Biopolymer Engineering, Inc. D/B/A Biothera v. ImmuDyne, Inc., a Delaware Corporation

i i i i i i
OPINION
No. 04-07-00689-CV
No. 04-08-00372-CV
BIOPOLYMER ENGINEERING, INC. d/b/a Biothera,
Appellant
v.
IMMUDYNE, INC., A Delaware Corporation,
Appellee
From the 285th Judicial District Court, Bexar County, Texas
Trial Court Nos. 2007-CI-14719; 2005-CI-16991
Honorable Michael Peden, Judge Presiding1
Opinion by: Sandee Bryan Marion, Justice
Sitting: Sandee Bryan Marion, Justice
Phylis J. Speedlin, Justice
Marialyn Barnard, Justice
Delivered and Filed: June 17, 2009
AFFIRMED IN PART; REVERSED AND REMANDED IN PART
This is an appeal from a summary judgment and a declaratory judgment in favor of appellee.
We reverse, in part, the summary judgment and remand for further consideration. We also reverse,
… The Honorable David Berchelmann granted the motion for summary judgment at issue in appeal cause
1
number 04-07-00689-CV. The Honorable Michael Peden presided over the jury trial and rendered the final judgment
at issue in appeal cause number 04-08-00372-CV. The appeals were consolidated by order of this court.
04-07-00689-CV; 04-08-00372-CV
in part, the declaratory judgment and remand for further consideration. In all other respects, we
affirm both judgments.
BACKGROUND
The underlying declaratory judgment action involves seven patents: (1) U.S. Patent No.
5,576,015 (“the ‘015 patent”), (2) U.S. Patent No. 5,702,719 (“the ‘719 patent”), (3) U.S. Patent No.
5,705,184 (“the ‘184 patent”), (4) U.S. Patent No. 5,519,009 (“ the ‘009 patent”), (5) U.S. Patent No.
5,397,773 (“the ‘773 patent”), (6) Europatent No. 0,500,718 B1; and (7) Canadian Patent 2072145C
(collectively, “the disputed patents”).2 The dispute centers on which entity – Biopolymer
Engineering, Inc. d/b/a Biothera (“Biothera”) or ImmuDyne, Inc. (“ImmuDyne”) – acquired licenses
and ownership of the disputed patents. The underlying action has its origin in a 1994 shareholder
derivative lawsuit filed by Mark McLaughlin and Tom McCarvill against ImmuDyne, Byron Donzis,
and others (“the Derivative Lawsuit”). Following are the events leading to that lawsuit, as well as
to the underlying declaratory judgment lawsuit.
In February 1979, U.S. Patent No. 4,138,479 (“the ‘479 patent”) issued to Byron Donzis.
On July 31, 1986, Donzis issued an exclusive license to the ‘479 patent to Carmel Research, Inc.
(“Carmel”). Carmel, in turn, licensed the ‘479 patent to ImmuDyne. On June 29, 1993, U.S. Patent
No. 5,223,491 (“the ‘491 patent”) issued to Donzis. Through a series of licenses, Donzis licensed
the ‘491 patent to Carmel, which, in turn, licensed the ‘491 patent to ImmuDyne in December 1994.
2
… At the time of trial in this case, there was parallel patent infringement litigation over these same patents
in M innesota federal district court.
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In October 1996, the Derivative Lawsuit commenced in Texas state court. The plaintiffs
alleged Donzis would improperly claim patents developed and paid for by ImmuDyne as his own
and then execute license agreements. On October 26, 1996, the lawsuit settled with the parties
entering into a Rule 11 Agreement. Shortly thereafter, the plaintiffs and ImmuDyne moved for
summary judgment to enforce the Rule 11 Agreement, which was granted in a February 28, 1997
judgment. Following an appeal by Donzis and Carmel, this court reversed and remanded on the
grounds that the terms of the summary judgment differed from the terms of the Rule 11 Agreement.
See Donzis v. McLaughlin, 981 S.W.2d 58, 65 (Tex. App.—San Antonio 1998, no pet.) (reversing
and remanding trial court’s order because it added terms beyond scope of settlement agreement).
On October 19, 1998, the trial court signed a new judgment incorporating the terms of the Rule 11
Agreement (“the October 1998 judgment”). The Rule 11 Agreement “required certain reaffirmations
and representations to be made regarding certain patents and related technology that were the subject
of existing license agreements between the parties.” Id. Neither the Rule 11 Agreement nor the
October 1998 judgment specified any patent by number.
In the meantime, Donzis applied for and received three patents: the ‘015 patent, the ‘719
patent, and the ‘184 patent. In February 1999, ImmuDyne commenced an action in Texas state court
against Donzis for breach of the Rule 11 Agreement. On June 23, 2000, the trial court entered final
judgment, awarding ImmuDyne $600,000 plus pre- and post-judgment interest on its breach of
contract claim. In 2001, ImmuDyne filed a post-judgment petition against Donzis for equitable
relief, asking for turnover of the patents. On December 27, 2001, the trial court ordered Donzis to
assign his legal ownership interest in the ‘491 patent, U.S. Patent No. 5,519,009 (“ the ‘009 patent”),
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U.S. Patent No. 5,397,773 (“the ‘773 patent”), the ‘015 patent, the ‘719 patent, the ‘184 patent, and
Europatent No. 0,500,718 B1 to ImmuDyne by December 31, 2001, to satisfy the judgment. If
Donzis failed to do so, the trial court authorized a trustee to assign the disputed patents to
ImmuDyne. In February 2002, the trustee assigned the patents to ImmuDyne. On April 11, 2002,
the trustee’s assignments of the patents to ImmuDyne were recorded.
