Court Opinion

ID: 6112132
Source: CourtListenerOpinion
Date Created: 2022-01-24 21:02:51.279124+00
Date Added: 2024-06-11T08:54:22.142680
License: Public Domain

Case: 20-1739   Document: 76     Page: 1    Filed: 01/12/2022

        NOTE: This disposition is nonprecedential.

   United States Court of Appeals
       for the Federal Circuit
                 ______________________

     PLASTRONICS SOCKET PARTNERS, LTD.,
          PLASTRONICS H-PIN, LTD.,
              Plaintiffs-Appellants

                            v.

                DONG WEON HWANG,
                Defendant-Cross-Appellant

        HICON CO., LTD., HICON COMPANY,
               Defendants-Appellees
              ______________________

                  2020-1739, 2020-1781
                 ______________________

    Appeals from the United States District Court for the
 Eastern District of Texas in No. 2:18-cv-00014-JRG-RSP,
 Chief Judge J. Rodney Gilstrap.
                  ______________________

                Decided: January 12, 2022
                 ______________________

    P. MICHAEL JUNG, Clark Hill Strasburger, Dallas, TX,
 argued for plaintiffs-appellants.

    STEPHANIE SIVINSKI, Haynes & Boone, LLP, Dallas, TX,
 argued for defendant-cross-appellant and defendant-
Case: 20-1739    Document: 76     Page: 2    Filed: 01/12/2022

 2                     PLASTRONICS SOCKET PARTNERS   v. HWANG

 appellee. Also represented by JOHN RUSSELL EMERSON,
 DEBRA JANECE MCCOMAS; ANGELA OLIVER, Washington,
 DC.
                 ______________________

      Before DYK, HUGHES, and STOLL, Circuit Judges.
 DYK, Circuit Judge.
     Plastronics Socket Partners, Ltd. (“Plastronics Socket”)
 and Plastronics H-Pin, Ltd. (collectively, “Plaintiffs”)
 brought suit against Dong Weon Hwang, HiCon Co., Ltd.
 (“HiCon”), and HiCon Company (collectively, “Hwang”), al-
 leging patent infringement, various torts, and breach of
 contract. Hwang brought counterclaims for patent in-
 fringement and breach of contract. Following a jury trial,
 the district court awarded damages to both Hwang and
 Plaintiffs under the breach of contract claims. We affirm
 the judgment in favor of Hwang and reverse the judgment
 in favor of Plaintiffs.
                         BACKGROUND
     Spring pins are used with sockets to receive and test
 semiconductor chips. Hwang developed a type of spring pin
 referred to as the H-Pin around 2004 while living and
 working in Korea. Prior to the H-Pin, the most common
 form of spring pin was manufactured using machined
 parts. The H-Pin was designed to be manufactured by
 stamping instead of machining. Stamping parts provides
 benefits of speed and cost over machining parts.
     After moving from Korea to Texas, Hwang began work-
 ing for Plastronics Socket in October 2004. Hwang filed an
 application for a Korean patent on the H-Pin invention
 around the time he started at Plastronics Socket.
      In 2005, Hwang and Plastronics Socket executed a Roy-
 alty Agreement. Under the Royalty Agreement, Plastron-
 ics Socket would pay for commercial development of the H-
 Pin, the costs associated with patent applications
Case: 20-1739    Document: 76     Page: 3    Filed: 01/12/2022

 PLASTRONICS SOCKET PARTNERS   v. HWANG                      3

 worldwide, and a 3% royalty on sales of H-Pins and sockets
 containing H-Pins “after all non-reoccurring capital costs.”
 J.A. 12,426. Hwang, for his part, granted Plastronics
 Socket the joint right to practice the technology covered by
 the H-Pin patents worldwide except in Korea and agreed to
 share royalties he was paid from third parties (paragraph
 4). Specifically, paragraph 4 of the Royalty Agreement
 states:
    Remuneration to [Plastronics Socket]: As a as-
    signee of the patent or patents pertaining to the H-
    pin project, Hwang has certain rights to use this
    patent or license the patent with consent of the
    other assignee, [Plastronics Socket]. In the event
    the patent royalties are paid by a third party, [Plas-
    tronics Socket] and Hwang will split royalty
    50%/50% respectively. In the event when Hwang
    works directly for another entity, [Plastronics
    Socket] will be entitled to 1.5% of royalty([Plastron-
    ics Socket] and Hwang will split royalty 50%/50%
    respectively ) of gross sales of patented products
    from the “H-Pin Project” from this entity. If socket
    is sold with H-pin contact included, this rate is also
    3/2% of socket price.
 J.A. 12,426. 1 Both parties were prohibited from granting
 licenses on the H-Pin without the other party’s approval
 (paragraph 5). Specifically, paragraph 5 of the Royalty
 Agreement states:
    Licensing the “H-Pin Project” patent rights:
    Neither [Plastronics Socket] or Hwang can grant a
    license for the patents covering the “H-Pin Project”
    without approval from the other party.

