Opinion
No. 4:04cv0015 AS.
February 25, 2005
MEMORANDUM AND ORDER
This cause is before the Court on Chem-A-Co., Inc.'s ("CAC") October 14, 2004 filing of a Motion for Judgment on the Pleadings on Count II (Declaratory Judgment as to EPA registration number 61943) and Count III (declaration as to the effect of 1991 letter between CAC and Chemstar) of Earth Science Laboratories' ("ESL") Second Amended Counterclaim pursuant to Federal Rule of Civil Procedure 12(c). Oral argument was held by this Court on December 22, 2004, whereby Chem-A-Co asserted that Judgment on the Pleadings should be granted in its favor because the pleadings filed by the parties in this case established that Counts II and III of ESL's Second Amended Counterclaim are barred by principles of res judicata, claim preclusion, issue preclusion, and collateral estoppel.
I. Procedural Posture a. Judgment on the Pleadings — Generally
See Wright Miller, Federal Practice and Procedure: Civil volume 5C § 1368 (3d ed., West 2004).
The federal courts have followed a fairly restrictive standard in ruling on motions for judgment on the pleadings. Although the motion may be helpful in disposing of cases in which there is no substantive dispute that warrants the litigants and the court proceeding further, thereby easing crowded trial dockets in the federal district courts, hasty or imprudent use of this summary procedure by the courts violates the policy in favor of ensuring to each litigant a full and fair hearing on the merits of his or her claim or defense. Johnson v. Revenue Management Corp., 169 F.3d 1057, 1060 (7th Cir. 1999), on remand 52 F.Supp.2d 889 (D.C.Ill. 1999) (Easterbrook, J.) (holding that a judge should not rebuff a litigant's effort to supplement the complaint or provide legal argument in support of the suit. Because complaints need not articulate legal theories, and because the skeletal presentation in a notice pleading may be fleshed out later, a decision without giving plaintiff the opportunity to argue or augment his position is premature).
The importance of this policy has made federal judges unwilling to grant a motion under Rule 12(c) unless the movant clearly establishes that no material issue of fact remains to be resolved and that he is entitled to judgment as a matter of law. It is necessary for the movant to show a clear right to a judgment on the pleadings. National Fidelity Life Ins. Co. v. Karaganis, 811 F.2d 357 (7th Cir. 1987) (Cudahy, J.) (holding that a motion for judgment on the pleadings may be granted only if the moving party clearly establishes that no material issue of fact remains to be resolved and that he or she is entitled to judgment as a matter of law"); Bourns, Inc. v. Allen-Bradley Co., 348 F.Supp. 554, affirmed in part, reversed in part on other grounds, 480 F.2d 123 (7th Cir. 1973), certiorari denied 414 U.S. 1094.
In considering a motion for judgment on the pleadings, the trial court is required to view the facts presented in the pleadings and the inferences to be drawn therefrom in the light most favorable to the nonmoving party. Forseth v. Village of Sussex, 199 F.3d 363 (7th Cir. 2000). In this fashion the court hopes to insure that the procedural and substantive rights of the nonmoving party are decided as fully and fairly on a Rule 12(c) motion as if there had been a trial on the merits. Carver v. Nall, 986 F.Supp. 1134, reversed on other grounds 172 F.3d 513 (7th Cir. 1999).
It is axiomatic, as it is for motions under Rule 12(b)(6) and as evidenced by countless judicial opinions, that for purposes of the court's consideration of the Rule 12(c) motion, all of the well pleaded factual allegations in the adversary's pleadings are assumed to be true and all contravening assertions in the movant's pleadings are taken to be false. Forseth v. Village of Sussex, 199 F.3d 363 (7th Cir. 2000); Flora v. Home Fed. Savs. Loan Ass'n, 685 F.2d 209 (7th Cir. 1982) (holding that for the purpose of determining whether a material issue of fact exists in making a judgment on the pleadings, uncontested allegations to which the party had the opportunity to respond are taken as true). Thus, in effect, the party opposing the motion has the benefit of all possible favorable assumptions.
