Paul Cozza v. Network Associates, Inc.

* Of the United States District Court for the District of
Columbia, sitting by designation.
United States Court of Appeals
For the First Circuit
No. 03-1578
PAUL COZZA,
Plaintiff, Appellee,
v.
NETWORK ASSOCIATES, INC.,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
Before
Torruella, Circuit Judge,
Cyr, Senior Circuit Judge,
and Oberdorfer,* Senior District Judge.
Clifton T. Hutchinson, with whom David J. Schenck and Hughes
& Luce, LLP, were on brief, for appellant.
Joseph L. Stanganelli, with whom Anthony A. Scibelli and
Scibelli and Whiteley, LLP, were on brief, for appellee.
March 22, 2004

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TORRUELLA, Circuit Judge. Defendant-appellant Network
Associates, Inc. ("NAI") appeals the district court's denial of its
Motion for Reconsideration of Motion to Compel Arbitration. After
careful review, we affirm.
I. Background
In 1993, plaintiff-appellee Paul Cozza ("Cozza") and
Datawatch (subsequently acquired by NAI) entered into an Antiviral
Scan Enhancement License Agreement (the "License") for the use of
Cozza's patented scan enhancement technology. Disputes arose over
royalties and, on August 26, 1999, Cozza and NAI entered into a
Settlement Agreement (the "Settlement"), which involved, inter
alia, a payment to Cozza for a license to use his technology until
December 31, 2001, after which NAI was to remove Cozza's technology
from its products.
The License, which contained a clause agreeing to
arbitrate "any dispute or controversy regarding the subject matter
of this Agreement," terminated on December 31, 2001. The
Settlement, which contained no arbitration clause, has been in
effect since 1999.
On June 6, 2002, Cozza brought this diversity action
against NAI for breach of the Settlement, fraud, and other state
law claims, alleging that NAI failed to remove Cozza's technology
from products that it continued to sell, despite the Settlement's
prohibition of any further sales after December 31, 2001. On

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September 6, 2002, NAI filed a motion to compel arbitration
pursuant to the Federal Arbitration Act, 9 U.S.C. § 4 ("FAA"),
arguing that the controversy was governed by the arbitration clause
in the License. On October 17, 2002, the district court denied
NAI's motion, concluding that, regardless of whether the License's
arbitration clause survived the License's termination, the
complaint did not assert any breach of the License, and because
Cozza had made binding representations that he had not, and would
not, assert any claims under the License, the arbitration clause
did not apply and Cozza could not be compelled to submit to
arbitration.
NAI did not appeal the denial of the motion to compel
arbitration, despite the FAA's explicit provision for interlocutory
appeals of such denials. 9 U.S.C. § 16(a)(1)(B).
Discovery ensued and proceeded contentiously. After a
failed mediation attempt in February 2003, NAI deposed Cozza on
March 13 and 14, 2003. On April 7, 2003, in response to various
discovery motions, the district court allowed NAI's motion for a
protective order, subject to certain conditions, and allowed, in
part, Cozza's motion to compel supplemental answers to
interrogatories.
On April 11, 2003, NAI filed the "Motion for
Reconsideration of Motion to Compel Arbitration" at issue in this
appeal, alleging that Cozza's March deposition had revealed that

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Cozza's claims did in fact involve the License in such a way as to
bring them within its arbitration clause, despite his prior
representations to the contrary. The district court summarily
denied the motion on April 22, 2003.
On April 25, 2003, NAI filed a Notice of Appeal, as well
as an emergency motion to stay the district court proceedings
pending appeal. The district court granted the motion to stay. On
April 30, 2003, Cozza filed a motion to strike the Notice of Appeal
and to lift the stay, arguing that such an appeal had to be filed
within thirty days of the district court's October 17, 2002, order
denying NAI's initial motion to compel arbitration and that NAI
cannot now appeal either the October 2002 order or the denial of
its motion for reconsideration. On May 21, 2003, this court denied
Cozza's motion and directed the parties "to address [the] court's
jurisdiction in their briefs, including whether appellant's motion
for reconsideration below can properly be construed as a renewed
motion to compel arbitration based on newly discovered evidence,
and whether an interlocutory appeal would lie from the granting or
denial of such a motion."
NAI argues that the plain language of § 16(a)(1)(B) of
the FAA, which states that "[a]n appeal may be taken from an order
denying a petition . . . to order arbitration to proceed,"
indicates that all interlocutory orders denying arbitration,
including the denial of their "motion to reconsider," can be

