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When a claim of patent infringement is a necessary element of a legal malpractice suit, those suits should be tried in federal court, the U.S. Court of Appeals for the Federal Circuit has ruled in a case of first impression. On Oct. 15 the Washington, D.C.-based appeals court upheld a ruling by U.S. District Judge Royal Furgeson of San Antonio that denied a request by Akin Gump Strauss Hauer & Feld of Dallas and Branscomb, a Corpus Christi-based firm, to remand a malpractice suit to state court. In a 16-page opinion in the interlocutory appeal in Air Measurement Technologies Inc., et al. v. Akin Gump Strauss Hauer & Feld, et al., Federal Circuit Chief Judge Paul Michel wrote, “We hold that at least where, as here, establishing patent infringement is a necessary element of a malpractice claim stemming from alleged mishandling of patent prosecution and earlier patent litigation, the issue is substantial and contested, and federal resolution of the issue was intended by Congress, there is “arising under’ jurisdiction under” 28 U.S.C. �1338. Judges Randall Rader and Alan Lourie also sat on the panel. The opinion may lead to all sorts of legal malpractice suits, not just those containing vital claims of patent infringement, to be filed or tried in federal courts instead of state courts. E. Joshua Rosenkranz, a shareholder in the New York office of Heller Ehrman who represents Akin Gump and Branscomb in the appeal, says the Federal Circuit decision in AMT v. Akin Gump could lead to a deluge of state-law legal malpractice suits being filed in federal courts. “Malpractice cases are almost always disposed of on issues that are a matter of state law,” notes Rosenkranz, who says his clients have not yet decided whether to file a petition for writ of certiorari with the U.S. Supreme Court. “If there is federal jurisdiction over this case, then all patent malpractice cases must be in federal court. Basically we’re taking an entire category of state-law claims and saying state courts have no jurisdiction over them. “I would say not just patent malpractice cases, but securities malpractice, environmental malpractice, and malpractice in any matter involving a federal law or a federal agency,” Rosenkranz adds. But Dallas lawyers Paul Storm and Chris Kling, partners in Storm LLP who represent the plaintiffs in AMT v. Akin Gump, say the implications are less broad. Kling suggests it will take a “fairly unique fact pattern” to use the Federal Circuit’s ruling to keep a malpractice suit in federal court. “There has to be an underlying action to enforce the patent,” Kling says. “I do not believe that every time a patent attorney is alleged to have made a mistake, that every one of those cases will be in federal court,” Storm adds. The patents at issue in AMT v. Akin Gump, according to the Federal Circuit opinion, relate to technology for a safety device on self-contained breathing apparatuses (SCBA) used by firefighters and others who need supplemental oxygen. Louis Herbert Stumberg of San Antonio and a now-deceased partner formed AMT and North-South Corp. to develop, license and market the safety device. In 1989, they hired Texas patent attorney Gary Hamilton, then at San Antonio’s Matthews and Branscomb (now Branscomb) to secure patent protection for the technology. In 2000, 2001 and 2002, AMT filed six infringement suits in the U.S. District Court for the Western District of Texas against SCBA manufacturers, and the company settled them between 2001 and 2003 for about $10 million without a judicial determination of infringement, invalidity or unenforceability of the patents, Michel wrote in the opinion. But in 2003, AMT, North-South and Stumberg � who had hired new counsel for the patent suits in 2002 � filed AMT v. Akin Gump in the 131st District Court in Bexar County, against Hamilton and some of the firms where he had worked, alleging legal malpractice, negligence, negligent misrepresentation and breach of fiduciary duties. The defendants removed the suit to federal court. According to the Federal Circuit opinion, the AMT plaintiffs allege in the malpractice suit that errors by the defendants forced them to settle the underlying patent infringement suits “far below market value,” because the defendants in the infringement suits were able to raise invalidity and unenforceability of the patents as defenses, which “would not have occurred without attorney error.” Hamilton, now a partner in Hamilton & Terrile in Austin, is not a party in the Federal Circuit appeal, because he