First National Bank v. Burton, Parsons & Co.

GILBERT, Chief Judge. Words, it has been said, are the expression of ideas. Accepting that as true, we wish, in the instant case, that the parties’ ideas had been more clearly expressed. As this appeal reaches us, it involves claims for royalties on patents, allegations of discovery rule violations, quantum meruit, an assertion of fraud, a $750,000 verdict against the appellee, and a cross-appeal.

Before we endeavor to unravel the wopse in which the parties placed themselves, we shall describe the factual setting from which this litigation arose. Dr. Billy F. Rankin was a successful inventor who developed an entire line of ophthalmic and contact lens products. Virtually all of Dr. Rankin’s inventions were originated while he was an employee of Burton, Parsons & Co., Inc., a Montgomery County concern owned, for most of the time with which we are concerned, by the Manfuso family. Dr. Rankin was first hired by Burton, Parsons in 1960 at a weekly salary of $100.00.

He worked for the company from 1960 until his death in 1981. During that period Burton, Parsons grew from a small manufacturer of two bulk laxatives into an international corporation with domestic and foreign subsidiaries devoted almost exclusively to contact lens and eye care products. Over the twenty-one years of their association, Dr. Rankin and Burton, Parsons entered into several written agreements. The first of which, dated March 15, 1961, was a contract of employment.

It provided in part: ⁴⁴² “6. Inventions, Formulas or Discoveries: Employee agrees that any inventions, formulas or discoveries which Employer [sic] may obtain knowledge of through his research and development efforts or otherwise in the course of his employment shall be and become the sole property of Employer. Employee agrees to disclose fully to Employer all particulars including know-how incident to any such invention, formula or discovery and to execute such patent applications, assignments of patent or further assurances as may be required to vest full and perfect title to such inventions, formulas or discoveries in Employer. However, the vesting of title in Employer, as aforesaid, shall not preclude the parties hereto' from negotiating a further agreement for payment to Employee of royalties or other compensation for such inventions, formulas or discoveries as may prove capable of commercial development.

It is agreed that the amount of such compensation, if any, will be dependent upon factors presently incapable of accurate appraisal, such is [sic] patentability, competitive products, public acceptance, etc., and for that reason no more definite agreement is attempted at this time relative to royalties. Should employer decline to utilize an invention, formula or discovery of Employee for a period of two years after its full disclosure by Employee and for a period of six months after notification by Employee, then all proprietary rights to such invention, formula or discovery shall revest in Employee and he shall have a full and perfect title to same which he may utilize in promoting the product himself or which he may convey to another prospective purchaser.” Later that year the parties contracted what is now styled as “1961 Royalty Agreement.” That contract provided for the payment to Rankin of royalties based on the foreign and ■ domestic net sales of the products known as “Clens,” “Soa-Clens,” 1 and “Soothe.” ⁴⁴³ Another royalty agreement was negotiated by Dr. Rankin and Burton, Parsons in 1968. It was virtually identical to the 1961 Royalty Agreement in all but a few aspects. The earlier agreement provided for royalty payments during the lives of the products, while the latter accord called for the payments to terminate upon the expiration date of the patents, irrespective of the products’ life span.

The 1961 Royalty Agreement provided for the payment of royalties on “Soa-Clens” only when the net sales of that product exceeded a floor of $25,000. On the other hand, the 1968 Royalty Agreement eliminated the sales floor. Furthermore, the 1968 Royalty Agreement expressly superseded the 1961 Royalty Agreement. In addition to payments under the 1961 and 1968 written agreements, Dr. Rankin received royalties on four other creations.

Those four inventions were marketed as the Adsorbobase products, and payments were made to Dr. Rankin pursuant to an oral agreement with Burton, Parsons. It appears from the record that Dr. Rankin received from salary and royalties an annual average income of $100,000 throughout the 1970’s. Between 1969 and 1981, seventeen Rankin products generated in excess of 220 million dollars in net sales for Burton, Parsons. Thus, it appears both Rankin and Burton, Parsons prospered, the latter perhaps better than the former.

The Manfuso family sold their Burton, Parsons stock in 1979 to Nestle, S.A., and the Manfusos resigned their positions as company officers. Shortly thereafter, Burton, Parsons was merged into Alcon Laboratories, a Nestle subsidiary. Alcon continued to make royalty payments to Dr. Rankin, who remained an employee following the acquisition and merger. We shall for the purpose of continuity refer to the employer as Burton, Parsons.

Apparently no royalties were paid on several of Rankin’s creations that were being marketed by Burton, Parsons, and in 1981 Dr. Rankin requested a commencement of negotiations with respect to royalties. We infer that progress ⁴⁴⁴ satisfactory to Rankin was never made on those negotiations, inasmuch as suit was commenced by Rankin in January, 1982. Rankin’s declaration alleged breaches of contract occasioned by Burton, Parsons’s failure to pay the royalties due to Dr. Rankin. Additional claims were made in quantum meruit as well as for fraud, punitive damages, and for declaratory judgments with respect to future royalty payments.

