Curtis Mfg. v. Plasti-Clip CV-89-430-SD 04/20/95 P. UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF NEW HAMPSHIRE
Curtis Manufacturing Company, Inc.
v. Civil No. 89-430-SD
Plasti-Clip Corporation, et al
O R D E R
1. Plasti-Clip's and Faneuf's Motion in Limine to Exclude Any
Reference to November 29, 1993, Rulings of Administrative Patent
Judge on Preliminary Motions in Interference Proceeding (document
84)
Plaintiffs1 filed a patent application intentionally seeking
an interference with the '078 patent in the Patent & Trademark
Office (PTO) on February 20, 1991. Said interference was
declared on February 22, 1992, and assigned Interference Number
102,911. After the filing of preliminary statements, plaintiffs
1At the April 12, 1995, motions hearing, the court, upon inguiry from counsel regarding the order of trial presentation, denominated the parties in this matter as follows: Plasti-Clip Corporation and Daniel Faneuf, plaintiffs; Curtis Manufacturing Company, first defendant; Thomas Judd, second defendant. submitted a 37 C.F.R. § 1.633(a) preliminary motion2 which
alleged unpatentability of the '078 patent by reason of Judd's
failure to disclose material information to the PTO.3
The Administrative Patent Judge (APJ) evaluated plaintiffs'
claim under the "failure to disclose" standard set forth in FMC
Corp. v. Manitowoc Co., 835 F.2d 1411, 1415 (Fed. Cir. 1987).
Under said standard,
one who alleges a "failure to disclose" form of ineguitable conduct must offer clear and convincing proof of: (1) prior art or information that is material; (2) knowledge chargeable to applicant of that prior art or information and of its materiality; and (3) failure of the applicant to disclose the art or information resulting from an intent to mislead the PTO.
Id. (footnote omitted). Finding that plaintiffs did not sustain
2Subsection 1.633(a) provides, in pertinent part, as follows:
A party may file the following preliminary motions: (a) A motion for judgment on the ground that an opponent's claim corresponding to a count is not patentable to the opponent. In determining a motion filed under this paragraph, a claim may be construed by reference to the prior art of record.
37 C.F.R. § 1.633(a) (1994) .
3Such "material information" consisted of certain product literature and samples of Faneuf's Uni-Clip illustrating said product's functionality for attachment to tubular hangers.
2 their burden with respect to both materiality and intent, the APJ
denied their motion.
A section 1.633(a) motion was likewise filed by Judd, which
alleged that certain claims embodied in the patent application
Faneuf filed to provoke the interference were unpatentable by
reason of the on sale or public use activities by Faneuf and/or
Judd more than one year prior to Faneuf's February 20, 1991,
filing date. The APJ held that the evidence then before him
sufficiently made out a prima facie case for obviousness and thus
accordingly granted Judd's motion.
Pursuant to the PTO's procedural rules, plaintiffs were
thereafter ordered to show cause, within twenty (20) days from
the date of the rulings, why judgment should not be entered in
Judd's favor on the obviousness issue. Faneuf responded to the
order and sought a final hearing for review of all the APJ's
rulings on the preliminary motions. Faneuf subseguently filed a
motion to suspend the interference proceedings pending resolution
of the matters sub judice, which have been proceeding in this
court concurrently with the interference action before the PTO.4
4Although granted by the APJ, said motion was subseguently overturned by a panel decision on reconsideration due to the uncertain posture of the trial in this court. Faneuf filed a Renewed Motion to Suspend Interference Proceedings on January 18, 1995, which had not been acted upon as of April 4, 1995. The APJ has, however, suspended the show cause filing dates.
3 "At an appropriate stage of the interference, the parties
will be given an opportunity to appear before the Board [of
Patent Appeals and Interferences] to present oral argument at a
final hearing." 37 C.F.R. § 1.654(a). It is only after such
"final hearing" that "the Board shall enter a decision resolving
the issues raised . . . ." 37 C.F.R. § 1.658(a). "When the
Board enters a decision awarding judgment as to all counts, the
decision shall be regarded as a final decision." Id.
Notwithstanding any "final decision" rendered by the Board
pursuant to 37 C.F.R. § 1.658(a), "[a]ny party to an interference
dissatisfied with the decision of the Board . . . on the
interference, may have remedy by civil action," 35 U.S.C. § 146
(Supp. 1995) to any United States District Court with appropriate
personal jurisdiction over the parties or by appeal to the United
States Court of Appeals for the Federal Circuit, 35 U.S.C. § 141.
"A proceeding under § 146 is not a chance for a party to
reconstruct its case, based on a new litigation strategy,
leapfrogging the administrative process in the PTO . . . .