In September 1999, after ImmuDyne commenced its breach of contract lawsuit but before
the trial court signed its December 27, 2001 turnover order, Donzis licensed and assigned the
disputed patents to Biothera. A few months later, Biothera recorded the licenses. On June 8, 2000,
Donzis assigned the ‘015 patent and the ‘719 patent to PSA Incorporated. PSA recorded the
assignments on June 8, 2000. Approximately seventeen months later, Biothera and PSA entered into
an Asset Purchase Agreement. The assets bought by Biothera included all seven of the disputed
patents. Biothera recorded the assignments in June 2002.
In October 2005, ImmuDyne brought the underlying action for declaratory judgment in Texas
state court against Donzis, PSA, and Biothera. ImmuDyne asked the trial court to “interpret the
terms” of the October 1998 judgment on the Rule 11 Agreement and “declare that the language in
Paragraph B of the [judgment] refers to and includes” patents ‘479 and ‘491 “and the patents related
to these patents, including, but not limited to” patents ‘009, ‘773, ‘015, ‘719; ‘184; and Europatent
No. 0,500,718 B1 and Canadian Patent 2072145C. ImmuDyne also asked the court to declare it as
the owner and sole and exclusive licensee of the patents and related technology.
In April 2006, the trial court granted ImmuDyne’s motion for partial summary judgment and
declared that ImmuDyne “has an exclusive license” to patents ‘009, ‘773, ‘015, ‘719, and ‘184.
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In 2008, the remaining issues in the lawsuit proceeded to a five-day jury trial. The remaining
issues encompassed the parties’ dispute over the licenses to the Europatent and the Canadian patent
and whether Biothera’s status as a bona fide purchaser invalidated ImmuDyne’s licenses and
ownership of all seven of the disputed patents. At some point, Donzis was dismissed from the case,
and during trial, PSA had a directed verdict entered against it.3 The jury returned a verdict finding
that (1) ImmuDyne had sole and exclusive licenses to Europatent No. 0,500,718 B1 and Canadian
Patent 2072145C; (2) Biothera did not acquire the patents in good faith, for valuable consideration,
and without prior notice of ImmuDyne’s interest; and (3) Biothera did license the patents in good
faith, for valuable consideration, and without prior notice of ImmuDyne’s interest. Following post-
judgment motions, the trial court signed the final judgment declaring that (1) ImmuDyne has a sole
and exclusive license in Europatent 0,500,718 B1 and Canadian Patent 2072145C; (2) the December
27, 2001 turnover order assigned ownership of all seven disputed patents from Donzis to ImmuDyne;
and (3) Biothera did not acquire the seven patents from Donzis in good faith, for valuable
consideration, and without prior notice of ImmuDyne’s interest. The court also denied any relief
sought by Biothera based on its affirmative defenses. Biothera appeals, raising seven issues.
JURISDICTION & STATUTE OF REPOSE
As a preliminary matter, we first address Biothera’s assertion that the trial court lacked
subject-matter jurisdiction because ImmuDyne was improperly seeking an interpretation of the prior
judgments in this declaratory judgment action. “The purpose of the Uniform Declaratory Judgment
Act is to settle and afford relief from uncertainty and insecurity with respect to rights, status, and
3
… The directed verdict against PSA was not appealed.
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other legal relations.” Martin v. Dosohs I, Ltd., 2 S.W.3d 350, 353 (Tex. App.—San Antonio 1999,
pet. denied). Declaratory relief is not appropriate to seek a judicial interpretation of a prior judgment
or attack or modify a prior judgment. Id. However, here, a justiciable controversy exists between
the parties. Neither Biothera nor PSA were parties to the prior judgments and ImmuDyne is not
seeking to attack or modify the prior judgments. ImmuDyne seeks only to have the trial court uphold
its rights under the prior judgments, and any declaration here has no bearing on the validity of those
prior judgments. See Zuniga v. Wooster Ladder Co., 119 S.W.3d 856, 864 (Tex. App.—San Antonio
2003, no pet.). Therefore, we conclude the trial court had subject-matter jurisdiction.
Biothera also asserts ImmuDyne’s claims are barred by the four-year statute of repose
applicable to fraudulent conveyance/transfer claims. See TEX . BUS. & COM . CODE ANN . § 24.010(a)
(Vernon 2002). However, ImmuDyne never pled and did not argue at trial that the transfer of the
licenses or ownership of the patents from Donzis to Biothera or to PSA were fraudulent; therefore,
ImmuDyne’s request for relief is not time-barred.
LICENSES TO THE DISPUTED PATENTS
In the summary judgment proceeding, the trial court determined ImmuDyne was the
exclusive licensee to five of the patents, and, thereafter, the jury determined ImmuDyne was the
exclusive licensee of the remaining two patents. On appeal, Biothera asserts ImmuDyne is not the
exclusive licensee of any of the seven disputed patents and, to the extent ImmuDyne did acquire any
licenses, those licenses were not exclusive. Biothera’s argument is based on its contention that (1)
the October 1998 judgment is void; (2) the disputed patents were not “improvements” to the ‘491
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patent; and (3) any licenses granted to ImmuDyne are non-exclusive. For the following reasons, we
conclude ImmuDyne has the sole and exclusive license to five of the seven disputed patents.
