Monsanto v. DuPont: Attempt to Seek Reformation, while Withholding Evidence of Original License Interpretation, Results in Sanctions

Category: Damages  
  By: Jesus Hernandez, Blog Editor/Contributor 
TitleMonsanto Co. v. E.I. DuPont de Nemours and Co., No. 2013-1349 (Fed. Cir. May 9, 2014).
IssueDuPont contends that interpreting the objective meaning of the License was a question of law and that the district court improperly sanctioned DuPont for making reasonable legal arguments that section 3.01 of the License permitted stacking and commercialization of glyphosate-tolerant traits.
Monsanto at *11.
HoldingWe agree with Monsanto that the district court did not abuse its discretion in imposing narrowly-tailored sanctions on DuPont for making factual misrepresentations concerning its subjective understanding of the License in order to advance its reformation counterclaims [because DuPont asserted said counterclaim on the grounds that the parties original intent was to have no stacking restrictions in the License, while at the same time using attorney-client privilege to withhold documents showing that DuPont in fact was aware that the contract included stacking restrictions].
Id. at *11-12 (text added). 
Procedural HistoryE.I. Du Pont de Nemours and Company and its subsidiary Pioneer Hi-Bred International, Inc. (collectively “DuPont”) appeal from the orders of the United States District Court for the Eastern District of Missouri imposing sanctions on DuPont by striking DuPont’s contract reformation defense and counterclaims and awarding Monsanto Company and Monsanto Technology, LLC (collectively “Monsanto”) attorney fees.
Monsanto at *1.
Legal Reasoning (Lourie, Reyna, Wallach)
Attempts to Reform Contract and Statements Made to Lower Court“In May 2009, Monsanto sued DuPont for breach of the License and infringement of the ’247 Patent. Monsanto maintained that the License did not allow DuPont to stack the RR trait with another glyphosate-tolerant trait, such as OGAT, or to commercialize the stacked product. […] DuPont […] counterclaimed that the License permitted it to stack OGAT with RR and that if the License were interpreted to restrict or preclude the OGAT/RR stack, then the License should be reformed.” Monsanto at *3 (internal citations omitted). “The district court granted partial judgment on the pleadings to Monsanto in January 2010, holding that the License was “unambiguous and [did] not grant [DuPont] the right to stack non-RR glyphosate-tolerant trait technologies with the licensed” trait. […]” Id. at *5 (internal citations omitted). “On January 29, 2010, DuPont […] sought to restore its counterclaim to reform the License.” Id. at *5 (internal citations omitted). “DuPont based the amended reformation counterclaims on three alternative grounds: (1) mutual mistake, (2) DuPont’s unilateral mistake and Monsanto’s knowing silence, and (3) Monsanto’s fraud.” Id. at *6 (internal citations omitted). “To support those counterclaims, DuPont asserted that '[a]t all times during the drafting and execution of the [License], Pioneer and DuPont thought that [the License] did not prohibit Pioneer from stacking other traits or genes, including traits or genes for glyphosate tolerance . . . .’” Id. at *6 (internal citations omitted).
Disclosure of Protected Documents“The court […] gave DuPont the option to ‘either voluntarily dismiss these reformation claims or produce to Monsanto all documents bearing on these issues that it previously withheld [under attorney-client privilege].’” Monsanto at *6-7 (internal citations omitted, text added). “DuPont chose to continue litigating its reformation counterclaims and produced previously withheld internal e-mails of its in-house attorneys and high-level executives who were directly involved in negotiating the License. Those e-mails showed, for example, that DuPont’s negotiators were aware in March 2002 that the ‘solely’ language in section 2.09 could be a stacking restriction. […] Moreover, when DuPont developed the OGAT/RR stack in 2007 and early 2008, those in-house attorneys advised that DuPont did not have the right to commercialize the OGAT/RR stack ‘[b]ecause of the field of use limitation in section 3.01(a).’ […]” Id. at *7 (internal citations omitted). “Monsanto then moved for sanctions, seeking to invoke the district court’s inherent powers and asserting that DuPont had misrepresented its subjective belief concerning stacking rights and had perpetrated a fraud on the court.” Id. at *7.
Analysis: Misrepresentation
Legal Standard: Sanctions in 8th Cir.“[A] district court possesses inherent powers ‘to manage [its] affairs so as to achieve the orderly and expeditious disposition of cases.’” Wescott Agri-Prods., Inc. v. Sterling State Bank, Inc., 682 F.3d 1091, 1095 (8th Cir. 2012) (quoting Chambers, 501 U.S. at 43). “A court must exercise its inherent powers with restraint and discretion, and a primary aspect of that discretion is the ability to fashion an appropriate sanction.” Harlan v. Lewis, 982 F.2d 1255, 1262 (8th Cir. 1993).
