TEGU v. Vestal Design Atelier LLC
Filing
37
ORDER. Tegu's Rule 12(c) and 12(b)(1) Motion for Judgment on the Pleadings and to Dismiss Vestal's Counterclaims 23 is GRANTED IN PART and DENIED IN PART. Vestal's First through Sixth Causes of Action are DISMISSED WITHOUT PREJUDI CE for lack of jurisdiction. Vestal's Seventh through Tenth Causes of Action are DISMISSED WITH PREJUDICE. Tegu's Claim for Declaratory Judgment is DENIED AS MOOT. Vestal Design Atelier LLC's Motion to Strike the Declaration of Chris topher Haughey (Dkt. # 23) 32 is DENIED AS MOOT. Within 14 days of the entry of judgment, plaintiff may have its costs by filing a bill of costs with the Clerk of the Court. This case is closed, by Chief Judge Philip A. Brimmer on 8/12/19.(sgrim)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Chief Judge Philip A. Brimmer
Civil Action No. 18-cv-01377-PAB-NRN
TEGU, a California corporation,
Plaintiff,
v.
VESTAL DESIGN ATELIER LLC, a Colorado limited liability company, whose members
are Michael Lin, a California resident, David Pitman, a Colorado or California resident,
and Jeffrey Warren, a Massachusetts resident,
Defendant and Counterclaim Plaintiff,
v.
TEGU, a California corporation, and
CLIPPER INVESTMENTS, LTD., an entity based in London, UK,
Counterclaim Defendants.
ORDER
This matter comes before the Court on Tegu’s Rule 12(c) and 12(b)(1) Motion for
Judgment on the Pleadings and to Dismiss Vestal’s Counterclaims [Docket No. 23].
The Court has jurisdiction pursuant to 28 U.S.C. §§ 1338(a) and 1367.
I.
BACKGROUND
The allegations in the Second Amended Answer, Second Amended
Counterclaim Complaint, and Jury Demand [Docket No. 26] are to be taken as true in
considering a motion for judgment on the pleadings. Adams v. Jones, 577 F. App’x
778, 781-82 (10th Cir. 2014) (unpublished).
Plaintiff and counterclaim defendant Tegu (“Tegu”) is a toy company. Docket
No. 26 at 10, ¶ 2. In late 2007, Tegu sought the help of defendant and counterclaim
plaintiff Vestal Design Atelier LLC (“Vestal”) in developing its first toy line. Id. at 11, ¶ 4.
Vestal is a consulting firm specializing in design projects for early-stage startup
companies. Id. at 10, ¶ 1. In December 2007, Tegu and Vestal entered into a written
consulting agreement (the “agreement”). Id. at 12, ¶ 7. The agreement provided that
Vestal would provide design and consulting services for Tegu’s new product line.
Under a section called “Compensation,” Tegu agreed to pay Vestal $7,200 for 90 hours
of work. Docket No. 23-2 at 3. Paragraph 1 of Section 2.0 in the agreement, entitled
“Ownership of Intellectual Property,” states in full:
Ownership. Intellectual property rights of each party will be governed by
the following: For the purpose of this contract, any work product or new
invention related to or arising from the Services provided hereunder,
including all intellectual property rights created, invented or authored by
Contractor in connection with the Services, will be the exclusive property
of the Client. The Client will own all right, title and interest in such work
product or new invention, except as stipulated in [ ] item 4 below.
Contractor hereby assigns all such right, title and ownership to Client.
Id. at 4.
“Item 4” is paragraph 4, which states in full:
For any work product, invention and/or intellectual property generated
under this Agreement that [Vestal] and [Tegu] mutually agree may be
patented under a utility (non-aesthetic) patent, [Vestal] shall own at least
50% of any utility patent generated from [Vestal]’s research and design.
In addition, [Vestal] will be granted by [Tegu] a fair and agreeable share in
revenue generated by commercialization. A separate agreement shall be
established in writing, which specifies the precise nature of [Vestal]’s and
[Tegu]’s ownership of Intellectual Property rights and share in revenue
generated from the commercialization of the invention or Intellectual
Property at a time no later than the filing date of the patent application
(provisional or full application).
2
Id.
