E-Pass Technologies, Inc. v. Moses & Singer, LLP

• Decision Date: 23 February 2011
• Docket Number: Nos. A127025, A127067.,s. A127025, A127067.
• Citation: 189 Cal.App.4th 1140,10 Cal. Daily Op. Serv. 14, 076,117 Cal.Rptr.3d 516
• Court: California Court of Appeals Court of Appeals
• Parties: E-PASS TECHNOLOGIES, INC., Plaintiff and Appellant, v. MOSES & SINGER, LLP, et al., Defendants and Respondents.

189 Cal.App.4th 1140

117 Cal.Rptr.3d 516

10 Cal. Daily Op. Serv. 14,076

2010 Daily Journal D.A.R. 16,933

E-PASS TECHNOLOGIES, INC., Plaintiff and Appellant,

v.MOSES & SINGER, LLP, et al., Defendants and Respondents.

Nos. A127025, A127067.

Court of Appeal, First District, Division 3, California.

Nov. 5, 2010.

Review Denied Feb. 23, 2011.

**517 Rosen Saba, LLP, James R. Rosen and Adela Carrasco, Beverly Hills, for Plaintiff and Appellant.

Duane Morris LLP, Richard Hoffman and Robert L. Fineman, San Francisco; Nixon Peabody LLP, Isabelle L. Ord, San Francisco; Keker & Van Nest LLP, Elliot R. Peters, Wendy J. Thurm and Steven A. Hirsch, San Francisco, for Defendants and Respondents.

POLLAK, Acting P.J.

*1142 Plaintiff E-Pass Technologies, Inc. (E-Pass) appeals from a judgment of dismissal following the sustaining of a demurrer in favor of defendants Moses & Singer, LLP., Stephen Weiss, Squire Sanders & Dempsey, LLP, and Mark Dosker. The trial court sustained the demurrer on the ground that E-Pass's complaint for legal malpractice is subject to the exclusive jurisdiction of the federal courts because it raises a substantial issue of federal patent law. We disagree and therefore shall reverse the judgment.

Factual and Procedural Background

Since approximately February 2000, E-Pass has been the owner by assignment of U.S. Patent No. 5,276,311 entitled, "Method and Device for *1143 Simplifying the Use of a Plurality of Credit Cards, or the Like" (the '311 patent). The ' 311 patent "describes a method and device for storing information from various individual cards in a single electronic multi-function card. Beginning in February 2000, E-Pass, represented by defendants in the present action, filed four actions in federal district courts alleging that certain manufacturers and users of personal digital assistant devices (PDAs) had infringed upon its '311 patent.

The Federal Patent Litigation

The following summary of the federal patent litigation is taken from the January 2007 decision of the Federal Circuit Court of Appeals. ( E-Pass Technologies, Inc. v. 3Com Corp. (Fed.Cir.2007) 473 F.3d 1213.) "On February 28, 2000, E-Pass filed a complaint for patent infringement against 3Com Corporation and Palm, Inc. (collectively, '3Com'). In it, E-Pass accused 3Com of inducing consumers to practice the steps of the patented method on its Palm VII and Palm VIIx personal digital assistant ('PDA') products. Following a claim construction that construed 'electronic multi-function card' to be '[a] device having the width and outer dimensions of a standard credit card with an embedded electronic circuit allowing for the conversion of the card to the form and function of at least two different single-purpose cards,' [citation], the district court granted 3Com's motion for summary judgment of noninfringement both literally and under the doctrine of equivalents [citation]. [¶] E-Pass appealed. On appeal, we held that the district court had erred by 'requiring the dimensions of a standard credit card.' [Citation.] We observed that 'the ordinary meaning of the word "card" here, as used in the phrase "electronic multi-function card," is the proper construction,' and we vacated and remanded to the district court to address the issue of infringement under the proper construction. [Citation.] Notably, we emphasized that 'it may be or **518 may not be that the accused Palm Pilot devices literally infringe' under that construction. [Citation.] [¶] ... After we remanded the action against 3Com, E-Pass filed two new infringement actions in the district court. It filed the first new action, Case No. 03-CV-4747, U.S. Dist. LEXIS 95914, on October 22, 2003, against Visa U.S.A., Inc., and Visa International Service Association (collectively, 'Visa'). In that action, E-Pass alleged that Visa had infringed the '311 patent by using a Palm V PDA in two demonstrations in 2001. E-Pass filed the second new action, Case No. 04-CV-0528, U.S. Dist. LEXIS 95914, against PalmSource, Inc., palmOne, Inc., and Handspring, Inc., on February 9, 2004. In the second new action, it made claims of direct, induced, and contributory infringement of the '311 patent based on three new PDA product lines—the Tungsten, Zire, and Treo lines—that had been introduced since the filing of the initial action. [¶] On March 17, 2006, the district court granted summary judgment of noninfringement as to all defendants. [Citation.] It rested its finding of noninfringement on two independent grounds. First, it held that even under a *1144 broader construction of 'card,' none of the accused devices could infringe the 'electronic multi-function card' limitation. [Citation.] Second, it held that E-Pass had failed to adduce sufficient evidence to support a finding that any of the defendants or their customers had practiced all of the steps of the claimed method. [Citation.] Having demonstrated no instances of direct infringement, E-Pass could not prove liability for induced or contributory infringement." ( Id. at pp. 1216-1217.)

