Broomall Industries, Inc. v. Data Design Logic Systems, Inc.

• Decision Date: 17 March 1986
• Docket Number: No. 85-2097,85-2097
• Citation: 786 F.2d 401,229 USPQ 38,14 BCD 433
• Parties: , 229 U.S.P.Q. 38, 14 Collier Bankr.Cas.2d 1447, 14 Bankr.Ct.Dec. 433 BROOMALL INDUSTRIES, INC., Appellant, v. DATA DESIGN LOGIC SYSTEMS, INC., Appellee. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 401

786 F.2d 401

54 USLW 2507, 229 U.S.P.Q. 38, 14

Collier Bankr.Cas.2d 1447,

14 Bankr.Ct.Dec. 433

BROOMALL INDUSTRIES, INC., Appellant, v. DATA DESIGN LOGIC SYSTEMS, INC., Appellee.

Appeal No. 85-2097.

United States Court of Appeals Federal Circuit.

March 17, 1986.

Bruce McKee, San Francisco, Cal., argued for appellant. With him on brief was Alan H. Bernstein, Caesar, Rinise, Bernstein & Cohen, Ltd., Philadelphia, Pa.

Larry L. Simms, Gibson, Dunn & Crutcher, Los Angeles, Cal., argued for appellee. With him on brief was Bennett L. Silverman, Walter Eugene Tinsley, Harris, Kern, Wallen & Tinsley, Los Angeles, Cal., of counsel.

Before BENNETT, Circuit Judge, COWEN, Senior Circuit Judge, and NEWMAN, Circuit Judge.

COWEN, Senior Circuit Judge.

Appellant, Broomall Industries, Inc. (Broomall), appeals from a December 4, 1984, decision of the United States District Court for the Northern District of California, granting partial summary judgment in favor of appellee, Data Design Logic Systems, Inc. (Data Design). The decision was based on the court's determination that Broomall's action for patent infringement was discharged pursuant to 11 U.S.C. Sec. 1141, as a result of an order entered by the bankruptcy court confirming the planned reorganization of Logic Systems, Inc. (Logic Systems), under chapter 11 of the Bankruptcy Code. Logic Systems is the predecessor of Data Design.

On January 2, 1985, the portion of Broomall's suit which was not disposed of by summary judgment was dismissed without prejudice, and the partial summary judgment of December 4, 1984 was designated as a final judgment of the district court.

We vacate the judgment and remand the case to the district court for trial.

BACKGROUND

Commencing in September 1976, the attorney for Broomall wrote Data Design's predecessor, Logic Systems, that Broomall was the exclusive licensee of the patent in issue. This was followed by an exchange of letters between Andrew Trolio, president of Broomall, and James E. Newland, president of Logic Systems, or their respective counsel. Broomall's charge that Logic Systems had infringed the patent was denied, but Logic Systems offered to purchase a license to avoid litigation. Attempts to negotiate the license failed, whereupon Broomall, by letter of February 14, 1977, threatened suit. On March 22, 1977, a copy of Broomall's proposed complaint for patent infringement was mailed to Logic Systems. By letter of March 22, 1977, counsel for Logic Systems wrote Broomall's attorney, describing in detail Logic Systems' position that it had not infringed the patent.

Broomall did not proceed with its infringement action against Logic Systems at that time. Instead, Broomall filed a patent infringement suit against Nicolet Instrument Corporation (Nicolet) in mid-1977. Broomall had been advised by counsel that 35 U.S.C. Sec. 286 provided that damages could be recovered for patent infringement occurring within 6 years prior to filing suit, and that Broomall was not obligated by law to institute suit against more than one alleged infringer at a time. During the years 1976 to 1983, notice of the action against Nicolet was given to the trade. As a result of a settlement which involved payment of money by Nicolet to Broomall, the suit against Nicolet was terminated May 26, 1983. On February 23, 1983, Broomall's attorney wrote Mr. Newland, stating that Broomall had decided not to file suit against Logic Systems until a favorable decision in the Nicolet suit was received. The letter also notified Logic Systems of Broomall's intention, as exclusive licensee, to enforce the patent.

