Auto-Owners Insurance Company v. Ergonomics Plus, Inc. et al
Filing
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OPINION and ORDER Dismissing Case for Lack of Federal Subject Matter Jurisdiction. Signed by District Judge Gerald E. Rosen. (JOwe)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
AUTO-OWNERS INSURANCE CO.,
Plaintiff,
No. 2:14-cv-13046-GER-DRG
vs.
Hon. Gerald E. Rosen
ERGONOMICS PLUS, INC., and
HUMANTECH, INC.,
Defendants.
______________________________________/
OPINION AND ORDER DISMISSING CASE
FOR LACK OF FEDERAL SUBJECT MATTER JURISDICTION
At a session of said Court, held in
the U.S. Courthouse, Detroit, Michigan
on December 05, 2014
PRESENT: Honorable Gerald E. Rosen
United States District Judge
I.
INTRODUCTION
This declaratory judgment action is presently before the Court on the Court’s
September 12, 2014 Order to Show Cause directing Plaintiff Auto-Owners Insurance
Company to show cause in writing why this case should not be dismissed for lack of
federal subject matter jurisdiction. Plaintiff timely responded to the Court’s Order.
Having reviewed the Plaintiff’s response brief and the entire record of this matter, the
Court finds that the pertinent facts and legal contentions are sufficiently presented in
these materials, and that oral argument would not significantly assist in the resolution of
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this matter. Accordingly, the Court will decide this matter “on the briefs.” See Eastern
District of Michigan Local Rule 7.1(f)(2). This Opinion and Order sets forth the Court’s
ruling.
II.
PERTINENT FACTS
On August 6, 2014, Plaintiff Auto-Owners Insurance Company filed the instant
declaratory judgment action against its insured, Ergonomics Plus, Inc. (“Ergonomics”),
and Humantech, Inc. seeking a declaration that it owes no duty to defend or indemnify
Ergonomics in another civil action that is currently pending in this court, Humantech, Inc.
v. Ergonomics Plus, Inc., No. 14-12141. The Humantech action arises out of
Ergonomics’ alleged infringement of Humantech’s copyrighted materials and its
subsequent electronic distribution of those copyrighted works.
According to the complaint in the Humantech action, Humantech owns copyrights
for manuals, guidelines and other works relating to ergonomic risk assessment and
workplace improvement.
Among the works copyrighted by Humantech are certain
“lifting calculators” that Humantech created to calculate guidelines for manual material
handling tasks based upon a lifting equation which was created by the National Institute
of Occupational Safety and Health (“NIOSH”). These calculators use an interactive form
to be filled out by a user through Microsoft Excel Workbooks. The calculators are
distributed to authorized users through Humantech’s website and other media but are
password protected to prevent access by users to the equations embedded in the
calculators and to prevent alteration to the workbooks. The calculators are distributed to
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customers for use in performing workplace ergonomic assessments, but even paying
customers do not have access to the specific equations embedded in the calculators.
Defendant Ergonomics, an Indiana corporation, also specializes in the field of
ergonomics.
Ergonomics offers a “NIOSH Composite Lifting Calculator” for free
download on its website, in the form of a Microsoft Excel Workbook. According to
Humantech, the Ergonomics calculator is substantially similar to Humantech’s and it
incorporates large amounts of content and data from Humantech’s calculators and utilizes
the same proprietary equations that are contained in the Humantech calculator.
Humantech contends that Ergonomics obtained a Humantech calculator through the
State of Michigan website or through some other means, 1 circumvented Humantech’s
password protections, removed Humantech’s name and copyright management
information from the calculator and copied and distributed the calculator as its own.
Therefore, Humantech brought suit against Ergonomics based on its unlawful
copying of Humantech’s copyrighted work, as well as based on Ergonomics’ failure to
provide attribution for the copied works, its removal of copyright notices from
Humantech’s works, and other associated actions that are contrary to Humantech’s rights
in its proprietary works, specifically alleging violations of the Copyright Act, 17 U.S.C.
§101 et seq., the Digital Millennium Copyright Act, 17 U.S.C. §1201, et seq., and
Michigan trade secrets law.
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A version of its calculator was at some point in time available as a free download from
the State of Michigan, Department of Labor and Economic Growth’s website, although
Humantech states that it did not authorize the posting of the calculator on the Michigan
website.
