Ropes & Gray LLP v. Jalbert (In Re Engage, Inc.)

United States Court of Appeals
For the First Circuit
No. 08-1257
IN RE ENGAGE, INC., ET AL.,
Debtors
ROPES & GRAY LLP,
Appellant,
v.
CRAIG R. JALBERT, as Liquidating Supervisor,
Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
Lynch, Chief Judge,
Boudin and Lipez, Circuit Judges.
D. Ross Martin with whom Christopher Thomas Brown, Jonathan B.
Lackow, and Ropes & Gray LLP were on brief for appellant.
Robert M. Abrahamsen, Michael A. Albert, Allen S. Rugg, Eric
G.J. Kaviar, Wolf, Greenfield & Sacks, P.C., Erik Paul Belt, and
Bromberg and Sunstein LLP were on brief for Boston Patent Law
Association, amicus curiae.
Andrew Z. Schwartz with whom Joshua S. Pemstein and Foley Hoag
LLP were on brief for appellee.
October 6, 2008
LYNCH, Chief Judge. The key issue in this bankruptcy
case is whether the Massachusetts attorney's lien statute, chapter
221, section 50 of the Massachusetts General Laws, applies to
patent prosecution work performed by attorneys. The courts of the
Commonwealth have never addressed this issue. Nor is it clear from
existing case law or a reading of the statute what the answer is.
Further, any chosen answer will have significant policy
ramifications. We conclude the issue should be certified to the
Massachusetts Supreme Judicial Court ("SJC"), pursuant to its Rule
1:03. See Boston Gas Co. v. Century Indem. Co., 529 F.3d 8, 15
(1st Cir. 2008).
I.
The case arises from federal bankruptcy proceedings
initiated five years ago by Engage, Inc., an advertising software
company, and certain of its affiliates ("Debtors"). The relevant
facts are briefly recounted. Ropes & Gray LLP ("R&G") performed
legal services -- primarily patent prosecution work -- for the
Debtors from around July 2002 through May 2003. The Debtors filed
petitions for relief under Chapter 11 of the Bankruptcy Code on
June 19, 2003. In a filing before the bankruptcy court shortly
thereafter, R&G asserted it was owed $108,737.11, secured by an
attorney's lien under chapter 221, section 50 of the Massachusetts
General Laws, for unpaid patent prosecution work performed prior to
this date. Additionally, R&G asserted an unsecured claim for
-2-
approximately $49,517.37, primarily for corporate licensing work
performed in 2003.
The Debtors, who had sold their patents and patent
applications in transactions before and after the petition date,
agreed to reserve from the sale proceeds an amount equal to R&G's
asserted lien, while reserving their rights to object to R&G's
claims. On August 4, 2004, the Liquidating Supervisor filed an
objection to R&G's secured claim, arguing, inter alia, that the
Massachusetts attorney's lien statute did not apply to patents and
patent applications.
The bankruptcy court agreed, sustaining the Liquidating
Supervisor's objection. In re Engage, Inc. (Engage I), 315 B.R.
208, 208 (Bankr. D. Mass. 2004). In an October 8, 2004 order, it
held that the lien statute did not apply to patent prosecution
work.1 Id. at 213-14. It concluded that neither a patent nor a
patent application is a "judgment, decree or other order" under the
terms of the statute. Id. at 214. Even if a patent could be
characterized as an order, the court reasoned that the proceeds
from the sale of a patent would be derived not from the order but
from the sale of the underlying intellectual property. Id. R&G
could have no more than an inchoate lien in the proceeds from the
1
The bankruptcy court based its rejection of R&G's secured
claim primarily on Virginia law, which it found to be applicable.
Engage I, 315 B.R. at 211-13. However, it proceeded to analyze
Massachusetts law in the alternative and reached the same
conclusion. Id. at 213.
-3-
sale of the Debtors' patents and patent applications. Id. at 214-
15. Thus, the bankruptcy court reasoned, R&G's claim was
unsecured. Id. at 217.
R&G appealed the bankruptcy order to the district court.
