R&N Check v . Bottomline Tech. 13-CV-118-SM 11/15/13 UNITED STATES DISTRICT COURT

DISTRICT OF NEW HAMPSHIRE

R & N Check Corp., Plaintiff

v. Case N o . 13-cv-118-SM Opinion N o .

Bottomline Technologies, Inc., Defendant

O R D E R

R & N Check Corp. filed this suit in the New Hampshire

Superior Court, alleging that Bottomline Technologies breached a

settlement agreement the parties had reached in earlier

litigation. Before it was formally served with the state court

writ of summons, Bottomline appeared in state court and removed

the suit to federal court. R & N asserts that removal was

improper and moves the court to remand the case to state court.

For the reasons stated, that motion is granted.

Background

In 2005, R & N sued Bottomline, alleging that Bottomline’s

product known as Legal eXchange infringed a patent held by R & N

(the “‘128 Patent”). The parties resolved that litigation in

January of 2006, and memorialized the terms of their settlement

in a “Patent Purchase and Settlement Agreement.” The Settlement Agreement provides that R & N would transfer title to the ‘128

Patent to Bottomline. In exchange, Bottomline agreed to pay to

R & N , for the duration of the patent’s term, a portion of its

annual revenue earned each year from the sale of “Covered

Products.” Subsequently, Bottomline acquired Allegiant Systems,

Inc. The parties currently dispute whether an Allegiant product

(in its various iterations) falls within the scope of the

Settlement Agreement’s definition of “Covered Products” (and,

therefore, whether sales of that product augment - quite

substantially - the annual payments that Bottomline is obligated

to make to R & N ) .

The Settlement Agreement defines the phrase “Covered

Products” as follows:

“Covered Product(s)” means (a) the version of BT’s product known as Legal eXchange that is commercially available on the Effective Date, and (b) any other product owned or made available for use or license by BT or its Affiliate and designed to permit U.S. users to manage spending on legal services provided by outside U.S. law firms via an electronic data transfer system or any other process that is covered in whole or in part by U.S. Patent N o . 6,622,128.

Patent Purchase and Settlement Agreement (document n o . 1-1) at

Section 1(d) (emphasis supplied). In short, the parties dispute

whether the highlighted language means that “Covered Products”

include: (a) essentially any product sold by Bottomline that

2 allows users to manage spending on legal services via an

electronic data transfer; o r , more narrowly, (b) only those

products that are covered by the ‘128 patent.

In 2011, R & N sued Bottomline in the New Hampshire Superior

Court (Rockingham County), alleging that it had breached the

Settlement Agreement. After filing the writ of summons in state

court, R & N’s counsel contacted counsel for Bottomline and asked

whether he was authorized to accept service on behalf of his

client, or whether he wanted R & N to formally serve his client.

Prior to responding (and before his client was formally served),

counsel for Bottomline removed the case to this forum, asserting

that this court has subject matter jurisdiction on two

independent grounds: first, because the parties’ settlement

agreement resolved a patent dispute, Bottomline invokes the

court’s jurisdiction under

(federal question)

and 1338(a) (original jurisdiction to resolve patent disputes);

and, second, because the parties are diverse and the amount in

controversy exceeds $75,000, Bottomline says the court may

properly exercise its diversity jurisdiction pursuant to

. 1

1 R & N Check Corp. is a Nevada Corporation, with its principal place of business in Missouri. Bottomline Technologies is a Delaware Corporation, with its principal place of business in New Hampshire.

3 Discussion

I. Federal Question / Patent Jurisdiction.

Bottomline says that “[a]lthough R & N asserts a state

breach of contract action, its claim necessarily raises patent

law issues sufficient to establish jurisdiction under

.” Defendant’s Memorandum (document n o . 10-1) at 7 . The

court disagrees.

The Supreme Court has established that, in the patent

context, the subject matter jurisdiction of federal district

courts under

(a) extends:

only to those cases in which a well-pleaded complaint establishes either that federal patent law creates the cause of action or that the 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 Industries Operating Corp.,

0 0 ,

809 (1988) (emphasis supplied). Neither of those situations are

presented in this case. The sole claim in R & N’s complaint

arises out of New Hampshire’s common law, not federal patent law.

And, its right to relief does not depend upon the resolution of

any question of federal patent law.

This is a straight-forward, common law breach of contract

case. Determining which of the two proposed constructions of the

4 parties’ Settlement Agreement is correct will not involve

interpreting or construing the ‘128 Patent. Rather, it is simply

a matter of interpreting the proper scope and meaning of language

used in the Settlement Agreement.

