Court Opinion

ID: 2814135
Source: CourtListenerOpinion
Date Created: 2015-07-02 15:01:23.859286+00
Date Added: 2024-06-11T12:08:35.568264
License: Public Domain

NOTE: This disposition is nonprecedential.

  United States Court of Appeals
      for the Federal Circuit
                ______________________

                 BUCKHORN INC.,
                 Plaintiff-Appellant

        SCHOELLER ARCA SYSTEMS, INC.,
                  Plaintiff

                           v.

              ORBIS CORPORATION,
                Defendant-Appellee

 ORBIS MATERIAL HANDLING INC., DOES 1 - 6,
                 Defendants
           ______________________

                      2014-1711
                ______________________

   Appeal from the United States District Court for the
Southern District of Ohio in No. 3:08-cv-00459-TSB-MJN,
Judge Timothy S. Black.
                 ______________________

                 Decided: July 2, 2015
                ______________________

   JUDY L. WOODS, Benesch, Friedlander, Coplan &
Aronoff LLP, Indianapolis, IN, argued for plaintiff-
2                     BUCKHORN INC.   v. ORBIS CORPORATION

appellant. Also represented by PRISCILA A. ROCHA, Cleve-
land, OH.

    GASPARE JOSEPH BONO, McKenna Long & Aldridge,
LLP, Washington, DC, argued for defendant-appellee.
Also represented by JOHN WILLIAM LOMAS, JR., STEPHEN
M. CHIPPENDALE.
                ______________________

      Before LOURIE, PLAGER, and DYK, Circuit Judges.
DYK, Circuit Judge.
     Orbis Corporation and Orbis Material Handling, Inc.
(collectively, “Orbis”), the defendant and prevailing party
in a patent infringement suit, seeks attorney’s fees
against Buckhorn, Inc. (“Buckhorn”), one of the plaintiffs
in the infringement action.         Buckhorn’s co-plaintiff,
Schoeller Arca Systems, Inc. (“SAS”), had previously been
held liable to Orbis for fees pursuant to an agreement
between it (SAS) and Orbis. Orbis argues that it is enti-
tled to recover fees against Buckhorn under an indemnifi-
cation provision in a patent licensing agreement (the
“PLA”) between Buckhorn and SAS. Orbis also relies on
the district court’s inherent power to award attorney’s
fees.
    The district court awarded fees to Orbis against
Buckhorn under the PLA. But Orbis cannot recover
under the PLA because Orbis is neither a party to the
PLA nor a third-party beneficiary. Moreover, the district
court neither invoked nor had inherent power to award
fees in this case. We therefore reverse the district court’s
award of fees to Orbis.
                       BACKGROUND
   On December 12, 2008, Buckhorn filed suit against
Orbis, alleging infringement of U.S. Patent No. 5,199,592
BUCKHORN INC.   v. ORBIS CORPORATION                     3

(“the ’592 patent”), relating to improved hinges on trans-
portation containers. The ’592 patent was not owned by
Buckhorn. Rather, SAS owned the patent, and Buckhorn
was the (purportedly) co-exclusive licensee of the patent
under the PLA. The license granted under the agreement
was described as co-exclusive because SAS retained the
right to practice the patent as well. 1 The agreement
contained an indemnity clause, under which Buckhorn
would be obligated to “pay all costs and expenses associ-
ated with” SAS’ cooperation if Buckhorn “require[d] [SAS’]
cooperation in the maintenance of [an] infringement
action.” J.A. 93 § 3.03. Orbis moved to dismiss the com-
plaint brought by Buckhorn on standing grounds; in order
to avoid dismissal, SAS joined the suit, and Buckhorn and
SAS filed a joint amended complaint.
    SAS had previously granted Orbis a license to use the
same patent. That license was granted pursuant to a
Settlement and License Agreement entered into on Sep-
tember 15, 1992 (“the RX agreement”). Buckhorn was
apparently unaware of this license when it commenced
the infringement suit against Orbis. 2 The RX agreement
contained a fee provision clause:

   1    The PLA was originally between SAS and the
parent company of Buckhorn, Myers Industries, Inc.
(“Myers”). Myers subsequently transferred the agreement
to Buckhorn. It is undisputed that Buckhorn is now a
party to the PLA. For simplicity, in this opinion we will
omit chain-of-title details with respect to the agreements
in question, since they are irrelevant to the issues before
us. We will thus refer to the parties to the various
agreements as SAS, Orbis, and Buckhorn.
    2   Indeed, SAS expressly warranted to Buckhorn in
the PLA that it was the “owner of the entire right, title
4                      BUCKHORN INC.   v. ORBIS CORPORATION

