Elan Pharm., LLC v. Sexton, Case No. 2:19-CV-02175-JAR-GEB

421 F.Supp.3d 1119

ELAN PHARMACEUTICALS, LLC, Eli Lilly & Company, and Avid Radiopharmaceuticals, Inc., Plaintiffs,

v.Ronald SEXTON, Defendant.

Case No. 2:19-CV-02175-JAR-GEB

United States District Court, D. Kansas.

Signed October 1, 2019

Michael A. Campbell, Pro Hac Vice, Polsinelli PC, St. Louis, MO, Daniel S. Dooley, Polsinelli PC, Kansas City, MO, for Plaintiffs.

Anna Wlodek Moncrief, Kristie Remster Orme, R. Pete Smith, McDowell, Rice, Smith & Buchanan, PC, Kansas City, MO, for Defendant.

MEMORANDUM AND ORDER

JULIE A. ROBINSON, CHIEF UNITED STATES DISTRICT JUDGE

Plaintiffs Elan Pharmaceuticals, LLC ("Elan"), Eli Lilly & Company ("Eli Lilly"), and Avid Radiopharmaceuticals, Inc. ("Avid") bring this action against Defendant Ronald Sexton ("Sexton") for an award of attorneys' fees pursuant to 35 U.S.C. § 285 (Count I) and for malicious prosecution (Count II). Now before the Court is Defendant's Motion to Dismiss (Doc. 14) pursuant to Federal Rule of Civil Procedure 12(b)(6). The motion is fully briefed, and the Court is prepared to rule. For the reasons explained below, the Court grants Defendant's motion.

I. Legal Standard

To survive a motion to dismiss brought under Fed. R. Civ. P. 12(b)(6), a complaint must contain factual allegations that, assumed to be true, "raise a right to relief above the speculative level"¹ and must include "enough facts to state a claim for relief that is plausible on its face."² Under this standard, "the complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims."³ The plausibility standard does not require a showing of probability that "a defendant has acted unlawfully," but requires more than "a sheer possibility."⁴ "[M]ere ‘labels and conclusions,’ and ‘a formulaic recitation of the elements of a cause of action’ will not suffice; a plaintiff must offer specific factual allegations to support each claim."⁵ Finally, the court must accept the nonmoving party's factual allegations as true and may not dismiss on the ground that it appears unlikely the allegations can be proven.⁶

The Supreme Court has explained the analysis as a two-step process. For the purposes of a motion to dismiss, the court "must take all the factual allegations in the complaint as true, [but is] ‘not bound to accept as true a legal conclusion couched as a factual allegation.’ "⁷ Thus, the court must first determine if the allegations are factual and entitled to an assumption of truth, or merely legal conclusions that are not entitled to an assumption of truth.⁸ Second, the court must determine whether the factual allegations, when assumed true, "plausibly give rise to an entitlement to relief."⁹ "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."¹⁰

II. Factual Background

The following facts are alleged in Plaintiffs' Complaint and are assumed to be true for the purposes of deciding Sexton's motion to dismiss.¹¹

Defendant Sexton, a resident of Johnson County, Kansas, is the Chairman and founder of AIA America, Inc., formerly known as Alzheimer's Institute of America, Inc. ("AIA"). Sexton founded AIA as a shell, instrumentality, or conduit to prosecute patent lawsuits. Sexton dominated and controlled AIA, commingled AIA's funds with his personal funds, failed to adequately capitalize AIA, and failed to maintain adequate corporate records and observe corporate formalities. AIA paid no dividends, and no one other than Sexton functioned as an officer or director of AIA.

On February 2, 2010, AIA filed a lawsuit against Elan and Eli Lilly in the United States District Court for the Northern District of California ("Elan Court"), asserting claims for alleged infringement of two AIA patents ("Elan Lawsuit"). On November 24, 2010, AIA filed a lawsuit against Avid in the United States District Court for the Eastern District of Pennsylvania ("Avid Court"), asserting essentially the same patent-infringement claims ("Avid Lawsuit"). The two patents at issue in both cases were "generally directed to research technologies stemming from the discovery of the ‘Swedish mutation,’ a genetic mutation that is associated with early-onset familia[l] Alzheimer's disease."¹²

In the Avid Lawsuit, Avid asserted that AIA lacked standing to assert the patents on the basis that Sexton and others—namely, Dr. Michael J. Mullan and Dr. John Hardy—had "orchestrated a scheme to appropriate for themselves inventions from Imperial College ... in London and the University of South Florida."¹³ On December 22, 2011, the Elan Court granted the plaintiff's motion to stay pending the conclusion of a jury trial in the Avid Lawsuit, finding that the outcome of that trial could be dispositive of the entire action. The Avid Court then held a jury trial on AIA's standing and, "[b]ased on the jury's verdict, the district court found AIA lacked standing to assert the ... patents and entered judgment in favor of Avid."¹⁴ On March 8, 2012, the Elan Court lifted the stay in the Elan Lawsuit and dismissed the case for lack of standing, finding that collateral estoppel applied as a result of the jury's determination in the Avid Lawsuit. The Avid Court's decision on lack of standing was affirmed by the United States Court of Appeals for the Federal Circuit.