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Upon being served with the Humantech complaint, Ergonomics tendered the
defense of the action to its insurer, Auto-Owners, requesting indemnification under a
Tailored Protection Policy that included commercial general liability coverage. See
Complaint for Declaratory Relief, ¶ 9.
The general liability provisions of the policy provide coverage for damages that an
insured is legally obligated to pay because of a “personal injury” or an “advertising
injury” to which the insurance applies, subject to the terms and conditions of the policy.
Id. ¶10. There is, however, no duty to indemnify or defend an insured for any damages
that are not covered by the policy. In this regard, the policy excludes from coverage: any
advertising injury that is caused by or at the direction of the insured with the knowledge
that the act would violate the rights of another and would inflict personal or advertising
injury, including injury “arising out of the infringement of a copyright, patent, trademark,
trade secret, or other intellectual property.” Id. ¶ 11; see also Commercial General
Liability Policy, Doc. #1-3, Pg ID 79.
Auto-Owners claims that the alleged conduct of Ergonomics is excluded from
coverage as it falls within the scope of the exclusions found in the insurance contract.
Therefore, Auto-Owners instituted this declaratory judgment action.
In its Complaint for Declaratory Relief, Auto-Owners alleges federal question
jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1338 or, in the alternative, supplemental
jurisdiction pursuant to 28 U.S.C. § 1367, as the basis of this Court’s subject matter
jurisdiction. Specifically, Plaintiff alleges jurisdiction pursuant to the Copyright Act, 17
U.S.C. § 101 et seq., and the Digital Millennium Copyright Act [“DMCA”], 17 U.S.C. §
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1201, et seq., based upon the copyright infringement claims alleged in the underlying
case.
III.
DISCUSSION
A. FEDERAL QUESTION JURISDICTION
The most fundamental question presented in every civil action brought in federal
court must be whether there is subject matter jurisdiction. Metro Hydroelectric Co., LLC
v. Metro Parks, 541 F.3d 605, 610 (6th Cir.2008); Caudill v. North American Media
Corp., 200 F.3d 914, 916 (6th Cir.2000). The Court has an independent obligation to
strictly police the boundaries of its subject matter jurisdiction to ensure that jurisdiction
exists, regardless of the assessment of the parties. Valinski v. Detroit Edison, 197
Fed.Appx. 403, 405 (6th Cir.2006); Olden v. Lafarge Corp., 383 F.3d 495, 498 (6th
Cir.2004); Douglas v. E.G. Baldwin & Associates, Inc., 150 F.3d 604, 607 (6th Cir.
1998). Fed.R.Civ.P. 12(h)(3) provides: “If the court determines at any time that it lacks
subject matter jurisdiction, the court must dismiss the action.”
Federal courts are courts of limited jurisdiction and may exercise only those
powers authorized by the United States Constitution and federal statutes enacted by
Congress. It is presumed that a cause of action lies outside this limited jurisdiction, and
Plaintiff bears the burden of overcoming the presumption and demonstrating that this
Court has subject matter jurisdiction over the claims. Kokkonen v. Guardian Life
Insurance Co. of America, 511 U.S. 375, 377, 114 S.Ct. 1673 (1994); Fisher v. Peters,
249 F.3d 433, 444 (6th Cir.2001); Douglas, 150 F.3d at 606.
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Auto-Owners filed the instant action in this Court alleging federal question
jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1338(a) as the basis for this Court’s
jurisdiction. See Complaint for Declaratory Relief, ¶ 2.
Specifically, Auto-Owners
contends that the Court has jurisdiction over this action because it “involves a
determination as to the rights and obligations of the parties with respect to the remedies
under [the Copyright Act and/or the DMCA] as alleged in the underlying action.” Id.
Under 28 U.S.C. § 1331, federal district courts have original jurisdiction over civil
actions “arising under” the Constitution, laws, or treaties of the United States.
Id.
Similarly, §1338(a) provides that “[t]he district courts shall have original jurisdiction of
any civil action ‘arising under’ any Act of Congress relating to patents, plant variety
protection, copyrights and trademarks.” 28 U.S.C. § 1338(a) (internal quotation marks
added).
