Aikens v. Microsoft Corp. , 159 F. App'x 471 ( 2005 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-1013
CYNTHIA M. AIKENS; JACQUELINE BELFIELD; AMBER
CISNEY,
Plaintiffs - Appellants,
versus
MICROSOFT CORPORATION,
Defendant - Appellee.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. J. Frederick Motz, District Judge. (CA-
00-2132-JFM; CA-00-1332-MDL)
Argued: September 20, 2005 Decided: December 15, 2005
Before LUTTIG and GREGORY, Circuit Judges, and Robert J. CONRAD,
Jr., United States District Judge for the Western District of North
Carolina, sitting by designation.
Affirmed by unpublished per curiam opinion.
ARGUED: John Kerry Weston, SACKS & WESTON, Philadelphia,
Pennsylvania, for Appellants. David Bruce Tulchin, SULLIVAN &
CROMWELL, New York, New York, for Appellee. ON BRIEF: G. Stewart
Webb, Jr., VENABLE, L.L.P., Baltimore, Maryland; Thomas W. Burt,
Richard J. Wallis, Steven J. Aeschbacher, MICROSOFT CORPORATION,
Redmond, Washington; Joseph E. Neuhaus, Richard C. Pepperman, II,
Sharon L. Nelles, SULLIVAN & CROMWELL, New York, New York; Charles
B. Casper, Peter Breslauer, MONTGOMERY, MCCRACKEN, WALKER & RHOADS,
L.L.P., Philadelphia, Pennsylvania, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
2
PER CURIAM:
In November 1999, the United States District Court for the
District of Columbia entered findings of fact in the United States
Department of Justice’s federal antitrust suit ("federal antitrust
action") against Microsoft Corporation (“Microsoft”).1 Shortly
thereafter, in January 2000, the plaintiffs, Cynthia Aikens,
Jacqueline Belfield, and Amber Cisney (collectively “the
plaintiffs”), sued Microsoft in Louisiana state court on behalf of
a putative class of Louisiana residents who had purchased Microsoft
operating system software. The plaintiffs claimed that, because of
Microsoft’s anti-competitive and monopolistic practices, they had
paid more for Microsoft’s operating software than they otherwise
would have in a competitive market. Microsoft removed the case to
federal court, and the Judicial Panel on Multidistrict Litigation
(“JPML”) transferred the matter to the United States District Court
for the District of Maryland (“the district court”). Subsequently,
the district court denied the plaintiffs’ motion to remand and
later dismissed their causes of action for failure to state a claim
under Louisiana law. The plaintiffs appeal both rulings.
1
In this proceeding, the Justice Department and various state
attorneys general alleged that Microsoft had violated provisions of
the Sherman Act, 15 U.S.C. § 1 et seq., and section 4 of the
Clayton Act, 15 U.S.C. § 15. See United States v. Microsoft Corp.,
84 F. Supp. 2d 9, 12 (D.D.C. 1999). Hereinafter, we will refer to
this proceeding as “the federal antitrust action.”
3
We affirm the district court’s order denying the motion to
remand, because we find that the court had jurisdiction over the
claims of the class representatives based on diversity of
citizenship under 28 U.S.C. § 1332 and over the claims of the other
class members based on supplemental jurisdiction under 28 U.S.C.
§ 1367. Further, because the plaintiffs’ complaint is devoid of
any factual basis for the state law claims, we affirm the order of
dismissal.
I.
The plaintiffs’ complaint borrowed liberally from the findings
of fact issued in the federal antitrust action. Specifically, the
plaintiffs asserted that with the release of its Windows 98
operating system in 1998, Microsoft had achieved a monopoly over
“the operating systems installed in virtually all Intel-compatible
personal computers worldwide.” J.A. 178. Further, the plaintiffs
alleged that Microsoft was able to create and maintain this
monopoly by intimidating potential competitors. As a result of
these monopolistic practices, the plaintiffs asserted that
Microsoft was able “to charge a substantially higher price for its
software than that which could be charged in a competitive market.”
