The story of Traxcell Technologies, LLC (“Traxcell I”) has gotten even stranger. Over the past year, that plaintiff—an NPE represented by embattled litigator William P. Ramey III—has made an increasingly frantic set of attempts to avoid paying attorney fees awarded years ago to Verizon (Verizon Wireless) and Deutsche Telekom (Sprint). The saga has involved an unsuccessful Supreme Court appeal, state court actions in which those defendants have sought to force a sale of the patents, and a Chapter 11 bankruptcy case filed by Traxcell I. Now, after the bankruptcy court dismissed Traxcell I’s filing as made in bad faith, in the process confirming the involvement of a litigation funder, the NPE has tried a new tactic: On February 13, Traxcell I assigned its patents to Traxcell Technologies II LLC (“Traxcell II”), moving to substitute it as the plaintiff in a pending West Texas action. While the motion does not state who is behind Traxcell II, the parties’ patent purchase agreement—attached in unsealed form, apparently by mistake—reveals, among other details, that it is controlled by two other familiar figures in patent monetization.

The attorney fee awards at issue stemmed from an Eastern District of Texas ruling that Traxcell I had persisted with certain infringement theories after they had been obviated in a parallel case against Nokia, based on which the court found the cases exceptional. In June 2023, the Federal Circuit summarily affirmed those fee orders, after which a last-ditch Supreme Court appeal filed by Traxcell I in late November failed, in early January.

With those appeals having run their course, the dispute became focused on Traxcell I’s repeated efforts to avoid paying those fees. In February 2023, Verizon Wireless turned to Texas state courts to have the federal court judgment enforced. That April, Traxcell I revealed to the court in the West Texas action, in response to a standing challenge that stemmed from its patents being turned over to a state receiver for sale, that the state court had set a $0 bond, thereby staying enforcement of the receivership order pending appeal. However, it came to light that Traxcell I had only won that $0 bond because it misrepresented to the state court that Verizon had agreed to this request, after which the state court set a bond of $100K, which Traxcell I has since paid. Meanwhile, the plaintiff had still failed to pay the fees, pushing Verizon, in August 2023, to bring a motion for a “writ of execution” and for a “turnover order” in the Eastern District of Texas to require Traxcell to surrender its only assets, its patents, for sale in satisfaction of the attorney fees judgments against it.

The following month, Traxcell managed to gum up the works by filing a petition for Chapter 11 bankruptcy in the Western District of Texas—leading the Texas State Tenth Court of Appeals to stay Traxcell I’s appeal of the state receivership order (during which time, as a result of its bond, the plaintiff has yet to turn over its patents). Magistrate Judge Roy S. Payne also stayed the Eastern District of Texas action. In late December, Verizon and Sprint notified that court that on November 27, they had “moved to dismiss Traxcell’s bankruptcy case in its entirety on various grounds, including that the petition was brought in bad faith qualifying as ’cause’ to dismiss pursuant to 11 U.S.C. § 1112(b), or alternatively because the interests of creditors would better be served by dismissal pursuant to 11 U.S.C. § 305(a)(1)”. The court heard the motion on December 12.

Order Dismissing Chapter 11 Petition Pulls Back Curtain on Funding Arrangement

On January 29, Bankruptcy Judge Michael M. Parker dismissed Traxcell I’s Chapter 11 petition, in the process detailing an unusual financial arrangement in which the plaintiff was entitled to only 5% of the proceeds from its own litigation. In contrast, 50% of the proceeds would go to litigation funder AiPi, LLC, with 45% flowing to Ramey’s firm, Ramey LLP—apparently confirming that Traxcell I was at least previously part of a broad patent monetization operation involving AiPi and Ramey that has spanned numerous campaigns. (As RPX has uncovered, though, that relationship has since imploded in rather dramatic fashion, with a court threatening a disciplinary referral against Ramey for “his neglectful behavior” in one impacted case.)

