Opinion
Nos. 3978, 3979.
July 11, 1941.
Robert P. Butler and Arthur E. Howard, Jr., both of Hartford, Conn., for plaintiffs.
George H. Cohen, of Hartford, Conn., for defendants.
Actions by Eva Perin Dysart and others against Remington Rand, Inc., for an accounting and compensation for use of a patented device. The actions were ordered consolidated under Federal Rules of Civil Procedure, rule 42(a), 28 U.S.C.A. following section 723c.
Interlocutory judgment for plaintiffs in accordance with opinion.
See, also, 32 F. Supp. 477.
I. The following facts are found:
1. The invention for which an accounting and compensation for use are sought in this consolidated action is an automatic credit balance device for adding or calculating machines which was first made in 1919 by Birney Dysart, husband and testate of plaintiff Eva Perin Dysart and father of the remaining plaintiffs, while he was secretary and treasurer of the Dalton Adding Machine Company of Ohio; it was disclosed by him to officers of his company in January, 1921, and, pursuant to an agreement hereinafter stated, has been used by this company and its successor, the defendant herein, from 1924 to the present time as a feature of calculating machines manufactured by them.
2. Application for a patent for this invention in Dysart's name was made January 5, 1925, by John D. Rippey of Rippey Kingsland, patent attorneys for the Dalton Company, by express direction of Harry Landsiedel, Dalton's vice-president, to Rippey by letter of September 22, 1924; said application, designated serial No. 565 in the United States Patent Office, by reason of delays in the Patent Office and a contested interference brought and vigorously pressed by one Sundstrand, was not determined until September 17, 1935, at which time Letters Patent No. 2,014,560 covering the invention was awarded to "Birney Dysart, Cincinnati, Ohio; Eva Perin Dysart, executrix of said Birney Dysart, deceased, assignor to Eva Perin Dysart, West Hartford, Conn."
3. Dysart's automatic credit balance invention was a useful improvement to calculating machines, and was and is of very substantial value, since its use made it possible for the operator of a calculating machine to secure a negative or minus balance of sums to be totalled by the machine by one stroke or operation, whereas prior thereto it had been possible to obtain such a balance only by devices requiring at least two strokes or actuations of the machine; and hence the new device added greatly to the speed, simplicity, and effectiveness, and at once became an important and permanent feature, of the Dalton calculating machines.
4. Birney Dysart served as part-time secretary of the Dalton Adding Machine Company of Missouri from 1903 to 1911, as full-time secretary-treasurer of Dalton of Missouri from 1911 to 1914, at which time Dalton of Ohio took over the business, and then as secretary-treasurer and director of Dalton of Ohio in Norwood, Ohio, from 1914 until the dissolution of the latter company in 1927, except for a brief time in 1919 and 1920, when he served as vice-president and comptroller. His duties at all times were solely executive; but out of office hours he made certain inventions, one of which, made in 1913, known as a type bar mechanism for adding machines, was assigned to the Dalton Company on an oral promise of future compensation made by its president, James L. Dalton, which promise was fulfilled by the payment to him of $10,000 in 1919. He took out four other patents in 1917 and 1918 relating to adding machines; but these have not been claimed by defendant, were owned by him at his death on July 20, 1932, and are now in the possession of his widow as legatee under his will.
5. The invention of the automatic credit balance device was made by Dysart on his own time, and not as an executive or employee of the Dalton Company. When the Dalton Company sought to make use of the invention in 1924, the president and general manager thereof, James L. Dalton, the dominant factor in the management of the company and with his family the chief stockholders, agreed with Dysart that the company should use the invention and that the company would compensate Dysart for the use when its value became ascertained after issuance of the patent for it. This followed the pattern of the arrangement made previously between Dysart and Dalton as to the type bar mechanism (see 4, above), except that ascertainment of the amount to be paid was to be deferred until the value of the invention became clear, since Dysart was disappointed by the small amount paid him for the earlier invention.
6. This agreement between Dysart and President Dalton was known to and recognized by Landsiedel, Dalton's vice-president, and in February, 1925, was separately confirmed by both Landsiedel and Dalton to Rippey, who came to the Dalton plant in Ohio from his St. Louis office to ascertain the status of ownership of Patent Application No. 565 then pending on the invention. For, notwithstanding Landsiedel's direction (see 2, above), Rippey had forwarded to Dysart the "usual assignment" of patent rights to the company, as Landsiedel had required in the case of inventions by other Dalton employees; and being informed by Dysart that no assignment was to be made for the present and until the matter of compensation could be settled at some future date, he feared a conflict of interests between the company and Dysart which would embarrass him, and hence sought the clarification which Dalton's and Landsiedel's recognition of the agreement asserted by Dysart gave.