Id. In asserting these factual antitrust allegations, the
plaintiffs did not cite any specific theory of liability or cause
of action.
4
In addition to alleging antitrust violations, the plaintiffs
also asserted that Microsoft was liable, under Louisiana law, for
(a) bad faith breach of contract; (b) negligent misrepresentation;
(c) fraudulent misrepresentation; (d) unjust enrichment; (e) breach
of warranty concerning redhibitory defects; and (f) any other acts
of negligence or violations of Louisiana law. J.A. 174-75. The
plaintiffs offered no separate factual support for these additional
state law allegations.
The plaintiffs, all indirect purchasers of Microsoft
software,2 concluded that they were entitled to damages, “including
but not limited to, the difference between the price the class
members actually paid for Windows 95, Windows 98, and Internet
Explorer and the amount they would have paid if Microsoft was not
an illegal monopoly.” J.A. 179. The plaintiffs also sought
“remuneration . . . of all sums by which Microsoft has been
directly and indirectly unjustly enriched[,]” in addition to treble
damages and reasonable attorneys fees. J.A. 180-82. In an
apparent attempt to avoid federal diversity jurisdiction, the
plaintiffs contended that they were not seeking recoveries in
excess of $75,000 per class member. See J.A. 181.
2
As indirect purchasers, the plaintiffs did not buy their
operating system software directly from Microsoft but, instead,
purchased the software from intermediaries such as retailers and
wholesalers.
5
After the JPML transferred this action to the United States
District Court for the District of Maryland in April 2000, the
plaintiffs filed a motion to remand to the state court for lack of
subject matter jurisdiction. In support of the motion, the
plaintiffs argued that to the extent that they had limited their
prayer for damages to no more than $75,000 per class member, there
was no subject matter jurisdiction on the basis of diversity of
citizenship. Further, the plaintiffs argued that there was no
federal question jurisdiction because their antitrust allegations
relied on Louisiana law and did not involve substantial questions
of federal antitrust law. J.A. 188-89.
Concluding that it had original jurisdiction over the action,
the district court denied the plaintiffs’ motion to remand. First,
the district court asserted jurisdiction on the basis of diversity
of citizenship, concluding that the plaintiffs’ collective prayer
for remuneration or disgorgement of profits would yield a recovery
well in excess of $75,000. Alternatively, the district court held
that it had federal question jurisdiction because the plaintiffs’
complaint raised substantial questions of federal antitrust law.
Subsequently, Microsoft moved to dismiss the unjust enrichment
claim under Federal Rule Civil Procedure 12(b)(6). The district
court granted this motion, finding that the unjust enrichment claim
was not supported by Louisiana law. Thereafter, Microsoft moved
for dismissal and/or summary judgment of the remaining state law
6
claims. The district court granted that motion in December 2004.
In so doing, the district court held that the plaintiffs had failed
to raise any facts that would support those causes of action. See
J.A. 472-73.
II.
We first turn to the district court’s order denying the
plaintiffs’ motion to remand. This Court reviews questions of
subject matter jurisdiction de novo. Dixon v. Cogburg Dairy, Inc.,
369 F.3d 811, 814 (4th Cir. 2004)(en banc). The burden of
demonstrating subject matter jurisdiction rests on the party
seeking removal. Mulcahey v. Columbia Organic Chems. Co., 29 F.3d
148, 151 (4th Cir. 1994). Because of the underlying federalism
concerns, this Court must strictly construe removal jurisdiction.
Id. “If federal jurisdiction is doubtful, a remand is necessary.”
