Schnell v. Peter Eckrich & Sons, Inc.

• Decision Date: 20 June 1960
• Docket Number: No. 12901,12902.,12901
• Citation: 279 F.2d 594
• Parties: Carl SCHNELL and The Griffith Laboratories, Inc., an Illinois corporation, Plaintiffs-Appellants, v. PETER ECKRICH & SONS, INC., an Indiana corporation, and The Allbright-Nell Company, an Illinois corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

279 F.2d 594 (1960)

Carl SCHNELL and The Griffith Laboratories, Inc., an Illinois corporation, Plaintiffs-Appellants, v. PETER ECKRICH & SONS, INC., an Indiana corporation, and The Allbright-Nell Company, an Illinois corporation, Defendants-Appellees.

Nos. 12901, 12902.

United States Court of Appeals Seventh Circuit.

June 20, 1960.

Charles J. Merriam, Chicago, Ill., Eugene C. Knoblock, South Bend, Ind., Norman M. Shapiro, Chicago, Ill., Merriam, Smith & Marshall, Chicago, Ill., Oltsch & Knoblock, South Bend, Ind., of counsel, for appellants.

Clemens Hufmann, Chicago, Ill., Richard D. Mason, M. Hudson Rathburn, Chicago, Ill., Mason, Kolehmainen, Rathburn & Wyss, Chicago, Ill., Torborg & Miller, Fort Wayne, Ind., of counsel, for appellees.

Before SCHNACKENBERG and CASTLE, Circuit Judges, and PLATT, District Judge.

CASTLE, Circuit Judge.

These appeals are in two actions brought in the District Court for the Northern District of Indiana by Carl Schnell and The Griffith Laboratories, Inc., plaintiffs-appellants¹ for the infringement of certain patents. The first case involved two patents and was originally brought only against defendant-appellee, Peter Eckrich & Sons, Inc.² Defendant-appellee, Allbright-Nell Company,³ was joined as a defendant by an amended complaint. The second suit involved a third patent and from its commencement both Eckrich and Allbright-Nell were named as defendants.

The District Court granted the motion of Allbright-Nell, filed in each case, to quash a summons served on it in Illinois and to dismiss it from the action on the ground that it was not subject to suit in the Northern District of Indiana. Allbright-Nell was dismissed and we granted petitions of plaintiffs to appeal pursuant to 28 U.S.C.A. § 1292(b), the District Court having certified in each case that the order at issue involves a controlling question of law as to which there is substantial grounds for difference of opinion and an immediate appeal may materially advance the ultimate determination of the litigation.

The sole contested issue is whether as a matter of law Allbright-Nell, a named defendant, by its open assumption and control of the defense of Eckrich submitted to the jurisdiction of the District Court?

None of the facts is in dispute. Allbright-Nell is the manufacturer of the accused devices. Eckrich is its customer. By contract Allbright-Nell is obligated to indemnify Eckrich and to defend it in any suit based on a claim that the accused devices or their use in accordance with Allbright-Nell's specifications constitute an infringement of any U. S. patent. It is conceded for the purpose of the record that Allbright-Nell does not have a place of business in Indiana. No claim to jurisdiction is based on the service made in Illinois, which was quashed.

The sole basis asserted as conferring jurisdiction over Allbright-Nell is that by controlling the defense it was in fact protecting its own interests as well as those of Eckrich and that such action constituted a general appearance submitting to the jurisdiction of the District Court. It is not disputed that Allbright-Nell was and is defending the two actions for Eckrich and has assumed full control of the defense.

In our opinion the decision of this Court in Freeman-Sweet Co. v. Luminous Unit Co., 7 Cir., 264 F. 107 is controlling in the instant case. It was there held that a manufacturer who assumed control of the defense of a patent infringement suit brought against one of its customers in a jurisdiction of which the manufacturer was not an inhabitant could not, over its objection, be made a party defendant. This Court there said (at pages 109, 110):

"At the trial, counsel of record for the sole defendant Freeman-Sweet Company, stated, in answer to an inquiry, that he had been employed and was compensated by the appellant, the Reflectolyte Company to defend this suit brought against its vendee; he conceded that it was privy to the case and that the decision to be rendered would be res adjudicata as to it as well as to the Freeman-Sweet Company, on the questions of validity and infringement but he objected to having his employer appellant the Reflectolyte Company, made a party defendant to this suit, claiming for it the privilege of not being sued in a jurisdiction of which it was not an inhabitant and in which it had no regular and established place of business. Specifically counsel urged that damages claimed for unfair competition could not be adjudicated against it, a citizen of the same state as plaintiff. Thereupon plaintiff specifically disclaimed any recovery against either appellant on this ground, limiting the suit to injunction, damages, and accounting of profit for infringement.

