Vector Research, Inc. v. Howard & Howard Attorneys P.C.

• Decision Date: 08 April 1996
• Docket Number: No. 94-3875,94-3875
• Citation: 76 F.3d 692
• Parties: VECTOR RESEARCH, INC.; Steven Fuhr; Barry Wade; and Paul Depinet, Plaintiffs-Appellants, v. HOWARD & HOWARD ATTORNEYS P.C.; William J. Clemens; Marshall & Melhorn; Richard G. Martin; Thomas Gutwald; Steven Goldner; and Joseph Smrcka, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 692

76 F.3d 692

64 USLW 2514

VECTOR RESEARCH, INC.; Steven Fuhr; Barry Wade; and Paul Depinet, Plaintiffs-Appellants, v. HOWARD & HOWARD ATTORNEYS P.C.; William J. Clemens Marshall & Melhorn; Richard G. Martin; Thomas Gutwald; Steven Goldner; and Joseph Smrcka, Defendants-Appellees.

No. 94-3875.

United States Court of Appeals Sixth Circuit.

Argued Dec. 4, 1995.

Decided Feb. 14, 1996.

Rehearing and Suggestion

for Rehearing En Banc

Denied April 8, 1996.

Jack G. Fynes, Stephen A. Rothschild (argued and briefed), Shumaker, Loop & Kendrick, Toledo, OH, for plaintiffs-appellants.

James H. Geary (argued and briefed), Howard & Howard, Kalamazoo, MI, Thomas W. Palmer, Marshall & Melhorn, Toledo, OH Jon H. Kingsepp, Howard & Howard, Bloomfield Hills, MI, for defendants-appellees.

Before: BROWN, NELSON, and MOORE, Circuit Judges.

BAILEY BROWN, J., delivered the opinion of the court, in which MOORE, J., joined. DAVID A. NELSON, J. (pp. 701-702), delivered a separate opinion concurring in part and dissenting in part.

BAILEY BROWN, Circuit Judge.

This appeal arises from a dispute between two rival manufacturers of anthropomorphic test devices (ATDs), more commonly known as crash test dummies. First Technology Safety Systems, Inc. (FTSS), asserting that Vector Research, Inc. (Vector) had violated the Copyright Act, had stolen trade secrets, and had violated employee confidentiality agreements, obtained an ex parte order authorizing the seizure of certain allegedly infringing materials and other evidence of Vector's alleged wrongful conduct. United States Marshals, private lawyers representing FTSS, FTSS employees, and others conducted the seizure at Vector's premises. This court later held, in a case of first impression in this circuit, that portions of the ex parte order were invalid and that its issuance was an abuse of discretion. First Technology Safety Sys. v. Depinet, 11 F.3d 641 (6th Cir.1993).

Meanwhile, Vector and three of its employees had sued the private participants in the search and seizure in Ohio state court on state law tort theories, and the individual plaintiffs added Bivens federal constitutional claims after the defendants removed the case to federal court. ¹ The defendants then moved to dismiss the plaintiffs' amended complaint for failure to state a claim upon which relief could be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6), and the district court granted the motion. Plaintiffs then appealed. We AFFIRM the district court's dismissal of the plaintiffs' state law claims against one of the lay defendants. We conclude, however, that the district court erred in dismissing the plaintiffs' remaining claims. Thus, we REVERSE those dismissals and REMAND those claims for further proceedings.

I. FACTS AND BACKGROUND

A. The prior case.

FTSS was, before December of 1990, America's sole designer and manufacturer of ATDs. FTSS owned many copyrights, trade secrets, inventions, and trademarks for ATDs, and for related computer calibration programs, components, and manufacturing processes. FTSS also possessed customer lists, contracts, pricing information, and marketing strategies typical of any manufacturing firm.

On December 18, 1990, plaintiff Fuhr left FTSS to form Vector, which he and plaintiff Wade incorporated the next day. Wade, also an FTSS employee, remained at FTSS for sixteen more days before joining Vector. Plaintiff Depinet left FTSS to join Vector in March of 1991. Vector intended to compete with FTSS in the design and production of ATDs and related computer software.

FTSS eventually filed a complaint against Vector, Fuhr, Wade, and Depinet, alleging copyright infringement, unfair trade practices, unfair competition, conversion, receiving and concealing trade secrets, and tortious interference with contracts and business advantage. FTSS simultaneously filed an emergency motion for an ex parte order authorizing a search of Vector's premises, pursuant to the Copyright Act, 17 U.S.C. § 503, the Supreme Court Rules of Copyright Practice (the Copyright Rules) which appear following 17 U.S.C. § 501, and Federal Rule of Civil Procedure 65(b). In support of its request, FTSS alleged that Vector had engaged in numerous business activities that could only have been possible with the use of proprietary FTSS information, and that Vector and its employees therefore must have violated copyright laws and employee confidentiality agreements.

