German Free State of Bavaria v. Toyobo Co., Ltd.

• Decision Date: 26 March 2007
• Docket Number: No. 1:06-CV-407.,1:06-CV-407.
• Citation: 480 F.Supp.2d 958
• Parties: GERMAN FREE STATE OF BAVARIA, et al., Plaintiffs, v. TOYOBO CO., LTD, et al., Defendants.
• Court: U.S. District Court — Western District of Michigan

480 F.Supp.2d 958

GERMAN FREE STATE OF BAVARIA, et al., Plaintiffs, v. TOYOBO CO., LTD, et al., Defendants.

No. 1:06-CV-407.

United States District Court, W.D. Michigan, Southern Division.

March 26, 2007.

COPYRIGHT MATERIAL OMITTED

Daniel K. Reising, Mark Joseph Fucile, Fucile & Reising LLP, Portland, OR, for Plaintiffs.

Fred K. Herrmann, Kerr Russell & Weber PLC, Detroit, MI, Konrad L. Cailteux, Scott R. Dayton, Weil Gotshal &amp Manges LLP, New York, NY, for Defendants.

OPINION

ENSLEN, Senior District Judge.

This matter is before the Court on Defendant Thomas Edgar Bachner, Jr.'s Motion to Dismiss Plaintiffs' Amended Complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6). In light of the briefing, there is no reason for oral argument. W.D. MICH. LCIVR 7.2(d).

I. BACKGROUND

This action was brought by Plaintiffs German Free State of Bavaria ("Bavaria") and German Free State of North Rhine-Westphalia ("NRW") (collectively "Plaintiffs") against Defendants Toyobo Co., Ltd. ("Toyobo Japan"), Toyobo America, Inc. ("Toyobo America"), Mark Steven Pickett, and Thomas Edgar Bachner, Jr.¹ to recover damages arising out of the sale of defective bulletproof vests to Plaintiffs by Second Chance Body Armor, Inc. ("SCBA") and its wholly owned subsidiary Second Chance Body Armor GmbH ("SCBA Germany"). Plaintiffs allege thirteen different Counts against Defendants in their Amended Complaint including: innocent, negligent, and intentional misrepresentation; conspiracy; aiding and abetting in misrepresentations; breach of fiduciary duties; aiding and abetting in the breach of fiduciary duties; violation of Racketeer Influenced and Corrupt Organizations ("RICO"), 18 U.S.C. § 1964(c);² violations of the Michigan Consumer Protection Act; breach of warranties; violation of the Magnuson-Moss Warranty Act, 15 U.S.C. §§ 2301 et seq.; and violations of Michigan's Uniform Commercial Code.³ (Am. Compl.¶¶ 105-48.)

Plaintiffs' action arises from the allegation that Toyobo Japan and Toyobo America conspired and colluded with SCBA, SCBA Germany, and their employees Mark Pickett and Thomas Bachner to intentionally or negligently misrepresent facts and induce Plaintiffs to purchase approximately 60,000 defective bulletproof vests from SCBA Germany. Toyobo Japan is a Japanese Company and Toyobo America is a subsidiary of Toyobo Japan and is a New York corporation. (Id. ¶¶ 5-7.) Plaintiffs assert that beginning in May 1996, Toyobo Japan and Toyobo America began an informal partnership with SCBA to develop bulletproof vests which incorporated a synthetic PBO fiber ("Zylon"). (Id. ¶ 17.)

In 2001, Bavaria and NRW each made separate proposals for bids to supply lightweight bulletproof vests for their police forces. (Id. ¶ 27.) A material term of the Bavarian proposal was that the bulletproof vests have a useful life of at least 10 years; a material term in the NRW proposal was that the bulletproof vests have a useful life of at least 5 years. (Id. ¶¶ 28-29.) SCBA Germany, which Plaintiffs allege was an alter-ego of SCBA, was a bidder on each proposal. (Id. ¶¶ 30-31.) After rounds of testing, Bavaria agreed to award the contract to SBCA Germany and another company, Mehler Vario Systems ("Mehler"). (Id. ¶ 35.) Mehler objected and requested more testing — which the Mehler vests failed. (Id. ¶¶ 36-38.) Mehler eventually withdrew its bid from consideration. (Id. ¶ 39.)

Sometime after July 5, 2001, Mehler was given a Toyobo document from one of its high performance fiber suppliers, Dutch State Mine ("DSM"). (Id. ¶¶ 41-44.) This document indicated that the use of PBO-fiber in bulletproof vests was not justified because accelerated aging tests showed Zylon lost approximately 20 percent of its strength in just over 50 days at 60 degrees Centigrade and 80% humidity and it lost nearly 40% of its strength after the same amount of time at 80 degrees Centigrade and 80% humidity. (Id. ¶¶ 42-43.) Toyobo concluded, in the document, that this loss of strength was a result of a process known as hydrolysis and, therefore, Toyobo was unable to guarantee a useful life of 10 years. (Id. ¶ 44.) DSM's document was sent to the Bavarian State Police ("BSP") and Toyobo. (Id. ¶¶ 49-50.) Toyobo then forwarded the information. to SCBA and Defendants Pickett and Bachner. (Id. ¶ 50.) On July 9, 2001, representatives of the BSP contacted, via telephone, Defendants Pickett and Bachner and other SBCA employees in regards to their concern over the fiber and the vests. (Id. ¶¶ 51-52.) The representatives for BSP were told that the incorporation of Gore-Tex and the way the fabric was woven solved the hydrolysis issue and the Zylon was suitable for their bulletproof vests. (Id. ¶ 53.)