The phrase “arising under” is interpreted identically in the § 1331 federal
question jurisdiction context and the § 1338 patent/copyright jurisdiction context, and the
the two statutes’ precedents are applied interchangeably. Gunn v. Minton, ___ U.S. ___,
133 S.Ct. 1059, 1064 (2013); USPPS Ltd. v. Forrester Environmental Serv., Inc. v.
Wheelaborator Technologies, Inc., 715 F.3d 1329, 1333 n.2 (Fed. Cir. 2013). 2
For statutory purposes, a case can “arise under” federal law in two ways. “Most
directly, a case arises under federal law when federal law creates the cause of action
asserted.” Gunn, 133 S.Ct. at 1064. Although Humantech’s underlying suit against
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However, for cases falling within the patent/copyright-specific arising under
jurisdiction of § 1338(a), Congress not only provided for federal jurisdiction, but also
eliminated state jurisdiction. (“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(a).).
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Ergonomics arose under federal law in this manner because it was authorized by 17
U.S.C. § 501, it is indisputable that the instant declaratory judgment action finds its
origins in state contract law, rather than federal law. Merely because a federal law is
implicated in a state law action “does not automatically confer federal-question
jurisdiction.” Merrell Dow Pharm., Inc. v. Thompson¸478 U.S. 804, 813, 106 S.Ct. 3229
(2001).
However, there is “a special and small category” of state law cases in which
federal question jurisdiction may lie.
Gunn, 133 S.Ct. at 1064 (citing Empire
Healthchoice Assurance, Inc. v. McVeigh¸ 547 U.S. 677, 699, 126 S.Ct. 2121 (2006)):
Federal jurisdiction over a state law claim will lie if a federal issue is (1)
necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of
resolution in federal court without disrupting the federal-state balance
approved by Congress. Where all four of these requirements are met, we
have held, jurisdiction is proper because there is a “serious federal interest
in claiming the advantages thought to be inherent in a federal forum,”
which can be vindicated without disrupting Congress’s intended division of
labor between state and federal courts.
133 S.Ct. at 1065 (citing Grable & Sons Metal Prod., Inc. v. Darue Engineerintg & Mfg,
545 U.S. 308, 313-314, 125 S.Ct. 2363 (2005)).
Gunn involved a state court legal malpractice case brought by Vernon Minton,
predicated upon alleged attorney error in an underling federal patent suit. Specifically,
Minton claimed that his attorneys in the patent suit committed malpractice by failing to
timely raise an exception to the on-sale bar in the earlier federal district court litigation
that led to his patent being held invalid. After the state trial court granted summary
judgment in favor of the attorneys, Minton appealed. On appeal, Minton argued that
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because federal district courts have exclusive jurisdiction over cases “arising under an
Act of Congress relating to patents,” the state trial court lacked jurisdiction, and he
should, therefore, be able to start over with his malpractice suit in federal court. The state
court of appeals rejected Minton’s argument but the Supreme Court of Texas reversed.
Applying the Grable test, a unanimous United States Supreme Court determined
that Minton’s legal malpractice claim did not arise under federal patent law.
The Court first acknowledged in Gunn that resolution of a federal patent question
was “necessary” to Minton’s case because under Texas law, in malpractice cases in
which the attorney’s alleged error came in failing to make a particular argument, the
causation element requires a “case within a case” analysis of whether, had the argument
been made, the outcome of the underlying litigation would have been different. Gunn,
133 S.Ct. at 1065.
The Court also acknowledged that the federal issue was “actually
disputed.” Id.
However, the Court determined that the federal issue in the malpractice case was
not “substantial,” in the relevant sense. Id. at 1066:
It is not enough that the federal issue be significant to the particular parties
in the immediate suit; that will always be true when the state claim
“necessarily raise[s] a disputed federal issue, as Grable separately requires.
The substantiality inquiry under Grable looks instead to the importance of
the issue to the federal system as a whole.
***
Here the federal issue carries no such significance.
Id.
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The Gunn Court further found that not allowing state courts to resolve the matter
would not undermine “the development of a uniform body of [patent] law,” because
“Congress ensured such uniformity by vesting exclusive jurisdiction over actual patent
cases in the federal district court and exclusive appellate jurisdiction in the Federal
Circuit.” Id. at 1067.
