Curtis Mfg. v. Plasti-Clip CV-89-430-SD 04/20/95 P. UNITED STATES DISTRICT COURT FOR THE

DISTRICT OF NEW HAMPSHIRE

Curtis Manufacturing Company, Inc.

v. Civil No. 89-430-SD

Plasti-Clip Corporation, et al

O R D E R

1. Plasti-Clip's and Faneuf's Motion in Limine to Exclude Any

Reference to November 29, 1993, Rulings of Administrative Patent

Judge on Preliminary Motions in Interference Proceeding (document

84)

Plaintiffs1 filed a patent application intentionally seeking

an interference with the '078 patent in the Patent & Trademark

Office (PTO) on February 20, 1991. Said interference was

declared on February 22, 1992, and assigned Interference Number

102,911. After the filing of preliminary statements, plaintiffs

1At the April 12, 1995, motions hearing, the court, upon inguiry from counsel regarding the order of trial presentation, denominated the parties in this matter as follows: Plasti-Clip Corporation and Daniel Faneuf, plaintiffs; Curtis Manufacturing Company, first defendant; Thomas Judd, second defendant. submitted a

(a) preliminary motion2 which

alleged unpatentability of the '078 patent by reason of Judd's

failure to disclose material information to the PTO.3

The Administrative Patent Judge (APJ) evaluated plaintiffs'

claim under the "failure to disclose" standard set forth in FMC

Corp. v. Manitowoc Co.,

(Fed. Cir. 1987).

Under said standard,

one who alleges a "failure to disclose" form of ineguitable conduct must offer clear and convincing proof of: (1) prior art or information that is material; (2) knowledge chargeable to applicant of that prior art or information and of its materiality; and (3) failure of the applicant to disclose the art or information resulting from an intent to mislead the PTO.

(footnote omitted). Finding that plaintiffs did not sustain

2Subsection 1.633(a) provides, in pertinent part, as follows:

A party may file the following preliminary motions: (a) A motion for judgment on the ground that an opponent's claim corresponding to a count is not patentable to the opponent. In determining a motion filed under this paragraph, a claim may be construed by reference to the prior art of record.

(a) (1994) .

3Such "material information" consisted of certain product literature and samples of Faneuf's Uni-Clip illustrating said product's functionality for attachment to tubular hangers.

2 their burden with respect to both materiality and intent, the APJ

denied their motion.

A section 1.633(a) motion was likewise filed by Judd, which

alleged that certain claims embodied in the patent application

Faneuf filed to provoke the interference were unpatentable by

reason of the on sale or public use activities by Faneuf and/or

Judd more than one year prior to Faneuf's February 20, 1991,

filing date. The APJ held that the evidence then before him

sufficiently made out a prima facie case for obviousness and thus

accordingly granted Judd's motion.

Pursuant to the PTO's procedural rules, plaintiffs were

thereafter ordered to show cause, within twenty (20) days from

the date of the rulings, why judgment should not be entered in

Judd's favor on the obviousness issue. Faneuf responded to the

order and sought a final hearing for review of all the APJ's

rulings on the preliminary motions. Faneuf subseguently filed a

motion to suspend the interference proceedings pending resolution

of the matters sub judice, which have been proceeding in this

court concurrently with the interference action before the PTO.4

4Although granted by the APJ, said motion was subseguently overturned by a panel decision on reconsideration due to the uncertain posture of the trial in this court. Faneuf filed a Renewed Motion to Suspend Interference Proceedings on January 18, 1995, which had not been acted upon as of April 4, 1995. The APJ has, however, suspended the show cause filing dates.

3 "At an appropriate stage of the interference, the parties

will be given an opportunity to appear before the Board [of

Patent Appeals and Interferences] to present oral argument at a

final hearing."

(a). It is only after such

"final hearing" that "the Board shall enter a decision resolving

the issues raised . . . ."

(a). "When the

Board enters a decision awarding judgment as to all counts, the

decision shall be regarded as a final decision."

Notwithstanding any "final decision" rendered by the Board

pursuant to

(a), "[a]ny party to an interference

dissatisfied with the decision of the Board . . . on the

interference, may have remedy by civil action,"

(Supp. 1995) to any United States District Court with appropriate

personal jurisdiction over the parties or by appeal to the United

States Court of Appeals for the Federal Circuit,

.

"A proceeding under § 146 is not a chance for a party to

reconstruct its case, based on a new litigation strategy,

leapfrogging the administrative process in the PTO . . . .

