Composite Resources, Inc. v. Parsons ( 2022 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 Composite Resources, Inc., No. 2:21-cv-02352-KJM-DMC 12 Plaintiff, ORDER 13 v. Derek R. Parsons, 1S Defendant. 16 17 Defendant Derek Parsons, the chief operating officer of Recon Medical, LLC, moves to 18 | dismiss plaintiff Composite Resources, Inc.’s six claims of patent infringement on claim 19 | preclusion grounds. As explained below, Composite’s lawsuit in this court concerns the same 20 | patents, the same infringing products, and mostly the same claims at issue in its now-concluded 21 | lawsuit against Recon in the District of Nevada. Because Composite’s lawsuit concerns claims 22 | that were or could have been raised in its Nevada lawsuit, and because no exception to claim 23 | preclusion applies, the court grants Parsons’ motion to dismiss. 24 | I. BACKGROUND 25 Composite owns three related patents: Nos. 7,842,067 (the ’067 patent), 7,892,253 (the 26 | °253 patent), and 8,888,807 (the ’807 patent). See Compl. 9 8-10, ECF No. 1. All three concern 27 | anovel tourniquet, a medical device for restricting blood flow. See, e.g., °067 Patent, Compl. Ex. 28 | A, ECF No. 1-1. 1 In January 2017, Composite sued Recon in the District of Nevada, alleging Recon’s 2 Gen 1, Gen 2, Gen 3 and Gen 4 tourniquets infringed its patents. See Compl. ¶¶ 13–18, 22–25. 3 Composite brought claims for unfair competition, trademark infringement and patent 4 infringement. See id. ¶ 18. The District of Nevada court found Recon liable for unfair 5 competition and trademark infringement as a matter of law in July 2019. Id. ¶¶ 19–20. On 6 September 3, 2021, the same day that court set a trial date for Composite’s remaining patent 7 infringement claim, Recon filed for Chapter 11 Bankruptcy. Id. ¶¶ 26–27. Composite then 8 dropped its request for damages and moved forward with its lawsuit seeking only injunctive 9 relief. See id. ¶¶ 28, 30. The trial ultimately went forward on November 30, 2021. Id. at 33. 10 After both sides rested their cases, the court found as a matter of law that the ’067 patent, the ’253 11 patent and the ’807 patent were valid, id. ¶ 34, and the jury then found all of Recon’s tourniquets 12 infringed Composite’s patents, id. ¶ 35. At a subsequent hearing, Composite requested Recon 13 cease “committing acts of infringement pending a determination by the court whether to grant 14 equitable relief in the form of an injunction.” Id. ¶ 36. Recon “refused” to agree, leaving the 15 dispute for the court to resolve. Id. 16 The Nevada court issued its injunction order roughly a month later, on January 6, 2022. 17 See generally Perm. Inj. Order,1 ECF No. 16-1. The court permanently enjoined Recon, and 18 anyone affiliated with Recon, from using, selling, importing, or monetizing in any way its 19 infringing tourniquets. See id. at 13. The court explained Composite’s decision not to pursue 20 monetary damages against Recon: 21 [Composite’s] decision not to seek monetary damages was forced by 22 Recon’s decision to file bankruptcy. [Composite] basically faced a 23 Hobson’s choice: either abandon this case altogether after years of 24 litigation or get an order from the bankruptcy court that would only 1 The court takes judicial notice of the Nevada court’s January 6, 2022 permanent injunction order. See Intri–Plex Tech., Inc. v. Crest Grp., Inc., 499 F.3d 1048, 1052 (9th Cir. 2007) (“A court may take judicial notice of matters of public record . . . as long as the facts noticed are not subject to reasonable dispute.” (internal citation & quotation marks omitted)); Reyn’s Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006) (“We may take judicial notice of court filings and other matters of public record.”). 1 allow it to pursue injunctive relief in this Court because there was no 2 question it could no longer seek monetary damages in this case. 3 Id. at 10. 