Opinion
Civil No. 99-5622(JBS)
March 13, 2001
J. Llewellyn Mathews, Esq., Jonathan M. Korn, Esq., BLANK ROME COMISKEY McCAULEY PC, Cherry Hill, N.J., Attorney for Plaintiff.
Allyn Z. Lite, Esq., Stephanie Kay Austin, Esq., LITE DEPALMA GREENBERG RIVAS LLC, Newark, N.J., and Albert J. Breneisen, Esq., Ricard S. Gresalfi, Esq., C. Kyle Musgrove, Esq., Michael M. Shen, Esq., KENYON KENYON, New York, NY, Attorneys for Defendant.
OPINION ON DEFENDANT'S MOTION TO DISMISS PURSUANT TO FED. R. CIV.P. 13
This matter is before the Court on motion of defendant Laerdal Medical Corporation ("Laerdal") to dismiss the complaint under Rule 13, Fed.R.Civ.P., because plaintiff Philadelphia Cervical Collar Company ("PCC") allegedly failed to advance its present claims in an identical proceeding in the United States District Court for the Southern District of New York. PCC responds that because the case in the Southern District was settled and closed by Consent order prior to any adjudication on the merits, plaintiff's present claims are not duplicitous and are not barred by res judicata. For reasons now discussed, the Court agrees with the plaintiff, and will deny defendant's motion to dismiss.
BACKGROUND
This case involves a patent dispute over cervical collars, which are medical devices used to immobilize patients' necks. Laerdal makes and sells an adjustable cervical collar called the Stifneck Select Collar ("the Stifneck"). The United States Patent and Trademark Office issued Laerdal two patents, namely United States Patent Nos. 5,795,315 ("'315 patent") and Des. 393,718 ("Des. '718 patent") (collectively "the Laerdal patents"). (Def. Ex. A B.) PCC makes and sells a cervical collar called the Philly One Piece Extrication Collar ("Philly One Piece"), and another called the "Choice Collar." PCC has two patents on the Philly One Piece; United States Patent No. 5,622,529 (the "'529 Patent") and 6,071,255 (the "'255 Patent") (collectively, "the PCC patents"). (Pl. Ex. A B.)
In March 1999, Laerdal sued PCC in the Southern District of New York. This action, encaptioned Laerdal Medical Corp. v. Philadelphia Cervical Collar Co., 99-CV-1542 (AKH) (S.D.N.Y.) (hereinafter "the New York action"), involved three counts. Count I for infringement of the '315 patent, Count II for infringement of the Des. '718 patent, and Count III for trade dress infringement. All three of these counts alleged infringement by PCC's Choice Collar only. The Philly One Piece, and its associated patents, were not at issue in the New York action. PCC filed an answer dated June 24, 1999 in which it denied Laerdal's allegations and counterclaimed for a declaratory Judgment of non-infringement and patent invalidity. Subsequently, the parties began settlement negotiations and on October 28, 1999, entered a Consent Judgment resolving the dispute. (Def. Ex. 4.)
This Judgment, signed by U.S. District Judge Alvin K. Hellerstein, stated at the outset that it was entered "without adjudication of any issues." (Id. p. 2.) The parties agreed therein that PCC would no longer make or sell the Choice Collar. (Id. ¶ 2.) It was also agreed that if either the '315 patent or the '718 patent was later determined to be invalid or unenforceable, PCC will no longer be enjoined from making and selling the Choice Collar. Paragraph four of the Judgment is of particular relevance to the present motion. In that clause PCC reserved the right to defend against or challenge the validity or enforceability of the Laerdal patents:
4. Philadelphia Cervical reserves all defenses or challenges to the validity and enforceability of the '315 and Des. '718 patents in the event of future litigation and Philadelphia Cervical Collar shall not be precluded from asserting that any cervical collar design, other than the accused collar of Exhibit A, is outside the scope of the claims of the '315 and Des. '718 patents.
(Def. Ex. 4 ¶ 4.)
PCC filed the present eight-count complaint in this Court on December 1, 1999, less than two months after execution of the Consent Judgment. Counts I and II allege that Laerdal infringed PCC's '529 and '255 patents, respectively, by manufacturing, using, and selling PCC's '529 and '255 patents. Count III is for breach of contract, Count IV for misappropriation of trade secrets, Count V for conversion, Count VI for unjust enrichment, Count VII for breach of implied covenant of good faith and fair dealing, and Count VIII for fraud and misrepresentation.
