Knight Capital Partners Corporation v. Henkel AG & Company, KGaA
Filing
172
OPINION AND ORDER Granting 125 Motion for Summary Judgment, Denying 96 Motion for Leave to Amend the Complaint; Finding as Moot Motions 121 ; 122 ; 123 ; 124 ; 93 ; 157 ; 158 ; and Dismissing Complaint. Signed by District Judge David M. Lawson. (SPin)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
KNIGHT CAPITAL PARTNERS CORP.,
Plaintiff,
v.
Case Number 16-12022
Honorable David M. Lawson
HENKEL AG & COMPANY, KGaA,
Defendant.
__________________________________/
OPINION AND ORDER GRANTING DEFENDANT’S MOTION FOR SUMARY
JUDGMENT, DENYING PLAINTIFF’S MOTION TO AMEND THE COMPLAINT
DISMISSING MISCELLANEOUS MOTIONS, AND DISMISSING COMPLAINT
Plaintiff Knight Capital Partners Corporation (KCP) filed a complaint alleging that the
defendant unlawfully interfered with KCP’s business opportunity to market a product based on
technology exclusively controlled by KCP’s contracting partner. The plaintiff alleged that it
entered into a nondisclosure agreement with the defendant’s separate U.S. subsidiary, with which
it was negotiating a long-term marketing deal, but the defendant violated that agreement and upset
the negotiations so that it could contract directly with the technology licensee and cut the plaintiff
out of the relationship. According to the complaint, it was Cedric Berthod, the defendant’s
European Senior Vice President and General Manager, who orchestrated the
illegal scheme. Based on those allegations, the Court denied the defendant’s motion to dismiss,
finding that the plaintiff pleaded a viable claim that could be prosecuted in a federal court located
in Michigan. Knight Capital Partners Corp. v. Henkel AG & Co., KGaA, 257 F. Supp. 3d 853
(E.D. Mich. 2017).
Now before the Court are the defendant’s motion for summary judgment and the plaintiff’s
motion to amend its complaint to add an unfair trade practices claim under Connecticut law. The
factual record developed by the discovery paints an entirely different picture than the story told by
the pleadings. As it turns out, KCP’s contracting partner, AI Sealing, LLC (AIS), did not have the
exclusive rights to the technology. The defendant was not a party to the nondisclosure agreement
and did not breach it. And the defendant is the beneficial 100 percent owner of its U.S. subsidiary,
Henkel Corporation (Henkel US), and cannot be held liable on a “tortious interference” theory for
“interfering” with a prospective deal involving its wholly owned subsidiary. The defendant is
entitled to a judgment as a matter of law, because KCP has failed to establish genuine fact issues
on all the elements of its claims. Likewise, none of the facts proffered by the plaintiff are sufficient
to establish a substantial connection between the dealings of the parties during their negotiations
and the State of Connecticut, which is a fundamental premise for any viable claim under that state’s
Unfair Trade Practices Act. The Court will deny the motion to amend the complaint, grant the
motion for summary judgment, and dismiss the case, along with other pending motions.
I. Factual Background
A. The Negotiations
Based on the motion briefs, it appears that most of the background facts about the
negotiations between the parties for a contemplated technology licensing and distribution deal are
undisputed.
In February 2014, plaintiff KCP held a global license granted to it by AIS, a Texas company
that purported to hold the exclusive patent rights for a “revolutionary” series of citrus-based
compounds developed for cleaning dirty equipment at oil rigs and refineries. KCP approached
non-party Henkel US, the defendant’s subsidiary, to explore the possibility of a deal for marketing
and distribution of products based on the new technology. In an attempt to reach a deal, the parties
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engaged in lengthy negotiations, which persisted over several months. Beforehand, however,
Henkel US and KCP entered into a nondisclosure agreement.
B. The Nondisclosure Agreement
The nondisclosure agreement signed by KCP and Henkel US identified the parties to the
agreement as follows:
This Unilateral Confidentiality Agreement (“Agreement”) . . . is between Henkel
Corporation (“Henkel”) . . . and Knight Capital Partners Corp. (“Company”). . . .
Henkel and Company shall be individually referred to as a “Party” and collectively
referred to as the “Parties.”
(ECF No. 25-11 PageID.5596). The agreement was executed in April 2014 by representatives of
Henkel US and KCP. It defined “Confidential Information” within its scope as “any non-public
and confidential or proprietary information of [KCP] or its Affiliates disclosed in any form or
format to Henkel or its Affiliates under this Agreement.” The term “Affiliates” was defined to
include, “with respect to a Party, any individual, corporation or other business entity which, either
directly or indirectly, controls a Party, is controlled by a Party, or is under common control with a
Party . . . whether through the ownership of voting securities, by contract or otherwise.” The
agreement further stated that “the ‘Receiving Party’ shall refer to Henkel or its Affiliates receiving
Confidential Information hereunder.” With respect to “Restrictions on Use,” the agreement stated
that the “Receiving Party shall not use the Confidential Information of the Disclosing Party except
for the Purpose,” which was “to investigate the feasibility of a future business relationship between
the Parties.”
The agreement was effective for one year starting on April 23, 2014, and it controlled all
disclosures made during that time, with a “period of protection” extending for three years after the
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expiration or termination of the agreement, during which the restrictions continued for use or
disclosure of any confidential materials disclosed during the one-year term. The agreement also
included a choice of law provision stating that it would be construed according to the laws of the
State of Connecticut, and the parties agree that Connecticut state law governs any breach of
contract claim.
C. Termination of Negotiations
The scuttled negotiations concerned a proposed three-way agreement between KCP, as a
broker and technology license holder, AIS as the inventor of the technology, and Henkel US, which
under the contemplated partnership would have been responsible for marketing and distributing
the products under the Henkel brand.
