Brunswick Corp. v. Sheridan

• Citation: 582 F.2d 175
• Decision Date: 18 July 1978
• Docket Number: No. 541,D,541
• Parties: 1978-2 Trade Cases 62,166 BRUNSWICK CORPORATION and Sherwood Medical Industries, Inc., Plaintiffs-Appellees, v. David S. SHERIDAN and National Catheter Corporation, Defendants-Appellants. ocket 76-7414.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 175

582 F.2d 175

1978-2 Trade Cases 62,166

BRUNSWICK CORPORATION and Sherwood Medical Industries, Inc. Plaintiffs-Appellees, v. David S. SHERIDAN and National Catheter Corporation Defendants-Appellants.

No. 541, Docket 76-7414.

United States Court of Appeals Second Circuit.

Argued Jan. 9, 1978.

Decided July 18, 1978.

John P. Arness, Washington, D. C. (Hogan & Hartson, David B. Lytle, and Harold E. Masback, III, Washington, D. C., of counsel), for defendants-appellants.

Watson B. Tucker, Washington, D.C., (Mayer, Brown & Platt, Washington, D. C., Theodore A. Livingston, Jr., Robert L. Stern and Erwin C. Heininger, Chicago, Ill., of counsel), for plaintiffs-appellees.

Before FRIENDLY and VAN GRAAFEILAND, Circuit Judges, and DOOLING, District Judge. ^*

FRIENDLY, Circuit Judge:

Appellees sued in the District Court for the Northern District of New York to enforce a covenant in a settlement agreement made in May 1971 by which, among other things, appellants Sheridan and National Catheter Corporation agreed that for five years they would not make, use, sell or otherwise deal in flexible tubing for medical use incorporating features or configuration of an x-ray or conductive line similar to the products manufactured by appellee Sherwood Medical Industries, Inc., as of February 1969. Federal jurisdiction was based on diversity of citizenship, 28 U.S.C. § 1332. Appellants defended on the ground that the covenant sued upon as construed by appellees was unenforceable because violative of the Federal Antitrust Laws; appellants also counterclaimed under Sections 1 and 2 of the Sherman Act (15 U.S.C. §§ 1, 2) alleging that under appellees' "improperly broad and expansive interpretation" of the covenant it constituted "a contract unreasonably in restraint of trade in violation of Section 1 of the Sherman Act". The basis of both the defense and the counterclaim was, as more fully set out in the counterclaim, that appellees conspired, in unreasonable restraint of trade, to misuse the covenant "to prevent defendants from competing with plaintiffs" in making and selling medical tubing. The counterclaim further charged that appellees had combined and conspired to threaten appellants' prospective customers, bringing about concerted refusals to deal with appellants, for the purpose of destroying appellants' business and restricting or preventing its competition with appellees. It was further charged that appellees were attempting to monopolize the development, manufacture, and sale of catheters and medical tubing in the United States and that as a direct and proximate consequence of appellees' activities appellants had sustained substantial injury to their business and property.

The case was tried to court and jury on the issues framed by the complaint and by the antitrust defense and counterclaim and by additional counterclaims. At the close of all the evidence the case was given to the jury on the complaint for damages and on a counterclaim for interference with contract. A verdict in favor of the plaintiffs-appellees was directed on the antitrust and two other counterclaims. The jury was unable to agree on a verdict and a mistrial was declared. On appellants' application, the district court certified that there was no just reason for delay in the entry of final judgment dismissing the three counterclaims and expressly directed the entry of final judgment to that effect.

The appeal relates to so much of the judgment then entered as dismissed the antitrust counterclaim. Appellees moved to dismiss the appeal on the ground that the dismissal of the counterclaim could not properly be certified for separate final judgment under Rule 54(b) of the Rules of Civil Procedure. A previous panel denied the motion without opinion. We called for additional briefs. Examination of these as well as of the briefs on the merits and the record requires fresh consideration of the question of the appealability of the dismissal of the antitrust counterclaim. As said in Moore, 1B Federal Practice P 0.404(1), at 407:

Since a lower federal court cannot by its law of the case bind a higher court having appellate jurisdiction over it, the only sensible thing for a lower federal court, including an intermediate appellate court, to do is to set itself right instead of inviting reversal above, when convinced that its law of the case is substantially erroneous.

