the united states court of appeals for the th circuit is now open according to law god save the united states in this honorable court the morning gentleman thank you for participating in the argument in this unusual fashion we're very anxious to get back to new orleans but unfortunately this is not the appropriate time however we are going to observe essentially the same rules that we usually do principle one of which is no video or audio recordings and i'm going to duck act here and put my you should have done yesterday and a timely basis but that's something i urge you to do uninterrupted we also very much appreciate record excerpts or record citations when you can give us those and with that we call the st case of the morning number  appealing an adverse summary judgment ruling the st issue being bail piercing and the gist of our appeal on that issue is the district court wrongly granted summary judgment not based upon the elements of th order denying our ability use motion to reconsider or the court drove the nail into the coffin by explaining that the plaintiffs do you think that the that the plaintiffs had failed to address the requirement that they establish actual fraud reflects a legislative judgment that contract claimants unlike most rd party suing in tort have bolland terribly chosen to deal with the corporation and absence of deception or fraud would have had the opportunity to apportion through negotiated contract terms the risk that the entity would be unable to meet its obligations so when the court did in granting summary judgment was to look behind the statutory text and the statutory language to what the court perceived as the legislative judgment reflected in that and then granted summary judgment because the court felt that the plaintiffs had failed to show some extra statutory requirements and instead we believe the proper course of action would be to take the statute section twenty one dollars which lays out the elements that must be met for a contract claim to let mr belin to you to pierce the corporate veil and then apply all of the evidence to those elements and then come to a conclusion on summary judgment that did not happen below and that's what we're seeking this court to review question and i think that was based again upon the courts view that the plaintive had to show that he was it was that the defendant's wrong interfered with his ability to contract up front and in this case that would be back in two thousand but that's an incorrect statement of the law because again there's no statutory requirement at the actual fraud predate the contract in question if the legislature had intended that to be the case it could have easily clue did that requirement into statute but it is absent in addition the classic bill piercing situation which is a company owes unwanted debts it in transfers assets from that company to other affiliated companies with the owner that's a classic bill pearson context and that happens in the classic case after the contract is enter and after the debt has been incurred and frankly after the defendant realizes that the debt is there and does not want to pay so again we believe that is an incorrect legal position that the district court articulated here and a proper application of the statutory text to the evidence we believe shows that the jury should get to pass on the question of whether the bardos actions here do in fact represent actual frau move next to the evidence that we presented to the port on the actual fraud question and why we believe that that is sufficient to get to the jury in this case the gist of the actual fraud here is th used its control of high end systems to force high end systems to grant marco a sweeping license to every bit of ip that high end systems or mr bellamy you had or ever will have in the future for a grossly undervalued of metals and importantly for the actual fraud analysis it did so in order to avoid the threatened patent infringement liability that mr bell of you had articulated weeks before that transaction and again that is a classic marker of actual fraud when the corporate form is used in order to avoid liability that is a classic marker of actual fraud and because of that barco was able to use its control of high end to enrich itself with an i q license that's worth far more than it had to pay and in the process also neutered a potential liability before it could ever even be file editions of that the actual fraud was demonstrated further by the fact that barco falsely claimed in that license in the text of the license that this license was legitimate because there was a prior quote informal license that marco had had all along and that statement however we believe is false and at the very least that is a fact question for the jury to decide whether back claim was fa right to say what's with the right but the right to sub license was completely unlimited correct not quite your honor it is it is limited in that that contract obligated occur even after this transaction that i'm sorry what would not occur commercially reasonable sublease is some licenses could be made by the iron company they certainly could and throughout the history of mr bell abuse underlying license roughly a dozen of those licenses were negotiated and each instance mr belin to you was involved approve of them and considers them to be commercial research well  but again mr millet you have the opportunity in each case to assess his views and to avoid disputes well but when they have negotiated in two thousand and seven to have express approval of sub licenses i understand that happens quite often he i think in theory he could have instead they had a he did to go sheet instead to allowed in discretion subject to the obligation to be commercially reese and by the way is mr where when high in some licenses it's ip mr belin you would get half the consideration