Appendix — Roberts v. Sears, Roebuck & Co.

| FILED

80-337 > SEP2 = 1980

No. cf HIGHAE! RODAK, JR, CLER

In THE

Supreme Court of the Aunited States

October TERM, 1980

PETER M. ROBERTS,

Petitioner,

Vs.

SEARS, ROEBUCK AND CO., a corporation,

Respondent.

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

WALTER V. SCHAEFER

Two First National Plaza

Twenty-Fifth Floor

Chicago, Illinois 60603

(312) 372-2345

LOUIS G. DAVIDSON

JOHN B. DAVIDSON

ROBERT B. PATTERSON, JR.

111 W. Washington Street

Suite 1817

Chicago, Illinois 60602

(312) 372-5124

Attorneys for Petitioner,

Peter M. Roberts

LOUIS G. DAVIDSON & ASSOCIATES, LTD.

Of Counsel

Midwest Law Printing Co., Chicago 60601, Financial 6-3988

In THE

Supreme Court of the Anited States

Octoser Term, 1980

PETER M. ROBERTS,

Petitioner,

vs.

SEARS, ROEBUCK AND CO., a corporation,

Respondent.

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Il:

IIT:

IV:

VI:

TABLE OF CONTENTS

Opinion of the United States Court of

Appeals, Seventh Circuit, decided April 3,

1978, reported 573 F.2d 976 ......ccccecessseeeeees

Memorandum Opinion of the United States

District Court, N.D. Illinois, E.D., decided

May 31, 197/79, reported 471 F.Supp. 372 ....

Opinions of the United States Court of

Appeals, Seventh Circuit, decided March 12,

1980, reported 617 F.2d 460

—Majority Opinion ...........sesccrcscsrcesecseesees

—Dissenting Opinion ...........cccceseeeeeeeeneeeeees

Order of United States Court of Appeals,

Seventh Circuit, denying rehearing, dated

FUG UE, TD viscientictesicisndoviceemnaeede

Excerpts from Instruction Conference at

close of trial (Transcript pp. 2980-3269) ......

Plaintiff's Post Trial Motion. .....................00000.

PAGE

la

18a

—la—

[573 F.2d 976]

Peter M. ROBERTS, Plaintiff-Appellant,

Cross-Appellee,

Vv

SEARS, ROEBUCK AND COMPANY, a

corporation, Defendant-Appellee,

Cross-Appellant.

Nos. 77-1354 and 77-1499.

United States Court of Appeals,

Seventh Circuit.

Argued Feb. 14, 1978.

Decided April 3, 1978.

[573 F.2d 978]

Before CASTLE, Senior Circuit Judge, SPRECHER

and BAUER, Circuit Judges.

SPRECHER, Circuit Judge.

The major issues in this case are whether the district

court properly declined to decide the validity of plain-

tiff’s patent in a suit for fraud, breach of a confidential

relationship and negligent misrepresentation in defen-

dant’s procurement of an assignment of plaintiff’s patent

rights and whether the district court properly concluded

that plaintiff had elected his legal remedies and,

therefore, was barred from seeking his equitable

remedies of rescission and restitution.

|

This case involves the efforts of one of this nation’s

largest retail companies, Sears, Roebuck & Co. (Sears),

to acquire through deceit the monetary benefits of an in-

vention of a new type of socket wrench created by one of

—2a—

its sales clerks during his off-duty hours. That sales

clerk, Peter M. Roberts (Plaintiff), initiated the unfor-

tunate events that led to this appeal in 1963, when at the

age of 18 he began work on a ratchet or socket wrench

that would permit the easy removal of the sockets from

the wrench. He, in fact, designed and constructed a

prototype tool with a quick-release feature in it that

succeeded in permitting its user to change sockets with

one hand. Based on that prototype, plaintiff filed an

application for a United States patent. In addition, since

he was in the employ of Sears, a company that sold over

a million wrenches per year, and since he had only a

high school education and no business experience, he

decided to show his invention to the manager of the

Sears store in Gardner, Massachusetts where he worked.

Plaintiff was persuaded to submit formally his invention

as a suggestion to Sears. In May 1964, the prototype,

along, with a completed suggestion form, was sent to

Sears’ main office in icago, Illinois. Plaintiff,

thereafter, left Sears’ employ when his parents moved to

Tennessee,

It was from this point on that Sears’ conduct became

the basis for the cog determination that Sears ap-

ropriated the value of the plaintiff's invention by

raudulent means. Plaintiff's evidence proved that Sears

took steps to ascertain the utility of the invention and

that based on the information it acquired, Sears became

convinced that the invention was in fact valuable. Sears

had two sets of tests run on plaintiff's wrench by its

custom manufacturer of wrenches, Moore Drop Forging

[573 F.2d 979]

Co. (Moore). The first test was conducted in July 1964,

and it proved that the wrench operated normally and

that the quick-release feature did not substantially

weaken the structure cf the wrench. The second test,

conducted in May 1965, showed that actual mechanics

liked the quick-release feature. Moore reported the

results of these tests to Sears.

_ Based presumably on these tests, and the expert opin-

ion of its senior tool buyer, Arthur Griesbaum, Sears in

—Sa—

March 1965, | d Moore design a fine-tooth wrench with

the quick-release feature built into it. In addition, at

about the same time, Sears put in motion plans to incor-

porate the quick-release feature into then-existing

wrench models that constituted 74.27 percent of all the

wrenches Sears sold. Thus, by early 1965, it was clear to

Sears that this invention was very useful and probably

would be quite profitable.

Sears also received reports from Moore regarding the

manufacturing cost of plaintiff's quick-release feature.

In the initial prototype built by Moore, the cost was 44

cents per unit. By June of 1965, Sears had received a

report —agie that the cost could be reduced to 20

cents per unit. Thus, early in 1965, Sears learned that

the feature was relatively inexpensive to manufacture.

Sears also took pains to ascertain the patentability of

the quick-release feature. In April 1965, it received out-

side patent counsel’s advice that there was “some basis

for limited patentability” (defendant’s Exhibit 9). It had

pobdiges earned in February 1965 from plaintiff's

awyer, Charles Fay, that he believed the invention was

patentable based on a limited search. In addition, Sears

was informed in early May 1965, by plaintiff's lawyer

that a patent had been issued to plaintiff.!

With all of this information either available or soon to

be available, Sears contacted plaintiff in January 1965,

and began negotiations regarding the purchase of rights

to use plaintiff's invention. During these negotiations,

conducted with plaintiff's attorney, Sears’ lawyer,

Leonard Schram, made various representations to plain-

tiff that serve as the essential basis for plaintiff's com-

laint. In April 1965, in a letter seeking merely a

came, Schram first told plaintiff that the invention

1 We might note here that Mr. Fay contacted Sears before

informing plaintiff that a patent had issued. In addition, it

was shown that Sears had contacted Mr. Fay during the

pee of these negotiations about doing some work for it and

hat he, in fact, did perform a couple of routine matters for

Sears, thus reusing some doubt about the independence of his

advice to plaintiff.

—4da—

was not new and that the claims in any patent that

would be permitted would be “quite limited” (plaintiff's

Exhibit 3 Second, Schram told plaintiff that the cost

of the quick-release feature would be 40-50 cents. Third,

he told bagi the feature would sell only to the extent

it would be promoted and thus $10,000 was all that the

feature was worth. Finally, and perhaps most ironically,

Schram wrote to plaintiff that “[o]nce we have paid off

the royalty expense, then we would probably take the

amount previously allocated to said expense and use it

for promotional expenses if we desire to maintain sales

on the item.” (Emphasis added).

Based on this letter, plaintiff entered into the agree-

ment on July 23, 1965, which provided for a two cent

royalty per unit up to a maximum of $10,000 to be paid

in return for a complete assignment of all of plaintiff's

rights. In fact, for no extra charge, plaintiff's attorney

gave Sears all of plaintiff's foreign patent rights. A

provision was included in the contract regarding what

would happen if Sears failed to sell 50,000 wrenches in a

given year, thus reinforcing the impression that the

wrenches might not sell ver; well. Also, a provision was

inserted dealing with the contingency that a patent

might not be issued, notwithstanding that Sears already

knew, and plaintiff did not, that the patent had been

granted. .

By July, Sears knew that it planned to sell several

hundred thousand wrenches with a cost per item in-

crease of only 20 cents, that a patent had issued and that

[573 F.2d 980}

this product in all likelihood would have tremendous

appeal with mechanics. Nonetheless, it entered into this

agreement both having failed to disclose vital informa-

tion about the —— appeal and structural utility

and having made representations to plaintiff that were

either false at the time they were made or became false

without disclosure prior to the time of the signing of the

contract.

Within days after the signing of the contract, Sears

was manufacturing 44,000 of plaintiff's wrenches per

—5a—

week—all with plaintiff's patent number prominently

stamped on them—and within three months, Sears was

marketing them as a tremendous breakthrough. Within

nine months, Sears had sold over 500,000 wrenches and

paid plaintiff his maximum royalty thereby acquiring

all of plaintiff’s rights. Between 1965 and 1975, Sears

sold in excess of 19 million wrenches, many at a

premium of one to two dollars profit because no com-

petition was able to market a comparable product for

several years. To say the least, plaintiff’s invention has

been a commercial success.

Plaintiff, a Tennessee resident, filed suit against

Sears, an Illinois Corporation, in federal district court in

December 1969, based on diversity jurisdiction, seeking

alternatively return of the patent and restitution or

damages for fraud, breach of a confidential relationship

and negligent misrepresentation. A jury trial was held

from December 20, 1976, until January 18, 1977. Durin

the trial plaintiff basically proved the facts as npaaeated

above. Sears argued that it did not misrepresent any

facts to plaintiff, that he had a lawyer and thus there

was no confidential relationship and that the success of

the wrenches was a function of advertising and the un-

foreseeable boom in do-it-yourself repairs, and thus

Sears did not misrepresent the saleability of plaintiff's

wrenches. The jury was instructed on each of the three

counts in plaintiffs complaint and told that it could

award plaintiff profits? for Counts I and II and could

consider a reasonable royalty as a remedy for Count III.

2 The court instructed the jury on damages for Counts I and

II, fraud and breach of a confidential relationship, as follows:

The award of —— damages you make we: f equal the

net profits which you find the defendant gained as a result

of its merchandising of wrenches incorporating Plaintiff's

quick release invention and idea, minus any expenditures

which you find the defendant has proved it incurred

which it would have incurred had it not merchandised

such wrenches incorporating plaintiff's quick release in-

vention and idea from the time of the contract in question

to the present.

(Tr. at 3469).

—6a—

The jury apparently believed the plaintiff's evidence

because it found Sears guilty on all three counts and

entered judgment for one million dollars on each count,

but the award was not cumulative.

Both parties filed post-trial motions. Sears filed for

judgment NOV and plaintiff sought rescission of the

contract and restitution. The district court denied both

motions holding as to Sears’ motion that the jury verdict

was in accordance with the evidence and that the

damages award was reasonable and holding as to plain-

tiff’s motion that when he permitted the case to go to the

jury he had elected his legal remedy and could not later

also seek his equitable relief. Plaintiff appealed seeking

equitable relief and Sears cross-appealed the one million

dollar judgment against it. Since Sears’ cross-appeal

raises basic issues of liability, we will deal with it first.

We will subsequently consider plaintiff’s appeal on the

issues of the appropriate remedy.

II

Sears’ primary argument in its cross-appeal is that

the district court erred in not determining conclusively

the validity of plaintiff’s patent as a precondition to try-

ing plaintiff's claims for fraud, breach of a confidential

relationship and misrepresentation. Relying on Lear,

Inc. v. Adkins, 395 U.S. 653, 89 S.Ct. 1902, 23 L.Ed.2d

610 (1969), Sears contends that if the district court had

concluded that the patent was invalid, then plaintiff

could not have been injured by any fraud Sears may

[573 F.2d 981]

have committed since it paid $10,000 for a “worthless”

invention.

Sears’ analysis, however, misconceives the Supreme

Court’s holding in Lear. There the Court held that a pa-

tent licensee was not estopped to contest the validity of

the licensor’s patent, and, in fact, was not required to

pay the contractually-provided royalties for the license

on the invalid patent during the pendency of the litiga-

tion. Contrary to Sears’ implication, the Lear Court did

—Ja—

not hold that the potentially invalid patent was

worthless and thus the royalties offered in exchange for

the right to use that patent would be unjustified. In-

stead, the Court explicitly recognized that there was

significant economic value in the rights to an un-

challenged patent. 395 U.S. at 669, 89 S.Ct. 1902. In this

regard the Court stated that “the existence of an un-

challenged patent may deter others from attempting to

compete with the licensee,” thereby creating a monopoly

in fact if not in law. Jd.8

Other courts have also acknowledged that significant

economic value attaches to the rights to an uncontested

patent. The Supreme Court recognized this recently in

an opinion by Chief Justice Burger: “[E]ven though a

discovery may not be patentable, that does not ‘destroy

the value of the discovery ....’” Kewanee Oil Co. v.

Bicron Corp., 416 U.S. 470, 482, 94 S.Ct. 1879, 1886, 40

L.Ed.2d 315 (1974). Similarly, this court has held that

“(wJhile there are paradoxical aspects of allowing

recovery to arise from illegal interference with the sale

of something which ultimately was proven to have no

sales value, it cannot be mies | that there was no such

value during the period of the presumptive validity of

the patent.” Moraine Products v. ICI America, Inc., 538

F.2d 134, 149 (7th Cir. 1976).4

3 This valuable benefit was available even in the case of a

non-exclusive license because the royalty charged to the

en. ace as a barrier to entry.” 395 U.S. 669 n. 16, 89

Ct. b

4 The court subsequently defined more specifically the

nature of the economic value created by the uncontested pa-

tent during the period of its presumptive validity:

While Moraine was the holder of a presumptively valid

atent, it could legally entertain the expectation, unless it

ad in some manner deprived itself thereof, of receivin

royalties from licensing er which in fina

analysis are agreements in which the licensee is purchas-

ing the right to be free from infringement litigation,

which Moraine did have to sell during the period of validi-

ty

538 F.2d at 149.

—S8a—

The facts of this case, by themselves, make abundantly

clear both that Sears believed that the uncontested pa-

tent had significant economic value as a deterrent to

competitors and that the patent, in fact, did serve to

deter competitors. Sears had the patent number

stamped on all of its wrenches with plaintiff’s quick-

release feature, which presumably was done for the pur-

pose of scaring off competitors. Also, Sears’ competitors

did not enter this lucrative market for several years

after it became clear that this product had genuine sales

appeal, which can only be explained by the existence of

the patent.