Rather, an action under § 146 is essentially a proceeding to
review the action of the Board." Conservolite, Inc. v. Widmaver,
21 F.3d 1098, 1102 (Fed. Cir.), cert, denied, ___ U.S. ___ , 115
S. C t . 576 (1994). "Section 146 authorizes the district court on
review to accept new testimony, but normally only as to issues
4 raised by the parties during the proceedings below or by the
Board's decision." Id. (citation omitted). Accord Andrew Corp.
v. Gabriel Elecs., Inc., 782 F. Supp. 149, 150-51 (D. Me. 1992)
("In a civil action to overturn a decision of the Board . . . the
party seeking relief 'does not start over to prosecute his
application before the district court unfettered by what happened
in the PTO . . . . [It] has the laboring oar to establish error
by the board.'" (guoting Fregeau v. Mossinghoff, 776 F.2d 1034,
1038 (Fed. Cir. 1985) (footnote omitted) (alteration in Andrew
Corp.)).
In the view of the court, whatever rulings were made by the
APJ on the preliminary motions of the parties in the interference
proceedings were precisely that--preliminary. As such, the
standards guiding this court's 35 U.S.C. § 146 review of an
interference proceeding are inapplicable as premature.5 See
Sanford v. Kepner, 344 U.S. 13, 15 (1952) (civil action remedy
5That is, district court review under section 146 does not come into play until the Board issues a final decision pursuant to 37 C.F.R. § 1.658(a). Despite the Federal Circuit's apparent section 146 standard of review clarification, see Conservolite, supra, 21 F.3d at 1101-02, plaintiffs would still be entitled to contest the Board's conclusions. E.g., Conservolite, supra, 21 F.3d at 1102 ("In order for an issue to have been raised adeguately so that it gualifies for consideration in a § 146 proceeding, the issue should have been raised as specified in the PTO's interference rules, for example, through preliminary motions . . . .") .
5 available only to an applicant "who has been finally denied a
patent because of a Patent Office decision against him and in
favor of his adversary on the question of priority") (construing
former section 63, predecessor of 35 U.S.C. § 146). In
consequence thereof, the court finds that the rulings on the
preliminary motions, being neither rulings on the merits nor
final judgments, inhere qualities whose probative value is
clearly outweighed by the danger of unfair prejudice. See Rule
403, Fed. R. Evid. Accordingly, the court further finds and
rules that any reference to the APJ's rulings on the preliminary
motions filed in Interference Proceeding No. 102,911 is
inadmissible.
2. Plasti-Clip's and Faneuf's Motion in Limine to Exclude
Evidence of Contract Damages (document 85)
Plasti-Clip and Faneuf move to exclude any evidence as to
how much Plasti-Clip might have earned if Curtis had purchased
clips from Plasti-Clip pursuant to the contracts that were at one
time contemplated in negotiations between the parties. Plasti-
Clip and Faneuf contend that such evidence is irrelevant because
they have withdrawn their breach of contract claim.
Defendant Curtis contends that evidence of the prices at
which Plasti-Clip sells its products, including the prices at
6 which it proposed to sell products to Curtis, and the profits of
Plasti-Clip thereon, are relevant to Plasti-Clip's claims for
lost profits and a reasonable royalty for patent infringement.
Curtis further contends that such evidence is relevant to Plasti-
Clip 's tort claims and to the course of dealings between the
parties.
"The goal of damages in actions for breach of contract is to
put 'the nonbreaching party in the same position it would have
been in' if the contract had been fully performed." Lahey v.
Shaw, 123 N.H. 648, 651, 466 A.2d 911, 914 (1983) (citing Martin
v. Phillips 122 N.H. 34, 37, 440 A.2d 1124, 1125 (1982)).
Because Plasti-Clip and Faneuf have withdrawn their breach of
contract claim, this measure of damages is no longer available.
The measures of damages available to plaintiffs under their
patent infringement and tort claims differ from breach of
contract damages. Damages awarded in a patent infringement
action must be "adeguate to compensate for the infringement, but
in no event less than a reasonable royalty for the use made of
the invention by the infringer, together with interest and costs
as fixed by the court." 35 U.S.C. § 284 (1984) . In this action,
plaintiffs are seeking lost profits or, in the alternative, a
reasonable royalty as their measure of damages for the alleged
infringement of the '863 patent by defendants.
7 With respect to plaintiffs' claim for lost profits, the
court has ruled herein, see infra at pp. 20-23, that Curtis is
entitled to argue and offer evidence showing plaintiffs are only
entitled to a portion of defendants' profits from their sales of
the document holder in guestion. The court finds that evidence
of Plasti-Clip's prices for its products, including the prices at
which it proposed to sell its products to Curtis, is relevant to
the issue of apportionment of lost profits, and is therefore
admissible.