    In any litigation based on a controversy or dispute
    arising out of or in connection with this Agree-
    ment or its interpretation, the prevailing party
    shall be entitled to recover all fees, costs, reasona-
    ble attorneys fees, and other expenses attributa-
    ble to the litigation.
J.A. 164. Buckhorn was not a party to the RX agreement.
    On November 22, 2011, the district court granted
summary judgment of non-infringement in favor of Orbis
because Orbis was licensed under the RX agreement.
    Orbis subsequently requested fees against SAS and
Buckhorn. It originally relied on the RX agreement’s fee
provision and 35 U.S.C. § 285. The district court denied
the fee request. With respect to § 285, the district court
declined to award fees because the case was not “excep-
tional” and “both sides contributed to the dilatory tactics,
discovery disputes, and frivolous motions for sanctions.”
J.A. 211, 213. With respect to the RX agreement, the
district court concluded that the fee provision did not
apply because the litigation was not “based on a contro-
versy or dispute arising out of or in connection with the
License” and that it would be unconscionable, in light of
the amount of time it took Orbis to produce the document,
to award fees under it. J.A. 203.
    Orbis appealed and challenged only the denial of fees
under the RX agreement. Although Orbis listed both SAS
and Buckhorn as appellees, Orbis expressly admitted in
its briefing before this court: “Buckhorn filed the Initial
Complaint, but [it] is not a party to the [RX agreement].
Orbis does not argue in this appeal that Buckhorn is
liable under the Fee Provision [of the RX agreement].”

and interest in and to the Licensed Patents.”         J.A. 93
§ 5.02.
BUCKHORN INC.   v. ORBIS CORPORATION                        5

Brief for Appellant at 21, Buckhorn Inc. v. Orbis Corp.,
547 F. App’x 967 (Fed. Cir. 2013) (No. 2012-1643). We
agreed that Buckhorn had no liability under the RX
agreement. See Buckhorn, 547 F. App’x at 971 n.3. We
determined that SAS was liable to pay Orbis’ fees under
the RX agreement because the language was broad
enough to cover infringement disputes arising out of the
licensed patents and because an award of fees was not
unconscionable. Id. at 971–73. We remanded for the
district court to determine a reasonable fee award under
that agreement. Id. at 974.
     On remand, Buckhorn moved to be dismissed from the
case, arguing that the remand proceedings only pertained
to the amount of SAS’ liability under the RX agreement.
In opposition, Orbis for the first time argued that Buck-
horn was liable under the PLA. Although the district
court acknowledged that “[t]he only remaining issue being
litigated is the request for attorney fees by Defendant
Orbis pursuant to the [RX] [a]greement,” J.A. 258, the
district court refused to dismiss Buckhorn. It reasoned
that Buckhorn was liable to pay SAS’ costs under the
PLA, and that “[t]his contractual obligation established
Buckhorn’s ongoing significance to this lawsuit.” J.A.
261. Additionally, the court reasoned that the “prosecu-
tion of this litigation has been controlled entirely by
Buckhorn for its own benefit” and that “leav[ing] [SAS] to
foot the bill” would be “not just.” Id. (citing DirectTV, Inc.
v. Leto, 467 F.3d 842, 845 (3d Cir. 2006)). Subsequently,
the district court awarded Orbis $2,788,594.50 in attor-
ney’s fees. Buckhorn moved for clarification that it was
not liable to Orbis under the RX agreement, which it
argued was the only basis for Orbis’ fee award. In the
district court’s clarification order, the district court
acknowledged that “Buckhorn is not liable for attorneys’
fees under the terms of the [RX] [a]greement.” J.A. 43.
However, the district court held Buckhorn liable to Orbis
6                     BUCKHORN INC.   v. ORBIS CORPORATION

