ITOFCA Incorporated v. Mega Trans Logistics ( 2000 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 99-4118
ITOFCA, Inc.,
Plaintiff-Appellant,
v.
MegaTrans Logistics, Inc.,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 2087--Ruben Castillo, Judge.
Argued November 3, 2000--Decided December 19, 2000
Before Flaum, Chief Judge, and Easterbrook and
Williams, Circuit Judges.
Flaum, Chief Judge. ITOFCA, Inc. ("ITOFCA")
brought suit against MegaTrans Logistics, Inc.
("MegaTrans") alleging that MegaTrans’ continual
licensing of a computer software program
constitutes an infringement on a copyright
belonging to ITOFCA. MegaTrans counterclaimed,
seeking termination of ITOFCA’s copyright in the
program along with a declaratory judgment that
MegaTrans holds a non-exclusive copyright in the
software. Additionally, MegaTrans asserted in its
counterclaim that ITOFCA has violated the Lanham
Act, 15 U.S.C. sec. 1125, by representing to
MegaTrans customers that ITOFCA is the software
copyright owner. The district court granted
MegaTrans summary judgment after determining
ITOFCA’s copyright infringement claim to be
barred by res judicata. In the same order, the
court dismissed all of MegaTrans’ counterclaims
without prejudice. ITOFCA now appeals the grant
of summary judgment. For the reasons stated
herein, we find appellate jurisdiction wanting
and therefore dismiss.
I. BACKGROUND
ITOFCA is a not-for-profit association that was
created to assist its members in the procurement
of transportation, shipping, and freight
forwarding services. By 1986, ITOFCA had
developed a comprehensive intermodal software
computer program that assisted its members in
tracking and scheduling their freight shipments.
That same year, as part of an asset transfer
agreement, ITOFCA transferred ownership of two
copies of the software to ITOFCA Consolidators,
Inc. ("ICI"), a wholly owned, for-profit
corporate subsidiary of ITOFCA. According to
ITOFCA, the transfer of software ownership did
not include any transfer of the intellectual
property rights in the software. From 1987
through 1991, ICI used and modified the software
program.
In January of 1991, ICI was forced into
bankruptcy. Since the bankruptcy proceedings
required that ICI receive court approval for any
asset transfer, the company filed a motion with
the court requesting authorization to sell one of
its copies of the software to a company named
Amerifreight. Initially, ITOFCA objected to the
sale, but after a hearing clarifying the scope of
the sale, the company withdrew its challenge.
Amerifreight and ICI subsequently executed an
assignment of ICI’s rights in the software, and
ICI delivered to Amerifreight one of its copies
of the software’s source code on magnetic tape.
In return, ICI received $25,000.
Shortly thereafter, Amerifreight transferred its
rights received under the ICI assignment to
MegaTrans, the defendant in this matter.
MegaTrans slightly altered the software and began
to market it under the name MegaLink. Between
1991 and 1998 MegaTrans licensed the MegaLink
software to three customers, raising
approximately $225,000 in revenue. ITOFCA, which
had gone dormant for almost five years,
reemerged, contacted MegaTrans, and asserted that
it, ITOFCA, owned the copyright in the software
program. The parties were unable to come to any
agreement regarding the ownership of the
intellectual property rights. Thereafter, in
March of 1999, ITOFCA applied for and obtained a
copyright registration for the comprehensive
intermodal software program.
ITOFCA subsequently filed suit in the District
Court for the Northern District of Illinois
alleging copyright infringement on the part of
MegaTrans. In addition to damages, ITOFCA sought
to enjoin MegaTrans from further alleged acts of
infringement and to have all copies of the
software produced in violation of ITOFCA’s rights
impounded. MegaTrans counterclaimed. In direct
opposition to ITOFCA’s prayer for relief,
MegaTrans sought a declaratory judgment that
ITOFCA has no copyright in the software at issue,
and that MegaTrans has been assigned on a non-
exclusive basis all intellectual property rights
in the software. Furthermore, MegaTrans sought to
have ITOFCA’s 1999 copyright registration voided.
Finally, MegaTrans alleged that ITOFCA, by
contacting certain actual and potential customers
of MegaTrans and representing to them that ITOFCA
holds the copyright to the software, has made
misleading descriptions of facts likely to cause
confusion, all in violation of 15 U.S.C. sec.
1125, the Lanham Act.
