Monday, November 8, 2010
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C.A. Revives Malpractice Suit Based on Filing of Patent Claims
By SHERRI M. OKAMOTO, Staff Writer
The First District Court of Appeal has revived a legal malpractice claim against Squire Sanders & Dempsey LLP, New York-based Moses & Singer LLP, and two attorneys for having allegedly pursued nonviable patent infringement claims on behalf of their client, E-Pass Technologies Inc.
In its decision Friday, Div. Three said the defendants’ demurrer was not properly sustained since patent law only provided the background for deciding whether a reasonable attorney would have pursued the infringement litigation and so the action was not subject to the exclusive jurisdiction of the federal courts.
Stephen Weiss, a partner at Squire Sanders, and Mark Dosker of Moses & Singer filed the four underlying lawsuits against certain manufacturers and users of personal digital assistant devices asserting infringement on a patent owned by E-Pass for a method and device for storing information from various individual cards in a single electronic multi-function card.
Summary Judgment
Summary judgment of noninfringement was granted by the district court in each of the cases. E-Pass was also ordered to pay $2.3 million in attorney fees to the opposing parties based on findings E-Pass had engaged in “questionable pre-filing investigation and a discovery strategy of unwarranted delay and obstruction” in one case, and “abusive” litigation tactics in another.
The Federal Circuit Court of Appeals upheld the district court rulings and fee awards in all four actions. It also concluded that one appeal was frivolous, which justified an award of additional fees.
E-Pass subsequently filed suit against defendants in San Francisco Superior Court, asserting causes of action for negligent misrepresentation, breach of fiduciary duty and negligence. The claims were all based on allegations defendants had misled E-Pass into bringing claims which were never viable, abandoned their fiduciary duties, gouged E-Pass with unreasonable attorney fees and costs, and wrongfully exposed E-Pass to liability for costs and fees in the underlying actions.
Subject Matter Jurisdiction
Defendants demurrered on the ground that the court lacked subject matter jurisdiction, and Judge Peter J. Busch sustained the demurrer, finding E-Pass’s claims involved substantial issues of patent law and were therefore subject to exclusive federal jurisdiction under 28 U.S.C. § 1338.
However Justice Stuart R. Pollak concluded in his decision for the appellate court that the issues of federal patent law were “tangential” since the outcome of the malpractice action would not rest on a determination of any patent issue.
He reasoned the E-Pass was not required to establish the validity, invalidity, or proper scope of its patent in order to establish liability or damages and causation against defendants since its claims proceeded on the premise that there had been no infringement, as the federal court held in the underlying litigation.
Pollak posited that the defendants could argue the federal courts had decided this issue incorrectly, but emphasized this was not what had to be determined in the malpractice action.
“The issue in this case is not whether the evidence that E-Pass submitted in the federal proceedings was sufficient to support an inference that the defendants in the federal cases had practiced all of the steps of the patented method claimed by E-Pass and thus infringed its patent,” the justice wrote. “The only question here in this respect is whether, in evaluating E-Pass’s claim and the evidence that undisputedly was in the attorneys’ hands, defendants used the skill and care that a reasonably careful attorney would have used in similar circumstances.”
Possibility of Prevailing
He opined there was no need for either party to prove what the outcome of the federal actions should have been since it would be sufficient for E-Pass to show a reasonable attorney would have found there was no possibility of prevailing on the infringement suits or for the defendants to demonstrate there was a sufficient likelihood of success to justify litigation.
Although Pollak acknowledged “trial of this matter undoubtedly will require extended testimony concerning the requirements of federal patent law” he said “the ultimate question for decision is what a reasonable attorney would have concluded under the circumstances, a question of state law properly within the jurisdiction of state courts, and not whether the federal defendants did in fact infringe E-Pass’s patent.”
Justices Peter J. Siggins and Martin J. Jenkins joined Pollak in his decision.
The case is E-Pass Technologies, Inc. v. Moses & Singer, LLP, 10 S.O.S. 6242.
Copyright 2010, Metropolitan News Company