Orin Johnson v. Samuel Ross, II

Filing

UNPUBLISHED AUTHORED OPINION filed. Originating case number: 6:08-cv-00313 Copies to all parties and the district court/agency. [998551280].. [10-1046]

Orin Johnson v. Samuel Ross, II

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UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 10-1046

ORIN S. JOHNSON; GARY A. JONES; and AM-RAD, Inc., Plaintiffs - Appellants, v. SAMUEL B. ROSS, II, Defendant - Appellee.

Appeal from the United States District Court for the Southern District of West Virginia, at Parkersburg. Joseph R. Goodwin, Chief District Judge. (6:08-cv-00313)

Argued:

December 9, 2010

Decided:

March 23, 2011

Before AGEE and WYNN, Circuit Judges, and Patrick Michael DUFFY, Senior United States District Judge for the District of South Carolina, sitting by designation.

Affirmed by unpublished opinion. Judge Wynn wrote the opinion, in which Judge Agee and Senior Judge Duffy concurred.

ARGUED: Leonard Rose, LATHROP & GAGE, LLP, Kansas City, Missouri, for Appellants. William E. Hamb, ROBINSON & MCELWEE, PLLC, Charleston, West Virginia, for Appellee. ON BRIEF: Amy Loth Allen, LATHROP & GAGE, LLP, Kansas City, Missouri; Greer S. Lang, Lawrence, Kansas, for Appellants. Joseph S. Beeson, Christopher L. Hamb, ROBINSON & MCELWEE, PLLC, Charleston, West Virginia, for Appellee.

Dockets.Justia.com

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Unpublished opinions are not binding precedent in this circuit.

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WYNN, Circuit Judge: Under West Virginia law, "if benefits have been received and retained and under such circumstance to permit the law that the it party would be

inequitable them to

unconscionable payment benefits that

receiving the party

avoid the

therefor, to pay

requires reasonable

receiving Plaintiffs

their a

value." 1 and from

contend must

Defendant, the

corporate he

officer

shareholder, Plaintiffs.

disgorge

benefit

received

However, because the benefits were conferred only

on the corporation and Plaintiffs make no argument for piercing the corporate veil, we affirm the district court's grant of

summary judgment for Defendant.

I. In 1995, Gary A. Jones and Orin S. Johnson began designing improvements to the welding process used in the construction of window frames. In 1999, they received two patents for

technology enabling the corners of a thermoplastic window frame to be welded together using radiant heat instead of a flash. 2

Realmark Devs., Inc. v. Ranson, 208 W. Va. 717, 721-22, 542 S.E.2d 880, 884-85 (2000). On January 5, 1999, Jones and Johnson received U.S. Patent No. 5,855,720 entitled "Clamping Head for Use in Joining Plastic Extrusions and Method Thereof." On May 11, 1999, Jones and (Continued) 3
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They

assigned

ownership

of

the

patents

to

Am-Rad,

Inc.,

a

Minnesota corporation. In 2004, Millennium Marketing Group, Ltd. ("Millennium"), a Kansas corporation and acting as the marketing agent for Jones, began

Johnson,

Am-Rad

(collectively

"Plaintiffs"),

discussions with Simonton Building Products, Inc., and Simonton Holdings, technology. Inc., At (collectively the time of "Simonton") these about the Am-Rad was

discussions,

Simonton

controlled by Defendant Samuel B. Ross, II. On or about November 21, 2004, Millennium, Jones, Johnson, and Am-Rad entered into a License Agreement with Simonton for the licensing and use of the patented Am-Rad technology. License "prove Agreement out" the granted Am-Rad for use Simonton technology in the an exclusive adapt license 3 it "into The to a

and

production

mode"

fenestration

(i.e.

window

making) industry.