It also filed a motion requesting that the district court certify
questions on the attorney's lien statute to the SJC. In re Engage
Inc. (Engage II), 330 B.R. 5, 6 n.1 (D. Mass. 2005). On September
1, 2005, the district court affirmed the bankruptcy court, finding
that the attorney's lien statute did not apply to patents or patent
applications or to proceeds from the resulting sale.2 Id. at 7,
14-21. The district court also rejected R&G's request for
certification, concluding that the issue could be resolved by
applying existing case law. See id. at 6 & n.1. The matter was
then returned to the bankruptcy court because the order was not yet
"final" within the meaning of 28 U.S.C. § 158(d).
On August 15, 2007, R&G and the Liquidating Supervisor
filed a joint motion before the bankruptcy court, agreeing to
liquidate R&G's claim. The parties also agreed that the
Liquidating Supervisor would reserve $27,500, which R&G would
receive if it were ultimately found to have a secured claim. The
bankruptcy court approved this compromise and disallowed the
2
The district court rejected the bankruptcy court's
determination that Virginia law rather than Massachusetts law
applied. Engage II, 330 B.R. at 14. We agree that Massachusetts
law applies.
-4-
secured claim in its final order, issued September 10, 2007. On
December 27, 2008, the district court affirmed the final order on
the grounds set forth in its 2005 decision. R&G appealed to this
court3 and again requested that questions on the Massachusetts
attorney's lien statute be certified to the SJC.4
II.
This court may certify questions to the SJC in cases,
such as this, where it finds no controlling precedent and where the
questions may be determinative of the pending cause of action. See
Mass. S.J.C. R. 1:03; Boston Gas Co. v. Century Indem. Co., 529
F.3d at 15; Nieves v. Univ. of P.R., 7 F.3d 270, 274 (1st Cir.
1993). These conditions are met. First, the SJC has not decided
whether the Massachusetts attorney's lien statute applies to patent
prosecution work, and, if so, whether the attorney's lien attaches
to proceeds from the sale of issued patents or patent applications.
Second, in our view, this state law issue may be determinative of
R&G's cause of action, and there is no controlling precedent,
bringing the case within Rule 1:03. R&G's arguments in the
3
The Boston Patent Law Association filed a brief as amicus
curiae in support of R&G.
4
R&G's motion for certification was denied on June 30,
2008, without prejudice to reconsideration by this panel after oral
argument.
-5-
bankruptcy court depend on the appropriate construction of the
Massachusetts attorney's lien statute.5
We also think it appropriate to exercise our discretion
in favor of certification. In a case such as this, it is within
our discretion either to "make our best guess on this de novo
review issue" or to certify the question to the SJC. Boston Gas
Co., 529 F.3d at 13. This is not a case in which "the course [the]
state court[] would take is reasonably clear." Nieves, 7 F.3d at
275 (alterations in original) (quoting Porter v. Nutter, 813 F.2d
37, 41 n.4 (1st Cir. 1990)) (internal quotation marks omitted).
Moreover, certification is particularly appropriate here since the
answers to these questions may hinge on policy judgments best left
to the Massachusetts court and will certainly have implications
5
If the SJC determines, in response to the first question
we certify, that the lien statute does not apply to patents or
patent applications, that will be dispositive of the entire federal
case. If the SJC holds that the lien statute does apply, it may be
that that decision alone will not dispose of one portion of R&G's
claim, which is to post-petition sale proceeds.
R&G claims that, under federal bankruptcy law, if it had
a lien on any of the patents or patent applications that were sold
subsequent to the petition date, then it would have a lien on the
proceeds from any such sales, independent of state law. On this
view, it is possible that only one of the two questions that we
certify below will itself determine part of R&G's claim. If the
SJC determines that the Massachusetts attorney's lien statute
applies to patent prosecution work, then the status of R&G's claim
as to the post-petition sale proceeds may hinge on federal rather
than state law. Nonetheless, the second certified question will
still be determinative as to the pre-petition sale proceeds.
To the extent it should become necessary, we will address
the federal law issue in light of the SJC's answers. See Brown v.