It is at least somewhat disingenuous for Sears to

—_ before this court that plaintiff's patent was

valueless when it made every effort in its marketing to

exploit the economic value of the uncontested patent,

received the benefits of a factual monopoly for several

gs because of that uncontested patent and to this day

as refused to return the patent rights to plaintiff in

return for the $10,000 originally paid to acquire these

“valueless” rights. We, therefore, have little difficulty

finding that Sears’ deception caused plaintiff to be in-

jured in fact.

The issue remains whether the public interest,

recognized in Lear, in having patent validity challenged

is of such significance that we should extend Lear to

cover this case. The Lear Court held that a licensee

should be permitted to contest the validity of a licensor’s

patent because “{l]licensees may often be the only in-

dividuals with enough economic incentive to challenge

the patentability of an inventor’s discovery.” 395 U.S. at

[573 F.2d 982]

670, 89 S.Ct. at 1911. Thus, the Court feared that if

licensees “are muzzled, the public may continually be re-

quired to pay tribute to would-be monopolists, without

need or justification.” J/d.5

® The policy against deterring licensees from attacking the

validity of the licensor’s patent also justified not requiring the

(Footnote continued on following page)

—9a—

We believe that the reasoning in Lear does not extend

to this case for two reasons. First, we deal here with a

complete assignment of plaintiff's patent rights to Sears.

See generally Heltra, Inc. v. Richen-Gemco, Inc., 395

F.Supp. 346, 352 (D.S.C. 1975), rev'd on other grounds,

540 F.2d 1235 (4th Cir. 1976); Arnold & Goldstein, Life

Under Lear, 48 Texas L. Rev. 1235, 1244 (1970). Thus,

the primary evil that the Court in Lear sought to end—

that the public might have to pay tribute to a “would-be

monopolist”—is completely irrelevant to this case. Plain-

tiff has no legal basis for exacting any “tribute” until

the patent rights are returned to him. At that point in

time, the patent’s validity can be tested either in an in-

fringement suit or after plaintiff enters into a licensing

agreement. The public’s interest would not be injured by

ed decision to bar Sears from contesting this patent at

this time.

Second, and perhaps even more fundamentally, the

Court’s analysis in Lear initiated with an assessment of

“the spirit of contract law, which seeks to balance the

claims of promisor and promisee in accord with the re-

quirements of good faith.” 395 U.S. at 670, 89 S.Ct. at

1911. (emphasis added). Only after the Court satisfied

itself that the equities were balanced on each side did it

proceed to a consideration of the needs of patent law and

the public interest. Sears’ actions in this matter have

violated completely the basic assumption in Lear that

there was good faith in the dealings between the parties:

There is no balance of equities between Sears and plain-

tiff in their contractual relations. For this court to employ

5 continued ;

licensee to pay royalties under the license agreement during

the litigation. The Court reasoned:

Enforcing this contractual provision would give the licen-

sor an additional economic incentive to devise every con-

ceivable dilatory tactic in an effort to postpone the day of

final judicial reckoning. ... [T]he cost of prosecuting

slow-moving trial poops and defending an inevitable

appeal might well deter many licensees from attempting

to prove patent invalidity in the courts.

395 U.S. at 673, 89 S.Ct. at 1912.

—10a—

the public interest in patent law to sanction Sears’ con-

duct is unjustifiable. Certainly nothing in patent law re-

nl this court to permit fraud to go unremedied. Cf.

ewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 487, 94

S.Ct. 1879, 40 L.Ed.2d 315 (1974) (nothing in patent

law discourages states from preventing industrial es-

pionage). We, therefore, hold that the district court

properly concluded that Lear, Inc. v. Adkins, is no bar to

plaintiff's recovery.

III

Having determined that the district court properly

declined to decide the validity of the plaintiff's patent,

we can readily dispose of Sears’ second contention in its

cross-appeal. Sears argues that the district court erred

in not permitting the introduction of certain evidence

dealing with the prior art surrounding plaintiff's inven-

tion. Sears, however, attempted to introduce all of the

prior art evidence at issue (defendant’s Exhibits 25, 26,

29, 33, 34, 39, 40, 41, 42 and 43) for the purpose of prov-

ing that the patent was invalid. Since that contention

was irrelevant to the case, it seems, a fortiori, that the

materials introduced to prove it must also be deemed

irrelevant to this case.

Sears, however, argues that the district court rec-

ognized that patent validity was a relevant issue. By

citing materials out of context, Sears has severely mis-

characterized the district court’s analysis. During the

trial, the district court properly recognized that some

evidence of prior art was relevant for the issue of Sears’

intent. Prior art was relevant to the limited extent that

if Sears could prove it knew about the prior art at the

time it was negotiating with plaintiff then the jury

might conclude that Sears had not intentionally deceived

plaintiff about the novelty and value of his invention.

[573 F.2d 983]

The best example of this reasoning by the district

court was with regard to the Carpenter patent (defen-

dant’s Exhibit 29). In considering its relevance the court

-—-lla—

asked when Sears had become aware of the patent.

Counsel for Sears stated that the Carpenter patent was

not discovered until 1971, after the law suit was in-

itiated (Tr. at 2409). Since it was clear that the

Carpenter patent had not entered into Sears’ assessment

of the value of plaintiff's invention when it made its

representations to plaintiff, the district court proper]

concluded the patent was irrelevant and refused to of

mit it into evidence (Tr. at 2425). We have examined the

record concerning the other prior art evidence that was

not admitted and about which Sears complains, and we

conclude that the district court properly applied its rule

. limited relevance and thereby correctly excluded all

of it.

IV

Sears’ final argument in its cross-appeal is that plain-

tiff failed to prove the existence of a confidential

relationship between himself and Sears. In assessing

that argument, we recognize at the outset that there are

no hard and fast rules for determining whether a con-

fidential relationship exists. See G. Bogert, The Law of

Trusts and Trustees § 482 (2d ed. 1960). The trier of fact

must examine all of the circumstances surrounding the

relationship between the parties and determine whether

“one person reposes trust and confidence in another who

thereby gains a resulting influence and superiority over

the first.” Kester v. Crilly, 405 Ill. 425, 91 N.E.2d 419,

423 (1950).

Various factors have been recognized judicially as be-

ing of particular relevance to that inquiry. Among them

are disparity of age, education and business experience

between the parties. Melish v. Vogel, 35 Ill.App.3d 125,

343 N.E.2d 17, 26 (1975). Additional factors are the ex-

istence of an employment relationship and the exchange

of confidential information from one party to the other.

See Yamins v. Zeitz, 322 Mass. 268, 76 N.E.2d 769, 772

(1948). All five of those factors are present in this case.

In addition, one of Sears’ witnesses admitted that the

company expected plaintiff to “believe” and to “rely” on

various representations that Sears made to him (Tr. at

—12a—

1981). Obviously, this question is best left to the trier of

fact, and this court under any circumstances would

hesitate to disturb the jury’s findings. That hesitation is

especially strong here where so many factors suggest

that a confidential relationship in fact existed.

Sears argues, however, that there are two factors in-

volved here that eliminate any possible confidential

relationship. They are that plaintiff never proved that

Sears had Se of the confidential relationshi

upon which plaintiff was relying and that plainti

retained counsel to guide him, and therefore, did not

rely on Sears. We find neither factor sufficient to justify

overturning the jury’s verdict on this issue.

Sears cites several cases that emphasize that a con-

fidential relationship cannot be thrust upon an unknow-

ing party. See Broomfield v. Kosow, 349 Mass. 749, 212

N.E.2d 556 (1965); Yamins v. Zeitz, supra; Comstock v.

Livingston, 210 Mass. 581, 97 N.E. 106 (1912). That

proposition, however, does not lead to the conclusion that

a plaintiff must demonstrate by direct evidence that the

defendant actually was aware of the confidential

relationship. All that must be proved is that the parties

engaged in activities under circumstances that created a

confidential relationship and that defendant breached

that relationship.

In the cases cited by Sears, all of the circumstances

surrounding the transactions that were being attacked

suggested an arms-length arrangement, and thus the

plaintiffs in those cases stented to thrust a confiden-

tial relationship on the unknowing defendants after the

fact. Here, Sears’ knowledge is circumstantially proved

by all of the facts surrounding its dealings with plain-

tiff. In addition, as suggested above, there was direct

[573 F.2d 984]

testimony to the effect that Sears expected plaintiff to

rely on its representations.®

L

a

6 Sears also argues that the district court failed to instruct

the jury on the issue of Sears’ knowledge of the confidential

(Footnote continued on following page)

—13a—

With regard to the existence of counsel representing

plaintiff, we conclude that that is merely one factor to

be considered along with all of the others. In fact, once

plaintiff established the existence of a confidential

relationship through proof of the five factors previously

discussed, the burden was on Sears to prove that plain-

tiff had competent and independent advice. See Jones v.

Washington, 412 Ill. 4386, 107 N.E.2d 672, 674 (1952).

The judge instructed the jury on this issue (Tr. at 3467)

and it obviously rejected Sears’ argument. There is no

basis for this court to disturb that determination. Thus,

we conclude that a jury could reasonably find that a con-

fidential relationship existed between the parties and

that Sears breached its duties created by that rela-

tionship.

For all of the above-stated reasons, we find no merit to

any of the issues raised in Sears’ cross-appeal. We,

therefore, affirm the district court’s judgment of liabili-

ty against Sears on all three counts of plaintiff's com-

plaint.

V

Plaintiff, in his appeal, seeks review of the district

court’s decision that he elected his legal remedies by

taking the case to the jury, and therefore, is barred from

pursuing his equitable remedies of rescission and

restitution. Plaintiff argues that the district court, as a

court of equity, should have accepted the jury’s liability

determination, but should have disregarded its damages

verdict and instead should have granted rescission and

restitution.’

6 continued

relationship. In view of our holding that knowledge does not

have to be proved as an element of the tort, we find no basis

for requiring any specific mention of this factor. In our view,

the district court’s instructions on the confidential relationship

issue were proper.

7 Plaintiff asks this court to leave undisturbed his one

million dollar judgment in Count III, negligent misrepresen-

(Footnote continued on following page)

—l4a—

Before considering the substance of the doctrine of

election of remedies, we should determine what law,

state or federal, should control our decision. Sears relies

almost exclusively on Illinois decisions in arguing that

after plaintiff takes his case to the jury in a court of law

he cannot thereafter seek rescission of the contract from

a court of equity. We, however, conclude that federal

courts are not bound by the Illinois election of remedies

doctrine.

The choice of law issue in diversity cases, where no

Federal Rule of Civil Procedure clearly controls, is

governed by the Rules of Decision Act, 28 U.S.C.

1652.8 See generally Redish & Phillips, Erie and the

ules of Decision Act: In Search of the Appropriate

Dilemma, 91 Harv.L.Rev. 356, 357-58 (1977); Ely, The

Irrepressible Myth of Erie, 87 Harv.L.Rev. 693, 697-700

(1974). In interpreting that Act, at least one circuit has

recognized that where a state procedural rule is derived

from a judicial system that is fundamentally inconsis-

tent with the federal judicial system, then the state rule

need not be slavishly adhered to by a federal district

court. Atkins v. Schmutz Mfg. Co., 435 F.2d 527 (4th Cir.

1970), cert. denied, 402 U.S. 932, 91 S.Ct. 1526, 28

ry 867 (1971). See also Redish & Phillips, supra at

n. 189.

7 continued

tation, because that is an action at law and therefore was

properly given to and decided by the jury.

As to Counts I and II, plaintiff claims that the evidence

proves that Sears’ profits on the sale of ager

wrenches was in excess of 40 million dollars. Sears argues

that that figure is based on a misinterpretation of Sears’ sales

techniques. Given our disposition of this case, we need not

resolve this dispute, although we do agree with the district

court that the jury’s damage award was not unreasonable.

8 The Act provides:

The laws of the several states, except where the Constitu-

tion or treaties of the United States or Acts of Congress

otherwise require or provide, shall be regarded as rules of

decision in civil actions in the Courts of the United States,

in cases where they apply.

28 U.S.C. § 1652.

—15a—

Under the Illinois cases cited by Sears, a plaintiff had

[573 F.2d 985]

to elect his remedies at the time of filing suit because II-

linois had retained separate courts of equity and couris

of law. See, eg., Carr v. Arnold, 239 Ill. 37, 87 N.E.

870 (1909). In federal courts, however, the distinction

between law and equity has long been abolished.

Fed.R.Civ.P. 2. It would be anomalous to follow a state

rule created under a judicial system so at odds with that

of the federal system. In fact, it might be argued that

such a holding would violate Rule 2, in which case state

law, of course, would be disregarded. See Hanna v.

Plumer, 380 U.S. 460, 469-74, 85 S.Ct. 1136, 14 L.Ed.2d

8 (1965). We, therefore, feel no compunction in declining

to follow Illinois law on this issue.°

Having determined that the district court is not bound

by the rigid requirements of Illinois law on election of

remedies, there remains the question whether plaintiff

can still pursue his ge eg remedies under the facts of

this case. We conclude that the district court correctly

decided not to disturb the jury’s monetary award, but

that the court erred in not considering whether rescis-

sion of the contract and return of plaintiff's patent were

appropriate.

The general rule as to when an election is necessary is

that “‘a certain state of facts relied on as the basis of a

certain remedy is inconsistent with, and repugnant to,

9 This result accords with the approach recently suggested in

Redish & Phillips, supra. The authors in that article suggest

that the best approach to Rules of Decision Act cases is to ex-

amine the policy underlying the state rule to determine if it

affects primary conduct, is intended to benefit one class of

litigants over another or is merely the state’s evaluation of the

most efficient way to handle its docket. Jd. at 394-96. The II-

linois rule ——s the courts would appear to fall within

the third canngery. In such a situation, the authors conclude,

“The federal diversity court should be permitted to adopt or

reject such rules since, as noted previously, it retains some in-

terest in regulating its own internal procedures.” /d. at 395.

We agree with that conclusion.

—1l6a—

another certain state of facts relied on as the basis of

another remedy.’” Prudential Oil Corp. v._ Phillips

Petroleum Co., 418 F.Supp. 254, 257 (S.D.N.Y. 1975).

