Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca6-15-01359/USCOURTS-ca6-15-01359-0/pdf.json

Parties Involved:
Cyber Solutions International, LLC
Appellant
Priva Technologies, Inc.
Debtor
Pro Marketing Sales, Inc.
Appellee

Document Text:

NOT RECOMMENDED FOR PUBLICATION

File Name: 16a0018n.06

No. 15-1359

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Cyber Solutions International, LLC,

Plaintiff-Appellant,

v.

Pro Marketing Sales, Inc.,

Defendant-Appellee.

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ON APPEAL FROM THE 

UNITED STATES DISTRICT 

COURT FOR THE WESTERN 

DISTRICT OF MICHIGAN

OPINION

___________________________________________)

BEFORE: MOORE, CLAY, and GILMAN, Circuit Judges.

RONALD LEE GILMAN, Circuit Judge. This case involves a dispute between two 

competing lenders as to which one is entitled to a microchip encryption technology developed by 

their mutual borrower Priva Technologies, Inc. (Priva) that is now in Chapter 7 bankruptcy. The 

technology in question is known as Tamper Reactive Secure Storage (TRSS). Pro Marketing 

Sales, Inc. (Pro Marketing) bases its claim on its 2009 Security Agreement with Priva, whereas 

Cyber Solutions International, LLC (Cyber) bases its competing claim on its 2012 License

Agreement with Priva. 

Both lenders eventually filed claims seeking declaratory and/or injunctive relief to clarify 

ownership of the TRSS technology. The district court granted summary judgment in favor of Pro 

Marketing on the basis that Pro Marketing’s Security Agreement gave it a superior claim to the 

TRSS technology. For the reasons set forth below, we AFFIRM the judgment of the district 

court.

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I. BACKGROUND

A. Priva and the secured loan from Pro Marketing

Priva is a Delaware corporation that, until recently, developed products to store and protect 

digital information. In 2007, Priva began working on a microchip encryption technology known 

as the Secured Key Storage Integrated Circuit (SKSIC). Priva required capital to finance the 

development of this and other products, so it turned to Pro Marketing to obtain a secured loan. 

The companies executed a document memorializing the loan (the Security Agreement) on April 

16, 2009. This agreement grants Pro Marketing a first-position lien on all of Priva’s assets. It 

defines the “Collateral” for the loan as

all types or items of personal property owned by [Priva], whether now owned or 

hereafter arising or acquired, and wherever located, or in which [Priva] now has or 

at any time in the future may acquire any right, title or interest, including, without 

limitation, all of the following property . . . (xv) all Intellectual Property; . . . and 

(xviii) to the extent not otherwise included, all products and Proceeds of any and all 

of the foregoing property described above.

The Security Agreement then defines “Intellectual Property” to mean “all rights, priorities 

and privileges relating to intellectual property . . . , including without limitation the Copyrights, the 

Copyright Licenses . . . , and all Goodwill associated with or arising in connection with any of the 

foregoing.” This agreement also limits Priva’s rights with respect to the Collateral. 

It specifically provides that Priva cannot

sell, transfer, assign, convey or otherwise dispose of, or extend, amend, terminate 

or otherwise modify any term or provision of any license of [Priva’s] Intellectual 

Property, other than in the ordinary course of business, or other agreement relating 

to, any Collateral, any interest therein or any Proceeds thereof, nor waive or release 

any right with respect thereto, without the prior written consent of [Pro Marketing]; 

provided, [that Priva] may sell or otherwise dispose of items of Collateral which, 

individually, do not exceed $50,000 in value. 

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B. Bankruptcy filing and license agreement with Cyber 

Priva’s business proved less successful than its owners had hoped. Its creditors began 

demanding repayment and, in December 2011, Priva filed a petition in the Bankruptcy Court for 

the Western District of Michigan for relief under Chapter 11 of the Bankruptcy Code. Priva’s 

bankruptcy constituted a default under the terms of its Security Agreement, which caused Pro 

Marketing to begin the process of foreclosing on Priva’s assets in March 2012.

In the meantime, Priva worked to develop a bankruptcy reorganization plan and to acquire 

additional assets with which to pay its debts. It consequently began negotiating with Cyber, 

which was interested both in acquiring the SKSIC technology and in hiring Priva to develop 

additional technology. The companies eventually signed a Design Service and Intellectual 

Property License Agreement (the License Agreement) on April 19, 2012. Pursuant to the License 

Agreement, Cyber made two $200,000 payments to Priva. In return for the first payment, Cyber 

received an exclusive license to the SKSIC technology and, in return for the second payment, it 

received certain rights in future technologies that Priva developed. 

