Sain v. Nagel, 95 C 2247.

• Decision Date: 11 March 1998
• Docket Number: No. 95 C 2247.,95 C 2247.
• Citation: 997 F.Supp. 1002
• Parties: Kenneth SAIN, Leroy Camel, Jr. and Howard W. Carroll, Plaintiffs, v. Christopher NAGEL, Robert Bach, Molten Metal Technology, a Delaware Corporation, and John T. Preston, Defendants.
• Court: U.S. District Court — Northern District of Illinois

997 F.Supp. 1002

Kenneth SAIN, Leroy Camel, Jr. and Howard W. Carroll, Plaintiffs, v. Christopher NAGEL, Robert Bach, Molten Metal Technology, a Delaware Corporation, and John T. Preston, Defendants.

No. 95 C 2247.

United States District Court, N.D. Illinois, Eastern Division.

March 11, 1998.

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Brian D. Roche, Gary Steven Caplan, Sachnoff & Weaver, Ltd., Chicago, IL, for plaintiffs.

Charles S. Bergen, Brooke A. Adams, Grippo & Elden, Chicago, IL, for Defendants Christopher Nagel, Robert Bach.

Paula Enid Litt, Schopf & Weiss, Chicago, IL, P. Sabin Willett, Sarah E. Mizner, Bingham, Dana & Gould, Boston, MA, for Defendants Molten Metal Technology, John T. Preston.

MEMORANDUM OPINION AND ORDER

ZAGEL, District Judge.

I. Background

This case is about the maneuvers of men who envision the possibility of transforming an idea into a fortune. In the early 1980s, defendants Robert Bach and Christopher Nagel met at Wayne State University in Michigan where Bach was an Organic Chemistry professor and Nagel was a student. In 1986, Bach and Nagel (the "Inventors") patented a process that they invented for the destruction of hazardous waste. (U.S. Patent 4,574,714 and continuation-in-part patent 4,602,574) (the "Patents").

Plaintiff Kenneth Sain is an attorney with expertise in business and government. He also worked in the office of the Mayor of Chicago for several years. Plaintiff Howard Carroll, an attorney, is Sain's law partner and a specialist in negotiations and problem solving. Carroll has also been serving as an Illinois State Senator for more than 24 years. Plaintiff Leroy Camel is a businessman who helps inventors market and commercialize their products. Camel's son, a friend of Nagel's in college, introduced Camel and Nagel.

Around 1986, Camel and the Inventors began discussing ways to commercialize the Patents. Camel introduced the Inventors to Sain and Carroll. Camel, Sain and Carroll ("Plaintiffs") and the Inventors agreed that technical, governmental and social processes needed to be engaged to render the patents commercially viable, and they decided to work together towards this goal. The parties did not have a written agreement at this time, but it was understood that plaintiffs would receive some compensation for their services.

In September 1987, Plaintiffs and the Inventors executed the Exotherm Incorporation Agreement drafted by an attorney at Carroll & Sain, Ltd., thereby creating Exotherm, Inc. for the purpose of commercializing the Patents and "design[ing], develop[ing], construct[ing] and operat[ing] a process for the destruction of hazardous waste." Exotherm Incorp. Agreement at 1. Between September 1987 and November 1989, Plaintiffs contacted government officials, investment bankers, corporations, and individuals to solicit interest in and development funds for the patented technology. Also, the Inventors and Plaintiffs attended numerous meetings and disseminated a business plan they had jointly prepared. However, they failed to gain financing to commercialize the Patents.

Now the plot thickens. Some time in 1989, Charles Harris, a venture capitalist interested in environmental technologies, contacted the Technology Licensing Office at the Massachusetts Institute of Technology ("MIT") and was introduced to John Preston, MIT's Director of Licensing. Preston told Harris that Chris Nagel, a doctoral candidate at MIT at that time, had invented a process for treating hazardous waste. Shortly thereafter, Harris met with Nagel and discussed the Patents.

In early November 1989, the Inventors decided to work with Harris, and they called Sain and Camel to tell them the news. Meanwhile, Harris formed Molten Metal Technology, Inc. ("MMT") for the purpose of commercializing the process of hazardous waste destruction described in the Patents. By November 6, 1989, Nagel knew that he would become an employee of MMT and receive stock options from the corporation. On November 8, 1989, Harris incorporated MMT as a wholly-owned subsidiary of H & H Venture Capital, Inc.—itself a wholly-owned subsidiary of Harris & Harris Group, Inc., a publicly-held company run by Charles Harris. At its inception, MMT had two directors: Harris and his business associate, Rick Childress. Harris provided MMT with $1,000,000 in initial capital.

