Step Saver, Inc., Respondent, vs. Glacier Salt, Inc., f/k/a Becker Feed & Supply, Inc., et al., Appellants.

Step Saver, Inc., Respondent, vs. Glacier Salt, Inc., f/k/a Becker Feed & Supply, Inc., et al., Appellants. A04-1805, Court of Appeals Unpublished, June 14, 2005.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A04-1805

 

Step Saver, Inc.,
Respondent,
 
vs.
 
Glacier Salt, Inc.,
f/k/a Becker Feed & Supply, Inc., et al.,
Appellants.

 

Filed June 14, 2005

Affirmed; motion denied

Stoneburner, Judge

 

Becker County District Court

File No. C1991398

 

Clark A. Tuttle, III, Jared D. Peterson, Berens, Rodenberg & O'Connor, Chtd., 519 Center Street, Box 428, New Ulm, MN 56073-0428 (for respondent)

 

Zenas Baer, Zenas Baer and Associates, 331 Sixth Street, Box 249, Hawley, MN 56549 (for appellants)

 

            Considered and decided by Lansing, Presiding Judge; Stoneburner, Judge; and Minge, Judge.

U N P U B L I S H E D  O P I N I O N

 

STONEBURNER, Judge

 

            Appellants Glacier Salt Systems, Inc. and John Pearson challenge the judgment of the district court adding John Pearson as a defendant, adjudging appellants in contempt of court for failing to obey the district court's prior orders, imposing sanctions, and awarding respondent damages, attorney fees, and costs.  Appellants argue that (1) the injunction contained in the district court's prior order is ambiguous and unenforceable through contempt, and (2) the district court erred or abused its discretion in (a) finding appellants in contempt; (b) joining John Pearson as a party defendant; and (c) awarding attorney fees without requiring compliance with Minn. Gen. R. Pract. 119.  Because the injunction is not ambiguous and the district court did not err or abuse its discretion, we affirm.

FACTS

 

            In 1997, respondent Step Saver, Inc. and appellant Glacier Salt Systems, f/k/a Becker Feed and Supply, Inc. (Glacier) entered into a license agreement that granted Glacier the right to use a patented method for delivery of salt in six counties (five in Minnesota and one in North Dakota).  A companion supplier agreement required Glacier to purchase all of its salt supplies from Step Saver.  John Pearson is the sole shareholder and director of Glacier.

            In 1999, Step Saver sued Glacier for breach of both agreements, requesting termination of the license agreement, a judgment for fees due under the agreements, attorney fees and costs, and an injunction prohibiting Glacier from operating as a licensee under the agreement.  In February 2000, the district court granted partial summary judgment to Step Saver on the claim of breach of the license agreement but denied summary judgment on the supplier agreement.  This partial judgment awarded damages to Step Saver and permanently enjoined Glacier from doing business under the license agreement and using Step Saver's "patented method for delivery of salt."  Judgment was entered on the award of damages under the license agreement. 

            Step Saver then moved to have Glacier found in contempt of court for failing to comply with the judgment, but later agreed to stay that motion.  Glacier moved for amended findings of fact, conclusions of law, and judgment and requested a stay of enforcement of the February 2000 judgment until resolution of its motion.  The stay was granted.  Glacier also amended its answer and counterclaim asserting that the supplier agreement constituted an unlawful "tying" arrangement that made the license agreement unenforceable.

            The parties resolved the lawsuit by a stipulation providing for entry of a permanent injunction that amended the language of the injunction granted in February 2000, payment of funds to Step Saver, and a release of all other claims arising from or that could arise from the license agreement.  The agreed-on injunction was incorporated into an order and judgment filed in January 2001 and provides that:

Defendant, its successors and assigns, and its agents and employees, including, but not limited to, John Pearson, are now and forever enjoined from infringing United States Patent Number 5,445,192, including remotely filling a salt bin of a water softener disposed within a residence or other structure having an external wall, by connecting a salt delivery hose from a salt hopper, on a transport vehicle, to a coupling member disposed externally of said wall and a conduit between said coupling member and a salt bin, in any of the following counties of the State of Minnesota: Becker, Clay, Ottertail, Wadena, Mahnomen; and in Cass County in the State of North Dakota.