Importantly, R & N does not allege that the Allegiant

product infringes the ‘128 Patent. If it did, the court would

necessarily have to construe that patent and subject matter

jurisdiction under

and 1338(a) would likely

exist. But, R & N simply alleges that the scope of the

Settlement Agreement is sufficiently broad to obligate Bottomline

to make periodic payments on the sale of any products “that

permit U.S. users to manage spending on legal services provided

by outside U.S. law firms via an electronic data transfer system”

- without regard to whether those products infringe the ‘128

Patent or not. See Plaintiff’s memorandum (document n o . 9-1)

(R & N’s “claim is that under the parties’ agreement, Bottomline

is also obligated to make additional payments based upon products

that are not covered by the patent.”).

The proper construction of the ‘128 Patent is not at issue

in this case. Nor is it necessary to determine whether the

Allegiant product at the center of this dispute infringes the

‘128 Patent in order to resolve R & N’s breach of contract claim.

5 Consequently, R & N’s complaint does not invoke (or otherwise

implicate) the court’s subject matter jurisdiction under

(a) or 1331.

II. Diversity Jurisdiction.

In the alternative, Bottomline asserts that the court has

subject matter jurisdiction over this case because the parties

are diverse and the amount in controversy exceeds $75,000. See

generally

(a). Accordingly, says Bottomline, it

properly removed the action pursuant to

.

Importantly, however, Section 1441(b)(2) codifies what is

known as the “forum defendant” rule, providing that:

A civil action otherwise removable solely on the basis of the jurisdiction under section 1332(a) of this title may not be removed if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.

(b)(2) (emphasis supplied). 2

2 The “forum defendant rule” is not a limitation on the court’s subject matter jurisdiction. It i s , instead, a “statutory impediment to the exercise of jurisdiction.” Hawkins v . Cottrell, Inc.,

(N.D. G a . 2011). If a plaintiff fails to raise the issue within 30 days of removal, it is deemed to have been waived. See

(c). Here, plaintiff filed a timely objection to removal.

6 Because Bottomline maintains its principal place of business in

New Hampshire, R & N says its removal of this action was

improper. In response, Bottomline points out that, when it

removed this action from state court, it had not yet been

“properly joined and served as [a] defendant.” Thus, it argues

that removal was entirely consistent with the plain language of

Section 1441(b)(2). In other words, Bottomline asserts that

despite the general proscription of the “forum defendant rule,”

until a forum defendant is properly joined and served, it still

may remove a state court action based on diversity of

citizenship.

Many district courts have wrestled with this difficult

question of statutory construction and they have reached

conflicting interpretations of section 1441(b)(2). See generally

Gentile v . Biogen Idec, Inc.,

(D. M a . 2013)

(collecting cases). It is not necessary to re-plow that ground;

it is sufficient to simply note that the court agrees with the

thoughtful and thorough analysis presented by Judge Woodlock in

Gentile. Consistent with the holding in Gentile, the court

concludes that “the plain language of section 1441(b) requires at

least one defendant to have been served before removal can be

effected.”

. See also Hawkins v . Cottrell, Inc.,

(N.D. G a . 2011). As Judge Woodlock observed:

7 Precluding removal until at least one defendant has been served protects against docket trolls with a quick finger on the trigger of removal. Under the reading I have given to section 1441(b) here, plaintiffs legitimately seeking to join a forum defendant face the modest burden of serving that defendant before any others. If a plaintiff serves a non-forum defendant before serving a forum defendant, he has effectively chosen to waive an objection to the removal by a nimble non-forum defendant who thereafter removes the case before service upon a forum defendant named in the complaint. And, even when a forum defendant is served first, my reading anticipates a situation in which an unserved non-forum defendant may remove following service on a forum defendant, in hopes of arguing that joinder of the forum defendant was fraudulent. This reading of the statute thus accommodates the clear congressional purpose animating section 1441(b) - preventing abuse by plaintiffs in forum selection - while also closing an unintended loophole incentivizing parallel abuse by defendants seeking to escape a state forum in which a co-defendant is a citizen, all without doing violence to the plain language of the statute.

Gentile,

(footnote omitted).

Because Bottomline is the only defendant in this case, and

because it had not yet been served when it removed the action to

this court, removal was improper.

Conclusion

For the foregoing reasons, as well as those set forth in

both plaintiff’s memorandum and Judge Woodlock’s opinion in

Gentile, the court concludes that this action was improvidently

removed from state court. Plaintiff’s motion to remand (document

8 n o . 9 ) i s , therefore, granted and the case is remanded to the New

Hampshire Superior Court (Rockingham County).

SO ORDERED.

Steven J./McAuliffe Jnited States District Judge

November 15, 2013

cc: Scott H. Harris, Esq. John J. Regan, Esq. Robert C . Kirsch, Esq.

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