The parties engaged in extensive negotiations involving principals of KCP, Henkel US,
and Henkel Germany from August 2014 through early 2015. On November 14, 2014, Henkel US
presented the first draft of a proposed distribution agreement to KCP, and within days
representatives from KCP, Henkel US, and Henkel Germany discussed and reviewed the draft
agreement. On November 21, 2014, KCP and Henkel US representatives met in Bridgewater,
New Jersey to discuss the deal and present it to senior executives of Henkel Germany, including
Cedric Berthod, who attended the New Jersey meeting in person. Berthod told KCP’s principals
at the meeting that the deal was “attractive” to the Henkel companies and fit with its strategy.
Henkel US agreed “to pursue the development of a formal agreement.” Berthod also identified
several issues with the agreement that needed to be addressed before the deal could move ahead.
The negotiations continued and increased in intensity until, in late March 2015, KCP’s
principal, Fadi Nona, and Berthod reached an impasse over Berthod’s demand for “direct access”
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to KCP’s technology partner, AIS. Nona refused and told Berthod that access to AIS would be
provided only after the distribution deal was consummated. The negotiations then abruptly cooled,
KCP had little contact with Henkel’s principals over the following weeks, and Henkel US did not
respond to KCP’s requests to renew the nondisclosure agreement. On April 17, 2015. AIS
terminated its licensing agreement with KCP, based on the failure to close the distribution deal
within the prescribed time. KCP attempted to revive the negotiations, but on June 5, 2015 Berthod
called Nona to tell him that Henkel US had been approached by AIS, and that although “no
decision” had been made, the deal with KCP had been put “on hold” while Henkel US explored
the prospect of dealing with AIS directly.
Henkel asserts — and the plaintiff now admits (and actually alleges in its proposed
amended complaint) — that neither Henkel company ever reached a deal with AIS. Henkel
contends that the reason was because it ultimately was “unable to verify the commercial feasibility
of the technology.” Moreover, Henkel US also asserts, and the plaintiff admits, that Henkel US
never proceeded to develop or market any similar or competing product on its own.
It now is undisputed — contrary to the plaintiff’s explicit allegations in the original
complaint — that after the negotiations broke down, Henkel Germany ultimately decided not to
proceed with developing or marketing any refinery cleaning product with AIS or any other external
partner. It also scrubbed any plans it may have had to develop any similar product on its own.
D. Procedural History
The plaintiff filed its complaint against Henkel Germany in this Court on June 3, 2016,
asserting claims for tortious interference with a business expectancy (Count I) and breach of the
nondisclosure agreement (Count II). On June 23, 2017, the Court denied the defendant’s motion
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to dismiss for want of personal jurisdiction, Knight Capital Partners, 257 F. Supp. 3d at 867, and
on November 30, 2017, the Court granted the plaintiff’s motion to compel and ordered the
defendant to turn over comprehensive discovery that it claimed it was barred from disclosing under
European data privacy laws, Knight Capital Partners Corp. v. Henkel Ag & Co., KGaA, 290 F.
Supp. 3d 681 (E.D. Mich. 2017). The discovery and motion filing deadlines later were twice
extended at the joint request of the parties. Discovery closed on May 1, 2018.
The plaintiff filed a motion for leave to file an amended complaint on April 30, 2018, but
it was not accompanied by a brief, presumably due to the inclusion of exhibits that had been
marked “confidential” by the defendant during discovery. The parties apparently agreed that those
materials did not need to be filed under seal, and the plaintiff filed a brief in support of its motion
to amend on May 2, 2018.
II. Defendant’s Summary Judgment Motion
Henkel Germany argues in its motion for summary judgment that (1) as a matter of law, it
cannot be held liable for breach of a contract to which it was not a party; (2) the tortious
interference claim cannot be sustained because the prospective distribution deal was subject to a
number of contingencies that never were satisfied by the plaintiff, including that (a) it never held,
as it claimed, an exclusive license over the technology in question, and (b) the entire deal with
Henkel US was explicitly premised on approval by senior executives at its parent company, Henkel
Germany, which never was given; and (3) in any event, a parent company cannot, as a matter of
law, be held to “tortiously interfere” with the affairs of its own wholly owned subsidiary entity,
even if that interference extends to directing the subsidiary to breach a contract that it has made
with a third party. The defendant made a point of asserting that it did not seek summary judgment
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on the ground that it never breached the confidentiality agreement, but the Court ordered the parties
to file supplemental briefs addressing that point. KCP filed a response contesting each of the
defendant’s arguments.
Summary judgment is appropriate “if the movant shows that there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). When reviewing the motion record, “[t]he court must view the evidence and draw all
reasonable inferences in favor of the non-moving party, and determine ‘whether the evidence
presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that
one party must prevail as a matter of law.’” Alexander v. CareSource, 576 F.3d 551, 557-58 (6th
Cir. 2009) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986)).
“The party bringing the summary judgment motion has the initial burden of informing the
district court of the basis for its motion and identifying portions of the record that demonstrate the
absence of a genuine dispute over material facts.” Id. at 558. (citing Mt. Lebanon Personal Care
Home, Inc. v. Hoover Universal, Inc., 276 F.3d 845, 848 (6th Cir. 2002)). “Once that occurs, the
party opposing the motion then may not ‘rely on the hope that the trier of fact will disbelieve the
movant’s denial of a disputed fact’ but must make an affirmative showing with proper evidence in
order to defeat the motion.” Ibid. (quoting Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479
(6th Cir. 1989)).
