NELSON v. ADAMS USA, INC.
The Ohio Cellular Products Corporation (OCP) sued Adams USA, Inc. (Adams), for patent infringement. After the District Court ruled in Adams' favor by dismissing the suit, Adams motioned for attorney fees and costs. In granting the motion, the court found that Donald Nelson, who was at all relevant times president and sole shareholder of OCP, had acted in a way that constituted inequitable conduct chargeable to OCP. Fearing it would be unable to collect the award, Adams moved under Rule 15 of the Federal Rules of Civil Procedure to amend its pleading to add Nelson, personally, as a party from whom fees could be collected. Additionally, Adams asked the court, under Rule 59(e), to amend the judgment to make Nelson immediately liable for the fee award. The District Court granted the motion in full. The Court of Appeals affirmed the decision simultaneously making Nelson a party and subjecting him to judgement.
May a party, who has been made a party to a civil action, be simultaneously made personally liable?
Legal provision: Due Process
No. In a unanimous opinion delivered by Justice Ruth Bader Ginsburg, the Court held that the District Court erred in amending the judgment immediately upon permitting the amendment of the pleading. Justice Ginsburg wrote for the Court that "[d]ue process, as reflected in Rule 15 as well as Rule 12, required that Nelson be given an opportunity to respond and contest his personal liability for the award after he was made a party and before the entry of judgment against him." Thus, the District Court's granting of Adams' motion to simultaneously make Nelson a party and personally liable violated due process.
Argument of Debra J. Dixon
Chief Justice Rehnquist: We'll hear argument next in Number 99-502, Donald E. Nelson v. Adams USA.
Spectators are admonished, do not talk until you get out of the courtroom.
The Court remains in session.
Mr. Dixon: Mr. Chief Justice, and may it please the Court:
This is a case where the respondent, Adams USA, obtained a judgment of invalidity, had that judgment affirmed on appeal, obtained a judicial determination of inequitable conduct for an award of attorney's fees, had that award reaffirmed, had All American Sports Corporation dismissed from the judgment, obtained a judicial determination as to the amount of fees to be paid, had that fee award reduced to judgment in the amount of $178,000.
Then, and only then, did the respondent attempt to have Don Nelson joined as a party.
The rules of substantive law, the rules of constitutional law, and the rules of procedural law all tell us that Adams did this wrong.
Justice O'Connor: Ms. Dixon, I take it that you don't challenge the fact that the pleadings were amended to add the petitioner.
Mr. Dixon: I do challenge that, Your Honor.
What I understand the record to say is that the respondents were granted leave to amend their complaint to join Don Nelson as a party.
However, as we sit here today...
Justice O'Connor: Was any objection made below at that time to the amendment?
Mr. Dixon: There was an object... there was a motion filed to alter or amend the judgment, but there was no formal objection.
Mr. Nelson had not been served with process and had not filed a responsive pleading at that time.
Justice Breyer: That's exactly what's bothering me about the case, because it seems that the obvious objection would be that it wasn't... that justice didn't require the amendment under Rule 15.
That's the objection that wasn't made.
Instead what you're saying is that there wasn't service of process, there wasn't jurisdiction, and those things seem either waived, or... they seem waived, basically, so the issue that should be here isn't here, the issue that shouldn't be here is here, and there I am, stuck.
And now, how do you get me out of that?
Mr. Dixon: Your Honor, the waiver rule specifically states that one must assert a defense at their first opportunity.
Under Federal Civil Rule 12, that first opportunity is in one's responsive pleading.
A potential party has absolutely no obligation to file a responsive pleading until he or she has been served with process.
Justice Breyer: Oh, that may be, but unfortunately I gather that that issue is waived.
I mean, isn't it?
I mean, is it here?
I mean, did you raise the objection below?
Did you say, judge, in the district court, my client has not been served with process and therefore...
Justice Scalia: Your client wasn't there below.
That's your position.
Mr. Dixon: Precisely, Justice Scalia.
Justice Scalia: Your client couldn't have waived it below, because your client hadn't been served and therefore was not present.
Justice Breyer: I misspoke.
It's the jurisdiction, I gather, that they're saying is waived.
I gather that they're saying, anyway, that the service of process issue is not properly before us.
Mr. Dixon: Your... if I may address Justice Scalia's point first, that's precisely the position of the petitioner.
He was not there.
Because he wasn't there, there was nothing for Mr. Nelson to waive.
As it relates to the jurisdictional issue, I believe this Court has spoken on multiple occasions stating that, until one has been served with service of process and had an opportunity to be heard, they are not subject to the jurisdiction of the court.
Being as though Mr. Nelson was not subject to the jurisdiction of the district court, he was not able to waive the jurisdiction of that court.
Justice Kennedy: Well, you did move to amend the judgment.
Mr. Dixon: Absolutely, Your Honor.
Justice Kennedy: And you take it that's tantamount to a special appearance, is that...
Mr. Dixon: I would disagree with that, Your Honor.
Quite frankly, based on my reading of the record, it appears as though the motion to amend or alter the judgment was nothing more than an attempt to buy time on appeal.
Post judgment, there are only two...
Justice Kennedy: Now, just a minute here.
You're saying that Rule 15 was an objection, that even though it appears he might have had a meritorious ground to say it doesn't relate back under 15(c), that he doesn't have to do that because he's not there.
He's not a party.
Mr. Dixon: Correct, Your Honor.
Justice Kennedy: And then I said, well, but you did move to amend the judgment, and you said, well, that was just a delaying tactic.
That doesn't sound to me like you're being consistent in your position of saying that he's not a party before the court.
Mr. Dixon: I would disagree with the Court.
My position is that post judgment there are only two remedies available to someone in the position of Mr. Nelson.
One is filing an appeal, the second is filing a 60(b), both of which have been done by Mr. Nelson as he sits before this Court.
He was not a party to the underlying action at the time that motion was pending before the court and, as a result, was not in a position to file a responsive pleading.
Justice Ginsburg: What were the grounds of his 60(b) motion?
Mr. Dixon: His 60(b) motion related, Your Honor, to the due process violation as well as the violations of the Federal Civil Rules.
Justice Ginsburg: So he was saying through Rule 60(b) I should not have been added as a party to the judgment when I was never entered as a party to the lawsuit?
Mr. Dixon: Exactly, Your Honor.