Here, the jury was instructed that plaintiff could receive

profits for Counts I and II, fraud and breach of a con-

fidential relationship.’° Apparently dissatisfied with the

size of the jury verdict, plaintiff sought in a post-trial

motion to have the court reconsider the evidence and

award relief based on essentially the same standard the

jury used. To have granted plaintiff's request would

have been completely unfair to Sears.!! It might have

been better for the court to require the plaintiff to elect

his remedy expressly prior to instructing the jury, but

plaintiff did not object to the court’s procedure, and

therefore, must have been satisfied to let the jury deter-

mine the appropriate award. Having let the case go to

the jury without getting the issue clarified, plaintiff

should not be heard to complain about the outcome of

that procedure.

With regard to an election between the profits award-

ed by the jury and return of the patent based on rescis-

sion, however, we see no basis for invoking the election

of remedies doctrine. Based on the jury instruction,

plaintiff will receive one million dollars as the measure

of past profits earned by Sears up to the time of trial.

That award, however, is not inconsistent with return of

the patent so that plaintiff can receive the future

benefits of the patent that Sears fraudulently acquired.

There will be neither a double recovery nor a factual in-

consistency between these remedies. See Prudential Oil

Corp., supra at 257; G. Bogert, The Law of Trusts and

Trustees § 946 (2d ed. 1962). Therefore, we conclude that

10 See note 2 supra.

1! The district court reasoned that such an approach would

create the type of res judicata problems mentioned in our

earlier decision in Federal Savings & Loan Ins. Corp. v.

American Nat'l Bank & Trust Co., 392 F.2d 906 (7th Cir.

1968). While we do not perceive any basis for a claim of res

judicata or even a double recovery problem, we do believe it

would have been unfair to disturb the jury’s award, and,

therefore, agree with the district court’s decision not to do so.

—17a—

going to the jury under a past profits instruction did not

[573 F.2d 986]

bar plaintiff from seeking rescission and thereby

possibly recovering his patent. Whether rescission is ap-

propriate, however, is an issue that should be decided in

the first instance by the district court.

For the reasons stated above, we affirm the district

court’s judgment against Sears on all three counts in

plaintiff's complaint and the court’s decision not to alter

plaintiff's monetary award, but reverse the court’s deter-

mination that it lacked the power to award rescission

and remand to the district court for a determination of

whether rescission is appropriate under the facts of this

case.

Affirmed in part; Reversed in part; and Remanded.

—18a—

II

[471 F.Supp. 372]

Peter M. ROBERTS, Plaintiff,

Vv

SEARS, ROEBUCK AND CO.,

a corporation, Defendant.

No. 69 C 2573.

United States District Court,

N. D. Illinois, E. D.

May 31, 1979.

[471 F.Supp. 374]

MEMORANDUM

LEIGHTON, District Judge.

This suit alleging fraud, breach of confidential

relation, negligent misrepresentation, and unjust enrich-

ment, is by Peter M. Roberts, a former employee,

against the Sears, Roebuck Company, his former em-

ployer, for damages and rescission of a contract by

which he assigned all his rights, including patents, to a

quick release device for socket wrenches. A second

amended complaint invoked the jurisdiction of this court

on the ground that the parties are of diverse citizenship,

and that the requisite jurisdictional amount is involved.

Plaintiff prayed for rescission of the contract, return to

him of certain issued patents, and for disgorgement of

the unjust enrichment which allegedly had accrued to

the defendant. The case was tried before a jury that

returned three verdicts in plaintiff's favor, each for

damages in the sum of $1,000,000 on his claims of

wrongdoing by defendant.

Judgment was entered for plaintiff in the amount of

$1,000,000, it being conceded that the verdicts were non-

—19a—

cumulative. Then, in a post-trial motion based on the

jury’s verdicts, plaintiff asked this court to grant him

the equitable relief for which he had prayed, and pay-

ment to him of $44,000,000 by which, according to the

evidence, defendant had been unjustly enriched through

the use of plaintiff’s property rights in the device he had

[471 F.Supp. 375]

invented. The motion was denied, this court concluding

that having submitted his claim for damages to a jury,

the doctrine of election of remedies barred plaintiff from

obtaining restitutionary relief. Both parties appealed.

The court of appeals approved the jury’s findings,

concluded that the three verdicts were proper, and

affirmed the judgment in plaintiffs favor. It held,

however, that it was error, in this instance, to apply the

Illinois doctrine of election of remedies; and that while

this court had “correctly decided not to disturb the

jury’s monetary award, .. . [it had] erred in not con-

sidering whether rescission of the contract and return of

laintiff’s patents were appropriate.” Roberts v. Sears,

oebuck & Co., 573 F.2d 976, 985 (7th Cir.), cert. denied,

439 U.S. 860, 99 S.Ct. 179, 58 L.Ed.2d 168 (1978).

Accordingly, that part of the court’s —— whic

denied equitable relief was reversed and remanded for a

determination whether rescission is proper under the

facts of this case.

The cause has been redocketed; the parties have stated

their respective positions. They agree that no further

evidence is to be heard; and that the mandate of the

court of appeals can be complied with on a record which

now consists of the pleadings, the evidence presented to

the jury, the decision of the reviewing court, and the

briefs of the — stating their contentions. Therefore,

the court will proceed to consider and decide whether

under the facts of this case plaintiff is entitled to

rescission of the contract by which he assigned to

defendant all his rights to the quick release device for

socket wrenches, including patents. A necessary starting

point is a statement of the facts which must have per-

suaded the jury to return its verdicts.

—20a—

I.

Peter M. Roberts was born on January 18, 1945. When

he was a 17 year old high school student, he worked

art-time for the Sears, Roebuck Company in Gardner,

assachusetts. After finishing high school, he became a

full-time sales clerk for the company. His education

extended only to a high school diploma; and he did not

have any business experience.

In 1963, while a minor 18 years of age, he worked on

his own time and developed a quick release device that

enabled the user of a wrench, with one hand, to change

a socket of one size to one of another. He designed,

tooled, and made a prototype of his invention. Then he

had a Worcester, Massachusetts lawyer file an applica-

tion on his behalf for a United States patent. Roberts

knew that Sears, his employer, sold more than 1,000,000

wrenches each year. Therefore, he decided to show his

invention, and the only prototype of it then in existence

to the manager of the store in which he worked. Roberts

was persuaded to submit his invention, along with the

prototype, as a Sears employee suggestion to the

company. Consequently, on May 7, 1964, the suggestion

form which showed that a patent for the device was

pending, and the prototype, were sent to the Sears main

office in Chicago, Illinois. A short time later, Sears

closed its Gardner, Massachusetts store; Roberts moved

to Tennessee with his parents.

Roberts did not hear from Sears concerning his

employee suggestion or about the evaluation of his

invention. On one occasion he called Sears Chicago office

long distance and spoke to a woman who seemed to be

familiar with the subject; he wrote a letter on January

5, 1965 ag ory! information about the status of his

suggestion, but he received no response. Then, sometime

around the end of January 1965, while at his place of

employment in Newport, Tennessee, he received a

telephone call from Leonard Schram, a Sears attorney,

who asked for the name of the lawyer who was

processing the patent application for Roberts. After

answering Schram’s question, Roberts asked him, “what

was happening with my device and he said that they

—2la—

were looking into it with some interest and they might

be interested in it on some parts of their lines... .”

Roberts then asked Schram what Sears had concluded

about the invention’s value; but, “he wouldn’t give me an

[471 F.Supp. 376]

answer. He just said, ‘Well, sometimes inventors get

more for their ideas than they are really worth, or try to

get more for their ideas than they are really worth,’ and

that if he was interested, he would let me know.”

Schram, although he knew what Sears had done with

the prototype of Roberts’ invention since it was received

in May 1964, did not tell Roberts the facts, nor the real

reason for the telephone call.

In April 1965, through the Massachusetts lawyer,

Sears wrote to Roberts and began negotiations for a

license to use the quick release device. In letters written

by Schram, the company stated that, in its judgment,

the invention was not new; that any claim granted on

the patent application would be “quite limited”; that the

cost of adding the quick release feature to its wrenches

would be 40¢ to 50¢ for each unit, and that in its

appraisal, Roberts’ invention as a feature on a Sears

wrench would sell only to the extent that it was

promoted. Therefore, a license for its use was worth

$10,000. Sears’ agents knew that Roberts trusted the

company for which he had worked; and they expected

him to accept as true the representations they were

making in the effort to purchase a license for his quick

release feature. Roberts, relying on what was trans-

mitted to him from Sears by the Massachusetts lawyer,

accepted as true the representations which had been

made. On June 15, 1965, as far as he was concerned, the

negotiations with Sears were concluded when he signed

a memorandum agreement, the contract at issue in this

case.

This agreement was prepared by Sears’ lawyers; it

was signed by Roberts when he was still a minor.! Its

1 This fact was known to Sears because in Roberts’ personnel

file was his original va eee application in which he had

told Sears his date of birth.

—22a—

contents and their legal meaning were never explained

to him; he did not employ an attorney in Tennessee

where he was then living. He relied on what the

Massachusetts lawyer told him; but unknown to Roberts,

Sears had employed that lawyer, while he was pur-

portedly acting for Roberts, to protect the company’s

interests with regard to certain patents Sears antici-

pated would be issued for the quick release device. The

agreement, as it was worded, was not one for a license,

as had been first proposed by Sears; it provided for an

assignment to Sears of all of Roberts’ rights in his

invention, including worldwide patent protection. It

contained language suggesting that Sears did not expect

to sell more than 50,000 wrenches with the feature in

any year; it provided against the contingency that a

patent would not issue on the Roberts’ application. The

total amount Roberts was to receive for his invention

was $10,000, payable in a 2¢ royalty per unit.

Roberts entered into the memorandum agreement

totally ignorant of what Sears had done in determining

the value of his invention. He was not informed of

relevant and important facts which were known only to

Sears and its agents. Contrary to the impression Schram

created when he told Roberts that the company was

“looking into it [the device] with some interest and .

might he interested in it on some ‘sig of [its] lines

. . .”, the company had thoroughly explored and

investigated the value of the quick release feature.

Virtually on receiving the prototype of the invention in

May 1964, Sears had it examined, and through experts

at its disposal became convinced it was a highly

marketable and valuable item. Copies of the prototype

were immediately made. One of the questions raised by

those responsible to Sears for the marketing of wrenches

was whether Roberts’ insertion of the release feature

weakened a wrench to the extent that it could not stand

use by a mechanic. Therefore, Sears’ custom manu-

facturer of wrenches was requested to subject a copy of

the prototype to physical tests. And in order to

determine market acceptance of the new invention, a

number of garage mechanics were asked to use one.

These steps were taken in the summer and late fall of

—238a—

1964. The physical tests ape that Roberts’ modifica-

tion of the ratchet wrench with his feature was usable;

[471 F.Supp. 377]

the market test established that mechanics would be

enthusiastic in welcoming what was a unique solution to

a problem that had long burdened users of socket

wrenches. Sears, through experts in the several fields,

knew all of these facts long before Schram called

Roberts late in January 1965.

Indeed, during the month of October 1964, based on

tests that had been conducted for it, Sears ordered the

incorporation of Roberts’ quick release device into a

completely new line of “fine tooth” ratchet wrenches

then being developed for its market. Arther Griesbaum,

Sears’ senior buyer for mechanics’ tools, and the

oe most knowledgeable employee concerning the

marketing of such items, early expressed the view that

Roberts’ invention could be built into Sears’ traditional

style wrenches at “very little additional cost.” Gries-

baum and Schram had exchanged information on this

subject before Schram called Roberts in Newport,

Tennessee.

In fact, while Sears was negotiating with Roberts, it

directed the manufacturer of its wrenches to incorporate

the quick release feature into models that constituted

74.27% of the approximately 1,000,000 wrenches it sold

annually. Thus, early in 1965, while downgrading its

value, Sears negotiated for Roberts’ invention knowing it

was useful, highly promotable, and would most likely be

rofitable. The company anticipated that sales in the

irst year alone would total 750,000 units. This figure

was quite in contrast with the language of the contract

Roberts was asked to sign, an agreement which

suggested that 50,000 wrenches was the limit Sears

expected to sell in any one year with the Roberts’

invention. In addition, while Sears was telling Roberts

that the cost of inserting the quick release feature in its

wrenches was going to be approximately 44¢ per unit,

the company knew, before Roberts signed the memoran-

dum agreement in June 1965, that the cost per unit was

—24a—

going to be approximately 20¢; and that, in contrast

with its representations, the quick release feature was

oing to be relatively inexpensive to manufacture. As to

the prospects of the patent, Sears had learned from the

Massachusetts lawyer in February 1965 that the in-

vention was patentable; it had the advice of its own

at se attorneys on the prospects of patentability; and

efore the memorandum agreement was prepared by

lawyers for Sears, the company had been informed that

the claims of Roberts’ patent application had been

allowed by the United States Patent Office. Therefore,

language in the memorandum agreement signed by

Roberts hedging against the possibility that a patent

would not issue was contrary to the facts known by

Sears and its lawyers.

Within days after Roberts signed the memorandum

agreement, although Sears represented it did not expect

to sell more than 50,000 wrenches with the feature in

any year, more than 44,000 wrenches with the quick

release device incorporated were being manufactured

per week. On each wrench was the number of the patent

that issued on Roberts’ application. Within three months

after Roberts signed the agreement, Sears was mar-

keting wrenches with the quick release feature, ad-

vertising this new invention as a tremendous break-

through in the use of socket wrenches. Within nine

months after reaching agreement with Roberts, Sears

had sold more than 500,000 wrenches with the quick

release feature; thus, it was able to pay Roberts all of

the $10,000 in royalties called for under the memo-

randum agreement.

After receiving the last payment, Roberts executed

assignments which had been prepared by Sears’ law-

yers, conveying to the company all his right, title and

interest in his quick release invention, including those

governed by the laws of foreign countries, foreign patent

protection, and any patents which had issued, or might

thereafter issue. Then he did military service in the

United States Air Force, and was stationed in England

until 1969. Roberts sought legal counsel concerning his

contract with Sears while on military duty; but he was

—25a—

informed by Air Force lawyers that they were unable to

assist him; their advice was that he seek legal advice on

return to the United States. Roberts returned to this

country, sought legal advice, and thereafter, served

[471 F.Supp. 378]

notice on Sears of his election to rescind the June 15,

1965 agreement and have returned to him the issued

patents. The money he had been paid was tendered to

the company; it was refused, and this suit followed.

