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Planet Bingo, LLC v. VKGS, LLC

Court of Appeals of Michigan

April 18, 2017

PLANET BINGO, LLC, and MELANGE COMPUTER SERVICES, INC, Plaintiffs/Counter Defendants-Appellants/Cross Appellees,
v.
VKGS, LLC, doing business as VIDEO KING, Defendant/Counter Plaintiff-Appellee/Cross Appellant.

         Ingham Circuit Court LC No. 11-001369-CK

          Before: Borrello, P.J., and Wilder and Swartzle, JJ.

          Per Curiam.

         In this business dispute, plaintiffs-counter defendants Planet Bingo, LLC (Planet Bingo), and Melange Computer Services, Inc (Melange; collectively, plaintiffs), appeal as of right from the circuit court's final order dismissing the last pending claim in this case. Defendant-counter plaintiff, VKGS, LLC, doing business as Video King (Video King), claims its cross-appeal from that same order. We reverse in part, vacate in part, and remand for further proceedings consistent with this opinion.

         I. FACTUAL BACKGROUND

         This case arises out of Video King's use of a software program ("EPIC") that was developed by Planet Bingo's subsidiary Melange, Video King's subsequent development of a competing software program ("OMNI"), and plaintiffs' allegation that Video King wrongfully developed OMNI using confidential information gleaned from EPIC. The relevant procedural history is complex. The parties have previously litigated claims related to this matter in other actions in foreign jurisdictions. See VKGS, LLC v Planet Bingo, LLC, 285 Neb 599; 828 N.W.2d 168 (2013) (VKGS); Planet Bingo, LLC v VKGS, LLC, 961 F.Supp.2d 840 (WD Mich, 2013). Certain background facts pertinent to the instant appeal were set forth by the Nebraska Supreme Court in VKGS, 285 Neb at 601-603:

Video King was founded in 1992 by . . . a gaming conglomerate[] to develop, manufacture, and distribute electronic bingo equipment. In 2005, Video King was conveyed to VKGS, LLC, in a spinoff transaction, but continued to do business under the name "Video King." Video King's principal place of business is located in Omaha, Nebraska.
Since 2000, Video King and Melange have had a business relationship. Melange is a Michigan corporation formed in 1989 and has a principal place of business in Lansing, Michigan. Melange was the developer of a software program known as EPIC. On September 1, 2005, Video King and Melange entered into an agreement [(the 2005 agreement)] regarding the use of EPIC on Video King's electronic bingo equipment. Subsequent amendments to this agreement were entered into in 2007, 2008, 2009, 2011, and 2012. Per this continuing agreement, Video King and Melange conducted day-to-day business together, including communication via telephone, e-mail, reports, face-to-face meetings, and conferences.
In 2006, Melange was acquired by Planet Bingo and became a wholly owned subsidiary of Planet Bingo (hereinafter, Melange and Planet Bingo will be collectively referred to as "Planet Bingo").
At a time not specified by the record, Video King began developing its own software for electronic bingo equipment, called OMNI. Concerned that Video King improperly used Melange's confidential information to design bingo software, Planet Bingo filed suit against Video King in the U.S. District Court for the Western District of Michigan in May 2011. Planet Bingo alleged breach of contract, unfair competition, and unjust enrichment.
On October 5, 2011, a hearing was held on a motion filed by Planet Bingo for expedited discovery. At that hearing, the magistrate judge questioned whether there was federal diversity jurisdiction and ordered the parties to show cause why the case should or should not be dismissed for lack of diversity jurisdiction. On December 21, the case was dismissed on those grounds.
However, on December 13, 2011, prior to dismissal in federal court, Video King filed an action for declaratory judgment against Planet Bingo in [Nebraska's] Douglas County District Court. That action sought a declaration of the rights, status, and other legal obligations of the parties with respect to confidentiality agreements between the parties. Additionally, on December 20, Planet Bingo refiled its action in the Michigan state court system.

         The preamble to plaintiffs' December 20, 2011 complaint in Ingham Circuit Court acknowledged that both the federal action and the Nebraska action remained pending at that time. Plaintiffs alleged three counts against Video King: (1) breach of contract, (2) common-law unfair competition, and (3) unjust enrichment. An underlying basis of all three claims was plaintiffs' allegation that, contrary to the confidentiality provisions of the 2005 agreement between the parties, Video King had used confidential information about EPIC to develop Video King's competing OMNI software.

          The 2005 agreement had a substantial confidentiality clause:

17. Confidentiality. The PARTIES agree that all information, including without limitation the Software including any updates, enhancements and new releases thereof, the Documentation, including formulas, methods, know-how, processes, designs, new products, developmental work, marketing requirements, marketing plans, customer names, prospective customer names, the terms and pricing of agreements, and in general, any other information related to this Agreement, transmitted to the other, (the "Confidential Information"), shall be handled as confidential information regardless of the means through which it is disclosed, in accordance with the provisions of this clause. Confidential Information shall be used exclusively for the purposes set forth in this Agreement and its Exhibits, therefore, at no time whatsoever, neither party may be entitled to provide, transfer, publish, reproduce or disclose such Confidential Information to third parties whether directly or indirectly through third parties; or in any manner whatsoever. . . . Each party acknowledges and accepts that the Confidential Information that it has received through any means or form and at any time, as well as that it may receive in the future under this Agreement and its Exhibits, is and shall continue to be the exclusive property of the party issuing such Confidential Information. . . . The obligation contained in this clause with regard to nondisclosure of Confidential Information shall survive for a period of five (5) years from the termination, rescission, or expiration date of this Agreement. . . . Each party acknowledges that Confidential Information may be unique and valuable to its owner, and that disclosure in breach of this Agreement will result in irreparable injury to the owner of such Confidential Information, for which monetary damages alone would not be an adequate remedy. Therefore, each party agrees that in the event of a breach or threatened breach of the provisions set forth in this clause, the disclosing party shall be entitled to seek specific performance and injunctive or other equitable relief as a remedy for any such breach or anticipated breach without the necessity of posting any surety or bond. Any such relief shall be in addition to and not in lieu of any appropriate relief in the way of monetary damages and any other remedies that disclosing party may have at law or in equity.

         Before answering plaintiffs' complaint, Video King filed its first of several motions for summary disposition. Video King's first such motion was filed pursuant to MCR 2.116(C)(6) ("Another action has been initiated between the same parties involving the same claim."). Citing in support Valeo Switches & Detection Sys, Inc v Emcom, Inc, 272 Mich.App. 309; 725 N.W.2d 364 (2006) (Valeo), Video King argued that the pending action in Nebraska involved the same claims as those asserted in plaintiffs' complaint here. Thus, Video King argued, summary disposition was appropriate under MCR 2.116(C)(6), either with or without prejudice at the circuit court's discretion. The circuit court ultimately denied Video King's motion under MCR 2.116(C)(6) without prejudice, reasoning that the claims involved in this action and the Nebraska action were not the "same" for purposes of MCR 2.116(C)(6). In the meantime, plaintiffs filed a motion to dismiss the Nebraska action for lack of personal jurisdiction. Id. at 603.

          Before responding to Video King's motion for summary disposition, plaintiffs filed a motion seeking a preliminary injunction enjoining Video King from "violating the provisions of the 2005 agreement; continuing to use confidential information relating to EPIC; and further offering for placement, placing, distributing, marketing, and advertising the OMNI system so long as it contains confidential information relating to EPIC." After considering the matter, the circuit judge issued a reciprocal preliminary injunction against the parties until such time as an evidentiary hearing could take place.

         Two days after the circuit denied Video King's motion for summary disposition under MCR 2.116(C)(6) and issued its reciprocal preliminary injunction against the parties, the Nebraska district court entered an order dismissing the Nebraska action for lack of personal jurisdiction over plaintiffs. Video King pursued an appeal of the district court's ruling in Nebraska's appellate courts. Id. at 601.

         The action below proceeded to discovery, which was extremely contentious. Among myriad discovery matters, the circuit court considered Video King's objection that plaintiffs were "trying to . . . use this lawsuit as a basis to try to learn about [Video King's] business" by requesting the production of documents spanning back to Video King's formation "back in the 1990s." Contending that the 2005 agreement's confidentiality clause only covered the period from the execution of that agreement (i.e., September 1, 2005) through December 24, 2008 (i.e., the date the parties executed an agreement that had no confidentiality provision), Video King argued that discovery should be limited to that time period: September 1, 2005, through December 24, 2008. Plaintiffs responded that, even assuming that the 2005 agreement was terminated by the execution of the December 24, 2008 agreement, the terms of the confidentiality provision extended the "life" of the provision for five years after termination of the agreement. Thus, plaintiffs argued, the confidentiality provision remained in effect until at least December 2013-well after Video King developed OMNI. With regard to the need for discovery to extend before the effective date of the 2005 agreement, plaintiffs argued that such discovery was necessary to refute Video King's argument that OMNI was based on information in Video King's possession before it had access to EPIC, not on confidential information it later received. The circuit court initially held that discovery would be limited to the period from September 1, 2005, until the present, but the court later revisited the issue and held that discovery would be limited to the period from January 28, 2005 (i.e., the date that VKGS acquired Video King and began to operate as Video King), until the present.

         In September 2012, Video King sought and was granted leave to file an amended answer and counterclaims. Video King asserted two counterclaims against plaintiffs: (1) breach of contract and (2) tortious business interference and injurious falsehood.

         On March 29, 2013, the Nebraska Supreme Court issued its decision concerning the district court's jurisdictional dismissal of the Nebraska action. Id. at 599. The Nebraska Supreme Court reversed, holding that the district court erred by determining that it lacked personal jurisdiction over Planet Bingo and Melange. Id. at 612. Thus, the Nebraska Supreme Court remanded the matter to the Nebraska district court for further proceedings. Id. According to the parties' briefs filed in the instant appeal, the remanded action in the Nebraska district court remains pending.

          After entertaining numerous motions for partial summary disposition, the circuit court summarily disposed of all of plaintiffs' claims on various grounds. The circuit court also granted Video King partial summary disposition on the ...


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