Cyber’s rights to the future technologies are defined in Article 5.2 of the License 

Agreement, which provides that

[a]ny updates, modifications or improvements to the Licensed Technology [i.e., 

SKSIC] developed by [Priva] and paid for by [Cyber] shall be the property of 

[Cyber.] [Priva] agrees to assign and agrees to assign in the future (when any such 

updates, modifications, or improvements to the Licensed Technology are first 

reduced to practice or first fixed in a tangible medium, as applicable) to [Cyber] all 

right, title and interest in and to any and all updates, modifications, or 

improvements to the Licensed Technology (and all proprietary rights with respect 

thereto) whether or not patentable or registrable under copyright or similar statutes, 

made or conceived or reduced to practice or learned by [Priva], either alone or 

jointly with others, during the period of Design Services engagement with [Cyber]. 

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The License Agreement thus establishes that all “updates, modifications, or improvements” to the 

SKSIC technology that Priva developed with Cyber’s funding would be assigned to and owned by 

Cyber. 

Finally, the License Agreement acknowledges Pro Marketing’s preexisting security 

interest in Priva’s assets. It states that the “SKSIC is subject to certain liens and security 

interests” and expressly acknowledges that those interests would “continue notwithstanding

[Priva’s] entry” into the License Agreement.

C. Bankruptcy proceedings

On June 20, 2012, the bankruptcy court approved Priva’s First Amended and Restated 

Combined Joint Plan of Reorganization and Disclosure Statement (the Reorganization Plan). 

As part of the Reorganization Plan, the court specifically approved the License Agreement that 

Priva had executed with Cyber. 

Pro Marketing objected to the Reorganization Plan’s incorporation of the License 

Agreement. It argued that the License Agreement was not in the interest of either the bankruptcy 

estate or of Pro Marketing because the Plan did not secure fair value for the SKSIC technology and 

because it “usurp[ed]” Pro Marketing’s interest in Priva’s assets. 

The bankruptcy court overruled Pro Marketing’s objections. It noted that although “the 

technology [was] being licensed to [Cyber], that license [was] subordinate to Pro Marketing Sales’ 

superior lien.” In addition, the court stated that “if Priva were to default under the terms of the 

plan such that Pro Marketing could exercise its collateral rights, it would be able to recover . . . the 

SKSIC technology in whole notwithstanding the license that is being granted as part of this plan.” 

The court thus concluded that the License Agreement did not jeopardize Pro Marketing’s security 

interest, making Pro Marketing’s objections unwarranted. 

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After the Reorganization Plan was approved, Priva continued its operations and began 

developing a second-generation SKSIC product at the behest of Cyber. These efforts resulted in 

the completion of a new product known as Tamper Reactive Secure Storage (TRSS). The parties 

do not dispute that Cyber provided the funding for the TRSS development and that the TRSS 

technology constitutes an “update, modification, or improvement” of the SKSIC technology.

Cyber and Priva expected TRSS to be a commercial success, but Priva continued to suffer 

cash shortages and was unable to meet its obligations under the Reorganization Plan. Priva’s 

board of directors accordingly voted in January 2013 to cease operations and allow Pro Marketing 

to exercise its rights under the Security Agreement. The two companies thereafter arranged for a 

“friendly foreclosure” on Priva’s assets. This resulted in Priva surrendering to Pro Marketing the 

SKSIC technology, the TRSS technology, and the computers containing Priva’s other intellectual 

property.

Contemporaneously, Priva notified Cyber that it was unilaterally terminating the parties’ 

License Agreement. As grounds for the termination, Priva asserted that Cyber had materially and 

incurably breached the License Agreement by seeking design services from companies other than 

Priva. 

D. District court proceedings

Cyber responded to the above events by filing suit against Priva and Pro Marketing in the 

United States District Court for the Western District of Michigan. It first requested a declaratory 

judgment that Cyber had not breached the License Agreement and that the License Agreement 

remained enforceable. Cyber also sought a declaration that, pursuant to the terms of the License 

Agreement, it owned the TRSS technology. In connection with this claim, Cyber sought a 

preliminary injunction to prevent Pro Marketing from disposing of either the SKSIC technology or

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the TRSS technology. It also requested an order requiring Priva and/or Pro Marketing to transfer 

the TRSS technology to Cyber. 

