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Lawyers, other representatives, expert(s), tribunal’s secretary

Corrected and Amended Final Award

[1].
WE, THE UNDERSIGNED ARBITRATORS, having been designated in accordance with the arbitration clause set forth in Section 15.3(i) in each of the Master Distribution Agreements entered into between Storagecraft Technology Corporation ("claimant"); and each of the following: Storagecraft UK, on November 7, 2011, Storagecraft Deutschland GMBH, on November 7, 2011, Sotec Software AG, also on November 7, 2011, Storagecraft Italia S.R.L., and Storagecraft Espana S.L. both both entered into on December 11, 2012, (collectively, "respondent entities"), with Dominik Zingg ("Zingg"), and together with the respondent entities, ("respondents"); and having been duly sworn, and having duly heard the proofs and allegations of the parties, do hereby, AWARD, as follows:

Introduction and Procedural History

[2].
This matter was arbitrated pursuant to the following: the contracts between the parties, referred to above; the Utah Uniform Arbitration Act, UCA 78B-11-101, et seq., and administered by the International Centre for Dispute Resolution ("ICDR"), a division of the American Arbitration Association ("AAA"), under its International Dispute Resolution Procedures ("IDRP"). The arbitration panel included William Bohling, Michael Zimmerman, and Tyrone Medley, who resigned on December 28, 2015, and was subsequently replaced by Sandra Peuler, as the new chairperson.
[3].
This matter was heard in arbitration on May 16, 2016, after the ICDR gave proper notice to all parties. Claimant was notified through its representative Kimberly Neville. Respondents were notified of the hearing by the ICDR via courier delivery services to the address provided to the ICDR by claimant (Route Champ-Colin 10, 1260 Nyon, Switzerland), as well as via email at the address provided to the ICDR by claimant (sotec@gmx.ch). Despite proper notice, none of the respondents was present or represented by counsel during the hearing. The case was before the panel based upon claimant's motion for order to show cause, in which claimant sought default judgment against all respondents, based upon respondents' failure to comply with the previous orders of the panel and refusal to participate in the arbitration proceedings. Witnesses testified, claimant's exhibits were offered and received, and the panel heard argument of counsel.
[4].
Following the hearing, the panel further considered all of the evidence. After its deliberation, the panel ordered that the evidence be reopened to receive claimant's affidavit of fees and costs incurred in this matter (see Order to Reopen of June 20, 2016) ("Order to Reopen"). Claimant's Declaration in Support of StorageCraft's Request for Attorneys Fees was received on June 30, 2016, and considered by the panel. On June 28, 2016, Zingg sent an email addressing the substance of claimant's allegations.

