Cardiovascular Systems, Inc. v. Cardio Flow, Inc. ( 2022 )

United States Court of Appeals
For the Eighth Circuit
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No. 20-3478
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Cardiovascular Systems, Inc.
Plaintiff - Appellant
v.
Cardio Flow, Inc.
Defendant - Appellee
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Appeal from United States District Court
for the District of Minnesota
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Submitted: March 15, 2022
Filed: June 14, 2022
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Before ERICKSON, GRASZ, and STRAS, Circuit Judges.
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ERICKSON, Circuit Judge.
Cardiovascular Systems, Inc. (“CSI”) brought this action against Cardio Flow,
Inc. (“Cardio Flow”), alleging the breach of a settlement agreement that resolved
ownership of intellectual property rights related to atherectomy devices. Cardio
Flow was not a named party to the settlement, however, and moved for summary
judgment on that basis. In response, CSI asserted that principles of equitable
estoppel and agency bound Cardio Flow to abide by the agreement. The district
court1 rejected CSI’s arguments and dismissed its claims. We affirm.
I. BACKGROUND
CSI and Cardio Flow are competitor firms in the medical device industry. CSI
produces atherectomy devices, which remove built-up plaque from arteries. Cardio
Flow is in the process of developing its FreedomFlow atherectomy device that is
currently in clinical trials.
Dr. Leonid Shturman founded the medical device company that later evolved
into CSI, where he became the chief executive officer. Several agreements required
Dr. Shturman to assign the intellectual property rights from his inventions to CSI.
During his employment, Dr. Shturman discovered a new technology for atherectomy
devices called the “Counterweight Invention.” It utilizes centrifugal forces to allow
an atherectomy device to orbit inside an artery for improved abrasive effect.
The Counterweight Invention has been the focus of multiple lawsuits over the
last 15 years. Not long after Dr. Shturman came up with the idea in 2002, he resigned
from CSI and tried to patent the technology himself. Five years later, CSI sued him
in federal district court and filed a parallel arbitration against his nascent company,
Shturman Medical Systems, Inc. An arbitrator deemed CSI the rightful owner of the
Counterweight Invention. Dr. Shturman settled the federal case and transferred his
interest in the technology to CSI.
Despite the settlement, Dr. Shturman persisted in securing patents for orbital
atherectomy devices. CSI again questioned his ownership, prompting Dr. Shturman
to preemptively initiate a lawsuit in October 2009. But he died a month later, leaving
1
The Honorable Susan Richard Nelson, United States District Judge for the
District of Minnesota.
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the new patents’ ownership unresolved and whatever interest he had in them to his
widow, Lela Nadirashvili.
Gary Petrucci—a CSI board member who managed the litigation against Dr.
Shturman—contacted Nadirashvili shortly after her husband’s death. She expressed
dismay because she had “put all our money into [obtaining the new patents] and I’m
broke.” Petrucci responded, “Well, send me the patents. Let me take a look at it and
maybe I can be of some help.” Petrucci then introduced Nadirashvili to his personal
intellectual property lawyers. Those same lawyers agreed to represent Nadirashvili
pro bono in her effort to keep ownership of the patents. Petrucci resigned from CSI’s
board in March 2010 and founded Cardio Flow four months later. In his deposition,
Petrucci testified that before starting Cardio Flow, he and Nadirashvili had discussed
that she would receive 40 percent of the company’s shares in exchange for the rights
to her patents.
In 2012, Nadirashvili sued CSI in the District of Minnesota for a declaratory
judgment that she owned the new patents. She maintained that they were not covered
by the previous arbitration because they derived from fluid inflatable counterweights
rather than the originally developed solid counterweights. The delineation between
fluid and solid counterweights underlaid an August 2012 settlement agreement that
instigates this dispute.
