Span-Deck, Inc. v. Fabcon, Inc.

• Decision Date: 03 March 1983
• Docket Number: Civ. No. 4-73-535.
• Citation: 570 F. Supp. 81
• Parties: SPAN-DECK, INC., Plaintiff, v. FABCON, INCORPORATED and Rauenhorst Corporation, Defendants.
• Court: U.S. District Court — District of Minnesota

570 F. Supp. 81

SPAN-DECK, INC., Plaintiff, v. FABCON, INCORPORATED and Rauenhorst Corporation, Defendants.

Civ. No. 4-73-535.

United States District Court, D. Minnesota, Fourth Division.

March 3, 1983.

COPYRIGHT MATERIAL OMITTED

John M. Mason, Minneapolis, Minn., for plaintiff.

Lawrence C. Brown, John D. Shively and Robert O. Vidas, Minneapolis, Minn., for defendants.

MEMORANDUM AND ORDER

RENNER, District Judge.

This matter comes before the court on defendant Rauenhorst's motion for judgment of dismissal. A hearing on the motion and a pretrial conference were held on February 17, 1983.

I. INTRODUCTION

This case comes again before the court by virtue of the order of remand issued in Span-Deck, Inc. v. Fab-Con, Inc., 677 F.2d 1237 (8th Cir.1982). The parties vigorously dispute both the scope of the issues remaining to be tried and the propriety of requiring Rauenhorst to continue as defendant in light of the Court of Appeal's opinion. The defendants also request that the court issue a pretrial order delineating the issues to be retried. The court will include a definition of issues to be retried where necessary and appropriate in this opinion. Before reaching the substance of Rauenhorst's motion, however, a brief recapitulation of the tortuous history of the case¹ is necessary.

A. The District Court Proceedings

Span-Deck commenced this action against Rauenhorst and Fabcon, a wholly-owned subsidiary of Rauenhorst, in November 1973. The complaint alleged five theories of liability against Fabcon. In Count I, Span-Deck alleged that Fabcon had breached a franchise agreement entered into between the parties in October 1970 by continuing to use Span-Deck equipment, trade secrets and know-how in the manufacture of concrete planks and by failing to recognize the validity of or pay royalties due under the agreement. In Count III, Span-Deck alleged misappropriation of trade secrets and know-how; in Counts IV and V, trademark infringement; and in Counts VI and VII, infringement of two patents which had been obtained by Span-Deck, the "Mitchell" and "Kinnard" patents.

Against Rauenhorst, the complaint alleged two theories of liability. In Count II, Span-Deck alleged that Rauenhorst had tortiously induced Fabcon's breach of contract. In all other counts, Span-Deck alleged that Rauenhorst was Fabcon's alter ego and thus vicariously liable for Fabcon's actions.

Span-Deck sought damages and a permanent injunction for each of its claims. Fabcon, in turn, asserted a counterclaim seeking a declaratory judgment that the franchise agreement was unenforceable due to failure of consideration because the patents were invalid.

B. The District Court Proceedings

The case was tried to a jury before this court from November 17, 1980 through February 13, 1981. Prior to trial, Chief Judge Lord had entered partial summary judgment for Fabcon and Rauenhorst on the portion of Count III alleging misappropriation of know-how. Also, the trademark infringement claims were withdrawn by plaintiff before the case was submitted to the jury.

After a lengthy deliberation, the jury returned answers to the twenty-two special verdict questions. It found that the franchise contract had been supported by both patent and non-patent consideration; that Fabcon had breached the contract; and that it was liable for $1,500,000 in compensatory damages. The jury also found that Rauenhorst was not Fabcon's alter ego; that it had induced Fabcon to breach the franchise contract; and that it was liable for $2,000,000 in punitive damages. On the trade secrets claim, the jury found that Fabcon had used Span-Deck's trade secrets and assessed $375,000 compensatory and $400,000 punitive damages. Finally, the jury found that the patents were valid and that Fabcon had infringed them.

The court entered judgment on the contract and tortious inducement claims, Counts I and II, in the amounts of $1,500,000 in compensatory damages against Fabcon, and $2,000,000 in punitive damages against Rauenhorst. The counterclaim was dismissed.

All parties filed post-judgment motions. Fabcon and Rauenhorst made motions for judgment n.o.v. or for a new trial in which they urged that the patents were invalid and that their actions were justified under Lear, Inc. v. Adkins, 395 U.S. 653, 89 S.Ct. 1902, 23 L.Ed.2d 610 (1969). They also objected to the jury's liability and damage findings as to Span-Deck's trade secrets claim. Span-Deck moved to alter the initial judgment to impose joint liability upon Rauenhorst for the $1,500,000 compensatory damage award.

