Sun Studs, Inc. v. Applied Theory Associates, Inc.
| Citation | 772 F.2d 1557,227 USPQ 81 |
| Decision Date | 13 September 1985 |
| Docket Number | 84-1059 and 84-1091,Nos. 84-986,84-1025,s. 84-986 |
| Parties | SUN STUDS, INC., an Oregon Corp., Appellee/Cross-Appellant, v. APPLIED THEORY ASSOCIATES, INC., an Oregon Corp., and Applied Theory, Inc., an Oregon Corp., Appellants/Cross-Appellees. Appeal |
| Court | United States Courts of Appeals. United States Court of Appeals for the Federal Circuit |
J. Pierre Kolisch, Kolisch, Hartwell, Dickinson and Anderson, Portland, Or., argued for appellants. With him on brief were Peter E. Heuser and Robert D. Varitz, Portland, Or.
Don H. Marmaduke, Tonkon, Torp, Galen, Marmaduke & Booth, Portland, Or., argued for appellee. With him on brief were Barbee B. Lyon and Mark L. Cushing, Portland, Or. Also on brief were William A. Birdwell and William O. Geny, Chernoff, Vilhauer, McClung, Birdwell and Stenzel, Portland, Or.
Before BALDWIN, KASHIWA and NIES, Circuit Judges.
These consolidated appeals from the United States District Court for the District of Oregon arise out of a motion for summary judgment concerning an alleged agreement to settle a lawsuit and cross motions to disqualify the parties' respective attorneys. 1 We affirm that court's February 29, 1984 judgment which granted appellee's motion for summary judgment on the ground that the alleged settlement is void under the Oregon Statute of Frauds, O.R.S. 41.580. We affirm in part and reverse in part the March 30, 1984 judgment which granted both parties' cross motions to disqualify counsel. We first discuss the summary judgment on the statute of frauds issue and then the disqualification issues.
Plaintiff-appellee Sun Studs, Inc. (Sun Studs) sued defendant-appellant Applied Theory Associates, Inc. (ATA) in August 1978, for patent infringement, breach of contract, and misappropriation of trade secrets. ATA denied infringement and counterclaimed that Sun Studs' patents were invalid.
Extensive discovery took place until September 1981, when settlement negotiations began. For the next year and a half the parties attempted to reach an agreement. A problem in reaching an acceptable settlement was that Sun Studs had a separate exclusive licensing agreement, involving one of the same patents in suit, with a third party, Albany International Industries, Inc. (Albany). During negotiations, Daniel P. Chernoff, Sun Studs' patent attorney, opined that it was necessary to obtain Albany's assent to license ATA before final settlement. In late 1982, the Coe Manufacturing Co., Inc. (Coe), a major competitor of ATA's parent corporation, 2 acquired Albany's exclusive patent license rights. Part of the proposed settlement between Sun Studs and ATA required Sun Studs to obtain for ATA a sublicense of the patent to which Coe now had exclusive rights.
In the beginning of January 1983, as a result of Coe's acquisition of the Albany license, Chernoff reviewed the Albany license agreement and changed his opinion with respect to the necessity of obtaining Albany/Coe's assent to the granting of a sublicense to ATA/ATI. Chernoff now believed that it was unnecessary to obtain Coe's assent because under the terms of that license agreement, Sun Studs could force Coe to grant ATA/ATI a non-exclusive license.
That news was welcomed by ATA/ATI, and Chernoff then prepared a new settlement proposal entitled "Sun Studs--ATA/USNR Agreement Outline of Major Terms." On January 19, 1983, Chernoff sent a signed letter along with a copy of the Agreement Outline bearing the same date to Richard Ward, chairman of the board of ATI and president of USNR (ATI had become owner of all ATA stock), Fred Sohn, president and owner of Sun Studs, Larry Hunter, president of ATA, and A. Allen Franzke, ATA's general attorney. The letter read in part:
Enclosed for your perusal is an outline of the major terms of the agreement which we now propose to settle the longstanding controversy.... However, Fred [Sohn] has not seen this written outline, and it may be that he will have some comments or modifications to it....
Fred and I look forward to meeting with you this coming Friday at 9:30 a.m. in our offices.
Paragraph 4 of the Agreement Outline provides that Sun Studs would arrange for a grant to ATA of sublicense rights from Coe under Sun Studs' patents for automated sawmills. Paragraph 5(a) provides for a grant by Sun Studs to USNR/ATA of license rights under Sun Studs' patents for automated lathe charger systems. Paragraph 5(c) provides that USNR/ATA would agree not to infringe Sun Studs' patents for the remainder of the lives of the patents.