“[T]he party opposing the summary judgment motion must do more than simply show that
there is some ‘metaphysical doubt as to the material facts.’” Highland Capital, Inc. v. Franklin
Nat’l Bank, 350 F.3d 558, 564 (6th Cir. 2003) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 586 (1986)) (internal quotation marks omitted). The opposing party must
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designate specific facts in affidavits, depositions, or other factual material showing “evidence on
which the jury could reasonably find for the plaintiff.” Anderson, 477 U.S. at 252. The submitted
materials need not themselves be in a form that is admissible in evidence. Celotex Corp. v. Catrett,
477 U.S. 317, 324 (1986). “However, the party opposing summary judgment must show that [it]
can make good on the promise of the pleadings by laying out enough evidence that will be
admissible at trial to demonstrate that a genuine issue on a material fact exists, and that a trial is
necessary.” Alexander, 576 F.3d at 558.
A. Breach of Contract Claim
As noted above, the parties agree that Connecticut law governs the breach of contract claim,
based on the nondisclosure agreement’s choice-of-law provision. And as this case is here under
the Court’s diversity jurisdiction, the Court must “apply the same law that [the] state courts would
apply.” Auburn Sales, Inc. v. Cypros Trading & Shipping, Inc., 898 F.3d 710, 715 (6th Cir. 2018)
(citing Kurczi v. Eli Lilly & Co., 113 F.3d 1426, 1429 (6th Cir. 1997)); see also Erie R.R. Co. v.
Tompkins, 304 U.S. 64, 78 (1938). That law usually comes from the state’s highest court. Auburn
Sales, Inc., 898 F.3d at 715. “And where [the state’s intermediate] appellate courts have spoken
in the Supreme Court’s absence, we will normally treat those decisions as authoritative absent a
strong showing that the [state’s Supreme Court] would decide the issue differently.” Ibid.
(quotations omitted). “In this latter scenario, we must also look to other available data, such as
Restatements, treatises, law reviews, jury instructions, and any majority rule among other states.”
Ibid.
Under Connecticut law, there are at least two reasons why the breach of contract claim
cannot succeed. First, it is well established that a plaintiff cannot recover on a breach of contract
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claim from an entity that was not a party to the contract (Henkel Germany), and the plaintiff has
not sued the only entity that was a counter-party to the contract (Henkel US). Second, it is apparent
from the record outlined by the parties that there is no evidence of any conduct by either Henkel
entity that breached the agreement, based on the plaintiff’s present theory of the case.
1.
The Connecticut courts have recognized the “general principle so fundamental that it rarely
receives mention in case law or commentary . . . that only parties to contracts are liable for their
breach.” FCM Grp., Inc. v. Miller, 17 A.3d 40, 54 (Conn. 2011). The “axiom[]” follows that “an
action ‘for breach of contract may not be maintained against a person who is not a party to the
contract.’” Szynkowicz v. Bonauito-O’Hara, 154 A.3d 61, 69 (Conn. App. 2017) (quoting FCM
Group, 17 A.3d at 54). The nondisclosure agreement here explicitly defines “the Parties” to the
agreement as KCP and Henkel US. Henkel Germany is nowhere mentioned by name in the
agreement, and the contract was not executed by any principals of that entity. The language of the
agreement defining the parties is plain and unambiguous, and it contains an integration clause,
which confirms that the document contains the parties’ entire agreement and that its terms govern
over any other oral or written understanding between the parties.
Connecticut courts construe plainly worded contracts such as this quite strictly, recognizing
the primacy of the parties’ intent, which “is to be ascertained by a fair and reasonable construction
of the written words [bearing in mind that] the language used must be accorded its common,
natural, and ordinary meaning and usage where it can be sensibly applied to the subject matter of
the contract.” Lynwood Place, LLC v. Sandy Hook Hydro, LLC, 92 A.3d 996, 1001 (Conn. App.
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2014). Where there is no ambiguity, “the determination of what the parties intended by their
contractual commitments is a question of law.” Ibid.
Any attempt to discern ambiguity from the writing must emanate from the language of the
contract itself, not from any extrinsic subjective understanding of it. “Where the language of the
contract is clear and unambiguous, the contract is to be given effect according to its terms”; the
“court will not torture words to import ambiguity where the ordinary meaning leaves no room for
ambiguity.” Lynwood Place, 92 A.3d at 1000-01. In this case, there is no ambiguity as to who are
the parties to the nondisclosure agreement, and Henkel Germany is not among them.
On similar facts, the Connecticut courts repeatedly have held that an action for breach
against a non-party cannot be maintained. Szynkowicz, 154 A.3d at 69 (“The only parties named
in the dual agency agreement were the plaintiff, the plaintiff’s tenant, the seller and Hanley, all of
whom are the only parties to have signed the dual agency agreement. The dual agency agreement
did not purport to bind the defendant nor did it refer to the defendant, who was neither a signatory
to the dual agency agreement nor a title holder to the property.”); Bruno v. Whipple, 54 A.3d 184,
193 (Conn. App 2012) (“There is no language in the contract identifying Whipple as a party
thereto. On the basis of the written contract, the undisputed terms of which were properly before
it, the court thus had a substantial basis for concluding that there was no genuine issue of material
fact that Whipple was not a party to that contract and thus that he could not be held liable for its
breach.”); FCM Group, 17 A.3d 40, 55-56 (“[T]he contract refers throughout to the ‘[o]wner,’ who
is expressly identified therein as Jeffrey Miller. Furthermore, nothing in the contract purports to
bind Cheryl Miller, who is neither a signatory to the contract nor a title holder to the property.