Crown Equip. Corp., 501 F.3d 75, 80 (1st Cir. 2007).
-6-
beyond these parties. See Boston Gas Co., 529 F.3d at 14-15; Brown
v. Crown Equip. Corp., 501 F.3d 75, 78 (1st Cir. 2007).
It is true that even in the absence of controlling
precedent, certification would be inappropriate where state law is
sufficiently clear to allow us to predict its course. See Hugel v.
Milberg, Weiss, Bershad, Hynes & Lerach, LLP, 175 F.3d 14, 18 (1st
Cir. 1999); Armacost v. Amica Mut. Ins. Co., 11 F.3d 267, 269 (1st
Cir. 1993); Nieves, 7 F.3d at 274-75. This case, however, presents
a close and difficult legal issue. See Boston Gas Co., 529 F.3d at
15; Brown, 501 F.3d at 77.
We explain why we think so. Some background on the
nature of patents and the patent prosecution process informs our
analysis. Patents are granted by the United States Patent and
Trademark Office in potentially multi-staged proceedings which,
while not akin to a traditional trial, may take on certain
adversarial qualities. Decisions of the Patent Office may be
appealed by the applicant or, in some instances, challenged by a
third party before the Board of Patent Appeals and Interferences.
35 U.S.C. § 134. An applicant may challenge a decision by the
Board by appealing to the Federal Circuit, id. § 141, or by filing
a suit in district court, id. § 145. If granted, a patent provides
a right to exclude others from practicing an invention. See id. §§
271, 283; Crown Die & Tool Co. v. Nye Tool & Mach. Works, 261 U.S.
24, 35-37 (1923). This exclusive right is "a species of property
-7-
. . . of the same dignity as any other property which may be used
to purchase patents." Transparent-Wrap Mach. Corp. v. Stokes &
Smith Co., 329 U.S. 637, 643 (1947). A favorable decision by the
Patent Office thus provides the applicant with a property interest
-- to exclude others from use of the property -- which may itself
be sold, and in that sense is independent of the underlying
intellectual property. This property interest, even at the stage
of a patent application, is freely assignable. Federal law, 35
U.S.C. § 261, provides that "patents shall have the attributes of
personal property. Applications for patent, patents, or any
interest therein, shall be assignable in law by an instrument in
writing."
Turning back to the state law question, the Massachusetts
attorney's lien statute provides that:
From the authorized commencement of an action,
counterclaim or other proceeding in any court,
or appearance in any proceeding before any
state or federal department, board or
commission, the attorney who appears for a
client in such proceeding shall have a lien
for his reasonable fees and expenses upon his
client's cause of action, counterclaim or
claim, upon the judgment, decree or other
order in his client's favor entered or made in
such proceeding, and upon the proceeds derived
therefrom.
Mass. Gen. Laws ch. 221, § 50. This present version of the statute
was enacted in 1945. The previous version read:
An attorney who is lawfully possessed of an
execution, or who has prosecuted a suit to
final judgment in favor of his client, shall
-8-
have a lien thereon for the amount of his fees
and disbursements in the cause . . . .
Rev. Laws. Mass. 1902 ch. 165, § 48.
In our view, the change in and expansion of the language
in the 1945 amendment tends to support R&G's arguments that a
patent application is a "claim" and that a patent is an "order in
[the] client's favor." The lien statute was broadened in 1945
beyond actions and counterclaims to include "other proceeding[s]."
It was also broadened to include "proceeding[s] before any state or
federal department, board or commission" -- terms that encompass
administrative proceedings and both state and federal proceedings.
This tends to support R&G's argument that the state legislature's
broadening of the statute was a rejection of a limitation on
attorney's liens to only traditional "cause[s] of action,
counterclaim[s] or claim[s]." By broadening the statute to other
proceedings before any federal department, the state legislature,
R&G argues, also rejected limiting the applicability of attorney's
liens to trial-like proceedings against an adverse party.
