Kenton Crowley v. Epicept Corporation
547 F. App'x 844
9th Cir.2013Background
- Drs. Kenton Crowley and John Flores (Plaintiffs) sued EpiCept (Defendant) over a patent-assignment contract concerning development and commercialization rights; the contract included a New Jersey choice-of-law clause.
- Plaintiffs alleged breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, and sought rescission; they also moved to amend their complaint.
- District court granted summary judgment for EpiCept on all claims and denied Plaintiffs’ motion to amend; Plaintiffs appealed.
- Central factual dispute: whether Plaintiffs’ use of the patented ointment to treat burns constituted an unreported “improvement” (an infringing modification under the contract) and whether EpiCept exercised its development obligations in bad faith.
- Additional factual dispute: EpiCept missed a 2002 FDA filing deadline but allegedly reassured Plaintiffs it was still pursuing development, and Plaintiffs delayed seeking reassignment until 2004.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the contract’s definition of “improvement” covers Plaintiffs’ burn-ointment use and whether failure to report breached the contract | Plaintiffs’ burn use may not be an infringing modification; factual question whether reporting duty was triggered | Contract language obligates reporting of any modification that would infringe; court below treated definition as absurd | Reversed: genuine issues of material fact whether the burn use was an infringing "improvement" and whether breach occurred |
| Whether any breach by Plaintiffs was material, excusing EpiCept’s performance | Any failure to report was not shown to be a material breach that defeats the contract’s purpose | Alleged nonreporting was a significant breach relieving EpiCept | Reversed: materiality is a factual question; summary judgment improper |
| Whether EpiCept breached the implied covenant by diverting resources and giving false reassurances | Plaintiffs: repeated reassurances while diverting resources shows bad motive and frustrated expectations | EpiCept: acted within contractual discretion to allocate resources | Reversed: conflicting evidence creates triable issue on bad faith and frustrated expectations |
| Whether Plaintiffs stated a viable fraud claim (post-contract) and whether rescission is available | Plaintiffs: EpiCept made knowingly false present-intent statements after contracting, and Plaintiffs relied by delaying reassignment; rescission should be available if fraud found | EpiCept: no pre-contract misrepresentations; summary judgment appropriate | Partially reversed: summary judgment improper as to post-contract fraud (but correct re: fraud in inducement); rescission cannot be dismissed if fraud proven and equitable conditions met |
Key Cases Cited
- Energy Transp. Grp., Inc. v. William Demant Holding A/S, 697 F.3d 1342 (Fed. Cir. 2012) (method-patent infringement can arise from new components or equivalents)
- Coszalter v. City of Salem, 320 F.3d 968 (9th Cir. 2003) (summary judgment standard; genuine issues preclude judgment)
- Magnet Resources, Inc. v. Summit MRI, Inc., 723 A.2d 976 (N.J. Super. Ct. App. Div. 1998) (material breach defeats contract purpose)
- Nolan ex rel. v. Lee Ho, 577 A.2d 143 (N.J. 1990) (effect of breach on duty to perform)
- Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 864 A.2d 387 (N.J. 2005) (bad motive or intention supports implied-covenant breach)
- Sons of Thunder, Inc. v. Borden, Inc., 690 A.2d 575 (N.J. 1997) (reasonable expectations and contractual fruits protection)
- Emerson Radio Corp. v. Orion Sales, Inc., 253 F.3d 159 (3d Cir. 2001) (conflicting evidence defeats judgment on implied covenant under New Jersey law)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (summary-judgment and evidence-viewing standards)
- Gennari v. Weichert Co. Realtors, 691 A.2d 350 (N.J. 1997) (fraud elements and detrimental reliance)
- Notch View Assocs. v. Smith, 615 A.2d 676 (N.J. Super. Ct. Law Div. 1992) (rescission equitable standards)
- Chodos v. West Publishing Co., 292 F.3d 992 (9th Cir. 2002) (abuse-of-discretion standard for denial to amend)