Plastronics Socket Partners, Ltd., Plastronics H-Pin, Ltd. v. Dong Weon Hwang

N OTE: This disposition is nonprecedential.
United States Court of Appeals
for the Federal Circuit
______________________
PLASTRONICS SOCKET PARTNERS, LTD.,
PLASTRONICS H-PIN, LTD.,
Plaintiffs-Appellants
v.
DONG WEON HWANG,
Defendant-Cross-Appellant
HICON CO., LTD., HICON COMPANY,
Defendants-Appellees
______________________
2020-1739, 2020-1781
______________________
Appeals from the United States District Court for the
Eastern District of Texas in No. 2:18-cv-00014-JRG-RSP,
Chief Judge J. Rodney Gilstrap.
______________________
Decided: January 12, 2022
______________________
P. MICHAEL J UNG, Clark Hill Strasburger, Dallas, TX,
argued for plaintiffs-appellants.
STEPHANIE SIVINSKI, Haynes & Boone, LLP, Dallas, TX,
argued for defendant-cross-appellant and defendant-
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PLASTRONICS SOCKET PARTNERS v. HWANG 2
appellee. Also represented by J OHN RUSSELL EMERSON,
D EBRA J ANECE MCC OMAS ; ANGELA O LIVER, Washington,
DC.
______________________
Before D YK, HUGHES , and STOLL , Circuit Judges.
D YK, Circuit Judge.
Plastronics Socket Partners, Ltd. (“Plastronics Socket”)
and Plastronics H-Pin, Ltd. (collectively, “Plaintiffs”)
brought suit against Dong Weon Hwang, HiCon Co., Ltd.
(“HiCon”), and HiCon Company (collectively, “Hwang”), al-
leging patent infringement, various torts, and breach of
contract. Hwang brought counterclaims for patent in-
fringement and breach of contract. Following a jury trial,
the district court awarded damages to both Hwang and
Plaintiffs under the breach of contract claims. We affirm
the judgment in favor of Hwang and reverse the judgment
in favor of Plaintiffs.
BACKGROUND
Spring pins are used with sockets to receive and test
semiconductor chips. Hwang developed a type of spring pin
referred to as the H-Pin around 2004 while living and
working in Korea. Prior to the H-Pin, the most common
form of spring pin was manufactured using machined
parts. The H-Pin was designed to be manufactured by
stamping instead of machining. Stamping parts provides
benefits of speed and cost over machining parts.
After moving from Korea to Texas, Hwang began work-
ing for Plastronics Socket in October 2004. Hwang filed an
application for a Korean patent on the H-Pin invention
around the time he started at Plastronics Socket.
In 2005, Hwang and Plastronics Socket executed a Roy-
alty Agreement. Under the Royalty Agreement, Plastron-
ics Socket would pay for commercial development of the H-
Pin, the costs associated with patent applications
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PLASTRONICS SOCKET PARTNERS v. HWANG 3
worldwide, and a 3% royalty on sales of H-Pins and sockets
containing H-Pins “after all non-reoccurring capital costs.”
J.A. 12,426. Hwang, for his part, granted Plastronics
Socket the joint right to practice the technology covered by
the H-Pin patents worldwide except in Korea and agreed to
share royalties he was paid from third parties (paragraph
4). Specifically, paragraph 4 of the Royalty Agreement
states:
Remuneration to [Plastronics Socket]: As a as-
signee of the patent or patents pertaining to the H-
pin project, Hwang has certain rights to use this
patent or license the patent with consent of the
other assignee, [Plastronics Socket]. In the event
the patent royalties are paid by a third party, [Plas-
tronics Socket] and Hwang will split royalty
50%/50% respectively. In the event when Hwang
works directly for another entity, [Plastronics
Socket] will be entitled to 1.5% of royalty([Plastron-
ics Socket] and Hwang will split royalty 50%/50%
respectively ) of gross sales of patented products
from the “H-Pin Project” from this entity. If socket
is sold with H-pin contact included, this rate is also
3/2% of socket price.
J.A. 12,426.1 Both parties were prohibited from granting
licenses on the H-Pin without the other party’s approval
(paragraph 5). Specifically, paragraph 5 of the Royalty
Agreement states:
Licensing the “H-Pin Project” patent rights:
Neither [Plastronics Socket] or Hwang can grant a
license for the patents covering the “H-Pin Project”
without approval from the other party.
1 Spelling and other errors in original have not been
corrected.
