Ocean Innovations, Inc. v. Ahern (In re Ahern)

• Decision Date: 19 November 2015
• Docket Number: Case Number: 14–12717–7,Adversary Number: 14–135
• Citation: 541 B.R. 438
• Parties: In re: Roy E. Ahern, Debtor. Ocean Innovations, Inc., and Jet Dock Systems, Inc., Plaintiffs, v. Roy E. Ahern, Defendant.
• Court: U.S. Bankruptcy Court — Western District of Wisconsin

541 B.R. 438

In re: Roy E. Ahern, Debtor.Ocean Innovations, Inc., and Jet Dock Systems, Inc., Plaintiffs,

v.Roy E. Ahern, Defendant.

Case Number: 14–12717–7

Adversary Number: 14–135

United States Bankruptcy Court, W.D. Wisconsin.

Signed November 19, 2015

Daniel P. Bakken, Kevin S. Sandstrom, Nicholas J. Vivian, Eckber Lammers Briggs Wolff & Vierling, Hudson, WI, Kevin S. Sandstrom, Eckberg Lammers Briggs Wolff & Vierling, Stillwater, MN, for Plaintiffs.

Mart W. Swenson, The Swenson Law Group, Eau Claire, WI, for Defendants.

MEMORANDUM DECISION

Hon. Catherine J. Furay, U.S. Bankruptcy Judge

For more than a decade, Plaintiffs Ocean Innovations, Inc., f/k/a Jet Dock Licensing Inc. (“Ocean”) and Jet Dock Systems, Inc. (“Jet Dock”) have been engaged in litigation with Defendant Roy E. Ahern and others related to patent infringement claims. Most recently, Ocean and Jet Dock filed an Adversary Complaint seeking a determination of the dischargeability of a judgment debt owed to them by Ahern.

Now before the Court is the Plaintiffs' Motion for Summary Judgment on the section 523(a)(6) claim. Ahern opposed the motion, contending the issues in the action in the United States District Court for the Northern District of Ohio were not actually litigated, the Judgment entered by the District Court was a default judgment not entitled to the application of collateral estoppel, and that the findings of the District Court do not satisfy the “willful and malicious” elements of a claim under section 523(a)(6).

For the reasons set forth below, the Court concludes there are no genuine issues of material fact, and that Ocean and Jet Dock are entitled to judgment as a matter of law. SeeFed. R. Bankr.P. 7056(c). The Court accordingly grants summary judgment to Ocean and Jet Dock on the section 523(a)(6) claim in the complaint.

JURISDICTION

The Court has subject-matter jurisdiction over this case pursuant to 28 U.S.C. §§ 1334(a)and 157(a). This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(I) and (J).

FACTS

Ocean is the owner by assignment of several patents, including five that are the subject of the litigation with Ahern. The five patents relate to a dock system that allows a boat owner to drive a boat or jet ski directly onto a floating dock. Candock, Inc., has manufactured and marketed a similar system in Canada, but did not market that system in the United States prior to 1999.

In August of 1999, Ahern's attorneys told him in a memo there was a risk of infringing certain patents held by Jet Dock if he sold Candock docks in the United States. The attorneys provided a memo containing information for Ahern's discussion with Candock USA and possible questions regarding whether there might be grounds to argue that at least two of the patents were invalid. The attorneys also told Ahern that Ocean and Jet Dock had vigorously pursued protection of their patents. Nevertheless, Ahern and others then began selling drive-on docks in the United States sometime after 1999.

In 2000, the attorneys for Ocean and Jet Dock sent correspondence to Candock USA advising of the infringement. The attorneys for Candock USA responded, asserting they could argue that most if not all of the claims of two of the patents at issue were invalid. The parties exchanged further correspondence in 2001, including copies of letters received by Ahern and Chuck Malkerson of Candock USA.

In 2003, Ocean and Jet Dock commenced a patent infringement suit against Ahern and others in the United States District Court for the Northern District of Ohio (“Patent Litigation”). Ahern and his co-defendants filed motions to dismiss the Patent Litigation. Those motions were denied. Ocean and Jet Dock then filed a motion for partial summary judgment seeking a ruling on the validity of the patents as a matter of law. Ahern contested that motion and filed his own cross-motion for summary judgment on the issue of patent validity, seeking a ruling the patents were invalid as a matter of law.

The District Court granted the Ocean/Jet Dock motion, declaring the plaintiffs were entitled to judgment as a matter of law that the patents were valid. The District Court denied Ahern's cross-motion on the grounds there was no genuine issue of material fact and that the defendants (including Ahern) could not carry their burden of proof to establish that certain of the claims under the two patents were invalid.