The settlement agreement separated the contested patents into the Nadirashvili
Patent Portfolio and the CSI Patent Portfolio, each named for the respective assignee
of the patent rights within them. Because the two portfolios had some overlap as to
fluid and solid technologies, Section 3 of the settlement agreement set up inverse
exclusive licenses. Nadirashvili conferred on CSI a “worldwide, royalty-free, paid-
up, irrevocable exclusive right and license under the Nadirashvili Patent Portfolio to
make, have made, use, offer to sell, sell and import rotational atherectomy devices
or methods utilizing Solid Counterweights.” In return, CSI granted Nadirashvili an
identical license for “devices or methods utilizing Fluid Inflatable Counterweights.”
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Section 7 provided that Nadirashvili “may partner (which may include . . . the
sale of the Nadirashvili Patent Portfolio to a person or entity) with any individual or
entity to develop the Nadirashvili Patent Portfolio, including Gary Petrucci.” And
Section 10 prohibited assignment of the settlement agreement absent written consent
of the other party—with a lone exception:
[E]ither party may assign, without the consent of the other party, this
Settlement Agreement and the rights, obligation and privileges herein
in conjunction with a sale or transfer of the respective party’s Patent
Portfolio to a third party who has agreed, in writing promptly delivered
to the other party, to be bound to this Agreement as if it were a party.
The order of dismissal specified that the district court would retain jurisdiction over
the settlement agreement.
On November 16, 2012, Nadirashvili transferred her patent portfolio to Cardio
Flow in exchange for shares and two monetary payments. She did not receive CSI’s
written consent before doing so. Cardio Flow never agreed in writing or otherwise
to be bound by the settlement agreement. According to CSI, Cardio Flow eventually
began developing its FreedomFlow device using solid counterweights, allegedly in
violation of the exclusive right and license.
CSI commenced this action against Cardio Flow in Minnesota state court. The
complaint as amended advanced claims for breach of contract, as well as declaratory
and injunctive relief. Cardio Flow removed the case to federal court and successfully
resisted a motion to remand. On cross-motions for summary judgment, the district
court determined that Section 3 afforded CSI only “an exclusive license to certain
patent rights under the Nadirashvili Patent Portfolio,” not a broader exclusive right
to practice solid counterweights generally. The district court then found that neither
equitable estoppel nor agency theories supported binding Cardio Flow as a party to
the settlement agreement and dismissed CSI’s complaint.
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II. DISCUSSION
CSI contends that the district court erred in deciding Cardio Flow was not a
party to the settlement agreement by either equitable estoppel or an agency
relationship. CSI does not assert on appeal that it has the exclusive right to practice
solid counterweights. We review the district court’s grant of summary judgment de
novo, construing the evidence and all reasonable inferences for the nonmoving party.
Meyer v. McKenzie Elec. Coop., Inc., 947 F.3d 506, 508 (8th Cir. 2020). Summary
judgment is warranted when “there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).
A. Mootness
Before reaching the merits, we first address a challenge to our jurisdiction to
decide this appeal. Article III of the Constitution limits federal judicial power to the
determination of “Cases” and “Controversies.” The necessity of an ongoing “dispute
capable of judicial resolution,” U.S. Parole Comm’n v. Geraghty, 445 U.S. 388, 403
(1980), must endure throughout “all stages of federal judicial proceedings, trial and
appellate,” Lewis v. Cont’l Bank Corp., 494 U.S. 472, 477 (1990). Cardio Flow asks
us to dismiss this appeal as moot, arguing it would not impact the final result. See,
e.g., In re Gretter Autoland, Inc., 864 F.3d 888, 891 (8th Cir. 2017) (“If nothing of
practical consequence turns on the outcome of an appeal, then the appeal is moot.”).
We disagree.
