Troxel Manufacturing Co. v. Schwinn Bicycle Co.

• Decision Date: 19 December 1973
• Docket Number: No. 73-1330,73-1331.,73-1330
• Parties: The TROXEL MANUFACTURING COMPANY, Plaintiff-Appellant and Cross-Appellee, v. SCHWINN BICYCLE COMPANY, Defendant-Appellee and Cross-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

489 F.2d 968 (1973)

The TROXEL MANUFACTURING COMPANY, Plaintiff-Appellant and Cross-Appellee, v. SCHWINN BICYCLE COMPANY, Defendant-Appellee and Cross-Appellant.

Nos. 73-1330, 73-1331.

United States Court of Appeals, Sixth Circuit.

Argued October 16, 1973.

Decided December 19, 1973.

Certiorari Denied April 15, 1974.

George E. Morrow, Memphis, Tenn., for plaintiff-appellant; John R. Walker, III, Memphis, Tenn., on brief.

William E. Lucas, Chicago, Ill., for defendant-appellee; Walter P. Armstrong, Jr., Memphis, Tenn., on brief; Malcolm McCaleb, Malcolm McCaleb, Jr., Chicago, Ill., of counsel.

Before PHILLIPS, Chief Judge, WEICK, Circuit Judge, and O'SULLIVAN, Senior Circuit Judge.

Certiorari Denied April 15, 1974. See 94 S.Ct. 1942.

PHILLIPS, Chief Judge.

This is the second appeal in patent royalties litigation between the licensee of a patent (Troxel) and the owner of the patent (Schwinn) where the patent ultimately was ruled to be invalid. Reference is made to the earlier decision of this court reported at 465 F.2d 1253 (6th Cir. 1972) hereinafter cited as Troxel I for details of the background of the case.

Troxel was a licensee under the Schwinn patent. The patent was held invalid by a California District Court on January 3, 1969.¹ The United States Court of Appeals for the Ninth Circuit affirmed on December 22, 1970.²

In Troxel I this court held, among other things, that: (1) Troxel was not entitled to recover all the royalties it had paid to Schwinn from the inception of the license agreement; (2) the eviction of the patent occurred on December 22, 1970, the date of the Ninth Circuit decision of invalidity; and (3) Troxel was not entitled to recover royalties for any period prior to the eviction, i. e., December 22, 1970.

Also involved in this litigation is Schwinn's counterclaim for the final quarterly royalty payment asserted to be due under the license agreement for the last quarter of 1970.

The District Court³ had ordered Schwinn to refund to Troxel all royalties collected under the license agreement. In Troxel I this court reversed and remanded with directions to dismiss the complaint and to make appropriate disposition of Schwinn's counterclaim for royalties asserted to be due for the last quarter of 1970.

In the proceedings in the District Court on remand, Troxel moved to amend its pleadings to set forth an alternative theory of recovery, which it contends is consistent with the holding of this court in Troxel I. The District Court denied leave to amend. The District Court also denied Schwinn any recovery under its counterclaim for royalties for the last quarter of 1970. All other motions were denied and costs were taxed against Troxel.

Both Troxel and Schwinn have appealed to this court. Troxel appeals from the denial of its motion to amend its pleadings so as to aver an alternative theory of recovery. Schwinn cross-appeals from the denial of its counterclaim for royalties for the final quarter of 1970.

We affirm as to the denial of Troxel's motion to amend its pleadings. We reverse as to the action of the District Court on Schwinn's counterclaim and remand for entry of judgment in favor of Schwinn for royalties found to be owed by Troxel for the period prior to December 22, 1970.

1) Motion to Amend

Troxel strenuously contends that denial of its motion for leave to amend, especially in the absence of stated reasons, was an abuse of discretion. We disagree.

The grant or denial of a motion for leave to amend is within the sound discretion of the District Court and will be reversed only for an abuse of discretion. Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 330, 91 S.Ct. 795, 28 L.Ed.2d 77 (1971); Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). Rule 15(a), Fed.R.Civ.P., mandates that leave to amend "shall be freely given when justice so requires."

In Foman v. Davis, supra, the Supreme Court set forth the guidelines governing motions to amend under Rule 15(a). They are as follows:

"Rule 15(a) declares that leave to amend `shall be freely given when justice so requires\'; this mandate is to be heeded. See generally, 3 Moore, Federal Practice (2d ed. 1948), ¶¶ 15.08, 15.10. If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits. In the absence of any apparent or declared reason — such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc. — the leave sought should, as the rules require, be `freely given.\' Of course, the grant or denial of an opportunity to amend is within the discretion of the District Court, but outright refusal to grant the leave without any justifying reason appearing for the denial is not an exercise of discretion; it is merely abuse of that discretion and inconsistent with the spirit of the Federal Rules." 371 U.S. at 182, 83 S.Ct. at 230.

