Armstrong Pump, Inc. v. Hartman et al

Filing 358

REPORT AND RECOMMENDATIONS RE: 291 MOTION for Summary Judgment filed by Optimum Energy LLC; 290 MOTION for Summary Judgment filed by Thomas Hartman; and 292 MOTION for Partial Summary Judgment filed by Armstrong Pump, Inc.Objections due per 28 U.S.C. § 636(b) and Fed. R. Civ. P. 72.Signed by Hon. Hugh B. Scott on 1/18/2018. (GAI)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
Armstrong Pump, Inc.,
Plaintiff,

Report and Recommendation
10-CV-446S

v.
Mr. Thomas Hartman doing business as
The Hartman Company and
Optimum Energy LLC,
Defendants.

I.

INTRODUCTION
The Hon. William M. Skretny has referred this breach-of-contract case to this Court under
28 U.S.C. § 636(b). (Dkt. No. 74.) Pending before the Court are motions by plaintiff Armstrong
Pump, Inc. (“Armstrong”), defendant Thomas Hartman (“Hartman”), and defendant Optimum
Energy LLC (“Optimum”), for summary judgment under Rule 56 of the Federal Rules of Civil
Procedure (“FRCP”). (Dkt. Nos. 290, 291, 292.) The Court held oral argument on August 10,
2017.
In preparing this Report and Recommendation, the Court gave considerable thought to
whether any of its contents should be redacted. The parties entered a joint protective order (Dkt.
No. 66) to govern discovery; the protective order allowed the parties to designate discovery
documents as confidential or highly confidential based on the extent to which those documents
contained trade secrets or certain other proprietary information pertaining to marketing, sales, and
finances. The Court has wanted to respect the sensitive nature of the parties’ discovery materials

and, along the way, has allowed the parties to file exhibits to motion papers under seal. At the
same time, the Court has had to pay attention to two strong arguments in favor of public access to
the docket. The first argument is the policy behind public access to federal court dockets:
The presumption of access is based on the need for federal courts, although
independent—indeed, particularly because they are independent—to have a measure
of accountability and for the public to have confidence in the administration of
justice. Federal courts exercise powers under Article III that impact upon virtually
all citizens, but judges, once nominated and confirmed, serve for life unless
impeached through a process that is politically and practically inconvenient to
invoke. Although courts have a number of internal checks, such as appellate review
by multi-judge tribunals, professional and public monitoring is an essential feature
of democratic control. Monitoring both provides judges with critical views of their
work and deters arbitrary judicial behavior. Without monitoring, moreover, the
public could have no confidence in the conscientiousness, reasonableness, or
honesty of judicial proceedings. Such monitoring is not possible without access to
testimony and documents that are used in the performance of Article III functions.
United States v. Amodeo, 71 F.3d 1044, 1048 (2d Cir. 1995). The second argument is a more
practical distinction between the purpose of a protective order during discovery and the disclosures
that inevitably must occur when a case reaches dispositive motions or trial:
Protective orders are useful to prevent discovery from being used as a club by
threatening disclosure of matters which will never be used at trial. Discovery
involves the use of compulsory process to facilitate orderly preparation for trial, not
to educate or titillate the public. Private matters which are discoverable may, upon
a showing of cause, be put under seal under Rule 26(c), in the first instance.
Martindell v. International Tel. & Tel. Corp., 594 F.2d 291 (2d Cir. 1979), says no
more than that.
At the adjudication stage, however, very different considerations apply. An
adjudication is a formal act of government, the basis of which should, absent
exceptional circumstances, be subject to public scrutiny.
Joy v. North, 692 F.2d 880, 893 (2d Cir. 1982).
2

To try to find the right balance between disclosure and redaction, the Court has
considered that the parties’ motions were dispositive in nature and potentially could have ended
the case in whole or in part. The Court also looked ahead to what information inevitably would
have to be disclosed in a trial on the ultimate merits. As the parties will see, the Court has quoted
extensively from their communications and from their motion papers to capture the full detail of
the arguments that they have presented. These communications, and any arguments in the
motion papers, are fair game for public access. In contrast, the Court has quoted little if any
technical information from the sealed documents and will leave those documents under seal at
this time. As it turns out, resolving the parties’ motions required some conceptual discussion of
the technology in question—information probably known in the industry anyway—but did not
require disclosure of algorithms, specific internal strategies, or other such sensitive information.
As for a summary of the arguments that the parties have presented, introductions such as
this typically contain some kind of short digest of the issues that were in play. With so many issues
that the parties presented in their motions, an introductory summary is not possible. The reader is
referred to the Background section below, with the table of contents appearing on the next page
offered as guidance.

3

I.

INTRODUCTION ...................................................................................................................................................... 1

II.

BACKGROUND ......................................................................................................................................................... 5
A.
B.
C.
D.
E.

HVAC TECHNOLOGY AND INITIAL EVENTS ........................................................................................................... 5
NEGOTIATIONS LEADING UP TO THE ALA AND OLA ........................................................................................... 13
THE ALA AND ITS TERMS ...................................................................................................................................... 22
THE OLA AND ITS TERMS ...................................................................................................................................... 26
FACTORY VERSUS FIELD IMPLEMENTATION .......................................................................................................... 31
i.
Novelty of the terms .......................................................................................................................................... 32
ii. Mutual exclusivity ............................................................................................................................................. 32
iii. Overlap with “retrofit” and “non-retrofit” ....................................................................................................... 33
iv. Is the Optimum product a “controller”? .......................................................................................................... 35
v.
Preparation of the Optimum product .............................................................................................................. 43
vi. Meaning of “implement” or “implementation” ............................................................................................... 48
F. THE PPA AND ITS TERMS ....................................................................................................................................... 50
G. DEALINGS UNDER THE AGREEMENTS ................................................................................................................... 52
III. DISCUSSION ............................................................................................................................................................ 64
A.
B.
C.

SUMMARY JUDGMENT GENERALLY ........................................................................................................................ 64
CONTRACT LAW GENERALLY ................................................................................................................................ 66
ARMSTRONG’S PRINCIPAL CLAIMS FROM THE AMENDED COMPLAINT (DKT. NO. 55)
AND THE COUNTERCLAIMS (DKT. NO. 68)............................................................................................................ 70
i.
Breach of Contract Against Hartman .............................................................................................................. 70
ii. Tortious Interference Against Optimum ....................................................................................................... 116
D. ARMSTRONG’S DECLARATORY JUDGMENT COUNTERCLAIM FOR PATENT INVALIDITY
(DKT. NO. 68 AT 9, DKT. NO. 111 AT 9) .............................................................................................................. 123
E. OPTIMUM’S COUNTERCLAIMS FOR DECLARATORY JUDGMENT (DKT. NO. 57) ................................................. 124
F. OPTIMUM’S ARGUMENT TO LIMIT ARMSTRONG TO NOMINAL DAMAGES ......................................................... 125
G. ARMSTRONG’S REQUEST FOR AN ACCOUNTING ................................................................................................ 133
IV.
V.

CONCLUSION .................................................................................................................................................. 136
OBJECTIONS .......................................................................................................................................................... 137

4

II.

BACKGROUND

A. HVAC Technology and Initial Events
This case concerns an ongoing dispute over who is allowed to market novel climatecontrolled technology, and under what circumstances. The inventor in question is Hartman.
“Thomas Hartman is a professional engineer, inventor, and the original owner of the three patents
at issue in this case, i.e., United States Patent No. 5,946,926, No. 6,257,007 and No. 6,185,946
(the ‘LOOP Patents’).” (Dkt. No. 294-4 at 1.) The technology in question concerns heating,
ventilation and air conditioning (“HVAC”) equipment in office, industrial, and other types of
buildings. The record contains a concise description of the state of HVAC technology and how
Hartman changed it:
Heating, ventilating, and air conditioning (“HVAC”) systems are used in
buildings to provide comfort for occupants. Commercial HVAC systems utilized in
large buildings usually contain a heating system, ventilation system, cooling system,
humidification system, dehumidification system, and/or air filtration system. In
addition to these mechanical systems, electronic control systems manage the
operation of the various mechanical systems to ensure smooth operation and to
maintain desired comfort levels among all the relevant variables such as
temperature, humidity, amount of fresh air, and so forth.
In the late 1990’s, inventor Thomas Hartman (“Hartman”) discovered
novel ways to control chilled water cooling systems. Hartman’s insight countered
conventional wisdom of HVAC control, but implementation of his novel control
schemes results in significant efficiency gains. As a result, buildings controlled
according to Hartman’s invention use less energy to maintain desired comfort levels
than those controlled according to traditional schemes. Hartman applied for a
series of patents which claim his invention. In the ‘926 Patent,1 issued on
September 7, 1999, Hartman taught a novel use of variable flow chilled fluid
cooling systems. The ‘946 Patent,2 issued on February 13, 2001, provides a system
1
2

U.S. Patent No. 5,946,926.
U.S. Patent No. 6,185,946.

5

for sequencing chillers in a loop cooling plant and other systems that employ all
variable-speed units. Finally, the ‘007 Patent,3 issued July 10, 2001, teaches a
method for control of cooling system condenser fans and cooling tower fans and
pumps. The systems of the three Hartman patents are marketed under the
registered trademark Hartman LOOP™.
Hartman’s work demonstrated that large HVAC chiller systems could be
optimized for efficiency even if the individual components of the system were
operated at less than their individual optimum efficiency. In other words, the
LOOP Patents teach that, while conventional wisdom would suggest that each
component in the loop should be operated at its own individual optimal efficiency
point for the desired comfort level, Hartman realized that instead maximum
system-wide efficiency can be significantly improved by monitoring the system as a
whole and adjusting the individual components. The energy efficiency of the total
system may be highest even where some individual components operate at less than
individual peak efficiency. Thus, systems using the Hartman LOOP technology
maximize their cooling efficiency even when such a system might operate one or
more subcomponents at less than individual peak efficiency, providing system-wide
greater energy savings and improved system performance.
(Dkt. No. 125 at 1–3; see also Dkt. No. 318 at 2 (“The Hartman patents teach that while
conventional wisdom would suggest that each component in a chilled water loop should be
operated at maximum efficiency to maximize the efficiency of the system as a whole, the overall
efficiency can be significantly improved by monitoring the system as a whole and adjusting the
individual components and in some cases to a point that is less than peak efficiency. Hartman
calls this the ‘Hartman LOOP Technology.’”).) In very broad terms, buildings could acquire the
LOOP Technology in two ways. “The Hartman LOOP methods could be inserted into an existing
building cooling system by modifying the existing building controls (a building’s computer for the
control of the HVAC and other maintenance programs, sometimes called a Building Automation

3

U.S. Patent No. 6,257,007.

6

System—BAS) and adding new sequences that make the Hartman LOOP steps operate to
efficiently run the cooling system. Or, new equipment incorporating the Hartman LOOP
sequences could be added to a new or existing building cooling system, such as a new Hartman
LOOP controller or building control device.” (Dkt. No. 318 at 2.)
At this point, two companies enter the picture with their interest in marketing the LOOP
Technology. One company is Optimum. “Optimum Energy LLC is a Washington limited liability
company with its principal place of business located in Seattle, Washington. In mid-2006, the
assets of Optimum Energy Corporation, including the Optimum License Agreement, were
transferred to Optimum Energy LLC. Optimum was started in 2004 by Nathan Rothman and Jim
Hanna. In about 2003, Rothman and Hanna, who were neighbors, began exploring opportunities
in energy efficiency and related fields. Rothman was Optimum’s President and CEO from its
formation until he became Chairman and Founder in late 2010. Rothman left Optimum at the
end of 2011. Jim Hanna was a co-founder of Optimum. Until he retired as an Optimum
employee in 2013, Hanna’s titles had included Vice President, Vice President of Product
Development and Vice President of Technology. Optimum now has 58 employees. Optimum’s
2016 revenue of about $8.7 million was its highest ever to date. Optimum has yet to be profitable
i.e., it has not had net income, in any year of its existence.” (Dkt. No. 294-4 at 2–3.) Optimum
has explained its business model as follows:
The Optimum business model was, from the outset, to implement the
Licensed Technologies using a separate appliance, the Tridium JACE product, that
along with Optimum’s software could be integrated with the Building Automation
System (BAS) (also known as the Building Management System (BMS)) as an addon
7

to facilitate field implementation of the Licensed Technologies pursuant to
Optimum’s license. Optimum has consistently built its business on the concept of
delivering the Licensed Technologies using an appliance, such as the Tridium
JACE product, that is an add-on to the BAS/BMS and not a replacement for the
chiller plant control provided by the BAS/BMS.
(Dkt. No. 294-4 at 3.)
The other company is Armstrong. “Founded in 1934, Armstrong is a family owned
business that has pioneered an uncompromising range of products for customers in residential,
commercial and industrial markets. The Armstrong name has been a benchmark for quality in
design, engineering and manufacturing. A significant part of Armstrong’s business revolves
around the development and manufacture of the highest quality HVAC chilled water and boiler
water systems, pumps, and other components.” (Dkt. No. 318 at 1.) Optimum has disputed that
Armstrong is a family-owned business. “Armstrong Pump, Inc., is a wholly-owned subsidiary of
S.A. Armstrong, Ltd. Armstrong, which was established in 1934 as a pump manufacturer, has
about 1,000 employees throughout the world, and had 2014 revenue of over $200 million,
probably about $230 million-$240 million.” (Dkt. No. 294-4 at 3.) Optimum also has disputed
the association of the word “quality” with Armstrong:
Optimum disputes that Armstrong’s range of products has been
“uncompromising” and that the Armstrong name has been a “benchmark for
quality and design in engineering and manufacturing,” at least with respect to its
products that incorporate the LOOP Technologies. For example, Armstrong’s
implementation of its IPC 11550 on the San Diego County Health Services project
in 2007 was substandard, problematic and deficient. In an October 16, 2007 email to Peter Thomsen, and others, Armstrong’s representative Steve Lewis of
Vertical Systems cited “the fact that Armstrong was probably somewhat negligent in
its support of the sale” and that “the county have [sic] a bad taste of Armstrong and
fences need mending.” In a responding e-mail on October 17, 2007, to a number
8

of Armstrong personnel, including Peter Thomsen, Alfred Dubier, Armstrong’s
Regional Sales Manager, stated that “[w]e need to resolve these issues at the earliest,
Armstrong does not have a good name in the San Diego County as stated below.”
In addition, Armstrong was successfully sued for breach of contract in connection
with Armstrong’s attempted sale and installation of an IPC 11550 in the Galleria
and Tower at Erieview office building and retail mall in Cleveland, Ohio in 2009.
Armstrong was found to have breached its contract of sale by not providing a
functioning controller and failing to fully commission the system. (See Findings of
Fact and Conclusions of Law, filed on March 29, 2013, in Armstrong Pumps Inc. v.
Brewer-Garrett Company, Case No. 1:10cv492 (N.D. Ohio) and Satisfaction of
Judgment filed by Brewer-Garrett on November 8, 2013 in that action.)
Optimum disputes that Armstrong’s HVAC chilled water and boiler water
systems, pumps and other components, are of the highest quality, at least with
respect to its products that incorporate the LOOP Technology.
(Dkt. No. 299 at 1–2.) Armstrong has explained its interest in the LOOP Technology as follows:
“While Armstrong already had control systems and plant automation as products at the time,
obtaining a license to the Hartman Loop Technologies and building a business with Hartman was
particularly critical to developing new business opportunities. The Hartman patents covered
significant aspects of the sequencing and control of chilled water systems, providing Armstrong
credibility to enter the plant automation and controller business in a differentiated fashion.” (Dkt.
No. 318 at 3.) Hartman has disputed that Armstrong had control systems as products when it
took an interest in the LOOP Technology:
When Brent Ross negotiated the ALA [Armstrong License Agreement,
discussed infra], Armstrong did not have a “control only” product; Hartman told
Charles Armstrong and Brent Ross, and all three agreed, that it would be unwise
for Armstrong to attempt to be a controller manufacturer unless it added a network
of thousands of technicians to service controller products. Hartman Decl. ¶ 32.
Such a network would be needed because, if a controller is nonoperational, a
controller customer (i.e., a business or building owner) would need to repair the
controller within a matter of hours, not days, in order to avoid having its facility go
9

“offline.” Id. Since Armstrong did not have such a network, it did not make sense
for them to market a “controller only” product. Id. Thomsen’s use of “control
systems” is ambiguous. Armstrong did not have a control product that operated
entire plants. Id. Accordingly, Mr. Thomsen appears to use the phrases “control
systems” and “plant automation and controller business” to reference products that
controlled a specific piece of equipment only. Id. When the ALA was being
negotiated, such a control product was never referenced by Armstrong. Id. Rather,
Ross discussed automation as being introduced as part of the factory assembled
mechanical package that was to be Armstrong’s product. Id.
(Dkt. No. 302 at 3.) Hartman’s contention, in turn, is contradicted by a January 6, 2004 email
message from Ross to Hartman. (Dkt. No. 292-2 at 312.) In this email message, Ross explained to
Hartman that
Our development program is continuing quite fast. We are progressing in
providing pumping packages in the field with more and more components. We
have two variable primary pumping packages where we are providing the controls
currently in submittal. We’ve sold these before we’ve standardized our offering so
definitely the market is pushing us for these. We introduced two new controllers
in 2003 and will be introducing at least two more in 2004.
(Id.)
Armstrong eventually approached Hartman to express its interest in obtaining a license to
use the LOOP Technology. Communications began in 2003; Armstrong considered the
communications to be negotiations. (Dkt. No. 318 at 3.) Optimum disputes the use of the term
“negotiations.” “First, although Armstrong began discussions with Hartman in 2003, Optimum
disputes that such discussions constituted negotiations. Second, Optimum disputes the statement
to the extent Armstrong is suggesting any specific manner or details about Armstrong’s intention
at the time with respect to expanding its product line and potential customer base and means of
leveraging LOOP Technologies in Armstrong’s products.” (Dkt. No. 299 at 3.) In any event,
10

“Ross was Armstrong’s director of marketing and engineering and was responsible for all
marketing and all engineering in the global firm. (Ross Dep. at 8:20-9:20; Appendix Exh. G).
Ross had the lead role for Armstrong in its discussions and negotiations with Hartman that
resulted in the ALA. (C. Armstrong Dep. at 55:19-56:19; Appendix Exh. H) (See 7/25/14 and
9/17/15 deposition of Peter Thomsen (‘Thomsen Dep.’) at 19:5-20; 20:13-19; Appendix Exh. D).
Ross had the authority to negotiate agreements for Armstrong and to sign agreements for
Armstrong, subject to approval from Charles Armstrong or Paul Novello, Armstrong’s CFO. (C.
Armstrong Dep. at 36:7-37:20; Appendix Exh. H).” (Dkt. No. 294-4 at 4.) The year 2003 also saw
Optimum begin communications with Hartman. “In 2003, while pursuing due diligence about a
Chinese company that specialized in optimization of HVAC equipment, Rothman and Hanna
became aware of the work that had been done by Tom Hartman and contacted him. (Hanna Dep.
at 15:20-16:10; Appendix Exh. E). Hartman had already deployed the LOOP Technologies at
some sites in San Diego. (Hanna Dep. at 16:19–24; Appendix Exh. E). At that time, Rothman
and Hanna had discussions with Hartman about forming a company with Hartman and how that
might work. (Hanna Dep. at 16:11-18; Appendix Exh. E).” (Dkt. No. 294-4 at 5.) As the parties
began to flesh out their interests, Rothman played the main negotiating role for Optimum.
“Rothman was involved in negotiations and business dealings among Hartman, Armstrong and
Optimum as far back as the summer of 2004. (Rothman Decl., ¶2; Appendix Exh. A). Among
other things, Rothman met with Brent Ross of Armstrong in the summer of 2004. (Id. and Exh.
A). Hartman and Rothman met with Armstrong, at Armstrong’s invitation, at an Armstrong
11

conference in Toronto in September 2004. Rothman participated at times in discussions and
negotiations between Hartman and Armstrong from that time through the February 4, 2005 ALA.
(Id.).” (Dkt. No. 294-4 at 6.)
Armstrong and Hartman eventually entered a licensing agreement, the ALA, on February
4, 2005. “Optimum does not dispute that Armstrong and Hartman entered into the license
agreement, referred to herein as the ‘Armstrong License Agreement’ or ‘ALA’ on or about
February 4, 2005. Optimum disputes that the ALA was signed ‘after nearly two years at the
negotiating table,’ to the extent that Armstrong is suggesting that it was two years of continuous
negotiations.” (Dkt. No. 299 at 4.) On November 28, 2005, Hartman and Optimum entered
their own license agreement, the Optimum License Agreement or “OLA.” The Court will discuss
these two license agreements in more detail below.
One other document is worth a brief mention. On March 26, 2004, Hartman and an
Optimum predecessor called GETCO LLC signed a Binding Letter of Intent. Rothman signed as
president of GETCO LLC. (Dkt. No. 292-2 at 125–27.) In the Binding Letter of Intent, Hartman
used the following language to describe the scope of a potential license to GETCO LLC to use the
LOOP Technology: The license would be “for the purpose of creating, marketing, promoting,
selling and otherwise commercializing Products aimed at utilizing the Technology in retrofit
(existing construction) applications (the ‘Retrofit Product License’).” (Id. at 125.) The Binding
Letter of Intent, in the next sentence, uses the same language to describe a potential license to
GETCO LLC for “non-retrofit (e.g., new construction) applications.”
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B. Negotiations Leading up to the ALA and OLA
In the months leading up to February 2005, Armstrong and Hartman began to craft a
formal agreement that would give Armstrong license rights to the LOOP Technology. As Hartman
has stated,
In 2004, I began negotiating with (A) Armstrong’s director of marketing
and engineering, Brent Ross, and (B) Optimum’s founder, President and CEO,
Nathan Rothman. Both Armstrong and Optimum were fully aware of each other.
In fact, all three parties negotiated the method of dividing the Licensed
Technologies as between Armstrong and Optimum. Optimum knew that I
intended to grant a license to Armstrong for certain rights and Armstrong knew
that I was licensing different rights to Optimum, and would eventually partner with
Optimum and ultimately intended to sell the patents to Optimum.
Neither Armstrong nor Optimum objected to the existence of the other
party, or their proposed role, during the negotiation of their respective license
agreements. Both parties understood that I sought multiple licensees in order to
bring the Licensed Technology to market in the most comprehensive and efficient
manner possible, by providing Armstrong and Optimum with mutually exclusive
rights.
It was critical that the Licensed Technologies be available from at least two
sources (i.e., Optimum and Armstrong) because much of the market would require
competitive bids that prevented sole-source products (i.e., products that were only
available from one source). Messrs. Ross and Rothman were well aware of this
“competition” that would exist between them. The goal was to provide all potential
customers with a solution that included the Licensed Technologies, even if a
particular licensee’s offering was not ideal for a given customer.
(Dkt. No. 290-2 at 3–4.) Armstrong has disputed what it considers merely Hartman’s opinion
about the importance of having two or more sources to supply the HVAC market. Brent Ross
from Armstrong has asserted the following:
Paragraph 10 of Hartman’s Declaration asserts that it was “critical” that the
Hartman LOOP technology be available from two or more sources. This is merely
13

Hartman’s opinion. Armstrong’s preference was to have all the exclusive rights in
the technology. Accordingly, Armstrong never believed that competition for the
Hartman LOOP was in any way “critical.” Hartman made it clear early on that an
exclusive license with all the rights to Armstrong was not going to happen.
Eventually, Hartman insisted on dividing the rights between: 1) a project specific
license for the Hartman LOOP customized program for a specific building site; 2)
field implementation performed in the field at the building site; and 3) producing
products or “product sizing” the technology in a factory setting. For Armstrong,
this was not a preferred separation of rights but it is what Hartman insisted on.
Prior to the separation of field and factory markets, Hartman used the terms
“retrofit” and “new construction” as a separation of the market and the same terms
were used by the parties even after the field and factory terms arose in the license
agreement, and retrofit and new construction were removed.
(Dkt. No. 303 at 308.) Armstrong has elaborated further as follows:
Several emails between Hartman and Armstrong’s Brent Ross exist during
the time period of the license negotiations. Optimum can point to not one that
references an alleged “requirement” for multiple parties or competitive bidding.
Hartman’s May 3, 2017 declaration merely sets forth an opinion, and that opinion
was not even expressed at the time of the negotiations. Hartman’s opinion had no
role in the development of the Armstrong license or any of its terms or clauses.
Brent Ross’ Declaration (Declaration of Brent Ross in Support of Plaintiff’s
Opposition to Defendants Hartman and Optimum Motions for Summary
Judgment dated June 16, 2017 (“Ross Declar.”)) directly addresses the newly alleged
“required competitive bidding” opinion. (Ross Declar. ¶¶ 12, 19, and 23).
Armstrong desired exclusive rights to use the patents, all of the rights. Hartman
was not willing to exclusively license to Armstrong all the rights. Obviously,
Armstrong did not believe competitive bidding was at all required or even
desirable. Hartman’s Declaration and Optimum’s statements reflect today’s
opinion, not even an opinion expressed contemporaneously with the license or any
negotiations. This opinion from Hartman’s and Optimum’s Statement of Facts
should be given no weight at all.
(Dkt. No. 303 at 8.) Hartman countered by pointing to the following email message that he sent
to Ross on January 24, 2005:
From our two perspectives and understanding of the legal language, we
believe it [the draft ALA] to be a reasonable description of how we have agreed
14

upon various issues involved in this effort to license and “productize” Hartman
LOOP™ technologies in cbiller plant systems. It does address the “prepackaged”
versions of the technology and assign those rights to Armstrong for new chilIer
plants in which the technology is included with some of the equipment being
supplied. It also outlines the rights of Optimum for retrofit applications in which
mechanical equipment already exists. This agreement leaves open the possibility
for engineers or contractors to “field implement” the technologies using
conventional methods of implementation (installing the sequences as part of the
installation or retrofit on a one-at-a-time custom programming basis) by licensing
the technologies directly from me or whomever I may assign the task of organizing
such support, which is a path I would like to minimize over the next few years.
(Dkt. No. 319 at 437.) “This paragraph outlines three possible methods of implementation of the
Licensed Technologies: (1) Armstrong’s factory (‘prepackaged versions . . . in which the
technology is included with some of the equipment being supplied’; (2) Optimum’s field
(‘retrofit applications in which mechanical equipment already exists’); and (3) ‘conventional
methods of implementation’ for one-at-a-time projects specifically licensed by Hartman. Hartman
Decl. ¶ 31. The fact that the conventional ‘one-at-a-time custom programming basis’ method was
retained by Hartman is demonstrated by the fact that this e-mail states that it would be used ‘by
licensing the technologies directly from me [Hartman].’ Id.” (Dkt. No. 302 at 8.)
As some of the above language already demonstrates, two related topics dominated the
negotiations: whether Optimum would be allowed to compete against Armstrong; and whether the
two companies that wanted to use the LOOP Technology, Armstrong and Optimum, would be
assigned to different types of projects. For example, the Binding Letter of Intent mentioned above
made reference to “retrofit” and “non-retrofit” projects. Hartman has described the history of the
retrofit and non-retrofit designations as follows:
15

Hartman admits that the original division of license rights was between
retrofit (Optimum) and non-retrofit (Armstrong). Hartman Decl. ¶ 33.
Armstrong, however, wanted to participate in the retrofit market (i.e., existing
plants or systems) to the extent that new equipment was needed (i.e., replacing
existing equipment or an expansion that required new equipment). Id. As a result,
Brent Ross and Hartman agreed to the “Field Implementation” and “Factory
Implementation” division of rights, which allows Armstrong to participate in
retrofit projects when new mechanical equipment is required. Id. The parties
operated under this division of rights for years until Hartman announced his intent
to sell the LOOP Patents to Optimum, which resulted in Armstrong taking
adversarial positions that departed from the ALA language. Id.
(Dkt. No. 302 at 4.)
A number of communications circulated among the parties before the final licensing
agreements fell into place. Hartman prepared a first draft agreement that he sent to Armstrong on
February 2, 2004. (Dkt. No. 319 at 329.) The original draft would have given Armstrong
exclusive right to use the LOOP Technology for the manufacture of pumps or pumping systems.
(Dkt. No. 319 at 331.) Around March 1, 2004, Armstrong proposed expanding the licensing
rights to include chillers4 as well as pumps. (Dkt. No. 319 at 338.) Armstrong also wanted
exclusivity as against all other manufacturers. (Dkt. No. 212-1 at 8; see also id. at 33 (representing
that it was in the final stages of becoming “the exclusive manufacturer supplier” while also
describing contract negotiations with Hartman as “frustrating”).) On April 22, 2004, Hartman
expressed doubt to Armstrong that they had “a meeting of the minds on the terms for such an
agreement.” (Dkt. No. 319 at 349.) Hartman elaborated on his concerns in an email message
dated April 26, 2004 which apparently repeated details from a message dated April 9, 2004. (Dkt.
4

A “chiller” is “a device that uses a compressor, evaporator, and condenser to circulate refrigerant for use in
a chilled water generating system.” (Dkt. No. 136 at 22.)

16

No. 319 at 351.) The concerns continued on May 25, 2004, when Hartman summarized to
Armstrong that “[w]e now have an agreement with a startup company [i.e., Optimum] that intends
to package integrated controls and VFDs5 to apply Hartman LOOP technologies to new and existing
plants. Because this company does not intend to sell chillers, pumps, or any other equipment
beyond VFDs and controls, I think that it will be straightforward to place a suitable boundary such
that Armstrong will not be closed to any opportunities based on this current agreement, but
instead may find even more willing participants for the delivery model Armstrong has developed.”
(Dkt. No. 319 at 355 (emphasis added).) Armstrong seemed frustrated with Hartman’s attempts to
balance his relationships with it and Optimum; Ross wrote on May 25, 2004 that “I’m having a
tough time with Hartman and this agreement. I’ve persuaded him to deal first with the large
issues as he’s been very concerned about the what if scenario’s associated with any changes to the
wording of his original agreement.” (Dkt. No. 319 at 358.) The parties started to approach
mutual understanding around June 1, 2004; among other points, Armstrong acknowledged the
possibility of letting Optimum have a license. (Dkt. No. 319 at 366.) On June 18, 2004, however,
Hartman continued to express concern to Armstrong that negotiations were taking longer than
expected. (Dkt. No. 319 at 369.) As much as Armstrong wanted access to the LOOP Technology,
Hartman proposed delaying the introduction of the technology to Armstrong equipment for a year
and letting Optimum supply controllers for Armstrong equipment while a licensing agreement

5

A variable-frequency drive (VFD) circuit is a “device that can adjust the speed of an electrical motor by
adjusting the frequency of alternating current reaching the motor, combined with the wiring and other
connections necessary to couple the device to the motor.” (Dkt. No. 136 at 40.)

