Harbor Thirteen Mile -- 20600, LLC et al v. Consolidated Electrical Distributors, Inc. et al

Filing 14

ORDER granting 7 defts' Motion to Dismiss. Signed by District Judge Nancy G. Edmunds. (CBet)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

HARBOR THIRTEEN MILE- 20600 LLC, ET
AL.,

Case No. 15-14066
Honorable Nancy G. Edmunds

Plaintiffs,
v.
EMPLOYEES’ RETIREMENT PLAN OF
CONSOLIDATED ELECTRICAL
DISTRIBUTORS, INC., ET AL.,
Defendants.
/

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS PLAINTIFFS’
COMPLAINT [7]
This civil fraud action arises out of Plaintiffs’ default on a commercial loan held by
Defendant Employees’ Retirement Plan of Consolidated Electrical Distributors, Inc.
(“Retirement Plan”). According to the complaint, the Retirement Plan fraudulently issued
a series of inaccurate foreclosure notices in attempt to prevent Plaintiffs from paying the
loan off in a timely fashion. At this juncture, all that remains is a single fraud claim–pled
over two separate counts–against the Retirement Systems, its agent, and the loan
servicer.1
Currently before the Court is Defendants’ motion to dismiss Plaintiffs’ complaint. (Dkt.
# 7). For the reasons that follow, the Court GRANTS Defendants’ motion.

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Plaintiffs concede that their claim for breach of the implied covenant of good faith
and fair dealing is not recognized under Michigan law. (Plfs.’ Resp. 8) (“Count III may be
dismissed without prejudice if the [C]ourt believes this is warranted.”)

I.

FACTS
In 1998, Plaintiff Harbor Thirteen entered into a loan transaction with Charter One

Bank, N.A. to purchase commercial real estate located at 20600 13 Mile Road, Roseville,
Michigan (the “Property”). The loan was secured by a mortgage on the Property and a
personal guaranty executed by Craig Schubiner. On or around May 31, 2005, Charter One
assigned the loan to the Retirement Plan. (Second Amend. Compl. ¶ 8). At the time of
assignment, Plaintiffs’ balance on the loan was approximately $4.6 million. (Id. at ¶ 9).
Between 2005 and 2013, the terms of the loan were modified on several occasions to
adjust the principal balance and the maturity date. See (Defs.’ Mot., Ex. 2 Macomb County
Circuit Court, Case No. 14-0947-CB Opinion and Order at 2).
According to Defendants, in early 2014 Plaintiffs defaulted on the loan. Shortly
thereafter, the Retirement Plan accelerated the debt and initiated the foreclosure process.
(Id.) Plaintiffs failed to pay as demanded, and the Retirement Plan filed a claim and
delivery/breach of contract action in Macomb County Circuit Court against Schubiner and
Harbor Thirteen. (“Macomb County Action”) On January 12, 2016, the circuit court granted
the Retirement Plan’s motion for summary disposition against Shubiner, finding him
personally liable for the loan under the terms of the guaranty. (Id. at 5).2
Less than one month after the circuit court’s decision, Harbor Thirteen filed the instant
action against the Retirement Plan, its agent, and the loan servicer alleging fraud and
breach of a duty of good faith and fair dealing. According to the complaint, “Defendants
have failed and/or refused to provide a valid payoff amount and have changed repeatedly
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Based on the record before the Court, it is unclear whether the Retirement Plan
prevailed on its claim against Harbor Thirteen.
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the amount claimed as due without explanation or validation.” (Compl. ¶ 15). More
specifically, Plaintiffs maintains that “[u]pon information and belief, Defendant Williams
intentionally and fraudulently issued . . . ‘mistaken’ [foreclosure] notices in an attempt to
frustrate Harbor’s ability to pay off the loan.” (Id. at ¶ 26). These allegations form the
primary basis of this dispute.
II. LEGAL STANDARD
A. Motion to Dismiss Pursuant to Fed. R. Civ. P. 12(b)(6)
The Sixth Circuit recently noted that under the United States Supreme Court's
heightened pleading standard laid out in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)
and Ashcroft v. Iqbal, 556 U.S. 662 (2009), “a complaint only survives a motion to dismiss
if it contains sufficient factual matter, accepted as true, to state a claim to relief that is
plausible on its face.” Estate of Barney v. PNC Bank, Nat'l Assoc., 714 F.3d 920, 924-25
(6th Cir. 2013) (internal quotations and citations omitted). The court in Estate of Barney
goes on to state that under Iqbal, “[a] claim is plausible when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id. (internal quotations and citations omitted). Furthermore,
“[w]hile the plausibility standard is not akin to a ‘probability requirement,’ the plausibility
standard does ask for more than a sheer possibility that a defendant has acted unlawfully.”
Iqbal, 556 U.S. at 678. “[W]here the well-pleaded facts do not permit the court to infer more
than the mere possibility of misconduct, the complaint has alleged—but it has not
‘show[n]’—‘that the pleader is entitled to relief.’ ” Id. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).
If the plaintiffs do "not nudge[ ] their claims across the line from conceivable to plausible,
their complaint must be dismissed." Twombly, 550 U.S. at 570. Finally, the Court must
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always keep in mind that “on a motion to dismiss, courts are not bound to accept as true
a legal conclusion couched as a factual allegation.” Id. at 555.
Moreover, “documents attached to the pleadings become part of the pleadings and
may be considered on a motion to dismiss.” Commercial Money Ctr., Inc. v. Ill. Union Ins.
Co., 508 F.3d 327, 335 (6th Cir.2007) (citing Fed.R.Civ.P. 10(c)). “A court may also
consider matters of public record in deciding a motion to dismiss without converting the
motion to one for summary judgment.” Id. at 336. In addition documents not attached to the
pleadings may still be considered part of the pleadings when the “document is referred to
in the complaint and is central to the Plaintiffs’ claim.” Greenberg v. Life Ins. Co. of Va., 177
F.3d 507, 514 (6th Cir.1999) (internal quotation marks and citations omitted).
III.

