RHINO SERVICES, LLC v. DEANGELO BROTHERS, INC.

CourtDistrict Court, E.D. Pennsylvania
DecidedAugust 11, 2023
Docket2:21-cv-03840
StatusUnknown

This text of RHINO SERVICES, LLC v. DEANGELO BROTHERS, INC. (RHINO SERVICES, LLC v. DEANGELO BROTHERS, INC.) is published on Counsel Stack Legal Research, covering District Court, E.D. Pennsylvania primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
RHINO SERVICES, LLC v. DEANGELO BROTHERS, INC., (E.D. Pa. 2023).

Opinion

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

RHINO SERVICES, LLC, CIVIL ACTION Petitioner,

v. NO. 21-3840

DEANGELO CONTRACTING SERVICES, LLC, Respondent.

Baylson, J. August 10, 2023 MEMORANDUM Federal law has long recognized a strong public interest in arbitration as an alternative means of dispute resolution. Consequently, parties have a very high burden to meet when petitioning a federal court to intervene by vacating an award by an arbitrator. Petitioner’s contentions here are not frivolous, but fall far short of carrying that burden. Accordingly, the petition will be denied. Petitioner Rhino Services, LLC (“Rhino”) asks the Court to vacate the arbitrator’s adverse decision to award tort damages for the conversion of patented equipment affixed to a truck. Rhino contends that the arbitrator exceeded his authority and committed two manifest errors of law by (1) awarding tort damages for conversion claims which originate exclusively from contractual duties in violation of the “gist of the action” doctrine and (2) finding Petitioner liable for patent infringement, supposedly contrary to the plain language of a bill of sale. Both arguments fail for the same reason: Petitioner cannot prevail on either claim unless it had purchased the patented equipment (“HFST equipment”) at the heart of the conversion claim. The arbitrator had a colorable justification to find otherwise. Thus, the petition fails. Respondent cross-petitions the Court to confirm the award, award post-judgment interest, and order the handover of the vehicle and equipment at issue. The Court will confirm the arbitration award and award post award interest. But the Court will not modify the arbitration award to order the handover of the vehicle, as Respondent has failed to establish that a modification is warranted under 9 U.S.C. § 11.

I. FACTUAL BACKGROUND Petitioner Rhino is a limited liability company domiciled in the state of Georgia. Pet. ¶ 3. It offers industrial and highway construction and maintenance services. Id. ¶ 9. DeAngelo Brothers Inc. (“DBi”) is a company incorporated in Pennsylvania which is also its principal place of business. Id. ¶ 4. DBi is the owner of patents for automated equipment designed for High Friction Surface Treatment (“HFST”), a form of highway maintenance. Id. ¶ 11. DBi was the

original respondent here. On or about May 22, 2016, DBi entered a License Agreement with a non-party, Triangle Grading & Paving, Inc. (“Triangle”). Id. ¶ 12. Under its terms, Triangle would receive a license from DBi to provide HFST services using DBi’s patented equipment. Id. In return, Triangle would pay $35,000 per year during the Original Term or any Renewal Term for each vehicle which it has equipped with the necessary patented HFST technology. Id. ¶ 13. Triangle was also obligated to pay royalties for each square yard of material applied. Id.

On May 31, 2016, Rhino and Triangle entered a Sub-Licensing Agreement regarding DBi’s patented technology. Id. ¶ 16. The agreement conferred the same rights and requirements (including payment obligations) outlined in the License Agreement with Triangle if Triangle elected to subcontract a portion of its work on a project-by-project basis to Rhino (with DBi’s knowledge and consent). Id. ¶ 18. The Sub-License Agreement specified that the “Licensee and/or Sub-Licensee” was responsible for payments. Id. ¶ 19. In June 2016, shortly after the Sub-License Agreement was executed, Rhino was provided with DBi’s truck #1191, equipped with the patented technology. Id. ¶ 23, 25. Later, on or about February 17, 2017, DBi sold the truck to Rhino at a price of $355,000. See Pet., Ex. C. The bill of sale described “DBI # 1191 HFST Truck” as a “2006 Autocar” and listed the “HFST Truck &

Body” as the sold property. Id. The parties dispute whether the patented HFST equipment itself was included in the sale of truck #1191. Rhino retained Siemens Financial Services, Inc. (“Siemens”) to finance the purchase. Pet. ¶ 32; Pet., Ex. H ¶ 127 (“Arb. Op.”). Siemens provided Rhino with a loan of $320,000, but the listed collateral explicitly included the HFST equipment as well as the vehicle. Arb. Op. ¶ 128.