FINDINGS

[5].
As for Zingg's June 28, 2016 email, all respondents were invited to provide evidence at the regularly scheduled hearing held on May 16, 2016, and Zingg failed to avail himself of that opportunity. Additionally, the Order to Reopen was limited in its scope to claimant's request for attorneys fees and costs. Accordingly, the panel gives no weight to the unsworn statements contained in Zingg's June 28, 2016 email.
[6].
After consideration of the evidence presented at the hearing of May 16, 2016, as well as claimant's Declaration, the panel unanimously issues the following decision by a preponderance of the evidence.
[7].
Based upon respondents' failure to comply with the Panel's Order Compelling Production of Documents dated February 8, 2016, requiring them to provide discovery to claimant, and upon respondents' failure to participate in court-ordered arbitration (November 8, 2015, U.S. District Court Order), and upon respondents' failure to appear at the scheduled hearing, (Article 26 of the IDRP), and further based upon the evidence presented by claimant, the panel finds and concludes as follows.
[8].
In 2011 and 2012, claimant entered into five Master Distributor Agreements ("MDAs") with each of the respondent entities, under which the entities assumed exclusive responsibility for selling, distributing, and marketing claimant's products in parts of Europe. The testimony of Gregory Stanley Nelson, an employee of claimant who oversees the operations and employees of claimant's European headquarters ("Nelson") established that the entities were formed, controlled, and owned by Zingg. During the course of the parties' relationship, Zingg signed all of the MDAs entered into between claimant and the respondent entities and regularly traveled to claimant's offices in Salt Lake City. He personally recruited many of the claimant's distributors in Europe and made decisions in dealings between claimant and the European distributors.
[9].
In or about 2012, claimant believed that Zingg was not performing under the MDAs as he should. Brett Johnson, general counsel for claimant ("Johnson"), testified that claimant discussed renegotiating the MDAs with Zingg, so that Zingg and his entities would receive less profit. Claimant was unable to reach a modified agreement, however.
[10].
Ultimately, in the fall and winter of 2013, claimant terminated each of the MDAs after it determined that respondents had breached various provisions of the agreements, including failure to provide data and information concerning claimant's customers, failure to produce copies of certain customer agreements, and non-payment of revenue share owed under the MDAs.
[11].
Claimant also commenced a lawsuit in the United States District Court of the District of Utah in order to compel the return of its customers' transactional data, as required by Section 5.5 of the MDAs.
[12].
On December 5, 2013, the United States District Court entered a Preliminary Injunction Order which, among other things, found that the respondent entities had failed to comply with Section 5.5 of the MDAs to provide transactional information, including monthly sales reports, customer information, and product information. The Court ordered the respondent entities to provide all of the data for claimant's products within five days of the Order.
[13].
The court docket minute entry for December 20, 2013 indicated that the parties were working together to allow respondents an opportunity to provide the information, and included statements of respondents that they would also cooperate in transferring web domain names to claimant by December 23, 2013.
[14].
Claimant's exhibit CC, a letter from respondents' counsel, Christian Wilser, dated April 2, 2014, indicated that respondents were no longer using the "StorageCraft" name, and that the domain names would revert to the ownership of claimant. All of the respondent entities were referred to as former entities.
[15].
Johnson testified that claimant could not register the domain names until respondent entities had been dissolved, and that respondent Zingg testified in the federal court action that the entities had been dissolved.
[16].
Sam Payne, a financial analyst at StorageCraft Technology Corporation ("Payne"), testified that respondent entities provided some of the customer information, but in a format that required employees of claimant to spend approximately two months to "unscramble" the data.
[17].
Following that, claimant was required to reach out to customers in order to assist them with contact information for claimant, and to put the customers into claimant's system.
[18].
The respondent entities ultimately failed to provide all of the transactional data ordered by the Court; and, on December 3, 2014 and August 13, 2015, the Court issued a permanent injunction against the respondent entities and Zingg, personally, from using claimant's customer lists, pricing information, trade secrets, confidential information, and from competing directly or indirectly with claimant's business.
[19].
On November 17, 2014, claimant commenced this arbitration, seeking damages.
[20].
On July 1, 2015, Zingg filed a motion to dismiss the claims against him in his personal capacity. The United States District Court issued an Order on November 18, 2015, compelling Zingg to arbitrate, finding that the Court had personal jurisdiction over him, that the MDAs provided for arbitration in the State of Utah, that Zingg was subject to arbitration in his personal capacity under Section 8.9 of the MDAs, and that the claims against the respondent entities were intertwined with those against him personally.
[21].
On December 23, 2015, claimant filed a petition in this arbitration proceeding to compel production of certain documents which claimant asserted were relevant to its claims and damages. Respondents failed to respond to the petition and argument that the documents were relevant and necessary. On February 8, 2016, this panel issued an Order Compelling Production of Documents, which required respondents to produce the requested documents within twenty days. This Order was sent to respondents by the ICDR via courier delivery services to the address provided to the ICDR by claimant (Route Champ-Colin 10, 1260 Nyon, Switzerland), as well as via the email at the address provided to the ICDR by claimant (sotec@gmx.ch).
[22].
The requested documents pertained to (1) the location of claimant's customer payments, which had not been returned to claimant, as well as unpaid and owed commissions; and (2) copies of documents seeking to determine the nature and extent of respondents' breach of the non-competition agreement and respondents' use of claimant's confidential information.
[23].
The respondents failed to provide any of the requested documents.

SECTION 5.6 and 5.3 CLAIMS- PAYMENTS

[24].
Section 5 of the MDAs required each of the respondent entities to (1) pay claimant for products sold or distributed to its customers within thirty days of the receipt of an invoice prepared by claimant (Section 5.6) and (2) pay to claimant a share of the revenue on all of claimant's products it sold or distributed (Section 5.3).
[25].
Helen Nason, the European controller of StorageCraft Technology Corporation ("Nason"), testified through declaration that she determined that some invoices had not been paid. She thereafter sent account statements to claimant's customers who had unpaid invoices. The payments were on sales transacted prior to the termination of the MDAs, and should have been paid to claimant by respondents. She determined that many customers had paid by sending funds to bank accounts used by StorageCraft Deutschland GMBH and StorageCraft UK, two of the respondent entities in this action, which were associated with Zingg.
[26].
Johnson testified that respondent StorageCraft UK was dissolved before customer payments were made to that account, and that Zingg was the person who had established and controlled the account.
[27].
Respondents failed to pay the sums to claimant, as required by the MDAs, and claimants have not received them from their customers. Respondents breached Section 5.6 of the MDAs by failing to pay claimant the invoiced amount for sales or distribution of products, which caused damage to claimant in the amount of the unpaid invoices.
[28].
Based upon the panel's decision addressing unpaid invoices pursuant to contract terms, the additional cause of action for conversion is not addressed.
[29].
In addition, respondents failed to pay commissions on sales of StorageCraft products during the terms of their MDAs. As established by Nason's testimony, the unpaid commissions were more than one year past-due, and Zingg had failed to respond to her efforts to collect the funds. Respondents breached Section 5.3 of the MDAs by failing to pay claimant the commissions, which caused damage to claimant in the amount as set forth in Nason's testimony.
[30].
Respondents also failed to provide discovery ordered by this panel on February 8, 2016, which discovery was designed to facilitate tracking the whereabouts of the unpaid invoices and commissions. Accordingly, the panel exercises its authority under Article 21 of the IDRP to draw an adverse influence with respect to the documents and evidence respondents failed to produce. The panel, therefore, finds that the documents, if produced, would reveal that all of the respondents withheld invoice payments and commissions from claimant, in violation of Sections 5.3 and 5.6 of the MDAs, in the amounts demonstrated in Nason's declaration.
[31].
The total of unpaid invoices is the sum of US$108,328.97, as demonstrated on claimant's exhibit T-4, attached to Nason's declaration.
[32].
The total of unpaid commissions is the sum of US$288,871.02, as demonstrated on claimant's exhibit T-5, attached to Nason's declaration.

