ALTe, LLC v. Quest Capital Investments, Inc. et al
OPINION AND ORDER granting Defendant Commercial Escrow Services' 17 Motion to Dismiss. Signed by District Judge Marianne O. Battani. (BThe)
UNTIED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
CASE NO. 11-15077
QUEST CAPITAL INVESTMENTS, INC.,
d/b/a Quest Capital Finance Corporation,
d/b/a Quest Capital Finance Inc., and
COMMERCIAL ESCROW SERVICES,
HON. MARIANNE O. BATTANI
OPINION AND ORDER GRANTING DEFENDANT
COMMERCIAL ESCROW SERVICES’ MOTION TO DISMISS
This matter is before the Court on Defendant Commercial Escrow Services’
Motion to Dismiss for Lack of Personal Jurisdiction and Improper Venue. (Doc. 17).
The Court heard oral argument on April 4, 2012, and at the conclusion of the hearing
took the motion under advisement. For the reasons that follow, the Court GRANTS the
motion on personal jurisdiction grounds.
STATEMENT OF FACTS
In May 2011, Plaintiff
ALTe, L.L.C., secured a Letter of Intent (“LOI”) from
Defendant Quest Capital Finance Corporation (“Quest”) setting forth the terms and
conditions under which Quest would loan Plaintiff $19,000,000 (the “Loan”) for a
powertrain technologies program. (Doc. 11 Ex. 1). The LOI provided that Plaintiff make
a $760,000.00 deposit (the “Deposit”) to secure the Loan. (Id. at p.1). Quest selected
Defendant Commercial Escrow Services, Inc. (“Commercial Escrow”) to serve as the
escrow agent and hold Plaintiff’s Deposit until Quest fulfilled all obligations under the
Commercial Escrow is a California corporation having its
principal place of business in Pleasant Hill, California and has no physical presence or
property in Michigan, nor does it advertise, solicit, or regularly conduct business in
Michigan. (Doc. 17 Ex. 2). Plaintiff, Quest, and Commercial Escrow formalized the
escrow arrangement by executing an Escrow Agreement that Quest drafted. (Doc. 17
Ex. 3). Quest and Commercial Escrow signed the agreement in California whereas
Plaintiff signed in Michigan. (Doc. 17 Ex. 5).
On June 29, 2011, Plaintiff wire-transferred the Deposit to Commercial Escrow.
(Doc. 24 Ex. 2).
Commercial Escrow sent a fax to Plaintiff confirming that it had
received the Deposit. (Doc. 24 Ex. 4). Pursuant to the Escrow Agreement, Commercial
Escrow would hold the Deposit until Quest confirmed in writing to Plaintiff and
Commercial Escrow that the Loan was approved and not subject to any contingencies.
(Doc. 17 Ex. 3 at ¶ 1). The Escrow Agreement further provided that Quest would issue
written confirmation in the form of a “Commitment Letter” that the requirements have
been satisfied. Id. Then “[a] signed copy of the Commitment Letter by both [Plaintiff]
and [Quest] will be provided by fax or e-mail to [Commercial Escrow].”
Commercial Escrow’s receipt of the signed Commitment Letter, it would release the
deposit to Quest.
On July 11, 2011, Quest issued a Commitment Letter signed by Quest and
Plaintiff. (Doc. 17 Ex. 4). The next day, Quest notified Commercial Escrow by email
that the Loan was approved, not subject to any contingencies, and authorized
Commercial Escrow to release the Deposit. (Doc. 11 Ex. 4). Upon receipt of this letter,
Commercial Escrow released the Deposit to Quest.
On October 12, 2011, Plaintiff demanded that Commercial Escrow return its
Deposit. Plaintiff alleges that (1) the Loan was nowhere near ready to close; (2) Quest
had multiple outstanding obligations to Plaintiff; and (3) the Commitment Letter did not
authorize Commercial Escrow to release the Deposit because it did not confirm that
certain disbursement criteria were satisfied. Commercial Escrow refused to return the
Deposit to Plaintiff.
