Sleppin v. Thinkscan.com, LLCSleppin v. Thinkscan.com, LLC
On May 3, 2012, the Plaintiffs Stuart Sleppin, Robert Teeman, and Think-scan.com, LLC (“Thinkscan”), derivatively, (collectively, “the Plaintiffs”) commenced this action against the Defendants Think-scan and Joel Weinberger (“Weinberger”) in the Supreme Court of the State of New York, County of Suffolk, seeking dissolution of Thinkscan and asserting various state law causes of action against Wein-berger for damages. On July 24, 2012 and February 7, 2014, the Plaintiffs amended their state court complaint twice to add the Defendants Drew Westen (“Westen”), Robert Bornstein (“Bornstein”), Implicit Strategies, LLC (“Implicit”), and Westen Strategies.
On March 3, 2014, the Defendants Wes-ten Strategies and Westen filed a notice of removal to federal court pursuant to 28 U.S.C. § 1441(b) on the ground that, the Plaintiffs state law claims were preempted by 17 U.S.C. § 301 et seq., of the Copyright Act (the “Copyright Act”), and the case fell within the Court’s federal question jurisdiction under 28 U.S.C. § 1331. On March 12, 2014, the Defendants Think-scan, Weinberger, Bornstein, and Implicit filed a petition to join the notice of removal.
On March 27, 2014, the Plaintiffs filed a third amended complaint withdrawing its state law claims for conversion, unjust enrichment, and for injunctive relief and removing Westen Strategies as a Defendant. On April 21, 2014, the Defendants Wein-berger, Bornstein, and Implicit asserted counterclaims for various state law causes of action, as well as claims for declaratory judgments as to copyright ownership and non-infringement.
Presently before the Court is the Plaintiffs’ motion to remand this action to New York State, Supreme Court, Suffolk County, and for attorneys’ fees and costs incurred in connection with this motion. The Plaintiffs argue that this Court does not have jurisdiction over any of the claims of the parties. For the reasons set forth below, the Court grants the Plaintiffs’ motion to remand and denies their motion for attorneys’ fees and costs.
I. BACKGROUND
This case involves a dispute over a failed business venture involving the Plaintiffs Stuart Sleppin and Robert Teeman and the Defendant Joel Weinberger. In the late 1990s, the three individuals started a business with the aim of developing software capable of performing product evaluations of consumer products to help potential clients sharpen their marketing and advertising strategies. (Third Am. Compl. ¶ 16; the Defs.’ Answer and Countercls. ¶ 197.)
The Plaintiffs allege that on January 21, 1999, Sleppin, Weinberger, and Teeman formed Research.com, Inc. as- a New York corporation (“Research.com”). (Third Am. Compl. ¶ 18.)
From about 1999 to 2007, the Plaintiffs allege that Sleppin, Teeman, and Wein-berger oversaw computer programming teams developing software which would
The Plaintiffs allege that in about 2007, Sleppin, Teeman, and Weinberger formed a new entity, Thinkscan, a New York limited liability company, and transferred all of the assets and liabilities from Research.com to Thinkscan. (Third Am. Compl. ¶ 41.)
From 2007 through 2009, the Plaintiffs allege that Thinkscan continued to refíne its software using its own employees, as well as paying a team of computer programmers in Manila. (Third Am. Compl. ¶ 50.) During this period, the Plaintiffs allege that Thinkscan launched its software and was engaged by several corporate clients. (Third Am. Compl. ¶ 60.)
On October 27, 2009, then-counsel for Weinberger and Westen sent a letter to Thinkscan ending their business relationship with the Plaintiffs. (Third Am. Compl. ¶ 69; the Defs’ Answer and Coun-tercls. ¶ 340.)
After Weinberger and Westen left Thinkscan, the Plaintiffs allege that Wein-berger, Westen, and Bornstein formed Implicit, a company designed to compete with Thinkscan. (Third Am. Compl. ¶ 19.) The Plaintiffs contend that Weinberger, Bornstein, and Westen misappropriated, among other things, Thinkscaris customer lists, presentation materials, and software for the benefit of Implicit. (Third Am. Compl. ¶ 84.) The Plaintiffs also contend that immediately after they left Thinkscan, Weinberger and Westen engaged in negotiations to transfer Thinkscan’s clients to Implicit. (Third Am. Compl. ¶ 99.) Based on these actions, the Plaintiffs have brought state law claims against the Defendants seeking an order directing that Thinkscan’s property be assigned to its creditors in satisfaction of certain debts owed to the creditors and for damages of at least $355,044.30. (Third Am. Compl. ¶ 151.)
