Commercial Litigation and Arbitration

RICO — The Act of Filing Even a Frivolous Lawsuit Does Not, by Itself, Constitute an Act of Extortion within the Hobbs Act — Noerr Pennington Applied to Litigation: Two-Part Test

Content Extraction & Transmission LLC v. Wells Fargo Bank, N.A., 2014 U.S. App. LEXIS 24258 (Fed. Cir. Dec. 23, 2014):

We turn next to Diebold's appeal from the district court's dismissal of its tortious interference and RICO violation claims against CET. Diebold's claims all arise from the following predicate act: the filing of allegedly frivolous infringement suits by CET against Wells Fargo, PNC, and other Diebold customers in an attempt to obtain nuisance settlements from them. The district court, however, concluded that the Noerr-Pennington doctrine immunized CET [*14]  from both Diebold's tortious interference and RICO violation claims.2

2   We note that other circuits have held that the act of filing a lawsuit, even one which is frivolous, does not by itself constitute an act of "extortion" under the Hobbs Act, 18 U.S.C. § 1951(b)(2), and therefore cannot constitute a predicate act under RICO. See, e.g., Deck v. Engineered Laminates, 349 F.3d 1253, 1258 (10th Cir. 2003); Raney v. Allstate Ins. Co., 370 F.3d 1086, 1088 (11th Cir. 2004). Treating meritless litigation as a form of extortion punishable under RICO would substantially chill even valid court petitioning, as it could subject almost any unsuccessful lawsuit or set of lawsuits to a colorable claim of a RICO violation. Deck, 349 F.3d at 1258.

Under Noerr-Pennington, a person's act of petitioning the government is presumptively shielded from liability by the First Amendment against certain types of claims. See BE & K Const. Co. v. N.L.R.B., 536 U.S. 516, 525 (2002) (quoting Cal. Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 511, (1972)); Sosa v. DIRECTV, Inc., 437 F.3d 923, 930, 931 (9th Cir. 2006) (applying Noerr-Pennington to bar a RICO violation claim); Pers. Dep't, Inc. v. Prof'l Staff Leasing Corp., 297 F. App'x 773, 779 (10th Cir. 2008) (holding that Noerr-Pennington can provide immunity from liability arising from a tortious interference claim). To overcome this presumptive immunity, a plaintiff must establish that the defendant's instigation of litigation was merely a "sham." Prof'l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60 (1993) (PRE). This two-part test requires the plaintiff to show not only that the litigation was objectively baseless, but also that the defendant subjectively intended [*15]  to harm the plaintiff through the abuse of a governmental process itself, as opposed to harms flowing from the outcome of that process. See id.

The district court found that Diebold established the first, but not the second prong of the PRE sham litigation test. In an oral ruling, the district court held that Diebold successfully alleged objective baselessness based on the district court's own analysis of CET's patent claims as ineligible under § 101, and "[Diebold's] allegations that [CET]'s litigation conduct was solely designed to engender settlement" with Diebold's customers. J.A. 687-89. However, the district court also determined that Diebold had not shown CET subjectively intended to harm Diebold through its instigation of litigation, as required under prong two of the PRE test. Id. Although we agree with the district court's ultimate conclusion regarding CET's immunity, we find instead that Diebold's allegation fails the first prong of the PRE test, and thus the district court's analysis under the second prong was unnecessary.

Under the first prong, a "sham" lawsuit must be objectively baseless "in the sense that no reasonable litigant could realistically expect success on the merits." [*16]  No-belpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1071 (Fed. Cir. 1998) (quoting PRE, 508 U.S. at 50). Given the focus on the act of filing the complaint as the actionable event, CET's infringement suits, though unsuccessful, were not objectively baseless. This is because the state of the law of § 101 was deeply uncertain at the time CET filed its complaints against Wells Fargo and PNC in 2012. Compare Ultramercial, Inc. v. Hulu, LLC, 657 F.3d 1323, 1327-28 (Fed. Cir. 2011) (subsequently vacated), with Dealertrack, 674 F.3d at 1333-35. See also CLS Bank Int'l v. Alice Corp. Pty Ltd., 717 F.3d 1269, 1273 (Fed. Cir. 2013) (en banc), cert. granted, 134 S. Ct. 734 (2013), and aff'd, 571 U.S.    , 134 S. Ct. 2347 (2014). Under these circumstances, we cannot conclude that as a matter of law, no reasonable litigant in 2012 could have expected success on at least one of CET's claims.

The Supreme Court has held that "even unsuccessful but reasonably based suits advance some First Amendment interests," and therefore should receive protection under the First Amendment. BE & K, 536 U.S. at 532. Although we conclude the claims of CET's asserted patents are invalid under § 101, we decline to find CET's infringement suits against Wells Fargo and PNC to be objectively baseless at the time they were filed. Therefore, since the act of filing its suits was shielded from liability by the Noerr-Pennington doctrine, the district court correctly dismissed Diebold's tortious interference and RICO violation claims against CET.

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