In re Ducane Gas Grills, Inc.

• Decision Date: 24 November 2004
• Docket Number: Bankruptcy No. 03-15219-JW.,Adversary No. 04-80160-JW.
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina
• Parties: In re DUCANE GAS GRILLS, INC., Debtor. Newman Grill Systems, LLC, Marc Newman, and Amy Newman, Plaintiffs, v. Ducane Gas Grills, Inc., Weber-Stephen Products Co., Ira Zolin, and Ducane Products Co., Defendants.

320 B.R. 341

In re DUCANE GAS GRILLS, INC., Debtor.

Newman Grill Systems, LLC, Marc Newman, and Amy Newman, Plaintiffs, v. Ducane Gas Grills, Inc., Weber-Stephen Products Co., Ira Zolin, and Ducane Products Co., Defendants.

Bankruptcy No. 03-15219-JW. Adversary No. 04-80160-JW.

United States Bankruptcy Court, D. South Carolina.

November 24, 2004.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Nancy E. Johnson, Robinson Barton McCarthy & Calloway, Columbia, SC, for Debtor.

Joseph F. Buzhardt, III, Office of the United States Trustee, Columbia, SC, for trustee.

Lil Ann Gray, Cooper Coffas Moore & Gray, P.A., Columbia, SC, for Plaintiffs.

JUDGMENT

JOHN E. WAITES, Bankruptcy Judge.

Based upon the findings of fact and conclusions of law made in the attached Order, the Court grants summary judgment to Debtor on Plaintiffs' First, Second, Third, Fifth, and Sixth Causes of Action, and grants partial summary judgment to Debtor on Plaintiffs' Fourth Cause of Action.

ORDER

This matter comes before the Court upon the Motion for Summary Judgment filed by Ducane Gas Grills, Inc. ("Debtor"), as a defendant herein, and Newman Grill Systems, LLC ("NGS"), Marc Newman's and Amy Newman's (the "Newmans", and collectively with NGS, "Plaintiffs") opposition thereto. The parties submitted memoranda, affidavits, and transcripts of depositions ¹ in support of their respective positions. Based upon the filings made by the parties, the affidavits and deposition testimony submitted by the parties, and the arguments of counsel at the hearing, the Court makes the following findings of fact and conclusions of law.²

FINDINGS OF FACT³

1. In April 2002, Marc and Amy Newman, members of NGS, began developing a transportable and specialized multi-purpose grill (the "Chuck Wagon").⁴

2. In September 2002, Plaintiffs introduced the Chuck Wagon to the public at the Oklahoma state fair.

3. On or about June 13, 2003, Debtor and NGS entered a Confidential Non-Disclosure Agreement (the "Confidentiality Agreement"). Pursuant to the Confidentiality Agreement, Debtor agreed to accept and hold in confidence certain confidential and proprietary information relating to NGS's business and products.

4. Debtor also agreed to only use the information provided by NGS to evaluate whether Debtor should purchase and/or assist NGS in the distribution and sale of NGS's products or enter into some other business relationship with NGS. Additionally, Debtor agreed to return all of NGS's confidential information upon NGS's request or upon termination of their business relationship.

5. On August 18, 2003, Debtor and Plaintiffs entered an Exclusive Business, Manufacturing, and Products Marketing Agreement (the "Marketing Agreement") (hereinafter, the Confidentiality Agreement and the Marketing Agreement shall collectively be referred to as the "Newman Agreements").

6. Pursuant to the terms of the Marketing Agreement, Debtor held the exclusive rights for the manufacturing, distribution, and sale of the Chuck Wagon and agreed to provide exclusive manufacturer and supplier services to NGS.

7. In return, Plaintiffs, as independent contractors of Debtor, agreed to be the primary marketing representatives for the Chuck Wagon.

8. Pursuant to the Marketing Agreement, Debtor owned the Chuck Wagon and any derivatives of it.

9. Under the terms of an Addendum to the Marketing Agreement ("Addendum 1"), which Debtor and Plaintiffs also executed on August 18, 2003, the parties agreed that if Debtor terminated or failed to renew the Marketing Agreement at any time, patents related to the Chuck Wagon would become the sole property of NGS; however, any patents specifically related to grill heads that Debtor developed as part of the Chuck Wagon would not belong to NGS.

10. The termination provision of the Marketing Agreement provides that either Debtor or Plaintiffs "may terminate this Marketing Agreement for any or no reason by giving ninety (90) days notice to the other party prior to the end of the initial two (2) year term or any renewal term. In addition, either party may terminate this Agreement early with sixty (60) days written notice to the other party in the event that the other party is in `material default' of its obligations ...."

11. Neither Plaintiffs nor Debtor have presented evidence demonstrating that either party terminated the Marketing Agreement or provided notice of material default of obligations pursuant to the Marketing Agreement's termination provision.

12. Plaintiffs assigned all their rights, title and interest in the Chuck Wagon to Debtor on September 2, 2003 by executing an Assignment of Rights, Title and Interest in Invention (the "Assignment").

