Point Conversion, LLC v. Tropical Paradise Resorts, LLC
Point Conversion, LLC v. Tropical Paradise Resorts, LLC
Opinion of the Court
THIS CAUSE came before the Court on Plaintiff, Point Conversion, LLC's Motion to Remand [ECF No. 7], filed April 20, 2018. Defendant, Tropical Paradise Resorts, LLC, filed an Opposition [ECF No. 17], to which Plaintiff filed a Reply [ECF No. 19]. The Court has carefully considered the Complaint (see [ECF No. 1-1] 3-11
*1353I. BACKGROUND
Plaintiff develops and sells software and mobile applications relating to the conversion of rewards points between separate business entities. (See Compl. ¶ 2). In September 2017, Plaintiff received exclusive rights to use in its software 31 patents owned by a company known as JBSHBM, LLC, and issued by the United States Patent Office. (See id. ¶ 4). The patents pertain to the conversion of points across separate businesses or "channels." (Id. ¶ 5). JBSHBM is not a named party in this action.
Defendant gives customers reward points to incentivize them to stay at its hotel. (See id. ¶ 6). These points can be used "across program boundaries with other programs." (Id. ). Defendant also receives from its customers points that were converted across program boundaries from other reward programs. (See id. ¶ 7). Plaintiff asserts Defendant has accepted, received, and encouraged the use of customer points across program boundaries by using software other than Plaintiff's. (See id. ¶¶ 6-12). In so doing, Defendant has encouraged its customers to use "unauthorized software to convert points across program boundaries in violation of Plaintiff's exclusive rights." (Id. ¶¶ 10, 12).
Plaintiff asserts claims against Defendant for unjust enrichment (Count I) (see id. ¶¶ 14-20); temporary and permanent injunctive relief
On March 22, 2018, Plaintiff filed this action against Defendant in the Seventeenth Judicial Circuit in and for Broward County, Florida. (See generally id. ). On April 12, 2018, Defendant removed the action, asserting federal jurisdiction under 35 U.S.C. section 271 and 28 U.S.C. sections 1331 and 1338. (See Notice of Removal [ECF No. 1] ¶ 7). Defendant asserts the Court has subject matter jurisdiction because Plaintiff's claims "arise under an Act of Congress relating to patents." (Id. (citation omitted) ). Plaintiff now brings the Motion, contending the action properly belongs in state court. (See Mot. 14). Plaintiff also seeks attorneys' fees and costs from Defendant, asserting Defendant's removal was objectively unreasonable. (See id. ).
II. LEGAL STANDARD
Under 28 U.S.C. section 1447(c), a federal court must remand an action that has been removed from state court if it appears the removal was improper. "[I]n removal cases, the burden is on the party who sought removal to demonstrate that federal jurisdiction exists." Kirkland v. Midland Mortg. Co. ,
*1354Burns v. Windsor Ins. Co. ,
"The existence of federal jurisdiction is tested at the time of removal." Adventure Outdoors, Inc. v. Bloomberg ,
III. ANALYSIS
In its Notice of Removal, Defendant states Plaintiff's Complaint shows subject matter jurisdiction exists under 28 U.S.C. section 1338, which grants federal district courts jurisdiction over civil actions "aris[ing] under an Act of Congress relating to patents." (Notice of Removal ¶ 9 (alteration added) ). Section 1338"must be interpreted in tandem with the statute that grants federal question jurisdiction [ 28 U.S.C. section 1331 ] because both statutes use the term 'arising under.' " MDS (Canada), Inc. v. Rad Source Techs., Inc. ,
To establish subject matter jurisdiction under 28 U.S.C. section 1338, a defendant must establish either (1) "federal patent law creates the cause of action;" or (2) "plaintiff's right to relief necessarily depends on resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded claims." Christianson v. Colt Indus. Operating Corp. ,
A. Whether Federal Patent Law Creates Plaintiff's State-Law Claims
In its briefing, Defendant appears to rely exclusively on Christianson 's second prong as its basis for removal. (See Notice of Removal ¶ 15; see generally Opp'n). "Because a determination of patent infringement is a necessary element of all causes of action in the State Court Action, they arise under the patent laws and this Court has jurisdiction...." (Notice of Removal ¶ 15 (alteration added) ). Nevertheless, the Court addresses Christianson 's first prong since Defendant cites 35 U.S.C. section 271 as one of its bases for removal. (See id. ¶ 7).