7. James L. Dalton died in January, 1926, and Landsiedel succeeded him as president of the Dalton Company. In October of that year Landsiedel asked Dysart to protect the company by filing a patent application in Germany on the invention; and Dysart, who did not want to go into the German field, agreed to this and gave the company a power of attorney to make application in the company's name to safeguard its interests against possible German competition. The German patent was eventually issued to defendant herein in 1930.
8. Late in 1926, Landsiedel entered into negotiations with James H. Rand, Jr., later president of defendant, for the sale of the Dalton interests; and these were completed by February 4, 1927, and were announced to the stockholders of Dalton and of other companies involved by a printed prospectus of February 14, 1927, which set forth the organization of a new company (the defendant herein) to operate the businesses purchased, with a pro forma balance sheet showing assets in excess of sixty millions, and net worth in excess of fifty millions, of dollars for this new company. Contained therein was an offer of exchange of stock by the new company for Dalton stock in ratios there set forth. The transaction was approved by the Remington Rand directors early in March, 1927, and was made effective by a contract between the Dalton Company and defendant of April 22, 1927, for the sale of all the Dalton assets to defendant, and, as stated in Paragraph 2 thereof, defendant "shall assume all obligations and liabilities of Dalton, immediate and contingent, of whatsoever nature." Final ratification of the sale by the Dalton stockholders was made on May 9, 1927. Landsiedel knew at the time he completed arrangements for this sale in February, 1927, that he was to become director and vice-president of defendant; and he was elected director in March, and vice-president in May, 1927, there being no interim between the purchase by defendant and Landsiedel's election as vice-president. Landsiedel continued as vice-president of Dalton until its dissolution by certificate executed June 20, 1927, sworn to July, 1927, and filed as of December 31, 1927.
9. All arrangements for the above sale on behalf of the Dalton Company were made and carried out by Landsiedel; and while Dysart voted for the sale as director and stockholder of the Dalton Company, he did not participate in the negotiations for it or in making the contract of sale.
10. On February 21, 1927, as secretary of the Dalton Company, Dysart signed several certifications on forms presented to him by Ernst Ernst, accountants engaged in making an audit report of the Dalton Company as of December 31, 1926. These certifications were as to the inventory, accounts receivable, liabilities, and purchase and sale commitments of the company; that one which dealt with liabilities stated that to the best of the certifier's knowledge and belief provision had been made on the books of account for all liabilities except certain invoices noted, and that the company was not liable as endorser or guarantor on any accommodation paper, contract, or agreement, had not pledged or assigned any of its assets, "had no outstanding contracts of a speculative nature for material or other items; had no damage or losses on account of discounted notes, trade acceptances or other forms of obligation." These certifications were not brought to the attention of defendant's officers, but Ernst Ernst's audit report, which came to their attention a few days after March 2, 1927, stated that no contingent liabilities were reported to or disclosed by them during their examination, "and a responsible official of the Company certified to us that none existed at December 31, 1926." At that time (about March 5, 1927) all arrangements for the sale had been completed, and in the announcement of February 14, 1927, no reference had been made to contingent liabilities in the pro forma balance sheet or elsewhere. In making the purchase of the Dalton assets, defendant was interested in Dalton's favorable income-showing and strong patent situation, and did not know of or rely on these certifications made by Dysart.
11. On September 22, 1927, Landsiedel and Dysart, as officers of the Dalton Company, executed a document of transfer to defendant of all the numerous patents and applications for patents owned by the former; and on April 20, 1928, another instrument of transfer confirming the former one, made because of a mistaken description of defendant, was signed by both. Landsiedel and Dysart, and sworn to by Landsiedel alone, Dysart being on a trip abroad at its stated date of execution. Neither document contains any reference to the application for the patent herein, serial No. 565. Both documents were prepared by Barton A. Bean, Jr., of Buffalo, patent attorney for defendant, whose agents and associates in his Buffalo office in the fall of 1927 had asked for and procured from Rippey full information as to serial No. 565 and its status in the Patent Office.