Monsanto at *12.
Sanctions for Misrepresent-
In the sanctions order, the district court made clear that DuPont was sanctioned for knowingly making factual misrepresentations concerning its subjective belief in order to maintain its reformation claims. […] The court reviewed DuPont’s statements in the SAAC and subsequent motions concerning reformation and found that DuPont had misrepresented its subjective belief, an element of reformation that was to be decided as a matter of fact. […] As sanctions, the court specifically and exclusively targeted the reformation claims, which depended on DuPont’s factual misrepresentations, by striking those claims and awarding related attorney fees. […]
Id. at *13 (internal citations omitted).
No clear errorHere, the district court did not clearly err in finding that DuPont had made material factual misrepresentations of its subjective belief. DuPont’s later-produced internal documents contradict its litigation statements concerning its subjective belief. For example, DuPont maintained in the SAAC that it “did not at any time understand the Licensed Field term [in section 2.09] to restrict” stacking of glyphosate-tolerant traits. [...] However, in a March 26, 2002 e- mail, a DuPont negotiator noted that “section 2.09 may be a problem . . . if we use a Glyphosate resistance gene (i.e. GAT) as a selectable marker in soybean transformation.” [...] The district court thus found that DuPont was aware of possible stacking restrictions in section 2.09, but it did not change the language of that section or suggest any language on the topic of stacking glyphosate- tolerant traits prior to executing the License. [...] Thus, we discern no clear error in the district court’s findings that DuPont had made factual misrepresentations of its subjective understanding.
Id. at *14-15 (internal citations omitted).
Analysis: Bad Faith
Legal Standard: Bad Faith“When a litigant’s conduct abuses the judicial process, dismissal of a lawsuit is a remedy within the inherent power of the court.” […] Under Eighth Circuit law, “a finding of bad faith is not always necessary to the court’s exercise of its inherent power to impose sanctions.” […] However, “[a] bad faith finding is specifically required in order to assess attorneys’ fees.” […] Thus, “if a court finds that fraud has been practiced upon it, or that the very temple of justice has been defiled, it may assess attorney’s fees against the responsible party, as it may when a party shows bad faith by delaying or disrupting the litigation or by hampering enforcement of a court order.” […]
Monsanto at *17-18 (internal citations omitted).
Bad Faith FoundFor almost two years from January 2010 to December 2011, DuPont restored, amended, and litigated its reformation counterclaims. When seeking leave to file the SAAC, DuPont represented to the district court that the amended counterclaims were the product of its “additional investigation” of the factual basis for reformation. […] DuPont’s internal documents, however, contradicted its litigation statements concerning reformation. Those internal documents were initially withheld by DuPont under a claim of privilege and produced only after the court’s ruling on Monsanto’s motion to compel, in which the court gave DuPont the option of either dismissing the reformation claims or producing those internal documents. DuPont chose to continue litigating the reformation claims and seeking to invoke the court’s equitable power to reform the License in order to obtain the right to make and sell an OGAT/RR product, despite contradictory evidence showing that DuPont’s own negotiators questioned whether DuPont had obtained that right. We therefore conclude that the district court did not err in holding that DuPont had abused the judicial process and acted in bad faith.
Id. at *18-19 (internal citations omitted).
Dicta: Lower Standard Applied for SanctionsAlthough, as indicated, we agree with the district court that DuPont’s overly zealous advocacy to advance its reformation claims constituted bad faith and vexatious conduct, we do find that DuPont’s conduct did not satisfy the high standard for “fraud on the court” as described in Nichols v. Klein Tools, Inc., 949 F.2d 1047, 1048 (8th Cir. 1991) and Pfizer Inc. v. International Rectifier Corp., 538 F.2d 180, 195 (8th Cir. 1976). In those cases, fraud on the court was narrowly defined as “the most egregious mis conduct directed to the court itself, such as bribery of a judge or jury or fabrication of evidence by counsel.” Id. Such conduct did not occur here. However, other Eighth Circuit cases appear to apply a lower standard for sanctions under the court’s inherent powers and do not require a finding of “fraud on the court.” […] Under the latter test, DuPont exceeded the bounds of appropriate conduct and stretched its advocacy beyond what was reasonably justified.
Id. at 19-20 (some internal citations omitted).
Because we conclude that the district court did not abuse its discretion in imposing the sanctions on DuPont, we affirm.
Monsanto at *20.
 Image Attribution: Daniel Ramirez, “Alligator hiding behind bush,” available under a Creative Commons Attribution 2.0 Generic license, http://commons.wikimedia.org/wiki/File:Alligator_hiding_behind_bush_(5213912188).jpg (last visited May 21, 2014) (image edited).
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