Indeed, the contract contains no reference to Cheryl Miller. Because the plaintiff and Mercede
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have offered no legal support for the attorney trial referee’s finding that Cheryl Miller is liable for
breaching the contract between Jeffrey Miller and the plaintiff, that portion of the trial court’s
judgment that was rendered against her cannot stand.”); Malich v. Sivilla, 56 Conn. L. Rptr. 331,
2013 WL 3625476, at *5 (Super. Ct. June 24, 2013) (“[T]he evidence submitted shows that Eleanor
Sivilla has neither signed a contract with the plaintiff nor expressed assent to be bound by any
agreement with the defendant. The fact that she watched and inspected the plaintiff’s work done
under contract for Mathew Sivilla does not imply that she assented to being bound by any
agreement to pay the plaintiff for that work.”).
The plaintiff points to testimony from Zubin Rivetna, Henkel US’s Technology Manager
who executed the agreement, and Grant Kupko, one of Henkel Germany’s principals, who attested
that their understanding was that Henkel Germany was “bound by” the agreement. But the
subjective belief of a party that a non-party is bound is insufficient to hold the non-party
accountable on a claim for breach, where the agreement is plain and explicit in defining who was
a party to it. Szynkowicz, 154 A.3d at 69 (“[T]he plaintiff’s subjective belief that the defendant
was a party to the alleged dual agency agreement does not alter the clear terms naming Hanley,
alone, as the single agent to represent both the seller and the plaintiff.” (citation and quotation
marks omitted)). Participation by a non-party in the negotiation or performance of the agreement,
even where it assumed a controlling role, also is not sufficient to make it a party liable to suit. Id.
at 70 & n.6.
The plaintiff asserts that there is some lingering ambiguity in the contract language that
defines “Receiving Party” to include Henkel US and its “Affiliates.” An “Affiliate” is defined to
include any separate entity holding a controlling interest in Henkel US. And the agreement
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imposes “obligations” on the “Receiving Party,” which include not disclosing or misusing the
confidential information of the “Producing Party,” defined to include KCP or any of its affiliates.
However, read reasonably, in the context of the agreement as a whole, that language suggests only
that Henkel US — as a “Party” to the agreement — could be held liable if any of its affiliates
disclosed information. The record facts plainly show that Henkel Germany was an “affiliate”
under the agreement, and therefore “bound” not to misuse the confidential information. But that
does not make it answerable in damages to KCP, because nothing in the nondisclosure agreement’s
plain language suggests that the parties intended to make an “affiliate” a “party” to the agreement
amenable to direct suit. Those shoes were filled by Henkel US, and by it alone, as the agreement
plainly states.
Finally, the plaintiff contends, based on the testimony of Rivetna and Kupko, that Henkel
Germany “consented” or “assented” to be bound by the agreement. And in its supplemental filings,
it argues that the law favors a finding of liability against a party that consents to be bound by an
agreement. The law that the plaintiff cites for this proposition, however, comes from Delaware
authority, which is not controlling here. And adding a party to the nondisclosure agreement absent
a writing would collide with the agreement’s integration clause. Moreover, regardless of any
subjective understanding held by principals of either entity, the plaintiff has not pointed to anything
in the record to suggest that Henkel Germany ever expressed any such consent or assent to be
“bound” to the plaintiff as a party to the agreement. To the contrary, its conduct as alleged, and
its position throughout this litigation, suggests that it has never consented to be sued for breach of
the agreement, regardless of whether for the sake of advancing the negotiations it conducted itself
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more or less in conformance with the restrictions of the nondisclosure agreement, which was
binding on Henkel US.
Henkel Germany cannot be sued for breaching the nondisclosure agreement because it was
not a party to it.
2.
Perhaps more to the point, however, there is no evidence in the record that either Henkel
company breached the nondisclosure agreement. The Court ordered supplemental briefs on this
issue. The defendant does not advance this inquiry in its supplemental brief, since it chose to
address an issue (i.e., whether the plaintiff suffered damages from the defendant’s conduct)
different than the one on which the Court requested supplemental. The plaintiff’s supplemental
brief makes clear, however, that it believes that Henkel Germany used confidential information in
a way that exceeded the agreement’s allowable “purpose,” which was “to investigate the feasibility
of a future business relationship between the parties.” But KCP advocates an exceedingly narrow
construction of that purpose, which the plain contract language does not support.
As noted earlier, when defending against the earlier motion to dismiss, KCP pointed to
allegations in the complaint setting out as a crucial premise of the breach claim that Henkel
Germany had delayed the negotiations in order to orchestrate an “end run” around KCP and deal
directly with its technology holder, AIS. But that premise now seems to have evaporated in the
light of discovery, which has revealed that Henkel never wound up making any deal at all, with
anyone, relating to production or marketing of refinery cleaning products. It now is undisputed —
contrary to the plaintiff’s explicit allegations in the original complaint — that after the negotiations
broke down, Henkel ultimately decided not to proceed with developing or marketing any refinery
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cleaning product with AIS or any other external partner, and it also scrubbed any plans it may have
had to develop any similar product on its own. This new narrative shows up in KCP’s proposed
amended complaint.
As its motion to amend makes clear, KCP’s new theory of the case is that Henkel Germany
breached the confidentiality agreement by “misusing” information about KCP’s technology to
decide not to make a deal with KCP or AIS, and also to decide that it did not want to pursue any
similar technology on its own. It is difficult to discern how putting the information to that use
departs from the allowable purpose of “investigat[ing] the feasibility” of forming a joint venture
with KCP. Nothing in the nondisclosure agreement suggests that the question of feasibility was
limited to technical issues. A fair reading of the agreement would permit using the information to
assess economic feasibility, which would include evaluating the profitability of developing a
similar product in house or with other partners. If the Henkel companies actually had gone to
market with someone else using the information KCP revealed to it — or, arguably, even if they
moved forward on their own — the plaintiff might have a legitimate gripe. But KCP now admits
that Henkel did nothing with the information that it gained (except evaluate the “feasibility” of its
options), which cannot plausibly support any claim that it wrongfully “used” confidential
information to any discernible end.
