First Nat. Bank of Maryland v. Burton, Parsons & Co., Inc.

• Decision Date: 03 February 1984
• Docket Number: No. 401,401
• Citation: 57 Md.App. 437,470 A.2d 822
• Parties: FIRST NATIONAL BANK OF MARYLAND and Gilbert E. South, Personal Representative of the Estate of Billy F. Rankin v. BURTON, PARSONS & CO., INC., et al. Sept. Term 1983.
• Court: Court of Special Appeals of Maryland

Page 437

57 Md.App. 437

470 A.2d 822

FIRST NATIONAL BANK OF MARYLAND and Gilbert E. South, Personal Representative of the Estate of Billy F. Rankin v. BURTON, PARSONS & CO., INC., et al.

No. 401 Sept. Term 1983.

Court of Special Appeals of Maryland.

Feb. 3, 1984.

Thomas J. Shaughnessy, Fairfax, Va., with whom were Dexter S. Odin, Sally Ann Hostetler, Odin, Feldman & Pittleman, P.C., Fairfax, Thomas D. Murphy and Madden & Murphy, Rockville, on the brief, for appellants.

Jeffrey S. Davidson, Washington, D.C., with whom were David K. Perdue, John M. Walker, Kirkland & Ellis, Washington D.C., Patrick J. Attridge, John A. King and MacLeay, Lynch, Bernhard, Gregg & Attridge, Rockville, on the brief, for appellees.

Argued before GILBERT, C.J., and BISHOP and ALPERT, JJ.

GILBERT, Chief Judge.

Words, it has been said, are the expression of ideas. Accepting that as true, we wish, in the instant case, that the parties' ideas had been more clearly expressed.

As this appeal reaches us, it involves claims for royalties on patents, allegations of discovery rule violations, quantum meruit, an assertion of fraud, a $750,000 verdict against the appellee, and a cross-appeal.

Before we endeavor to unravel the wopse in which the parties placed themselves, we shall describe the factual setting from which this litigation arose.

Dr. Billy F. Rankin was a successful inventor who developed an entire line of ophthalmic and contact lens products. Virtually all of Dr. Rankin's inventions were originated while he was an employee of Burton, Parsons & Co., Inc., a Montgomery County concern owned, for most of the time with which we are concerned, by the Manfuso family. Dr. Rankin was first hired by Burton, Parsons in 1960 at a weekly salary of $100.00. He worked for the company from 1960 until his death in 1981. During that period Burton, Parsons grew from a small manufacturer of two bulk laxatives into an international corporation with domestic and foreign subsidiaries devoted almost exclusively to contact lens and eye care products.

Over the twenty-one years of their association, Dr. Rankin and Burton, Parsons entered into several written agreements. The first of which, dated March 15, 1961, was a contract of employment. It provided in part "6. Inventions, Formulas or Discoveries:

Employee agrees that any inventions, formulas or discoveries which Employer [sic] may obtain knowledge of through his research and development efforts or otherwise in the course of his employment shall be and become the sole property of Employer. Employee agrees to disclose fully to Employer all particulars including know-how incident to any such invention, formula or discovery and to execute such patent applications, assignments of patent or further assurances as may be required to vest full and perfect title to such inventions, formulas or discoveries in Employer. However, the vesting of title in Employer, as aforesaid, shall not preclude the parties hereto from negotiating a further agreement for payment to Employee of royalties or other compensation for such inventions, formulas or discoveries as may prove capable of commercial development. It is agreed that the amount of such compensation, if any, will be dependent upon factors presently incapable of accurate appraisal, such is [sic] patentability, competitive products, public acceptance, etc., and for that reason no more definite agreement is attempted at this time relative to royalties.

Should employer decline to utilize an invention, formula or discovery of Employee for a period of two years after its full disclosure by Employee and for a period of six months after notification by Employee, then all proprietary rights to such invention, formula or discovery shall revest in Employee and he shall have a full and perfect title to same which he may utilize in promoting the product himself or which he may convey to another prospective purchaser."

Later that year the parties contracted what is now styled as "1961 Royalty Agreement." That contract provided for the payment to Rankin of royalties based on the foreign and domestic net sales of the products known as "Clens," "Soa-Clens," ¹ and "Soothe."

Another royalty agreement was negotiated by Dr. Rankin and Burton, Parsons in 1968. It was virtually identical to the 1961 Royalty Agreement in all but a few aspects. The earlier agreement provided for royalty payments during the lives of the products, while the latter accord called for the payments to terminate upon the expiration date of the patents, irrespective of the products' life span. The 1961 Royalty Agreement provided for the payment of royalties on "Soa-Clens" only when the net sales of that product exceeded a floor of $25,000. On the other hand, the 1968 Royalty Agreement eliminated the sales floor. Furthermore, the 1968 Royalty Agreement expressly superseded the 1961 Royalty Agreement.

