1 

 UNITED STATES DISTRICT COURT 

 EASTERN DISTRICT OF MICHIGAN 

 SOUTHERN DIVISION 

TS HOLDINGS, INC. and 

RONALD THOMAS, 

 

Plaintiffs, 

v. Case No. 09-cv-13632 

 Hon. Mark A. Goldsmith 

BARRY SCHWAB, 

 Defendant. 

______________________________/ 

OPINION AND ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY 

JUDGMENT (DKT. 49), GRANTING IN PART AND DENYING IN PART PLAINTIFF’S 

MOTION FOR PARTIAL SUMMARY JUDGMENT (DKT. 63), GRANTING IN PART 

AND DENYING IN PART DEFENDANT’S MOTION FOR SANCTIONS (DKT. 67), 

DENYING PLAINTIFF’S MOTION FOR SANCTIONS (DKT. 70), AND GRANTING 

PLAINTIFF’S ATTORNEY’S MOTION TO WITHDRAW (DKT. 78) 

I. Introduction 

The subject matter of this case is U.S. Patent No. 7,418,474 B2, entitled “Secure 

Identification System” (“the ‘474 patent”). Defendant Barry Schwab is the sole named inventor 

on the patent. Plaintiff Ronald Thomas has brought a claim for inventorship, alleging that he is a 

co-inventor of the patented invention. A second Plaintiff, TS Holdings, Inc., has been 

voluntarily dismissed from this case (Dkt. 26). The complaint also alleges breach of fiduciary 

duty and tortious interference with business relations in connection with Schwab’s failure to 

assign to Thomas the disputed patent. Schwab has countersued for $135,000 allegedly owed to 

him for unpaid work performed for Thomas. Before the Court are Schwab’s motion for 

summary judgment on all claims (Dkt. 49), Thomas’s motion for partial summary judgment on 

the matter of the $135,000 (Dkt. 63), and cross-motions for sanctions pursuant to Federal Rule of 

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Civil Procedure 11 (Dkts. 67 and 70). The Court held a hearing on these motions August 11, 

2011. Also before the Court is Nabih H. Ayad & Associates, P.C.’s motion to withdraw as 

Plaintiff’s counsel (Dkt. 78), for which a hearing was held on October 12, 2011. 

II. Background 

It is undisputed that Thomas and Schwab maintained a business relationship for 

approximately fifteen years. In 1993, the parties entered into a consulting agreement in 

connection with Thomas’s idea for a video product to be used in automobile marketing. Thomas 

agreed to pay Schwab $5,000 for a one-and-a-half week term in which Schwab would act as a 

consultant and advise Thomas on how to build the system. Consulting Agreement (Dkt. 63-3). 

Schwab designed the system, hired one or more computer programmers, and had the system 

built. Schwab testified that the parties had another, oral contract wherein Thomas would 

continue to pay Schwab $5,000 per month for as long as Schwab provided consulting services to 

Thomas. Schwab Aff. ¶ 17 (Dkt. 50-4); Schwab Dep. at 39-40, 47-49, 141 (Dkt. 63-2). Schwab 

continued to consult and was paid by Thomas until 1997. Id. Schwab contends that the oral 

agreement terminated in 2008. 

In 1996, Thomas formed TS Holdings, Inc., with Thomas owning 90% and Schwab 

owning 10%. Schwab assigned four U.S. patent applications to Thomas for the sum of one 

dollar, with the understanding that those patents applications were to become the assets of TS 

Holdings, Inc. Schwab Dep. at 103, 110-111; Assignment (Dkt. 66-5). Two of those 

applications eventually became patents: Patent App. No. 08/393,493 issued as Patent No. 

6,353,699 B1, and Patent App. No. 08/453,393 issued as Patent No. 5,973,731. The other two 

applications were abandoned. 

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Schwab testified that he did not receive consulting payments from Thomas after 1997, 

but he continued to consult for Thomas sporadically because he believed there was a possibility 

that Thomas would eventually compensate him, and because of his ten percent interest in TS 

Holdings, Inc. Schwab Dep. at 105, 115, 141-142. He testified that his relationship with 

Thomas was less frequent “because I was becoming more pessimistic about his prospects of 

success and my prospects to ever get any benefit out of it.” Id. at 116. Schwab testified that 

Thomas agreed to grant him a ten percent interest in an entity called Video Exchange Industries, 

which was organized to utilize the patent portfolio belonging to TS Holdings, Inc. Schwab Aff. 

¶ 16. Schwab claims he never received any interest in this company, and Thomas testified that 

he does not know if he ever tendered shares to Schwab. Id.; Thomas Dep. at 28 (Dkt. 63-4). 