The License Agreement further provided for

Johnson received U.S. Patent No. 5,902,447 entitled "Deflashing Head and Method for Joining Plastic Extrusions." The agreement contemplated a series of licensing options that could be exercised successively by Simonton upon payment of specified sums of money. On July 15, 2005, the license agreement was amended by adjusting the duration of certain licensing options and the amount of consideration paid to exercise those options. The parties do not dispute that Simonton held an exclusive license to utilize the Am-Rad technology, as contemplated in the License Agreement, during all times relevant to this dispute.
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the future establishment of a joint venture for the marketing of the Am-Rad technology. The joint venture would be organized as

a limited liability company formed and operated "for the sole purpose of marketing and selling to others the right to use the [Am-Rad] Technology in the fenestration industry." Simonton

agreed to "contribute to the capital of the LLC any enhancements or additional patents it may acquire as the result of placing into production products utilizing the [Am-Rad] Technology." Although Agreement, services, regarding services at as the not required under request the Jones and terms and of the License provided

Defendant's well as

Johnson

expertise technology.

confidential They maintain

information that of their new

Am-Rad

ultimately

contributed

to

the

development Plaintiffs'

fenestration

technology.

Specifically,

amended

complaint states that Jones and Johnson provided "services and efforts with regard to the fixtures, heat plates, drawings,

information pertaining to the time, temperature, and distance settings for the welding process, as well as other confidential, proprietary information and know-how." Additionally, Plaintiffs

assert that Jones and Johnson made numerous trips to Simonton's research and development facilities in Pennsylvania and its

production plants in West Virginia.

Also, Plaintiffs provided

consultation services on the telephone and in person.

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Plaintiffs further allege that they provided assistance to Simonton in reliance on Defendant's repeated representations and assurances Plaintiffs, that Ross they and would other be compensated. officers According told Jones to and

Simonton

Johnson "that Plaintiffs and Simonton were partners" with equal rights to any jointly developed technology and the resulting profits. 4 Notwithstanding these oral assurances, Plaintiffs maintain that Defendant acted as though Simonton was the sole owner of technology developed with the assistance of Jones and Johnson. Specifically, Plaintiffs contend that Defendant caused Simonton to file patent applications for the jointly developed technology without listing Plaintiffs as inventors. 5 that Defendant received an inflated And Plaintiffs contend amount of merger

Plaintiffs maintain that Defendant assured them that they were "partners" that were "in it together" and that Plaintiffs would jointly own and share in the profits of any jointly developed technology. On December 30, 2005, Simonton filed a patent application for window manufacturing technology. On December 15, 2006, Simonton filed a second application for window manufacturing technology. According to the complaint, both of Simonton's patent applications are still pending in the U.S. Patent and Trademark Office. Plaintiffs alleged that the Simonton patent applications proposed claims that were enhancements or improvements to the Am-Rad technology that had been jointly developed by the parties. Plaintiffs alleged, moreover, that the Simonton patent applications violated the terms of the License Agreement.
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consideration on the basis of representations to the proposed buyer that Simonton owned the jointly developed technology. Defendant concedes that in 2005, he and the chief financial officer Simonton marketing for was SBR SBR, a for Inc. ("SBR"), the parent the company of which of

subsidiary, sale. 6

discussed Fortune

possibility Inc.,

Brands,

("Fortune

Brands") was a Delaware corporation that appeared interested in acquiring SBR. Directors Fortune of At the August 2005 meeting of the Board of SBR, to it was decided that in Ross should contact In

Brands

gauge

its

interest

acquiring

SBR.

November 2005, SBR sent a formal offering memorandum to Fortune Brands, and in December 2005 representatives of Fortune Brands and SBR met to discuss the business operations of the SBR

subsidiaries.

Plaintiffs maintain that during these December

meetings, John Brunett, then-president of Simonton, represented to Fortune Brands that Simonton possessed "new" fenestration

technology. false and

Plaintiffs assert that Defendant knew that this was failed to correct Burnett's misrepresentations.

Fortune Brands made an initial offer to purchase SBR on December

Defendant was the chairman and chief executive officer of SBR and also a member of SBR's board of directors. [J.A. 303] He was also chairman of Simonton's board of directors. [J.A. 303] According to Defendant, he was one of some 344 stockholders of SBR. [J.A. 303]

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13, 2005.