under the PLA, even though Orbis was not a party to the
PLA, because, according to the district court, “the unam-
biguous language of the PLA requires Buckhorn to pay
any fees that may be ultimately awarded to Orbis.” J.A.
44 (citation and punctuation omitted).
    Buckhorn appeals. We have jurisdiction pursuant to
28 U.S.C. § 1295(a)(1). The RX agreement states that it is
governed by and construed under California law, and the
PLA states that it is governed by and construed under
New York law. In such circumstances, California law
governs the RX agreement, and New York law governs
the PLA. See Power Lift, Inc. v. Weatherford Nipple-Up
Sys., Inc., 871 F.2d 1082, 1085 (Fed. Cir. 1989); Tele-Save
Merch. Co. v. Consumers Distrib. Co., 814 F.2d 1120,
1122–24 (6th Cir. 1987). Questions concerning interpre-
tation of settlement and licensing agreements generally
do not raise issues unique to patent law. See Novamedix,
Ltd. v. NDM Acquisition Corp., 166 F.3d 1177, 1180 (Fed.
Cir. 1999) (citations omitted). Thus, we apply the law of
the appropriate regional circuit—here, the Sixth Circuit—
to questions not governed by our law, California law, or
New York law. 3

    3    Orbis argues that Buckhorn’s failure to appeal the
district court’s order denying Buckhorn’s motion to dis-
miss precludes us from reviewing the district court’s
decision to award fees under the PLA. This argument is
frivolous. A denial of a motion to dismiss in a case such
as this is not an interlocutory order appealable under 28
U.S.C. § 1292. See Texas Health Choice, L.C. v. Office of
Pers. Mgmt., 400 F.3d 895, 898 (Fed. Cir. 2005) (denial of
motion to dismiss not an interlocutory appeal under
§ 1292). Buckhorn appealed the award of fees, which the
district court characterized as a “final enforceable judg-
ment.” J.A. 41 n.1. It is beyond dispute that:
BUCKHORN INC.   v. ORBIS CORPORATION                       7

                        DISCUSSION
    Orbis cannot recover fees from Buckhorn under the
RX agreement. Orbis disclaimed this theory in its previ-
ous appeal: “Buckhorn filed the Initial Complaint, but is
not a party to the Settlement License. Orbis does not
argue in this appeal that Buckhorn is liable under the Fee
Provision.” Brief for Appellant at 21, Buckhorn, 547 F.
App’x 967 (No. 2012-1643). In our prior opinion, we
described SAS as being “the only plaintiff with obligations
under the fee provision” of the RX agreement. Buckhorn,
547 F. App’x at 971 n.3. After remand, the district court
noted that “[a]t no point has any party suggested that
Buckhorn is a party to or successor-in-interest to the [RX]
[a]greement” and concluded that “[n]o contract was ever
made between Buckhorn and Orbis. Accordingly, Buck-
horn is not liable for attorney’s fees under the terms of the
[RX] [a]greement.” J.A. 42–43. In its brief on this appeal,
Orbis admits: “Buckhorn’s joint-and-several liability does
not rest on the [RX] [a]greement.” Appellee’s Br. 26.
    Thus, the sole questions are whether the district court
properly awarded fees against Buckhorn under the PLA
and whether it could have awarded fees based on its
inherent authority.

    An appeal from the final judgment usually draws
    into question all prior nonfinal orders and all rul-
    ings which produced the judgment. Thus, a fail-
    ure of the notice of appeal to specifically refer to a
    preliminary or interlocutory order does not pre-
    vent the review of that order on appeal. Having
    appealed from the judgment, the appellant is free
    to attack any nonfinal order or ruling leading up
    to it.
20 James Wm. Moore et al., Moore’s Federal Practice
§ 303.21[3][c][iii] (3d ed. 2012).
8                      BUCKHORN INC.   v. ORBIS CORPORATION