On November 19, 1999, the district court
granted summary judgment to MegaTrans. The court
found that ITOFCA had been a party to the
bankruptcy sale, which it determined to be a
judicially authorized final adjudication of the
ownership rights. According to the district
court, during those proceedings "the Bankruptcy
Court, correctly or incorrectly, purported to
sell a non-exclusive right to the computer
program ’free and clear of all liens, claims and
encumbrances.’" ITOFCA, Inc. v. MegaTrans
Logistics, Inc., No. 99 C 2087, 1999 WL 1068479,
at *3 (N.D. Ill. Nov. 19, 1999). Therefore, the
court held that by withdrawing its objection,
ITOFCA acquiesced in the sale such that res
judicata barred ITOFCA’s present attempt to
litigate copyright ownership. In entering
judgment against ITOFCA, the court noted that it
was "mindful that this order may not result in
the end of litigation because of MegaTrans’
counterclaims." Id. at *4 n.3. However, because
it felt that "some of these claims may now be
moot," the court "decided to dismiss the
counterclaims without prejudice to their refiling
in an appropriate amended fashion." Id. In doing
so, the court urged the parties to consider
settlement of any issues that remained.
ITOFCA appealed to this Court. Recognizing that
the district court’s decision may not have
constituted a final appealable judgement within
28 U.S.C. sec. 1291, on December 10, 1999, we
ordered ITOFCA to file a memorandum stating why
this appeal should not be dismissed for lack of
jurisdiction. On January 24, 2000, we ordered
that the appeal should proceed to briefing, and
that the issue of appellate jurisdiction be
considered along with the merits.
II. DISCUSSION
Both parties to this litigation maintain that
28 U.S.C. sec. 1291 confers jurisdiction upon
this Court to hear the present appeal. That
Section provides that "courts of appeal . . .
shall have jurisdiction of appeals from all final
decisions of the district courts of the United
States." 28 U.S.C. sec. 1291. However, simply
because the litigants agree that a judicial
determination is a final decision (and thus
appealable under Section 1291), does not make it
so. See Union Oil Co. of Cal. v. John Brown E &
C, 121 F.3d 305, 309 (7th Cir. 1997). "It is our
threshold and independent obligation to make that
determination even though both parties agreeably
considered the order final and appealable."
Horwitz v. Alloy Automotive Co., 957 F.2d 1431,
1435 (7th Cir. 1992).
Whether a decision is final for purposes of
sec. 1291 generally depends on whether the
decision by the district court "ends the
litigation on the merits and leaves nothing for
the court to do but execute the judgment."
Coopers & Lybrand v. Livesay, 437 U.S. 463, 467
(1978) (internal quotation omitted). ITOFCA
argues that the district court’s decision, by
granting summary judgment to MegaTrans and
dismissing all of MegaTrans’ counterclaims, has
in effect ended the litigation on the merits,
thus allowing appellate review of the summary
judgment decision. Had MegaTrans never filed
counterclaims, such that this suit only involved
ITOFCA’s claim which the district court decided
in summary judgment, our jurisdiction under sec.
1291 would be undeniable. However, the filing of
counterclaims against ITOFCA by MegaTrans calls
into question whether there has been a final
judgment for sec. 1291 purposes. This is because
"[a]n order dismissing a complaint, but not
ending the case, is not a final decision and
therefore may not be appealed." Albiero v. City
of Kankakee, 122 F.3d 417, 418 (7th Cir. 1997).
ITOFCA suggests that the district court’s
decision dismissing MegaTrans’ counterclaims
makes this case procedurally indistinguishable
from the hypothetical situation in which no
counterclaims are ever filed. We disagree. Were
MegaTrans’ counterclaims dismissed with
prejudice, such that there was no possibility of
their reemergence, ITOFCA would be correct, and
we would proceed to the merits. However, the
district court unequivocally stated that it "has
decided to dismiss the counterclaims without
prejudice to their refiling in an appropriate
amended fashion." ITOFCA, No. 99 C 2087, 1999 WL
1068479, at *4. Though earlier cases from this
Circuit may not have uniformly held so, we do
find that this "form of dismissal does not
terminate the litigation in the district court in
any realistic sense and so is not a final
decision within the meaning of 28 U.S.C. sec.
1291, which authorizes the appeal of such
decisions." JTC Petroleum Co. v. Piasa Motor
Fuels, Inc., 190 F.3d 775, 776 (7th Cir. 1999);
see also Union Oil, 121 F.3d at 309-11; Horwitz,
957 F.2d at 1435-36. To understand why, we need
not look beyond the rationale behind the district
court’s decision and the ramifications of that
decision.
In order to create a final judgment under sec.
1291 and make the order granting summary judgment
appealable, the district court had to dispose of
all the issues it did not decide in its order.
