O'Donnell/Salvatori Inc v. Microsoft Corporation

Opinion

1 2 3 4 5 UNITED STATES DISTRICT COURT 6 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 7 8 O’DONNELL/SALVATORI INC., 9 Plaintiff, Case No. C20-882-MLP 10 v. ORDER 11 MICROSOFT CORPORATION, 12 Defendant. 13 14 I. INTRODUCTION 15 This matter is before the Court on Plaintiff O’Donnell/Salvatori Inc.’s (“ODS”) motion to 16 remand this matter to King County Superior Court. (Mot. (Dkt. # 10).) Defendant Microsoft 17 Corporation (“Microsoft”) opposes ODS’s motion (Resp. (dkt. # 16)) and ODS filed a reply 18 (Reply (dkt. # 17)). The Court heard oral argument on August 25, 2020. (Dkt. # 22 (8/25/2020 19 hearing on Motion to Remand).) Having considered the parties’ submissions, oral argument, the 20 balance of the record, and the applicable law, the Court DENIES Plaintiff’s motion to remand for 21 the reasons discussed below. 22 23 24 1 II. BACKGROUND 2 Martin O’Donnell and Michael Salvatori formed ODS to create original music and 3 provided audio related services for videogames. (Compl. (Dkt. # 1-3) at ¶ 8.) On August 28, 4 2002, Microsoft commissioned ODS, through an Independent Contractor Agreement (“ICA”), 5 for the creation and delivery of audio compositions and incidental music for Microsoft’s Halo

6 videogames. (Id. at ¶ 9.) For the original Halo videogame, ODS composed a core musical theme 7 reminiscent of a Gregorian chant that became iconic and well-known as the videogame’s 8 popularity grew. (Id.) The ICA was amended five times between 2003 and 2009. (Id. at ¶¶ 10- 9 23.) The amendments addressed royalties that ODS was set to receive and work that ODS was 10 contracted to complete on additional Halo game installments. (Id.) In 2005, the parties executed 11 a “Confirmatory Work-Made-for-Hire and Backup Assignment Agreement” which they attached 12 and expressly incorporated into the second amendment to the ICA. (Dkt. # 11, Ex. B.) 13 ODS initiated this action in King County Superior Court based on allegations that 14 Microsoft breached the ICA and amendments by failing to pay ODS pursuant to the negotiated

15 terms and by engaging in other unlawful conduct. (Compl. at ¶¶ 24-40.) 16 In its complaint, ODS alleges that Microsoft still owes ODS money for use of the Halo music or 17 derivative works and for internal uses of the music for promotional and marketing purposes. (Id.) 18 Additionally, ODS alleges Microsoft failed to use its reasonable best efforts to commercially 19 exploit the Halo music. (Id.) Based on those allegations, ODS brought six causes of action 20 against Microsoft: (1) breach of contract; (2) breach of fiduciary duty to develop the royalty 21 income in a joint venture; (3) breach of duty to act in good faith and fair dealing; (4) failure to 22 provide an accounting partnership; (5) unjust enrichment; and (6) tortious interference. (Id. at ¶¶ 23 42-74.) 24 1 On May 12, 2020, Microsoft filed a partial motion to dismiss pursuant to Federal Rule of 2 Civil Procedure 12(b)(6) in the state court matter. (Dkt. # 1-7.) Based on Microsoft’s statement 3 of facts, it appears Microsoft assumed the Halo music was work-for-hire. (Id. at 3 (citing Compl., 4 Ex. A, Part I § 3 (Microsoft’s Independent Contractor Agreement)).) Microsoft asserted that the 5 breach of fiduciary duty claim should be dismissed because there was no agency relationship

6 between ODS and Microsoft. (Id. at 7-8.) Microsoft also argued that it did not owe ODS an 7 accounting because pursuant to the ICA, the parties agreed to have an independent contractor 8 relationship, not a joint venture or partnership, and that ODS’s claims for breach of contract, 9 breach of duty of good faith and fair dealing, and unjust enrichment should be dismissed because 10 they are time-barred. (Id. at 10-12, 16-17.) Microsoft further argued that ODS’s claims of duty of 11 good faith and fair dealing should be dismissed as they would require adding substantive terms 12 to the ICA. (Id. at 15-16.) Lastly, Microsoft alleged ODS failed to allege the essential elements 13 of a tortious interference claim. (Id. at 12-14.) 14 ODS filed an opposition to Microsoft’s partial motion to dismiss. (Dkt. # 1-8.) In ODS’s

