Jim Arnold Corp. v. Hydrotech Systems, Inc.

• Decision Date: 21 March 1997
• Docket Number: 95-1432,Nos. 95-1335,s. 95-1335
• Citation: 42 USPQ2d 1119,109 F.3d 1567
• Parties: JIM ARNOLD CORPORATION, Earl E. Ennis, and James F. Arnold, Plaintiffs-Appellants, v. HYDROTECH SYSTEMS, INC., Arkla, Inc., Diversified Energies, Inc., Minnegasco, Inc., Baker Hughes, Incorporated, Hughes Tool Company, Mohr Corp., Harvey O. Mohr, H.O. Mohr Research & Engineering, Inc., H.O. Mohr & Associates, Inc., Cal Dive International, Inc., Robert Wittman, H.S.I. Acquisition, Inc., Lee R. Larkin and Andrews & Kurth, Defendants-Appellees.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1567

109 F.3d 1567

42 U.S.P.Q.2d 1119

JIM ARNOLD CORPORATION, Earl E. Ennis, and James F. Arnold Plaintiffs-Appellants, v. HYDROTECH SYSTEMS, INC., Arkla, Inc., Diversified Energies Inc., Minnegasco, Inc., Baker Hughes, Incorporated, Hughes Tool Company, Mohr Corp., Harvey O. Mohr, H.O. Mohr Research & Engineering, Inc., H.O. Mohr & Associates, Inc., Cal Dive International, Inc., Robert Wittman, H.S.I. Acquisition Inc., Lee R. Larkin and Andrews & Kurth, Defendants-Appellees.

Nos. 95-1335, 95-1432.

United States Court of Appeals Federal Circuit.

March 21, 1997.

Rehearing Denied; Suggestion for

Rehearing In Banc Declined

May 22, 1997. ^*

Joseph W. Walker, Franklin, Mosele, & Walker, P.C., of Houston, Texas, argued for John Wayne Kitchens, Jr., Hughes, Watters & Askanase, L.L.P., of Houston, Texas, argued for defendants-appellees Hydrotech Systems, Inc., Robert Wittman, and H.S.I. Acquisition, Inc. Counsel on the brief was Rod Hardie.

plaintiffs-appellants. With him on the brief was Thomas J. Mosele.

Joseph L. McEntee, Jones, Day, Reavis & Pogue, of Dallas, Texas, for defendants-appellees Arkla, Inc., Diversified Energies, Inc., and Minnegasco, Inc. Of counsel was Scott W. Burt.

Glenn A. Ballard, Jr., Bracewell & Patterson, L.L.P., of Houston, Texas, argued for defendants-appellees Baker Hughes Incorporated, Hughes Tool Company, Inc., and Cal Dive International, Inc. With him on the brief was John H. Barr, Jr. Of counsel was Ralph E. Kraft, Preis, Kraft & Roy, of Lafayette, Louisiana.

Richard L. Josephson, Baker & Botts, L.L.P., of Houston, Texas, argued for defendants-appellees Lee R. Larkin and Andrews & Kurth. With him on the brief was Stephanie K. Copp.

Before PLAGER, Circuit Judge, SKELTON, Senior Circuit Judge, and SCHALL, Circuit Judge.

PLAGER, Circuit Judge.

This case turns on the jurisdictional reach of federal courts when both state-based and federal-based claims are put at issue in a complaint. Plaintiffs appeal from a decision on the merits rendered in favor of all defendants by the United States District Court for the Southern District of Texas. Plaintiffs originally filed their complaint in the district court of Harris County, 11th Judicial District, a Texas state court, against fifteen different defendants, asserting a variety of state-law claims, as well as one for patent infringement. Defendants, asserting their right under 28 U.S.C. § 1441, removed the case to federal court. The federal district court subsequently granted defendants' motions for summary judgment on the merits, holding that the claims were barred either by relevant state statutes of limitations or, in the case of the patent infringement claim, by laches. Plaintiffs took an appeal to the Fifth Circuit, which court denied defendants' motion to dismiss and transferred the appeal to this court.

The merits of the summary judgment were briefed and presented to this court at oral argument. However, at the argument, we raised with counsel the question of whether the case was properly in federal court at all, or whether jurisdiction lay exclusively in state court. We suspended further consideration of the merits pending additional briefing on the question of jurisdiction. The fact that none of the parties raised the issue, or that none of the other courts hearing the matter considered it, is not determinative. Federal courts are courts of defined jurisdiction, and a court must attend to its jurisdiction at all times.

Having now fully considered the additional briefs and the questions thereunder, we conclude, albeit reluctantly, that neither the district court nor this court has jurisdiction over the causes of action pled by plaintiffs. The matter belongs, if it belongs anywhere, in an appropriate state court. The judgment of the district court is vacated, and the matter remanded to that court with instructions to return the cause to the state court whence it came.

