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Hollister Inc. v. Zassi Holdings, Inc.

United States District Court, M.D. Florida, Jacksonville Division

January 16, 2020

HOLLISTER INCORPORATED, an Illinois corporation Plaintiff,
v.
ZASSI HOLDINGS, INC., a Florida corporation and PETER VON DYCK, an individual, Defendants.

          FINDINGS OF FACT AND CONCLUSIONS OF LAW

          TIMOTHY J. CORRIGAN UNITED STATES DISTRICT JUDGE

         On February 7, 2013, Plaintiff Hollister Incorporated filed this case against Defendants Zassi Holdings, Inc. and Peter von Dyck, asserting a claim against Zassi for breach of the warranty of good and marketable title contained in an Asset Purchase Agreement (“APA”) entered into by Hollister and Zassi (Count I), and a claim against Zassi and von Dyck for fraudulent inducement (Count II). (Doc. 1). Hollister alleged that during negotiations in connection with the APA, Defendants failed to disclose the material fact that Zassi had released future patent claims against ConvaTec, Inc. in a settlement agreement that Zassi had entered into with ConvaTec (“ConvaTec Agreement”).

         On August 6, 2013, the Court bifurcated the liability issues from damages for trial purposes. (Doc. 26). Liability was tried to a jury on February 4-7, 2014 before the Honorable Paul A. Magnuson. (Docs. 57, 60, 64, 72). On February 10, 2014, the jury rendered a verdict for Hollister on liability on both counts, finding, among other things, that Zassi and von Dyck had defrauded Hollister by failing to disclose in the sale negotiations that they had released certain patent claims against ConvaTec relating to bowel management systems (“BMS”). (Doc. 77). After Zassi's attorneys withdrew, and Zassi failed to retain new counsel, Hollister filed a Motion for Default Against Zassi (Doc. 147), and a clerk's default was entered against Zassi on September 4, 2015.[1] (Docs. 149, 150). Von Dyck has continued to defend the case.

         The parties waived a jury trial on damages, and the Court conducted a damages bench trial on December 7-9, 2015. (Docs. 177-79). On March 30, 2016, the Court issued its Findings of Fact and Conclusions of Law. (Doc. 197). The Court found that Hollister proved that ConvaTec's Flexi-Seal fecal management system (“FMS”) products literally infringed Hollister's U.S. Pat. No. 7, 722, 583 (“‘583 patent”) but that Hollister had “failed to prove by a preponderance of the evidence the amount of reasonable royalty damages” that Hollister would have recovered in its unsuccessful 2010 patent infringement lawsuit against ConvaTec but for Defendants' fraudulent concealment of the ConvaTec release. (Doc. 197 at 37). Accordingly, the Court entered a Final Judgment awarding Hollister no damages. (Doc. 198). The Court denied Hollister's Post-Trial Motion Pursuant to Fed.R.Civ.P. 52(b) and 59. (Doc. 205).

         Hollister appealed, and on October 25, 2018, the Eleventh Circuit reversed this Court's decision and remanded the case for a new trial on damages consistent with its opinion. (Doc. 221 at 22); Hollister Inc. v. Zassi Holdings, Inc., 752 Fed.Appx. 888, 897 (11th Cir. 2018). The Eleventh Circuit noted two reversible errors. First, under Florida law, the Court should have calculated damages as of the time of Defendants' fraud in 2006, rather than the date of Hollister's unsuccessful infringement action against ConvaTec in 2010. Id. at 893-95. In addition, the Court erred in finding that Hollister failed to prove it was entitled to any damages. Id. at 895-97.

         Following the Eleventh Circuit's mandate, the Court held a bench trial on December 17-18, 2019 to determine Hollister's damages. (Docs. 247, 248). The Court received post-trial submissions from the parties (Docs. 254, 255) and now makes its findings of fact and conclusions of law.