Id.Pursuant to section 1441 of Title 28, “any civil action
brought in a State court of which the district courts of the United
States have original jurisdiction, may be removed by the defendant
. . . to the district court of the United States for the district
and division embracing the place where such action is pending.” 28
U.S.C. § 1441(a)(2000). In this case, Microsoft argues that
removal was proper because the district court had original
jurisdiction under 28 U.S.C. § 1331. Section 1331 grants district
7
courts “original jurisdiction of all civil actions arising under
the Constitution, laws, or treaties of the United States.” 28
U.S.C. § 1331. Microsoft also contends that the district court had
original jurisdiction under section 1332 of Title 28. Under that
provision, federal courts “shall have original jurisdiction of all
civil actions where the matter in controversy exceeds the sum or
value of $75,000, exclusive of interest and costs, and is between
. . . citizens of different states.” Id. § 1332(a)(1).
A.
We believe that this court has jurisdiction over the claims of
the class representatives based on diversity of citizenship under
28 U.S.C. § 1332 and over the claims of the other class members
based on supplemental jurisdiction under 28 U.S.C. § 1367. It is
undisputed that the parties are diverse, see J.A. 189, and we
conclude that the amount in controversy is satisfied for the class
representatives based on the provisions in Louisiana law governing
the allocation of attorney’s fees in class actions. Because
attorney’s fees in this class action, which would easily exceed
$75,000, are awarded pursuant to the substantive state statutes
under which the plaintiffs’ causes of action accrue, and because
under La. Code Civ. Proc. art. 595(A), the attorney’s fees would be
awarded entirely to the class representatives, the amount in
controversy is satisfied for the class representatives. See In re
8
Abbott Labs., 51 F.3d 524, 526-27 (5th Cir. 1995) (holding, in a
Louisiana antitrust class action, that the amount in controversy
was satisfied for the class representatives because of article
595(A)). Supplemental jurisdiction then exists over the claims of
the other class members. See id. at 527-29; see also Exxon Mobil
Corp. v. Allapattah Servs., Inc., 125 S. Ct. 2611, 2625 (2005)
(ratifying Abbott Laboratories’ holding with respect to
supplemental jurisdiction).
The district court rejected this argument because it believed
that in order to rely upon Abbott Laboratories, the plaintiffs’
right to attorney’s fees must derive from a substantive state
statute, not just article 595(A), and it concluded that the
plaintiffs did not rely on a substantive state statute that
provided for attorney’s fees. J.A. 446. Even assuming that the
district court’s narrow construction of Abbott Laboratories is
correct, which the parties dispute, the district court’s conclusion
was still in error. Abbott Laboratories recognized, and the
district court itself admitted, that Louisiana’s antitrust statute
awards mandatory attorney’s fees as part of a prevailing
plaintiff’s recovery. See Abbott Laboratories, 51 F.3d at 526
(citing La. Rev. Stat. Ann. § 51:137); J.A. 446. Because the state
antitrust statute is a substantive statute that provides for
mandatory attorney’s fees, the amount in controversy is satisfied
under Abbott Laboratories.
9
The plaintiffs have one final argument. They claim that Count
47 of their complaint limits their requested damages to $75,000 and
thus diversity jurisdiction does not exist even if the attorney’s
fees would otherwise satisfy the amount in controversy requirement.
Count 47 states:
Plaintiffs and the plaintiff class seek monetary
relief as provided by Louisiana law. Plaintiffs and each
member of the class have individually incurred damages
under the laws of Louisiana in an amount less than
$75,000. Neither of the Plaintiffs, nor any member of
the class seeks damages exceeding $75,000, nor do their
damages individually exceed $75,000, inclusive of
interest and attorneys’ fees and all relief of any nature
sought hereunder. Plaintiffs do not seek any form of
“common” recovery, but rather individual recoveries not
to exceed $75,000 for any class member, inclusive of
interest and attorneys’ fees and all relief of any nature
sought hereunder.
J.A. 181. We conclude, however, that the language in Count 47 is
insufficient to limit the plaintiffs’ possibility of recovery to
$75,000 for the purposes of determining the amount in controversy
and that diversity of citizenship jurisdiction therefore exists.