See also Higgins v. California Prune & Apricot Growers, Inc., 3 F.2d 896, 898 (2 Cir. 1924); Cochran v. M & M Transp. Co., 110 F.2d 519, 521 (1 Cir. 1940). The principle stated in Moore and the cited cases is peculiarly applicable to a question of jurisdiction; it would be quite unseemly for a panel of a court of appeals to exercise jurisdiction because a prior panel had denied a motion to dismiss when the court believes it has none.

I

In and before 1959 appellant Sheridan devised and was making and selling plastic tubing for medical uses in various forms; he had obtained patents on some of the devices and had pending patent applications on others. Sheridan had formed, and conducted his manufacturing and selling activities through, Sheridan Catheter and Instrument Corporation. Appellee Brunswick in 1959 and early 1960 negotiated with Sheridan three agreements under which it (a) bought all the stock of Sheridan Catheter, (b) became exclusive licensee of the Sheridan patents and applications listed in the agreement and (c) employed Sheridan as "head" of Sheridan Catheter for five years, and thereafter from year to year until 1974. At the time the agreements were made Sheridan Catheter had gross assets with a book value of about $128,000 and a book net worth of $95,442. Brunswick bought the stock at a premium of $99,400 over the book net worth by issuing to Sheridan and his wife Brunswick shares. The exclusive patent license was for the life of the latest issued patent but was terminable by Brunswick at the end of each five years; for the first five years the minimum royalty was $20,000 a year; the rate of royalty was 4% On the first half million dollars of sales, 3% On the next half million, and 2% On sales over a million dollars. The employment agreement provided Sheridan a salary of $22,500 a year and bound him to disclose to and help Brunswick obtain patents on all discoveries that he made or assisted in making along the lines of Sheridan Catheter's business or any line of business it or Brunswick was conducting. Sheridan agreed also that if he terminated the agreement before 1974 he would not infringe any of the patents licensed to Sheridan Catheter or Brunswick and he further agreed

". . . that he will not enter into or in any way take part in a business in competition with Catheter or Brunswick so long as any license agreement under the Sheridan patents remains in effect between Sheridan and Catheter or Brunswick."

In addition Sheridan agreed that during his employment by Sheridan Catheter or Brunswick he would not engage in any activities directly or through any other business unit competing with the business of Sheridan Catheter or Brunswick: this restriction was to bind Sheridan for five years after 1974 if the employment agreement was not terminated by Sheridan Catheter or Brunswick before that date.

The arrangement apparently functioned well enough until 1967 when Sheridan found or thought that he was being pushed out of managerial control, and, in a sharp exchange of letters between Sheridan and Brunswick in September-October 1967, Sheridan took the position that Brunswick had disaffirmed the employment contract, was in breach of the contract in relegating Sheridan to spearheading product development, and left Sheridan no alternative but to conclude that Brunswick had terminated his employment contract. After ending his employment with Brunswick, Sheridan formed appellant National Catheter Corporation, and he re-entered the field of making plastic tubing for medical uses.

Early in 1968 Brunswick and Sherwood Medical Industries, Inc., ¹ sued Sheridan and National Catheter in the United States District Court for the Northern District of New York for (1) a declaratory judgment that Brunswick had performed its obligations under the employment agreement and that Sheridan had terminated the agreement and was bound by the post-termination provisions of it; (2) an injunction compelling Sheridan and National Catheter to disclose and transfer to Brunswick all Sheridan's discoveries and know-how covered by the employment agreement made after February 1960 and forbidding Sheridan and National Catheter from using or disclosing to anyone other than Brunswick or Sherwood any technical know-how or other trade secrets relating to the business, inventions, improvements, secret processes and formulas; (3) an injunction against the use of trade secrets and confidential information gained by Sheridan while he was working for Brunswick and against interfering with Brunswick's catheter products business or enticing away its employees and customers; and (4) for a declaration that the license agreement (on which over $415,000 in royalties had allegedly been paid) continued in full force, and an injunction against any interference by threats or otherwise with Brunswick or its customers on the basis of alleged infringement of the licensed patents.

Answering, Sheridan and National Catheter asserted in substance that the three 1960 contracts constituted a single master contract, ² that Brunswick breached it by reducing Sheridan's managerial status, and that the breach terminated all aspects of the master contract. Among the affirmative defenses pleaded were a plea that Brunswick's claims were barred by public policy considerations, and a plea that the "noncompete agreement" was unenforceable and unreasonable because unlimited in time, area and circumstance and too broad to be given legal effect. Four counterclaims were pleaded. The first asserted that the entire contract had been terminated...