17

took shape. (Id.) Hartman also put Armstrong on notice that his thoughts about long-term
ownership of the patents were evolving:
I originally thought Armstrong would be in the role of our partner in
exploiting these technologies. Because this has not developed as I wished and
because of the increased complexity of this agreement, I am at this time considering
having [Optimum] become that partner and take assignment of the patents and if
we can agree, [Optimum] may become the Licensor for this agreement. In this case,
all rights to the licenses not specifically transferred to Armstrong under this
agreement would remain with [Optimum].
(Id. at 373; see also id. at 173–74.) On August 17, 2004, Armstrong wrote that projects under an
agreement could refer to the technology generally; the exact source of a controller could be
determined later, though “one source supply will be a trend in the future.” (Dkt. No. 319 at 377.)
On September 13, 2004, Hartman responded to Ross with several comments. (Dkt. No. 319 at
106.) Hartman had a concern that Ross wanted to give Armstrong exclusive rights to manufacture
both pumps and “factory packaged systems,” as if those systems would not include pumps.
Hartman tried to clarify what Armstrong’s role would be under any agreement. “What this
exclusivity is not intended to permit is for Armstrong to purchase equipment[,] install the controls
with LOOP technologies[,] and resell it, with the controls as the main Armstrong value added
product.” (Id.) Hartman can be seen here viewing distinctions between Armstrong and Optimum
from the perspective of the equipment itself—pumps and chillers versus controllers. Hartman did
not want Armstrong selling controllers alone. Also, Hartman clarified that he did “not intend that
the Optimum product would never be implemented in new installations. Optimum agrees to
make no proposals for new plants or plants that will have much of their equipment replaced
18

without first contacting Armstrong. If Armstrong declines to pursue the project, or if the Owner
turns down the Armstrong solution, then Optimum would be free to pursue such a new plant.”
(Id.) Negotiations took a step backward in October 2004, when Hartman wrote that too many
extensive revisions were occurring to provisions to which the parties already had agreed. (Dkt. No.
319 at 413.) Around late November 2004, Armstrong revisited the issue of license exclusivity and
expressed concern “that we’re not competing tomorrow with a factory implemented product from
Johnson controls, Honeywell etc.” (Dkt. No. 212-1 at 35 / Dkt. No. 319 at 429.) Armstrong
acknowledged that the parties had not yet reached a meeting of the minds on the scope of
Armstrong’s rights. (Id.) Hartman responded that he understood Armstrong’s concerns but that
“we have to be careful to ensure we don’t in any way limit Optimum Energy Corp’s ability to make
and market their controls product that incorporates Hartman LOOP technologies.” (Id.) On
January 24, 2005, just days before the parties signed the agreement, Hartman wrote to Ross with
the following description of what mutual understanding the parties still had not reached about
how the ALA actually would operate:
The agreement does not, however, include practical direction in so far as
how these various applications of the technology would actually take place, nor
does it precisely define the limits of each possible method of implementation. I see
this as a potential problem, but also as an enormous opportunity for us to
cooperate and support one another. To start, I have made a decision to focus my
support of the technology on Armstrong and Optimum, and not on individual
engineers, contractors or others[.] However, I am concerned that in this industry
where substitutes are common and many do not hesitate to make exaggerated
claims regarding the level of performance they can attain, manufacturers, controls
contractors, etc. may leverage our promotion of the Hartman LOOP technologies
to persuade owners to use some other optimization scheme if these technologies are
not readily available to any and all projects. And I am concerned that we would
19

then be creating our own competition. To avoid this possibility I would like
Armstrong and Optimum to develop clear understandings of the roles of each and
to work together to be sure Hartman LOOP™ technologies are supported by one
of the two entities throughout the many twists and turns projects may take, and
throughout the changes that may take place in this industry over the term of this
agreement.
(Dkt. No. 319 at 437.)
The parties have different perspectives as to what division of the HVAC market actually
occurred or was intended. Armstrong has pointed to Rothman’s focus on retrofit projects and has
inferred that he focused on retrofit projects because the ALA prohibited him from engaging in
other projects. (See Dkt. No. 318 at 5.) Optimum has disputed Armstrong’s interpretation of
Rothman’s comments. (See Dkt. No. 299 at 7.) Optimum also has elaborated on its view of
market division:
Optimum disputes that the “Field Implementation” and “Factory
Implementation” language was used in the Armstrong License Agreement and
Optimum License Agreement to “divide the market”. Hartman intended, and
Armstrong and Optimum acknowledged, that there could be competition between
Optimum and Armstrong for the same project. (See 5/5/17 Optimum SOF ¶¶64–
71). The ALA and OLA therefore did not divide the potential market but rather
divided the license rights according to the method of implementing the LOOP
Technologies. Optimum also disputes that the definitions of “Field
Implementation” and “Factory Implementation” differed between the Armstrong
License Agreement and Optimum License Agreement, as evidenced by the stated
definitions as well as their use in the Armstrong License Agreement and Optimum
License Agreement.
(Dkt. No. 299 at 6–7.)
The Court should make note of one other significant conflict in the record—whether the
parties intended that Armstrong would be allowed at some point to sell a controller with LOOP
20

Technology as a stand-alone product. As noted above, Hartman never wanted or intended
Armstrong to have the ability to sell just a controller. In Hartman’s view, “Armstrong would have
to include their integrated mechanical products as a part of their implementation and would have
a competitive advantage only when such new or replacement mechanical products were also
required as part of the retrofit.” (Dkt. No. 354 at 5.) Armstrong vehemently has argued otherwise:
The Patents licensed to Armstrong in the ALA specifically refer to building
controls, means for control, and controllers like the Armstrong IPC 11550
controller product. Dkt. No. 303 at pages 282-283 (at ¶7). The Exhibit B to the
ALA explicitly requires applying a Hartman LOOP logo to “System Controllers
incorporating Licensed Technologies.” At least that part of the text of the ALA
makes it very clear that controllers, such as the Armstrong IPC 11550, were
intended by all parties to be licensed to Armstrong and be part of the “Licensed
Products.”
Armstrong’s documents and meetings at the time the ALA was finalized
and signed show that Armstrong specifically intended to make and sell a standalone controller product as well as sell controllers with other equipment, like
Armstrong pumps. Dkt. No. 303 pages 294–319 (Ex. C) at ARM00035766 (page
295). Specifically, Armstrong’s management listed as a “Project Goal” the “stand
alone offering” of a controller as one of the intended products from the Hartman
LOOP technology. Id. at ARM0035766 (page 295). Thus, Armstrong’s explicitly
expressed goal on entering the ALA was to develop the “Integrated Plant
Controller” [IPC] product line, which “will incorporate the patented control
philosophies of the Hartmann[sic] Loop.” Id. at ARM0035765 (page 294). This
contemporaneous document, dated October 2004 to March 2005, manifestly
demonstrates Armstrong’s intent to produce a Hartman LOOP controller and sell
them as a stand-alone product under the terms of the ALA. Id.
(Dkt. No. 353 at 8; see also Dkt. No. 303 at 295 (“The project goal is to have a target market
coordinated release for IPC as a stand alone offering, and as a sub-component of an IPP chiller
plant on a skid for April 2005 and July 2005 respectively. This must include: a demonstration of
the proto-type in a simulation manner, a sales plan agreed by COB global, a service support
21

mechanism / infrastructure.”); id. at 309 (“Hartman is well aware that Armstrong’s IPC product,
later called the IPC 11550, was never a piece of mechanical equipment. Marketing materials for
the IPC 11550, which is a computer-based controller not mechanical equipment, were freely
available at industry conferences and on Armstrong’s website. In fact, Hartman participated in the
development of Armstrong’s IPC product as a consultant to Armstrong. No one in the industry
would refer to the IPC 11550 as mechanical equipment. Again, any suggestion from Hartman or
others that Armstrong’s rights are somehow limited to the Hartman LOOP incorporated into
‘mechanical equipment’ is plainly wrong.”). )

C. The ALA and Its Terms
As noted above, Hartman and Armstrong entered the ALA on February 4, 2005. (Dkt.
No. 292-2 at 2–12 and passim.) The ALA contains several provisions that relate to the claims and
counterclaims in this case. The first paragraph identified Hartman as the “Licensor” and
Armstrong as the “Licensee.” (Dkt. No. 292-2 at 2.) In Section 1, the parties defined “Licensed
Technologies” as “any or all of the technologies described and claimed in the Patents.” (Id.) The
parties defined “Factory Implementation” as “implementing the Licensed Technologies into
chiller, pumping, control systems and/or tower products as a part of the factory production
process.” The parties defined “Field Implementation” as “implementing the Licensed
Technologies into the chiller, pumping, control systems and/or tower products after the products
have been delivered to the site.”
Section 2.1 gave Armstrong its primary license rights and reads as follows in its entirety:
22

Licensor hereby grants to Licensee a license, to make, have made, use, sell,
and otherwise distribute factory packaged chilled water systems, pumping and/or
other mechanical products that incorporate the Licensed Technologies at the
factory implementation level, and to use and otherwise practice the Licensed
Technologies in Licensed Products.
(Dkt. No. 292-2 at 3.) Section 3.2(b) addressed exclusivity and reads in its entirety as follows:
Licensor shall not grant a license for the Licensed Technologies or the
Licensed Patents to any other manufacturer or assembler of pumps or for cooling
systems and equipment that employ chilled water distribution; provided, however,
that Licensor shall not be precluded from licensing the Licensed Technologies or
the Licensed Patents to Optimum Energy Corporation or others for the purpose of
incorporating the Technologies into products excluding those that include the
manufacture or assembly of pumps, chillers, towers, chilled water plant controls or
pumping or chiller systems that could compete with the Licensee’s intended
product offering. Licensee’s limited exclusive rights shall be worldwide, begin [sic]
on the date of this Agreement and expire only when this Agreement expires or is
terminated according to the provisions of this Agreement.
(Id. at 4.) Section 3.3, titled “Limited Exclusivity Defined,” added more language to the exclusive
nature of Armstrong’s license. The opening paragraph to Section 3.3 stated that the limited
exclusivity “is intended to protect Licensee against implementations of the Licensed Technologies
that would compete with their intended product offerings. Such offerings include factory
integrated chiller, pumping or cooling tower equipment with controls wherein the basis of the
system is chilled water cooling systems, or pumping systems.” (Id. at 5.) Section 3.3 contained five
subsections that further explained the nature of Armstrong’s limited exclusivity:
a.
As long as the license grant remains exclusive, Licensor shall not
grant a license for factory implementation of the Licensed Technologies or the
Licensed Patents as they apply to hydronic elements to any third party involved in
the manufacture of pumps, any factory packaged chilled water systems, chillers,
building controls or cooling towers.
23

b.
During the exclusive license grant period, Licensor shall retain full
rights to grant licenses for “field” implementation of the Licensed Technologies
when such technologies are applied to the hydronic systems but are not integrated
into the chiller, pumping, control or tower products until they are field assembled.
c.
Licensee has no rights granted under this agreement to “field[”]
implementation of the Licensed Technologies (e.g. implementing the Licensed
technologies without an integrated equipment/control package). However, for
special circumstances, Licensee may apply to Licensor for permission to implement
a field level implementation, the licensed terms of which shall be determined on a
case by case basis.
d.
During the exclusive license grant period, Licensor shall retain full
rights to grant licenses for implementation of the Licensed Technologies when the
implementation of such Licensed Technologies do not in any way compete with the
product offerings of the Licensee. Examples are the licensing of the technologies
applied to variable speed DX / air cooled rooftop air conditioning systems and the
control of condenser fans of air cooled chillers.
e.
During the exclusive grant period, Licensor shall be diligent in
referring to the Licensee all potential applications the Licensor learns about that
require new chillers or pumps. Only if Licensee declines to pursue such projects,
or the Owner declines Licensee’s proposed solution will Licensor permit other
potential licensees over which Licensor exerts control to pursue such projects.
(Id. at 5.)
Section 8, titled “Improvements,” reads as follows:
Licensor shall have no obligation under this Agreement to develop any
Improvements to the Licensed Technologies. However, any such improvements
that the Licensor may develop within the next two (2) years from the date hereof to
the Licensed Technologies shall be deemed included within the Licensed
Technologies subject to the terms of this Agreement. Following such two-year
period and providing.the Licensee continues to meet the minimum annual license
fee in 3.2a, Licensor shall first offer to license any and all improvements in or to
the Licensed Technologies to the Licensee for exclusive rights in the markets the
Licensee already enjoys exclusivity, and to the extent of the existing exclusivity
rights. Licensee and Licensor shall negotiate in good faith the license fee and terms
of such license. If Licensor and Licensee are unable to negotiate a mutually
24

acceptable license fee and terms, then, during the Term and prior to Licensor
accepting any offer to license any improvements to any third party, Licensor shall
offer Licensee the right to license such improvements at a license fee and upon
such terms that are no less favorable than those offered by or to Licensor.
(Id. at 8.) Meanwhile, Section 10.2, titled “No Inconsistent Agreements; No Infringement,” to
find certain rights and obligations as follows:
Licensor has not made and will not make any agreements with or
commitments to third parties that are inconsistent with the grant of rights
hereunder. Licensor is not aware of any infringing use of the Licensed
Technologies by third parties or any claim that the Licensed Technologies and/or
the Licensed Patents infringe upon the rights of any third party. Furthermore,
Licensor is not aware of any challenge or threatened challenge of the Licensed
Patents.
(Id. at 9.)
Section 12 of the ALA contained several provisions grouped together as “General Terms.”
Among these provisions, Section 12.1 was titled “Entire Agreement/Modification” and reads as
follows:
This Agreement contains the entire agreement between the parties with
respect to the subject matter hereof, and unless otherwise provided in this
Agreement, no modification or waiver of any of the provisions, or any future
representation, promise, or addition, shall be binding upon the parties unless made
in writing and signed by both parties.
(Id. at 10.) Section 12.3 set forth that the ALA “shall be binding upon and enure to the benefit of
the parties hereto and their successors; provided, however, that this Agreement and the license
granted hereunder shall not be assignable by Licensee except to a parent, subsidiary or affiliate of
Licensee . . . .” (Id.) Section 12.4 contained a severability provision: “If any provision, term,
condition, covenant, restriction, or other portion of this Agreement shall be held to be invalid,
25

illegal, or unenforceable by any court of competent jurisdiction, the remaining portion shall
remain in force and effect.” (Id.) Section 12.10 contained a choice of law provision that placed
the ALA under New York law.

D. The OLA and Its Terms
As stated previously, on November 28, 2005, Hartman and Optimum signed the OLA.
(Dkt. No. 292-2 at 131 and passim.) Like the ALA, the OLA contained a number of provisions,
several of which affect the pending motions. The fourth recital at the beginning of the OLA stated
that Optimum “wishes to obtain Hartman’s assistance in developing and implementing
products and/or services that incorporate the technologies disclosed in Hartman’ s patents.” (Dkt.
No. 292-2 at 131.) Section 1.5 defined “Factory Implementation” as “implementation into chiller,
pumping, and control systems and/or tower products as a part of the original factory production
process.” (Id. at 132.) Section 1.6 defined “Field Implementation” as “implementation into
chiller, pumping, and control systems and/or tower products after the products have been
delivered to the site where they will be used for HVAC purposes. Field Implementation and
Factory Implementation shall be construed as mutually exclusive.”
Before proceeding to other provisions of the OLA, the Court should pause to consider a
point that Armstrong made in its motion papers. “The language dividing the potential market
segments written into both the Armstrong License Agreement and the Optimum license
agreement differ from the Retrofit/Non-Retrofit language used in the LOI [Binding Letter of
Intent]. Both of the license agreements use ‘Field Implementation’ and ‘Factory Implementation’
26

to divide the market. However, the definitions of these two terms differ between the two license
agreements. Kulik Decl. Exh. A and D.” (Dkt. No. 318 at 5.) Responding to the point about
discrepancies in definitions in the ALA and OLA, “Optimum . . . disputes that the definitions of
‘Field Implementation’ and ‘Factory Implementation’ differed between the Armstrong License
Agreement and Optimum License Agreement, as evidenced by the stated definitions as well as
their use in the Armstrong License Agreement and Optimum License Agreement.” (Dkt. No. 299
at 6–7.) As for Hartman’s response, “[t]he language of the license agreements speak for
themselves, but they contain consistent definitions of field and factory. As noted above, the
retrofit/non-retrofit distinction had been proposed during negotiation of the ALA, but Armstrong
wanted some retrofit rights, which caused the parties to adopt the field/factory distinction
instead.” (Dkt. No. 302 at 6.) The Court will address the significance of any differences later, but
for the sake of clarity, a side-by-side comparison of the definitions in the ALA and OLA is useful:
Term

ALA

OLA

Factory
Implementation

Implementing the Licensed
Technologies into chiller,
pumping, control systems
and/or tower products as a
part of the factory
production process.

Implementation into chiller,

Field
Implementation

Implementing the Licensed
Technologies into the chiller,
pumping, control systems
and/or tower products after
the products have been
delivered to the site.

Implementation into chiller, pumping, and
control systems and/or tower products after the
products have been delivered to the site where
they will be used for HVAC purposes. Field
Implementation and Factory Implementation
shall be construed as mutually exclusive.

pumping, and control systems and/or tower
products as a part of the original factory
production process.

27

Section 2.1 of the OLA gave Optimum a “worldwide, irrevocable, sublicensable,
transferable, and exclusive license under the Loop Patents to make, have made, use, offer for sale,
sell and import products and equipment (Loop Products), and to render services to
customers, all in connection with Field Implementations, the only exception being DX
Equipment per Section 3.” (Dkt. No. 292-2 at 133.) Under Section 2.2, Optimum was “not
permitted under this Section 2, with the exception of that DX Equipment covered under Section
3, to make, have made, use, offer for sale, sell, or import any products for Factory
Implementations.” (Id.) Under Section 2.7, “Hartman will not grant any license under the Loop
Patents to any third party to permit Field Implementation of the Loop Products so long as the
grant of this Section 2 remains exclusive, except as provided in Section 2.8 [a provision not
relevant to the parties’ motions].” (Id. at 134.) Section 2.9 explained that the limited exclusivity of
Section 2.7 “is intended to protect OEC against implementations of Loop Products that would
compete with OEC’s intended product offerings. Such offerings include Field Implementation of
the licensed technologies as applied to existing chiller plants or systems.”
Section 3 generally gave Optimum an exclusive license for DX equipment, defined back in
Section 1.3 as “‘direct expansion’ cooling equipment covered by a Loop Patent, i.e., a packaged airconditioning system that employs refrigerant coils exposed to air for cooling and heat rejection,
commonly referred to as ‘rooftop units,’ ‘heat pumps,’ ‘PTACS,’ and ‘unitary air conditioners.’
DX Equipment stands in contradistinction to chilled-water or other fluid-based cooling systems
generally of the type described in the Loop Patents.” (Id. at 131.) In Section 11.2, Hartman
28

promised that he made no inconsistent agreements or commitments with anyone else. (Id. at 140.)
Section 12.5 was a severability provision. (Id. at 141.) Section 12.11 placed the OLA under
Washington state law. (Id. at 142.)
A few points are worth noting for the sake of the record; the Court will address them later
if it decides that they affect the outcome of the pending motions. First, the OLA lacks the referral
obligation that appears in Section 3.3(e) of the ALA. Next, Section 2.1 of the OLA lacks the
clause (in italics below) that composes the second half of its analog in the ALA:
ALA

Section 2.1

OLA

Licensor hereby grants to
Licensee a license, to make,
have made, use, sell, and
otherwise distribute factory
packaged chilled water systems,
pumping and/or other
mechanical products that
incorporate the Licensed
Technologies at the factory
implementation level, and to
use and otherwise practice the
Licensed Technologies in Licensed
Products.

Subject to all of the other
terms and conditions of this
Agreement, Hartman hereby
grants to OEC a worldwide,
irrevocable, sublicensable,
transferable, and exclusive
license under the Loop Patents
to make, have made, use, offer
for sale, sell and import
products and equipment (Loop
Products), and to render
services to customers, all in
connection with Field
Implementations, the only
exception being OX
Equipment per Section 3.

Hartman is the common denominator between the ALA and the OLA, and he played a substantial
role in the negotiations for each document. (See Dkt. No. 293 at 2–3 (“The license agreements
and the Field/Factory division of rights to the Licensed Technologies were the product of
29

substantial negotiations between myself, Brent Ross (Armstrong), and Nathan Rothman
(Optimum) starting in 2004.”).) Hartman thus would have been aware that one company had a
provision “to use and otherwise practice the Licensed Technologies in Licensed Products” while
the other did not. The reason for this difference is not clear, but the Court will address that later
if necessary.
Finally, Optimum has offered the following perspective on the scope of its rights under the
OLA compared to the scope of Armstrong’s rights under the ALA:
Pursuant to the OLA, Optimum received greater license rights than did
Armstrong in at least three respects. (Rothman Decl., ¶8; Appendix Exh. A). First,
Optimum received “the right to sublicense its rights under the Loop Patents.”
(OLA, § 2.3) Armstrong does not have such sublicensing rights. Armstrong’s
sublicensing rights are limited to the right to sublicense to Armstrong’s parent or
sister companies owned in whole or controlling part by Armstrong. (Rothman
Decl., ¶19; Appendix Exh. A) (ALA, § 2.2).
Second, Optimum received an exclusive license under the LOOP Patents
with respect to DX Equipment. (OLA, § 3.1). Armstrong has absolutely no rights
with respect to the DX Equipment and the related market. (Rothman Decl., ¶10;
Appendix Exh. A).
DX Equipment is air conditioning equipment that is air cooled as opposed
to water cooled. DX is short for Direct Expansion which means that the refrigerant
expands (and produces a cooling effect) in a coil that is in direct contact with the
conditioned air that will be delivered to the space. DX Equipment is usually
packaged as a unit and range in size from one-half refrigeration ton window units
to as much as 150 refrigeration ton big boxes, which are usually installed on top of
single or multiple story buildings less than 100,000 square feet in size. (Rothman
Decl., ¶11; Appendix Exh. A).
Third, Optimum received a license not just with respect to the three LOOP
Patents, but also with respect to six additional patents, referred to in the OLA as
the “Equipment Patents.” (OLA, § 1.4). (Rothman Decl., ¶12; Appendix Exh. A).
30

The Equipment Patents license gives Optimum rights with respect to
patents incorporated in products referred to as TRAV, the Self-Ranging Valve, and
Uniterm. (OLA, §§ 1.13, 1.15, 1.16). These products are used in that part of the
building air conditioning system which controls the delivery of conditioned supply
air to the occupied spaces in heating or cooling mode. (Rothman Decl., ¶13;
Appendix Exh. A).
TRAV is short for Terminal Regulated Air Volume and is a control strategy
for the equipment that controls air flow in the air distribution ductwork. While
the LOOP Patents relate to the chilled water plant (i.e. the chillers, pumps and
cooling towers) which makes the cold water that is circulated around the building,
TRAV relates to the control of the air being blown through the duct work and over
radiators and out into spaces in the building. (Rothman Decl., ¶14; Appendix
Exh. A).
The Self-Ranging Valve adds an additional control element to the flow of
water throughout the system. Uniterm is an individual comfort device that can be
part of the overall system. (Rothman Decl., ¶15; Appendix Exh. A).
Armstrong did not obtain a license with respect to the six Equipment
Patents or obtain any rights with respect to the DX Equipment, TRAV, the SelfRanging Valve, or Uniterm. (Rothman Decl., ¶16; Appendix Exh. A).
(Dkt. No. 294-4 at 9–10.)

E. Factory Versus Field Implementation
Understanding the parties’ attempted distinction between factory implementation and
field implementation is important because the distinction appears in many of the arguments that
the parties have made. The parties themselves have made statements about the importance of the
distinction. “The distinction between Field Implementation and Factory Implementation is
central to the ALA and the OLA.” (Dkt. No. 293 at 2; see also Dkt. No. 294-3 at 26 (“The
Factory/Field Implementation distinction, however, is critical to correctly interpreting §3.2(b) and
§3.3(d) of the ALA . . . .”).)
31

i.

Novelty of the terms

One factor that has affected the ability to understand the distinction is the novelty of the
terms themselves. Armstrong expert John Conover (“Conover”), an engineer who worked nearly
40 years in the HVAC industry, has offered the following comment about factory implementation
and field implementation:
I note that in my experience the term “implementation” is not used in the industry.
Rather, the familiar terms of the industry for bringing products or technology to
this marketplace would be factory installed or field installed or factory integrated or
field integrated, all of which have understood meanings in the field.
(Dkt. No. 317-1 at 5.)6 Hartman has attacked Conover’s commentary about the term
implementation:
Conover’s acknowledgment that the contract terms do not have a common
meaning in the industry confirms that he has no ability to speculate as to the
meaning of defined terms adopted by the parties in the ALA. Nor is Hartman’s
reference to “retrofit” in e-mails relevant (absent a finding of ambiguity), and, as
discussed above (see ¶¶ 12–13, 18 above), the industry term “retrofit” was not
mutually exclusive of the contract terms used because retrofit is a project with
existing mechanical equipment. These terms (“Field Implementation” and
“Factory Implementation”) have customized meanings that the parties operated
under for nearly five years until Hartman announced that he was selling the LOOP
Patents to Optimum. Id.; Docket No. 293 ¶ 19.
(Dkt. No. 302 at 9.)
ii.

Mutual exclusivity

6

The Court has given Conover’s report little consideration, for summary-judgment purposes, to the extent
that Conover has attempted a legal interpretation of terms in the ALA and the OLA. Cf., e.g., F.H. Krear &
Co. v. Nineteen Named Trustees, 810 F.2d 1250, 1258 (2d Cir. 1987) (affirming exclusion of expert testimony
about the enforceability of a contract because “[i]t is not for witnesses to instruct the jury as to applicable
principles of law, but for the judge”) (internal quotation marks and citation omitted). Consistent, however,
with Federal Rule of Evidence 702, the Court has given some consideration to Conover’s specialized
knowledge about the HVAC industry.

32

Another factor affecting the novelty of the terms is whether the terms were intended to be
mutually exclusive. Optimum has pointed out that “[t]he Optimum License Agreement expressly
provided that ‘Field Implementation and Factory Implementation shall be construed as mutually
exclusive.’ (OLA §1.6).” (Dkt. No. 294-3 at 25.) No such provision appears in the ALA; with
Hartman as the common denominator between the two agreements, the Court cannot discern
whether Hartman intended mutual exclusivity in one agreement and not the other.
iii.

Overlap with “retrofit” and “non-retrofit”

Another factor to consider when assessing the terms factory implementation and field
implementation is the extent to which those terms overlap with the concept of retrofit versus nonretrofit projects. Rothman offered some commentary on this subject during his deposition:
Q. So back at this timeframe, according to this paragraph I just pointed you
to, OEC’s initial focus was the retrofit market as opposed to the new construction
market.
Do—do you recall why the retrofit market was the focus?
A. No, I don’t. I mean, specifically why? I don’t recall. New construction,
you gotta wait for the building to be finished and everything. And retrofit is an
existing building and, therefore, the sales cycle would be shorter is all I can think
of.
And our particular—this is 2005. This is after all the agreements, I believe,
were in place.
Q. I’m sorry.
Were you—
A. I’m thinking to myself out loud.
Q. Okay.
33

So I thought maybe there was another reason that you recall focusing on
the retrofit market.
A. Well, our license at that time was for implementation in—in the field.
And therefore, the building would have to be built for us to put our product on the
equipment.
(Dkt. No. 357 at 7–8.). Rothman’s discussion of “focusing” on retrofit projects does not
necessarily mean that he felt obligated to stay only with those projects. Rothman’s testimony that
he focused on retrofit projects because of the restriction to field implementation could suggest that
“implementing the Licensed Technologies into the chiller, pumping, control systems and/or tower
products after the products have been delivered to the site” was easiest to understand and to carry
out within the context of retrofit projects. Nonetheless, the parties’ supplemental briefing of
December 21, 2017 has persuaded the Court that any use of the term “retrofit” after 2005 was
informal shorthand for the general characteristics of a proposed project and not a formal attempt
to delineate segments of the market. As Hartman has explained,
Early on, as both Armstrong and Optimum became aware of each other
and the markets they each aspired to serve, we had employed the common industry
terms “retrofit” and “new” (or sometimes “non-retrofit”) to delineate the market
focus of each of the firms. Optimum’s focus was on retrofit applications (e.g. chiller
plants already assembled and operating), while Armstrong’s focus was on new
plants. But Armstrong also wanted the ability to sell their pumping systems beyond
new plants. Existing chilled water plants require new equipment from time to time
to replace old equipment and/or to expand the capacity of the plant. While simply
applying optimization to a chilled water plant is considered a retrofit, replacement
and upgrades of equipment in an operating plant as Armstrong intended are also
considered retrofits. And Armstrong wanted to have access to retrofit projects that
required new equipment. In addition, both firms wanted to have some level of
exclusivity for their product offerings. It became clear to all of us that any
delineation of markets using new and retrofit terminology would not be suitable.
34

***
As I explained in my deposition, I discussed this issue informally with both
Mr. Rothman and Mr. Ross. We all agreed that exclusivity should relate to how the
technologies would be applied and not to the type of project involved. As a result,
each firm could offer its solution for any project, but would be protected in so far
as how they implemented the Hartman LOOP.
(Dkt. No. 354 at 4.) Armstrong did not directly address this point in its supplemental briefing, but
Optimum agreed with Hartman:
In identifying the parties’ intent, it is imperative to reject any attempt to
use the contract language to divide the relevant license rights into “retrofit” vs.
“new construction.” That potential retrofit/new construction division of the
parties’ rights was considered—and absolutely rejected—by all parties. As the Court
recognized, Armstrong wanted “to participate in the retrofit market as well” as new
construction. (Dkt. No. 324 at 5). It was Optimum’s plan, once it became
established, to enter the new construction market for all its products. (Dkt. No.
299 at 7, ¶20; Rothman Dep. at 41:11–42:14; 6/21/17 Opt. App., Exh. C). The
retrofit/new construction division was therefore expressly rejected so that both
Armstrong and Optimum had the license right to offer their respective method of
implementation to both new construction and retrofit projects, depending on the
project and the end user’s desires and preferences, i.e., whether the customer
wanted a factory implemented solution (Armstrong) or a field implemented
solution (Optimum). For his part, Hartman repeatedly emphasized that he wanted
to ensure that two competing bids could be made on as many projects as possible,
because so much of the relevant market required competitively bid projects.
Optimum’s LOOP product offering did not compete directly with Armstrong’s
LOOP product, because once a customer settled on a method of implementation,
based on its preference, it could only use one or the other of the two licensee’s
LOOP products.
(Dkt. No. 355 at 7–8.)
iv.

Is the Optimum product a “controller”?