In the trial of the case, the jury heard evidence

bearing on the material facts which showed that from

1965 to December 31, 1976, Sears earned an incremental

rofit of $44,032,082 from the sales of its wrenches with

berts’ quick release feature. The parties argued their

respective contentions and filed written requests for

instructions on the applicable rules of law. The court

ey on these requests; it instructed the jury that

ased on his allegations and proof, Roberts was

asserting three claims against Sears. The first was that

his former employer defrauded him of his rights to the

quick release device he had invented; the second, that

his former employer breached the con/idential relation

between them, one that arose out of the pre-existin

relationship of employee and employer, the trust he ha

placed in Sears; the third, that his former employer had

engaged in negligent misrepresentations concerning its

knowledge of the value of his invention, the invention’s

potential sales, and its public acceptance.

The jury deliberated and then returned three separate

verdicts in favor of Roberts on his three claims. It

assessed damages on each in the sum of $1,000,000.

Thereafter, Sears filed a post-trial motion for judgment

notwithstanding the verdicts or, alternatively, for a new

trial. After hearing the parties, this court denied the

motion and entered judgment.

II.

It is a rule of general acceptance that fan order

denying a new trial leaves the findings of the jury

—26a—

intact; it imports findings of fact consistent with the

action taken, and constitutes in effect a determination

by the trial court that the weight of the evidence justi-

fied the verdict.” 66 C.J.S. New Trial § 210b(1) (1950);

compare McDonald v. Risch, 41 Ill.2d 242, 242 N.E.2d

245 (1968). Therefore, when this Court denied the

motion for a new trial, it implicitly made findings of

fact consistent with the verdicts that had been returned,

verdicts by which the jury concluded? that Sears

committed fraud on Roberts in the way it acquired all of

his rights to the quick release device he invented; that

Sears breached the confidential relation that existed

between Roberts and the company, one that arose out of

a pre-existing relationship of employee and employer;

and that Sears, in its negotiation for the quick release

device committed negligent misrepresentations concern-

ing the company’s knowledge of the invention’s value, its

saleability, and its public acceptance.

This is a case in which federal jurisdiction was

invoked on the ground of diversity of citizenship of the

parties. Therefore, the substantive law of Illinois as well

as its applicable conflicts of laws decisions are con-

trolling. Hartford Accident & Indemnity Co. v. Crider,

392 F.Supp. 162, 167 (N.D.II1.1974). In Illinois, the

elements of fraud which would justify rescission of a

contract by a suit in equity are the same as those which

would sustain an award of damages in an action at law.

Welch v. Brunswick Corporation, 10 Ill.App.3d 693, 698,

294 N.E.2d 729, 732 (1st Dist. 1973). It is the law in

2 Where jurisdiction is founded on diversity of citizenship

and state-created rights are sought to be enforced in a federa

court, a general verdict will be construed as the forum state

would construe it. In this case, then, the verdicts of the jury

are to be construed liberally with the view to effectuating its

intention, if that is possible, Churchill v. Norfolk & W. Ry.

Co., 46 Ill.App.3d 781, 5 Ill.Dec. 885, 362 N.E.2d 356 (4th Dist.

1977); and in doing so, reference should be made to the entire

roceedings, including the pleadings, instructions and evi-

ence. Martin v. McIntosh, 3 ge ea 526, 346 N.E.2d 450

(5th Dist. 1976). It is in this way that this court has deduced

the conclusions of the jury in the verdicts it returned.

—27a—

Illinois that where the subject matter of a contract is

acquired through fraud, Wiebrecht v. Shapiro, 54 Ill.2d

527, 301 N.E.2d 293 (1978); MacAuley v. Rickel, 96

Ill.App.2d 283, 238 N.E.2d 603 ra Dist. 1968); or

through the breach of a confidential relation, Swiney v.

[471 F.Supp. 379]

Womack, 348 Ill. 278, 175 N.E. 419 (1931); or through

misrepresentation, Douglass v. Treat, 246 Ill. 5938, 92

N.E. 976 (1910); rescission, as a remedy, is available

through an action in equity. When this remedy is

sought, it is to declare an agreement void from its

inception. Farmers Automobile Insurance Ass'n v. Purs-

ley, 130 Ill.App.2d 980, 985, 267 N.E.2d 734, 737-38 (5th

Dist. 1971). The right to this form of equitable relief

may be brought about either by operation of law, by

agreement of the parties, express or implied; “or, it may

come into being as a right at law arising from the

conduct of the other party.” Bowser, Inc. v. Hamilton

Glass Co., 207 F.2d 341, 343 (7th Cir. 1953).

Equity jurisprudence of Illinois is not radically

different from that of other American jurisdictions.

Thus, in Operative Service Corporation v. McIntyre

Pump Co., 85 Colo. 519, 277 P. 773 (1929), the decision of

the Supreme Court of Colorado was consistent with that

of the Supreme Court of Illinois in Hicks v. Stevens, 121

Ill. 186, 11 N.E. 241 (1887), both courts holding that an

assignment or centract for the sale of a patent or

interest therein may be rescinded or cancelled in equity

where recognized equitable grounds therefor exist.

Compare Nichoalds v. McGlothlin, 330 F.2d 454 (10th

Cir. 1964); see 69 C.J.S. Patents § 241b(1) (1951); 4

Deller, Walker on Patents § 379 (2d ed. 1965). In Page v.

Dickerson, 28 Wis. 694 (1871), the Supreme Court of

Wisconsin had before it a case like the one ruled on by

the Illinois Supreme Court in Hicks v. Stevens and,

applying the same equity principles, reached the same

result. Later, in Leonard v. Barnum, 34 Wis. 105 (1874),

the court had before it a contract for the sale of rights to

a patent; the controversy gave rise to factual issues

similar to those resolved by the jury in this case.

7

—28a—

Referring to the fact that some of the plaintiffs were

minors, and to allegations of fraud similar to those

found in aie complaint in this case, the Wisconsin

court said,

“(T]he rule is familiar and almost axiomatic, that

where parties occupy with respect to each other

peculiar relations in which confidence is necessarily

reposed by one party and influence is acquired by

the other, all transactions and dealings between

them are watched by courts of equity with more

than ordinary jealousy to see that such confidence is

not betrayed. Such courts always take into account

all the circumstances, and the situation of the

parties dealing with each other; and especially is

this true where the party imposed upon is an infant

or is inops consilii.2 Fraud is so various in its

nature and so extensive in its application to human

concerns, that it has been found impossible to give a

full definition of it, ... .” 34 Wis. at 109.

The contract in the case was ordered rescinded.

The Supreme Court of Oregon, also in a case involving

a contract for the sale of patent rights, reached the same

result in Paulson v. Kenney, 110 Or. 688, 224 P. 634

(1924). Lederer v. Yule, 67 N.J.Eq. 65, 57 A. 309 (1904),

was an instance where a New Jersey court of equity,

because of fraud and misrepresentation, granted rescis-

sion of a contract for the sale of rights to a patent. In

Goldsmith v. Koopman, 140 F. 616 (S.D. N.Y. 1905), a

federal court had before it a complaint to set aside an

assignment of rights to an invention protected by United

States and foreign patents. The grounds alieged were

fraud, breach of a confidential relation, and misrepre-

sentation. The district court, relying on principles of

equity analogous to those of Illinois, decreed rescission of

rid aaeataias and granted restitutionary relief. 140 F.

at ;

8 This phrase means a person without the aid of counsel. In

the case of persons inops concilii and illiterate, the law will

especially favor them in the construction of any deed they

execute, applying liberally the rules of conveyance. See

Davenport v. Wynne, 28 N.C. 128, 44 Am. Dec. 70 (1845).

—29a—

III.

There is no reason why a different result should be

reached in this case. The mandate of the court of

appeals directed this court to consider whether here, on

[471 F.Supp. 380]

the facts shown in the record, rescission is appropriate.

After reviewing the pleadings, the evidence, the prior

rulings, and applying the controlling principles of

equity, it is this court’s judgment that Roberts is entitled

to a decree rescinding his June 15, 1965 contract with

Sears. Therefore, a decree of rescission will be entered.

IV.

Rescission is the termination of a contract with

restitution. Horan v. Blowitz, 13 Ill.2d 126, 148 N.E.2d

445 (1958); I.L.P. Contracts § 341 (1955). It is an

_— doctrine, a form of equitable relief. Hakala v.

Illinois Dodge City Corp., 64 Ill.App.3d 114, 21 IIl.Dec.

1, 380 N.E.2d 1177 (2d Dist. 1978); see Leighton,

Elements of Equitable Relief, 2 J.Mar.J. of Prac. &

Proc. 230, 250-253 (1969). When it is sought and granted

for fraud, an Illinois court of equity usually grants the

defrauded party the full remedy to which, under the

circumstances, he may be entitled. Van Koten v. Van

Koten, 323 Ill. 323, 154 N.E. 146 (1926); 37 Am.Jur.2d

Fraud & Deceit § 338 (1968). The courts of Illinois

recognize the general rule that

“(tlhe essence of equity jurisdiction has been the

power of the Chancellor to do equity and to mould

each decree to the necessities of the SS, case.

Flexibility rather than rigidity has distinguished it.

The qualities of mercy and practicality have made

equity the instrument for nice adjustment and

reconciliation between the public interest and

private needs as well as between competing private

claims.” Hecht Co. v. Bowles, 321 U.S. 321, 329-30,

64 S.Ct. 587, 592, 88 L.Ed. 754 (1944).

See First National Bank v. Bryn Mawr Beach Bldg.

Corp., 365 Ill. 409, 6 N.E.2d 654 (1937). For these

—30a—

reasons, in this case, rescission having been decreed,

restitutionary relief will be granted with the court

bearing in mind the competing claims of Roberts and

Sears to the subject matter of the rescinded contract.

First, Sears will be ordered to reassign to Roberts, his

successors, legal representatives or assigns, all right,

title and interest which the company acquired from him,

in and to United States Letters Patent No. 3,208,318 and

Letters Patent of Canada No. 757,826, both patents

issued to Roberts on September 28, 1965 and May 2,

1967, respectively, for an invention relating to a quick

release device for socket wrenches. Within 10 days after

the entry of the rescission decree, the two patents,

divisions, reissues or extensions thereon obtained or to

be obtained by Sears in the United States or in any

foreign country, and the executed assignments of each

patent, shall be delivered to H. Stuart Cunningham,

Esq., Clerk of this court. Thereafter, the Clerk is

directed to allow Roberts and his counsel a reasonable

period of time to examine the patents, the assignments,

and all documents pertaining thereto; and upon their

expressing satisfaction that all have been delivered in

compliance with the decree, the parties, on a day to be

set, will appear in open court for delivery and

acceptance of the documents, and in order to record

satisfaction of this portion of the rescission decree.

Looking to the possibility that Sears will not perform

these specific acts, the decree will contain provisions

invoking the in rem powers of this court sitting in

equity. See Rule 70, Fed.R.Civ.P.; Leighton, Develop-

meet es ip Rem Powers of Courts of Equity, 5 Nat. Bar

7).

However, return of the patents to Roberts has in fact

been suggested by Sears. A short time after this case

was docketed on remand, Sears offered to make the

reassignment and delivered proposed drafts to Roberts

through his lawyers in this case. The offer was rejected

because Sears’ proposed assignments did not include

returning to Roberts the right to recover damages and

profits, due or accrued, arising out of past infringements

of the patents, if any there have been. In the judgment

—3la—

of this court, Roberts is correct in insisting that

reassignments of the two patents include his right to

recover for past infringements, and for damages and

profits due or accrued on the patents. Therefore, the

terms of the reassignments will be in accordance with

[471 F.Supp. 381]

those contained in Appendices “A” and “B” which will

be attached to the decree.

Second, Sears will be ordered to account for and pay

to Roberts all of the profits it has earned from the use of

the quick release device, from May 7, 1964 when it

acquired the prototype to the present.‘ Sears argues that

this court cannot order it to account for its profits from

Roberts’ invention because the court of appeals’ mandate

specifically limited jurisdiction on remand to whether

rescission is an appropriate remedy in this case; and if

so, the return of the patents to Roberts. The argument

relies on language in the reviewing court’s opinion

which Sears contends restricts Roberts only to the relief

of having his patents returned to him in the event

rescission is granted by this court. Roberts, of course,

argues to the contrary. He insists that recission, in the

proper case, means more than restitution of the pao

obtained by fraud; and, insisting that this is such a case,

he argues that rescission may require an accounting and

disgorgement of any unjust enrichment.®

‘ The accounting will necessarily include a report by Sears

of its stock of ratchet wrenches with Roberts’ quick release

device incorporated, and the profits which can be anticipated

from their sales. Sears is not to order any further manu-

facture of such wrenches after the date of the decree of

rescission. Wrenches to be delivered on contracts of manu-

facture entered into in the past will have to be the subject of

pi ne orders to be entered by this court. —

orders governing further discovery will also be entered.

6 It is unnecessary to repeat the jury’s findings that Sears

acquired Roberts’ invention by fraud, breach of a confidential

relation, and negligent misrepresentations. This court ap-

proved those findings when it denied Sears’ motion for a new

trial. The court of appeals affirmed, saying that “{tlhis case

(Footnote continued on following page)

—32a—

This court has studied the opinion of the court of

appeals knowing full well that an inferior court is bound

by the mandate of the superior one, and must carry its

directions into execution. Sibbald v. United States, 37

U.S. (12 Pet.) 488, 9 L.Ed. 1167 (1838); Briggs v.

Pennsylvania R. Co., 334 U.S. 304, 306, 68 S.Ct. 1039, 92

L.Ed. 1403 (1948); see United States v. Fernandez, 506

F.2d 1200, 1202 (2d Cir. 1974). It is clear, however, that

the mandate in this case does not have the restriction

argued by Sears. Certainly, the court of appeals did not

say that rescission means one thing for Roberts and

another for other litigants. The language to which

reference is made was used by the court when it

discussed the consideration the jury must have given to

Sears’ profits from Roberts’ invention when damages on

the three claims were awarded. The jury was instructed

that “{i]f you find in favor of the Plaintiff... then, one

of the elements of the money damages to be considered

by you .. .” was Sears’ profits. Concerning Roberts’ first

and second claim: fraud, and breach of confidential

relation, the jury was told that “(t]he award of money

damages you make may equal the net profits which you

find the Defendant gained as a result of its mer-

chandising of wrenches incorporating Plaintiff's quick

release invention and idea. . . .” In each of its three

verdicts, the jury stated that “we assess damages in

favor of plaintiff, which we find to be in the sum of

$1,000,000.” Thus it appears that for the injury inflicted

on him by Sears; that is, the fraud, the breach of

confidential relation, the misrepresentations, and the

twelve years of ———- about his invention and his rights

in it, the Jury awarded Roberts damages in the sum of

$1,000,000. See 1 C.J.S. Actions § 15a (1936); 25 C.J.S.

