April 7, 2010
ROBERT SACCOMANNO, PLAINTIFF-APPELLANT,
HONEYWELL INTERNATIONAL, INC., DEFENDANT-RESPONDENT.
On appeal from Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-73-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued December 1, 2009
Before Judges Carchman, Lihotz and Ashrafi.
In this employment dispute, plaintiff appeals from the Chancery Division's denial of his motion for summary judgment and grant of summary judgment to defendant. We affirm summary judgment in favor of defendant dismissing counts one and six of plaintiff's amended complaint, but remand to the Chancery Division either to provide additional reasons for dismissal of the other counts or to conduct further proceedings as to those claims.
In reviewing a grant of summary judgment, an appellate court applies the same standard under Rule 4:46-2(c) that governs the trial court. See Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007). The court must "consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). On this appeal, we review the facts most favorably to plaintiff.
Plaintiff Robert Saccomanno is an electrical engineer who has been employed for more than twenty-five years by defendant Honeywell International, Inc. or its corporate predecessors. He brought a lawsuit against his employer to invalidate the terms of an invention assignment agreement he signed when he began his employment. He also sought to rescind a 2002 assignment to Honeywell of his invention for ultraviolet disinfection of fluids, that invention having a value of millions of dollars.
Plaintiff commenced employment at Bendix Corporation in 1984, shortly after graduating from college. At that time, he signed a pre-invention assignment agreement. The agreement remained part of plaintiff's contract through the time of this litigation and is at the center of the parties' dispute. It states:
Employee Agreement Re: Inventions and Information
I agree that, in accepting or continuing employment with . . . The Bendix Corporation . . . I bind myself to the following obligations as part of my consideration to the Corporation for the salary or wages paid to me by the Corporation and for my being permitted access to information pertaining to the business of the Corporation.
(A) I hereby assign and agree to assign, without further compensation, to The Bendix Corporation, or its designee, my entire right, title and interest in and to each invention, technological innovation and copyrightable work, including all rights to obtain, perfect and enforce patents, copyrights and other proprietary interests therein, which, I either individually or jointly with others, conceive, develop or create during the period of my employment, whether or not during working hours, and which either (a) is within the scope of the Corporation's business or investigations to which my employment relates or gives me access, or (b) is aided by the use of time, materials, facilities or information paid for or provided by the Corporation, . . . I agree to disclose promptly to the Corporation each such invention, innovation and copyrightable work, and to perform all reasonable acts requested by the Corporation to assist it, at its expense, in obtaining and enforcing its property rights therein, including the execution of formal assignments and of patent applications. [(Emphasis added.)]
Plaintiff began his career at Bendix as a design engineer developing test equipment for F-16 flight control computers. Over the years, Bendix went through several corporate mergers and acquisitions until Honeywell acquired the company in 1999 and became plaintiff's employer. Plaintiff, too, advanced in his career by internal transfers and promotions, and he eventually joined the aerospace intellectual property enforcement sub-team of Honeywell.
During his tenure with Bendix, Honeywell, and the intervening corporate entities, plaintiff developed twenty-seven patents, and he currently has additional patents pending. One of his patents involved a mirror arrangement for a fiber optic illuminator for use in an avionics display application. In November 2000, plaintiff disclosed to Honeywell an invention that used the mirrors in novel ways other than those used directly in the aviation industry, one of which was for ultraviolet disinfection of fluids.
While patent applications for two of these inventions were pending in the United States Patent Office (USPTO), plaintiff was advised by a consultant that his suggested approach for water disinfection was too costly. Plaintiff then created a simpler approach, and he discussed the new approach with Honeywell's patent counsel. Patent counsel told plaintiff the idea was "too simple and not patentable." Plaintiff submitted an invention disclosure form to Honeywell, covering both the simpler approach and a more complex version of his ideas. In October 2001, Honeywell filed a provisional patent application for the more complex version.
Plaintiff then began to build, in his own basement, a prototype for the simpler version of his ultraviolet disinfection invention. Plaintiff estimates that he spent $2,000 of his own money and about 300 hours of his own time working on this undertaking at home. He acknowledges also spending $5,000 of Honeywell's money on the project at that time but claims he did so only after he signed an agreement on December 5, 2002, assigning the invention to Honeywell.
Four months after assigning the invention, plaintiff read materials relating to his project and realized the simpler version was in fact novel and patentable. He convinced Honeywell's patent attorneys to file for broader patent coverage, and Honeywell did so in June 2004. Pursuant to company policy, plaintiff received $1,500 from Honeywell when his non-provisional patent application was filed with the USPTO.
