Rosciszewski v. Arete Associates, Inc.Rosciszewski v. Arete Associates, Inc.
- Reporters:
- Before:
- Wilkins, Luttig, Kiser
WILKINS, Circuit Judge:
Jan J. Rosciszewski appeals orders of the district court dismissing all counts of the complaint except one, remanding the remaining count (Count V) to state court, and awarding attorneys’ fees and costs in favor of Arete Associates, Incorporated, David E. Mann, Richard A. Martini, Wilma R. Murphy, and Frank Fernandez (collectively, “Arete“). Rosciszewski maintains that the district court lacked subject matter jurisdiction and therefore erroneously refused to remand the entire action to state court. In addition, Rosciszewski contends that the award of attorneys’ fees and costs was inappropriate and excessive. We conclude that subject matter jurisdiction was proper because Sec. 301(a) of the Copyright Act,
I.
During the late 1980s, Physical Dynamics, Incorporated (PDI) engaged primarily in providing technical and computer research services to the United States Department of Defense. PDI developed a copyrighted computer program called ORBIS which was used to analyze military systems. As alleged by Rosciszewski, Appellee Mann, while employed as General Manager of PDI, executed an agreement to keep secret all confidential matters of PDI both during and after his employment. However, both during and after Mann‘s employment with PDI, he attempted to persuade PDI‘s clients to engage in business with Arete by telling them that Arete possessed ORBIS and that PDI could not fulfill its contracts with them. Arete attempted to hire PDI‘s employees, particularly those computer programmers most knowledgeable about ORBIS, and some of PDI‘s key employees resigned from PDI to accept employment with Arete. Rosciszewski further alleges that two of these employees, acting under the direction of Arete, breached secure areas on PDI‘s property, accessed PDI‘s computer system, and procured copies of ORBIS and other proprietary works.
Approximately one year prior to the litigation that is the subject of this appeal, PDI filed an action in the United States District Court for the Eastern District of Virginia against Appellees in this action.1 Seeking injunctive reliеf and damages, PDI alleged a cause of action for federal copyright infringement and seven state-law causes of action. PDI subsequently filed an amended complaint that omitted the state claims. The parties settled the federal copyright claim, and the district court entered a consent decree in March 1991.
In May 1992, Rosciszewski, as an assignee of PDI, filed the present action against Arete in the Circuit Court of Fairfax County, Virginia, attempting to litigate the state-law claims that had not been pursued in the earlier action. Rosciszewski alleged: (Count I) violations of the Virginia Computer Crimes Act, see
Arete removed the action to the United States District Court for the Eastern District of Virginia. Rosciszewski moved to remand the action to state court, arguing that the district court lacked subject matter jurisdiction. Arete responded by moving to dismiss Rosciszewski‘s complаint on the alternative bases that all of the claims, except Count V, were barred by res judicata as a result of the prior consent decree and were preempted by Sec. 301(a) of the Copyright Act. The district court agreed and granted Arete‘s motion to dismiss. Denying Rosciszewski‘s motion to remand the case in its entirety, the district court ordered that the remaining claim, Count V, be remanded to state court. After Rosciszewski filed a notice of appeal, however, the court stayed execution of its remand order. On appeal Rosciszewski does not contend that the distriсt court was in error in holding that the claims, except for Count V, were barred by res judicata. Thus, since no challenge was made to this ruling, if jurisdiction was properly vested in the district court by virtue of preemption, it must stand absent plain error.
Thereafter, Arete moved for attorneys’ fees and costs pursuant to
II.
Rosciszewski maintains that the district court erred in finding that Sec. 301(a) of the Copyright Act preempted the state-lаw claims alleged in the complaint. In addition, Rosciszewski argues that even if Sec. 301(a) does preempt one of the state-law claims, removal based on the preemption defense was improper because the claim did not arise under federal law. Thus, Rosciszewski concludes, because the district court lacked subject matter jurisdiction, it should have remanded the action to state court without addressing the merits. See Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for S. Cal., 463 U.S. 1, 8, 103 S.Ct. 2841, 2846, 77 L.Ed.2d 420 (1983). We first address whether Sec. 301(a) of the Copyright Act preempted any of Rosciszewski‘s claims. Concluding that Rosciszewski‘s allegation that Arete violated Sec. 18.2-152.3 of the Virginia Computer Crimes Act by copying PDI‘s ORBIS computer program is preempted, we then turn to the question of whether removal on this basis provided subject matter jurisdiction to the district court.
A.
