For whatever reason, some defendants prefer to have their disputes heard in federal court. But the U.S. Supreme Court ruled earlier this year that legal-malpractice cases are best left to state courts. And a Dallas federal judge told Baker Botts on April 12 that its dispute is no exception.
A unanimous U.S. Supreme Court ruled on Feb. 20 in Gunn v. Minton that, except in some unusual circumstances, legal-malpractice cases belong in state court. In Gunn, Chief Justice John Roberts Jr. wrote that one way a legal-malpractice case can "arise under" federal law is when federal law creates the cause of action asserted. Vernon Minton’s original patent-infringement suit, for example, arose under federal law because a federal statute specifically authorized it, he wrote.
But Roberts ultimately concluded that Gunn did not belong in federal court, because, no matter how the state courts resolved the allegations against his patent litigators, "it will not change the real-world result of the prior federal patent litigation," he wrote. "Minton’s patent will remain invalid."
Despite that decision, Baker Botts asked Senior U.S. District Judge Royal Furgeson to consider keeping the legal-malpractice case filed against it — Axcess International v. Baker Botts — in his court, rather than dismissing it for lack of subject matter jurisdiction [See "State or Federal Court for Legal-Mal Suit Against Baker Botts?" Texas Lawyer, April 1, 2013, page 1.]
A former client filed Axcess in 2010 in U.S. District Court for the Northern District, alleging negligence and breach of fiduciary duty against Baker Botts. Axcess alleged in its complaint that Baker Botts failed to inform it that the firm had a conflict: The firm was pursuing a patent for a competitor at the same time it represented Axcess in a patent application for a product in the same industry for the same invention. Baker Botts denies the allegations.
After the high court issued Gunn, Furgeson asked the parties to file briefs on whether he had the jurisdiction to hear Axcess. While Axcess’ brief urged Furgeson to dismiss the case because he did not have jurisdiction, Baker Botts’ brief stated that the answer to whether Furgeson could hear the case wasn’t clear, and his decision could impact other patent lawyers.
"Unlike the plaintiff in Gunn, Axcess has alleged direct violations of federal patent law, claiming (wrongly) that Baker Botts violated federal regulations pertaining to patent practice," according to Baker Botts’ brief regarding federal jurisdiction. "Further, Axcess seeks to establish an unprecedented principle of legal ethics — a ‘subject matter conflict’ rule — that would significantly affect the rights and obligations of all federal patent law practitioners."
State or Federal?
To reach his conclusion, Furgeson examined the U.S. Patent and Trademark Office’s Rule of Professional Conduct 10.66 and Texas Disciplinary Rule of Professional Conduct 1.06. Both prohibit lawyers from representing clients when they have a conflict of interest.
Furgeson noted that neither rule creates a private cause of action. He also noted that attorney-regulating authorities function separately from the judicial system, and "the regulating bar need not discipline attorneys found liable for malpractice nor must a court find liable an attorney disciplined for misconduct."
"It is for this reason that Baker Botts’s fear that resolution of this matter will have a significant effect on the entire federal patent system is entirely unfounded," Furgeson wrote. "Baker Botts argues that Axcess’s malpractice claim raises for the first time a new principle of ethics and duty: a ‘subject matter conflict’ rule. Whether or not there exists such a rule for all federal patent lawyers is not at issue; what is at issue is whether Texas patent lawyers owe their clients a duty under Texas law to not simultaneously represent other clients operating in the same industry or in the same subject-matter."
"If such a rule applies to all attorneys practicing patent law before the USPTO, this obligation will only come to light through disciplinary investigations and actions taken by the USPTO itself. Additionally, there can be no legitimate fear that a ruling from a Texas court finding such a conflict-rule would be binding on any attorneys practicing outside this jurisdiction," Furgeson wrote.
Furgeson ultimately concluded that, under Gunn, this legal-malpractice case should be left to state court.
"Furthermore, to find federal jurisdiction merely because the plaintiff can allege a violation of a USPTO Rule (that will in most cases be a violation of a similar state rule) would effectively eliminate the Supreme Court’s holding in Gunn and circumvent state jurisdiction," Furgeson wrote.
Michael Cinelli, a spokesman for Baker Botts, says the firm declines comment about the ruling.
Jon Suder, a partner in Fort Worth’s Friedman Suder & Cooke who represents Axcess, is pleased with the ruling.
"It’s correct, it’s well-reasoned, and, in light of Gunn, it’s the right decision."
On Feb. 28, Axcess filed an identical case against the firm in a Dallas County Court-at-Law.
"We have a scheduling conference scheduled for May 3 in the state court," Suder says. "And we’ll be asking for a trial date at that point."