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Eckstein v. Becnel

Court of Appeals of Louisiana, Fourth Circuit

June 27, 2018

MICHAEL L. ECKSTEIN
v.
STEVEN A. BECNEL STRATUS SYSTEMS, INC.
v.
MICHAEL L. ECKSTEIN MICHAEL L. ECKSTEIN, ECKSTEIN LAW FIRM, A PROFESSIONAL CORPORATION, AND STRATUS REALTY, L.L.C
v.
STEVEN A. BECNEL AND KRISTINE M. BECNEL

          APPEAL FROM CIVIL DISTRICT COURT, ORLEANS PARISH NO. 2002-02069 C\W 2002-02253, 2003-06270, DIVISION "L" Honorable Kern A. Reese, Judge.

          H. Minor Pipes, III Eric J. Drury, Steven William Usdin BARRASSO USDIN KUPPERMAN FREEMAN & SARVER, LLC. COUNSEL FOR PLAINTIFF/APPELLEE

          Paul E. Bullington, Guy E. Wall, Jonathan R. Cook, Sara M. Lewis WALL, BULLINGTON & COOK, L.L.C. COUNSEL FOR DEFENDANTS/APPELLANTS.

          Court composed of Judge Edwin A. Lombard, Judge Daniel L. Dysart, Judge Paula A. Brown

          PAULA A. BROWN JUDGE.

         This matter involves the enforceability of the terms of a settlement agreement. Appellants, Steven A. Becnel ("Mr. Becnel") and Stratus Systems, Inc. ("Stratus"), appeal the district court's judgment granting the Motion to Enforce Settlement Agreement and Consent Judgment, and the Motion for Declaratory Relief filed on behalf of appellee, Michael L. Eckstein ("Mr. Eckstein"). For the reasons that follow, we affirm the judgment.

         FACTUAL AND PROCEDURAL HISTORY

         In 1992, Mr. Becnel and Mr. Eckstein formed Stratus to sell Mr. Becnel's safety inventions. Mr. Eckstein, an attorney, financed a portion of the endeavor and provided legal advice. Beginning in 1997, a dispute arose as to the percentage of Mr. Eckstein's ownership interest, fees Mr. Eckstein claimed he was owed for legal work, and whether Mr. Eckstein had breached any fiduciary and ethical duties owed to Stratus. Both parties filed suit. In August 2005, Mr. Becnel, Stratus, and Mr. Eckstein signed a Settlement Agreement, a License Agreement, a Product Transfer Agreement, and a Consent Judgment (collectively, the "Agreement"). In part, the Agreement: (1) transferred the rights to the "Halkey-Roberts Inflator"[1] and the exclusive license of all non-military sales of the "Universal Inflator"[2] to Mr. Eckstein; and (2) gave Stratus exclusive rights to all military applications of the Universal Inflator. Moreover, the Agreement required Stratus to pay Mr. Eckstein eight percent of the Total Gross Revenue Receipts ("TGRRs") of the Universal Inflator for a ten-year period, beginning on the date on which the first sale was made. It also gave Mr. Eckstein the right to audit Stratus' records in the event he reasonably believed TGRRs reported on Stratus' federal tax returns are inaccurate.[3] In February 2016, Mr. Eckstein filed a Motion to Enforce Settlement Agreement and Consent Judgment ("Motion to Enforce"), complaining that Mr. Becnel and Stratus (hereinafter, collectively, "Stratus") had violated the terms of the Agreement over the ensuing years. He requested that Stratus: (1) submit to an audit and pay the associated costs; (2) provide all current design and patent information-also known as "deliverables"-related to products that Eckstein owns and is entitled to sell;[4] (3) cease and desist sales in the non-military market; (4) reimburse Mr. Eckstein for any non-military sales; and (5) pay attorney's fees associated with filing the Motion to Enforce. Mr. Eckstein alleged that his review showed Stratus' TGRRs "numbers didn't add up" and Stratus' internal audit had revealed errors which resulted in additional royalty payments of over $100, 000.00. He represented that, in violation of the Agreement, Stratus had refused to supply him with updated versions of the Universal Inflator and the Halkey-Roberts Inflator. Mr. Eckstein also requested that Stratus be ordered to produce records of any non-military sales premised on his contention that Stratus had violated the Agreement by selling the Universal Inflator to non-military customers.