Rather, an action under § 146 is essentially a proceeding to

review the action of the Board." Conservolite, Inc. v. Widmaver,

(Fed. Cir.), cert, denied, ___ U.S. ___ , 115

S. C t . 576 (1994). "Section 146 authorizes the district court on

review to accept new testimony, but normally only as to issues

4 raised by the parties during the proceedings below or by the

Board's decision."

(citation omitted). Accord Andrew Corp.

v. Gabriel Elecs., Inc.,

(D. Me. 1992)

("In a civil action to overturn a decision of the Board . . . the

party seeking relief 'does not start over to prosecute his

application before the district court unfettered by what happened

in the PTO . . . . [It] has the laboring oar to establish error

by the board.'" (guoting Fregeau v. Mossinghoff,

(Fed. Cir. 1985) (footnote omitted) (alteration in Andrew

Corp.)).

In the view of the court, whatever rulings were made by the

APJ on the preliminary motions of the parties in the interference

proceedings were precisely that--preliminary. As such, the

standards guiding this court's

review of an

interference proceeding are inapplicable as premature.5 See

Sanford v. Kepner,

(1952) (civil action remedy

5That is, district court review under section 146 does not come into play until the Board issues a final decision pursuant to

(a). Despite the Federal Circuit's apparent section 146 standard of review clarification, see

, plaintiffs would still be entitled to contest the Board's conclusions. E.g.,

("In order for an issue to have been raised adeguately so that it gualifies for consideration in a § 146 proceeding, the issue should have been raised as specified in the PTO's interference rules, for example, through preliminary motions . . . .") .

5 available only to an applicant "who has been finally denied a

patent because of a Patent Office decision against him and in

favor of his adversary on the question of priority") (construing

former section 63, predecessor of

). In

consequence thereof, the court finds that the rulings on the

preliminary motions, being neither rulings on the merits nor

final judgments, inhere qualities whose probative value is

clearly outweighed by the danger of unfair prejudice. See Rule

403, Fed. R. Evid. Accordingly, the court further finds and

rules that any reference to the APJ's rulings on the preliminary

motions filed in Interference Proceeding No. 102,911 is

inadmissible.

2. Plasti-Clip's and Faneuf's Motion in Limine to Exclude

Evidence of Contract Damages (document 85)

Plasti-Clip and Faneuf move to exclude any evidence as to

how much Plasti-Clip might have earned if Curtis had purchased

clips from Plasti-Clip pursuant to the contracts that were at one

time contemplated in negotiations between the parties. Plasti-

Clip and Faneuf contend that such evidence is irrelevant because

they have withdrawn their breach of contract claim.

Defendant Curtis contends that evidence of the prices at

which Plasti-Clip sells its products, including the prices at

6 which it proposed to sell products to Curtis, and the profits of

Plasti-Clip thereon, are relevant to Plasti-Clip's claims for

lost profits and a reasonable royalty for patent infringement.

Curtis further contends that such evidence is relevant to Plasti-

Clip 's tort claims and to the course of dealings between the

parties.

"The goal of damages in actions for breach of contract is to

put 'the nonbreaching party in the same position it would have

been in' if the contract had been fully performed." Lahey v.

Shaw,

,

(1983) (citing Martin

v. Phillips

,

(1982)).

Because Plasti-Clip and Faneuf have withdrawn their breach of

contract claim, this measure of damages is no longer available.

The measures of damages available to plaintiffs under their

patent infringement and tort claims differ from breach of

contract damages. Damages awarded in a patent infringement

action must be "adeguate to compensate for the infringement, but

in no event less than a reasonable royalty for the use made of

the invention by the infringer, together with interest and costs

as fixed by the court."

(1984) . In this action,

plaintiffs are seeking lost profits or, in the alternative, a

reasonable royalty as their measure of damages for the alleged

infringement of the '863 patent by defendants.

7 With respect to plaintiffs' claim for lost profits, the

court has ruled herein, see infra at pp. 20-23, that Curtis is

entitled to argue and offer evidence showing plaintiffs are only

entitled to a portion of defendants' profits from their sales of

the document holder in guestion. The court finds that evidence

of Plasti-Clip's prices for its products, including the prices at

which it proposed to sell its products to Curtis, is relevant to

the issue of apportionment of lost profits, and is therefore

admissible.

