Air Measurement Technologies, Inc. v. Akin Gump Strauss Hauer & Feld, L.L.P.Air Measurement Technologies, Inc. v. Akin Gump Strauss Hauer & Feld, L.L.P.
This is а legal malpractice case between non-diverse parties based on alleged errors by counsel in patent prosecution and patent litigation. The case was filed in state court and then removed to federal court. Akin Gump Strauss Hauer & Feld, L.L.P. and Branscomb, P.C. (collectively “Akin Gump”) appeal the interlocutory decision of the United States District Court for the Western District of Texas denying their motion to remand Air Measurement Technologies, Inc., North-South Corporation, and Louis Herbert Stumberg’s (collectively “AMT’s”) lawsuit, which motion asserted want of subject matter jurisdiction under federal patent law,
I
AMT alleged the following facts in their complaint, which we accept as true for purposes of this appeal. Stumbеrg and his partner James A. Fulton (now deceased and not a party to the action) developed technology for a safety device for firemen and other emergency personnel who require supplemental oxygen. Integrated into self-contained breathing apparatuses (“SCBA”), the safety device calculates the user’s remaining airtime, measures temperature, and computes the amount of time the user can remain safely in a fire environment or other hazardous situation. Notice of Removal (“Complaint”) § IV ¶ 1. The device also contains an alarm that sounds if the wearer is motionless for a particular period of time. Id. Stumberg and Fulton formed Air Measurement Technologies, Inc., and North-South Corporation to develop, license, and market the safety device. In 1989, Stumberg engaged patent attorney Gary Hamilton 1 to secure patent protection for the safety device and related technology.
With Hamilton’s knowledge, Stumberg and Fulton began marketing a рrototype of their invention in 1989. Hamilton filed the first patent application on August 6, 1991, which issued as U.S. Patent No. 5,157,378 (“'378 patent”) on October 20, 1992 and is entitled “Integrated Firefighter Safety Monitoring Alarm System.” Hamilton also prosecuted continuation applications that issued as U.S. Patent Nos. 5,689,234 (“'234 patent”); 5,910,771 (“'771 patent”); 6,201,475; and 6,310,552. During the course of the patent prosecution, Hamilton was associated with Akin Gump and now practices law with Hamilton & Terrile, L.L.P.
AMT filed six infringement suits in the Western District of Texas (“prior litigation”) against SCBA manufacturers. 2 Hamiltоn allegedly belatedly filed the first patent suit in 2000, and Stumberg retained new counsel in 2002 for the pending patent litigation. All six suits settled between 2001 and 2003 for a total of approximately $10 million without a judicial determination of infringement, invalidity, or unen-forceability of AMT’s patents.
During the course of the prior litigation, AMT, with the help of new counsel, discovered various errors Hamilton allegedly made during patent prosecution and patent litigation. The alleged errors are that Hamilton (1) failed to file the initial patent application within the one year ‘on sale bar’ of
B. Current Litigation
AMT filed suit against Hamilton 3 and several law firms in a Texas state court on May 28, 2003, for legal malpractice, negligence, negligent misrepresentation, and breach of fiduciary duties — all state law claims. AMT alleges that Akin Gump’s errors forced them to settle the prior litigation far below the fair market value 4 of the patents 5 because the prior litigation defendants were, inter alia, able to raise as defenses invalidity (e.g., on sale bar) and unenforceability (due to inequitable conduct) that would not have existed without attorney error.
Akin Gump removed the case to the Western District of Texas on June 27, 2003, under
AMT filed a motion to remand on July 18, 2003, which the district сourt denied on September 5, 2003, on the ground that AMT’s suit “ ‘necessarily depends on resolution of a substantial question of federal patent law,’ ” because, in order to prevail, AMT “must establish that their infringement claims were otherwise valid, but that Hamilton’s negligence afforded the patent
On June 23, 2006, i.e., a little over three years after the removal of the case, the parties changed postures. Branscomb, P.C.
6
moved to remand the case, asserting that
[wjhether a Texas state-law legal malpractice claim arising out of underlying patent prosecution and patent litigation necessarily raises a question of federal patent law, actually disputed and substantial, that a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities.
Air Measurement Techs., Inc. v. Hamilton,
No. SA-03-CA-0541, sliр op. at 9 (W.D.Tex. Sept. 29, 2006). On October 13, 2006, Akin Gump petitioned for permission to appeal under
II
This appeal presents an issue of first impression in this court. The issue concerns whether, under the circumstances of this case, the district court properly exercised
In
Christianson,
the United States Supreme Court set forth a two-part test for determining whether federal courts have exclusive jurisdiction over a case pursuant to
In making this determination, we are limited to an analysis of AMT’s well-pleaded complaint.
