author: WINDER, District Judge.

text:
    T.J. SMITH AND NEPHEW LIMITED, Plaintiff, v. PARKE, DAVIS & COMPANY d/b/a Deseret Medical; and Acutek Adhesive Specialities, Inc., Defendants.
    Civ. No. C-85-0615W.
    United States District Court, D. Utah, C.D.
    Nov. 13, 1985.
    Albert L. Jacobs, Jr., Mark H. Sparrow, New York City, Louis H. Callister, James R. Holbrook, Andrew C. Hess, Salt Lake City, Utah, for plaintiff.
    H. Ross Workman, David 0. Seeley, Salt Lake City, Utah, Aaron Passman, Sandy, Utah, for defendants.
   ORDER DENYING MOTION FOR PARTIAL SUMMARY JUDGMENT

WINDER, District Judge.

This case, involving the alleged infringement of plaintiff’s patent, is before the court on defendants’ motion for partial summary judgment. The parties fully briefed their arguments and then presented oral argument to this court on August 16, 1985. Albert L. Jacobs, Jr., Mark H. Sparrow and Andrew C. Hess appeared on behalf of the plaintiff, T.J. Smith and Nephew Limited. H. Ross Workman, David 0. Seeley and Aaron Passman appeared on behalf of the defendant, Deseret Medical. The court took the matter under advisement and has fully reviewed the memoranda submitted by the parties and all relevant authority. Being fully advised, the court now renders the following decision and order.

BACKGROUND

Plaintiff, T.J. Smith and Nephew Limited (“Smith & Nephew”), is a corporation of the United Kingdom and the owner of domestic and foreign patents related to a continuous synthetic polymer adhesive affixed to a moisture-vapor permeable continuous backing member. Smith & Nephew’s adhesive is useful and commercially successful for a number of purposes including use as a surgical drape, a suture strip, an adhesive dressing or a bandage.

Smith & Nephew obtained United States Patent Number 3,645,835 entitled “Moisture-Vapor-Permeable Pressure Sensitive Adhesive Materials” (hereinafter the “original patent”) on its adhesive on February 29, 1972. In 1980, Smith & Nephew filed for reissue of the original patent pursuant to 35 U.S.C. § 251. On May 14, 1985, Smith & Nephew’s original patent was surrendered and a reissue was granted under United States Reissue Patent Number Re. 31,887 (hereinafter the “reissue patent”).

Defendant, Deseret Medical (“Deseret”) is an unincorporated business association that makes and sells a number of medical products. One of its products is a wound dressing sold under the trademark ‘ Ensure-it.” Smith and Nephew brought the present action complaining that Deseret’s Ensure-it wound dressing infringes the reissue patent.

Deseret brought this motion for partial summary judgment seeking relief pursuant to 35 U.S.C. § 252, the provision governing the effect of reissue patents. Deseret argues that “[u]nder 35 U.S.C. § 252, the owner of a reissue patent can only obtain recovery for pre-reissue infringement where the reissue patent repeats claims which were in the original patent.” (Memo in support of Deseret’s Motion for Partial Summary Judgment, p. 1.) They contend that none of the claims in Smith & Nephew’s reissue patent are identical to claims appearing in the original patent and that they are therefore not liable for any prereissue acts of infringement.

Smith & Nephew opposes Deseret’s motion on the ground that the record does not contain sufficient evidence to warrant the application of § 252. They argue that whether § 252 is available to relieve Deseret from liability for any pre-reissue infringement is dependent upon whether the allegedly infringed claim of the reissue patent is identical to a claim in the original patent. They further argue that the issue of whether the allegedly infringed claim of the reissue patent is identical to a claim of the original patent turns on issues of fact which are disputed by the parties.

DISCUSSION

The basic thrust of Deseret’s motion is that because the allegedly infringed claim of the reissue patent does not repeat a claim of the original patent, Deseret is not liable for any alleged infringement prior to May 14, 1985, the date of the reissue. The statutory basis of Deseret’s argument is 35 U.S.C. § 252 which provides that a cause of action based on an original patent will survive a reissue only so long as the claims of the original and reissued patent are identical. It also provides for “intervening rights” in a manufacturer who has infringed a valid claim of a reissued patent so long as the allegedly infringed claim of the reissue patent is not identical to a claim of the original patent.

Were we to grant Deseret’s motion for partial summary judgment, the present lawsuit would be greatly simplified. Granting this motion would entirely eliminate the need for discovery and trial concerning sales made by Deseret prior to the date of the reissue. It would also avoid the need for a separate determination of patent infringement as to any pre-reissue variations in Deseret’s product and would alleviate the need to resolve issues concerning Deseret’s pre-reissue conduct. We find, however, that this lawsuit cannot be so simplified because a genuine issue of material fact exists with regard to the issue of whether the allegedly infringed claim of the reissue patent is identical to a claim of the original patent.

THE LAW: This case is governed by 35 U.S.C. § 252, the section which specifies the effect of reissue patents. The question presented for this court is a mixed question of fact and law. Resolution of this motion turns on both the interpretation that is given the term “identical” as it is used in § 252 and on an application of § 252 to the facts of this case.

Both parties agree that the interpretation given to the term “identical” is not the one that a literal reading of the term suggests. The parties disagree, however, on the extent of the differences that can exist between the claims of an original and reissue patent before they will be found not identical for purposes of § 252. Deseret urges that this court read “identical” as embracing only those changes that do not modify the scope of the claim. It contends that practically any change in wording constitutes such a modification. Smith & Nephew urges that the claims of the reissue patent need only be “substantially identical” to those of the original patent and that clarifying amendments as well as mere differences in wording and phrasing will not defeat an assertion that claims are identical.

The different definitions of the term “identical” urged by the parties seem to go more to the application of the definition than to the definition itself. Both parties agree that claims are not identical where the scope of one claim differs from the scope of the other. Both parties also concede that “identical” has been given less than a literal meaning when interpreted in the context of § 252. The parties part company on the issue of whether adding a modifying phrase to the reissue changed the scope of the claim.

