INSPIRED DEVELOPMENT GROUP, LLC, A FLORIDA LIMITED LIABILITY COMPANY, Plaintiff/Counterclaim Defendant-Appellant
INSPIRED PRODUCTS GROUP, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY, DBA KIDSEMBRACE, LLC, Defendant/Counterclaimant-Appellee MITCHELL PRINE, INDIVIDUALLY, Counterclaim Defendant
from the United States District Court for the Southern
District of Florida in No. 9:16-cv-80076-RLR, Judge Robin L.
L. Brannock, Brannock & Humphries, Tampa, FL, argued for
plaintiff/counterclaim defendant-appellant. Also represented
by Joseph T. Eagleton.
A. Dye, Cozen O'Connor, West Palm Beach, FL, argued for
defendant/counterclaimant-appellee. Also represented by James
A. Gale, Arthur Robert Weaver, Miami, FL.
Prost, Chief Judge, Newman and Stoll, Circuit Judges.
Inspired Development Group, LLC ("Inspired
Development") sued Appellee Inspired Products Group,
LLC, d/b/a KidsEmbrace, LLC ("KidsEmbrace") for
breach of contract and other related state law claims in
federal district court on the basis of diversity jurisdiction
under 28 U.S.C. § 1332(a). The district court granted
summary judgment in KidsEmbrace's favor on certain claims
and Inspired Development appealed to the U.S. Court of
Appeals for the Eleventh Circuit. After the Eleventh Circuit
discovered that diversity jurisdiction did not exist, the
district court concluded on remand that it retained
jurisdiction over the suit based on federal question
jurisdiction. The Eleventh Circuit transferred the case to
this court to determine whether the parties' claims
"aris[e] under" the patent laws pursuant to 28
U.S.C. § 1338(a). For the reasons below, we vacate and
remand for dismissal of the lawsuit for lack of jurisdiction.
case arose as a business dispute. After developing
children's car seat designs in the shape of cartoon and
comic book characters, Mitchell Prine formed Inspired
Development. Inspired Dev. Grp. v. Inspired Prods.
Grp., No. 9:16-CV-80076, 2017 WL 411997, at *1 (S.D.
Fla. Jan. 31, 2017). Mr. Prine obtained several patents for
the safety seats. Id. The first design patent issued
as U.S. Design Patent No. D524,559, which incorporated a
representation of Batman into the car seat. J.A.
Development held the patents as assignee. Inspired Dev.
Grp., 2017 WL 411997, at *1. With the help of some
investors, Mr. Prine then formed a second company,
KidsEmbrace, to manufacture and sell the car seats.
Id. Mr. Prine acted as CEO of KidsEmbrace.
Id. at *2.
2007, the two companies entered into an Exclusive Patent
Licensing Agreement ("Agreement"), which granted
KidsEmbrace an exclusive license to practice the patents to
commercialize the car seats in exchange for certain
royalties. Id. at *1.
2009, a third company entered the picture. KidsEmbrace sought
additional investment from a Bulgarian corporation named
Boliari, EAD ("Boliari"). Id. at *2. As a
condition of its investment, Boliari made both Inspired
Development and KidsEmbrace execute a Binding Letter of
Agreement ("Binding Letter"). Id. The
Binding Letter required Inspired Development to transfer the
patent rights to KidsEmbrace in the event KidsEmbrace was
acquired. In exchange, Inspired Development would receive a
minimum royalty payment. Id.
after the deal with Boliari was struck, Mr. Prine was removed
as CEO of KidsEmbrace. Id. Subsequently, KidsEmbrace
began questioning the value of licensing Inspired
Development's patents. Id. Eventually,
KidsEmbrace unilaterally terminated the Agreement.
Id. Inspired Development believed it was owed
outstanding royalties under the Agreement and a lump-sum
payment under the Binding Letter. Id.
2016, Inspired Development filed suit against KidsEmbrace in
the U.S. District Court for the Southern District of Florida,
alleging breach of contract and other equitable state law
of the complaint alleged that KidsEmbrace breached the
written terms of the Agreement.
¶¶ 34–35 (alleging Section 2 of Agreement
required "the greater of $100,000 or one percent
(1%)" of yearly "net sales" as well as late
fees, which KidsEmbrace failed to pay in the fourth quarter
of 2012 and all of 2013). Count II alleged breach of the
Binding Letter. J.A. 99 ¶¶ 39–41 (alleging
Section 5 of Binding Letter required "a minimum of
$3,000,000 in total royalties during the duration of the
Agreement," which KidsEmbrace refused to pay after
"unjustifiably and unilaterally" terminating the
Agreement). Count III pled a claim for unjust enrichment in
the alternative to the breach of contract claims.
Id. ¶ 43 ("As an alternative to Counts I
and II (Breaches of the Agreement and Binding Letter,
respectively), Plaintiff brings a cause of action against
Defendant for unjust enrichment."). Count IV pled
promissory estoppel. J.A. 100 ¶¶ 50–52.
response, KidsEmbrace asserted counterclaims, which included
breach of contract, fraud, negligent misrepresentation,
restitution, and breach of fiduciary duty.
parties relied on diversity to establish subject matter
jurisdiction over their respective claims. See 28
U.S.C. § 1332(a).
summary judgment, the claim for breach of the Agreement
(Count I) survived, see Inspired Dev. Grp., 2017 WL
411997, at *3–5, but was later settled. The rest of the
case was resolved entirely on state law grounds under Florida
contract law. Inspired Development lost on its claim for
breach of the Binding Letter (Count II), id. at *8,
and equitable claims of unjust enrichment (Count III),
id. at *9, and promissory estoppel (Count IV),
id. Inspired Development appealed to the Eleventh
appeal, the Eleventh Circuit spotted a potentially fatal
problem with the case: diversity of citizenship might not
exist. As the Eleventh Circuit explained, "to allege the
citizenship of a limited liability company, a party must
identify all the members of the limited liability company,
and list the citizenship of each member." Jurisdiction
Question, Inspired Dev. Grp. v. Inspired Prods.
