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Tegu v. Vestal Design Atelier LLC

United States District Court, D. Colorado

August 12, 2019

TEGU, a California corporation, Plaintiff,
v.
VESTAL DESIGN ATELIER LLC, a Colorado limited liability company, whose members are Michael Lin, a California resident, David Pitman, a Colorado or California resident, and Jeffrey Warren, a Massachusetts resident, Defendant and Counterclaim Plaintiff,
v.
TEGU, a California corporation, and CLIPPER INVESTMENTS, LTD., an entity based in London, UK, Counterclaim Defendants.

          ORDER

          Philip A. Brimmer Chief United States District Judge.

         This matter comes before the Court on Tegu's Rule 12(c) and 12(b)(1) Motion for Judgment on the Pleadings and to Dismiss Vestal's Counterclaims [Docket No. 23]. The Court has jurisdiction pursuant to 28 U.S.C. §§ 1338(a) and 1367.

         I. BACKGROUND

         The allegations in the Second Amended Answer, Second Amended Counterclaim Complaint, and Jury Demand [Docket No. 26] are to be taken as true in considering a motion for judgment on the pleadings. Adams v. Jones, 577 Fed.Appx. 778, 781-82 (10th Cir. 2014) (unpublished).

         Plaintiff and counterclaim defendant Tegu (“Tegu”) is a toy company. Docket No. 26 at 10, ¶ 2. In late 2007, Tegu sought the help of defendant and counterclaim plaintiff Vestal Design Atelier LLC (“Vestal”) in developing its first toy line. Id. at 11, ¶ 4. Vestal is a consulting firm specializing in design projects for early-stage startup companies. Id. at 10, ¶ 1. In December 2007, Tegu and Vestal entered into a written consulting agreement (the “agreement”). Id. at 12, ¶ 7. The agreement provided that Vestal would provide design and consulting services for Tegu's new product line. Under a section called “Compensation, ” Tegu agreed to pay Vestal $7, 200 for 90 hours of work. Docket No. 23-2 at 3. Paragraph 1 of Section 2.0 in the agreement, entitled “Ownership of Intellectual Property, ” states in full:

Ownership. Intellectual property rights of each party will be governed by the following: For the purpose of this contract, any work product or new invention related to or arising from the Services provided hereunder, including all intellectual property rights created, invented or authored by Contractor in connection with the Services, will be the exclusive property of the Client. The Client will own all right, title and interest in such work product or new invention, except as stipulated in [ ] item 4 below. Contractor hereby assigns all such right, title and ownership to Client.

Id. at 4.

         “Item 4” is paragraph 4, which states in full:

For any work product, invention and/or intellectual property generated under this Agreement that [Vestal] and [Tegu] mutually agree may be patented under a utility (non-aesthetic) patent, [Vestal] shall own at least 50% of any utility patent generated from [Vestal]'s research and design. In addition, [Vestal] will be granted by [Tegu] a fair and agreeable share in revenue generated by commercialization. A separate agreement shall be established in writing, which specifies the precise nature of [Vestal]'s and [Tegu]'s ownership of Intellectual Property rights and share in revenue generated from the commercialization of the invention or Intellectual Property at a time no later than the filing date of the patent application (provisional or full application).

Id.

         Pursuant to the agreement, Vestal created prototypes for Tegu of a new toy based around the idea of embedding magnets in wooden blocks. Docket No. 26 at 13-14, ¶¶ 12-14. The prototype led Tegu to develop an entire line of magnet-embedded wooden blocks. Id. at 14, ¶ 15. The wooden blocks encompassed both patentable and non-patentable contributions made by Vestal. Id., ¶ 16. On March 14, 2009, Christopher Harwood Haughey (“Haughey”), one of the owners of Tegu, emailed Vestal's members to “resolve the outstanding IP and upside issue left hanging by [the agreement]” in light of Tegu's plan to commercialize the wooden blocks. Id. at 15, ¶ 18. In the email, Haughey stated that Tegu anticipated “that any utility patent(s) related to the magnetic blocks [would] relate to the method of manufacturing, which has . . . no relation to the project with Vestal.” Id., ¶ 20. On March 26, 2009, Tegu filed a patent application that incorporated Vestal's contributions to the wooden block project. Id. at 16, ¶ 21. On October 7, 2014, the U.S. Patent and T rademark Office issued U.S. Patent No. 8, 850, 683 (the “'683 patent”) to Tegu. Id., ¶ 21. Tegu and its investor, counterclaim defendant Clipper Investments, Ltd. (“Clipper”), subsequently obtained two more patents based on the '683 patent: U.S. Patent Nos. 9, 266, 032 (the “'032 patent”) and 9, 662, 592 (the “'592 patent”). Id, ¶ 22. In 2017, Vestal principal Michael Lin (“Lin”) became aware of the magnetic wooden blocks and learned that they had been patented and commercialized. Id. at 16-17, ¶ 23.