THE RECORD: This motion is before the court upon an almost bare factual record. The only evidence in the record is the reissue patent itself. Deseret acknowledges the scant evidence before this court but contends that the precise language of the patent claims is all that is necessary to decide this motion, in their favor. They argue that a comparison of the language in the original and reissue patents and the differences that such a comparison discloses preclude a determination that the allegedly infringed claim of the reissue is substantially identical to a claim of the original patent.

Smith & Nephew concedes that the language of the reissue patent differs from that of the original patent but opposes Deseret’s motion by arguing that this fact alone does not preclude a finding that the claims of the original and reissue patents are “substantially identical.” They contend that claims cannot be properly interpreted without going beyond their literal language and examining evidence not currently in the record. Smith & Nephew also opposes Deseret’s motion on the rationale that relief under § 252 is a matter of equitable discretion for the court and that the record is barren of evidence with regard to the equities of this case.

THE PATENTS: Smith & Nephew specifically urges that Claim 12 of the reissue patent (“Claim 12”) contains claims of the same scope as Claim 15 of the original patent (“Claim 15”). Deseret and Smith & Nephew agree that the literal language of Claim 12 of the reissue and Claim 15 of the original patent are not identical word for word copies of one another. Claim 12 contains modifiers that are absent from Claim 15. These modifiers consist of the words “which is” and “unreinforced” placed so as to modify the term “thermoplastic polyurethane film.” Where the parties disagree is whether the existence of the additional modifying phrase in Claim 12 constitutes a change in scope from Claim 15.

Deseret argues that the addition of the modifying phrase narrowed the scope of Claim 15 in two specific ways. First, it argues that under the original patent, either a reinforced or an unreinforced backing material would have fallen within the claim while the specification of the term “unreinforced” in the reissue dictates that a material with a reinforced backing does not infringe the patent. Second, Deseret argues that the substitution of the term “which is’-’ for the term “comprises” results in a narrowing of scope by changing an inclusive term to a restrictive term.

Smith & Nephew disagrees with Deseret’s interpretation of the amendments in the reissue. It maintains that the original patent reflected the limitations added to the reissue patent and that the amendment was one of mere clarification that did not change the scope of the claim. It strenuously urges that extensive external evidence will be required for this court to evaluate whether the additional language in Claim 12 constituted a substantive change from, or a mere clarification of, Claim 15.

We agree with Smith & Nephew that additional evidence is necessary before this court can determine whether Claim 12 is “identical” to Claim 15 for purposes of § 252. Ample caselaw supports our conclusion that such a determination cannot be made solely on the basis of the language of the claims.

In General Plastic Corporation of America v. Finkelstein, 145 F.Supp. 862 (E.D.Penn.1956), as in this ease, the court confronted, on a motion for summary judgment, the issue of whether a claim in a reissue patent was “identical” to a claim of the original patent within the meaning of 35 U.S.C. § 252. In Finkelstein, however, the court relied on much more than the bare language of the claims themselves. The court referred to the drawings and specifications contained in the patent in order to determine whether the substitution of the phrase “a flexible inverted generally U-shaped strap” for the phrase “a flexible inverted V-shaped strap ... the ends of said strap extending below said molded body member ...” changed the scope of the claims. In discussing the application of § 252, the court stated:

Were we to read the claim of the [pjatent independent of the drawings and specification, such a claim would be incomplete, and the description “a flexible inverted V-shaped strap” would have to be accepted as meaning exactly what it said. But this we are npt permitted to do. It is elementary that the claim is to be read in light of the disclosure on the specification.

145 F.Supp. at 863. After reading the claims in light of the drawings and specifications, the court concluded that the claims were identical for purposes of § 252 inasmuch as the “change [was] ... clearly a correction of a mistaken description.” Id.

Similarly, in Doble Engineering Co. v. Leeds & Northrup Co., 134 F.2d 78 (1st Cir.1943), the court noted that, like a contract, a patent is to be construed with “reference to the circumstances surrounding its inception.” Thus, in interpreting the scope of the patent claims at issue, the court looked not only at the contents of the patent itself but at the file wrapper of the U.S. Patent Office which contained the full prosecution history of the patent in question.

We are also persuaded by the reasoning of the court in Vemay Laboratories, Inc. v. Industrial Electronic Rubber Company, 234 F.Supp. 161 (N.D.Ohio 1964). Vernay was a patent infringement case in which the defendant had moved for summary judgment. One of the issues raised was whether the allegedly infringed claims of the original patent were “identical” to a claim of the reissue. The court denied the motion, holding that the issue could not be resolved on summary judgment. It reasoned that even though many of the facts were agreed upon, there was irreconcilable disagreement on the conclusions to be drawn from the admitted facts. Particularly in a complex patent case, different conclusions can be drawn from established facts and expert testimony may be necessary to resolve the dispute. Id. at 165. See also, Autogiro Company v. United States, 384 F.2d 391, 181 Ct.Cl. 55 (1967) (claims are best construed in connection with other parts of the patent instrument and with the circumstances surrounding the inception of the patent application); Johnston v. Textron, 579 F.Supp. at 793 (court looked to history of the patent’s prosecution and listened to expert testimony in deciding the scope of the claims).

The contents of defendants memoranda supporting its motion for partial summary judgment independently demonstrate the inappropriateness of granting this motion on the current state of the record. As indicated above, the only evidence properly before the court is the reissue patent itself. Deseret’s memoranda, however, contain numerous references to various other documents and so-called facts, which are before this court only as “Exhibits.” For example, Deseret bases its whole argument in support of this motion on two allegedly “material facts with respect to which no genuine issue exists.” (Memo in Support of Deseret’s Motion, p. 4.) “Fact” number two is that “[n]o reissue claim ... is identical to any claim appearing in the original ... patent.” Following this “fact” is a citation to two exhibits—a brief appealing a decision of the patent examiner and a proposed amendment submitted to the Commissioner of Patents and Trademarks in relation to the prosecution of the reissue patent. Neither of these documents is properly before this court.

