AEP Excluded AssetCo, LLC v. Bellanergy, LLC

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AEP EXCLUDED ASSETCO, LLC, Plaintiff/Counter-Defendant, v. BELLANERGY, LLC, Defendant/Counter- Plaintiff/Third-Party Plaintiff, v. ADVANCE ENERGY PARTNERS, LLC, Third-Party Defendant.

Civil Action No. 4:23-CV-3638

United States District Court, S.D. Texas, Houston Division

February 1, 2024

MEMORANDUM & ORDER

KEITH P. ELLISON UNITED STATES DISTRICT JUDGE

Before the Court is Defendant Bellanergy, LLC's (“Bellanergy”) Motion to Remand (ECF No. 5). For the following reasons, the Court DENIES the Motion.

I. BACKGROUND

This case arises out of a contractual dispute. Plaintiff AEP Excluded AssetCo, LLC (“AEPEAC”)^[1] purchased hundreds of thousands of feet of drilling pipe from Bellanergy. Pl.'s Original Pet. ¶ 2, ECF No. 1-2. When Bellanergy delivered the pipes, AEPEAC rejected them and refused to pay, alleging that the pipes were non-conforming with the terms of their agreement. Id. at ¶ 16. It then filed suit in state court on June 14, 2023, asserting claims for breach of contract and breach of express warranty and seeking a declaratory judgment that it properly rejected the pipes and is entitled to a full refund. Id. at ¶¶ 22-24, 32. AEPEAC's Original Petition included allegations that Defendant had agreed that its products would not “infringe on any license or patent which has been issued or for which application has been made.” Id. at ¶ 11. The Original Petition also explains that AEPEAC requested quotes from Bellanergy for “GBCD Pipe,” which is a type of pipe that has a specific connection design patented by GB Connections. Id. at ¶¶ 12-15. AEPEAC alleged that the pipe it received did not have the desired GBCD connection design, and that they received a letter from GB Connections on February 14, 2023, which explained “that the pipe provided by Bellanergy was in fact counterfeit and/or contained GB Connections' proprietary information.” Id. at ¶¶ 16-19. These allegations notwithstanding, AEPEAC's Original Petition did not specifically base its claims on the non-infringement provision of the agreement. It more generally stated that Bellanergy breached the agreement by delivering non-conforming pipe. Id. at ¶¶ 22-24.

On July 10, 2023, Bellanergy filed its answer and brought breach of contract claims against AEP. Def.'s Answer to Pl.'s Original Pet. ¶¶ 58-87, ECF No. 1-2. On July 31, 2023, AEPEAC filed its First Amended Petition, which added a breach of contract claim that referenced the noninfringement clause of the party's agreement. Pl.'s First Am. Pet. ¶¶ 21, 31, ECF No. 1-2.

On August 28, 2023, Bellanergy filed its Answer to Plaintiff's First Amended Petition. In the Answer, Bellanergy denied that its goods infringed upon any valid patent, and argued that the state court “lack[ed] subject matter jurisdiction to determine the validity of any patent, or whether the goods infringed on any patent.” Def.'s Answer to Pl.'s First Am. Pet. ¶¶ 12-13, ECF No. 1-2. It also asserted breach of contract claims against AEPEAC.^[2] Id. at ¶¶ 60-97. These counterclaims essentially allege that Bellanergy tendered delivery of conforming and non-defective goods, and that AEPEAC materially breached the agreement by not paying Bellanergy in full. See id.

On September 27, 2023, thirty days after Bellanergy filed its Answer to Plaintiff's First Amended Petition, AEPEAC removed to this Court pursuant to the patent removal statute, 28 U.S.C. § 1454(a). Pl.'s Notice of Removal 5. AEPEAC's notice asserts that this Court has jurisdiction based upon “the patent issues and jurisdictional defenses raised by Defendant.” Id. at ¶ 8. Bellanergy now moves to remand the case to state court. AEPEAC and AEP oppose remand. See Pl.'s Resp. 5 & n.1, ECF No. 9.