Section 301(a) of the Copyright Act states in pertinent part:
[A]ll legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 [of the Copyright Act] in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103 ... are governed exclusively by this title.
Count I of Rosciszewski‘s complaint alleges that the unauthorized copying by Arete of PDI‘s ORBIS computer program violated Sec. 18.2-152.3 of the Virginia Computer Crimes Act.2 The parties do not dispute that computer programs, like the one at issue here, are within the subject matter of copyright because they are “original works of authorship fixed in [a] tangible medium of expression ... from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.”
Section 106 of the Copyright Act “affords a copyright owner the exclusive right to: (1) reproduce the copyrighted work; (2) prepare derivative works; (3) distribute copies of the work by sale or otherwise; and, with respect to certain artistic works, (4) perform the work publicly; and (5) display the work publicly.” Computer Assocs. Int‘l v. Altai, Inc., 982 F.2d 693, 716 (2d Cir.1992). In order to ascertain whether a specific state cause of action involves a right equivalent to one of those identified in Sec. 106, reference must be made to the elements of the state cause of action. See Trandes Corp., 996 F.2d at 659. State-law claims that infringe one of the exclusive rights contained in Sec. 106 are preempted by Sec. 301(a) if the right defined by state law ” ‘may be abridged by an act which, in and оf itself, would infringe one of the exclusive rights.’ ” Computer Assocs. Int‘l, 982 F.2d at 716 (quoting Harper & Row, Publishers, Inc. v. Nation Enters., 723 F.2d 195, 200 (2d Cir.1983), rev‘d on other grounds, 471 U.S. 539, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985)). However, “if an ‘extra element’ is ‘required instead of or in addition to the acts of reproduction, performance, distribution or display, in order to constitute a state-created cause of action, ... there is no preemption,’ ” id. (quoting 1 Melville B. Nimmer & David Nimmer, Nimmer on Copyright Sec. 1.01[B], at 1-14 to 1-15 (1992)), provided that “the ‘extra element’ changes the ‘nature of the action so that it is qualitatively different from a copyright infringement claim,’ ” id. (quoting Mayer v. Josiah Wedgwood & Sons, Ltd., 601 F.Supp. 1523, 1535 (S.D.N.Y.1985)); see Trandes Corp., 996 F.2d at 660.
The elements necessary to show a violation of Sec. 18.2-152.3 of the Virginia Computer Crimes Act are: (1) that the defendant “use[d] a comрuter or computer network;” (2) “without authority;” and (3) “with the intent to ... [o]btain property or services by false pretenses; ... [e]mbezzle or commit larceny; or ... [c]onvert the property of another.”
Rosciszewski‘s claim under the Virginia Computer Crimes Act does not require proof of elements beyond those necessary to prove copyright infringement of a computer program that make the claim qualitatively different from a copyright infringement claim; the core оf both causes of action, in the context of Rosciszewski‘s claim, is the unauthorized copying of a computer program. Cf. Trandes Corp., 996 F.2d at 658 (holding that a state claim of misappropriation of trade secrets is not preempted by Sec. 301(a) because “the breach of a duty of trust or confidentiality comprises the core of actions for trade secret misappropriation“). That the first element of Sec. 18.2-152.3 requires use of a computer does not qualitatively change the nature of the claim from that of unauthorized copying because, in the context of Rosciszewski‘s claim, use of the computer is “a necessary condition to [the] copying.” 1 Melville B. Nimmer & David Nimmer, Nimmer on Copyright Sec. 1.01[B], at 1-14 n. 62 (1992). Further, the second element of the violation of Sec. 18.2-152.3, requiring that use of the computer be “without authority,” does not add a qualitatively different element. The Virginia Computer Crimes Act specifies that “[a] person is ‘without authority’ when he has no right or permission of the owner to use a computer, or, he uses a computer in a manner exceeding such right or permission.”
B.
Having concluded that Sec. 301(a) of the Copyright Act preempts one of Rosciszewski‘s claims, we now consider whether removal on the basis of Sec. 301(a) preemption was proper. “[A]ny civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States ... where such action is pending.”
In order to determine if an action arises under federal law, we must аpply the well-pleaded complaint rule. See Caterpillar, Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 2429, 96 L.Ed.2d 318 (1987). This rule “provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff‘s properly pleaded complaint.” Id. Because “[t]he well-pleaded complaint rule applies to the original jurisdiction of the district courts as well as to their removal jurisdiction,” Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for S. Cal., 463 U.S. 1, 10 n. 9, 103 S.Ct. 2841, 2847 n. 9, 77 L.Ed.2d 420 (1983), a plaintiff “may avoid federal jurisdiction by exclusive reliance on state law” in pleading its case, Caterpillar, Inc., 482 U.S. at 392, 107 S.Ct. at 2429.
