BETWEEN:
HALLCO MANUFACTURING COMPANY, INC.
- and -
Defendant
AND BETWEEN:
Docket: T-1623-01
OLOF A. HALLSTROM, JR. and
HALLCO MANUFACTURING COMPANY, INC.
Plaintiffs
- and -
DCT CHAMBERS TRUCKING LTD.
Defendant
AND BETWEEN:
OLOF A. HALLSTROM, JR. and
HALLCO MANUFACTURING COMPANY, INC.
Plaintiffs
- and -
ARROW TRANSPORTATION SYSTEMS INC.
Defendant
REASONS FOR ORDER AND ORDER
HUGESSEN J.
Introduction
[1] These three motions for summary judgment are brought by the defendants and, except for the names of the moving parties, are identical and based on a single set of facts. The following statement of those facts is common ground between the parties.
The Facts
[2] There are three nominal defendants in the actions, namely Trans-Isle Freightways, DCT Chambers Trucking Ltd. and Arrow Transportation Systems Inc. All three are transport companies which operate transport trailers which have reciprocating floor systems, sometimes called "reciprocating conveyors". The defendants' trailers contain "Running Floor II" conveyors manufactured and supplied by Keith Manufacturing Company, Inc. ("Keith"), whose principal is Raymond Keith Foster ("Foster"). The plaintiffs in this action are Olof A. Hallstrom Jr. ("Hallstrom"), and his company, Hallco Manufacturing Company Inc. ("Hallco"). The plaintiffs, Hallstrom and Hallco, have a long history of litigation in the United States with Keith and Foster in relation to reciprocating floor systems.
[3] Hallstrom is the owner of Canadian Patent 1,224,740 in suit for a "Reciprocating Conveyor", as well as owner of the U.S. counterpart Patent 4,691,819. Hallco previously sued in the U.S. for infringement of that corresponding '819 Patent by Keith's same Running Floor II equipment. The suit was successfully defended by Keith and claim 9 invalidated. The plaintiffs now assert the equivalent Canadian '740 Patent and claim 9 thereof which is in terms identical to those of claim 9 of the U.S. patent.
[4] In these actions, Hallco has sued the defendant transport companies as Canadian users of Keith's Running Floor II reciprocating floor, rather than including the manufacturer, Keith. Nonetheless, the ultimate party defending these actions is Keith, pursuant to warranties and indemnification agreements with the named defendants. At the opening of the hearing of the present motions for summary judgment I accepted a motion to consolidate the motions and the actions themselves for the purpose of the hearing and of any subsequent trial. These reasons accordingly dispose of all three motions.
[5] As a part of the long history of litigation between the parties, an action in the U.S. District Court for the District of Oregon between Foster and Hallstrom (Civil No. 95-1236-PA), as well as other litigation, was settled before closing arguments on February 6, 1998, with the settlement discussions being transcribed (hereinafter called the "Transcript"), a copy of which has been produced in these proceedings. The terms of settlement were subsequently documented in a Confidential Settlement Agreement ("CSA") dated February 20, 1998 (which has also been produced). The principal portions of the CSA are quoted below. The CSA includes a series of six numbered paragraphs detailing settlement and licensing provisions, then includes a series of unnumbered paragraphs, the first of which begins with two sentences which constitute the Release, which is the subject of this summary judgment application.
[6] The settlement and licensing provisions required by the numbered paragraphs of the CSA were completed by the confirmation of a Dismissal With Prejudice in U.S. District Court CV95-1236-PA pursuant to numbered paragraph 1 and the execution of a Dismissal With Prejudice of U.S. District Court case No. 89-161-FR pursuant to numbered paragraph 2 of the CSA, and the execution of a Dismissal With Prejudice of the Fabrex Canadian action in this Court (T-2445-95) pursuant to numbered paragraph 3 of the CSA, as well as the execution of a Non-Exclusive Limited License Agreement as required in numbered paragraph 4 of the CSA and a Patent Cross-License pursuant to numbered paragraphs 5 and 6 of the CSA.
[7] The Fabrex Canadian litigation, settled by Dismissal With Prejudice, in accordance with numbered paragraph 3, also pertained to Keith Running Floor II systems and an allegation of infringement of another Hallstrom patent, Canadian Patent 1,091,911.
[8] The relevant portions of the CSA are as follows:
1. The case entitled Raymond Keith Foster v. Hallco Mfg. Co., Inc., and Olof Hallstrom, United Stated [sic] District Court Case No. CV 95-1236 PA is hereby settled for the sum of $300,000.00 (Three hundred thousand and no/100 dollars) payable on or before March 8, 1998. The case has been dismissed, with prejudice.