13. Also on September 2, 2003, Debtor's patent attorneys filed a Provisional Application for Patent Serial Number 60/499,604 (the "Provisional Application") with the United States Patent and Trademark Office ("USPTO") in order to pursue a patent for the Chuck Wagon for Debtor.⁵

14. Plaintiffs did not file a notice of lien or interest in the Chuck Wagon at the USPTO, and they did not file a UCC-1 financing statement to protect any asserted interest in the Chuck Wagon created by the terms of the Newman Agreements.

15. On November 12, 2003, Plaintiffs met with John Ducate, Jr. ("Ducate"), CEO of Debtor, and at that meeting, Ducate advised Plaintiffs that Debtor might file for bankruptcy reorganization.

16. On December 5, 2003 (the "Petition Date"), Debtor filed for relief under Chapter 11 of the Bankruptcy Code.⁶

17. On December 11, 2003, Ducate informed Plaintiffs of Debtor's Chapter 11 filing. However, Plaintiffs did not hire or consult with an attorney in order to determine the possible effect of the bankruptcy on the Newman Agreements.

18. Soon after Debtor filed its bankruptcy case, issues arose regarding Debtor's proposed use of cash collateral; the right of Debtor's senior secured creditor, Fleet Capital Corporation ("Fleet"), to obtain stay relief; and the possible conversion of the case to Chapter 7. Such issues posed a significant threat to Debtor's ability to successfully reorganize.

19. On January 28, 2004, the Court conducted a hearing on Debtor's proposed continued use of cash collateral, on Fleet's motion for stay relief pursuant to 11 U.S.C. § 362(d), and on Fleet's motion to convert the bankruptcy case from a Chapter 11 case to a Chapter 7 case. The resolution of these matters resulted in the Order (1) Continuing Authorization of Debtor to Use Cash Collateral on Interim and Limited Basis; (2) Expediting Hearing on Motion for Relief from Stay if Necessary; and (3) Continuing Motion to Convert entered on February 4, 2004 (the "Order of February 4, 2004"). The Order of February 4, 2004 required Debtor to immediately proceed with a sale of its assets or risk the loss of authorization to use cash collateral, the granting of stay relief to Fleet, and possibly conversion of the case to Chapter 7.

20. On February 11, 2004, upon Debtor's motion, the Court entered an Order establishing bidding procedures for the sale of Debtor's assets and granting protections to a proposed buyer (the "Bidding Order").

21. On February 26, 2004, Debtor filed and served a Notice of Sale of Property (the "Sale Notice") and a Motion for Order Authorizing (1) Sale of Assets Free and Clear of Liens, Claims, Encumbrances, and Other Interests and (2) Distribution of Sale Proceeds (the "Sale Motion").

22. Debtor did not serve Plaintiffs with the Sale Notice, the Sale Motion, or the Bidding Order; however, in early February 2004, Marc Newman met with Ducate and Ducate advised Marc Newman of an impending sale of Debtor's assets to either Weber-Stephen Products Co. ("Weber") or the Ullman Family Partnership ("Ullman").

23. On March 3, 2004, the Court held a hearing on Debtor's Sale Motion and, following a competitive bidding process, Weber was declared the successful bidder for substantially all of Debtor's assets and the assets of F & S Realty, LLC ("F & S") for an aggregate purchase price of $13,600,000.⁷

24. On March 5, 2004, the Court entered its Order Authorizing (1) Sale of Assets of the Debtor Free and Clear of Liens, Claims, Encumbrances and Other Interests to Weber-Stephen Products Co. and (2) Distribution of Sale Proceeds (the "Sale Order"). The Sale Order provides that Debtor's sale and transfer of ownership of its assets to Weber and/or Weber's assignee is free and clear of all liens, claims, encumbrances, and other interests. Furthermore, the Sale Order deemed Weber a good faith purchaser subject to the protections provided by § 363(m).

25. Shortly thereafter, on March 8, 2004, Debtor filed an Amended Disclosure Statement (the "Disclosure Statement") and an Amended Plan of Reorganization (the "Plan"). The Disclosure Statement and Plan restate and recognize with approval the court-approved sale to Weber and the proposed distribution of sales proceeds.

26. On March 9, 2004, Weber and its assignee, DPC, formally purchased the Debtor's and F & S's assets pursuant to an Asset Purchase Agreement that became effective on February 13, 2004 (as amended from time to time, the "Asset Purchase Agreement") and the terms of the Sale Order. The purchased assets included the Chuck Wagon. Therefore, Weber owns Debtor's interests in the Chuck Wagon.

27. Under the terms of the Asset Purchase Agreement, Weber did not assume either of the Newman Agreements.

28. On April 27, 2004, Plaintiffs filed a Notice of Appearance and requested service in the case.

29. On May 14, 2004, Plaintiffs filed an Application for Administrative Expense pursuant to § 503(b)(1) seeking compensation for postpetition sales and a buy-out of patent rights in the total amount of $975,368.80.

30. On May 20, 2004, Plaintiffs filed a complaint (the "Complaint") against Weber and Debtor.

31. After a hearing held on May 18, 2004, the Court approved Debtor's Amended Disclosure Statement on May 20, 2004.

32. On May 24, 2004, Debtor's...