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Innovative Global Systems, LLC v. Zonar Systems, Inc.

United States District Court, D. South Carolina, Rock Hill Division

August 26, 2019

Innovative Global Systems, LLC, Plaintiff,
v.
Zonar Systems, Inc., Defendant.

          ORDER AND OPINION

         Plaintiff Innovative Global Systems, LLC (“IGS”) filed this action against Defendant Zonar Systems, Inc. (“Zonar”) “seeking to recover unpaid royalties arising from Zonar's breach of [] [c]ontract and seeking a declaratory judgment requiring Zonar to pay royalties owed in the future.” (ECF No. 17 at 6 (referencing ECF No. 1 at 13 ¶ 98-15 ¶ 114).)

         This matter is before the court on Zonar's Motion to Dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure (ECF No. 12) and Motion for Summary Judgment pursuant to Rule 56 (ECF No. 13). IGS opposes both Motions in their entirety. (ECF Nos. 16, 17.) For the reasons set forth below, the court DENIES Zonar's Motion to Dismiss and DENIES its Motion for Summary Judgment.

         I. RELEVANT BACKGROUND TO PENDING MOTIONS

         On October 1, 2011, IGS and Zonar entered into an agreement (ECF No. 1-4) (the “Contract”) in which IGS agreed to license to Zonar some of its patents, including ones identified by U.S. Patent Nos. 6, 946, 953 and 7, 102, 494 (hereinafter identified as the “Enhanced Patents”).[1]“In return, Zonar agreed to pay IGS a royalty [of $5.00] for Zonar's sale and servicing of [each] ‘Licensed System[]' covered by the Enhanced Patents.”[2] (ECF No. 16 at 4 (citing ECF No. 1-4 at 5 ¶ 3.2.1).) On July 1, 2014, the parties entered into an Addendum to the Contract (ECF No. 1-5) “based on Zonar's representation that the sales volume of Licensed Systems would substantially increase.” (ECF No. 16 at 4 (citing ECF No. 16-1 at 3 ¶ 17-4 ¶ 18).) IGS contends that “Zonar's communications indicated to IGS that Zonar understood that its Products and Systems were covered by the Enhanced Patents, and Zonar feared its royalty payments to IGS would be unsustainable.” (ECF No. 17 at 5 (citing ECF No. 1 at 9 ¶¶ 69, 70).) As a result of Zonar's description of expected future sales, IGS alleges that it “agreed to take a lower royalty for each unit-in-service above a specified threshold” because it “believe[d] that Zonar's royalty payments would increase from the forecasted increase in volume.” (ECF No. 16 at 4 (citing ECF No. 16-1 at 3 ¶ 17-4 ¶ 18); ECF No. 17 at 5 (citing ECF No. 1 at 9 ¶ 70).)

         On October 26, 2016, Mike King, Zonar's General Counsel, sent an e-mail to Alan Lesesky, IGS's Chief Executive Officer (“CEO”), informing him that Continental AG was purchasing Zonar and stating his belief that Zonar's Products and Systems were no longer covered by the Enhanced Patents under the Contract. (ECF Nos. 16-1 at 4 ¶ 19, 16-2 at 5.) Thereafter, Zonar ceased paying royalties to IGS, “yet Zonar [allegedly] continues to sell and service Licensed Systems covered by the Enhanced Patents.” (ECF Nos. 16-1 at 4 ¶ 19, 17 at 6 (citing ECF No. 1 at 10 ¶ 75).)

         After the parties were unable to resolve their dispute, IGS filed the instant matter in this court on November 14, 2018, seeking to recover past due royalties from Zonar's alleged breach of the Contract and a declaratory judgment regarding future royalties. (ECF No. 1 at 13 ¶ 98-15 ¶ 114.) Thereafter, on December 21, 2018, Zonar moved to dismiss the matter (ECF No. 12) and for summary judgment (ECF No. 13). IGS filed Memorandums of Law in Opposition to the pending Motions on January 18, 2019. (ECF Nos. 16, 17.)

         The court heard argument from the parties on Zonar's Motions at a hearing on August 6, 2019. (ECF No. 36.) The court considers the merits of Zonar's Motions below.

         II. JURISDICTION

         The court has subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1332, because the parties are citizens of different states and the amount in controversy exceeds $75, 000.00, exclusive of interest and costs. For jurisdictional purposes, IGS alleges that it is a limited liability company organized under the laws of the State of South Carolina with its principal place of business in Rock Hill, South Carolina and its members are citizens of South Carolina and North Carolina. (ECF No. 1 at 1 ¶ 1.) IGS further alleges that Zonar is a corporation organized under the laws of the State of Washington with its principal place of business in Seattle, Washington. (Id. ¶ 2.) The court is satisfied that the amount in controversy exceeds $75, 000.00, exclusive of interest and costs. (Id. ¶ 4. See also ECF No. 1 at 13 ¶¶ 95, 97.)

         III. LEGAL STANDARD

         A. Rule 12(b)(6) Motions Generally

         A motion to dismiss pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted “challenges the legal sufficiency of a complaint.” Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009) (citations omitted); see also Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992) (“A motion to dismiss under Rule 12(b)(6) . . . does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.”). “In considering a 12(b)(6) challenge to the sufficiency of a complaint, this Rule must be applied in conjunction with the liberal pleading standard set forth in Federal Rule of Civil Procedure 8(a).” Jenkins v. Fed. Bureau of Prisons, C/A No. 3:10-1968-CMC-JRM, 2011 WL 4482074, at *2 (D.S.C. Sept. 26, 2011). Rule 8(a) provides that to be legally sufficient, a pleading must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2).

         A motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim should not be granted unless it appears certain that the plaintiff can prove no set of facts that would support her claim and would entitle her to relief. Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). When considering a motion to dismiss, the court should accept as true all well-pleaded allegations and should view the complaint in a light most favorable to the plaintiff. Ostrzenski v. Seigel, 177 F.3d 245, 251 (4th Cir. 1999); Mylan Labs., Inc., 7 F.3d at 1134. “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

         B. Motions for Summary Judgment Generally

         Summary judgment should be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is “material” if proof of its existence or non-existence would affect the disposition of the case under the applicable law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). A genuine question of material fact exists where, after reviewing the record as a whole, the court finds that a ...


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