HomeSafe Inspection, Inc. v. Hayes

Filing 125

ORDER finding as moot 40 Motion for Summary Judgment; finding as moot 54 Motion to Dismiss for Failure to State a Claim; granting 77 Motion to Dismiss for Failure to State a Claim; finding as moot 85 Motion ; finding as moot 97 Motion for Protective Order; finding as moot 102 Motion to Compel; denying 118 Motion to Substitute Party. Signed by Magistrate Judge S. Allan Alexander on 1/28/16. (mhf)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF MISSISSIPPI
OXFORD DIVISION
HOMESAFE INSPECTION, INC.

PLAINTIFF

v.

CIVIL ACTION NO. 3:14-CV-209-SAA

JOHN HAYES, Individually, and d/b/a
HAYES HOME INSPECTIONS, and
PILLAR TO POST INC., a Delaware
Corporation,

DEFENDANTS
ORDER

Plaintiff has moved under Rule 25(c) of the FEDERAL RULES OF CIVIL PROCEDURE for
leave to substitute in plaintiff’s stead the entity it claims is actually the proper plaintiff in this
action. Docket 118. The defendants oppose the motion, re-asserting an argument previously
made in defendant Pillar to Post’s Motion to Dismiss for Failure to State a Claim [Docket 77]:
that the action should be dismissed because plaintiff lacked the requisite standing to file this suit
in the first place. Docket 122; see also Docket 77. This Order addresses both the Motion to
Substitute Party and the portion of the Motion to Dismiss which challenged plaintiff’s standing
to file this suit.
BACKGROUND
This action stems from the alleged infringement of United States Patent No. 7,445,377
B2 (“the ‘377 Patent”). Docket 1. The plaintiff, HomeSafe Inspection, Inc. (“HomeSafe
2014”), commenced this action on September 23, 2014, but the background to this case begins
with another identically named company, which is also named HomeSafe Inspection, Inc.
(“HomeSafe 2003”). Docket 118. HomeSafe 2003 is a Mississippi corporation that was
originally incorporated on March 2, 2003. Docket 119, p. 1. On July 20, 2005 the original
patentees, Peng Lee and Kevin J. Seddon, assigned “[a]ll rights, title, and interest held under the

‘377 patent” to HomeSafe 2003. Id. Thus, when it was later legally issued to Peng Lee and
Kevin J. Seddon on November 4, 2008 HomeSafe 2003 held all the rights to the ‘377 Patent.
Docket 1-1, Exhibit A.
HomeSafe 2003 was administratively dissolved by the Mississippi Secretary of State on
October 1, 2013 for failure to file an annual statement. Docket 119, p. 2. Plaintiff claims that
because “the state bureaucracy moved slowly, and HomeSafe 2003 needed to continue its
business while it continued to attempt to reinstate HomeSafe 2003,” HomeSafe 2014 was formed
on March 10, 2014 for that purpose. Docket 119, p. 2. Five days later, on March 15, 2014,
HomeSafe 2003 executed an Exclusive License Agreement under which HomeSafe 2014
assumed all of HomeSafe 2003’s assets and liabilities, including all rights, title, and interest to
the ‘377 Patent. Docket 89-2, Exhibit B. HomeSafe 2014 filed this action for patent
infringement against the defendants a little over six months later, on September 23, 2014.
Docket 1. On May 1, 2015, defendant Pillar to Post (“P2P”) filed a Motion to Dismiss alleging
that HomeSafe 2014 lacked standing to file suit because it did not own all the substantial rights
to the ‘377 Patent. Docket 77.
HomeSafe 2014 now seeks to have HomeSafe 2003 substituted in its place as plaintiff.
Docket 118. According to plaintiff, the Mississippi Secretary of State has fully reinstated
HomeSafe 2003, all assets and liabilities have been transferred back to HomeSafe 2003, and
HomeSafe 2014 has now been dissolved. Docket 118-4, Exhibit D; see also Docket 119, p. 2.
On the other hand, the defendants argue HomeSafe 2014 did not have standing to file this case
because they did not own “all substantial rights to the ‘377 patent at the time of the filing of this
lawsuit.” Docket 122, p. 1. In support, the defendants argue the Exclusive License Agreement
executed between HomeSafe 2003 and HomeSafe 2014 was not a valid transfer of interest for