The allegations in the proposed amended complaint do not improve KCP’s claim. The
plaintiff admits that Henkel ultimately decided not to pursue the project at all, with any partner, or
on its own, because (1) it needed an external partner to locate customers; (2) redevelopment of a
similar product from scratch would be impractical; and (3) Henkel would need to retain another
external partner, Magnablend, to facilitate production, but Magnablend had been “locked up” by
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KCP. Citing internal Henkel documents, the plaintiff acknowledges that Henkel KGaA noted the
“legal recommendation that organic Henkel product development could take place IF all
development work was based on internal information and knowledge with no use of information
gained through NDA.” The update also indicated that Henkel’s internal development process “was
put on hold to avoid any potential risk related to NDA violation.”
Nothing in that recitation suggests that Henkel did anything other than what was explicitly
contemplated by the nondisclosure agreement, which was to “use” the information gained to
evaluate the viability of a joint venture between the parties. Henkel’s ultimate decision not to
proceed with the refinery cleaning solution project in any form certainly cannot constitute a breach
of the nondisclosure agreement, because that agreement did not require the parties to do anything;
it merely restricted the use of the information that might be exchanged while they were deciding
whether to do something. The only information that the plaintiff contends was misused relates to
the formulation of the product and the identity of its technology holder, AIS. But there is no
evidence that Henkel “used” knowledge of AIS’s identity for any discernible purpose, since it is
undisputed now that Henkel never wound up making any deal with AIS. And the claim that Henkel
“used” the information about the product to evaluate whether it could develop a similar product
on its own — ultimately concluding that it could not — similarly does not demonstrate any “use”
to an improper end. Moreover, in a section headed “Independent Development,” the agreement
explicitly contemplates that Henkel could proceed with its own independent development efforts
of similar products. Agreement § C.1 (ECF No. 25-11, PageID.5598) (“[KCP] understands that
[Henkel US and its affiliates] may currently or in the future be developing information internally,
or receiving information from other parties that may be similar to [KCP’s] Confidential
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Information. Nothing in this Agreement will prohibit [Henkel] from developing products, or
having products developed for it, that compete with [KCP’s] products, provided that in doing so,
[Henkel] does not use or disclose [KCP’s] Confidential Information in breach of this
Agreement.”). Henkel certainly cannot be held liable for a “breach” of the agreement based on
actions that the parties explicitly contemplated and allowed it to take.
Finally, the plaintiff’s speculative allegation in the proposed amended complaint that it is
“more likely than not” that Henkel US inevitably would have entered into a deal with KCP to
license AIS’s product formula is negated by a singular admission of the plaintiff, stated in both its
original and amended pleadings, that throughout the period of the negotiations AIS did not even
hold the rights to the product formula, and thus had no rights to license it to KCP. That fact alone
suggests that it is extremely unlikely that the parties would have consummated a licensing deal,
since the plaintiff admits that it had nothing to license. KCP did not identify the rightful technology
holder or obtain a valid license to the product formula until November 2015, long after the
negotiations between the parties fell apart between April and June of that year.
The basic facts are not in dispute. The plaintiff has not offered evidence of a breach of the
nondisclosure agreement under any of its theories of liability.
B.
The parties agree that the claim for tortious interference is governed by Michigan law,
which settles the choice-of-law question on that count. See State Farm Mut. Auto. Ins. Co. v.
Norcold, Inc., 849 F.3d 328, 331 (6th Cir. 2017). To prevail, the plaintiff must offer evidence of
“(1) a valid business relationship or expectancy; (2) knowledge of that relationship or expectancy
on the part of the defendant; (3) an intentional interference by the defendant inducing or causing a
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breach or termination of that relationship; and (4) resulting damage to the plaintiff.’” Auburn
Sales, 898 F.3d at 715 (quoting Warrior Sports, Inc. v. Nat’l Collegiate Athletic Ass’n, 623 F.3d
281, 286 (6th Cir. 2010)). “‘[T]he interference with a business relationship must be improper in
addition to being intentional.’” Ibid. (quoting Volunteer Energy Servs., Inc. v. Option Energy,
LLC, 579 F. App’x 319, 326 (6th Cir. 2014)).
The claim for tortious interference with a business expectancy cannot succeed as a matter
of law for at least two reasons. First, a parent corporation cannot be held liable in tort for
“interfering” with a contract involving its wholly owned subsidiary. Second, the plaintiff cannot
demonstrate that it had any “valid business expectancy” in the product distribution deal, since it
admits that it did not hold a valid right to license the technology that was the entire subject of the
proposed joint venture, and in any event the conclusion of the deal explicitly was premised on
discretionary approval of its terms by Henkel Germany, which never was secured during the
negotiations.
1.
It is well settled under Michigan law that a parent cannot tortiously interfere with the affairs
of its wholly owned subsidiary. Speroni SpA v. Perceptron, Inc., 12 F. App’x 355, 360 n.4 (6th
Cir. 2001); Indusource, Inc. v. Sandvik Tooling France SAS, No. 16-10056, 2016 WL 6216003, at
*7 (E.D. Mich. Oct. 25, 2016) (citing Servo Kinetics, Inc. v. Tokyo Precision Instruments Co., 475
F.3d 783, 800 (6th Cir. 2007)); Inland Waters Pollution Control, Inc. v. Jigawon, Inc., No. 0574785, 2008 WL 205209, at *12 (E.D. Mich. Jan. 22, 2008) (citing Boulevard Associates v.
Sovereign Hotels, Inc., 72 F.3d 1029, 1036 (2d Cir. 1995) (collecting cases)).
