LG Sciences LLC et al v. Mass Nutrition, Inc. et al

Filing 25

OPINION and ORDER denying Defendants' 15 Motion to Dismiss Plaintiffs' Amended Complaint and denying Defendants' 19 Motion for Sanctions Pursuant to Rule 11. Signed by District Judge Gerald E. Rosen. (JOwe)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
LG SCIENCES, LLC, a Nevada
Limited Liability Company, and E
& F DISTRIBUTORS, LLC, a
Michigan Limited Liability
Company,
Plaintiffs,
No. 2:12-cv-14843
Hon. Gerald E. Rosen

vs.
MASS NUTRITION, INC., a
Florida For Profit Corporation, and
MASS NUTRITION II, INC., a
Florida For Profit Corporation,
Defendants.
___________________________________/

OPINION AND ORDER DENYING DEFENDANTS’ MOTION TO
DISMISS PLAINTIFFS’ AMENDED COMPLAINT AND DENYING
DEFENDANTS’ MOTION FOR SANCTIONS PURSUANT TO RULE 11
I. INTRODUCTION
This case arises out of the parties’ business relationship with regards to the
sale of Plaintiffs’ nutritional supplements.

When that relationship soured,

Plaintiffs sought relief in this Court. Plaintiffs’ five-count Amended Complaint
(Complaint) sounds in contract, quasi-contract, and tort. Defendants have now

1

moved to dismiss Plaintiffs’ Complaint and for sanctions.1 Having reviewed the
parties’ briefs in support of and in opposition to Defendants’ motions and the
accompanying exhibits, the Court finds that the relevant facts, allegations, and
legal arguments are adequately presented in these written materials, and that oral
argument would not aid the decisional process. Accordingly, the Court will decide
Defendants’ motions “on the briefs.” See Local Rule 7.1(e)(2), U.S. District Court,
Eastern District of Michigan.

The Court denies Defendants’ motions for the

reasons set forth below.
II. FACTUAL BACKGROUND
LG Sciences and E&F Distributors (collectively, Plaintiffs) manufacture,
distribute, and sell sports nutrition supplements. (Plfs’ Compl., Dkt. # 10, at ¶¶ 10,
18). They do so through their own traditional retail methods, as well as through
wholesalers.

(Id. at ¶ 10).

During the course of their wholesale operation,

Plaintiffs entered into a business relationship with Mass Nutrition (Defendants),2

1

In violation of Eastern District of Michigan Local Rule 7.1(a)(2), Defendants did
not indicate whether it sought Plaintiffs’ concurrence in the relief sought in the
present motions. Plaintiffs answer this question in the negative. (Plfs’ Resp., Dkt.
# 17, at ¶¶ 4-7). Defendants and their counsel are cautioned to comply with Local
Rule 7.1(a) when filing any further motions in this case. Failing to do so may lead
to fines or other sanctions.
2
Defendants assert that “Mass Nutrition II, Inc. is a corporation which is separate
and distinct from [Mass Nutrition, Inc.], which has nothing to do with the
transactions giving rise to this action.” (Def’s Br., Dkt. # 15, at 5). For the
purposes of this Motion, however, the Court must accept Plaintiffs’ allegations as
true.
2

where Mass Nutrition purchased Plaintiffs’ products at wholesale for later sale by
Mass Nutrition to consumers at retail. (Id. at ¶ 11). Over the course of this
relationship, Defendants purchased in excess of one million dollars’ worth of
supplements from Plaintiffs. (Id. at ¶ 17).
The principal product at issue here is a supplement package called the
“Trifecta Stack” kit. The kit is a packaged product composed of three nutrition
supplements: “Methyl 1-D,” “MMv3,” and “Formadrol Extreme.” (Id. at ¶ 10, n.
1). All Trifecta Stack kits include instructions for using the supplements over the
course of a seven-week program, including how to properly and safely use the
three products in conjunction with one another. (Id. at ¶ 33). The kits also include
a free diet and exercise guide, all of which are packaged together in a specialized
box. (Id. at ¶ 66).
It is a well-known common practice in the dietary supplement industry to
have two distinct kinds of promotions, one benefiting the retailer and one
benefiting the consumer. (Id. at ¶ 30). The latter incentivizes consumer sales by
either including a free promotional item or by offering a reduced price (such as for
bulk quantities or packaged items) to consumers, while the former only provides
purchase discounts to wholesalers (such as “buy two, get one free or an extra ten
percent off the entire order.”). (Id.). As set forth below, the Trifecta Stack kit
packaged by Plaintiffs for sale by Defendants was meant to benefit the consumer;