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two reasons: first, HomeSafe 2003 could not legally enter into the Agreement because the entity
was not “authorized to conduct any business as of the date of the alleged transfer” [Docket 122,
p. 5]; and, second, the bylaw provisions the HomeSafe 2003 Board of Directors relied on to
justify the Agreement did not authorize the board to transfer all substantial rights to the ‘377
Patent. Id.
DISCUSSION
Under Rule 25(c) “[i]f an interest is transferred, the action may be continued by or
against the original party unless the court, on motion, orders the transferee to be substituted in
the action or joined with the original party.” Plaintiff claims that because the “interest” has been
transferred back to the now-reinstated HomeSafe 2003, a substitution of HomeSafe 2003 in place
of HomeSafe 2014 is proper under Rule 25. The defendants contest the substitution because they
claim HomeSafe 2014 never held an actual interest in the ‘377 patent which it could then transfer
back to HomeSafe 2003. Going further, because it never held an interest to transfer, the
defendants claim HomeSafe 2014 lacked the requisite standing to file this suit, and the action
should be dismissed. Thus, the question of whether the original transfer from HomeSafe 2003 to
HomeSafe 2014 was authorized is potentially dispositive.
Corporations are creatures of statute which did not exist at common law. See MS. Const.
Art. 4, § 88; see also MS. Const. Art. 7, § 178; Miss. Code Ann. § 79-4-3.02. The effects of an
administrative dissolution on a corporation, such as the one encountered by HomeSafe 2003, are
governed by Miss. Code Ann. §79-4-14.21. Before 2012, this statute provided that “[a]
corporation administratively dissolved continues its corporate existence but may not carry on any
business except that necessary to wind up and liquidate its business and affairs under Section 794-14.05 and notify claimants under Sections 79-4-14.06 and 79-4-14.07.” Miss. Code Ann. § 79-

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4-14.21(c) (West 1999). However, this statute was amended in 2012 and under the nowamended version, that particular subsection of the statute was removed altogether. See Miss.
Code Ann. § 79-4-14.21(c) (West 2015).
Throughout briefings the parties have focused their arguments on whether the original
transfer between HomeSafe 2003 and HomeSafe 2014 was valid. Within this debate, the parties
seem to have whittled the issue down to whether the initial transfer was an act of “winding up”
(which the parties presume would be statutorily valid) or was an act of continuing to conduct
business (which the defendants claim would be statutorily invalid). As basis for this, both parties
have relied on Miss. Code Ann. § 79-4-14.05, which reads similar to the pre-revision version of
§ 79-4-14.21 and provides:
A dissolved corporation continues its corporate existence but may
not carry on any business except that appropriate to wind up and
liquidate its business and affairs, including . . . [d]isposing of its
properties that will not be distributed in kind to its shareholders
[and] [d]oing every other act necessary to wind up and liquidate its
business and affairs.
Miss. Code Ann. § 79-4-14.05 (West 2015). Relying on this, plaintiff contends that
although it was administratively dissolved, the provision authorized HomeSafe 2003’s original
transfer to HomeSafe 2014 as an “act necessary to wind up and liquidate its business and
affairs.” See generally Docket 118. To the contrary, the defendants argue the transfer was
invalid because it was an act taken not to wind up the business, but to allow the continued
conduct of HomeSafe 2003’s business until it could be reinstated. See generally Docket 121.
Although both parties relied on § 79-4-14.05 as authorizing administratively dissolved
corporations to wind up their business, these arguments overlook the fact that the statute comes
from Article 14, Subarticle A of the Mississippi Code, which pertains only to voluntarily
dissolved corporations. Miss. Code Ann. § 79-4-14.05. And, unlike a voluntarily dissolved
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corporation, HomeSafe 2003 experienced an administrative dissolution. Any actions performed
by HomeSafe 2003 during dissolution are governed not by Miss. Code Ann. § 79-4-14.05, as the
parties suggest, but by Article 14, Subarticle B of the Code, which specifically pertains to
administrative dissolutions. See Miss. Code Ann. § 79-4-14.21. Under the previous version of §
79-4-14.21, there was no question that an administratively dissolved corporation could wind up
and liquidate its business and that it retained the right to sue and be sued in its own name for
those purposes. See Royer Homes of Miss, Inc. v. Steiner, 131 So.3d 592 (Miss. Ct. App. July
16, 2013). However, because the 2012 revisions removed this subsection—and all the specific
enabling language—altogether, it is unclear whether an administratively dissolved corporation
may now engage in any activity at all once it has been administratively dissolved by the state.
To answer this question the court is guided by rules of statutory construction as they
relate to statutory silence or, as in this case, explicit removals of enabling text. The United States
Supreme Court has stated that “where Congress includes particular language in one section of a
statute but omits it in another . . . , it is generally presumed that Congress acts intentionally and
purposely in the disparate inclusion or exclusion.” Keene Corp. v. United States, 508 U.S. 200,
208 (1993), quoting Russello v. United States, 464 U.S. 16, 23 (1993) (citation omitted).

