Integrated Solutions v. Service Support Specialties
| Decision Date | 11 March 1996 |
| Docket Number | Civ. A. No. 94-4953(JCL). |
| Citation | 193 BR 722 |
| Parties | INTEGRATED SOLUTIONS, INC., Plaintiff, v. SERVICE SUPPORT SPECIALTIES, INC., et al., Defendants. |
| Court | U.S. District Court — District of New Jersey |
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Susan Stryker, Sterns & Weinroth, Trenton, NJ, for Plaintiff.
John P. Leon, Horn, Goldberg, Gorny, Daniels, Plackter & Weiss, Voorhees, NJ, Andrew P. Napolitano, Robinson, St. John & Wayne, Newark, NJ, Michael M. Rosenbaum, Budd, Larner, Gross, Rosenbaum, Greenberg & Sade, P.C., Short Hills, NJ, for Defendants.
Service Support Specialties, Inc., Gary Hillman, Paul Sherman, Joseph O'Neill and Aaron Cruise (hereinafter "the SSSI defendants") move for partial summary judgment dismissing Counts One through Seven of Integrated Solutions, Inc's ("ISI") Amended Complaint.1 Resolution of the motion hinges on whether ISI has standing as the assignee of the causes of action of the now bankrupt company, Machine Technology, Inc. ("MTI").
The Court holds that plaintiff does have standing to pursue Count One of the Amended Complaint, the copyright claim, which was freely assignable to ISI as a matter of federal law. However, ISI does not have standing to pursue the state law causes of action since the bankruptcy trustee's assignment of these claims was void ab initio under New Jersey law. The Court therefore grants partial summary judgment dismissing Counts Two through Seven of the Amended Complaint.
ISI manufactures, sells and services photolithography equipment used by the computer industry. Defendant SSSI also manufactures, sells and services photo-lithography equipment. The individual defendants are SSSI officers or employees. Amended Complaint at ¶¶ 1-6.
On September 6, 1994, plaintiff purchased certain assets of MTI through secured creditors. MTI designed and assembled semiconductor equipment and provided service and spare parts. Supplemental Affidavit Of Gary Hillman. The individual defendants are former MTI employees and/or officers or directors. Amended Complaint at ¶ 14. Before it ceased operations on July 29, 1994, MTI had financed its operations through loans from Midlantic Bank ("Midlantic") and United Jersey Bank ("UJB"). These loans were restructured several times since financing began in 1981, and were last restructured in an Amended and Restated Credit Agreement dated December 10, 1992. The debt was secured by separate Security Agreements in assets such as accounts, inventory, machinery and equipment. Affidavit of Henry White.
In June 1994, Midlantic and UJB declared MTI's loan in default and accelerated all amounts due. On July 22, 1994, MTI filed for relief under chapter 11. Certification of Susan Stryker In Support of Plaintiff's Supplemental Memorandum And Application for Preliminary Injunctive Relief, Exhibit A. Plaintiff alleges that on August 1 and 2, 1994, individual defendants Cruise, Sherman and Hillman entered MTI's offices, accessed MTI's computers, and downloaded allegedly proprietary information. Defendants acknowledge that they entered MTI's offices and took or copied various MTI documents, diagrams, specifications and drawings. Affidavit of Joseph O'Neill; Certification of L. Aaron Cruise. On August 3, 1994, SSSI was incorporated. On August 8, 1994, SSSI opened for business and began servicing MTI accounts until September 6, 1994, when ISI bought certain MTI assets. Affidavit of Gary Hillman.
On October 20, 1994, plaintiffs filed a complaint in this court alleging unfair competition, breach of the duty of loyalty, misappropriation of confidential information, interference with contractual relations, conversion, replevin and copyright infringement. Specifically, plaintiff alleges that defendants misappropriated MTI assets, including computer programs, design drawings, customer lists, and inventory reports, used these assets to set up SSSI, and are now unlawfully competing with plaintiff. Amended Complaint ¶ 18. Plaintiff also sought preliminary injunctive relief enjoining defendants from destroying and concealing documents and information, utilizing what plaintiff characterizes as confidential commercial information, infringing on ISI copyrights, and engaging in acts of unfair competition during the pendency of the action.
