breach of contract claim and deny Samsung’s cross-motion for summary judgment on Counts I
and II of its Counterclaim.
DISCUSSION

Summary judgment will be granted when there is no genuine issue of material fact, and
the moving party is entitled to judgment as a matter of law. FED. R. Civ. P. 56(c); Celotex
Corp. v. Catrett, 477 U.S, 317, 322 (1986); O’Connor v. DePaul Uniy., 123 F.3d 665, 669 (7th
Cir. 1997). A genuine dispute about a material fact exists only if the evidence is such that a
reasonable jury could return a verdict for the non-moving party. Celotex Corp., 477 U.S. at
323-24. In making this determination, the Court must draw every reasonable inference from the
record in the light most favorable to the non-moving party and should not make credibility
determinations or weigh evidence. Outlaw v. Newkirk, 259 F.3d 833, 837 (7th Cir. 2001).

L e ie First Settlement Agreement Is Clear and
Unambiguous

Contract interpretation is a subject particularly suited to disposition by summary
judgment. Metalex Corp v. Uniden Corp. of America, 863 F.2d 1331, 1333 (7th Cir. 1988). Ifa
contract is unambiguous and contains no uncertain terms, interpretation of the contract is a
question of law for the court. Dribek Importers, Inc. v. G. Heileman Brewing Co., Inc., 883 F.2d
569, 573 (7th Cir. 1989). Under Illinois law, contractual provisions that are clear and
unambiguous must be enforced as written. Michigan Ave. Nat'l Bank of Chicago v. Evans, Inc.,
531 N.E.2d 872, 877 (Ill. App. Ct. 1988). When a contract is unambiguous on its face, “[bJoth

the meaning of the instrument, and the intention of the parties must be gathered from the face of


resolved the issue of liability. However, the issue of damages may still remain. Thus, we set a

status for November 21, 2003 at 9:00 a.m.

bJ.,— CL
Wayne R. Andersen
Dated: ( Dele ber Zo La3

United States District Judge


This Court is not persuaded by Samsung’s arguments and concludes that the First
Settlement Agreement is clear and unambiguous on its face and should be enforced as written.
Thus, this Court grants Papst’s motion for summary judgment on its breach of contract claim and
denies Samsung’s cross-motion for summary judgment on Count I of its Counterclaim.

I Samsung Js Not Entitled to Equitable Reformation of the First Settlement Agreement

In Count I of its Counterclaim, Samsung alternatively seeks equitable reformation of
paragraph 1 1(n) of the First Settlement Agreement, Samsung asserts that the language of
paragraph 11(n) is inconsistent with the parties negotiations and agreement. Samsung claims that
the parties agreed to excuse Samsung from making an annual royalty payment pursuant to the
First Settlement Agreement if it stopped selling direct current motors for hard disk drives.
However, paragraph 11(n) in the First Settlement Agreement specifically states that Samsung is

not obligated to make a royalty payment if it does not sell “direct current motors from any

»

sources.

Samsung seeks to have the Court re-write the “from any sources” language to provide that
Samsung does not have to make its royalty payments if it stops selling direct current motors “for
hard disk drives.” Samsung attempts to create ambiguity in the First Settlement Agreement by
arguing that the contract provision means something other than what it says or that a mistake was
made and that the parties intended the language to mean something different.

The underlying basis for reformation of contract is the existence of a mutual
understanding between the parties which the parties agreed to reduce to writing, but through
either mutual mistake or mistake on one side coupled with fraud on the other, a material

provision was omitted. Briarcliffe Lakeside Townhouse Owners Assoc. v. City of Wheaton, 524



the document without the assistance of any parol evidence or any other extrinsic aids.”
Rakowski v. Lucente, 472 N.E.2d 791, 794 (Ul. Sup. Ct. 1984).

Paragraph 11(n) of the First Settlement Agreement states that Samsung is not obligated to
make a royalty payment for a specific year if it does not sell “any brushless [direct current]
motors from any sources” (emphasis added). Samsung suggests that this Court should interpret
the language of paragraph 11(n) of the Agreement to mean that Samsung is excused from making
royalty payments under the First Settlement Agreement in the years that Samsung does not sell
direct current motors for hard disk drives. However, the specific language of paragraph 11(n)
does not carve out any exception to Samsung’s obligation to pay if it does not sell direct current
motors for hard disk drives. Rather, the language of the Agreement as written specifically states
that Samsung will be relieved of its obligation to pay the annual royalty payments only if it does
not sell “any brushless [direct current] motors from any sources” (emphasis added).

