Court Opinion

ID: 4502159
Source: CourtListenerOpinion
Date Created: 2020-01-28 17:00:39.482773+00
Date Added: 2024-06-11T13:39:37.787836
License: Public Domain

Case: 19-1430   Document: 48     Page: 1    Filed: 01/28/2020

        NOTE: This disposition is nonprecedential.

   United States Court of Appeals
       for the Federal Circuit
                 ______________________

       SAUDER MANUFACTURING COMPANY,
               Plaintiff-Appellant

                            v.

     J SQUARED, INC., DBA UNIVERSITY LOFT
                  COMPANY,
            Defendant-Cross-Appellant
             ______________________

                  2019-1430, 2019-1479
                 ______________________

    Appeals from the United States District Court for the
 Northern District of Ohio in No. 3:14-cv-00962-JZ, Judge
 Jack Zouhary.
                 ______________________

                Decided: January 28, 2020
                 ______________________

     MICHAEL M. JACOB, Young Basile Hanlon & MacFar-
 lane P.C., Troy, MI, argued for plaintiff-appellant. Also
 represented by EDDIE D. WOODWORTH, THOMAS YOUNG.

     THOMAS R. DEVOE, Taft, Stettinius & Hollister, LLP,
 Indianapolis, IN, argued for defendant-cross-appellant.
 Also represented by MELISSA A. MACCHIA.
                  ______________________
Case: 19-1430    Document: 48      Page: 2    Filed: 01/28/2020

 2                          SAUDER MFG. CO. v. J SQUARED, INC.

     Before DYK, WALLACH, and STOLL, Circuit Judges.
 STOLL, Circuit Judge.
     This appeal arises from a dispute following the settle-
 ment of a patent infringement action brought by Sauder
 Manufacturing Company against J Squared, Inc., doing
 business as University Loft Company (hereinafter, “ULC”).
 Sauder filed a petition alleging that ULC had failed to com-
 ply with the terms of the parties’ settlement agreement and
 accompanying permanent injunction. The district court ul-
 timately rejected all of the claims in Sauder’s petition, de-
 clining to grant any relief to Sauder. Pursuant to terms of
 the settlement agreement, ULC moved to recover the at-
 torney fees and costs it incurred in the post-settlement dis-
 pute, but the district court denied that relief too.
     Sauder appeals the district court’s order determining
 that ULC complied with the terms of the settlement agree-
 ment and permanent injunction. Because we discern no
 reversible error in the district court’s determinations re-
 garding ULC’s compliance, we affirm the district court’s or-
 der on that ground. ULC cross-appeals the district court’s
 order denying an award of attorney fees and costs. Because
 we conclude that ULC is the prevailing party in this action,
 we reverse the district court’s prevailing party determina-
 tion and remand for a determination of the amount of at-
 torney fees and costs to be awarded to ULC under the
 terms of the settlement agreement.
                         BACKGROUND
     In May 2014, Sauder sued ULC, alleging that ULC’s
 WAVE chairs infringed several of Sauder’s patents. The
 patents at issue 1 are generally directed to a “game chair”—

     1  Sauder asserted U.S. Patent Nos. D585,204,
 8,585,136, and 8,960,787 in the patent infringement suit.
 Two of Sauder’s related patents, U.S. Patent
Case: 19-1430     Document: 48        Page: 3   Filed: 01/28/2020