Plaintiffs alternatively assert that they are entitled to
reasonable royalties as compensation for Curtis's infringement of
the '863 patent. In evaluating what constitutes a "reasonable
royalty", most courts look to the list of factors relevant to
that determination set forth in Georgia-Pacific Corp. v. United
States Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970),
modified and aff'd, 446 F.2d 295 (2d Cir.), cert, denied, 404
U.S. 870 (1971). One such factor is the prior or existing
royalties received by the patentee for the licensing of the
patent in guestion. Related to this factor is evidence of prior
offers to license by the patentee. See 5 D o n a l d S. C h i s u m , P a t e n t s
§ 20.03[3], at 20-172 n.15 (1994) (listing cases in which court
considered the royalty rate offered by the patentee as one factor
in setting a reasonable royalty rate). The court finds and rules that the prices at which Plasti-
Clip sells its products is one of the many factors the court may
consider in determining what a reasonable royalty rate is in this
case. Evidence of such prices is therefore relevant and
Plaintiffs' motion to exclude evidence related to how much
it would have earned if they had sold their products to Curtis
under contract is denied insofar as such evidence is relevant to
the other measures of damages at issue in this action.
3. Thomas W. Judd's Motion in Limine (document 88)
Defendant Judd moves to exclude (1) evidence of his
indemnification agreement with Curtis and (2) evidence of his
financial condition.
a. Indemnification Agreement
Defendant Judd represents that he has an indemnification
agreement with Curtis whereby Curtis will indemnify him for any
judgment rendered against him in this action. Judd asserts that
any evidence of or reference to this agreement is inadmissible
under Rule 411, Fed. R. Evid.
Rule 411, entitled "Liability Insurance," provides.
Evidence that a person was or was not insured against liability is not admissible upon the issue whether the person acted negligently or otherwise wrongfully. This rule does not require the exclusion of evidence against liability when offered for another purpose, such as proof of agency, ownership, or control, or bias or prejudice of a witness.
Plaintiffs contend that any indemnity agreement Judd has
with Curtis is relevant to the determination of whether his acts
of infringement and misappropriation were willful and deliberate.
In support thereof, plaintiffs cite Baltz v. Walgreen Co., 198 F.
Supp. 22 (W.D. Tenn. 1961), and Ravonier, Inc. v. Georgia-Pacific
Corp., 281 F. Supp. 687 (W.D. Wash. 1967). The court, having
reviewed both cases, finds that the cases (1) pre-date the 1987
amendment which added Rule 411 to the Federal Rules of Evidence
and (2) are, in any event, inapposite to the present case.
To the extent that Judd's indemnification agreement with
Curtis operates to insure him against loss in the event he is
found liable in the action, the court finds that said agreement
is subject to Rule 411. Any evidence of or reference to said
agreement is accordingly inadmissible to prove that Judd acted
negligently or otherwise wrongfully.
At this pretrial stage, none of the exceptions set forth in
sentence two of Rule 411 appear to apply. If at trial plaintiffs
seek to admit evidence of Judd's indemnity agreement with Curtis
for a purpose other than to prove Judd acted negligently or
otherwise wrongfully, the court will "apply the principles of
10 Fed. R. Evid. 403 to determine whether the probative value of the
evidence is substantially outweighed by the danger of unfair
prejudice." Pinkham v. Burgess, 933 F.2d 1066, 1072 (1st Cir.
1991) .
b. Judd's Financial Condition
Defendant Judd seeks to exclude evidence of his financial
condition and evidence of the compensation he received from
Curtis on the grounds that such evidence is both irrelevant and
prej udicial.
Plaintiffs assert that evidence of the compensation and
benefits Judd received from Curtis is relevant to their claim for
damages in the form of profits wrongfully realized by Judd
because of his alleged misappropriation and infringement. In
support thereof, plaintiffs state that the allegedly stolen
document holder was guite profitable for Curtis and point to
evidence showing that a portion of Judd's compensation was
performance based.
The court finds that evidence of Judd's current financial
condition or wealth is irrelevant to the patent infringement,
misappropriation, and unfair competition and trade practices
claims asserted against him by plaintiffs. See Rule 401, Fed. R.
Evid. The court further finds that any probative value of such
11 evidence is clearly outweighed by the danger of unfair prejudice
that would be created by presenting such evidence to a jury. See
Rule 403, Fed. R. Evid. The court therefore rules that evidence
of Judd's current financial condition or wealth is inadmissible.
However, the court further finds that a blanket exclusion of
all evidence regarding Judd's compensation from Curtis is
unwarranted and inappropriate at this time. Evidence showing
that Judd's compensation was tied to profits wrongfully realized
by Curtis from alleged misappropriation and infringement is
relevant to plaintiffs' claims and is therefore admissible.