These guidelines are founded on the hornbook proposition that piecemeal litigation should be discouraged, not only because it is antagonistic to the goals of public policy, but also because it is prejudicial to the rights of individual litigants.

With these considerations in mind, we come to the facts of this case. Troxel has moved to amend its pleadings to assert an alternative theory of recovery based on an August 31, 1967, modification of the license agreement. This modification has been of record in the case since September 20, 1971. The only excuse offered for this delayed presentation is that Troxel misconceived the law. Troxel now seeks to present a theory of law that is alleged to be consistent with the prior law in this Circuit as reaffirmed by Troxel I.

A misconception of the law is not an excuse for the late presentation of an alternative theory of recovery. No reason is shown why Troxel could not have presented its alternative theory initially. Drackett Chemical Co. v. Chamberlain Co., 63 F.2d 853, 858 (6th Cir. 1933), the case relied on, was and still is the law of this Circuit. That Troxel misconceived the effect of Lear v. Adkins, 395 U.S. 653, 89 S.Ct. 1902, 23 L.Ed.2d 610 (1969), is of no consequence. A losing party can always argue in retrospect that he misconceived the law. Rule 15(a) mandates more of a showing than Troxel has presented here.

As pointed out by the Supreme Court in Zenith v. Hazeltine, supra, a trial court is required to take into account any prejudice that the party opposing the motion to amend would suffer. Here the prejudice to Schwinn is obvious. The case has been pending for more than two and one-half years, and Schwinn already has had to defend against one theory at both the district court and the appellate court levels. The District Court would have been justified in concluding that to put Schwinn through the time and expense of continued litigation on a new theory, with the possibility of additional discovery, would be manifestly unfair and unduly prejudicial.

Troxel places primary reliance on Foman v. Davis, supra. In Foman the District Court had entered judgment and dismissed a complaint for failure to state a claim upon which relief could be granted. One day later, the plaintiff moved to vacate the judgment and amend the complaint to state an alternative theory of recovery. These motions were denied and the Court of Appeals affirmed. That decision was reversed by the Supreme Court.

The present case is readily distinguishable from Foman. In Foman the plaintiff had not attained a decision on the merits of his cause of action. The lawsuit was barely underway when it was terminated. Here Troxel proceeded under one theory through the Court of Appeals where it lost. Now it wants to repeat the whole cycle again. We are unwilling to reverse the decision of the District Court. The time has come to bring this extended litigation to an end.

Other authorities cited by Troxel do not force a contrary conclusion. In Western Urn Mfg. Co. v. American Pipe & Steel Corp., 113 U.S.App.D.C. 378, 308 F.2d 333 (1962), a motion to amend was allowed after a reversal and remand because of new facts. Here there are no new facts. Jones v. St. Paul Fire & Marine Ins. Co., 108 F.2d 123 (5th Cir. 1939), was an equity case where the court allowed the plaintiff leave to amend its complaint to assert an additional claim arising out of the same facts. Troxel already has asserted its claim and is merely seeking to justify it with a different legal theory.

We hold that it was not an abuse of discretion for the District Court to deny Troxel leave to amend its pleadings.

In so holding, we note that the better practice is for a district court to state reasons for its denial of a motion to amend. However, as the court said in Foman v. Davis, supra, when reasons are readily apparent it is not per se an abuse of discretion to omit them. See also Komie v. Buehler, 449 F.2d 644, 648 (9th Cir. 1971).

In order to foreclose any doubts as to the equities of the matter, we hold that even if leave to amend had been allowed, Troxel could not have been successful on its alternative theory. Troxel's new theory is as follows:

"The theory of recovery proposed to be submitted by Troxel on remand is that the parties, by amendment to the patent license agreement between them, have stipulated that on termination of the agreement, their rights relative to the validity of the patent are to be the same as if there had been no license agreement. Absent a license agreement, it is made clear by Drackett that there is a complete failure of consideration where the underlying patent is invalid. Such failure of consideration has long been recognized as a ground for recovery of moneys paid."

The amendment to the license agreement is as follows:

"Adverting to Section 2 of the license

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