Plaintiffs alternatively assert that they are entitled to

reasonable royalties as compensation for Curtis's infringement of

the '863 patent. In evaluating what constitutes a "reasonable

royalty", most courts look to the list of factors relevant to

that determination set forth in Georgia-Pacific Corp. v. United

States Plywood Corp.,

(S.D.N.Y. 1970),

modified and aff'd,

(2d Cir.), cert, denied,

(1971). One such factor is the prior or existing

royalties received by the patentee for the licensing of the

patent in guestion. Related to this factor is evidence of prior

offers to license by the patentee. See 5 D o n a l d S. C h i s u m , P a t e n t s

§ 20.03[3], at 20-172 n.15 (1994) (listing cases in which court

considered the royalty rate offered by the patentee as one factor

in setting a reasonable royalty rate). The court finds and rules that the prices at which Plasti-

Clip sells its products is one of the many factors the court may

consider in determining what a reasonable royalty rate is in this

case. Evidence of such prices is therefore relevant and

admissible.

Plaintiffs' motion to exclude evidence related to how much

it would have earned if they had sold their products to Curtis

under contract is denied insofar as such evidence is relevant to

the other measures of damages at issue in this action.

3. Thomas W. Judd's Motion in Limine (document 88)

Defendant Judd moves to exclude (1) evidence of his

indemnification agreement with Curtis and (2) evidence of his

financial condition.

a. Indemnification Agreement

Defendant Judd represents that he has an indemnification

agreement with Curtis whereby Curtis will indemnify him for any

judgment rendered against him in this action. Judd asserts that

any evidence of or reference to this agreement is inadmissible

under Rule 411, Fed. R. Evid.

Rule 411, entitled "Liability Insurance," provides.

Evidence that a person was or was not insured against liability is not admissible upon the issue whether the person acted negligently or otherwise wrongfully. This rule does not require the exclusion of evidence against liability when offered for another purpose, such as proof of agency, ownership, or control, or bias or prejudice of a witness.

Plaintiffs contend that any indemnity agreement Judd has

with Curtis is relevant to the determination of whether his acts

of infringement and misappropriation were willful and deliberate.

In support thereof, plaintiffs cite Baltz v. Walgreen Co.,

(W.D. Tenn. 1961), and Ravonier, Inc. v. Georgia-Pacific

Corp.,

(W.D. Wash. 1967). The court, having

reviewed both cases, finds that the cases (1) pre-date the 1987

amendment which added Rule 411 to the Federal Rules of Evidence

and (2) are, in any event, inapposite to the present case.

To the extent that Judd's indemnification agreement with

Curtis operates to insure him against loss in the event he is

found liable in the action, the court finds that said agreement

is subject to Rule 411. Any evidence of or reference to said

agreement is accordingly inadmissible to prove that Judd acted

negligently or otherwise wrongfully.

At this pretrial stage, none of the exceptions set forth in

sentence two of Rule 411 appear to apply. If at trial plaintiffs

seek to admit evidence of Judd's indemnity agreement with Curtis

for a purpose other than to prove Judd acted negligently or

otherwise wrongfully, the court will "apply the principles of

10 Fed. R. Evid. 403 to determine whether the probative value of the

evidence is substantially outweighed by the danger of unfair

prejudice." Pinkham v. Burgess,

(1st Cir.

1991) .

b. Judd's Financial Condition

Defendant Judd seeks to exclude evidence of his financial

condition and evidence of the compensation he received from

Curtis on the grounds that such evidence is both irrelevant and

prej udicial.

Plaintiffs assert that evidence of the compensation and

benefits Judd received from Curtis is relevant to their claim for

damages in the form of profits wrongfully realized by Judd

because of his alleged misappropriation and infringement. In

support thereof, plaintiffs state that the allegedly stolen

document holder was guite profitable for Curtis and point to

evidence showing that a portion of Judd's compensation was

performance based.

The court finds that evidence of Judd's current financial

condition or wealth is irrelevant to the patent infringement,

misappropriation, and unfair competition and trade practices

claims asserted against him by plaintiffs. See Rule 401, Fed. R.

Evid. The court further finds that any probative value of such

11 evidence is clearly outweighed by the danger of unfair prejudice

that would be created by presenting such evidence to a jury. See

Rule 403, Fed. R. Evid. The court therefore rules that evidence

of Judd's current financial condition or wealth is inadmissible.

