GSE Consulting, Inc. v. L3Harris Techs.
| Decision Date | 08 February 2023 |
| Docket Number | 22-10647 |
| Parties | GSE CONSULTING, INC., Plaintiff-Appellant, v. L3HARRIS TECHNOLOGIES, INC., Defendant-Appellee. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Appeal from the United States District Court for the Middle District of Florida D.C. Docket No. 6:20-cv-01853-RBD-DCI
Before ROSENBAUM and LAGOA, Circuit Judges, and WETHERELL, [*] District Judge.
This appeal centers around the question of what it means for intellectual property to "merge." Under the terms of a consulting agreement between GSE Consulting, Inc. ("GSE") and Harris Corporation ("Harris"), GSE is entitled to a payment of up to four million dollars in the event that certain intellectual property owned by Harris is "sold, merged or transferred" but did not form "the primary basis of the sale." GSE contends that the relevant intellectual property, held by a subsidiary of one of Harris's subsidiaries, necessarily "merged" when Harris used a different subsidiary to effectuate a comprehensive reverse triangular merger with an outside company and thus triggered Harris's payment obligation under the parties' agreement. L3Harris,[1] however, maintains that Harris's participation in the reverse triangular merger did not cause the relevant intellectual property to "merge," and has accordingly refused to make the demanded payment. The district court agreed with L3Harris and dismissed GSE's breach of contract claim on summary judgment. After careful review, and with the benefit of oral argument, we affirm the district court's ruling.
GSE is a Washington corporation that offers research and consulting services related to infrastructure and energy. GSE's founder and president is George Taylor. L3Harris is a Delaware corporation that specializes in defense and information technology.
In 2008, GSE and Harris began discussing the idea of using radio frequency heating technology to recover heavy oil from oil sands. Those discussions culminated in the two companies developing intellectual property related to radio frequency heating, including a process known as "Effective Solvent Extraction System Incorporating Electromagnetic Heating." To formalize the terms of GSE's continued involvement in the development of oil recovery technology the parties executed a consulting agreement on August 1, 2010 (the "Consulting Agreement").
Under that agreement, GSE was required to furnish "on call" consulting services to Harris through December 31 2022, and any intellectual property developed by GSE while engaged in work for Harris would belong to Harris.[2]
In exchange, the Consulting Agreement sets forth two compensation categories for GSE: base pay and special intellectual property payments. In the ordinary course, GSE is entitled to specified hourly rates and a right of first refusal for ten percent of the direct labor workshare of Harris's projects involving radio frequency heating of hydrocarbons. In the event of certain dealings involving the relevant intellectual property, however, GSE is entitled to additional "intellectual property fees."
Those additional "intellectual property fees" are discussed in Attachment F of the Consulting Agreement, which contains six sections. The first section sets forth definitions for "Intellectual Property" and "Net Acquisition Value." The second section governs GSE's special compensation in the event that Harris sells the relevant intellectual property. The third section governs GSE's special compensation in the event that Harris licenses the relevant intellectual property. The fourth section is titled "Business Development" and governs GSE's special compensation in the event that "the IP is a primary basis for a third party's financial contribution to a business entity created solely or jointly by Harris." The fifth section caps GSE's total recovery under Attachment F at seven million dollars. The sixth and final section, titled "Miscellaneous," contains the following language, which lies at the heart of the parties' dispute:
Doc. 51-1 at 15, § 6(b) (emphasis added).
Separately, the Consulting Agreement also contains a Florida choice-of-law and choice-of-venue provision, an integration clause, a severability clause, and a provision confirming that both parties understood the terms of the agreement and had an opportunity to consult with counsel before execution.
On January 1, 2016, Harris transferred all of its intellectual property to one of its subsidiaries, Harris International, Inc., which then likewise conveyed the intellectual property to its own subsidiary, Eagle Technology, LLC ("Eagle"). The intellectual property discussed in the Consulting Agreement was included in those transfers and remains held by Eagle as of this lawsuit.