In response, the Defendants maintain that the Plaintiffs formed Research.com and Thinkscan without their knowledge or consent, and believed that the parties’ business venture was organized as an unincorporated partnership from the 1990s until October 27, 2009. (The Defs.’ Answer and Counterclaims ¶¶ 155, 206, 215, 216.) As such, the Defendants maintain that the software and presentation materials at issue were owned by Weinberger and that he never assigned ownership of these works to the Plaintiffs. (The Defs.’ Answer and Countercls. ¶¶ 401-404.) The Defendants Weinberger and Westen further allege that they terminated their relationship with Thinkscan over disputes with the Plaintiffs about whether the Thinkscan software could be reliably marketed, as it allegedly contained design flaws. (The Defs.’ Answer and Countercls. ¶ 277.) They also allege that they terminated their relationship with Thinkscan over a dispute about whether Weinberger would give up an additional percentage of his equity in the business to help finance efforts by additional computer programmers to fix the alleged software flaws. (The Defs.’ Answer and Countercls. ¶ 281.) Based on these actions, the Defendants assert various counterclaims, including two claims for a declaratory judgment that the works at issue were owned by Weinberger and not misappropriated by the Defendants in violation of the Copyright Act, 17 U.S.C. § 101 et seq. (The Defs.’ Answer and Counterclaims ¶¶ 407, 528.)
A. Legal Standard on a Motion to Remand
Pursuant to 28 U.S.C. § 1441(a), “any 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 for the district and division embracing the place where such action is pending.” 28 U.S.C. § 1441; see also Lincoln Property Co. v. Roche,
Following the removal of a state court action, “if at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.” 28 U.S.C. § 1447(c). Defendants bear the burden of demonstrating that federal subject matter jurisdiction exists. Cohen v. Narragansett Bay Ins. Co., No. 14-CV-3623 (PKC),
Pursuant to 28 U.S.C. § 1331, the district courts have original subject matter jurisdiction “over all civil actions arising under the [United States] Constitution and the laws and treaties of the United States.” Under the “well-pleaded complaint rule,” federal jurisdiction is present only if a question of federal law appears on the face of the plaintiffs “well-pleaded complaint” — thus requiring a court to ignore any and all answers, defenses, and counterclaims. Fleet Bank, Nat’l Ass’n v. Burke,
However, there are several narrow exceptions to the “well-pleaded complaint rule.” Relevant to the instant case, where a plaintiff pleads only state law claims, district courts may still have original jurisdiction over the matter if the state law claims are completely preempted by the Copyright Act. Briarpatch Ltd., L.P. v. Phoenix Pictures, Inc.,
The Second Circuit has held that a state law claim arises under the Copyright Act when: “(1) the particular work to which
To satisfy the “subject matter requirement,” a party must show that “[its] claim applies to a work of authorship fixed in a tangible medium of expression and falling within the ambit of one of the categories of copyrightable works.” Id. (citation omitted). These categories include, among others, pictorial, graphic, and literary works. See 17 U.S.C. § 102. The Second Circuit construes the “subject matter requirement” broadly: - in particular, the works at issue “need not consist entirely of copyrightable material in order to meet the subject matter requirement.” Briarpatch Ltd., L.P.,
To satisfy the “general scope requirement,” a party must show (a) that the “state law claim ... involve[d] acts of reproduction, adaptation, performance, distribution or display” and (b) that the state law claim does “not include any extra elements that make it qualitatively different from a copyright infringement claim.” Briarpatch,
B. As to Whether Plaintiffs’ Claims Arise Under the Copyright Act
1. As to Whether the Plaintiffs’ Second or Third Amended Complaint is the Operative Complaint For Determining Removal Jurisdiction
As an initial matter, the parties disagree as to whether the court should look to the Plaintiffs’ second amended complaint, which was filed prior to removal, or the third amended complaint, which was filed following removal to this Court. The Plaintiffs argue that the third amended complaint is the operative complaint for purposes of determining removal jurisdiction. In so arguing, the Plaintiffs rely on Aliano v. City of Hartford, No. 3:09-cv-2118 (SRU),
As in Altano, here, there is nothing in the record to suggest that the Plaintiffs amended their complaint solely for the purpose of forum shopping. See Aliano,
2. As to Whether the Plaintiffs’ State Law Claims Are Preempted by the Copyright Act
The Plaintiffs’ Third Amended Complaint does not contain federal claims. Rather, it includes exclusively state law claims against the Defendants for (A) breach fiduciary duty, (B) misappropriation of trade secrets, (C) tortious interference with business opportunities, (D) usurpation of corporate opportunities, and (E) an accounting. The Defendants argue that these state law claims are preempted by the Copyright Act, and, therefore, fall under an exception to the “well-pleaded complaint” rule. For the reasons set forth below, the Court finds that the Plaintiffs’ state law claims do not arise under the Copyright Act and are therefore not preempted.