The language of the statute itself does not contradict
R&G's arguments. Pursuing a patent before the Patent Office clearly
constitutes a "proceeding" before a federal department. The fact
that "claim" is a term of art in patent law does not mean that the
filing of an application for a patent before the Patent Office
cannot also be a "claim" under the statute. See Black's Law
Dictionary 264 (8th ed. 2004) (defining "claim" as, inter alia, "[a]
-9-
demand for . . . property . . . to which one asserts a right"). Nor
does the plain language of the statute itself dictate that the
issuing of a patent by the Patent Office -- which confers a legal
right upon the client -- cannot be an "order."
The language and history of the state statute also tend
to favor somewhat R&G's position that an attorney's lien may arise
prior to the issuance of a "judgment, decree or other order." Given
the structure of the amended statute, specifically the repetition
of "upon," it is natural to read the statute as applying,
independently, to a "cause of action, counterclaim or claim," to a
"judgment, decree or other order in [the] client's favor," and/or
to "proceeds derived therefrom." The Liquidating Supervisor argues
that the text of the statute "follows the procedural progression of
a typical litigation," so one must have a "judgment, decree or other
order" and "proceeds derived" from that order for a lien to be
enforceable. This reading is less natural.
The Liquidating Supervisor's reading is also somewhat out
of keeping with the statute's history. The change in language
implemented in 1945 may evince a legislative intent to abrogate the
requirement that a suit proceed to final judgment before an
attorney's lien attaches.
This is not a case, however, in which the text or
statutory history are so clear as to make certification "a waste of
judicial resources." See Armacost, 11 F.3d at 269. It is unclear,
-10-
for example, whether "therefrom" in the third "upon" clause is
intended to refer to the subject of the previous two clauses or only
to that of the immediately preceding clause. That is, the lien may
apply to proceeds derived from a claim or a judgment or it may apply
only to those derived from a judgment; the text does not obviously
foreclose either reading. And while it is evident that the
legislature intended to expand the applicability of the lien beyond
court and court-like adversarial proceedings, it is also likely that
it intended some limit on the scope of the statute. The Liquidating
Supervisor argues that one consequence of an expansive reading of
the statutory terms would be that a "cause of action" or "claim" may
also extend to applications, filed by attorneys, for "taxi
medallions, nursing home licenses, zoning variances, building
permits, liquor licenses, . . . [or] environmental permits."
Neither side can point to text or to legislative history that
conclusively addresses this issue. This is not surprising. In
1945, the number and type of administrative proceedings were far
fewer. Of course, patent applications made to the Patent Office
predate the 1945 amendment.
The Liquidating Supervisor argues, and the district court
found, that there is a body of case law interpreting the
Massachusetts lien statute sufficient to allow a federal court
safely to resolve the issues of state law presented in this case.
If this were the case, then certification would be inappropriate,
-11-
notwithstanding the lack of binding precedent or unambiguous
statutory command. See Marbucco Corp. v. Suffolk Constr. Co., 165
F.3d 103, 105 (1st Cir. 1999); Snow v. Harnischfeger Corp., 12 F.3d
1154, 1161 (1st Cir. 1993); see also Nicolo v. Philip Morris, Inc.,
201 F.3d 29, 33 (1st Cir. 2000).
The Liquidating Supervisor can point to language in
certain opinions that appears to support his interpretation of the
attorney's lien statute. We focus on the principal state cases
cited. Torphy v. Reder, 257 N.E.2d 435 (Mass. 1970), arose from a
suit in equity brought against Reder by Reder's wife to determine
ownership in several stock certificates and bankbooks, among other
things. Id. at 437. After a court ordered Reder to surrender the
property, an attorney who had represented Reder through part of the
proceedings claimed he had an attorney's lien on the stock
certificates. Id. The SJC rejected the lawyer's claim, finding
that "since there was no decree in [the client's] favor there was
nothing to which the statutory lien could attach." Id. "[T]he type
of lien created" by the attorney's lien statute, the SJC reasoned,
"is a charging lien which binds the judgment or money decree for
payment of expenses incurred and for services rendered by an
attorney." Id. at 437-38 (emphasis added).
In Collins v. Town of Webster, 522 N.E.2d 12 (Mass. App.