After a careful review of the record, the caselaw and in light of the recognition that different conclusions can be drawn from the language of the patent claims at issue, we agree with Smith & Nephew that a genuine issue of fact remains. Federal Rule of Civil Procedure 56(c) provides that there must be no “genuine issue as to any material fact” before a court may grant a summary judgment motion. The issue of whether Claim 15 is identical to Claim 12 for purposes of § 252 is an issue that turns on facts not properly in the record.

Accordingly,

IT IS HEREBY ORDERED that Deseret’s motion for partial summary judgment is denied.

      . 35 U.S.C. § 252 provides:
      “The surrender of the original patent shall take effect upon the issue of the reissued patent, and every reissued patent shall have the same effect and operation in law, on the trial of actions for causes thereafter arising, as if the same had been originally granted in such amended form, but in so far as the claims of the original and reissued patents are identical, such surrender shall not affect any action then pending nor abate any cause of action then existing, and the reissued patent, to the extent that its claims are identical with the original patent, shall constitute a continuation thereof and have effect continuously from the date of the original patent.
      No reissued patent shall abridge or affect the right of any person or his successors in business who made, purchased or used prior to the grant of a reissue anything patented by the reissued patent, to continue the use of, or to sell to others to be used or sold, the specific thing so made, purchased or used, unless the making, using or selling of such thing infringes a valid claim of the reissued patent which was in the original patent. The court before which such matter is in question may provide for the continued manufacture, use or sale of the thing made, purchased or used as specified, or for the manufacture, use or sale of which substantial preparation was made before the grant of the reissue, and it may also provide for the continued practice of any process patented by the reissue, practiced, or for the practice of which substantial preparation was made, prior to the grant of the reissue, to the extent and under such terms as the court deems equitable for the protection of investments made or business commenced before the grant of the reissue.”

      . "Intervening rights” encompass the rights given an infringer under 35 U.S.C. § 252 "to continue to use or sell those infringing goods which were made, purchased, or used prior to the reissue grant, unless [the infringer] infringes a valid claim of the reissue patent which was in the original patent.” Plastic Container Corp. v. Continental Plastics, 607 F.2d 885, 901 n. 35 (10th Cir.1979), cert. denied, 444 U.S. 1018, 100 S.Ct. 672, 62 L.Ed.2d 648 (1980). A court may also award intervening rights, "to the extent it deems equitable, for either the conditional or unconditional continuation of the making, using, and selling of the infringing goods or process." Id.

      . The distinction between the "no modification of scope" definition urged by Deseret and the "substantially identical” definition urged by Smith & Nephew is merely semantic. An amendment which changes the scope of a claim would a fortiori preclude a characterization of the claims as “substantially identical.” Similarly, claims characterized as not “substantially identical,” would necessarily differ in scope. Cf., Johnson v. Textron, 579 F.Supp. 783, 790 (D.R.I.1984), aff'd, 758 F.2d 666 (Fed.Cir.1984). (A reissue narrowed in scope can still be considered substantially identical for purposes of § 252).

      . No court has held that a reissue claim must be a word for word copy of an original claim before denying intervening rights under § 252. For example, in Akron Brass Company v. Elk-hard Brass Manufacturing Company, 353 F.2d 705 (7th Cir.1965), the Court of Appeals for the Seventh Circuit found that although the claim of the reissue patent in question substituted the word "outlet” for the word "inlet,” the claims were still "identical" for purposes of § 252. Similarly, in Austin v. Marco Dental Products, Inc., 560 F.2d 966 (9th Cir.1977), cert. denied, 435 U.S. 918, 98 S.Ct. 1477, 55 L.Ed.2d 511 (1978), the court interpreted "identical” as used in § 252 to mean "substantially identical.” It therefore held that where a modification in a claim is merely to clarify and make more precise the language used, without substantive changes in the claims, the defendants cannot take advantage of the rights provided under § 252.

      . The language of the claims in the original patent is also before the court inasmuch as the manner in which reissue patents are issued by the United States Patent Office indicates the differences in language between the original patent and its reissue. Brackets are used to identify language that was removed from the original claim by amendment and underscoring is used to identify language that was added to the claim by amendment.

      . Smith & Nephew also argues that even should this court hold that the reissue claim is of a different (presumably narrower) scope than an original claim, this motion should be denied on the ground that § 252 does not apply to narrowed reissues. "Narrowed reissues” refers to those patents where the claims of the reissue are narrower in scope than those of the original patent. This is an issue which the Tenth Circuit has not yet decided. See Plastic Container Corp., 607 F.2d at 901 n. 36. It is not necessary for us to decide this issue in light of our holding that a genuine factual dispute exists over the scope of the reissue claim in relation to the scope of the original.

      . It is unnecessary to address this contention inasmuch as this motion is denied on an alternate ground.

      . Claim 12 of the reissue patent, which indicates through underscoring the additions made to the original patent, reads as follows:
      12. A moisture-vapous-permeable-pressuresensitive adhesive material for use on animal skin and nails, comprising a backing material which is an unreinforced thermosplastic polyurethane film having a pressure-sensitive adhesive on at least substantially the whole of the body-adhering portion of at least one surface of said backing material and said adhesive being moisture-vapour-permeable and unaffected by water and both said backing material and said adhesive comprising a synthetic polymer and being continuous and non-permeable to liquid water, said adhesive material having a moisture vapour permeability of at least 300 g./sq. meter/24 hours/40°C/80 percent R.H.

      . Claim 15 of the original patent, which modified Claim 12 of that patent, provided that the backing material of original Claim 12 “comprises” a thermoplastic polyurethane film. Claim 12 of the reissue specifies a backing material "which is” ... thermoplastic polyurethane film. Deseret argues that "compromises” is an inclusive term permitting the inclusion of unspecified elements or materials whereas the term "which is" is a restrictive term incapable of permitting inclusion of unspecified elements.

