Alchemy Japan vs Carval et al - WordPress.com · 6 3. Fees Specified in AMA (1) Asset Management Fee According to Article 9.1 of AMA, Defendant SPCs were liable to pay to Plaintiff

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COMPLAINT

September 26th, 2013

To: The Civil Division of Tokyo District Court

Attorney-at-Law for the Plaintiff Shuzo Fukuda

Same as above Hidetaka Seki

Same as above Hirofumi Kurahashi

Parties: As stated in the attached list of the parties

CASE CLAIMING DAMAGES

Value of the damages subject of the suit: 278,741,926 yen

Amount of stamp duty: 857,000 yen

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OBJECT OF CLAIM

Plaintiff demands orders to the following effect, together with a declaration that that

these orders are subject to provisional executions:

1. Defendant YK Generous and Defendant CarVal Investors Pte. Ltd. jointly and

severally pay to Plaintiff a sum of 56,359,703 yen together with an amount thereon at

the rate of 5% per annum from September 12, 2012 until full payment of such sum

shall have been made;

2. Defendant YK LOHAS and Defendant CarVal Investors Pte. Ltd. jointly and

severally pay to Plaintiff a sum of 180,762,324 yen together with an amount thereon

at the rate of 5% per annum from September 12, 2012 until full payment of such sum

shall have been made;

3. Defendant YK Blue Capital and Defendant CarVal Investors Pte. Ltd. jointly and

severally pay to Plaintiff a sum of 41,619,899 yen together with an amount thereon at

the rate of 5% per annum from September 12, 2012 until full payment of such sum

shall have been made; and

4. Court costs shall be borne by Defendants.

STATEMENT OF CLAIM

1 Outline of the Case

Plaintiff was requested by Defendants to be their asset manager over certain hotel

assets owned by the Defendants. The Plaintiff and Defendants entered into Asset

Management Agreements for the Defendant’s hotels, and Plaintiff subsequently

achieved substantial earnings improvement at these hotels. However, following a

change in executive management at the Defendants, Plaintiff was improperly and

unilaterally excluded from the above hotel businesses.

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More specifically, Plaintiff was commissioned to provide asset management

services with regard to the hotels, and was expected to manage and operate the hotels

in accordance with a Strategic Plan which was agreed and updated quarterly by the

parties in order to enhance the value of the hotels. The hotels were to be disposed at

an agreed time. From commencing as asset manager, Plaintiff achieved significant

earnings improvement, and, initially, Plaintiff and Defendants worked together for

the hotel management according the Asset Management Agreements. Nonetheless,

suddenly, following a change in the executive management of Defendants in October

2011, Defendants abruptly changed their attitude towards Plaintiff, changed their

policy to exclude Plaintiff from their hotel businesses, forcibly sold multiple hotel

properties owned by Defendants ahead of the agreed disposal schedule in

contravention to their agreement, and claimed that the Asset Management

Agreements were terminated. Such a unilateral claim for the termination before the

expiry date was not only against the mutual agreement of the parties, but also

violated a trust relationship between the parties under the continuing contractual

relationship and caused subtantial damages to Plaintiff. Therefore, Plaintiff claims

damages against Defendants for unilaterally making it impossible for Plaintiff to

continue service provision under the Asset Management Agreements.

2 Parties

1. Plaintiff is a limited public company (Kabushiki Kaisha) engaged in such business

purposes as management consulting services, various types of advisory services, and

hotel and restaurant management (Ko-1 Plaintiff’s Certificate of All Historical

Matters).

2. Defendant Yugen Kaisha Generous (hereinafter referred to as “Defendant

Generous”), Defendant Yugen Kaisha LOHAS (hereinafter referred to as “Defendant

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LOHAS”), and Defendant Yugen Kaisha Blue Capital (hereinafter referred to as

“Defendant Blue Capital”) are so-called “special purpose companies” or “SPCs”

(hereinafter referred to collectively as “Defendant SPCs”), which owned real estate

which comprised land and hotel buildings and various assets related to hotels. (All

these lands have been sold by now.) (Ko-2 to Ko-4 Defendant SPCs’ Certificates of

All Historical Matters).

The Defendant SPCs entered into Tokumei Kumiai (anonymous association)

agreements with an investor, CFSC Capital Corp. LXV (hereinafter referred to as

“CFSC”; Ko-5 TOKUMEI KUMIAI AGREEMENT). CFSC is funded by Cargill,

which is a general trading company based in Minneapolis, Minnesota, USA

(hereinafter referred to as “Cargill”; Ko-6 Cargill official website). The person who

signed TOKUMEI KUMIAI AGREEMENT (Ko-5) as President (the

highest-ranking officer) of CFSC was Mr. Peter Vorbrich (hereinafter referred to as

“Vorbrich”), who is Chief Financial Officer (CFO) of CarVal Investors LLC, a

subsidiary of Cargil (Ko-7).

3. The Defendant SPCs have no actual employees or staff and so actual corporate

services have been provided by employees and representatives of the Tokyo Branch

of Defendant CarVal Investors Pte. Ltd. (hereinafter, “Defendant CarVal”; Ko-8)

(Ko-32 Content-Certified Mail prepared by the agent/representative of Defendant

CarVal Tokyo). Not only that, the fact is that decisions of Defendant SPCs have been

made by Defendant CarVal Tokyo (especially since October 2011).

Defendant CarVal is a subsidiary of the above-mentioned CarVal Investors LLC.

CarVal Investors LLC is a subsidiary of Cargill, and is recognized as the financial

investment division of Cargill. The Japanese version of Cargill’s official web page

states that “CarVal Investors” is a “subsidiary of Cargill” (Ko-9 Cargill official web

page; Defendant CarVal’s official web pages are Ko-10.1 and Ko-10.2). It also states

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that Defendant CarVal is “the financial services division of the U.S. major grain

trading company Cargill, which is also one of the world’s largest privately held

companies.” (Ko-11)

(For more details, refer to the attached Relationship Diagram of the Parties.)