Pursuant to the agreement, Vestal created prototypes for Tegu of a new toy
based around the idea of embedding magnets in wooden blocks. Docket No. 26 at 1314, ¶¶ 12-14. The prototype led Tegu to develop an entire line of magnet-embedded
wooden blocks. Id. at 14, ¶ 15. The wooden blocks encompassed both patentable and
non-patentable contributions made by Vestal. Id., ¶ 16. On March 14, 2009,
Christopher Harwood Haughey (“Haughey”), one of the owners of Tegu, emailed
Vestal’s members to “resolve the outstanding IP and upside issue left hanging by [the
agreement]” in light of Tegu’s plan to commercialize the wooden blocks. Id. at 15, ¶ 18.
In the email, Haughey stated that Tegu anticipated “that any utility patent(s) related to
the magnetic blocks [would] relate to the method of manufacturing, which has . . . no
relation to the project with Vestal.” Id., ¶ 20. On March 26, 2009, Tegu filed a patent
application that incorporated Vestal’s contributions to the w ooden block project. Id. at
16, ¶ 21. On October 7, 2014, the U.S. Patent and T rademark Office issued U.S.
Patent No. 8,850,683 (the “’683 patent”) to T egu. Id., ¶ 21. Tegu and its investor,
counterclaim defendant Clipper Investments, Ltd. (“Clipper”), subsequently obtained
two more patents based on the ’683 patent: U.S. Patent Nos. 9,266,032 (the “’032
patent”) and 9,662,592 (the “’592 patent”). Id, ¶ 22. In 2017, Vestal principal Michael
Lin (“Lin”) became aware of the magnetic wooden blocks and learned that they had
been patented and commercialized. Id. at 16-17, ¶ 23.
On May 10, 2018, Tegu filed a declaratory judgment action in the District Court
for Adams County, Colorado, against Vestal. Docket No. 1-1. Vestal removed the case
3
to this Court. Docket No. 1. Tegu seeks a declaratory judgment that the three-year
statute of limitations for breach of contract claims under Colorado law bars Vestal’s
claims arising under the agreement. Docket No. 1-1 at 8, ¶ 41. Vestal counterclaim ed,
asserting six correction of inventorship claims pursuant to 35 U.S.C. § 256, alleging that
Tegu failed to name Lin and Alexander Ko (“Ko”) as inventors of the ’683 patent, ’032
patent, and ’592 patent. Docket No. 26 at 17-20, ¶¶ 28-45. Vestal also asserts statelaw claims for breach of contract, breach of the covenant of good faith and fair dealing,
quantum meruit, and fraud. Id. at 20-25, ¶¶ 46-73.
Tegu moves for judgment on the pleadings on its request for declaratory
judgment and Vestal’s state-law counterclaims pursuant to Fed. R. Civ. P. 12(c).
Docket No. 23 at 7-13. Tegu also moves for dismissal of Vestal’s correction of
inventorship claims pursuant to Fed. R. Civ. P. 12(b)(1), asserting that Vestal lacks
standing to bring such claims. Id. at 13-15.
II.
LEGAL STANDARD
A.
Fed. R. Civ. P. 12(b)(1)
A motion under Fed. R. Civ. P. 12(b)(1) is a request for the Court to dismiss a
claim for lack of subject matter jurisdiction. Fed. R. Civ. P. 12(b)(1). A plaintiff bears
the burden of establishing that the Court has jurisdiction. Basso v. Utah Power & Light
Co., 495 F.2d 906, 909 (10th Cir. 1974). W hen the Court lacks subject matter
jurisdiction over a claim for relief, dismissal is proper under Rule 12(b)(1). See Jackson
v. City and Cty. of Denver, No. 11-cv-02293-PAB-KLM, 2012 WL 4355556 at *1 (D.
Colo. Sept. 24, 2012).
4
Rule 12(b)(1) challenges are generally presented in one of two forms: “[t]he
moving party may (1) facially attack the complaint’s allegations as to the existence of
subject matter jurisdiction, or (2) go beyond allegations contained in the complaint by
presenting evidence to challenge the factual basis upon which subject matter
jurisdiction rests.” Merrill Lynch Bus. Fin. Servs., Inc. v. Nudell, 363 F.3d 1072, 1074
(10th Cir. 2004) (quoting Maestas v. Lujan, 351 F.3d 1001, 1013 (10th Cir. 2003)). T he
court may review materials outside the pleadings without converting the Rule 12(b)(1)
motion to dismiss into a motion for summary judgment. Davis ex rel. Davis v. U.S., 343
F.3d 1282, 1296 (10th Cir. 2003).