Pro Marketing counterclaimed with its own request for a declaratory judgment. It asked 

the district court to declare that Pro Marketing was the rightful owner of both the SKSIC and TRSS

technologies and that Pro Marketing was entitled to freely exercise its rights of ownership. 

The district court referred Cyber’s request for a preliminary injunction to the bankruptcy 

court. That court concluded that it should “preserve the status quo” to afford additional time for 

the bankruptcy estate to determine how best to dispose of the disputed assets. Cyber’s request 

that the SKSIC and TRSS technologies be transferred to it was denied, but the court granted 

Cyber’s request for a preliminary injunction forbidding Pro Marketing from “taking any . . . steps 

to sell, market or otherwise dispose” of either technology. 

With the injunction in place, the parties returned to the district court. Pro Marketing

subsequently moved for summary judgment on its counterclaim on the ground that the Security 

Agreement authorized Pro Marketing to foreclose on and then sell or license both the SKSIC and 

TRSS technologies. Cyber opposed the motion on various grounds. Of relevance to this appeal, 

Cyber argued that its License Agreement with Priva precluded any finding that Pro Marketing had 

any rights in the TRSS technology. Cyber also maintained that Pro Marketing had “unclean 

hands” with regard to its termination of the License Agreement, thus barring Pro Marketing from 

seeking equitable relief.

The district court rejected Cyber’s arguments and granted summary judgment in favor of

Pro Marketing. It thereafter entered an order declaring “that Defendant Pro Marketing Sales 

lawfully possesses Priva’s collateral pursuant to its Security Agreement, and that Pro Marketing is 

permitted to market, sell and/or license the SKSIC/TRSS technology.” 

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Cyber now appeals the district court’s order. It argues that (1) its rights to the TRSS 

technology are superior to those of Pro Marketing, and (2) the district court erred by refusing to 

apply the doctrine of unclean hands as a bar to Pro Marketing’s request for declaratory relief.

II. ANALYSIS

A. Standard of review

Cyber first asserts that the district court erred by granting summary judgment in favor of

Pro Marketing on the basis of Pro Marketing’s Security Agreement with Priva. We review de 

novo a grant of summary judgment. Meridian Leasing, Inc. v. Associated Aviation Underwriters, 

Inc., 409 F.3d 342, 346 (6th Cir. 2005). Summary judgment is appropriate if there is no genuine 

dispute as to any material fact and the moving party is entitled to judgment as a matter of law. 

Gecewicz v. Henry Ford Macomb Hosp. Corp., 683 F.3d 316, 321 (6th Cir. 2012). We construe

all disputed facts in the light most favorable to the nonmovant, id., but the parties in the present 

case largely agree on the relevant facts. Their dispute instead turns on the district court’s 

interpretation of their contractual agreements, which we also review de novo. See Meridian 

Leasing, 409 F.3d at 346.

Cyber next asserts that the district court should have applied the doctrine of unclean hands 

to preclude Pro Marketing’s request for declaratory relief. We review the application of the 

unclean-hands doctrine under the abuse-of-discretion standard, Performance Unlimited, Inc. v. 

Questar Publishers, Inc., 52 F.3d 1373, 1383 (6th Cir. 1995), but pure questions of law related to 

that doctrine are subject to de novo review. Bonner Farms, Ltd. v. Fritz, 355 F. App’x 10, 17 

(6th Cir. 2009) (citing Ne. Women’s Ctr., Inc. v. McMonagle, 868 F.2d 1342, 1354 (3d Cir. 1989)).

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B. Choice of law and rules of contract interpretation

The district court had jurisdiction pursuant to diversity of citizenship, so we “must apply 

the choice of law rules of the state in which [the district court] sits.” Rosen v. Chrysler Corp., 205 

F.3d 918, 921 n.2 (6th Cir. 2000). Michigan courts enforce contractual choice-of-law provisions, 

Johnson v. Ventra Grp., Inc., 191 F.3d 732, 739 (6th Cir. 1999), and the Security Agreement, the 

License Agreement, and the Reorganization Plan each contain such a provision.

The Security Agreement provides for interpretation under “the laws of the State of New 

York,” so New York law governs that Agreement. Next, the Reorganization Plan states that both 

the Plan and any agreements executed in connection with the Plan are to be interpreted under 

Michigan law. Because the License Agreement was executed in connection with the 

Reorganization Plan, Michigan law governs the interpretation of the License Agreement. 

