National Presto Industries, Inc. v. Dazey Corp.

Decision Date06 March 1997
Docket NumberNo. 96-1162,96-1162
Citation107 F.3d 1576
PartiesNATIONAL PRESTO INDUSTRIES, INC., Plaintiff-Appellant, v. DAZEY CORPORATION, Defendant-Appellee.
CourtU.S. Court of Appeals — Federal Circuit

Jerold A. Jacover, Brinks Hofer Gilson & Lione, Chicago, IL, argued, for plaintiff-appellant. With him on the brief was Philip A. Jones.

Gerald M. Kraai, Litman, McMahon & Brown, L.L.C., Kansas City, MO, argued, for defendant-appellee. Of counsel were Paul J. Korniczky, Leydig, Voit & Mayer, Ltd., Chicago, IL, and Mark G. Arnold, Husch & Eppenberger, St. Louis, MO.

Before LOURIE, Circuit Judge, SKELTON, Senior Circuit Judge, and RADER, Circuit Judge.

RADER, Circuit Judge.

Dazey Corporation (Dazey) filed an "emergency motion" with the United States District Court for the Northern District of Illinois, Eastern Division, seeking a declaration of its rights under a settlement agreement that had terminated its prior litigation with National Presto Industries, Inc. (Presto). After the district court ruled in Presto's favor on the merits of the motion, Dazey moved to dismiss the action for lack of subject matter jurisdiction. The district court concluded that it had improperly exercised jurisdiction over Dazey's motion and, accordingly, dismissed the proceeding. Because the district court lacked subject matter jurisdiction over the settlement agreement, this court affirms.

BACKGROUND

This case involves frying pots. In November 1990, Presto sued Dazey for design patent and trade dress infringement by Dazey's "Quick Fry" fryer, model DQF-40. After the district court entered a preliminary injunction against Dazey and this court affirmed, see National Presto Industries v. Dazey Corp., No. 90 C 06614, 1990 WL 291494 (N.D.Ill.Dec. 17, 1990), aff'd, 949 F.2d 402, 1991 WL 193450 (Fed.Cir. Oct.1, 1991) (table), the parties settled their dispute.

The settlement agreement gave Dazey latitude to make a redesigned "Quick Fry" The parties also agreed to a consent judgment, which the district court entered on March 13, 1992. The consent judgment permanently enjoined Dazey from selling the "Dazey Quik Fry model DQF-40, or any colorable imitations or facsimiles thereof." The consent judgment did not, however, incorporate the settlement agreement or any of its terms.

                fryer, model DCF-31, so long as the new fryer met two conditions.  First, the new pot could not use the color "black (defined to mean pan tone black C or equivalent)."   Second, the pot had to use a lid that covered the bright metal container trim.  The settlement agreement acknowledged that such a fry pot would not infringe any of Presto's rights
                

Later in 1992, Dazey began selling its newly designed DCF-31 fryer. Presto complained that the DCF-31 pot violated the parties' settlement agreement. In particular, Presto believed that the new pot's color was "pan tone black C or equivalent."

On December 16, 1992, Dazey filed an "emergency motion" in the United States District Court for the Northern District of Illinois, Eastern Division, under civil action number 90 C 6614, the same docket number assigned to the original action between Presto and Dazey. The emergency motion sought a declaration that Dazey was in compliance with the parties' settlement agreement. In particular, Dazey asked the district court to declare that the DCF-31 fryer was not black within the meaning of the parties' settlement agreement. Dazey's motion did not contain any specific allegations of jurisdiction.

On March 31, 1994, after receiving extensive evidence and briefing on Dazey's motion, a magistrate judge recommended denial of the motion. Specifically, the magistrate judge found that Dazey's new color selection was so close to its original color selection that it was "pan tone black C or equivalent," the only color forbidden by the settlement agreement. The district court adopted the magistrate judge's recommendation and denied Dazey's motion. National Presto Indus. v. Dazey Corp., No. 90 C 6614, 1994 WL 194066 (N.D.Ill. May 13, 1994). Dazey appealed the adverse decision, but this court dismissed the appeal as premature. National Presto Indus. v. Dazey Corp., 39 F.3d 1195, 1994 WL 558826 (Fed.Cir. Sept.28, 1994) (table).

In the interim between the district court's order and this court's dismissal, the United States Supreme Court decided Kokkonen v. Guardian Life Insurance Co. of America, 511 U.S. 375, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1996), which addresses the inherent power of a district court to interpret and enforce a settlement agreement that terminated litigation pending before it. In its dismissal order, this court suggested that the district court might wish to consider its own jurisdiction over Dazey's emergency motion in light of Kokkonen. On remand from this court, Dazey moved the district court for dismissal of the emergency motion for lack of subject matter jurisdiction.

