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MINEBEA CO., LTD. v. PAPST

June 29, 2005.

MINEBEA CO., LTD., et al., Plaintiffs,
v.
GEORG PAPST, et al., Defendants.



The opinion of the court was delivered by: PAUL FRIEDMAN, District Judge

OPINION AND ORDER

This matter is before the Court on the parties' objections to the Special Master's Report and Recommendation No. 31, recommending that German law govern Counts IV (breach of fiduciary duty) and V (conversion), and that New York Law govern any punitive damages for Counts II (fraudulent concealment) and III (negligent misrepresentation).*fn1 Upon consideration of the Special Master's Report and Recommendation, the parties' objections, and the responses thereto, the Court concludes that (1) the Special Master correctly concluded that German law should govern Counts IV and V, including with respect to punitive damages on Count IV; and (2) the Special Master's recommendation that New York law govern punitive damages associated with Counts II and III should be rejected and German law applied to the issue of punitive damages on these counts. In Report and Recommendation No. 31, the Special Master, stating that Judge Harris and the undersigned "have either accepted or expressly ruled" that New York law applies to Minebea's fraud claim (Count II), concluded that New York law also applies to the "closely related" claims of negligent misrepresentation (Count III) and contract reformation (Count VI). See Special Master's Report and Recommendation No. 31 (June 12, 2005) ("R&R 31") at 7. The Special Master recommended, however, that Minebea's claims for breach of fiduciary duty (Count IV) and conversion (Count V), and any related claims for punitive damages, should be governed by German law. See R&R 31 at 19-21. The Special Master so decided with respect to Count IV because "the fiduciary duties allegedly breached in Count IV appear to be grounded in German contracts, Georg Papst's relationship to PMDM and German legal authority[,]" defendants Georg Papst and Papst Licensing are located in Germany, PMDM (the entity of whom defendants allegedly were fiduciaries) is a German entity, and the underlying conduct and alleged injury occurred in Germany. Id. at 19. Similarly, because the contractual relationships giving rise to Count V (conversion) "were centered in Germany" and "involve German entities and citizens," the relevant contracts "appear to be subject to German law," the relevant inventions were invented in Germany, and the "allegedly offending assignments undoubtedly were executed in Germany," the Special Master concluded that German law should apply to this count as well. Id. at 19-20.

The Special Master separately recommended that New York law govern Minebea's prayers for punitive damages for Counts II and III, stating that "New York has a substantial interest in deterring fraud and misrepresentations during negotiations of contracts governed by New York law." R&R 31 at 7. With respect to Count IV (breach of fiduciary duty), however, the Special Master found that German law should govern the punitive damages issue. See id. at 20.*fn2

  A. Minebea's Objections

  Minebea objects to the recommendation that German law apply to Counts IV and V, arguing instead that New York law should apply to the fiduciary duty claim and that District of Columbia law should apply to the conversion claim.

  Minebea advances three arguments in favor of the proposition that New York law governs Count IV. First, it argues that this is "the law of the case." The Special Master has recommended that because Count III (negligent misrepresentation) and Count VI (contract reformation) are "closely related" to Count II (fraudulent concealment), which has been held by the undersigned to be governed by New York law, see Minebea Co. v. Papst, 355 F. Supp.2d 518, 521-22 (D.D.C. 2005), Counts III and VI also should be governed by New York law. See R&R 31 at 6-7. Minebea argues that because Count IV also is "closely related" to the fraud claim, it too should be governed by New York law.

  The Court has never expressly held that New York law governs any claim other than the fraud claim in Count II. The Special Master nevertheless was not unreasonable in concluding that Counts III and VI — negligent misrepresentation and contract reformation — but not Count IV (breach of fiduciary duty), are so "closely related" to plaintiffs' fraud claim as to warrant application of the same law, despite the fact that some of the underlying conduct relating to Counts III, IV and VI may be the same. The gravamen of Minebea's fraud, negligent misrepresentation, and contract reformation claims is Papst's alleged misrepresentations and Minebea's and PMDM's reliance thereon in entering into the 1995 Settlement Agreement. The central fact of the fiduciary duty claim, by contrast, is the duty owed by Georg Papst to the Papst/Minebea joint venture, which arose from the asserted "special relationship" between Papst Licensing and Minebea, which arose from these entities' pre-1995 contracts and course of dealing. Indeed, even Minebea acknowledges that the fiduciary obligation owed by Papst to Minebea or PMDM is governed by German law. See Minebea's Objections to Report and Recommendation No. 31 Relating to the Governing Law for Counts IV and V ("Minebea Obj.") at 8; R&R 31 at 9.

  Furthermore, Judge Harris noted in his June 22, 1998 opinion (upon which the undersigned partially relied in ruling that New York law applied to Minebea's fraud claim) that "[t]he parties agree that New York law applies to the allegations of fraud and negligent misrepresentation and the request for contract reformation." Minebea Co. v. Papst, 13 F. Supp.2d at 43 & n. 10 (emphasis added). He did not speak to Minebea's breach of fiduciary duty claims. Thus, the facts and reasoning underlying this Court's determination that New York law applies to Count II do not dictate the conclusion that New York law applies to Count IV as well.