         Florida law governs the damages award. Under Florida law, the burden of proving damages rests solely with the plaintiff. Asset Mgmt. Holdings, LLC v. Assets Recovery Ctr. Invs., LLC, 238 So.3d 908, 912 (Fla. Dist. Ct. App. 2018). At trial, Hollister relied on a benefit of the bargain theory of damages under Florida law. (Tr. II at 76:14-21). “Under a benefit of the bargain theory, damages are measured as ‘the difference between the actual value of the property and its value had the alleged facts regarding it been true.'” Hollister, 752 Fed.Appx. at 893 (quoting Kind v. Gittman, 889 So.2d 87, 90 (Fla. Dist. Ct. App. 2004) (internal quotation marks omitted)). This measure of damages requires Hollister to prove the actual value of the property at the time of purchase. Id. The key time frame for measuring damages is “the time of the fraudulent representation.” Totale, Inc. v. Smith, 877 So.2d 813, 815 (Fla. Dist. Ct. App. 2004). Applying the benefit of the bargain theory, Hollister's damages are the difference between what Hollister paid Zassi in 2006-$35 million-and what it would have paid had Zassi disclosed its release of infringement claims against ConvaTec. (Pl. Ex. 6).

         As the Eleventh Circuit noted, there is not only one way to prove damages in this case, nor is there only one correct damages amount. Under Florida law, “a trial judge is vested with reasonable discretion in awarding damages.” E.F.K. Collins Corp. v. S.M.M.G., Inc., 464 So.2d 214, 215 (Fla. Dist. Ct. App. 1985). Generally, a damages award in a nonjury trial will be sustained on appeal if supported by a reasonable evidentiary basis. See Pearce & Pearce, Inc. v. Kroh Bros. Dev. Co., 474 So.2d 369 (Fla. Dist. Ct. App. 1985).

         In ordering a new damages trial, the Eleventh Circuit explained that “[t]here may be several ways for Hollister to establish the value of a reasonable royalty at the time of the fraud.” Hollister, 752 Fed.Appx. at 897.

Hollister potentially could use the $5.9 million that ConvaTec paid Zassi for the release in their 2005 settlement agreement. After all, ConvaTec acquired the license in the settlement agreement only about a year before the fraudulent transaction. In the settlement agreement, though, Zassi also released ConvaTec from claims related to ConvaTec's use of Zassi's technology for other products. To use this agreement as a yardstick, Hollister probably would need to introduce some evidence showing what portion of the settlement payment represented the amount that ConvaTec paid to acquire the license for the bowel management system technology as opposed to the other technology. As an alternative, Hollister potentially could rely on a report from its investment banker written at the time of the transaction that valued the intellectual property Hollister acquired from Zassi at $8.7 million. To prove its damages in this way, Hollister would need additional evidence showing how much the value of the intellectual property portfolio declined due to ConvaTec's license.

Id. However, the Eleventh Circuit left open the possibility that Hollister might rely on another method, provided it was consistent with Florida law. Id.

         Using the Eleventh Circuit opinion and the evidence adduced at trial, the Court has essentially been presented with three approaches to measure Hollister's damages.[2] First, there is the $5.9 million that ConvaTec paid Zassi in 2005 under the ConvaTec Agreement. Earlier, in 1999, ConvaTec and Zassi had entered into an agreement under which ConavTec funded Zassi's development of continent ostomy port (“COP”) technology. (Pl. Ex. 87 at 10). Under that agreement, ConvaTec agreed to pay Zassi certain amounts upon reaching milestones in the development of the COP; ultimately, ConvaTec paid Zassi $3.3 million in funding associated with the development of the COP.[3] (Pl. Ex. 87 at 15:13-18). Pellegrino Pionati, ConvaTec's vice president of global marketing, research and development in 2005, testified that during the course of ConvaTec and Zassi's relationship, Zassi performed human clinical trials in South Korea without informing ConvaTec.[4] The clinical trials resulted in a significant adverse event that required the companies to report it to the FDA, resulting in additional-arguably unnecessary-work. (Pl. Ex. 87 at 12:8-15:12; Tr. II at 83:7-84:16).

         During this period, Zassi informed ConvaTec that it was developing a BMS product, and the companies shared information regarding the BMS market and its opportunities. They had finalized an agreement regarding development and distribution of Zassi's BMS product in 2002, but Zassi then told ConvaTec that it had decided to go a different way. Zassi was first to the market with its BMS product in 2003, and a year and a half later, ConvaTec introduced its product, the Flexi-Seal FMS. Zassi felt that ConvaTec had misused Zassi's trade secrets in creating the Flexi-Seal. (Tr. II at 95:12-22).

         Following the deterioration of their relationship, ConvaTec and Zassi underwent mediation to resolve their disputes, which resulted in the ConvaTec Agreement. ConvaTec paid Zassi $5.9 ...


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