      . Smith & Nephew concedes that, as a whole, the reissue patent is narrower in scope than the original patent. The fundamental contested issue of fact is whether Claim 12 of the reissue is of the same scope as Claim 15 of the original.

      . This point was illustrated in oral argument when counsel for Smith & Nephew represented that he knew of no “continuous” reinforced backing material. If counsel was correct and there is no "continuous" and reinforced backing material in existence, the addition of the term "unreinforced” to Claim 12 would not have changed the scope of that claim inasmuch as Claim 15 specified a "continuous” backing. In order to determine whether this is the case, the court would need evidence bearing on the existence and feasibility of "continuous reinforced backing material.” Evidence of this nature, however, is not currently part of the record.

      . Most of the cases cited by Deseret in support of the opposite conclusion are inapposite to the case at bar because they arose after a complete trial on the merits of the patent claims in question. See e.g., Seattle Box Company v. Industrial Crating & Packing, 731 F.2d 818 (Fed.Cir.1984). In those cases, the courts had the opportunity to gather complete evidence with regard to the scope and nature of the particular claims involved. Thus, they do not support Deseret's contention that the issue of claim identity for purposes of § 252 can be resolved in a motion for summary judgment on an almost empty factual record. In deciding whether the reissue had changed the scope of a particular claim, those courts made a determination based on much more than the mere language of the particular claims. In this case, Deseret asks us to resolve this important issue without the benefit of outside evidence.

      . This court acknowledges that the entire reissue patent, including the drawings and specifications, is part of the record. However, the arguments of the parties rely only on the actual language of the claims and on other “facts” not in the record. There has been no assertion that the drawings, specifications or other parts of the patent itself would be of any assistance in determining whether the claims are identical for purposes of § 252.

      . Smith & Nephew contends that many of these exhibits are taken out of context. The court has no way of evaluating this claim inasmuch as the documents are not a part of the record and there is nothing supporting either their authenticity or completeness. Neither is there any evidence indicating the context of the various statements pulled from the documents in question.

      . In order to be considered as evidence on a motion for summary judgment, exhibits must be made a part of an affidavit and properly authenticated. See, Fed.R.Civ.P. 56(e); 10A Wright, Miller & Kane, Federal Practice and Procedure § 2722 (1983).


source: Caselaw Access Project

author: WARREN, District Judge.

license: Public Domain

text:
    Larry BORNSTEIN and Sandy Bornstein, Plaintiffs, v. FIREMAN’S FUND INSURANCE COMPANY, Defendant.
    No. 84-C-1344.
    United States District Court, E.D. Wisconsin.
    Nov. 19, 1985.
    Marjan R. Kmiec, Milwaukee, Wis., for plaintiffs.
    Robert C. Burrell, Borgelt, Powell, Peterson & Frauen, Milwaukee, Wis., for defendant.
   ORDER

WARREN, District Judge.

This case involves an alleged breach of a health insurance contract between plaintiff Larry Bornstein and defendant Fireman’s Fund Insurance Company. The complaint includes three separate claims, the first two of which have been brought by Larry Bornstein for breach of contract and for emotional distress incurred by him due to defendant’s alleged bad faith refusal to pay benefits under the insurance contract. The third claim was brought by Sandy Born-stein, Larry Bornstein’s wife, for loss of consortium which she alleges was caused by the acts of the defendant. Jurisdiction exists on the basis of diversity of citizenship.

Presently before the Court is the defendant’s motion to dismiss count three of the complaint, Sandy Bornstein’s claim for loss of consortium. The defendant contends that this claim should be dismissed for two reasons: (1) Wisconsin law does not permit a spouse’s claim for loss of consortium when the primary claim is for bad faith refusal to pay insurance benefits; and (2) a claim for loss of consortium cannot be brought in the absence of a physical injury to the claimant’s spouse.

Sandy Bornstein, hereafter referred to as the plaintiff, responds that her claim for loss of consortium is an entirely separate cause of action which does not arise from her husband’s bad faith claim. The plaintiff also contends that a claim for loss of consortium depends upon a personal injury to the claimant’s spouse, as opposed to defendant’s assertion that the injury be a physical one.

The Court does not intend to resolve the latter issue as the complaint quite clearly indicates that the defendant’s acts caused not only mental but also physical damage to Larry Bornstein. Paragraph 5 of the complaint reads as follows:

5. That the plaintiff, Larry Bornstein, had physiological problems that required treatment by various doctors and clinics, including treatment at the U.C.L.A. Medical Center in Westwood, California. That he treated (sic) for viral encenphalitis (sic), viral hepatitis, anxiety, muscle jerking, and ulcerative prostatitis (colitis), which conditions are exacerbated by tension and anxiety, and ultimately deep depression. That his condition required medical treating and medication, including medically necessary examinations leading to diagnosing and further treatment of the plaintiff.

In paragraph 17, plaintiff Larry Bornstein alleges that:

17. As a proximate result of the tortious conduct of the defendant, the plaintiff, Larry Bornstein, has suffered physical and emotional injuries, and has incurred hospital and medical expenses, and other damages. The plaintiff, Larry Bornstein, has suffered psychological harm, all to his damage in a sum as set out hereinafter. Proof to be furnished at the time of trial as to other damages.

Assuming all of the allegations of the complaint to be true, as the Court must in resolving a motion to dismiss, Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 1081, 31 L.Ed.2d 263 (1972), the Court concludes that Larry Bornstein suffered both physical and mental injuries as a proximate result of the defendant’s actions. The plaintiff’s failure to raise this argument in her brief is perplexing.

As to defendant’s first argument in support of its motion to dismiss, only three Wisconsin eases on point have been brought to the Court’s attention. In those cases, Sanchez v. Aetna Casualty & Surety Co. of America, Milwaukee County Circuit Court Case No. 670-204 (August 26, 1985), Wachtl v. Insurance Company of North America, Milwaukee County Circuit Court Case No. 622-303 (April 27, 1984), and Vasquez v. Insurance Company of North America, Milwaukee County Circuit Court Case No. 542-938 (May 27,1981), the circuit courts dismissed the loss of consortium claims arising out of the insurers’ alleged bad faith refusal to provide insurance benefits. In Wachtl, the only written decision of the three which included any discussion of the issue, the court stated that the wife’s claim for loss of consortium was dependent upon her husband’s injury. Since the insurer’s only duty ran to the plaintiff’s husband as the injured party, the court concluded that the wife lacked a claim for loss of consortium. Wachtl, supra.

