International Wood Processors v. Power Dry, Civ. No. 82-2115-14.

Citation593 F. Supp. 710
Decision Date14 August 1984
Docket NumberCiv. No. 82-2115-14.
CourtU.S. District Court — District of South Carolina
PartiesINTERNATIONAL WOOD PROCESSORS, a corporation, Plaintiff, v. POWER DRY, INC., a corporation, Power Dry Patent, Inc., a corporation, Drywood Corporation, a corporation, Compton & Cloer Lumber Company, a corporation, General Wood Processors, Inc., a corporation, European Banking Company Limited, a United Kingdom company, K.N. Hronopoulos, an individual, Delano Compton, an individual, Arthur J. Crowley, an individual, Defendants.

593 F. Supp. 710

INTERNATIONAL WOOD PROCESSORS, a corporation, Plaintiff,
v.
POWER DRY, INC., a corporation, Power Dry Patent, Inc., a corporation, Drywood Corporation, a corporation, Compton & Cloer Lumber Company, a corporation, General Wood Processors, Inc., a corporation, European Banking Company Limited, a United Kingdom company, K.N. Hronopoulos, an individual, Delano Compton, an individual, Arthur J. Crowley, an individual, Defendants.

Civ. No. 82-2115-14.

United States District Court, D. South Carolina, Greenville Division.

August 14, 1984.


593 F. Supp. 711
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Sedgwick, Detert, Moran & Arnold by Dale E. Fredericks and Rebecca A. Hull, San Francisco, Cal. and Dority & Flint, by Julian W. Dority, Greenville, S.C., for plaintiff

Sutherland, Asbill & Brennan by John H. Fleming and John A. Chandler, Atlanta, Ga., and Leatherwood, Walker, Todd & Mann by Mark R. Holmes, Greenville, S.C., for defendants Power Dry, Inc., Power Dry Patent, Inc., Compton & Cloer Lumber Co., Gen. Wood Processors, Inc., European Banking Co. Ltd. and Delano Compton.

Arthur J. Crowley P.C. by Arthur J. Crowley, Los Angeles, Cal., and Love, Thornton, Arnold & Thomason by Jennings L. Graves, Jr. and John R. Devlin, Jr., Greenville, S.C., for defendant Arthur J. Crowley.

OPINION

MacMAHON, District Judge.*

All defendants in this action, excluding K.N. Hronopoulos ("Hronopoulos") and Drywood Corporation ("Drywood"), move for judgment n.o.v. or for a new trial, pursuant to Fed.R.Civ.P. 50 and 59, respectively. In addition, plaintiff requests declaratory and injunctive relief in accordance with the verdict.

I. THE CASE

This case arose from the actions of the parties and other individuals in their attempts to develop and market a new technology for drying wood. A brief outline will provide a helpful context for our discussion of the issues raised by defendants. There was evidence from which the jury could find the following facts.

Before wood can be used in commercial products, such as furniture and flooring, its moisture content must be reduced. This is usually accomplished in conventional wood drying kilns. In conventional kiln drying, wood is stacked in a large, insulated chamber,

593 F. Supp. 716
the temperature and humidity within the chamber are controlled, and, by circulating dry, heated air over the wood, "the lumber gets to a certain point and its dry." XX at 6-8.1

In 1973, Edward Koppelman applied for a patent on a new method and machine for drying wood through the use of a vacuum chamber and radio frequency waves. A patent was granted in 1976. The patented method of drying wood in radio frequency vacuum kilns ("RFV kilns"), sometimes referred to as the "RFV process," differs from conventional kiln drying in several respects. An RFV kiln is a vacuum chamber in which wood is packed tightly together. Radio frequency waves heat the water in the wood, and, as the temperature rises, it evaporates into the chamber's atmosphere. The kiln's atmosphere, however, maintains a "zero relative humidity level" because of the vacuum. Consequently, the wood dries much faster than in conventional kilns, and this advantage also results in lower energy costs. PX 214; 200. There was evidence, however, that these advantages were offset to some extent by the fact that the RFV process was not successful with many types of wood and wood products.

In 1974, Koppelman issued an exclusive license to use and develop the RFV process to Drywood, a Delaware corporation. Defendant Hronopoulos was an officer, director and sole shareholder of Drywood at the time. Neither Hronopoulos nor Drywood appeared in this action.

In 1978, Koppelman assigned all of his interest in the patent to Hronopoulos. Hronopoulos then gave 50% of his interest in the patent and 10% of his Drywood shares to defendant Arthur J. Crowley ("Crowley"). PX 34; 36.

In February 1979, Hronopoulos also gave Crowley's law firm, Arthur J. Crowley Professional Corporation ("AJCPC"), a security interest in Hronopoulos' 50% patent interest as collateral for legal fees earned by AJCPC, and for future services, totalling $536,000. PX 36.

The Sublicense

In its efforts to raise capital, Drywood issued several non-exclusive sublicenses. See Exhibit C to PX 13; PX 12; PX 14. On February 4, 1979, Drywood issued the nonexclusive sublicense involved here to John C. Olsen, "or a company or corporation designated by him." PX 53.