On appeal to the circuit court, E-Pass argued that (1) the district court erred in finding that the defendant's devices could not infringe on E-Pass's patent and (2) the district court "ignored circumstantial evidence that the defendants or their customers practiced the steps of the claimed method." ( E-Pass Technologies, Inc. v. 3Com Corp., supra, 473 F.3d at p. 1217.) With respect to E-Pass's first argument, the circuit court agreed with the district court's holding that based on the properties of the various devices, "no reasonable jury could find that the accused devices are 'cards.' " ¹ ( Id. at p. 1220.) With respect to E-Pass's argument that the district court ignored its "circumstantial evidence of direct infringement," the circuit court noted that it had "no reason to believe that the district court ignored any of this evidence" and that "[e]ven when all the evidence that E-Pass cites is accounted for, its claim cannot survive summary judgment." ( Id. at p. 1221.) In so ruling, the court reviewed the evidence submitted by E-Pass, including product manuals and various other documents. ( Id. at p. 1222.) With respect to the product manuals, the court noted that "the evidence here shows, **519 at best, that the Palm defendants taught their customers each step of the claimed method in isolation. Nowhere do the manual excerpts teach all of the steps of the claimed method together, much less in the required order. Accordingly, it requires too speculative a leap to conclude that any customer actually performed the claimed method." ( Ibid.)

Thereafter, the district court required E-Pass to pay $2.3 million in attorney fees to the opposing parties. With respect to E-Pass's claim against Visa, the court concluded that E-Pass's choice of litigation strategy, including failing to *1145 present evidence to support its claim, warranted an award of attorney fees as a sanction. ( E-Pass Technologies, Inc. v. 3Com Corp. (N.D.Cal. Nov. 14, 2007), 2007 WL 4170514, p. 2-3, 2007 U.S. Dist. Lexis 89642, p. 9.) The district court found that the litigation against PalmSource had a " history of questionable pre-filing investigation and a discovery strategy of unwarranted delay and obstruction," which supported a finding that the case was exceptional and justified an award of attorney fees against E-Pass. ( Id., 2007 WL 4170514, at p. 7, at p. 22.) Finally, with respect to the remaining Palm defendants (3Com, Palm and palmOne) the court found that E-Pass's litigation tactics were "abusive" and justified a fee award. ( Id., 2007 WL 4170514, at p. 8-9, at p. 26.) The circuit court affirmed the award in favor of each defendant and also concluded that a frivolous appeal taken by E-Pass against PalmSource justified additional fees. ( E-Pass Technologies, Inc. v. 3Com Corp. (Fed.Cir.2009) 559 F.3d 1374, 1377.)

In addition to the above litigation, E-Pass, represented by Moses and Singer and Weiss, filed similar litigation against Microsoft Corporation and Hewlett-Packard Company alleging that certain PDA devices made by Hewlett-Packard using software created by Microsoft also infringed the '311 patent. The district court granted summary judgment in favor of defendants, finding that E-Pass could not show infringement under the court's construction of a specific claim limitation.² ( E-Pass Technologies, Inc. v. Microsoft, Inc., supra, 444 F.Supp.2d 748, 752-753.) The Circuit Court affirmed the trial court's construction of the claim limitation, noting that the claim construction in that case involved " 'little more than the application of the widely accepted meaning of commonly understood words.' " ( E-Pass Technologies, Inc. v. Microsoft Corp. (Fed.Cir.2007) 231 Fed.Appx. 950, 952, 954.)

The California Legal Malpractice Action

On January 9, 2009, E-Pass filed this legal malpractice action against the defendant**520 attorneys. The operative second amended complaint alleges causes *1146 of action for negligent misrepresentation, breach of fiduciary duty and negligence based on defendants' representation of E-Pass in the federal patent litigation. All three causes of action are based essentially on allegations that the attorney defendants incorrectly advised E-Pass that it "would make more money suing prospective licensees than by negotiating licenses or deals with them" and failed to appreciate and disclose to E-Pass that there was no evidence to support its infringement claims. The cause of action for professional negligence alleges that the defendants failed to meet the required standard of care. E-Pass alleges that as a result of defendants' misconduct, "E-Pass has suffered considerable economic damages including, but not limited to ... substantial and avoidable legal fees and costs."

Defendants demurred to the second amended complaint on the ground that the court lacks subject matter jurisdiction over the action because E-Pass's claims involve substantial issues of federal patent law. Following a...