Stolmeier et al v. Young et al

Filing 17

REPORT AND RECOMMENDATIONS re 3 Motion to Remand to State Court filed by Patrick J. Stolmeier, Jonathan Stolmeier, D-Col, Inc. be GRANTED. Signed by Judge Nancy Stein Nowak. (mailed on 9/8/2009 by certified mail, or sent via electronic transmittal)(rg)

UNITED STATES DISTRICT COURT F O R THE WESTERN DISTRICT OF TEXAS S A N ANTONIO DIVISION

D -C O L , INC., P A T R I C K STOLMEIER, J O N A T H A N STOLMEIER, S U P E R I O R CONCEPTS, P la in tif f s , v. T E R R Y L. YOUNG, J A M E S ESPINOZA, S U P E R I O R REHABILITATION TECH NO LO GY, D efe n d a n ts .

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C I V I L ACTION NO. S A -0 9 -C V -0 4 2 3 OG (NN)

R E P O R T AND RECOMMENDATION TO: H o n o r a b le Orlando Garcia U n ite d States District Judge T h is report and recommendation addresses the plaintiffs' motion to remand.1 I have ju ris d ic tio n to enter this report and recommendation under 28 U.S.C. § 636(b) and the district c o u rt's order referring all pretrial matters to me for disposition by order or to aid the district court b y recommendation where my authority as a magistrate judge is statutorily constrained.2 After c o n s id e rin g the motion, response and reply, I recommend remanding this case to state court. B a c k g r o u n d of the motion. Plaintiffs Patrick Stolmeier, Jonathan Stolmeier, Superior C o n c e p ts , and D-Col, Inc. filed their original petition in the 407th Judicial District, Bexar

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Docket entry # 3. Docket entry # 10.

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County, Texas. The plaintiffs named Patrick Stolmeier's business associate Terry Young, James E s p in o z a , and Superior Rehabilitation Technology as defendants. The lawsuit arose from the p a rtie s ' business relationships regarding two separate business ventures. T h e first business venture relates to D-Col, a company created by Patrick Stolmeier to d e v e lo p and market anti-microbial products. Patrick Stolmeier worked with Young while d e v e lo p in g D-Col. Young contributed to D-Col as an investor, but was never considered a s ta k e h o ld e r in the company.3 Young previously started his own company, Superior R e h a b ilita tio n Technology, which sold muscle simulators. The plaintiffs contend that Young and S u p e rio r Rehabilitation Technology misappropriated D-Col's internet domain name-- d -c o l.c o m -- w ith the intent to deprive D-Col of its use and economic benefits.4 The claims re ga rd in g D-Col do not bear on the motion to remand. T h e second business venture relates to an endoscopic port cleaner known as the "Plunge B o b ." The plaintiffs maintain that Superior Concepts entered into an agreement with Espinoza to d e v e lo p and market the "Plunge Bob."5 Patrick Stolmeier and Young started Superior Concepts to develop, market and distribute medical products, including D-Col products. Espinoza was the p e rs o n who first recognized the need for the "Plunge Bob." Patrick Stolmeier and his son, J o n a th a n , maintain they designed the "Plunge Bob." Patrick Stolmeier claims to have prepared a p a te n t application with input from Espinoza in Fall 2007, naming Patrick Stolmeier, Jonathan S to lm e ie r and Espinoza as co-inventors of the "Plunge Bob." That application, however, was not
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Docket entry # 1, exh. A (background facts about D-Col in the plaintiffs' original petition). Id. (causes of action in plaintiffs' original petition). Id. (background facts about Young and Espinoza in the plaintiffs' original petition).

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filed with the United States Patent and Trademark Office (USPTO) until April 8, 2009. Espinoza a n d Young currently market and sell the "Plunge Bob" through another business. The plaintiffs a lle ge that by their producing, manufacturing and distributing the "Plunge Bob" with another c o m p a n y defendants are liable for breach of contract, fraud and breach of fiduciary duty.6 In their original petition, the plaintiffs sought relief in the form of (1) a temporary re s tra in in g order (TRO) enjoining the defendants from removing, alienating, hindering or a d v e rs e ly affecting the plaintiffs' interests in the "Plunge Bob" and from using the d-col.com in te rn e t domain name; (2) a permanent injunction; and (3) damages.7 The state court issued a T R O on April 13, 2009. The TRO enjoined the defendants, in part, from "taking any action that w o u ld remove, alienate, hinder or adversely affect Plaintiffs' ownership right and interest in the P lu n ge Bob device . . . . "8 While the TRO was in effect--unbeknownst to the plaintiffs--Young a n d Espinoza filed a provisional patent application with the USPTO.9 The TRO expired on April 3 0 , 2009, when the parties entered into a state-court Rule 1110 agreement after the preliminary in ju n c tio n hearing, but before the plaintiffs were aware of the filing of the provisional patent a p p lic a tio n .11 Upon learning about the patent application, the plaintiffs asked the state court to

