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JAC USA, INC. v. PRECISION COATED PRODUCTS

March 24, 2003

JAC USA INC., PLAINTIFF AND COUNTER-DEFENDANT
v.
PRECISION COATED PRODUCTS, INC., DEFENDANT AND COUUTER-PLAINTIFF, CHARLES L. CASAGRANDE, DEFENDANT.



The opinion of the court was delivered by: Geraldine Soat Brown, United States Magistrate Judge

MEMORANDUM OPINION AND ORDER

This case involves a dispute between Jac USA Inc. ("Jac") on one hand, and Charles Casagrande and his company Precision Coated Products ("PCP') on the other hand, over the sale of two-liner transfer tape, and PCP's claimed patent on a process to use two-liner transfer tape to make business forms with removable labels.*fn1 Jac alleges that PCP is engaging in various illegal and tortious business practices and that Casagrande has breached a prior settlement agreement. PCP counterclaims alleging that Jac has infringed PCP's patent on the process for making business forms with integrated pressure sensitive labels. Jac counter-counterclaims alleging the invalidity of PCP's patent. Before the court are four motions for summary judgment and three motions to strike certain portions of various filings.*fn2

Jurisdiction

This case was originally filed in state court. It was removed to federal court by PCP. [Dkt#1.] The facts pleaded and disclosed to date fail to demonstrate that the pates are diverse. Jurisdiction is proper, however under federal question and supplemental jurisdiction.

At the time this case was filed, Jac and PCP were both Illinois corporations and had their principal places of business in Batavia, Illinois. (PCP's LR Ans. ¶ 1; Jac's LR Ans. ¶¶ 1, 6.)*fn3 PCP remains an Illinois corporation with Batavia as its principal place of business. (PCP's LR Ans. ¶ 2.) Jac was subsequently purchased by Avery-Dennison. (Id. ¶ 1.) However, "diversity of citizenship jurisdiction . . . depends upon the status of the parties at the commencement of the suit and is not affected by subsequent events." Factor v. Pennington Press, Inc., 230 F. Supp. 906, 909 (N.D. Ill. 1963).

In its complaint, Jac alleged that Casagrande was a "resident" of the United Kingdom, which he denied. (Casagrande's LR Ans. ¶ 7.) Casagrande does not state either his residence or his domicile in his Answer. In his statement of facts filed pursuant to Northern District Local Rule 56.1, however, he states he is "residing" in Florida and, at the time the action commenced, "lived" in the United Kingdom. (Jac's Casagrande Resp. ¶ 1.) "In federal law, citizenship means domicile not residence." America's Best Inns, Inc. v. Best Inns of Abilene, L.P., 980 F.2d 1072, 1074 (7th Cir. 1992). Simply living somewhere is insufficient to render that place a person's domicile. Rather, "domicile is established by physical presence in a place in connection with a certain state of mind concerning one's intent to remain there." Mississippi Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 48 (1989). Thus "one can reside in one place but be domiciled in another." Id.

Federal question jurisdiction is set forth in 28 U.S.C. § 1331 (2003) which provides, "The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." 35 U.S.C. § 281 (2003) states, "A patentee shall have remedy by civil action for infringement of his patent." Similarly, 28 U.S.C. § 1338 (a) (2003) provides, "The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trade-marks." The Sherman Act, 15 U.S.C. § 1 et seq., makes illegal contracts, combinations and conspiracies in restraint of trade or commerce and monopolization, attempted monopolization and combinations or conspiracies to monopolize. A complaint that specifically invokes federal law such as the Sherman Act ""arises under' federal law for purposes of § 1331." International Brotherhood of Teamsters, Local 734 Health and Welfare Trust Fund v. Phillip Morris Inc., 196 F.3d 818, 822 (7th Cir. 1999). Jac's First Amended Complaint specifically invokes the Sherman Act. (First Am. Compl. ¶ 35.)[Dkt#35.]

Supplemental jurisdiction has been codified by 28 U.S.C. § 1367 which provides that, with the exception of actions brought solely under 28 U.S.C. § 1332:

[I]n any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.
28 U.S.C. § 1367 (a).

A district court may decline to exercise supplemental jurisdiction if:

(1) the claim raises a novel or complex issue of State law, (2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction, (3) the district court has dismissed all claims over which it has original jurisdiction, or (4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction.
28 U.S.C. § 1367 (c).

