Team Express Distributing LLC v. Junction Solutions, Inc., et al

Filing 46

ORDER GRANTING 42 Motion to Amend its Answer and MOTION for Reconsideration. Junction is to file its amended answer and counterclaim with the Court; the portions of pages 12 and 13 of this Courts May 19, 2016 order are VACATED, and this Court again assumes jurisdiction over the matter. Signed by Judge David A. Ezra. (rg)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
TEAM EXPRESS DISTRIBUTING
LLC,
Plaintiff,
vs.
JUNCTION SOLUTIONS, INC., and
MICROSOFT CORPORATION,
Defendants.

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No. 5:15–CV–994–DAE

ORDER: (1) GRANTING LEAVE TO FILE AMENDED ANSWER AND
COUNTERCLAIM; (2) GRANTING MOTION TO RECONSIDER;
(3) VACATING ORDER TO REMAND
Before the Court is a Motion for Leave to File an Amended Answer
and Motion for Reconsideration of the portion of this Court’s May 19, 2016 Order
remanding the case to the 438th Judicial District Court of Bexar County (Dkt.
# 41), filed by Defendant Junction Solutions (“Junction”) on May 20, 2016. (Dkt.
# 42). On May 27, 2016, Plaintiff Team Express Distributing, LLC (“Team
Express”) filed a Response stating that it did not oppose litigating the case in
Federal Court.1 (Dkt. # 45.) For the reasons stated below, Defendant’s Motion for
Leave to Amend, and Motion for Reconsideration is GRANTED (Dkt. # 42). This

