Johnson v. Ross , 419 F. App'x 357 ( 2011 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-1046
ORIN S. JOHNSON; GARY A. JONES; and AM-RAD, Inc.,
Plaintiffs - Appellants,
v.
SAMUEL B. ROSS, II,
Defendant - Appellee.
Appeal from the United States District Court for the Southern
District of West Virginia, at Parkersburg. Joseph R. Goodwin,
Chief District Judge. (6:08-cv-00313)
Argued: December 9, 2010 Decided: March 23, 2011
Before AGEE and WYNN, Circuit Judges, and Patrick Michael DUFFY,
Senior United States District Judge for the District of South
Carolina, sitting by designation.
Affirmed by unpublished opinion. Judge Wynn wrote the opinion,
in which Judge Agee and Senior Judge Duffy concurred.
ARGUED: Leonard Rose, LATHROP & GAGE, LLP, Kansas City,
Missouri, for Appellants. William E. Hamb, ROBINSON & MCELWEE,
PLLC, Charleston, West Virginia, for Appellee. ON BRIEF: Amy
Loth Allen, LATHROP & GAGE, LLP, Kansas City, Missouri; Greer S.
Lang, Lawrence, Kansas, for Appellants. Joseph S. Beeson,
Christopher L. Hamb, ROBINSON & MCELWEE, PLLC, Charleston, West
Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
WYNN, Circuit Judge:
Under West Virginia law, “if benefits have been received
and retained under such circumstance that it would be
inequitable and unconscionable to permit the party receiving
them to avoid payment therefor, the law requires the party
receiving the benefits to pay their reasonable value.” 1
Plaintiffs contend that Defendant, a corporate officer and
shareholder, must disgorge the benefit he received from
Plaintiffs. However, because the benefits were conferred only
on the corporation and Plaintiffs make no argument for piercing
the corporate veil, we affirm the district court’s grant of
summary judgment for Defendant.
I.
In 1995, Gary A. Jones and Orin S. Johnson began designing
improvements to the welding process used in the construction of
window frames. In 1999, they received two patents for
technology enabling the corners of a thermoplastic window frame
to be welded together using radiant heat instead of a flash. 2
1
Realmark Devs., Inc. v. Ranson, 208 W. Va. 717, 721-22,
542 S.E.2d 880, 884-85 (2000).
2
On January 5, 1999, Jones and Johnson received U.S. Patent
No. 5,855,720 entitled “Clamping Head for Use in Joining Plastic
Extrusions and Method Thereof.” On May 11, 1999, Jones and
(Continued)
3
They assigned ownership of the patents to Am-Rad, Inc., a
Minnesota corporation.
In 2004, Millennium Marketing Group, Ltd. (“Millennium”), a
Kansas corporation acting as the marketing agent for Jones,
Johnson, and Am-Rad (collectively “Plaintiffs”), began
discussions with Simonton Building Products, Inc., and Simonton
Holdings, Inc., (collectively “Simonton”) about the Am-Rad
technology. At the time of these discussions, Simonton was
controlled by Defendant Samuel B. Ross, II.
On or about November 21, 2004, Millennium, Jones, Johnson,
and Am-Rad entered into a License Agreement with Simonton for
the licensing and use of the patented Am-Rad technology. The
License Agreement granted Simonton an exclusive license 3 to
“prove out” the Am-Rad technology and adapt it “into a
production mode” for use in the fenestration (i.e. window
making) industry. The License Agreement further provided for
Johnson received U.S. Patent No. 5,902,447 entitled “Deflashing
Head and Method for Joining Plastic Extrusions.”
3
The agreement contemplated a series of licensing options
that could be exercised successively by Simonton upon payment of
specified sums of money. On July 15, 2005, the license
agreement was amended by adjusting the duration of certain
licensing options and the amount of consideration paid to
exercise those options. The parties do not dispute that
Simonton held an exclusive license to utilize the Am-Rad
technology, as contemplated in the License Agreement, during all
times relevant to this dispute.
