NANCY NOWAK, Magistrate Judge
TO: Hon. Fred Biery United States District Judge
I. Introduction
The matter before the court is the motion to dismiss brought by defendants Avery Dennison Corporation ("Avery") and Renner, Otto, Boiselle Sklar, LLP ("Renner") (Docket entry 38). By way of the instant motion, defendants seek dismissal of the claims against them contained in plaintiff's Second Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Defendants assert that plaintiff failed to state a claim upon which relief might be granted because plaintiff has failed to plead the requisite elements of his fraud, negligence and breach of fiduciary duty claims. Having considered defendants' motion, plaintiff's response, and defendants' reply, I recommend that defendants' motion to dismiss be DENIED for the reasons set forth below.
Docket Entries 38 and 39 (notice of errata).
Docket Entry 40.
Docket Entry 41.
I have jurisdiction to enter this Memorandum and Recommendation under 28 U.S.C. § 636(b) and the District Court's Order referring all pretrial matters in this proceeding to me for disposition by order, or to aid in their disposition by recommendation where my authority as a Magistrate Judge is statutorily constrained.
Docket Entry 14.
II. Procedural History
Plaintiff filed his original federal court complaint on September 24, 2004. On December 6, 2004, defendants filed two motions to dismiss. One motion asserted that the complaint should be dismissed for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2), and the other asserted that the complaint should be dismissed for plaintiff's failure to state a claim upon which relief might be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). Defendants subsequently withdrew their motion to dismiss based on lack of personal jurisdiction.
Docket Entry 1.
Docket Entry 11.
Docket Entry 12.
Docket Entries 23.
Less than two weeks after defendants filed their motions to dismiss, plaintiff filed his First Amended Complaint (FAC). The FAC sought relief for breach of fiduciary duty, fraud, and negligence. On March 21, 2005, I issued a Memorandum and Recommendation to Honorable Judge Fred Biery recommending that defendants' motion to dismiss be denied as moot in light of the filing of plaintiff's FAC. Judge Biery accepted the recommendation on April 25, 2005.
Docket Entry 15.
Docket Entry 15.
Docket Entry 27.
Docket Entry 29.
On January 18, 2005, defendants filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) in which they asserted that plaintiff's FAC failed to state a claim upon which relief might be granted. In their motion, defendants argued that plaintiff could not establish causation or actual damages under any of his theories of recovery; plaintiff failed to plead his fraud claim with the specificity required by Federal Rule of Civil Procedure 9(b); and plaintiff failed to adequately plead that defendants owed him a duty.
Docket Entry 22.
Docket Entry 22.
On July 22, 2005, I issued a Memorandum and Recommendation to Honorable Judge Fred Biery recommending that defendants' motion to dismiss be denied in part and granted in part. In particular, I determined that plaintiff had sufficiently pled causation on the part of both defendants, sufficiently pled attorney-client relationship between plaintiff and defendant Renner, and sufficiently pled principal-agent relationship between plaintiff and defendant Avery to overcome a motion to dismiss early in the litigation.
Docket Entry 32.
Docket Entry 32 at 9 and 14.
However, plaintiff failed to sufficiently plead actual harm as a result of defendants' actions and failed to plead his fraud claim with the requisite specificity. I recommended that plaintiff be granted an opportunity to amend his complaint to cure the deficiencies. Judge Biery accepted the recommendation on August 25, 2005.
Docket Entry 32 at 10 and 12.
Docket Entry 36.
On September 2, 2005, plaintiff filed his Second Amended Complaint (SAC). Defendants responded by filing a motion to dismiss the SAC on September 22, 2005. The motion to dismiss is the subject of this Memorandum and Report.
Docket Entry 37.
Docket Entry 38.
III. Statement of the Case
Plaintiff Joe Pat Beasley alleges that he is the inventor of Personalized Postage Stamps. Plaintiff filed a patent application with the United States Patent and Trademark Office ("PTO") on June 7, 1999. Along with the application, plaintiff filed a power of attorney document designating the Litman Law Offices, Ltd. ("Litman") as his authorized patent attorney to act on his behalf before the PTO. Litman proceeded to prosecute the patent and filed an Amendment and Response dated December 8, 2000, with the PTO. Thereafter, the patent examiner issued a Notice of Allowability.
Docket Entry 37, ¶ 6, at 2.
Docket Entry 37, ¶ 6, at 2.
Docket Entry 37, ¶ 7, at 2.
