[00:00:23] Speaker 01:
Okay.

[00:00:24] Speaker 01:
The next argued case is No.

[00:00:26] Speaker 01:
15, 1927, Zest IP Holdings Against Implant Direct Manufacturing.

[00:00:33] Speaker 01:
Mr. Heurie.

[00:00:36] Speaker 05:
Good morning to the police and the court.

[00:00:38] Speaker 05:
As a preliminary matter, I just want a small point of clarification or correction, actually.

[00:00:44] Speaker 05:
In our briefs, in our opening brief and our reply brief, we've cited to the Ninth Circuit case of Hamilton versus Firestone.

[00:00:50] Speaker 05:
And in preparing for oral argument, I noticed that we had incorrectly cited the case.

[00:00:54] Speaker 05:
There was a quotation with reference to Hamilton versus Firestone, which is actually quoted in the district court decision.

[00:01:00] Speaker 05:
I provided the correct citation to counsel yesterday.

[00:01:02] Speaker 05:
I have correct citations for me for the court if it would like today.

[00:01:06] Speaker 05:
And unless the court tells me it's not necessary, we intend to file a motion to correct the citation in our briefs.

[00:01:11] Speaker 05:
So I just wanted to bring that to the court's attention so we don't have an incorrect citation on the record.

[00:01:15] Speaker 05:
OK.

[00:01:17] Speaker 05:
So proceeding, there's two issues, the issue of the dismissal and the striking of the extrovert witness report.

[00:01:22] Speaker 05:
I'd like to start with the dismissal.

[00:01:24] Speaker 05:
I think in order to prevail on the issue of the dismissal, I need to convince the court of two points.

[00:01:30] Speaker 03:
First, that you're right.

[00:01:31] Speaker 03:
Just to be clear, the other issue of the extrovert report is immaterial if you lose on the dismissal issue.

[00:01:38] Speaker 03:
Correct.

[00:01:39] Speaker 05:
I think it's a moot point if the dismissal is.

[00:01:41] Speaker 05:
So I would like to concentrate, obviously, on the dismissal issue today.

[00:01:47] Speaker 05:
I think I need to convince you that Implant Direct lost its right to rely on insurance to pay the judgment or the indemnification issue here, and that the district court abused its discretion when it refused to consider any conditions or apply any conditions as a condition for the dismissal of the lawsuit in response to the joint motion of Implant Direct Side Run, or IDSI, and Zest.

[00:02:12] Speaker 05:
So there's really no.

[00:02:15] Speaker 05:
There's really no question that Implant Direct is now in a worse position than it was before.

[00:02:19] Speaker 03:
It had insurance, and if the case had gone to trial and there were... Why is it... I mean, just tell me why the file is wrong, which would mean that you're actually not in a worse position.

[00:02:32] Speaker 03:
One way of saying why you have not been legally prejudiced is either you haven't lost anything or what you have lost you gave away in the agreement.

[00:02:42] Speaker 03:
And that is your agreement in setting up IDSI and taking certain interests and promising certain kinds of indemnifications.

[00:02:51] Speaker 03:
And the New York case will determine that.

[00:02:53] Speaker 03:
It will either determine that you

[00:02:56] Speaker 03:
seated contractually, seated control of the litigation to IDSI and promise to indemnify it for certain liabilities it incurs in the litigation, voluntarily or otherwise.

[00:03:09] Speaker 03:
Or the New York court will say you didn't do that, and then you haven't lost anything.

[00:03:14] Speaker 03:
Either way, all of your legal rights remain to be determined by the New York court without prejudice from

[00:03:25] Speaker 03:
whatever, what just happened in this case?

[00:03:28] Speaker 05:
Well, with respect, Your Honor, I think I disagree with that.

[00:03:31] Speaker 05:
The New York court can certainly determine whether or not there's an indemnification obligation.

[00:03:36] Speaker 05:
But if there is an indemnification obligation, the New York court can't order our insurance company to pay IDSI the indemnification.

[00:03:44] Speaker 05:
That's not part of the contract of insurance.

[00:03:47] Speaker 05:
The insurance is there to pay for damages arising out of trademark infringement.

[00:03:51] Speaker 05:
And it's not to pay indemnification demand from IDSI.

[00:03:56] Speaker 03:
I may be a little confused, but what I guess I want to say in response to that is, so maybe there's a second lawsuit you need to have against your insurance carrier.

[00:04:07] Speaker 05:
Well, that's more prejudice for our client.

[00:04:09] Speaker 05:
More attorney's fees, more expense, more uncertainty, more delay.

[00:04:15] Speaker 05:
If there's an obligation to pay IDSI, it's going to have to come out of Implant Direct's pocket, or Implant Direct is going to have to go through the process of another lawsuit to determine whether or not the insurance company is going to pay.

[00:04:30] Speaker 05:
And that outcome is uncertain, and it may never come to bear.

[00:04:35] Speaker 05:
If this case was not dismissed, we would be in a much better position.

[00:04:39] Speaker 05:
We would have the insurance to rely on, and the insurance company would be providing a defense.

[00:04:43] Speaker 02:
So what do you want to have had happened?

[00:04:48] Speaker 02:
You wanted the litigation to go forward?

[00:04:50] Speaker 05:
Well, any option that we have is better than the option we have right now.

[00:04:55] Speaker 05:
There are many things that the court could have done.

[00:04:57] Speaker 05:
Yes, the litigation could have gone forward.

[00:04:59] Speaker 05:
We could have defended on the merits.

[00:05:01] Speaker 05:
We hoped it would have been successful.

[00:05:03] Speaker 05:
And nothing would be owed to the plaintiff.

[00:05:05] Speaker 05:
Or if there were damages for trademark infringement, the insurance company would pay for it.

[00:05:08] Speaker 05:
Another option, a second option as a condition for dismissal,

[00:05:13] Speaker 05:
The district court could have required IDSI to give up its indemnification claim.