Plaintiff filed a four-count Complaint against Defendants in the Eastern District of
Michigan to collect the Deposit. (Doc. 1). Plaintiff subsequently filed a First Amended
Complaint in response to the Court’s sua sponte Order to Show Cause why the case
should not be dismissed for lack of subject matter jurisdiction. (Doc. 11). Commercial
Escrow filed a motion to dismiss for lack of personal jurisdiction and improper venue.
(Doc. 17). This motion is now before the Court.
STANDARD OF REVIEW
Before an answer is filed, a defendant may move to dismiss for lack of personal
jurisdiction over the defendant. Fed. R. Civ. P. 12(b)(2). “Where personal jurisdiction is
challenged in a 12(b) motion, the plaintiff has the burden of establishing that jurisdiction
exists.” Am. Greetings Corp. v. Cohn, 839 F. 2d 1164, 1168 (6th Cir. 1988). A motion
to dismiss for lack of personal jurisdiction leaves the Court with three options: “it may
decide the motion upon the affidavits alone; it may permit discovery in aid of deciding
the motion; or it may conduct an evidentiary hearing to resolve any apparent factual
questions.” Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991) (citation
The district court has considerable discretion in this decision and will be
reversed only for abuse of discretion. Id. The method the court selects will affect the
magnitude of the burden on the plaintiff to avoid dismissal. Serras v. First Tenn. Bank
Nat’l Ass’n, 875 F.2d 1212, 1214 (6th Cir. 1989).
Where the court relies solely on the parties’ affidavits to reach its decision on the
motion, the burden rests on the plaintiff to establish only a prima facie showing of
jurisdiction in order to avoid dismissal and the court must consider the pleadings and
affidavits in the light most favorable to the plaintiff. CompuServe, Inc. v. Patterson, 89
F.3d 1257, 1262 (6th Cir. 1996). Further, the court does not weight the controverting
assertions of the moving party due to its interest in “prevent[ing] non-resident
defendants from regularly avoiding personal jurisdiction simply by filing an affidavit
denying all jurisdictional facts.” Id. (internal quotation marks and citation omitted).
The parties dispute whether the Court may exercise limited personal jurisdiction
over Commercial Escrow. The personal jurisdiction analysis requires a two-step inquiry.
Air Products and Controls, Inc. v. Safetech Int'l, Inc., 503 F.3d 544, 550 (6th Cir. 2007);
see also Green v. Wilson, 565 N.W.2d 813, 815 (Mich. 1997). First, “the court must
determine whether any of Michigan's relevant long-arm statutes authorize the exercise
of jurisdiction over Defendants; and, if so, [second] the court must determine whether
exercise of that jurisdiction comports with constitutional due process.” Air Products, 503
F.3d at 550.
Michigan’s Long-Arm Statute
Plaintiff argues Michigan’s long-arm statute authorizes limited personal
jurisdiction over Commercial Escrow because it has transacted business within
Michigan and has engaged in tortious conduct that has caused consequences in
Michigan's long-arm statute for corporations provides that a court may
exercise personal jurisdiction over a corporation if it has one of the following
“relationships” with the state:
(1) The transaction of any business within the state.
(2) The doing or causing an act to be done, or consequences to occur, in
the state resulting in an action for tort. . . .
MICH. COMP. LAWS § 600.715.
In construing M.C.L. § 600.715(1), the Michigan Supreme Court stated that “[t]he
word ‘any’ means just what it says. It includes ‘each’ and ‘every’ . . . . It comprehends
Lanier v. Am. Board of Endodontics, 843 F.2d 901, 905-06 (6th Cir.
1988) (quoting Sifers v. Horen, 188 N.W.2d 623, 624 n.2 (Mich. 1971). In other words,
the phrase “‘[t]ransaction of any business’ is very broad, and is established by ‘the
slightest act of business in Michigan.’” Hige v. Turbonetics Holdings, Inc., 662 F. Supp.