B.
Fed. R. Civ. P. 12(c)
The Court reviews a motion for judgment on the pleadings under Federal Rule of
Civil Procedure 12(c) much as it does a motion to dismiss pursuant to Rule 12(b)(6).
See Adams, 577 F. App’x at 781-82 (“We review a district court’s grant of a motion for
judgment on the pleadings de novo, using the same standard that applies to a Rule
12(b)(6) motion.”) (quoting Park Univ. Enters., Inc. v. Am. Cas. Co. of Reading, PA, 442
F.3d 1239, 1244 (10th Cir. 2006)). The Court must “accept all facts pleaded by the
non-moving party as true and grant all reasonable inferences from the pleadings in
favor of the same.” Id. at 782. To prevail, the moving party must show that “no material
issue of fact remains to be resolved and the party is entitled to judgment as a matter of
law.” United States v. Any & All Radio Station Transmission Equip., 207 F.3d 458, 462
(8th Cir. 2000). A party may raise arguments that could be made in a motion under
Rule 12(b)(6) in a motion under Rule 12(c). Fed. R. Civ. P. 12(h)(2).
5
To survive a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil
Procedure, a complaint must allege enough factual matter that, taken as true, makes
the plaintiff’s “claim to relief . . . plausible on its face.” Khalik v. United Air Lines, 671
F.3d 1188, 1190 (10th Cir. 2012) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). “[W]here the well-pleaded facts do not permit the court to infer more than the
mere possibility of misconduct, the complaint has alleged–but it has not shown–that the
pleader is entitled to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (internal
quotation marks and alteration marks omitted); see also Khalik, 671 F.3d at 1190 (“A
plaintiff must nudge [his] claims across the line from conceivable to plausible in order to
survive a motion to dismiss.” (quoting Twombly, 550 U.S. at 570)). If a complaint’s
allegations are “so general that they encompass a wide swath of conduct, much of it
innocent,” then plaintiff has not stated a plausible claim. Khalik, 671 F.3d at 1191
(quotations omitted). Thus, even though modern rules of pleading are somewhat
forgiving, “a complaint still must contain either direct or inferential allegations respecting
all the material elements necessary to sustain a recovery under some viable legal
theory.” Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008) (alteration m arks
omitted ).
III.
ANALYSIS
A.
Vestal’s Claims
The Court turns first to Vestal’s claims, all of which are challenged by Tegu.
Tegu moves for judgment on the pleadings on Vestal’s state-law claims, asserting that
they fail to state a claim upon which relief can be granted. Docket No. 23 at 9-13.
6
Tegu also moves to dismiss Vestal’s correction of inventorship claims, asserting that
Vestal lacks standing to assert the claims. Id. at 13-15.
1. Whether Section 2.4 is Enforceable
The interpretation of a contract is a question of law. Fed. Deposit Ins. Corp. v.
Fisher, 292 P.3d 934, 937 (Colo. 2013). 1 A reviewing court’s “primary aim in contract
interpretation is to ascertain and implement the intent of the parties.” Id. To determine
the intent of the parties, “the court should give effect to the plain and generally accepted
meaning of the contractual language.” Copper Mountain, Inc. v. Indus. Sys., Inc., 208
P.3d 692, 697 (Colo. 2009). “The meaning of a contract is found by examination of the
entire instrument and not by viewing clauses or phrases in isolation.” U.S. Fid. & Guar.
Co. v. Budget Rent-A-Car Sys., Inc., 842 P.2d 208, 213 (Colo. 1992).
