American Furukawa, Inc. v. HOSSAIN
FINDINGS OF FACT AND CONCLUSIONS OF LAW. Signed by Magistrate Judge Stephanie Dawkins Davis. (THal)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
AMERICAN FURUKAWA, INC.,
Case No. 14-13633
Stephanie Dawkins Davis
United States Magistrate Judge
ISTHIHAR HOSSAIN and
HT WIRE & CABLE AMERICAS, LLC,
FINDINGS OF FACT AND CONCLUSIONS OF LAW
American Furukawa, Inc., a distributor of automotive and electrical
components, including power cables and wires, filed this suit against defendant
Isthihar Hossain, a former employee, alleging violation of the Computer Fraud and
Abuse Act – 18 U.S.C. § 1030, fraud, breach of contract, breach of fiduciary duty,
misappropriation of trade secrets, conversion, tortious interference with a business
relationship and expectancies and civil conspiracy. (Dkt. 65). With the exception
of fraud, breach of contract and breach of fiduciary duty, plaintiff asserts the same
claims against defendant HT Wire & Cable Americas, LLC (HT), the American
affiliate of defendant Hossain’s new employer, Hebei Huatong Electric and Cable
Group, Ltd. (“Huatong”). (Dkt. 65).
Plaintiff, American Furukawa, Inc. (Furukawa) filed its complaint on
September 19, 2014. (Dkt. 1). At the inception of this action, plaintiff obtained a
temporary restraining order (TRO) requiring Hossain to refrain from using,
accessing, altering, destroying, disclosing, copying, duplicating, transferring,
divulging or otherwise disseminating any of plaintiff’s information that had been
electronically stored on any device or account controlled by defendant, and to
return all of any such information to the plaintiff. (Dkt. 4, 7). By way of
stipulated order on October 16, 2014, the parties agreed to extend the terms of the
TRO until further order of the court, and established terms for a forensic
examination of defendant’s devices and accounts by plaintiff’s expert. (Dkt. 18).
The Court granted Furukawa leave to amend its complaint to add defendant
HT Wire, the American affiliate of Huatong that was formed by Huatong (a
Chinese corporation doing business in the United States) and defendant Hossain,
and to add claims for tortious interference with business relationships and civil
conspiracy. (Dkt. 65). The court denied the defendants’ motion to dismiss for
arbitration, finding that the defendants had waived any right to arbitration that may
have existed. (Dkt. 97). On the parties’ cross motions for summary judgment, the
court denied plaintiff’s motion, finding questions of fact remained as to plaintiff’s
claims. The court denied in part and granted in part the defendants’ motion,
dismissing only the plaintiff’s claim for conversion because it was preempted by
the Michigan Uniform Trade Secret Act (MUTSA). (Dkt. 138).
Shortly after the court ruled on the parties’ motions for summary judgment,
the parties stipulated to a trial before the bench, and later consented to the referral
of the case to the undersigned for all proceedings, including the bench trial. (Dkt.
144, 164). The Court held a five day bench trial which was completed on
December 22, 2016. The Court’s ruling follows.
Plaintiff American Furukawa, Inc. (alternately “AF” or “The Company”) is
the American subsidiary of the Japanese corporation Furukawa Electric Company
(“FEC”). (Dkt. 184, Pg ID 4758). AF is the distributor of automotive and
electrical components including power cables and wires. (Pl. Ex. 2; Dkt. 184, Pg
ID 4762-64). The Company operates three divisions known as the Automotive
Parts Division (“APD”), the Wire Harness Division (“WHD”) and the Electronic
Specialties Division (“ESD”). (Pl. Ex.1, Dkt. 184, Pg ID 4761-62). The dispute in
this case involved the ESD division.
Huatong supplied power cables to AF’s ESD division, which the Company,
in turn sold to its U.S. customers. (Pl. Ex. 3; Dkt. 184, Pg ID 4785-86, 4788-89).
Huatong supplied insulated wire products and overhead wire products under a
Sales and Purchase Agreement with AF dated March 12, 2012. (Pl. Ex. 3). That
agreement expired on March 7, 2013, but was automatically renewed for
successive one year periods unless either party notified the other at least three
months before the expiration of the initial or any extended term. (Id.). Aside from
its arrangement with plaintiff, Huatong did not otherwise have a sales or customer
network for its products in the U.S. market. (Dkt. 184, Pg ID 4784-85).
