Free Answering Brief in Opposition - District Court of Delaware - Delaware

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE NIHON TSUSHIN KABUSHIKI KAISHA d/b/a JAPAN COMMUNICATIONS, INC., Plaintiff, v. DONALD DAVIDSON. et al., Defendants. ) ) ) ) ) ) ) ) ) )

C.A. No. 07-619-JJF

PLAINTIFF'S ANSWERING BRIEF TO DEFENDANT DAVID IZATT'S MOTION TO DISMISS

MORRIS, NICHOLS, ARSHT & TUNNELL LLP Thomas C. Grimm (#1098) 1201 N. Market Street P.O. Box 1347 Wilmington, DE 19899-1347 (302) 658-9200 [email protected] Attorneys for Nihon Tsushin Kabushiki Kaisha d/b/a Japan Communications, Inc.

OF COUNSEL: Jay D. Bennett Paul J. Kaplan Jonathan B. Davis ALSTON & BIRD LLP 1201 West Peachtree Street Atlanta, GA 30309-3424 (404) 881-7000 Dated: December 17, 2007

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TABLE OF CONTENTS Page TABLE OF AUTHORITIES .......................................................................................................... ii STATEMENT OF THE NATURE AND STAGE OF PROCEEDINGS ..................................- 1 SUMMARY OF ARGUMENT ..................................................................................................- 1 STATEMENT OF FACTS ........................................................................................................- 1 ARGUMENT..............................................................................................................................- 2 I. II. III. IV. V. IZATT RELIES ON THE WRONG AGREEMENT. ........................................- 2 IZATT IS A PARTY TO THE SPA. ..................................................................- 3 IZATT MADE THE SPECIFIC MISREPRESENTATIONS IN THE SPA THAT ARE THE SUBJECT OF JCI'S COMPLAINT. ...................- 4 IZATT IS BOUND BY HIS WRITTEN CONSENT TO PERSONAL JURISDICTION IN THIS COURT. .............................................- 5 BECAUSE THIS COURT HAS PERSONAL JURISDICTION OVER IZATT FOR HIS REPRESENTATIVE ACTS, IT HAS JURISDICTION OVER HIM FOR HIS RELATED PERSONAL ACTS AS WELL. ...............................................................................................- 6 -

CONCLUSION...........................................................................................................................- 7 -

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TABLE OF AUTHORITIES Page(s) CASES Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190 (3d Cir. 1983).......................................................................................................9 Equidyne Corp. v. John Does 1-21, 279 F. Supp. 2d 481 (D. Del. 2003).....................................................................................3, 10 Jumara v. State Farm Ins. Co., 55 F.3d 873 (3d Cir. 1995).........................................................................................................9 Res. Ventures Inc. v. Res. Mgmt. Int'l Inc., F. Supp. 2d 423 (D. Del. 1999).............................................................................................. 8-9

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STATEMENT OF THE NATURE AND STAGE OF PROCEEDINGS On October 9, 2007, Plaintiff Japan Communications Inc. ("JCI") filed a threecount Complaint alleging, inter alia, that Defendant Izatt made material misrepresentations to JCI in a written agreement by which JCI purchased the majority stake in a network security firm. (D.I. 1.) On November 30, 2007, Izatt filed a motion to dismiss for lack of personal jurisdiction, arguing that he never signed the parties' agreement and thus is not subject to its forum selection clause consenting to jurisdiction in this Court. (D.I. 89.) SUMMARY OF ARGUMENT Izatt relies on the wrong agreement. His affidavit and brief rely on the Arxceo Corporation Stockholders Agreement (D.I. 89-3), while JCI's Complaint is based on Izatt's misrepresentations in the parties' Securities Purchase Agreement or "SPA". (See D.I. 1 at ¶¶ 1, 56-74.) Izatt is a named party to the SPA, signed the SPA, and made the specific

misrepresentations in the SPA that are the gravamen of JCI's Complaint. Izatt thus is bound by Section 18 of the SPA, which states that all parties irrevocably consent to personal jurisdiction and venue in this Court. STATEMENT OF FACTS 1 On or about February 28, 2006, JCI and Defendants entered into a Securities Purchase Agreement ("SPA") in which JCI purchased from the Defendants a 58% stake in Arxceo Corporation, an Alabama technology firm. (See Complaint, D.I. 1, at ¶¶ 1 & 56.) The

SPA calls for JCI to purchase the remaining 42% of Arxceo's stock over a two-year period, with

1

"In the context of a motion to dismiss, the record must be viewed in the light most favorable to the non-moving party." Equidyne Corp. v. John Does 1-21, 279 F. Supp. 2d 481, 485 (D. Del. 2003) (Farnan, J.).