Justice Souter: You don't seem to rely on 15(c)(3), which I thought gave maybe too easy an answer in your favor, because one of the... in addressing the question of adding a party by amendment, 15(c)(3)(A) sets as a condition that the party to be added gets sufficient notice so that he will not be prejudiced in putting in a defense, which seems to imply very clearly that it can't be done when the case is closed and no defense can be put in.
Is... that's... maybe that's too easy.
Is there a reason you don't rely on that?
Mr. Dixon: Your Honor, procedurally it's the petitioner's position that based on the statute under which Adams is seeking awards and the extension of the judgment of attorney's fees against Mr. Nelson, they have not even met their threshold requirement of prevailing party.
Based on that, the issue of whether or not 15(c) and, in fact, the due process requirements have been met in effect become a secondary issue.
Justice Ginsburg: But if you're wrong on your first argument, if Adams remains the prevailing party in the lawsuit, then do you agree that on the further arguments that you make, you can win here, but there must be further proceedings in the district court?
In other words, this could go back, and the... Adams can say, now we want to do it right, Your Honor, so we're going to serve a pleading on Nelson, which hasn't been up to now done.
You were talking about service of process, but there hasn't even been a complaint drawn.
Mr. Dixon: Correct, Justice Ginsburg.
I would represent to the Court that Mr. Nelson sits in this courtroom today, more than 2 years after the district court granted leave to amend the complaint, ready, willing, and able, if this Court's judgment so orders, to accept service of process, appear in the district court, and litigate this matter on its merits.
Justice Ginsburg: Yes, I wanted to clarify that.
So you recognize if you lose on the prevailing party thing, then it does go back to the district court and he can fight it out there.
Mr. Dixon: Certainly, Your Honor.
Justice Breyer: Could you just elaborate just a minute on... I thought that... I mean, I completely agree with you, obviously if you don't have jurisdiction over a human being, you cannot make that human being do anything, but I think that they... what the other side was saying is that there is jurisdiction over your client for the following reason.
At some point, he appeared.
When he appeared in the case... I can't tell you, I'm not that familiar to know just when he did.
When he appeared with the case, he mentioned nothing about jurisdiction whatsoever.
He made a few substantive defenses, and if in fact you're going to make an appearance and you don't raise the issue, and you're there in court, that in effect waives your claim as to jurisdiction.
You didn't make a special appearance.
You... and I thought that was basically the law, and so I want to be sure I get your response to that.
Mr. Dixon: Your Honor, by virtue of filing... the very fact that Mr. Nelson filed a motion to amend and/ or alter the pleadings, which, as I understand the Court, the Court is directing my attention to...
Justice Breyer: Well, you'll be more familiar with their argument from their brief, frankly, than I will.
You've probably read it several times, and that's what I'm trying to refer to.
They say he appeared at some point, and when he appeared at that point in this case, he didn't raise the jurisdictional defenses or lack of notice defense and, because he didn't raise them, but responded on the merits, he basically has waived his defense of no jurisdiction, because he's there, or they made it approximately like that.
I'm referring to their argument, not to my argument, and I want to know what your response is to it.
Mr. Dixon: Your Honor, my response to that question is two-pronged.
First and foremost, Mr. Nelson's position continues to be the Court has not... does not have jurisdiction over him in this matter because the respondents have not filed the procedural requirements for jurisdiction to attach.
As I understand...
Justice O'Connor: Well, but that can be waived.
That can be waived.
Do you concede that?
The lack of service and the lack of jurisdiction can be waived, can it not?
Mr. Dixon: By consent it can be waived, certainly, Your Honor.
Justice O'Connor: And courts have said that when such a person makes an appearance and files a pleading, that constitutes a waiver, and that's the question.
Mr. Dixon: Your Honor, I would suggest to this Court there are certain pleadings that may waive those jurisdictional requirements.
However, I would likewise represent to this Court it's the petitioner's position that merely by filing a motion to alter or amend the judgment pursuant to Civil Rule 59 does not constitute such a waiver.
Justice Scalia: Ms. Dixon, I think we may be talking at cross-purposes here.
There are really two separate issues.
One is simply the question of whether he was there, whether he was in the case.
That is the precise point that he made when he filed his pleading.
He said, you can't enter this judgment against me because I wasn't there.
There's a second issue, which is whether, if the court did enter a judgment against him when he wasn't there, it would violate the Constitution.
Now, he did not raise those constitutional arguments when he first appeared, but he did raise the argument, I'm not here.
Isn't that correct?
Mr. Dixon: It is correct, Justice Scalia.
However, the distinction is made as to the timing that this... the issue was raised.
As the Court is aware, Mr. Nelson did not file the motion to amend or alter the judgment until judgment on the merits had been rendered.
He was simply brought into this case as a... attempted to be brought into this case as a last ditch effort by Adams to have somebody pony up the $178,000 in fees.
By virtue of the fact that Mr. Nelson was never subject to jurisdiction of this Court when it was heard on its merits, he cannot, based on this Court's prior rulings, be subject to an award of attorney's fees post judgment.
Justice Souter: Okay, but I just want to get to the narrow waiver point that was raised, and my recollection is the same as Justice Scalia's, and that is... I don't remember procedurally how to describe this, but my recollection from reading the briefs was that at the first moment that he filed any pleading following the joinder, one of the things he said is, you can't do this because I am not a party, or was not a party.
Is that recollection correct, that he raised his nonparty status at that moment?
Mr. Dixon: He did, Your Honor.
Justice Souter: Okay.
Justice Breyer: I suppose that that's an... now I'm not certain about what the law is on that.
I mean, he... in other words, the... of course he wasn't a party.
The issue is to make him a party.
Mr. Dixon: Absolutely, Your Honor.
Justice Breyer: And so therefore there would be a question as to whether or not the court has... should make him a party.
Now, if you say, I'm not a party, don't make me a party, does that waive your juris... I don't know, does it waive your jurisdictional argument?
Mr. Dixon: Your Honor, I would suggest to this Court that based on civil rules, as well as this Court's prior holdings, that's simply not the case.
More importantly, a careful review of the docket from the district court undercuts any such argument.
On March 25 of 1998, at 10:09 a.m., the district court's docket was silent as to Donald Nelson in his individual capacity.
One minute later, at 10:10 a.m., the docket reflected not only had Mr. Nelson been joined as a party, but was subject to and bound by a judgment in excess of 178,000...
