Telechron, Inc. v. Parissi

• Decision Date: 17 June 1952
• Docket Number: No. 201,Docket No. 22262.,201
• Citation: 197 F.2d 757
• Parties: TELECHRON, Inc., et al. v. PARISSI.
• Court: U.S. Court of Appeals — Second Circuit

197 F.2d 757 (1952)

TELECHRON, Inc., et al. v. PARISSI.

No. 201, Docket No. 22262.

United States Court of Appeals Second Circuit.

Argued March 12, 1952.

Decided June 17, 1952.

Whalen, McNamee, Creble & Nichols, of Albany, N. Y., for appellants; Charles H. Walker, Henry J. Zafian, Charles M. Allen, and Fish, Richardson & Neave, of New York City, of counsel.

Andros and Smith, of Albany, N. Y., for appellee; Daniel H. Prior, Harry A. Smith, Albany, and Charles P. Bauer, New York City, of counsel.

Before SWAN, Chief Judge, and CLARK and FRANK, Circuit Judges.

SWAN, Chief Judge.

This appeal from an order striking certain matter from the complaint in a declaratory judgment action raises questions as to the district court's jurisdiction to hear a non-federal claim with a federal claim, when there is no diversity of citizenship between the parties. The complaint sought (1) a declaration that three patents issued to the defendant are invalid and were not infringed, (2) a declaration that neither of the plaintiffs has violated any other rights of the defendant, including rights based upon any alleged disclosure of any of the subject matter of the patents, and (3) an injunction against the bringing of suit by the defendant charging infringement of the patents, or charging that other rights of the defendant have been violated by the plaintiffs. Federal jurisdiction with respect to the patents was founded on 28 U.S.C.A. §§ 2201 and 1138(a) and with respect to the other claim on § 1338(b). The order on appeal struck from the complaint all matter relating to the defendant's non-patent rights and dismissed the claim set forth in the matter so stricken.¹

The patents in suit relate to flashing light alarm clocks and clock controlled switches. Litigation between the parties was initiated by the patentee, Parissi. In November 1950 he sued General Electric Company in the Supreme Court of Albany County, New York. His complaint alleged that before applying for the patents later issued to him, he had disclosed his invention to General Electric Company in confidence, that it had thereafter wrongfully appropriated his invention and realized profits therefrom to which he was justly entitled and for which he sought an accounting. After removing this suit to the federal court, General Electric and Telechron brought the present declaratory judgment action against Parissi. He promptly moved to dismiss it and also moved to remand the removed action. Both motions were argued before Judge Brennan, who granted the motion to remand, 97 F.Supp. 333 and denied the motion to dismiss, 97 F.Supp. 355. Thereafter on the first day of the trial of the declaratory judgment action, which came on before Judge Foley, Parissi made the motion to strike on which was entered the order now before us on appeal. Ruling on the motion was deferred until the plaintiffs rested their case. It was then granted in an oral opinion in which Judge Foley concluded that Judge Brennan's prior opinions had decided that the court lacked jurisdiction of the non-patent claim and also that Judge Brennan had exercised his discretion not to take jurisdiction over that part of the complaint "involving the confidential disclosure and unjust enrichment." Judge Foley added that in the exercise of his own discretion, if he had discretion, he would exercise it in favor of the defendant Parissi. Hence the questions presented on appeal are (1) whether the district court has jurisdiction of the non-patent claim, and (2) if it has, whether discretion was abused in refusing to hear it.

Before discussing the merits we must pass upon the appellee's contention, made in reliance upon this court's decision in Flegenheimer v. General Mills, 2 Cir., 191 F.2d 237, that the order is interlocutory and non-appealable, despite inclusion in the order of the express determination specified in Rule 54(b), Fed.Rules Civ. Proc. 28 U.S.C.A. Judge Clark is of opinion that the Flegenheimer case should be overruled.² But, all else aside, a majority of the court thinks the case at bar does not present the necessity of reconsidering the question there decided. Section 1292 (1) of Title 28 allows an appeal from interlocutory orders refusing injunctions. The plaintiffs' complaint prayed that the defendant be enjoined from bringing suit against them "charging that said flashing light alarm clocks, clock controlled switches, or clock controlled radios embody any invention to which rights are owned by defendant or have been made or sold in violation of defendant's rights." Striking the quoted words and dismissing the complaint in so far as it related to the non-patent claim was refusal of an injunction, and consequently appealable even if the order be regarded as interlocutory.³

