T. R. Halvorson is a lawyer in sole practice in Sidney, MT, President of Pastel Programming Co., a division of Synoptic Text Information Services, Inc., and author of Law of the Super Searchers: the Online Secrets of Top Legal Researchers, How to Avoid Liability: The Information Professional's Guide to Negligence and Warranty Risks, and Legal Liability Problems in Cyberspace: Craters in the Information Highway.
Update - April 6, 2000 - Case is remanded to the New York Supreme Court
Click here for a copy of the order.
Games Begin in Different Stadiums
Jurisline.com LLC copied the core text of court opinions from the Lexis Law On Disc™ CD-ROMs to create its Web-based legal information service. It redacted editorial enhancements made by Lexis (other than de minimus and non-creative enhancements such as attorney and date information). On December 8, 1999, Jurisline.com sued Reed Elsevier, Inc. in federal court. Jurisline.com seeks declaratory judgment that:
- the core text is in the public domain;
- licenses restricting the use of the core text are unenforceable because federal copyright law preempts the state law of contracts and the state law of torts (e.g., misappropriation, unfair competition, unjust enrichment, conversion, and interference with business relations); and
- Lexis and Westlaw have combined or conspired in monopolizing the market for comprehensive computer-assisted legal research services in the United States.
On January 28, 2000, Matthew Bender & Company, Inc., a subsidiary of Reed Elsevier plc and the current owner of Lexis Law On Disc™, filed suit against Jurisline.com LLC and Lee Eichen in state court. Matthew Bender claims that Jurisline.com LLC and Eichen:
- committed fraud when they subscribed to Lexis Law On Disc™ representing that Eichen was purchasing the service as a sole legal practitioner, that no other attorneys would have access to the data, and that the data would not be available on a network; and
- breached the contract governing the use of Lexis Law On Disc™.
Jurisline.com removed Matthew Bender’s case from state court to federal court, the same court where its case against Reed Elsevier is pending.
Motions to Dismiss and Remand
Jurisline.com’s Amended Complaint has 19 claims. Sixteen claims relate to copyright, license, and the Lanham Act. Three claims relate to antitrust. Pending now are three motions by Reed Elsevier and Matthew Bender:
- On February 4, 2000, Reed Elsevier served a notice of motion to dismiss the sixteen copyright, license, and Lanham Act claims.
- On February 18, 2000, Reed Elsevier served a notice of motion for summary judgment of dismissal of the three antitrust claims.
- On March 1, 2000, Matthew Bender served a notice of motion to remand its suit for fraud and breach of license back to state court.
Reed Elsevier supports these motions with briefs and with many declarations of witness and documentary exhibits. These motion papers are extensive, but not prolix. They are two and seven-eights inches thick, but given the number and nature of Jurisline.com’s claims and the nature of the motions, the selection of materials is tightly relevant to the motions. Besides their relevance to the pending motions, they make fascinating reading for anyone interested in the history of online legal information or the method of building an online legal information service.
On March 27, 2000, the court heard two and a half hours of oral argument on the motion to remand Matthew Bender’s suit back to state court. The court will hear oral argument on the motions to dismiss on April 10, 2000.
This article discusses the motion to dismiss the sixteen copyright preemption and Lanham Act claims for lack of federal jurisdiction and the motion to remand the fraud and breach of license case back to state court. To understand these motions, it helps to know a little legal history and American political theory. The motions have context in the history of declaratory judgment and the political theory of federalism. They have those contexts because:
- Jurisline.com seeks declaratory judgment
- Matthew Bender seeks to enforce a license under the state law of contracts in a state court
- Jurisline.com seeks to have all claims and defenses decided in state court
- Jurisline.com claims in federal court that federal copyright law preempts the state law of contracts and tort
Federal Jurisdiction: Requirement of "Case or Controversy"
Article III, § 2 of the U.S. Constitution gives federal courts jurisdiction of certain "cases" and "controversies." The federal Declaratory Judgment Act provides: "In a case of actual controversy within its jurisdiction, . . . any court of the United States, upon the filing of any appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration."2
The requirements for a justiciable case or controversy are no less strict in a declaratory judgment proceeding than in any other type of suit. . . . This court is without power to give advisory opinions. . . . It has long been its considered practice not to decide abstract, hypothetical or contingent questions.
Alabama Federation of Labor v. McAdory, 325 U.S. 450, 461, 65 S.Ct. 1384, 89 L.Ed. 1725 (1945). As in every other federal case, the declaratory action must present a "case or controversy" within the meaning of the Constitution.
