Dow Corning Corporation et al v. Xiao et al
Filing
63
OPINION AND ORDER granting 44 Plaintiffs' Motion to Dismiss Counterclaim and granting 55 Third-Party Defendants' Motion to Dismiss Third-Party Complaint. Signed by District Judge Thomas L. Ludington. (TJac)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
NORTHERN DIVISION
DOW CORNING CORPORATION and
HEMLOCK SEMICONDUCTOR
CORPORATION,
Plaintiffs,
Case Number 11-10008-BC
Honorable Thomas L. Ludington
v.
JIE XIAO, a/k/a Georg Xiao, LXENG,
LLC, and LXE SOLAR, INC.,
Defendants/Third-Party Plaintiffs,
v.
KATHY LITTLE, Individually, and
as the Personal Representative of the
Estate of Michael Little,
Third-Party Defendants.
________________________________________ /
OPINION AND ORDER GRANTING
PLAINTIFFS’ MOTION TO DISMISS COUNTERCLAIM AND GRANTING
THIRD-PARTY DEFENDANTS’ MOTION TO DISMISS THIRD-PARTY COMPLAINT
On January 3, 2011, Dow Corning Corp. and Hemlock Semiconductor Corp.
(collectively, “Dow Corning”) filed suit against Jie Xiao, LXEng LLC, and LXE Solar, Inc.
(collectively, “LXE”), alleging that LXE stole Dow Corning’s trade secrets and misused its
trademarks in an effort to lure customers away from Dow Corning’s trichlorosilane and
polysilicon businesses.
Specifically, the seven-count complaint asserted claims for: (1)
misappropriation of trade secrets under Michigan law; (2) trademark infringement in violation of
the Lanham Act; (3) false advertising, false representations, and unfair competition in violation
of the Lanham Act; (4) trademark dilution in violation of the Lanham Act; (5) unfair competition
in violation of Michigan law; (6) violations of the Michigan Uniform Trade Practices Act; and
(6) tortious interference with a contract in violation of Michigan law. ECF No. 1.
LXE filed a motion to dismiss on January 26, 2011, contending that the federal claims
should be dismissed because they do not state a claim for relief and that the state claims should
be dismissed for lack of jurisdiction or on their merits. ECF No. 17. On May 20, 2011, the
motion was granted in part and denied in part. ECF No. 33. The Court dismissed Dow
Corning’s claims for trademark infringement and trademark dilution in violation of the Lanham
Act, as well as the claims for violation of the Michigan Consumer Protection Act. The claims
for false advertising, false representations, and unfair competition in violation of the Lanham
Act, as well as misappropriation of trade secrets and tortious interference with contract in
violation of Michigan law, were permitted to proceed.
On June 3, 2011, LXE filed a counterclaim and third-party complaint. ECF No. 35. The
counterclaim asserted a single claim against Dow Corning for intrusion upon seclusion. The
third-party complaint asserted a right to indemnification against Kathy Little, individually and as
personal representative of the estate of Michael Little. Dow Corning and Mrs. Little now move
to dismiss, respectively, the counterclaim and the third-party complaint. ECF Nos. 44, 55. For
the reasons explained below, the motions will be granted.
I.
Dow Corning Corp. is a Michigan corporation that manufactures silicon products,
including trichlorosilane. Pls.’ Compl. ¶ 3. It entered the polycrystalline silicon industry more
than fifty years ago and has devoted substantial resources to developing its brand of
polycrystalline silicon. Id. ¶¶ 12–17. In 1960, Dow Corning selected Hemlock, Michigan as the
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site for its polysilicon plant, forming Hemlock Semiconductor in 1979. Id. ¶ 19. Hemlock
Semiconductor now manufactures polysilicon using Dow Corning’s trichlorosilane; Dow
Corning remains the majority shareholder of Hemlock Semiconductor. Id. ¶ 4.
Michael Little was employed by Dow Corning for twenty five years as a chemical
engineer.
Id. ¶ 25.
While employed by Dow Corning, Mr. Little manufactured both
trichlorosilane and polysilicon. Id. Indeed, for a period of time Mr. Little served as the head of
Dow Corning’s trichlorosilane production facility in Midland, Michigan. Id. Mr. Little signed
several contracts promising, inter alia, not to disclose “any trade secret, confidential know-how
or confidential business or technical information of Dow Corning.” Id. ¶ 26. In May 2002, Mr.
Little left Dow Corning. Id. ¶ 25. Mr. Little’s wife, Kathy Little, still works at Dow Corning, in
its human resources department. Defs.’ Third-Party Compl. ¶ 25.