         In opposition, Stratus maintained that Mr. Eckstein filed the Motion to Enforce solely because the royalty payments he was owed stemming from the date of the first sale of the Universal Inflator were scheduled to expire in February 2017. Stratus argued that Mr. Eckstein was not entitled to any records of non-military sales because Mr. Eckstein had offered no proof that Stratus had made any such sales. Specifically, Stratus maintained that the only identifiable non-military customer, Switlik Parachute Company ("Switlik"), had bought the Universal Inflator for military applications, which Stratus argued was allowed by the Agreement. Stratus added that the Agreement's terms prohibited the assessment of any personal liability against Mr. Becnel.

         As to Mr. Eckstein's demand for an audit, Stratus alleged that the dispute was resolved when Mr. Eckstein consented to and accepted payment as a result of the internal Stratus audit completed in the years 2011 through 2012. As such, Mr. Eckstein was only entitled to an audit for 2014-at his own expense. Stratus further maintained it had already complied with Mr. Eckstein's demands for deliverables. In conclusion, Stratus requested a declaration that the Universal Inflator royalties owed to Mr. Eckstein should terminate on February 1, 2017-the date it alleged was the tenth year after the first sale of the Universal Inflator to the United States Navy (the "Navy") for $84, 649.58.

         The district court heard argument on the Motion to Enforce on September 23, 2016. At the conclusion of the hearing, the district court orally granted Mr. Eckstein's audit request, with payment for the audit to take place in accordance with the Agreement. The district court ordered Stratus to produce, for an in camera inspection, documentation of all sales to any non-military customers of the Universal Inflator and Halkey Roberts Inflator. The district court also instructed Stratus to provide the deliverables-even if they had previously been provided as Stratus claimed-and requested a written judgment that reflected its orders.

         On February 13, 2017, before a written judgment was signed, Mr. Eckstein filed a motion for declaratory relief, which the district court heard on May 19, 2017. In this motion, Mr. Eckstein asserted that he was entitled to royalties through January 28, 2022, as the first sale date for the Universal Inflator was January 28, 2012-not February 1, 2007, as claimed by Stratus. Mr. Eckstein argued that the $84, 649.58 payment the Navy made to Stratus on February 1, 2007, was not for an actual sale of the Universal Inflator units; instead, the payment was only a reimbursement of Stratus' expenses. Mr. Eckstein contended the military requires a product to successfully complete its qualification testing program before the product is approved for sale; and in exchange, the military pays the costs the proposed seller incurs in developing the product for qualification testing. Thus, the Navy's February 1, 2007 payment was a standard reimbursement for Stratus' qualification testing development costs. Mr. Eckstein further argued that the Universal Inflator passed the military's qualification testing on December 30, 2011, and Stratus' first sale of the qualified Universal Inflator to the military market did not occur until January 28, 2012. Consequently, Mr. Eckstein argues he is owed royalty payments until 2022.

         Stratus countered that the February 1, 2007 payment meets the legal definition of a sale and Mr. Eckstein should be precluded from contesting that date as the first sale date because he received royalty payments from that transaction. Stratus conceded, however, that no other "sales" were made between 2007 and 2011. While Stratus acknowledged that it did not receive official written notification that the Universal Inflator had successfully completed the Navy's testing program until December 30, 2011, it argued the Navy verbally qualified the Universal Inflator for sale in 2010. After receiving verbal qualification, Stratus maintained it made seven sales of the qualified, producible units in 2011, commencing on January 31, 2011.

         Finally, Stratus reiterated that Mr. Becnel should be relieved from all personal exposure arising out of the Agreement's enforcement as the Agreement itself expressly releases him from liability; and, Mr. Eckstein agreed that the relief sought pertained only to Stratus, not to any personal liability on the part of Mr. Becnel.