2. The Judgment in the case entitled Raymond Keith Foster, Keith Mfg. Co., Inc., and Keith Sales Co. v. Hallco Manufacturing Co., Inc., Olof A. Hallstrom and Robert Snellman, United States District Court Case No. 89-161-FR, which is now on appeal, will be paid in full including the full District Court Judgment, costs and interest due to the date of this Agreement. The parties will file a dismissal of the appeal with prejudice and a satisfaction of judgment upon receipt of the funds to satisfy the judgment in the form attached hereto.
3. Hallstrom will file a dismissal with prejudice in the case entitled Olof A. Hallstrom and Hallco Manufacturing Company, Inc. v. Fabrex Inc., Federal Court of Canada, Trial Division, Court No. T-2445-95 within fifteen (15) days from the date of this Agreement.
4. Foster will grant to Hallstrom a non-exclusive license to use US Patent No. Re 35,022. Said license shall be limited to the conveyor embodiments presently known as the Hallco 4000 and Hallco 6000 together with modules that carry serial numbers or would received serial numbers prior to this settlement. The license amount shall be $300 per unit and shall apply to units which are assigned a serial number after February 5,1998. The parties shall mutually agree on a royalty report form. Foster will draft a letter to customers notifying customers of Hallco's right to use Foster's Patent No. Re 35,022. Hallstrom will agree to have its employees or consultants who are told any of the material terms of the settlement sign an agreement to keep the terms confidential and will be bound by the confidentiality provisions to protect the confidentiality of the license agreement and the terms hereof.
5. Foster agrees to grant Hallstrom a royalty free license to use U.S. Patent No. 5,315,916 which shall be the subject of a written license agreement.
6. Hallstrom agrees to grant Foster a royalty free license agreement on U.S. Patent No. 4,966,275 which shall be the subject of a written license agreement.
[5] Following the quoted numbered paragraphs of the CSA there appear a number of unnumbered paragraphs of which the first, and more particularly the first two sentences thereof, are the source of the present controversy. Those sentences read:
The parties agree that Foster and Hallstrom hereby release one another, and their customers and users, from any and all claims now existing regarding the patents at issue in the above described actions and the patents for which licenses are being granted subject to the terms set forth above. The parties also mutually release each other, their customers and end users from all claims regarding foreign counterparts of the U.S. Patents that have been litigated by the parties or are covered by the licenses described hereunder.
The Issue
[6] Both parties agree that the CSA is to be construed in accordance with the laws of Oregon, where it was signed.
[7] The defendants say that they are released by the quoted second sentence of the first unnumbered paragraph of the CSA since the '740 Patent is the counterpart of U.S. Patent '819 which was previously litigated between the parties and found invalid; since this is a pure question of the construction of the CSA there is no genuine issue for trial and summary judgment should be granted dismissing the actions. The plaintiffs, on the other hand, say that since there is a dispute as to Oregon law and since that law is to be treated as a "fact" in this Court, the case must go to trial.
Discussion
[8] The questions upon which it is said that there is a dispute as to Oregon law are first, whether that law would view the quoted two sentences as ambiguous, second, whether in answering that question Oregon law would look at extrinsic evidence, and third, whether such evidence would also be allowed to resolve such ambiguity.
[9] At the outset, I must say that on the view that I take of the matter, I do not view Oregon law as being relevantly different from the law of Canada on the principles to be applied in resolving these questions. That does not mean, of course, that an Oregon Court and a Canadian Court would necessarily decide them the same way but simply that both would apply similar principles when wrestling with the task of interpreting the document. To put the matter another way, I do not view evidence by Oregon lawyers as to the probable result which would be reached by an Oregon Court as being evidence of Oregon law or in any way relevant to my decision. I do, however, consider that to the extent that it is shown that an Oregon Court would apply different rules, I should do so as well.
[10] The defendants submit that there is nothing ambiguous about the second sentence of the Release Clause when read in light of the entire CSA. The defendants submit that it is clear that the present litigation relates to a claim falling within the release; namely a claim for infringement of the '740 Patent, which is the foreign counterpart of the '819 U.S. Patent, the latter having been previously litigated by the parties. The defendants submit that the release of "all claims"must necessarily release the particular claim asserted in the present action since Keith's Running Floor II and its distribution in Canada were then well known to Hallco and were the subject of the Fabrex litigation in this Court.