Even

though the Court has cautioned that “[n]ot every silence is pregnant,” Burns v. United States, 501
U.S. 129, 136 (1991) (internal citations omitted), the Court has also confirmed that “negative
implications raised by disparate provisions are strongest when the portions of a statute treated
differently had already been joined together and were being considered simultaneously when the
language raising the implication was inserted.” Lindh v. Murphy, 521 U.S. 320, 330 (1997)
(statute was explicit in making one section applicable to habeas cases pending on date of
enactment, but was silent as to a parallel provision).

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When particular words or concepts are named in a statute while others are not, courts
may draw on the doctrine of expressio unius est exclusion alterius, or, the “expression of one
thing indicates exclusion of the other” to discern legislative intent. 8 MS Prac. Encyclopedia MS
Law § 68:87. The Mississippi Supreme Court has stated “where a statute enumerates and
specifies the subject or things upon which it is to operate, it is to be construed as excluding from
its effect all those not expressly mentioned or under a general clause, those not of like kind or
classification as those enumerated.” Southwest Drug Co. v. Howard Bros. Pharmacy of Jackson,
Inc., 320 So.2d 776, 779 (Miss. 1975). As noted, § 79-4-14.05 of the Mississippi Code continues
to permit voluntarily dissolved corporations to engage in winding up activities. Additionally,
other sections of the Code also expressly permit limited partnerships, limited liability companies,
and nonprofit corporations all to wind up their affairs after dissolution. See Miss. Code Ann. §
79-14-802, 79-29-809 & 79-11-349.
The law generally is that, as a creature of statute, “[a] conveyance of property by or to a
corporation after its dissolution is invalid and unenforceable, unless the corporation is disposing
of property for the purpose of winding up and liquidating its affairs.” Fletcher Cyc.Corp. §8137
(emphasis added) (citations omitted). Moreover,
[u]pon dissolution, a corporation may assign its claims as long as the
assignment does not contravene any provisions of law. If a
corporation is no longer able to bring or maintain an action,
however, it cannot assign a cause of action to another entity so that
it can bring suit.
16A Fletcher Cyc. Corp. § 8142.
The Mississippi Legislature removed the language which permitted an administratively
dissolved company to wind up its affairs in 2012. In this way, the legislature statutorily
differentiated administratively dissolved corporations, not only from their voluntarily dissolved
brethren, but also from the other forms of business organizations mentioned above. Although the
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legislature certainly cannot be expected to anticipate and address all situations, the court is not at
liberty to assume it did not mean to do what it did by removing this provision. Because of this,
such a removal indicates strongly that the legislature’s intent was to prohibit those activities after
the effective date of the statutory amendment. Coupled with the fact that the similarly phrased
statute applying to voluntarily dissolved corporations was left untouched, the court is left with no
choice but to interpret the legislature as having intended to prohibit corporations from engaging
in those kinds of activities while administratively dissolved. Thus, the court finds that the
original transfer of interest from HomeSafe 2003 to HomeSafe 2014 was an action that was not
statutorily permitted.
Having determined that the initial transfer of assets between HomeSafe 2003 and
HomeSafe 2014 was not statutorily authorized, the question becomes what effect, if any, does
HomeSafe’s 2003 reinstatement have on the unauthorized transfer of the ‘377 patent? The
relevant statute provides that when an administratively dissolved corporation has been reinstated:
(1) The reinstatement relates back to and takes effect as of the effective
date of the administrative dissolution;
(2) Any liability incurred by the corporation . . . after the administrative
dissolution and before the reinstatement shall be determined as if the
administrative dissolution never occurred;
(3) The corporation may resume carrying on its business as if the
administrative dissolution had never occurred.
Miss. Code. Ann. § 79-4-14.22(c)(1)-(3). The statute is deafeningly silent as to the effect
reinstatement has on interim acts by a corporation – other than incurring liabilities -- between the
time of administrative dissolution and the time of reinstatement. Thus, the question becomes
whether, despite the 2012 removal of the authorizing language from §79-4-14.21, the language in
§ 79-4-14.22(c) nevertheless contemplates that reinstatement retroactively ratifies, confirms, or
validates transactions undertaken by a corporation between administrative dissolution and

