Macomb Interceptor Drain Drainage District v. Kilpatrick et al

Filing 290

OPINION AND ORDER GRANTING 253 MOTION to Dismiss Counts III and VIII of the City of Detroit's Complaint-In-Intervention filed by L. D'Agostini & Sons, Inc., DISMISSING WITHOUT PREJUDICE Counts III and VIII of Detroit's Complaint and the City of Detroit may submit an Amended Complaint by 2/18/2013. Signed by District Judge Robert H. Cleland. (LWag)

UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

MACOMB INTERCEPTOR DRAIN
DRAINAGE DISTRICT,
Plaintiff,
and
CITY OF DETROIT,
Plaintiff-Intervenor,
Case No. 11-13101

v.
KWAME KILPATRICK, et al.,
Defendants.
/

OPINION AND ORDER GRANTING DEFENDANT’S MOTION TO DISMISS
Defendant L. D’Agostini & Sons, Inc., (“LDS”) moves to dismiss each count
against it in the City of Detroit’s complaint in intervention. The matter is fully briefed,
and no hearing is needed. See E.D. Mich. LR 7.1(f)(2).
In December, 2010, the United States, alleging a campaign of fraud, extortion,
bribery, nepotism, cronyism, and other corruption, indicted Kwame Kilpatrick, former
mayor of Detroit, and several of Kilpatrick’s aids and associates. Superseding
indictments alleged, among other things, that Kilpatrick used a sewer repair project as a
source of money and services for himself and as a source of business for his friend
Bobby Ferguson. Using mainly the indictments’ allegations, a county corporation, the
pertinent sewer’s present owner, began this civil action. Detroit, the previous owner,
intervened, suing, among others, LDS, one of the repair project’s contractors.

Closely paraphrasing the indictments, Detroit alleges:
[O]n or about September 1, 2004, after visiting the site of the sewer
collapse, Kilpatrick discussed with Ferguson about how they could get
work for a Ferguson-controlled company at the site. . . . Ferguson advised
Kilpatrick that although Inland Waters [Pollution Control, Inc.] would be
overseeing the overall repair project, subcontractor [LDS] hired all the
subcontractors on the site. . . . Kilpatrick responded, “Perfect! That’s what
I need,” and Ferguson replied, “We need to [meet] on how[] I move in [to
get the work][.]”
[O]n or about September 7, 2004, Kilpatrick asked Ferguson whether
Ferguson had determined his share of the work on [the sewer repair
project]. . . . Ferguson responded that [LDS] wanted to share the work
with Ferguson on a 50/50 basis, but that Kilpatrick had to instruct [an
assistant] about the arrangement, including that Kilpatrick would
personally review [LDS’s] invoices to ensure that Ferguson was getting his
share[.]
(Dkt. # 205 ¶¶ 77-78.) Detroit (1) asserts that LDS aided and abetted Kilpatrick’s
breach of a fiduciary duty to Detroit and (2) seeks an accounting.
To proceed with its aiding and abetting claim, Detroit must allege that LDS both
knew of and “substantially” assisted—in effect, enabled—a breach of a fiduciary duty
that caused harm. Fremont Reorganizing Corp. v. Duke, 811 F.Supp.2d 1323, 1345-47
(E.D. Mich. 2011); In re NM Holdings Co., LLC, 411 B.R. 542, 551 (E.D. Mich. 2009).
Probably as a result of their origin—an indictment that does not name LDS as a
defendant—the paragraphs that discuss LDS the most depict it as passive and
peripheral. Kilpatrick and Ferguson carry the action, and LDS acts offstage. Although
the complaint includes other references to LDS, they add little. The complaint says that
LDS and Ferguson divided the repair project in a manner that enabled both to “profit,”
but “profit,” alone, is not illegal. (Dkt. # 205 ¶ 78.) The complaint says also that LDS
“knew” Ferguson used his friendship with Kilpatrick to bill Detroit for fake repair work
2

