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Butler v. Balolia

United States District Court, D. Massachusetts

June 2, 2017

DAVID BUTLER, Plaintiff,


          Judith Gail Dein United States Magistrate Judge.


         This action arises out of a failed effort to negotiate an agreement for the purchase and sale of patents and technology, known as the “Whirlwind” technology, relating to safety devices for cutting tools and saws. The plaintiff, David Butler (“Butler”), developed the technology and owns the associated patent rights. The defendant, Shiraz Balolia (“Balolia”), is the president of Grizzly Industrial, Inc., a company that sells woodworking and metal working machinery. In April 2012, the parties entered into a Letter of Intent (“LOI”) pursuant to which they expressed their intent to use their best efforts to negotiate and enter into a separate Purchase Agreement for the purchase and sale of the Whirlwind technology at a price of $2.1 million. However, disputes between the parties arose shortly thereafter, and no Purchase Agreement was ever executed. By his claims in this action, Butler is seeking to hold Balolia liable for the alleged breach of his obligations under the terms of the LOI.

         The matter is presently before the court on the “Defendant's Motion for Summary Judgment” (Docket No. 114). By his motion, Balolia is seeking summary judgment, pursuant to Fed.R.Civ.P. 56, with respect to all of Butler's outstanding claims against him. The claims at issue are set forth in Butler's Second Amended Complaint. They include a claim for a declaratory judgment that the LOI constitutes a binding and enforceable agreement for the purchase and sale of the Whirlwind technology (Count I). They also include claims for breach of contract (Count II) and breach of the implied covenant of good faith and fair dealing (Count III).[1]

         For all the reasons detailed below, the motion for summary judgment is ALLOWED IN PART and DENIED IN PART. Specifically, this court finds that Butler's declaratory judgment claim is foreclosed by both the law of the case and the unambiguous language of the LOI, which establishes that no enforceable purchase agreement existed, and that his claim for breach of the implied covenant of good faith and fair dealing is redundant of his claim for breach of contract. Accordingly, Balolia's motion is allowed with respect to Counts I and III. With respect to Count II, however, this court finds that summary judgment is not warranted on the plaintiff's claim that Balolia breached the LOI by failing to negotiate in good faith. Most of the relevant facts are not in dispute, but the parties' respective views of those facts differ widely. While Balolia relies on the evidence of record to show that he had legitimate concerns about buying Butler's technology, which led him to demand a reduction in the purchase price set forth in the LOI, Butler relies on many of the same facts to argue that Balolia's concerns were nothing more than a pretext to demand unreasonable financial terms that were inconsistent with the LOI and had no legitimate business justification. Thus, the parties dispute whether Balolia complied with his obligation to use his best efforts to negotiate a purchase agreement and whether his conduct amounted to a lack of good faith. Because a jury viewing the evidence in the light most favorable to the plaintiff could find that Balolia breached the LOI by failing to negotiate the terms of a separate Purchase Agreement in good faith, the defendant has not established that he is entitled to summary judgment on the claim for breach of contract. Therefore, and for all the reasons detailed below, Balolia's motion is denied with respect to Count II of the Second Amended Complaint.


         The following facts, which are relevant to the defendant's motion for summary judgment, are undisputed unless otherwise indicated.[3]

         The Parties

         The plaintiff, Butler, is a retired engineer who resides in Massachusetts. (DF ¶¶ 2, 3). He is also an inventor who spent years researching and developing the Whirlwind technology. (PR ¶ 3). This technology is comprised of safety devices for cutting tools such as table saws, and includes what is known as “flesh sensing” technology. (PR ¶ 3; see also Def. Ex. 3). Butler owns several patents and patent applications relating to the Whirlwind technology. (DF ¶ 3; PR ¶ 3).

         The defendant, Balolia, resides in Bellingham, Washington. (DF ¶ 4). He is the president of Grizzly Industrial, Inc, a company that sells woodworking and metal working machinery and equipment. (DF ¶ 5). The record indicates that Balolia has long been interested in acquiring flesh-sensing safety technology for table saws. (See PF ¶¶ 1-4). It is undisputed that at some point during the 2003 to 2006 time frame, Butler had hired a law firm to explore whether he could license such technology from a company known as SawStop, or design around SawStop's patents. (See PF ¶ 2). However, Balolia's attempt to obtain a license from SawStop proved unsuccessful. (PF ¶ 4). Furthermore, because SawStop owned about 80 different patents, Balolia concluded that any effort to design a non-infringing, flesh-sensing product would likely not be possible. (PF ¶ 3).