3 Asset Management Agreements between Plaintiff and Defendant SPCs

1. AMA

Plaintiff concluded the following Asset Management Agreements with each of

Defendant SPCs: Asset Management Agreements dated October 27, 2008 (Ko-12,

Ko-13, and Ko-14), revised Asset Management Agreement dated October 5, 2009

(Ko-15, Ko-16, and Ko-17), and revised Asset Management Agreement dated August

31, 2010 (Ko-18, Ko-19, and Ko-20) (hereinafter referred to collectively as “AMA”).

And Plaintiff managed and operated hotels owned by Defendant SPCs in accordance

with the above-mentioned agreements.［1］

2. Hotels

The hotels which Plaintiff was commissioned to manage were as follows: (1) 4

hotels (Locoz Oceanside Numazu, Locoz Canalside Yokosuka, Locoz B&B Tsuchiura,

and C-stage Otaru) the underlying real estate which is owned by Defendant Generous;

(2) 4 hotels (Mine Ichinomiya, Mine Toyota, Shine Kawagoe, and Mine Gifu) the

underlying real estate which is owned by Defendant LOHAS; and (3) 2 hotels (Coco

Nagano, and Vienne Utsunomiya) the underlying real estate which is owned by

Defendant Blue Capital (hereinafter the above real estate are referred to collectively as

“the Real Estate”, and the above hotels are referred to collectively as “the Hotels”).

1 Plaintiff’s documentary evidence # Ko-12.2 through 20.2 are Japanese version of AMA translated by Defendant SPCs, each of which was presented to a separate pending lawsuit by respective Defendant SPC. On the contrary, Ko-12.3, 13.3 and 14.3 are excerpts from such Japanese version prepared by Plaintiff, summarizing points which may lead to disputes between Plaintiff and Defendants. For such parts, Plaintiff follows Japanese translation used in Ko-12.3, 13.3 and 14.3.

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3. Fees Specified in AMA

(1) Asset Management Fee

According to Article 9.1 of AMA, Defendant SPCs were liable to pay to Plaintiff

the monthly fee equivalent to one-twelfths of 1% of the asset value allocated to each

of hotels owned by Defendant SPCs. This was to be made on a monthly basis in

arrears (Ko-12, Ko-13, and Ko-14).

However, on August 31, 2010, Defendant SPCs and Plaintiff concluded revised

Asset Management Agreements (hereinafter referred to as “Revised AMA”), and

accordingly the provision on asset management fees specified in Article 9.1 of AMA

was revised (Ko-18, Ko-19, and Ko-20) as follows: according to Article 9.1 of AMA,

Defendant SPCs are liable to pay to Plaintiff the amount equivalent to 10 % of total

net operating income (hereinafter referred to as “NOI”) generated by the hotels in the

respective month (hereinafter referred to as “AM Fee”), calculated based on

Plaintiff’s monthly administration report as well as the definition and rules presented

by Plaintiff, on a monthly basis, in arrears. (Refer to “AM Fee” in Ko-24.3.)

(2) Operation Fee

According to Article 9.2 of AMA, for each hotel owned by Defendant SPCs,

Defendant SPCs were liable to pay to Plaintiff fees equivalent to 10% of total NOI

generated by the hotels in the respective month (hereinafter referred to as “Operation

Fee”) on a monthly payment date in monthly arrears. (Ko-12, Ko-13, and Ko14. Also

refer to “Operation Fee” in Ko-24.3.)

(3) Exit Fee

According to Article 9.6 of AMA, upon disposal of each hotel by Defendant

SPCs, for each of hotels disposed, Defendant SPCs were liable pay to Plaintiff the

following fee on a quarterly payment date immediately after a quarter when such a

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hotel is disposed: (i) fee equivalent to 1.5% of net disposition proceeds, if the net

gain on disposal is greater than its allocated asset value; or (ii) fee equivalent to 1%

of net distribution proceeds, if the net gain on disposal is less than its allocated asset

value (hereinafter referred to as “Disposition Fee”; Ko-12, Ko-13, and Ko-14).

However, on August 31, 2010, Defendant SPCs and Plaintiff concluded revised

AMA, and accordingly the provision on the Exit Fee specified in Article 9.6 of AMA

was revised (Ko-18, Ko-19, and Ko-20). As a result, Defendant SPCs agreed to pay

to the Plaintiff, the fee equivalent to 2% of net disposition proceeds of each hotel

upon such disposal by Defendant SPCs on a quarterly payment date immediately

after a quarter when such a hotel is disposed. (Please refer to Ko-24.3 “Exit Fee”.)

4 Strategic Plan

Plaintiff periodically prepared and updated and mutually approved with the

Defendants the “Strategic Plan” (a plan mutually approved by the owners and the

manager with regard to management, administration and disposal of the asset groups

or hotels).

As Article 2(b) of AMA provides for as follows (Ko-12, Ko-13, and Ko-14):

“The manager agrees to support the owner, while undertaking hotel management,

asset disposal and other administration in accordance with the agreement and

applicable Strategic Plan,”

Strategic Plan provides guidelines and the scope of services which the manager should

undertake under AMA. Furthermore, as Article 4.1(e) of AMA specifies that:

“Concerning any disposal of the whole or part of the asset, the manager shall

endeavor to find, identify, and negotiate with (a) potential third-party buyer(s)

at the timing according to the applicable Strategic Plan, or otherwise at the

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timing approved by the owner” (Ko-12, Ko-13, and Ko-14),

Strategic Plan also functions to determine the detailed scope of Plaintiff’s obligation

to make efforts regarding the asset disposal, and provides the details of the scope of

asset management services to be undertaken under AMA by Plaintiff as the manager.

As stated above, Strategic Plan is the agreement between Plaintiff and Defendant

SPCs to specify the details of the scope of the asset management services under AMA.