3

it packaged individual items at a combined lower price than a consumer would pay
if all three individual items were purchased separately and included a free
promotional item in order to incentivize the consumer to purchase the packaged kit
in lieu of purchasing the products individually. (Id. at ¶¶ 21, 31). In this case, the
free promotional item was either of two kinds of additional supplements,
“Ghenerate” or “IGH 1-60 Count.” (Id. at ¶¶ 23, 34, 38-40). Plaintiffs marked
these promotional items as “samples.” (Id. at ¶ 35).
In August 2008, agents for Plaintiffs and Defendants, Eric Marchewitz and
Todd Rosenfeld, respectively, engaged in discussions resulting in Defendants
purchasing the Trifecta Stack kit at a discounted rate with a promotional product.
(Id. at ¶ 36). The parties intended that this “special customer facing promotion” -created by Plaintiffs for Defendants -- would incentivize end consumer purchases.
(Id. at ¶ 38). Defendants retailed the Trifecta Stack kit and its free promotional
item (IGH-1 60 Count) to consumers for $74.95 from October 2008 through
February 2010 (when IGH-1 60 Count went out of stock). (Id. at ¶¶ 38-39; Ex. 1
to Plfs’ Compl., Dkt. # 14-2). Defendants continued to sell the Trifecta Stack kit
without the promotional item from February through June 2010, but sales suffered.
(Plfs’ Compl., Dkt. # 14, at ¶ 39). In June 2010, the parties entered into a similar
agreement to use a different promotional item, GHenerate, in an attempt to raise
sales back to original volumes under the IGH-1 60 Count promotion. (Id. at ¶ 40).

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During the course of this business relationship, Defendants implied and
represented that they were purchasing these kits for sale at retail in the same
manner. (Id. at ¶¶ 12, 29). Indeed, Plaintiff exclusively intended these kits to be
sold as kits at retail. (Id.). Defendants’ website even advertised the kits -- with a
free promotion -- to consumers as a package deal. (Id. at ¶ 34). The parties,
verbally and via electronic mail communications, memorialized these intentions.
(Id. at ¶ 41). As a result of these agreements, between October 2008 and February
2012, Defendants ordered and purchased a total of 12,652 Trifecta Stack kits in
twenty-seven separate purchases. (Id. at ¶¶ 27-28(a-aa)). The wholesale value of
these purchases was $659,385.80, not including the 12,652 promotional bottles of
GHenerate at no additional cost. (Id. at ¶ 27).
This relationship turned south in August 2012 when Rosenfeld admitted to
Marchewitz that he was purchasing the Trifecta Stack kits not with the intent to
sell the kits as a single unit, but rather with the intent to sell the individual items
within the kits individually. (Id. at ¶ 43). Defendants also sold the promotional
products as individual items. (Id. at ¶ 44). As a result, Plaintiffs took steps to
prevent Defendants from continuing to sell the items within the Trifecta Stack kits
individually, including changing the labeling to prevent individual sale by marking
the individual bottles contained within the Trifecta Stack kit as “Not for individual
sale” with bright yellow stickers. (Id. at ¶¶ 21, 45). Defendants’ sales plummeted,

5

and they ultimately terminated the business relationship with Plaintiffs. (Id. at ¶
45).
Plaintiffs assert that Defendants agreed to a contract for the purchase of
goods at the wholesale price for later retail sale as a kit, yet turned around and
broke up the packaged individual units for individual sale at retail price. This
difference, measured over a few years, resulted in a net gain to Defendants of over
$270,000. (Id. at ¶ 53). When one adds in the value of the promotional units sold
by Defendants, this figure increases another $110,000. (Id.).
Independent of this general scheme, Plaintiffs also claim that in September
2008, Defendants fraudulently represented to Plaintiffs that they had not received a
shipment of 480 units of IGH-1 60 Count promotional supplements. (Id. at ¶ 92).
Plaintiffs consequently reshipped Defendants an additional 480 units, labeled “Not
for Individual Sale.” (Id. at ¶¶ 94-95). Defendants then packaged and resold these
promotional units as their own, to the tune of $7,188.00 in profit. (Id. at ¶ 95).
Not only were Defendants not entitled to sell these units as their own, Plaintiffs
assert that this ate into Plaintiffs’ own retail sales of these units. (Id.).
Plaintiffs filed their initial Complaint on October 31, 2012. (Dkt. #1). In
lieu of an answer, Defendants filed a motion to dismiss. (Dkt. # 8). Plaintiffs then
amended their Complaint, asserting five separate violations of Michigan law.
(Dkt. # 14). The first three sound in contract: breach of express contract; breach of

6

implied contract; and unjust enrichment. Plaintiffs’ last two claims sound in tort.
Count IV, “Silent Fraud,” asserts that Defendants fraudulently concealed material
facts when entering into and performing work under the various agreements
regarding Defendants’ sale of the Trifecta Stack kits. The final count, Count V, is
a fraud claim arising out of Defendants’ September 2008 representation that it did
not receive the shipment of 480 units of IGH-1 60 Count promotional supplements.
Defendants have now again moved to dismiss Plaintiffs’ Complaint.
III. DISCUSSION
A.