[00:05:19] Speaker 05:
That would have put our client in as good a position as it was before.

[00:05:22] Speaker 05:
Another option is to require IDSI and Zest to enter into good faith settlement negotiations with Implant Direct and its insurance carrier, which would, again, potentially resolve the claim.

[00:05:33] Speaker 02:
Implant owns, has an ownership interest in IDSI, correct?

[00:05:38] Speaker 05:
Implant Direct owns 25% of IDSI.

[00:05:40] Speaker 05:
That is correct.

[00:05:42] Speaker 02:
So this is a curious situation.

[00:05:44] Speaker 02:
The owner of 25% of the company has a dispute with the company saying the company shouldn't have settled.

[00:05:55] Speaker 05:
That is correct, Your Honor.

[00:05:56] Speaker 05:
And as you know, that's its reference.

[00:05:58] Speaker 05:
There is separate litigation between the minority owner and the majority shareholder.

[00:06:03] Speaker 02:
Now, we have in the record portions of, I guess, what has been referred to as the transaction agreement.

[00:06:09] Speaker 05:
i believe the entire transaction agreement is in the record.

[00:06:11] Speaker 02:
But we don't have in the record what appears to be the other critical document, the insurance agreement.

[00:06:19] Speaker 02:
with the insurance contract, is that correct?

[00:06:21] Speaker 05:
The insurance contracts themselves are not in the record.

[00:06:24] Speaker 05:
That is correct.

[00:06:26] Speaker 05:
We have the declaration of Dr. Nisnick who testifies about the existence of the record.

[00:06:29] Speaker 05:
The transaction agreement refers to the insurance agreements.

[00:06:33] Speaker 05:
The Council for IDSI concedes the existence of the insurance agreements in oral argument and various pleadings in the case.

[00:06:41] Speaker 01:
So where do the issues of possible liability stand?

[00:06:46] Speaker 01:
It looks as if the

[00:06:48] Speaker 01:
Entire structure has become moot.

[00:06:53] Speaker 01:
That can't be.

[00:06:54] Speaker 01:
Where does this stand?

[00:06:55] Speaker 05:
I apologize.

[00:06:56] Speaker 05:
I don't follow your question, Your Honor.

[00:06:59] Speaker 01:
I'm trying to understand what it is that we're asking for.

[00:07:02] Speaker 01:
You have a possible speculative potential liability, maybe, but not yet?

[00:07:07] Speaker 05:
No, no.

[00:07:09] Speaker 05:
We have liability.

[00:07:10] Speaker 05:
We have an indemnification obligation to pay IDSI for the amounts that it has paid to Zest.

[00:07:17] Speaker 05:
That's not speculative.

[00:07:18] Speaker 05:
That's real.

[00:07:19] Speaker 05:
That's real.

[00:07:19] Speaker 01:
That obligation is now vested to pay?

[00:07:22] Speaker 05:
That demand is real.

[00:07:25] Speaker 05:
We supplemented the record.

[00:07:26] Speaker 05:
The court granted our motion to supplement the record with the board minutes from IDSI, where the board has made a demand, or not made a demand, but has made a resolution to seek recovery from Implant Direct.

[00:07:38] Speaker 03:
For the entirety or for a portion of what it paid to us?

[00:07:42] Speaker 05:
We haven't received a formal written demand from IDSI as to exactly what their theory is, but they have made the board resolution to seek... That's the question.

[00:07:52] Speaker 01:
So you have no demand for payment of anything?

[00:07:55] Speaker 05:
We have the board resolution from IDSI.

[00:07:57] Speaker 05:
We have no formal lawsuit been filed or anything like that for payment yet.

[00:08:01] Speaker 02:
Under the transaction agreement, am I correct in understanding that what IDSI can claim by way of indemnification are damages incurred prior to the time it came into the suit, correct?

[00:08:17] Speaker 05:
I believe that's correct.

[00:08:18] Speaker 05:
The pro rata share of the damages, yes.

[00:08:22] Speaker 05:
It would be the damages that we would rely on to our insurance company.

[00:08:25] Speaker 05:
So it would be a pass-through for us.

[00:08:28] Speaker 02:
But is there a difference between the patent and the trademark damages?

[00:08:31] Speaker 05:
Their expert witness, plaintiff's expert witness, the expert witness report is substantially continuous.

[00:08:39] Speaker 02:
Because as I understand it, the whole discussion about the insurance seems to focus on trademark.

[00:08:45] Speaker 05:
That's correct.

[00:08:46] Speaker 05:
Our only coverage is for insurance.

[00:08:47] Speaker 05:
We don't have any patent infringement insurance or anything like that.

[00:08:52] Speaker 05:
But the products are the same.

[00:08:54] Speaker 05:
There's not a separate.

[00:08:55] Speaker 05:
There weren't separate products that were sold that were alleged to infringe a patent, and separate products were sold to infringe the trademark.

[00:09:00] Speaker 05:
The universe of products is one and the same.

[00:09:03] Speaker 05:
So it would be substantially the same.

[00:09:05] Speaker 03:
Again, I guess since you don't actually have a demand, and maybe there's material in the record, but I guess I was imagining, and just correct me if I'm wrong, that the settlement was in 2015.

[00:09:17] Speaker 03:
The transaction was five years earlier.

[00:09:21] Speaker 03:
I guess IDSI was continuing the business that was accused.

[00:09:27] Speaker 03:
Maybe only a small portion of what they agreed to pay Zest is even arguably within your trademark only pre-2010 indemnification agreement.

[00:09:38] Speaker 03:
Do we know anything about that?

[00:09:41] Speaker 05:
We don't know exactly, because we haven't received a written confirmation from them, from the plaintiff yet.

[00:09:46] Speaker 05:
But I would agree, we would agree that the amount that we would have to indemnify is only the portion that was before the transaction related to trademark.

