The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
ALTRIA CLIENT SERVICES LLC and )
U.S. SMOKELESS TOBACCO )
COMPANY LLC, )
)
Plaintiffs, )
v. ) 1:20CV472
)
R.J. REYNOLDS VAPOR COMPANY )
and MODORAL BRANDS, INC., )
)
Defendants. )
MEMORANDUM OPINION AND ORDER
Among the motions pending before the Court in this matter is Defendants’
Motion to Enforce Partial Settlement Agreement [Doc. #179]. Defendants believe
the parties entered into a partial settlement agreement dismissing all claims,
counterclaims, and defenses relating to the Weigensberg patents. A hearing was
held on the motion on June 28, 2022. For the reasons explained below, the
motion is granted.
I.
Plaintiffs allege that Defendants have infringed on nine of their patents, two
of which, the ‘242 Patent and the ‘824 Patent, are the Weigensberg patents at the
heart of this motion. (See generally Am. Compl. [Doc. #46].) In their Answer,
Defendants contend they have not infringed on the Weigensberg patents which
they allege are invalid. Defendants also assert counterclaims for declaratory
judgments of non-infringement and invalidity of those patents. (See generally
Answer & Countercls. to First Am. Compl. [Doc. #50].)
Three months after they answered the Amended Complaint, Defendants
moved to stay this action on April 26, 2021, pending resolution of nine petitions
for Inter Partes Review (“IPR”) by the Patent Trial and Appeal Board (“PTAB”) of
the patents at issue, including the Weigensberg patents. (Mot. to Stay [Doc. #69].)
Over the following months, before the Court ruled on the motion to stay, the PTAB
addressed the petitions as they were submitted. First, on August 6, the PTAB
denied institution of the petitions on the ‘319 and ‘996 Patents. (Notice [Doc.
#105].) Then, on September 21, it granted institution of the petitions on the
Weigensberg patents. (Notice [Doc. #149]; Notice [Doc. #150].) Two days later,
the Court entered a Text Order deferring ruling on the motion to stay until the
PTAB issued its institution decisions on the remaining patents. (Text Order (Sept.
23, 2021).) On October 8, the PTAB denied institution on those patents. (Notice
[Doc. #162].)
Afterward, on Monday, October 11, Plaintiffs’ counsel emailed Defendants’
counsel as follows:
Counsel,
We intend to dismiss our claims on the Weigensberg patents [‘242
and ‘824] and pursue only our claims on the pod and container
patents. This will moot Reynolds’ motion to stay the district court
case given that the PTAB has denied institution on all patents that will
remain in the case. Please confirm that Reynolds will withdraw its
motion to stay.
We will provide you with a draft stipulation on dismissal of the claims.
Given that Reynolds has IPR proceedings pending on the Weigensberg
patents we will dismiss without prejudice. However we are willing to
dismiss with prejudice if Reynolds will agree to jointly request
termination of the IPR proceedings.
Given the pending motion to stay that will be mooted by Altria’s
withdrawal of the Weigensberg patents, please let us know no later
than close of business on Wednesday whether Reynolds will withdraw
its stay motion. Absent withdrawal of the stay motion, Altria intends
to advise the court and request denial of the motion as moot.
Best regards,
Sutton
[Doc. #180-1 at 71.] Defendants’ counsel responded at 10:45 a.m. on
Wednesday,
October 13.
Dear Sutton:
We are pleased that Altria will be dismissing its infringement counts
against the VIBE product based on the Weigensberg patents [‘242 and
‘824]. In view of the amount of fact and expert discovery already
conducted to date, Reynolds fully expects Altria to dismiss such
counts with prejudice. If so, Reynolds will also agree to dismiss its
non-infringement counterclaims against the Weigensberg patents with
prejudice, and its invalidity counterclaims against the Weigensberg
patents in the MDNC action without prejudice. Assuming agreement
on the foregoing, Reynolds and Modoral also will withdraw the Motion
to Stay.