ANALYSIS
Defendants argue that Plaintiffs’ fraud claims should be dismissed for two reasons:

First, they maintain that Plaintiffs have failed to satisfy the heightened pleading standard
imposed under Federal Rule of Civil Procedure 9(b) and, additionally, that “nothing in the
amended complaint could be construed as alleging reliance.” (Defs.’ Mot. at 6). In the
alternative, Defendants contend that Plaintiffs’ claims are barred under the doctrine of res
judicata because they “involve the same issues and require marshalling the same evidence
as in the” Macomb County Action. Id. at 12. The Court not need assess the merit of
Defendants’ res judicata argument in light of the numerous pleading deficiencies plaguing
Plaintiffs’ complaint.

A. Sufficiency of Fraud Allegations

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Under Rule 9(b), a party asserting fraud in federal court must state “with particularity”
the circumstances constituting the fraud. Fed.R.Civ.P. 9(b). That means the complaint
must “(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the
speaker, (3) state where and when the statements were made, and (4) explain why the
statements were fraudulent.” Indiana State Dist. Council of Laborers and Hod Carriers
Pension and Welfare Fund v. Omnicare, Inc., 583 F.3d 935, 942–43 (6th Cir. 2009)
(quotation marks and citation omitted). In addition, the plaintiff must identify the “alleged
misrepresentation on which he or she relied; the fraudulent scheme; the fraudulent intent
of [the other party]; and the injury resulting from the fraud.” Coffey v. Foamex L.P., 2 F.3d
157, 161–62 (6th Cir.1993) (quotation marks and citations omitted). “Malice, intent,
knowledge, and other conditions of a person's mind may be alleged generally.”
Fed.R.Civ.P. 9(b). The elements of fraud in Michigan are:
(1) [t]hat 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 upon it; and (6) that he thereby suffered injury.
Hi–Way Motor Co. v. International Harvester Co., 398 Mich. 330, 336, 247 N.W.2d 813,
816 (Mich. 1976).
Plaintiffs’ fraud claim is premised on the following universe of allegations:
19. [O]n or about March 20, 2014, Defendant Williams caused to be served
and published a foreclosure notice against Harbor.
21. [O]n or about April 7, 2014, Defendant Williams caused to be served and
published a second foreclosure notice against Harbor.
23. There was no basis for the amounts alleged in either foreclosure notice,
nor was there a basis for the increase in the second notice . . . .
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25. Upon information and belief, Defendant Williams intentionally and
fraudulently issued these ‘mistaken’ notices in an attempt to frustrate
Harbor’s ability to pay off the loan.
In essence, then, Plaintiffs assert that Defendant Williams–an agent of the Retirement
Plan–intentionally falsified the payoff amount on the foreclosure notices to prevent Harbor
Thirteen from redeeming its property. But even if this was true, Plaintiffs do not allege that
they took any action in reliance on these purported misstatements. On the contrary, with
respect to the first foreclosure notice, Plaintiffs concede that “[b]efore Harbor 13 could even
endeavor to seek financing to pay off that amount, just 18 days later, Defendants published
a second foreclosure notice in the Macomb County Legal news . . . .” (Plf.’s Resp. 5). In
other words, Plaintiffs readily admit that the second notice was published before it had any
opportunity to rely on the first.
Nor do Plaintiffs detail how, if at all, they relied on the second notice–which contained
a higher payoff amount than the first–to their detriment. In fact, nowhere in the complaint
do Plaintiffs allege that they was denied financing or otherwise prejudiced based on their
reliance on the foreclosure notices. And this is critical; Michigan courts have “frequently
reiterated that, to sustain a fraud claim, the party claiming fraud must reasonably rely on
the material misrepresentation.” Zaremba Equip., Inc. v. Harco Nat'l Ins. Co., 280 Mich.
App.16, 39, 761 N.W.2d 151, 165 (Mich. Ct. App. 2008). Here, the crux of Plaintiffs’ fraud
claim rests on the assertion that the discrepancy between the two notices “frustrated” their
ability to pay off the loan. But Plaintiffs have not, and seemingly cannot, establish that they
reasonably relied on the purported misstatements to their detriment. In this way, the
complaint is missing two elements necessary to support a cognizable fraud claim in
Michigan- reliance and damages. See Metz v. Unizan Bank, No. 05-1510, 2008 WL
6