Justice Kennedy: I understand, but you... and your position, I take it, is that when he does come to court and move to amend the judgment, this is tantamount to a special appearance challenging the court's authority to treat him as a party.
Mr. Dixon: Your Honor, I would say that he certainly did raise the issue of the court's jurisdiction as part of his motion to alter and amend, but in no way did he subject himself to that jurisdiction.
Justice Kennedy: So that it's tantamount to a special appearance to challenge jurisdiction.
Mr. Dixon: I would disagree with the Court.
I do not believe...
Justice Ginsburg: Special appearance means that you are there only for that limited purpose, and you're not... so I think you agree with what Justice Kennedy just said.
A special appearance is a limited appearance simply for the purpose of making that application, and not subjecting yourself generally to the jurisdiction of the court.
Mr. Dixon: I understand the distinction technically.
I just wanted to differentiate.
In the Zenith case counsel for Hazeltine, when they came in, they specifically acknowledged to the court they were making a, quote, special appearance, end quote.
There was no such appearance filed on behalf of Mr. Nelson in conjunction with his motion to amend or alter...
Justice Ginsburg: He's doing something.
Justice Scalia: He's making some appearance.
Mr. Dixon: Absolutely.
Justice Scalia: I mean, the motion just didn't float down from nobody.
He's either making a general appearance or a special appearance.
Which one would you rather have?
Mr. Dixon: I would definitely go with the special appearance, Your Honor.
Justice Souter: Okay.
Then if you win on that... if you win on that, you won, I guess.
If you win on that, that it was a special appearance, and the jurisdictional issue is there, and they didn't have jurisdiction because they never served him, I guess... you'd at least have to find out about that.
Suppose you lost on that.
Suppose, just for the sake of argument.
For the sake of argument, suppose it turns out to be a waiver of the jurisdiction.
Is there any other ground you could win on?
Mr. Dixon: Absolutely, Your Honor.
Under section 285, the statute that provides for awards of attorney's fees in patent cases involving exceptional circumstances, that statute has, as is outlined... as is also found in the civil rights arena, a threshold requirement of being a, quote, prevailing party, end quote.
This Court, although it has not specifically addressed the definition of prevailing party, subject to section 285, has on a multitude of occasions wrestled with and, in fact, addressed the definition of prevailing party within the civil rights arena, specifically under 42 U.S.C. 1988.
In each of those cases, this Court has found in order to be a prevailing party one must have prevailed against the opposing side on the merits.
The record before this Court is clear.
When this matter was adjudicated on its merits, Donald Nelson was not a party.
By virtue of the fact he was not a party on the merits, under section 285, it is impossible for him to be subject to an award of fees post judgment...
Justice Breyer: What's worrying me about that argument is, there's a lot of authority that a prevailing party is a person who gets the practical thing he wanted as against, let's say, the defendant, and so if it was proper to make him a defendant, or the effect thereof, I wouldn't want to undercut that law and say that the... you know, if he really... if it was proper to make him the opposite side... didn't they get the practical relief they wanted as against him...
Mr. Dixon: Your Honor...
Justice Breyer: i.e. that the... yes.
Mr. Dixon: Your Honor, I would agree with you on a more global scale.
However, as it relates to the specific circumstances of this Court, as the record reflects, at the time the underlying litigation was instituted, Mr. Nelson had released all right, title, and interest he had in the subject patents, the 110 and the 702 patent.
He had absolutely no relationship to either of those patents when the underlying litigation commenced.
By virtue of that lack of a relationship to either of those patents, there were no merits against Mr. Nelson to which Adams could prevail upon.
Justice Ginsburg: That's what he'd like to litigate if he had a chance to, but he... well, what do you make of Rule 21, which says that parties may be added by order of the court on motion of any party at any stage of the action?
Mr. Dixon: I would suggest to this Court that certainly Rule 21 applies, again in the more global sense, but it does not absolve the party attempting to amend to their Rule 4 requirement of service of process.
This Court has stated repeatedly that one, in order to be subject to the jurisdiction of the court, must be served with process and have an opportunity to be heard.
Justice Ginsburg: I thought you were going to say that any stage of the action doesn't mean after judgment is rendered.
Mr. Dixon: Well, certainly that's a collateral point, Justice Ginsburg.
Justice Souter: But you are saying that.
You said... I assume when you said opportunity to be heard, I thought you meant opportunity to put in a defense, which he can't do after judgment.
Mr. Dixon: Your Honor, I would suggest to this Court that there are certain circumstances where, post judgment, Mr. Nelson could be served with process and joined as a party.
However, that mandates that he be permitted to be heard on the merits, specifically the merits which led to the award of attorney's fees, but that does not...
Justice Souter: Why isn't it... why don't you... and I may be missing something here, but why wouldn't it be simpler for your position to say, no, they can't get him into this action after judgment.
What they can do is try to collect the attorney's fees from him by pursuing him in a separate action and claiming that there is, in fact, preclusion.
He can then defend on whether or not there is preclusion in the assertion of the fee claim against him, and he will do so based on whether he was given an equitable opportunity to be heard if he had wanted to in the first action, and so on.
Why isn't that the more orderly way to structure the possibilities for what they want to do and you want to defend?
Mr. Dixon: Justice Souter, I would wholeheartedly agree with you.
As I indicated earlier, Mr. Nelson sits here today ready, willing, and able to answer claims that are made...
Justice Ginsburg: But Ms. Dixon, you told me they wouldn't have to bring a new lawsuit, that assuming you lose on your prevailing party interpretation, that Mr. Nelson stands ready in this very case.
The judgment is reopened.
The question is whether he should be added as a party to it.
He could stay in the district court.
He doesn't have to bring... Adams doesn't have to bring another action, and just air the question, is he responsible for attorney's fees, with no new litigation, or are you changing your mind about that?
Mr. Dixon: No, I'm not, Your Honor.
I think those... both of those options are available to Adams.
What the fundamental principle involved in both...
Justice Ginsburg: Well, why would Adams ever want to start a brand-new lawsuit when they already are in court?
Mr. Dixon: I can't fathom circumstances under which they'd want to.
However, all we're requesting is that they finish the lawsuit they started with Mr....
Justice Ginsburg: Well, they didn't even start it.
I mean, Mr. Nelson started the lawsuit.
Adams didn't start the lawsuit.
Mr. Dixon: But Adams certainly did assert counterclaims, which they vigorously prosecuted.
