Ultraflo Corp. v. Pelican Tank Parts, Inc.

• Decision Date: 18 October 2011
• Docket Number: Civil Action No. H–09–782.
• Parties: ULTRAFLO CORPORATION, Plaintiff, v. PELICAN TANK PARTS, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of Texas

823 F.Supp.2d 578

ULTRAFLO CORPORATION, Plaintiff,

v.PELICAN TANK PARTS, INC., et al., Defendants.

Civil Action No. H–09–782.

United States District Court,S.D. Texas,Houston Division.

Oct. 18, 2011.

James M. McGraw, Travis Scott Crabtree, Looper Reed, et al., Houston, TX, for Plaintiff.

John Karl Buche, Buche & Associates, P.C., Houston, TX, Sean M. Sullivan, Buche & Associates, P.C., La Jolla, CA, for Defendants.

OPINION AND ORDER

MELINDA HARMON, District Judge.

In the case pending between Plaintiff Ultraflo Corporation (“Ultraflo”) and Defendants Pelican Tank, Incorporated (“Pelican Tank”), Pelican Worldwide, Inc. (“Pelican Worldwide”), and Thomas Joseph Mueller (“Mueller”), the Court now orders, on its own motion, that the Plaintiff file an amended complaint and Defendants file a dispositive motion or answer to that amended complaint addressing the heretofore unaddressed issues of federal subject matter jurisdiction and the potential preemption of Ultraflo's state law causes of action by the federal Copyright Act.

Background and Alleged Relevant Facts

Plaintiff and Defendant Pelican Worldwide are manufacturers of butterfly valves used in the transportation industry. Doc. 66 at 2; Doc. 71 at 8. Defendant Mueller worked for Ultraflo for 13 years, during which time he assisted in the redesign and improvement of Ultraflo's Model 390 butterfly valve. Doc. 86 at 14; Doc 86–1 at 50. During his time working at Ultraflo, Mueller signed at least two employment agreements relating to workplace ethics including “conflict of interest” and confidentiality provisions. Doc. 86–1 at 59–107.

In the summer of 2005, Mueller left Ultraflo and began working at Pelican Worldwide, a competing manufacturer of transportation butterfly valves. Doc. 86–1 at 5. Ultraflo alleges that Pelican Worldwide “hired Mueller ... in an attempt to gain possession of Ultraflo's highly confidential design drawings and possibly other trade secrets.” Doc. 66 at 4.

Ultraflo sued Defendants Mueller and Pelican Tank in state court alleging various state law claims, including conversion, civil conspiracy, unfair competition, and misappropriation of trade secrets. Ultraflo Corp. v. Pelican Tank Parts, Inc., No. 4:08–cv–1460 (S.D.Tex.2008), Doc. 1–5 at 1. Defendants removed that case to the United States District Court for the Southern District of Texas on the basis of federal question jurisdiction, asserting that Plaintiff's state law claims were completely preempted by the Copyright Act, 17 U.S.C. § 101. No. 4:08–cv–1460. Judge Werlein found that Defendants' removal was untimely, declined to address the potential preemption of Plaintiff's state law claims, and remanded the case to the 280th Judicial District Court of Harris County, Texas. Id., Doc. 21. Defendants filed a notice of appeal to the Fifth Circuit (No. 4:08–cv–1460, Doc. 24) which they subsequently withdrew. Id., Doc. 25.

Before the case was resolved in state court, Defendant Mueller brought a declaratory judgment action in the United States District Court for the Eastern District of Texas, alleging that Ultraflo infringed copyrights that Mueller held to the technical drawings that Ultraflo claimed were its “trade secrets.”. Mueller v. Ultraflo Corp., No. 1:09–cv–160–MAC (E.D.Tex.2009). Mueller and Pelican Tank also moved to dismiss the pending case in state court.

Ultraflo alleges that, out of “a desire to avoid costly procedural fights on two fronts,” it did not respond to the motion to dismiss in state court. The state court subsequently dismissed the case before it. Mueller filed a voluntary notice of dismissal of his case in the Eastern District, which the court granted.

In March of 2009, Ultraflo brought this case against Defendants Pelican Tank and Mueller in the Southern District of Texas, alleging the same state law causes of action it brought in its initial suit before Judge Werlein: conversion, unfair competition, misappropriation of trade secrets, and civil conspiracy. Doc. 1 at 6. Ultraflo also requested a declaratory judgment against Defendants Pelican Tank and Mueller, asserting that “Defendants have raised issues of federal copyright law and have asserted federal Copyright Act rights to assets that belong to Ultraflo.” Doc. 1 at 2. It was on this final request that Ultraflo based its assertion of federal subject matter jurisdiction.