On May 7, 1980, 3 years after Logic Systems had denied infringement of the patent, Logic Systems filed a petition for reorganization under chapter 11 of the Bankruptcy Code. On July 29, 1981, an order was entered confirming the plan of reorganization. The plan involved the merger of Logic Systems into a new company to be known as Data Design Logic Systems Inc., and the deposit by Data Design of $150,000 in cash with the disbursing agent of the bankruptcy court. Data Design deposited the $150,000 in reliance on the confirmation order as a discharge of all of the debtors' pre-confirmation obligations that were not provided for in the reorganization plan. Broomall was not listed on the schedule of creditors which accompanied Logic Systems' chapter 11 petition, and Broomall received no notice of the proposed plan of reorganization or the confirming order.

On July 7, 1983, Broomall commenced an action for patent infringement in the district court against Data Design, as successor to Logic Systems. On June 6, 1984, Broomall filed in the district court the declaration (affidavit) of Mr. Trolio. Referring to 1976-77 correspondence, the affidavit noted the result of the patent infringement action against Nicolet and stated that it was not until after February 23, 1983, that Broomall learned of the bankruptcy proceedings and the merger of Logic Systems into Data Design.

On October 29, 1984, Data Design filed in the district court the declaration (affidavit) of Mr. Newland, in support of the motion for summary judgment. Referring to the letter of March 22, 1977, in which Logic Systems denied that it had infringed the patent, the affidavit stated that Mr. Newland had concluded prior to May 7, 1980, when the petition in bankruptcy was filed, that "Broomall agreed that it did not have a claim against Logic Systems." The affidavit also stated that until Mr. Newland received Broomall's letter of February 23, 1983, he did not know that Broomall was still asserting a claim of infringement against Logic Systems. The affidavit further stated that after the commencement of the bankruptcy proceedings, Mr. Newland told Mr. Trolio that Logic Systems was in a chapter 11 bankruptcy. After the filing of the Newland affidavit, Mr. Trolio filed another declaration in the district court, dated October 22, 1984, in which he referred to the Newland declaration and denied that Mr. Newland had informed him that Logic Systems was in bankruptcy.

On October 24, 1984, Barry A. Stein, counsel for Broomall in the district court, filed a declaration in which he stated that he had notified counsel for Data Design that if it refused to settle the infringement suit, Broomall would like to take the deposition of Mr. Newland. In his affidavit, Stein added that he had been informed that Newland was no longer employed by Data Design, but that the attorney for Data Design had refused to disclose Newland's address and telephone number.

In granting the motion for summary judgment, the district judge did not file a written opinion. Instead, the court's decision was based upon the following statement which was made in open court by the district judge during a conference with counsel for the parties and was recorded in the reporter's transcript:

And as the matter is now before me, there is no significant probative evidence that contradicts defendant's assertion that [it] was not on notice, that there was any continued or outstanding claim. And there has been ample opportunity to respond to that or do the necessary discovery to refute that contention.

And in view of that, I believe it is appropriate to grant summary judgment, to grant partial summary judgment to defendant.

OPINION

I.

At all times pertinent to this litigation, the decisions of the Supreme Court and other courts had made it clear that Fifth Amendment due process considerations take precedence over the discharge provisions of section 1141 of the Bankruptcy Code, in cases where the debtor has knowledge of claims and fails to inform claimants of the pendency of the proceedings. In its decision in Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 657, 94 L.Ed. 865 (1950), the Supreme Court declared:

An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections. * * *

Mullane was followed by City of New York v. New York, New Haven & Hartford Railroad Co., 344 U.S. 293, 73 S.Ct. 299, 97 L.Ed. 333 (1953), involving a railroad reorganization under section 77 of the Bankruptcy Act in which creditors were notified by publication only. There the Court held that notice by publication could not be considered reasonable notice where the names, interests, and addresses of the claimants were known. See also In Re Intaco Puerto Rico, Inc., 494 F.2d 94 (1st Cir.1974) and In Re Harbor Tank Storage Co., 385 F.2d 111 (3d Cir.1967).

The parties agreed that these are the controlling legal principles, but they differ in the application of those principles to the facts in this case. Data Design argues that Mr. Newland's affidavit shows that Logic Systems reasonably concluded that Broomall was not asserting a claim against it when the bankruptcy proceedings were instituted and therefore, that Logic Systems was not aware of Broomall's patent infringement claim at that time. On the other hand, Broomall contends that Mr. Newland's affidavit shows on its face that he knew of Broomall's claim in 1977. Broomall also maintains that Newland's statement is nothing more than an expression of his personal opinion that Broomall had abandoned its...