Although Gunn involved a patent claim, it is no less applicable in this action
where “arising under” jurisdiction is predicated on a copyright claim. While federal
courts have jurisdiction over all cases arising under the patent and copyright laws, Gunn
makes clear that the same is not true of all questions in which a patent or copyright may
be the subject matter of the controversy. Plaintiff has the responsibility to show that its
Complaint “arises under” federal copyright law, and is not merely couched in terms of a
federal question in order to ostensibly confer jurisdiction. Plaintiff Auto-Owners has
failed to make the required showing.
A straightforward application of the Grable/Gunn test here demonstrates that
Auto-Owners’ declaratory judgment action does not arise under federal copyright law.
First, no resolution of a federal copyright question is necessary in the instant action. The
Court need do nothing more than look to the face of the complaint in the Humantech
action to see that a copyright infringement claim is asserted and that Humantech claims to
have been injured by the copyright infringement. Indeed, unlike the case-within-a-case
analysis required for a malpractice claim, no “resolution” of the copyright claim is
necessary to determine whether that the asserted claim is covered by an exclusion from
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policy coverage. Moreover, that a copyright infringement claim is being asserted in the
underlying suit is not disputed.
Further, as in Gunn, while the copyright issue may be significant to the particular
parties in the immediate suit, this is insufficient to satisfy the substantiality inquiry under
the Grable/Gunn test which looks instead to the importance of the issue to the federal
system as a whole. And, just as the Gunn Court found with respect to the patent issue in
that malpractice case, not allowing state courts to resolve the instant declaratory
judgment matter would not undermine “the development of a uniform body of
[copyright] law,” even if resolution of the underlying copyright claim is necessary
because “Congress ensured such uniformity by vesting exclusive jurisdiction over actual
[copyright] cases in the federal district court and … appellate jurisdiction in the [f]ederal
[c]ircuit[s],” and “state courts can be expected to hew closely to the pertinent federal
precedents.” Gunn at 1067.
Moreover, even if the Court were to determine that application of Gunn should be
limited to cases presenting underlying patent claims, the Court would reach the same
conclusion by application of pre-Gunn jurisprudence squarely addressing “arising under”
jurisdiction in the copyright context.
Under pre-Gunn jurisprudence, federal courts developed a framework for dealing
with questions of “arising under” jurisdiction presented in the copyright context which is
even more stringent than the Grable test followed by the Court in Gunn. In T.B. Harms
Co. v. Eliscu, 339 F2d 823 (2d Cir. 1964), the Second Circuit elucidated the following
framework of analysis:
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[A]n action “arises under” the Copyright Act if and only if the complaint is
for a remedy expressly granted by the Act, e.g., a suit for infringement or
for the statutory royalties for record reproduction, or asserts a claim
requiring construction of the Act, ... or, at the very least and perhaps more
doubtfully, presents a case where a distinctive policy of the Act requires
that federal principles control the disposition of the claim.
339 F2d at 828 (emphasis added); see also Scandinavian Satellite Sys., AS v. Prime TV
Ltd., 291 F3d 839, 844 (D.C. Cir. 2002); Royal v. Leading Edge Prods., Inc., 833 F.2d 1,
2 (1st Cir.1987); Gibralter P.R., Inc. v. Otoki Group, Inc., 104 F.3d 616, 619 (4th Cir.
1997) (applying T.B. Harms in trademark context)
This declaratory judgment case does not fall under a remedy expressly granted by
the Copyright Act, nor does it assert a claim requiring construction of the Act. Plaintiff’s
claim rests upon the phrasing of an insurance contract and is governed by Michigan law.
There is no distinctive policy of the Copyright Act or the DMCA requiring that federal
principles control here. Simply relying on a generalized statement that a “determination”
of rights and responsibilities is required with respect to the remedies of “one or more
these acts” does not establish that this declaratory judgment action “arises under” federal
law.
B, SUPPLEMENTAL JURISDICTION
In the alternative, Auto-Owners claims that the supplemental jurisdiction statute,
28 U.S.C. § 1367, provides this Court with original federal jurisdiction. Plaintiff is
mistaken. “The supplemental jurisdiction statute is not a source of original subject matter
jurisdiction.” Ahearn v. Charter Twp. Of Bloomfield, 100 F.3d 451, 456 (6th Cir. 1996).
