Duncan v. StuetzleDuncan v. Stuetzle
In this fifth round of litigation over rights to a foot massage device, we explore the boundaries of state and federal jurisdiсtion over trademark infringement.
I
Nancy Duncan, and her company, Just Vibrations International, Inc., produce and distribute “Footsie Wootsie” foot massage machines designed in the shape of a chair. In early 1990, Al Stuetzle met with Duncan, allegedly to discuss his interest in either purchasing Duncan‘s business, becoming her exclusive distributor, or leasing one or all of the “Footsie Wootsie” units. Duncan alleges that, during the course of the discussions, she turned over proprietary information on both the existing “Footsie Wootsie,” and on a future model to be shaped like a “log” or “barrel,” to Stuetzle. Both parties agree that she also asked him to sign a nondisclosure agreement. Stuetzle refused to sign the agreement, apparently because it included a non-competition clause.
On March 5, 1990, allegedly because of Stuetzle‘s refusal to sign the agreement, Duncan broke off the discussions. She also threatened litigation in federal court if Stuetzle used the proprietary information for his own benefit. Duncan alleges that in September 1990 she discovered that Alston Attractions, Inc., a corporation in which Stuetzle was a principal, had begun leasing foot massage chairs similar in design to her existing “Footsie Wootsie” and her planned “barrel” model.
On November 9, 1990, Duncan filed a complaint against Stuetzle in California state court. The complaint, not a model pleading, generally outlined three causes of action: (1) misappropriation of proprietary information, (2) unfair competition, and (3) civil conspiracy (later dropped after discovery).1 The relief Duncan requested included a temporary restraining order, preliminary and permanent injunctions, and compensatory and punitive damages. Although the face page of the complaint cited several California statutes, the complaint did not specify whether the claims were based on federal or state law, nor statutory or common law.
On November 29, 1990, Stuetzle timely removed the action, on the grounds that Duncan had alleged “patent infringement” claims over which the district court had original jurisdiction under
The district court denied the motion to remand and entered summary judgment for Stuetzle. The court also found that Duncan‘s claim for misappropriation was made in bad faith and awarded more than $72,000 in attorneys’ fees and costs to Stuetzle. Duncan timely and separately appealed each of the court‘s rulings to this court, which consolidаted the appeals and transferred the case, under
The Federal Circuit reversed the district court‘s jurisdictional finding. Duncan v. Stuetzle, 16 F.3d 420, 1993 WL 514462 (Fed.Cir. Dec. 13, 1993) (unpublished disposition). The court applied the well-pleaded complaint rule and determined that Duncan had not alleged a claim for patent infringement. Rather than dismissing the case, however, the court remanded to the district court for a determination of whether the complaint alleged trademark infringement under the Lanham Act,
On remand, the district court found that Duncan‘s complaint did state a claim arising under thе Lanham Act.3 The court thus reaffirmed its previous denial of Duncan‘s motion to remand, and reinstated its prior orders granting summary judgment, attorneys’ fees and costs to Stuetzle. Duncan timely appealed to this court.4
II
The removal statute on which Stuetzle relies,
[a]ny civil action of which the district courts have original jurisdiction founded on a claim or right arising under the Constitution, treaties or laws of the United States shall be removable without regard to the citizenship or residence of the parties.
Because of the “Congressional purpose to restrict the jurisdiction of the federal courts on removal,” Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108, 61 S.Ct. 868, 872, 85 L.Ed. 1214 (1941), the statute is strictly construed, id. at 108-09, 61 S.Ct. at 872, and federal jurisdiction “must be rejected if there is any doubt as to the right of removal in the first instance.” Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir.1992) (citation omitted). Stuetzle, as one of the originаl defendants, has the burden of establishing that removal was proper. Harris v. Provident Life and Accident Ins. Co., 26 F.3d 930, 932 (9th Cir.1994) (quotations and citations omitted).