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Id. (causes of action in the plaintiffs' original petition). Id. (plaintiffs' request for temporary restraining order). Docket entry # 1, exh. D (state-court TRO, ¶ f). Docket entry # 3, exh. B (provisional patent application). See Tex. R. Civ. P. 11 (requiring agreements between attorneys to be in writing). Docket entry # 3, p. 2.

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hold the defendants in contempt for violating the TRO.12 Before the state court ruled on the m o tio n , the defendants removed the case to this court. The defendants maintained the case was re m o v a b le because it involves a substantial issue of federal patent law regarding the creation of th e "Plunge Bob."13 The plaintiffs now ask the district court to find that it is without subject ju ris d ic tio n and to remand this case. A p p lic a b le law. Cases filed in state court may be removed to a federal district court if th e federal court has original subject matter jurisdiction.14 A federal district court has original ju ris d ic tio n over "any civil action arising under any Act of Congress relating to patents . . . ." 15 A c a s e is removable based on federal question jurisdiction if a federal claim is present in the o rigin a l complaint or if the plaintiff's right to relief necessarily depends the resolution of a s u b s ta n tia l issue of federal law.16 Under the well-pleaded complaint rule, this standard also a p p lie s to cases involving patent law.17 A case may be remanded to a state court if the federal district court finds that there is a

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Docket entry # 3, exh. D (motion for contempt). Docket entry # 1 (notice of removal).

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28 U.S.C. § 1441(a) ("[A]ny civil action brought in a State court of which the district courts of th e United States have original jurisdiction, may be removed by the defendant . . . .").
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28 U.S.C. § 1338(a).

Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation Trust for S. Cal., 463 U.S. 1, 27-28 (1 9 8 3 ) ("[A] well-pleaded complaint establishes either that federal law creates the cause of action o r that the plaintiff's right to relief necessarily depends on the resolution of a substantial question o f federal law."). See also Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 808 (1988). Air Measurement Technologies v. Akin Gump Strauss Hauer & Feld, 504 F.3d 1262, 1271 (Fed. C ir. 2007) ("That these cases do not address § 1338 analysis is of no moment because in C h r is tia n s o n , the Supreme Court grafted § 1331 precedent onto its § 1338 analysis . . . .").
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procedural defect18 or a lack of original subject matter jurisdiction.19 The burden of proof rests on th e party requesting the removal.20 Additionally, the federal district court has discretion to award ju s t costs and actual expenses to be paid to one party by the other party for improper removal.21 W h e th e r a federal question is present in the original petition. Federal courts are c o u rts of limited jurisdiction and subject matter jurisdiction exists if one of the claims involves a q u e s tio n arising under federal law.22 In the original petition, the plaintiffs allege that the d e fe n d a n ts committed fraud, breach of contract, misappropriation and breach of fiduciary duty. Each of these claims has a basis in state law and does not arise under the federal law.23 The d e fe n d a n ts concede that there are no originally pleaded questions of federal law.24 The original

28 U.S.C. § 1447(c) ("A motion to remand the case on the basis of any defect other than lack o f subject matter jurisdiction must be made within 30 days after the filing of the notice of removal u n d e r section 1446 (a)."). 28 U.S.C. § 1447(c) ("If at any time before final judgment it appears that the district court lacks s u b je c t matter jurisdiction, the case shall be remanded."). In re Hot-Hed, 477 F.3d 320, 323 (5th Cir. 2007) ("The removal statute is . . . to be strictly c o n s tru e d and any doubt as to the propriety of removal should be resolved in favor of remand.") (c ita tio n omitted). 28 U.S.C. § 1447(c) ("An order remanding the case may require payment of just costs and any a c tu a l expenses, including attorney fees, incurred as a result of the removal."). 28 U.S.C. § 1331 ("The district courts shall have original jurisdiction of all civil actions arising u n d e r the Constitution, laws or treaties of the United States."). See Ernst, Young, LLP v. Pacific Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001) (elements o f fraud); Bohatch v. Butler & Binion, 977 S.W.2d 543, 545 (Tex. 1998) (elements of fiduciary duty); M c L a u g h lin , Inc. v. Northstar Drilling Technologies, Inc., 138 S.W.3d 24, 27 (Tex. App.--San A n to n io 2004, no pet.) (elements of breach of contract); U. S. Sporting Products v. Johnny Stewart G a m e Calls, 865 S.W.2d 214, 218 (Tex. App.--Waco 1993, writ denied) (elements of m is a p p ro p ria tio n ).
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Docket entry # 1, p. 2 ("The original petition cited only state court causes of action.").