The Constitution limits the exercise of the judicial power to "cases" and "controversies." "The term 'controversies,' if distinguishable at all from 'cases,' is so in that it is less comprehensive than the latter, and includes only suits of a civil nature." The Declaratory Judgment Act of 1934, in its limitation to "cases of actual controversy," manifestly has regard to the constitutional provision and is operative only in respect to controversies which are such in the constitutional sense. The word "actual" is one of emphasis rather than of definition. Thus the operation of the Declaratory Judgment Act is procedural only. In providing remedies and defining procedure in relation to cases and controversies in the constitutional sense the Congress is acting within its delegated power over the jurisdiction of the federal courts which the Congress is authorized to establish.
Aetna Life Ins. Co. of Hartford Conn. v. Haworth, 300 U.S. 227, 57 S.Ct. 461, 81 L.Ed. 617, 108 A.L.R. 1000 (1937) (citations omitted). "The fact that the action is prophylactic in character does not detract from the necessity of adverse parties with adverse legal interests." Moore’s Federal Practice ¶ 57.11.
Case or Controversy: Two Prong Test
Reed Elsevier argues that, to establish the existence of an actual controversy, Jurisline.com needed to plead and prove both prongs of a two-prong test:
In a declaratory judgment action involving trademarks, the test for an "actual case or controversy" has two prongs, both of which must be satisfied in order to establish declaratory judgment jurisdiction: (1) has the defendant's conduct created a real and reasonable apprehension of liability on the part of the plaintiff, and (2) has the plaintiff engaged in a course of conduct which has brought it into adversarial conflict with the defendant.
Starter Corp. v. Converse Inc., 84 F.3d 592, 595, 38 U.S.P.Q.2d 1947 (2d Cir. 1996) (citation omitted).
The test for determining whether an actual case or controversy exists in a declaratory judgment action involving trademarks is two-pronged. First, the declaratory plaintiff must have a real and reasonable apprehension of litigation. Second, the declaratory plaintiff must have engaged in a course of conduct which brought it into adversarial conflict with the declaratory defendant. Both prongs of the test must be satisfied.
Windsurfing International v. AMF Inc., 828 F.2d 755, 757-58 (Fed. Cir. 09/09/1987) (citations omitted; applying Second Circuit law).
In its motion to dismiss the sixteen copyright and Lanham Act claims, Reed Elsevier says Jurisline.com cannot meet either of the two prongs of the test. Hence there is no "case or controversy" and no federal jurisdiction.
First Prong of "Case or Controversy" Test:
No Threat of Litigation
According to their motion papers, neither Reed Elsevier nor Matthew Bender had asserted any claim or threatened any litigation against Jurisline.com. Officials of Reed Elsevier and Matthew Bender whose approval is necessary to prepare and institute litigation had never heard of Jurisline.com before December 8, 1999. Jurisline.com’s Amended Complaint does not allege any contact between Jurisline.com and Reed Elsevier, Matthew Bender, or any other Reed Elsevier affiliate, and Jurisline.com never contacted them to find out what their position might have been regarding its activities. Reed Elsevier and Matthew Bender disclaim any intention to sue or assert any claim against Jurisline.com under the Copyright Act or the Lanham act (based on their present knowledge of Jurisline.com’s activities, including what Jurisline.com reveals in its Amended Complaint).
Subjective apprehension of suit does not establish jurisdiction. The test requires that "defendant’s conduct created an objectively reasonable apprehension on the part of the plaintiff that it will face a lawsuit for the allegedly infringing activity." Bausch & Lomb, Inc. v. CIBA Corp., 39 F.Supp.2d 271 (W.D.N.Y. 1999). A range of actions and communications that fail to satisfy this test include:
- investigation of whether a competitor might be infringing
- communications from individuals who have no actual or apparent authority
- threats by unrelated third parties
- infringement suits against other parties
- prior public statements by the defendant of its legal rights
- lobbying by the defendant relating to its intellectual property interests
Based on the test, Reed Elsevier says a number of facts raised by Jurisline.com fail to establish an actual controversy:
- a vaguely described email that might have been from the president of Versuslaw, in which Lexis has an equity interest, warning Jurisline.com to remove content from the Lexis Law On Disc™ CD-ROMs unless it had a valid license agreement.
