Rayeman Elements, Inc. et al

Filing 40

MEMORANDUM AND ORDER - The Motion to Dismiss submitted by Defendants Integrated Resources, LLC, Integrated Feed Solutions, LLC, and Bill Graddy (Filing No. 20 ) and the Motion to Dismiss submitted by Defendant Masterhand Milling, LLC (Filing No. [2 7]) are granted in part, as follows (a). All claims presented by Plaintiff Samantha Rae Western and Plaintiff Raymond Taylor Johnson, Jr., for patent infringement (Second Claim for Relief) and inducement of infringement (Third Claim for Relief) are d ismissed; (b). This action is stayed pending final disposition of parallel proceedings pending in the District Court of Tulsa County, Oklahoma, i.e., Integrated Feed Solutions, LLC, and Integrated Resources, LLC v. Rayeman Elements, Inc., Michael Tho mas, and Samantha Western, Case No. CJ-2015-449; The Motions to Dismiss are otherwise denied. Counsel for the parties will file with this Court a Stipulation within ten days of the final disposition of the parallel state court proceedings, attachi ng a copy of the final order adjudicating the issues presented in state court, or informing this Court of the final settlement of such issues, and, if claims remain to be determined by this Court, moving for the issuance of a Progression Order. Ordered by Chief Judge Laurie Smith Camp. (GJG)

. IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
RAYEMAN ELEMENTS, INC., a
Maryland corporation, SAMANTHA
RAE WESTERN, an individual,
RAYMOND TAYLOR JOHNSON, JR.,
an individual,
Plaintiffs,
v.
MASTERHAND MILLING, LLC, a
Kansas limited liability company,
INTEGRATED RESOURCES, LLC, an
Oklahoma limited liability company,
INTEGRATED FEED SOLUTIONS,
LLC, an Oklahoma limited liability
company, MICHAEL RAY THOMAS,
Bill Graddy, an individual,
Defendants.

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CASE NO. 8:15CV89

MEMORANDUM
AND ORDER

This matter is before the Court on two Motions to Dismiss, that of Defendants
Integrated Resources, LLC, Integrated Feed Solution, LLC, and Bill Graddy (Filing No. 20),
and that of Defendant Masterhand Milling, LLC (Filing No. 27). For the reasons discussed
below, the Motions will be granted in part, and this action will be stayed pending the
disposition of a parallel state-court proceeding.
SUMMARY OF FACTUAL ALLEGATIONS IN COMPLAINT
As Plaintiffs’ Complaint (Filing No. 1) fairly notes, their claims “arise out of a
complicated set of facts[.]” (Id. at 1.) A this stage of the proceedings, the Court accepts
as true all well-pled facts in the Complaint, though the Court need not accept the Plaintiffs’
conclusions of law.

Summarized and simplified, the Complaint alleges that Plaintiffs Samantha Rae
Western (“Western”) and Raymond Taylor Johnson, Jr. (“Johnson”) and Defendant Michael
Ray Thomas (“Thomas”) collectively own certain patents, patent applications, and
technologies related to the curing, drying, and compressing of distiller’s grains used for
livestock feed (the “Technology”). On April 15, 2011, Plaintiff Rayeman Elements, Inc.
(“Rayeman”) obtained an exclusive license to the Technology. On December 24, 2013,
Rayeman’s lender, Midwest Community Development Fund IV, LLC (“Midwest”), obtained
a security interest in the Technology in consideration for certain loans.
In August 2013, Defendant Bill Graddy (“Graddy”) acting on behalf of Defendant
Integrated Feed Solutions, LLC (“Integrated Feed”), and Western acting on behalf of
Rayeman, entered into an Asset Purchase Agreement for the sale of certain physical
assets from Rayeman to Integrated Feed. On November 20, 2014, Thomas entered into
an Intellectual Property Purchase Agreement with Defendant Integrated Resources, LLC
(“Integrated Resources”) through which Thomas purported to assign his interest in the
Technology to Integrated Resources, which then licensed the purported rights to Integrated
Feed which then licensed the purported rights to Defendant Masterhand Milling, LLC
(“Masterhand”) that has been using the Technology since November 2014.
Plaintiffs contend that Rayeman has the exclusive license to the Technology.
Plaintiffs filed this action on March 22, 2015, seeking (1) a declaratory judgment confirming
ownership of the Technology in certain percentages held by Western, Johnson, and
Thomas; Rayeman’s exclusive license to the Technology; and the other Defendants’ lack
of any right to the Technology, (2) injunctive relief and an award of damages against