Reading the contract provision as written, the language of paragraph 1 1(n) on its face is
clear and unambiguous. Therefore, the contract must be enforced as written. Samsung argues
that, because the license rights in the First Settlement Agreement relate to brushless direct current
motors for hard disk drives, its obligation to pay the royalty payment should be based on its sale
of motors for bard disk drives. However, that is not what the contract says. Paragraph 11{n)
clearly states that Samsung will be relieved of its obligation to pay the annual royalty payments
only if it does not sell “any brushless [direct current] motors from any sources.” The obligation

to pay the annual royalty is based on Samsung’s sale of “any brushless [direct current] motors

from any sources.”


know of [Samsung's] belief.” Yet, Samsung has failed to identify any citation in the record to
illustrate that Papst, in fact, shared Samsung’s mistaken belief that Samsung did not have to
make its royalty payments if it stopped selling direct current motors for hard disk drives.
Unsupported factual conclusions are not enough to dispute a motion for summary judgment.
Indeed, the correspondence submitted by Papst, which Samsung objects to based on Papst’s
failure to authenticate the exhibits but does not dispute in substance, clearly shows that the
language which Samsung seeks to reform was proposed, rejected and withdrawn from the draft
negotiations.

Even taking all reasonable inferences from the facts submitted by Samsung only, this
Court does not find that the record supports the conclusion that the First Settlement Agreement
should be reformed. There is no evidence to support a finding that Papst committed any fraud
and purposefully omitted a material term of the contract. In addition, without any facts before
this Court to show that Papst and Samsung specifically agreed that Samsung did not have to
make an annual royalty payments if it stopped selling direct current motors for hard disk drives
(rather than if Samsung stopped selling brushless direct current motors “from any sources” as

provided in the First Settlement Agreement), then Papst is entitled to summary judgment.

CONCLUSION
For the foregoing reasons, we grant Papst’s motion for summary judgment on its breach
of contract claim and deny Samsung's cross-motion for summary judgment on Counts land of

its Counterclaim. In granting summary judgment on Count I of Papst’s Complaint, we have


Minste Ordgs Form (06/97) gu =

United States District Court, Northern District of Dlinois

Name of Assigned Jud Sitting Judge if Oth
ror Maplstrate Judge Wayne R. Andersen than Assigned Judge
CASE NUMBER 3 C 1002 DATE 10/20/2003
CASE Papst Licensing vs. Samsung Electro-Mechanics
TITLE
[Io the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.
DOCKET ENTRY:
qd) a Filed motion of [ use listing in “Motion” box above.]
(2) oO Brief in support of motion due
(3) im] Answer brief to motion due. . Reply to answer brief due .
(4) im Ruling/Hearing on set for at
(5) oO Status hearingfheld/continued to] [set for/re-set for] on set for at
(©) im) Pretrial conference[held/continued to] [set for/re-set for) on set for at .
(O) Oo Trial[set for/re-set for] on at
(8) Q [Bench/Jury trial) [Hearing] held/continued to at
(9) al This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to}
OFRCP4(m) O Local Rule 41.1 C)FRCP4i(a)(1) ) FRCP41(a)(2).
ao [Other docket entry) Enter MEMORANDUM, OPINION AND ORDER: For the foregoing
reasons, we grant Papst’s motion for summary judgment on its breach of contract claims and deny
Samsung’s cross-motion for summary judgment on Counts J and I ofits counterclaim. In granting
summary judgment on Count I of Papst’s complaint, we resolved the issue of liability. However,
the issue of damages may still remain. Thus, we set a status for 11/21/2003 @ 9:00 a.m.
(il) [For further detail see order attached to the original minute order.)
No notices required, advised in open court.
No notices required. uni ofeocs
Notices mailed by judge's staff. | OCT 21 2003
Notified counsel by telephone. cheat
o | Docketing to mail notices.
Mail AO 450 form. ing purine
Copy to judge/magistrate judge. °
a8 12 §u909 te med notice
courtroom
TSA deputy's nos was
initials - —
Date/timei received in
central Clerk's Office ailing depury ‘ita

~N



4

N.E.2d 230, 235 (Ill. App. Ct. 1988). However, misunderstanding is not a basis for contract
reformation. As the Seventh Circuit explained in United States v. Sandles, 80 F.3d 1145 (7th
Cir, 1996): “Where there is a mutual misunderstanding as to the material terms of a contract, the
appropriate remedy is rescission, not unilateral modification.” Jd. at 1148.

Indeed, the purpose of reformation is to change the written instrument by inserting the
omitted provision so that the instrument conforms to the original agreement between the parties.
Briarcliffe, 524 N.E.2d at 235. Thus, what is sought to be reformed is not the understanding
between the parties, but rather the written instrument which inaccurately reflects it. Jd. “Equity
cannot make a new agreement for the parties under the color of reforming the one made by them,
nor can it be used to add a provision to the contract that was never agreed upon.” Suburban Bank
of Hoffman-Schaumburg v. Bousis, 578 N.E.2d 935, 940 (il. Sup. Ct. 1991).

The record is devoid of any evidence of fraud, deceit or concealment on the part of Papst.
Indeed, the record reflects that: (1) sophisticated parties participated in negotiations for over a
year; (2) the parties exchanged numerous drafts of an agreement and that various terms of the
agreement were revised, deleted and re-inserted as a result of the parties’ negotiations; and (3) as
a result of those negotiations, the First and Second Settlement Agreements were executed.
Samsung has not presented any evidence to indicate that Papst knew that the instrument finally
prepared did not accurately reflect the parties’ agreement and concealed the error from Samsung
at the time the agreements were signed. In addition, there is no evidence to suggest that the
parties actually agreed to the contractual provision Samsung suggests.

