Aquasource Holdings, LLC v. Oxxytec, Inc. et al
Filing
15
MEMORANDUM OPINION AND ORDER Granting 10 MOTION to Remand.(Signed by Judge Sim Lake) Parties notified.(jewilliams, )
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
AQUASOURCE HOLDINGS, LLC,
§
§
Plaintiff,
§
§
v.
§
§
OXXYTEC, INC., MACHAIRA ENERGY, §
LLC, MARC FISHLOCK, CARY
§
CARMACK, KEN PALMER, WENDELL
§
HEFTON, and WILLIAM SHAFER
§
a/k/a BILL SHAFER,
§
§
Defendants.
§
CIVIL ACTION NO. H-11-1681
MEMORANDUM OPINION AND ORDER
Aquasource Holdings, LLC (“Aquasource”) brings this action
against
Oxxytec,
Inc.
(“Oxxytec”),
Machaira
Energy,
LLC
(“Machaira”), Marc Fishlock, Cary Carmack, Ken Palmer, Wendell
Hefton, and William Shafer a/k/a Bill Shafer claiming unfair
competition,
breach
of
contract,
breach
of
fiduciary
duty,
conversion, misappropriation of trade secrets, and statutory theft
of trade secrets. Defendant William Shafer removed the action from
the 61st Judicial District Court of Harris County, Texas, where it
was filed under Cause Number 2011–19815 (Docket Entry No. 1).
Pending before the court is Plaintiff Aquasource Holdings, LLC’s
Motion to Remand Pursuant to 28 U.S.C. § 1447(c) (Docket Entry
No. 10).
For the reasons explained below, the motion to remand
will be granted.
I.
A.
Factual and Procedural Background
Underlying Facts
In June of 2010 Aquasource “purchased substantially all of the
assets”
of
Klean
America,
Inc.
and
Klean
Innovations,
Inc.
(collectively, “Klean”), including four patents and two “patented
units” that relate to a technology used to super oxygenate water
(the “Technology”).1
Prior to the asset purchase, William Shafer
entered into a consultant agreement with Klean, pursuant to which
he agreed to not disclose Klean’s confidential information and
trade secrets, and to refrain from engaging in consulting business
with Klean’s competitors.2
Shafer
was
assigned
to
Klean’s consultant agreement with
Aquasource
through
the
asset-purchase
agreement.3
According to Aquasource, defendants Fishlock and Carmack met
with representatives of Klean, and later with representatives of
Aquasource, in an effort to gain control of the assets that
utilized the Technology, but were rebuffed on both occasions.4
Aquasource alleges that Shafer sat in on one of these meetings.5
1
Plaintiff Aquasource Holdings, LLC’s Original Petition and
Request
for
Temporary
Restraining
Order
and
Injunction
(“Petition”), Exhibit C to Defendant, William Shafer a/k/a Bill
Shafer’s Notice of Removal (“Notice of Removal”), Docket Entry
No. 1, ¶ 12.
2
Id. ¶¶ 15–17.
3
Id. ¶ 15.
4
Id. ¶¶ 12–13.
5
Id. ¶ 13.
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Shafer’s responsibilities as a consultant for Aquasource gave him
access
to
all
of
Aquasource’s
confidential
and
trade
secret
information.6 Aquasource alleges that Oxxytec, Machaira, Fishlock,
Carmack, Palmer, and Hefton (collectively, the “Competitors”),
knowing of Shafer’s relationship with Aquasource, engaged Shafer to
acquire information about the Technology.7
Aquasource further
alleges
this
that
as
a
result
of
obtaining
confidential
information, the Competitors built two units that employ the
Technology, marketed material championing the Technology, and began
testing
the
units
at
a
wastewater
treatment
facility.8
The
marketing materials allegedly list Shafer as Oxxytec’s technology
expert.9
B.
Procedural History
On
March
30,
2011,
Aquasource
brought
suit
against
the
Competitors and Shafer in Texas state court.10
In its petition,
Aquasource
by
summarizes
its
causes
of
action
alleging
following:
This case involves a malicious attempt by Defendants to
steal Plaintiff’s Technology including its proprietary
and confidential intellectual property and trade secrets
6
Id. ¶ 18.
7
Id. ¶ 20.
8
Id. ¶¶ 21–22.
9
Id. ¶ 21.
10
Id. ¶¶ 1–9.
-3-
the
in order to obtain advanced technology necessary to
compete in the industry.
The pressing reason for
Defendants’ trade secret theft is that Plaintiff is the
leader in the development of this advanced intellectual
property.
In order to make up for its developmental
deficiencies, Defendants embarked upon a course of
industrial espionage through which it misappropriated
Plaintiff’s trade secrets and engaged in unfair
competition. Those actions were carried out through a
calculated scheme to raid Plaintiff of its key consultant
with knowledge of the Technology that the Defendants
sought.11
Aquasource’s specific allegations are as follows:
24.