 SAUDER MFG. CO. v. J SQUARED, INC.                           3

 a convertible desk chair that can be decoupled into a floor
 rocker and a base table. Sauder and ULC negotiated a set-
 tlement in August 2017, and the parties executed a settle-
 ment agreement the following month. The district court
 entered a permanent injunction as specified in the settle-
 ment agreement. The district court dismissed the case
 with prejudice, retaining jurisdiction over the parties for
 the ongoing enforcement of the injunction and settlement
 agreement.
                               I
     The settlement agreement requires ULC to cease the
 promotion and sale of its allegedly infringing chairs. The
 injunction also separately enjoins ULC from selling the al-
 legedly infringing chairs and any products that infringe the
 patents at issue. The settlement agreement does, however,
 specify a permissible way for ULC to modify and sell its
 existing inventory of WAVE chairs. The authorized modi-
 fication is called the FRED chair, and entails sawing off the
 curved rails that enable the decoupled chair to rock on the
 floor, leaving behind four stubby feet.
     The settlement agreement specifies that it “shall be
 governed by and construed in accordance with the laws of
 the State of Ohio,” J.A. 384 ¶ 15(a), and that it “supersedes
 any and all prior or contemporaneous negotiations, repre-
 sentations, agreements and understandings, written or
 oral, that the Parties may have reached with respect to the
 subject matter hereof,” J.A. 385–86 ¶ 15(g). It provides a
 150-day compliance period applicable to some provisions,
 and a 7-day cure period for all alleged breaches. The “pre-
 vailing party” in any dispute arising under the settlement
 agreement is “entitled to recover reasonable attorney’s fees

 Nos. 9,370,249 and 9,668,583, are also within the scope of
 the settlement agreement and permanent injunction at is-
 sue.
Case: 19-1430     Document: 48      Page: 4   Filed: 01/28/2020

 4                          SAUDER MFG. CO. v. J SQUARED, INC.

 and costs incurred in connection therewith.”         J.A. 385
 ¶ 15(b).
                               II
     The peace brought by the settlement agreement did not
 last long. In March 2018, Sauder returned to the district
 court to allege that ULC had failed to comply with the set-
 tlement agreement and permanent injunction. A discovery
 period followed, in which the district court denied Sauder’s
 request for third-party discovery from ULC’s customers but
 ordered additional discovery from ULC instead. Following
 discovery, Sauder petitioned the district court to find ULC
 in breach of the settlement agreement and in violation of
 the permanent injunction.
     In its petition, Sauder complained that ULC had
 breached the agreement and violated the injunction by de-
 clining to convert its existing inventory of WAVE chairs
 into the specified FRED chair. ULC had instead inserted
 pins to connect the floor rocker and base table components
 together so that they may not be easily detached, and sold
 the resulting product as a non-convertible “pinned chair.”
 Sauder also complained that ULC’s removal of the WAVE
 chair from its website and other promotional materials was
 not sufficiently speedy or comprehensive to satisfy ULC’s
 obligations under the settlement agreement.
     The district court rejected all of Sauder’s claims and
 denied any relief to Sauder. In particular, the district court
 found that “ULC made a reasonable disposition of its re-
 maining inventory by modifying that inventory to prevent
 the easy conversion of the chair from fixed to rocker.”
 J.A. 14. While the district court acknowledged that “the
 modification undertaken by ULC was not specifically dis-
 cussed during settlement,” the settlement agreement “did
 not prohibit ULC from disposing of inventory in other non-
 infringing ways,” and the alternative modification “accom-
 plished the same purpose intended by the [a]greement.”
 Id. With regard to the removal of the allegedly infringing
Case: 19-1430     Document: 48        Page: 5   Filed: 01/28/2020

