Myers Indus., Inc. v. Schoeller Arca Sys., Inc.

• Decision Date: 21 March 2016
• Docket Number: No. 14 Civ. 7051 (JFK),14 Civ. 7051 (JFK)
• Citation: 171 F.Supp.3d 107
• Parties: Myers Industries, Inc., and Buckhorn, Inc., Plaintiffs, v. Schoeller Arca Systems, Inc., and Schoeller Arca Systems Services, B.V. f/k/a Schoeller Arca Systems, N.V., Defendants.
• Court: U.S. District Court — Southern District of New York

171 F.Supp.3d 107

Myers Industries, Inc., and Buckhorn, Inc., Plaintiffs,

v.Schoeller Arca Systems, Inc., and Schoeller Arca Systems Services, B.V. f/k/a Schoeller Arca Systems, N.V., Defendants.

No. 14 Civ. 7051 (JFK)

United States District Court, S.D. New York.

Signed March 21, 2016

FOR PLAINTIFFS MYERS INDUSTRIES, INC. AND BUCKHORN, INC., Judy L. Woods, Esq., Daniel M. Meier, Esq., BENESCH, FRIEDLANDER, COPLAN & ARONOFF LLP.

FOR DEFENDANTS SCHOELLER ARCA SYSTEMS, INC. AND SCHOELLER ARCA SYSTEMS SERVICES, B.V. F/K/A SCHOELLER ARCA SYSTEMS, N.V.: John A. Basinger, Esq., Matthew G. Allison, Esq., Kyle R. Olson, Esq., BAKER & McKENZIE LLP.

MEMORANDUM OPINION & ORDER

JOHN F. KEENAN, United States District Judge:

Before this Court is Defendants Schoeller Arca Systems, Inc. (“SAS”) and Schoeller Arca Systems Services, B.V. f/k/a Schoeller Arca Systems, N.V.'s (“SAS BV”) motion to dismiss Plaintiffs Myers Industries, Inc. (“Myers”) and Buckhorn, Inc.'s (“Buckhorn”) First Amended Complaint (“FAC”) for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).

This action concerns two contracts between the Plaintiffs and the Defendants: an asset purchase agreement and a patent license agreement. Under these agreements, the Defendants purported to license a patent to the Plaintiffs. The Plaintiffs later sued nonparties to this action, Orbis Corporation and Orbis Material Handling, Inc. (collectively, “Orbis”), for infringing this patent in the Southern District of Ohio.

During the course of that litigation, the Plaintiffs discovered that Orbis held a superior claim to the patent, which SAS failed to disclose to Myers. Orbis successfully moved for the infringement action to be dismissed and the Southern District of Ohio subsequently awarded Orbis its attorney's fees. The action before this Court seeks recovery of the lost value of the agreements between Myers and SAS and a determination of which parties—Myers and Buckhorn on the one hand, or SAS and SAS BV on the other—should bear the cost of Orbis's attorney's fees in the Ohio Action as well as Myers and Buckhorn's costs, expenses, and attorney's fees associated with the Ohio Action.

The Plaintiffs' FAC asserts six causes of action against the Defendants: (1) fraudulent inducement; (2) breach of the patent license agreement; (3) breach of the asset purchase agreement; (4) breach of SAS BV's guaranty; (5) unjust enrichment; and (6) declaratory judgment against SAS and SAS BV. (See FAC ¶¶ 50-95.)

This case is complicated by the existence of full-scale litigation in the Southern District of Ohio, which included multiple appeals to the Federal Circuit. The gravamen of the Plaintiffs' injury as alleged in the FAC was resolved by the Federal Circuit shortly after the Defendants' motion to dismiss was fully briefed before this Court. See Buckhorn Inc. v. Orbis Corp., 618 Fed.Appx. 1000 (Fed.Cir.2015).¹ That decision did not moot this action entirely, however. The Court considers this motion to dismiss in light of the Plaintiffs' remaining injuries as alleged. For the following reasons, Defendants' motion is granted in part and denied in part.

I. Background²

SAS is a Delaware corporation with its principal place of business in Goodyear, Arizona, that engages principally in the development and manufacture of plastic packaging. (FAC ¶¶ 19, 21.) SAS owned U.S. Patent No. 5,199,592 (the “'592 Patent”).³ (Id.¶ 20.)

On about March 7, 2007, Myers, an Ohio corporation with its principal place of business in Akron, Ohio, entered into an asset purchase agreement with SAS. (Id.¶¶ 17, 26.) Under this agreement, SAS agreed to convey certain assets and to license certain patents, including the '592 Patent, to Myers. (Id.) The asset purchase agreement contained a jurisdiction clause limiting the parties to bringing suits arising in connection with the agreement in only the Southern District of New York or New York state courts in New York county. (Id. Ex. B § 10.11.) It also contained a choice-of-law clause in favor of New York law. (Id. Ex. C § 10.8.)

SAS licensed the '592 Patent to Myers in a separate patent license agreement executed on about March 8, 2007. (Id.¶¶ 2, 31.) The patent license agreement granted a fully paid-up, royalty-free, nontransferable, co-exclusive license for the '592 Patent to Myers.⁴ (Id.¶ 31.) The patent license agreement contained a jurisdiction clause and choice-of-law clause identical to the asset purchase agreement. (Id. Ex. C §§ 7.11-.12.)