    1    Spelling and other errors in original have not been
 corrected.
Case: 20-1739     Document: 76     Page: 4    Filed: 01/12/2022

 4                    PLASTRONICS SOCKET PARTNERS    v. HWANG

 J.A. 12,427.
     In 2008, Hwang left Plastronics Socket, founded HiCon
 in Korea, and licensed his Korean patent to HiCon—alleg-
 edly without the required consent from Plastronics Socket.
      The H-Pin was evidently a successful innovation, lead-
 ing the CEO of Plastronics Socket, David Pfaff, to tell
 Hwang in 2011, “All the spring pin companies are coming
 out with stamped spring probes. You have changed the
 world.” J.A. 13,037. Through the close of discovery at the
 district court, Plastronics Socket had sold over $65 million
 worth of sockets with H-Pins, accounting for more than half
 of its revenue, and did not pay Hwang royalties allegedly
 in violation of the agreement.
      In 2012, Plastronics Socket created Plastronics H-Pin
 through a divisive merger under Texas law and assigned
 all rights and obligations under the Royalty Agreement to
 Plastronics H-Pin. Plaintiffs argue that the divisive mer-
 ger barred liability for damages for socket sales.
      Before trial, the district court granted summary judg-
 ment to Hwang of no liability under paragraph 4 of the
 Royalty Agreement. At trial, Plaintiffs presented claims
 for breach of only paragraph 5. The district court in-
 structed the jury that it could award damages to Hwang
 under the Royalty Agreement for royalty payments “called
 for and due after January the 19th, 2014,” four years before
 the date the suit was filed (because of the four-year statute
 of limitations in Texas). J.A. 9944.
     After trial, the jury found both parties had breached
 the Royalty Agreement and awarded Plaintiffs $622,606
 for Hwang’s breach and awarded Hwang $1,361,860 for
 Plaintiffs’ breach. Plaintiffs appeal the denial of attorneys’
 fees and the damages awarded to Hwang. Hwang cross-
 appeals the damages awarded to Plaintiffs. We have juris-
 diction under 28 U.S.C. §§ 1291, 1295(a).
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 PLASTRONICS SOCKET PARTNERS       v. HWANG                   5

                          DISCUSSION
     Although the Royalty Agreement does not contain a
 choice-of-law provision, the contracts have been executed
 in Texas and both parties agree that Texas law applies. We
 therefore apply Texas law to these issues. Univ. of W. Va.
 Bd. of Trustees v. VanVoorhies, 278 F.3d 1288, 1296 (Fed.
 Cir. 2002). We review the district court’s contract interpre-
 tation de novo. Merritt Hawkins & Assocs., LLC v.
 Gresham, 861 F.3d 143, 154 (5th Cir. 2017). We also review
 the district court’s application of the statute of limitations
 de novo. In re Hinsley, 201 F.3d 638, 644 (5th Cir. 2000).
                               I
      Plaintiffs argue that the district court erred by uphold-
 ing a damages award that included socket sales by Plas-
 tronics Socket. Plaintiffs argue only Plastronics H-Pin was
 liable under the Royalty Agreement, and the district court
 thus erred by allowing damages to include sales of sockets
 with H-Pins because Plastronics Socket had no obligation
 under the Royalty Agreement. The question before us is
 whether the Texas divisive merger statute permits Plain-
 tiffs to avoid liability for sales of sockets with H-Pins under
 the Royalty Agreement by assigning the liability for royalty
 payments to a new subsidiary that does not sell such sock-
 ets while Plastronics Socket continues to sell the sockets.
 We hold it does not and affirm the district court’s judgment.
                               A
      The equipment involved in this case has two major
 components: (1) H-Pins and (2) sockets that receive chips
 for testing and include H-Pins, within the sockets, to con-
 nect to chips for testing. The Royalty Agreement required
 payment of royalties for the sale of H-Pins separately and
 also for the sale of H-Pins with sockets.
    In 2012, Plaintiffs entered into a divisive merger under
 Texas law allocating sole responsibility for license pay-
 ments under the Royalty Agreement to a newly created
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 6                    PLASTRONICS SOCKET PARTNERS    v. HWANG