With respect to the IPR petitions that were recently instituted by the
PTAB on the Weigensberg patents, Reynolds does not intend to
withdraw such IPR petitions without Altria also agreeing to grant
Reynolds and its Affiliates a covenant not to sue on the Weigensberg
patent family on any current or future products.
Let us know if Altria agrees.
1 Page numbers correspond to those assigned by CM/ECF.
Regards,
Lexi
[Doc. #180-1 at 6-7.] Soon afterwards, at 2:02 p.m., Altria’s counsel
responded as follows:
Lexi,
Altria agrees with the proposal in your first paragraph and will provide
a draft stipulation to that effect. With this agreement we understand
that you will promptly advise the court that Reynolds and Modoral are
withdrawing the motion to stay.
On your second paragraph, we are not amenable to the requested
CNS so we will move forward on the instituted IPRs.
Best regards,
Sutton
[Doc. #180-1 at 6.]
Twenty-four minutes later, Plaintiffs’ local counsel emailed Defendants’ local
counsel, “All good?” to which Defendants’ local counsel responded, “Rob – I’m
informed we need until tomorrow morning before notifying the court. Waiting on
client review.” [Doc. #180-3 at 2-5.] Plaintiffs’ local counsel replied, “Not sure I
follow – Reynolds [sic] offer (presumably blessed by the client) was accepted by
Altria. In any event, we owe the Court a courtesy so let’s expedite this by
tomorrow am.” [Doc. #180-3 at 2.]
That same afternoon less than twenty minutes later, at 4:09 p.m., the Court
entered an order denying Defendants’ motion to stay. (Order [Doc. #171].) Within
the hour, Plaintiffs’ counsel emailed Defendants’ counsel:
Lexi,
In view of the Court’s order (D.I. 171) denying Reynolds’ motion to
stay, and the refusal of Reynolds to terminate the IPRs on the
Weigensberg patents, it no longer makes sense for Altria to dismiss
the Weigensberg patents from the case.
. . .
Best regards,
Sutton
[Doc. #180-1 at 5.] That evening, Defendants’ counsel responded as follows:
Sutton,
To say we are surprised by your email is an understatement. As you
know well, we had an agreement, as you specifically noted in your
email of earlier today. Prior to notifying the court that the stay motion
was going to be withdrawn, we were waiting to review the draft
Stipulation that you said you were preparing.
Moreover, your suggestion that your attempt to renege on the
agreement is based on the fact that Reynolds will not be withdrawing
the IPRs is completely disingenuous. As the email exchange makes
clear, we had an agreement on the dismissal separate and apart from
the IPR issue.
To the extent that Altria refuses to enter the stipulation of dismissal
to which we both agreed, Altria would be in breach of the parties’
agreement.
Regards,
Lexi
[Doc. #180-1 at 5.] Plaintiffs’ counsel replied:
Lexi,
We respectfully disagree. The only reason for Altria to dismiss the
Weigensberg patents from the case was to have Reynolds withdraw
its motion to stay and ensure that the case would move forward.
Now that the court has denied the stay in full and allowed us to
proceed with our claims there is nothing Reynolds is offering in
exchange. We would be unnecessarily compromising our rights.
We are open to dismissal if Reynolds will terminate its IPR
proceedings. At this point it makes no sense for us to give up our
claims if Reynolds will persist in seeking to invalidate our patents.
Best regards,
Sutton
[Doc. #180-1 at 4.] In response, Defendants’ counsel emailed:
Sutton:
We disagree with your version of the facts.
With respect to the Weigensberg patents, the parties unequivocally
agreed to: (1) a dismissal of the infringement claims with prejudice;
(2) a dismissal of the non-infringement counterclaims with prejudice;
and (3) a dismissal of the invalidity counterclaim without prejudice.
