BroadStar Wind Systems Group Ltd. Liability Co. v. Stephens , 459 F. App'x 351 ( 2012 )

Case: 11-10025 Document: 00511733037 Page: 1 Date Filed: 01/23/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
January 23, 2012
No. 11-10025 Lyle W. Cayce
Clerk
BROADSTAR WIND SYSTEMS GROUP LIMITED LIABILITY COMPANY;
BROADSTAR DEVELOPMENTS, LIMITED PARTNERSHIP,
Plaintiffs - Appellees
v.
THOMAS STEPHENS; T.G. STEPHENS CAPITAL LIMITED LIABILITY
COMPANY,
Defendants - Appellants
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:10-CV-369
Before DENNIS, CLEMENT, and OWEN, Circuit Judges.
PER CURIAM:*
Thomas Stephens and a business partner developed and patented wind
generator technology. When their company, BroadStar, encountered financial
difficulty, they sought and received financial assistance from Jim Barnes who
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
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acquired a controlling interest in their company. BroadStar ultimately declared
bankruptcy and controversy arose regarding the rightful owner of two patents.
BroadStar sought a declaratory judgment regarding ownership of patents
between itself and its subsidiaries and Stephens. The district court held that the
patents are the property of BroadStar Developments, a wholly owned subsidiary
of BroadStar Wind Systems Group. Stephens appeals. We AFFIRM the ruling
of the district court.
FACTS AND PROCEEDINGS
Thomas Stephens invented and patented technology related to electric
generators and wind turbines. In 2003, he met fellow inventor Steve Else who
had previously worked in the energy sector. Together, Stephens and Else formed
a company known as X-Blade Systems (“X-Blade”) where they worked to create
a specialized wind turbine with the potential for numerous practical energy
generating applications. X-Blade was a holding company designed to legally
possess the patents developed by Stephens and Else. After learning of a turbine
company bearing the same name, Stephens and Else changed the name of their
company to BroadStar Developments (“Developments”) in 2008. Between 2003
and 2008 their company obtained patents for several inventions. In March of
2009, Patents 7,370,828 (“828”) and 7,365,448 (“448”), the patents in question in
this case, were owned by Developments.
As the economy soured in the fall of 2008, Developments began facing
financial difficulties. At that time, Else sought third-party capital investments.
To facilitate these solicitations, Else, Stephens, and other members of
Developments created BroadStar Wind Systems Group LLC (“Systems”) to house
both the intellectual property and working apparatus of engineers and other
personnel who developed and tested technology. Stephens assigned his stake in
Developments to Systems in exchange for a thirty percent ownership interest in
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Systems and took the title Chief Innovator. Else also assigned his interest in
Developments to Systems and took the title President and CEO.
Jim Barnes wanted to invest in Systems and negotiated the terms of his
investment from December 2008 to March 2009. The parties were represented
by counsel during the negotiations. While the negotiations were ongoing,
Systems needed a bridge loan to remain solvent and Barnes offered a $750,000
loan with Systems’ intellectual property serving as collateral. Systems
collateralized all intellectual property assigned to Developments for the bridge
loan and pledged it to Barnes. The loan documents defined the “assignor” as
Systems, including in the definition “any subsidiary thereof, including but not
limited to BroadStar Developments LP.” The 828 and 448 patents were named
in this agreement.
In March 2009, Barnes and Systems came to an investment agreement.
Barnes established an investment vehicle, BroadStar Investment Company, and
committed $6 million to Systems in exchange for a controlling interest.
Stephens and Else approved the transaction which was memorialized in a
Purchase and Sale Agreement. The Agreement named the 828 and 448 patents
as part of Systems’ “Proprietary Rights.”
At the time he signed the Purchase and Sale Agreement, Stephens also
signed an Employment Agreement negotiated by his counsel. The Employment
Agreement discussed Systems’ rights to certain intellectual property. Stephens
believes this agreement gave him ownership of the patents and Systems received
a non-exclusive royalty-free license to use them. Systems believes this
agreement gave it a license to use future products invented by Stephens, and
had no affect on Developments’ ownership of the 828 and 448 patents. The
Agreement also placed Stephens on Systems’ board, promised a salary, and gave
him 1.3 million membership units. Stephens later set up an entity called T.G.
Stephens Capital (“TGS Capital”), which acted as a holding company for his
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membership interest in Systems. Stephens worked for Systems and served on
its board for the first several months after the execution of the Purchase and
Sale Agreement.