Cardio Flow asserts that because CSI did not specifically appeal the dismissal
of its requests for declaratory and injunctive relief and forfeited any right to damages
below, the possibility of a remedy is foreclosed no matter what. Yet the district court
dismissed the injunction claim on the sole ground that CSI lacked a broad exclusive
right to practice solid counterweights. If we were to hold that a genuine fact dispute
remains as to whether Cardio Flow became a party to the settlement agreement, CSI
would be able to seek injunctive relief for the violation of its exclusive license to the
solid counterweight technology in Nadirashvili’s patent portfolio. See U.S. Valves,
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Inc. v. Dray, 212 F.3d 1368, 1376 (Fed. Cir. 2000), abrogated on other grounds by
Gunn v. Minton, 568 U.S. 251 (2013). Also, even if CSI surrendered actual damages
in the district court (an issue we need not reach), the availability of nominal damages
is enough to stave off mootness. Uzuegbunam v. Preczewski, 592 U.S. ___, 141 S.
Ct. 792, 802 (2021); see N.Y. State Rifle & Pistol Ass’n, Inc. v. City of N.Y., 590
U.S. ___, 140 S. Ct. 1525, 1536 (2020) (Alito, J., dissenting) (observing “it is widely
recognized that a claim for nominal damages precludes mootness”). In Minnesota,
“[a]bsent proof of actual loss . . . nominal damages are recoverable for breach of [a]
contractual obligation.” George Benz & Sons v. Hassie, 293 N.W. 133, 138 (Minn.
1940). While a direct prayer for nominal damages does not appear in CSI’s amended
complaint, its “averment of general damages is sufficient to state a claim for nominal
damages.” Ins. Servs. of Beaufort, Inc. v. Aetna Cas. & Sur. Co., 966 F.2d 847, 853
(4th Cir. 1992). Mootness arises “only when it is impossible for a court to grant any
effectual relief whatever to the prevailing party.” Knox v. Serv. Emps. Int’l Union,
Loc. 1000, 567 U.S. 298, 307 (2012) (citation and internal quotation marks omitted).
Since CSI may obtain injunctive relief or nominal damages, this case still presents a
live controversy.2
B. Equitable Estoppel
CSI first argues that the record supports the application of equitable estoppel
to bar Cardio Flow from denying it is bound by the settlement agreement. Under
2
We ordered supplemental briefing on several other jurisdictional questions.
Upon review, we conclude the district court had ancillary jurisdiction over this case
to enforce the settlement agreement. See, e.g., Kokkonen v. Guardian Life Ins. Co.
of Am., 511 U.S. 375, 381 (1994); Myers v. Richland Cnty., 429 F.3d 740, 747 (8th
Cir. 2005). Although removal was improper under Syngenta Crop Protection, Inc.
v. Henson, 537 U.S. 28, 34 (2002), CSI waived that defect by failing to raise it within
the first 30 days. See 28 U.S.C. § 1447(c); Holbein v. TAW Enters., Inc., 983 F.3d
1049, 1059 (8th Cir. 2020) (en banc). This purely state-law breach of contract action
does not arise under federal patent law, thereby vesting appellate jurisdiction in this
court. See 28 U.S.C. § 1295(a)(1); Inspired Dev. Grp., LLC v. Inspired Prods. Grp.,
LLC, 938 F.3d 1355, 1364-68 (Fed. Cir. 2019).
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Minnesota law, a litigant’s claim of equitable estoppel has three elements: (1) that
promises or inducements were made; (2) that it reasonably relied on those promises;
and (3) that it will suffer harm if estoppel is not applied. Heidbreder v. Carton, 645
N.W.2d 355, 371 (Minn. 2002).
“Representation or concealment of material facts is an indispensable element
of equitable estoppel.” W. H. Barber Co. v. McNamara-Vivant Contracting Co., 293
N.W.2d 351, 357 (Minn. 1979). CSI offers no evidence indicating that Cardio Flow,
as opposed to Nadirashvili or Petrucci, represented or concealed a material fact and
never argues differently on appeal. Instead, CSI suggests that equitable estoppel can
apply without that requirement because Cardio Flow accepted the benefits from the
settlement agreement—namely, Nadirashvili’s patents—with prior knowledge of its
terms. The Minnesota Supreme Court rebuffed a similar theory in Lunning v. Land
O’Lakes, 303 N.W.2d 452, 457 (Minn. 1980), when a party cited previous cases to
argue that “representation or concealment of a material fact is no longer an essential
element of equitable estoppel.” The state supreme court countered that “any doubts
remaining as to [its] stance . . . were put to rest” by the clear holding in W. H. Barber.