         Initial Communications Between the Parties

         In January 2010, Butler sent letters to manufacturers of table saws and woodworking machinery, including Balolia, in which he expressed his desire to license or assign the rights to the Whirlwind technology. (DF ¶ 6). Balolia responded that he was interested in obtaining more information about Butler's technology, and that he would be willing to discuss licensing as long as the Whirlwind technology was patented. (Def. Ex. 3 at ¶ 0000462). The parties then proceeded to engage in communications regarding the potential purchase and sale of Butler's technology. (DF ¶ 7). In March 2011, Butler informed Balolia that he had retained Robert Calhoun (“Calhoun”) as his business advisor to communicate and handle negotiations on his behalf. (DF ¶ 8).

         In October 2011, Butler distributed another communication to manufacturers of table saws and woodworking machinery, including the defendant, seeking formal proposals for the acquisition of the Whirlwind technology. (PF ¶ 12; Pl. Ex. 3). The communication invited interested parties to an Informational Meeting that would be held “to give potential partners or patent owners the opportunity to ask questions and view demonstrations of the prototype Whirlwind equipment.” (Pl. Ex. 3 at ¶ 0000339). It also included a section, entitled “Our Objectives, ” in which the plaintiff stated as follows:

What is unique about this negotiation is that we, the sellers, are emphasizing short-term monetization rather than ... the more generally expected long-term licensing gains attributed to this type of intellectual property transaction. While we recognize that this objective may introduce increased risk for a potential buyer or buyers, in order to balance the buyer's risk we are prepared to accept an appropriate price and terms which reflect the buyer's position, risk and plans.

(Id. at ¶ 0000339-340). There is no dispute that Balolia received this document, and was aware of Butler's objectives. (PF ¶ 12).

         Subsequently, Calhoun met with Balolia at Grizzy Industrial's facility in Washington and provided the defendant with information regarding the Whirlwind technology. (PF ¶ 8; Pl. Ex. 1 at 63). At some point during the meeting, Calhoun asked Balolia if he intended to attend Butler's Informational Meeting. (Pl. Ex. 4 at 40). The defendant replied that he did not need to attend the meeting because he understood the Whirlwind technology and how the technology operated. (PF ¶ 9).

         By 2012, Balolia had become aware of legislation pending in the State of California, which would require flesh-sensing safety devices on table saws. (PF ¶ 6). He also had concerns about the fact that other state governments, as well as members of the federal government and various consumer safety groups, were pushing for similar legislation. (See PF ¶ 5). Balolia was unaware of any companies that had developed flesh-sensing safety technology for table saws other than Whirlwind and SawStop. (PF ¶ 11). Because his earlier attempt to acquire a license from SawStop had failed, it appears that Whirlwind remained Balolia's only option for obtaining rights to the technology.

         At some point, the defendant learned that SawStop thought the Whirlwind technology might infringe upon its patents. (PF ¶ 10; Pl. Ex. 2). Nevertheless, he continued to communicate with Calhoun regarding a possible purchase of the plaintiff's product. (See DF ¶ 9; PR ¶ 9). The record establishes that Butler presented the defendant with an initial asking price of $3 million for the Whirlwind technology. (PF ¶ 13). However, after further email exchanges and telephone conferences between Balolia and Calhoun, including communications in which Balolia expressed concern about SawStop filing a lawsuit against him if he were to acquire the Whirlwind technology, the parties arrived at a purchase price of $2.1 million. (DF ¶ 9; PR ¶ 9; see also Pl. Ex. 4 at 60-61; Pl. Ex. 6). Calhoun made it clear that Butler would not be offering the defendant any type of indemnification that would protect Balolia in the event of an infringement action. (PF ¶ 16). Therefore, Balolia was aware, at the time of the parties' initial discussions, that there would be an infringement risk associated with the purchase of the Whirlwind technology.

         The LOI

         In April 2012, Butler and Balolia executed an LOI that had been prepared by Balolia's counsel. (DF ¶ 10; PF ¶¶ 19-20). The LOI is a typewritten document that is about two and a half pages in length. (Def. Ex. 1). It defines Balolia as the “Purchaser” and Butler as the “Seller.” (Id.). On the first page of the document, the LOI provides that “[t]he Parties intend to negotiate and enter into a separate Purchase Agreement by June 20, 2012, for Purchaser's acquisition from Seller of the Whirlwind flesh sensing patents and technology[, ]” and it lists various patents and technology to be included in the sale. (Id. ¶ 1). The next page of the document provides that “[t]he Parties will use their best efforts to negotiate and attempt to agree to terms for the Purchase Agreement.” (Id. ¶ 2). Under the heading “Purchase Price, ” the LOI reads: “The purchase price for the assignment of the patents and other rights and assets will be Two Million One Hundred Thousand Dollars ($2, 100, 000) payable upon closing of the Purchase Agreement.” (Id. ¶ 4).