During his employment with AF defendant Hossain worked variously as a
Power Systems Electrical Engineer, Product Manager and Senior Product Manager
until he resigned in April 2014. (Dkt. 184, Pg ID 4765, 4767-70). At the time he
resigned, Hossain was a Senior Product Manager responsible for taking orders,
building customer and supplier relationships, managing customer accounts,
monitoring customer developments, coordinating with factories, processing
customer orders and preparing customer quotes. (Id.). In performing his duties at
AF, Hossain had access to the company’s confidential information, including
business plans, financial and pricing information [factory costs, shipping costs,
margins, pricing formulas], marketing plans, customer targets, logistics [efficient
and cost-effective methods for expediently and safely delivering the product from
factory to customer], and manufacturing capacity. (Dkt. 184, Pg ID 4771-73,
4821-22; Dkt. 188, Pg ID 5791-93).
In February 2014, while traveling in China on AF business, Hossain met
with a Huatong representative, without anyone else from AF, FEC or any of its
affiliates (e.g. Furukawa Electric Industrial Cable and Shenyang Furukawa) being
present, in direct contravention of instructions from AF. (Pl. Ex. 12; Dkt. 186, Pg
ID 5335-41). Hossain also attempted to meet with Huatong’s general manager.
(Pl. Ex. 11). Hossain was unsuccessful in arranging a face-to-face meeting with
Huatong’s general manager, but he did speak to him after he returned to the U.S.
from China. (Id.; Dkt. 186, Pg ID 5342). The next month, in early March 2014,
Hossain entered into employment negotiations with Huatong. (Pl. Ex. 14; Dkt.
184, Pg ID 4802). The parties completed negotiations and Hossain executed an
employment agreement with Huatong on March 10, 2014. (Pl. Ex. 15). The
agreement called for Hossain to begin employment with Huatong as the CEO of
the soon to be formed U.S. affiliate of Huatong on March 17, 2014. (Id.). Hossain
was to receive an annual salary of $156,000 and a signing bonus of $78,000. (Id.).
Shortly thereafter, HT was established as a Michigan limited liability company
with Huatong and Hossain as its members. (Pl. Ex. 24).
On the day he was scheduled to begin working as HT’s CEO, Hossain
reported to AF that he was unable to report to work because he had torn his
Achilles tendon. (Pl. Ex. 14 - “Employment Agreement” and Pl. Ex. 17; Dkt. 186,
Pg ID 5080-81). As a result, AF placed Hossain on a leave of absence, during
which time he collected short-term disability benefits from AF’s insurer. (Pl. Ex.
12; Dkt. 186, Pg ID 5082). In compliance with rules related to short-term
disability benefits, AF instructed Hossain not to perform any work during his
leave of absence. (Pl. Ex. 18, 19; Dkt. 186, Pg ID 5082-85; Dkt. 188, Pg ID
5815). In spite of AF’s instruction, Hossain accessed, copied and downloaded
several e-mail messages from his AF (work) account to his personal e-mail
address. (Pl. Ex. 20). The e-mail transfer included customer evaluation notes,
prospective sales information and customer contact information. (Pl. Exs. 20, 21).
While still employed by AF, Hossain also forwarded information regarding AF’s
logistics and sales leads to his Huatong contact in China. (Pl. Exs. 22, 25). Also
while still employed by AF, Hossain accessed and copied a list of sales leads
developed by plaintiff from a trade show. (Pl. Exs. 58, 71A). This list included
information about people who had expressed an interest in buying from AF,
including the degree to which the person(s) identified could influence their
respective company’s buying decisions. (Pl. Ex. 71A, Ln.16).
On March 20, 2014, Huatong notified plaintiff that it would stop supplying
plaintiff with power cables, effective immediately. (Dkt. 184, Pg ID 4827; Dkt.
187, Pg ID 5366-67). This abrupt cessation had an immediate and direct impact
on AF’s sales because AF did not have an alternate supplier for many of the
products Huatong was supplying. (Dkt. 184, Pg ID 4827-28, 4830-31; Dkt. 185,
Pg ID 5050-52; Dkt. 187, Pg ID 5377-81). The products impacted by Huatong’s
decision included those for a prospective customer, Kingwire1, which had
committed to buying three types of cable from AF, as well as those sold to existing
customers of AF such as WTEC. (Dkt. 187, Pg ID 5377-82).
While on leave and collecting disability benefits, but still employed by AF,
Hossain started performing his duties under his employment agreement with
Huatong. The duties performed during this period included hiring a consultant to
assist in entity formation, searching for office space, and forming a website for the
entity that would become HT. (Pl. Ex. 24).
