Tropical Paradise Resorts, LLC v. JBSHBM, LLC

• Decision Date: 09 October 2018
• Docket Number: Case No. 18-cv-60912-BLOOM/Valle
• Court: U.S. District Court — Southern District of Florida
• Parties: TROPICAL PARADISE RESORTS, LLC, d/b/a RODEWAY INN & SUITES, a Florida Limited Liability Company, Plaintiff, v. JBSHBM, LLC, a Florida Limited Liability Company, and POINT CONVERSIONS, LLC, a Delaware Limited Liability Company, Defendants.

TROPICAL PARADISE RESORTS, LLC, d/b/a RODEWAY INN & SUITES,
a Florida Limited Liability Company, Plaintiff,
v.
JBSHBM, LLC, a Florida Limited Liability Company,
and POINT CONVERSIONS, LLC, a Delaware Limited Liability Company, Defendants.

Case No. 18-cv-60912-BLOOM/Valle

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

October 9, 2018

ORDER ON MOTIONS TO DISMISS

THIS CAUSE is before the Court upon Defendant JBSHBM, LLC's ("JBSHBM") Motion to Dismiss Amended Complaint, ECF No. [22], and Plaintiff/Counterclaim Defendant Tropical Paradise Resorts, LLC, d/b/a Rodeway Inn & Suites' ("Rodeway") and Counterclaim Defendant Choice Hotels International, Inc.'s ("Choice Hotels") Motion to Dismiss the Amended Counterclaim, ECF No. [56], (collectively, the "Motions"). The Court has carefully reviewed the Motions, all opposing and supporting materials, the record in this case, the applicable law, and is otherwise fully advised. For the reasons set forth below, the Motions are granted.

I. BACKGROUND

Rodeway commenced this action for declaratory judgment and damages against Defendants JBSHBM and Point Conversions, LLC ("Point Conversions"), (collectively, "Defendants"). See ECF No. [20]. According to the Amended Complaint, JBSHBM is the owner of 31 patents relating to loyalty reward point innovations, including United States Patent

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No. 9,704,174 ("the 174 patent"). Id. at ¶ 18. In July 2017, JBSHBM contacted several Choice Hotels franchisees by letter claiming that they were infringing on JBSHBM's patents. Id. at ¶ 22. The letters JBSHBM sent to the hotels stated: "You are believed to be infringing on loyalty-program specific patents that JBSHBM LLC owns" and "Please understand we are placing you on notice that your hotel is believed to be infringing our patents." Id. at ¶ 23.

JBSHBM contends that on September 1, 2017, it entered into an agreement with Point Conversions, granting Point Conversions the exclusive right to use JBSHBM's patents. Id. at ¶ 20. On February 18, 2018, Point Conversions sent a demand letter to Rodeway (the "February 18th Letter"), attaching a letter JBSHBM had directed to certain Choice hotel franchisees. Id. at ¶¶ 27-28. The February 18th Letter demanded that Rodeway cease the activities that allegedly infringed on Point Conversions' exclusive rights to use JBSHBM's 31 patents. Id. at ¶ 29. Rodeway did not cease or alter its activities upon receipt of the February 18th Letter. Id. at ¶ 34.

JBSHBM filed with this Court a letter from JBSHBM to Rodeway dated June 8, 2018 (the "Covenant") as an attachment to a declaration by Brian Bucheit, a manager of JBSHBM. See ECF No. [22-1]. In the Covenant, JBSHBM "covenant[ed] not to sue Rodeway for infringement of the [174 patent] under the Patent Act now or in the future . . ." Id. JBSHBM also asserted "that it does not presently have any right to sue Rodeway under the [174 patent]" however, "[t]o the extent that this speculated right exists and to the extent that JBSHBM currently possesses this speculated right, this covenant applies." Id.

Rodeway fears that JBSHBM will sue it for infringement of the 174 patent. ECF No. [20] at ¶ 40. Rodeway seeks declaratory judgments against JBSHBM of non-infringement of the 174 patent (Count 1) and that the 174 patent is invalid (Count 2) and unenforceable (Count 3). Rodeway also seeks to recover damages against JBSHBM pursuant to Fla. Stat. §§ 501.991 et

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seq. for bad faith assertions of patent infringement, in violation of the Patent Troll Prevention Act (Count 4), and damages against Point Conversions for conspiracy to violate the Patent Troll Prevention Act (Count 5).

Point Conversions has brought a counterclaim against Rodeway and Choice Hotels. ECF No. [50]. According to Point Conversions' First Amended Counterclaim, Point Conversions has the exclusive rights to the only software legally permitted to convert reward points across program boundaries. Id. at ¶¶ 15-16. Rodeway and Choice Hotels use software to accept, distribute, or exchange points across boundaries, and do not inform their customers that using the software subjects customers to legal liability for potential intellectual property violations. Id. at ¶¶ 49, 51. Point Conversions asserts state law FDUTPA and conspiracy to commit FDUTPA claims based on the diminished value of Rodeway's and Choice Hotels' products resulting from the failure to inform customers of the litigation liability. Id at ¶¶ 173-338. It also seeks declaratory judgment that the February 18th Letter was sent by Point Conversions in good faith and does not trigger an active case or controversy for patent infringement. Id. at ¶¶ 339-354.