A. Breach of Fiduciary Duty
The Defendants allege that the Plaintiffs’ breach of fiduciary duty claim is preempted by the Copyright Act because the claim “is based on misappropriating Thinkscan’s trade secrets ... and using the stolen trade secrets to unfairly compete and usurp Thinkscan’s business opportunities for the benefit of their other company, Implicit.” (The Defs.’ Mem. of Law in Opp’n to the Pis.’ Mot. to Remand, at 16.)
In a suit for copyright infringement, “the plaintiff must establish its ownership of a valid copyright, and that the defendant copied the copyrighted work.” Computer Assocs. Intern., Inc.,
Under New York law, a breach of fiduciary duty claim requires that the defendant owe the plaintiff a fiduciary duty and breached that duty. Iannuzzi v. American Mortg. Network, Inc.,
B. Misappropriation of Thinkscan’s Trade Secrets
The Defendants also argue that the Plaintiffs’ misappropriation of trade secrets claim is preempted by the Copyright Act because it is based solely on “misappropriation and use for profit of written copyrightable matter.” (The Defs.’ Mem. of Law in Opp’n to the Pis.’ Mot. to Remand, at 16.)
Under New York law, to plead a trade secret claim, a Plaintiff must demonstrate: “(1) that it possessed a trade secret, and (2) that the defendants used that trade secret in breach of an agreement, confidential relationship or duty, or as a result of discovery by improper means.” Medtech Prods., Inc. v. Ranir, LLC,
Courts have held that misappropriation claims “grounded solely in the copying of protected expression” do not satisfy the “general scope requirement” and are preempted by the Copyright Act. Integrative Nutrition, Inc.,
Indeed, in Computer Associates International, Inc. v. Altai Inc.,
Here, the Plaintiffs’ misappropriation claim is based on more than mere copying — in addition to alleging that Plain
C. Tortious Interference with Business Relations
The Defendants also argue that the Plaintiffs’ claim for tortious interference with Thinksean’s business relations is preempted by the Copyright Act because the Plaintiffs’ claim “relies on allegations of misappropriation of intellectual property and alleged Thinkscan clients.” (The Defs.’ Mem. of Law in Opp’n to the Pis.’ Mot. to Remand, p. 16.)
Under New York law, to establish a claim based on tortious interference with business relations, a plaintiff must demonstrate: “(1) the existence of a business relationship with a third party; (2) defendant’s interference with the relationship; (3) that the defendant acted with the sole purpose of harming the plaintiff or used dishonest, unfair or improper means; and (4) that the plaintiff sustained damages.” Quadrille Wallpapers and Fabric, Inc. v. Pucci, No. 1:10-CV-1394(LEK),
Where a tortious interference claim is grounded in allegations beyond mere copying, courts have found a misappropriation of trade secret claims to be “qualitatively different” than a Copyright Act claim. See e.g., Quadrille Wallpapers and Fabric, Inc.,
Here, the Plaintiffs allege that the Defendants Weinberger and Westen were officers of Thinkscan, pursued several clients of Thinkscan’s clients shortly after they left Thinkscan, and disparaged Think-scan’s reputation by making negative remarks about Thinkscan to its clients. {See Third Am. Compl. ¶¶ 132-140.) Therefore, because the Plaintiffs’ tortious interference with business relations claim does not rely solely on allegations of use and copying Thinkscan’s work; it is “qualitatively different” than a Copyright Right Act claim and is therefore not preempted.