Section 271 governs substantive claims brought under federal patent law - it does not transform Plaintiff's state law claims so as to "create federal patent law" under Christianson 's first prong. See, e.g. , ClearPlay, Inc. v. Abecassis ,
Plaintiff makes the unremarkable observation its well-pleaded Complaint "does not assert any claim arising under federal patent law[.]" (Mot. 9 (alteration added) ). Certainly, Plaintiff's claims do not involve a federal question, as no claim is brought under federal law. (See Compl. ¶¶ 14-39). Plaintiff brings claims under Florida state law, and those claims "find[ ] [their] origins in state rather than federal law." Gunn v. Minton ,
B. Whether Plaintiff's Right to Relief Necessarily Depends on Resolution of a Substantial Question of Federal Patent Law
Under Christianson 's second jurisdictional prerequisite, "federal jurisdiction over a state law claim [exists] if a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress." Gunn ,
(i) Whether a federal issue is necessarily raised and actually disputed
Plaintiff's Complaint necessarily raises a federal issue. Plaintiff alleges Defendant has encouraged its customers to use software to convert points across program boundaries in violation of Plaintiff's exclusive right to use JBSHBM's patents. (See Compl. ¶¶ 10, 12). Before Plaintiff can obtain relief on any of its claims, a court will necessarily have to determine whether the licensed patents from JBSHBM are valid. If a court concludes Defendant did not infringe Plaintiff's licensed patents, Defendant cannot have deprived Plaintiff of any intellectual property right Plaintiff asserts, thereby defeating all of Plaintiff's claims. As the Court is limited to reviewing only those facts appearing at the time of Defendant's Notice of Removal, see Adventure Outdoors, Inc. ,
(ii) Whether a federal issue is substantial and capable of resolution in federal court without disrupting the federal-state balance
Courts use three factors to determine whether a federal issue stemming from state-law claims is substantial so as to give rise to federal subject matter jurisdiction.
First, a pure question of law is more likely to be a substantial federal question.... Second, a question that will control many other cases is more likely to be a substantial federal question.... Third, a question that the government has a strong interest in litigating in a federal forum is more likely to be a substantial federal question.
MDS (Canada) Inc. ,
The court next held the patent infringement issue was not substantial, concluding the district court lacked subject matter jurisdiction under section 1338. See
Applying these factors, the Court finds the issue of patent infringement here is not substantial. Just like the plaintiff's claims in MDS (Canada) Inc. , Plaintiff's state-law claims arise under a licensing agreement granting exclusive rights to purportedly patented technology. (See Compl. ¶ 4). Plaintiff seeks to establish that JBSHBM's patents are valid and JBSHBM conveyed exclusive rights to the patents through its licensing agreement. (See id. ¶¶ 4-5). This analysis is fact-specific and will not result in resolving a general question of patent law likely to affect future cases.
The claimed patented technology here is highly specialized - JBSHBM's patents construct the technology to convert points across program boundaries. (See id. ¶¶ 4-8). Because of the fact-specific nature of the patent inquiry, the government does not have a strong interest in litigating the issue in federal court. The patent infringement issue thus does not present a substantial question of federal law. See, e.g. , Airwatch LLC v. Good Tech. Corp, Inc. , No. 1:13-cv-2870-WSD,
Defendant makes several arguments in an effort to distinguish MDS (Canada) Inc. and avoid remand. (See Opp'n 11-13). According to Defendant, MDS (Canada) Inc. did not present the possibility of remand to a state court, unlike here where Plaintiff is seeking remand. (See id. 11-12). The procedural posture of the case was not relevant to the Eleventh Circuit's jurisdictional analysis and holding. The Eleventh Circuit found no subject matter jurisdiction existed under 28 U.S.C. section 1338, a threshold question before determining it had jurisdiction over the appeal based on other grounds. See MDS (Canada) Inc. ,
Defendant also argues MDS (Canada) Inc. does not control because MDS (Canada) Inc. involved a contract dispute between a licensor and licensee over their licensee agreement, rather than a tort dispute between an exclusive licensee and a third party seeking to recover for infringement of its licensed patents. (Opp'n 13). That argument misses the point. In MDS (Canada), Inc. ,
Defendant also points out that Gunn applied to state legal malpractice claims. (See Opp'n 12 (citing Gunn ,
Defendant also argues Federal Circuit precedent, and not Eleventh Circuit precedent, governs whether federal patent law preempts state law. (See Opp'n 12-13). The Eleventh Circuit did not analyze issues of preemption in MDS (Canada) Inc. - the court held it "did not have jurisdiction in whole or in part based on section 1338,"
Defendant also relies on case law predating the Supreme Court's decision in Gunn that established the modern framework for the substantiality inquiry under Christianson 's second prong, to argue the Court has subject matter jurisdiction over Plaintiff's state-law claims because patent issues will necessarily have to be resolved in addressing the claims. See, e.g. , Air Measurement Techs., Inc. v. Akin Gump Strauss Hauer & Feld, L.L.P. ,
(iii) Whether patent law completely preempts Plaintiff's state law claims
Defendant also argues the Court has subject matter jurisdiction under Christianson 's second jurisdictional prerequisite because Plaintiff's state-law claims are preempted by federal patent law. (See Notice of Removal ¶¶ 10, 13, 15). "[T]here is a tremendously important distinction between complete (otherwise known as 'super' or 'field') preemption, on the one hand, and ordinary (otherwise known as 'defensive' or 'conflict') preemption, on the other." Mannsfeld v. Evonik Degussa Corp. , No. 10-553-WS-M,
To be clear, Defendant does not claim complete or field preemption. (See generally Notice of Removal; Opp'n.). Rather, Defendant *1358argues "[c]onflict preemption applies here." (Opp'n 7 (alteration added; footnote call number omitted) ). Plaintiff contends "the defense of ordinary preemption ... has been held to be insufficient to confer federal jurisdiction." (Mot. 8 (alteration added) ). Plaintiff is correct.