Standard of Review
In deciding a motion brought under Rule 12(b)(6), the Court must construe

the complaint in the light most favorable to Plaintiffs and accept all well-pled
factual allegations as true. League of United Latin Am. Citizens v. Bredesen, 500
F.3d 523, 527 (6th Cir. 2007). To withstand a motion to dismiss, however, a
complaint “requires more than labels and conclusions, and a formulaic recitation of
the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555 (2007). The factual allegations in the complaint, accepted as true,
“must be enough to raise a right to relief above the speculative level,” and must
“state a claim to relief that is plausible on its face.” Id. at 570. “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.”

7

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility of an inference
depends on a host of considerations, including common sense and the strength of
competing explanations for defendant’s conduct.”

16630 Southfield Limited

P’ship v. Flagstar Bank, F.S.B., 727 F.3d 502, 504 (6th Cir. 2013).
The Sixth Circuit has emphasized that the “combined effect of Twombly and
Iqbal [is to] require [a] plaintiff to have a greater knowledge . . . of factual details
in order to draft a ‘plausible complaint.’” New Albany Tractor, Inc. v. Louisville
Tractor, Inc., 650 F.3d 1046, 1051 (6th Cir. 2011) (citation omitted). Put another
way, complaints must contain “plausible statements as to when, where, in what or
by whom,” Center for Bio-Ethical Reform, Inc. v. Napolitano, 648 F.3d 365, 373
(6th Cir. 2011), in order to avoid merely pleading “unadorned, the-defendantunlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678.
B.

Analysis
1.

Plaintiffs’ breach of contract claim (Count II) states a claim for
relief

The underpinning of Plaintiffs’ breach of express contract claim is quite
simple: they entered into an agreement to sell the Trifecta Stack kits to Defendants
at wholesale for Defendants to sell as a packaged entity at retail and Defendants
breached this contract when it sold the individual products within the kits
individually. Defendants assert that the statute of frauds bars this claim, and in the
alternative, that Plaintiffs have not pled sufficient facts to state a claim under
8

Twombly/Iqbal. As set forth in more detail below, the Court rejects Defendants’
arguments.
a.

The Statute of Frauds does not bar Plaintiffs’ breach of
contract claim

Defendants assert that because Plaintiffs’ Complaint provides that an
“express contract was formed, without a writing, even though the amounts of
goods contracted for sale in question total in excess of $500 because all parties are
merchants,” (Plfs’ Compl., Dkt. # 14, at ¶ 57) (emphasis added), the statute of
frauds bars Plaintiffs’ claim. The parties do not dispute that the UCC governs this
matter. Section 2-201 of the UCC, as codified in Michigan, provides as follows:
Except as otherwise provided in this section, a contract for the sale of
goods for the price of $1,000.00 or more is not enforceable by way of
action or defense unless there is a writing sufficient to indicate that a
contract for sale has been made between the parties and signed by the
party against whom enforcement is sought.
M.C.L. § 440.2201(1).

This provision “does not require that the terms of a

contract for the sale of goods, other than the quantity term, be expressed in writing.
The requirements of § 2–201 are satisfied if the writing indicates that ‘a contract of
sale has been made between the parties’ and ‘specif[ies] a quantity.’” Lorenz
Supply Co. v. American Standard, Inc., 419 Mich. 610, 614 (1984) (citation
omitted).
That Plaintiffs have not alleged a writing was contemporaneously created in
August 2008 when Marchewitz and Rosenfeld entered into a business relationship
9

is not as fatal as Defendants suggest. This is because Plaintiffs affirmatively pled
that “the context of the arrangement, the business relationship between the parties
and their oral and written communications” indicate the formation of an express
contract on the terms alleged by Plaintiff -- that Defendants would sell the Trifecta
Stack kit as a package. (Plfs’ Compl., Dkt. # 14, at ¶¶ 41, 58) (emphasis added).
In response to Defendants’ Motion, Plaintiffs also produced paid invoices and
orders signed by Defendants’ agents specifying various quantities of Trifecta Stack
kits. (Exs. A & B to Plfs’ Resp., Dkt. ## 17-1 & 17-2).3
That these writings do not expressly reference any other contractual “terms”
does not lead to the conclusion that Defendants set forth -- the only terms of the
contract are those regarding price and quantity and not regarding how Defendants
were to sell the Trifecta Stack kits. (Defs’ Br., Dkt. # 13, at 13-14). This is
because Michigan caselaw interpreting the UCC holds that “Section 2-201 does not
require that the terms of a contract for the sale of goods, other than the quantity
term, be expressed in writing.” Lorenz, 419 Mich. at 614. “A writing that satisfies
§ 2-201 does not prove the terms of a contract; such a writing merely removes the
statutory bar to the enforcement of the contract whether its terms—other than the

