In re Access Cardiosystems, Inc., Bankruptcy No. 05-40809.
| Citation | 340 B.R. 127 |
| Decision Date | 31 March 2006 |
| Docket Number | Bankruptcy No. 05-40809.,Adversary No. 05-4076. |
| Parties | In re ACCESS CARDIOSYSTEMS, INC., Debtor. Access Cardiosystems, Inc., North American Enterprises, Inc., John Moriarty and Associates, John J. Moriarty, Richard F. Connolly, Jr., and Joseph R. Zimmell, Plaintiffs, Official Committee of Unsecured Creditors of Access Cardiosystems, Inc., Plaintiffs-Intervenors, v. Randall Fincke, Defendant. |
| Court | United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts |
Jennifer L. Hertz, Jeffrey D. Sternklar, Duane Morris, LLP, Jesse I. Redlener, Christian J. Urbano, Hanify & King, P.C., David G. Sobol, Holland & Knight, LLP, Boston, MA, for Debtor.
Before this Court are "Plaintiffs' Motion for Partial Summary Judgment" (the "Plaintiffs' Summary Judgment Motion") and "Defendant Randall Fincke's Motion for Partial Summary Judgment" ("Fincke's Summary Judgment Motion"). Resolution of each motion requires this Court to determine whether the Plaintiffs are entitled to a declaration that Access Cardiosystems, Incorporated owns the rights under a patent application filed in the name of the defendant, Randall Fincke ("Fincke"), as inventor. Additionally, this Court must determine whether summary judgment in favor of Fincke is appropriate as to the Plaintiffs' claims for common-law and securities fraud.
Access Cardiosystems, Incorporated ("Access" or the "Debtor") filed a voluntary petition seeking relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code" or the "Code")1 on February 8, 2005. Access develops and markets a portable automated external defibrillator (the "AED" or the "Access AED"), and continues to operate its business as a debtor in possession. See 11 U.S.C. § 1107.
The present controversy stems from a pre-petition suit filed in the Massachusetts Superior Court by the Debtor and various of the Debtor's individual investors (together, the "Plaintiffs")2 against Fincke,3 one of Access's founders and stockholders and a former Access director and officer. In the Complaint,4 the Plaintiffs seek, inter alia, a declaratory judgment that Access owns the intellectual property associated with the Access AED and, accordingly, seek an order requiring Fincke, the named inventor in Non-Provisional Patent Application Number 10/232,645 ("the 645 Application"). to assign to Access all rights in the pending patent application, related intellectual property and any ensuing patent.
A detailed examination of Access's history and the development and implementation of the AED technology is necessary to resolve the contested ownership of the intellectual property. Although both parties have attempted to raise the specter of dispute regarding possibly relevant facts, a review of the record demonstrates that the material facts are essentially undisputed.5
The development of the technology underlying the Access AED began in March of 2000, prior to Access's incorporation, when Fincke "started developing ... new defibrillation technology." In conjunction with his burgeoning idea, Fincke approached Gregory Baletsa regarding the formation of a corporation to exploit the technology. Fincke asked Baletsa to begin the steps necessary to prepare for the incorporation of a business to produce, market and sell the end product, while Fincke would concentrate his efforts on developing the appropriate technology. Baletsa agreed, advanced $50,000 of his own funds as initial financing, and in return for his work on the administrative tasks, was to receive a percentage share of stock in the corporation.
In addition to Fincke and Baletsa, other individuals also began working on the AED technology in the spring of 2000.6 Baletsa contacted Keith Bowers ("Bowers"), an electrical engineer, to recruit his assistance with the new technology. Baletsa and Bowers met on March 13, 2000 to discuss Bowers' possible involvement in the company. At that meeting, Baletsa told Bowers that Baletsa was the president of a new company being formed to develop and market defibrillator technology. Baletsa further explained that he and Fincke were trying to avoid venture capital investment and would compensate Bowers for his work through stock options in the to-be-formed corporation. Bowers accepted Baletsa's offer and began work as a "consultant" to Access in late March or early April of 2000.