The standard to be applied on a Rule 12(c) motion based on all the pleadings is identical to that used on a Rule 12(b)(6) motion based solely on the complaint. Roman Catholic Diocese of Springfield in Illinois v. Maryland Cas. Co., 139 F.3d 561 (7th Cir. 1998); Craigs, Inc. v. General Elec. Capital Corp., 12 F.3d 686 (7th Cir. 1993); AM International, Inc. v. Graphic Management Associates, Inc., 836 F.Supp. 487 (D.C.Ill. 1993) affirmed 44 F.3d 572 (7th Cir. 1995) (reasoning that because the standard for a Rule 12(b)(6) motion applies to a Rule 12(c) motion, all well-pleaded material allegations are taken as true and the complaint is viewed in the light most favorable to the pleader). In other words, the district court should not dismiss the complaint unless it appears beyond doubt that the plaintiff can prove no set of facts that would entitle him or her to relief under the governing substantive law. Hentosh v. Herman M. Finch Univ. of Health Sciences/The Chicago Medical School, 167 F.3d 1170 (7th Cir. 1999); Evans v. Lederle Labs., 167 F.3d 1106 (7th Cir. 1999), certiorari denied 528 U.S. 929; Northern Indiana Gun Outdoor Shows, Inc. v. City of So. Bend, 163 F.3d 449 (7th Cir. 1998).
Although a moving party, for purposes of the Rule 12(c) motion, concedes the accuracy of the factual allegations in his adversary's pleading, he does not admit other assertions in the opposing party's pleading that constitute conclusions of law, legally impossible facts, or matters that would not be admissible in evidence at trial. In addition to assuming the truthfulness of the pleading's factual allegations for purposes of the Rule 12(c) motion, the extensive case law on the subject makes it very clear that all reasonable inferences and intendments from these facts are drawn in favor of the nonmoving party. Ohio Cas. Ins. Co. v. Bazzi Constr. Co., 648 F.Supp. 1056, 1058, (D.C.Ill. 1986), affirmed 815 F.2d 1146 (7th Cir. 1987). Although inferences occasionally may be drawn from the pleadings in favor of the nonmoving party, they must be reasonable and inferences cannot be indulged in when they are contrary to the clear and unambiguous words or actions of the parties, Northern Indiana Gun Outdoor Shows, Inc. v. City of So. Bend, 163 F.3d 449 (7th Cir. 1998) (court is not obliged to ignore any facts in pleadings that undermine plaintiffs claim) or inconsistent with matters that fall within the judicial notice doctrine.
A motion for judgment on the pleadings under Rule 12(c) may be granted only if all material issues can be resolved on the pleadings by the district court; otherwise, a summary judgment motion or a full trial is necessary. Smith v. Chec-N-Go of Illinois, Inc., 200 F.3d 511 (7th Cir. 1999); Northern Indiana Gun Outdoor Shows, Inc. v. City of So. Bend, 163 F.3d 449 (7th Cir. 1998). An issue of fact is deemed to be material if the outcome of the case might be altered by the resolution of the issue one way rather than another. Thus, the plaintiff may not secure a judgment on the pleadings when the answer raises issues of fact that, if proved, would defeat recovery. Forseth v. Village of Sussex, 199 F.3d 363 (7th Cir. 2000). Because of this limitation on the successful utilization of the Rule 12(c) procedure, the moving party always should consider employing a summary judgment motion rather than a motion for judgment on the pleadings.