Yet another factor that arose in the motion papers concerned the nature of Optimum’s
product—how and when the product did what it did. According to Optimum, “[t]he Licensed
35

Technologies manifest in algorithms that determine the optimal sequences of all the equipment
(chillers, pumps and cooling towers) in the chiller system. (Rothman Decl., ¶36; Appendix Exh.
A).” (Dkt. No. 294-4 at 11.) Optimum’s choice of the word “manifest” suggests that it considers
its product to be only the abstract software code that is designed with the LOOP Technology in
mind. Optimum does not consider its product to include any physical device within which its
software code would have to operate to be of any use. “Optimum disputes the statement that the
Optimum ‘product’ is a controller or building control device or Tridium JACE. Optimum’s
product is the Optimum LOOP Solution (among others), not the controller or device that enables
the solution. (Erpelding Dep. at 41:21–42:4; 6/21/17 Opt. App., Exh. F).” (Dkt. No. 299 at 16.)
Armstrong has rejected this Cartesian mind/body duality; it has contended that Optimum’s
product is not a product at all without its accompanying physical device and that the combined
software with a physical device makes Optimum’s product a “controller” that is set up in a factory
setting:
Q. Okay.
You mentioned two things in that answer that I’m not sure I know what
they are. What is a commissioning wizard?
A. That’s—it’s just basically a—think of a—it’s just a function of the AX
software that does what’s necessary to make—that’s what I referred to when we
commissioned the JACE prior to shipment.
So in that step I was referring to, there’s another function called “station
transfer,” so it’s just a drop-down menu that says “station transfer,” and then you
select the file that you want to transfer to that JACE and it does it.
Q. Okay.
Did you say it was a function of the AX software?
36

A. Yes.
Q. And that’s Niagara AX?
A. Yes.
Q. Okay.
So the commissioning wizard is part of the Niagara platform that is loaded
onto the JACE?
A. Correct.
Q. Thank you. Okay.
I think the other part, station transfer, you also—you just explained. The
station transfer is what happens when using the commissioning wizard; is that
correct?
MR. WHITE: Object to the form.
THE WITNESS: So no. The commissioning wizard commissions the JACE
and makes it—that’s—that’s one thing to make the JACE functional, so once the
JACE is functional, you can program anything you want onto it.
What we’re doing in step 8 is we’re just doing a station transfer, which is—it
doesn’t put any of the base software on the controller. That’s already been
configured and—and working. We’re just transferring the program to do the
optimization.
BY MR. KULIK:
Q. Okay.
So the OptimumLOOP program?
A. Correct.
Q. Okay.
Is that what it’s called?
MR. WHITE: Object to the form.
THE WITNESS: I mean, it’s referred—it’s—I call it the optimization
software.
(Dkt. No. 292-2 at 341–42.) The “Step 8” in the exhibit quoted above refers to part of a sequence
of events that Optimum used to bring its product into full use. (Id. at 343–44.) “OLC” in this
37

document means “Optimum LOOP Controller.” Step 6 in the sequence consists of, “Configure
and Ship OLC—Once Optimum Energy receives the IP address required for remote connection,
we will configure and ship the OLC.” (Id. at 343.) Step 8 consists of, “Install the OLC—After the
OLC is powered up and connected to the network, notify DE. Optimum Energy will verify the
remote connection and load the software into the controller.” (Id.) The excerpt and the sequence
that Armstrong included in its motion papers suggest subtleties that complicate the distinction
between factory implementation and field implementation. From the above information,
Optimum’s product is useless without some kind of physical device that houses it and that is
separate from any physical device already in an existing HVAC system. (See Dkt. No. 299 at 16
(“Although the device is mandatory as an enabler of Optimum’s solution, Optimum does not
market the device or quote the device separately . . . . Optimum does not dispute that the JACE
that employs the LOOP Technologies are kept in Optimum’s facility and preconfigured by
Optimum to add software operating systems.”) (emphasis added).) In other words, Optimum does
not go to an existing HVAC system, open up whatever device is already controlling that system,
delete the existing software in that device, and then install its own. Additionally, the above
information confirms that something is happening at Optimum’s office or factory before the
product reaches its destination. Something is being installed at the factory level that is mandatory to
making Optimum’s product useful. Perhaps contrary to Armstrong’s representation, however,
there is more to the story. Delivery of Optimum’s product entails not just one but two levels of
software installation. Some sort of base software is installed immediately to allow for remote
38

connections from the HVAC facility back to Optimum’s office or factory. The actual optimization
software then is downloaded to the HVAC facility remotely from Optimum’s office or factory.
The Court will consider later whether the definitions of factory implementation and field
implementation ever contemplated such a nuanced, multi-step delivery process.
Meanwhile, Optimum has disputed that whatever happens at its office or factory during its
multi-step sequence would constitute factory implementation under the ALA or the OLA:
Although Optimum uses the word “controller” for marketing and
communication purposes in the trade and with building owners, the Tridium
JACE is not a true “controller.” The JACE certainly does not perform the same
functions or possess the same defining characteristics as the Armstrong controller.
(Rothman Decl., ¶40; Appendix Exh. A).
A series of September 2006 e-mails between Peter Thomsen of Armstrong
and Alain Descoins, boiler sales manager for R.F. MacDonald Co. of San
Francisco, with copies to Rothman, regarding the San Jose Airport project confirm
Armstrong’s recognition that Optimum was using a Tridium “controller” and that
it was not improper. (Rothman Decl., ¶¶73-76, Exh. J; Appendix Exh. A).
Optimum’s use of the Tridium JACE for implementing the Licensed
Technologies was known to Armstrong in 2006, and has been a consistent feature
of the Optimum method of Field Implementation as permitted under both the
ALA and the OLA. (Rothman Decl., ¶85; Appendix Exh. A).
Optimum is not a manufacturer of the products listed in ALA §3.2(b) and
it does not manufacture pumps, chillers or any equipment employed in chilled
water systems. (Rothman Decl., ¶60; Appendix Exh. A).
Optimum has not incorporated the Licensed Technologies at the factory
level into any products that include the manufacture or assembly of pumps,
chillers, towers, chilled water plant controls or pumping or chilling systems.
(Rothman Decl., ¶61; Appendix Exh. A).
(Dkt. No. 294-4 at 12–13.) Hartman has joined the argument by Optimum that Optimum’s
product cannot be considered a “controller” because it makes no final decisions and thus exerts no
39

final control over an HVAC system:
Armstrong mischaracterizes the testimony of Matthew Frey, who referred to
the Optimum device as a “controller”—but did not testify that it is a “building
control device.” An add-on device that provides input or optimization
recommendations to a BAS is not a “building controller.” Docket No. 290-4 ¶¶
114–116. Rather, the BAS is a building controller because it controls the building.
Id.
(Dkt. No. 302 at 14–15.) Armstrong has rejected Hartman’s contention as a post hoc
rationalization designed to evade liability under certain sections of the ALA; Armstrong also
created a distinction between a single device with exclusive control and what it called “a control
product”:
Hartman’s latest Declaration (Dkt. No. 298-3 at ¶ 22) attempts to convince
the Court that Optimum’s product is not a controller, “does not control anything,”
and is not a “chilled water plant control.” He makes this assertion now because
sections of the ALA were clearly written to protect Armstrong and its intended
product line and product offerings from competition employing the Hartman
LOOP—these sections all refer to a type of “control” product made or assembled by
this prohibited competition. (Dkt. No. 296-10 at ¶ 14 and 18, Decl. of Brent Ross
dated June 16, 2017; and Dkt. No. 292-3 at ¶ 15, and 23 to 26, Decl. of Peter
Thomsen dated May 5, 2017). Armstrong’s Brent Ross submits a declaration with
this Reply that, at paragraph 13, addresses the insertion of the “control” term, and
Exhibit 4 to that declaration lists the several places where Ross (as editor “bross”)
inserted the term in various forms. The sections prohibiting competition over the
Hartman LOOP technology remain a part of the executed ALA.
No other statement or evidence supports Hartman’s assertion at ¶ 22 of his
declaration that the Optimum product is not a “control” of anything. (Dkt. No.
298-3 at ¶ 22). The Declaration of Peter Thomsen dated June 19, 2017 (Dkt. No.
296-5 at ¶ 17) addressed Hartman’s assertion. Plaintiff’s Statement of Undisputed
Facts (see, for example, Dkt. No. 292-6 at ¶ 42) addressed this by citing to testimony
from Optimum’s former CEO. Armstrong’s Memorandum in Support of Partial
Summary Judgment (Dkt. No. 292-5 at pages 15–16, and exhibits at Dkt No. 292-2,
Ex. AA, see pages 191–192), citing again Optimum’s CEO and its employee Clark
Matthys, addressed Hartman’s assertion. And submitted with this Reply is the
40

declaration of Armstrong’s expert John W. Conover, who explains the general
industry background for building “control” products and their manufacture and
use. He also directly addresses Hartman’s assertion at paragraphs 3-14 of Conover’s
declaration. Conover submits clear statements and video evidence from Hartman’s
own video presence on the internet, The Hartman Company’s and Optimum’s
own webpages and documents, and background material on the Tridium JACE
controller device that Optimum uses as its starting point for assembling its control
product. Everything except Hartman’s Declaration (Dkt. No. 298-3) accepts the
fact that the Optimum JACE device employing the Hartman LOOP algorithms is a
“control” product, a controller, a building control device, or a chilled water plant
control. The clear evidence shows that the ALA protects Armstrong’s product line
from competition that uses the Hartman LOOP technology and from
manufacturers or assemblers of a building control. Hartman is complicit in
Optimum’s current breach of the ALA and, by assigning the LOOP patents to
Optimum, a manufacturer or assembler of building controls, Hartman also
breached the ALA.
(Dkt. No. 309 at 3–4.) Armstrong elaborated further as part of its reply to Optimum:
Optimum is competing with Armstrong as a manufacturer or assembler of
building controls, chilled water plant controls, or a related “control” type product
that employ the Hartman LOOP technology. The Declaration of Armstrong’s
expert, John W. Conover, submitted with this Reply, makes this clear in several
ways at paragraphs 1, 3-14 and 16. Many of Optimum’s own statements and
statements from Optimum’s own website confirm that fact to one in the industry
and to potential customers. The Optimum JACE devi[c]e is a “control” that is
covered by one or more of the “control” products spelled out throughout the ALA.
Expert testimony is especially useful in this context as the “control” terms
and products of the ALA are a trade terms, and the manufacture and use of these
products refer directly to the customs, and practices of the industry. Expert
testimony is useful evidence of trade terms, customs, and practices that that
“illuminate the context for the parties’ contract negotiations and agreements.”
Metric Constructors, Inc. v. NASA, 169 F.3d 747, 752 (Fed. Cir. 1999).
The declaration of Armstrong’s expert John W. Conover explains the
general industry background for building “control” products and their manufacture
and use. Conover also directly addresses, at paragraphs 3–14 of his declaration, the
latest assertions from Hartman concerning a “control” product and that
Optimum’s product allegedly does not control anything. Conover submits clear
41

statements and video evidence from Optimum’s webpage interview of
Hartman, content from The Hartman Company’s and Optimum’s own
webpages and documents, and telling background material on the Tridium
JACE controller device that Optimum uses as its starting point for
assembling its control product.
From Conover’s Exhibit 3 referred to at ¶ 11 of Conover’s
Declaration, on the seventh page, under the heading “Control System” the
chilled water plant control characteristics of Optimum’s “OptiMiser”
Hartman LOOP product are explained in detail with the statement: “…the
OptiMiser controller executes the optimization instructions which control
the equipment speeds.” Here the “equipment” would be the pumps and
chillers of a chilled water plant. Conover Exhibit 3 goes on to say that the
existing control system, the BAS, provides an interface supported by or able
to communicate with the OptiMiser controller. These statements from the
Conover Exhibit 3 and at least ¶ 11 of the declaration clearly indicates to
anyone in the industry that the Optimum JACE device, here called the
OptiMiser, is controlling the chilled water plant equipment and not the
BAS. Reviewing the entire contents of the Conover declaration, it is clear
that Hartman (Dkt. No. 298-3) is alone in his denial that the Optimum
JACE device employing the Hartman LOOP algorithms are not controlling
anything. The Optimum JACE device is a “control” product, a controller, a
building control device, or a chilled water plant control. That Optimum’s
Opposition also states, without any support, that its JACE device does not
control anything is not surprising.
In addition, the Declaration of Peter Thomsen dated June 19, 2017
(Dkt. No. 295-5 at ¶ 17) addressed Hartman’s assertions on a “control”
product. Plaintiff’s Statement of Undisputed Facts (see, for example, Dkt. No.
292-6 at ¶ 42) addressed this also by citing to testimony from Optimum’s
former CEO. Armstrong’s Memorandum in Support of Partial Summary
Judgment (Dkt. No. 292-5 at pages 15–16, and exhibits at Dkt No. 292-2,
Ex. AA, see pages 186–192), citing again Optimum’s CEO and its employee
Clark Matthys, also addressed Hartman’s assertion.
Conover’s declaration submitted with this Reply, at paragraph 17,
also confirms what he earlier concluded in the Expert Reports prepared for
this case. (See Dkt. No. 292-2 at Exhibits J and Z). The Optimum JACE is
produced or assembled in Optimum’s facility and the required
configuration of the JACE for a specific building site does not occur in the
42

field. (Conover Decl. of July 18, 2017 at ¶ 17). Exhibit 8 of Conover’s declaration
explicitly states how Optimum prepares the JACE for customers as “Once
Optimum Energy receives the IP address required for remote connection, we will
configure and ship the OLC [Optimum Loop Controller].” Obviously, Optimum
configures and ships from its own facility.
Paragraph 17 from Conover’s Declaration explains how the “configuring”
step is relevant to assembling the Optimum JACE device for a specific customer.
Even if a remote upload of only Hartman LOOP algorithms is important at all, an
upload that Optimum delays for no particular reason, the product is the same as a
factory manufactured or assembled building control to anyone familiar with the
industry or any customer in the industry. (Dkt. No. 292-2 at Exhibit Z). Any
difference is illusory. (See Armstrong’s Opposition to Hartman’s Motion for
Summary Judgment, Dkt. No. 296 at pages 16–18).
Optimum makes the unusual argument at page [12] of its Opposition
Memorandum that the difference between “factory” and “facility” may somehow
dictate the Court’s decision on whether Optimum is manufacturing or assembling
in a “factory.” Armstrong submits that any building that is not the customer’s
building site where Optimum modifies a stock JACE device to make it functional
for its purposes, configures a JACE for a particular building site, or prepares a
JACE device by installing information related to a specific customer for the
purpose of advancing a sale to that customer effectively operates as a “factory.” No
posted sign or plaque stating “Optimum Manufacturing Factory” on a building is
required under the terms of the ALA.
(Dkt. No. 310 at 9–11.)
v.

Preparation of the Optimum product

As can be seen above, the procedure for preparing Optimum’s product is a subset of the
debate between the parties over whether the product constitutes a controller. Continuing with its
distinction between its optimization software and the physical housing for it, Optimum has offered
the following:
Optimum has always used a Tridium JACE for every Field Implementation
of the Licensed Technologies that Optimum has delivered since the signing of its
43

License Agreement with Hartman in November 2005. This product has sometimes
been referred to as a “Tridium,” an “OE Tridium,” a “Tridium controller,” or a
“Tridium JACE.” (Rothman Decl., ¶72; Appendix Exh. A).
(Dkt. No. 294-4 at 11–12; see also Dkt. No. 318 at 11 (“The Optimum controller that employs the
Hartman LOOP algorithms that direct the sequencing of HVAC components are kept in
Optimum’s facilities and preconfigured by Optimum to add software or operating systems from a
blank ‘JACE’ device prior to shipping to the building site.”).) Optimum has distinguished its
product from other products based on what happens at that point with software installation. “In
Armstrong’s case, it buys the controller and loads algorithms into the controller at its factory to
directly interface with all the chiller equipment in the plant. Armstrong then ships the controller
with equipment that has previously been agreed to, such as a minimum of a pumping package. In
short, Armstrong programs the controller with algorithms at its factory and its controller directly
controls the plant equipment. (Rothman Decl., ¶37; Appendix Exh. A).” (Dkt. No. 294-4 at 11.)
In contrast,
The Optimum product is preconfigured in Optimum’s factory or facility
and then sent to a building site where the download of the Hartman LOOP
software can occur based on the building IP address information and the other
software previously installed in the JACE controller at Optimum’s facility. Kulik
Decl. Exh. Z (Supplemental Expert Report of John Conover, at page 6, and at Exh.
14).
Mr. Clark Matthys also explained that the Hartman LOOP software that
Optimum uses on its controllers could be loaded at the building site directly, but it
is easier to load it remotely. Matthys Deposition at pages 188, 191-192.
The details of Optimum’s and JCI’s preconfigured product offering and its
installation indicate that it is a factory produced solution. Exhibit 10 of the
Supplemental Expert Report of John Conover (Kulik Decl., Exh. Z), at page
44

OPT0195807. The LOOP software is “deliver[ed] via the Optimum HVAC
Optimization Controller, an open protocol Tridium JACE controller that is
integrated with the building automation system via BACnet/IP.” Kulik Decl. Exh.
Z at page 4. Optimum and JCI understood the difference between the prior
methods for incorporating the Hartman LOOP solution in the field, where that
field solution “was delivered at the plant level on an engineering services model
with direct programming into the BAS.” Kulik Decl. Exh. Z at Exh. 9 of the
Supplemental Expert Report, at page OPT0197785.
(Dkt. No. 318 at 12.) Optimum agreed that it “sends a Tridium JACE to the project site, and the
controls contractor installs it. Optimum verifies the contractor’s work, and only then does
Optimum implement the Licensed Technologies in the field/at the site. (Rothman Decl., ¶38;
Appendix Exh. A).” (Dkt. No. 294-4 at 11.) Optimum otherwise would describe its product
preparation a little differently, emphasizing again the difference between the physical device and
the optimization software:
Optimum does not dispute that the JACE that employs the LOOP
Technologies are kept in Optimum’s facility and preconfigured by Optimum to add
software operating systems. Optimum disputes that the LOOP Technologies are
loaded on to the JACE prior to the JACE being shipped to the building site. The
LOOP Technologies are only loaded on to the JACE after the JACE has been
shipped to the building site. (8/13/10 Rothman Decl., ¶¶20, 21, 38–40; Dkt. No.
27-2 at 6, 10; 5/5/17 Opt. App. Exh. A). Optimum also disputes that the
Optimum LOOP solution “directs sequencing of HVAC components,” as
Armstrong states. (8/13/10 Rothman Decl., ¶38; Dkt. No. 27-2 at 10). Armstrong
cites to a two-page document that was used during depositions as Matthys Exhibit
1, Erpelding Exhibit 15, and Frey Exhibit 21. (OPT0195907-08; 6/21/17 Opt.
App., Exhs. B, F, G). Ben Erpelding identified the document as a customer-facing
document that Optimum uses to help the customer understand expectations, due
dates, what is required of them, what is required for a successful outcome, and
what happens when things are not completed on time. (Erpelding Dep. at 127:15–
128:18; 6/21/17 Opt. App., Exh. F). Clark Matthys testified that this document
describes some (but not all) of the steps taken by Optimum on a typical project.
The following is a summary of Mr. Matthys’ testimony on some of those steps. (See
6/21/17 Opt. App., Exh. B). Step 6 involves, in part, taking a blank JACE which
45

has no operating system on it, and installing a basic operating software system (not
the LOOP Technologies) and the IP address for the specific project site. (Matthys
Dep. at 22:21–26:21). Step 6 also includes shipping the JACE to the project site.
(Matthys Dep. at 26:22–27:6). At that point, the JACE contains only the IP
address and the basic operating software, not the LOOP Technologies. Every
subsequent step in the process (i.e., Steps 7–17) thus occurs after the JACE has
been delivered to the jobsite. In Step 8, the JACE is physically connected to the
building’s network communication system that operates the building’s BAS system
and architecture. It is only then, at that point, that the optimization software, i.e.,
the Optimum LOOP solution, is loaded. (Matthys Dep. at 29:12–33:3; 62:24–
63:11; 99:9–22). The Optimum LOOP solution software can be loaded remotely
or on the project site. (Matthys Dep. at 99:23–100:2; 154:18–155:17). In Step 9,
Optimum works with the project site BAS control programmer to review
Optimum’s integration documents to make sure that the BAS control programmer
understands what modifications they need to make in their system and what pieces
of equipment might need to be installed for Optimum’s LOOP solution to work.
(Matthys Dep. at 33:5–16). Step 10 involves the BAS system transmitting its
equipment points, which are data points that Optimum needs for the individual
pieces of equipment, and other plant system data, to Optimum’s JACE. (Matthys
Dep. at 35:10–36:19). Step 11 involves the BAS system being able to read the data
it receives from Optimum. (Matthys Dep. at 36:23–38:16). After Step 11, the BAS
system can write data to Optimum’s JACE and read data from the JACE back into
its system but, at this point, the BAS is not actually doing anything with it, i.e., it is
not using that data to operate equipment. Step 12 involves making specific
programming changes that allow the BAS system to follow Optimum’s set points
and operate the plant accordingly. (Matthys Dep. at 38:20–39:12). The specific
programming that needs to be done on each project is different and the integration
documents on each project are changed, because each site is different, and there are
different things that need to be done on each site. Even if the building automation
system is the same type, the building load profile, the mechanical equipment and
plant configuration are always different. (Matthys Dep. at 40:4–41:23). Steps 13
and 14 are the points mapping testing and integration test. Steps 13 and 14 are
still done by manual control i.e., the data point for one value to another is changed
manually and the software is not yet making that decision. (Matthys Dep. at 50:1–
4). It is not until Step 15, and the cut-over test, that the Optimum software
solution and the BAS software fully control the plant. (Matthys Dep. at 50:5–8).
Optimum disputes that the configuring or preconfiguring of the JACE that
takes place prior to shipping makes it “functional” for a particular building site in
the terms of implementing and operating the LOOP Technologies on a particular
46

building site. The configuring of the JACE that takes place prior to shipping
simply makes the JACE itself functional, as Mr. Matthys testified. (Matthys Dep. at
22:21–26:21; 6/21/17 Opt. App. Exh. B). Armstrong’s statement is an inaccurate
characterization of Mr. Matthys’ testimony. See also Response to ¶43 of
Armstrong’s Statement.
(Dkt. No. 299 at 16–19.) Given that the loading of Optimum’s optimization software is the only
part of the above process that is not done at Optimum’s office or factory; and given that this
loading could be done in advance along with all of the preceding steps; the parties have disputed
the significance of Optimum’s choice to do the loading remotely from the field. Is that choice just
a gesture to achieve technical compliance with the definition of field implementation? Armstrong
says yes:
The alleged distinction between field and factory implementation
purported by Optimum’s actions allows it to choose whether a project will be
“field” or “factory” based on when it pushes a button for a final download of
standard software files. This is illusory and not a distinction in license rights at all.
While once limiting Optimum’s projects to “retrofit” only, Hartman and Optimum
some time ago decided which projects they wanted to participate in regardless of
any other facts or any specific terms in the Armstrong license agreement. The facts
are clear that a complete software package for each site is stored and maintained at
Optimum’s facilities. The JACE device Optimum uses for installing the Hartman
LOOP technologies are modified at Optimum’s facilities, preconfigured with a sitespecific IP address and functional software. This is “part of the factory production
process” as recited in the definition of “Factory Implementation.” Downloading
the last piece of standard software is irrelevant. All the other steps in preparing a
device for a specific building site must matter, as they are even more a part of the
implementation process for that building site than merely starting the download of
standard software. Optimum has provided and continues to provide factory
produced, preconfigured devices (Optimum’s modified JACE controllers) to
customers for use with the patented Hartman LOOP technologies and
intentionally hid the details of that use with Armstrong. Optimum’s actions were
intentional and designed to breach the Armstrong license agreement in both the
sale of “Factory Implemented” products and in violating the protections from
competition stated in multiple places in the license agreement. The terms of the
47

later executed Optimum license agreement between Optimum and Hartman has
no impact on these breaches, as Armstrong is not a party to it and the terms were
hidden from Armstrong until after this lawsuit was filed.
(Dkt. No. 303 at 5–6.) Optimum regarded the distinction that Armstrong is making as a
distinction without a difference:
Optimum’s JACE does not directly control the chiller plant equipment.
Optimum’s JACE signals the existing BAS/BMS what the optimal control setting
or set points are that would result in the best energy performance. Using these
optimal settings or set points, the BAS/BMS determines how to control the chiller
plant equipment. The system control function remains in the BAS/BMS.
(Rothman Decl., ¶38; Appendix Exh. A).
Thus, Optimum requires another company’s BAS or BMS as it only
implements the Licensed Technologies in the field, not in the factory, while
Armstrong does not require a BAS or BMS because Armstrong’s controller directly
controls the chiller plant equipment. (Rothman Decl., ¶39; Appendix Exh. A).
When Optimum comes across applications where there is no BAS or BMS,
Optimum is unable to offer its solution. (Rothman Decl., ¶67; Appendix Exh. A).
(Dkt. No. 294-4 at 12.)
vi.

Meaning of “implement” or “implementation”

Finally, an additional factor to consider is the meaning of the word “implement” or its
different forms—“implementing,” as it appears in the ALA, or “implementation,” the word that
appears in the OLA. One of Hartman’s comments did not quite define “implement” but
attempted to give the term context:
Implementation of the Licensed Technologies requires certain mechanical
equipment and a means of providing specific sequences in the Building
Automation System (“BAS”) that operates the equipment.
Factory implementation means that the Licensed Technologies are
implemented with certain mechanical equipment in the factory before it is shipped
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to a customer, whereas Field Implementation means that the Licensed
Technologies are implemented with certain mechanical equipment after such
equipment is at the project site (i.e., in the field).
(Dkt. No. 293 at 2.) Hartman’s comment—apart from Optimum’s choice of the word “manifest”
when describing its technology—reminds the Court of the analogy that it posed to the parties at
oral argument: When would the Microsoft Windows 10™ operating system be considered
“implemented”? When a manufacturer such as Dell or Hewlett-Packard installs the software on a
hard drive that is packed into and then shipped out with a new computer? Or not until computer
users receive new computers at their homes, register their copy of Windows 10, install all of their
software titles and check for compatibility, and successfully connect the new computers with any
peripherals? Rothman has a statement in the record that makes “implement” sound like “install,”
“deliver,” and maybe even “deploy”:
The Optimum business model was, from the outset, to implement the
licensed Hartman LOOP technologies in a separate control device or appliance,
such as the Tridium JACE product, that along with our software could be
integrated with the Building Automation System (BAS) (also known as the Building
Management System (BMS) as an add-on to facilitate field implementation of the
Hartman technologies pursuant to our license. Optimum has consistently built its
business on the concept of delivering the Hartman technologies on a control device
or appliance, such as the Tridium JACE product, that is an add-on to the
BAS/BMS and not a replacement for the chiller plant control provided by the
BAS/BMS.
(Dkt. No. 27-2 at 6.) There are other ways to consider the Court’s Windows 10 analogy. Without
making any findings to this effect, the Court is generally aware that some computer enthusiasts
like to custom-build their own desktop computers, ordering individual components like power
supplies and memory and assembling the final product themselves. When those enthusiasts
49

choose Windows 10, or any operating system, to power their computers, at what point would they
consider Windows 10 “implemented”? And if those enthusiasts buy a “clean” copy of Windows
10 and set it up themselves, would that setup be a factory implementation because Windows 10 is
designed at Microsoft to come off the shelf and adapt itself to a variety of hardware that it
recognizes? Or would the setup be a field implementation because an otherwise commercially
uniform product is being set up in the “field” of the enthusiasts’ homes? Additionally, putting
aside some of the push and pull that occurs between hardware and software manufacturers,7
Windows 10 in theory is a stand-alone product that hardware manufacturers and computer users
can install across a wide variety of hardware devices. What, if anything, happens when Microsoft
partners with a hardware supplier like Pegatron to make a device—the Microsoft Surface™—that
could be designed to fit hand-in-glove with Windows 10? To what extent is Optimum doing the
same thing with the physical device that houses its optimization software?

F. The PPA and Its Terms
On February 9, 2010, Hartman entered the PPA with Optimum to sell the three patents
comprising the LOOP Technology plus six others. (Dkt. No. 55-3 at 2.) Of note, Section 3.4
terminated the Optimum Agreement. Section 4.1 gave Optimum all of Hartman’s rights in and
obligations for the patents except for certain financial obligations that might have accrued as of the
effective date of the agreement. Section 4.4 gave Optimum all of Hartman’s rights in and

7

Compare, e.g., Julia Hawkins, Microsoft’s Change in Policies Allow New Processors to Work only with Windows 10,
Stock Watch (Jan. 17, 2016), available at LexisNexis with Woody Leonhard, Microsoft plan to force PCs with
newer processors to Windows 10 backfires, InfoWorld Daily News (Apr. 13, 2017), available at LexisNexis.

50

obligations for the Armstrong Agreement except for certain financial obligations that might have
accrued as of the effective date of the agreement. In Section 6.1, Hartman promised that he had
full authority to sell the patents. In Section 6.3, Hartman asserted that he would not retain any
rights in the patents and that Armstrong had not breached the Armstrong Agreement in any way
up to that point. Section 10.3 set forth that Washington state law governed the Patent Agreement.
After signing, the Patent Agreement underwent four amendments. Optimum summarizes
the amendments as follows:
The PPA was the subject of four amendments, dated March 26, 2010, May
7, 2010, May 19, 2010 and March 18, 2011. (Rothman Decl., ¶24; Appendix Exh.
A) (Hogue Decl. ¶¶2–3, Exhs. A, B). The first two amendments essentially
extended the time for the closing of the agreement. (Rothman Decl., ¶24;
Appendix Exh. A).
The third Amendment of the PPA, dated May 19, 2010, reflected Hartman
and Optimum’s decision to proceed with closing on the six Equipment Patents as
to which Armstrong does not have any license rights, and delay closing on the
LOOP Patents. (Rothman Decl., ¶25; Appendix Exh. A).
Although Armstrong’s consent to the sale and assignment of the patents
was not required, Hartman and Optimum initially contemplated obtaining
Armstrong’s consent nonetheless and the PPA therefore originally reflected that.
When Armstrong objected to the sale and transfer of the patents, the provision for
such consent was deleted in Amendment Three. (Rothman Decl., ¶27; Appendix
Exh. A).
On or about May 19, 2010, Hartman and Optimum closed on the sale of
the six Equipment Patents from Hartman to Optimum for payments of $2 million.
(Rothman Decl., ¶26; Appendix Exh. A) (Hogue Decl. ¶5).
The fourth amendment to the PPA, dated March 18, 2011, expressly stated
that the referral obligation and consulting obligation in §3.3(e) of the ALA was
retained by Hartman and not assumed by Optimum. Thus, the Assignment of
Armstrong License Agreement, dated March 18, 201[1], stated: “Hartman retains,
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and acknowledges, his obligation to provide personal consulting and referral
services to Armstrong under section 3.3(e), 12.7, 12.8 and Exhibit A of the
Armstrong Agreement. For clarity, these obligations are not delegated to
Optimum.” (Assignment of Armstrong License Agreement, dated March 18, 2011,
§2(a)). (Hogue Decl., ¶3, Exh. B).
On or about March 18, 2011, Hartman and Optimum closed on the sale of
the three LOOP Patents from Hartman to Optimum pursuant to the PPA, as
amended. (Hogue Decl., ¶4).
(Dkt. No. 294-4 at 20–21.)