Ct. 1988), two parties, represented by different lawyers, were
jointly awarded a judgment of $86,888.88 in a suit arising from a
-12-
taking by eminent domain of certain property by the town of Webster.
Id. at 12-13. After judgment was entered, the attorney for one
party claimed he had the right to be paid from the full amount of
the damages awarded. Id. at 13. The Massachusetts appeals court
rejected the claim that the attorney had a lien on the full amount,
finding that he only had a lien over his clients' share of the
recovery. Id. at 13-14. Under the Massachusetts statute, the court
reasoned, "the attorney's lien may be enforced only to the extent
of the judgment in favor of the client." Id. at 14.6
The language in these cases, however, does not provide
"compelling guidance" on the direction of state law in the present
context. Nicolo, 201 F.3d at 33. First, there is the danger of
unmooring language from the facts of a case and the precise issue
presented in the context of those facts. Neither Torphy nor Collins
involve patent prosecutions or proceedings before an administrative
agency. Further, as R&G notes, both are cases in which the
6
The Liquidating Supervisor's citation to In re Leading
Edge Prods., Inc., 121 B.R. 128 (Bankr. D. Mass. 1990), a
bankruptcy court decision interpreting the Massachusetts statute,
is not authoritative as to the direction of state law. The
Liquidating Supervisor also cites two unpublished Massachusetts
appeals court decisions, Bartermax, Inc. v. Discover Boston Multi-
Lingual Trolley Tours, Inc., No. 06-P-1827, 2008 WL 314150 (Mass.
App. Ct. Feb. 5, 2008), and Gormley v. Wilkins, No. 00-P-1490, 2002
WL 31204473 (Mass. App. Ct. Oct. 3, 2002). Under the appeals court
rules, these decisions, issued prior to February 25, 2008, could
not be relied upon or cited as precedent. See Chace v. Curran, 881
N.E.2d 792, 795 n.4 (Mass. App. Ct. 2008); Lyons v. Labor Relations
Comm'n, 476 N.E.2d 243, 246 n.7 (Mass. App. Ct. 1985). We do not
consider them.
-13-
attorney's lien was asserted after a resolution to the proceedings
was reached.7 By R&G's reading, these cases deal only with the
question of what constitutes a judgment "in [the] client's favor"
once a judgment has been issued; they say nothing about how a state
court would interpret the statute in the pre-judgment context.
R&G can also point to language supporting its
interpretation of the statute. See, e.g., In re Discipline of an
Attorney, 884 N.E.2d 450, 462 n.19 (Mass. 2008) ("By the plain terms
of [the statute], for an attorney to be entitled to file a lien,
there must be, among other requirements, 'an action, counterclaim
or other proceeding in any court,' and the attorney must have
'appear[ed] for [the] client' in that matter." (alterations in
original)).8 Thus, we find that the existing case law does not
7
The same is true of Northeastern Avionics, Inc. v. City
of Westfield, 827 N.E.2d 721 (Mass. App. Ct. 2005), and Craft v.
Kane, 747 N.E.2d 748 (Mass. App. Ct. 2001), two state court cases
that the Liquidating Supervisor argues adopt the reasoning of
Leading Edge. The disputes in both Northeastern Avionics and Craft
arose after settlement agreements had been reached in the
underlying actions. See Ne. Avionics, 827 N.E.2d at 725 (holding
that a settlement constitutes a "judgment" for the purposes of the
Massachusetts attorney's lien statute and therefore that a lien
could attach to the proceeds of that settlement); Craft, 747 N.E.2d
at 752 n.8 (distinguishing Leading Edge on the grounds that,
"[h]ere, . . . there is a settlement payment of money," and
therefore a "judgment" to which the lien attached).
8
R&G points out that the attorney's lien statutes of two
other states have been interpreted in accordance with R&G's
arguments, see Hedman, Gibson & Costigan, P.C. v. Tri-Tech Sys.
Int'l, Inc., No. 92 Civ. 2757, 1994 WL 18536, at *4 (S.D.N.Y. Jan.
