Access Cardiosystems, Inc. et al v. Fincke

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United States Bankruptey Court
Bistrict of Massachusetts

In re: Chapter 11
Case No. 05-40809

ACCESS CARDIOSYSTEMS, INC.,

Debtor

ACCESS CARDIOSYSTEMS, INC.,
NORTH AMERICAN
ENTERPRISES, INC., JOHN
MORIARTY AND ASSOCIATES,
JOHN J. MORIARTY, RICHARD F.
CONNOLLY, JR., AND JOSEPH R.
ZIMMELL,

Adversary Proceeding
No. 05-4076

Plaintiffs,
OFFICIAL COMMITTEE OF
UNSECURED CREDITORS OF
ACCESS CARDIOSYSTEMS, INC.,
Plaintiffs-Intervenors,
V.

RANDALL FINCKE,

Defendant

eee ee eee ee ee ee fe ee ee ee ee ee ee es ee ee ee

MEMORANDUM OF DECISION

Before this Court is a “Motion for Stay Pending Appeal” (the “Stay Motion’) filed by

Randall Fincke (“Fincke”), the Defendant in an adversary proceeding presently pending

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

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before this Court. In conjunction with the Stay Motion, Fincke has also moved to file one
of the supporting exhibits under seal (the “Motion to File Papers Under Seal’). The
resolution of both motions turns on the relevance of Fincke’s arguments, as presented in
the Stay Motion, to the appropriate standard for granting such relief under the Federal

Rules of Civil Procedure.

I. FACTS AND TRAVEL OF THE CASE

A detailed recitation of the underlying facts and procedural history of the present
case has previously been set forth in this Court's Memorandum of Decision dated March

31, 2006, see Access Cardiosystems, Inc. v. Fincke (In re Access Cardiosystems, Inc.), --

B.R. ---, 2006 WL 851090 (Bankr. D. Mass. 2006), and need not be fully repeated here.

On March 31, 2006, this Court granted partial summary judgment for the Plaintiffs’
on Count of their complaint (the “Judgment” or “Judgment and Order’). On the same date,
this Court also issued a lengthy Memorandum of Decision (the “Memorandum’) detailing
the legal bases underlying the Judgment. In their Motion for Partial Summary Judgment
on Count |, the Plaintiffs sought a declaration that Access was the rightful owner of the
inventions disclosed in United States Patent Application No. 10/232,645 (the “645

Application”), filed in the name of Fincke as inventor and which relate to the Debtor's

‘ The plaintiffs in the present adversary proceeding (the “Plaintiffs”) are: (1) Access
Cardiosystems, Inc. (the “Debtor” or “Access”), whose main Chapter 11 bankruptcy case is
presently pending before the Court; (2) individuals who have invested, and hold equity interests,
in Access (the “Investors”); (3) the corporate entities serving as the investment vehicles for two of
the Investors; and (4) the Unsecured Creditors Committee, which has successfully intervened in
the adversary proceeding, but which has not played an active role in matters presently before the
Court. The defendant, Fincke, is a former Access director, officer and shareholder.

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Automated External Defibrillator System (the “Access AED”). Finding that Fincke had
breached his fiduciary duties by, inter alia, retaining legal ownership of the ‘645 Application,

this Court entered the following:

Pursuant to [the] partial judgment [on the Plaintiffs’ Motion for Partial
Summary Judgment], this Court:

1. DECLARES that Access Cardiosystems, Incorporated (the
“Debtor”) owns all right, title and interest in Non-provisional
Patent Application Number 10/232,645 filed with the United
States Patent and Trademark Office, any ensuing patent and
any related intellectual property (together the “Intellectual
Property”); and

2. ORDERS the Defendant, Randall Fincke (“Fincke’), to:

a. within 20 days of the date of this order, assign to the
Debtor all of the Intellectual Property; and

b. refrain from hereafter engaging in any business activity
relating to the Intellectual Property.
On April 10, 2006, Fincke filed a Notice of Appeal of the Judgment and elected to
have his appeal heard by the United States District Court for the District of Massachusetts.
Also on that datc, Fincke filed the instant Stay Motion, requesting that this Court’s

Judgment and Order be stayed until resolution of the appeal.

ll. DISCUSSION
A. Stay Motion

1. Fincke’s Position

According to the Stay Motion, Fincke is currently engaged in developing new

defibrillator technology (the “New Design”) which, he avers, does not utilize inventions

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disclosed in and protected by the ‘645 Application. However, Fincke says that the
Judgment should be stayed because it may require Fincke to disclose and/or convey
intellectual property related to the New Design. Fincke argues that since both the Access
AED and the New Design “share some essential technology that is not considered
patentable because it is in the public domain,” the New Design may “relate to the
Intellectual Property as defined in the [Judgment].”

Fincke argues that he is likely to succeed on the merits of his appeal since the
Judgment is overbroad. Fincke also claims that he will suffer irreparable harm if the
Judgment is not stayed, since he may be compelled to transfer proprietary information
related to the New Design to the Plaintiffs and may be prevented from continuing in his
business activities related to the New Design. Fincke says that the Plaintiffs will suffer no
harm if the Judgment is stayed, because they had previously expressed their consent to
Fincke’s continued development and production of the New Design, provided that he did
not engage in business activity related to the ‘645 Application and the inventions disclosed
therein. Thus, according to Fincke, the balance of harms tips decidedly in his favor and
the Judgment and Order should be stayed.