In 2007, Dr. Xiao and Mr. Little formed LXEng, a limited liability company formed
under the laws of Nevada. Pls.’ Compl. ¶¶ 5–6. Each gentleman owned a fifty-percent interest
in LXEng. Id. Although both gentlemen were chemists, Mr. Little had more expertise in the
trichlorosilane and polysilicon industries — Dr. Xiao, before joining LXEng, worked in the
pharmaceutical industry. Id. ¶ 29.
Shortly after LXEng was formed, the company secured contracts worth as much as $18.4
million to provide trichlorosilane and polysilicon technology to two companies, which are
identified only as “Company A” and “Company B” in Dow Corning’s complaint. Id. ¶ 33.
LXEng also entered into negotiations with two additional companies, Dow Corning alleges, for
two additional contracts worth as much as $12 million.
Id. ¶ 34.
During the course of
negotiations with “Company C” and “Company D,” Dow Corning alleges that Mr. Little and Dr.
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Xiao disclosed Dow Corning trade secrets to their customers, including “specifications and
characteristics of Dow Corning’s fluid bed reactors.” Id. ¶¶ 35–36. Dow Corning further alleges
that Mr. Little, who was also a pilot and photographer, conducted aerial surveillance of Dow
Corning’s manufacturing facilities in Michigan and used that information to explain the
processes to LXEng’s prospective clients. Id. ¶ 37.
Mr. Little died unexpectedly in November 2007, when the single-engine plane he was
flying crashed near Gladwin, Michigan. Pls.’ Compl. ¶ 39. Dr. Xiao and LXEng then contacted
other Dow Corning employees and placed advertisements in Michigan publications seeking to
hire Dow Corning’s employees with expertise in the trichlorosilane and polysilicon industries.
Id. ¶¶ 42–43.
In March 2008, Dow Corning’s counsel wrote a letter to LXEng, expressing concern that
Mr. Little may have shared Dow Corning’s trade secrets with LXEng and its customers and
emphasizing Dow Corning’s intent to “protect its trade secrets and other intellectual property
rights.” Id. ¶ 41. Dow Corning asked LXEng to consent to an independent inspection of a
laptop computer that was used by Mr. Little before his death. Id. The request was refused. Id.
Around this time, Mr. Little’s estate exercised an option to sell his ownership interest in
LXEng back to the company, demanding $6,725,000 as the fair market value of the interest. Id.
¶ 50. LXE concedes that “[u]nder the operating agreement of LXEng, Mr. Little’s Estate had a
put right to obligate LXEng to buy out the Estate’s interest.” Defs.’ Countercl. ¶ 6, ECF No. 35.
Disagreement arose, however, over the fair market value of the share, in part because of the
threat of potential liability to Dow Corning. See id. ¶¶ 6–7.
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Also around this time, Dr. Xiao was approached by Woongjin Polysilicon Co., Ltd. See
Defs.’ Third-Party Compl. ¶ 7, ECF No. 35. LXE explains: “To keep this new contract free of
any possible liabilities of LXEng caused by Michael Little,” id., Dr. Xiao formed LXE Solar in
the Caribbean nation of Nevis, placing the new company’s assets in a bank account in the
Republic of Seychelles. Id. ¶ 7; see also Pls.’ Compl. ¶ 52. Dr. Xiao is the only shareholder of
LXE Solar and Dow Corning asserts that LXE Solar is the “successor to LXEng and the alter ego
of Xiao.” Pls.’ Compl. ¶ 7. Shortly after LXE Solar’s formation, it secured a $10 million
contract with Woongjin. Id. ¶ 54.
The government of Seychelles, however, froze the LXE Solar account and alerted U.S.
Authorities. Defs.’ Third-Party Compl. ¶¶ 7, 12. The FBI began a criminal investigation and a
grand jury empanelled in the Southern District of Florida issued subpoenas for documents and
electronic information held by LXE. Id. ¶ 12. Sometime later, the FBI contacted Dow Corning
and invited them to view the documents suspected of containing Dow Corning’s trade secrets.
Id. ¶ 15. Eventually, the Seychelles account was released. Id. ¶ 11. The grand jury has not
indicted Dr. Xiao, LXEng, or LXE Solar. Id. ¶ 13.