On November 13, 1989, the Inventors engaged in a telephone conference call discussion with their attorney Anthony Carroll, John Preston of MIT, Gene Whittemeyer of MIT, and the Plaintiffs to discuss their intention to sell an option on the Patents to MMT.

On November 14, 1989, Harris & Harris Group, Inc. issued a press release announcing the formation of MMT for the purpose of commercializing the Nagel-Bach process for waste destruction and the acquisition of an option to purchase the Patents. The press release also announced that Harris would serve as the Chairman and CEO, Nagel as the company's President and Bach as its Vice-Chairman. On this date, Nagel and Bach began serving in these positions at MMT.

In December 1989, MMT, Bach and Nagel executed an Initial Technology Option Contract ("TOC" or "Option Contract") granting MMT the right to purchase the Patents and "certain know-how, processes" for $3 million. Under this TOC, the Inventors had to "use their best reasonable efforts to cause all of the shareholders of Exotherm ... to waive and release ... any ownership rights ... with respect to the Patents, the Technology. ..."

After the November 13, 1989 conference call, Plaintiffs and the Inventors began negotiating a settlement by which the they would end their business relationship, Plaintiffs would release any rights they had regarding the Patents, and the Inventors would be free to commercialize their Patents through Harris and MMT. Sain represented the Plaintiffs, and Anthony Carroll represented the Inventors. The Inventors sent a final version of the Option Contract to Sain by January 5, 1990. Sain reviewed it and forwarded copies to Camel and Carroll.

Around April 12, 1990, the Inventors and the Plaintiffs executed the Settlement Agreement. By this agreement Plaintiffs agreed to release any claims in Exotherm and the Patents in exchange for the Inventors' promise to compensate them according to a formula set out in the agreement. But on May 29, 1990 MMT terminated its option without exercising it.

By an agreement dated May 31, 1990 the Inventors and MMT executed the Technology Assignment Agreement ("TAA") by which the Inventors assigned their interests in the Patents to MMT in exchange for MMT's promise to pay to them $4,000,000 according to a seven-year payment schedule.

Then in early June 1990, Harris withdrew from MMT. He resigned from the Board of Directors and withdrew his capital investment in the corporation. MMT retained approximately $137,517.20 of capital as of June 13, 1990. William Haney, who had invested $100,000 in MMT between November 1989 and March 1990, replaced Harris as the Chairman and CEO of the corporation. Preston replaced Bach as the Vice Chairman of the board, and Nagel remained on the board.

During the summer of 1990, Preston and Nagel negotiated a deal related to the Patents with the Travelers Insurance Company ("Travelers") in which Travelers tentatively agreed to invest $5,000,000 in MMT.

On October 12, 1990, MMT and the Inventors executed the amended TAA that reduced the Inventors' compensation for assigning their Patents to MMT from $4,000,000, as agreed upon in the TAA, to $1,500,000. Travelers financed MMT in the late fall of 1990.

Since June 1990, MMT has developed into a publicly-traded company that, inter alia, employs several hundred people, owns more than sixty patents, licenses and permits, and operates two commercial facilities for processing waste. The Inventors have not yet received the $1,500,000 due under the amended TAA. They have received two payments to date: $25,414 in April 1992 and $88,696.50 in April 1996 which they have placed in escrow pending a resolution of the claims presented here. The Plaintiffs have not received any payment related to the Patents thus far.

Procedure

Plaintiffs filed a six-count amended complaint against the Inventors and MMT stemming from their business dealings and claiming that the Inventors owe them compensation pursuant to the Settlement Agreement. Specifically, Plaintiffs allege claims against the Inventors for a breach of the Settlement Agreement (Count I), fraud (Count II), and a breach of fiduciary duties (Count III). Plaintiffs allege three claims against MMT for civil conspiracy (Count IV), inducement of breach of fiduciary duties (Count V), and tortious interference with contractual relations (Count VI). The Inventors asserted three counterclaims against the plaintiffs for a violation of the Illinois Fair Invention Development Standards Act ("FIDSA" or "Act") (Count I), breach of fiduciary duties (Count II) and misappropriation of corporate opportunities (Count III).

Now the Inventors, MMT and Plaintiffs each move for summary judgment. The Inventors move for summary judgment on Counts I, II and III of the complaint. MMT moves for summary judgment on Counts IV, V and VI of the complaint. Plaintiffs move for summary judgment on the Inventors' counterclaims I and II. I consolidate these motions for review now.

Standard of Review

A court grants summary judgment only "if the pleadings, depositions, answers to interrogatories, and admission on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In determining whether there are any genuine issues of material fact, the court will make all inferences in the light most favorable to the nonmovant. Bartman v. Allis-Chalmers Corp., 799 F.2d 311, 312 (7th Cir. 1986). A genuine issue of material fact exists when "the evidence is such that a...