 SAUDER MFG. CO. v. J SQUARED, INC.                           5

 chairs from the website and promotional materials, the dis-
 trict court found that ULC made a “good faith effort” and
 “took reasonable steps” to comply with its obligations un-
 der the settlement agreement. J.A. 13. There was no harm
 to Sauder, furthermore, because there were no shipments
 of the allegedly infringing chairs, and therefore no sales
 lost by Sauder.
     Both parties sought to recover attorney fees and costs
 for the post-settlement dispute, as contemplated by the
 terms of the settlement agreement. The district court de-
 nied both requests. The district court reasoned that “both
 sides have proceeded in good faith, and both have ‘pre-
 vailed’ in the sense that this litigation is concluded.”
 J.A. 15. The district court also noted that the post-settle-
 ment dispute potentially could have been avoided “if ULC
 had initiated conversations with Sauder or this Court be-
 fore selling” the pinned chairs. Id.
     Sauder appeals the district court’s denial of relief and
 additional discovery. ULC cross-appeals the district
 court’s denial of an award of attorney fees and costs. We
 have jurisdiction under 28 U.S.C. § 1295(a)(1).
                         DISCUSSION
                               I
      We first address Sauder’s appeal. Among other argu-
 ments, Sauder insists that the district court erred when it
 declined to hold that ULC breached the settlement agree-
 ment and violated the injunction by making and selling the
 pinned chairs. For the reasons that follow, we disagree and
 affirm the district court’s ruling.
     The interpretation of contracts, including settlement
 agreements, is a question of law that we review de novo.
 SUFI Network Servs., Inc. v. United States, 785 F.3d 585,
 590 (Fed. Cir. 2015) (citing Augustine Med., Inc. v. Progres-
 sive Dynamics, Inc., 194 F.3d 1367, 1370 (Fed. Cir. 1999)).
 We review the district court’s underlying findings of fact
Case: 19-1430     Document: 48     Page: 6    Filed: 01/28/2020

 6                          SAUDER MFG. CO. v. J SQUARED, INC.

 for clear error. Id. at 589–90 (citing Ind. Mich. Power Co. v.
 United States, 422 F.3d 1369, 1373 (Fed. Cir. 2005)). Our
 interpretation of the settlement agreement is governed by
 Ohio law. J.A. 384 ¶ 15(a). Under Ohio law, the purpose
 of contract construction is “to ascertain and give effect to
 the intent of the parties.” Foster Wheeler Enviresponse,
 Inc. v. Franklin Cty. Convention Facilities Auth.,
 678 N.E.2d 519, 526 (Ohio 1997) (citing Aultman Hosp.
 Ass’n v. Cmty. Mut. Ins. Co., 544 N.E.2d 920, 923 (Ohio
 1989)). “Where the terms of a contract are clear and un-
 ambiguous, [a] court cannot find a different intent from
 that expressed in the contract.” E.S. Preston Assocs., Inc.
 v. Preston, 492 N.E.2d 441, 445 (Ohio 1986) (citing Alexan-
 der v. Buckeye Pipe Line Co., 374 N.E.2d 146, 150 (Ohio
 1978)).
     On appeal, Sauder asserts that ULC breached the set-
 tlement agreement by making and selling the pinned
 chairs. Sauder essentially contends that the FRED modi-
 fication is the only allowable option under the settlement
 agreement, and all other modifications to the WAVE chairs
 in inventory constitute a breach of the settlement agree-
 ment. See Appellant’s Br. 23 (“The FRED chair was the
 only authorized modification of ULC’s unsold inventory.”
 (emphases omitted)); see also Oral Arg. at 2:05–2:29, avail-
 able      at     http://oralarguments.cafc.uscourts.gov/de-
 fault.aspx?fl=2019-1430.mp3 (similar).
     We agree that the settlement agreement contemplates
 that ULC will modify its existing inventory of WAVE chairs
 by converting them into FRED chairs. But Sauder’s inter-
 pretation that ULC must perform this conversion is contra-
 dicted by the plain language of the agreement:
     Sauder shall not assert any patent infringement
     claims against ULC based upon the manufacture
     and sale of the four-legged convertible chair de-
     signed and illustrated by ULC in the attached Ex-
     hibit C (the “FRED” chair); provided, however, that
Case: 19-1430     Document: 48        Page: 7   Filed: 01/28/2020