II. LEGAL STANDARD

A motion to dismiss pursuant to Rule 12(b)(1) raises the issue of subject matter jurisdiction. Federal courts have limited subject matter jurisdiction, and the party invoking the court's jurisdiction bears the burden of proving it exists. McCormick v. Aderholt, 293 F.3d 1254, 1257 (11th Cir. 2002). Federal courts are empowered to hear only those cases within the judicial power of the United States as defined by Article III of the Constitution. Lance v. Coffman, 549 U.S. 437, 439 (2007). Article III of the Constitution confines the "Judicial Power" of the United States to "Cases" and "Controversies." U.S. Const. art. III, § 2. Federal courts "have always taken this to mean cases and controversies of the sort traditionally amenable to, and resolved by,

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the judicial process." Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 102 (1998). "Standing to sue is a doctrine rooted in the traditional understanding of a case or controversy." Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016). "The law of Article III standing ... serves to prevent the judicial process from being used to usurp the powers of the political branches." Clapper v. Amnesty Int'l USA, 133 S. Ct. 1138, 1146 (2013).

Under the Declaratory Judgment Act, "[i]n a case of actual controversy within its jurisdiction, ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C.A. § 2201. Pursuant to the plain language, a district court's ability to grant relief under the Act is permissive, and while the Act "gives the federal courts competence to make a declaration of rights[,] it does not impose a duty to do so." Ameritas Variable Life Ins. Co. v. Roach, 411 F.3d 1328, 1330 (11th Cir. 2005) (citing Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 494 (1942)). Accordingly, courts retain broad discretion over whether or not to exercise jurisdiction under the Act. Knights Armament Co. v. Optical Sys. Tech., Inc., 568 F. Supp. 2d 1369, 1374 (M.D. Fla. 2008). Further, the Act confers jurisdiction only "[i]n a case of actual controversy." See 28 U.S.C. § 2201. This actual controversy requirement "is jurisdictional and, thus, 'a threshold question in an action for declaratory relief must be whether a justiciable controversy exists.'" Odyssey Marine Exploration, Inc. v. Unidentified, Shipwrecked Vessel or Vessels, 512 Fed. Appx. 890, 895 (11th Cir. 2013) (quoting U.S. Fire Ins. Co. v. Caulkins Indiantown Citrus Co., 931 F.2d 744, 747 (11th Cir. 1991)).

III. DISCUSSION

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a. Rodeway's Amended Complaint

i. Federal Claims for Declaratory Judgment (Counts 1, 2, and 3)

Rodeway seeks declaratory judgment against JBSHBM, that Rodeway is not infringing on the 174 patent, and that the 174 patent is invalid and unenforceable. ECF No. [20] at ¶¶ 42-70. JBSHBM moved to dismiss the declaratory judgment claims based, in part, on the Covenant, arguing that Rodeway lacks standing to assert the claims for declaratory relief because there is no longer a case or controversy between Rodeway and JBSHBM. Rodeway counters that the Court may not consider Brian Bucheit's declaration and the Covenant attached thereto at this stage because they are outside the four corners of the Amended Complaint.

As an initial matter, the Court notes that the legal discussion in the parties' briefs on this issue is couched in terms of Federal Rules of Civil Procedure 12(b)(6). However, under a factual attack to subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1), "the district court may consider extrinsic evidence such as testimony and affidavits." Morrison v. Amway Corporation, 323 F.3d 920, 924 n.5 (11th Cir. 2003). Furthermore, the Eleventh Circuit has explained:

[W]hen a defendant properly challenges subject matter jurisdiction under Rule 12(b)(1) the district court is free to independently weigh facts, and may proceed as it never could under Rule 12(b)(6) or Fed.R.Civ.P. 56. Because at issue in a factual 12(b)(1) motion is the trial court's jurisdiction-its very power to hear the case-there is substantial authority that the trial court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case. In short, no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of the jurisdictional issue.

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Id. at 925 (citing Lawrence v. Dunbar, 919 F.2d 1525, 1529 (11th Cir. 1990)). Accordingly, the Court can consider the Covenant without converting JBSHBM's motion into one for summary judgment.¹

Having concluded that the Court may properly consider the Covenant, the Court finds that the Covenant strips the Court of subject matter jurisdiction over Rodeway's declaratory judgment claims. The Declaratory Judgment Act provides in relevant part:

In a case of actual controversy within its jurisdiction ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.

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