While the first patent application was pending, plaintiff engaged in licensing and manufacturing subcontract negotiations with defendant Avery. According to plaintiff, defendant Avery "agreed to pay all future patent prosecution expenses in the First Patent Application and any subsequent patent applications or proceedings before the [PTO] regarding the invention described in the First Patent Application." In return, plaintiff would designate the attorneys and agents of defendant Renner to act on plaintiff's behalf to obtain patents of the invention.
Docket Entry 37, ¶ 8, at 2.
Docket Entry 37, ¶ 9, at 3.
Docket Entry 37, ¶ 9, at 3.
Plaintiff alleges, that on May 14, 2001, he performed his obligation under the purported agreement by signing a document entitled Revocation and Power of Attorney in which plaintiff revoked all previous powers of attorney and designated several of Renner's attorneys to act on plaintiff's behalf before the PTO. Renner filed the document with the PTO on June 7, 2001.
Docket Entry 37, ¶ 10, at 3.
Concurrently with filing the Revocation and Power of Attorney, defendant Renner filed a Continued Prosecution Application ("CPA") and an Information Disclosure Statement ("IDS"). According to plaintiff, the CPA continued to use the same serial number as the initial application, but the initial application was expressly abandoned. The IDS listed several documents concerning prior art patents not disclosed by the documents submitted with the first patent application.
Docket Entry 37, ¶¶ 12-13, at 3.
Docket Entry 37, ¶ 14, at 3.
Plaintiff contends that had Renner not filed the CPA, the PTO would have issued a Notice of Allowance and Issue Fee Due for the patent application. Upon receiving the payment of the issue fee, the PTO would have issued a patent to Beasley.
Docket Entry 37, ¶ 12, at 3.
Plaintiff further contends that Renner should not have filed the IDS. According to plaintiff, the information included in the IDS was merely cumulative of the art already provided with the first patent application.
Docket Entry 37, ¶ 16, at 4.
The patent examiner issued a Notice of Allowability in the CPA, followed by the PTO issuing a Notice of Allowance and Issue Fee Due dated June 17, 2001. The PTO did not offer any amendments to the allowed claims in order to make them acceptable or to overcome possible rejection. The allowed claims were the same as those claimed in the application. Plaintiff admits that the "issue fee was subsequently paid in the CPA."
Docket Entry 37, ¶ 15, at 4.
Docket Entry 37, ¶ 17, at 4.
On April 2, 2002, the PTO sent a notification that the CPA was withdrawn from issue, and the prosecution of the patent continued as a result of the discovery of prior art, specifically, the patents of Brasington et al., US Patent 5,923,406 and Paz-Pujalt et al., U.S. Patent 6,136,752. After corresponding with the PTO, defendant Renner allegedly abandoned the CPA. Plaintiff further alleges that the second patent application was eventually abandoned as well. Plaintiff asserts that he had patentable claims which could have survived had defendant Renner either not filed the CPA and second patent application or continued a "diligent persuasive prosecution" in lieu of abandoning the patent applications.
Docket Entry 37, ¶ 17, at 4.
Docket Entry 37, ¶ 18, at 4.
Docket Entry 37, ¶ 19, at 4.
Docket Entry 37, ¶¶ 21-24.
IV. Issues Presented
A. Did plaintiff sufficiently plead facts showing that he suffered actual harm or damage due to the alleged wrongful actions of the defendants?
B. Did plaintiff plead his fraud action with sufficient specificity, including time and place of the alleged fraudulent conduct, to meet the requirements of Federal Rule of Civil Procedure 9?
V. Analysis
The Federal Rules of Civil Procedure provide that a motion to dismiss for failure to state a claim may be brought by motion prior to filing an answer. Rule 12(b)(6) provides that a plaintiff's claim may be dismissed for failure to state a claim upon which relief may be granted when, viewing the allegations in the plaintiff's complaint in the light most favorable to him and drawing all reasonable inferences in his favor, it appears certain that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Rule 12(b)(6) allows a court to eliminate actions that are fatally flawed in their legal premises and destined to fail, thus sparing the litigants the burdens of unnecessary pretrial and trial activity. Conclusory allegations or legal conclusions masquerading as factual allegations will not suffice to prevent a motion to dismiss under Rule 12(b)(6). In ruling on a motion to dismiss, a court should consider only those facts stated on the face of the complaint or incorporated into the complaint by reference, and matters of which judicial notice may be taken. If a complaint omits facts concerning pivotal elements of a plaintiff's claim, a court is justified in assuming the non-existence of those facts.
Fed.R.Civ.P. 12(b).
