In re Engage, Inc.

• Decision Date: 06 October 2008
• Docket Number: No. 08-1257.,08-1257.
• Parties: In re ENGAGE, INC., et al., Debtors Ropes & Gray LLP, Appellant, v. Craig R. Jalbert, as Liquidating Supervisor, Appellee.
• Court: U.S. Court of Appeals — First Circuit

544 F.3d 50

In re ENGAGE, INC., et al., Debtors Ropes & Gray LLP, Appellant, v. Craig R. Jalbert, as Liquidating Supervisor, Appellee.

No. 08-1257.

United States Court of Appeals, First Circuit.

Heard September 8, 2008.

Decided October 6, 2008.

D. Ross Martin with whom Christopher Thomas Brown, Jonathan B. Lackow, and Ropes & Gray LLP, were on brief, for appellant.

Robert M. Abrahamsen, Michael A. Albert, Allen S. Rugg, Eric G.J. Kaviar, Wolf, Greenfield & Sacks, P.C., Erik Paul Belt, and Bromberg and Sunstein LLP, were on brief, for Boston Patent Law Association, amicus curiae.

Andrew Z. Schwartz with whom Joshua S. Pemstein and Foley Hoag LLP, were on brief, for appellee.

Before LYNCH, Chief Judge, BOUDIN and LIPEZ, Circuit Judges.

LYNCH, Chief Judge.

The key issue in this bankruptcy case is whether the Massachusetts attorney's lien statute, chapter 221, section 50 of the Massachusetts General Laws, applies to patent prosecution work performed by attorneys. The courts of the Commonwealth have never addressed this issue. Nor is it clear from existing case law or a reading of the statute what the answer is. Further, any chosen answer will have significant policy ramifications. We conclude the issue should be certified to the Massachusetts Supreme Judicial Court ("SJC"), pursuant to its Rule 1:03. See Boston Gas Co. v. Century Indem. Co., 529 F.3d 8, 15 (1st Cir.2008).

I.

The case arises from federal bankruptcy proceedings initiated five years ago by Engage, Inc., an advertising software company, and certain of its affiliates ("Debtors"). The relevant facts are briefly recounted. Ropes & Gray LLP ("R & G") performed legal services — primarily patent prosecution work — for the Debtors from around July 2002 through May 2003. The Debtors filed petitions for relief under Chapter 11 of the Bankruptcy Code on June 19, 2003. In a filing before the bankruptcy court shortly thereafter, R & G asserted it was owed $108,737.11, secured by an attorney's lien under chapter 221, section 50 of the Massachusetts General Laws, for unpaid patent prosecution work performed prior to this date. Additionally, R & G asserted an unsecured claim for approximately $49,517.37, primarily for corporate licensing work performed in 2003.

The Debtors, who had sold their patents and patent applications in transactions before and after the petition date, agreed to reserve from the sale proceeds an amount equal to R & G's asserted lien, while reserving their rights to object to R & G's claims. On August 4, 2004, the Liquidating Supervisor filed an objection to R & G's secured claim, arguing, inter alia, that the Massachusetts attorney's lien statute did not apply to patents and patent applications.

The bankruptcy court agreed, sustaining the Liquidating Supervisor's objection. In re Engage, Inc. (Engage I), 315 B.R. 208, 208 (Bankr.D.Mass.2004). In an October 8, 2004 order, it held that the lien statute did not apply to patent prosecution work.¹ Id. at 213-14. It concluded that neither a patent nor a patent application is a "judgment, decree or other order" under the terms of the statute. Id. at 214. Even if a patent could be characterized as an order, the court reasoned that the proceeds from the sale of a patent would be derived not from the order but from the sale of the underlying intellectual property. Id. R & G could have no more than an inchoate lien in the proceeds from the sale of the Debtors' patents and patent applications. Id. at 214-15. Thus, the bankruptcy court reasoned, R & G's claim was unsecured. Id. at 217.

R & G appealed the bankruptcy order to the district court. It also filed a motion requesting that the district court certify questions on the attorney's lien statute to the SJC. In re Engage Inc. (Engage II), 330 B.R. 5, 6 n. 1 (D.Mass.2005). On September 1, 2005, the district court affirmed the bankruptcy court, finding that the attorney's lien statute did not apply to patents or patent applications or to proceeds from the resulting sale.² Id. at 7, 14-21. The district court also rejected R & G's request for certification, concluding that the issue could be resolved by applying existing case law. See id. at 6 & n. 1. The matter was then returned to the bankruptcy court because the order was not yet "final" within the meaning of 28 U.S.C. § 158(d).