4 On December 17, 2022—fifteen days after Recon “refused” to stop selling its infringing 5 tourniquets, but twenty days before the Nevada court issued its permanent injunction—Composite 6 filed this lawsuit against defendant Parsons, Recon’s chief executive officer. See generally 7 Compl. Composite alleges Parsons “controls Recon” and has “ultimate authority” over all of 8 Recon’s business activities. Id. ¶ 2. Specifically, Composite describes Parsons as the “moving 9 force” and the person “responsible for all of [Recon’s] relevant decisions” that led to the “tortious 10 acts of patent infringement” at issue in the Nevada lawsuit. Id. Composite further alleges 11 Parsons directed Recon’s litigation decisions in the Nevada lawsuit and insisted Recon sell its 12 infringing tourniquets pending the Nevada court’s injunction ruling. Id. ¶¶ 33, 36. Composite’s 13 six claims against Parsons are as follows: (1) through (4), infringement of its ’067, ’253 and ’807 14 patents, id. ¶¶ 45–92; (5) inducement of infringement of those patents, id. ¶¶ 93–102; and (6) civil 15 conspiracy to commit unlawful acts of patent infringement, id. ¶¶ 103–126. 16 Parsons moves to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing claim 17 preclusion bars Composite’s lawsuit in this court.2 See generally Mot., ECF No. 13-1. The court 18 received full briefing and heard oral arguments at a hearing on May 27, 2022. See Opp’n, ECF 19 ///// 2 Parsons’ motion rests exclusively on claim preclusion, also known as “res judicata.” Res judicata is an affirmative defense and is typically pled as such. See Fed. R. Civ. P. 8(c)(1) (“In responding to a pleading, a party must affirmatively state any avoidance or affirmative defense, including: . . . res judicata.”). The court will nevertheless rule on Parsons’ motion to dismiss. The court has the facts necessary to rule on the motion, and there appears to be no other reason why an answer would be useful. See Scott v. Kuhlmann, 746 F.2d 1377, 1378 (9th Cir. 1984) (per curiam) (affirming district court’s dismissal of plaintiff’s complaint where “[t]he defendants raised res judicata in their motion to dismiss under Rule 12(b)(6)” because although “[o]rdinarily affirmative defenses may not be raised by motion to dismiss, . . . this is not true when, as here, the defense raises no disputed issues of fact”); Magana v. Commonwealth of the Northern Mariana Islands, 107 F.3d 1436, 1446 (9th Cir. 1997) (noting Ninth Circuit has “liberalized the requirement that defendants must raise affirmative defenses in their initial pleadings.”); accord Hartmann v. Time, Inc., 166 F.2d 127, 138 (3d Cir. 1947) (noting that claim preclusion “ordinarily is pleaded as an affirmative defense under Rule 8(c) of the Federal Rules of Civil Procedure[,] but this is a mere matter of form”). 1 No. 16; Reply, ECF No. 20; Mins., ECF No. 25. William Klett and William O’Hare appeared for 2 plaintiff Composite; Perry Clark appeared for defendant Parsons. Mins., ECF No. 25. 3 II. DISCUSSION 4 Composite offers three reasons why claim preclusion does not bar its lawsuit in this court. 5 The court assesses these reasons in the order best allowing for organizational clarity. First, 6 although Composite acknowledged at hearing it could have brought the subject claims against 7 Parsons in its Nevada lawsuit, it argues claim preclusion does not apply because Parsons was not 8 a party to the Nevada lawsuit. See Opp’n at 8–12. Second, Composite argues the continued 9 offering and selling of Recon’s patent-infringing tourniquets after Composite filed its Nevada 10 lawsuit “fit[s] into a ‘temporal exception’ to [claim preclusion].” See id. at 6–7. Third, 11 Composite points to a “limitation” on claim preclusion that allows an otherwise precluded claim 12 to go forward if “formal jurisdictional or statutory barriers” prevented a plaintiff from recovering 13 damages in the initial action. Id. at 4–6 (citing Bio-Technology Gen. Corp. v. Genentech, Inc., 80 14 F.3d 1553, 1563 (Fed. Cir. 1996)). Because Composite was unable to recover damages in the 15 Nevada lawsuit due to Recon’s filing for bankruptcy, Composite argues this limitation permits it 16 to recover those damages against Parsons here. Id. The court first addresses whether this lawsuit 17 is barred under the traditional claim preclusion doctrine. Finding that it is, the court next turns to 18 Composite’s “temporal exception” and “limitation” arguments, before briefly addressing an 19 additional argument Composite advanced at the hearing. 