Cardiovascular Systems, Inc. v. Petrucci

Background

Cardiovascular Systems, Inc. (CSI) sued Gary Petrucci and Lela Nadirashvili concerning a 2012 settlement agreement that allocated rights to certain patents and patent applications involving orbital atherectomy devices. The agreement gave CSI a worldwide, royalty-free, paid-up, irrevocable exclusive license under the Nadirashvili Patent Portfolio to make, use, sell, and import devices or methods using solid counterweights. It also restricted assignment of the agreement and related rights unless specified conditions were met.

CSI alleged that Nadirashvili assigned rights to Cardio Flow, Inc., without CSI’s consent and without Cardio Flow agreeing to be bound by the settlement agreement. CSI further alleged that Cardio Flow developed the FreedomFlow device using technology licensed to CSI. CSI asserted breach-of-contract, breach-of-the-implied-covenant-of-good-faith-and-fair-dealing, tortious-interference, and fraud claims against Nadirashvili and Petrucci.

In an earlier round of this case, the court dismissed CSI’s complaint for failure to state a claim and entered judgment. The court concluded that the agreement gave CSI an exclusive license to specified patent rights, not an exclusive right to practice all solid-counterweight technology. It also concluded that CSI had not identified specific licensed patents allegedly infringed by the FreedomFlow device or explained how the device infringed them. The court separately ruled that CSI’s claim concerning the assignment was time-barred, and dismissed the other claims on stated legal grounds.

Motion to Vacate and Amend

After judgment, CSI moved under Federal Rules of Civil Procedure 59(e) and 60(b) to vacate the judgment, reopen the case, and obtain leave to file an amended complaint. The proposed amendment identified several patents allegedly infringed by the FreedomFlow device and included claim charts describing CSI’s infringement theories.

The court rejected CSI’s argument that the more favorable standards for amendment before judgment applied. Under Eighth Circuit law, a party seeking to preserve the right to amend must submit a proposed amendment along with its motion. CSI had stated before judgment that it was willing to add allegations, but it had not filed a motion to amend or a proposed amended complaint.

Analysis

The court held that Rule 59(e) did not support relief because CSI identified no manifest error of law or fact and no newly discovered evidence. The court also held that Rule 60(b)(6), which permits relief for another reason justifying it, did not apply because CSI had not shown exceptional circumstances warranting extraordinary relief. CSI had known of the alleged pleading deficiencies for months but chose not to seek amendment until after the court dismissed the case. The court also noted that, in a related lawsuit, it had rejected CSI’s argument that the settlement agreement gave it an exclusive right to practice solid-counterweight technology, yet CSI still did not seek to amend before judgment.

The court further ruled that it had considered the merits of CSI’s exclusive-license theory when it dismissed the original complaint. Rule 60(b) therefore did not give CSI another opportunity to pursue a theory that had already been rejected or inadequately pleaded.

Futility of the Proposed Amendment

The court separately denied the motion because the proposed amendment would be futile. An amendment is futile when it could not survive a motion to dismiss. Even assuming that the FreedomFlow device infringed the identified patents and that the patents were among those licensed to CSI, the court found that CSI had not plausibly alleged that Nadirashvili breached the agreement.

The court rejected CSI’s theory that the exclusive license required Nadirashvili to indefinitely and proactively prevent third parties from infringing the licensed patents, including by suing third-party infringers. The court found no provision in the agreement or applicable law imposing that obligation. An exclusive license could allow the licensee to sue infringers, but the license itself did not contain a promise requiring the patent owner to initiate or pay for infringement lawsuits. Because the agreement imposed no duty to prevent Cardio Flow’s alleged infringement, CSI could not state a contract claim against Nadirashvili on that theory. The proposed claims for breach of the implied covenant and tortious interference also failed because they depended on an underlying breach of contract.

Disposition

Judge Susan Richard Nelson denied CSI’s Motion to Vacate Judgment, Reopen the Case, and Grant Leave to Amend the Complaint. The judgment remained in place, the case was not reopened, and CSI was not permitted to file the proposed amended complaint.