    To sue under a contract such as the PLA, a plaintiff
must be a party to that contract or be an intended third-
party beneficiary of the contract. See 13 Williston on
Contracts § 37:9 (4th ed. 2013) (“[Unless they are intend-
ed beneficiaries,] third parties are neither bound by the
contract nor otherwise subject to its terms . . . .”); 9 Corbin
on Contracts §§ 44.1, 46.2 (rev. ed. 2007) (only contracting
promisees or intended beneficiaries may sue to enforce a
contract); German Alliance Ins. Co. v. Home Water Supply
Co., 226 U.S. 220, 230 (1912) (“Before a stranger can avail
himself of the exceptional privilege of suing for a breach of
an agreement to which he is not a party, he must, at least,
show that it was intended for his direct benefit.”).
     Our case law recognizes this fundamental require-
ment. In Alpine County, California v. United States, 417
F.3d 1366 (Fed. Cir. 2005), we noted: “In order to sue for
damages on a contract claim, a plaintiff must have either
direct privity or third-party beneficiary status.” Id. at
1368. Similarly, in Anderson v. United States, 344 F.3d
1343 (Fed. Cir. 2003), we explained: “Without either
direct privity or third-party beneficiary status,” the plain-
tiff lacks standing to sue. Id. at 1352. So too in Flexfab,
L.L.C. v. United States, 424 F.3d 1254 (Fed. Cir. 2005), we
noted: “Because Flexfab was not a direct party to the
contract between Capital City and DSCC, it has standing
to enforce the contract only if it was an intended third-
party beneficiary.” Id. at 1259 (citing Castle v. United
States, 301 F.3d 1328, 1339 (Fed. Cir. 2002)).
    Most importantly, party or third-party beneficiary
status is required under New York law, which governs the
PLA. See Fourth Ocean Putnam Corp. v. Interstate
Wrecking Co., 66 N.Y.2d 38, 41 (1985) (“[I]ncidental
beneficiar[ies can]not maintain an action for breach of
contract.”); Mendel v. Henry Phipps Plaza W., Inc., 6
N.Y.3d 783, 786–87 (2006) (non-signatories who are not
third-party beneficiaries lack standing to sue); Artwear,
BUCKHORN INC.   v. ORBIS CORPORATION                      9

Inc. v. Hughes, 615 N.Y.S. 2d 689, 692 (App. Div. 1994)
(“Only an intended beneficiary of a contract may maintain
an action as a third party; an incidental beneficiary may
not.”).
    Orbis is not a party to the PLA. As described above,
the PLA is an agreement between SAS and Buckhorn and
requires Buckhorn to indemnify SAS under certain cir-
cumstances. Nor is Orbis an intended third-party benefi-
ciary.
   Parties asserting third-party beneficiary rights
   under a contract must establish “(1) the existence
   of a valid and binding contract between other par-
   ties, (2) that the contract was intended for [their]
   benefit and (3) that the benefit to [them] is suffi-
   ciently immediate, rather than incidental, to indi-
   cate the assumption by the contracting parties of
   a duty to compensate [them] if the benefit is lost.”
Mendel, 6 N.Y.3d at 786 (quoting Burns Jackson Miller
Summit & Spitzer v. Lindner, 59 N.Y.2d 314, 336 (1983));
see also Alpine, 417 F.3d at 1368 (“Third-party beneficiary
status requires that the contracting parties had an ex-
press or implied intention to benefit directly the party
claiming such status.”); 13 Williston on Contracts § 37:1
(“[A] third party beneficiary contract arises when a prom-
isor agrees with a promisee to render performance to a
third party instead of to the promisee . . . .”); id. § 37:8
(citing cases showing that a party suing as a third-party
beneficiary has the burden of showing that a contract
provision was for his direct benefit). Orbis does not argue
it was the intended beneficiary of the PLA. Nor could it
have made such an argument. The PLA expressly stated:
   Nothing expressed or implied in this Agreement is
   intended or shall be construed to confer upon or
   give to any party, other than the parties to this
   Agreement and their respective successors and
10                    BUCKHORN INC.   v. ORBIS CORPORATION

     permitted assigns, any rights or remedies under
     or by reason of this Agreement.
J.A. 94 § 7.05.
     Alternatively, Orbis asserts that district courts have
“broad discretion in fashioning joint-and-several liability,”
and that we should affirm the district court’s award on
that ground, see Appellee’s Br. 23, even though the dis-
trict court did not rely on it. Significantly, the district
court did not purport to award fees under its inherent
powers. The district court previously stated that fees
were not appropriate under 35 U.S.C. § 285 or as sanc-
tions under Fed. R. Civ. P. 11 because the case was not
“exceptional” and “both sides contributed to the dilatory
tactics, discovery disputes, and frivolous motions for
sanctions.” J.A. 211, 213. Focusing on the equities, the
court additionally noted that an award of fees under the
RX agreement would be “unconscionable.” J.A. 203. The
district court’s award of fees was based on the PLA, not
its “inherent power to impose sanctions for bad faith
conduct.” See Chambers v. NASCO, Inc., 501 U.S. 32, 46
(1991).
    While it is true that federal courts may exercise “in-
herent power to sanction bad-faith misconduct,” id.,
“courts are not free to fashion drastic new rules with
respect to the allowance of attorneys’ fees to the prevail-
ing party in federal litigation.” Alyeska Pipeline Serv. Co.
v. Wilderness Soc’y, 421 U.S. 240, 269 (1975). Rather,
“the narrow exceptions to the American Rule effectively
limit a court’s inherent power to impose attorney’s fees as
a sanction to cases in which a litigant has engaged in bad-
faith conduct or willful disobedience of a court’s orders.”
Chambers, 501 U.S. at 47. This situation does not exist
here, nor does Orbis argue that it does.
   At oral argument, Orbis suggested it is unfair to pre-
vent it from collecting fees from Buckhorn because it has
BUCKHORN INC.   v. ORBIS CORPORATION                        11