The plaintiffs filed a Second Amended and Supplemental Complaint in November 2008. Ahern and certain other defendants moved for leave to move or plead to the Amended Complaint. The Court granted leave to move or plead to the complaint until December 29, 2008.

In December 2008, Ocean and Jet Dock filed a motion for partial summary judgment on the issue of patent infringement. This motion sought a ruling that the defendants infringed the patents as a matter of law. Ahern again vigorously opposed the plaintiffs' motion. Not only did he file opposition to this motion, he filed a cross-motion for summary judgment seeking a ruling that the defendants were not infringing plaintiffs' patents as a matter of law.

Ahern and the other moving defendants did not file an answer. They did file a motion to dismiss. In March 2009, the court granted this motion in part and denied the balance of the motion. Specifically, the court granted the motion as to the plaintiffs' claims against defendant Lott, and those claims were severed and dismissed without prejudice. Otherwise, the motion was denied. Still, Ahern did not file an answer.

The District Court issued a Memorandum of Opinion and Order in June 2009 stating, in part, “ERA Marine and George Dabrowski are the only defendants that have filed answers in the case at bar. None of the defendants to date have plead to the Second Amended and Supplemental Complaint.”

In September 2009, the District Court issued an Order granting plaintiffs' motion and denying defendants' motion on the issue of infringement. The District Court determined there were no genuine issues of material fact and the defendants, including Ahern, infringed claims 1 and 15 of one of the patents and claim 28 of another of the patents.

At some point after October 19, 2009, Ahern and others filed an “unopposed” motion for leave to answer. The District Court held a hearing and denied this motion on November 30, 2009. The clerk of the District Court entered the default of Ahern and the other non-answering defendants on December 11, 2009.

Ahern then sought an order vacating the clerk's entry of default. The motion argued, among other grounds, that default was “improper” because (other than failing to file an answer) the defendants had defended. That motion was denied.

Ocean and Jet Dock then filed a motion for judgment and permanent injunction. The parties had previously stipulated to sales volume. Ahern opposed this motion as well. On May 14, 2010, the motion for judgment and permanent injunction was granted. On July 12, 2011, the District Court entered a Judgment awarding damages on the infringement claim, including treble damages. Ahern appealed this Judgment to the Federal Circuit. The Federal Circuit affirmed the Opinion and Judgment on October 10, 2012.

ANALYSIS

As discussed, Ocean and Jet Dock have moved for summary judgment on the dischargeability of Ahern's debt under section 523(a)(6). Ahern opposes summary judgment. His principal contentions are that (1) he did not have the “opportunity to litigate ... his affirmative defenses and counterclaims for ... invalidity, non-infringement and unenforceability ....”; (2) a default judgment is not a proper basis for collateral estoppel; and (3) the District Court findings do not satisfy the requirement of willful and malicious injury under section 523(a)(6).

On a motion for summary judgment, the only task of the court is to determine “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a)(applied through Fed. R. Bankr. P. 7056(a)). The court must view all facts and indulge all inferences in the light most favorable to the defendant and determine whether there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc.,477 U.S. 242, 242–43, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

As a procedural matter, on summary judgment “the burden is on the moving party to establish that there is no genuine issue about any material fact, or that there is an absence of evidence to support the nonmoving party's case, and that the moving party is entitled to judgment as a matter of law.” 20 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure§ 105(citing Celotex Corp. v. Catrett,477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). If there is no genuine issue of material fact for trial, the sole question is whether the movant is entitled to summary judgment as a matter of law. Ortiz v. John O. Butler Co.,94 F.3d 1121, 1124 (7th Cir.1996).

A. Collateral Estoppel/Issue Preclusion

Preclusion is an equitable doctrine that exists, in main, to aid courts in “fulfilling the purpose for which civil courts had been established, the conclusive resolution of disputes within their jurisdiction.” Kremer v. Chemical Constr. Corp.,456 U.S. 461, 467 n. 6, 102 S.Ct. 1883, 72 L.Ed.2d 262 (1982). For federal preclusion to apply, it must be shown that the party against whom preclusion is sought was afforded an opportunity for a full and fair hearing. Parklane Hosiery Co., Inc. v. Shore,439 U.S. 322, 333, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979).

Under the doctrine of claim preclusion, formerly known as res judicata, “a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action.” Highway J Citizens Grp. v. United States Dept. of Transp.,456 F.3d 734, 741 (7th Cir.2006)(quoting Allen v. McCurry,449 U.S. 90, 94, 101 S.Ct. 411, 66 L.Ed.2d 308 (1980)). The doctrine protects against “the expense...