[00:09:53] Speaker 05:
Well, no, we have a infringement obligation.

[00:09:55] Speaker 05:
I'm sorry, an indemnification obligation for all the damages.

[00:09:58] Speaker 05:
But yes, the insurance would cover only the trademark damages.

[00:10:01] Speaker 05:
Your Honor touched on a point about there.

[00:10:03] Speaker 03:
Just to be clear, I mean, your indemnification obligation runs only up to December 31, 2010?

[00:10:10] Speaker 05:
That would be our argument in any lawsuit, obviously.

[00:10:12] Speaker 03:
Do they dispute that?

[00:10:14] Speaker 05:
I don't believe they dispute that, Your Honor.

[00:10:16] Speaker 05:
OK.

[00:10:16] Speaker 05:
But Your Honor made a point about there being no written formal demand yet.

[00:10:21] Speaker 05:
Counsel for IDSI is a smart person, and they have smart people on their side.

[00:10:25] Speaker 05:
They obviously know that if they give us a written demand for indemnification while this appeal is pending, we can point to it.

[00:10:30] Speaker 05:
So there's a good reason why they haven't sent us.

[00:10:32] Speaker 03:
So there is apparently

[00:10:34] Speaker 03:
a suit in New York State Court already underway?

[00:10:37] Speaker 03:
Is that right?

[00:10:37] Speaker 03:
There's a suit in New York State Court.

[00:10:38] Speaker 03:
What is that?

[00:10:39] Speaker 03:
Who sued whom for what?

[00:10:41] Speaker 05:
I believe IDSI sued Dr. Niznik and Implant Direct.

[00:10:46] Speaker 05:
Dr. Niznik's the owner of Implant Direct.

[00:10:47] Speaker 05:
I'm not counsel handling that matter.

[00:10:49] Speaker 05:
There's separate counsel for Implant Direct.

[00:10:51] Speaker 03:
Is that suit about this indemnification?

[00:10:54] Speaker 03:
My understanding is it's not, Your Honor.

[00:10:57] Speaker 05:
Again, I'm not counsel for that.

[00:11:00] Speaker 02:
How much time does IDSI

[00:11:04] Speaker 02:
have to seek indemnification?

[00:11:06] Speaker 02:
I mean, is there a statute of limitations as to when it can come after implant direct for indemnification?

[00:11:14] Speaker 05:
My recollection is nothing in the transaction agreement that states that.

[00:11:17] Speaker 05:
It would just be a regular statute of limitations under either New York or California law, depending on where the particular statute of limitations be.

[00:11:24] Speaker 05:
New York, I believe, have five years for written contracts.

[00:11:28] Speaker 03:
But as far as you know, the indemnification language of the transaction agreements doesn't say you have to tell us within 90 days.

[00:11:36] Speaker 05:
My recollection of the transaction agreement doesn't say that.

[00:11:39] Speaker 01:
So it still looks as if everything is tentative, hypothetical, speculative.

[00:11:45] Speaker 01:
I know that the controversy has not yet gelled that you're asking for advice as to what might happen in the future.

[00:11:54] Speaker 05:
Oh, absolutely not, Your Honor.

[00:11:55] Speaker 05:
I would disagree with that.

[00:11:56] Speaker 05:
There is definitely an indemnification demand.

[00:12:00] Speaker 01:
But you haven't been asked to indemnify.

[00:12:03] Speaker 05:
We have received no formal written notice for indemnification.

[00:12:07] Speaker 01:
Exactly.

[00:12:07] Speaker 01:
You haven't been asked to indemnify.

[00:12:09] Speaker 01:
And you may never be asked.

[00:12:11] Speaker 05:
I would disagree with you, Your Honor.

[00:12:12] Speaker 05:
The IDSI board of directors has

[00:12:18] Speaker 05:
passed a resolution seeking indemnification from Implant Direct.

[00:12:22] Speaker 05:
My client, Implant Direct, is a minority shareholder in that company, has access, and has been given access to the board of directors minutes.

[00:12:29] Speaker 05:
So that would qualify, in my view, as a formal demand.

[00:12:35] Speaker 02:
You're saying the board has authorized the officers of the corporation to seek indemnification.

[00:12:40] Speaker 02:
Is that what it is?

[00:12:42] Speaker 02:
I believe that's correct, Your Honor.

[00:12:44] Speaker 02:
But that suggests that the officers, I mean,

[00:12:48] Speaker 02:
They may well seek indemnification, but they have a choice as to whether or not to.

[00:12:54] Speaker 05:
The board of directors has expressed its intent to go forward with the indemnification.

[00:13:00] Speaker 05:
Are you represented on the board?

[00:13:02] Speaker 05:
We are not represented on the board at this time.

[00:13:05] Speaker 05:
We formerly had a board seat, but you have sources.

[00:13:09] Speaker 05:
Well, as a minority shareholder, we're entitled to receive the minutes and things like that.

[00:13:15] Speaker 05:
I'd like to touch on a few points in relation to Zess and IDSI's argument.

[00:13:22] Speaker 05:
As we noted before, Zess filed nothing in response to our motion to dismiss.

[00:13:27] Speaker 05:
We think that they're raising new arguments on appeal.

[00:13:30] Speaker 05:
IDSI also, with their complaints about no evidence about the insurance policy, things like that.

[00:13:34] Speaker 05:
These arguments were not raised in the district court.

[00:13:36] Speaker 05:
So I just want to touch on that.

[00:13:38] Speaker 05:
I'll reserve the rest of my time for rebuttal.

[00:13:40] Speaker 01:
OK.

[00:13:40] Speaker 01:
Thank you, Mr. Herrie.

[00:13:42] Speaker 01:
See you, Ms.

[00:13:43] Speaker 01:
Perry.

[00:13:46] Speaker 00:
Good morning, your honors.

[00:13:49] Speaker 00:
It may please the court.