In December 2009, Systems’ Board was seeking additional capital and
drafted a Confidential Information Memorandum (“CIM”) to distribute to
potential investors. The CIM made multiple statements regarding the history,
structure, patents, and pending contracts of Systems and its subsidiaries. Later
that month, Systems undertook a major project installing a prototype wind
turbine at the ranch of movie director James Cameron. While Stephens and
Else were working on this project, Stephens objected to the terms of the CIM on
which he had sought clarification, but did not state his concerns. Stephens
claimed he was the sole owner of the 828 and 448 patents because of the
Employment Agreement. He further claimed he had sold the patents to
Etcetera, a holding company owned by TGS Capital and Stephens’ attorney on
appeal, Johannessen. In early 2010, Systems filed for bankruptcy.
Systems filed the underlying lawsuit in February 2010, seeking
declaratory judgment that Developments, not Stephens or TGS Capital, is the
owner of the patents, and that because Stephens did not own the patents, he had
no intellectual property that could have been assigned to Etcetera. The district
court’s declaratory judgment began by noting that Developments, the fully-
owned subsidiary of Systems, has full right and title to various pieces of
intellectual property.1 The main dispute was the ownership of the 828 and 448
1
“BroadStar Developments, LP, a fully-owned subsidiary of Plaintiff BroadStar Wind
Systems Group LLC, has full right, title, and interest to the following intellectual property:
“Wind Driven Power Turbine” (U.S. Patent Appl. No. 61/031,317); “Wind Driven Power
Turbine and Applications of Same” (U.S. Patent Appl. No. 61/057,856); “Wind Driven Power
Generator With Moveable Cam” (U.S. Patent Appl. No. 12/110,100); “Mobile Wind Turbine”
(U.S. Patent Appl. No. 61/100,479); “Fluid Turbine Optimized for Power Generation” (in
preparation); “Hydraulic Cam” (in preparation); and “Water Turbine” (in preparation).”
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patents which both parties agree were owned by Developments before March
2009.
The district court reviewed Stephens’ four arguments that he owned the
patents in September of 2009 when he transferred them to Etcetera. First, he
claimed that the Employment Agreement from March 2009 made him the owner
of the patents. Second, he alleged that when the charter of Developments lapsed
for a period of time, the patents reverted to him. Third, he posited because
Developments was the last recorded owner of the patents with the Trademark
Office, Systems cannot claim ownership. Finally, he argued Etcetera was a bona
fide purchaser of the patents. The district court carefully reviewed each of these
claims and found Developments was and remains the rightful owner of the
patents.
Stephens timely appealed. On appeal, he does not contest the findings of
the district court, but instead raises four alleged errors: (1) Systems’ lack of
standing to adjudicate patent ownership claims; (2) the district court’s decision
to continue with the case without leave from the automatic bankruptcy stay; (3)
the necessary and indispensable nature of Etcetera to any dispute on ownership
of the patents; and (4) the district court’s decision to join Developments as a
plaintiff after the bench trial.
In a motion carried with the case, Stephens asks us to take judicial notice
of BroadStar’s bankruptcy court records and facts within those records which
Stephens asserts indicate that BroadStar claimed no ownership in the patents
in question. As the issues before this court do not hinge on whether
Developments actually owns the patents in question, but rather on whether the
courts below followed proper procedure, we fail to see how our analysis would be
aided by consideration of the bankruptcy court records. Stephens’ motion is,
therefore, denied.
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STANDARDS OF REVIEW
We review findings of fact at bench trials for clear error and findings of
law de novo. Ag Acceptance Corp. v. Veigel, 564 F.3d 695, 698 (5th Cir. 2009).
A factual finding is clearly erroneous when “although there is evidence to
support it, the reviewing court on the entire evidence is left with the definite and
firm conviction that a mistake has been committed.” Id. This court further
reviews a district court’s decision to exercise declaratory judgment jurisdiction
for abuse of discretion. Torch, Inc. v. LeBlanc, 947 F.2d 193, 194 (5th Cir. 1991).
Finally, this court reviews joinder of parties for abuse of discretion. Acevedo v.
Allsup’s Convenience Stores, Inc., 600 F.3d 516, 520 (5th Cir. 2010).
DISCUSSION
1. Standing of BroadStar Systems
Stephens claims that Systems does not own the patents in question and
thus had no standing to seek declaratory judgment. He considers this case a
“patent action” where standing is limited to parties with a clear ownership stake
in the patent. He cites numerous Federal Circuit opinions which stand for the
proposition that a party must own the rights to a patent for standing in a patent
dispute.2 Systems correctly points out that this is not a patent action, but rather
a simple contract dispute.
