State courts may hear claims alleging legal malpractice in the handling of a patent case, a unanimous U.S. Supreme Court ruled on Feb. 20.
The justices handed victory to a quartet of attorneys who challenged a Texas Supreme Court decision, which had held that the patent malpractice suit against them belonged in federal court, not state court, where they had prevailed.
The Supreme Court’s decision in Gunn v. Minton is expected to have ramifications beyond patent legal malpractice cases because it clarified a particularly muddy area of the law: when there is federal jurisdiction over a state law claim.
The legal malpractice claim — a state law claim — stemmed from a patent infringement suit brought by Vernon Minton in federal court against the National Association of Securities Dealers and the Nasdaq stock market. Minton was represented by Jerry Gunn of Jerry W. Gunn & Associates in Houston; James Wren of Williams Squires & Wren in Waco; and William Slusser and Michael Wilson, now in the Houston office of Fulbright & Jaworski.
Minton lost his patent infringement suit. He brought a malpractice suit in Texas state court against his lawyers because he believed their failure to raise a patent-related argument earlier in the case resulted in his loss and the invalidation of his patent. After he lost his malpractice suit, he raised a new argument on appeal: Because the malpractice claim was based on an alleged error in a patent case, it "arises under" federal patent law.
Minton asked the Texas appeals courts to vacate the trial court order and dismiss the case so he could start over in federal court. The Texas Supreme Court, in a divided opinion, agreed with Minton.
In reversing the Texas Supreme Court, Chief Justice John Roberts Jr. carefully laid out the analysis of when a case can "arise under" federal law. There are two ways, he wrote, the first being when federal law creates the cause of action asserted. Minton’s original patent infringement suit, for example, arose under federal law because it was specifically authorized by a federal statute, he wrote.
The Supreme Court, he added, also has identified a "special and small category" of cases in which there is "arising under" jurisdiction even when a claim has its origins in state rather than federal law, as did Minton’s legal malpractice claim.
"In outlining the contours of this slim category, we do not paint on a blank canvas," Roberts wrote. "Unfortunately, the canvas looks like one that Jackson Pollock got to first."
Looking to the court’s 2005 decision in Grable & Sons Metal Products v. Darue Engineering, Roberts said federal jurisdiction over a state law claim will lie if a federal issue is necessarily raised; actually disputed; substantial; and capable of resolution without disrupting the federal-state balance approved by Congress.
Although Minton’s malpractice claim met the first two requirements, Roberts said, it failed the last two. No matter how the state courts resolved the hypothetical question of whether the patent infringement case would have had a different result if Minton’s lawyers had raised an argument earlier in the case, "it will not change the real-world result of the prior federal patent litigation," he wrote. "Minton’s patent will remain invalid."
And states have a special responsibility for maintaining standards among members of the licensed professions, he wrote: "We have no reason to suppose that Congress — in establishing exclusive federal jurisdiction over patent cases — meant to bar from state courts state legal malpractice claims simply because they require resolution of a hypothetical patent issue."
"The chief justice took a lot of effort to try to bring even more clarity into this area of the law," says Jane Webre of Scott, Douglass & McConnico in Austin, who argued the case for the three lawyers. "It’s a hard area and kind of a muddled one. Although the court couldn’t quite get there to say never, never (to federal court jurisdiction), this came awfully close."
Webre says the decision will apply to hundreds of other issues. "It addresses what is the yardstick for measuring the ‘arising under’ jurisdiction. It has a pretty broad reach."
Minton was represented in the Supreme Court by Thomas Michel of Griffith, Jay & Michel in Fort Worth, who argued that the federal courts should have jurisdiction over his client’s case. He says it was difficult to overcome the confusing "arising under" case law, as evidenced by Roberts’ opinion.
"I think they looked at it and felt that, given the confusing history of embedded federal question jurisdiction, that this kind of case it was more properly handled in state court," Michel says of the high court’s decision. "We, of course, thought it would more properly belonged in federal court. But that’s the outcome."
Randy Johnston, a partner Dallas’ Johnston ??? Tobey who represents Minton in the trial court, says the U.S. Supreme Court’s ruling means that his client will head back to the Texas Supreme Court to argue whether the trial court’s granting a defense motion dismissing his client’s case was proper. It also means his client will dismiss a federal legal malpractice complaint they filed in a U.S. District Court in the Eastern District of Texas [See "Another Bite At the Apple," Texas Lawyer, Jan 30. 2012, page 1.]
"We lost the battle but won the war, because I believe that legal malpractice cases belong in state court," Johnston says. "That wasn’t my position in this appeal, but that’s my personal opinion.”
Johnston says he believes state courts are a better place to litigate legal malpractice cases because they "have a greater interest in regulating the conduct of lawyers in their state than the feds do."
Ronald Mallen, principal author of the treatise Legal Malpractice, filed an amicus brief supporting Gunn and noting, "Over the last five years, there has been a dramatic increase in claims against intellectual property lawyers. That increase is disproportionately high when compared to the frequency of claims against lawyers generally."
For Gunn, Wren, Slusser and Wilson, "The end-end is in sight," Webre says. "We have procedural bits we need to mop up."