FedPak Systems, Inc., Matter of
| Decision Date | 19 September 1995 |
| Docket Number | No. 95-1427,95-1427 |
| Citation | 80 F.3d 207 |
| Parties | , Bankr. L. Rep. P 76,996, 38 U.S.P.Q.2d 1411 In the Matter of FEDPAK SYSTEMS, INCORPORATED, Debtor-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 94 C 483--Sarah Evans Barker, Chief Judge.
Thomas D. Titsworth (submitted), Mary L. Titsworth, Wooden, McLaughlin & Sterner, Indianapolis, IN, for appellee.
Christopher E. Baker, Elliott D. Levin, Rubin & Levin, Indianapolis, IN, for debtor-appellant.
Before CUMMINGS, BAUER and COFFEY, Circuit Judges.
The debtor-appellant, FedPak Systems, Inc. ("FedPak"), challenges the district court's decision to vacate an order of the bankruptcy court for lack of jurisdiction. We hold that because FedPak did not have standing to seek the order, the bankruptcy court lacked jurisdiction as a matter of constitutional law. Additionally, we hold that the proceeding initiated by FedPak fell outside the scope of the bankruptcy court's statutory jurisdiction under Title 28 U.S.C. §§ 157(a) and 1334(b). The decision of the district court is affirmed.
FedPak, an Indiana corporation, successfully developed and patented a machine that dispenses ice cream, frozen yogurt, and other frozen confections. On July 28, 1990, FedPak entered into a written agreement with Ventura, Inc. (a yet-to-be-formed company 1 whose role would be to develop further patentable technology for FedPak's benefit), Donald Thomas, Sr., and the appellee Stanley R. Jones, a patent attorney and entrepreneur from Hallowell, Maine. Under the agreement, Jones agreed to finance Ventura's research and development costs (at a level not to exceed $10,000 a month for 12.5 months beginning August 1, 1990) and agreed to acquire a 25% interest in Ventura (250 shares of its common stock). Jones pledged to purchase twenty FedPak machines immediately, for placement in retail outlets. FedPak agreed to "fabricate" these machines "using parts and techniques reflecting current art and [to] deliver same by August 15, 1990." The agreement further specified that "[i]f these machines are placed in retail outlets by September 1, 1990, Stan [Jones] agrees to order at that time an additional 80 FedPak machines, and FedPak agrees to deliver same by November 1, 1990." The agreement made Jones a distributor for FedPak in Texas and Maine 2 and declared that additional distributorship territories would become "irrevocably vested" after Jones ordered the additional 80 machines specified in the agreement. Additionally, the agreement authorized Jones to manufacture frozen dessert machines according to FedPak's "patents, drawings, know-how, and other confidential information," provided that Jones kept this information confidential and paid FedPak a one-time royalty of $500 for each machine manufactured pursuant to the licensing agreement.
In February of 1991, shortly after filing for bankruptcy under Chapter 11, FedPak brought an adversary proceeding against Jones in the bankruptcy court and alleged in its complaint that while it had delivered the initial 20 machines as required by the July 1990 agreement, "only a few [had] been Jones filed an answer and counter-claim, alleging that he had performed all of his obligations under the agreement, and that FedPak had breached the agreement by failing to supply him with the specified "know-how" information and by failing to deliver the 20 initial machines called for in the agreement. 3 Jones asked the court to declare that the agreement was valid and binding and to rule that he was entitled to make use of the intellectual property specified in the agreement, including the "know-how" information withheld by FedPak.
placed in retail outlets." According to FedPak, Jones also breached the agreement by failing to order an additional 80 machines after September 1, 1990 (as called for in the agreement), and by not entering into the distributorship arrangements required by the agreement. FedPak asked the court to declare that Jones had breached the agreement prior to the institution of bankruptcy proceedings (thus releasing FedPak from its contractual obligations) and to enjoin Jones from using FedPak's intellectual property
The bankruptcy court conducted a trial June 3-4, 1991 and announced its findings of fact and conclusions of law on November 7, 1991, entering judgment in favor of Jones. The court concluded that FedPak (and not Jones) had breached the agreement, and that the agreement was valid and binding. Enforcing the contract, the court ruled that Jones was entitled to the distributorship territories in Maine and Texas as well as "the patent and know-how license to be an authorized manufacturer of frozen dessert machines designed by [FedPak]." FedPak appealed this order to the district court, but later voluntarily dismissed the appeal after determining that it was "in the best interests of all parties involved to resolve this matter outside the judicial system."