It is true that a plaintiff can “resort to the expedient of
suing for less than the jurisdictional amount, and though he would
be justly entitled to more, the defendant cannot remove.” See St.
Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 294
(1938). However, as courts have recognized, this dicta in St. Paul
Mercury was premised on the notion that plaintiffs would be bound
by the amount alleged in the ad damnum clause of the complaint, see
De Aguilar v. Boeing Co., 47 F.3d 1404, 1410 (5th Cir. 1995), a
10
premise that is no longer uniformly true and that is clearly not
true in Louisiana, where La. Code Civ. Proc. art. 862 provides that
courts can grant relief to which a successful plaintiff is
entitled, regardless of the ad damnum clause, see Manguno v.
Prudential Property & Casualty Insurance Co., 276 F.3d 720, 722
(5th Cir. 2002). This gives rise to the concern that plaintiffs
will use a low ad damnum clause to avoid removal, secure in the
knowledge that state law will allow them to recover more after
removal would no longer be timely. See De Aguilar, 47 F.3d at
1410. Courts have resolved this concern by requiring plaintiffs
seeking to defeat removal jurisdiction in states where the ad
damnum clause at the time of filing is not legally binding to “file
a binding stipulation or affidavit with their complaints.” Id. at
1412.
The plaintiffs do not appear to dispute these general
principles, but instead argue that Count 47, in which they disclaim
any intent to seek more than $75,000, is not just an ad damnum
clause, but is also a “judicial confession” under Louisiana law
that should have the same legal effect as a De Aguilar stipulation
-- namely, it should prevent plaintiffs from receiving more than
$75,000. However, the precise language of Count 47 does not
support their assertion. Count 47 alleges that plaintiffs “have
individually incurred damages . . . less than $75,000" and do not
“seek[] damages exceeding $75,000.” J.A. 181. It does not,
11
however, stipulate that the plaintiffs will not accept more than
$75,000 if the court awards it. And since Count 47 also explicitly
notes that the plaintiffs “seek monetary relief as provided by
Louisiana law,” id., and article 862 provides that, regardless of
the complaint, a court “shall grant the relief to which the party
in whose favor [judgment] is rendered is entitled,” it is possible
that the court could award the plaintiffs more than $75,000 even
though they do not seek it. Thus, the Fifth Circuit has held that,
given Louisiana law, language similar to Count 47 does not suffice
to defeat diversity jurisdiction. See Manguno, 276 F.3d at 722,
724 (holding, because of article 862, that language in the
complaint stating that “the amount in controversy does not exceed
$75,000" and that “plaintiffs are not seeking attorneys fees” was
insufficient to defeat diversity jurisdiction based on attorneys’
fees).3
Thus, we conclude that the district court did not err in
denying the motion to remand for lack of jurisdiction. The amount
3
Moreover, it is questionable whether Count 47 would have been
sufficient even if it had disclaimed any ability to accept more
than $75,000. There would remain a conflict between article 862,
which grants the plaintiff the relief to which he is entitled, even
if it was not demanded in the complaint, and De Aguilar’s holding
that a binding stipulation suffices to prevent federal
jurisdiction. We believe the best way to resolve this conflict may
be to require that the stipulation be made outside of the text of
the complaint (but of course still within the pending proceedings),
so that any state laws concerning the ad damnum clause are not
implicated. This position is supported by language in De Aguilar.
See 47 F.3d at 1412 (stating that plaintiffs “must file a binding
stipulation or affidavit with their complaints” (emphasis added)).
12
in controversy is satisfied because the Louisiana antitrust statute
provides for mandatory attorney’s fees that article 595(A) directs
shall be awarded to the class representatives. Because Count 47 of
the plaintiff’s complaint does not effectively surrender that
entitlement under Louisiana law, we hold that diversity of
citizenship jurisdiction exists with respect to the class
representatives and that supplemental jurisdiction exists with
respect to the other class members.