In dismissing the action, the bankruptcy court agreed with Verizon and T-Mobile (as Sprint’s parent) that Traxcell I had brought the case in bad faith, seeking to stay the effects of the receivership order rather than seeking a legitimate reorganization. It found that nearly all of the applicable factors weighed in favor of bad faith: its number of employees (none beside the entity’s principals); its lack of cash flow, including as needed to fund a bankruptcy plan; that the case is a two-party dispute (between Traxcell I on the one hand and the “Judgment Creditors”, meaning Verizon and T-Mobile, on the other); and that the case was filed to prevent the sale of Traxcell I’s only valuable assets, its patents. The lone factor weighing against a bad faith finding was that Traxcell I appeared to have a favorable ratio of secured to unsecured debt: The bankruptcy court found that the interests held by Ramey and AiPi (accounting for 95%) appear to be unsecured, finding that this situation was “unusual”—noting that “[t]he claims of litigation funders like AiPi are often secured with an interest in the borrower’s litigation proceeds”—but determining that this nonetheless weighed against a finding of bad faith. As a result, the court concluded that the bankruptcy petition was “essentially a costless appeal bond for Traxcell’s ongoing proceedings, and an attempt to relitigate the Receivership Order”.

Additionally, the court agreed with Verizon and T-Mobile’s alternative basis for dismissal: that dismissal is proper where continuing the bankruptcy case would result in a “substantial loss to the estate”—here caused by continued legal fees for the various appeals and the bankruptcy case, which given Traxcell I’s almost total lack of funds would “effectively [come] straight from the pockets of creditors” (citation omitted); and because “there is no reasonable likelihood of rehabilitation”. On that second point, the court agreed that Traxcell I “lacks any realistic prospects of generating income to pay their claim” given the uphill climb it faces on appeal, finding that it “does not believe that [Traxcell I] has a business to rehabilitate in the first place” given that “all but one of its patents have expired”. The court further granted dismissal because doing so would be in the “interests of creditors and the debtor” under the facts of the case, underscoring that dismissal on this basis is an “extraordinary remedy”.

Traxcell I Pushes Back Against Turnover Orders in Motion to Substitute

Traxcell I made another pivot in the wake of the bankruptcy court’s ruling: As noted above, the plaintiff assigned its patents to Traxcell II on February 13, 2024. Six days later, Traxcell I filed a motion in the West Texas action to substitute that entity as the plaintiff, stating that Traxcell I no longer had standing because it had “sold ownership and control” in those patents to Traxcell II “while retaining [sic] significant interest in any revenue derived from monetization of the Patent-in-Suit to be used to pay the judgment creditors”.

While Traxcell II’s role in this campaign is new, the entity itself is not, as it was formed in Texas in May 2020. In contrast to statements in the motion to substitute that Traxcell II is “owned and controlled independent of” [sic] Traxcell I, the former entity’s Texas state filings list the same two managers as Traxcell I (itself formed in the same state in 2015): Mark Jeff Reed, the named inventor on the patents-in-campaign; and his wife Joyce Ann Reed, who has been described as a licensed real estate broker as well as a registered nurse. Mark Reed is listed as the sole manager as of November 5, 2023. (However, as noted further below, the true principals do indeed appear to be other individuals, according to the Patent Purchase Agreement.) A third Traxcell entity, Traxcell Litigation Proceeds LLC, was formed in Texas in August 2017, with both Reeds listed as managers; despite the suggestive nature of that entity’s name, the role that it has actually played in this campaign (including with respect to its receipt, or lack thereof, of any such proceeds) is not clear.

The motion also seeks to lift the stay and put the trial in that case—stayed to prevent Verizon from being “forced to argue against the value of the patents that may be sold to make Verizon whole”—back on the docket, asserting that the patents are “wasting assets”. With respect to Verizon’s attempt to force a sale of the patents, Traxcell I asserts that Verizon does not actually “have any interest” in those patents, only in “being paid certain money judgments”, and states that Traxcell I’s retained interest in any assertion revenue from the transferred patents would be “used to pay the judgment creditors” (i.e., Verizon and Sprint).

Traxcell I additionally attempts to frame its deal with Traxcell II as likely to provide better value to Verizon and Sprint than any such forced sale of the patents, stating that concurrently with this motion, it “is moving the Texas Tenth Court of Appeals to modify the bond set in this matter so that it can be released now to the judgment creditors”. This, it contends, would result in $200K being “collected for the judgment creditors”. While the motion does not explicitly state the source of the additional $100K beyond the bond of the same amount, the Patent Purchase Agreement reveals that this $100K was the price that Traxcell II has agreed to pay Traxcell I for the patents (though, as detailed below, not all of this amount is to be paid up front). Traxcell I asserts that $200K is “likely more than a sale of the Patent-in-Suit would produce”, citing the fact that all but one of the patents is expired and that the patent family (with its one live patent) would “likely have a value of between $86,778 and $91,761 at sale”. However, this statement does not appear to be based on a specific valuation, but rather (as cited in an accompanying declaration from Ramey) on aggregate price figures from Allied Security Trust’s seventh Industry Patent Purchase Program (IP3) from 2022: $86,778 is listed as the average purchase price per lot of patents (a datapoint that apparently includes all patents from that IP3 round, regardless of technology type), while $91,761 is listed as the average asking price per family within AST's “Wireless Telecom & Networking” technology “zone”.

