TNS Media Research, LLC et al v. TiVo Research and Analytics, Inc.
Filing
248
OPINION AND ORDER: For the foregoing reasons, Kantar's motion to dismiss is GRANTED, and TRA's state law claims are dismissed with prejudice. The Clerk of the Court is directed to close this motion (Dkt. No. 229) and this case. (As further set forth in this Opinion) (Signed by Judge Shira A. Scheindlin on 4/25/2016) (kl)
SHIRA A. SCHEINDLIN, U.S.D.J.:
On February 22, 2016, this Court ruled that counterclaim-plaintiff
TRA, Inc. (“TRA”)’s patents were invalid under section 101 of Title 35 of the
United States Code, leaving only TRA’s pendent state law claims at issue. On
March 22, 2016, counterclaim-defendant Kantar Media Audiences (“Kantar”) filed
this motion to dismiss, arguing that TRA lacks standing to bring these remaining
state law counterclaims.
I.
BACKGROUND
While this action primarily concerns the validity and alleged
infringement of certain patents owned by TRA, the only issue presently before this
Court is whether TRA has standing to pursue its state law claims. In lieu of
providing a full rendition of the facts, I provide only those facts relevant to the
present motion.
Between 2007 and 2010, Kantar, through its investment arm
Cavendish Square Holding B.V. (“Cavendish”), purchased shares of TRA.1 TiVo
invested in TRA in 2009.2 Both Kantar and TiVo appointed representatives to
1
See Answer, Defenses, and Supplemental and Amended
Counterclaims for Patent Infringement, Aiding and Abetting Breach of Fiduciary
Duty, Misappropriation of Trade Secrets, and Breach of Contract (“TRA
Counterclaims”) ¶ 91.
2
See Sealed Excerpts, Ex. 15 to the 7/3/13 Declaration of Trevor V.
Stockinger, counsel to TRA, in Support of TRA’s Opposition to Counterclaim-2-
TRA’s board of directors.3 In June 2011, Kantar filed suit against TRA seeking,
inter alia, a declaratory judgment that it had not violated certain of TRA’s patents.4
In July 2011, TRA filed counterclaims for patent infringement and trade secret
misappropriation, breach of contract, and breach of fiduciary duties.5 TiVo
acquired TRA on July 18, 2012 for $20 million.6
Following TiVo’s acquisition of TRA, TRA submitted an expert
report on damages to the Court. The damages report valued TRA’s non-patent
damages on the difference between the $20 million TiVo paid for TRA and the
alleged valuation of the company calculated by TRA’s expert. This diminution of
value theory of damages is the only theory of damages remaining in the case.
In April 2014, this Court granted Kantar’s summary judgment motion,
and final judgment was entered in July 2014.7 In September 2015, the Federal
Circuit affirmed in part and reversed in part this Court’s summary judgment ruling,
Defendants’ Motion for Summary Judgment (“Stockinger Decl.”), at 10.
3
See TRA Counterclaims ¶ 4; Disclosure Schedule 3.1(d), Ex. B to the
3/22/16 Declaration of Eric J. Rutt, counsel to counterclaim-defendants, in Support
of Counterclaim-Defendants’ Motion to Dismiss TRA’s Remaining Claims Under
Bangor Punta.
4
See Complaint ¶ 23.
5
See TRA Counterclaims.
6
See Sealed Excerpts, Ex. 15 to Stockinger Decl., at 12.
7
See TNS Media Research, LLC v. TRA Global, Inc., 984 F. Supp. 2d
205 (S.D.N.Y. 2014).
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and remanded.8 On remand, this Court addressed the remaining issues in Kantar’s
motion for summary judgment and, on February 22, 2016, ruled that TRA’s patents
were invalid under section 101 of Title 35 of the United States Code.9 Two weeks
later, Kantar sought leave to brief this motion to dismiss the remaining state law
claims for lack of standing.
II.
LEGAL STANDARD
A.
Rule 12(b)(1) Motion to Dismiss for Lack of Standing
1.