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appealed at any time before a final judgment is issued. NAI
contends that this proposed "FAA exception" comports with
Congress's purpose to favor arbitration.
Cozza argues that similar reasoning has been rejected in
the context of qualified immunity, where the thirty-day deadline to
appeal interlocutory orders under Federal Rules of Appellate
Procedure 4(a)(1) has been enforced, and appeals of orders denying
reconsideration "cannot resurrect a party's expired right to
contest the appropriateness of the order underlying the motion."
Fisichelli v. The City Known as the Town of Methuen, 884 F.2d 17,
19 (1st Cir. 1989). Otherwise, "Rule 4(a)(1) would be stripped of
all meaning; . . . and a dilatory defendant would receive not only
his allotted bite at the apple, but an invitation to gnaw at will."
Id. We begin by addressing this jurisdictional quandary.
II. Analysis
Focusing on NAI's claims of new evidence, the
appealability of the motion could be contemplated within the
context of Rule 60(b) motions based on newly discovered evidence.
"Ordinarily, the denial of a Rule 60(b) motion is immediately
appealable since there is nothing left to do in the district
court." Xerox Fin. Servs. Life Ins. Co. v. High Plains Ltd.
P'ship, 44 F.3d 1033, 1038 (1st Cir. 1995). The district court
proceedings are still underway here, however, which "raises
interesting questions about the appealability of a Rule 60(b)

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1 This court has recently expressed sympathy, in dicta, for the
view of several of our sister circuits that, although nothing in
the text of the FAA requires immediate appeal of interlocutory
orders denying arbitration, "the failure to promptly appeal such a
denial may by estoppel foreclose the demanding party's right to
arbitration, although this is not automatic and depends on a
showing of prejudice to the other side." Colón v. R.K. Grace &
Co., 358 F.3d 1, 4 (1st Cir. 2003). The reasoning behind such a
rule is that "it is wasteful to have a full trial and then
determine by a post-trial appeal that the whole matter should have
been arbitrated and so start again." Id. In the case before us,
however, there has been no trial, and whether the discovery that
occurred was sufficiently prejudicial to Cozza to warrant
forfeiture is far from clear.
The issue is further complicated by NAI's claim that the second
motion is based on newly discovered evidence that was not available
before the expiration of the thirty-day period allowed by this rule
for interlocutory appeal of his initial motion to compel
arbitration. Refusing to allow an appeal of a second motion to
compel arbitration based on newly discovered evidence supporting
the arbitrability of the dispute potentially creates exactly the
scenario a forfeiture rule seeks to avoid: a full trial followed by
a determination that the matter must be arbitrated. Perhaps such
a case, like Colón, "is a perfect example of why one would not
employ a mechanical forfeiture rule." Id.
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denial in the context of an ongoing district court proceeding."
Id.
While recognizing that the novel jurisdictional issue
before us raises several such interesting questions,1 their
consideration can await another day. The rule is well established
in this Circuit that resolution of a complex jurisdictional issue
may be avoided when the merits can easily be resolved in favor of
the party challenging jurisdiction. Restoration Pres. Masonry,
Inc. v. Grove Europe Ltd., 325 F.3d 54, 59 (1st Cir. 2003)(citing
cases holding that jurisdictional inquiry is not required unless

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Article III case or controversy requirement is implicated). Here,
even assuming arguendo that NAI's motion can be construed as a
renewed motion to compel arbitration based on new evidence and that
appellate jurisdiction would exist over the denial of such a
motion, the matter can be easily resolved in Cozza's favor, as the
record fails to provide support for NAI's assertion that new
evidence supporting arbitration emerged in Cozza's deposition.
NAI argues that all of Cozza's claims are arbitrable
because they "regard" Cozza's scan enhancement technology, which
NAI identifies as the subject matter of the License, and Cozza
agreed in the License to arbitrate "any dispute or controversy
regarding the subject matter of this Agreement." NAI alternatively
asserts that the arbitration clause survived the termination of the
contract, that the Settlement incorporated the License, or, if the
License is not incorporated in the Settlement, precedent indicates
that the settlement of an arbitrable dispute is also arbitrable.
All of these arguments were available to NAI when it
brought its first motion to compel arbitration and all were argued
at that time, when the opportunity to appeal the motion's denial
under the FAA was undeniable. NAI implicitly acknowledges this by
refraining from reiterating those arguments in the second motion
and simply incorporating the first motion by reference. Whatever
the merits vel non of NAI's argument that another interlocutory
appeal should lie from the denial of a motion to compel arbitration