Judd's motion in limine is accordingly granted in part and denied
in part.
4. Curtis's Motion in Limine to Exclude Evidence of Damages for
Alleged Infringement of the '078 Patent (document 91)
Curtis moves to preclude any evidence of or reference to
damages for infringement of the '078 patent on the ground that
Plasti-Clip's and Faneuf's claim for such damages is barred for
the time period during which Curtis has held legal title to the
patent.
"A patent is a creature of statute, as is the right of a
patentee to have a remedy for infringement of his patent."
Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1578 (Fed.
12 Cir. 1991) (footnotes omitted). The general rule as to who can
bring a civil action for patent infringement is that "one seeking
to recover money damages for infringement of a United States
patent (an action 'at law') must have held the legal title to the
patent during the time of the infringement." Id. at 1579
(emphasis in original). See also 6 C h i s u m , supra, § 21.03[2][g].
The parties do not dispute that Curtis currently has legal
title to the '078 patent. However, as explained in this court's
order of November 21, 1994, at p. 32, Plasti-Clip and Faneuf
"argue that eguitable title to the '078 patent, acguired through
the appropriation of design modifications to the '863 patent, is
held by Faneuf. As a combined conseguence of the eguitable title
and the malappropriation, defendants seek an assignment of legal
title to the '078 patent to Faneuf as the rightful patentee."
(Footnotes omitted.)
Plasti-Clip and Faneuf also indicate in their final
pretrial statement that if the '078 patent is assigned
retroactively to Faneuf, then they seek damages for infringement
of the '078 patent for the time period following the effective
date of the retroactive assignment. The problem presented here
is that plaintiffs, as the purported eguitable title holders of
the '078 patent, seek damages for infringement of the patent by
Curtis during a time period when Curtis held legal title to the
13 '07 8 patent.
This court has already determined that an assignment of the
allegedly malappropriated patent is among the eguitable remedies
available to plaintiff under the circumstances of this case. See
Order of Nov. 21, 1994. However, plaintiffs have not provided,
nor has this court uncovered, any authority to support
plaintiffs' position that such an assignment can be retroactive,
thereby giving plaintiffs the right to then seek damages for past
infringement of the patent, which is a remedy at law.
This does not mean plaintiffs are without a remedy for the
time period during which they contend Curtis wrongfully held
legal title to the '078 patent. The full range of eguitable
remedies remain available to allow plaintiffs to obtain redress
for Curtis's allegedly wrongful conduct. E.g., Hoeltke v. C.M.
Kemp Mfq. C o ., 80 F.2d 912, 923 (4th Cir. 1935) (eguitable
remedies available against one who misappropriates ideas of
another and profits thereby), cert, denied, 298 U.S. 673 (1936).
The court finds and rules that if plaintiffs receive an
eguitable assignment of the '078 patent, they are not then
entitled to seek a remedy at law for infringement of the patent
by Curtis for the time period prior to the date of the
assignment. Plaintiffs are, however, entitled to seek full
redress against Curtis in the form of eguitable relief for that
14 time period.
In so ruling, the court notes that the evidence plaintiffs
will require to prove they are entitled to equitable relief is
the same type of evidence plaintiffs would need to support a
claim for damages in an action at law for patent infringement.
Thus, although the court, for the reasons stated hereinabove,
"grants" Curtis's motion to preclude evidence of damages for
infringement of the '078 patent, the granting of said motion
shall not be construed to exclude evidence relevant to
plaintiffs' claim for equitable relief.
5. Curtis's Motion in Limine Regarding Alleged Ineguitable
Conduct in Obtainina U.S. Patent No. 4,902,078 (document 92)
Curtis seeks to "preclude any evidence at trial regarding
any claim that U.S. Patent No. 4,902,078 (''078 patent') is
invalid due to the purported failure of Curtis to cite certain
alleged prior art . . . [s]ince such evidence is barred by claim
and issue preclusion." Curtis's Memorandum in Support of Motion
in Limine Regarding Alleged Inequitable Conduct at 1 [hereinafter
Inequitable Conduct Memorandum]. The alleged preclusive event is
the APJ's rulings on the parties' preliminary motions in the
15 interference proceeding.6
"There is no doubt that in proper circumstances decisions of
the Board of Patent Interferences may be given collateral
estoppel effect. However, the doctrine of collateral estoppel
bars relitigation only of issues actually determined in prior
litigation." Gould v. Mossinghoff, 711 F.2d 396, 398 (D.C. Cir.