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Masterhand for patent infringement, and (3) an award of damages against Graddy for
inducing the alleged infringement.
Defendants have moved to dismiss the Complaint pursuant to Fed. R. Civ. P.
12(b)(6) and (7). All parties have presented evidentiary materials in support of their
respective positions.
STANDARD OF REVIEW
Fed. R. Civ. P. 12(b)(6)
A complaint must contain “a short and plain statement of the claim showing that the
pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). “To survive a motion to dismiss, a
complaint ‘need not include detailed factual allegations.’” Bradley Timberland Res. v.
Bradley Lumber Co., 712 F.3d 401, 406 (8th Cir. 2013) (quoting C.N. v. Willmar Pub. Sch.,
Indep. Sch. Dist. No. 347, 591 F.3d 624, 629 (8th Cir. 2010)). However, “[a] pleading that
offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action
will not do.’” Magee v. Trustees of Hamline Univ., Minn., 747 F.3d 532, 535 (8th Cir. 2014)
(quoting Bell Atlantic Corp v. Twombly 550 U.S. 544, 555 (2007)). Instead, the “complaint
must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Id. at 535 (quoting Twombly 550 U.S. at 570). “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Gallagher v.
City of Clayton, 699 F.3d 1013, 1016 (8th Cir. 2012) cert. denied, 133 S. Ct. 2354 (U.S.
2013) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009))(internal quotation marks
omitted).

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“Courts must accept . . . specific factual allegations as true but are not required to
accept . . . legal conclusions.” Outdoor Cent., Inc. v. GreatLodge.com, Inc., 643 F.3d
1115, 1120 (8th Cir. 2011) (quoting Brown v. Medtronic, Inc., 628 F.3d 451, 459 (8th Cir.
2010))(internal quotation marks omitted). “[L]egal conclusions can provide the framework
of a complaint” but “must be supported by factual allegations,” Hager v. Arkansas Dep't of
Health, 735 F.3d 1009, 1014 (8th Cir. 2013) (quoting Iqbal, 556 U.S. at 679), that “raise a
right to relief above the speculative level.” Id. at 1014 (quoting Twombly, 550 U.S. at 555).
When ruling on a defendant's motion to dismiss, a judge must rule “on the assumption that
all the allegations in the complaint are true,” and “a well-pleaded complaint may proceed
even if it strikes a savvy judge that actual proof of those facts is improbable, and ‘that a
recovery is very remote and unlikely.’” Twombly, 550 U.S. at 555-556 (quoting Scheuer v.
Rhodes, 416 U.S. 232, 236 (1974)). However, “to withstand a Rule 12(b)(6) motion, a
complaint must contain sufficient factual allegations to state a claim of relief that is
plausible on its face.” Smithrud v. City of St. Paul, 746 F.3d 391, 397 (8th Cir. 2014)
(internal quotation marks omitted) (citing Twombly at 547).
“Two working principles underlie . . . Twombly. First, the tenet that a court must
accept as true all of the allegations contained in a complaint is inapplicable to legal
conclusions. Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S.
at 555). “Second, only a complaint that states a plausible claim for relief survives a motion
to dismiss.” Id. at 679 (citing Twombly, 550 U.S. at 556). “Determining whether a