20 A. Claim Preclusion 21 Under federal law, claim preclusion bars “lawsuits on any claims that were raised or could 22 have been raised in a prior action.” Stewart v. U.S. Bancorp, 297 F.3d 953, 956 (9th Cir. 2002) 23 (internal quotation marks omitted). In the Ninth Circuit, claim preclusion applies when the prior 24 suit: (1) “involved the same claim or cause of action as the later suit”; (2) “reached a final 25 judgment on the merits”; and (3) “involved the same parties or privies.” Brain Life, LLC v. 26 Elekta Inc., 746 F.3d 1045, 1052 (Fed. Cir. 2014) (citing Mpoyo v. Litton Electro-Optical Sys., 27 430 F.3d 985, 987 (9th Cir. 2005)). However, the first element—whether two claims for 28 infringement constitute the “same claim” or cause of action—is an issue “particular to patent law 1 and thus Federal Circuit law applies.” Roche Palo Alto LLC v. Apotex, Inc., 531 F.3d 1372, 1379 2 (Fed. Cir. 2008). All three elements are satisfied here. 3 As to the first element, to determine whether the same claim or cause of action is present 4 for purposes of claim preclusion in the patent infringement context, the Federal Circuit considers 5 two factors: (1) whether “the same patents are involved in both suits”; and (2) whether the 6 “products or processes” are the same or “essentially the same” in both suits. Senju Pharm. Co. v. 7 Apotex Inc., 746 F.3d 1344, 1349 (Fed. Cir. 2014) (emphasis omitted). It is undisputed that the 8 same patents at issue in the Nevada lawsuit—’067, ’253 and ’807—are at issue here. See, e.g., 9 Compl. ¶ 37 (alleging Parsons is responsible for Recon’s continuing infringement of Composite’s 10 ’067, ’253 and ’807 patents). It also is undisputed that the same tourniquets at issue in the 11 Nevada lawsuit—Recon’s Gen 1, Gen 2, Gen 3 and Gen 4 tourniquets—are at issue here. 12 Compare, e.g., id. ¶¶ 22–25 (alleging Recon’s Gen 1–4 tourniquets infringe Composite’s patents), 13 with, e.g., Perm. Inj. Order at 3 (“The jury found that Recon’s Gen 1, Gen 2, Gen 3, and Gen 4 14 tourniquets infringe [Composite’s] asserted patents.”). The first element is met. 15 Composite nevertheless argues claim preclusion does not apply because it now asserts six 16 claims against Parsons that are “distinct from the claims asserted against Recon in the Nevada 17 Case.” Opp’n at 9. Composite principally relies on the same argument for all six claims, namely, 18 the fact that Parsons was not a party to the Nevada litigation differentiates Composite’s present 19 claims from its claims in the Nevada litigation. See id. at 8–12. In making this argument, 20 Composite does not engage, let alone mention, the Federal Circuit’s “same claim” standard. 21 Instead, Composite points the court to cases unrelated to claim preclusion. See, e.g., id. at 9–10. 22 Because Composite’s claims in the Nevada litigation and its claims in this case both involve the 23 same patents (’067, ’253 and ’807) and the same products (Recon’s Gen 1, Gen 2, Gen 3 and 24 Gen 4 tourniquets), Composite’s argument does not change this court’s conclusion that the same 25 claims are present for claim preclusion purposes. 26 As to the second element, whether the prior suit reached a final judgment on the merits, 27 Composite’s Nevada lawsuit resulted in a jury trial, and the court issued an injunction 28 permanently enjoining Recon, and anyone affiliated with Recon, from selling or otherwise 1 monetizing its infringing tourniquets in any way. See Compl. ¶ 35 (describing jury’s verdict); 2 Perm. Inj. Order at 1, 13. The second element is met; Composite does not appear to dispute this. 3 The third element, whether the prior suit involved the same parties or privies, also is 4 satisfied. Composite indirectly admits as much. See Compl. ¶¶ 50, 62, 74. Specifically, 5 Composite alleges Parsons “is collaterally estopped from challenging the ownership, validity, or 6 infringement of [Composite’s] patents.” Id. Because collateral estoppel requires identity or 7 privity between parties, see United States v. ITT Rayonier, Inc., 627 F.2d 996, 1000 (9th Cir. 8 1980), Composite’s allegation effectively concedes that Recon and Parsons are privies. 