In 2008, Thomas contacted Frederick Fehlauer for the purpose of being the exclusive 

licensing and sales agent for TS Holdings, Inc. Fehlauer Aff. ¶ 4 (Dkt. 63-3). Fehlauer testified 

that Thomas represented to him that TS Holdings, Inc. was the assignee of the rights to a number 

of patents, including the ‘474 patent. Id. ¶ 5. Each one of these patents lists Schwab as the sole 

inventor. Fehlauer discovered that the ‘474 patent was not assigned to Thomas or TS Holdings, 

Inc. and he told Thomas that he could not represent Thomas until his firm actually controlled all 

the necessary patents. Id. ¶¶ 8-9. 

Thomas contacted Schwab and asked that he execute an assignment for the ‘474 patent. 

In October 2008, Schwab received two assignments from Thomas’s lawyers for Schwab to sign 

and execute. The assignments contained a blank space in place of the assignee. Schwab testified 

that he became suspicious because “[i]t’s equivalent to asking me to sign a blank check.” 

Schwab Dep. at 153. Schwab testified that he then began researching Thomas’s companies and 

discovered that TS Holdings, Inc. had been dissolved in 1999. Schwab further discovered that 

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Thomas had created a separate entity, T.S. Holdings, L.L.C., in 2004, which Schwab claims was 

created for the purpose of defrauding him of his patent rights. Schwab testified that, in late 2008, 

Thomas created a new entity called TS Holdings, Inc., which was not the same company that he 

had been a part of ten years earlier, and that Thomas sent him an unsolicited stock certificate for 

1,000 shares in this new company to induce him to assign the ‘474 patent. Schwab Aff. ¶ 42; TS 

Holdings, Inc. Stock Certificate (Dkt. 53-1).1

 Schwab refused to assign the ‘474 patent to 

Thomas or to TS Holdings, Inc. 

Thomas filed suit against Schwab, claiming that he is a co-inventor of the invention 

protected by the ‘474 patent. When asked what the field of invention for which Thomas is 

claiming co-inventorship was, he replied, “The idea.” Thomas Dep. at 57. Schwab denies that 

Thomas had any inventive contribution to the ‘474 patent. Schwab avers that Thomas’s “idea” 

was only a marketing concept, but that the entire patentable invention was invented by Schwab. 

Def.’s Response ¶ 15 (Dkt. 66). The ‘474 patent is a continuation-in-part of multiple prior 

applications, including applications that were assigned to Thomas in 1996 and other nonassigned 

applications. ‘474 Patent (Dkt. 52-1). 

Thomas’s complaint also includes a claim for tortious interference with business relations 

in connection with his failed business deal with Fehlauer, discussed above, and two other 

unsuccessful deals, one with Associates Commercial Credit involving a product called 

TruckScan, and one with Freightliner. Thomas’s Resp. at 19-20 (Dkt. 64-1). Thomas claims 

that “[a]s a consequence of Schwab’s failure to abide by his fiduciary duty to assign, it was 

                                                            

1

 Thomas stated that he believes the stock sent to Schwab is the only stock that has ever been 

issued for the company. Thomas Dep. at 97 (Dkt. 63-4). 

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apparent that TS HOLDINGS, INC. could not enter into the requisite business arraignment. As a 

consequence thereof the Plaintiffs lost a business opportunity.” Compl. ¶ 24. 

Schwab counterclaimed for $135,000, which he alleges is owed to him under the terms of 

the oral consulting agreement. Schwab claims that Thomas owes him for work completed 

between 1995 and 1998 for which he was not paid, and for services performed from 1998 

through 2008. Schwab Dep. at 145-148. 

III.Discussion 

a. Legal Standards 

Summary judgment is proper “if the pleadings, depositions, answers to interrogatories, 

and admissions on file, together with the affidavits, if any, show that there is no genuine issue as 

to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed. R. 

Civ. P. 56(c). In evaluating a motion for summary judgment, 

[t]he burden is generally on the moving party to show that no genuine issue of 

material fact exists, but that burden may be discharged by “showing – that is, 

pointing out to the district court – that there is an absence of evidence to support 

the nonmoving party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 

S.Ct. 2548, 91 L.Ed.2d 265 (1986) (internal quotation marks omitted). In 

reviewing a summary judgment motion, credibility judgments and weighing of 

the evidence are prohibited. Rather, the evidence should be viewed in the light 

most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 

U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Thus, the facts and any 

inferences that can be drawn from those facts[ ] must be viewed in the light most 

favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio 

Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). 