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complaint states a plausible claim for relief will . . . be a context-specific task that requires
the reviewing court to draw on its judicial experience and common sense.” Id.
“If, on a motion under Rule 12(b)(6) . . . matters outside the pleadings are presented
to and not excluded by the court, the motion must be treated as one for summary judgment
under Rule 56. All parties must be given a reasonable opportunity to present all the
material that is pertinent to the motion.” Fed. R. Civ. P. 12(d).
Fed. R. Civ. P. 12(b)(7)
When deciding a motion to dismiss under Federal Rule of Civil Procedure 12(b)(7)
for “failure to join a party under Rule 19,” Fed. R. Civ. P. 12(b)(7), the Court must first
determine if the party is a “necessary party” under Rule 19(a)(1). Baker Group, L.C. v.
Burlington N. & Santa Fe Ry. Co., 451 F.3d 484, 490 (8th Cir. 2006) (citing Fed. R. Civ. P.
19(a)). Rule 19 states that a party is “necessary” if:
(A) in that person's absence, the court cannot accord complete relief among
existing parties; or
(B) that person claims an interest relating to the subject of the action and is
so situated that disposing of the action in the person's absence may:
(i) as a practical matter impair or impede the person's ability to protect the
interest; or
(ii) leave an existing party subject to a substantial risk of incurring double,
multiple, or otherwise inconsistent obligations because of the interest.
Fed. R. Civ. P. 19(a)(1). If the party is “necessary,” subject to service of process, and
joinder would not deprive the Court of subject matter jurisdiction, then “the court must order
that the person be made a party.” Fed. R. Civ. P. 19(a)(2). If the party is “necessary” but
joinder is not feasible because the party is not subject to service of process or joinder

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would “deprive the Court of subject matter jurisdiction,” Fed. R. Civ. P. 19(a)(1), then the
Court must determine under Rule 19(b), if “in equity and good conscience, the action
should proceed among the existing parties or should be dismissed.” Fed. R. Civ. P. 19(b);
see also Baker Group, 451 F.3d at 490 (citing Fed. R. Civ. P. 19(b); Ranger Transp., Inc.
V. Wal-Mart Stores, 903 F.2d 1185, 1187 n. 2 (8th Cir. 1990) (citing Fed. R. Civ. P. 19(b)).
Rule 19(b) states that the factors that a court may consider when deciding whether an
action should proceed or be dismissed in the absence of a “necessary” party include:
(1) the extent to which a judgment rendered in the person's absence might
prejudice that person or the existing parties;
(2) the extent to which any prejudice could be lessened or avoided by:
(A) protective provisions in the judgment;
(B) shaping the relief; or
(C) other measures;
(3) whether a judgment rendered in the person's absence would be
adequate; and
(4) whether the plaintiff would have an adequate remedy if the action were
dismissed for nonjoinder.
Fed. R. Civ. P. 19(b).
DISCUSSION
Defendants Integrated Resources, Integrated Feed, and Graddy, move to dismiss
the Plaintiffs’ action on the basis that (1) Plaintiffs lack standing to bring their claims
because not all the owners of the Technology are parties plaintiff, and (2) there is a parallel
action pending in state court which was filed before this action. Defendant Masterhand
moves to dismiss the Plaintiffs’ action on those same grounds, and on the basis that (3)
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Rayeman voluntarily sold the allegedly infringing machinery, so Rayeman’s rights to the
Technology are exhausted.
I.