Grp., No. 17-11072 (11th Cir. Mar. 23, 2017) (discussing
Mallory & Evans Contractors & Eng'rs, LLC v.
Tuskegee Univ., 663 F.3d 1304, 1305 (11th Cir. 2011)).
Neither party had done so in their pleadings. The Eleventh
Circuit issued a "Ju-risdictional Question,"
finding that "the relevant pleadings did not
sufficiently allege the citizenship of any party, as
necessary to establish the district court's subject
matter jurisdiction over the relevant claims in the first
Eleventh Circuit's concerns were well founded. After a
closer examination of their respective members, the parties
"admitted that they are not diverse." Limited
Remand, Inspired Dev. Grp. v. Inspired Prods. Grp.,
No. 17-11072 (11th Cir. June 6, 2017); see also 28
U.S.C. § 1332(a)(1) (requiring an amount in controversy
exceeding $75,000 and a claim between citizens of different
states). At this point, cut loose from its jurisdictional
moorings, the dispute appeared to be headed for
dismissal. But the case did not end there.
attempted to anchor jurisdiction on a different basis.
KidsEmbrace argued for "the first time on appeal that
federal subject matter jurisdiction exists" because the
case presented a federal question. J.A. 2550. The Eleventh
Circuit remanded to let the district court answer that
question in the first instance.
the district court, Inspired Development opposed the new
jurisdictional theory. It argued that because there was no
diversity of citizenship and it only alleged state law
claims, the case no longer belonged in federal court.
KidsEmbrace framed the state law breach of contract and
equitable claims in the complaint as "arising
under" federal patent law rather than state law.
KidsEmbrace also argued its state law counterclaims- which it
had already voluntarily dismissed from the suit- provided a
basis for staying in federal court.
district court accepted KidsEmbrace's arguments,
concluding it retained jurisdiction over this breach of
contract action. See Order on Subject Matter
Jurisdiction at 9, Inspired Dev. Grp. v. Inspired Prods.
Grp., No. 9:16-CV-80076 (S.D. Fla. Dec. 4, 2017)
(concluding district court had "subject matter
jurisdiction over this action pursuant to 28 U.S.C. §
1338(a)"). The case then returned to the Eleventh
Circuit for review of that decision.
appeal, however, the Eleventh Circuit revisited
KidsEmbrace's motion to transfer the appeal to this
court. In "the interests of justice and judicial
economy," the Eleventh Circuit granted KidsEmbrace's
motion to transfer, "expressly leav[ing] the question of
whether federal subject matter jurisdiction exists under 28
U.S.C. § 1338(a) to be resolved by the Federal
Circuit." Inspired Dev. Grp. v. Inspired Prods.
Grp., No. 17-11072, 2018 WL 1282412, at *1 (11th Cir.
Feb. 22, 2018).
jurisdiction to decide whether the district court had subject
matter jurisdiction pursuant to 28 U.S.C. § 1338(a).
NeuroRepair, Inc. v. The Nath Law Grp., 781 F.3d
1340, 1342 (Fed. Cir. 2015).
matter jurisdiction is a question of law that we review de
novo." Litecubes, LLC v. N. Light Prods., Inc.,
523 F.3d 1353, 1360 (Fed. Cir. 2008); see also Sec. &
Exch. Comm'n v. Mutual Benefits Corp., 408
F.3d 737, 741 (11th Cir. 2005) (same).
courts are courts of limited jurisdiction,' possessing
'only that power authorized by Constitution and
statute.'" Gunn v. Minton, 568 U.S. 251,
256 (2013) (quoting Kokkonen v. Guardian Life Ins. Co. of
Am., 511 U.S. 375, 377 (1994)). "Federal courts may
hear only those cases over which they have subject matter
jurisdiction." Semiconductor Energy Lab. Co. v.
Nagata, 706 F.3d 1365, 1368 (Fed. Cir. 2013). Subject
matter jurisdiction "may be based upon either diversity
of citizenship or federal question jurisdiction."
Id. at 1369.
as here, [the parties] do not claim diversity of citizenship,
there must be federal question jurisdiction."
ExcelStor Tech., Inc. v. Papst Licensing GmbH & Co.
KG, 541 F.3d 1373, 1375 (Fed. Cir. 2008). By statute,
federal district courts are authorized to exercise original
jurisdiction in civil actions "arising under the
Constitution, laws, or treaties of the United States."
28 U.S.C. § 1331. "Federal courts have exclusive
jurisdiction over cases 'arising under any Act of
Congress relating to patents.'" Gunn, 568
U.S. at 253 (quoting 28 U.S.C. § 1338(a)).
statutory purposes, a case will "arise under"
federal law in two ways. Id. at 257. First, the case
qualifies if federal law "creates the cause of action
asserted." Id. This category accounts for the
"vast bulk of ...