In October of 2010, Ultraflo filed an amended complaint in this case, adding Pelican Worldwide as a defendant and adding a state law claim of unfair competition by misappropriation against all defendants. Doc. 66. On April 18, 2011, the Defendants filed four separate motions for partial summary judgment. Docs. 70, 71, 73, 75.

Defendants contend that Ultraflo's claims are barred by the statute of limitations (Doc. 70), that the absence of any genuine issues of material fact supporting Ultraflo's claims of the existence of trade secrets precludes all of Ultraflo's state law causes of action against all defendants (Doc. 71), that the absence of any genuine issues of material fact on the issue of trade secrets precludes specifically Ultraflo's state law claims of conversion and civil conspiracy against all defendants (Doc. 73), and that Ultraflo has failed to introduce evidence in support of any of its causes of action against Defendant Pelican Tank, or any evidence in support of its request for damages against Defendant Mueller. Doc. 75.

In these motions, responses and, replies thereto, no party has addressed the unresolved issues of whether there is federal subject matter jurisdiction under the copyright law and whether any of the state law claims are preempted by federal copyright law.

Legal Standards

Federal courts have jurisdiction over “all civil actions arising under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. Additionally, Section 1338(a) of the Judicial Code gives the district courts jurisdiction “over any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights, and trademarks.” 28 U.S.C. § 1338(a). The term “arising under” is identical in both statutes, and courts use the same test to determine whether a statute “arises under § 1331 and § 1338(a).” Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U.S. 826, 829, 122 S.Ct. 1889, 1893, 153 L.Ed.2d 13 (2002).

A case arises under federal copyright law when the Plaintiff's complaint clearly establishes that the copyright law “creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal patent [or copyright] law.” Christianson v. Colt Industries Operating Corp., 486 U.S. 800, 809, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988). See, e.g., Phillips Petroleum Co. v. Texaco Inc., 415 U.S. 125, 127–128, 94 S.Ct. 1002, 39 L.Ed.2d 209 (1974) ( per curiam ). Whether a case arises under federal law is determined on the basis of the plaintiff's complaint. Caterpillar Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987). Neither a defendant's answer nor counter-claim can create federal jurisdiction. Holmes Group, 535 U.S. at 831, 122 S.Ct. 1889. Moreover, a plaintiff cannot establish jurisdiction in his complaint by anticipating a federal defense. Louisville & Nashville RR. Co. v. Mottley, 211 U.S. 149, 29 S.Ct. 42, 53 L.Ed. 126 (1908).

The well pleaded complaint rule reflects the traditional rule that the plaintiff is the master of his claim. Caterpillar Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987). A plaintiff asserting claims that “arise under” federal law may choose to bring his complaint originally in the federal district court. Alternatively, a plaintiff may choose to bring his claims in state court and, “[e]ven if the factual predicate underlying [the] plaintiff's complaint could have served as the basis for a federal claim, the plaintiff has the prerogative to forgo the federal claim and assert only state law claims in order to prevent removal.” Tavormina v. Evening Star Productions, Inc., 10 F.Supp.2d 729, 732 (S.D.Tex.1998). The defendant may remove to federal district court, and the district court will have jurisdiction over the claims, “only when a federal question is presented on the face of the plaintiff's properly pleaded complaint.” Rivet v. Regions Bank of Louisiana, 522 U.S. 470, 118 S.Ct. 921, 924, 139 L.Ed.2d 912 (1998). See 28 U.S.C. § 1441(a).

An “important corollary” exists when federal law completely preempts a plaintiff's state law claim and renders it necessarily federal in nature. Franchise Tax Board of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U.S. 1, 24, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983). See Tavormina, 10 F.Supp.2d at 732. “Once an area of state law has been completely pre-empted, any claim purportedly based on that pre-empted state law is considered, from its inception, a federal claim, and therefore arises under federal law.” Caterpillar Inc. v. Williams, 482 U.S. 386, 107 S.Ct. 2425 (citing Franchise Tax Board, 463 U.S. at 24, 103 S.Ct. 2841). Copyright is one such area of complete preemption.

Federal courts have exclusive original jurisdiction over claims of copyright infringement ( see 28 U.S.C. § 1338(a)) and the Federal Copyright Statute (17 U.S.C. § 101, et seq.) “completely preempts practically all state law causes of action falling within its scope.” Tavormina, 10 F.Supp.2d at 733 (citing Daboub v. Gibbons, 42 F.3d 285, 288 (5th Cir.1995); Gemcraft Homes, Inc. v. Sumurdy, 688 F.Supp. 289 (E.D.Tex.1988) (federal exclusivity of a copyright claim is so strong that an unstated copyright claim preempts explicitly worded state law claim)). If any of the Plaintiff's claims are within the scope of the Copyright Act, those claims would be preempted and, although they appear as state law claims, would be federal in nature and serve as a basis for federal jurisdiction.

The Declaratory Judgment Act, although it is a...