Yet, it would be disingenuous to suggest that by
dismissing the claims without prejudice, the
district court did dispose of all those issues.
Given the district court’s order, MegaTrans was
free to refile its counterclaims at any point
from the moment they were dismissed.
Theoretically, the company could have refiled the
claims on November 20, the day after the order
came down, and had those claims back in the
federal court system less than twenty-four hours
after they had been dismissed. If the effect of
the district court’s order was only to separate
those claims for a fleeting moment, we do not
believe they have been disposed of in a manner
that gives rise to sec. 1291 review. The finality
requirement of sec. 1291 should be applied
practically rather than technically. See Cohen v.
Beneficial Indus. Loan Corp., 337 U.S. 541, 546
(1949). Practically speaking, it is entirely
conceivable that while we decide the issue in the
Court of Appeals, MegaTrans could refile its
counterclaims thereby further developing the same
issue and having it adjudicated (at the same
time) at the district court level. "We, however,
sit to settle only controversies fully developed
below." Union Oil, 121 F.3d at 310 (quoting Way
v. Reliance Ins. Co., 815 F.2d 1033, 1034 (5th
Cir. 1987)). As the Supreme Court has noted, the
finality requirement in sec. 1291 evinces a
legislative judgment that "[r]estricting
appellate review to ’final decisions’ prevents
the debilitating effect on judicial
administration caused by piecemeal appeal
disposition of what is, in practical consequence,
but a single controversy." Livesay, 437 U.S. at
471./1 Thus for our purposes, we must view the
counterclaims dismissed without prejudice as if
they are still before the district court, which
they could be at any moment. Since we would not
have appellate jurisdiction under sec. 1291 if
the court had not dismissed the counterclaims, we
have no appellate jurisdiction under the
circumstances as they now exist.
Our explanation above does not suggest that
every instance in which a district court makes a
decision on one claim and dismisses the others
without prejudice, the decided issue is not
immediately appealable. For example, Rule 54(b)
authorizes the district court to make immediately
appealable a judgment that disposes, with
finality, of one or more (but not all) claims,
even though other claims remain pending in the
district court so that the suit as a whole has
not been finally disposed of by that court. See
Olympia Hotels Corp. v. Johnson Wax Dev. Corp.,
908 F.2d 1363, 1366 (7th Cir. 1990). Given our
view that the dismissal of MegaTrans’
counterclaims without prejudice has not created
a final decision that allows for Section 1291
review, Rule 54(b) would seem to be an adequate
alternative means of gaining appellate
jurisdiction. However, that mechanism cannot be
employed here. It is implicit in Rule 54(b) that
the retained and appealed claims be factually
distinct, for otherwise the court of appeals may
be forced to analyze the same facts in successive
appeals, a form of piecemeal appealing not
authorized by the rule. Id.; see also Horn v.
Transcon Lines, Inc., 898 F.2d 589, 592 (7th Cir.
1990). Two claims cannot be considered separate
merely because one is contained in the complaint,
and one is the countercomplaint. See Automatic
Liquid Packaging v. Dominik, 852 F.2d 1036, 1037
(7th Cir. 1988). In this instance, if none of the
claims in ITOFCA’s complaint were duplicated in
MegaTrans’ counterclaims, the order dismissing
the complaint would be appealable. Id. But if the
complaint and the counterclaim contain the same
claim, there has been no final judgment on the
issue. Id. Here, ITOFCA’s complaint calls upon
the court to decide ITOFCA’s and MegaTrans’
respective intellectual property rights in the
comprehensive intermodal software computer
program. MegaTrans’ counterclaims, though couched
in somewhat different legal terms, call upon this
court to make the identical determination. As we
have noted, "[I]f the same set of facts is
alleged as a breach of contract and as a breach
of a statutory duty, or as a violation of federal
and of state securities laws, or as a fraud and
as a mutual mistake, then as a practical matter
there is only one claim, and a Rule 54(b)
judgment cannot be entered." Olympia Hotels, 908
F.2d at 1367. Thus here, the counterclaims cannot
be considered distinct from the claim in the
complaint, and Rule 54(b) cannot create an
appealable final decision./2
Even assuming arguendo that the claims were
sufficiently distinct for Rule 54(b) purposes,
the dismissal without prejudice would be
insufficient to create a final judgment. Even if
it would have been proper for ITOFCA to ask the
district court to enter judgment under Rule 54(b)
as to its claim, it did not do so. In West v.
Macht, 197 F.3d 1185, 1190 (7th Cir. 1999), and
Horwitz, 957 F.2d at 1434, this court faced the
same situation and refused to aid the parties by
attempting to conform the judgment to Rule 54(b).
