Court Opinion

ID: 6982272
Source: CourtListenerOpinion
Date Created: 2022-07-24 02:29:29.009067+00
Date Added: 2024-06-11T16:09:15.440016
License: Public Domain

PAULINE NEWMAN, Circuit Judge,
dissenting.
By judgment entered February 12, 1997 the district court found that Ohio Cellular Products Corporation had committed inequitable conduct in its prosecution of the patents in suit, and awarded attorney fees and costs in favor of the defendants Adams USA and Apehead Manufacturing (together “Adams USA”). The district court entered judgment for fees and costs against Ohio Cellular on January 20, 1998, in the amount of $178,888.51. On February 3, 1998 Adams USA moved to amend retrospectively its third-party complaint against All American Sports Corporation to add Mr. Donald E. Nelson as a third-party' defendant and to include him in the judgment for attorney fees and costs. On March 25, 1998 the court granted the motion, and entered judgment against Mr. Nelson personally as “an additional party.”
This was an unusual procedure, indeed unprecedented. Absent rare and special circumstances, personal liability can not be imposed on a non-party by the simple expedient of amending a complaint to make him a party after the case has been tried, decided, and judgment rendered C indeed, one year after judgment was rendered. Mr. Nelson was not a party when the issues were litigated, and no amendment to any complaint, or any other proposal to add him as a party, was made during any part of the action, even though he was present and testified as a witness. His personal liability was never litigated, and “piercing the corporate veil” has been explicitly disclaimed as a ground for charging Mr. Nelson with personal liability. Mr. Nelson had no opportunity to contest the issue of his personal liability for inequitable conduct as an inventor. Thus I must, respectfully, dissent from my colleagues’ ratification of this breach of due and fan- process.
DISCUSSION
The Federal Rules favor liberal amendment of complaints and liberal joinder of parties, in order to facilitate bringing before the court all issues and all parties concerned with the issues. These notice-pleading procedures are designed to protect due process, not to avoid it. The Rules do not support joinder of Mr. Nelson and imposition of personal liability against him, after the litigation against Ohio Cellular was over and judgment was entered against Ohio Cellular.
During the litigation Adams USA presented no claim against Mr. Nelson personally. Adams USA does not dispute that it had multiple opportunities to charge and to join Mr. Nelson prior to the final judgment. When Adams USA filed a third-party complaint against All American Sports, Mr. Nelson’s personal liability was not suggested. After the judgment against Ohio Cellular, Mr.. Nelson’s personal liability was not suggested. After the reconsideration hearing, at which Mr. Nelson testified, his personal liability was not suggested. After the October letter from Ohio Cellular’s counsel, of which the panel majority makes much, Mr. Nelson was not mentioned or brought into the action. Judgment as to attorney fees was entered on January 20, 1998, one year after the judgment holding Ohio Cellular liable for inequitable conduct. Only there*1353after did Adams USA move to amend the complaint under Rule 15.1
The district court, upon granting the motion, did not hold an evidentiary hearing, although the panel majority repeatedly refers to Mr. Nelson’s participation as a witness. When pressed at oral argument, Adams USA offered no reason for its failure to join Mr. Nelson as a party.2 However, there must be such a reason, as Professor Moore explains:
[A] plaintiff must allege a reason for the mistake in order to substitute one legal entity for another when the plaintiff knew of the existence of the second entity at the time the original complaint was filed. In order to sue a corporate officer individually, the plaintiff also must allege a reason for mistake in not identifying the officer in the first place.
MOORE’S FEDERAL PRACTICE § 15.19[3][d] at 15-91 (Rel. Mar. 1997).
Adams USA failed to explain why it did not join Mr. Nelson prior to entry of judgment against Ohio Cellular, and failed to explain its four month delay following the October 1997 letter referring to Ohio Cellular’s financial situation. Rather than squarely addressing the issue of undue delay and undue prejudice to Mr. Nelson, the panel majority now finds for itself the fact that Adams USA “acted promptly” to add Mr. Nelson, ignoring the district court’s finding that Adams USA “could have moved to amend their complaint long before entry of final judgment.”
The fundamentals of due process are notice and the opportunity to defend against the noticed liability. See Saalfrank v. O’Daniel, 533 F.2d 325, 330 (6th Cir.1976) (a post-judgment amendment to realign parties “may only be done if all parties have notice of the issues being tried and no prejudice will result”). Omitting the person to be charged until after judgment has been entered can not circumvent these fundamental principles. Although my colleagues now argue and find Mr. Nelson’s culpability as an inventor and as corporate principal, his personal liability as an inventor was never placed at issue and was not litigated. The majority opinion states that Mr. Nelson was “solely responsible” for the inequitable conduct. There was no such finding. There was no adjudication against Mr. Nelson. The judgment was entered against Ohio Cellular alone.3
Although the panel majority now finds that “the fee award claim could have been brought against [Mr. Nelson] personally,” the claim was not so brought. Had it been brought, he could have defended against personal liability. While the majority also finds that there is “no basis ... to believe” that Mr. Nelson could have avoided personal liability had he been joined as a *1354defendant before judgment was rendered, Mr. Nelson was not so joined. The law, at its most fundamental, does not render judgment simply because a person might have been found liable had he been charged.
The panel majority states that Mr. Nelson’s personal culpability was “undisputed.” However, testifying as a witness, Mr. Nelson did dispute that he intended to deceive and that he deliberately withheld the Marc reference. The issue of inequitable conduct, although decided adversely to Ohio Cellular, was not based on undisputed facts or admissions. The majority’s findings of personal liability do not derive from litigation in which Mr. Nelson had the opportunity to defend his personal liability.4