3

Plaintiffs attached these documents in response to Defendants’ Motion. This
Court may consider these documents without treating Defendant’s Motion as one
for summary judgment because they were referred to in Plaintiffs’ Complaint and
are central to their claims. Weiner v. Klais and Co., Inc., 108 F.3d 86, 89 (6th Cir.
1997).
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quantity term which alone must be specified in writing—be written, oral, or partly
written and partly oral.” Id. at 615-16. Plaintiffs have therefore plausibly asserted
that a writing exists sufficient to fit within the statute of frauds.
Plaintiffs have also adequately alleged that this claim alternatively falls
outside the statute of frauds. The statute of frauds does not apply “[w]ith respect to
goods for which payment has been made and accepted or that have been received
and accepted.”

§ 440.2201(3)(c).

Specifically, Plaintiffs have set forth facts

indicating that the oral agreement between Marchewitz and Rosenfeld became
enforceable through performance. Power Press Sales Co. v. MSI Battle Creek
Stamping, 238 Mich. App. 173, 179 (1999). For example, Plaintiffs assert that
Marchewitz and Rosenfeld “discussed, in order to drive more sales, a special
customer facing promotion would be created by LG Sciences and highlighted by
Mass Nutrition to give incentive to the end consumer matching a free product with
the Trifecta Stack.” (Plfs’ Compl., Dkt. # 14, at ¶ 38). Defendants then partially
performed their responsibilities under the contract by ordering, paying for, and
accepting the Trifecta Stack kits (with promotional supplements), as well as
making the kits available for purchase on Defendants’ website as per the alleged
contract. (Id. at ¶¶ 27-28(a-aa), 34; Exs. 1-2, 4, 7 to Plfs’ Compl., Dkt. ## 14-2, 3,

11

5, 8).4 Such performance would plausibly lift this claim outside the statue of
frauds.
b.

Plaintiffs’ breach of contract count states a claim for relief

Defendants alternatively attack Plaintiffs’ breach of contract claim for
failing to satisfy Rule 8(a)’s pleading standards as set forth in Twombly and Iqbal.
Contrary to Defendants’ assertion, “[t]he Court [does not need to] search the
Complaint in vain to find any meaningful allegations of actual factual material.”
(Defs’ Br., Dkt. # 15, at 11).

Plaintiffs’ Complaint contains a multitude of

statements regarding the when, where, in what or by whom that plausibly support a
breach of contract claim. Ctr. for Bio-Ethical Reform, 648 F.3d at 373. Here,
Plaintiffs have alleged that the parties’ agents entered into a business relationship
beginning in August 2008 concerning the resale of Plaintiffs’ Trifecta Stack kits.
Plaintiffs assert that based on the parties’ negotiations, conduct, industry standards,
and oral and written communications, the parties agreed that Defendants would
purchase the kits at discount and then sell them to consumers as kits. Defendants
then purchased the kits twenty-seven different times and screenshots of

4

Defendants argue that they “have performed their contractual duties as a
purchaser of goods -- to accept and pay for the goods in accordance with the
contract. Nothing in Article 2 imposes upon a buyer the contractual obligation to
use the goods in accordance with the seller’s alleged ‘impressions’ or
expectations.” (Def’s Br., Dkt. # 15, at 13-14) (citing MCL § 440.2301). This
may be the case, but this is not what Plaintiffs have alleged and is rather something
that is best addressed during discovery.
12

Defendants’ website attached to the Complaint confirm that Defendants acted
consistently with this agreement. Defendants’ agent subsequently admitted that it
was breaking up these kits and selling the units individually. These are more than
enough facts to plausibly state a claim for breach of contract, as well as for
Plaintiffs’ quasi-contractual theories.
2.

Plaintiffs’ alternative breach of contract claims (Counts I and III)
state claims for relief

Under Michigan law, a plaintiff cannot assert quasi-contractual theories if an
enforceable express contract exists. Terry Barr Sales Agency, Inc. v. All-Lock Co.,
Inc., 96 F.3d 174, 181 (6th Cir. 1996) (“Where the parties have an enforceable
contract and merely dispute its terms, scope, or effect, one party cannot recover for
promissory estoppel and unjust enrichment.”); Kingsley Associates, Inc. v. Moll
PlastiCrafters, Inc., 65 F.3d 498, 506 (6th Cir. 1995) (“[T]he existence of an
implied-in-fact contract, which provides a legal remedy, will bar a claim of unjust
enrichment, which seeks an equitable remedy.”). Defendants argue that because
Plaintiffs have pled that the parties entered into an express contract, Plaintiffs’
quasi-contractual theories must be dismissed. (Defs’ Br., Dkt. # 15, at 14-15).
Plaintiffs maintain that at this stage in the litigation, they are not required to “pick
a theory on which they wish to proceed,” pointing rather to the alternative pleading
standards set forth in the Federal Rules of Civil Procedure. (Plfs’ Resp., Dkt. # 17,
at 13). Specifically, Rule 8(d) provides that:
13