See Caterpillar, Inc. v. Williams,
AMT argues that their malpractice claim requires resolution of a substantial question of patent law. Based on our review of AMT’s removal complaint, 8 without consideration of allegations that may be made in anticipation or avoidance of Akin Gump’s defenses and without contemplation of Akin Gump’s counterclaims, we agree. A review of the complaint reveals that approximately seven allegations of error in the context of patent prosecution or patent litigation, see supra § I.A., are the bases of AMT’s legal malpractice claim. See Compl. § V ¶ 1 (“Defendant’s acts and omissions as pleaded above, jointly and severally, constitute legal malpractice and professional negligence, and negligent misrepresentations, each of which acts or omissions was the proximate cause of Plaintiffs’ loss of recovery on their claims asserted in the Patent Litigation.”). AMT alleges that these errors forced them to settle prior litigation “for sums demonstrably and significantly less than their fair value.” Id. § IV ¶ 12.
Under Texas state law, the elements of a malpractice claim are (1) an attorney owed plaintiff a duty stemming from the attorney-client relationship, (2) the attorney breached that duty, (3) the breach proximately caused plaintiffs injuries, and (4) damages.
Peeler v. Hughes & Luce,
In order to prevail on a legal malpractice claim which arises from prior litigation, the plaintiff has the burden to show that ‘but for’ the attorney’s negligence, he or she would be entitled to judgment, and show what amount would have been collectible had he or she recovered the judgment. This is commonly referred to as the ‘suit within a suit’ requirement.
Because the plaintiff must establish that the underlying suit would have been won ‘but for’ thе attorney’s breach of duty, this ‘suit within a suit’ requirement is necessarily a component of the plaintiffs burden on cause in fact.
Id.
(internal citations omitted). Because the underlying suit here is a patent infringement action against SCBA defendants, the district court will have to adjudicate, hypothetically, the merits of the infringement claim. Because proof of patent infringement is necessary to show AMT would have prevailed in the prior litigation, patent infringement is a “necessary element” of AMT’s malpracticе claim and therefore apparently presents a substantial question of patent law conferring § 1838 jurisdiction.
See Christianson,
Indeed, we would consider it illogical for the Western District of Texas to have jurisdiction under § 1388 to hear the underlying infringement suit and for us then to determine that the same court does not have jurisdiction under
The [arising under] doctrine captures the commonsense notion that a federal court ought to be able to hear claims recognized under state law that nonetheless turn on substantial questions of federal law, and thus justify resort to the experience, solicitude, and hope of uniformity that a federal forum offers on federal issues.
Id. (citation omitted). There is simply no good reason to deny federal jurisdiction in this case.
Our decision today follows our precedent.
Post-Christianson,
we have held that patent infringement presents a substantial question of federal patent law conferring “arising under” jurisdiction. For example, in
Additive Controls & Measurement Systems, Inc. v. Flowdata, Inc.,
Ill
In addition to proving patent infringement in the “case within a case” context, AMT will have to show that it would have prevailed against the defenses the prior litigants raised. These are not the sort of jurisdiction-defeating defenses contemplated by
Christianson,
There is a dispute regarding which of these defenses, if any, AMT will have to prove had merit (e.g., malpractice-related defenses) or defeat as defenses lacking merit (e.g., non-malpractice-related defenses). For example, Akin Gump asserts that AMT’s position is that it does not have to prove that the malpractice-related defenses were valid defenses but only has to show that these defenses were available or plausible in view of the alleged errors. Therefore, per Akin Gump, the district court does not have to resolve a substantial question of patent law. AMT disagrees.
To the extent that AMT has to prove or overcome invalidity, invalidity may be a substantial question of patent law.
See Hunter Douglas, Inc. v. Harmonic Design, Inc.,
IV
Akin Gump contends that the “impaired settlement value” theory (i.e., the allegation that attorney error compromised the value of AMT’s patents) is a novel theory of malpractice that does not require the resolution of a substantial question of patent law.
10
If there is a theory upon which AMT can prevail on their malpractice claim that does not involve a substantial patent law question, then patent law is not essential to the malpractice claim, and
V
Akin Gump argues that
Grable
and
Empire Healthchoice Assurance, Inc. v. McVeigh,
- U.S.-,
Akin Gump further asserts that
Grable
adds a new dimensiomto the
Christianson
test based on the congressionally-approved balance between federal and state jurisdiction. However, the concern about federalism in
Grable
is not new, nor does Grable change
Grable
involved a state law action to quiet title between a taxpayer-former owner of a property and a purchaser at a tax sale.