Under Section 2.1 of the contract, Tegu owns any work product or invention,
including all intellectual property, “created, invented or authored” by Vestal in
connection with the contract, except as “stipulated” in Section 2.4. Docket No. 23-2 at
4. Section 2.4 states that any work product or invention, including intellectual property,
that Tegu and Vestal “mutually agree” may be patented under a utility patent “shall” be
owned at least fifty percent by Vestal if it is “generated from [Vestal’s] research and
design.” Id. Additionally, Tegu “shall” grant Vestal “a fair and agreeable share in
revenue generated by commercialization.” Id. Finally, the parties “shall” establish a
separate written agreement, no later than the filing date of the patent application,
specifying the precise nature of each party’s ownership of the intellectual property rights
1
Colorado law governs the contract through a choice-of-law clause. See Docket
No. 23-2 at 9, ¶ 9.
7
and share of revenue generated by commercialization. Id.
Tegu argues that Section 2.4 is unenforceable because it does not indicate a
“meeting of the minds on key terms and an intent to be bound” and is theref ore an
“agreement to agree.” Docket No. 23 at 9. “[T]here can be no binding contract if it
appears that further negotiations are required to work out important and essential
terms.” DiFrancesco v. Particle Interconnect Corp., 39 P.3d 1243, 1248 (Colo. App.
2001). Consequently, “[a]greements to agree in the future are generally unenforceable
because the court cannot force the parties to come to an agreement.” Id. (citing Griffin
v. Griffin, 699 P.2d 407 (Colo. 1985)). However, where “the terms of a contract . . .
provide a basis for determining the existence of a breach and for giving an appropriate
remedy,” the terms are “reasonably certain” and may be enforced. Restatement
(Second) of Contracts, § 33(2) (1981); see also Am. Min. Co. v. Himrod-Kimball Mines
Co., 235 P.2d 804, 808 (Colo. 1951).
Tegu argues that the requirement that it “mutually agree” with Vestal regarding
what work product may be patented renders Section 2.4 unenf orceable. See Docket
No. 23. The first sentence of Section 2.4 states that “[f]or any . . . intellectual property
generated under this Agreement that [Vestal] and [Tegu] mutually agree may be
patented . . . [Vestal] shall own at least 50% of any utility patent generated from
[Vestal’s] research and design.” See Docket No. 23-2 at 4. It is clear from this
language that agreement is required. This language does not predicate Vestal’s
ownership simply on the generation of intellectual property. For example, the sentence
does not say that, “for any intellectual property generated, Vestal shall own at least fifty
8
percent generated by Vestal’s research and development.” Rather, the parties
emphasized that they needed to “mutually agree.” The parties could have adopted a
different approach and decided to forego mutual agreement on the patentability of
intellectual property. They could have, for instance, used a retrospective approach
whereby Vestal had a right to at least fifty percent of any patent that Tegu actually
obtained based on Vestal’s research and development. However, the parties instead
opted for a prospective approach, wherein the parties were required to determine
Vestal’s ownership and revenue share “at a time no later than the filing date of the
patent application.” Such obligations were triggered by mutual agreement that certain
intellectual property was patentable. Thus, the cooperation between Vestal and Tegu
before the patent was filed was necessarily preceded by the parties’ agreement as to
patentability.
Moreover, even if the Court could infer from the mandatory language used in
Section 2.4 (“shall own,” “will be granted,” and “shall be established”) an enforceable
duty on Tegu’s part to grant Vestal a share ownership and revenue, neither Section 2.4
nor any other part of the agreement provides a discernable standard for doing so. See
Docket No. 23-2 at 4. Notably, the agreement does not contain a section on remedies
in the event Section 2.4 is breached. Although Section 2.4 states that Tegu will grant
Vestal a “fair and agreeable share” of revenue, such language provides no guidance as
to what would be a “fair” share of revenue under various ownership percentages or how
a court would determine whether this fair revenue share would also be “agreeable” to
the parties. Even if a court could determine a fair revenue share, the court would still
be faced with the lack of any standard for determining the ownership percentage. The
9
Court concludes that Section 2.4 does not indicate that the parties hav e settled all the
essential elements of the agreement or agreed upon a method of settlement. See
Greater Serv. Homebuilders’ Inv. Ass’n v. Albright, 293 P. 345, 348 (Colo. 1930). For
the Court to enforce Section 2.4 as Vestal requests, the Court would effectively need to
write a new section of the contract spelling out the rights of each party and the available
remedies in the event that the parties fail to “mutually agree” on patentability. The
Court cannot do this, as “the court cannot f orce parties to come to an agreement.” See
DiFrancesco, 39 P.3d at 1248; see also Griffin, 699 P.2d at 409 (an agreement that
parents jointly select their child’s school is unenforceable if the agreement “neither
select[s] a school nor provide[s] a means of resolving deadlocks over school selection”).
