Court Opinion

ID: 3018279
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:18:56.780958+00
Date Added: 2024-06-11T11:47:09.249758
License: Public Domain

United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT

                                 ___________

                                 No. 96-3334
                                 ___________

Paramount Technical Products,         *
Inc., a South Dakota                  *
corporation,                          *
                                      *
     Plaintiff/Appellee,              *
                                      *   Appeal from the United States
             v.                       *   District Court for the
                                      *   District of South Dakota.
GSE Lining Technology, Inc., a        *
Delaware corporation, formerly        *
known as Gundle Ventures, Inc.;       *
Gundle/SLT Environmental, Inc.,       *
a Delaware corporation, formerly*
known as Gundle Environmental         *
Systems, Inc.; PG Technology          *
Co., a South Dakota general           *
partnership,                          *
                                      *
     Defendants/Appellants.           *
                                 ___________

                    Submitted: March 10, 1997

                          Filed: April 29, 1997
                                  ___________

Before MAGILL, JOHN R. GIBSON, and MURPHY, Circuit Judges.
                               ___________

MURPHY, Circuit Judge.

     This is a declaratory judgment action brought by Paramount Technical
Products, Inc. (Paramount), seeking a determination that a proposed
transaction would trigger an automatic termination clause in a licensing
agreement.   Paramount owns patents used to manufacture moisture barriers
and sued to stop GSE Lining Technology, Inc., Gundle/SLT Environmental,
Inc., and PG Technology
Co. from selling certain partnership interests and corporate stock to an
entity which was not a party to licensing and partnership agreements
entered into in 1989.   Appellants counterclaimed for a declaration that the
licenses would not terminate because the agreements must be read together.
On cross motions for summary judgment, the district court1 granted summary
judgment for Paramount.   We affirm.

      Bryan and Patrick McGroarty were the original owners of patents used
in the production of moisture barriers.        The technology is used to
manufacture liners which keep water out of buildings and other structures
and is used to construct environmental containment systems which prevent
leakage of liquids or gases.   The McGroartys also owned two companies that
are involved in manufacturing moisture barriers: Paramount, which held
additional patents used in the manufacturing process, and Paratech, Inc.

      On August 31, 1989, the McGroartys and their companies entered into
two contracts with Gundle/SLT Environmental, Inc. (Gundle Environmental)
and one of its wholly-owned subsidiaries, GSE Lining Technology, Inc. (GSE
Lining).2   In the first contract, Paratech agreed with GSE Lining to form
a partnership named PG Technology Co.3 for the purpose of constructing and
operating a plant in

      1
      The Honorable Richard H. Battey, United States District Judge
for the District of South Dakota.
      2
      At   the   time   the   contracts   were   executed,   Gundle
SLT/Environmental, Inc. was known as Gundle Environmental Systems,
Inc., and GSE Lining Technology, Inc. was known as Gundle Ventures,
Inc. They changed their names, along with several other Gundle
entities, in 1995.
      3
      In 1995, Gundle Environmental began to use the name GSE Clay
Lining Technology to market the partnership and its product.

                                    -2-
Spearfish, South Dakota to manufacture moisture barriers using the patents.
On the same day, the McGroartys and Paramount entered into a second
contract with the newly formed partnership and Gundle Environmental.           This
contract was called the Joint Licensing and Development Agreement, and it
granted licenses to patents held by the McGroartys and Paramount to PG
Technology. It stated the parties’ understanding that PG Technology was
owned “directly or indirectly” by Paramount and the Gundle entities, and
Paramount signed the agreement on behalf of the partnership, PG Technology.
The agreement also protected the licenses by providing in section 2.03 that
the licenses would automatically terminate “if for any reason, the use of
the licenses should come under control or use by others than the parties
to this Agreement without the consent of Paramount, [Brian McGroarty] and
[Patrick    McGroarty].”     PG     Technology   uses   these   patents   in    the
manufacturing and marketing of a single product, Gundseal, and it sells
that product to only two customers, GSE Lining and Paramount.

     Subsequently there were changes in the legal forms of some of these
entities and a variety of complicated transactions.              These intricate
business dealings need to be traced to understand the proposed transaction
which triggered this lawsuit.      About one year after the original agreements
were executed, rights to the patents were affected when the McGroartys sold
all of Paramount’s stock to RPM, Inc. and executed a Technology and Patent
Rights Assignment Agreement that assigned their patents to Paramount.4
Thus, of the original parties to the licensing agreement, only Paramount,
Gundle   Environmental,    and    the   partnership   (PG   Technology)   remained
involved.   As a result of the assignment of patents, Paramount became the
holder of all the patents which had been licensed under

     4
      RPM then transferred all the Paramount stock to MAMECO, Inc.,
and Paramount became a wholly-owned subsidiary of MAMECO.