Adams USA explicitly states that its claim is not based on “piercing the corporate veil.” It is hornbook law that Mr. Nelson and Ohio Cellular are different legal entities. See W. Fletcher, 1 Fletcher CYCLOPEDIA. OF THE LAW OF PRIVATE CORPORATIONS § 41.35 (1986 & Supp.1998) (“the mere fact that all or almost all of the corporate stock is owned by one individual or a few individuals will not afford sufficient grounds for disregarding corporateness”); cf. Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 108-13, 89 S.Ct. 1562, 23 L.Ed.2d 129, 161 USPQ 577, 580-82 (1969) (it was error to impose the judgment against a parent corporation, which was fully cognizant of the action against its subsidiary, since the judgment was not rendered in a proceeding to which the parent was a party). Adams USA refused to raise “piercing the corporate veil” as an issue on this appeal, and disclaimed any reliance on a theory of corporate officer liability, perhaps because it recognized, correctly, that there must be timely notice of such reliance. See Moore’s Federal Practice, supra (there must be a reason for the tardy joinder of a corporate principal).
Despite the repeated remonstrance by Adams USA that it is not pursuing Mr. Nelson in his role as corporate principal, the panel majority adverts to this relationship, even as it states that Adams USA was not required to pierce the corporate veil in order to impose liability upon Mr. Nelson in view of his corporate role. The cases relied upon by the panel majority do not support its ruling. In Orthokinetics the officers of the corporation were named as defendants at the outset of the litigation. See Orthokinetics (“Orthokinetics sued STC [corporation], Entrón [corporation], Pivacek [stockholder and officer], Chipman [stockholder and officer], and Cole [stockholder and officer]”). In Hoover Group the chief executive officer and principal owner was named as a defendant in an amended complaint filed after the district court had reached its decision that the corporation infringed; although the district court allowed the amendment and held the officer personally liable for inducing the corporation’s patent infringement, the Federal Circuit reversed. These cases do not support imposition of personal liability upon Mr. Nelson after final judgment was entered solely against Ohio Cellular.
Mr. Nelson never was given notice of the intention to charge him with personal liability, either as inventor or as president and owner of Ohio Cellular. If the corporate entity is to be disregarded for purposes of imposing personal liability, there must be some notice thereof. This is illustrated by the case on which the panel majority places its greatest reliance, Fromson v. Citiplate, Inc., 886 F.2d 1300, 12 USPQ2d 1299 (Fed.Cir.1989), wherein a motion to add the corporate owners and impose the judgment against them was granted after trial. Both the district court and the Federal Circuit stressed that a *1355motion to add these persons had been made before trial, and had been denied upon the corporate owners’ representations, later found to be false, of corporate solvency. Id. at 1304, 12 USPQ2d at 1303 (“the Cusumanos were directly notified by Fromson’s pretrial motion that Fromson considered them proper parties-defendant. [The Cusumanos] resisted that motion on the basis of false assurances that [the corporation] was solvent.”) The court granted the renewed motion to impose liability on the corporate owners. Thus the majority inaptly relies on Fromson, for there was a pretrial motion to add the owners, and the Federal Circuit carefully applied the safeguards that are now discarded.
The majority also cites the case of Kalman v. Berlyn Corp., 914 F.2d 1473, 16 USPQ2d 1093 (Fed.Cir.1990), wherein the plaintiff sought to amend the complaint in order to add, as another plaintiff, a related company that was also licensed under the patent; this court held that the amendment should have been permitted. These quite different facts do not support the result herein, as was discussed in Datascope Corp. v. SMEC, Inc., 962 F.2d 1043, 22 USPQ2d 1573 (Fed.Cir.1992), a case factually closest to the case now before us. In Datascope the Federal Circuit reached a conclusion directly contrary to that reached herein, for in Datascope the district court refused to permit amendment of the complaint after final judgment to add as a party the company’s president and principal stockholder, on grounds of undue delay and undue prejudice. The Federal Circuit sustained the district court’s ruling that:
Datascope’s failure to add Schiff earlier has operated undue prejudice on Schiff. Schiff has not had, and will not have, an opportunity to contest the claim which Datascope proposes to assert against him individually, as no claim was made at any time during the protracted life of this lawsuit. Datascope’s contention that trying SMEC was tantamount to trying Schiff is not valid.
Id. at 1044, 22 USPQ2d at 1575. This precedent can not now be ignored; it binds this panel to the law as there applied.
In Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) the Court referred to “undue delay” and “undue prejudice” as grounds for refusing amendment to a complaint. It is hard to imagine greater prejudice than imposing personal liability without affording an opportunity to defend one’s person. Adams USA states that its claim against Mr. Nelson is as a “joint tortfeasor” based on his role as an inventor. However, he was not sued as a tortfeasor, and the judgment of inequitable conduct was rendered solely against Ohio Cellular. Had Mr. Nelson been personally charged in tort, he could have defended against liability in tort.
The panel majority repeatedly refers to the October 1997 letter from Ohio Cellular’s counsel, which advised Adams USA that Ohio Cellular was in financial straits. The majority finds that the letter is “fairly associated” with Mr. Nelson, and that “[a]t the very least, Nelson must have known about the letter and could have rescinded it.” However, a communication from a plaintiff corporation does not support retroactive liability of a corporate officer, even upon the panel majority’s factual finding that Mr. Nelson “must have known” about the letter.
The panel majority several times qualifies its unusual holding as applying to the “particular circumstances of this case.” However, the imposition of personal liability on the inventor, after all proceedings have ended, undoubtedly will breed a new “plague” of inequitable conduct litigation, and further move patent cases from the mainstream of not only substantive law but also procedural law. This is not a matter of judicial “discretion.” The judicial obligation is to preserve the processes of justice.