and i and would keep after consideration if it came in the form of cash and that is in a way i think of it like a contingency fee relationship the grossly inadequate and therefore high end does not have the money that it should have had to pay in to share and he believes i mean it may sound ok but he believes that that would be wrong to do that and he believes i think quite correctly that it was that engineered the transaction that is the wrongdoer and we looked at the statute and said we think we can establish these elements we can sue barco because we do believe they are the wrong doers here well there is also a problem i don't understand the economics of that transaction and maybe i'll tell me if i should to ask opposing counsel high and was sold for seven and a half one million cast heriot end of story and that number did not haven't read the expert report i understand that theory but if arco didn't demand more money for the sale of high end how did barco have any assurance  high end once acquired by e c s was going to have a better do you a better job commercially licensing this technology i'm not sure that the question of high ends commercial licensing of the technology was at issue in sure i'd let me answer that the the transaction agree a couple things number one the concept that barco would be getting a license back was not a last minute addition it was included in the letter of intent from the very beginning of the transaction that established the price in the st place so the price was seven million five hundred thousand with a number of terms one of those was there would be a license back negotiate so that was big into the price from the beginning  this license negotiation was done over a couple of months and this and there is zero evidence that either party in that contract looked at the value that was going to be transferred by way of that license in fact when we all that's an irrational idea in my view if somebody is buying a company they're buying the totality of the including valuable ip rights or or they're letting them go for reasons that are very mysterious well marco entered into this agreement from the beginning saying as part of the sale we get a license back that was part of the deal from the beginning whether that value was a dollar or three hundred million dollars is not important for the economic analysis the economic analysis was at seven and a half one million including this license we need to negotiate and so once that was included in the seven and a half one million upfront the economics do not change because of the addition of the license because that was priced in from the beginning so yes there is a bohol purpose i mean they had to sell high i am because it was making no money number one dollar even with  buried is that when the transaction went forward number one mr bill and you had threatened ip litigation against barco who was unlicensed and e t c it was unless they negotiated this license agreement which again was contemplated from the very beginning and how that number came to be so which is a good question for the economics right out of the negotiation weeds of this price arco and e t c both claimed common interest privilege over the entire those negotiations meaning they consider them to be a legal strategy to defeat bell abuse claims that is the opposite of a commercial transaction when you have a negotiation between two purportedly disinterested parties but then you claim common interests privilege successfully and refuse to answer any questions about how the economics of that deal came to pass we believe that cannot be commercially reason or the very least the jury should be ultimate theory is that at the outset when it set out to sell this company and mr bellamy you threatened them with an ip but again they decided we want to kill that litigation before it started by way of a license agreement to use commercially reasonable efforts and here this was again a privilege negotiation it cannot be a commercial negotiation it cannot be an arm's length because she's been in the in that context and with that common interest privilege claim which was sustained we believe demonstrates what was happening you're in another important point here your honor is if you did not appeal that point you did not appeal on whether the judge properly granted privilege that's right we were not disputing the privilege we're simply saying the fact that it was made and sustained demonstrates the nature of those negotiations as noncommercial and instead litigation stretch that's goes to the purpose which is part of the actual fraud in else what is the purpose for what you're provided shall not be considered to be fair value for the ip rights transfer and the rebate even said the reason for that the reason was because it was a wholly owned subsidiary that is proof positive that the motivation and result of that license negotiation was driven by bar goes abuse of the corporate form of high end system to engineer a transaction that even the be agreement itself it miss was not fair later that that's certainly one possibility i mean if we understand it is correct they did they were not obligated to involve delap in the past they always had i think for that exact reason they didn't want to debate so they said listen richard you tell us whether you agree this is commercially reasonable and if you agree then we're comfortable they didn't do that here they weren't obligated to do so but in doing that they open themselves up to the argument that we're making here which is that this was not commercially reasonable and it says it on to cloud the issue and make it look like perhaps this is the reason the price was so low but there is they have yet to this day hard to articulate it a single case a single legal theory as to what an informal license even is arisen what are the elements of an informal license how do