         At the conclusion of the hearing, the district court orally reasoned on the record that its interpretation of the "royalties" clause showed that actual sales of the Universal Inflator began in 2011, when the first seven sales of the certified units were made. The district court also found that Mr. Becnel had no personal liability for the royalty payments. The parties consented to have one judgment to reflect the district court's rulings from both the September 23, 2016 and the May 19, 2017 hearings.

         On July 20, 2017, the district court rendered written judgment in favor of Mr. Eckstein and ordered that: (1) the parties evenly share the initial costs of the audit for the years 2008 through 2016, with reimbursement to be paid to the prevailing party pursuant to the Agreement; (2) Stratus provide the district court with an in camera inspection of all Universal Inflator documents regarding sales to non-military customers; and (3) Stratus give Mr. Eckstein certain items for the updated versions of the Universal Inflator. The district court further found that Stratus-not Mr. Becnel personally-owes royalties to Mr. Eckstein through March 14, 2021, and any personal liability of Mr. Becnel is governed by Louisiana statutory law and the terms of the Agreement, which was not before the Court at the present time.

         From this judgment, this appeal followed.

         DISCUSSION

         Stratus alleges the following assignments of error:

1) The district court erred in ruling that the royalties owed to Mr. Eckstein on sales of the Universal Inflator continue until March 14, 2021, instead of February 1, 2017.
2) The district court erred in requiring that Stratus provide Mr. Eckstein with new sample units of the Universal Inflator and new data packages and drawings.
3) The district court erred in ruling that Mr. Eckstein is entitled to an audit for the years 2008, 2009, 2011-2013, and 2016.
4) The district court erred in ruling that Stratus must advance one-half of the costs for an audit, rather than concluding that Mr. Eckstein must advance the audit costs subject to reimbursement if the results are in his favor.
5) The district court erred in ruling that Stratus must provide the court with documentation of sales of the Universal Inflator to customers other than the U.S. Military.
6) The district court erred in refusing to declare that Mr. Becnel is not personally liable under the Settlement Agreement; and
7) The district court erred in not awarding attorney's fees, expenses, and costs to Stratus and Mr. Becnel.

         The standard of review of a motion to enforce settlement is the manifest error/clearly wrong standard. Reed v. 7631 Burthe Street, LLC, 2017-0476, p. 10 (La.App. 4 Cir. 12/28/17), 234 So.3d 1201, 1208. A district court's judgment regarding the existence, validity and scope of a compromise or settlement agreement hinges on its finding of the parties' intent-an inherently factual finding. Id.

         A dispute arising out of whether or not the language of a contract is ambiguous is an issue of law subject to de novo review. See Orleans Parish School Board v. City of New Orleans, 1996-2664, p. 4 (La.App. 4 Cir. 9/3/97), 700 So.2d 870, 873. However, "[i]n the interpretation of contracts, the trial court's interpretation of the contract is a finding of fact subject to the manifest error rule." French Quarter Realty v. Gambel, 2005-0933, p. 3 (La.App. 4 Cir. 12/28/05), 921 So.2d 1025, 1028 (quoting Grabert v. Greco, 1995-1781, p. 4 (La.App. 4 Cir. 2/29/96), 670 So.2d 571, 573)). In applying the manifest error review standard to the district court's interpretation of the contract, the appellate court may not substitute its own view of the evidence for the district court's view or disturb the district court's fact findings so long as its findings are reasonable. Gambel, 2005-0933, p. 3, 921 So.2d at 1028.

         The scope of appellate review in a declaratory judgment is whether or not the district court abused its discretion in granting or denying relief. See Delta Administrative Services, L.L.C. v. Limousine Livery, Ltd., 2015-0110, p. 6 (La.App. 4 Cir. 6/17/15), 216 So.3d 906, 910. We now apply these precepts to Stratus' assignments of error.

         Royalty Payments/Sale of ...


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