Generally
“A case is properly dismissed for lack of subject matter jurisdiction
under Rule 12(b)(1) when the district court lacks the statutory or constitutional
power to adjudicate it.”10 “A plaintiff asserting subject matter jurisdiction has the
burden of proving by a preponderance of the evidence that it exists.”11 “Thus, to
survive . . . [a] Rule 12(b)(1) motion to dismiss, [a plaintiff] must allege facts that
affirmatively and plausibly suggest that it has standing to sue.”12 However,
8
See TNS Media Research, LLC v. Tivo Research & Analytics, Inc.,
No. 2014-1668, 2015 WL 5439002 (Fed. Cir. Sept. 16, 2015).
9
See TNS Media Research, LLC v. Tivo Research & Analytics, Inc.,
No. 11 Civ. 4039, 2016 WL 817447 (S.D.N.Y. Feb. 22, 2016).
10
Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000).
11
Id.
12
Amidax Trading Grp. v. S.W.I.F.T. SCRL, 671 F.3d 140, 145 (2d Cir.
2011).
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“[w]hen standing is challenged on the basis of the pleadings, we ‘accept as true all
material allegations of the complaint, and must construe the complaint in favor of
the complaining party.’”13 When evaluating a motion to dismiss under Rule
12(b)(1), a district court may refer to evidence outside the pleadings.14
2.
Article III Standing
“Under Article III of the Constitution, the jurisdiction of federal
courts is limited to the resolution of ‘cases’ and ‘controversies.’”15 “In order to
ensure that this ‘bedrock’ case-or-controversy requirement is met, courts require
that plaintiffs establish their ‘standing’ as ‘the proper part[ies] to bring’ suit.”16
Article III’s “irreducible constitutional minimum of standing contains three
elements”:17
First, the plaintiff must have suffered an ‘injury in fact’ . .
. which is (a) concrete and particularized . . . and (b) actual
or imminent, not conjectural or hypothetical. . . . Second, .
. . the injury has to be fairly trac[eable] to the challenged
13
United States v. Vazquez, 145 F.3d 74, 81 (2d Cir. 1998) (quoting
Warth v. Seldin, 422 U.S. 490, 501 (1975)) (further citations omitted).
14
See Makarova, 201 F.3d at 113.
15
Amidax, 671 F.3d at 145 (quoting United States Const. art. III § 2).
16
Id. (quoting W.R. Huff Asset Mgmt. Co. v. Deloitte & Touche LLP,
549 F.3d 100, 106 (2d Cir. 2008) (alteration in original) (further quotation
omitted)).
17
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992).
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action of the defendant. . . . Third, it must be likely, as
opposed to merely speculative, that the injury will be
redressed by a favorable decision.18
III.
APPLICABLE LAW
Kantar argues that the state law claims in this case should be
dismissed for lack of standing under the Bangor Punta doctrine. In Bangor Punta
Operations, Inc. v. Bangor & Aroostook R.R. Co., the Supreme Court held that a
corporation, at the direction of its controlling shareholder, lacked standing to bring
an action against a former shareholder of the corporation based on various alleged
acts of corporate mismanagement committed by that shareholder prior to the
company’s acquisition.19 The Supreme Court observed that:
[It is a] settled principle of equity that a shareholder may not
complain of acts of corporate mismanagement if he acquired
his shares from those who participated in or acquiesced in
the allegedly wrongful transaction. This principle has been
invoked with special force where a shareholder purchases all
or substantially all the shares of a corporation from a vendor
at a fair price, and then seeks to have the corporation recover
against that vendor for prior mismanagement.20
The Bangor Punta court held that when a purchaser acquired shares after the
alleged commission of wrongful acts, and when a purchaser was aware of the
18
Id. at 560-61 (quotation marks and citations omitted) (alterations in
original).
19
417 U.S. 703, 711-12 (1974).
20
Id. at 710.
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alleged wrongful acts at the time of purchase (that is, the price paid reflected the
wrongful acts), then the purchaser incurred no injury, and any recovery would
amount to an unearned windfall.21 “The court’s decision ultimately turn[ed] on its
view that the plaintiff in Bangor Punta, having paid a fair price for its share,
suffered no injury as the result of any earlier mismanagement of the acquired
corporation.”22
This was true even though the action was brought in the name of the
corporation, as opposed to the shareholder. The Court held that, notwithstanding
the fact that a corporation and its shareholders are deemed separate entities, courts
should decline to “blindly adhere to the corporate form.”23 If equity barred the
principal shareholder from bringing the action, so too did equity bar the
corporation from bringing the action — in other words, the shareholder could not
use the corporation as a guise to bring the action and engineer a windfall.24
Where a federal court possesses subject matter jurisdiction over an
21
See id. at 711 (“[I]t would in effect allow the shareholders to recoup a
large part of the price they agreed to pay for their shares, notwithstanding the fact
that they received all they had bargained for.”).