Courts in both New York and Michigan begin their interpretation of a contract with the 

language of the contract itself. If that language is unambiguous, then the courts will enforce the 

plain meaning of the contact’s terms. See, e.g., Russo v. Estee Lauder Corp., 856 F. Supp. 2d 437, 

460 (E.D.N.Y. 2012) (“Under New York law, the Court must look first to the parties’ written 

agreement to determine the parties’ intent and limit its inquiry to the words of the agreement itself 

if the agreement sets forth the parties’ intent clearly and unambiguously.” (citation and alterations 

omitted)); Harbor Park Mkt., Inc. v. Gronda, 743 N.W.2d 585, 588 (Mich. Ct. App. 2007)

(“The goal of contract interpretation is to first determine, and then enforce, the intent of the parties 

based on the plain language of the agreement.”). 

Whenever possible, courts in both jurisdictions read contracts to give effect to all of the 

contract’s terms. Zahn v. Kroger Co. of Mich., 764 N.W.2d 207, 211 (Mich. 2009)

(“All contracts . . . should be construed to ascertain and give effect to the intentions of the parties 

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and should be interpreted to give a reasonable meaning to all of [their] provisions.”); Smith v. City 

of Buffalo, 120 A.D.3d 1588, 1589 (N.Y. App. Div. 2014) (“It is well settled that a contract must 

be read as a whole to give effect and meaning to every term. Indeed, a contract should be 

interpreted in a way that reconciles all of its provisions, if possible.” (citation and alterations 

omitted)). The overall goal is to arrive at an interpretation that effectuates the parties’ intent. 

See, e.g., Rasheed v. Chrysler Corp., 517 N.W.2d 19, 29 n.28 (Mich. 1994) (“The primary goal in 

the construction or interpretation of any contract is to honor the intent of the parties.”); Frye v. 

Brown, 189 A.D.2d 1031, 1033 (N.Y. App. Div. 1993) (“Undoubtedly, the ultimate goal in 

contract interpretation is realization and effectuation of the parties[’] intent . . . .”).

C. The district court correctly determined that the TRSS technology falls within the 

scope of Pro Marketing’s security interest

Cyber does not dispute that Pro Marketing has a first-position lien on certain Priva assets. 

The dispositive issue is therefore whether the TRSS technology falls within the scope of that lien. 

If so, then the TRSS technology belongs to Pro Marketing; if not, then the TRSS technology

belongs to Cyber.

1. The plain meaning of the Security Agreement and the License Agreement

support the district court’s conclusion that the TRSS technology was part of 

Pro Marketing’s security interest

Our interpretation begins with the language of the parties’ contracts. See Russo, 

856 F. Supp. 2d at 460; Harbor Park, 743 N.W.2d at 588. As noted above, the Security 

Agreement defines the “Collateral” for Pro Marketing’s loan to Priva as “all types or items of 

personal property owned by [Priva], whether now owned or hereafter arising or acquired, . . . in 

which [Priva] now has or at any time in the future may acquire any right, title or interest.” The 

Security Agreement thus defines the collateral in terms of ownership. If Priva “own[s]” or 

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“acquires” an item of “personal property,” then that property is part of the collateral securing Pro 

Marketing’s loan.

The Security Agreement then states that the “personal property” at issue includes all of 

Priva’s “Intellectual Property” and “Copyrights.” These terms broadly include “all rights, 

priorities and privileges relating to” copyrights, trademarks, patents, and trade secrets, as well as 

“all mask works fixed in semi-conductor chip products.” All of the intellectual-property rights 

that Priva “owned” or “acquired” at any time were therefore part of the collateral for Pro 

Marketing’s loan.

Cyber argues, however, that the TRSS technology does not fit within this broad definition 

of the collateral. It relies on Article 5.2 of the License Agreement, which states that if Cyber pays 

for any “updates, modifications or improvements” to the SKSIC technology, then such updates, 

modifications, or improvements “shall be the property of [Cyber].” The License Agreement then 

reiterates that “[Priva] agrees to assign and agrees to assign in the future . . . to [Cyber] all right, 

title and interest in and to any and all updates, modifications, or improvements” for which Cyber 

provided funding. 