An action filed in state court may be removed only if the district court could have exercised jurisdiction over the action if originally filed there. Caterpillar Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 2429, 96 L.Ed.2d 318 (1987). Stuetzle argues on appeal that Duncan‘s complaint alleged trademark infringement claims over which the district court had jurisdiction under
Most of the seminal cases which have addressed the issue of whеther a claim is one “arising under” federal law have done so while interpreting
Because section 1338 contains the same “arising under” language as appears in section 1331, the Supreme Court has held that the principles outlined in the section 1331 cases are equally applicable to section 1338. Christianson v. Colt Industries Operating Corp., 486 U.S. 800, 808, 108 S.Ct. 2166, 2173-74, 100 L.Ed.2d 811 (1988) (“linguistic consistency” demands interpreting identical language in different statutes similarly). The Court‘s logic mandates application of these same standards to
Christianson also distilled these basic principles into a single two-pronged test. Under that test (as applied to this case), federal jurisdiction extends
only to those cases in which a well-pleaded complaint establishes either that federal [trаdemark] law creates the cause of action or that the plaintiff‘s right to relief necessarily depends on resolution of a substantial question of federal [trademark] law, in that [federal trademark] law is a necessary element of one of the well-pleaded claims.
Christianson, 486 U.S. at 808-09, 108 S.Ct. at 2174 (citations omitted). In addition, in order to satisfy the second prong of this test it is
[not] necessarily sufficient that a well-pleaded claim alleges a single theory under which resolution of a [federal trademark] law question is essential.... [A] claim supported by alternative theories in the complaint may not form the basis for § 1338(a) jurisdiction unless [federal trademark] law is essential to each of those theories.
Id. at 810, 108 S.Ct. at 2174.
III
Applying the Christianson test to Duncan‘s сomplaint, we conclude that it does not state a claim arising under the Lanham Act.
*
Because the face of Duncan‘s complaint does not clearly establish that the Lanham Act creates any of the three claims found in her complaint, the first prong of Christianson ‘s test is not met in this case. To the contrary, there are no federal statutes, rules, regulations or cases cited at any point in the complaint, and Duncan does not expressly seek any of the broad remedies available under the Lanham Act.7 The face of the complaint therefore does not state a Lanham Act claim. See Utley v. Varian Assoc., Inc., 811 F.2d 1279, 1283 n. 2 (9th Cir.), cert. denied, 484 U.S. 824, 108 S.Ct. 89, 98 L.Ed.2d 50 (1987) (“Utley‘s causes of action do not specifically invoke Title VII, and thus do not require resоlution of any questions arising under it.“). This conclusion is buttressed by the Federal Circuit‘s recital that the allegations in Duncan‘s complaint “are only consistent with state law causes of action.”8 Duncan, 1993 WL 514462 at ** 4.
B
The complaint also fails Christianson ‘s second prong. In order to satisfy it, Stuetzle must show that resolution of a federal trademark law question is essential to each of the alternative theories in support of any one of the three causes of action in the complaint. Stated another way, if a single state-law based theory of relief can be offered for each of the three causes of action in the complaint, then the exercise of removal jurisdiction was improper.
*
The first count in Duncan‘s complaint alleges, inter alia, that Stuetzle improperly acquired and used proprietary information belonging to Duncan. We conclude that a theoretical state law basis in support of this claim exists in California‘s version of the Uniform Trade Secrets Act,
The UTSA provides a cause of action for misappropriation of trade secrets. The statute defines “trade secrets” as information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
(1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and
(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
(1) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
(2) Disclosure or use of a trade secret of another without express or implied consent by a person who:
(A) Used improper means to acquire knowledge of the trade secret....
