Doukas et al v. Ballard et al

Filing 59

ORDER granting 35 Motion to Remand to State Court. IT IS HEREBY ORDERED that, for the reasons set forth in the attached Memorandum and Order, plaintiffs' motion to remand is granted. Plaintiffs' request for sanctions and costs is denied. SO ORDERED. Ordered by Judge Joseph F. Bianco on 11/21/2011. (Maxwell, Rita)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
_____________________
No 11-cv-3275(JFB) (WDW)
_____________________

TED DOUKAS, ET AL.,
Plaintiffs,
VERSUS

CLAUDIO BALLARD, ET AL.,
Defendants.
___________________
MEMORANDUM AND ORDER
November 21, 2011
___________________

JOSEPH F. BIANCO, District Judge:

an accounting, replevin, receivership,
attachment, and injunctive relief.2

The above-entitled action was
removed from state court by defendants
Claudio Ballard and DataTreasury
Corporation (“DTC”). Plaintiffs move to
remand the action back to state court. For
the reasons that follow, plaintiffs’ motion
is granted and the case is remanded back
to state court.1

The Court will briefly summarize the
allegations set forth in the complaint.3
According to the complaint, plaintiff Ted
Doukas (“Doukas”) and defendant
Claudio Ballard (“Ballard”) entered into a
joint venture sometime between 1994 and
2

I. BACKGROUND
A. The Complaint
Plaintiffs’ complaint alleges fraud,
breach of contract and other causes of
action against all defendants. Plaintiffs
seek money damages, equitable remedies,
a constructive trust, dissolution of DTC,
1

Plaintiff has also requested sanctions and
costs, but those requests are denied for the
reasons set forth herein.

Plaintiffs also assert sixteen causes of
action relating to a later, separate purported
agreement between Doukas and certain
defendants. These causes of action and
alleged underlying facts have no bearing on
the motion to remand.
3
The following allegations are taken from
the complaint, and are not findings of fact by
the Court. As noted infra, for purposes of
plaintiffs’ motion to remand, the Court looks
only to jurisdictional facts, and any doubts as
to federal jurisdiction will be resolved against
removability. In re Methyl Tertiary Butyl
Ether Prods. Liab. Litig., 488 F.3d 112, 124
(2d Cir. 2007).

II. DISCUSSION

1995. (Compl. ¶¶ 1, 90, 101.) The goal
of the joint venture was to develop
biometric recognition and remote image
capture technology. (Compl. ¶¶ 90, 98.)
Doukas invested hundreds of thousands
of dollars in the joint venture and
provided rent-free office space to Ballard
in order to further the joint venture’s goal
of developing the technology. (Compl.
¶¶ 7, 10.) Ballard’s role in the joint
venture was to develop the technology
(Compl. ¶ 11), as Doukas was “anything
but a technology buff.” (Compl. ¶ 14.)

A. Plaintiffs’ Motion for Remand
As set forth in detail below, plaintiffs’
claims do not require application of
federal law and, therefore, remand is
warranted.
28 U.S.C. § 1331 provides that “[t]he
district courts shall have original
jurisdiction of all civil actions arising
under the Constitution, laws or treaties of
the United States.” Pursuant to 28 U.S.C.
§ 1338(a), “District courts shall have
original jurisdiction of any civil action
arising under any Act of Congress
relating to patents, plant variety
protection, copyrights and trademarks.
Such jurisdiction shall be exclusive of the
courts of the states in patent, plant variety
protection and copyright cases.”

On August 27, 1997, Ballard filed a
patent application for “a system for
remote data acquisition and centralized
processing and storage.” (Compl. Ex. A.)
Ballard never informed Doukas of the
patent application or the success of the
joint venture’s endeavor. (Compl. ¶ 116.)
Ballard then transferred the patent to
Defendant CPS Holdings, Inc. and later
to Defendant DTC. (Id.) DTC has since
received over $2,000,000,000 from
settlements or licensing fees connected to
the technology. (Compl. ¶ 128.)