However, the court further finds that a blanket exclusion of

all evidence regarding Judd's compensation from Curtis is

unwarranted and inappropriate at this time. Evidence showing

that Judd's compensation was tied to profits wrongfully realized

by Curtis from alleged misappropriation and infringement is

relevant to plaintiffs' claims and is therefore admissible.

Judd's motion in limine is accordingly granted in part and denied

in part.

4. Curtis's Motion in Limine to Exclude Evidence of Damages for

Alleged Infringement of the '078 Patent (document 91)

Curtis moves to preclude any evidence of or reference to

damages for infringement of the '078 patent on the ground that

Plasti-Clip's and Faneuf's claim for such damages is barred for

the time period during which Curtis has held legal title to the

patent.

"A patent is a creature of statute, as is the right of a

patentee to have a remedy for infringement of his patent."

Arachnid, Inc. v. Merit Indus., Inc.,

(Fed.

12 Cir. 1991) (footnotes omitted). The general rule as to who can

bring a civil action for patent infringement is that "one seeking

to recover money damages for infringement of a United States

patent (an action 'at law') must have held the legal title to the

patent during the time of the infringement."

(emphasis in original). See also 6 C h i s u m , supra, § 21.03[2][g].

The parties do not dispute that Curtis currently has legal

title to the '078 patent. However, as explained in this court's

order of November 21, 1994, at p. 32, Plasti-Clip and Faneuf

"argue that eguitable title to the '078 patent, acguired through

the appropriation of design modifications to the '863 patent, is

held by Faneuf. As a combined conseguence of the eguitable title

and the malappropriation, defendants seek an assignment of legal

title to the '078 patent to Faneuf as the rightful patentee."

(Footnotes omitted.)

Plasti-Clip and Faneuf also indicate in their final

pretrial statement that if the '078 patent is assigned

retroactively to Faneuf, then they seek damages for infringement

of the '078 patent for the time period following the effective

date of the retroactive assignment. The problem presented here

is that plaintiffs, as the purported eguitable title holders of

the '078 patent, seek damages for infringement of the patent by

Curtis during a time period when Curtis held legal title to the

13 '07 8 patent.

This court has already determined that an assignment of the

allegedly malappropriated patent is among the eguitable remedies

available to plaintiff under the circumstances of this case. See

Order of Nov. 21, 1994. However, plaintiffs have not provided,

nor has this court uncovered, any authority to support

plaintiffs' position that such an assignment can be retroactive,

thereby giving plaintiffs the right to then seek damages for past

infringement of the patent, which is a remedy at law.

This does not mean plaintiffs are without a remedy for the

time period during which they contend Curtis wrongfully held

legal title to the '078 patent. The full range of eguitable

remedies remain available to allow plaintiffs to obtain redress

for Curtis's allegedly wrongful conduct. E.g., Hoeltke v. C.M.

Kemp Mfq. C o .,

(4th Cir. 1935) (eguitable

remedies available against one who misappropriates ideas of

another and profits thereby), cert, denied,

(1936).

The court finds and rules that if plaintiffs receive an

eguitable assignment of the '078 patent, they are not then

entitled to seek a remedy at law for infringement of the patent

by Curtis for the time period prior to the date of the

assignment. Plaintiffs are, however, entitled to seek full

redress against Curtis in the form of eguitable relief for that

14 time period.

In so ruling, the court notes that the evidence plaintiffs

will require to prove they are entitled to equitable relief is

the same type of evidence plaintiffs would need to support a

claim for damages in an action at law for patent infringement.

Thus, although the court, for the reasons stated hereinabove,

"grants" Curtis's motion to preclude evidence of damages for

infringement of the '078 patent, the granting of said motion

shall not be construed to exclude evidence relevant to

plaintiffs' claim for equitable relief.

5. Curtis's Motion in Limine Regarding Alleged Ineguitable

Conduct in Obtainina

(document 92)

Curtis seeks to "preclude any evidence at trial regarding

any claim that

(''078 patent') is

invalid due to the purported failure of Curtis to cite certain

alleged prior art . . . [s]ince such evidence is barred by claim

and issue preclusion." Curtis's Memorandum in Support of Motion

in Limine Regarding Alleged Inequitable Conduct at 1 [hereinafter

Inequitable Conduct Memorandum]. The alleged preclusive event is

the APJ's rulings on the parties' preliminary motions in the

15 interference proceeding.6

"There is no doubt that in proper circumstances decisions of

the Board of Patent Interferences may be given collateral

estoppel effect. However, the doctrine of collateral estoppel

bars relitigation only of issues actually determined in prior

litigation." Gould v. Mossinghoff,

(D.C. Cir.

