In re Ducane Gas Grills, Inc.
| Decision Date | 07 October 2004 |
| Docket Number | C/A No. 04-15219-W.,Adversary No. 04-80160-W. |
| Citation | 320 B.R. 312 |
| Court | 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. |
COPYRIGHT MATERIAL OMITTED
Lil Ann Gray, Cooper, Coffas, Moore & Gray, P.A., Columbia, SC, for plaintiffs.
Julio E. Mendoza, Jr., Nexsen, Pruet, Adams, Kleemeier, LLC, Columbia, SC, for defendants.
This matter comes before the Court upon Plaintiffs' Objection to Defendants' Motion for Summary Judgment. In the Objection and in connection with the hearing on Defendants' Motion for Summary Judgment, Newman Grill Systems, L.L.C., Marc Newman and Amy Newman (collectively, the "Plaintiffs") requested disqualification of Nexsen Pruet Adams Kleemeir, L.L.C. ("Nexsen Pruet"), as counsel for Weber-Stephen Products, Co. and Ducane Products Co., a South Carolina corporation formed as a result of Weber's purchase of Ducane's assets (collectively Weber-Stephen Products, Co. and Ducane Products Co. shall be referred to as "Weber"), on the grounds that Nexsen Pruet worked with Plaintiffs during the patent application process arising from Plaintiffs' assignment of intellectual property to Ducane Gas Grills ("Ducane"). The Court heard arguments on the disqualification issue and provided the Plaintiffs and Weber an opportunity to file briefs. After considering the parties' arguments and their briefs, the Court makes the following findings of fact and conclusions of law.1
Systems, L.L.C. ("Newman Systems"), a limited liability company formed in Oklahoma, began developing a specialized multi-purpose grill (the "Chuck Wagon") that could be transported to football games.2
3. On or about June 13, 2003, Newman Systems and Ducane entered into a Confidential Non-Disclosure Agreement ("Confidentiality Agreement"). By the terms of the Confidentiality Agreement, Ducane agreed to accept and hold in confidence certain confidential and proprietary information relating to Newman Systems' business and products.
4. Ducane also agreed that it would only use the information from Newman Systems to determine whether to purchase or assist Newman Systems with the distribution and sale of Newman Systems' products or to enter into some other relationship with Newman Systems. Furthermore, Ducane agreed to return all of Newman Systems' confidential information upon Newman Systems' request or upon termination of its relationship with Ducane.
5. On August 8, 2003, John Ducate, Jr. ("Ducate"), CEO of Ducane, issued a letter (the "Patentability Letter") to Michael Mann, Esq. ("Mann"), an attorney with Nexsen Pruet. In the Patentability Letter, Ducate asked Mann to review an enclosed outline that described the Chuck Wagon to determine what features of the Chuck Wagon are patentable or may be listed as patent pending. Ducate issued a carbon copy of the Patentability Letter to Marc Newman.
6. Mr. Mann subsequently communicated with Plaintiffs regarding the Chuck Wagon. When contacted by Mr. Mann, the Plaintiffs did not inquire about Mr. Mann's experience, his billing rates, or expected charges in the matter.
7. There is no engagement letter between Nexsen Pruet and the Plaintiffs, or other typical client documents such as accounting records, or correspondence relating to the opening of a file in any of the Plaintiffs' names or on their behalf.
8. The Plaintiffs were never charged, and never paid, for any of Nexsen Pruet's services. Instead, Ducane specified and paid for Nexsen Pruet's services.
9. On or about August 18, 2003, the Plaintiffs and Ducane entered into an Exclusive Business Manufacturing and Products Marketing Agreement (the "Marketing Agreement").3
10. Pursuant to the terms of the Marketing Agreement, Ducane held the exclusive rights for the manufacturing, distribution, and sale of the Chuck Wagon and agreed to provide exclusive manufacturer and supplier services to Newman Systems.
11. In return, the Plaintiffs, as independent contractors of Ducane, agreed to be the primary marketing representatives for the Chuck Wagon.
12. The Plaintiffs knew that, pursuant to the Marketing Agreement, the patent application rights were to be owned by Ducane.
13. Under the terms of an Addendum to the Marketing Agreement ("Addendum 1"), which Plaintiffs and Ducane also executed on April 18, 2003, the parties agreed that if Ducane terminated the Marketing Agreement at any time, patents related to the Chuck Wagon would become the sole property of Newman Systems; however, any patents specifically related to grill heads that Ducane developed as part of the Chuck Wagon would not belong to Newman Systems.