G. Dealings Under the Agreements
Armstrong set to work developing a controller with LOOP Technology within months of
entering the ALA. (Dkt. No. 212-9.) Around February 7, 2006, Armstrong and Optimum
communicated about Armstrong’s IPC 11550 controller, a “pre-fabricated configurable assembly.”
(Dkt. No. 294-6 at 55.) Armstrong expressed hope that Optimum “can utilize our ‘productized’
solution for the more simplistic retrofit projects that Optimum Energy encounters.” (Id.)
Around September 2006, a potential client approached Armstrong and Optimum about
“three different scenarios” that would include the LOOP Technology in a project bid. (Dkt. No.
294-6 at 127–28.) Armstrong informed the potential client, in short, that there were only two
ways to bring the LOOP Technology into a project: Use Armstrong for an OEM “packaged
solution,” or use Optimum for a field implementation to an existing system.
Around October 2006, a potential client approached Hartman with interest in the LOOP
Technology. (Dkt. No. 294-6 at 117.) Hartman promoted Armstrong as having “far away the most
cost effective implementation of the Hartman LOOP.” (Id.) If the client wanted to pursue
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installing technology in an existing building system then “[w]e suggest you discuss this with our
retrofit technology partners, Optimum Energy Company.” (Id.)
Around March 2006, Hartman and Optimum became aware of an Armstrong sales
representative in Los Angeles who was courting a potential client, Vertical Systems. (Dkt. No. 2946 at 131–53.) “Vertical Systems incorporates Armstrong Pump products, including products that
incorporate the Hartman Loop Technology, into the products and services that we offer our
customers in Southern California. Vertical Systems is a Manufacturer’s representative firm, and
we specialize in ‘green solutions’ for HVAC systems, and one of those green solutions we offer to
customers is the Armstrong products.” (Dkt. No. 292-2 at 317.) The sales representative told
Vertical Systems that “[t]he Armstrong Hartman Loop controller is viable on retrofit projects
without packaging with pumps, it does contain Hartman Loop Algorithms, it will be very cost
effective compared to ‘the alternative.’ I have re-confirmed that we are allowed to pursue HVAC
market for these controls in whatever form they come.” (Dkt. No. 294-6 at 132.) The reference in
quotes to “the alternative” likely is a reference to Optimum. The use of the word “re-confirmed”
implies that someone in Armstrong made the choice to issue a confirmation. The incident drew a
response from Hartman that encouraged Armstrong and Optimum to repair whatever harm in
client relations ensued and to recommit to the distinction between controller sales that are “part of
a substantial pumping or plant package” and those that are retrofit applications. (Id. at 135.)
Neither the word “package” nor the word “retrofit” appears in Section 2.1 of either the ALA or
the OLA. The incident also prompted a conversation and a disagreement over what would
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happen in a hybrid scenario when a client bought some new equipment, combined it with some
existing equipment, and then wanted the LOOP Technology in charge. (Id. at 139.) The sales
representative who sparked the incident joined in the conversation when Armstrong clarified that
its controller never could be sold alone and, at a minimum, had to be sold with the pumps that it
would control. (Id. at 148.) The sales representative reacted somewhat incredulously to the
prospect of lost sales and left the door open to pursuing retrofit projects as follows:
This means that on 80% of jobs (up from previous 70%) I predict that fall into the
VFD and controls only—will always be on the Optimum Energy Path. It still will
hold true that 20% of the plants will find some need for new pumping equipment,
and controls and VFOs. That is where we will be a viable player in the Hartman
Loop Market with Armstrong systems—on 20% of projects. This statement does
take away a couple of options I considered viable, but still leaves us open as a
retrofit product.
(Id. at 148.) Armstrong ultimately resolved the incident by sending a letter to its sales force that
included the following distinction:
It is important that we remind and clarify to our sales channels that Armstrong’s
product development and agreement/license for the distribution of the Hartman
LOOP control methodology is only appropriate for sale in conjunction with
Armstrong products that are to be controlled by the technology. As a minimum
this requires the sale of Armstrong pumps controlled by the IPC 11550.
(Id. at 151.) Armstrong felt obligated to issue the letter to hold its sales agents at bay. “The feeling
and the interpretation [was] that if we had not included that, our sales organization would push us
for positions that would not reflect the agreements that we had above and beyond the license
agreement with Optimum and Hartman.” (Dkt. No. 319 at 256.) Interestingly, Hartman never

54

adopted Armstrong’s position that pumps plus a controller sufficed for a factory-implemented new
system:
I think we all agree that a complete pumping package is the requirement for
Armstrong to market its solution. I can tell you (and you probably already know) it
is not very often that pumps are changed/upgraded without a change in chillers
and/or other plant equipment. No question that the other equipment could be
supplied by others. OEC is very supportive that when a plant needing such new
equipment is encountered, the project needs to be referred to Armstrong. They are
not in the equipment replacement business.
What I don’t want to see happen is Armstrong reps trying to replace pumps
just to compete with OEC’s marketing effort (the case at hand) nor OEC holding
on to outdated plant equipment just to avoid the Armstrong solution. This will
take cooperation, but I am sure based on my many years of experience that such
situations are unlikely to develop on their own, so both Armstrong and OEC
simply need to keep their true markets in focus to avoid such possible instances.
(Dkt. No. 319 at 451.) Ross, on behalf of Armstrong, signed off on Hartman’s position,
responding that “I agree with your comments Tom. Yes I wish to continue to work with Optimum
and will do so. I don’t see any reason for conflicts which can’t be solved and will work hard to
ensure we don’t have any.” (Id.) Armstrong now has submitted the following interpretation of the
letter that it sent to its sales force:
Optimum knew its JACE controller device was in direct competition with
Armstrong’s products. Since at least March of 2006, when Rothman and Hartman
sent emails to Brent Ross about a project proposal for EMCOR in Los Angeles.
Kulik Decl. Exh. H (Exhibits L and M of Document 27-5, pages 19–26). Hartman
admitted to Armstrong’s officers in a meeting in Toronto that he agreed that
Armstrong’s Hartman LOOP controllers could be sold as a stand-alone product
under the terms of the Armstrong License Agreement. Thomsen Decl. at ¶ 19.
Hartman made that admission after spending the night studying the Armstrong
License Agreement. Id. While Armstrong’s rights to sell a combination of
products or a single product with the Hartman LOOP technology was never
questioned, the instructions to Armstrong’s sales representatives to sell Armstrong
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pumps with the Armstrong controller in 2006 was for purposes of boosting the
total sales of Armstrong products and helping the Hartman LOOP technology
penetrate the market better. It was a temporary instruction that has long ago been
rescinded. Thomsen Decl. at ¶ 20.
(Dkt. No. 318 at 13.) Optimum disagrees with this interpretation:
Once the Armstrong License Agreement was signed, Armstrong continued
to recognize and accept that a controller implementing the Licensed Technologies
that is integrated with equipment at the building site was a “Field Implementation”
under the Armstrong License Agreement. (3/16/16 Hartman Decl., ¶13; filed
under seal; Appendix Exh. C).
In a March 20, 2006 e-mail to Ross and Thomsen of Armstrong, with a
copy to Rothman, Hartman stated that an Armstrong representative “has relayed
some incorrect information about Armstrong’s IPS offering. As we know, this
controller is not to be sold without being a part of the substantial pumping or plant
package.” (Rothman Decl., ¶88, Exh. L; Appendix Exh. A).
(Dkt. No. 294-4 at 18.)
Around October 2006, Armstrong encountered real estate developers in China who
expressed interest in having Armstrong’s controller installed in “newer” but existing building
systems. (Dkt. No. 319 at 114.) Armstrong approached Hartman for permission to pursue the
projects, but Hartman encouraged Armstrong to negotiate with Optimum since these projects
would be considered “retrofit” projects. (Id. at 113.) Armstrong clarified that “[t]he intent is not
to participate in the retrofit market, but to get an IPC system installed for reference in that local
market as soon possible. From Nathan’s perspective we are obviously taking away from one of his
opportunities . . . .” (Id.)
On November 29, 2006, Armstrong issued a document titled a Product Profile for its IPC
11550 controller. (Dkt. No. 319 at 477–79.) Armstrong distributed the Product Profile internally
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to its employees and representatives. The Product Profile ended with the disclaimer that “[o]rders
for the IPC 11550 system must include an order for pumps that are part of the chilled water
plant.” (Id. at 479.) The first page, in contrast—under a heading titled “Target market(s)”—stated
unequivocally that “[t]he IPC 11550 system is ideal for both the new construction and
MRO/retrofit marketplaces.” (Id. at 477 (emphasis added).)
Around April 2008, Armstrong explored another opportunity in the “far east,” possibly
China again. (Dkt. No. 319 at 467–68.) The potential client had started building a large HVAC
infrastructure when encountering Armstrong. The client apparently decided that it would stick
with whatever equipment it had purchased up to that point but wanted Armstrong equipment for
the rest of the project. Armstrong considered the overall project to be “factory packaged” (id. at
468) but nonetheless recognized that it might implicate the boundaries of the ALA. Accordingly,
Armstrong approached Hartman for permission “under this ‘special circumstance’ to essentially do
a[n] ‘implemention’ [] portion of ‘demand based control’ and ‘natural curve’ technology into our
proposal on this project, that does not include ‘integrated equipment/control package.’” (Id.)
Armstrong told Hartman explicitly that “we do want to proceed without engaging Optimum.” (Id.)
Armstrong also wanted Hartman’s approval by the next day. (Id.) Hartman responded by
describing a number of details that he would need to know about the project to assess its
complexity. Hartman concluded that “I do not see how we can resolve this issue contractually in
the time span you desire. The ONLY way I can see this could be done is to reach an agreement
with Optimum that we could all sign off on as a one time change. If you are not willing to do this,
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then it seems to me that the process will have to be much more complex as what you are proposing
does seem to me to conflict with rights granted to Optimum.” (Id. at 467.) Incidentally, Hartman
has offered this thought about the times when Armstrong sought his permission to pursue a
project:
Although Armstrong requested permission to offer a field implementation
on several occasions (Docket No. 293 ¶¶ 12-13), Armstrong never, until this
dispute arose in 2010, complained to Hartman that it believed that Optimum was
engaged in improper competition/infringement. Id.
(Dkt. No. 302 at 12.)
Around 2008 or 2009, a particular HVAC project went through that involved Vertical
Systems—a building project known as the 4221 Wilshire Boulevard project. (Dkt. No. 292-2 at
318.) According to Vertical Systems representative Brett Gaviglio (“Gaviglio”),
We proposed a solution to the building’s out-of-date equipment with
products from Armstrong Pump Inc., including replacing all pumps and installing a
new building control system. We were able to demonstrate a cost savings to the
Wilshire Boulevard owner and then completed all of the initial design work onsite.
Another proposal that incorporated Optimum’s control panel was also submitted
to the building owner.
The building owner subsequently gave the project to Optimum, or more
particularly the proposal that included Optimum, and while pumps were provided
by Armstrong, the central control device was provided by Optimum. The
difference in sales to Vertical Systems between our original budget proposal and the
final purchase order was over $100,000, and part of this difference included the
Armstrong controller and other components to be provided by Armstrong.
(Id.) Armstrong interpreted the Wilshire Boulevard incident as follows:
Armstrong soon found that it was up against Optimum for the same
building prospects for new construction or new HVAC systems. Kulik Decl., Exh.
O (Decl. of Brett Gaviglio (Document 19-3)). Mr. Gaviglio refers to one specific
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project from 2008 where the proposal for the Armstrong products was supplanted
by a bid from Optimum. The project was for a new chilled water system, including
new pumps and a new building control system. Id.
Optimum considers Armstrong a direct competitor as stated in statements
from its own employee, Clark Matthys.
Q. Okay. Are you aware of other companies that have competing
optimization products or services?
A. So in general. I mean, competing—I mean, Armstrong, obviously, would
be one.
Kulik Decl., Exh. P (Matthys Transcript at pages 72–73, referring to Exh. 5).
(Dkt. No. 318 at 8.) Optimum viewed the Wilshire Boulevard incident from a different
perspective:
Optimum does not dispute that in 2008, both Armstrong, through a
representative, Vertical Systems, and Optimum, acting on its own behalf, made
proposals to EMCOR Services which was a building services contractor on the
4221 Wilshire Boulevard project. The Wilshire plant had an existing BAS/BMS
that was functional. This was an existing plant where the pumps were being
replaced. Both Armstrong’s and Optimum’s solutions were viable. The decision
on which solution to select for the chiller plant retrofit on that project rested with
EMCOR and the customer. Optimum had had a business relationship with
EMCOR since at least 2006, and EMCOR was familiar with the Optimum service
and its field implementation of the Hartman LOOP Technology based on prior
projects in California involving Optimum and EMCOR. The cost of adding
Optimum’s field implementation was substantially less than tearing out the
operating BMS/BAS and replacing it with Armstrong’s system. Optimum provided
a Field Implementation of the Hartman LOOP Technologies in accordance with its
license. Optimum supplied the Tridium JACE 6 in accordance with Optimum’s
standard operating procedure. (See 8/13/10 Rothman Declaration, ¶¶ 77–85; Dkt.
No. 27-2 at 21–22; 5/5/17 Opt. App., Exh. A). Optimum disputes Armstrong’s
statement that Armstrong “soon found it was up against Optimum” on this project,
to the extent it implies that Armstrong was surprised that both Optimum and
Armstrong’s solutions could be available for the same project. (See 5/5/17
Optimum SOF ¶¶ 64–71). Also, Armstrong could not have been competing
against Optimum for sales of equipment such as pumps or chillers.
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Optimum disputes that Armstrong’s quotation of Mr. Matthys’ testimony is
complete or accurate. Mr. Matthys’ complete answer is: “So in general. I mean,
competing—I mean, Armstrong, obviously, would be one. There’s—JCI, I mean,
you could say has one too. They have CPO-10. That’s an optimization program.
But in general, the main one that we know about is Siemens.” (Matthys Dep. at
73:4-8). Optimum does not dispute that it considers Armstrong a direct
competitor, at least as to some products, in some respects and in some situations.
After all, both Armstrong and Optimum obtained a license in the same patents to
offer solutions that attempt to do the same or similar thing by different means.
(Dkt. No. 299 at 11–13.)
In early 2009, an Armstrong sales representative in Ohio developed a potential sales lead
with Lockheed Martin; “[t]he potential business here runs in the millions.” (Dkt. No. 319 at 488.)
However it happened, Lockheed’s design contractor wound up talking to Hartman as well.
Hartman followed the protocol of the ALA. “[W]hen they asked how I would recommend
implementing the technology, I asked the individual if the plant they were considering it for was a
new or an existing plant. He told me that it was a large existing plant. So, in accordance with our
protocol, I referred them to OEC [i.e., Optimum].” (Id. at 487.) Armstrong was upset that
Hartman followed standard protocol. “I suspect that when you (Tom) received the call from the
client (Lockheed), that it wasn’t made clear that Armstrong had brought them to this point in
their decision making . . . . There is probably a higher level sell that Optimum can make for the
whole building networking of the entire building’s energy systems, however, we see the IPC /
Hartman LOOP as a key method of delivering an integrated plant solution to differentiate us—so
we need assurance for the sales team to continue to use that strategy.” (Id. at 487–88.)

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Around December 2013, Armstrong announced a new controller called OPTI-VISOR
aimed explicitly at retrofit projects in addition to new projects. “Armstrong OPTI-VISOR is a
relational control solution for the operation of an all-variable-speed chiller plant. OPTI-VISOR is
an excellent solution for retrofit in buildings with water cooled chiller plants, including those less
than five years old, but is also suitable for new construction applications involving variable-primary
flow chiller plants that have advanced building automation systems (BAS).” (Dkt. No. 252-6 at 2.)
Aside from their discussion of individual building projects, the parties have offered their
thoughts about the extent to which they wound up competing against each other. Armstrong
maintains that Hartman fostered competition in a way that it did not know at the time:
Hartman was also keenly aware of the competition from Optimum as he
would direct inquiries from The Hartman Company website and other contacts in
the industry to only Optimum instead of Armstrong. Hartman did not mention
that Optimum was essentially his “partner:”
Q. You’ve mentioned that there was no referral requirement in the
Optimum agreement. Were you sending the e-mails—well, several of the e-mails
like we saw the last 45 minutes or so, to Mr. Rothman because Optimum Energy
was your partner?
A. Well, yes. Yes, that would be a fair statement ….
Kulik Decl., Exh. Q (Hartman transcript page 361).
(Dkt. No. 318 at 8.) Hartman challenges Armstrong’s characterization of any partnership and of
any awareness of competition:
Armstrong’s assertion that Hartman “did not mention that Optimum was
essentially his ‘partner’” is false, and is not supported by page 361 of the Hartman
transcript in any event (which merely shows that Hartman admitted that Optimum
was his partner)—not that he had not previously mentioned that fact to Armstrong.
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In fact, as previously set forth, Hartman informed Armstrong’s Brent Ross that
Optimum was his partner and that he intended to ultimately sell them the patents.
Docket No. 290-4 ¶¶ 93, 96, 100, 103. Hartman was not “keenly aware” of
competition, and as noted in ¶ 34 above, Armstrong never even suggested that
Optimum was competing/infringing until this dispute arose. Hartman directed
inquiries to his website to Optimum and/or Armstrong as he deemed relevant, but
many inquiries did not fall within his referrals obligation under ALA § 3.3(e).
Hartman Decl. ¶ 38. If an inquiry did not involve a request for new chillers or
pumps, nothing prohibited Hartman from referring the inquiry to Optimum. Id.
(Dkt. No. 302 at 12–13.)
Two additional points of contention concern referrals and the possibility of a conflict
between the OLA and the ALA. Armstrong has submitted the following in support of its point
that Hartman did not fulfill his referral obligations:
While there is no referral obligation in Optimum’s license agreement, there
is a clear and unambiguous requirement for Hartman, or the Licensor of the
patents, to be diligent in referring to Armstrong customers requiring new chillers or
pumps. Kulik Decl., Exh. A, at § 3.3(e). When asked about his protocol for
determining if a referral to Armstrong was required, Hartman responded:
Q. Okay. Do you know why you didn’t recommend contacting Armstrong
as well?
A. Because we had a—the agreement with Armstrong was very specific about
the terms under which I would contact them, and this did not meet those terms.
Q. Okay. What was it about this e-mail exchange that led you to believe it
did not meet those terms?
A. Because the—the [Section 3.3(e)] referral requirement of the Armstrong
agreement discusses—I don’t know if I have the words exactly correct, and that is,
plants that require new chillers or pumps. And there is no requirement for new
chillers or pumps here.
Q. So how do you know there was no requirement for new chillers or
pumps in this case?
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A. Because there is none stated.
Q. But you didn’t ask?
A. Is that a question?
Q. Did you ask him if there were any new chillers or pumps anticipated in
this project?
A. No.
Q. Would you typically ask that?
A. No.
Kulik Decl., Exh. R (Hartman transcript pages 339–340).
(Dkt. No. 318 at 9.) To the extent that Armstrong has indicated that Optimum had or took over
any referral obligations, “Optimum disputes that Armstrong’s characterization of that § 3.3(e)
obligation is complete or accurate. As set forth in its motion for summary judgment, Optimum
disputes that Optimum ever had such a referral obligation which was retained by Hartman.” (Dkt.
No. 299 at 14.) Optimum also has cited specific instances of referrals that occurred:
In an e-mail on December 7, 2005, just after the OLA had been signed,
Rothman sent Brent Ross another e-mail referral concerning a possible project at
the Hong Kong Jockey Club. (Hanna Dep. Exh. 14; Appendix Exh. R); (Ross Dep.
at 165:19–166:20; Appendix Exh. G).
In December 2009, Optimum declined to pursue a proposed project (Valley
High School) that Optimum believed called for Optimum to exceed its license
rights under the OLA. (Hanna Dep. Exh. 14; Appendix Exh. S) (Hanna Dep. at
165:12–166:9; 167:14–168:18; Appendix Exh. E).
When Johnson Controls, Inc. was interested in further developing the
Licensed Technologies to incorporate it in JCI’s Metasys, Optimum told JCI that
Optimum could not do that because Optimum did not have that license right.
(Hanna Dep. at 176:24–177:4; 178:4–179:13; Appendix Exh. E).
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(Dkt. No. 294-4 at 17.) Hartman has addressed Armstrong’s referral argument as well:
The ALA’s referral obligation (§ 3.3(e)) speaks for itself. It is not as liberal
as Armstrong suggests because Armstrong’s analysis overlooks the actual language
of the ALA, which refers to projects “that require new chillers or pumps.”
Although Armstrong excerpts Hartman’s testimony, quoting selectively from pages
339–340, the examination on this project and Exhibit 56 starts on page 337.
Hartman’s testimony shows that he referred this inquiry to Optimum because it
was from a building owner or manager with an existing operating plant and
equipment, and thus it did not satisfy ALA § 3.3(e). Exhibit 56 and Hartman’s
testimony show that he did not learn, and knew from his years of industry
experience that he would not learn with further inquiry, about any requirement for
new pumps or chillers.
(Dkt. No. 302 at 13.) Armstrong has countered Optimum and Hartman’s arguments about
referrals by pointing out that the ALA imposed a referral obligation on the “Licensor,” and that
circumstances changed once the PPA made Optimum that Licensor:
Ultimately, Hartman’s intended sale of the Hartman LOOP patents to
Optimum precipitated the filing of this lawsuit. With Optimum already in direct
competition with Armstrong for building projects since at least 2008, Armstrong
had no reason to believe that Optimum would honor the clearly stated obligations
of the “Licensor” in the Armstrong License Agreement, despite Hartman’s protests
in writing that the obligation would be a benefit to Armstrong once Optimum was
the Licensor. (Dkt No. 292-2 at Exhibit S). Furthermore, Hartman’s actions in
attempting to sell the patents to Optimum violated the promise he made in the
Armstrong License Agreement §10.2 not to make agreements or commitments in
violation of the Armstrong License Agreement.
(Dkt. No. 304 at 15–16.)
III.

DISCUSSION

A. Summary Judgment Generally
“The court shall grant summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” FRCP
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56(a). “As to materiality, the substantive law will identify which facts are material. Only disputes
over facts that might affect the outcome of the suit under the governing law will properly preclude
the entry of summary judgment . . . . More important for present purposes, summary judgment
will not lie if the dispute about a material fact is ‘genuine,’ that is, if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248 (1986) (citation omitted). “The party seeking summary judgment has the burden to
demonstrate that no genuine issue of material fact exists. In determining whether a genuine issue
of material fact exists, a court must examine the evidence in the light most favorable to, and draw
all inferences in favor of, the non-movant . . . . Summary judgment is improper if there is any
evidence in the record that could reasonably support a jury’s verdict for the non-moving party.”
Marvel Characters, Inc. v. Simon, 310 F.3d 280, 286 (2d Cir. 2002) (citations omitted).
When assessing summary judgment motions, courts can assess the record only for triable
issues of fact; they cannot assess the underlying substance. “The function of the district court in
considering the motion for summary judgment is not to resolve disputed issues of fact but only to
determine whether there is a genuine issue to be tried. Assessments of credibility and choices
between conflicting versions of the events are matters for the jury, not for the court on summary
judgment. Any weighing of the evidence is the prerogative of the finder of fact, not an exercise for
the court on summary judgment.” Rule v. Brine, Inc., 85 F.3d 1002, 1011 (2d Cir. 1996) (citations
omitted); see also Curry v. City of Syracuse, 316 F.3d 324, 333 (2d Cir. 2003) (“If, as to the issue on
which summary judgment is sought, there is any evidence in the record from which a reasonable
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inference could be drawn in favor of the opposing party, summary judgment is improper.”)
(internal quotation marks and citation omitted). Disputes about credibility must rest on specific
events or other evidence in the record. “Although witness credibility is usually a question of fact
for the jury, broad, conclusory attacks on the credibility of a witness will not, by themselves,
present questions of material fact for trial. A plaintiff opposing summary judgment must still
identify affirmative evidence from which a jury could find that the plaintiff has carried her burden
of proving the pertinent intent.” Desia v. GE Life & Annuity Assur. Co., 350 F. App’x 542, 544–45
(2d Cir. 2009) (summary order) (internal quotation and editorial marks and citations omitted).

B. Contract Law Generally
At least some of the parties’ arguments rest very heavily on how the Court interprets the
language of key portions of the Armstrong Agreement. To help assess that contract, the Court
should take a little time to review applicable principles of contract interpretation. For substantive
principles, the Court will look at New York law in accordance with Section 12.10 of the
Armstrong Agreement. Federal cases cited below interpreted New York law unless otherwise
noted.
“The objective in any question of the interpretation of a written contract, of course, is to
determine what is the intention of the parties as derived from the language employed. At the same
time the test on a motion for summary judgment is whether there are issues of fact properly to be
resolved by a jury. In general the courts have declared on countless occasions that it is the
responsibility of the court to interpret written instruments. This is obviously so where there is no
66

ambiguity. If there is ambiguity in the terminology used, however, and determination of the intent
of the parties depends on the credibility of extrinsic evidence or on a choice among reasonable
inferences to be drawn from extrinsic evidence, then such determination is to be made by the jury.
On the other hand, if the equivocality must be resolved wholly without reference to extrinsic
evidence [then] the issue is to be determined as a question of law for the court.” Hartford Acc. &
Indem. Co. v. Wesolowski, 305 N.E.2d 907, 909 (N.Y. 1973) (internal quotation marks and citations
omitted). “Contract language is unambiguous if it has a definite and precise meaning, unattended
by danger of misconception in the purport of the contract itself, and concerning which there is no
reasonable basis for a difference of opinion. Language whose meaning is otherwise plain is not
ambiguous merely because the parties urge different interpretations in the litigation. The court
should not find the language ambiguous on the basis of the interpretation urged by one party,
where that interpretation would strain the contract language beyond its reasonable and ordinary
meaning. The parties’ rights under an unambiguous contract should be fathomed from the terms
expressed in the instrument itself rather than from extrinsic evidence as to terms that were not
expressed or judicial views as to what terms might be preferable. In its efforts to preserve the
parties’ rights and the status quo, the court must be careful not to alter the terms of the agreement.
The parties having agreed upon their own terms and conditions, the courts cannot change them
and must not permit them to be violated or disregarded.” Metro. Life Ins. Co. v. RJR Nabisco, Inc.,
906 F.2d 884, 889 (2d Cir. 1990) (internal quotation and editorial marks and citations omitted).

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“However, when the contract language is ambiguous, meaning that there may be more
than one reasonable interpretation, its construction will be left to the fact finder for a
determination as a matter of fact. Nevertheless, even ambiguous contracts may be interpreted by a
court as a matter of law where the parties fail to supply extrinsic evidence to support their
respective interpretations. In such a case, a court must consider the available writings and the
undisputed circumstances of execution so as to discern the parties’ intentions. In short, summary
judgment is appropriate where either, 1) the contract is unambiguous, 2) the contract is ambiguous
but extrinsic evidence presented by the parties resolves any ambiguity, or 3) the contract is
ambiguous but the opposing party fails to tender extrinsic evidence supporting its proposed
interpretation.” 82-11 Queens Blvd. Realty, Corp. v. Sunoco, Inc. (R & M), 951 F. Supp. 2d 376, 382
(E.D.N.Y. 2013) (internal quotation marks and citations omitted); see also Lightfoot v. Union Carbide
Corp., 110 F.3d 898, 906 (2d Cir. 1997) (“Contract terms are considered ambiguous if they are
capable of more than one meaning when viewed objectively by a reasonably intelligent person who
has examined the context of the entire integrated agreement and who is cognizant of the customs,
practices, usages and terminology as generally understood in the particular trade or business.”)
(internal quotation marks and citations omitted).
Ambiguities in a contract can be deep or shallow. Deeper ambiguities include whether the
parties to a purported contract ever really reached a meeting of the minds on essential terms:
[A] contract is a private ‘ordering’ in which a party binds himself to do, or not to
do, a particular thing. This liberty is no right at all if it is not accompanied by
freedom not to contract. The corollary is that, before one may secure redress in
our courts because another has failed to honor a promise, it must appear that the
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promisee assented to the obligation in question. It also follows that, before the
power of law can be invoked to enforce a promise, it must be sufficiently certain
and specific so that what was promised can be ascertained. Otherwise, a court, in
intervening, would be imposing its own conception of what the parties should or
might have undertaken, rather than confining itself to the implementation of a
bargain to which they have mutually committed themselves. Thus, definiteness as
to material matters is of the very essence in contract law. Impenetrable vagueness
and uncertainty will not do.
Dictated by these principles, it is rightfully well settled in the common law
of contracts in this State that a mere agreement to agree, in which a material term is
left for future negotiations, is unenforceable.
Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 417 N.E.2d 541, 543 (N.Y. 1981) (internal
quotation marks and citations omitted). “In determining whether the parties intended to enter a
contract, and the nature of the contract’s material terms, we look to the objective manifestations of
the intent of the parties as gathered by their expressed words and deeds. Disproportionate
emphasis is not to be put on any single act, phrase or other expression, but, instead, on the totality
of all of these, given the attendant circumstances, the situation of the parties, and the objectives
they were striving to attain.” Stonehill Capital Mgmt., LLC v. Bank of the West, 68 N.E.3d 683, 689
(N.Y. 2016) (internal quotation and editorial marks and citations omitted). “Moreover, at some
point virtually every agreement can be said to have a degree of indefiniteness, and if the doctrine is
applied with a heavy hand it may defeat the reasonable expectations of the parties in entering into
the contract. While there must be a manifestation of mutual assent to essential terms, parties also
should be held to their promises and courts should not be pedantic or meticulous in interpreting
contract expressions. Before rejecting an agreement as indefinite, a court must be satisfied that the
agreement cannot be rendered reasonably certain by reference to an extrinsic standard that makes
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its meaning clear. The conclusion that a party’s promise should be ignored as meaningless is at
best a last resort.” Cobble Hill Nursing Home, Inc. v. Henry & Warren Corp., 548 N.E.2d 203, 206
(N.Y. 1989) (internal quotation marks and citations omitted).