Duncan‘s complaint alleges at least a colorable claim under this statute. First, the information Duncan alleges that Stuetzle acquired may well satisfy the definition of “trade secrets.”10 Second, Duncan has arguably allеged facts satisfying the definition of “misappropriation.” The complaint specifically alleges that Stuetzle, “under the guise of either purchasing Plaintiff DUNCAN‘s company, or becoming its national distributor, engaged in a campaign of acquiring proprietary information regarding Plaintiffs’ foot massage chair, the ‘Footsie Wootsie.’ ” Complaint, ¶ 10. The complaint also alleges that Stuetzle improperly used that information to develop his own competing device. Finally, the complaint alleged that Stuetzle obtained this information by “improper means,” namely by obtaining it from her while pretending to be conducting business negotiations. In sum, the allegations at least arguably state a claim under the statutе, and the statute therefore provides a state law theory in support of Duncan‘s requested relief.11
Stuetzle argues that Duncan‘s claim for misappropriation is necessarily a Lanham Act claim because the relief Duncan requested under the claim is available only under federal law. On the basis of her claim, Duncan sought a temporary restraining order, preliminary and permanent injunctions, and compensatory damages. These remedies are available under the UTSA, and thus Steutzle‘s argument is without merit.
First, Duncan‘s requested injunctive relief is available under UTSA § 3426.2(a) (“Actual or threatened misappropriation may be enjoined.“). Stuetzle argues that Duncan‘s claim for injunctive relief requires а federal remedy because Duncan requested an injunction prohibiting Stuetzle from participating in a national trade show in Washington, D.C.. Stuetzle argues that the complaint thus alleged facts implicating interstate commerce, and that Duncan‘s requested relief is therefore only available under federal law. In support, he cites J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition (Clark, Boardman, Callaghan, 3rd ed.1995), Vol. 4, § 32.02[c], pp. 32-19--32-20 (“A plaintiff in state court who wishes to stay there must carefully word the complaint to avoid tracking the language of Lanham Act § 43(a) and to avoid any reference to interstate usage by either plaintiff or defendant.“).
On the surface, this argument appears strоng. However, it is undermined by two facts. Duncan‘s complaint alleges intrastate, rather than interstate, violations by Stuetzle.12 Also, California courts have repeatedly held that they have authority to issue injunctions which have effect beyond the borders of California.13 In sum, we conclude that a state law theory in support of Duncan‘s claim for injunctive relief existed at the time she filed her complaint.14
Finally, the compensatory damages Duncan requested under this claim are available under UTSA § 3426.3(a) (“A complainant may recover damages for the actual loss caused by misappropriation.“).
2
Duncan‘s second count alleged unfair competition. California provides both statutory and сommon law causes of action for unfair competition. The statutory cause of action is governed by
With respect to this claim, Stuetzle once again argues that the claim is necessarily federal, because the relief Duncan requested is available only under federal law. Once again, this argument is without merit.
Duncan sought essentially the same relief under this count as she sought under her claim for misappropriation,15 but she also requested exemplary (punitive) damages. First, Duncan‘s claim for injunctive relief can be supported by
Third and finally, Stuetzle asserts that Duncan‘s intent to state a Lanham Act claim is evidenced by the fact that punitive damages are not available under state law but are available under the Lanham Act. We disagree. As an initial matter, punitive damages are in fact availаble under state law.
[i]n an action for the breach of an obligation not arising from contract [i.e., tort], where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.
As to Stuetzle‘s second argument, this court has previously noted that punitive damages are not available under the Lanham Act. See Harper House, Inc. v. Thomas Nelson, Inc., 889 F.2d 197, 200 n. 1 (9th Cir.1989); see also Getty Petroleum Corp. v. Bartco Petroleum Corp., 858 F.2d 103, 113 (2d Cir.1988), cert. denied, 490 U.S. 1006, 109 S.Ct. 1642, 104 L.Ed.2d 158 (1989). Stuetzle‘s argument that Duncan‘s request for such damages indicates an intent to pursue a Lanham Act claim therefore necessarily fails.
3
Duncan‘s last claim is for civil conspiracy. Duncan alleged that Stuetzle conspired with the other defendants to use the misappropriated proprietary information to produce a competing foot massage machine. Under this claim, Duncan sought punitive and cоmpensatory damages (she did not seek injunctive relief).
