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U. Nuc. Corp. v. Energy Conv. Dev.

OPINION FILED AUGUST 20, 1982.

UNITED NUCLEAR CORPORATION, PLAINTIFF-APPELLANT,

v.

ENERGY CONVERSION DEVICES, INC., DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Cook County; the Hon. Joseph M. Wosik, Judge, presiding.

PRESIDING JUSTICE SULLIVAN DELIVERED THE OPINION OF THE COURT:

Plaintiff United Nuclear Corporation (United) appeals from a judgment for defendant Energy Conversion Devices, Incorporated (ECD) in an action seeking damages and declaratory, injunctive, and other relief for breach of contractual and fiduciary duties involving the ownership rights to certain energy conversion technology. Plaintiff here contends that the trial court erred in a number of its rulings at points throughout the proceedings. We need consider only those issues hereinafter enumerated, since they are dispositive of this appeal or will necessarily arise in further proceedings. Those issues are whether the trial court erred (1) in its rulings as to the existence and duration of a program for the development of energy conversion technology pursuant to an agreement between United and ECD (the Agreement); (2) in its designation of a discovery cutoff date; and (3) in finding that a joint venture did not exist between the parties.

As background to the present dispute, it appears that ECD's principal business is the development of patentable inventions in the field of amorphous semiconductors. These are materials whose electrical conductivity is enhanced through certain physical and chemical modification processes. Through Stanford Ovshinsky, its president and chief executive officer, ECD has pioneered in the development of amorphous semiconductor technology. United is engaged in uranium mining and manufacturing as well as nuclear-related activities.

The present litigation arose over a dispute between United and ECD as to the parties' contractual rights and duties concerning certain amorphous semiconductor technology, believed by the parties to be a cost-effective means for the large-scale commercial conversion of sunlight into electricity (solar conversion) and of heat into electricity (thermal conversion). The type of semiconductor in question is an amorphous alloy of silicone, fluorine, and hydrogen (fluorine alloy). In essence, this new area of technology sought the development of new semiconductors by the elimination of certain "electronic states" in the "energy gap" of amorphous semiconductor materials, and it differed fundamentally from the earlier chemical modification theory which involved the introduction of electronic states into such energy gaps.

In order to develop and exploit the potential of the new energy conversion technology, the Agreement was signed by Ovshinsky and Keith Cunningham, president of United, and was dated August 15, 1976. Relevant to our consideration here, the Agreement defined the existing and future energy conversion technology to be covered (the Technology). It further provided that ECD would sell to United an "undivided 50% interest" in the Technology and that United would pay ECD $250,000 for its undivided 50% interest "in the present Technology." United also agreed to provide ECD with an additional $250,000 for the period commencing on the date of the Agreement and ending one year after the date that the parties mutually agreed on a 1-year development program (the Initial Period). ECD and United also agreed to disclose appropriate information to each other concerning the Technology during the term of the Agreement and to keep such information confidential. The Agreement further provided that within 30 days after the expiration of the Initial Period, the parties would evaluate the Technology and the programs thereunder and assess the feasibility of a continuing business relationship. If such relationship could not be established, the Agreement would terminate, and ECD would be required "to execute and deliver all documents and instruments" to United, as required by the Agreement, in order to convey to United its interest in the Technology. Finally, upon termination of the Agreement, the parties were deemed to be the owners of an undivided 50% interest in the Technology.

In March 1977, Cunningham and Ovshinsky began discussing a continued business arrangement between United and ECD as to the Technology. It appears that in April 1977, Ovshinsky proposed the formation of a "joint venture" in which each partner would maintain a 50% interest for the purpose of developing the Technology and introducing commercial energy conversion products. The proposed arrangement contemplated proportional representation on the board of directors and the establishment of an executive committee, with ECD — in the person of Ovshinsky — maintaining day-to-day operating responsibilities during development. The proposal also envisioned that ECD would continue to supply know-how, and United would supply capital. The United board of directors, in rejecting the proposal, imposed the condition that it have voting control in any new arrangement between United and ECD.

In addition to its demand for control, United in a letter dated December 25, 1977, requested that ECD convey United's interests in "all patents, patent applications, technology and other assets" to which United was entitled under the Agreement; that ECD deliver to United "a progress report on the status of the development program contemplated by the Agreement"; that ECD deliver an accounting of funds furnished by United under the Agreement; that ECD deliver to United "a suggested schedule for the description of the content of the progress reports which ECD will deliver to [United]" in order to apprise United of developments pertaining to the business activities under the Agreement; and that ECD give "appropriate assurances" to United that it would not abandon its efforts relating to such activities.

