When Preemption Leads to Unanticipated Removal

When you sue someone, you sometimes have a choice between filing in state court or federal court, and courts will generally defer to your preferred forum. In appropriate circumstances, however, a defendant can remove the case from state court to federal court. Under the current removal statute, 28 U.S.C. ยง 1441, removal is permitted by the defendant in any civil action brought in a state court of which the district courts of the United States have original jurisdiction. For those wishing to keep their cases in state court, care must be taken to ensure there are no grounds for federal-court jurisdiction. Some cases get removed to federal court before the plaintiff ever sees it coming.

The preemption doctrine can lead to such a result. Under this doctrine, a defendant may remove a cause of action that otherwise appears to lack federal question jurisdiction by asserting that federal law preempts the state law claim. This is because, under the Supremacy Clause of the Constitution, when state law and federal law conflict, federal law displaces (or preempts) state law.

The Copyright Act, for example, is a federal law designed to supply the exclusive remedy for copyright infringement claims. If a state-law claim seeks to vindicate legal or equitable rights that are equivalent to one of the bundle of exclusive rights already protected by the Copyright Act, the state law claim is said to be preempted by the federal law, and that federal law may serve to supply the basis for federal-court jurisdiction, puppy-1647692_960_720-300x200which can lead to the surprise removal of what the plaintiff assumed to be a purely state-law case.

This happened recently in the case of Futrend Technology, Inc. v. MicroHealth, LLC. Futrend filed a lawsuit against MicroHealth in Fairfax County Circuit Court on a number of state-law grounds, including breach of contract, fraud, tortious interference, conspiracy, and trade-secret misappropriation under the Virginia Uniform Trade Secrets Act. Futrend claimed that MicroHealth refused to award Futrend a promised subcontract after Futrend helped MicroHealth win a primary government contract; that it stole Futrend’s employees; and that it conspired with those employees to steal Futrend’s trade secrets.

At some point after the case was well underway in state court, Futrend amended its complaint to include a claim for violation of the Virginia Computer Crimes Act (another state-law claim), based on allegations that MicroHealth copied computer files containing confidential and proprietary business information. Two weeks later, and undoubtedly coming as a big surprise to Futrend, MicroHealth removed the case to federal court. How? Because, it argued, the Virginia Computer Crimes Act claim was completely preempted by the federal Copyright Act.

Futrend was able to move its case back to Fairfax Circuit Court, but it wasn’t easy. One week after the removal papers were filed, Futrend moved to amend its complaint to drop the computer-crimes claim and to remand the case back to state court. The motion was opposed as a bad-faith forum-shopping exercise, but the court allowed it and sent the case back to Fairfax.

In federal court, leave to amend is liberally granted absent special considerations like undue delay, prejudice to the non-movant, futility, or bad faith. None of those factors was present here. The court found that Futrend was likely being sincere when it argued it never intended to bring a federal claim, especially considering removal was based solely on a preemption argument. The court also noted that the preemption doctrine may not even apply in light of the fact Futrend was not claiming any copyright protection in the trade-secret data it claimed had been accessed without authority.

So, back to state court they go. But just be aware that “preemption-based removal” is a thing. If you’re not careful, your well-pled state-law claims could end up being decided in the Rocket Docket whether you like it or not.

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