C. Armstrong’s Principal Claims from the Amended Complaint (Dkt. No. 55) and the
Counterclaims (Dkt. No. 68)
i.

Breach of Contract Against Hartman

Count I of the amended complaint, and Armstrong’s counterclaims, contain an allegation
that Hartman breached the ALA. “To state a claim for breach of contract under New York law,
the complaint must allege: (i) the formation of a contract between the parties; (ii) performance by
the plaintiff; (iii) failure of defendant to perform; and (iv) damages.” Nick’s Garage, Inc. v.
Progressive Cas. Ins. Co., 875 F.3d 107, 114 (2d Cir. 2017) (internal quotation marks and citation
omitted). Count I breaks down into a number of arguments about violations of different portions
of the ALA. The Court will organize its analysis using the subheadings that appear in Armstrong’s
initial memorandum of law. (Dkt. No. 317 at 29–41.)
1. Breach of Section 3.3(e): Diligence with Referrals
Armstrong begins this argument by explaining why, in its view, it negotiated to include
Section 3.3(e) in the ALA:
Armstrong’s purpose in entering the agreement with Hartman for the use
of the Hartman LOOP Technology was to gain new customers in the burgeoning
“green” energy market by using a new technology to make building cooling systems
more efficient. The fact that this new technology required variable speed drive
pumps, pumps that Armstrong was ahead of the field in manufacturing and
employing in the market and keen to sell more of, made the referral obligation
even more useful to Armstrong. Thus the selection of the Hartman LOOP
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Technology was intended to give Armstrong a differentiating factor over the
competition in the control of cooling system aspect and provide a burgeoning
potential customer flow for Armstrong’s pumps. As Hartman had been promoting
the technology with the trademarked Hartman LOOP name, Hartman would
provide new leads of those looking for gains in efficiency and identifying the
Hartman LOOP technology of a desirable way to accomplish that, and those
looking for new pumps to upgrade their cooling system. Along with the exclusive
rights to factory produce building controls and equipment that use the Hartman
LOOP Technology, Hartman agreed to help Armstrong develop this new stream of
customers by diligently referring all potential applications directly to Armstrong.
(Dkt. No. 317 at 29–30.) “Because of the substantial investments that Armstrong made—both in
terms of its own research and product development activities and its commitment to pay
substantial royalties to Hartman—Armstrong specifically contracted for and obtained several
provisions in the license agreement granting Armstrong exclusive rights to manufacturer chilled
water products incorporating the Hartman LOOP technology with a narrow carve-out for a
potential license with Optimum. Thomsen Decl., at ¶ 8. The license agreement contract also
obligated the owner of the patents or Licensor to diligently refer customers for new pumps or
chiller products if Licensor learned of any.” (Dkt. No. 318 at 3.) Armstrong has summarized the
nature of Hartman’s alleged breach as follows: “Hartman violated his own promises to Armstrong
by not even asking customers if any pumps or chillers were contemplated, never telling Armstrong
he would not ask, essentially forwarding potential customers without any concrete information to
base a decision on if it was possibly a field or factory implementation. Of course a vast majority
were forwarded solely to Optimum.” (Dkt. No. 317 at 34.) As an example of Hartman’s alleged
breach, Armstrong has cited the deposition testimony from Hartman (Dkt. No. 318 at 9)
suggesting that Hartman did not examine potential new business in a way that would be consistent
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with “diligent” referrals. Armstrong has suggested that other deposition testimony from Hartman
shows the lengths to which Hartman would go to make excuses for not referring potential clients
to its own representatives. (See Dkt. No. 357-6 at 55–77.) The deposition testimony in question
indicates that general email inquiries to Hartman’s website are first screened by secretarial staff;
after that, if “[i]t’s not clear what their interest is, so I have no direction as to, it should go to one
or the other, [then] I just sent it to both [Armstrong and Optimum].” (Id. at 56.) “Failing to ask
any questions or at least the basic question about if the potential project might use new pumps or
chillers is the opposite of ‘diligent’ and at best is an arbitrary decision to refer to Optimum instead
of Armstrong. More likely it is bad faith and unfair.” (Dkt. No. 317 at 17.)
Hartman and Optimum have responded to Armstrong’s arguments in several ways. With
respect to any argument about bad faith, “this Court should apply the rule that a cause of action
for breach of the implied duty of good faith and fair dealing will be dismissed as duplicative of a
breach of contract claim when both claims arise from the same facts and seek the identical
damages for each alleged breach. Here, Armstrong seeks to assert, for the first time after seven
years of litigation, a previously unalleged duty of good faith and fair dealing claim upon the same
facts supporting its breach of contract claim. This theory, however, must be rejected as untimely—
and, in any event, because it is redundant of the contract claim.” (Dkt. No. 298 at 9.) Hartman
objects to any labeling of Optimum’s rights as a narrow carveout:
The “carve-out” for Optimum was not “narrow”; indeed, Armstrong only
licensed certain limited rights with respect to three of nine patents. See, e.g., Docket
No. 293 ¶36; Docket No. 291-3 fn. 5. Moreover, the Optimum “carve-out”
confirms that Optimum could employ control devices as long as they were not
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“plant controls” (and they are not manufactured or assembled by Optimum in any
event). To the extent that Thomsen characterizes the ALA provisions, those
provisions speak for themselves. Notably, Armstrong’s Statement of Facts is not
even consistent with Thomsen’s selfserving Declaration where the Statement of
Facts suggests that the ALA “obligated the owner of the patents or Licensor to
diligently refer customers,” (emphasis added) whereas the Thomsen Declaration
that is cited as support states that “Armstrong specifically contracted for the
Licensor’s obligation to diligently refer customers.” Thomsen Decl. ¶ 8.
(Dkt. No. 302 at 3–4 and n.1.) Hartman also rejects any suggestion that he never made any
referrals to Armstrong:
Armstrong alleged upon information and belief that Hartman violated
§ 3.3(e) of the ALA because “no referrals for applications for chillers or pumps have
been received.” At his deposition, however, Thomsen acknowledged that Armstrong
received referrals from Hartman from the time the ALA was executed through the date
of his deposition (i.e., roughly ten years). In fact, Hartman made referrals to
Armstrong before and after this lawsuit was filed.
Moreover, Thomsen also acknowledged in writing that the referral process
necessarily involved interpretation by Hartman regarding customer needs. This
admission alone defeats Armstrong’s claim that Hartman breached the purported
referral obligation absent evidence that Hartman acted arbitrarily or irrationally.
Indeed, the nature of the referral obligation is limited to “potential applications . . .
that require new chillers or pumps.” Armstrong proffered no evidence that Hartman
failed to “be diligent in referring to [Armstrong] all potential applications the
Licensor learns about that require new chillers or pumps.” Accordingly, Hartman
should be granted summary judgment dismissing Armstrong’s claim related to the
alleged breach of § 3.3(e) of the ALA.
(Dkt. No. 290-3 at 22–23.) The acknowledgment of referral receipts to which Hartman cites
comes from the following deposition testimony of Peter Thomsen from Armstrong:
Q. Okay. If you can turn to the second page, where there’s an e-mail from
Tom Hartman to Marco Spinelli, S-P-I-N-E-L-L-I.
Is it fair to characterize that e-mail as providing contact information for
both Optimum Energy and Armstrong Pump to Mr. Spinelli?
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A. Yes.
* * * (Transcript page missing)
A. I do receive the occasional one, perhaps once a quarter, whereas prior,
we would receive somewhere in the neighborhood of two to five a month.
Q. Okay. And you say prior. Prior to what?
A. Prior to the purchase of the patents by Optimum Energy.
Q. Okay. So from 2005 through—
A. Ballpark, 2010.
Q. — 2010? Ballpark 2010, you’re saying?
A. ’09, ’10. In there.
Q. You received approximately two to five a month? Referrals?
A. Well, maybe spotty. Sometimes there would be two, five, then it may go
a month without anything.
(Dkt. No. 319 at 265–66.) In turn, the email message referenced in this deposition excerpt
consists of a chain of messages involving Hartman, Thomsen, and someone named Marco Spinelli
of Enbridge Gas Distribution. (Dkt. No. 319 at 483–85.) Spinelli initiated contact with Hartman
and wrote as follows:
It was [a] pleasure speaking with you on March 1. It was interesting to learn
about your “conservation power plant” idea and to gain a better understanding of
the technology you have developed to improve the efficiency of central chiller
plants.
As we discussed, please provide contacts at Optimum Energy and
Armstrong. I’ll be calling them in the next week to explore how we can work
together.
(Id. at 485.) Hartman replied and provided contact information for Rothman and Thomsen, as
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requested. After Spinelli contacted Thomsen, Thomsen wrote to Hartman to “thank you for
forwarding or name to Marco—he is visiting us next week.” (Id. at 483.)
Optimum has included with its motion papers an argument that it has no liability for any
breach of Section 3.3(e) of the ALA. The Court does not read Count I of the amended complaint
to allege a violation of that section by Optimum; that Count mentions Optimum as the other side
of the patent sale and transfer but frames all of its allegations with phrases such as “Hartman
breached” or “as a result of Hartman’s breach.” (See Dkt. No. 55 at 9–10; see also id. at 9 (“There is
an actual and justiciable controversy between the parties as to whether Hartman has breached the
Armstrong License Agreement.”).) Nonetheless, and for the sake of completeness, Optimum has
submitted the following argument about any liability that Armstrong might try to attach to it in
connection with Section 3.3(e):
In its 10/7/10 Decision and Order, the Court “rejected the argument that
a sale of Hartman’s retained patent rights will necessarily transfer to Optimum all
of Hartman’s contractual obligations under the License Agreement.” (Dkt. No. 39
at 24) (emphasis in original). The Court also noted that, in addition, “Hartman
has proffered a copy of his patent purchase agreement with Optimum, which
expressly provides that Optimum ‘does not assume and does not agree to assume
any obligations or Liabilities accrued under the Armstrong Agreement or any other
License at any time before or after the Closing Date.”’ (Dkt. No. 39 at 24).
Indeed, under settled New York and Washington law, Optimum would not
have assumed Hartman’s obligations and liabilities even if the PPA had been silent
on that subject. “Under New York law . . . the assignee of rights under a bilateral
contract is not bound to perform the assignor’s duties under the contract unless he
expressly assumes to do so.” Moreover, the PPA was amended to expressly state
and make crystal clear that the referral obligation in §3.3(e) was retained by
Hartman and not assumed by Optimum. Thus, section 2(a) of the Assignment of
Armstrong License Agreement, dated March 18, 2011, stated: “Hartman retains,
and acknowledges, his obligation to provide personal consulting and referral
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services to Armstrong under section 3.3(e), 12.7, 12.8 and Exhibit A of the
Armstrong Agreement. For clarity, these obligations are not delegated to
Optimum.” (Hogue Decl., ¶3, Exh. B). Thus, Optimum has never had any referral
obligation or duty pursuant to §3.3(e) of the ALA and is entitled to summary
judgment with respect to any such claim.
(Dkt. No. 294-3 at 18–19.)
After reviewing the record and all of the parties’ arguments, the Court sees three issues
pertaining to Section 3.3(e) that require attention. The first issue is fairly easy to address, and it
concerns Armstrong’s suggestion of bad faith by Hartman. “Under New York law, parties to an
express contract are bound by an implied duty of good faith, but breach of that duty is merely a
breach of the underlying contract.” Fasolino Foods Co. v. Banca Nazionale del Lavoro, 961 F.2d 1052,
1056 (2d Cir. 1992) (internal quotation marks and citations omitted); see also L-7 Designs, Inc. v.
Old Navy, LLC, 647 F.3d 419, 434 n.17 (2d Cir. 2011) (“Because L–7’s claim for breach of the
implied covenant of good faith and fair dealing (Count IV) is based on the same facts as its claim
for breach of contract, it should have been dismissed as redundant.”) (citations omitted); Harris v.
Provident Life & Acc. Ins. Co., 310 F.3d 73, 80 (2d Cir. 2002) (“A claim for breach of the implied
covenant will be dismissed as redundant where the conduct allegedly violating the implied
covenant is also the predicate for breach of covenant of an express provision of the underlying
contract.”) (internal quotation marks and citation omitted). Here, Hartman allegedly acted in bad
faith by not properly discharging his duty to be diligent in making referrals. Hartman’s duty to be
diligent comes from the plain text of Section 3.3(e) of the ALA. Any shortcomings or insufficient
efforts by Hartman, therefore, are the predicate for a breach of both Section 3.3(e) and any
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implied covenants relating to it, making the accusations redundant. Any claims about Section
3.3(e) will have to stand on the plain text alone. The Court thus recommends granting Hartman’s
and Optimum’s motions, and denying Armstrong’s motion, with respect to any allegation of a
violation of implied duties under Section 3.3(e).
The next issue under Section 3.3(e) requires a little more attention but is fairly easy to
address. That issue is who can be liable for a breach of Section 3.3(e). Optimum of course was
not a party to the ALA and could not face liability based on the plain text of that agreement alone.
Armstrong nonetheless made a counterclaim against Optimum for a violation of Section 3.3(e), on
the basis that Optimum has become the “Licensor” mentioned in the ALA:
The Armstrong License Agreement, at Section 3.3(e), contains express
provisions for the Licensor of the patents to be diligent in referring all potential
applications for new chillers or pumps to Armstrong.
Upon information and belief, the Licensor has not referred all potential
applications for new chillers or pumps to Armstrong as no referrals for applications
for chillers or pumps have been received.
Armstrong has suffered and will continue to suffer damages from
Hartman’s or Optimum’s conduct in violating the provisions and prohibitions of
the Armstrong License Agreement.
(Dkt. No. 68 at 9.) Armstrong argues now that Optimum faces liability based on its purchase of
Hartman’s patents under the PPA:
With respect to the referral obligations in section 3.3(e), Optimum had no
good faith reason for ignoring the obligations in the Armstrong License Agreement
to refer potential clients to Armstrong. (Counter Statement ¶¶ 77, 91, and 93). In
the first executed Patent Purchase Agreement, Optimum specifically agreed to
assume all of the obligations of the Armstrong License Agreement. (Dkt. No. 292-2
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at Exhibit B, page OPT285532 at ¶ 4.4). By the third amendment to the Patent
Purchase Agreement, Optimum had decided that not all of those obligations were
to their liking and so ¶ 4.4 was deleted in its entirety and replaced with a clause
that says nothing of the obligations Optimum assumes. (Dkt. No. 292-2 at Exhibit
B, page OPT285577 at ¶ 3(a)). The “referral services” obligation in § 3(e) is
specifically retained with Hartman, with no explanation. (Dkt. No. 292-2 at
Exhibit B, page OPT285596, ¶ 2(a), and page OPT285698). This change and
refusal to accept the clearly expressed obligation of the “Licensor,” not an
individual person but the entity that owns the patents, was a calculated move to
avoid having to support Armstrong’s business opportunities, which was a main part
of the bargain Armstrong has been paying for under the Armstrong License
Agreement. The change in stance on referral obligations, according to Optimum,
was based on the alleged “erroneously” drafted patent purchase document.
Q. Okay. (The License Agreement was marked Exhibit 17 for
identification.)
Q. Let me mark as Frey No. 17 a document previously marked as plaintiff
Exhibit 1.
A. Okay.
Q. Can you identify from this document what is the overly-broad wording
that was referred to in the last exhibit, number 16?
MR. WHITE: Object to the form.
A. I can’t specifically identify it, no. I don’t have a recollection of context
of exactly what that was referring to. I recall that we had wording issues. I recall
that we consulted with counsel about the wording issues and we modified some of
the terms of the purchase agreement to resolve those issues. That’s all I recall.
Q. Do you recall if some of the terms involved factory implementation or
field implementation as defined in this document?
MR. WHITE: Objection.
A. I don’t recall.
Q. Do you recall if any of those discussions involved the language of 3.3b
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referring to not in any way compete with the product offerings of licensee?
MR. WHITE: Objection, David, just to the extent that in some of his
answers he’s referred to discussions with counsel. So I don’t want him to answer
about that and I’m not saying that you’re asking him about that. So I don’t know if
there is a way to solve both those concerns.
Q. Okay. So I’m not asking you to divulge any specific discussions you had
with counsel. I’m just asking from the language in Frey 16 that talks about the
overly-broad wording in the Armstrong license agreement in the documents
designed for the board if that overly-broad wording included the language about
not in any way competing with the product offerings of the licensee.
MR. WHITE: Objection.
A. The only specific recollection that I have is that we ended up modifying
the purchase agreement to carve out the specific obligations of Hartman that were
erroneously woven into the doc—the original draft. That’s the only thing I can
remember specifically that would relate to this area of questioning.
(Dkt. No. 292-2 at Exhibit CC).
Here, “overly-broad” apparently means an obligation that Optimum
decided it would no longer assume, despite any express wording in the actual text
of the Armstrong License Agreement. Notably, this description of “overly-broad
language” discussed at the Optimum board of directors meeting differs from the
explanation that Hartman gives about the obligations in the Armstrong License
Agreement. Rather than overly broad, Hartman alleges that an order from this
Court states that certain obligations “would remain with me.” (Dkt. No. 292-2 at
Exhibit DD). However, the only personal obligations for Hartman as an individual
in the Armstrong License Agreement are the engineering consulting services he
owes to Armstrong at § 12.7. The Court did order that these consulting services
would remain with Mr. Hartman if the patents were transferred to a new
Licensor/owner.
In refusing to acknowledge and assume the clear duty of the Licensor in the
Armstrong License Agreement, Optimum violated the duty of good faith and fair
dealing implied in all contracts under New York law. Violating that duty is a
breach of the contract.
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(Dkt. No. 303 at 14–15.) Armstrong argues further that Optimum cannot pick and choose when
it qualifies as the “Licensor” under the ALA:
In addition, as noted above, “[i]t is well-settled, however, that an assignee of
a patent takes title to the patent subject to existing licenses.” Dkt. No. 39, at page
9, citing Boehringer Ingelheim Vetmedica, Inc. v. Merial, Ltd., 2010 U.S. Dist. LEXIS
6819 (D. Conn. Jan. 14, 2010) (citing inter alia, L.L. Brown Paper Co. v. Hydroilloid,
Inc. 118 F.2d 674, 677 (2nd Cir.), cert. denied, 314 U.S. 653 (1941)); see also In re
Cybernetic Servs., Inc,. 252 F.3d 1039, 1052 (9th Cir. 2001) (“It has long passed into
the text books that … an assignee acquired title subject to prior licenses of which
the assignee must inform himself as best he can, and at his own risk.”) (quoting
Keystone Type Foundry v. Fastpress Co., 272 F.2d 242, 245 (2nd Cir. 1921)). Despite
the Court’s clearly stated law on this issue, Optimum claims it can pick and choose
the obligations of the prior license it will be subject to and make a “crystal clear”
disavowal of those obligations it will not, in writing.
Initially, Hartman and Optimum sought Armstrong’s acknowledgement
that the LOOP patents and the Armstrong license agreement were being
transferred to Optimum alone. Hartman told Rothman that there would be a
problem removing the “personal services” obligations, which is how Rothman and
Hartman referred to the Licensor obligations of section 3.3(e) to diligently refer all
potential applications for pumps and chillers to Armstrong. (Counter Statement
Exhibit 27). Only after that acknowledgement or consent from Armstrong was
deemed not necessary did Optimum adopt specific language in the Patent Purchase
Agreement attempting to call the section 3.3(e) referral obligation something it can
disavow, as a personal obligation. The provision for the consent of Armstrong was
deleted in Amendment Three to the Patent Purchase Agreement. Despite the
express terms of the Armstrong License Agreement concerning the duties of the
Licensor, and without any basis in law or any other explanation, the fourth
amendment to the Patent Purchase Agreement, dated March 18, 2011, attempts to
disavow the expressly stated referral obligations of the Licensor.
There is nothing personal about the term “Licensor.” It means the owner
of the patents being licensed to a licensee. Optimum stepped into those shoes
when it bought the LOOP patents, whether Optimum likes the term or not, and at
Optimum’s own risk. However, since purchasing the LOOP patents, Optimum has
not fulfilled this referral obligation to Armstrong. Optimum’s intentional breaches
and its bad faith position deprived Armstrong of important fruits of the deal struck
in the Armstrong license agreement and have in the past and continue to harm
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Armstrong by at least the lost opportunities and the unfair payment of the full
royalties for a mere part of the performance promised by the Licensor—Optimum.
Of course, the details and scope of these breaches and the resulting damages were
not known when Armstrong’s initial disclosures were submitted.
(Dkt. No. 303 at 22.) Optimum responds that patent ownership and contractual obligations are
two different things:
Armstrong continues to argue that Optimum assumed the ALA § 3.3(e)
referral obligation simply because “Optimum stepped into those shoes when it
bought the LOOP patents, whether Optimum likes the term or not, and at
Optimum’s own risk.” (6/21/17 Arm. Mem. at 2, 20). But, as Optimum’s
Memorandum showed, the Court has already rejected that argument. (5/5/17
Opt. Mem. at 12–13; Dkt. No. 291-3 at 18–19). In its 10/7/10 Decision and
Order, the Court “rejected the argument that a sale of Hartman’s retained patent
rights will necessarily transfer to Optimum all of Hartman’s contractual obligations
under the License Agreement.” (Dkt. No. 39 at 24) (emphasis in original). The
Court also noted that the Patent Purchase Agreement “expressly provides that
Optimum ‘does not assume and does not agree to assume any obligations or
liabilities accrued under the Armstrong Agreement or any other License at any time
before or after the Closing Date.’” (Dkt. No. 39 at 24). Armstrong ignores that
part of Optimum’s Memorandum and continues to pretend that part of the
Court’s Decision and Order does not exist. (6/21/17 Arm. Mem. at 17–20).
Optimum’s Memorandum also demonstrated that, “under settled New
York and Washington law, Optimum would not have assumed Hartman’s
obligations and liabilities even if the PPA had been silent on that subject.” (5/5/17
Opt. Mem. at 12–13; Dkt. No. 291-3 at 18–19). Armstrong ignores that discussion
and pretends that New York and Washington law does not exist. (6/21/17 Arm.
Mem. at 17-20).
Optimum’s Memorandum also showed that the PPA was amended to
expressly state and make crystal clear that the referral obligation in § 3.3(e) was
retained by Hartman and not assumed by Optimum. (5/5/17 Opt. Mem. at 13;
Dkt. No. 291-3 at 19) (Hogue Decl., ¶13, Exh. B). Armstrong has no answer to
that point either. Armstrong seems to imply—without citation—that the
amendment could not provide for Hartman’s retention of the referral obligation.
But, as discussed above, settled New York and Washington law confirms that
Hartman would have retained the referral obligation even if the PPA were silent on
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that topic.
Armstrong cites a March 15, 2010 letter from Hartman to Armstrong that
raises the possibility of the referral obligation being assumed by Optimum.
(6/21/17 Arm. Mem. at 1, 18). But that did not happen. Optimum never
assumed that referral obligation. Moreover, Armstrong neglects to advise the
Court that Armstrong’s March 23, 2010 response to that Hartman letter objected
to Optimum’s possible assumption of the referral obligation to Optimum.
Armstrong also neglects to advise the Court that on August 20, 2010,
Armstrong expressly relied on its objection to Optimum’s possible assumption of
the § 3.3(e) referral obligation to seek a preliminary injunction to stop the sale of
the LOOP Patents to Optimum. (See Dkt. No. 32 at 8). At that time, Armstrong
told the Court, inter alia, that “no one should assume that Optimum, a direct
competitor of Armstrong, will continue to honor the explicit terms of the ALA if it
becomes the new owner of the patents. Those terms, for example, require the
referral of potential pump customers to Armstrong. See ALA ¶ 3.3e.” (Id.).
In other words, after telling the Court that it wanted the referral obligation
to remain with Hartman, and after Hartman and Optimum agreed, Armstrong
turns around and seeks to manufacture a claim by asking the Court to find that the
referral obligation actually went to Optimum.
In fact, after claiming in 2010 that transfer of the referral obligation to
Optimum would deprive Armstrong of “the benefit to Armstrong that was clearly
envisioned when the License was signed,” Armstrong now repeatedly claims that
the non-transfer to Optimum has deprived Armstrong “of important fruits of the
deal struck in the Armstrong License Agreement” and of “a main part of the
bargain” under the ALA. (Compare 3/25/10 letter with 6/21/17 Arm. Mem at 2,
11, 20).
Armstrong will say anything when it suits its immediate purpose. In any
event, it is simply indisputable that, as a matter of law, Optimum never had any
referral obligation or duty pursuant to § 3.3(e) of the ALA and is entitled to
summary judgment with respect to any such claim.
(Dkt. No. 307 at 7–10.) The above reference to “important fruits of the deal” refers to a response
by Armstrong that Optimum in effect altered the benefit of Armstrong’s bargain and altered its
incentive to enter the ALA in the first place:
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Optimum asserts that this Court has already ruled that the referral
obligation of ALA § 3.3(e) is a “personal service” citing Dkt. 39 at 24. There is
nothing at Dkt. 39 page 24 that even suggests that. The Court at that page was
referring to the retained patent rights of Hartman. The Decision and Order (Dkt.
No. 39) contains no reference to or consideration of § 3.3(e) of the ALA as
Optimum asserts.
Even if the Court did discuss § 3.3(e), the relevant facts were not at that
time before the Court to hear and consider for a full briefing on the merits. One
relevant fact unknown at that time being the earlier version of Optimum’s Patent
Purchase Agreement (PPA), which included an express provision for Optimum to
assume all obligations of the owner of the patents, or Licensor. (See Kulik Reply
Decl. dated July 18, 2017, Exhibit 3, excerpt of the PPA § 4.4, page OPT285532).
Another relevant fact is that Hartman suggested the specific benefits to Armstrong
if Optimum assumes the referral obligation—“If this agreement is assigned, this
requirement will be in Armstrong’s favor as Optimum will become the Licensor
and will be required to do so (which they are not now).” (Dkt. No. 295-2, see
Exhibit 28, Hartman Ex. 45, page HAR07013). Armstrong has also addressed the
correspondence between Hartman and Optimum’s Nathan Rothman on the
consent of Armstrong for the transfer of the ALA in the Memorandum Opposing
Optimum’s Motion for Summary Judgment, which is still more evidence not
considered by the Court at the time. (Dkt. No. 295 at pages 18 and 19).
Optimum says at page 16 of its Opposition (Dkt. No. 297) that the ALA set
up a contractual duty with “Hartman.” Optimum also claims state law allows it to
unilaterally change the explicit terms of the ALA to make Hartman personally
responsible for the obligation to refer customers. There is no support anywhere for
changing the terms of the existing patent license. In fact, the ALA at § 12.1
includes a provision that a writing signed by both parties is required to alter the
terms of the license agreement.
The ALA § 3.3(e) says “Licensor” not Hartman.
3.3(e) During the exclusive grant period, Licensor shall be diligent in referring
to the Licensee all potential applications the Licensor learns about that require new chillers
or pumps. Only if Licensee declines to pursue such projects, or the Owner declines
Licensee’s proposed solution will Licensor permit other potential licensees over
which Licensor exerts control to pursue such projects. Armstrong License
Agreement at § 3.3(e) (emphasis added).
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The terms clearly differ from the consulting services that specifically list
Hartman’s and his Senior Engineer’s (Ron Anderson) hourly rate. At the time of
execution, Thomas Hartman d/b/a The Hartman Company was the Licensor.
Once the LOOP patents were sold, that role changed to the new assignee—
Optimum Energy LLC. “It is well-settled, however, that an assignee of a patent
takes title to the patent subject to existing licenses.”
(Dkt. No. 310 at 6–7.)
After reviewing the record and all of the above arguments, a few points are in order. With
respect to Judge Skretny’s Decision and Order of October 7, 2010,8 Armstrong’s contention that it
“contains no reference to or consideration of § 3.3(e) of the ALA as Optimum asserts” is true in
the narrow, literal sense that the Decision and Order does not contain the character string “3.3(e)”
in it. Sometimes, though, context matters. The part of page 24 of the Decision and Order that
has drawn the parties’ attention addresses the fourth reason why Armstrong wanted a preliminary
injunction blocking the sale of patents to Optimum. Among other reasons, Armstrong had argued
that it would suffer irreparable harm because “(4) the patent sale will strip Armstrong of Hartman’s
consulting services because Hartman’s obligations under the License Agreement will transfer to
Optimum.” (Dkt. No. 39 at 23; 745 F. Supp. 2d at 241.) That fourth reason is the entire predicate
of Armstrong’s allegations about anybody violating Section 3.3(e). In that context, Judge Skretny did in
fact address Section 3.3(e) and said no, “neither the License Agreement nor the proposed
Hartman/Optimum patent purchase agreement support the conclusion that a sale of Hartman’s
patent rights will result in a transfer of his personal obligations under the License Agreement.”
(Dkt. No. 39 at 25; 745 F. Supp. 2d at 242.) Armstrong suggests that Judge Skretny did not have
8

Dkt. No. 39, also available as Armstrong Pump, Inc. v. Hartman, 745 F. Supp. 2d 227 (W.D.N.Y. 2010).

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in 2010 all of the facts that are in the record now, but further factual development would affect
whether appropriate referrals wound up being made by somebody. Factual development would
not affect the pure legal operation of the patent sale documents.
Even if the Court needs to revisit the relationship between the ALA and the PPA, nothing
has changed. Armstrong has argued repeatedly about how “an assignee of a patent takes title to
the patent subject to existing licenses.” Boehringer Ingelheim Vetmedica, Inc. v. Merial, Ltd., No. CIV.
3:09CV212 (AWT), 2010 WL 174078, at *9 (D. Conn. Jan. 14, 2010). The paragraph in that case
preceding Armstrong’s quote reads as follows:
In addition, the court concludes that, as a result of the ′882 Assignment,
PSC does not have the right to bring an infringement action with respect to the
′882 Patent because the ′882 Patent is an assignment and not a mere license. The
′882 Assignment effects a transfer of the “entire right, title and interest” and “[a]ny
and all rights of enforcement with respect to the Patents, including all rights to sue
and recover for past, present and future infringement thereof, and any and all
causes of action ....” First Amd. Compl., Ex. E at 1. The only right retained by
PSC was in connection with the oral “grantback” by Merial to PSC pursuant to
which PSC has the right to practice the ′882 Patent to the extent necessary for
purposes of the 2001 and 2004 License Agreements. Thus, there was a complete
transfer of the right to sue for infringement and the retained rights do not
“substantially interfere with the full use of the exclusive rights under the patent.”
Id. In Boehringer, a company called (in abbreviated form) PSC owned a patent that it licensed to a
company called BIV but later sold to a company called Merial. When Merial later sued BIV for
patent infringement, BIV tried to claim that the patent sale was void because it occurred without
its permission and affected its license rights. The court disagreed and found the sale proper.
Armstrong’s quote appears where the court tells BIV that it does not need a declaratory judgment
that the patent sale did not affect its license rights; Merial took the patent with any existing
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licenses intact. Here, no one is arguing that Optimum bought the LOOP Technology patents
without also taking on the license given to Armstrong under Section 2.1 of the ALA. Hartman is
not arguing that he is unwilling or not obligated to continue providing the services and referrals
that he promised under the ALA. (See, e.g., Dkt. No. 290-3 at 24 (“In other words, Hartman
expressly retained and did not delegate his referral and consulting obligations.”).) The net result is
that Armstrong passionately is fighting for something that Hartman never wanted to take away and
agrees with providing.
In contrast to the situation in Boehringer and its proper analogy to Section 2.1 of the ALA,
Section 3.3(e) of the ALA is a contractual obligation of Hartman’s9 that is independent of the
patents in themselves. Under New York law, contractual obligations are freely assignable absent
express provisions to the contrary. See Pravin Banker Assocs., Ltd. v. Banco Popular Del Peru, 109 F.3d
850, 856 (2d Cir. 1997) (citations omitted). The only express provision about assignment in the
ALA appears in Section 12.3, which limited Armstrong, not Hartman. Section 12.1 prohibits
alterations of the ALA but does not address assignments to other parties. Without express
9

And the obligation does specify Hartman personally. Armstrong has argued that the obligations of
Section 3.3(e) automatically passed to Optimum because the plain text of that section specified that the
“Licensor” would be diligent, and to Optimum now is the Licensor. This argument fails. The opening
paragraph of the ALA explicitly defines Hartman as the “Licensor.” Armstrong might have had a better
argument if Optimum had assumed some of the obligations of the ALA and not others, thereby
introducing a discrepancy into the ALA that no one originally intended. As it stands, Optimum avoided
that possibility by purchasing only the patents and not any of the responsibilities in the ALA. Cf. Medcor
Pharma LCC v. Fleming, No. CV 12-291-JJB, 2013 WL 11605546, at *3 (M.D. La. May 9, 2013)
(distinguishing Judge Skretny’s Decision and Order and separating technology licensing from technology
assignment, the latter being “subjected to contract principles”).

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provisions in place, Hartman and Optimum were free to make an arrangement, manifested in the
fourth amendment to the PPA (Dkt. No. 294-1 at 7), that transferred ownership of the patents to
Optimum while leaving with Hartman the obligation to provide diligent referrals. The only other
argument that Armstrong could make here—and it has hinted at this argument—is that it somehow
lost the benefit of the bargain with respect to the unique way in which Hartman alone could make
referrals. See, e.g., In re Wright, 157 F. 544, 546 (2d Cir. 1907); In re Schick, 235 B.R. 318, 323
(Bankr. S.D.N.Y. 1999) (“Generally, a right is not assignable if assignment would materially change
the duty of the obligor, increase his burden or risk or impair the chance of receiving a return
performance or reduce its value.”) (citations omitted). Even then, though, that argument would
make more sense in a scenario in which Hartman were trying to pawn off his obligations under
Section 3.3(e) to Optimum. That scenario is not present here. Hartman has argued vigorously
that he has not breached Section 3.3(e), but at no time has he argued that Section 3.3(e) no longer
applies to him. Armstrong’s argument, in the end, is the answer to a question that no one asked.
If Hartman has not lived up to his obligations under Section 3.3(e) then so be it, and the
Court will address that separate issue below. At this point, though, the Court has to conclude that
any violations of Section 3.3(e) would lie with Hartman, not Optimum. The Court accordingly
recommends granting Optimum’s motion with respect to any allegations in the amended
complaint concerning Section 3.3(e). The Court correspondingly recommends denying
Armstrong’s motion on the same point as against Optimum.

