Micro Networks Corp. v. Hig Hightec, Inc.
| Decision Date | 17 December 2001 |
| Docket Number | No. CIV.A.01-40206-NMG.,CIV.A.01-40206-NMG. |
| Citation | 195 F.Supp.2d 255 |
| Parties | MICRO NETWORKS CORP., Plaintiff v. HIG HIGHTEC, INC., Defendant. |
| Court | U.S. District Court — District of Massachusetts |
Mark E. Tully, Goodwin Procter LLP, Boston, MA, Gus P. Coldebella, Goodwin Procter LLP, Boston, MA, for Plaintiff.
Richard M. Gilbert, Goldstein & Manello, P.C., Todd Michael McGrath, Schnader, Harrison, Goldstein & Manello, Boston, MA, for Defendant.
Plaintiff Micro Networks Corporation ("Micro Networks") filed suit in this Court seeking declaratory judgment with respect to HIG Hightec, Inc.'s ("Hightec") veto rights over major corporate events as a Micro Networks preferred stockholder. Micro Networks also asserts claims for interference with prospective business relations, violation of M.G.L. c. 93A and equitable estoppel.
The case is before this Court on diversity grounds. Micro Networks is a Delaware corporation with its principal place of business in Worcester, Massachusetts. Hightec is a Grand Cayman Islands corporation with its principal place of business in Miami, Florida.
On November 5, 2001, Micro Networks filed (1) an ex parte motion for impoundment and confidentiality order and (2) a Verified Complaint for emergency declaratory and injunctive relief against Hightec. This Court held a hearing on November 8, 2001 after which it impounded the plaintiff's complaint and entered an expedited scheduling order.
Currently pending before this Court are several consolidated motions. As a preliminary matter, defendant Hightec has filed, pursuant to Federal Rule of Civil Procedure 12(b)(2), (3) and (5), a motion to dismiss plaintiff's claims for lack of personal jurisdiction. Thereafter, plaintiff Micro Networks filed a motion for summary judgment on Count I of its Verified Complaint.
Micro Networks is a leading supplier of microelectronic frequency sources and signal processing components and subsystems used by Original Equipment Manufacturers ("OEMS") in telecommunications, data and military markets. Hightec is an investment holding company focused on venture capital investments and management buy-outs.
During the Summer of 1997, a group of investors in Florida advised Hightec of a potential investment in Micro Networks. Interested in that opportunity, an officer of Hightec, John Bolduc ("Bolduc"), met with Micro Networks' personnel in Florida and Massachusetts. As part of his investigation, Bolduc performed due diligence at Micro Networks' headquarters in Worcester. At the same time, Micro Networks began reappraising its corporate structure and on November 4, 1997, it filed an amended Certificate of Incorporation in Delaware("Amended Certificate of Incorporation"). The Amended Certificate supplanted an earlier Certificate of Incorporation filed in 1996.
By the Fall of 1997, Micro Networks and Hightec began negotiating the final terms of the Securities Purchase Agreement ("the SPA"). On September 10, 1997, Micro Networks' counsel sent to Hightec's counsel (1) a model term sheet that was a form it had used in a transaction with another venture capital firm, NEGF, (2) a term sheet stating that Hightec would have the opportunity to invest on the same terms as contained in the NEGF sheet, and (3) a stock option and stock purchase plan that was then in effect at Micro Networks.
Section 7.3 of the Stock Terms, an attachment to the SPA providing a description of preferred stock, quickly emerged as a contentious issue for both parties. In the NEGF term sheet model, Section 7.3 conferred upon 70% of the holders of Series C and D stock a consent right over major corporate events. In Micro Networks' proposed Securities Purchase Agreement to Hightec, Section 7.3 conferred upon 70% of preferred stock holders generally consent rights. That revised version of Section 7.3 was consistent with (1) its proposed Restated Certificate of Incorporation and (2) amendments Micro Networks made to its previous purchase agreement with NEGF.
On December 8, 1997, Micro Networks proffered and Hightec signed the final version of the SPA, which purportedly had as an attachment the revised version of Section 7.3 stating that Micro Networks could not enter into certain transactions, including mergers, "without the prior consent of the holder of not less than 70% of the outstanding shares of Preferred Stock." Hightec asserts that at the time it signed the SPA, the description of preferred stock and the consent rights of its holders was neither attached to the SPA nor furnished separately.
On December 22, 1997, Micro Networks filed the Restated Certificate in Delaware ("Restated Certificate") that incorporated the revised version of Section 7.3 conferring upon 70% of the holders of all preferred stock a consent right over major corporate events.