and Hamilton & Terrile settled the dispute with AMT in February 2006, according to the opinion. Hamilton did not return two telephone calls seeking comment before presstime on Oct. 18. Steve McConnico, a lawyer for Hamilton and Hamilton & Terrile in AMT v. Akin Gump, says a confidentiality agreement prevents him from commenting. “The settlement agreement says the only thing we can say is the matter was resolved to the mutual satisfaction of the parties,” says McConnico, a partner in Scott, Douglass & McConnico in Austin. The defendants in AMT v. Akin Gump are Branscomb, where Hamilton worked when the AMT plaintiffs hired him in 1989, and Akin Gump, a firm he joined a while after leaving Branscomb, Hamilton wrote in his first amended answer to the suit. Hamilton is a former partner in Akin Gump’s Austin office. He left that firm in 2001. Akin Gump and Branscomb deny the allegations. Sheila Turner, an Akin Gump spokeswoman, says, “Akin Gump intends to defend the case. We are confident we will prevail.” In 2004, 32 lawyers from Matthews and Branscomb in San Antonio joined Cox & Smith to form Cox Smith Matthews, and the 15 lawyers from Matthews and Branscomb’s Corpus Christi office stayed together to form Branscomb. [See "Matthews and Branscomb San Antonio Group Joins Cox & Smith," Texas Lawyer, Sept. 6, 2004, page 1.] The Cox Smith Matthews firm deal is the subject of state court litigation related to the AMT v. Akin Gump legal malpractice suit. In April, AMT and North-South filed a suit in the 407th District Court in Bexar County against Branscomb and Cox Smith Matthews, alleging the firms fraudulently transferred assets from Matthews and Branscomb to Cox & Smith in 2004 in connection with the formation of Cox Smith Matthews. In the original petition in Air Management Technologies Inc., et al. v. Cox Smith Matthews Inc., et al., the plaintiffs seek to recover damages and set aside certain allegedly fraudulent asset transfers under the Texas Uniform Fraudulent Transfer Act, Chapter 24, �24.001 of the Texas Business and Commerce Code. The plaintiffs allege in the petition that they have claims against the defendants, because they filed the malpractice suit, AMT v. Akin Gump, before the Matthews and Branscomb lawyers left the firm to join Cox & Smith. The plaintiffs allege they filed AMT v. Cox Smith Matthews to “secure their rights as a creditor” against Matthews and Branscomb. “The plaintiffs allege, on information and belief, the assets transferred included tangible and intangible assets, artwork, furniture and furnishings, accounts receivable, intellectual property including computer programs, computers and other equipment, stock or option(s) to purchase stock, phone numbers and facsimile numbers and rights in and to the name “Matthews,’” the plaintiffs allege in the petition. In AMT v. Cox Smith Matthews, AMT and North-South seek to void and cancel the transfer of assets to “ensure that defendants’ assets are not dissipated or lost.” Those allegations are “completely frivolous and without merit,” says David Prichard, a partner in Prichard, Hawkins, McFarland & Young in San Antonio who is defending Cox Smith Matthews in the state court suit. “There was no fraudulent transfer whatsoever,” he says. “Hopefully, reasonable minds will prevail, and they will see that this was a straight-up, arms-length transaction.” Prichard also says the suit is premature, because the malpractice suit hasn’t gone to trial. In a supplemental petition the plaintiffs filed in September, AMT and North-South added as defendants 29 lawyers who formerly practiced at Matthews and Branscomb in San Antonio. Many now are shareholders in Cox Smith Matthews. Prichard says the supplemental petition also is frivolous, because many of the lawyers now named as defendants in AMT v. Cox Smith Matthews were either counsel or associates with Matthews and Branscomb at the time they moved to Cox & Smith and had no equity interest in the firm. “To me, that is why it [the suit] is so indicative of a frivolous claim,” Prichard says. San Antonio lawyer George Spencer Jr., who represents Branscomb in the state court suit and in the federal court legal malpractice suit, has a similar view of the merits of AMT v. Cox Smith Matthews. “We don’t think the fraudulent-transfer case has merit either legally or factually,” says Spencer, a partner in Clemens & Spencer. James B. Smith Jr., managing director of Cox Smith Matthews, refers questions to Prichard. Keith Sieczkowski, president of Branscomb, says “there was absolutely nothing fraudulent about anything.” Pros