Mediation: Sometimes A Judge Must Rule Before Parties Will Settle (In re C2R)

By: Donald L. Swanson

It happens in the Chapter 11 case of In re C2R Global Manufacturing, Inc., (Case No. 18-30182 in Eastern Wisconsin Bankruptcy Court):

• the judge must rule before the parties will settle.

That may seem a tad-too-late. But it happens, and In re C2R is Exhibit A.

Disputes

C2R Global Manufacturing, Inc. (“Debtor”) files its Chapter 11 case on October 29, 2018.

Before that filing, Verde Environmental Technologies, Inc. (“Verde”) had sued Debtor for patent infringement and false advertising, and Debtor counterclaimed for declaratory relief of non-infringement and invalidity of Verde’s patents.  

C2R’s bankruptcy filing automatically stays the lawsuit.

Verde files a $6.8 million proof of claim in the bankruptcy, based on damages for both the patent infringement and false advertising claims.

Debtor objects to that proof of claim and presents the same counterclaim as before: “for declaratory relief of non-infringement and invalidity of Verde’s patents” (Doc. 57). 

Under a Scheduling Order, the parties file briefs on the meaning and scope of certain patent claim terms.  The Court holds a hearing and takes the briefed issues under advisement.

Failed Mediation and Court Ruling

While the briefed issues are under advisement, the parties mediate: but they fail to settle.

On February 20, 2020, the Court issues a 33-page opinion (Doc. 201) on the disputed patent terms. It’s a split decision: the Court adopts Debtor’s position “in some respects” and Verde’s position “in other respects.”

Settlement

A month later, Debtor and Verde reach a settlement of their patent disputes.  And Debtor moves for Bankruptcy Court approval of the proposed settlement (Doc. 205). 

The settlement would resolve Verde’s patent claims and Debtor’s related counterclaims—but it would preserve Verde’s false advertising claims for further litigation. 

Vacating Prior Decision

The settlement is contingent upon the Bankruptcy Court vacating its February 20, 2020, decision.

Here’s how the Bankruptcy Court evaluates the proposed settlement of some, but not all, claims and the proposed vacatur of its prior decision (Doc. 215):

• When an action presents more than one claim, Fed. R. Civ. P. 54(b) allows decisions that adjudicate fewer than all claims to be revised or vacated; and
• Courts have discretion to vacate their decisions, upon request of the parties, to: (i) accommodate a desire of the parties to “avoid possible preclusive effects,” and (ii) conserve limited bankruptcy resources.

And here’s how the Bankruptcy Court rules (Doc. 215):

• the parties “have expressed their intent to conserve further significant expenditure of resources by engaging in a settlement”; and
• the Court is persuaded that “equity does support such a course” and that “the public interest is served” by vacating the prior decision.

So, the Bankruptcy Court approves the proposed compromise and vacates its February 20, 2020, decision.

Litigation Continues

Whereupon, the parties are litigating the false advertising claims. Most recently (on July 7, 2020), the Bankruptcy Court granted a Motion for partial summary judgment on one legal issue.

Will this partial summary judgment ruling be sufficient to prod the parties toward a final settlement?

Conclusion

Sometimes a court needs to rule on a crucial issue before the parties are willing to settle.

This In re C2R case is an Exhibit A for such a proposition. 

And, perhaps, this case will become Exhibit B for such a proposition, as well, once the false advertising claims are resolved.

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