Justice Breyer: Well, the reason... all these considerations you brought up, what's bothering me at the bottom of this is that there seems to me an obvious rules-based vehicle for you to make your argument.
You would just say, judge, it's not in the interests of justice to permit this amendment.
My client hasn't been here, et cetera, there are other ways to get him.
And that's why this case seems about Rule 15 at the bottom to me, but unfortunately for you, I guess, if I'm right, then you didn't make that argument, so why am I not right?
Mr. Dixon: Your Honor, I believe that the petitioner on appeal has, whether or not he raised the Rule 15 argument directly, certainly raised that by virtue of his more far-reaching violation of the Federal Rules of Civil Procedure argument.
The fundamental principle involved in this case is a complete failure of service of process, and notwithstanding that complete failure of service of process, an attempt to bind a stranger to the litigation post judgment, and that finding by both the district court as well as the Federal circuit court flies in the face of this Court's prior rulings.
Justice Ginsburg: Ms. Dixon, I keep wondering why you're emphasizing service of process.
No complaint was ever filed in the district court naming Nelson.
Mr. Dixon: Correct.
Justice Ginsburg: So isn't the filing of a complaint a little more basic than the service of process after you file the complaint?
Mr. Dixon: Certainly the filing of the complaint is the predicate act to permit Mr. Nelson to file a responsive pleading, hence subjecting himself to the jurisdiction of this Court, of the district court.
The fundamental problem in this case is that, without that opportunity to be heard, Mr. Nelson was nonetheless subject to a judgment where he had no opportunity to litigate the underlying merits.
Justice Newman, in her dissent in the Federal circuit court, stated it very accurately, that both the respondents and the majority for the Federal circuit hold hard and fast to this concept of this case presenting a, quote, particular circumstance, end quote, and by virtue of that particular circumstance, a violation of both the letter and spirit of not only the Rules of Civil Procedure but also the Due Process Clause of the Fifth Amendment have been violated.
It's the petitioner's position that circumstances should not circumvent the rules.
They should be strictly adhered to and be uniformly applied to both...
Chief Justice Rehnquist: Was your constitutional claim raised before the Federal circuit?
Mr. Dixon: Your Honor, I did not find it in the brief.
However, if I could direct the Court's attention to Justice... Judge Newman's dissenting opinion, it was discussed at length, and one must presume that it was dealt with before that court.
Chief Justice Rehnquist: Oh, I'm not at all sure that's true of our practice.
If it appears in the majority opinion one needn't go further, because even if the majority opinion discussed it without having been raised we have jurisdiction to review it, but if it's not discussed in the majority opinion and wasn't raised in the brief, I'm not at all sure it's before us.
Mr. Dixon: Your Honor, I would respectfully disagree with that conclusion.
Assuming, without conceding, that the Due Process Clause was not raised before the Federal circuit court, the due process considerations in this case are so fundamental to the issue that this Court has the authority to exercise their supervisory responsibilities and deal with that issue in the Nelson v. Adams matter.
Chief Justice Rehnquist: And what's your authority for that, that proposition that you just stated?
Mr. Dixon: I would say that that's Rules of the Supreme Court 10.
Chief Justice Rehnquist: You don't have a case?
Mr. Dixon: Not off-hand I don't, Your Honor.
Justice Kennedy: Getting back to where we were at the very beginning of the argument, because I just want to anticipate what I think respondents are going to tell me, when you went into the district court, when Mr. Nelson made his first appearance, page 4 of the red brief tells us that Nelson, in full Italics, Nelson did not raise issues of due process, personal jurisdiction, or service of process.
All you made was the motion under the substantive provision of the patent law, and if I were asked I would say that is a waiver.
Mr. Dixon: Again, I would disagree with the Court that that's a waiver.
Justice Kennedy: And if I find it's a waiver, then I'd say that it's fair to say, why didn't you move to... so long as you made what I think is an appearance, a general appearance, why didn't you move under Rule 15(c) to say this doesn't relate back, there's no mistaken identity of the parties?
I mean, that's, it seems to me, the clear vice in what the court did here under the rules, if... forgetting about the serious due process one.
But you say this is so fundamental that we should raise it here for the first time under Rule 10.
You didn't even raise it in the trial court.
Mr. Dixon: Your Honor, I would suggest to this Court that the opportunity was not provided specifically to Mr. Nelson because that appearance was made post judgment.
The two remedies that were available to him were a direct appeal and a 60(b) motion, both of which he availed himself to.
If the Court has no further questions, I would like to reserve the balance of my time.
Argument of Jack A. Wheat
Chief Justice Rehnquist: Very well, Ms. Dixon.
Mr. Wheat, we'll hear from you.
Mr. Wheat: Mr. Chief Justice, and may it please the Court:
There are at least three major waivers in this case.
One, jurisdiction was waived.
The motion to vacate was not a special appearance.
Paragraph 1 of the motion to vacate...
Justice Kennedy: Where can we find that motion?
I see the reference to the docket entry in the joint appendix.
Is the motion itself in the joint appendix?
Mr. Wheat: I don't recall, Your Honor.
Justice Kennedy: So what are you reading...
Mr. Wheat: There's a docket item number 133...
Justice Scalia: I find that extraordinary.
These things are central to both sides, and the briefs on both sides go into these things, and we don't have the documents in front of us.
I don't know how you selected what goes into the appendix.
Justice Souter: Well, Mr. Wheat, at least on page 3 of... yes, page 3 of your brief you say that on April 8 Nelson, appearing individually, brought a motion to amend, and this was, as I understand it from the sequence you set out, the first pleading that Nelson filed after being joined as a party, and you say... again, I'm still on page 3 of your brief... that he raised two claims.
Number 1, he said that section 285 doesn't allow an award of fees in these circumstances and number 2, he couldn't be held under 285 anyway, because he was not a party.
I mean, it seems to me that that may not have been the most subtle way, that latter claim that he was not a party may not have been the most complete or subtle way to raise the point, but it sounds as though someone is trying to raise the point that there's no jurisdiction here, and so I have my... I have difficulty in just taking it as a waiver.
Mr. Wheat: To address your question, Your Honor, in section 1 of the motion to vacate, they acknowledged he was a party and requested that the order be amended to delete him as a party.