Damages §§ 1, 2 (1966).

5 continued

involves the efforts of one of this nation’s largest retail

companies, Sears, Roebuck & Co. (Sears), to acquire through

deceit the monetary benefits of an invention of a new type of

socket wrench created by one of its sales clerks during his off-

duty hours.” Roberts v. Sears, Roebuck & Co., 573 F.2d at 978.

—33a—

Damages, as that term is ordinarily used, mean

simply a measure of injury. Kozar v. Cheasapeake & O.

Ry. Co., 449 F.2d 1238, 1240 (6th Cir. 1971). The pur-

pose of damages is to place the injured person in the

same position, so far as money can do it, as he would

have been had there been no injury or breach of duty;

t+ at is, to compensate him for the injury actually

[471 F.Supp. 382]

sustained. Lee v. Southern Homes Sites Corp., 429 F.2d

290 (5th Cir. 1970). Being compelled to disgorge money

by which one has been unjustly enriched is different

from being compelled to pay damages.

The terms “restitution” and “unjust enrichment” are

modern designations for the older doctrine of “quasi

contracts” Hixon v. Allphin, 76 Idaho 327, 281 P.2d

1042, 1045 (1955). The doctrine of gy on enrichment is

an equitable one; damages is a legal remedy. 22

Am.Jur.2d Damages §§ 1, 2 (1965). In awarding dam-

ages, the law seeks to make the injured party whole, as

far as money can; in applying the doctrine of unjust

enrichment and compelling disgorgement, where prop-

ein A is fraudulently obtained through a contract, equity

seeks to

“require the wrongdoer to restore what he has

received and thus tend to put the injured party in

as good a position as that occupied by him before

the contract was made.” 5 Corbin, Contracts § 1107,

at 573 (1964).

In Illinois, it has long been the law that where the right

to rescind a contract exists, the person with the right is

entitled to an accounting of the profits made from the

‘ayn conveyed, and an adjustment of the equities

etween the parties. O’Halloran v. Fitzgerald, 71 Ill. 58

(1873); Corzine v. Keith, 384 Ill. 425, 51 N.E.2d 538

(1943); Doom v. Doom, 8 Ill.App.3d 186, 289 N.E.2d 243

(4th Dist. 1972).

In this case, the accounting by Sears of its profits

from Roberts’ invention and a determination of the sum

of money by which it has been unjustly enriched are to

—34a—

be made at a hearing to be conducted by this court.

Roberts argues against such a hearing. He contends that «

he presented evidence to the jury, much of it uncontro-

verted, which proved that up to and including December

31, 1976, Sears had earned an incremental net profit of

$44,032,082 from its use of his invention. Net incre-

mental profit is the additional earning Sears made in

excess of the profit it obtained on a ratchet wrench

without the quick release device, less the additional cost

incurred by incorporating the feature. These being the

facts, Roberts insists that this court should order Sears

to pay him the net incremental profits it has earned

from his invention, less the $1,000,000 jury award. As to

the period from January 1, 1977, concerning which

Sears has not disclosed the amount of its sales and

profits, Roberts argues that the accounting should be

referred to a magistrate to sit as a master, hear

evidence, determine the extent of Sears’ unjust enrich-

ment, and recommend a disposition.

The court does not agree. Roberts’ proof of Sears’

profits was made to the jury for the purpose of

establishing a basis on which damages could be

awarded. The accounting which Sears will be required

to make is for the purpose of determining the amount of

money by which it has been unjustly enriched through

its use of an invention it acquired by fraud, breach of a

confidential relation, and negligent misrepresentations.

When Sears defended Roberts’ claims before the jury, it

was not called on to defend a charge that it had been

unjustly enriched, and thus be called upon to disgorge

profits it had made out of the quick release device.

Therefore, this court will hold the accounting hearing.

It is familiar with this case and with the nuances of the

issues involved. For these reasons, it would be a waste of

judicial resources for either a magistrate or a master to

undertake the hearing that will be required. Roberts, of

course, can rely, if he desires, on the evidence he

presented to the jury; he can also point to his proof of

the net incremental profit he claims Sears has earned.

Whether by the accounting it will be determined that the

amount he is entitled to receive from Sears is $44,032,

—35a—

082, reduced by the $1,000,000 jury verdict, is a matter

to be seen. In any event, the accounting hearing will

vindicate the principle that equity will not permit a

— to derive any benefit from a fraud perpetrated

y him. Duncan v. Dazey, 318 Il. 500, 525, 149 N.E. 495

(1925); Callner v. Greenberg, 376 Ill. 212, 33 N.E.2d 437

gle’ omppare Goldsmith v. Kooperman, 152 F. 173 (2d

ir. 1907).

—36a—

IIT

[617 F.2d 460]

Peter M. ROBERTS, Plaintiff-Appellee,

v. ,

SEARS, ROEBUCK AND CO., a corpora-

tion, Defendant-Appellant.

No. 79-1616.

United States Court of Appeals,

Seventh Circuit.

Argued Jan. 7, 1980.

Decided March 12, 1980.

[617 F.2d 461]

Before SWYGERT, SPRECHER and BAUER, Cir-

cuit Judges.

SPRECHER, Circuit Judge.

This appeal arises out of a basic misunderstanding

upon remand of the mandate conveyed by the prior

appeal.

|

The plaintiff inventor sued the defendant retail store

chain for breach of confidential relation, fraud, and

negligent misrepresentation. The plaintiff prayed for

rescission of the agreement assigning the patent rights

to the defendant, an injunction against further use by

the defendant, imposition of a constructive trust upon

the defendant, an equitable accounting by the defendant

and “such further equitable relief as may be ap-

propriate.” Included among these equitable prayers

was a plea “that damages be awarded to plaintiff.”

—37a—

[617 F.2d 462]

The original complaint was endorsed “plaintiff

demands trial by jury.” Relatively early in the

proceedings, the plaintiff moved for recognition of his

right to a jury trial. The district judge who was then

assigned to the case stated in his order of May 10, 19738

that he “would characterize this action as equitable, be-

ing basically one for rescission with damages merely in-

cidental to the equitable claims.” The ebsce mg at that

time included two additional counts involving the in-

fringement of the patent. Concluding that validity and

infringement of a patent are matters of law to be decid-

ed by a jury, the judge ordered that plaintiff's right to a

jury be affirmed. Prior to the jury trial, the plaintiff

abandoned the two counts pertaining to patent matters

and eliminated the prayer for an injunction in the

remaining counts.

A jury trial was held from December 20, 1976

through January 18, 1977. At the conclusion, the district

court instructed the jury that the complaint encom-

passed three separate claims: breach of a confidential

relation, fraudulent misrepresentations and negligent

misrepresentations. The court instructed the jury as

follows in regard to money damages:

f you find in favor of the plaintiff upon either the

first or second claim, then, one of the elements of

the money damages to be considered by you may be

the net value to the defendant of the profits and

benefits derived from the use of plaintiff’s inven-

tion. The award of money damages you make may

equal the net profits which you find the defendant

gained as a result of its merchandising of wrenches

incorporating plaintiff's Quick Release invention

and idea, minus any expenditures which you find

the defendant has proved it incurred which it would

not have incurred had it not merchandised such

wrenches incorporating plaintiffs Quick Release in-

vention and idea from the time of the contract in

question to the present.

—38a-—

However, if you decide in favor of the plaintiff

only upon the third claim, then, one of the elements

of the money damages to be considered by you ma

be the value of a reasonable royalty on the Quick

Release wrenches sold by the defendant from the

time of the contract in question to the present.

The court further instructed the jury that “as a matter

of law, any damages you may award under each claim

will not be cumulative, and the plaintiff will not be per-

mitted to collect damages under more than one claim.”

Separate verdict forms were supplied for each of the

three claims. The jury found for the plaintiff on each

claim and awarded damages of $1,000,000 on each

claim. It is conceded by both parties that the one million

dollar judgment is the total amount awarded by the jury

(see, e.g., Brief of Plaintiff at 5). This judgment has been

satisfied and the plaintiff has collected $1,000,000.

In a post-trial motion, the plaintiff sought equitable

rescission and restitution. The district court held that

when the plaintiff permitted the case to go to the jury he

had elected his legal remedy under Illinois law and

could not later also seek equitable relief. Plaintiff

appealed, seeking the right to full equitable relief over

and beyond the one million dollar legal relief. The defen-

dant cross-appealed to set aside the money judgment

against it.

In Roberts v. Sears, Roebuck and Co., 573 F.2d 976

(7th Cir. 1978), cert. denied, 489 U.S. 860, 99 S.Ct. 179,

58 L.Ed.2d 168 (1978), we affirmed the district court’s

judgment against defendant on all three claims in

plaintiff's complaint and the court’s decision not to alter

plaintiffs monetary award, but reversed the court’s

determination that it lacked the power to award

rescission and remanded to the district court for’a

determination of whether rescission is appropriate

under the facts of this case.

Although this is a diversity case, we held that where a

state procedural rule is derived from a judicial system

that is fundamentally inconsistent with the federal

judicial system, the state rule may give way to the

federal procedural solution; and that Illinois retains

—39a—

separate courts of equity and law, whereas the distinc-

(617 F.2d 463]

tion between law and equity has been abolished in the

federal system. We then said:

We conclude that the district court correctly decid-

ed not to disturb the jury’s monetary award, but

that the court erred in not considering whether

rescission of the contract and return of plaintiff's

patent were appropriate.

The general rule as to when an election is

necessary is that “‘a certain state of facts relied on

as the basis of a certain remedy is inconsistent with,

and repugnant to, another certain state of facts

relied on as the basis of another remedy.’ ” Pruden-

tial Oil Corp. v. Phillips Petroleum Co., 418 F.Supp.

254, 257 (S.D.N.Y. 1975). Here, the jury was in-

structed that — could receive profits for

Counts I and II, fraud and breach of confidential

relationship. Apparently dissatisfied witi. the size of

the jury verdict, plaintiff sought in a post-trial mo-

tion to have the court reconsider the evidence and

award relief based on essentially the same standard

the gery used. To have granted plaintiff's request

would have been rnc ag 4 unfair to Sears. It

might have been better for the court to require the

plaintiff to elect his remedy expressly prior to in-

structing the jury. but plaintiff did not object to the

court’s procedure, and therefore, must have been

satisfied to let the jury determine the appropriate

award. Having let the case go to the on without

getting the issue clarified, plaintiff should not be

heard to complain about the outcome of that

procedure.

With regard to an election between the profits

awarded by the jury and return of the patent based

on rescission, however, we see no basis for invoking

the election of remedies doctrine. Based on the jury

instruction, plaintiff will receive one million dollars

as the measure of past profits earned by Sears up to

the time of trial. That award, however, is not incon-

—40a—

sistent with return of the patent so that plaintiff

can receive the future benefits of the patent that

Sears fraudulently acquired. There will be neither

a double recovery nor a factual inconsistency

between these remedies. See Prudential Oil Corp.,

supra at 257; G. Bogert, The Law of Trusts and

Trustees § 946 (2d ed. 1962). Therefore. we conclude

that going to the jury under a past profits in-

struction did not bar plaintiff from seeking rescis-

sion and thereby possibly recovering his patent.

Whether rescission is appropriate, however, is an

issue that should be decided in the first instance by

the district court.

573 F.2d at 985-86 (emphasis in original) [footnotes

omitted].

A short time after the cuse was docketed on remand,

the defendant offered t« make reassignment and

delivered proposed drafts uf reassignment to the plain-

tiff. When this offer was rejected, the defendant volun-

tarily a: ared, executed, and tendered to the plaintiff

through the district court reassignments of any and all

rights in the patents obtained under and pursuant to the

June 15, 1965 agreement between the plaintiff and

defendant.!

| The opinion on the first appeal states that the agreement

was entered into on July 29, 1965. 573 F.2d at 979. The dis-

trict court memorandum upon remand states that the plaintiff

signed the agreement on June 15, 1965. 471 F.Supp. at 376,

378. The difference in dates is explained by an instruction

given to the jury:

You are instructed that, as a matter of law, the Court has

determined that that agreement did not become an agree-

ment between the parties on June 15, 1965, but did

become an agreement on July 29, 1965, when, after having

been signed by the defendant, it passed from the defen-

dant back through the hands of attorney Fay and into the

hands of the plaintiff. Therefore the contract was formed

on July 29, 1965, and not on June 15, 1965.

For convenience of reference the agreement will be called the

June 15, 1965 agreement.

—4la—

Although this was the maximum additional remedy

we intended to give the plaintiff, the district court on re-

mand went far beyond that and ordered the entire case

reopened for an accounting of all of defendant’s “unjust

enrichment” back to June 15, 1965. Roberts v. Sears.

Roebuck and Co., 471 F.Supp. 372, 374 (N.D. Ill. 1979).

Seizing upon the word “rescission,” which we used only

[617 F.2d 464]

in the context of returning the plaintiff’s patent, the dis-

trict court, relying upon Illinois law, construed that

rescission can only mean void from its inception, which,

according to that court, permits the plaintiff to have a

second chance to establish past damages or profits,

despite the Illinois law as to election of remedies.

II

In our prior opsoton. we repeatedly referred to the

“return of plainti f’s patent” and when we used the word

“rescission,” we used it in the context of returning the

plaintiffs patent. We did not say that the plaintiff could

under any theory upon remand be entitled to restitution

or additional damages or profits. In fact, we expressly

said that the plaintiff did elect his remedy as to past

damages or profits up to the time of the jury verdict and

that return of his patent might be the most effective

way of insuring that the plaintiff receive the future

benefits of the patent. We remanded the case for the

purpose of determining whether as an equitable matter

the plaintiff should recover his patent. In retrospect, we

would have been better advised to use some other word

such as cancellation, termination or forfeiture of the

June 15, 1965 agreement, or reconveyance or reassign-

ment of plaintiff's patent,? but at the time, “rescission”

seemed to be an appropriate word to cover both the

process of cancelling the agreement and returning the

* Actually there are two apele a United States Letter Patent

No. 3,208,318 issued to plaintiff on September 28, 1965 and

—" Patent of Canada No. 757,826 issued to him on May 2,

—42a—

patent.’ In any event, we believed that the language of

our opinion made it clear that the plaintiff had elected

his remedy as to past damages or profits and, because

that remedy continued only up to the date of the judg-

ment, it might be equitable to return the patent to the

plaintiff as of that same time to insure that he would

realize any future benefits which might accrue through

his ownership of the patent as of the time immediately

following the entry of the judgment. We did not say nor

intend that the June 15, 1965 agreement be subject to

being declared void as of any time prior to the date of

the entry of the judgment if the district court upon re-

mand found such cancellation to be equitable.