Vestal argues that Section 2.4 is enforceable as a contract to negotiate the terms
of an agreement, relying on Union Rural Elec. Ass’n, Inc. v. Public Utils. Comm’n, 661
P.2d 247 (Colo. 1983). See Docket No. 33 at 9. However, Union Rural is
distinguishable. The contract in that case, an agreement between two electric utility
companies governing the allocation of customers to either company, included an
agreement that “in the event future conflicts arise . . . [the parties] will meet and
negotiate in a bona fide manner toward the end of mutually resolving and agreeing
upon a solution . . . which will best serve the public interest.” Union Rural, 661 P.2d at
253. The Colorado Supreme Court did not explicitly determine that this provision was
enforceable, holding instead that the dispute between the parties was expressly
covered by other terms of the agreement. Id. The Court summarized the provision as
the parties “agree[ing] to negotiate in good faith over . . . unanticipated problems.” Id.
10
The Court is not persuaded that an agreement between two private parties (Vestal and
Tegu) is analogous to an agreement between two public utilities supervised by the
Public Utilities Commission. See id. Even if it were analogous, Section 2.4’s lack of
any “means of resolving deadlocks” renders the provision unenforceable. See Griffin,
699 P.2d at 409. Unlike the Union Rural contract, where the parties “agree[d] to
negotiate in good faith” with a mutual remedy of filing a complaint with the Public
Utilities Commission, Section 2.4 states only that any future agreement shall be “fair
and agreeable.” Compare Union Rural, 661 P.2d at 253, with Docket No. 23-2 at 4.
Section 2.4 offers no guidance to the Court as to the obligations of either Vestal or
Tegu in their future negotiations. Consequently, the Court determines that Section 2.4
is unenforceable.2
Having determined that Section 2.4 is unenforceable, the Court now considers
what effect its unenforceability has on the agreement as a whole. “In determining
whether a contract is severable, the primary objective is to ascertain the intent of the
contracting parties.” CapitalValue Advisors, LLC v. K2D, Inc., 321 P.3d 602, 606 (Colo.
App. 2013) (internal alterations and quotations omitted). Here, the contract contains a
severability clause – Section 6.2 of the contract provides that, if any provision of the
2
Vestal argues that the agreement reflects certain goals of both Tegu and Vestal
at the time the contract was negotiated. See Docket No. 33 at 8-9 (suggesting that “the
parties wanted to ensure Vestal would have an incentive to innovate”). However, in
interpreting a contract, extrinsic evidence of intent is only relevant if the terms are
ambiguous. Radiology Prof. Corp. v. Trinidad Area Health Ass’n, Inc., 577 P.2d 748,
750 (Colo. 1978). Neither Tegu nor Vestal claims that the language of the text is
ambiguous, and the Court does not find the agreement ambiguous. See Union Rural,
661 P.2d at 251 (“[A] mere disagreement between the parties as to the interpretation of
an agreement does not in itself create an ambiguity as a matter of law.”).
11
contract is deemed unenforceable and no modification will render it enforceable, the
contract “will be construed as if not containing such provision.” Docket No. 23-2 at 8.
Thus, applying the plain language of the contract, Section 2.4 effectively drops out of
the agreement and Section 2.1 controls the parties’ ownership interests. Vestal argues
that, if Section 2.4 is unenforceable, Section 2.1 is also unenforceable because it is
“wholly reliant” on Section 2.4. See Docket No. 33 at 9-10. However, the severability
clause does not indicate that provisions that are “wholly reliant” fail alongside
unenforceable provisions. See Docket No. 23-2 at 8. Thus, the severability clause
expresses a contrary intent of the parties.