Cyber reads Article 5.2 as instantly and automatically divesting Priva of any and all rights 

in any update, improvement, or modification to the SKSIC technology. It maintains that, as soon 

as any such modification of the SKSIC technology was completed, that modification immediately

became the property of Cyber. This would mean that any rights in the modifications never passed 

through Priva’s hands and, as a consequence, that Priva “never owned” those rights. 

Applying this reading, Cyber notes that it paid for the development of the TRSS

technology and that the TRSS is indisputably an “update, modification, or improvement” to the 

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SKSIC technology. It thus maintains that all rights in the TRSS technology were immediately 

transferred to Cyber, such that Cyber “owned the TRSS from the moment it came into existence.”

This conclusion purportedly removes the TRSS technology from the scope of Pro 

Marketing’s collateral. If the TRSS technology was never owned by Priva, then the technology

would fall outside the scope of the Security Agreement’s definition of “Collateral,” and Pro 

Marketing’s security interest would never have attached. 

But Cyber’s argument rests on an erroneous reading of the License Agreement. Article 

5.2 states that Priva “agrees to assign and agrees to assign in the future” its rights in any 

modifications to the SKSIC technology. This provision does not instantly grant any rights to 

Cyber; rather, it implicitly recognizes that Priva itself will acquire rights that it must then assign. 

See, e.g., Abraxis Bioscience, Inc. v. Navinta LLC, 625 F.3d 1359, 1365 (Fed. Cir. 2010) 

(“[C]ontract language stating that a party ‘agrees to assign’ reflects a mere promise to assign rights 

in the future, not an immediate transfer of expectant interests.”). 

The License Agreement, in other words, acknowledges that Priva might develop certain 

updates, modifications, or improvements to the SKSIC technology, and that, in doing so, it will 

acquire the rights to those updates, modifications, or improvements. Only after this initial 

acquisition of the rights does the License Agreement provide for the assignment of those rights to 

Cyber. The License Agreement therefore contemplates that any rights in updates, modifications, 

or improvements to the SKSIC technology will in fact first become the property of Priva.

This interpretation is consistent with the parties’ intent. Cyber and Priva plainly intended 

that Article 5.2 would lead to Cyber’s eventual acquisition of ownership in the technologies that it 

paid Priva to develop. Under Michigan law, however, an assignee or transferee acquires no 

greater rights in the property at issue than the assignor or transferor itself possessed. See

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McDonald v. Asset Acceptance LLC, 296 F.R.D. 513, 526 (E.D. Mich. 2013) (citing Coventry 

Parkhomes Condo. Ass’n v. Fed. Nat. Mortg. Ass’n, 827 N.W.2d 379, 382 (Mich. Ct. App. 2012)) 

(“[A]n assignee steps into the shoes of the assignor and only acquires such rights as the assignor 

possessed at the time of assignment.”); Pellerito v. Weber, 177 N.W.2d 236, 237 (Mich. Ct. App. 

1970) (“It is axiomatic that a person cannot convey greater title than he possesses.”). Hence, if 

Priva really did “agree[] to assign and agree[] to assign in the future” its rights in any modifications 

to the SKSIC technology—as the License Agreement says Priva did—then Priva must have first 

acquired certain rights in the modifications or technologies to be assigned. 

And this places those rights within the scope of Pro Marketing’s collateral. Upon the 

completion of any modification to the SKSIC technology, Priva—however briefly—acquired the 

rights to that modification. Those rights were then “items of personal property owned . . . or 

acquired” by Priva, so those rights were included in the Security Agreement’s definition of 

“Collateral.” Pro Marketing therefore acquired a security interest in the TRSS technology that 

was and is superior to Cyber’s claim to the technology. 

This result should come as no surprise to Cyber because it knew at the time that it executed 

the License Agreement that such an outcome was possible. The License Agreement itself 

acknowledges the existence of Pro Marketing’s security interest, and the bankruptcy court 

explicitly noted that Cyber was “assuming the risk” that its rights under the License Agreement 

“might be disrupted” by Pro Marketing’s Security Agreement. 

Cyber evidently determined that this risk was worth taking, and it cannot escape the 

consequences of its decision to enter the License Agreement simply because it is now unhappy 

with the outcome. See, e.g., Gogoe v. Wells Fargo Bank N.A., No. 14-12502, 2015 WL 5591102, 

at *10 (E.D. Mich. Sept. 21, 2015) (applying Michigan law) (“The Court . . . is not authorized to 

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re-write contracts in order to rescue one party or another from a bad deal.”); Eujoy Realty Corp. v. 

