Anacapa Technology v. Adc Telecommunications

• Decision Date: 22 January 2002
• Docket Number: No. CIV. 01-729 (DSDSRN).,CIV. 01-729 (DSDSRN).
• Citation: 241 F.Supp.2d 1016
• Parties: ANACAPA TECHNOLOGY, INC, a Nevada corporation, as assignee of Anacapa Nevada, Inc., a Nevada corporation, Plaintiff, v. ADC TELECOMMUNICATIONS, INC., a Minnesota corporation, Defendant.
• Court: U.S. District Court — District of Minnesota

241 F.Supp.2d 1016

ANACAPA TECHNOLOGY, INC, a Nevada corporation, as assignee of Anacapa Nevada, Inc., a Nevada corporation, Plaintiff, v. ADC TELECOMMUNICATIONS, INC., a Minnesota corporation, Defendant.

No. CIV. 01-729 (DSDSRN).

United States District Court, D. Minnesota.

January 22, 2002.

Norman J. Baer, Karlyn V. Boraas, Anthony, Ostlund & Baer, Minneapolis, MN, counsel for plaintiff.

J. Derek Vandenburgh, Anthony R. Zeuli, Ricky L. Franzen, and Merchant & Gould, Randall E. Kahnke, Kerry L. Bundy, Faegre & Benson, Minneapolis, MN, counsel for defendant.

ORDER

DOTY, District Judge.

This matter is before the court upon the motion for partial summary judgment of defendant ADC Telecommunications, Inc ("ADC"). Based upon a review of the file, record and proceedings herein, and for the reasons stated, the court grants defendant's motion.

BACKGROUND

This case involves repeater housing technology, which is used in the telecommunication industry. Repeaters are placed within phone line networks to boost and transmit telecommunication signals. (Kahnke Aff. Ex. 14 at 3; Ex. 30 at 1.) Because outside elements such as weather and rodents can affect repeaters, they are inserted into and protected by repeater housings. (Id.)

In 1996, ADC sought technology for repeater housings that could dissipate excess heat. Anacapa designed such a technology, called Thermal Transfer Technology ("TTT"). On June 13, 1996, ADC and Anacapa reached an agreement ("the agreement") where Anacapa granted ADC licenses to two subsets of TTT—Background Thermal Transfer Technology ("BTTT") and Generated Thermal Transfer Technology ("TTT"). In exchange, ADC agreed to pay Anacapa royalties on all repeater housings incorporating BTTT, sold before December 31, 2001, and all repeater housings incorporating GTTT sold through June 30, 2002. ADC also agreed to protect Anacapa's confidential information.¹

ADC "out-sourced" the manufacture of Anacapa's TTT to Special Product Company ("SPC"), a manufacturer and seller of repeater housings. In July 1998, ADC and SPC executed a collaboration agreement and manufacturing agreement, which contained use restrictions with respect to rights licensed or sublicensed by ADC to SPC, defined as Thermal Transfer Technology and Generated Rights ("GR"). (Kahnke Aff. Exs. 17 and 19.) Through those agreements, ADC sublicensed certain TTT to SPC.

Anacapa, however, identified problems with SPC's use of Anacapa's confidential information. For instance, SPC was making and selling repeater housings referred to by SPC as Gen 2 or Series 7000 Generation 2 repeater housings ("Gen 2") that incorporated TTT and GR in violation of the use restrictions. (Kahnke Aff. Ex. 25.) Anacapa alleged that ADC materially breached the agreement by not adequately protecting Anacapa's confidential information. Anacapa and ADC engaged in arbitration and the arbitrators found:

ADC materially breached the Agreement. The material breach was the failure of ADC to require Special Products Company ("SPC") to treat as confidential the Anacapa Confidential Information as defined in H 10.2(a) of the Agreement, and the failure of ADC to maintain reasonably adequate procedures to prevent loss or unauthorized disclosure of Confidential Information, all in violation of ¶¶ 10.2(b) and (c) of the Agreement.

(Kahnke Aff. Ex. 2.)

After the arbitrators issued their findings, Anacapa sent ADC notice that if the breach was not cured within a 30-day cure window, the agreement would terminate. Anacapa claims that ADC failed to cure the breach. ADC now moves for partial summary judgment, asking the court to find it cured the material breach. Because the undisputed facts illustrate that ADC cured the material breach, the court grants ADC's motion for partial summary judgment.

