Federal Circuit Overturns Supplemental Jurisdiction Over Claims of Breach of Fiduciary Duty
In a recent decision from the Federal Circuit in AngioScore, Inc. v. TriREME Medical LLC et al. the court found that a plaintiff’s claim for patent infringement and breach of fiduciary duty did not have the requisite “common nucleus of operative fact” for the district court to maintain supplemental jurisdiction over breach of fiduciary duty claims. In particular, this decision provided the Federal Circuit a rare opportunity to review the jurisdiction limits of a district court in a case involving federal patent infringement claims and state law claims for breach of fiduciary duty aiding and abetting and unfair competition by an independent director and companies he co-founded which developed a competitive product to a product marketed by the plaintiff corporation AngioScore, Inc.
The defendant, director Eitan Konstantino, had been a cofounder of AngioScore to develop and market an angioplasty balloon he had invented. However, over the years, his role at AngioScore had diminished until he was an independent director focused on representing the minority investors. His attention turned to another company he had co-founded, TriReme Medical, LLC, which was involved initially in bifurcation stents, a different technology than angioplasty balloons. However, Konstantino’s inventive juices flowed again and he came up with an improved angioplasty balloon device code named “Chocolate,” rights to which he assigned to a TriReme affiliate.
As this device was considered by AngioScore to be competitive to their angioplasty balloon, suit was filed for patent infringement, breach of fiduciary duty, aiding and abetting, and unfair competition in the District Court for the Northern District of California. The Court bifurcated the litigation and held separate trials for the federal and state law claims. It premised its jurisdiction for the state law action as being supplemental jurisdiction under 28 U.S.C. §1295 (a)(1) when denying Defendant’s motion to dismiss.
The underlying rationale supporting this decision by the district court was that common to both actions was the need by the court to derive proof as to what Chocolate was, how it was developed, and its impact on AngioScore’s lost profits if found to infringe and/or was a potential business opportunity.
The infringement trial resulted in a jury verdict holding the asserted claims of the AngioScore patent non-infringed and invalid. However, the bench trial on the state law claims resulted in a verdict favorable to AngioScore with a damage award in excess of $20 million for lost profits.
Defendants appealed the state law jurisdiction decision and also the refusal of the district court to award attorneys’ fees in their successful patent infringement defense.
The Federal Circuit panel reviewed the state law jurisdiction de novo. The court, relying on Delaware corporate law, determined if the district court correctly met the four part test of whether the Chocolate device was a “corporate opportunity.” This was contrasted with the factual inquiry needed to determine whether that device infringed the limitations set out in the asserted patent claims. The decision on appeal held that a general relationship of the two claims was not sufficient to provide the requisite “common nucleus of operative fact” needed to support supplemental jurisdiction. Thus, the appellate decision was to remand the state law action to the district court ordering a dismissal of the state law action thereby vacating the damage award. The court did give the plaintiffs a pyrrhic victory by affirming the district court’s decision denying the defendant’s claim of attorney’s fees for bringing the unsuccessful infringement action. One can only wonder if the plaintiffs will try their luck on their state law actions in state court.