[00:13:51] Speaker 00:
We're here today in response to an extraordinary argument made by ImplantDirect.

[00:13:57] Speaker 00:
It contends that Zest and ImplantDirect side by side.

[00:14:01] Speaker 02:
I just want to make sure, because you represent IDSR, correct?

[00:14:03] Speaker 00:
I represent Zest.

[00:14:05] Speaker 02:
Oh, Zest.

[00:14:06] Speaker 00:
OK.

[00:14:06] Speaker 00:
I call these Zest anchors and Zest holdings.

[00:14:09] Speaker 02:
Oh, OK.

[00:14:10] Speaker 02:
Sorry.

[00:14:11] Speaker 00:
So what ImplantDirect has contended is that both Zest and ImplantDirect's side branch should go back to the district court and try this case, not withstanding our settlement and voluntary dismissal of the case with prejudice.

[00:14:28] Speaker 03:
Simply because they don't want- I'm sorry, that's not it's only request unless you disagree with, I think Judge Shaw asked Mr.

[00:14:38] Speaker 03:
do you think should have happened in the district court?

[00:14:42] Speaker 03:
And one of the alternatives he suggested was go and try the case.

[00:14:47] Speaker 03:
But that wasn't the only one.

[00:14:48] Speaker 03:
He also said attach a condition whereby you give up your indemnity.

[00:14:53] Speaker 03:
Not you, the other guys.

[00:14:56] Speaker 03:
You're now colleagues.

[00:14:58] Speaker 03:
Give up the indemnity.

[00:15:00] Speaker 00:
Strangely enough, yes, Your Honor, we are.

[00:15:02] Speaker 00:
Yes, Your Honor, that's true.

[00:15:04] Speaker 00:
So either of those, under either of those scenarios, whether we go back and try it, which is, in my mind, quite extraordinary, or that the district court should have attached some conditions, the basis of that is really that they don't want to potentially have to pay this indemnification.

[00:15:23] Speaker 02:
Ms.

[00:15:23] Speaker 02:
Ferry, you kind of, I guess, view yourself as an innocent bystander, your client as an innocent bystander in this unfortunate

[00:15:30] Speaker 02:
dispute between implant and IDSI, correct?

[00:15:35] Speaker 00:
Yes, Your Honor.

[00:15:36] Speaker 00:
And this dispute that's going on between these two companies now is in the Southern District of New York.

[00:15:43] Speaker 00:
And this is a far-ranging dispute.

[00:15:46] Speaker 03:
Oh, it's not in New York State Court.

[00:15:48] Speaker 03:
It's in federal court.

[00:15:49] Speaker 00:
Yes, Your Honor.

[00:15:51] Speaker 03:
Southern District of New York.

[00:15:52] Speaker 03:
Well, whichever court it's in.

[00:15:56] Speaker 03:
But who sued whom for what?

[00:15:58] Speaker 00:
Well, Mr. Meade can probably give you more of the details.

[00:16:02] Speaker 00:
Oh, because you're not party to that one.

[00:16:03] Speaker 00:
Right.

[00:16:04] Speaker 00:
We are not party to it.

[00:16:06] Speaker 00:
But we have mentioned and we mentioned one of the arguments that Mr. Hurry made was that after they moved to ask the court to dismiss this voluntary dismissal and they objected to it that we made no arguments.

[00:16:20] Speaker 00:
We had a hearing in order to show cause hearing and at that hearing we mentioned this among other things which is this was a dispute it seemed between these two parties and we were

[00:16:31] Speaker 00:
caught in this and were being asked to to try this case when in our minds we'd come to an amicable resolution.

[00:16:40] Speaker 00:
So certainly in that hearing we brought up the issues of this insurance policy that no one knows anything about because it wasn't put into evidence.

[00:16:49] Speaker 00:
So we didn't know if the proceeds really belong to ImplantDirect or ImplantDirect-Cybron.

[00:16:54] Speaker 00:
It's very speculative.

[00:16:56] Speaker 03:
Can I just ask, I think I know what your answer has to be to this, but is there

[00:17:01] Speaker 03:
Is there anything in the record about whether when you were negotiating a settlement with IDSI, the topic came up that maybe IDSI could pay you more than they might otherwise because they're going to get a bunch of the money back from the third party, making you really maybe not so completely a bystander here?

[00:17:18] Speaker 00:
No, Your Honor, there's nothing of that in the record.

[00:17:21] Speaker 00:
And I think the evidence in the record that would be quite contrary to that is the fact that in this transaction agreement that Implant Direct, of course, willingly entered into with Cybron at the time they decided to sell their company, is that they transferred over all of the assets and the liabilities of this company.

[00:17:44] Speaker 00:
including the lawsuit, and implant direct siren took over everything.

[00:17:49] Speaker 00:
They took over the litigation.

[00:17:51] Speaker 00:
And as Judge Curiel found when we moved to add implant direct CYBRON to the case, Judge Curiel said, well, as successor in interest of implant direct, they're liable for everything.

[00:18:03] Speaker 00:
So they basically told, or the judge told, implant direct CYBRON, you're liable.

[00:18:08] Speaker 00:
You'll have to go at some point and recover any part of this that you can under indemnification.

[00:18:17] Speaker 03:
a reclusive ruling or does it remain open to implant direct in the New York litigation or elsewhere to say, no, no, no, we are not liable?

[00:18:26] Speaker 03:
Because if you're now saying that that issue is settled in this case, then maybe they really are legally prejudiced.

[00:18:31] Speaker 00:
No, Your Honor, the only thing that was settled was that potentially if we got to trial, a successor in interest would be liable for the damages.

[00:18:40] Speaker 00:
But what's going on in the court in New York, Your Honor, is the dispute between the two parties about this business deal that has gone wrong.

[00:18:50] Speaker 00:
And what Implant Direct-Cyber has argued is when you sold us the company and you transferred everything to us, you transferred the insurance policy as well.