A party may set out 2 or more statements of a claim or defense
alternatively or hypothetically, either in a single count or defense or in
separate ones. If a party makes alternative statements, the pleading is
sufficient if any one of them is sufficient. . . . A party may state as
many separate claims or defenses as it has, regardless of consistency.
Fed. R. Civ. P. 8. “In other words, a pleading does not become insufficient by
reason of a party having made alternative, or even contradictory, claims.” Detroit
Tigers, Inc. v. Ignite Sports Media, LLC., 203 F. Supp. 2d 789, 793 (E.D. Mich.
2002) (citing Rowe v. Cleveland Pneumatic Co., 690 F.2d 88, 92 (6th Cir. 1982)).
Plaintiffs have, in so many words, “kept [their] options open [for the
possibility that Defendants] . . . may deny the existence of a contract.” Terry Barr
Sales Agency, 96 F.3d at 182 (reinstating dismissal of quasi-contract claims and
noting that if the Defendant admits the existence of a valid contract, “it will be
appropriate for the district court to dismiss [plaintiffs]’ claims for unjust
enrichment and promissory estoppel at that time.”); Cascade Elec. Co. v. Rice, 70
Mich. App. 420, 427 (1976) (“Under the circumstances it is clear that plaintiff was
not required to elect to proceed under one theory or the other, but could seek
recovery on the basis either of an express verbal contract, or an implied contract if
the [fact finder] found that the express verbal contract did not exist.”). Though the
presence of an express contract would defeat Plaintiffs’ alternative theories,
Defendants’ argument regarding that claim reinforces Rule 8(d)’s policy
undertones. Defendants assert, as set forth above, that Plaintiffs cannot bring an

14

express contract claim because that claim is barred by the statute of frauds. At the
same time, they also rely upon Plaintiffs’ express contract claim in an attempt to
defeat their quasi-contractual claims. Defendants cannot have it both ways and the
discovery vehicle -- not a 12(b)(6) motion -- is the appropriate place to refine these
positions.
Accordingly, and because this matter is still “[a]t the pleading stage, the
Court believes it is premature to dismiss . . . [Plaintiffs’] alternative count[s] based
on quasi contract before the parties have had the benefit of discovery and their
positions have gelled.”

Alexander Associates, Inc. v. FCMP, Inc., 2012 WL

1033464, at *12 (E.D. Mich. Mar. 27, 2013); see also Detroit Tigers, 203 F. Supp.
2d at 793 (“Plaintiff has pleaded in the alternative; either there is an express
contract between the parties . . . , or else Plaintiff is entitled to a quasi-contractual
remedy . . . . For these reasons, granting dismissal of the entire Complaint is not a
proper disposition in the instant case.”); Wake Plumbing & Piping, Inc. v.
McShane Mech. Contracting, Inc., 2012 WL 6591664, at *3 (E.D. Mich. Dec. 18,
2012) (“At this stage, Plaintiff’s claim for breach of contract in count one will not
be construed as an admission against another alternative or inconsistent pleading in
the same case. Although Plaintiff will not be able to recover damages on both its
contract and quasi-contractual theories, Plaintiff may allege a promissory estoppel

15

claim in the alternative to a breach of contract claim under Rule 8(d).”) (collecting
similar cases).
3.

Plaintiffs have stated claims for silent fraud and fraud

Plaintiffs’ “Silent Fraud” claim (Count IV) generally tracks the factual
assertions made with respect to their contract claims:
• “Defendants gave Plaintiffs the false impression that Defendants were
selling the Trifecta Stack as a single packaged item and were only
using the GHenerate for promotional purposes with the purchase of
the Trifecta Stack.” (Plfs’ Compl., Dkt. # 14, at ¶ 86);
• “Throughout the discussions between the parties, both verbally and
through electronic mail, Defendants repeatedly failed to disclose the
actual means by which Defendants were selling the Trifecta Stack
components.” (Id. at ¶ 87);
• “Defendants had the intent to deceive in this failure to disclose
because Defendants were making increased profits through the
enrichment and benefit of the promotional prices . . . and continued
this intent of conveying this false impression at every conversation
and re-order of the Trifecta Stack.” (Id. at ¶ 88); and
• “Defendants had a duty to disclose because they were aware that
Plaintiffs [understood] . . . that the terms of their arrangement for the
sale of the Trifecta Stack, at wholesale, was that the packaged product
be sold as a single item and that the Ghenerate product was
promotional for the end purchasing consumer only.” (Id. at ¶ 89).
Plaintiffs’ fraud claim (Count V) is unrelated to the general averments in
their other four counts.