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petition provides no basis for federal subject matter jurisdiction because no federal claim is p re s e n t in the original petition. W h e th e r the plaintiffs' right to relief necessarily depends on the resolution of a s u b s ta n tia l issue of federal law. In removing the case, the defendants contended the plaintiffs ra is e d issues that must be answered under federal patent law in regard to the "Plunge Bob." Because the plaintiffs' causes of action arise under state law, the defendants must show that the p la in tiffs ' right to relief depends on a resolution of a substantial issue of federal law.25 Stated o th e rw is e , the defendants must prove that federal law is essential to one of the plaintiffs' state c a u s e s of action for this case to remain in federal court. T h e defendants contend that the plaintiffs' original petition was vague, but that the p la in tiffs ' actions show that their claims depend on the resolution of a substantial issue of federal la w .26 The defendants maintain that the fraud and misappropriation causes of actions can be c o n s tru e d to raise federal claims. The defendants' fraud-interpretation argument is based on a s e n te n c e in the plaintiffs' motion for contempt suggesting fraud may have been committed a ga in s t the USPTO as result of the provisional-patent application.27 However, the defendants a p p lie d for a provisional patent after the plaintiffs filed their petition and during the pendency of

Christianson, 486 U.S. at 808-09 ("[Section] 1338(a) jurisdiction likewise extend[s] only to th o s e cases in which a well-pleaded complaint establishes either that federal patent law creates the c a u s e of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial q u e s tio n of federal patent law, in that patent law is a necessary element of one of the well-pleaded c la im s ." ).
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Docket entry # 8, p. 4.

Id. ("Interpreted as patent law claims . . . `fraud' means fraud on the United States Patent and T ra d e m a rk Office.").

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the TRO. Because the provisional-patent application was filed after the original petition, the p la in tiffs ' suggestion that the defendants may have committed fraud on the USPTO by the filing o f the patent application does not support the defendants' interpretation of the plaintiffs' fraud c laim . T h e defendants' argument that the misappropriation claim supports federal jurisdiction c o n s tru e s the claim to allege the misappropriation of the "Plunge Bob" design. That may be a p la u s ib le interpretation of the claim, but a plausible interpretation is not enough to prove that this c la im necessarily depends on the resolution of a substantial issue of federal patent law.28 For the c o u rt to find that federal patent law is essential to the claim, there must be no other viable in te rp re ta tio n of the state-law claim.29 The defendants conceded in their response to the motion to remand that a state-law claim of misappropriation can be premised on a breach of the a gre e m e n ts between parties.30 As the removing party, the defendants must establish that the s ta te -la w claim of misappropriation can only be construed so as to require resolution of a s u b s ta n tia l question of patent law.31 The defendants have not made that showing.