II. LEGAL STANDARD

A. Choice of Law

To the extent that this case involves patent law issues, Federal Circuit law governs questions of substantive patent law, while Fifth Circuit law governs all other questions. In re Deutsche Bank Trust Co. Americas, 605 F.3d 1373, 1377 (Fed. Cir. 2010); Advanced Cardiovascular Sys., Inc. v. Medtronic, Inc., 265 F.3d 1294, 1307 (Fed. Cir. 2001); In re Spalding Sports Worldwide, Inc., 203 F.3d 800, 803 (Fed. Cir. 2000) (“In reviewing district court judgments, we apply the law of the circuit in which the district court sits with respect to nonpatent issues, but we apply our own law to issues of substantive patent law.”); Sulzer Textil A.G. v. PicanolN.V., 358 F.3d 1356, 1362-63 (Fed. Cir. 2004) (“We answer this question on an issue by issue basis and will apply the law of the regional circuit to which district court appeals normally lie, unless the issue pertains to or is unique to patent law.”) (quotations omitted); Viam Corp. v. Iowa Exp.-Imp. Trading Co., 84 F.3d 424, 428 (Fed. Cir. 1996). Significantly, courts apply Federal Circuit law to determine whether cases “arise under” federal patent laws. See, e.g., Microsoft Corp. v. GeoTag, Inc., 817 F.3d 1305, 1311 (Fed. Cir. 2016) (explaining that district court erred in applying regional circuit law, rather than Federal Circuit law, to assess whether there was 28 U.S.C. § 1338 jurisdiction); Mars Inc. v. Kabushiki-Kaisha Nippon Conlux, 24 F.3d 1368, 1371 (Fed. Cir. 1994) (“The issue whether the district court had jurisdiction [under § 1338] to hear Mars' claim of Japanese patent infringement is of importance to the development of the patent law and is clearly a matter that falls within the exclusive subject matter responsibility of this court.”) (internal quotation marks and citations omitted); Helfgott & Karas, P.C. v. Dickinson, 209 F.3d 1328, 1333-34 (Fed. Cir. 2000) (explaining that whether an action arises under the scope § 1338 presents a question that is unique to patent law); cf. Med. Components, Inc. v. Osiris Med., Inc., 226 F.Supp.3d 753, 760-61 (W.D. Tex. 2016) (applying Federal Circuit law to jurisdictional question). Therefore, Federal Circuit law binds this Court to the extent that it analyzes questions of substantive patent law, including jurisdictional questions unique to patent law, such as applications of the patent removal statute. Fifth Circuit law binds this Court in all other areas, including law on removal that is not unique to patent law.

B. Removal Under 28 U.S.C. § 1454

Following removal to federal court, remand is proper if the Court finds that there was a defect in removal procedure, or that it lacks subject matter jurisdiction. 28 U.S.C § 1447(c). In either situation, AEPEAC, the removing party, bears the burden of showing that removal was proper. Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002). The Court construes any ambiguities against removal, and strictly in favor of remand. Id.

A. Removal Procedure

The procedural aspects of the patent removal statute generally mirror those of the general removal statute, 28 U.S.C. § 1446. However, the patent removal statute is different in two relevant ways. First, unlike the general removal statute, the patent removal statute allows any party-not just defendants-to remove an action that arises under federal patent law. Vermont v. MPHJ Tech. Invs., LLC, 803 F.3d 635, 644 (Fed. Cir. 2015); see also § 1454(b)(1) (“the action may be removed by any party”). That is, under the patent removal statute, a plaintiff may remove an action based upon a federal patent law counterclaim. MPHJ Tech. Invs., 803 F.3d at 644.

Second, while § 1454 adopts the same time limitations set forth in § 1446, it provides that those limitations “may be extended at any time for cause shown.” § 1454(b)(2). Thus, to determine whether a notice of removal is timely under § 1454, courts conduct a two-step analysis. First, they assess whether the notice of removal was filed “within 30 days after receipt . . . of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable.”^[3] Hill Country Tr. v. Silverberg, No. 1:18-CV-635-RP, 2018 WL 6267880, at *6 (W.D. Tex. Nov. 28, 2018) (quoting § 1446(b)(3)). Second, if removal was not filed within 30 days of notice of removability, courts assess whether the removing party has shown cause for extension of the deadline. See id. at *8. “Section 1454 does not define ‘cause shown,' and there is sparse authority interpreting the provision,” though courts generally apply Federal Rule of Civil Procedure 6(b)(1)(B)'s “excusable neglect” standard. Id. (collecting cases). Under this standard, district courts “enjoy broad discretion to grant or deny an extension,” and may consider the following factors: “(1) ‘the possibility of prejudice to the other parties,' (2) ‘the length of the applicant's delay and its impact on the proceeding,' (3) ‘the reason for the delay and whether it was within the control of the movant,' and (4) ‘whether the movant has acted in good faith.'” Salts v. Epps, 676 F.3d 468, 474 (5th Cir. 2012) (quoting 4B Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1165 (4th ed.)).

B. Subject Matter Jurisdiction

The patent removal statute provides that “[a] civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents . . . may be removed to [the appropriate federal district court].” § 1454(a). The fact that patent issues underly parties' claims “does not mean that the entire . . . claim ‘arises under' patent law.” DuVal Wiedmann, L.L.C. v. Inforocket.com, Inc., 374 Fed.Appx 482, 484 (5th Cir. 2010) (quoting Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 811 (1988)). Courts consider a civil action to “arise under” federal patent law if federal patent law creates the cause of action asserted or if the case involves a federal patent issue that is “(1) necessarily raised, (2) actually disputed, (3) substantial, and (4)...