Beyond that purported value to the judgment creditors, Traxcell I asserts that its deal with Traxcell II has “two primary drivers”: that the defendants have questioned the former’s standing to maintain infringement litigation (citing a series of mid-2023 emails from the defendants’ counsel raising questions about whether Traxcell I owns the asserted patents), claims that it alleges may not be resolved until the conclusion of its appeals; and the second motion for a turnover order that Verizon filed in the Eastern District of Texas in August 2023. Despite the fact that Verizon filed that motion in the East Texas action, Traxcell asserts that because it did so months after the stay was imposed in this case (which, again, is a lawsuit in West Texas), this “illustrates that Verizon continues to litigate over the stay in this case and the stay of enforcement of the First Turnover Order”. Because these actions by Verizon purportedly show that it “does not believe a stay is in effect”, Traxcell I asserts that Verizon should as a result “not be able to argue that this Motion should be denied due to the stay”.

Traxcell I also apparently seeks to preemptively rebut arguments that it was improper to sell its patents under the cloud of a turnover order on appeal: It asserts that a certain Texas state law (only binding on state courts, but purportedly “instructive” here) bars a trial court from issuing “any order that interferes with the judgment debtor’s use, transfer, conveyance, or dissipation of assets in the normal course of business”, while another Texas state law provides that courts may only block the dissipation or transfer of assets “to avoid satisfaction of the judgment”. That is not the case here, Traxcell I argues: “The only prohibition to a sale is if the sale is to avoid paying the judgment creditors. Here, the sale is for the exact opposite” (emphasis in original). Since the enforcement of the receivership (to which Traxcell I had been ordered to turn over its patents) had been suspended by Traxcell I’s payment of the appeal bond, it asserts that it had, as a result, obtained “full title to its patents”—ostensibly, prior to the sale—further claiming that “there is no legal impediment to standing in proceeding with the patent infringement lawsuits, as the Receivership is superseded”.

Traxcell I further attempts to assert the violation of certain of its rights under Texas state law, citing caselaw that turnover orders are improper in part when they violate the Open Courts Doctrine or when they would extinguish a cause of action. The Open Courts Doctrine, a right established in the Texas Constitution, generally requires that state courts be open to every person seeking a remedy for an injury. Traxcell I contends that both factors are implicated here because the sale of the patents (as required under the state court receivership order) would result in the dismissal of its federal patent infringement cases against Verizon, and because Verizon’s related arguments on the resulting lack of standing “confirmed that its intent is to quash the causes of action” (which, again, are federal causes of action).

Patent Purchase Agreement, Filed Publicly, Reveals New Details on Traxcell Campaign

As noted above, Traxcell’s motion to substitute asserts that Traxcell II is “owned and controlled independent of” [sic] Traxcell I but does not specify who is in the driver’s seat. However, the February 13, 2024 Patent Purchase Agreement between Traxcell I and II—filed in unredacted form, and publicly accessible as of this article’s date of publication—indicates that Traxcell II is, as alleged in the motion, controlled by someone other than the Reeds. Specifically, signing for Traxcell II in that agreement were two managing members: Carlos Gorrichategui and Luis Ortiz, both of whom are familiar figures in the patent assertion space—and both of whom are behind a litany of other plaintiffs also represented by Ramey.

Gorrichategui is the manager of monetization firm Dynamic IP Deals LLC (d/b/a DynaIP), which was collectively among the top plaintiffs by volume last year via plaintiffs under its direct control or under the control of related entity Pueblo Nuevo LLC. One such entity, MISSED CALL, LLC, has been pulled into the ongoing tussle over transparency in the courtroom of Delaware Chief Judge Colm. F. Connolly, who recently ordered Ramey to testify in person after expressing concerns about the accuracy of the plaintiff’s corporate disclosures. For more on that saga, see “Judge Connolly Turns to MISSED CALL, Orders Attorneys to Attend Conference in Person” (February 2024).