This Count relates not to the nature of the parties’

agreement concerning Trifecta Stack kits. Instead, it specifically asserts that: (a)
Plaintiffs shipped 480 units of promotional supplements to Defendants in

16

September 2008; (b) Defendants falsely represented that they did not receive these
480 units; (c) Plaintiffs shipped an additional 480 units of promotional
supplements; (d) Defendants packaged these promotional supplements together as
a “120 count” bottle; and (e) Defendants sold these promotional supplements. (Id.
at ¶¶ 91-95). Therefore, Plaintiffs assert, Defendants defrauded Plaintiffs out of
“legitimate sales of IGH-1, 100 count bottles and pocketing $29.99 per
fraudulently acquired combo of ‘Not for Individual Sale’ bottles.” (Id. at ¶ 95).
Defendants argue that these claims are not extraneous to the alleged breach
of contract and therefore are precluded by the “economic loss doctrine.”
Defendants also assert that these claims are not pled with specificity pursuant to
Federal Rule of Civil Procedure 9(b). These arguments are not persuasive.
a.

Defendants’ economic loss doctrine argument is premature

Under the economic loss doctrine, “[w]here a purchaser’s expectations in a
sale are frustrated because the product he bought is not working properly, his
remedy is said to be in contract alone, for he has suffered only economic
damages.” Neilbarger v. Universal Cooperative, Inc., 439 Mich. 512, 520 (1992).
The purpose of the doctrine is to prevent contract law from “drown[ing] in a sea of
tort.” Id. at 528 (citation omitted). This is because “contract principles . . . are
generally more appropriate for determining claims for consequential damages that
the parties have, or could have, addressed in their agreement.” Id. at 521.

17

At first, Michigan only applied this doctrine to unintentional torts. Huron
Tool and Eng’g Co. v. Precision Consulting Servs., 209 Mich. App. 365, 368
(1995). In Huron Tool, the Michigan Court of Appeals extended the doctrine to
cover intentional torts as well. Id. at 371-75. Notwithstanding this extension, the
doctrine does not cover all intentional torts, as the Huron Tool court expressly
carved out “fraud in the inducement as the only kind of fraud claim not barred by
the economic loss doctrine.” Id. at 371. In Huron Tool, the court drew the line
between fraud that is extraneous to a contract and fraud that is not:
Fraud in the inducement presents a special situation where parties to a
contract appear to negotiate freely - which normally would constitute
grounds for invoking the economic loss doctrine - but where in fact
the ability of one party to negotiate fair terms and make an informed
decision is undermined by the other party’s fraudulent behavior. In
contrast, where the only misrepresentation by the dishonest party
concerns the quality or character of the goods sold, the other party is
still free to negotiate warranty and other terms to account for possible
defects in the goods.
Id. at 372-73 (emphasis added). In short, “[f]raud in the inducement . . . addresses
a situation where the claim is that one party was tricked into contracting. It is
based on pre-contractual conduct. . . . [It], by definition, redresses
misrepresentations that induce the buyer to enter into a contract but that do not in
themselves constitute contract or warranty terms subsequently breached by the
seller.”

Id. at 370, 375.

Accordingly, there is a distinction between “fraud

18

extraneous to the contract and fraud interwoven with the breach of contract.” Id. at
373.
The Michigan Supreme Court endorsed this expansion in General Motors
Corporation vs. Alumi-Bunk, Inc., 482 Mich. 1080 (2008), where it upheld the trial
court’s application of the doctrine “for the reasons stated in the Court of Appeals
dissenting opinion.” Id. at 1080. There, the parties entered into a sales contract
where defendant, Alumi-Bunk, purchased 147 Chevrolet Silverado trucks from one
of General Motors’ Ohio dealers at a “substantial discount.” Gen. Motors. Corp. v.
Alumi-Bunk, Inc., 2007 WL 2118796, at * 1 (Mich. Ct. App. July 27, 2007), rev’d
in part, 482 Mich. 1080 (2008). General Motors claimed that that Alumi-Bunk
agreed to modify or “upfit” the vehicles prior to resale so that they would not
compete with other dealers, though this term was not in the sales contract. Id.
Alumi-Bunk, however, sold the vehicles without modification and General Motors
subsequently sued, alleging, among other things, breach of express/implied
contract and fraud in the inducement. Id. In finding that the economic loss
doctrine did not apply, the Court of Appeals reasoned that because the alleged
fraud “induce[d] [GM] to enter into the original agreement . . . . [t]he alleged
misrepresentations did not ‘relate to the breaching party’s performance of the
contract.’” Id. at * 6.

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The dissent rejected this narrow reasoning and rather found that GM’s
Complaint allegations regarding “[t]he alleged misrepresentations that form the
basis of GM’s fraud claim are precisely the same as those alleged in its breach of
contract claim.”

Id. at * 10 (Kelly, J., dissenting).

