Arthur D. Little Intern., Inc. v. Dooyang Corp.
| Decision Date | 16 May 1996 |
| Docket Number | Civil Action No. 94-11875-PBS. |
| Parties | ARTHUR D. LITTLE INTERNATIONAL, INC., Plaintiff, v. DOOYANG CORPORATION, Dooyang America, Inc., Defendants. |
| Court | U.S. District Court — District of Massachusetts |
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Peter J. MacDonald, Charles P. Kindregan, Hale & Dorr, Boston, MA, for Arthur D. Little International, Inc.
John A. Donovan, Jr., Burns & Levinson, Boston, MA, Robert L. Weigel, Leslie E. Moore, Leonard Hersh, Lara M. Krieger, Gibson, Dunn & Crutcher, New York City, for Dooyang Corporation.
Peter J. MacDonald, Charles P. Kindregan, Hale & Dorr, Boston, MA, John A. Donovan, Jr., Burns & Levinson, Boston, MA, Leonard Hersh, Lara M. Krieger, Gibson, Dunn & Crutcher, New York City, for Dooyang America, Inc.
From 1988 to 1991, defendants Dooyang Corporation, Dooyang International, and Dooyang America (collectively "Dooyang") hired plaintiff Arthur D. Little International, Inc. ("ADL") to provide business consulting services in relation to an investment in an aluminum smelter. ADL brought this action in Massachusetts state court on August 11, 1994 to collect on three unpaid bills totalling approximately $460,000, and to recover for damages incurred by reliance on Dooyang's promises to pay the bills. Dooyang removed to federal court based on diversity jurisdiction, and counterclaimed for fraud (Count I), negligent misrepresentation (Count II), negligence (Count III), breach of contract (Count IV), and unfair and deceptive trade practices under M.G.L. c. 93A (Count V),1 claiming that ADL's intentional and negligent actions caused it to incur over $9 million in expenses. ADL has moved for summary judgment on Dooyang's second amended answer and counterclaims. After hearing, the Court DENIES the motion as to Counts I-IV and ALLOWS it as to Count V. However, the contractual limitation of liability provision limits recovery with respect to Counts II, III, and IV. Counts II and III are also barred by the statute of limitations and therefore allowed only to set off ADL's damages.
For purposes of addressing the motion for summary judgment, the Court treats the following facts as undisputed:
The Overview
Dooyang, a Korean corporation, hired ADL to provide assistance with a billion-dollar investment in a Venezuelan aluminum smelter. After assembling a group of investors, Dooyang entered into a competition with several other investment groups for a special subsidy awarded by the Venezuelan government. Although Dooyang and two other projects eventually obtained the subsidy rights, none of the smelter projects have been built in Venezuela.
During the period it was advising Dooyang, ADL was also assisting an arm of the Venezuelan government to attract investors to Venezuela and to evaluate the competing projects of investors, including Dooyang's. Although Dooyang knew of, and apparently thought it could benefit from, ADL's access to the government, it claims this was a conflict of interest that led ADL to breach its duties to give complete and accurate information. Dooyang blames ADL for the loss of the money expended on the project.
ADL is a business consulting firm incorporated in Massachusetts, with a home office in Cambridge, Massachusetts, and several branch offices including one in Caracas, Venezuela. ADL employee Frank Yans ("Yans"), a consultant with over 25 years of experience in the aluminum industry, was the ADL staff person in charge of the Dooyang assignment.
Defendants are several members of the "Dooyang Group," a group of ten associated corporations involved in steel production, real estate development, manufacturing, apparel, and international finance. The group is chaired by its founder, D.Y. Kim ("Kim"). The defendant corporations are Dooyang Corporation and Dooyang International Inc., Korean corporations based in Seoul, Korea, and Dooyang America, Inc., a New Jersey corporation with offices in New York. In 1988-89 the ten Dooyang corporations together employed approximately 2,200 people. By 1995 it employed seven or eight thousand.
Kim had some experience with aluminum investment before his involvement with the Venezuelan aluminum project. Before starting Dooyang, he had worked with ADL's Frank Yans on an aluminum project in Australia, and had also discussed aluminum projects with Canadian officials. (Ex.4.)2 Chul S. (Alex) Song, President of Dooyang America, was the Dooyang employee directly responsible for the Venezuelan smelter project. The Venezuelan smelter project was Dooyang America's main activity during the relevant period.
