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Crain v. Debartolo

United States District Court, E.D. North Carolina, Southern Division

January 6, 2015

ZACHERY MICHAEL CRAIN, Plaintiff,
v.
ZACHARY MICHAEL DEBARTOLO, Defendant.

ORDER

JAMS C. DEVER, III, Chief District Judge.

On January 30, 2014, Zachery Crain ("Crain" or "plaintiff") sued Zachary DeBartolo ("DeBartolo" or "defendant"), seeking to remove DeBartolo as a joint inventor of United States Patent No. 8, 104, 636 ("the '636 patent"), pursuant to 35 U.S.C. § 256 [D.E. 1]. On March 10, 2014, DeBartolo answered and filed a counterclaim against Crain for breach of contract [D.E. 9]. The contract at issue is a settlement agreement between DeBartolo and Crain that resolved a 2013 state-court lawsuit between them concerning their business relationship. On May 1, 2014, DeBartolo filed a motion for summary judgment on his breach of contract counterclaim [D.E. 26] and filed a supporting memorandum [D.E. 27, 30]. Crain responded in opposition [D.E. 35] and DeBartolo replied [D.E. 40, 42]. On July 15, 2014, Crain filed a motion for leave to join an additional party and amend the complaint [D.E. 46] and a supporting memorandum [D.E. 48]. DeBartolo responded in opposition [D.E. 56] and Crain replied [D.E. 58]. As explained below, the court denies DeBartolo's motion for summary judgment and grants Crain's motion for leave to join an additional party and amend the complaint.

I.

In 2007, Crain conceived of a jacket that would fit on bottles and other containers. Crain Decl. [D.E. 36] ¶ 3. He intended for this jacket, known as a cozy, to have insulating properties, be moisture-resistant, and be capable of displaying different looks. Id . ¶ 5. In July 2008, Crain met DeBartolo. Id . ¶ 6; DeBartolo Decl. [D.E. 31] ¶ 3. The two parties discussed working together, with DeBartolo offering financial resources and business experience and Crain working on product development. Crain Decl. ¶¶ 7-8, 11; DeBartolo Decl. ¶ 4.

Crain and DeBartolo agreed to form Freaker Inc. as equal partners. Crain Decl. ¶ 12. DeBartolo initiated a patent application for the cozy design. DeBartolo Decl. ¶ 8. The relationship between Crain and DeBartolo deteriorated, however, and Freaker Inc. dissolved in early 2011. Crain Decl. ¶¶ 17-18; cf. [D.E. 36-1]. Nonetheless, on January 21, 2012, the United States Patent and Trademark Office issued a patent to Crain and DeBartolo as joint inventors of an "insulating knit bottle cozy jacket." Patent '636 [D.E. 28-3] 9-15.

The parties disagree on the status of the cozies when they met. Crain claims that he had already planned to produce them on a circular knit machine to eliminate the then-existing seam on the cozy and had already "conceived" of different features, including spandex parts to make the cozy stretchable. Crain Decl. ¶¶ 4, 6. DeBartolo claims that Crain's initial prototypes were not stretchable and that he, not Crain, discovered the use of circular knitting machines to avoid making a seam in the cozy design. DeBartolo Decl. ¶¶ 5-7.

On January 7, 2013, DeBartolo sued Crain in state court, alleging fraud, breach of partnership agreement, breach of fiduciary duty, and securities fraud. See [D.E. 28-2]. On October 9, 2013, after mediation, the parties signed a settlement agreement. Settlement Agreement [D.E. 9-1]. Two provisions of this settlement agreement are central to DeBartolo's motion for summary judgment. The first provision states, in part, that "each Party agrees that he will not remove or replace the other Party from the Patent." Id . ¶ 4. The second provision states, in part, that "notwithstanding anything to the contrary herein, nothing in this Agreement shall be deemed to prevent a party from taking any Carolina Hardwood Co., 120 N.C.App. 870, 871, 463 S.E.2d 571, 572 (1995). The parties do not dispute the validity of the settlement agreement. Rather, they dispute the meaning of its terms and whether a breach occurred.

In interpreting a contract, the court "examine[s] the language of the contract itself for indications of the parties' intent at the moment of execution." State v. Philip Morris USA Inc., 359 N.C. 763, 773, 618 S.E.2d 219, 225 (2005). "If the plain language of a contract is clear, the intention of the parties is inferred from the words of the contract." Id. at 773, 618 S.E.2d at 225 (quotation omitted). "Intent is derived not from a particular contractual term but from the contract as a whole." Id. at 773, 618 S.E.2d at 225; see Jones v. Casstevens, 222 N.C. 411, 413-14, 23 S.E.2d 303, 305 (1942). A court may interpret a contract as matter of law if the dispositive contractual language is unambiguous or if extrinsic evidence in the record is dispositive of the interpretive issue. World-Wide Rights Ltd. P'ship v. Combe Inc., 955 F.2d 242, 245 (4th Cir. 1992).