Kaiser v. Aluminum Chem. Sales, Inc. v. Avondale Shipyard, Inc., 677 F.2d 1045, 1050 (5th Cir. 1982); Adolph v. Federal Emergency Management Agency, 854 F.2d 732, 735 (5th Cir. 1988).
Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999).
Fernandez-Montes v. Allied Pilots Assoc., 987 F.2d 278 (5th Cir. 1993).
Lovelace v. Software Spectrum, Inc., 78 F.3d 1015, 1017 (5th Cir. 1996) and McNamara v. Bre-X Minerals Ltd., 57 F. Supp.2d 396, 417 n. 12 (E.D. Tex. 1999).
Ledesma v. Dillard Dept. Stores, Inc., 818 F. Supp. 983 (N.D. Tex. 1993).
A. Actual Damages
Defendants request that the SAC be dismissed because plaintiff has failed to cure the deficiencies of the FAC. Defendants contend that plaintiff has once again failed to plead actual damages. Relying on Igen, Inc. v. White, defendants assert that plaintiff must properly plead actual infringement, not potential infringement in order to state claims in all the alleged actions. He must identify a product or method of making, using, or selling of a product that would infringe on the patent that defendants allegedly failed to obtain for him. Igen is indeed similar to the case before the court in that it involved a claim of malpractice against a patent attorney and law firm for failure to obtain a patent. However, Igen addressed the damages issue in the context of an appeal from the denial of summary judgment. Most importantly, the New York court noted that the plaintiff conceded that the invention lacked commercial value, and the plaintiff did not "contend that any actual harm had been sustained as of the date its action was commenced." Further, the New York court could not discern from the record any actual damage to plaintiff. Rather, the plaintiff argued that value of his invention, and therefore his damages, should be the value of the invention at some time in the future if the invention became commercially viable. The New York court dismissed this argument as being speculative and contrary to established law. Igen should not be read so broadly as to require a party to plead specific acts of infringement in his or her complaint to overcome a motion to dismiss. To the contrary, the United States Code provides:
672 N.Y.S.2d 867 (N.Y.App.Div. 1998),
Docket Entry 38 at 10-11.
Igen, 672 N.Y.S.2d at 868-69.
Id.
Id.
Id.
Subject to the provisions of this title, patents shall have the attributes of personal property. Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing. The applicant, patentee, or his assigns or legal representatives may in like manner grant and convey an exclusive right under his application for patent, or patents, to the whole or any specified part of the United States.
As personal property, patents and patent applications may be bought, sold, assigned, or offered as security. The patent holder can grant licenses to others to utilize the invention and collect royalties. These characteristics show that a patent can have fair market value outside the confines of a patent infringement action. Numerous cases address the issues and methods of determining the fair market value of a patent.
Carbice Corp. of America v. American Patents Development Corp., 283 U.S. 27, 30-31 (1931)
See e.g. ITT Corp. v. United States, 17 Cl.Ct. 199 (1989) (licensing and royalties); R.M Smith, Inc. v. Commissioner of Internal Revenue, 591 F.2d 248 (3d Cir. 1978 (tax); Slater v. Commissioner of Internal Revenue, 356 F.2d 668 (10th Cir. 1966) (tax); Stroupe v. United States, 101 B.R. 760 (M.D. Fla. 1988) (bankruptcy)
Plaintiff alleges that a market exists for his Personal Postage Stamp invention and millions of personalized postage stamps have been manufactured, produced, and sold. More importantly, plaintiff alleged that he was engaged in licensing and manufacturing negotiations with defendant Avery, who agreed to pay all future prosecution expenses in the first patent application and subsequent patent application expenses regarding the invention. Taken as true for the purposes of the motion to dismiss, at a minimum these allegations show that defendant Avery placed commercial value on plaintiff's invention through its willingness to advance funds to obtain a patent and ultimately a license to produce the invention.
At this early point in the litigation, it is difficult to ascertain whether plaintiff will be able to provide competent, non-speculative evidence of the value of the potential patent, assuming that he can overcome the other formidable obstacles on his path to recovery on his claims. However, that is not the appropriate inquiry for the instant motion. Plaintiff's SAC has sufficiently alleged damage from the purported loss of the patent.
B. Particular Allegations of Fraud
Federal Rule of Civil Procedure 9(b) requires that "[i]n all averments of fraud . . . the circumstances constituting fraud . . . shall be stated with particularity." The Fifth Circuit has made it clear that a fraud cause of action must be pled with specific factual allegations in order for that claim to be in compliance with Rule 9(b).
Pleading fraud with particularity in this circuit requires `time, place and contents of the false representations, as well as the identity of the person making the misrepresentation and what [that person] obtained thereby.'
