Lighting Science Group v. Koninklijke Philips

624 F.Supp.2d 1174

LIGHTING SCIENCE GROUP CORPORATION, LED Holdings, LLC, and LED Effects, Inc., Plaintiff, v. KONINKLIJKE PHILIPS ELECTRONICS N.V., Philips Electronics North America Corporation, Philips Solid-State Lighting Solutions, Inc. as successor to Color Kinetics, Inc., and Does 1-50, inclusive, Defendants.

No. CIV. S-08-761 LKK/JFM.

United States District Court, E.D. California.

June 3, 2008.

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Rory J. Radding, PHV, Morrison and Foerster LLP, New York, NY, John Michael Stusiak, Morrison and Foerster LLP, Sacramento, CA, William L. Stern, Morrison & Foerster LLP, San Francisco, CA, for Plaintiff.

Matthew A. Schwartz, PHV, Richard J.L. Lomuscio, PHV, Sullivan and Cromwell LLP, New York, NY, Edward E. Johnson, Michael H. Steinberg, Sullivan and Cromwell LLP, Los Angeles, CA, for Defendants.

ORDER

LAWRENCE K. KARLTON, Senior District Judge.

Plaintiffs, Lighting Science Group Corp., LED Holdings, LLC ("LEDH"), and LED Effects, Inc. ("LEI") originally filed this suit in Sacramento Superior Court against defendants, Koninklijke Philips Electronics N.V., Philips Electronics North America Corp., (collectively "Philips") and Philips Solid-State Lighting Solutions, Inc ("PSSLS"). Defendants later removed the suit to this Court, asserting jurisdiction based on 28 U.S.C. §§ 1331, 1332, and 1338. Plaintiffs now seek to remand the suit to state Court, alleging that this Court lacks subject matter jurisdiction over any of their claims against defendants. For the reasons discussed below, the Court grants plaintiffs' motion to remand.

I. Background and Allegations

Plaintiffs and defendants are competitors in the field of energy-saving commercial lighting applications. Compl. ¶ 11. Prior to plaintiffs' and defendants' involvement with one another, plaintiffs were known as "pioneer[s] in the design and manufacture of LED [light-emitting diode] devices," an area of lighting manufacturing in which defendants sought to expand their presence. Compl. ¶¶ 12-17.

In late 2005 or early 2006, Philips contacted LEI about partnering in the development of LED technologies. Id. ¶ 25. In initiating the collaborative effort, Philips conducted due diligence that included the evaluation of LEI's "confidential business information" and "proprietary technologies and products," through which process Philips gained access to LEI's trade secrets and proprietary information. Compl. ¶¶ 26, 28. Confidentiality agreements bound all parties from utilizing any information gained during the due diligence process absent a further agreement. Compl. ¶ 28. In January 2006, LEI and Philips entered into a joint development agreement ("JDA") providing for the sharing of various information with the goal of developing LED products. Compl. ¶ 30. Both parties continued to compete against other LED producers, with Philips now using some of the technological information gained through the JDA with LEI. Compl. ¶¶ 20, 32.

In November 2006, Philips began to explore the possibility of acquiring LEI. Compl. ¶ 35, 36. In doing so, Philips sought the assistance of Pegasus Capital Advisors L.P. ("Pegasus") as a co-investor, with whom Philips shared information gained during its prior review of LEI's confidential and proprietary information. Compl. ¶ 36, 39. It is also alleged that Philips became privy to additional LEI proprietary information through this process. Compl. ¶ 39. Philips ultimately withdrew from the attempt to acquire LEI. Compl. ¶ 41. Pegasus, however, acquired LEI on its own, resulting in the formation of LED Holdings through the June 2007 acquisition. Compl. ¶ 43. LED Holdings then acquired a controlling interest in LSGC in October 2007. Id. ¶ 44.

At the same time Philips sought to acquire LEI, it was—unbeknownst to LEI— also exploring the possibility of acquiring Color Kinetics, Inc. ("CK"), whom LEI characterizes as its "direct competitor." Compl. ¶ 46, 52. Philips successfully acquired CK in August 2007, resulting in the formation of PSSLS. Compl. ¶ 47. After this acquisition, plaintiffs allege that Philips began sharing their confidential information with PSSLS. Compl. ¶ 52. Plaintiffs further allege that Philips cited problems with a collaborative project between itself and LEI, the Plaza Hotel Project, as a pretense to both end the JDA between itself and LEI as well as to orchestrate SSLS's completion of the lighting on the Plaza Hotel Project. Compl. ¶¶ 54-58. Philips terminated the JDA on February 15, 2008, resulting in its withdrawal from two other large projects entered into under the JDA. Compl. ¶¶ 58-60.