Justice Souter: Well, I assume what they meant was, he's a party because you've just issued an order saying he is one, but... and taking the pleading as you've described it in your own brief, his next statement was, I am not a party, or was not a party through the litigation, and that makes... I guess that doesn't make any sense to me except on the theory that he's saying, you have no jurisdiction over me.
Mr. Wheat: Your Honor, I understand your point.
I don't agree with it.
Jurisdiction was not challenged.
On appeal, jurisdiction was not challenged.
Justice Souter: Well, it was not challenged using the word, jurisdiction, but what else was he getting at in the second part of his motion to amend the judgment?
I mean, if I could find a commonsensical reading that doesn't involve a jurisdictional challenge, I might accept your argument.
Mr. Wheat: The way this case progressed, Your Honor, was that eventually led into the argument made on appeal by analogy to the civil rights cases that a fee award was not...
Justice Breyer: Okay, but if I may interrupt you, just go back to this question.
What else would it be reasonable to assume he was trying to get at by that second point, right at that moment, April 8, 1998.
Mr. Wheat: And which section are you referring to, Your Honor?
Justice Breyer: I'm on page 3 of your brief, the bottom of the page.
You are describing the substance of the motion to amend, which was the first pleading, as I understand it, that he filed after the court had joined or purported to join him as a party, and he says two things in his motion to amend the judgment.
Number 1, he says, 285 doesn't, in fact, entitle them to fees.
Number 2, he says, beside... even aside from that, and I'm quoting your brief, he was not a party to the litigation.
Don't you think the reasonable way to read that second point is, he is claiming... he is contesting jurisdiction over him?
Mr. Wheat: Your Honor, I'm...
Justice Breyer: What else was he doing?
Tell me that.
Mr. Wheat: He was saying, I'm not liable for this fee award...
Justice Scalia: Under 285.
Mr. Wheat: Under 285.
Justice Breyer: He said that in the first part.
Justice Scalia: Right.
Justice Breyer: Now we're at the second part.
He's saying, I'm not liable because I was not a party to the litigation.
Mr. Wheat: Was not a party when the judgment was originally entered, yes, Your Honor.
That's the way I understood that argument.
Justice Breyer: Isn't he contesting the jurisdiction of the court to make him pay the fee award?
Mr. Wheat: I do not read that as a challenge to the jurisdiction.
On appeal, jurisdiction was not challenged.
A Rule 15 argument was made on appeal.
Justice Ginsburg: Rule 15 relates to what parties must do.
His position, I take it, is, he never comes within Rule 15 because he's never even been... no complaint has ever been filed against him, no less served on him, so Rule 15 is assuming you are already a party, and then states your obligations.
Mr. Wheat: Justice Ginsburg, as I read the Rule 15 argument it was about the timing, not the question of whether he was made a party... questioning the timing, was it too late in the proceeding to make him a party, and that question's been waived in this Court.
Justice Ginsburg: But you don't waive a question when you are not in the litigation at all.
Rule 15 is framed in terms of somebody who's already there... can you have an amendment that relates back?
but it speaks in terms of parties, people who have party status.
The underlying... the root problem here is, it sounds a little bit like the Red Queen who says, judgment first, and then you could state your defense.
Mr. Wheat: Your Honor, it was a peculiar procedure.
We've looked to the peculiarities and particularities of this case.
We were looking at the fact that it appeared Mr. Nelson was collaterally estopped by the finding against Ohio Cellular Products.
He didn't question jurisdiction.
He questioned the timing of the amendment.
Justice Scalia: I don't know any other way to reasonably interpret his first appearance.
As you describe it, he could not be held liable under section 285 because he was not a party.
Now, there's nothing in section 285 that mentions party.
I mean, he's appealing to a general principle that you can't be held liable in a piece of litigation, whether it involves 285 or anything else, unless you're a party.
Now, that... you know, that sounds to me...
Justice Stevens: May I ask you a preliminary...
Justice Scalia: like a jurisdictional objection.
What else was he objecting to?
Was he referring to some language in 285?
Mr. Wheat: Your Honor, I understood it to be two objections.
The 285 objection was because we had not prevailed against him, the analogy to the civil rights cases, and objecting to the timing of the amendment, a Rule 15 objection which has been waived, page 7 of the petition for cert. They say they no longer question the timing of that amendment.
They agree the timing was appropriate under the circumstances of the case.
Justice Kennedy: Well, of course, 285 does mention parties.
It mentions prevailing party, and I suppose your argument would be that he would say this means that the nonprevailing party is the one who has to pay the fees, and he's not a nonprevailing party under 285.
Mr. Wheat: I understand their argument, Your Honor...
Justice Kennedy: But...
Mr. Wheat: and disagree with it.
Justice Kennedy: You agree with that.
Justice Scalia: No, I think you want to agree with that.
Justice Kennedy: I think...
I think you agree with...
Mr. Wheat: They're arguing that he was not a nonprevailing party, is my understanding.
Justice Souter: You're... he's...
Mr. Wheat: Are we saying the same thing?
Excuse me, Your Honor.
Justice Kennedy: Well, in all events, I take it that he could be a nonprevailing party for two reasons: 1) that he just doesn't fit within the purpose and intent of 285 as a substantive matter; 2) he could be a nonprevailing party because he wasn't in the litigation as a matter of due process
Mr. Wheat: Yes, Your Honor.
A couple of points there.
Of course, due process is a waivable defense.
We think he did have due process here.
Justice O'Connor: What process do you say is due before someone can be made a party to amend, to bring someone in?
Mr. Wheat: In the collateral estoppel context, I believe because of the collateral estoppel situation I believe Mr. Nelson had his due process.
Justice O'Connor: Do you think that a complaint has to be filed to accord due process before a complaint can be amended to bring somebody in?
Mr. Wheat: Your Honor, the order we tendered with the motion to amend, the order said the third party complaint is deemed amended to add Mr. Nelson as a party.
Justice O'Connor: I would have thought it was...
Mr. Wheat: There was no change...
Justice O'Connor: I would have thought it was fairly fundamental under due process that you have to have a complaint that names the party, and serve the party with process.
Mr. Wheat: Your Honor, service of process is fundamental.
Justice Breyer: You don't always, I guess, do you?
I mean, there can be weird situations where they just made a mistake in the name, or say they were Siamese twins and the other one wasn't named properly but he's been in the courtroom the whole time.
I mean, there are odd situations where I guess you can, but it isn't normal, right?