Defendants’ actions constitute unfair competition
against Plaintiff. Defendants falsely represented
[their] intentions and plans . . . in hopes that
they would induce Plaintiff to disclose to them
some of its most confidential . . . information.
When their attempts failed, Defendants set out to
misappropriate
Plaintiff’s
confidential
and
proprietary information . . . by . . . raiding
Plaintiff’s key technical consultant, Shafer, and
taking his knowledge . . . in the development
of . . . similar if not the same product thereby
saving a significant amount of investment in
research
and
development
at
Plaintiff’s
expense. . . .
25.
Shafer unfairly competed against Plaintiff by
breaching his contractual and fiduciary duties to
Plaintiff by using Plaintiff’s own confidential and
proprietary information . . . to assist Defendants
to develop competing technology. . . .
. . . .
27.
. . . Defendants are liable to Plaintiff for
misappropriation of Plaintiff’s trade secrets.
. . . .
35.
11
Shafer rendered consulting services to Defendants
in violation of paragraph 4 of [his consulting
Id. ¶ 23.
-4-
agreement].
In doing so, Shafer violated paragraph 5 of [his consulting agreement] . . . .
36.
Defendants willfully and intentionally induced
Shafer to breach their contractual duties to
Plaintiff . . . .
37.
Defendants conspired with and assisted Shafer in
the violation of [Shafer’s consulting agreement].
. . . .
39.
Defendants have wrongfully exercised dominion and
control over Plaintiff’s personal property in a
manner inconsistent with Plaintiff’s exclusive
right to said property.
. . . .
42.
Defendants
have
committed
theft
of
Plaintiff’s . . . trade secrets . . . pursuant to
Section 134.002(2) of the Texas Civil Practice[]
and Remedies Code.
43.
. . . Defendants have committed theft of trade
secrets as defined by Section 31.05(b) of the Texas
Penal Code . . . .12
Aquasource’s allegations can essentially be construed as state-law
causes of action for unfair competition, misappropriation of trade
secrets, breach of contract, tortious interference with business
relations,
civil conspiracy, conversion, and statutory theft.13
Shafer, with the consent of the Competitors, removed the
action, asserting that this court has federal-question jurisdiction
under 28 U.S.C. § 1338(a) because “[i]ssues of patent law are a
12
Id. ¶¶ 24-25, 27, 35-37, 39, 42-43.
13
Aquasource also seeks a temporary restraining order enjoining
the defendants from using any wrongfully obtained information or
materials. Id.
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necessary element of one of [Aquqasource’s] well-pleaded claims.”14
Aquasource moves for remand on grounds that none of its state-law
causes of action require a fact-finder to decide a substantial
question of patent law.15
II.
Removal Standard
A defendant has the right to remove a case to federal court
when federal jurisdiction exists and the removal procedure is
properly followed.
See Manguno v. Prudential Prop. and Cas. Ins.
Co., 276 F.3d 720, 723 (5th Cir. 2002) (citing 28 U.S.C. § 1441).
Shafer, as the party seeking to invoke federal jurisdiction, bears
the
burden
of
showing
that
Aquasource’s
properly removable to federal court.
state-court
suit
is
Hertz Corp. v. Friend, 130
S. Ct. 1181, 1194 (2010); Gasch v. Hartford Accident & Indem. Co.,
491 F.3d 278, 281 (5th Cir. 2007).
When considering the propriety
of removal, federal courts generally base decisions about subjectmatter jurisdiction on the plaintiff’s allegations as they existed
when the defendant removed the action.
Kidd v. Southwest Airlines
Co., 891 F.2d 540, 546 (5th Cir. 1990). Doubts about the propriety
of removal are to be resolved in favor of remand.
Manguno, 276
F.3d at 723.
14
Notice of Removal, Docket Entry No. 1, ¶ 10.
15
Plaintiff Aquasource Holdings, LLC’s Motion to Remand
Pursuant to 28 U.S.C. § 1447(c) (“Motion to Remand”), Docket Entry
No. 10, pp. 4–6.
-6-
III.
Analysis
Federal district courts have exclusive jurisdiction over “any
civil
action
patents[.]”
arising
under
any
28 U.S.C. § 1338(a).
Act
of
Congress
relating
to
“The phrase ‘arising under’ has
the same meaning in § 1338 as it does in § 1331, the general
federal-question provision.” Biotechnology Indus. Org. v. District
of Columbia, 496 F.3d 1362, 1368 (Fed. Cir. 2007) (citing Holmes
Group, Inc. v. Vornado Air Circulation Sys., Inc., 122 S. Ct. 1889,
1893 (2002)).