This refusal is in accord with our practice
regarding attempts to appeal from partial
judgments not in compliance with Rule 54(b). See
West, 197 F.3d at 1190; see also United States v.
Ettrick Wood Products, Inc., 916 F.2d 1211, 1217
(7th Cir. 1990) ("Absent proper entry of judgment
under Rule 54(b), an order that determines one
claim in a multi-claim case, or disposes of all
claims against one or more parties in a multi-
party case, is not final and appealable."). And
as we have noted in the past, "bending the rules
to provide jurisdiction is not a move to be
undertaken lightly." West, 197 F.3d at 1189.
At oral argument, when we raised the
possibility that the dismissal without prejudice
might mean that there has been no final decision
for sec. 1291 purposes, we asked MegaTrans’
attorney whether the company would represent to
the Court that it would not refile its
counterclaims. Had MegaTrans done so, we could
have treated the district court’s dismissal of
the counterclaims as having been with prejudice,
thus winding up the litigation and eliminating
the bar to our jurisdiction. See JTC Petroleum,
190 F.3d at 776-77 (7th Cir. 1999). However,
MegaTrans was unwilling to make any such
representation and thus we cannot proceed to the
merits of ITOFCA’s appeal./3
III. CONCLUSION
Even assuming as we do that MegaTrans has no
immediate plans to refile its counterclaims, the
present resolution is at best a contingent one.
If we were to affirm the district court’s grant
of summary judgment to MegaTrans, that would in
all likelihood put an end to this litigation, as
MegaTrans would have no incentive to pursue its
counterclaims. During oral arguments, MegaTrans
conceded as much. "[B]ut if we reverse the
parties will continue to litigate their dispute."
Union Oil, 121 F.3d at 309. Assuming we decided
to remand this case to the district court, there
would be no reason why MegaTrans would not wish
to reinstate its counterclaims and present them
before the trier of fact. Certainly, the district
court, in dismissing those counterclaims without
prejudice, envisioned such a possibility. As we
have stated, "the fact that the court of appeals
could end the litigation does not make a decision
on a single issue final." Massey Ferguson Div. of
Varity Corp. v. Gurley, 51 F.3d 102, 105 (7th
Cir. 1995); see also Horwitz, 957 F.2d at 1436("What this court might do or not do with an
appeal cannot make final an order that was
not."). "This court can do nothing unless it has
jurisdiction when the case arrives." Horwitz, 957
F.2d at 1436.
For the foregoing reasons, we Dismiss this appeal
for lack of jurisdiction.
/1 The final judgment rule promotes judicial
efficiency, as some issues a party seeks to
appeal before a final decision may be mooted when
the case is finally determined on the merits.
Furthermore, the rule helps to avoid piecemeal
appeals that may threaten the independence of
trial judges and prevents the potential
harassment and cost that a series of separate
appeals from various individual rulings could
create. See Rebecca A. Cochran, "Gaining
Appellate Review by ’Manufacturing’ a Final
Judgment Through Voluntary Dismissal of
Peripheral Claims," 48 Mercer L.Rev. 979 (1997).
/2 In addition to Rule 54(b) there exist other
mechanisms by which to appeal a decision on one
claim while the remaining claims either have been
dismissed without prejudice or are still
remaining at the district court level. For
example, when the issue certified for appeal
involves a controlling question of law which the
parties have substantial differences of opinion
as to the application of, and when the resolution
of the question may materially advance the
ultimate termination of the litigation, the law
allows for an interlocutory appeal. 28 U.S.C.
sec. 1292(b). We note in passing that this case
does not fit within any of the pigeonholes that
would allow such an appeal.
/3 We recognize that this case is procedurally
different from others in which we have ruled that
a dismissal without prejudice is of no assistance
in creating the finality necessary for sec. 1291.
Here, it is MegaTrans’ counterclaims which are
acting to bar a final judgment and thus appellate
jurisdiction. While those counterclaims sit in
hibernation, ITOFCA is left without an avenue to
appeal the district court’s decision against it.
In fact, the current status of this case provides
MegaTrans with no incentive to refile its
counterclaims. MegaTrans has won in the court
below, and that decision cannot be appealed so
long as the statute of limitations on its
counterclaims has not expired or those claims
have not been adjudicated. Yet, these peculiar
circumstances do not factor into our decision
that we have no appellate jurisdiction. If ITOFCA
wishes this Court to review the merits of the
district court’s decision it must either wait
until the claims are time barred, or return to
the district court to have it create a proper
final order.