Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-03025/USCOURTS-cand-3_05-cv-03025-0/pdf.json

Parties Involved:
Honeywell International, Inc.
Defendant
Alfred T. Wright
Plaintiff

Document Text:

United States District Court

For the Northern District of California

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 The following action was also transferred, but the case file has not yet been received by the Clerk:

Vincent Fagan, et al., v. Honeywell International, Inc., D. Massachusetts, C.A. No. 1:05-10119. The voluntary

dismissal of R. Sadler Bailey, et al., v. Honeywell International, Inc., No. C 05-2986 WHA was approved on

August 18, 2005.

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

IN RE CIRCULAR THERMOSTAT

ANTITRUST LITIGATION

 /

This document relates to:

ALL ACTIONS

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MDL Docket No. C 05-01673 WHA

ORDER REMANDING ACTIONS

TO STATE COURTS

INTRODUCTION

In these actions transferred to this Court by the Judicial Panel on Multidistrict Litigation

and consolidated for pretrial proceedings, plaintiffs allege unfair competition and antitrust

violations under various state laws:

Brian Brock, et al., v. Honeywell International, Inc., No. C 04-5328 WHA (California); 

Thomas Fullum, et al., v. Honeywell International, Inc., No. C 05-2076 WHA (New York);

John McKinnon, et al., v. Honeywell International, Inc., No. C 05-2920 WHA (Maine);

R. Sadler Bailey, et al., v. Honeywell International, Inc., No. C 05-2986 WHA (Tennessee); and

Alfred T. Wright, et al., v. Honeywell International, Inc., No. C 05-3025 WHA (Vermont).*

Plaintiffs now move to remand these actions back to state courts due to lack of subject-matter

jurisdiction. Because this order finds that there was an inadequate basis for removal, plaintiffs’

motions to remand are GRANTED in all actions.
United States District Court

For the Northern District of California

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STATEMENT

Plaintiffs in each of the member actions are indirect purchasers of circular thermostats

manufactured and sold by defendant Honeywell International, Inc. Because all of these actions

are prosecuted by the same core group of counsel, the factual allegations in the complaints are

nearly identical. The named plaintiffs assert claims on behalf of themselves and all other

residents of their respective states who have purchased Honeywell circular thermostats since

June 30, 1986. Only state law claims are asserted.

To protect its circular thermostats, defendant secured both a utility patent (U.S. Patent

No. 2,394,920), which expired in 1963, and a design patent (U.S. Patent No. D176,657), which

expired in 1970. In 1968, defendant submitted an application for federal trademark protection,

but it was denied on the basis that the circular shape could not be trademarked because it was

functional. At this point, several other thermostat manufacturers (including Penn Controls,

Quad Six and Hunter Fan Company) attempted to enter the market for circular thermostats, but

were ultimately unsuccessful, allegedly due to defendant’s predatory acts. On May 9, 1986,

defendant filed a second trademark application, which ultimately led to a federal trademark

(No. 1,622,108) being registered on November 13, 1990. This trademark is a subject of the

current litigation.

Each complaint alleges that defendant engaged in a pattern of anticompetitive practices

that led to a nearly 100% monopoly of the alleged relevant market (i.e., circular thermostats for

residential use), thus enabling it to sell its products at artificially inflated prices. Specifically,

defendant is accused of threatening and coercing rival thermostat manufacturers into not

producing competing circular thermostats by a pattern of sham and baseless trademark

infringement litigation; deceiving the United States Patent and Trademark Office (“PTO”) into

believing no competition existed, something it knew to be false, and thereby securing its

registered trademark; combining with a rival manufacturer (Emerson Electric) to prevent that

rival from giving unfavorable testimony in opposition to defendant’s second trademark

application; and purchasing at least one rival thermostat manufacturer (Quad Six) so as to

suppress competition for circular thermostats and to mislead the PTO (Brock Compl. ¶ 45;
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Fullum Compl. ¶ 29; McKinnon Compl. ¶ 77; Bailey Compl. ¶ 77; Wright Compl. ¶ 77; Fagan

Compl. ¶ 77).