 sister company, Plastronics H-Pin, which produced the H-
 Pins and sold them to Plastronics Socket as its sole cus-
 tomer. Plastronics H-Pin itself made no socket sales and
 received no payments on socket sales. Because all the lia-
 bilities under the Royalty Agreement were allocated to
 Plastronics H-Pin, Plastronics Socket argues it was not li-
 able for selling sockets with H-Pins. At least in part, the
 merger appears related to avoiding licensing payments.
 The objective was to “Spin off all the H-pin business into
 an entity and sell at cost to Plastronics as a master distrib-
 utor, therefore never worrying about royalties [to Hwang].”
 J.A. 12,831.
                               B
     Under general contract law principles, the assignment
 of rights through mergers cannot adversely affect the
 rights of parties contracting with the entities undergoing
 the mergers, i.e., obligors. The Restatement (Second) of
 Contracts states:
     (2) A contractual right can be assigned unless (a)
     the substitution of a right of the assignee for the
     right of the assignor would materially change the
     duty of the obligor, or materially increase the bur-
     den or risk imposed on him by his contract, or ma-
     terially impair his chance of obtaining return
     performance, or materially reduce its value to him
     ....
 Restatement (Second) of Contracts § 317(2) (1981); see Vt.
 Yankee Nuclear Power Corp. v. Entergy Nuclear Vt. Yankee,
 LLC, 683 F.3d 1330, 1340 (Fed. Cir. 2012) (“[U]nder stand-
 ard contract law, assignments are generally not permitted
 in situations where they would disadvantage the obligor.”).
 We must decide whether the Texas merger statute was de-
 signed to contradict this contract law principle.
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 PLASTRONICS SOCKET PARTNERS    v. HWANG                      7

    Under the Texas statute, a “domestic entity may effect
 a merger.” Tex. Bus. Orgs. Code Ann. § 10.001 (West
 2015). The statute requires:
     “If more than one organization is to survive or to be
     created by the plan of merger, the plan of merger
     must include . . . (3) the manner and basis of allo-
     cating each liability and obligation of each organi-
     zation that is a party to the merger . . . among one
     or more of the surviving or new organizations.”
 Id. § 10.003. “When a merger takes effect . . . (3) all liabil-
 ities and obligations of each organization that is a party to
 the merger are allocated to one or more of the surviving or
 new organizations in the manner provided by the plan of
 merger.” Id. § 10.008(a). Thus, Texas law plainly provides
 for the allocation of liabilities and obligations under its
 merger statute.
       But the Texas statute also ensures that, in accordance
 with the common law, such agreements cannot disad-
 vantage the obligee. The statute states, “This code does not
 . . . abridge any right or rights of any creditor under exist-
 ing laws.” Id. § 10.901. This language indicates that a pur-
 pose of the statute was to enable mergers that did not
 adversely affect the rights of parties under preexisting con-
 tracts with the entities undergoing the mergers. The leg-
 islative history confirms the intent that a
     [c]reditor’s rights would not be adversely affected
     by the proposed amendment, and creditors would
     continue to have the protections provided by the
     Uniform Fraudulent Transfer Act and other exist-
     ing statutes that protect the rights of creditors.
 H. Comm. on Bus. & Com., Bill Analysis, H.B. 472, 71st
 Reg. Sess., at 23 (Tex. 1989). And one of the authors of the
 Texas merger statute reflected:
     While the provisions permitting multiple surviving
     entities in a merger were intended to provide
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 8                    PLASTRONICS SOCKET PARTNERS    v. HWANG

     corporations with greater flexibility in structuring
     acquisition and restructuring transactions, they
     were not intended to have any material effect on
     the existing rights of creditors of the parties to a
     merger.
 Curtis W. Huff, The New Texas Business Corporation Act
 Merger Provisions, 21 St. Mary’s L.J. 109, 122 (1989).
     Two recent bankruptcy court cases also confirm this in-
 terpretation that the Texas divisive merger statute did not
 relieve companies of obligations under preexisting agree-
 ments. In re Aldrich Pump LLC, No. 20-30608 (JCW), 2021
 WL 3729335, at *27–30 (Bankr. W.D.N.C. Aug. 23, 2021);
 In re DBMP LLC, No. 20-30080 (JCW), 2021 WL 3552350,
 at *24–26 (Bankr. W.D.N.C. Aug. 11, 2021).
     Thus, the language of the statute, confirmed by its leg-
 islative history and consistent with the principles of con-
 tract law for assignment of rights, compels our conclusion
 that the Texas divisive merger statute does not enable an
 entity to eliminate royalty payments due under a contract
 with the predecessor entity. Plastronics Socket cannot di-
 vest itself of the obligation to pay royalties on sockets sold
 with H-Pins.
      Under the Royalty Agreement, Plastronics Socket is li-
 able for the royalty payments. The parties contemplated
 sales of sockets with H-Pins and addressed those sales spe-
 cifically in the contract. The Royalty Agreement states, “In
 light of the patent being invented before employment be-
 gan with [Plastronics Socket], Hwang will be entitled to the
 3% of gross sales policy for the life of the patent. If socket
 is sold with H-pin contact included, this rate is also 3% of
 socket price.” J.A. 12,426. And it states, “This agreement
 will continue in force to Hwang’s estate or designated party
 upon death or transfer.” J.A. 12,427. Eliminating socket
 sales (with H-Pins) from the royalties due to Hwang, as
 Plaintiffs have attempted to do here, unmistakably and
 materially reduces the value owed to Hwang, which runs
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 PLASTRONICS SOCKET PARTNERS   v. HWANG                     9

