Enrivosolids, LLC v. SJGK, LLC et al

Filing 16

ORDER denying 2 Motion to Dismiss. Signed by District Judge Lawrence P. Zatkoff. (MVer)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
ENVIROSOLIDS, LLC., a Michigan
Limited Liability Company,
Plaintiff,

CASE NO. 12-10596
HON. LAWRENCE P. ZATKOFF

v.
S & J MANAGEMENT, INC., an Ohio Corporation,
SJGK, L.L.C., an Ohio Limited Liability Company,
RIVERHEAD ADVISORS, LTD., a foreign company,
EM PRODUCTIONS, L.L.C., a foreign company,
M&A TRADERS, a Missouri company, and
SKYLINE AVIATION, INC., a Texas corporation,
Defendants.
____________________________________________/

OPINION AND ORDER
AT A SESSION of said Court, held in the
United States Courthouse, in the City of Port Huron,
State of Michigan, on the 18th day of June, 2012
PRESENT: THE HONORABLE LAWRENCE P. ZATKOFF
UNITED STATES DISTRICT JUDGE
I. INTRODUCTION
This matter is before the Court on Defendants S & J Management, Inc. and SJGK,
L.L.C.’s Motion to Dismiss under Fed. R. Civ. P. 12(b)(6) [dkt. 2].1 The motion has been fully
briefed.

The Court finds that the facts and legal arguments pertinent to the motion are

adequately presented in the parties’ papers, and the decision process will not be aided

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Because S & J Management, Inc. and SJGK, L.L.C. have brought this motion together, the
Court will refer to the parties as “SJGK” for purposes of this Opinion and Order.
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significantly by oral arguments. Therefore, pursuant to E.D. Mich. L. R. 7.1(f)(2), it is hereby
ORDERED that the motion be resolved on the briefs submitted by the parties. For the reasons
that follow, Defendants’ motion is DENIED.
II. BACKGROUND
The following facts are based on the allegations in Plaintiff’s complaint, drawing all
reasonable inferences in favor of Plaintiff:
Plaintiff, EnviroSolids, L.L.C., is a Michigan limited liability company located in
Dearborn, Michigan, that stores and treats various liquids at its facility. Defendants are various
entities that have either stored liquids at Plaintiff’s facility or claim to have an ownership interest
in liquids stored at Plaintiff’s facility.
On September 15, 2010, Plaintiff and Defendant SJGK entered into a lease agreement
(“Lease”), whereby SJGK would store used oil (“Oil”) in Plaintiff’s facility. The Lease provided
that rent money shall be paid monthly from October 1, 2010 through September 30, 2013. The
Lease further provided that, in the event of default, SJGK had the right to cure the default within
15 days. If SJGK failed to cure, Plaintiff had the right to remove and sell SJGK’s Oil stored at
Plaintiff’s facility. Subsequently, SJGK ceased paying the monthly rent pursuant to the Lease.
The non-payment resulted in a substantial amount of rent owed to Plaintiff.
On September 30, 2011, SJGK and Plaintiff entered into a settlement agreement
(“Settlement Agreement”). In the Settlement Agreement, SJGK expressly acknowledged that it
defaulted under the Lease, that Plaintiff had provided notice of the default, and that SJGK had
failed to timely cure the default. SJGK also expressly acknowledged that, pursuant to the Lease,
ownership of the Oil vested in Plaintiff. The Settlement Agreement further provided SJGK with

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a new opportunity to cure the default by paying $454,801.22 to Plaintiff by October 4, 2011.
SJGK failed to make this payment.

Pursuant to the terms of the Lease and Settlement

Agreement, Plaintiff sold sufficient amounts of the Oil to cover the rent amounts owed to
Plaintiff under the Lease.
Thereafter, Plaintiff was contacted by numerous third parties claiming an interest in the
balance of the remaining Oil. Specifically, Plaintiff was contacted by Riverhead Advisors, LTD
(“Riverhead”), EM Production, L.L.C. (“EMP”), M&A Traders (“M&A”), and Skyline Aviation,
Inc. (“Skyline”). Each claimed that it had a right to the Oil. In addition, it appears to the Court,
based on a reading of the pleadings, that SJGK continues to claim an interest in the Oil now that
all of the outstanding rent to Plaintiff has been paid pursuant to the Lease and Settlement
Agreement. Because all of SJGK’s outstanding rent has been paid, Plaintiff now claims it is
disinterested in the remainder of the Oil.

Fearing lawsuits from Riverhead, EMP, M&A,

Skyline, and SJGK, Plaintiff filed an interpleader action on December 16, 2011 in the Wayne
County Circuit Court to determine who has interests in the Oil. SJGK removed the matter to this
Court, based upon diversity, and subsequently filed the instant Motion to Dismiss.
III. LEGAL STANDARD
A motion brought pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon
which relief may be granted tests the legal sufficiency of a plaintiff’s claims. The Court must
accept as true all factual allegations in the pleadings, and any ambiguities must be resolved in the
plaintiff’s favor. See Jackson v. Richards Med. Co., 961 F.2d 575, 577–78 (6th Cir. 1992).
While this standard is decidedly liberal, it requires more than the bare assertion of legal
conclusions. See Advocacy Org. for Patients & Providers v. Auto Club Ins. Ass’n, 176 F.3d 315,