2
Stephens cites Israel Bio-Engineering Project v. Amgen, 475 F.3d 1256, 1264-65 (Fed.
Cir. 2007), for the proposition that challenges to standing in patent actions require a showing
by the plaintiff that he holds legal title to the patent. However, this standard is not for
contract disputes over the ownership of an otherwise valid patent, but for patent disputes such
as infringement. In fact, the district court noted that Stephens mis-quoted Federal Circuit
precedent to mask its patent infringement application. “In his brief, Defendant cites Schreiber
Foods, Inc. v. Beatrice Foods, Inc., quoting the portion of its holding that states that ‘if the
original plaintiff lacks Article III initial standing, the suit must be dismissed, and the
jurisdictional defect cannot be cured by the addition of a party with standing.’ 402 F.3d 1198,
1203 (Fed. Cir. 2005). However, Defendant leaves out the first part of the sentence, which
applies this holding to ‘the area of patent infringement.’” Id.6
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Constitutional standing has three elements: (1) an “injury in fact” that is
(a) concrete and particularized and (b) actual or imminent; (2) a causal
connection between the injury and the conduct complained of; and (3) the
likelihood that a favorable decision will redress the injury. Lujan v. Defenders
of Wildlife, 504 U.S. 555, 560-61 (1992). Standing to seek declaratory judgment
is subject to these same requirements. Bennett v. Spear, 520 U.S. 154, 162
(1997) (“To satisfy the ‘case’ or ‘controversy’ requirement of Article III, which is
the ‘irreducible constitutional minimum’ of standing, a plaintiff must, generally
speaking, demonstrate that he has suffered ‘injury in fact,’ that the injury is
‘fairly traceable’ to the actions of the defendant, and that the injury will likely
be redressed by a favorable decision.”). We have held that claims for declaratory
relief may be brought by parties to or third-party beneficiaries of the contract.
Kona Tech. Corp. v. S. Pac. Transp. Co., 225 F.3d 595, 602 (5th Cir. 2000). Thus,
the standing question hinges on whether Systems and Developments are parties
to the contract, not whether either of them hold title to the patent.
There is no dispute Stephens, Developments, and Systems entered into
contracts with one another. In fact, in the absence of any contracts, Stephens
would be unable to claim that the Employment Agreement somehow transferred
to him the rights to the patents. Stephens argued his ownership of the patents
resulted from the Employment Agreement he signed in March 2009 thus
admitting a contract exists. The only question before the district court was
whether Stephens or Developments had ownership of the two patents based on
the March 2009 contracts. This controversy is factual in nature and does not
alter the standing analysis. Thus, Systems and Developments, as parties to the
March 2009 agreements, had standing to seek a declaratory judgment before the
district court.
2. Automatic Bankruptcy Stay
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Stephens next contends the district court erred in adjudicating the
declaratory judgment rather than staying all proceedings while the bankruptcy
automatic stay was in place. He admits Systems was granted relief from the
stay, but alleges that Developments did not receive relief because it was not a
named plaintiff at the time the relief was granted. As such, Stephens claims the
district court should not have ruled on the declaratory judgment. Systems
argues that Developments was a party to the relief from the bankruptcy stay
and thus the district court did not violate the automatic bankruptcy stay.
Bankruptcy law requires an automatic stay of “any act to obtain
possession of property of the estate or of property from the estate or to exercise
control over property of the estate.” 11 U.S.C. § 362(a)(3). If the action is
against the debtor, or involves counterclaims against the debtor, the automatic
stay will apply. See Halmar Robicon Grp., Inc. v. Toshiba Int’l Corp., 127 F.
App’x 501, 503 (Fed Cir. 2005). A party may, however, be granted relief from the
automatic stay in order to continue litigation. 11 U.S.C. § 362(d). If a court
decides a case without addressing the automatic stay, we have held that such
actions are not void, but voidable because the bankruptcy court can retroactively
lift the automatic stay. Chapman v. Bituminous Ins. Co., 345 F.3d 338, 344 (5th
Cir. 2003).
The bankruptcy court granted two different motions to modify the
automatic bankruptcy stays and permit the declaratory judgment litigation. In
those orders, the bankruptcy court granted relief from the stay to Systems, the
“BroadStar Debtors,” and Systems’ “related entities” collectively. In light of the
relief granted by the bankruptcy court, the district court did not abuse its
discretion in permitting the declaratory judgment action to proceed.