On January 21, 1983, Sohn, Ward, and Chernoff met to discuss the proposed settlement outline. Sun Studs contends that the meeting consisted of negotiations only and no final agreement was reached. ATA/ATI argue that a final settlement was reached.
Chernoff notified Ward on February 1, 1983 that there was no settlement between the parties because Sun Studs had, after the conference of January 21, 1983, made a better arrangement with Coe, and Coe was unwilling to grant ATA/ATI a sublicense.
When ATA/ATI learned that Sun Studs was reneging on the alleged settlement, they retained J. Pierre Kolisch and his firm (the Kolisch firm) as new patent counsel. A supplemental answer was filed alleging that a settlement agreement had been reached, and the court was requested to dismiss Sun Studs' suit and to order specific performance of the settlement agreement. Sun Studs denied that any enforceable settlement had been reached.
ATA/ATI sought a bench trial of the settlement issue but Sun Studs prevailed on its request for a jury trial. After ten months of discovery, the trial was set for February 14, 1984. On January 17, 1984, Sun Studs moved for summary judgment of the settlement issue on the grounds that the alleged settlement was barred by the Oregon Statute of Frauds.
On February 29, 1984, the trial court granted Sun Studs' motion for summary judgment concluding that the alleged agreement was void under the Oregon Statute of Frauds, O.R.S. 41.580. 3 The court noted that the provisions arranging for the grants of license and sublicense rights and the commitment not to infringe the patents have neither specific termination dates nor a provision for earlier termination. Determining that the provisions would be effective until 1990 and 1991 when the patents expire, the court concluded that the agreement would not be capable of performance within one year and, thus, would fall within the statute. The court then found that Chernoff's signature on the cover letter did not satisfy the statute's subscription requirement.
Upon motion by ATA/ATI, and upon a finding of no just reason for delay, the trial court ordered entry of final judgment on ATA/ATI's settlement claim pursuant to rule 54(b) of the Federal Rules of Civil Procedure (Fed.R.Civ.P.). Our jurisdiction is found in 28 U.S.C. Sec. 1295(a).
On appeal, ATA/ATI contend that the trial court erroneously granted the summary judgment motion. ATA/ATI argue that the trial court erred by basing its decision on the Oregon Statute of Frauds because an agreement to settle a federal case is controlled by federal, not state law. Also, it is contended that the parties agreed on all the terms of the settlement at the January 21, 1983 meeting and it was incumbent upon Sun Studs to communicate that there was no settlement until a formal settlement document was signed. ATA/ATI further contend that the unsigned Agreement Outline was specifically referred to in the January 19, 1984 letter, and therefore was incorporated by the letter. Upon acceptance of the settlement proposal by ATA/ATI, a binding agreement arose. Lastly, ATA/ATI argue that all of the terms of the Agreement Outline could be performed within a year.
In reviewing a grant of summary judgment, we must determine whether there existed any genuine issue of material fact and whether the moving party is entitled to judgment as a matter of law. See rule 56(c), Fed.R.Civ.P. The movant bears the burden of demonstrating the absence of all genuine issues of material fact while the court views the evidence in a light most favorable to the nonmovant, drawing all reasonable inferences in the nonmovant's favor.
We must first decide what is the applicable substantive law. ATA/ATI contend that under the rationale of Atari, Inc. v. JS & A Group, Inc., 747 F.2d 1422, 223 USPQ 1074 (Fed.Cir.1984), this court should apply its own body of law in deciding whether the alleged settlement agreement is enforceable. According to ATA/ATI, "[i]ssues regarding the construction and validity of a settlement of a patent lawsuit constitute substantive patent law issues which are of national concern to patent litigants." The further argument is that Congress intended, by its passage of the Federal Courts Improvement Act of 1982, Pub.L. No. 97-164, 96 Stat. 25 (1982) (FCIA), that there should be uniformity and stability in the law relating to terminations of patent lawsuits. Alternatively, ATA/ATI rely on certain decisions which, they assert, apply federal law rather than state law. We disagree with ATA/ATI's contentions.
It is already well settled that the nature of the legal issue, rather than the court's statutory basis for subject matter jurisdiction, determines the choice of law. 1A Moore's Federal Practice p 0.305 (2d ed. 1985). In Atari, this court emphasized that the district courts should be free to follow the guidance of their regional circuits in all but the substantive law fields assigned exclusively to this court. In reviewing a number of our earlier decisions, we said:
[W]e deem it appropriate here to decide non-patent matters in the light of the problems faced by the district court from which each count originated, including the law there applicable. In this matter, we desire to avoid exacerbating the problem of intercircuit conflicts in non-patent areas. A district court judge should not be expected to look over his...
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