Ortiz, meanwhile, has been involved in patent litigation as both a monetization principal and as an inventor. In the former capacity, he is a principal of Ortiz & Lopez, PLLC (d/b/a OL PATENTS), together with fellow patent attorney Kermit D. Lopez, the two forming the firm in Texas in March 2001. OL PATENTS has litigated multiple litigation campaigns of their own, including some asserting patents naming Luis Ortiz as coinventor. (Background about the firm can be read here, with reporting on recent activities here.) His patents have also been litigated by DynaIP, including the Ramey-repped SmartWatch Mobileconcepts LLC—an entity that has shown some of the same tactics related to correcting deficient pleadings as other NPEs under the same representation.

The agreement also reveals certain aspects of the financial arrangement between Traxcell I and II—including that Ramey LLP may have retained an even greater interest in the latter entity’s litigation proceeds than it has received from the former’s. Specifically, the agreement states that Ramey LLP will receive a 50% interest in the “Gross Proceeds” (a term not defined in the agreement, but in context potentially referring to the proceeds from litigation and licensing), compared to 45% for Traxcell I. As noted above, the contract sets a purchase price of $100K, though just $30K is to be paid within 30 days of the execution date. The remaining $70K is to be paid from “all revenue received from the Patents”, after which Traxcell II is to receive 15% of “gross revenue”—though given the bankruptcy court’s finding that “[Traxcell I] lacks any realistic prospects of generating income to pay their claim”, it is possible that neither that remaining balance nor Traxcell II’s subsequent cut will ultimately be paid. Curiously, the agreement also includes an “additional payment of $1.00” as part of the consideration to be paid.

Another notable set of terms relate to liability, as the agreement attempts to insulate the parties from conduct related to the other’s litigation. It provides that Traxcell II does not assume any “obligations, claims or liabilities” stemming from Traxcell I’s litigation and does not assume liability for Traxcell I’s obligation to pay its judgment creditors. Also, Traxcell I agrees to indemnify Traxcell II for “all obligations, claims or liabilities” arising from Traxcell I’s conduct, except “any sanction under Rule 11, Sections 285 or 1927”, noting that “however none are anticipated”. New litigation started by Traxcell II would also not be indemnified.

An additional provision could cause trouble for the parties, given the defendants’ claims related to standing and the receivership appeals—one in which Traxcell I asserts that it has the “full power and authority” to enter into the agreement, including with respect to its ability to assign the patents to Traxcell II: “Seller has the full power and authority, and has obtained all third party consents, approvals or other authorizations required, to enter into this Agreement and to carry out its obligations hereunder, including, without limitation, the assignment of the Patents to Purchaser”.

Also notable is the agreement’s language on confidentiality: The parties have agreed that they will “keep the terms and existence of this Agreement and the identities of the Parties and their Affiliates confidential and will not now or hereafter divulge any of this information to any third party”, with certain exceptions—including, in relevant part, where a court “specifically requir[es] such disclosure” or “as required during the course of litigation and subject to a protective order with a confidentiality designation of ‘Outside Attorneys’ Eyes Only’ or higher”. A disclosing party must “use all legitimate and legal means available to minimize the disclosure to third parties”, and must give ten days’ notice of such a disclosure.

This, of course, could be problematic for at least Traxcell I, as Ramey (acting as its counsel) filed the entire, unredacted agreement on the public docket, despite stating in filings that the agreement would be filed under seal, and did so in the apparent absence of a court order requiring as such. Also potentially, and relatedly, problematic is a provision that establishes that both parties have the right to terminate the agreement upon the breach of a “material provision of this agreement”, though what constitutes a “material” breach is not defined. The sole available remedy for a breach by Traxcell II is specified as the “re-assignment of the patent assets to Traxcell I”, though it is not readily apparent what the remedy would be for a breach by Traxcell I.

The defendants have not yet filed a response to the motion to substitute as of the publication date of this article, nor has the court yet issued a ruling.

For more on other recent setbacks involving Ramey, see “Finnish Inventor’s Lack of Standing Is Just the Latest Setback for Embattled Texas Litigator” (January 2024).