22
Siegel v. Converters Trans., Inc., 714 F.2d 213, 215 (2d Cir. 1983).
23
Bangor Punta, 417 U.S. at 713.
24
See id.
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action, but the “settled principle of equity”25 underlying the Bangor Punta doctrine
applies, the Supreme Court has made clear that claims “should be dismissed for
want of equity, and not for want of jurisdiction.”26 Though a court examines a
motion to dismiss under Bangor Punta as it would a motion to dismiss for lack of
standing, dismissal under these circumstances is “not the denial but the assertion
and exercise of jurisdiction.”27 For that reason, claims dismissed under Bangor
Punta are dismissed with prejudice.
IV.
DISCUSSION
A.
Waivability of a Standing Defense
As an initial matter, this Court must determine whether Kantar has
waived its standing defense by failing to raise its Bangor Punta argument at an
earlier stage of the action. TRA argues that I must analyze this procedural question
under New York state law, and that New York law dictates that Kantar has waived
its standing defense.28 That is not the law of this Circuit — courts are required to
apply federal procedure when determining whether affirmative defenses have been
25
Id. at 710.
26
Venner v. Great N. Ry. Co., 209 U.S. 24, 34 (1908).
27
Id.
28
See TRA’s Memorandum of Law in Opposition to Kantar’s Motion to
Dismiss (“TRA Opp.”) at 10-13.
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waived.29
This includes defenses related to prudential standing — such as
Kantar’s Bangor Punta defense. “Federal courts are constrained by our own
constitutional limitations, including the non-waivable Article III requirement that
we have jurisdiction over the case or controversy before us. Because standing is a
critical component of federal jurisdiction, a standing-related defense simply cannot
be waived.30 Indeed, courts are under an independent obligation to address
standing issues themselves, even if they are never raised by the parties.31
This
applies both to the minimum standing requirements contained in Article III of the
United States Constitution, and the “prudential rules of standing that, apart from
Art. III’s minimum requirements, serve to limit the role of the courts in resolving
public disputes.”32 Therefore, because Kantar has not (and could not have) waived
its standing argument, I turn to the applicability of the Bangor Punta doctrine.
B.
Applicability of the Bangor Punta Doctrine
TRA argues that the Bangor Punta doctrine cannot apply to this case
29
See Santos v. District Council of New York City & Vicinity of United
Bhd. of Carpenters & Joiners of Am., AFL-CIO, 619 F.2d 963, 967 (2d Cir. 1980)
(applying federal procedure to question of whether statute of limitations defense
had been waived).
30
See Thompson v. County of Franklin, 15 F.3d 245, 248 (2d Cir. 1994).
31
Id.
32
Warth v. Seldin, 422 U.S. 490, 500 (1975).
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because TiVo, the 100% owner of TRA’s shares, is not a party to this action.33
However, when adjudicating the applicability of Bangor Punta, courts, “piercing
all fictions and disguises, will deal with the substance of the action and not blindly
adhere to the corporate form.”34 Regardless of whether a corporation or its parent
are named as a party in an action, “a court will pierce the corporate veil and bar a
direct action by a corporation when it would only benefit a shareholder who would
otherwise be barred [by Bangor Punta].”35 Therefore, if this Court determines that
TiVo would be barred from bringing this action against Kantar under Bangor
Punta, TRA — its wholly owned subsidiary — is also barred.
I conclude that because Bangor Punta controls this case, TiVo is
barred from bringing the remaining claims in this case against Kantar, and TRA is
barred by extension. This action was filed prior to TiVo’s purchase of TRA. In its
counterclaims, TRA alleged that it suffered non-patent damages from Kantar’s
actions, including the theft of its trade secrets, breach of contract, and breach of
fiduciary duty. At the time the suit was brought, TiVo owned shares in TRA, had a
representative on TRA’s board, and was aware of TRA’s allegations against
Kantar. Notwithstanding these allegations and TRA’s claimed injury, TiVo
33
TRA Opp. at 13.
34
Bangor Punta, 417 U.S. at 713.