D. Usurpation of Corporation Opportunities
The Defendants make a similar argument with respect to the Plaintiffs’ usurpation of corporate opportunities claim. (The Defs.’ Mem. of Law in Opp’n to the Pis.’ Mot. to Remand, at 16.) Under New York law, to make a usurpation of corporate opportunity claim, a plaintiff must allege that the defendants were corporate fiduciaries of the plaintiff who, without the plaintiff’s consent, “diverged] and exploited] for their own benefit any
Here, the Plaintiffs allege that the Defendants Weinberger, Westen, and Bornstein were officers of Thinkscan and therefore owed fiduciary duties of loyalty and honesty to Thinkscan, which they breached by pursuing business opportunities of Thinkscan’s for their benefit. (See Third Am. Compl. ¶¶ 141-146.) The gravamen of their claim is allegations that the Defendants owed Thinkscan a fiduciary duty of loyalty and honesty. Therefore, these claims are “qualitatively different” than copyright claims and are not preempted by the Copyright Act. See Briarpatch Ltd., L.P.,
E. An Accounting
Finally, the Defendants argue that the Plaintiffs’ claim for an accounting is preempted by the Copyright Act because the Copyright Act offers the same “type of relief’ — namely damages. (The Defs.’ Mem. of Law in Opp’n to the Pis.’ Mot. to Remand, p. 16.) However, the Defendants must also show that the claim does not contain an element, such as a fiduciary duty, which makes the claim “qualitatively different.” Briarpatch,
Under New York law, an accounting is an equitable remedy that requires that the plaintiff allege a fiduciary or confidential relationship with the defendant. Nuss v. Sabad,
3. As to Whether the Defendants’ Counterclaims Arise under the Copyright Act
The Defendants also argue that even if the Plaintiffs’ claims do not arise under the Copyright Act, the Defendants’ counterclaims for a declaratory judgment of copyright ownership and for a declaratory judgment that the Defendants did not infringe on the Plaintiffs’ copyrights arise under the Copyright Act and therefore confer federal jurisdiction to this Court. (The Defs.’ Mem. of Law in Opp’n to Pis.’ Mot. to Remand, at 8-10.) However, the Court finds that the Defendants’ counterclaim do not arise under the Copyright Act and therefore do not confer federal jurisdiction on this Court.
A. Legal Standard
In 2011, Congress crafted a statutory exception to the “well pleaded complaint rule”: the Leahy-Smith America Invents Act, 28 U.S.C. § 1454, which provides for removal of a civil action “in which any party asserts a claim for relief arising under any Act of Congress relating to patents, plant variety protection, or copyrights.” Congress passed 28 U.S.C. § 1454 in response to the Supreme Court’s decision in Holmes Group, Inc. v. Vornado Air Circulation Systems,
Therefore, 28 U.S.C. § 1454, grants federal jurisdiction to defendants’ counterclaims that arise under the Copyright Act. See, e.g., Acorne,
B. As to Whether the Court Can Consider Counterclaims Filed After Removal
As an initial matter, the Plaintiffs argue that a counterclaim may only confer federal jurisdiction if it is filed before the motion to remand. (The Pis.’ Reply Mem. of Law in Further Support of the Pis.’ Mot. to Remand.) Since the Defendants filed its declaratory judgment counterclaims after removal, the Plaintiffs allege that the Court should not consider them for purposes of this motion. (Id.)
To support this contention, Plaintiffs rely on cases that do not involve copyright counterclaims or the application of 28 U.S.C. § 1454. See, e.g., Studebaker-Worthington Leasing Corp. v. Michael Rachlin & Co., LLC,
However, two recent cases suggest that the Court should consider the Defendants’ counterclaims. In Acorne Productions, LLC v. Tjeknavorian, No. 14-CV-2179 (KAM),
The Court finds the reasoning of Con-cordia and Acome to be persuasive and consistent with the plain language of 28 U.S.C. § 1454(a). Accordingly, in determining removal jurisdiction under 28 U.S.C. § 1454(a), the Court will examine the Defendants’ counterclaims.