In June 2006, Fortune Brands acquired 100% of SBR's

outstanding stock for $595 million. 7 Plaintiffs filed suit against Defendant on a theory of

unjust enrichment, 8 seeking restitution for "the increased value Ross received in the sale of his entities and assets to Fortune Brands" as a result of the jointly developed technology. 9

Plaintiffs also sought to compel Defendant to disgorge the value of the confidential information shared with Simonton, the value of the services provided, and the value of the jointly developed technology itself. On December opinion 10, and 2009, order the district court entered judgment a to

memorandum

granting

summary

Defendant on two grounds.

First, the court noted that West

Virginia law provides that "[a]n express contract and an implied As noted by the district court, "[t]he actual transaction involved several steps." Fortune Brands created Brightstar Acquisition LLC, which merged into SBR on June 7, 2006. On June 9, 2009, with the approval of its shareholders, SBR merged into SBR, LLC. SBR's shareholders received consideration for their shares from Fortune Brands. Plaintiffs' initial complaint also included a claim for breach of fiduciary duty. That claim was deleted from Plaintiffs' First Amendment Complaint, filed on August 12, 2009. Essentially, Plaintiffs allege that Defendant touted the parties' jointly developed technology to Fortune Brands and was able to negotiate a higher sale price for the Simonton entities and assets as a result of receiving the services of Jones, Johnson, and Am-Rad than Defendant would have received had he not improperly used Plaintiffs' information and technology. [J.A. 49]
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contract relating to the same subject matter can not co-exist." Case v. Shepherd, 140 W. Va. 305, 311, 84 S.E.2d 140, 144

(1954). enrichment governed

The district court concluded that Plaintiffs' unjust claim the was precluded because the License Agreement as an

identical

subject

matter. 10

Second,

alternative justification for its holding, the district court noted that shareholders are generally not liable for a

corporation's acts.

See Laya v. Erin Homes, Inc., 177 W. Va.

343, 346, 352 S.E.2d 93, 96-97 (1986) ("This limited liability is one of the legitimate advantages of doing business in the corporate form."). The district court opined that Defendant

acted on behalf of the corporation when he dealt with Plaintiffs and when he negotiated the sale of SBR. The district court

found no justification for piercing the corporate veil, noting Plaintiffs' failure to even "advance such an argument." district court consequently found no grounds for The

holding

Defendant personally liable.

Plaintiffs appealed.

We need not consider whether the district court erred in ruling that the existence of the License Agreement precluded Plaintiffs' recovery for unjust enrichment, as we affirm on separate grounds. See Catawba Indian Tribe of S.C. v. City of Rock Hill, S.C., 501 F.3d 368, 372 n.4 (4th Cir. 2007) ("[W]e review judgments, not opinions. We are accordingly entitled to affirm the district court on any ground that would support the judgment in favor of the party prevailing below." (citation omitted)).

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II. "We review the district court's order granting summary

judgment de novo." Robb Evans & Assoc., LLC v. Holibaugh, 609 F.3d 359, 364 (4th Cir. 2010). Summary judgment is appropriate

if "there is no genuine dispute as to any material fact" and Defendant, the movant, "is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In conducting our review, "we

view all facts and reasonable inferences therefrom in the light most favorable to the nonmoving party." Battle v. Seibels Bruce

Ins. Co., 288 F.3d 596, 603 (4th Cir. 2002). Defendant suggests that this well-established standard of review should be modified, "at least with regard to inferences that may be drawn from undisputed facts." 28. Brief of Appellee at

Defendant maintains that "the clearly erroneous standard

would be the proper standard to apply to inferences drawn by the district judge from the undisputed evidence at the summary

judgment stage."

Brief of Appellee at 29.

Defendant's argument stems from a mistaken interpretation of this court's opinion in International Bancorp, LLC v. Societe des Bains de Mer et du Cercle des Etrangers a Monaco, 329 F.3d 359 (4th Cir. 2003). In that case, the plaintiff contended that

the district court exceeded its summary judgment authority by making factual determinations. Id. at 362. Noting that the

parties had "agreed to submit the voluminous record to the court 10

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for

dispositive

decision"

and

that

the

district

court's

disposition simply resolved disputes concerning the inferences drawn from undisputed material facts, we held that the district court had properly proceeded to judgment. Id. However, we also

noted that because the district court "engaged in fact-finding to dispose of the matter, we review its findings of fact for clear error." Id.

