United Nuclear Corp. v. Energy Conversion Devices, Inc.

• Decision Date: 20 August 1982
• Docket Number: No. 81-264,81-264
• Citation: 110 Ill.App.3d 88,65 Ill.Dec. 649,441 N.E.2d 1163
• Parties: , 65 Ill.Dec. 649 UNITED NUCLEAR CORPORATION, a Delaware corporation, Plaintiff-Appellant, v. ENERGY CONVERSION DEVICES, INC., a Delaware corporation, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

Page 1163

441 N.E.2d 1163

110 Ill.App.3d 88, 65 Ill.Dec. 649

UNITED NUCLEAR CORPORATION, a Delaware corporation Plaintiff-Appellant, v. ENERGY CONVERSION DEVICES, INC., a Delaware corporation Defendant-Appellee.

No. 81-264.

Appellate Court of Illinois First District, Fifth Division.

Aug. 20, 1982.

Francis J. Higgins, William R. Carney, George J. Casson, Larry L. Thompson, Bell, Boyd & Lloyd, Chicago, for plaintiff-appellant; Johnson, Bromberg, Leeds & Riggs, Dallas, Tex., and Pennie & Edmonds, New York City, of counsel.

Chester T. Kamin, Michael H. Salsbury, Daniel J. King, Chicago, for defendant-appellee, Jenner & Block, Chicago, and Lawrence G. Norris, Troy, Mich., of counsel.

SULLIVAN, Presiding Justice:

Plaintiff United Nuclear Corporation (United) appeals from a judgment for defendant Energy Conversion Devices, Incorporated (ECD) in an action seeking damages and declaratory, injunctive, and other relief for breach of contractual and fiduciary duties involving the ownership rights to certain energy conversion technology. Plaintiff here contends that the trial court erred in a number of its rulings at points throughout the proceedings. We need consider only those issues hereinafter enumerated, since they are dispositive of this appeal or will necessarily arise in further proceedings. Those issues are whether the trial court erred (1) in its rulings as to the existence and duration of a program for the development of energy conversion technology pursuant to an agreement between United and ECD (the Agreement); (2) in its designation of a discovery cutoff date; and (3) in finding that a joint venture did not exist between the parties.

As background to the present dispute, it appears that ECD's principal business is the development of patentable inventions in the field of amorphous semiconductors. These are materials whose electrical conductivity is enhanced through certain physical and chemical modification processes. Through Stanford Ovshinsky, its president and chief executive officer, ECD has pioneered in the development of amorphous semiconductor technology. United is engaged in uranium mining and manufacturing as well as nuclear-related activities.

The present litigation arose over a dispute between United and ECD as to the parties' contractual rights and duties concerning certain amorphous semiconductor technology, believed by the parties to be a cost-effective means for the large-scale commercial conversion of sunlight into electricity (solar conversion) and of heat into electricity (thermal conversion). The type of semiconductor in question is an amorphous alloy of silicone, fluorine, and hydrogen (fluorine alloy). In essence, this new area of technology sought the development of new semiconductors by the elimination of certain "electronic states" in the "energy gap" of amorphous semiconductor materials, and it differed fundamentally from the earlier chemical modification theory which involved the introduction of electronic states into such energy gaps.

In order to develop and exploit the potential of the new energy conversion technology, the Agreement was signed by Ovshinsky and Keith Cunningham, president of United, and was dated August 15, 1976. Relevant to our consideration here, the Agreement defined the existing and future energy conversion technology to be covered (the Technology). It further provided that ECD would sell to United an "undivided 50% interest" in the Technology and that United would pay ECD $250,000 for its undivided 50-percent interest "in the present Technology." United also agreed to provide ECD with an additional $250,000 for the period commencing on the date of the Agreement and ending one year after the date that the parties mutually agreed on a 1-year development program (the Initial Period). ECD and United also agreed to disclose appropriate information to each other concerning the Technology during the term of the Agreement and to keep such information confidential. The Agreement further provided that within 30 days after the expiration of the Initial Period, the parties would evaluate the Technology and the programs thereunder and assess the feasibility of a continuing business relationship. If such relationship could not be established, the Agreement would terminate, and ECD would be required "to execute and deliver all documents and instruments" to United, as required by the Agreement, in order to convey to United its interest in the Technology. Finally, upon termination of the Agreement, the parties were deemed to be the owners of an undivided 50-percent interest in the Technology.