 SAUDER MFG. CO. v. J SQUARED, INC.                           7

     this non assertion provision shall apply only to the
     FRED chair in a form substantially identical to
     that illustrated in Exhibit C, and shall not apply to
     any modification thereof which includes, by way of
     example, and not by limitation, a rail or strut be-
     tween the lower ends of the front and rear legs of
     such chair, whether or not such rail is curved to
     provide a rocker function.
     Subject to the provisions of paragraph 7 hereof,
     ULC shall be permitted to modify and sell the ap-
     proximately 900 existing units of the version 2.0
     and/or 2.1 WAVE and/or VECTOR brand chairs in
     its inventory into the FRED chair. Sauder will
     make no claim of infringement against ULC based
     on the offer for sale and/or sale of said chairs as
     modified according to the description contained in
     Exhibit C herein.
 J.A. 380–81 ¶¶ 7, 8 (emphases added) (headings omitted).
      These terms are a clear and unambiguous promise
 from Sauder to ULC not to sue for patent infringement if
 ULC applies a certain modification to its existing inventory
 of WAVE chairs. ULC is expressly permitted to convert its
 inventory to the FRED chair, but is not required to do so.
 ULC may take a different approach at its own risk, such as
 inserting pins into the release mechanism so that the
 chairs are no longer convertible. And just as ULC is not
 required to modify its inventory in the way specified in the
 agreement, Sauder is not precluded from suing if it believes
 that ULC’s selected modification is infringing. Notably,
 ULC maintains that the pinned chairs are non-infringing,
 and Sauder has not alleged that the pinned chairs infringe
 its patents except to the extent that the pins are easily re-
 moved. The district court, however, found that the pins
 “prevent the easy conversion of the chair from fixed to
 rocker” and that ULC was not prohibited from disposing of
 its inventory in “other non-infringing ways,” thus
Case: 19-1430    Document: 48      Page: 8    Filed: 01/28/2020

 8                          SAUDER MFG. CO. v. J SQUARED, INC.

 suggesting that the pinned chairs are a non-infringing
 modification. J.A. 14. That finding is not clearly errone-
 ous.
      Sauder further argues that ULC’s modifications are
 improper because the settlement discussions that gave rise
 to the settlement agreement focused on the presence of the
 rocker rails in the accused chairs—not their convertibility.
 But the settlement agreement includes an integration
 clause that plainly precludes consideration of any such pa-
 rol evidence:
     This Agreement and its attached exhibits consti-
     tute the entire understanding and only agreement
     between the Parties with respect to the subject
     matter hereof and supersedes any and all prior or
     contemporaneous negotiations, representations,
     agreements and understandings, written or oral,
     that the Parties may have reached with respect to
     the subject matter hereof.
 J.A. 385–86 ¶ 15(g). Once again, Sauder asks us to depart
 from the clear and unambiguous language of the settle-
 ment agreement to impose additional obligations on ULC.
 We decline to do so.
     We have considered the other arguments raised by
 Sauder—including that the district court erred by conclud-
 ing that ULC complied with the settlement agreement pro-
 visions relating to promotional materials, denying Sauder’s
 petition to hold ULC in contempt for violations of the per-
 manent injunction, and denying Sauder’s request for addi-
 tional discovery from ULC’s customers—but we discern no
 error in the district court’s thorough analysis. Accordingly,
 we affirm the district court’s order holding that ULC com-
 plied with its obligations under the settlement agreement
 and permanent injunction.
Case: 19-1430     Document: 48        Page: 9   Filed: 01/28/2020