Retreating from the view that a state law claim conveys federаl question jurisdiction if it appears from the complaint that the right to relief requires construction or
application
of federal law,
see Smith v. Kan. City Title & Trust Co.,
Applying this test, the Supreme Court held that the construction of the notice statute in the context of the quiet title action belonged in federal court.
Id.
In so holding, the Court observed that the notice requirement was an essential element of the state claim, the meaning of the notice statute was the only legal or factual issue disputed in the case, the Government had a strong interest in the collection of delinquent taxes and “in the availability of a federal forum to vindicate its own administrative action,” buyers and tax delinquents may consider it valuable to have the experience of federal judges used to handling tax matters, and there would only be a “microscopic effect on the federal-state division оf labor.”
Id.
at 315,
Grable did not hold that only state law claims that involve constructions of federal statute or pure questions of law belonged in federal court. Instead, the holding was based on the substantiality and federalism factors, such as the Government as a party, the experience of federal judges in handling tax matters, and the microscopic effect of the case, which tipped the federalism balance in favor of federal question jurisdiction. Here, the patent infringement aspect of the malpractice claim counsels in favor of federal jurisdiction.
For example, patent infringement is disputed, for there is no concession by Akin Gump that the prior SCBA litigants infringed AMT’s patents, and the issue is substantial, for it is a necessary element of the malpractice case. Patent infringement also survives the federalism analysis of
Grable.
There is a strong federal interest in the adjudication of patent infringement claims in federal court because patents are issued by a federal agency. The litigants will alsо benefit from federal judges who have experience in claim construction and infringement matters.
See Grable,
Similarly,
Empire,
which addresses the proper forum for state law reimbursement claims, does not undermine our decision in this case. In
Empire,
after a plan beneficiary’s estate settled a state court tort action, an insurance carriеr filed a claim in federal court under
However, the federal law providing for the health insurance plan did not address reimbursement rights of insurance carriers.
Id.
at 2127-28. Instead, reimbursement rights were cоvered by contracts.
Id.
Rejecting Empire’s arguments and applying
Grable,
the Supreme Court held that because the claim involved no right created by federal statute and the practical issue is the share of the settlement that belonged to Empire, federal question jurisdiction did not exist.
Id.
at 2135-37. “[I]t is hardly apparent why a proper ‘federal-state balance’ would place such a nonstatu-tory issue under the complete governance of federal law, to be declared in a federal forum.”
Id.
at 2137. Therefore, Empire, unlike the present malpractice case, failed the substantiality and federalism aspects of the
Grable
test.
See Grable, 545
U.S. at 313,
VI
For all the foregoing reasons, we hold that at least where, as here, establishing patent infringement is a necessary element of a malpractice claim stemming from alleged mishandling of patent prosecution and earlier patent litigation, the issue is substantial and contested, and federal resolution of the issue was intended by Congress, there is “arising under” jurisdiction under
AFFIRMED.
Notes
. Hamilton is licensed to practice law in the state of Texas and admitted to practice before the United States Patent and Trademark Office.
.The six suits are Air Measurement Technologies, Inc. v. Draeger Safety, Inc., No. SA-00-CA-0427; Air Measurement Technologies, Inc. v. Mine Safety Appliances Co., No. SA-00-CA-1562; Air Measurement Technologies, Inc. v. Interspiro, No. SA-01-CA-0135; Air Measurement Technologies, Inc. v. Scott Techs., Inc., No. SA01-CA-0774; Air Measurement Technologies, Inc. v. Bacou USA, Inc., No. SA-01-CA0507; and Air Measurement Technologies, Inc. v. International Safety Instruments, No. SA-02-CA-0455.
. Hamilton and Hamilton & Terrile, L.L.P. settled their dispute with AMT; therefore, they are not listed as appellants in the instant appeal.
. Sales of SCBA prоducts allegedly covered by the patents have been $100 million per year since 1998. Compl. § IV ¶ 7.
. The malpractice case only involves the '378, '234, and '771 patents.
. Akin Gump Strauss Hauer & Feld, L.L.P. later joined the remand motion.
. Although AMT filed claims for legal malpractice, negligence, negligent misrepresentation, and breach of fiduciary duties, the focus of the district court’s ruling, and thus of this appeal, is on AMT’s legal malpractice claim. Therefore, we do not address whether there is
. AMT has filed numerous amended complaints in district court. However, the complaint in question is the complaint at the time of removal.
See Bd. of Regents,
. The Draeger defendants, however, did not raise malpractice-related defenses.
. Notably, Akin Gump does not argue that any of the approximately seven alleged attorney errors constitutes alternative theories of malpractice liability. Therefore, we focus solely on Akin Gump’s impaired settlement value theory argument.
. Although we consider the issue to be one of damages, we do not address whether such a theory is viable under Texas state law, as that issue is not before us.