North Carolina Lawyers Weekly
A seven-figure award for an inventor who claims his employer reneged on his promised bonuses may grow after the North Carolina Court of Appeals ruled that the inventor can rescind the contract entirely and reclaim the patent rights to his creations.
Paul Morris was hired in 2004 to be the first employee of Scenera Research. As part of his compensation Morris was entitled to receive $5,000 for each of his inventions for which Scenera submitted a patent application and $5,000 more if a patent was issued. Morris proved to be a prolific inventor, and Scenera pursued nearly 200 patents from his ideas.
However, Morris alleged that Scenera reneged on the bonus agreement and, when Morris threatened to bring a wage claim against the company, fired him in retaliation. He sued Scenera for violations of the state’s Wage and Hour Act and Retaliatory Employment Discrimination Act and for fraud, unjust enrichment and breach of contract.
After trial, a jury awarded Morris $885,000 in unpaid bonuses and $390,000 under REDA. An award of attorneys’ fees pushed the total over $1.9 million, but North Carolina Business Court Judge James declined to treble the damages under REDA, saying that Scenera had not “willfully” violated the law. Both sides appealed parts of the rulings.
A willful violation of the retaliatory discrimination section of REDA requires the trial court to treble damages. Morris argued that Gale should have trebled his $390,000 jury award under REDA because the jury rejected Scenera’s arguments that it would have terminated Morris anyway even if he had not made his wage claims and that Morris had “effectively resigned.” Morris argued that the REDA violation was willful as a matter of law.
However, “willful” is not defined under REDA, and North Carolina appellate courts had never defined the term nor set a standard for reviewing a trial court’s finding of willfulness under the law. Looking to federal case law, the court said a willful violation of REDA is one in which the employer “either knew or showed reckless disregard for the matter of whether its conduct was prohibited by statute” and whether a violation is willful is a question of fact for the jury, not a judge, to decide.
In Morris’ case, however, the appeals court found that he had waived his right to have the issue decided by the jury because he explicitly concurred with the court’s suggestion that the issue of Scenera’s willfulness under REDA was one for the court to decide. As such, the appeals court reviewed Gale’s decision to determine whether it was supported by competent evidence. It found that Scenera had offered evidence that it held a good-faith belief that it was not in violation of REDA, and thus Gale correctly decline to treble the jury’s award.
In essence, the court said that while the jury’s finding was sufficient for Morris to collect damages, in order for him to collect treble damages, he would have needed to show that Scenera actively knew it was breaking the law in firing him.
But while Scenera prevailed on that issue, the court’s decision was still a major win for Morris, above and beyond his award from the jury. The appeals court rejected Scenera’s arguments that it should have been granted summary judgment, and also handed Morris a potentially significant win when it ruled that he should have been given the option to, rather than take the $885,000 from the jury, rescind the contract entirely and keep the rights and ownership of the potentially lucrative patent applications and patents as if he’d ever entered into the agreement at all.
Rescission is a common remedy for breach of contracts to purchase land, under the theory that real estate is “unique property,” and its value cannot necessarily be encapsulated by a particular dollar amount. The court held that patents are similarly unique intangible personal property and that Scenera materially breached the patent bonus agreement when it failed to pay Morris the bonuses. As such, Morris will be entitled to have his choice of remedies for the breach.
The opinion did not delve into the potential value of those patents, but an attorney for Morris said their return was a major objective of the lawsuit. The court did remand the case back to the Business Court to reconsider whether Morris was entitled to all the attorneys’ fees he was awarded.
Walter Brock and Andrew Flynt of Young Moore and Henderson represented Morris. Adam Charnes and John Moye of Kilpatrick Townsend & Stockton and Burley Mitchell of Womble Carlyle Sandridge & Rice represented Fry and Scenera Research.
Brock said that his client was “delighted” that the Court of Appeals upheld the jury awards for his patent bonuses and for damages for retaliatory discharge.
“He is especially pleased that the court also recognized his right to elect whether to take those bonuses, or rescind his patent assignments. He looks forward to the return of his patents, a primary goal of his lawsuit, which he filed only after Scenera refused to pay his patent bonuses and then fired him for insisting on those bonuses,” Brock said.
The 55-page opinion is Morris v. Scenera Research, LLC (Lawyers Weekly No. 13-07-0826). The full text of the opinion is available online at nclawyersweekly.com.
Follow David Donovan on Twitter @NCLWDonovan
