NUKOTE FILES $ 100M. LAWSUIT AGAINST CLOVER GROUP

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NUKOTE FILES $ 100Million  LAWSUIT AGAIN CLOVER GROUP
Nukote and Clover prepare for battle
Nukote has filed a $100 million lawsuit against rival cartridge manufacturer Clover Technologies. The gloves are off as both parties provided exclusive comment to opi.net.Feelings are obviously running high in the dispute between aftermarket cartridge competitors Nukote and Clover after Nukote filed a lawsuit against Clover last Friday in Texas seeking $100 million in damages.Nukote’s filing comes as part of a dispute after Office Depot ended its 20-year supply relationship with Nukote last May, leading the vendor to file for Chapter 11 bankruptcy protection a month later (it came out of Chapter 11 in December).

In a separate lawsuit filed in September 2009 against Office Depot, Nukote is seeking $217 million in damages for what it calls “intentional and malicious acts” by Office Depot that breached a binding contract between the two companies and forced Nukote to file for Chapter 11.In that lawsuit, Nukote refers to Depot “secretly negotiating” with Nukote’s main competitor (Clover).Now Nukote has filed a second lawsuit, this time against Clover itself for its alleged role in attempting to put Nukote out of business by, among other things, getting Office Depot to switch suppliers.The lawsuit seeks damages on seven counts, including: civil conspiracy; tortious interference with contracts; unfair competition by misappropriation; and employee raiding.

In brief, here are Nukote’s allegations against Clover:
1. Clover had a co-ordinated plan dating back several years to monopolise the supply of aftermarket cartridges and collection of empties in the US. This involved:

a. Making illegal proposals to Nukote to fix product prices and thereby increase profits.
b. Attempting to merge with Nukote once the above had failed.
c. A further co-ordinated and deliberate attack to end Nukote’s relationship with Office Depot which would “drive Nukote out of business”.

2. Clover induced Office Depot and other companies to breach their agreements with Nukote.

3. Clover misappropriated Nukote’s trade secrets by the “targeting and raiding of key employees with secrets” and knowingly caused former Nukote employees to breach their fiduciary relationships with Nukote.

4. Colluded to exclude Nukote from the empties market.

The wording of the actual complaint is far more colourful and, in parts, reads more like a sensationalist blog than a legal document. (See extracts at the end of this article).To their credit, both parties were willing to respond to opi.net’s questions, though they are limited in what they are able to say because of the legal nature of the dispute.

Neither side, though, was mincing its words.
In an initial press release issued a few days after the filing of the lawsuit, Clover accused Nukote of “abusing the court system in a transparent and desperate effort to raise capital for a business that is on the verge of collapse”, adding that Clover has been receiving “daily letters, e-mails, and phone calls from Nukote customers looking to secure a new supplier and Nukote employees desperately seeking job opportunities”.

Not so, retorted Nukote spokesman, Russell Mack.
“I think that Clover’s rantings in the press release that they put out Monday are perfectly consistent with their behaviour that led to the lawsuit against them in the first place,” he told opi.net in an email.“Nukote is alive and well [and] is conducting business normally – we’re manufacturing and shipping products, and we’re selling and serving our customers,” he continued.“During the reorganisation last year, we were thrilled and grateful at how loyal our customers were. Virtually every one of them stood by us during that time. It was really gratifying to see that kind of loyalty. It meant a lot to us and we are working every day to repay our customers’ loyalty.“I think everyone knows that a healthy Nukote is good for this industry. The reaction we got from our customers showed how much this industry respects Nukote and values our place in the industry. We’ve got the newest factory in the industry, in Monterrey, Mexico, with plenty of expansion capacity. We’ve restructured our finances and reorganised our team. We feel great about the future of our company.”With regards to the allegations themselves, Jim Cerkleski, CEO of Clover Holdings, maintained that all Nukote’s claims “have no connection to actual facts”, adding that their “sweeping allegations have literally no grounding in fact” and that it seemed “Nukote is proceeding with the notion that evidence is optional”.