Neither this Court nor, apparently, either of the parties was able to locate a Wisconsin Supreme Court or Court of Appeals decision discussing whether a claim for loss of consortium may arise out of a bad faith refusal to pay insurance benefits. Understandably, spouses of those whose insurance benefits have been wrongfully denied rarely file claims for loss of consortium, thus explaining the paucity of cases in which this issue was raised.

In a situation analagous to the present one, the court in Austero v. National Casualty Co. of Detroit, Mich., 62 Cal.App.3d 511, 133 Cal.Rptr. 107 (1976), dismissed a claim for emotional distress filed by the wife of a man whose insurance company refused, in bad faith, to pay him* disability insurance benefits. The Court reasoned that, since the wife was not a party to the insurance contract, the insurer owed no duty to her to settle her husband’s claim in good faith. 133 Cal.Rptr. at 109-111.

The plaintiff in the present case attempts to distinguish Austero from this action on the basis that her claim is for loss of consortium, not emotional distress. While this distinction is noteworthy, it does not render the analysis and result of the Austero case entirely inapplicable. In fact, the same logic employed by the court in Austero served as the basis of the court’s decision in Wachtl, where a claim for loss of consortium was at issue.

The Court agrees with the plaintiff that her claim for loss of consortium is a separate cause of action apart from her husband’s claims. Schwartz v. City of Milwaukee, 54 Wis.2d 286, 293, 195 N.W.2d 480 (1972). In that sense, one who has suffered a loss of consortium need not rely upon her spouse to file an action for his injuries in order to pursue her own claim separately. Fitzgerald v. Meissner & Hicks, Inc., 38 Wis.2d 571, 157 N.W.2d 595 (1968).

The Court does not view this argument, however, as one which necessarily addresses and refutes the defendant’s position. A wife’s claim for loss of consortium does depend upon an injury to her husband. In order for the wife to recover on her claim, it is clear that the defendant must be found liable for breach of some contractual obligation or duty owed to her husband.

The crux of the present dispute centers on whether the defendant must have breached a corresponding contractual obligation or duty owed to the wife in order for her to assert a claim for loss of consortium. The circuit courts of this state which have addressed this question answered it affirmatively. The decision of the California court is consistent with those of the Wisconsin circuit courts. The plaintiff has presented no authority to the contrary. Until this question is reached and resolved by the appellate courts of this state, this Court will follow the decision of the circuit courts on this question of state law.

Accordingly, defendant’s motion to dismiss count three of the complaint is hereby GRANTED.


author: JOHN V. PARKER, Chief Judge.

text:
    TEMTEX PRODUCTS, INC. v. CAPITAL BANK & TRUST CO.
    Civ. A. No. 81-842-A.
    United States District Court, M.D. Louisiana.
    Nov. 21, 1985.

      Charles E. Spedale, Gaudin, Olinde & Spedale, Baton Rouge, La., for plaintiffs.
    Leon Gary, Jr., Gary & Field, Baton Rouge, La., for defendants.
   FINDINGS OF FACT AND CONCLUSIONS OF LAW

JOHN V. PARKER, Chief Judge.

Plaintiff, Temtex Products, Inc., a Tennessee corporation with its principal place of business in the state of Tennessee, has brought this action against defendant, Capital Bank & Trust Company of Baton Rouge, Louisiana, a banking corporation incorporated under the laws of Louisiana, having its principal place of business in the state of Louisiana. The amount in controversy exceeds $10,000, exclusive of interest and costs, and this court therefore has jurisdiction over the subject matter of this lawsuit by virtue of 28 U.S.C. § 1332.

This lawsuit was filed by Temtex against Capital Bank because of the bank’s failure to honor drafts presented for payment under a letter of credit, pursuant to La.R.S. 10:5-114 and 5-115. Plaintiff seeks payment of the total amount of the drafts, $24,802.84, plus interest and costs. Capital Bank alleges fraud in the transaction, pursuant to La.R.S. 10:5-114, such that consent is vitiated and rescission of the contract is justified under La.Civil Code Articles 1953-1958. Trial was held November 4, 1985, and the court took the matter under submission in order to review additional testimony offered by the defendant by way of deposition. The court, having now considered that additional evidence, presents the following as its findings of fact and conclusions of law.

Plaintiff is the beneficiary of an irrevocable letter of credit in the amount of $25,000, issued by Capital Bank on March 11, 1981, for the account of its customer, The Fireplace Shop of Baton Rouge, Inc. The letter of credit provided that Capital Bank would honor drafts presented to it by Temtex, up to the aggregate amount of $25,000, on condition that the drafts be accompanied by a ninety (90) day old invoice in an unpaid status. Temtex was a supplier of fireplace components to The Fireplace Shop and had requested the letter of credit as additional security for its extension of credit to The Fireplace Shop. Following negotiations between the owner of The Fireplace Shop, Mr. Willard Dugas, and Mr. Allie Pogue, an officer of Capital Bank, Ms. Andrea LeClerq issued the letter of credit. Temtex had been holding shipment of several orders to The Fireplace Shop and, upon receipt of the letter of credit, those orders were shipped and The Fireplace Shop of Baton Rouge was invoiced for the shipments. When payment was not forthcoming within ninety (90) days, Temtex presented the four invoices totalling $24,802.84, to Capital Bank for payment under the letter of credit. On August 21, 1981, Capital Bank refused to pay the drafts, noting on its Collection Advice that the account was in bankruptcy and that the drafts were disputed.