In February 2009, Mrs. Little brought suit on behalf Mr. Little’s estate against Dr. Xiao
and LXEng in a New Jersey state court, seeking to enforce the estate’s right to sell Mr. Little’s
share of LXEng. See Defs.’ Opp’n Mot. Dismiss Third-Party Compl. 3, ECF 55 (“Defs.’ Opp’n
Little Mot.”). Xiao and LXEng moved to compel arbitration based on a provision in the LXEng
operating agreement which required issues of valuation be submitted to arbitration. See id. Ex. 3
§ 8.4 (LXEng operating agreement). The operating agreement provides in pertinent part: “In the
event that the parties are unable to agree upon a third-party appraiser, the matter of valuation
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shall be submitted to binding arbitration in New York, New York, pursuant to the rules of the
American Arbitration Association . . . .” Id. Dr. Xiao and LXEng filed an arbitration demand
with the American Arbitration Association in August 2009. On April 28, 2010, they filed an
amended arbitration demand which stated, inter alia, that “Dow Corning, Michael Little’s former
employer, has claimed that he misappropriated the solar technology from them. This cloud on
title further depreciates the value of LXEng.” Third-Party Defs.’ Reply Mot. Dismiss ThirdParty Compl. Ex. 3, at 3, ECF No. 62 (“Little Reply”). “The claims by Dow Corning against
LXEng could bankrupt LXEng,” the amended arbitration demand added, and so sought to
expand the scope of the arbitration beyond simply valuing the estate’s membership interest. Id.
at 4. Mrs. Little initially opposed the demand to expand the scope of arbitration; however, two
months later she agreed to arbitrate “the entire dispute between the parties.” Defs.’ Opp’n Little
Mot. Ex. 1 (Amended Arbitration Agreement), ECF 55-2; see also Little Reply Ex. 1 (same),
ECF No. 62-2. The parties executed an arbitration agreement titled “Stipulated Agreement as to
Scope of Arbitration” which stated:
The attorneys for the undersigned parties hereby agree on behalf of their
respective clients that the entire dispute between the parties, including all claims
and counterclaims (including those claims and counterclaims now pending in the
Superior Court, Kathy Little, et al. v. Jie Xiao, et al., Case No. C-29-09 (N.J. Sup.
Ct. Morris County), which shall be discontinued by stipulation) shall be submitted
to the Panel for determination and resolution in the binding arbitration, Jie Xiao
and LXEng LLC v. The Estate of Michael D. Little and Kathy Little, Personal
Representative, No. 13 198 Y 02259 09, Louis A. Craco, Stephen J. Savva and
Malcolm R. Schade presiding as arbitrators. Claimants Jie Xiao and LXEng
LLC’s Amended Arbitration Demand dated April 28, 2010 shall be permitted to
be filed, and Respondents, the Estate of Michael D. Little and Kathy Little,
Personal Representative, shall have the right to file an answering statement and
counterclaims within 30 days of today’s date. The award rendered by the Panel
shall be final and binding and in accordance with the Federal Arbitration Act
enforceable in a court of competent jurisdiction.
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Id.
A little less than six months later, Dow Corning filed suit against LXE. After LXE’s
motion to dismiss the complaint was granted in part and denied in part, LXE filed a counterclaim
against Dow Corning and a third-party complaint against Mrs. Little, individually and in her
capacity as the personal representative of her late husband’s estate.
See Defs.’ Answer,
Countercl., Third-Party Compl., ECF No. 35.
In the counterclaim, LXE alleges that Dow Corning’s suit “is based upon a wrongful
agreement and conspiracy between the FBI and Plaintiffs, pursuant to which the FBI agreed to
provide Plaintiffs with access to information obtained in a grand jury investigation.” Defs.’
Countercl. ¶ 18.
Specifically, LXE alleges, “the FBI, after the grand jury had made no
determination to indict Defendants, agreed with representatives of Plaintiffs to allow Plaintiffs
access to the information obtained by the grand jury.” Id. ¶ 17. This information, LXE writes,
included “secret and private information”; specifically, LXE’s “trade secrets, confidential
business information, private communications, and technical data.” Id. ¶ 21. “Although the FBI
may have obtained this confidential information lawfully,” LXE argues, “the FBI’s agreement
with Plaintiffs to provide Plaintiffs with portions of documents to quote in a civil action was in
direct violation of applicable state and federal law.” Id. ¶ 23. LXE concludes: “Plaintiffs
committed the tort under Michigan common law of invasion of privacy based upon Plaintiffs’
intrusion upon Defendants’ seclusion.” Id. ¶ 24.
In the third-party complaint, LXE seeks indemnification from Mrs. Little, individually
and in her capacity as the personal representative of her late husband’s estate. It is entitled to
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indemnification from the estate, LXE alleges, because “to the extent that [LXE] may ultimately
be found liable on any claim of [Dow Corning] regarding wrongful use of [Dow Corning’s] trade
secrets or confidential information, [LXE] contend[s] that the wrongdoing and fault would be
entirely that of Michael Little.” Defs.’ Third-Party Compl. ¶ 8. Likewise, LXE alleges, it is
entitled to indemnification from Mrs. Little in her individual capacity because she is “jointly
liable as a co-conspirator and as an aider and abettor for any such wrongful conduct.” Id. ¶ 29.