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319 (6th Cir. 1999). A plaintiff must make “a showing, rather than a blanket assertion of
entitlement to relief” and “[f]actual allegations must be enough to raise a right to relief above the
speculative level” so that the claim is “plausible on its face.” Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 555 & n.3, 570 (2007). “A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550
U.S. at 556).
In deciding a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), this Court may only
consider “the facts alleged in the pleadings, documents attached as exhibits or incorporated by
reference in the pleadings, and matters of which the [Court] may take judicial notice.” 2 James
Wm. Moore et al., Moore’s Federal Practice ¶ 12.34[2] (3d ed. 2000). If, in deciding the
motion, the Court considers matters outside the pleadings, the motion will be treated as one for
summary judgment pursuant to Fed. R. Civ. P. 56. See Fed. R. Civ. P. 12(d).
IV. ANALYSIS
SJGK brings this motion based on Plaintiff’s failure to properly interplead. Specifically,
SJGK contends that (1) Plaintiff cannot establish that it is or could be subject to multiple claims,
(2) the Oil does not constitute a limited fund or proceeds and is not the proper object for
interpleader, and (3) Plaintiff does not have control over the Oil. “Interpleader is an equitable
proceeding that ‘affords a party who (a) fears being exposed to the vexation of defending
multiple claims to (b) a limited fund or property that is (c) under his control a procedure to settle

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the controversy and satisfy his obligation in a single proceeding.’”2 United States v. High Tech.
Prod., Inc., 497 F.3d 637, 641 (6th Cir. 2007) (quoting 7 Charles Alan Wright et al., Federal
Practice and Procedure § 1704 (3d ed. 2001)). Interpleader is remedial in nature, and as such,
must be liberally construed. State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 533 (1967).
A.

Plaintiff Fears Defending Multiple Claims
The primary test for determining whether interpleader is appropriate is to consider

“whether the stakeholder legitimately fears multiple vexation directed against a single fund or
property.” High Tech. Prod., 497 F.3d at 642. The first requirement for fear of double or
multiple liability is satisfied simply where multiple claimants present competing claims for the
same property. Id. A ruling on the respective merits of the adverse claims is inappropriate
during this initial stage and should be deferred until the later stage of interpleader. Wright et al.,
supra, § 1704.
In this case, Plaintiff has received notice from Riverhead, EMP, M&A, and Skyline that
each individual company claims an interest in and intends to commence removal of the
remainder of the Oil stored in Plaintiff’s facility. See Compl. at ¶¶ 17–20. Plaintiff’s allegations
in its Complaint are supported by Skyline and Riverhead’s responsive pleadings. See Skyline
Answer at ¶ 4; Riverhead Answer at ¶ 17. In addition to Skyline’s and Riverhead’s claims, SJGK
also asserts an interest in the Oil. The Court, therefore, finds that at least two parties have made
claims to the Oil.

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Interpleader may be invoked in the federal courts via Rule 22 or via the Interpleader Act, 28
U.S.C. § 1335. In this case, Plaintiff originally filed in state court, invoking Mich. Ct. R. 3.603
for interpleader. This Court, however, will construe Plaintiff’s reliance on the state court
interpleader rule under the federal interpleader rule, Fed. R. Civ. P. 22, which is essentially the
federal counterpart to Mich. Ct. R. 3.603.
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B.

Oil Appropriate Property for Interpleader
Although interpleader is typically used for insurance obligations, it may be appropriate

for any type of property or even property interest. See, e.g., High Tech. Prod., 497 F.3d at 637
(interpleader for possession of non-radioactive isotopes); Humble Oil & Ref. Co. v. Copeland,
398 F.2d 364 (4th Cir. 1968) (interpleader for oil royalties); Kitzer v. Phalen Park State Bank of
St. Paul, 379 F.2d 650 (8th Cir. 1967) (interpleader for stocks); Oxy USA Inc. v. Panhandle E.
Pipe Line Co., 771 F. Supp. 337 (D. Kan. 1991) (processing rights for natural gas). The Oil at
stake here is thus an appropriate property to interplead.
C.

Plaintiff Has Control of the Oil
With respect to whether the Oil is under Plaintiff’s control, the parties do not dispute that

it is being stored in Plaintiff’s facility. It is also undisputed that Plaintiff maintains full control
over its facility.

Even the Lease, which SJGK has breached, only granted SJGK limited

permission to access Plaintiff’s premises under certain conditions set forth in it. Compl. Ex. 1, at
1–2. When SJGK purportedly defaulted on the Lease and Settlement Agreement, permission to
access Plaintiff’s premises was terminated. Plaintiff, thus, maintains full control over its facility
and the Oil. As such, drawing all inferences in favor of Plaintiff, sufficient factual allegations
have been pled to invoke interpleader. Defendants S & J Management, Inc. and SJGK, L.L.C.’s
Motion to Dismiss under Fed. R. Civ. P. 12(b)(6) is denied.

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V. CONCLUSION
Accordingly, and for the reasons set forth above, IT IS HEREBY ORDERED that
Defendants S & J Management, Inc. and SJGK, L.L.C.’s Motion to Dismiss [dkt 2] is DENIED.
IT IS SO ORDERED.

s/Lawrence P. Zatkoff
LAWRENCE P. ZATKOFF
UNITED STATES DISTRICT JUDGE
Dated: June 18, 2012

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