Opinion
No. 1:01CV00750
November 8, 2002
MEMORANDUM OPINION
This matter is now before the Court on Plaintiff's Motion to Remand to the Superior Court of Cabarrus County, North Carolina [Doc. #3], Motion for Attorney Fees, and the Plaintiff's Motion to Dismiss Counterclaims [Doc. #5]. For the reasons set forth below, Plaintiff's Motion to Remand is GRANTED and its Motion for Attorney Fees is DENIED. Because the case is remanded, the Motion to Dismiss must be decided by the state court.
I.
In 1995, Plaintiff R.F. Shinn Contractors, Inc. began development of a piece of machinery known as "the Cutter." Robert Shinn, on behalf of Plaintiff, instructed Defendant Rick Shinn, at that time an employee of Plaintiff, to contact a patent attorney to explore obtaining patents pertaining to the Cutter. Plaintiff paid all filing fees and attorney fees associated with the patent application.
Plaintiff alleges that Defendant was further instructed to have the Cutter patents issued in the name of R.F. Shinn Contractors, Inc. Defendant, however, had the Cutter patents issued in his personal name. The patents have not been assigned to Plaintiff. Shortly after the patents were issued in 2000, Defendant informed Plaintiff that the Cutter patents had not been issued in Plaintiff's name, but rather were issued in Defendant's name. Furthermore, Defendant announced that he was leaving Plaintiff's employ to start his own company that would manufacture Cutters using the newly issued patents.
On July 24, 2001, Plaintiff filed a Complaint in Cabarrus County Superior Court seeking declaratory relief for assignment of the patents and alleging breach of fiduciary duty, fraud, conversion, unfair and deceptive trade practices, and unjust enrichment. On August 6, 2001, Defendant filed a Notice of Removal. Plaintiff filed a Motion to Remand pursuant to 28 U.S.C. § 1147(c) on August 28, 2001.
II.
Title 28 U.S.C. § 1447(c) requires that a case must be remanded to the state court "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction." 28 U.S.C. § 1447(c) (West Supp. 2002). Plaintiff has moved for remand on the basis that this Court lacks subject matter jurisdiction because the claims in the complaint do not "arise under" federal patent law. Defendant asserts, however, that federal jurisdiction is proper pursuant to 35 U.S.C. § 271, 28 U.S.C. § 1331, and 28 U.S.C. § 1338.
It is undisputed that the parties do not satisfy the requirements for diversity jurisdiction.
Title 28 U.S.C. § 1331 provides that "district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331 (West Supp. 2002). The Supreme Court has explained that "Congress has given the lower federal courts jurisdiction to hear, originally or by removal from a state court, only those cases in which a well-pleaded complaint establishes either that federal law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal law." Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 27-28 (1983). Thus, federal question jurisdiction under section 1331 exists only in two situations (1) when federal law creates the cause of action or (2) when a plaintiff's right to relief requires resolution of a question of federal law.
In this case, Plaintiff asserts common law claims for breach of fiduciary duty, fraud, conversion, and unjust enrichment, as well as violations of the North Carolina Unfair and Deceptive Trade Practices Act. Each of these causes of action are created solely by either state common law or state statutory law. Additionally, Plaintiff seeks a declaratory judgement that it holds equitable title to the patents at issue. Such a declaration, unlike a question regarding the validity of the patents or a determination of whether there has been infringement of the patents, does not require resolution of a question of federal law. Claims that involve a contract or a license relating to a patent do not make the case a patent suit for purposes of federal question jurisdiction. Barnhart v. Western Maryland Ry. Co., 128 F.2d 709, 714 (1941) (noting that "it has been repeatedly held that actions involving the interpretation of contracts concerning federal patents are not actions arising under the laws of the United States").
See also Wright, Miller, Cooper, Federal Practice and Procedure: Jurisdiction 2d § 3582, p. 303-04 (1984) (explaining that "[a] subtle distinction is drawn between suits on a patent itself and suits on a contract about a patent. The former are exclusively for the federal courts under § 1338(a) while the latter may be heard by the states and indeed can be heard only by the states unless some other basis of federal jurisdiction, such as diversity and requisite amount in controversy, are present.")
Furthermore, 28 U.S.C. § 1338(a), which provides that "[t]he district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents" cannot serve as a basis of federal jurisdiction in this case. 28 U.S.C § 1338(a) (West Supp. 2002). The Supreme Court has held that the "arising under" language in section 1338(a) has the same meaning and thus must satisfy the same requirements as the "arising under" language of section 1331.Christianson v. Colt Industries Operating Corp., 486 U.S. 800, 808-09 (1988) (holding that "[l]inguistic consistency . . . demands that § 1338(a) jurisdiction likewise extend 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"). Because the allegations in the complaint do not state a claim "arising under" federal law for purposes of section 1331, the claims also do not state a claim "arising under" the patent laws for purposes of section 1338(a).
Finally, Defendant's counterclaim of patent infringement pursuant to 35 U.S.C. § 271 is insufficient to support federal jurisdiction. It has long been established that the well-pleaded complaint rule determines whether a complaint "arises under" federal law. Phillips Petroleum Co. v. Texaco Inc., 415 U.S. 125, 127-28 (1974) (per curium). The Plaintiff's complaint does not allege infringement of the patents. Furthermore, Defendant's counterclaim for patent infringement cannot serve as the federal jurisdictional hook. The Supreme Court recently held that a counterclaim may not serve as the basis for "arising under" jurisdiction. Holmes Group, Inc. v. Vornado Air Circulation Sys., Inc., ___ U.S. ___, 122 S.Ct. 1889, 1894 (2002).
Because the patents have been issued in Defendant's name, Plaintiff does not have standing to assert a claim of infringement.
III.
The plaintiff requests attorney fees and costs pursuant to 28 U.S.C. § 1447(c), which provides that a federal court remanding a case "may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal." Although it is within the district court's discretion to award attorney fees, the courts in the Fourth Circuit generally award attorney fees in removal actions only when the removing party has asserted removal frivolously or in bad faith, or the lack of federal jurisdiction is obvious with even a cursory examination. See In re Lowe, 102 F.3d 731, 733 n. 2 (4th Cir. 1996) (deciding not to award attorney fees in a case where there was no bad faith and the lack of federal jurisdiction was not obvious). In this case, it does not appear that the removal was frivolous or in bad faith. In addition, because the claims in the complaint involve a patent, the lack of federal jurisdiction was not obvious upon cursory examination.
IV.
Because this Court does not have subject matter jurisdiction, Plaintiff's Motion to Remand is GRANTED and its Motion to Dismiss must be decided by the state court. In addition, Plaintiff's Motion for Attorney Fees is DENIED