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Protostorm, LLC and Peter Faulisi v. Antonelli

November 29, 2011


The opinion of the court was delivered by: Nicholas G. Garaufis, United States District Judge.


Despite the voluminous record, this is a relatively simple case. Plaintiff Peter Faulisi ("Faulisi") along with non-party Courtland Shakespeare ("Shakespeare") wanted to market and patent an invention they believed would be very valuable through their company, LLC ("Protostorm").*fn2 They enlisted the help of several lawyers-the Defendants and Third-Party Defendants. As a result of some combination of negligence and miscommunication the patent application was abandoned. Plaintiffs, invoking the court's diversity jurisdiction, bring claims for legal malpractice and breach of fiduciary duty against Antonelli, Terry, Stout & Kraus, LLP ("ATS&K"), Frederick D. Bailey ("Bailey"), Carl I. Brundidge ("Brundidge"), and Alan Schiavelli ("Schiavelli") (collectively, "Defendants"). (See 2d Am. Compl. (Docket Entry # 114).)*fn3 Defendants, in turn, as Third-Party Plaintiffs, bring claims for indemnification and contribution against Third-Party Defendants Kathy Worthington ("Worthington"), Duval & Stachenfeld LLP ("D&S"), and John J. Ginley, III ("Ginley"). (See Am. 3d Party Compl. (Docket Entry # 133).) Worthington cross-claims against D&S and Ginley, also bringing claims for indemnification and contribution. (See 2d Am. 3d Party Answer & Cross-Cl. (Docket Entry # 226).) Every party has moved for summary judgment under Federal Rule of Civil Procedure 56. (Docket Entry ## 277, 281, 296, 313.) For the reasons stated below, those motions are granted in part and denied in part.


A motion for summary judgment must be granted if "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In determining whether a genuine issue of material fact exists, the court may not "make credibility determinations or weigh the evidence," but instead "must draw all reasonable inferences in favor of the nonmoving party." Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 149, 150 (2000). "Summary judgment is inappropriate when the admissible materials in the record make it arguable that the claim has merit." Kaytor v. Elec. Boat Corp., 609 F.3d 537, 545 (2d Cir. 2010) (internal quotation marks omitted). The burden of showing the absence of any genuine dispute as to a material fact rests on the movant. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970).

A fact is material if its existence or non-existence "might affect the outcome of the suit under the governing law," and an issue of fact is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Rule 56 "mandates the entry of summary judgment . . . against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In such a situation, "there can be 'no genuine issue as to any material fact,' since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Id. at 323. A grant of summary judgment is proper "[w]hen no rational jury could find in favor of the nonmoving party because the evidence to support its case is so slight." Gallo v. Prudential Residential Servs., L.P., 22 F.3d 1219, 1224 (2d Cir. 1994).

The party opposing summary judgment is not entitled to rely on unsworn allegations in the pleading, but must instead "show that there is admissible evidence sufficient to support a finding in her favor on the issue that is the basis for the motion." Fitzgerald v. Henderson, 251 F.3d 345, 360-61 (2d Cir. 2001). Even where a statement is sworn, a genuine issue of material fact is not "created merely by the presentation of assertions that are conclusory." Patterson v. Cnty. of Oneida, N.Y., 375 F.3d 206, 219 (2d Cir. 2004).


A. The Initial Retainers

Protostorm is a limited liability company with offices in New York. (See Faulisi Decl. (Docket Entry # 304) ¶ 2.) Faulisi, who lives in New York, co-founded the company with his co-inventor, Shakespeare, and continues to be a member of the company. (Id. ¶¶ 1, 3; Pls.' Local Rule 56.1 Statement ("Pl. 56.1") (Docket Entry # 309) ¶¶ 3, 4.) The other current member is non-party Alan Rummelsburg ("Rummelsburg"), who was Protostorm's main investor at the time of the events in question. (Pl. 56.1 ¶ 5; Rummelsburg Dep. (D&S Ex. I) at 12-13.)*fn5 Faulisi, Shakespeare, and Rummelsburg will be referred to as Protostorm's "principals." In February 2000, the principals asked D&S, Protostorm's corporate counsel, to oversee Protostorm's interactions with other attorneys, in particular billing and correspondence. (Faulisi Decl. ¶ 15; Faulisi Dep. (D&S Ex. F) at 262; Duval Dep. (D&S Ex. H) at 22.)

