Patriot Universal Holding LLC v. McConnell et al

Filing 22

DECISION AND ORDER REMANDING CASE - certified copy of remand order and certified copy of docket sent to Brown County Circuit Court on 4/5/2013. Signed by Chief Judge William C Griesbach on 4/5/2013. (cc: all counsel)(Griesbach, William)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
PATRIOT UNIVERSAL HOLDING, LLC,
Plaintiff,
v.

Case No. 12-C-0907

ANDREW MCCONNELL, individually, and
BOYLE, FREDRICKSON, NEWHOLM,
STEIN & GRATZ, S.C.,
Defendants.

DECISION AND ORDER REMANDING CASE

Plaintiff Patriot Universal Holding, LLC commenced this action against Defendants
Andrew McConnell and Boyle, Fredrickson, Newholm, Stein & Gratz, S.C. (Boyle Fredrickson) in state
court and it was removed to this Court on September 5, 2012. The case is before me now on Plaintiff’s
motion to stay the proceedings and its renewed request to remand the case to state court. For the reasons
that follow, this action will be remanded to state court because this Court lacks subject matter jurisdiction.
BACKGROUND
The procedural posture of this case is briefly summarized as follows. Plaintiff filed this action
in the Circuit Court for Brown County, Wisconsin on August 3, 2012. Plaintiff alleges that the
defendants “have ignored their fiduciary duties and professional responsibilities by aiding and abetting
. . . unfair competition.” (Compl. ¶ 45.) Plaintiff claims that it is a former client of the defendants, and
that the defendants assisted it with obtaining several patents. Plaintiff alleges that it has been damaged
because the defendants have subsequently represented two of Plaintiff’s competitors and assisted them

with related patent matters. Defendants removed the case to federal court on September 5, 2012,
asserting federal subject matter jurisdiction exists pursuant to 28 U.S.C. §§ 1331 and 1338(a).
Defendants argued the action arises out of federal law because Plaintiff’s right to relief necessarily
depends on substantial questions of federal patent law. Shortly thereafter, Defendants also filed a motion
to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).
Meanwhile, Patriot filed a motion to remand on October 2, 2012. The Court denied the motion
to remand on November 13, 2012. The Defendants’ motion to dismiss was fully briefed on January 4,
2013, but before the Court could decide it, Plaintiff filed a motion to stay the proceedings in order for the
Court to reconsider the decision denying Plaintiff’s motion to remand in light of the United States
Supreme Court’s recent decision in Gunn v. Minton, 133 S.Ct. 1059, 1065 (Feb. 20, 2013). Plaintiff
contends that the decision affects this Court’s continued subject matter jurisdiction. The Court permitted
the parties to file supplemental briefs regarding the jurisdictional issue, and they did so on March 27,
2013.
The relevant facts are taken from the Complaint, and although they were set forth in the Court’s
previous decision, they will be reiterated here. Plaintiff is owned by Paul O. Gehl, who, prior to forming
Patriot, invested in, controlled, and managed several other business entities that were similarly formed
to research, develop, market, manufacture and license food patty molding machines. These entities
included Progressive Technology of Manitowoc, Inc. (PTI), Forming Innovative Technologies, LLC
(Form-It), and Othmar Group, LLC (Othmar). (Compl. ¶ 6.) On behalf of PTI, the law firm of Andrus,
Sceales, Starke & Sawall, LLP filed and prosecuted applications for what would become United States
Patent Nos. 5,980,228 and 5,730,650 (the ‘228 and ‘650 patents). PTI was listed as the assignee on the
patents as issued by the United States Patent & Trademark Office (USPTO) in 1998 and 1999. (Compl.
¶¶ 16-17, Exs. 1-2, ECF No. 1.) McConnell was a member of the Andrus firm at the time and “was