Jac raises four claims in its First Amended Complaint: (I) Breach of Contract Against Casagrande; (2) Violation of the Sherman Act Through illegal Tying Arrangement; (3) Violation of the Illinois Uniform Deceptive Trade Practices Act ("IUDTPA"); and (4) Tortious Interference With Prospective Economic Advantage. (First Am. Compl.) PCP's Counterclaim For Patent Infringement [dkt#42] alleges that Jac is liable for contributory infringement and inducing others to infringe. Among other things, Jac's counter-counter claim [dkt#45] seeks a declaratory judgment that Jac has not infringed PCP's patent, and that PCP's patent is invalid.

Jurisdiction is proper for Jac's Sherman Act claim, PCP's counterclaims and Jac's counter-counterclaims because they arise under federal law. 28 U.S.C. § 1331. Jurisdiction is proper forte remainder of Jac's claims under supplemental jurisdiction. No novel or complex issue of state law is raised as the state law issues involve only established principles of contract law and application of a statute with an established meaning. See, e.g, Friedman v. Board of Education of Niles Township High School Dist. 219, No. 97 C 9001, 1998 WL 102698 at *3. (N.D. Ill. Feb. 27, 1998)(Conlon, J.)(matters of first impression under Illinois law are novel and complex). Nor do the state claims predominate over the federal claims. In this case all of the claims raised by Jac and PCP arise out of the same dispute over the sale of two-liner transfer tape. They are thus derived "from a common nucleus of operative fact" United Mine Workers of America v. Gibbs, 383 U.S. 715, 725 (1966). No exceptional circumstances appear to be present. See, e.g., Ernst v. Roberts, 225 F. Supp.2d 781, 790 (E.D. Mich. 2002) (pendency of closely related case in state court and strong state interest in issue constitutes exceptional circumstances). Thus, the court has subject matter jurisdiction.

Facts

Jac and PCP both produce and market two-liner transfer tape that is used to make business forms with pressure sensitive labels that are removable from the form. Two-liner transfer tape is marketed by Jac under the name Free Film and by PCP as Transtick. (Jac's LR Ans. ¶¶ 20, 62.)

The Development of the Process for Making Business Forms With Integrated Labels

In 1993, Charles Casagrande, now the majority stockholder and president of PCP, and Tom Yeager began to develop a process and product to create business forms with pressure sensitive integrated labels. (PCP's LR. Ans. ¶¶ 3, 5.) David Hickman, then the president of Jac, assisted in the development (Id. ¶ 5.)*fn4 Casagrande and Yeager began their work while at United Stencil & Affixing Co. of St. Louis ("USA-SL") (Jac's Casagrande LR Resp. ¶ 13.) Casagrande owned 30 percent of USA-SL and Yeager owned 70 percent and managed its day-to-day operations. (Id. ¶¶ 11-12.) Although two-liner transfer tape previously existed, Yeagar and Casagrande's goal was to develop a special type of two-liner transfer tape that could be used for the process of making business forms with pressure sensitive integrated labels. (Id. ¶ 15.) This product, Free Film,

consists of transfer adhesive stock having a first and second liner that sandwiches a layer of pressure-sensitive adhesive between them. Specifically, FREE FILM has `two differentially released coated liners' meaning the liners have a different adhesive affinity, whereby one liner may be removed from the other liner such that a web of adhesive is disposed on the remaining liner.
(Jac's LR Ans. ¶ 26 (internal citations omitted).) Thus it can be used to produce, for example, "a single form that includes order, packing and/or billing information, a package label and sometimes a return label for the customer." (Id. ¶ 34 quoting Gills Dec., Exhibit 2, Jac's Ans, ¶ 9.)

In the early 1990's, Casagrande was also a minority shareholder in United Coating Technologies, Inc. ("UCT") which, among other things, slit and resold transfer tape products. (Jac's Casagrande Resp. ¶ 6.) Casagrande, who was aware of Jac through UCT, asked Jac if Jac could make a specialty transfer tape pursuant to Yeager and Casagrande's specifications. (Id. ¶ 16.) UCT began purchasing the two-liner transfer tape from Jac, slitting it and reselling it (Id. ¶ 17.)