During 2004, plaintiff spent another $5,000 of Honeywell's money to test the prototype of the simpler invention and used about forty hours of his work time at Honeywell and eight hours of another employee's time for testing and analyzing the prototype. In November 2004, the USPTO published the filing for plaintiff's simpler ultraviolet invention.
Two months later, Honeywell was contacted by a third party interested in a license for the simpler invention. Honeywell signed a licensing agreement with the third party in June 2005, which plaintiff claims will result in a benefit to Honeywell of millions of dollars. Plaintiff received a $200 recognition award. Later, during this litigation, Honeywell paid plaintiff another $2,500 for the invention.
In August 2005, plaintiff downloaded Honeywell's current employment agreement with engineers similarly situated to him and learned that the current agreement is more favorable to the employee than the agreement he signed with Bendix in 1984. Pursuant to Honeywell's in-house procedures, plaintiff submitted a detailed complaint addressing Honeywell's patent assignment policies and his invention assignment agreements. Honeywell's lead patent counsel headed an investigation of plaintiff's complaint and concluded that Honeywell was operating in full compliance with the law and its own policies. Upon further complaint to Honeywell's general counsel, plaintiff received a similar reply.
In 2007, plaintiff filed a six-count complaint against Honeywell in the Chancery Division seeking primarily to set aside the invention assignment agreements he had signed and a constructive trust for the proceeds of his ultraviolet disinfection invention. After amendment of plaintiff's complaint, Honeywell filed an answer and a counterclaim demanding that plaintiff disclose a new invention he had referenced in a deposition taken in September 2007.
Honeywell filed a motion to compel discovery of the new invention and plaintiff simultaneously filed a motion for summary judgment on count one of his amended complaint, which sought a declaratory judgment that the assignment agreements are not enforceable. Honeywell then filed a cross-motion for summary judgment seeking dismissal of plaintiff's complaint. After oral argument, the Chancery Division issued a written decision and entered an order on April 2, 2008, by which it denied both summary judgment motions and granted Honeywell's motion to compel discovery of the new invention. Plaintiff complied with the discovery order.
A short time later, plaintiff filed a second motion for summary judgment seeking a declaratory judgment under count one.
Honeywell again filed a cross-motion for summary judgment. Honeywell's notice of motion and proposed form of order did not specify whether it sought dismissal of count one or all counts of plaintiff's amended complaint. On July 2, 2008, the court issued a second written decision denying plaintiff's motion and this time granting Honeywell's cross-motion for summary judgment. The court's order also did not specify what counts of the amended complaint were being dismissed.
Plaintiff filed a motion for reconsideration, which the court denied by a third written opinion and order dated August 15, 2008.
Plaintiff filed a timely notice of appeal from the three orders of April 2, July 2, and August 15, 2008. He raises several issues directed to the enforceability of his 1984 invention assignment agreement and the 2002 assignment to Honeywell of his ultraviolet disinfectant invention.
On the summary judgment record, few pertinent facts are in dispute. The primary disputed issue, whether the invention assignment agreements are enforceable, is an issue of law that the parties and Chancery Division correctly viewed to be appropriate for summary judgment.
The leading precedent pertaining to agreements on assignment of inventions is Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609 (1988). In that case, the Court first acknowledged common law principles that an invention is property that belongs to the inventor and that employment alone does not give the employer rights in its employee's invention. Id. at 622. Historically, the common law has enforced employment contracts that required the employee to assign his or her rights to the employer for inventions designed or conceived during the period of employment and related to the business of the employer. See id. at 623; Misani v. Ortho Pharm. Corp., 44 N.J. 552, 554, cert. denied and appeal dismissed, 382 U.S. 203, 86 S.Ct. 398, 15 L.Ed. 2d 270 (1965).
The Court in Ingersoll-Rand, supra, 110 N.J. at 612, 625, considered the enforceability of an invention "holdover" agreement, a contractual provision requiring assignment to the employer of inventions after the time of employment. The Court held that such holdover agreements are not enforceable if they unreasonably require assignment and transfer of the employee's rights. Id. at 624. To determine which contractual provisions are reasonable and which are not, the Court looked to case law pertaining to restrictive non-competition covenants in employment contracts. Id. at 626-30.
In Solari Industries Inc. v. Malady, 55 N.J. 571, 576 (1970), the Court adopted a three-part test of reasonableness, holding that a restrictive covenant "will generally be found to be reasonable where it simply protects the legitimate interests of the employer, imposes no undue hardship on the employee, and is not injurious to the public." The same three-part test was reiterated in Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25, 37 (1971), where the focus of the dispute was whether the employee's restrictive covenant protected against use of the former employer's trade secrets and confidential business information or it unreasonably infringed on the employee's use of "matters of general knowledge within the industry." Id. at 33-34. The analysis to determine reasonableness and enforceability of restrictive covenants has come to be known as the Solari/Whitmyer test. In Ingersoll-Rand, supra, 110 N.J. at 634, the Supreme Court adopted the Solari/Whitmyer test in the context of holdover invention assignment agreements.