- more than 2500 visits to Jurisline.com’s website by Lexis to determine the capability of the site and assess the scope and source of the databases
- a previous lawsuit by Lexis against a former sales employee regarding customer information
- an amicus curiae brief by Reed Elsevier in a case involving West Publishing Company but not Jurisline.com
- Reed Elsevier’s lobbying for database protection
Second Prong of "Case or Controversy" Test:
Using Neither Copyrighted Material nor Trademarks
The second prong of the test for a "case or controversy" is whether the plaintiff engaged in a course of conduct that has brought it into adversarial conflict with the defendant. Jurisline.com might have done something to bring itself into adversarial conflict with Matthew Bender if it committed fraud and breach of license. Has it done anything, however, concerning copyright and federal trademarks?
Jurisline.com’s Amended Complaint alleges that it has not used any material protected by copyright and has not used any of Reed Elsevier’s marks. Reed Elsevier and Matthew Bender agree. So, what has Jurisline.com done that, by virtue of federal law, brings itself into adversarial conflict with Reed Elsevier? Nothing, says Reed Elsevier, and hence Jurisline.com cannot meet the second prong of the test.
Well-Pleaded Complaint Rule: Claims, Not Defenses, Make Federal Jurisdiction
The federal Declaratory Judgment Act requires that there must be a case within the federal court’s jurisdiction. In turn, that means the case must be about a federal question. To determine whether a complaint for declaratory relief raises a federal question, courts evaluate the character of the threatened action, not of the defense. Would the complaint that starts the action, if well-pleaded, saying neither more nor less than it needs to say, bring a state law claim or a federal law claim, never mind whatever defenses the defendant might raise? If it would bring only state law claims, there is no federal jurisdiction.
Sometimes a party who would be the defendant tries to invoke federal jurisdiction by becoming a plaintiff, anticipating the state law claims of the other party, and pleading federal defenses to those claims. They point to the federal nature of their defenses to invoke federal jurisdiction. That wraps an answer into the form of a complaint, but the court regard substance more than form.3
In this case, as in many actions for declaratory judgment, the realistic position of the parties is reversed. The plaintiff is seeking to establish a defense against a cause of action which the declaratory defendant may assert in the Utah courts. Respondent here has sought to ward off possible action of the petitioners by seeking a declaratory judgment to the effect that he will have a good defense when and if that cause of action is asserted. Where the complaint in an action for declaratory judgment seeks in essence to assert a defense to an impending or threatened state court action, it is the character of the threatened action, and not of the defense, which will determine whether there is federal-question jurisdiction in the District Court. If the cause of action, which the declaratory defendant threatens to assert, does not itself involve a claim under federal law, it is doubtful if a federal court may entertain an action for a declaratory judgment establishing a defense to that claim. This is dubious even though the declaratory complaint sets forth a claim of federal right, if that right is in reality in the nature of a defense to a threatened cause of action. Federal courts will not seize litigations from state courts merely because one, normally a defendant, goes to federal court to begin his federal-law defense before the state court begins the case under state law. Federal jurisdiction does not arise "on the basis of a federal defense, including the defense of preemption, even if the defense is anticipated in the plaintiff’s complaint, and even if both parties admit that the defense is the only question truly at issue in the case.
Reed Elsevier and Matthew Bender say Jurisline.com’s has tried to invoke federal jurisdiction by anticipating Matthew Bender’s state law claims and pleading a federal defense of copyright preemption. The claims are fraud and breach of license, which are state law claims. Therefore the federal court lacks jurisdiction.
Remand to State Court: Well-Pleaded Complaint Rule
The well-pleaded complaint rule also affects the motion to remand Matthew Bender’s fraud and breach of license case back to state court. The fact that a party anticipates a federal law defense to a state law claim does not support removal of the case from state court to federal court.
Congress has provided for removal of cases from state court to federal court when the plaintiff's complaint alleges a claim arising under federal law. Congress has not authorized removal based on a defense or anticipated defense federal in character.
We have long held that "[t]he presence or absence of federal-question jurisdiction is governed by the `well-pleaded complaint rule,' which provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint." A defense is not part of a plaintiff's properly pleaded statement of his or her claim. "To bring a case within the [federal-question removal] statute, a right or immunity created by the Constitution or laws of the United States must be an element, and an essential one, of the plaintiff's cause of action." Thus, "a case may not be removed to federal court on the basis of a federal defense, ... even if the defense is anticipated in the plaintiff's complaint, and even if both parties admit that the defense is the only question truly at issue in the case."
Rivet v. Regions Bank of Louisiana, 118 S.Ct. 921, 139 L.Ed.2d 912 (1978).