In March 1977, Cunningham and Ovshinsky began discussing a continued business arrangement between United and ECD as to the Technology. It appears that in April 1977, Ovshinsky proposed the formation of a "joint venture" in which each partner would maintain a 50-percent interest for the purpose of developing the Technology and introducing commercial energy conversion products. The proposed arrangement contemplated proportional representation on the board of directors and the establishment of an executive committee, with ECD--in the person of Ovshinsky--maintaining day-to-day operating responsibilities during development. The proposal also envisioned that ECD would continue to supply know-how, and United would supply capital. The United board of directors, in rejecting the proposal, imposed the condition that it have voting control in any new arrangement between United and ECD.

In addition to its demand for control, United in a letter dated December 25, 1977, requested that ECD convey United's interests in "all patents, patent applications, technology and other assets" to which United was entitled under the Agreement; that ECD deliver to United "a progress report on the status of the development program contemplated by the Agreement"; that ECD deliver an accounting of funds furnished by United under the Agreement; that ECD deliver to United "a suggested schedule for the description of the content of the progress reports which ECD will deliver to [United]" in order to apprise United of developments pertaining to the business activities under the Agreement; and that ECD give "appropriate assurances" to United that it would not abandon its efforts relating to such activities.

Besides its continuing business relationship discussions with United between 1977 and May 1, 1979, ECD also carried on negotiations with other parties. As a result, in October 1977 ECD sold Japanese investors $3.4 million in subordinated convertible debentures and certain rights in the commercialization of products and processes developed by ECD in the area of energy conversion. ECD also engaged in negotiations with Atlantic Richfield Company (ARCO), and on May 1, 1979, ECD, ARCO, and an ARCO subsidiary reached an agreement (ARCO Agreement) under which ECD, in a transaction involving $3.6 million, was to conduct a program of work as outlined in the contract and grant the ARCO subsidiary a license in certain existing ECD energy conversion technology. Later, on January 14, 1980, ECD transferred further rights to ARCO for a total additional consideration of $25 million.

The instant case is predicated, inter alia, upon United's asserted rights under the Agreement. In this regard, the following pretrial proceedings are relevant. On May 4, 1979, United filed a complaint and moved for entry of a temporary restraining order to prevent ECD from performing any other agreements or disclosing any confidential information concerning the Technology without United's consent. The motion for a temporary restraining order was granted. Thereafter, the parties began negotiations in an effort to reach a settlement, but none was reached.

In the complaint of May 4, United alleged in substance that ECD violated the Agreement. ¹ Count I alleged that under the Agreement, United and ECD had entered into a joint venture for the development and exploitation of the Technology; that ECD had violated its fiduciary duties and relationship of confidence and trust in the purported joint venture; that ECD had misappropriated the Technology and its future development and had thereby impaired United's rights in it; and that ECD had converted to its own use all or a substantial portion of the funds provided by United under the Agreement. Count II alleged that ECD had wilfully breached express covenants and agreements by ECD and Ovshinsky under the Agreement; that such breaches included the failure of ECD to devote sufficient personnel, facilities and time as contemplated by the Agreement; that ECD misled United as to its activities concerning the Technology; that ECD failed to disclose to United appropriate information as to the Technology or its performance under the Agreement; that ECD refused to supply United with copies of all written Technology or to permit United representatives to examine the Technology; that ECD refused to give progress reports under the Agreement; that ECD refused to disclose to United the areas of the Technology for which future development would be warranted; that ECD refused to provide United with documentation which would establish United's undivided 50-percent interest in patents and patent applications covering the Technology; and that ECD disclosed confidential information about the Technology to third parties and entered into a contract with a third party relating to the Technology. Count III alleged that ECD, by Ovshinsky, breached express and implied agreements arising from the claimed joint venture and fiduciary relationship of the parties, and that ECD breached its obligations under a claimed constructive trust upon the Technology and its future development and exploitation for the benefit of United to the extent of its 50-percent undivided interest. Finally, Count IV alleged certain statutory violations in that ECD, through Ovshinsky and Dr. Helmut Fritzsche (an officer and director of ECD)...