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Holzer v. Motorola Lighting Inc.

March 31, 1998



The opinion of the court was delivered by: Justice Gordon delivered the opinion of the court:

Plaintiffs Walter Holzer and Prolite Gesellshaftfur Lichttechnik mbh ("Prolite") appeal the circuit court's dismissal of their suit against Motorola Lighting, Inc. ("MLI") for failure to name a necessary party.

Plaintiffs filed a four-count complaint against MLI in June 1996. According to the complaint, Holzer, a German national, is an industrialist and engineer with a number of inventions to his credit. In April 1990, he entered into a partnership agreement with non-party Henri Courier DeMere ("DeMere"), an engineer and inventor who had also developed technology, specifically in the field of electronic devices. The purpose of the partnership was to exploit and further develop certain of the technology the partners had created.

Specifically, the partnership agreement (which was attached as an exhibit to the Complaint) stated that each partner had developed and designed ballast for "fluorescentic" lamps; ballast for "iod-metallic" lamps; ballast for low voltage lamps; and high voltage transformers. The agreement collectively referred to these devices as "Products." The agreement formed a partnership "for the purpose of the worldwide exploitation of the Products, the patents and other industrial property rights on the Products." The agreement provided that the partnership "shall have the exclusive right to exploit their patents and other industrial property rights relating to the Products," and further that the partnership would be permitted to exploit any new patents or industrial property rights either partner obtained or acquired during the term of the agreement (which was to terminate on December 31, 2010, unless both partners consented to an earlier termination). The agreement provided that it was governed by Swiss law, and that any dispute arising thereunder was to be settled by arbitration in Zurich, Switzerland. In May 1990 Holzer and DeMere formed Prolite, as a vehicle for the partnership's development and licensing of the products.

The Complaint alleged that in May 1992, Holzer initiated arbitration proceedings against DeMere in Zurich, as provided in the partnership agreement, seeking a declaration of the validity and scope of the partnership agreement and an injunction against DeMere disclosing or licensing to any third parties the new technology and products which were the subject of the partnership agreement. DeMere appeared and defended himself in the proceedings. In May 1994, the arbitrator held that the partnership agreement was valid, enforceable and in effect, and enjoined DeMere from "disclosing any of the technology to, or concluding any agreements regarding the technology with, any third parties without Holzer's consent and signature." *fn1

The Complaint further alleges that during the course of the arbitration proceedings, one of DeMere's witnesses revealed that DeMere had entered into an agreement with defendant MLI while the arbitration proceeding was pending. The arbitrator ordered DeMere to produce a copy of this agreement (the MLI agreement) to Holzer. Once he did so, Holzer attempted to amend his arbitration claim to seek relief specifically with respect to the MLI agreement. His request was denied without prejudice because the additional relief requested was outside the scope of the issues originally presented for arbitration and DeMere refused to consent to the amendment.

The MLI agreement (attached as an exhibit to the Complaint) was dated August 25, 1993. It purported to grant MLI an "exclusive world wide license *** to make, use, have made, sell and otherwise transfer LICENSED PRODUCTS" (capitalization as in original). The agreement defined "LICENSED PRODUCTS" as "all products of every kind including *** power supplies and ballast systems for gas discharge lamps where at least one valid and enforceable claim of an existing patent issued to DE MERE covers the completed product where the completed product is manufactured, used or sold by or on behalf of MLI or an MLI sublicensee."

Part VII of the MLI agreement contained provisions regarding the respective responsibilities of MLI and DeMere in the case of certain types of litigation. In pertinent part (part VII B) it provided as follows:

"B. If any demand, suit or claim is made by a third party against MLI or a sublicensee based on an alleged infringement of a patent or other right as a result of the use of the rights granted hereunder, the following shall apply:

(i) MLI shall have the right to defend the same, and DE MERE shall have the right, at his own expense, after giving written notice to MLI, to appoint his own attorney to cooperate in the defense against such suit or claim.

(ii) If, as a result of any such demand, claim or suit, damages are awarded against MLI or a sublicensee, or any amounts are payable by MLI or its sublicensee as a result of any compromise which MLI or its sublicensee may enter into, or MLI or its sublicensee is required to pay royalties or damages to a third party with respect to the practice or use of the know-how or PATENT MATTER, the obligation of MLI or its sublicensee to pay to DE MERE royalties shall be reduced by the amount of the royalty payment and/or damages due to such third party.

(iii) If, as a result of any such demand, claim or suit, MLI or a sublicensee pay attorneys fees for representation or consultation to investigate or defend against any such demand, claim or suit, the obligation of MLI or its sublicensee to pay to DE MERE royalties shall be reduced by the amount of the attorney fees paid by MLI or its sublicensees."