2d 821, 828 (E.D. Mich. 2009) (quoting Neogen Corp. v. Neo Gen Screening, Inc., 282
F.3d 883, 888 (6th Cir. 2002)).
To come within the plain language of M.C.L. § 600.715(2), a defendant’s tortious
conduct or the injury caused by that conduct must occur in Michigan.
Gehres, 195 F.Supp.2d 957, 963 (E.D. Mich. 2002) (citing Green, 565 N.W.2d at 817).
Relatedly, the phrase “resulting in an action for tort” contemplates that “the action in tort”
be a viable, colorable claim - otherwise pleading even a frivolous tort claim, subject to
dismissal, would confer limited personal jurisdiction.
After reviewing the pleadings, the Court finds Plaintiff cannot fulfill the
requirements of M.C.L. § 600.715(2) because it has no viable tort claim against
Commercial Escrow under Michigan law. Count IV alleges that Commercial Escrow
breached certain fiduciary duties owed to Plaintiff when it negligently released the
Deposit to Quest. (Doc. 11 at ¶¶ 53-58). Similarly, in Count III, Plaintiff asserts that
Commercial Escrow breached the same duties under the Escrow Agreement. (Id. at
¶¶ 49-52). Plaintiff is clearly asserting a tort claim arising from Commercial Escrow’s
alleged breach of the Escrow Agreement. Under circumstances presented, Michigan’s
economic loss doctrine bars Plaintiff’s tort claim.
The economic loss doctrine precludes an action in tort based on the same duty
as would give rise to an action for breach of contract. Rinaldo's Const. Corp. v. Mich.
Bell Tel. Co., 559 N.W.2d 647, 657-658 (Mich. 1997). In order for an action in tort to
arise out of a breach of contract, the alleged wrongful act must constitute “(1) a breach
of duty separate and distinct from the breach of contract and (2) active negligence or
misfeasance.” Spengler v. ADT Sec. Serv., 505 F.3d 456, 457-58 (6th Cir. 2007); see
also Hart v. Ludwig, 79 N.W.2d 895, 897 (Mich. 1956) (“As a general rule, there must
be some active negligence or misfeasance to support tort. There must be some breach
of duty distinct from breach of contract.”).
Consequently, “the threshold inquiry is
whether the plaintiff alleges violation of a legal duty separate and distinct from the
contractual obligation.” Rinaldo, 559 N.W.2d at 658.
Here, Plaintiff has failed to establish that Commercial Escrow owed and violated
a legal duty separate and distinct from its obligations under the Escrow Agreement. In
response to Commercial Escrow’s position on this point, Plaintiff cites decisional law
that pre-dates Rinaldo and its progeny and mistakenly insists it can simultaneously
assert a tort claim that is a mirror image of its breach of contract claim. Plaintiff does
not discuss the effects of the economic loss doctrine nor does it attempt to identify a tort
duty owed that is separate and distinct from the duties under the Escrow Agreement.
Moreover, the two unpublished opinions Plaintiff offers in support, Mt. Tai Asset Mgmt.
Corp. v. Metro Equity Group, L.L.C., 09-10685, 2011 WL 65863 (E.D. Mich. Jan. 10,
2011) and Naimou v. Philip F. Greco Title Co., 264503, 2006 WL 397940 (Mich. Ct.
App. Feb. 21, 2006), are easily distinguishable because neither case involved a plaintiff
asserting a breach of fiduciary/gross negligence claim in the presence of an express
escrow agreement covering the same duties. Accordingly, the Court may not exercise
limited personal jurisdiction over Commercial Escrow under M.C.L. § 600.715(2)
because there is no colorable action for tort under the allegations set forth in the
The Court finds, however, that an exercise of limited personal jurisdiction over
Commercial Escrow is proper under M.C.L. § 600.715(1) because it has engaged in the
"transaction of any business" in Michigan. Commercial Escrow contracted with Plaintiff
to perform escrow services in connection with a Michigan loan transaction and had
contact with Plaintiff in Michigan regarding the same. This business relationship falls
within the expansive interpretation of the phrase “transaction of any business within the
state.” See Salom Enterprises, L.L.C. v. TS Trim Indus., Inc., 464 F. Supp. 2d 676, 683
(E.D. Mich. 2006) (“[T]he Michigan statute allows ‘any’ business dealings to suffice, and
‘any’ includes even the slightest amount.”). The Court may therefore exercise limited
personal jurisdiction over Commercial Escrow pursuant to M.C.L. § 600.715(1).