During the same time frame, Baletsa and Fincke also approached Alan Adamsky, another electrical engineer. Fincke maintains that Adamsky was not working for Access prior to incorporation, and that, initially, Fincke merely asked Adamsky certain questions regarding a charging circuit for the AED. But Adamsky testified at his deposition that he began work as a "consultant" to Access in March of 2000 before the company's incorporation. It is not disputed, however, that Adamsky was brought into the endeavor in some capacity prior to Access's formal incorporation. Like Bowers, Adamsky was to be initially compensated with stock options in the company.7
David Barash, Access's Medical Director, and Jonathan Epstein, an AED trainer, were also brought on prior to Access's incorporation.8 It was agreed that they, too, would be compensated with stock options in Access. It is clear from the parties' testimony at deposition that those to be initially compensated with stock options would receive cash for their services when monies became available. Cash payments were eventually made, all of which were paid by Access, and not by Fincke personally.
In his response to the Plaintiffs' Request for Admissions ("RFA's"), Fincke stated that no "formal or informal structure" was in place prior to the incorporation of Access. The evidence, however, conclusively shows otherwise. In addition to the hiring of various consultants to assist in technological and administrative development, other evidence of a more formal business venture appear in the record. For instance, by May of 2000, a checking account had been opened and a Workers Compensation and Employers Liability Insurance Policy had been obtained — both in the name of the unincorporated business. And, by June of 2000, when the AED technology had progressed to the point of apparent viability, Fincke and Baletsa met with Randy LaCasse, a patent engineer, to discuss the filing of a provisional patent application. LaCasse was hired on behalf of Access to do preliminary work that would eventually lead to the filing of that application.
On July 5, 2000, Access was formally organized as a Massachusetts corporation under the name "Acelex Corporation" (hereafter, also referred to as "Access").9 The Articles of Organization state that the purpose of the corporation is to "engage in the business of designing, manufacturing, distributing and selling emergency defibrillation equipment ...." Fincke and Baletsa were named as the company's only directors and officers; Fincke was listed as Vice President and Treasurer, and Baletsa was listed as President.
When Access was first incorporated, Fincke and Baletsa were the only stockholders, with Fincke holding approximately 85 percent of the issued shares. A Stockholders Agreement executed by Fincke and Baletsa on June 7, 2000 contains several restrictions on the voluntary transfer of Access stock, including rights of first refusal by Access should any stockholder wish to transfer his shares. An Amendment to Stockholders Agreement executed January 18, 2001 incorporated the terms of the original agreement, but reflected the addition of Barash as an Access stockholder. By virtue of the amended agreement, Fincke held approximately 85 percent of issued shares, Baletsa held approximately 11.5 percent, and Barash held approximately 3.5 percent.10
Although Baletsa was initially listed as the company President, it is clear from the record that Fincke generally controlled Access from conception through incorporation and beyond. Fincke testified at deposition that Baletsa did not adequately perform his duties as President, leaving Fincke to control and direct a majority of the company's administrative activities. Following Baletsa's resignation in January of 2001, Fincke took over the role as President. Fincke remained the majority stockholder and sole director until April of 2003. Even after he no longer retained a majority of stock ownership in Access, Fincke continued to function as President and CEO until November 2003.
An initial provisional patent application (the "First Provisional Application") for a "Defibrillator AED Unit" was filed on August 31, 2001 in the United States Patent and Trademark Office. Fincke was named as sole inventor. LaCasse was hired by Access to prepare and file the application, and all associated costs were paid for by Access. Access subsequently hired new patent counsel, Mark Pandiscio ("Pandiscio"). Pandiscio filed a second provisional patent application (the "Second Provisional Application") related to the AED technology in May of 2002.11
In order to retain August 31, 2001 as the priority date for the claims listed in the First Provisional Application, it was necessary to file a non-provisional application covering the disclosed invention within one year. Non-provisional Patent Application Number 10/232,645 (the "'645 Application") was timely filed, though at the last possible moment, on August 30, 2002. The '645 Patent Application lists the invention as an "Automated External Defibrillator (AED) System," with Fincke as the sole inventor. In an affidavit submitted in conjunction with the summary judgment motions, Pandiscio states that he listed Fincke as the sole inventor on both the...
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