Kinesoft Development Corp. v. Softbank Holdings

Decision Date16 February 2001
Docket NumberNo. 99 C 7428.,99 C 7428.
Citation139 F.Supp.2d 869
PartiesKINESOFT DEVELOPMENT CORPORATION, Plaintiff, v. SOFTBANK HOLDINGS INC. and Ronald D. Fisher, Defendants.
CourtU.S. District Court — Northern District of Illinois

Weston W. Marsh, Amy B. Bellman, Carl E. Volz, Freeborn & Peters, Chicago, IL, for plaintiff.

Paula Enid Litt, Schopf & Weiss, Chicago, IL, David H Braff, Marc De Leeuw, Jeffrey T Scott, Sullivan and Cromwell, New York, NY, for defendants.


SCHENKIER, United States Magistrate Judge.

This is the Court's second summary judgment opinion in this case, which arises out of disputes between plaintiff, Kinesoft Development Corporation ("Kinesoft"), and defendant Softbank Holdings Inc. ("Softbank"), concerning the performance of the terms of a 1995 Shareholders Agreement ("the Shareholders Agreement") and a 1997 Settlement Agreement ("the 1997 Agreement"). In its second amended complaint, Kinesoft alleges breach of the Shareholders Agreement (Count I) and the 1997 Agreement (Count II) by Softbank; breach of fiduciary duty by Softbank (Count IV) and Ronald D. Fisher, the Vice Chairman of Softbank (Count V); and tortious interference with prospective economic advantage by Softbank (Count III). The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332, and venue is proper in this Court under 28 U.S.C. § 1391.1

In its earlier opinion ("Kinesoft I"), the Court granted Kinesoft's motion for summary judgment on Softbank's counterclaim. In this opinion, the Court addresses the motion for summary judgment filed by the defendants (doc. # 47), which seeks a judgment disposing of all five counts of the second amended complaint. For the reasons that follow, defendants' motion is granted in part and denied in part.2


Summary judgment is proper if the record shows that there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. See Lexington Ins. Co. v. Rugg & Knopp, Inc., 165 F.3d 1087, 1090 (7th Cir. 1999). A genuine issue for trial exists only when the "evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). If the evidence is merely colorable or is not significantly probative, summary judgment may be granted. See Liberty Lobby, 477 U.S. at 249-50, 106 S.Ct. 2505; Flip Side Prods., Inc. v. Jam Prods. Ltd., 843 F.2d 1024, 1032 (7th Cir.1988).

Softbank has complied with Local Rule 56.1(a), which requires a party moving for summary judgment to file a statement of material facts as to which the moving party contends there is no genuine issue. As required, Softbank's statement of material, undisputed facts included "references to the affidavits, parts of the record, and other supporting materials relied upon to support the facts set forth in that paragraph." UNITED STATES DIST. COURT, N. DIST. OF ILL. LR 56.1. All properly supported material facts set forth in a summary judgment motion are deemed admitted unless properly controverted by the opposing party. See id.; see also Corder v. Lucent Techs., Inc., 162 F.3d 924, 927 (7th Cir.1998); Flaherty v. Gas Research Inst., 31 F.3d 451, 453 (7th Cir.1994); Waldridge v. American Hoechst Corp., 24 F.3d 918, 921-22 (7th Cir.1994)

Thus, once Softbank moved for summary judgment, and offered evidentiary materials to support its factual allegations, Kinesoft could not merely rely on its denials in the pleadings to show that a genuine issue of material fact existed. See Shermer v. Illinois Dep't of Transp., 171 F.3d 475, 477 (7th Cir.1999) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). Rather, Kinesoft's obligation is to "come forward with appropriate evidence demonstrating that there [was] a pending dispute of material fact." Waldridge, 24 F.3d at 921; see also Vector-Springfield Properties, Ltd. v. Central Illinois Light Co., Inc., 108 F.3d 806, 809 (7th Cir.1997). To meet this burden, Kinesoft must counter the evidence submitted by Softbank with materials of "evidentiary quality" (e.g., depositions or affidavits) that create a factual issue. Adler v. Glickman, 87 F.3d 956, 959 (7th Cir.1996). While the evidence offered need not be in a form that would be admissible at trial, see Liu v. T & H Mach., Inc., 191 F.3d 790, 796 (7th Cir. 1999), the evidence must identify a specific, genuine issue for trial. See Shermer, 171 F.3d at 477.