4
the future establishment of a joint venture for the marketing of
the Am-Rad technology. The joint venture would be organized as
a limited liability company formed and operated “for the sole
purpose of marketing and selling to others the right to use the
[Am-Rad] Technology in the fenestration industry.” Simonton
agreed to “contribute to the capital of the LLC any enhancements
or additional patents it may acquire as the result of placing
into production products utilizing the [Am-Rad] Technology.”
Although not required under the terms of the License
Agreement, at Defendant’s request Jones and Johnson provided
services, as well as expertise and confidential information
regarding the Am-Rad technology. They maintain that their
services ultimately contributed to the development of new
fenestration technology. Specifically, Plaintiffs’ amended
complaint states that Jones and Johnson provided “services and
efforts with regard to the fixtures, heat plates, drawings,
information pertaining to the time, temperature, and distance
settings for the welding process, as well as other confidential,
proprietary information and know-how.” Additionally, Plaintiffs
assert that Jones and Johnson made numerous trips to Simonton’s
research and development facilities in Pennsylvania and its
production plants in West Virginia. Also, Plaintiffs provided
consultation services on the telephone and in person.
5
Plaintiffs further allege that they provided assistance to
Simonton in reliance on Defendant’s repeated representations and
assurances that they would be compensated. According to
Plaintiffs, Ross and other Simonton officers told Jones and
Johnson “that Plaintiffs and Simonton were partners” with equal
rights to any jointly developed technology and the resulting
profits. 4
Notwithstanding these oral assurances, Plaintiffs maintain
that Defendant acted as though Simonton was the sole owner of
technology developed with the assistance of Jones and Johnson.
Specifically, Plaintiffs contend that Defendant caused Simonton
to file patent applications for the jointly developed technology
without listing Plaintiffs as inventors. 5 And Plaintiffs contend
that Defendant received an inflated amount of merger
4
Plaintiffs maintain that Defendant assured them that they
were “partners” that were “in it together” and that Plaintiffs
would jointly own and share in the profits of any jointly
developed technology.
5
On December 30, 2005, Simonton filed a patent application
for window manufacturing technology. On December 15, 2006,
Simonton filed a second application for window manufacturing
technology. According to the complaint, both of Simonton’s
patent applications are still pending in the U.S. Patent and
Trademark Office. Plaintiffs alleged that the Simonton patent
applications proposed claims that were enhancements or
improvements to the Am-Rad technology that had been jointly
developed by the parties. Plaintiffs alleged, moreover, that
the Simonton patent applications violated the terms of the
License Agreement.
6
consideration on the basis of representations to the proposed
buyer that Simonton owned the jointly developed technology.
Defendant concedes that in 2005, he and the chief financial
officer for SBR, Inc. (“SBR”), the parent company of which
Simonton was a subsidiary, discussed the possibility of
marketing SBR for sale. 6 Fortune Brands, Inc., (“Fortune
Brands”) was a Delaware corporation that appeared interested in
acquiring SBR. At the August 2005 meeting of the Board of
Directors of SBR, it was decided that Ross should contact
Fortune Brands to gauge its interest in acquiring SBR. In
November 2005, SBR sent a formal offering memorandum to Fortune
Brands, and in December 2005 representatives of Fortune Brands
and SBR met to discuss the business operations of the SBR
subsidiaries. Plaintiffs maintain that during these December
meetings, John Brunett, then-president of Simonton, represented
to Fortune Brands that Simonton possessed “new” fenestration
technology. Plaintiffs assert that Defendant knew that this was
false and failed to correct Burnett’s misrepresentations.
Fortune Brands made an initial offer to purchase SBR on December
6
Defendant was the chairman and chief executive officer of
SBR and also a member of SBR’s board of directors. [J.A. 303]
He was also chairman of Simonton’s board of directors. [J.A.
303] According to Defendant, he was one of some 344 stockholders
of SBR. [J.A. 303]
7
13, 2005. In June 2006, Fortune Brands acquired 100% of SBR’s
outstanding stock for $595 million. 7
Plaintiffs filed suit against Defendant on a theory of
unjust enrichment, 8 seeking restitution for “the increased value
Ross received in the sale of his entities and assets to Fortune
Brands” as a result of the jointly developed technology. 9
Plaintiffs also sought to compel Defendant to disgorge the value
of the confidential information shared with Simonton, the value
of the services provided, and the value of the jointly developed
technology itself.
