Automated Irrigation Controls, LLC v. Watt Stopper, Inc.

• Decision Date: 09 September 2019
• Docket Number: 1:18-cv-2435-GHW
• Citation: 407 F.Supp.3d 274
• Parties: AUTOMATED IRRIGATION CONTROLS, LLC, Plaintiff, v. The WATT STOPPER, INC. and Legrand North America, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

407 F.Supp.3d 274

AUTOMATED IRRIGATION CONTROLS, LLC, Plaintiff,

v.The WATT STOPPER, INC. and Legrand North America, Inc., Defendants.

1:18-cv-2435-GHW

United States District Court, S.D. New York.

Signed September 9, 2019

Rebecca Lunceford Kolb, Stephen M. Dorvee, Terrell Chase Ogletree, Arnall, Golden & Gregory, LLP, Atlanta, GA, Robert L. Dougherty, Law Offices of Robert L. Dougherty, Garden City, NY, for Plaintiff.

Mark Dunn Giarratana, McCarter & English, LLP, John Louis Cordani, Jr., Robinson & Cole LLP, Hartford, CT, Alexander Thomas Hornat, McCarter & English, LLP, Boston, MA, for Defendants.

MEMORANDUM OPINION AND ORDER

GREGORY H. WOODS, United States District Judge:

Plaintiff Automated Irrigation Controls ("AIC") sues for breach of contract, claiming that Defendant Watt Stopper, Inc. ("Watt Stopper") has failed to pay royalties to which Plaintiff contends it is contractually entitled. The governing contract, however, contains a self-executing clause that, absent waiver or other modification, terminated Watt Stopper's royalty obligations. The contractual language at issue is clear and unambiguous, and consistent with the law of New York, is to be enforced according to its terms. However, as material issues of fact persist as to whether the contractual framework was modified by waiver, the Court cannot conclude on the record before it that Watt Stopper's royalty obligations have terminated. As a result, for the reasons that follow, Watt Stopper's motion for summary judgment is GRANTED IN PART and DENIED IN PART and AIC's motion for summary judgment is DENIED.

I. BACKGROUND

A. Undisputed Facts

Watt Stopper markets and sells lighting control products. AIC developed certain wireless outdoor lighting control products.¹ At or around November 12, 2013 Watt Stopper and AIC entered into the technology licensing agreement (the "TLA") that is the subject of this dispute. Counterclaim Statement of Undisputed Facts ("CC 56.1"), Dkt. No. 130 ¶ 1; TLA, Dkt. No. 95-1 at 1 (noting Nov. 11, 2013 as the effective date). Legrand North America, LLC. ("Legrand") is the guarantor of Watt Stopper's obligations under the TLA.² TLA § 2(K). Bryan Pike, as Vice-President of AIC, executed the TLA on AIC's behalf. TLA at 11.

The TLA granted Watt Stopper an exclusive license to exploit certain patents, patent applications, and technologies developed by AIC in exchange for the payment of royalties to AIC on the sale of "Royalty Bearing Products," as defined in the TLA. TLA 1-4. "Royalty Bearing Products" were defined as:

... the products set forth in Exhibit A and functional [sic] equivalent successor products. As used in the preceding sentence "functionally equivalent successor products" means (i) products on Exhibit A that are re-named or re-branded without material change to their features or functionality, (ii) products that are reconfigurations of the same technology (same feature/functionality) as products on Exhibit A but not (iii) battery operated single digital or analog input or "single point" products.

TLA § 2(D).

Because Watt Stopper "desire[d] to employ certain individuals previously employed by AIC," TLA, Recitals at 1, the TLA anticipated that certain persons who were employed by AIC at the time the TLA was executed would be offered employment at Watt Stopper. That Watt Stopper anticipated hiring those employees, and the implications of any violations of those employees' employment agreements with Watt Stopper, were embodied in the text of the TLA.

... because the know-how associated with the Licensed Technology is anticipated to be shared hereunder by certain key persons currently employed by AIC but anticipated hereunder to be offered employment by [Watt Stopper], it shall be a condition hereunder that AIC hereby acknowledge and agree, notwithstanding the Royalty Period (defined below) and any other conflicting or potentially conflicting provision herein, that if any of Bryan Pike, Joe Dylinski, or Zane Brown resigns from their employment with Wattstopper without Wattstopper's consent prior to the third anniversary of the Effective Date, or breach their employment obligations, including without limitation their respective "no conflict of interest" and "non-compete" terms and conditions, then as of that date sales by [Watt Stopper] of Royalty Bearing Products will be royalty free and all licenses granted by AIC hereunder will be fully paid.

TLA at 3 (the "Conditions on Royalties Clause"); TLA § 3 ("In connection with [the TLA], Wattstopper shall extend offers of employment to current AIC employees Bryan Pike, Joe Dylinski, Zane Brown, and Nathan Wood.")