On March 15, 1995, this Court denied ISI's application for a preliminary injunction because ISI was not "a successor in interest to MTI, did not purchase all general intangibles of MTI, and thus had no standing to assert claims which MTI might have had against defendants for misappropriation of confidential information." Slip op. at 9. Plaintiff could not, therefore, demonstrate a likelihood of success on the merits.
ISI has since purchased all of MTI's remaining assets from the bankruptcy trustee by Bill of Sale executed on August 21, 1995. According to the Bill of Sale, plaintiff purchased, inter alia, all general intangibles, all intellectual property, and "all claims and causes of action, including the right to recover for any past and future damages, arising out of or relating to the Assets. . . ." Posta Certification, Exhibit B.2 The SSSI defendants were aware of the sale in bankruptcy and unsuccessfully bid for a non-exclusive license to use MTI's technology. Def's Letter Brief (11/7/95), Exhibit A.
Summary judgment is not a disfavored procedural shortcut, but rather an essential thread in the fabric of the Federal Rules that eliminates unfounded claims without recourse to a costly and lengthy trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2555, 91 L.Ed.2d 265 (1986). Summary judgment is appropriate only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The burden of showing that no genuine issue of material fact exists rests initially on the moving party. See Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir.1976), cert. denied, 429 U.S. 1038, 97 S.Ct. 732, 50 L.Ed.2d 748 (1977). "This burden . . . may be discharged by `showing' . . . that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. at 325, 106 S.Ct. at 2554. All evidence submitted must be viewed in the light most favorable to the nonmoving party. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). Summary judgment is appropriate on this record since the material facts are undisputed.
According to plaintiff, its recent purchase of all intangible property, including tort causes of action, possessed by the bankruptcy estate cures the defect this Court found when it denied ISI preliminary injunctive relief in March 1995. Defendants respond that ISI's attempt essentially to purchase standing in this case fails because New Jersey public policy prohibits assignment before judgment of business and personal injury tort claims. Plaintiff responds that this policy conflicts with, and is preempted by, federal bankruptcy law.
These arguments present difficult questions involving the proper interaction of federal and state law in the bankruptcy context. But before addressing them, the Court digresses to examine a threshold issue ISI raises in response to defendants' summary judgment motion — that defendants' argument regarding the non-assignability of tort causes of action is tantamount to a collateral attack on the bankruptcy court's Order approving the sale of MTI's assets.3 Since the SSSI defendants unsuccessfully bid for a non-exclusive license to use MTI's technology, and did not appeal the bankruptcy court's final order,4 plaintiff argues that defendants may not now attack that decision. This argument erroneously assumes defendants had standing to appeal the bankruptcy court's order.
The bankruptcy appeals standing requirement is narrower than Article III's "case or controversy" requirement, which "need not be financial and need only be `fairly traceable' to the alleged illegal action." Kane v. Johns-Manville Corp., 843 F.2d 636, 642 n. 2 (2d Cir.1988) (citations omitted). As the Third Circuit recently explained, bankruptcy standing inheres only in persons aggrieved by an order of the bankruptcy court,5 a limitation that:
Travelers Ins. Co. v. H.K. Porter Co., Inc., 45 F.3d 737, 741 (3d Cir.1995) (quoting Matter of Fondiller, 707 F.2d 441, 443 (9th Cir. 1983)). Standing is denied to parties not directly affected by the order, but rather impacted only marginally or tenuously. A party has standing if the challenged order "diminishes their property, increases their burdens, or impairs their rights." In re Dykes, 10 F.3d 184, 187 (3d Cir.1993).
The SSSI defendants would not likely have had standing to challenge the bankruptcy court's order approving the sale of MTI's intangible assets. Although the sale to ISI exposed defendants to the risk of being named a defendant in future litigation — a risk that indeed has come to pass — any financial exposure is contingent upon ISI prevailing in the litigation. Thus, the SSSI defendants are in a position analogous to the appellant in Travelers. In that case, the plaintiff-insurer appealed an order of the bankruptcy court...
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