A. ImmuDyne’s Motion for Partial Summary Judgment on Five of the Patents
ImmuDyne moved for a partial summary judgment asserting it was the exclusive licensee of
the ‘009 patent, the ‘773 patent, the ‘015 patent, the ‘719 patent, and the ‘184 patent because the
October 1998 judgment and the Rule 11 Agreement granted ImmuDyne an exclusive license to these
five patents as either improvements to or technology related to the ‘491 patent. As summary
judgment proof, ImmuDyne offered a statement made by Donzis in pleadings filed in the Derivative
Lawsuit in which Donzis states as follows:
Pursuant to a series of license agreements, ImmuDyne is the exclusive
sublicensee of a number of patents in which Donzis is the inventor. [ImmuDyne] is
the exclusive sublicensee under [the ‘491 patent] . . . and [the ‘479 patent] . . .
through two (2) written license agreements executed in 1994 and 1986, respectively.
Under an oral license without terms entered into in 1995, [ImmuDyne] is the
sublicensee under [the ‘009 patent] . . . and [the ‘015 patent] . . . . [The ‘773 patent]
. . . is owned by [ImmuDyne] as an improvement to the ‘491 patent . . . .
We conclude this uncontroverted summary judgment evidence supports the trial court’s summary
judgment that ImmuDyne acquired an exclusive license in the ‘009 patent, the ‘015 patent, and the
‘773 patent.4
As to the ‘719 patent and the ‘184 patent, we conclude ImmuDyne did not establish as a
matter of law that it acquired a license to these two patents. ImmuDyne’s only summary judgment
proof in support of its argument that these two patents were related to the ‘491 patent was a single
4
… Because we conclude the trial court’s reliance on the uncontroverted statement by Donzis was sufficient
to support summary judgment, we do not address Biothera’s argument that the trial court erred in relying on the October
1998 judgment because that judgment was void or because this court in Donzis v. McLaughlin rejected ImmuDyne’s
“expansive” construction of the October 1998 judgment and the underlying Rule 11 Agreement.
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sentence taken from the “Background of Invention” section of the patents, which stated: “Improved
methods for isolating a purified water insoluable beta (1,3) glucan extract are disclosed in this
inventor’s earlier patent, [the ‘491 patent], which is incorporated herein by reference in its entirety.”
This sentence supports only a conclusion that the “methods for isolating a purified water insoluable
beta (1,3) glucan extract” were disclosed in the ‘491 patent. ImmuDyne proffered no summary
judgment evidence to support its contention that either the ‘719 patent or the ‘184 patent were
improvements to the ‘491 patent. Nor did ImmuDyne proffer any summary judgment evidence to
support its contention that either the ‘719 patent or the ‘184 patent were related technology. Finally,
ImmuDyne cannot rely on a single sentence in a patent specification to control the intent of the
inventor applying for a patent. See Phillips v. AWH Corp., 415 F.3d 1303, 1312 (Fed. Cir. 2005)
(en banc) (Patent Act section 112 “requires us to look to the language of the claims [made in the
patent] to determine what ‘the applicant regards as his invention’.”), cert. denied, 126 S. Ct. 1332
(2006); see also Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983) (holding that no single provision
taken alone will be given controlling effect; rather, all the provisions must be considered with
reference to the whole instrument). Therefore, we conclude summary judgment in favor of
ImmuDyne on these two patents was improper.
B. Jury Question on the Europatent and the Canadian Patent
At trial, the question of whether ImmuDyne acquired a license in the remaining two patents
was considered by the jury, which answered affirmatively to the following question: “Does
ImmuDyne have a sole and exclusive license to” the Europatent and the Canadian patent. On
appeal, Biothera does not challenge the legal or factual sufficiency of the evidence in support of this
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finding. Instead, Biothera contends this jury question should not have been submitted because it
presented a question of law for the court and not a question of fact for the jury. According to
Biothera, the answer to this question of law lies on the construction of the unambiguous October
1998 judgment and the unambiguous Rule 11 Agreement. On appeal, Biothera contends (1) the
October 1998 judgment is void; (2) in a previous appeal, this court rejected ImmuDyne’s
“expansive” construction of the October 1998 judgment and the underlying Rule 11 Agreement;
(3) the disputed patents were not “improvements” to the ‘491 patent; and (4) any licenses granted
to ImmuDyne are non-exclusive.
1. Void Judgment
Biothera first asserts the October 1998 judgment is void because it was signed while the
appeal in the Derivative Lawsuit was still pending. Biothera relies on the following time line: (1)
on October 26, 1996 the Derivative Lawsuit settled with the parties entering into a Rule 11
Agreement; (2) on February 28, 1997 the trial court rendered summary judgment to enforce the Rule
11 Agreement; (3) on July 15, 1998 this court issued its opinion and judgment reversing the
February 28, 1997 judgment; (4) on October 19, 1998 the trial court signed a new judgment; and
(5) on October 22, 1998 this court’s mandate issued. According to Biothera, because our mandate
had not yet issued when the trial court signed the October 19, 1998 judgment, the trial court lacked
jurisdiction to change or modify its February 28, 1997 judgment and, therefore, the October 1998
judgment is void.
“Since [Texas Rule of Appellate Procedure] 19’s adoption, the fact that the rules allow the
appellate court to issue and to recall its mandate after the appellate court’s plenary power expires
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indicates that it is not the mandate’s issuance that generally reinvests the trial court with
jurisdiction, but, instead, the termination of plenary power in the appellate court under rule 19.1.”