Micro Networks distributed the closing binder to Hightec in February, 1998. Hightec contends that the closing binder it received included neither an attachment with the Stock Terms nor a copy of Section 7.3. Bolduc assumed, however, that he had resolved the consent rights issue in Hightec's favor, and thus neither requested a description of the preferred stock nor reviewed the binder in detail.
The SPA gave Hightec the right to appoint one member to Micro Networks' Board of Directors. Hightec appointed Bolduc to the Board and, by virtue of that seat, assumed a significant role in Micro Networks' corporate governance beginning in 1998. As Hightec's agent, Bolduc personally attended Board meetings in Massachusetts on March 24 and September 28, 1998, October 27, 1999, July 20, 2000 and February 22, 2001. On several other occasions, Bolduc participated in Board meetings by telephone.
Micro Networks argues that in addition to Hightec's role on the Board, Hightec has been involved in Micro Networks' operations, management and strategic decisions. Micro Networks' current President and CEO, Michael Ferrantino, has had numerous contacts with Hightec by telephone, fax, email and in person.
Indeed, Hightec increased its stake in Micro Networks when, in 1998, it acquired Micro Networks' Series D preferred stock pursuant to the SPA. After that acquisition, Hightec held more than 30% of the outstanding shares of Series C and Series D preferred stock.
In Spring, 2001, Micro Networks hired Bank of America Securities ("BAS") to explore strategic transactions. After several months of investigating potential strategic partners, Micro Networks entered into a non-binding letter of intent with a buyer ("Buyer") on October 12, 2001. Shortly thereafter, Micro Networks' Board of Directors approved the agreement with Buyer. Hightec asserts that in the weeks preceding Micro Networks' final negotiations with Buyer, Hightec informed Micro Networks' Board that, based upon the information then available, Hightec was not prepared to consent to the proposed corporate event. Three days before the Board approved the agreement with Buyer, Hightec sent a fax to every Board member stating that Hightec had the right, which it intended to exercise, to withhold its consent to the proposed sale.
On November 2, 2001, Micro Networks received from Hightec's counsel a letter stating that Hightec would seek to enjoin the acquisition if the transaction proceeded without obtaining Hightec's consent. The letter alleged, in relevant part, that (1) Micro Networks had ignored Bolduc's request for necessary financial information on the deal's terms, (2) Micro Networks did not account for a number of factors in calculating the proceeds of the deal to the stockholders, including penalty dividends for Series C and Series D stockholders, (3) Micro Networks' proposed distribution of the deal's proceeds unfairly benefitted the common stockholders, and (4) Hightec planned to withhold its consent to the corporate event pursuant to Section 7.3 of the Certificate of Incorporation dated November 4, 1997.
When a defendant challenges personal jurisdiction, the burden of proof is on plaintiff to prove the existence of personal jurisdiction under both the forum's long-arm statute and the Due Process clause of the Constitution Foster-Miller, Inc. v. Babcock & Wilcox Canada, 46 F.3d 138, 145 (1st Cir.1995). The plaintiff must make a prima facie case that "establishes sufficient facts on which to predicate jurisdiction over the defendant." Stanton v. AM General Corp., 50 Mass.App.Ct. 116, 117, 735 N.E.2d 407 (Mass.App.Ct.2000) (citations and internal quotations omitted). In establishing its prima facie case, the plaintiff cannot rely on mere allegations, but must offer affirmative proof and this Court must accept the plaintiff's sufficiently supported allegations and proffers of evidence as true. Boit v. Gar-Tec Products, Inc., 967 F.2d 671, 675 (1st Cir.1992).
The law of the forum state determines whether a federal district court has jurisdiction over a nonresident defendant in a diversity suit. Hahn v. Vermont Law School, 698 F.2d 48, 49 (1st Cir.1983). Under Massachusetts law, a court may exercise jurisdiction over a nonresident defendant if it is both authorized by statute and consistent with the strictures of the United States Constitution. Good Hope Indus., Inc. v. Ryder Scott, Co., 378 Mass. 1, 5-6, 389 N.E.2d 76 (1979); Nowak v. Tak How Inv., Ltd., 94 F.3d 708, 712 (1st Cir.1996).
The Massachusetts long-arm statute provides in relevant part that a Massachusetts Court may exercise personal jurisdiction
over a person, who acts directly or by an agent, as to a cause of action in law or equity arising from the person's
(a) transacting any business in this commonwealth
M.G.L. c. 223A, § 3(a).
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