A material issue of fact that will prevent a motion under Rule 12(c) from being successful may be framed by an express conflict on a particular point between the parties' respective pleadings. It also may result from the defendant pleading new matter and affirmative defenses in his answer. If the affirmative defense clearly is established in the pleadings, as, for example, when a statute of limitations defense is apparent on the face of the complaint and no question of fact exists, then a judgment on the pleadings may be appropriate. Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313 (1971), on remand 334 F.Supp. 47 (D.C.Ill. 1971), affirmed on other grounds 465 F.2d 380 (7th Cir. 1972), certiorari denied 409 U.S. 1061. The Supreme Court made some indication of this in Blonder-Tongue, when it stated that "an estoppel defense * * * can be pleaded affirmatively and determined on a pretrial motion for judgment on the pleadings or summary judgment." Id. at 348 (White, J). However, it was clear in Blonder-Tongue that matter outside the pleadings would have to be introduced to establish a collateral estoppel defense so that a summary judgment motion rather than one for judgment on the pleadings undoubtedly was the appropriate procedure in that case. Id. b. Judgment on the Pleadings — As Applied
In the instant case, this Court views the facts presented in the pleadings and the inferences to be drawn therefrom in the light most favorable to the nonmoving party as follows: Both CAC and ESL manufacture and sell chemicals used for water purification. Of specific concern for this litigation are SCI-62, which was developed and created by Sorber Chemical, Inc. ("Sober"), but was registered with the U.S. Environmental Protection Agency under the name of Chemstar.
In 1991, Sorber was the Debtor in a Chapter 11 bankruptcy case pending as No. BK 90-40321 in the U.S. Bankruptcy Court for the District of Nebraska. (Second Amended Counterclaim, ¶ 4). ESL purchased all or substantially all of the assets of Sorber from Sorber's Chapter 11 bankruptcy trustee. (Second Amended Counterclaim, ¶ 4). The bankruptcy court approved the sale on March 6, 1991 and issued a Memorandum Opinion relative to the ownership rights in certain technology that was embodied in the assets purchased by ESL from Sorber, including SCI-62, SCI-30, and all patents, trademarks, copyrights, or permits and registrations relating to the same. (Second Amended Counterclaim, ¶ 5).
Chemstar owned all or substantially all of Sorber's stock. (Second Amended Counterclaim, ¶ 5). On or about June 20, 1991, CAC entered a certain Letter Of Intent with Chemstar by which CAC proposed that Chemstar grant a license to CAC in certain technology of Chemstar consisting of the family of "SCI" product including SCI-30, the EPA license of "SCI-62" and FDA registration of "Dermactic/2000." (Second Amended Counterclaim, ¶ 7). Also included in the purported license were the history and notes, formulation, plans and drawings, production information, and any patent, trademarks or copyrights applied for, or complete, and the EPA registration for SCI-62, EPA Registration No. 61943-1. (Second Amended Counterclaim, ¶ 7).
On or about April 24, 1992, ESL filed suit against Chemstar, CAC, and several other named defendants in the United States District Court for the District of Nebraska ("The Nebraska Case"). In regards to The Nebraska Case, on or about January 19, 1994, ESL and CAC entered into a certain agreement, whereby in relevant part: CAC agreed to release ESL from certain claims and ESL agreed to dismiss CAC with prejudice from the action pending under Case No. CV92-3163. (Second Amended Counterclaim, ¶ 11).
Earth Science Laboratories, Inc., Plaintiff v. Chemstar Corporation, Chem-A-Co, Inc., et al., Case No. 4:CV92-3163 decided in the United States District Court for the District of Nebraska on February 16, 1994 (hereinafter referred to as "The Nebraska Case").
Although counsel for CAC and ESL have referred to this January 19, 1994 agreement in oral argument, in written responses to the Motion for Judgment on the Pleadings, and it was reportedly attached as Exhibit 9 in ESL's Second Amended Counterclaim, this agreement is not currently available as part of the record for this Court's review. However, based on the pleadings, the following facts supplied by counsel in regards to the agreement are construed in the light most favorable to ESL for purposes of this Order.
After ESL had already dismissed CAC as a defendant from The Nebraska Case, on February 16, 1994, the United States District Court for the District of Nebraska, entered a "Judgment and Decree Against Chemstar Corporation." The District Court found in relevant part:
1) Default should be and is hereby entered against Chemstar Corporation (The Nebraska Case, ¶ 2).
