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Methode Electronics, Inc. v. Adam Technologies, Inc.

United States Court of Appeals for the Seventh Circuit
371 F.3d 923 (2004)


Facts

Following suits in Delaware and New Jersey, Methode Electronics, Inc. (Methode) (plaintiff), Adam Technologies, Inc. (Adam Tech) (defendant), and Vincent DeVito (defendant) executed a settlement and license agreement. The terms provided that Methode would sell its Adam Tech stock to DeVito, as well as the Adam Tech trade name, trademarks, and a substantial amount of inventory. Methode would retain the right to market the remaining Adam Tech merchandise in its possession. Adam Tech and DeVito were allowed, during the license period, to sell the inventory Methode transferred to them. After the agreements were signed, Adam Tech and DeVito sent a press release to Methode’s customers, offering merchandise for sale. Methode sued Adam Tech and DeVito in the United States District Court for the Northern District of Illinois, alleging that the press release violated Methode’s contractual rights. To establish venue, paragraph 19 of the complaint alleged that the press release had been sent to Methode distributors and customers in the Northern District of Illinois. The defendants sent a letter to Methode challenging venue, asserting their conduct was permitted, and stating that sanctions would be sought under Federal Rule of Civil Procedure (FRCP) 11 if Methode proceeded with its suit in Illinois. Methode’s executive vice president, James McQuillen, instructed Methode’s attorney, Terrence Canade, to proceed. Canade moved for a temporary restraining order against the defendants and scheduled a hearing. On the hearing date, the defendants contested the merits of Methode’s claim and the appropriateness of venue, moving orally for sanctions with respect to the latter. The court ordered Methode and Canade to show cause why paragraph 19 did not violate Rule 11(b)(3). Methode voluntarily dismissed its case. With the motion for sanctions still pending, however, the parties conducted discovery, which showed that the press release had never been sent to the Northern District and that both McQuillen and Canade seemed to know paragraph 19 lacked a factual basis. The court found Methode’s conduct “intentionally deceptive” and imposed fines and attorney’s fees against Methode and Canade totaling $65,000. Methode appealed.

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Holding and Reasoning (Evans, J.)

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