Saudi v. Brieven, 176 S.W.3d 108, 114 (Tex. App.—Houston [1st Dist.] 2004, pet. denied)
(considering and rejecting same argument). Here, because no motions for rehearing or motions for
extension of time to file for rehearing were filed in this court, and because no petition for review
was filed with the Texas Supreme Court, this court’s plenary jurisdiction expired, and the trial court
generally regained its jurisdiction, no later than September 14, 1998, sixty days after our judgment
issued. See TEX . R. APP. P. 19.1(a). Therefore, we conclude the trial court had jurisdiction to sign
the October 19, 1998 judgment and, therefore, it is not void.
2. Construction of the Term “Related Technology”
Biothera next asserts this court, in Donzis v. McLaughlin, considered and rejected any
argument that the term “related technology” as used in the October 1998 judgment and Rule 11
Agreement “refers to and includes” the seven disputed patents made the basis of the lawsuit here.
Biothera also asserts ImmuDyne’s reliance on the October 1998 judgment and the Rule 11
Agreement fails because ImmuDyne’s president, Mark McLaughlin, testified that the Rule 11
Agreement merely reaffirmed the terms of the licensing agreement for the ‘491 and ‘479 patents.
In Donzis v. McLaughlin,“[t]he parties’ dispute . . . centered on the use of the phrase ‘related
technology’ in section B of the Rule 11 Agreement. Donzis and Carmel contend[ed] that the phrase
is limited to the technology referenced in the existing license agreements, while McLaughlin and
McCarvill read the phrase more expansively.” 981 S.W.2d at 62. Unfortunately, the opinion does
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state the manner in which McLaughlin and McCarvill read the phrase “more expansively.”
Nevertheless, our reading of the opinion leads us to disagree with Biothera’s argument on appeal.
To whatever extent the parties may have read the phrase “related technology” “more
expansively,” the Donzis v. McLaughlin court held the agreement was not ambiguous and stated:
The Rule 11 Agreement refers to the existing license agreements with regard to the
patents and related technology. Subparagraphs 3 and 4 of section B refer to the
patents and related technology currently licensed to ImmuDyne and Carmel,
respectively, and relate back to the license agreements. By referring to the related
technology currently licensed to ImmuDyne and Carmel, the Rule 11 Agreement
unambiguously restricts the reaffirmations and representations to the patents and
related technology that are contemplated by the license agreements.
Id.
The opinion then addressed whether the language in the summary judgment conflicted with or was
more expansive than the language in the Rule 11 Agreement. This court concluded the term
“Licensed Technology” as defined in the summary judgment was more expansive than the term
“Licensed Technology” as defined in the Rule 11 Agreement. Id. at 63-64.
Based upon our reading of the entire opinion in Donzis v. McLaughlin, we cannot agree with
Biothera’s argument that the Donzis v. McLaughlin court considered, much less rejected, the
arguments made by ImmuDyne in the underlying declaratory judgment action.
3. Are the Disputed Patents “Related to” or “Improvements” to the‘491 Patent
Finally, Biothera asserts the trial court erred in awarding the disputed patents to ImmuDyne
because they are not improvements or related technology to the ‘491 patent. As noted above, neither
the October 1998 judgment nor the Rule 11 Agreement mention the disputed patents. Instead, the
October 1998 judgment and Rule 11 Agreement “reaffirm” that ImmuDyne is the sole and exclusive
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licensee worldwide for all patents currently licensed by said entities to ImmuDyne, and shall be the
sole and exclusive licensee for such patents and related technology and all improvements on such
patents and related technology. Accordingly, the jury’s finding that ImmuDyne had “a sole and
exclusive license to” the Europatent and the Canadian patent is based on an implied finding that
these patents were improvements to or related technology to the ‘491 patent. At trial, Mark
McLaughlin, ImmuDyne’s president, testified that these two patents were related to the ‘491 patent.
McLaughlin testified the Europatent and the Canadian patent were “identical” to the ‘491 patent and
were “improvements on and related to the ‘491 technology.” Based on this record, we conclude the
evidence is sufficient to support the implied finding.
BIOTHERA’S BONA FIDE PURCHASER DEFENSE TO IMMUDYNE’S
ACQUISITION OF THE LICENSES TO THE DISPUTED PATENTS
At trial, the parties disputed whether Biothera’s 1999 acquisition of the licenses as a bona
fide purchaser cut off ImmuDyne’s prior October 1998 acquisition of the same licenses. In jury
finding number 4, the jury found that Biothera licensed the patents in good faith, for valuable
consideration, and without prior notice of ImmuDyne’s interest. According to Biothera, jury finding
number 4 entitled it to be the exclusive licensee to the patents covered by its exclusive license
agreement with Donzis and extinguished any prior rights in the patents, including ImmuDyne’s
purported licensing rights. However, the trial court disregarded jury finding number 4, and, on
appeal, Biothera argues the trial court’s disregard of the jury’s finding amounts to reversible error.
A trial court may disregard a jury finding if there is no evidence upon which the jury could
have made its findings or the finding is immaterial. See TEX . R. CIV . P. 301; Spencer v. Eagle Star
Ins. Co. of Am., 876 S.W.2d 154, 157 (Tex. 1994). A question is immaterial when it should not have
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been submitted, or when it was properly submitted but has been rendered immaterial by other
findings. Id. For the following reason, we conclude jury finding number 4 was immaterial.
On appeal, Biothera relies on Heidelberg Harris, Inc. v. Loebach, 145 F.3d 1454 (Fed. Cir.