2017574, at *13 (N.D. Ohio May 7, 2008), aff'd 649 F.3d 492 (6th Cir. 2011) (“Plaintiffs also
fail to allege facts demonstrating reliance. In support of the reliance element, the [a]mended
[c]omplaint states only that Plaintiffs ‘justifiably relied on the representation that money was
going to [Lomas or Serengeti] to their detriment.’ This statement is not a factual allegation;
it is a legal conclusion . . . .’”).
Even assuming Plaintiffs’ complaint did satisfy the basic pleading requirements under
a Rule 12(b)(6) inquiry, it falls far short of the heightened burden imposed under Rule 9(b).
Indeed, as discussed, “Rule 9(b) requires that a complaint alleging fraud state with
particularity the circumstances constituting fraud.” Frank v. Dana Corp., 547 F.3d 564, 570
(6th Cir. 2008). While Plaintiffs attribute their pleading shortfalls to the lack of discovery,
allegations of fraud “cannot be based upon information and belief, except where the
relevant facts lie exclusively within knowledge and control of the opposing party, and even
then, the plaintiff must plead a particular statement of facts upon which his belief is based.”
Craighead v. E.F. Hutton & Co., 899 F.2d 485, 489 (6th Cir. 1990).3 Here, Plaintiffs make
no attempt to substantiate even the most basic elements of their claim. Take, for example,
the element of falsity. Plaintiffs allege “[t]here was no basis for the amounts alleged in
either foreclosure notice” (Amend. Compl. ¶ 18), and that Defendant “Williams approved
and/or signed documents and affirmed the truth of numerous statements which were false
when they were made.” (Id. at ¶ 23). But Plaintiffs fail to provide any facts in support of the
first allegation–i.e. what the payoff amount should have been–and fail to identify the

3

Nor can there be any argument that the relevant facts lie exclusively within
Defendants’ control. Indeed, the bulk of the evidence relevant to Plaintiffs’ fraud claim
was likely discoverable in the Macomb County Action.
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substance of the “numerous” false statements. The Sixth Circuit has been clear that Rule
9(b) requires the complaining party to “specify the statements that [plaintiff] contends were
fraudulent . . . and explain why . . . .” Franks, 547 F.3d at 569-70. And the reason for this
is simple- Rule 9(b) was designed to prevent fishing expeditions based on vague
allegations sounding in fraud. See SFS Check, LLC v. First Bank of Delaware, 774 F.3d
351, 358 (6th Cir. 2014).
Finally, with respect to the elements of knowledge and intent, Plaintiffs fare no better,
alleging only that “[w]hen [Defendant] Williams made these statements, he fully intended
Harbor to rely upon them to its detriment.” (Amend. Compl. ¶ 24). Consistent with many
of the same policy reasons previously discussed, “[t]he courts have uniformly held
inadequate a complaint's general averment of the defendant's ‘knowledge’ of material
falsity, unless the complaint also sets forth specific facts that make it reasonable to believe
that defendant knew that a statement was materially false or misleading.” Heinrich v.
Waiting Angels Adoption Servs., Inc., 668 F.3d 393, 406 (6th Cir. 2012) (citation omitted).
For those reasons, the Court must dismiss Plaintiffs’ fraud claims.
II.

CONCLUSION
For the reasons set forth above, the Court hereby GRANTS Defendants’ motion to

dismiss the complaint. (Dkt. # 7). This order closes the case in its entirety.

SO ORDERED.

S/Nancy G. Edmunds
Nancy G. Edmunds
8

United States District Judge
Dated: April 27, 2016
I hereby certify that a copy of the foregoing document was served upon counsel of
record on April 27, 2016, by electronic and/or ordinary mail.
S/Carol J. Bethel
Case Manager

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