Biobest U.S.A., Inc. v. LN Assure Trades Inc. et al
Filing
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ORDER Granting in Part and Denying in Part Defendant's Motion to Dismiss 13 . Signed by District Judge Denise Page Hood. (LSau)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
BIOBEST U.S.A., INC.,
Plaintiff,
CASE NO. 18-11434
HON. DENISE PAGE HOOD
v.
LN ASSURE TRADES INC.,
JPMORGAN CHASE BANK, N.A.,
Defendants.
/
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S
MOTION TO DISMISS [#13]
I.
BACKGROUND
A. Procedural Background
On April 11, 2018, Plaintiff Biobest U.S.A., Inc. (“Biobest”) brought this
action in the Circuit Court of Wayne County, Michigan against LN Assure Trades
Inc. (“LN Assure Trades”) and JPMorgan Chase Bank, N.A. (“JPMC” or
“Defendant”). (Doc # 1) On May 7, 2018, JPMC removed this case to federal court.
(Doc # 1) On May 14, 2018, JPMC filed a Motion to Dismiss Biobest’s Complaint.
(Doc # 3) On May 30, 2018, Biobest filed an Amended Complaint against LN
Assure Trades and JPMC. (Doc # 7) On June 4, 2018, JPMC withdrew its Motion
to Dismiss. (Doc # 10)
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On July 10, 2018, having received no responsive pleading from LN Assure
Trades, Biobest requested a Clerk’s Entry of Default. (Doc # 18) On July 10, 2018,
the Clerk entered Default against LN Assure Trades pursuant to Fed. R. Civ. P. 55(a).
(Doc # 19) On July 13, 2018, Biobest requested a Clerk’s Entry of Default Judgment
with an Affidavit of Sum Certain against LN Assure Trades in the amount of
$285,830. (Doc # 21) On July 13, 2018, the Clerk entered Default Judgment against
LN Assure Trades pursuant to Fed. R. Civ. P. 55(b)(1). (Doc # 22)
Biobest alleged the following claims against JPMC in its Amended
Complaint: Negligence (Count IV) and Aiding and Abetting Fraud (Count V). (Doc
# 7, Pg ID 238-240) On June 12, 2018, JPMC filed a Motion to Dismiss Biobest’s
Amended Complaint for failure to state a claim upon which relief can be granted
pursuant to Fed. R. Civ. P. 12(b)(6). (Doc # 13) Biobest filed a Response on July
3, 2018. (Doc # 17) On July 17, 2018, JPMC filed its Reply. (Doc # 23) JPMC’s
Motion is currently before the Court.
B. Factual Background
Biobest is a company that specializes in pollination, biological control, and
natural crop care systems, and has offices located throughout the world. LN Assure
Trades is a company that incorporated in Florida on November 1, 2017. During all
times relevant to Biobest’s Amended Complaint, both Biobest and LN Assure
Trades maintained bank accounts with JPMC.
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On November 13, 2017, an impostor masquerading as Biobest’s CEO in
Belgium emailed a Biobest employee in Canada and requested a transfer on behalf
of Biobest’s parent company, Biobest NV. The impostor CEO requested that
Biobest transfer $285,830 to a JPMC account in the name of LN Assure Trades, and
said that Biobest would be reimbursed by Biobest’s parent company before the end
of the week. Biobest was required to increase its credit limit before JPMC would
transfer funds from Biobest to LN Assure Trades. After the credit limit was
increased, $200,000 of the $285,830 was transferred from Biobest’s JPMC account
to LN Assure Trades’ JPMC account on November 13, 2017. On November 14,
2017, the money cleared Biobest’s account. Biobest had not previously transferred
any money to LN Assure Trades.
Biobest discovered that it was the victim of a “sophisticated internet fraud”
perpetuated by an individual acting on behalf of LN Assure Trades after the funds
were transferred. Once Biobest came to this realization, it promptly reported the
fraud to the police. Biobest also requested that JPMC return Biobest’s money or
otherwise reimburse Biobest for the fraud, but JPMC refused. When Biobest
requested information regarding LN Assure Trades’ account with JPMC, JPMC said
that such information would be provided only in response to a subpoena.
