Federal Jurisdiction when Copyright/Patent Claim Found in Permissive Counterclaim?

Anne Schafly Cori v. Eagle Forum and John F. Shafly, 2018 WL 656598 (S.D. Ill. Feb. 1, 2018)

This is an odd case to raise the America Invents Act. It is a continuation of the break between Conservative Eagle Phyllis Schafly (d.2016) and some members of her Eagle Forum (including her daughter Anne Schafly Cori – the break was precipitated by Phyllis Shafly’s support of Donald Trump’s presidential campaign and ouster of dissenters (including the plaintiff) from the Eagle Forum.

The basic setup in this particular case is that the plaintiff (Schafly Cori) alleged breach of fiduciary duty, trademark infringement and unfair competition against the Eagle Forum. The defendants counterclaimed alleging copyright infringement along with trademark infringement, rights of publicity, unfair competition, and challenging the validity of a license to use certain trademarks. Rather than filing in Federal Court, the Plaintiff originally filed in Illinois State Court (Madison County) and the Defendants removed the case to Federal Court.

Not wanting to be in Federal Court, the plaintiff then amended her complaint to only assert state-law claims and asked for remand back to state court. This is where the America Invents Act comes into play. The AIA amended the federal removal statute 28 U.S.C.A. § 1454 to particularly allow for removal of civil actions where “any party asserts a claim for relief arising under any Act of Congress relating to patents, plant variety protection, or copyrights.” The AIA also expressly removed jurisdiction from state courts – “No State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents, plant variety protection, or copyrights.” 28 U.S.C. § 1338. Here, I expect that the defendants included the copyright claim primarily to get Federal Jurisdiction.

In its motion decision, the district court recognized the AIA requirement of removal of cases where one party asserts a copyright claim.** However, the district court ended up remanding the case – finding that the “core” of the plaintiff’s case is about ouster and legal control – not the particular materials being used. Based upon that disconnect, the court found the copyright counter claim “immaterial and made solely for the p purpose of obtaining jurisdiction.” Case remanded back to state court.

[ANNE SCHLAFLY CORI DECISION]

Note 1. It is clear that the district court missed some major steps in its analysis, although it might still have reached the correct conclusion. The statute is clear that a copyright infringement counterclaim gets the case federal jurisdiction, and the holding here suggests that there is leeway with that result. I don’t think so. Rather, the court should have determined whether the copyright claim should be properly dismissed and, if so, then remand.

Note2. ** The February 1, 2018 decision discussed here was based upon a request for rehearing. In its original decision, the court had incorrectly stated that “only the complaint may be considered when determining jurisdiction.” That ruling was based upon Holmes Group v. Vornado, 535 U.S. 826 (2002) that was overruled by the AIA statutory changes.

5 thoughts on “Federal Jurisdiction when Copyright/Patent Claim Found in Permissive Counterclaim?

  1. 2

    There is a ton going on in this case, and I haven’t reviewed it enough to be able to say anything definitive, but your comments in note 1 certainly seem pretty accurate.

    As you probably noticed in looking at it, there are indeed pending motions to dismiss the counterclaims, based on both an argument that they are duplicative of claims pending in other federal forums and an argument that they are really about the state law issue of ownership of IP. See, e.g., Cori v. Martin et al., No. 17-cv-590-DRH-RJD, Document 68, Plaintiff’s Motion to Dismiss Defendant’s Counterclaim filed Aug. 28, 2017, pp. 1-2 (S.D. Ill. Oct. 31, 2017); Document 69, Plaintiff’s Memorandum in Support of Their Motion To Dismiss Defendants’ Counterclaim filed Aug. 28, 2017, pp. 5-8.

    However, Plaintiff suggested that its “Motion to Dismiss and the 17 other motions presently pending in this case for determination may be quickly and readily decided by the Madison County Circuit Court … after this case is remanded”. Cori v. Martin et al., No. 17-cv-590-DRH-RJD, Document 69, Plaintiff’s Memorandum in Support of Their Motion To Dismiss Defendants’ Counterclaim filed Aug. 28, 2017, FN1 (S.D. Ill. Oct. 31, 2017).

    As the district court itself noted, the reliance in the original order on Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U.S. 826, 830 (2002) presents the possibility that the court “did not devote sufficient time to discussing” its rationale, and that the articulated rationale may not be sufficient to support the order. Cori v. Martin et al., No. 17-cv-590-DRH-RJD, Document 119, Memorandum and Order filed Feb. 1, 2018, p. 3 (S.D. Ill. Oct. 31, 2017).

    However, the Plaintiff raised the interesting issue that under 28 U.S.C. §1447 “[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise, except that an order remanding a case to the State court from which it was removed pursuant to section 1442 or 1443 of this title shall be reviewable by appeal or otherwise”. Cori v. Martin et al., No. 17-cv-590-DRH-RJD, Document 115, Plaintiff’s Memorandum in Opposition to Defendants’ Motion for Reconsideration filed Nov. 20, 2017, p. 3 (S.D. Ill. Oct. 31, 2017). There also still remained the issue which the court found moot in its first order of whether removal was improper because one of the defendants did not consent to removal (the question appears to be whether the defendant was a nominal defendant).

    All of this creates a very messy situation. Your comments in note 1 make a lot of sense, and at first I was just confused as to whether the district court was intending to indicate that it is dismissing the counter claims and then remanding. The court’s indication that “Defendants no longer have an actionable claim to suffice federal jurisdiction” (Cori v. Martin et al., No. 17-cv-590-DRH-RJD, Document 119, Memorandum and Order filed Feb. 1, 2018, p. 7 (S.D. Ill. Oct. 31, 2017)) would potentially suggest that, but it may be that the odd stance of the case made it so that the court felt that it no longer could actually come right out and dismiss the counter claims.

