Comcast Cable Communications Management, LLC v. MaxLinear, Inc.

Opinion

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

ee □□□□□□□□□□□□□□□□□□□□□□□□ KX COMCAST CABLE COMMUNICATIONS MANAGEMENT, LLC, at al., : ORDER DENYING AND : GRANTING IN PART Plaintiffs, : MAXLINEAR’S MOTION TO -against- : DISMISS MAXLINEAR, INC., 23 Civ. 4436 (AKH) Defendant.

ALVIN K. HELLERSTEIN, U.S.D.J.: Introduction This case arises out of a contract dispute between Comcast Cable Communications (“Comcast”) and MaxLinear, Inc. (“MaxLinear”). Following the filing of the Third Amended Complaint (“TAC”), MaxLinear moved to dismiss the case, arguing that (1) I lack jurisdiction over Comcast’s declaratory judgment claims; (2) Comcast is not entitled to indemnification; and (3) Comcast has failed to plead a claim for breach of the implied covenant of good faith. ECF No. 132. Background Max\.inear designs silicon chips used to deliver high-speed internet. It also provides support services for users of its chips. Comcast is a broadband internet service provider whose broadband gateways rely on the chips designed by MaxLinear. On August |, 2020, Comcast and MaxLinear entered into a Vendor Support Agreement (“VSA”), whereby MaxLinear agreed to provide continuing support services for its chips used by Comcast. Among the VSA’s provisions are a covenant not to assert claims and a general indemnification provision. The Covenant Not to Assert states that “[djuring the Term, [MaxLinear], on behalf of itself and all affiliates... covenants not to sue [Comcast] for patent, copyright, or trademark infringement, or for

misappropriation of trade secrets... with respect to [Comeast’s] purchase, use, or deployment of

any product of service. VSA § 7,3. The Uncapped General Indemnification provision provides that

“(MaxLinear] hereby agrees to defend, indemnify, and hold Comcast .. . harmless against all costs,

expenses, and losses (including reasonable attorney fees and costs) incurred through the claims of

third parties against Comcast based on or arising from... [MaxLinear’s] gross negligence or

intentional misconduct[.}” VSA § 10.1. The term of the VSA runs through July 31, 2026; however,

it may be terminated prior to that date “upon ninety (90) days’ prior written notice to Comcast, if

there has been no active SOW for a period of 1 year.” VSA § 11.1. The VSA binds the parties to the service obligations that are to be set out in. any statements

of work (“SOW”), which become part of the VSA. VSA § 1.1. In November 2020, the parties executed the first and only SOW, pursuant to which MaxLinear agreed to provide ongoing support

services to Comcast, including “feature development, bug fixes, and security patches/fixes” for

some of Comcast’s broadband gateways. SOW § 1. The SOW runs through July 31, 2026, but may

be terminated prior to that date “at any time upon one (1) year’s written notice to Comcast.” SOW

§ 2. In March of 2021, MaxLinear and its subsidiary assigned their rights in certain United States

patents to Entropic Communications, LLC (“Entropic”). Comeast alleges MaxLinear assigned

these rights in an effort to circumvent the Covenant Not to Sue and to profit from patent litigation

against businesses such as Comcast. Two years after the assignment, in February of 2023, Entropic

filed patent infringement claims against Comcast for the assigned MaxLinear patents in the United

States District Court for the Central District of California. Comcast advised Entropic and

MaxLinear that the Covenant Not to Sue barred the California litigation. On May 8, 2023, Comeast

informed Entropic of its intent to move to dismiss the California litigation on the grounds of the

Covenant Not to Sue. Shortly thereafter, on May 23, 2023, MaxLinear’s CEO sent Comcast 4 letter purporting to terminate the VSA and SOW simultaneously, despite the termination procedures set

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out in the VSA and SOW. MaxLinear maintained, and continues to maintain, that the termination

was effective on May 23, 2023, but agreed by stipulation to continue providing support services for

one year from that date, through May 23, 2024. ECF No. 128 at § 33.

Comcast filed this suit on May 30, 2023. The TAC seeks (1) a declaratory judgement

stating that MaxLinear’s termination of the VSA and the SOW were invalid; (2) indemnification in

the California lawsuits; and (3) in the alternative, relief for a breach of the implied covenant of good

faith and fair dealing. ECF No. 128. MaxLinear moves to dismiss the TAC, arguing that since

Comcast has failed to show any current harm or any imminent, future harm, a declaratory judgment

is an improper advisory opinion; that indemnification is improper; and that Comcast has failed to

make a showing of breach of the implied covenant of good faith and fair dealing. ECF No. 131. Discussion A. Declaratory judgment MaxLinear first argues that the Court lacks jurisdiction over Counts I and II of the TAC.

Count I seeks a declaratory judgment that (i) MaxLinear’s attempted termination of the VSA is

invalid; (ii) MaxLinear’s attempt to terminate the VSA prematurely violated the VSA’s plain terms;

and (iii) the VSA remains in full force and effect until at least August 21, 2025. Count II seeks a

declaratory judgment that (i) MaxLinear’s attempted termination of the SOW is invalid; (ii)

MaxLinear’s attempt to terminate the SOW prematurely violated the SOW’s plain terms; and (iti)

the SOW remains active and in full force and effect until at least May 23, 2024. MaxLinear asserts

that these two counts fail to demonstrate injury, and thus that the Court lacks jurisdiction to give the

requested relief. MaxLinear’s motion is granted as to Count IL. The Declaratory Judgment Act provides that

“[i]n a case of actual controversy within its jurisdiction . . . any court of the United States upon the

filing of an appropriate pleading, may declare the rights and other legal relations of any interested

party seeking such declaration[.]” 28 U.S.C. § 2201 (a). Courts have interpreted the phrase “a case

of actual controversy” similarly to Article TI questions of case or controversy, requiring that “throughout the litigation, the party seeking relief must have suffered, or be threatened with, an

actual injury traceable to the defendant and likely to be redressed by a favorable judicial decision.”