Although Michigan's long-arm statute authorizes limited personal jurisdiction over
Commercial Escrow, the Court cannot exercise personal jurisdiction in violation of its
constitutional right to due process.
Neogen, 282 F.3d at 889.
To show that the
exercise of personal jurisdiction comports with due process, Plaintiff must “establish
with reasonable particularity sufficient ‘minimum contacts’ with Michigan so that the
exercise of jurisdiction over Defendants would not offend ‘traditional notions of fair play
and substantial justice.’”
Id. (quoting Int'l Shoe v. Washington, 326 U.S. 310, 316
(1945)). To meet this burden in the Sixth Circuit, Plaintiff must satisfy a three-part test:
First, the defendant must purposefully avail himself of the privilege of
acting in the forum state or causing a consequence in the forum state.
Second, the cause of action must arise from the defendant's activities
there. Finally, the acts of the defendant or consequences caused by the
defendant must have a substantial enough connection with the forum state
to make the exercise of jurisdiction over the defendant reasonable.
Id. (quoting S. Mach. Co. v. Mohasco Indus., Inc., 401 F.2d 374, 381 (6th Cir. 1968)).
Each element "represents an independent requirement, and failure to meet any one of
the three means that personal jurisdiction may not be invoked." Lak, Inc. v. Deer Creek
Enter., 885 F.2d 1293, 1303 (6th Cir. 1989).
Starting with the first part of the test, “purposeful availment” is considered the
“constitutional touchstone” of limited personal jurisdiction, existing when a defendant's
contacts with a forum state “proximately result from action by the defendant himself that
create a substantial connection with the forum state, and where the defendant's conduct
and connection with the forum state are such that he should reasonably anticipate being
haled into court there.” Neogen, 282 F.3d at 889 (internal citations and alteration
omitted); see also Intera Corp. v. Henderson, 428 F.3d 605, 616 (6th Cir. 2005)
(describing purposeful availment as “essential” to a finding of limited personal
jurisdiction). The purposeful availment requirement “ensures that a defendant will not
be haled into a jurisdiction solely the result of random, fortuitous, or attenuated contacts,
or of the unilateral activity of another party or a third person.” Neogen, 282 F.3d at 889
(internal quotation marks and citation omitted).
In regards to interstate contractual obligations, such as is the case here, “the
Supreme Court has emphasized that parties who ‘reach out beyond one state and
create continuing relationships and obligations with citizens of another state are subject
to regulation and sanctions for the consequences of their activities.’” Air Products &
Controls, Inc. v. Safetech Int'l, Inc., 503 F.3d 544, 551 (6th Cir. 2007) (quoting Burger
King Corp. v. Rudzewicz, 471 U.S. 462, 473 (1985)). However, “the mere fact that a
non-resident defendant enters into a contract with a forum resident is not, by itself, a
sufficient basis for finding purposeful availment.” King v. Ridenour, 749 F. Supp. 2d
648, 656 (E.D. Mich. 2010) (citing Burger King, 471 U.S. at 478; Kerry Steel, Inc. v.
Paragon Indus. Inc., 106 F.3d 147, 151 (6th Cir. 1997)). Instead, a court must evaluate
“prior negotiations and contemplated future consequences, along with the terms of the
contract and the parties’ actual course of dealing” in determining whether the nonresident defendant purposefully established minimum contacts within the forum. Burger
King, 471 U.S. at 478-79. Ultimately, “it is the quality of the contacts, not the quantity,
that determines whether they constitute purposeful availment.”
