Court Opinion

ID: 3152768
Source: CourtListenerOpinion
Date Created: 2015-11-06 17:08:12.857681+00
Date Added: 2024-06-11T12:15:12.212408
License: Public Domain

Nov 06 2015, 10:14 am

ATTORNEYS FOR APPELLANTS                                  ATTORNEYS FOR APPELLEES
Frederick D. Emhardt                                      Michael T. Nilan
Brett E. Nelson                                           Teresa J. Kimker
Ryan T. Leagre                                            Nilan Johnson Lewis PA
Plews Shadley Racher & Braun LLP                          Minneapolis, Minnesota
Indianapolis, Indiana
                                                          L. Alan Whaley
                                                          Adam Arceneaux
                                                          Mark Alson
                                                          Ice Miller LLP
                                                          Indianapolis, Indiana

                                            IN THE
    COURT OF APPEALS OF INDIANA

Rick C. Sasso, M.D., and SEE                              November 6, 2015
LLC,                                                      Court of Appeals Case No.
Appellants-Plaintiffs,                                    43A04-1504-PL-175
                                                          Appeal from the Kosciusko Circuit
        v.                                                Court
                                                          The Honorable Curtis D. Palmer,
Warsaw Orthopedic, Inc.,                                  Special Judge
Medtronic Sofamor Danek, Inc.,                            Trial Court Cause No.
and Medtronic, Inc.,                                      43C01-1308-PL-94
Appellees-Defendants

Baker, Judge.

Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015                  Page 1 of 14
[1]   SEE LLC appeals the trial court’s order denying its motion for summary

      judgment and granting the defendants’ cross-motion for summary judgment. It

      argues that it is entitled to unpaid royalties stemming from a 1998 contract.

      Finding this contract unenforceable as a matter of law, we affirm the judgment

      of the trial court.

                                                      Facts    1

[2]   Dr. Rick Sasso is a spinal surgeon and inventor. The president of Indiana Spine

      Group in Carmel, Indiana, he is the named inventor on several United States

      patents related to rehabilitation of the spine.

[3]   In 1994, Sasso filed his first patent application, with co-inventor Dan Justin, for

      a spine implant device. Justin later assigned his entire interest to Sasso, making

      Sasso the sole owner. This device involves screws and rods that provide

      stability in the upper neck area. Sasso formed a company, SEE LLC (SEE),

      with his brother and father-in-law to manage his intellectual property. In July

      1997, Patent 5,643,259 (“the Patent”) issued.

      1
       We heard oral argument in this case on October 20, 2015, in the Krannert Building of Purdue University in
      West Lafayette. We thank counsel for their able and informative oral advocacy.

      Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015                    Page 2 of 14
                                     Background to This Suit
[4]   In 1998, Sasso began negotiating a potential business venture with Sofamor

      Danek Group (SDG), the predecessor to the defendants,2 in which he would

      transfer the Patent and provide expertise in exchange for monetary

      compensation. SDG’s first draft of a contract was written as an agreement

      between SDG and Sasso, but Sasso edited the contract to replace his name with

      SEE’s. Appellants’ App. 569-79. The parties signed this 1998 contract (“the

      Agreement”) after these edits had been made. Id. at 251-58.

[5]   After the edits, one of the representations reads, “See further warrants and

      represents that it owns solely, as evidenced by a copy of an assignment attached

      hereto in Schedule A, all right, title, and interest in the Patent and the

      Intellectual Property Rights . . . .” Id. at 571. There is no such document

      attached to the contract.3 Indeed, there is no formal assignment document

      establishing SEE’s rights to the Patent anywhere in the record. The right to the

      Patent was the heart of the deal, as SEE purported in the Agreement to

      “irrevocably transfer[], assign[], and convey[] to SDG all its entire right, title,

      and interest in and to” the Patent. Id. at 254.

      2
       The three defendants are corporate affiliates of each other. SDG merged with Medtronic, Inc. in 1999, and
      Warsaw Orthopedic, Inc., merged with SDG in 2006.
      3
       Sasso claims that it is likely that such a document existed but was later misplaced, but he has produced no
      evidence for such a claim.

      Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015                       Page 3 of 14
[6]   SDG agreed to pay three types of consideration in exchange for the rights to the

      Patent. First, it agreed to pay, and did in fact pay, $100,000 to SEE. Second, it

      agreed to grant, and did in fact grant, 1,500 shares of SDG stock to SEE.

[7]   The third form of payment (“4(B)(iii) payment”) constitutes the subject of this

      lawsuit:

              A contingency payment in the amount of five percent (5%) of the
              worldwide Net Sales of the Medical Device, if covered by the
              Intellectual Property Rights, and two and one-half percent (2½
              %) if the Medical Device is not covered by the Intellectual
              Property Rights.

      Id. at 254. “Medical Device” is defined as “any device, article, system,

      apparatus or product including the Invention.” Id. at 252. “The Invention” is

      defined as “any product, method or system relating to spinal or cranial surgery.

      . . .” Id. “Intellectual Property Rights” is defined as the Patent and associated

      know-how. Id.

[8]   Also in the definition of “Medical Device,” however, is the following

      statement: “Such Medical Devices shall be listed in accordance with SDG

      catalog numbers and descriptions in an addendum to be attached to this

      Agreement as agreed upon in writing between the parties.” Id. Just as there

      was no “Schedule A” attached to the contract to show assignment of the

      Patent, no such addendum listing the products covered by the agreement was

      ever negotiated, agreed upon, written down, or attached to the Agreement. The

      defendants have never made a single 4(B)(iii) payment. Until the

      Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015   Page 4 of 14
       commencement of this lawsuit, SEE never made a demand for 4(B)(iii)

       payments, nor did it communicate to the defendants that it thought it was owed

       4(B)(iii) payments.

                             Sasso’s Ventures With Medtronic
[9]    The controversy between SEE and the defendants is complicated by the

       extensive business relationship that Sasso, as an individual, has carried on with

       the defendants. In January 1999, SDG merged with Medtronic. Since that

       time, Sasso, the individual, has entered into several agreements with the

       defendants, all for different medical devices related to spinal stabilization.

       Appellant’s App. at 312-13.4

[10]   Sasso and Medtronic have entered into agreements for the following products

       in which he transferred his intellectual property in exchange for royalties and,

       occasionally, up-front cash: a “Posterior Rod System,” id. at 74; a “facet screw

       instrumentation and headless facet screw fixation system,” id. at 108; a

       “Vantage Plate Device,” id. at 867; an “Atlantis Venture” product, id. at 119-33;

       a “posterior side-loading spinal rod system,” id. at 342; a “cervical intervertebral

       disc prosthesis,” id. at 362; and an “image guided remote referencing pin used

       in surgical procedures,” id. at 409. Altogether, Medtronic has paid Sasso at

       least $23 million on these deals as of December 22, 2014. Id. at 313.

       4
        Most of these agreements were between Sasso and various affiliates of Medtronic; for the sake of clarity, we
       will recount these contracts as between Sasso and Medtronic.

       Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015                       Page 5 of 14
[11]   Consolidating the definitions in the Agreement, SEE claims it is entitled to at

       least 2.5% of the sales of “any device, article, system, apparatus or product that

       includes any product, method or system relating to spinal or cranial surgery.”

       Id. at 252. SEE explains, “The broad definitions agreed to by the parties make

       practically all products Dr. Sasso helped with subject to payment of royalties,

       including specifically the Vertex posterior cervical screw/rod implant system . .

       . .” Appellants’ Br. 16. In other words, the LLC of which Sasso is one of three

       members claims a right to be compensated for most, if not all, of the products

       for which Sasso, the individual, has already been compensated.

[12]   The defendants say that they negotiated all of these contracts under the

       presumption that they would not have to pay double compensation to Sasso

       and to his company. The defendants maintain that if SEE is correct about its

       claim, SEE would be entitled to at least $750 million in unpaid royalties.

