Washington University v. Wisconsin Alumni Research Foun , 703 F. App'x 106 ( 2017 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 16-1419
_____________
WASHINGTON UNIVERSITY,
Appellant
v.
WISCONSIN ALUMNI RESEARCH FOUNDATION
______________
On Appeal from the United States District Court
for the District of Delaware
(District Court No. 1-13-cv-02091)
District Judge: Honorable Gregory M. Sleet
______________
Argued
November 8, 2016
______________
Before: McKEE, RESTREPO, Circuit Judges, and HORNAK, District Judge.
(Opinion filed: July 11, 2017)
Deanne E. Maynard (Argued)
Marc A. Hearron
Morrison & Foerster
2000 Pennsylvania Avenue, N.W.
Suite 6000
Washington, DC 20006
Honorable Mark R. Hornak, District Judge, United States District Court for the Western
District of Pennsylvania, sitting by designation.
Michael A. Jacobs
Christopher L. Robinson
Morrison & Foerster
425 Market Street
34th Floor
San Francisco, CA 94105
John G. Day
Ashby & Geddes
500 Delaware Avenue
P.O. Box 1150, 8th Floor
Wilmington, DE 19899
Attorneys for Appellant
Robert F. Shaffer (Argued)
Krista E. Bianco
J. Michael Jakes
Finnegan Henderson Farabow Garrett & Dunner
901 New York Avenue, N.W.
Washington, DC 20001
Mary B. Graham, Esq.
Morris Nichols Arsht & Tunnell
1201 North Market Street
P.O. Box 1347
Wilmington, DE 19899
Attorneys for Appellee
_______________________
OPINION
_______________________
McKEE, Circuit Judge.
Washington University appeals from the district court’s grant of summary

This disposition is not an opinion of the full court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
2
judgment to Wisconsin Alumni Research Foundation (“WARF”). For the reasons that
follow, we reverse the District Court’s judgment.
I.
The District Court had diversity jurisdiction pursuant to 28 U.S.C. § 1332(a)(1).
We have jurisdiction pursuant to 28 U.S.C. § 1291. We review grants of summary
judgment de novo.1 Summary judgment is appropriate where the moving party is entitled
to judgment as a matter of law, and there are no genuine disputes as to any material
facts.2 In reviewing a motion for summary judgment, we view the evidence in the light
most favorable to the non-moving party.3 We refrain from making credibility
determinations or weighing the evidence.4
II.
Washington University filed this action in December 2013 alleging that WARF
breached a 1995 Agreement it had with Washington University pertaining to assignment
of rights to a certain patent (the “’815 patent”), and the covenant of good faith and fair
dealing implied in that agreement, as well as the fiduciary duty that arose from that
agreement. Washington University claimed that WARF’s breach resulted from WARF’s
failure to assign a proper value to the ’815 Patent which resulted in underpayments to
Washington University. The University also argued that the annual payment exception to
1
Montone v. City of Jersey City, 709 F.3d 181, 189 (3d Cir. 2013).
2
See, e.g., Hampton v. Borough of Tinton Falls Police Dept., 98 F.3d 107, 112 (3d Cir.
1996).
3
Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986).
4
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
3
Wisconsin’s statute of limitations as well as the doctrine of equitable estoppel precluded
its claims from being time barred.
The District Court ruled that the implied covenant of good faith and fair dealing
required “WARF to exercise its authority to assign relative values fairly and in good
faith” and thus partially granted Washington University’s summary judgment motion.5
However, the Court agreed with WARF’s argument that the University’s suit was time-
barred under the applicable statute of limitations because the University’s claim for
breach of contract was based solely on WARF’s initial assignment of relative value to the
Patent in 1998, and the annual payment exception therefore did not apply. Finally, the
court found no evidence of inequitable conduct by WARF and concluded that equitable
estoppel also did not rescue the University’s claims from the operation of Wisconsin’s
six-year time bar.
III.