2. Standard for Granting a Stay of Judgment Pending Appeal

Fincke has brought his motion pursuant to Federal Rule of Bankruptcy Procedure
(the “Bankruptcy Rules”) 8005. That rule authorizes a bankruptcy judge to

suspend or order the continuation of other proceedings in the case . . . or
make any other appropriate order during the pendency of an appeal on such
terms as will protect the rights of all parties in interest.

Fed. R. Bankr. P. 8005. Similarly, under Federal Rule of Civil Procedure (the “Federal
Rules”) 62(c), made applicable to these proceedings by Bankruptcy Rule 7062,
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when an appeal is taken from a[].. . final judgment granting . . . an
injunction, the court in its discretion may suspend, modify, restore, or grant
an injunction during the pendency of the appeal upon such terms . . . as it
considers proper for the security of the rights of the adverse party.

Fed. R. Civ. P. 62(c) (emphasis added); Fed. R. Bankr. P. 7062.
Under both Bankruptcy Rule 8005 and Federal Rule 62(c), the standards for

granting a stay of judgment pending appeal “are the same as those which must be met for

the issuance of a preliminary injunction.” In re Miraj & Sons, Inc., 201 B.R. 23, 26 (Bankr.

D. Mass 1996) (citing In re Public Serv. Co., 116 B.R. 347, 348 (Bankr. D.N.H. 1990)). The

moving party must demonstrate that:
(1) There is a likelihood of success on the merits of the appeal;
(2) | The moving party will suffer irreparable harm if a stay is not granted;

(3) | The harm to the moving party if the stay is not granted is greater than
the injury to the opposing party if the stay is granted; and

(4) — The public interest would not be adversely affected by the issuance
of the stay.

See, e.g., Hilton v. Braunskill, 481 U.S. 770, 776-77 (1987) (applying four-part test to

Federal Rule 62(c) motion); In re Miraj, 201 B.R. at 25-26 (test applies to motions under
Bankruptcy Rule 8005). Although the court need not give equal weight to each factor,

Great Barrington Fair & Amusement, Inc., 53 B.R. 237, 239 (Bankr. D. Mass. 1985), the

onus is on the moving party to make some showing that each part of the substantive “test”
is at least minimally satisfied. In re Miraj, 201 B.R. at 26. Thus, “a stay pending appeal
should not be granted if any of the factors is entirely absent.” Id

3. Analysis

In order to demonstrate a likelihood of success on the merits, the party seeking a

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stay pending appeal must show that it has a “substantial” or “strong” case on appeal. Miraj,

201 B.R. at 26-27 (quoting In re Public Serv., 116 B.R. at 348-49). But Fincke does not

argue that he has a substantial case on appeal. In fact, he does not challenge the legal
analysis or conclusions reached by this Court in its Memorandum issued with the
Judgment. He does not question Access’s rightful ownership of the ‘645 Application and
the inventions disclosed therein. And he does not disavow his legal obligation to assign the
‘645 Application and any ensuing patent to Access. Thus, he has failed to even minimally
satisfy the first requirement under the four-part test.

Fincke argues instead that, in the portions of the Judgment ordering him to assign
rights in and to refrain from engaging business activity using intellectual property related
to the Access AED, the language used is overbroad. Even if this assertion is correct, the
instant Stay Motion does not request the appropriate relief. Under Federal Rule 62(c), this
Court may modify the Judgment in order to protect the rights of the parties. Thus, Fincke
could have requested a modification of the injunction in order to protect his interests in the
New Design. Alternatively, Fincke could have filed a motion to clarify the judgment or a

motion under Federal Rule 60(a) to correct the judgment. See, e.g., Polanco v. Allan, 1996

U.S. Dist. LEXIS 9385,at *2 (N.D.N.Y. 1996); Pruzinsky v. Gianetti (In re Walter), 282 F.3d

434, 436 (6th Cir. 2002) (quoting Vaughter v. Eastern Air Lines, Inc. 817 F.2d 685, 689

(11th Cir. 1987)). But to stay the entirety of the Judgment pending the outcome of his
appeal is simply unwarranted.

As fully explained in the Memorandum, Access owns the inventions disclosed in the
‘645 Application and is entitled to have those rights legally conveyed through an
assignment executed by Fincke. To delay that assignment on grounds that a portion of the

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Judgment may be unclear would grossly distort the limited purpose which a stay pending
appeal is designed to serve. Accordingly, the Stay Motion will be denied.

B. Motion to File Papers Under Seal

In support of his Stay Motion, Fincke has filed a written report (the “Report”)
prepared by “Fincke’s outside expert,” which allegedly demonstrates that the New Design
is “dissimilar from protectable components of the [Access AED] and ‘645 Application.”
Fincke seeks permission to file the Report under seal to prevent disclosure of secret
information related to the New Design. The information contained in the Report, however,
does not impact the outcome of the Stay Motion, for the reasons discussed above. The
Judgment is directed solely to the protected intellectual property underlying the Access
AED, and technical details involving the New Design are not at issue for purposes of

determining whether a stay of the Judgment is appropriate.

Hl. CONCLUSION

For the foregoing reasons, Fincke’s Stay Motion and Motion to File Papers Under

Seal are DENIED.” Separate orders in conformity with this Memorandum shall issue

forthwith.

DATED: April 17, 2006 By the Court,

Korg ol Boagff

Henry J. Boroff
United States Bankruptcy Judge

? The March 31, 2006 Judgment and Order will be stayed, however, until April 27, 2006 in
order to permit Fincke a reasonable period in which to seek review of this ruling from the District
Court.