"But counsel did not thereupon consent to the jurisdiction of the court over this appellant; his objection to its being made a party defendant, as distinguished from a privy remained and the objection, in our judgment, was valid. Without its consent, the court was powerless to compel this appellant to submit to an accounting in Illinois, for all infringements committed in the course of its business in Missouri. While as privy it was bound by the decision as to validity and infringement, it had the right to insist that it be not held to account in Illinois as decreed by the court."

The opinion of the district court in Esquire, Inc. v. Varga Enterprises, Inc., 81 F.Supp. 306, affirmed 7 Cir., 185 F.2d 14, cited by plaintiffs, does not set forth the facts nor the legal principle upon which Vargas' submission to jurisdiction was predicated but merely asserts (81 F.Supp. at page 307) that "The evidence appears to be sufficiently clear that he has submitted to the jurisdiction of the Court * * *".

In The University of Illinois Foundation v. Block Drug Co., D.C., 133 F.Supp. 580, affirmed 7 Cir., 241 F.2d 6, also cited by plaintiffs, it is not shown that an objection to jurisdiction was made. In neither case was the point considered on appeal in this Court. We do not regard these cases as adjudicating the point here in issue.

In Ocean Accident & Guarantee Corp. v. Felgemaker, 6 Cir., 143 F.2d 950, 952, relied upon by plaintiffs, the service was quashed because the district court had "no jurisdiction to issue process in this case beyond the limits of the district". Although the court assumed jurisdiction on the ground of "control of the defense" it does not appear a specific objection was interposed that the venue was inappropriate and the insurance carrier not subject to suit therein. In the instant case such an objection was timely made by Allbright-Nell's motion for dismissal on the ground that it was not subject to suit in the district. Nor is Allbright-Nell by its contract liable to plaintiffs by virtue of any judgment they may recover from Eckrich as was the case under the insurance contract involved in Ocean Accident. And in Ocean Accident the effect of the privy's conduct as authorizing entry of judgment against it was not determined until, as a past and completed occurrence, it was subject to judicial appraisal in the light of all factors involved. In the instant case we are importuned to accept a contractual obligation to defend and mere entrance thereupon as conclusive not only of one's ultimately being bound by the judgment entered but also of being, in the interim, subject to all of the incidents of being a formal party to the action.

If, as plaintiffs contend, Ocean-Accident appears to chart such a course we are not disposed to follow it. Under our holding in the Freeman-Sweet Co. case recognition of a contractual obligation to defend does not have an irrevocable effect which fails to consider or protect against changes which may occur in the course of the litigation between the privy and the defendant, such as possible termination of the defense agreement by consent, its renunciation by the defendant or its breach by defendant's failure to cooperate.

In our view statutory requirements of venue should not be nullified or dispensed with by an extension of the doctrine by which a person may in some situations become bound by a judgment although not a formal party to the action subject to the jurisdiction of the court which entered it.

The orders of the District Court are affirmed.

Affirmed.

PLATT, District Judge (dissenting).

In my opinion Allbright-Nell Company has entered its general appearance in these cases and waived venue as required by § 1400, Title 28 U.S.C.A.

The majority opinion is based primarily upon Freeman-Sweet Co. v. Luminous Unit Co., 7 Cir., 1920, 264 F. 107, certiorari denied 253 U.S. 486, 40 S.Ct. 482, 64 L.Ed. 1025, which presents a different situation than presented here. The district court in the instant case made the following finding of fact:

"The defense of this case has been openly assumed by said Allbright-Nell Company, which concedes that it was and is defending this suit for defendant, Peter Eckrich & Sons, Inc., and has assumed full control of the defense thereof. This defense is pursuant to a contract dated March 6, 1959, the pertinent provision of which is as follows:

"3. The Allbright-Nell Co. agrees solely at its expense to defend or settle any suit or proceeding brought against Peter Eckrich and Sons, Inc. based on a claim (of which claim prompt and timely written notice shall have been given to The Allbright-Nell Co.) that the ANCO Emulsitators supplied by The Allbright-Nell Co., or the use thereof in accordance with specifications of The Allbright-Nell Co., constitutes an infringement of any United States patent, and The Allbright-Nell Co. agrees to indemnify Peter Eckrich and Sons, Inc. for any expenses directly arising from any such claim, provided that Peter Eckrich and Sons, Inc. shall not undertake to defend any such suit or proceeding nor to effect any settlement or compromise thereof without the prior express written consent of The Allbright-Nell Co.; and should the ANCO Emulsitator or its use as specified by

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