Biegas v. Quickway Carriers, Inc., 573 F.3d 365, 373-374 (6th Cir. 2009). 

b. Inventorship of the ‘474 Patent 

Count I of the complaint alleges that Thomas “is entitled to be named as a co-inventor for 

his contribution to the conception and the reduction to practice.” Compl. ¶ 14 (Dkt. 1). 

Schwab’s motion argues that summary judgment is proper with respect to Count I on the ground 

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that Thomas has not raised a genuine issue as to the patent’s inventorship. For the reasons that 

follow, the Court agrees. Thomas has not brought evidence challenging the presumed validity of 

Schwab’s status as sole inventor of the ‘474 patent. 

An issued patent has a presumption of validity. 35 U.S.C. § 282. Because of this 

presumption, there is a corresponding presumption “that the named inventors on a patent are the 

true and only inventors.” Trovan, Ltd. v. Sokymat SA, Irori, 299 F.3d 1292, 1301 (Fed. Cir. 

2002). Inventorship is a question of law. Id. Thomas, alleging co-inventorship, has the burden 

to prove his inventive contribution by clear and convincing evidence. Ethicon, Inc. v. U.S. 

Surgical Corp., 135 F.3d 1456, 1461 (Fed. Cir. 1998). 

To be a valid inventor, one must have conceived of the invention, “complete only when 

the idea is so clearly defined in the inventor’s mind that only ordinary skill would be necessary 

to reduce the invention to practice, without extensive research or experimentation. Burroughs 

Wellcome Co. v. Barr Laboratories, Inc., 40 F.3d 1223, 1227-1228 (Fed. Cir. 1994). Conception 

requires that the inventor actually reduce the invention to practice; this means that the claimed 

invention must actually work for its intended purpose. Hybritech Inc. v. Monoclonal Antibodies, 

Inc., 802 F.2d 1367, 1376 (Fed. Cir. 1986). “[O]ne who merely suggests an idea of a result to be 

accomplished, rather than means of accomplishing it, is not a joint inventor.” Nartron Corp. v. 

Schukra U.S.A. Inc., 558 F.3d 1352, 1359 (Fed. Cir. 2009) (internal quotations omitted). The 

Federal Circuit has explained: 

[T]he test for conception is whether the inventor had an idea that was definite and 

permanent enough that one skilled in the art could understand the invention; the 

inventor must prove his conception by corroborating evidence, preferably by 

showing a contemporaneous disclosure. An idea is definite and permanent when 

the inventor has a specific, settled idea, a particular solution to the problem at 

hand, not just a general goal or research plan he hopes to pursue. See Fiers v. 

Revel, 984 F.2d 1164, 1169 (Fed. Cir. 1993); Amgen, Inc. v. Chugai 

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Pharmaceutical Co., 927 F.2d 1200, 1206 (Fed. Cir. 1991) (no conception of 

chemical compound based solely on its biological activity). The conception 

analysis necessarily turns on the inventor’s ability to describe his invention with 

particularity. Until he can do so, he cannot prove possession of the complete 

mental picture of the invention. These rules ensure that patent rights attach only 

when an idea is so far developed that the inventor can point to a definite, 

particular invention. 

Burroughs, 40 F.3d at 1228. 

Applying this test to the instant case, the Court concludes that there is no evidence in the 

record to support the claim that Thomas had conceived of the invention protected by any of 

Schwab’s patents, including the ‘474 patent. While Thomas’s briefs make a number of 

assertions, including that he, and not Schwab, is the true sole inventor, he presents no evidence 

of Thomas’s alleged inventive activity. Instead, Thomas confuses the distinction between patent 

ownership and patent inventorship, and between one patent and another, by attempting to paint 

Schwab’s assignment of certain patent applications (of which the patent at issue is not one) as an 

admission that Thomas is the “true creator” of the ‘474 patent. Thomas’s Resp. at 2. However, 

as discussed below, Thomas’s evidence and arguments do not implicate Schwab’s status as sole 

inventor. Accordingly, Thomas’s inventorship claim is subject to dismissal. 

Thomas’s argument appears to center on a narrative and evidence that establish that 

Schwab acted as Thomas’s business consultant. Thomas’s Resp. at 11-13. Thomas’s argument, 

as understood by the Court, is that Schwab’s contribution was insubstantial, while it was Thomas 

who “conceived of the idea and then hired Defendant to reduce Plaintiff’s idea to practice.” Id. 

at 13. To support this argument, Thomas relies on Hobbs v. United States Atomic Energy 

Comm’n, 451 F.2d 849 (5th Cir. 1971) for the proposition that “[w]here a person has conceived 

an invention and employs other persons to assist him in carrying out that principle . . . such 

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suggested improvements are in general to be regarded as the property of the party who 

discovered the original improved principle.” 