American Tel. and Tel. Co. v. Integrated Network Corp., 972 F.2d 1321, 1324 (Fed. Cir. 1992). (" U n d e r Christianson, every theory of a claim as pled must depend on patent law if there is to be fe d e ra l jurisdiction."). Uroplasty, Inc v. Advanced Uroscience, 239 F.3d 1277, 1279 (Fed. Cir. 2001) ("A claim s u p p o rte d by alternative theories in the complaint may not form the basis for section 1338(a) ju ris d ic tio n unless patent law is essential to each of those theories.") (citing Christianson, 486 U.S. a t 810). Docket entry # 8, p. 4 ("[T]he petition could simply mean trade secrets and other unpatentable c o n fid e n tia l information . . . ."). Christianson, 486 U.S. at 810 ("Thus, a claim supported by alternative theories in the complaint m a y not form the basis for § 1338(a) jurisdiction unless patent law is essential to each of those th e o rie s ." ).
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The defendants also maintain that the plaintiffs' actions before the state court demonstrate th a t the resolution of a substantial issue of federal patent law is essential to their claims. The d e fe n d a n ts rely on the motion for contempt, discovery requests, attorney correspondence, and the p la in tiffs ' testimony during the TRO hearing.32 The plaintiffs' motion for contempt discusses the p ro v is io n a l-p a te n t application and suggests possible fraud against the USPTO in the filing of the p ro v is io n a l application, but those references explain the motivation for the contempt proceeding. They are not essential to the underlying claims presented in the petition. The motion for c o n te m p t asked the state court to recognize that the defendants disregarded the TRO by applying fo r a provisional patent. The motion did not discuss the merits of the case or raise new issues a b o u t ownership, as the defendants suggested. Even if the motion for contempt raised patent q u e s tio n s , the defendants have not established that resolution of the contempt matter is essential to the resolution of the plaintiffs' claims or that the plaintiffs' right to relief on those claims d e p e n d s on the resolution of patent law.33 T h e plaintiffs' discovery requests, correspondence and testimony during the state-court T R O hearing referred to patents and inventions, but the mere mention of a patent law issue is in s u ffic ie n t to prove that the plaintiffs' right to relief necessarily depends on the resolution of a s u b s ta n tia l issue of federal patent law so as to confer federal subject matter jurisdiction.34 The

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Docket entry # 8, pp. 5-11.

Compare docket entry #1, exh. C (plaintiffs' motion for contempt), with Christianson, 486 U.S. a t 815 (stating that summary judgment papers did not assert a new patent law claim). Bd. of Regents, Univ. of Tex. Sys. v. Nippon Tel. & Tel. Corp., 414 F.3d 1358, 1363 (5th Cir. 2 0 0 5 ) ("[T]he presence of a possible question of inventorship does not convert the state law action in to one arising under patent laws.") (discussing Consol. World Housewares v. Finkle, 831 F.2d 261, 2 6 5 (Fed. Cir. 1987)).
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correspondence referenced the motion for contempt--not the original petition--and the argument a n d evidence at the temporary injunction hearing addressed the status quo which the TRO was in te n d e d to preserve.35 In seeking discovery, a party's requests need only be reasonably calculated to lead to a d m is s ib le evidence.36 The plaintiffs' discovery requests include requests for invention and p a te n t information. The substantial issues in this case revolve around the agreements and u n d e rs ta n d in gs between the parties. Questions about Espinoza's participation in Patrick S to lm e ie r's patent application are relevant to the state causes of action and establish the business re la tio n s h ip among the parties. Discovery relating to the invention of the "Plunge Bob" and an a s s o c ia te d patent does not necessarily mean that the information the plaintiffs sought "could only b e relevant" to patent issues.37 D e fe n d a n ts also maintain that the plaintiffs' efforts to depose the defendants' patent law a tto rn e y shows the plaintiffs' right to relief necessarily depends on the resolution of a substantial q u e s tio n of patent law.38 As noted above, the scope of discovery is typically broader than the c la im s at issue. This deposition discovery does not expand the claims present in the petition.

Wallin v. Metcalfe, 863 S.W.2d 56, 58 (Tex. 1993) ("At the hearing of a temporary writ of in ju n c tio n , the applicant is not required to establish that she will prevail on the final trial; the only q u e s tio n before the trial court is whether the applicant is entitled to the preservation of the status quo p e n d in g trial on the merits.") (citation omitted).
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Tex. R. Civ. P. 192.3 (a).

Docket entry # 8, p. 11. See Yuksel v. N. Am. Power Tech., 805 F. Supp. 310, 312 (E.D. Pa. 1 9 9 2 ) ("The mere fact that there is a patent pending product mentioned in the complaint does not in a n d of itself create jurisdiction for the case to be heard by this court, since this product is at best only ta n ge n tia lly related to the claims.").
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Docket entry # 8 pp. 11-12.