12. Under date of October 24, 1927, Dysart entered into an agreement with defendant through Landsiedel, its vice-president, whereby Dysart agreed not to enter into the employment of a competitor, in return for the payment to him of $15,000 in monthly installments over a period of three years. This sum was duly paid. Dysart had expected that the Dalton Company would be taken over as an operating unit by defendant, with its officers retained intact, and was disappointed, as were other Dalton officers, upon learning that only Landsiedel was to be taken over by defendant; and this agreement was negotiated by Landsiedel partly in view of this disappointment. While negotiating for this agreement Landsiedel told Dysart that some of defendant's officers thought Dysart should assign all his patent interests to defendant without consideration, and Dysart indignantly refused to do so.
13. In June, 1928, after his return from his trip abroad and being informed by Rippey that the patent was about to go to issue, Dysart wrote Landsiedel, as vice-president of defendant, suggesting a conference to arrive at an agreement for compensation for the patent, to which Landsiedel replied July 11, 1928, that he had "always considered the pending application covering the credit balance device the property of our Company." Dysart answered, in an extensive letter of July 16, 1928, asserting vigorously his ownership of the invention, with detailed supporting arguments, and pointing out that they went "all over" the subject in connection with the making of the contract referred to in 12, above, and that Landsiedel had then raised no question as to ownership. To this letter Landsiedel made no reply; but it was eventually answered on September 4, 1928, by Bean, with a claim of irrevocable shop right or license, supported by argument and citation of cases.
14. Thereafter continuously either to Dysart or, after his death, to Eva Perin Dysart, his widow and executrix, defendant made claim of shop right, license, or equitable title in the invention, and threatened litigation which would bankrupt the parties unless settlement were made. In 1932, it brought suit against Mrs. Dysart in this court to secure equitable title, but voluntarily discontinued it. It made no claim, however, of fraud or estoppel, based on Dysart's asserted silence at the time of the Dalton purchase in 1927, until it filed its defense in the present action. Although Landsiedel testified herein that he always considered Dysart the inventor of the credit balance device, nevertheless in the Sundstrand interference he did not co-operate with the Dysart interests, though so requested by Rippey, then representing the applicant, and, being cited to court for refusal to obey a subpoena duces tecum, eventually relied upon his claim that the papers showing the original disclosure of the invention to him in 1921 were lost. Thereafter he testified in the interference proceedings on behalf of Sundstrand and along lines favorable to the claim of one Dreher (a designer in the Dalton engineering department who had worked on drafts of the Dysart device) as the inventor of the device. He admitted that he had been severely criticized and censured by defendant's officials for allowing the Dysart claim to develop is it had done.
15. Eva Perin Dysart, widow of Birney Dysart, was named in his will as executrix of his estate and his sole legatee, and is duly qualified as such by and before the Probate Court for the District of Hartford. As executrix she is entitled to all sums accruing to Dysart before his death, and such claim has not been distributed by the probate court. All rights in the invention and the patent and all claims for use thereof after Dysart's death vested in her as sole legatee under her husband's will and have been so distributed pursuant to appropriate probate decrees; and thereafter she has assigned equal rights to her three children, the other plaintiffs herein, with her to, said patent, so that all rights under said patent accruing since Dysart's death vest in the four plaintiffs individually and in equal shares.
16. Actions on quantum meruit and for an accounting were originally instituted on behalf of the four plaintiffs as individuals and of Mrs. Dysart as executrix respectively, and for the respective rights referred to in 15 hereof, before the Superior Court for Hartford County, Connecticut; on defendant's motion they were removed to this court because of the diverse citizenship of the parties and the amount in controversy, which it is agreed is more than $3,000, exclusive of interest and costs. On March 8, 1940, this court, Moscowitz, J., entered orders holding insufficient all defenses of defendant's answers except the general denial numbered "First," and the special defenses numbered "Third," "Fourth," "Seventh," "Eighth," and "Ninth" (without prejudice to their reassertion if the proof at the trial so justified, as it did not). On November 1, 1940, this court, Hincks, J., pursuant to stipulation of the parties, ordered that all issues presented by the amended complaint and the defenses left standing he tried separately from the issues of account, disclosure, general accounting, and damages claimed by plaintiff, "so that all issues relating to the liability of the defendant may be first tried, to be followed by an interlocutory judgment, in furtherance of the convenience of the Court and of the parties." On June 27, 1941, the court, pursuant to suggestion accepted by the parties at the opening of the trial and to their formal stipulation of that date, ordered the two actions consolidated under Federal Rule 42(a), 28 U.S.C.A. following section 723, subject to the right of the parties to press any objections raised in the record as though said actions had not been consolidated.