Paragraph 4 of the settlement agreements bars Crain's action and warrants granting DeBartolo's motion for summary judgment on his breach of contract counterclaim unless the settlement agreement elsewhere authorizes Crain's action. See Settlement Agreement ¶ 4 ("[E]ach party agrees that he will not remove or replace the other Party from the Patent."). For that authorization, Crain cites paragraph ¶ 4.c of the settlement agreement, which states:

Maintenance of the '636 Parent. The Parties acknowledge and agree that maintaining and ensuring the validity of the Patent is of primary importance. Either Party may undertake any action necessary to maintain the validity of Patent and that Party shall be solely responsible for the associated expense. To avoid any possible confusion, notwithstanding anything to the contrary herein, nothing in this Agreement shall be deemed to prevent a Party from taking any action to maintain or ensure the validity of the Patent.

Settlement Agreement ¶ 4.c. Crain argues that: (1) the "notwithstanding" provision in paragraph 4.c trumps the earlier provision in paragraph 4; and (2) Crain's action pursuant to 35 U.S.C. § 256 is an action "to maintain or ensure the validity of the [636] Patent." Pl.'s Mem. Opp'n Summ. J. [D.E. 35] 10-14.

As for Crain's first argument, the court agrees that a "notwithstanding clause" in a statute trumps an earlier provision in a statute if there is conflict. See, e.g., Cisneros v. Alpine Ridge Grp., 508 U.S. 10, 17-19 (1993) (noting that in the statutory context "the use of such a notwithstanding clause' clearly signals the drafter's intention that the provisions of the notwithstanding' section override conflicting provisions"); accord Shomberg v. United States, 348 U.S. 540, 545-48 (1955) (same); United States v. Lambert, 395 F.App'x 980, 981 (4th Cir. 2010) (per curiam) (unpublished) (same); In re FCX, Inc., 853 F.2d 1149, 1154 (4th Cir. 1988) (same); Springs v. Stone, 362 F.Supp.2d 686, 697-98 (E.D. Va. 2005) (same); Yan-Min Wang v. UNC-CH Sch. of Med., 216 N.C.App. 185, 194-95, 716 S.E.2d 646, 652-53 (2011) (same); Martin & Loftis Clearing & Grading, Inc. v. Saieed Constr. Sys. Corp., 168 N.C.App. 542, 545, 608 S.E.2d 124, 127 (2005) (same). The principle also applies to a "notwithstanding clause" in a contract. See, e.g., Morse/Diesel, Inc. v. Trinity Indus., Inc., 67 F.3d 435, 439 (2d Cir. 1995) (finding that a contract's "notwithstanding" clause, "by its unequivocal language" trumped "the otherwise inconsistent clauses"); Broad Street Energy v. Endeavor Ohio, LLC, 975 F.Supp.2d 878, 885 (S.D. Ohio 2013) (applying Cisneros's "notwithstanding clause" analysis to a contract provision). Moreover, given that "North Carolina has long recognized that parties generally are free to contract as they deem appropriate, " the court predicts that the Supreme Court of North Carolina would apply this principle in construing the settlement agreement. Christie v. Hartley Constr., Inc., No. 359A13, 2014 WL 7267474, at *4 ( N.C. Dec. 19, 2014) (quotation omitted); cf. Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S.C., 433 F.3d 365, 369 (4th Cir. 2005) (sitting in diversity and construing North Carolina law, a federal court must attempt to divine what the Supreme Court of North Carolina "would do were it faced with this [case]").

Next, the court considers whether Crain's action pursuant to 35 U.S.C. § 256 is "any action to maintain or ensure the validity of the Patent." Settlement Agreement ¶ 4.c. Section 256 permits a court to "order correction of the patent on notice and hearing of all parties concerned" where a person is erroneously named as the inventor on an issued patent. 35 U.S.C. § 256(b); Iowa State Univ. Research Found., Inc. v. Sperry Rand Corp., 444 F.2d 406, 409-10 (4th Cir. 1971). Section 256 is a "remedial provision" that allows parties to correct the named inventors on a patent because "if more persons than the true inventors are named, the patent is void." Iowa State Univ. Research Found., 444 F.2d at 408; see Jamesbury Corp. v. United States, 518 F.2d 1384, 1395 (Ct. Cl. 1975) (per curiam) (adopting opinions of the trial judge). Patent issuance creates a presumption that the named inventors are "the true and only inventors." Caterpillar Inc. v. Sturman Indus., Inc., 387 F.3d 1358, 1377 (Fed. Cir. 2004). A party contesting inventorship may overcome this presumption by clear and convincing evidence. Id.

DeBartolo argues that paragraph 4.c concerns each party's ability to defend the patent's validity from third-party attacks based on principles such as prior art, obviousness, or an impermissibly indefinite specification. Reply Supp. Def.'s Mot. Summ. J. [D.E. 42] 3-4. According to DeBartolo, paragraph 4.c does not permit Crain's lawsuit because that interpretation would contradict the intent of the parties in paragraph 4. See id. In support, DeBartolo cites extrinsic evidence from the state-court mediation leading to the settlement agreement and argues that the parties did not intend to permit ...


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