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Ocean Tomo, LLC v. PatentRatings, LLC

United States District Court, N.D. Illinois, Eastern Division

October 11, 2019

Ocean Tomo, LLC, Plaintiff,
v.
PatentRatings, LLC; and Jonathan Barney, Defendants.

          MEMORANDUM OPINION AND ORDER

          Honorable Thomas M. Durkin, United States District Judge

         The Court heard testimony in a bench trial held on various days in June and July 2017, and April 2018. In Defendants' proposed findings of fact and conclusions of law, defendant Barney sought indemnification for attorney's fees under the operating agreement he was party to with Ocean Tomo. On April 12, 2019, the Court entered findings of fact and conclusions of law in the case, including in Barney's favor on a number of claims Ocean Tomo brought against him. See R. 440 (Ocean Tomo, LLC v. PatentRatings, LLC, 375 F.Supp.3d 915 (N.D. Ill. 2019)). The Court withheld entry of final judgment because the Court required further briefing on the attorney's fees issue. In setting a briefing schedule, the Court also granted the parties permission to use part of their briefing to seek clarification of certain of the Court's findings.

         After the briefing was submitted, the parties asked the Court to forbear on deciding the fees and clarification issues while they participated in mediation before an exceptionally experienced and able mediator. The parties were unable to resolve the case. This is surprising considering the case's age and procedural posture, and the Court's observation that the parties are intelligent and rational business-people. The Court can only wonder what continues to motivate the parties to pursue litigation that appears to have out-lived its business purpose. The Court now addresses the remaining issues in the case, and will separately enter final judgment.

         I. Fees Under the Operating Agreement

         A. Terms of the Agreement

         Barney, a member of Ocean Tomo, seeks attorney's fees under operating agreement § 13.18, which is titled “Indemnification.” R. 398-5 at 54 (p. 48). Relevant to the Court's analysis of Barney's claim for fees are the first three subsections (a), (b), and (c) of § 13.18 (attached as an appendix to this opinion and order). These subsections address the circumstances under which “any Manager or Member” or “officer, employee, or agent of the Company” is eligible for indemnification of attorney's fees incurred because they were “a party” to any “action or suit . . . by reason of [their relationship to the Company].” Subsection (a) provides the terms for indemnification in any action, “other than an action by or in the right of the Company.” Indemnification under subsection (a) is available if the person to be indemnified “acted in good faith and in a manner the [person] reasonably believed to be in, or not opposed to, the best interests of the Company.” Additionally, the “termination of any action, suit or proceedings by judgment, order, settlement, conviction or upon plea of nolo contendere or its equivalent shall not, of itself create a presumption” against a finding that the person acted in good faith and the Company's best interests.

         Subsection (b) provides the terms for indemnification in “actions by or in the right of the company.” Like subsection (a), indemnification is available under subsection (b) if the person acted in good faith and in the best interests of the Company. Subsection (b) does not include subsection (a)'s provision against creation of a presumption. Instead, subsection (b) provides:

that no indemnification shall be made in respect of any claim, issue or matter as to which the Indemnified Person shall have been adjudged to be liable for gross negligence or willful misconduct in the performance of the Indemnified Person's duty to the Company, unless, and only to the extent that, the court in which the action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, the Indemnified Person is fairly and reasonably entitled to indemnity for those expenses as the court shall deem proper.

         Both subsections (a) and (b) provide that the Board must indemnify “Managers and Members” who satisfy the terms for indemnification, whereas the Board has discretion to indemnify an “officer, employee, or agent of the Company.” That is, unless the “officer, employee, or agent of the Company” was successful in defending the action, in which case indemnification is mandatory under subsection (c).

         Subsection (c) does not reference “good faith, ” the “best interests of the Company, ” or the other terms for indemnification provided in subsections (a) and (b). Rather, it simply provides:

To the extent that an Indemnified Person has been successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in paragraph (a) or (b) above, or in defense of any claim, issue or matter therein, the Indemnified Person shall be indemnified against expenses (including attorney's fees and costs) actually and reasonably incurred by the Indemnified Person in connection therewith.

         Barney, of course, was successful on some of the claims Ocean Tomo brought against him. Ocean Tomo contends, however, that he did not act in good faith. Ocean Tomo argues further that this makes Barney ineligible for attorney's fees because subsection (c)'s reference to the “suits or proceedings referred to” in subsections (a) and (b) means that even a person who successfully defends an action, and thus is eligible for indemnification under subsection (c), must also have acted in good faith and the best interests of the Company to be eligible for indemnification.

         The Court finds Ocean Tomo's argument to be contrary to the plain language of the contract. Subsection (c) only references subsections (a) and (b) in order to identify “the suits or proceedings” for which indemnification is available. The good faith and best interests requirements in subsections (a) and (b) do not describe the “suits or proceedings” referred to in those subsections. Rather, each subsection describes a type of suit or proceeding, i.e.: (a) any lawsuit but those brought by the company; and (b) lawsuits brought by the company. And each subsection then proceeds to explain the eligibility requirements for indemnification for each type of lawsuit. For Ocean Tomo's argument to be correct, subsection (c) would need to have provided that the person to be indemnified was successful in the lawsuit, in accordance with the terms provided in subsections (a) and (b)-i.e., good faith, best interests of the company, etc. But subsection (c) imposes no such requirement. Rather, it simply mandates indemnification of attorney's fees for any person successful in any lawsuit, whether the broad range of actions described in subsection (a), or more specifically the actions brought by or in the right of the company addressed in subsection (b).

         Ocean Tomo argues that subsection (c) was not intended to eliminate the good faith and best interests requirements imposed by subsection (a) and (b). Rather, Ocean Tomo argues, it is intended “merely [1] to provide the ‘extent' to which expenses will be indemnified and [2] [to] remove[] [the] optionality of 13.18(b) with respect to non-Managers or ...


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