         As set forth in the LOI, the parties recognized that it might be necessary to exchange trade secrets and other confidential and proprietary information in connection with the negotiation of a Purchase Agreement, and they agreed that such information would be treated as confidential. (Id. ¶ 3). The LOI also contains an “exclusivity” provision pursuant to which Butler agreed that “[i]n consideration of the time and expense which [Balolia] has devoted and will devote to the transaction contemplated hereby, ” he would refrain from entering into negotiations or other communications with any other prospective purchasers until after the June 20, 2012 deadline for entering into the Purchase Agreement had passed. (Id. ¶ 5). Finally, the LOI contains a choice of law provision under which the parties agreed that the LOI would be governed by Washington law. (Id. ¶ 8). As described below, Butler argues that the LOI constitutes an enforceable contract for the purchase of Whirlwind technology at a price of $2.1 million. Balolia, on the other hand, contends that the LOI was nothing more than an agreement to use his best efforts to conduct negotiations in good faith, with the aim of reaching agreement on the terms of a final Purchase Agreement, and that all of the provisions of the LOI, including the purchase price, were subject to further negotiation by the parties.

         Events Following Execution of the LOI

         On April 26, 2012, three days after the LOI was fully executed, Butler entered into a Non-Disclosure/Confidentiality Agreement with the defendant's company, Grizzly Industrial. (DF ¶ 17; Def. Ex. 4). Therein, Butler agreed, among other things, that he “will not disclose to any person the fact that Butler is in discussions with and that negotiations are taking place concerning a possible transaction between Grizzly and Butler.” (DF ¶ 17; Def. Ex. 4 ¶ 4). On that same day, Grizzly Industrial retained Jeffrey Salmon (“Salmon”), an attorney at the law firm of Freeborn & Peters LLP, to represent it with respect to the matter. (DF ¶ 18; PR 18; PF ¶ 21). Salmon is a patent attorney who has been in private practice since 1992, and holds both a law degree from Indiana University and a degree in electrical engineering from Northwestern University. (DF ¶¶ 19-21). According to Balolia, Grizzly did not want to hire Salmon and begin incurring the costs necessary to have him review the relevant patents until the LOI and the Non-Disclosure Agreement had been executed. (DF ¶ 22; PR ¶ 22). As described below, much of Salmon's work on the matter appears to have been directed at assessing the risk that SawStop would sue Balolia for patent infringement if the defendant were to purchase and develop the Whirlwind flesh-sensing technology. In fact, it is undisputed that Freeborn & Peters referred to their work on behalf of Grizzly Industrial as the “Saw Stop Patent Investigation” matter. (PF ¶ 22).

         For the time period from April 27, 2012 through May 21, 2012, Salmon billed Balolia for over 100 hours of work, and charged him more than $50, 000 in fees. (See DF ¶¶ 23-24; Def. Ex. 5 at ¶ 0000862-871). According to Balolia, all of the work that Salmon and members of his firm performed on behalf of Grizzly Industrial related to “due diligence and negotiations under the LOI.” (DF ¶¶ 23-24). For his part, Butler denies that Salmon engaged in any negotiations, as called for under the terms of the LOI. (PR ¶¶ 23-24). Rather, Butler contends that all of Salmon's efforts were aimed at reducing the purchase price to which the parties had already agreed, and undermining the deal that had previously been reached. (See id.; Pl. Ex. 4 at 99-101; Pl. Ex. 8 at 45; Pl. Ex. 10; Pl. Ex. 12).

         The record establishes that as part of his work on the SawStop Patent Investigation, Salmon corresponded and attended meetings with Butler, Calhoun and Butler's patent attorney, Milton Oliver. (See Def. Ex. 5 at ¶ 0000865-868). He also spent over 40 hours analyzing the SawStop patents and SawStop prior art. (PF ¶ 23). The record further demonstrates that other members of Salmon's firm who were working on the case spent over 20 hours attending to matters relating to the table saw safety legislation that was pending in California. (PF ¶ 24). Balolia has not explained how the latter work related to his promise to negotiate a Purchase Agreement with the plaintiff.