Also during his leave of absence, Hossain affirmed his plan to resume his
duties with AF once he recovered from his injury, but asked to be relieved of his
travel obligations. (Dkt. 186, Pg ID 5085-86). AF accommodated Hossain’s
request, replacing his travel obligations with other responsibilities and making no
change to his title or salary. (Pl. Ex. 10). Hossain returned to active duty for AF
on April 25, 2014 (Pl. Ex. 29; Dkt. 186, Pg ID 5088-92), but after working for
several hours on Monday, April 28, he announced he was resigning effective that
Friday, May 2, 2014. (Pl. Ex. 30, 31, Dkt. 186, Pg ID 5094-97). AF agreed to
pay Hossain through May 2, 2014, but requested that he gather his belongings and
leave the workplace on Tuesday, April 29th. (Pl. Exs. 32, 34; Dkt. 186, Pg ID
By March 2014, plaintiff had spent nearly two years soliciting Kingwire’s power cable
business, during which it incurred sales costs of $150,000. (Dkt. 187, Pg ID 5371-75).
5097-5104). Hossain protested, claiming he needed more time. (Id.). At his exit
interview, Hossain refused to sign an Employment Certification & Agreement on
Termination certifying that he had returned all property belonging to AF and had
complied with and would continue to abide by the Invention Assignment and
Secrecy Agreement. (Pl. Ex. 37; Dkt. 186, Pg ID 5100). After the exit interview,
Hossain returned to his desk, initially ignoring the instruction to pack his
belongings and exit the building within thirty minutes, but ultimately packed and
left later the afternoon of April 29th, following a tense confrontation with AF’s
management. (Pl. Ex. 34; Dkt. 186, Pg ID 5102-03).
Within weeks of Hossain’s departure, AF learned from an errant e-mail that
Hossain was using a pricing template and formulas, which it had developed, to
solicit business from one of its customers, WTEC. (Pl. Exs. 42, 81; Dkt. 184, Pg
ID 4835-36; Dkt. 187, Pg ID 5392-93). AF lost much of WTEC’s business when
Huatong stopped supplying the type of cable that plaintiff sold to WTEC. (Dkt.
188, Pg ID 5665-67). Hossain was soliciting WTEC to buy the same Huatong
cable it had been buying from plaintiff from HT. (Pl. Ex. 42; Dkt. 184, Pg ID
4835-36; Dkt. 187, Pg ID 5392-93).
AF conducted a forensic investigation of the two laptop computers Hossain
used during his employment with plaintiff. (Dkt. 184, Pg ID 4799, 4853-54; Dkt.
186, Pg ID 5182-83). The investigation revealed that Hossain had copied
information, including 27,000 emails and thousands of business-related
attachments, to several external storage devices. (Dkt. 186, Pg ID 5186-87, 520110). This revelation prompted the filing of this suit as well as the requested TRO
to which the parties later stipulated. (Dkt. 1-4, 18). The court-ordered inspection
of plaintiff’s personal computer and external storage devices further revealed that
Hossain had not only copied these files, but had also organized the copied files
into folders and subfolders according to their content. (Pl. Exs. 56, 57; Dkt. 187,
Pg ID 5216-21, 5234, 5268-70). Moreover, the forensic examination showed that
Hossain accessed plaintiff’s information several times after he resigned from his
employment with plaintiff. (Pl. Exs. 57, 58, Dkt. 186, Pg ID 5239-49, 5268-70).
The forensic examination also revealed that “jump list files” had been deleted and
removed from the computer. (Dkt. 186, Pg ID 5250-52). The forensic expert
conducting the investigation testified that this finding was significant for two
reasons: (1) because jump list files cannot be deleted inadvertently – deletion
requires user intervention; and (2) because the deletion of such lists permits the
transfer of files and information without detection. (Id.; Dkt. 186, Pg ID 5264-66,
5307-10). The forensic expert also testified that his investigation revealed that
Hossain had transferred files to external devices that he did not produce. (Pl. Ex.
57; Dkt. 186, Pg ID 5256-63).
From the forensic investigation AF also learned that, in May 2014, after
resigning from the company, Hossain shared meeting minutes prepared by AF’s
vice president, Shuichi Takagi, in June 2013 with Huatong. (Pl. Ex. 43; Dkt. 187,
Pg ID 5476-77; Dkt. 188, Pg ID 5631-32). The investigation also showed that in
August 2014, just three days before preparing HT’s business plan, Hossain
accessed the 2014 ESD sales budget plan, the ESD actual profit and loss
statement, balance sheet and cash flow statement for 2013, the ESD 5 year plan
summary and the midrange plan summary. (Pl. Ex. 58; Dkt. 187, Pg ID 5477-78).
The ESD budget plan included sales projections, salary information, expense
details, costs of goods and cash flow information. (Pl. Ex. 71A, Ln. 9; Dkt. 187,
Pg ID 5425-26). The HT business plan contains sales projections for Kingwire
identical to those prepared for AF by Hossain’s former colleague. (Pl. Ex. 47;
Dkt. 187, Pg ID 5463, 5482-84). The HT business plan reflects a commitment
from Kingwire to a monthly purchase of $500,000 of the same cables it had
previously committed to purchase from AF. (Pl. Ex. 47; Dkt. 185, Pg ID 5054;
Dkt. 187, Pg ID 5484). The HT business plan also indicates that HT had received
purchase orders from WTEC totaling $2,000,000, less than four months after it
started operating. (Pl. Ex. 47,135).