1983), aff'd in part and vacated in part on other grounds sum
nom., Gould v. Ouigg, 822 F.2d 1074 (Fed. Cir. 1987) (footnote
and citation omitted) (emphasis added). "Considerations relevant
to a determination of [administrative action] finality include
whether the agency action is definitive [and] whether the action
has direct or immediate legal force or practical effect on the
complaining party . . . ." Eastman Kodak Co. v. Mossinghoff, 704
F.2d 1319, 1322 (4th Cir. 1983) (citation omitted).
Contrary to Curtis's contention that "[t]he decision in the
Interference has claim and issue preclusion effect here,"
Ineguitable Conduct Memorandum at 4, the PTO's own rules indicate
that a decision is not "final" "until the Board enters a decision
awarding judgment as to all counts . . . ." 37 C.F.R. §
1.658(a). Moreover, the instant facts do not portray the "proper
circumstances," Gould, supra, which would otherwise raise the bar
6For a discussion of the preliminary motions and the APJ's rulings thereon, see supra pp. 1-3.
16 of either issue or claim preclusion. To wit, the agency action
at issue is the APJ's rulings on the preliminary motions and as
such are not considered "definitive" agency action. See Phillips
Petroleum Co. v. Brenner, 383 F.2d 514, 517 (D.C. Cir. 1967),
cert, denied, 389 U.S. 1042 (1968) ("The only final order in an
interference proceeding is a determination of priority.")
Further, said rulings lack "direct or immediate legal force or
practical effect" due to the pendency of further proceedings
before the Interference Board.7
Accordingly, the court finds and rules that the decision
reached by the APJ on the parties' preliminary motions in the
interference proceeding is not a "final judgment" as that term is
construed for res judicata or collateral estoppel purposes. In
conseguence thereof, Curtis's motion in limine seeking to
preclude the introduction of evidence regarding any alleged
ineguitable conduct on the part of Judd, or Curtis as Judd's
assignee, in the prosecution of the '078 patent is herewith
denied.
7The court notes that such "further proceedings" are different in kind from an appeal of the Board's final decision as provided by 35 U.S.C. §§ 141 and 146, and as such the well- settled rule that the pendency of an appeal does not affect the finality of a decision for res judicata or collateral estoppel purposes is inapplicable.
17 6. Curtis's Motion in Limine to Exclude Evidence of Lost Profits
(document 93)
profits allegedly lost by Plasti-Clip "unless and until Plasti-
Clip presents evidence sufficient to permit a jury to find the
facts that are prerequisite to such a claim." Curtis's Motion
at 1.
To obtain a lost profits award as a measure of damages in a
patent infringement action, the patent owner must prove "there
was a reasonable probability that 'but for' the infringement, it
would have made the infringer's sales." Kearns v. Chrysler
Corp., 32 F.3d 1541, 1551 (Fed. Cir. 1994) (citing Water Techs.
Corp. v. Calco, Ltd., 850 F.2d 660, 671 (Fed. Cir.), cert.
denied, 488 U.S. 968 (1988)), cert, denied, 63 U.S.L.W. 3691
(U.S. 1995). See also 5 C h i s u m , supra, § 20.03[1].
One way to establish "but for" causation is to meet the four-part test pronounced in Panduit Corp. v. Stahlin Bros. Fiber Works, 575 F .2d 1152, 1156 (6th Cir. 1978). To recover under that test, the patent owner must prove (1) a demand for the patented product, (2) an absence of acceptable noninfringing substitutes, (3) manufacturing and marketing capability to exploit the demand, and (4) the amount of profit the patent owner would have made.
Kearns, supra, 32 F.3d at 1551 (internal citation omitted)
(emphasis in original).
Further, compensatory damages, including lost profits, are
18 available under state law to one who has been tortiously harmed
by another "'if, but only if, [the injured party] establishes by
proof the extent of the harm and the amount of money representing
adequate compensation with as much certainty as the nature of the
tort and the circumstances permit.'" Clipper Affiliates v.
Checovich, 138 N.H. 271, 274, 638 A.2d 791, 794 (1994) (quoting
R estatement (S e c o n d ) o f T o r t s § 912 (1982)) (emphasis in Clipper) .
An award of lost profits cannot be "speculative." See, e.g..
Eastern Mountain Platform Tennis, Inc. v. Sherwin-Williams Co.,
40 F.3d 492, 502-03 (1st Cir. 1994) (applying New Hampshire law)
(award of past lost profits in unfair trade practices action
upheld because award was supported by evidence and therefore not
speculative). Instead, the evidence of lost profits must
"provide[] enough information under the circumstances to permit
the fact finder to reach a reasonably certain determination of
the amount of gains prevented." Independent Mechanical
Contractors, Inc. v. Gordon T. Burke & Sons, Inc., 138 N.H. 110,
118, 635 A.2d 487, 491 (1993).