On this appeal, plaintiff agrees that the Solari/Whitmyer test applies to his invention assignment agreements, but he contends that an unreasonable assignment agreement during the time of employment should be unenforceable in its entirety. He argues the trial court erred in its April 2, 2008 order in "blue-penciling" the 1984 assignment agreement rather than determining that the agreement as a whole is unreasonable and therefore unenforceable. "Blue-penciling" refers to invalidating parts of the agreement while enforcing other parts. See Solari, supra, 55 N.J. at 579; Community Hosp. Group, Inc. v. More, 183 N.J. 36, 50 n.3 (2005). We reject plaintiff's argument.
We agree with the trial court that the enforceability of plaintiff's agreements is controlled by the same case law that has developed with respect to restrictive non-competition covenants. See Ingersoll-Rand, supra, 110 N.J. at 627. We further agree that our prior case law expressly authorizes blue-penciling unreasonable provisions and enforcing reasonable ones of such an agreement. The Court in Solari, supra, 55 N.J. at 585, approved partial enforcement of restrictive covenants to the extent they are reasonable, and subsequent cases have confirmed that holding. See Karlin v. Weinberg, 77 N.J. 408, 421 n.4 (1978); Community Hosp. Group, supra, 183 N.J. at 50 n.3.
We also reject plaintiff's argument that the trial court inappropriately reformed the contract. Plaintiff contends the equitable remedy of reformation should only be utilized where the evidence shows either mutual mistake or unilateral mistake of one party and fraud or unconscionable conduct by the other. See Dugan Constr. Co. v. N.J. Tpk. Auth., 398 N.J. Super. 229, 242-43 (App. Div.), certif. denied, 196 N.J. 346 (2008). He argues that he has not alleged mistake in signing his 1984 agreement since Ingersoll-Rand was decided after the date of that agreement. Blue-penciling, however, is not reformation of the contract; it is partial enforcement of the contract. Blue-penciling does not require the traditional showing for the equitable remedy of reformation.
Moreover, the Chancery Division's blue-penciling in this case ultimately did not affect plaintiff's claims concerning his ultraviolet disinfection invention. By its decision resulting in the April 2, 2008 order, the court upheld the validity of the 1984 assignment agreement after blue-penciling the word "information" and substituting in its place "trade secrets or confidential information." The court's restriction of the agreement to only those types of information was consistent with the holding of Whitmyer, supra, 58 N.J. at 33-37, but that restriction was not the basis for the court's later July 2, 2008 decision and order granting summary judgment to Honeywell. Rather, summary judgment was based on plaintiff's use of the money and other resources of Honeywell in developing the invention.
The 1984 agreement requires that all inventions plaintiff may "conceive, develop or create" during his employment be assigned to Honeywell if either the invention relates to Honeywell's business or the invention is "aided by the use of time, materials, facilities or information paid for or provided by the Corporation." Plaintiff does not argue that the last-quoted clause is itself unreasonable. As plaintiff admitted, he used $10,000 of Honeywell's money, forty hours of company time himself, and eight hours of another Honeywell employee's company time to build, test, and analyze a prototype for his ultraviolet disinfectant invention.
Plaintiff asserts that creation of the idea and design for the invention should be distinguished from building and testing a prototype. He argues that he used Honeywell money and time only after the invention had been created in his own basement on his own time. We agree with the Chancery Division that the assignment agreement does not make a distinction between the idea and design of the invention and its development through building or testing a prototype. The prototype was part of the development and creation of the invention, and use of Honeywell's resources triggered the assignment obligation contained in plaintiff's agreement.
Next, plaintiff seeks rescission of his assignment agreements on the ground that the Chancery Division's April 2, 2008 decision determined that the 1984 agreement was unlawful and not enforceable as written. As we have stated, however, partial unreasonableness of a restrictive covenant does not nullify the entire agreement.
Plaintiff also contends he signed the 2002 assignment agreement, and thereafter used Honeywell's resources, only because he mistakenly believed that his 1984 agreement was fully enforceable and binding upon him. He argues that Honeywell should be equitably estopped from invoking the agreements because Honeywell did not modify his 1984 agreement to comply with the reasonableness requirement of Ingersoll-Rand, especially when other engineers who signed employment contracts with Honeywell at a later time were not subject to restrictions as severe as plaintiff's.
Our Supreme Court set forth elements of equitable estoppel in Miller v. Miller, 97 N.J. 154, 163 (1984):
To establish a claim of equitable estoppel, the claiming party must show that the alleged conduct was done, or representation was made, intentionally or under such circumstances that it was both natural and probable that it would induce action.