“The presence or absence of federalquestion jurisdiction [under § 1331] is
governed by the ‘well-pleaded complaint
rule,’ which provides that federal
jurisdiction exists only when a federal
question is presented on the face of the
plaintiff’s properly pleaded complaint.”
Caterpillar Inc. v. Williams, 482 U.S.
386, 392 (1987). Thus, “[t]he ‘wellpleaded complaint rule’ is the basic
principle marking the boundaries of the
federal question jurisdiction of the federal
courts.” Metropolitan Life Ins. Co. v.
General Motors Corp., 481 U.S. 58, 63
(1987).
Pursuant to this rule, “the
plaintiff [is] the master of the clam; he or
she may avoid federal jurisdiction by
exclusive reliance on state law.”
Caterpillar, 482 U.S. at 392.

B. Procedural Background
Plaintiffs filed the present action on
April 15, 2011 in the Supreme Court of
the State of New York, Suffolk County.
On July 7, 2011, defendants Ballard and
DTC filed a notice of removal pursuant to
28 U.S.C. §§ 1441 and 1446, alleging
original jurisdiction under 28 U.S.C.
1331. Plaintiffs now seek to remand the
case back to state court. On July 29,
2011, plaintiffs filed a motion to remand.
On August 29, 2011, opposition papers
were filed. On September 16, 2011, reply
papers were filed. Oral argument took
place on October 17, 2011. The motion
is fully submitted for the Court’s
consideration.

“Generally, a defendant in an action
pending in state court may remove that
case to federal court only if it could have
originally been commenced in federal
2

court on either the basis of federal
question
jurisdiction
or
diversity
jurisdiction.”
Citibank, N.A. v.
Swiatkoski, 395 F. Supp. 2d 5, 8
(E.D.N.Y. 2005) (citing 28 U.S.C. §
1441(a)). “When a party challenges the
removal of an action from state court, the
burden falls on the removing party ‘to
establish its right to a federal forum by
competent proof.’” In re Methyl Tertiary
Butyl Ether (“MTBE”) Prods. Liab.
Litig., No. 00-1898, MDL 1358(SAS), M
21-88, 2006 WL 1004725, at *2
(S.D.N.Y. Apr. 17, 2006) (quoting R.G.
Barry Corp. v. Mushroom Makers, Inc.,
612 F.2d 651, 655 (2d Cir. 1979)
(quotation omitted)). Accordingly, the
burden is on the defendant to establish
federal jurisdiction. Further, the removal
statute should be strictly construed, and
any doubts about jurisdiction should be
resolved against removal. See In re
Methyl Tertiary Butyl Ether Prods. Liab.
Litig., 488 F.3d 112, 124 (2d Cir. 2007).

a single interpretation of that claim is
insufficient to form the basis of federal
jurisdiction.” Id.

A court will have original jurisdiction
pursuant to 28 U.S.C. § 1338(a) if the
plaintiff’s complaint, properly construed,
“establishes either that patent law creates
the cause of action or that the plaintiff’s
right to relief necessarily depends on
resolution of a substantial question of
federal patent law, in that patent law is a
necessary element of one of the wellpleaded claims.” Christianson v. Colt
Indus. Oper. Corp., 486 U.S. 800, 809
(1988). Where patent law “is not an
‘essential element’ of plaintiff’s theory of
recovery, those claims do not arise under
patent law.”
Nanomedicon, LLC v.
Research Found. of State Univ. of NY,
784 F. Supp. 2d 153, 157 (E.D.N.Y.
2011) (quoting In re Ciproflaxacin
Hydrochloride Antitrust Litig., 166 F.
Supp. 2d. 749, 750-51 (E.D.N.Y. 2001)).
“Additionally, where a state law claim
may be supported by alternative theories,

This is an action for fraud,
breach of fiduciary duty,
constructive trust, breach of
contract and breach of a joint
venture agreement, together
with actions emanating from
the partnership law, the BCL
and that body of law known
as “equity.” The subject and
goal of the joint venture at
the center of this dispute (the
Doukas/Ballard
joint
venture) was to develop
technology
that
was
surreptitiously developed and
patented by one of the joint
venture partners in clear
violation of the express terms
of a mutual agreement
between two individuals:
Plaintiff TED DOUKAS
(“DOUKAS”) and Defendant

Plaintiffs’ complaint sets forth no
explicit cause of action relying on patent
law. Thus, the removing defendants must
show that the resolution of plaintiffs’
claims requires the court to resolve a
substantial issue of patent law. Id. The
removing defendants have not met their
burden.
Although the removing
defendants seize on portions of plaintiffs’
complaint to argue that the “crux of this
action is the claim that Doukas should
have been named as an inventor on the
Patents and have the resulting ownership
interest” (Defs.’ Br. at 12), it is evident
from plaintiffs’ complaint that the
plaintiffs’ action is one sounding wholly
in contract and partnership law. In fact,
the “Overview of the Litigation” section
of the plaintiffs’ complaint makes this
abundantly clear:

3

venture relationship referred
to throughout this complaint
as the Doukas/Ballard joint
venture. Plaintiffs also seek
declaratory
judgment
establishing BALLARD as a
fiduciary to DOUKAS vis a
vis the Doukas/Ballard joint
venture.
Moreover,
declaratory
judgment
is
sought establishing the joint
venture’s ownership of the
“elusive biometric character
recognition”, “remote image
capture
and
centralized
storage”
and
other
technology and further, that
all profits and proceeds
generated
by
the
Doukas/Ballard
joint
venture’s technology are
properly paid to DOUKAS
who absorbed all of the
losses of the Doukas/Ballard
joint venture.
Finally,
declaratory
judgment
is
sought establishing DTC as
an assignee of BALLARD
and that all monies paid to
DTC by banks who pay to
use
the
Doukas/Ballard
technology should be paying
DOUKAS directly inasmuch
as he is the equitable and
actual
owner
of
the
technology.

CLAUDIO
BALLARD
(“BALLARD”).
Likewise,
this action contemplates a
fraudulent
transfer
of
ownership
of
the
Doukas/Ballard technology
that was the object of the
joint venture and reflected in
the patent spirited away from
the Doukas/Ballard joint
venture by BALLARD and
wrongfully
assigned
to
Defendant,
DATATREASURY
CORP.
(“DTC”). It is alleged in this

complaint that BALLARD, in
violation of the express terms
of a mutual agreement, joint
venture agreement and the
fiduciary
obligations
BALLARD
owed
to
DOUKAS, that BALLARD
stole, co-opted and otherwise
converted and assigned away
the Doukas/Ballard joint
venture’s technology for his
own use at the expense of the
Doukas/Ballard joint venture
and DOUKAS, BALLARD’s
partner and a principal of the
“Doukas/Ballard
joint
venture”.
(Compl. ¶ 1.) The “Overview” section
proceeds to describe the nature of the
alleged joint venture in greater detail and
then sets forth the nature of the relief
being sought. (Compl. ¶¶ 1-5.) For
example, with respect to the declaratory
relief being sought, plaintiffs explain:

(Compl. ¶ 3.) In short, there is no
question based upon the “Overview”
section, as well as a careful reading of the
remainder of the lengthy complaint, that
plaintiffs claims all arise out of an alleged
joint venture agreement.

In this complaint, Plaintiffs
also
seek
declaratory
judgment against several
Defendants. For example,
Plaintiffs seek a declarative
judgment establishing a joint

Based upon the allegations of the
complaint, there are simply no aspects of
plaintiffs’ complaint that implicate patent
4

Third, none of the relief sought
implicates the validity of the patent. For
example, the complaint institutes an
action for money damages arising out of
the breach of an alleged joint venture
agreement. Moreover, as noted above, all
of the declaratory relief sought relates to
the alleged joint venture. Plaintiff does
not seek invalidation of the patent or any
relief that would impact the validity of
the patent; instead, his claims seek to
establish who has proper ownership of
the patent based upon the alleged joint
venture.

law. First, plaintiffs do not allege Doukas
had any role in the conception of the
technology and, as confirmed at oral
argument by plaintiffs’ counsel, do not
claim Doukas to be an inventor. Even if
Doukas claimed that he was the inventor
of the technology, that does not
necessarily require that the entire claim
arise under patent law. See Christianson,
486 U.S. at 811 (“just because an element
that is essential to a particular theory
might be governed by federal patent law
does not mean that the entire...claim
‘arises under’ patent law.”); Synergy Adv.
Pharmas. Inc. v. Capebio LLC, No. 10
Civ. 1736(SAS), 2011 WL 2078220, at
*6
(S.D.N.Y.
May
25,
2011)
(“Additionally, the possibility that the
fact-finder may be called upon to
determine the true inventor of certain
compounds does not turn such an inquiry
into one that ‘arises under’ federal patent
law.”).4