and Cons The Federal Circuit’s opinion paves the way for proceedings to resume in the legal malpractice suit. Lawyers on both sides of the malpractice suit say they are glad to have the jurisdictional issue settled before the suit goes to trial, because of the expense of a trial. But lawyers not involved in AMT v. Akin Gump who represent clients in legal malpractice suits in Texas have mixed views on the implications of the Federal Circuit opinion. Some lawyers who agree with Rosenkranz think the opinion will expand federal court jurisdiction over legal malpractice suits. “I think there is a significant expansion of what most lawyers thought the scope of federal jurisdiction was. It’s very interesting to me,” says Coyt Randal Johnston, of Johnston &f Tobey in Dallas, who represents mostly plaintiffs in legal-mal suits. “This may very well send a lot more legal malpractice cases to fed court. You could end up with all kinds of malpractice cases out there,” Johnston says, identifying securities fraud suits, admiralty claims or Medicare claims as possibilities that could end up in federal court. Jim Pennington, a Dallas solo who represents plaintiffs in legal malpractice suits, believes the case could affect his practice. “That’s going to be huge,” Pennington says. “If we have to file everything in federal court, I think it will have an impact in a lot of those cases. I generally try to stay out of federal court whenever I can.” Pennington believes it takes longer to litigate legal malpractice suits in federal court than in state court. “The rules are just more strict in terms of all of the pretrial requirements and general pleading requirements. You’ve got to file a motion to do anything. It’s just more difficult procedurally,” Pennington says. “And federal judges, generally speaking, are more inclined to grant summary judgment . . . throwing the case out, whereas state judges are less likely to do that.” William Cobb, a partner in the Dallas office of Cowles & Thompson who defends lawyers in legal malpractice cases, says he prefers litigating malpractice suits in federal court, but AMT v. Akin Gump may not exactly give him a free pass to get his clients’ cases moved there. He says he prefers federal court, because federal judges have more staff than state judges and are better equipped to digest pretrial motions. “We’ve been trying to get legal malpractice cases to federal court on removal jurisdiction. This looks like the first step toward the expansion of removal jurisdiction for legal malpractice,” Cobb says. But “I think it’s just a crack. The patent courts are kind of unique. And this case was decided by the Federal Circuit.” Whether the 5th U.S. Circuit Court of Appeals will agree with the Federal Circuit’s logic remains to be seen, he says. Federal courts in the Eastern District of Texas are heavy with patent suits, but Michael C. Smith, a partner in Marshall’s The Roth Firm, isn’t sure the district will see a rise in legal malpractice litigation because of the Federal Circuit opinion. While out-of-state and out-of-district litigants often flock to file their cases in the Eastern District because of the judges’ reputations for moving patent disputes quickly, those suits may only stick there if the lawyer sued for legal malpractice actually drafted the disputed patent in the Eastern District, Smith says. “It’s going to be a highly fact-specific question,” Smith says. “It’ll be interesting if we see some of those cases here.” Alison Moore, a partner in Thompson Coe Cousins & Irons in Dallas who defends lawyers in malpractice cases, says the Federal Circuit opinion will not necessarily open the door for lawyers to file malpractice suits in federal court. A key issue in AMT v. Akin Gump was the validity of the patent, which has to be determined before legal malpractice can be determined. That’s an issue not likely to occur in other legal malpractice matters involving federal law, she says. “It’s hard to imagine a securities case where it comes down to the application of securities law to the underlying matter,” says Moore, who believes the Federal Circuit opinion will likely be limited to patent cases. But Moore adds, “Having said that, I think it does give legal malpractice defendants and plaintiffs an additional argument to get into federal court.” Notes Kling, “You have to suppose that parties and lawyers who prefer federal court over state court are going to try to word their pleadings to get into federal court and if in federal court, to stay there.”

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