DJ Cohn Rules Mich Court of Claims Act Does Not Bar Compulsory Counterclaim Against State Agency

by Kathleen Parakh on March 20, 2013

Regents of the University of Michigan v. St. Jude Medical, Inc., Case No. 12–1290, 2013 WL 673797 (E.D. Mich., Feb. 25, 2013).

U.S. District Judge Avern Cohn denied the University of Michigan’s motion to dismiss a compulsory counterclaim on the grounds that the defendant, St. Jude Medical, Inc., did not comply with the Michigan Court of Claims Act, Mich. Comp. Laws § 600.6431. The court ruled that the Act did not apply to St. Jude Medical’s compulsory counterclaim, and alternatively U of M waived sovereign immunity by filing the federal court action.

St. Jude licensed patented technology relating to bioprosthetic tissue used in artificial heart valves from U of M. St. Jude contends that while it paid royalties through 2011, it later discovered that due to a product change in 2008 it did not owe royalties for the period 2009-2011.  When St. Jude notified U of M that it would apply the amounts paid to current royalties, U of M sued for breach of the license agreement. St. Jude counterclaimed for unjust enrichment and for a determination that the U of M patents were invalid.  U of M moved to dismiss the counterclaims on the grounds that St. Jude did not comply with the Act and based on sovereign immunity.

The Act states that a party suing the state needs to give notice by filing in the Court of Claims. However, another section of the Act provides that a claimant is not permitted to file a claim in the Court of Claims against the state if the claimant “has an adequate remedy upon his claim in the federal courts.” Mich. Comp. Laws § 600.6440. Reading the two statutes together, the court ruled that, “Essentially, where a claimant has an adequate remedy in federal court, the Court of Claims is stripped of subject matter jurisdiction to hear the claim.” Slip op. at*3.  The court noted that St. Jude asserted counterclaims of unjust enrichment and patent invalidation that were mandatory counterclaims, and the was required to assert them in the federal action or they would be waived. Thus, it held:

Because St. Jude did not have the option to bring its counterclaim in the Court of Claims after U of M brought its breach of contract claim in this Court, providing notice to the Court of Claims clerk that it intended to file a counterclaim in this case would be meaningless. St. Jude’s “adequate remedy”—in fact, its only remedy—is in federal court. Thus, the Court of Claims does not have subject matter jurisdiction to hear the counterclaim, see Mich. Comp. Laws § 600.6440, and St. Jude is not obligated to comply with the notice requirements for filing suit in that court.

Slip op. at *4. In addition, the court ruled that U of M filed the case first, it knew that St. Jude would assert the counterclaim and that is all the notice that is needed. Finally, U 0f M waived sovereign immunity by filing suit in federal court.

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