Who settles copyright disputes in ownership of real estate development engineering plans: State Court or Federal Court?  A recent New Jersey District Court case recently answered this question. In Pennoni Associates, Inc. v. Medford Village East Associates, LLC (D.N.J. Dec. 20, 2011) the court was presented with this very issue.

Copyright ownership in engineering plans and architectural drawings are periodically key issues in real estate development disputes.  This case involved the development of a 280 acre parcel. Medford Village East Associates, LLC (MVE) was the original property owner who agreed to sell the property to the town, who further agreed to sell portions to third parties.  Pennoni Associates, Inc. (Pennoni) was retained by a party involved in the transaction to modify engineering plans.  In a complex state court litigation involving many parties, both MVE and Pennoni asserted ownership claims in the plans.

Based on the conflicting claims of ownership, Pennoni tried to remove the case to Federal court, but its attempt was past the 30 day limit imposed by Federal law.  Consequently, Pennoni then sought declaratory judgment in Federal court to determine who owned the copyright in the plans.  The interesting part of this decision is the analysis of whether the Federal court could take the case in light of the pending state court action.

First, the court had to decide whether Pennoni's claim presented an independent basis for jurisdiction or whether jurisdiction was dependent on the nature of the state court action.  Not surprisingly, the court found that Pennoni's claim was dependent on the state court action since the state court action was at the heart of Pennoni's request for declaratory judgment.

Second, the court analyzed whether the state court action involved a claim under federal law.  When it comes to this point in the analysis in most declaratory judgment cases, courts usually have to speculate as to a hypothetical legal case that might be brought if the issue presented by the declaratory judgment action is not decided by the court.  In this case however, there was already a pending state court action.  Ironically, Pennoni's failed attempt to remove the case to Federal court provided the basis for the court to find that the case involved a claim under federal law.  In other words, in previously ruling that the case could not be removed to Federal court, the court necessarily had concluded that there was a federal question that triggered the applicability of the time limits to remove the case under federal law.

Based on the first two steps in the analysis, the court found that it had subject matter jurisdiction, but the analysis did not stop there.  The court noted that under the Declaratory Judgment Act its exercise of jurisdiction over such an action is discretionary.  So, at the end of the day, the court directed the parties to file supplemental briefs explaining why they think the court should or should not exercise its discretion to take the case.

Anybody willing to post a prediction as to what whether the court will (or should) take the case?