 Hobbs is inapposite to the instant case. In Hobbs, the defendants unsuccessfully argued 

for the invalidity of a patent on the grounds that technical employees of a named inventor 

contributed to the invention, and therefore the named inventor was not the sole inventor. The 

Fifth Circuit concluded that suggestions from employees are not sufficient to deprive the listed 

inventor of his sole inventorship. Id. at 865. Thus, in Hobbs, the sole named inventor of a patent 

successfully retained his status as sole inventor on the grounds that employee suggestions do not 

establish the employee as a co-inventor. By contrast, in our case, the complaint filed by Thomas 

does not challenge the inventor status of Schwab; Thomas seeks only to win co-inventorship 

status for himself. Nothing in Hobbs supports Thomas’s co-inventorship claim. To the extent 

Thomas, contrary to his complaint, now seeks to challenge Schwab’s inventorship status by 

characterizing Schwab’s actions as akin to employee suggestions, his argument is invalid, given 

that Schwab, like the plaintiff in Hobbs and unlike the defendants-employees in that case, is the 

named inventor. 

Thomas further argues that it is undisputed that he “financed the reduction to practice; 

Defendant merely served as the technical expert.” Thomas’s Counterstatement of Material Facts 

¶ 15 (Dkt. 64-1). However, while reduction to practice is a legal requirement of invention, there 

is no legal basis for Thomas’s assertion that financing such reduction to practice equates to 

invention itself. See Hybritech, 802 F.2d at 1376 (inventor must actually reduce the invention to 

practice). 

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Finally, Thomas asserts that “Schwab readily admits that Plaintiff was the inventor of 

Patent ‘699.” Plaintiff’s Counterstatement of Material Facts ¶ 15 (Dkt. 64-1). As support, 

Thomas cites the following passage from Schwab’s deposition testimony: 

Q Okay. Now, would you agree with me that Mr. Thomas is the inventor of this 

Video Trader idea? 

... 

A: He is the -- I hesitate to use the word “inventor,” because that implies 

patentability, but he was the one who came up with the idea of making the video 

version of the Auto Trader paper publication. 

Q: Okay. And then through your consultation agreement with him, you designed a 

way to put that idea into motion. Correct? 

A: I designed a system for making master tapes. It’s not a system for doing video 

programs, it’s a system for making master tapes on clips. 

Q: And that was a mechanism for putting Mr. Thomas's idea into motion. 

Correct? 

A: It would have had many other possible applications, but it would have been 

what I would have recommended that he do to create his master tapes for his 

publication. 

Q: Let me ask you this. You created this system because of Mr. Thomas’s idea. Is 

that right? 

A: I created the system because Mr. Thomas’s concept was impractical, 

unworkable and too expensive to ever be economically feasible. 

Q: But if Mr. Thomas had never contacted you with this idea, then you would 

have conceivably never created this system. Correct? 

... 

A: That’s entirely speculative. I don’t know what I would have done or what other 

clients I might have taken in that time period. 

Q: Okay. This is what I’m getting at. You designed this system. Alright? I’m not 

saying that you didn’t design this system. I’m asking you; you designed this 

system because Mr. Thomas approached you with an idea for the Video Trader. 

Correct? 

A: I worked on that at that point in time because I saw that Mr. Thomas had an 

application for that system, for that kind of system. 

... 

Q: And he paid you to perform a service. Correct? 

A: To advise him on how to go about this. 

Q: And how did you advise him to go about that? 

A: I advised him that his method would not work, it wasn’t practical, and set 

about looking to see if it were possible to do a system that fulfilled his needs. 

Q: Alright. And the system that you came up with to fulfill his needs, based on the 

consultation agreement between you and Mr. Thomas, was the system for the 

master tapes that you just discussed. Right? 

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A: Yes, at that point in time. 

Schwab Dep. at 25-27. Schwab’s testimony does not support Thomas’s claim that Schwab 

acknowledged Thomas as the inventor of the ‘699 patent. To the contrary, Schwab explicitly 

denied that Thomas was the inventor, as is evident from another part of Schwab’s deposition: 

Q Didn’t you assign these patents to Mr. Thomas because he was the true inventor 

of these patents? 

A: No. 

Q: No? 

A: No. 

Id. at 111. 

More importantly, the ‘699 patent is not at issue in this case. The Court concludes that 

the evidence that Schwab assigned certain patent applications to TS Holdings, Inc. (including the 

application that issued as the ‘699 patent) does not implicate Schwab’s inventorship in the ‘474 

patent, which is the subject matter of this lawsuit. The ‘474 patent is a continuation-in-part of 

multiple prior applications, only some of which were assigned applications. ‘474 Patent (Dkt. 

