In CEATS, Inc. v. Continental Airlines, Inc., No. 13-1529 (Fed. Cir. June 24, 2014), the Federal Circuit affirmed the district court's finding that relief from judgment under Fed. R. Civ. P. 60(b) was not warranted.
CEATS, Inc. ("CEATS") sued Continental Airlines, Inc., Alaska Airlines, Inc., Horizon Air Industries, Inc., Delta Airlines, Inc., Jetblue Airways Corp., United Airlines, Inc., Virgin America, Inc., US Airways, Inc., Ticketmaster, LLC., Ticketsnow.com, Inc., Live Nation Worldwide, Inc., and Airtran Airways, Inc. (collectively "Continental") for patent infringement. The case went to trial after the parties failed to reach a settlement during court-ordered mediation. The jury found CEATS's patents were infringed but invalid, which the Federal Circuit affirmed in an earlier appeal. While the earlier appeal was pending, CEATS sought relief from the judgment, pursuant to Rule 60(b), based on a purported relationship between the court-appointed mediator, former Magistrate Judge Robert Faulkner, and the law firm representing some, but not all, of the accused infringers, Fish & Richardson P.C. ("Fish"). CEATS contended that it discovered the relationship because of a news article related to a suit against Faulkner and Fish resulting from a separate litigation ("the Karlseng litigation"). After the Federal Circuit affirmed the invalidity of CEATS's patents, the district court denied the Rule 60(b) motion, and CEATS appealed.
On appeal, the Federal Circuit did not find persuasive CEATS's arguments that the district court abused its discretion by not granting relief under both Rule 60(b)(3)—due to Fish's failure to disclose the facts surrounding the Karlseng litigation—and under Rule 60(b)(6)—for Faulkner's failure to disclose the facts surrounding the Karlseng litigation and the Karlseng litigation itself. With respect to Rule 60(b)(3), the Court explained that the party seeking relief "must prove by clear and convincing evidence '(1) that the adverse party engaged in fraud or other misconduct, and (2) that this misconduct prevented the moving party from fully and fairly presenting his case.'" Slip op. at 8 (quoting Hesling v. CSX Transp., Inc., 396 F.3d 632, 641 (5th Cir. 2005)). Because CEATS conceded that there was nothing in the record showing that it was not given a full and fair opportunity to present its case and due to the Federal Circuit's limitation to the record before it, the Court affirmed the district court's finding that relief under Rule 60(b)(3) was not appropriate.
"Although we conclude that Faulkner should have disclosed the circumstances surrounding the Karlseng litigation and his relationship with the Fish firm relating thereto, we find that CEATS ultimately was able to fully and fairly present its case before an impartial judge and jury." Slip op. at 18.
"Because CEATS had the opportunity to present its case to a neutral judge and jury, we do not believe that refusing to grant the relief CEATS seeks will undermine public confidence in the judicial process as a whole." Id. at 19-20.
Turning to CEATS's Rule 60(b)(6) motion, the Court explained that this provision provides "federal courts authority to relieve a party from a final judgment 'upon such terms as are just.'" Id. (quoting Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847, 863-64 (1988)). While CEATS contended that the Liljeberg test was inappropriate to apply to mediators, it relied on the three-factor test outlined in Liljeberg in support of the district court's reversal. The Court agreed with CEATS that mediators are bound to disclosure requirements, similar to the recusal requirements imposed on judges, and that the Liljeberg factors were applicable in the present case.
In applying the test, the Court first looked at whether Faulkner violated the duty of disclosure by failing to disclose the facts pertaining to the Karlseng litigation. While acknowledging the different functions of judges and arbitrators, the Court explained the duty to disclose for mediators is similar to the recusal requirements of judges. Further, the Court, noting that mediators do not have the power to issue judgments or awards, stated that because mediators receive confidential information during the mediation process, "those parties must have absolute trust that their confidential disclosures will be preserved." Id. at 12. Thus, because of the similarity between the disclosure and recusal requirements, the Court found it appropriate to review Faulkner's obligations of disclosure under Liljeberg.
The Court first considered Faulkner's duty to disclose the facts surrounding the Karlseng litigation. The Court found the district court's reasoning for distinguishing Liljeberg unpersuasive and determined that "the district court erred in finding that a reasonably objective person would not have wanted to consider circumstances surrounding the Karlseng litigation when deciding whether to object to Faulkner's appointment as mediator." Id. at 14. Indeed, the Court concluded that, relying on the analogous duties of judges and mediators to recuse and disclose conflicts, mediators must disclose all financial interests and conflicts of interest. The Court, stating that it need not decide whether any one of the facts regarding Faulkner's interaction with Fish was sufficient to require disclosure, held that, "based on the totality of the facts and circumstances surrounding the Karlseng litigation, Faulkner breached his duty as a mediator to disclose 'all actual and potential conflicts of interest that are reasonably known to the mediator and could reasonably be seen as raising a question about the mediator's impartiality.'" Id. at 16 (citation omitted).
The Court noted that it was still required to consider whether the case presented "extraordinary circumstances" since a finding that Faulkner breached his duty of disclosure did not de facto entitle CEATS to relief under Rule 60(b)(6). Assessing the first Liljeberg factor—the risk of injustice in this case—the Court agreed with Continental that CEATS "failed to show a meaningful risk of injustice in this case" because CEATS was able to present its case fully and fairly to an impartial judge and jury. Id. at 18. Further, the Court found that the record did not suggest that Faulkner engaged in any improper disclosure of confidential information and CEATS never attempted to determine whether any such improper disclosure occurred. Thus, the Court concluded that the first factor of Liljeberg was not met.
Assessing the second factor in Liljeberg—the risk of injustice in other cases—the Court, while acknowledging that it did not want to encourage similar nondisclosures, stated that, on the present record, there was an insufficient threat of injustice in other cases to justify the extraordinary step of overturning a jury's verdict. In support of this conclusion, the Court found it unlikely that other mediators would ignore their duties of disclosure if relief were denied in the present case and believed that its decision served "to reinforce the broad disclosure rules for mediators by holding that Faulkner had a duty to disclose in this case." Id. at 19.
Finally, addressing the third Liljeberg factor—the risk of undermining public confidence—the Court found that while public confidence in the mediation process would be somewhat undermined by its failure to "put greater teeth in the mediators' disclosure obligations," that fact alone did not justify the extraordinary relief sought by CEATS. Id. The Court explained, "Because CEATS had the opportunity to present its case to a neutral judge and jury, we do not believe that refusing to grant the relief CEATS seeks will undermine public confidence in the judicial process as a whole." Id. at 19-20. Thus, the Court determined there was an insufficient risk to public confidence in the judicial process as a whole, and the third factor in Liljeberg did not weigh in favor of relief.
Accordingly, the Court affirmed the district court's refusal to provide CEATS relief from judgment under Rule 60(b).
This article previously appeared in Last Month at the Federal Circuit, July 2014.
Judges: Prost, Rader, O'Malley (author)
[Appealed from E.D. Tex., Judge Schneider]
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