On the basis of these allegedly deceptive and monopolistic business practices, plaintiffs

assert various violations of state law. In California, plaintiffs’ causes of action are unlawful

restraint of trade in violation of the Cartwright Act, California Business and Professions Code

§ 16720, et seq.; common law monopolization; and unfair competition in violation of California

Business and Professions Code § 17200, et seq. In New York, plaintiff allege that defendant

engaged in illegal practices to suppress competition in violation of § 349 of New York’s

General Business Law. In Maine, plaintiffs assert restraint of trade in violation of 10 Maine

Revised Statutes § 1101, et seq. In Tennessee, the complaint alleges unlawful restraint of

competition and price fixing in violation of the Tennessee Trade Practices Act, Tennessee Code

Annotated § 47-25-101, et seq. and unfair competition in violation of the Tennessee Consumer

Protection Act, Tennessee Code Annotated § 47-18-104, et seq. In Vermont, plaintiffs assert

unfair competition in violation of 9 Vermont Statutes Annotated § 2451, et seq. Finally, in

Massachusetts, plaintiffs allege unfair competition in violation of Massachusetts General Law

Chapter 93A § 2.

Defendant removed all six actions to federal court, on the basis that there were

“substantial federal questions” raised regarding the validity of its trademark and its conduct

before the PTO. Plaintiffs made timely motions for remand. The majority of district courts

either declined to rule or denied the motion without prejudice to renewal; only one court

(Western District of Tennessee) engaged in any substantive analysis before denying the motion. 

By order of the Judicial Panel on Multidistrict Litigation, these actions were transferred to this

Court for consolidated pretrial proceedings. After a round of supplemental briefing as well as a

hearing, this order now addresses the pending remand motions.

ANALYSIS

1. LEGAL STANDARD.

Removal under 28 U.S.C. 1441(b) is permitted for actions involving a federal question

over which the district court could have exercised original jurisdiction pursuant to 28 U.S.C.
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For the Northern District of California

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1331. The removing party bears the burden of establishing that removal is proper. Emrich v.

Touche Ross & Co., 846 F.2d 1190, 1195 (9th Cir. 1990). The removal statutes are strictly

construed such that any doubts are resolved in favor of remand. Gaus v. Miles, Inc., 980 F.2d

564, 566 (9th Cir. 1992).

The “well-pleaded complaint rule” provides that federal jurisdiction only exists when a

federal question is presented on the face of plaintiff’s properly pleaded complaint, unaided by

the answer or by the petition for removal. Gully v. First Nat’l Bank in Meridian, 299 U.S. 109,

113 (1936). A federal defense is not part of a plaintiff’s claim, “even if the defense is

anticipated in the plaintiff’s complaint, and even if both parties admit that the defense is the

only question truly at issue in the case.” Franchise Tax Bd. of Calif. v. Construction Laborers

Vacation Trust for S. Calif., 463 U.S. 1, 14 (1983). This rule thus enables the plaintiff, as

“master of the complaint,” to have his action heard in state court “by eschewing claims based on

federal law.” Caterpillar Inc. v. Williams, 482 U.S. 385, 399 (1987).

The “vast majority” of federal-question cases “are those in which federal law creates the

cause of action;” yet, where the plaintiff only asserts causes of action under state law, an action

may nonetheless be deemed to “arise under federal law ‘where the vindication of a right under

state law necessarily turn[s] on some construction of federal law.’” Merrell Dow Pharms., Inc.

v. Thompson, 478 U.S. 804, 808 (1986)(citation omitted). The “mere presence of a federal issue

in a state cause of action,” however, does not automatically raise a federal question. Id. at 813.

In Merrell Dow, misbranding of a drug in violation of a federal statute — the Federal

Food, Drug, and Cosmetic Act (“FDCA”) — was alleged to establish a rebuttable presumption

of negligence under state law. Id. at 806. All agreed that plaintiffs asserted no federal claims. 

The Supreme Court ultimately found that because there was no private right of action under the

FDCA, “the presence of a claimed violation of the statute as an element of a state cause of

action [wa]s insufficiently ‘substantial’ to confer federal-question jurisdiction.” Id. at 814.

