803 F.3d 635 (Fed. Cir. 2015), 2015-1310, State of Vermont v. MPHJ Technology Investments, LLC

Docket Nº:2015-1310
Citation:803 F.3d 635, 116 U.S.P.Q.2d 1595
Opinion Judge:O'Malley, Circuit Judge.
Party Name:STATE OF VERMONT, Plaintiff-Appellee v. MPHJ TECHNOLOGY INVESTMENTS, LLC, Defendant-Appellant
Attorney:BRIDGET ASAY, Vermont Office of the Attorney General, Montpelier, VT, argued for plaintiff-appellee. Also represented by BENJAMIN D. BATTLES, NAOMI SHEFFIELD. WILLIAM BRYAN FARNEY, Farney Daniels PC, Georgetown, TX, argued for defendant-appellant. Also represented by STEVEN R. DANIELS; DAVID P. S...
Judge Panel:Before PROST, Chief Judge, NEWMAN, and O'MALLEY, Circuit Judges.
Case Date:September 28, 2015
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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Page 635

803 F.3d 635 (Fed. Cir. 2015)

116 U.S.P.Q.2d 1595

STATE OF VERMONT, Plaintiff-Appellee

v.

MPHJ TECHNOLOGY INVESTMENTS, LLC, Defendant-Appellant

2015-1310

United States Court of Appeals, Federal Circuit

September 28, 2015

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[Copyrighted Material Omitted]

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Appeal from the United States District Court for the District of Vermont in No. 2:14-cv-00192-wks, Judge William K. Sessions III.

BRIDGET ASAY, Vermont Office of the Attorney General, Montpelier, VT, argued for plaintiff-appellee. Also represented by BENJAMIN D. BATTLES, NAOMI SHEFFIELD.

WILLIAM BRYAN FARNEY, Farney Daniels PC, Georgetown, TX, argued for defendant-appellant. Also represented by STEVEN R. DANIELS; DAVID P. SWENSON, Minneapolis, MN.

Before PROST, Chief Judge, NEWMAN, and O'MALLEY, Circuit Judges.

OPINION

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[116 U.S.P.Q.2d 1596] O'Malley, Circuit Judge.

On May 8, 2013, Plaintiff-Appellee State of Vermont (" Vermont" or " the State" ) filed a state court action against Defendant-Appellant MPHJ Technology Investments LLC (" MPHJ" ) alleging violations of the Vermont Consumer Protection Act, 9 V.S.A. § § 2451 et seq. (" VCPA" ). The complaint alleged that letters mailed to Vermont businesses informing them that they may be infringing certain patents were deceptive and otherwise violative of the VCPA. MPHJ removed the case twice to the United States District Court for the District of Vermont, once under the State's original complaint (" original complaint" ) and once under the State's amended complaint (" amended complaint" ). The district court remanded the case to state court both times. Before this court is MPHJ's appeal of the district [116 U.S.P.Q.2d 1597] court's second remand order. Because removal under § 1442(a)(2) is not authorized in the circumstances at issue here, and MPHJ does not appeal the district court's other removal rulings in the second remand order, we affirm.

I. Background

MPHJ is a non-practicing entity incorporated in Delaware that acts through a variety of shell corporations incorporated in many states. Beginning in September 2012, businesses in Vermont began to receive a series of letters from one or more of the MPHJ shell corporations. These letters alleged potential infringement of MPHJ's patents and requested that the

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recipients either purchase licenses or confirm that they were not infringing the patents. Although the content and subject matter of MPHJ's patents are irrelevant to this appeal, they generally cover systems in which computers are networked and connected to a scanner, such that scanned documents are sent directly to employee email addresses as PDF attachments.

MPHJ's letters to each Vermont business followed a similar format and involved the same sequence of events. The first letter a business would receive stated, " We have identified your company as one that appears to be using the patented technology," and gave a list of questions that the company needs to investigate regarding its computer server to determine if it is infringing. Exhibit A to Consumer Protection Complaint at 1, Vermont v. MPHJ Tech. Invs., LLC, No. 2:14-cv-00192, (D. Vt. Jan. 9, 2015), ECF No. 1. The letter explained that these questions were based on " [o]ur research, which includes review of several marketplace trends and surveys," and that " you should enter into a license agreement with us at this time." Id. at 3-4. It further stated that " we have had a positive response from the business community to our licensing program." Id.

The second and third letters were sent from the law firm of Farney Daniels PC, MPHJ's counsel. They would routinely arrive a few weeks after the first letter and second letter, respectively, if MPHJ did not hear back from the recipient. Both stated that the recipient's non-response to the previous letters was taken as an admission of infringement. And, both implied that litigation would commence if the recipient did not enter into a license agreement. See Exhibit B to Consumer Protection Compl. at 1, MPHJ, (No. 2:14-cv-00192), ECF No. 1.