15 opposition, it argued that the Court should not dismiss ODS’s claim for lack of joint venture 16 resulting in a fiduciary relationship because the Halo music did not qualify as work-for-hire. (Id. 17 at 10-13.) ODS further asserted that whether the Halo music qualified as a work-for-hire was not 18 determinative of rights relative to the joint venture. (Id.) 19 On June 8, 2020, Microsoft filed its answer, defenses, and counterclaim to ODS’s 20 complaint (dkt. #1-9) and removed the case to the United States District Court for the Western 21 District of Washington pursuant to 28 U.S.C. §§ 1331, 1338, 1367, 1446, and 1454 (Notice of 22 Removal (dkt. # 1)). Microsoft’s counterclaim seeks a declaration that the Halo music qualifies 23 as work-for-hire and that Microsoft qualifies as the author of that work. (Dkt. # 1-9 at 13-14.) 24 1 III. DISCUSSION 2 A. 28 U.S.C. § 1454 3 “A civil action in which any party asserts a claim for relief arising under any Act of 4 Congress relating to patents, plant variety protection, or copyrights may be removed to the 5 district court of the United States for the district and division embracing the place where the

6 action is pending.” 28 U.S.C. § 1454(a). This provision was “intended to provide federal courts 7 … with a broader range of jurisdiction; that is, with jurisdiction over claims arising under the 8 patent [or copyright] laws even when asserted in counterclaims, rather than in an original 9 complaint.” Vermont v. MPHJ Tech. Investments, LLC, 803 F.3d 635, 644 (Fed. Cir. 2015) 10 (emphasis in original). Courts resolve doubts about a federal court’s limited jurisdiction against 11 the exercise of jurisdiction. Luther v. Countrywide Home Loans Servicing LP, 533 F.3d 1031, 12 1034 (9th Cir. 2008) (“A defendant seeking removal has the burden to establish that removal is 13 proper and any doubt is resolved against removability.”). A civil action “arises under” the 14 Copyright Act if: “(1) the complaint asks for a remedy expressly granted by the Copyright Act;

15 (2) the complaint requires an interpretation of the Copyright Act; or (3) federal principles should 16 control the claims.” Scholastic Entm’t, Inc. v. Fox Entm’t Grp., Inc., 336 F.3d 982, 986 (9th Cir. 17 2003).1 18 The Court finds ODS’s opposition in state court to Microsoft’s partial motion to dismiss 19 argued for the first time that the Halo music did not qualify as a work-for-hire, making this 20 matter removable. At oral argument, ODS’s counsel acknowledged that “no portion of the 21

1 ODS analyzes its argument under the test outlined in Gunn v. Minton, 568 U.S. 251 (2013), that states 22 federal jurisdiction over a state law claim will lie only if a federal issue is: (1) necessarily raised; (2) actually disputed; (3) substantial; and (4) capable of resolution in federal court without disrupting the 23 federal-state balance approved by Congress. (Mot. at 5.) The Court finds this is not the proper standard as the question of remand turns on whether Microsoft’s counterclaim arises under copyright law, regardless 24 of ODS’s state claims. 1 complaint put Microsoft on notice that [ODS] would argue that it’s not a work-for-hire.” 2 (8/25/2020 hearing on Motion to Remand at 24.) ODS instead argued that Microsoft’s ownership 3 of the Halo music is undisputed and therefore Microsoft’s counterclaim fails to raise an actual 4 controversy or a substantial federal issue. (Mot. at 6.) However, Microsoft’s counterclaim seeks 5 declaratory judgement that it is the author of every work delivered under the ICA because it

