Backertop Licensing LLC v. Canary Connect, Inc.

CourtDistrict Court, D. Delaware
DecidedMay 1, 2023
Docket1:22-cv-00572
StatusUnknown

This text of Backertop Licensing LLC v. Canary Connect, Inc. (Backertop Licensing LLC v. Canary Connect, Inc.) is published on Counsel Stack Legal Research, covering District Court, D. Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Backertop Licensing LLC v. Canary Connect, Inc., (D. Del. 2023).

Opinion

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE BACKERTOP LICENSING LLC, _) Plaintiff, V. Civil Action No. 22-572-CFC CANARY CONNECT, INC., Defendant. BACKERTOPLICENSINGLLC, ) Plaintiff, V. Civil Action No. 22-573-CFC AUGUST HOME, INC., Defendant.

Jimmy C. Chong, CHONG LAW FIRM, PA, Wilmington, Delaware; Ronald W. Burns, FRESH IP PLC, Frisco, Texas Counsel for Plaintiff Backertop Licensing LLC Alan Richard Silverstein, CONNOLLY GALLAGHER LLP, Wilmington, Delaware; Mark K. Suri, HINSHAW & CULBERTSON LLP, Chicago, Illinois Counsel for Defendant Canary Connect, Inc. Jeremy Douglas Anderson, FISH & RICHARDSON, P.C., Wilmington, Delaware; Ricardo J. Bonilla, FISH & RICHARDSON, P.C., Dallas, Texas Counsel for Defendant August Home, Inc.

MEMORANDUM OPINION

May 1, 2023 Wilmington, Delaware

ii

ct. COLM F. ce 2 CHIEF JUDGE Pending before me in these actions are three related motions: (1) “Plaintiff's Motion to Set Aside Memorandum Order of March 31, 2023” (No. 22-572, D.I. 26; No. 22-573, D.I. 29); (2) “Plaintiff's Motion to Stay Compliance with [the] Court’s March 31, 2023 [Memorandum] Order Pending Ruling on Plaintiff's Motion to Set Aside the Court’s March 31, 2023 [Memorandum] Order” (No. 22- 572, D.I. 30; No. 22-573, D.I. 32); and (3) “Motion and Order for Withdraw[al] of Jimmy Chong, Esq[.] as Counsel for Plaintiff’ (No. 22-572, D.I. 29; No. 22-573, DL 313. I. Background Mr. Chong filed these and two other patent infringement cases on behalf of Backertop Licensing LLC on April 28, 2022. Ronald Burns was later admitted pro hac vice and now also represents Backertop in these cases. No. 22-572, D.I. 17; No. 22-573, D.I. 20. For reasons detailed in Nimitz Technologies LLC v. CNET Media, Inc., 2022 WL 17338396 (D. Del. Nov. 30, 2022), by early September 2022, I had developed concerns that certain LLC plaintiffs, including Backertop, in several patent infringement cases filed by Mr. Chong in this Court, may have had undisclosed financial relationships with the patent monetization firm IP Edge and may not have

complied with my April 18, 2022 standing order regarding third-party litigation funding. (I adopt and incorporate here Nimitz.) To address those concerns and similar concerns I had about Nimitz (which was not represented by Mr. Chong), I issued on September 12 and 13, 2022 in 12 cases, including these two cases, orders convening a series of evidentiary hearings to determine whether the LLC plaintiffs in the 12 cases had complied with the third-party litigation funding standing order. Id. at *11. I also directed the owners of the LLC plaintiffs to attend the hearings in

person. Id. On September 14, 2021, Backertop filed in both these cases a notice of voluntary dismissal pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i). No. 22-572, D.I. 21; No. 22-573, D.I. 24. Backertop stated in each notice that it

was dismissing the respective case without prejudice and that “[e]ach party shall bear its own costs, expenses and attorney’s fees.” No. 22-572, D.I. 21 at 1; No. 22- 573, D.I. 24 at 1. Seven days later, Backertop filed “corrected” notices of dismissal (No. 22-572, D.I. 22; No. 22-573, D.I. 25). The “corrected” notices were identical to the original notices except that they deleted the provision that “[eJach party shall bear its own costs, expenses and attorney’s fees.” On November 4, 2022, I convened the first of the scheduled evidentiary hearings—a consolidated proceeding for cases filed by Nimitz; Mellaconic IP, LLC; and Lamplight Licensing LLC. As I explained in detail in Nimitz, the