“By its terms, § 1367 contemplates supplemental jurisdiction arising only from
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claims within a single action.” Sebring Homes v. T.R. Arnold & Assoc., 927 F. Supp.
1098, 1101 (S.D. Ind. 1995) (citation omitted; emphasis added). “[I]n a subsequent
lawsuit involving claims with no independent basis for jurisdiction, a federal court lacks
the threshold jurisdictional power that exists when ancillary claims are asserted in the
same proceeding as the claims conferring federal jurisdiction.” Peacock v. Thomas, 516
U.S. 349, 355 (1996). Thus a plaintiff “may not base subject matter jurisdiction on the
supplemental jurisdiction statute, even if the action . . . is related to another action over
which the federal district court already has subject matter jurisdiction.” Ahearn, 100 F.3d
at 452. See also Hudson v. Coleman, 347 F.3d 138, 143 (6th Cir. 2003) (no basis for
district court to exercise ancillary jurisdiction over plaintiff’s state law indemnity claim in
second lawsuit); cf. Blue Ridge Ins. Co. v. Stanewich, 142 F.3d 1145, 1147 (9th Cir.
1998) (underlying § 1983 civil rights claim in earlier suit provided no basis for federal
court jurisdiction of subsequently filed insurance declaratory judgment action). As such,
Humantech’s claims in the earlier filed copyright infringement action does not provide an
basis for federal question jurisdiction in this separately-filed declaratory judgment action.
C. DECLARATORY JUDGMENT JURISDICTION
In response to the Order to Show Cause, Auto-Owners asserts that this Court has
jurisdiction over this pendant action pursuant to the Declaratory Judgment Act, 28 U.S.C.
§ 2201(a). The Declaratory Judgment Act bestows upon federal courts the authority to
exercise discretionary jurisdiction over declaratory judgment actions. The Act provides,
in relevant part,
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In a case of actual controversy within its jurisdiction . . . any court of the United
States, upon the filing of an appropriate pleading, may declare the rights and other
legal relations of any interested party seeking such declaration. . . .
28 U.S.C. § 2201(a).
However, this statute does not itself confer subject matter jurisdiction upon the
federal courts; for any suit brought under the Act there must be some independent source
of federal jurisdiction, such as the existence of diversity of citizenship or the specific
presentation of a federal question. Skelly Oil Co. v. Phillips Co., 339 U.S. 667 (1950).
But § 2201 does not independently establish federal subject matter jurisdiction. See
Skelly Oil, 339 U.S. at 671 (1950) (holding that by enacting the Declaratory Judgment
Act “Congress enlarged the range of remedies available in the federal courts but did not
extend their jurisdiction”). A federal court “must have jurisdiction already under some
other federal statute” before a plaintiff can “invok[e] the Act.” Toledo v. Jackson, 485
F.3d 836, 839 (6th Cir. 2007) (quotation marks omitted). A court must examine carefully
any action for declaratory judgment in order to ensure that the underlying required
jurisdiction exists. The actual controversy between the parties must remain the focal point
for determining jurisdiction and in this case, that controversy is one involving state
contract law. The “mere fact” that a federal question may be “lurking in the background”
of plaintiffs' complaint is not sufficient to confer federal question jurisdiction. Michigan
Sav. & Loan League v. Francis, 490 F. Supp. 892, 896 (E.D. Mich. 1980) aff'd, 683 F.2d
957 (6th Cir. 1982). Thus, Plaintiff’s appeal to the Declaratory Judgment Act fails. It is
the Plaintiff’s burden to show that this court has the threshold original subject matter
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jurisdiction, and Plaintiff has not met this burden.
Therefore, this case must be
dismissed.
CONCLUSION
For all of the reasons set forth above in this Opinion and Order,
IT IS HEREBY ORDERED that this case be, and hereby is, DISMISSED for lack
of federal subject matter jurisdiction.
Dated: December 5, 2014
s/Gerald E. Rosen
Chief, Judge, United States District Court
I hereby certify that a copy of the foregoing document was served upon the parties and/or
counsel of record on December 5, 2014, by electronic and/or ordinary mail.
s/Julie Owens
Case Manager, (313) 234-5135
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