1983), aff'd in part and vacated in part on other grounds sum

nom., Gould v. Ouigg,

(Fed. Cir. 1987) (footnote

and citation omitted) (emphasis added). "Considerations relevant

to a determination of [administrative action] finality include

whether the agency action is definitive [and] whether the action

has direct or immediate legal force or practical effect on the

complaining party . . . ." Eastman Kodak Co. v. Mossinghoff,

(4th Cir. 1983) (citation omitted).

Contrary to Curtis's contention that "[t]he decision in the

Interference has claim and issue preclusion effect here,"

Ineguitable Conduct Memorandum at 4, the PTO's own rules indicate

that a decision is not "final" "until the Board enters a decision

awarding judgment as to all counts . . . ."

(a). Moreover, the instant facts do not portray the "proper

circumstances," Gould, supra, which would otherwise raise the bar

6For a discussion of the preliminary motions and the APJ's rulings thereon, see supra pp. 1-3.

16 of either issue or claim preclusion. To wit, the agency action

at issue is the APJ's rulings on the preliminary motions and as

such are not considered "definitive" agency action. See Phillips

Petroleum Co. v. Brenner,

(D.C. Cir. 1967),

cert, denied,

(1968) ("The only final order in an

interference proceeding is a determination of priority.")

Further, said rulings lack "direct or immediate legal force or

practical effect" due to the pendency of further proceedings

before the Interference Board.7

Accordingly, the court finds and rules that the decision

reached by the APJ on the parties' preliminary motions in the

interference proceeding is not a "final judgment" as that term is

construed for res judicata or collateral estoppel purposes. In

conseguence thereof, Curtis's motion in limine seeking to

preclude the introduction of evidence regarding any alleged

ineguitable conduct on the part of Judd, or Curtis as Judd's

assignee, in the prosecution of the '078 patent is herewith

denied.

7The court notes that such "further proceedings" are different in kind from an appeal of the Board's final decision as provided by

and 146, and as such the well- settled rule that the pendency of an appeal does not affect the finality of a decision for res judicata or collateral estoppel purposes is inapplicable.

17 6. Curtis's Motion in Limine to Exclude Evidence of Lost Profits

(document 93)

Curtis moves to preclude any evidence of or reference to

profits allegedly lost by Plasti-Clip "unless and until Plasti-

Clip presents evidence sufficient to permit a jury to find the

facts that are prerequisite to such a claim." Curtis's Motion

at 1.

To obtain a lost profits award as a measure of damages in a

patent infringement action, the patent owner must prove "there

was a reasonable probability that 'but for' the infringement, it

would have made the infringer's sales." Kearns v. Chrysler

Corp.,

(Fed. Cir. 1994) (citing Water Techs.

Corp. v. Calco, Ltd.,

, 671 (Fed. Cir.), cert.

denied,

(1988)), cert, denied,

(U.S. 1995). See also 5 C h i s u m , supra, § 20.03[1].

One way to establish "but for" causation is to meet the four-part test pronounced in Panduit Corp. v. Stahlin Bros. Fiber Works, 575 F .2d 1152, 1156 (6th Cir. 1978). To recover under that test, the patent owner must prove (1) a demand for the patented product, (2) an absence of acceptable noninfringing substitutes, (3) manufacturing and marketing capability to exploit the demand, and (4) the amount of profit the patent owner would have made.

(internal citation omitted)

(emphasis in original).

Further, compensatory damages, including lost profits, are

18 available under state law to one who has been tortiously harmed

by another "'if, but only if, [the injured party] establishes by

proof the extent of the harm and the amount of money representing

adequate compensation with as much certainty as the nature of the

tort and the circumstances permit.'" Clipper Affiliates v.

Checovich,

,

(1994) (quoting

R estatement (S e c o n d ) o f T o r t s § 912 (1982)) (emphasis in Clipper) .

An award of lost profits cannot be "speculative." See, e.g..

Eastern Mountain Platform Tennis, Inc. v. Sherwin-Williams Co.,

(1st Cir. 1994) (applying New Hampshire law)

(award of past lost profits in unfair trade practices action

upheld because award was supported by evidence and therefore not

speculative). Instead, the evidence of lost profits must

"provide[] enough information under the circumstances to permit

the fact finder to reach a reasonably certain determination of

the amount of gains prevented." Independent Mechanical

Contractors, Inc. v. Gordon T. Burke & Sons, Inc.,

,

(1993).