The forensic audit revealed that the information downloaded by Hossain
included business plans and financial information, marketing information, pricing
information, customer email, quotation materials and engineering materials. (Pl.
Ex. 72; Dkt. 187, Pg ID 5414-24). Certain files also contained forwarder
information, shipper quotation information, customer lead information, competitor
price list information, customer contact information and pricing information. (Pl.
Ex. 71A, Ln. 11, 16, 21, 22, 24; Dkt. 187, Pg ID 5430-5447).
Computer Fraud and Abuse Act (CFAA), 18 U.S.C. § 1030
To prevail on a claim under the CFAA, AF must prove that Hossain (1)
intentionally accessed a computer, (2) without authorization or exceeding
authorized access, and that he (3) thereby obtained information (4) from any
protected computer (if the conduct involved an interstate or foreign
communication), and that (5) there was loss to one or more persons during any
one-year period aggregating at least $5,000 in value. As the Court has previously
noted, the Sixth Circuit has found that investigations into an offense and the
performance of a damage assessment constitute a “loss” as defined by the CFAA.
(Dkt. 138) (citing Yoder & Frey Auctioneers, Inc. v. EquipmentFacts, LLC, 774
F.3d 1065, 1074 (6th Cir. 2014)). The Court denied plaintiff’s motion for
summary judgment on the CFAA claim only because plaintiff had not provided the
Court with documents evidencing its forensic investigation expenses at that time, a
necessary element of a CFAA claim.2 (Dkt. 138). At trial, in addition to
producing evidence sufficient to satisfy elements 1 through 4 above, plaintiff
produced evidence of investigative costs or damage assessment of $23,059.20,
which was not challenged by defendants. (Pl. Ex. 64). Thus, defendants are liable
for the same.
Misappropriation of Trade Secrets
To succeed on a claim for misappropriation of a trade secret under Michigan
law, a plaintiff must prove: 1) the existence of a trade secret; 2) its acquisition in
confidence; and 3) the defendant’s unauthorized use of it. Nedschroef Detroit
Corp. v. Bemas Enterprises LLC, 106 F.Supp.3d 874, 884-85 (E.D. Mich. 2015),
aff’d, 646 Fed. Appx. 418 (6th Cir. 2016). The Michigan Uniform Trade Secrets
Act (“MUTSA”) defines a “trade secret” as information, including a formula,
pattern, compilation, program, device, method, technique, or process, that both: (i)
Derives independent economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by, other persons
who can obtain economic value from its disclosure or use; and (ii) Is the subject of
efforts that are reasonable under the circumstances to maintain its secrecy. Id.
Even if these elements were not established at summary judgment, AF produced
persuasive evidence at trial that Hossain intentionally accessed a computer, without and in excess
of authority, to obtain information resulting in a loss over $5,000. (Dkt. 184, Pg ID 4800) (Pl.
Exs. 18-21, 54, 56-58, 64, 91-92).
(citing Mich. Comp. Laws § 445.1902(d)). Under MUTSA, “misappropriation”
means one of the following:
(i) Acquisition of a trade secret of another by a person
who knows or has reason to know that the trade secret
was acquired by improper means;
(ii) Disclosure or use of a trade secret of another without
express or implied consent by a person who did 1 or
more of the following:
(A) Used improper means to acquire
knowledge of the trade secret;
(B) At the time of disclosure or use, knew or
had reason to know that his or her
knowledge of the trade secret was derived
from or through a person who had utilized
improper means to acquire it, acquired
under circumstances giving rise to a duty to
maintain its secrecy or limit its use, or
derived from or through a person who owed
a duty to the person to maintain its secrecy
or limit its use.
(C) Before a material change of his or her
position, knew or had reason to know that it
was a trade secret and that knowledge of it
had been acquired by accident or mistake.
Id. (citing Mich. Comp. Laws § 445.1902(b)). The statute defines the term
“improper means” to include “breach ... of a duty to maintain secrecy....” Id.
(citing Mich. Comp. Laws § 445.1902(a)).
A trade secret may consist of a compilation of information, even if it is
compiled from outside sources available to other persons. Mike’s Train House,
Inc. v. Lionel LLC, 472 F.3d 398, 411 (6th Cir. 2006) (“A trade secret can exist in
a combination of...components, each of which, by itself, is in the public domain,
but the unified process, design and operation of which, in unique combination,
affords a competitive advantage and is a protectable secret”). Knowledge of
vendors, vendor capabilities, and pricing can be a trade secret so long as the
information is not readily attainable. Giasson Aerospace Science, Inc. v. RCO
Engineering, Inc., 680 F.Supp.2d 830, 843 (E.D. Mich. 2010).