[00:19:01] Speaker 00:
So I think the real argument here, Your Honors, and the question is that when Judge Curiel dismissed this case in doing that, did this constitute plain legal prejudice to implant direct?

[00:19:17] Speaker 00:
And our argument and answer to that is no, of course not.

[00:19:21] Speaker 00:
that legal prejudice has to go to some legal claim, some legal argument that they had in the case.

[00:19:30] Speaker 00:
And that is not the case here.

[00:19:32] Speaker 00:
What we're talking about is simply this dispute these two companies have over this insurance policy.

[00:19:38] Speaker 00:
And this clearly can be handled within the Southern District of New York.

[00:19:42] Speaker 03:
Just to be clear again, this is not your dispute, but you are here trying to preserve a final judgment.

[00:19:50] Speaker 03:
Is the dispute between them and them just over insurance, or is it also about whether implant is actually on the hook for indemnification for some part of what IDSI promised to pay you?

[00:20:08] Speaker 00:
Your Honor, I think that there are many, many issues in that.

[00:20:12] Speaker 00:
It goes much beyond what we're talking about today.

[00:20:15] Speaker 00:
I don't believe that any demand for indemnification is made.

[00:20:19] Speaker 00:
My only point is that they're having a contractual dispute, and the transaction agreement that they entered into said those disputes must be handled in the Southern District of New York.

[00:20:30] Speaker 00:
So I believe what Judge Curiel said is that that is the proper forum.

[00:20:36] Speaker 00:
But as Judge Newman had said and mentioned earlier, no formal indemnification notification has been given.

[00:20:44] Speaker 00:
So this is quite speculative.

[00:20:46] Speaker 00:
This is simply what Judge Curiel said was that would be a better forum, that this dispute was not before him as to who will get this proceeds, will any proceeds ever come out of this.

[00:20:59] Speaker 00:
That should be handled between the parties in New York.

[00:21:03] Speaker 00:
And the other point I'd like to make is that under the law, the other part of this plain legal prejudice, it has to be as a result of the dismissal.

[00:21:12] Speaker 00:
And I don't think that they can make that aspect of the precedent as well because the fact that they may or may not get these proceeds doesn't come from the fact that this case has been dismissed.

[00:21:27] Speaker 00:
And if we went back and actually tried the case and they lost and they made a claim for this, there would still be a dispute between ImplantDirect and ImplantDirect-CyBron.

[00:21:38] Speaker 00:
So it's not stemming from this dismissal of the case.

[00:21:43] Speaker 03:
But if they won, then that would be the end of their liability.

[00:21:46] Speaker 00:
Well, if they won, Your Honor, and they were not found, and there was no liability at all, yes.

[00:21:55] Speaker 00:
But as vis-a-vis the prejudice that they're talking about that they can't basically collect from this insurance policy, that dispute will go on between these parties.

[00:22:08] Speaker 00:
So the fact of when a plaintiff goes into the court, and we did this, of course, jointly with Implant Direct Siron, and asked for this dismissal, the court, in their discretion, of course, can allow dismissal when the party requests that, unless there is this legal prejudice, which we don't believe was met.

[00:22:31] Speaker 00:
If I might just for a moment address the other issue about the expert reports, the second issue.

[00:22:38] Speaker 03:
Even though it wasn't argued by the, even though it was not presented during oral argument here?

[00:22:44] Speaker 03:
What are you going to respond to?

[00:22:46] Speaker 00:
Oh, I'm sorry, Your Honor.

[00:22:47] Speaker 00:
I thought that he mentioned that quickly at the end of his argument.

[00:22:51] Speaker 03:
Oh, did he?

[00:22:51] Speaker 03:
Oh, maybe I missed it.

[00:22:52] Speaker 03:
I'm sorry.

[00:22:53] Speaker 00:
Well, Your Honor, then I will leave it at that.

[00:22:56] Speaker 01:
OK, we'll hear from Mr. Mead.

[00:23:03] Speaker 04:
May I please the court?

[00:23:04] Speaker 03:
So what's happening in New York?

[00:23:07] Speaker 04:
State court.

[00:23:09] Speaker 04:
Dr. Nisnik was on the board of the Joint Venture.

[00:23:12] Speaker 04:
the acquisition agreement left him as the manager of that company for a period of years, and it had provisions... That company being?

[00:23:21] Speaker 04:
The joint venture, IDSI, my client.

[00:23:23] Speaker 04:
Yeah.

[00:23:23] Speaker 04:
Okay, so remember the structure.

[00:23:26] Speaker 04:
He owns entities that own 25% of the joint venture, and he is left to run that venture for a number of years with oversight from an IDSI board, okay?

[00:23:38] Speaker 04:
The lawsuit was going on in that period of time when he was running the company.

[00:23:43] Speaker 04:
And with all due respect... This lawsuit.

[00:23:46] Speaker 04:
This lawsuit, right.

[00:23:47] Speaker 04:
And we didn't get joined to it.

[00:23:49] Speaker 04:
The joint venture did not get joined to it for years after the acquisition agreement.

[00:23:54] Speaker 04:
Another bizarre twist.

[00:23:56] Speaker 04:
So what happened was that there was the usual dispute about management control by the entrepreneur and the acquirer.

[00:24:04] Speaker 04:
And then there was an investigation, unfortunately, of potential improper sexual conduct by Dr. Nisnick and a board investigation of that.

[00:24:15] Speaker 04:
And Dr. Nisnick submitted a resignation to the board potentially to forestall that investigation.

[00:24:23] Speaker 04:
The difficulty is that that resignation arguably triggered the right of the acquiring entities to buy his 25% stock at a lower price than without the resignation.

[00:24:36] Speaker 03:
Geez, I thought this was complicated.

[00:24:38] Speaker 03:
Oh, you just have no idea.