Joe Dylinski and Bryan Pike both executed employment agreements with Watt Stopper on November 12, 2013. Dylinski Agreement, Dkt. No. 95-8; Pike Agreement, Dkt. No. 95-7, (collectively, the "Employment Agreements"). Section 3.3 in both Employment Agreements are identical, and both state that:

.... Employee further agrees to divest any and all ownership interest in Digital Contracting Solutions (DCS) and provide [Watt Stopper] with satisfactory evidence of the divestiture within six months of this Agreement's effective date. Employee further agrees to cease his participation in the operations of AIC, DCS, or any company with which [Watt Stopper] or its Affiliates is expected to do business in performance of obligations under either the technology license agreement or OEM agreement. If employee fails to fulfill the obligations set forth in this [section], his employment will be terminated immediately for "Cause," and Employee shall be entitled to no further payments and benefits under any provision of this Agreement (other than for accrued unused vacation).

Employment Agreements § 3.3 (the "Conflict of Interest Clauses").

Neither Pike nor Dylinski ever divested their interests in DCS; nor, consequentially, did they provide proof of such divestiture. Statement of Undisputed Facts ("56.1"), Dkt. No. 121 ¶¶ 17, 18 (neither man "divest[ed] his ownership interest in DCS because [they] could not."). Peter Horton was the primary representative of Watt Stopper in negotiating the TLA. 56.1 ¶ 2. On June 11, 2013, Pike wrote an email to Horton, copying Dylinski, in which he stated that: "Per the license agreement, AIC needed to show full divestiture of DCS by now. What do we need to do if anything to comply?" 56.1 ¶ 19. Horton subsequently forwarded the email to Jim Young, a Watt Stopper executive. Id. Young informed Horton that he "should ask Pike and Dylinski for an executed copy of the DCS sale agreement." Id. Horton "forwarded [that] email to Pike, advising him to ‘see below’ for Young's request." Id. As described above, however, neither Dylinski nor Pike divested their DCS holdings, nor provided proof of divesture. 56.1 ¶¶ 17, 18.

The TLA is governed by the law of the State of New York, without regard to New York's conflict of laws principles. TLA § 15. The Agreement contains an anti-waiver provision which states that "[n]o waiver by either Party of any default shall be deemed as a waiver of prior or subsequent default of the same of [sic] other provisions of this Agreement." TLA § 19. The Agreement is fully integrated, and its terms prohibit modification or amendment of the TLA except in writing. The relevant provision states:

This Agreement constitutes the full understanding of the Parties and a complete statement of the terms of their agreement with respect to the subject matter hereof and supersedes and cancels all prior agreements, correspondence, undertakings and communications of the Parties, oral or written, respecting such subject matter. Each Party acknowledges that it is entering into this Agreement without relying on any promise by another Party that is not expressly set forth in this Agreement. This Agreement cannot be modified or amended except in writing signed by both Parties and specifically referring to this Agreement.

TLA § 23, (the "Written Modifications Only Clause") (emphasis added).³

B. Procedural History

This case was filed on March 19, 2018. Dkt. No. 1. The Amended Complaint was served on May 31, 2018. Dkt. No. 39 ("AC"). In the Amended Complaint, Plaintiff pleaded three causes of action. Counts I and II alleged breaches of the TLA by Watt Stopper. In Count I, Plaintiff alleged that Watt Stopper "failed to use reasonable efforts to exploit [the exclusive] license" granted in the TLA. AC ¶¶ 47-52. In Count II, Plaintiff alleged that Watt Stopper failed to make royalty payments on "functionally equivalent successor products to the Royalty Bearing Products." AC ¶¶ 53-58. In Count III, Plaintiff alleged that Legrand tortiously interfered with the TLA "by taking action to prevent Watt Stopper from using its reasonable and best efforts to exploit the exclusive license." AC ¶¶ 59-65.

On June 28, 2018, Watt Stopper served a motion to dismiss Count I of the Amended Complaint. Dkt. No. 55. That same day, Legrand served a motion to dismiss Count III of the Amended Complaint, the only count which directly implicated Legrand.⁴ On October 26, 2018, the Court granted Legrand's motion to dismiss and denied Watt Stopper's motion to dismiss. Dkt. No. 83. AIC was granted leave to serve a second amended complaint no later than November 9, 2018. AIC never served a second amended complaint. Accordingly, only Counts I and II of the Amended Complaint remain at issue in this case.

Watt Stopper's Answer and Counterclaims were served on June 25, 2019. CCs, Dkt. No. 53. In Count I of the Counterclaims, Watt Stopper seeks, inter alia , declaratory judgment that as of the date of the breach of Pike's and Dylinski's Employment Agreements, all sales of Royalty Bearing Products were royalty-free and all licenses granted under the TLA were fully paid. Id. ¶¶ 28-39. Watt Stopper additionally seeks declaratory judgment that it is entitled to the return of all Watt Stopper's property in Pike's or AIC's possession, custody, or control. Id. ¶ 39. In Count II of the Counterclaims, Defendants allege that AIC...