Rick C. Sasso, M.D., and SEE LLC v. Warsaw Orthopedic, Inc., Medtronic Sofamor Danek, Inc., and Medtronic, Inc. , 2015 Ind. App. LEXIS 702 ( 2015 )

Nov 06 2015, 10:14 am
ATTORNEYS FOR APPELLANTS ATTORNEYS FOR APPELLEES
Frederick D. Emhardt Michael T. Nilan
Brett E. Nelson Teresa J. Kimker
Ryan T. Leagre Nilan Johnson Lewis PA
Plews Shadley Racher & Braun LLP Minneapolis, Minnesota
Indianapolis, Indiana
L. Alan Whaley
Adam Arceneaux
Mark Alson
Ice Miller LLP
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Rick C. Sasso, M.D., and SEE November 6, 2015
LLC, Court of Appeals Case No.
Appellants-Plaintiffs, 43A04-1504-PL-175
Appeal from the Kosciusko Circuit
v. Court
The Honorable Curtis D. Palmer,
Warsaw Orthopedic, Inc., Special Judge
Medtronic Sofamor Danek, Inc., Trial Court Cause No.
and Medtronic, Inc., 43C01-1308-PL-94
Appellees-Defendants
Baker, Judge.
Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015 Page 1 of 14
[1] SEE LLC appeals the trial court’s order denying its motion for summary
judgment and granting the defendants’ cross-motion for summary judgment. It
argues that it is entitled to unpaid royalties stemming from a 1998 contract.
Finding this contract unenforceable as a matter of law, we affirm the judgment
of the trial court.
Facts 1
[2] Dr. Rick Sasso is a spinal surgeon and inventor. The president of Indiana Spine
Group in Carmel, Indiana, he is the named inventor on several United States
patents related to rehabilitation of the spine.
[3] In 1994, Sasso filed his first patent application, with co-inventor Dan Justin, for
a spine implant device. Justin later assigned his entire interest to Sasso, making
Sasso the sole owner. This device involves screws and rods that provide
stability in the upper neck area. Sasso formed a company, SEE LLC (SEE),
with his brother and father-in-law to manage his intellectual property. In July
1997, Patent 5,643,259 (“the Patent”) issued.
1
We heard oral argument in this case on October 20, 2015, in the Krannert Building of Purdue University in
West Lafayette. We thank counsel for their able and informative oral advocacy.
Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015 Page 2 of 14
Background to This Suit
[4] In 1998, Sasso began negotiating a potential business venture with Sofamor
Danek Group (SDG), the predecessor to the defendants,2 in which he would
transfer the Patent and provide expertise in exchange for monetary
compensation. SDG’s first draft of a contract was written as an agreement
between SDG and Sasso, but Sasso edited the contract to replace his name with
SEE’s. Appellants’ App. 569-79. The parties signed this 1998 contract (“the
Agreement”) after these edits had been made. Id. at 251-58.
[5] After the edits, one of the representations reads, “See further warrants and
represents that it owns solely, as evidenced by a copy of an assignment attached
hereto in Schedule A, all right, title, and interest in the Patent and the
Intellectual Property Rights . . . .” Id. at 571. There is no such document
attached to the contract.3 Indeed, there is no formal assignment document
establishing SEE’s rights to the Patent anywhere in the record. The right to the
Patent was the heart of the deal, as SEE purported in the Agreement to
“irrevocably transfer[], assign[], and convey[] to SDG all its entire right, title,
and interest in and to” the Patent. Id. at 254.
2
The three defendants are corporate affiliates of each other. SDG merged with Medtronic, Inc. in 1999, and
Warsaw Orthopedic, Inc., merged with SDG in 2006.
3
Sasso claims that it is likely that such a document existed but was later misplaced, but he has produced no
evidence for such a claim.
Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015 Page 3 of 14
[6] SDG agreed to pay three types of consideration in exchange for the rights to the
Patent. First, it agreed to pay, and did in fact pay, $100,000 to SEE. Second, it
agreed to grant, and did in fact grant, 1,500 shares of SDG stock to SEE.
[7] The third form of payment (“4(B)(iii) payment”) constitutes the subject of this
lawsuit:
A contingency payment in the amount of five percent (5%) of the
worldwide Net Sales of the Medical Device, if covered by the
Intellectual Property Rights, and two and one-half percent (2½
%) if the Medical Device is not covered by the Intellectual
Property Rights.
Id. at 254. “Medical Device” is defined as “any device, article, system,
apparatus or product including the Invention.” Id. at 252. “The Invention” is
defined as “any product, method or system relating to spinal or cranial surgery.
. . .” Id. “Intellectual Property Rights” is defined as the Patent and associated
know-how. Id.