and that LDS “participated in . . . efforts . . . to fraudulently conceal its own wrongdoing,”
but no detail appears. (Id. ¶¶ 97, 112.) Detroit bases each conjecture on unspecified
“information” and unelaborated “belief” about what discovery might reveal.
To be sure, the circumstances discourage the assumption that Ferguson and
LDS innocently agreed to split only legitimate work. According to the complaint, both
Kilpatrick and Ferguson, using threats to deny future city contracts, extracted from
Inland Waters money and favors for Ferguson. (Dkt. # 205 ¶¶ 43, 103, 105, 107-10.)
Kilpatrick and Ferguson’s alleged conduct toward LDS resembles Kilpatrick and
Ferguson’s overtly extortionate alleged conduct toward Inland Waters. If an inference
arises that Inland Waters and LDS were treated, and acted, alike, the complaint
probably states a claim under Federal Rule of Civil Procedure 8.
But LDS contends that the aiding and abetting claim is governed by the more
rigorous Rule 9(b), which requires a plaintiff to plead with particularity the circumstances
of fraud. The aiding and abetting claim stands, as Detroit concedes, on LDS’s allegedly
helping Kilpatrick and Ferguson defraud Detroit. LDS proposes, correctly it seems, that
Rule 9(b) governs because a plaintiff must allege with particularity the aiding and
abetting of fraud. E-Shops Corp. v. U.S. Bank Nat. Ass’n, 678 F.3d 659, 663 (8th Cir.
2012); Am. Utd. Life Ins. Co. v. Martinez, 480 F.3d 1043, 1064-65 (11th Cir. 2007);
Lerner v. Fleet Bank, N.A., 459 F.3d 273, 292-93 (2d Cir. 2006); Hefferman v. Bass,
467 F.3d 596, 601 (7th Cir. 2006). And because the complaint never alleges who from
LDS spoke to Ferguson, where the discussion occurred, what specifically was said, or
what LDS aimed to achieve, Detroit fails to satisfy Rule 9(b). See Cataldo v. U.S. Steel
Corp., 676 F.3d 542, 551 (6th Cir. 2012). (About LDS’s aims, Detroit says tepidly that
3

LDS agreed to “help legitimize others’ misconduct.” (Dkt. # 267 at 17.) This is vague
and insufficient.)
The aiding and abetting claim will be dismissed without prejudice. LDS seeks
dismissal with prejudice, however, on the ground that the claim is barred by a limitation.
The parties agree that a three-year limitation applies, that the alleged wrongful conduct
ended in 2006, and that Detroit sued more than three years later, in 2012. All the same,
says Detroit, LDS fraudulently concealed the claim, which tolled the limitation period.
LDS responds that fraudulent concealment involves action, rather than mere silence,
and that the complaint alleges no proactive concealment by LDS. As just discussed,
however, the complaint alleges that LDS aided and abetted comprehensive fraud.
Fraud qualifies as “a continuing affirmative act” of concealment. 16 Mich. Civ. Jur.
Limitations of Actions § 105 (2013). In its reply, LDS says newspaper articles published
in 2008 notified Detroit of a potential claim, but a reply may not introduce fresh
argument. See Clemente v. Vaslo, 679 F.3d 482, 497 (6th Cir. 2012).
Detroit raises no challenge to LDS’s argument that an accounting, a remedy,
cannot proceed absent a cause of action. See Terlecki v. Stewart, 754 N.W.2d 899,
912 (Mich. Ct. App. 2008). In any case, even if it may stand independently, an
accounting may not proceed unless the plaintiff shows that discovery will not establish
the proper amount of damages. Boyd v. Nelson Credit Cntrs., Inc., 348 N.W.2d 25, 27
(Mich. Ct. App. 1984). An accounting is an alternative and extraordinary remedy. See
Wilson v. Cont. Develop. Co., 112 F.Supp.2d 648, 663 (W.D. Mich. 1999). Although
Detroit asserts that Kilpatrick’s overall alleged scheme was complex, the complaint

4

contains no facts suggesting that LDS, specifically, engaged in dealings that discovery
cannot arrange. Accordingly,
IT IS ORDERED that the motion to dismiss [Dkt. # 253] is GRANTED and that
counts III and VIII of Detroit’s complaint [Dkt. # 205] are DISMISSED WITHOUT
PREJUDICE as to LDS. Detroit may submit an amended complaint by February 18,
2013.

s/Robert H. Cleland
ROBERT H. CLELAND
UNITED STATES DISTRICT JUDGE
Dated: February 11, 2013

I hereby certify that a copy of the foregoing document was mailed to counsel of record
on this date, February 11, 2013, by electronic and/or ordinary mail.
s/Lisa Wagner
Case Manager and Deputy Clerk
[phone]

S:\Cleland\JUDGE'S DESK\C2 ORDERS\11-13101.KILPATRICK.GrantMotDismiss.ckb.wpd

5