Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_05-cv-00365/USCOURTS-azd-2_05-cv-00365-1/pdf.json

Nature of Suit Code: 830
Nature of Suit: Patent
Cause of Action: 35:145 Patent Infringement

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WO

NOT FOR PUBLICATION

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Verve, L.L.C., 

Plaintiff, 

vs.

Hypercom Corp., 

Defendant. 

Hypercom Corp.

Counter-Claimant,

vs.

Verve, L.L.C., Raymond M. Galasso,

Kevin R. Imes, Simon, Galasso & Frantz

P.L.C.

Counter-Defendants. _________________________________

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No. CV-05-0365-PHX-FJM

ORDER

The court has before it Verve, Raymond Galasso, and Simon, Galasso & Frantz

P.L.C.'s (collectively referred to as "counter-defendants") renewed motion for judgment as

a matter of law or conditional motion for new trial on punitive damages (doc. 391); counterdefendant Kevin Imes' ("Imes") motion for judgment as a matter of law or alternatively

motion for a new trial (doc. 394); Hypercom's combined response (doc. 399); and counterdefendants' reply (doc. 400). We also have before us Brent Van Norman's motion to

Case 2:05-cv-00365-FJM Document 408 Filed 03/26/07 Page 1 of 5
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withdraw as counsel for counter-defendants (doc. 397), and Hypercom's response (doc. 402).

On August 18, 2006, we granted Hypercom's motion for summary judgment in part

as to its counterclaim for malicious prosecution and abuse of process against counterdefendants and Imes (doc. 287). On January 9, 2007, following a jury trial on the issues of

damages, judgment was entered in favor of Hypercom for over $700,000 in compensatory

and punitive damages. 

Counter-defendants and Imes now move for judgment as a matter of law, arguing that

the jury's verdict imposing punitive damages is not supported by a legally sufficient

evidentiary basis. See Fed. R. Civ. P. 50(b). In particular, counter-defendants and Imes

contend that Hypercom failed to establish by clear and convincing evidence that they

possessed a subjective evil intent or motive. Alternatively, counter-defendants move for a

conditional new trial on the issue of punitive damages, but only if the court will allow

testimony from excluded expert witnesses. Imes also argues that the joint submission to the

jury of all counter-defendants on the issue of punitive damages unduly prejudiced him in his

ability to defend himself individually on that claim. 

Punitive damages are proper if a defendant "intended to cause injury," his "wrongful

conduct was motivated by spite or ill will," or he "acted to serve his own interests, having

reason to know and consciously disregarding a substantial risk that his conduct might

significantly injure the rights of others." Bradshaw v. State Farm Mut. Auto. Ins. Co., 157

Ariz. 411, 422, 758 P.2d 1313, 1324 (1988). In other words, the plaintiff must prove by clear

and convincing evidence that "defendant's evil hand was guided by an evil mind." Rawlings

v. Apodaca, 151 Ariz. 149, 162, 726 P.2d 565, 578 (1986). An "evil mind may be

established by defendant's express statements or inferred from defendant's expressions,

conduct, or objectives." Gurule v. Illinois Mut. Life & Cas. Co., 152 Ariz. 600, 602, 734

P.2d 85, 87 (1987). Circumstantial evidence of subsequent events will be admitted only to

the extent that it reflects on the defendant's state of mind when the tortious acts were

committed. 

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Without addressing the evidence submitted to establish evil mind, counter-defendants

simply rely on their own testimony that they subjectively believed that Hypercom was

infringing the patents. However, "[t]hat there was also evidence favorable to the [moving

party] was simply not relevant, since the jury was free to disbelieve, and therefore to

disregard, that evidence." Johnson v. Paradise Valley United School Dist., 251 F.3d 1222,

1227 (9th Cir. 2001). Rather, in ruling on a motion for judgment as a matter of law, the jury's

verdict "must be affirmed if there is substantial evidence to support the verdict." Gilbrook

v. City of Westminster, 177 F.3d 838, 856 (9th Cir. 1999). 