The withdrawal of the Motion of the Stay, which was mooted by the
Court’s Order denying the Motion, and the Stipulation of Dismissal,
were simply the steps the parties needed to take in order to alert the
Court to the Agreement on the dismissal of the Weigensberg patents
from the litigation. Indeed, you stated that if Reynolds did not
withdraw its motion to stay, Altria would advise the Court that the
motion was moot in view of Altria’s dismissal of the claims relating to
the Weigensberg patents.
The IPR issue, as the emails make clear, was separate and apart from
the agreement on the dismissal of the claims and counterclaims.
. . .
Regards,
Lexi
[Doc. #180-1 at 3-4.] The dispute continued when Plaintiffs’ counsel took the
position that Defendants’ local counsel had “advised that Reynolds had not
approved any proposed agreement between the parties regarding the Weigensberg
patents and would not be able to until the morning of October 14th. By that time,
we had informed you that Altria would no longer be willing to withdraw the
Weigensberg patents from the case.” [Doc. #180-1 at 3 (internal citation omitted).]
Defendants’ counsel responded, “we wanted to send the Stipulation of Dismissal
to our client for review, after which time we could withdraw the Motion for Stay.
There is no doubt we had an agreement on the terms . . . and were only waiting
on the draft Stipulation that you said you were sending before withdrawing the
motion to stay.” [Doc. #180-1 at 1.] This motion followed.
II.
Defendants contend that the email exchanges between the parties establish
an offer, acceptance, and consideration and, therefore, a complete agreement on
all material terms. (Defs.’ Mem. in Supp. at 8-9 [Doc. #180].) Plaintiffs disagree
and point to Defendants’ withdrawal of the motion to stay as a term of the
agreement or condition precent that Defendants could not carry out once the Court
denied the motion. (See generally Pls.’ Mem. in Opp’n [Doc. #215].) In the
alternative, if the Court were to find the emails constitute an agreement, Plaintiffs
assert that they have no obligation to dismiss the Weigensberg patents because
withdrawal of the motion to stay was a condition precedent to Plaintiffs’
performance, Defendants breached the agreement by not withdrawing the motion,
and there was a failure of consideration. (Id. at 20-26.)
“Although resolution of a motion to enforce a settlement agreement draws
on standard contract principles, it may be accomplished within the context of the
underlying litigation without the need for a new complaint.” Hensley v. Alcon
Labs., Inc., 277 F.3d 535, 540 (4th Cir. 2002). A court has “inherent
authority . . . to enforce settlement agreements”, but “the court cannot enforce a
settlement until it concludes that a complete agreement has been reached and
determines the terms and conditions of that agreement.” Id.2
The parties agree that it makes no difference whether federal common law,
North Carolina law, or Virginia law applies to the questions of contract formation
and interpretation. In their briefs, they both rely on North Carolina law. The Court
will do the same. “The well-settled elements of a valid contract are offer,
acceptance, consideration, and mutuality of assent to the contract’s essential
terms.” S.E. Caissons, LLC v. Choate Constr. Co., 784 S.E.2d 650, 655 (N.C. Ct.
App. 2016) (citing Snyder v. Freeman, 266 S.E.2d 593, 602 (1980)).
This assent, or meeting of the minds, requires an offer and
acceptance in the exact terms and that the acceptance must be
communicated to the offeror. If the terms of the offer are changed or
any new ones added by the acceptance, there is no meeting of the
minds and, consequently, no contract. This counteroffer amounts to
a rejection of the original offer.
Normile v. Miller, 326 S.E.2d 11, 15 (N.C. 1985) (internal citations omitted).
Consideration has long been understood as “some right, interest, or benefit
accruing to the other party, or some forbearance, detriment, loss, or responsibility
given, suffered, or undertaken by the other.” ACME Mfg. Co. v. McCormick, 95
2 A court must conduct a plenary evidentiary hearing if there is a factual dispute
over the agreement’s existence, the attorney’s authority, or the agreement’s
terms. Hensley, 277 F.3d at 541. Although the parties were afforded a hearing on
this motion (during which the only evidence presented was an additional email
exchange among counsel), there is no genuine factual dispute as to the existence
and terms of the agreement as explained in this opinion.