Defendant asserts that International Bancorp supports the proposition review error. misplaced. the that where only drawn equitable by the on relief is court sought, for we

inferences

district

clear is

Defendant's

reliance

International

Bancorp

The clear error standard announced there referred

only to our review of factual findings made by the district court in the rare scenario where such "fact-finding" was

appropriate at the summary judgment stage. determinations were made.

Here, no factual

Lacking any predicate findings of

fact by the district court, we decline to apply a clear error standard. Instead, our review is limited to a de novo

determination of whether Defendant was entitled to judgment as a matter claim. of law with respect to Plaintiffs' unjust enrichment

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III. Generally, a plaintiff seeking restitution on a theory of unjust enrichment must establish (1) a benefit conferred on the defendant by the plaintiff, (2) an appreciation or knowledge by the defendant by of the the benefit, of and (3) the benefit acceptance under or such

retention

defendant

the

circumstances as to make it inequitable for the defendant to retain the benefit without payment of its value. 26 Samuel

Williston & Richard A. Lord, A Treatise on the Law of Contracts § 68:5 (4th ed. 2003); see also Realmark Devs., 208 W. Va. at 721-22, 542 S.E.2d at 884-85 ("[I]f benefits have been received and retained and under such circumstance to permit the law that the it party would be

inequitable them to

unconscionable payment

receiving the party

avoid

therefor,

requires

receiving the benefits to pay their reasonable value."); Dunlap v. Hinkle, 173 W. Va. 423, 427 n.2, 317 S.E.2d 508, 512 n.2 (1984) ("Unjust enrichment of a person occurs when he has and retains money or benefits which in justice and equity belong to another." (quotation omitted)). We need not consider whether Jones and Johnson conferred a benefit on Simonton. This case does not concern an unjust

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enrichment claim against the beneficiary corporation. 11 Plaintiffs Accordingly, conferred inequitable Plaintiffs. Our review of the record reveals no such benefit. on seek the Ross for him restitution threshold from is Ross

Instead,

individually. Plaintiffs would payment be to

question a

whether which

individually to retain

benefit

without

making

Each of

the actions taken by Johnson and Jones benefitted Ross, if at all, only indirectly by virtue of his status as a Simonton

shareholder.

Plaintiffs cite no West Virginia case establishing

that an unjust enrichment action can be sustained against the indirect Different recipient states of have a benefit reached conferred opposite by a plaintiff. when

conclusions

addressing this issue.

Compare Extraordinary Title Servs., LLC

v. Fl. Power & Light Co., 1 So.3d 400, 404 (Fla. Dist. Ct. App. 2009) (affirming dismissal of unjust enrichment claim because "Plaintiff cannot allege nor establish that it conferred a

direct benefit on [defendant]"); Johnson v. Microsoft Corp., 106 Ohio St.3d 278, 286, 834 N.E.2d 791, 799 (2005) ("The rule of law is that an indirect purchaser cannot assert a common-law

In a related case filed in federal district court in Kansas, Plaintiffs sued Simonton and Fortune Brands for, inter alia, unjust enrichment. See Johnson, et al. v. Simonton Bldg. Prods., Inc., No. 08-cv-2198 (D. Kan. 2008).