 SAUDER MFG. CO. v. J SQUARED, INC.                           9

                               II
     We now turn to ULC’s cross-appeal. ULC asserts that
 the district court erred by failing to perform a prevailing
 party analysis under Ohio law, as required by the settle-
 ment agreement. For the reasons that follow, we agree.
     The interpretation of the meaning of “prevailing party”
 in the settlement agreement is governed by Ohio law. See
 J.A. 384 ¶ 15(a). Under Ohio law, “persons have a funda-
 mental right to contract freely with the expectation that
 the terms of the contract will be enforced.” Nottingdale
 Homeowners’ Ass’n, Inc. v. Darby, 514 N.E.2d 702, 705
 (Ohio 1987). “Where the terms in a contract are not am-
 biguous, courts are constrained to apply the plain language
 of the contract.” City of St. Marys v. Auglaize Cty. Bd. of
 Comm’rs, 875 N.E.2d 561, 566 (Ohio 2007) (citing Nation-
 wide Mut. Fire Ins. Co. v. Guman Bros. Farm, 652 N.E.2d
684 (Ohio 1995)). In particular, “[a]ttorney fees may be
 awarded when . . . an enforceable contract specifically pro-
 vides for the losing party to pay the prevailing party’s at-
 torney fees,” so long as that contract is entered into freely.
 Wilborn v. Bank One Corp., 906 N.E.2d 396, 400 (Ohio
 2009) (citing Nottingdale, 514 N.E.2d at 702).
     The settlement agreement plainly and unambiguously
 requires an award of reasonable attorney fees and costs to
 the prevailing party in disputes arising under the agree-
 ment:
     ULC and Sauder agree to submit to the jurisdiction
     and venue in the Northern District of Ohio for any
     and all disputes that may arise under this Settle-
     ment Agreement and that the prevailing party in
     any such dispute shall be entitled to recover reason-
     able attorney’s fees and costs incurred in connection
     therewith.
 J.A. 385 ¶ 15(b) (emphasis added). Sauder does not argue
 that the settlement agreement is a contract of adhesion or
Case: 19-1430    Document: 48      Page: 10     Filed: 01/28/2020

 10                          SAUDER MFG. CO. v. J SQUARED, INC.

 otherwise unenforceable. Accordingly, the district court
 was obligated to enforce this provision of the settlement
 agreement under Ohio law.
      The only remaining question, then, is whether ULC is
 a prevailing party. Under Ohio law, the determination of
 a prevailing party is a question of law reviewed de novo.
 Simbo Props., Inc. v. M8 Realty, L.L.C., No. 107161,
 2019 WL 5491350, at *7 (Ohio Ct. App. Oct. 24, 2019) (first
 citing Thomas v. Cleveland, 892 N.E.2d 454, 459–60
 (Ohio Ct. App. 2008); then citing Hustler Cincinnati, Inc. v.
 Elm 411, LLC, No. C–130754, 2014 WL 7339031, at *3
 (Ohio Ct. App. Dec. 24, 2014)). Because the settlement
 agreement does not define “prevailing party,” we look to
 Ohio law for guidance as to its meaning. Under Ohio law,
 “[a] party’s status as the prevailing party ‘does not depend
 upon the degree of success at different stages of the suit,
 but whether, at the end of the suit, or other proceeding, the
 party who had made a claim against the other, has success-
 fully maintained it.’” Hustler, 2014 WL 7339031, at *3
 (quoting Hikmet v. Turkoglu, 2009 WL 4699101,
 No. 08AP–1021, at *14 (Ohio Ct. App. Dec. 10, 2009)).
     Applying this standard, we hold that ULC is the pre-
 vailing party in this action. Sauder advanced several post-
 settlement claims against ULC, but Sauder did not “suc-
 cessfully maintain” a single one. Sauder ultimately failed
 to obtain any relief from the district court based on its post-
 settlement petition. Indeed, counsel for Sauder conceded
 at oral argument that Sauder did not prevail on any issue
 in this action. See Oral Arg. at 35:06–35:35.
     The recent Simbo decision from the Ohio appellate
 courts is instructive here. See generally Simbo, 2019 WL
5491350, at *7–11. The Simbo court was confronted with
 a lease between two commercial entities that included a
 similar fee-shifting provision: “If a lawsuit is filed with re-
 spect to this Lease, the prevailing party shall be entitled to
 collect all reasonable attorney’s fees and costs.” Id. at *8.
Case: 19-1430    Document: 48      Page: 11    Filed: 01/28/2020