On December 10, 2009, the district court entered a
memorandum opinion and order granting summary judgment to
Defendant on two grounds. First, the court noted that West
Virginia law provides that “[a]n express contract and an implied
7
As noted by the district court, “[t]he actual transaction
involved several steps.” Fortune Brands created Brightstar
Acquisition LLC, which merged into SBR on June 7, 2006. On June
9, 2009, with the approval of its shareholders, SBR merged into
SBR, LLC. SBR’s shareholders received consideration for their
shares from Fortune Brands.
8
Plaintiffs’ initial complaint also included a claim for
breach of fiduciary duty. That claim was deleted from
Plaintiffs’ First Amendment Complaint, filed on August 12, 2009.
9
Essentially, Plaintiffs allege that Defendant touted the
parties’ jointly developed technology to Fortune Brands and was
able to negotiate a higher sale price for the Simonton entities
and assets as a result of receiving the services of Jones,
Johnson, and Am-Rad than Defendant would have received had he
not improperly used Plaintiffs’ information and technology.
[J.A. 49]
8
contract relating to the same subject matter can not co-exist.”
Case v. Shepherd, 140 W. Va. 305, 311, 84 S.E.2d 140, 144
(1954). The district court concluded that Plaintiffs’ unjust
enrichment claim was precluded because the License Agreement
governed the identical subject matter. 10 Second, as an
alternative justification for its holding, the district court
noted that shareholders are generally not liable for a
corporation’s acts. See Laya v. Erin Homes, Inc., 177 W. Va.
343, 346, 352 S.E.2d 93, 96-97 (1986) (“This limited liability
is one of the legitimate advantages of doing business in the
corporate form.”). The district court opined that Defendant
acted on behalf of the corporation when he dealt with Plaintiffs
and when he negotiated the sale of SBR. The district court
found no justification for piercing the corporate veil, noting
Plaintiffs’ failure to even “advance such an argument.” The
district court consequently found no grounds for holding
Defendant personally liable. Plaintiffs appealed.
10
We need not consider whether the district court erred in
ruling that the existence of the License Agreement precluded
Plaintiffs’ recovery for unjust enrichment, as we affirm on
separate grounds. See Catawba Indian Tribe of S.C. v. City of
Rock Hill, S.C., 501 F.3d 368, 372 n.4 (4th Cir. 2007) (“[W]e
review judgments, not opinions. We are accordingly entitled to
affirm the district court on any ground that would support the
judgment in favor of the party prevailing below.” (citation
omitted)).
9
II.
“We review the district court’s order granting summary
judgment de novo.” Robb Evans & Assoc., LLC v. Holibaugh, 609
F.3d 359, 364 (4th Cir. 2010). Summary judgment is appropriate
if “there is no genuine dispute as to any material fact” and
Defendant, the movant, “is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a). In conducting our review, “we
view all facts and reasonable inferences therefrom in the light
most favorable to the nonmoving party.” Battle v. Seibels Bruce
Ins. Co., 288 F.3d 596, 603 (4th Cir. 2002).
Defendant suggests that this well-established standard of
review should be modified, “at least with regard to inferences
that may be drawn from undisputed facts.” Brief of Appellee at
28. Defendant maintains that “the clearly erroneous standard
would be the proper standard to apply to inferences drawn by the
district judge from the undisputed evidence at the summary
judgment stage.” Brief of Appellee at 29.
Defendant’s argument stems from a mistaken interpretation
of this court’s opinion in International Bancorp, LLC v. Societe
des Bains de Mer et du Cercle des Etrangers a Monaco, 329 F.3d
359 (4th Cir. 2003). In that case, the plaintiff contended that
the district court exceeded its summary judgment authority by
making factual determinations. Id. at 362. Noting that the
parties had “agreed to submit the voluminous record to the court
10
for dispositive decision” and that the district court’s
disposition simply resolved disputes concerning the inferences
drawn from undisputed material facts, we held that the district
court had properly proceeded to judgment. Id. However, we also
noted that because the district court “engaged in fact-finding
to dispose of the matter, we review its findings of fact for
clear error.” Id.