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claim for restitution and unjust enrichment against a defendant without establishing that a benefit had been conferred upon that defendant by the purchaser.") with Bank of Am. Corp. v. Gibbons, 173 Md. App. 261, 271, 918 A.2d 565, 571 (Md. Ct. Spec. App. 2007) ("[A] cause of action for unjust enrichment may lie

against a transferee with whom the plaintiff had no contract, transaction, or dealing, either directly or indirectly.");

Freeman Indus., LLC v. Eastman Chem. Co., 172 S.W.3d 512, 525 (Tenn. 2005) ("[T]o recover for unjust enrichment, a plaintiff need not establish that the defendant received a direct benefit from the plaintiff."); State ex rel Palmer v. Unisys Corp., 637 N.W.2d 142, 155 (Iowa 2001) ("We have never limited [unjust

enrichment] to require the benefits to be conferred directly by the plaintiff."). this state-law We decline Plaintiffs' invitation to settle question, not least because doing so is

unnecessary to reach our disposition. If West Virginia law would not allow an unjust enrichment suit against an indirect beneficiary, summary judgment should have been granted to Defendant. beneficiary unjust could be sued action for If, alternatively, an indirect unjust enrichment, because Plaintiffs' Defendant

enrichment

still

fails

benefitted only as a Simonton shareholder; thus, to wrest the benefit from him would require us to pierce the corporate veil shielding him from liability. 14

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Assuming that the technical assistance provided by Johnson and Jones was valuable, that value was realized by Simonton, the company undertaking to improve the Am-Rad technology, rather

than by Defendant individually.

Similarly, the value of the

confidential information disclosed to Simonton employees cannot be said to have been conferred on Defendant. Further, insofar

as Plaintiffs seek to compel Ross to disgorge the value of the jointly developed technology, they fail to demonstrate that Ross himself became the unjust recipient of the value of that

technology. Indeed, individually inflated merged the is only mention of a benefit that realized Ross when by Ross an

Plaintiffs' as a

allegation

received the of

payment with

Simonton Brands Simonton

shareholder by owned

company alleged jointly Despite

Fortune that

virtue the

misrepresentations

technology

developed with the assistance of Johnson and Jones. their attempts to avoid the consequence that the of this

allegation, unjustly

Plaintiffs

essentially

contend

corporation

received a benefit in the form of increased merger consideration and then ask us to wrest a portion of that increased merger consideration from Ross, an individual shareholder, on the

grounds that Ross facilitated the unjust enrichment. However, "[t]he law presumes . . . that corporations are separate from their shareholders." 15 S. Elec. Supply Co. v.

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Raleigh Cnty. Nat. Bank, 173 W. Va. 780, 788, 320 S.E.2d 515, 523 (1984). Even assuming arguendo that Simonton was unjustly

enriched, this does not, without more, give rise to liability on the part of Ross as an individual. MWI Corp., 520 F. Supp. 2d 158, See U.S. ex rel. Purcell v. 173 (D.D.C. 2007) ("The

plaintiff may only rely on an inference that a stockholder by means of his corporate equity received a benefit if the

plaintiff shows that the stockholder abused the corporate form, using it as his own alter ego to perpetuate fraud-in which case, the corporate veil should be pierced."). 12 West Virginia law recognizes that "[u]nder exceptional

circumstances, . . . . `[j]ustice may require that courts look beyond the bare legal relationship of the parties to prevent the corporate form from being used to perpetrate injustice, defeat public convenience or justify wrong. However, the corporate Laya, 177 W. Va. at

form will never be disregarded lightly.'"

347, 352 S.E.2d at 97 (quoting S. States Co-op., Inc. v. Dailey, 167 W. Va. 920, 930, 280 S.E.2d 821, 827 (1981)). Moreover,

See also Metalmeccanica Del Tiberina v. Kelleher, No. 042567, 2005 WL 2901894, at *4 (4th Cir. 2005) (unpublished) (affirming rejection of unjust enrichment claim against corporate officer with observation that "[a]t most, [the plaintiff] can demonstrate that [the defendant corporation], as opposed to [its owner], received a nongratuitous benefit. Any benefit [the owner] received . . . came from [the corporation]not [the plaintiff]").

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"the

burden

of

proof

is

on

a

party

soliciting

a

court

to

disregard a corporate structure." Va. at 787, 320 S.E.2d at 522.