GM’s fraud and

misrepresentation claims, for example, asserted that Alumi-Bunk represented that
the vehicles “would be upfitted before the resale of those vehicles to the general
public.” Id. Similarly, its breach of contract claim alleged that Alumi-Bunk could
purchase vehicles “on the condition that Alumi-Bunk upfit any such vehicles before
reselling them to the general public.” Id. Given these similarities, the dissent
concluded, “the fraud allegations are not extraneous to the contractual dispute as
GM’s allegations of fraud are so intertwined with its allegations of breach of
contract to be indistinguishable.” Id. at * 10.
This Court need not, however, examine whether the economic loss doctrine
bars Plaintiffs’ silent fraud count at this juncture. Consistent with the Federal
Rule’s alternative pleading scheme discussed earlier, Defendants’ argument on this
issue is premature and another attempt to have it both ways -- Defendants rest their
economic loss doctrine defense on the basis of a contract they dispute existed. See
Metropolitan Alloys Corp. v. Considar Metal Mktg., 2007 WL 2874005, at * 7
(E.D. Mich. Sept. 25, 2007) (noting that the express allegation of a breach of
contract claim does not automatically defeat a fraud in the inducement claim

20

because “a plaintiff may pursue two or more theories of recovery in the alternative
and ‘regardless of consistency’”) (citation omitted).
b.

Plaintiffs’ claims are pled with specificity

Defendants also argue that these claims do not satisfy Federal Rule of Civil
Procedure 9(b), which mandates that “a party must state with particularity the
circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). “In order to
meet the ‘particularity’ requirement of Rule 9(b), ‘a plaintiff [must] allege the
time, place, and content of the alleged misrepresentations on which he or she
relied; the fraudulent scheme; the fraudulent intent of the defendants; and the
injury resulting from the fraud.’” Indiana State Dist. Council of Laborers & HOD
Carriers Pension & Welfare Fund v. Omnicare, Inc., 719 F.3d 498, 503 (6th Cir.
2013) (citations omitted and alterations in original). “The threshold test is whether
the complaint places the defendant on sufficient notice of the misrepresentation,
allowing the defendants to answer, addressing in an informed way plaintiff’s claim
of fraud.” Coffey v. Foamex L.P., 2 F.3d 157, 162 (6th Cir. 1993) (internal
quotations and corrections omitted).
As a preliminary matter, the Court declines to breathe life into Defendants’
argument that Plaintiffs’ fraud claims do not meet Rule 9(b)’s pleading standard.
Defendants offers no argument as to why Plaintiffs’ fraud claims are not pled with
the requisite specificity and rather, after briefly citing relevant pleading standards,

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just provides this wholly conclusory offering: “Defendants submit that Counts IV
and V of Plaintiffs’ amended complaint fail to allege the supposed claims of fraud
with the required specificity and, accordingly should be dismissed pursuant to Fed.
R. Civ. P. 12(b)(6).” (Defs’ Br., Dkt. # 15, at 19). In arguing that Plaintiffs’ fraud
claims are so barren so as to not pass muster under Rule 9(b), Defendants
ironically support their argument with wholly conclusory language, which merits
waiver of this argument. Spirko v. Mitchell, 368 F.3d 603, 612 (6th Cir. 2004)
(failure to develop an argument constitutes a waiver); McPherson v. Kelsey, 125
F.3d 989, 995-96 (6th Cir. 1997) (“[I]ssues adverted to in a perfunctory manner,
unaccompanied by some effort at developed argumentation, are deemed waived. It
is not sufficient for a party to mention a possible argument in the most skeletal
way, leaving the court to . . . put flesh on its bones.”) (citation omitted and
alteration in original).
Even if this were not the case, Plaintiffs have stated the circumstances
constituting the two alleged frauds with particularity sufficient to satisfy Rule 9(b).
To establish an actionable claim of fraud under Michigan law, a plaintiff must
establish: “(1) That defendant made a material representation; (2) that it was false;
(3) that when he made it he knew that it was false, or made it recklessly, without
any knowledge of its truth, and as a positive assertion; (4) that he made it with the
intention that it should be acted upon by plaintiff; (5) that plaintiff acted in reliance