United States v. Juvenile Male, 131 S. Ct. 2860, 2864 (201 1). Even where parties “continue to

dispute the lawfulness” of conduct underlying the litigation, an issue is no longer justiciable where

“that dispute is no longer embedded in any actual controversy about the plaintiff's particular legal

rights.” Alvarez v. Smith et al., 558 US. 87, 93 (2009). According to the SOW’s terms, a

termination is effective one year after written notice. Assuming MaxLinear’s termination date of

May 23, 2023, the SOW, by its own terms, expired on May 23, 2024. This date has already passed, meaning that Comcast can no longer make any compelling arguments concerning the harm it is

suffering as a result of the allegedly improper termination of the SOW, because the SOW would

have expired by now even if MaxLinear had waited until one year after its notice of termination to

stop services. In the absence of potential harm, any declaration from the Court that the SOW was

improperly terminated would be an inappropriate advisory opinion on a matter that does not present

an actual controversy. MaxLinear’s motion to dismiss is granted as to Count II of the TAC. As to the dismissal of Count I, MaxLinear’s motion is denied. Under the terms of the VSA,

termination may occur only upon 90 days’ written notice after one year without an SOW. As

MaxLinear communicated its notice of termination on May 23, 2024, which produces an effective

termination date of May 23, 2024, the earliest termination date of the VSA is one year and ninety

days from May 23, 2024, resulting ina termination date of August 21, 2025. Comcast has plausibly pled that MaxLinear’s attempted improper termination of the VSA has caused it harm—the VSA

contains other bargained-for provisions outside of the service provision, such as protection of trade

secrets, the covenant not to sue, and the indemnity provision, the non-enforcement of which would

cause Comcast legally cognizable harms. These alleged harms create an “actual controversy” as

required by courts in this circuit. See, e.g., Nike, Inc. v. Already, LLC, 663 F.3d 89, 95 (2d Cir. 2011), aff'd, 568 U.S. 85 (2013), MaxLinear’s motion to dismiss Count I of the TAC is denied. B. Indemnification Next, MaxLinear argues that Comcast is not entitled to its indemnification claim under Count III of the TAC because it has failed to plead that MaxLinear acted with “gross negligence or intentional misconduct” as required by Section 10.1 of the VSA. Gross negligence can be shown where a “defendant’s conduct ‘evinces a reckless disregard for the rights of others or smacks of intentional wrongdoing.” Bayerische Landesbank v. Aladdin Capital Mgmt. LCC, 692 F.3d 42, 61 (2d Cir. 2012) (quoting M+ J Savitt, Inc. v. Savitt, No. 8 Civ. 8535 (DCL) 2009 U.S. Dist. LEXIS 21321, at *12 (S.D.N.Y. Mar. 17, 2009)). However, “whether a breach constituted gross negligence is an issue of fact that generally should not be addressed on a motion to dismiss.” House of Eur. Funding I, Ltd. v. Wells Fargo Bank, N.A., No. 13 Civ. 519 (RJS) 2014 USS. Dist. LEXIS 49894, at #10 (S.D.N.Y. Mar. 31, 2014); see also Clark St. Wine v. Emporos Sys. Corp., 754 F. Supp. 2d 474, 481 (E.D.N.Y. 2010). Since a resolution of the indemnification claim requires inquiries of fact into MaxLinear’s intentions and actions when issuing its termination letter in May of 2023, the question of indemnity is better reserved for after the pleadings phase. Maxlinear’s motion to dismiss Count III is denied. C. Implied covenant of good faith and fair dealing Finally, MaxLinear asserts that Comcast has failed to plead a claim under Count IV of the TAC for breach of the implied covenant of good faith and fair dealing, because “Comcast has not alleged any bad faith or identified any implied obligation that was not authorized by the contract and that MaxLinear supposedly violated.” ECF No. 132 at 10. I disagree. Under New York

common law, a party breaches the implied covenant of good faith and fair dealing when it breaks “a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.” Dalton v. Educ, Testing Serv., 87

N.Y.2d 384, 389 (1995). Comcast alleges in the TAC that a senior executive at MaxLinear informed Comcast’s employee that he attempted to terminate the VSA and SOW at the advice of counsel in order “to free the MaxLinear patents from the VSA’s protections[.]” ECF No. 128 at 6. This incident, coupled with the timing of the California patent litigation, plausibly alleges that MaxLinear acted “malevolently, for its own gain as part of a purposeful scheme design to deprive plaintiffs” of their bargained for rights. Richbell Info. Servs., Inc. v. Jupiter Partners, L.P., 309 A.D.2d 288, 302 (1st Dep’t 2003). MaxLinear’s motion to dismiss Count IV is denied. Conclusion MaxLinear’s motion to dismiss is granted in part as to Count II and denied as to Counts I, IIL, and IV. Comcast shall refile its Complaint without Count II. The parties shall file a joint civil case management plan by October 10, to be discussed at an October 21, 2024, 10:00 a.m. status conference. The Clerk of Court shall terminate ECF No. 131. SO ORDERED. Dated: September 19, 2024 [hw k New York, New York VIN K, HELLERSTEIN United States District Judge