Linkco, Inc. v. Nichimen Corp.
| Decision Date | 17 September 2001 |
| Docket Number | No. 00-CV-11050-PBS.,00-CV-11050-PBS. |
| Citation | 164 F.Supp.2d 203 |
| Parties | LINKCO, INC., Plaintiff, v. NICHIMEN CORP. and Kiyoto Kanda, Defendants. |
| Court | U.S. District Court — District of Massachusetts |
Michael J. Tuteur, Epstein, Becker & Green, P.C., Russell Beck, Epstein, Becker & Green, Boston, MA, Irving B. Levinson, Michael McCullough, Mindy J. Nam, Piper Marbury Rudnick & Wolfe, Chicago, IL, David Israel, Sessions, Fishman & Nathan, LLP, Metairie, LA, for Plaintiff.
Eric J. Marandett, Mark S. Freeman, Choate, Hall & Stewart, Boston, MA, Ralph Mantynband, Shefsky & Froelich Ltd., Chicago, IL, Patrick T. Clendenen, John J. Tangney, Jr., Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., Boston, MA, Thomas F. Sax, Pederson & Houpt, P.C., Chicago, IL, Jay J. Tangney, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, MA, for Defendants.
This is a dispute over an international business deal gone bad. The plaintiff, a start-up American Internet company, has brought suit against the defendants, a Japanese company and a Japanese individual, alleging fraud, breach of a confidentiality agreement, and misappropriation of trade secrets. The defendants have moved to dismiss on forum non conveniens grounds. For the reasons stated below, the Court ALLOWS the motion of defendant Nichimen Corporation and DENIES the motion of defendant Kiyoto Kanda.
The following facts, many of which are disputed by the defendants, are drawn from the complaint, unless otherwise noted.
LinkCo, Inc. ("LinkCo"), a Delaware corporation, was formed for the purpose of disseminating information contained in the annual filings of Japanese public corporations to the United States and other countries. More specifically, LinkCo set out to develop and implement an internet-based database of Japanese business information and a corporate disclosure and repository system similar to the Securities and Exchange Commission's "EDGAR" system.1 Since February 1999, LinkCo has had its principal place of business in Illinois. Prior to that, LinkCo's principal place of business was Massachusetts. David Israel-Rosen ("Israel-Rosen") founded Japan Infonet, the predecessor to LinkCo, in 1995.
Defendant Nichimen Corporation ("Nichimen"), a Japan-based corporation, is a general trading company (sogo shosha) with numerous subsidiaries dealing in such areas as energy, chemicals, plastics, household and consumer products, metals, and machinery. Nichimen has offices in roughly 90 cities nationwide, including nine offices in the United States.
Defendant Kiyoto Kanda ("Kanda") is a Japanese citizen who lives and works in Japan. He began working with LinkCo in December 1995 to assist in implementing LinkCo's business plan in Japan. In 1996 Kanda assumed an executive position at LinkCo's office in Japan, LinkCo Japan.
In its search for funding sources, in April 1996, LinkCo entered into discussions with Nichimen concerning a large potential investment. Prior to those discussions, LinkCo claims that the two parties entered into a mutual confidential non-disclosure agreement under which each party agreed that the information disclosed during negotiations would only be used for investment-evaluation purposes and would not be passed on to third parties. The written agreement also allegedly provided that any tangible forms of confidential information delivered to a party would remain the property of the party disclosing the information and would be returned promptly upon written request.
LinkCo's initial negotiations with Nichimen took place in meetings in Japan and over phone conferences between the United States and Japan.
During the ongoing negotiations, Nichimen allegedly prepared a ringi-sho, an internal document that is commonly used in Japanese businesses to detail a project for a group decision. The ringi-sho recommended an initial investment of $2 million in LinkCo, and indicated that Nichimen would supply a subsequent investment, provided that LinkCo could obtain additional funding from another major investor. The specifies of the ringi-sho were never disclosed to LinkCo. On December 30, 1996, Nichimen invested $2 million in LinkCo.
In a meeting on February 28, 1997 between LinkCo and Nichimen, LinkCo informed Nichimen that Mitsubishi Corporation ("Mitsubishi") had expressed serious interest in investing in LinkCo. Nichimen voiced disapproval, stating that Japanese trading companies such as Mitsubishi and Nichimen typically do not invest in the same enterprise. Although Mitsubishi remained interested in investing, Nichimen strongly opposed LinkCo's obtaining any funding from Mitsubishi.