After making a first annual licensing fee payment in February 2017, it did not make subsequent licensing fee payments as required for two years. Id. ¶ 147. Nor did Rhino make any royalty payments to DBi. Id. ¶ 148. On January 16, 2019, DBi sent Rhino a letter terminating Rhino as a licensee. Pet. ¶ 37. Rhino maintains it only completed its pre-termination obligations, but it did continue HFST work

(although the parties dispute whether work completed was within the scope of the license agreement). Id. ¶ 38; see also ECF No. 1 at 503, 516. Rhino has not returned DBi’s patented equipment or truck. Arb. Op. ¶ 161. Rhino subsequently defaulted on the loan from Siemens, resulting in a lawsuit being filed against the truck and the HFST patented equipment. Id. ¶ 215. II. PROCEDURAL HISTORY

DBi filed a demand for arbitration on March 27, 2019, asserting that Rhino breached the Sub-Licensing Agreement by failing to make payments for the vehicle, royalties, and annual licensing fees. Pet. ¶ 39. DBi has also asserted claims for trespass to chattels, conversion, fraud, and patent infringement. See Arb. Op. at 1-2.

On April 19 and 20, 2021, an arbitrator, George E. Pallas (“The Arbitrator”), conducted a two-day arbitration. Id. at 2. The Arbitrator held in his Award and Opinion that Rhino breached the Sub-Licensing Agreement in part and found in favor of DBi for (i) $21,000 for Vehicle Payment and (ii) $11,406 for unpaid royalties. Id. at ¶ 240. The Arbitrator also ruled in favor of DBi on its tort claims, awarding $312,500 for trespass to chattels and conversion and found in favor of DBi on patent infringement and awarded $0. Id. Crucially, the Arbitrator found that the Bill of Sale for the purchase of the truck did not include the patented HFST equipment and that Rhino did not own the equipment. Id. at ¶ 117, 140, 227.

On August 27, 2021, Rhino filed the instant petition to vacate the arbitration award. ECF No. 1. On October 12, 2022, DBi moved to substitute DeAngelo Contracting Services, LLC (“DCS”) as the respondent pursuant to a contracting assigning the arbitration award to DCS.1 See Fed. R. Civ. P. 25; ECF No. 10. The Court granted the motion, substituting DCS as the respondent in this action. See ECF No. 23.

III. JURISDICTION The Court has jurisdiction under 28 U.S.C. § 1332 (“diversity jurisdiction”). The parties are completely diverse and the award at issue exceeds the minimum amount in controversy of $75,000. Nevertheless, as it is relevant to subsequent discussion,2 the Court will also consider whether it has federal question jurisdiction under 28 U.S.C. § 1331. Because there is an

1 While both entities have the same founder, the two entities do not have common ownership and are not presently related. See ECF 29 at 4-5. 2 See infra, Section V.C.1. arbitration provision within the operative contract, the Federal Arbitration Act (“FAA”) applies. 9 U.S.C. § 1-2. However, the FAA does not independently create federal question jurisdiction. Freeman v. Pittsburgh Glass Works, LLC, 709 F.3d 240, 246 n.5 (3d Cir. 2013) (citing Moses H. Cone Mem'l Hosp. v.

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RHINO SERVICES, LLC v. DEANGELO BROTHERS, INC., Counsel Stack Legal Research, https://law.counselstack.com/opinion/rhino-services-llc-v-deangelo-brothers-inc-paed-2023.