On March 7, 2008, plaintiffs filed suit against defendants in Sacramento Superior Court. Plaintiffs' complaint seeks recovery on numerous claims, including breach of the covenant of good faith and fair dealing, breach of fiduciary duty, intentional and negligent interference with plaintiffs' contracts, intentional and negligent interference with plaintiffs' prospective business relations, violation of California Business & Professions Code section 17200 et seq., and misappropriation of confidential information (Cal. Bus. & Prof. Code § 3426 et seq.). Compl. ¶¶ 70-124. On April 8, 2008, defendants removed plaintiffs' action to this Court. Plaintiffs now move to remand the suit.

II. Standard

The removing defendant always has the burden of establishing federal jurisdiction. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir.1992). A defendant may remove any state court action to federal district court if the latter court has original jurisdiction under "a claim or right arising under the Constitution, treaties or laws of the United States." 28 U.S.C. § 1441; see also 28 U.S.C. § 1331. Whether a cause of action arises under the Constitution, treaties, or laws of the United States must be determined solely from what is contained in the plaintiffs well-pleaded complaint. Taylor v. Anderson, 234 U.S. 74, 75-76, 34 S.Ct. 724, 58 L.Ed. 1218 (1914). Federal jurisdiction is not proper when the federal question only arises through the defendant's defense or the plaintiffs necessary response thereto. Id.; Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 809, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988).

Civil actions not involving a federal question are removable to a federal district court only if there is diversity of citizenship between the parties. 28 U.S.C. § 1332(a)(1). Section 1332 requires that there be complete diversity; that is, each plaintiffs citizenship must be diverse as to each defendant's citizenship. Id. A defendant may remove a civil action that alleges claims against a non-diverse defendant when the plaintiff has no basis for suing that defendant, or in other words, when that defendant has been fraudulently joined. Ritchey v. Upjohn Drug Co., 139 F.3d 1313, 1318 (9th Cir.1998); McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir.1987). Where a non-diverse defendant has been fraudulently joined to an otherwise completely diverse case, that defendant is disregarded for diversity jurisdiction purposes. See, e.g., Calero v. Unisys Corp., 271 F.Supp.2d 1172, 1176 (N.D.Cal.2003).

In order to establish that a non-diverse defendant has been fraudulently joined, the removing party carries the heavy burden of establishing the absence of any possibility of recovery. Ritchey, 139 F.3d at 1318. The claim of fraudulent joinder must be supported by clear and convincing evidence, with all ambiguities resolved in favor of the non-removing party. Hamilton Materials Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th Cir.2007); Macey v. Allstate Prop. & Cas. Ins. Co., 220 F.Supp.2d 1116, 1117-18 (N.D.Cal.2002); Plute v. Roadway Package Sys., Inc., 141 F.Supp.2d 1005, 1012 (N.D.Cal.2001). In determining whether a non-diverse defendant has been improperly joined, courts may look beyond the pleadings and examine the factual record. McCabe, 811 F.2d at 1339.

III. Analysis

Defendants contend that the court has jurisdiction over this action both because the action implicates federal law and because there is complete diversity among the proper parties. I consider each of these in turn.

A. Federal Question Jurisdiction

District courts have original jurisdiction over civil actions that arise under any Act of Congress relating to patents. 28 U.S.C. § 1338(a). Determination of whether an action arises under federal patent law is guided by the same standard for determining whether federal jurisdiction exists under § 1331. Christianson, 486 U.S. at 809, 108 S.Ct. 2166. There are two scenarios under which § 1338(a) jurisdiction is proper. Id. First, jurisdiction under § 1338(a) extends to cases where federal patent law creates a cause of action within the constraints of the well-pleaded complaint. Id. The defendants concede that this is not the grounds for jurisdiction here. Defendants' Opposition to Motion to Remand at 10.

Under the second prong of the Christianson test, a district court must first examine all of the theories under which a plaintiff may recover on a certain claim and next determine that the resolution of a substantial question of federal patent law is necessary for recovery on that claim. Hunter Douglas, Inc. v. Harmonic Design, Inc., 153 F.3d 1318, 1328-29 (Fed. Cir.1998), overruled on other grounds by Midwest Indus., Inc. v. Karavan Trailers, Inc., 175 F.3d 1356 (Fed.Cir.1999). It is on this ground that the defendants assert federal jurisdiction is proper.

Where a plaintiff has pled alternative grounds for relief, some of which do not rely on federal law, assertion of federal jurisdiction is improper. Christianson, 486 U.S. at 810, 108 S.Ct. 2166 ("a claim supported by alternative theories in the complaint may not form the basis of § 1338(a) jurisdiction unless patent law is essential to each of those theories"); Rains v. Criterion Systems, Inc., 80 F.3d 339, 346 (9th Cir.1996) (same, holding federal jurisdiction improper in a suit for discrimination, where plaint...