Mitek Systems, Inc. v. Urban Ft, LLC ( 2020 )

1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 SOUTHERN DISTRICT OF CALIFORNIA 8 MITEK SYSTEMS, INC., Case No.: 19-CV-1432-CAB-WVG 9 Plaintiff, ORDER DISMISSING PATENT 10 v. CLAIMS FOR LACK OF SUBJECT MATTER JURISDICTION AND 11 URBAN FT (NORTH AMERICA), LLC, DECLINING SUPPLEMENTAL aka URBAN FT, LLC, 12 JURISDICTION OVER STATE LAW Defendant. CLAIMS 13 14 Plaintiff Mitek Systems, Inc. (“Mitek”) initiated this lawsuit on July 31, 2019, with 15 a complaint seeking declaratory judgment of non-infringement of five United States 16 patents: No. 8,532,419; No. 8,559,766; No. 8,885,963; No. 9,307,206; and No. 9,661,216 17 (collectively, the “Patents in Suit”). The complaint alleged subject matter jurisdiction over 18 these patent claims under 28 U.S.C. § 1331 and 1338, and supplemental jurisdiction over 19 three state law claims for breach of contract, account stated, and open book account 20 stemming from the Defendant/counter-claimant Urban FT (North America) LLC (“Urban 21 FT”) allegedly failing to make payments under a license agreement. [Doc. No. 1.] Mitek 22 subsequently filed a first amended complaint (“FAC”) asserting the same claims. [Doc. 23 No. 8.] 24 Urban FT initially filed an answer to the FAC without asserting any counterclaims 25 for patent infringement. [Doc. No. 16.] The Court subsequently granted Urban FT 26 counsel’s motion to withdraw [Doc. No. 23], and when no counsel entered an appearance 27 to replace the withdrawn counsel, the clerk entered the default of Urban FT. [Doc. No. 26.] 28 1 The Court granted a motion to set aside that default on January 31, 2020. [Doc. No. 31.] 2 On March 17, 2020, Urban FT, now represented by new counsel, filed counterclaims for 3 infringement of only the ‘419 Patent and ‘963 Patent, along with claims for breach of 4 contract and breach of the covenant of good faith and fair dealing. [Doc. No. 41.] 5 On August 27, 2020, Mitek notified the Court that Urban FT does not have an 6 ownership right in any of the five Patents in Suit, meaning that Urban FT lacks standing to 7 claim patent infringement. [Doc. No. 53.] The Court then issued an order to show cause 8 giving Urban FT an opportunity to establish that there is subject matter jurisdiction for its 9 patent infringement claims. [Doc. No. 59.] Upon review of the parties’ responses to the 10 order to show cause, the Court finds that Urban FT does not own any of the five Patents in 11 Suit, and that therefore, Urban FT lacks standing and the Court lacks subject matter 12 jurisdiction over all claims, counterclaims, and defenses related to alleged infringement. 13 I. The Oregon Lawsuit 14 On July 27, 2018, Rex Stevens filed a complaint against Urban FT, Inc. (“UFTI”) 15 and iParse, LLC, neither of whom are parties here, in the Circuit Court of the State of 16 Oregon for the County of Multnomah, Case No. 18cv32488 (the “Oregon Lawsuit”). [Doc. 17 No. 53-5.] Stevens’ complaint alleged that UFTI and iParse were in default under the terms 18 of Secured Promissory Note dated July 12, 2017. [Doc. No. 53-5 at 5.] In connection with 19 that Promissory Note, iParse and UFTI had separately entered into a July 12, 2017 IP 20 Security Agreement with Stevens that listed the Patents in Suit as part of the collateral for 21 the Promissory Note. [Doc. No. 61 at 14.] 22 On September 8, 2020, the Oregon Circuit Court entered judgment for Stevens and 23 specifically ruled that Stevens is entitled to possession of the Patents in Suit and other 24 collateral listed in the IP Security Agreement. [Doc. No. 61 at 9-11.] Notably, that other 25 collateral also includes “any and all claims and causes of action with the respect to the 26 [Patents in Suit], whether occurring before, on or after [July 12, 2017], including all rights 27 to and claims for damages, restitution and injunctive and other legal and equitable relief 28 for past, present and future infringement. . . .” [Doc. No. 61 at 16.] The Circuit Court 1 judgment also states that iParse and UFTI “can no longer make use of the intellectual 2 property that is the subject of the IP Security Agreement,” which includes the Patents in 3 Suit. [Id. at 11.] 4 II. Urban FT’s Claims to Ownership of the Patents in Suit 5 Urban FT, meanwhile, claims ownership of the Patents in Suit based on a December 6 22, 2017 agreement between it and iParse. [Doc. No. 64-1.] Necessarily, because this 7 agreement was executed after iParse and UFTI had already given Stevens a security interest 8 in the Patents in Suit, Urban FT’s rights in the Patents in Suit were also subject to those 9 security interests. Accordingly, based on the Oregon Circuit Court’s judgment that Stevens 10 is entitled to possession of the Patents in Suit, any right, title and interest Urban FT may 11 have had in the Patents in Suit when this Mitek filed this case or when Urban FT filed its 12 counterclaims, including any claims Urban FT may have had for infringement and damages 13 past, present and future, were extinguished no later than September 8, 2020.1 14 Urban FT disputes the Oregon Circuit Court judgment on multiple grounds. This 15 Court, however, does not have the authority to review the decision of an Oregon state court. 