PCC's Counts III-VIII are premised on Laerdal's alleged violation of a September 1996 nondisclosure agreement between Laerdal and PCC whereby PCC allegedly agreed to disclose certain confidential and proprietary information to Laerdal as part a potential sale of the Philly One Piece collar to Laerdal. (Am. Compl. ¶ 13.) Pursuant to this agreement, PCC alleges that it disclosed to Laerdal information including: (1) drawing specifications; (2) manufacturing equipment; (3) injection molds; (4) dyes; (5) riveting equipment; (6) packaging; (7) raw materials; (8) manufacturing processes; (9) a pending patent application and correspondence relevant to it; (10) procedures; (11) supplier and customer lists; and (12) PCC's future business and marketing strategy. (Id. ¶ 15, 17, 50, 53.)
DISCUSSION
The gravamen of PCC's complaint before this Court is that Laerdal illicitly used information gathered under the Confidentiality Agreement to develop the Laerdal "Select Collar." (Id. ¶¶ 22-23.) Laerdal in its present motion to dismiss maintains that all of PCC's trade secret claims in this case arise out of or are logically related to the same set of facts that were at issue in the New York action. Laerdal contends that PCC was obligated to raise each of its present trade secret claims in the New York action. Because PCC did not raise these compulsory counterclaims in the New York action, Laerdal argues, PCC's claims in this case should be dismissed pursuant to Rule 13, Fed.R.Civ.P. Rule 13(a), Fed.R.Civ.P. provides the standard for compulsory counterclaims:
A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.Id. The policy underlying this Rule is that all relevant claims should be pleaded to expedite resolution of all the controversies between the parties in one suit. 6 Wright Miller Kane, Federal Practice and Procedure Civil 2d § 1403 at 15 (hereinafter "Wright Miller Kane § at ").
Consent and default Judgments present a special problem with regard to the effect of failing to plead a Rule 13(a) counterclaim. Wright Miller Kane § 1417 at 134. The Advisory Committee Note to Rule 13(a) states that an independent suit is barred if the earlier action has "proceeded to a Judgment." The Committee's note failed, however, to indicate what type of Judgment it contemplated. Id. (citing Advisory Committee Note to Rule 13(a)). Typically, courts have given default Judgments full effect and have held that a counterclaim omitted in an action terminating in default Judgment will be barred from inclusion in a future suit. Id. If, however, parties resolve their dispute by means of a Consent Judgment, "defendant may reserve the right to bring a later action on his counterclaim and no bar will result." Id. § 1417 at 135 (citingBenjamin v. U.S., 348 F.2d 502 (Fed. Ct. Cl. 1965)). Indeed, Wright Miller observe that "at least one court has held that a Consent Judgment is not a Judgment on the merits and thus will not serve as res judicata for a counterclaim that was not asserted in the original action." Id. (citing United States v. Eastport S.S. Corp., 255 F.2d 795 (2d Cir. 1958)).
Turning to the case at hand, this Court finds that the Consent Judgment signed by Judge Hellerstein does not bar PCC's present claims. Even assuming for the sake of argument that PCC's trade secret claims arise from the same transaction or occurrence giving rise to the New York action, the Consent Judgment disposing of the New York case expressly preserved PCC's right and ability to litigate in the future. (See Def. Ex. 4 ¶ 4.) Moreover, the Consent Judgment specifically stated that it was entered "without adjudication of any issues." (Id. at p. 2.)
The Court must give effect to the plain language of this Consent Judgment. Where a Consent Judgment includes an express reservation of rights, the Consent Judgment is not a final Judgment on the merits that is afforded res judicata effect. United States v. Athlone Indus, Inc., 746 F.2d 977, 983 (3d Cir. 1984). Because the subject Consent Judgment clearly contemplates the possibility of future litigation between the parties, it cannot be read as resolving all of PCC's potential claims against Laerdal. Put another way, the terms of the Consent Judgment indicate that the parties understood that PCC had the right to bring a future suit against Laerdal, thus the Judgment does not purport to resolve anything other than the claims already asserted in the Southern District of New York. Accordingly, there has not been a Judgment on the merits of PCC's claims, and Rule 13(a) does not apply to bar unasserted claims and counterclaims from future litigation.
CONCLUSION
For the reasons discussed above, defendant's motion to dismiss pursuant to Rule 13(a), Fed.R.Civ.P. will be denied. The accompanying Order is entered.
ORDER
THIS MATTER having come before the Court on defendant's motion to dismiss pursuant to Rule 13, Fed.R.Civ.P., and the Court having considered the parties' submissions, and for the reasons discussed in today's opinion;
IT IS this day of March, 2001, hereby ORDERED that defendant's motion to dismiss [Docket Entry Nos. 28 30] is DENIED .