9 Even absent this concession, the court finds privity exists here. Composite was the sole 10 plaintiff in the Nevada lawsuit and is the sole plaintiff here; Recon was the sole defendant in the 11 Nevada lawsuit, and Recon’s CEO—Parsons—is the sole defendant here. Although Recon and 12 Parsons are not the same party, the allegations of Composite’s complaint conclusively 13 demonstrate privity between Parsons and Recon for claim preclusion purposes: Composite 14 repeatedly alleges that Parsons “controls Recon” and has “ultimate authority” over all of Recon’s 15 business activities; it describes Parsons as the “moving force” and the person “responsible for all 16 of [Recon’s] relevant decisions” that led to its “tortious acts of patent infringement.” See, e.g., 17 Compl. ¶ 2. Composite further alleges Parsons directed Recon’s litigation decisions in the 18 Nevada lawsuit. See, e.g., id. ¶ 33. The third element is met. See Tahoe-Sierra Pres. Council, 19 Inc. v. Tahoe Reg’l Plan. Agency, 322 F.3d 1064, 1081 (9th Cir. 2003) (“Even when the parties 20 are not identical, privity may exist if there is substantial identity between parties, that is, when 21 there is sufficient commonality of interest.” (internal quotation marks and citation omitted)); ITT 22 Rayonier, 627 F.2d at 1003 (privity may exist if party “had a sufficient interest and participated in 23 the prior action”). 24 In sum, the three-part test for claim preclusion is satisfied, and Composite’s claims are 25 precluded absent an applicable exception or limitation to claim preclusion. 26 ///// 1 B. Claim Preclusion Exception and Limitation 2 1. Temporal Exception 3 Composite argues claim preclusion does not apply because Parsons “continued to commit 4 more acts of patent infringement by offering for sale and by selling infringing tourniquets” 5 (1)during the trial, and (2) following the Nevada court’s finding Composite’s patents valid as a 6 matter of law and after the jury found Recon’s tourniquets infringed Composite’s patents.3 See 7 Opp’n at 6–7. Composite thus argues Parsons’ acts following the filing of its Nevada lawsuit “fit 8 into a temporal exception to [claim preclusion].” Id. at 7. In support, Composite cites to Gillig v. 9 Nike, Inc., 602 F.3d 1354 (Fed. Cir. 2010). In Gillig, the Federal Circuit acknowledged claim 10 preclusion “does not apply to new rights acquired during the action which might have been, but 11 which were not, litigated.” Id. at 1363. Gillig’s focus, as it says, is on “new rights.” Id. 12 Composite does not point to any “new rights” that stem from Parsons’ directing Recon to 13 sell the exact same products that infringe the exact same patents at issue in its Nevada lawsuit. 14 Contra, e.g., id. at 1362–63 (finding exception applied when plaintiff’s second-filed suit was 15 based on property rights assigned to plaintiff more than a year after its first suit was filed). The 16 “temporal exception” to claim preclusion does not apply here. See Adaptix, Inc. v. Amazon.com, 17 Inc., No. 14-01379, 2015 WL 4999944, at *7–8 (N.D. Cal. Aug. 21, 2015) (rejecting same 18 reading of Gillig as “entirely off the mark”). 