Curtis contends that Plasti-Clip's evidence is insufficient
to prove that it is entitled to lost profits. Therefore, Curtis
argues, all evidence of lost profits should be excluded.
Plaintiffs maintain that their evidence is sufficient to support
19 a claim for lost profits.
The court will not attempt to determine whether Plasti-Clip
can meet its burden of proof on its claim for lost profits by way
of a motion in limine filed ten days before trial. The court
rules that Plasti-Clip may introduce evidence in support of its
claim for lost profits at trial. If, at the close of Plasti-
Clip 's evidence, Curtis believes Plasti-Clip has failed to meet
its burden of proof as to said claim, Curtis may move for
judgment as a matter of law pursuant to Rule 5 0 (a), Fed. R. Civ.
P.
7. Curtis's Motion in Limine Regarding Claims by Plasti-Clip and
Faneuf for Disgorgement of Profits (document 94)
Plasti-Clip and Faneuf assert that Curtis has profited at
their expense by misappropriating Faneuf's design modifications
to the '863 patent. As an eguitable remedy for Curtis's unfair
trade practices, plaintiffs seek disgorgement of the profits
realized by Curtis from its sales of products incorporating the
misappropriated design.
Curtis moves to preclude evidence of or reference to damages
based upon a disgorgement of Curtis's profits "unless and until
Plasti-Clip presents evidence sufficient to establish a
foundation of the amount of profits, if any, allocable to the
20 alleged inventions of Plasti-Clip." Curtis's Motion at 1.
Under New Hampshire's Consumer Protection Act, RSA 358-A, a
person injured by another's unfair competition or unfair trade
practices "may bring an action for damages and for such eguitable
relief, including an injunction, as the court deems necessary and
proper." RSA 358-A:10, I (Supp. 1994).
Under the eguitable doctrine of unjust enrichment, "one
shall not be allowed to profit or enrich himself at the expense
of another contrary to eguity." Pella Windows & Doors, Inc. v.
Faraci, 133 N.H. 585, 586, 580 A.2d 732, 732 (1990) (citations
omitted). "A plaintiff is entitled to restitution if he shows
that there was unjust enrichment either through wrongful acts or
passive acceptance of a benefit that would be unconscionable to
permit the defendant to retain." Cheshire Medical Ctr. v. W.R.
Grace & C o ., 764 F. Supp. 213, 218 (D.N.H. 1991), vacated in
part, on other grounds, 767 F. Supp. 396 (D.N.H. 1991); see also
Petrie-Clemons v. Butterfield, 122 N.H. 120, 127, 441 A.2d 1167,
1172 (1982) ("The correct measure of restitution for unjust
enrichment is the value of the benefit received by the unjustly
enriched party.") (citing Martin v. Phillips, 122 N.H. 34, 38,
440 A.2d 1124, 1126 (1982)).
Curtis argues that plaintiffs are not entitled to a
disgorgement of profits unless and until they prove what portion
21 of Curtis's profits were attributable to their contributions. In
support thereof, Curtis cites an 1884 patent law case, Garretson
v. Clark, 111 U.S. 120 (1884), which the court finds to be
inapplicable to plaintiffs' claim for disgorgement of profits
under New Hampshire law.
Where, as here, the plaintiffs seek disgorgement of profits
as an eguitable remedy for the defendants' unfair trade
practices, the court finds that the following general principle
applies: "Once the plaintiffs demonstrate that the defendants
have made profits from sales of products incorporating the
misappropriated trade secrets, the burden shifts to the
defendants to demonstrate the portion of their profits which is
not attributable to the trade secrets." Jet Spray Cooler, Inc.
v. Crampton, 385 N.E.2d 1349, 1358 n.14 (Mass. 1979) (citing cf.
Westinghouse Elec. & Mfg. Co. v. Wagner Elec. & Mfg. Co., 22 5
U.S. 604, 620 (1912)). The court finds this allocation of
burdens to be consistent with the eguitable principles which
govern the disgorgement of profits from one who has enriched
himself at another's expense.
Applying these principles, the court finds and rules that
Plasti-Clip and Faneuf are entitled to argue and offer evidence
to show that they are entitled to disgorgement of the full amount
22 of profits realized by Curtis from its sale of the document
holder in question. In response, Curtis is entitled to offer
evidence showing that only a portion of the profits it realized
were attributable to plaintiffs' contributions.
Accordingly, Curtis's motion in limine regarding plaintiffs'
claim for disgorgement of profits is denied.