[8] Also in the definition of “Medical Device,” however, is the following
statement: “Such Medical Devices shall be listed in accordance with SDG
catalog numbers and descriptions in an addendum to be attached to this
Agreement as agreed upon in writing between the parties.” Id. Just as there
was no “Schedule A” attached to the contract to show assignment of the
Patent, no such addendum listing the products covered by the agreement was
ever negotiated, agreed upon, written down, or attached to the Agreement. The
defendants have never made a single 4(B)(iii) payment. Until the
Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015 Page 4 of 14
commencement of this lawsuit, SEE never made a demand for 4(B)(iii)
payments, nor did it communicate to the defendants that it thought it was owed
4(B)(iii) payments.
Sasso’s Ventures With Medtronic
[9] The controversy between SEE and the defendants is complicated by the
extensive business relationship that Sasso, as an individual, has carried on with
the defendants. In January 1999, SDG merged with Medtronic. Since that
time, Sasso, the individual, has entered into several agreements with the
defendants, all for different medical devices related to spinal stabilization.
Appellant’s App. at 312-13.4
[10] Sasso and Medtronic have entered into agreements for the following products
in which he transferred his intellectual property in exchange for royalties and,
occasionally, up-front cash: a “Posterior Rod System,” id. at 74; a “facet screw
instrumentation and headless facet screw fixation system,” id. at 108; a
“Vantage Plate Device,” id. at 867; an “Atlantis Venture” product, id. at 119-33;
a “posterior side-loading spinal rod system,” id. at 342; a “cervical intervertebral
disc prosthesis,” id. at 362; and an “image guided remote referencing pin used
in surgical procedures,” id. at 409. Altogether, Medtronic has paid Sasso at
least $23 million on these deals as of December 22, 2014. Id. at 313.
4
Most of these agreements were between Sasso and various affiliates of Medtronic; for the sake of clarity, we
will recount these contracts as between Sasso and Medtronic.
Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015 Page 5 of 14
[11] Consolidating the definitions in the Agreement, SEE claims it is entitled to at
least 2.5% of the sales of “any device, article, system, apparatus or product that
includes any product, method or system relating to spinal or cranial surgery.”
Id. at 252. SEE explains, “The broad definitions agreed to by the parties make
practically all products Dr. Sasso helped with subject to payment of royalties,
including specifically the Vertex posterior cervical screw/rod implant system . .
. .” Appellants’ Br. 16. In other words, the LLC of which Sasso is one of three
members claims a right to be compensated for most, if not all, of the products
for which Sasso, the individual, has already been compensated.
[12] The defendants say that they negotiated all of these contracts under the
presumption that they would not have to pay double compensation to Sasso
and to his company. The defendants maintain that if SEE is correct about its
claim, SEE would be entitled to at least $750 million in unpaid royalties.
Appellees’ Br. 11.5
Other Dealings Between Sasso and Medtronic
[13] In 2005, Medtronic and Sasso attempted to negotiate a “global agreement” that
would consolidate all of Sasso’s consulting contracts into a single agreement.
The parties did not reach such an agreement, but both sides make much ado
about representations made during the negotiation. In its original proposal,
5
The defendants do not cite anything in the record to support this figure, but SEE does not appear to dispute
it. Presumably, this number is 2.5% of the defendant’s revenues made from selling spinal technology.
Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015 Page 6 of 14
Medtronic acknowledged that the Agreement was still valid and ongoing.
Appellants’ App. 606. However, Exhibit D of the draft global agreement listed
no products being covered by the 1998 Agreement as of April 1, 2005. Id.; Id. at
586.
[14] Sasso and Medtronic never entered into this “global agreement,” but in 2009
they did enter into an “Amendment” of their existing agreements. Id. at 846-
49. This executed document, unlike the unexecuted “global agreement,” does
not list the 1998 Agreement under “existing agreements.” Id. at 849. When
Sasso submitted quarterly reports, as required by this “Amendment,” to show
what royalties he was owed, his own list of “existing agreements” did not
include the 1998 Agreement. Id. at 834-49. Shortly after this “Amendment,”
the members of SEE allowed the LLC to be administratively dissolved by the
Indiana Secretary of State.6
The Present Suit
[15] Sometime in 2013, Sasso and Medtronic had a falling out, and Medtronic
ceased to make payments on some of the agreements listed above. Sasso and
SEE filed suit against the defendants on August 28, 2013. Sasso’s individual
claims against Medtronic are still being litigated, and are not part of this case.
Only SEE’s claims under the Agreement are before us.
6
SEE was then revived after the filing of this lawsuit.
Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015 Page 7 of 14
[16] The defendants removed the case to federal court, alleging federal jurisdiction
under patent laws. The Northern District of Indiana, however, remanded the
case to state court after determining that the case turned on Indiana contract
law, not federal patent law. On November 5, 2014, SEE filed for summary
judgment, arguing that the defendants had contractual obligations to set out a
list of products that would have given rise to 4(B)(iii) royalties and to pay those
royalties. The defendants responded and filed a cross-motion for summary
judgment. The defendants designated affidavits from two attorneys, which
Sasso and SEE moved to strike. One affidavit was from Medtronic’s Senior
Patent Attorney, Thomas Wolfe, who attested that “Medtronic has never used
the intellectual property of the ‘259 patent to develop or commercialize any
product.” Appellant’s App. 310. Sasso and SEE argued that Wolfe did not
have the personal knowledge required to make such a sweeping statement.
[17] After holding a hearing, on April 20, 2015, the trial court granted summary
judgment against SEE and denied all motions to strike. It found that Sasso
never transferred the Patent to SEE and SEE never transferred the Patent to
SDG. It ruled that both “the transfer of the 259 patent and the anticipated
addendum listing of ensuing medical devices to be covered by the royalty
agreement were conditions precedent to the Defendants’ obligation to make any
royalty payments.” Id. at 25. The trial court concluded that since both
“conditions precedent” failed to obtain, the defendants were relieved of the
obligation to make 4(B)(iii) payments. SEE now appeals.
Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015 Page 8 of 14
Discussion and Decision
I. Standard of Review
[18] This Court reviews grants of summary judgment de novo, giving no deference
to the trial court’s judgment. Ind. Dep’t of Corr. v. Swanson Servs. Corp., 820
N.E.2d 733, 736-37 (Ind. Ct. App. 2005). We apply the same standard as the
trial court: summary judgment is appropriate only if the designated evidence
shows that there is no genuine issue of material fact and that a party is entitled
to judgment as a matter of law. Id. at 736; Indiana Trial Rule 56(C). Cross-
motions for summary judgment do not alter the standard of review; each
motion will be considered separately to determine whether the moving party is
entitled to judgment as a matter of law. Swanson, 820 N.E.2d at 737. If the trial
court’s grant of summary judgment can be sustained on any theory or basis in
the record, we will affirm. Id.
[19] The construction of a written contract is generally a question of law for the
court, making summary judgment particularly appropriate in contract disputes.
Stewart v. TT Commer. One, LLC, 911 N.E.2d 51, 55 (Ind. Ct. App. 2009).
[20] We note initially that while the trial court came to the correct conclusion, its
analysis of this case in terms of “conditions precedent” cannot stand. Such
conditions are generally disfavored and must be stated explicitly within the
contract. Scott-Reitz Ltd. v. Ren Warsaw Assocs., 658 N.E.2d 98, 103 (Ind. Ct.
App. 1995). When the required action to be taken is an integral part of the
contract, it is not a condition precedent. Id. In this case, the successful transfer
Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015 Page 9 of 14
of the Patent was the heart of the deal, and was therefore an integral part of the
contract. And the proposed list of products to be listed in the missing
addendum was to be agreed upon subsequent to the formation of the contract.
Therefore, neither the transfer of the Patent nor the listing of parts in an
addendum were conditions precedent to the enforceability of the Agreement.
[21] However, as our standard of review makes clear, we will affirm the judgment of
the trial court on any basis that the record will sustain. In this case, we find one
such theory—the contract was unenforceable as a matter of law.7
II. The Agreement is Unenforceable
[22] To be valid and enforceable, a contract must be reasonably definite and certain.
Conwell v. Gray Loon Outdoor Mktg. Group, Inc., 906 N.E.2d 805, 813 (Ind. 2009).
It must “provide a basis for determining the existence of a breach and for giving
an appropriate remedy.” McLinden v. Coco, 765 N.E.2d 606, 613 (Ind. Ct. App.
2002).
[23] “When one enters into an agreement with the understanding that neither party
is bound until a subsequent formal written document is executed, no
enforceable contract exists until the subsequent document is executed.” Wolvos
v. Meyer, 668 N.E.2d 671, 675 (Ind. 1996). On the other hand,
7
SEE also appeals the admission of the Wolfe affidavit. Since our decision is in no part based on that
affidavit, and since a ruling in the plaintiffs’ favor on this issue would not change the outcome, we decline to
address it.
Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015 Page 10 of 14
It is quite possible for parties to make an enforceable contract
binding them to prepare and execute a subsequent final
agreement. In order that such may be the effect, it is necessary
that agreement shall have been expressed on all essential terms
that are to be incorporated in the document. That document is
understood to be a mere memorial of the agreement already
reached. If the document or contract that the parties agree to
make is to contain any material term that is not already agreed
on, no contract has yet been made; the so-called “contract to
make a contract” is not a contract at all.
