Sanctions Are Appropriate for Factual Misrepresentation and Abuse of Judicial Process

by McDermott Will & Emery

Monsanto Co. v. E.I. Du Pont de Nemours & Co.

Addressing the issue of sanctions following a finding that a litigant abused the judicial process and acted in bad faith, the U.S. Court of Appeals for the Federal Circuit upheld a district court’s imposition of sanctions, finding that there was no clear error in the district court’s narrowly tailored sanctions for making factual misrepresentations.  Monsanto Co. v. E.I. Du Pont de Nemours & Co., Case No. 13-1349 (Fed. Cir., May 9, 2014) (Lourie, J.)

The case involved a license dispute concerning Monsanto’s Roundup Ready® soybean seeds, which contain a genetic modification that enables them to tolerate application of glyphosate herbicide.  DuPont licensed this technology from Monsanto, and produced and sold soybean seeds pursuant to the license.  DuPont later developed a genetic modification that conferred tolerance to glyphosate as well as another herbicide.  DuPont “stacked,” or combined, its new genetic modification with the modification it had licensed from Monsanto to produce a new line of soybean seeds (OGAT/RR stack).  Monsanto then sued DuPont for breach of the license agreement alleging, among other things, that the license did not allow for the production or sale of the OGAT/RR stack.  The district court granted partial judgment on the pleadings to Monsanto based on the license.

The district court allowed DuPont to file counterclaims seeking reformation of the license.  To support its counterclaims, DuPont asserted that “at all times” during the drafting and execution of the license, DuPont believed that the license covered the stacking it had done.  During discovery, Monsanto moved to compel production of documents concerning DuPont’s subjective belief regarding the stacking restrictions in the license.  The district court held that DuPont had placed its subjective belief concerning the scope of the license at issue, and gave DuPont the option of either dismissing its counterclaims or producing to Monsanto pertinent documents that had been withheld as privileged.  DuPont chose the latter option.  DuPont’s documents showed that in-house lawyers and high-level executives who were knowledgeable about the license with Monsanto knew that the license did not cover stacking and specifically would not cover the commercialization of the OGAT/RR stack.  Based on this evidence, Monsanto moved for sanctions.  The district court granted Monsanto’s motion, dismissed the reformation counterclaims and awarded Monsanto attorneys’ fees for expenses incurred while defending against the reformation counterclaims and bringing the sanctions motion.  DuPont appealed.

The Federal Circuit noted that under the applicable law, the reformation claims could succeed only if DuPont could establish by clear and convincing evidence that, before executing the license, the parties came to a specific understanding of the terms of the license that differed materially from the executed document, and that the parties mistakenly believed that the final executed contract accurately expressed that prior understanding.  Thus, by seeking to reform the license, DuPont made its subjective belief regarding the scope of the license a material factual issue.

The Federal Circuit also upheld the district court’s finding that DuPont had made material factual misrepresentations regarding its subjective belief that the license allowed for the commercialization of the OGAT/RR stack in view of DuPont’s internal documents to the contrary.  Further, the Federal Circuit found that the district court did not clearly err in holding that DuPont had abused the judicial process and acted in bad faith in view of these misrepresentations, and based on this finding, upheld the award of attorneys’ fees to Monsanto.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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