Free Reply - District Court of Arizona - Arizona

1 Terry E. Fenzl (#002485) C. Mark Kittredge (#013907) 2 PERKINS COIE BROWN & BAIN P.A. 3 2901 North Central Avenue Post Office Box 400 4 Phoenix, Arizona 85001-0400 (602) 351-8000 5 [email protected] 6 [email protected] 7 Attorneys for Defendants 8 9 10 11 12 Richard G. Krauth, an individual, and R.M. Wade & Co., an Oregon corporation, 13 Plaintiffs, 14 15 vs. No. CV 04-0544 PHX PGR UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA

MOTION TO FILE SURREPLY -ANDSURREPLY TO PLAINTIFFS' REPLY IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT

16 Phelps Dodge Corporation, a New York 17 corporation, et al., 18 19 Defendants.

Phelps Dodge Corporation, a New York 20 corporation, et al., 21 22 23 Richard G. Krauth, an individual, and R.M. 24 Wade & Co., an Oregon corporation, 25 Counterclaim Defendants. 26 27 28
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Counterclaim Plaintiffs, vs.

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Motion Defendants move to file this Surreply in Opposition to Plaintiffs' Motion for Summary Judgment. This Surreply is necessary because Plaintiffs, in their Reply in Support of Plaintiffs' Motion for Summary Judgment that No Purported Settlement Agreement is Enforceable, make a new legal argument to which Defendants have had no opportunity to respond. See generally, Cedars-Sinai Med. Ctr. v. Shalala, 177 F.3d 1126, 1128-29 (9th Cir. 1999). Argument and Surreply Plaintiffs acknowledge that a contract to refrain from doing something for life can be performed within one year (and therefore does not come within the statute of frauds) because the promisor could die within one year, thus rendering the equivalent of full performance.1 Although it is their third brief on the topic, Plaintiffs argue for the first time in their reply brief that "a patent license agreement, with a covenant not to sue" cannot be performed within one year solely because it is a contract for a "set duration" (the term of the patents).2 [Pls.' Reply 9] Plaintiffs' support their distinction between a

contract for a "set duration" and a contract to refrain from something for life by citing to section 130, comment b of the Restatement (Second) of Contracts and Mullins v. Southern Pacific Transportation Co., 174 Ariz. 540, 851 P.2d 839 (Ct. App. 1992). As outlined below, however, Plaintiffs' argument is misplaced in both respects.

See Pls.' Resp. in Opp'n to Defs.' Mot. for Summ. J. Enforcing Settlement Agreement 15:19-25 (Docket 65), Pls.' Mem. in Supp. of Pls.' Mot. for Summ. J. that No Purported Settlement Agreement is Enforceable 12:1-9 (Docket 70); and Reply in Supp. of Pls.' Mot. for Summ. J. that No Purported Settlement Agreement is Enforceable 9:1619 (Docket 94).
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Defendants do not accept Plaintiffs' characterization of the license and covenant not to sue in the settlement agreement as for a "set duration" as the agreement is more properly characterized as "for the life" of the patents. As outlined below, however, this distinction is immaterial because the agreement at issue is one to forebear from suing on the patents.
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Plaintiffs quote (at 9-10) only the following portion of comment b in support of their argument: Any contract may be discharged by a subsequent agreement of the parties, and performance of any [sic] contracts may be excused by supervening events or by the exercise of a power to cancel granted by the contract. The possibility that such a discharge or excuse may occur within a year is not a possibility that the contract will be `performed' within a year. This is so even though the excuse is articulated in the agreement. Restatement (Second) of Contracts § 130 cmt. b (1979). Plaintiffs completely ignore, however, and leave out the second part of comment b, which states: This distinction between performance and excuse for nonperformance is sometimes tenuous; it depends on the terms and the circumstances, particularly on whether the essential purposes of the parties will be attained. Discharge by death of the promisor may be the equivalent of performance in the case of a promise to forbear, such as a contract not to compete. Id. (emphasis added). This portion of comment b demonstrates that in the case of a promise to forbear it does not matter whether the contract is for a set duration or for life. For example, a promise by an individual not to compete for a set duration of 10 years is fully performed if the promisor dies within the first year. Illustration No. 9 of section 130, is directly on point: 9. A sells his grocery business to B, who pays part of the price and promises to pay the balance in a month, A agreeing orally not to engage in the grocery business in the same town for five years. The contract is not within the one-year provision of the Statute, since A's death within one year will give B the equivalent of full performance. Id. § 130 illus. 9 (emphasis added). The question is simply whether or not it is possible for an intervening event to occur within one year which would cause each party to effectively receive full performance or the equivalent of full performance. Id. § 130 cmt. b; 4 Corbin on Contracts § 19.10 (Rev. ed. 1997) (an agreement by a party to refrain from doing a

