Kohler Die & Specialty Co., 228 U.S. 22, 25, 33 S.Ct. 410, 411, 57 L.Ed. 716 (1913); Sheeran v. General Electric Co., 593 F.2d 93, 96 (9th Cir.), cert. denied, 444 U.S. 868, 100 S.Ct. 143, 62 L.Ed.2d 93 (1979). "[W]here plaintiff's claim involves both a federal ground and a state ground, the plaintiff is free to ignore the federal question and pitch his claim on the state ground." 1A Moore's Federal Practice p 0.160, at 185 (2d ed. 1979); accord, Vitarroz Corp. v. Borden, Inc., 644 F.2d 960, 964 (2d Cir.1981); 14 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure Sec. 3722, at 564-69 (1976).

In the area of antitrust regulation, there has never been a clear congressional intent to preempt all state regulation. See Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S.Ct. 1305, 1309, 51 L.Ed.2d 604 (1977); Cloverleaf Co. v. Patterson, 315 U.S. 148, 157, 62 S.Ct. 491, 496, 86 L.Ed. 754 (1942). State antitrust laws retain vitality in dealing with matters which significantly affect local interests, even if they also have interstate aspects. Younger v. Jensen, 26 Cal.3d 397, 405, 605 P.2d 813, 818, 161 Cal.Rptr. 905, 910 (1980); Woods Exploration & Producing Co., Inc. v. Aluminum Co. of America, 438 F.2d 1286, 1313 (5th Cir.1971), cert. denied, 404 U.S. 1047, 92 S.Ct. 701, 30 L.Ed.2d 736 (1972). The Cartwright Act, the state antitrust law at issue in this case, has been held by California courts to apply to transactions in interstate commerce. Younger v. Jensen, 26 Cal.3d at 405, 605 P.2d at 818, 161 Cal.Rptr. at 910.

Therefore, federal jurisdiction is not preferred merely because the nature of the claim is such that it could be framed as a federal cause of action as well as one arising under state law. The federal antitrust laws do not preempt the jurisdiction of state courts to determine claims based on state law grounds. "[T]he plaintiff has the prerogative of determining the theory of his action and, so long as fraud is not involved, he may defeat removal to the federal courts by avoiding allegations which provide a basis for the assertion of federal jurisdiction." Jones v. General Tire & Rubber Co., 541 F.2d 660, 664 (7th Cir.1976).

The district court here noted that one important exception to this general principle arises when "[t]he claim, although ostensibly asserted under state law, is in fact a federal law claim but by artful pleading is misrepresented in order to defeat defendant's right to a federal forum." Salveson, 525 F.Supp. at 574. The artful pleading doctrine is to be invoked only in exceptional circumstances as it raises difficult issues of state and federal relationships and often yields unsatisfactory results. By its very nature, resolution of such an issue calls for looking outside the face of the complaint. In this case, after analysis of the Supreme Court's decision in Federated Department Stores, Inc. v. Moitie, 452 U.S. 394, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981) the district...