In addition to what we said and intended, the law does

not permit the remedy the district court attempted to

award upon remand. In the earlier opinion, we accepted

Illinois law as to election of remedies for past damages

or profits, as had the district court immediately after

the jury verdict. We parted with Illinois law only to give

the plaintiff an gh ee to protect himself against

future damages. The district court would now entirely

ignore Illinois law as to election of remedies but would

seem to apply the Illinois law of ab initio rescission plus

complete past restitution.

It appears to be clear under general law and under II-

linois law as well that a person suing for fraud or mis-

representation may seek damages for the tort of deceit

at law or may waive the tort and make an election to

seek restitution in quasi contract or equitable restitu-

tion. W. Prosser, Handbook of the Law of Torts §§ 94,

105 (4th ed. 1971); E. Thurston, Cases on Restitution 44-

109; Altom v. Hawes, 63 Ill.App.3d 659, 20 Ill.Dec. 330,

380 N.E.2d 7 (1978).

3 It is true that rescission ordinarily means abrogation from

the beginning, but Illinois recognizes the concept of partial

rescission, Keeshin v. Levin, 31 Ill.App.8d 790, 798, 334

N.E.2d 898, 906 (1975); Kaplan v. Keith, 60 LIlLApp.3d 804,

808, 18 Ill.Dec. 126, 128, 377 N.E.2d 279, 281 (1978), and

rescission is the word often used when a patent or copyright

license is terminated after partial collection of royalties. See,

“enerally Driver-Harris Co. v. Industrial Furnace Corp., 12

¥.Supp. 918 (W.D.N.Y. 1935); Nolan v. Williamson Music,

Inc., 300 F.Supp. 1311 (S.D.N.Y. 1969).

—438a—

In Essington v. Parish, 164 F.2d 725, 730 (7th Cir.

1947), we noted:

Election of remedies is the act of choosing

between different remedies allowed by law on the

same state of facts, where the party has but one

cause of action, one right infringed, one wrong to be

(671 F.2d 465]

redressed. 28 C.J.S. Election of Remedies §3. And

where a person has two or more remedies for the

redress of a wrong or the enforcement of a right

and these remedies are based upon inconsistent

theories such person is put to an election, and when

he has, with full knowledge of the facts, definitely

chosen to pursue one remedy he will be bound by

his election, Glezos v. Glezos, 346 Ill. 96, 99, 178

N.E. 379. If he has voluntarily chosen and carried

into effect an ree remedy with knowledge

of the facts and his rights, he will not, in general,

be allowed to resort afterward to an inconsistent

remedy, which would involve a contradiction of the

sgn which he before proceeded. 18 Am.

ur. p.

The plaintiff prosecuted to judgment his claim for

money damages at common law and received one million

dollars for defendant’s fraud and misrepresentation,

representing damages up to the entry of judgment.

Prosecution to judgment of one remedy with fuil

knowledge of the facts constitutes an election under II-

linois law. Paoli v. Zipout, Inc., 21 Ill.App.2d 53, 57,

157 N.E.2d 79, 88 (1959).

The plaintiff asked for and insisted upon a jury trial.

The district court has now acceded to his demands for

further damages covering the same period of time for

“disgorgement of defendant’s unjust enrichment.” Resti-

tution for the disgorgement of unjust enrichment is

an equitable remedy with no right to a trial by jury.

S.E.C. v. Commonwealth Chemical Securities, Inc., 574

F.2d 90, 94-97 (2d Cir. 1978); S.B.C. v. Asset Manage-

ment Corp., 456 F.Supp. 998, 999-1000 (S.D.Ind. 1978); 5

Moore’s Federal Practice, { 38.24|2], at 190.5 (1977). By

submitting his damage clairn to the jury, the plaintiff

elected that remedy.

—44a—

Illinois law would not only require the preclusion of

restitution but would also probably bar the cancellation

of the June 15, 1965 agreement and return of the patent

as of the date of the entry of the judgment, which are

also equitable remedies. However, in our earlier opinion,

we provided for this possibility upon remand inasmuch

as it does not amount to double compensation for the

laintiff. See Faber, Coe & Gregg, Inc. v. First National

Bank of Chicago, 107 Ill.App.2d 204, 211, 246 N.E.2d

96, 99-100 (1969); National Lock Co. v. Hogland, 101

F.2d 576, 587 (7th Cir. 1938).

III

Inasmuch as the defendant has voluntarily delivered

reassignments of the patent rights as envisioned in our

earlier opinion and mandate, the only problem remain-

ing is the effective date of such reassignments. The dis-

trict court docket indicates that the judgment was

entered on January 20, 1977. We therefore vacate the

decree or judgment entered on May 31, 1979 and the

memorandum of the same date which appears at 471

F.Supp. 372 (N.D.Ill. 1979), as being contrary to our

earlier opinion and mandate. We remand the case for

the purpose of entering a final judgment when the

defendant delivers to the court for the plaintiff two

assignments properly executed on behalf of the defen-

dant in the form of those appearing in the abstract at

pages 716-19, with the following modifications. After the

word “assigns” at the end of the second line of the fourth

paragraph on page 716, and after the word “assigns” at

the beginning of the third line of the fourth paragraph

re aw 718, add the words “effective as of January 20,

In order to avoid if possible any future misunderstand-

ing, the effect of these. two assignments will be that the

defendant owned all of the patent rights from June 15,

1965 to January 20, 1977, and the plaintiff shall be con-

sidered the owner from January 20, 1977 on. The plain-

tiff will not be entitled to sue for any infringement oc-

curring prior to January 20, 1977. As we said before,

“lajt that point in time, the patent’s validity can be

tested either in an infringement suit or after plaintiff

—45a—

enters into a licensing agreement.” 573 F.2d at 982. The

defendant was — in the first trial from at-

tacking the validity of the patent, but may do so if sued

for post-January 20, 1977 infringement by the plaintiff.

The gocement on remand is vacated and the case is

remanded for further proceedings consistent with this

opinion.

[617 F.2d 466]

SWYGERT, Circuit Judge, dissenting.

In Roberts v. Sears, Roebuck & Co., 573 F.2d 976, 985

(7th Cir. 1978), this court held that the district court had

“correctly decided not to disturb the jury’s monetary

award.” We characterized that award as the “measure of

past eg earned by Sears up to the time of trial.” /d.

(emphasis in original). That holding is the law of the

case,

We also held in our earlier opinion that the jury’s

award of past profits was “not inconsistent with return

of the patent so that plaintiff [could] receive the future

benefits of the patent that Sears fraudulently acquired.”

Id. (emphasis in original). The combination of a damage

remedy for past profits and an equitable remedy as to

future benefits was permissible, we reasoned, because

there would be neither a double recovery nor a factual

inconsistency. Therefore, we remanded the case so that

the trial judge could decide “whether rescission is ap-

propriate under the facts of this case.” 573 F.2d at 986.

The trial judge took us at our word and proceeded to

conduct a trial in equity to determine the question of

whether the plaintiff was entitled to the rescission of his

contract with Sears. He found that

Sears committed fraud on Roberts in the way it

acquired all of his rights to the quick release device

he invented; that Sears breached the confidential

relation that existed between Roberts and the

company, one that arose out of a pre-existing

relationship of employee and employer; and that

Sears, in its negotiation for the quick release device

committed negligent misrepresentations concerning

—46a—

the company’s knowledge of the invention’s value,

its saleability, and its public acceptance.

Roberts v. Sears, Roebuck and Co., 471 F. Supp. 372, 378

(N.D. Ill. 1979). The judge then reviewed the law of

Illinois and determined that

the elements of fraud which would justify rescission

of a contract by a suit In equity are the same as

those which would sustain an award of damages in

an action at law. ...[{WJhere the subject matter of

a contract is acquired through fraud, .. . through

the breach of a confidential relation, ... or through

misrepresentation, . . . rescission, as a remedy, is

available through an action in equity. When this

remedy is sought, it is to declare an agreement void

from its inception.

Id. at 378-79 (citations omitted). Following this recita-

tion of the law of Illinois, the trial judge concluded:

The mandate of the court of appeals directed this

court to consider whether here, on the facts shown

in the record, rescission is appropriate. After

reviewing the pleadings, the evidence, the prior

rulings, and applying the Y mearsegy principles of

equity, it is this court’s judgment that Roberts is

entitled to a decree rescinding his June 15, 1965

contract with Sears. Therefore, a decree of rescis-

sion will be entered.

Id. at 379-80. Finally, the trial judge determined that

under Illinois law, “Rescission is the termination of a

contract with restitution,” and “When it is sought and

granted for fraud, an Illinois court of op usually

grants the defrauded party the full reme y to which,

under the circumstances he may be entitled.” Jd. at 380.

Although I agree with the majority that an accounting

for the period from the date of the contract to the date

of the judgment is prohibited by our earlier decision, I

do not agree that the accounting ordered for the period

from January 1, 1977 to the date of the accounting was

erroneous. In my opinion, Judge Leighton was eminently

correct in ordering an accounting for the latter period.

Not only was he following the law of the case as

—47a—

pronounced by this court in our first opinion and the

mandate that issued, but he came to a result which the

facts, the law of Illinois, and the principles of equity

required.

We held that the jury award for past profits did not

bar an equitable remedy for future benefits. Roberts v.

Sears, Roebuck & Co., supra. The majority concedes that

[617 F.2d 467]

the damages remedy continued only up to the date of the

judgment, after which time the equitable remedy of

rescission attached. By denying the plaintiff an ac-

counting for the period after which his damages were

assessed but before he was in a position to benefit from

the return of his patents, the majority has, with no

justification, left a substantial gap in the plaintiff's

rightful recovery.

According to the majority, the contract was rescinded

or cancelled as of January 1, 1977. It is not disputed that

the remedy of rescission generally carries with it an

accounting for profits unjustly earned. Yet, the majority

holds that in order for the plaintiff to recover the

defendant’s profits, he must start a new action at law for

patent infringement. : angaged the majority is con-

cerned lest the plaintiff have a second chance to recover

in equity what he has already received at law. But the

jury award for damages continued only up to the date of

the judgment. Here we are concerned exclusively with

profits made after that date. Because we have held that

the contract was void after January 1, 1977, profits

earned by the defendant after that date must be

disgorged to prevent unjust enrichment. Because the

jury was never asked to award damages for this period,

there is no possible double recovery or factual inconsist-

ency in this result. I would give the plaintiff the full

equitable relief to which he is entitled upon the finding

that rescission is appropriate.

Although we have held that it was permissible for the

laintiff to seek remedies at law for past damages and

in equity for future damages, we stated that it was

incorrect for the judge to permit past damages to be

assessed both at law and in equity for the same time

—48a—

frame. Yet the majority today would require that future

benefits be decided partly in equity—the rescission of

the contract—and partly at law—a patent infringement

action to recover profits. My understanding is that an

equitable accounting is designed to prevent this peculiar

split of actions while accomplishing the same result.

Finally, I am impelled to record my distress of the

majority’s assertion that this court did not actually mean

“rescission” in its traditional sense when it told the

district court to consider whether “rescission is appro-

priate under the facts of this case.” That assertion is

unsettling to say the least and unfair to the district

judge. But it has greater implications because of the

unfairness to the plaintiff.

“Big” business ethics have of late come under

heightened scrutiny and criticism. That scrutiny and

criticism may appear to be justified if Sears’ monu-

mental fraud visited on the plaintiff is any measure-

ment. Evidence before the jury indicated that Sears’

incremental profits on the patented wrench had been

$44,032,082 from the date it fraudulently acquired the

patents up to December 31, 1976. The jury awarded the

laintiff one million dollars damages for that period.

eyond December 31, 1976, according to the directions

of the court in the present appeal, the plaintiff will have

back his patents with the opportunity to sue Sears for

infringement, subject, however, to Sears’ defense of

invalidity.” For me this result not only condones the

proven unethical conduct of Sears but it is manifestly

unjust to the plaintiff.

I would reverse in part and affirm in part.

* At oral argument, counsel for Sears categorically asserted:

that the patents were invalid—despite the evidentiary fact

that the yon release wrenches which Sears has sold and is

selling all bear the patent number. Such a cavalier attitude

reflects cynicism on the part of Sears in its business relations

with the public.

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

June 17, 1980.

Before LUTHER M. SWYGERT, ROBERT A. SPRECHER

and WILLIAM J. BAUER, Circuit Judges.

PETER M. ROBERTS, ) Appeal from the United

Plaintiff-Appellee, ) States District Court for

) the Northern District of

No. 79-1616 v. Nea: Eastern Division.

SEARS, ROEBUCK AND Co., ) No. 69 C 2573

a corporation, ) George N. Leighton, Judge.

Defendant-A ppellant. )

ORDER

On consideration of the petition for rehearing and

suggestion for rehearing im banc filed in the above-

entitled cause by plaintiff-appellee, no judge in active

service has requested a vote thereon, and a majority of

the judges on the original panel have voted to deny a

rehearing.* Accordingly,

IT Is ORDERED that the aforesaid petition for rehear-

ing be, and the same is hereby, DENIED.

Judge Wilbur F. Pell did not participate in the consideration

of the petition for rehearing in banc.

* Judge Swygert voted to grant rehearing.

—50a—

V

EXCERPTS FROM INSTRUCTION

CONFERENCE

[2980]

THE Court: Let me read this. I will give it to you

and you can look at it, Mr. Davidson.

Let me ask you this: Is this a suit for recision?

Mr. K. DAVIDSON: It is, your Honor.

Mr. J. DAVIDSON: Your Honor, in those cir-

cumstances I think restitutionary remedies are probably

the only ones available to the plaintiff.

[2981]

Mr. KASDIN: The law is rather clear, your Honor,

where you have an express agreement, the Plaintiff may

sue for damage’ for any fraud or any breach of the

agreement. This is a valid enforcible agreement. The

Plaintiff can enforce the agreement if they want. In fact,

the agreement has been enforced.

Mr. J. DAVIDSON: The agreement is not executory,

Mr. Kasdin.

Mr. KASDIN: I understand.

THE CouRT: What was that motion that you made to

strike from these counts the prayer for equitable or—

what was it, injunctive relief that was stricken?