8. Curtis's Motion in Limine Regarding Ownership of the '078
Patent (document 95)
Although more properly characterized as a motion for
reconsideration of the court's November 21, 1994, order denying
Curtis's "absolution via bankruptcy" claim, in which case the
instant motion would be denied as untimely, Curtis now seeks to
reargue, by medium of motion in limine, the effect of Curtis's
bankruptcy reorganization as it relates to the ownership of the
'078 patent. For the reasons that follow, said motion is
herewith denied.
In summary, Curtis asserts that due to confirmation of the
Curtis bankruptcy reorganization plan, in which plaintiffs did
not participate, ownership of the '078 patent vested in Curtis
free of all claims to the contrary. As a result, any evidence
relating to plaintiffs' claims of ownership, equitable or
23 otherwise, is barred by operation of 11 U.S.C. § 1141(d) and
enjoined by 11 U.S.C. § 524(a)(2).8 Alternatively, Curtis
contends, citing Sixth Circuit caselaw, that plaintiffs' claim of
constructive trust9 is likewise defeated by the bankruptcy
reorganiza-tion.
The court begins by noting that X/L Datacomp, Inc. v. Wilson
(In re Omegas Group, Inc.), 16 F.3d 1443 (6th Cir. 1994), cited
8As noted above, the court has previously addressed this argument and has indicated that "the 'new opportunity' afforded by a bankruptcy proceeding cannot and does not absolve a debtor of liability incurred due to post-confirmation activities. Likewise, nowhere in the Bankruptcy Act can there by found a literal prohibition regarding the use of pre-confirmation facts to support a cause of action based on post-confirmation acts." Order of Nov. 21, 1994, at pp. 11-12. Accordingly, the court herewith dismisses Curtis's statutory bar/injunction argument and directs its attention to the constructive trust issue.
9The elements of the constructive trust argument were summarized by the court in its November 21, 1994, order as follows:
With regard to the '078 patent, [plaintiffs] do not contest the fact that Curtis, as Judd's assignee, presently holds legal title. Rather, [plaintiffs] argue that eguitable title to the '078 patent, acguired through the appropriation of design modifications to the '863 patent, is held by Faneuf. As a combined conseguence of the eguitable title and the malappropriation, [plaintiffs] seek an assignment of legal title to the '078 patent to Faneuf as the rightful patentee.
Order of Nov. 21, 1994, at pp. 31-32 (footnotes omitted).
24 in Curtis's motion in limine, is inapposite under the facts of
the case at bar. Omegas Group involved a creditor who was
allegedly defrauded of certain funds as part of a business
transaction by a debtor who took the funds knowing full well that
a petition for bankruptcy protection was imminent. Omegas Group,
supra, 16 F.3d at 1445-47. The creditor's constructive trust
argument, accepted by the bankruptcy court and affirmed by the
district court, was ultimately reversed by the circuit panel,
which limned.
Unless a court has already impressed a constructive trust upon certain assets or a legislature has created a specific statutory right to have particular kinds of funds held as if in trust, the claimant cannot properly represent to the bankruptcy court that he was, at the time of the commencement of the case, a beneficiary of a constructive trust held by the debtor.
Id. at 1449. After conducting further research into the law of
constructive trusts and their application under New Hampshire
precedent, this court finds that it cannot adopt the conclusions
of the Omegas Group panel.
Despite Curtis's position that "Plasti-Clip's failure to
participate in the Curtis reorganization and the subseguent
discharge to Curtis . . . vested the property of the estate in
Curtis [and] bars all claims by Plasti-Clip for ownership of the
25 '078 Patent," Motion in Limine Regarding Ownership of '078 Patent
at 10, "[t]he Bankruptcy Code cannot be construed to effectively
divest someone of property which is rightfully theirs. By
operation of [11 U.S.C. §] 541, a debtor can only bring into the
estate that property which he holds both the legal and eguitable
title," Butts v. Butts (In re Butts), 46 B.R. 292, 297 (Bankr.
D.N.D. 1985).
"Because the debtor does not own an eguitable interest in
property he holds in trust for another, that interest is not
'property of the estate.'" Begier v. IRS, 496 U.S. 53, 59
(1990); see also 11 U.S.C. § 541(d); Bigelow v. Brown (In re
Brown), 168 B.R. 331, 335 (Bankr. N.D. 111. 1994) ("In general,
property that a debtor holds as a trustee does not become
property of the bankruptcy estate."); Central Trust Co. v.
Shepard (In re Shepard), 29 B.R. 928, 932 (Bankr. M.D. Fla. 1983)
("[W]here a debtor holds only bare legal title to property
without any eguitable interest, bare legal title is all that
becomes property of the estate.").