Moreover, the estate’s assets were conveyed to her “without equivalent consideration in return.”
Id. ¶ 10.
Dow Corning and Mrs. Little now move to dismiss, respectively, the counterclaim and
the third-party complaint. As explained in greater detail below, the counterclaim against Dow
Corning will be dismissed because the receipt of information already lawfully in the hands of a
third-party does not establish a prima facie case of intrusion upon seclusion. The third-party
complaint against Mrs. Little will be dismissed because LXE and Mrs. Little have agreed to
submit their “entire dispute” to arbitration.
II.
A.
“Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a ‘short and
plain statement of the claim showing that the pleader is entitled to relief.’ ” Ashcroft v. Iqbal,
129 S. Ct. 1937, 1949 (2009). Rule 8 “does not require ‘detailed factual allegations,’ but it
demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.”
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
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Id.
To survive a Rule 12(b)(6) motion to dismiss, the pleading “must contain sufficient
factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Iqbal, 129
S. Ct. at 1949 (2009) (internal quotation marks omitted) (quoting Twombly, 550 U.S. at 570). “A
claim has facial plausibility when the [party] pleads factual content that allows the court to draw
the reasonable inference that the [opposing party] is liable for the misconduct alleged.” Iqbal,
129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 555–56). A court must accept all factual content
in the pleading as true, however, “the tenet that a court must accept as true all of the allegations
contained in a [pleading] is inapplicable to legal conclusions.” Iqbal, 129 S. Ct. at 1949.
Moreover, a court is “not bound to accept as true a legal conclusion couched as a factual
allegation.” Twombly, 550 U.S. at 555 (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)).
“In keeping with these principles a court considering a motion to dismiss can choose to begin by
identifying pleadings that, because they are no more than conclusions, are not entitled to the
assumption of truth. . . . When there are well-pleaded factual allegations, a court should assume
their veracity and then determine whether they plausibly give rise to an entitlement to relief.”
Iqbal, 129 S. Ct. at 1950.
B.
“Michigan law has long recognized a common-law right to privacy.” Baggs v. EaglePicher Indus., Inc., 957 F.2d 268, 273 (6th Cir. 1992) (citing De May v. Roberts, 9 N.W. 146
(Mich. 1881)). Presently, the common law of Michigan recognizes four distinct theories of
invasion of privacy: “(1) the intrusion upon another’s seclusion or solitude, or into another’s
private affairs; (2) a public disclosure of private facts about the individual; (3) publicity that
places someone in a false light in the public eye; and (4) the appropriation of another’s likeness
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for the defendant’s advantage.” Begin v. Mich. Bell Tel. Co., 773 N.W.2d 271, 286 (Mich. Ct.
App. 2009) (quoting Lewis v. LeGrow, 670 N.W.2d 675, 687 (Mich. Ct. App. 2003)). In this
case, LXE brings its counterclaim on the first theory — intrusion upon seclusion. See Defs.’
Countercl. ¶ 24.
“An action for intrusion upon seclusion focuses on the manner in which information is
obtained, not its publication; it is considered analogous to a trespass.” Begin, 773 N.W.2d at 286
(quoting Doe v. Mills, 536 N.W.2d 824, 832 (Mich. Ct. App. 1995)); see generally Restatement
(Second) of Torts § 652B (1977) (“One who intentionally intrudes, physically or otherwise, upon
the solitude or seclusion of another or his private affairs or concerns, is subject to liability to the
other for invasion of his privacy, if the intrusion would be highly offensive to a reasonable
person.”). A prima facie case of intrusion upon seclusion has three elements: “(1) the existence
of a secret and private subject matter; (2) a right possessed by the plaintiff to keep that subject
matter private; and (3) the obtaining of information about that subject matter through some
method objectionable to a reasonable man.” Begin, 773 N.W.2d at 286 (quoting Mills, 536
N.W.2d at 832).
In this case, Dow Corning argues that LXE’s counterclaim does not plausibly allege any
of the three elements. As the argument regarding the third element conclusively resolves the
matter, it is taken up first.