Van Wagner Commc’ns, LLC, 4 N.E.3d 336, 343 (N.Y. 2013) (“Courts will give effect to the 

contract’s language and the parties must live with the consequences of their agreement.”).

To rebut the above interpretation of the License Agreement, Cyber cites Article 7 of the 

Security Agreement, which provides that Priva must defend its title to Pro Marketing’s collateral 

“against the claims and demands of all other persons.” Cyber then alleges that, during the 

bankruptcy proceedings, Priva did not vigorously defend its rights to the TRSS technology, with 

the implication that Priva must not have considered the TRSS technology to be part of Pro 

Marketing’s collateral.

We find this argument unpersuasive. Priva’s alleged failure to defend against Cyber’s 

claim could be evidence that Priva did not consider the TRSS technology to be part of Pro 

Marketing’s collateral, but this failure could also indicate simply that Priva breached Article 7 or 

that Pro Marketing agreed to waive Article 7’s requirements. See, e.g., De Freitas v. Holley, 

93 A.D.2d 852, 853 (N.Y. 1983) (“It is well established that a party for whose benefit a provision 

is inserted in a contract may waive that provision and accept performance of the contract as 

is . . . .”). At most, then, Priva’s alleged failure is vague and equivocal evidence that cannot

overcome the above-described plain meaning of the contractual language. See, e.g., Little v. Kin, 

664 N.W.2d 749, 750 (Mich. 2003) (“Where the language of a legal instrument is plain and 

unambiguous, it is to be enforced as written and no further inquiry is permitted.”); Brad H. v. City 

of New York, 951 N.E.2d 743, 746 (N.Y. 2011) (“A written agreement that is clear, complete and 

subject to only one reasonable interpretation must be enforced according to the plain meaning of 

the language chosen by the contracting parties . . . .”). 

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2. Priva lacked the authority to grant Cyber superior rights in the TRSS 

technology

Cyber’s claim to the TRSS technology is also subject to a second flaw: Priva did not have 

the unfettered authority to grant the rights that it purported to grant in the License Agreement. As 

noted above, the Security Agreement limits Priva’s right to dispose of assets pledged to Pro 

Marketing. It specifically states that Priva cannot transfer “any Collateral, any interest therein or 

any Proceeds thereof, nor waive or release any right with respect thereto, without the prior written 

consent of [Pro Marketing.]” And, as noted above, the definition of “Collateral” includes 

“Copyright Licenses.” These licenses are defined as

all agreements providing for the granting of any right in or to any Copyright 

(whether [Priva] is licensee or licensor thereunder) and the granting of any right in 

any derivative work based upon any Copyright, together with . . . any other rights or 

privileges to use or practice any Copyright or arising under, or corresponding or 

relating to, any of the foregoing.

Next, Article 5.2 of the License Agreement purports to grant Cyber “all right, title and 

interest in and to any and all updates, modifications or improvements to the Licensed Technology 

. . . whether or not . . . registrable under copyright or similar statutes.” This provision plainly 

attempts to assign both Priva’s rights “in or to [a] Copyright” and Priva’s rights “corresponding or 

relating to” a copyright. Article 5.2 of the License Agreement therefore constitutes a “Copyright 

License” under the terms of Pro Marketing’s Security Agreement, so the grant of rights defined in 

Article 5.2 was and is part of Pro Marketing’s collateral. 

This means that Priva did not have the unfettered authority to dispose of that collateral; 

instead, any waiver, release, or transfer of the collateral required “the prior written consent of [Pro 

Marketing.]” Nothing in the record indicates that Pro Marketing provided such consent before 

Priva executed the License Agreement and, in fact, Pro Marketing objected to the incorporation of 

the License Agreement as part of Priva’s Reorganization Plan. Priva therefore lacked the 

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authority to grant to Cyber the unconditional rights that it purported to grant. Article 5.2 was a 

Copyright License, the Copyright License was part of Pro Marketing’s collateral, and Priva needed 

Pro Marketing’s written approval before Priva could dispose of that collateral. Priva did not have 

that approval, so its attempt to unconditionally dispose of the collateral by assigning it to Cyber

was ineffective.

