## Facts

- Moses & Singer, LLP and partner Stephen N. Weiss represented E-Pass Technologies, Inc. in multiple federal patent-infringement actions involving E-Pass’s U.S. Patent No. 5,276,311.
- In those patent cases, defendants sought summary judgment against E-Pass and also pursued attorneys’ fees and costs against both E-Pass and Moses & Singer.
- E-Pass alleged that, while still representing E-Pass, Moses & Singer lawyers exchanged internal communications about protecting the firm from exposure relating to the attorneys’-fees requests, creating a conflict between the firm’s interests and E-Pass’s interests.
- After adverse outcomes in the patent litigation (including awards of fees and costs), E-Pass sued Moses & Singer and Weiss asserting professional negligence, breach of fiduciary duty, and negligent misrepresentation tied to the firm’s handling of the patent cases and fee issues.
- Related litigation proceeded in California state court, and a California Court of Appeal opinion addressed E-Pass’s attempt to pursue claims that the state court viewed as an effort to re-litigate matters decided in federal patent proceedings.
- E-Pass also filed this federal action in the Northern District of California and later filed a First Amended Complaint (FAC).
- Defendants moved to dismiss the FAC, arguing the federal court lacked subject-matter jurisdiction and, alternatively, should decline to proceed under Colorado River abstention due to the parallel state case.
- Defendants also moved to strike portions of the FAC, arguing E-Pass was barred by judicial estoppel and/or by full faith and credit (preclusion based on the state appellate decision).

## Issues

1. Whether the district court had subject-matter jurisdiction over E-Pass’s state-law claims because they necessarily raised disputed questions of federal patent law.
2. Whether the court should dismiss or stay the federal action under Colorado River abstention in light of parallel state-court proceedings involving the same parties and overlapping allegations.
3. Whether portions of the FAC should be stricken based on judicial estoppel or based on preclusion principles implemented through 28 U.S.C. § 1738 (full faith and credit).

## Decision

- The court denied defendants’ motion to dismiss for lack of subject-matter jurisdiction.
- The court denied defendants’ request for dismissal or a stay under Colorado River abstention.
- The court denied defendants’ motion to strike portions of the FAC based on judicial estoppel and full faith and credit/preclusion.
- The federal action was permitted to proceed.

## Legal Principles

- Federal-question jurisdiction may exist over a state-law claim when resolution of the claim necessarily requires deciding an actually disputed issue of federal law and the federal issue is sufficiently substantial to support federal jurisdiction without upsetting the federal-state allocation of judicial responsibility.
- Colorado River abstention is a limited exception to the duty to exercise jurisdiction; even when there is parallel state litigation, abstention requires “exceptional circumstances” evaluated through multiple factors (including the order of filing, convenience, avoidance of piecemeal litigation, the source of governing law, and the adequacy of the state forum).
- Judicial estoppel generally requires a party to have taken a clearly inconsistent position, to have succeeded in persuading a court to accept that position, and to be seeking an unfair advantage from the inconsistency; it is applied with caution and is not automatic.
- Under 28 U.S.C. § 1738, federal courts must give state-court judgments the same preclusive effect they would receive under the rendering state’s law; preclusion depends on whether the precise issue was actually litigated and necessarily decided, among other requirements.
- Motions to strike are generally disfavored and are not a substitute for resolving disputed factual and legal questions through the ordinary litigation process.

## Conclusion

The court held that E-Pass’s claims, though pleaded as state-law causes of action against former patent counsel, raised disputed patent-law questions sufficient to support federal subject-matter jurisdiction, and it declined to abstain despite parallel state proceedings because the Colorado River standard was not met. The court also refused to strike allegations from the FAC, finding defendants had not shown that judicial estoppel or state-judgment preclusion required removing E-Pass’s pleadings at that stage.


E-Pass Technologies, Inc. v. Moses & Singer, LLP, 2011 U.S. Dist. LEXIS 96231 (2011)