1998) for its argument that the bona fide purchaser defense applies to a subsequent purchaser of an
exclusive patent license. However, almost four years later, the Fifth Circuit granted a petition for
rehearing en banc “for the limited purpose of deciding whether the court’s decision in [Heidelberg
Harris] is binding authority on the question of whether the bona fide purchaser doctrine applies to
patent licenses.” See Rhone-Poulenc Agro, S.A., v. DeKalb Genetics Corp., 284 F.3d 1323, 1334
(Fed. Cir. 2002), cert. denied sub. nom., Monsanto Co., v. Bayer CropScience, S.A., 123 S. Ct. 2668
(2003). The Rhone-Poulenc en banc court “decided that, because of unique circumstances in that
[Heidelberg Harris] case, and the parties’ not having contested the issue, Heidelberg Harris is not
binding authority on the bona fide purchaser issue; and the [Rhone-Poulenc] panel is not constrained
by the court’s decision in Heidelberg Harris.” Id.
The Rhone-Poulenc court stated that “[g]enerally, a bona fide purchaser is one who purchases
legal title to property in good faith for valuable consideration, without notice of any other claim of
interest in the property.” Id. at 1329. The court noted that “[a]t common law . . . it was quite clear
that one who did not acquire title to the property could not assert the protection of the bona fide
purchaser rule.” Id. Here, it is undisputed that Biothera did not hold legal title to any of the disputed
patents in 1999; however, Biothera relies on Rhone-Poulenc for the proposition that “an exclusive
patent license may be tantamount to an assignment of title to a patent . . . when ‘the licensee holds
‘all substantial rights’ under the patent.’” Id. at 1334 (citations omitted). Biothera, therefore, argues
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that because it is undisputed that it acquired an exclusive license to the patents and holds all
substantial rights under the patents, it is entitled to assert the bona fide purchaser defense. We
disagree.
We conclude the statement in the Rhone-Poulenc opinion relied upon by Biothera is dicta
and not binding authority. We believe the holding in Rhone-Poulenc stands for the proposition that
the bona fide purchaser defense applies only to those entities that acquire legal title to the patent.
See also In re Cybernetic Serv., Inc., 252 F.3d 1039, 1051 (9th Cir. 1001) (the terms “assignment,
grant or conveyance” in the recordation statute refer to ownership interest only). Because Biothera
had not acquired legal title in 1999 to any of the disputed patents, it was not entitled to assert the
defense to ImmuDyne’s 1998 acquisition of the licenses to those same patents. Therefore, jury
finding number 4 was immaterial and the trial court did not err in disregarding the finding.
OWNERSHIP OF THE DISPUTED PATENTS
During the summary judgment proceeding, the trial court did not consider whether
ImmuDyne acquired ownership of the disputed patents. Nor at trial was the jury asked to determine
whether ImmuDyne acquired ownership of the disputed patents. Instead, in its final judgment, the
trial court declared that ImmuDyne acquired ownership as follows: “[T]he [turnover] Order dated
December 27, 2001 . . . assigned ownership of United States Patent Nos. [‘491, ‘009, ‘773, ‘015,
‘719, ‘184, and the Europatent and Canadian Patent] from [Donzis] to [ImmuDyne] on December
27, 2001.”
On appeal, Biothera contends the turnover order, and the resulting trustee assignments of the
same patents, could not have divested Donzis of patents he no longer possessed on December 27,
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2001. According to Biothera, Donzis had already assigned his interests in the patents to PSA in June
2000; therefore, he owned nothing subject to turnover on December 27, 2001. Biothera also asserts
neither it nor PSA were parties to the enforcement action; therefore, the turnover order does not
apply to it or PSA and could not have divested them of their respective rights in the patents.
Finally, Biothera asserts the jury’s finding that Donzis was responsible for PSA’s conduct
is not supported by legally sufficient evidence; therefore, the finding cannot be used to retroactively
apply the turnover order or the trustee assignment to PSA; and jury question number 2, upon which
the finding was based, improperly phrased the legal standard for piercing the corporate veil so as to
hold PSA liable for Donzis’s conduct. Alternatively, Biothera asserts that even if Immudyne
acquired an ownership interest in the disputed patents in 2001, under the bona fide purchaser
defense, Biothera acquired ownership of the patents in 1999 in good faith, for valuable consideration,
and without prior notice of ImmuDyne’s interest.
1. Jury Question Number 2
At trial, ImmuDyne argued that, even if Donzis assigned the patents to PSA, PSA and Donzis
were one and the same, such that Donzis’s interests were PSA’s interests; therefore, PSA’s interests
in the patents were effectively assigned to ImmuDyne on December 27, 2001. The jury answered
affirmatively to question number 2, which asked: “Is [Donzis] responsible for the conduct of
[PSA]?”
On appeal, Biothera asserts jury question number 2 was improperly phrased as a traditional
piercing-the-corporate-veil issue. Biothera contends that, instead of asking whether Donzis was
responsible for PSA’s conduct, the trial court should have asked whether PSA was responsible for
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Donzis’s conduct. According to Biothera, the improperly phrased question unfairly focused the
jury’s attention on Donzis’s conduct, instead of on the conduct of the potentially liable party, PSA.
Biothera characterizes the theory under which ImmuDyne sought to hold PSA liable for Donzis’s
actions as a “reverse piercing of the corporate veil.”