SECTION 5.5 CLAIMS - CUSTOMER DATA

[33].
Section 5.5 of the MDAs required the respondent entities to provide information, including monthly sales reports, customer information, and product information, to claimant within five (5) business days of the end of each month.
[34].
As noted above, respondents failed to provide the information, despite an order from the Federal District Court. Respondents also failed to provide discovery as ordered by this panel on February 8, 2016, which was designed to assist claimant in recovering the data, in an effort to reach out to their customers.
[35].
The respondents breached Section 5.5 by failing or refusing to provide customer and product data to claimant, causing damage to claimant in the amount of the business losses incurred in recovering the information and contacting customers.
[36].
As established by Payne's testimony, claimant was forced to use employee time to reconstruct the customer data that the respondents failed to provide, pursuant to Section 5.5. The lost employee time cost claimant US$56,837.35 (Tab 8 to Payne's declaration).
[37].
In order to reach out to customers, claimant was forced to employ the services of third-party vendors to complete mailings to clients, to advise them of the transition and how to obtain StorageCraft products, services, and support. These expenses total US$57,227.00 (Tabs 9 and 10 to Payne's declaration). The total business loss to claimant is the sum of US$114,064.35.

NON-COMPETITION AND CONFIDENTIALITY CLAIMS

[38].
The MDAs included a non-competition clause (depending on the specific MDA, Section 8.9 or 8.11, both with similar language), which required respondents entities and any controlling shareholders, members, or partners, to refrain from competing with claimant for a period of one (1) year following termination of the contracts with claimant. Additionally, the MDAs included a confidentiality clause (depending on the specific MDA, Section 15.11, 15.12, or 15.13, all of them identical) providing that claimant's pricing information was confidential and was not to be disclosed to any third party.
[39].
Nelson testified through his declaration that, within several months after claimant filed a federal lawsuit against respondents and the MDAs were terminated, claimant's customers began contacting him to report that employees of entities controlled by Zingg had solicited their business, in competition with claimant. He also testified that a close business associate of Zingg and former representative of the respondent entities had established a website promoting claimant's competitor, NetJapan, which advertised products very similar to claimant's products.
[40].
Nelson also became aware that a former representative of the respondent entities, who was a close business associate of Zingg, had formed a company in Switzerland called Muntor GMBH, which began promoting NetJapan products. Additionally, Nelson learned that former employees of claimant had begun working for the competitor, and were soliciting claimant's customers to place their business with NetJapan. Nelson testified that NetJapan sales personnel contacted claimant's customers just before their contract with claimant was due to expire.
[41].
Not only did NetJapan solicit claimant's customers, but Nelson learned, in late June 2014, that NetJapan's price list was consistently one or two Euros lower than the equivalent claimant's products. Nelson testified that claimant's price lists are confidential, and that claimant has lost customers as a result of the competition by NetJapan and Zingg employees or associates who began distributing NetJapan products, in violation of the MDAs non-competition clauses.
[42].
Nelson's testimony establishes that respondents misappropriated claimant's customer information and pricing information, and that they have used that information to solicit claimant's customers and promote competitive products. Respondents also provided confidential information to others, to gain a competitive advantage in the market.
[43].
Johnson testified that beginning in January 2009, when he became employed by claimant, he became aware that Zingg was a major distributor, and that his entities controlled about 65% of claimant's revenue in Europe.
[44].
He also testified that Zingg was the person who negotiated agreements, founded and was the sole owner of the entities in Europe, and made all the business decisions for the respondent entities. He was the principal shareholder, the sole officer and director for all of the respondent entities, and Johnson testified that there was never any doubt that Zingg was the person in charge.
[45].
Johnson further testified that, after the MDAs were terminated and sales personnel began soliciting for competitors, including NetJapan, in Europe, Zingg was the only one who could have set up the competition. The confidential customer lists and contracts with their expiration dates, as well as price lists were available to him; claimant's customers were solicited as their contracts with claimant expired, and prices invariably undercut claimant's prices.
[46].
The testimony established that Zingg was the person who controlled the respondent entities during the time the MDAs were in effect. Additionally, it established that after the MDAs were terminated and the entities were dissolved, Zingg controlled the bank accounts in which the claimant's commissions and payments were held and that he directed competition against claimant and used confidential information.
[47].
The respondents breached the non-competition and confidentiality provisions by competing with claimant and by using confidential information to solicit customers away from claimant, in violation of the MDAs.
[48].
Additionally, based upon respondents' failure to provide discovery, which was designed to determine the nature and extent of respondents' violation of the non-competition and confidentiality provisions of the MDAs, as well as Zingg's personal control over the entities, the panel exercises its authority under Article 21.9 of the IDRP to draw an adverse inference with regard to the respondents' breaches, and in particular, Zingg's personal control over the misuse of claimants' confidential information, violation of the non-competition agreement, and failure to pay over commissions and owed payments to claimants.
[49].
The panel, therefore, finds that the documents, if produced, would demonstrate that all respondents violated the provisions of the MDAs requiring them to refrain from competition with claimant for one year following termination, and to refrain from using or disclosing confidential information to solicit customers away from claimant. The panel also finds that Zingg personally exercised control over the entities, that he personally withheld claimant's commissions and payments, solicited claimant's customers, and used confidential information, in violation of the provisions of the MDAs.
[50].
Payne testified that claimant lost profits based upon the competition orchestrated by Zingg, which included use of customer and price information, and solicitation of customers. He further testified that, based upon his calculations, and considering only claimant's markets in Germany, Austria, and Switzerland, claimant had lost profits of US$2,390,034 from 2014 through April of 2016 (Tab 7 to Payne's declaration).