they meet the informal acts there's nothing on any of that and we believe that shows at least the jury can decide whether that was a false statement in the contract as well again which gets straight back to the elements of actual fraud let me ask you one final question because where we're letting you run way over our questioning is running way over what would your damages be based on the damage  of money at the expense of your client in the ensuing three years what we have projects is that the time they are now there are now i guess actual financial results that demonstrate how much revenue has been brought and as compared to the calculated realty rate that was based on the prior licensing history of this portfolio and is there still money lost yes your honor did the money lost is the difference between be fair value of the rights transparently bad i am asking you actually damages not what your expert hypothesized but three years down the road what do you i mean you you know barco i assume barca's a public company i could be wrong so you've got some kind of one thousand and ten k or something to go off so they have they made money off this yes your honor i don't have i don't have to split year by year of the damages  because it covers a backward looking period in a forward looking period but each year i'm sorry all right whatever you have time for a b judge jones you asked the question that i think is central and our thinking which is what is the actual theory here and that theory is breach of contract claim and in asking this court to grant summary to to reverse a grant of summary judgment on his breach of contract claim mr bell of you is asking this court to expand shareholder liability under texas law in a number of ways but many of them improper one of them is he's asking this court to deem the alleged breach as also the actual fraud necessary to pierce the corporate veil and otherwise he collapse in other words he collapses the analysis and says my contracting party was required to use commercially reasonable effort i don't believe they used commercially reasonable efforts and because they were so unreasonable that itself is actual fraud sufficient to pierce the corporate veil and hold the shareholder liable and he does this despite the texas legislature in acting the texas bail piercing statute as i know the court is well aware in response to what was perceived as a significant expansion of field piercing and shareholder and director liability by texas courts prior to its in acting and so upon in ackman the statute limited when a corporate contractual obligation could be imposed on a shareholder to only that situation where the shareholder actually uses the corporation for the purpose of perpetrating and did perpetrate an actual fraud on the obloquy this court has repeated actual fraud is characterized by deliberately misleading cond and for all of his complaints about sub license agreement the one thing mr bell of you does not point to is any deliberately misleading conduct on the part of the shareholder here a license and royalty allocation agreement that sublicense that he points to  so unreasonable that it's not only a breach of his contract with high end but it's also the actual fraud necessary to pierce the corporate veil he points to the price disparity that he claims the disparity between the cash consideration given and what he claims is the actual fair market value of the ip and yet what he never acknowledges is that in the almost decade own high end they entered into only four sublicense or and two of them have resulted in no say licensing fee at all not a de minimu dollar but none at all and yet he characterizes those transactions in his brief as consistent with his best interests that in his brief at page twenty one dollars he also never acknowledges that in addition to the cash consideration and of for a year the non compete that was provided by arco to high end systems in addition to both the agreement also to pay royalties at the conclusion of the non compete on any future sales or remain subject to the non compete indefinitely and the amount of those future royalties is subject to the parties in the goshi asian and requires agreement in never addresses that value in the licensing agreement at all his expert never places a value on the non compete he simply compares what he claims is fair market value with the monetary consideration provided only of course the agreeing parties say that monetary consideration should not be used as precedent or indicative of the actual value of the ip precisely because there were there was other consideration provided and because the parties had agreed to negotiate a reasonable royalty to be to be paid in the future they did not want back cash consideration being used by either party as a statement of what a reasonable royalty on the  e should be now the idea that this sublicense should be entered into was not concocted by barco it was not concocted by e t c it was the suggestion of mr bell himself and i think you're making to it's one thing for you to suggest for a person to suggest that when he thinks he's getting half of the royalties it's another thing for him to say i think that's that's the rhetorical point on your part be that as it may your honor it was his suggestion and he suggested the reason for it as a matter of sound legal risk management that's in the record at seven  he was saying that if you divest hyun it might be wise to take a license back however that's not for me to say he had never to that point in his almost decade of employment with ever suggested that barcode needed a license to his he testified affirmatively that he had never stated the barco infringed this patents that neither he nor anyone else said i and i had never suggested contract case except by the way in which your client documented the transaction which is highly nonstandard