Id. at 458; see also Suske v. Straka, 39 N.W.2d 745, 751 (Minn. 1949) (“[O]ne who,
either intentionally or through culpable negligence by silence . . . or by his acts and
representations, induces another to believe that certain facts exist is estopped to deny
the existence of such facts . . . .”). In this situation, “[o]ur duty is to conscientiously
ascertain and apply state law, not to formulate new law based on our own notions of
what is the better rule.” Leonard v. Dorsey & Whitney LLP, 553 F.3d 609, 612 (8th
Cir. 2009). We are not free under Minnesota law to excuse CSI’s failure to establish
that Cardio Flow represented or concealed material facts.
CSI’s reliance on Karnitz v. Wells Fargo Bank, N.A., 572 F.3d 572 (8th Cir.
2009), misses the mark. That decision involved a claim to void a mortgage pursuant
to Minnesota Statute § 507.02, which ordinarily “requires a mortgage on a married
couple’s homestead to be signed by both spouses.” Id. at 574. We applied a line of
Minnesota Supreme Court cases allowing equitable estoppel to override the statutory
language if “(1) the nonsigning spouse consents to and has prior knowledge of the
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transaction, (2) the nonsigning spouse retains the benefits of the transaction, and
(3) the party seeking to invoke estoppel has sufficiently changed its position to
invoke the equities of estoppel.” Id. at 574-75 (citing Dvorak v. Maring, 285 N.W.2d
675, 677-78 (Minn. 1979); Seitz v. Sitze, 10 N.W.2d 426 (Minn. 1943); Fuller v.
Johnson, 165 N.W. 874 (Minn. 1917)). But we were careful to acknowledge that
“the doctrine of equitable estoppel generally involves some type of
misrepresentation.” Id. at 576. We then expressly stated that the “retention of the
benefits” concept applied “in the specific context of the homestead signature
requirement of § 507.02.” Id. Given the Minnesota Supreme Court’s unequivocal
holdings elsewhere that a representation or concealment is essential, we decline to
extend Karnitz to supplant the usual equitable estoppel elements. We likewise reject
CSI’s invitation to rely on decisions applying the law of states other than Minnesota.
See LG & E Cap. Corp. v. Tenaska VI, L.P., 289 F.3d 1059, 1065 (8th Cir. 2002)
(Nebraska law); Total Petroleum, Inc. v. Davis, 822 F.2d 734, 737-38 (8th Cir. 1987)
(Missouri law). Equitable estoppel provides no basis to enforce the settlement
agreement against Cardio Flow.
C. Agency
CSI makes two arguments that Nadirashvili acted as Cardio Flow’s agent, thus
binding it as a principal, when she entered into the settlement agreement.3 First, CSI
asserts that Nadirashvili was participating in a joint venture with Petrucci. Second,
CSI posits that Petrucci extensively controlled Nadirashvili’s lawsuit, ending in the
settlement agreement favoring Cardio Flow. Both contentions are unpersuasive.
A joint venture creates agency relationships among its participants. Duxbury
v. Spex Feeds, Inc., 681 N.W.2d 380, 390 (Minn. Ct. App. 2004). An undertaking
becomes a joint venture when four distinct elements are fulfilled: “(1) contribution—
combining either money, property, time, or skill in a common undertaking; (2) joint
3
CSI waived any challenge to the district court’s conclusion that Nadirashvili
lacked actual or apparent authority to contract on Cardio Flow’s behalf by not raising
the issue in its briefing. See Jenkins v. Winter, 540 F.3d 742, 751 (8th Cir. 2008).