This issue was recently revisited by the Supreme Court in Grable & Sons Metal Prods.,

Inc. v. Darue Eng’g & Mfg., ___ U.S. ___, 125 S. Ct. 2363 (2005). Therein, the Court again

recognized that “in certain cases federal question jurisdiction will lie over state-law claims that
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implicate significant federal issues.” Id. at 2367. “[F]ederal jurisdiction demands not only a

contested federal issue, but a substantial one, indicating a serious federal interest in claiming the

advantages thought to be inherent in a federal forum. Ibid. Yet, this is no bright-line rule.

But even when the state action discloses a contested and substantial

federal question, the exercise of federal jurisdiction is subject to a possible

veto. For the federal issue will ultimately qualify for a federal forum only if

federal jurisdiction is consistent with congressional judgment about the sound

division of labor between state and federal courts governing the application of

§ 1331. Thus, Franchise Tax B[oard] explained that the appropriateness of a

federal forum to hear an embedded issue could be evaluated only after

consider the “welter of issues regarding the interrelation of federal and state

authority and the proper management of the federal judicial system.” Because

arising-under jurisdiction to hear a state-law claim always raises the

possibility of upsetting the state-federal lines drawn (or at least assumed) by

Congress, the presence of a disputed federal issue and the ostensible

importance of a federal forum are never necessarily dispositive; there must

always be an assessment of any disruptive portent in exercising federal

jurisdiction.

These considerations have kept us from stating a “single, precise,

all-embracing” test for jurisdiction over federal issues embedded in state-law

claims between non diverse parties. We have not kept them out simply

because they appeared in state raiment, . . . but neither have we treated

“federal issue” as a password opening federal courts to any state action

embracing a point of federal law. Instead, the question is, does a state-law

claim necessarily raise a stated federal issue, actually disputed and substantial,

which a federal forum may entertain without disturbing any congressionally

approved balance of federal and state judicial responsibilities. Id. at 2367–68

(internal citations omitted).

In Grable, petitioner was the former owner of real property seized by the Internal

Revenue Service and sold to the respondent in a federal tax sale. Grable brought a quiet title

action in state court, claiming that pursuant to 26 U.S.C. 6335, the IRS should have given notice

of the sale by personal service, rather than certified mail. The Supreme Court found that

removal jurisdiction was proper because the disputed “meaning of the federal tax provision is

an important issue of federal law that sensibly belongs in a federal court.” Id. at 2368. 

2. APPLICATION.

There is no dispute that plaintiffs’ complaints only allege causes of action under state

laws. Indeed, claims arising under federal law are expressly disclaimed in five of the six

complaints (Brock Compl. ¶ 15; McKinnon Compl. at 1; Bailey Compl. at 1, ¶ 4; Wright Compl.

at 1; Fagan Compl. at 1). The issue, then, is whether these actions nonetheless “arise under”
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federal law. Defendant argues that plaintiffs’ complaints raise substantial questions of

trademark law. The Court disagrees.

At first blush, it would greatly simplify matters if the trademark issues could be

characterized as anticipated defenses, as plaintiffs argue, rather than as part of plaintiffs’ causes

of action. But alas, this is not so. The alleged fraudulent procurement of a registered trademark

and subsequent sham litigation are both elements of plaintiffs’ primary theories of

monopolization and unfair competition.

Plaintiffs also argue that there is no substantial federal question because findings of

trademark invalidity and defendant’s fraudulent conduct before the PTO were already made in a

prior lawsuit. Eco Mfg. LLC v. Honeywell Int’l Inc., 295 F. Supp.2d 854 (S.D. Ind. 2003),

affirmed, 357 F.3d 649 (7th Cir. 2003). In short, plaintiffs assert that collateral estoppel would

render any further litigation of these federal issues unnecessary. See Coker v. Purdue Pharma

Co., 314 F. Supp.2d 777, 783–74 (W.D. Tenn. 2004). Closer examination, however, reveals

that this collateral-estoppel theory would likely be unsuccessful.