Remand to State Court: Artful Pleading Corollary and Complete Preemption
A corollary to the well-pleaded complaint rule is the principle that a plaintiff may not defeat removal by omitting to plead necessary federal questions. If a court concludes that a plaintiff has artfully pleaded claims in this fashion, it may uphold removal even though no federal question appears on the face of the plaintiff's complaint. If Matthew Bender, in pleading its claims for fraud and breach of license, artfully left out necessary elements of those claims to avoid mentioning federal questions, removal from state to federal court might be sustained.
Ordinarily, federal preemption is a defense, and hence not a necessary element that needs to be pleaded in a state law claim. We might refer to that as "ordinary preemption." There are a very few areas that are different from "ordinary preemption," areas of "complete preemption." In an area completely preempted by federal law, the fact that a complaint fails to mention the federal aspect could be "artful pleading."4
Although federal preemption is ordinarily a defense, "[o]nce an area of state law has been completely pre-empted, any claim purportedly based on that pre-empted state-law claim is considered, from its inception, a federal claim, and therefore arises under federal law."
Rivet v. Regions Bank of Louisiana, 118 S.Ct. 921, 139 L.Ed.2d 912 (1978) (citation omitted).
Complete preemption focuses on the intent of Congress. The question is, did Congress intend to provide a federal defense to a state law claim or did it intend to replace state law with federal law.
Jurisline.com contends that Matthew Bender’s fraud and breach of license claims are completely preempted by federal copyright law. Matthew Bender acknowledges that the Copyright Act preempts certain state law claims based on rights that are equivalent to any of the exclusive rights afforded by copyright law. Where there is equivalence, there might be replacement. It denies, however, that all claims of fraud and breach of license are based on rights equivalent to rights of copyright, and hence copyright does not completely preempt fraud and breach of license claims. The Supreme Court and the Second Circuit have never extended the complete preemption exception to the well-pleaded complaint rule beyond the areas covered by the Employees Retirement Income Security Act, the Labor Management Relations Act, and certain matters relating to Indian tribes.
Matthew Bender sets out what the law requires as necessary elements of claims for fraud and breach of license. It argues that it has pleaded those claims well, that it has not artfully omitted any necessary elements just to avoid pleading federal questions, and that there is no element of federal law in those claims.
Strictly speaking, dismissing the sixteen copyright preemption and Lanham Act claims for lack of federal jurisdiction and remanding the fraud and breach of license case back to state court wouldn’t rule on the merits of the claims and defenses. Jurisline.com could plead copyright preemption as a defense in state court. Nevertheless, we already have seen a lot of the facts and legal arguments that will be presented whenever one court or another gets past the jurisdictional issues and reaches the merits.
The U.S. Constitution applies the principle of federalism. American federalism supports two systems of government in balance, the governments of the states and the government of the union. The two systems are sometimes parallel and sometimes intersecting. Federalism is this arrangement of balanced, twin systems of government. Unfortunately, the term "federal" also has been applied to the government of the union. Federalism really refers to both of the twins and their relations, not just to one of the twins. Calling the government of the union the "federal" government is thus something of a misnomer. It is a misnomer that causes confusion.
Under federalism, the states have their own courts. The primary courts of each state are courts of general jurisdiction. The law presumes that a court of general jurisdiction has jurisdiction of any kind of case someone might file. The plaintiff does not have to prove that the court has jurisdiction. If a defendant contends that the court lacks jurisdiction, the defendant must prove the lack of jurisdiction. The defendant must show an exception to the presumption of jurisdiction.
Under federalism, the federal courts are courts of limited jurisdiction. The government of the union is a government of express powers. The Constitution and statutes enacted by Congress to implement provisions of the Constitution define the realm within which the federal courts have jurisdiction. Their jurisdiction exists by express law, not by presumption. The law does not presume that they have jurisdiction of any kind of case someone might file. The plaintiff must prove that the federal court has jurisdiction. This requirement is imposed at the outset of every case filed in federal court. The plaintiff must plead immediately in its original pleading why the federal court has jurisdiction to hear and decide the case. While issues of jurisdiction do arise in state courts, they are relatively infrequent. In federal courts, issues of jurisdiction are common.
Background: Declaratory Judgment
The common law did not provide declaratory judgment. Courts took no interest until one person had wronged another and had caused damage or injury. The object of common law actions was to provide relief for actual injury only after it happened. Common law forms of action required an allegation of injury and a prayer for executory or coercive relief. An example of executory relief is the judgment for damages coupled with the writ of execution that attaches the judgment debtor’s property to satisfy the judgment. An example of coercive relief is the injunction that orders someone to stop doing something that will cause irreparable injury to another. There was no way to invoke the aid of the courts in settling differences before the acts of the parties came to harm.