DISCUSSION

1. Standard for Summary Judgment

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." In order for the moving party to prevail, it must demonstrate to the court that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, All U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed. R.Civ.P. 56(c)). A fact is material only when its resolution affects the outcome of the case. Anderson v. Liberty Lobby, Inc., 411 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute is genuine if the evidence is such that it could cause a reasonable jury to return a verdict for either party. See id. at 252, 106 S.Ct. 2505.

On a motion for summary judgment, all evidence and inferences are to be viewed in a light most favorable to the nonmoving party. See id. at 255, 106 S.Ct. 2505. The nonmoving party, however, may not rest upon mere denials or allegations in the pleadings, but must set forth specific facts sufficient to raise a genuine issue for trial. See Celotex, 477 U.S. at 324, 106 S.Ct. 2548. Moreover, if a plaintiff cannot support each essential element of its claim, summary judgment must be granted because a complete failure of proof regarding an essential element necessarily renders all other facts immaterial. Id. at 322-23, 106 S.Ct. 2548.

II. Cure

The parties dispute the definition of cure and whether ADC cured its material breach. The court considers each issue in turn,

A. Definition of Cure

A threshold question is what it means to "cure."² While case law on the question is sparse, it is clear that to cure a material breach means to engage in subsequent conduct that substantially performs or performs without a material failure. See Restatement (Second) Contracts § 237 cmt. b (1981) ("Even if the failure is material, it may still be possible to cure it by subsequent performance without material failure."); 2 E. Allan Farnsworth, Farnsworth on Contracts § 8.17 (explaining that a breach can be cured "by correcting the deficiency in performance.")

Cure does not require perfect performance. Only if the breach is not cured to the level of substantial performance may the injured party terminate the contract. As explained in Corbin on Contracts:

[Cure] gives the contractor or seller another chance to perform substantially.... Cure gives a contractor a second chance to perform according to the contract. If, however, a defective performance is not cured to the level of substantial performance, the injured party is discharged.

8 Catherine M.A. Mc Cauliff, Corbin on Contracts ¶ 36.7 (citations omitted). Put another way:

When the breaching party does attempt to cure, the injured party again must analyze that party's performance with respect to the material breach standard. A cure that completely remedies the breach does not pose a problem; but a less than complete cure raises the issue of whether there is still a material breach or whether the breaching party has now substantially performed, thus making the breach nonmaterial. If the breach is upgraded to nonmaterial, the constructive condition is satisfied by cure just as it would have been if substantial performance had been rendered initially. Therefore, the injured party only has a cause of action for partial breach and is not allowed to terminate the contract.

William H. Lawrence, Cure After Breach of Contract Under the Restatement (Second) of Contracts: An Analytical Comparison with the Uniform Commercial Code, 70 Minn. Law Rev. 713, 747 (1986).

Anacapa nevertheless argues that to cure a material breach under Minnesota law, one must stop the offending conduct and repair the harm done by the breach. Anacapa cites AAMCO Indus., Inc. v. De Wolf, 312 Minn. 95, 250 N.W.2d 835 (1977) to support its argument. AAMCO, however, does not stand for that proposition. In that case, an operator of an Aamco transmission service facility franchise brought an action against a franchisee for declaratory and injunctive relief after terminating the franchise subsequent to discovering consumer fraud. Id. The franchisee claimed that the Aamco's failure to give 24-hour notice to correct the alleged breaches of the franchise agreement was in violation of the statutory requirements and precluded termination of the franchise. Id. at 100, 250 N.W.2d 835. The franchisee further argued that the evidence did not support termination. Id. After an examination of the records, the Minnesota Supreme Court agreed with the trial court that a 24-hour notice would have been futile in this case and that the evidence sustained the trial court's determination to terminate the franchise. Id. at 103, 250 N.W.2d 835. The court did not hold, or even discuss, that cure requires a breaching party to stop the offending conduct and repair the harm done. Instead, cure requires substantial performance or performance without a material failure.

B. ADC Cured the Material Breach

In this case, the arbitrators found that ADC materially breached its agreement with Anacapa (1) by failing to require SPC to treat as confidential Anacapa's confidential information as defined in 1110.2(a) of the agreement and (2) by failing to maintain reasonably adequate procedures to prevent loss or unauthorized disclosure of confidential information. The key question therefore is whether ADC cured its material breach through substantial performance or performance without a material failure.³

While that question is usually one of fact, see Corbin on Contracts § 36.5, the court may determine whether a party has cured its material breach in cases such as this one where there are no material facts in dispute and only the legal conclusions to be drawn from the facts remain in doubt. See Gibson v. City of Cranston, 37 F.3d 731, 736 (1st Cir.1994) ("[I]f the materiality question in a given case admits of...