I mean, it's not normal that you would... what happened here would happen.
Mr. Wheat: This was not a normal case, I agree, Your Honor.
Perhaps a complaint would have been the approach, rather than a motion.
The case law we've cited in our brief says that if that happens, if you proceed by motion instead of by complaint, but if the response to the motion is not an objection that you should have filed...
Justice Ginsburg: Where does it say... I never heard of a... you can file a motion for leave to file an amended complaint, but then you have to file the amended complaint.
I never heard of a motion being a substitute for a complaint before.
Mr. Wheat: Your Honor, there were about three cases we cited in our brief on pages 30 and 31, where the courts uniformly held in those cases that it was a waiver of the right to be served if in your response to those motions you did not object to not being served with the complaint.
Here, he did not object to not being served with the complaint until we got to this Court.
Justice Stevens: But may I ask you kind of a preliminary question?
He first reared his ugly head after March 25, 1998, isn't that right?
Mr. Wheat: He referring to...
Justice Stevens: Mr. Nelson.
He first... he was not a party prior to March 25, 1998, was he?
Mr. Wheat: He was not a named party, but he was actively involved in the litigation, Your Honor.
Justice Stevens: Well, was he a party to the litigation before 1998?
Mr. Wheat: He was not a named party, I agree, Your Honor.
Justice Stevens: He was not a party, period.
Mr. Wheat: He was not party, Your Honor.
Justice Stevens: All right.
Mr. Wheat: That's correct.
Justice Stevens: Now, if on March 27, 1998, nothing had been done by either side, could the marshall have levied on that judgment, in your view?
Mr. Wheat: Against Mr. Nelson?
Justice Stevens: Yes.
Mr. Wheat: I believe Ohio has... you have to wait 10 days to allow...
Justice Stevens: Wait the 10 days, then.
Wait 15 days.
Do you think it was a valid judgment that would be enforceable by seizing his assets?
Mr. Wheat: Your Honor, I'll be candid with the Court and say, frankly we were scratching our heads saying, what do we do next, and less than a week later, after we received the order, in came the entry of appearance.
We said, okay, he's here now.
Justice Stevens: So that without that appearance you would agree, I think, that there was no power... there was a void judgment as to him.
Mr. Wheat: We felt that we needed to serve him with something, and we weren't sure what.
The order saying the complaint's deemed... the third party complaint's deemed amended to add him as a third party, serve him with a copy of the third party complaint...
Justice Ginsburg: Why didn't you join him initially?
You're arguing issue preclusion.
You're saying he was really there even though we didn't join him.
That's the mystery.
Why didn't you join him in his individual capacity?
Mr. Wheat: Frankly, Your Honor, my practice, whether it's good practice or not, is, I don't sue every potential party.
I tend to go after...
Justice Ginsburg: Yes, but you don't... I'm sure it isn't your practice ordinarily to join people after final judgment has been rendered.
Mr. Wheat: It's not, Your Honor.
This was not a normal case.
You know, in the patent infringement...
Justice Ginsburg: But you know, you have only one case that's somewhat in point, and that's the Fromson case.
But that's when the corporation represented to the Court that it was going to be good for the judgment, that it would have the wherewithal to pay, so you didn't have to join the principal, and then it turned out the corporation had nothing.
Here, there was nothing of that nature.
Mr. Wheat: Yes, Your Honor, Fromson is factually distinguishable based upon that distinction you just made, but the law in Fromson is the timing of an amendment post judgment, and the Federal circuit held that was appropriate, that you can amend post judgment to add a new party.
That's what we did.
Justice Ginsburg: Even though the Court in Fromson itself made it clear that what drove that result was a misrepresentation that had made to the... made to the Court, with the principal's knowledge, that the corporation would be good for the judgment.
Mr. Wheat: Yes, a consideration and whether to allow an amendment, whether it's unjust.
That was an equitable consideration.
I think the more pertinent case, Your Honor, is American Surety, where Justice Brandeis writing for the quote... for the Court was that it was a situation where a judgment was entered against the surety company without notice, the Court, Justice Brandeis speaking for the Court said, we're assuming due process was denied, but when you filed your motion to vacate you did not raise that issue.
When you appealed, you did not raise that issue.
It was not waived... it was not raised until your motion for rehearing at the appellate court.
Justice Ginsburg: But Brandeis didn't say that you wouldn't have the opportunity then to be heard.
He said you could be heard after judgment.
Mr. Wheat: And...
Justice Ginsburg: It didn't have this multiple waiver that you're arguing, and also wasn't it true in that case that at least the plaintiff was arguing the surety company covered two defendants?
It consented to be there.
It consented to being a party.
Mr. Wheat: Well, I think that the Court said no, it probably wasn't a bond posted for both parties, but it was too late to raise that issue because you didn't raise it until your motion...
Justice Ginsburg: In other words, I never understood Brandeis to be saying in that case that you get no chance to put on your defense on the merits.
He said, you do.
Mr. Wheat: You do, but it may be post judgment, as long as you have an opportunity to be heard.
Justice Ginsburg: Well, that's what Ms. Dixon says that she wants, go back to the district court and let her make her defenses.
Mr. Wheat: Mr. Nelson had his opportunity.
The order was amended.
Justice Ginsburg: Well, all I'm saying is, you cannot use American Surety for the proposition that not only can you join someone after the judgment, but then you can say, and we're not going to let you put on your defense.
Mr. Wheat: The point I'm trying to make is, under American Surety your opportunity to be heard post judgment is adequate as long as you do have that opportunity.
The order, the judgment was amended.
Mr. Nelson said, here I am, let's resolve it in this court.
The judge said, okay, make your argument.
He made his argument.
He didn't challenge jurisdiction.
He didn't challenge the finding that he had...
Justice Ginsburg: He said, I'm not here.
I'm not properly here.
Mr. Wheat: He said I'm here and shouldn't be here, and then on appeal he challenged the timing of the amendment...
Justice Kennedy: Mr....
Mr. Wheat: not whether he had not been served.
That wasn't an issue at the Federal circuit.
Justice Breyer: And you said a second ago... I just want to ask you this technical point.
I think you said a second ago that in the cert petition he has withdrawn the objection to the timing, and you referred to a page, but I didn't get it.
What page is that on?
Mr. Wheat: Page 7.
Justice Breyer: 7, thank you.