Biobest alleges that JPMC played an integral part in LN Assure Trades’ fraud
by opening and maintaining LN Assure Trades’ account on scant and suspect
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information and by wiring $200,000 from Biobest’s account to LN Assure Trades’
account in the face of numerous red flags. The alleged red flags include, but are not
limited to: (1) the incorporation of LN Assure Trades two weeks prior to the transfer
and its consequent status as a new customer of Chase Bank; (2) the fact that LN
Assure Trades’ registered address is an apartment in south Florida; (3) the overall
size of the transfer; (4) the size of the transfer relative to Biobest’s previous transfers;
(5) the lack of previous transfers to LN Assure Trades by Biobest; and (6) the need
for Biobest to increase its credit line at JPMC’s insistence before the transfer was
made.
Biobest asks that this Court grant it at least $200,000 plus interest, costs, and
attorneys’ fees, and grant Biobest such additional relief as is just and equitable.
II.
ANALYSIS
Rule 12(b)(6) of the Federal Rules of Civil Procedure provides for a motion
to dismiss for failure to state a claim upon which relief can be granted. Fed. R. Civ.
P. 12(b)(6). This type of motion tests the legal sufficiency of the plaintiff’s
complaint. Davey v. Tomlinson, 627 F. Supp. 1458, 1463 (E.D. Mich. 1986). When
reviewing a motion to dismiss under Rule 12(b)(6), a court must “construe the
complaint in the light most favorable to the plaintiff, accept its allegations as true,
and draw all reasonable inferences in favor of the plaintiff.” Directv Inc. v. Treesh,
487 F.3d 471, 476 (6th Cir. 2007). A court, however, need not accept as true legal
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conclusions or unwarranted factual inferences.” Id. (quoting Gregory v. Shelby
Cnty., 220 F.3d 443, 446 (6th Cir. 2000)). “[L]egal conclusions masquerading as
factual allegations will not suffice.” Edison v. State of Tenn. Dep’t of Children’s
Servs., 510 F.3d 631, 634 (6th Cir. 2007).
As the Supreme Court has explained, “a plaintiff’s obligation to provide the
‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions,
and a formulaic recitation of the elements of a cause of action will not do. Factual
allegations must be enough to raise a right to relief above the speculative level . . ..”
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations omitted); see
LULAC v. Bresdesen, 500 F.3d 523, 527 (6th Cir. 2007). To survive dismissal, the
plaintiff must offer sufficient factual allegations to make the asserted claim plausible
on its face. Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). “A claim has facial
plausibility when the pleaded factual content allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Id.
A. Negligence
Biobest argues that because it was JPMC’s customer, it was owed a duty of
care due to the parties’ banking relationship. (Doc # 7, Pg ID 238) Biobest argues
that JPMC breached its duty of care by opening and maintaining LN Assure Trades’
account and wiring money from Biobest’s account to LN Assure Trades’ account
despite warnings that such a transfer would be unlawful. Id. JPMC argues that it
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did not owe Biobest a duty of care that was distinct from the duties set forth in the
agreements into which the parties entered. (Doc # 13, Pg ID 270) The Court agrees
with Biobest.
In Michigan, a prima facie case of negligence requires that a Plaintiff
establish: (1) the existence of a duty owed by defendant to plaintiff; (2) a breach of
that duty; (3) causation; and (4) damages. See, e.g., Case v. Consumers Power Co.,
463
Mich.
1,
6
(2000)
(citation
omitted).
“The threshold question in
a negligence action is whether the defendant owed a duty the plaintiff.” Fultz v.
Union-Commerce Associates, 470 Mich. 460, 464 (2004). The existence of a duty is
a question of law. Id. For a negligence claim to arise based on a contract,
the plaintiff must allege a duty “separate and district” from the duties imposed by
the contract. Id. at 467.
Courts in the Sixth Circuit have held that “[t]he almost-universal law in this
country is that banks owe a duty of care only to their own customers.” See SFS
Check, LLC v. First Bank of Delaware, 774 F.3d 351, 357 (6th Cir. 2014) (citations
omitted). As Biobest explains, other courts have recognized this duty as well. See
Leather Mfrs. Bank v. Morgan, 117 U.S. 96, 115 (1886) (“In their relations with
depositors, banks are held, as they ought to be, to rigid responsibility.”); Dubai
Islamic Bank v. Citibank, N.A., 126 F. Supp. 2d 659, 667 (S.D.N.Y. 2000) (“Courts
have stated that banks owe a duty of care to their customers.”); Cunningham v. World
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Sav. Bank, FSB, 660 F. Supp. 2d 1078, 1088 (D. Ariz. 2009) (“[T]here is controlling
authority for the proposition that a bank owes customers the duty to exercise
ordinary or reasonable care.”). In JPMC’s Reply, it contends that in the cases cited
by Biobest, courts have not stated whether this duty arises from a contract or from a
common law separate and distinct duty. (Doc # 23, Pg ID 421) However, Biobest’s
negligence claim is not based on a contractual agreement, and courts have held that
there is a separate and distinct duty of care owed by banks to their customers.