Under Michigan common law, a defendant is not liable for merely receiving information
that has been tortiously obtained by another, even if the defendant has knowledge of the
impropriety of the initial intrusion. See, e.g., Mills, 536 N.W.2d at 832–33. In Mills, for
example, the plaintiffs alleged that the defendant had tortiously intruded on their seclusion by
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obtaining information about the plaintiffs’ intent to undergo abortions from a garbage dumpster
in the clinic’s parking lot. Id. at 832. The plaintiffs, acknowledging that a third-party initially
obtained the information, not the defendant, nevertheless argued “that liability still may be
imposed under an intrusion theory because [the defendant] admitted in her deposition that she
was aware of the source of the information . . . .” Id. at 833. The trial court summarily
dismissed this argument and the Michigan Court of Appeals affirmed. Id. In support of its
ruling, the court cited Pearson v. Dodd, 410 F.2d 701 (D.C. Cir. 1969), in which the plaintiff
similarly sought to hold the defendants liable for the receipt of information from a third-party
who, in turn, had obtained the information through an improper intrusion. See Mills, 536
N.W.2d at 833 (citing Dodd, 410 F.2d at 704–05). Summarily dismissing the claim in Dodd,
Judge Skelly Wright wrote:
Although appellee’s complaint charges that appellants aided and abetted in the
removal of the documents, the undisputed facts . . . established only that
appellants received copies of the documents knowing that they had been removed
without authorization. If we were to hold appellants liable for invasion of privacy
on these facts, we would establish the proposition that one who receives
information from an intruder, knowing it has been obtained by improper intrusion,
is guilty of a tort. In an untried and developing area of tort law, we are not
prepared to go so far. A person approached by an eavesdropper with an offer to
share in the information gathered through the eavesdropping would perhaps play
the nobler part should he spurn the offer and shut his ears. However, it seems to
us that at this point it would place too great a strain on human weakness to hold
one liable in damages who merely succumbs to temptation and listens.
410 F.2d at 705 (footnote omitted), quoted in part in Mills, 536 N.W.2d at 833. The Michigan
Court of Appeals in Mills, decided twenty-six years after Dodd, was similarly unwilling to
impose liability on a defendant for a third-party’s initial intrusion, writing: “This rationale is
directly applicable to the instant case and persuades us that [the defendant’s] mere receipt of the
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information from [a third-party], even with knowledge of its source, is insufficient to subject her
to liability under an intrusion theory.” 536 N.W.2d at 833; see also Doe v. Peterson, No. 2:09cv-13138, 2011 WL 1515029, at *10 (E.D. Mich. March 24, 2011) (holding operators of website
which posted explicit pictures of persons without their consent were not liable for intrusion upon
seclusion under Michigan law, since operators received images already obtained by thirdparties).
In this case, LXE concedes that “the FBI may have obtained this confidential information
lawfully.” Defs.’ Countercl. ¶ 23. But, LXE alleges, “the FBI, after the grand jury had made no
determination to indict Defendants, agreed with representatives of Plaintiffs to allow Plaintiffs
access to the information obtained by the grand jury.” Id. ¶ 17. Thus, by LXE’s own admission,
the information had already been received by the FBI before it was shown to Dow Corning. Like
the defendants in Mills and Dodd, Dow Corning cannot be held liable for the mere receipt of
information already in the hands of a third-party. See Dodd, 410 F.2d at 705; Mills, 536 N.W.2d
at 833.1
LXE attempts to distinguish Mills on three grounds. See Defs.’ Br. Opp’n Mot. Dismiss
Countercl. 18–19, ECF No. 56. Each, however, is a distinction without a difference. First, LXE
argues, Mills is distinguishable because “[i]n Mills, there was no evidence showing that either
defendant was involved along with the [dumpster-diving non-party] Thomas in obtaining the
information from the garbage. By contrast, here, [Dow Corning was] necessarily involved in the
1
Indeed, this case is less complicated than Mills and Dodd. In both of those cases, the courts assumed that
the third parties had initially obtained the information in a tortious manner — yet the courts nevertheless refused to
impose liability on the recipient of the tortiously obtained information. See Dodd, 410 F.2d at 704–05; Mills, 536
N.W.2d at 832–33. In this case, LXE does not argue that the FBI obtained the information in a tortious manner —
indeed, LXE concedes that the FBI obtained the information lawfully. See Defs.’ Countercl. ¶ 23 (quoted supra).
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wrongful obtaining of the information (by their agreement with the FBI to copy and/or quote
from the documents).” Id. at 19 (internal quotation marks omitted); see also Defs.’ Countercl. ¶
18 (alleging that Dow Corning’s suit “is based upon a wrongful agreement and conspiracy
between the FBI and Plaintiffs, pursuant to which the FBI agreed to provide Plaintiffs with
access to information obtained in a grand jury investigation”).
As a threshold matter, of course, the Supreme Court recently made plain in Twombly that
“a bare assertion of conspiracy will not suffice” to survive a 12(b)(6) motion. 550 U.S. at 556;
see also Garback v. Lossing, No. 09-cv-12407, 2010 WL 3733971, at *7 (E.D. Mich. September
20, 2010) (dismissing an intrusion on seclusion claim because “the complaint contains only legal
conclusions, while lacking well-pleaded allegations with respect to conspiracy”).
