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Cucuz v. Rosta International Ltd.

United States District Court, E.D. Michigan, Southern Division

May 19, 2017

RANKO CUCUZ, Plaintiff,
v.
ROSTA INTERNATIONAL LIMITED, Defendant.

          ORDER GRANTING DEFENDANT ROSTA INTERNATIONAL LIMITED'S MOTION TO SET ASIDE DEFAULT [DKT. NO. 29]

          Denise Page Hood Chief Judge, United States District Court.

         I. INTRODUCTION

         On August 8, 2016, the Court entered Default Judgment against Defendant Rosta International Limited (“Defendant”). On February 23, 2017, Defendant filed a Motion to Set Aside Default Judgment (the “Motion”). Dkt. No. 29. The Motion has been fully briefed. On April 19, 2017, the Court held a hearing on the Motion. For the reasons that follow, the Court grants the Motion.

         II. BACKGROUND

         The Motion turns on the residence of Defendant for purposes of service. In short, Plaintiff has asserted (and continues to assert) that Defendant is a resident of China, but Defendant maintains that it is a resident of Taiwan and the Cayman Islands (and not China).

         On March 25, 2005, Defendant and Plaintiff executed an agreement (“Agreement”) under which, in exchange for $250, 000, Plaintiff would become a shareholder and Vice Chairman on Defendant's Board of Directors. (Doc. No. 32, Ex. H, ¶3; Ex. A). Defendant also agreed to pay Plaintiff $50, 000 a year and reimburse any business-related expenses up to $2, 000/month. The Agreement further provided that “any and all disputes or controversies, whether of law or fact or any nature whatsoever .. . . arising from or related to your services to Defendant or the termination of such services, shall be resolved by final and binding arbitration” to be held in Southfield, Michigan in Oakland County. (Doc. 32, Ex. H at ¶10; Ex. A). The Agreement was signed by Defendant's then-Chairman and Chief Executive Officer, Jerry Huang. (Doc. 34, Ex. A).

         Plaintiff paid the $250, 000, accepted the Vice Chairman position, and provided services to Defendant. (Doc. No. 32, Ex. H at ¶5). In August 2005, Defendant provided Plaintiff with a Share of Stock Remittance Receipt (a temporary receipt) which confirmed that Defendant had received $250, 000 from him for Defendant stock shares. Defendant informed Plaintiff that he would be provided with a stock certificate as soon as it updated its “official documentation” (Doc. No. 32, Ex. H at ¶4; Ex. B). Plaintiff attended an initial Board of Directors meeting in Taiwan, which he believes was before the Defendant facilities were completed in the Jiangsu Province in China. Subsequently, he attended Board meetings and performed services for Defendant at the Jiangsu Province facility in China. For those Board meetings that Plaintiff did not attend in person, he telephoned China to participate by phone. Mr. Huang, the Chairman and CEO of Defendant, worked and lived in China, and Plaintiff met with him in China (Doc. No. 32, Ex. H at ¶7). Yuan Feng Industrial was an established aluminum wheel manufacturer in Taiwan, and Plaintiff understood that Yuan Feng and Crimson Investment in California would be the primary investors in Defendant. However, the intent was to establish Defendant as an independent company with an independent Board of Directors, and it was not to be a subsidiary of any other Company. The strategy was for Defendant to operate in China and become a global automotive supplier by manufacturing and supplying wheels from China (Doc. No. 32, Ex. H at ¶6).

         Plaintiff argues that Defendant's principal place of business was clearly in China. Plaintiff states that Defendant manufactured its product in China, its customers visited it in China, and its CEO, Chairman and other managers worked and resided in China (Doc. No. 32, Ex. H at ¶8). Plaintiff notes that the fact that Defendant would be engaging in business in China was referenced in Plaintiff's initial Agreement as follows: “You will have the option, but not the obligation, to invest another $250, 000 at the same price and terms in 2006 when Defendant seeks additional capital to complete the expansion of its second China facility.” (Doc. No. 32, Ex. H at ¶9; Ex. A).

         On or about June 25, 2007, Mr. Huang as “President” of Defendant terminated Plaintiff's consulting services due to cost cutting measures but indicated that they still valued his “participation on the board as the Vice Chairman of the Board of Directors.” (Doc. No. 32, Ex. H at ¶11; Ex. C). Defendant never provided Plaintiff with the stock certificate, a shareholder package or comparable and satisfactory evidence of his ownership interest, or any other financial information despite his repeated requests (Doc. No. 32, Ex. H at ¶12). Defendant further failed to provide Plaintiff with the compensation ($50, 000/year) that he earned, and the company failed to reimburse him for the business-related expenses that he incurred (Doc. No. 32, Ex. H at ¶13). As a result, on June 12, 2012, Plaintiff commenced arbitration proceedings against Defendant in accordance with the arbitration provision in the Agreement. (Ex. D). The Demand for Arbitration indicated that Defendant was located in the Jiangsu Province in China. (Doc. No. 32, Ex. H at ¶14; Ex. D).

         Defendant retained attorney Peter Kirsanow from the law firm of Benesch, Friedlander, Coplan & Aronoff LLP in Cleveland, Ohio to represent it. Mr. Kirsanow's letter of June 29, 2012 indicated that all communications in the case should be directed to him. (Doc. No. 32, Ex. H at ¶15; Ex. E). In the arbitration, Defendant submitted a simple “denial” of the claims, but never specifically indicated or disputed that it was located in China. (Doc. No. 32, Ex. H at ¶16; Ex. F).

         In August 2013, Defendant and Plaintiff entered into a “Negotiated Settlement Agreement and General Release” (“Settlement Agreement”), which provided that Defendant would pay Plaintiff for certain consulting fees he had earned and provide him with copies of the annual shareholder package, financial statements and other material information provided to Crimson for fiscal year 2006 through the present and stock certificates or other comparable and satisfactory evidence of his ownership interest and investment in Defendant (Doc. No. 32, Ex. H at ¶17). Plaintiff maintains that the fact that Defendant was in China was “confirmed” by the fact that the Agreement provided that the payment due date was dependent on the publically recognized holidays of the Peoples Republic of China. The Settlement Agreement expressly provided that it would be governed by the laws of the State of Michigan and that “the parties will submit to the jurisdiction of the state and/or federal courts located within the State of Michigan for the resolution of any dispute which may arise thereunder.” Mr. Kirsanow was identified as counsel for Defendant in the Settlement Agreement. The Settlement Agreement expressly provided that it would not be interpreted as releasing, waiving, compromising or restricting in any way any claims or rights that Plaintiff might have arising out of his investment in Defendant or his shareholder status (Doc. No. 32, Ex. I at ¶6).

         Defendant paid the consulting fees but failed to comply with the other terms of the Settlement Agreement, including providing Plaintiff with copies of the annual shareholder package, financial statements and other material information provided to Crimson for fiscal year 2006 through the present. Defendant also failed to provide Plaintiff with stock certificates or other comparable and satisfactory evidence of his ownership interest and investment in Defendant for which he had paid $250, 000 (Doc. No. 32, Ex. H at ¶18). During 2013 and 2014, Plaintiff's counsel contacted Mr. Kirsanow on numerous occasions to attempt to obtain compliance with the settlement agreement. The most recent response was that Mr. Huang had the documents and Defendant was investigating. (Doc. No. 32, Ex. I at ¶8; Ex. G, p. 2).

         Plaintiff authorized legal counsel to commence this lawsuit on his behalf and serve it on Defendant in China (Doc. No. 32, Ex. H at ¶19). Count I of this lawsuit was for Breach of the Settlement Agreement for failing to provide the required information and Count II was for Fraud. Plaintiff's counsel emailed the Summons and Complaint to Mr. Kirsanow on February 11, 2015 and requested that he accept service on behalf of Defendant. (Doc. No. 32, Ex. I at ¶9; Ex. G, p. 2). On February 13, 2015, Mr. Kirsanow informed Mr. Kotzian by telephone that he had contacted his client, that Mr. Huang had taken the documents, and that he would waive service of process once he had authority (Doc. No. 32, Ex. I at ¶10). On February 17, 2015, Mr. Kirsanow informed Mr. Kotzian by telephone that he could not accept service, and that Defendant was going in a “different direction” regarding representation (Doc. No. 32, Ex. I at ¶11).

         Plaintiff states that he complied with all the necessary procedures for serving Defendant in China. The Chinese Ministry acknowledged receipt of the documents and translations and confirmed that the Chinese Ministry was satisfied with the translation. (Doc. No. 32, Ex. J at ¶9 and Ex. 1 to Ex. J (at 3)). However, no certificate of service of any kind was received, even though Plaintiff asserts ...


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