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the price to be determined by an "earn-out" provision. (Id. at ¶ 57.) A true and correct copy of the SPA is attached hereto as Exhibit A. The first paragraph of the SPA expressly names Defendant Izatt as a party to the agreement for purposes of the SPA's Section 4. (See Exh. A at 1.) In Section 4 of the SPA, Izatt made certain representations and warranties to JCI on behalf of the selling shareholders. (Id. at 9-20.) These representations and warranties form the basis of JCI's claims for fraudulent

inducement and breach of contract in Counts I and II of its Complaint. (D.I. 1 at ¶¶ 60-74.) Izatt also signed the SPA as one of two "Representatives" of the selling shareholders. (See Exh. A at 58.) Section 18 of the SPA states that it shall be governed by Delaware law. (Id. at 36.) Section 18 of the SPA further states that each of the parties consents to personal jurisdiction and venue in the United States District Court for the District of Delaware. (Id.) Each of the parties also "irrevocably waive[s] . . . any claim that any such proceeding brought in any such court has been brought in an inconvenient forum." (Id.) ARGUMENT I. IZATT RELIES ON THE WRONG AGREEMENT. Throughout his affidavit and brief, Izatt refers to a "Purchase of Securities Agreement" or "POS." (See generally D.I. 89 & 89-2.) But there is no such agreement, and he has put none before the Court. Instead, Izatt attaches to his brief only the "Arxceo Corporation Stockholders Agreement" (D.I. 89-3) ­ and it is apparently this agreement upon which his arguments are based. Izatt argues that he is not a party to the "POS" and insists that he signed the "POS" solely "as the President and representative" of his investment company, Angus Adair Wolfgang Inc., or "AAW." (D.I. 89 at ¶¶ 6 & 10.) Izatt thus contends that he is not bound by -2-

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Section 18 of the "POS", in which the parties to that agreement irrevocably consent to jurisdiction in this court. (Id. at ¶¶ 9-10.) If by the "POS" Izatt means the Stockholders Agreement which he attaches to his brief, then his assertions are certainly true. (See D.I. 89-3 at 1 (identifying parties to the Stockholders Agreement) and at 16-21 (signature blocks).) But JCI's Complaint never mentions the Stockholders Agreement. JCI's Complaint is based solely on the SPA. And as to that agreement, Izatt's assertions are demonstrably false. II. IZATT IS A PARTY TO THE SPA. Izatt clearly is a party to the SPA. The very first paragraph of the agreement identifies the parties thereto as (i) Arxceo, (ii) JCI, (iii) certain named shareholders listed on the signature page, and (iv) Defendants Davidson and Izatt as "Representatives" of the remaining shareholders:

(Exh. A at 1.) Izatt signed the SPA precisely in keeping with this description:

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(Id. at 58.) Contrary to his assertion, Izatt did not sign the SPA as the president of AAW ­ indeed, AAW didn't sign the SPA at all. Rather, Izatt signed the SPA solely and clearly as the express "Representative" of the selling shareholders. III. IZATT MADE THE SPECIFIC MISREPRESENTATIONS IN THE SPA THAT ARE THE SUBJECT OF JCI'S COMPLAINT. As noted above, Izatt is expressly named as one of two "Representatives" in the SPA, "for purposes of Section 4" of that agreement. In Section 4, "[t]he Company and the Representatives hereby jointly and severally" made a number of representations and warranties to JCI, including that they had personally provided JCI with reasonable, good faith projections of Arxceo's future performance and costs. (Exh. A at 10-11; emphasis added.) In its Complaint, JCI alleges that these representations and warranties were false, and that Izatt therefore breached the SPA and fraudulently induced JCI to purchase the Defendants' Arxceo shares. (D.I. 1 at ¶¶ 60-74.) Izatt's status as a party to the SPA thus is not merely incidental. Rather, his actions as a named party and on behalf of the selling shareholders lies at the very heart of JCI's Complaint.

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IV.

IZATT IS BOUND BY HIS WRITTEN CONSENT TO PERSONAL JURISDICTION IN THIS COURT. As noted above ­ and unlike the Stockholders Agreement on which his brief relies

­ Izatt is expressly named as a party to the SPA. Thus, he is bound by Section 18 of the SPA, in which all parties (i) agree that the SPA shall be governed by Delaware law and (ii) irrevocably consent to personal jurisdiction and venue in this Court:

Such consent is clearly binding: It is well settled that a party can consent to the personal jurisdiction of a court. Because personal jurisdiction is based on individual liberty interests protected by the due process clause, unlike subject matter jurisdiction, it can be waived by a party's express or implied consent to jurisdiction. The use of a forum selection clause is an example of an express consent to personal jurisdiction. Res. Ventures Inc. v. Res. Mgmt. Int'l Inc., F. Supp. 2d 423, 431 (D. Del. 1999) (Farnan, J.) (emphasis added).