B.
Because we conclude that diversity jurisdiction exists, we
find it unnecessary to reach the district court’s alternative basis
for finding original jurisdiction: federal question jurisdiction
under 28 U.S.C. § 1331.
III.
The plaintiffs also appeal the district court’s order
dismissing their non-antitrust state law claims. Although the
factual allegations in the complaint related entirely to
Microsoft’s anti-competitive and monopolistic practices, the
plaintiffs also concluded that Microsoft was liable for unjust
enrichment, bad faith breach of contract, misrepresentation, and
breach of warranty concerning redhibitory defects.
13
We review the district court’s dismissal for failure to state
a claim under Federal Rule of Civil Procedure 12(b)(6) de novo.
Flood v. New Hanover County, 125 F.3d 249, 251 (4th Cir. 1997). In
considering the motion to dismiss, we will accept as true the
plaintiffs’ factual allegations and construe them in the light most
favorable to the plaintiffs. Randall v. United States, 30 F.3d
518, 522 (4th Cir. 1994). Dismissal under Rule 12(b)(6) is proper
“only if it is clear that no relief could be granted under any set
of facts that could be proved consistent with the allegations.”
Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).
A.
The district court properly dismissed the plaintiffs’ unjust
enrichment claim. Under Louisiana Civil Code Article 2298, “[a]
person who has been enriched without cause at the expense of
another person is bound to compensate that person.” La. Civ. Code
Ann. art. 2298 (West 2000). However, the unjust enrichment remedy
is “subsidiary” in nature and “shall not be available if the law
provides another remedy for the impoverishment or declares a
contrary rule.” Id. Indeed, “where there is a rule of law
directed to the issue, [an unjust enrichment claim] must not be
allowed to defeat the purpose of said rule.” Coastal Env’t
Specialists, Inc. v. Chem-Lig Int’l, Inc., 818 So. 2d 12, 19 (La.
Ct. App. 2001).
14
The plaintiffs sought unjust enrichment damages for
Microsoft’s “monopolistic, anti-competitive practices.” J.A. 180.
As indirect purchasers, however, the plaintiffs cannot sue to
recover monetary damages under Louisiana antitrust law. See Free
v. Abbott Labs., Inc., 176 F.3d 298, 301 (5th Cir. 1999) (finding
that Louisiana courts would follow the federal Illinois Brick rule
barring indirect purchaser suits for monetary damages). Therefore,
to the extent that the plaintiffs cannot sue for monetary damages
under Louisiana antitrust law, they cannot employ a subsidiary
unjust enrichment claim to circumvent this rule. See Coastal Env’t
Specialists, Inc., 818 So. 2d at 19. Accordingly, we affirm the
district court’s dismissal of the unjust enrichment claim.
B.
Next, the plaintiffs assert that the district court erred in
dismissing their bad faith breach of contract claim. Under Article
1997 of the Louisiana Civil Code, “[a]n obligor in bad faith is
liable for all damages, foreseeable or not, that are a direct
consequence of his failure to perform.” In order to prove bad
faith, the plaintiff must demonstrate that the defendant
“intentionally and maliciously [failed] to perform his obligation.”
First Nat’l Bank of Jefferson Parish v. Dazet, 656 So. 2d 1110,
1113 (La. Ct. App. 1995). Bad faith entails “some interested or
sinister motive and implies the conscious doing of wrong for
15
dishonest or morally questionable motives.” Pellerin Constr., Inc.
v. Witco Corp., 169 F. Supp. 2d 568, 585 (E.D. La. 2001)(quoting
First Nat’l Bank of Jefferson Parish, 656 So. 2d at 1113).
We will assume, as the district court did, that Microsoft’s
end-user software licensing agreement constituted an adequate basis
in fact for a contract between the parties. However, the complaint
lacked any factual allegations regarding how Microsoft breached the
terms of that agreement. Further, the plaintiffs failed to allege
how Microsoft acted with sinister or morally questionable motives.