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The plaintiff attempts to avoid this well settled principle by manufacturing a “question of
fact” about whether Henkel US is wholly owned by Henkel Germany, pointing to a single exhibit
from a presentation in which it is shown that Henkel Germany owns approximately 70% of an
intermediate entity that in turn wholly owns Henkel US. But that contention simply ignores the
second page of the same exhibit, which reveals that the “remainder” 30% interest in the
intermediary is held through a circular web of subsidiary interests, via Henkel US, by which the
entire ownership interest in the American company ultimately runs back to the prime global parent
entity. See ECF No. 139-11 (PageID.6736-37). The plaintiff therefore has not offered any
substantive rebuttal to the testimony of the defendant’s legal officer who submitted a declaration
attesting that “Henkel KGaA [is] the ultimate owner of Henkel Corp.,” because “Henkel KGaA
own[s] the entity that wholly own[s] Henkel Corp., Henkel of America, Inc. (“HOA”).” That fact
also is borne out by statements in the published annual report of the Henkel corporate entities. See
ECF No. 143-3, Hanno Brenningmeyer decl. ¶¶ 7-8 (PageID.7180-82).
The plaintiff also points out that the Sixth Circuit in Speroni recognized that most
jurisdictions have endorsed “an exception to the general rule [which] arises when the parent has
utilized ‘wrongful means’ or ‘acted with an improper purpose.’” Speroni SpA v. Perceptron, Inc.,
12 F. App’x at 360. The Speroni panel did not elaborate on that exception because it found that
no such allegations were present in that case. However, in Boulevard Associates v. Sovereign
Hotels, Inc., 72 F.3d 1029 (2d Cir. 1995), one of the principal cases cited by Speroni, the Second
Circuit explained that the exception generally addresses certain types of extreme behavior by
controlling shareholders that “may be sufficiently egregious to cross the line and become tortious.”
72 F.3d at 1037. As examples, the court postulated “a sole shareholder who orders the president
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of his or her company, at gunpoint, to breach a contract with a third party,” or “a sole shareholder
who, using fraudulent misrepresentations, deceives a third party into breaching its contract with
the shareholder’s own company.” Ibid.
The facts here do not rise to the sort of egregious conduct where the “improper motive”
exception has been held to apply. The record shows, at most, that Henkel Germany acted —
however unwisely, or perhaps even cynically — simply to protect what it viewed as its competitive
interest and to avoid a deal that it decided was not in its interests to conclude. A corporate entity
does not act with an “improper motive” merely by proceeding selfishly to preserve what it
perceives as its own competitive commercial interests. Saab Auto. AB v. Gen. Motors Co., 953 F.
Supp. 2d 782, 792 (E.D. Mich. 2013), aff’d, 770 F.3d 436 (6th Cir. 2014) (“GM was driven by
legitimate business concerns, protecting its own competitive position and business relationships in
China and elsewhere, actions for which there can be no improper motive or interference.”).
Moreover, “[a]s the Michigan Court of Appeals [has held], ‘it is not the task of the courts or jury
to evaluate the business judgment of a corporation’s top executives.’” Wahlstrom v. Monk, No.
15-14113, 2018 WL 1570337, at *6 (E.D. Mich. Mar. 30, 2018) (quoting Feaheny v. Caldwell,
175 Mich. App. 291, 306, 437 N.W.2d 358, 365 (1989) (overruled in part on other grounds by
Knight Enterprises v. RPF Oil Co., 299 Mich. App. 275, 281, 829 N.W.2d 345, 349 (2013)).
Henkel Germany could not tortuously interfere with the plaintiff’s business relationship
with Henkel US by directing the conduct of its wholly-owned subsidiary because the “unity of the
parties” effectively rendered the two entities “functionally one corporation.” Servo Kinetics, 475
F.3d at 801.
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2.
Another problem for the plaintiff is that it cannot show that it had any valid business
expectancy in the product licensing deal, since it affirmatively admits that it did not hold a valid
license over the technology in question at any time before November 2015, long after the deal fell
apart. ECF No. 1 Compl. ¶ 21 n.2 (PageID.9) (“KCP has since learned that AIS was not the
exclusive owner or developer of the Technology, and that AIS and [its broker, Marsha Feltingoff,]
misrepresented this fact to further AIS’s interest in the Distribution Deal.”); ECF No. 100 Proposed
Am. Compl. ¶ 21 n.2 (PageID.3447) (same); ECF No. 1 Compl. ¶ 81 n.4 (PageID.28) (“As part of
the unwinding of its relationship with AIS, KCP discovered that AIS did not have an exclusive
right to license the Technology, which properly belonged to another entity. Ultimately, in
November 2015, KCP procured an agreement from the true product producer and owner of the
Technology.”); ECF No. 100 Proposed Am. Compl. ¶ 91 n.4 (PageID.3468) (same). Certainly,
the plaintiff cannot maintain that it reasonably anticipated completing the deal as a foregone
conclusion in late 2014 or early 2015, when it now admits that it did not then hold any valid right
to license the technology that was the centerpiece of the negotiations.
Moreover, it is undisputed that the distribution agreement never was executed, because the
primary contingency — approval by Henkel Germany — never was secured. That is fatal to the
proof of a valid business expectancy. See Cedroni Ass’n, Inc. v. Tomblinson, Harburn Assocs.,
492 Mich. 40, 52, 821 N.W.2d 1, 6 (2012) (“Because the school district retained a broad
discretionary right to reject the lowest bidder, plaintiff could not have had a valid business
expectancy.”). Courts in this circuit applying Michigan law consistently have held that no valid
business expectancy existed where only a “framework” deal or “agreement to agree” had been
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concluded, which depended on critical contingencies for full realization. Saab, 953 F. Supp. 2d at
789-90 (“[T]he Chinese joint venture agreement, the merger agreement between Saab and JVB,
and the technology licensing agreements from Saab to JVB and Youngman — that combined —
all made the ‘expectancy’ rely on what amounted to be the equivalence of a wish list and thus,
wholly uncertain as a matter of law.”). In this case the parties did not even have an agreement to
agree; the only contract they executed was the nondisclosure agreement, which did not require
them to reach a deal. Moreover, the plaintiff’s principal Fadi Nona admitted that KCP knew that
the deal with Henkel US was contingent on sign-off by Henkel Germany, which never was
obtained:
Q.
