Mickowski v. Visi-Trak Worldwide, LLC, 04-3889.

• Decision Date: 13 July 2005
• Docket Number: No. 04-3889.,04-3889.
• Citation: 415 F.3d 501
• Parties: John R. MICKOWSKI, Plaintiff-Appellant, v. VISI-TRAK WORLDWIDE, LLC, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

415 F.3d 501

John R. MICKOWSKI, Plaintiff-Appellant, v. VISI-TRAK WORLDWIDE, LLC, Defendant-Appellee.

No. 04-3889.

United States Court of Appeals, Sixth Circuit.

Argued: June 9, 2005.

Decided and Filed: July 13, 2005.

COPYRIGHT MATERIAL OMITTED

Jeffrey A. Crossman, Benesch, Friedlander, Coplan & Aronoff, Cleveland, Ohio, for Appellant.

Jonathon M. Yarger, Chernett, Wasserman, Yarger & Pasternak, Cleveland, Ohio, Wallace W. Walker, Jr., Wallace, Walker & Company, Cleveland, Ohio, for Appellee.

Jeffrey A. Crossman, Mark A. Phillips, Benesch, Friedlander, Coplan & Aronoff, Cleveland, Ohio, for Appellant.

Before: CLAY and SUTTON, Circuit Judges; REEVES, District Judge.^*

OPINION

CLAY, Circuit Judge.

Plaintiff John R. Mickowski obtained a multi-million dollar patent infringement judgment against Visi-Trak Corporation ("VTC"), which subsequently declared bankruptcy and sought reorganization under Chapter 11 of the Bankruptcy Code. After the bankruptcy court confirmed a reorganization plan for VTC, thereby discharging VTC's liability for the unpaid patent judgment, Defendant Visi-Trak Worldwide, LLC purchased substantially all of VTC's remaining assets. Subsequent to the sale, the operating trustee for VTC successfully moved the bankruptcy court to revoke the reorganization plan. Assuming that the bankruptcy court's revocation of the reorganization plan also revoked the confirmation order, Mickowski filed suit in the Northern District of Ohio, seeking to hold Visi-Trak Worldwide liable for the unpaid patent judgment against VTC. Mickowski now appeals the June 7, 2004 order of the district court, denying his motion for summary judgment and granting summary judgment for Visi-Trak Worldwide on the grounds that Visi-Trak Worldwide purchased VTC's assets free and clear of any claim for the unpaid patent judgment and, in any event, Visi-Trak cannot be held liable as VTC's successor under Ohio law. For the reasons that follow, we AFFIRM the judgment of the district court.

I BACKGROUND

VTC is an Ohio corporation that was formed on December 5, 1988. In 1994, John Mickowski, a resident of New York, filed an action in the Southern District of New York against VTC for direct, contributory and induced patent infringement on patents he owned. In 1999, Mickowski filed suit in the Northern District of Ohio against three of VTC's officers, John R. Vann, John T. Branden, and Ying Shen. On March 5, 1999, the court in the Southern District of New York entered judgment in favor of Mickowski against VTC in the amount of $5,998,637 for trebled damages and prejudgment interest on Mickowski's claim that VTC willfully induced infringement of the patents in the suit. On June 5, 1999, before Mickowski could execute the patent judgment against VTC, VTC voluntarily petitioned for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Northern District of Ohio. On March 14, 2000, VTC filed a proposed plan of reorganization, which proposed the sale of VTC's stock for $500,000.

Mickowski, a creditor of VTC by virtue of the patent judgment, and Visi-Trak Acquisition Group ("VTAC"), filed a competing plan of reorganization on June 30, 2000, pursuant to which VTAC proposed purchasing VTC's stock for $1,027,000. In response, VTC filed an amended plan of reorganization, offering to pay $1.1 million for the stock of a reorganized VTC. On September 1, 2000, VTAC and Mickowski submitted an amended plan, increasing its bid to $2,000,000. They submitted a revised amended plan of reorganization on October 2, 2000.

The bankruptcy court issued an order permitting VTAC to conduct due diligence at VTC's headquarters on November 10, 2000. Upon the arrival of VTAC personnel at VTC's site, VTC's management group (consisting of Jack Vann, Tom Vann, Ying Shen, and Jack Branden) resigned. On November 19, 2000, Mary Ann Rabin was appointed Chapter 11 Operating Trustee for VTC. Believing that VTC's management group had damaged the ongoing business by resigning, the operating trustee of VTC and Mickowski filed suit against the management group for breach of fiduciary duty. That matter settled in March 2001.