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reinstatement. Plaintiff relies on the reinstatement statute to argue that retroactive application
authorizes interim acts. Docket 119, p. 2-3.
Although the Mississippi Supreme Court does not appear to have answered the question
explicitly, the Fifth Circuit has considered the role corporate reinstatement plays on interim acts
performed by a suspended corporation. PLM v. E. Randle Co., 797 F.2d 204 (5th Cir. 1986). In
PLM the court considered an earlier version of the statute that provides for administrative
dissolution under the chapter of the Mississippi Code governing corporation franchise taxes,
Miss. Code Ann § 27-13-27. Id.
The state of Mississippi had suspended the plaintiff corporation’s rights and powers to
function due to a failure to file an annual report with the state tax commission. Id. at 205. The
reinstatement statute provided that upon curing the defects which led to its suspension, a
corporation’s suspension would be set aside and the corporation would “be restored to all rights
of which it was deprived by such suspension, and authorized to resume all activities as though
said suspension had not been imposed.” Id., quoting Miss. Code Ann. § 27-13-27(4) (emphasis
added). The plaintiff in PLM argued that the statutory language italicized above implied the
principle of retroactivity and essentially ratified those interim acts performed during the plaintiff
corporation’s suspension. Id. However, the Fifth Circuit disagreed.
[Plaintiff’s] reading of § 27-13-27(4) would confine the
period of suspension to a warning that has no practical effect
unless the corporation fails to correct its mistake within the allotted
time. This reading ignores the first part of the subsection, which
states that when a suspension is set aside, the corporation will be
“restored to all rights of which it was deprived....” (emphasis
added). The statute contemplates a restoration following an actual
deprivation of rights, not the removal of a threat of deprivation.
Our interpretation is also consistent with the language [the
corporation] relies upon. The phrase “to resume all activities as
though said suspension had not been imposed” implies that those
activities were interrupted and does not imply that the interruption
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was fictional. The phrase does not imply a retroactive dispensation
from the suspension, but only suggests that the restoration of
corporate powers is complete or unconditional.
The Mississippi Supreme Court examined a similar statute,
which used virtually the same language as the one at issue here,
and observed that “by virtue of the suspension, Anderson’s
corporation . . . became functionally unable to operate though it did
not cease to exist.” Carolina Transformer Co., Inc. v. Anderson,
341 So.2d 1327, 1329 (Miss. 1977). The court did not reach the
retroactivity issue, but stated that a corporation under suspension
had no power to act as a corporation and “was without ‘any right to
exercise powers’ granted it by the State.” Id. at 1330.
PLM v. E. Randle Co., 797 F.2d 204, 205-06 (5th Cir. 1986). Under this analysis, the Fifth
Circuit concluded that the statute, “contemplates a restoration that is complete and unconditional,
but not retroactive.” Bryant Const. Co., Inc. v. Cook Const. Co., Inc., 518 So.2d 625, 629 (Miss.
1987) (analyzing the Circuit’s holding in PLM v. E. Randle Co.).
Although some thirty years have passed since PLM, the statute in question in that case
and Miss. Code Ann. § 79-4-14.22(c) read quite similarly. Just as the plaintiff corporation in
PLM did, HomeSafe asserts that the statute is retroactive because it provides that “[t]he
corporation may resume carrying on its business as if the administrative dissolution had never
occurred.” Docket 119, pp. 2-3. However, just as PLM counsels, the language “as if the
administrative dissolution had never occurred” implies that those activities were interrupted and
does not imply that that interruption was fictional. Although the current statute contains
additional language, the same interpretation has been reiterated by the Fifth Circuit as recently as
2014 under the exact statute this court considers here. See 4 Const. Corp. v. Superior Boat
Works, Inc., 579 Fed. Appx. 278, 281 (5th Cir. 2014). Those holdings, coupled with the fact that
“Mississippi statutes are presumed to have prospective applicability only, absent an express
intent to the contrary,” leave little doubt that § 79-4-14.22 does not apply retroactively. 4H

