757 F.2d 1256 (Fed. Cir. 1985), 83-1329, Minnesota Min. & Mfg. Co. v. Eco Chem, Inc.

Docket Nº:Appeal Nos. 83-1329, 84-1378.
Citation:757 F.2d 1256
Party Name:1 Fed.R.Serv.3d 15 MINNESOTA MINING & MANUFACTURING COMPANY, a corporation of Delaware, Appellee, v. ECO CHEM, INC., a corporation of Minnesota, George G. Rynne, an individual, et al., Appellants.
Case Date:March 15, 1985
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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Page 1256

757 F.2d 1256 (Fed. Cir. 1985)

1 Fed.R.Serv.3d 15

MINNESOTA MINING & MANUFACTURING COMPANY, a corporation of

Delaware, Appellee,

v.

ECO CHEM, INC., a corporation of Minnesota, George G. Rynne,

an individual, et al., Appellants.

Appeal Nos. 83-1329, 84-1378.

United States Court of Appeals, Federal Circuit

March 15, 1985

Page 1257

Don W. Johnson, Dalton, Ga., argued for appellants. With him on the brief was John W. Adams, Minneapolis, Minn.

John D. Gould, Merchant, Gould, Smith, Edell, Welter & Schmidt, P.A., Minneapolis, Minn., argued for appellee. With him on the brief was Norman P. Friederichs, Minneapolis, Minn.

Before DAVIS, BENNETT and NIES, Circuit Judges.

Page 1258

DAVIS, Circuit Judge.

This appeal discloses a continued series of efforts to avoid compliance with a default judgment of patent infringement against appellant Eco-Chem Inc. (ECI). In the court below (the United States District Court for the District of Minnesota) these attempts were unsuccessful. Nor do they prevail in this court. After fully appraising appellants' points, we hold that the district court reached the right result in rejecting those efforts at avoidance or evasion that are now before us, and therefore we affirm the decisions below.

I.

The undisputed (or undisputable) facts are these:

Appellant Stephanie Rynne, her parents and her sister owned Conversion Chemical Co. (Conversion), which engaged in the development, manufacture and sale of chemicals to the electroplating industry. Appellant George Rynne, Stephanie's husband, was a Conversion employee. Initially a development chemist, he rose through the ranks of Conversion and became vice president in charge of sales. He was familiar with all of Conversion's trade secrets and patented processes.

In 1974, appellee Minnesota Mining and Manufacturing Co. (3M) purchased Conversion in order to acquire its patented electroplating technology. As part of the sale, 3M acquired Conversion's United States Patent Nos. 3,171,765, 3,729,394, and 3,769,182, and Conversion's application for what later became patent 4,070,165, each relating to methods of electroplating or refinishing metals. After the sale, George Rynne worked for 3M as a general sales manager in 3M's electroplating operation.

George Rynne left 3M in February 1977. The next month, George and Stephanie Rynne established appellant Eco-Chem, Inc. (ECI), a Minnesota corporation. Stephanie Rynne became president of ECI, George Rynne became Secretary-Treasurer. Stephanie owned 80% of ECI's stock; two salesmen each owned 10%. ECI entered the electroplating business, selling chemicals produced according to formulae developed by George Rynne while he worked at Conversion. In 1978, prior to the current suit, the Rynnes left Minnesota and moved to Georgia.

In January 1979, 3M filed this action against ECI, in the Minnesota district court, alleging that ECI had infringed the patents 3M acquired in the purchase of Conversion. After seven extensions of time, ECI finally answered, admitting jurisdiction and venue. 3M then served ECI with interrogatories and a request for production of documents. In the interim, the Rynnes decided to disband ECI. ECI's response to the discovery request then was (in full text):

Defendant, Eco-Chem, Inc. [ECI] is an inactive Minnesota corporation with no employees and with no operations in Minnesota or elsewhere. Consequently, Defendant is unable to respond to Plaintiff's First Set of Interrogatories and First Request for Production of Documents.

On 3M's motion, and after a hearing (at which ECI was represented by counsel), the district court (on December 11, 1979) entered a default judgment of patent infringement against ECI, pursuant to Fed.R.Civ.P. 37(d), for failure to answer the interrogatories and comply with the request for inspection of documents. 1 The judgment enjoined ECI from further infringement.