The day after Rankin’s suit was filed, he died. 2 His personal representatives, First National Bank of Maryland and Gilbert E. South, were substituted as parties plaintiff. By the time Burton, Parsons & Co., Inc., and Alcon Laboratories, Inc., entered their pleas, the personal representatives were parties of record. Throughout this opinion we shall refer to the personal representatives as Rankin. After a five day jury trial in the Circuit Court for Montgomery County (Miller, J.), the jury returned a verdict for Rankin in the amount of $750,000, a sum it found to be owed to Dr. Rankin for unpaid royalties.

Motions for a judgment non obstante veredicto and a new trial were denied. This appeal and cross-appeal ensued. Rankin has posed six issues to us, and Burton, Parsons has posited three additional ones. We classify and enumerate the issues as follows: Rankin’s Appeal 1.

The trial judge erred when he refused to enter a default judgment against Burton, Parsons because of the latter’s alleged discovery violations, notwithstanding a threat of such sanction by another judge at an earlier time. 2. Judge Miller committed reversible error when he directed a verdict that the contract of employment, claimed by Rankin to provide an enforceable duty by ⁴⁴⁵ Burton, Parsons to pay royalties, was unambiguous and imposed no enforceable duty to pay royalties. 3. Reversible error was made when the trial judge directed a verdict on quantum meruit on the ground that the contract of employment created no duty to pay royalties and whatever was owed had been paid. 4. It was error to grant a directed verdict that the contract of employment created no present or past right to royalties, and there could be no future right to receipt of royalties. 5.

It was error to admit into evidence the testimony of John Manfuso, Sr., because that testimony violated the “Dead Man’s Statute,” Md.Cts. & Jud.Proc.Code Ann. § 9-116. 6. The trial judge erred when he took from the jury Rankin’s fraud claim. Burton, Parsons’s Cross-Appeal 7. Judge Miller erred when he ruled that the terms “net sales” and “sales in foreign countries,” as used in the royalty agreements, were unambiguous, thereby precluding the jury’s consideration thereof. 8.

It was error to exclude from the jury’s consideration two documents that Burton, Parsons sought to introduce into evidence to clarify the terms of an oral agreement to pay royalties. 9. The evidence was insufficient to sustain the jury’s award of $750,000 to Rankin. I. Rankin’s Appeal 1. The Discovery Ruling Rankin asserts that on four separate occasions he filed motions for sanctions against Burton, Parsons because of its failure to obey the Maryland Rules relating to discovery. ⁴⁴⁶ On the third such occasion Judge Stanley B. Frosh threatened to enter judgment against Burton, Parsons if it did not comply with Rankin’s requests.

The fourth and final motion was heard by Judge Miller who refused to sanction Burton, Parsons, notwithstanding Judge Frosh’s earlier threat. In this Court, Rankin avers that Judge Miller’s declination to enter judgment against Burton, Parsons because of its refusal or failure to obey the discovery rules constitutes an abuse of discretion. We are asked to remand “for the entry of a judgment by default, or for a new trial with facts (sought to be ascertained through discovery) taken as established .... ” We shall do neither. The Court of Appeals in Smith v. Potomac Electric Power Co., 236 Md. 51 , 202 A.2d 604 (1964), said that dismissal of a claim for failure to comply with discovery was “clearly not mandatory (even if permissible, ...).” The Court, however, did not decide whether it was permissible but left that issue to another time, indicating that the noncompliance in Smith “was not wilful.” Later the Court said in Klein v. Weiss, 284 Md. 36, 56 , 395 A.2d 126, 137 (1978), “There is no contention that the appellees’ failure to disclose the information was wilful or contumacious; there is, therefore, no mandatory requirement that the evidence be excluded.” In the matter sub judice, Judge Miller opined that, “while many items sought were late in arriving, while other items may not have been supplied to the complete satisfaction of ... [Rankin] ... there is no indication in the record of a lack of good faith on the part of ... [Burton, Parsons].

For ... [those] reason[s] the Court will not impose any sanctions involving ... a different burden of proof or default.” We have neither been directed to nor have we found any case where following a trial on the merits, a judgment has been reversed simply because of failure to comply with discovery procedures, and a default judgment was subsequently entered against the errant party. Judge Miller was free to exercise his own judgment in the matter, which is precisely what he did, irrespective of ⁴⁴⁷ what another judge might have done. That he found “no indication of a lack of good faith” on the part of Burton, Parsons does not mean that he abused his discretion. 2. The Employment Contract The contractual controversy centers completely around the second sentence of section 6 of the above recited contract of employment.