Moreover, for as long as Plaintiff is required to execute the asset management

services as defined in detail in the mutually approved Strategic Plan, such Strategic

Plan also deals with Plaintiff’s rights to provide the services, the period of the

provision of such services, and the existence and content of the manager’s rights to

receive fees in compensation for providing the services; and give a concrete form to

contents of Plaintiff’s other rights under AMA. Therefore, one party cannot

unilaterally make another plan to supersede the mutually approved Strategic Plan and

thereby unduly infringe on the other party’s rights under AMA as well as its

expectations of profits from such agreement.

As stated above, Plaintiff and Defendant SPCs agreed that Plaintiff provides the

services under AMA in accordance with provisions of mutually approved Strategic

Plan until below-mentioned “exit timing”, and that Defendant SPCs fulfill their

obligation of fee payments under Article 9 of AMA.

5 Defendant’s Default of Payment Obligations and Unlawful Act

1. Path toward the conclusion of AMA

(1) Defendant Blue Capital is a SPC established on November 9, 2004; Defendant

Generous is a SPC established on March 29, 2005; and Defendant LOHAS is a SPC

established on September 2, 2005. From the acquisition of Hotels, KK PM Network

(hereinafter referred to as “PMN”) had managed the hotels as the asset manager, but

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could not generate expected profits. Furthermore, PMN had serious problems with

lack of compliance in various aspects of their business operation such as management

methods which may violate Fueiho (Entertainment Business Law), labor issues,

inappropriate tax practices, and extremely inappropriate relationships (Ko-21 Miro’s

Letter, page 2).

(2) Plaintiff is a Kabushiki Kaisha (limited company) established by the incumbent

representative director Miroslav Mijatovic (hereinafter referred to as “Miro”)

on November 29, 2006.

Miro had focused his attention on investment in hotels in Japan since circa

2003, and sought to begin activities aiming at entering into such business. In

November 2005, Miro was contacted by Ms. Miho Yokoyama from Defendant

CarVal Tokyo (hereinafter referred to as “Ms. Yokoyama”) who had already

been dealing with hotels as investment properties. Commencing with this

impetus, Miro and Carval had opportunities for information exchange meetings

thereafter.

On July 30, 2007, Miro had a meeting with Mr. Yojiro Koizumi (hereinafter

referred to as “Mr. Koizumi”) and Ms. Yokoyama from Defendant CarVal

Tokyo. Mr. Koizumi and his colleagues from Defendant CarVal Tokyo

expressed their dissatisfaction with poor performance of PMN, which managed

their Hotels as the asset manager, and informed that PMN had various problems

in terms of compliance. As a result, Miro representing Plaintiff proposed new

management methods to replace PMN.

Through such a development, Plaintiff received information about Defendant

SPCs from Defendant CarVal Tokyo in January 2008; Defendant CarVal Tokyo

approved a proposal for the hotel management prepared by Plaintiff in June

2008; on September 1, 2008, Plaintiff took over the position of the asset

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manager from PMN and commenced the management of the Hotels. Then, as

mentioned above, in October 2008, Plaintiff and Defendant SPCs officially

concluded AMA (Ko-12, Ko-13, and Ko-14).

(3) Prior to entering into the AMAs, Plaintiff had 4 employees. Following conclusion

of the AMAs, Plaintiff increased the number of its employees up to 9 in order to

provide for services under the AMAs. As of June 2011, before the trouble arose

under this case, the Plaintiff’s sales from the management of hotels owned by

Defendant SPCs accounted for approx. 65% of its total sales.

Accordingly, after entering into the AMAs, Plaintiff, as a company,

economically relied on earnings earned from the asset management services

provided under the AMAs; and Plaintiff was in the situation where if the AMA

were unexpectedly cancelled before the agreed date, it would endanger the

company’s existence, or require significant restructuring including layoff of

employees. Defendants obviously also recognized and knew well about such a

situation of Plaintiff.

2. Status of Plaintiff’s asset management services

After taking the position of the asset manager, Plaintiff focused on preparation of

operational budgets and cost reduction, constantly corrected compliance problems

through measures including incurring unforeseen additional expenditure for

compliance of the Labor Standards Act, and increased income from the hotel business

every year despite extremely difficult macro-economic environment where there still

were various external shocks including Lehman Shock. As a result of this management

performance, Defendant CarVal Tokyo also highly evaluated Plaintiff’s operational

ability and results of the service implementation, and there was a strong mutual trust

relationship until October 2011 (Ko-22 CarVal Tokyo’s presentation material for

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reporting to the Headquarters; Ko-23 E-mail from Ms. Yokoyama of Defendant

CarVal Tokyo).

As stated above, Plaintiff was faithfully implementing services under AMA.

3. Updates of Strategic Plan

When the Plaintiff and Defendant SPCs concluded AMAs on October 27, 2008 as

mentioned above, Mr. Koizumi of Defendant CarVal Tokyo mentioned that this

investment would require a long time for turnaround and consideration of exit to

recover value, and thus the initial term of the AMAs was 5 years, which is a relatively

long term, with possibility of annual renewal thereafter (Ko-12, Ko-13, and Ko-14).

The hotel business under AMA was conducted by Plaintiffs in accordance with

Strategic Plan which was negotiated and agreed and updated from time to time by

Plaintiff and Defendants. At the time Plaintiff took over the position of asset manager

from PMN, the exit timing was projected to be in 2 years, i.e. September 2010 in

Strategic Plan, yet subsequently, the exit timing was gradually extended upon

negotiation and agreement between Plaintiff and Defendant CarVal Tokyo. In July

2011, as a part of the exit strategy to maximize return on capital invested in businesses

of the Hotels, the exit timing was set to be August 2013 for Defendant Generous,

September 2014 for Defendant LOHAS, and February 2015 for Defendant Blue

Capital (such exit timing for Defendant LOHAS and Defendant Blue Capital were

longer than the initial agreement period of 5 years; Ko-24).

This was because it was objectively reasonable to hold the properties rather than to

sell, in a situation where the market was too weak to expect acceptable sale prices, and

Plaintiff’s asset management services made the hotels highly profitable and with

growing profits, which was unusual at that time. Such objective reasonableness was

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unchanged as of September 2012 when Defendant SPCs eventually sold the Hotels.