By way of example, “California courts apply the doctrine of issue preclusion (also

referred to as collateral estoppel in state courts) if: (1) the issue decided in the prior case is

identical with the one now presented; (2) there was a final judgment on the merits in the prior

case, and (3) the party to be estopped was a party to the prior adjudication.” San Remo Hotel,

L.P. v. San Francisco City and County, 364 F.3d 1088, 1096 (9th Cir. 2004). Similar standards

are used by other courts. Even assuming arguendo that plaintiffs are able to meet the first and

third prongs of this test, there was no final judgment on the merits in Eco.

On the contrary, the decision cited above was merely an order denying preliminary

injunctive relief. In the Ninth Circuit, “issues litigated in a preliminary injunction action are not

res judicata and do not form a basis for collateral estoppel.” Kuzinich v. County of Santa Clara,

689 F.2d 1345, 1350–51 (9th Cir. 1982); see also Bomberger v. McKelvey, 35 Cal.2d 607,

612–13 (1950)(“[U]nless it appears that the court intended a final adjudication of the issue

involved, a decision on an application for a preliminary injunction does not amount to a

decision on the ultimate rights in controversy.”). This order recognizes that the level of finality
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required to preclude further litigation of the same issue is somewhat flexible and “turns upon

such factors as the nature of the decision (i.e., that it was not avowedly tentative), the adequacy

of the hearing, and the opportunity for review.” Lummos Co. v. Commonwealth Oil Refining

Co., 297 F.2d 80, 89 (2nd Cir. 1961). A judgment rendered in an appeal from a preliminary

injunction order could “be given preclusive effect if it is necessarily based upon a determination

that constitutes an insuperable obstacle to the plaintiff’s success on the merits.” Miller Brewing

Co. v. Jos. Schlitz Brewing Co., 605 F.2d 990, 995–96 (7th Cir. 1979). But no such

determination was made here.

In Eco, Judge David F. Hamilton of the Southern District of Indiana explicitly noted that

“[a]ll findings of fact and conclusions of law [we]re based on the limited record established in

the preliminary injunction proceeding and [we]re subject to reconsideration on a more complete

record.” Eco, 295 F. Supp.2d at 856. Likewise, on appeal, Judge Frank H. Easterbrook stressed

that the only question on review was “whether the shape of Honeywell’s thermostat is so clearly

non-functional that the district judge abused his discretion by failing to enjoin Eco’s competing

model.” Eco, 357 F.3d at 653. The Seventh Circuit explicitly declined to “express any view”

on the issue of whether “Honeywell bamboozled the Patent and Trademark Office when seeking

registration during the 1980s;” nor did it express “any ultimate view about functionality.” Id. at

655. The district court was encouraged to “proceed expeditiously to final decision,” further

confirming that one had not yet been reached. Ibid. Thus, collateral estoppel does not apply

here. Compare Lummos, 297 F.2d at 87–88 (finding that at least part of the prior First Circuit

decision was “not conclusive . . . since the Court stated it had ‘not decided’ that issue”).

* * *

The proper inquiry, then, is whether “some substantial, disputed question of federal law

is a necessary element of one of the well-pleaded state claims.” Merrell Dow, 478 U.S. at 813. 

The key word is “necessary.” To be sure, trademark validity and defendant’s alleged fraud

upon the PTO will no doubt be a large part of the proceedings in these actions, but this order

finds that a federal question is not a necessary element of plaintiffs’ state claims.
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“When a claim can be supported by alternative and independent theories — one of

which is a state law theory and one of which is a federal law theory — federal question

jurisdiction does not attach because federal law is not a necessary element of the claim.” Rains

v. Criterion Sys., Inc., 80 F.3d 339, 346 (9th Cir. 1996). In other words, just because an

element that is essential to a particular theory might be governed by federal trademark law does

not mean that the entire monopolization claim “arises under” federal law. Christianson v. Colt

Indus. Operating Corp., 486 U.S. 800, 811–13 (1988).