California recognizes the common law tort of civil conspiracy. Unruh v. Truck Ins. Exchange, 7 Cal.3d 616, 631, 498 P.2d 1063, 1074, 102 Cal.Rptr. 815, 826 (1972) (in bank). In order to state a claim under this tort, a complaint must allege “(1) the formation and operation of the conspiracy; (2) the wrongful act or acts done pursuant thereto; and (3) the damage resulting.” Id. (citation omitted). Furthermore, Duncan‘s requested relief is also available under state law. Compensatory damages are not only available under this tort, a specific allegation of damages is an essential element of the claim. Id.; Wade v. 20th Century Ins. Co., 206 Cal.App.3d 32, 38, 253 Cal.Rptr. 361, 364 (2 Dist.1988). In addition, as was the case with her claim for unfair competition, Duncan may be ablе to recover punitive damages under this claim on the basis of
IV
Because each of Duncan‘s stated claims is supported by at least one state law theory of recovery not dependent upon the Lanham Act, the complaint does not state a claim “arising under” that Act for the purposes of removal jurisdiction.17 Cf. Ultramar, 900 F.2d at 1414 (9th Cir.1990) (under Christianson, “[t]he fact that an alternative theory of relief exists for each claim alleged in the complaint, one not dependent upon federal law, is itself grounds to defeat federal question jurisdiction“). The district court therefore lacked subject matter jurisdiction.18
The district court‘s judgment in favor of Stuetzle is reversed and remanded with instructions that the district court enter an order granting Duncan‘s motion to remand the case to state court.19
REVERSED.
Notes
GENERAL ALLEGATIONS
....
4. MS. DUNCAN personally owns the design patents, trade mark and service mark for the “FOOTSIE WOOTSIE” commercial foot massage machine, and the remaining Plaintiffs are licensed to use the name and the mark
....
FIRST CAUSE OF ACTION
[For a Permanent Injunction Against All Defendants]
9. Plaintiffs reallege and incorporate herein by this reference each of the allegations contained in Paragraphs 1 through 8 of the General Allegations
10. Beginning on or about the end of January, 1990, Defendants, and each of them, wrongfully and unlawfully, under the guise of either purchasing Plaintiff DUNCAN‘s company, or becoming its national distributor, engaged in a campaign of acquiring proprietary information regarding Plaintiffs’ foot massage chair, the “Foоtsie Wootsie“. Thereafter, Defendant STUETZLE markedly increased his presence in the foot massage chair market which had, up until then, been minor. He now is marketing foot massage chairs which closely resemble, but which are inferior to the “Footsie Wootsie.”
11. Defendants’ wrongful conduct, unless and until enjoined and restrained by order of this Court, will cause great and irreparable injury to Plaintiffs. MR. STUETZLE‘s machines intentionally carry no identifying plates or numbers. Because of that fact, because of their resemblance to the “Footsie Wootsie,” and because of the “Footsie Wootsie‘s” preeminence in the market, it is easy for the public to believe that it is using the “Footsie Wootsie” when, in fact, it is using onе of the Defendants’ machines. By mimicking Plaintiffs’ design and failing to use identifying labels, MR. STUETZLE is trading upon Plaintiffs’ good will. By marketing an inferior product, Defendants are devastating that good will
....
SECOND CAUSE OF ACTION
[For Unfair Competition Against All Defendants]
15. Plaintiffs reallege and incorporate herein by this reference each of the allegations contained in the General Allegations
....
18. Since its introduction into the market, and until the time this Complaint was filed, the Plaintiffs spent large amounts of money in marketing and advertising the rustic and contemporary models of the “Footsie Wootsie” and in creating a consumer demand for the product within the State of California. The “Footsie Wootsie” foot massage chair, as a result of this advertising and marketing, has become widely known in the State аnd a substantial consumer demand has developed for it
....