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In federal courts, "the effect to be given a contractual forum selection clause in diversity cases is determined by federal not state law." The United States Court of Appeals for the Third Circuit has established a general rule to test the validity of a forum selection clause. Under this general rule, a forum selection clause is presumptively valid and enforceable by the forum unless the objecting party establishes (1) that it is the result of fraud or overreaching, (2) that enforcement would violate a strong policy of the forum, or (3) that enforcement would in the particular circumstances of the case result in litigation in a jurisdiction so seriously inconvenient as to be unreasonable. Id. at 431-32 (emphasis added; citing Jumara v. State Farm Ins. Co., 55 F.3d 873, 877 (3d Cir. 1995) and Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190, 202 (3d Cir. 1983)). Izatt fails to even discuss, much less attempt to prove, a single prong of this test. He does not allege that the forum selection clause was procured by fraud. He does not allege that enforcing the clause would violate any provision of Delaware law. And he does not cite a single hardship or burden that would prevent him from litigating in this Court. As a result, his consent to jurisdiction must be enforced. See id. at 432 (holding forum selection clause "valid and enforceable" where defendant "has not proffered any allegations to establish" any of the factors quoted above). V. BECAUSE THIS COURT HAS PERSONAL JURISDICTION OVER IZATT FOR HIS REPRESENTATIVE ACTS, IT HAS JURISDICTION OVER HIM FOR HIS RELATED PERSONAL ACTS AS WELL. As discussed above, Izatt is a party to the SPA, as the selling shareholders' Representative, for purposes of the representations and warranties that he made on their behalf in Section 4. This Court has personal jurisdiction over him for those acts by virtue of his express consent in Section 18. There is no question, then, that this Court has personal jurisdiction over Izatt for purposes of Counts I & II of JCI's Complaint, which assert claims based on Izatt's misrepresentations in Section 4. -6-

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Count III asserts a claim for fraud against Izatt and others individually, for further misrepresentations that they made after the SPA was signed. Because this Court has personal jurisdiction over Izatt for purposes of Counts I & II, and because Count III arises out of a common nucleus of operative fact ­ i.e., because all three counts involve Defendants' misrepresentations in connection with the sale of their Arxceo stock ­ this Court has pendent personal jurisdiction over Izatt for purposes of Count III as well. See, e.g., Equidyne Corp., 279 F. Supp. 2d at 486 (finding pendent personal jurisdiction over defendant where state law claim arose "out of the same common nucleus of operative facts as the federal claims"); see also Home Owners Funding Corp. of Am. v. Century Bank, 695 F. Supp. 1343, 1345 (D. Mass. 1988) ("The law is well settled that, in a multi-count complaint, if a court has personal jurisdiction with respect to one count, it has personal jurisdiction over the defendant with respect to all counts."). CONCLUSION For all the reasons set forth above, JCI respectfully submits that Defendant Izatt's Motion to Dismiss (D.I. 88 and 89) should be denied. MORRIS, NICHOLS, ARSHT & TUNNELL LLP

/s/ Thomas C. Grimm
OF COUNSEL: Jay D. Bennett Paul J. Kaplan Jonathan B. Davis ALSTON & BIRD LLP 1201 West Peachtree Street Atlanta, GA 30309-3424 (404) 881-7000 Dated: December 17, 2007
1337190

______________________________________ Thomas C. Grimm (#1098) James W. Parrett, Jr. (#4292) 1201 N. Market Street P.O. Box 1347 Wilmington, DE 19899-1347 (302) 658-9200 [email protected] Attorneys for Nihon Tsushin Kabushiki Kaisha d/b/a Japan Communications, Inc.

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CERTIFICATE OF SERVICE I hereby certify that on December 17, 2007, I electronically filed the foregoing document with the Clerk of the Court using CM/ECF which will send notification of such filing to all registered participants. Additionally, I hereby certify that true and correct copies of the foregoing were caused to be served on December 17, 2007 upon the following individuals in the manner indicated: BY E-MAIL & HAND DELIVERY Donald J. Detweiler Dennis A. Meloro GREENBERG TRAURIG, LLP The Nemours Building 1007 North Orange Street, Suite 1200 Wilmington, DE 19801 BY E-MAIL G. Bartley Loftin, III Douglas B. Hargett MAYNARD, COOPER & GALE, P.C. 655 Gallatin Street, S.W. Huntsville, AL 35801 W. Percy Badham, III Will A. Smith MAYNARD, COOPER & GALE, P.C. 2400 AmSouth/Harbert Plaza 1901 Sixth Avenue North Birmingham, AL 35203

/s/ Thomas C. Grimm
_______________________________________ Thomas C. Grimm (#1098) [email protected]

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