S.E. 555, 556 (N.C. 1918) (citation omitted).) For example, waiver of a legal right
“is a sufficient consideration for a promise.” Id. (citation omitted).) “A condition
precedent is an event which must occur before a contractual right arises”. Powell
v. City of Newton, 703 S.E.2d 723, 727 (N.C. 2010) (citation omitted).
Plaintiffs’ arguments to the contrary aside, the email exchanges on October
13 clearly establish a complete agreement between the parties. The language used
by both parties also shows that the withdrawal of the motion to stay was neither a
term of the agreement nor a condition precedent. And there remained valuable
consideration for Plaintiffs even after the Court entered an order on the motion to
stay before Defendants could move to withdraw it.
Plaintiffs’ counsel made the offer “to dismiss our claims on the Weigensberg
patents”, noted that “[t]his will moot Reynolds’ motion to stay”, and asked that
Defendants confirm they would withdraw the motion. Defendants counteroffered
by adding that they “fully expect[] Altria to dismiss such counts with prejudice.” If
Plaintiffs so agree, “Reynolds will also agree to dismiss” the Weigensberg non-
infringement counterclaims with prejudice and invalidity counterclaims without
prejudice. Defendants concluded, “Assuming agreement on the foregoing,
Reynolds and Modoral also will withdraw the Motion to Stay.” In other words,
once there is an agreement as to dismissal of claims and counterclaims, then
Defendants would withdraw the motion to stay.
Plaintiffs unconditionally accepted that offer and promised to provide a draft
stipulation to that effect. They concluded by saying, “With this agreement we
understand that you will promptly advise the court that [you] are withdrawing the
motion to stay.” At this point, at 2:02 p.m. on October 13, 2021, the parties
have a complete agreement to the following: Plaintiffs agree to dismiss their
claims on the Weigensberg patents with prejudice, and Defendants agree to
dismiss their non-infringement counterclaims with prejudice and invalidity
counterclaims without prejudice. Their email communications undoubtedly
evidence offer, acceptance, consideration, and mutuality of assent.
The apparent confusion that local counsel’s subsequent emails caused does
not alter this conclusion. Plaintiffs’ counsel was supposed to provide Defendants’
counsel with a draft stipulation which understandably Defendants (the clients)
would need to review to ensure it accurately represented the parties’ agreement.
Review of that document was not a condition precedent to the parties’ obligations
to which they had already agreed.
Even if Plaintiffs correctly contend that withdrawal of the motion to stay
was a term of the agreement, it is not a material term. As Plaintiffs recognized all
along, their dismissal of the Weigensberg patents would moot the motion. And no
party could argue that the Court would not have recognized the mootness of the
motion once the stipulation of dismissal were entered.
Withdrawal of the motion to stay was not a condition precedent to the
parties’ obligations. The parties’ communications simply do not support a finding
that Defendants had to withdraw the motion to stay before Plaintiffs would be
obligated to dismiss the Weigensberg patents. No language elevates the
withdrawal of the motion to stay as anything other than something that would
happen after agreement was reached.
To the extent that withdrawal of the motion to stay would have been part of
the consideration for Plaintiffs’ dismissal of the Weigensberg patents, there still
remains valuable consideration for that promise – Defendants’ agreement to
dismiss their non-infringement counterclaims with prejudice and their invalidity
counterclaims without prejudice. It is uncertain if the Court would allow those
counterclaims to proceed independently or not. The Green Smoke device and
other asserted prior art could invalidate the Weigensberg patents. In sum,
Defendants’ waiver of their legal rights – the agreement to dismiss their
counterclaims – is valuable consideration.
For the reasons explained in this Memorandum Opinion, IT IS HEREBY
ORDERED that Defendants’ Motion to Enforce Partial Settlement Agreement [Doc.
#179] IS GRANTED.
This the 6th day of July, 2022.
/s/ N. Carlton Tilley, Jr.
Senior United States District Judge