officially appointed by the named inventor on that application, ‘to [prosecute] application and transact
all business [the USPTO] connected therewith.’” (Compl. ¶ 17.) Plaintiff is now the assignee of the ‘228
and ‘650 patents. (Compl. ¶¶ 9, 11.) When McConnell joined Boyle Fredrickson in 2001, he continued
to provide services to PTI and Form-It. (Compl. ¶ 18.)
Plaintiff is also the named assignee on United States patent No. 7,207,789 (the ‘789 patent),
issued by the USPTO in 2007. (Compl. ¶¶ 12-13, Ex. 3, ECF No. 1.) McConnell submitted the
“specification, drawings, and original Claim One for what became the 789 Patent” to the USPTO.
(Compl. ¶ 21.) He also met with the named inventors on the ‘789 patent to discuss intellectual property
matters involving patent ownership, prior design, and patents owned by competitors. (Compl. ¶ 23.) In
2003, McConnell also performed a patent search and offered Form-It a formal opinion regarding the
patentability of the invention described in the ‘789 patent in which he advocated that the ‘789 patent
invention was patentable over prior art. (Compl. ¶ 24.) Plaintiff alleges that at some point after 2004,
the ‘228, ‘650, and ‘789 patents were assigned to Plaintiff. (Compl. ¶ 28.) Plaintiff is the closely held
successor in interest to Form-It and PTI. (Compl. ¶ 29.)
In 2010, Plaintiff initiated a lawsuit against two of its competitors, Formax, Inc. (Formax) and
Provisur Technologies, Inc. (Provisur), alleging these companies stole proprietary intellectual property
owned by Plaintiff and infringed on the three patents at issue. Patriot Universal Holdings, LLC v. AlkarRapidPak-MP Equipment, Inc., et al, Case No. 10-C-355 (E.D. Wis.). Plaintiff alleges that Formax and
Provisur are now clients of Boyle Fredrickson. In 2011, while working for Boyle Fredrickson,
McConnell filed requests for reexamination of the ‘228, ‘650, and ‘789 patents on behalf of Formax and
Provisur. In the requests for reexamination, Formax and Provisor take the position that the patents are
invalid in light of prior art. (Compl. ¶ 39.) They also attack the basis for the patentability of the
underlying technology described in the patents. (Compl. ¶ 40.) Thus, Plaintiff alleges that McConnell

has taken positions and made statements that are directly at odds with his prior work for PTI, Form-It,
and Othmar, for whom he helped to obtain the ‘228, ‘650, and ‘789 patents. (Compl. ¶¶ 37, 41-42.)
Based on this conduct, Plaintiff moved to disqualify McConnell and Boyle Fredrickson in the
underlying infringement lawsuit. That motion was held in abeyance after the parties agreed to limit
Attorney McConnell’s involvement and the entire action has since been stayed pending reexamination
of the patents. In the meantime, Plaintiff filed the instant lawsuit, alleging the conduct of McConnell and
Boyle Fredrickson violates “the Rules of Professional Conduct (SCR 20:19), which prohibit lawyers from
representing a party which is adverse to a former client or using information gained during that former
representation to the detriment of a former client.” (Compl. ¶ 43.) Plaintiff also alleges that Defendants’
conduct ignores “their fiduciary duties and professional responsibilities by aiding and abetting the unfair
competition undertaken by Formax and Provisur.” (Compl. ¶ 45.) Plaintiff contends that it has suffered
damages as a result of Defendants’ conduct, namely:
Patriot’s adversaries, Formax and Provisur, have been afforded an otherwise unavailable
benefit by virtue of McConnell’s dual representation. Patriot has been and continues to
expend attorney’s fees and expenses to disqualify McConnell and his firm, and to file
responses in the Patent Office to Formax and Provisur’s requests for reexamination.
Patriot has lost profits from its licensing of its patents due to the unfair competition by
Formax and Provisur. McConnell has aided and abetted Formax and Provisur in the
unfair competition.
(Compl. ¶ 46.)
ANALYSIS
Congress has granted federal courts exclusive jurisdiction over “any civil action arising under any
Act of Congress relating to patents.” 28 U.S.C. § 1338(a). An action may “arise under” federal patent
law in one of two ways. First, a case arises under federal law when federal patent law creates the cause
of action. Gunn v. Minton, 133 S.Ct. 1059, 1064 (2013). Second, even a state-law claim may arise under
federal law if “a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4)