BACKGROUND

Plaintiff James F. Arnold is an inventor. He patented a number of inventions covering devices used in the connection and repair of subsea oil pipelines and offshore platforms. Beginning in 1970 Arnold became involved in a number of agreements that related to these patents, in some of which he was a contracting party, and in some of which he was not but which related to the patents and rights arising under them. The story is somewhat convoluted, but necessary to an understanding of who the parties are and the nature of the dispute between them.

Arnold entered into an employment agreement with Hydrotech Services, Inc. ("HTS") on March 6, 1970. Under this agreement, Arnold agreed to assign his rights to technology he developed during the term of his employment. This agreement excluded any invention developed before March 6, 1970, however, and specifically excluded certain issued patents.

Subsequently, on August 1, 1973, Arnold entered into an agreement with Hydrotech International, Inc. ("HTI"), a newly-formed holding company and the successor in interest to HTS. Pursuant to this agreement, Arnold assigned all his rights in any "invention, innovation or improvement" developed during the term of the agreement to HTI, except for certain patents (the same ones that were excluded from the HTS agreement) and patent applications arising before Arnold's employment with HTS. In return, HTI covenanted, inter alia, to pay a royalty to Arnold on all tools sold by HTI that were either invented by Arnold or covered by his patents. Later, on December 27, 1973, Arnold and HTI entered into two assignment agreements in which Arnold assigned certain patents to HTI, including two of the patents that had been excluded from the earlier agreements.

Thereafter, in 1980, Hughes Tool Company ("Hughes Tool") informed Arnold that it desired to purchase HTI. That same year, Hughes Tool effected this purchase through its wholly-owned subsidiary, Hughes Undersea Couplings, Inc. ("Hughes Undersea"). In this acquisition, Hughes Undersea received all of HTI's assets, including the patents that HTI had acquired from Arnold. On October 20, 1980, Arnold entered into an agreement with Hughes Undersea ("the 1980 agreement") which was designed to supersede other agreements, including the agreement entered into on August 1, 1973 and the two assignment agreements entered into on December 27, 1973. The 1980 agreement stated that Arnold agreed to an assignment (presumably from HTI) of the various patents to Hughes Undersea.

The 1980 agreement contained a provision allowing either party (Arnold or Hughes Undersea) to assign the agreement to another party. This provision further provided that Hughes Undersea could assign any of the patents or patent applications covered by the agreement to a third party, provided that it notified Arnold of such assignment within ten days. Pursuant to this provision, on December 20, 1984, Hughes Tool (acting through Hughes Undersea) assigned its rights in particular patents and patent applications to Cal-Dive International, Inc. ("Cal-Dive"); Arnold was notified of the assignment on December 21, 1984. Cal-Dive later assigned all of its rights to H.S.I. Acquisition, Inc. (which later changed its name to Hydrotech Systems, Inc.), and made the necessary notification to Arnold on August 18, 1988.

Finally, in October 1988, Arnold sold his corporation, the Jim Arnold Corporation, to Earl E. Ennis ("Ennis"). In connection with this sale, Arnold assigned to Ennis all of his rights in the patents developed by him and any rights he had in agreements with HTI, Hughes Tool, Cal-Dive, and H.S.I. Acquisition, Inc./Hydrotech Systems.

Thus, as of the date of the Texas state court action in August of 1993, as a result of the chain of transactions and assignments outlined above, Hydrotech Systems, Inc. apparently owned the relevant patents, while any interests that remained with Arnold following the 1973 and 1980 agreements, along with his rights under the various agreements, apparently were owned by Ennis.

In the following discussion, the plaintiffs will be designated collectively as "Arnold," and referred to in the singular; the defendants may sometimes be referred to as "Hughes." (The defendants not named above are not involved in the claims regarding the 1980 agreement, but are in the suit based on other theories. Our disposition regarding jurisdiction applies to all the claims raised, and therefore we need not differentiate among these defendants.)

As noted, plaintiff Arnold in 1993 filed its complaint in a Texas state court, asserting both state and federal claims. Defendants removed the case to the United States District Plaintiff appealed from that judgment to the Fifth Circuit. Since the presumed basis for federal court jurisdiction was § 1338, the appeal properly lay in this court. The Fifth Circuit declined defendants' motion to dismiss the appeal, and transferred the matter to this court.

Court for the Southern District of Texas under the provisions of 28 U.S.C. § 1441, on the theory that the case was one which arose in whole or in part under the patent laws of the United States, and therefore original and exclusive jurisdiction lay in the federal district court pursuant to 28 U.S.C. § 1338. The record does not indicate that plaintiff opposed the transfer. Plaintiff did oppose the judgment eventually awarded by the District Court, however. That court granted summary judgment in favor of all defendants. All counts except the patent infringement count were ruled in favor of the several defendants on the basis of various Texas statutes of limitations. The patent count was ruled in favor of the defendants on the ground of laches.

DISCUSSION

A.

Before we may reach the merits of a case we must, as a threshold issue, attend to our jurisdiction. This case is here on removal, at the trial level, from the state court in which plaintiff placed it. Unless expressly provided otherwise by statute, a civil action brought in a state court may be removed to a ...