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The final issue to consider under Section 3.3(e) is more difficult because it is more factintensive—whether a triable issue of fact exists concerning Hartman’s fulfillment of his referral
obligations. As the Court has quoted extensively in the preceding pages, the record contains
testimony that Hartman delegated at least some preliminary screening of inquiries to secretarial
staff and then passed those inquiries routinely to both Armstrong and Optimum. (See Dkt. No.
357-6 at 55–77.) Hartman himself gave testimony suggesting that he routed potential referrals to
Armstrong or Optimum based on whatever the potential client told him, at face value, with little
or no inquiry about details. (Dkt. No. 318 at 9.) Armstrong has asserted that Hartman made no
referrals at all, but its own representative has testified that the assertion is wrong—Armstrong
received perhaps two to five referrals a month between 2005 and 2010 and an occasional referral
thereafter, even after litigation commenced. (Dkt. No. 319 at 265–66.) Despite all of the
arguments and exhibits in a record that approaches 4,000 pages, no one appears to have furnished
the Court with objective industry information that would put the number of referrals in context.
Over the last, say, 10 years, on average, how many individuals or corporations engaged in new or
retrofit HVAC projects each year? Of those projects, how many involved LOOP Technology?
Two to five referrals a month would look quite a bit different compared to, for example, 10 total
LOOP Technology projects per month or 1,000 total projects per month. The Court has no frame
of reference for the number of referrals and has no idea how to determine—let alone determine as
a matter of law—whether the number of referrals should be considered “diligent.” Cf. Bear, Stearns
Funding, Inc. v. Interface Grp.-Nevada, Inc., 361 F. Supp. 2d 283, 296 (S.D.N.Y. 2005) (denying
88

summary judgment and finding a question of fact over whether a party used “diligent efforts to
market and sell”); Summagraphics Corp. v. Sanders Assocs. Inc., No. CIV. B-88-352 (PCD), 1991 WL
1296544, at *8 (D. Conn. Mar. 13, 1991) (denying summary judgment and finding a question of
fact as to the “exercise of reasonable diligence” to discover patent infringement); see also Burns v.
Prudden, 588 F.3d 1148, 1152 (8th Cir. 2009) (in the context of determining equitable tolling,
“diligence is a fact-intensive question” requiring remand); Coal Res., Inc. v. Gulf & W. Indus., Inc.,
865 F.2d 761, 774 (6th Cir.), opinion amended on denial of reh’g sub nom. Coal Res., Inc., No. 11 v. Gulf
& W. Indus., Inc., 877 F.2d 5 (6th Cir. 1989) (“The leases, however, do not define diligent
development and mining. And we have earlier, in this opinion, explained that the payment of
minimum royalties did not, as a matter of law, satisfy the duty to diligently mine the Virginia
property. As this court explained in its earlier opinion, it is a question of fact for the jury whether
the duty to diligently mine under the leases, as incorporated into the Assumption of Obligations
clause, was for the purpose of generating substantial payments to CRI under ‘the multiple.’”)
(citation omitted). The quality of the referrals runs into a similar difficulty. Nothing in Section
3.3(e) suggests a procedure for cultivating referrals. To this Court’s untrained eye, the Spinelli
correspondence cited above does seem rather uninspired—a potential client asks for contact
information for both Armstrong and Optimum, and Hartman provides it in rather terse fashion.
The Court, however, could not form a more intelligent opinion of the Spinelli correspondence
without weighing factual evidence, a task reserved for factfinders at trial. Cf. U.S. ex rel. Veltz v.
Allegany Rehab. Assocs., Inc., No. 01-CV-190S, 2011 WL 1042194, at *6 (W.D.N.Y. Mar. 18, 2011)
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(denying summary judgment where “it is a question of fact whether Allegany worked diligently to
correct its software problems, or whether, as Veltz contends, it made a business decision not to
purchase and install new software”). When Armstrong points to Hartman’s use of secretarial staff
or his decision to take inquiries at face value, it is essentially impugning Hartman’s honesty and
motivation to fulfill his obligations. Cf. Am. Int’l Grp., Inc. v. London Am. Int’l Corp., 664 F.2d 348,
353 (2d Cir. 1981) (“Subjective issues such as good faith are singularly inappropriate for
determination on summary judgment.”) (citation omitted). Armstrong’s indirect attack comes too
close to the principle that courts should not weigh evidence or assess witness credibility at the
summary judgment stage. At the same time, Hartman and Optimum have not pointed to any legal
principle that overrides the factual questions noted above.
Since Armstrong made a claim that was never subjected to Rule 12 dismissal, and since
neither side has demonstrated the propriety of judgment as a matter of law, Armstrong’s claim
against Hartman under Section 3.3(e) must go to trial for ultimate resolution. Accordingly, the
Court recommends denial of all parties’ motions with respect to Armstrong’s allegations, in Count
I of the amended complaint and its counterclaims, that Hartman violated Section 3.3(e) of the
ALA.
2. Breach of Sections 3.2(b) and 3.3(d) of the ALA
This subset of Count I originated with the following paragraph from the amended
complaint:
By entering the agreement to transfer the rights to Optimum, Hartman
breached the Armstrong License Agreement, including without limitation, the
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restrictions not to grant certain rights to other parties, the express prohibitions
against granting certain rights to Optimum, the provision giving Armstrong the
right of first refusal on the improvements, and the provision against entering
inconsistent agreements. For example, the Patent Purchase Agreement at section 4
assigns to Optimum all right, title and interest in the Patents, defined at page 2 of
the Patent Purchase Agreement, which includes the Patents licensed to Armstrong
as well as the pending improvement applications, for which Hartman promised a
right of first refusal to Armstrong at section 8 of the Armstrong License Agreement.
The Patent Purchase Agreement was executed by Hartman on February 10, 2010.
(Dkt. No. 55 at 9.) The above accusation was against Hartman. In its counterclaims, Armstrong
expanded the accusation to include Optimum and asserted the following:
The Armstrong License Agreement contains express prohibitions against
granting certain rights to Optimum and other parties similarly situated as
competitors to Armstrong’s product offerings, including, for example: the promise
not to grant rights to manufacturers and assemblers of cooling systems and chilled
water plant controls at section 3.2(b) of the Armstrong License Agreement; the
promise not to grant rights to a party that implements the Hartman Loop
Technology in any way that competes with Armstrong’s product offerings in section
3.3(d) of the Armstrong License Agreement; and the promise not to enter
agreements inconsistent with the grant of rights to Armstrong in section 10.2 of the
Armstrong License Agreement.
(Dkt. No. 68 at 8.) Armstrong has focused on how emergent competition from Optimum and
others created the breach:
As explained in the expert reports of John Conover and the exhibits to
them, various documents from Johnson Controls show how the CPO30 product
and [its] use by Optimum are directly competing against Armstrong’s control
products. Expert testimony here is useful extrinsic evidence of trade terms,
customs, and practices that “illuminate the context for the parties’ contract
negotiations and agreements.” Metric Constructors, Inc. v. NASA, 169 F.3d 747, 752
(Fed. Cir. 1999). The expert report dated February 28, 2014, refers to the Johnson
Controls CPO30 product, and the expert report dated July 29, 2014, goes into
details on how this CPO30 is part of “factory implemented” product. Kulik Decl.
Exhs. J and Z. Crucially, this is the same definition used in the Armstrong License
Agreement—“as part of the factory production process.” As explained by Mr.
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Conover at pages 6–7 of the report dated July 29, 2014 (Kulik Exh. Z), the simple
task of downloading the Hartman LOOP software to a controller that has already
preconfigured for a building site by Optimum, at its own facilities, is one that is
performed over the internet and essentially with the click of a button. The
Optimum product, as Mr. Conover also explains, directly competes with
Armstrong’s controller products as one in the HVAC trade would consider them
equivalent controllers.
As Optimum is a competitor to Armstrong’s products, any assignment of
the patents and pending patent applications to Optimum is breach of §§ 3.2(b) and
3.3(d). In § 3.2(b), Hartman agreed that he would not license the Hartman Loop
Technology “to any other manufacturer or assembler of pumps or for cooling
systems and equipment that employ chilled water distribution.” Kulik Decl., Exh.
A at § 3.2(b). Hartman, however, carved out a narrow exception with regard to
Optimum, but then he added limitations specifically to prevent Optimum or
anyone from competing with Armstrong. In particular, Hartman reserved the right
to grant a license to Optimum for the purpose of incorporating the licensed
technology into certain products; critically, however, Hartman excluded from that
license any “products . . . that include the manufacture or assembly of pumps
chillers, towers, chilled water plant controls or pumping or chiller systems that
could compete with [Armstrong’s] intended product offering” from the Optimum
carve out . . . .”
(Dkt. No. 317 at 35–36.) Optimum has responded by emphasizing that the reference in Section
3.2(b) to “intended product offering” is narrow:
[T]he reference in §3.2(b) to “intended product offering” is not a general
blanket prohibition, but rather is a limitation on an exception, and that limitation,
by its plain terms, is itself quite narrow. It does not prevent Hartman from
granting license rights with respect to any and all products that could compete with
Armstrong’s products. Instead, by its express terms, it applies only to products
incorporating the LOOP Technologies:


That include the manufacturer or assembly of;



pumps, chillers, towers, chilled water plant controls or pumping or
chiller systems; and



that could compete with Armstrong’s intended product offering.
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Armstrong’s interpretation fails because it focuses only on the third bullet
point and completely ignores, and would render superfluous, these other terms and
provisions in that same part of §3.2(b). Indeed, Armstrong’s interpretation would
also mean that the limitation in subsection [3] would completely swallow and
eliminate the exception in subsection [2] and fails for that reason as well.
(Dkt. No. 294-3 at 28.) Optimum argued further that its interpretation of Section 3.2(b) was
important to avoid a conflict with the language of Section 3.3(b):
Section 3.3(b) does not state that Hartman’s retention of Field
Implementation rights is limited to only Field Implementation products that do
not compete with Armstrong’s products. Indeed, the reservation of rights by
Hartman in §3.3(b) does not contain any limitations with respect to competition
with Armstrong. The fact that Armstrong’s interpretation of §3.2(b) is flatly
inconsistent with the plain terms of §3.3(b) further confirms that Armstrong’s
claim fails.
(Dkt. No. 294-3 at 29.) Hartman picked up on Optimum’s argument and emphasized the nature
of Optimum’s product:
Armstrong emphasized the italicized text above—focusing on “controls” to the
exclusion of the phrase that modifies that word, “chilled water plant controls.”
Optimum’s product is not a “chilled water plant control” because it does not
operate or “control” the chilled water plant. Rather, Optimum acquires (does not
manufacture) a computer called a JACE, which is manufactured by Tridium; the
JACE is an add-on device that works with a “plant controller” that is manufactured
by parties other than Optimum. This provision is also inapplicable because
Optimum does not manufacture or assemble plant controls (let alone manufacture
or assemble the Jace device that it distributes). The phrase “that could compete
with the Licensee’s intended product offering” qualifies the prior language,
“products excluding those that include the manufacture or assembly of pumps,
chillers, towers, chilled water plant controls or pumping or chiller systems.” As
explained previously, this text is an exception to an exception.
In other words, to fall within the narrow non-competition restriction, the
product must: “include the manufacture or assembly of” specified equipment (none
of which is manufactured or assembled by Optimum). The product distributed by
Optimum (note that “distribution” is not included in the provision) is not
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manufactured or assembled by Optimum—nor is it one of the enumerated items
because it is not a “chilled water plant control.”
Armstrong’s non-compete theory ignores other provisions of the ALA that
defeat its interpretation. For example, ALA § 3.3(b) provides that Hartman
retained rights to field implementation for “hydronic systems” that are “not
integrated into the chiller, pumping, control or tower products until they are field
assembled.” Armstrong ignores this language, which permits competing hydronic
systems where the Licensed Technologies are field implemented.
(Dkt. No. 298 at 15–17.)
Armstrong responded as follows to the ongoing dispute about the nature of Optimum’s
product:
Optimum obviously knows [its] product is a controller. (Counter Statement
¶¶ 56, 9, and 51). The Optimum controller employing the Hartman LOOP
algorithms that direct the sequencing of HVAC components are kept in
Optimum’s facilities and preconfigured by Optimum to add software or operating
systems from a blank “JACE” device prior to shipping to the building site. The
details of the processes were explained by Optimum’s Clark Matthys.
Q. Thank you. Okay. I think the other part, station transfer, you also—you
just explained. The station transfer is what happens when using the commissioning
wizard; is that correct?
THE WITNESS: So no. The commissioning wizard commissions the JACE
and makes it—that’s—that’s one thing to make the JACE functional, so once the
JACE is functional, you can program anything you want onto it. What we’re doing
in step 8 is we’re just doing a station transfer, which is—it doesn’t put any of the
base software on the controller. That’s already been configured and—and working.
We’re just transferring the program to do the optimization.
Q. Okay. So the Optimum LOOP program?
A. Correct.
Q. Okay. Is that what it’s called?
MR. WHITE: Object to the form.
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THE WITNESS: I mean, it’s referred—it’s—I call it the optimization
software.
(Dkt. No. 292-2 at Exhibit T).
As shown in “step 6” of Exhibit 1 to the Matthys deposition, the step of
preconfiguring the JACE to make it functional for a particular building site occurs
at Optimum’s facility prior to shipping. In other words, it occurs in Optimum’s
factory. Matthys stated “that had already been configured” before the LOOP
algorithms are downloaded. The final download of standard software with the
LOOP algorithms is a step that could be completed anywhere, and merely choosing
where to push the download button cannot alone be what turns the factory step of
“configuring” and making the JACE functional for Optimum’s services into a Field
Implementation.
(Dkt. No. 303 at 25.) Armstrong also addressed Hartman’s arguments about its intended product
offering:
As stated in the accompanying Declaration of Brent Ross, Armstrong’s
“intended product offerings” always included a controller, and a controller as a
stand-alone product. (Ross Declar. ¶¶ 6–9). Actually, the stand-alone controller
was the first and foremost product offering listed in Armstrong’s senior
management documents from the relevant time periods of 2004 and 2005. (Ross
Declar. ¶¶ 6–9; and Thomsen Oppos. Declar. ¶¶ 10–11). Accordingly, regardless
of what Hartman suggests he remembers in 2010 about Armstrong’s product
offering from that 2004 to 2005 period, the documentary evidence show that
Armstrong always intended to offer a standalone controller as one option for the
Hartman LOOP products they sold. (Counter-Statement ¶¶ 60 and 64). The facts
also show that Armstrong never suggested a “plant on a skid” as a focus for the
Hartman LOOP. (Ross Declar. ¶ 8).
Ross also explained the negotiations and intent in adding language to the
license agreement that protects Armstrong’s Hartman LOOP factory product
offerings from competition. (Ross Declar. ¶ 18). As discussed above, the
Armstrong product offering was a Hartman LOOP controller, such as the IPC
11550. Ross points to an email exchange shortly before the license agreement was
executed. That evidence shows he inserted language to protect Armstrong from
others who make building controls. The fact that a potential third party was
unknown, as the license agreement terms say only a licensee of “Optimum Energy
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or others” at 3.2(b), was a specific concern. These added protections, like the
building control protections, were designed to protect Armstrong from industry
giants like Johnson Controls and Honeywell. Hartman did not object, and those
provisions were adopted into the final license agreement. As Ross explains, the
section 3.3 and section 3.3(d) language is not dependent upon “factory
implementation,” as is section 3.3(a), and the language explicitly protects
Armstrong’s product offerings. (Ross Declar. ¶ 18) (see also Counter-Statement at
¶¶ 38, 39, 76, 123, 146).
(Dkt. No. 304 at 26–27). Optimum believes that Armstrong has avoided directly addressing the
most important aspect of the issue that it chose to raise—the plain language of Sections 3.2(b) and
3.3(d):
The amended complaint alleged that the Optimum License Agreement
violated Armstrong’s rights under §§ 3.2(b) and 3.3(d) of the ALA. Optimum’s
Memorandum showed, in detail, that the Optimum License Agreement is perfectly,
facially, consistent with the Armstrong License Agreement and § 3.2(b) and
§ 3.3(d) of the ALA in particular. (5/5/17 Opt. Mem. at 21–26; Dkt. No. 291-3 at
27–32).
Armstrong has no answer. In fact, while Armstrong’s amended complaint
made § 3.2(b) and § 3.3(d) the heart of its alleged contractual inconsistencies,
Armstrong’s opposition runs away from § 3.2(b) and § 3.3(d). Armstrong’s
opposition contains only a few conclusory references to ALA § 3.3(d) and even
fewer to ALA § 3.2(b). (6/21/17 Arm. Mem. at 3, 10-11, 26-27). Moreover, those
few references do not address Optimum’s Memorandum, but rather are just
citations offered in general support of Armstrong’s “competition” interpretation.
Optimum’s opposition to Armstrong’s Motion already showed, in detail, why
Armstrong’s “competition” interpretation fails as a matter of law, based on the four
corners of the license agreements, including ALA § 3.2(b) and § 3.3(d). (6/21/17
Opt. Mem. at 20–23; Dkt. No. 297 at 25–28).
(Dkt. No. 307 at 13.) Armstrong’s reply to Optimum focused on alleged inconsistencies in some
of Hartman’s deposition testimony:
The ALA also contain[s] sections that protect Armstrong’s new or intended
Hartman LOOP products from competition that also uses the Hartman LOOP.
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Hartman continues to assert that Armstrong’s intended product line at the time the
agreement was signed was “a chiller plant on a skid.” (Hartman SOF, Dkt. No.
290-4, at ¶ 60, citing Hartman Decl. ¶ 7, n. 1). But Hartman’s own deposition
transcript shows his recollection of this “fact” differs over time. (Kulik Reply Decl.
dated July 18, 2017, at Exhibit 1; compare Hartman Tr. 189:17 to 190:21 to
Hartman Tr. 289:10 to 290:5). Hartman’s testimony first mentions “pumps and
controls,” then only mentions “factory packaged plant solutions.” Both
Armstrong’s Ross and Thomsen have addressed this in their recent declarations.
(Reply Decl. of Brent Ross dated July 17, 2017, at ¶ ¶ 13 and 17; Decl. of Brent
Ross dated June 16, 2017, Dkt. No. 295-10, at ¶¶ 6–9; Decl. of Peter Thomsen
dated June 19, 2017, ¶¶ 10–11, Dkt. No. 296-5). These declarations refer to a
written Armstrong management project team “charter” that explicitly states that the
first goal of the Hartman LOOP project for Armstrong was a stand-alone control
offering. Armstrong’s intended product line at the time the ALA was executed
most certainly including a stand-alone control product (the IPC 11550) and was
never limited to a “chiller plant on a skid” as alleged. There is no justification for
arguing that Armstrong is somehow limited to selling a Hartman LOOP controller
to some combination of products never mentioned in the ALA.
(Dkt. No. 310 at 5–6.) Armstrong replied to Hartman as follows:
Similarly, the language protecting Armstrong’s new Hartman LOOP
products and controls from competition is clear and found in part in sections 3.3
preamble, 3.3(d) and 3.2(b) of the ALA. The language of 3.3(d) does not require or
rely on the factory implementation or field implementation distinction but instead
protects Armstrong’s offerings of products that use the Hartman LOOP
technologies. The language here cannot be explained away by attempting to show
it is somehow inconsistent with a particular interpretation of some other part of the
ALA. A reading of the contract that renders any portion of it meaningless or
superfluous is unsupportable. Suffolk Cnty. Water Auth. v. Village of Greenport, 21
A.D.3d 947, 948 (2d Dept. 2005); Beal Savings Bank v. Sommer, 8 N.Y.3d 318, 324
(2007). The sections of the ALA protecting Armstrong from competition by
Hartman LOOP products, and manufacturers or assemblers of those products,
should be read as written.
(Dkt. No. 309 at 9.)
After reviewing the record and considering all of the parties’ arguments, the Court believes
that the heart of the matter here comes back to the prior discussion (supra) of the nature of
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Optimum’s product and whether it constitutes a “controller.” Eliminating double and triple
negatives from the relevant language, Section 3.2(b) prohibited Hartman from “from licensing the
Licensed Technologies or the Licensed Patents to Optimum Energy Corporation or others for the
purpose of incorporating the Technologies into products . . . that include the manufacture or
assembly of pumps, chillers, towers, chilled water plant controls or pumping or chiller systems that
could compete with the Licensee’s intended product offering.” (Dkt. No. 55-1 at 4.) Several terms
in this quoted language have more play in the joints than perhaps Hartman and Optimum wanted
to see. The first term is “incorporating the Technologies into products.” “Incorporating” suggests
that Optimum’s output, whatever it is, is not the totality of the item that potentially causes
problems with licensing or with competition. Cf., e.g., Roberts v. Capital One, N.A., ___ Fed. Appx.
___, No. 17-1762, 2017 WL 5952720, at *2 (2d Cir. Dec. 1, 2017) (summary order) (finding that
an ambiguity over the term “overdraft” in an agreement to “infects several other provisions of both
agreements that employ the defined term ‘Overdraft,’ effectively incorporating its lack of clarity by
reference”); Bernhard-Thomas Bldg. Sys., LLC v. Weitz Co., LLC, No. 3:04-CV-1317 CFD, 2011 WL
5222682, at *2 (D. Conn. Oct. 31, 2011) (“The Subcontract between BT and Weitz contains
several provisions incorporating the Prime Contract.”); see also Incorporate, Black’s Law Dictionary
(10th ed. 2014) (“2. To combine with something else <incorporate the exhibits into the
agreement>.”). The term also does not clamp down on whose “products” have to be the ones
under consideration. As a result, if Optimum’s output knowingly10 were at least a component of

10

Some level of knowledge or intent by Hartman and Optimum would be required by the term “purpose,”

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any product from any company that met the remaining criteria of Section 3.2(b) then Optimum
would be in violation. Creating something that is a component or is at least combined with
another company’s product is exactly what Optimum has admitted that it does. Optimum does
not sell its optimization software on an installer disc. HVAC managers cannot buy any such
installer disc and plant Optimum’s software into whatever BAS or other controller they have, the
way computer owners could buy a copy of Windows 10 off the shelf and install it into their
existing computers to replace Windows 7. Optimum has admitted that its optimization software is
useless unless it is incorporated into a new, physical device that is prepped for remote download at
the factory level. The Court’s understanding of “incorporating” dovetails with the appearances of
the terms “include” and “controls.” “Include” is a non-exhaustive term. See, e.g., Fed. Land Bank of
St. Paul v. Bismarck Lumber Co., 314 U.S. 95, 100 (1941) (“[T]he term ‘including’ is not one of allembracing definition, but connotes simply an illustrative application of the general principle.”)
(citations omitted); White v. Nat’l Football League, 756 F.3d 585, 595 (8th Cir. 2014) (“While at
times the expression of one thing excludes others not expressed, when a statute uses the word
‘includes’ rather than ‘means’ in defining a term, it does not imply that items not listed fall outside
the definition.”) (internal quotation and editorial marks and citations omitted). As long as
“controls” are a part of or among products that fulfill the other criteria in Section 3.2(b) then
those products are in violation.

to avoid problems with, for example, licensing under false pretenses.

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The flexible terms in Section 3.2(b) render all of the parties’ arguments a Battle of the
Technicalities. Technically, as Hartman and Optimum have argued repeatedly and strenuously,
Optimum’s optimization software is delivered remotely and reaches the customer in the field. But
technically, as Armstrong has argued and as the Court has observed, Optimum cannot sell its
software literally alone; it sells a packaged product that includes a physical device that is prepped
for remote download at the factory level. Cf. Shipco 2295, Inc. v. Avondale Shipyards, Inc., 825 F.2d
925, 930 (5th Cir. 1987) (reviewing cases, in the tort context, that “support the view that the
product in this context means the finished product bargained for by the buyer rather than
components furnished by a supplier”); accord Myrtle Beach Pipeline Corp. v. Emerson Elec. Co., 843 F.
Supp. 1027, 1057 (D.S.C. 1993). Technically, as Hartman and Optimum have argued repeatedly
and strenuously, Optimum’s final combined product is not what the Court might call a
“mandatory controller”—that is, HVAC customers do have the option of programming their BAS
devices to override or otherwise to ignore whatever Optimum’s product suggests. But technically,
HVAC customers also have the option of programming their BAS devices to do exactly whatever
Optimum’s product suggests, which would make Optimum’s product what the Court will call a
“permissive controller.” There is no legal principle that compels a single resolution to the
characterization of Optimum’s product. Questions of fact surround 1) whether Optimum’s
product should be considered the optimization software alone, and whether that optimization
software nonetheless became incorporated into a Tridium JACE controller that otherwise violates
Section 3.2(b); 2) whether Optimum’s product includes the physical device that Optimum has said
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is necessary to house it, which then would push the overall product closer to being some kind of
controller; and 3) whether the reference to “controls” in Section 3.2(b) accounts for any
distinction between mandatory and permissive controllers. On top of these questions, the parties
cannot reach any agreement about what appears to have been a fairly known and open intention
by Armstrong to develop a stand-alone controller. (See Dkt. No. 303 at 295 (“The project goal is to
have a target market coordinated release for IPC as a stand alone offering, and as a sub-component
of an IPP chiller plant on a skid for April 2005 and July 2005 respectively. This must include: a
demonstration of the proto-type in a simulation manner, a sales plan agreed by COB global, a
service support mechanism / infrastructure.”); id. at 309 (“Hartman is well aware that Armstrong’s
IPC product, later called the IPC 11550, was never a piece of mechanical equipment. Marketing
materials for the IPC 11550, which is a computer-based controller not mechanical equipment,
were freely available at industry conferences and on Armstrong’s website. In fact, Hartman
participated in the development of Armstrong’s IPC product as a consultant to Armstrong. No
one in the industry would refer to the IPC 11550 as mechanical equipment. Again, any suggestion
from Hartman or others that Armstrong’s rights are somehow limited to the Hartman LOOP
incorporated into ‘mechanical equipment’ is plainly wrong.”). ) Answering these questions would
require assessing information about the HVAC industry and assigning weight to some documents
and deposition transcripts over others. In the end, a reasonable factfinder could decide—and just
as easily not decide—that Armstrong intended a stand-alone controller as a product offering; that
Optimum’s product is the integrated software/housing package and not just the optimization
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software alone; that Optimum’s product could compete with stand-alone controllers from
Armstrong; and that Hartman and Optimum thus violated Section 3.2(b).
The Court’s assessment of Section 3.2(b) sets up a very short mention of Section 3.3(d). In
short, Section 3.3(d) allows licensing of the LOOP Technology “when the implementation of
such Licensed Technologies do not in any way compete with the product offerings of the
Licensee.” (Dkt. No. 55-1 at 5.) As the Court noted above, questions of fact surround
Armstrong’s plans for a stand-alone controller. Questions of fact also surround the nature of
Optimum’s overall product. How a factfinder addresses Section 3.2(b) likely will lead to the same
outcome for Section 3.3(d). A factfinder thus will need to address both sections together.
Accordingly, the Court recommends denying all parties’ motions with respect to the
portion of Count I of the amended complaint, and the counterclaims, accusing Hartman and
Optimum of violating Sections 3.2(b) and 3.3(d) of the ALA.
3. Breach of Section 3.3(a) of the ALA
Armstrong has made an accusation of a violation of Section 3.3(a) of the ALA; the
accusation comes from a combination of Count I of the amended complaint and Armstrong’s
counterclaims. Armstrong appears to be making this accusation against Hartman only, though the
use of the disjunctive “or” is confusing. (See Dkt. No. 68 at 9 ¶ 146 (“Armstrong has suffered and
will continue to suffer damages from Hartman’s or Optimum’s conduct in violating the provisions
and prohibitions of the Armstrong License Agreement.”) (emphasis added).) The core of

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Armstrong’s argument here combines aspects of arguments about the patent sale and about the
nature of Optimum’s product:
When Hartman assigned the title of the patents, Hartman assigned all of the rights
associated with that intellectual property. Included in this bundle of rights being
conveyed to Optimum were the rights that Hartman had reserved for itself.
Though Hartman granted Armstrong certain license rights regarding its patents,
Hartman retained the right to practice its patents. See Cook,208 F. Supp. 2d at 879
(“Any right not specifically granted by the licensor remains with the licensor …”).
Hartman, however, promised Armstrong that Hartman would not grant those
reserved rights in the licensed patents “to any third party involved in the
manufacture of pumps, any factory packaged chilled water systems, chillers,
building controls or cooling towers.” Kulik Decl., Exh. A at § 3.3(a) (emphasis
added). The § 3.3(a) provision specifically recites “or the Licensed Patents” which
clearly indicates a separate circumstance that Hartman is prevented from doing. By
assigning the patents to Optimum, however, Hartman conveyed and Optimum
received all rights that Hartman had under the patents, including the full rights to
practice the patents. Thus, by assigning the patents to Optimum, Hartman
breached section 3.3(a) of the License Agreement wherein Hartman agreed to not
assign those rights to another manufacturer. Optimum clearly and admittedly
produces its JACE controller in its own facilities. This JACE controller is a
“building control” according to Optimum’s own statements and Johnson Controls’
statements about its function. That this manufacture would also be deemed a
factory implemented solution is fairly clear from the fact that it is a preconfigured
product for a specific building site and that pre-configuration occurs in Optimum’s
facilities.
That this assignment is inconsistent with the License Agreement is also
reflected in the § 3.3 preamble, in which the parties expressly stated their intent:
“The limited exclusivity is intended to protect Licensee against implementation of
the Licensed Technologies that would compete with their intended product offerings.”
Kulik Decl., Exh. A at § 3.3 (emphasis added). Obviously, Optimum believes that
it is in competition with Armstrong from its own employee Clark Matthys. See
Kulik Decl., Exh. P. An assignment is more than a mere license but encompasses
all the rights any license could transfer. This assignment violates the promises that
Hartman made to Armstrong in not licensing the Hartman LOOP patents (the
Licensed Patents) to a manufacturer of controls.
(Dkt. No. 317 at 38–39.)
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Hartman has responded on two levels. As a matter of law, Hartman contends that Judge
Skretny already dismissed Armstrong’s claim under Section 3.3(a):
Judge Skretny dismissed Armstrong's breach of contract claim “based on an
alleged breach of sections 3.2(b) and 3.3(a) of the License Agreement.” Armstrong
Pump, Inc. v. Hartman, 745 F. Supp. 2d 227, 234 (W.D.N.Y. 2010).
(Dkt. No. 290-3 at 15 n.45). In the alternative, Hartman makes this factual argument about
assignment of rights and about the nature of Optimum’s product:
Judge Skretny dismissed Armstrong's breach of contract claim “based on an
alleged breach of sections 3.2(b) and 3.3(a) of the License Agreement.”
Accordingly, it is not clear why Armstrong believes it can resurrect this claim.
And even if construed again, Armstrong’s argument that Hartman breached
ALA § 3.3(a) continues to miss the mark because it ignores ALA § 12.3—which
limits Armstrong’s ability to assign its rights and obligations under the agreement
while containing no such restriction for Hartman.
Moreover, Armstrong again emphasizes the word “controls” but seeks to
divorce it from the surrounding language that qualifies it: “building controls.”
Again, Optimum’s product is not a “building control.” Optimum’s solution
includes an add-on device that provides input (i.e., suggested optimization levels) to
a building control. Armstrong seeks to render an unambiguous term ambiguous by
ignoring the actual contract language used. Optimum is not a manufacturer; the
product it supplies does not provide building control. Optimum is therefore not
“another manufacturer” as argued by Armstrong. And Armstrong’s further
argument that the JACE is a “factory implemented solution” ignores the definitions
of “Factory Implementation” and “Field implementation” as discussed in
Hartman’s moving papers.
(Dkt. No. 298 at 20–21.) Armstrong does not address either of Hartman’s arguments directly in
its reply papers but includes this language emphasizing its initial points about the patent sale and
about Optimum’s product:

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With respect to the sale of the LOOP patents, the Patent Purchase
Agreement (PPA) and the assignment of the ALA to Optimum, Hartman knew the
first version of the PPA stated Optimum would assume all obligations of the
Licensor (See Armstrong’s Motion for Partial Summary Judgment at page 27, Dkt.
No. 292-5, citing the PPA at OPT285532, § 4.4; see also Kulik Reply Decl. dated
July 18, 2017, at Exhibit 3). He prodded Armstrong into agreeing with the patent
sale by touting in a letter to Armstrong the “benefits” to Armstrong of Optimum’s
new referral obligation. (Dkt. No. 292-5, at page 26 of Armstrong Motion for
Partial Summary Judgment). Then he later signed the assignment paper
transferring the rights in the ALA to Optimum, who did not accept the referral
obligation of the Licensor in the ALA. (Decl. of Burt Hogue dated May 3, 2017,
Dkt. No. 291-2 at Ex. B, Assignment of Armstrong License Agreement at § 2(a)).
Obviously, Hartman knew that § 2(a) of the assignment of the ALA rescinded
Optimum’s earlier assumption of all the obligations in the ALA, specifically
rescinding the referral obligation of § 3.3(e). There is no legal justification for
rescinding this obligation. The sale of the LOOP patents and the assignment of
the ALA is again a breach of Hartman’s promise not to enter any inconsistent
agreements, as the Licensor is no longer obligated to diligently refer customers to
Armstrong according to the purported terms of the assignment of the ALA § 2(a).
Hartman alleges anew, with no support, that Armstrong asked that
Hartman retain the referral obligations. However, a written document signed by
both parties is required to modify the terms of the ALA (see § 12.1 of the ALA).
Since no such writing exists, and no evidence exists that a writing was ever
contemplated, the existing terms of the ALA effectively bound the parties initially
and continue to bind the parties, including Optimum, today.
(Dkt. No. 309 at 6–7.)
As an initial matter, the Court needs to make an important distinction between Judge
Skretny’s prior Decision and Order and the violation of Section 3.3(a) that Armstrong is alleging
now. In his Decision and Order, Judge Skretny addressed the purely legal question of “whether
Hartman has expressly or impliedly promised not to practice the patented technologies at the
factory implementation level, as he claims, or whether he has retained that right, as Armstrong

105

believes.” (Dkt. No. 39 at 10; see also 745 F. Supp. 2d at 234.) Judge Skretny ultimately reached
this conclusion:
Because the License Agreement grants to Armstrong the sole right to
practice the technologies in the manner described in section 2.1 of the License
Agreement, Hartman’s assignment of the patents necessarily will be subject to that
right. As a matter of law, then, the intended assignment will include only the rights
Hartman could have exercised without violating the License Agreement.
Accordingly, Hartman’s motion to dismiss is granted to the extent Armstrong’s
breach of contract claim is based on an alleged breach of sections 3.2(b) and 3.3(a)
of the License Agreement.
(Dkt. No. 39 at 11; 745 F. Supp. 2d at 234.) Judge Skretny thus eliminated the portion of
Armstrong’s argument that rehashes the issue about transfer of patent rights versus transfer of
contractual obligations. Judge Skretny, however, never addressed the factual question of the
nature of Optimum’s product, nor could he have, since that question was not before him. The
argument about Optimum’s product thus survives the prior Decision and Order.
The argument about Optimum’s product also survives summary judgment under Section
3.3(a) for largely the same reasons that it survives summary judgment under Sections 3.2(b) and
3.3(d). Section 3.3(a), in full, states the following:
As long as the license grant remains exclusive, Licensor shall not grant a
license for factory implementation of the Licensed Technologies or the Licensed
Patents as they apply to hydronic elements to any third party involved in the
manufacture of pumps, any factory packaged chilled water systems, chillers,
building controls or cooling towers.
(Dkt. No. 55-1 at 5.) Technically, Hartman—during his time as the owner of the patents and thus
as the “Licensor”—never gave Optimum a license of any kind that explicitly said, “Go ahead and
engage in factory implementation.” At the same time, though, the record contains extensive
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evidence that Hartman and Optimum knew all along that Optimum would develop and deliver a
product in the final form that it took. As the Court discussed above, Hartman and Optimum very
much want to divorce the optimization software from the Tridium JACE physical device that
housed it. To borrow the Court’s prior analogy, the attempt to separate the software from the
physical device would be more plausible if the optimization software had worked more like
Windows 10 or any number of software titles: Buy the installer disc, install the software in
whatever computer you like, and call the software company if necessary for customer support.
Optimum’s optimization software simply did not work that way. As Optimum has conceded, the
software was inoperable in the field without a physical device that was first prepared at the factory
level. Optimum’s final product, therefore, contains elements of both factory and field
implementation, and a factfinder will have figure out how to reconcile the dual nature of that
product with an ALA that overwhelmingly contemplates a binary world of factory or field
implementation, with nothing in between. As also mentioned before, a factfinder also will have to
figure out the significance of the option that Optimum customers had—to program their BAS
devices to follow the Optimum product’s suggestions. A reasonable jury thus could decide that
Optimum’s product qualifies as a “building control” under Section 3.3(a). A reasonable jury
further could conclude that Hartman and Optimum effectively had an agreement to make a
product in this way.
For the above reasons, the Court recommends denying the parties’ motions with respect to
Section 3.3(a).
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4. Breach of Section 8 of the ALA
This implied part of Armstrong’s allegations against Hartman requires only a brief
discussion. There is no part of the amended complaint or of Armstrong’s counterclaims that sets
forth a “short and plain statement,” FRCP 8(a)(2), that Hartman breached Section 8 of the ALA,
how he did so, or why. The closest that Armstrong came to such an allegation is the following
paragraph of the amended complaint:
By entering the agreement to transfer the rights to Optimum, Hartman
breached the Armstrong License Agreement, including without limitation, the
restrictions not to grant certain rights to other parties, the express prohibitions
against granting certain rights to Optimum, the provision giving Armstrong the
right of first refusal on the improvements, and the provision against entering
inconsistent agreements. For example, the Patent Purchase Agreement at section 4
assigns to Optimum all right, title and interest in the Patents, defined at page 2 of
the Patent Purchase Agreement, which includes the Patents licensed to Armstrong
as well as the pending improvement applications, for which Hartman promised a
right of first refusal to Armstrong at section 8 of the Armstrong License Agreement.
The Patent Purchase Agreement was executed by Hartman on February 10, 2010.
(Dkt. No. 55 at 9.) Section 8 also appears nowhere in Armstrong’s motion papers. Perhaps for
the sake of completeness, Optimum addressed any lingering claims under Section 8 it its motion
papers:
“To establish a tortious interference with contract claim under New York
law, requires that ‘the plaintiff must show the existence of its valid contract with a
third party, defendant’s knowledge of that contract, defendant’s intentional and
improper procuring of a breach, and damages.’” High Falls Brewing Co., LLC v.
Boston Beer Corp., 513 Fed. Appx. 12, 13 (2d Cir. 2013) (quoting White Plains Coat
& Apron Co. v. Cintas Corp., 8 N.Y.3d 422, 426, 835 N.Y.S.2d 530 (2007)).
Armstrong is unable, as a matter of law, to prove a number of these elements,
much less all of them, with respect to its claim that Optimum tortiously interfered
with the ALA through the Patent Purchase Agreement. In particular, as a result of
the March 18, 2011 Amendment, specifically addressing this Court’s ruling to
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preserve Armstrong’s right of first refusal, Armstrong cannot show that the PPA
breached Armstrong’s ALA right of first refusal in patent improvements. (See
Assignment of Armstrong License Agreement, Recital G; §§3(a)–(d), §4; Hogue
Decl., Exh. B).
As a result, Armstrong’s claim is moot and/or meritless, and Optimum is
entitled to summary judgment dismissing Armstrong’s claim that Optimum
tortiously interfered with Armstrong’s contractual right of first refusal in patent
improvements under §8 of the ALA, through the sale and assignment of the three
LOOP Patents from Hartman to Optimum.
(Dkt. No. 294-3 at 17–18.) Hartman made a similar argument in its motion papers:
Hartman did not breach ALA § 8, which granted Armstrong a right of first
refusal co-extensive with its license rights for any improvements developed more
than two years after execution of the ALA. First, amendment of the Patent
Purchase Agreement preserved Armstrong’s rights under § 8, thus rendering any
such claim moot. Second, nothing in the record suggests that Hartman ever
offered an improvement to anyone before offering such to Armstrong. And, in
fact, Hartman never offered any improvement to any party other than Armstrong.
Accordingly, under the plain meaning of this provision, Hartman did not breach
the ALA by failing to honor Armstrong’s right of first refusal in patent
improvements.
(Dkt. No. 290-3 at 21–22.) When Armstrong did not respond to Optimum’s argument, Optimum
included the following in its reply papers:
Armstrong does not dispute Optimum’s entitlement to summary judgment
dismissing Armstrong’s claim that Optimum tortiously interfered with Armstrong’s
contractual right of first refusal in patent improvements under § 8 of the ALA,
through the sale and assignment of the three LOOP Patents from Hartman to
Optimum. (See 5/5/17 Opt. Mem. at 11–12; Dkt. No. 291-3 at 17–18).
(Dkt. No. 307 at 7.) Hartman included a similar cursory paragraph it its reply papers:
Armstrong ignores Hartman’s point that he never offered any patent
improvement to any other party and that Armstrong declined to make him an offer
for the patent improvement that he offered to it. Armstrong’s opposition does not
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mention ALA § 8 or “improvements,” thus abandoning the claim. Hartman is
entitled to summary judgment.
(Dkt. No. 308 at 9.)
The Court has little to add to what Hartman and Optimum have put in their motion
papers. The legal interplay of Hartman’s contractual obligations and the patent sale is addressed
elsewhere. Factually, Armstrong has not submitted any actual occurrence of LOOP Technology
improvements, let alone improvements offered to others first. The Court adopts Hartman’s and
Optimum’s arguments and recommends granting their motions with respect to any claims that
might be pending under Section 8 of the ALA.
5. Breach of Section 10.2 of the ALA
Armstrong accuses Hartman and Optimum of breaching Section 10.2 of the ALA. The
accusation comes from the following portion of Armstrong’s counterclaims:
The Armstrong License Agreement contains express prohibitions against
granting certain rights to Optimum and other parties similarly situated as
competitors to Armstrong’s product offerings, including, for example: the promise
not to grant rights to manufacturers and assemblers of cooling systems and chilled
water plant controls at section 3.2(b) of the Armstrong License Agreement; the
promise not to grant rights to a party that implements the Hartman Loop
Technology in any way that competes with Armstrong’s product offerings in section
3.3(d) of the Armstrong License Agreement; and the promise not to enter
agreements inconsistent with the grant of rights to Armstrong in section 10.2 of the
Armstrong License Agreement.
(Dkt. No. 68 at 8; see also id. at 9 (“Armstrong has suffered and will continue to suffer damages
from Hartman’s or Optimum’s conduct in violating the provisions and prohibitions of the

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Armstrong License Agreement.”).) In its motion papers, Armstrong makes the following argument
for summary judgment in its favor based on Section 10.2:
Hartman promised Armstrong that it would not “make any agreements
with or commitments to third parties that are inconsistent with the grant of rights
hereunder.” Kulik Decl. Exh. A at § 10.2. By assigning Optimum the very patents
and pending applications that are the subject of the License Agreement, Hartman
not only gave Optimum rights in contravention of the promises Hartman made to
Armstrong, Hartman significantly harmed Armstrong’s business.
Indeed, Armstrong had already lost sales to Optimum as a result of its
unauthorized competition since before this lawsuit was filed. For example, during
the 4221 Wilshire Boulevard Project, the specifications for the HVAC system were
developed according to Armstrong’s product line. Kulik Decl., Exh. O
(Declaration of Brett Gaviglio at ¶ 3). Optimum subsequently made a directly
competing proposal that incorporated Optimum’s control panel. Id. at ¶¶ 3, 6.
The building owner subsequently gave the project to Optimum. Id. at ¶ 7. The
difference in sales between the original budget proposal and the final purchase
order was over $100,000, and part of this difference included the Armstrong
controller and other components to be provided by Armstrong. Id. at ¶ 7.
(Dkt. No. 317 at 39–40.) Hartman has responded to Armstrong’s arguments as follows:
The ALA represents the “entire agreement” between Hartman and
Armstrong under the merger clause contained in § 12.1 of the ALA. Armstrong
claims that the OLA is inconsistent with the ALA, in violation of § 10.2 of the
ALA. The Complaint focuses on Optimum’s “transferable right to make products
(LOOP Products) at section 2.1,” of the OLA, which, according to Armstrong,
violates §§ 3.2(b) and/or 3.3(d) of the ALA. Armstrong’s interpretation, however,
is not supported by the plain text of the agreements. Rather, mutually exclusive
rights were conferred upon Armstrong and Optimum under the agreements. The
ALA defines “Factory Implementation” as “implementing the Licensed
Technologies into chiller, pumping, control systems and/or tower products as a
part of the factory production process.” And it defines “Field Implementation” as
“implementing the Licensed Technologies into the chiller, pumping, control
systems and/or tower products after the products have been delivered to the site.”
The OLA contains conforming definitions of “Field Implementation” and “Factory
Implementation.”
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***
When ALA §§ 3.2(b) and 3.3 are viewed together, they illustrate that: (1)
the “competition” referenced in § 3.3 was other hydronic “factory integrated
chiller, pumping or cooling tower equipment with controls” offering, or pumping
systems offering that included the Licensed Technologies; (2) as such, Hartman
agreed in §§ 3.2(b) and 3.3(a) that he would not grant a license for Factory
Implementation of the Licensed Technologies as they apply to hydronic elements
to any other party; (3) nevertheless, under § 3.3(b), Hartman retained full rights to
Field Implementation of the Licensed Technologies, a right that he could license to
Optimum as referenced in § 3.2(b); (4) Armstrong has no license for Field
Implementations but may request permission to perform such implementations,
which Hartman will review on a case by case basis, as set forth in § 3.3(c); (5)
Hartman retained full rights for any implementation that does not compete with
Armstrong’s offering, such as non-hydronic (air) chillers, as set forth in § 3.3(d);
and (6) Hartman will be diligent in referring projects that require new chillers or
pumps to Armstrong, as set forth in § 3.3(e).
Armstrong’s assertion that Optimum is not permitted to compete with
Armstrong is incorrect for the reasons set forth in the Declaration of Nathan
Rothman in August 2010. Indeed, the Field/Factory methods of implementation
were designed to compete in order to provide several options that each included
the Licensed Technologies, especially in competitive-bid contexts. The “noncompete” language that Armstrong seeks to rely upon in ALA § 3.2(b) simply
confirms the Factory/Field distinction, i.e., that Optimum’s products would not
“include the manufacture or assembly of pumps, chillers, towers, chilled water
plant controls or pumping or chiller systems” because that is the type of equipment
Armstrong produces for its Factory Implementation offering.
(Dkt. No. 290-3 at 15–16, 19–20.) Optimum took note of how any alleged violation of Section
10.2 would manifest itself in terms of violations of other sections of the ALA; Optimum
consequently addressed Section 10.2 only by asserting that “Armstrong also claimed that each of
these breaches would also constitute a breach of ALA §10.2, which prohibited Hartman from
entering into agreements that are inconsistent with the ALA.” (Dkt. No. 294-3 at 15 n.8.)
Hartman noticed the connection between Section 10.2 and other sections as well when he wrote
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that “Armstrong argues that Hartman’s assignment of the LOOP Patents breached ALA § 10.2
because Optimum is a ‘competitor.’ To the extent that Armstrong references its previous breach
of contract arguments (i.e., ALA §§ 3.2(b) and 3.3(a), (d), and (e)), they must be rejected for the
reasons set forth above.” (Dkt. No. 298 at 22.)
Armstrong did not mention Section 10.2 in its reply to Hartman, choosing to focus on the
substantive provisions of other sections of the ALA. Armstrong did include the following in its
reply to Optimum:
Optimum, as the current assignee and Licensor, has breached the ALA by
failing to refer potential customers to Armstrong. (Dkt. No. 292-3 at ¶ 29; Decl. of
Peter Thomsen dated May 5, 2017). Furthermore, by entering into the PPA in a
manner that deprives Armstrong of the benefits of ALA § 3.3(e), Optimum has
breached § 10.2 of the ALA by entering into an agreement with Hartman that is
inconsistent with the commitments of the ALA. Optimum also failed to exercise
the good faith and fair dealings required of parties to a contract under New York
law in fulfilling this obligation and intentionally modifying the terms of the PPA to
rescind the referral obligation. Sec. Plans, Inc. v CUNA Mut. Ins. Soc., 769 F.3d 807,
810–11 (2d Cir. 2014) (“the implied covenant of good faith and fair dealing that, as
a matter of law, accompanies contracts concluded under New York law”). These
failures constitute a material breach that deprived Armstrong of important benefits
of the deal struck in the Armstrong License Agreement and have in the past and
continue to harm Armstrong by lost opportunities and the unfair payment of the
full royalties for a mere part of the performance.
(Dkt. No. 310 at 8.) Hartman addressed Section 10.2 more fully in its reply to Armstrong:
Despite claiming that Hartman breached ALA § 10.2 by executing an
“inconsistent” agreement, Armstrong proffers no comparison of terms that would
suggest that the OLA or PPA are inconsistent with the ALA. The extent of
Armstrong’s ALA § 10.2 analysis are (1) a summary bullet arguing that Hartman
could not sell the patents “while allowing Optimum to continue breaching at least
sections 3.3(a) and 3.3(d);” and (2) a conclusory assertion that Hartman’s sale of the
patents “violated the promise he made” in ALA § 10.2 “not to make agreements or
commitments in violation of” the ALA. Armstrong, however, proffers no analysis
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of the ALA or how Hartman’s agreements with Optimum are purportedly
inconsistent. This omission alone implicitly concedes an inability to refute
Hartman’s analysis of ALA § 10.2 and the fact that neither the OLA nor the PPA
are inconsistent with the ALA.
To the extent that Armstrong is arguing that ALA § 3.3(a) and (d) are
inconsistent with the PPA, it offers no comparison of terms. And for good reason.
Nothing in the PPA is inconsistent with Armstrong’s rights under the ALA.
Indeed, Judge Skretny held that the assignment of the patents could “include only
the rights Hartman could have exercised without violating the License Agreement.”
Judge Skretny also held that “Armstrong's licensing rights are precisely the same no
matter who holds title to the patent.” Armstrong continues to ignore that ALA §
12.3 limited Armstrong’s ability to assign its rights and obligations under the ALA
but did not so restrict Hartman.
And even if Armstrong’s cursory ALA § 10.2 “analysis” were construed to
suggest that the OLA was inconsistent with ALA §§ 3.3(a) and (d) (an argument
not made by Armstrong) it would fail because, as discussed below, Hartman
licensed different rights (i.e., field and factory) to Optimum and Armstrong
respectively. Whether or not Optimum later acted in a manner that Armstrong
now contends infringed its rights has nothing to do with Hartman’s execution of
the OLA in 2004.
Moreover, with respect to the first assertion, Armstrong makes the
conclusory claim that Optimum breached ALA § 3.3(a) and (d). As a non-party,
Optimum could not breach the ALA. Armstrong apparently meant to argue that
Optimum was infringing its rights under the ALA. But Armstrong does not claim
infringement, and never pursued any infringement claim against Optimum despite
its ability to do so under ALA § 5.3. Finally, Armstrong cites nothing in the record
to support its conclusory assertion that Hartman “allowed” Optimum to infringe its
rights.
With respect to the second assertion, Armstrong offers no analysis of the
“promise” that was made, let alone breached. Again, Armstrong does not address
the contract language because it knows that any such effort would be futile.
Instead, Armstrong seeks to use inflammatory and conclusory jargon in an effort to
confuse the issues. Accordingly, Hartman is entitled to summary judgment
dismissing Armstrong’s ALA § 10.2 claim.
(Dkt. No. 308 at 6–8.)
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After reviewing the parties’ arguments in the entirety of the record, the Court sees three
reasons to dispense with any allegations that Armstrong has made under Section 10.2. First, there
is no claim under Section 10.2 against Optimum. The signings of the OLA and the PPA are the
only post-ALA events that could have triggered a breach of Section 10.2. Optimum was not a
signatory to the ALA at the time of the signing of the OLA. Optimum could not have been
considered a party to the ALA in any way until it entered the PPA and bought the LOOP
Technology patents. That means, under the most generous possible construction of Armstrong’s
argument, that Optimum would have had to enter an inconsistent agreement about licensing or
contractual services after the date of the PPA. Armstrong has not pointed to any such agreement
that occurred; any dealings that Optimum had with other companies, at most, had the potential to
create factual breaches and not legally inconsistent agreements. Second, to borrow language from
the world of constitutional law, Armstrong has not put forth any evidence that the ALA, the OLA,
and the PPA are facially inconsistent. Armstrong’s arguments are akin to an as-applied challenge in
constitutional law. Judge Skretny and this Court already have addressed the separation between
the patent sale and Hartman’s contractual obligations. That Hartman appears to have made some
successful referrals over the years suggests that there are scenarios under which the ALA, the OLA,
and the PPA would not clash. That means that Armstrong’s arguments about lost sales, poor
referrals, intended product offerings, and improper competition are really about factual breaches
of established rights and obligations—a challenge to how Hartman and Optimum applied the
various agreements on a day-to-day basis. Finally, as a practical matter, the Court has noticed that
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all of Armstrong’s arguments under Section 10.2 are really arguments about violations of more
substantive parts of the ALA that the Court already has addressed. The repetition and
Armstrong’s argument persuades the Court that, while a violation of Section 10.2 that does not
violate other sections of the ALA might be theoretically possible, that is not the case here. Here,
the potential violation of Section 10.2 is the potential violation of other sections of the ALA.
Armstrong’s allegations under Section 10.2 thus are entirely duplicative of the other allegations
that the Court would send to trial.
Armstrong should have the right at trial to ask Judge Skretny for a separate jury charge
about Section 10.2 if events at trial create some reason to do so. Otherwise, Armstrong has failed
to make a legal or factual case about Section 10.2 in itself. The Court accordingly recommends
denying Armstrong’s motion and granting Hartman’s and Optimum’s motions with respect to
Section 10.2 of the ALA.
ii.

Tortious Interference Against Optimum

In Count II of the amended complaint, Armstrong makes the following accusations against
Optimum in support of a claim of tortious interference with the ALA:
Despite its knowledge of the Armstrong License Agreement and the
exclusivity provisions contained therein, Optimum has executed agreements and
been in negotiations with Hartman to buy Hartman’s patents despite the express
license provisions to the contrary.
With the knowledge of the terms of the Armstrong License Agreement,
Optimum manipulated definitions and terms in its own license agreement with
Hartman to make the grant of rights to Optimum inconsistent with the rights that
Hartman had previously licensed to Armstrong. Optimum’s interference has
caused a loss in sales to Armstrong and specifically a loss in sales of products
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intended to be used with the Hartman Loop Technology. Optimum’s interference
has damaged Armstrong’s ability to capitalize on its investments.
Optimum’s interference has caused Hartman to breach the Armstrong
License Agreement. In particular, by entering the agreement to transfer the rights
to Optimum (the Patent Purchase Agreement), Hartman breached the Armstrong
License Agreement, including without limitation, the restrictions not to grant
certain rights to others and the provision against entering inconsistent agreements.
Optimum’s interference has also allowed manufacturers of pump and
cooling systems and equipment to directly compete with Armstrong in the market
for the Hartman Loop Technology. At sections 3.2(b) and 3.3(d), the Armstrong
License Agreement prevents Hartman from granting rights to others where those
rights allow the implementation of the Hartman Loop Technology that competes
with, or could compete with, Armstrong’s product offerings.
(Dkt. No. 55 at 11–12.) In its motion papers, Armstrong opens its argument about Count II with
further discussion about Optimum’s knowledge of the ALA and of direct competition:
Optimum knew of and participated in the meetings and conversations on
the terms of the Armstrong License Agreement with Hartman through its
execution date. Kulik Decl. Exh. H ¶ 2. At that time, Optimum had no product
and was merely a research and development company. Kulik Decl. Exh. H, at ¶ 6.
Thus, while Optimum was still in an early development stage and still had no
license to use the Hartman LOOP Technology, Optimum and Optimum’s CEO
had full knowledge of the Armstrong License Agreement and all of its terms and
definitions. These terms include the terms in sections 3.3 (a), (b) and (d) that
prevent Hartman from licensing to others in competition with Armstrong and its
intended product line, and prevent a license that would in any way compete with
Armstrong’s product line.
Optimum knew its JACE controller device was in direct competition with
Armstrong’s products since at least March of 2006. That is when Rothman and
Hartman sent emails to Brent Ross about a project proposal for EMCOR in Los
Angeles. Kulik Decl. Exh. H, at Rothman Exhibits L and M. What is clear from
this exchange is that the parties Armstrong and Optimum disagree on what “factory
implementation” means. At numbered point 2 of the Exhibit M, Rothman asserts,
without any reference to the terms of the Armstrong License Agreement, that
factory relates to a “factory built package” and that a sale to a project with an
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existing plant is outside of Armstrong’s scope of rights. Brent Ross first stated the
clear response “WE DISAGREE HERE.” Id.
(Dkt. No. 317 at 41–42.)
Optimum has provided substantive, factual responses to the arguments from Armstrong
that the Court has quoted above. What draws the Court’s immediate attention, however, is
Optimum’s legal argument that the entirety of Count II is untimely:
New York’s three-year statute of limitations set forth in CPLR § 214(4)
applies to Armstrong’s claim for tortious interference with contract. Cohane v.
NCAA, 2005 WL 2373474, *7 (W.D.N.Y. Sept. 26, 20115), affirmed in part for
substantially the reasons stated below, 215 Fed. Appx. 13, *15 (2d Cir. 2007). “Under
New York law, tortious interference with contract is not a continuing tort for
statute of limitation purposes.” Id. at *8. A discovery rule does not apply to the
accrual of the claim for statute of limitations purposes. Kronos, Inc. v. AVX Corp.,
81 N.Y.2d 90, 94, 595 N.Y.S.2d 931, 934 (N.Y. 1993). Instead, the statute of
limitations runs when there “is a legal right to relief. Stated another way, accrual
occurs when the claim becomes enforceable, i.e., when all elements of the tort can
be truthfully alleged in a complaint.” Id.
In this case, Armstrong’s claim became enforceable, and all the elements of
the tort could be alleged, upon the execution of the Optimum License Agreement
on November 28, 2005. At that point, Armstrong had been damaged through the
loss of its alleged exclusive rights by Hartman’s granting those same rights to
Optimum in the Optimum License Agreement. As a result, Armstrong’s claim
accrued, and the statute of limitations began to run, on November 25, 2005. Since
this lawsuit was not commenced until May 28, 2010, and the first amended
complaint was filed on March 8, 2011, Armstrong’s claim for tortious interference
with contract as to the Optimum License Agreement is barred by the three-year
statute of limitations set forth in CPLR 214(4).
(Dkt. No. 294-3 at 20.) Armstrong responded to Optimum with a single paragraph that reads like
an argument for tolling based on discovery of the alleged tort:
Optimum asserts that claims against it for interference with contract are
time barred since Armstrong knew about Optimum’s activities since 2005. This is
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flatly incorrect. The Declaration of Peter Thomsen submitted with this opposition
state the facts on what Armstrong knew and what Optimum refused to tell
Armstrong. Thomsen explains that as soon as Armstrong learned that an
“appliance” was being used from Optimum’s website, Armstrong began questioning
Optimum’s activities. (Thomsen Oppos. Declar. ¶¶ 4–6, 15 and 17). Optimum
never shared any details of how it was implementing the Hartman LOOP or using
the JACE device. (Counter Statement ¶ 56 and 57). Optimum’s suggestion that
Armstrong knew facts concerning Optimum’s practices are erroneous. There is no
evidence that Optimum ever provided any details of its installation or
implementation process for the Hartman LOOP technology until forced to during
this lawsuit.
(Dkt. No. 303 at 23.) Optimum noticed the brevity of Armstrong’s response:
Optimum’s Memorandum showed that New York’s three-year statute of
limitations set forth in CPLR § 214(4) bars Armstrong’s claim for tortious
interference with contract. (See 5/5/17 Opt. Mem. at 14-15; Dkt. No. 291-3 at 20–
21). As Optimum explained, Armstrong’s claim for tortious interference (which is
not a continuing tort or subject to a discovery rule) accrued and the statute of
limitations began to run, upon the execution of the Optimum License Agreement
on November 28, 2005. Since this lawsuit was not commenced until May 28,
2010, Armstrong’s claim is time-barred.
Armstrong’s response is a single paragraph, without citation to any law.
Armstrong responds that “Optimum asserts that claims against it for interference
with contract are time barred since Armstrong knew about Optimum’s activities
since 2005. This is flatly incorrect.” (6/21/17 Arm. Mem. at 20).
But Armstrong misstates the grounds for Optimum’s motion—as Armstrong
surely knows. As noted above, Optimum’s Memorandum showed that (1) a
discovery rule does not apply to Armstrong’s claims and (2) Armstrong’s claims
accrued on November 28, 2005 when Hartman and Optimum entered into the
OLA. (See 5/5/17 Opt. Mem. at 14-15; Dkt. No. 291-3 at 20-21). Armstrong’s
opposition does not, and cannot, directly dispute either point. Instead, Armstrong
has not only mischaracterized Optimum’s motion but also incorrectly implies that
its claims are subject to a discovery rule.
Optimum is entitled to summary judgment dismissing Armstrong’s tortious
interference with contract claims as barred by the statute of limitations. For that
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reason, the Court need not address Optimum’s three additional grounds for
summary judgment on the tortious interference claim that are discussed below.
(Dkt. No. 307 at 10–11.)
The Court must consider the timeliness of Count II first, since that issue potentially
renders all of Armstrong’s other arguments moot. Under New York law, and with exceptions not
relevant here, an action to recover damages for an injury to property must be commenced within
three years. N.Y. CPLR 214(4) (Westlaw 2018). CPLR 214(4) covers claims for tortious
interference with existing contracts. IDT Corp. v. Morgan Stanley Dean Witter & Co., 907 N.E.2d
268, 273 (N.Y. 2009); see also, e.g., Kronos, Inc. v. AVX Corp., 612 N.E.2d 289, 290 (N.Y. 1993).
“[A] tort cause of action cannot accrue until an injury is sustained. That, rather than the wrongful
act of defendant or discovery of the injury by plaintiff, is the relevant date for marking accrual.
The Statute of Limitations does not run until there is a legal right to relief. Stated another way,
accrual occurs when the claim becomes enforceable, i.e., when all elements of the tort can be
truthfully alleged in a complaint.” Kronos, 612 N.E.2d at 292 (citations omitted). “The tort of
inducement of breach of contract, now more broadly known as interference with contractual
relations, consists of four elements: (1) the existence of a contract between plaintiff and a third
party; (2) defendant’s knowledge of the contract; (3) defendant’s intentional inducement of the
third party to breach or otherwise render performance impossible; and (4) damages to plaintiff.
Since damage is an essential element of the tort, the claim is not enforceable until damages are
sustained.” Id. (citations omitted). “But inducing another to break a contract does not become a
legal wrong upon which an action may be based until damage is suffered as a result, and that
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occurs only when the breach happens.” Fury Imports, Inc. v. Shakespeare Co., 625 F.2d 585, 588 (5th
Cir. 1980) (citations omitted). The damages in question have to be actual damages, meaning
economic loss. See Int’l Imaging Materials, Inc. v. Sony Chemicals Corp. of Am., No. 91-CV-407S, 1993
WL 384959, at *5 (W.D.N.Y. Aug. 25, 1993) (citations omitted). There is a limited exception to
the actual damages rule that allows for a claim of nominal damages, presumed to accrue at the
moment of breach. See Finley v. Atl. Transp. Co., 115 N.E. 715, 718 (N.Y. 1917) (“Whenever there
is a breach of a contract or the invasion of a legal right the law infers some damage.”) (citation
omitted); Hirsch Elec. Co. v. Cmty. Servs., Inc., 536 N.Y.S.2d 141, 143 (App. Div. 1988) (“[I]t is a
well-settled tenet of contract law that even if the breach of contract caused no loss or if the amount
of loss cannot be proven with sufficient certainty, the injured party is entitled to recover as
nominal damages a small sum fixed without regard to the amount of the loss, if any.”) (citation
omitted). Nominal damages “are allowed in tort only when needed to protect an important
technical right.” Kronos, 612 N.E.2d at 292 (internal quotation marks and citation omitted).
The accrual of a tortious interference claim upon injury with actual damages allows for
virtually no exceptions, because the tort is not a continuing tort. See Bloomfield Bldg. Wreckers, Inc.
v. City of Troy, 364 N.E.2d 1130, 1131 (1977) (citations omitted); Spinap Corp. v. Cafagno, 756
N.Y.S.2d 86, 87 (App. Div. 2003) (“Since tortious interference with contract is not a continuing
tort, it does not avail the plaintiff to argue that Cafagno continued to solicit its customers up until
the time of the filing of the complaint . . . .”) (citations omitted); see also Rosemeier v. Schenker Int’l,
Inc., 895 F. Supp. 65, 66 (S.D.N.Y. 1995) (“The cause of action accrues at the time the injury is
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sustained, rather than the date of defendant’s alleged wrongful act or the date of discovery of the
injury by the plaintiff.”). The only very narrow exception that sometimes is available comes from
the doctrine of equitable estoppel “where plaintiff was induced by fraud, misrepresentations or
deception to refrain from filing a timely action. Moreover, the plaintiff must demonstrate
reasonable reliance on the defendant’s misrepresentations.” Zumpano v. Quinn, 849 N.E.2d 926,
929 (2006) (citations omitted).
Here, Armstrong has alleged that the creation and signing of the OLA was the act of
inducement, and that inconsistencies between the ALA and the OLA constituted the first breach.
The alleged tension between the ALA and the OLA, and the alleged improper competition that
resulted, would suffice to establish nominal damages as of late 2005 to vindicate Armstrong’s
contractual rights. In the alternative, Armstrong has alleged loss of sales, which would complete
the elements for tortious interference by filling in actual damages. Armstrong does not assign any
date to its lost sales, but the record contains documents submitted by Armstrong to establish that
Optimum was profiting from improper competition no later than March 2007. (See Dkt. No. 3576 at 238.) Armstrong filed its original complaint on May 28, 2010. (Dkt. No. 1.) As a result, even
if the Court ignored the accrual of nominal damages in late 2005 and gave Armstrong the benefit
of the doubt about possible lost sales in 2006, documentary evidence shows lost sales appearing in
Optimum’s finances more than three years before Armstrong filed the original complaint. And
the Court should not forget that Armstrong has made other allegations, such as inadequate
referrals, that date back to late 2005. Under these circumstances, Armstrong had enough timely
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knowledge that something might have been amiss that it will not be able to qualify for equitable
tolling.
Count II thus is untimely in its entirety, meaning that the Court need not consider the
substantive factual arguments from the parties. The Court accordingly recommends granting
Optimum’s motion with respect to Count II of the amended complaint.