evidence adduced at that hearing raised serious concerns that the parties may have made inaccurate statements in filings with the Court; that counsel, including Mr. Chong, may have failed to comply with the Rules of Professional Conduct; that real parties in interest, such as IP Edge and a related entity called Mavexar, may have been hidden from the Court and the defendants; and that those real parties in interest may have perpetrated a fraud on the court by fraudulently conveying the patents asserted in this Court to a shell LLC and filing fictious patent assignments with the United States Patent and Trademark Office (PTO), all designed to shield the real parties in interest from the potential liability they would otherwise face by asserting in litigation the patents in question. Nimitz, 2022 WL 17338396, at *26. Believing that I needed more information to decide whether further action

was warranted to address these four concerns, I issued in each of the Nimitz, Mellaconic, and Lamplight cases on November 10, 2022 a memorandum order requiring the plaintiffs in those cases to produce certain records (the November 10 Memorandum Order). Nimitz Techs. LLC v. CNET Media, Inc., No. 21-1247, D.I. 27; Nimitz Techs. LLC v. BuzzFeed, Inc., No. 21-1362, D.I. 21; Nimitz Techs. LLC v. Imagine Learning, Inc., No. 21-1855, D.I. 22; Nimitz Techs. LLC v. Bloomberg L.P., No. 22-413, D.I. 18; Mellaconic IP LLC v. TimeClock Plus, LLC, No. 22-244, D.I. 22; Mellaconic IP LLC v. Deputy, Inc., No. 22-541, D.L. 15;

Lamplight Licensing LLC v. ABB Inc., No. 22-418, D.I. 24; Lamplight Licensing LLC v. Ingram Micro, Inc., No. 22-1017, D.I. 17. On that same day, I convened the evidentiary hearing in these two cases that I had ordered on September 12, 2022. The evidence adduced at the hearing only heightened the concerns I had discussed in Nimitz. For example, Lori LaPray, whom Backertop had identified as its sole owner in a disclosure statement filed with the Court, testified at the hearing that Mavexar formed, named, and paid for the formation of Backertop, Tr. of Nov. 10, 2022 Hr’g! 14:3-15:21; that LaPray had no idea what, if anything, Backertop paid to assume ownership of the patents asserted in these cases, Tr. 24:12—17; that Backertop receives only five percent of

any settlements obtained from the assertion of patents held in Backertop’s name and Mavexar “gets the other 95 percent,” Tr. 41:6—10; that LaPray is “not aware” of any bank accounts held by Backertop, Tr. 32:8-33:5; that “any settlements that

come in [to Backertop] go[ ] into [LaPray’s] personal [bank] account,” Tr. 32:20— 23; and that LaPray understands that Backertop and not LaPray personally would be liable for any fees, costs, or other liabilities incurred from asserting in litigation patents titled in Backertop’s name, Tr. 30:17-31:24, 35:20-38:7. When I asked Ms. LaPray, “What, if any assets did Backertop have when it filed the [22-]572

The transcript is docketed at No, 22-572, D.I. 24 and No. 22-573, D.I. 27.

lawsuit [against Canary Connect, Inc.],” she replied: “That’s what I have Mavexar and my attorneys for.” Tr. 33:22—24. And when IJ asked her, “[I]f Backertop were held liable to pay money to Canary Connect, where would it get its money?”; she replied: “I’m not sure” and “I guess we’d have to cross that bridge when we come to it.” Tr. 39:3-8. At the conclusion of the November 10 hearing, I had the following exchange with Mr. Burns: THE COURT: ... [Bly structuring this litigation the way you have with Mavexar, you’ve basically put a plaintiff in this court asserting a patent, and the plaintiff has no assets. So you’ve immunized, effectively, the plaintiff from the consequences of a frivolous lawsuit, for instance. Mavexar, who’s driving the train, isn’t formally a party here, so you’ve insulated it, assuming nobody wanted to look into this. Fair? MR. BURNS: I wouldn’t completely agree with that, Your Honor. The client here, Backertop [w]as formed as an LLC, which does provide a level of insulation for Ms. LaPray personally. I did not inquire as to Backertop’s finances or banking accounts or anything of that nature before the proceedings began, so J had no knowledge of that prior.

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