The district court issued an order authorizing the United States Marshal and persons acting under the Marshal's supervision, including representatives of FTSS, to inventory, impound, inspect, copy, and photograph certain materials on Vector's premises, or anywhere else the materials might be found. Only materials belonging to FTSS and bearing the name of FTSS or one of its corporate predecessors could be taken from Vector. The search party was to copy everything else and return the originals to Vector. Either the marshals, or FTSS's counsel in trust for the court, was to hold the impounded material.

On April 8, 1992, two U.S. Marshals, FTSS's Michigan counsel (Howard & Howard, represented by Clemens), three FTSS employees (Gutwald, Goldner, and Smrcka), and FTSS's Ohio counsel (Marshall & Melhorn, represented by Martin), and others, went to Vector's premises in Milan, Ohio to conduct the search. The federal marshals stayed only an hour, but the rest of the search party remained for another five hours. The Marshall & Melhorn firm held the seized materials in trust for eight days until the district court held a hearing that dealt with a motion Vector had made to vacate the impoundment order.

The district court denied Vector's motion, concluding that either the Copyright Act, the Copyright Rules, or Rule 65 authorized the ex parte order. Marshall & Melhorn then transferred the impounded materials to the custody of the district court. Vector appealed, and this court held that the district court had abused its discretion in issuing the order. First Technology Safety Sys., 11 F.3d at 652.

This court rejected Vector's arguments that the order failed to comply with the technical requirements of the Copyright Rules, but did hold that the order was "too broad to fall within the authorization of 17 U.S.C. § 503 and the Copyright Rules." Id. at 649. This court noted that section 503(a) of the Copyright Act authorizes the impoundment of materials that infringe copyrights, or equipment that can be used to copy infringing goods, and that the Copyright Rules authorize seizures and mandate the return of articles seized for any reason not appropriate under the Copyright Act. The court reasoned, however, that the business records seized were neither infringing goods nor materials that could be used to copy such goods, but rather were only "possible evidence of the alleged infringement." Id. Because this court saw no congressional intent to give a copyright holder a means to preserve evidence generally, it held that Vector's business records were not subject to impoundment under the statute, and thus that portion of the order was not authorized by law.

Moreover, this court stated that because section 503 did not authorize the order as issued, the Copyright Rules did not provide the proper procedure for obtaining it, and thus the district court should have proceeded under Rule 65(b) to determine the propriety of granting injunctive relief ex parte. Id. at 649-50 (citations omitted). The court stated that, on the rare occasions when ex parte temporary restraining orders are proper, they "should be limited to preserving the status quo only for so long as is necessary to hold a hearing." Id. at 650 (citing Granny Goose Foods, Inc. v. Brotherhood of Teamsters, 415 U.S. 423, 439, 94 S.Ct. 1113, 1124, 39 L.Ed.2d 435 (1974)). Applying that maxim and the language of Rule 65(b) to the facts, this court held that FTSS failed to demonstrate that ex parte relief was warranted, primarily because FTSS did not show that appropriate circumstances existed--i.e., that Vector was likely to take advantage of an opportunity to conceal or destroy evidence (and thereby render further prosecution of the action fruitless) if it had notice of the order. Id. at 651.

B. The instant case.

While the appeal of the ex parte order entered in the action brought by FTSS was pending in this court, the plaintiffs in the instant case, as heretofore indicated, filed this suit in Ohio state court. They alleged that the process by which FTSS and the attorney defendants obtained and executed the search order was tortious, and that it included the taking of confidential information belonging to Vector. Plaintiffs also alleged that a partner in one of the defendant law firms, Howard & Howard, was also an officer in FTSS, and that all the defendants sought and executed the order with malicious and illegal motives. Finally, plaintiffs alleged that the entire process caused them, inter alia, embarrassment, humiliation, outrage, mental suffering, and the loss of a supplier.

The defendants in the instant case, as heretofore stated, removed the case to federal district court, claiming there was federal question jurisdiction because the claims "attacked the legitimacy" of the district court's order in the prior case, and because, they asserted, this is "an action under 28 U.S.C. § 1356," which gives district courts original and exclusive jurisdiction over seizures not within admiralty and maritime jurisdiction. ² The defendants then answered, asserting that (1) they had acted in good faith, and (2) no specific facts demonstrated that they either misled or perpetrated a fraud upon the court. The plaintiffs then amended their complaint, with the individual plaintiffs adding Bivens claims against only the attorney defendants for violations of their Fourth Amendment rights. ³

The defendants moved, under Rule 12(b)(6), to dismiss the complaint for failure to state a claim upon which relief could be...