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Over My Dead Body: Defendant Can’t “Wait Until He Dies” to Pay Arbitration Award

The US Court of Appeals for the Seventh Circuit reversed the district court’s interpretation of an arbitration award, finding that the defendant could not “wait until he dies” to pay a portion of the damages award. Nano Gas Techs., Inc. v. Roe, Case Nos. 21-1809; -1822 (7th Cir. Apr. 25, 2022) (Rovner, St. Eve, Jackson-Akiwumi, JJ.)

Clifton Roe invented a nozzle that disperses gases into liquids. Roe assigned the invention to Nano Gas as part of a collaboration agreement under which Roe received 20% equity and a board seat. The agreement also provided for a salary that was subject to Nano Gas’s ability to raise capital and Roe’s success in developing the invention at Nano Gas’s facility. The parties’ relationship deteriorated after the collaboration failed to produce the desired results. Roe ultimately took the machine and related intellectual property created by another Nano Gas employee and continued developing the product on his own. Arbitration ensued.

The arbitrator concluded that Roe did not have the right to remove the machine and related intellectual property from Nano Gas’s facility. The arbitrator determined that Roe should pay Nano Gas for the financial harm it suffered but also found that Roe deserved compensation for his work on the technology. In his award, the arbitrator indicated that he had initially considered giving Roe a royalty on future profits but declined to do so because Roe was a shareholder in Nano Gas and could benefit financially from the invention’s future success. The arbitrator offset Nano Gas’s $1.5 million damages award with an award to Roe of $1 million and ordered Roe to pay the $500,000 offset “in such manner as Roe chooses.” Roe was also required to return the related intellectual property or pay Nano Gas $150,000.

Nano Gas sued to enforce the award, and the district court entered judgment for $650,000 ($500,000 for the offset and $150,000 for the intellectual property). Nano Gas then filed a turnover motion for Roe’s Nano Gas stock, valued at $117,000. Roe argued that the arbitration award protected his status as a shareholder and allowed him to pay the damages “in such manner as [he] chooses.” Roe planned to pay the award with dividends from his stock and maintained that he could “wait until he die[s]” to satisfy the debt. The district court denied Nano Gas’s turnover motion, finding that Roe was entitled to remain a shareholder and could pay both awards “in such a manner as Roe chooses.” Nano Gas filed a motion to reconsider, and the court amended its order to require Roe to either turn over the stock or identify other assets to satisfy the $150,000 award. As to the remaining $500,000, the district court found that Roe could still choose how and when to pay that portion of the award. Both parties appealed.

The Seventh Circuit first addressed Roe’s argument that the arbitration award entitled him to remain a shareholder. The Court observed that the award did not stipulate that Roe would remain a shareholder indefinitely and noted that the arbitrator’s reference to Roe’s shareholder status merely explained his decision to offset Nano Gas’s award. Accordingly, Roe’s Nano Gas shares were “fair game.”

The Seventh Circuit next turned to Roe’s assertion that only he had the power to decide how and when he would pay the $500,000 award. The Court found that Roe’s reading of “in such manner as Roe chooses” was unreasonable and that Roe was not granted complete discretion in deciding how to pay the award. The Court reasoned that the arbitrator anticipated that Roe would fulfill his obligations in the customary post-arbitration proceedings, where Roe could choose which of his assets to convey to Nano Gas. Roe could not “choose hypothetical forms of payment . . . or require Nano Gas to wait until he dies.” The Court thus reversed the district court’s findings regarding the $500,000 payment, affirmed the amended judgment concerning the $150,000 award and remanded for further proceedings.

© 2023 McDermott Will & EmeryNational Law Review, Volume XII, Number 125
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About this Author

Associate

Tessa Kroll focuses her practice on intellectual property litigation matters. She is a registered patent agent.

While in law school, Tessa completed a concentration in technology, innovation and entrepreneurship, and was managing executive editor of the Journal of Technology and Intellectual Property. She also served as a patent law intern at a multinational medical device and healthcare company.

Prior to attending law school, Tessa was a patent analyst for a leading US intellectual property services company. She holds a BS in biomedical engineering with a minor in mechanical...

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