When the principals informed D&S that they wanted to obtain a patent for an online computer game and related software (the "Invention"), D&S advised them to obtain patent counsel. (Duval Dep. at 99; Faulisi Decl. ¶¶ 6-11.) Ginley, a lawyer at D&S, introduced them to Worthington, who was not a patent lawyer, but who was knowledgeable about intellectual property matters, and whom the principals then retained to advise them in connection with obtaining the desired patent. (Faulisi Decl. ¶ 16; Worthington Dep. (Def. Ex. 14)*fn6 at 4-5, 234-35, 240; Ginley Dep. at 14.) According to Rummelsburg, Protostorm hired Worthington "to help write the patent application." (Rummelsburg Dep. (D&S Ex. I) at 31.) Worthington submitted her invoices for Protostorm-related work to D&S, which paid her. (Worthington Dep. (D&S Resp. Ex. 35) at 382, 395-96.)*fn7

In May 2000, Worthington introduced the principals to ATS&K, a Virginia-based law firm that specialized in patent work, and Dale Hogue ("Hogue"), who was of counsel to ATS&K. (Faulisi Decl. ¶ 17; Pl. 56.1 ¶¶ 7, 16-17.) According to Faulisi, "[n]o specific limits on the professional roles of ATS&K or Mr. Hogue were discussed, and it was and is my understanding these attorneys were eager to assist Protostorm with respect to any and all appropriate forms of intellectual property protection." (Faulisi Decl. ¶ 18.) Faulisi further states that, "[a]lthough we continued to work with Ms. Worthington during this period, we understood that, because of the specialized nature of patent law, we would be relying primarily on Mr. Hogue and his firm, ATS&K, to prepare and file any patent applications and to oversee the process to completion." (Id. ¶ 19.)

B. The Provisional Patent Applications

On June 19, 2000, Worthington emailed documents relating to the preparation of a provisional, non-final patent application to Brundidge, an attorney and member of ATS&K. (Pl. 56.1 ¶¶ 11, 20.) On June 27, 2000, Bailey, an ATS&K associate, signed the first provisional patent application, dated that day, and submitted it to the United States Patent and Trademark Office ("PTO"). (Id. ¶¶ 22-23.) Faulisi and Courtland were listed as the "inventors" on the first provisional application and ATSK was listed as the contact for "correspondence." (Pl. Prior Ex. 3.)*fn8 The provisional application permitted Faulisi and Shakespeare to disclose key elements of the Invention and thereby to secure their priority as inventors; it also permitted them to take an additional year to submit a final application. (Faulisi Decl. ¶ 20.) Brundidge and Bailey informed Ginley and Worthington that the provisional application had been filed and that the final application was due by June 27, 2001. (Pl. 56.1 ¶¶ 24-25.)

In February 2001, an attorney at D&S "review[ed]" Protostorm's "patent application." (See Billing Record (D&S Ex. J) at DS00148.)

In or about April 2001, Worthington filed a second provisional patent application, in order to cover new features of the Invention. (Worthington Dep. (Def. Ex. 14) at 271-72; Pl. 56.1 ¶ 28). Faulisi and Courtland were again listed as the "inventors," and Worthington was listed as the contact. (Protostorm Prior Ex. 35.)*fn9

C. The Final Patent Application

On May 8, 2001, Worthington wrote to Shakespeare, Faulisi, and Ginley to advise them that the final patent application was due on June 27, 2001, and that, if they missed that deadline, they would lose their June 27, 2000 priority date (established by the filing of the first provisional application). (Pl. 56.1 ¶¶ 29, 30.) On May 14, 2001, Bailey from ATS&K contacted Ginley to remind him of the same thing, and asked that Ginley advise him as soon as possible as to whether the principals wanted to proceed. (Id. ¶ 26.)

On May 17, 2001, Protostorm entered into a written retainer with Hogue-the only written retainer in the record-for Hogue's services in "securing patent protection." (Pl. Ex. 21 at 1.) The retainer specified, among other terms, that

[t]he patent application may be physically filed by the Antonelli, Terry, Stout & Kraus firm in Arlington, VA., the firm that filed your provisional patent application. . . . [Hogue] will perform the work necessary to prepare and file theapplication. Antonelli will render a separate bill for the cost of filing fess [sic] and its representation. (Id. at 2.) According to Faulisi, the retainer "simply reaffirmed [Protostorm's] prior working relationship with Hogue and ATS&K, with ATS&K's role remaining unchanged." (Faulisi Decl. ¶ 23.) In late 2000-that is, by the time he signed the retainer-Hogue had created his own law practice and had ceased to be of counsel to ATS&K. (Defs.' Local Rule 56.1 Statement ("Def. 56.1") (Docket Entry # 297) ¶ 27; Pl. 56.1 ¶ 27; Faulisi Decl. ¶ 23.) Although Faulisi was aware at the time that Hogue's relationship with ATS&K had changed, he did not think the change "could have any consequences with respect to the continued representation of Protostorm by Mr. Hogue and ATS&K." (Faulisi Decl. ¶ 23.)*fn10

On June 20, 2001, Hogue emailed Brundidge and Bailey of ATS&K, attaching various documents and drawings necessary for the preparation of the final patent application, and stating that Worthington would "instruct[]" ATS&K "separately on foreign filing" of the application. (Pl. Ex. 23.) Hogue added: "At this point, you have the final patent application. I will add nothing further and any changes will be made by you to eliminate confusion." (Id.) The same day, Hogue emailed Worthington and Shakespeare, informing them that the materials for the final application had been sent to ATS&K, and that "[a]ny further changes need to be directed to Fred Bailey" of ATS&K. (Pl. Ex. 24.) Hogue testified that he expected that ATS&K would "prepare and file the application and prosecute it" and that he would have no further responsibilities. (Hogue Dep. (Pl. Ex. 64) at 257-58.)