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Team Express declined to address the merits of Junctions’ legal arguments; the
Court fully addresses the legal issues in Junction’s Motion below.
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Court’s May 19, 2016 Order is VACATED IN PART, insofar as it remanded the
suit to the 438th Judicial District Court of Bexar County.
BACKGROUND
On May 19, 2016, this Court granted Team Express’ Motion to
Amend its Complaint to add various claims and parties, including RSM US LLP
(“RSM”), a citizen of Texas. (Dkt. # 41.) After applying the Fifth Circuit’s test
from Hensgens and finding that Plaintiffs had met the heightened standard to add
RSM, a non-diverse party, to the suit, this Court remanded the case to the 438th
Judicial District of Bexar County, the court from which the case had been
removed. Hensgens v. Deere & Co., 833 F.2d 1179, 1182 (5th Cir. 1987).
Junction now seeks reconsideration of this Court’s order, insofar as the order
remanded the case to state court. (Dkt. # 42.)
LEGAL STANDARD
“A Rule 59(e) motion calls into question the correctness of a
judgment.” Templet v. Hydrochem, Inc., 367 F.3d 473, 478 (5th Cir. 2004).
“Under Rule 59(e), amending a judgment is appropriate (1) where there has been
an intervening change in the controlling law; (2) where the movant presents newly
discovered evidence that was previously unavailable; or (3) to correct a manifest
error of law or fact.” Demahy v. Schwarz Pharma, Inc., 702 F.3d 177, 182 (5th
Cir. 2012). Rule 59(e), however, is “not the proper vehicle for rehashing evidence,
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legal theories, or arguments that could have been offered or raised before entry of
judgment,” Templet, 367 F.3d at 478, and it “should not be used to . . . re-urge
matters that have already been advanced by a party.” Nationalist Movement v.
Town of Jena, 321 F. App’x 359, 364 (5th Cir. 2009). Reconsideration of a
previous order is “an extraordinary remedy that should be used sparingly.” Id.
ANALYSIS
I. Motion to Amend Answer and Add Counterclaims
Junction seeks to amend its answer and counterclaim to Team
Express’ amended complaint; the proposed amended filing adds a counterclaim for
copyright infringement. (Dkt. # 42 at 3; id. Ex. A.) Federal Rule of Civil
Procedure 15 grants a defendant the right to enter a responsive pleading within 21
days of service of an amended complaint. Fed. R. Civ. P. 15(a)(1)(B). Team
Express filed an amended complaint, with leave of Court, on May 20, 2016. (Dkt.
# 43.) Accordingly, Junction’s Motion to file an Amended Answer is timely and
should be granted.
“The policy of the Federal Rules is to permit liberal amendment.”
Carroll v. Fort James Corp., 470 F.3d 1171, 1174 (5th Cir. 2006) (quoting
Dussouy v. Gulf Coast Inv. Corp., 660 F.2d 594, 597–98 (5th Cir. 1981)). Federal
Rule of Civil Procedure 15 advises the court to “freely give leave” to add a
counterclaim “when justice so requires.” Fed. R. Civ. P. 15(a)(2); id. advisory
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committee’s note to 2009 amendment. Accordingly, a court should only deny
leave to add a counterclaim if there exist “such factors as undue delay, bad faith or
dilatory motive on the part of the movant.” Matter of Southmark Corp., 88 F.3d
311, 314–15 (5th Cir. 1996). Where “a party files a motion to amend by the courtordered deadline, there is a ‘presumption of timeliness.’” Inline Corp. v. Tricon
Restaurants Int’l, Civ. A. 3:00–CV–990, 2002 WL 1331885, at *1 (N.D. Tex. June
14, 2002) (quoting Poly–America, Inc. v. Serrot Int’l Inc., Civ. A. 3:00–CV–1457,
2002 WL 206454, at *1 (N.D. Tex. Feb. 7, 2002)). Here, Junction’s Motion to
Amend was filed by the May 20, 2016 pleading deadline set by the scheduling
order in the case (Dkt. # 21), and the Court finds that the proposed amended
counterclaim is not filed to delay the litigation or otherwise promote a dilatory
motive. Junction previously disclosed its intention to move to add an additional
counterclaim, and there is no evidence that Junction’s proposed counterclaim is
made in bad faith. (Dkt. # 34 at 10.) Accordingly, Junction’s Motion to Amend is
GRANTED (Dkt. # 42).
II. Motion to Reconsider Order Remanding Case to State Court
As Junction correctly points out in its Motion to Reconsider, Congress
recently created an exception to the well-pleaded complaint rule, changing the
traditional understanding that a federal court cannot retain jurisdiction over a
diversity suit once diversity has been destroyed, simply because a defendant asserts
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federal counterclaims. 28 U.S.C. § 1454 grants federal courts jurisdiction over “[a]
civil action in which any party asserts a claim for relief arising under any Act of
Congress relating to . . . copyrights.” 28 U.S.C. § 1454(a) (emphasis added).
Under § 1454, “a defendant with a patent or copyright counterclaim is no longer
bound by a plaintiff’s well-pleaded state law complaint to litigate in state court.”
Donahue v. Tokyo Electron America, Inc., 42 F. Supp. 3d 829, 834 (W.D. Tex.
2014); Van Steenburg v. Hageman, SA:14–CV–976, 2015 WL 1509940, at *5
(W.D. Tex. Mar. 31, 2015).
However, the mere addition of a claim involving a copyright is
insufficient to give this Court jurisdiction over the matter; rather, the Court must
ascertain whether the action actually “aris[es] under any Act of Congress relating
to . . . copyrights.” 28 U.S.C. § 1338(a).
An action ‘arises under’ the Copyright Act if . . . the complaint is for a
remedy expressly granted by the Act . . . or, at the very least . . .
presents a case where a distinctive policy of the Act requires that
federal principles control the disposition of the claim.
Goodman v. Lee, 815 F.2d 1030, 1031 (5th Cir. 1987) (quoting T.B. Harms Co. v.
Eliscu, 339 F.2d 823, 828 (2d Cir. 1964)).
Junction’s amended counterclaim alleges that it made various custom
modifications to the Microsoft Software program at issue in this suit to meet Team
Express’ specific needs. (Dkt. # 42, Ex. A ¶¶ 28–32.) Junction claims these
custom software modifications are covered by United States Copyright
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Registration Number TXu 1-990-495, and asserts that Team Express’ continued
use of the custom software without full payment of the fees allegedly owed to
Junction amounts to copyright infringement. (Id. ¶¶ 29, 33–34; id. Ex. A-1.)
Junction seeks a declaration of such infringement, an order permanently enjoining
Team Express from continued acts of infringement, destruction of any material
violating Junction’s copyright, and compensatory damages. (Dkt. # 42, Ex. A-1 at
38–39.) These allegations are sufficient to allege a claim “arising under” the
Copyright Act, 17 U.S.C. § 101, et seq.; accordingly, this counterclaim falls
squarely within the exception to the well-pleaded complaint rule created by 28
U.S.C. § 1454(a), and the Court has jurisdiction over the case on the basis of the
counterclaim for copyright infringement.
Where a district court exercises jurisdiction over a case solely on the
basis of 28 U.S.C. § 1454(a), the court “shall remand all claims that are neither a
basis for removal [pursuant to § 1454(a)] nor within the original or supplemental
jurisdiction of the district court.” 28 U.S.C. § 1454(d)(1). Federal courts have
supplemental jurisdiction over state law claims that “are so related to claims in the
action within such original jurisdiction that they form part of the same case or
controversy.” Wisconsin Dep’t of Corr. v. Schacht, 524 U.S. 381, 387 (1998)
(quoting 28 U.S.C. § 1367(a)). A court should not exercise supplemental
jurisdiction “where a state claim constitutes the real body of a case, to which the
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federal claim is only an appendage;” in such a case, “permitting litigation of all
claims in the district court can accurately be described as allowing a federal tail to
wag what is in substance a state dog.” United Mine Workers v. Gibbs, 383 U.S.
715, 725 (1966). Further, the district court should “[d]ecline to exercise
supplemental jurisdiction over a claim . . . if the claim raises a novel or complex
issue of State law,” or other circumstances exist compelling the court to decline the
exercise of jurisdiction. 28 U.S.C. § 1454(d)(2); id. § 1367(c)(1)–(4).
Here, Team Express’ claims against Junction, and Junction’s
copyright counterclaim against Team Express “derive from a common nucleus of
operative fact” of the sort that should be tried “in one judicial proceeding.”
Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 349 (1988) (quoting Gibbs, 383
U.S. at 724). The issues of the case are factually intertwined, and the copyright
claim is not merely an appendage that can be separated and litigated independently
in federal court. Further, while Team Express’ claims are perhaps factually
complex, they do not appear to raise any particularly novel issues of state law.
Accordingly, it is appropriate for the Court to exercise supplemental jurisdiction
over Team Express’ state law claims.
Having found that Junction has alleged a counterclaim requiring this
Court’s exercise of jurisdiction, and having found that no exceptions to this

