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Armstrong Pump, Inc v. Thomas Hartman D/B/A the Hartman Company and Optimum Energy LLC

May 15, 2012

ARMSTRONG PUMP, INC., PLAINTIFF,
v.
THOMAS HARTMAN D/B/A THE HARTMAN COMPANY AND OPTIMUM ENERGY LLC, DEFENDANTS.



The opinion of the court was delivered by: Hon. Hugh B. Scott

Order

This matter has been referred to the undersigned pursuant to 28 U.S.C. § 636(b)(1)(C) (Docket No. 74, Order of Aug. 25, 2011; see also Docket No. 13, initial Referral Order of July 19, 2010). The instant matter before the Court is plaintiff's motion (Docket No. 97*fn1 ) for leave to replead and amend its Answer to the counterclaims asserted by defendant Optimum Energy LLC (hereinafter "Optimum Energy") (Docket No. 57, Ans. To First Am. Compl. With Counterclaims, ¶¶ 78-132). Previously, Optimum Energy moved (Docket No. 70) to dismiss plaintiff's Amended Counterclaim for a declaratory judgment of patent invalidity (Docket No. 68, ¶¶ 147-56) for failure to state a claim, pursuant to Federal Rules of Civil Procedure 12(b)(6) and 8. Co-Defendant Thomas Hartman d/b/a The Hartman Company (hereinafter "Hartman") joined in that motion (Docket No. 71). Optimum Energy then filed its motion for partial summary judgment arguing that plaintiff was estopped from claiming that certain of its products marked with particular patents do not practice these patents (Docket No. 78). This Court recommended granting Optimum Energy's motion (Docket No. 84), Armstrong Pump v. Hartman, No. 10CV446, 2011 U.S. Dist. LEXIS 154372 (W.D.N.Y. Dec. 29, 2011) (Scott, Mag. J.), and Chief Judge Skretny adopted and modified this recommendation, finding that plaintiff's counterclaims for patent invalidity were insufficiently plead and found the motion for summary judgment to be premature and dismissed that motion without prejudice (Docket No. 96, Order of Mar. 26, 2012, at 4-5, 6), Armstrong Pump v. Hartman, No. 10CV446, 2012 U.S. Dist. LEXIS 41252 (W.D.N.Y. Mar. 26, 2012) (Skrenty, C.J.). The next day, plaintiff filed the present motion for leave to replead and to amend (Docket No. 97). Familiarity with that Report and the Chief Judge's Order is presumed.

Also pending before this Court is Optimum Energy's motion to compel (Docket No. 99) which does not appear to involve the patent invalidity issues in the motion for leave to amend (cf. Docket No. 104, Pl. Reply Memo. at 4 (Optimum Energy has not asked for documents concerning the patent invalidity counterclaims)). Briefing for that motion is pending (see Docket No. 100).

Responses to this motion were due by April 18, 2012, with any replies due by April 27, 2012, and argument on May 2, 2012 (Docket Nos. 98, 106 (argument minutes)).

The deadlines of the current Scheduling Order (Docket No. 43) were held in abeyance pending resolution of Optimum Energy's earlier motions (Docket No. 79). After objections were filed to this Court's Report & Recommendation, a status conference previously scheduled to review the Scheduling Order was adjourned to be reset once the objections were resolved (Docket No. 89). During argument of plaintiff's latest motion for leave to amend, a status conference was held also (see Docket No. 98), wherein the concern that a schedule could not be entered at this time without first resolving the issues whether to grant leave to amend to replead claims of patent invalidity which in turn, if granted, would involve scheduling a Markman*fn2 hearing (Docket No. 106).

BACKGROUND

This is a contract dispute commenced in this Court under diversity jurisdiction (see Docket No. 1, Compl.*fn3 ¶¶ 1-4). Plaintiff initially sued defendants for breach of contract and tortious interference with a contract. Plaintiff claims that it has pioneered products for customers in residential, commercial and industrial markets, developing HVAC chilled water and boiler water systems, pumps and other components (hereafter summarized as "chilled water products") (Docket No. 55, Am. Compl. ¶¶ 8-10). In the late 1990s, Hartman applied for and obtained patents in methods, systems, and devices that improve the overall efficiency of chilled water cooling systems. These patents, collectively called the "LOOP Patents," include U.S. Patent Nos. 5,946,926 (or " '926," variable flow chilled fluid cooling system), 6,257,007 (or " '007," method of control of cooling system condenser fans and cooling tower fans and pumps), and 6,185,946 (or " '946," system for sequencing chillers in a loop cooling plant and other systems that employ all variable-speed units) (id. ¶ 12). Plaintiff entered into negotiations with Hartman to license the LOOP Patents to use in plaintiff's chilled water products (id. ¶ 13). After two years of negotiations, plaintiff signed a license agreement with Hartman (id. ¶ 15, Ex. A), with negotiated exclusive rights to plaintiff to develop chilled water products incorporating the licensed technology (id. ¶¶ 16, 33-39), and right of first refusal to any improvements in the three LOOP Patents (id. ¶¶ 17-18).