The severability clause directs the Court to construe the agreement as if Section
2.4, which is unenforceable, does not exist. If Section 2.4 does not exist, there are no
exceptions to Section 2.1’s provision that Tegu owns everything “invented or authored”
by Vestal in connection to the agreement. Accordingly, the Court will construe the
agreement as indicating that Vestal has no rights to anything “invented or authored” in
connection to the agreement.
2.
Effect on Vestal’s Counterclaims
Having interpreted the contract, the Court turns to the question of whether Vestal
states any claims for which relief can be granted.
a.
Contract-Based Claims
Under Colorado law, a breach of contract claim has four elements: “(1) the
existence of a contract; (2) performance by the plaintiff or some justification for
nonperformance; (3) failure to perform the contract by the defendant; and (4) resulting
12
damages to the plaintiff.” Western Distributing Co. v. Diodosio, 841 P.2d 1053, 1058
(Colo. 1992) (citations omitted).
Vestal claims that, under the contract,
the parties were required to “mutually agree” on the patentability of
Vestal’s contributions. Tegu was required to grant Vestal at least a 50%
interest in any patent derived from such contributions. Tegu was also
required to negotiate in good faith with Vestal and share with Vestal a
portion of the revenue generated from Vestal’s patentable inventions and
non-patentable intellectual property.
Docket No. 26 at 20, ¶ 47. Vestal claims that Tegu failed to perform the contract by
concealing its intent to apply for patents encompassing Vestal's
contributions; failing to negotiate in good faith with Vestal when Tegu
contemplated commercializing the product and/or applying for patent(s);
affirmatively misrepresenting the scope of the patents it was seeking; filing
patent applications covertly and without first discussing the patentability of
Vestal’s contributions with Vestal; failing to grant 50% ownership, or any
percentage, of the patents to Vestal; and failing to share revenue from
Vestal’s patentable contributions with Vestal.
Id. at 21, ¶ 50. Vestal further claims that Tegu failed to perform the contract by “failing
to negotiate in good faith and compensate Vestal for its non-patentable contributions.”
Id., ¶ 51. The only source of the duties identified by Vestal that Tegu allegedly failed to
perform is Section 2.4 of the agreement. See Docket No. 26 at 12-13, ¶¶ 9-11.
However, because the Court has held that Section 2.4 of the agreement is
unenforceable, Vestal’s counterclaim for breach of contract fails, as Vestal has not
alleged the existence of a contract. Vestal’s claim for breach of the covenant of good
faith and fair dealing also fails, as this claim is also based on Tegu’s alleged duties
under Section 2.4. See Docket No. 26 at 22-23, ¶¶ 55-60.
13
b.
Fraud
Under Colorado law, the prima facie elements of a fraud claim are “(1) a false
representation of a material existing fact; (2) knowledge on the part of the one making
the representation that it is false; (3) ignorance on the part of the one to whom the
representation is made of the falsity; (4) representation made with intention that it be
acted upon; (5) representation resulting in damage.” Kinsey v. Preeson, 746 P.2d 542,
550 (Colo. 1987). Vestal asserts that Tegu made two fraudulent representations:
Haughey’s email statement that it would not file for any utility patents related to Vestal’s
work and Haughey’s statement in a telephone call that he would name Lin and Ko as
co-inventors on any patent relating to Vestal’s work. Docket No. 26 at 24-25, ¶ 68. The
complaint alleges that Vestal, to its detriment, relied on these representations by not
“pursu[ing] ownership, co-inventor status, or revenue from commercialization, as Vestal
was entitled to do.” Id. at 25, ¶ 70. This claim, however, rests on Vestal’s argument
that Section 2.4 entitles it to some ownership rights in its work for Tegu. Because
Section 2.4 is unenforceable, Tegu owned everything created by Vestal under the
agreement, and Vestal had no entitlement to pursue any ownership rights in its work for
Tegu. See Docket No. 23-2. As a result, Vestal has failed to allege that Tegu’s
representations caused it any damage, and its fraud claim must fail.3
c.
Quantum Meruit
“Quantum meruit is an equitable theory of recovery that arises out of the need to
3
Tegu argues that the economic loss doctrine bars Vestal’s fraud claim. Docket
No. 23 at 11-12. As Vestal fails to state a prima facie claim for relief, the Court does
not address this argument.