Assuming, arguendo, that LXE’s counterclaim sets forth sufficient facts to plausibly
allege an agreement between the FBI and Dow Corning to share the information, it nevertheless
does not state a claim for conspiracy to commit intrusion on seclusion because the alleged
agreement occurred only after the FBI had acquired the information. See Countercl. ¶ 17 (quoted
supra). As Mills and Dodd made plain, to hold a defendant liable for conspiracy to commit
intrusion upon seclusion, the defendant must have conspired or aided and abetted in the initial
removal of the documents. LXE’s counterclaim does not allege that Dow Corning conspired with
the FBI in the initial acquisition of the information.2
2
This is not a case in which a defendant is alleged to have initially conspired with a law enforcement
agency to trump up charges against a competitor and deliberately utilize the grand jury subpoena to acquire sensitive
proprietary information. The Court expresses no opinion on what the result would be had such an agreement existed
before the law enforcement agency initially obtained the information, as that case is not before this Court.
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LXE next attempts to distinguish Mills because “[c]rucially, Mills was decided on
summary judgment, after discovery had revealed the absence of evidence to support the intrusion
claim.” Defs.’ Br. Opp’n Mot. Dismiss Countercl. 19. The defect in LXE’s counterclaim,
however, is not a proof problem — LXE’s factual allegations are accepted as true for purposes of
deciding a 12(B)(6) motion to dismiss. See Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).
Rather, the defect in the counterclaim is a problem of substantive law — under Michigan
common law, a party is not liable for the mere receipt of information already in the hands of a
third-party. See Mills, 536 N.W.2d at 833. Accepting all of LXE’s factual allegations as true, its
counterclaim does not state a claim on which relief can be granted because it does not allege that
Dow Corning conspired with the FBI in the initial acquisition of the information.
Finally, LXE argues that “Mills is not controlling because the intrusion claim here is not
based on the publication of [LXE’s] information, but rather on how that information was
obtained.” Defs.’ Br. Opp’n Mot. Dismiss Countercl. 19. LXE is correct that in Mills the court
rejected the plaintiff’s publication theory, explaining “[a]n action for intrusion upon seclusion
focuses on the manner in which information is obtained, not its publication.” 536 N.W.2d at 832
(citing Tobin v. Civil Serv. Comm., 331 N.W.2d 184, 189 (Mich. 1982)). The court went on,
however, to consider the plaintiffs’ argument “that a cause of action for intrusion exists because
the evidence shows that the information about plaintiffs was obtained from a garbage dumpster
[by a third-party].” 536 N.W.2d at 832. And, the court concluded in Mills, the defendant was not
liable for intrusion because she did not participate in the initial acquisition of the information.
Id.
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In sum, the motion to dismiss the counterclaim will be granted because the receipt of
information already lawfully in the hands of a third-party does not establish a prima facie case of
intrusion upon seclusion.
III.
Mrs. Little, individually and on behalf of her late husband’s estate, moves to dismiss the
third-party complaint pursuant to both Federal Rules of Civil Procedure 12(B)(1) and 12(B)(6).
As her Rule 12(B)(1) argument is dispositive of the motion before the Court, it is taken up first.
A.
Rule 12(b)(1) motions “fall into two general categories: facial attacks and factual
attacks.” United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994). Facial attacks, like Rule
12(b)(6) motions, challenge the sufficiency of the pleading itself; in evaluating facial attacks, the
court must accept the factual allegations as true and construe them in the light most favorable to
the nonmoving party. Id. A factual attack, in contrast, challenges “the factual existence of
subject matter jurisdiction. On such a motion, no presumptive truthfulness applies to the factual
allegations, and the court is free to weigh the evidence and satisfy itself as to the existence of its
power to hear the case.” Id. (citation omitted) (citing Ohio Nat’l Life Ins. Co. v. United States,
922 F.2d 320, 325 (6th Cir. 1990)). When subject matter jurisdiction is challenged pursuant to
Rule 12(b)(1), the plaintiff has the burden of proving jurisdiction in order to survive the motion.
Moir v. Greater Cleveland Reg’l Transit Auth., 895 F.2d 266, 269 (6th Cir. 1990).
B.
The Federal Arbitration Act, 9 U.S.C. § 1 et seq., which applies to arbitration agreements
involving interstate commerce, creates “a liberal federal policy favoring arbitration agreements.”
