XODUS MEDICAL, INC. et al v. ALLEN MEDICAL SYSTEMS, INC.

Filing 48

MEMORANDUM OPINION. Signed by Judge Mark R. Hornak on 5/22/2018. (mao)

IN THE UNITED ST ATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF' PENNSYLVANIA

XODUS MEDICAL, INC., et al.,
Plaintiffs,
V.

ALLEN MEDICAL SYSTEMS, INC., et al.,
Defendants.

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2:17-cv-00581

MEMORANDUM OPINION
Mark R. Hornak, United States District Judge

This is a patent case. The Defendant has moved to dismiss the case on the basis that venue
is not proper in this District pursuant to 28 U.S.C. § lLI-00(b). The Plaintiff has opposed that
Motion. The matter has been briefed and orally argued, rnd is ripe for disposition. The Motion
will be granted, but rather than dismissing the case, it will be transferred forthwith to the District
of Massachusetts.
There is no dispute that the Defendant is a corporation incorporated under Indiana law,
with its headquarters in Massachusetts. ECF Nos. 42-7, 39-1. It is undisputed that the Defendant
is a subsidiary of another corporation, Hill-Rom, Inc. which itself is a subsidiary of a holding
company, Hill-Rom Holdings, Inc. ECF No. 42-3. 1 Both Hill-Rom entities are also incorporated
under Indiana law. ECF No. 42-8. The Defendant corporation does not have any physical presence
in and of itself in Pennsylvania. ECF No. 39-1. The Plain-:iff argues that applying any number of
theories, the Defendant corporation should be treated as one and the same/part and parcel of the
Hill-Rom entity that has a physical building in Monroeville, Pennsylvania, which is in this District.

1

No Hill-Rom-named entity has been sued in this case. ECF No. 39-1.

ECF No. 42-4. Thus, says the Plaintiff, the Defendant "really" does have a physical presence in
this District for purposes of§ 1400(b), and venue in this Court is proper. The Court concludes that
the Plaintiff has not met its obligation to demonstrate that the Defendant has such a presence in
this District, that venue does not lie in this District, and that the case must proceed elsewhere.
Federal Circuit and applicable Third Circuit law is settled at least as to the following points.
Venue under § l 400(b) is to be treated in a restrictive fashion, and is to be tightly construed. See
In re: ZTE (USA) Inc., No. 2018-113, 2018 WL 2187782, at *4 (Fed. Cir. May 14, 2018). The

burden is on the Plaintiff to demonstrate that venue lies in the District in which the patent lawsuit
is filed. Id. Venue must lie not only in the state where the lawsuit is brought, but specifically in the
judicial district in which the case is filed. In re: BIGCOMMERCE, Inc., No. 2018-122, 2018 WL
2207265, at *6 (Fed. Cir. May 15, 2018). Where, as here, the Plaintiff asks the Court to look
past/through the corporate form of the Defendant, the Plaintiff has the burden of proving that such
is proper by a preponderance of the evidence. Plasticpak Packaging, Inc. v. DePasquale, 75 F.
App'x. 86, 88 (3d Cir. 2003); see also Wordtech Sys., Inc. v. Integrated Networks Sols., Inc., 609
F.3d 1308, 1314 (Fed. Cir. 2010) (law ofregional circuit applies).
The Plaintiff argues that this Court should apply some theory 2 to conclude that the physical
presence of an "upstream" Hill-Rom corporate entity in this District should be treated as the
physical presence of this Defendant. Otherwise, it is plain that there is no venue here. In re: Cray,
Inc., 871 F.3d 1355, 1360 (Fed. Cir. 2017). 3 That is a heavy burden, as ordinarily a court does not

2
At argument here, the Plaintiffs counsel invited the Court to apply an "alter ego" analysis, or to "pierce the
corporate veil," or to apply any other theory which would unify the Defendant and its parent for venue purposes.
3