2) Nothing in this Judgment and Decree against Chemstar Corporation, however should bar the Plaintiff (ESL) from recovering other types of amounts of damages or equitable remedies, including without limitation damages for conversion or property, if any; or lost profits, if any; from Defendants other than Chemstar Corporation. Nothing herein should bar Defendants other than Chemstar Corporation from resisting or defending attempts by the Plaintiff (ESL) to obtain or recover any damages or equitable remedies against such other Defendants. (The Nebraska Case, ¶ 3).
3) Chemstar Corporation should be permanently enjoined from further disclosure to persons other than the Plaintiff (ESL) of technology for manufacturing low-pH chemical products known or formerly known as SCI-30, SCI-62, . . . Dermactin, and Chemstar Corporation should be permanently enjoined from use of the aforesaid technology. Chemstar Corporation should be permanently enjoined from disclosing to persons other than the Plaintiff (ESL), and from using, any research data or formulas or customer lists pertaining to the aforesaid products. (The Nebraska Case, ¶ 7).
4) As against Chemstar Corporation, any purported license or transfer of chemical technology, governmental registrations, trade secrets, or other personal property from Chemstar Corporation to Chem-A-Co, Inc., in 1991 should be avoided. (The Nebraska Case, ¶ 8).
5) As against Chemstar Corporation, but not as against any other Defendant herein, any purported license or transfer of chemical technology, governmental registrations, trade secrets, or other personal property to Chem-A-Co, Inc., in 1991 is hereby avoided and set aside. (The Nebraska Case, ¶ VI.).
6) Nothing shall constitute findings of fact binding upon any Defendant other than Chemstar Corporation. Nothing herein shall reduce or eliminate any alleged defense of Chem-a-Co, Inc. to any relief sought by the Plaintiff (ESL) against Chem-a-Co, Inc. (The Nebraska Case, ¶ VII.).
7) The fact that damages, costs and certain legal expense may be ordered against Chemstar Corporation per this judgment shall not preclude, diminish, or enlarge the ability of the Plaintiff (ESL) to seek an award of damages, equitable remedies, costs or legal expense from any Defendant other than Chemstar Corporation herein, and shall not reduce or enlarge the ability of any Defendant other than Chemstar Corporation herein to contest any attempt by the Plaintiff to seek damages or equitable remedies against such other Defendant or to tax attorney fees or costs against such other Defendant. (The Nebraska Case, ¶ VII.).
When a document attached to a complaint forms the basis for the complaints allegation, the document must be examined as a whole, on motion for judgment on the pleadings. Northern Indiana Gun Outdoor Shows, Inc. v. City of South Bend, 163 F.3d 449 (7th Cir. 1998).
On July 14, 1992 the United States Bankruptcy Court for the District of Nebraska, in Adversary Proceeding No. A90-4033, filed by First National Bank, Holdredge, Nebraska against Chemstar Corporation, et. al., issued an Order and Judgment in favor of First National Bank and against Chemstar Corporation as to Count 1. (Second Amended Counterclaim, ¶ 8). On March 23, 1993, by a "Sheriff's Bill of Sale" First National Bank of Holdrege acquired certain rights, title, and interest of Chemstar. Then, on March 4, 2004 in a "Bill of Sale and Assignment of Certain Property Formerly Belonging to Chemstar Corporation," First National Bank of Holdrege assigned, sold, transferred and delivered to ESL all the Bank's right, title, and interest in the former property of Chemstar. (Second Amended Counterclaim, ¶ 12). ESL is the purchaser and possessor of all of Chemstar's contract rights, causes of action, powers, privileges, government license and registration rights, and all other claims previously held by Chemstar to CAC (Second Amended Counterclaim, ¶ 13), and not yet extinguished. The instant dispute concerns whether or not ESL is precluded from enforcing any rights that it contends to have in the 1991 Letter of Intent between Chemstar and CAC and EPA registration number 61943.
