Vanguard Research, Inc. v. Peat, Inc.

• Decision Date: 09 September 2002
• Docket Number: No. 01-1373.,01-1373.
• Citation: 304 F.3d 1249
• Parties: VANGUARD RESEARCH, INC., Plaintiff-Appellant, v. PEAT, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1249

304 F.3d 1249

VANGUARD RESEARCH, INC., Plaintiff-Appellant, v. PEAT, INC., Defendant-Appellee.

No. 01-1373.

United States Court of Appeals, Federal Circuit.

DECIDED: September 9, 2002.

W. Michael Holm, Womble Caryle Sandridge & Rice, PLLC, of McLean, VA, argued for plaintiff-appellant. With him on the brief was Steven D. Kerr. Of counsel on the brief were Gary C. Huckaby, Bradley Arant Rose & White LLP, of Huntsville, AL; and Thomas R. Folk, Reed Smith Hazel & Thomas LLP, of Falls Church, VA.

Benjamin H. Albritton, Beasley, Allen, Crow, Methvin, Portis & Miles, P.C., of Montgomery, AL, argued for defendant-appellee. Of counsel was J. Mark Englehart.

Before NEWMAN, CLEVENGER and LINN, Circuit Judges.

LINN, Circuit Judge.

Vanguard Research, Inc. ("Vanguard") appeals a final judgment from the United States District Court for the Northern District of Alabama dismissing with prejudice Vanguard's declaratory judgment action alleging noninfringement, invalidity, and unenforceability of United States Patent No. 5,534,659 ("the `659 patent") owned by the defendant, PEAT, Inc., for lack of jurisdiction, ordering that Vanguard pay costs, and awarding PEAT its attorneys' fees. Because the district court erred in concluding that no case or controversy existed between the parties, the judgment dismissing the case for lack of jurisdiction under the Declaratory Judgment Act, 28 U.S.C. § 2201, is reversed, and the order of costs and the award of attorneys' fees are vacated.

BACKGROUND

PEAT, through its predecessor companies, developed technology relating to a high temperature thermal destruction and recovery waste processing system ("TDR technology"). Vanguard markets products and services in the areas of defense, geophysical science, environmental systems, and information technology. The parties had a marketing relationship, the deterioration of which led to subsequent litigation in numerous courts throughout the country.

A. The Parties' Marketing Relationship

In 1992, Vanguard and PEAT's predecessors, Plasma Energy Applied Technology, Inc. ("Plasma Energy") and its parent corporation, Mason & Hanger National, Inc., entered into a series of contracts enabling Vanguard to license and market Plasma Energy's TDR technology. Plasma Energy filed a U.S. patent application on its TDR technology in 1994, and two years later, PEAT was incorporated and acquired most of the assets of Plasma Energy. The `659 patent, entitled an "Apparatus and Method for Treating Hazardous Waste," issued on July 9, 1996, and was assigned to PEAT.

On December 10, 1997, Vanguard and PEAT entered into a two-year Marketing and Licensing Agreement ("Agreement") that continued their relationship. Vanguard subsequently marketed the TDR technology as PEPS, which stood for Plasma Energy Pyrolysis System. The Agreement provided that "[a] license to use or operate, with appropriate royalties, will be negotiated and included in each contract for the delivery of a PEPS to [Vanguard] by PEAT."

In late 1997, Vanguard entered into a contract with the Tennessee Valley Authority ("TVA") for which Vanguard subcontracted PEAT to construct a waste disposal unit incorporating the TDR technology. The parties refer to the TVA project as a "Phase I System" and the system developed for the TVA project as a "Fixed System." A version of the Fixed System that can be taken apart and moved sometimes is called a "transportable fixed system," to distinguish it from a "Mobile System," or "Phase II System," which is built and then transported by flatbed to a customer's property. In June 1998, Vanguard was named a sub-contractor to build a "Mobile System" for the U.S. Army and Navy. PEAT and Vanguard did not enter into a sub-contract for this work. The Agreement expired under its own terms on December 10, 1999.

On February 15, 2000, PEAT wrote Vanguard asserting that "Vanguard no longer ha[d] the right to market PEAT's TDR technology under any name, or to use PEAT['s] Intellectual Property for the development of future contracts relating to TDR or PEPS technology." According to Vanguard, PEAT's counsel had contacted the Department of the Army and implied that the Phase II System uses PEAT's technology without a license. Vanguard asserts that on August 31, 2000, representatives of the Department of Defense and the Senate Armed Services Committee questioned Vanguard about the Mobile System's use of PEAT's technology. Vanguard contends that at the same time it learned of an alleged effort by PEAT to block Congressional funding of the Phase II contract.

