Guardit Technologies, LLC v. Empire IP LLC

Background

Guardit Technologies, LLC owns patents concerning home security and personal safety. Michael Script is the inventor or co-inventor of those patents. Guardit and Empire IP LLC entered into a patent licensing agreement under which Guardit assigned its rights in the patents to Empire. In return, Guardit was to receive 50 percent of the net proceeds from enforcement and licensing of the patents. The agreement also required Empire to maintain records, provide Guardit with accounting records, and use good-faith efforts to pursue licensing and enforcement.

The plaintiffs alleged that Empire and its founders, Daniel Mitry and Timothy Salmon, failed to provide a proper accounting and failed to pay Guardit its full share of monetary recoveries. They asserted claims for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, promissory estoppel, fraud, negligence, and breach of bailment.

Magistrate Judge’s Recommendation and Review

The court had referred the defendants’ motion to dismiss to Magistrate Judge Stewart D. Aaron. Judge Aaron recommended that the motion be granted in part and denied in part. No party objected. Because there were no objections, the district court reviewed the recommendation for clear error, meaning an obvious mistake in the record. The court adopted Judge Aaron’s factual background and found no clear error except that it disagreed with the recommendation concerning Guardit’s unjust enrichment claim.

Rulings

The court rejected the defendants’ argument that subject-matter jurisdiction was lacking. The complaint alleged complete diversity of citizenship and an amount in controversy exceeding $75,000, including an allegation that the plaintiffs were owed at least $800,000.

The court granted the motion under Rule 12(b)(2), which concerns personal jurisdiction, as to Mitry and Salmon. The complaint did not allege that either individual conducted business in New York personally, rather than on behalf of Empire, or that the plaintiffs’ claims arose from the individuals’ conduct in New York.

The court dismissed the fraud, implied-covenant, and promissory-estoppel claims under Rule 12(b)(6), which permits dismissal for failure to state a legally sufficient claim. The court found those claims duplicative of the breach-of-contract claim because they were based on the same allegation that the plaintiffs had not received their full share of the recoveries.

The court dismissed Script’s breach-of-contract claim against Empire because he signed the agreement as Guardit’s managing member and chief executive officer, not in his individual capacity. The court also dismissed Script’s negligence claim against Empire because Script was not a party to the agreement and Empire therefore owed him no duty of care under the allegations discussed by the court.

The court dismissed the breach-of-bailment claim because the agreement transferred patent rights and therefore described an assignment, not a bailment. It also dismissed Guardit’s unjust enrichment claim against Empire. Although unjust enrichment can sometimes be pleaded as an alternative to breach of contract, the court stated that this is permitted only when the parties dispute the existence, scope, or enforceability of the alleged contract. Here, Guardit and Empire did not dispute that a valid, enforceable written agreement governed the subject matter of the case.

Disposition

Judge Gardephe adopted the Report and Recommendation in part. The defendants’ motion to dismiss was granted in part and denied in part. The motion was granted as to all of the plaintiffs’ claims except Guardit’s breach-of-contract and negligence claims against Empire. The motion was denied as to those two claims, but only to the extent they were Guardit’s claims against Empire. The court allowed the plaintiffs to file a motion for leave to amend by February 23, 2024. The opinion does not describe the dismissals as either with prejudice or without prejudice.