Court Opinion

ID: 4414373
Source: CourtListenerOpinion
Date Created: 2019-07-05 15:00:45.195861+00
Date Added: 2024-06-11T14:59:56.226546
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
                ______________________

       WESTECH AEROSOL CORPORATION,
               Plaintiff-Appellant

                           v.

3M COMPANY, GTA-NHT, INC., DBA NORTHSTAR
                CHEMICAL,
            Defendants-Appellees
           ______________________

                      2018-1699
                ______________________

   Appeal from the United States District Court for the
Western District of Washington in No. 3:17-cv-05067-RBL,
Judge Ronald B. Leighton.
                 ______________________

                 Decided: July 5, 2019
                ______________________

  MARK P. WALTERS, Lowe Graham Jones PLLC, Seattle,
WA, argued for plaintiff-appellant.

    PRATIK A. SHAH, Akin Gump Strauss Hauer & Feld
LLP, Washington, DC, argued for defendants-appellees.
Also represented by Z.W. JULIUS CHEN, RACHEL J. ELSBY;
MICHAEL P. KAHN, MICHAEL NASSER PETEGORSKY, New
York, NY.
                ______________________

   Before LOURIE, MAYER, and REYNA, Circuit Judges.
2             WESTECH AEROSOL CORPORATION v. 3M COMPANY

REYNA, Circuit Judge.
    Westech Aerosol Corporation appeals the decision of
the United States District Court for the Western District of
Washington granting 3M Company and GTA-NHT, Inc.’s
motion to dismiss for improper venue. 3M Company and
GTA-NHT, Inc. subsequently moved for attorneys’ fees and
double costs, arguing Westech Aerosol Corporation filed a
frivolous appeal. Because the district court did not err in
granting the motion to dismiss, we affirm. We also deny
the motion for attorneys’ fees and costs.
                        BACKGROUND
    On January 27, 2017, Appellant Westech Aerosol Cor-
poration (“Westech”) filed suit in the Western District of
Washington, alleging that Appellees 3M Company (“3M
Co.”) and GTA-NHT, Inc., d/b/a Northstar Chemical
(“Northstar”) (collectively, “3M Co.”) infringed U.S. Patent
No. 7,705,056 (“the ’056 patent”). 3M moved to dismiss for
failure to state a claim, which prompted Westech to file an
amended complaint. 3M again moved to dismiss for failure
to state a claim. While 3M’s second motion to dismiss was
pending, the Supreme Court issued its decision in TC
Heartland LLC v. Kraft Foods Group Brands LLC, 137 S.
Ct. 1514 (2017), holding that for purposes of the patent
venue statute, 28 U.S.C. § 1400(b), a corporation “resides”
only in its state of incorporation. Id. at 1517.
    In light of the Supreme Court’s ruling in TC Heartland,
3M moved on May 25, 2017, to amend its pending motion
to dismiss to include an argument that venue was improper
in the Western District of Washington. The district court
granted the motion to amend, and 3M filed an amended
motion to dismiss on June 21, 2017, arguing that neither
3M nor Northstar had a regular and established place of
business in the judicial district.
    Westech responded to the amended motion to dismiss
by conceding “that its original complaint does not assert
WESTECH AEROSOL CORPORATION v. 3M COMPANY                    3

facts that support venue in this Court under the guidance
of TC Heartland.” J.A. 453. Accordingly, in its response,
Westech sought leave to amend its complaint “to assert
facts sufficient under 28 U.S.C. § 1400(b).” Id. Westech
also argued in its response, inter alia, that the presence of
sales representatives and 3M’s sales in Washington sup-
ported venue in the district and that 3M had a “principal
place of business” and other business locations at various
addresses in Washington. J.A. 453–54.
     3M filed a reply supported by a declaration stating that
at the time of the original complaint, 3M did not own, lease,
use, or maintain property at any of the locations identified
in Westech’s response. The declaration, signed by a senior
manager in 3M’s Real Estate Department, further stated
that 3M did not currently occupy any of the locations iden-
tified by Westech. Westech moved to strike 3M’s reply and
accompanying declaration because they discussed new in-
formation raised for the first time in 3M’s reply.
    The district court denied 3M’s amended motion to dis-
miss without prejudice. In addressing the venue issue, the
court agreed with 3M that a sales presence in the judicial
district did not, by itself, satisfy the patent venue statute.
The court, however, was persuaded that Westech could
amend its complaint to allege proper venue, and therefore
granted Westech leave to amend its complaint with a warn-
ing to do so “consistent with its Rule 11 obligations.” J.A.
519.
   Westech filed its second amended complaint on Sep-
tember 6, 2017. Instead of pleading facts to support proper
venue, Westech parroted § 1400(b):
    Venue is proper in this judicial district pursuant to
    28 U.S.C. § 1400(b) because Defendants have com-
    mitted acts of infringement in this judicial district
    and 3M has one or more regular and established
    places of business in this judicial district. Further-
    more, on information and belief, Defendants
4             WESTECH AEROSOL CORPORATION v. 3M COMPANY