                                        -3-
the licensing agreement to PG Technology.             This transaction did not affect
the structure of PG Technology, and the McGroartys continued to own
Paratech, one of the partners in PG Technology.

       Later, in December 1994, a new partner was admitted to PG Technology
when a portion of the partnership interests was sold to a third party.
Paratech, the company owned by the McGroartys and one of the partners in
PG    Technology,   sold     99.999%   of    its    50%    partnership    interest     in    PG
                                               5
Technology to GSE International, Inc., another wholly-owned subsidiary of
Gundle Environmental.       The partnership agreement was amended to include GSE
International as a new partner in PG Technology and to provide that the
partnership would be managed by representatives appointed by the partners
holding the majority share.

       After this sale and amendment to the partnership agreement, PG
Technology had three partners:          Paratech, which had a .0005% interest in
the    partnership;    GSE    Lining,       which    had    a    50%   interest;     and    GSE
International, which had a 49.9995% interest.                   The McGroartys still owned
Paratech after the sale of its partnership interests, but as part of the
sale of partnership interests, Paratech also gave Gundle Environmental an
option     to purchase all outstanding shares of Paratech stock.                           This
transaction did not affect PG Technology, Gundle Environmental, and
Paramount in respect to the licensing agreement.

       The triggering event to this lawsuit occurred in January 1996, when
Paramount    learned   of     a   proposed    sale    of    PG     Technology   to    Colloid
Environmental Technologies Company (CETCO), one of Paramount’s direct
competitors.    Gundle Environmental and PG

       5
      At the time of the purchase, GSE International, Inc. was
known as Gundle International, Inc.

                                             -4-
Technology had signed a letter of intent in which they agreed to sell to
CETCO    the   99.9995%   general   partnership    interest   held   by   the   Gundle
Environmental subsidiaries, GSE Lining and GSE International.                The letter
of intent stated that Gundle Environmental and PG Technology would use
their best efforts to deliver Paratech’s .0005% partnership interest in PG
Technology as well, and that “CETCO shall be assigned the liner patent
license agreements through the purchase of [PG Technology].”

        As a result of this proposed transaction, CETCO would ultimately own
100% of the partnership interests in PG Technology, and the Gundle entities
and Paratech would no longer be partners in PG Technology.                      Gundle
Environmental     asked   Paramount   to    prepare   a   letter   stating    that   the
transaction would not affect PG Technology’s right to use the patents
licensed by Paramount to PG Technology under the licensing agreement, but
Paramount declined.       Paramount stated that it believed the transaction
would violate section 2.03 of the licensing agreement and would cause an
automatic termination of the licenses.
        Paramount then sued immediately,          seeking a declaration that the
licenses would be automatically terminated if the transaction occurred.
Paramount argued that CETCO was not a party to the licensing agreement and
that the transaction would permit CETCO to “control or use” the patents,
triggering the automatic termination clause in section 2.03.                    Gundle
Environmental, GSE Lining, and PG Technology denied that the licenses would
be terminated by the transaction and counterclaimed for a declaration to
that effect.    In their counterclaim, they described a new transaction which
would involve the transfer of partnership interests held by the Gundle
Environmental subsidiaries, GSE Lining and GSE International, and the sale
of Paratech stock to CETCO.     At the district court, they characterized the
transaction as involving the sale of 100% of

                                           -5-
Paratech’s stock to CETCO, followed by a transfer of partnership interests
so that Paratech owned 100% of the partnership interests.        On appeal,
however, they have further refined the transaction and now claim that a
majority of the partnership interests would be transferred to Paratech, and
then 100% of Paratech stock would be sold to CETCO.    As a result, Paratech
would own the majority of the partnership interest in PG Technology, and
Paratech would become a wholly-owned subsidiary of CETCO.

     The district court granted Paramount’s motion for summary judgment,
concluding that the automatic termination clause in the licensing agreement
would be triggered by the proposed transaction.    Gundle Environmental, GSE
Lining, and PG Technology appeal, arguing that the district court erred by
not reading the partnership agreement and licensing agreement together and
by finding that the transaction would effectively assign the licenses to
CETCO.   A grant of summary judgment is reviewed de novo.     Stevens v. St.
Louis Univ. Med. Ctr., 97 F.3d 268, 270 (8th Cir. 1996).

