Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Nova Design Technologies, Ltd. v. Matthew K. Walters

June 27, 2012


The opinion of the court was delivered by: McLaughlin, J.


This case arises from an ownership dispute over the technology embodied in United States Patent Number 6,878,157 (the "'157 Patent"), which relates to technology used in heat packs. The plaintiff, Nova Design Technologies, Ltd. ("Nova"), asserts that its founder Andrew Milligan and researcher Jaime Schlorff invented and developed a sandpaper-based trigger for heat packs. Nova asserts that Matthew Walters, Brian Guerra, and Dale Walters (the "individual defendants") stole the idea from them and used it to apply for and receive the '157 Patent, which they later sold to the defendants Children's Medical Ventures, LLC ("CMV"), Respironics, Inc., and Respironics Novametrix, LLC (the "corporate defendants").*fn1

The Court bifurcated proceedings in an order dated May 23, 2011, in which the Counts I-VI of the complaint would be subject to discovery and dispositive motions separately from Counts VII-XI. The Court dismissed Count I, which was brought only against Matthew Walters, in an order dated July 7, 2011. The individual defendants have moved for summary judgment on Counts II-VI, and the corporate defendants have moved separately for summary judgment on Counts III-V. The Court will grant the individual defendants' motion in part and the corporate defendants' motions in full.

I. Background

Nova filed this action on December 30, 2010 and filed

an amended complaint on February 15, 2011. It alleges that Schlorff and Milligan invented an aluminum oxide sandpaper "trigger" for use in therapeutic heat packs in or around 1994. Heat pack triggers of this kind are apparently manipulated by the user to release particulate matter into a supercooled solution and cause a phase change, activating the heat pack and releasing warmth.

Nova alleges that in 1998 it agreed to provide samples of its sandpaper trigger to Omni Therm ("Omni"), a manufacturer of heat packs that was founded by Dale Walters and owned by Matthew Walters.*fn2 Nova and Omni executed an agreement covering "confidential information" of Nova's and prohibiting use of that information for anything other than its evaluation for use in manufacturing. Negotiations between Omni and Nova continued for several years but no ongoing business relationship was established. In 2001, Matthew Walters filed two patent applications relating to a sandpaper trigger for use in a heat pack, ultimately resulting in the issuance of the '157 Patent in 2005. In 2006, Omni sold the '157 Patent, along with most of its assets, to CMV, a manufacturer and seller of healthcare products affiliated with Respironics Novametrix and Respironics, Inc. As part of that sale CMV hired Brian Guerra, an employee of Omni.

The amended complaint asserted causes of action for Breach of Contract (Count I) against Matthew Walters; Fraudulent or Negligent Misrepresentation (Count II) against Matthew and Dale Walters and Brian Guerra; and the following causes of action against all defendants: Fraudulent Concealment or Nondisclosure (Count III); Conversion (Count IV); Trade Secret Misappropriation (Count V); Correction of Inventorship and Ownership (Count VI); Patent Infringement (Count VII); Unjust Enrichment (Count VIII); and for violations of the Sherman Act (Counts IX-XI). Only Counts II-VI are at issue in the instant motions, because of the bifurcation order and the Court's earlier dismissal of Count I as discharged in Matthew Walters's bankruptcy proceedings.

The individual defendants filed a motion for summary judgment as to all claims against them in this phase of the proceedings (Docket No. 93) ("Ind. Defs.' Mot."). The corporate defendants separately filed motions as to the conversion claim (Docket No. 94) ("Corp. Defs.' Conversion Mot."), fraudulent concealment claim (Docket No. 96) ("Corp. Defs.' Concealment Mot."), and trade secret misappropriation claim (Docket No. 98) ("Corp. Defs.' Trade Secret Mot."). Opposition and reply briefs were filed as to all motions, and the Court held oral argument on May 9, 2012.

II. Summary Judgment Record

The defendants filed separate motions for summary

judgment, each presenting separate statements of undisputed facts. The plaintiff did not address the defendants' statements of facts as provided for in Federal Rule of Civil Procedure 56, but instead filed its own statement of facts.