Did either Zubin Rivetna, Ken Martindale or Craig Bell [of Henkel US] tell
you that in order to do a deal of the size you propose that they would need
people above Corp to sign off on it?
A.
They told me that KGaA needed to step in and give final approval.
Q.
When did they tell you that?
A.
I believe multiple times and then we also have a voice mail from John
Preysner to Melvin Babi stating something to the tune of we’re waiting for
final approvals from Germany.
Q.
When was the first time that someone told you KGaA would have to give
approval for such deal?
A.
I don’t believe it happened until Grant Kupko [from Henkel Germany] came
in, so after Grant Kupko’s involvement which was in early August.
Q.
. . . of 2014?
A.
Yes, ma’am.
Q.
Other than Grant Kupko, who told you that KGaA would have had to sign
off on a deal for Henkel Corp?
A.
I want to say Cedric had told me when we were in Germany that [sic] Jan
Dirk-Auris.
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...
Q.
Did Cedric ever tell you that Jan Dirk-Auris had signed off on the contract
for Henkel Corp?
A.
He didn’t say [Dirk-Auris] signed off on the contract.
ECF No. 125-6 Fadi Nona dep. at 174-76 (PageID.5564); see also ECF No. 1 Compl. ¶ 65
(PageID.23) (“On February 20, 2015 Henkel US’s counsel, John Preysner, called KCP and stated
that the final terms for the distribution agreement were waiting on ‘approval from Germany.’”).
Finally, the plaintiff has not pointed to any facts to suggest that any delay of the
negotiations caused it any tangible harm other than that a deal with Henkel never was concluded.
It has not alleged, or put forth evidence to suggest, that other deals were foregone, or other
opportunities were lost due to the pendency of the negotiations. Nona admitted that in fact the
only purpose for which KCP was incorporated was to secure the Henkel deal; nothing in the record
suggests that any other contemplated opportunity was lost when that objective was unrealized.
The undisputed facts demonstrate that KCP cannot prove all the elements of its tortious
interference claim.
III.
KCP seeks to file an amended complaint to reformulate its factual allegations and add a
count under the Connecticut Unfair Trade Practices Act. KCP argues that it did not delay in
seeking the amendment, the trial schedule would not be disrupted, and no prejudice would result
because the new claim is supported by the facts already unearthed by the existing discovery. The
defendant counters that the request to amend comes too late, it would be prejudiced because more
discovery would be needed, and, for various reasons, the new claim would be futile.
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Motions to amend before trial are governed by Federal Rule of Civil Procedure 15(a). Rule
15(a)(2) requires a party seeking to amend its pleadings at this stage of the proceedings to obtain
leave of court. Although Rule 15(a)(2) says that “[t]he court should freely give leave when justice
so requires,” leave may be denied for undue delay, bad faith by the moving party, repeated failure
to cure defects by previously-allowed amendments, futility of the proposed new claim, or undue
prejudice to the opposite party. Foman v. Davis, 371 U.S. 178, 182 (1962); Duggins v. Steak ‘N
Shake, Inc., 195 F.3d 828, 834 (6th Cir. 1999); Fisher v. Roberts, 125 F.3d 974, 977 (6th Cir.
1997). “Notice and substantial prejudice to the opposing party are critical factors in determining
whether an amendment should be granted.” Wade v. Knoxville Utils. Bd., 259 F.3d 452, 458-59
(6th Cir. 2001).
A. Delay and Prejudice
The plaintiff filed its motion to amend the complaint on April 30, 2018, the day before
discovery closed. It has made no effort to justify filing its motion on the eve of the close of
discovery, seeking to add a new claim, on a new legal theory, under the law of a completely
different jurisdiction than the tort claim pleaded in the original complaint. Moreover, the plaintiff
admits and insists that the new claim is based on the exact same facts as its breach of contract
count, so there is no apparent reason why it could not have pleaded that claim at the outset of the
case.
Delay alone does not justify denial of a motion brought under Rule 15(a). Security Ins. Co.
of Hartford v. Kevin Tucker & Assocs., Inc., 64 F.3d 1001, 1009 (6th Cir. 1995). Nor does the
Rule establish a deadline within which a party must file a motion to amend. See Lloyd v. United
Liquors Corp., 203 F.2d 789, 793-94 (6th Cir. 1953) (reviewing a district court’s denial of a motion
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to amend after the entry of summary judgment). But the party seeking to amend must “act with
due diligence if it wants to take advantage of the Rule’s liberality.” Parry v. Mohawk Motors of
Michigan, Inc., 236 F.3d 299, 306 (6th Cir. 2000) (internal quotation marks omitted). Where
“amendment is sought at a late stage in the litigation, there is an increased burden to show
justification for failing to move earlier.” Wade, 259 F.3d at 459.
Failure to plead an available claim in a timely manner deprives an opposing party of “notice
that it would have to defend” against the new claim. Ibid. Courts are especially inclined to deny
a motion brought under Rule 15 “if the moving party knew the facts on which the claim or defense
sought to be added were based at the time the original pleading was filed and there is no excuse
for his failure to plead them.” 6 Charles Alan Wright et al., Federal Practice and Procedure § 1487
(2d ed. 1990); see Wade, 259 F.3d at 459 (finding undue delay where the plaintiff knew the facts
forming the basis of the amended claims but failed to plead the claims in the original complaint).