B. Procedural History

On June 23, 1999, approximately six months before the Agreement expired, PEAT filed suit in the United States District Court for the Northern District of Alabama, alleging among other things, breach of contract, misappropriation of trade secrets, and unfair competition. PEAT, Inc. v. Vanguard Research, Inc., Civil Action No. 99-S-1631-NE (N.D.Ala. June 23, 1999) ("PEAT's first Alabama action"). PEAT did not assert any patent claims. On July 16, 1999, Vanguard moved to dismiss PEAT's first Alabama action for lack of personal jurisdiction, or in the alternative, to transfer the suit to United States District Court for the Eastern District of Virginia. On August 17, 1999, Vanguard filed a demand for arbitration with the American Arbitration Association pursuant to an arbitration clause in the TVA sub-contract, seeking a declaration that it was licensed to use PEAT's technology and alleging breach of contract and fraud in relation to the Phase I subcontract ("Vanguard's arbitration demand"). PEAT refused arbitration. On September 9, 1999, the Alabama court transferred PEAT's first Alabama action to the Eastern District of Virginia without opposition from PEAT. Following an unsuccessful motion to reconsider the decision to transfer, PEAT voluntarily dismissed the suit on September 16, 1999.

On September 21, 1999, Vanguard filed a declaratory judgment action in the Eastern District of Virginia, seeking a declaration that the claims asserted in its arbitration demand were subject to arbitration. Vanguard Research, Inc. v. PEAT, Inc., Civil Action No. 99-1412-A (E.D.Va. Sept. 21, 1999) ("Vanguard's first Virginia action"). Two days later, PEAT re-filed suit in the Northern District of Alabama asserting nine claims, many of which were similar to those in PEAT's first Alabama action, including breach of contract relating to both the Phase I and Phase II contracts, unfair competition, trade secret misappropriation, breach of a non-disclosure agreement, breach of fiduciary duty, and breach of the duty of good faith and fair dealing. PEAT, Inc. v. Vanguard Research, Inc., Civil Action No. 99-S-2553-NE (N.D.Ala. Sept. 23, 1999) ("PEAT's second Alabama action"). There were no patent claims included in PEAT's second suit. Vanguard moved to dismiss, transfer, or stay PEAT's second Alabama action on October 20, 1999. Sometime during the same time period, PEAT filed a motion to transfer Vanguard's first Virginia action to the Northern District of Alabama, and the Virginia court denied it on December 15, 1999.

On February 7, 2000, the District Court for the Eastern District of Virginia transferred Vanguard's first Virginia action to the United States District Court for the District of Columbia. See Vanguard Research, Inc. v. PEAT, Inc., Civil Action No. 00-0402(TPJ) (D.D.C.). The Virginia court held that the District of Columbia was the proper venue because of a forum selection clause in the Phase I sub-contract.

On March 7, 2000, Judge Lynwood Smith, presiding over PEAT's second Alabama action, entered an "Order Dismissing Fewer Than All Claims," together with a memorandum opinion. Judge Smith concluded that the Phase II claims were not subject to arbitration and retained jurisdiction of those claims. Judge Smith further ordered PEAT to amend its complaint to omit claims related to the Phase I claims based on the first-to-file rule and the pending litigation in the District of Columbia.

On March 13, 2000, Vanguard filed an action in the District Court for the Eastern District of Virginia for declaratory judgment pursuant to 28 U.S.C. §§ 2201 and 2202, seeking a declaration that the '659 patent is invalid and unenforceable and that the Phase II System did not infringe on the '659 patent. Vanguard Research, Inc. v. PEAT, Inc., Civil Action No. 2:00-CV-176 (E.D.Va. Mar. 13, 1999) ("Vanguard's second Virginia action"). Vanguard alleged that it had a "reasonable apprehension" that PEAT would sue Vanguard for patent infringement. PEAT moved to dismiss Vanguard's second Virginia action on the grounds that Vanguard did not have a reasonable apprehension of suit, and that Vanguard's claims were compulsory counterclaims in PEAT's second Alabama action.

On May 16, 2000, District Judge Henry Coke Morgan, Jr., of the Eastern District of Virginia held a hearing regarding PEAT's motion to dismiss. At the conclusion of the hearing, Judge Morgan ruled from the bench that Vanguard's second Virginia action should be dismissed, but at Vanguard's counsel's request, withheld entry of dismissal for ten days and ordered that "plaintiff is granted leave to file a motion to transfer [to Alabama] within ten days of today, and if they file it, I'll grant it." Instead of filing a motion to transfer Vanguard's second Virginia action to Alabama, however, Vanguard moved to transfer it to the District of Columbia on May 26, 2000. On June 15, 2000, Judge Morgan dismissed the suit based on considerations of "judicial economy and fairness," consistent with the court's discretion under the Declaratory Judgment Act, in favor of the Alabama forum. Judge Morgan reached this conclusion after holding that, under Fourth Circuit law, the patent claims were not compulsory counterclaims to PEAT's second Alabama action. See, e.g., Painter v. Harvey, 863 F.2d 329, 331 (4th Cir.1988) (citing Sue & Sam Mfg. Co. v. B-L-S Const. Co., 538 F.2d 1048, 1051-53 (...