correct your honor i would disagree forcefully that it was nonstandard sorry let me be more precise and i am interested in your expanding a little i think i'm understanding what your conception of the economics is but what about the represent the the  representations the barco had some informal licensing going on that was that was not accurate and it doesn't represent a law and then what about the representation that  hundred dollars is artificially low and not to be taken as anything for the future now does i mean i don't understand the purpose of those provisions in an in an in an upright commercial sense let me take those questions in order d your honor number one if you could help me with the st one again the informal license was the nd what was the st that was the st one the was was seventy five thousand dollars plus a four year non compete agreement for the past almost decade of the company's ownership of and it hits sold commercial lighting products under the name arco d lighting systems and the parties agree that it would be terribly worthwhile thing for a company with the name barco to not be selling competing products during the initial phase of high ends going back to its former name high end systems and being owned by a nd company now it's undisputed in the record that e t c did an extraordinary amount of due diligence mr bell of you himself testifies to providing extensive information about his patents and about his arcos products covered by those pat lost one hundred million dollars according to your brief in the past few years then why i don't understand what barco you know trying to protect at that point they divest of a lemon right they did their best a lemon and they were acting on the advice of their former chief technology officer that it would be prudent to avoid risk in the future to take back sublicense to that technology they negotiated that so undisputed  diligence d the lower court even acknowledges the due diligence that was performed by e t c that's undisputed so far e t c to come into those negotiations with an understanding that mr no your honor in the due diligence process the st time the company considered selling itself in two thousand and twelve mr bell of you was asked to do an analysis of our products not lighting systems product know anything they were mixed together but that doesn't mean you didn't have a contract with the exclusive right in the subsidiary period that does not mean you have no legal authority for this position in the parent company and any kind of informal you'd have to i mean you don't have any authority or it that we're not you to for nothing  your honor respectfully i believe president holds that the conduct of a party for another party well you know then it is and what's your best case in the patent to give me just one moment your honor you can bring it up a little and send us a letter later on if you've got it but i thought it wasn't there i will do so your honor i believe you all three your honor i could not hear your last words could you say them again the informal larson's that you the document represented covered by his patents and he consented to the making use and sale of those products and barco did not pay any royalty during that decade of use of that technology your honor i am not certain that i can answer that with precision i know that high end was acquired so that arco which did not sell professional stage lighting products to my knowledge at the time of the acquisition could expand into the sale of stage license and so my understanding is that those product lines were separate that high unsold performance theatrical stage lighting and arcos it's a highly diversified company but sells displays projectors and other forms of products  oath companies your honor scott brown was an officer of both high end and parco eak in an employee of parco inc and scott brown signed on behalf of high end systems it has not been a contention thus far in this case that mr brown was acting apart from the interests of pi and or was breaching any fiduciary duty to a high end your honor what you just stated is attorney argument from the briefing but beth falls apart on a read of the actual testimony underlying at one point in the briefing there is no citation to underlying testimony at all it is just characterization in another part of the briefing there is citations to mr bell of use declarations and a read of those declarations i would submit d demonstrates that they do not in fact say what is characterized in the briefing in fact when the lower court after an in camera review of all the privileged communications of those attorneys at issue during the relevant d time frame came to the conclusion that what mr bell included as a recital but only what is on the face of the document is my understanding and that's because you can't claim the legal privilege against speaking about the background of the document correct your honor we claimed legal privilege over certain of the communications between e t c and barco it should be noted that we produced over three hundred dollars of those communications from these negotiations and the negotiation of stock purchase agreement we withheld only forty three of those communications as containing privileged information your honor if i am not recalling testimony of our co representative i am absolutely certain that mr cole will remind me but i am not recalling it sitting here at this time attorneys that have been named and at issue in these proceedings these individuals no one has testified that they did not participate i know personally as an ops are of the court they did participate and mr ebert's testified they participated and that is i cope borough honor i am i just am merely stating the fact in response to the court's question but is it your contention at this point the barca did not excuse me i hand yes yes your honor it is