Responding to some of the specific allegations, Cerkleski denied that his company had tried to muscle in on Nukote’s contract with Office Depot, telling opi.net that is was the office supplier which first contacted Clover about supplying them after Depot experienced supply issues with Nukote.“Office Depot conducted an open and fair selection process to satisfy their product needs,” he stated.Cerkleski also denied that Clover “relentlessly pursued” Nukote seeking a merger or buyout, though he admits that the issue had been discussed.“We have never had meaningful discussions that ever became serious”, he affirmed. “However, we certainly talked about the benefits of coming together. I have only met Mr Rochon [Nukote’s Chairman] a handful of times in my life, of which one was at Office Depot when I told him we had decided to leave the line review in February [2009] after the first day.”The Clover Holdings CEO also said that only a handful of former Nukote employees are currently employed at Clover out of a total workforce of 3,700 and that they contacted Clover, not the other way round as alleged in Nukote’s complaint.When asked by opi.net how many former Nukote employees Nukote alleges that Clover lured into moving over to them, Nukote spokesman, Russell Mack, responded: “These are facts that I would expect will come out at trial.”

Mack was also unable to comment on whether Nukote had taken any legal action against individual former employees who may have breached confidentiality agreements or stolen confidential corporate documents.Whatever happens, it is clear that Nukote has got its work cut out on the legal front, with two major lawsuits that could well drag on.The lawsuit with Office Depot, originally filed in a Tennessee bankruptcy court, is now in Federal District Court in Florida, Depot’s home state. A fact that “should make no difference”, according to Mack.“Our case stands on its merits, regardless of the jurisdiction,” he stated.

Giving an update on the Depot lawsuit, Mack said: “There have been some procedural motions back and forth. We are leading up to the point where testimony will be taken in the form of depositions by both parties. I can’t predict how long the trial will last, but it is my understanding that a trial date of 10 January 2011 has been set by the court.”Mack showed no signs that the long time frame would deter Nukote.“We’re going to get justice for those who Clover has damaged,” he warned. “It will be a long case, but we’ll pursue it all the way to the end, no matter how long it takes.”With Clover stating that it is “prepared to root out the source of any attack on our company and aggressively defend the integrity of our brand,” it looks like being a hard fought battle.

Nukote’s accusations
“The actual words in our lawsuit tell the story more clearly than anything I can add here,” Nukote spokesman Russell Mack told opi.net.Here are some of the allegations quoted from the complaint document (editor’s additions indicated by,[Clover had a] coordinated plan to interfere with, dismantle and cripple [Nukote’s] business in an effort to personally enrich themselves and their owners.After several failed attempts to merge with Nukote and persuade its management to agree to illegal contracts in violation of Texas Law, [Clover] went about a coordinated plan to drive Nukote out of business so it could control a monopoly in the market.

Illegal acts included, but are not limited to, stealing trade secrets and confidential information, targeting and raiding Nukote’s key employees, and tortiously interfering with Nukote’s contracts.Deep in the boardroom, Clover’s management envisioned a new world order, in which Clover had the exclusive ability to control cartridge prices and the market for empty cartridges needed by both parties. In fact, this plot became an integral part of Clover’s long-term business plan.Rebuffed in their attempts to have Nukote join their conspiracy, Clover turned to Plan B.Unable to corrupt or merge with Nukote, Clover concocted a new – and unlawful – scheme. The plot had one goal: remove Nukote from the market.

Clover needed to negate that contract [Nukote’s contract with Office Depot] at any cost in order to obtain the monopoly power that they so desperately coveted.Armed with the employees it raided from Nukote, Clover had a series of contacts with Office Depot in which it indicated its desire to replace Nukote as its supplier.Clover’s plot was successful. […] Exactly as Clover had planned, Nukote’s business was instantly devastated.Even today, as Nukote works diligently to regain its place in the market, Clover continues to grind down Nukote under the heel of its market power.

Clover has been telling third parties that it must maintain lower prices for a limited time in an effort to shut down Nukote once and for all. And, once Nukote has been totally destroyed – ending any possible competition – Clover intends to use its market power to significantly raise prices and increase its profitability.

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March 8, 2010 at 2:14 PM