Dana v. E.S. Originals, Inc.

• Decision Date: 08 September 2003
• Docket Number: No. 02-1531.,02-1531.
• Citation: 342 F.3d 1320
• Parties: Alfred DANA III, Plaintiff-Appellee, v. E.S. ORIGINALS, INC., K-Mart Corporation, Dayton-Hudson Corporation, Wal-Mart Stores, Inc., The Kobacker Company, Inc., and Conway Stores, Inc., Defendants-Appellants, and Fabco Enterprises, Inc., Montgomery Ward & Co., Inc., and the Caldor Corporation, Defendants.
• Court: U.S. Court of Appeals — Federal Circuit

342 F.3d 1320

Alfred DANA III, Plaintiff-Appellee, v. E.S. ORIGINALS, INC., K-Mart Corporation, Dayton-Hudson Corporation, Wal-Mart Stores, Inc., The Kobacker Company, Inc., and Conway Stores, Inc., Defendants-Appellants, and Fabco Enterprises, Inc., Montgomery Ward & Co., Inc., and the Caldor Corporation, Defendants.

No. 02-1531.

United States Court of Appeals, Federal Circuit.

Decided September 8, 2003.

Melvin K. Silverman, Melvin K. Silverman and Associates, P.C., of Ft. Lauderdale, Florida, argued for plaintiff-appellee.

Martin W. Schiffmiller, Kirschstein, Ottinger, Israel & Schiffmiller, P.C., of New York, New York, argued for defendants-appellants. With him on the brief was Lisa A. Pieroni.

Before RADER, BRYSON, and DYK, Circuit Judges.

Opinion for the court filed by Circuit Judge BRYSON. Circuit Judge DYK concurs in a separate opinion.

BRYSON, Circuit Judge.

This is an appeal from a final judgment of patent infringement entered by the United States District Court for the Southern District of Florida. The appeal focuses on the district court's application of collateral estoppel based on rulings entered against the defendants in an earlier case. The district court held that the defendants were collaterally estopped from contesting the issues of infringement and patent validity. We vacate the judgment and remand to the district court for further proceedings.

I

Plaintiff Alfred Dana filed this action against nine defendants, including the six appellants. Mr. Dana alleged that the defendants had infringed U.S. Patent No. 4,158,922 ("the '922 patent"), entitled "Flashing Discoshoes," by marketing footwear featuring flashing light displays. Mr. Dana sought damages for the alleged infringement that took place in the period prior to August 11, 1993, during which he owned the '922 patent. The defendants denied infringement and argued that the '922 patent was invalid.

Mr. Dana filed a motion for partial summary judgment as to liability, arguing that the defendants were collaterally estopped from denying infringement or challenging the validity of the '922 patent. Mr. Dana relied on orders entered in an action in the United States District Court for the Central District of California. In that action, L.A. Gear, Inc., which had purchased the '922 patent from Mr. Dana in 1993, alleged that the same defendants that are involved in this case infringed the '922 patent following the assignment of patent rights from Mr. Dana. That assignment expressly reserved to Mr. Dana the right to sue for pre-assignment infringement of the '922 patent.

The district court in the California action entered orders of partial summary judgment, holding that the '922 patent was enforceable, that the asserted claims of the patent were not invalid, and that the defendants had infringed the patent under the doctrine of equivalents. The court did not at that time address the issue of induced infringement, which was asserted against some of the defendants. Two months after the entry of those orders, the parties entered into a settlement agreement that included the entry of a consent decree by the court. The consent decree enjoined the defendants from marketing the accused shoes. The decree also recited that it was the intention of the parties that the partial summary judgment orders "shall have no collateral estoppel or res judicata effect with respect to or in favor of any third party," but added that the court "takes no position with respect to this intent."

In this case, Mr. Dana sought to use the orders issued in the California action to foreclose the defendants from arguing that the '922 patent is invalid and that the accused products do not infringe. The district court found that the issues of validity and infringement in the two cases were identical, that those issues had been fully litigated in the California action, and that the orders of the California court were sufficiently final to justify the application of collateral estoppel.