Thus, the Court has examined all of
plaintiffs’ claims, as well as the relief
sought, and finds that patent law is not
essential to any claim. The resolution of
plaintiffs’ claims will not involve a
substantial issue of patent law.
In reaching this decision, the Court
has considered all of defendants’
arguments for removal and finds them
unpersuasive. For example, to the extent
defendants suggest in their papers that
patent law is implicated based upon the
clear dispute in the complaint about
ownership of the patent, the Court
disagrees.
A substantial portion of
plaintiffs’
complaint
focuses
on
ownership of the patented technology and
the proceeds from the patented
technology. Ownership “is a question of
who owns legal title to the subject matter
claimed in a patent, patents having the
attributes of personal property.” Beech
Aircraft Corp. v. EDO Corp., 990 F.2d
1237, 1248 (Fed. Cir. 1993). Therefore, a
dispute about patent ownership is not a
question of federal patent law. E.I. Du
Pont De Nemours & Co. v. Okuley, 344
F.3d 578, 582 (6th Cir. 2003); see also 8
Chisum on Patents § 21.02 (“[A] dispute
over title or ownership in a patent
traditionally arises under state property

Second, none of plaintiffs’ causes of
actions raises an issue of patent law.
Each and every one of the claims –
including fraud and breach of contract –
relate directly to the alleged joint venture
agreement, and have no basis in patent
law.

4

Plaintiffs’ counsel has conceded that the
complaint does not seek relief listing Doukas
as an inventor. (Pls.’ Reply Br. at 6). Nor
could plaintiffs make that claim. Throughout
the complaint, Doukas admits his ignorance
regarding technology in general and the
disputed technology in particular. Without
an allegation of Doukas’s contribution to the
invented technology, there can be no question
of inventorship in this action. See Fina Oil
and Chem. Co. v. Ewen, 123 F.3d 1466, 1473
(Fed. Cir. 1997) (“[A] joint inventor must
contribute in some significant manner to the
conception of the invention.”).
5

notwithstanding references in the
complaint to the dispute about whose
name should be on the patent, will not be
litigated in this case and no relief sought
implicates the validity of the patent.
Under such circumstances, no substantial
issue of patent law is implicated in this
case.

law, even though resolution of the
ownership issue may affect the validity of
the patent.”). Plaintiffs’ claims center on
an alleged joint venture agreement and
the contractual rights and obligations that
derive from the agreement.
The
determination of whether a joint venture
agreement existed is firmly rooted in state
contract and partnership law. It does not
and will not affect the validity or
enforceability of the patent. As the
determination of plaintiffs’ claims does
not resolve a substantial issue of patent
law, this case must be remanded to state
court.

This Court’s ruling is consistent with
other courts in this Circuit that have
determined that contractual disputes
surrounding patent rights should be heard
in state court. See Nanomedicon, 784 F.
Supp. 2d at 157-59; Synergy Adv.
Pharmas., 2011 WL 2078220, at *4-6;
Discovision Assocs. v. Fuji Photo Film
Co. Ltd., No. 07 Civ. 6348(PAC), 2007
WL 5161825, at *5-7 (S.D.N.Y. Oct. 29,
2007).

Defendants’ other main argument –
namely, that isolated references in the
complaint to issues about whose name
should have appeared on the patent
triggers the application of patent law – is
similarly unavailing.
Defendants
correctly note that several paragraphs in
the complaint allege that, pursuant to the
joint venture agreement, the patent was
suppose to be in the name of both Doukas
and Ballard, but that Doukas was the only
one listed on the patent applications. See
Compl. ¶¶ 8, 27, 216.)
However,
contrary to defendants’ contention, these
references to the alleged failure to be
listed on the patent application are simply
background allegations to the claims
regarding the existence of the joint
venture agreement and Ballard’s alleged
failure to advise Doukas of the patent
application or the success of the joint
venture’s endeavor. See Compl. ¶ 116.)
Plaintiffs do not seek any finding that the
patent application was fraudulent, nor do
they contest the validity of the patent in
any way. To the contrary, plaintiffs
assert that the patent is valid and are
seeking, based upon alleged ownership of
the patent through a joint venture
agreement, proceeds from the patent.
Thus, the validity of the patent,