Meanwhile, Hartman negotiated with Optimum Energy for the latter to obtain rights to the LOOP Patents (id. ¶ 24). Since Optimum Energy was a non-manufacturing entity, Hartman carved out limited rights in its license agreement (id. ¶¶ 27-29, Ex. B). Optimum Energy later went into manufacturing and now directly competes with plaintiff (id. ¶¶ 29, 30). Optimum Energy sought an assignment of the LOOP Patents and Hartman agreed to proceed with the sale of those patents despite Hartman's licensing agreement with plaintiff (id. ¶ 31). Hartman entered into a Patent Purchase Agreement with Optimum Energy on February 9, 2010, and later entered into an amended agreement and other ancillary agreements (id. ¶ 40, Ex. C).

Plaintiff alleges that Hartman breached its License Agreement by transferring the rights to Optimum Energy (id. ¶¶ 43-46). Plaintiff also claims that Optimum Energy tortiously interfered with that License Agreement with Hartman (id. ¶¶ 52-60).

Proceedings

Plaintiff commenced this action on May 28, 2010, against defendants (Docket No. 1, Compl.). Hartman (Docket No. 15) and Optimum Energy (Docket No. 17) each moved to dismiss and plaintiff moved for a temporary restraining order (Docket No. 18; see Docket No. 19, plaintiff's motion for expedited hearing). Chief Judge Skretny denied Hartman and Optimum Energy's motions to dismiss (holding in abeyance each of their arguments that the Complaint failed to state a claim), granted plaintiff a temporary restraining order (Docket No. 34; see also Docket No. 38 (extending the temporary restraining order by fourteen days)), but later denied plaintiff a preliminary injunction (Docket No. 39).

After defendants separately answered (Docket Nos. 10, 11), plaintiff moved (without opposition) for leave to amend the Complaint (Docket No. 48; see Docket No. 54, Order granting leave; Docket No. 55, Am. Compl.). The Amended Complaint, filed March 8, 2011, alleges claims for breach of contract and tortious interference with a contract (Docket No. 55, Am. Compl. ¶¶ 42-51, 52-60). On March 22, 2011, defendants again separately answered the Amended Complaint (Docket Nos. 56, 57). Optimum Energy's Answer asserted counterclaims against plaintiff (Docket No. 57, ¶¶ 78-132), wherein Optimum Energy claims that it is the successor in interest in plaintiff's license agreement (id. ¶¶ 85-86) and alleged that plaintiff committed multiple breaches of that agreement in installing the patented technology in an impermissible manner (id. ¶¶ 87-105). After seeking a declaratory judgment as to the terms of the licensing agreements of plaintiff and Optimum Energy (id. ¶¶ 106-12), Optimum Energy alleged counterclaims for violation of the license agreement by plaintiff selling as a stand alone product one of the patented technologies on a particular project, outside the scope of that license (id. ¶¶ 113-24), and sought another declaratory judgment as to scope of plaintiff's licensing agreement relative to that one purported stand alone product (id. ¶¶ 129-32).

Patent Allegations Introduced

In its Answer to the Amended Complaint, Optimum Energy also asserted counterclaims for patent infringement by plaintiff selling the technology as a stand alone product (id. ¶¶ 125-28).

Hartman in his Answer did not assert any counterclaims (cf. Docket No. 56).

Plaintiff initially answered Optimum Energy's counterclaims, raising various affirmative defenses, and asserted its own counterclaims and cross-claims based on the terms of the license agreement (Docket No. 58, Ans. of Plaintiff to Am. Compl, Counterclaim, Cross-claim, filed Apr. 12, 2011). Optimum Energy then answered plaintiff's ...


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