16 D.C. Court of Appeals v. Feldman, 460 U.S. 462, 482 (1983) (“[A] United States District 17 Court has no authority to review final judgments of a state court in judicial proceedings.”). 18 While Urban FT has filed motions in the state court to set aside and/or void the court’s 19 order, at this time, the judgment is final. This Court must respect the decision of the Oregon 20 state court. U.S. Const. Art. IV § 1; 28 U.S.C. § 1738 (State court judgments must be 21 respected and given full faith and credit in U.S. District Courts.). 22 III. Based on the Oregon Circuit Court Judgment, Urban FT Lacks Standing 23 In an action for patent infringement the plaintiff must be a patentee pursuant to 35 24 U.S.C. §281. Likewise, in an action for declaratory judgment of non-infringement, if the 25 26 1 It could be argued that because the Oregon Judgment effectively holds that UFTI and iParse were in 27 default of the Promissory Note as of the filing of the lawsuit on July 28, 2018, and rights they had, and by extension Urban FT obtained via its December 22, 2017 agreement with iParse, were extinguished as of 28 1 defendant is not a patentee, there can be no basis for declaratory relief against that 2 defendant. Here, based on the final judgment in the Oregon Lawsuit, Urban FT does not 3 presently hold right, title and interest to any of the Patents in Suit, or to any past 4 infringement claims alleged against Mitek. Accordingly, Mitek’s claims for declaratory 5 judgment of non-infringement, and Urban FT’s counterclaims for patent infringement and 6 related affirmative defenses based on infringement of the patents, are dismissed for lack of 7 subject matter jurisdiction. 8 IV. Supplemental Jurisdiction Over Remaining State Law Claims 9 Dismissal of the patent claims leaves only state law claims that are before this Court 10 on the basis of supplemental jurisdiction. Because the patent claims have been dismissed 11 for lack of standing, this Court arguably no longer has the discretion to exercise 12 supplemental jurisdiction over the remaining claims. Textile Prods., Inc. v. Mead Corp., 13 134 F.3d 1481, 1486 (Fed. Cir. 1998) (“Upon dismissal of the patent infringement claim 14 for lack of standing, the district court lacked supplemental jurisdiction to consider the 15 contract claim.”).2 16 Regardless, when all federal claims are dismissed, the Court’s “decision of whether 17 to exercise supplemental jurisdiction over the remaining state law claims ‘is purely 18 discretionary.’” Couture v. Wells Fargo Bank, N.A., No. 11-CV-1096-IEG CAB, 2011 19 WL 3489955, at *4 (S.D. Cal. Aug. 9, 2011) (quoting Carlsbad Tech., Inc. v. HIF Bio, Inc., 20 556 U.S. 635, 639 (2009)). “While discretion to decline to exercise supplemental 21 jurisdiction over state law claims is triggered by the presence of one of the conditions in § 22 1367(c), it is informed by the Gibbs3 values ‘of economy, convenience, fairness, and 23 comity.’” Acri v. Varian Assocs., Inc., 114 F.3d 999, 1001 (9th Cir.1997) (en banc) 24 25 2 Because, based on the unique facts here, Urban FT may have had standing when the complaint was filed, 26 but subsequently lost it during the pendency of this lawsuit based on the Oregon Lawsuit Judgment, an argument could be made that the Court retains discretion to retain supplemental jurisdiction in this 27 instance. However, as the Court declines to exercise any discretion it may have to exercise supplemental jurisdiction, there is no need to explore whether Textile Products is distinguishable. 28 1 (citations omitted). To that end, “when the federal-law claims have dropped out of the 2 || lawsuit in its early stages and only state-law claims remain, the federal court should decline 3 exercise of jurisdiction by dismissing the case without prejudice.” Carnegie-Mellon 4 || Univ. v. Cohill, 484 U.S. 343, 350 (1988) (emphasis added); see also Gibbs, 383 U.S. at 5 (“[I]f the federal claims are dismissed before trial, even though not insubstantial in a 6 || jurisdictional sense, the state claims should be dismissed as well.”) (emphasis added). 7 || Here, although this case was filed eighteen months ago, the case was still in its early stages 8 discovery when the Court vacated all case management deadlines in September pending 9 |/resolution of the jurisdictional issues resolved herein. Accordingly, the Court finds that 10 || “judicial economy, convenience, fairness, and comity” weigh in favor of the Court 11 declining to exercise supplemental jurisdiction over the parties’ state law claims. 12 V. Disposition 13 For the reasons stated herein, it is hereby ORDERED that Mitek’s claims for 14 |!declaratory judgment of non-infringement, and Urban FT’s counterclaims for patent 15 ||infringement and related affirmative defenses based on infringement of the patents, are 16 DISMISSED WITHOUT PREJUDICE for lack of subject matter jurisdiction. It is 17 further ORDERED that the remaining state law claims are DISMISSED WITHOUT 18 || PREJUDICE to refiling in an appropriate state court. 19 It is SO ORDERED. 20 ||Dated: December 17, 2020 21 22 73 Hon. Cathy Ann Bencivengo United States District Judge 24 25 26 27 28