The evidence at trial established that counter-defendants and Imes filed multiple

lawsuits against Hypercom in multiple jurisdictions, without any reasonable explanation for

doing so. When asked at his deposition why Verve filed suit in Texas, Galasso simply

responded, "I don't know why." Transcript, Oct. 24, 2006, at 811. Hypercom's expert

witness, Mr. Pretty, testified that comparing counter-defendants' course of conduct in

asserting their infringement claims against the procedures typically employed in a case of

potential infringement, it is his opinion that the lawsuits were brought for an improper

purpose. Transcript, Oct. 19, 2006, at 492. Mr. Pretty testified that counter-defendants and

Imes failed to conduct a reasonable investigation prior to filing the lawsuits, and that Verve's

assertions in the various complaints that it was the "owner" of the patents were clearly false,

such that counter-defendants lacked probable cause to bring the lawsuits. Further, evidence

was presented that counter-defendants and Imes actively concealed from their own lawyers

the fact that Verve did not own all rights to the patents. We conclude that substantial

evidence existed to support the jury's imposition of punitive damages.

Counter-defendants also argue that it was error to exclude the testimony of their expert

witnesses, Gulko and Berman, who conducted post-filing infringement evaluations and

concluded that Hypercom infringed the patents. Counter-defendants argue that this

testimony would have fortified their position that they lacked an evil mind. We excluded the

expert witness testimony, concluding that post-filing investigations that did not consider what

counter-defendants knew before filing the lawsuits were not relevant to their subjective state

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of mind at the time the lawsuits were filed. The record makes clear that neither expert was

retained to express an opinion regarding counter-defendants' state of mind. Transcript, Oct.

24, 2006, at 749, 804. An after-the-fact justification for counter-defendants' actions is not

relevant to their state of mind at the time the lawsuits were filed. See Hydranautics v.

FilmTec Corp., 204 F.2d 880, 886 (9th Cir. 2000) (stating that "the lack of probable cause

question must be answered based upon the facts actually known to [defendant] at the time

it prosecuted its patent application and infringement case"). 

Counter-defendants also sought to admit Gulko as a fact witness, so that he could

testify that while he was conducting his post-filing investigation he communicated the

preliminary results of his analysis to the counter-defendants. We rejected this testimony,

ruling that any information that counter-defendants learned after the lawsuits were filed was

irrelevant to the issue of state of mind. We reaffirm that decision here.

Imes also argues that there was insufficient evidence to support a punitive damages

award against him individually. First, Imes has waived any argument related to the

imposition of joint and several liability because he failed to raise it in a Rule 50 (a) motion.

Moreover, Imes cites no law to support the proposition that punitive damages must be

individually assessed against each joint tortfeasor. And in any event, substantial evidence

supports the jury's award of punitive damages against all counter-defendants, including Imes.

The evidence showed that Imes, an experienced patent agent and 50% owner of Verve,

played a key role in conducting the pre-filing investigation into each of the accused patents

and was one of two people who made the decisions to file the lawsuits. Mr. Pretty's

testimony regarding the deficiencies in the pre-filing investigations applied with equal force

against Imes as against the other counter-defendants. Moreover, evidence showed that Imes

signed a false interrogatory response on behalf of Verve certifying that Omron had no right,

title or interest in the patent at issue. Transcript, Oct. 18, 2006, at 462. The evidence was

more than sufficient to support the jury's imposition of punitive damages against all the

counter-defendants, including Imes. 

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Therefore, IT IS ORDERED DENYING counter-defendants' motion for judgment

as a matter of law or alternatively for a new trial (docs. 391), and DENYING Imes' motion

for judgment as a matter of law or alternatively for a new trial (doc. 394).

IT IS FURTHER ORDERED GRANTING Brent Van Norman's motion to

withdraw as counsel for counter-defendants (doc. 397).

DATED this 26th day of March, 2007.

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