 counter to the language in the Royalty Agreement and the
 express intent of the Texas divisive merger statute. In
 light of our construction of the Texas merger statute and
 the clear language in the Royalty Agreement, Plaintiffs are
 liable for payment of royalties for sales of both H-Pins and
 sockets with H-Pins by either Plastronics Socket or Plas-
 tronics H-Pin.
   We affirm the district court’s award of damages to
 Hwang.
                              II
     With respect to Plaintiffs’ claim against Hwang, the
 district court found that the claim was not barred by the
 Texas four-year statute of limitations. Hwang argues that
 this holding was erroneous.
     Breach-of-contract cases are subject to a four-year stat-
 ute of limitations under Texas law, measured from the date
 the claim accrues. Stine v. Stewart, 80 S.W.3d 586, 592
 (Tex. 2002); Tex. Civ. Prac. & Rem. Code § 16.051. “It is
 well-settled law that a breach of contract claim accrues
 when the contract is breached,” Stine, 80 S.W.3d at 592,
 which occurs upon failure to perform a contractual duty,
 Greene v. Farmers Ins. Exch., 446 S.W.3d 761, 765 (Tex.
 2014). The “cause of action accrues and the statute of lim-
 itations begins to run when facts come into existence that
 authorize a party to seek a judicial remedy.” Provident Life
 & Acc. Ins. Co. v. Knott, 128 S.W.3d 211, 221 (Tex. 2003).
      Here, Plaintiffs initially claimed that Hwang was liable
 for breach of both paragraphs 4 and 5 of the Royalty Agree-
 ment. As explained earlier, paragraph 4 of the Royalty
 Agreement requires Hwang to split royalty payments with
 Plaintiffs. On summary judgment, the court held that
 “Plaintiffs are not entitled to a royalty payment under” par-
 agraph 4, J.A. 8286, because Plaintiffs had not presented
 any evidence that any royalty payment was ever received
 by Hwang from a third-party. As the court later stated, it
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 10                   PLASTRONICS SOCKET PARTNERS      v. HWANG

 granted “summary judgment as to any theory of breach of
 the Royalty Agreement as to Section 4,” which required
 “Mr. Hwang to split any royalties paid to him with Plas-
 tronics.” J.A. 11–12. Plaintiffs do not challenge the court’s
 summary judgment ruling on appeal.
     Plaintiffs at trial only sought to recover for breach of
 paragraph 5 in the Royalty Agreement. Paragraph 5 pro-
 hibits the parties from licensing the “H-Pin Project” with-
 out approval from the other party. J.A. 12,427. Hwang
 does not dispute that he breached the licensing require-
 ment in paragraph 5—he executed a license to HiCon on
 October 29, 2008. Hwang argues instead that this breach
 of paragraph 5 indisputably occurred almost ten years
 prior to filing of this lawsuit, which is well outside the four-
 year statute of limitations, and that the breach did not in-
 volve failure to make periodic payments.
     Hwang is correct: the breach of contract found by the
 jury arose from a single, unauthorized license grant.
 Hwang breached the agreement by licensing the patent to
 HiCon almost ten years before Plaintiffs filed suit. This
 case thus does not involve a claim for failure to make peri-
 odic payments similar to the situation in Hooks v. Samson
 Lone Star, LP, where the statute of limitations applied sep-
 arately to each missed payment. 457 S.W.3d 52, 68 (Tex.
 2015). The fact that the royalty payments described in par-
 agraph 4 could inform the damages for a breach of para-
 graph 5 due to unauthorized licensing does not affect the
 date on which the claim arose. The facts giving rise to the
 breach came into existence when Hwang granted the un-
 authorized license to HiCon—the breach accrued at that
 time and the statute of limitations began to run. See Knott,
 128 S.W.3d at 221. The four-year statute of limitations
 bars the claim.
                          CONCLUSION
      We reverse the damages awarded to Plaintiffs. Plain-
 tiffs are not the prevailing party, and we do not reach the
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 PLASTRONICS SOCKET PARTNERS   v. HWANG                 11

 attorneys’ fees issue. We affirm the damages awarded to
 Hwang for the sales of H-Pins and sockets with H-Pins, in-
 cluding the sales by Plastronics Socket.
      AFFIRMED IN-PART, REVERSED IN-PART
                          COSTS
 Costs to Hwang.