Curtis contends that Plasti-Clip's evidence is insufficient

to prove that it is entitled to lost profits. Therefore, Curtis

argues, all evidence of lost profits should be excluded.

Plaintiffs maintain that their evidence is sufficient to support

19 a claim for lost profits.

The court will not attempt to determine whether Plasti-Clip

can meet its burden of proof on its claim for lost profits by way

of a motion in limine filed ten days before trial. The court

rules that Plasti-Clip may introduce evidence in support of its

claim for lost profits at trial. If, at the close of Plasti-

Clip 's evidence, Curtis believes Plasti-Clip has failed to meet

its burden of proof as to said claim, Curtis may move for

judgment as a matter of law pursuant to Rule 5 0 (a), Fed. R. Civ.

P.

7. Curtis's Motion in Limine Regarding Claims by Plasti-Clip and

Faneuf for Disgorgement of Profits (document 94)

Plasti-Clip and Faneuf assert that Curtis has profited at

their expense by misappropriating Faneuf's design modifications

to the '863 patent. As an eguitable remedy for Curtis's unfair

trade practices, plaintiffs seek disgorgement of the profits

realized by Curtis from its sales of products incorporating the

misappropriated design.

Curtis moves to preclude evidence of or reference to damages

based upon a disgorgement of Curtis's profits "unless and until

Plasti-Clip presents evidence sufficient to establish a

foundation of the amount of profits, if any, allocable to the

20 alleged inventions of Plasti-Clip." Curtis's Motion at 1.

Under New Hampshire's Consumer Protection Act, RSA 358-A, a

person injured by another's unfair competition or unfair trade

practices "may bring an action for damages and for such eguitable

relief, including an injunction, as the court deems necessary and

proper." RSA 358-A:10, I (Supp. 1994).

Under the eguitable doctrine of unjust enrichment, "one

shall not be allowed to profit or enrich himself at the expense

of another contrary to eguity." Pella Windows & Doors, Inc. v.

Faraci,

,

(1990) (citations

omitted). "A plaintiff is entitled to restitution if he shows

that there was unjust enrichment either through wrongful acts or

passive acceptance of a benefit that would be unconscionable to

permit the defendant to retain." Cheshire Medical Ctr. v. W.R.

Grace & C o .,

(D.N.H. 1991), vacated in

part, on other grounds,

(D.N.H. 1991); see also

Petrie-Clemons v. Butterfield,

,

(1982) ("The correct measure of restitution for unjust

enrichment is the value of the benefit received by the unjustly

enriched party.") (citing Martin v. Phillips,

,

(1982)).

Curtis argues that plaintiffs are not entitled to a

disgorgement of profits unless and until they prove what portion

21 of Curtis's profits were attributable to their contributions. In

support thereof, Curtis cites an 1884 patent law case, Garretson

v. Clark,

(1884), which the court finds to be

inapplicable to plaintiffs' claim for disgorgement of profits

under New Hampshire law.

Where, as here, the plaintiffs seek disgorgement of profits

as an eguitable remedy for the defendants' unfair trade

practices, the court finds that the following general principle

applies: "Once the plaintiffs demonstrate that the defendants

have made profits from sales of products incorporating the

misappropriated trade secrets, the burden shifts to the

defendants to demonstrate the portion of their profits which is

not attributable to the trade secrets." Jet Spray Cooler, Inc.

v. Crampton,

, 1358 n.14 (Mass. 1979) (citing cf.

Westinghouse Elec. & Mfg. Co. v. Wagner Elec. & Mfg. Co., 22

, 620 (1912)). The court finds this allocation of

burdens to be consistent with the eguitable principles which

govern the disgorgement of profits from one who has enriched

himself at another's expense.

Applying these principles, the court finds and rules that

Plasti-Clip and Faneuf are entitled to argue and offer evidence

to show that they are entitled to disgorgement of the full amount

22 of profits realized by Curtis from its sale of the document

holder in question. In response, Curtis is entitled to offer

evidence showing that only a portion of the profits it realized

were attributable to plaintiffs' contributions.

Accordingly, Curtis's motion in limine regarding plaintiffs'

claim for disgorgement of profits is denied.