SAS made certain representations and warranties as part of the patent license agreement. Under section 5.01, SAS represented and warranted that its execution, delivery, and performance of the patent license agreement would not violate, conflict with, or constitute a default under any of its other contractual obligations. (Id.¶ 36; id. Ex. C § 5.01(iii).) Under section 5.02, SAS represented and warranted that it was the owner of the entire right, title, and interest in the '592 Patent and that it had the right and power to grant the licenses granted in the patent license agreement. (Id.¶ 35; id. Ex. C § 5.02(i)-(ii).)

SAS made similar representations and warranties as part of the asset purchase agreement. Under section 3.2, SAS represented and warranted that it had full authority to enter into the asset purchase agreement and the patent license agreement and that these agreements would be the legal, valid, and binding obligations of SAS, which would be enforceable against SAS according to their terms. (Id.¶ 68; id. Ex. B § 3.2(a)-(b).) Under section 7.1, SAS represented and warranted that the certificates and papers delivered to Myers were true and correct in all material respects on the date of the asset purchase agreement and on the closing date. (Id.¶ 69; id. Ex. B § 7.1.)

Under each agreement, SAS also agreed to indemnify Myers. Section 5.03 of the patent license agreement states that SAS's obligations to indemnify Myers “for a breach of representations and warranties in Section 5.02 shall be made in accordance with Section 9.1 of the Asset Purchase Agreement and shall be subject to the limitations set forth therein.” (Id. Ex. C. § 5.03.) Section 9.1 of the asset purchase agreement states that SAS “shall” hold Myers

harmless and indemnify [it] from and against ... any and all Indemnified Losses incurred or to be incurred by [it] to the extent resulting from or arising from:

(a) The breach of any representation or warranty of [SAS] made or incurred under or pursuant to this Agreement or any document delivered pursuant hereto;

(b) The breach of any agreement or covenant of [SAS] made or incurred under or pursuant to this Agreement or any document delivered pursuant thereto; and

(c) Any Excluded Liability.

(Id. Ex. B § 9.1.) The asset purchase agreement defines “Indemnified Losses” somewhat circularly as “Losses (including reasonable attorneys' fees and expenses) for which a party is entitled to be indemnified pursuant to Article IX hereof.” (Id. Ex. B art. I, at 4.) In turn, the asset purchase agreement defines “Losses” as “indirect or direct claims, losses, damages, Liabilities, expenses or costs.” (Id.) SAS BV, a Netherlands business entity with a principal place of business in Zwolle, Netherlands, and SAS's designated parent company under the asset purchase agreement, unconditionally, irrevocably, and absolutely guaranteed SAS's indemnity of Myers under the asset purchase agreement. (Id.¶¶ 22, 29-30; id. Ex. B pmbl., § 10.13.)

SAS authorized Myers to assign the patent license agreement to Buckhorn, a wholly owned subsidiary of Myers and an Ohio corporation with its principal place of business in Milford, Ohio. (Id.¶¶ 18, 38.) As an assignee, Buckhorn could assert the '592 Patent in an infringement action. (Id.¶ 38)

The patent license agreement details an agreed-upon process for bringing a patent infringement action against third parties. SAS has the first right to bring an infringement action. (Id. Ex. C § 3.02.) If SAS exercises this right, Buckhorn can participate at its own expense, but SAS has the right to control the conduct of the litigation. (Id.) If SAS does not exercise this right, Buckhorn may bring the action. (Id.) In that case, SAS may participate at its own expense, but Buckhorn has the right to control the conduct of the litigation. (Id.) If either party chooses not to participate, but its participation is later “require[d]” by the party who brought suit, the party who brought suit shall pay the “costs and expenses” associated with the other party's required cooperation including any attorney's fees. (Id. Ex. C § 3.03.)

On December 12, 2008, Buckhorn filed a patent infringement suit against nonparties to this action, Orbis, in the U.S. District Court for the Southern District of Ohio asserting infringement of the '592 Patent (the “Ohio Action”).⁵ (Id.¶ 39.) On September 18, 2009, Buckhorn amended its complaint in the Ohio Action to add SAS as a co-plaintiff. (Id.¶ 40; id. Ex. C §§ 3.02-.03.)⁶

During the course of the Ohio Action, on May 28, 2010, Orbis produced a copy of a license agreement that predates the SAS-Myers patent license agreement (the “Orbis License”). (Id.¶ 41.) SAS never disclosed this earlier license agreement to Myers. (Id.¶¶ 42-43.)

On November 22, 2011, the Southern District of Ohio ruled that the Orbis License was valid and that it predated the SAS-Myers patent license agreement. (Id.¶ 44.) Therefore, Orbis was the licensee of the '592 Patent through its expiration. (Id.) On February 21, 2012, the Southern District of Ohio dismissed the action against Orbis. (Id.¶ 45); Buckhorn Inc. v. Orbis Corp., 2012 WL 555397, at *1 (S.D.Ohio Feb. 21, 2012). Orbis sought to recover attorney's fees through a provision in the Orbis License. The Southern District of Ohio did not initially award Orbis these attorney's fees. (FAC ¶ 46.)

Orbis appealed this determination, and in two separate opinions dated April 22, 2014, and July 11, 2014, on remand from the Federal Circuit, the Southern District of Ohio...