14, 1994); Schroeder, Siegfried, Ryan & Vidas v. Modern Elec.
Prods., Inc., 295 N.W.2d 514, 515-16 (Minn. 1980). The language of
the statutes involved in those cases is, however, very different.
-14-
provide sufficient guidance to allow us reasonably to predict the
course of Massachusetts law. See Brown, 501 F.3d at 77; Nicolo, 201
F.3d at 33.
This is also not a case in which the "policy arguments
line up solely behind one solution." Boston Gas Co., 529 F.3d at
14. As the SJC has recognized, the "underlying goal" of the
Massachusetts attorney's lien statute is "the protection of the
unpaid attorney." Boswell v. Zephyr Lines, Inc., 606 N.E.2d 1336,
1341 (Mass. 1993). One may argue that a patent attorney who
successfully secures a legal right for his or her client in
proceedings before the Patent Office should receive the same
protection accorded to an attorney who secures a favorable judgment
for his or her client in court.
The Liquidating Supervisor cautions, on the other hand,
that an overly broad reading of the statute would create a system
of roving, secret liens, in which "any pending applications before,
or rights granted by, any municipal, state or federal agency" would
give rise to unrecorded liens of unlimited duration, causing
considerable disarray to the rights of later purchasers.9
Ultimately, determining the scope of the Massachusetts attorney's
9
R&G asserts there is nothing secret about the identity of
the attorney on an issued patent or a patent application, as the
name of the law firm appears on the first page of an issued patent
and a search of patent applications lists all law firms that have
appeared in a given patent prosecution.
-15-
lien statute may well involve policy judgments, and those judgments
are best made by the SJC. See Brown, 501 F.3d at 78.
We have noted that the fact "[t]hat a legal issue is
close or difficult is not normally enough to warrant certification,"
since otherwise cases involving state law "would regularly require
appellate proceedings in two courts." Boston Gas Co., 529 F.3d at
15. The answers to the questions in this case, however, clearly
have implications which go beyond these parties. See id.; Brown,
501 F.3d at 77. Certification may superficially appear to be a less
efficient route, but any answer a federal court may give on this
state law question is not a final answer. Only the SJC can give a
final answer in this case. Given the importance and complexity of
the questions presented in this case, we find certification is
proper here.10
We therefore certify to the Massachusetts SJC the
following questions:
10
The Liquidating Supervisor argues that certification is
improper because R&G failed to request certification prior to the
bankruptcy court's first order and only requested certification in
its appeal to the district court. This may weaken R&G's claim for
certification. See Boston Car Co. v. Acura Auto. Div., Am. Honda
Motor Co., 971 F.2d 811, 817 n.3 (1st Cir. 1992) ("[T]he practice
of requesting certification after an adverse judgment has been
entered should be discouraged." (quoting Perkins v. Clark Equipment
Co., 823 F.2d 207, 210 (8th Cir. 1987))); Fischer v. Bar Harbor
Banking & Trust Co., 857 F.2d 4, 8 (1st Cir. 1988). However, R&G
did request certification in the district court. Moreover, this
court maintains discretion to certify questions to the SJC when a
party fails to request certification in the court below, or even
sua sponte. See Nieves, 7 F.3d at 278 n.15; Fischer, 857 F.2d at
8; see also Brown, 501 F.3d at 77.
-16-
1. Does chapter 221, section 50 of the
Massachusetts General Laws grant a lien on
patents and patent applications to a
Massachusetts attorney for patent prosecution
work performed on behalf of a client?
2. If chapter 221, section 50 of the
Massachusetts General Laws does grant a lien
and the issued patents or patent applications
are sold, does the attorney's lien attach to
the proceeds of the sale?
We would also welcome any additional observations about
Massachusetts law that the SJC may wish to offer.
The clerk of this court is directed to forward to the
Massachusetts SJC, under the official seal of this court, a copy of
the certified questions and our decision in this case, along with
a copy of the briefs and appendix filed by the parties, which set
forth all facts relevant to the issues certified. We retain
jurisdiction pending that court's determination.
It is so ordered.
-17-