Although the Texas Supreme Court has not recognized or addressed the existence of reverse
veil piercing as a theory of recovery, the Fifth Circuit has held that Texas would recognize such a
theory. See Zahra Spiritual Trust v. U.S., 910 F.2d 240, 244 (5th Cir. 1990). “The ultimate goal in
a reverse piercing case is unique; rather than merely disregarding the corporate fiction and holding
the shareholders accountable, the court treats the individual and the corporation as ‘one and the
same.’” Zahra Spiritual Trust, 910 F.2d at 243.5 The remedy is available to hold the corporation
liable for debts of the controlling shareholders where the shareholders have formed or used the
corporation to secrete assets and thereby avoid preexisting personal liability. Id. at 244. “Upon a
sufficient showing ‘that the corporation is the alter ego of the debtor, the corporation is treated as
the debtor and its property may be attached . . . .’” Id. (internal citation omitted).
We will assume, without deciding, that the jury should have been asked whether PSA was
responsible for Donzis’s conduct. However, we do not agree with Biothera that the error, if any,
requires reversal because the question, in its entirety, was proper. De Leon v. Furr’s Supermarkets,
Inc., 31 S.W.3d 297, 300 (Tex. App.—El Paso 2000, no pet.) (to determine whether instruction
probably caused an improper judgment, we examine the entire record and the jury charge in its
5
… A federal bankruptcy court has stated that “the notion of reverse corporate veil piercing, frankly, has rather
thin roots in Texas jurisprudence . . ., and . . . is a rather unusual concept that surely must be cautiously applied (to avoid
trampling on due process rights of those not before the court) . . . .” In re Moore, 379 B.R. 284, 289 ( Bankr. N.D. Tex.
2000).
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entirety). Here, question number 2 required the jury to determine whether “[PSA] was organized
and operated as a mere tool or business conduit of [Donzis]”; whether “there was such unity between
[PSA] and [Donzis] that the separateness of [PSA] had ceased and holding only [PSA] responsible
would result in injustice”; and whether “[Donzis] caused [PSA] to be used for the purpose of
perpetrating and did perpetrate an actual fraud on [ImmuDyne] primarily for the personal benefit of
[Donzis].” The jury was also required to determine whether Donzis “used [PSA] as a means of
evading an existing legal obligation for the purpose of perpetrating an actual fraud on [ImmuDyne]
for the direct personal benefit of” Donzis.
We conclude these instructions allowed the jury to determine whether Donzis formed or used
PSA “to secrete assets and thereby avoid preexisting personal liability.” See Zahra Spiritual Trust,
910 F.2d at 244. Therefore, we conclude jury question number 2 as phrased was not “reasonably
calculated to and probably did [not] cause the rendition of an improper judgment.” Bed, Bath &
Beyond, Inc. v. Urista, 211 S.W.3d 753, 757 (Tex. 2006) (incorrect jury instruction requires reversal
only if it was reasonably calculated to and probably did cause the rendition of an improper
judgment); TEX . R. APP . P. 61.1(a).
2. Should ImmuDyne have pierced PSA’s corporate veil first?
Biothera next asserts ImmuDyne’s attempt to pierce PSA’s corporate veil was untimely
because it was required to obtain a determination of alter ego before commencing the 2001 turnover
proceeding against Donzis.
The Texas Turnover Statute is a procedural mechanism by which a “judgment creditor is
entitled to aid from a court of appropriate jurisdiction . . . to reach property to obtain satisfaction on
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the judgment if the judgment debtor owns property, including present or future rights to property,
that . . . cannot readily be attached or levied on by ordinary legal process . . . .” TEX . CIV . PRAC. &
REM . CODE ANN . § 31.002(a)(1) (Vernon 2008). Biothera relies on Bollore S.A. v. Import
Warehouse, Inc., 448 F.3d 317, 323 (5th Cir. 2006) for its argument that a turnover proceeding is
not an appropriate vehicle through which to make an alter ego determination and a separate trial on
the merits of that issue is required before the alter ego can be subject to a turnover proceeding. To
the extent the holding in Bollore applies here, we conclude ImmuDyne properly sought relief in two
separate proceedings. ImmuDyne used the 2001 turnover proceeding to satisfy its $600,000
judgment against Donzis, and, in the underlying declaratory judgment action, ImmuDyne sought a
finding by the jury that Donzis used PSA to avoid his personal obligation and, thereby, reach the
assets of PSA to satisfy that personal obligation.
3. Legal sufficiency of evidence
Finally, Biothera asserts that, in order to hold PSA liable for Donzis’s debt, ImmuDyne was
required to establish that Donzis had at least a de facto ownership interest in PSA as of December
27, 2001, the date of the turnover order. Biothera asserts the evidence is legally insufficient to
establish ownership as of that date. We disagree with Biothera’s argument. Although Biothera
objected to the question posed to the jury, on appeal it does not complain about the entirety of the
instruction, which allowed a finding adverse to Donzis based on a determination that “[PSA] was
organized and operated as a mere tool or business conduit of [Donzis].” Therefore, we review the
sufficiency of the evidence against the charge actually given to the jury.
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The evidence establishes that PSA is a Belize corporation and Donzis acted as its “U.S.
agent” for the purpose of receiving all checks made payable to PSA and that Donzis directed
Biothera to send all checks made payable to PSA to his address in Hunt, Texas. Events subsequent
to the December 2001 turnover order also support the jury’s finding. For example, Donzis gave
instructions to Deloitte & Touche Corporate Services Ltd. to “draw up a Power of Attorney from
[PSA], authorizing [him] to buy, sell, trade, reassign, or barter any trademarks, domain names, or
patents owned by [PSA].” Deloitte Touche sought instructions from Donzis regarding the removal
of PSA shareholders and conducting “a meeting removing them and appointing new
Directors/Officers.”