Mr. J. DAVIDSON: Yes, your Honor. We are still seek-

ing other equitable relief.

THE Court: And the other equitable relief is what?

MR J. DAVIDSON: It would include an assignment of

the patents that were issued on the Plaintiff’s invention.

MR. KASDIN: Our position, your Honor, is tuat if the

Plaintiff is allowed to rescind and if he gets the patent

back, he then has a lawsuit for infringement against the

Defendant for all of these years that the Defendant has

been manufacturing this wrench under his patent.

MR. J. DAVIDSON: The Waterman case and other U.S.

Supreme Court cases are clear, Mr. Kasdin, you may not

sue for infringement during the period when you did not

—5la—

[2982]

have title or a grant of title to the patent.

MR. KASDIN: I don’t think that is the law.

MR. J. DAVIDSON: No question about it.

THE CourT: If you are right, then the end of this

litigation is not in sight, that is what it amounts to.

Mr. KASDIN: Well, if the Plaintiff is allowed to res-

cind, he will have his patent back and he will be put in

status quo. Then he has an action against the Defendant

for its infringement for his patent.

THE CourT: This jury is only going to give an ad-

visory verdict. What are we —. here for four weeks

for with a jury if that is the case, because then if that is

what this—

MR. KASDIN: I don’t know, of course, what was going

through Judge—

THE COURT: What?

MR. KASDIN: I don’t know, of course, what was going

through Judge Marshall’s and Judge McGarr’s minds

when they had ruled previously, but perhaps that was

one of the bases for their ruling that if the patent was

invalid, that would be the end of the lawsuit.

THE CourRT: I don’t agree.

MR. KASDIN: I understand that.

THE CourRT: I don’t agree with that.

Mr. KASDIN: I understand.

THE Court: I doubt very much that Judge Marshall

[2983]

and Judge McGarr—after all, these were pre-trial

motions that were being made. I have serious doubt that

if they knew about this case as I know it, they would

make any such ruling, but we will never be able to find

that out. I wouldn’t even belabor the point to ask them,

as often as I see them. I wouldn’t even ask them when I

see them because I would have to explain so much to

them that I woulan’t even bother to ask them.

But you see the reason why in my mind the question

of the validity of the patent was a real one and | ad-

mitted evidence about it was because it was the Defen-

dant’s theory that what it bought was valueless, and I

think the Defendant in this case has a right to show this

jury that, whatever evidence is available to the Defen-

—52a—

dant, whatever it happens to be, I don’t know. You

heard what the testimony was. We heard what the

Defendant had to offer. But I never was satisfied that if

it could be shown that this patent were invalid, a patent

out of which Sears has sold millions of dollars of

wrenches—it is hard for me to understand how it could

defeat the Plaintiff’s claim that he was led into giving

up this invention by the circumstances he describes in

this complaint.

Now let me look at Page 12 of the second amended

complaint, the prayer for relief. I think it is obvious that

[2984]

by asking for the jury trial, the Plaintiff has elected to

sue for damages. It is obvious. That is the — thing this

jury can decide. The jury is not equipped to decide

whether to render a verdict of rescision, it cannot render

a verdict of accounting. The only thing the jury can do is

decide whether the Plaintiff was damaged by the Defen-

dant in the manner alleged in the complaint, and if it is

shown by the evidence to the extent that the evidence

shows this fact, that is the only thing the jury can

decide. It is a question of damages.

Mr. KASDIN: Your Honor, you just articulated an in-

struction that I think would be proper rather than In-

struction 9 that is now before you.

THE CouRT: It may well be, you see, but it was a

jury trial.

I think that this objection that you are making now,

Mr. Kasdin, should have been articulated the day we

started to select the jury. You should have told me that

you objected to the jury being impaneled on the theory

that the jury couldn’t return, the jury can’t return a ver-

dict saying the Plaintiff is entitled to an accounting, that

that is an equitable decision that is left to the equity

jurisdiction of the Court. They can’t say that there

should be a rescision. There is no such verdict as that.

[2985]

The jury decides questions of law as a matter of

damages.

Mr. J. DAVIDSON: May I state for the Plaintiff, your

Honor, I think when we came in at the outset of this

—53a-—

case the Plaintiff said here were some issues in the case

that would have to be decided by the jury and some

issues to be decided by the Court.

THE CourT: Like what? Tell me one. Tell me those

that the jury can decide. Tell me which ones.

[2986]

THE CourT: Tell me which ones.

Mr. J. DAVIDSON: All right, I will. Let me start with

the Court. At first I think the question that was cited on

the patents, for example, that only the Court can do it,

obviously. In the Dairy Queen case and I think in com-

panion cases, I think the jury can decide any fact ques-

tion which is presented which is reasonably within their

competence. I think that would include, your Honor, not

only ordinary damages but would allow the jury, if it

was within their competence, if the evidence were not so

complicated that they couldn’t understand it, would

allow the jury to measure damages by way of profits if

that was the type of recovery to which the plaintiff was

entitled.

THE CourT: All right. Now let me tell you gentlemen

something else. I have the intention, when this jury

returns a verdict, and whichever way it returns a ver-

dict, I am going to listen to post-trial motions under the

Rules and that is the end of it, in this case, as far as this

Court is concerned.

I am not going to entertain any motions. If you have

any intention of asking me to make any other findings,

reach any other conclusions in this case, I just want to

tell you right this moment that I have no intention of do-

ing so. When I get through this verdict in this case, it is

[2987]

going to be the end of this litigation, until you get a

ap ae somewhere in some higher court directing me

to do otherwise.

I just want to tell you right this moment. Now I begin

to see the possibility that what you gentlemen have in

mind is to get a verdict and then come in here and try to

e some implementary equitable order from this court.

just want to tell you this case has been here since 1969,

you have had four weeks of trial and this is going to be

—54a—

the end of this case until I get a mandate either from

the “ourt of Appeals or the Supreme Court of the Un-

ited States.

MR. J. DAVIDSON: The plaintiff never contemplated—

THE CourT: All right. Let us understand each other

now. The other thing, I will give you gentlemen a

reasonable period of time for post-trial motions and

when that period of time is over, you are through.

Mr. J. DAVIDSON: I was just going to say, your

Honor—

THE CourRT: I don’t want to repeat what Judge Perry

said recently in another case, every litigant has a right

to his day in court; he doesn’t have a right to a year or

several months and this case has had its day in court

when we get through with that verdict of this jury.

Mr. J. DAVIDSON: We would all agree with that.

THE CourT: All right. But I construe the pleadings

aS meaning simply that this case is being submitted to

[2988]

this jury to ascertain damages to the extent that the

plaintiff can prove a claim for damages and which the

evidence shows he suffered.

[2989]

Mr. J. DAVIDSON: I think we were on that when we

were on No. 9 here.

THE CourT: All right, we are on No. 9.

MR. KASDIN: Yes, your Honor. The Defendant objects

to the instruction, apart from the reasons that you just

mentioned, this instruction is tantamount to a direct ver-

dict, that the jury has to return an award for the entire

incremental profits realized by Sears during the period

it was selling the wrench. It does not ask the jury to

determine or ascertain what, if any damages the Plain-

tiff has sustained.

THE CourRT: Let me look at it and see.

Mr. KasDIN: What it is really asking for is $40

million.

THE Court: All right. This instruction will be refus-

ed. No. 9 will be refused. This one is refused.

Let us go to No. 10. And let me say something to

guide counsel. When I refuse this instruction I want you,

—55a—

if you wish, if you have another one you want to tender

in its place within a reasonable time after I finish, you

may do so, but this one is refused.

Let us go to No. 10.

MR. KASDIN: The Defendant will object to No. 10.

MR. DAVIDSON: Before we go to 10, your Honor, may

I ask respectfully, your Honor, in order to tender

another one and not waste the Court’s time—

THE CourT: In its place?

[2990]

Mr. DAVIDSON: —in its place. If the Court would

enlighten us somewhat as to the reason—

THE CourT: The reason? Let me tell you why. Look,

this instruction at the end of its first paragraph tells the

Jury this—the jury is not asked, this jury has no authori-

ty to rule on whether or not the contract must be set

aside. This jury has no competence to decide a question

like this. That is the first reason.

The second reason has been stated by Mr. Kasdin.

This amounts to telling the jury that if it finds in favor

of the Plaintiff, the measure of damages is the profit

Sears made, and the measure of damages isn’t that. The

measure of damages to the Piaintiff is what he lost,

what he lost, not what Sears made out of the invention.

This instruction seeks to accomplish transferring from

Sears the profits Sears made and give it to the Plaintiff,

ed it belongs to the Plaintiff. It doesn’t necessarily

ollow.

[2991]

Mr. J. DAVIDSON: Your Honor, may we suggest—

THE CouRT: Yes.

Mr. J. DAVIDSON: Under Illinois law that the plain-

tiff is entitled to an accounting, to restitution of the un-

‘just enrichment including profits.

THE COURT: By way of damages? Show me a case,

just show me a case. When we get through this series,

you show me a case that says that.

Mr. J. DAVIDSON: The Dairy Queen case itself

presented this issue, your Honor.

THE CourRT: You call my attention to the cases and I

will send my law clerk to get it and I will look at it. Let

us go to No. 10.

—56a—

Mr. KASDIN: The defendant objects to instruction No.

10 for a number of reasons.

THE CourT: All right.

Mr. KASDIN: First of all, the mere relationship of

employer-employee does not create a _ confidential

relationship.

THE CourT: All right.

MR. KASDIN: In addition to that, the fact that Sears

had greater bargaining power than the plaintiff certain-

ly does not create a confidential relationship.

THE CourT: Let me read this now. Now we come to

the question,which I asked Mr. Davidson. By the way,

this is the mere fact. The only fact that exists here that

[2992]

changes the relationship between this plaintiff and

Sears from that of an ordinary customer who goes to a

Sears store is the fact that the plaintiff was working for

Sears at its store in Gardner, Massachusetts. Am I right

about that?

Mr. J. DAVIDSON: No, I don’t believe so.

Bee CourRT: What else is there? Tell me, what else is

there!

Mr. J. DAVIDSON: First of all there is the cir-

cumstances under which it was submitted where they

led him to believe that it would be fairly and honestly

evaluated and tested by them, which of course led him

later on to believe that what they were doing was the

results of those tests.

THE CourT: All right. In other words, he relied on

what Mr. Lemieux said and because he worked for them

he had a lot of confidence in them and so forth and so

on?

Mr. J. DAVIDSON: Their knowledge of his minority,

the disparity of the bargaining power between the

parties—

THE Court: All right.

Mr. J. DAVIDSON: The course of dealings. If your

Honor has a moment to read through this—

THE CourRT: I am going to read through it but I

wanted to understand what was the basis for the con-

fidential relationship.

—57a—

Mr. J. Davipson: There are numerous facts | could

give you.

[2993]

THE CourT: All right. Let me look at it in the light

of what you said. In the meantime, you find me a case

dealing with the confidential relationship that arises out

of an employer-employee relationship and also that the

employee does something, like invent something. By the

way, this isn’t the first time in history where this has

happened, is it?

R. J. DAVIDSON: There are numerous cases when an

invention is submitted—

THE CourT: I know. Find me a case like this. I

know. Find me one so I can look at it, that’s all.

[2994]

Mr. KASDIN: Your Honor, I have two cases that say

the opposite.

THE Court: All right.

Mr. KASDIN: If you are interested.

THE CourT: All right. That’s all right.

Mr. KASDIN: One is in Massachusetts and one—

THE CourRT: Let me see it.

Mr. KASDIN: Do you want me to read it?

THE CourRT: Let me see.

MR. KASDIN: It would be the Spronger and the Car-

dulo case, I believe.

THE CourRT: Let me look at it.

Mr. J. DAVIDSON: Here is one case from this circuit,

Allan Qualley v. Shelmar.

THE CourRT: Wait a minute. Let me look at it. Will

you give these two cases to Mr.—

Have you called this Allan Qualley case to Mr.

Kasdin’s attention?

Mr. J. DAVIDSON: Many times, your Honor.

MR. KASDIN: I don’t recall in this issue. I know the

Allan Qualley case generally. That is the appropriation

of some blueprints or something?

THE Court: No.

Mr. KASDIN: Or am I thinking of another case?

THE CourT: I don’t think it was only on blueprints.

—58a—

[2995]

Mr. KASDIN: I thought it was a misappropriation

case where there was a theft of some blueprints and

specifications from an employee.

THE CourRT: There were express action acts of

wrongdoing in that case. But the question that I wanted

to— |

Mr. J. DAVIDSON: I have also cited Booth v. Stutz

which also presents the issue for an accounting of this

kind of wrongdoing, where the Seventh Circuit Court of

Appeals affirmed the accounting for profits.

HE Court: I have no doubt about it. I have no doubt

but this is a case in which the trial judge heard the case

in equity.

[2996]

Mr. J. DAVIDSON: If the question is just whether the

jury can hear it, then I think the Dairy Queen case is of

great importance because in that case the plaintiff

sought an accounting.

THE CourT: The jury can hear what?

Mr. J. DAVIDSON: I beg your pardon?

THE Court: The jury can hear what?

Mr. J. DAVIDSON: The jury can decide the accounting

question, in other words, whether the jury can decide

what profits as a part of awarding on unjust enrichment

relief. The Dairy Queen case itself was a case in which

the plaintiff had sought an accounting and the defen-

dant claimed they had a constitutional right to a jury

trial on this money claim and the U.S. Supreme Court

said that it did. It is the leading case in the United

States. Beacon Theaters and Dairy Queen are the two

central cases on jury questions under Federal Rules.

THE COURT: hat did the Court say the defendant

was entitled to go to the jury about? .

Mr. J. DAVIDSON: It said it would be a rare case in

which the accounts are so complicated as would justify

taking the case from the jury. It is 369 U.S. 478.

Mr. KASDIN: The issue in the Dairy Queen case, your

Honor, was whether the plaintiff or the defendant, I

forget which one, was entitled to a jury trial.

—59a—

[2997]

Mr. J. DAVIDSON: On the issue of accounting, Mr.

Kasdin.

MR. KASDIN: The issue in the case was whether this

was a purely equitable proceeding decided by the judge

or whether it was a mixed question of equitable and

legal which would permit the jury to decide. It didn’t

have anything to do with, per se, the recovery of

damages or unjust enrichments as opposed to dam-

ages,

Mr. J. DAVIDSON: It is a separate issue. That is not

what we were discussing.