52-1). Schwab testified that only the explicitly enumerated applications were meant to be 

assigned, and that there was never any intent to assign continuations-in-part, particularly the 

applications that issued as the ‘474 patent. Schwab Aff. ¶ 26, 33 (Dkt. 61-2). Thomas has not 

rebutted Schwab’s testimony. Indeed, the fact that Thomas’s briefs repeatedly reference the ‘699 

patent and emphasize Schwab’s assignment of the parent applications indicates a fundamental 

misunderstanding of the nature of a continuation-in-part application, as well as the distinction 

between patent inventorship and patent ownership. 

A continuation-in-part application is an application that includes new patentable material 

not disclosed in earlier applications. Manual of Patent Examining Procedure § 201.08 (7th ed. 

Rev. 1 Feb. 2000); Univ. of W. Virginia Bd. of Trustees v. VanVoorhies, 278 F.3d 1288, 1297 

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(Fed. Cir. 2002). Ownership of a parent application guaranties neither inventorship nor 

ownership of subsequent continuations-in-part, and an assignment that enumerates specific 

applications does not include continuations-in-part of those enumerated applications unless 

explicitly provided for in the assignment. See Euclid Chem. Co. v. Vector Corrosion Techs., 

Inc., 561 F.3d 1340, 1343-1344 (Fed. Cir. 2009) (examining ambiguity in an assignment that 

included “any and all divisional applications, continuations, and continuations in part” of a set of 

patent applications).2

 Here, there is no language in the parties’ assignment that suggests that any 

continuation-in-parts were to be assigned. Moreover, the entire concept of patent assignment is 

predicated on the distinction between inventorship and ownership: if someone is the inventor of a 

patent, assignment is unnecessary. Thus, Thomas’s attempt to show that Schwab admits that 

Thomas is the “true inventor” based on evidence that he assigned applications fails. 

Because Thomas has not produced evidence showing that he contributed to the invention 

and has not rebutted the presumption of Schwab’s status as sole inventor, summary judgment in 

favor of Schwab on the issue of inventorship is proper.3

c. Tortious Interference with a Business Relationship 

                                                            

2

 The Federal Patent Act requires that all assignments of patent rights be in writing. 35 U.S.C. § 

261. 

3

 In the statement of facts in Plaintiff’s response, he asks for leave to file a counter-affidavit 

under Rule 56(d). Pl.’s Resp. at 5-7. The rule grants discretion to a court to defer consideration 

of a summary judgment motion to conduct discovery or obtain affidavits. Egerer v Woodland 

Realty, Inc., 556 F.3d 415, 425-426 (6th Cir. 2009). However, the rule requires the nonmoving 

party to submit a declaration or affidavit explaining the need for further discovery or the 

unavailablity of information. Cacevic v. City of Hazel Park, 226 F.3d 483, 488 (6th Cir. 2000). 

Here, Plaintiff has failed to file an affidavit or declaration. Further, although Plaintiff’s response 

was filed on May 5, 2011, Plaintiff has not sought to file a counter-affidavit in the intervening 

seven months and has not set forth any grounds why a proper request for leave could not have 

been filed by now. Accordingly, the Court decides this motion on the record before it. 

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“To establish a claim for tortious interference under Michigan law, a plaintiff must show: 

(1) the existence of a valid business relation or expectancy, (2) knowledge of the relationship or 

expectancy on the part of the defendant, (3) intentional interference inducing or causing a breach 

or termination of the relationship or expectancy, and (4) resultant damage.” Grand Rapids 

Plastics, Inc. v. Lakian, 188 F.3d 401 (6th Cir. 1999) (citing Michigan Podiatric Med. Ass’n v. 

National Foot Care Program, Inc., 438 N.W.2d 349, 354 (Mich. Ct. App. 1989)). “The 

expectancy must be a reasonable likelihood or probability, not mere wishful thinking.” Id. 

(quoting Trepel v. Pontiac Osteopathic Hosp., 354 N.W.2d 341, 348 (Mich Ct. App. 1984)). A 

plaintiff must show that a defendant acted intentionally and improperly or without justification in 

law. Bonelli v. Volkswagen of Am., Inc., 421 N.W.2d 213, 221 (Mich. Ct. App. 1988). A 

defendant whose acts are motivated by a legitimate business reason does not commit tortious 

interference. BPS Clinical Labs. v. Blue Cross & Blue Shield of Michigan, 552 N.W.2d 919, 

925 (Mich. Ct. App. 1996) (citing Michigan Podiatric Med. Ass’n, 438 N.W.2d at 355). 