The Complaint alleges that DeMere entered into the MLI agreement without the knowledge or consent of Holzer or Prolite. According to the Complaint, it was "well-known within the lighting industry" that Holzer and DeMere had formed a partnership to develop and market technology for power supplies and ballasts for gas discharge lamps and that Prolite had the exclusive right to license that technology to third parties. The Complaint asserts that MLI and/or its affiliates and agents had specifically become aware of "the rights of the Partnership and Prolite in and to the Products and the related technology" as the result of several meetings between Holzer, DeMere and agents of MLI. The Complaint also alleges that MLI had been aware of the arbitration between DeMere and Holzer and the result thereof since as early as June 1994, but had continued to "cooperate with in contravention of the exclusive rights of Holzer and Prolite."

As noted, the Complaint was filed in June 1996. Count I sounded in tortious interference with contractual rights. It alleged that Holzer and Prolite had and continued to suffer financial damages as a result of MLI's knowing interference with their exclusive rights to the technology which was the subject of the partnership agreement, and sought compensatory and punitive damages from MLI. Count II alleged Holzer and Prolite had suffered financial damages from MLI's acquisition (from DeMere) of trade secrets of Holzer and Prolite. It was filed with reference to the Illinois Trade Secrets Act (765 ILCS 1065/2 et seq. (West 1994)), and sought compensatory and exemplary damages and attorneys' fees.

Counts III and IV were pled in the alternative to Counts I and II. Count III sought a declaratory Judgement that the MLI agreement was void and unenforceable and MLI had no right, title and/or interest in and to the "Products" or new technology, and requested that all compensation to be paid to DeMere under the MLI agreement would be paid instead to Prolite and the partnership. Count IV requested a permanent injunction against MLI "requiring and prohibiting such acts as necessary to protect and enforce the rights" which the partnership and Prolite would acquire if the court granted the declaratory Judgement sought in Count III.

In August 1996 MLI filed a motion to dismiss pursuant to section 2-615 of the Illinois Code of Civil Procedure (the Code) (735 ILCS 5/2-615 (West 1994)). It requested that the Complaint be dismissed with prejudice because plaintiffs had failed to join DeMere, a necessary party, and because the Complaint failed to state a claim upon which relief could be granted.

In October 1996, after briefing, the circuit court granted MLI's motion to dismiss on the grounds that DeMere was an indispensable party "whom plaintiffs concede cannot here by joined." *fn2 The court noted in its written order that at oral argument on the motion plaintiffs' counsel had stated that they could not locate DeMere for purposes of service of process, and had suggested to the court

"that the defendant, whom they aver is in cahoots with the missing party[,] may have better sources of information as to his whereabouts and that the defendant can 'third party in' the alleged malefactor. Alternatively they suggest they should be allowed to amend to seek to bring in the party whom they have suggested they have no right to sue in this forum. The problem presented by these various approaches is that the plaintiffs, who bear the burden in this proceeding--even at this stage--seek to cast it on both defendants and on the court system of the people of Illinois when an exercise of their own business Judgement provides them the forum in which they are required to proceed."

The record supplied to this Court does not contain a transcript or bystander's report of the argument on the motion to dismiss.

Plaintiffs filed a motion later in October to reconsider the order of dismissal and for leave to file a first amended complaint, naming DeMere as an additional party. They argued primarily that even if DeMere was a necessary party, they had not been given a reasonable opportunity to add him, as required by section 2-407 of the Code (735 ILCS 5/2-407 (West 1994)). They stated they had not and did not concede that DeMere could not be made a party to the action, noting that although the arbitration provision of the partnership agreement would be a "substantial additional complication" to the case, it was not an absolute bar to joining DeMere, as (1) it was a contractual right which DeMere could waive, (2) he could fail to appear and be defaulted, and (3) even if he appeared and invoked the arbitration clause, the remainder of the case against MLI could either proceed or be stayed pending the outcome of the arbitration. They also asserted DeMere and MLI were joint tortfeasors and they were entitled to proceed against either or both.

During argument on plaintiffs' motion to reconsider plaintiffs indicated that the reason they were asking the trial court to reconsider its ruling, rather than simply refiling, was concern about potential estoppel effect of the language contained in the court's order to the effect that they had "conceded" that DeMere could not be joined. The court noted that its source of information for the proposition that plaintiffs could not join DeMere was plaintiffs themselves. It admitted that if plaintiffs had not conceded that they could not join DeMere its statement was "not only gratuitous," but "wrong." However, if plaintiffs had so conceded in their filings, "it is a concession that can be used against you[;] *** has a right to rely on the fact that you made that concession."

In November, 30 days after the circuit court's order dismissing the case but before the court had ruled on the motion to reconsider, plaintiffs filed a notice of appeal to this Court (No. 1-96-3944). In December, the court denied plaintiffs' motion to reconsider on the grounds that their notice of appeal had deprived it of jurisdiction, but allowed them leave to file their first amended complaint "for supplementation of record purposes only" so it would be available to the reviewing court. It also noted that it would have denied ...

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