Standing
Defendants do not concede that Western or Johnson has any ownership interest

in the Technology, and they assert that Integrated Resources does have an ownership
interest pursuant to the Intellectual Property Purchase Agreement executed by Thomas.
Regardless, Defendants note it is undisputed that Thomas is an owner of the Technology
and is not a party plaintiff. Defendants cite Federal Circuit precedent for the principle that
all parties with rights to a patent must bring any action to enforce the patent. Taylor v.
Taylor Made Plastics, Inc., 565 Fed. Appx. 888, 889 (Fed. Cir. 2014) (“If any co-owner
should refuse to join as a co-plaintiff, the suit must be dismissed for lack of standing.”);
Israel Bio-Eng’g Project v. Amgen, Inc., 475 F.3d 1256, 1264-65 (Fed. Cir. 2007) (“Absent
the voluntary joinder of all co-owners of a patent, a co-owner acting alone will lack
standing.”); Ethicon, Inc. v. U.S. Surgical Corp., 135 F.3d 1456, 1468 (Fed. Cir. 1998)
(“[A]s a matter of substantive patent law, all co-owners must ordinarily consent to join as
plaintiffs in an infringement suit.”); Schering Corp. v. Roussel-UCLAF SA, 104 F.3d 341,
345 (Fed. Cir. 1997) (“Ordinarily, one-co-owner has the right to impede the other coowner’s ability to sue infringers by refusing to voluntarily join in such a suit.”).
Plaintiffs acknowledge the general rule, but note that there is an exception when the
action is brought by an exclusive licensee: “‘[W]hen any patent owner has granted an
exclusive license, he stands in a relationship of trust to his licensee’ and can be
involuntarily joined as a plaintiff in the licensee’s infringement suit.” STC UNUM v. Intel

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Corp., 754 F.3d 940, 946 (Fed. Cir. 2014) (quoting Ethicon, Inc. V. United States Surgical
Corp., 135 F.3d 1456, 1468 n. 9 (Fed. Cir. 1998)).
Integrated Resources, Integrated Feed, and Graddy submitted no reply brief. In
Masterhand’s reply brief, it does not dispute that Rayeman has standing to pursue its
claims, but asserts that Western and Johnson lack standing, because Thomas is not a
party plaintiff. (See Filing No. 36 at 2.) Rayeman notes that Western and Johnson were
joined as necessary parties and are listed as plaintiffs because they consented to the suit,
not because they are asserting any claims for patent infringement. (See Filing No. 39 at
2.) Accordingly, Plaintiffs’ Second Claim for Relief and Third Claim for Relief will be
dismissed as to Plaintiffs Western and Johnson, and the Defendants’ Motions to Dismiss
based on lack of standing and failure to join an indispensable party are otherwise denied.
II.

Parallel State Court Proceedings
On February 5, 2015, Integrated Feed and Integrated Resources filed an action in

the District Court of Tulsa County, Oklahoma, naming Rayeman, Thomas, and Western
as defendants. (See Filing No. 20 at 7-16.) In the state court petition, it is alleged that
Integrated Resources acquired “patents, patent applications and intellectual property,
including trade secrets, owned by Thomas and used by Rayeman[.]” (Id. at 10.) Integrated
Feed and Integrated Resources allege breach of contract, interference with contract, and
fraud, and they seek injunctive relief as well as damages. (Id. at 10-15.)
The Colorado River Doctrine authorizes a federal district court to dismiss or stay an
action when there is an ongoing action in state court and there is “a substantial similarity
. . . between the state and federal proceedings, which similarity occurs when there is a