On appeal, Washington University argues that the annual payment exception
applies here because WARF had an ongoing obligation to fairly assign a relative value to
the ’815 Patent and pay the University accordingly. According to the University, the
implied covenant of good faith and fair dealing required WARF to calculate and
distribute the amount of royalties Washington University was entitled to each year, and
thus, each year’s alleged underpayment constitutes a separate breach. Accordingly, the
University claims it can seek damages arising from all payments that accrued on or after
April 2007.
5
A21.
4
Under the annual payment exception, also known as the “continuing violation
rule,” if a party has a continuing duty to perform, “generally a new claim accrues for each
separate breach . . . . [, and] the injured party may assert a claim for damages from the
date of the first breach within the period of limitation.”6
Under Wisconsin law, every contract includes an implied covenant of good faith
and fair dealing.7 “Good faith performance or enforcement of a contract emphasizes
faithfulness to an agreed common purpose and consistency with the justified expectations
of the other party; it excludes a variety of types of conduct characterized as involving
‘bad faith.’”8 Even where all of the written terms of a contract have been fulfilled, a party
may be liable for breaching the covenant of good faith and fair dealing.9 The breach may
consist of “evasion of the spirit of the bargain, lack of diligence and slacking off, willful
rendering of imperfect performance, abuse of a power to specify terms, and interference
with or failure to cooperate in the other party’s performance.”10 However, one cannot
establish a claim for breach of this covenant when the acts constituting the breach are
authorized by the contract.11 The rule was not intended to undo express terms of a
6
Noonan v. Northwestern Mutual Life Ins. Co., 687 N.W.2d 254, 262 (Wis. Ct. App.
2004) (citations omitted).
7
See, e.g., Biedel v. Sideline Software, Inc., 842 N.W.2d 240, 250 (Wis. 2013).
8
Restatement (Second) of Contracts § 205 cmt. a (1981).
9
Foseid v. State Bank of Cross Plains, 541 N.W.2d 203, 212 (Wis. Ct. App. 1995) (citing
In re Chayka’s Estate, 176 N.W.2d 561 (Wis. 1970)).
10
Id. at 213 (quoting Restatement (Second) of Contracts § 205 cmt. d).
11
See Beidel, 842 N.W.2d at 251 (citation omitted).
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contract, but “obligations under those terms must be performed subject to that implied
covenant.”12
We agree with the District Court’s conclusion that the Agreement created an
obligation of good faith and fair dealing which governed WARF’s assessment of the
amount of royalties owed to the University. However, we believe an issue of fact
remains as to whether WARF had a continuing obligation to reassign a value to the ’815
Patent. Washington University argues that the implied covenant of good faith and fair
dealing creates an inherent duty in WARF to reassign a value to the Patent, and WARF’s
failure to do so makes WARF liable for breach of contract.
A party cannot use the covenant to undo express terms of a contract. However,
“obligations under those terms must be performed subject to that implied covenant,”13
and the intent of the parties to a contract is the determinative factor in ruling upon
disputed contract provisions.14 On this record, we believe there is a genuine issue of
material fact as to whether WARF and the University intended that the ’815 Patent would
be revalued if it became clear that the value originally assigned to the ’815 Patent was
insufficient to fairly compensate the University under the 1998 Agreement. Despite
WARF’s arguments to the contrary, the express terms of the contract do not answer that
12
Wisconsin Natural Gas Co. v. Gabe’s Constr. Co., Inc., 582 N.W.2d 118, 121 (Wis. Ct.
App. 1998) (citation omitted).
13
Id. (citation omitted).
14
Maryland Arms Ltd. P’ship v. Connell, 786 N.W.2d 15, 20 (Wis. 2010) (quoting
Seitzinger v. Cmty. Health Network, 676 N.W.2d 426, 433 (Wis. 2004) (“The primary
goal in contract interpretation is to give effect to the parties’ intentions.”)).