    maintain contractual relationships with distribu-
    tors of the infringing products who are located in
    this judicial district, Defendants have sales repre-
    sentatives located in this judicial district, Defend-
    ants represent that they sell products in this
    judicial district, and Defendants earn substantial
    sales revenue from sales of the infringing products
    in this judicial district.
J.A. 521. Westech admits that it did not allege facts to sup-
port an allegation that Northstar had a regular and estab-
lished place of business in the judicial district. Appellant’s
Br. 20.
    On September 14, 2017, 3M once again moved to dis-
miss for improper venue. A few days later, this court is-
sued its decision in In re Cray Inc., which outlined the
requirements for proper venue under 28 U.S.C. § 1400(b).
871 F.3d 1355, 1360 (Fed. Cir. 2017) (stating that § 1400(b)
requires a defendant to have a physical place in the district
that serves as a regular and established place of business).
Relying in part on Cray, the district court agreed that
venue was improper, stating that “[t]here is no factual ba-
sis upon which the Court can conclude that 3M has ‘a reg-
ular and established’ place of business in this District, and
certainly no basis for concluding that Northstar does.”
J.A. 3. Accordingly, the court granted the motion to dis-
miss and dismissed the case without prejudice. J.A. 3–4.
Westech timely appealed.
     After Westech filed its opening brief on appeal, 3M
moved for sanctions, requesting attorneys’ fees and double
costs. 3M contends that Westech’s appeal is frivolous as
filed because the district court’s judgment is plainly correct
in light of the fact that Westech failed to plead any facts
supporting venue. 3M also asserts that Westech’s appeal
is frivolous as argued because Westech disregards the hold-
ings in Cray and In re ZTE (USA) Inc., 890 F.3d 1008, 1013
(Fed. Cir. 2018).
WESTECH AEROSOL CORPORATION v. 3M COMPANY                   5

    We have      jurisdiction   pursuant     to   28   U.S.C.
§ 1295(a)(1).
                        DISCUSSION
    Westech frames its appeal as a question of the proper
pleading standards for venue and contends that it pleaded
facts sufficient to survive a motion to dismiss. 3M seeks
sanctions under Federal Rule of Appellate Procedure 38 for
attorneys’ fees and double costs for having to defend
Westech’s “frivolous” appeal. We address each issue in
turn.
                           Venue
    We review de novo the question of proper venue under
28 U.S.C. § 1400(b). Accord Immigrant Assistance Project
of L.A. Cty. Fed’n of Labor (AFL-CIO) v. I.N.S., 306 F.3d
842, 868 (9th Cir. 2002) (referencing the standard of review
for venue under 28 U.S.C. § 1391(e)); Pierce v. Shorty
Small’s of Branson Inc., 137 F.3d 1190, 1191 (10th Cir.
1998) (“The district court’s determination of where the ac-
tion may be brought involves an interpretation of the venue
statute and is, therefore, a question of law subject to de
novo review.”).
     Two principles of patent venue law underlie our deci-
sion in this case. First, we held in ZTE that the plaintiff
has the burden of establishing proper venue under 28
U.S.C. § 1400(b). 890 F.3d at 1013. Second, we held in
Cray that venue under the patent statute is proper when
the facts show that the defendant has a regular and estab-
lished place of business physically located within the judi-
cial district. 871 F.3d at 1360, 1364–67. Westech’s second
amended complaint fails to meet these standards.
    Westech failed to plead any facts showing 3M had a
regular and established place of business physically located
in the Western District of Washington. Westech repre-
sented to the district court that it would allege facts in its
second amended complaint showing that 3M was subject to
6             WESTECH AEROSOL CORPORATION v. 3M COMPANY

venue in the judicial district, but then failed to do so, de-
spite the district court’s Rule 11 warning. Given an oppor-
tunity to amend its complaint to support its venue
allegations, Westech chose not to allege any facts in its sub-
sequent second amended complaint to support proper
venue. 1
     Westech, in effect, claims that in lieu of pleading facts,
it is sufficient to parrot the language of § 1400(b). This is
incorrect. Simply stating that 3M has a regular and estab-
lished place of business within the judicial district, without
more, amounts to a mere legal conclusion that the court is
not bound to accept as true. See McZeal v. Sprint Nextel
Corp., 501 F.3d 1354, 1356 (Fed. Cir. 2007) (“[C]onclusory
allegations or legal conclusions masquerading as factual
conclusions will not suffice to prevent a motion to dismiss.”)
(quoting Taylor v. Books A Million, Inc., 296 F.3d 376, 378
(5th Cir. 2002) (internal quotation marks omitted)).
Westech’s recitation of § 1400(b) is insufficient to survive a
motion to dismiss for improper venue.
     A presumption that facts pleaded in the complaint are
true does not supplant a plaintiff’s burden to plead specific
facts showing that the defendant has a regular and estab-
lished place of business physically located in the judicial
district. See Cray, 871 F.3d at 1360, 1364–67. Here,
Westech wholly failed to allege facts showing 3M had a reg-
ular and established place of business in the Western Dis-
trict of Washington.
   We have considered Westech’s remaining arguments
and find them unpersuasive. Accordingly, we hold that the