A civil action thus “arises under” the federal
patent laws only when the well-pleaded complaint establishes that
either (1) federal patent law creates the cause of action or
(2) the plaintiff’s right to relief necessarily depends on the
resolution of a substantial question of federal patent law, in that
patent law is a necessary element of one of the well-pleaded
claims.
Christianson v. Colt Indus. Operating Corp., 108 S. Ct.
2166, 2174 (1988).
Here, since it is undisputed that federal
patent law does not create any of Aquasource’s claims, the only
issue is whether its claims necessitate the resolution of a
substantial question of federal patent law.
The mere mentioning of a patent in the complaint does not
create a substantial issue of patent law, Uroplasty, Inc. v.
Advanced Uroscience, Inc., 239 F.3d 1277, 1280 (Fed. Cir. 2001),
nor does a claim arise under the patent laws simply because a
patent issue appears in a defense to a claim.
Industry, 496 F.3d at 1368.
Biotechnology
Moreover, “[a] claim supported by
-7-
alternative theories in the complaint may not form the basis for
section 1338(a) jurisdiction unless patent law is essential to each
of those theories.”
Uroplasty, 239 F.3d at 1279.
On the other
hand, a plaintiff may not defeat section 1338(a) jurisdiction
simply by omitting necessary federal patent-law questions in the
complaint through artful pleading.
Christianson, 108 S. Ct. at
2174 n.3.
Shafer argues that because all of Aquasource’s causes of
action depend on the existence of a trade secret, and because the
determination of the existence of a trade secret depends on whether
any of the information comprising the trade secret exists outside
the scope of Aquasource’s patents, the fact-finder will be required
to construe the patent, and substantial questions of federal patent
law will therefore need to be resolved.16
Shafer’s argument is
unavailing.
Under Texas law trade secret misappropriation is established
by showing “(a) a trade secret existed; (b) the trade secret was
acquired
through
a
breach
of
a
confidential
relationship
or
discovered by improper means; and (c) use of the trade secret
without authorization from the plaintiff.” Tewari De-Ox Sys., Inc.
v. Mountain States/Rosen, L.L.C., 637 F.3d 604, 610 (5th Cir. 2011)
(quoting Phillips v. Frey, 20 F.3d 623, 627 (5th Cir. 1994)).
16
A
Notice of Removal, Docket Entry No. 1, ¶ 11; Defendant
Shafer’s Response in Opposition to Aquasource’s Motion to Remand
(“Defendant’s Response”), Docket Entry No. 13, ¶¶ 6–14.
-8-
trade secret is defined as “any formula, pattern, device or
compilation of information which is used in one’s business and
presents an opportunity to obtain an advantage over competitors who
do not know or use it.”
In re Bass, 113 S.W.3d 735, 739 (Tex.
2003) (orig. proceeding).
In determining whether information fits
within this definition Texas courts consider the following six
nonexclusive factors:
(1) the extent to which the information is
known outside of the business; (2) the extent to which it is known
by employees and others involved in the business; (3) the extent of
measures taken to guard the secrecy of the information; (4) the
value of the information to the business and to its competitors;
(5) the amount of effort or money expended in developing the
information;
and
(6)
the
ease
or
difficulty
with
which
the
information could be properly acquired or duplicated by others.
In re Union Pacific R. Co., 294 S.W.3d 589, 592 (Tex. 2009).
Subject
matter
publicly
disclosed,
including
that
which
is
disclosed in an issued patent or in a published patent application,
is not secret and thus cannot be protected as a trade secret.
Luccous v. J.C. Kinley Co., 376 S.W.2d 336, 338 (Tex. 1964);
Mountain States/Rosen, 637 F.3d at 611–12.
Contrary to Shafer’s assertions, no knowledge or application
of the patent laws is necessary to judge whether the subject matter
of
a
trade
secret
has
been
disclosed.
Determining
whether
Aquasource possessed a protectable trade secret will require the
fact-finder to decide what information, if any, was in the public
-9-
domain, whether by the issuance of a patent or otherwise, and what,
if any, information had not been disclosed, such as information
relating to the testing of the patented units at the wastewater
treatment facilities, which occurred after the patent was obtained.
While the “four patents and two patented units” may very well serve
as evidence that Aquasource did or did not possess a trade secret,
their mere existence does not raise a substantial question of
patent law.
Uroplasty, 239 F.3d at 1280 (citing Consol. World
Housewares, Inc. v. Finkle, 831 F.2d 261, 265 (Fed. Cir. 1987). In
sum, the patent law issues raised by Shafer are not essential to
the resolution of any of Aquasource’s claims.
Bd. of Regents,
Univ. of Tex. Sys. v. Nippon Tel. & Tel. Corp., 414 F.3d 1358, 1363
(Fed. Cir. 2005).