 SAUDER MFG. CO. v. J SQUARED, INC.                         11

 “Prevailing party” was not defined within the lease agree-
 ment. Id. Because the outcome of the litigation was mixed,
 the parties disputed who was the prevailing party under
 the terms of the lease. Id. at *7. To resolve the dispute,
 the Simbo court considered whether the “main issue” or
 “some relief” standard should apply to the lease agree-
 ment’s fee-shifting provision under Ohio law. See id. at *8–
 10. The Simbo court held that the “main issue” standard
 applies in the situation “where two consenting, sophisti-
 cated parties, represented by counsel knowingly and will-
 ingly negotiated a commercial lease agreement.” Id.
 at *11. The court reasoned that “[w]hile public policy in
 consumer protection and civil rights litigation supports a
 broader interpretation of ‘prevailing party,’ no similar need
 exists in negotiated commercial fee-shifting clauses be-
 tween sophisticated parties.” Id. at *10. After all, “[i]f the
 parties had desired to define ‘prevailing party,’ . . . [they]
 could have drafted that provision into the lease.” Id. at *8.
     This case similarly involves two sophisticated parties
 that freely negotiated an agreement and declined to define
 “prevailing party.” They expressly chose Ohio law and ne-
 gotiated the settlement agreement in the context of the
 same case law relied on by the Simbo court. Sauder initi-
 ated this post-settlement action and failed to obtain any
 relief. Because Sauder obtained nothing by virtue of this
 action, ULC is the prevailing party under Ohio law—re-
 gardless of whether the “main issue” or “some relief” stand-
 ard applies to the fee-shifting provision.
      The district court did not correctly apply Ohio law to
 analyze the prevailing party issue. Instead, it only ob-
 served that (1) both parties had “proceeded in good faith,”
 (2) both parties had “‘prevailed’ in the sense that this liti-
 gation is concluded,” and (3) the recent phase of post-set-
 tlement litigation could potentially have been avoided or
 curtailed if ULC had initiated conversations with Sauder
Case: 19-1430    Document: 48      Page: 12    Filed: 01/28/2020

 12                         SAUDER MFG. CO. v. J SQUARED, INC.

 prior to selling the modified chairs. 2 J.A. 15. None of these
 considerations are relevant to the prevailing party analysis
 under Ohio law. Indeed, the district court’s approach ren-
 ders the fee-shifting provision a nullity, in that no matter
 how the case was resolved, both parties will always prevail
 because the “litigation is concluded.” That violates ULC’s
 “fundamental right to contract freely with the expectation
 that the terms of the contract will be enforced.” Notting-
 dale, 514 N.E.2d at 705. Accordingly, we reverse the dis-
 trict court’s prevailing party determination. We hold that
 ULC is the prevailing party and is therefore entitled under
 the settlement agreement to recover reasonable attorney
 fees and costs incurred in connection with this action.
                         CONCLUSION
     For the foregoing reasons, we reverse the district
 court’s prevailing party determination and remand for a
 determination of the amount of attorney fees and costs to
 award to ULC. We affirm the district court’s orders in all
 other respects.
      AFFIRMED-IN-PART, REVERSED-IN-PART,
                AND REMANDED

      2   To the extent the district court found that ULC
 failed to give pre-sale notice of its intent to modify the
 WAVE chairs, the district court clearly erred. On March 2,
 2018, the same day that ULC first entered an agreement
 to sell the pinned chairs to a customer, ULC notified
 Sauder that it intended to “modify the chair into a non-con-
 vertible office chair that cannot detach or function as a sep-
 arate gamer chair with table,” which “falls well outside the
 scope of Sauder’s patents.” J.A. 1591; see also J.A. 1662
 (purchase order for pinned chairs dated March 2, 2018,
 “[t]o be delivered Summer 2018”). In any event, this fact is
 irrelevant to the prevailing party analysis under Ohio law.
Case: 19-1430    Document: 48     Page: 13   Filed: 01/28/2020

 SAUDER MFG. CO. v. J SQUARED, INC.                      13

                            COSTS
     Costs to cross-appellant.