Crain v. Debartolo

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

No. 7:14-CV-29-D

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA SOUTHERN DIVISION

January 6, 2015

ORDER

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 PatentNo. 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, bemoisture-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 anyaction to maintain or ensure the validity of the Patent." Id. ¶ 4.c.

II.

Summary judgment is appropriate if the moving party demonstrates that there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The party seeking summary judgment bears the initial burden of showing an absence of genuine dispute of material facts or the absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). If a moving party meets its burden, the nonmoving party must "come forward with specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quotation and emphasis omitted). There is a genuine issue for trial if there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). "The mere existence of a scintilla of evidence in support of the plaintiff's position [is] insufficient." Id. at 252; see Beale v. Hardy, 769 F.2d 213, 214 (4th Cir. 1985) ("The nonmoving party, however, cannot create a genuine issue of material fact through mere speculation or the building of one inference upon another."). Only factual disputes that might affect the outcome under substantive law properly preclude summary judgment. Anderson, 477 U.S. at 248. In reviewing the factual record, the court views the facts in the light most favorable to the nonmoving party and draws reasonable inferences in that party's favor. Matsushita, 475 U.S. at 587-88.

In evaluating DeBartolo's motion for summary judgment, the court applies North Carolina law. See Settlement Agreement ¶ 20. Under North Carolina law, a party alleging breach of contract must prove the existence of a valid contract and breach of the terms of the contract. See McLamb v. T.P. Inc., 173 N.C. App. 586, 588, 619 S.E.2d 577, 580 (2005), disc. rev. denied, 360 N.C. 290, 627 S.E.2d 621 (2006); Poor v. Hill, 138 N.C. App. 19, 26, 530 S.E.2d 838, 843 (2000); Jackson v.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 a 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. § 256is 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...