The corporate defendants objected to portions of the plaintiff's Statement of Material Facts on a variety of grounds, including that (a) many asserted facts were never referred to by the plaintiff in opposing the motions; (b) some facts were not supported by citation to the record; and (c) others were inadmissible because they lacked foundation, were hearsay or speculation, or constituted inappropriate lay opinion testimony. The individual defendants joined in those objections.

The defendants largely took issue with portions of declarations submitted by Andrew Milligan and Jaime Schlorff, Plaintiff's Exhibits A and E. These declarations include statements regarding CMV heel warmer sales volumes, beliefs as to Omni shipments of sandpaper trigger products, practices of competitors and "persons in the medical industry" generally, and opinions as to the meaning of claims in the '157 Patent. Milligan Decl. ¶¶ 11, 16-17, 19; Schlorff Decl. ¶¶ 7, 9, 10, 21, 22, 24, 25, 27. These statements were not relied on by the Court in resolving the instant motions because they are inadmissible as not based on personal knowledge; the conclusions regarding the '157 Patent are also legal in nature and are thus not facts. The corporate defendants argued that even considering the statements to which they objected, no genuine issue for trial remained.

The enumeration of facts below is limited to those that were relied upon in the parties' briefing, supported by reference to the record, and material to the Court's resolution of the instant motions.*fn3

A. Omni Therm and Nova Design

Omni Therm, Inc. was a Missouri corporation founded by Dale Walters in 1987 that developed and sold medical supplies, including infant heel warmer heat packs. Companies manufacturing heat packs used a variety of methods to drop particulate matter into solution, triggering a "phase change" reaction and generating heat. For example, a company named Baxter used a "bag-in-a-bag" trigger that triggered a reaction when the internal bag was punctured. Dep. of Jason Maxwell on behalf of Cardinal Health, Inc., Nov. 10, 2011 at 15:1-3, Pl.'s Ex. G. Starting in around 1993, Omni sold an infant heel warmer using a "pinch and rub" trigger design patented by Dale Walters, consisting of a bag containing a supercooled sodium acetate solution and a metal disc trigger with prongs that punctured the bag to activate the warmer. D. Walters Dep. 20-22, Ind. Defs.' Ex. F; Patent No. 5,305,733 ("'733 Patent"), Pl.'s Ex. O at GHG0303.

Dale and Janet Walters resigned as officers and directors of Omni on August 22, 1995. On December 30, 1999, they turned over all of the shares they owned to Matthew Walters, leaving Matthew as the sole shareholder, director, and officer of Omni Therm. M. Walters Dep. Nov. 1, 2011 at 10:23-25, 11:1-4, Ind. Defs.' Mot. Ex. A; Ind. Defs.' Mot. Ex. B at WALTERS000033-41. Dale was no longer involved as an owner or officer of Omni after that point.*fn4 M. Walters Dep. 36-37; Pl.'s Ex. X at ND000227-28. Brian Guerra worked for Omni between 1995 and 2006, and has referred to himself as its Vice President of Sales. Guerra Dep. Oct. 13, 2011 at 73, 296, Pl.'s Ex. H; Lordo Dep. Nov. 9, 2011, at 21:11-25, Pl.'s Ex. P. Nova Design Technologies, Ltd., is a Pennsylvania corporation that is the general partner of Nova Design Partners, L.P. It was founded in 1990 by Andrew Milligan, and in 1991, Jaime Schlorff began to work there. Decl. of Andrew J. Milligan ¶ 2, Pl.'s Ex. A; Decl. of Jaime Schlorff ¶ 2, Pl.'s Ex. E. Milligan later developed a nonmetallic "ceramic bead" heat pack trigger for which he received a patent on January 4, 1994. U.S. Patent No. 5,275,156, Pl.'s Ex. X at ND00024.

On December 29, 2010, Schlorff executed a "confirmatory assignment" of any rights she possessed in sandpaper triggers, including any patent rights, to Nova. Pl.'s Ex. X at ND00144.

B. Nova and Omni Interaction

Nova invested significantly in its trigger technology, marketed it to manufacturers, and entered agreements protecting its confidential information with several firms it approached.

See Schlorff Dep. Oct. 25, 2011 at 85, Pl.'s Ex. C; Joint Development and License Agreement, Pl.'s Ex. X at ND00346.

