Verdegaal Bros., Inc. v. Union Oil Co. of California
| Decision Date | 18 December 1984 |
| Docket Number | No. 84-1131,84-1131 |
| Citation | 750 F.2d 947 |
| Parties | VERDEGAAL BROTHERS, INC., a California Corp., Appellant, v. UNION OIL COMPANY OF CALIFORNIA, a Delaware Corp., Appellee. |
| Court | U.S. Court of Appeals — Federal Circuit |
John P. Sutton, Limbach, Limbach & Sutton, San Francisco, Cal., argued for appellant.
Andrew J. Belansky, Christie, Parker & Hale, Pasadena, Cal., argued for appellee. With him on the brief was David A. Dillard, Pasadena, Cal.
Before MARKEY, Chief Judge, and FRIEDMAN and KASHIWA, Circuit Judges.
Appeal from an order of the United States District Court for the Eastern District of California dismissing pendent state law counts of a multi-count complaint under Rule 54(b) Fed.R.Civ.P. We affirm.
United States patent 4,310,343 (the '343 patent) on a "Process for Making Liquid Fertilizer" was issued to Verdegaal Brothers, Inc. (Verdegaal) on January 12, 1982. For a period of about two years before issuance of the '343 patent, Verdegaal says it practiced the invention in making liquid fertilizer. During that period, Verdegaal allegedly bought urea from Union Chemicals, a division of Union Oil Company of California (Union Oil), and sold its finished liquid fertilizer to Brea Agricultural Services, Inc. (Brea), a wholly owned subsidiary of Union Oil.
Verdegaal says there were numerous contacts between employees of Union Chemicals, Union Oil, Brea, and Verdegaal before the '343 patent issued: Union Chemical's employees entered Verdegaal's manufacturing facilities; Union Oil's in-house counsel participated in a suit in which Verdegaal's invention was charged as an infringement of a third party's patent; Brea and Verdegaal developed the market for fertilizer made by the process claimed in the '343 patent.
Verdegaal says further that, following the issuance of the '343 patent, Union Oil
On February 23, 1983, Verdegaal sued Union Oil. Its complaint included Count I, for infringement of the '343 patent, Count II, for misappropriation of trade secrets, and Count III, for unfair competition. Jurisdiction of the state law Counts II and III was allegedly grounded on 28 U.S.C. Sec. 1338(b).
Union Oil moved to dismiss Counts II and III for failure to state a cause of action, Rule 12(b)(6), Fed.R.Civ.P., or, in the alternative, for a more definite statement, Rule 12(e), Fed.R.Civ.P.
At a May 2, 1983 hearing on the motions, the district court sua sponte questioned its subject matter jurisdiction of Counts II and III. The district court also questioned whether the unfair competition claim was duplicative of the misappropriation claim.
In ordering briefs on its questions, the district court stated:
The hearing on defendant's motion to dismiss did not clear up the court's concerns regarding subject matter jurisdiction over Counts II and III of the complaint. Title 28 U.S.C. Sec. 1338(b) allows district courts to exercise jurisdiction over a claim of unfair competition when joined with a related claim under patent laws. For a claim to be related, at least part of the proof in support of the pendent claim must be common to the federal claims. Mattel, Inc. v. Hyatt, 664 F.2d 757, 760-61 (9th Cir.1981).
The court has difficulty in seeing an overlap between the patent infringement claim and the misappropriation of trade secrets claim since plaintiff alleges that the acts that constituted misappropriation of trade secrets took place during the two years prior to plaintiff acquiring a patent. Pate Co. v. RPS Corp., 685 F.2d 1019, 1026 (7th Cir.1982).
The district court dismissed Count II for lack of subject matter jurisdiction under section 1338(b). It is conceded that any trade secrets Verdegaal may have had before its patent issued were disclosed in the '343 patent. The district court also granted Union Oil's motion to dismiss Count III to the extent it incorporated Count II, and ordered Verdegaal to amend Count III.
At a July 5, 1983 hearing on Verdegaal's motion for reconsideration, its counsel candidly stated:
Verdegaal argued that a state trial of the state law claims would involve the same depositions, witnesses, and trial preparations involved in the federal trial on patent infringement. On October 31, 1983, the district court denied Verdegaal's motion to reconsider.