Mr. Wheat: The petitioner does not here challenge the liberal pleading provisions of the Federal Rules of Civil Procedure, and does not challenge the district court's decision to grant respondents leave to 1) amend their complaint, 2) join petitioner as a new party defendant, and 3) to do so after judgment had been rendered.
The timing was the issue in the Federal circuit, along with does 285 even apply.
The timing issue is waived.
Does 285 apply?
I think if you analogize to the civil rights cases, it's a specious analogy.
Justice Ginsburg: We're not arguing the merits, because the basis on which you won on the merits don't matter.
Mr. Wheat: Excuse me, Your Honor?
Justice Ginsburg: The basis on which you won, that he waived his right to defend on the merits, so what 285 means or doesn't mean is the question that he would like to argue, but you said... so the point that you're making would be academic if you're right that he's waived everything.
Mr. Wheat: No, I think 285 was argued at the Federal circuit, and was argued...
Justice Scalia: And it's the first question presented here, too, isn't it?
I mean, it's the first question on which we granted cert....
Mr. Wheat: Yes.
In our response to the petition for cert, our position was that's the only issue that would really be ripe for consideration by this Court, that all the other issues have been waived, and again, we think it's a specious analogy to analogize the 285 fee award to a civil rights fee award because they are awarded for totally different purposes.
Chief Justice Rehnquist: And the court of appeals decision in this case at page 23 of the petition for writ of certiorari, under... where they have the discussion section, the second paragraph, it's talking about what Nelson contends.
It says he can't be responsible individually for paying the fee award.
Such a prohibition against assessing attorney's fees against a nonparty he seeks to fashion from language in the Supreme Court's decision in Kentucky v. Graham.
There he was certainly complaining about an award against him having been made when he was not a party, don't you think?
Mr. Wheat: Well, the way we understood it was, he should have been a party when we obtained the judgment on the merits, and he was not a party at that point.
Collaterally estopped, perhaps, but not a named party at that point.
Justice Souter: You're taking it as, he's not making the argument, I have never been to the United States of America, I never got any notice and I don't know what this is about, and you have no jurisdiction.
He's making the argument, I've been here the whole time, I know everything that's going on, I have total notice, and I'm in here telling you that you can only award attorney's fees under this statute against a real party, not somebody who's just been made a party for purposes of the attorney fees.
Mr. Wheat: Your Honor, that is my understanding.
Justice Souter: All right.
Now, I guess it would be helpful to find out which argument he's making if we actually had the document in which he made it, and I gather we don't.
Where is it?
You have it up there, but we don't have it, I think.
Mr. Wheat: What I have is the petition for cert, Your Honor.
Justice Souter: Oh, all right.
Well, where is the document in which he went to the district court and made whatever argument it was he made?
Is that with the Clerk's Office or somewhere?
Mr. Wheat: There have actually been two, and we need to clarify this quickly.
There was the motion to alter and amend the judgment entry, docket item number 133.
Justice O'Connor: 133?
Mr. Wheat: Yes, 133.
Ms. Dixon this morning did mention the Rule 60(b) motion to vacate the judgment.
That motion is totally collateral to the record you have.
That motion was filed after the Federal circuit affirmed the judgment.
The trial court has held that jurisdiction was waived.
That decision is reprinted, full text, in our response to the petition for cert....
That issue is at the Federal circuit right now, whether the trial court had jurisdiction.
I mean, they're going to have it one way or the other.
Did they raise it in the matter that's before this Court, or did they not raise it?
There, they say it wasn't raised yet.
It needs to be addressed.
Justice Ginsburg: What is this other proceeding that's now pending in...
Mr. Wheat: It's... after the Federal circuit affirmed this judgment, they filed a Rule 60(b) motion to vacate the judgment, filed that with the trial court.
The trial court overruled that motion.
The opinion is reprinted full text in our response to the petition for cert. That order is now on appeal at the Federal circuit and is fully briefed.
It is not in the record on appeal here that you have, the record you...
Justice Ginsburg: Has it been stayed pending our decision in this case?
Mr. Wheat: I haven't received an order to that effect, but I suspect that it has, but that's just a guess on my part.
Justice Ginsburg: There's one other feature of this that I'm curious about, in addition... I wondered why you didn't join him in the first place, then at the end I take it your concern is that the corporation does not have the wherewithal to pay this judgment.
If he were sole shareholder, and the assets of the corporation were distributed to him, you could go after those assets in his hands, couldn't you?
Mr. Wheat: You mean, based upon the judgment we have against him...
Justice Ginsburg: My understanding was that in a bankruptcy situation, where you have a one-person corporation, that that shareholder, you can go after the shareholder to the extent that he got a distribution from the corporation.
Mr. Wheat: I'm not involved in collection law, but I do generally understand that to be the case, that if there is a liquidation you can follow the assets to the shareholder.
Justice Ginsburg: Right.
Mr. Wheat: I don't know that there are any assets.
We've tried various executions and they've all come back with there being no property found against the corporation.
We were told it was going to be shut down if we obtained a judgment against it, and that's what motivated us to then proceed against Mr. Nelson individually, being our view he was collaterally estopped to challenge the finding that the fee award was based upon his inequitable conduct, and that finding wasn't challenged at either the trial court or the Federal circuit.
Justice Ginsburg: But in the trial court he wasn't there, and the problem that this case presents is, the corporate form means something, and your argument seems to suggest that any time you have a judgment against a one-person corporation, that after you get that judgment, you can join the sole shareholder if you're shaky about...
Mr. Wheat: Justice... excuse me.
Justice Ginsburg: there being enough in the corporate till.
Mr. Wheat: Justice Ginsburg, we're asking for something much more narrow than that: when you have a situation where it's a controlling shareholder, in this case the sole shareholder, the controlling officer, the person actively involved in the litigation, the person controlling the litigation and therefore collaterally estopped by the finding against the corporation, and if it is that person who committed the fraud which warranted the fee award, that you should be allowed to recover that fee award
Justice Ginsburg: Well, you may well be right ultimately, but as I understand Mr. Nelson's position, he is challenging that he was solely in control of the litigation, of what went on, that he is raising a number of factual questions that haven't been aired before any court.
Mr. Wheat: Your Honor, I don't believe that's in the record.
Pre-judgment, he challenged whether he committed inequitable conduct.
The trial court found that he did.
Justice Ginsburg: He didn't.
The corporation did.
Mr. Wheat: No.