14
avoid unjust enrichment to a party in the absence of an actual agreement to pay for
services rendered.” Melat, Pressman & Higbie, LLP v. Hannon Law Firm, LLC, 287
P.3d 842, 847 (Colo. 2012). “To recover in quantum meruit, a plaintiff must
demonstrate that (1) at plaintiff’s expense, (2) defendant received a benefit, (3) under
circumstances that would make it unjust for the defendant to retain the benefit without
paying.” Id. “Quantum meruit allows a party to recover the reasonable value of the
services provided when the parties either have no express contract or have abrogated
it.” Id. “[C]ourts will refuse quantum meruit recovery when expressly contrary to the
provisions of the written contract between the parties.” Dudding v. Norton Frickey &
Assocs., 11 P.3d 441, 445 (Colo. 2000).
Vestal claims that it “conferred a sizable benefit on Tegu,” which Tegu accepted,
and that it would be “inequitable for Tegu to retain the benefit of Vestal’s services
without payment of their reasonable value.” Docket No. 26 at 23-24, ¶¶ 62, 66. T he
“benefit” in question is Vestal’s “research, design, and prototyping,” including both
patentable and non-patentable contributions. Id. at 23, ¶¶ 62-63. However, an express
contract exists that allows Vestal to recover the reasonable value of the services
provided. Under the terms of the agreement, Tegu paid $7,200 for ninety hours of work
by Vestal, as well as ownership of “any work product or new invention . . . including all
intellectual property rights created” as a result of Vestal’s work. See Docket No. 23-2 at
3-4. Any quantum meruit recovery by Vestal would be “expressly contrary to the
provisions of the written contract.” See Dudding, 11 P.3d at 445. Accordingly, the
Court will dismiss Vestal’s quantum meruit claim for failure to state a claim.
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d.
Correction of Inventorship
Tegu moves to dismiss Vestal’s claims for correction of inventorship pursuant to
Fed. R. Civ. P. 12(b)(1) on the grounds that Vestal lacks Article III standing to bring its
claims. Docket No. 23 at 13-15. Tegu claims that Vestal cannot establish that it has
suffered an “injury in fact.” Docket No. 23 at 13.
Article III of the Constitution vests the judicial branch with jurisdiction to hear
“[c]ases” and “[c]ontroversies.” U.S. Const. art. III § 2. An essential part of the caseand-controversy requirement is the standing doctrine, which “serves to identify those
disputes that are appropriately resolved through the judicial process.” Whitmore v.
Arkansas, 495 U.S. 149, 155 (1990). To have standing,
[f]irst, the plaintiff must have suffered an “injury in fact”—an invasion of a
legally protected interest which is (a) concrete and particularized, and (b)
actual or imminent, not conjectural or hypothetical. Second, there must be
a causal connection between the injury and the conduct complained
of—the injury has to be fairly traceable to the challenged action of the
defendant, and not the result of the independent action of some third party
not before the court. Third, it must be likely, as opposed to merely
speculative, that the injury will be redressed by a favorable decision.
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992) (internal citations,
quotations, and alterations omitted). In the context of a correction of inventorship case,
a party needs to assert a “concrete financial interest” in the patents at issue in order to
have Article III standing. Chou v. Univ. of Chicago, 254 F.3d 1347, 1359 (Fed. Cir.
2001).
Larson v. Correct Craft, Inc., 569 F.3d 1319 (Fed. Cir. 2009), controls this case.
In Larson, the Federal Circuit concluded that plaintiff did not have standing because he
had “affirmatively transferred title to the patents . . . and he stands to reap no benef it”
16
from his correction of inventorship claim. Larson, 569 F.3d at 1326. The plaintiff’s
ownership interest was contingent on state-law claims which requested recission of the
patent assignments to a third party. Id. at 1326-27. Vestal here claims that Lin and Ko
should be named inventors on the three patents. See Docket No. 26 at 17-20, ¶¶ 2845. Vestal also asserts that both Lin and Ko are “oblig ated to assign their patent rights
to Vestal.” Id. at 17, ¶ 25. However, Section 2.1 of the agreement states that
Vestal assigned all of its right, title, and ownership in “all intellectual property rights
created, invented, or authored by [Vestal] in connection with” its work for Tegu to Tegu.