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PLASTRONICS SOCKET PARTNERS v. HWANG 4
J.A. 12,427.
In 2008, Hwang left Plastronics Socket, founded HiCon
in Korea, and licensed his Korean patent to HiCon—alleg-
edly without the required consent from Plastronics Socket.
The H-Pin was evidently a successful innovation, lead-
ing the CEO of Plastronics Socket, David Pfaff, to tell
Hwang in 2011, “All the spring pin companies are coming
out with stamped spring probes. You have changed the
world.” J.A. 13,037. Through the close of discovery at the
district court, Plastronics Socket had sold over $65 million
worth of sockets with H-Pins, accounting for more than half
of its revenue, and did not pay Hwang royalties allegedly
in violation of the agreement.
In 2012, Plastronics Socket created Plastronics H-Pin
through a divisive merger under Texas law and assigned
all rights and obligations under the Royalty Agreement to
Plastronics H-Pin. Plaintiffs argue that the divisive mer-
ger barred liability for damages for socket sales.
Before trial, the district court granted summary judg-
ment to Hwang of no liability under paragraph 4 of the
Royalty Agreement. At trial, Plaintiffs presented claims
for breach of only paragraph 5. The district court in-
structed the jury that it could award damages to Hwang
under the Royalty Agreement for royalty payments “called
for and due after January the 19th, 2014,” four years before
the date the suit was filed (because of the four-year statute
of limitations in Texas). J.A. 9944.
After trial, the jury found both parties had breached
the Royalty Agreement and awarded Plaintiffs $622,606
for Hwang’s breach and awarded Hwang $1,361,860 for
Plaintiffs’ breach. Plaintiffs appeal the denial of attorneys’
fees and the damages awarded to Hwang. Hwang cross-
appeals the damages awarded to Plaintiffs. We have juris-
diction under 28 U.S.C. §§ 1291, 1295(a).
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PLASTRONICS SOCKET PARTNERS v. HWANG 5
D ISCUSSION
Although the Royalty Agreement does not contain a
choice-of-law provision, the contracts have been executed
in Texas and both parties agree that Texas law applies. We
therefore apply Texas law to these issues. Univ. of W. Va.
Bd. of Trustees v. VanVoorhies, 278 F.3d 1288, 1296 (Fed.
Cir. 2002). We review the district court’s contract interpre-
tation de novo. Merritt Hawkins & Assocs., LLC v.
Gresham, 861 F.3d 143, 154 (5th Cir. 2017). We also review
the district court’s application of the statute of limitations
de novo. In re Hinsley, 201 F.3d 638, 644 (5th Cir. 2000).
I
Plaintiffs argue that the district court erred by uphold-
ing a damages award that included socket sales by Plas-
tronics Socket. Plaintiffs argue only Plastronics H-Pin was
liable under the Royalty Agreement, and the district court
thus erred by allowing damages to include sales of sockets
with H-Pins because Plastronics Socket had no obligation
under the Royalty Agreement. The question before us is
whether the Texas divisive merger statute permits Plain-
tiffs to avoid liability for sales of sockets with H-Pins under
the Royalty Agreement by assigning the liability for royalty
payments to a new subsidiary that does not sell such sock-
ets while Plastronics Socket continues to sell the sockets.
We hold it does not and affirm the district court’s judgment.
A
The equipment involved in this case has two major
components: (1) H-Pins and (2) sockets that receive chips
for testing and include H-Pins, within the sockets, to con-
nect to chips for testing. The Royalty Agreement required
payment of royalties for the sale of H-Pins separately and
also for the sale of H-Pins with sockets.
In 2012, Plaintiffs entered into a divisive merger under
Texas law allocating sole responsibility for license pay-
ments under the Royalty Agreement to a newly created
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PLASTRONICS SOCKET PARTNERS v. HWANG 6
sister company, Plastronics H-Pin, which produced the H-
Pins and sold them to Plastronics Socket as its sole cus-
tomer. Plastronics H-Pin itself made no socket sales and
received no payments on socket sales. Because all the lia-
bilities under the Royalty Agreement were allocated to
Plastronics H-Pin, Plastronics Socket argues it was not li-
able for selling sockets with H-Pins. At least in part, the
merger appears related to avoiding licensing payments.
The objective was to “Spin off all the H-pin business into
an entity and sell at cost to Plastronics as a master distrib-
utor, therefore never worrying about royalties [to Hwang].”
