ITT Corp. v. Patrick P. Lee
663 F. App'x 80
| 2d Cir. | 2016Background
- In 2007 ITT acquired International Motion Control, Enidine, and Cleveland Motion Controls via a merger agreement that transferred patents including U.S. Patent No. 7,131,367 (the ’367 Patent).
- The Agreement warranted that transferred patents were valid and enforceable “to the Knowledge of the Company,” defined as actual knowledge after a reasonable investigation by specified managerial employees (including the individual defendants).
- Section 11.8 disclaimed personal liability for past, present, or future officers, employees, or stockholders for obligations of the company or the stockholders’ representative under the Agreement.
- Kyntec (with which defendant Lee later associated) sued for declaratory judgment of invalidity/unenforceability of the ’367 Patent in 2014; ITT/Enidine then sued the individual defendants in 2015 for breach of contract, intentional breach, fraud, and breach of fiduciary duty, alleging defendants had an obligation to reasonably investigate patent validity.
- The district court dismissed all claims; the Second Circuit affirmed, holding (1) the Agreement did not impose an individual investigation obligation on the defendants and (2) even if it did, the claims are time-barred under the Agreement’s survival clauses and New York statutes of limitation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Agreement imposed an individual duty on defendants to reasonably investigate patent validity | The Agreement’s definition of “Knowledge of the Company” and references to reasonable investigation create an individual obligation on the defendants | The representations and warranties in §3.12 are IMC’s, not individual defendants’; Article IV lists stockholder reps’ warranties and contains no such investigation duty | No individual duty existed; §3.12 governs IMC’s representations, not personal obligations of defendants |
| Whether contract/fiduciary/fraud claims are time-barred | Claims tolled until ITT discovered the alleged breach in 2014; fraud or intentional breach exceptions extend limitations | Survival clauses and NY law start limitations at closing; discovery rule does not apply to contract claims; plaintiffs didn’t diligently pursue tolling | Claims are time-barred; discovery rule does not save contract claims; equitable tolling not warranted |
| Whether plaintiffs can invoke fraud limitations period | Plaintiffs plead actual fraud tied to defendants’ conduct and seek longer limitations under CPLR §213(8) | Fraud allegations are incidental to contract claims and not separate/subsequent; injuries are identical | Fraud period not available because fraud was incidental to contract breach and not distinct/separate |
| Whether intentional breach claims can be treated as torts to use tort accrual rules | Plaintiffs argue intentional breach sounds in tort so accrual is when injury was discovered | A tort requires a legal duty independent of contract; plaintiffs plead only contractual duties | Claims do not sound in tort; cannot use tort accrual to revive time-barred claims |
Key Cases Cited
- Fahs Constr. Grp., Inc. v. Gray, 725 F.3d 289 (2d Cir.) (standard of review on motion to dismiss)
- Anschutz Corp. v. Merrill Lynch & Co., 690 F.3d 98 (2d Cir.) (pleading standards: accept factual allegations and draw inferences in plaintiff’s favor)
- ACE Sec. Corp. v. DB Structured Prods., Inc., 36 N.E.3d 623 (N.Y.) (discovery rule does not apply to contract statute of limitations)
- Corcoran v. New York Power Auth., 202 F.3d 530 (2d Cir.) (fraud incidental to another claim cannot invoke longer fraud limitations unless fraud is separate and causes distinct injuries)
- Zerilli-Edelglass v. New York City Transit Auth., 333 F.3d 74 (2d Cir.) (standard of review for equitable tolling decisions)
- Pace v. DiGuglielmo, 544 U.S. 408 (U.S.) (equitable tolling requires diligence and extraordinary circumstances)
- Kronos, Inc. v. AVX Corp., 612 N.E.2d 289 (N.Y.) (tort accrual principles: tort causes accrue when injury is sustained)
- IDT Corp. v. Morgan Stanley Dean Witter & Co., 907 N.E.2d 268 (N.Y.) (limitations for breach of fiduciary duty and when fraud-based limitations apply)