4. Exclusion of Plaintiff from AMA by Defendants

(1) Policy change by Defendant CarVal Tokyo

In September 2011, Defendant CarVal Tokyo suddenly and unexpectedly

announced their restructuring policy, and Ms. Yokoyama, who was the Defendant’s

person in charge of administering the relationship with the Plaintiff, resigned from

Defendant CarVal Tokyo. Furthermore, in October 2011, Carval Tokyo’s

representative in Japan was changed from Mr. Koizumi to Takashi Nishiki (Ko-8,

page 2; Takashi Nishiki left his office on August 31, 2012 after being in office less

than a year). Upon this change in executive management the Defendants suddenly

changed their attitudes toward Plaintiff, and began to take various actions to

exclude Plaintiff from the position of the asset manager under AMA. Specifically,

as mentioned below, Defendants changed the operational structure so that

Defendant CarVal Tokyo conducts, manages and directs operations at the Hotels,

which inevitably results in questions about the nature of Tokumei Kumiai

agreement; and without agreement of the Plaintiff, carried out property disposal

activities not agreed in the Strategic Plan. Carval Tokyo also took control and

possession of the registered seal(s) of the SPCs and also took over SPC bank

accounts. These changes to the existing arrangements[2] were made to enable

Defendant CarVal Tokyo, instead of Plaintiff, to assume such functions as

decision-making on and execution of services, which should originally be

undertaken by Plaintiff under AMA (Ko-25 through Ko-34 Content-Certified Mail).

A series of such actions by Defendants unilaterally deprived Plaintiff of

administrative authorities under AMA, and put Plaintiff in a situation unable to 2 Such arrangements which were made to enable CarVal Tokyo to control the Hotels’ businesses were highly likely to nullify the Tokumei Kumiai investment scheme which was the basis of the Defendants investments in the Hotels businesses, and also problematic in terms of tax compliance.

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execute services as the asset manager.

(2) Change in Operational Structure

The former representative director of the Defendant SPCs, Mr. Ritsu Iida, is an

accountant commissioned by Defendant SPCs, had been in such a position until

December 2011, when Defendant CarVal Tokyo requested Plaintiff to replace the

representative with Mr. Takashi Ishikawa (the representative of a legal entity which

concluded a partnership agreement with Cargill Group company). At Defendant

Carval Tokyo’s demand, Plaintiff applied for the registration of alteration (Ko-2

through Ko-4).

Furthermore, on March 1, 2012, Defendant CarVal Tokyo changed the

accounting firm serving for Defendant SPCs from Minato Partners CPA Office

(representative: Mr. Ritsu Iida) to Kabushiki Kaisha Asuna Accounting

(representative: Mr. Mitsuhiro Nakagaki; hereinafter referred to as “Asuna

Accounting”). At the same time, with regard to the representative of the parent

SPCs of Defendant SPCs, namely Yugen Kaisha MY LOHAS and Yugen Kaisha

Speedway (hereinafter referred to as “the parent SPCs”), while Miro,

Representative Director of Plaintiff had been appointed to these offices, this

position was taken over by Mr. Mitsuhiro Nakagaki, Representative Director of

Asuna Accounting (Ko-44 Certificate of All Historical Matters of Yugen Kaisha

MY LOHAS; Ko-45 Certificate of All Historical Matters of Yugen Kaisha

Speedway). Moveover, on December 28, 2011, while originally Plaintiff held 50%

ownership of the parent SPCs, Plaintiff was ordered by Carval Tokyo to transfer

such shares to Asuna Accounting (Ko-46 Shareholder Registry of Yugen Kaisha

MY LOHAS; Ko-47 Shareholder Registry of Yugen Kaisha Speedway).

As mentioned above, the structure was changed with regard to the

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representatives of both Defendant SPCs and the parent SPCs, by removing persons

appointed by or related to Plaintiff from such positions and replacing them with

persons related to Defendant CarVal Tokyo.

(3) Property disposal activities

As mentioned earlier, in Strategic Plan agreed between Plaintiff and Defendants

in July 2011, disposal schedule of the properties was specified as follows: August

2013 for Defendant Generous, September 2014 for Defendant LOHAS, and

February 2015 for Defendant Blue Capital (Ko-24).

Nonetheless, Defendant CarVal Tokyo started disposal activities on their own in

the end of 2011; they then changed the custodian of the original certificates of title

and original land lease agreements for all 10 properties managed by Plaintiff, from

Plaintiff to Defendant CarVal Tokyo on February 27, 2012; similarly they also

changied the custodian of construction certificates from Plaintiff to Defendant

CarVal Tokyo on March 8, 2012; and Defendant CarVal Tokyo gradually advanced

property disposal activities (Ko-30 Content-Certified Mail). Initially, Defendant

CarVal Tokyo told Plaintiff that the disposal would not take place soon, given there

was a remaining term of AMA; and if a disposal was to occur before then, the

premise was to maintain the AMAs with Plaintiff, as the investment structure and

the Defendant SPCs would be sold. Based on these representations, Plaintiff at first

recognized that there should be no problem in a sale of the structure as long as the

AMAs remained in place as they were.

However, on April 3, 2012, Defendant CarVal Tokyo suddenly informed

Plaintiff of their intention that they would sell the Real Estate (sale in a manner to

exclude Plaintiff being the asset manager and terminate AMA) by the end of May

2012. Thereafter, without disclosing any information including the disposal

schedule to Plaintiff, Defendant CarVal Tokyo advanced disposal process of the

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Hotels, excluding Plaintiff. Even though the Real Estate was not sold in May 2012,

Plaintiff was not in a position to know, and was not informed by Defendants of the

progress of their disposal activities.

