Summary
The Fifth Circuit reviewed a breach-of-contract dispute concerning royalty or earn-out payments under an asset purchase agreement. The court held that the disputed products could fall within the agreement, upheld the district court’s resubmission of inconsistent jury verdicts and supplemental instructions, and affirmed the judgment in most respects. It reversed and remanded solely because the district court applied the Texas prejudgment interest rate; the opinion was designated unpublished and nonprecedential under Fifth Circuit Rule 47.5.
Topics
Practice areas
Questions Presented
- Whether the disputed wavelength lockers and integrated monitoring products were excluded as a matter of law from the asset purchase agreement's earn-out definition of product sales.
- Whether the district court properly resubmitted the inconsistent first verdict to the jury with supplemental instructions.
- Whether the supplemental instructions were coercive or otherwise constituted an abuse of discretion.
- Whether JDS was required to pay the $897,773 reflected in the earn-out statement while Wavelinq's objection to the statement remained pending.
- Whether sufficient evidence supported the second verdict's damages awards.
- Whether Ontario or Texas law governed the prejudgment-interest rate.
Holdings
- The agreement did not, as a matter of law, exclude the disputed wavelength lockers, narrowband and broadband lockers, lasers with integrated monitors, or integrated power monitor-channel monitors from the definition of qualifying product sales.
- The district court properly resubmitted the conflicting verdict to the jury rather than entering judgment on the first verdict.
- The supplemental instructions were not an abuse of discretion and did not coerce a particular verdict.
- The agreement did not make payment of the $897,773 earn-out-statement amount contingent on resolution of Wavelinq's dispute, so the district court properly denied JDS's summary judgment motion.
- The evidence was sufficient to support the second verdict's awards for disputed and undisputed products, even though the awards did not exactly correspond to Wavelinq's damages model.
- Ontario law governs the prejudgment-interest rate because the parties selected Ontario law for the agreement, and the district court erred by applying the Texas rate.
Key quotations
“The cardinal rule of contract interpretation ‘is that the court should give effect to the intention of the parties as expressed in their written agreement,’ and where the intention of the parties ‘is plainly expressed in the language of the agreement, the court should not stray beyond the four corners of the agreement.’” (at 759)
“The practice of resubmission to the jury for clarification when the verdict is conflicting is well-established.” (at 764)
“Since the parties contracted to use Ontario law, it should govern the prejudgment interest rate.” (at 776)
Factual background
Wavelinq designed and manufactured a wavelength monitoring unit for fiberoptic transmission systems and sold its assets to JDS in exchange for cash, employment for Seago, and an earn-out provision. The agreement required JDS to pay seven percent of qualifying product sales over three years, subject to an aggregate cap of $5 million, and to provide annual earn-out statements. JDS failed to provide statements for the first two years and later supplied a vague statement acknowledging $897,773 in amounts owed, while excluding sales of wavelength lockers and integrated monitoring products. A jury found breaches concerning those disputed products, understated sales of included products, and the earn-out statements.
Procedural history
Wavelinq and Jim Seago sued JDS in the Northern District of Texas for royalties allegedly due under an asset purchase agreement. The jury found breaches involving disputed products, understated sales of undisputed products, and earn-out statements. After supplemental instructions and a second verdict, the district court entered judgment for $3,147,773, including $897,773 for earn-out statements. The Fifth Circuit affirmed most of the judgment but reversed the use of Texas prejudgment interest and remanded for application of Ontario law.
Remand instructions
Affirm the district court's judgment in all respects except prejudgment interest; reverse the portion applying Texas prejudgment interest and remand for application of Ontario prejudgment-interest law. Each party bears its own costs of appeal.