  Second, Minebea argues that the Special Master incorrectly applied District of Columbia law in concluding that German law should govern the conversion claim. This argument also fails.

  In determining which jurisdiction's law controls on a particular issue, the courts of the District of Columbia employ a modified "governmental interest analysis," under which the court must evaluate the governmental policies underlying the applicable laws and determine which jurisdiction's policy would be most advanced by having its law applied to the facts of the case. See Bledsoe v. Crowley, 849 F.2d 639, 641 (D.C. Cir. 1988); Long v. Sears Roebuck & Co., 877 F.Supp. 8, 10 (D.D.C. 1995); see also Jacobsen v. Oliver, 201 F. Supp.2d 93, 99 (D.D.C. 1999) (in determining choice of law, court "balances the competing interests of the jurisdictions" whose law might apply). In applying this analysis, the Court looks to the Restatement (Second) of Conflict of Laws to identify the jurisdiction with the "most significant relationship" to each issue in dispute. Hercules & Co., Ltd. v. Shama Restaurant Corp., 566 A.2d 31, 40 (D.C. 1989). To determine which jurisdiction has the most significant relationship to an issue in dispute, the Court examines a list of contacts that various states might have with the litigation. When the issue is liability for a tort claim, the Court considers the place where the injury occurred, the place where the conduct causing the injury occurred, the residence, domicile, place of incorporation or place of business of the parties, and the place where the parties' relationship, if any, is centered. See RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 145 (1971); Long v. Sears Roebuck & Co., 877 F. Supp. at 11.

  Minebea acknowledges that "the fiduciary duties that arose in connection with the pre-1995 agreements are governed by German law and . . . the corporate relationships are also under German law, and . . . certain of the relevant parties are located in Germany." Minebea Obj. at 6. Nonetheless, it argues that New York has a greater interest in the application of its laws to this dispute than does Germany, by virtue of the parties' inclusion in the 1995 Settlement Agreement of a choice-of-law provision selecting the law of New York law to govern the contract. But plaintiffs' fiduciary duty claim arises out of a fiduciary relationship formed in Germany, by (among others) German citizens or entities, by virtue of agreements governed by German law, and well before the 1995 Settlement Agreement was signed.*fn3 A significant portion of the conduct alleged to constitute the breach of duty occurred in Germany. None of the relevant events occurred in New York, nor are any of the parties involved New York entities. Germany's interest, therefore, far outweighs any interest New York might have in the application of its laws to this claim. Thus, the traditional District of Columbia choice of law analysis dictates that German law, not New York law, should apply to Count IV, the breach of fiduciary duty claim.*fn4

  Minebea makes a final, related argument that the Special Master erred in failing to give effect to the 1995 Settlement Agreement's choice-of-law clause. The Court also rejects this argument, which relies on Minebea's inaccurate claim that such a choice of law provision "necessarily encompasses any tortious conduct committed in negotiation of the agreement." Minebea Obj. at 5. The authorities cited by Minebea stand not for the proposition that claims sounding in tort are within the scope of such a clause; rather, they indicate only that contractual defenses based on improper behavior in connection with contract negotiations — such as duress, undue influence, fraud in the inducement, or misrepresentation — are governed by the parties' choice of law with regard to the contract. See RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 201 ("The effect of misrepresentation, duress, undue influence and mistake upon a contract is determined by the law selected by [the parties]."); Asia North America Eastbound Rate Agreement v. Pac. Champion Serv. Corp., 864 F. Supp. 195, 201 (D.D.C. 1994) (considering enforceability of contract procured by fraud).

  A choice-of-law provision governing contract claims simply does not cover tort claims arising from the same underlying events unless the parties so intend. See Godbey v. Frank E. Basil, Inc., 603 F. Supp. 775, 777 (D.D.C. 1985) ("Although these claims are based in part on the events underlying the contract claim, they obviously could not have been contemplated by the parties when they drafted the choice of law provision, which cannot have been intended to control tort claims such as these."); see also Krock v. Lipsay, 97 F.3d 640, 645 (2d Cir. 1996) ("Under New York law, a choice-of-law provision indicating that the contract will be governed by a certain body of law does not dispositively determine that law which will govern a claim of fraud arising incident to the contract."). The 1995 Settlement Agreement states simply that "This Agreement shall be governed by and interpreted in accordance with the Laws of New York." 1995 Settlement Agreement ¶ 7.3 (emphasis added). The Court cannot infer from such narrow language that the parties intended tort claims arising from conduct relating to the negotiation of the 1995 Settlement Agreement to be governed by New York law. Accordingly, the Court holds that German law shall apply to Minebea's breach of fiduciary duty claim.*fn5

  Minebea also objects to the Special Master's recommendation that German law apply to its conversion claim (Count V). Because "the acts that are the basis of Count V were accomplished and perfected in the United States before the United States Patent Office through the filing of applications and assignments in the name of Papst Licensing," and because the "ownership of United States patents is controlled by American law," Minebea argues that United States law should apply. Minebea Obj. at 9-10. In the absence of any other state having an interest in the U.S. patents, and because the District of Columbia traditionally has been recognized as ...


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