            In 2004, Step Saver served an order to show cause, notice of motion, and motion on John Pearson and Glacier, asking the court to find Pearson and Glacier in contempt for violating the injunction, to amend the caption to reflect a change in the name of the corporation, and to join John Pearson as a defendant.  The motion was supported by evidence that John Pearson delivered salt in the prohibited counties from a salt hopper mounted on a truck using an external "coupling member" on at least three occasions in 2003.

            At the hearing on Salt Saver's motion for contempt, Pearson admitted that he provides salt to approximately 60% of Glacier's 150 customers using an "external coupling."  Pearson testified that although he initially thought the injunction prevented this method, he later concluded the injunction only prohibited "patent infringement" and that, in his opinion, his method of delivery did not infringe on the patent because it did not include one step in the patented method (the use of a sensor in the salt bin to signal the operator when to stop the flow of salt).

            The district court concluded that Pearson has continuously delivered salt in violation of the orders of February 23, 2000, and January 26, 2001, and that under Minn. R. Civ. P. 21 and the doctrine of piercing the corporate veil, the district court could impose contempt relief on Pearson individually as well as on Glacier.  The district court concluded that Pearson and Glacier were in contempt of court and specified prospective penalties to be imposed if Pearson and Glacier continue to violate the court's orders.  The district court also awarded Step Saver $14,670.11 for "attorney's fees, and costs."  This appeal followed. 

            Appellant has moved to strike portions of respondent's appendix as outside the record on appeal.

D E C I S I O N

 

I.          Motion to strike

            Appellant moved to strike two documents from Step Saver's appendixa stipulation and order dismissing without prejudice appellant's declaratory judgment action in United States District Courtand all references to those documents in Step Saver's brief.  We have previously denied a motion to strike documents not introduced at trial that represented the orders or opinion of another court or jurisdiction, citing a statute that requires us to take judicial notice of the common law and statutes of every state, territory, and other jurisdiction of the United States.  See Donovan Contracting of St. Cloud, Inc. v. Minn. Dept. of Transp., 469 N.W.2d 718, 723 (Minn. App. 1991) (citing Minn. Stat. § 599.04 (1990), review denied (Minn. Aug. 2, 1991).  Because the documents are the type of which we could take judicial notice, we deny the motion to strike.  But because the documents do not appear relevant to the issues before us, we decline to take judicial notice of them and did not rely on the documents or references to the documents in reaching our decision.

II.        Enforceability of injunction though contempt

            The district court has broad discretion to hold an individual in contempt.  Erickson v. Erickson, 385 N.W.2d 301, 304 (Minn. 1986).  A district court's decision to invoke its contempt power is reviewed under an abuse-of-discretion standard.  Mower County Human Servs. v. Swancutt, 551 N.W.2d 219, 222 (Minn. 1996).  Factual findings made in a contempt order will be reversed only if they are clearly erroneous.  Minn. R. Civ. P. 52.01.  "Before a party may be held in criminal or civil contempt, the trial court must find that the underlying order is valid and that the alleged contemnor had sufficient notice of the restraints imposed on his behavior."  River Towers Ass'n v. McCarthy, 482 N.W.2d 800, 803 (Minn. App. 1992), review denied (Minn. May 21, 1992).

            Appellants argue that the injunction was not clear regarding what conduct is prohibited and that the district court could not find them in contempt without finding that they infringed the patent, a determination that the district court lacks subject-matter jurisdiction to make.  The district court did not make an express finding that appellants infringed the patent but did find that appellants violated the injunction by delivering salt in a manner specifically detailed and proscribed in the injunction.

            We first address appellants' assertion that the district court did not have subject-matter jurisdiction over the issue of patent infringement.  28 U.S.C. § 1338(a) provides that the federal district court shall have original and exclusive jurisdiction of any civil action arising under any act of Congress relating to patents.  This provision has consistently been interpreted to mean that if a plaintiff bases an action on conduct that is protected or governed by federal patent law, then the plaintiff may not invoke the state law remedy, which must be preempted for conflict with the federal patent law.  Hunter Douglas, Inc. v. Harmonic Design Inc., 153 F.3d 1318, 1335 (Fed. Cir. 1998), overruled on other grounds by Midwest Indus., Inc. v. Karavan Trailers, Inc., 175 F.3d 1356 (Fed. Cir. 1999).  But "the Supreme Court has repeatedly confirmed that federal patent law issues housed in a state law cause of action are capable of being adjudicated . . . ." Id. at 1334.  The cause of action pleaded in the complaint determines whether preemption occurs.  See Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 809, 108 S. Ct. 2166, 2174 (1988) (stating that "[u]nder the well-pleaded complaint rule, as appropriately adapted to § 1338(a), whether a claim ‘arises under patent law' must be determined from what necessarily appears in the plaintiff's statement of his own claim . . . unaided by anything alleged in anticipation or avoidance of defenses which it is thought the defendant may interpose.").  In this case, the complaint asserts an action based on the license agreement and an alleged breach of the license agreement for failure to pay fees, and does not allege patent infringement or in any way refer to patent law as an essential ground of the relief sought.  See id.(stating that only those cases in which a well-pleaded complaint establishes either that federal patent law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded claims, is a case "arising under" the patent laws).