19 2. “Formal Barriers” Limitation 20 The Restatement (Second) of Judgments § 26(1)(c) states that claim preclusion “does not 21 apply to extinguish [a] claim, and part or all of the claim subsists as a possible basis for a second 22 action by the plaintiff against the defendant” when 23 [t]he plaintiff was unable to . . . seek a certain remedy or form of 24 relief in the first action because of the limitations on the subject 25 matter jurisdiction of the courts or restrictions on their authority to 3 Composite also points to a third time period: after the Nevada court issued its permanent injunction. See Opp’n at 6–7. But no such claim is alleged in the complaint, nor could it have been: The Nevada court issued its permanent injunction after Composite filed its complaint in this court. The issue of whether Parsons violated the Nevada court’s injunction order is thus not properly before this court, and the court will not consider it. 1 entertain multiple theories or demands for multiple remedies or 2 forms of relief in a single action, and the plaintiff desires in the 3 second action to rely on that theory or to seek that remedy or form of 4 relief. 5 The Comment to the provision explains the doctrine of claim preclusion 6 is largely predicated on the assumption that the jurisdiction in which 7 the first judgment was rendered was one which put no formal barriers 8 in the way of a litigant's presenting to a court in one action the entire 9 claim[,] including any theories of recovery or demands for relief that 10 might have been available to him under applicable law. 11 Restatement (Second) of Judgments, § 26(1)(c) cmt. c. 12 Courts applying this limitation will not bar a subsequent action for damages on claim 13 preclusion grounds—even when that action arises from the same factual circumstances as the 14 initial action—“where a plaintiff was precluded from recovering damages in the initial action by 15 formal jurisdictional or statutory barriers, not by plaintiff’s choice.” Burgos v. Hopkins, 16 14 F.3d 787, 790 (2d Cir. 1994) (emphasis added). The Ninth Circuit and Federal Circuit have 17 explicitly endorsed this limitation. See V.V.V. & Sons Edible Oils Ltd. v. Meenakshi Overseas, 18 LLC, 946 F.3d 542, 546 (9th Cir. 2019); Bio-Tech. Gen. Corp. v. Genentech, Inc., 80 F.3d 1553, 19 1563 (Fed. Cir. 1996). 20 Composite argues this limitation applies here. See Opp’n at 4–6. Specifically, Composite 21 argues Recon’s bankruptcy filing created both a jurisdictional barrier, see id. at 5 (arguing 22 Nevada district court “did not have the power” to award damages because bankruptcy laws 23 “created a formal jurisdictional barrier”), and a statutory barrier, see id. at 2–3 (arguing Recon’s 24 bankruptcy filing created a “statutory barrier” that prevented Composite from recovering 25 damages). Parsons appears to agree the bankruptcy filing created some barriers. See Reply at 7 26 (“[T]he only formal barrier to recovery in the Nevada Case identified by Plaintiff Composite 27 relates to damages against Recon.”) (emphasis omitted). But Parsons argues those barriers are 28 not relevant here because Composite “fail[s] to show [or allege] that a damages remedy would not 29 have been available against Defendant Parsons in the Nevada Case.” Id. at 6–7 (emphasis 30 added). 1 The court finds the “formal barriers” limitation does not apply here for two independent 2 reasons. First, the court is not convinced Recon’s filing for bankruptcy created the kind of 3 “formal barriers” contemplated by Section 26(1)(c) of the Restatement or applied by courts 4 following the Restatement’s guidance. Rather, these barriers exist when, for example, a prior 5 proceeding was before a tribunal with limited jurisdiction and the subsequent suit is in federal 6 court. See, e.g., Bio-Tech, 80 F.3d at 1563 (declining to give preclusive effect to International 7 Trade Commission’s dismissal of patent infringement action, even though second-filed action for 8 damages was based on same claim, because there were “jurisdictional limitations on the relief 9 available in the ITC,” namely its power to award damages); V.V.V. & Sons, 946 F.3d at 545–47 10 (finding claim preclusion did not apply to plaintiff’s federal lawsuit when original “limited” 11 proceeding was before Trademark Trial and Appeal Board, which lacked authority to decide 12 plaintiff’s various substantive claims or award damages or injunctive relief); Clark v. Bear 13 Stearns & Co., Inc., 966 F.2d 1318, 1321 (9th Cir. 1992) (claim preclusion not applicable to 14 claims plaintiff could not have brought in prior proceeding before arbitration panel because panel 15 did not have subject matter jurisdiction over those claims). These barriers may also exist when 16 they result from a court system’s continued use of “older modes of procedure,” e.g., when a court 17 insists on distinctive remedies for legal and equitable claims. See Restatement (Second) of 18 Judgments § 26 cmt. c (1982). 