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Construction Corp. v. Superior Boat Works, Inc., 579 Fed. Appx. 278, 281 (5th Cir. 2014), citing
Mladinich v. Kohn, 186 So.2d 481, 483 (Miss. 1966).
Having determined that the initial transfer between HomeSafe 2003 and HomeSafe 2014
was statutorily invalid and that the reinstatement statute does not apply retroactively, the court
turns to the question of standing. “Whether a party has standing to sue in federal court is a
question of federal law.” Paradise Creations, Inc. v. UV Sales, Inc., 315 F.3d 1304, 1308 (Fed.
Cir. 2003), quoting Baker v. Carr, 369 U.S. 186, 204 (1962)). “[S]tanding is to be determined as
of the commencement of suit.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 570 n. 5 (1992).
“In the area of patent infringement, . . . if the original plaintiff lacked Article III initial standing,
the suit must be dismissed, and the jurisdictional defect cannot be cured by the addition of a
party with standing.” Schreiber Foods, Inc. v. Beatrice Cheese, Inc., 402 F.3d 1198, 1203 (Fed.
Cir. 2005). “[I]n order to assert standing for patent infringement, the plaintiff must demonstrate
that it held enforceable title to the patent at the inception of the lawsuit.” Paradise Creations,
Inc. v. UV Sales, Inc., 315 F.3d 1304, 1309, citing Lans v. Digital Equipment Corp., 252 F.3d
1320, 1328 (Fed.Cir.2001).
To demonstrate standing under Article III, a plaintiff must satisfy three elements. First,
plaintiff must alleged it has suffered an “’injury in fact’—an invasion of a legally protected
interest.” Lujan, 504 U.S. at 560. Second, “there must be a causal connection between the
injury and the conduct complained of.” Id. Third, “it must be ‘likely,’ as opposed to merely
‘speculative,’ that the injury will be ‘redressed by a favorable decision.’” Id. at 561, quoting
Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 38, 43 (1976). The Patent Act provides only
“[a] patentee shall have remedy by civil action for infringement of his patent.” 35 U.S.C. § 281
(2000). Under 35 U.S.C. § 100(d), “[t]he word ‘patentee’ includes not only the patentee to

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whom the patent was issued but also the successors in title to the patentee.” Exclusive licensees
holding all substantial rights to the patent meet this standard. Prima Tek II, L.L.C. v. A-Roo Co.,
222 F.3d 1372, 1377 (Fed. Cir. 2000); see also Rhone-Poulenc Agro, S.A. v. DeKalb Genetics
Corp., 284 F.3d 1323, 1334 (Fed. Cir. 2002).
Because the initial transfer between HomeSafe 2003 and HomeSafe 2014 has been
deemed statutorily invalid and because the reinstatement statute did not ratify that invalid
transfer, plaintiff HomeSafe 2014 did not hold enforceable title to the ‘377 patent at the time this
lawsuit was filed. And because HomeSafe 2014 never held enforceable title to the ‘377 patent,
much less at the inception of this lawsuit, plaintiff HomeSafe 2014 did not have the requisite
standing to file this suit. For the foregoing reasons, plaintiff’s motion for substitution of the
plaintiff [Docket 118] is DENIED, and the defendants’ Motion to Dismiss for Failure to State a
Claim [Docket 77] is GRANTED. The case is dismissed without prejudice. A final judgment of
dismissal will be entered this date.
SO ORDERED, this, the 28th day of January, 2016.

__/s/ S. Allan Alexander________________
UNITED STATES MAGISTRATE JUDGE

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