Global Material Techs., Inc. v. Dazheng Metal Fibre Co.
| Decision Date | 20 March 2014 |
| Docket Number | CASE NO.: 12-cv-01851 |
| Parties | GLOBAL MATERIAL TECHNOLOGIES, INC., Plaintiff, v. DAZHENG METAL FIBRE CO., LTD et al., Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION AND ORDER
Before the Court are Defendants' renewed motion to dismiss Plaintiff's first amended complaint [128] and Plaintiff's motion for leave to file instanter a surreply in opposition to the motion [131]. For the reasons stated below, Defendants' motion to dismiss [128] is granted in part and denied in part, without prejudice, and Plaintiff's motion for leave to file instanter a surreply [131] is denied. Plaintiff may file an amended complaint within 21 days of this order. This matter is set for status on 4/17/2014 at 9:00 a.m.
Because this matter is before the Court on a motion to dismiss, the Court takes as true all factual allegations in the amended complaint and draws all reasonable inferences in favor of Plaintiff. E.g., Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 618 (7th Cir. 2007).
Plaintiff Global Material Technologies ("GMT") is a New York corporation with its principal place of business in Illinois and various facilities and subsidiaries around the globe. Through a holding company organized under Delaware law, GMT owns a 25% stake in Defendant Dazheng Metal Fibre Co., Ltd. ("DNZ"), a Chinese corporation that, like GMT,produces and sells metallic wool products. From 1996 to 2009, GMT was DNZ's primary customer, accounting for 75-90% of DNZ's overall sales. In 2003, GMT transferred the responsibility for manufacturing its consumer steel wool to DNZ's production facility in Zhuhai, China. In 2006, with the support of its largest customer, GMT shut down its Chicago plant and shifted 100% of the production of its largest customer's products to DNZ's manufacturing facilities in China. GMT continued to outsource production to DNZ through 2007, rendering it "increasingly dependent upon DNZ." At the peak of the parties' relationship, GMT and DNZ transacted more than $1,000,000 per month in sales.
GMT expressly alleges that its relationship with DNZ was "arms-length." However, GMT also alleges that the relationship was "unique," and many of GMT's allegations suggest that the relationship was close. GMT allowed select DNZ employees to conduct business through e-mail addresses incorporating GMT's domain name and permitted DNZ to export products from China directly to customers that had submitted orders with GMT. Additionally, "certain shareholders" held a "common ownership interest" in both companies. GMT's president, Norman Soep, "through GMT held an ownership interest in DNZ" and attended and actively participated in meetings held by DNZ's board of directors. Soep also was in contact with DNZ's president, Defendant Dong Jue Min, who was primarily responsible for DNZ's pricing, terms, production, quality, and day-to-day operations. Over the course of the parties' decade-plus relationship, DNZ became familiar with GMT's internal operations and competitive pricing and economic strategies. DNZ also became privy to sensitive information about GMT's customers, such as their identities, contact information, preferred product specifications, and ordering habits. GMT alleges that the information pertaining to its internal operating procedures and customers was developed or amassed at great expense and is "unique, confidential, andproprietary" to GMT and its employees. To that end, GMT allows only "select employees access to" the information and "protects [ ] its confidential information electronically via an elaborate computer access system that incorporates various safeguards" like login IDs and passwords. Nonetheless, GMT "voluntarily supplied its confidential information to DNZ in good faith to further both companies' economic interests," "with the explicit understanding that DNZ would not provide that information to third-parties or use it in any manner inconsistent with GMT's business interests." Some of the information was conveyed directly to "DNZ's board of directors and shareholders, including Dong Jue Min," during "confidential discussions with GMT's management" and DNZ board meetings attended by Soep.
Eventually the parties' relationship turned sour. During 2007 and 2008, DNZ refused to timely manufacture certain fibers and consumer products for GMT, disregarded GMT's purchase orders, and shipped more than 750,000 pounds of rusted metallic fibers to GMT's customers. Many of GMT's customers complained, and GMT in turn relayed numerous quality claims to DNZ. DNZ "infrequently acknowledged and more often rejected most quality claims." GMT was forced to manufacture some of the items that DNZ refused to ship, at a substantial loss. In November 2007, GMT also lost as much as 50% of its business from Homax, Inc., a U.S.-based corporation to which GMT was the exclusive supplier of consumer steel wool products. Despite being promptly notified about the rusty fibers and agreeing to pay for their sorting and return, DNZ did not credit GMT for the defective goods. GMT was able to salvage approximately 484,000 pounds of the rusted fibers and returned the remainder to DNZ at its own expense. DNZ also shipped to GMT more than 1.3 million pounds of consumer products that GMT did not order, and refused to stop doing so despite GMT's protests. GMT was able to sell some of theunordered goods but has spent more than $150,000 to store the remaining 291,000 pounds' worth.