19 Composite does not explain how its inability to recover damages in the Nevada case 20 stemmed from any limitations on the Nevada court’s jurisdiction or its continued use, if any, of 21 older modes of procedure. Composite simply argues the Nevada court “did not have the power to 22 award damages” because “once Recon filed for bankruptcy, the bankruptcy laws erected a formal 23 jurisdictional barrier.” Opp’n at 5. Composite does not explain, however, what formal 24 jurisdictional barrier the bankruptcy laws erected when Recon filed for bankruptcy; it also never 25 develops its claim that a “statutory barrier” existed in the Nevada lawsuit. Nor does Composite 26 identify a case in which a plenary federal court proceeding was found to be an ineffective forum. 27 Second, even if Recon’s bankruptcy filing barred Composite from recovering damages 28 from Recon in the Nevada litigation, it did not create a formal barrier to its recovering damages 1 from Parsons. See, e.g., Fromson v. Citiplate, Inc., 886 F.2d 1300 (Fed. Cir. 1989) (affirming 2 district court’s addition of defendant-corporation’s principal officers as defendants in patent 3 infringement lawsuit under Rule 15(c); plaintiff had raised concerns shortly before trial about 4 corporation’s ability to pay and corporation had later declared bankruptcy). At hearing, 5 Composite acknowledged it could have brought the claims it attempts to bring here against 6 Parsons in its Nevada lawsuit. Fromson instructs that those claims could have resulted in a 7 damages award. Because Composite could have recovered damages from Parsons in the Nevada 8 lawsuit, Recon’s bankruptcy filing did not erect a formal barrier to such recovery. 9 C. Acumed 10 Also at hearing, Composite relied heavily on Acumed LLC v. Stryker Corp., 525 F.3d 11 1319 (Fed. Cir. 2008), for its position that claim preclusion does not bar its lawsuit against 12 Parsons in this court. In Acumed, the Federal Circuit reviewed a district court decision that 13 expressly declined to analyze the allegedly infringing products under the “essentially the same” 14 standard, instead finding claim preclusion applied merely because a claim could have been 15 litigated in an earlier lawsuit. Id. at 1324–25. The Federal Circuit reversed, holding that “claim 16 preclusion does not apply unless the accused device in the action before the court is ‘essentially 17 the same’ as the accused device in a prior action between the parties that was resolved by a 18 judgment on the merits.” Id. at 1324 (citation omitted) (emphasis in original). Unlike the 19 Acumed district court, this court does not find claim preclusion applies merely because Composite 20 could have brought the subject claims against Parsons in its Nevada lawsuit; the court finds, 21 consistent with Acumed, claim preclusion applies because Composite’s claims are based on the 22 exact same products that infringe the exact same patents for which Composite could have sued 23 Parsons for damages in its Nevada lawsuit. 24 III. CONCLUSION 25 Parsons’ motion to dismiss is granted. Because Composite is precluded from litigating 26 its claims against Parsons in this court, the motion is granted without leave to amend because any 27 opportunity to amend would be futile. See Fed. R. Civ. P. 15(a); Owens, 244 F.3d at 712. The 28 Clerk of Court is directed to close the case. 1 This order resolves ECF No. 13. 2 IT IS SO ORDERED. 3 DATED: September 9, 2022.