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jurisdiction apply here 2, the portions of pages 12 and 13 of this Court’s May 19
Order remanding the case to state court, should be VACATED (Dkt. # 41).
Pursuant to 28 U.S.C. § 1454(a), this Court has jurisdiction over the case due to
Junction’s counterclaim for copyright infringement, in spite of the addition of the
non-diverse party RSM.
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Section 1454 requires “that removal of an action under this section shall be
made in accordance with section § 1446.” 28 U.S.C. § 1454(b). Another
court in this district has explained:
[that an] inherent tension exists between § 1454 and § 1446: § 1454
overruled the well-pleaded complaint rule when it comes to certain
counterclaims, and specifically allows a defendant to remove a case
based on the assertion of a copyright counterclaim even if the case
otherwise is completely devoid of federal jurisdiction. This inherent
tension—if not total incompatibility—between § 1446 and § 1454
leaves this Court with the conundrum of trying to figure out when the
removal period for a § 1454 removal is triggered.

Donahue, 42 F. Supp. 3d at 835. The applicability of § 1446 is perhaps even more
uncertain here, where Junction does not seek to remove the case to district court,
but rather seeks to vacate the portion of the order remanding the case to state court.
However, even if § 1446 is applicable here, it does not implicate any
timeliness concerns, because Junction moved to vacate the portion of the Court’s
order remanding the case only one day after the order issued, and on the same day
that it moved for leave to file its amended counterclaim alleging copyright
violations. Further, the suit was first brought in state Court on October 2, 2015,
less than a year before Junction’s instant motion to retain federal jurisdiction. See
§§ 1446(c) & (c)(3)(B) (limiting the removal period to one year in certain
circumstances). Finally, while Junction applied for Copyright TXu 1-990-495 in
2015, the official copyright did not issue until May 2, 2016; Junction amended its
counterclaim to add a cause of action for copyright infringement within thirty days
of this date. (Dkt. # 42, Ex. A-1; see § 1446(b)(3) (setting thirty-day window for
removal by defendant, in certain circumstances not clearly applicable here.)
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CONCLUSION
For the reasons stated above, Junction’s Motion to Amend its Answer
and Motion for this Court to Reconsider in part its May 19, 2016 Order, are
GRANTED (Dkt. # 42). Junction may file its amended answer and counterclaim
with the Court; the portions of pages 12 and 13 of this Court’s May 19, 2016 order
are VACATED, and this Court again assumes jurisdiction over the matter.
IT IS SO ORDERED.
DATED: May 31, 2016, San Antonio, Texas.

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David Alan Ezra
Senior United States Distict Judge

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