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based on new evidence, NAI cannot seriously argue any entitlement
to bring successive interlocutory appeals based upon the same
arguments, nor to appeal arguments which it could have appealed
earlier, but did not. NAI's success thus depends on the alleged
"newly discovered evidence" supporting these arguments.
The evidence NAI identifies as "newly discovered" in
Cozza's deposition testimony involves a discussion of the possible
method for calculating damages and references to allegedly false
statements made in 1999 by three NAI employees during the
negotiation of the Settlement. NAI refers to Cozza's "theory" that
NAI "unilaterally extended" the License by not removing his
technology and that thus damages "would be what was due according
to the license agreement." These references, however, are embedded
within a longer answer to the question of whether, as part of his
claim for damages, Cozza thought he should be entitled to a
percentage of the sales of NAI products containing his technology.
Cozza responded that "we believe that, at a minimum, because
Network Associates has unilaterally extended the license agreement,
on its own terms, using the scan enhancement for however long they
would like to use it, that at a minimum we should get what would
have been required in the licensing agreement." Cozza was simply
speculating that one factor the court might consider in assessing
damages under the Settlement might be the fees that would have been
due under the License.

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Cozza's references to the allegedly false statements of
NAI employees, while concerning conversations that occurred before
the termination of the License, were made in connection with
Cozza's claim that NAI engaged in unfair and deceptive practices in
negotiating the Settlement. The mere fact that the Settlement was
negotiated prior to the License's termination does not indicate
that the claims Cozza makes regarding those negotiations implicate
the License. Similarly, NAI refers to Cozza's statement that "from
the very beginning until this day, Network Associates has acted to
defraud me in various ways and at various times" as indicative of
the reach of Cozza's claims to the parties' relationship under the
License, when in fact the ensuing testimony clarifies that the
misleading or deceptive behavior of which Cozza complains is that
involved in the negotiation of the Settlement.
When Cozza was asked during the deposition if he was
making any claim based on or arising out of the License, he stated
that "[t]he settlement agreement was a settlement of disputes
arising out of the license agreement, and we are litigating because
of breach of contract of the settlement agreement. So, indirectly
there is something to do with the issues arising out of the license
agreement." When asked to clarify this comment by identifying how
the License bears on his claim, he responded that one way would be
in respect to damages. After further testimony regarding the
possible role of the License in calculating damages, substantially

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identical to that already discussed herein, Cozza was asked if he
is seeking to enforce any provision of the License directly or
indirectly, to which he responded: "We are not making any claims in
the litigation based upon the license agreement." He proceeded to
comment further that "by suing in the settlement -- according to
the breach of contract, in the settlement agreement, depending on
how you construe that, you could say, well, it may be indirectly
some provision of the license agreement that's being fulfilled or
something by the virtue of this suit on the breach of the
settlement agreement." Regardless of these theoretical musings,
which NAI would have us read as indicative of an intention to raise
claims regarding the License, nothing in the record calls into
question Cozza's initial response that he is "not making claims in
the litigation based upon the license agreement."
None of the "newly discovered evidence" alleged by NAI
constitutes new evidence supporting a motion to compel arbitration.
It is "all too clear that defendants are seeking to accomplish by
indirection what their own inaction now prevents them from doing
directly: contesting, before trial, the appropriateness of the
district court's earlier denial of their motion." Fisichelli, 884
F.2d at 19. We therefore need not, and do not, address the merits
of NAI's argument that the district court erred in its
interpretation of the Licensing Agreement.

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III. Conclusion
The district court's denial of the motion to reconsider
the motion to compel arbitration is affirmed.
Affirmed.

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