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Alticor, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 411 F.3d 669, 672 (6th Cir. 2005)
(quoting Moses H. Cone Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)); see also Perry
v. Thomas, 482 U.S. 483, 489 (1987) (noting the Act “embodies a clear federal policy of
requiring arbitration unless the agreement to arbitrate is not part of a contract evidencing
interstate commerce”). “By its terms, the Act leaves no room for the exercise of discretion by a
district court, but instead mandates that district courts shall direct the parties to proceed to
arbitration on issues as to which an arbitration agreement has been signed.” Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213, 213 (1985) (emphasis in original).
Of course, “arbitrators derive their authority to resolve disputes only because the parties
have agreed in advance to submit such grievances to arbitration.”
AT&T Techs., Inc. v.
Commc’ns Workers of Am., 475 U.S. 648–49 (1986)). Fundamentally, “arbitration is a matter of
contract and a party cannot be required to submit to arbitration any dispute which he has not
agreed so to submit.” Id. (quoting Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S.
574, 582 (1960)). “Before compelling an unwilling party to arbitrate,” the Sixth Circuit cautions,
“the court must engage in a limited review to determine whether the dispute is arbitrable;
meaning that a valid agreement to arbitrate exists between the parties and that the specific
dispute falls within the substantive scope of that agreement.” Javitch v. First Union Sec., Inc.,
315 F.3d 619, 624 (6th Cir. 2003) (citing AT&T Techs., 475 U.S. at 649). Crucially, however,
“as a matter of federal law, any doubts concerning the scope of arbitrable issues should be
resolved in favor of arbitration, whether the problem at hand is the construction of the contract
language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Alticor, 411
F.3d at 672–73 (quoting Moses H. Cone Hosp., 460 U.S. at 24–25).
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Here, LXE does not dispute that a valid agreement to arbitrate exists between the parties;
rather, LXE argues that the subject matter of its third-party complaint falls within the substantive
scope of the agreement.3 Because of the plain language of the arbitration agreement and the
strong federal policy favoring arbitration, LXE’s argument is unpersuasive.
The text of the arbitration agreement provides that “the entire dispute between the
parties” shall be submitted to arbitration. Defs.’ Opp’n to Little Mot. Ex. 1; Little Reply Ex. 1,
ECF No. 62. This language, of course, contains no limitations on the substantive scope of the
arbitration. Rather, in unqualified terms the agreement provides that the scope of the arbitration
is “the entire dispute between the parties.” Id.
LXE, however, argues that it necessarily has an implicit “temporal limitation.” Defs.’ Br.
Opp’n Little Mot. 10, ECF No. 61 (“Defs.’ Br.”). According to LXE, properly read the scope of
the arbitration agreement is “the entire dispute [as of the date the arbitration agreement was
executed, and only as to specific issues expressly raised on or before that date].” See id. at 9–10.
LXE writes: “The obvious intent of the parties in the Stipulation was to resolve the dispute
regarding the arbitrability of issues that had been raised at the time of signing the Stipulation.”
3
As an aside, it should be noted that LXE Solar was not a formal party to the arbitration agreement.
However, as LXE’s brief concedes, if Dow Corning prevails in the underlying litigation, “LXE Solar will be treated
as being identical to LXEng — there will be a complete piercing of the corporate veil.” Defs.’ Br. Opp’n Little Mot.
14. Thus, a necessary predicate to any right to indemnification on the part of LXE Solar is a finding that it does not
have a separate corporate existence from Dr. Xiao and LXEng.
Indeed, save for in a single footnote, LXE’s brief does not even raise the defense that LXE Solar is not a
party to the arbitration agreement. See id. 13 n.4. And, as LXE itself recognizes, it is only if “there is an identity of
interest between LXE Solar and LXEng” that LXE Solar will have “standing to pursue the same claims [for
indemnification] as LXEng.” Id. at 14. Consequently, although not formally a party to the arbitration agreement, its
rights to indemnification are inextricably entwined with Dr. Xiao and LXEng, who are, of course, both parties to the
arbitration agreement. Put differently, its dispute with Mrs. Little, if any, is their dispute. And, for the reasons
discussed below, their dispute must be arbitrated.
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Id. at 9. LXE reiterates: “The existing ‘entire dispute’ was the particular object that the parties
had in view.” Id. This argument, however, is contrary to both the law and the facts.
As a matter of law, “[t]he intent of the parties is best determined by the plain language of
the contract.” United States v. Donovan, 348 F.3d 509, 512 (6th Cir. 2003) (citing United States
v. Hodgekins, 28 F.3d 610, 614 (7th Cir. 1994)). In this case, the arbitration agreement states
that the parties agree to submit the “entire dispute” to arbitration — nothing limits the scope to
issues that had already been expressly raised at the time the agreement was executed. And, as
noted above, the Supreme Court has unequivocally stated that “as a matter of federal law, any
doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.”