Capital Bank claims that it relied on representations made to it by Mr. Larry Smith, the Temtex controller, when making its decision to issue the letter of credit. The owner of The Fireplace Shop, Mr. Dugas, spoke with Mr. Allie Pogue and Ms. Andrea LeClerq, requesting the letter of credit from the bank. On December 2, 1980, Ms. LeClerq telephoned Mr. Smith at Temtex and asked for information concerning the status of The Fireplace Shop account. There is some dispute concerning the scope of Ms. LeClerq’s inquiry; she indicated that she asked about the overall financial condition of The Fireplace Shop accounts, whereas Mr. Smith insists that the conversations concerned only the Baton Rouge location of The Fireplace Shop and that his responses were directed to that more limited inquiry. At any rate, during several telephone conversations between Ms. LeClerq and Mr. Smith prior to the issuance of the letter of credit, Mr. Smith informed Ms. LeClerq that The Fireplace Shop was making regular, albeit slow, payments on its account with Temtex and that Temtex was satisfied with its financial relationship with The Fireplace Shop of Baton Rouge and with Mr. Willard Dugas.

It is clear from the evidence presented at trial that Mr. Smith did not volunteer any significant negative financial information concerning the Baton Rouge location of The Fireplace Shop, although in October, 1980, he had received a financial statement which showed that as of August 31, 1981, the business was experiencing a net loss for the year and that liabilities exceeded assets. Further, in October, 1980, Mr. Smith had been told by Mr. Garrett, a former co-owner with Mr. Dugas, as well as Dugas himself, that Mr. Garrett would try to put the Baton Rouge Fireplace Shop in involuntary bankruptcy. Mr. Smith explained the omission of this information, stating that Temtex was still receiving substantial payments on The Fireplace Shop of Baton Rouge account and he had no reason to repeat the casual remark made to him. Between July, 1980 and December, 1980, Temtex had shipped $93,000 worth of merchandise, of which $78,000 had been paid by the time of Ms. LeClerq’s first telephone call. Mr. Smith further indicated that between January and March, 1981, some $56,-000 of additional merchandise was shipped to The Fireplace Shop of Baton Rouge and that, during that period prior to the issuance of the letter of credit, an additional $55,000 was paid by The Fireplace Shop on its account. Mr. Smith stated that he did not put much stock in Mr. Garrett’s “off-the-cuff” comment concerning involuntary bankruptcy, particularly since nothing had come of the threat and no efforts had been made by Mr. Garrett to have Temtex join any other creditors in taking such a step.

The Baton Rouge operation was the first of four Fireplace Shop entities which were established and operated by Mr. Dugas and Mr. Garrett between 1976 and 1981. The two men were partners in D & G Partnership and were co-owners of fireplace shops in Baton Rouge, Lafayette, New Orleans and Bossier City. Of the four entities, by late 1980, the New Orleans facility had been liquidated and the Lafayette and Bossier City operations eould no longer meet their obligations to Temtex; only the Baton Rouge location was still conducting business on a regular basis. The co-owners/partners had fallen out with each other and as a result, Mr. Garrett and his wife had revoked their personal guarantees to Temtex which had previously secured The Fireplace Shop obligations. In turn, Mr. Dugas and his wife revoked their personal guarantees as to The Fireplace Shop in Lafayette, but continued to be personally obligated on the debts of The Fireplace Shop of Baton Rouge. In early 1981, while negotiations were still proceeding concerning the letter of credit, Temtex turned over the Lafayette and Bossier City Fireplace Shop accounts to a collection agency. On March 13, 1981, two days after the issuance of the letter of credit, Temtex’s attorney filed suit against The Fireplace Shop of Lafayette, Inc. for approximately $28,000. (Eventually, in October, 1981, a similar suit was filed by Temtex against The Fireplace Shop of Bossier City, Inc., for approximately $70,000.) Because of the revocation of the Garrett’s personal guarantees in June, 1980, the credit limit of The Fireplace Shop of Baton Rouge, Inc. had been reduced by Temtex from $75,000 to $40,000, and additional security in the form of the letter of credit was requested from Mr. Dugas. Occasionally, shipments were held by Temtex until The Fireplace Shop paid any amounts past due over 60 days. Unknown to either Capital Bank or Temtex at the time the letter of credit was issued, Mr. Garrett’s efforts had been successful and on March 4, 1985, a creditor’s petition for involuntary bankruptcy of The Fireplace Shop of Baton Rouge, Inc. had been filed in the Middle District of Louisiana.

Mr. Smith explained that he did not discuss the financial condition of the other Fireplace Shop entities with Capital Bank because the only operation under consideration at that time was the Baton Rouge store. The evidence establishes that Capital Bank was involved in financing the Baton Rouge store and no other. Capital Bank did not do business with any of the other Fireplace Shop entities; Mr. Smith limited his comments to the Baton Rouge operation because he was not asked about any other entities. Mr. Smith stated that Temtex had always supplied and billed the various locations as distinct and separate accounts. Despite the problems with the other locations, Temtex felt that the Baton Rouge store would continue as a going concern and had therefore continued to supply the Baton Rouge store with merchandise. Mr. Smith further testified that as of January 31, 1981, The Fireplace Shop account showed unpaid invoices in the amount of approximately $41,000, all of which was within 60 days, and that by February, 1981, all of this amount had been paid except for approximately $2000 (which was also later paid). Additional shipments were made by Temtex following those of March, 1981, represented by the drafts under the letter of credit. Some $29,000 worth of merchandise was shipped after that time and payments of $28,000 were received in March and $14,500 in April from The Fireplace Shop of Baton Rouge. According to Mr. Smith, this continuing activity was conducted by Temtex because of its belief that the Baton Rouge operation could meet its obligations.