Verdegaal filed a Second Amended Complaint and Demand for Jury Trial. That complaint included Count I for patent infringement and Count II for unfair competition. Union Oil moved to dismiss Count II, arguing that the factual overlap between Counts I and II was at best marginal, and that the two counts presented distinct factors, each disfavoring a single trial: (1) needless decisions of state law by a federal court; and (2) a substantial likelihood of jury confusion.
On February 2, 1984 the district court dismissed Amended Count II, saying "[i]n the exercise of its discretion, the court declines to hear [Verdegaal's] pendent claim for unfair competition for the reasons set forth in [Union Oil's] memorandum in support of its motion [to dismiss]."
Verdegaal's appeal to this court, No. 84-696, was dismissed on January 27, 1984, for lack of jurisdiction over an appeal from a non-final decision (Davis, J.). Verdegaal moved the district court for an order of final judgment under Rule 54(b), Fed.R.Civ.P. That order having issued April 5, 1984, Verdegaal undertook this appeal.
The sole issue present here is whether the district court abused its discretion in dismissing Count II of Verdegaal's second amended complaint. *
Verdegaal argues that the district court abused its discretion because: (1) pendent jurisdiction is routinely found over unfair competition claims in patent cases; (2) the pleadings disclose a common background of basic facts, and that substantially the same evidence would apply to both federal and non-federal claims, and; (3) at least part of the proof in support of the state law claims is common to the federal claim. Verdegaal further argues (1) that de novo review is appropriate; (2) that reversal is commonplace for failure to exercise pendent jurisdiction, and; (3) that considerations of judicial economy and fairness to litigants require reversal.
Union Oil argues that the district court acted within its discretion because (1) jurisdiction need not be exercised in every case in which it is found to exist; (2) the district court properly considered factors disfavoring the exercise of jurisdiction, such as needless construction of state law and potential jury confusion, and; (3) absence of any substantial overlap of proof between the federal and non-federal claims. Union Oil further argues that discretion is abused only where no reasonable man could take the view adopted by the trial court.
This court will in this case apply the discernible guidance established in Ninth Circuit precedents. See Atari, Inc. v. JS & A Group, Inc. 747 F.2d 1422, 1438-1440 (Fed.Cir.1984). See also Al Bolser's Tire Stores, Inc. v. Bandag, Inc., 750 F.2d 903 No. 84-1123 (Fed.Cir. Nov. 8, 1984); W.L. Gore & Assoc., Inc. v. Int'l Med. Prosthetics Research Assoc., Inc., 745 F.2d 1463 (Fed.Cir.1984); Panduit Corp. v. All States Plastics Mfg. Co., 744 F.2d 1564 (Fed.Cir.1984).
Under 28 U.S.C. Sec. 1338(b), as with suits based on diversity, jurisdiction of pendent claims in the district court does not compel exercise of that jurisdiction. "[P]endent jurisdiction is a doctrine of discretion, not of plaintiff's right." United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966). Thus, Verdegaal's appeal presents only the question of whether the district court abused its discretion in declining to hear and determine the state law claim and the patent claim together in this case. See Sunbeam Lighting Co. v. Pacific Associated Lighting, Inc., 328 F.2d 300, 302-03 (9th Cir.1964); Wham-O Mfg. Co. v. Paradise Mfg. Co., 327 F.2d 748, 753-54 (9th Cir.1964).
Verdegaal correctly asserts that joinder of federal patent claims and state unfair competition claims is "commonplace." The question before us in this case, however, is not whether the district court had jurisdiction it could have exercised over the present state law unfair competition claim; it is whether the court abused its discretion in declining to exercise that jurisdiction.
The Supreme Court in Gibbs sets forth a cautious approach to the exercise of pendent jurisdiction: "[i]ts justification lies in considerations of judicial economy, convenience and fairness to litigants; if these are not present a federal court should hesitate to exercise jurisdiction over the claims." 383 U.S. at 726, 86 S.Ct. at 1139. In addition, "there may be reasons independent of jurisdictional considerations, such as likelihood of jury confusion in treating...
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