As the Federal Circuit held in both Cray and ZTE, the physical place in this District must be "of the defendant."
ZTE, 2018 WL 2187782, at *5. Unlike the situation in Board of Regents, the University of Texas System, et. al. v.
Medtronic PLC, et. al., No. l 7-cv-942 (W.D. Tex. May 17, 20 I 8), here the named Defendant has not taken
affirmative steps to make Hill-Rom's physical location in this Districi: its own location, e.g., announce it as a
location of Allen Medical as opposed to Hill-Rom, label it as such with Allen building signage, or list tin public

2

disregard or otherwise look past/through the corporate structure of a corporate entity, unless strong
equitable considerations compel it to do so. Plastipak, 75 F. App'x at 88 (applying Pennsylvania
law). 4 There is no single factor that the Court is to consider in such an analysis, but it must look at
a number of considerations, including adherence to corporate formalities, capitalization, financial
records and operations, the mode/method of business operations, and the like. No one factor is
conclusive. See Unity Opto Tech. Co., Ltd. v. Lowe's Home Ctrs., LLC, No. 18-cv-27, 2018 WL
208725, at *2, 3 (W.D. Wis. May 4, 2018).
Here, there is no doubt that the Defendant is a currently existing, registered Indiana
corporation. It has officers, and does business in its own name. It sells its products. The record
does not reflect that it owns, leases, or has any stores, offices, or buildings in its own name in this
District. The record does not reflect that it has any employees here, nor any distribution centers in
this District, and it has not registered to do business in Pennsylvania.
The Plaintiff says that based on the following, the "physical place" of Hill-Rom, Inc.,
which is in Monroeville, PA (in this District), ECF No. 42 at 6, should be treated as a "physical
place" of the Defendant for purposes of 28 U.S.C. § 1400(b). We'll take its contentions one at a
time.
First, a corporate representative of the Defendant testified in a deposition5 that at least at
the time of his deposition, the Defendant had no members on its Board of Directors. But, the

databases as an Allen (as opposed to Hill-Rom) facility. In short, unlike the situation before Judge Yeakel in
Medtronic PLC, Allen has not affirmatively ratified Hill-Rom's Monroeville location as its own.
4

No party has advanced that Indiana law is otherwise, and this is con:;istent with Seventh Circuit law. Unity Opto
Tech. Co., Ltd. v. Lowe's Home Ctrs., LLC, No. 18-cv-27, 2018 WL 208725, at *2 (W.D. Wis. May 4, 2018).

5

This Court authorized limited "venue discovery," ECF No. 34. See Javelin Pharm., Inc. v. Mylan Labs. Ltd., No. l 6cv-224, 20 I 7 WL 5953296, at *6 (D. Del. Dec. I, 2017). Part of the Plaintiffs opposition to the Defendant's Motion
was that the Defendant's Rule 30(b)(6) designated deponent was not "properly prepared" to testify as the designee of
the Defendant. The Court cannot draw that conclusion, in that it appears to the Court that the point of contention by

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Plaintiff has advanced no facts or law as to whether, and if so why, that actually impairs the
Defendant's corporate existence under Indiana law.
Second, at least some of the Defendant's legal expenses, including for this litigation, may
ultimately be paid by a Hill-Rom entity. But, the Plaintiff has advanced no evidence as to why that
is impermissible, or is a fact that is inconsistent with the Defendant having a distinct and valid
corporate existence. 6
Third, the Plaintiff has placed in the record the Fiscal Year 2017 SEC form 10-K for HillRom Holdings, Inc., Exhibit PX 1(H), which appears to show that that entity consolidates revenue
in its financial presentations, including the revenue from the Defendant and other subsidiaries, but
then offers no testimony or evidence that doing so is impermissible, irregular, is contrary to
Generally Accepted Accounting Principles ("GAAP"), or would impair the distinct corporate
existence of the Defendant (or any other subsidiary) under Indiana law.
Fourth, the Plaintiff says that the Hill-Rom, Inc., Monroeville (PA) facility acts as a
contracted service location as to one of the Defendant's large products, ECF No. 42 at 7, but then
advances no evidentiary or legal basis to conclude that one business performing contracted service
work for another business somehow impairs the independent corporate existence of that second
business, here the Defendant. Further, there is no record evidence that the Defendant exercises
possession or control over that facility. See Javelin, 2017 WL 5953296, at *5.
Fifth, the Plaintiff says that there is a complete overlap of the listed and registered corporate
officers of the Defendant and of Hill-Rom, Inc., but points to no legal principle that stands for the
proposition that such in and of itself destroys or impairs corporate separateness. See Miller v. EME