Thomas alleges that “[a]s a consequence of Schwab’s failure to abide by his fiduciary 

duty to assign, it was apparent that TS Holdings, Inc. could not enter into the requisite business 

arrangement. As a consequence thereof, the Plaintiff lost a business opportunity.” (Compl. ¶ 

23). Thomas asserts that he had three separate and distinct business opportunities that Schwab 

interfered with: (i) the Associates Commercial Credit opportunity, (ii) the Freightliner 

opportunity, and (iii) the Fehlauer negotiation. However, while Thomas has claimed to be a coinventor of the patent (a claim the Court has rejected), Thomas has not advanced any theory as to 

why it was Schwab’s fiduciary duty to assign the ‘474 patent to him or TS Holdings. Thus, 

Thomas has not met his burden to prove that Schwab had a duty to assign the patent. Further, 

the Court finds that the reason Schwab has given for refusing to assign the patent – that he 

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distrusted Thomas and that he was suspicious that the assignment was not going to the entity 

with which he was affiliated – is plausible. Accordingly, Schwab’s refusal to assign Thomas the 

‘474 patent was justified by law, and as such, the refusal cannot be the basis for a claim of 

tortious interference. Therefore, summary judgment is proper as to Thomas’s tortious 

interference claim. 

Additionally, the Court acknowledges Schwab’s argument relating to the statute of 

limitations because it is relevant to Schwab’s motion for Rule 11 sanctions, discussed below. 

Schwab argues that two of the business opportunities that Thomas bases his claim on – the 

TruckScan and Freightliner deals – occurred in 1996 and 1997 and therefore any tortious 

interference claims relating to them are barred by a three-year statute of limitations. See James 

v. Logee, 388 N.W.2d 294, 295-296 (Mich. Ct. App. 1986) (three-year statute of limitations 

applies to tortious interference actions). Thomas’s response is that Schwab failed to cite 

evidentiary support for his assertion that these events actually transpired in 1996 and 1997; 

Thomas has not submitted his own evidence that the events transpired within the statute of 

limitations. The Court notes that Schwab’s affidavit filed with his motion for Rule 11 sanctions 

(Dkt. 67-1) lays out these very dates, so the Court does have a record on which to determine the 

factual question of when these events took place. As Thomas has not put forth evidence that 

these events were within the statute of limitations, the Court finds that it is uncontested that the 

events were outside the statute of limitations. Accordingly, summary judgment is also granted as 

to these events on the basis of the statute of limitations. 

d. Breach of Fiduciary Duty 

In addition to the claims regarding inventorship of the ‘474 patent and tortious 

interference, the complaint contains a claim for breach of fiduciary duty. Count II, Compl. ¶ 16-

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19. Schwab argues that because the alleged breach of fiduciary was alleged only as to Plaintiff 

TS Holdings, Inc., which was voluntarily dismissed (Dkt. 26), this count must be dismissed. 

Thomas, the only remaining Plaintiff in this case, does not contest this. Accordingly, because 

the entity at which the claim is directed is no longer a party to the case, Count II of the complaint 

is subject to dismissal. 

e. Plaintiff’s Motion for Partial Summary Judgment 

Thomas has filed a motion for partial summary judgment on the monies that Schwab 

claims are owed for services performed. Thomas argues that the Michigan statute of limitations 

bars recovery, as the work for which payments were due occurred between 1995 and 1998, 

according to Schwab’s deposition testimony. Schwab Dep. at 145-147. Schwab argues that 

because he continued to have a business relationship with Thomas and he continued to perform 

infrequent services for Thomas until 2008, his claim is not time barred. 

Under Michigan law, the statute of limitations for breach of contract is six years. Mich. 

Comp. Laws § 600.5807(8). The general rule is that the period of limitations begins to run at the 

time the claim accrues, and accrual occurs at “the time the wrong upon which the claim is based 

was done,” unless otherwise provided by statute. Id. § 600.5827. However, in the case of a 

“mutual and open account current,” the claim accrues at the time of the last item proved in the 

account. Id. § 600.5831; Payne v. Walker, 26 Mich. 60, 1872 WL 6017 at *2 (Mich. 1872). The 

question here is whether the ongoing relationship between the parties constitutes a mutual and 

open account current. 

A mutual and open account current is established through a course of dealing 

where “each party furnishes credit to the other on the reliance that on settlement 

the accounts will be allowed, so that one will reduce the balance due on the 

other.” 20 MICHIGAN LAW AND PRACTICE Statute of Limitations § 41. The 

essential elements of a mutual and open account current are that “there be 

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reciprocity of dealing, the items must not be all on one side, and there must be 

mutuality.” Id. 