8. Curtis's Motion in Limine Regarding Ownership of the '078

Patent (document 95)

Although more properly characterized as a motion for

reconsideration of the court's November 21, 1994, order denying

Curtis's "absolution via bankruptcy" claim, in which case the

instant motion would be denied as untimely, Curtis now seeks to

reargue, by medium of motion in limine, the effect of Curtis's

bankruptcy reorganization as it relates to the ownership of the

'078 patent. For the reasons that follow, said motion is

herewith denied.

In summary, Curtis asserts that due to confirmation of the

Curtis bankruptcy reorganization plan, in which plaintiffs did

not participate, ownership of the '078 patent vested in Curtis

free of all claims to the contrary. As a result, any evidence

relating to plaintiffs' claims of ownership, equitable or

23 otherwise, is barred by operation of

(d) and

enjoined by

(a)(2).8 Alternatively, Curtis

contends, citing Sixth Circuit caselaw, that plaintiffs' claim of

constructive trust9 is likewise defeated by the bankruptcy

reorganiza-tion.

The court begins by noting that X/L Datacomp, Inc. v. Wilson

(In re Omegas Group, Inc.),

(6th Cir. 1994), cited

8As noted above, the court has previously addressed this argument and has indicated that "the 'new opportunity' afforded by a bankruptcy proceeding cannot and does not absolve a debtor of liability incurred due to post-confirmation activities. Likewise, nowhere in the Bankruptcy Act can there by found a literal prohibition regarding the use of pre-confirmation facts to support a cause of action based on post-confirmation acts." Order of Nov. 21, 1994, at pp. 11-12. Accordingly, the court herewith dismisses Curtis's statutory bar/injunction argument and directs its attention to the constructive trust issue.

9The elements of the constructive trust argument were summarized by the court in its November 21, 1994, order as follows:

With regard to the '078 patent, [plaintiffs] do not contest the fact that Curtis, as Judd's assignee, presently holds legal title. Rather, [plaintiffs] argue that eguitable title to the '078 patent, acguired through the appropriation of design modifications to the '863 patent, is held by Faneuf. As a combined conseguence of the eguitable title and the malappropriation, [plaintiffs] seek an assignment of legal title to the '078 patent to Faneuf as the rightful patentee.

Order of Nov. 21, 1994, at pp. 31-32 (footnotes omitted).

24 in Curtis's motion in limine, is inapposite under the facts of

the case at bar. Omegas Group involved a creditor who was

allegedly defrauded of certain funds as part of a business

transaction by a debtor who took the funds knowing full well that

a petition for bankruptcy protection was imminent. Omegas Group,

supra,

. The creditor's constructive trust

argument, accepted by the bankruptcy court and affirmed by the

district court, was ultimately reversed by the circuit panel,

which limned.

Unless a court has already impressed a constructive trust upon certain assets or a legislature has created a specific statutory right to have particular kinds of funds held as if in trust, the claimant cannot properly represent to the bankruptcy court that he was, at the time of the commencement of the case, a beneficiary of a constructive trust held by the debtor.

. After conducting further research into the law of

constructive trusts and their application under New Hampshire

precedent, this court finds that it cannot adopt the conclusions

of the Omegas Group panel.

Despite Curtis's position that "Plasti-Clip's failure to

participate in the Curtis reorganization and the subseguent

discharge to Curtis . . . vested the property of the estate in

Curtis [and] bars all claims by Plasti-Clip for ownership of the

25 '078 Patent," Motion in Limine Regarding Ownership of '078 Patent

at 10, "[t]he Bankruptcy Code cannot be construed to effectively

divest someone of property which is rightfully theirs. By

operation of [11 U.S.C. §] 541, a debtor can only bring into the

estate that property which he holds both the legal and eguitable

title," Butts v. Butts (In re Butts),

(Bankr.

D.N.D. 1985).

"Because the debtor does not own an eguitable interest in

property he holds in trust for another, that interest is not

'property of the estate.'" Begier v. IRS,

(1990); see also

(d); Bigelow v. Brown (In re

Brown),

(Bankr. N.D. 111. 1994) ("In general,

property that a debtor holds as a trustee does not become

property of the bankruptcy estate."); Central Trust Co. v.

Shepard (In re Shepard),

(Bankr. M.D. Fla. 1983)

("[W]here a debtor holds only bare legal title to property

without any eguitable interest, bare legal title is all that

becomes property of the estate.").