On August 15, 2007, R & G and the Liquidating Supervisor filed a joint motion before the bankruptcy court, agreeing to liquidate R & G's claim. The parties also agreed that the Liquidating Supervisor would reserve $27,500, which R & G would receive if it were ultimately found to have a secured claim. The bankruptcy court approved this compromise and disallowed the secured claim in its final order, issued September 10, 2007. On December 28, 2007, the district court affirmed the final order on the grounds set forth in its 2005 decision. R & G appealed to this court³ and again requested that questions on the Massachusetts attorney's lien statute be certified to the SJC.⁴

II.

This court may certify questions to the SJC in cases, such as this, where it finds no controlling precedent and where the questions may be determinative of the pending cause of action. See Mass. S.J.C. R. 1:03; Boston Gas Co., 529 F.3d at 15; Nieves v. Univ. of P.R., 7 F.3d 270, 274 (1st Cir.1993). These conditions are met. First, the SJC has not decided whether the Massachusetts attorney's lien statute applies to patent prosecution work, and, if so, whether the attorney's lien attaches to proceeds from the sale of issued patents or patent applications. Second, in our view, this state law issue may be determinative of R & G's cause of action, and there is no controlling precedent, bringing the case within Rule 1:03. R & G's arguments in the bankruptcy court depend on the appropriate construction of the Massachusetts attorney's lien statute.⁵

We also think it appropriate to exercise our discretion in favor of certification. In a case such as this, it is within our discretion either to "make our best guess on this de novo review issue" or to certify the question to the SJC. Boston Gas Co., 529 F.3d at 13. This is not a case in which "the course [the] state court[ ] would take is reasonably clear." Nieves, 7 F.3d at 275 (alterations in original) (quoting Porter v. Nutter, 913 F.2d 37, 41 n. 4 (1st Cir.1990)) (internal quotation marks omitted). Moreover, certification is particularly appropriate here since the answers to these questions may hinge on policy judgments best left to the Massachusetts court and will certainly have implications beyond these parties. See Boston Gas Co., 529 F.3d at 14-15; Brown v. Crown Equip. Corp., 501 F.3d 75, 78 (1st Cir.2007).

It is true that even in the absence of controlling precedent, certification would be inappropriate where state law is sufficiently clear to allow us to predict its course. See Hugel v. Milberg, Weiss, Bershad, Hynes & Lerach, LLP, 175 F.3d 14, 18 (1st Cir.1999); Armacost v. Amica Mut. Ins. Co., 11 F.3d 267, 269 (1st Cir.1993); Nieves, 7 F.3d at 274-75. This case, however, presents a close and difficult legal issue. See Boston Gas Co., 529 F.3d at 15; Brown, 501 F.3d at 77.

We explain why we think so. Some background on the nature of patents and the patent prosecution process informs our analysis. Patents are granted by the United States Patent and Trademark Office in potentially multi-staged proceedings which, while not akin to a traditional trial, may take on certain adversarial qualities. Decisions of the Patent Office may be appealed by the applicant or, in some instances, challenged by a third party before the Board of Patent Appeals and Interferences. 35 U.S.C. § 134. An applicant may challenge a decision by the Board by appealing to the Federal Circuit, id. § 141, or by filing a suit in district court, id. § 145. If granted, a patent provides a right to exclude others from practicing an invention. See id. §§ 271, 283; Crown Die & Tool Co. v. Nye Tool & Mach. Works, 261 U.S. 24, 35-37, 43 S.Ct. 254, 67 L.Ed. 516 (1923). This exclusive right is "a species of property . . . of the same dignity as any other property which may be used to purchase patents." Transparent-Wrap Mach. Corp. v. Stokes & Smith Co., 329 U.S. 637, 643, 67 S.Ct. 610, 91 L.Ed. 563 (1947). A favorable decision by the Patent Office thus provides the applicant with a property interest — to exclude others from use of the property — which may itself be sold, and in that sense is independent of the underlying intellectual property. This property interest, even at the stage of a patent application, is freely assignable. Federal law, 35 U.S.C. § 261, provides that "patents shall have the attributes of personal property. Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing."

Turning back to the state law question, the Massachusetts attorney's lien statute provides that:

From the authorized commencement of an action, counterclaim or other proceeding in any court, or appearance in any proceeding before any state or federal department, board or commission, the attorney who appears for a client in such proceeding shall have a lien for his reasonable fees and expenses upon his client's cause of action, counterclaim or claim, upon the judgment, decree or other order in his client's favor entered or made in such proceeding, and upon the proceeds derived therefrom.

Mass. Gen. Laws ch. 221, § 50. This present version of the statute was enacted in 1945. The previous version read:

An attorney who is lawfully possessed of an execution, or who has prosecuted a suit to final judgment in favor of his client, shall have a lien thereon for the amount of his fees and disbursements in the cause. . . .

Rev. Laws. Mass.1902 ch. 165, § 48.

In our view, the change in and expansion of the language in the 1945 amendment tends to support R & G's arguments that a patent application is a "claim" and that a patent is an "order in [the]...