Rather than ruling immediately on Dazey's dismissal motion, the district court set out its interpretation of Kokkonen and asked the parties for further submissions. National Presto Indus. v. Dazey Corp., No. 90 C 6614, 1994 WL 675125, at * 3-4 (N.D.Ill. Nov.29, 1994). Specifically, the district court posited that its jurisdiction over the emergency motion depended on whether the motion invoked some independent basis of federal jurisdiction, such as the court's contempt power. Id. An independent basis of federal jurisdiction would allow the court to exercise ancillary jurisdiction over the non-federal settlement agreement. However, even at this late stage in the proceedings, the district court could not determine whether Presto considered Dazey to be in violation of the consent judgment. Thus, the district court ordered Presto to indicate whether it was alleging that Dazey's DCF-31 fryer was a "colorable facsimile[ ] or imitation[ ]" of the DQF-40 under the consent judgment.

After an investigation, Presto alleged that Dazey's DCF-31 fryer violated the consent judgment. Presto also filed a separate action On September 18, 1995, the magistrate judge issued a report and recommendation against Presto on both issues. On the jurisdictional issue, the magistrate judge found that Dazey's emergency motion did not implicate the district court's consent judgment either explicitly or implicitly. Thus, she determined that the district court's prior findings on the settlement agreement lacked subject matter jurisdiction and could not stand. The magistrate judge also concluded that Presto had not proved that Dazey's DCF-31 fryers violated the court's injunction.

                No. 94 C 6598, in which it alleged that Dazey's violation of the court's consent judgment warranted contempt proceedings.  The district court treated Presto's submissions as a motion for contempt in the original action, No. 90 C 6614.   Accordingly, the district court referred Presto's new contempt allegations, together with the issue of subject matter jurisdiction over the emergency motion, to a magistrate judge
                

On December 28, 1995, the district court adopted the magistrate judge's report and recommendation in full. Accordingly, the district court dismissed its own proceedings on Dazey's emergency motion for lack of subject matter jurisdiction and vacated its prior findings on the settlement agreement. The district court also denied Presto's motion for contempt. Presto appeals the portion of the district court's order concerning subject matter jurisdiction.

DISCUSSION
Presto's Standing to Appeal

This court may not consider an appeal unless the appellant has standing to appeal. See Boeing Co. v. Commissioner of Patents and Trademarks, 853 F.2d 878, 880, 7 USPQ2d 1487, 1488 (Fed.Cir.1988). A party shows standing to appeal by demonstrating, among other things, that it suffered some actual or threatened injury as a result of the appealed action. Id.; Penda Corp. v. United States, 44 F.3d 967, 971, 33 USPQ2d 1200, 1203 (Fed.Cir.1994), cert. denied, 514 U.S. 1110, 115 S.Ct. 1962, 131 L.Ed.2d 853 (1995). The threat of an unfavorable determination in future litigation due to the res judicata effect of an adverse judicial determination may be such an injury. See Electrical Fittings Corp. v. Thomas & Betts Co., 307 U.S. 241, 242, 59 S.Ct. 860, 860-61, 83 L.Ed. 1263 (1939) (prevailing party had standing to appeal where district court found no infringement, but improperly adjudged the patent valid); see also HCA Health Servs. of Va. v. Metropolitan Life Ins. Co., 957 F.2d 120, 124 (4th Cir.1992).

In this case, the trial court dismissed the emergency motion after making substantive findings. This decision both deprives Presto of the benefit of its victory under those vacated findings and allows Dazey a second opportunity to litigate these issues. Presto thus suffered a genuine adverse effect sufficient to establish its standing to appeal. See, e.g., Electrical Fittings, 307 U.S. at 242, 59 S.Ct. at 860-61.

Contrary to Dazey's argument before this court, the district court did, in fact, hold that Dazey's DCF-31 fryer violated the settlement agreement. As the magistrate judge explained, the very purpose of her March 31, 1994, report and recommendation, which was fully adopted by the district court, was to "explain the court's conclusion that the color Dazey utilizes on its fryer pots does, in fact, violate the terms of the settlement agreement." The report further explains: "Dazey may understand that its [DCF-31 color] formulation will not pass muster" and "Presto may be comforted in knowing that Dazey will not produce [a pot with the exact color used on the DCF-31]."

A few statements in the magistrate judge's report and recommendation about the findings not granting a complete victory for either side did not undercut the report's ultimate conclusion that Dazey violated the settlement agreement. Indeed, the magistrate did not fully adopt Presto's interpretation of the settlement agreement, which would have precluded Dazey from using any color...

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