 

In Crew v. Flanagan, the supreme court stated

[w]e must keep in mind at the outset that an action to recover royalties under a license or assignment of patent rightsdiversity of citizenship or any other special grounds for asserting federal jurisdiction not being involvedmust be brought in a state court.  It is also the rule that a suit by a patentee for royalties under a license or assignment granted by him or for any relief sought with respect to a contract which permits the use of the patent is not a suit under the patent laws of the United States and cannot be maintained in a federal court as such.

 

242 Minn. 549, 555, 65 N.W.2d 878, 883 (1954) (emphasis added).  Furthermore, "it is no objection to the prosecution of a royalty claim suit in a state court that the validity or the construction of the patent may become and is involved, providing the suit is one in contract and the questions under the patent laws rise collaterally."  Id. at 555, 65 N.W.2d at 883.

            In a case with facts similar to this, the United States Court of Appeals for the sixth Circuit held that a state court suit involving only contract rights pertaining to a patent may not be removed to a federal court by virtue of a defendant's assertion that the plaintiff's only valid cause of action is a suit for patent infringement.  Kysor Indus. Corp. v. Pet, Inc., 459 F.2d 1010, 1012 (6th Cir. 1972) (stating "[a]ctions to enforce patent license agreements are not within exclusive federal jurisdiction notwithstanding the availability of the invalidity defense").  Because the complaint in this case did not implicate patent law, the district court correctly exercised its jurisdiction and appellants' assertion that the district court had to find patent infringement in order to find them in contempt does not deprive the state court of jurisdiction.

            There is abundant evidence in the record to support the district court's finding that appellants' acts were contrary to the specifically prohibited acts unambiguously described in the injunction and stipulated to by the parties as constituting an infringement on the patent.  That the parties may have been in error in defining the conduct as patent infringement does not deprive the district court of jurisdiction to enforce its unambiguous injunction.  As appellants noted in oral argument, the injunction's reference to the conduct being prohibited in only six specified counties clearly indicated that the parties were not invoking patent law (which applies nationally) and is consistent with the use of the injunction to prohibit appellants from continuing to act as if licensed to make deliveries in the specified manner.  We conclude that the district court did not abuse its discretion by enforcing the injunction through contempt or by concluding that appellants violated the injunction.

            Appellants further attack the district court's jurisdiction by asserting that Step Saver did not have a proper assignment of the patent and therefore lacked standing to enforce the license agreement.  "[S]tanding has been called one of the most amorphous concepts in the entire domain of public law."  Cochrane v. Tudor Oaks Condo. Project, 529 N.W.2d 429, 433 (Minn. App. 1995) (citation omitted), review denied (Minn. May 31, 1995).  "[T]he fundamental aspect of standing is that it focuses on the party seeking to get his complaint before a court and not on the issues he wishes to have adjudicated." Id. A potential litigant must allege injury in fact, or otherwise have a sufficient stake in the outcome, to obtain standing and to seek a court's decision on the merits of a dispute.  Id. Although standing may be raised at any time, "courts appear hesitant to deny standing under circumstances which would prejudice the party whose standing would be found lacking."  Id. 

            As a party to the licensing agreement, Step Saver alleged an injury in fact if appellants continued to operate under the breached and terminated license agreement.  Step Saver clearly had a sufficient stake in the outcome of litigation concerning the licensing agreement to have a court decide the merits of the dispute.  Appellants, having entered into a licensing agreement premised on Step Saver's ownership interest in the patent, and having entered into a settlement stipulation releasing all claims arising out of, or that could arise out of that licensing agreement, now seek to attack the validity of the licensing agreement by asserting that Step Saver had no interest in the patent.  We conclude here, as we did in Cochrane, that policy factors favor the conclusion that Step Saver has the requisite standing to pursue this action.  Like the appellants in Cochrane, Step Saver has been litigating the merits of the controversy for years without any challenge to its standing to do so, and a denial of standing at this time would be unduly prejudicial.