Given these omissions, this Court cannot infer the essential
elements of a bad faith breach of contract claim. Accordingly, we
hold that the district court properly dismissed this claim.
C.
The plaintiffs’ negligent and fraudulent misrepresentation
claims also fail. To prove negligent misrepresentation, the
plaintiff must demonstrate that (1) the defendant had a legal duty
to supply correct information; (2) the defendant breached that
duty; and (3) the plaintiff was damaged as a result of his
justifiable reliance on the defendant’s misrepresentations. See
Hughes v. Goodreau, 836 So. 2d 649, 663 (La. Ct. App. 2002).
Fraudulent misrepresentation occurs where the defendant
misrepresents or suppresses the truth with the intent “either to
obtain an unjust advantage for one party or to cause a loss or
16
inconvenience to the other.” Ballard’s Inc. v. North Am. Land Dev.
Corp., 677 So. 2d 648, 650 (La. Ct. App. 1996). In order to prove
fraudulent misrepresentation by silence or inaction, the plaintiff
must demonstrate that the defendant had a duty to disclose. Id. at
650-51.
As the district court correctly concluded, the
misrepresentation claims fail because the complaint is devoid of
any facts that would give rise to a legal duty on the part of
Microsoft to supply correct information regarding the
incompatibility of its software with third-party applications.
Indeed, we cannot infer the existence of such a duty from any of
the plaintiffs’ unrelated antitrust allegations. Therefore, we
hold that the district court properly dismissed the
misrepresentation claims.
D.
Finally, the plaintiffs contend that the district court erred
in dismissing their redhibitory defect claim. “Redhibition is the
avoidance of a sale on account of some vice or defect in the thing
sold, which renders it either absolutely useless, or its use is so
inconvenient and imperfect, that it must be supposed that the buyer
would not have purchased the object, if the buyer would have been
aware of the vice or defect in the object.” La. Civ. Code Ann.
art. 2520 (West 2000). Furthermore, a plaintiff suing for a
17
redhibitory defect “must also prove that the defect existed at the
time of the sale, and that [the plaintiff] afforded the seller an
opportunity to repair the defect.” Anzelmo v. Pelican Computer,
892 So.2d 659, 662 (La. Ct. App. 2004).
For computer software, Louisiana courts have found redhibitory
defects where the product itself was defective or otherwise failed
to perform to its specifications. See Anzelmo v. Pelican Computer,
892 So. 2d 659 (La. Ct. App. 2004); Photo Copy, Inc. v. Software,
Inc., 510 So. 2d 1337, 1339-40 (La. Ct. App. 1987). In Anzelmo,
the court concluded that a computer that experienced continual CD-
ROM errors was “not useful for the purpose intended by the buyer”
and, therefore, was defective within the meaning of article 2520.
892 So. 2d at 662. Similarly, in Photo Copy, the court held that
a customized software program’s failure to perform specific
applications requested by the buyer constituted a redhibitory
defect. 510 So. 2d at 1341.
The plaintiffs contend that the defect in this case was
“Microsoft’s ability to maintain control over third party [sic]
application software’s compatibility with the Windows operating
system.” Appellants’ Reply Br. at 21. In other words, the
plaintiffs allege that the Microsoft software is defective because
Microsoft’s anti-competitive practices inhibited the development of
non-Microsoft software applications. These alleged practices do
not constitute redhibitory defects within the meaning of article
18
2520. Unlike the plaintiffs in Alzemo and Photo Copy, the
plaintiffs in this case cannot identify a function or application
of Microsoft’s operating software that failed to perform to its
specifications. Accordingly, we hold that the district court
properly dismissed the redhibitory defect claim.
IV.
For the reasons stated above, the judgments of the district
court denying the plaintiffs’ motion to remand and granting the
defendant’s motion to dismiss are affirmed.
AFFIRMED
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