         On May 10, 2018, Tegu filed a declaratory judgment action in the District Court for Adams County, Colorado, against Vestal. Docket No. 1-1. Vestal removed the case to this Court. Docket No. 1. Tegu seeks a declaratory judgment that the three-year statute of limitations for breach of contract claims under Colorado law bars Vestal's claims arising under the agreement. Docket No. 1-1 at 8, ¶ 41. Vestal counterclaimed, asserting six correction of inventorship claims pursuant to 35 U.S.C. § 256, alleging that Tegu failed to name Lin and Alexander Ko (“Ko”) as inventors of the '683 patent, '032 patent, and '592 patent. Docket No. 26 at 17-20, ¶¶ 28-45. Vestal also asserts state-law claims for breach of contract, breach of the covenant of good faith and fair dealing, quantum meruit, and fraud. Id. at 20-25, ¶¶ 46-73.

         Tegu moves for judgment on the pleadings on its request for declaratory judgment and Vestal's state-law counterclaims pursuant to Fed.R.Civ.P. 12(c). Docket No. 23 at 7-13. Tegu also moves for dismissal of Vestal's correction of inventorship claims pursuant to Fed.R.Civ.P. 12(b)(1), asserting that Vestal lacks standing to bring such claims. Id. at 13-15.

         II. LEGAL STANDARD

         A. Fed.R.Civ.P. 12(b)(1)

         A motion under Fed.R.Civ.P. 12(b)(1) is a request for the Court to dismiss a claim for lack of subject matter jurisdiction. Fed.R.Civ.P. 12(b)(1). A plaintiff bears the burden of establishing that the Court has jurisdiction. Basso v. Utah Power & Light Co., 495 F.2d 906, 909 (10th Cir. 1974). When the Court lacks subject matter jurisdiction over a claim for relief, dismissal is proper under Rule 12(b)(1). See Jackson v. City and Cty. of Denver, No. 11-cv-02293-PAB-KLM, 2012 WL 4355556 at *1 (D. Colo. Sept. 24, 2012).

         Rule 12(b)(1) challenges are generally presented in one of two forms: “[t]he moving party may (1) facially attack the complaint's allegations as to the existence of subject matter jurisdiction, or (2) go beyond allegations contained in the complaint by presenting evidence to challenge the factual basis upon which subject matter jurisdiction rests.” Merrill Lynch Bus. Fin. Servs., Inc. v. Nudell, 363 F.3d 1072, 1074 (10th Cir. 2004) (quoting Maestas v. Lujan, 351 F.3d 1001, 1013 (10th Cir. 2003)). The court may review materials outside the pleadings without converting the Rule 12(b)(1) motion to dismiss into a motion for summary judgment. Davis ex rel. Davis v. U.S., 343 F.3d 1282, 1296 (10th Cir. 2003).

         B. Fed.R.Civ.P. 12(c)

         The Court reviews a motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c) much as it does a motion to dismiss pursuant to Rule 12(b)(6). See Adams, 577 Fed.Appx. at 781-82 (“We review a district court's grant of a motion for judgment on the pleadings de novo, using the same standard that applies to a Rule 12(b)(6) motion.”) (quoting Park Univ. Enters., Inc. v. Am. Cas. Co. of Reading, PA, 442 F.3d 1239, 1244 (10th Cir. 2006)). The Court must “accept all facts pleaded by the non-moving party as true and grant all reasonable inferences from the pleadings in favor of the same.” Id. at 782. To prevail, the moving party must show that “no material issue of fact remains to be resolved and the party is entitled to judgment as a matter of law.” United States v. Any & All Radio Station Transmission Equip., 207 F.3d 458, 462 (8th Cir. 2000). A party may raise arguments that could be made in a motion under Rule 12(b)(6) in a motion under Rule 12(c). Fed.R.Civ.P. 12(h)(2).

         To survive a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a complaint must allege enough factual matter that, taken as true, makes the plaintiff's “claim to relief . . . plausible on its face.” Khalik v. United Air Lines, 671 F.3d 1188, 1190 (10th Cir. 2012) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not shown-that the pleader is entitled to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (internal quotation marks and alteration marks omitted); see also Khalik, 671 F.3d at 1190 (“A plaintiff must nudge [his] claims across the line from conceivable to plausible in order to survive a motion to dismiss.” (quoting Twombly, 550 U.S. at 570)). If a complaint's allegations are “so general that they encompass a wide swath of conduct, much of it innocent, ” then plaintiff has not stated a plausible claim. Khalik, 671 F.3d at 1191 (quotations omitted). Thus, even though modern rules of pleading are somewhat forgiving, “a complaint still must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory.” Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008) (alteration marks omitted).

         III. ...


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