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upon it; and (6) that he thereby suffered injury.” Hi-Way Motor Co. v. Int'l
Harvester Co., 398 Mich. 330, 336 (1976). Though an action for fraud may not
generally rely upon future events, “an unfulfilled promise to perform in the future
is actionable when there is evidence that it was made with a present undisclosed
intent not to perform. Furthermore, ‘the mere fact that statements relate to the
future will not preclude liability for fraud if the statements were intended to be, and
were accepted as, representations of fact, and involved matters peculiarly within
the knowledge of the speaker.’” Foreman v. Foreman, 266 Mich. App. 132, 143
(2005) (citations omitted).
As to Plaintiffs’ silent fraud claim, Plaintiffs allege that in August 2008,
Marchewitz and Rosenfeld negotiated the terms of a business relationship
concerning the sale of the Trifecta Stack kits. They also alleged that Defendants
concealed their true intentions for entering into this relationship -- to sell the
Trifecta Stack kit’s individual components for their own benefit -- and that
Rosenfeld subsequently admitted as such in August 2012. Finally, Plaintiffs allege
that this fraudulent scheme resulted in significant economic loss. “These detailed
allegations [relating to Defendants’ alleged present undisclosed intent not to
perform] are more than sufficient to enable the named defendants to prepare a
responsive pleading to the charges presented.” U.S. ex rel. Poteet v. Medtronic,
Inc., 552 F.3d 503, 518 (6th Cir. 2009).

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The facts underlying Plaintiffs’ fraud claim (Count V) also sufficiently put
Defendants on notice of an alleged past misrepresentation, therefore allowing
Defendants to answer Plaintiffs’ charge. In 2008, Plaintiffs assert that Defendants
represented to Plaintiffs that it had not received a shipment of 480 units of IGH-1
60 Count promotional supplements. Plaintiffs reshipped an additional 480 units,
which Defendants then packaged and resold these promotional units as their own,
to the tune of $7,188.00 in profit. In so doing, Defendants negatively impacted
Plaintiffs’ retail sales of these units. Plaintiffs’ fraud claim is sufficiently pled.5
In sum, Plaintiffs have pled their fraud claims (Counts IV and V) with
sufficient particularity to put Defendants on notice “to prepare a responsive
pleading to the charges presented.” Poteet, 552 F.3d at 518.
5.

Sanctions are not appropriate

Finally, Defendants request that this Court sanction Plaintiffs and their
counsel pursuant to Federal Rule of Civil Procedure 11 and 28 U.S.C. § 1927.
(Defs’ Mtn., Dkt. # 19). In so arguing, Defendants just replicate their substantive
arguments made in their Motion to Dismiss, and therefore conclude that:
As a matter of law, the claims purportedly asserted by Plaintiffs are
without legal merit, and are not based upon a good faith argument
regarding existing law or the extension or modification of existing
law. . . . Plaintiffs’ pleadings here appear to have been filed for the
5

Defendants’ alternative argument that this Court does not have jurisdiction over
this claim because it asserts damages of fewer than $75,000 is predicated upon the
dismissal of Plaintiffs’ other claims and is therefore moot.
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purpose of attempting to extort some settlement from Defendants, and
not because there is a valid claim under Michigan law to be asserted.
(Id. at 4). As Plaintiffs adeptly observe, Defendants essentially argue that their
Motion to Dismiss is so “airtight” that Plaintiffs’ failure to dismiss their lawsuit
mandates sanctions. (Plfs’ Resp., Dkt. # 22, at 11).
Having addressed the merits of Defendants’ arguments with regards to the
sufficiency of Plaintiffs’ Complaint above, it should come as no surprise that
Defendants’ Motion is without merit. In no uncertain terms, Defendants’ position
on the frivolity of Plaintiffs’ Complaint -- that it is -- is just plain wrong. Their
presumptuous arguments containing conclusory and hyperbolic language,
moreover, certainly do not advance a level of discourse to which counsel should
ascribe. Cf. Bennett v. State Farm Mut. Auto. Ins. Co., --- F.3d ---, 2013 WL
5312398, at *1 (6th Cir. 2013) (“There are good reasons not to call an opponent’s
argument “ridiculous.” . . . The reasons include civility; the near-certainty that
overstatement will only push the reader away (especially when, as here, the
hyperbole begins on page one of the brief); and that, even where the record
supports an extreme modifier, ‘the better practice is usually to lay out the facts and
let the court reach its own conclusions.’ But here the biggest reason is more
simple: the argument that [Defendant] derides as ridiculous is instead correct.”)
(internal citation omitted).

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There is a fine line between zealous advocacy and sanctionable conduct. In
the future, Defendants and their counsel would be wise to not toe that line so
closely, less they find themselves hoisted upon the petard of their own arguments.
IV. CONCLUSION
For all of the foregoing reasons,
IT IS HEREBY ORDERED that Defendants’ Motion to Dismiss Plaintiffs’
Amended Complaint [Dkt. # 15] is DENIED.
IT IS FURTHER ORDERED that Defendants’ Motion for Sanctions
Pursuant to Rule 11 [Dkt. # 19] is DENIED.
IT IS SO ORDERED.

Dated: October 28, 2013

s/Gerald E. Rosen
GERALD E. ROSEN
CHIEF, U.S. DISTRICT COURT

I hereby certify that a copy of the foregoing document was mailed to the attorneys
of record on this date, October 28, 2013, by electronic and/or ordinary mail.
s/Julie Owens
Case Manager, 313-234-5135

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