Company’s Indemnification Claim Barred by Res Judicata, First District Decides


A company involved in an underlying federal patent infringement case may not re-litigate the question of whether its software provider should indemnify it from that case, the First District Court of Appeal has ruled. As Chicago business attorneys, we were interested to read the ruling in Peregrine Financial Group v. TradeMaven LLC, No. 1-08-1111 (Ill. 1st 2009). This case springs from an intellectual property case filed in Chicago federal court, in which Trading Technologies, Inc., a software company, accused competitor TradeMaven and commodities brokerage firm Peregrine of infringing its software patents. TradeMaven and Peregrine came to separate settlements in that case, but Peregrine then sued TradeMaven in state court for multiple causes of action, including indemnification. The trial court graned TradeMaven’s motion for summary judgment on the indemnification count, and the First upheld it.

Peregrine licensed TradeMaven’s electronic trading software in 2004. In the licensing agreement, TradeMaven warranted that its software did not violate the rights of any third party, including intellectual property rights. It later agreed to indemnify Peregrine for expenses related to claims of infringement of “any property right.” Less than a year later, Trading Technologies filed its suit. Peregrine claims it sought and received assurances from a TradeMaven officer that TradeMaven would cover Peregrine’s costs in the suit. However, Peregrine did not file any claims against TradeMaven in that litigation. TradeMaven settled in January of 2006, at which time Peregrine sent it a letter reminding it of the indemnification obligation.

Peregrine settled in March of 2006, on the same day that TradeMaven amended its settlement to include additional payment. TradeMaven claims it made that payment in exchange for Trading Technologies executing a general release in Peregrine’s favor. Peregrine claims it didn’t ask for this payment and that the payment did not extinguish its indemnification rights or discharge its obligations. In connection with the settlements, the court later put forth a consent judgment that included language stating that each party would pay its own attorneys’ fees. Peregrine later sent TradeMaven a letter reminding it that it still owed Peregrine indemnification, and when TradeMaven did not indemnify Peregrine, Peregrine sued for indemnification, breach of contract, breach of warranty and tortious interference. The trial court dismissed the warranty claim and granted partial summary judgment on indemnification, saying the consent judgment blocked that claim under the doctrine of res judicata. After a motion to reconsider was denied, Peregrine appealed.

Peregrine’s first argument on appeal was that TradeMaven did not meet its burden of proving res judicata because the indemnification cause of action was not a cause of action in the federal patent infringement case. The appeals court disagreed. Both cases arose out of the underlying license agreement, the First wrote, which means both arose from the same transaction, circumstances or factual nebulae, as required by the law. It also dismissed Peregrine’s claim that its lawsuit was distinct from the patent infringement lawsuit because it brought no claims against TradeMaven in the patent infringement case. This is true, the court said, but Peregrine could have claimed indemnification at any time during the case, since indemnification was part of the licensing agreement. Peregrine was demonstrably aware of its rights and had incurred costs and fees, the court said.

The court next examined Peregrine’s argument that it had no obligation to bring a claim for indemnification during the federal case because the cause had not accrued. In support, it cited Guzman v. C.R. Epperson Construction, Inc., 196 Ill. 2d 391 (2001), in which the Illinois Supreme Court ruled that a third-party claim for indemnification does not accrue until a defendant settles or has a judgment entered. However, the First said Guzman did not apply because in this case, Peregrine was not a third party, but a named defendant. Furthermore, it noted, Guzman used Illinois law and had an implied indemnification contract, not federal law and an express indemnification contract, as in this case. It also rejected two other arguments based on caselaw, saying this case is more like Threshermen’s Mutual Insurance Co. v. Wallingford Mutual Insurance Co., 26 F.3d 776 (7th Cir. 1994), in which the Seventh Circuit, applying Wisconsin law, found that an insurance company could and should have raised its indemnification claim during the underlying case.

Finally, the First rejected the argument that equity should prevent it from allowing TradeMaven to avoid its obligations under the license agreement, especially since it had said it would. The court said it may be sympathetic, but that Peregrine had made its own predicament and that it would not upset res judicata on that basis alone. Thus, the First upheld the trial court’s decision to grant summary judgment on indemnification.

Based in Chicago and Oak Brook, Ill., Lubin Austermuehle a Chicago business law firm represents clients throughout Illinois and across the United States who are involved in serious or high-stakes business litigation. Our Illinois business lawyers work for both plaintiffs and defendants in cases of contract disputes, intellectual property infringement, trade secrets, restrictive covenants, indemnification and any other claims that could have a serious effect on the finances and future of the business. Our clients include companies in every field and businesses of all sizes, from small family businesses to major corporations. To learn more or speak to an experienced Northbrook business litigation attorney, please contact us through our website or call 630-333-0333 today.

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