Defendant asserts that International Bancorp supports the
proposition that where only equitable relief is sought, we
review the inferences drawn by the district court for clear
error. Defendant’s reliance on International Bancorp is
misplaced. The clear error standard announced there referred
only to our review of factual findings made by the district
court in the rare scenario where such “fact-finding” was
appropriate at the summary judgment stage. Here, no factual
determinations were made. Lacking any predicate findings of
fact by the district court, we decline to apply a clear error
standard. Instead, our review is limited to a de novo
determination of whether Defendant was entitled to judgment as a
matter of law with respect to Plaintiffs’ unjust enrichment
claim.
11
III.
Generally, a plaintiff seeking restitution on a theory of
unjust enrichment must establish (1) a benefit conferred on the
defendant by the plaintiff, (2) an appreciation or knowledge by
the defendant of the benefit, and (3) the acceptance or
retention by the defendant of the benefit under such
circumstances as to make it inequitable for the defendant to
retain the benefit without payment of its value. 26 Samuel
Williston & Richard A. Lord, A Treatise on the Law of Contracts
§ 68:5 (4th ed. 2003); see also Realmark Devs., 208 W. Va. at
721-22, 542 S.E.2d at 884-85 (“[I]f benefits have been received
and retained under such circumstance that it would be
inequitable and unconscionable to permit the party receiving
them to avoid payment therefor, the law requires the party
receiving the benefits to pay their reasonable value.”); Dunlap
v. Hinkle, 173 W. Va. 423, 427 n.2, 317 S.E.2d 508, 512 n.2
(1984) (“Unjust enrichment of a person occurs when he has and
retains money or benefits which in justice and equity belong to
another.” (quotation omitted)).
We need not consider whether Jones and Johnson conferred a
benefit on Simonton. This case does not concern an unjust
12
enrichment claim against the beneficiary corporation. 11 Instead,
Plaintiffs seek restitution from Ross individually.
Accordingly, the threshold question is whether Plaintiffs
conferred on Ross individually a benefit which would be
inequitable for him to retain without making payment to
Plaintiffs.
Our review of the record reveals no such benefit. Each of
the actions taken by Johnson and Jones benefitted Ross, if at
all, only indirectly by virtue of his status as a Simonton
shareholder. Plaintiffs cite no West Virginia case establishing
that an unjust enrichment action can be sustained against the
indirect recipient of a benefit conferred by a plaintiff.
Different states have reached opposite conclusions when
addressing this issue. Compare Extraordinary Title Servs., LLC
v. Fl. Power & Light Co., 1 So. 3d 400, 404 (Fla. Dist. Ct. App.
2009) (affirming dismissal of unjust enrichment claim because
“Plaintiff cannot allege nor establish that it conferred a
direct benefit on [defendant]”); Johnson v. Microsoft Corp., 106
Ohio St. 3d 278, 286, 834 N.E.2d 791, 799 (2005) (“The rule of
law is that an indirect purchaser cannot assert a common-law
11
In a related case filed in federal district court in
Kansas, Plaintiffs sued Simonton and Fortune Brands for, inter
alia, unjust enrichment. See Johnson, et al. v. Simonton Bldg.
Prods., Inc., No. 08-cv-2198 (D. Kan. 2008).
13
claim for restitution and unjust enrichment against a defendant
without establishing that a benefit had been conferred upon that
defendant by the purchaser.”) with Bank of Am. Corp. v. Gibbons,
173 Md. App. 261, 271, 918 A.2d 565, 571 (Md. Ct. Spec. App.
2007) (“[A] cause of action for unjust enrichment may lie
against a transferee with whom the plaintiff had no contract,
transaction, or dealing, either directly or indirectly.”);
Freeman Indus., LLC v. Eastman Chem. Co., 172 S.W.3d 512, 525
(Tenn. 2005) (“[T]o recover for unjust enrichment, a plaintiff
need not establish that the defendant received a direct benefit
from the plaintiff.”); State ex rel Palmer v. Unisys Corp., 637
N.W.2d 142, 155 (Iowa 2001) (“We have never limited [unjust
enrichment] to require the benefits to be conferred directly by
the plaintiff.”). We decline Plaintiffs’ invitation to settle
this state-law question, not least because doing so is
unnecessary to reach our disposition.