Generally, federal preemption is a defense to a plaintiff‘s action, and as such, “it does not appear on the face of a well-pleaded complaint.” Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63, 107 S.Ct. 1542, 1546, 95 L.Ed.2d 55 (1987). Consequently, it “does not authorize removal to federal court.” Id. In certain circumstances, however, “the pre-emptive force of [federal law] is so ‘extraordinary’ that it ‘converts an ordinary state common-law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule.’ ” Caterpillar, Inc., 482 U.S. at 393, 107 S.Ct. at 2430 (quoting Metropolitan Life Ins. Co., 481 U.S. at 65, 107 S.Ct. at 1547). This so-called complete preemption occurs when “an area of state law has been [so] completely pre-empted, [that] any claim purportedly based on th[e] pre-empted state law is considered ... a federal claim.” Id.4 When state-law claims are completely preempted by federal law, the plaintiff‘s complaint arises under federal law and removal is proper. See Metropolitan Life Ins. Co., 481 U.S. at 67, 107 S.Ct. at 1548.
The parties correctly acknowledge that Rosciszewski‘s complaint alleges only violations of state law. Arete nevertheless maintains that removal was proper because the Copyright Act is one of those areas of federal law that so comрletely preempts state law that it converts claims purportedly based on state law into claims under the Copyright Act. Having previously concluded that Sec. 301(a) of the Copyright Act preempts Rosciszewski‘s claim that Arete violated the Virginia Computer Crimes Act by copying PDI‘s ORBIS computer program, we must resolve whether the complete preemption doctrine made removal proper.
In Metropolitan Life Insurance Co., 481 U.S. at 63-67, 107 S.Ct. at 1546-48, the Supreme Court upheld removal of state-law causes of action that came within the scope of Sec. 502(a)(1)(B) of ERISA,
In Metropolitan Life Insurance Co., the Court found congressional intent expressed through the fact that in Sec. 502(f)5, granting the federal courts jurisdiction to accord relief under ERISA, Congress used language that was virtually identical to the language that had previously been interpreted by the Avco Court to provide for complete preemption of an action preempted by Sec. 301 of the LMRA,
We likewise conclude that Congress intended that actions pre-empted by Sec. 301(a) of the Copyright Act be regarded as arising under federal law. First, Congress employed a broad mandatory preemption provision for causes of action equivalent to copyright claims. See
Second,
The grant of exclusive jurisdiction to the federal district courts over civil actions arising under the Copyright Act, combined with the preemptive force of Sec. 301(a), compels the conclusion that Congress intended that state-law actions preempted by Sec. 301(a) of the Copyright Act arise under federal law.6 Accordingly, we hold that the preemptive force of Sec. 301(a) of the Copyright Act transforms a state-law complaint asserting claims that are preempted by Sec. 301(a) into a complaint stаting a federal claim for purposes of the well-pleaded complaint rule. Since claims preempted by Sec. 301(a) arise under federal law, removal of actions raising these claims to federal district court is proper. Therefore, the removal of Rosciszewski‘s complaint was proper inasmuch as Sec. 301(a) preempted the claim under Sec. 18.2-152.3 of the Virginia Computer Crimes Act to the extent that it was based on Arete‘s copying of PDI‘s computer program ORBIS. The district court, accordingly, had subject matter jurisdiction.
III.
Rosciszewski next challenges the award of attorneys’ fees and costs to Arete. The district court awarded Arete $93,354.00 in attorneys’ fees and $3,141.87 in costs pursuant to Sec. 505 of the Copyright Act, which provides in pertinent part:
In any civil action under this title, the court in its discretion may allow the recovery of full costs by or against any party.... Except as otherwise provided by this title, the court may also award a reasonable attorney‘s fee to the prevailing party as part of the costs.