In its memorandum of law, Samsung argues that its “objective evidence would support a

verdict by the finder of fact that Papst shared this belief — or, at least, knew or had reason to


Paragraph 11(n) of the Second Settlement Agreement states:
(n) _ Irrespective of any provisions herein to the contrary, if during any of the

“Royalty Periods” set forth in paragraph 3 of this Second Settlement
Agreement both [Samsung] and all of its SUBSIDIARIES all do not sell
any brushless [direct current] motors from any sources, including such
brushless [direct current] motors which are built into [Samsung’s] and its
SUBSIDIARIES’ products, then, for each of those “Royalty Periods,”
[Samsung] shall not be obligated to make the payment indicated in
paragraph 3 of this Second Settlement Agreement for each of those
“Royalty Periods” only.

During the royalty periods from 1998 through 2002, Samsung sold brushless direct current

motors for uses other than hard disk drives and has remitted royalty payments for each year to

Papst under the Second Settlement Agreement.

In its Complaint, Papst claims that Samsung has breached the First Settlement Agreement
because of its failure to make the 2001 and 2002 royalty payments. Papst claims that since
Samsung has admitted to selling some type of brushless direct current motors during 2001 and
2002, notwithstanding the fact that the direct current motors which Samsung sold were for uses
other than hard disk drives, royalty payments are due and owing under the First Settlement
Agreement.

Samsung disagrees and seeks a declaratory judgment in Count I of its Counterclaim that it
is not in breach of the First Settlement Agreement, Samsung claims that, because the only
brushless direct current motos it sold in 2001 and 2002 were for uses other than hard disk drives,
Samsung does not have to pay the royalty payments set forth in the First Settlement Agreement.
Alternatively, in Count II of its Counterclaim, Samsung requests that the Court equitably reform

the contract. For the following reasons, we grant Papst’s motion for summary judgment on its


royalty payments from 1998 through 2004. The license rights in the First Settlement Agreement
relate to brushless direct current motors for hard disk drives, and the license rights in the Second
Settlement Agreement relate to brushless direct current motors for uses other than hard disk
drives.
Paragraph 11(n) of the First Settlement Agreement provides:
(n) _ Irrespective of any provisions herein to the contrary, if during any of the
“Royalty Periods” set forth in paragraph 3 of this First Settlement
Agreement both [Samsung] and all of its SUBSIDIARIES all do not sell
any brushless (direct current] motors from any sources, including such
brushless [direct current] motors which are built into [Samsung’s] and its
SUBSIDIARIES’ products, then, for each of those “Royalty Periods,”
[Samsung] shall not be obligated to make the payment indicated in
paragraph 3 of this First Settlement Agreement for each of those “Royalty
Periods” only.'
During the royalty periods from 1998 through 2000, Samsung sold brushless direct current
motors for hard disk drive applications and paid the royalty payments specified in the First
Settlement Agreement for those periods. However, Samsung did not sell any brushless direct
current motors for hard disk drive applications during the royalty periods 2001 and 2002 and has
not paid the royalty payments under the First Settlement Agreement for 2001 and 2002.
Although Samsung did not sell brushless direct current motors for hard disk drives during the
2001 and 2002 royalty periods, it did sell brushless direct current motors for uses other than hard

disk drive applications.

' The parties have agreed in their statement of facts and response to the statement of
facts that there are certain typographical and grammatical errors in paragraphs 1 1(n) of the First
and Second Settlement Agreements, this Court recognizes those errors and, for clarity, has
adopted and incorporated the correct words and grammar into its quotations of the contractual

language.


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
PAPST LICENSING GmbH & CO., )
) Case No. 03 C 1002
Plaintiff, )
) Wayne R. Andersen
v. ) District Judge
)
SAMSUNG ELECTRO-MECHANICS_ )
CO.,LTD, ) DOCKETEp
)
Defendant. ) ocr 2 1 2003

MEMORANDUM OPINION AND ORDER

This case comes before the Court on the parties’ cross-motions for summary judgment.
Plaintiff Papst Licensing GmbH & Co. (“Papst”) filed a motion for summary judgment that
defendant Samsung Electro-Mechanics Co., Ltd. (“Samsung”) has breached an agreement
between the parties entitled First Settlement Agreement. Samsung filed a cross-motion for
summary judgment on Counts I and II of its Counterclaim, seeking a declaratory judgment that
Samsung did not breach the First Settlement Agreement or alternatively equitable reformation of
the Agreement. For the following reasons, we grant Papst’s motion for summary judgment and
deny Samsung's cross-motion for summary judgment.

STATEMENT OF FACTS

The following facts are taken from the parties’ briefs. Papst and Samsung entered into
two contracts entitled First Settlement Agreement and Second Settlement Agreement which were
executed by Papst on March 19, 1999 and Samsung on April 2, 1999. Each agreement grants

Samsung license rights under certain patents owned by Papst, and sets forth a schedule for annual

2