Wausau Underwriters Ins. Co. v. Vulcan Dev., Inc., No. 00-CV-70879-DT, 2001 WL 34089607 

at *9 (E.D. Mich. Apr. 16, 2001). Schwab testified that he received no payments after 1997. 

(Schwab Dep. at 39). Accordingly, the business dealing was only one sided and the mutuality 

requirement is not satisfied. Because the business arrangement does not receive the benefit of 

Mich. Comp. Laws § 600.5831, the standard six-year statute of limitations applies and partial 

summary judgment is warranted with respect to claims for unpaid monies older than six years. 

Accordingly, summary judgment is granted for all claims for money due before January 18, 

2004, six years prior to the date Schwab filed his counterclaim (Dkt. 6). 

f. Sanctions 

Both parties have filed for Rule 11 sanctions on the grounds that a portion of the 

opposing party’s claims is barred by the statute of limitations, and that the opposing party knew 

or should have known that such claim, at least in part, is not viable. Defendant further argues 

that Plaintiff’s inventorship claim lacks proof and legal basis, and that Plaintiff has proffered no 

proof of any damages. Under Rule 11, a party or attorney provides an implied certification that 

for every paper filed with the Court, 

to the best of the person’s knowledge, information, and belief, formed after an 

inquiry reasonable under the circumstances: 

(1) it is not being presented for any improper purpose, such as to harass, 

cause unnecessary delay, or needlessly increase the cost of litigation; 

(2) the claims, defenses, and other legal contentions are warranted by 

existing law or by a nonfrivolous argument for extending, modifying, or 

reversing existing law or for establishing new law; 

(3) the factual contentions have evidentiary support or, if specifically so 

identified, will likely have evidentiary support after a reasonable 

opportunity for further investigation or discovery; and 

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(4) the denials of factual contentions are warranted on the evidence or, if 

specifically so identified, are reasonably based on belief or a lack of 

information. 

Rule 11(b). Rule 11 gives courts discretion to fashion sanctions to fit the circumstances of 

specific cases, taking into account the three justifications for invoking Rule 11 sanctions: 

punishment, compensation, and deterrence. 5A Charles Alan Wright and Arthur R. Miller, 

Federal Practice and Procedure § 1336.3, pp. 677-681 (3d ed. 2004). Parties have a “continuing 

responsibility to review and reevaluate [the] pleadings and where appropriate modify them to 

conform to Rule 11.” Runfola & Associates, Inc. v. Spectrum Reporting II, Inc., 88 F.3d 368, 

374 (6th Cir. 1996). “The test for the imposition of Rule 11 sanctions is whether the attorney’s 

conduct was objectively reasonable under the circumstances.” Nieves v. City of Cleveland, 153 

F. App’x 349, 552 (6th Cir. 2005). 

 With respect to each party’s argument regarding the statute of limitations, the Court has 

found, as discussed above, that Michigan statutes of limitations do bar a portion of each party’s 

claims. Nevertheless, because portions of the claims are within the respective statutes, the 

untimeliness of claims is not, on the whole, egregious enough to support awarding sanctions. 

Thomas’s claim regarding inventorship is more troubling. Thomas and counsel have 

apparently failed to conduct a reasonable inquiry into the law and the facts of the case, as 

required by Rule 11(b), because his claim has no basis in either. Thomas claims inventorship in 

the ‘474 patent, but the closest he comes to supporting that claim is to argue for ownership in the 

‘699 patent, a different patent. There is no evidence on the record of any inventive activity on 

the part of Thomas with respect to the patent in question. Thomas relies on the fact that he 

brought “the idea” of marketing automobiles with video to Schwab, and he argues that he 

provided the financing for the product, but he has not established any legal connection to the 

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patentable subject matter of the patent in question. Indeed, there is no evidence in the record 

showing that Thomas has ever read the ‘474 patent or understands its content. 

 Rule 11(b)(2) requires that legal contentions must be warranted by existing law or make 

a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing 

new law. Rule 11(b)(3) requires that factual contentions have evidentiary support. It is true that 

a pleading or motion may comply with Rule 11 even if the arguments contained within are 

rejected by the Court as long as they have a basis in law and have evidentiary support. Hartleip 

v. McNeilab, Inc., 83 F.3d 767, 778 (6th Cir. 1996) (“The relevant inquiry is whether a specific 

filing was, if not successful, at least well founded.”) (quoting Business Guides, Inc. v. Chromatic 

Communications Enters., Inc., 498 U.S. 533, 553 (1991)). However, Thomas and his counsel 

have violated Rule 11 by making arguments that are simply not relevant to the legal issue of 

patent inventorship and by continuing to advance those arguments after discovery uncovered no 

evidentiary support for the contention that Thomas was entitled to be declared a co-inventor of 

the ‘474 patent. Thus, as the Sixth Circuit said regarding a case in which it found that sanctions 

were warranted, “no reasonably prudent attorney, having performed even a modicum of 

investigation, would have filed those claims.” Nieves, 153 F. App’x at 553. 