The district court noted that this case involves the application of offensive collateral estoppel, i.e., the use of collateral estoppel by a plaintiff who was not a party to the prior action against a defendant who was. Citing the Supreme Court's decision in Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979), the district court reviewed the factors that the Supreme Court identified as relevant to whether offensive collateral estoppel should be applied in a particular case. The district court then found that "none of the circumstances that might cause hesitation in the offensive use of collateral estoppel are present." First, the court determined that the defendants were aware that Mr. Dana was a potential adversary in a future action and that they had "attempted to preclude future litigation by a private agreement in lieu of joining the assignor." Second, the court found that the defendants had not shown that their exposure to damages in the present case exceeded their exposure in the California action. Third, the court explained that application of collateral estoppel in this case would not be inconsistent with any prior judgment. Fourth, the court found no important procedural factors present in this case that were absent in the first action. Finally, as to the statement in the consent decree that the parties intended to limit its estoppel effect to the parties to the agreement, the court held that the statement had no effect on Mr. Dana because such an agreement does not bind a person who is not a party to it. Accordingly, the district court held that the defendants were barred from relitigating the issues of infringement and validity in this case.

II

A

A party asking the court to apply collateral estoppel must establish that: "(1) the issue at stake is identical to the one involved in the prior proceeding; (2) the issue was actually litigated in the prior proceeding; (3) the determination of the issue in the prior litigation must have been `a critical and necessary part' of the judgment in the first action; and (4) the party against whom collateral estoppel is asserted must have had a full and fair opportunity to litigate the issue in the prior proceeding." Pleming v. Universal-Rundle Corp., 142 F.3d 1354, 1359 (11th Cir.1998); see also Christo v. Padgett, 223 F.3d 1324, 1339 (11th Cir.2000). On procedural issues not unique to this circuit's exclusive jurisdiction, we apply the law of the regional circuit, which in this case is the Eleventh Circuit. Vivid Techs., Inc. v. Am. Sci. & Eng'g, Inc., 200 F.3d 795, 807 (Fed.Cir.1999); see, e.g., Bayer AG. v. Biovail Corp., 279 F.3d 1340, 1345 (Fed.Cir. 2002).

The defendants argue that because the partial summary judgment orders entered in the California case were not final, appealable orders, they did not have a full and fair opportunity to litigate the issues of infringement and validity in the California action. In order for those prior rulings to be given collateral estoppel effect, however, it is not necessary for them to be final orders for purposes of appeal. Christo, 223 F.3d at 1338-40. It is "widely recognized that the finality requirement is less stringent for issue preclusion than for claim preclusion." Id. at 1339. Section 13 of the Second Restatement of Judgments, cited with approval in Christo, 223 F.3d at 1339 n. 47, provides that "for purposes of issue preclusion ... final judgment includes any prior adjudication of an issue in another action that is determined to be sufficiently firm to be accorded conclusive effect." Restatement (Second) of Judgments § 13 (1982). The test for finality is whether the prior decision was "adequately deliberated and firm" or "avowedly tentative," and whether the parties were fully heard in the prior proceeding. Id. § 13, cmt. g. In Christo itself, the court found certain "preliminary findings" to be sufficiently final for collateral estoppel purposes where the court that entered those findings considered evidence from all parties, issued a substantial order explaining its findings, and put the parties on notice of the potential preclusive effect of the findings. Christo, 223 F.3d at 1339.

This court has recently applied Christo in RF Delaware, Inc. v. Pacific Keystone Technologies, Inc., 326 F.3d 1255 (Fed.Cir. 2003). In that case, we held that partial summary judgment orders entered by a Virginia district court that included rulings on claim construction did not preclude a patentee from arguing for a different claim construction in an action brought in an Alabama district court. The Virginia court had entered orders that incorporated a claim construction, but before the case went to trial on the issue of infringement the parties settled. The district court in the follow-on action declined to apply collateral estoppel against the patentee based on the claim construction employed by the Virginia court in the pretrial orders.

Applying Eleventh Circuit law, this court stated that the Virginia court orders "were not sufficiently firm to have preclusive effect" and distinguished Christo on three grounds. First, no evidentiary hearing was conducted in the Virginia case; for that reason, this court concluded that "it is questionable whether the parties were `fully heard'" on the issue. Second, unlike in Christo, the parties were not on notice that the orders in the Virginia case could have preclusive effect elsewhere. Third, the Virginia court did not enter a final order approving the proposed settlement of that action.

With regard to whether the party to be estopped had a full and fair opportunity to litigate and whether the partial summary judgment orders were sufficiently final to be accorded preclusive effect, this case is closer to Christo than to RF Delaware. In the RF Delaware case, the issue as to which the defendant was seeking issue preclusion was claim construction, on which the district court might have modified its position at trial. In both of the...