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Saez v. S & S Corrugated Paper Machinery Co.

June 27, 1997

RICARDO SAEZ AND SOGNIA SAEZ, PLAINTIFFS-RESPONDENTS,
v.
S&S CORRUGATED PAPER MACHINERY CO., INC., THE CGS GROUP, INC., *FN1 DEFENDANTS, CORRUGATED GEAR & SPROCKET INC., AND CORRFLEX INC., DEFENDANTS-APPELLANTS, RICARDO SAEZ AND SOGNIA SAEZ, PLAINTIFFS-RESPONDENTS,V. PRIME TECHNOLOGY, INC., TECHNOLOGY LICENSING ASSOCIATES, INC. *FN2 AND CORRUGATED PAPER & MACHINERY, DEFENDANTS-APPELLANTS



On appeal from the Superior Court of New Jersey, Law Division, Hudson County.

Approved for Publication June 27, 1997.

Before Judges Dreier, D'Annunzio and Villanueva. The opinion of the court was delivered by Dreier, P.j.a.d.

The opinion of the court was delivered by: Dreier

The opinion of the court was delivered by

DREIER, P.J.A.D.

Defendants Corrugated Gear & Sprocket, Inc. and Corrflex, Inc. (hereinafter collectively called Corrflex), and defendants Prime Technology, Inc., Corrugated Paper Machinery Corp., and Technology Licensing Associates, Inc. (hereinafter collectively called Prime), appeal by leave granted from the denial of their motions for summary judgment in this successor liability action. We have consolidated the appeals of Corrflex and Prime for the purpose of this opinion.

All of these defendants, as well as others for which summary judgment was granted, are apparently owned or controlled by three individuals, including Prime's president, Michael Clary (hereinafter referred to collectively as "Clary"), or just by Clary himself. Corrflex was the purchaser, through other Clary corporations, of the parts inventory, plans and shop drawings for the parts incorporated in a flexofolder gluer machine manufactured for many years by the now-bankrupt S&S Corrugated Paper Machinery Company (hereinafter S&S). Prime obtained a licensing agreement to manufacture and market S&S equipment, including the flexofolder gluer, as well as the right to use the S&S technology in doing so, as will be explained in more detail. The trial Judge made factual findings at the summary judgment motion that are undisputed by the parties. We summarize these findings here to show the intricacy of the transactions that resulted in the eventual transfer of the technology. Plaintiff Ricardo Saez was injured in 1992 while operating a 1967 model 2LM flexofolder gluer machine manufactured by S&S. *fn3 The term "flexofolder gluer" is a generic one describing a manner of processing boxes from a flat corrugated cardboard blank to a finished glued box. Plaintiff claims the machine was defective. In 1985, S&S filed for bankruptcy under Chapter Eleven of the Bankruptcy Code, later converting that filing to one under Chapter Seven of the Code. The company's secured creditors received and then sold all of the company's assets in which they previously held security interests. In April 1986, defendant Johnson Machine Company (later granted summary judgment) purchased all of the parts inventory and intellectual property rights of S&S. However, Johnson Machine did not purchase any machinery or equipment belonging to S&S.

Ten days after making this purchase, Johnson Machine assigned the intellectual property rights of S&S to two companies, S&S Licensing Company, which later changed its name to Technology Licensing Associates, and Corrugated Paper Machinery Company, both controlled by Clary.

Johnson Machine transferred to Corrugated Paper Machinery Company all intellectual property associated with the original components to construct complete machines. Because of this transfer, Corrugated Paper Machinery Company alone had the right to manufacture new machines of the S&S line.

The assignment by Johnson to S&S Licensing was for all of the intellectual property rights in S&S (including, but not limited to, trademarks, trade names, service marks, blueprints, drawings, records, and customer lists) associated with spare parts, as well as the exclusive right to use the name S&S in connection with the sale of the spare parts. Thus S&S Licensing had the right to provide existing machines with S&S spare parts.

On the same day that S&S Licensing received the intellectual property rights for the spare parts, it in turn entered into a licensing agreement with defendants Corrflex and Corrugated Gear & Sprocket Company to manufacture and sell spare parts for all S&S machines. These two entities also acquired the right to use the S&S name in connection with the sale of spare parts. This agreement was in effect until September 1992, when it was renewed and expanded. Specifically, the license agreement provided that it was made because the licensees, Corrflex, Corrugated Gear & Sprocket, Inc. and Corrugated Roll Corporation "desire to use the [intellectual property formerly owned by S&S Corrugated Paper Machinery Co., Inc.] in connection with the business of marketing spare parts for machines manufactured by S & S." Furthermore:

Licensor (S&S Licensing) hereby grants Corrflex the right, during the term of this agreement, to use the name "S & S" in the Territory in connection with sales from the Inventory pursuant to the Consignment Agreement.

Licensor hereby grants Licensees the right, during the term of this agreement, to use the name "S & S" in the Territory in connection with the sale of Spare Parts pursuant to this agreement.

The spare parts licensing cost Clary $400,000 plus ten percent royalties of the net sales.

On February 18, 1987, Corrugated Paper Machinery Company entered into a licensing agreement with Prime for the right to manufacture and market certain S&S equipment, including the flexofolder gluer. At that time, Prime acquired all intellectual property rights, including patent rights and engineering know-how. Specifically, the agreement stated that it was entered into because "PRIME desires to obtain a license of such proprietary know-how ...


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