After the institution of this suit the Rynnes established (late in 1979) Eco-Chem Ltd. (ECL), a Georgia corporation. The stockholders of ECI exchanged their stock for ECL shares. The Rynnes converted all of ECI's assets to ECL, 2 including the formulae, customer lists, trademarks and inventory.

Page 1259

Checks made out to ECI were deposited in ECL's account. The Rynnes informed their customers that ECL had succeeded ECI. Consequently, ECI became, and to this day remains, completely judgment proof.

On August 15, 1980, 3M moved in the Minnesota district court to add the Rynnes and ECL as parties to this suit pursuant to Rule 25(c) of the Federal Rules of Civil Procedure. All of these parties were properly served with notice of the motion. After a hearing concerning the relationship between ECI, ECL and the Rynnes--at which the Rynnes and ECL had full opportunity to appear and present evidence, and the Rynnes did so appear--the district court granted (February 1983) the motion to add the Rynnes and ECL "as successors in interest and alter egos" of ECI. The court then ordered post-judgment discovery and a hearing on an award of damages. 3

By order and accompanying memorandum of March 16, 1984, the court awarded plaintiff damages in the amount of $235,906.28, which it then doubled pursuant to 35 U.S.C. Sec. 284 (1982). As to three of the patents, the court calculated the quantum of damages by determining the amount of infringing products sold by defendants, and multiplying that amount by 3M's profits on similar sales. With respect to one patent, the court awarded reasonable royalties. The court also awarded 3M attorney's fees in the amount of $228,225.91 and pre-judgment interest of $51,470.12. The total award was $751,508.59.

In May 1983 the appellants moved the court under Rule 60(b), F.R.Civ.P., for relief from the original default judgment against ECI. 4 The court denied the motion because the motion was time barred, the appellants alleged no meritorious defense in any but the vaguest and most conclusory terms, and as defendants they had deliberately defaulted. ECI appeals from the denial of this motion.

On April 3, 1984, defendants filed a motion for a new trial or for modification of the default judgment under Rules 59 and 52, F.R.Civ.P., respectively. The court denied the motion on the basis of its findings accompanying the original default judgment, and because appellants failed to point to any new evidence not existing at the time of the initial hearing on the default judgment. Appellants appealed from this decision, which was consolidated with their appeal from the district court's denial of their Rule 60(b) motion for relief from judgment. Both appeals are before us now. (There is no separate appeal from the order of March 19, 1984 awarding damages and fees.)

II.

Appellants argue that the district court erred when it entered the original default judgment against ECI without first issuing an order compelling ECI to answer the interrogatories. The argument before us has turned on the nature of ECI's "response." At issue is whether ECI's "response" to the interrogatories, set forth supra, constituted a complete failure to serve answers to the interrogatories, and thus permitted sanctions without such an order under Rule 37(d), F.R.Civ.P. Appellants claim that their response was merely evasive and incomplete, in which case an order directing a more complete response is said to be necessary under Rule 37(a) and (b) prior to the imposition of sanctions. 5

Page 1260

Appellants' contention that ECI's failure merely constituted a partial or incomplete answer is inconsistent with ECI's own conduct. That company specifically stated that it was "unable to respond" to the interrogatories. To say now that this missive constituted some sort of an answer flies directly in the face of what the message actually says--that appellants were unable to and would not respond. The district judge determined that ECI meant what it said and that it wilfully defaulted--this was not error. 6

If we were to accept appellants' argument, the full force of Rule 37(d) could be rendered virtually meaningless. A party could simply send its opponents a letter refusing to comply with a discovery request, confident that it would face no more serious sanction than a court order directing compliance. This result is plainly inconsistent with the purpose of Rule 37(d), i.e., to allow the courts to punish a full and wilful noncompliance with the federal rules on discovery, and to deter such conduct in the future. National Hockey League v. Metropolitan Hockey Club, 427 U.S. 639, 643, 96 S.Ct. 2778, 2781, 49 L.Ed.2d 747 (1976) (per curiam ); see also Fed.R.Civ.P. 1 (the federal rules "shall be construed to secure a just, speedy and inexpensive determination of every action"). 7

Page 1261

The cases upon which appellants rely for the proposition that a prior order was necessary in this case before the court could enter a default judgment are inapposite. Special emphasis is placed on Laclede Gas Co. v. G.W. Warnecke Corp., 604 F.2d 561 (8th Cir.1979). Appellants cite the following part of that opinion:

[Rule 37(d) ] authorizes district courts to 'make such...

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