For the foregoing reasons, the Court
holds that the complaint neither relies
upon, nor raises any significant issue of
patent law. As this court lacks federal
subject matter jurisdiction, the motion to
remand must be granted. See American
Tel. & Tel. Co. v. Integrated Network
Corp., 972 F.2d 1321, 1324 (Fed. Cir.
1992) (patent jurisdiction held not to exist
in case alleging only traditional contract
and tort causes of action regarding patent
assignment).
B. Plaintiffs’ Request for Sanctions is
Denied
Plaintiffs seek to impose sanctions,
pursuant to Rule 11 of the Federal Rules
of Civil Procedure (“Rule 11”) against
the removing defendants. Specifically,
plaintiffs claim that, in removing to
federal court, the removing defendants
acted in bad faith, and the “only adequate
response is a sua sponte Rule 11
sanction.” (Pls.’ Reply Br. at 13.) For

6

bad faith or than any other grounds for
sanctions are present.
Accordingly,
plaintiffs’ request for sanctions under
Rule 11 is denied.

the reasons that follow, plaintiffs’ motion
for sanctions is denied.
As an initial matter, the Court notes
that plaintiffs have not satisfied the
procedural requirements for filing a
sanctions motion. A request for sanctions
must be made by separate motion, in
accordance with Rule 11(c)(2) of the
Federal Rules of Civil Procedure. In any
event, the Court denies the plaintiffs’
motion. In considering a motion for
sanctions under Rule 11, this Court
applies an “objective standard of
reasonableness.” See MacDraw, Inc. v.
CIT Grp. Equip. Fin., Inc., 73 F.3d 1253,
1257 (2d Cir. 1996). Moreover, “Rule 11
is violated only when it is patently clear
that a claim has absolutely no chance of
success.” Oliveri v. Thompson, 803 F.2d
1265, 1275 (2d Cir. 1986) (internal
quotation marks omitted). Additionally,
“when divining the point at which an
argument turns from merely losing to
losing and sanctionable, ... courts [must]
resolve all doubts in favor of the signer”
of the pleading. Rodick v. City of
Schenetady, 1 F.3d 1341, 1350 (2d Cir.
1993) (emphasis in original) (internal
quotation marks omitted).

C. Plaintiffs’ Request for Costs is Denied
In connection with the motion to
remand, plaintiff also seeks costs,
pursuant to 28 U.S.C. § 1447(c). “Absent
unusual circumstances, courts may award
attorney’s fees under 28 U.S.C. § 1447(c)
only where the removing party lacked an
objectively reasonable basis for seeking
removal.
Conversely, when an
objectively reasonable basis exists, fees
should be denied.” Martin v. Franklin
Capital Corp., 546 U.S. 132, 141 (2005).
As noted above in connection with Rule
11, although this Court has concluded
that removal was improper, the removing
defendants had an objectively reasonable
basis to at least seek removal given the
patent subject matter of the alleged
contract and several references in
plaintiffs’ complaint to the patent
application. Moreover, there is no
evidence that the removal was done in
bad faith, such as to harass or delay.
Therefore, plaintiffs’ request for costs
and expenses, including attorneys’ fees, is
denied because there is no basis for such
an award under the circumstances of this
particular case.

The Court has no reason to believe
that the factual allegations or legal
arguments have been made in bad faith
by the removing defendants. As noted
above, plaintiffs’ complaint does contain
brief references to issues related to whose
name should have appeared on the patent
pursuant to the joint venture agreement.
Thus, although this Court found
defendants’ legal position to be
completely lacking in merit, there was a
colorable basis in the complaint for
defendants to attempt to have this case
removed. In sum, there is insufficient
basis to conclude that the removing
defendants filed the notice of removal in
7

III. CONCLUSION
For the foregoing reasons, plaintiffs’
motion to remand is granted. Plaintiffs’
request for sanctions and costs is denied.
This case is remanded to New York State
Supreme Court, County of Suffolk.
SO ORDERED.

______________________
JOSEPH F. BIANCO
United States District Judge
Dated: November 21, 2011
Central Islip, NY
***
Plaintiff is represented by Robert J. Del
Col, Law Office of Robert J. Del Col,
Esq., 1038 West Jericho Turnpike,
Smithtown, NY 11787. The attorneys for
the Claudio Ballard are Michael Darren
Traub and Scott E. Mollen, Herrick
Feinstein LLP, 2 Park Avenue, New
York, NY 10016. The attorneys for
DataTreasury Corp are Richard L. Levine
and Paul Alexander Ferrillo, Weil
Gotshal & Manges LLP, 767 Fifth
Avenue, 35th Floor, New York, NY
10153; along with Michael Darren Traub
and Scott E. Mollen.

8