Making all inferences in favor of the jury’s finding, as we must, we conclude the evidence
of Donzis’s relationship with PSA prior to the December 2001 turnover order coupled with the
events subsequent to the turnover order constitute legally sufficient evidence to support the jury’s
implied finding that “[PSA] was organized and operated as a mere tool or business conduit of
[Donzis].” Also, at the close of evidence, the trial court granted ImmuDyne’s directed verdict
against PSA on the issue of alter ego. Biothera does not challenge the directed verdict on appeal.
The legally sufficient evidence in support of the jury’s finding, combined with the directed verdict
against PSA on the issue of alter ego, supports the trial court’s declaration that the December 27,
2001 turnover order assigned ownership of the disputed patents from Donzis to ImmuDyne on
December 27, 2001.
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4. Bona fide purchaser defense
On appeal, Biothera does not challenge the sufficiency of the evidence in support of the jury’s
finding that it did not acquire ownership of the disputed patents in good faith, for valuable
consideration, and without prior notice of ImmuDyne’s interest. Instead, Biothera asserts the jury
question was improperly phrased. In question number three, the jury was asked: “Did Biothera
acquire the Patents-in-Suit in good faith, for valuable consideration, and without prior notice of
ImmuDyne’s interest?” The question instructed the jury that “notice” “may be based on any fact
within the knowledge, or means of knowledge, of [Biothera], and which fact should have logically
lead [Biothera], upon inquiry, to a knowledge of the existence and purport of ImmuDyne’s interest.”
On appeal, Biothera argues the question failed to distinguish between ImmuDyne’s ownership
interest and its licensing interest. According to Biothera, this distinction is important because the
ownership of a patent may be acquired even if the licensing rights in that patent were previously
conveyed to another party. Biothera contends the question as phrased allowed the jury to reject its
bona fide ownership claim based on Biothera’s alleged notice of ImmuDyne’s claim to licensing
rights. Therefore, Biothera concludes, jury question number three should have more specifically
inquired into whether Biothera had any notice of ImmuDyne’s ownership interest.
Although the question made no distinction between ImmuDyne’s ownership of the patents
and its license of the patents, we conclude the question adequately defined notice as “any fact within
the knowledge, or means of knowledge, of [Biothera], and which fact should have logically lead
[Biothera], upon inquiry, to a knowledge of the existence and purport of ImmuDyne’s interest.”
Therefore, we conclude jury question number 3 as phrased was not “reasonably calculated to and
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probably did [not] cause the rendition of an improper judgment.” Bed, Bath & Beyond, 211 S.W.3d
at 757; TEX . R. APP . P. 61.1(a).
ATTORNEY’S FEES
Finally, Biothera asserts the trial court abused its discretion in awarding attorney’s fees to
ImmuDyne because (1) ImmuDyne did not segregate the fees incurred as against each of the three
defendants, (2) there is insufficient evidence of reasonableness or necessity because the awarded fees
included fees incurred in a separate federal patent infringement lawsuit, and (3) the award was unjust
in view of the jury’s finding that Biothera licensed the patents in good faith.
A. Remand to the Trial Court
As explained above, we reverse the summary judgment in favor of ImmuDyne on the issue
of the licenses to the ‘719 and the ‘184 patents, and remand for further consideration. However, the
reversal of the trial court’s judgment in a declaratory judgment action does not necessarily mean the
award of attorney’s fees to the party who prevailed in the trial court was an abuse of discretion.
In a declaratory judgment action, the prevailing party is not entitled to attorney’s fees as a
matter of law. Marion v. Davis, 106 S.W.3d 860, 868 (Tex. App.—Dallas 2003, pet. denied). In
the exercise of its discretion, the trial court may decline to award attorney’s fees to either party. See
Univ. of Tex. Health Sci. Ctr. v. Mata & Bordini, Inc., 2 S.W.3d 312, 319 (Tex. App.—San Antonio
1999, pet. denied); United Interests, Inc. v. Brewington, Inc., 729 S.W.2d 897, 906 (Tex.
App.—Houston [14th Dist.] 1987, writ ref’d n.r.e.). Or, the trial court may award attorney’s fees to
the nonprevailing party. See Scottsdale Ins. Co. v. Travis, 68 S.W.3d 72, 77 (Tex. App.—Dallas
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2001, pet. denied); Borum, 53 S.W.3d at 894. Thus, ImmuDyne did not need to prevail on its claim
for declaratory relief to be entitled to attorney’s fees.
Nevertheless, after a declaratory judgment is reversed on appeal, an award of attorney’s fees
may no longer be equitable and just. See Scottsdale Ins., 68 S.W.3d at 77; Borum, 53 S.W.3d at 894-
95. Therefore, when we reverse a declaratory judgment and the trial court awarded attorney’s fees
to the party who prevailed at trial, we may remand the attorney’s fee award for reconsideration in
light of our disposition on appeal. Id.
Because an award of attorney’s fees under the Declaratory Judgment Act continues to fall
within the trial court’s discretion, whether the trial court wishes to reconsider its decision on
attorney’s fees is a matter we defer to the trial court. To allow the trial court to make that
determination, we reverse the portion of the judgment awarding attorney’s fees to ImmuDyne and
remand the issue of attorney’s fees to the trial court for its reconsideration in light of this opinion.