capable of resolution in federal court without disrupting the federal-state balance approved by Congress.”
Id. at 1065 (citing Grable & Sons Metal Prods., Inc. v. Darue Engineering & Mfg., 545 U.S. 308, 313-14
(2005)). Here, to the extent that Plaintiff has pled state-law claims, jurisdiction will only lie under the
“special and small” second category. Id. at 1064 (quoting Empire Healthchoice Assurance v. McVeigh,
547 U.S. 677, 699 (2006)). “[T]he mere presence of a federal issue in a state cause of action does not
automatically confer federal-question jurisdiction.” Merrell Dow Pharmaceuticals, Inc. v. Thompson,
478 U.S. 804, 813 (1986). Rather, federal jurisdiction over a state-law action “demands not only a
contested federal issue, but a substantial one, indicating a serious federal interest in claiming the
advantages thought to be inherent in a federal forum.” Grable, 545 U.S. at 313.
In Gunn, the Supreme Court held that § 1338(a) does not deprive the state courts of subject matter
jurisdiction over patent malpractice claims. The Court clarified that “state legal malpractice claims based
on underlying patent matters will rarely, if ever, arise under federal patent law for purposes of § 1338(a).”
Gunn, 133 S.Ct. at 1065. Moreover, the Court emphasized that for a federal issue to be considered
substantial, “it is not enough that the federal issue be significant to the particular parties in the immediate
suit; that will always be true when the state claim ‘necessarily raise[s]’ a disputed federal issue, as Grable
separately requires.” Id. at 1066. Rather, the substantiality inquiry “looks instead to the importance of
the issue to the federal system as a whole.” Id. (emphasis added); accord Empire Healthchoice
Assurance, 547 U.S. at 700 (explaining a federal issue is substantial where there exists a “pure issue of
law, one that could be settled once and for all” and the resolution of which would be “both dispositive
of the case and would be controlling in numerous other cases” (internal quotations omitted)).
In addition, Gunn explained that the federal interest in the development of a uniform body of
patent law is not itself a sufficiently substantial interest to justify federal jurisdiction. Gunn, 133 S.Ct.
at 1068 (“But the possibility that a state court will incorrectly resolve a state claim is not, by itself, enough

to trigger the federal courts’ exclusive patent jurisdiction, even if the potential error finds its root in a
misunderstanding of patent law.”). Similarly, federal courts’ familiarity with patent law will not alone
trigger the federal courts’ exclusive patent jurisdiction. Id. Even if a state court decision in a malpractice
action would have a preclusive effect in other proceedings, “[s]uch ‘fact-bound and situation-specific’
effects are not sufficient to establish federal arising under jurisdiction.” Gunn, 133 S.Ct. at 1068 (quoting
Empire Healthchoice Assurance, 547 U.S. at 701). The resolution of the issue must have broader
significance beyond the interests of the litigants themselves. Id. at 1066.
In light of these considerations, I am convinced that this court does not have federal subject matter
jurisdiction over Plaintiff’s state-law cause of action. Like Gunn, even though it may be necessary to
decide disputed issues of federal patent law, this case presents no substantial issue of federal law that has
broad significance beyond the interests of the parties. Defendants argue that this case differs from Gunn
and presents a substantial issue of federal law because this Court previously suggested that deciding
Plaintiff’s malpractice action requires determining whether Plaintiff was a former client of the defendants,
which in turn rests on an interpretation of patent law. However, Gunn clarified that such matters will
“rarely, if ever” be substantial enough to give rise to federal jurisdiction. Even though deciding issues
such as whether Plaintiff has proved that it was a former client or whether it has proved causation may
necessarily involve the application and interpretation of federal patent law, Gunn holds that state courts
are competent to resolve these issues. “There is no doubt that resolution of a patent issue in the context
of a state legal malpractice action can be vitally important to the particular parties in that case. But
something more, demonstrating that the question is significant to the federal system as a whole, is
needed.” Gunn, 133 S. Ct. at 1068. Under the principles set forth in Gunn, no issue of federal, systemwide importance is presented here. Id.

Notwithstanding the above, in its supplemental brief, Defendant also argues that the court has an
independent basis for asserting subject matter jurisdiction because Plaintiff has pled a cause of action for
“aiding and abetting” that is created by federal patent law. Plaintiff’s complaint does not separately
identify any claims. However, it alleges that “Mr. McConnell and the Defendant, Boyle Fredrickson,
have ignored their fiduciary duties and professional responsibilities by aiding and abetting the unfair
competition undertaken by Formax and Provisur.” (Compl. ¶ 45.) Thus, the defendants argue, if this
allegation can be read as separately alleging a right to relief based on aiding and abetting in violation of
federal patent law, this Court would have exclusive jurisdiction over the matter pursuant to 28 U.S.C. §
1338(a). Indeed, the parties have argued in their briefs related to the Defendants’ motion to dismiss that
Plaintiff’s complaint can be construed to allege a claim for aiding and abetting patent infringement. See
35 U.S.C. § 271(b) (“Whoever actively induces infringement of a patent shall be liable as an infringer.”).
But of course, under the well-pleaded complaint rule, whether the action arises under patent law
“must be determined from what necessarily appears in the plaintiff’s statement of his own claim” in the
complaint. Franchise Tax Bd. of Ca. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 10 (1983) (internal
quotations omitted). Thus, “whether a case arises under federal patent law ‘cannot depend upon the
answer.’” Holmes Group, Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S. 826, 831 (2002) (quoting
The Fair v. Kohler Die & Specialty Co., 228 U.S. 22, 25 (1913)). Patent law must be essential to the
plaintiff’s claim as it appears on the face of the well-pleaded complaint, and not just one possible theory
supporting a claim. Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 810-11 (1988)
(explaining that “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”).
Thus, the question is whether it can be determined from the face of Plaintiff’s complaint that it
has alleged a claim against Defendants for aiding and abetting patent infringement, therefore giving rise