[00:24:40] Speaker 04:
And I want to make it clear that I am an imperfect reporter about these state court proceedings.

[00:24:45] Speaker 04:
I don't represent

[00:24:47] Speaker 04:
The CYBRON entity is in that case.

[00:24:51] Speaker 03:
CYBRON is the 75%?

[00:24:52] Speaker 04:
Yeah, right.

[00:24:53] Speaker 04:
And you have to bear in mind, for reasons I'm about to tell you, there's a reason I'm kind of not involved is I'm not volunteering.

[00:24:59] Speaker 04:
I'm a potential witness in this dispute because of this lawsuit.

[00:25:04] Speaker 01:
But where is the potential liability?

[00:25:06] Speaker 01:
I mean, the more you tell us, the more intermingled and the more it looks as if this is sort of an interim

[00:25:16] Speaker 01:
interlude.

[00:25:17] Speaker 01:
So where do things stand now?

[00:25:21] Speaker 04:
Very complicated story.

[00:25:23] Speaker 04:
So there's the New York State Court arguing over how much the acquiring entity has to pay Dr. Nisnick for his 25%.

[00:25:31] Speaker 01:
And that has nothing to do with the insurance claim?

[00:25:33] Speaker 04:
Nothing to do with insurance, nothing to do with this at all.

[00:25:37] Speaker 04:
Dr. Niznik and his entities have sought to amend in the New York State Court to add a claim that by settling this litigation,

[00:25:50] Speaker 04:
IDSI and the CyBron entities harmed the business of the joint venture because we agreed to stop making the alleged infringing product.

[00:25:59] Speaker 04:
I can tell you, the client had good faith business reasons for doing that, independent of the litigation.

[00:26:05] Speaker 04:
But in any event, it is Dr. Nisnik, not us, who is currently trying to inject this settlement into the New York state case.

[00:26:15] Speaker 03:
OK, so put aside for a minute the existing New York state case.

[00:26:20] Speaker 03:
Is it your view that any issue about whether implant direct is on the hook for some share of the amount that IDSI has agreed to pay Zest remains fully open without preclusive effect in a potential future case between implant and direct and IDSI?

[00:26:47] Speaker 04:
Absolutely.

[00:26:48] Speaker 04:
And it seems to me obvious that that is the case.

[00:26:52] Speaker 04:
There is nothing in Judge Curiel's order that determined anything about the insurance proceeds or the transaction.

[00:26:58] Speaker 03:
There was a reference, I think, that Ms.

[00:27:01] Speaker 03:
Ferry made to, I think, I thought she, and I asked her a question about, Judge Curiel said something about

[00:27:10] Speaker 03:
confirming their indemnification of IDSI or something, but no preclusive ruling on that?

[00:27:17] Speaker 03:
No, just the opposite.

[00:27:17] Speaker 03:
Because that might actually matter.

[00:27:19] Speaker 03:
That might begin to make a case for legal prejudice.

[00:27:23] Speaker 04:
No, just the opposite.

[00:27:24] Speaker 04:
What Judge Curiel said in his order granting the dismissal was all of these issues.

[00:27:30] Speaker 04:
All of them can be determined by the New York State Court.

[00:27:33] Speaker 04:
And not my jurisdiction.

[00:27:35] Speaker 04:
That's specifically at the appendix at page two, I believe, in his order.

[00:27:41] Speaker 04:
But if I could, and I know it's going to take a little more time than I'm allotted, but can I talk to you briefly about the uncertainties that Implant Direct faced before the dismissal and the uncertainties it faces afterwards?

[00:27:54] Speaker 04:
Because there is nothing plain about their claim of prejudice here.

[00:27:59] Speaker 04:
Plain is a word.

[00:28:01] Speaker 04:
It has a statutory meaning under the case law.

[00:28:03] Speaker 04:
It means, not speculative, as Your Honor kept asking, it means

[00:28:08] Speaker 04:
It means concrete.

[00:28:10] Speaker 04:
And then it also has to be legal.

[00:28:12] Speaker 04:
Remember, not contractual, not about attorney's fees.

[00:28:15] Speaker 04:
Those words have real meaning.

[00:28:18] Speaker 04:
Before the dismissal, here's what ImplantDirect faced.

[00:28:21] Speaker 04:
Yes, they had insurance that we bought, so IDSI that owns the insurance policies now.

[00:28:29] Speaker 04:
The insurance company was paying under a reservation of rights to defend the trademark case.

[00:28:36] Speaker 04:
There is no insurance for the patent case.

[00:28:39] Speaker 04:
Implant Direct had the possibility that the insurance company would deny coverage, would seek reimbursement of the attorney's fees that it had already paid, and would deny any claim for any judgment with respect to the trademark case.

[00:28:55] Speaker 04:
So all of that was uncertain beforehand.

[00:28:59] Speaker 04:
And they also faced the possibility that if the case went badly, that

[00:29:06] Speaker 04:
they would receive a multi-million dollar verdict.

[00:29:09] Speaker 04:
And here, I hate to say this because you might think it's slightly contradictory to our position.

[00:29:14] Speaker 04:
But I cannot, as an officer of the court, represent to you that we do not have arguments.

[00:29:21] Speaker 04:
that they might have to indemnify us for post-acquisition conduct or damages with respect to the lawsuit.

[00:29:30] Speaker 04:
For this reason, there are arguments out there.

[00:29:33] Speaker 04:
If you look at the indemnification agreement, what it says is all damages that we suffer as a result of pre-acquisition conduct.

[00:29:41] Speaker 04:
So there's a potential argument that

[00:29:44] Speaker 04:
by putting this product out and marketing it before the acquisition, that led to consequences that continued afterwards.

[00:29:55] Speaker 03:
They've got an argument.

[00:29:57] Speaker 03:
Because you just had to keep marketing it.

[00:29:58] Speaker 04:
Well, so my point to you, Judge, is how uncertain all of that is, right?