On March 30, 2015, the Avid Court issued a memorandum opinion finding that the Avid Lawsuit was an "exceptional case" entitling Avid to attorneys' fees under 35 U.S.C. § 285. The Avid Court's exceptional-case finding rested upon evidence that AIA knew that it was not the legal owner of the rights to the patents upon which it sued, including evidence of Sexton's personal efforts, in cooperation with Dr. Hardy and Dr. Mullan, to defraud the University of South Florida and Imperial College in London of their ownership rights in the invention. On June 5, 2015, the Elan Court found that collateral estoppel also applied to the Avid Court's determination that the case was exceptional under § 285, and that "an award of attorneys' fees against AIA was therefore justified in the Elan Lawsuit."¹⁵ On April 14, 2016, the Elan Court entered an order awarding $4,445,492.13 in attorneys' fees to Eli Lilly and $3,435,130.71 in attorneys' fees to Elan. On August 17, 2016, the Avid Court ordered "that judgment be entered favor of Avid and against AIA in the Avid Lawsuit for attorneys' fees in the amount of $3,943,317.70."¹⁶

The judgments awarding attorneys' fees in the Elan and Avid Lawsuits are against AIA only; Plaintiffs do not allege that any judgment was entered against Sexton. Plaintiffs now bring this separate lawsuit seeking to hold Sexton personally liable for a total of $11,823,940.54 in attorneys' fees pursuant to 35 U.S.C. § 285. Plaintiffs also bring a second claim for malicious prosecution under Pennsylvania law.

III. Analysis

A. Action for Award of Fees Pursuant to 35 U.S.C. § 285

Count I of Plaintiffs' Complaint is titled, "Action for Award of Fees Pursuant to 35 U.S.C. § 285."¹⁷ Section 285, which appears in a chapter of the United States Code addressing remedies for patent infringement, provides that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party."¹⁸ "When deciding whether to award attorney fees under § 285, a district court engages in a two-step inquiry. First, the Court must determine whether the prevailing party has proved by clear and convincing evidence that the case is exceptional."¹⁹ "If the district court finds that the case is exceptional, it must then determine whether an award of attorney fees is justified."²⁰ "A case may be deemed exceptional under § 285 where there has been ‘willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates Federal Rule of Civil Procedure 11, or like infractions.’ "²¹

The two district courts in which the underlying patent claims were litigated have already imposed fees on AIA—and AIA alone—under § 285. In this separate case, filed years after the fee awards in the prior patent litigation, Plaintiffs argue that § 285 creates an independent cause of action against Sexton for attorneys' fees that were not awarded against him in the earlier patent cases. Sexton argues that Count I must be dismissed because § 285 does not give rise to an independent cause of action and "[i]f Plaintiffs intended to seek an award of attorneys' fees from Defendant Ronald Sexton, they should have sought leave to add him as a party to the Avid and Elan Lawsuits and then sought that relief from the United States District Courts of the Eastern District of Pennsylvania and Northern District of California."²² The Court finds that Sexton has the better part of the argument.

In Octane Fitness, LLC v. ICON Health & Fitness, Inc .,²³ the United States Supreme Court set forth the history behind § 285 :

Prior to 1946, the Patent Act did not authorize the awarding of attorney’s fees to the prevailing party in patent litigation. Rather, the "American Rule" governed: " ‘[E]ach litigant paid its own fees, win or lose....’ " In 1946, Congress amended the Patent Act to add a discretionary fee-shifting provision , then codified in § 70, which stated that a court "may in its discretion award reasonable attorney’s fees to the prevailing party upon the entry of judgment in any patent case."

Courts did not award fees under § 70 as a matter of course. They viewed the award of fees not "as a penalty for failure to win a patent infringement suit," but as appropriate "only in extraordinary circumstances." The provision enabled them to address "unfairness or bad faith in the conduct of the losing party, or some other equitable consideration of similar force," which made a case so unusual as to warrant fee-shifting.²⁴

Cases applying § 285 are consistent with the...