II. The following conclusions have been reached:
1. The invention of the automatic credit balance device formerly represented by patent application serial No. 565 and now by Letters Patent No. 2,014,560, was always the property of Birney Dysart until his death in 1932, and since then has been the property of plaintiffs herein, as set forth in finding 15, above, and has been legally used by defendant and its assignor, the Dalton Adding Machine Company of Ohio, only pursuant to an agreement, made by the Dalton Company and assumed by defendant herein, to compensate the owner for the reasonable value of the use thereof after the issuance of the patent.
2. None of the defenses set up by defendant have been proven, and defendant has no claim to said invention by way of shop right, license, legal or equitable title, or fraud and estoppel, or in any other way except as stated in conclusion 1 hereof.
3. An interlocutory judgment should be rendered in plaintiffs' favor that defendant do account for the reasonable value of the use of the patent as made by it and by its assignor, the Dalton Adding Machine Company of Ohio, since 1924.
A memorandum of decision is filed herewith and is hereby made a part of these findings and conclusions.
As the finding herewith indicates, the questions whether Birney Dysart was the original inventor and owner of the automatic credit balance invention here in issue and whether the Dalton Company agreed to pay for its use are basic and crucial. But these are issues of fact, and the evidence to my mind settles them in plaintiffs' favor beyond doubt. The declarations, written and oral, of Dysart, admissible under Conn.Gen.Stat. 1930, § 5608, as amended, Supp. 1939, § 1408e, are too detailed, complete, circumstantial, and natural to permit of the conclusion that they represent a concocted story, long planned and carefully worked out. There are voluminous written entities, as well as oral declarations thoroughly established by the careful and persuasive testimony of both Mrs. Dysart and Mr. Rippey, the patent lawyer of long experience; the facts covered by them in turn check with much of the other testimony, oral and written, and, indeed, are supported as to details, e.g., of happenings at conferences, by defendant's witnesses; and there is the independent testimony of Rippey as to facts of his own knowledge which alone would be sufficient to make out the plaintiffs' case.
Though defendant has pleaded a general denial, yet that has to find practically its sole support in the testimony of its chief witness, Harry Landsiedel, former vice-president and president of the Dalton Company, now vice-president of defendant. As a matter of fact, Landsiedel by acts and by testimony furnishes substantial support to the plaintiffs' case. Starting with his original direction to Rippey to make application for the patent in Dysart's name, his request to Dysart for protection of the company for the German patent rights, his signing of two instruments of patent transfer from Dalton to defendant without claim of this right, his failure to respond to Dysart's assertion in the letter of July 16, 1928, of his own past position, and his final acknowledgment on the witness stand that he had always considered Dysart the inventor of this device, all strongly uphold the plaintiffs' contentions. Against this we have only his failure to recollect conferences and conversations confirming the agreement to pay for the use of the patent, and the more or less indirect suggestion that he did not know of Dysart's claim until 1928. Nowhere is there a forthright denial of the agreement or his knowledge. His demeanor on the witness stand was hesitant and troubled, showing the stress he admitted he had been under from 1928 on from the criticism by defendant's officials because of his handling of this matter. To the extent that his testimony is claimed to conflict with that offered on behalf of the plaintiffs, I have no hesitancy in rejecting it.
Other testimony on this issue came from Dalton and defendant employees to show negatively that they did not know of the Dysart arrangement, and further that much time was spent by the Dalton engineering staff in drawing plans and perfecting the Dysart device. It was conceded, however, that Dysart's original disclosure contained the idea, so that a competent engineer could develop it on paper; and it was understood by all from the time Dalton planned to make use of the device that the Dalton staff was to prepare the drawings, and that the Dalton attorney was to apply for the patent. There was also testimony from officials of the defendant company showing their lack of knowledge of the Dysart claim before 1928, as well as their strong feeling against it and their vigorous measures to fight it on many different fronts. This suggests that they, too, had relied overmuch on Landsiedel, and had been misled by a lack of complete frankness on his part; but I see nothing in all this to impugn the essential veracity of the plaintiffs' case.