The bankruptcy schedules of The Fireplace Shop of Baton Rouge, Inc. show that, at the time the letter of credit was issued, Capital Bank was by far the major creditor, having almost $500,000 in outstanding loans to The Fireplace Shop of Baton Rouge, Inc. In connection with those loans, Capital Bank received regular financial statements from Mr. Dugas and/or The Fireplace Shop of Baton Rouge. At the time the letter of credit was issued to Temtex, a similar letter of credit in the amount of $35,000 was outstanding to another Fireplace Shop supplier, Preway; this letter of credit expired by its terms on March 11, 1984, but was renewed by Capital Bank for $15,000 at that time. Capital Bank received the personal endorsement of Mr. Dugas as security for the letter of credit which was issued to Temtex. No additional credit check was conducted by the bank before issuing the letter of credit and whatever financial information was on file within the bank’s commercial loan department was not reviewed prior to the issuance of the letter of credit, although Ms. LeClerq testified that she knew about the outstanding loans and was. aware of the bank’s requirement for the submission of regular financial statements in connection with such loans. The only investigation conducted by the bank was by way of general discussion with Mr. Dugas concerning how business was going and the previously mentioned telephone conversations with Mr. Smith concerning the current status of the Temtex relationship with The Fireplace Shop of Baton Rouge. Mr. Du-gas indicated during his deposition that he regularly submitted financial statements to Capital Bank, including the one dated August 31, 1980, which showed the depreciating financial condition of the Baton Rouge store. He also testified that he informed Mr. Pogue that in order to maintain the $40,000 credit limit with Temtex, a letter of credit would have to be issued as additional security. Mr. Dugas also stated that he knew of Mr. Garrett’s threats to put the Baton Rouge store into involuntary bankruptcy and that he had informed Mr. Pogue of these efforts so that he could be aware of the situation. Mr. Dugas recalled that this information was communicated to Capital Bank in advance of the bankruptcy, possibly during the negotiations concerning the letter of credit; Mr. Pogue admits that Mr. Garrett’s threats were discussed, but contends that the discussion occurred after the bankruptcy had already been filed. Mr. Dugas further stated that he tried to keep both Temtex and Capital Bank informed concerning his overall financial condition.

It is clear from the evidence presented that plaintiff has established the facts necessary for recovery of the amounts submitted with the draft under the letter, unless the defendant’s theory of “fraud in the transaction” has been sufficiently proven, such that rescission of the letter of credit is justified. The letter of credit transaction actually involves three contracts East Girard Sav. Ass’n. v. Citi zens Nat. Bank, 593 F.2d 598, 601 (5th Cir.1979). One is the underlying contract between the customer and the beneficiary, in this case, the sale of goods on credit between Temtex and The Fireplace Shop of Baton Rouge. The second contract is between the issuing bank and its customer, in this case between Capital Bank and The Fireplace Shop of Baton Rouge, whereby the bank agrees to issue a letter of credit in order to facilitate commercial transactions for its customer, usually with the understanding that the customer will maintain certain accounts with the bank or otherwise guarantee reimbursement to the bank. The third contract is between the issuer and the beneficiary, in this case, Capital Bank’s agreement to pay Temtex when certain items are presented for payment, as long as those items meet the conditions established by the letter of credit. It is the third contract which is at issue in this litigation.

The letter of credit involved in this case is a “standby” letter of credit, in that the bank is not called upon to honor a draft until and unless, for some reason, the customer has failed to pay what it owes or otherwise has defaulted on its underlying contract with the beneficiary. As the Louisiana Supreme Court explained in the leading case on this subject, Cromwell v. Commerce & Energy Bank, 464 So.2d 721, 729 (La.1985), “... the event which triggers payment in the standby situation is a default on the underlying loan. The customer knows that the standby letter of credit will not be drawn on unless there is trouble—usually default on a loan made by the beneficiary.” Obviously, by the nature of a “standby” letter of credit, the risk for the issuer is greater than when an ordinary “commercial” letter of credit is issued, since by definition, the letter is only intended to operate if the underlying contract has been breached. (See discussion in Cromwell, supra, pp. 728-9). Thus the contract between the issuer and its customer is fraught with some inherent risk for the issuer, which can only be obviated by other factors, such as amounts on deposit or personal guarantees, operating between the issuer and its customer to lessen the risk. Philadelphia Gear Corp. v. F.D.I.C., 751 F.2d 1131, 1136 (10th Cir.1984).

The Louisiana statutes relied upon by both parties to this litigation are found in Title 10 of the Louisiana Revised Statutes, Section 5-101 et seq., also known as the Commercial Laws—Letters of Credit. That Chapter is substantially the same as corresponding provisions in the Uniform Commercial Code, § 5-101 et seq., and thus the experience of other states under these provisions is equally appropriate for interpreting the statutes. Generally, the statutes define the relationship between the issuer, the customer, and the beneficiary, (§ 5-103) and describe the rights and obligations of each of the parties. (§ 5-109, 5-114, 5-115) The defendant in this case has alleged that there was “fraud in the transaction,” [§ 5-114(2) ] such that it was entitled to refuse payment of the drafts, because the plaintiff, by omitting certain material information concerning the financial condition of The Fireplace Shop of Baton Rouge, fraudulently induced it to issue the letter of credit. In the alternative, the bank argues that because certain credits available to Temtex were not credited to the account of The Fireplace Shop before the drafts were presented, that Temtex thereby overstated the amount due. The bank urges that this overstatement is also fraud in the transaction, in the nature of fraudulent documentation or breach of warranties. The defendant incorporates the Louisiana Civil Code provisions on fraud, Civil Code Articles 1954-1958; the Louisiana Supreme Court has noted that these provisions “would seem to require the same results reached in most of the fraud cases involving letters of credit.” {Cromwell, supra, at 734), and are therefore included in this court’s analysis of the law.