After careful review of the parties' Rule 56.1 statements, the material facts are set forth below. As will be clear from the discussion, while many of these facts are undisputed, many facts material to certain of plaintiff's claims remain in genuine dispute.3

A. The Shareholders Agreement.

In May 1995, in exchange for 41 percent of Kinesoft's common stock, Softbank paid $12 million to Kinesoft and its two principal shareholders: Peter Sills, Kinesoft's Chief Executive Officer ("CEO"); and Peter Mason, who at one time was Kinesoft's attorney and who also served as a Kinesoft director from approximately May 25, 1995 until January 2000 (Defs.' Resp. Facts ¶ 5). The remaining 59 percent of Kinesoft's common stock was owned proportionately by Mr. Sills, who currently owns 58.75 percent of the Kinesoft common stock (Final Pretrial Order, § III(4)), and Mr. Mason, who currently owns 25 percent of Kinesoft's common stock (Final Pretrial Order, § III(8); Pl.'s Add'l Facts ¶ 68).

On May 25, 1995, Mr. Sills and his former partner, Mark Achler, together with Kinesoft, Softbank and Softbank Corporation (Softbank's parent), entered into the Shareholders Agreement (Defs.' Facts ¶ 6).4 The Shareholders Agreement requires Kinesoft to have a Board of Directors, and provides for the manner of their selection: "[e]ach Shareholder will vote or cause to be voted all shares of Common Stock owned by it for the election of nominees so designated as directors at any annual or special meeting called for such purpose" (Shareholders Agreement § 2(a)). The Shareholders Agreement further provides that "any corporate action" is to be taken by vote of the Board and authorized by no less than a majority of the directors present at any meeting at which a quorum is present or "by written consent of all directors of the Company except as may be otherwise required by paragraph (c) ... or by law" (Id. at § 2(b)). Section 2(c) of the Shareholders Agreement provides that certain corporate action (e.g., any capital expenditure of $500,000 or more) cannot be taken by Kinesoft unless all (rather than a majority) of the directors present at a Board of Directors meeting vote in favor of that action (Defs.' Ex. 4, at § 2(c)(iii)); (Defs.' Facts ¶ 6). The parties agree that the Shareholders Agreement gives Softbank and Mr. Sills the right to designate persons for election to the Kinesoft Board (Pl.'s Add'l Facts ¶ 76; Defs.' Reply Facts ¶ 76).

The parties have identified five persons who served as members of the Kinesoft Board of Directors at all times relevant to this action. At those times, Mr. Fisher and Dr. T.A. Dolotta were Softbank's designated Directors to the Kinesoft Board (Pl.'s Add'l Facts ¶ 76). Messrs. Sills, Mason and Achler were Kinesoft's designated Directors (Id.). None of these five directors were elected at a formal board meeting (Id.; Defs.' Reply Facts ¶ 76); rather, all five were placed on the Board by a written, "formal unanimous consent of the Board of Directors" (Pl.'s Resp. Facts ¶ 6; Defs.' Reply Facts ¶ 76; Final Pretrial Order, § III(7)). When Kinesoft hired a new president and moved the company from Chicago, Illinois to Austin, Texas, no formal Board meeting was held to approve these acts: the communications all were through e-mails and telephone calls (Pl.'s Add'l Facts ¶ 68).

B. The 1997 Agreement.

On May 25, 1995, Kinesoft and Softbank entered into the "Game Porting Agreement" (Defs.' Facts ¶ 8). Under the terms of that agreement, Softbank was to provide Kinesoft with a certain number of console games to be "ported" to a PC platform; "porting" involves translating pre-existing video games from the console platform to the personal computer platform (Id. ¶¶ 7-8). Kinesoft sued Softbank for breach of the Game Porting Agreement, and Softbank admits now that it did not provide Kinesoft with the agreed upon number of games (Defs.' Facts ¶ 9). That lawsuit was resolved when Softbank and Kinesoft entered into a settlement agreement on June 12, 1997 — the 1997 Agreement that is a subject of this lawsuit (Id. ¶ 9). As consideration for the 1997 Agreement, Kinesoft released all claims against Softbank Corporation under the Game Porting Agreement (Id.).

Under the terms of the 1997 Agreement, Softbank was required to make "Initial" and "Subsequent Advances" to Kinesoft totaling $10 million, as follows: (1) $5 million on June 12, 1997, the date the 1997 Agreement was executed; (2) $2.5 million on April 1, 1998; and (3) $2.5 million on October 1, 1998 (Defs.' Facts ¶ 10). Softbank made each of the Initial and Subsequent Advances on the designated dates (Defs.' Facts ¶ 10).

The June 1997 Agreement also provides that, in certain circumstances, Softbank "shall make available" to Kinesoft up to $15 million in "Capital Advances" (Defs.' Ex. 9, at § 2.01(d)-(e)). Sections 2.01(d) and (e) of the 1997 Agreement pertain to Capital Advances. Because those provisions are central to this case we quote them in full:

(d) In addition to the Advances set forth in paragraphs (a), (b) and (c) above, SOFTBANK shall make available to Kinesoft an aggregate of FIFTEEN MILLION DOLLARS ($15,000,000), which shall be comprised of capital advances ("Capital Advances") to be made by SOFTBANK to Kinesoft in accordance with this subsection (d) and subsection (e) below, from time to time and at Kinesoft's request, for expenses and...

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