In relevant part, First National Bank acquired: "All claims, causes of action, bills, credits, power privileges and other rights of Chemstar Corporation against Chem-A-Co., Inc. . . . All trade secrets; trade names; trademarks; inventions; government license or registration rights; technology; shop rights to technology; powers, rights or privileges to grant, restrict, or withhold authorization of use of tests, reports or submissions to agencies, governments, other governments subdivisions or other legal person; powers, rights or privileges to use technology, trade secrets, trademarks, or trade names; and all other general and tangibles. (Second Amended Counterclaim, ¶ 9).
VIII. Doctrines of Res Judicata and Estoppel a. Application of Res Judicata and Estoppel — Generally
See Ernest H. Schopler, Modern Status of Federal Rules of Res Judicata In Patent Litigation, 4 A.L.R.Fed. 181 (2004).
This case presents a situation where a judgment in a previous patent case is relied upon as res judicata in another suit in federal court involving the same patent.
See Supra note 2.
With reference to judgments in civil cases, it has been said that the effect of a judgment as res judicata appears in at least three aspects. These are: (1) "merger," by which a money judgment for the plaintiff merges his cause of action, so that the original cause of action is terminated and a cause of action on the judgment takes its place; (2) "bar," by which a judgment on the merits for the defendant terminates the original cause of action; and (3) "estoppel," by which questions of fact and perhaps of law actually litigated in the action and essential to the judgment are conclusively determined in subsequent actions in which the same questions arise, even though the cause of action may be different. A lucid distinction between merger and bar on the one hand and collateral estoppel on the other hand has been made by using the term "claim preclusion" as meaning that further litigation on the claim is prohibited, and the term "issue preclusion" as meaning that further litigation on a specific issue is barred.
However, the terminology used by the courts is not always consistent. The term "res judicata" is used sometimes to indicate the effect of a judgment as res judicata in all its aspects, sometimes to signify the effect of a judgment as merger and bar, as contradistinguished from the operation of a judgment as estoppel, is to indicate the effect of a judgment as collateral estoppel. Canaan Products, Inc. v. Edward Don Co., 388 F.2d 540 (7th Cir. 1968) (reasoning that collateral estoppel and estoppel by judgment are synonymous terms). In any event, it seems obvious that where a stranger to a judgment relies upon its conclusiveness, he invokes only the effect of such judgment as collateral estoppel (issue preclusion).
The phrase "stranger to the judgment" signifies a party to the proceeding involving an issue as to the collateral estoppel effect of a former judgment who was neither a party to, nor in privity with, a party to such judgment. The phrase "stranger to the judgment" seems more appropriate than the phrase, more often used, "stranger to the action in which the judgment was rendered." While ordinarily a stranger to this action is also a stranger to the judgment, nevertheless, conceivably a party to a multiplaintiff or multidefendant action may effectively have been dismissed from the case, or discontinued participation therein, before the judgment was rendered, and then he is not a party "to the judgment," although he was a party "to the action."
In this instance, CAC attempts to invoke "offensive use" or "affirmative use" of the estoppel doctrine, which means that as a stranger to the first judgment (of The Nebraska Case), in this second action, CAC attempts to rely upon the former judgment as conclusively establishing in his favor that both Claims II and III of ESL's Second Amended Counterclaim have already been litigated and are therefore precluded from judgment by this Court.
b. Preclusion Effect of Prior Determination in Patent Litigation
The Seventh Circuit has identified four elements necessary for the application of issue preclusion: (1) the issue sought to be precluded must be the same as that involved in the prior action; (2) the issue must have been actually litigated; (3) the determination of the issue must have been essential to the final judgment, and (4) the party against who estoppel is invoked must have been fully represented in the final action. People Who Care v. Rockford Board of Education, 68 F.3d 172, 178 (7th Cir. 1995). Here, the Letter of Intent entered into in 1991 by CAC and Chemstar was declared to be void as against Chemstar in The Nebraska Case on February 16, 1994, and this Final Default Judgment is binding on both ESL and Chemstar. Since ESL was the plaintiff in The Nebraska Case, ESL is now estopped from re-litigating the validity of the 1991 Letter of Intent and the EPA registration number 61943. The fact that CAC gained additional Chemstar rights March 4, 2004 from Holdrege, does not allow the already extinguished Chemstar claims regarding the Letter of Intent to resurface.