Kim first discussed the feasibility of investing in an aluminum smelter project with Frank Yans of ADL as early as 1985, when Yans recommended against the idea. (Ex. 1.) Two years later, Yans wrote to Kim to express interest in discussing the project, noting that Yans had been "very active representing the Venezuelan government aluminum industry" and that other Korean investors were looking at smelter projects in Venezuela. (Ex. 2.)
In March 1988, Dooyang and ADL entered into a letter agreement which provided that ADL would begin advising Dooyang on the feasibility of acquiring an existing aluminum smelter not in Venezuela, but in the United States or Canada. (Ex. 4.) Kim soon expressed his interest in pursuing a joint venture in Venezuela (Exs. 5, 7), prompting Yans to respond with surprise at the sudden shift in the focus of the consulting work (Ex. 8). Kim subsequently agreed that the best plan would be to get industry experience through investment in an existing smelter in North America, while continuing to gather information about Venezuela. (Ex. 9.)
Kim had notice of the potential risks associated with investment in Venezuela in August 1988, as evidenced by a newspaper article he mailed to Yans, stating: "Venezuela's billion dollar bid to become one of the world's largest suppliers of aluminum is in danger, as economists question the competitiveness and the government investigates the honesty of the public aluminum firms." (Suppl.Kindregan Aff. Ex. E.)
ADL's work for the Venezuelan government
ADL informed Dooyang in 1988 that Yans was "currently working directly for the Venezuelan minister who is responsible for all energy and all metal including steel and aluminum," and a government-affiliated corporation named Corporacion Venezolana de Guayana ("CVG"), developing their strategy and making acquisitions for them. (Hersh Aff. Ex. 40.) ADL also told Dooyang that, through its work with the Venezuelan government and other clients, it had been "asked to put together two consortiums of investors for new smelting projects in Venezuela and Iceland." (Ex. 10.)
An internal ADL memo in February 1988 expressed concern over possible conflicts of interest. The author noted that ADL "may become embarrassed some day by, for example, recommending to two different clients they acquire the same company." The memo, addressed to Frank Yans, referred specifically to Dooyang, stating that "this example is clearly a conflict, others may not be so clear, and guidelines for dealing with them will need to be formulated." (Hersh Aff. Ex. 66.)
According to Dooyang America president Alex Song, he and Kim discussed the conflict of interest issue with ADL at the time and decided that "ADL's involvement in CVG could help" their project "because they can do inside work." (MacDonald Aff. Ex. B at 214-16.)
Time to invest in a new smelter
On March 8, 1989, ADL wrote to Dooyang suggesting that it might be a good time to start investing in the construction of a new aluminum smelter, rather than joining an existing project. (Ex. 11.) ADL informed Dooyang that many major aluminum companies, including ALCOA, ALUMAX, and Austria Metall, were investigating or pursuing aluminum smelter projects in Venezuela. By March 30, 1989, Dooyang had already formally joined with EIE, a Japanese company, in a joint venture to develop an aluminum smelter in Venezuela. EIE's contribution to the venture was the securing of a letter of credit pursuant to which ADL's bills were paid on Dooyang's behalf. (Suppl.Kindregan Aff. Ex. B.)
In an April 13, 1989, letter to Dooyang, ADL related the comparative advantages of both Canada and Venezuela. Yans described Canada as "more mature in its industrial development program" and having a "more stable economic and political environment." He stated that Venezuela, on the other hand, had "the potential for major capacity additions," and "a long-term competitive cost advantage." He said that Venezuela also had "all the requisite infrastructure, access to a deep water port, low-cost hydro power, low-cost labor, indigenous bauxite and alumina." (Ex. 12.) Additionally, ADL cited the advantages of recently-created alternative financing options in Venezuela, namely, "debt-for-equity and debt-for-debt swaps," which "serve to lower the overall cost of the project."
ADL explained in the letter that other smelter projects had not gone forward in Venezuela because of "the Latin American debt crisis, the lack of available direct investment monies and the lack of alternative sources of financing" as well as the turmoil caused by recent national elections. "While we cannot predict how this situation will evolve," asserted ADL, "we believe that the country risk is manageable in the long term." ADL stated that "many creative steps can be taken to eliminate such risk." Further, Yans stated: "We have a long-standing presence in Venezuela, having worked for the private sector, the CVG companies, as well as for the President of CVG who has a cabinet minister status in the Venezuelan national government." (Ex. 12.)
ADL-CVG agreement: March 1989
Yans' work for CVG was continuing. In March 1989, soon after recommending to Dooyang that it invest in Venezuela, ADL met with CVG to assist it in attracting...
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