Besides its continuing business relationship discussions with United between 1977 and May 1, 1979, ECD also carried on negotiations with other parties. As a result, in October 1977 ECD sold Japanese investors $3.4 million in subordinated convertible debentures and certain rights in the commercialization of products and processes developed by ECD in the area of energy conversion. ECD also engaged in negotiations with Atlantic Richfield Company (ARCO), and on May 1, 1979, ECD, ARCO, and an ARCO subsidiary reached an agreement (ARCO Agreement) under which ECD, in a transaction involving $3.6 million, was to conduct a program of work as outlined in the contract and grant the ARCO subsidiary a license in certain existing ECD energy conversion technology. Later, on January 14, 1980, ECD transferred further rights to ARCO for a total additional consideration of $25 million.

The instant case is predicated, inter alia, upon United's asserted rights under the Agreement. In this regard, the following pretrial proceedings are relevant. On May 4, 1979, United filed a complaint and moved for entry of a temporary restraining order to prevent ECD from performing any other agreements or disclosing any confidential information concerning the Technology without United's consent. The motion for a temporary restraining order was granted. Thereafter, the parties began negotiations in an effort to reach a settlement, but none was reached.

In the complaint of May 4, United alleged in substance that ECD violated the Agreement. *fn1 Count I alleged that under the Agreement, United and ECD had entered into a joint venture for the development and exploitation of the Technology; that ECD had violated its fiduciary duties and relationship of confidence and trust in the purported joint venture; that ECD had misappropriated the Technology and its future development and had thereby impaired United's rights in it; and that ECD had converted to its own use all or a substantial portion of the funds provided by United under the Agreement. Count II alleged that ECD had wilfully breached express covenants and agreements by ECD and Ovshinsky under the Agreement; that such breaches included the failure of ECD to devote sufficient personnel, facilities and time as contemplated by the Agreement; that ECD misled United as to its activities concerning the Technology; that ECD failed to disclose to United appropriate information as to the Technology or its performance under the Agreement; that ECD refused to supply United with copies of all written Technology or to permit United representatives to examine the Technology; that ECD refused to give progress reports under the Agreement; that ECD refused to disclose to United that areas of the Technology for which future development would be warranted; that ECD refused to provide United with documentation which would establish United's undivided 50% interest in patents and patent applications covering the Technology; and that ECD disclosed confidential information about the Technology to third parties and entered into a contract with a third party relating to the Technology. Count III alleged that ECD, by Ovshinsky, breached express and implied agreements arising from the claimed joint venture and fiduciary relationship of the parties, and that ECD breached its obligations under a claimed constructive trust upon the Technology and its future development and exploitation for the benefit of United to the extent of its 50% undivided interest. Finally, count IV alleged certain statutory violations in that ECD, through Ovshinsky and Dr. Helmut Fritzsche (an officer and director of ECD), had engaged in unfair and anticompetitive practices in an attempt to gain a monopolistic advantage in the Technology and its future development and exploitation in disregard of United's 50% undivided interest and had sought to eliminate United as a competitor. (See Ill. Rev. Stat. 1979, ch. 38, par. 60-1 et seq.; Ill. Rev. Stat. 1979, ch. 121 1/2, par. 261 et seq.) The complaint sought to enjoin ECD from disclosing information to or performing agreements with third parties relating to certain technology. It also sought an accounting, damages, and other relief.

ECD, with leave of court, counterclaimed against United, alleging in substance that United had made public assertions concerning certain ECD contracts with third parties which had harmed and threatened to cause irreparable harm to ECD's business, for which ECD sought declaratory and injunctive relief.

On May 11, 1979, in addition to its motion for a preliminary injunction, United moved for discovery on an expedited basis. In July 1979, the parties requested production of documents and noticed discovery depositions. United's requests for production sought documents, inter alia, related to the Agreement, the Technology and ARCO Agreement. ECD objected to the production of any technological documents "dated or created on or after August 15, 1977" allegedly because the Agreement had terminated on August 14, 1977, and because of the confidential nature of the documents.

On July 27, 1979, United moved to compel production of documents by ECD and for a protective order. The proposed order set forth various safeguards which purported to protect against disclosure of confidential information.

