A Federal Circuit Court of Appeals panel has determined that (i) it had jurisdiction over an appeal from a district court order dismissing claims of fraud filed against lawyers who allegedly mishandled the plaintiff’s patent application and (ii) because the statute of limitations was tolled while related malpractice litigation was pending before a California state court, the lawsuit was timely filed in federal court. Landmark Screens, LLC v. Morgan, Lewis, & Brockius, LLP, No. 2011-1297 (Fed. Cir., decided April 23, 2012).
So ruling, the court reversed the district court’s decision in part and remanded for further proceedings. A concurring judge, dissatisfied with the precedent on which the opinion was based, called for the case to be heard en banc to address the “disruption” resulting from Federal Circuit decisions giving the federal courts jurisdiction over actions in which “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.”
In this regard, Judge Kathleen O’Malley stated,
In 2007, two years after the action was filed in state court, this court affected a sea change by announcing its assertion of jurisdiction over these types of state law claims. By then, the statute of limitations governing Landmark’s malpractice claim had expired. A year after our decision in Air Measurement, appellees filed a motion to dismiss in state court, which was granted based on our case law. California has no savings statute, however, and, by statute, prohibits application of equitable tolling principles to malpractice claims, causing Landmark’s malpractice claim to be lost forever. Thus, although Landmark filed its federal action on the same day the state court dismissed it, Landmark could no longer assert a malpractice claim against Kohler and MLB. In other words, a cause of action which—given the undisputed facts—was far from frivolous, which arises under and was governed by state law, and which all parties agreed for years had been properly asserted in California state court, was irretrievably lost by our disruption of the parties’ well-settled expectations in this area.
As to the federal jurisdiction question, the Federal Circuit majority observed, “for Landmark to prevail on its claim for damages arising from the alleged fraud, under California law Landmark would have to prevail on its ‘case within a case’ and prove that but for the alleged fraud it would have obtained patent rights for its invention[, thus,] the patentability of Landmark’s invention invokes patent law sufficiently to sustain district court jurisdiction.” The court then applied California’s equitable tolling jurisprudence to toll “the three-year statute of limitations for fraud claims during the time the case was pending in the state courts.”
According to the court, the defendants had notice that the plaintiff was asserting the loss of its patent rights against them, and therefore, the defendants “have suffered no prejudice in their ability to gather evidence and prepare a defense since they were on notice of all key facts underlying Landmark’s claims from the start of the state court action.” The court also noted that Landmark acted reasonably and in good faith by first filing the complaint in state court, because, at that time, “there was ambiguity as to whether the suit belonged in state or federal court.”