In May 2012, at the request of Defendant CarVal Tokyo, Plaintiff arranged site

visits to look inside the Hotels for unidentified potential buyers, whom Defendant

CarVal Tokyo claimed that they independently found. Specifically, Defendant

CarVal Tokyo instructed Plaintiff to coordinate pre-sale inspections of 10 Hotels

nationwide for 3 groups (approx. 4 people per group). In response, Plaintiff

requested Defendant CarVal Tokyo to disclose the identities of those 3 groups due

to concerns relating to security when allowing unidentified parties into the back

offices of the Hotels. However, this request was firmly refused and Defendant

Carval Tokyo compelled the Plaintiff to conduct the inspections. Considering the

operational aspects of leisure hotels which are open all night and deal with a large

quantities of cash, Plaintiff was concerned about showing the inside of the Hotels

(including areas related to crime prevention of the premises) to such unidentified

visitors, while actually managing the Hotels and having obligations of considering

life safety and physical security of the site employees (actual operation of the

Hotels was actually undertaken by employees of Plaintiff’s contractors, namely

Urban Resorts YK and Urban Resorts Power YK.). Nonetheless, due to strong

demand from Defendant CarVal Tokyo, Plaintiff was compelled to cooperate and

consequently guided unidentified visitors to the inside of the Hotels (Ko-28

Content-Certified Mail, page 3). In this way, Defendant CarVal Tokyo aggressively

proceeded with disposal activities with no regard of Plaintiff’s rights and

convenience of business.［3］

3 Although the relationship with this case is unknown, Hotel Canalside Yokosuka was robbed by a group of 4 males on June 12, 2012, and Hotel B&B (Tsuchiura) was robbed by a group of 4 males on September 25, 2012. In each robbery, an automatic payment machine located in the front lobby was destroyed and cash was taken away. These were the first incidents of robbery in the history of Plaintiff’s hotel management. The incidents demonstrated Plaintiff’s concerns

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By a letter dated July 3, 2012, Defendants notified Plaintiff of the fact that Plus

Ten Mind was granted exclusive negotiation rights concerning the disposal of the

hotel properties, and requested Plaintiff to disclose information on the management

of the Hotels (Ko-31). In response, Plaintiff made a strong objection to the disposal

of the Hotels, which jeopardized the currently agreed Strategic Plan. In addition,

Plaintiff strongly requested Defendants to confirm that potential buyers were not

anti-social elements, considering that Organized Crime Exclusion Ordinance is

enforced nationwide and strictly requires concerned parties to confirm that potential

counterparties are not anti-social elements, and also from the standpoint of crime

prevention including life safety and physical security of employees (Ko-33, pages

3-4). However, Defendants ignored Plaintiff’s request every time. (Refer to

Defendants’ Content-Certified Mail numbered Ko-33 and thereafter). At that time,

Plaintiff independently commissioned a world famous private research company to

make a background check on potential buyers of the Hotels. This company reported

about an extremely serious problem with such potential buyer from the point of

view of the above Ordinance.

On September 11, 2012, Defendant SPCs finally provided notification to Plaintiff

that they concluded sales agreement to dispose the real estate of Hotels to

Kabushiki Kaisha Plus Ten Mind, and would transfer the title and terminate AMA

shortly (Ko-35 Content-Certified Mail).

In this way, without informing Plaintiff of any details of the bidding and

negotiation process, suddenly, Defendant CarVal Tokyo went ahead with the

disposal of the properties at the timing not scheduled in Strategic Plan (Refer to

Ko-25 through Ko-35).

(4) Change in authority for custody of seals (inkan) and fund management

about crime prevention were not exaggerated.

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Furthermore, Defendants gradually changed authorities for custody of corporate

seals and fund management from Plaintiff to Defendant CarVal Tokyo, as

mentioned below:

On March 8, 2012, Defendant CarVal Tokyo changed the custodian of 1

officially registered seal of each parent SPC, a total of 2 seals, from Plaintiff to

Defendant CarVal Tokyo (Ko-30 Content-Certified Mail, page 3).

On June 14, 2012, Defendant CarVal Tokyo requested Plaintiff to transfer excess

funds of Defendant SPCs to a bank account for which Defendant CarVal Tokyo

held a corporate seal (the account was referred to as “reserve account” by

Defendant CarVal Tokyo and Plaintiff) and send the passbook to them (Ko-48

E-mail from Mr. Shimazu of Defendant CarVal Tokyo; Ko-30 Content-Certified

Mail, pages 3-4).

As for Defendant SPCs’ officially registered seals and seal cards, because they

were necessary for services of the asset manager, Plaintiff had been keeping and

using them for services for more than 3 years from the beginning of AMA period.

However, Defendants requested Plaintiff to hand over such seals, stating that they

became placed under the custody of Defendant CarVal Tokyo. On June 18, 2012, by

abolishing the registration of the existing seals, and registering new seals,

Defendants unilaterally changed the custodian of officially registered seals to

Defendant CarVal Tokyo. At that occasion, Defendant SPCs concluded service

agreements regarding custody of officially registered seals with Defendant CarVal

Tokyo (Ko-30 Content-Certified Mail, page 4). Such an action represented

unilateral dissolution of the service relationship where the custody of officially

registered seals was commissioned to Plaintiff by Defendant SPCs under AMA, and

re-commission to Defendant CarVal Tokyo, and thus is equal to one-sided

cancellation of part of services under AMA without any justifiable reason.

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On June 19, 2012, Defendant CarVal Tokyo transferred excess funds in

Defendant SPCs’ bank accounts to Defendant SPCs’ reserve accounts, instructed

Plaintiff to send passbooks of Defendant SPCs’ reserve accounts, which had been

constantly kept by Plaintiff since the start of AMA services, to Defendant CarVal

Tokyo, and kept such passbooks under the control of Defendant CarVal Tokyo

thereafter (Ko-30 Content-Certified Mail, page 4).

On September 11, 2012, with regard to the bank accounts in the name of

Defendant SPCs which Plaintiff was commissioned to manage, Defendant CarVal

Tokyo finally managed to cancel the existing seals by deceiving bank staff by such

false statement that Plaintiff had lost the seals registered at the bank, and had

prepared new registered seals under the custody of Defendant CarVal Tokyo. At the

same time, the person with the payment approval authority, and account

management authority on the electronic banking system was changed to an

employee of Defendant CarVal Tokyo (Ko-34 Content-Certified Mail).