[11] Turning to the first of the questions propounded above, I understand that both Oregon and Canadian law would require that I first examine the CSA purposively and in its entire context in order to determine its meaning. There is a suggestion in some of the affidavits that the restriction of the scope of the first sentence to claims which are "existing" creates an ambiguity since the following sentence contains no such limitation. I see no such ambiguity. The word "existing" in the first sentence is to be understood, when read in context, as referring to the causes of action asserted in the specified litigation or arising under the specified patents, all of which are listed and described in detail in the numbered paragraphs which precede it. In my view, "existing" in the second sentence would be redundant and unnecessary. While it is possible to release future claims, that is to say claims which could not at the time of their release even be sued upon, it would require very much stronger and more explicit language than what is found here. In my view, the use of the word "existing" is consistent with the release in the first sentence being restricted to the matters enumerated in the preceding six numbered paragraphs, while its exclusion from the second sentence indicates an intention to release the parties from all causes of action which either of them might then have in the relevant category. The only possible source of ambiguity is the use of the word "claims" in a slightly different sense in each of the two sentences but that ambiguity is readily resolved within the four corners of the document by recourse to the ordinary rules of construction.
[12] As I read the release clause, the purpose of the first sentence is to deal with the release of claims asserted in the listed actions or under the listed patents; the purpose of the second is to deal with all other claims which might be asserted under foreign counterparts of U.S. Patents which the parties have previously litigated in the course of their many court battles. Consistent with that purpose it releases all foreign causes of action, whether or not sued upon, where the underlying issue has been resolved by U.S. litigation prior to the date of the CSA.
[13] But even if I were to move on to the second and third questions, the plaintiffs' case would not be thereby improved. Again, I do not think that Oregon law differs substantially from the law of Canada and I believe that both systems allow recourse to extrinsic evidence for the purpose of determining if a text which appears on its face to be clear does in fact contain a latent ambiguity. No rational system could be otherwise for if an ambiguity is not patent, that is to say apparent on the face of the document, it can only be revealed by reference to material which is outside the four corners of the document. And if extrinsic evidence can be used to demonstrate that there is ambiguity, it can also be used under either law to aid in resolving that ambiguity.
[14] The law of Oregon seems to be quite clear in this respect, and as I understand it the law of Canada is to the same effect:
Assuming that extrinsic evidence has been admitted, what consequences may ensue? This was considered by Gale C.J.O. in Leitch Gold Mines Ltd. et al. v. Texas Gulf Sulphur Co. (Inc.) et al., [1969] 1 O.R. 469 at pp. 536-7, 3 D.L.R. (3d) 161 at pp. 228-9. I will adopt his carefully reasoned conclusions on the subject and attempt to paraphrase them:
(1) The extrinsic evidence admitted may establish that there is no latent ambiguity in the written document relevant to the issue in dispute. In such a case obviously the written document governs.
(2) The extrinsic evidence may demonstrate that there is a latent ambiguity in the terms of the written document which are in dispute. Nonetheless, upon a consideration of all the surrounding circumstances, it requires the choice to be made in favour of the meaning of the agreement which would appear from a reading of the whole document without any extrinsic evidence to show ambiguity.
(3) The extrinsic evidence establishes that there is a latent ambiguity. However, a consideration of the surrounding circumstances requires the choice of a meaning consistent with the words of the document but different from their patent meaning. The party contending that there is a latent ambiguity must not only establish that there is such an ambiguity but also resolve that ambiguity by evidence from which the court can find what agreement was made and what the choice of alternative meanings should be. The party contending for the latent ambiguity must show that the extrinsic evidence dictates the selection of a meaning which is generally consistent with the wording of the written document but different from its patent meaning.
(4) The extrinsic evidence indicates that there is a latent ambiguity of such an extent that the true agreement between the parties is different from the agreement expressed in the written document. That is, the extrinsic evidence established that there is a case of mistake.
(5) The extrinsic evidence establishes that there is a latent ambiguity and goes further and demonstrates that the minds of the parties never really met upon the subject matter concerning which there is an agreement. In other words, there is in fact no agreement upon the terms which would decide the issue between the parties. The court then cannot, on the balance of probabilities, make the necessary finding of consensus ad idem.