Moses H. Cone Hosp., 460 U.S. at 24–25, quoted in Alticor, 411 F.3d at 672–73.
Moreover, as a factual matter, the threat of potential liability to Dow Corning was one of
the causes of the dispute between Mrs. Little and LXE. The parties’ dispute arose because they
could not agree on a fair market value price of Mr. Little’s interest in LXEng — and they could
not agree on a price, in part, because of the threat of potential liability to Dow Corning. See
Defs.’ Countercl. ¶¶ 6–7. Indeed, LXE candidly acknowledges that its “Amended Demand [for
arbitration] referred to a potential threat of litigation by Dow Corning as depressing the value of
LXEng as of the valuation date.” Defs.’ Br. 5. Thus, as a factual matter, the parties were
conscious of the threat of liability to Dow Corning at the time the arbitration agreement was
executed. LXE may be correct that its “mention of potential liability to Dow Corning which
could have had an effect on the value of LXEng [in its amended demand for arbitration] . . . does
not equate to raising the actual issues of fault and percentage of responsibility for alleged trade
secret misappropriation.” Id. at 10. But the plain language of the arbitration agreement does not
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limit its scope to issues actually raised in the demand or answer. Rather, it states “the entire
dispute between the parties” shall be submitted to arbitration. LXE’s attempt to limit its scope to
issues expressly raised at the time the arbitration agreement was executed is contrary to the plain
language of the agreement.
Similarly unpersuasive is LXE’s argument that the allocation of potential liability to Dow
Corning cannot be arbitrated because the issue will not be ripe until there is a finding of actual
liability (or lack thereof) in the underlying action in this Court. Id. at 10. Indeed, LXE’s
ripeness argument is contradicted by its own brief, in which it concedes: “If Mrs. Little desired
that issues such as Third-Party Plaintiffs’ claims for indemnification and contribution would be
determined in the Arbitration, she had an easy opportunity to obtain that result.”4 Id. at 7 n.1.
LXE elaborates: “Now, on the eve of the Arbitration hearing, it is neither authorized nor
practical to insert new claims.” Id. Neither argument is persuasive. First, for the reasons
discussed above, the arbitration panel is “authorized” to hear the “entire dispute between the
parties.” The greater power of hearing the “entire dispute” authorizes the lesser dispute of
hearing a component issue. Cf. Posadas de Puerto Rico Assocs. v. Tourism Co. of Puerto Rico,
478 U.S. 328, 345–346 (1986) (“[T]he greater power to completely ban casino gambling
necessarily includes the lesser power to ban advertising of casino gambling.”). And second,
whether LXE finds it “practical” to arbitrate the indemnification claim is irrelevant to the task
4
As an aside, LXE may be correct that declaratory judgments regarding potential liability for
indemnification are not cognizable in Michigan courts. However, LXE has not suggested, much less produced
authority for the proposition a similar limitation applies to arbitration proceedings. And, of course, the arbitration
agreement does not state that its scope is limited to claims presently cognizable in Michigan courts — it states that
the scope is the “entire dispute” between the parties. Moreover, if the panel of arbitrators decides that the
indemnification issue is not ripe for resolution, it may choose to stay the proceedings. And, as Plaintiff notes, the
panel recently denied LXE’s motion to stay the proceedings pending this litigation. See Little Mot. Exs. 5–6.
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before this Court, which is simply to determine whether “the specific dispute falls within the
substantive scope of that agreement.” Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (6th
Cir. 2003). As the parties agreed to submit the “entire dispute” to arbitration, the specific dispute
regarding indemnification falls within the substantive scope of that agreement.
The court will grant Mrs. Little’s motion to dismiss the third-party complaint. Because
the Court will grant Mrs. Little’s motion to dismiss pursuant to Rule 12(B)(1), the Court does not
reach her Rule 12(B)(6) arguments.
IV.
Accordingly, it is ORDERED that Plaintiffs’ motion to dismiss the counterclaim (ECF
No. 44) is GRANTED.
It is further ORDERED that Third-Party Defendants’ motion to dismiss the third-party
complaint (ECF No. 55) is GRANTED.
It is further ORDERED the hearing scheduled for September 20, 2011, at 3:00 p.m. is
CANCELED because the parties’ papers provide the necessary factual and legal information to
decide the motion. See E.D. Mich. L.R. 7.1(f)(2).
Dated: September 19, 2011
/s/Thomas L. Ludington
THOMAS L. LUDINGTON
United States District Judge
PROOF OF SERVICE
The undersigned certifies that a copy of the foregoing order was served
upon each attorney or party of record herein by electronic means or first
class U.S. mail on September 19, 2011.
s/Tracy A. Jacobs
TRACY A. JACOBS
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