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substantial likelihood that the state proceeding will fully dispose of the claims presented
in the federal court.” Fru-Con Constr. Corp. v. Controlled Air, Inc., 574 F.3d 527, 535 (8th
Cir. 2009). The doctrine rests “on considerations of ‘[w]ise judicial administration, giving
regard to conservation of judicial resources and comprehensive disposition of litigation’”
Colorado River Water Conservation District v. United States, 424 U.S. 800, 817 (1976)
(quoting Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 183 (1952)).
Plaintiffs argue that the Oklahoma litigation will not resolve all the issues presented
here. Plaintiffs note that Masterhand and Graddy are not parties to the state court action,
so Rayeman’s claims against them for patent infringement and inducement of infringement
will not be resolved through the state court action. Plaintiffs also note that Johnson is not
a party to the state court action, and the state court will not determine the respective
ownership rights to the Technology vis a vis Thomas, Western, and Johnson.
While the Plaintiffs’ arguments are well-taken, it does appear that the state court
action will resolve the question of whether Rayeman has an exclusive license to the
Technology, or retained any interest in the Technology at all after November 2014. That
is a contract question, governed by state contract law, and the state court action was the
first-filed. While the state court may well determine that Rayeman has an exclusive license
to use the Technology and that Rayeman’s claims asserted in this action are viable, it is
also possible that the state court action will reveal that Rayeman has no such license and
Rayeman’s actions for declaratory judgment, patent infringement, and inducement of
patent infringement are moot. Because Western and Johnson were merely joined as
“necessary parties,” not because they have any standing to assert patent infringement (see
Plaintiffs’ Surreply Brief, Filing No. 39 at 2), it appears there will be no case or controversy
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remaining in this Court if the state court resolves the contract questions in favor of the
state-court plaintiffs. Accordingly, this action will be stayed pending the resolution of the
pending state court claims.
III.

Exhaustion of Claims through Sale of Patented Machinery
Masterhand argues that Rayeman’s sale of equipment pursuant to the Asset

Purchase Agreement terminated any right Rayeman may have had to assert patent
infringement claims in connection with that equipment. “The longstanding doctrine of
patent exhaustion provides that the initial authorized sale of a patented item terminates all
patent rights to that item.” Quanta Computer, Inc. v. LG Elec., Inc., 553 U.S. 617, 624
(2008). “[W]here a person ha[s] purchased a patented machine of the patentee or his
assignee, this purchase carrie[s] with it the right to the use of the machine so long as it [is]
capable of use.” Id. at 625 (quoting Adams v. Burke, 84 U.S. 453, 455 (1873)). “The
rationale underlying the doctrine rests upon the theory that an unconditional sale of a
patented device exhausts the patentee’s right to control the purchaser’s use of that item
thereafter because the patentee has bargained for and received full value for the goods.”
Keurig, Inc. v. Sturm Foods, Inc., 732 F.3d 1370, 1373 (Fed. Cir. 2013).
Rayeman’s claims of patent infringement, and Masterhand’s defense of exhaustion,
will be moot if the state court determines that Rayeman did not have an exclusive license
to the Technology after November 2014. If the state court determines that Rayeman has
such a license, or did have such a license at some time after November 2014, then
Masterhand may raise its defense through a motion for summary judgment.

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CONCLUSION
Because there is a substantial likelihood that pending state court proceedings, filed
before this action, may fully dispose of the claims presented here, this action will be stayed
pending resolution of the parallel proceedings in state court.

IT IS ORDERED:
1.

The Motion to Dismiss submitted by Defendants Integrated Resources, LLC,
Integrated Feed Solutions, LLC, and Bill Graddy (Filing No. 20) and the
Motion to Dismiss submitted by Defendant Masterhand Milling, LLC (Filing
No. 27) are granted in part, as follows:
(a). All claims presented by Plaintiff Samantha Rae Western and
Plaintiff Raymond Taylor Johnson, Jr., for patent infringement
(Second Claim for Relief) and inducement of infringement (Third
Claim for Relief) are dismissed;
(b).

This action is stayed pending final disposition of parallel

proceedings pending in the District Court of Tulsa County, Oklahoma,
i.e., Integrated Feed Solutions, LLC, and Integrated Resources, LLC
v. Rayeman Elements, Inc., Michael Thomas, and Samantha
Western, Case No. CJ-2015-449;
The Motions to Dismiss are otherwise denied; and
2.

Counsel for the parties will file with this Court a Stipulation within ten days of
the final disposition of the parallel state court proceedings, attaching a copy
of the final order adjudicating the issues presented in state court, or
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informing this Court of the final settlement of such issues, and, if claims
remain to be determined by this Court, moving for the issuance of a
Progression Order.

DATED this 12th day of June, 2015.
BY THE COURT:

s/Laurie Smith Camp
Chief United States District Judge

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