Nisus Corp. v. Perma-Chink Systems, Inc., Nos. 06-1592, 07-1142 (Fed. Cir. Aug. 13, 2007

Judges: Rader, Bryson (author), Linn

[Appealed from D. Tenn., Judge Varlan]

In Nisus Corp. v. Perma-Chink Systems, Inc., Nos. 06-1592, 07-1142 (Fed. Cir. Aug. 13, 2007), the Federal Circuit dismissed a first appeal of a nonparty, Michael Teschner, for lack of jurisdiction. However, with respect to his second appeal from the district court’s order denying his motion to intervene, the Federal Circuit affirmed.

Nisus Corporation (“Nisus”) sued Perma-Chink Systems, Inc. (“Perma-Chink”) for infringement of Nisus’s U.S. Patent No. 6,426,095 (“the ’095 patent”). Perma-Chink asserted the affirmative defense that the patent was unenforceable due to inequitable conduct. Perma-Chink alleged that the attorneys who prosecuted the patent—Mr. Teschner and Mr. Allan Altera—engaged in inequitable conduct when they failed to disclose to the PTO certain information and materials. Following a bench trial, the district court held that the ’095 patent was unenforceable because of inequitable conduct and entered judgment in Perma-Chink’s favor. Nisus and Perma-Chink subsequently settled and disclaimed any interest in appealing from the judgment.

After the district court entered its judgment, Mr. Teschner filed a motion to intervene in the litigation and a motion to amend and reconsider the judgment. He alleged that the district court erred in finding that he engaged in inequitable conduct. The district court denied the motion to intervene. And although the court amended its opinion in response to the motion to amend the judgment, it otherwise denied the motion. Mr. Teschner appealed from both orders.

The Federal Circuit first addressed the issue of whether it had jurisdiction over Mr. Teschner’s appeal from the district court’s order that he characterized as adjudging him guilty of inequitable conduct. The Court noted that, generally, nonparties may not appeal district court judgments even if they are adversely affected. However, where a court exercises its power to regulate the proceedings before it via sanctions or some other form of punishment directed toward a nonparty, that nonparty may appeal. The Federal Circuit noted, though, that a court’s power to punish is not exercised simply because the court, in the course of resolving the issues in the underlying case, criticizes the conduct of a nonparty. The Court explained that “the fact that a statement made by a court may have incidental effects on the reputations of nonparties does not convert the court’s statement into a decision from which anyone who is criticized by the court may pursue an appeal.” Slip op. at 4.

The Court recognized that it is not always easy to determine whether a court’s criticism of an attorney should be regarded as a sanction in a collateral proceeding and that there is some disagreement among the courts of appeals as to the circumstances in which an appeal from a court’s criticism is permitted. The Court noted that it has taken the position that “a court’s order that criticizes an attorney and that is intended to be a ‘formal judicial action’ in a disciplinary proceeding is an appealable decision, but that other kinds of judicial criticisms of lawyers’ actions are not reviewable.” Id. at 5. It explained that “[i]n the absence of some type of formal judicial action directed at Mr. Teschner, such as an explicit reprimand or the issuance of some mandatory directive, . . . a court’s criticism of an attorney is simply commentary made in the course of an action to which the attorney is, legally speaking, a stranger.” Id. at 6 (citation omitted). It observed that “[t]o allow appeals by attorneys, or others concerned about their professional or public reputations, merely because a court criticized them or characterized their conduct in an unfavorable way would invite an appeal by any nonparty who feels aggrieved by some critical statement made by the court in an opinion or from the bench.” Id. Treating such critical comments by a court as final decisions in collateral proceedings, explained the Court, would “not only stretch the concept of collateral proceedings into [an] unrecognizable form, but would potentially result in a multiplicity of appeals from attorneys, witnesses, and others whose conduct may have been relevant to the court’s disposition of the case but who were not parties to the underlying dispute.” Id.

Accordingly, the Court held that “absent a court’s invocation of its authority to punish persons before it for misconduct, actions by the court such as making adverse findings as to the credibility of a witness or including critical language in a court opinion regarding the conduct of a third party do not give nonparties the right to appeal either from the ultimate judgment in the case or from the particular court statement or finding that they find objectionable.” Id. at 7.

Applying these principles to the instant case, the Federal Circuit noted that the district court did not exercise its power to sanction Mr. Teschner. It explained that the district court’s comments about Mr. Teschner “were simply subsidiary findings made in support of the court’s ultimate findings and legal conclusion that Nisus’s patent was unenforceable.” Id. The Court found that at no point did the district court purport to affect the legal rights or obligations of Mr. Teschner. The Court explained that “[w]ithout the exercise of the sanctioning power, a finding of inequitable conduct is insufficient to confer appellate jurisdiction over an appeal by the aggrieved attorney.” Id.

The Federal Circuit also distinguished this case from others in which attorneys have been allowed to appeal from both formal and informal sanctions by a court. In those cases, noted the Court, the attorney was before the court as a participant in the underlying litigation, and the court’s action was directed at regulating the proceedings before the court or over which the court had supervisory authority. Conversely, here Mr. Teschner was not a participant in the district court proceedings other than as a witness, and the district court was not regulating, and in fact could not regulate, the proceedings before it by sanctioning Mr. Teschner. Mr. Teschner’s actions were “plainly outside the scope of the court’s authority to impose disciplinary sanctions” as they occurred long before the litigation had even begun. Id. at 8. Accordingly, the Federal Circuit dismissed Mr. Teschner’s first appeal for lack of jurisdiction.

The Court added that the dismissal of a nonparty’s appeal from derogatory comments by a court does not leave the nonparty without a remedy. It noted that to the extent that an individual is harmed by the mere existence of a statement in an opinion, that individual is free to petition for a writ of mandamus and request that offending commentary be expunged from the public record. Moreover, to the extent that Mr. Teschner is concerned about the collateral effects of the district court’s findings in the underlying case, the Court noted that he has not had a full and fair opportunity to respond to the district court’s characterizations of his conduct and that it expects that he would be accorded an opportunity to make his case before any sanctions were imposed on him based on the comments made by the district court.

The Federal Circuit next turned to Mr. Teschner’s appeal of the district court’s denial of his motion to intervene. The district court denied the motion on the ground that the motion, which was filed after the entry of judgment in the case, was untimely. The Federal Circuit affirmed, holding that the district court did not err in denying the motion to intervene because, even if Mr. Teschner had been permitted to intervene in the proceedings, the grant of intervention would not have affected his rights, as the Court would still lack jurisdiction over his appeal. The Court explained that the district court’s findings regarding Mr. Teschner’s conduct did not constitute a final decision sufficient to confer jurisdiction, and his status as an intervener would not have given him a right to appeal a judgment resolving the rights of Nisus and Perma-Chink.