Hyman v. Regenstein, 16816.

• Decision Date: 21 November 1958
• Docket Number: No. 16816.,16816.
• Citation: 258 F.2d 502
• Parties: Julius HYMAN, Appellant, v. Joseph REGENSTEIN (Continental Illinois National Bank & Trust Company of Chicago, Helen A. Regenstein, Betty R. Hartman and Joseph Regenstein, Jr., Co-Executors, substituted in place of Joseph Regenstein, deceased), Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

258 F.2d 502 (1958)

Julius HYMAN, Appellant, v. Joseph REGENSTEIN (Continental Illinois National Bank & Trust Company of Chicago, Helen A. Regenstein, Betty R. Hartman and Joseph Regenstein, Jr., Co-Executors, substituted in place of Joseph Regenstein, deceased), Appellees.

No. 16816.

United States Court of Appeals Fifth Circuit.

July 23, 1958.

Rehearing Denied November 21, 1958.

COPYRIGHT MATERIAL OMITTED

William G. Blood, Chicago, Ill., Hopkins, Sutter, Owen, Mulroy & Wentz, Chicago, Ill., of counsel, for appellant.

Floyd E. Thompson, Chicago, Ill., Thompson, Raymond, Mayer, Jenner & Bloomstein, Chicago, Ill., Walter Humkey, Miami, Fla., Fowler, White, Gillen, Yancey & Humkey, Miami, Fla., for appellees.

Before JONES, BROWN, and WISDOM, Circuit Judges.

WISDOM, Circuit Judge.

This is an appeal from a judgment of the District Court for the Southern District of Florida dismissing Julius Hyman's suit against Joseph Regenstein. Suit was filed in the Circuit Court of Palm Beach County, Florida, and removed on the ground of diversity of citizenship. The matter in controversy is said to involve some $20,000,000.

The complaint alleges that Regenstein was in a fiduciary relationship with Hyman that he violated by acts of fraud, deceit, and overreaching. The prayer asks for imposition of a constructive trust, an accounting, and damages.

I.

The case is singular. Hyman's theory of the case would allow him to snatch victory from five defeats in the courts. In each of these decisions the court held against Hyman on all of his contentions. Now reiterating in one suit the contentions he had spread over four answers and a complaint, Hyman argues that what the five courts did was to give effect to Regenstein's bad faith. Thus, instead of the adverse adjudications being a bar to Hyman's suit, they are a necessary ingredient of his cause of action. He claims immunity from res judicata, because he sued Regenstein (not Velsicol Corporation) and the cause of action and relief sought are not the same as in the prior litigation.

Most of the issues on which Hyman's cause of action depends have been fought over one or more times and decided against Hyman. Under the doctrine of collateral estoppel by judgment he is not entitled to relitigate these issues.

There are other questions. Hyman contends that he and Regenstein were engaged in a joint venture, and he contends that Regenstein was in position of trust. Each contention is said to establish a fiduciary relationship Regenstein is alleged to have violated. These questions, too, we decide in favor of appellees.

II.

Focal point in the long dispute between the parties is the ownership of chlordane, a commercially successful insecticide. Hyman, while working for Velsicol Corporation, invented chlordane. Regenstein was president of Velsicol and its effective majority stockholder. He died while this case was pending on appeal.

Julius Hyman, born in 1901, and Joseph Regenstein, born in 1889, were first cousins. Regenstein's father, and later Regenstein himself, helped finance Hyman's education. Hyman acquired degrees in chemistry from the University of Chicago and the University of Leipzig, and later was employed by Pure Oil Company as a research chemist on the company's petroleum cracking process. In 1930, Hyman filed two patent applications covering a process for the use of petroleum polymers in formulations with vegetable fast-drying oils, producing a synthetic oil having many of the characteristics of linseed oil. In November, 1930, he approached a cousin, Henry Degginger, to discuss means for financing the inventions. Degginger was the second largest stockholder and an officer of Arvey Corporation in Chicago. Regenstein was the largest stockholder in Arvey and in another company, Transo Envelope Corporation. Hyman met with Degginger and Regenstein and convinced them that his inventions had commercial possibilities. Shortly thereafter Hyman discussed the matter with Perry Schneider, the second largest stockholder and an officer of Transo. Regenstein, Schneider, Degginger and Hyman agreed in December, 1930, to organize a corporation, the stockholders to be Hyman and the two corporations that might benefit from the inventions, Arvey and Transo.