to exclusive federal jurisdiction under § 1338(a). Upon review of the complaint, I am convinced that
federal jurisdiction cannot lie. Again, Plaintiff has not laid out its cause of action in the clearest of terms.
But finding plaintiff has pled a claim that is created by federal law requires an unreasonable stretch of the
imagination. Plaintiff alleges that the defendants aided and abetted unfair competition. Nowhere has it
alleged facts that suggest that the defendants actively induced or assisted Formax and Provisur in
infringing on Plaintiff's patents. Plaintiff alleges that the infringing acts include “the manufacture, use,
sale, importation and/or offer for sale of food product molding machines and drive apparatuses” claimed
in Plaintiff’s patents. (Compl. ¶¶ 33-35.) As to the defendants’ role in the alleged infringement, Plaintiff
only states that they have taken a “180 degree position in the litigation of which [they] now represent[]
Formax and Provisur.” (Compl. ¶ 38.) Plaintiff further alleges that McConnell has “taken a 180 degree
position as to the validity of the patents” and has requested reexamination. (Compl. ¶ 39.) But the fact
that Defendants represent a party in a patent infringement suit cannot by itself be read as an allegation
that they are subject to liability for the patent infringement itself.
Moreover, Plaintiff concludes that McConnell’s conduct violates the Rules of Professional
Conduct governing attorney’s actions in Wisconsin. (Compl. ¶ 43.) Thus, it appears Plaintiff has only
alleged a cause of action based on the professional conduct of the defendants, and the alleged conflict of
interest created by their representation of Formax and Provisur. “[S]ince the plaintiff is the master of the
complaint, the well-pleaded-complaint rule enables him, by eschewing claims based on federal law, . .
. to have the cause heard in state court.” Holmes Group, 535 U.S. at 831 (internal quotations omitted)
(“Not all cases involving a patent-law claim fall within the Federal Circuit’s jurisdiction.”). Moreover,
“a claim supported by alternative theories in the complaint may not form the basis for § 1338(a)
jurisdiction unless patent law is essential to each of those theories.” Christianson, 486 U.S. at 810. “If
‘on the face of a well-pleaded complaint there are . . . reasons completely unrelated to the provisions and

purposes of [the patent laws] why the [plaintiff] may or may not be entitled to the relief it seeks,’ . . . then
the claim does not ‘arise under’ those laws. Id. (quoting Franchise Tax Bd., 463 U.S. at 26.) Plaintiff’s
right to relief plainly does not rest exclusively on federal patent law. A court cannot assume federal
jurisdiction based on the possibility that the plaintiff might have alleged a cause of action based on federal
law where there are virtually no indications anywhere else in the complaint either supporting such a
federal claim, or indicating that such a federal claim is anything more than an alternate theory for relief.
If, in fact, the plaintiff did intend to allege a cause of action for patent infringement against the
defendants, then it can move to amend the Complaint in state court. The defendant could, in that case,
again file a notice of removal. But by all appearances, Plaintiff has elected to frame its complaint in terms
of state law. A plaintiff is the master of its complaint and is therefore free to forego a federal claim and
sue in state court on purely state law claims. If Plaintiff did not intend to forego a possible federal claim,
then it will have to remedy the omission in state court. Accordingly, the case must be remanded to the
Circuit Court for Brown County, Wisconsin.
CONCLUSION
For the reasons stated herein, this Court lacks subject matter jurisdiction over this matter because
it does not arise under an Act of Congress related to patents. 28 U.S.C. § 1338(a). Accordingly, this
action is REMANDED to Brown County Circuit Court. The Clerk is directed to mail a certified copy
of this order to the Clerk of Court for the Circuit Court for Brown County, Wisconsin pursuant to 28
U.S.C. § 1447(c).
Dated this 5th day of April, 2013.
s/ William C. Griesbach
William C. Griesbach, Chief Judge
United States District Court