In response to complaints from the Vermont business community about these letters, the State filed its original complaint against MPHJ on May 8, 2013 in state court. The original complaint asserted a single cause of action under the Vermont Consumer Protection Act, 9 V.S.A. § 2453(a). Under this cause of action, the complaint listed two bases for liability: " unfair trade practices" and " deceptive trade practices." Consumer Protection Compl. at 8, MPHJ, (No. 2:14-cv-00192), ECF No. 1. The State alleged that MPHJ engaged in " unfair trade practices" by, inter alia, threatening litigation even though litigation was unlikely, targeting small businesses, placing the burden on the recipient to do the investigation, and using shell corporations to minimize liability. Id. at 8-9. The State alleged that MPHJ engaged in " deceptive trade practices" by, inter alia, stating in its letters that it would bring suit immediately absent a license, the licensing program was successful with many businesses taking part, and the average license was $1000/employee. Id. at 9-10. The State sought various forms of relief, including two permanent injunctions:

(1) A permanent injunction prohibiting Defendant from engaging in any business activity in, into or from Vermont that violates Vermont law.

(2) A permanent injunction requiring Defendant to stop threatening Vermont businesses with patent-infringement lawsuits.

Id.

A. First Removal

MPHJ timely filed a motion to remove the case to the United States District Court for the District of Vermont on June 7, 2013 (" the first removal" ). MPHJ claimed that the court had diversity jurisdiction and that the court had federal

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question jurisdiction because the validity, infringement, and enforcement of its patents were at issue. The State thereafter moved to remand, arguing that its complaint sounded solely in the VCPA, a state law. MPHJ then filed a motion to dismiss the case for lack of personal jurisdiction and a motion for sanctions under Federal Rules of Civil Procedure (" FRCP" ) 11. The district court held a hearing on these pending motions [116 U.S.P.Q.2d 1598] on February 25, 2014, and expressed concern that the State's second request for an injunction could prevent MPHJ from sending legitimate assertions regarding patent infringement to Vermont businesses. On March 7, 2014, the State filed a motion to clarify or amend its complaint to delete the second injunction request (" A permanent injunction requiring Defendant to stop threatening Vermont businesses with patent-infringement lawsuits" ).

On April 14, 2014, the district court issued an order remanding the case to state court, without deciding the other pending motions, including the State's motion to clarify or amend the complaint. Vermont v. MPHJ Tech. Invs., LLC, No. 2:13-cv-170, at *2 (D. Vt. Apr. 14, 2014). The court concluded that it did not have subject matter jurisdiction. The court stated that, under the test set out in Gunn v. Minton, 133 S.Ct. 1059, 1065, 185 L.Ed.2d 72 (2013), federal patent law issues were not " necessarily raised" on the face of the State's complaint because the claims in the original complaint did not challenge the validity of the patents nor require any determination of actual infringement. MPHJ, at *17. The court also concluded that the original complaint did not raise a " substantial" federal question under Gunn, as any possible federal question would at best involve " application of existing patent law to the facts of this case," with no wide-reaching determinations about patent law itself. The court also determined that there was no diversity jurisdiction.

On May 13, 2014, MPHJ filed a notice of appeal of the remand decision to this court and petitioned this court for a writ of mandamus, claiming that the district court abused its discretion. Upon return to the state court, the State filed its amended complaint on May 7, 2014. During a subsequent motions hearing, the state court indicated that, because MPHJ had not yet answered, the State was entitled to amend its complaint as a matter of right under state court rules. Exhibit 1 of Vermont's Mot. to Expedite Proceedings at 37-38, MPHJ, (No. 2:14-cv-00192), ECF No. 3. Despite having acknowledged that, however, the state court ultimately granted the State's motion to amend at the same time it denied MPHJ's motion to dismiss for lack of personal jurisdiction. Exhibit 3-12 to MPHJ's Notice of Removal at 2, 6, MPHJ, (No. 2:14-cv-00192), ECF No. 1. On August 11, 2014, this court held that it did not have jurisdiction over either the appeal or the mandamus petition by virtue of 28 U.S.C. § 1447(d). Vermont v. MPHJ Tech. Invs., LLC, 763 F.3d 1350, 1352 (Fed. Cir. 2014). Section 1447(d) provides that a remand order to a state court " is not reviewable on appeal or otherwise," with a couple of specific, statutorily-provided exceptions. Id. at 1353. The Supreme Court has concluded that this prohibition applies only to remands based on 28 U.S.C. § 1447(c), which includes the district court's first remand order. Id.

B. Second Removal

MPHJ filed an answer and counterclaims to the State's amended complaint on

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September 9, 2014. MPHJ claimed that the State, by requesting an injunction that required MPHJ's compliance with " Vermont law," sought to compel MPHJ to comply with the Vermont Bad Faith Assertions of Patent Infringement Act (" BFAPIA" ), 9 V.S.A. § § 4195-99. The BFAPIA was passed on May 22, 2013 and became effective on July 1, 2013, after the State filed the original complaint and while this case was pending in federal district court after the first removal. Its key provision, 9 V.S.A. § 4197, defines the factors that a court...

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