3. Necessary Parties
Etcetera was not a named defendant in Systems’ declaratory judgment
suit. Stephens argues Etcetera was a necessary and indispensable party to the
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litigation and that the district court should have dismissed the case for Systems’
failure to join Etcetera. Systems argues that the motion was waived for
untimely filing, Etcetera was not necessary to determine whether Systems or
Stephens was the rightful owner of the patent under the various contracts, and
there is no error because Etcetera could have sought to intervene in the suit but
chose not to.
Federal Rule of Civil Procedure 19, requires joinder of a party that will not
deprive the court of subject matter jurisdiction if:
(A) in that person’s absence, the court cannot accord complete relief
among existing parties; or
(B) that person claims an interest relating to the subject of the
action and is so situated that disposing of the action in the person’s
absence may:
(i) as a practical matter impair or impede the person’s ability
to protect the interest; or
(ii) leave an existing party subject to a substantial risk of
incurring double, multiple, or otherwise inconsistent
obligations because of the interest.
Fed. R. Civ. P. 19(a)(1). If joinder is not feasible, the court may dismiss the case.
See Fed. R. Civ. P. 19(b). We have held:
Rule 19’s emphasis on a careful examination of the facts means that
a district court will ordinarily be in a better position to make a Rule
19 decision than a circuit court would be. Consequently, district
court’s decision to dismiss for failure to join an indispensable party
is properly reviewed under an abuse-of-discretion standard.
Pulitzer-Polster v. Pulitzer, 784 F.2d 1305, 1309 (5th Cir. 1986); see also Hood v.
City of Memphis, 570 F.3d 625 (5th Cir. 2009). Thus, we must determine
whether the district court abused its discretion by not dismissing the declaratory
judgment action.
No one claims Etcetera was a party to the contracts in question. However,
Stephens claims that patent owners are necessary and indispensable to any
action involving that patent. Much like his standing arguments, the authority
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he cites is from the patent infringement context and does not apply to
declaratory judgments. Because the declaratory judgment was based only on the
contract dispute between Stephens, Systems, and Developments, Etcetera was
not a necessary party to the dispute. While Etcetera certainly had interests in
the outcome of the suit, as a non-party to the contract which was the sole basis
for the declaratory judgment suit, Etcetera was neither necessary nor
indispensable and thus we affirm the district court’s refusal to dismiss for lack
of a necessary party.
4. Joinder of BroadStar Developments
After the bench trial, but before the opinion was issued, the district court
sought briefing and decided to join Developments as an additional plaintiff.
Stephens contends that Developments should not have been joined as a plaintiff
to the case. Systems contends the district court did not abuse its discretion by
joining Developments as a co-plaintiff under Rule 21.
Because Rule 21 provides no guidance on whether a party may be joined,
this court has looked to Rule 20’s standards which permit joinder if a party:
(A)[] assert[s] any right to relief jointly, severally, or in the
alternative with respect to or arising out of the same transaction,
occurrence, or series of transactions or occurrences; and
(B) any question of law or fact common to all plaintiffs will arise in
the action.
Fed. R. Civ. P. 20. We have said:
Courts have described Rule 20 as creating a two-prong test, allowing
joinder of plaintiffs when (1) their claims arise out of the “same
transaction, occurrence, or series of transactions or occurrences” and
when (2) there is at least one common question of law or fact linking
all claims.
Acevedo, 600 F.3d at 521. Further, “[b]oth Rule 19(a) and Rule 21 ‘provide wide
discretion for the District Court to order joinder of parties . . .’” EEOC v. Brown
& Root, 688 F.2d 338, 341 (5th Cir. 1982). We must determine whether the
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rights Systems and Developments assert arise from the same transaction and
involve common legal and factual questions or whether the district court abused
its discretion by permitting joinder of Developments as a co-plaintiff.
Systems and Developments were parties to the contract with Stephens and
that contract’s language will control the disposition of the declaratory judgment
lawsuit. Thus, both potential plaintiffs have claims arising out of the same
transaction and share a common question of fact. The district court’s order
granting joinder to Developments assessed the concerns of jurisdiction and
prejudice and exercised its wide discretion to join parties. All parties knew
Develpments was a party to the contract at issue. Thus, there should have been
no surprise that a party to a contract might be joined in litigation focused solely
on that contract. We affirm the ruling of the district court because the joinder
of a party to the contract whose role was discussed throughout the litigation was
not an abuse of discretion.
CONCLUSION
Because the district court did not abuse its discretion or erroneously apply
the law, we AFFIRM the district court’s declaratory judgment.
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