       Appellees’ Br. 11.5

                  Other Dealings Between Sasso and Medtronic
[13]   In 2005, Medtronic and Sasso attempted to negotiate a “global agreement” that

       would consolidate all of Sasso’s consulting contracts into a single agreement.

       The parties did not reach such an agreement, but both sides make much ado

       about representations made during the negotiation. In its original proposal,

       5
         The defendants do not cite anything in the record to support this figure, but SEE does not appear to dispute
       it. Presumably, this number is 2.5% of the defendant’s revenues made from selling spinal technology.

       Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015                        Page 6 of 14
       Medtronic acknowledged that the Agreement was still valid and ongoing.

       Appellants’ App. 606. However, Exhibit D of the draft global agreement listed

       no products being covered by the 1998 Agreement as of April 1, 2005. Id.; Id. at

       586.

[14]   Sasso and Medtronic never entered into this “global agreement,” but in 2009

       they did enter into an “Amendment” of their existing agreements. Id. at 846-

       49. This executed document, unlike the unexecuted “global agreement,” does

       not list the 1998 Agreement under “existing agreements.” Id. at 849. When

       Sasso submitted quarterly reports, as required by this “Amendment,” to show

       what royalties he was owed, his own list of “existing agreements” did not

       include the 1998 Agreement. Id. at 834-49. Shortly after this “Amendment,”

       the members of SEE allowed the LLC to be administratively dissolved by the

       Indiana Secretary of State.6

                                                  The Present Suit
[15]   Sometime in 2013, Sasso and Medtronic had a falling out, and Medtronic

       ceased to make payments on some of the agreements listed above. Sasso and

       SEE filed suit against the defendants on August 28, 2013. Sasso’s individual

       claims against Medtronic are still being litigated, and are not part of this case.

       Only SEE’s claims under the Agreement are before us.

       6
           SEE was then revived after the filing of this lawsuit.

       Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015   Page 7 of 14
[16]   The defendants removed the case to federal court, alleging federal jurisdiction

       under patent laws. The Northern District of Indiana, however, remanded the

       case to state court after determining that the case turned on Indiana contract

       law, not federal patent law. On November 5, 2014, SEE filed for summary

       judgment, arguing that the defendants had contractual obligations to set out a

       list of products that would have given rise to 4(B)(iii) royalties and to pay those

       royalties. The defendants responded and filed a cross-motion for summary

       judgment. The defendants designated affidavits from two attorneys, which

       Sasso and SEE moved to strike. One affidavit was from Medtronic’s Senior

       Patent Attorney, Thomas Wolfe, who attested that “Medtronic has never used

       the intellectual property of the ‘259 patent to develop or commercialize any

       product.” Appellant’s App. 310. Sasso and SEE argued that Wolfe did not

       have the personal knowledge required to make such a sweeping statement.

[17]   After holding a hearing, on April 20, 2015, the trial court granted summary

       judgment against SEE and denied all motions to strike. It found that Sasso

       never transferred the Patent to SEE and SEE never transferred the Patent to

       SDG. It ruled that both “the transfer of the 259 patent and the anticipated

       addendum listing of ensuing medical devices to be covered by the royalty

       agreement were conditions precedent to the Defendants’ obligation to make any

       royalty payments.” Id. at 25. The trial court concluded that since both

       “conditions precedent” failed to obtain, the defendants were relieved of the

       obligation to make 4(B)(iii) payments. SEE now appeals.

       Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015   Page 8 of 14
                                     Discussion and Decision
                                       I. Standard of Review
[18]   This Court reviews grants of summary judgment de novo, giving no deference

       to the trial court’s judgment. Ind. Dep’t of Corr. v. Swanson Servs. Corp., 820
N.E.2d 733, 736-37 (Ind. Ct. App. 2005). We apply the same standard as the

       trial court: summary judgment is appropriate only if the designated evidence

       shows that there is no genuine issue of material fact and that a party is entitled

       to judgment as a matter of law. Id. at 736; Indiana Trial Rule 56(C). Cross-

       motions for summary judgment do not alter the standard of review; each

       motion will be considered separately to determine whether the moving party is

       entitled to judgment as a matter of law. Swanson, 820 N.E.2d at 737. If the trial

       court’s grant of summary judgment can be sustained on any theory or basis in

       the record, we will affirm. Id.