The 1995 Agreement

In late 1994, Jac and UCT were in the process of negotiating Jac's purchase of a list of UCT's customers for two-liner transfer tape. (Jac's Casagrande Resp. ¶ 19.) An agreement was reached in May, 1995 (the "1995 Agreement")*fn5

The 1995 Agreement is on Jac stationery, and is addressed to Steve McKillip of UCT. (1995 Agreement at Jac 00384.) It provides, in relevant part:

In connection with the desire of United Coating Technologies Inc. (`U.C.T.') to furnish sales leads to Jac U.S.A. Inc. ("Jac") in respect of Jac's Free Film product we would be pleased to engage your services as a supplier of sales leads (the "Services') on the terms and conditions set out hereinbelow, provided however that U.C.T. pays all outstanding Jac Canada Inc. invoices on or before May 7, 1995, the total of which is presently US $67,262.91, . . . and that U.C.T. together with Jac informs all of U.C.T.'s current Free Film customers as listed on Schedule B hereto (the "Customers'), both verbally and in writing, that while Jac Canada Inc. has always been U.C.T.'s supplier of Free Film, U.C.T. has agreed with Jac that as of May 7, 1995 Jac will commence selling and invoicing Free Film and any other Jac or Jac Canada Inc. product to the Customers.
During and after the termination of this agreement Jac shall not be prevented by U.C.T. or the Intervenants hereto from selling Free Film or any Jac or Jac Canada Inc. product to the Customers or any customer whatsoever. Neither U.C.T. nor any of the Intervenants hereto shall directly or indirectly promote, offer for sale, or sell any product similar to Free film to the Customers or any customer whatsoever for a period of five (5) years from the date of acceptance of this agreement.
(Id. at Jac 00384-385.)

Under the 1995 Agreement, Jac was to pay UCT a commission calculated as 50% of "Excess Profits" on sales to former UCT Customers. (Id. at JAC 00385.) The 1995 Agreement contains an integration clause. (Id. at JAC 00386.) Casagrande and others initialed and signed the 1995 agreement as "Intervenants." (Id. at JAC 00387.) The clause preceding the Intervenants' signatures states, "We, the undersigned Intervenants, hereby intervene into the above agreement as of the date of the above-mentioned acceptance and agree to be bound by the agreement to the extent the same applies to us." (Id.) The parties dispute what role Casagrande had in the negotiation of the Agreement. (Jac's Casagrande Resp. ¶ 20.)

The 1995 Agreement had a term of five years from UCT's acceptance. (1995 Agreement at JAC 00386.) In 1996 and 1997, a dispute arose between Jac and UCT about commissions under the 1995 Agreement. (Jac's Casagrande Resp. ¶ 32.) The dispute and resulting lawsuit were settled in 1999 through a settlement agreement (the "Settlement Agreement.")*fn6 The Settlement Agreement terminated the 1995 Agreement and was declared to be a compromise of all disputes "of any nature and kind which may have arisen between UCT and JAC prior to the date of this [Settlement] Agreement." (Id. at JAC 00087.) Under the Settlement Agreement, Jac paid the sum of $110,000 in full satisfaction of any obligation that JAC might have to UCT and the Intervenants (now referred to as "Intervenors") under the terms of the 1995 Agreement as of the date of the Settlement Agreement. (Id. at JAC 00088.) The Settlement Agreement expressly provided:

The following provision of the Free Film [1995] Agreement shall survive termination of that Agreement:
During and after the termination of this agreement JAC shall not be prevented by U.C.T. or the Intervenants hereto from selling Free Film or any Jac or Jac Canada Inc. product to the Customers or any customer whatsoever. Neither U.C.T. nor any of the Intervenants shall directly or indirectly promote, offer for sale, or sell any product similar to Free Film to the Customers or any customer whatsoever for a period of five (5) years from the date of acceptance of this agreement
(Id. at JAC 00088-89.) The Settlement Agreement was dated April 1999 and signed by Casagrande. (Id. at JAC 00087-91.)

The Patent

Yeager and Casagrande filed patent application number 08/409, 203 (" the '203 Application") on March 23, 1995 just prior to entering into the May 2, 1995 agreement with Jac. (PCP's LR Ans. ¶ 8.) That Application was abandoned. (Id.) On July 13, 1996, Yeager and Casagrande filed patent application number 08/683,359 ("the '359 Application") as a continuation of the '203 Application. (Id. at ¶ 9.) The '359 Application was also abandoned. (Id.) On December 24, 1997, Yeager and Casagrande filed a third application, number 08/998,397 ("the '397 Application") as a division of the '359 Application. (Id. at ¶ 10.) That application became patent number 6,068,037 ("the '037 Patent"), which was issued on May 30, 2000. ('037 Patent, attached at ...


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