Equitable estoppel "is designed to prevent injustice by not permitting a party to repudiate a course of action on which another party has relied to his detriment." Knorr v. Smeal, 178 N.J. 169, 178 (2003); see Lopez v. Patel, 407 N.J. Super. 79, 91 (App. Div. 2009); Mattia v. Northern Ins. Co. of N.Y., 35 N.J. Super. 503, 510 (App. Div. 1955).
Here, as the trial court correctly concluded, equitable estoppel does not preclude Honeywell from relying on the reasonable provisions of its agreement. First, plaintiff has no evidence that Honeywell intentionally made misrepresentations to plaintiff regarding the scope and enforceability of the 1984 assignment agreement. Although the Chancery Division blue-penciled one provision of the agreement and Honeywell has not cross-appealed from that ruling, nothing in the summary judgment record establishes obvious unlawfulness of the agreement or purposeful conduct by Honeywell intended to mislead plaintiff. Second, we agree with the Chancery Division that plaintiff cannot show circumstances that made it "natural and probable" that he would utilize Honeywell's resources to test his own invention, which he alleges is not related to his avionics work at Honeywell. As the trial court stated, an inventor with plaintiff's level of knowledge and sophistication had the ability to inquire first whether he was legally bound by the assignment agreement of 1984 before using Honeywell's resources.
In that regard, we also reject without further discussion, in accordance with R. 2:11-3(e)(1)(E), plaintiff's arguments that Honeywell had a duty to keep him informed about developments in the law of restrictive covenants and invention assignment agreements and to update his contract periodically as the law developed. We also reject without further discussion plaintiff's argument that the 1984 assignment agreement should be held unenforceable as a contract of adhesion.
Finally, defendant argues that the Chancery Division improperly dismissed all counts of his complaint without explaining the reasons for dismissal other than with respect to count one. He states that the cross-motions for summary judgment were directed only to the first count of plaintiff's amended complaint, which sought a declaratory judgment regarding the enforceability of the invention assignment agreements.
Plaintiff's amended complaint contained six counts. Counts two and three alleged age discrimination in that Honeywell's older employees were bound by a more restrictive invention assignment agreement as compared to newer, younger employees. The fourth count alleged unjust enrichment in that Honeywell stood to receive millions of dollars from plaintiff's invention while plaintiff allegedly received only a total of $4,200. The fifth count alleged breach of the implied covenant of good faith and fair dealing with respect to Honeywell's internal investigation and response by patent and general counsel to plaintiff's complaints about his assignment agreements. The sixth count alleged that the word "information" in the invention assignment agreement was vague, and like the first count, it sought a declaration that the agreement was unenforceable and an order establishing a constructive trust for the proceeds of the invention.
On plaintiff's motion for reconsideration, the trial court stated:
Saccomanno argues that he has a claim for "bad faith" that requires the Court to reserve on summary judgment until he obtains additional discovery from Honeywell.
Initially, I note that bad faith in and of itself is not a standalone cause of action in this case - it is a finding that might have affected the quantum of damages only if Saccomanno's underlying claims panned out. Saccomanno's claims did not pan out when the Court extinguished them on July 2, 2008. Furthermore, the Court and the parties specifically structured discovery in this case to avoid the expense of litigating the issue of Honeywell's bad faith, unless summary judgment did not dispose of the entire case. Until this motion for reconsideration, no party claimed that the matter was unripe for summary judgment, and the Court will not reconsider its decision.
Nowhere else in its three written opinions did the court give reasons for dismissing plaintiff's complaint in its entirety. Furthermore, while the quoted statement indicates the court's understanding that the July 2, 2008 order dismissed plaintiff's complaint in its entirety, neither the language of that order nor the court's opinion of that date makes specific reference to the several counts of the complaint.
The record before us is not sufficient for review of the Chancery Division's reasons for dismissing counts two through five of plaintiff's amended complaint. We hesitate to reverse the Chancery Division's order as to those counts without a more complete understanding of the parties' and the court's expectations, as suggested in the quoted statement of the Chancery Division in response to plaintiff's motion for reconsideration.
Consequently, we affirm dismissal of counts one and six of plaintiff's amended complaint seeking a declaratory judgment and a constructive trust. We remand to the trial court for further explanation of the court's reasons for dismissing counts two through five, or alternatively, reinstatement of those counts for further proceedings. Within thirty days, the Chancery Division shall file with the Clerk of the Appellate Division its statement of supplemental reasons or indicate its intent to modify its prior orders to reinstate counts two through five.
Affirmed in part and remanded in part. We retain jurisdiction.
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