Justice Ginsburg: He wasn't...
Mr. Wheat: They found that it was his inequitable conduct that was imputed to the corporation, and that that inequitable conduct that he personally committed was what support...
Justice Ginsburg: Yes, but he was not a party to that, and he is at least contesting the extent to which he had control over the litigation because the corporation changed hands in between, and that you say he was in control.
Mr. Wheat: Your...
Justice Ginsburg: Do I read his position incorrectly to challenge that?
Mr. Wheat: That argument did not come up until we were in this Court.
It would have been logical in his first appearance to say, hey, I'm not served, you don't have jurisdiction, I'm not in privity with Ohio Cellular Products.
None of those arguments were made.
He said, here I am.
I don't think I have to pay the fee award.
Justice Ginsburg: I thought he said, here I am not because I'm not a party.
Mr. Wheat: He said he did not... should not be a party, and wanted that order reversed or vacated that made him a party.
Justice Stevens: May I ask just a question about the merits?
Are there cases out there in which a corporation brought a patent suit and lost because its sales manager or patent office manager engaged in serious inequitable conduct in the patent office and that voided the patent, in which, after the litigation was all over, they got a judgment against the officer who committed the wrongdoing?
Mr. Wheat: Yes, Your Honor, there are.
I think the best case on that point is the Hughes, H-u-g-h-e-s, case cited in our brief.
Justice Stevens: And they got attorney's fees from the officer?
Mr. Wheat: Yes.
It was the patentee who no longer owned the patent.
It was assigned to his corporation, but he was the one who committed the inequitable conduct, and the Federal circuit held that he was liable for a fee award.
In fact, I'm aware of no cases saying you cannot hold the patentee...
Justice Breyer: Even if you're wrong, I guess your narrowest argument is, even if you're wrong, the way to do it is Rule 15, and say it's not in the interests of justice, rather than start redefining prevailing party under the... am I right, or not, that if you're wrong on that, the way to attack you is through Rule 15?
Mr. Wheat: Oh, I think there are two ways we could have pursued it, Rule 15, which we did...
Justice Breyer: Yes.
Mr. Wheat: or we could have filed an independent action in both claiming he was collaterally estopped, but yes, that does then get to the issue, is he liable for the fee award.
The jurisprudence interpreting 285 is clear that the one who commits inequitable conduct can be held liable.
Chief Justice Rehnquist: But that's a matter of substantive law.
The question here is really, you know, anyone who is... you make a claim against... under substantive law.
You have to make the claim and give them an... you know, notice that the claim is being made against them, and give them an opportunity to come in and defend themselves.
Mr. Wheat: Yes, I agree, Your Honor.
Chief Justice Rehnquist: And is... I understood from the briefs, or perhaps from the lower court opinion, that you make no claim here to piercing the corporate veil?
Mr. Wheat: No.
We did not proceed under that theory.
We proceeded under the theory that the person who committed the inequitable conduct is... can be held accountable for the fee award, and under the theory that he was collaterally estopped to dispute the finding that he committed inequitable conduct adequate to support the fee award.
Unless there are other questions, I will conclude my remarks.
I thank the Court for its attention to this matter.
Rebuttal of Debra J. Dixon
Chief Justice Rehnquist: Thank you, Mr. Wheat.
Ms. Dixon, you have 3 minutes left.
Mr. Dixon: Thank you, Mr. Chief Justice.
There are a few points I wish to attempt to clarify for the Court.
Justice O'Connor: Would you clarify for me why, in your petition for cert, you said that petitioner does not challenge the district court's decision to grant respondents leave to amend the complaint and to join petitioner as a new party defendant, and to do so after judgment had been rendered?
I mean, there we are.
So that isn't some kind of a waiver?
Mr. Dixon: No, it isn't, Your Honor, because even conceding the district court's ability to perfect all three of those items, it does not obviate Mr. Nelson's right to service of process and the right to be heard.
What the petitioner does challenge in the district court, and object to in the district court's finding, was having rendered a judgment against him without affording him the opportunity to be heard on or defend on the merits, and there were multiple defenses available to Mr. Nelson, as well as a potential counterclaim, which were not available to Ohio Cellular Products, which in turn were not raised at the trial court.
Justice Scalia: Ms. Dixon, how do you explain the statement by the trial court here on your later application for a 60(b) motion?
In denying it, the court says this: the Federal Rules of Civil Procedure provide that a challenge to personal jurisdiction, insufficiency of process, or insufficiency of service of process is waived if not made in the party's first responsive pleading or motion
It is not disputed that Nelson did not, in any of his prior pleadings, make the objections he now seeks to raise, that is, personal jurisdiction, insufficiency of process, or insufficiency of service of process.
Mr. Dixon: Your Honor, I respond to that quite directly.
Under Civil Rule 12, a responsive pleading is a party's first opportunity to be heard.
However, the responsive pleading is deemed to either be a dispositive motion prior to filing an answer, or an answer.
The predicate to that is Adams' filing of a complaint and giving Mr. Nelson the opportunity to affirmatively respond to the same.
Justice Scalia: You... well, I mean, it seems a reasonable rule laid down in that denial of the motion that the Federal rules provide that these defenses are waived if not made in the party's first responsive pleading or motion, and you're saying that you didn't have to make those defenses in your first motion?
Mr. Dixon: Correct, Your Honor, because, as we had addressed during my initial argument, Mr. Nelson's filing the Rule 59 motion would have been a special appearance, and he would not have been subject to the jurisdiction of the court by virtue of the same.
Justice Ginsburg: In other words, the answer by motion or by answer to the complaint, Rule 12 is the rule in question, and Rule 12 says you can make a motion in advance of answering the complaint, or you can answer the complaint, so Rule 12 is set up to deal with the case where a complaint was filed, and then it says you respond to that complaint either by pre-answer, motion, or by answer.
Mr. Dixon: Precisely, Your Honor.
Justice Scalia: How can you consider your first, your April 8 appearance a special appearance when you made two arguments, the first one of which is obviously to the merits, namely, section 285 does not allow an award of attorney's fees against an individual who engaged in inequitable conduct?
That's certainly a general appearance.
Mr. Dixon: I would disagree with the Court.
It was merely a special appearance in an attempt to bring some deficiencies in the procedural aspects of the case to the court's attention.
Chief Justice Rehnquist: Thank you, Ms. Dixon.
The case is submitted.