In this way, Plaintiff lost all previously held authorities regarding Defendant

SPCs’ bank accounts.

As for the above-mentioned history, there are records of Content-Certified Mails

exchanged between Plaintiff and Defendants (Ko-25 through 43 Content-Certified

Mail). Regarding the objective facts on the above-mentioned history, Defendants

have never made any counter argument that they were not the facts, and thus there

is no dispute between Parties.

(5) Self-help

On September 27, 2012, KK Plus Ten Mind (hereinafter referred to as “Plus Ten

Mind”; Ko-49 Certificate of All Historical Matters) in association with Defendants

and its subcontractor KK GHP (Ko-50 Certificate of All Historical Matters),

claimed that they had obtained ownership of all hotel real estate (10 properties

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nationwide, namely in Kawagoe, Tsuchiura, Numazu, Yokosuka, Utsunomiya,

Toyota, Gifu, Ichinomiya, Nagano and Otaru) via sales transactions, broke into all

Hotel managed by Plaintiff’s subcontractor, Urban Resorts YK, in large groups, and

infringed the Plaintiff’s possession rights against Plaintiff’s intent through actions

including but not limited to, forcing all guests in hotel rooms to leave, obtaining

keys of the safe, changing keys of the hotel entrances, and barricading the entrance

of the parking space, ejecting Plaintiff’s staff etc without permission (Ko-40 and

Ko-41). At that time, Defendant SPCs granted those intruders a power of attorney to

make an inventory check of cash/assets in the Hotels, and otherwise cooperated

with them knowing that they would carry out self-execution which allegedly falls

under the category of the unlawful entry into a building as mentioned above (Ko-42

Content-Certified Mail, pages 4-5).

6 Default or Unlawful Act by Defendants

1. Responsibilities of Defendant SPCs

According to the latest Strategic Plan (updated in July 2012) mutually agreed by

Plaintiff and Defendant, the exit timing (scheduled timing of disposal) was set as

August 2013 for the real estate owned by Defendant Generous; the exit timing

(scheduled timing of disposal) for the real estate owned by Defendant LOHAS was set

as September 2014; and the exit timing (scheduled timing of disposal) for the real

estate owned by Defendant Blue Capital was set as February 2015 (Ko-24).

Accordingly, it was agreed that AMA between Plaintiff and each Defendant SPC

would last until the corresponding exit timing, and thus it is not allowed that

Defendant SPCs terminate AMA by forcibly selling the Real Estate in September 2012,

ignoring Plaintiff’s circumstances.

Nonetheless, as mentioned above, Defendants deprived Plaintiff of authorities

20

necessary for providing services under AMA by changing the custodian of seals,

passbooks, certificates of title, etc. from Plaintiff to Defendant CarVal Tokyo,

including the request for handing over officially registered seals to Defendant CarVal

Tokyo without showing any justifiable reason.

On June 18, 2012, Defendant SPCs unilaterally terminated the contractual

relationship with Plaintiff regarding the custody of officially registered seals by

registering new corporate seals, and commissioning Defendant CarVal Tokyo to keep

newly registered seals.

Furthermore, on September 11, 2012, Defendant SPCs provided notification to

Plaintiff that they concluded a sales agreement with Kabushiki Kaisha Plus Ten Mind

for disposal of the Real Estate to and thus AMA was to be terminated. At the same

time, as for the authorities to manage Defendant SPCs’ bank accounts which Plaintiff

was commissioned to manage under AMA, Plaintiff was forcibly deprived of such

authorities by such measures that an employee of Defendant CarVal Tokyo went

through procedures to change seals registered for the accounts and other authorities

(internet banking, etc.) under the pretext that the former seals were lost.

In this way, Defendants effectively put Plaintiff in a situation unable to execute

management services under AMA in contradiction to the above-mentioned agreement,

and thus it became impossible for Plaintiff to implement services under AMA for

reasons attributable to Defendants as from September 11, 2012.

Generally, with regard to continuing contracts between business entities, if one

party to a contract unreasonably terminated, cancelled or refused to renew the contract,

or unreasonably suspended or discontinued provision of goods/services, or committed

wrongful acts associated with a continuing contract, other party may claim damages

for violation of the contractual relationship, economic loss, real loss, opportunity loss,

etc. on the basis of default or unlawful act (Jun Masuda, Gendai Torihiki Shakai ni

21

okeru Keizokuteki Keiyaku no Hori to Hanrei (Theory and precedents of continuing

contracts in the modern society surrounding transactions) page 546, etc.).

Given that, because the above-mentioned acts by Defendant SPCs put Plaintiff in

the situation unable to execute the management services under AMA according to

current social standards, and thus it became impossible for Plaintiff to implement

services as asset manager under AMA for reasons attributable to Defendant SPCs as

from September 11, 2012, Plaintiff is entitled to claim against Defendant SPCs the

remaining fee under AMA up to September 11, 2012, and damages for opportunity

loss including the amounts equivalent to AM Fee and Operation Fee thereafter as well

as the amount equivalent to the Exit Fee, on the basis of Defendant SPCs’ defaults or

unlawful acts.

2. Responsibilities of Defendant CarVal Tokyo

Defendant CarVal Tokyo effectively made all decisions of Defendant SPCs, who

had no employees, and a series of above-mentioned acts which made it impossible for

Plaintiff to implement the services under AMA, which were actually committed by

employees of CarVal Tokyo.

Therefore, Defendant CarVal Tokyo and Defendant SPCs communicated with each

other and jointly committed unlawful acts against Plaintiff: thus, it is admitted that

there was cooperation between acts by both parties.

Accordingly, Plaintiff is entitled to claim damages to Defendant CarVal for

opportunity loss including the above mentioned amounts equivalent to the fees, on the

basis of joint unlawful acts with Defendant SPCs.

