Press Machinery Corp. v. Smith R.P.M. Corp., 83-1245

• Decision Date: 21 February 1984
• Docket Number: No. 83-1245,83-1245
• Citation: 727 F.2d 781
• Parties: PRESS MACHINERY CORPORATION, Appellee, v. SMITH R.P.M. CORPORATION, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 781

727 F.2d 781

PRESS MACHINERY CORPORATION, Appellee, v. SMITH R.P.M. CORPORATION, Appellant.

No. 83-1245.

United States Court of Appeals Eighth Circuit.

Submitted Oct. 12, 1983.

Decided Feb. 21, 1984.

James L. Burgess, Berry F. Laws III, Johnson, Lucas, Bush, Snapp & Burgess, Kansas City, Mo., for appellant.

Robert J. Campbell, Brown, Koralchik & Fingersh, Overland Park, Kan., for appellee; Brown, Koralchik & Fingersh, Kansas City, Mo., of counsel.

Before LAY, Chief Judge, HEANEY and ARNOLD, Circuit Judges.

LAY, Chief Judge.

Smith R.P.M. Corporation (Smith), a Missouri corporation, appeals from the district court's judgment that construed a settlement agreement between Smith and Press Machinery Corp. (PMC), an Illinois corporation. The court interpreted the settlement agreement as granting PMC a limited license under a patent subsequently issued to Smith. ¹ For reversal, Smith argues that the district court erred in considering extrinsic evidence when interpreting the settlement agreement and in applying equitable estoppel to find a limited license for PMC. ² We affirm.

Smith manufactures, markets and installs printing press equipment. In particular, Smith markets a system for converting newspaper letterpress presses to the offset method of printing. In 1978, Smith filed a patent application for its method of installing its press conversion system. In 1979, Smith contracted to install its system for the Los Angeles Times. Smith then subcontracted with DEV Industries, Inc. (DEV) to supply certain equipment for Smith's Los Angeles Times contract. The subcontract contained DEV's agreement not to compete with Smith for two years in the manufacture or sale of press conversion systems. Three months into the contract, however, DEV set up and incorporated PMC, hired Smith's chief engineer and its national sales manager, and thereafter entered the press conversion market in competition with Smith. PMC subsequently contracted with the Kansas City Star to install a press conversion system.

In July of 1980, Smith filed suit against its two former employees, PMC, and DEV, in a Missouri state court. Smith alleged violation of the two year restrictive covenant and sought damages and an injunction barring PMC from disclosing or using trade secrets or confidential information regarding Smith's press conversion system. Four days before trial, on July 16, 1981, the parties entered into a settlement agreement. The agreement purported to release the parties from "all claims, rights of action, causes of action and demands of every kind and character which the parties hereto now have or under any circumstances could or might have, against the other arising out of, resulting from or in any way pertaining to the agreements and matters referred to in [the pleadings]." The agreement also required PMC, inter alia, to make a cash payment of $20,000 to Smith upon execution of the agreement and monthly payments of $10,000 for two years. To protect its interests, Smith was given a security interest in PMC's rights to payment under PMC's contract with the Kansas City Star. The financial arrangement was not made public; however, PMC insisted on the following public announcement:

The lawsuit captioned Smith R.P.M. Corporation vs. DEV Industries, Inc., Press Machinery Corporation, et al., (No. CV-80-16649, Circuit Court of Jackson County, Missouri) has been terminated to the mutual satisfaction of the parties, leaving each party on its own to compete and sell letter press to offset conversion systems.

During the state court litigation, PMC allegedly was apprised of Smith's pending patent application for its method of installing its press conversion system. Smith received oral notification that its patent would be approved in April of 1981. However, during the settlement negotiations in July, the pending patent was not discussed, nor did the agreement make any specific reference to it. The settlement agreement was effectuated on July 16, 1981; Smith's method patent was issued on September 1, 1981. Smith then contacted persons at the Kansas City Star and informed them of Smith's patent. Smith also initiated a letter campaign warning persons who had contracted with PMC of the possibility that PMC was infringing Smith's patent. For reasons in dispute, the Star suspended performance of its contract with PMC. PMC then stopped making the payments to Smith that were mandated by the settlement agreement. This action followed.

PMC charges Smith with breach of the settlement agreement and seeks a declaratory judgment of noninfringement of Smith's patent. On PMC's motion for summary judgment, the district court found that PMC had a limited license under Smith's subsequently issued method patent and that Smith was equitably estopped from asserting its patent against PMC, at least regarding the completion of the Star contract.

On appeal, Smith contends that the release is a clear and unambiguous statement. Smith asserts that the reach of any general language in the agreement must be determined solely by reference to the matters specifically raised in the state court litigation. Stutz v. Campbell, 602 S.W.2d 874 (Mo.Ct.App.1980). Smith urges that because of the theoretical and remedial differences between the two actions, a patent infringement claim is distinct from an action premised on allegations of trade secret violations. Therefore, Smith argues, the court erred in finding that Smith released its right to assert its subsequently issued patent against PMC at the same time that Smith released it's trade secrets claims against PMC. Smith also contends that there was no finding that the document was ambiguous. Absent such a finding, Smith submits that the court erred in considering surrounding circumstances and the actions of defendants when interpreting the document. Smith also contends that if considered, the extrinsic evidence supports a finding that the parties had no intention of releasing Smith's potential patent rights.

Under Missouri law, normal rules of contract construction apply to interpretation of settlement agreements. Roberts v. Browning, 610 F.2d 528, 533 (8th Cir.1979). Crucial to the construction of the settlement agreement is the intent of the parties. J.E. Hathman, Inc. v. Sigma Alpha Epsilon Club, 491 S.W.2d 261, 264 (Mo.1973) (en banc). Whether a contract is ambiguous, is a question of law. If the court determines that there is no ambiguity, then the intention of the parties and interpretation of the contract is for the court to determine, as garnered from the four...