In Christianson, the question was whether the action was one “arising under” the patent

statutes, such that the Federal Circuit rather than the Seventh Circuit would have jurisdiction

over the appeal. The underlying dispute concerned the making of M16 rifles. Christianson was

a former Colt employee who established his own company and begin selling M16 parts. In a

previous action, Colt had sued Christianson alleging patent infringement, but voluntarily

dismissed its claims after it lost a motion for preliminary injunction. Christianson then brought

his own lawsuit under federal antitrust laws, alleging (among other theories of monopolization)

that Colt had been asserting invalid patents. After losing on summary judgment, Colt appealed

to the Federal Circuit, which concluded that it lacked jurisdiction and transferred the appeal to

the Seventh Circuit. The Seventh Circuit raised the jurisdictional issue sua sponte and

transferred the case back. The Federal Circuit again found that it lacked jurisdiction, but

proceeded to address the merits anyway. Id. at 804–07. 

The Supreme Court granted certiorari to resolve this “peculiar jurisdictional battle.” Id.

at 803. The Court first observed that “patent law did not in any sense create petitioners’

antitrust or intentional-interference claims” but the question was whether patent law was “a

necessary element of one of the well-pleaded [antitrust] claims.” Id. at 809 (brackets in

original). The Court then found that even if the invalidity of Colt’s patents was a necessary

element of the monopolization theory “on which petitioners ultimately prevailed in the District

Court,” it was “only one of several, and the only one for which the patent-law issue [wa]s even

arguably essential.” Id. at 811. An alternative theory of monopolization revolved around

allegations that Colt had given petitioners permission to use its supposedly proprietary
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information. The Court concluded that petitioners claims did not “arise under” patent law

because the complaint also alleged a completely unrelated “alternative, non-patent theory” of

monopolization. Id. at 811–813.

So too here, an alternative, non-trademark theory of monopolization exists in these

MDL cases. Although the supposed fraud on the PTO is a prominent theme throughout the

complaints, an alternative theory of predatory action is pled, albeit less prominently. This

alternative theory is that Honeywell purchased “at least one rival thermostat manufacturer so as

to suppress competition for circular thermostats in the relevant market” (See, e.g., Brock Compl.

¶ 45(d)). All six complaints allege that defendant wrongfully acquired Quad Six, another

manufacturer that produced a circular thermostat (Brock Compl. ¶ 47; Fullum Compl. ¶ 42;

McKinnon Compl. ¶ 87; Bailey Compl. ¶ 87; Wright Compl. ¶ 87; Fagan Compl. ¶ 87). 

Specifically, “in late 1985, Honeywell and Quad Six entered into negotiations that resulted in

Honeywell’s acquisition of Quad Six which removed the Quad Six Round Thermostat from the

market” (See, e.g., Brock Compl. ¶ 47).

There is no denying the fact that an alternative theory of how Honeywell eliminated

competition (i.e., via an acquisition) appears on the face of the complaints. This alone is

dispositive. Moreover, while this was tied to allegations of sham litigation, (the acquisition was

allegedly negotiated so Quad Six could avoid “expensive trademark infringement litigation”),

defendant’s first application for a federal trademark had been rejected in 1968 and its second

application was not even filed until May 9, 1986. Therefore, when Quad Six was allegedly

being threatened with litigation in 1985, Honeywell had no registered trademark in its circular

thermostat (See, e.g., Brock Compl. ¶ 47). Thus, the threatened trademark litigation could only

have been under state common law, not federal trademark law. See 15 U.S.C. 1114 (extending

protection only to registered trademarks, as opposed to unfair competition claims under § 43(a)

of the Lanham Act, 15 U.S.C. 1125(a), which was not alleged to be part of any sham litigation).

