D.C. Circuit Finds No Proximate Cause in Patent Attorney Malpractice Case

On June 12, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) affirmed a decision of the U.S. District Court for the District of Columbia in Seed Co. Ltd. v. Westerman, Hattori, Daniels & Adrian, LLP in a legal malpractice case resulting from the failure of lawyers from two different law firms, Westerman, Hattori, Daniels & Adrian, LLP (Westerman) and Kratz, Quintos & Hanson, LLP (Kratz), to file necessary documents in the plaintiffs’ patent case. The D.C. Circuit affirmed the district court’s finding that the plaintiffs waived any claim for damages arising from its allegation that Westerman was negligent in giving legal advice in a patent case. The D.C. Circuit also affirmed the district court’s grant of summary judgment where the plaintiff failed to establish that another law firm’s (Krantz) legal advice was the proximate cause of its injuries.

Alleged Malpractice

The Seed Company Limited and Shigeru Tamai (Seed), filed three patent applications for a device that dispenses correctional tape… one in Japan, one through the Patent Cooperation Treaty (PCT) and one in the United States, which was handled by Armstrong, Westerman, Hattori, McLeland & Naughton LLP (Armstrong Westerman). During prosecution of the U.S. patent application, the U.S. Patent and Trademark Office (USPTO) determined that another inventor (Stevens) filed a patent application that predated Seed’s U.S. patent application. In attempting to establish an earlier filing date, Seed relied on its earlier patent application filings in Japan and through the Patent Cooperation Treaty (PCT). However, Armstrong Westerman failed to file a translation or affidavit certifying the translation’s accuracy for the PCT application, which was required by the USPTO under 37 C.F.R. § 1.647 (1997). Regardless, Seed prevailed before the Patent Board and Stevens appealed to the Court of Appeals for the Federal Circuit (CAFC).

While the case was on appeal, the Armstrong Westerman firm split into two different law firms, i.e. Westerman and Kratz. The undisputed failure of Armstrong Westerman to file the required translation and affidavit resulted in Seed’s loss before the CAFC, which led to the rejection of Seed’s patent application. In its complaint, Seed alleged that Westerman advised that Seed was likely to obtain its U.S. patent despite the negative CAFC and PTAB decisions and Seed allegedly relied on Westerman’s advice in declining to settle with Stevens.

Subsequently, a lawyer with Kratz, i.e. Armstrong, advised Seed to file a malpractice suit against Westerman for Armstrong Westerman’s failure to file the required translation and affidavit of accuracy. Armstrong also advised Seed regarding the statute of limitations and pertinent date for filing a malpractice suit against Westerman. Seed instead retained new counsel, Dorsey & Whitney, and later filed a malpractice suit against both Westerman and Kratz.

Prior Court Proceedings

Initially, Seed filed a two-count complaint with the district court. Count I alleged that both Westerman and Kratz committed malpractice by failing to file the translation of the PCT application and an affidavit of accuracy. Count II alleged that Westerman “committed malpractice by giving Seed faulty legal advice after the Patent Board decision, and in doing so, caused Seed to forego settlement opportunities with Stevens.”  When both Westerman and Kratz raised a statue of limitations defense for Count I, Seed amended the complaint to add two more counts (Counts III and IV), which were “contingent” upon Count I and alleged that the advice that Armstrong gave Seed regarding the statute of limitations “caused it to file its Count I claim against both Westerman and Kratz after the statute of limitations expired.” Seed also amended Count II to allege that Westerman’s advice “that it was likely to obtain its patent” caused Seed to delay filing the complaint. Seed also waived some of its Count II damages, but the scope of the waiver was disputed by the parties. Seed contended that the waiver only applied to “damages caused by the loss of settlement opportunities allegedly caused by Westerman’s advice given after the Patent Board decision” and Westerman contended that the waiver applied to “all alleged damages that Westerman’s post-Board-decision advice caused it, including the loss of its Count I claim.”

