Verify Smart Corp v. Bank of America NA

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 21-2353
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VERIFY SMART CORP,
Appellant
v.
BANK OF AMERICA NA;
BANK OF AMERICA CORP;
WELLS FARGO BANK NA;
WELLS FARGO & CO;
DAVID LEITCH; GARY LYNCH;
JAMES STROTHER; JIM HOWARD;
SEAN REILLY
______________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
(D.C. No. 2:17-CV-04248)
District Judge: Honorable John M. Vazquez
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Submitted Under Third Circuit L.A.R. 34.1(a)
on June 22, 2022
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Before: MCKEE, RESTREPO, BIBAS, Circuit Judges.
(Filed: August 31, 2022)
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OPINION*
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RESTREPO, Circuit Judge.
This appeal arises from the fallout of a patent-infringement settlement. Appellant
Verify Smart Corp sued Appellees Wells Fargo and Bank of America (the “Banks”),
alleging that the Banks acted though a banking industry group’s subsidiary to challenge a
patent they were contractually prohibited from challenging themselves. The District
Court dismissed Verify’s claims on the basis that it failed to plausibly allege an agency
relationship between the industry group’s subsidiary and the Banks. We will affirm.
I.1
Prior to the instant litigation, Verify brought claims against the Banks for
allegedly infringing its patent for multifactor-identification software. In response, Bank
of America challenged the patent. They all settled, with the Banks promising not to
challenge Verify’s patent. But shortly thereafter, a subsidiary of a banking industry
group—of which both Banks were members—challenged the same patent and succeeded
in invalidating it. Understandably suspicious, Verify sued the Banks, claiming that they
had breached and fraudulently induced the settlement agreements.
*
This disposition is not an opinion of the full Court and, pursuant to I.O.P. 5.7, does not
constitute binding precedent.
1
As we write for the benefit of the parties, we set out only the facts necessary for the
discussion that follows.
2
The crux of Verify’s theory is that Askeladden L.L.C., the wholly-owned
subsidiary of banking industry group The Clearing House Payments Company L.L.C.
(“TCH”), acted as the Banks’ agent to challenge the patent—which they were
contractually forbidden to do themselves. In support, Verify alleged that: (i) the Banks
and their peer institutions own and control TCH; (ii) TCH owns and controls Askeladden;
(iii) TCH created Askeladden to challenge patents that adversely effect TCH’s owners,
including the Banks; (iv) TCH controls Askeladden’s patent challenges on behalf of the
Banks; and (v) Askeladden has an established practice of suing patent owners after
TCH’s member banks settle their patent challenges, and it did just that here.
After Verify had several chances to amend its claims, the District Court dismissed
its Third Amended Complaint with prejudice. It held that Verify failed to state a claim
against the Banks for breach of contract and fraud on the basis that it failed to plausibly
allege they had an agency relationship with Askeladden.2 Verify’s allegations relied
heavily on Askeladden’s LLC Agreement for purposes of establishing agency. But the
District Court found Verify’s reliance misplaced, concluding that the LLC Agreement
contradicted the existence of any agency relationship. It also found Verify’s allegations
insufficient to establish that any of the individuals Verify identified as associated with the
Banks had “any authority to direct Askeladden to challenge patents” or had ever
2
Verify’s notice of appeal generally references the District Court’s entry of dismissal of
the entire Third Amended Complaint—which included claims and defendants other than
its breach and fraud claims against the Banks that we address here. But Verify makes no
effort in its briefing to challenge the dismissal of those other claims, so they are
abandoned. See Sikora v. UPMC, 876 F.3d 110, 112 n.1 (3d Cir. 2017).
3
communicated with the Banks in connection with filing the patent challenge. JA25.
Verify timely appealed.3
II.
We review de novo a district court’s order granting a motion to dismiss for failure
to state a claim. Wheeler v. Hampton Twp., 399 F.3d 238, 242 (3d Cir. 2005). At the
motion to dismiss stage, “we accept all well-pleaded allegations in the Complaint as true
and draw all reasonable inferences in favor of the non-moving part[y].” M.A. ex rel. E.S.
v. State-Operated Sch. Dist. of City of Newark, 344 F.3d 335, 340 (3d Cir. 2003) (citing
Bd. of Trustees of Teamsters Local 863 Pension Fund v. Foodtown, Inc., 296 F.3d 164,
168 (3d Cir. 2002)). To survive a motion to dismiss, factual allegations “must be enough
to raise a right to relief above the speculative level,” which “requires more than labels
and conclusions.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). We may affirm
on any grounds supported by the record. Hassen v. Gov’t of V.I., 861 F.3d 108, 114 (3d
Cir. 2017).
III.
Verify contends that the District Court erred in holding that it failed to plead
Askeladden was acting as the Banks’ agent when it challenged Verify’s patent. We
disagree.
Verify failed to plausibly allege that Askeladden acted as an agent for the Banks
when it filed the challenge to Verify’s now-invalidated patent. While we agree with the
3
The District Court had jurisdiction pursuant to 28 U.S.C. § 1332(a). We have
jurisdiction pursuant to 28 U.S.C. § 1291.
4
District Court that the timing of Askeladden’s patent challenge was “suspicious,” see JA
290, we also agree that the LLC Agreement actually shows that the Banks do not control
which patents Askeladden challenges. And Verify does not allege any facts establishing
that any Bank officer had authority over or responsibilities related to Askeladden.
IV.
For the foregoing reasons, the judgment of the District Court is affirmed.
5