III.       The district court did not impose criminal contempt penalties on appellants

            Appellants' assertion that the district court improperly imposed criminal contempt penalties on them is without merit.

Whether a contempt proceeding is civil or criminal depends on the purpose behind the court's exercise of its contempt power.  The purpose of criminal contempt is to vindicate the authority of the court and punish the contemnor for past behavior, usually through a fixed, unconditional sentence.  The purpose of civil contempt is to vindicate the rights of an opposing party by coercing compliance with an order through imposition of a sanction of indefinite duration, to be lifted upon compliance.

 

River Towers Ass'n, 482 N.W.2d at 804 (quoting Nelson v. Nelson, 408 N.W.2d 618, 621 (Minn. App. 1987)).  A lack of provision for the contemnor to purge the contempt and absence of mechanisms for compelling future compliance will indicate that criminal contempt was imposed.  Id. at 805.  A person charged with criminal contempt is entitled to a jury trial, and a finding of criminal contempt will be reversed if no jury trial was held.  Id.

            In this case, the district court found appellants in contempt based on their past conduct, but all of the penalties imposed were designed to coerce future compliance.  Appellants were ordered to pay a daily fine until they disclosed, as required in the February 2000 order, a complete customer list, but the fine was stayed for fifteen days from the date of the contempt order to allow appellants to purge the contempt.  The district court further provided that "should [appellants] fail to follow the Order or the previous Orders and Injunctions, this court will impose jail time and a daily fine for each day [appellants] violate the aforementioned injunction and conditions."  The penalties imposed are clearly prospective and appropriate for civil contempt.

IV.       Joinder of John Pearson

            Appellants did not challenge John Pearson's joinder in the district court.  "Joinder issues may not be raised for the first time on appeal."  Oldewurtel v. Redding, 421 N.W.2d 722, 726 (Minn. 1998).  We therefore decline to address this issue.

V.        Attorney fees

            Appellants object to the district court's award of attorney fees to respondent on the ground that the affidavit of respondent's counsel does not comply with Minn. R. Gen. Prac. 119.  A reviewing court will not reverse a district court's award or denial of attorney fees in the absence of an abuse of discretion.  Becker v. Alloy Hardfacing & Eng'g Co., 401 N.W.2d 655, 661 (Minn. 1987).  Minn. Stat. § 588.11 (2004) provides for an award of attorney fees in a contempt proceeding if any actual loss or injury is caused by the contempt.  To uphold an award of attorney fees in a contempt action, three factors must be present: (1) fees must be based on proof of actual damages; (2) the award must not penalize the contemnor; and (3) the party receiving the fees must have actually incurred the fees.  Hanson v. Thom, 636 N.W.2d 591, 593 (Minn. App. 2001).

            Minn. R. Gen Pract. 119.02 requires that a motion for attorney fees for $1,000 or more be

accompanied by an affidavit of any attorney of record which establishes the following:

 

1.                  A description of each item of work performed, the date upon which it was performed, the amount of time spent on each item of work, the identity of the lawyer or legal assistant performing the work, and the hourly rate sought for the work performed;

2.                  The normal hourly rate for each person for whom compensation is sought, with an explanation of the basis for any difference between the amount sought and the normal hourly billing rate, if any;

3.                  A detailed itemization of all amounts sought for disbursements or expenses, including the rate for which any disbursements are charged and the verification that the amounts sought represent the actual cost to the lawyer or firm for the disbursements sought; and

4.                  That the affiant has reviewed the work in progress or original time records, the work was actually performed for the benefit of the client and was necessary for the proper representation of the client, and that charges for any unnecessary or duplicative work has been eliminated from the application or motion.

 

Appellants correctly assert that the affidavit in this case failed to set forth the normal hourly rate for each attorney who worked on the case.  But the hourly rate is evident from the itemized billing, and appellants have not asserted any prejudice from the omission and did not dispute respondent's request for attorney fees in the district court.  And we find appellants' assertion that the time records reveal double billing to be without merit.  The time records indicate that an associate did some work on the case but do not indicate that the same tasks were billed twice.  Because the affidavit generally complied with the rule, we conclude that the district court did not abuse its discretion by awarding attorney fees.

            Affirmed, motion denied.