[19]   The construction of a written contract is generally a question of law for the

       court, making summary judgment particularly appropriate in contract disputes.

       Stewart v. TT Commer. One, LLC, 911 N.E.2d 51, 55 (Ind. Ct. App. 2009).

[20]   We note initially that while the trial court came to the correct conclusion, its

       analysis of this case in terms of “conditions precedent” cannot stand. Such

       conditions are generally disfavored and must be stated explicitly within the

       contract. Scott-Reitz Ltd. v. Ren Warsaw Assocs., 658 N.E.2d 98, 103 (Ind. Ct.

       App. 1995). When the required action to be taken is an integral part of the

       contract, it is not a condition precedent. Id. In this case, the successful transfer

       Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015   Page 9 of 14
       of the Patent was the heart of the deal, and was therefore an integral part of the

       contract. And the proposed list of products to be listed in the missing

       addendum was to be agreed upon subsequent to the formation of the contract.

       Therefore, neither the transfer of the Patent nor the listing of parts in an

       addendum were conditions precedent to the enforceability of the Agreement.

[21]   However, as our standard of review makes clear, we will affirm the judgment of

       the trial court on any basis that the record will sustain. In this case, we find one

       such theory—the contract was unenforceable as a matter of law.7

                           II. The Agreement is Unenforceable
[22]   To be valid and enforceable, a contract must be reasonably definite and certain.

       Conwell v. Gray Loon Outdoor Mktg. Group, Inc., 906 N.E.2d 805, 813 (Ind. 2009).

       It must “provide a basis for determining the existence of a breach and for giving

       an appropriate remedy.” McLinden v. Coco, 765 N.E.2d 606, 613 (Ind. Ct. App.

       2002).

[23]   “When one enters into an agreement with the understanding that neither party

       is bound until a subsequent formal written document is executed, no

       enforceable contract exists until the subsequent document is executed.” Wolvos

       v. Meyer, 668 N.E.2d 671, 675 (Ind. 1996). On the other hand,

       7
        SEE also appeals the admission of the Wolfe affidavit. Since our decision is in no part based on that
       affidavit, and since a ruling in the plaintiffs’ favor on this issue would not change the outcome, we decline to
       address it.

       Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015                         Page 10 of 14
               It is quite possible for parties to make an enforceable contract
               binding them to prepare and execute a subsequent final
               agreement. In order that such may be the effect, it is necessary
               that agreement shall have been expressed on all essential terms
               that are to be incorporated in the document. That document is
               understood to be a mere memorial of the agreement already
               reached. If the document or contract that the parties agree to
               make is to contain any material term that is not already agreed
               on, no contract has yet been made; the so-called “contract to
               make a contract” is not a contract at all.

       Id. at 674-75 (quoting 1 Arthur Linton Corbin and Joseph M. Perillo, CORBIN

       ON CONTRACTS          § 2.8 (rev. ed. 1993) (footnotes omitted)). We must be mindful

       that “[e]nforcement of a writing which is incomplete or ambiguous creates the

       substantial danger that the court will enforce something neither party

       intended.” Id. at 675-76.

[24]   In this case, SEE is seeking to recover a percentage of the net sales of what the

       Agreement refers to as “Medical Devices.” Appellants’ App. at 254. “Medical

       Device” is defined as follows: “any device, article, system, apparatus or product

       including the Invention. Such Medical Devices shall be listed in accordance

       with [Medtronic] catalog numbers and descriptions in an addendum to be

       attached to this Agreement as agreed upon in writing between the parties.” Id.

       at 252.