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question. Accordingly, we conclude that the District Court erred in concluding that the
annual payment exception to Wisconsin’s statute of limitations could not apply here.
IV.
Washington University also alleges that the doctrine of equitable estoppel
preserves its claims because WARF prevented the University from timely filing suit. The
doctrine of equitable estoppel applies where there is “(1) action or non-action; (2) on the
part of one against whom estoppel is asserted; (3) which induces reasonable reliance
thereon by the other, either in action or non-action; (4) which is to the relying party’s
detriment.”15 This “action or non-action” includes concealing evidence needed by the
relying party to file a claim.16 The conduct or representations of the party asserting the
statute of limitations must be “so unfair and misleading as to outbalance the public’s
interest in setting a limitation on bringing actions.”17 Where plaintiffs “[retain] the ability,
notwithstanding the defendants’ [conduct], to obtain information necessary to pursue
[the] claim,” courts have refused to grant equitable estoppel.18
This record shows that WARF submitted an incorrect form to the PTO, falsely
representing that Dr. Slatopolsky had assigned his interest in the ’815 Patent. In that
15
Affordable Erecting, Inc. v. Neosho Trompler, Inc., 715 N.W.2d 620, 628 (Wis. 2006);
Milas v. Labor Ass’n of Wisconsin, Inc., 571 N.W.2d 656, 660 (Wis. 1997).
16
See Barry Aviation Inc. v. Land O’Lakes Mun. Airport Comm’n, 377 F.3d 682, 689
(7th Cir. 2004).
17
Hester v. Williams, 345 N.W.2d 426, 431 (Wis. 1984) (quoting State ex rel. Susedick v.
Knutson, 191 N.W.2d 23, 26 (Wis. 1971)).
18
Jackson v. Rockford Housing Auth., 213 F.3d 389, 394 (7th Cir. 2000).
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submission, WARF claimed that it was therefore the sole owner of the ’815 Patent.19
Further, in 1998, when Washington University requested a copy of WARF’s license
agreement with Abbott Laboratories, WARF purported to rely upon a nonexistent
confidentiality provision to avoid sharing its agreement with Abbott from the
University.20 In a 2001 letter to Washington University explaining how the relative
values of the patents were determined, WARF represented that it was “difficult if not
impossible” to determine whether Abbott was using the Patent.21 However, at that time,
WARF had already concluded that the Patent provided protection and support for
Abbott’s Zemplar. Abbott had also listed the Patent in the Orange Book, suggesting that
it was a key patent for the approved use of Zemplar. Moreover, WARF actively litigated
to protect its interest in Zemplar from generic competition by asserting the Patent in
litigation to protect Zemplar from generic competition.22
On this record, there is clearly a genuine dispute of fact regarding whether
Washington University knew that WARF’s statements regarding confidentiality and
assignment of value were inaccurate. The District Court’s conclusion that a reverse
calculation would have informed Washington University of the assignment of value is
disputed because the University did not have access to WARF’s relative valuation of the
19
App. 1561-64. In 2012, Washington University discovered this, and requested WARF
to correct the misstatement. See App. 2082.
20
App. 171.
21
App. 1591.
22
This is not intended as an exhaustive listing of the issues of material fact. Rather we
specify these issues merely to illustrate that this record does not support summary
judgment, and WARF was therefore not entitled to judgment as a matter of law.
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Patent and a reverse calculation would not have revealed whether the valuation was fair
and/or correct.
Accordingly, the District Court erred in concluding that equitable estoppel was
inapplicable here as a matter of law. Genuine issues of material fact remain regarding (1)
whether WARF concealed information Washington University needed to determine if it
had a valid claim; (2) whether that information was necessary to pursue the claim; (3)
whether Washington University reasonably relied on WARF’s statements and conduct;
and (4) whether Washington University had the ability to obtain that information,
notwithstanding WARF’s alleged concealment.
V.
For the reasons set forth above, we reverse the District Court’s judgment.
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