See Docket No. 23-2 at 4. Therefore, like in Larson, Vestal’s only ownership interest is
contingent on Section 2.4 of the agreement, which the Court has determined is
unenforceable. Accordingly, Vestal does not have standing to bring its claims for
correction of inventorship.4 As a result, the Court will dismiss the correction of
inventorship claims for lack of jurisdiction.5
B.
Tegu’s Request for Declaratory Judgment
Tegu requests that the Court grant judgment on the pleadings on its sole claim
for relief. Docket No. 23 at 7-9. Tegu seeks a declaratory judgment that Colo. Rev.
Stat. § 13-80-101(1)(a), which provides that the statute of limitations for a breach of
4
Vestal’s reliance on Chou is misplaced. In that case the Federal Circuit
concluded that plaintiff had standing because she “alleged a concrete financial interest
in the patent.” Chou, 254 F.3d at 1359. Here, Vestal has f ailed to allege a concrete
financial interest in the patents, because the agreement between Tegu and Vestal
assigns all financial interest that Vestal might have in the patents to Tegu.
5
Vestal moves to strike the Declaration of Christopher Haughey [Docket No. 235], which Tegu submitted in support of its motion. Docket No. 32. As the Court does
not rely on the declaration in ruling on Tegu’s motion, the Court will deny Vestal’s
motion as moot.
17
contract action is three years, “bars Vestal’s claims under the [a]greement.” Docket No.
1-2 at 11, ¶ 41. The Court’s interpretation of the agreement renders the statute of
limitations issue moot because Vestal’s rights under Section 2.4 have been decided. 6
Tegu admits that “Vestal’s only avenue to argue that it is entitled to more money or to
intellectual property rights is under Section 2.4.” See Docket No. 23 at 10. Further, the
Court’s order resolves all of Vestal’s potential claims that Tegu hopes to bar through a
declaratory judgment. See Docket No. 1-2 at 11, ¶ 41 (listing four potential claims by
Vestal); see also Columbian Fin. Corp. v. BancInsure, Inc., 650 F.3d 1372, 1382 (10th
Cir. 2011) (“Absent [an] identifiable claim against [a party], there [is] no actual
controversy to be resolved in the declaratory-judgment action.”). Tegu has not shown
that, with Vestal’s rights under Section 2.4 decided, there is a controversy between the
parties of “sufficient immediacy and reality” that would give the Court jurisdiction to
issue a declaratory judgment. See MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118,
127 (2007). The Court will therefore deny Tegu’s request for a declaratory judgment on
the applicability of Colo. Rev. Stat. § 13-80-101(1)(a) as moot.
IV.
CONCLUSION
For the foregoing reasons, it is
ORDERED that Tegu’s Rule 12(c) and 12(b)(1) Motion for Judgment on the
Pleadings and to Dismiss Vestal’s Counterclaims [Docket No. 23] is GRANTED IN
PART and DENIED IN PART. It is further
6
“[F]ederal law determines whether a district court may properly enter a
declaratory judgment in a given case.” Addison Ins. Co. v. Maynard, No. 08-cv-00054WDM-BNB, 2008 WL 2079143, at *2 (D. Colo. May 15, 2008); see also Farmers
Alliance Mut. Ins. Co. v. Jones, 570 F.2d 1384 (10th Cir. 1978).
18
ORDERED that Vestal’s First through Sixth Causes of Action are DISMISSED
WITHOUT PREJUDICE for lack of jurisdiction. It is further
ORDERED that Vestal’s Seventh through Tenth Causes of Action are
DISMISSED WITH PREJUDICE. It is further
ORDERED that Tegu’s Claim for Declaratory Judgment is DENIED AS MOOT.
ORDERED that Vestal Design Atelier LLC’s Motion to Strike the Declaration of
Christopher Haughey (Dkt. # 23) [Docket No. 32] is DENIED AS MOOT. It is further
ORDERED that, within 14 days of the entry of judgment, plaintiff may have its
costs by filing a bill of costs with the Clerk of the Court. It is further
ORDERED that this case is closed.
DATED August 12, 2019.
BY THE COURT:
s/Philip A. Brimmer
PHILIP A. BRIMMER
Chief United States District Judge
19
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