[25]   Clearly, the parties intended the following regarding this provision: SEE would

       transfer the Patent and associated intellectual property to SDG; the parties

       would work together to use the Patent to commercialize spinal rehabilitation

       Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015   Page 11 of 14
       technologies; as products were created, they would be compiled on the

       addendum; and then SEE would be paid either 5% or 2.5% of the net sales of

       those products, depending on whether the product incorporated the Patent.

[26]   The parties never created an addendum listing the products to be covered. This

       addendum would not have been “a mere memorial of the agreement already

       reached.” Wolvos, 668 N.E.2d at 675. It was to be an agreement by the parties

       in the future over material terms of the contract.

[27]   The addendum’s absence renders the Agreement unenforceable for two reasons.

       First, there is no basis for determining whether a breach occurred—since there

       are no products listed in an addendum, there are no “Medical Devices” as

       defined in the Agreement. If there are no “Medical Devices,” the defendants

       would not have breached by not paying royalties. The absence of the

       addendum means that courts would have no way of knowing whether the

       defendants breached the Agreement.

[28]   Second, there is no basis for giving an appropriate remedy—SEE claims an

       entitlement to either 5% or 2.5% of the net sales of “Medical Devices.” But

       since the definition of “Medical Device” depends on the addendum, and since

       the addendum does not exist, a court would have no way of determining the

       damages; 5% or 2.5% of what?

[29]   Under SEE’s interpretation of the “Medical Device” definition, the Agreement

       obliged the “defendants to provide the initial list and to continually update it as

       more products were developed.” Appellee’s Br. 26. But this interpretation is

       Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015   Page 12 of 14
       precluded by the text of the Agreement: “an addendum to be attached to this

       Agreement as agreed upon in writing between the parties.” Appellants’ App. at 252

       (emphasis added). This language signals an intent by the parties to create the

       addendum together. It does not create a unilateral obligation in the defendants

       to provide an addendum.

[30]   In sum, the list of products to be counted as “Medical Devices” was an essential

       term of the contract, one that is needed to determine whether there is a breach

       and the amount of damages. Its absence renders the Agreement unenforceable

       at law.

                                                 III. Equity
[31]   The defendants raise, as an independent ground for summary judgment,

       equitable concerns over SEE’s conduct. They argue that it would be unjust to

       allow SEE to wait in silence for fifteen years while one of SEE’s members

       entered into lucrative individual agreements with the defendants. “Medtronic

       would never have entered into a series of separate royalty agreements with Dr.

       Sasso and paid Dr. Sasso more than $23 million in royalties . . . [if] the 1998

       Agreement also obligated Medtronic to pay SEE LLC at least $750 million in

       royalties on the very same products.” Appellees’ Br. 41 (emphasis original).

       Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015   Page 13 of 14
[32]   While we find the equity of the situation to strongly favor the defendants, their

       equitable estoppel argument fails.8 Nevertheless, we believe that the

       defendant’s equitable concerns are resolved substantially by our conclusion that

       the contract is unenforceable as a matter of law. SEE was fully aware of the

       products being produced by Sasso; as a member of the LLC, Sasso’s knowledge

       is imputed to the company. Ind. Code § 23-18-3-2(a). The inequity arising

       from this situation would have been cured by the inclusion of the addendum—

       if, as Sasso the individual developed products for Medtronic, SEE had come

       together with Medtronic to list “Medical Devices” on the addendum to the

       Agreement, Medtronic would not have been presented with a claim for $750

       million in royalties, all at once and fifteen years after the fact. Often, equity

       does what the law should but cannot; here, the law does what equity cannot but

       should.

[33]   The judgment of the trial court is affirmed.

[34]   Robb, J., and Shepard, S.J., concur.

       8
         Equitable estoppel requires, as a first element, a lack of knowledge and of the means of knowledge as to the
       facts in question. Money Store Inv. Corp. v. Summers, 849 N.E.2d 544, 547 (Ind. 2006). Estoppel has no
       application where the facts were known equally by both parties. Ross v. Banta, 140 Ind. 120, 39 N.E. 732
       (1894). We cannot say that the defendants lacked knowledge of a contract entered into by one of their
       corporate affiliates.

       Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015                       Page 14 of 14