Unlike field preemption, which can serve as a basis for removal, conflict preemption is an anticipated defense that may be used to defeat a plaintiff's state-law claims. Consequently, "[b]ecause conflict preemption is merely a defense, it is not a basis for removal." Conn. State Dental Ass'n v. Anthem Health Plans, Inc. ,
The cases on which Defendant relies in support of its preemption argument are not relevant to whether the Court has subject matter jurisdiction. (See Notice of Removal ¶¶ 10, 13, 15; see also Opp'n 5-10). For example, Defendant relies on Ultra-Precision Manufacturing Limited v. Ford Motor Co. , for the proposition federal patent law preempts Plaintiff's unjust enrichment claim. (See Notice of Removal ¶ 13 (citing
Again, conflict preemption does not give rise to subject matter jurisdiction. See, e.g. , Thompson v. Microsoft Corp. ,
Based on the relevant jurisdictional facts at the time of Defendant's Notice of Removal, Defendant fails to show subject matter jurisdiction under 28 U.S.C. section 1338.
C. Attorneys' Fees and Costs
When a case is remanded due to improper removal, the court may award the plaintiff attorneys' fees and costs. See
The Eleventh Circuit has noted the reasonableness standard enunciated by the Supreme Court was meant to balance " 'the desire to deter removals sought for the purpose of prolonging litigation and imposing costs on the opposing party, while not undermining Congress' basic decision to afford defendants a right to remove as a general matter, when the statutory criteria are satisfied.' " Bauknight v. Monroe Cty. ,
Plaintiff contends Defendant's removal was unreasonable "given the Defendant's blatant disregard for The Federal Rules of Civil Procedure and decades of case law that refute their [sic] position." (Reply 7). The Court disagrees. While ultimately unsuccessful, Defendant's removal was far from unreasonable. Given the involved nature of the substantiality inquiry under Christianson 's second prong and the inherent issues of federal patent law involved, assessing fees on Defendant would unnecessarily deter future reasonable defendants from seeking removal. See, e.g. , Bracciale v. Valdez , No. 8:17-cv-2040-T-36AEP,
IV. CONCLUSION
For the foregoing reasons, it is hereby
ORDERED AND ADJUDGED that Plaintiff's Motion to Remand [ECF No. 7] is GRANTED . The case is REMANDED to the Seventeenth Judicial Circuit in and for Broward County, Florida, with the parties bearing their respective fees and costs. The Clerk of Court is directed to CLOSE this case.
DONE AND ORDERED in Miami, Florida, this 13th day of June, 2018.
The Court uses the pagination generated by the electronic CM/ECF database, which appears in the headers of all court filings.
To be clear, Count II contains no cause of action, but rather a prayer for relief; "there is no such thing as a suit for a traditional injunction in the abstract." Fox v. Loews Corp. ,
The Court does not address Plaintiff's argument that 35 U.S.C. section 271 cannot serve as a basis for removal because Plaintiff would lack standing to assert a claim under the statute. (See Mot. 5-6).
From the substantiality inquiry, it follows that exercising jurisdiction here would also disturb "the congressionally approved balance of federal and state judicial responsibilities." Gunn ,
In the Notice of Removal, Defendant relies on Alexsam, Inc. v. WildCard Systems, Inc. , No. 15-CIV-61736,
Reference
- Full Case Name
- POINT CONVERSION, LLC v. TROPICAL PARADISE RESORTS, LLC
- Cited By
- 4 cases
- Status
- Published