Rosciszewski first claims that no award under Sec. 505 was proper because the action was not one under Title 17. Rosciszewski maintains thаt the complaint alleged only violations of the laws of Virginia and that, therefore, Sec. 505 is inapplicable. Rosciszewski offers no authority for this argument, and we do not find it persuasive. Rather, we conclude that when Sec. 301(a) completely preempts a state-law claim, it becomes a federal claim under Title 17. Cf. Metropolitan Life Ins. Co., 481 U.S. at 67, 107 S.Ct. at 1548 (holding that suit alleging state-law claims that were completely preempted by ERISA “is necessarily federal in character“). Section 505, therefore, is applicable.7
Rosciszewski next contends that a district court must find that the plaintiff‘s suit was frivolous or pursued in bаd faith before an award of attorneys’ fees to a prevailing defendant is permitted. Although some courts have imposed such a requirement as a condition to a prevailing defendant‘s receiving an award under Sec. 505, see Video Views, Inc. v. Studio 21, Ltd., 925 F.2d 1010, 1022 (7th Cir.), cert. denied, --- U.S. ----, 112 S.Ct. 181, 116 L.Ed.2d 143 (1991); Bibbero Sys., Inc. v. Colwell Sys., Inc., 893 F.2d 1104, 1108 (9th Cir.1990); Roth v. Pritikin, 787 F.2d 54, 57 (2d Cir.1986), other courts have rejected such a requirement, see Lieb v. Topstone Indus., 788 F.2d 151, 155-56 (3d Cir.1986); Cohen v. Virginia Elec. & Power Co., 617 F.Supp. 619 (E.D.Va.1985), aff‘d on other grounds, 788 F.2d 247 (4th Cir.1986). The Supreme Court recently granted certiorari to resolve the split in the circuits. See Fogerty v. Fantasy, Inc., --- U.S. ----, 113 S.Ct. 2992, 125 L.Ed.2d 687 (1993).
Because we find “no indication either in statutory language or legislative history that bad faith should be a prerequisite to a fee award, we decline to” condition an award of attorneys’ fees under Sec. 505 to a prevailing defendant on a finding that the plаintiff pursued copyright litigation in bad faith. Lieb, 788 F.2d at 155. The statute imposes no such requirement, instead leaving the award of fees to the sound discretion of the trial court. Cf. Quesinberry v. Life Ins. Co. of N. Am., 987 F.2d 1017, 1028-30 (4th Cir.1993) (en banc) (declining to recognize a presumption in favor of awarding prevailing ERISA plaintiffs attorneys’ fees because statute permitting award left decision to discretion of district court).
As noted by the district court, this court has not heretofore specifically addressed the standard a district court should apply in exercising its discretion to award attorneys’ fees and costs under Sec. 505. We now take this opportunity to do so. In deciding whether to award attorneys’ fees and costs under Sec. 505, the district court should consider, and make findings with respect to, the following factors. First, the district court should evaluate the motivation of the parties. Lieb, 788 F.2d at 156. While a finding of willful infringement or bad faith on the part of the opposing party properly may be considered by the district court, the presence or absence of such motivation is not necessarily dispositive. Id. Second, the district court should weigh the objective reasonableness of the legal and factual positions advanced. Id. The court may consider, for еxample, whether the positions advanced by the parties were frivolous, on the one hand, or well-grounded in law and fact, on the other. Third, the court should consider “the need in particular circumstances to advance considerations of compensation and deterrence.” Id. In evaluating this factor, the court may find relevant, among other circumstances, the ability of the non-prevailing party to fund an award. Finally, these enumerated factors are not intended as an exhaustive list; the district court may also weigh any other relevant factor presented. Id.
Although thе district court found an award of attorneys’ fees and costs to Arete justified by Rosciszewski‘s concession that the majority of the claims forwarded were barred by res judicata, it did not have the benefit of our holding today establishing the factors that should be considered in making this determination. We therefore remand for the district court to consider whether an award to Arete under Sec. 505 is appropriate under this standard.8
IV.
In sum, we conclude that Sec. 301(a) of the Copyright Act preempts Rosciszewski‘s claim that Arete violated Sec. 18.2-152.3 of the Virginia Computer Crimes Act by copying PDI‘s ORBIS computеr program and that claims preempted by Sec. 301(a) of the Copyright Act arise under federal law for purposes of applying the well-pleaded complaint rule. Thus, removal from state to federal court of state-law claims that are preempted by Sec. 301(a) of the Copyright Act is proper. Accordingly, we hold that removal of Rosciszewski‘s action to federal district court was proper and, therefore, that the district court had jurisdiction to dismiss Counts I, II, III, IV, VI, and VII on the basis of res judicata.9 However, because the district court did not have the benefit of the legal stаndard we adopt to determine whether an award of attorneys’ fees and costs under
AFFIRMED IN PART; VACATED AND REMANDED IN PART.
Notes
Section 502(f) of ERISA provides:
The district courts of the United States shall have jurisdiction, without respect to the amount in controversy or the citizenship of the parties, to grant the relief provided for in subsection (a) of this section in any action.