This interpretation is also consistent with the language in the Security Agreement that 

defines Pro Marketing’s “Collateral” to include all of Priva’s personal property “whether now 

owned or hereafter arising or acquired, . . . or in which [Priva] now has or at any time in the future

may acquire any right, title, or interest.” The parties plainly intended to grant Pro Marketing a 

security interest that would extend to property—such as the TRSS technology—that was not in 

existence at the time the Security Agreement was signed. Moreover, the parties specifically 

protected Pro Marketing’s right to such after-acquired property by forbidding Priva from selling or 

transferring such property without Pro Marketing’s prior written consent.

An interpretation of the Security Agreement that would allow Priva to evade Pro 

Marketing’s security interest by disposing of the TRSS technology in the absence of such consent 

would consequently contravene the intent of the parties. Hence, the Security Agreement should 

not be read to allow such an interpretation. See, e.g., Frye v. Brown, 189 A.D.2d 1031, 1033 

(N.Y. App. Div. 1993) (“Undoubtedly, the ultimate goal in contract interpretation is realization 

and effectuation of the parties[’] intent . . . .”). The Security Agreement must instead be read to 

protect Pro Marketing’s interest in the TRSS technology. 

D. The district court did not abuse its discretion or commit an error of law by refusing 

to consider evidence of Pro Marketing’s allegedly unclean hands

We next turn to Cyber’s “unclean hands” argument. The doctrine of unclean hands is an 

equitable concept that allows a court to deny injunctive or declaratory relief when “the party 

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applying for such relief is guilty of conduct involving fraud, deceit, unconscionability, or bad faith 

related to the matter at issue to the detriment of the other party.” Performance Unlimited, Inc. v. 

Questar Publishers, Inc., 52 F.3d 1373, 1383 (6th Cir. 1995) (quotation marks omitted). Cyber 

maintains that the district court abused its discretion and/or committed an error of law by imposing 

a requirement that the conduct at issue have a “material bearing” on the culpable party’s claim for 

relief. 

The unclean-hands argument in this case rests on the events that led to Priva’s termination 

of its License Agreement with Cyber. As alleged in Cyber’s amended complaint, Pro Marketing 

sued Priva’s president—William Sibert—in Georgia state court in January 2012. That suit sought 

up to $2.6 million in damages on the ground that Sibert had fraudulently induced Pro Marketing to 

extend financing to Priva.

In January 2013, Sibert and Pro Marketing reached a settlement in which Pro Marketing 

agreed to dismiss the state-court lawsuit against Sibert. Cyber alleges that this settlement resulted

from improper pressure by Pro Marketing. It maintains that Pro Marketing planned to foreclose 

on its security interest in the SKSIC technology, but was concerned that the License Agreement 

would impair the value of the SKSIC technology because the Agreement purported to grant Cyber 

an exclusive license to that technology. Pro Marketing thus allegedly had a motive to have the 

License Agreement terminated. 

According to Cyber, Pro Marketing found the means to do so by leveraging its state-court 

action against Sibert. Pro Marketing allegedly promised to dismiss the lawsuit against Sibert 

provided that Sibert—as president of Priva—caused Priva to terminate its License Agreement with 

Cyber. Sibert purportedly accepted this agreement and caused Priva’s board of directors to

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terminate the License Agreement, all without disclosing that Sibert stood to personally benefit 

from that termination. 

Based on these events, Cyber asserted a claim against Pro Marketing for intentional 

interference with contractual relations. In addition, Cyber claimed that these events supported the

application of the unclean-hands doctrine to Pro Marketing’s claim to the TRSS technology. The 

district court rejected this latter argument on the ground that the two claims were independent. 

Pro Marketing’s alleged role in the termination of the License Agreement, according to the court, 

had no “material bearing” on Pro Marketing’s separate claim for ownership of the TRSS

technology, making an application of the unclean-hands doctrine unwarranted. Cyber now 

challenges that ruling on the ground that the district court adopted an erroneously narrow 

conception of the unclean-hands doctrine. 

As noted above, the doctrine of unclean hands precludes declaratory relief when the party 

seeking relief is “guilty of conduct involving fraud, deceit, unconscionability, or bad faith related 

to the matter at issue.” Performance Unlimited, 52 F.3d at 1383. This doctrine, however, does 

not grant courts free-floating authority to deny declaratory relief in all cases in which a party has 

engaged in misconduct. Instead, the doctrine “requires that the alleged misconduct on the part of 

the plaintiff relate directly to the transaction about which the plaintiff has made a complaint.” Id. 