Early in January, 1931, Varnoil Corporation was organized under the laws of Illinois to engage in business in the field of chemistry. 200 shares of stock having a par value of $100. a share were issued, 40 shares to Hyman and 80 each to Arvey and Franso. Varnoil purchased Hyman's two inventions for $4,000. With this money Hyman purchased his stock in Varnoil. Later, the name of the corporation was changed to Velsicol. The Board of Directors was composed of Hyman, Regenstein, Schneider, Degginger, and Sidney Blum, (another stockholder, director, and officer of Arvey). Regenstein was elected president, Hyman vice-president, and Schneider secretary-treasurer. Hyman was employed as general manager and was paid a salary by the corporation.

The record shows that it was the established policy of Velsicol, as a condition of employment, that every employee sign a secrecy agreement with the corporation. The agreement provided that all inventions made during the course of employment were the property of the corporation. It obligated the employee to keep secret for the exclusive benefit of the corporation discoveries made by the employee or disclosed to him. Regenstein contends that all employees, including Hyman, signed these agreements. He introduced into evidence agreements signed by all employees, except Hyman. Secrecy agreements were signed between Transo and all the Velsicol employees, including Hyman, because Velsicol was doing research work for Transo. Hyman was familiar with Velsicol's policy concerning these secrecy agreements. As general manager he required all employees, without exception, to sign these agreements. Hyman calls this contract a "Phantom Agreement". He denies that he ever signed such an agreement, although for approximately fifteen years after the formation of the corporation, without raising a question, he assigned some forty inventions to the corporation. In each instance he assigned his patent application to Velsicol simultaneously with the signing of the applications. These assignments were recorded in the Patent Office, and the registered document was returned to Hyman as the operating head of Velsicol to be retained as property of the corporation. At no time prior to 1943 did Hyman question his obligation to assign the inventions nor did he ever suggest that his assignments were voluntary contributions by him to the company.

Some time around October 1, 1943, two years before Hyman's first refusal to assign an invention, he was at a party at Regenstein's home. He told Regenstein that he did not feel that he should continue to assign his inventions to the corporation unless he received greater participation in the fruits of the inventions. Hyman was then receiving a salary of $18,200 a year and he had a 20 per cent interest in Velsicol. Regenstein testified that this was the first time Hyman had complained about making the assignments. Velsicol then owed half a million dollars to Arvey and Transo for sums advanced for research and development. Reminding Hyman of his agreement, Regenstein said: "If that's the way you feel we may as well call the whole thing quits." Hyman said that he did not want that result. Regenstein suggested that he continue to make assignments to Velsicol and that the matter of increased compensation or a larger interest would be worked out "at the proper time." This, Hyman says, was "the False Promise". No plan was ever agreed upon or even discussed. Hyman continued to assign his inventions. Shortly after this conversation, to which Hyman attaches great importance, Velsicol attempted to raise his salary to $30,000 but was not permitted to do so, because of war-time salary stabilization regulations. In 1945, as soon as salary restrictions were removed, Hyman's salary was increased from $18,200 a year to $31,200 a year. There was no further discussion of assignment of patent applications until the summer of 1946 when Regenstein discovered that Hyman had not assigned to the corporations patent applications covering chlordane, an insecticide developed in Velsicol's laboratory at costs in excess of $100,000.

On March 2, 1945 three of the corporation's research chemists, Herzfeld, Lidov, and Bluestone, filed a patent application as joint inventors on new and apparently valuable insecticides. This patent was assigned to the corporation, and the recorded assignment was returned as usual to Hyman for safekeeping. On July 25, 1945 Hyman filed an application for a patent on an invention based on chlorination of the adducts which were disclosed in the Herzfeld-Lidov-Bluestone application. He withheld the assignment of this application. This was Hyman's first refusal to assign an invention to Velsicol in approximately fifteen years, although in 1943, just prior to the socalled "false promise" conversation at Regenstein's party, Hyman had balked at assigning another patent application that he later assigned. On January 5, 1946 the three chemists who invented the first insecticides filed a second application making enlarged claims. The application was assigned to the corporation. Three weeks later Hyman filed a second patent application relating to the halogenated derivatives of the adducts disclosed in the second tri-party patent. He withheld the assignment of this application. These two applications covered chlordane.

Early in June, 1946, Regenstein asked Hyman to assign the two patent applications for chlordane to Velsicol. Hyman refused, unless he were given a controlling interest in Velsicol. Regenstein took the position that Hyman was bound by contract to make the assignment and that until Hyman did he would not discuss the subject of greater participation. Finally, on September 13, 1946,...