(Transcanada Pipelines Ltd. v. Northern & Central Gas Corp. Ltd., [1983]
146 D.L.R. (3d) 293 at 298-299.)
[15] Here, two sorts of extrinsic evidence are proffered. The first are the after the fact recollections of the various attorneys who were acting for the parties at the time of the negotiation of the CSA. I view these as being of very little value. Lawyers are paid and are useful when they record agreements and reduce them to writing, not so when they try to reconstruct them six years later. Indeed, I doubt whether such evidence would be admissible at trial, but even if it were, and the Court had the opportunity of seeing and hearing the witnesses, it would not be assisted; the evidence is inherently unreliable. It simply does not reveal any ambiguity in the CSA or otherwise provide a genuine issue for trial.
[16] The second category of extrinsic evidence is the Transcript which is a very different matter. As indicated this was taken down by a court reporter during the negotiations which led up to the drafting and signature of the CSA. This evidence suffers from none of the inherent frailties of the present day recollections of the same lawyers whose discussions were thus recorded. It is contemporaneous with the CSA itself and is both relevant and admissible. The following passage is particularly instructive. The first speaker was the then attorney for the present plaintiffs, the second represented the Keith interests:
MR. ESLER: I would also want that the settlement would cover known claims that the parties have between one another at this time.
And what we are going to do is release one another from claims that we are aware of at this stage, or that are based on any of these patents that we have talked about. And we both understand that the agreement doesn=t cover new technology that the parties may develop. It=s only as to existing technology.
[...]
MR. STEWART:And what I would like to do is, after we have put this stipulation, I would like to put it in writing.
MR. ESLER: Yes.
MR. STEWART:And I will do that. I will order a copy of this transcript. And the only thing that I can say, Mr. Esler, is we know the patents that are in suit, we know the patents that have been involved in prior technology, and that=s all -- we have agreed to that.
But, I can=t say any other claims between the parties, because both parties have large companies right now, and I have no idea of any other claims at this time, but, I can=t bind Mr. Foster to that. And that=s because we are just talking about patents.
[17] At the time of the negotiation of the CSA all the claims asserted in the present actions, namely that the Keith Running Floor II technology infringed claim 9 of Hallco's '819 U.S. Patent, and therefore necessarily the identically worded claim 9 of the counterpart '740 Canadian Patent were known. Hallco had brought suit with respect to that technology both in the U.S., where its '819 Patent had been held invalid, and in Canada where its suit, based on the same technology (although a different and not now relevant Canadian Patent) was disposed of in numbered paragraph 3 of the CSA. Put briefly, the technology which the defendants are now alleged to have used was "old" and was "known" to Hallco; the patent itself had been previously litigated in the U.S. and Hallco had lost.
Conclusion
[18] I conclude that a purposive reading of both the second sentence of the first unnumbered paragraph of the CSA, when taken in its entire context, and a consideration of the Transcript, the only relevant and admissible extrinsic evidence, lead inevitably to the same result: namely that the plaintiffs released both Keith and the present defendants, who are the latter's customers and end users from the claims of the '740 Patent. The sole issue in these actions can and should be resolved fairly and with justice on the basis of the materials in the record and without the necessity of a trial.
[19] The motions for summary judgment will be allowed with costs of one motion only. The actions will be dismissed; if counsel cannot agree on an appropriate disposition as to the costs of the three actions, defendants may move pursuant to Rule 369 for an appropriate order.
ORDER
The motions for summary judgment are allowed with costs.
The actions are dismissed.
"James K. Hugessen"
Judge
Ottawa, Ontario
September 15, 2004
FEDERAL COURT
NAMES OF SOLICITORS AND SOLICITORS ON THE RECORD
COURT FILE NO.: T-1622-01, T-1623-01 and T-1624-01
STYLE OF CAUSE: Olof A. Hallstrom, JR. and Hallco Manufacturing Company, Inc.
v. Trans-Isle Freightways, Inc.
v. DCT Chambers Trucking Ltd.
v. Arrow Transportation Systems, Inc.
DATE OF HEARING: September 2, 2004
PLACE OF HEARING: Ottawa, Ontario
REASONS FOR ORDER AND ORDER OF THE HONOURABLE MR. JUSTICE HUGESSEN
DATED: September 15, 2004
APPEARANCES:
Bruce M. Green FOR PLAINTIFFS
Bruce E. Morgan FOR DEFENDANTS
SOLICITORS ON THE RECORD:
Oyen Wiggs Green & Mutala
Vancouver, BC FOR PLAINTIFFS
Gowling Lafleur Henderson LLP
Ottawa, Ontario FOR DEFENDANTS