. Adams USA never filed a post-judgment motion under Rule 59 seeking to alter or reopen the judgment. However, after entry of judgment, "the court lacks power to rule on a motion to amend unless the party seeking leave obtains relief under Rule 59(e) or 60(b).” 3 Moore’s Federal Practice § 15.12[2] at 15-21 (Rel. Mar. 1997). A motion to alter judgment must be served no later than 10 days after a judgment is entered, see Fed.R.Civ.P. 59(e); perhaps this explains why Adams USA did not file such a motion.

. The transcript includes the following exchange:
Judge Plager: ... Why did you not name Nelson in the original suit? That would have been the logical time to have named him as a defendant.
Adams USA Counsel: Indeed, your Honor, that probably would have been the easiest time to do it. But what the court found was 'that there was no prejudice to Mr. Nelson’s naming later and in fact—
Judge Michel: That’s not responsive to the question. The question is why didn’t you name him earlier.
Adams USA Counsel: Your Honor, I don’t know why there was a particular decision to name him or not to name him earlier. That was not in the record....

.The district court’s Memorandum Opinion states, "the Court finds that Plaintiff’s [Ohio Cellular’s] conduct before the PTO was inequitable.” Slip op. at 1352. The Memorandum Opinion Denying Reconsideration states, "Plaintiff [Ohio Cellular] is guilty of inequitable conduct.” Slip op. at 1347.

. The panel majority states that the "defense was in fact as comprehensive as possible.” The comprehensiveness of Ohio Cellular’s defense of the charge of inequitable conduct is not before us on this appeal; Ohio Cellular did not appeal its liability.