In addition to payments under the 1961 and 1968 written agreements, Dr. Rankin received royalties on four other creations. Those four inventions were marketed as the Adsorbobase products, and payments were made to Dr. Rankin pursuant to an oral agreement with Burton, Parsons.

It appears from the record that Dr. Rankin received from salary and royalties an annual average income of $100,000 throughout the 1970's. Between 1969 and 1981, seventeen Rankin products generated in excess of 220 million dollars in net sales for Burton, Parsons. Thus, it appears both Rankin and Burton, Parsons prospered, the latter perhaps better than the former.

The Manfuso family sold their Burton, Parsons stock in 1979 to Nestle, S.A., and the Manfusos resigned their positions as company officers. Shortly thereafter, Burton, Parsons was merged into Alcon Laboratories, a Nestle subsidiary. Alcon continued to make royalty payments to Dr. Rankin, who remained an employee following the acquisition and merger. We shall for the purpose of continuity refer to the employer as Burton, Parsons.

Apparently no royalties were paid on several of Rankin's creations that were being marketed by Burton, Parsons, and in 1981 Dr. Rankin requested a commencement of negotiations with respect to royalties. We infer that progress satisfactory to Rankin was never made on those negotiations, inasmuch as suit was commenced by Rankin in January, 1982. Rankin's declaration alleged breaches of contract occasioned by Burton, Parsons's failure to pay the royalties due to Dr. Rankin. Additional claims were made in quantum meruit as well as for fraud, punitive damages, and for declaratory judgments with respect to future royalty payments.

The day after Rankin's suit was filed, he died. ² His personal representatives, First National Bank of Maryland and Gilbert E. South, were substituted as parties plaintiff. By the time Burton, Parsons & Co., Inc., and Alcon Laboratories, Inc., entered their pleas, the personal representatives were parties of record. Throughout this opinion we shall refer to the personal representatives as Rankin.

After a five day jury trial in the Circuit Court for Montgomery County (Miller, J.), the jury returned a verdict for Rankin in the amount of $750,000, a sum it found to be owed to Dr. Rankin for unpaid royalties. Motions for a judgment non obstante veredicto and a new trial were denied. This appeal and cross-appeal ensued.

Rankin has posed six issues to us, and Burton, Parsons has posited three additional ones. We classify and enumerate the issues as follows:

Rankin's Appeal

1. The trial judge erred when he refused to enter a default judgment against Burton, Parsons because of the latter's alleged discovery violations, notwithstanding a threat of such sanction by another judge at an earlier time.

2. Judge Miller committed reversible error when he directed a verdict that the contract of employment, claimed by Rankin to provide an enforceable duty by Burton, Parsons to pay royalties, was unambiguous and imposed no enforceable duty to pay royalties.

3. Reversible error was made when the trial judge directed a verdict on quantum meruit on the ground that the contract of employment created no duty to pay royalties and whatever was owed had been paid.

4. It was error to grant a directed verdict that the contract of employment created no present or past right to royalties, and there could be no future right to receipt of royalties.

5. It was error to admit into evidence the testimony of John Manfuso, Sr., because that testimony violated the "Dead Man's Statute," Md.Cts. & Jud.Proc.Code Ann. § 9-116.

6. The trial judge erred when he took from the jury Rankin's fraud claim.

Burton, Parsons's Cross-Appeal

7. Judge Miller erred when he ruled that the terms "net sales" and "sales in foreign countries," as used in the royalty agreements, were unambiguous, thereby precluding the jury's consideration thereof.

8. It was error to exclude from the jury's consideration two documents that Burton, Parsons sought to introduce into evidence to clarify the terms of an oral agreement to pay royalties.

9. The evidence was insufficient to sustain the jury's award of $750,000 to Rankin.

I.

Rankin's Appeal

1. The Discovery Ruling

Rankin asserts that on four separate occasions he filed motions for sanctions against Burton, Parsons because of its failure to obey the Maryland Rules relating to discovery. On the third such occasion Judge Stanley B. Frosh threatened to enter judgment against Burton, Parsons if it did not comply with Rankin's requests. The fourth and final motion was heard by Judge Miller who refused to sanction Burton, Parsons, notwithstanding Judge Frosh's earlier threat. In this Court, Rankin avers that Judge Miller's declination to enter judgment against Burton, Parsons because of its refusal or failure to obey the discovery rules constitutes an abuse of discretion. We are asked to remand "for the entry of a judgment by default, or for a new trial with facts (sought to be ascertained through discovery) taken as...