On February 26, 1979, Olsen assigned the non-exclusive sublicense to plaintiff International Wood Processors ("IWP"), a California corporation of which he was president and majority shareholder.2 PX 41; 42. Drywood was notified of the assignment. PX 43. At this time, Olsen was an officer and employee of Drywood.

Sometime in the spring of 1979, Olsen left Drywood's employ, and in August 1979 Drywood executed a "First Amendment to Non-Exclusive Sublicensing Agreement," which "ratified and confirmed in its entirety" the February 4 sublicense given to Olsen and subsequently assigned to IWP. PX 54 ¶ 8.

The parties do not dispute that the IWP sublicense was the most extensive sublicense issued. It permitted the manufacture, lease and sale of an unlimited number of RFV kilns without any territorial restrictions. It also provided for an exchange of technical information and know-how concerning RFV kilns and the RFV process. PX 53 ¶ 7.3 In addition to various undertakings,

593 F. Supp. 717
the sublicensee agreed to pay substantial royalties to Drywood

Corporate Restructuring

By late 1979, Drywood and Hronopoulos were the subjects of federal and state investigations concerning illegal securities transactions. Apparently to continue to raise capital, Drywood turned to a joint venture with defendant Compton & Cloer Lumber Company ("C & C"). Defendant Delano Compton ("Compton") was the president, chief operating officer and major shareholder in C & C. Drywood transferred its exclusive license to the joint venture which was called General Wood Processors, Joint Venture ("GWP-J/V"). PX 13.

During this period, defendant European Banking Company, Ltd. ("EBC"), a British corporation, became interested in the commercial potential of the RFV process and began negotiations with Compton, Crowley, Howard Blumenthal (an employee of AJCPC); Drywood, Hronopoulos and others. PX 129. EBC proposed to finance a new corporate structure which would have exclusive rights to the RFV process. See, e.g., PX 170.

The evidence shows that EBC was very concerned about the competitive threat posed by the existence of sublicenses previously issued by Drywood. IWP's sublicense was of particular concern because of its "world wide rights." See, e.g., PX 65; 73. The evidence also shows that each of the defendants knew, through meetings, telexes and letters, that EBC would not finance the proposed restructuring unless the outstanding sublicenses were either reacquired or cancelled. See, e.g., PX 65; 73; 240 at No. 22; 31; 32; 243; 277; 278; XIX at 30.

The evidence also shows that each of the defendants, in varying degrees, knowingly participated in a common plan to effect EBC's scheme.

For example, in January 1981, a two-day meeting concerning the terms of EBC's proposed financing was held in New York City. Crowley, Blumenthal, Hronopoulos, Compton and Neil Balfour (EBC's representative) participated in meetings held on the first day. There was evidence that discussions at these meetings included the existence, scope, competitive threat and methods of cancelling the IWP license. E.g., XIX at 30.

On March 12, 1981, AJCPC, on behalf of Drywood, notified IWP that Drywood, through GWP-J/V, "stood ready to deliver the subatmospheric chambers," a precondition to IWP's performance. AJCPC further notified IWP that it should contact Compton concerning the sublicense and that "all the time periods referred to in ... the sublicense and its amendments are hereby activated...." PX 88. Compton testified, however, that GWP-J/V was not ready at that time to deliver any chambers to IWP. XVI at 23.

On April 6, 1981, IWP notified Compton and Drywood that it had essentially secured financing and requested the technical information necessary to obtain financing and construct RFV kilns. PX 30; 93; 99; 102. Neither Drywood nor Compton replied. XVI at 23-24; XIX at 40. IWP also wrote to EBC expressing its willingness to discuss selling its sublicense. PX 100.

In May 1981, EBC financed a new corporate structure which controlled both the patent and exclusive licensing rights to the RFV process. GWP-J/V transferred its exclusive license to defendant Power Dry, Inc. ("PDI"). PDI then granted a purported exclusive license,4 limited to the United

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States, to defendant General Wood Processors, Inc. ("GWP, Inc."). Hronopoulos transferred his remaining 50% interest in the patent, which was subject to AJCPC's security interest, to defendant Power Dry Patent, Inc. ("PDP") and was retained by PDI as a consultant. See PX 101; see also PX 158

In return for $500,000 paid by EBC to his professional corporation, Crowley released the pledge — AJCPC's security interest in Hronopoulos' 50% patent interest. In addition, Crowley transferred 1% of his personal 50% interest in the patent to PDP. He retained his remaining personal 49% interest and the royalty rights pertaining to that interest. PX 34; 35; 91; 97. Compton received considerable stock in PDI and was made chairman of the board. See XVI at 24.

In November 1981, after learning that Drywood's rights and obligations under the exclusive license had been assigned to PDI, IWP notified PDI that it had financing available, requested technical information and stated that it was negotiating with contractors to build RFV kilns. See PX 104; 105.

Finally, on January 23, 1982, PDI, PDP and GWP, Inc., responding for the first...

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