DePuy Orthopaedics, Inc. v. Orthopaedic Hosp.
| Decision Date | 22 February 2013 |
| Docket Number | No. 3:12-CV-299,3:12-CV-299 |
| Parties | DEPUY ORTHOPAEDICS, INC., Plaintiff, v. ORTHOPAEDIC HOSPITAL, Defendant. |
| Court | U.S. District Court — Northern District of Indiana |
This matter is before the Court on the Motion to Dismiss for Lack of Subject Matter Jurisdiction filed by Orthopaedic Hospital ("Hospital") on August 6, 2012. For the reasons set forth below, the motion is DENIED.
BACKGROUND
Plaintiff DePuy Orthopaedics, Inc. ("DePuy") makes orthopedic devices. In 1999 it entered into a license agreement with Defendant Hospital, a hospital in Los Angeles, which provided that DePuy would pay royalties to the Hospital for certain patent rights. Earlier this year DePuy reviewed the agreement and concluded that it had expired in 2006. When it contacted the Hospital about the expiration of the agreement,however, the Hospital disputed DePuy's conclusion and claimed that the agreement remained in full effect. DePuy therefore initiated this suit, pursuant to the Declaratory Judgment Act, seeking a judicial declaration that the agreement had expired in 2006 and had not been breached.
The Hospital has now moved to dismiss the suit on the grounds that there is no subject-matter jurisdiction here because there is no actual dispute sufficient to invoke the Declaratory Judgment Act. The motion is fully briefed and ripe for adjudication.
DISCUSSION
Federal Rule of Civil Procedure 12(b)(1) governs dismissal for lack of subject matter jurisdiction. Jurisdiction is the "power to decide" and must be conferred upon a federal court. In re Chicago, Rock Island & Pacific R.R. Co., 794 F.2d 1182, 1188 (7th Cir. 1986). When considering a motion to dismiss under Rule 12(b)(1), the court must accept all of the plaintiff's well-pled factual allegations as true and all reasonable inferences derived from those allegations must be drawn in the plaintiff's favor. United Transp. Union v. Gateway Western R.R. Co., 78 F.3d 1208, 1210 (7th Cir. 1996). However, the court may also look beyondthe complaint and review any extraneous evidence submitted by the parties to determine whether subject matter jurisdiction exists. Id. The facts recounted here are derived from DePuy's Complaint and the correspondences between the parties cited in the briefing on the motion to dismiss.
DePuy designs and manufactures orthopedics products. [DE 1 at 2.] DePuy and the Hospital began their work together in 1999 when they entered into a research agreement whereby the Hospital provided research and development services to DePuy to improve the wear of polyethylene bearings on DePuy's products. [DE 1 at 2-3.] The two also entered into the license agreement, which addressed the patent rights that might emerge from the research agreement. [DE 1 at 3.] The license agreement, by its terms, "expire[d] on the later of 7 years from the Effective Date or the expiration of the last applicable Patent." [DE 1 at 4-5.] The effective date of the license agreement was March 1, 1999. [DE 1 at 5.] Since there were no patents between the parties covered under the agreement as of March 1, 2006, DePuy alleges that the agreement terminated on that date. [DE 1 at 5.]
On February 16, 2012, DePuy, after conducting a review of its contract files, informed the Hospital via letter that the license agreement between them had expired on March 1, 2006. [DE1 at 5.] Dr. Harry McKellop, the Hospital's Vice President, replied in a letter dated March 27, 2012, which rejected DePuy's claim that the agreement had expired and indicated that DePuy could not continue to market and sell products based on the Hospital's technology without paying the required royalties. [DE 1 at 5.] Referring specifically to a particular technology that was allegedly "invented by Orthopaedic Hospital under [the] Research Agreement," Dr. McKellop wrote:
The notion that DePuy can send us a letter announcing that its obligations to Orthopaedic Hospital ended six years ago and therefore can now disregard Orthopaedic Hospital's ownership of the 110 technology, and market and sell products based on the 110 technology without paying the agreed royalties to Orthopaedic Hospital, simply does not fly. . . . The bottom line is that Orthopaedic Hospital licensed the 110 technology to DePuy and DePuy is obligated to pay royalties on it and otherwise perform its duties under the Agreement.
[DE 16-2 at 3-4.] Dr. McKellop further stated that Depuy's position was "contrary to the text of the [license] Agreement and DePuy's consistent conduct for the past six years," asked that DePuy "[p]lease reconsider this matter immediately," and also raised the potential that it might be necessary to seek legal action: [DE16-2 at 3-4.]