Mr. K. DAVIDSON: We were thinking it might add a

new dimension to it, with the Court’s permission,

THE Court: Go ahead,

Mr. K. DAVIDSON: I believe these cases indicate that

under federal practice maybe more so than the state

practice, the distinction between law and equity has

igs faded, particularly with respect to ag ogg of

act. Theveburts have indicated very strongly that any

questien of fact should be left to the jury. i don’t for a

moment’ think the Court is foreclosed from rcising its

i ag jurisdiction to require an accourting in cases

where it believes the complexity of the issue is so great

the jury would have difficulty in dealing with it. I think

_ cases indicate that that is the only time a ques-

ion—

THE Court: It wasn’t until a few moments ago that I

[2998]

began to understand that this is not the end of this

litigation.

R J. DAVIDSON: I think it would be, your Honor.

We would be asking the jury in our final argument also

we would be addressing the question of what profits

were shown here that would be sclely attributable to the

inclusion, the addition of this tool, and the defendant has

had the ‘opportunity to show whatever should be offset

about it. i is is not a complicated matter.

THE Court: All right. Let me read, in view of what

you are showing me by these cases, let me look at this

proposed instruction.

—60a—

What is the source of this instruction 10, the cases you

have shown me, the various cases you have shown

me?

Mr. K. DAVIDSON: We have a number, your Honor,

in which it is indicated, an Illinois case and the

restatement of restitution.

THE Court: This instruction was drafted by counsel,

was it!

Mr. K. DAVIDSON: That is correct.

THE CourT: All right. Let me look at it.

_ Mr. K. Davipson: I did not mean avoiding answer-

~~ that.

HE CourT: All right.

[2999]

; MR. K. DAvIDSON: I will take the credit or the blame

or it.

THE CourT: The objection to this instruction will be

overruled except to this extent:

[3000]

In the second main paragraph of page 1, the

paragraph begins, “A variety of specific factual circum-

stances may give rise—” The words at the end of that

paragraph, “or because one party has greater economic

power than the other party,” those words will be

stricken and with this modification the instruction will

be given.

In other words, it will read as follows:

“or because of the knowledge and experience of

the other party—”

The words “one party has greater economic power and

the other party is unable to protect his interest and co

with tne superior economic power,” will be stricken for

the reason that in this case it would be rer

Otherwise it is an instruction that will tell the jury

how in the variety of circumstances a confidential

relation may arise and it is for the jury to find whether

there is a confidential relation.

This instruction over the objections of the defendant

will be given as modified.

—6bla—

MR. KASDIN: May I state the remaining bases for my

objection for the record, please.

THE CourT: All right.

MR. KASDIN: In addition the defendant submits that

this instruction insofar as it refers to the competence or

independent advice of Attorney Fay is certain irrelevant.

[3001]

THE CourRT: I am going to leave that there.

MR. KASDIN: It is certainly irrelevant to this issue.

The defendant also submits that the instruction is

argumentative and argues evidentiary facts rather than

propositions of law. For that reason also the defendant

submits it is prejudicial.

THE Court: Overruled. That instruction will be

given.

Mr. J. DAVIDSON: So the Court’s rulings are un-

derstandable, I just wanted to explain to the Court why

we put that language in about coping, because very

often the form that overreaching of a confidential

relationship will take will be to remove the other party’s

independence without his even realizing.

THE CourT: I know that, but—I realize that but in

that case I think in my judgment it is best to leave it.

Mr. J. DAVIDSON: I think you are right.

THE CourRT: You are tendering drafted instructions,

they are not form instructions.

Let’s look at 11. How about No. 11? What is the

authority for No. 11.

You left out a close parenthesis, or close quotes,

rather, “When I refer to unfair persuasion—” You mean

to close quotes at the end of “persuasion”?

[3002]

Mr. J. DAVIDSON: That is correct, your Honor.

THE CourRT: Let’s look at it now.

This instruction will be refused, and I will state the

reason why. This is an appeal to the jury. The last

sentence is “The lack of sophistication or the dependence

of the person persuaded is a strong circumstance tend-

ing to show that the persuasion may have been unfair.”

—62a—

_ No, this instruction will not be given. You can redraft

it if you want to.

* * * * *

[3194]

THE COUKT: . . . But this one, I think taking 9-A, it

should be revised to read as follows:

“If you find in favor of the plaintiff on either the

first or second claim, then, one of the elements of

the money damages to be considered by you may be

[3195]

the net value to the defendant, the profits or

benefits, if derived from the use of Plaintiff’s inven-

tion and idea. The award of money damages that

you may make after considering such elements may

equal the net profits which you find the defendant

gained as a result of its merchandizing of wrenches

incorporating the plaintiffs quick release invention

or idea minus any expenditures which you find the

defendant proved it has incurred which it would not

have incurred had it not merchandised such inven-

tion incorporating plaintiff’s quick release invention

and idea from the time of the contract in question

to the present.” '

Now let’s see. This is what I should get, and with such

an instruction, I will listen to Mr. Kasdin’s objection to

it if he has any. But it is an element to be considered by

the jury in arriving at the award of money damages as I

have been able to deduce from the cases called to my

attention.

[3196]

You see these cases derive from the rule which I am

reminded of. If I were sitting in the equity in this case, I

would hear all of the evidence, decide whether or not the

contract should be rescinded, decide whether there

should be an accounting, or I could also decide to award

damages. And the element of damage or the measure of

damage could be the benefit or net profit the Defendant

had in order, as the Court’s often say, to compel a dis-

—63a—

gorging from the Defendant of the benefits and profits

he derived or it derived as a result of the wrong about

which complaint is made. That is what these cases say.

MR. J. Davison: | I think we would be happy to

tender that as modified, if I might just read it for the

record to make sure we have it correct.

“If you find in favor of the Plaintiff on either the

first or second claim, then, one of the elements of

the money damages to be considered by you may be

the net value to the Defendant, the profits or

benefits, it derived from the use of Plaintiff’s inven-

tion and idea. The award of money damages you

may make may equal the net profits—” —then con-

tinuing on.

THE CourRT: That leaves it to the jury to decide.

MR. J. DAVIDSON: We would be happy to modify it.

Mr. KASDIN: The Defendant has some objection to

that instruction as modified, your Honor. It suggests to

[3197]

the jury that the award may equal the net value of—the

net profits, but it does not suggest to the jury that the

jury may find that it should not equal that.

THE CourRT: I assume when that one is tendered—I

would like to see the instruction on damages that you in-

tend to propose and I will balance it as between the two.

* * * K *

[3266]

Mr. J. DAVIDSON: ... The damage instruction

redrafted as per the Court’s suggestion this morning. I

notice, I just want to say for the record it was our un-

derstanding the court had earlier refused an instruction

asking, telling the jury they had to award profits.

* * * *K &

[3267]

THE CourT: Now, 9-B. “If you find in favor of

Plaintiff on either the first or second claims, then one of

the elements of the money damages to be considered by

you may be the net value to the Defendant”—

—64a—

Did you have a proposed instruction on damages, Mr.

Kasdin?

Mr. KASDIN: No, your Honor, the Defendant does

not.

THE CourT: All right. What is the Defendant’s posi-

tion with regard to 9-B?

Mr. KASDIN: Your Honor, may I have just one

minute to review it?

THE CourRT: Sure.

MR. KASDIN: The Defendant objects—is that 9-B?

MR. J. DAVIDSON: Yes.

MR. KASDIN: Defendant objects to Plaintiff’s Instruc-

tion 9-B because the instruction on several occasions

suggests to the jury that they may award incremental

profits which would be all of the profits that the

evidence discloses that Sears obtained for the purchase

of an invalid patent.

In addition to that, the instruction repeatedly refers to

the fact or refers that the jury may award an amount of

money equal to the net profits and that is mentioned on

several occasions in this instruction.

And the instruction implies that the jury may award a

[3268]

verdict of $40 million for the purchase of an invalid pa-

tent by the Defendant. That instruction is objected to for

those reasons.

THE CouRT: This instruction will be given over the

objection as Instruction 9-B.

Did I receive a copy of this?

Mr. J. DAVIDSON: 9-B, your Honor?

THE CourRT: Yes.

Mr. J. DAVIDSON: I handed, I think, a couple to Mr.

Anderson but I think I have some more.

THE Court: All right, I have one.

[3269]

Mr. J. DAVIDSON: I will just say for the record, your

Honor, this is being submitted because of the Court’s

ruling that the jury should not be instructed that they

had to bring in the profits.

* ke K

—65a—

VI

[118]

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

PETER M. ROBERTS,

Plaintiff,

-V8- No. 69 C 2573

SEARS, ROEBUCK AND CoO.,

a corporation,

Defendant.

)

)

)

)

)

)

)

PLAINTIFF’S POST TRIAL MOTION

Now comes the plaintiff, PETER M. ROBERTS, by LOUIS

G. DAVIDSON for LOUIS G. DAVIDSON & ASSOCIATES,

LTD., his attorney, in accord with the requests for relief

contained in the Second Amended Complaint, and, for

his post trial motion for complementary relief in aid of

the verdicts returned by the jury and the {findings of

fact inherent therein and of such judgment as has

heretofore been entered thereon, plaintiff does not ask

ou S . new trial, but plaintiff does ask for the following

relief:

1. For entry of an order declaring that the Memoran-

dum of Agreement between the plaintiff and the defen-

dant and all documents executed pursuant thereto be

rescinded forthwith for the reason that as a matter of

law any agreements or conveyances obtained by the

defendant as a result of a breach of a confidential

relationship or fraud or misrepresentation by the defen-

dant are null and void.

2. For entry of an order reconveying or directing the

defendant and its officers and managing agents to

reconvey and reassign to the plaintiff instanter all right,

title and interest of the defendant in plaintiff's Quick

Release invention and idea, in United States Letters Pa-

—66a—

tent No. 3,208,318 and in Canadian Letters Patent No.

757,826, for the reasons that as a matter of law such

reconveyance or reassignment is a proper, necessary and

fundamental aspect of the relief to which plaintiff is en-

titled since plaintiff sought and has proved the bases for

rescission referred to in the preceding paragraph and

since the trier of the facts specifically found such bases

to exist.

3. For entry of an order restraining the defendant in-

stanter from acting or omitting to act in any way which

would impair or depreciate the value of United States

Letters Patent No. 3,208,318 and/or Canadian Letters

Patent No. 757,826, from this date to the time said

reconveyance or reassignment is complete or at any

time prior to the time plaintiff’s rights in and to said

patents have been finally and completely determined.

4. For entry of an order conveying to plaintiff or

directing the defendant to convey or assign to the plain-

tiff instanter, under such terms as the Court may re-

quire, any and all interests the defendant has acquired

or has agreed or contracted to acquire in any and all

patents, other than those mentioned above relating to

quick release devices for ratchet drivers, which came to

the defendant’s attention in whole or in part as a result

of the disclosure to the defendant of plaintiff's Quick

Release invention or idea, or as a result of the acquisi-

tion by the defendant of plaintiff's Quick Release inven-

tion or idea, or as a result of the merchandising by

defendant of ratchet drivers incorporating plaintiff’s

Quick Release invention or idea, including in said order

an injunction against any acts or omissions by defendant

which would impair or depreciate the value of said other

patents from this date to the time said conveyance or

assignment to the plaintiff is complete, or at any time

prior to the time plaintiff’s rights in and to said other

patents have been finally and completely determined.

5. For entry of an order of judgment against the

defendant under the plaintiff’s third claim in the

amount the undisputed evidence showed was the

minimum amount of a reasonable royalty for defendant’s

—6/a—

use of the plaintiff's Quick Release invention to date (i.e.,

$2,200,000) for the reason that as a matter of law plain-

tiff is entitled, in connection with rescission based on

defendant’s negligent misrepresentations to the plaintiff

to restitution in the amount of a reasonable royalty for

the defendant’s use of the plaintiff's Quick Release in-

vention and because under the law it was and is the

obligation of the defendant to make restitution to the

plaintiff of a sum equal to a reasonable royalty if the

jury found for the plaintiff on the plaintiff’s third claim.

6. For entry of an order of judgment against the

defendant under the plaintiff's second claim in the

amount of profits the undisputed evidence shows defen-

dant obtained (i.e., $44,000,000) as a result of either its

breach of a confidential relationship which existed

between the plaintiff and defendant or by reason of

defendant’s fraudulent acquisition of the plaintiff's

Quick Release invention, or of both, for the reason that:

(a) as a matter of law the defendant may not

profit from either a breach of a confidential

relationship or fraudulent conduct and the defen-

dant must therefore account to the plaintiff for any

benefits obtained by the defendant by reason of the

ong breach of said confidential relationship

or fraud;

(b) as a matter of law, in connection with rescis-

sion for fraud and/or breach of confidence, the

defendant stands as the constructive trustee for

plaintiff of said profits; and

(c) it is evident from the verdict that the jury did

not in fact grant restitution and award said profits.

As an alternative to entry of an order designating a

specific dollar amount for the said profits, plaintiff

moves for entry of an order directing that restitution of

the profits must be made to the plaintiff by the defen-

dant and that the determination from the record of the

specific dollar amount of such profits be made forthwith

by a special master appointed by this Court.

—-68a—

7. For entry of an order:

(a) vacating any and all orders which entered

Summary Judgment in favor of the defendant and

against the plaintiff on Count I of plaintiff's Second

Amended Complaint and/or which dismissed Count

I of plaintiff's Second Amended Complaint;

(b) reinstating Count I of plaintiffs Second

Amended Complaint; and

(c) entering judgment in favor of the plaintiff on

Count I of plaintiff's Second Amended Complaint,

for the reason that the undisputed evidence shows

that the plaintiff was a minor when he entered into

the subject Memorandum of Agreement and that

after the plaintiff attained majority, he was in the

military service of the United States and was

thereby protected by the provisions of the Soldiers’

and Sailors’ Civil Relief Act, 50 App. U.S.C. §§ 501,

- rs entitled to the relief prayed for in said

ount lI.

For the foregoing reasons, plaintiff respectfully re-

quests that the court enter each of the aforementioned

orders in accord with the relief sought in the Second

Amended Complaint and by reason of the verdicts

returned by the jury at the trial of the above matter

pursuant to the Second Amended Complaint and by

reason of the factual findings the jury necessarily made

in rendering its said verdicts.

/s/ Louis G. DAVIDSON

Louis G. DAVIDSON & ASSOCIATES, LTD.

Attorney for Plaintiff

111 W. Washington Street, Suite 1817

Chicago, Illinois 60602

FRanklin 2-5124

Firm Id. 123

[Proof of Service omitted in printing. ]