Id. at 674-75 (quoting 1 Arthur Linton Corbin and Joseph M. Perillo, CORBIN
ON CONTRACTS § 2.8 (rev. ed. 1993) (footnotes omitted)). We must be mindful
that “[e]nforcement of a writing which is incomplete or ambiguous creates the
substantial danger that the court will enforce something neither party
intended.” Id. at 675-76.
[24] In this case, SEE is seeking to recover a percentage of the net sales of what the
Agreement refers to as “Medical Devices.” Appellants’ App. at 254. “Medical
Device” is defined as follows: “any device, article, system, apparatus or product
including the Invention. Such Medical Devices shall be listed in accordance
with [Medtronic] catalog numbers and descriptions in an addendum to be
attached to this Agreement as agreed upon in writing between the parties.” Id.
at 252.
[25] Clearly, the parties intended the following regarding this provision: SEE would
transfer the Patent and associated intellectual property to SDG; the parties
would work together to use the Patent to commercialize spinal rehabilitation
Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015 Page 11 of 14
technologies; as products were created, they would be compiled on the
addendum; and then SEE would be paid either 5% or 2.5% of the net sales of
those products, depending on whether the product incorporated the Patent.
[26] The parties never created an addendum listing the products to be covered. This
addendum would not have been “a mere memorial of the agreement already
reached.” Wolvos, 668 N.E.2d at 675. It was to be an agreement by the parties
in the future over material terms of the contract.
[27] The addendum’s absence renders the Agreement unenforceable for two reasons.
First, there is no basis for determining whether a breach occurred—since there
are no products listed in an addendum, there are no “Medical Devices” as
defined in the Agreement. If there are no “Medical Devices,” the defendants
would not have breached by not paying royalties. The absence of the
addendum means that courts would have no way of knowing whether the
defendants breached the Agreement.
[28] Second, there is no basis for giving an appropriate remedy—SEE claims an
entitlement to either 5% or 2.5% of the net sales of “Medical Devices.” But
since the definition of “Medical Device” depends on the addendum, and since
the addendum does not exist, a court would have no way of determining the
damages; 5% or 2.5% of what?
[29] Under SEE’s interpretation of the “Medical Device” definition, the Agreement
obliged the “defendants to provide the initial list and to continually update it as
more products were developed.” Appellee’s Br. 26. But this interpretation is
Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015 Page 12 of 14
precluded by the text of the Agreement: “an addendum to be attached to this
Agreement as agreed upon in writing between the parties.” Appellants’ App. at 252
(emphasis added). This language signals an intent by the parties to create the
addendum together. It does not create a unilateral obligation in the defendants
to provide an addendum.
[30] In sum, the list of products to be counted as “Medical Devices” was an essential
term of the contract, one that is needed to determine whether there is a breach
and the amount of damages. Its absence renders the Agreement unenforceable
at law.
III. Equity
[31] The defendants raise, as an independent ground for summary judgment,
equitable concerns over SEE’s conduct. They argue that it would be unjust to
allow SEE to wait in silence for fifteen years while one of SEE’s members
entered into lucrative individual agreements with the defendants. “Medtronic
would never have entered into a series of separate royalty agreements with Dr.
Sasso and paid Dr. Sasso more than $23 million in royalties . . . [if] the 1998
Agreement also obligated Medtronic to pay SEE LLC at least $750 million in
royalties on the very same products.” Appellees’ Br. 41 (emphasis original).
Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015 Page 13 of 14
[32] While we find the equity of the situation to strongly favor the defendants, their
equitable estoppel argument fails.8 Nevertheless, we believe that the
defendant’s equitable concerns are resolved substantially by our conclusion that
the contract is unenforceable as a matter of law. SEE was fully aware of the
products being produced by Sasso; as a member of the LLC, Sasso’s knowledge
is imputed to the company. Ind. Code § 23-18-3-2(a). The inequity arising
from this situation would have been cured by the inclusion of the addendum—
if, as Sasso the individual developed products for Medtronic, SEE had come
together with Medtronic to list “Medical Devices” on the addendum to the
Agreement, Medtronic would not have been presented with a claim for $750
million in royalties, all at once and fifteen years after the fact. Often, equity
does what the law should but cannot; here, the law does what equity cannot but
should.
[33] The judgment of the trial court is affirmed.
[34] Robb, J., and Shepard, S.J., concur.
8
Equitable estoppel requires, as a first element, a lack of knowledge and of the means of knowledge as to the
facts in question. Money Store Inv. Corp. v. Summers, 849 N.E.2d 544, 547 (Ind. 2006). Estoppel has no
application where the facts were known equally by both parties. Ross v. Banta, 140 Ind. 120, 39 N.E. 732
(1894). We cannot say that the defendants lacked knowledge of a contract entered into by one of their
corporate affiliates.
Court of Appeals of Indiana | Opinion 43A04-1504-PL-175 | November 6, 2015 Page 14 of 14