Dissatisfaction with these limitations caused parties to bring disputes to the courts before damage occurred under the guise of existing common law forms of action. Courts began to twist existing writs to fit pre-damage circumstances and help parties settle their differences before injury occurred. The writ most commonly bent to this purpose was the injunction. Because affording pre-damage relief by injunction required torturing the writ, success in seeking it was hit-and-miss.
To alleviate these problems, legislatures began enacting declaratory judgment actions. Then Congress enacted the federal Declaratory Judgment Act in 1934. 28 U.S.C. § 2201. "The uniqueness of the declaratory remedy lies … in its potential, prophylactic character." Moore’s Federal Practice, ¶ 57.05.
It was the congressional intent to avoid accrual of avoidable damages to one not certain of his rights and to afford him an early adjudication without waiting until his adversary should see fit to begin suit, after damage had accrued.
E. Edelmann & Co. v. Triple-A Specialty Co., 88 F.2d 852, 854 (7th Cir. 1937).
The procedure has been especially useful in avoiding the necessity, now so often present, of having to act at one's peril or to act on one's own interpretation of his rights, or abandon one's rights because of a fear of incurring damages.
Perez v. Ledesma, 401 U.S. 82, 91 S.Ct. 674, 27 L.Ed.2d 701 (1971) (quoting S. Rep. No. 1005, 73d Cong., 2d Sess., 2-3, 6 (1934).
Limitations on Declaratory Judgment: Jurisdiction in General
The federal Declaratory Judgment Act is a remedial statute to be liberally construed. Moore’s Federal Practice ¶ 57.08.
The discretion to grant or refuse declaratory relief should be liberally exercised to effectuate the purposes of the Declaratory Judgment Act and thereby afford relief from the uncertainty and insecurity with respect to rights, status and other legal relations.
Lehigh Coal & Navigation Co. v. Central R. of New Jerseyy, 33 F.Supp. 362, 365 (E.D.Pa. 1940).
The principle of liberal construction of remedial statutes, while salutary, often is misunderstood. While a court might have discretion within it jurisdiction, no court ever has discretion to expand its jurisdiction. Discretion is the prerogative of a court to do or not do what its jurisdiction permits it to do. Discretion is confined by jurisdiction. The principle thus means that, within the field of its jurisdiction, the court should be liberal in exercising its discretion whether to grant declaratory relief.
Because the federal Declaratory Judgment Act is remedial, it is a law of procedure and does not expand the jurisdiction of the federal courts. McCarty v. Hollis, 120 F.2d 540 (10th Cir. 1941); and Reliance Life Ins. Co. v. Burgess, 112 F.2d 234 (8th Cir. 1940).
Limitations on Declaratory Judgment: State Jurisdiction
"Courts will not countenance the use of a declaratory action which would increase friction in our federal-state system, and improperly encroach upon state jurisdiction." Moore’s Federal Practice ¶ 57.08, quoted in Lutsky v. Lutsky, 310 F.Supp. 517, aff’d 433 F.2d 346 (5th Cir. 1970). The Act "should be construed liberally in favor of effectuating its purpose but strictly against encroachment upon jurisdiction of State Courts." Maryland Casualty Co. v. Consumers Finance Service, 23 F.Supp. 433 (M.D.Pa. 1938). <back to text>back to text>
"To be observant of these restrictions is not to indulge in formalism or sterile technicality. It would turn into the federal courts a vast current of litigation indubitably arising under State law, in the sense that the right to be vindicated was State-created, if a suit for a declaration of rights could be brought into the federal courts merely because an anticipated defense derived from federal law. . . To sanction suits for declaratory relief as within the jurisdiction of the District Courts merely because, as in this case, artful pleading anticipates a defense based on federal law would contravene the whole trend of jurisdictional legislation by Congress, disregard the effective functioning of the federal judicial system and distort the limited procedural purpose of the Declaratory Judgment Act. See Developments in the Law – Declaratory Judgments -- 1941-1949, 62 Harv. L. Rev. 787, 802-03 (1949)." Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 70 S. Ct. 876, 94 L. Ed. 1194 (1950). <back to text> Metropolitan Life Ins. Co., 481 U.S., at 65-66; and Avco Corp. v. Machinists, 390 U.S. 557, 560 (1968). <back to text>