That the agreement is indefinite as to the value of the use does not destroy its effect; for the basis of recovery here is a promise implied in fact to pay for the reasonable value of the use made of the invention. The effect of the agreement is to show that the use was not donated or otherwise intended to be uncompensated; it thus is the foundation of the implied promise. Butler v. Solomon, 127 Conn. 613, 18 A.2d 685.
The plaintiffs' case being thus made, it remains to consider those of defendant's defenses left open to it by Judge Moscowitz's ruling of March 8, 1940. The claims of shop right or license or equitable or other title, based more or less on Dysart's position as an officer of the company when he made the invention, all fall with the above findings on the plaintiffs' own case. Dysart was an executive, and not the type of employee against whom shop rights are most naturally to be imputed; and the course followed with reference to the previous inventions made by him demonstrated that neither such rights nor any form of title was a customary part of his obligation to his company. And the finding of the agreement completely negatives any such claim. See Heywood-Wakefield Co. v. Small, 1 Cir., 87 F.2d 716, certiorari denied 301 U.S. 698, 57 S.Ct. 925, 81 L.Ed. 1353; White Heat Products Co. v. Thomas, 266 Pa. 551, 109 A. 685; Burton v. Burton Stock-Car Co., 171 Mass. 437, 50 N.E. 1029; McNamara v. Powell, 168 Misc. 806, 7 N.Y.S.2d 141, modified and affirmed 256 App. Div. 554, 11 N.Y.S.2d 491; United States v. Palmer, 128 U.S. 262, 9 S.Ct. 104, 32 L. Ed. 442.
Finally, there is the defense of fraud and estoppel, based on Dysart's failure to make an issue of his patent claim at the time of defendant's purchase of the Dalton assets in 1927. But I cannot find any obligation or even any occasion for Dysart to present or press his claim at that time. Landsiedel, who, as I have found, was at all times thoroughly familiar with the Dysart situation, was making all the arrangements for the sale and kept himself in charge of all details thereof. He seems to have held out the hope that he would take all the old officers over to the new concern with him; at any rate, he himself at once became an official of defendant. It would seem rather unnatural in view of this situation for Dysart to have gone over Landsiedel's head, so to speak, to have made his claim to some of defendant's officials, with whom he had no connection or relations. The only possibility of an obligation on his part appears in connection with his `various certifications made to Ernst Ernst, the accountants, on February 21, 1927. But these appeared to be formal auditing details, not apt to cover the kind of arrangement he had had with James L. Dalton and Landsiedel; and it is not surprising that he, a layman, did not think of this as a contract "of a speculative nature for material or other items." Had it been suggested, it would undoubtedly have been offset by the value of the patent right it covered, and would not have affected the 60 million-dollar balance sheet or 50 million net worth of the new company. An inference of an intent to defraud on Dysart's part does not seem justified. Compare O'Connor v. Ludlam, 2 Cir., 92 F.2d 50, 53, certiorari denied 302 U.S. 758, 58 S.Ct. 364, 82 L.Ed. 586. In any event, this certification did not affect the sale, which had already been completed and announced to the company stockholders, together with their rights to participate in the new company by exchange of stock. This defense is a late development in this controversy; until this action, defendant has relied on its conviction that it has a shop right or equitable title in the invention. I conclude that this defense, like the others, is unproven.
The rulings on the admission of evidence at the trial, as well as the denial of the motion to dismiss the executrix's action, are hereby confirmed. Objection was made that the declarations of the deceased were not admissible in favor of plaintiffs other that Mrs. Dysart as executrix and legatee; but this was overruled on the authority particularly of Pixley v. Eddy, 56 Conn. 336, 15 A. 758, where the statute, Conn.Gen.Stat. 1930, § 5608, was held to make declarations of a decedent admissible for and against an assignee of a distributee, though it does not extend to purchasers by contract from the deceased. And the further statute, § 5609, referring to written memoranda, explicitly covers the case of those claiming title under or from the decedent. Plaintiffs' objections to certain answers of the witness Bean in his deposition, as claimed by defendant, are overruled.
Interlocutory judgment that defendant account for the value of the use of the invention is therefore directed. This appears to be a case appropriate for the appointment of a master by the Court under Federal Rule 53. If the parties cannot agree on the form of the judgment, it may be settled before me at New Haven, Thursday, July 17, 1941, at 10:30 A.M.