35
Koryeo Int’l Corp. v. Hong, No. 500336/14, 2014 WL 5245382, at
*24 (Sup. Ct. N.Y. Co. Oct. 14, 2014).
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negotiated for and purchased TRA. Therefore, like the real party in interest in
Bangor Punta, TiVo has already “received all [it] had bargained for,” and any
recovery against Kantar would amount to nothing more than a windfall.36
This is especially true given TRA’s diminution in value theory of
damages. Under this theory — TRA’s only remaining theory of damages — any
recovery against Kantar turns on the $20 million price that TiVo negotiated, set,
and paid. To allow TRA to recover from Kantar under these circumstances would
reward TiVo for forcing a reduction in TRA’s sales price (in part due to TiVo’s
awareness of the allegations against Kantar) — a form of double recovery that
would allow TiVo to recover every cent it paid for TRA. This is the precise
situation the Bangor Punta doctrine was designed to prevent. TiVo chose to
purchase TRA knowing that TRA alleged Kantar had taken actions while a
shareholder that harmed the company. TiVo cannot now turn around and sue
Kantar for the actions that factored into TRA’s purchase price and claim the
resulting windfall. Equity demands these claims be dismissed under Bangor
Punta.
This is true even though only a portion of TiVo’s stock in TRA was
acquired from Kantar. Even when some of a shareholder’s stock was not acquired
from an accused wrongdoer, courts have precluded a corporation’s recovery under
36
Bangor Punta, 417 U.S. at 711.
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Bangor Punta in order to prevent a windfall.37 This flows naturally from the
express purpose of the doctrine: to prevent shareholders from engineering
situations where they, by virtue of their control of a corporate entity, can
manipulate and capture a windfall. The doctrine is not defendant-centric; it is
plaintiff-centric. So long as some shares were acquired from the alleged
wrongdoer, and so long as the purchaser was aware of the wrongs when it
purchased the company, equity demands the action be dismissed.
For similar reasons, the Bangor Punta doctrine applies to TRA’s
claims against all counterclaim-defendants, even those that never possessed shares
in TRA. Courts have dismissed claims against defendants who had never owned
stock on the ground that another defendant who had previously owned stock had
“participated with those defendants in the alleged wrongdoing.”38 Here, TRA
accuses all counterclaim-defendants of acting in concert; thus, Bangor Punta
applies to all counterclaim-defendants, even those that did not themselves own
shares in TRA.39
37
See, e.g., Damerow Ford Co. v. Bradshaw, 876 P.2d 788, 795 (Or. Ct.
App. 1994) (“Even if we were to reject the tainted shares rule completely, the
related principle [forbidding windfalls] enunciated in Bangor Punta bars plaintiff’s
action.”).
38
Id. at 796-97.
39
On April 14, 2016, TRA moved to enter a default against WPP PLC,
WPP Group USA, Inc., Kantar Group Ltd., and Kantar Retail America, Inc. and for
sanctions, arguing that these former counterclaim-defendants failed to timely
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- Appearances For Defendant and Counterclaim-Plaintiff TRA:
Perry Mark Goldberg, Esq.
Tanya Acker, Esq.
Goldberg, Lowenstein & Weatherwax LLP
11400 West Olympic Blvd., Suite 400
Los Angeles, CA 90064
(310) 203-9222
Christopher Colvin, Esq.
Kramer Levin Naftalis & Frankel, LLP
1177 Avenue of the Americas
New York, NY 10036
(212) 715-7799
Jay Lefkowitz, Esq.
John Paul Del Monaco, Esq.
Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
(212) 446-4970
Richard Doyle, Esq.
Jaime Herren, Esq.
Janssen Doyle LLP
140 Brookwood Road, Suite 102
Orinda, CA 94563
(925) 295-1800
For Plaintiffs and Counterclaim-Defendants the WPP Companies:
Michael A. Albert, Esq.
John Strand, Esq.
Charles Steenburg, Esq.
Eric Rutt, Esq.
Robert Abrahamsen, Esq.
Wolf, Greenfield & Sacks, P.C.
600 Atlantic Ave.
-14-
Boston, MA 02210
(617) 646-8000
Marc Rachman, Esq.
Andrew Keisner, Esq.
Davis & Gilbert LLP
1740 Broadway
New York, NY10019
(212) 468-4800
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