J.A. 12,831.
B
Under general contract law principles, the assignment
of rights through mergers cannot adversely affect the
rights of parties contracting with the entities undergoing
the mergers, i.e., obligors. The Restatement (Second) of
Contracts states:
(2) A contractual right can be assigned unless (a)
the substitution of a right of the assignee for the
right of the assignor would materially change the
duty of the obligor, or materially increase the bur-
den or risk imposed on him by his contract, or ma-
terially impair his chance of obtaining return
performance, or materially reduce its value to him
. . . .
Restatement (Second) of Contracts § 317(2) (1981); see Vt.
Yankee Nuclear Power Corp. v. Entergy Nuclear Vt. Yankee,
LLC, 683 F.3d 1330, 1340 (Fed. Cir. 2012) (“[U]nder stand-
ard contract law, assignments are generally not permitted
in situations where they would disadvantage the obligor.”).
We must decide whether the Texas merger statute was de-
signed to contradict this contract law principle.
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PLASTRONICS SOCKET PARTNERS v. HWANG 7
Under the Texas statute, a “domestic entity may effect
a merger.” Tex. Bus. Orgs. Code Ann. § 10.001 (West
2015). The statute requires:
“If more than one organization is to survive or to be
created by the plan of merger, the plan of merger
must include . . . (3) the manner and basis of allo-
cating each liability and obligation of each organi-
zation that is a party to the merger . . . among one
or more of the surviving or new organizations.”
Id. § 10.003. “When a merger takes effect . . . (3) all liabil-
ities and obligations of each organization that is a party to
the merger are allocated to one or more of the surviving or
new organizations in the manner provided by the plan of
merger.” Id. § 10.008(a). Thus, Texas law plainly provides
for the allocation of liabilities and obligations under its
merger statute.
But the Texas statute also ensures that, in accordance
with the common law, such agreements cannot disad-
vantage the obligee. The statute states, “This code does not
. . . abridge any right or rights of any creditor under exist-
ing laws.” Id. § 10.901. This language indicates that a pur-
pose of the statute was to enable mergers that did not
adversely affect the rights of parties under preexisting con-
tracts with the entities undergoing the mergers. The leg-
islative history confirms the intent that a
[c]reditor’s rights would not be adversely affected
by the proposed amendment, and creditors would
continue to have the protections provided by the
Uniform Fraudulent Transfer Act and other exist-
ing statutes that protect the rights of creditors.
H. Comm. on Bus. & Com., Bill Analysis, H.B. 472, 71st
Reg. Sess., at 23 (Tex. 1989). And one of the authors of the
Texas merger statute reflected:
While the provisions permitting multiple surviving
entities in a merger were intended to provide
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PLASTRONICS SOCKET PARTNERS v. HWANG 8
corporations with greater flexibility in structuring
acquisition and restructuring transactions, they
were not intended to have any material effect on
the existing rights of creditors of the parties to a
merger.
Curtis W. Huff, The New Texas Business Corporation Act
Merger Provisions, 21 St. Mary’s L.J. 109, 122 (1989).
Two recent bankruptcy court cases also confirm this in-
terpretation that the Texas divisive merger statute did not
relieve companies of obligations under preexisting agree-
ments. In re Aldrich Pump LLC, No. 20-30608 (JCW), 2021
WL 3729335, at *27–30 (Bankr. W.D.N.C. Aug. 23, 2021);
In re DBMP LLC, No. 20-30080 (JCW), 2021 WL 3552350,
at *24–26 (Bankr. W.D.N.C. Aug. 11, 2021).
Thus, the language of the statute, confirmed by its leg-
islative history and consistent with the principles of con-
tract law for assignment of rights, compels our conclusion
that the Texas divisive merger statute does not enable an
entity to eliminate royalty payments due under a contract
with the predecessor entity. Plastronics Socket cannot di-
vest itself of the obligation to pay royalties on sockets sold
with H-Pins.
