250 So. 3d 1046
La. Ct. App.2018Background
- Becnel and Eckstein formed Stratus in 1992; in 2005 they executed a Settlement Agreement, License Agreement, Product Transfer Agreement, and Consent Judgment allocating rights: Eckstein got Halkey-Roberts and exclusive non-military rights to the Universal Inflator; Stratus retained military rights; Stratus agreed to pay Eckstein 8% of Total Gross Revenue Receipts (TGRRs) from the Universal Inflator for ten years beginning on the date of the first sale, and Eckstein had audit rights if he reasonably believed TGRRs were inaccurate.
- Eckstein filed a 2016 Motion to Enforce alleging underreporting of TGRRs, refusal to provide updated design/patent "deliverables," and non-military sales; he sought an audit, deliverables, cease-and-desist and reimbursement for non-military sales, and fees.
- Dispute over when the ten-year royalty period began: Stratus argued the first sale occurred Feb. 1, 2007 (a Navy payment of $84,649.58); Eckstein argued that payment was a reimbursement for qualification testing and the first sale of producible, qualified units occurred in 2011 (thus royalties run later).
- District court ordered an independent audit (shared initial costs), in-camera production of non-military sales records, provision of updated deliverables, and held Stratus (not Becnel personally) liable for royalties through March 14, 2021.
- Stratus appealed multiple rulings. The appellate court applied manifest error/de novo standards where appropriate and affirmed the district court in all respects.
Issues
| Issue | Plaintiff's Argument (Eckstein) | Defendant's Argument (Stratus) | Held |
|---|---|---|---|
| Did the ten-year royalty period start in 2007 or 2011? | 2007 Navy payment was reimbursement for qualification testing; first sale of producible units occurred in 2011, so royalties run later. | The Feb. 1, 2007 Navy payment was a sale that perfected ownership; Eckstein accepted royalties then and may be estopped from disputing the date. | Court found payment was reimbursement for prototype; first military sales occurred in 2011; royalties extend to 2021. |
| Must Stratus provide updated deliverables? | License requires transfer of present and future versions and associated data so Eckstein can exercise his non-military license. | License required only a one-time deliverable transfer in 2005, which Stratus already provided. | Court held sections read together require updated deliverables; enforcement was proper. |
| Is Eckstein entitled to audits for the years identified and who pays initial audit costs? | Eckstein has contract audit rights for any years he reasonably believes TGRRs are inaccurate, including years beyond those originally pled. | Audit should be limited; internal audit resolved certain years; Agreement dictates cost allocation (prevailing-discrepancy rule) so Eckstein should advance costs. | Court upheld audits (including 2008–09, 2011–13, 2016) and required parties to split initial audit costs, with final allocation to prevailing party per Agreement. |
| Must Stratus produce records of non-military sales for in-camera inspection? | Records are necessary discovery to determine whether Stratus breached Eckstein's exclusive non-military license. | Eckstein failed to prove Stratus made non-military sales; Switlik sales were for military use. | Court found production relevant and within district court's discovery discretion; in-camera inspection ordered. |
Key Cases Cited
- Reed v. 7631 Burthe Street, LLC, 234 So.3d 1201 (La. App. 4th Cir.) (manifest error standard for motions to enforce settlement)
- Orleans Parish School Bd. v. City of New Orleans, 700 So.2d 870 (La. App. 4th Cir.) (contract ambiguity reviewed de novo)
- French Quarter Realty v. Gambel, 921 So.2d 1025 (La. App. 4th Cir.) (trial court contract interpretation is factual for manifest error review)
- Delta Admin. Servs., L.L.C. v. Limousine Livery, Ltd., 216 So.3d 906 (La. App. 4th Cir.) (appellate scope in declaratory judgment review)
- New Orleans Jazz & Heritage Found. v. Kirksey, 40 So.3d 394 (La. App. 4th Cir.) (appellate deference to factual findings relevant to contract interpretation)
- LeBleu v. Safeway Ins. Co. of Louisiana, 824 So.2d 422 (La. App. 3d Cir.) (Article 862 relief may be granted even if not specifically pleaded)
- Connick v. Brechtel, 713 So.2d 583 (La. App. 4th Cir.) (broad district court discretion in discovery matters)
- Feingerts v. State Farm Mut. Auto. Ins. Co., 117 So.3d 1294 (La. App. 4th Cir.) (compromise requires meeting of minds)
- Kirby v. Poydras Ctr., LLC, 176 So.3d 601 (La. App. 4th Cir.) (appellate court will not consider issues not properly before it)