14. From August 2003 to early September 2003, Mann worked and corresponded with Plaintiffs while pursuing a patent for the Chuck Wagon on behalf of Ducane.
15. While pursuing a patent on behalf of Ducane, Mann drafted and sent to Plaintiffs, an Assignment of Rights, Title, and Interest in Invention (the "Assignment"), a patent application, and a power of attorney.
16. The record reflects certain e-mail correspondence from Mann to Plaintiffs for the period of August 18, 2003 to September 2, 2003. However, Plaintiffs did not submit further e-mail correspondence or any other forms of correspondence that they sent to Mann. The primary subject of the e-mail correspondence that Plaintiffs received from Mann concerned the exchange of technical information which was necessary to pursuing a patent for Ducane.
17. On September 2, 2003, Plaintiffs executed the Assignment wherein the Plaintiffs assigned all their rights, title, and interest in the Chuck Wagon to Ducane.
18. Plaintiffs did not file a notice of lien or interest in the Chuck Wagon at the United States Patent and Trademark Office, and they did not file a UCC-1 financing statement to protect any asserted interest in the Chuck Wagon.
19. Also on September 2, 2003, a Provisional Application for Patent Serial Number 60/499,604 (the "Provisional Application") was filed with the United States Patent and Trademark Office in order to pursue a patent for the Chuck Wagon for Ducane.4
20. On November 12, 2003, Plaintiffs met with Ducate, and at that meeting, Ducate advised Plaintiffs that Ducane may file for bankruptcy reorganization.
21. On December 5, 2003 (the "Petition Date"), Ducane filed for chapter 11 bankruptcy relief.
22. On December 11, 2003, Ducate informed Plaintiffs of Ducane's chapter 11 filing. However, Plaintiffs did not hire or consult with an attorney with respect to the possible effect of the bankruptcy on their Agreements with Ducane.
23. On February 11, 2004, the Court entered an Order ("Bidding Order") establishing bidding procedures for the sale of Ducane's assets and granting protections to a proposed buyer.
24. On February 26, 2004, Ducane filed and served a Notice of Sale of Property ("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 ("Sale Motion").
25. Ducane did not serve Plaintiffs with any 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 Ducane's assets to either Weber or the Ullman Family Partnership.
26. On March 3, 2004, the Court held a hearing on Ducane's Sale Motion. Weber was declared the successful bidder for Ducane's assets and the assets of F & S Realty, LLC for a purchase price of $13,600,000.
27. On March 5, 2004, the Court entered an Order ("Sale Order") authorizing (1) the sale of Ducane's assets free and clear of liens, claims, encumbrances, and other interests to Weber and (2) distribution of proceeds. Therefore, Weber obtained ownership of Ducane's rights in the Chuck Wagon.
28. On May 20, 2004, Plaintiffs filed a Complaint against Weber; Ducane; Ducane Products Company; and Ira Zolin, the former treasurer of Ducane and a current employee of Ducane Products Company.
29. After filing an Answer to Plaintiffs' Complaint, Weber filed a Motion for Summary Judgment. In response to Weber's Motion for Summary Judgment, Plaintiffs filed an Objection wherein they sought, inter alia, disqualification of Nexsen Pruet as counsel for Weber.
In this case, Plaintiffs argue that the Court should disqualify Nexsen Pruet from representing Weber in this adversary proceeding on conflict of interest grounds because (1) Plaintiffs believed that Nexsen Pruet represented them during the patent application process for the Chuck Wagon and (2) Nexsen Pruet's representation of Weber in this adversary proceeding should be prohibited because it constitutes advocating an interest materially adverse to Plaintiffs' interests in the patent application matter. Plaintiffs also contend that South Carolina law is controlling in this matter and that the applicable rule for disqualification of counsel for a conflict of interest derives from the "substantial relationship" test.5 However, in their legal memorandum, Plaintiffs acknowledge that for their position to prevail that it is their burden is to demonstrate that (1) Plaintiffs and Nexsen Pruet maintained an attorneyclient relationship and (2) communications between Plaintiffs and Nexsen Pruet were confidential and not subject to disclosure to Ducane.
As an additional argument, Plaintiffs also contend that Nexsen Pruet should be disqualified from representing Weber in this adversary proceeding because Nexsen Pruet's representation of Weber gives rise to an appearance of impropriety as viewed by a "common...
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