If West Virginia law would not allow an unjust enrichment
suit against an indirect beneficiary, summary judgment should
have been granted to Defendant. If, alternatively, an indirect
beneficiary could be sued for unjust enrichment, Plaintiffs’
unjust enrichment action still fails because Defendant
benefitted only as a Simonton shareholder; thus, to wrest the
benefit from him would require us to pierce the corporate veil
shielding him from liability.
14
Assuming that the technical assistance provided by Johnson
and Jones was valuable, that value was realized by Simonton, the
company undertaking to improve the Am-Rad technology, rather
than by Defendant individually. Similarly, the value of the
confidential information disclosed to Simonton employees cannot
be said to have been conferred on Defendant. Further, insofar
as Plaintiffs seek to compel Ross to disgorge the value of the
jointly developed technology, they fail to demonstrate that Ross
himself became the unjust recipient of the value of that
technology.
Indeed, the only mention of a benefit realized by Ross
individually is Plaintiffs’ allegation that Ross received an
inflated payment as a Simonton shareholder when the company
merged with Fortune Brands by virtue of alleged
misrepresentations that Simonton owned the technology jointly
developed with the assistance of Johnson and Jones. Despite
their attempts to avoid the consequence of this allegation,
Plaintiffs essentially contend that the corporation unjustly
received a benefit in the form of increased merger consideration
and then ask us to wrest a portion of that increased merger
consideration from Ross, an individual shareholder, on the
grounds that Ross facilitated the unjust enrichment.
However, “[t]he law presumes . . . that corporations are
separate from their shareholders.” S. Elec. Supply Co. v.
15
Raleigh Cnty. Nat. Bank, 173 W. Va. 780, 788, 320 S.E.2d 515,
523 (1984). Even assuming arguendo that Simonton was unjustly
enriched, this does not, without more, give rise to liability on
the part of Ross as an individual. See U.S. ex rel. Purcell v.
MWI Corp., 520 F. Supp. 2d 158, 173 (D.D.C. 2007) (“The
plaintiff may only rely on an inference that a stockholder by
means of his corporate equity received a benefit if the
plaintiff shows that the stockholder abused the corporate form,
using it as his own alter ego to perpetuate fraud-in which case,
the corporate veil should be pierced.”). 12
West Virginia law recognizes that “[u]nder exceptional
circumstances, . . . . ‘[j]ustice may require that courts look
beyond the bare legal relationship of the parties to prevent the
corporate form from being used to perpetrate injustice, defeat
public convenience or justify wrong. However, the corporate
form will never be disregarded lightly.’” Laya, 177 W. Va. at
347, 352 S.E.2d at 97 (quoting S. States Co-op., Inc. v. Dailey,
167 W. Va. 920, 930, 280 S.E.2d 821, 827 (1981)). Moreover,
12
See also Metalmeccanica Del Tiberina v. Kelleher, No. 04-
2567, 2005 WL 2901894, at *4 (4th Cir. 2005) (unpublished)
(affirming rejection of unjust enrichment claim against
corporate officer with observation that “[a]t most, [the
plaintiff] can demonstrate that [the defendant corporation], as
opposed to [its owner], received a nongratuitous benefit. Any
benefit [the owner] received . . . came from [the corporation]-
not [the plaintiff]”).
16
“the burden of proof is on a party soliciting a court to
disregard a corporate structure.” S. Elec. Supply Co., 173 W.
Va. at 787, 320 S.E.2d at 522. We agree with the district court
that Plaintiffs have not carried that burden.
Piercing the corporate veil “is an equitable remedy, the
propriety of which must be examined on an ad hoc basis.” Laya,
177 W. Va. at 347, 352 S.E.2d at 98. “[D]ecisions to look
beyond, inside and through corporate facades must be made case-
by-case, with particular attention to factual details.” S.