DePuy promptly responded with a March 29, 2012, letter stating that it was in receipt of Dr. McKellop's letter and that it would review it and "respond in good time." [DE 16-3 at 2.] Without yet receiving a response, Dr. McKellop sent an April 4, 2012, letter stating that he was "confident that, once you have reviewed the relevant text, you will agree that the Patent Rights and License Agreement and its companion Research Agreement remain in full effect" and that he hoped to be able to state to the Hospital's Board of Directors that the matter had "been satisfactorily resolved without the need for legal remedies." [DE 16-4 at 3.] DePuy promptly responded once again in an April 10, 2012, letter that it was continuing to review the matter and would respond when its review was complete. [DE 16-5 at 2]. Dr. McKellop then sent an April 20, 2012, letter again asking about the status of DePuy's review; DePuy did not respond to this letter. [DE 16-6 at 3.]
Next, in June of 2012, the parties exchanged a series of emails about the issue. On June 5, 2012, Dr. McKellop emailed DePuy's President, Andrew Ekdahl, asking about the status of the matter, suggesting a conference call between the parties, and stating that he was hoping to tell his Board of Directors that"we have resolved this disagreement, without the need for formal legal action that would constitute an unnecessary expense for us and for DePuy." [DE 16-7 at 3-4.] Ekdahl responded in an email the next day: "I recommend that we have our attorney's speak to one another." [DE 16-7 at 3.] Later that week, the parties exchanged the information about their respective attorneys. On the Monday of the following week, DePuy filed this lawsuit for declaratory judgment. [DE 1.] When the parties' lawyers spoke on the telephone the next day, DePuy's attorney informed the Hospital's attorney about the suit and emailed him a courtesy copy of the Complaint. [DE 21 at 1-2.]
The Hospital now argues in its motion to dismiss DuPuy's declaratory judgment action that this Court lacks subject-matter jurisdiction because no case or controversy existed between it and DePuy at the time the Complaint was filed. According to the Hospital, there was not an imminent threat of litigation. The Hospital also asserts that, even if there was an imminent threat of litigation, this Court should refuse to accept jurisdiction because DePuy used misleading tactics to ensure it obtained its venue of choice.
Since the filing of the instant motion, the Hospital has filed a separate legal action against DePuy in the CentralDistrict of California. That action also seeks a declaratory judgment, but raises additional claims against DePuy too. See DE 23-1 Orthopaedic Hospital v. DePuy Orthopaedics, Inc., Case No. CV12-11004 ODW (PLAx)(C.D. Cal. Dec. 28, 2012). The Hospital has also filed a motion to transfer this case to the Central District of California. [DE 28]. That motion will be addressed in a separate order; at the moment, this Court limits its inquiry to subject matter jurisdiction.
Hospital's Motion
The Declaratory Judgment Act affords relief to parties from uncertainty and insecurity with respect to their legal relations. Nucor Corp. v. Aceros y Maquilas de Occidente, S.A. de C.V. , 28 F.3d 572, 578 (7th Cir. 1994). As the Seventh Circuit has unequivocally stated: "[A] party may seek a declaratory judgment to determine whether a particular contract term is binding and need not risk breaching the contract and await a suit." Johnson v. McCuskey, 72 Fed. App'x. 475, 477 (7th Cir. 2003).
In determining if an action for declaratory relief can be heard, this Court looks to see if "a declaratory judgment will settle the particular controversy and clarify the legal relations in issue." Nucor Corp. , 28 F.3d at 579. And to determine ifthere is a sufficient controversy between the parties to invoke the Declaratory Judgment Act, this Court looks at "whether the facts alleged, under all circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of declaratory judgment." MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007).
The Hospital argues that at the time DePuy filed its Complaint it could not meet this standard because there was no immediate and real controversy. This argument is a stretch. The Hospital's multiple responses to DePuy's initial letter were consistent and unequivocal: it disagreed with DePuy's interpretation of the license agreement, stated that DePuy needed to continue to pay royalties pursuant to that agreement, and indicated that legal action could be necessary to sort out the differing interpretations. In the face of this response, DePuy was perfectly justified in filing this suit and seeking a definitive judicial determination as to the interpretation and enforceability of the license agreement.
The Court, in MedImmune, summarized the central question at issue in that case:
Respondents claim a right to royalties under the licensing agreement. Petitioner asserts that no...
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