Verify Smart Corp v. Bank of America NA

• Court: Court of Appeals for the Third Circuit
• Decided: August 31, 2022
• Docket: 21-2353
• Status: Unpublished

Opinion

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _____________

No. 21-2353

____________

VERIFY SMART CORP, Appellant

v.

BANK OF AMERICA NA; BANK OF AMERICA CORP; WELLS FARGO BANK NA; WELLS FARGO & CO; DAVID LEITCH; GARY LYNCH; JAMES STROTHER; JIM HOWARD; SEAN REILLY ______________

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY (D.C. No. 2:17-CV-04248) District Judge: Honorable John M. Vazquez ______________

Submitted Under Third Circuit L.A.R. 34.1(a) on June 22, 2022 ______________

Before: MCKEE, RESTREPO, BIBAS, Circuit Judges.

(Filed: August 31, 2022) ______________

OPINION* ______________

RESTREPO, Circuit Judge.

This appeal arises from the fallout of a patent-infringement settlement. Appellant

Verify Smart Corp sued Appellees Wells Fargo and Bank of America (the “Banks”),

alleging that the Banks acted though a banking industry group’s subsidiary to challenge a

patent they were contractually prohibited from challenging themselves. The District

Court dismissed Verify’s claims on the basis that it failed to plausibly allege an agency

relationship between the industry group’s subsidiary and the Banks. We will affirm.

I.1

Prior to the instant litigation, Verify brought claims against the Banks for

allegedly infringing its patent for multifactor-identification software. In response, Bank

of America challenged the patent. They all settled, with the Banks promising not to

challenge Verify’s patent. But shortly thereafter, a subsidiary of a banking industry

group—of which both Banks were members—challenged the same patent and succeeded

in invalidating it. Understandably suspicious, Verify sued the Banks, claiming that they

had breached and fraudulently induced the settlement agreements.

* This disposition is not an opinion of the full Court and, pursuant to I.O.P. 5.7, does not constitute binding precedent. 1 As we write for the benefit of the parties, we set out only the facts necessary for the discussion that follows.

2 The crux of Verify’s theory is that Askeladden L.L.C., the wholly-owned

subsidiary of banking industry group The Clearing House Payments Company L.L.C.

(“TCH”), acted as the Banks’ agent to challenge the patent—which they were

contractually forbidden to do themselves. In support, Verify alleged that: (i) the Banks

and their peer institutions own and control TCH; (ii) TCH owns and controls Askeladden;

(iii) TCH created Askeladden to challenge patents that adversely effect TCH’s owners,

including the Banks; (iv) TCH controls Askeladden’s patent challenges on behalf of the

Banks; and (v) Askeladden has an established practice of suing patent owners after

TCH’s member banks settle their patent challenges, and it did just that here.

After Verify had several chances to amend its claims, the District Court dismissed

its Third Amended Complaint with prejudice. It held that Verify failed to state a claim

against the Banks for breach of contract and fraud on the basis that it failed to plausibly

allege they had an agency relationship with Askeladden.2 Verify’s allegations relied

heavily on Askeladden’s LLC Agreement for purposes of establishing agency. But the

District Court found Verify’s reliance misplaced, concluding that the LLC Agreement

contradicted the existence of any agency relationship. It also found Verify’s allegations

insufficient to establish that any of the individuals Verify identified as associated with the

Banks had “any authority to direct Askeladden to challenge patents” or had ever

2 Verify’s notice of appeal generally references the District Court’s entry of dismissal of the entire Third Amended Complaint—which included claims and defendants other than its breach and fraud claims against the Banks that we address here. But Verify makes no effort in its briefing to challenge the dismissal of those other claims, so they are abandoned. See Sikora v. UPMC, 876 F.3d 110, 112 n.1 (3d Cir. 2017).

3 communicated with the Banks in connection with filing the patent challenge. JA25.

Verify timely appealed.3

II.

We review de novo a district court’s order granting a motion to dismiss for failure

to state a claim. Wheeler v. Hampton Twp., 399 F.3d 238, 242 (3d Cir. 2005). At the

motion to dismiss stage, “we accept all well-pleaded allegations in the Complaint as true

and draw all reasonable inferences in favor of the non-moving part[y].” M.A. ex rel. E.S.

v. State-Operated Sch. Dist. of City of Newark, 344 F.3d 335, 340 (3d Cir. 2003) (citing

Bd. of Trustees of Teamsters Local 863 Pension Fund v. Foodtown, Inc., 296 F.3d 164,

168 (3d Cir. 2002)). To survive a motion to dismiss, factual allegations “must be enough

to raise a right to relief above the speculative level,” which “requires more than labels

and conclusions.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). We may affirm

on any grounds supported by the record. Hassen v. Gov’t of V.I., 861 F.3d 108, 114 (3d

Cir. 2017).

III.

Verify contends that the District Court erred in holding that it failed to plead

Askeladden was acting as the Banks’ agent when it challenged Verify’s patent. We

disagree.

Verify failed to plausibly allege that Askeladden acted as an agent for the Banks

when it filed the challenge to Verify’s now-invalidated patent. While we agree with the

3 The District Court had jurisdiction pursuant to 28 U.S.C. § 1332(a). We have jurisdiction pursuant to 28 U.S.C. § 1291. 4 District Court that the timing of Askeladden’s patent challenge was “suspicious,” see JA

290, we also agree that the LLC Agreement actually shows that the Banks do not control

which patents Askeladden challenges. And Verify does not allege any facts establishing

that any Bank officer had authority over or responsibilities related to Askeladden.

IV.

For the foregoing reasons, the judgment of the District Court is affirmed.