SCBA held a "Toyobo and Second Chance Zylon Crisis Management Meeting" in Traverse City, Michigan on July 12, 2001, in regards to Bavaria's concerns over the suitability of Zylon. (Id. ¶ 55.) Defendants Pickett and Bachner were in attendance as were Toyobo Japan employees Masakazu Saito, Yoshinari Ohira, and Tadao Kuroki. (Id. ¶ 56.) Defendant Bachner and SCBA urged Toyobo Japan to send a letter directly to Bavaria supporting the use of Zylon and requested a 10 year guarantee of Zylon from Toyobo Japan. (Id. ¶¶ 57-58.) Afterwards, Masakazu Saito of Toyobo Japan sent a letter to Plaintiffs stating Toyobo Japan considered the test results from DSM to represent a unique characteristic of that particular product, not of Zylon. (Am.Compl.¶¶ 61-62.)

On or about July 26, 2001, Bavaria awarded SCBA Germany the contract for 27,315 bulletproof vests. (Am.Compl.¶ 83.) On September 6, 2001, Saito, Ohira and Kuroki traveled again to Michigan to discuss testing of Zylon. (Dkt. No. 82 at 15.) On or about October 30, 2001, NRW awarded SCBA Germany a contract for the purchase of up to 33,600 bulletproof vests. (Am.Compl.¶ 84.) In December 2001, SCBA Germany's representative, Armin Wagner, met with Kuroki in Germany to discuss again the viability of Zylon. (Id. ¶ 89.) In December 2001, Defendant Bachner, and others from SCBA and Toyobo, met in Los Angeles, California for another "Crisis Meeting." (Id. ¶ 96.)

Plaintiffs allege that from July 2001 until at least October 3, 2003, SCBA, SCBA Germany, Toyobo Japan and. Toyobo America were working together to keep relevant information about the strength and suitability of Zylon from Plaintiffs. (Id. ¶ 18.) In late 2003, NRW received its last shipment of bulletproof vests from SCBA Germany and in the spring of 2004, Bavaria received its last shipment of the same. (Id. ¶¶ 102-03.) In October 2004, SCBA declared bankruptcy and SCBA Germany initiated insolvency proceedings shortly thereafter. (Id. ¶ 104.)

The Court has previously determined that it lacks personal jurisdiction over Toyobo America and also that Defendant Mark Pickett's service of process in this action was insufficient. The Court has further determined that dismissal on forum non conveniens is appropriate as to Defendant Toyobo Japan. For these reasons, Toyobo Japan, Toyobo America and Mark Pickett have been dismissed as Defendants in this action and Defendant Bachner remains as the sole Defendant.

II. LEGAL STANDARDS

A. Rule 12(b)(6) Standard

Whether dismissal is proper pursuant to Federal Rule of Civil Procedure 12(b)(6) is a question of law. Roberson v. Tenn., 399 F.3d 792, 794 (6th Cir.2005); Smith v. City of Salem, Ohio, 378 F.3d 566, 570 (6th Cir.2004); Arrow v. Fed. Reserve Bank, 358 F.3d 392, 393 (6th Cir. 2004). The Court must construe the complaint in a light most favorable to the plaintiff, accept all the factual allegations as true, Smith, 378 F.3d at 568, and determine whether the plaintiff undoubtedly can prove no set of facts in support of his claims that would entitle him to relief. Roberson, 399 F.3d at 794; Arrow, 358 F.3d at 393. When an allegation is capable of more than one inference, it must be construed in the plaintiffs favor. Saglioccolo v. Eagle Ins. Co., 112 F.3d 226, 228-29 (6th Cir.1997); Columbia Natural Res., Inc. v. Tatum, 58 F.3d 1101, 1109 (6th Cir.1995). Hence, a judge May not grant a Rule 12(b)(6) motion based on a disbelief of a complaint's factual allegations. Bovee v. Coopers & Lybrand C.P.A., 272 F.3d 356, 360 (6th Cir.2001); Saglioccolo, 112 F.3d at 228-29; Wright v. MetroHealth Med. Or., 58 F.3d 1130, 1138 (6th Cir. 1995).

Though decidedly liberal, Rule 12(b)(6) does require more than the bare assertion of legal conclusions. Bovee, 272 F.3d at 361; Gregory v. Shelby County, Tenn., 220 F.3d 433, 446 (6th Cir.2000). The complaint should give the defendant fair notice of what the plaintiffs claim is and the grounds upon which it rests. Gazette v. City of Pontiac, 41 F.3d 1061, 1064 (6th Cir.1994). "In practice, `a ... complaint must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory.'" Lillard v. Shelby County Bd. of Educ., 76 F.3d 716, 726 (6th Cir.1996) (quoting Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir.1988)). See also Booker v. GTE. net LLC, 350 F.3d 515, 517 (6th Cir.2003) (the court need not accept as true legal conclusions and unwarranted factual inferences); Perry v. Am. Tobacco Co., 324 F.3d 845, 848 (6th Cir.2003) (same).

B. Rule 9(b) Standard

Federal Rule of Civil Procedure 9(b) requires that "the circumstances constituting fraud or mistake shall be stated with particularity." "When deciding a motion to dismiss under Rule 9(b) for failure to plead fraud with particularity, a court must also consider the policy favoring simplicity in pleading, codified in the `short and plain statement of the claim' requirement of Federal Rule of Civil Procedure 8." Sanderson v. HCA-The Healthcare Co., 447 F.3d 873, 876 (6th Cir.2006). However, this particularity requirement does not operate to "mute the general principles set out in Rule 8"; instead the rules must be "read in harmony." Id. "The Sixth Circuit interprets Rule 9(b) as...