The defendants moved for summary judgment and the district court held that the statute of limitations did not bar any of Seed’s claims, but nonetheless granted the defendants’ summary judgment motions, “finding no genuine disputes of material fact regarding the malpractice allegations, concluding that Seed waived its Count II claim and that the ‘contingent’ Counts III and IV were moot.” In response, Seed appealed to the D.C. Circuit, wherein the court held that the statute of limitations barred the Count I claim against Kratz but not Westerman. The D.C. Circuit remanded the case for the district court to adjudicate [Counts III and IV] in the first instance.

On remand, the district court held that Seed waived all damages alleged in Count II “by disclaiming its intention to ‘pursu[e] that cause of action’” and dismissed Counts III and IV on the merits. The district court reasoned that the advice given by Armstrong “was not the ‘cause’ of any ‘injury’ because his advice had involved Seed’s claim against Westerman and [the court] had allowed Seed to proceed against Westerman.” Seed appealed the district court’s dismissal of Counts II, III and IV to the D.C. Circuit.

D.C. Circuit Reasoning

In an opinion authored by Circuit Judge Karen Lecraft Henderson, the D.C. Circuit considered Seed’s argument that the district court erred in finding that Seed waived any claim for damages arising from its Count II allegations, rather than just for the loss of settlement opportunities. The Court noted that “waiver is the intentional relinquishment or abandonment of a known right,” and could prevent the consideration of Seed’s claim for damages under Count II. The D.C. Circuit explained that a statement made my Seed, i.e. “[p]laintiffs have already informed defendants that there were no additional measure of damages arising from Count II, and therefore, they would not be pursuing that cause of action”, constituted “a broad and unqualified waiver of damages arising from Count II”, even when considering  the context surrounding the statement. Thus, the court of appeals concluded that the district court was correct in dismissing Count II.

The D.C. Circuit next considered Counts III and IV, noting that in order to “succeed on a legal malpractice claim, the plaintiff must show that (1) the defendant was employed as the plaintiff’s attorney, (2) the defendant breached a reasonable duty, and (3) that breach resulted in, and was the proximate cause of, the plaintiff’s loss or damages.” The D.C. Circuit reasoned that they only needed to consider “causation” in order to affirm the district court. The court of appeals referred to a statement by a Seed employee stating “[i]f not for Mr. Armstrong’s advice, Seed would have filed suit or entered into tolling agreements with all of the defendants before May 5, 2007”, and noted that a reasonable jury’s finding could lead to the conclusion that Armstrong’s “allegedly negligent advice was the “but-for” cause of the loss of Seed’s claims.”

Regardless, the Court explained that, in order to succeed on Count’s III and IV, Seed must also establish that Armstrong’s advice was the “proximate cause” of its injuries, which would require a showing that “the injury was a foreseeable result of Armstrong’s alleged breach.” Citing Convit v. Wilson, the court of appeals noted that in order to “establish proximate cause, the plaintiff must present evidence from which a reasonable juror could find that there was a direct and substantial causal relationship between the defendant’s breach of the standard of care and the plaintiff’s injuries and that the injuries were foreseeable.” The D.C. Circuit said that “no reasonable jury could find that the loss of Seed’s Count I claim against Kratz was a foreseeable result of [Armstrong’s] advice because Armstrong had no reason to believe that, by advising Seed about pursuing a malpractice claim against Westerman, Seed would rely on that advice in deciding when to bring a malpractice claim against Kratz.”  Further, the D.C. Circuit noted that no reasonable jury could find that Seed’s newly retained counsel, Dorsey & Whitney, “would fail to independently (and correctly) review the statute of limitations applicable to Seed’s claims, negotiate tolling agreements that did not adequately protect Seed’s claims and file the complaint after the statute of limitations had run.” Thus, the Court concluded that the district court was correct in dismissing Counts III and IV and affirmed the district court’s judgments.

Note: An earlier version of this article incorrectly referred to the ruling court as the D.C. Court of Appeals.