our contention but it is not it's not what we moved on but it's our content and that there was no breach there there has been not even an attempt by any expert to value the actual consideration provided i don't advantages i'm not talking about damages and there i was just getting at their point as a base said you did not raise until the appeal be idea that there had been no breach of your original license contract in the appeal they argued that the price given for a lie sub license was commercially unreasonable which is a breach question well beyond a argue that in the core below and they didn't produce any evidence about it until the motion for reconsideration and then i think liberally read the district court took that into consideration and that's what led him to say they could have conned plaintiffs could contracted a round of but i did not take your position in the court in the district court to be we never breach this at all what you're saying is it wasn't fraud you were not necessarily saying it you did not put on paper that there was no bridge because you're correct you're on because of the conflation of those issues we have simply argued not only is it not a fraud there is made he your honor my understanding is he would be paid half of the seventy five thousand dollars fee that was provided at that time and then upon and payment of royalties d going forward after the forty year non compete he has a contractual interest in those royalty payments going for option was mr bell you do not it i believe that may be a misunderstanding your honor mr cole is shaking his head and that too is not been an issue in this matter it has been undisputed that prior to the divestiture high end exercised its option to future technology under the exclusive license an option agreement that it held with the second with regard to the privilege claims to give the court a sense i asked their corporate representative on the license to go she how did you come up with the seventy five thousand dollars amount here he was instructed not to answer on privilege grounds and he did not answer and not at the t c so there was the fundamentals of that negotiation were covered in so going back to the e t c posture because i think this i'm trying to go to judge jones is questions about economics and one thing to keep in mind in terms of the license is that e t c was not in a position because they did not own high end systems to exercise the normal negotiating leverage a patent owner has which is if they don't like the terms they can terminate discussions and file suit because e t c didn't own the company yet if he didn't like the financial terms its only recourse was to walk the entire deal and if they wanted the and agreed in the letter of intent that they would include a license they kind of cross that bridge early on but they did not have the ability like a typical patent holder would to say listen i you're under trial your price quote is way too low i'm going to sue you if they did that the whole deal blows up and that's what complicates and creates a jury questions as to what is the significance of the tcas role in this negotiation whatever one may think of it it cannot be a summary judgment determination that it should must be read in one and only one way well let me let me ask you one question and that is i understand the license from your client to high end was an exclusive license but there was no limit on and i understand that the license from hi hi i am back to bart was a non exclusive license correct so your client so what would prevent high end once acquired by e t c from come are actually realizing on that license the reason would be that the fee was a flat feet seventy five thousand dollars it did not matter what you said no because high end simply gave barco a license but it could have given out five other licenses at royalties to other people once it was acquired by e t s say is that not rare e t c can continue to license the portfolio to other players in the market today that's correct so how can we say that but a license to bar co for audial an only deprive your client of all the benefit of the high end license when the high end license continued to allow a sub license breach is a is the underlying breach of contract claim which mr recognized was not at issue in this appeal that's the underlying breeze which still needs to be litigated below and they have the opportunity to argue whatever they want about whether this was in fact breach of its obligation to use commercially reasonable efforts and they could make an argument and anything but that was not argued below and we have not had a chance to marshal our evidence on the underlying breach question although there is certainly some one last thing i think i made this clear earlier but it came up in this or at least argument was that the statement in the license that they were not paying the fair value of the i p c is given one and only one reason for that and it is not the non compete which by the way was also in the underlying stock purchase agree so from the very beginning with the l o i it was contemplated that there would be a non compete agreement as part of the deal but non competing the license simply mirrors that larger deal terms and we argued which means it doesn't really offer much of anything in added value within the license itself but again the only reason the license gives for why the value was under paid was because of ownership of high end time of the transaction it does not say that the that that is because of the non compete at all and we do not see any way that it would be proper to infer that that was the reason in the face of directly contradictory evidence in the uk ok we explore this that as much as we're capable of doing that having the record before us and we  appreciate your effort to answer our intentions questions or at least mine thank you very much