Gen. Motors Co. v.
Dinatale, 705 F. Supp. 2d 740, 748 (E.D. Mich. 2010) (citing Neal v. Janssen, 270 F.3d
328, 332 (6th Cir. 2001)).
After reviewing the record in a light most favorable to Plaintiff, the Court finds that
Commercial Escrow did not purposely avail itself of acting in Michigan. Commercial
Escrow had three discrete contacts with Michigan: (1) the Escrow Agreement with
Plaintiff and Quest; (2) a receipt confirming the wire transfer of the Deposit from
Plaintiff’s New York bank account to Commercial Escrow account in California; and (3)
a fax that Commercial Escrow sent to Plaintiff in Michigan confirming the receipt of the
Deposit. These contacts are insufficient to establish purposeful availment.
Commercial Escrow did not intentionally reach into Michigan to do business with
Plaintiff; Quest unilaterally selected Commercial Escrow to serve as the escrow agent.
No agent or representative of Commercial Escrow ever visited Michigan to negotiate
terms of the Escrow Agreement or solicit business from Plaintiff. Quest drafted the
agreement and directly contacted Plaintiff for its execution, not Commercial Escrow. In
other words, the actions of a third-party thrust Commercial Escrow into the forum. The
purposeful availment requirement protects non-resident defendants from being haled
into a foreign jurisdiction under these circumstances. See Neogen, 282 F.3d at 889.
Personal jurisdiction is proper only “‘where the contacts proximately result from actions
by the defendant himself that create a substantial connection with the forum State.’” Air
Products, 503 F.3d at 551 (emphasis in original) (quoting Burger King, 471 U.S. at 475).
Further, the terms of Escrow Agreement show a temporary, attenuated
connection to Michigan. Commercial Escrow was to receive the Deposit from a New
York bank account; hold the Deposit in California bank account for no more than ten
days; and transfer the Deposit to Quest in California if certain conditions were satisfied
or return it to Plaintiff’s New York account if the conditions were not satisfied. Other
than this ten-day escrow arrangement, nothing in the record suggests Commercial
Escrow had any other past, present or future relationship with Plaintiff. The Escrow
Agreement was simply an isolated transaction to facilitate the Loan from Quest to
Plaintiff. The only direct communication between Commercial Escrow and Plaintiff was
the fax confirming receipt of the Deposit. Simple correspondences to a forum that
facilitate formation and performance of a contract are not enough to establish
purposeful availment. King v. Ridenour, 749 F. Supp. 2d 648, 656 (E.D. Mich. 2010).
Interestingly, Plaintiff’s claim does not even arise from this contact with the forum; the
basis of this lawsuit is the release of the deposit by Commercial Escrow to Quest, which
occurred in California, not Michigan.
Accordingly, the Court finds that Commercial
Escrow has not purposefully availed itself of acting within Michigan.
The absence of purposeful availment is fatal to the Court's exercise of limited
personal jurisdiction over Commercial Escrow. The Court therefore declines to address
the remaining elements of the three-part due process test, since even if they were
satisfied, the Court would still lack personal jurisdiction over Commercial Escrow. See
Lak, 885 F.2d at 1303.
Relatedly, the Court need not consider the parties’ venue
arguments as Plaintiff’s claims against Commercial Escrow are dismissed without
prejudice for want of personal jurisdiction.
For the reasons stated above, the Court GRANTS Commercial Escrow’s motion
to dismiss on personal jurisdiction grounds.
IT IS SO ORDERED.
s/Marianne O. Battani
MARIANNE O. BATTANI
UNITED STATES DISTRICT JUDGE
DATED: May 23, 2012
CERTIFICATE OF SERVICE
I hereby certify that on the above date a copy of this Opinion and Order was
served upon all parties of record via the Court’s ECF Filing System.
s/Bernadette M. Thebolt
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