By Order and Memorandum dated July 21, 1981, the court held, as a matter of law, that the "Kinnard" patent had not been infringed, but denied all other relief requested by defendants. It granted Span-Deck's motion to alter the initial judgment to impose joint liability upon Rauenhorst for $1,500,000 compensatory damages for breach of contract by Fabcon.

C. The Court of Appeals Decision

In Span-Deck, Inc. v. Fabcon, Inc., 677 F.2d 1237 (8th Cir.1982), the Court of Appeals held that the "Mitchell" patent was invalid as a matter of law and that, therefore, Fabcon's cessation of royalty payments was justified under Lear, 395 U.S. at 653, 89 S.Ct. at 1902, at least as of April 1973 when Gerald Rauenhorst, president of defendant Rauenhorst, asserted that the Mitchell and Kinnard patents were invalid. In Lear the Supreme Court held that federal patent policy allows a licensee to discontinue royalty payments while challenging patent validity. Id. at 673-74, 89 S.Ct. at 1912-1913. The Eighth Circuit held that Lear was controlling even though the royalty here also included an unapportioned amount for trade secrets and other nonpatent consideration. The court reasoned that here, unlike Aronson v. Quick Point Pencil, 440 U.S. 257, 99 S.Ct. 1096, 59 L.Ed.2d 296 (1979), the parties had not agreed that a reduced royalty rate would apply if the patents were found invalid. Since both patents were used as leverage to negotiate the royalty, the entire royalty amount could be withheld during a challenge to their validity. Span-Deck, 677 F.2d at 1247.

Because Fabcon's actions were authorized under Lear at least as of the time of Rauenhorst's involvement in April 1973, the court concluded that Rauenhorst was justified in urging Fabcon to discontinue royalty payments. 677 F.2d at 1246. The court then said:

Because Rauenhorst established justification or `the presence of exceptional circumstances which show that no tort was in fact committed and lawful excuse which excludes actual and legal malice,' Johnson v. Radde, 293 Minn. 409, 196 N.W.2d 478, 480 (1972), the district court should either have directed a verdict for Rauenhorst on the tortious inducement claim or entered a judgment notwithstanding the verdict.

Id.

In reaching this holding, the court relied on St. Regis Paper Co. v. Royal Industries, 552 F.2d 309 (9th Cir.1977) cert. denied, 434 U.S. 996, 98 S.Ct. 633, 54 L.Ed.2d 490 (1977), where the Ninth Circuit held an entire unapportioned royalty to be unenforceable upon a finding that the patent was invalid, but held that the licensor was still entitled to compensation for its know-how. The Span-Deck court noted that the court in St. Regis had discussed damages in terms of the reasonable value of the know-how "premised ostensibly on grounds of unjust enrichment. See Dusenka v. Dusenka, 221 Minn. 234, 21 N.W.2d 528, 530-31 (1946)." Id. 677 F.2d at 1247.

The Span-Deck court concluded, finally, that "it is apparent that the trial court erred in allowing the jury to assess compensatory damages based on unpaid royalties for the period after October 7, 1975 the date of contract termination." Id. at 1249. It said further that:

Although the jury found that Fabcon continued to use Span-Deck's trade secrets acquired as a result of a confidential relationship with Span-Deck and although a reasonable royalty is one fair method of computing damages in such a case ..., it does not follow that the jury would have necessarily computed the same damages had it treated the contract as terminated as of October 1975. In sum, a remand for determination of compensatory damages based on the value of nonpatent consideration received by Fabcon during the period from cessation of royalties until the October 1975 contract termination and damages for the misappropriation of trade secrets after contract termination is in order.

Id.

The court then ordered, id:

The judgment against Fabcon for breach of contract is reversed; however, because the jury found that Fabcon received nonpatent consideration, the cause is remanded for a determination of the value of nonpatent rights received by Fabcon from the time Fabcon ceased payment of royalties until termination of the contract on October 6, 1975. In addition, a determination of damages for misappropriation of trade secrets after the contract termination is ordered.

II DISCUSSION

Rauenhorst moves for an order that final judgment be entered dismissing it from the action "based upon the Judgment of the Court of Appeals, the Special Verdict form, the court's instructions to the jury, and all of the files, records and proceedings herein." Span-Deck points out that Rauenhorst has failed to state the rule upon which its motion is based. This failure does not require, however, that the motion be denied.

Fed.R.Civ.P. 7(b) provides that a motion should state with particularity the grounds upon which it is based, but, as numerous courts have held, this rule need not be followed slavishly. In McGarr v. Hayford, 52 F.R.D. 219 (S.D.Cal.1971), for example, the court held that a motion need not be denied for failure to comply with Rule 7(b) if the court can comprehend the basis of the motion and deal fairly with it. Similarly, in King v. Mordowanec, 46 F.R.D. 474 (D.R.I. 1969), the court held that the purpose of the rule was fulfilled where the grounds for the motion had been discussed at oral argument and in an in chambers...