6 qualifies as work-for-hire within the meaning of the Copyright Act. Thus, Microsoft’s 7 counterclaim regarding authorship arises under the Copyright Act because it seeks a remedy 8 expressly granted by the Copyright Act and requires an interpretation of the Copyright Act. 9 ODS’s counsel also conceded that Microsoft’s counterclaim raises a question under the 10 Copyright Act. (8/25/2020 hearing on Motion to Remand.) Specifically, ODS’s counsel stated: 11 Well, Your Honor, as I said, I will concede that the question of whether this is a work-for-hire does sound in the Copyright Act. So if the question is whether the 12 Copyright Act has been brought up, yes, we do concede that the Copyright Act has been brought up appropriately in the counterclaim. We’ve never asserted otherwise. 13 (Id. at 5-6.) Further, Microsoft’s counterclaim raises an actual controversy because ODS disputes 14 Microsoft’s authorship of the Halo music. Accordingly, removal was proper. 15 The Court notes that nothing in this order precludes ODS from filing a motion to dismiss 16 the counterclaim or to address the issue of supplemental jurisdiction over ODS’s state claims. 17 B. Timeliness of Removal 18 A party must remove within thirty days of service of a “pleading, motion, order, or other 19 paper from which it may first be ascertained that the case is one which is or has become 20 removable.” 28 U.S.C. §§ 1446(b)(1), (3). 28 U.S.C. § 1454(b) incorporates the time limits 21 provided by § 1446, including the provision that the time limits may be extended at any time for 22 cause shown. If removability is indeterminate from the initial complaint, the thirty-day period 23 does not start. Harris v. Bankers Life and Cas. Co., 425 F.3d 689, 693-94 (9th Cir. 2005). 24 1 ODS argues Microsoft failed to timely remove this matter because the complaint was 2 filed 71 days before Microsoft submitted its notice of removal and that Microsoft has known its 3 claim of authorship could be at issue since the execution of the assignment of copyrights. (Mot. 4 at 7; Reply at 4.) Microsoft argues it removed this matter within a week of receiving ODS’s 5 opposition to its partial motion to dismiss, which was the first time ODS raised the issue of

6 Microsoft’s authorship and the Halo music’s status as work-for-hire. (Resp. at 10.) 7 The Court finds Microsoft timely removed this matter after learning a copyright claim 8 was at issue. As discussed above, ODS acknowledged the complaint did not put Microsoft on 9 notice of its argument that the Halo music does not qualify as work-for-hire. Although ODS 10 asserts Microsoft should have known work-for-hire could be an issue since the assignment of 11 copyrights, it appears that neither party questioned or challenged the work-for-hire status until 12 ODS submitted its opposition to the partial motion to dismiss. 13 Further, even if Microsoft knew its authorship could be at issue when ODS filed its 14 complaint, the Court finds the time limitations should be extended for cause shown pursuant to

15 28 U.S.C. § 1454(b)(2). First, it is not apparent how the short delay in removing this matter 16 prejudices ODS. Second, there has not been extensive litigation in the state court action and no 17 dispositive motions were adjudicated on the merits before removal. Third, it appears Microsoft 18 filed its counterclaim within a reasonable time after discovering this matter was removable. 19 Accordingly, removal was timely, or, in the alternative, an extension of time for cause shown is 20 warranted. 21 C. Waiver of Removal 22 “A party, generally the defendant, may waive the right to remove to federal court where, 23 after it is apparent that the case is removable, the defendant takes actions in state court that 24 1 manifest his or her intent to have the matter adjudicated there, and to abandon his or her right to 2 a federal forum.” Resolution Trust Corp. v. Bayside Developers, 43 F.3d 1230, 1240 (9th Cir. 3 1994). “In general, ‘the right of removal is not lost by action in the state court short of 4 proceeding to an adjudication on the merits.’” Id. (citing Beighley v. FDIC, 868 F.2d 776, 782 5 (5th Cir. 1989)). Waiver of removal may occur only “after it is apparent that the case is

6 removable.” Id. 7 ODS argues Microsoft waived its right to remove this matter by taking action in the state 8 court matter. (Mot. at 8.) Specifically, ODS argues Microsoft propounded discovery requests and 9 filed its partial motion to dismiss. However, Microsoft took these actions before ODS filed its 10 opposition to the partial motion to dismiss and Microsoft removed the matter before the state 11 court issued any ruling on the partial motion to dismiss. Therefore, no motion in the state court 12 action was adjudicated on the merits and Microsoft’s discovery requests and partial motion to 13 dismiss were submitted before the matter became removable. Accordingly, Microsoft did not 14 waive its right to remove this matter.

15 IV. CONCLUSION 16 For the foregoing reasons, the Court DENIES Plaintiff’s motion to remand (dkt. # 10) 17 and DENIES ODS’s motion for fees and costs. 18 Dated this 4th day of September, 2020. 19 20 A 21 MICHELLE L. PETERSON United States Magistrate Judge 22

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