On April 1, 1980, United's motion for change of venue was denied on the grounds that its right to one automatic change of venue was precluded by the temporary restraining order entered on May 4, 1979, which the trial court found to be a substantial ruling in the case. (See Ill. Rev. Stat. 1979, ch. 110, par. 503.) After the case was set for trial on September 29, 1980, United withdrew its discovery motions without prejudice in order to include ECD's January 1980 Agreement with ARCO in a renewed motion to compel production of documents, and United then moved to expedite discovery due to the September 29 trial date. Trial was later reset for November 17, 1980.

On August 19, 1980, pursuant to a subpoena duces tecum, United gave notice of discovery and evidence depositions to nine ARCO executives. ECD and those executives moved for protective orders prohibiting any discovery from ARCO and any evidence depositions of ARCO personnel. However, the deposition of R.R. Chambers, ARCO's vice-president, was allowed to proceed. Following each session of that deposition, United moved to compel production of documents from ARCO and to compel answers to questions which Chambers refused to answer concerning the ECD-ARCO Agreements and the Technology. United had made similar motions at various times concerning other ECD employees who had refused to respond to questions on those and other subjects.

On September 29, 1980, the trial court heard arguments on all pending discovery-related motions and, thereafter, it determined that August 14, 1977, was the "cutoff discovery date" because, in the trial court's view, the Agreement "terminated" on that date. Consequently, the trial court denied or dismissed as moot all of United's discovery motions, and it granted ECD's and ARCO's motions for protective orders. Concerning the discovery ruling, the trial court also found, inter alia, that United had the burden of making a "clear showing" that it would prevail on the merits of the contract dispute and that since it had failed to sustain such burden, it was not entitled to discovery. The trial court also found the Agreement did not create a joint venture; that such had not been demonstrated by the evidence; and that United had failed to make a "clear showing" that the Agreement continued beyond August 14, 1977. *fn2

On October 29, 1980, United again moved for a change of venue alleging trial court prejudice. That motion was denied, and on November 17, 1980, trial commenced.

At trial, the following relevant facts were not seriously disputed. As of August 15, 1976, ECD was doing energy conversion work, and on September 22, 1976, Ovshinsky sent Cunningham a report entitled "Confidential, ECD's Energy Conversion Program with United Nuclear." That report, which was prepared by ECD employee Richard Flasck, outlined the progress ECD had made, described ECD's plans for the following three months under the Agreement, and expressed the importance of the goals ECD had sought. ECD's first billing for $26,490.16 for work performed from August 15, 1976, to September 15, 1976, accompanied the report and was paid by United on October 12, 1976, with Cunningham's approval. In a letter accompanying the payment to ECD, Cunningham expressed his interest in reviewing "the general level of activity" with Ovshinsky and said that the payment was "for the first month's billing on our mutual project."

As to the report, Cunningham testified at trial that as a proposed plan for the Initial Period, it was inadequate and "required additional particularity in order to be satisfactory under the [A]greement" and that Ovshinsky told him "he would attempt to further develop the matter and provide [Cunningham] with a further program."

Ovshinsky testified, on the other hand, that by mid-October 1976, several ECD employees were engaged in developing "a general program approach" to the United-ECD project; that he could recall no meetings or telephone conversations with Cunningham or anyone else at United between August 15, 1976, and mid-October 1976, nor could he recall any specific acceptance by Cunningham of the September 22 report, but he said he believed Cunningham had accepted it based on conversations that took place between them after September 22; and that no document concerning a development program had been signed by ECD and United.

The record further indicates that certain scientific achievements were made under the Agreement. In November 1976, Cunningham and Dr. David Bromley, a United director, visited ECD's laboratories and received a report on significant experimental and scientific results of ECD's work to date. Specifically, ECD reported at the meeting that it was developing a technology for production of a type of semiconductor called amorphous chalcogenides, which could be made suitable for efficient and economical use in solar cells, as compared to established but more expensive crystalline solar cell materials. Prior to ECD's efforts, no amorphous chalcogenide semiconductors had been produced which could be controlled at room temperature, but as ECD explained, through a technology involving a chemical modification process using a fluorine alloy, the conductivity of amorphous chalcogenides could be controlled at room temperature.

Concerning the November 1976 meeting, Bromley testified that technical details concerning ECD's work were not disclosed at the meeting. Four charts also were shown to Bromley at ...


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