[00:30:03] Speaker 04:
In other words, if I'm a lawyer trying to decide whether to sue Implant Direct for indemnification, which we haven't done, I really want to make it emphatically clear.

[00:30:13] Speaker 04:
The CYBRON entities have not sued Dr. Nisnick and his entities.

[00:30:18] Speaker 04:
There are good reasons not to and good reasons to try.

[00:30:21] Speaker 04:
The good reasons not to, frankly, are that Dr. Nisnick has more money than God and likes that they gain.

[00:30:26] Speaker 01:
But we're told that there's a resolution of the board of directors.

[00:30:31] Speaker 01:
Right.

[00:30:32] Speaker 01:
Who, in theory, should have considered what you're telling us and resolved, balanced all of these.

[00:30:39] Speaker 04:
Well, that's precisely it.

[00:30:41] Speaker 04:
This resolution is not a firm demand.

[00:30:43] Speaker 04:
All it does is, as you point out, authorize you to consider it and go ahead and do it if you decide it's in the company's interest.

[00:30:50] Speaker 01:
Authorizing who?

[00:30:52] Speaker 01:
The officers of the corporation, right?

[00:30:53] Speaker 04:
Exactly.

[00:30:54] Speaker 04:
But no one has made that judgment yet, and my point to you is they've got arguments that

[00:31:01] Speaker 04:
The only indemnification we owe is for damages that might accrue before the acquisition in 2010.

[00:31:07] Speaker 04:
I can tell you as a matter of math, those sales are pretty small compared to what Zest was claiming with respect to post-acquisition.

[00:31:18] Speaker 03:
But you're standing here telling us that you're not prepared to limit yourself to that period.

[00:31:22] Speaker 04:
Well, but what I'm saying is realistically, it's a tough lawsuit.

[00:31:27] Speaker 04:
I mean, we've got arguments.

[00:31:28] Speaker 04:
They've got arguments.

[00:31:30] Speaker 04:
Plain legal prejudice requires concreteness.

[00:31:34] Speaker 04:
It requires certainty.

[00:31:35] Speaker 04:
It requires more than speculation.

[00:31:37] Speaker 04:
It requires more than, as the Wetlands case said, creating uncertainty about the value of your land and your contract.

[00:31:44] Speaker 01:
Well, if it's uncertain, one of the things that we should be concerned about is not inadvertently closing out something which hasn't yet been resolved.

[00:31:54] Speaker 01:
Where does that leave us?

[00:31:56] Speaker 01:
Where did that leave the district court?

[00:31:58] Speaker 04:
Well, so the district court correctly held that the issue about whether there's insurance, it's a contractual right.

[00:32:06] Speaker 04:
And who owns that insurance is a matter for the transaction agreement.

[00:32:09] Speaker 04:
The transaction agreement says courts of New York.

[00:32:12] Speaker 04:
The issue about whether Implant Direct owes indemnification or not, a claim we still haven't made.

[00:32:18] Speaker 04:
I really want to make that clear.

[00:32:19] Speaker 04:
And there are good reasons, arguably not two, right?

[00:32:24] Speaker 04:
a matter of contract in the transaction agreement.

[00:32:27] Speaker 04:
The transaction agreement says it must be decided by the courts of New York.

[00:32:33] Speaker 04:
So there is nothing, absolutely nothing about the settlement of this case.

[00:32:38] Speaker 04:
that precludes Implant Direct, as it is trying to do in the New York case, from suing the cyber on entities and saying, you wrongfully entered into a settlement that is hurting my interests, and I want money from you as a result.

[00:32:52] Speaker 04:
That is literally what Dr. Niznik and his entities are currently trying to do in the New York litigation.

[00:32:58] Speaker 04:
All of these claims, in other words, if we wrongfully settle the case and hurt the business, he can present a claim for damages in the New York courts.

[00:33:06] Speaker 04:
That, as Judge Curiel said, the New York courts can decide.

[00:33:10] Speaker 01:
Let's be sure that we don't receive just the one side of the story in terms of the impact of what's happening in New York.

[00:33:19] Speaker 01:
What we do need to understand is the extent to which the issue which is being raised here will be resolved.

[00:33:28] Speaker 01:
by the decision in New York, whichever way it goes.

[00:33:32] Speaker 04:
So that would require us to bring a claim for indemnification in New York, which hasn't happened yet.

[00:33:39] Speaker 01:
So you think that it would not be resolved, or that it might and it might not?

[00:33:43] Speaker 04:
Well, if we brought such a claim, of course it would be resolved in the courts of New York under the terms of the transaction agreement.

[00:33:49] Speaker 04:
There's nothing in the settlement of this case.

[00:33:53] Speaker 01:
But such a claim has not been brought.

[00:33:55] Speaker 01:
Is that right?

[00:33:56] Speaker 04:
That is correct.

[00:33:57] Speaker 04:
And so the potential outcome of a potential claim is utter speculation.

[00:34:02] Speaker 04:
It is not plain legal prejudice.

[00:34:06] Speaker 04:
Judge Curiel got it right.

[00:34:07] Speaker 01:
Well, where does that stand in terms of amending the complaint or whatever would be done?

[00:34:13] Speaker 01:
had the impression from the briefs that that case has been ongoing for a while.

[00:34:18] Speaker 01:
Is that wrong?

[00:34:19] Speaker 04:
That case has been ongoing for years.

[00:34:22] Speaker 04:
The cyber on entities have not brought a claim for indemnification yet.

[00:34:27] Speaker 04:
I can't speak to you about the deliberations.

[00:34:29] Speaker 04:
I'm not counsel, and I'm not party to the strategic decisions.

[00:34:33] Speaker 04:
All I can say as an outsider is,

[00:34:35] Speaker 04:
If you look at the expense involved and the potential recovery involved, it is utter speculation to believe that it's automatic that Cyberon would bring this case for indemnification and automatic that they would be worse off as a result.