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The plaintiffs' actions are inconclusive evidence that the resolution of a patent law question is e s s e n tia l and necessary for the plaintiffs to obtain relief. M o re o v e r, a case may not be removed merely because the defendant injects a federal p a te n t law argument into the litigation.39 The defendants cannot create removal jurisdiction s im p ly by introducing patent questions into trial proceedings or by speculating about possible in te rp re ta tio n s of the plaintiffs' petition.40 Although the plaintiffs refer to inventions and patent is s u e s in the motion for contempt, discovery requests, attorney correspondence and testimony d u rin g the injunction hearing, it does not necessarily follow that the claims found in their petition d e p e n d upon resolution of these issues. The defendants have not proven that the plaintiffs' right to relief necessarily depends on a substantial issue of federal patent law. Consequently, the fe d e ra l court lacks subject matter jurisdiction. W h e th e r attorney fees and costs should be awarded. In their motion to remand, the p la in tiffs asked for an award of attorney fees and costs for the federal district court proceedings. F e d e ra l district courts have the discretion to award just costs and actual expenses.41 The award m a y include attorney fees.42 The plaintiffs claim that the removal notice was frivolous and filed in an attempt to evade a hearing on a motion for contempt which was scheduled for June 4,

Air Measurement, 504 F.3d at 1268 ("Thus, a claim does not arise under the patent laws if a p a te n t issue appears only in a defense to a claim."). Christianson, 486 U.S. at 811 ("The well-pleaded complaint rule, however, focuses on claims, n o t theories and just because an element that is essential to a particular theory might be governed by fe d e ra l patent law does not mean that the entire monopolization claim `arises under' patent law.") (c ita tio n s omitted).
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28 U.S.C. § 1447(c). Id.

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2009.43 A w a rd s of this nature are rare and are not justified merely because the cause was im p ro p e rly removed.44 While the timing of the removal raises a question of tactics and the d e fe n d a n ts ' arguments are creative, the court considers the merits of the issues and not the m o tiv a tio n of the party.45 The defendants had objectively reasonable grounds upon which to re m o v e this case. Therefore, I recommend denying the plaintiffs' request. R e c o m m e n d a tio n . Because the defendants did not prove that the plaintiffs' right to relief n e c e s s a rily depends on a substantial issue of federal patent law this case, I recommend G R A N T IN G the plaintiffs' motion to remand (docket entry # 3) and REMANDING this case to th e 407th Judicial District, Bexar County, Texas. I also recommend DENYING the plaintiffs' re q u e s t for attorney fees and costs. If the district judge does not accept the recommendation to re m a n d this case and retains this case, I recommend denying all pending motions subject to their re -u rgin g under the appropriate Federal Rules of Civil Procedure. I n s tr u c tio n s for Service and Notice of Right to Object/Appeal T h e United States District Clerk shall serve a copy of this report and recommendation on a ll parties by either (1) electronic transmittal to all parties represented by attorneys registered as a " filin g user" with the clerk of court, or (2) by mailing a copy to those not registered by certified

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Docket entry # 3, p. 9.

Valdes v. Wal-Mart Stores, 199 F.3d 290, 292 (5th Cir. 2000) ("Although from time to time fa c tu a l situations may arise in which the district court is required to award attorney's fees, the mere d e te rm in a tio n that removal was improper is not one of them."). Valdes, 199 F.3d at 292 ("In sum, we do not consider the motive of the removing defendant. W e do, however, consider objectively the merits of the defendant's case at the time of removal.").
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mail, return receipt requested. Written objections to this report and recommendation must be file d within 10 days after being served with a copy of same, unless this time period is modified by th e district court.46 Such party shall file the objections with the clerk of the court, and serve the o b je c tio n s on all other parties and the magistrate judge. A party filing objections must s p e c ific a lly identify those findings, conclusions or recommendations to which objections are b e in g made and the basis for such objections; the district court need not consider frivolous, c o n c lu s iv e or general objections. A party's failure to file written objections to the proposed fin d in gs , conclusions and recommendations contained in this report shall bar the party from a de n o v o determination by the district court.47 Additionally, failure to file timely written objections to the proposed findings, conclusions and recommendations contained in this memorandum and re c o m m e n d a tio n shall bar the aggrieved party, except upon grounds of plain error, from attacking o n appeal the unobjected-to proposed factual findings and legal conclusions accepted by the d is tric t court.48 S I G N E D on September 4, 2009.

_____________________________________ N A N C Y STEIN NOWAK U N IT E D STATES MAGISTRATE JUDGE

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28 U.S.C. §636(b)(1); Fed. R. Civ. P. 72(b).

Thomas v. Arn, 474 U.S. 140, 149-152 (1985); Acuña v. Brown & Root, Inc., 200 F.3d 335, 340 (5 th Cir. 2000).
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Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996).

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