had a problem collecting its fee award against SAS, and
Buckhorn is (allegedly) liable to SAS under the PLA
agreement for any fees that Orbis collects against SAS.
That is not a basis for ignoring basic principles of contract
law. We note, moreover, that Orbis has no basis for
complaining about unfairness when it has not pursued
alternative remedies. For example, federal law allows a
judgment creditor to seize any asset of a judgment debtor
allowably seized under applicable state law. See Fed. R.
Civ. P. 64(a) (“At the commencement of and throughout
an action, every remedy is available that, under the law of
the state where the court is located, provides for seizing a
person or property to secure satisfaction of the potential
judgment.”).
    Under Ohio state law, if SAS lacks sufficient tangible
property to satisfy Orbis’ judgment against it for attor-
ney’s fees, Orbis can potentially obtain an interest in SAS’
chose in action against Buckhorn under the PLA. Ohio
Rev. Code § 2333.01 provides:
    When a judgment debtor does not have sufficient
    personal or real property subject to levy on execu-
    tion to satisfy the judgment, . . . a money contract,
    claim, or chose in action, due or to become due to
    him, . . . shall be subject to the payment of the
    judgment by action.
The Ohio Supreme Court defines a “chose in action” as
“the right to bring an action to recover a debt, money, or
thing.” Pilkington N. Am., Inc. v. Travelers Cas. & Sur.
Co., 861 N.E.2d 121, 125 (Ohio 2006) (quoting Black’s
Law Dictionary 258 (8th ed. 2004)). “It embraces de-
mands arising out of a tort, as well as causes of action
originating in breach of a contract.” Id. SAS has a poten-
tial indemnity claim against Buckhorn. Orbis has made
no effort to acquire an interest in SAS’ chose in action
against Buckhorn.
12                    BUCKHORN INC.   v. ORBIS CORPORATION

    The difference between allowing Orbis to directly re-
cover from Buckhorn as the district court did and requir-
ing Orbis to obtain an interest in SAS’ claim against
Buckhorn is significant in two respects. First, the PLA
requires that the agreement “be governed by and con-
strued in accordance with the laws of the state of New
York” and that the parties bring suit in New York. 4 J.A.
95–96. Under the express terms of the agreement, an
Ohio court cannot enforce the agreement. Second, Buck-
horn has potential defenses to the indemnity provision. If
the claim is pursued in New York court, Buckhorn will be
able to raise those applicable defenses. See Hopple v.
Cleveland Disc. Co., 157 N.E. 414, 416 (Ohio Ct. App.
1927) (choses in action are “subject to defenses by the
obligor to which the original owner [of the chose] was
subject”); Fairbanks, Jr. v. Sargent, 9 N.E. 870, 875 (N.Y.
1887) (the acquirer “of a chose in action takes the interest
[acquired] subject to all defenses, legal and equitable, of
the debtor” (quoting Bush v. Lathrop, 22 N.Y. 535, 538
(1860))). We express no opinion on the relative merits of
that hypothetical action.
   We have considered Orbis’ other arguments and find
them to be wholly without merit.
                       CONCLUSION
    For the foregoing reasons, the district court’s award of
fees against Buckhorn is reversed.
                       REVERSED

     4  Buckhorn and SAS are currently litigating issues
relating to the PLA in the Southern District of New York.
See Myers Indus., Inc. v. Schoeller Arca Sys., Inc., Case
No. 1:14-cv-07051-JFK (S.D.N.Y. filed Aug. 29, 2014).
BUCKHORN INC.   v. ORBIS CORPORATION   13

                           COSTS
   Costs to Buckhorn.