In responding to Schwab’s motion for sanctions, Thomas relies on his response to 

Schwab’s motion for summary judgment and avers that his arguments regarding inventorship are 

adequate. Thomas’s Resp. to Schwab’s Mot. for Rule 11 Sanctions ¶ 4(b) (Dkt. 71). As 

discussed above, they are not. Thus, by violating Rule 11(b)(2) and 11(b)(3), Thomas and his 

counsel have exposed themselves to sanctions under Rule 11(c). Rule 11(c) provides for 

appropriate sanctions against any attorney, law firm, or party, after notice and a reasonable 

opportunity to respond. The parties and attorneys in this case have been given notice and an 

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opportunity to respond to the motions for sanctions. The Court concludes that the failure to 

conduct a reasonable inquiry into the merits of the inventorship claim by Thomas and his counsel 

justifies an imposition of such sanctions. 

What remains to be determined is the appropriate sanction. Schwab shall serve and file a 

supplemental brief (not to exceed 10 pages exclusive of attachments) setting forth his argument 

on the appropriate sanction to be imposed. If attorney fees and costs are requested, Schwab shall 

include an itemized statement of his expenses, including costs and attorney’s fees, incurred in 

litigating the inventorship claim only. Schwab’s brief must be served and filed on or before 

January 6, 2012, or Schwab will be deemed to have waived any right to sanctions. On or before 

January 27, 2012, Thomas and his counsel shall serve and file a responding supplemental brief 

(with the same page limitation). Upon receipt of the supplemental briefing, the Court will 

determine the appropriate sanction with respect to Thomas and/or his counsel. 

g. Attorney Ayad’s Motion to Withdraw 

On August 25, 2011, Thomas’s counsel filed a motion to withdraw. The Court held a 

hearing on the matter on October 12, 2011. Both Thomas and the Ayad law firm agreed to the 

withdrawal. Accordingly, the Court grants the motion. While the Ayad firm is allowed to 

withdraw from representing Thomas, it and the attorneys who are withdrawing remain subject to 

the Court’s jurisdiction pending the resolution of the matter of sanctions, as discussed above. 

Thomas will have until January 27, 2011 for new counsel to file an appearance. If no appearance 

is filed, Thomas will be deemed to be proceeding pro se. 

IV.Conclusion 

For the forgoing reasons, it is ordered as follows: 

 Schwab’s motion for summary judgment (Dkt. 49) is granted. 

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 Thomas’s motion for partial summary judgment (Dkt. 63) is partially granted and 

partially denied, as follows: granted as to claims for breach of contract arising 

earlier than January 18, 2004, six years prior to Schwab’s claim, and denied as to 

claims for breach of contract arising later than January 18, 2004. 

 Schwab’s motion for sanctions (Dkt. 67) is partially granted and partially denied, 

as follows: granted as to Thomas’s inventorship claim, and denied as to Thomas’s 

tortious interference with business relations claim; supplemental briefing on 

sanctions shall be served and filed in accordance with the schedule set forth 

above. 

 Thomas’s motion for sanctions (Dkt. 70) is denied. 

 The Ayad motion to withdraw (Dkt. 78) is granted, but the firm and its attorneys 

remain subject to the Court’s jurisdiction pending the resolution of the matter of 

sanctions. New counsel for Thomas must file an appearance by January 27, 2012, 

or Thomas will be deemed to be proceeding pro se. 

 The joint final pretrial order in this matter shall be submitted on or before 

February 10, 2012. The final pretrial conference shall be conducted on February 

27, 2012 at 1:30 p.m. Bench trial will conducted on March 19, 2012 at 8:30 a.m. 

SO ORDERED. 

Dated: December 16, 2011 s/Mark A. Goldsmith 

 Flint, Michigan MARK A. GOLDSMITH 

 United States District Judge 

CERTIFICATE OF SERVICE

 The undersigned certifies that the foregoing document was served upon counsel of record 

and any unrepresented parties via the Court's ECF System to their respective email or First Class 

U.S. mail addresses disclosed on the Notice of Electronic Filing on December 16, 2011. 

 s/Deborah J. Goltz 

 DEBORAH J. GOLTZ 

 Case Manager 

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