(emphasis added). A court should therefore apply the doctrine “only where some unconscionable 

act of one coming for relief has immediate and necessary relation to the equity that he seeks in 

respect of the matter in litigation.” Id. (citation and internal quotation marks omitted). 

Michigan caselaw applies the doctrine in a similar fashion. “The misconduct which will 

move a court of equity to deny relief must bear a more or less direct relation to the transaction 

concerning which [a] complaint is made.” McFerren v. B & B Inv. Grp., 655 N.W.2d 779, 784 

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(Mich. Ct. App. 2002) (emphasis added) (quoting McKeighan v. Citizens Commercial & Savings 

Bank of Flint, 5 N.W.2d 524, 527 (Mich. 1942)). “Relief is not denied merely because of the 

general morals, character or conduct of the party seeking relief.” Id.

Applying these principles to the present case, the district court did not abuse its discretion 

in deciding not to apply the doctrine of unclean hands. Pro Marketing executed its Security 

Agreement in April 2009, years before Pro Marketing filed the state-court action against Sibert. 

Likewise, Priva entered the License Agreement and began developing the TRSS technology long

before Sibert and Pro Marketing executed the allegedly improper settlement agreement. Pro 

Marketing’s security interest in the TRSS technology therefore arose entirely independent of its 

alleged misconduct in pressuring Sibert to terminate the License Agreement. That termination 

accordingly had no “immediate and necessary relation,” Performance Unlimited, 52 F.3d at 1383,

to Pro Marketing’s claim to the TRSS technology.

Cyber nonetheless argues that, by filing a counterclaim for a declaratory judgment, Pro 

Marketing itself admitted that its claim to the TRSS technology “aro[se] out of the transaction or 

occurrence that [was] the subject matter of [Cyber’s] claim.” See Fed. R. Civ. P. 13(a)(1)(A)

(defining compulsory counterclaims). According to Cyber, Pro Marketing’s counterclaim is a

tacit concession that ownership of the TRSS technology did in fact “relate directly” to the 

allegedly improper termination of the License Agreement. 

This argument fails, however, because Cyber’s amended complaint contains several causes 

of action. One of these is indeed its claim that termination of the License Agreement constituted 

interference with contractual relations. But the amended complaint also contains claims for 

declaratory and injunctive relief that seek to establish that Cyber is the owner of the TRSS 

technology. Pro Marketing’s request for a declaratory judgment concerns ownership of the exact 

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same technology—i.e., TRSS—so Pro Marketing’s claim arises out of the same transaction or 

occurrence giving rise to Cyber’s claim to the TRSS technology. This means that Pro Marketing 

was indeed obligated to file a counterclaim to Cyber’s claim to the TRSS technology if Pro 

Marketing wished to preserve its own claim of ownership. See Fed. R. Civ. P. 13(a)(1)(A). Pro 

Marketing’s counterclaim was therefore not a tacit concession that the TRSS technology had any 

direct connection to the allegedly improper termination of the license agreement.

Cyber finally contends that the district court’s interpretation of the unclean-hands doctrine 

was overly narrow and erroneous as a matter of law. We review such an argument de novo. See 

Ne. Women’s Ctr., Inc. v. McMonagle, 868 F.2d 1342, 1354 (3d Cir. 1989) (“[T]he parameters of 

the unclean hands doctrine implicate a matter of law.”). 

The district court’s opinion implicates the “parameters” of the unclean-hands doctrine 

insofar as the court restricted application of the doctrine to conduct that has a “material bearing” on 

a party’s claims. This restriction, however, was not a legal error. To the contrary, the district 

court’s requirement of a “material bearing” is consistent with this court’s prior observations that 

the conduct must have a “direct[]” or “immediate and necessary relation” to the relevant claim. 

See Performance Unlimited, 52 F.3d at 1383. The court’s formulation is also consistent with 

Michigan law, which requires a “more or less direct” relationship between the allegedly improper 

conduct and the claim at issue. See McFerren, 655 N.W.2d at 784; accord, e.g., Murray v. 

Moultrie, No. 259410, 2006 WL 2060681, at *2 (Mich. Ct. App. July 25, 2006) (declining to apply

the unclean-hands doctrine when improper conduct was “not inextricably linked” to claim at 

issue). The district court therefore committed no legal error on this issue.

III. CONCLUSION

For all of the reasons set forth above, we AFFIRM the judgment of the district court.

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