After months of difficult negotiations and discussions, VTC confessed that it was unwilling or unable to litigate to determine which of the two plans would survive the confirmation process. At the behest of trade creditors, the parties met to determine whether it was more appropriate to sell VTC's assets pursuant to 11 U.S.C. § 363 (providing that the bankruptcy trustee may use, sell, or lease property of the estate). At that meeting, VTAC offered $2.2 million for the assets, and expressed its desire to present that deal through a plan of reorganization. Discussions regarding the § 363 asset sale ceased, and the creditors elected to support the VTAC plan.

Mickowski and VTAC presented a second amended plan of reorganization on January 9, 2001. The plan stated that its effective date would be February 28, 2001, provided that: (1) the bankruptcy court would have confirmed the plan at least 11 days prior to that date; (2) no stay of the confirmation order would be in effect; (3) the confirmation order would not have been vacated; (4) and all "conditions to the Effective Date, as set forth ... in Section IX.A. of the Plan, [would] have been satisfied or waived." Article IX sets forth numerous conditions to the effective date of the plan, including the bankruptcy court entering the confirmation order, approving the plan; there having been no material adverse change after September 30, 2000 in the financial condition of VTC which would make it improbable that VTC "could continue operations at historical sales, gross margin and operating income levels or meet its financial obligations" on a going forward basis; and VTAC having had the opportunity to audit VTC's financial records. The plan further provided that if each condition to the effective date were not timely satisfied or waived, then the proponents of the plan (VTAC or Mickowski) could move the bankruptcy court to vacate the confirmation order, whereupon the plan would be deemed null and void in all respects, including with respect to the release, disallowance, or extinguishment of any claims by or against VTC.

On January 25, 2001, after holding a confirmation hearing, the bankruptcy court held that the conditions to the effective date contained in Article IX of the plan were appropriate in light of the uncertainties of VTC's financial condition. The court ordered that, "[e]xcept as expressly otherwise provided in [its] Order or the Plan, on the Effective Date all property and assets of the Debtor's [VTC's] estate shall vest, free and clear of all Claims, interests and encumbrances, in the Reorganized Debtor, subject only to the provisions of the Plan." The court further ordered that, except as provided in the plan, entry of the court's order discharged VTC from any debt that arose before the date of the confirmation order. The bankruptcy court entered the confirmation order on February 9, 2001.

On April 3, 2001, VTC's operating trustee filed an emergency motion pursuant to 11 U.S.C. § 363, seeking the bankruptcy court's approval for the private sale of certain assets of VTC free and clear of liens. The trustee's motion sought approval to sell certain of VTC's assets through a private sale to VTC Holdings, LLC, a company organized by Kathy Vann in September 2000 for the purpose of filing a plan of reorganization for VTC; VTC Holdings subsequently changed its name to Visi-Trak Worldwide. The trustee argued that VTAC was refusing to purchase VTC's assets on the ground that there had been a material adverse change in VTC's business since the plan was confirmed. The trustee stated that she ceased VTC's operations on March 30, 2001 because it had become too costly to operate and was undertaking to sell VTC's assets as quickly as possible.

Mickowski filed two objections to the trustee's emergency motion. Mickowski argued that the purported emergency that prompted the trustee's desire for a sale was the product of collusion amongst certain employees of VTC to discourage customers from placing sales orders. Mickowski also argued that the trustee had failed to submit an appraisal to establish the fair and reasonable value of the assets being sold.

The court rejected the proposed private sale of VTC's assets and ordered the trustee to hold a public auction, where the assets were to be sold "as is" and "where is." An auction was held on May 18, 2001, and VTC Holdings (a/k/a Visi-Trak Worldwide) was the winning bidder of VTC's accounts receivable, inventory, and equipment. The bankruptcy court confirmed the sale of assets to VTC Holdings on May 18, 2001. On September 5, 2001, VTC's bankruptcy proceedings were converted to liquidation proceedings pursuant to Chapter 7 of the Bankruptcy Code.

When Visi-Trak Worldwide commenced business, each of its officers and key employees were former employees of VTC, and each was hired to perform the same tasks that they previously had performed at VTC. Visi-Trak Worldwide's website also indicated that it was the same company as VTC, just at a new location.

On June 20, 2001, VTC's operating trustee moved to vacate the bankruptcy court's order confirming the second amended plan of reorganization. The trustee argued that the conditions for confirmation of the plan had not been fulfilled and that the plan could not be consummated. Based on the trustee's representation that all necessary parties had been served with the motion, the bankruptcy court ordered on August 2, 2001 that "[t]he Second Amended Chapter 11 Plan of John R. Mickowski and VT Acquisition Corp. is hereby vacated." Visi-Trak Worldwide was never served with the motion to vacate nor with notice of the court's order granting the motion.

On February 1, 2002, Mickowski filed a complaint in the United States District Court for the Northern District of Ohio. Mickowski's complaint sought a...