The question presented to this court for consideration is a novel one, since the court is asked to decide whether “fraud in the inducement” vitiates the contract between the issuer and the beneficiary. There are generally two lines of cases discussing the question of “fraud in the transaction,” neither of which addresses this precise issue. One line of cases examines the situation in which the customer is alleging that it has been defrauded by the beneficiary in the underlying contract between customer and beneficiary. Cromwell, supra, is such a case, as are a number of the cases cited within it, leading the Louisiana Supreme Court to note that “Fundamentally, ‘fraud in the transaction,’ ... must stem from conduct by the beneficiary of the letter of credit as against the customer of the bank.” Citing Colorado National Bank of Denver v. Bd. of County Comm, of Routt County, 634 P.2d 32 (Colo.1981) (Cromwell, supra, at 732). Additional examples from this line of cases are Cappaert Enterprises v. Citizens & So. Intern., 486 F.Supp. 819 (E.D.La.1980), KMW Intern. v. Chase Manhattan Bank, N.A., 606 F.2d 10 (2d Cir.1979), and Enterprise Intern. v. Corporacion Estatal Petrolera Ecuatoriana, 762 F.2d 464 (5th Cir.1985). In the matter before the court, there is no allegation of fraud in the underlying contract between the beneficiary (Temtex) and the customer (Fireplace Shop). The injunctive relief which is made available in the case of fraud in the transaction [§ 5-114(2)(b)] is structured for the protection of the customer and enables the customer to enjoin payment on a letter of credit when the underlying transaction was permeated by the fraud of the issuer, and none of the cases which have interpreted this provision have considered it as grounds for invalidating the contract between issuer and beneficiary. This court will not assign to these provisions the interpretation suggested by defendant.

The second line of cases does examine the contract between issuer and beneficiary, concluding in some instances that fraud in the documents justifies the issuer’s dishonor of drafts. Cases discussing this issue include Philadelphia Gear Corp. v. Central Bank, 717 F.2d 230 (5th Cir.1983), East Girard Savings Ass’n. v. Citizens Nat. Bank, supra, and Roman Ceramics Corp. v. Peoples Nat. Bank, 714 F.2d 1207 (3d Cir.1983). Generally, the cases have relieved the issuer of liability under the letter of credit when the documents presented to it have been non-conforming to the terms of the letter of credit {Philadelphia Gear) or when the certification accompanying the documents is patently false, such as stating that invoices are unpaid when they were, in fact, paid {Roman Ceramics). The Cromwell case, supra, also discusses several cases in which the documents accompanying the draft were fabricated or forged, in which case the “fraud in the documents” justified nonpayment by the issuer.

These two lines of cases suggest that, as between the issuer and the beneficiary, the only proper analysis under Title 10 concerns the question of whether the documents and certifications submitted by the beneficiary to the issuer are genuine and conforming on their face to the terms of the letter of credit. The evidence in the matter before the court clearly establishes that the invoices which were submitted to the bank were genuine and that they were 90 days past due and were unpaid. Therefore, there was no “fraud in the documents” as the courts have interpreted that phrase. Capital Bank suggests that because Temtex and The Fireplace Shop had certain oral agreements for the payment of overriding royalties which allowed Temtex to apply credits to the amounts owed by The Fireplace Shop, that because Temtex did not offset the invoice amounts with those credits, the drafts fraudulently overstated the amounts due. Relying on the Roman Ceramics case, defendant argues that this “mis-allocation of funds” is a presentment of fraudulent documents. However, the Roman Ceramics case involved an agreement between the parties to credit certain payments to certain invoices; the payments were not applied in accord with the agreement and the beneficiary was attempting to get double payment on the invoices submitted with its drafts. There is no evidence before the court in the instant case to suggest that Temtex is attempting to obtain double payment on its invoices. Defendant’s position is based upon the pretrial deposition testimony of Mr. Smith that the credits due The Fireplace Shop had not been applied to the invoices before calling upon the letter of credit. At trial Mr. Smith testified that his deposition testimony was in error and that when all of these credits were finally applied to the indebtedness of The Fireplace Shop, there was still an outstanding balance owed to Temtex of some $39,000, well above the $24,802.84 claimed in this suit. The court is convinced that Mr. Smith’s trial testimony is correct. The East Girard case, supra, clearly states that a letter of credit is independent of any set-off which might be available under ordinary contract law and that the issuer has a duty to honor the drafts when accompanying documents are genuine and conforming. The Fifth Circuit in East Girard would not allow the re-sale price of the property to be offset against the indebtedness which was secured by the “standby” letter of credit, even when that re-sale price exceeded the debt and the beneficiary had not suffered any actual loss by the bank’s dishonor. The court noted that it was crucial to maintain the independence of the letter of credit from the underlying commercial relationship between the beneficiary and the customer. Otherwise the court would, in every case, be forced to review the underlying transactions in order to determine the actual loss, when the intent of the letter of credit is that the face amount not be augmented or diminished by extraneous proof. Applying these concepts to the instant case, the court finds that the invoices presented for payment satisfied the terms of the letter of credit in every way and that there was no “fraud in the documents” justifying non-payment.

Going beyond the two lines of cases which have discussed the types of situations in which fraud justifies non-payment under a letter of credit, and applying the principles of fraud defined in the Louisiana Civil Code, this court must still conclude that the facts in the instant case do not, by a preponderance of the evidence, show that a fraud was perpetuated by Temtex on Capital Bank. According to Civil Code Article 1954:

Fraud does not vitiate consent when the party against whom the fraud was directed could have ascertained the truth without difficulty, inconvenience, or special skill.
This exception does not apply when a relationship of confidence has reasonably induced a party to rely on the other’s assertions or representations.

There is no evidence before the court to suggest that a “special relationship” existed between Temtex and Capital Bank which would have induced the bank to rely on any of the statements made to it by the Temtex controller. Moreover Temtex did not mislead the bank or give it any false information. The account was somewhat slow, but satisfactory, and that is what Mr. Smith told Ms. LeClerq. Further, it is clear that Capital Bank had available to it the same financial information that Temtex had regarding the deteriorating condition of The Fireplace Shop of Baton Rouge, including information about Garrett’s threats, but for some inexplicable reason, chose not to review the information in its files, to conduct any further inquiry, or to demand additional security from its customer. Given these facts, the court concludes that there was no “fraud in the inducement” such that the letter of credit should be invalidated.

Accordingly, there will be judgment in favor of Temtex Products, Inc., and against Capital Bank & Trust Company in the amount of $24,802.84, together with legal interest and costs.