7 Amount claimed by Plaintiff

Damages suffered by Plaintiff as a result the above-mentioned defaults or unlawful

acts by Defendants represent a total of the amount equivalent to Plaintiff’s fees

22

(strictly speaking, the amount for the period until September 11, 2012 represents fees,

and the amount equivalent to fees for the period thereafter represents damages for

opportunity loss) calculated based on estimated earnings from September 2012 to the

exit timing according to the latest Strategic Plan revised in July 2012 (Ko-24), and the

amount equivalent to Exit Fee, as mentioned below.

As for the fee amount in September 2012 when the hotels were managed, Plaintiff

cannot prepare the monthly report (summarizing monthly sales and expenditures)

based on accurate amounts of costs, which is the basis of the fee calculation, because

Plaintiff is not in a position to know such amounts after the forceful ejection from

hotel management. Therefore, in the following calculation, the amount of claim for

September 2012 is based on the estimated earnings under Strategic Plan agreed

between Plaintiff and Defendant SPCs.

1. Amount Equivalent to Plaintiff’s Fees

Due to the above-mentioned defaults and unlawful acts by Defendants, Plaintiff

claims damages to Defendant SPCs for loss of the fee opportunity up to the exit timing

specified in Strategic Plan (including termination charges provided in Article 9.6 of

AMA) on the basis of such defaults and unlawful acts.

(1) Amount equivalent to fees under Article 9 of AMA

The amount of fees under Article 9 of AMA up to the exit timing specified in

Strategic Plan of AMA to be paid by each Defendant SPC is as follows:

a. Amount Claimed against Defendant Generous

(The amount equivalent to fees from September 2012 to August 2013 when the

period of Strategic Plan ends. Refer to the table for each hotel in Ko-24.3A. The

amount claimed is a total of each figure in the rows titled “AM Fee” and

“Operation Fee” from September 2012 to the end. A total amount for each fiscal

23

year can be found in the column titled “Annual Total”.)

Oceanside Numazu 12,829,540 yen

Canalside Yokosuka 8,581,156 yen

B&B Tsuchiura 7,753,570 yen

C-Stage Otaru 7,040,898 yen

Subtotal 36,205,164 yen

Amount claimed (incl. tax) 38,015,422 yen

b. Amount Claimed against Defendant LOHAS

(Amount equivalent to fees from September 2012 to September 2014 when the

period of Strategic Plan ends. Refer to the table for each hotel in Ko-24.3B. The

amount claimed is a total of each figure in the rows titled “AM Fee” and

“Operation Fee” from September 2012 to the end. A total amount for each fiscal

year can be found in the column titled “Annual Total”.)

Mine Ichinomiya 35,225,350 yen

Mine Toyota 31,373,284 yen

Shine Kawagoe 27,237,790 yen

Mine Gifu 40,737,682 yen



c. Amount Claimed against Defendant Blue Capital

(Amount equivalent to fees from September 2012 to February 2015 when the period

of Strategic Plan ends. Refer to the table for each hotel in Ko-24.3C. The amount

claimed is a total of each figure in the rows titled “AM Fee” and “Operation Fee”

from September 2012 to the end. A total amount for each fiscal year can be found

24

in the column titled “Annual Total”.)

Coco Club Nagano 21,349,774 yen

Vienne Utsunomiya 12,040,574 yen


Amount claimed (including tax) 35,059,865 yen

(2) Amount equivalent to Exit Fee

Defendant SPCs were supposed to pay to Plaintiff the following Disposition Fee

representing 2% of the value of disposal of the Hotels plus corresponding

consumption tax according to Article 9.6 of AMA and Revised Asset Management

Agreement dated August 31, 2010 (Ko-7, Ko-8, and Ko-9). Strategic Plan agreed by

Plaintiff and Defendant SPCs specified the following Disposition Fee for each hotel,

subject to scheduled timing of exit and disposal value (Refer to amounts specified in

the columns of “Disposition Fee” for each hotel in the table in Ko-24.3).［4］[5]

a. Amount Claimed against Defendant Generous

Oceanside Numazu 7,205,838 yen

Canalside Yokosuka 3,865,868 yen

B&B Tsuchiura 3,561,547 yen

C-Stage Otaru 4,672,730 yen



b. Amount Claimed against Defendant LOHAS

Mine Ichinomiya 10,473,871 yen

4 If Plaintiff continued the asset management services as per Strategic Plan, sale at the estimated disposal values and disposition fee as scheduled in the Plan would be expected. However, because Defendants unreasonably made it impossible for Plaintiff to continue the services, loss for the said amounts incurred. Even if Defendants’ claim regarding disposal of land/buildings of the hotels and subsequent termination of AMA was justifiable, disposition fee incurred for Plaintiff, calculated based on the actual disposal values. 5 Judging from the real estate market conditions and level of return on transaction at the time of filing the lawsuit, it can be said that disposal values specified in Strategic Plan proved to be on an appropriate and realistic level (Ko-51).

25

Mine Toyota 9,498,222 yen

Shine Kawagoe 7,365,595 yen

Mine Gifu 11,337,045 yen



c. Amount Claimed against Defendant Blue Capital

Coco Club Nagano 4,254,160 yen

Vienne Utsunomiya 2,411,239 yen



(3) Total amount of the above (1) and (2)

a. Defendant Generous

55,511,147 yen (58,286,704 yen including consumption tax)

b. Defendant LOHAS


c. Defendant Blue Capital


As shown above, Plaintiff is entitled to claim for 58,286,704 yen including

consumption tax against Defendant Generous; 181,911,280 yen including

consumption tax against Defendant LOHAS; and 42,058,534 yen including

consumption tax against Defendant Blue Capital. In this lawsuit, out of its rights to

claim, Plaintiff claims for 56,359,703 yen against Defendant Generous, 180,762,324

yen against Defendant LOHAS, and 41,619,899 yen against Defendant Blue Capital.