"In March 2009, DNZ informed GMT that DNZ would seek additional metallic fiber and consumer product business outside of China, using whatever means at its disposal to gain market share." DNZ, acting through Dong Jue Min or pursuant to his orders, also spurned GMT's repeated requests - made in e-mails, board meetings, and personal visits from GMT executives - for more competitive pricing. Instead, DNZ offered GMT a pricing formula that failed to take into account market conditions, which GMT alleges put it "at a competitive disadvantage with other Chinese suppliers of metallic fibers and consumer products." GMT alleges that DNZ took this course of action in spite of its "confidential knowledge of GMT's pricing strategies and its understanding of the baseline price GMT could afford to sell its various products without incurring loss."
Unbeknownst to GMT, DNZ in 2009 began using the information that it had gleaned about GMT's operations and customers to undercut GMT's prices and sell to GMT's customers, both directly and through one or more DNZ-owned subsidiaries. Specifically, GMT alleges that Dong Jue Min supplied GMT's confidential information to DNZ's "exclusively" owned subsidiary (and Defendant) Tru Group, which exploited and misused that information to gain a competitive advantage over GMT. DNZ, primarily acting through Tru Group, offered other customers (but not GMT) a "market driven" pricing scheme that resulted in prices that DNZ knew GMT could not compete with. GMT further alleges that DNZ and Tru Group aimed to erode GMT's customer base and market position and, ultimately, drive GMT out of business. These efforts, which remain ongoing, have met with some success; GMT has lost several of itslargest customers and also has lost market position in Central and South America and Asia. GMT and DNZ no longer transact business together.
From 2009 to 2011, GMT, which was unaware of the origins and ownership of Tru Group, questioned Dong Jue Min about DNZ's relationship with Tru Group. In response, Dong Jue Min made numerous misrepresentations about the relationship between DNZ and Tru Group, including that DNZ sold to various trading companies, that those companies - including Tru Group - did not disclose their customers' identities to DNZ, and that he did not know who owned Tru Group. Eventually, in February 2011, GMT learned that DNZ owned Tru Group and had been passing GMT's confidential information to it. GMT also alleges that DNZ established other subsidiary companies, including Seamarky Industrial, Ltd., to further exploit GMT's confidential information and usurp GMT's current and prospective customers.
GMT filed suit against DNZ, Tru Group, and Dong Jue Min ("Defendants") in the United States District Court for the Middle District of Tennessee in February 2011. GMT alleged that Defendants intentionally interfered with its business relations by using its confidential information to lure away its customers and civilly conspired with one another to do so. It also alleged that DNZ violated the Uniform Trade Secrets Act by misappropriating GMT's confidential information, and violated the United Nations Convention on Contracts for the International Sale of Goods ("CISG") by shipping non-conforming and unordered consumer goods to GMT.
The case was transferred to this Court pursuant to 28 U.S.C. § 1404(a). See [68]. Defendants moved to dismiss GMT's first amended complaint "pursuant to Fed. R. Civ. P. 12(b)(6) and the Colorado River doctrine, or in the alternative, to stay CISG claims pending finaladjudication in a parallel proceeding." [94]. The Court struck the motion and ordered Defendants to re-file it as two separate motions: a motion to dismiss under Rule 12(b)(6) and a motion for abstention under the Colorado River doctrine. See [100]. Defendants complied with the Court's order, see [101]; [102], and the parties briefed both motions. The Court denied Defendants' motion to stay and abstain and denied Defendants' motion to dismiss without prejudice. See [119]. The Court also directed the parties to submit briefs regarding the appropriate source of substantive law for this case, see id., and concluded that Illinois law would apply. See [128]. Defendants then moved to dismiss Plaintiff's claims. Plaintiff has requested leave to file instanter a surreply. [131]. Defendants oppose this request. [134].
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