In June 2001, Worthington, upon instructions from Ginley, directed ATS&K to file an international patent application under the Patent Cooperation Treaty ("PCT"), instead of a domestic patent application. (Pl. 56.1 ¶ 43; Worthington Dep. (D&S Resp. Ex. 35) at 279, 299-300.)*fn11 Worthington testified that she "believe[d]" she also sought authorization from Rummelsburg to proceed, after communicating with both Ginley and Shakespeare. (Worthington Dep. (D&S Resp. Ex. 35) at 305-06.) In emails she sent to Brundidge and Bailey of ATS&K on June 21, 22, and 25, 2001, Worthington made clear that Protostorm wanted to designate for patent protection every PCT signatory country. (Pl. Exs. 26, 27, 29.)

On June 25, 2001, Bailey contacted Faulisi and Shakespeare and told them they needed to assign their rights in the patent to Protostorm. (Faulisi Decl. ¶ 33.) Faulisi and Shakespeare signed an assignment of rights and faxed it to Bailey. (Id.; Pl. Ex. 31.)

The same day, ATS&K filed the final PCT patent application. (Pl. 56.1 ¶ 45.) The application was filed with the United States Receiving Office and listed Protostorm as the "applicant" and Shakespeare as the "inventor." (Pl. Prior Ex. 47 at 2.) Bailey and Brundidge of ATS&K were listed as the "agent[s] or common representative[s]." (Id.) One page of the application included a list of over one hundred PCT signatory countries, next to which were boxes to be checked off to indicate interest in patent protection. (Id. at 4.) The boxes corresponding to approximately one hundred countries were checked, leaving only three unchecked: Mongolia, Zimbabwe, and the United States. (Id.)

Bailey testified that he filed the PCT application, on Brundidge's instruction. (Bailey Dep. (Worthington Ex. 17) at 222.)*fn12 He knew that the United States was meant to be included as one of the designated PCT jurisdictions. (Bailey Dep. (Pl. Ex. 61) at 161-62.) He testified that he did not recall whether he had checked to make sure it was so designated (id.), but acknowledged that it was part of his job to review the application prior to filing (Bailey Dep. (Worthington Ex. 17) at 66).

Significantly, the page of the PCT application that included the country designations also included a pre-printed "Precautionary Designation Statement," which read:

In addition to the designations made above, the applicant also makes . . . all other designations which would be permitted under the PCT [with exceptions not applicable here]. The applicant declares that those additional designations are subject to confirmation and that any designation which is not confirmed before the expiration of 15 months from the priority date is to be regarded as withdrawn by the applicant at the expiration of that time limit. (Pl. Prior Ex. 47 at 4 (emphasis added).) Fifteen months from the priority date of June 27, 2000 (established by the filing of the provisional application) was September 27, 2001.

On June 27, 2001, Bailey sent a letter to Ginley, with copies to Hogue and Worthington, enclosing-according to Bailey-a copy of the completed PCT application, "as filed." (Pl. 56.1 ¶ 47; Pl. Prior Ex. 48.) Notably, Bailey stated in this letter that, "[i]f any amendments are necessary, we will make them . . . ." (Pl. Prior Ex. 48 at 1.) He also told Ginley, Worthington, and Hogue that a further submission would have to be sent to the European Patent Office by January 27, 2002, and asked them to "forward [their] instructions for same, before the aforementioned deadline date." (Id.) He also stated that ATS&K would keep Ginley, Hogue, and Worthington "abreast of further developments in this application, as they occur." (Id.)*fn13

On July 2, 2001, an attorney at D&S spent almost two hours "[r]review[ing]" the "patent application" and forwarding it to Rummelsburg. (See Billing Record (D&S Ex. J) at 171.)*fn14

D. Things Fall Apart

On July 2, 2001, Worthington sent an email to Shakespeare and Faulisi, on which Hogue and Ginley were copied, informing them that "Protostorm should make a decision about where it wants to pursue patent protection in Europe . . . . A filing is due January 27, 2002." (Worthington Prior Ex. 16.)*fn15

According to Plaintiffs' expert, after a PCT application is filed, the applicant must pursue patents in each individual country-the so-called "national phase"-within twenty to thirty months of the "priority filing date" established by the initial, provisional patent application. (Genova Decl. (Docket Entry # 307) ¶ 8.) Since, in this case, the priority filing date was in June 2000, "national phase" submissions would have been due between early 2002 and early 2003.

Indeed, ATS&K maintained a docket sheet with "PCT deadlines" applicable to the Protostorm application. (Pl. Ex. 6.) This docket sheet indicated that the deadline for confirming national designations was September 27, 2001-as per the Precautionary Designation Statement on the PCT application, discussed above. (Id.) It also indicated that the "national phase" would begin on January 27, 2002 and that the "national phase deadline" was January 27, 2003. (Id.) The parties agree ...

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