Shafer argues that Aquasource “has made the validity and/or
enforceability of its patent rights an issue” because its alleged
trade secret, as defined in its petition, was disclosed in its
entirety upon the issuance of the patents.
Even though “issues of
inventorship, infringement, validity and enforceability present
sufficiently substantial questions of federal patent law to support
jurisdiction under section 1338(a),” Board of Regents, 414 F.3d
at 1363, Shafer does not cite to any authorities in support of his
argument that determining whether a party had a trade secret raises
an issue of the enforcement or validity of the patent.
Even if
Shafer’s contention that the trade secret consists solely of the
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Technology is true, which is debatable,17 a federal patent-law
defense cannot be the basis for section 1338(a) jurisdiction.
Christianson, 108 S. Ct. at 2174; Biotechnology Industry, 496 F.3d
at 1368.
Moreover, Aquasource has pleaded a state-law claim for
misappropriation of trade secrets that can be supported under a
non-patent theory. Uroplasty, 239 F.3d at 1279 (“A claim supported
by alternative theories in the complaint may not form the basis for
section 1338(a) jurisdiction unless patent law is essential to each
of those theories.”).
Aquasource’s claims for breach of contract, statutory theft,
conspiracy,
and
unfair
competition
also
do
not
resolution of a substantial question of patent law.
require
the
See, e.g.,
Board of Regents, 414 F.3d at 1362–65 (holding that a plaintiff’s
state-law claim for tortious interference with business relations
did not arise under patent law); Uroplasty, 239 F.3d at 1279
17
Shafer repeatedly asserts that the scope of Aquasource’s
“trade secret,” as that term is defined in the petition, only
encompasses information that was required to be disclosed through
the patent process. Defendant’s Response, Docket Entry No. 13,
¶¶ 6, 8, 11.
Shafer grounds this assertion on the fact that
Aquasource defined the “Technology” as “four patents and two
patented units.” Petition, Exhibit C to Notice of Removal, Docket
Entry No. 1, ¶ 12. The relevant question, however, is not whether
the term “Technology” refers only to the patents and the patented
units, but whether Aquasource’s trade secrets encompass more than
just the Technology. Aquasource alleges that its trade secrets
encompass the “research and other documents concerning the
Technology” and the “development, manufacturing, and testing
process of the Technology.” Id. ¶¶ 18–19. Taking Aquasource’s
allegations as true, not all of Aquasource’s trade secrets would
have been disclosed during the patent process.
For example,
research and testing was conducted on the two patented units after
the patents were obtained.
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(state-law claims for trade secret misappropriation, breach of
fiduciary duty, and breach of contract did not arise under patent
law); Speedco, Inc. v. Estes, 853 F.2d 909, 913 (Fed. Cir. 1988)
(holding that “the fact that patent issues are relevant under state
contract law to the resolution of a contract dispute cannot
possibly convert a suit for breach of contract into one ‘arising
under’ the patent laws”). Whether Aquasource is entitled to relief
on these claims depends on the relationship between Aquasource and
Shafer, including both parties’ obligations under the consultant
agreement, communications between Shafer and the Competitors, and
whether the allegedly stolen information was a trade secret, and
does not depend on a substantial question of patent law.
Aquasource also seeks reimbursement of the costs, expenses,
and attorneys’ fees that were incurred as a result of removal,
which
may
be
awarded
28 U.S.C. § 1447(c).
at
the
court’s
discretion
pursuant
to
There is no automatic entitlement to such an
award, however. Valdes v. Wal-Mart Stores, Inc., 199 F.3d 290, 292
(5th Cir. 2000). The question the court should consider is whether
the defendant had objectively reasonable grounds to believe the
removal was legally proper.
Id.
Even though the court concludes
that removal was improper, the grounds on which the defendants
removed the action were not objectively unreasonable.
Moreover,
Aquasource has not provided any documentation of the fees or costs
incurred in preparing the motion to remand.
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The court will
therefore
deny
Aquasource’s
request
for
costs,
expenses,
and
attorneys’ fees.
III.
Conclusion and Order
Because federal law does not create Aquasource’s state-law
causes of action and because Aquasource’s right to relief does not
depend upon the resolution of a substantial question of federal
law, the court does not have subject matter jurisdiction over this
action.
Accordingly, Plaintiff Aquasource Holdings, LLC’s Motion
to Remand Pursuant to 28 U.S.C. § 1447(c) (Docket Entry No. 10) is
GRANTED. This case is REMANDED to the 61st Judicial District Court
of Harris County, Texas. The clerk will promptly provide a copy of
this
Memorandum
Opinion
and
Order
to
the
District
Clerk
of
Harris County, Texas.
SIGNED at Houston, Texas, on this the 28th day of July, 2011.
___________________________
SIM LAKE
UNITED STATES DISTRICT JUDGE
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