    1    While Westech continued to allege facts regarding
the presence of sales representatives within the judicial
district, the district court had already ruled that having a
sales presence alone does not establish venue under
§ 1400(b).
WESTECH AEROSOL CORPORATION v. 3M COMPANY                   7

district court did not err in granting 3M’s motion to dis-
miss.
                   Motion for Sanctions
    The merits of the appeal, and a party’s conduct during
appeal, drive whether attorneys’ fees and costs should be
awarded as sanctions under Federal Rule of Appellate Pro-
cedure 38. Walker v. Health Int’l Corp., 845 F.3d 1148,
1154 (Fed. Cir. 2017). Rule 38 provides that “[i]f a court of
appeals determines that an appeal is frivolous, it may, af-
ter a separately filed motion or notice from the court and
reasonable opportunity to respond, award just damages
and single or double costs to the appellee.” Thus, this court
has discretion over whether to impose sanctions. Walker,
845 F.3d at 1157 (stating “we exercise our discretion to im-
pose sanctions”).
    An appeal can be frivolous in two ways: as filed and as
argued. An appeal is frivolous as filed when “the judgment
by the tribunal below was so plainly correct and the legal
authority contrary to appellant’s position so clear that
there really is no appealable issue.” State Indus., Inc. v.
Mor–Flo Indus., Inc., 948 F.2d 1573, 1578 (Fed. Cir. 1991)
(quoting Finch v. Hughes Aircraft Co., 926 F.2d 1574,
1579–80 (Fed. Cir. 1991)). An appeal is frivolous as argued
when “the post-filing conduct of the litigant in arguing the
appeal” is frivolous. Id. (quoting Romala Corp. v. United
States, 927 F.2d 1219, 1222 (Fed. Cir. 1991)). For example,
an appeal may be frivolous as argued when the appellant
“distort[s] the record, by disregarding or misrepresenting
the clear authority against its position, and by attempting
to draw illogical deductions from the facts and the law.” Id.
at 1579.
    We conclude that Westech’s appeal, while lacking
merit, is not frivolous as filed. It was highly imprudent of
Westech to initiate an appeal in light of the district court’s
dismissal without prejudice and our holding in Cray, which
was cited by the district court. As discussed above,
8             WESTECH AEROSOL CORPORATION v. 3M COMPANY

Westech alleged no facts in its second amended complaint
to show venue was proper in the Western District of Wash-
ington despite the district court’s admonition that Westech
amend its complaint consistent with its Rule 11 obliga-
tions. But at the time of filing the appeal, the question of
who had the burden to show the defendant had a regular
and established place of business in the judicial district
was not settled; our opinion in ZTE explicitly detailing the
burden of the plaintiff to establish venue had not issued.
    On the other hand, Westech’s appeal is frivolous as ar-
gued. Westech disregards controlling law, here Cray and
ZTE, despite being aware of both cases during pendency of
this appeal. Westech cited ZTE in its opening brief and the
district court explicitly discussed Cray in its judgment dis-
posing of the case. In fact, ZTE discusses our holding in
Cray. ZTE, 890 F.3d at 1014–15. Yet, Westech failed to
cite Cray in its opening brief and asserts that Cray is not
relevant to this appeal. Oral Arg. at 1:55–3:30 (Feb. 5,
2019),     oralarguments.cafc.uscourts.gov/default.aspx?fl=
2018-1699.mp3. As discussed above, these cases are rele-
vant and clearly contrary to Westech’s position.
    We do not however, believe such misconduct warrants
sanctions under these circumstances. Westech’s behavior
on appeal borders on sanctionable, but we cannot fault
Westech for pursuing an appeal when the question of who
shoulders the burden of establishing proper venue under
§ 1400(b) had yet to be answered. It is due to the unique
procedural posture here and the sequence of events in the
evolution of this court’s patent venue law that we deny
3M’s motion for sanctions.
                       CONCLUSION
    For the foregoing reasons, we hold the district court did
not err in granting the motion to dismiss for improper
venue. We also deny 3M’s motion for sanctions.
                       AFFIRMED
WESTECH AEROSOL CORPORATION v. 3M COMPANY          9

                        COSTS
   Costs awarded to 3M and Northstar consistent with
Federal Rule of Appellate Procedure 39.