That sentence declares: “However, the vesting of title in Employer, as aforesaid, shall not preclude the parties hereto from negotiating a further agreement for payment to Employee of royalties or other compensation for such inventions, formulas or discoveries as may prove capable of commercial development.” Rankin asserts that because of the second sentence, the agreement is so ambiguous as to require the introduction of extrinsic evidence in order to establish the true intention of the parties. Keyser v. Weintraub, 157 Md. 437, 444-45 , 146 A. 275, 277 (1929); see also Masano v. Albritton, 245 Md. 423 , 226 A.2d 299 (1967); Warner v. Miltenberger’s Lessee, 21 Md. 264, 83 Am.Dec. 573 (1864). Judge Miller, however, did not find the contract to be ambiguous but, rather, unenforceable with respect to an affirmative duty to pay royalties. Indubitably, the parties agreed to negotiate a further agreement “relative to the payment of royalties or other compensation,” subject to a number of factors such as patentability, and public acceptance.

Ergo, “no more definite agreement” was attempted. Subsequently, Rankin and Burton, Parsons did enter into “royalty agreements” as to some of the products. As Rankin reads the contract of employment, Burton, Parsons was obligated to pay royalties on all products created by Rankin for Burton, Parsons. The refusal, failure, or neglect by Burton, Parsons to pay royalties is, in Rankin’s view, a breach of contract entitling Rankin to recover such ⁴⁴⁸ sums as a factfinder shall determine to be due and owing.

We disagree. A factfinder would be required in the instant case to write the royalty agreement before determining damage for its breach. Of necessity, it would have to find that Burton, Parsons should have agreed to pay a definite percentage on each and every product invented by Rankin but manufactured and marketed by Burton, Parsons; what amount, if any, the royalty should be on a particular product; whether the geographical area in which it is marketed should alter the amount of the royalty paid; whether the royalty percentage should be calculated on gross sales or gross sales less a “sales floor,” or net sales or net sales less a “sales floor.” Ordinarily, commercial agreements to negotiate upon terms and conditions to be decided are unenforceable. Oil Trading Associates, Inc. v. Texas City Refining, Inc., 199 F.Supp. 829 (S.D.N.Y.1961), aff’d, 303 F.2d 713 (2d Cir.1962).

In Fremon v. W.A. Sheaffer Pen Co., 209 F.2d 627 (8th Cir.1954), an inventor sued Sheaffer Pen Co. on the basis of an agreement whereby Sheaffer allegedly contracted to pay to the inventor “amounts representative of the value” to Sheaffer of the invention. The court, affirming a summary judgment entered in favor of Sheaffer, said: “Clearly more than the amount of compensation was left for future determination. Neither a court nor a jury is authorized to guess what values Fremon and Sheaffer might have placed upon all the factors which were left for their consideration in arriving at a basis on which to determine ‘fair compensation’ for the value of those rights. The authorities cited and relied upon by the court are in point; and there are many others.

Lynn v. Richardson, 151 Iowa 284, 288 , 130 N.W. 1097 ; Williston on Contracts (Rev.Ed., 1936), Vol. I, § 45, p. 131; Gunn v. Newcomb, 82 Iowa 468 , 48 N.W. 989 ; National Bank of Kentucky v. Louisville Trust Co., 6 Cir., 67 F.2d 97, 102 . The law is tersely stated in Richmond Screw Anchor Co., Inc. v. Umbach, 7 Cir., 173 F.2d 532, 534 , as follows: ⁴⁴⁹ ‘Where an essential element of a contract is reserved for future agreement, no legal obligation as to such element arises until such future agreement is made.’ ” 209 F.2d at 682 . More recently, the United States District Court for the Southern District of New York (Weenfeld, J.) in Candid Productions, Inc. v. International Skating Union, 530 F.Supp. 1330 (S.D.N.Y.1982), penned: “While the power of the Court to fashion in appropriate cases an equitable remedy is great, it does not encompass the right to make an agreement for the parties.

To decree ... as plaintiff requests, would require the Court to enter into the realm of the conjectural. An agreement to negotiate in good faith is even more vague than an agreement to agree. An agreement to negotiate is amorphous and nebulous, since it implicates so many factors that are themselves indefinite and uncertain that the intent of the parties can only be fathomed by conjecture and surmise.” (Footnote omitted.) Professor Samuel Williston in A Treatise on the Law of Contracts, (W.H.E. Jaeger 3d ed. 1957) § 45 declares: “Although a promise may be sufficiently definite when it contains an option given to the promissor or promissee, yet if an essential element is reserved for the future agreement of both parties, the promise can give rise to no legal obligation until such future agreement. Since either party by the very terms of the promise may refuse to agree to anything to which the other party will agree, it is impossible for the law to affix any obligation to such a promise.” Cases illustrative of Williston’s declaration are: Weegham v. Killefer, 215 F. 168 (W.D.Mich.1914), aff’d, 215 F. 289 (6th Cir.1914) (contract to play baseball “at a salary to be determined” was held invalid); Harbot v. Pennsylvania R. Co., 44 F.Supp. 319 (W.D.N.Y.1942) (contract providing for reasonable compensation to be paid was too uncertain to enforce). ⁴⁵⁰ 1 Corbin on