S. Elec. Supply Co., 173 W.

We agree with the district court

that Plaintiffs have not carried that burden. Piercing the corporate veil "is an equitable remedy, the propriety of which must be examined on an ad hoc basis." 177 W. Va. at 347, 352 S.E.2d at 98. Laya,

"[D]ecisions to look

beyond, inside and through corporate facades must be made caseby-case, with particular attention to factual details." S. For veil

Elec. Supply Co., 173 W. Va. at 787, 320 S.E.2d at 523. this reason, "the propriety of piercing the corporate

should rarely be determined upon a motion for summary judgment. Instead, the propriety of piercing the corporate veil usually involves numerous questions of fact for the trier of the facts to determine upon all of the evidence." 351, 352 S.E.2d at 102. The Laya court's reluctance to absolutely foreclose summary judgment accommodates courts faced with cases, such as this one, wherein no attempt whatsoever is made to "pierce the veil." Laya, 177 W. Va. at

Indeed, Plaintiffs insist that "[i]t is not necessary to pierce the corporate veil in order to impose personal liability" on Ross. Opening Brief at 35.

Plaintiffs argue that because Ross, acting as a corporate officer, knowingly participated 17 in alleged wrongdoing, he is

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personally liable. proposition that a

Plaintiffs cite a host of cases for the corporate officer may be held personally

liable for tortious activity of the corporation when the officer sanctions or participates in the wrongful conduct. See, e.g.,

Bowling v. Ansted Chrysler-Plymouth-Dodge, Inc., 188 W. Va. 468, 472, 425 S.E.2d 144, 148 (1992) ("`A director or an officer of a corporation merely by does reason not of incur his personal official liability character for its he torts has

unless

participated in or sanctioned the tortious acts[.]'" (quoting Cato v. Silling, 137 W. Va. 694, 717, to 73 no S.E.2d tort 731, 745

(1952))). against mindful them that

However, by the

Plaintiffs Simonton of

point or

committed we are

either theory

Ross. in an

Moreover, unjust

recovery

enrichment

action renders it more akin to a contract action than a tort action. See Ross Eng'g Co. v. Pace, 153 F.2d 35, 45 (4th Cir.

1946) (observing that in cases of unjust enrichment "a contract to pay is implied in law"). We recognize that a judicially However,

implied "quasi-contract" is not actually a contract.

we are disinclined to analogize to the cases cited by Plaintiffs given the different justifications that support imposing

personal liability on corporate officers for corporate torts as opposed to corporate contractual obligations. S. Elec. Supply

Co., 173 W. Va. at 787 n.13, 320 S.E.2d at 522-23 n.13. ("Some courts will more readily disregard a corporate form in cases of 18

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tort

liability

than

in

contract

cases

because

contracts

are

voluntarily entered into with the corporate structure."). Piercing the veil in the context of a breach of contract does not rest on participation liability, as it would under a tort theory. stated that [I]n a case involving an alleged breach of contract, to "pierce the corporate veil" in order to hold the shareholder(s) actively participating in the operation of the business personally liable for such breach to the party who entered into the contract with the corporation, there is normally a two-prong test: (1) there must be such unity of interest and ownership that the separate personalities of the corporation and of the individual shareholder(s) no longer exist (a disregard of formalities requirement) and (2) an inequitable result would occur if the acts are treated as those of the corporation alone (a fairness requirement). Laya, 177 W. Va. at 349, 352 S.E.2d at 99. This two-prong test Instead, the Supreme Court of West Virginia has

underscores why piercing the corporate veil would be imprudent under a theory that an implied contract existed between

Plaintiffs and Defendant. ownership" contracting that on would his own

There was no "unity of interest and establish behalf. that Ross was impliedly taking the

Instead,

even

evidence in the light most favorable to Plaintiffs, Ross made promises, whether express or implied, on behalf of the

corporation.

Thus, if a benefit was conferred on the basis of

those promises, the corporation, not its officers, would be the entity unjustly enriched by the failure to keep those promises. 19

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Accordingly, we conclude that Defendant is not subject to personal liability for unjust enrichment, if any, on the part of Simonton. Because Plaintiffs fail to demonstrate any benefit

retained by Defendant other than that realized by virtue of his status as a shareholder, they cannot maintain a cause of action for unjust enrichment against him individually. The district

court therefore did not err in granting Defendant's motion for summary judgment. AFFIRMED

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