By which CAC proposed that Chemstar grant a license to CAC in certain technology of Chemstar, consisting of the family of "SCI" product including SCI-30, the EPA license of "SCI-62" and FDA registration of "Dermactic/2000," and also including the purported license for the history and notes, formulation, plans and drawings, production information, and any patent, trademarks or copyrights applied for, or complete, and the EPA registration for SCI-62, EPA Registration No. 61943-1 (Second Amended Counterclaim, ¶ 7).
Judgment by default commands the full effects of claim and defense preclusion. Judgment by default in the technical sense that the issues have not been litigated does not necessarily warrant issue preclusion for the very reason that the issues have not been litigated or decided. However, these easy prescriptions cannot be followed far, without encountering some very difficult problems. As to issue preclusion, the default description may be applied loosely to circumstances of limited or one-sided litigation that warrant some measure of preclusion. A "default" entered as a procedural sanction also may support issue preclusion in closely related litigation in order to further the purposes of the sanction. See Wright Miller, Federal Practice Procedure volume 18A § 4442 (2d ed., West 2002 Supp. 2004).
Furthermore, although CAC was a stranger to the February 16, 1994 Nebraska Case decision, CAC was dismissed with prejudice from the suit by ESL. Dismissal with prejudice, unless the court has made some other provision, is subject to the usual rules of res judicata and is effective not only on the immediate parties but also on their privies. U.S. v. Outboard Marine Corp., 104 F.R.D. 405 (D.C.Ill. 1984) affirmed 789 F.2d 497 (7th Cir. 1986), certiorari denied 479 U.S. 961 (quoting Wright Miller, Federal Practice Procedure: Civil volume 9 § 2367 (2d ed., West 1995 Supp. 2004). A judgment need not follow a full trial on the merits to claim res judicata effect. In re Energy Co-op., 814 F.2d 1226 (7th Cir. 1987), certiorari denied 484 U.S. 928) (holding that a consent judgment and dismissal with prejudice of a prior action with prejudice upon settlement by the parties precluded a second action on a different part of a single claim). Here, the United States District Court for the District of Nebraska, granted Plaintiff's (ESL's) Motion to Enter Final Default Judgment, including Determination of Finality per FRCP 54(b) in that "Chemstar Corporation is in default for failure to comply with this Court's order entered February 26, 1993. Default should be and is hereby entered against Chemstar Corporation." (The Nebraska Case, ¶ 2). Therefore ESL is foreclosed from again filing a suit on the same claims involving the same issues against the same defendant. IX. CONCLUSION
See also Black's Law Dictionary (8th ed., 2004); Federal Civil Procedure 1713, 1837:1.
This Court has chosen to look at the pleadings and any documents incorporated by reference in the pleadings in the light most favorable to the non-movant, defendant. In doing so, this Court has determined that beyond a doubt the defendant cannot plead any facts that would support a claim for relief. Due to the estoppel and res judicata effects of "The Nebraska Case" decision and the dismissal with prejudice of Chem-A-Co from "The Nebraska Case," this Court GRANTS plaintiff's motion for judgment on the pleadings in favor of this plaintiff and against this defendant. Thus, the plaintiff's motion for judgment on the pleadings for Claims II and III of the second amended counterclaim is GRANTED. The Clerk shall enter judgment in favor of the plaintiff against the defendant, and each party will bear its own costs. IT IS SO ORDERED.