Building Innovation Industries, L.L.C. v. Onken

• Court: U.S. District Court — District of Arizona
• Writing for the Court: Wake
• Citation: Building Innovation Industries, L.L.C. v. Onken, 473 F.Supp.2d 978 (D. Ariz. 2007)
• Decision Date: 17 January 2007
• Docket Number: No. CV 06-1859-PHX-NVW.,CV 06-1859-PHX-NVW.
• Parties: BUILDING INNOVATION INDUSTRIES, L.L.C., an Arizona limited liability company, Plaintiff, v. Yelena ONKEN, individually and as Personal Representative of the Estate of Ronnie Dale Onken; Shari Howard, an individual, Defendants.

473 F.Supp.2d 978

BUILDING INNOVATION INDUSTRIES, L.L.C., an Arizona limited liability company, Plaintiff, v. Yelena ONKEN, individually and as Personal Representative of the Estate of Ronnie Dale Onken; Shari Howard, an individual, Defendants.

No. CV 06-1859-PHX-NVW.

United States District Court, D. Arizona.

January 17, 2007.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

G. Gregory Eagleburger, the Eagleburger Law Group, Phoenix, AZ, for Plaintiff.

Joseph R. Knight, Baker Botts LLP, Austin, TX, Ira M. Schwartz, Deconcini McDonald Yetwin & Lacy PC, Phoenix, AZ, for Defendants.

ORDER

WAKE, District Judge.

Pending before the court is Defendants' Joint Motion for Award of Attorneys' Fees (Doc. # 23).

I. Background

Plaintiff Building Innovation Industries, LLC ("Building Innovations") is an Arizona company engaged in the manufacture and erection of pre-fabricated residential and commercial structures. Defendant Yelena Onken is the widow of Ronnie Dale Onken and personal representative of her late husband's estate. Defendant Shari Howard is the assignee of the interests of Yelena Onken and the estate in the patent application at issue.

In May 2004, Ronnie Onken contracted with Building Innovations to help design a new type of insulated structural panel for use in the company's construction business. Building Innovations allegedly hired Onken on a retainer basis and specifically to make use of his inventive faculties. Onken explained to Building Innovations that he could commit approximately 20 hours per week to the design project. He required payment of $50 per hour for his efforts and $35 per hour for the use of his drafting personnel. In the course of the business relationship, Onken assisted other Building Innovations employees in successfully developing a "hat channel design" for the company's panels. Building Innovations ultimately paid Onken $33,108.82 in consideration for his work.

Sometime between May 2004 and July 2005, and without Building Innovations's knowledge or consent, Onken contacted Paul N. Katz of the law firm Baker, Botts, LLP to prepare a patent application for the new panel design. The application, filed with the United States Patent and Trademark Office on November 18, 2005, lists Onken and his wife Yelena as the inventors and Defendant Howard as the assignee. Howard and others acting in concert with him now allegedly sell devices that make use of the device described in the application.

Plaintiff alleged in its original complaint that, although it never entered into a written contract with Onken concerning invention ownership, Onken conceded ownership by means of an implied contract when he accepted an offer of employment to invent for the company. Plaintiff further alleged that Howard's sale of devices that make use of the disputed design violates the Arizona Trade Secrets Act. The complaint therefore sought a determination that Defendants have no legal interest in the subject of the patent application, and that, in the event a patent is issued, Building Innovations is its exclusive and legal owner (Count I). The complaint also sought an injunction barring any further sales of devices that make use of the disputed design (Count II). Defendants moved to dismiss both counts under Federal Rule of Civil Procedure 12(b)(6).

On October 18, 2006, Building Innovations moved for leave to file an amended complaint. This motion and the briefs on the Defendants' motions to dismiss were jointly addressed in a hearing on October 20, 2006. Noting ambiguity in the complaint concerning Onken's employment status—i.e., whether he was an employee or an independent contractor—and the centrality of that status to the issue of patent ownership, Building Innovations was ordered to file an amended complaint specifying with particularity the nature of Onken's employment relationship with Building Innovations.

Building Innovations complied with this order by filing an amended complaint on October 31, 2006. The Amended Complaint alleged that Onken was hired by the company as an independent contractor. In light of precedent indicating that independent contractors hired to invent generally retain ownership over inventions they create in the course of their employment, Building Innovations dropped its original request for a declaration that it owned the panel design. Counts one and two of the Amended Complaint instead respectively alleged that Onken's patent application was invalid because it was based on prior art and misled the United States Patent and Trademark Office by representing that Onken was the inventor and owner of the panel design. Count three of the Amended Complaint repeated the original complaint's claim regarding trade secrets.