    I don’t envy anyone involved in this case, especially the judges. It looks like a mess, but that isn’t to say that I think anyone involved is responsible for that. Although I am now curious to see where it goes from here, I am glad I don’t have to try to actually figure out what is going on and what should happen from here.

    I do note that the Defendant indicated in its Motion for Reconsideration that “[i]f this case is remanded, Eagle Trust Fund and EFELDF would then file a second Notice of Removal under Section 1454” (Cori v. Martin et al., No. 17-cv-590-DRH-RJD, Document 114, Motion for Reconsiderartion filed Nov. 10, 2017, p. 5 (S.D. Ill. Oct. 31, 2017)), while Plaintiff suggested that “[t]o ignore the
    Court’s clear warning and attempt to remove an irremovable case for a second time would be imprudent, would warrant swift remand, and would require an award of attorney’s fees” (Cori v. Martin et al., No. 17-cv-590-DRH-RJD, Document 114, Plaintiff’s Memorandum in Opposition to Defendants’ Motion for Reconsideration filed Nov. 20, 2017, p. 2 (S.D. Ill. Oct. 31, 2017)). If that is a foreshadowing of what is to come, then I feel even more sorry for any judges that have to be involved in this case.

    1. 2.1

      I have not dug into this as deeply as you have, but do note the tone of Judge Herndon as he twice states that the counter claims appear (to him) to be merely an artifice outside of the Plaintiff’s case-in-chief, designed expressly for forum manipulation purposes.

      Judge Herndon is pretty clear that the counterclaims do NOT survive his review.

      Anything less than the claims NOT surviving would necessarily mean that the motion to remand back to state court would not survive.

      At bottom, the situation is a binary one.

      Here, I think that the Judge is NOT correct in how he reasons that the multiple different cases are not exact mirrors one for another – which appears to be his primary reasoning for the “artifice” comment.

      The Judge does NOT get to decide litigation strategy of the parties as he appears to want to do.

      That type of “it is clear to the Judge” merely supports the opinion already formed by the Judge.

      If indeed ALL items in the several litigations were – of necessity – coalesced into mirror images, then two of the three cases would be immediately dismissed and only a single case would remain.

      That would be very convenient for the Judge. But convenience is NOT the hallmark of a party’s right to redress (and that right to redress may appear in either the plaintiff’s case-in-chief OR in the defendant’s rebuttal (coming in the form of counterclaims).

      Plaintiff opened itself up to the counterclaims and they should not be dismissed for the Court’s “convenience” as it appears to be so in the hyperlinked order.

      Focusing so heavily on ONLY what the Plaintiff’s want appears to be legal error here.

  2. 1

    In the district court’s order denying rehearing, the court appears to rely on Bell v. Hood for the proposition that “a suit may sometimes be dismissed for want of jurisdiction where the alleged claim under the Constitution or federal statutes clearly appears to be immaterial and made solely for the purpose of obtaining jursdiction”. Cori v. Martin et al., No. 17-cv-590-DRH-RJD, Document 119, Memorandum and Order filed Feb. 1, 2018, p. 5 (S.D. Ill. Oct. 31, 2017) (citing Bell v. Hood, 327 U.S. 678, 682 (1946)).

    Notably, though, Bell itself in the very next sentence indicates that “The accuracy of calling these dismissals jurisdictional has been questioned.” Bell, 327 U.S. at 683.

    In Bell, the Court found that “the alleged violations of the Constitution here are not immaterial but form rather the sole basis of the relief sought” and that it could not “say that the cause of action alleged is so patently without merit as to justify, even under the qualifications noted, the court’s dismissal for want of jurisdiction.” Bell, 327 U.S. at 683.

    In its opinion, the district court appears to attempt to distinguish Bell by suggesting that “[u]nlike in the Hood case, where the complaints alleged by the Plaintiff ‘form[ed] the sole basis of the relief sought,’ these counter complaints have nothing to do with the relief Plaintiff seeks.” Cori v. Martin et al., No. 17-cv-590-DRH-RJD, Document 119, Memorandum and Order filed Feb. 1, 2018, p. 7 (S.D. Ill. Oct. 31, 2017) (citing Bell v. Hood, 327 U.S. at 683).

    There would seem to be a strong argument, however, that the district court is not giving sufficient consideration to the fact that the AIA included changes “intended to provide federal courts … with jurisdiction over claims arising under the patent [or copyright] laws even when asserted in counterclaims, rather than in an original complaint.” Vermont v. MPHJ Tech. Inv., LLC, 803 F.3d 635, 644 (Fed. Cir. 2015)

    The district court seems to apply Bell to only consider that “these counter complaints have nothing to do with the relief Plaintiff seeks”, but does not appear to consider whether this is no longer sufficient to dispose of the issue in view of the AIA changes and that the counter complaints may be material because they have something to do with relief Defendant seeks. Cori v. Martin et al., No. 17-cv-590-DRH-RJD, Document 119, Memorandum and Order filed Feb. 1, 2018, p. 7 (S.D. Ill. Oct. 31, 2017).

    1. 1.2

      It is clear to me that the judge decided this case based upon the fact that these copyright counterclaims had nothing to do with the plaintiff’s state-law based complaint. They were, therefore, not compulsory counterclaims, but at best permissive. Thus I think the Court would be entitled to sever and try the two complaints separately as if they were independent causes of action. If the court did this, it could remand the state causes of action for trial in state courts and could try the copyright cause of action in the federal court. But the result here seems to allow a state court to adjudicate a federal cause of action. That result cannot be correct.

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