The Court finds that much of the content of the files Hossain downloaded as
he prepared to leave plaintiff and form HT is protectable trade secret under
MUTSA. This includes AF’s business plans, sales projections, financial
information, cost information, market information, customer information,
quotation materials, pricing information and engineering data. (Pl. Exs. 20, 21,
42, 43, 58, 71A, 72, 81; Dkt. 184, Pg ID 4835-36; Dkt. 187, Pg ID 5392-93, 54145463, 5476-78). The Court finds ample evidence of Hossain’s disclosure of these
trade secrets and defendants’ joint use of them. (Pl. Exs. 22, 39, 43, 47, 58, 71A;
Dkt. 184, Pg ID 4825-27; Dkt. 187, Pg ID 5474-78, 5481-83). The Court is
persuaded that defendants’ unauthorized use of plaintiff’s trade secrets damaged
plaintiff. (Pl. Exs. 66, 67, 95).
Remaining Tort Claims
MUTSA provides a statutory action and remedies for misappropriation of
trade secrets. Bliss Clearing Niagara, Inc. v. Midwest Brake Bond Co., 270 F.
Supp. 2d 943, 945-46 (W.D. Mich. 2003); Mich. Comp. Laws §§ 445.1903, 1904.
The statute also displaces conflicting tort remedies for misappropriation of a trade
secret. Id. (citing CMI Int’l, Inc. v. Intermet Int’l Corp., 251 Mich.App. 125, 132
(2002)). However, MUTSA does not displace contractual remedies, “[o]ther civil
remedies that are not based upon misappropriation of a trade secret,” or
“[c]riminal remedies, whether or not based upon misappropriation of a trade
secret.” Id. (citing Mich. Comp. Laws § 445.1908(2)).
To prevail on a claim for fraud, a plaintiff must demonstrate that (1) the
defendant made a material misrepresentation; (2) the representation was false; (3)
when the representation was made the defendant knew it was false or made it
recklessly, without knowledge of its truth and as a positive assertion; (4) the
defendant made the representation with the intent that plaintiff would act on it; (5)
the plaintiff acted in reliance on it; and (6) the plaintiff suffered damages or injury.
M&D, Inc. v. W.M. McConkey, 231 Mich. App. 22, 27 (1998).
The Court’s ruling on Plaintiff’s Motion for Summary Judgment (Dkt. 138,
Pg ID 3522-3523) identified three potential affirmative misrepresentations by
Hossain: That he misrepresented his relationship with Huatong, and his activities
on behalf of Huatong when he told AF (1) he was unable to work due to a
basketball injury in March 2014; (2) he did not have another job lined up; and (3)
he had returned all of AF’s property and fully complied with the Secrecy
Agreement. The court ruled that plaintiff could not have relied on the last two
representations (that Hossain did not have another job, and that he had returned all
of plaintiff’s property and complied with the Secrecy Agreement) in continuing
employment, salary and benefits and allowing him to have access to confidential
information and customers because those representations were made after Hossain
resigned from plaintiff’s employment. (Dkt. 138, Pg ID 3523).
At trial AF asserted that it also relied on these misrepresentations in failing
to take additional steps to protect itself, but the Court finds that Hossain’s refusal
to sign the Employee Certification & Agreement on Termination precluded any
reliance on a representation that he had returned all property and would continue
to comply with the Secrecy Agreement. (Pl. Ex. 37; Dkt. 186, Pg ID 5100).
Additionally, according to evidence adduced at trial, plaintiff learned that Hossain
was working for competitor Huatong approximately three weeks after he resigned.
(Pl. Ex. 42, 81; Dkt. 184, Pg ID 4835-36; Dkt. 187, Pg ID 5392-93). Plaintiff
offers no evidence of loss or damage derived specifically from this three week
period. Accordingly, plaintiff has not demonstrated that it suffered any damage as
a result of plaintiff’s misrepresentation regarding his employment.
Another alleged affirmative misrepresentation relates to Hossain’s claim
that he could not report to work for plaintiff in mid March-due to an ankle injury.
The Court finds that plaintiff did not meet its burden of proof that this
representation by Hossain was, indeed, false. (Dkt. 188, Pg ID 5765; Def. Ex. M).
Finally, plaintiff introduced evidence at trial that during his leave of absence
in March 2014, Hossain represented to plaintiff that he intended to return to work
when he recovered from his injury. (Dkt. 186, Pg ID 5085-5087). Based on the
employment agreement Hossain entered into with Huatong (Pl. Ex. 15), and
Hossain’s actions during his leave of absence, this representation was clearly false.