C. As to Whether the Defendants’ Counterclaims Arise under the Copyright Act
The Defendants’ Answer and Counterclaims assert claims for various state law causes of action as well as a
Here, the Defendants’ counterclaims assert two claims for a declaratory judgment as to the ownership of the copyright and a declaratory judgment that the Defendants did not commit copyright infringement. It is well-settled that a claim seeking a declaratory judgment arises under the Declaratory Judgment Act, 28 U.S.C. § 2201 and does not automatically “extend the jurisdiction of the federal courts.” Medtronic v. Mirowski Family Ventures, LLC, — U.S. -,
Where claimants have sought a declaratory judgment as to copyright ownership that center on interpreting an agreement, New York courts have held that their claims do not confer federal jurisdiction as they do not necessitate the interpretation of the Copyright Act. In T.B. Harms Co. v. Eliscu,
Similarly, in Acorne Prods., LLC v. Tjeknavorian, No. 14-CV-2179 (KAM),
The Court finds T.B. Harms and Acorne to be directly applicable to the Defendants’ counterclaim seeking a declaratory judgment as to copyright ownership. With respect to that claim, the key dispute between the parties is whether the parties’ business venture was organized as an unincorporated partnership, as the Defendants allege, or a limited liability company, as the Plaintiffs contend, to which the Defendants owed fiduciary duties of loyalty, confidentiality, and honesty. The question of whether the Defendants owed Thinkscan a fiduciary duty is one that is defined by state law and therefore does not necessitate a construction of the Copyright Act. See T.B. Harms Co.,
The Defendants also assert a counterclaim seeking a declaratory judgment that they did not commit copyright infringement. (The Defs.’ Answer and Countercls. ¶ 528.) At first blush this claim appears to “arise under the Copyright Act” because infringement is a remedy offered by the Copyright Act and determining whether the Defendant infringed on the Plaintiffs’ copyright would seem to clearly necessitate an interpretation of the Copyright Act. See Briarpatch,
Here, the Defendants’ counterclaim seeking a declaratory judgment as to non-infringement asks this Court to declare that the “Defendants did nothing improper regarding the Subject Works and their related copyrights” and “did not do any of the acts they are being accused of by Plaintiffs.” (The Defs.’ Answer and Coun-tercls. ¶¶ 529, 526.) In order to make such a determination, the Court will have to look beyond whether the Defendants possessed a copyright to the alleged works and must also construe whether the Defendants were officers of Thinkscan who owed fiduciary duties to Thinkscan. In other words, the Defendants may label their counterclaim as seeking a declaratory judgment of non-infringement, but the counterclaim is more accurately understood as seeking a judgment that the Defendants did not owe Thinkscan fiduciary duties of loyalty and honesty, and as such did nothing wrong in allegedly using Thinkscan’s property to obtain clients for Implicit, their new competing company. As described at length above, a determination as to whether the Defendants owed a fiduciary duty to the Plaintiffs is a matter of state law that makes such a claim “qualitatively different” than a Copyright Act claim. See Briarpatch Ltd.,
Accordingly, the Court finds that the Defendants’ declaratory judgment claims as to ownership and non-infringement do not arise under the Copyright Act. Therefore, this Court does not have removal jurisdiction pursuant to 28 U.S.C. § 1454.
C. As to Whether Plaintiff Should be Awarded Attorneys’ Fees
Plaintiffs have moved for an award of attorneys’ fees and costs pursuant to 28 U.S.C. 1447(c), which provides that “[a]n order remanding the case may require payment of just costs and any actual expenses, including attorney fees,
While the Court finds that there is no basis for federal jurisdiction in this case, the Court does find that the Defendants had an objectively reasonable basis for removal given the complex issues involved and that this is a somewhat unsettled area of the law. See id. Accordingly, the Plaintiffs’ motion for attorneys’ fees is denied.
III. CONCLUSION
For the foregoing reasons, the Court finds there is no basis for federal jurisdiction in this case. In this regard, the Court declines to exercised supplemental jurisdiction over the Plaintiffs’ state law claims. This Courts has discretion to exercise supplemental jurisdiction over the Plaintiffs’ state law claims pursuant to 28 U.S.C. § 1367. See Klein & Co. Futures, Inc. v. Bd. of Trade,
ORDERED that the motion to remand the Plaintiffs’ state law claims to the Supreme Court of the State of New York, County of Suffolk, is hereby granted, and the motion for attorneys’ fees and costs is denied; and it is further
ORDERED that the Clerk of Court is directed to close the case.
SO ORDERED.