Under the Royalty Agreement, Plastronics Socket is li-
able for the royalty payments. The parties contemplated
sales of sockets with H-Pins and addressed those sales spe-
cifically in the contract. The Royalty Agreement states, “In
light of the patent being invented before employment be-
gan with [Plastronics Socket], Hwang will be entitled to the
3% of gross sales policy for the life of the patent. If socket
is sold with H-pin contact included, this rate is also 3% of
socket price.” J.A. 12,426. And it states, “This agreement
will continue in force to Hwang’s estate or designated party
upon death or transfer.” J.A. 12,427. Eliminating socket
sales (with H-Pins) from the royalties due to Hwang, as
Plaintiffs have attempted to do here, unmistakably and
materially reduces the value owed to Hwang, which runs
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PLASTRONICS SOCKET PARTNERS v. HWANG 9
counter to the language in the Royalty Agreement and the
express intent of the Texas divisive merger statute. In
light of our construction of the Texas merger statute and
the clear language in the Royalty Agreement, Plaintiffs are
liable for payment of royalties for sales of both H-Pins and
sockets with H-Pins by either Plastronics Socket or Plas-
tronics H-Pin.
We affirm the district court’s award of damages to
Hwang.
II
With respect to Plaintiffs’ claim against Hwang, the
district court found that the claim was not barred by the
Texas four-year statute of limitations. Hwang argues that
this holding was erroneous.
Breach-of-contract cases are subject to a four-year stat-
ute of limitations under Texas law, measured from the date
the claim accrues. Stine v. Stewart, 80 S.W.3d 586, 592
(Tex. 2002); Tex. Civ. Prac. & Rem. Code § 16.051. “It is
well-settled law that a breach of contract claim accrues
when the contract is breached,” Stine, 80 S.W.3d at 592,
which occurs upon failure to perform a contractual duty,
Greene v. Farmers Ins. Exch., 446 S.W.3d 761, 765 (Tex.
2014). The “cause of action accrues and the statute of lim-
itations begins to run when facts come into existence that
authorize a party to seek a judicial remedy.” Provident Life
& Acc. Ins. Co. v. Knott, 128 S.W.3d 211, 221 (Tex. 2003).
Here, Plaintiffs initially claimed that Hwang was liable
for breach of both paragraphs 4 and 5 of the Royalty Agree-
ment. As explained earlier, paragraph 4 of the Royalty
Agreement requires Hwang to split royalty payments with
Plaintiffs. On summary judgment, the court held that
“Plaintiffs are not entitled to a royalty payment under” par-
agraph 4, J.A. 8286, because Plaintiffs had not presented
any evidence that any royalty payment was ever received
by Hwang from a third-party. As the court later stated, it
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PLASTRONICS SOCKET PARTNERS v. HWANG 10
granted “summary judgment as to any theory of breach of
the Royalty Agreement as to Section 4,” which required
“Mr. Hwang to split any royalties paid to him with Plas-
tronics.” J.A. 11–12. Plaintiffs do not challenge the court’s
summary judgment ruling on appeal.
Plaintiffs at trial only sought to recover for breach of
paragraph 5 in the Royalty Agreement. Paragraph 5 pro-
hibits the parties from licensing the “H-Pin Project” with-
out approval from the other party. J.A. 12,427. Hwang
does not dispute that he breached the licensing require-
ment in paragraph 5—he executed a license to HiCon on
October 29, 2008. Hwang argues instead that this breach
of paragraph 5 indisputably occurred almost ten years
prior to filing of this lawsuit, which is well outside the four-
year statute of limitations, and that the breach did not in-
volve failure to make periodic payments.
Hwang is correct: the breach of contract found by the
jury arose from a single, unauthorized license grant.
Hwang breached the agreement by licensing the patent to
HiCon almost ten years before Plaintiffs filed suit. This
case thus does not involve a claim for failure to make peri-
odic payments similar to the situation in Hooks v. Samson
Lone Star, LP, where the statute of limitations applied sep-
arately to each missed payment. 457 S.W.3d 52, 68 (Tex.
2015). The fact that the royalty payments described in par-
agraph 4 could inform the damages for a breach of para-
graph 5 due to unauthorized licensing does not affect the
date on which the claim arose. The facts giving rise to the
breach came into existence when Hwang granted the un-
authorized license to HiCon—the breach accrued at that
time and the statute of limitations began to run. See Knott,
128 S.W.3d at 221. The four-year statute of limitations
bars the claim.
CONCLUSION
We reverse the damages awarded to Plaintiffs. Plain-
tiffs are not the prevailing party, and we do not reach the
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PLASTRONICS SOCKET PARTNERS v. HWANG 11
attorneys’ fees issue. We affirm the damages awarded to
Hwang for the sales of H-Pins and sockets with H-Pins, in-
cluding the sales by Plastronics Socket.
AFFIRMED IN-PART, REVERSED IN-PART
COSTS
Costs to Hwang.
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