20. On or about the month of January, 1990, in the County of San Luis Obispo, the Defendants obtained proprietary information regarding the “Footsie Wootsie” foot massage chair, regarding, without limitation, the product‘s exterior and mechanical design, the Plaintiffs’ company‘s marketing strategy, the product‘s recent income, and the methods by which the machine was produced. The Defendants afterward began to produce their own foot massage chairs which closely resemble the chairs produced by Plaintiffs, and do not carry any identifying labels or machine numbers to distinguish them from Plaintiffs’ product. Subsequently, the Defendants began manufacturing and distributing these duplications or reproductions of the “Footsie Wootsie” foot massage chair throughout, as far as is known at present, the Southern California area
21. The foot massage chairs manufactured, distributed, and sold by the Defendants are designed and calculated to deceive and mislead purchasers and consumers of Plaintiffs’ foot massage chair. Further, the Defendants’ produce has actually deceived, and continues to deceive consumers, and caused them to use the chairs sold by the Defendants, believing that the chairs were manufactured, sold and distributed by the Plaintiffs
....
THIRD CAUSE OF ACTION
[For Civil Conspiracy Against All Defendants]
26. Plaintiffs reallege and incorporate herein by this reference each of the allegations contained in the General Allegations
27. In the latter portion of 1990, Defendants, and each of them, knowingly and willfully conspired and agreed upon themselves to utilize the proprietary information which has been enumerated in prior Causes of Action to produce and distribute a commercial foot massage chair which closely resembles the rustic model of the “Footsie Wootsie” foot massage chair
We review the district court‘s denial of Duncan‘s motion to remand the case de novo. Eyak Native Village v. Exxon Corp., 25 F.3d 773, 777 (9th Cir.), cert. denied, --- U.S. ----, 115 S.Ct. 351, 130 L.Ed.2d 307 (1994).
[t]he district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents ... copyrights and trade-marks. Such jurisdiction shall be exclusive of the courts of the states in patent ... and copyright cases.
In addition, section 1338(b) states that
[t]he district courts shall have original jurisdiction of any civil action asserting a claim of unfair competition when joined with a substantial and related claim under the copyright, patent ... or trade-mark laws.
[t]he district ... courts of the United States shall have original jurisdiction ... of all actions arising under [the Lanham Act], without regard to the amount in controversy or to diversity or lack of diversity of the citizenship of the parties.
First, it is apparent that California courts would liberally construe the allegations in Duncan‘s complaint and would attempt to determine if the factual allegations were sufficient to state a claim under the UTSA. As explained in Alexandrou v. Alexander, 37 Cal.App.3d 306, 112 Cal.Rptr. 307 (2 Dist.1974), “[t]he nature and character of a pleading are determined from the allegations. The court is not limited to plaintiffs’ theory, but instead must determine if the factual allegations of the complaint are adequate to state a cause of action under any legal theory.” Id., 37 Cal.App.3d at 313, 112 Cal.Rptr. at 311 (citations omitted). In addition, under California law it is not necessary for Duncan to have cited the UTSA in order to state a claim under that statute. See, e.g., Kreutzer v. County of San Diego, 153 Cal.App.3d 62, 200 Cal.Rptr. 322 (4 Dist.1984):
Respondents initially point out Kreutzer did not bring his petition specifically pursuant to [
42 U.S.C. § 1983 ]. It is true Kreutzer did not caption his petition as being brought under section 1983, nor did he specifically mention section 1983 in the body of the petition. In California, however, the nature and character of a pleading are to be determined from its allegations, regardless of what they may be called, and the subject matter of the action and the issues invоlved are determined from the facts alleged rather than from the title of the pleading.
Id., 153 Cal.App.3d at 69, 200 Cal.Rptr. at 326 (citation omitted). Finally, on this same point see Porten v. University of San Francisco, 64 Cal.App.3d 825, 833, 134 Cal.Rptr. 839, 844 (1 Dist.1976) (“Although the complaint may not be a model pleading, the policy of the law is to construe pleadings liberally to the end that cases will be tried on their merits rather than disposed of on technicalities of pleadings. Mistaken labels and confusion of legal theory are not fatal; if appellant‘s complaint states a cause of action on any theory, he is entitled to introduce evidence thereon. An action cannot be defeated merely because it is not properly named.“) (citations omitted).