On January 16, 1992, with the authorization of the bankruptcy court, FedPak transferred all of its intellectual property rights in the FedPak frozen dessert machines to Polar Express Systems International, Inc. ("Polar Express"), in exchange for royalty payments to the bankruptcy estate. 4
More than two years later, in February of 1994 (at the behest of Polar Express), FedPak filed a motion with the bankruptcy court seeking clarification of the court's 1991 findings of fact and conclusions of law regarding the dispute between FedPak and Jones. 5 According to FedPak, the respective intellectual property rights of Jones and Polar Express were unclear because the bankruptcy court's 1991 order had failed to resolve matters such as (1) the extent of Jones's entitlement to certain technological enhancements and patent improvements made by FedPak (and Polar Express) subsequent to FedPak's filing for bankruptcy, and (2) whether Jones's distributorships in Maine and Texas were intended to be exclusive under the July 1990 agreement. The bankruptcy court granted FedPak's motion on March 1, 1994, issuing the order that is the subject of this appeal. The court's order: (1) limited Jones's intellectual property rights under the agreement to the single patent and related know-how in existence at the time FedPak filed for bankruptcy, and (2) provided that the distributorships in Maine and Texas were nonexclusive. Jones appealed this ruling to the district court.
On March 31, 1995, after FedPak had filed this appeal, Polar Express instituted an adversary proceeding in the bankruptcy court, joining FedPak and Jones as defendants. Polar Express requested a declaratory judgment determining the respective rights of itself and Jones in the intellectual property. Jones filed a motion to dismiss, arguing that Polar Express's lawsuit was not a proceeding "related to" a case under Title 11 because the bankruptcy estate had no interest in a controversy that involved Jones and Polar Express, not FedPak (the debtor). On July 31, 1995, the bankruptcy judge granted Jones's motion to dismiss. 6
Although the underlying facts and procedural history of this case are somewhat complex, the sole legal issue in this appeal is relatively straightforward. The question presented--"Did the bankruptcy court have jurisdiction over the proceeding initiated by FedPak in 1994?"--may be analyzed in one of two ways. The district court approached this question by inquiring whether FedPak had standing to seek the clarification order, i.e., whether FedPak was "entitled to have the court decide the merits of the dispute or of particular issues." Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 2205, 45 L.Ed.2d 343 (1975). If FedPak lacked standing to bring the proceeding, then there was no justiciable controversy and the bankruptcy court lacked jurisdiction as a matter of constitutional law. U.S. Const. art III; Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 2136, 119 L.Ed.2d 351 (1992).
An alternative approach to the question presented in this appeal is to ascertain whether the proceeding initiated by FedPak fell within the statutory grant of jurisdiction to the bankruptcy courts under sections 157(a) and 1334(b) of Title 28, which empower a bankruptcy court to entertain proceedings "arising in," "arising under," or "related to" a case under Title 11 of the United States Code.
Appellate review of a bankruptcy court's factual findings is for clear error, while review of its legal conclusions is plenary. Matter of Yonikus, 996 F.2d 866, 868 (7th Cir.1993) (). Whether FedPak had standing to seek the clarification order from the bankruptcy court is a question of federal statutory and constitutional law that we review de novo. Indemnified Capital Inv. v. R.J. O'Brien & Assoc., 12 F.3d 1406, 1409 (7th Cir.1993).
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