D. Armstrong’s Declaratory Judgment Counterclaim for Patent Invalidity (Dkt. No. 68
at 9, Dkt. No. 111 at 9)
On April 17, 2014, the parties filed a joint stipulation “regarding patent issues.” (Dkt. No.
175.) The most important parts of the joint stipulation were the following assertions:
With respect to United States Patent Numbers 5,946,926; 6,185,946; and
6,257,007 (the “LOOP Patents”), Armstrong will not introduce evidence in support
of its counterclaims for patent invalidity (Dkt. 111: Second Amended Answer to
Defendant Optimum Energy LLC’s Counterclaims, ¶¶ 147–156).
Sales of the current and past model versions of Armstrong’s IPC11550 and
Opti-Visor products require a license under the LOOP Patents. Optimum and
Hartman will not introduce evidence regarding allegations of infringement of the
LOOP Patents by the IPC11550 or Opti-Visor.
Armstrong is required by license to mark the IPC11550 and Opti-Visor
with the LOOP Patent numbers. Such marking by Armstrong is authorized by 35
U.S.C. § 287 and such marking does not violate 35 U.S.C. § 292. Optimum will
not file a claim asserting that such marking violates 35 U.S.C. § 292.
(Id. at 1–2.) While the parties were too clever to use the word “withdrawal” in their joint
stipulation, this document came less than a year after the Court helped Judge Skretny resolve all of
the claim construction issues that the parties had raised. Regardless of the avoidance of the word
“withdrawal,” the Court always has interpreted the joint stipulation to mean that the parties’ two123

year detour into patent issues was over, and that the case once again was a contract case. The
Court finds support for this interpretation from the absence, in Armstrong’s principal motion
papers, of any argument regarding patent invalidity.
Accordingly, the Court recommends granting Optimum’s motion regarding any
counterclaim from Armstrong that is technically still pending regarding patent invalidity. The
Court correspondingly recommends dismissing Optimum’s third and fourth counterclaims
regarding patent infringement. (Dkt. No. 57 at 20–22.) The parties have blown raspberries at
each other regarding the possibility of attorney fees or sanctions (see, e.g., Dkt. No. 294-3 at 14;
Dkt. No. 303 at 20); they can take up that matter with Judge Skretny later if they wish.

E. Optimum’s Counterclaims for Declaratory Judgment (Dkt. No. 57)
On March 22, 2011, Optimum filed first, second, and fifth counterclaims against
Armstrong alleging improper field implementation and seeking “a declaration of the respective
rights of Optimum and Armstrong under the Optimum License Agreement and the Armstrong
License Agreement, including a declaration that the rights given by Hartman to Optimum in the
Optimum License Agreement are not inconsistent with, and do not violate or breach, Armstrong’s
rights under the Armstrong Licence Agreement.” (Dkt. No. 57 at 13–19, 22–23.) These
counterclaims have not been subjected to any motions for summary judgment, and they at least
partially overlap other issues that the Court has addressed above. Accordingly, the Court will leave
to the parties and to Judge Skretny how these counterclaims should be addressed at trial, if at all.

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F. Optimum’s Argument to Limit Armstrong to Nominal Damages
Optimum has included in its motion a request to limit Armstrong to only nominal
damages at trial. “Armstrong is limited to nominal damages, as a matter of law, for two
independently sufficient reasons. First, because Armstrong failed to make the required Rule
26(a)(1)(A)(iii) disclosures with respect to damages, Armstrong should be precluded from offering
any damages evidence and therefore limited to nominal damages. Second, any claim by Armstrong
for lost profits and/or consequential damages fails as a matter of law because such a claim is too
speculative and too uncertain.” (Dkt. No. 294-3 at 38.) Hartman has joined the argument. (Dkt.
No. 290-3 at 30.) Armstrong has opposed the argument as follows:
Optimum cited Design Strategy, Inc. v. Davis, 469 F.3d 284 (2d Cir. 2006) for
the support of its argument that Armstrong should be barred from presenting
evidence of lost profit damages. Design Strategy does not apply here. In Design
Strategy, the sanctioned party did not provide any documents relating to a damages
calculation until one-and-a-half years after discovery closed and shortly before trial.
469 F.3d at 296. That is simply not the case here, where the parties have engaged
in extensive discovery.
***
Throughout the years, Armstrong has been making royalty payments for the
use of the licensed Hartman LOOP patents while first Hartman and then also
Optimum have in bad faith refused to perform its obligations under the clear
language of the Armstrong License Agreement. The changing and inconsistent
protests from Hartman and Optimum that certain obligations are “personal” or
“over-broad’ or “erroneous” cannot wash away the loss in potential market
penetration that Armstrong was entitled to have a fair share at winning. Under the
circumstances here, fairness dictates that the annual minimum royalty of $100,000
per year from year three (2007) through today (2017) be returned to Armstrong.
Hartman and Optimum’s deliberate, intentional breach and their acts in keeping
their activities and breach secret from Armstrong at all costs suggest nothing less.
Armstrong’s payments of the additional royalties per tonnage more than
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compensates for the partial use of the Hartman LOOP technology that Armstrong
has been afforded.
(Dkt. No. 303 at 30, 31–32.) In its reply, Optimum asserted that Armstrong has not disputed the
inability to calculate consequential damages. Optimum also added the following:
Armstrong tacitly admits, as it must, that it completely failed to comply with
Rule 26(a)(1) as to its damages claims in its initial disclosures. Armstrong also fails
to discuss any of the four factors set forth in Design Strategy, Inc. v. Davis, 469 F.3d
284 (2d Cir. 2006), for determining whether the non-compliance with Rule
26(a)(1) warrants preclusion.
First, Armstrong offers no explanation for its failure. Second, Armstrong
does not dispute Optimum’s contention that damages claims have not been central
to Armstrong’s case. Third, Armstrong makes no attempt to dispute that
Optimum would suffer severe prejudice if Armstrong could present damages
categories, calculations, documents and evidence at this date. Fourth, Armstrong
does not contest that the possibility of a continuance favors preclusion.
Instead, Armstrong simply asserts that “Design Strategy does not apply here.”
(6/21/17 Arm. Mem. at 27). According to Armstrong, that is because the
sanctioned party in Design Strategy did not provide any documents relating to
damages until one-and-a-half years after the close of discovery while “the parties
have engaged in extensive discovery” in this case. (6/21/17 Arm. Mem. at 27).
Armstrong is wrong. For one thing, the sanctioned party in Design Strategy had
actually identified some categories of damages in its initial disclosures. Armstrong’s
initial disclosures identified none.
More fundamentally, Design Strategy squarely rejected precisely the defense
Armstrong offers here—that the sanctioned party’s production of documents from
which its opponent can derive and calculate the claimed damages is sufficient to
avoid preclusion. The Second Circuit held that “by its very terms Rule 26(a)
requires more than providing—without any explanation—undifferentiated financial
statements; it requires a ‘computation,’ supported by documents.” 469 F.3d at
295. Indeed, Armstrong’s position would render Rule 26(a)(1) meaningless; a party
could ignore Rule 26(a)(1)’s requirements and later point to discovery responses as
excusing its non-compliance. Rule 26(a)(1) is designed to prevent sand-bagging and
that is exactly what Armstrong has attempted here. Optimum had no notice of
Armstrong’s damages claims until it moved for summary judgment on them.
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Armstrong next makes the claim that “the case law that has developed since
Design Strategy has applied a less strict outcome than Optimum advances here.”
(6/21/17 Arm. Mem. at 27). But Optimum’s Memorandum cited five additional
cases precluding damages claims for failure to comply with Rule 26(a)(1) and all five
cases post-date Design Strategy. (5/5/17 Opt. Mem. at 35–36; Dkt. No. 291-3 at 41–
42 (citing Reid Construction Data, Spontana, Jacquez, Kodak Graphic and 24/7
Records)).
Not surprisingly, Armstrong makes no mention of any of those five cases
and instead relies on three other obviously distinguishable cases. (6/21/17 Arm.
Mem. at 27–28). One of the cases, Safespan Platform Systems, Inc. v. EZ Access, Inc.,
2011 WL 7473467 (W.D.N.Y. Dec. 30, 2011), did not even involve noncompliance with Rule 26(a)(1). Moreover, discovery, including expert disclosure,
had not closed in Safespan. In SEC v. CKB168 Holdings Ltd., 2016 WL 2853527
(E.D.N.Y. May 13, 2016), the court, which was ambivalent about whether there
even was a Rule 26(a)(1) violation, found that there was no prejudice, in part,
because the disclosure had been made within the discovery period. That is not the
case here. The third case, Emilio v. Sprint Spectrum L.P., 2017 WL 946333 (S.D.N.Y.
Feb. 1, 2017), is even further removed. In Emilio, the party had identified the
category of damages and the category of documents in it is initial disclosures and
the party had not provided a computation because it was not seeking to recover
damages but only reduce or offset damages to which the putative class members
were awarded.
(Dkt. No. 307 at 16–18.) Meanwhile, Hartman had added the following argument in its response
to Armstrong’s motion:
Armstrong appears to suggest that it lost sales to Optimum, but never
actually makes this claim—which should be rejected in any event. First, Armstrong
still has not quantified the alleged number of lost sales, let alone proffered evidence
of such. And any such alleged lost sales would be speculative under Kenford Co. v.
Cnty. of Erie, 67 N.Y.2d 257 (1986). Second, Armstrong offers no reason to
believe that Optimum’s revenue somehow indicates what Armstrong’s lost profits
would have been if it had made those sales (a contingency that itself contains
numerous assumptions). Armstrong seeks to build an infringement claim that has
not been asserted in any pleading. Indeed, Judge Skretny has already noted that
“past conduct by Optimum sounds in patent infringement, a claim not asserted in
this case.”
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Armstrong also argues that its royalty payments should be returned for the
purported breach of the ALA. In other words, Armstrong contends that the
Licensed Technologies it has used since 2004 are worth next-to-nothing and that it
really paid for protection from competition from Optimum—despite the fact that all
parties knew during contract negotiations that the Licensed Technologies had to be
available from multiple sources. This position is not only absurd (the ALA is a
technology transfer license, not a non-compete agreement), but it is not supported
by the Merrill Lynch decision cited by Armstrong (or any other authority that
Hartman is aware of). Moreover, a return of royalties has no basis in the ALA (and
is essentially a request for partial rescission, i.e., allowing Armstrong to practice the
Licensed Technologies without charge). Armstrong basically complains that it was
denied exclusivity in the area of factory implementation. But ALA § 3.2(c)
provides that, where Armstrong has exclusivity for pumping systems only (it does
not allege that Optimum sold pumping systems), it would nonetheless be required
to pay $50,000 per year (i.e., one-half of the Minimum Annual License Fee).
(Dkt. No. 298 at 29–30.)
“Except as exempted by Rule 26(a)(1)(B) or as otherwise stipulated or ordered by the court,
a party must, without awaiting a discovery request, provide to the other parties . . . a computation
of each category of damages claimed by the disclosing party—who must also make available for
inspection and copying as under Rule 34 the documents or other evidentiary material, unless
privileged or protected from disclosure, on which each computation is based, including materials
bearing on the nature and extent of injuries suffered . . . .” FRCP 26(a)(1)(A)(iii). The Federal
Rules Advisory Committee has explained this obligation as follows:
A party claiming damages or other monetary relief must, in addition to
disclosing the calculation of such damages, make available the supporting
documents for inspection and copying as if a request for such materials had been
made under Rule 34. This obligation applies only with respect to documents then
reasonably available to it and not privileged or protected as work product.
Likewise, a party would not be expected to provide a calculation of damages which,
as in many patent infringement actions, depends on information in the possession
of another party or person.
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146 F.R.D. 401, 631–32. “But the obligation to supplement under Rule 26(e) may often mandate
later disclosure once additional information is obtained.” 8A Charles Alan Wright et al., Federal
Practice & Procedure (Civil) § 2053 (3d ed. and 2017 Supp.). “If a party fails to provide
information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use
that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the
failure was substantially justified or is harmless.” FRCP 37(c)(1). “The sanction is automatic in
the sense that there is no need for the opposing party to make a motion to compel disclosure, as
authorized by Rule 37(a)(3)(A) in order to compel a further disclosure, as a predicate for
imposition of the sanction of exclusion. It resembles the sanction authorized by Rule
37(b)(2)(A)(ii), prohibiting use of certain matters as evidence. It applies not only at trial, but also
with respect to any motion, such as a motion for summary judgment, or at a hearing.”
8B Charles Alan Wright et al., Federal Practice & Procedure (Civil) § 2289.1 (3d ed. and 2017
Supp.). When assessing possible sanctions under Rule 37(c)(1), courts should keep in mind the
main goal of discouraging trial-by-gotcha. “While the rule does not indicate the level of specificity
that is required to disclose a ‘computation’ properly, courts examining this issue have held that
Rule 26(a)(1)(A)(iii) requires more than merely setting forth the figure demanded. Rule 26(a)(1)
contemplates an estimate of damages and some analysis. The purpose of Rule 26 disclosures is to
avoid surprise or trial by ambush.” Mikulec v. Town of Cheektowaga, 302 F.R.D. 25, 29 (W.D.N.Y.
2014) (internal quotation marks and citations omitted).
What Armstrong actually disclosed, or did not disclose, is helpful in determining whether a
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sanction should apply. The following is the entirety of Armstrong’s computation of damages from
its initial disclosures:
While Armstrong’s damages are continuing to escalate, Armstrong can
identify the following at this time:
• Armstrong’s actual damages resulting from Hartman’s breach of contract;
• Armstrong’s actual damages resulting from Optimum’s intentional
interference with Armstrong’s license agreement;
• Armstrong’s attorneys fees;
• expenses and costs in defending against Defendants’ allegations; and
• exemplary damages, interest, and costs assessed at trial or by this Court.
Armstrong reserves the right to amend this response to assert additional
damages revealed during the discovery process, and Armstrong also reserves the
right to verify its damage calculation through the use of expert opinions and
testimony.
(Dkt. No. 294-15 at 6.) Of these five bullet points, the second bullet point will become moot if
Judge Skretny adopts this Court’s recommendation to grant Optimum summary judgment as to
Count II of the amended complaint. The third through fifth bullet points are items that
Armstrong would not have known at the start of the case; in fact, costs and fees usually are
determined at the end of the case, and their determination at the end of the case do not generate
surprise or prejudice except perhaps in very unusual circumstances. In contrast to Armstrong’s
motion papers, the initial disclosures say nothing about royalty payments; royalty payments thus
should be dismissed under Rule 37(c)(1). Cf. Rienzi & Sons, Inc. v. N. Puglisi & F. Industria Paste
Alientari S.P.A., No. 08-CV-2540 DLI JMA, 2011 WL 1239867, at *3 (E.D.N.Y. Mar. 30, 2011)
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(granting preclusion where “excuses do not explain why Puglisi did not inform Rienzi that it would
seek this type of [consequential] damages, even if a definite figure was not available. Indeed,
Puglisi never identified this category of damages in its initial disclosure.”). The real concern is
what to do about the first bullet point. If Judge Skretny adopts this Court’s recommendations
then the core of the case at trial will be the nature of referrals under Section 3.3(e) of the ALA,
along with the possibility of improper factory implementation and competition under Sections
3.2(b) and 3.3(d). At the start of the case, when Armstrong had to deliver its initial disclosures,
details about referrals and about Optimum’s final product would have been largely in Hartman
and Optimum’s control. The initial disclosures, therefore, do not trouble the Court that much.
What does trouble the Court is what appears to be a complete lack of supplementation under Rule
26(e). At some point in the past seven—now almost eight—years, Armstrong surely acquired
enough information in discovery to be able to attempt at least a rough calculation of damages,
based on 1) some number of specific projects that Hartman referred to Optimum that reasonably
should have been referred to Armstrong; and 2) the total number of products that Optimum sold
and the projects associated with them, working on the presumption that each product was
improper and that each project thus was tainted. Cf. Design Strategy, Inc. v. Davis, 469 F.3d 284,
295 (2d Cir. 2006) (“[B]y its very terms Rule 26(a) requires more than providing—without any
explanation—undifferentiated financial statements; it requires a ‘computation,’ supported by
documents.); AFL Telecommunications LLC v. SurplusEQ.com Inc., 946 F. Supp. 2d 928, 945 (D.
Ariz. 2013) (“AFL made additional damages disclosures in writing during the discovery process
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related to expert opinions, satisfying Rule 26(e)(1)(A) and AFL’s disclosure obligations.”).
Armstrong never submitted this type of calculation to Hartman or Optimum. Cf. Marvin Lumber
& Cedar Co. v. Norton Co., 113 F.R.D. 588, 593 (D. Minn. 1986) (“While it is clear that plaintiffs
in civil actions often are unable to finally calculate their damages until discovery is received from
the defendant, they are under some obligation to answer such discovery requests well prior to the
discovery deadline. To have it otherwise would obviously and unfairly prejudice a defendant in its
trial preparation.”) (citations omitted). To do so at this point would risk reopening discovery after
so many years and potentially engaging in more discovery disputes, none of which could be
considered justifiable or harmless. Armstrong made vague references in its motion papers to
providing adequate discovery, but strangely, its only substantive argument was about royalty
payments that were never previously disclosed at all. Cf. Kodak Graphic Commc’ns Canada Co. v.
E.I. Du Pont de Nemours & Co., No. 08-CV-6553-FPG, 2013 WL 5739041, at *3 (W.D.N.Y. Oct. 22,
2013) (“By its plain terms, Rule 26 requires more than simply providing a mountain of documents
to your opponent. Instead, it requires a computation of damages to be provided.”); see also Safespan
Platform Sys., Inc. v. EZ Access, Inc., No. 06CV726A, 2011 WL 7473467, at *4 (W.D.N.Y. Dec. 30,
2011) (denying a motion to preclude in part because plaintiff did not “present a novel theory late
in the proceedings”), report and recommendation adopted, No. 06-CV-726-A, 2012 WL 777305
(W.D.N.Y. Mar. 8, 2012). On top of that, the Court notices that Armstrong’s first bullet point in
its initial disclosures mentions only Hartman’s breach of contract. Optimum, per this Court’s

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recommendations, would go to trial for a possible breach of Sections 3.2(b) and 3.3(d), but
Armstrong disclosed no calculations about that conduct at all.
Under these circumstances, the Court finds Armstrong’s computation of damages to be
impermissibly deficient. For the reasons above and adopting Hartman’s and Optimum’s analysis,
the Court recommends granting Hartman’s and Optimum’s motions with respect to limiting
Armstrong to nominal damages only, in the event that a jury does find breaches of the ALA and
does wish to vindicate Armstrong for those breaches.

G. Armstrong’s Request for an Accounting
The memorandum of law for Armstrong’s principal motion papers concludes as follows:
For all the reasons discussed above, the Court should grant Armstrong’s
Motion for Summary Judgment against Hartman and Optimum and: issue an order
enjoining Optimum from practicing, offering for sale, or selling any controller that
is factory produced or implemented or competes with Armstrong’s Hartman LOOP
products; award appropriate damages to Armstrong; excuse Armstrong’s future
payments under the Armstrong License Agreement; order a full accounting of the
total damages Armstrong has suffered since January 2006, the first year royalty
payments were due; and an order instructing Optimum and Hartman to pay
Armstrong’s attorney fees.
(Dkt. No. 317 at 46.) As can be seen, the concluding paragraph includes a request for an
accounting. The amended complaint does not contain the word “accounting” and includes no
short and plain statement of the need for an accounting. Armstrong’s counterclaims make no
mention of an accounting. Armstrong’s motion seeks an accounting in no place other than the
concluding paragraph. Hartman has responded to Armstrong’s request as follows:
Armstrong is not entitled to an accounting because, “to sustain an action
for accounting under New York law a party must establish four elements: (1)
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relations of a mutual and confidential nature; (2) money or property entrusted to
the defendant imposing upon him a burden of accounting; (3) that there is no
adequate legal remedy; and (4) in some cases, a demand for an accounting and a
refusal.” Armstrong does not satisfy any of these requirements.
First, the “right to an accounting is premised upon the existence of a
confidential or fiduciary relationship and a breach of the duty imposed by that
relationship respecting property in which the party seeking the accounting has an
interest.” In Wilson v. Dynatone Publ’g Co., Judge Engelmayer recently recognized
that, “[u]nder New York law, a claim for an accounting of profits, an equitable
remedy, requires that the plaintiff establish that he or she is entitled to an
accounting. That, in turn, requires a showing—and in the context of a pleading,
plausible allegations—of a fiduciary relationship between the plaintiff and
defendant and of the defendant’s breach of that fiduciary duty.” Here, however,
Armstrong has pled no fiduciary relationship with Hartman (or Optimum), let
alone proffered evidence of such a relationship. A licensee-licensor relationship is
not a fiduciary one. As Judge Stanton held in Dayan Enterprises, a licensor-licensee
contractual relationship was not fiduciary in nature because, under “New York law,
an arms-length licensor/licensee type relationship, without more, is not fiduciary in
nature.” Likewise, the ALA is a licensing agreement that established an arms’
length business relationship between Hartman and Armstrong, and nothing more.
This is fatal to Armstrong’s request for an accounting.
Second, Armstrong did not entrust property or money to Hartman. And
Armstrong neither alleges nor proffers evidence in support of this element. Nor
does Armstrong identify in its motion papers what property or money was
entrusted to Hartman, who simply received royalty payments in exchange for
Armstrong’s ability to use the Licensed Technologies and incidental obligations
designed to foster the success of the Licensed Technologies in the market.
Third, as Judge Stanton held in Dayan Enterprises, a damages suit arising
from a license agreement “provides an adequate legal remedy.” Likewise, as Dayan
noted after construing a decision of the Second Circuit, an “accounting [is]
improper absent a fiduciary relationship and because plaintiff could discover ‘by
means of familiar discovery devices’ any information it needed to establish damages
for its breach of contract claim.” Likewise here.
Finally, Armstrong’s belated effort to request an accounting at this stage
seven years into the litigation would skip: (A) pleading a fiduciary relation and/or
even requesting an accounting; and (B) any discovery on the issue. In fact,
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Armstrong has not disclosed evidence of damages or theories on damages until
now. Armstrong seeks to use this belated request for an accounting to remedy its
failure to disclose or seek discovery of such items through available discovery
procedures.
(Dkt. No. 298 at 30–33.) Armstrong described its request for an accounting in a little more detail
in its reply papers:
Under the circumstances of Optimum’s knowledge of this obligation and
then its acts in refusing to honor that obligation as Licensor, Armstrong is entitled
to an accounting of the fair value of the business for new pumps and chillers
represented by Optimum’s sales since the effective transfer of the LOOP patents or
the execution of the PPA. In particular, if Optimum has entered into other
agreements after becoming the Licensor of the LOOP patents, agreements such as
the earlier Master Agreement for Professional Services with Johnson Controls, Inc.
(JCI), where Optimum is obligated to certain referral requirements for customers of
pumps or chillers to JCI instead of Armstrong, further information about those
obligations and activities will be required to fairly assess the damages to Armstrong.
(Dkt 292-2 see Exhibit W; at § 8.1 of the Master Agreement By and Between JCI
and Optimum Energy).
(Dkt. No. 310 at 8–9.)
The discussion about a possible accounting need not take long. Hartman’s analysis about
the need for a fiduciary relationship is persuasive and adopted. Armstrong’s request runs into two
simpler problems, though. Procedurally, placing critical requests for the fair value of an industry
in the last sentence of a memorandum of law, in the last motion of a nearly eight-year-old case, is
not a particularly good idea:
The plaintiffs also request an accounting by Roberts, although they do not
explicitly set forth what they request to be accounted for. In fact, the plaintiffs do
not request an accounting in their moving papers, but only generally describe this
relief in their Memorandum of Law in support of their motion. It is also unclear to
the Court what information the plaintiffs expect to uncover through an accounting
that they will not uncover during discovery. At this point, without a clearer
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statement from the plaintiffs, the Court finds that an accounting would not be
appropriate. The Court therefore denies the plaintiffs’ request for an accounting
without prejudice to renew with a clearer statement of the relief requested.
Silverman Partners, L.P. v. First Bank, 687 F. Supp. 2d 269, 294 (E.D.N.Y. 2010). On a practical
level, if Judge Skretny adopts this Court’s recommendations then only nominal damages will be
available to Armstrong. Nominal damages do not warrant equitable relief:
The necessary prerequisite to the right to maintain a suit for an equitable
accounting, like all other equitable remedies, is, as we pointed out in Beacon
Theatres, the absence of an adequate remedy at law. Consequently, in order to
maintain such a suit on a cause of action cognizable at law, as this one is, the
plaintiff must be able to show that the ‘accounts between the parties’ are of such a
‘complicated nature’ that only a court of equity can satisfactorily unravel them. In
view of the powers given to District Courts by Federal Rule of Civil Procedure
53(b) to appoint masters to assist the jury in those exceptional cases where the legal
issues are too complicated for the jury adequately to handle alone, the burden of
such a showing is considerably increased and it will indeed be a rare case in which
it can be met.
Dairy Queen, Inc. v. Wood, 369 U.S. 469, 478 (1962). For these reasons, the Court recommends
denying Armstrong’s motion to the extent that it can be construed to include a formal request for
an accounting.
IV.

CONCLUSION
The Court respectfully recommends granting the parties’ pending motions (Dkt. Nos. 290,
291, 292) in part and denying them in part as explained above. If Judge Skretny adopts this
Court’s recommendations then, to summarize, this case will go to trial on the following claims:


Armstrong’s claim against Hartman for a violation of Section 3.3(e) of the ALA;



Armstrong’s claim against Hartman and Optimum for a violation of Sections 3.2(b) and
3.3(d) of the ALA;
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

V.

Armstrong’s claim against Hartman and Optimum for a violation of Section 3.3(a) of the
ALA; and
Optimum’s first, second, and fifth counterclaims for declaratory judgment, if Judge
Skretny chooses to address them separately.

OBJECTIONS
A copy of this Report and Recommendation will be sent to counsel for the parties by

electronic filing on the date below. Any objections to this Report and Recommendation must be
electronically filed with the Clerk of the Court within 14 days. See 28 U.S.C. § 636(b)(1); FRCP
72. “As a rule, a party’s failure to object to any purported error or omission in a magistrate judge’s
report waives further judicial review of the point.” Cephas v. Nash, 328 F.3d 98, 107 (2d Cir. 2003)
(citations omitted).
SO ORDERED.
__/s Hugh B. Scott________
Honorable Hugh B. Scott
United States Magistrate Judge
DATED: January 18, 2018

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