certain thing is fully performed if the party refrains until the party is no longer capable of
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doing the thing) (citations omitted). Thus, when a party agrees to refrain from doing something, the party renders complete performance if the party refrains from taking the action until that party is no longer capable of taking the prohibited action. In our case, the Plaintiffs covenanted and agreed not to sue the Defendants for patent infringement for the life of the patents. Whether this is viewed as an agreement for a set term or for life is not relevant. Should the patents be invalidated, the essential purposes of the parties will be attained. Defendants' purpose in entering into the

agreement was to protect itself from a lawsuit brought by Plaintiffs claiming Defendants infringed the patents-in-suit. If the patents are invalidated within one year, Defendants will have enjoyed the benefit of full performance because invalidation of the patents means that Plaintiffs will not be able to bring such a lawsuit against Defendants at any time in the future. Plaintiffs' reliance on Mullins is likewise misplaced. Mullins, 174 Ariz. 540, 851 P.2d 839. In Mullins, an employee argued that an oral contract for employment until he reached 65 was outside the statute of frauds because he could die within the first year. Id. 174 Ariz. at 541, 851 P.2d at 840. The Court disagreed because, if the employee were to die within one year of making the contract, the employer would not have rendered the equivalent of full performance; rather, the employer's performance would be "excused" by the employee's death. Id. 174 Ariz. at 542, 851 P.2d at 841. But Mullins did not involve an agreement to forebear or refrain from doing anything. In sharp contrast, Plaintiffs have agreed not to sue on the patents for the life of those patents. If the patents "die" within one year (by being held invalid), Plaintiffs will have rendered the equivalent of full performance because they would no longer be capable of suing on those patents. Restatement (Second) of Contracts § 130 cmt. b, illus. 9, 4 Corbin on Contracts § 19.10 (Rev. ed. 1997).

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Conclusion For the foregoing reasons, the Court should allow this Surreply and deny Plaintiffs' motion. attached at Exhibit 1. Dated: May 26, 2006. PERKINS COIE BROWN & BAIN P.A. A [proposed] Order allowing Defendants to file the Surreply is

By s/ C. Mark Kittredge Terry E. Fenzl C. Mark Kittredge 2901 North Central Avenue Post Office Box 400 Phoenix, Arizona 85001-0400 Attorneys for Defendants and Counterclaim Plaintiffs

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CERTIFICATE OF SERVICE I hereby certify that on May 26, 2006, I electronically transmitted the attached documents to the Clerk's Office using the ECF System for filing and transmittal of a Notice of Electronic Filing to the following ECF registrants: Daniel R. Malinski [email protected] BURCH & CRACCHIOLO, P.A. 702 East Osborn, Suite 200 Phoenix, Arizona 85014 Attorneys for Plaintiffs and Counterclaim Defendants Peter E. Heuser [email protected] Kolisch Hartwell, P.C. 200 Pacific Building 520 S.W. Yamhill Street Portland, Oregon 97204 Attorneys for Plaintiffs and Counterclaim Defendants I hereby certify that on May 26, 2006, I served the attached document by hand delivery to: The Honorable Paul G. Rosenblatt United States District Court Sandra Day O'Connor U.S. Courthouse, Suite 621 401 West Washington Street, SPC 56 Phoenix, AZ 85003-2156 s/ Janet Roe

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