In a meeting on March 26, 1997, Nichimen allegedly stated that it would make a second $2 million investment if LinkCo agreed to terminate its negotiations with Mitsubishi. LinkCo ended its negotiations, not only with Mitsubishi, but also with other potential investors.
The parties negotiated extensively over the form the investment would take. Nichimen initially favored an investment mechanism using convertible indebtedness, but later sought an investment consisting solely of equity. Ultimately, on April 16, 1997, the parties agreed that Nichimen would pay $1,976,000 for 1,235,000 shares of Series B Convertible Preferred Stock at a price of $1.60 per share. As a caveat to the investment arrangement, LinkCo agreed not to close any funding deals with other parties until December 1997. LinkCo prepared documents memorializing this agreement and circulated them to Nichimen.
Approximately three months later, Nichimen began to balk at completing the investment deal. In a meeting on July 17, 1997, Nichimen proposed that it be given joint ownership rights in LinkCo's trademarks and copyrights. LinkCo rejected this proposal. Nichimen then proposed the formation of a new company, to be jointly owned by Nichimen and LinkCo, through which LinkCo's products and services could be marketed. Nichimen also requested that it be permitted to conduct a thorough "due diligence" review of LinkCo's business in order to develop an acceptable joint business plan.
Over the next month, representatives of Nichimen traveled to LinkCo's then-headquarters, located in Massachusetts. Nichimen reviewed LinkCo's confidential business information including its business strategy, product designs, definitions, demonstrations, and trade secrets. According to LinkCo, all of this information was made available under the express understanding that Nichimen would only use its access to LinkCo's proprietary information for the purpose of evaluating its investment opportunity.
On August 11, 1997, Nichimen's investment committee, relying on the requirement in the ringi-sho for additional investment sources, rejected a second investment in LinkCo. Given that LinkCo had terminated all other funding negotiations at Nichimen's request, LinkCo was unable to secure sufficient funding to continue its operations.
According to LinkCo, Nichimen has since used LinkCo's proprietary information to form its own competitive business venture.
LinkCo alleges that Kanda first began to work with LinkCo in December 1995, while LinkCo was negotiating with a Japanese company to develop a pilot of its corporate disclosure and repository system. Later, in May 1996, LinkCo hired Kanda to serve as President of its Japanese subsidiary, LinkCo Japan. LinkCo also alleges that Kanda was named Vice-President of LinkCo, which Kanda denies.
Also in May 1996, Kanda allegedly entered into a noncompetition, nondisclosure, and nonsolicitation agreement with LinkCo. The plaintiff has not produced a copy of this purported agreement. In his affidavit, Israel-Rosen states:
I distinctly remember Kanda signing the agreement because he did so at the same time and in the same room that [numerous other people] and I all signed identical agreements. In this agreement, Mr. Kanda acknowledged that LinkCo's technology, as well as its other trade secrets, trademarks, service marks, and other confidential information were LinkCo's property and that he would not use, disclose, or copy these materials without LinkCo's authorization. Mr. Kanda further agreed that he would not compete with LinkCo during his employment or for 18 months thereafter.
(Israel-Rosen Aff. at ¶ 11.) Kanda has denied that he signed the noncompetition, nondisclosure, and nonsolicitation agreement.
At LinkCo Japan, Kanda was charged with overseeing the daily operation and marketing of the company, locating investors, registering the company in Japan, and registering its trademarks and service marks. In the course of his duties, Kanda allegedly made numerous trips to Massachusetts, where he had unrestricted access to LinkCo's proprietary and confidential information.
LinkCo alleges that, shortly after it provided Kanda with access to its trade secrets, Kanda disregarded his instructions from LinkCo and registered LinkCo's Japanese trademarks as his own. (Kanda claims he registered the trademarks under his own name with permission of LinkCo). In addition, LinkCo alleges that Kanda began collaborating with Fujitsu, Ltd. ("Fujitsu"), a Japanese competitor of LinkCo, in order to develop LinkCo's products on behalf of the competitor. While still in LinkCo's employ, LinkCo claims, Kanda traveled to the United States with Fujitsu employees and allowed Fujitsu to gain access to LinkCo's technology and trade secrets.
LinkCo alleges that, as the coup de grâce, Kanda misappropriated control over the Japanese subsidiary, LinkCo Japan. According to Israel-Rosen's affidavit, Kanda convened a secret meeting of the shareholders of LinkCo Japan at which he issued Israel-Rosen's resignation by using forged signature seals (hankos) and installed himself, two associates, and his wife as directors. Shortly thereafter, Kanda allegedly changed the company name to Japan...
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