DAMAGES

[51].
Based upon the evidence presented, the Panel finds that the claimant should be awarded damages against respondent entities and Zingg, personally, as follows:

Unpaid invoices US$108,328.97

Unpaid commissions US$288,871.02

Business losses US$114,064.35

Lost profits US $2,390,034.00

TOTAL DAMAGES: US$2,901,298.34

[52].
The panel further finds that claimant is the prevailing party in this arbitration, and is, therefore, entitled to its attorneys' fees and costs incurred in connection with this arbitration, as provided by Section 15.3(v) of the MDA. After consideration of claimant's Declaration, the panel finds that the requested fees and costs were reasonable and necessary to allow claimant to successfully litigate its claims in this action, that the hourly rates charged were customary and reasonable in the community, and were actually incurred by claimant. Additionally, Article 34 of the IDRP provides for the recovery of legal costs and expenses incurred in the arbitration including fees and expenses of the arbitrators and costs of administration.
[53].
Accordingly, claimant is awarded attorneys fees and costs against all respondents entities, and Zingg personally, in the sum of US$112,988.83, in addition to the damages awarded above.

Decision

[54].
For the reasons stated above, we award as follows:

1. Within thirty (30) days from the date of transmittal of this Final Award to the parties, Storagecraft UK, Storagecraft Deutschland GMBH, Sotec Software AG, Storagecraft Italia S.R.L., Storagecraft Espana S.L., and Dominik Zingg, shall jointly and severally pay to Storagecraft Technology Corporation the sum of US$2,901,298.34 in damages and US$112,988.83 in attorneys fees and costs.

2. The administrative fees and expenses of the International Centre for Dispute Resolution (ICDR), totaling US$16,900.00, and the compensation and expenses of the arbitrators, totaling US$30,642.50, shall be borne, jointly and severally, by Storagecraft UK, Storagecraft Deutschland GMBH, Sotec Software AG, Storagecraft Italia S.R.L., Storagecraft Espana S.L., and Dominik Zingg. Therefore, Storagecraft UK, Storagecraft Deutschland GMBH, Sotec Software AG, Storagecraft Italia S.R.L., Storagecraft Espana S.L., and Dominik Zingg shall, jointly and severally, pay Storagecraft Technology Corporation the sum of US$47,542.50 in fees and expenses.

3. This Final Award is in full settlement of all claims submitted to this Arbitration.

4. This Final Award may be executed in any number of counterparts, each of which shall be deemed an original, and all of which shall constitute together one and the same instrument.

[55].
We hereby certify that, for the purposes of Article I of the New York Convention of 1958, on the Recognition and Enforcement of Foreign Arbitral Awards, this Corrected and Amended Final Award was made in Salt Lake City, Utah, U.S.A.
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