Silence can constitute a false representation under Texas law. The Texas Supreme Court has held, "When the particular circumstances impose on a person a duty to speak and he deliberately remains silent, his silence is equivalent to a false representation." However, the fact that the alleged misrepresentation took the form of a fraudulent omission does not excuse a plaintiff from the specificity requirements of Rule 9(b).
Spoljaric v. Percival Tours, Inc., 708 S.W.2s 432, 435 (Tex. 1986).
Defendants argue that plaintiff has failed to plead his claim of fraud with the requisite specificity. The motion to dismiss states that the "heart of Beasley's amended fraud claim is that representatives of Avery and Renner Otto (Mr. Green and Mr. Duchez, respectively) made representations that Beasley was Renner Otto's client." Defendants contend that the SAC omits the critical information of the time and location of the communications that constitute the misrepresentation.
Docket Entry 38 at 7.
However, plaintiff alleges that in a series of communications including meetings and telephone conferences, Al Green, vice president of Avery, convinced plaintiff that Avery was the best in the industry at obtaining patents, and Avery used the best patent attorneys, those at Renner. Mr. Green convinced plaintiff to abandon Litman as his patent attorney and "go with" Renner. Plaintiff alleges that Mr. DuChez, a patent attorney with Renner, provided a Revocation and Power of Attorney document which revoked all previous powers of attorney and appointed Renner to prosecute his patent application. Renner filed the Revocation and Power of Attorney document with the PTO on June 7, 2001. Plaintiff claims that Mr. DuChez corresponded with him on July 17, 2001, August 2, 2001, August 30, 2001, and November 1, 2002, communicating that Renner represented plaintiff.
Docket Entry 37, ¶ 33 at 7.
Docket Entry 37, ¶ 33 at 7.
Docket Entry 37, ¶ 10 at 3.
Docket Entry 37, ¶ 35 at 8.
Under Texas law, "a power of attorney creates an agency relationship, which is a fiduciary relationship as a matter of law." The same rule is true in Ohio where Renner has its principal place of business.
Vogt v. Warnock, 107 S.W.3d 778, 782 (Tex.App. El Paso 2003).
In re Scott, 675 N.E.2d 1350, 1352 (Ohio App. 6 Dist. 1996).
Plaintiff points to Renner's disavowal of a fiduciary relationship as showing that the communications between plaintiff and Renner and Avery were misrepresentations. In particular, the Revocation and Power of Attorney document presented to plaintiff and signed on May 14, 2001, along with Renner's filing of the document with the PTO on June 7, 2001, adequately satisfy the date and location requirements of Rule 9(b).
Docket Entry 37, ¶ 37 at 8.
The power of attorney document and the negotiations leading up to its execution can constitute misrepresentations, for which plaintiff has adequately identified time and place. Therefore, plaintiff has supplied the requisite time and location to satisfy Rule 9(b).
VI. Recommendation
For the reasons stated above, I recommend that the District Court DENY defendants' motion to dismiss plaintiff's Seconded Amended Complaint. Further, due to the procedural posture of the case, I recommend that the District Court order defendants to answer the complaint within a specified period of time.
VII. Instructions for Service and Notice of Right to Object/Appeal
The United States District Clerk shall serve a copy of this Memorandum and Recommendation on each and every party either (1) by certified mail, return receipt requested, or (2) by facsimile if authorization to do so is on file with the Clerk. According to Title 28 U.S.C. § 636(b)(1) and Federal Rule of Civil Procedure 72(b), any party who desires to object to this report must serve and file written objections to the Memorandum and Recommendation within 10 days after being served with a copy unless this time period is modified by the District Court.
A party filing objections must specifically identify those findings, conclusions or recommendations to which objections are being made and the basis for such objections; the District Court need not consider frivolous, conclusive or general objections. Such party shall file the objections with the Clerk of the Court, and serve the objections on all other parties and the Magistrate Judge. A party's failure to file written objections to the proposed findings, conclusions and recommendations contained in this report shall bar the party from a de novo determination by the District Court. Additionally, any failure to file written objections to the proposed findings, conclusions and recommendations contained in this Memorandum and Recommendation within 10 days after being served with a copy shall bar the aggrieved party, except upon grounds of plain error, from attacking on appeal the unobjected-to proposed factual findings and legal conclusions accepted by the district court.
Thomas v. Arn, 474 U.S. 140, 149-152 (1985); Acuña v. Brown Root, Inc., 200 F.3d 335, 339 (5th Cir. 2000).
Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996).