     In construing a contract, “the court must ascertain and give effect
to the intention of the parties” as found in the contract language.
American State Bank v. Adkins, 458 N.W.2d 807, 809 (S.D. 1990).          The
contract is to be construed as a whole,      Johnson v. Johnson, 291 N.W.2d
776, 778 (S.D. 1980), and when two contracts are executed at the same time,
by nearly identical parties, and as part of the same transaction, those
contracts are to be read together.   Baker v. Wilburn, 456 N.W.2d 304, 306
(S.D. 1990).   When the language in a contract is unambiguous, it is to be
given its plain and ordinary meaning.      Adkins, 458 N.W.2d at 809.
     Gundle Environmental, GSE Lining, and PG Technology contend that
reading the two agreements together shows the licenses will not terminate.
They assert that the partnership agreement permits

                                     -6-
new partners to be added to the partnership, and the licensing agreement
does not indicate that adding a partner or transferring stock of a partner
will terminate the licenses.          They argue that the transaction now described
would change only the ownership of one of PG Technology’s partners,
Paratech, while the control would still remain with PG Technology which is
a party to the licensing agreement.

         Section   2.03   of    the    licensing   agreement   uses   broad    language
concerning when the licenses will automatically terminate.            It states that
the licenses will be terminated automatically “if for any reason, the use
of the licenses should come under control or use by others than the parties
to this Agreement without the consent of Paramount . . . .”                   (emphasis
added)   The language focuses on who has the ultimate “control or use” of
the licenses and shows the intent of the parties to protect Paramount’s
patents and the licenses which Paramount granted.          Although the partnership
agreement permits changes in the partnership, section 2.03 of the licensing
agreement causes an automatic license termination if “control or use” falls
to anyone other than a party to the licensing agreement.
     The appellants argue that the partnership agreement specifically
provides that new partners can be added.           Since the partnership is a party
to the licensing agreement, they believe a change in partners should not
terminate the licenses.        Neither agreement provides, however, that any new
partner in the partnership thereby somehow becomes a party to the licensing
agreement.   When the original agreements were entered into, the partnership
agreement stated that it was executed by the partners in PG Technology,
Paratech and GSE Lining.       The licensing agreement refers to the partnership
agreement as “that certain agreement . . . dated as of August 31, 1989, by
and between Paratech and [GSE

                                           -7-
Lining],” indicating that new partners added to the partnership are not
considered parties to the licensing agreement.   If control were to move to
someone not a party to the licensing agreement through a change in
partners, such as CETCO, the consent of Paramount would therefore be
necessary to avoid automatic termination.      Paramount did not give that
consent when asked.

     Under the transaction as now described on appeal, the appellants urge
that only the stock ownership of Paratech, one of the partners in PG
Technology, would change.   Since control of the licenses would remain with
the partnership and it was a party to the licensing agreement, the
termination clause would not apply.    This transaction was not presented to
the district court and we need not consider it, but it appears in any event
that it would also cause the licenses to terminate.   See Digi-Tel Holdings,
Inc. v. Proteq Telecommunications (PTE), Ltd., 89 F.3d 519, 523-24 n.6 (8th
Cir. 1996) (court is not required to consider variation of argument raised
for first time on appeal but may in its discretion).
     The language of the licensing agreement does not suggest that
termination can be prevented if the licenses technically remain with the
original parties, but directs that the licenses will terminate if “for any
reason” control or use is with someone other than the parties to the
licensing agreement.    The licensing agreement sets forth the parties’
understanding in entering into that agreement that the Gundle and Paramount
entities directly or indirectly owned PG Technology, the party which would
be using the patents.   This understanding and the concern for protecting
Paramount’s patents are also demonstrated by the requirement of Paramount’s
consent for any changes in control or use of the patents.      Furthermore,
Paramount was the party which signed on behalf of PG Technology, even
though Paramount was not a partner in

                                      -8-
the partnership but only controlled one of the partners, Paratech.    After
the appellants’ new proposed transaction, however, Paratech would become
a wholly-owned subsidiary of CETCO, and Paratech would own, at a minimum,
the majority interest of the partnership.   As a result, CETCO would control
the partnership and the licenses granted to it.      Thus, even though the
licenses would technically stay with the partnership throughout the changes
in the stock ownership and partnership interests, control over the licenses
would change, and under the terms of the licensing agreement, the licenses
would terminate.   Without this automatic termination, the result would be
a transfer to Paramount’s competitor of the right to use the patents
without the required consent of Paramount.

     The licensing agreement contains broad language indicating that the
licenses will terminate if “control or use” of the patents is transferred
to someone other than a party to the licensing agreement.    While both the
licensing agreement and partnership agreement were executed on the same day
and must be read together, neither agreement indicates that parties to the
licensing agreement would include any new partner to the partnership or any
entity obtaining control of one of the partners.   Under any of the proposed
transactions, the “control or use” of the patents would be transferred to
someone not a party to the licensing agreement, and the licenses would
automatically terminate.6

     For these reasons, the judgment of the district court is affirmed.

     6
      Since the licenses would automatically terminate under the
terms of the licensing agreement if the proposed transactions
occurred, it is not necessary to discuss the issues of whether the
transactions would assign the licenses to CETCO or whether that
assignment would violate federal patent law.

                                    -9-
A true copy.

           Attest:

                     CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

                                -10-