Plaintiff was that the deponent was "not prepared" to speak on behalf of Hill-Rom, Inc., who of course was not the
entity being deposed pursuant to Fed. R. Civ. P. 30(b)(6). See ECF No. 43 at 7-8.
6
And contrary to the Plaintiff's contention, some of those expenses being initially incurred by the parent and then
"charged back" to the Defendant would actually demonstrate the distinctness of the corporations.

4

Homer City Generation, LP, No. 13-cv-352, 2013 WL 5972382, at *10-12 (W.D. Pa. Nov. 8,
2013); Clemens v. Gerber Sci, Inc., No. 87-cv-5949, 1989 WL 3480, at *2 (E.D. Pa. Jan. 13, 1989).
Sixth, apparently the Defendant needs to get approval from its Hill-Rom parent before it
can lease or purchase interests in real estate, and before it can promote an employee to its
"leadership team." Again, if even true, the Plaintiff advances no factual or legal basis to conclude
that a corporate parent retaining that level of control of high-level structural decisions permits a
court to disregard the corporate distinction between those corporations. Croyle v. Tex. E. Corp.,
464 F. Supp. 377, 379 (W.D. Pa. 1979).
Seventh, the employees of the Defendant use e-mail address ending in "hill-rom.com,"
Hill-Rom provides "IT services" to Defendant, and Hill-Rom, Inc., advertises the Defendant's
products for sale in its sales literature. ECF No. 42 at 9. This, says the Plaintiff, makes the
Defendant a mere operating division of Hill-Rom, Inc. The Court disagrees. Whether considered
on its own, or in conjunction with any or all of the other fa.::tors noted, these points of intersection
may demonstrate a close operational existence, but do not obviate the corporate distinction
between the Defendant and the parent company. 7
In short, the official records from Indiana reveal that the Defendant is an existing and
separate corporation different and distinct from Hill-Rom, Inc., and Hill-Rom Holdings, Inc. The
other points of intersection between the Defendant and its parent(s), considered separately or
together, do not demonstrate that as a matter of operationc.l function, although the businesses are
closely aligned as parent and subsidiary, that distinction has been destroyed or has evaporated. By

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This is particularly so as to the sales advertisements by a parent company of the products of a subsidiary. Further,
there is no record evidence as to whether the provision of "IT services" is under a business contract. Likewise, the
Court does not find that the Defendant's distinct website providing a link to the website of its parent Hill-Rom, Inc.,
is demonstrative of<!, demise of corporate separateness.

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any measure, the Plaintiff has not demonstrated that the existing and formal corporate distinctions
between the Defendant and its parent should be disregarded here for compelling equitable reasons
so as to permit the Hill-Rom facility in Monroeville be treated as a "physical presence" of its
subsidiary, the Defendant. Unity, 2018 WL 208725, at *2. 8

It would be permissible to dismiss the action without prejudice due to improper venue, but
at argument, the parties agreed that proper venue would lie in the District of Massachusetts, in the
Boston Division of that Court. The Court concludes that the sound administration of justice
counsels that the case therefore be transferred to that Court, forthwith, rather than dismissing the
case and requiring it to be refiled there, and the Court will :m order. See 28 U.S.C. § 1406; Unity,
2018 WL 208725, at *3.
An appropriate Order will follow.

Mark R. Hornak
United States District Judge
Dated: May 22, 2018
cc: All counsel of record

8

Notwithstanding the Court's tough questioning at argument, the Court is sympathetic to the advocacy plight of
Plaintiff's counsel on this issue. Each recently rendered decision of the Federal Circuit on this topic has tightened up
the patent venue test, and in the middle of this case, that Court definitiv~ly confirmed in ZTE that it was the Plaintiff
who carried the burden to demonstrate that venue in this District is proper.

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