[00:34:51] Speaker 04:
This settlement saved them attorney's fees, which we arguably have a right to recoup back in indemnification.

[00:34:59] Speaker 04:
In other words, if this case proceeded, they would have

[00:35:02] Speaker 04:
If the insurance company stopped paying, they pay insurance.

[00:35:06] Speaker 04:
They pay the fees themselves.

[00:35:08] Speaker 04:
There are all sorts of harms that Implant Direct potentially would suffer from this lawsuit if it hadn't been settled.

[00:35:18] Speaker 04:
There is absolutely nothing in what Judge Curiel did that is precluding them from bringing a case in New York seeking damages against us with respect to any aspect of the settlement.

[00:35:32] Speaker 04:
Nothing.

[00:35:34] Speaker 01:
OK.

[00:35:35] Speaker 01:
Any questions?

[00:35:37] Speaker 01:
No.

[00:35:37] Speaker 01:
Any questions?

[00:35:38] Speaker 01:
OK.

[00:35:39] Speaker 01:
All right.

[00:35:40] Speaker 01:
Thank you, Mr. Mead.

[00:35:42] Speaker 01:
All right.

[00:35:42] Speaker 01:
Mr. Hewrey?

[00:35:47] Speaker 05:
Just a couple of brief points.

[00:35:52] Speaker 05:
Mr. Mead is correct in saying that

[00:35:54] Speaker 05:
There's no claim for indemnification, as I said earlier.

[00:35:58] Speaker 05:
I'm not aware of any.

[00:35:59] Speaker 05:
Nothing has been filed directing indemnification.

[00:36:03] Speaker 05:
There's many good reasons for that, as he says.

[00:36:05] Speaker 05:
One of the reasons is that if they made a claim for indemnification, we could bring it to the attention of this court.

[00:36:13] Speaker 05:
And of course, that would obviously strengthen our position here.

[00:36:15] Speaker 05:
So that's something to keep in mind.

[00:36:17] Speaker 05:
They have a strategic reason for not making a demand while this appeal is ongoing.

[00:36:22] Speaker 05:
But there's nothing to stop IDSI, once this appeal is decided, the day after your opinion comes down, whichever way it comes down, from then immediately moving to seek indemnification.

[00:36:35] Speaker 05:
But Mr. Mead says that it's speculative as to what happened as a result of.

[00:36:42] Speaker 05:
I'm sorry.

[00:36:42] Speaker 05:
Let me get my point here.

[00:36:44] Speaker 05:
Mr. Mead says that.

[00:36:47] Speaker 05:
All of this is speculative about what will happen, what won't happen in indemnification.

[00:36:51] Speaker 05:
One thing is not speculative, and that is we had insurance, and now we don't have insurance.

[00:36:57] Speaker 05:
That's not speculative.

[00:36:59] Speaker 05:
We had insurance before.

[00:37:00] Speaker 02:
Well, one thing, Mr. Mead did refer to certain things as being speculative, but the one thing in his position he was quite certain on that whether there's a strong case or a speculative case, all of this belongs in litigation in New York.

[00:37:16] Speaker 05:
But nothing in New York can bring back the insurance.

[00:37:19] Speaker 05:
The insurance is dead.

[00:37:21] Speaker 05:
It's gone.

[00:37:22] Speaker 05:
It's not going to be resurrected.

[00:37:23] Speaker 02:
Well, there could be a claim for damages because of that.

[00:37:26] Speaker 05:
There could be a claim for damages, but we don't have insurance.

[00:37:30] Speaker 05:
Right now, we have insurance.

[00:37:31] Speaker 05:
We would have had to.

[00:37:33] Speaker 02:
But couldn't Implant Direct bring a claim against IDSI claiming or alleging that IDSI's conduct damaged it in a number of ways?

[00:37:45] Speaker 02:
And one of the ways it damaged it was the loss of insurance.

[00:37:50] Speaker 02:
And there would be some monetary fix on that.

[00:37:55] Speaker 05:
It certainly could do that.

[00:37:56] Speaker 05:
I would agree with your honor on that.

[00:37:57] Speaker 05:
But it puts us in a worse position than we are now.

[00:38:00] Speaker 05:
or were before the dismissal.

[00:38:01] Speaker 05:
Before the dismissal, we were defending a lawsuit.

[00:38:04] Speaker 05:
We had insurance that was paying for the cost of defense.

[00:38:08] Speaker 05:
We had potential for recovery of any damages arising out of trademark infringement.

[00:38:12] Speaker 05:
With the dismissal, what's not uncertain, what is certain is that insurance is gone.

[00:38:18] Speaker 05:
And any future lawsuit, we have to pay for out of our own pocket.

[00:38:22] Speaker 05:
There's no insurance to provide defense.

[00:38:24] Speaker 05:
There's no insurance to provide attorney's fees.

[00:38:26] Speaker 05:
So we're in a much worse position than we were before.

[00:38:28] Speaker 02:
So what Judge Kuriel has done by dismissing the case, are you still in the worst position if there's never a claim for indemnification?

[00:38:35] Speaker 02:
I mean, I really think there could be a claim for indemnification next year, or say it never comes.

[00:38:44] Speaker 05:
If it never comes, I would agree that we are not in the worst position.

[00:38:47] Speaker 05:
That is correct.

[00:38:51] Speaker 05:
Anything else?

[00:38:52] Speaker ?:
OK.

[00:38:53] Speaker 05:
On a personal note, this is my first argument in front of your court, in front of the CAFC.

[00:38:58] Speaker 05:
The anticipation was much worse than the argument.

[00:39:00] Speaker 01:
Thank you.

[00:39:02] Speaker 02:
We'll take that as a compliment.

[00:39:05] Speaker 01:
The case is taken under submission.

[00:39:07] Speaker 01:
Thank you.