JPMC also relies on Ulrich v. Fed. Land Bank of St. Paul and Glidden Co. v.
Jandernoa to demonstrate that courts have declined to impose a duty of care upon
the banker-customer relationship, but the facts of those cases are dissimilar from the
facts of the instant case. (Doc # 23, Pg ID 423) In Ulrich, the court addressed
whether a bank had a legal duty to exercise reasonable care in determining the loan
eligibility of its applicants. Ulrich v. Fed. Land Bank of St. Paul, 192 Mich. App.
194, 198-200 (1991). In Glidden, the court examined if banks owe its customers a
fiduciary duty, not a duty of care. Glidden Co. v. Jandernoa, 5 F. Supp. 2d 541,
548-550 (W.D. Mich. 1998). These cases do not assess the duty of care that banks
owe to their customers with regard to the fraudulent transfer of money. Neither party
contests that Biobest was a customer of JPMC. Therefore, because Biobest was
owed a duty of care as it pertained to preventing the fraudulent transfer of money
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from its account to the account of LN Assure Trades, Biobest’s negligence claim
will not be dismissed at this stage.
B. Aiding and Abetting Fraud
Biobest alleges that JPMC should be held liable for aiding and abetting fraud.
Biobest argues that JPMC knew or should have known that LN Assure Trades’
conduct was unlawful and gave substantial assistance or encouragement to LN
Assure Trades to perpetuate a fraud on Biobest. (Doc # 7, Pg ID 239) Biobest argues
that there were “red flags” that should have indicated to JPMC that LN Assure
Trades was engaging in unlawful conduct. Id. JPMC argues that it cannot be held
liable for aiding and abetting fraud because it did not have actual knowledge of the
underlying fraud. (Doc # 13, Pg ID 273)
“In alleging fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). With any fraud
claim, a plaintiff’s 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.” Frank
v. Dana Corp., 547 F.3d 564, 570 (6th Cir. 2008). In order to allege fraud with
particularity, the plaintiffs, at a minimum, must “‘allege the time, place, and content
of the alleged misrepresentation on which [they] relied; the fraudulent scheme; the
fraudulent intent of the defendants; and the injury resulting from the fraud.’” United
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States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 342 F.3d 634, 643 (6th Cir.2003)
(quoting Coffey v. Foamex L.P., 2 F.3d 157, 161-162 (6th Cir.1993)).
Under Michigan law, proof of an aiding and abetting claim requires (1)
knowledge of wrongful conduct by the aider/abettor; and (2) substantial assistance
of the wrongful conduct by the aider/abettor. El Camino Res. Ltd. v. Huntington
Nat. Bank, 712 F.3d 917, 922 (6th Cir. 2013). Biobest claims that the fraudulent
conduct of LN Assure Trades was so blatant that JPMC should have known that it
was unlawful. However, Biobest does not offer any facts that demonstrate that
JPMC actually knew of LN Assure Trade’s illegal actions.
Since Biobest’s
allegations here do not sufficiently allege the scienter needed for an aiding and
abetting claim pursuant to Federal Rule of Civil Procedure 9(b), this Court grants
JPMC’s Motion on this ground. See Wells Fargo Advantage Nat'l Tax Free Fund v.
Helicon Assocs., Inc., No. 2:08-CV-15162, 2010 WL 11541839, at *12 (E.D. Mich.
Mar. 15, 2010).
III.
CONCLUSION
For the reasons set forth above,
IT IS HEREBY ORDERED that Defendant JPMorgan Chase Bank, N.A.’s
Motion to Dismiss (Doc # 13) is GRANTED IN PART AND DENIED IN PART.
IT IS FURTHER ORDERED that Plaintiff Biobest U.S.A., Inc.’s Negligence
claim remains.
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IT IS FURTHER ORDERED that Plaintiff Biobest U.S.A., Inc.’s Aiding and
Abetting Fraud claim is dismissed.
s/Denise Page Hood
Chief Judge, U. S. District Court
DATED: March 25, 2019
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