When property is acguired by the debtor through fraud or

misrepresentation, said "property becomes estate property because

the debtor holds legal title, but . . . all the estate has is

legal title, if the traceable property would be subject to a

26 constructive trust under non-bankruptcy law." 1 R o b e r t E. G i n s b e r g

& R obert D. M a r t i n , B a n k r u p t c y : T e x t , S t a t u t e s , R u l e s § 5.02 [j], at 5-34

(1992). Pursuant to New Hampshire law,

A constructive trust will be imposed whenever necessary to satisfy the demand of justice since a constructive trust is merely "the formula through which the conscience of equity finds expression." Beatty v. Guggenheim Exploration Co.,

,

(1919). The specific instances in which equity impresses a constructive trust are numberless, as numberless as the modes by which property may be obtained through bad faith and unconscientious acts. C f . Leonard v. Philbrick,

,

( 1 9 6 5 ) . . . . Among the numerous bases for a constructive trust is the existence of "circumstances which render it unconscientious for the holder . . . to retain and enjoy the beneficial interest. . . ." 4 J. P o m e r o y , E q u i t y J u r i s p r u d e n c e § 1053 (5th ed. 1941); Patey v. Peaslee,

,

(1957).

Milne v. Burlington Homes, Inc.,

,

(1977). "It is probably correct to say that the present

state of the law in New Hampshire is that a constructive trust

will be imposed in any situation where unjust enrichment is

found, regardless of whether there is a confidential relationship

between the parties." 7 C h a r l e s A. De G r a n d p r e , N ew Hampshire Pr a c t i c e :

W i l l s , T rusts an d G ifts § 663, at 271 (1986) .

Assuming, without deciding, that imposition of a

27 constructive trust is appropriate, what remains for resolution,

therefore, is the point in time when said constructive trust

springs into operation. Curtis, quoting language from Omegas

contends that "a constructive trust . . . does not

exist until a plaintiff obtains a judicial decision finding him

to be entitled to a judgment 'impressing' defendant's property or

assets with a constructive trust." Omegas Group, supra,

. However, the weight of authority indicates that "[a]

constructive trust arises at the time of the occurrence of the

events giving rise to the duty to reconvey the property." In re

; accord City Na t '1 Bank v. General

Coffee Corp. (In re General Coffee Corp.),

(11th Cir. 1987) ("constructive trust arises when the facts

giving rise to the fraud occur"), cert, denied,

(1988); Capitol Investors Co. v. Executors of Morrison's Estate,

, 427 n.5 (4th Cir. 1986) (same); United States v.

Fontana,

(S.D.N.Y. 1981) (same, applying

New York law).

Indeed,

It has been suggested that the constructive trust does not arise until the defrauded person brings a suit in equity and the court decrees specific restitution. The notion seems to be that a constructive trust is created by the court and that it therefore does not arise until the court creates it by its decree. The notion is in part fostered by the terminology employed. It is sometimes said that when there are sufficient grounds

28 for imposing a constructive trust, the court "constructs a trust." The expression is, of course, absurd. The word "constructive" is derived from the verb "construe," not from the verb "construct." . . . The court construes the circumstances in the sense that it explains or interprets them; it does not construct them. So in the case of a constructive trust, the court finds from the circumstances that some of the consequences which would follow from the creation of an express trust should also follow. . . . It would seem that there is no foundation whatever for the notion that a constructive trust does not arise until it is decreed bv a court. It arises when the dutv to make restitution arises, not when that dutv is subseauentlv enforced.

5 A ustin Wakeman Sc o t t , T he La w of T ru st s § 462.4, at 3420-21 (1967)

(emphasis added) (footnote omitted).

The court therefore finds and rules that the facts as

alleged sufficiently portray an instance where the imposition of

a constructive trust would be warranted and said trust would

relate back to the time of filing the application which

ultimately resulted in the '078 patent. Curtis, as the ownerof

a misappropriated patent, would have taken only itslegal title

to the patent through the bankruptcy proceedings, and thus

plaintiffs' equitable interest was neither encumbered,

diminished, nor discharged upon confirmation of theplan.

Accordingly, Curtis's motion in limine seeking to exclude

29 evidence relating to ownership of the '078 patent must be and

herewith is denied.

SO ORDERED.

Shane Devine, Senior Judge United States District Court

April 20, 1995

cc: William 0. Hennessey, Esg. Jamie N. Hage, Esg. Jack R. Pirozzolo, Esg. Craig L. Staples, Esg. W. Wright Danenbarger, Esg. Robert E. McDaniel, Esg.

30