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proprietorship and control—the parties having a proprietary interest and a right of
control over the subject matter; (3) sharing of profits—but not necessarily of losses;
and (4) contract—either express or implied.” Krengel v. Midwest Automatic Photo,
Inc., 203 N.W.2d 841, 847 (Minn. 1973).
CSI argues that Nadirashvili worked with Petrucci to negotiate the settlement
agreement “for the benefit of their joint venture, Cardio Flow.” The evidence belies
that claim. “Each participant must have an equal right to direct and govern . . . every
other participant with respect to the mutual undertaking.” Delgado v. Lohmar, 289
N.W.2d 479, 482 (Minn. 1979). Though Nadirashvili received shares and payments
for her patents, nothing illustrates that she possessed any right—much less an equal
right—to control Cardio Flow’s activities. Nadirashvili accepted a minority stake in
Cardio Flow, and the record points to Petrucci alone managing its operations. More
fundamentally, the existence of a joint venture “assum[es] that a corporation has not
been organized” yet. Rehnberg v. Minn. Homes, Inc., 52 N.W.2d 454, 456 (Minn.
1952). Petrucci incorporated Cardio Flow before Nadirashvili signed the settlement
agreement. A corporation may form a joint venture with other individuals or entities,
Hansen v. St. Paul Metro Treatment Ctr., Inc., 609 N.W.2d 625, 629 (Minn. Ct. App.
2000), but normally cannot itself be the subject of such an endeavor. See Rehnberg,
52 N.W.2d at 456; 46 Am. Jur. 2d Joint Ventures § 9 (2022) (explaining “as a general
proposition, the fact that an entity is a corporation precludes finding that it is a . . .
joint venture”).4
The assertion that Petrucci controlled Nadirashvili’s lawsuit is equally without
merit. CSI’s argument relies on A. Gay Jenson Farms Co. v. Cargill, Inc., 309
N.W.2d 285 (Minn. 1981). There, the Minnesota Supreme Court held that a debtor
grain elevator acted as an agent for its creditor in transactions with farmers. Id. at
293. Calling the relationship between the debtor and creditor “unique,” id., the court
identified nine factors that demonstrated extensive control, id. at 291. It additionally
4
For the same reason, Cardio Flow cannot be a traditional partnership between
Nadirashvili and Petrucci. See Minn. Stat. § 323A.0202(b) (“An association formed
under a statute other than this chapter . . . is not a partnership under this chapter.”).
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referenced the agency principle that “[a] creditor who assumes control of his debtor’s
business may become liable as principal for the acts of the debtor in connection with
the business.” Id. (citing Restatement (Second) of Agency § 14O (Am. L. Inst.
1958)).
We later distinguished Jenson Farms. In New Millennium Consulting, Inc. v.
United HealthCare Services, Inc., 695 F.3d 854, 859 (8th Cir. 2012), a company was
alleged to be an agent under an extensive control theory based on another entity’s
authority to screen, assign, and supervise its employees. When affirming summary
judgment, we explained that no agency relationship existed because the entity was
not a creditor of the company and lacked control over its internal affairs. Id. at 860.
Here, the relationship between Petrucci and Nadirashvili is weaker than that
in New Millennium and far afield from that in Jenson Farms. Petrucci did not lend
money to Nadirashvili. She merely told him she was facing financial difficulties
following her husband’s death, resulting in his offer to examine the patents to see if
“there was something to be done” with them. The record at most reveals that the
lawyers whom Petrucci introduced Nadirashvili to kept him informed about
important terms in the settlement agreement beforehand and gave him a copy after
execution. Petrucci and the lawyers testified that he was not involved in legal
strategy. There is no evidence that Petrucci directed or financed the litigation in a
way that gives rise to an inference of pervasive control over Nadirashvili’s affairs.
No reasonable jury would find that Nadirashvili entered into the settlement
agreement as an agent for Cardio Flow.
III. CONCLUSION
Neither equitable estoppel nor agency principles bound Cardio Flow as a party
to the settlement agreement. We affirm the judgment of the district court.
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