CAFC upholds federal district court abstention as to declaratory judgment in a mixed contract/patent case

Judge Newman wrote: This appeal is from the decision of the United States District Court for the Northern District of Indiana,1 dismissing a declaratory judgment complaint filed by Warsaw Orthopedic, Inc.; Medtronic, Inc.; and Medtronic Sofamor Danek, Inc. (collectively, “Medtronic”) against Dr. Rick Sasso, a surgeon and inventor. The district court dismissed the complaint without prejudice, applying the doctrine of federal court “abstention” in view of the concurrent action in Indiana state court between the same parties concerning the same dispute; that decision is on appeal to the Indiana Court of Appeals.2 The state court action is described by Dr. Sasso as a contract case for payment for patent rights, and the federal action is described by Medtronic as a patent case in which payment requires valid patents. Medtronic argues that the district court’s “abstention” was an abuse of discretion, because the federal courts have exclusive jurisdiction over patent cases, and patent validity is fundamental to resolution of this dispute. Thus, Medtronic argues that abstention was inappropriate because the federal court had the obligation to receive and resolve this dispute. We conclude that the district court acted within its discretion, abstaining without prejudice, on the facts hereof, for the question of contract interpretation is on appeal in the Indiana state court, and federal action based on the federal issues is not precluded. AND of the declaratory judgment part: The Declaratory Judgment Act states that courts may grant declaratory relief, 28 U.S.C. § 2201(a), and the Supreme Court has explained that the Act confers “unique and substantial discretion in deciding whether to declare the rights of litigants,” Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995). Also, the Court had stated in Brillhart v. Excess Insurance Co. of America, 316 U.S. 491 (1942), that federal courts may and reasonably should abstain from exercising declaratory jurisdiction when the issues “can better be settled in [a] proceeding pending in . . . state court.” Id. at 495. As summarized in Envision Healthcare, Inc. v. PreferredOne Insurance Co., 604 F.3d 983 (7th Cir. 2010): “Under what is known as the Wilton/Brillhart abstention doctrine, district courts possess significant discretion to dismiss or stay claims seeking declaratory relief, even though they have subject matter jurisdiction over such claims.” Id. at 986. The propriety of a district court’s Wilton/Brillhart abstention is reviewed on the standard of abuse of discretion, that is, whether the action “is based on clearly erroneous findings of fact, is based on erroneous interpretations of the law, or is clearly unreasonable, arbitrary or fanciful.” iLOR, LLC v. Google, Inc., 631 F.3d 1372, 1376 (Fed. Cir. 2011).