State Farm Lloyds v. Borum, 53 S.W.3d 877, 894-95 (Tex. App.—Dallas 2001, pet. denied)
(reversing and remanding “because the record does not reflect the trial court’s reasons for its award
of fees to [prevailing party], there is no evidence to indicate whether the trial court’s award of fees
would also be equitable and just in light of our opinion in this case.”). However, there are two issues
that may be revisited upon retrial; therefore, we will address those issues in the hope of streamlining
the remaining litigation. Lone Star Gas Co. v. Railroad Comm’n, 767 S.W.2d 709, 711 (Tex. 1989)
(“Although the rules [of appellate procedure] do not require or contemplate advisory opinions on
issues not essential to the final disposition of a case, the rules do mandate full consideration of all
issues raised to move the case as far as possible toward final disposition.”).
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B. Segregation of Fees
Generally, the party seeking to recover attorney’s fees carries the burden of proof. Stewart
Title Guar. Co. v. Sterling, 822 S.W.2d 1, 10 (Tex. 1991). A court may award those fees that are
“reasonable and necessary” for the prosecution of the suit. Id. “In order to show the reasonableness
and necessity of attorney’s fees, the plaintiff is required to show that the fees were incurred while
suing the defendant sought to be charged with the fees on a claim which allows recovery of such
fees.” Id. “A recognized exception to this duty to segregate arises when the attorney’s fees rendered
are in connection with claims arising out of the same transaction and are so interrelated that their
‘prosecution or defense entails proof or denial of essentially the same facts.’” Id. at 11. “Therefore,
when the causes of action involved in the suit are dependent upon the same set of facts or
circumstances and thus are ‘intertwined to the point of being inseparable,’ the party suing for
attorney’s fees may recover the entire amount covering all claims.” Id.
The Supreme Court, in Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299 (Tex. 2006),
modified to some extent its holding in Stewart Title. In Tony Gullo, the Supreme Court was faced
with the issue of whether fees incurred on a fraud claim should have been segregated from fees
incurred on breach of contract and DTPA claims. The Court held that attorney’s fees on the fraud
claim were not authorized by either statute or contract and, therefore, unrecoverable; while the fees
incurred on the contract claim and DTPA claim were recoverable. See id. at 310-11. Having
decided that the fees incurred on the fraud claim were unrecoverable, the Court then determined
those fees should have been segregated out and that it was possible for the plaintiff’s attorneys to
identify fees incurred on each asserted claim. Id. at 313. In so holding, the Court modified the
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holding in Stewart Title to the extent that “if any attorney’s fees relate solely to a claim for which
such fees are unrecoverable, a claimant must segregate recoverable from unrecoverable fees.
Intertwined facts do not make tort fees recoverable; it is only when discrete legal services advance
both a recoverable and unrecoverable claim that they are so intertwined that they need not be
segregated.” Id. at 313-14.
Here, ImmuDyne brought its declaratory judgment suit for a single purpose: to obtain a
declaration from the court that it was the sole and exclusive licensee and owner of the disputed
patents. There is no dispute here that the Declaratory Judgment Act authorizes the recovery of
attorney’s fees. TEX . CIV . PRAC. & REM . CODE ANN . § 37.009 (Vernon 2008). Because the fees
sought by ImmuDyne were recoverable pursuant to statute and ImmuDyne’s request for declaratory
relief against the three defendants was “dependent upon the same set of facts or circumstances and
thus . . . ‘intertwined to the point of being inseparable,’” we conclude ImmuDyne was not required
to segregate its fees as to each separate defendant.
C. Fees Incurred in Minnesota Federal District Court Lawsuit
Biothera next asserts the trial court erred by including in the award attorney’s fees ImmuDyne
allegedly incurred in the patent infringement suit pending in federal court. At trial, ImmuDyne’s
attorney estimated total fees incurred would be approximately $400,000, of which he attributed
$75,000 to the federal case. Counsel testified that ImmuDyne had hired attorneys in Minnesota to
defend in the federal lawsuit, but that he had been also “involved in that.” Counsel characterized,
without further explanation, the federal suit as “the mirror image of this [Texas] case.” The jury
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awarded to ImmuDyne, “for preparation and trial,” fees in the amount of $450,000, as well as
additional fees on appeal.
In reviewing a fee award under the Declaratory Judgment Act, we must determine whether
the trial court abused its discretion by awarding fees when there was insufficient evidence that the
fees were reasonable and necessary, or when the award was inequitable or unjust. Bocquet v.
Herring, 972 S.W.2d 19, 21 (Tex. 1998). There are four limitations imposed on the court’s
discretion: the fees awarded must be reasonable and necessary, which are matters of fact, and they
must be equitable and just, which are matters of law. Id. “In order to show the reasonableness and
necessity of attorney’s fees, the plaintiff is required to show that the fees were incurred while suing
the defendant sought to be charged with the fees on a claim which allows recovery of such fees.”
Stewart Title, 822 S.W.2d at 10.
Here, the federal lawsuit is based on allegations of patent infringement, allegations not made
in the underlying declaratory judgment suit. ImmuDyne has not shown “that the fees were incurred
while suing the defendant sought to be charged with the fees.” Id. We can think of no reason why
attorney’s fees incurred in litigating a patent infringement dispute pending in a Minnesota federal
district court should be awarded against a party in a separate declaratory judgment suit pending in
Texas state court. Therefore, to the extent any of ImmuDyne’s counsel’s fees were not incurred in
the underlying declaratory judgment action, the trial court erred in assessing those fees against
Biothera.
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CONCLUSION
We reverse the summary judgment in favor of ImmuDyne on the issue of the licenses to the
‘719 patent and the ‘184 patent and remand for further consideration. We reverse that portion of the
final judgment awarding attorney’s fees to ImmuDyne for trial and on appeal. We affirm in all other
respects.
Sandee Bryan Marion, Justice
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