Furthermore, Plaintiff is entitled to claim against Defendant CarVal Tokyo as

26

follows: jointly and severally with Defendant Generous to pay the above 56,359,703

yen for joint unlawful act with Defendant Generous; jointly and severally with

Defendant LOHAS to pay the above 180,762,324 yen for their joint unlawful act with

Defendant LOHAS; and jointly and severally with Defendant Blue Capital to pay the

above 41,619,899 yen for their joint unlawful act with Defendant Blue Capital.

7 Conclusion

Therefore, Plaintiff has filed this lawsuit against Defendants, claiming for payment as

specified in STATEMENT OF CLAIM, on the basis of its rights to claim damages against

default or unlawful act.

END

27

EVIDENCE

Plaintiff’s Documentary Evidence #

Ko-1 Certificate of All Historical Matters (Plaintiff)

Ko-2 Certificate of All Historical Matters (Defendant Generous)

Ko-3 Certificate of All Historical Matters (Defendant LOHAS)

Ko-4 Certificate of All Historical Matters (Defendant Blue Capital)

Ko-5 TOKUMEI KUMIAI AGREEMENT

Ko-6 Cargill web page (about Cargill)

Ko-7 Cargill web page (about Mr. Peter Vorbrich)

Ko-8 Certificate of All Historical Matters (Defendant CarVal)

Ko-9 Cargill web page (about CarVal)

Ko-10.1, 10.2 CarVal web page

Ko-11 Corporate Information web page

Ko-12.1 Asset Management Agreement dated October 27, 2008

Ko-12.2 Same as above (Japanese translation by Defendant Generous)

Ko-12.3 Same as above (partial Japanese translation by Plaintiff)


Ko-13.2 Same as above (Japanese translation by Defendant LOHAS)



Ko-14.2 Same as above (Japanese translation by Defendant Blue Capital)


Ko-15.1 Revised Asset Management Agreement dated October 5, 2009

Ko-15.2 Same as above (partial Japanese translation by Defendant Generous)


28




Ko-18.1 Revised Asset Management Agreement dated August 31, 2010

Ko-18.2 Same as above (Japanese translation by Defendant Generous)





Ko-21.1 CARVAL’S LEISURE HOTELS INVESTMENTS

Ko-21.2 Same as above (Japanese translation)

Ko-22.1 CMA Liquidation Project-Leisure Hotel Portfolio update


Ko-23.1 E-mail dated January 27, 2010


Ko-24.1 E-mail dated July 31, 2012

Ko-24.2 List of Changes in CF Sheet

Ko-24.3A Cash Flow Table (related to Defendant Generous)

Ko-24.3B Cash Flow Table (related to Defendant LOHAS)

Ko-24.3C Cash Flow Table (related to Defendant Blue Capital)

Ko-25 Notification dated June 5, 2012

Ko-26 Notification of acceptance dated June 11, 2012

Ko-27 Notification dated June 18, 2012

Ko-28 Response dated June 19, 2012



29

Ko-31 Notification dated July 4, 2012

Ko-32 Notification dated July 4, 2012

Ko-33 Response dated July 19, 2012

Ko-34 Communication dated September 11, 2012

Ko-35.1 FAX cover letter dated September 11, 2012

Ko-35.2 Notification dated September 12, 2012

Ko-36 Response dated September 18, 2012

Ko-37 Notification dated September 19, 2012



Ko-40 Notification dated October 1, 2012

Ko-41 Communication dated October 18, 2012

Ko-42 Notification dated October 26, 2012

Ko-43 Notification dated November 7, 2012

Ko-44.1 Certificate of All Removed Matters (Yugen Kaisha MY LOHAS)

Ko-44.2 Certificate of All Historical Matters (Yugen Kaisha MY LOHAS)

Ko-45.1 Certificate of All Removed Matters (Yugen Kaisha Speedway)

Ko-45.2 Certificate of All Historical Matters (Yugen Kaisha Speedway)

Ko-46 Shareholder Registry of Yugen Kaisha MY LOHAS

Ko-47 Shareholder Registry of Yugen Kaisha Speedway

Ko-48 E-mail dated June 14, 2012

Ko-49 Certificate of All Historical Matters (Kabushiki Kaisha Plus Ten Mind)

Ko-50 Certificate of All Historical Matters (Kabushiki Kaisha GHP)

Ko-51.1 Trends of recent returns on transactions of leisure hotels

Ko-51.2 Savills web page

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ANNEXED DOCUMENTS

1. Copies of Complaint 4 copies

2. Copies of Plaintiff’s Documentary Evidences 5 copies for each

3. Certificate of Qualification 5 copies

4. Power of Attorney in the Lawsuit 1 copy

31

Appendix

DESCRIPTION OF PARTIES

6-22 Minami-Aoyama 6-chome, Minato-ku, Tokyo 107-0062 Japan

Plaintiff: Alchemy Japan K.K.

Representative Director: Miroslav Mijatovic

(Place of Service)

9F Kojimachi Place, 3 Kojimachi 2-chome Chiyoda-ku, Tokyo 102-0083 Japan

Legal Professional Corporation Hokuto Law Office

Attorney-at-Law for the Plaintiff Shuzo Fukuda

Same as above Hidetaka Seki

Same as above Hirofumi Kurahashi

TEL: 03-3221-9873

FAX: 03-3221-9874

1-1 Marunouchi 3-chome, Chiyoda-ku, Tokyo 100-0005 Japan

Defendant: CarVal Investors Pte. Ltd. Tokyo Branch

Representative in Japan: Michio Izawa

Representative in Japan: Nozomi Kaneko

11-6 Nihonbashi Honcho 4-chome, Chuo-ku, Tokyo 103-0023 Japan

Defendant: Yugen Kaisha Generous

Representative Director: Takashi Ishikawa

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Defendant: Yugen Kaisha LOHAS



Defendant: Yugen Kaisha Blue Capital


Documents

Alchemy Japan vs Carval et al - WordPress.com · 6 3. Fees Specified in AMA (1) Asset Management Fee According to Article 9.1 of AMA, Defendant SPCs were liable to pay to Plaintiff