Nova entered a Confidential Disclosure Agreement ("CDA") with Omni to facilitate evaluation of certain confidential information possessed by Nova, which Matthew Walters executed on Omni's behalf on October 13, 1998. Pl.'s Ex. X at ND00001. The CDA states that Nova possessed confidential information "relating to Heat Storage Devices," and that it would disclose as much of that information as necessary for Omni Therm to evaluate it. Although the CDA does not describe the confidential information that it covers, the Court will assume for purposes of the instant motions that it covers sandpaper trigger technology. The CDA contains a clause providing that relations between the parties shall be governed by Pennsylvania law. Id.

On November 20, 1998, Schlorff sent samples of a sandpaper trigger to Matthew Walters for evaluation, which was the first time Nova sent Omni any aluminum oxide sandpaper trigger. In the letter, Schlorff stated that the trigger samples sent should be allowed to soak in a sodium acetate solution for twenty-four hours "for best results." Letter from Jaime Schlorff to Matthew Walters, Nov. 20, 1998, Ind. Defs.' Ex. P at ND00006. Schlorff's notes of a phone call between with Brian Guerra on October 5, 2000 state that Omni "[w]ould like to license [Nova's] patent for exclusive [use] in [the] infant heel warmer market." Schlorff Notes of Tel. Conf. Oct. 5, 2000, Pl.'s Supp. Ex. X at ND00014-15.

On October 19, 2000, Omni sent Nova a purchase order for 2,000,000 "triggering mechanisms." Pl.'s Ex. R at WALTERS000122. Schlorff's notes state that on November 30, 2000, Matthew Walters called to say that Omni was experiencing "problems getting triggers to drop in . . . [the] machine" used in manufacture, and notes of a later call on December 12, 2000 state that Omni was "still having problems with [the] machine." Notes of a May 9, 2001 call state that the "[m]achine [was] not working smoothly yet." Pl.'s Ex. X at ND00022. On June 21, 2001, Omni's corporate counsel contacted Nova and stated that the October 19 purchase order "was canceled shortly after it was made," and that Omni had "no intention of purchasing any triggering devices" from Nova. Letter from Jonathan Fortman to Andrew Milligan, Pl.'s Ex. X at ND00315.

A dispute exists over whether, prior to the signing of the CDA, Milligan and Schlorff met in person with Omni to receive a tour of its facilities from Dale Walters at the urging of another heat pack manufacturer. Milligan and Schlorff were unclear as to when such a trip took place. Milligan testified that such a trip occurred in 1998, or possibly 1995. Milligan Dep. 131-32, 259-60, Ind. Defs.' Ex. M. Schlorff testified that the trip occurred in 1998, or 1995 (after consulting with Milligan). Schlorff Dep. at 107-08, Ind. Defs.' Ex. N. Schlorff has no "specific recollection of ever speaking to Dale Walters" other than during that visit. Id. at 55:21-56:15, Ind. Defs.'

Ex. Z. Milligan has not seen any communications between Dale Walters and Nova. Milligan Dep. at 281-82, Ind. Defs.' Ex. Y. For purposes of the instant motions whether the meeting took place is immaterial to the Court's disposition, because it is undisputed that no confidential information was ever communicated to Dale Walters while he stood in a position of trust and confidence with the plaintiff.

C. The '157 Patent

On March 16, 2001, Matthew Walters filed a provisional patent application entitled "Trigger to Activate a Supercooled Aqueous Salt Solution for Use in a Heat Pack." U.S. Provisional Application No. 60/276,295, Pl.'s Ex. X at ND00030. The application describes a trigger "typically made from sand paper." Id. at ND00031 ll. 21-25. On November 20, 2001, Walters filed a patent application for substantially the same invention, in which the same figures, claims, and specifications appear, and which asserts priority over the '295 application. U.S. Patent Application No. 09/989,591, Pl.'s Ex. X at ND00043. A nonpublication request was filed with the Patent Office with respect to the '591 Application. Ind. Defs.' Resp. to Pl.'s Req. to Admit No. 81, Pl.'s Ex. S.

Matthew Walters was issued the '157 Patent on April 12, 2005. Pl.'s Ex. X at ND 00089. It contains 18 claims, each of which describes ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.