Turning to the merits of the appeal, the first question for consideration is the jurisdiction of the district court. The complaint is set forth in the margin, the words in italics being the matter which the court ordered stricken.⁴ Although the district court referred to the complaint as alleging a patent claim and a non-patent claim, close examination of the complaint discloses, we think, that in reality three claims are averred as to which the plaintiffs sought declarations of rights and injunctive relief: (1) a claim that the patents are invalid and have not been infringed;⁵ (2) a claim that the alleged inventions were not disclosed to the plaintiffs in confidence;⁶ (3) a claim that the alleged inventions were not disclosed subject to any understanding, express or implied, that compensation would be paid therefor to defendant.⁷ The second and third claims involve common law rights and, since diversity of citizenship is lacking, jurisdiction must depend upon the applicability of 28 U.S.C.A. § 1338(b).⁸ This court has recently considered the problem of dependent jurisdiction in Kleinman v. Betty Dain Creations, 2 Cir., 189 F.2d 546 and Schreyer v. Casco Products Corp., 2 Cir., 190 F.2d 921, certiorari denied 342 U.S. 913, 72 S.Ct. 360. In the former two causes of action were asserted, one for patent infringement, the other for breach of contract to pay for use of the patented article. It was held, Judge Clark dissenting, that a failure to make payments under a licensing agreement does not constitute that tort of unfair competition and therefore the claim for breach of contract was not within the dependent jurisdiction of § 1338(b). In the Schreyer case the complaint charged both infringement of a patent and unfair competition consisting in the use of information which had been confidentially disclosed to the defendants during negotiations concerning the granting of a license to them. We held that the use of confidentially disclosed information to invade the plaintiff's market was unfair competition and that jurisdiction existed under § 1338(b). In the case at bar, the non-patent claim referred to above as claim (2) falls squarely within the Schreyer decision, and the claim referred to as claim (3) within the Betty Dain decision.

In differentiating Betty Dain in the later Schreyer case, the court said, 190 F.2d at page 924: "Unlike the situation in Kleinman v. Betty Dain Creations, Inc., 2 Cir., 189 F.2d 546, 548, this dependent cause of action does not `sound primarily in contract.'" The difference between the two cases as we read them is that the duty in one rested on a contract based on a consensual undertaking, while the duty in the other depended on a contract implied in law because the relations between the parties were such that it would be unjust for the recipient of the information to use it to the detriment of the person who imparted it.⁹ Why this difference in the nature of the obligation should be important in determining whether the violator of the obligation has engaged in "unfair competition" within the meaning of section 1338(b) is not expounded in the Schreyer case, and is not apparent to the court as now constituted. Whether the obligation is a fictional contract implied in law or a consensual contract not to use confidential information to invade the plaintiff's market of a patented device to which the information related, the wrong done is the same, and the claim asserting it would seem as truly a "claim of unfair competition" in the one case as the other. In our opinion the Betty Dain case was in substance overruled by the Schreyer decision, since the attempted distinction between them cannot logically be supported. We follow the later case and hold that the district court had dependent jurisdiction of both non-patent claims.

The district court also rested dismissal of the non-patent claims on the exercise of his discretion, if he had power to exercise discretion. This brings us to the question whether discretion was abused in not retaining jurisdiction of these claims. The appellants concede that in actions for declaratory judgment the court has wide discretion in refusing to exercise jurisdiction where another adequate remedy is available.¹⁰ The reasons which moved the court to exercise discretion in favor of the state court action are stated in his opinion.¹¹ The primary reason appears to be the priority in point of time of Parissi's state court action. As this court recognized in Hammett v. Warner Bros. Pictures, 2 Cir., 176 F.2d 145, 150, the determination of priorities between pending cases on the basis of dates of filing is not to be applied in a mechanical way regardless of other considerations. See also Kerotest Mfg. Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180, 72 S.Ct. 219.¹² The state court cannot deal with Parissi's patent claim; the federal court can dispose of that as well as the non-patent claims. In other words, it can terminate the litigation completely. The case had been on trial for 16 days before the court rendered its decision granting the motion to dismiss the non-patent claims. The evidence is not before us but the appellants' brief states that "Proofs covering every aspect of the...