         At Balolia's request, Salmon contacted SawStop directly to inquire whether it intended to initiate infringement litigation if the Whirlwind technology were brought to market. (PF ¶ 25). However, SawStop provided no guidance on the issue. Instead, it declined to take a position, prior to the Whirlwind technology coming to market, as to whether it believed Whirlwind would infringe upon its patents. (See PF ¶ 26).

         During his communications with Butler's representatives, Salmon expressed concerns about a number of serious legal issues regarding the Whirlwind technology. (DF ¶ 25; PR ¶ 25; Def. Ex. 6 at 48-49). Those concerns included design around risks, validity risks and infringement risks that Balolia might face if he were to manufacture and sell products with the technology disclosed in Butler's patent. (Def. Ex. 6 at 49). He also expressed skepticism about the value of Butler's patent rights. (DF ¶ 31; PR ¶ 31).

         Butler contends that Salmon's concerns were the same as those that Balolia had expressed when the parties were negotiating the purchase price for the technology, and the same concerns that had led him to agree to reduce the selling price from $3 million to $2.1 million, as set forth in the LOI. (PR ¶ 25). Butler further contends that Salmon's concerns were nothing more than a pretext for changing the price that had been agreed to by the parties. (Id.). In support of his position, Butler has presented evidence demonstrating that from the beginning of his involvement in the parties' discussions, Salmon attempted to reduce the price that Butler would accept from the defendant. (See PF ¶ 27). He has also presented evidence showing that Salmon remained persistent in his efforts to reduce the purchase price even though Butler made it clear that the $2.1 million remained non-negotiable. (See PF ¶¶ 28-33, 40, 43).

         On May 7, 2012, Salmon traveled to Massachusetts to meet with Butler, Calhoun, and Butler's patent counsel, Oliver. (See DF ¶ 27; PR ¶ 27; PF ¶ 31). During the visit, Calhoun picked Salmon up from his hotel to take him to dinner with Butler and Oliver. (PF ¶ 31). When Salmon got into the car, he immediately told Calhoun that Balolia would not be paying $2.1 million to purchase Whirlwind's assets. (Id.). Calhoun's response was to tell Salmon that there was no reason to go to dinner, and that he would turn the car around and take Salmon back to his hotel. (PF ¶ 32). Salmon then backed off and the dinner meeting went forward. (See PF ¶¶ 33-34). Nevertheless, Butler believed that Salmon's purpose in visiting Massachusetts was to try to reduce the sale price set forth in the LOI. (See Pl. Ex. 9 at 32).

         During the dinner, the parties discussed the Whirlwind technology as well as the SawStop technology, but they did not discuss the financial terms of the proposed purchase. (PF ¶¶ 34-35). Additionally, Salmon expressed some concern about the infringement risks associated with the Whirlwind technology. (PF ¶ 36). Oliver believed Salmon's concerns were “far-fetched” given the distinctions between the Whirlwind technology and the SawStop technology. (Id.; PR ¶ 31). He also believed that Salmon was trying to make patent-related arguments in order to diminish the value of Butler's portfolio and renegotiate the financial terms that previously had been reached. (PR ¶ 31; Pl. Ex. 8 at 52).

         The parties met again the following morning so that Butler could show Salmon how the Whirlwind technology operated. (PF ¶ 37). During the meeting, Salmon again raised questions relating to the strength of the Whirlwind patent. (See PF ¶ 38). Butler maintains that Salmon had no interest in understanding the technology, and that his only goal was to renegotiate the purchase price of the technology. (PF ¶ 39; Pl. Ex. 9 at 32). Balolia disputes the plaintiff's characterization of Salmon's intentions, and argues that it is “an unsupported conclusion apparently drawn by Butler and his representatives.” (DR ¶ 39).

         On May 9, 2012, following his return from Massachusetts, Salmon sent an email to Butler, Calhoun and Oliver. (Def. Ex. 10). Therein, Salmon requested a USB memory stick containing “copies of all of Mr. Butler's invention development records, together with copies of all of the various patent applications he has filed and their prosecution histories.” (Id.). He also described what he claimed to be “two potential design around risks with regard to Mr. Butler's technology.” (Id.). Additionally, Salmon informed the plaintiff that

[u]nless we can negotiate a new deal, with the end result being very similar financially for Mr. Butler, [Balolia] is giving some serious thought to whether he should move forward because of the above-referenced design around risks, as well as the other issues we discussed at our meeting regarding the Saw Stop patents. Please let me know at your earliest convenience if ...

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