Plaintiff relied on this representation in continuing to employ Hossain and
suffered damages in the amount of wages and benefits it continued to pay Hossain
after this misrepresentation.
Plaintiff also asserts that it is entitled to recover damages for silent fraud,
specifically Hossain’s failure to disclose his entry into an employment agreement
with Huatong, his downloading of plaintiff’s information to his personal email
account, computer and computer storage devices and his endeavors toward starting
a competing business while still employed with plaintiff.
Although plaintiff correctly points out that a duty to disclose may arise from
a fiduciary relationship, an employee is specifically permitted to take steps to
establish a competing business while still employed without breaching his duty of
loyalty. In re RnD Engr., LLC, 546 B.R. 738, 771 (Bankr. E.D. Mich. 2016)
(citing Nedschroef Detroit Corp., 106 F.Supp.3d at 883). If the fiduciary
relationship between employer and employee does not preclude actions by an
employee to form a competing business, it follows that it also could not establish a
legal or equitable duty for the employee to disclose those same actions to the
employer. See Hord v. Envtl. Research Inst. of Michigan, 463 Mich. 399 (2000)
(“Turning to the question of silent fraud, we agree... that mere nondisclosure is
insufficient. There must be circumstances that establish a legal duty to make a
disclosure.”); Barclae v. Zarb, 300 Mich. App. 455 (2013) (“Silent fraud...is based
on a defendant suppressing a material fact that he or she was legally obligated to
disclose.... Such a duty may arise by law or by equity[.]”); see also 37 Am. Jur. 2d,
Fraud and Deceit § 201(it is not every relationship to which the term “fiduciary”
or “confidential” might conceivably be applied with some degree of
reasonableness or plausibility that will authorize, by its existence alone, a
presumption of fraud by concealment). Any silent fraud claim predicated on
Hossain’s downloading plaintiff’s information is pre-empted under MUTSA. See
Bliss Clearing Niagra, 270 F.Supp.2d at 946. Hence, plaintiff has not established
a right to any remedy for silent fraud.
Breach of Fiduciary Duty
In general, employees owe a duty of loyalty to their employers. Nedschroef
Detroit Corp., 106 F.Supp.3d at 883. “‘Although the parameters of this duty are
not well-defined, some general rules exist. For example, an employee may take
steps to establish a competing business while still employed without breaching the
duty of loyalty, but the employee may not actually commence competition.’” In
re RnD Engr., LLC, 546 B.R. at 771 (quoting Nedschroef Detroit Corp., 106
F.Supp.3d at 883). An employee’s plans and preparations “to engage in a
competing business during the scope of their agency relationship with the plaintiff
... do not by themselves state a claim for a breach of the duty of loyalty.” Id.
(quoting Mike Vaughn Custom Sports, Inc. v. Piku, 15 F.Supp.3d 735, 752 (E.D.
Plaintiff’s claim that Hossain violated his duty of loyalty by entering into
the employment agreement with Huatong (to start a competing U.S. Huatong
affiliate) is not viable. Nevertheless, this Court is persuaded by evidence at trial
that Hossain went beyond the planning and preparation stages while he was still
employed by plaintiff. For example, Hossain shared the contact information for
AF’s U.S. “forwarder” with Huatong, identified AF’s current and prospective
customers as potential Huatong customers and provided this information to
Huatong while still employed by AF. (Pl. Ex. 22) (Dkt. Pg ID 4825-4827). This
conduct violated Hossain’s duty of loyalty to plaintiff, and may be remedied by the
forfeiture of the compensation plaintiff paid to or for the benefit of Hossain from
March to May 2014. See Nedschroef Detroit Corp., 106 F.Supp.3d at 890.
The elements of a claim for tortious interference with a contract are: (1) the
existence of a contract; (2) a breach of the contract; and (3) an unjustified
instigation of the breach by the defendant. Badiee v. Brighton Area Schools, 265
Mich. App. 343, 366-67 (2005). An at-will contract can be improperly interfered
with, but the contract’s at-will nature makes the matter more analogous to
interference with a business expectancy. Health Call of Detroit v. Atrium Home &
Health Care Serv. Inc., 268 Mich App. 83, 92 (2005).
The elements of tortious interference with a business expectancy are: “‘the
existence of a valid business relationship or expectancy, knowledge of the
relationship or expectancy on the part of the defendant, an intentional improper
interference by the defendant inducing or causing a termination of the relationship
or expectancy, and resultant damage to the plaintiff.’” Nedschroef Detroit Corp.,
106 F.Supp.3d at 889 (quoting Cedroni Associates, Inc. v. Tomblinson, Harburn
Assoc., Architects & Planners, Inc., 492 Mich. 40 (2012)).
Proof that the interference was “improper” can be shown by proving either
(1) the intentional doing of an act wrongful per se, or (2) the intentional doing of a
lawful act with malice and unjustified in law for the purpose of invading the
plaintiff's contractual rights or business relationship. Id. (citing Advocacy Org. for
Patients & Providers v. Auto Club Ins. Ass’n, 257 Mich. App. 365 (2003)). Acts
of concealment are indicia of “improper motive.” RnD Engineering, LLC, 546
B.R. at 769.
Courts consider the likelihood or probability that the expectant relationship
would have developed as desired absent tortious interference with the expectancy.
Cedroni Assoc. v. Tomblinson Harburn Assoc., 290 Mich. App. 577, 590 (2010),
rev’d on other grounds, 492 Mich. 40 (2012). Optimism or mere hope is not
enough to find a valid business expectancy, but plaintiff is not required to prove
that the expectancy equated to a certainty or guarantee. Id.
The Court finds that plaintiff’s sale and purchase agreement with Huatong
was a valid contract, which was not terminable before March 7, 2015.3 Huatong’s
decision to halt supply of power cables it supplied under the agreement on or
about March 20, 2014 amounted to a breach of the sales and purchase agreement.
The Court is persuaded that Hossain’s conduct in February and March 2014,
culminating in the formation of and his employment with HT induced Huatong’s
breach of its agreement with plaintiff. But for the activities of Hossain and HT,
plaintiff would have continued to be Huatong’s exclusive dealer in the United
Plaintiff’s 2012 sales and purchase agreement with Huatong could be cancelled each
anniversary (March 7th) provided the cancelling party gave the other party three months notice.
(Pl. Ex. 3).
States until at least March 2015. The disruption of the contract with Huatong
resulted in AF’s inability to supply its existing customer, WTEC and its wellcultivated prospective customer, Kingwire. (Dkt. 187, Pg ID 5377-82; Dkt. 188,
Pg ID 5665-67).
Additionally, Hossain’s misappropriation of plaintiff’s confidential
information, combined with HT’s beneficial use of that information amounts to an
improper interference with plaintiff’s business relationships with WTEC and
Kingwire. WTEC immediately began purchasing the Huatong cable it had been
buying from AF, from HT. (Pl. Ex. 67, 95; Dkt. 188, Pg ID 5665-67). Based on
these findings, AF is entitled to lost profit damages from defendants’ WTEC sales.
The Court finds that AF’s impending purchase order from Kingwire was a
valid business expectancy and defendants’ interference with that expectancy
constitutes tortious interference warranting remedy. Nevertheless, measuring
AF’s damages from the loss of the Kingwire sales is more difficult because HT did
not consummate a sale to Kingwire until after March 2015, when AF may well
have lost Huatong as a supplier legitimately. (Pl. Ex. 67, 95). Profit on the $3
million of sales that AF projected (and HT directly adopted) for 2014 is too
speculative to award as damages. (Pl. Ex. 47; Dkt. 185, Pg ID 5054; Dkt. 187, Pg
ID 5463, 5482-84). Notwithstanding the speculative nature of the profits on the
$3 million in sales, AF was damaged and defendants were unjustly enriched by the
unrecovered sales costs of AF’s dedicated solicitation of Kingwire. Thus, those
costs are an appropriate remedy for plaintiff here.
Proof of a civil conspiracy in violation of Michigan law requires proof of
(1) a concerted action (2) by a combination of two or more persons (3) to
accomplish an unlawful purpose (4) or a lawful purpose by unlawful means.
Nedschroef Detroit Corp., 106 F.Supp.3d at 890 (citing Petroleum Enhancer, LLC
v. Woodward, 558 Fed. Appx. 569, 580 (6th Cir. 2014)). “Under Michigan law, ‘a
claim for civil conspiracy may not exist in the air; rather, it is necessary to prove a
separate actionable tort.’” Id. (quoting Early Detection Ctr., P.C. v. N.Y. Life Ins.
Co., 157 Mich. App. 618 (1986)). Hossain and HT clearly worked together, and,
as established earlier, breach of fiduciary duty, misappropriation of trade secrets
and tortious interference with a business expectancy supply the underlying
predicate necessary to find a civil conspiracy existed.
The Court previously dismissed AF’s conversion claim finding it was preempted by MUTSA because AF acknowledged that all information taken
constituted trade secrets. (Dkt. 138, 160).4 Thus, this claim is not considered.
Under the doctrine of the law of the case, “when a court decides upon a rule of law, that
decision should continue to govern the same issues in subsequent stages in the same case.”
Arizona v. California, 460 U.S. 605, 618 (1983). “Accordingly, the doctrine ‘does not apply if
Breach of Contract
This Court previously ruled that the Secrecy Agreement was a binding
document and that Hossain’s conduct was in direct violation of the terms of that
agreement. The Court withheld awarding AF summary judgment only for
absence of proof that it was damaged by Hossain’s violation. (Dkt. 138). As
discussed in other sections of these Findings of Fact and Conclusions of Law,
plaintiff has established damages in the form of lost profits from sales lost to HT
as well as unrecovered sales costs for Kingwire, from which HT reaped the
benefits. Accordingly, the Court finds that Hossain breached the Secrecy
Agreement with plaintiff.
This Court awards plaintiff $360,809.50 from the defendants in lost profit
damages. This amount represents HT’s gross profits for 2014 and the first quarter
of 2015. (Pl. Ex. 95). Plaintiff’s 2012 Sales and Purchase agreement with
the court is “convinced that [its prior decision] is clearly erroneous and would work a manifest
injustice.”’” Pepper v. United States, 562 U.S. 476, 506–07 (2011) (quoting Agostini v. Felton,
521 U.S. 203, 236 (1997)). Application of the doctrine is discretionary, and courts should be
reluctant, absent good cause, to revisit prior rulings. Doctor's Assocs., Inc. v. Distajo, 107 F.3d
126, 131 (2d Cir. 1997), cert denied 522 U.S. 948 (1997) (citation omitted). In the view of the
undersigned, it is appropriate to invoke the doctrine in this matter. Further, there is a split of
authority on whether a magistrate judge, even on consent of the parties, has the authority to
reconsider a prior ruling of the district judge in the same case. Compare Tischmann v.
ITT/Sheraton Corp., 145 F.3d 561, 564–65 (2d Cir. 1998) and Taylor v. Nat’l Group of
Companies, Inc., 765 F. Supp. 411 (N.D. Oh. 1990) with Copper v. Brookshire, 70 F.3d 377 (5th
Cir. 1995) and Fieldwork Boston, Inc. v. United States, 344 F. Supp. 2d 257 (D. Mass. 2004).
Huatong could be cancelled each anniversary (March 7th) with three months
notice. (Pl. Ex. 3). Defendant Hossain was an at-will employee without a noncompete agreement. (Dkt. 186, Pg ID 5149). Thus, even without any malfeasance
by defendants, AF may have lost its supplier of the cables that it sold to WTEC
and planned to sell to Kingwire in March 2015. Accordingly, this Court finds that
lost profits after March 2015 are too speculative to be awarded as damages. See In
re Jonatzke, 478 B.R. 846, 865 (Bankr. E.D. Mich. 2012).
The Court also awards AF unjust enrichment damages of $150,000.00 from
defendants to compensate for its unrecovered sales costs in soliciting Kingwire as
a customer. This amount encompasses human resource and travel costs incurred
by AF in the approximately two years it spent soliciting sales from Kingwire.
(Dkt. 187, Pg ID 5371-5375). In March 2014, Kingwire was poised to issue a
purchase order to AF when Huatong ceased supplying AF with the power cable
offered to Kingwire. (Id.). Kingwire committed to purchasing from HT the same
product it had committed to purchasing from plaintiff. (Dkt. 187, Pg ID 5484).
Although HT did not consummate a sale to Kingwire before March 2015, the
Court is persuaded that Hossein’s appropriation and use of AF’s confidential trade
secrets enabled HT to unjustly reap the benefits of plaintiff’s extensive sales
efforts in securing the Kingwire business.
The Court awards plaintiff $17,221.00 from Hossain as reimbursement for
salary and compensation plaintiff paid to him while he was both employed by and
competing with AF, from March to May 2014. (Pl. Ex. 66).
Finally, the Court awards plaintiff $23,059.20 from Hossain pursuant to the
Computer Fraud and Abuse Act, 18 U.S.C. §1030, for loss in the form of the cost
of the forensic investigation relative to his unauthorized conduct in accessing and
copying AF’s computer records.
Plaintiff must file a brief within 28 days of the entry of judgment in this
matter in which they present proof of their reasonable attorney’s fees and costs
incurred in this action, as permitted under CFAA. The Court reserves jurisdiction
to adjudicate any such claim for reasonable attorney’s fees in post-judgment
IT IS SO ORDERED.
Date: September 29, 2017
s/Stephanie Dawkins Davis
Stephanie Dawkins Davis
United States Magistrate Judge
CERTIFICATE OF SERVICE
I certify that on September 29, 2017, I electronically filed the foregoing
paper with the Clerk of the Court using the ECF system, which will send
electronic notification to all counsel of record.
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