Similarly, where a party waits until the end of the allowable discovery period to investigate the
facts of the case, due diligence is difficult to prove.
Courts will deny leave to amend where there is “some significant showing of prejudice to
the opponent.” Moore v. City of Paducah, 790 F.2d 557, 562 (6th Cir. 1986). Here, the amendment
would require the Court to reopen briefing on the parties’ summary judgment motions or allow a
fresh round of motion practice on the new claim, which would destroy any hope of getting this
case before a jury as presently scheduled. The Sixth Circuit readily has found prejudice and
affirmed denials of leave to amend on similar facts, particularly where the plaintiff has no plausible
excuse for the tardiness of its efforts to amend. Bridgeport Music, Inc. v. Dimension Films, 410
F.3d 792, 806 (6th Cir. 2005) (finding that “amendments on the eve of the close of discovery would
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be prejudicial to defendants and unduly delay trial”); Duggins, 195 F.3d at 834 (denying leave to
amend because “discovery had passed, the dispositive motion deadline had passed, and a motion
for summary judgment had been filed”); Parry, 236 F.3d at 306-07 (upholding denial of leave to
amend complaint where amendment was sought more than a year after original complaint was
filed, summary judgment had been granted to defendants two months earlier, and plaintiff was
attempting to add a new legal theory).
The amendment comes too late and would cause undue prejudice to the defendant.
B. Futility
Connecticut’s Unfair Trade Practices Act (CUTPA) prohibits persons from “engag[ing] in
unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade
or commerce.” Conn. Gen. Stat. § 42-110b(a). “CUTPA defines ‘trade or commerce’ as ‘the
advertising, the sale or rent or lease, the offering for sale or rent or lease, or the distribution of any
services and any property, tangible or intangible, real, personal or mixed, and any other article,
commodity or thing of value in this state.’” Uniroyal Chem. Co. v. Drexel Chem. Co., 931 F.
Supp. 132, 140 (D. Conn. 1996) (quoting Conn. Gen. Stat. § 42-110a)). “Despite this language,
at least one court has held that CUTPA does not necessarily require that a violation occur within
Connecticut as long as it is tied to a form of trade or commerce intimately associated with
Connecticut.” Ibid. “In addition, at least under Connecticut’s choice of law principles, a tort is
deemed to have occurred where the injury was sustained, and in misrepresentation cases, the injury
occurs where the ‘economic impact’ is felt.” Ibid.
The proposed amendment would be futile because the plain language of the Connecticut
statute expressly states that it governs commercial conduct that occurs “in this state”; the proposed
-25-
amended complaint does not allege that anything of consequence in the parties’ dealings occurred
in Connecticut. Nor does it allege any facts that would allow an inference that any part of the
parties’ dealings were “intimately associated with Connecticut.” The only passing reference to
Connecticut in the proposed amended complaint concerns a trip by KCP’s principal to meet with
Henkel’s executives there, which occurred months after the negotiations fell apart, and during
which nothing even allegedly improper transpired.
The only ground offered by the plaintiff to establish the required nexus with Connecticut
is the choice of law clause in the nondisclosure agreement. But the plaintiff has not cited any
authority holding that such a marginal incident of the parties’ dealings can establish an “intimate
association” between a commercial transaction and the state. Moreover, the plaintiff cannot rely
on the fact that Henkel US is incorporated in Connecticut, since it has not sued Henkel US in this
case, and never has alleged any conduct by that entity that it contends was improper. The facts
here concern negotiations about a joint venture that the plaintiff insists was centered on the State
of Michigan, between corporate entities from Michigan and Germany, involving negotiations
conducted by their principals in Michigan, Germany, and New Jersey, with no apparent connection
between those dealings and the State of Connecticut. See Victor G. Reiling Assocs. v. FisherPrice, Inc., 409 F. Supp. 2d 112, 122 (D. Conn. 2006) (“[T]he allegedly wrongful conduct was not
tied to a form of trade or commerce intimately associated with Connecticut, rather, the allegedly
wrongful conduct involved a decision made in New York, which was communicated to DI in
Connecticut, along with threats made at a meeting in New York.”).
Because the plaintiff has not stated facts that could sustain a claim under the CUTPA, the
proposed amendment would be futile.
-26-
IV.
KCP’s complaint artfully pleaded a sinister scheme by the defendant to purloin a business
opportunity by using confidential information that supposedly was protected by a nondisclosure
agreement. But after the discovery was completed and the facts explored, the plaintiff could not
“make good on the promise of the pleadings by laying out enough evidence . . . to demonstrate
that a genuine issue on a material fact exists” on all the elements of its claims. Its effort to amend
its complaint is untimely, unfairly prejudicial, and futile.
Accordingly, it is ORDERED that the defendant’s motion for summary judgment (ECF
No. 125) is GRANTED.
It is further ORDERED that the plaintiff’s motion for leave to amend its complaint (ECF
No. 96) is DENIED.
It is further ORDERED that the complaint is DISMISSED WITH PREJUDICE.
It is further ORDERD that the parties’ motions to strike various expert witnesses (ECF.
No. 121, 122, 123, 124), the motions in limine (ECF. No. 157, 158), and the plaintiff’s motion for
sanctions (ECF No. 93) are DISMISSED as moot.
s/David M. Lawson
DAVID M. LAWSON
United States District Judge
Date: October 11, 2018
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 October 11, 2018.
s/Susan K. Pinkowski
SUSAN K. PINKOWSKI
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