When property is acguired by the debtor through fraud or
misrepresentation, said "property becomes estate property because
the debtor holds legal title, but . . . all the estate has is
legal title, if the traceable property would be subject to a
26 constructive trust under non-bankruptcy law." 1 R o b e r t E. G i n s b e r g
& R obert D. M a r t i n , B a n k r u p t c y : T e x t , S t a t u t e s , R u l e s § 5.02 [j], at 5-34
(1992). Pursuant to New Hampshire law,
A constructive trust will be imposed whenever necessary to satisfy the demand of justice since a constructive trust is merely "the formula through which the conscience of equity finds expression." Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 386, 122 N.E. 378, 380 (1919). The specific instances in which equity impresses a constructive trust are numberless, as numberless as the modes by which property may be obtained through bad faith and unconscientious acts. C f . Leonard v. Philbrick, 106 N.H. 311, 313, 210 A.2d 819, 820 ( 1 9 6 5 ) . . . . Among the numerous bases for a constructive trust is the existence of "circumstances which render it unconscientious for the holder . . . to retain and enjoy the beneficial interest. . . ." 4 J. P o m e r o y , E q u i t y J u r i s p r u d e n c e § 1053 (5th ed. 1941); Patey v. Peaslee, 101 N.H. 26, 29, 131 A.2d 433, 436 (1957).
Milne v. Burlington Homes, Inc., 117 N.H. 813, 816, 379 A.2d 198,
199-200 (1977). "It is probably correct to say that the present
state of the law in New Hampshire is that a constructive trust
will be imposed in any situation where unjust enrichment is
found, regardless of whether there is a confidential relationship
between the parties." 7 C h a r l e s A. De G r a n d p r e , N ew Hampshire Pr a c t i c e :
W i l l s , T rusts an d G ifts § 663, at 271 (1986) .
Assuming, without deciding, that imposition of a
27 constructive trust is appropriate, what remains for resolution,
therefore, is the point in time when said constructive trust
springs into operation. Curtis, quoting language from Omegas
Group, supra, contends that "a constructive trust . . . does not
exist until a plaintiff obtains a judicial decision finding him
to be entitled to a judgment 'impressing' defendant's property or
assets with a constructive trust." Omegas Group, supra, 16 F.3d
at 1451. However, the weight of authority indicates that "[a]
constructive trust arises at the time of the occurrence of the
events giving rise to the duty to reconvey the property." In re
Shepard, supra, 29 B.R. at 932; accord City Na t '1 Bank v. General
Coffee Corp. (In re General Coffee Corp.), 828 F.2d 699, 702
(11th Cir. 1987) ("constructive trust arises when the facts
giving rise to the fraud occur"), cert, denied, 485 U.S. 1007
(1988); Capitol Investors Co. v. Executors of Morrison's Estate,
800 F.2d 424, 427 n.5 (4th Cir. 1986) (same); United States v.
Fontana, 528 F. Supp. 137, 146 (S.D.N.Y. 1981) (same, applying
New York law).
Indeed,
It has been suggested that the constructive trust does not arise until the defrauded person brings a suit in equity and the court decrees specific restitution. The notion seems to be that a constructive trust is created by the court and that it therefore does not arise until the court creates it by its decree. The notion is in part fostered by the terminology employed. It is sometimes said that when there are sufficient grounds
28 for imposing a constructive trust, the court "constructs a trust." The expression is, of course, absurd. The word "constructive" is derived from the verb "construe," not from the verb "construct." . . . The court construes the circumstances in the sense that it explains or interprets them; it does not construct them. So in the case of a constructive trust, the court finds from the circumstances that some of the consequences which would follow from the creation of an express trust should also follow. . . . It would seem that there is no foundation whatever for the notion that a constructive trust does not arise until it is decreed bv a court. It arises when the dutv to make restitution arises, not when that dutv is subseauentlv enforced.
5 A ustin Wakeman Sc o t t , T he La w of T ru st s § 462.4, at 3420-21 (1967)
(emphasis added) (footnote omitted).
The court therefore finds and rules that the facts as
alleged sufficiently portray an instance where the imposition of
a constructive trust would be warranted and said trust would
relate back to the time of filing the application which
ultimately resulted in the '078 patent. Curtis, as the ownerof
a misappropriated patent, would have taken only itslegal title
to the patent through the bankruptcy proceedings, and thus
plaintiffs' equitable interest was neither encumbered,
diminished, nor discharged upon confirmation of theplan.
Accordingly, Curtis's motion in limine seeking to exclude
29 evidence relating to ownership of the '078 patent must be and
herewith is denied.
SO ORDERED.
Shane Devine, Senior Judge United States District Court
April 20, 1995
cc: William 0. Hennessey, Esg. Jamie N. Hage, Esg. Jack R. Pirozzolo, Esg. Craig L. Staples, Esg. W. Wright Danenbarger, Esg. Robert E. McDaniel, Esg.