Defendants responded to the Amended Complaint with another motion to dismiss. The motion argued for the dismissal of counts one and two on the ground that invalidity is an affirmative defense that applies to patents, not patent applications. The motion also argued that count three should be dismissed because it lacked specificity concerning the nature of the claimed trade secrets and the alleged trade secrets were already in the public domain. One day after Defendants filed their motion to dismiss, Building Innovations voluntarily dismissed the Amended Complaint pursuant to Federal Rule of Civil Procedure 41(a)(1).

Defendants Howard and Yelena Onken now respectively move for $19,650 and $18,707 in attorney's fees under A.R. S. § 12-341.01(A). They alternatively move for an award under 35 U.S.C. § 285, A.R.S. § 12-341.01(C), A.R.S. § 12-349, or the court's "inherent power" to grant fees.

II. Analysis

In response to the motion, Building Innovations raises two principal objections. First, it contends that attorney's fees may not be awarded because its voluntary dismissal pursuant to Federal Rule of Civil Procedure 41(a)(1) terminated the court's jurisdiction over the case. Second, it argues that even if jurisdiction is present, fees may not be awarded under A.R. S. § 12-341.01(A) because, absent a judgment on the merits, there cannot be a "successful party." The objections are examined below.

A. Jurisdiction

Federal Rule of Civil Procedure 41(a)(1) establishes that an action may be dismissed without prejudice by the plaintiff without order of court by "filing a notice of dismissal at any time before service by the adverse party of an answer or of a motion for summary judgment, whichever first occurs." "Once the notice of dismissal has been filed, the district court loses jurisdiction over the dismissed claims and may not address the merits of such claims or issue further orders pertaining to them." Duke Energy Trading & Mktg., LLC v. Davis, 267 F.3d 1042, 1049 (9th Cir.2001). Nevertheless, even after Rule 41(a) terminates jurisdiction on the merits, jurisdiction may persist over collateral matters. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 396, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990); Moore v. Permanente Med." Group, Inc., 981 F.2d 443, 445 (9th Cir.1992).

Building Innovations's voluntary dismissal did not terminate jurisdiction over the motion for attorney's fees. "[I]t is clear that an award of attorney's fees is a collateral matter over which a court normally retains jurisdiction even after being divested of jurisdiction on the merits" by a Rule 41 dismissal. Moore, 981 F.2d at 445. Thus, a decision regarding the "imposition of attorney's fees ... may be made after the principal suit has been terminated" under Rule 41(a)(1). Cooter & Gell, 496 U.S. at 396, 110 S.Ct. 2447.

This conclusion is consistent with the purpose of Rule 41(a)(1), which was designed exclusively to curb abuses facilitated by a plaintiffs ability under prior rules to dismiss her case at any point in the litigation up until the entry of the verdict. The Rule was not intended to effect jurisdiction over issues such as fees and sanctions. See Cooter & Gell, 496 U.S. at 397, 110 S.Ct. 2447 (explaining that Rule 41(a) was "not designed to give a plaintiff any benefit other than the right to take one ... dismissal without prejudice"). Building Innovations's contrary interpretation is unreasonable because it would effectively transform a rule designed to restrict plaintiffs into a vehicle by which plaintiffs may evade otherwise appropriate sanctions and costs.

Building Innovations attempts to distinguish Moore and Cooter & Gell on the ground that they respectively involved jurisdiction over a motion for fees pursuant to 28 U.S.C. § 1447(c) and a motion for sanctions under Federal Rule of Civil Procedure 11, rather than a motion for attorney fees under Arizona law and 35 U.S.C. § 285. The distinction is immaterial. While it is true that those cases involved different statutes than those presently at issue, neither case held that the disputed fee and sanction requests were collateral because of the text and purpose of 28 U.S.C. § 1447(c) or Rule 11. Rather, both generically explained that attorney fees and sanctions are by nature collateral to the merits and therefore properly within a district court's jurisdiction even after a dismissal under Rule 41(a). Moore, 981 F.2d at 445; Cooter & Gell, 496 U.S. at 396, 110 S.Ct. 2447.

To the extent that the text and purpose of 28 U.S.C. § 1447(c) and Rule 11 were relevant to the holdings in Moore and Cooter & Gell, it was only because jurisdiction could not persist if it were precluded by the fee statute itself. In this case, however, nothing in the text of the relevant statutes precludes jurisdiction over fee awards after a dismissal on the merits; while the statutes restrict the type of dispute in which fees may be awarded, they do not establish any temporal limitations on a court's ability to extend such an award. See 35 U.S.C. § 285; A.R.S. § 12-341.01(A). Moreover, because defendants will in many cases incur substantial legal costs prior to a plaintiff's voluntary dismissal under Rule 41, collateral jurisdiction over fees...