In 2018, Harris and L3 Technologies, Inc. ("L3"), announced their intention to merge. The next year, the companies participated in a reverse triangular merger. The standard reverse triangular merger proceeds as follows: an acquiring company creates a transitory subsidiary, that subsidiary merges into a target company, and then that target company survives as the new subsidiary of the acquiring company. Here, Leopard Merger Sub Inc. ("Leopard") was the subsidiary of Harris that merged into L3, and, as a result of that merger, L3 became a subsidiary of Harris. This is when Harris adopted its current name, L3Harris.
The terms of the reverse triangular merger involving Harris, Leopard, and L3, are set forth in the Plan of Merger (the "Plan"). As relevant to this appeal, the Plan implicates, among other things, the intellectual property discussed in the Consulting Agreement.
Section 5.15 of the Plan provides that each party to the reverse triangular merger "exclusively own[s] all right, title and interest to its Company Intellectual Property"[3] and will continue to "own or have sufficient rights to use all Intellectual Property used in or necessary for the operation of their respective businesses as presently conducted, and all such rights will survive unchanged after the consummation of the [reverse triangular merger]."[4] Section 5.15 also contains representations that none of the parties to the reverse triangular merger has knowledge of any claims of infringement, misappropriation, or other violations regarding its own intellectual property, and that each party "has taken commercially reasonable efforts . . . to protect and maintain its Company Intellectual Property." Similarly, Section 8.1 of the Plan provides that each party to the reverse triangular merger "shall not . . . cancel, abandon or otherwise allow to lapse or expire any Intellectual Property that is material to the businesses of L3 and its Subsidiaries or Harris and its Subsidiaries" as conducted at the time of the Plan. Despite these terms, it is undisputed that the intellectual property discussed in the Consulting Agreement was not the primary basis of the reverse triangular merger.
Following the execution of this reverse triangular merger, GSE sent L3Harris an invoice for four million dollars, invoking Section 6(b)(i) of Attachment F to the Consulting Agreement. GSE's position is that all of Harris's intellectual property, including the intellectual property discussed in the Consulting Agreement, was "merged" as a result of the reverse triangular merger because it was "addressed [by] and included in" the Plan. L3Harris ultimately rejected that position and refused to pay the invoice. L3Harris also subsequently shut down the radio frequency heating program in the spring of 2020. According to Taylor, this post-transaction shutdown is precisely the sort of risk that Section 6(b)(i) was meant to mitigate through compensation.
On October 6, 2020, GSE filed suit in the United States District Court for the Middle District of Florida. GSE brought a single breach of contract claim against L3Harris for failing to pay the intellectual property fee contemplated by Section 6(b)(i).
A year later, GSE and L3Harris filed cross-motions for summary judgment.[5] GSE argued that the reverse triangular merger constituted a "merger" of Harris and that Section 6(b)(i) unambiguously requires payment of the intellectual property fee in such cases. In the alternative, GSE argued that, even if Section 6(b)(i) is considered ambiguous, the drafting history of the Consulting Agreement and the testimony of the employees involved in the negotiating its terms establish that Section 6(b)(i) was meant to cover transactions like the reverse triangular merger at issue. L3Harris, meanwhile, argued that Section 6(b)(i) requires payment only in the event that the intellectual property is merged (or sold or transferred) and maintained that no such merger (or sale or transfer) occurred as part of the reverse triangular merger. L3Harris also argued that the consideration of extrinsic evidence is precluded as a matter of Florida law by the unambiguous nature of Section 6(b)(i) and by the Consulting Agreement's integration clause.
On February 1, 2022, the district court entered its summary judgment order, denying GSE's motion and granting L3Harris's. In so ruling, the district court found that Section 6(b)(i) "unambiguously means what it says payment is triggered 'in the event the IP is sold, merged or transferred' - not [Harris]." The district court also rejected the...
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