The second reason this court may examine the UTSA is that Christianson specifically states that “[i]f ‘on the face of a well-pleaded complaint there are ... reasons completely unrelated to the provisions and purposes of [the Lanham Act] why the [plaintiff] may or may not be entitled to the relief [she] seeks,’ ... then the claim does not ‘arise under’ [the Lanham Act].” Christianson, 486 U.S. at 810, 108 S.Ct. at 2174 (quoting Franchise Tax Board, 463 U.S. at 26, 103 S.Ct. at 2855). This language mandates that we determine whether, in light of the allegations appearing on the face of Duncan‘s complaint, the UTSA might provide a state law theory in support of the relief requested in that complaint.
Third, as noted above, the removal statute is strictly construed against jurisdiction, Shamrock Oil & Gas Corp., supra, 313 U.S. at 108-09, 61 S.Ct. at 872, and Stuetzle has the burden of proving that Duncan‘s claims may be cognizable only under the Lanham Act. These facts lend further support to our conclusiоn that we should analyze the UTSA to determine if it provides a theory of recovery which might be available to Duncan.
However, in her request for relief under this first claim, Duncan clarifies that the proprietary information allegedly given to Stuetzle included “information relating to the ‘Footsie Wootsie‘s’ exterior and mechanical designs, business plan and past income....” Complaint, ¶ 11. In addition, later in the complaint Duncan states that the proprietary information allegedly taken included “the company‘s marketing strategy, the product‘s recent income, and the methods by which the machine was produced.” Complaint, ¶ 20. Because these items may well qualify as “trade secrets” under California law, the success of Duncan‘s misappropriation claim does not depend on whether she can prove that Stuetzle misappropriated her trademark. A complaint‘s mere mention of the existence of a protected trademark, without more, does not provide a basis for federal jurisdiction. Postal Instant Press v. Clark, 741 F.2d 256, 257 (9th Cir.1984).
In addition, see Golden Door, Inc. v. Odisho, 437 F.Supp. 956, 965-68 (N.D.Cal.1977), aff‘d, 646 F.2d 347 (9th Cir.1980). In that case, the plaintiff filed suit under California‘s trademark infringement statutes (
It is important to note that we do not address, nor do we decide, the issue whether California state courts may validly issue injunctions with extraterritorial effect. We merely note that at the time Duncan‘s complaint was filed, these decisions provided a state law basis for the injunctive relief requested in her complaint. Stuetzle‘s argument that the complaint necessarily sought a Lanham Act remedy must therefore fail.
In Stauffer, this court stated that “[a]n infringement committed in intrastate commerce but affecting interstate commerce cоuld clearly be regulated by Congress and thus would be within the present [Lanham] Act.” Id. at 966. Stauffer thus stands for the basic principle, a principle which we reaffirmed in Thompson Tank & Mfg. Co., Inc. v. Thompson, 693 F.2d 991, 992-93 (9th Cir.1982), that the word “commerce” as used in the Lanham Act includes intrastate commerce which affects interstate commerce.
Stauffer is not on point here. The issue in this case is not whether Duncan‘s complaint alleges facts implicating interstate commerce sufficient to warrant the exercise of Lanham Act jurisdiction; it is whether her complaint states a claim “arising under” that Act. Our analysis on this issue is controlled by Christianson, and Stauffer is therefore inapposite.
This argument is without merit. Section 1447(c) goes on to say that “[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.” (Emphasis added). Stuetzle‘s argument confuses defects in the removal procedure with lack of subject matter jurisdiction. Duncan‘s motion to remand, which alleged lack of subject matter jurisdiction rather than a defect in the removal procedure, was filed before the trial even began; as such, it was timely.