Defendant argues that plaintiffs alleged that this acquisition of Quad Six not only

suppressed competition for circular thermostats, but was also an instrument for deceiving the

PTO (Omnibus Opp. 8). This argument proves too much. Honeywell’s acquisition (and
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elimination) of a competitor to maintain its monopoly position in the market could itself lend

support to claims of unlawful restraint of trade or unfair competition. Viewed in this light, it

would be irrelevant to plaintiffs’ claims whether defendant’s subsequently-acquired trademark

was invalid or fraudulently obtained. Under this theory, the alleged harm of supra-competitive

prices does not stem from trademark misuse or any fraudulent conduct before the PTO. It

simply results from the elimination of a competing thermostat manufacturer that would

otherwise check defendant’s power to engage in monopolistic pricing. Cf. Conroy v. Fresh Del

Monte Produce Inc., 325 F. Supp.2d 1049, 1056 (N.D. Cal. 2004)(finding the question of patent

validity “entirely irrelevant” to defendants’ alleged misrepresentations to competitors about

whether a particular pineapple was protected). Although defendant is also accused of

(1) engaging in sham litigation by threatening to sue Quad Six beforehand and (2) subsequently

downplaying the acquisition so the PTO would be tricked into believing that there were no

competitors in the first place, these are entirely separate allegations of wrongdoing.

* * *

It is true that Hunter Douglas, Inc. v. Harmonic Design, Inc., 153 F.3d 1318 (Fed. Cir.

1998), held that patent validity and/or infringement, among other things, are “substantial”

enough federal issues to sustain removal jurisdiction. This decision, of course, is not binding,

for (at most) these MDL actions involve Honeywell’s trademark rights in its circular

thermostat. The substantiality arguments are stronger where patents are concerned, given that

Congress conferred exclusive subject-matter jurisdiction in the federal courts over patent

litigation. The opposite is true for trademarks. Rights of action arising under federal trademark

laws may be brought in state courts too — i.e., federal courts have non-exclusive jurisdiction

over questions of trademark law. 28 U.S.C. 1338(a). As such, the Federal Circuit’s views on

whether issues of patent law raise substantial federal questions are not applicable here. The

same reasoning holds for any dictum in Coker, 314 F. Supp.2d at 782 (observing that the claims

of unfair competition and monopolization based on theories that defendants made material

misrepresentations to the PTO and engaged in sham litigation would raise substantial questions

of patent law sufficient to create federal jurisdiction if collateral estoppel did not apply).
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** Although the decision denying remand by Judge Bernice Bouie Donald was incongruous with this

order, any potential problem which may have been caused by inconsistent rulings is rendered moot by plaintiffs’

voluntary dismissal of the Tennessee action, approved by previous order.

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Even if plaintiffs’ state-law claims necessarily raised a substantial federal issue, the

Court would need to consider “a possible veto” if exercising jurisdiction would disturb “any

congressionally approved balance of federal and state judicial responsibilities.” Grable, 125 S.

Ct. at 2367–68. Significantly, as described above, Congress has indicated that state courts are

equally competent to tackle issues of trademark law; unlike patents or copyrights, federal courts

do not have exclusive jurisdiction over trademarks.

Finally, it is worth noting that, as indirect purchasers, plaintiffs have no standing to sue

for violations of federal antitrust laws. Illinois Brick Co. v. Illinois, 431 U.S. 720, 747–48

(1977); In re Sugar Antitrust Litig., 588 F.2d 1270, 1273 (9th Cir. 1978). In other words,

plaintiffs’ causes of action for monopolization can only arise under state indirect purchaser

statutes. California v. ARC Am., 490 U.S. 93, 105–06 (1989). Likewise, although there is a

private right of action for fraudulent trademark registration, as consumers rather than

competitors, plaintiffs have not suffered the type of injury compensable under 15 U.S.C. 1120. 

Thus, even if plaintiffs had wanted to, they could not have sought relief under federal statutes.

CONCLUSION

This order emphasizes that the Court is required to resolve any doubts in favor of

remand. Gaus, 980 F.2d 564. For the foregoing reasons, plaintiffs’ motions to remand are

GRANTED.

** The Brock action is immediately REMANDED to the Superior Court of California

for the County of San Francisco. The remaining actions are RE-TRANSFERRED back to the

respective federal district courts from which they came, for remand to the state courts where

they were filed.

IT IS SO ORDERED.

Dated: August 24, 2005 WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE