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American Furukawa, Inc. v. Hossain

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

September 29, 2017

AMERICAN FURUKAWA, INC., Plaintiff,
v.
ISTHIHAR HOSSAIN and HT WIRE & CABLE AMERICAS, LLC, Defendants.

          FINDINGS OF FACT AND CONCLUSIONS OF LAW

          Stephanie Dawkins Davis, United States Magistrate Judge.

         I. INTRODUCTION

         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).

         II. PROCEDURAL HISTORY

         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.

         III. FACTUAL FINDINGS

         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, Kingwire[1], 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 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, 5201-10). 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).

         IV. ...


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