Elec. Supply Co., 173 W. Va. at 787, 320 S.E.2d at 523. For
this reason, “the propriety of piercing the corporate veil
should rarely be determined upon a motion for summary judgment.
Instead, the propriety of piercing the corporate veil usually
involves numerous questions of fact for the trier of the facts
to determine upon all of the evidence.” Laya, 177 W. Va. at
351, 352 S.E.2d at 102.
The Laya court’s reluctance to absolutely foreclose summary
judgment accommodates courts faced with cases, such as this one,
wherein no attempt whatsoever is made to “pierce the veil.”
Indeed, Plaintiffs insist that “[i]t is not necessary to pierce
the corporate veil in order to impose personal liability” on
Ross. Opening Brief at 35.
Plaintiffs argue that because Ross, acting as a corporate
officer, knowingly participated in alleged wrongdoing, he is
17
personally liable. Plaintiffs cite a host of cases for the
proposition that a corporate officer may be held personally
liable for tortious activity of the corporation when the officer
sanctions or participates in the wrongful conduct. See, e.g.,
Bowling v. Ansted Chrysler-Plymouth-Dodge, Inc., 188 W. Va. 468,
472, 425 S.E.2d 144, 148 (1992) (“‘A director or an officer of a
corporation does not incur personal liability for its torts
merely by reason of his official character unless he has
participated in or sanctioned the tortious acts[.]’” (quoting
Cato v. Silling, 137 W. Va. 694, 717, 73 S.E.2d 731, 745
(1952))). However, Plaintiffs point to no tort committed
against them by either Simonton or Ross. Moreover, we are
mindful that the theory of recovery in an unjust enrichment
action renders it more akin to a contract action than a tort
action. See Ross Eng’g Co. v. Pace, 153 F.2d 35, 45 (4th Cir.
1946) (observing that in cases of unjust enrichment “a contract
to pay is implied in law”). We recognize that a judicially
implied “quasi-contract” is not actually a contract. However,
we are disinclined to analogize to the cases cited by Plaintiffs
given the different justifications that support imposing
personal liability on corporate officers for corporate torts as
opposed to corporate contractual obligations. S. Elec. Supply
Co., 173 W. Va. at 787 n.13, 320 S.E.2d at 522-23 n.13. (“Some
courts will more readily disregard a corporate form in cases of
18
tort liability than in contract cases because contracts are
voluntarily entered into with the corporate structure.”).
Piercing the veil in the context of a breach of contract
does not rest on participation liability, as it would under a
tort theory. Instead, the Supreme Court of West Virginia has
stated that
[I]n a case involving an alleged breach of contract,
to “pierce the corporate veil” in order to hold the
shareholder(s) actively participating in the operation
of the business personally liable for such breach to
the party who entered into the contract with the
corporation, there is normally a two-prong test: (1)
there must be such unity of interest and ownership
that the separate personalities of the corporation and
of the individual shareholder(s) no longer exist (a
disregard of formalities requirement) and (2) an
inequitable result would occur if the acts are treated
as those of the corporation alone (a fairness
requirement).
Laya, 177 W. Va. at 349, 352 S.E.2d at 99. This two-prong test
underscores why piercing the corporate veil would be imprudent
under a theory that an implied contract existed between
Plaintiffs and Defendant. There was no “unity of interest and
ownership” that would establish that Ross was impliedly
contracting on his own behalf. Instead, even taking the
evidence in the light most favorable to Plaintiffs, Ross made
promises, whether express or implied, on behalf of the
corporation. Thus, if a benefit was conferred on the basis of
those promises, the corporation, not its officers, would be the
entity unjustly enriched by the failure to keep those promises.
19
Accordingly, we conclude that Defendant is not subject to
personal liability for unjust enrichment, if any, on the part of
Simonton. Because Plaintiffs fail to demonstrate any benefit
retained by Defendant other than that realized by virtue of his
status as a shareholder, they cannot maintain a cause of action
for unjust enrichment against him individually. The district
court therefore did not err in granting Defendant’s motion for
summary judgment.
AFFIRMED
20