Peterson et al v. Northern Capital, Inc. et al
Filing
36
OPINION and ORDER Granting In Part and Denying In Part Defendant Wayne Mann's and Choice Insurance Services, LLC's 3 Motion to Dismiss. Signed by District Judge Linda V. Parker. (RLou)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
LEIGH PETERSON and NORTHERN
CAPITAL INSURANCE AGENCY
SERVICES, LLC,
Plaintiffs,
Case No. 2:20-cv-11016
Honorable Linda V. Parker
v.
NORTHERN CAPITAL, INC., WAYNE
MANN, and CHOICE INSURANCE
SERVICES, LLC, d/b/a Northern Capital
Insurance Group,
Defendants.
_______________________________/
OPINION AND ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANT WAYNE MANN’S AND CHOICE INSURANCE SERVICES,
LLC’S MOTION TO DISMISS (ECF NO. 3)
Plaintiff Northern Capital Insurance Agency Services, LLC (“NCIAS”), a
licensed insurance agency, and Plaintiff Leigh Peterson, President of NCIAS, each
allegedly subcontracted at one point or another with Defendants Northern Capital,
Inc. (“Northern Capital”), Choice Insurance Services, LLC (“Choice Insurance”),
and/or Wayne Mann, President of Northern Capital and employee of Choice
Insurance. (ECF No. 1-1 at Pg. ID 14.) In response to events that occurred over
the course of the parties’ dealings, Plaintiffs now sue Defendants for (i) breach of
contract as to Northern Capital; (ii) fraudulent misrepresentation as to Northern
Capital and Mann; (iii) innocent misrepresentation as to Northern Capital and
Mann; (iv) statutory conversion as to Northern Capital and Choice Insurance; (v)
accounting as to Northern Capital and Choice Insurance; (vi) breach of contract as
to Choice Insurance; (vii) tortious interference with a contract or business relations
as to all Defendants; (viii) receivership as to Northern Capital and Choice
Insurance; and (ix) silent fraud as to Mann. (ECF No. 1-1.)
The matter is presently before the Court on Choice Insurance’s and Mann’s
Motion to Dismiss. (ECF No. 3.) The motion has been fully briefed. (ECF Nos.
14, 16.) For the reasons that follow, the motion is granted in part and denied in
part.1
FACTUAL BACKGROUND
NCIAS & Northern Capital Enter into An Agency-Agent Agreement
On June 1, 2008, NCIAS and Northern Capital entered into an AgencyAgent Agreement (“Agency Agreement”). (ECF Nos. 1-1 at Pg. ID 15, 34-38.)
Under the agreement, NCIAS had the authority to solicit and bind insurance
business for any of Northern Capital’s insurance companies. (Id. at Pg. ID 15, 34.)
1
Northern Capital has not moved for dismissal of the Complaint against it, nor has
it filed an Answer or made an appearance in this case. Accordingly, this Opinion
and Order does not address Count I (Breach of Contract as to Northern Capital)
and does not otherwise opine as to Northern Capital’s potential legal liabilities.
2
In addition to the Agency Agreement, the parties entered into an “Addendum to
Agent’s Agreement” (“Addendum”). (Id. at Pg. ID 40.) Together, the Agency
Agreement and Addendum outlined several provisions related to ownership of
business accounts, expenses, and compensation:
“OWNERSHIP OF BUSINESS”: “Business accounts will be
. . . developed, solicited, serviced, sold and maintained by . .
. [NCIAS] and [NCIAS]’s employees and these accounts are
the property of [] [NCIAS] 100%. . . . In the event of
termination of this Agreement, [] [NCIAS]’s records, use and
control of expirations shall remain the property of [] [NCIAS]
and be left in [the] undisputed possession [of] [NCIAS].” (Id.
at Pg. ID 36, ¶ J.)
“EXPENSES”: Northern Capital will pay NCIAS’s expenses,
including (i) NCIAS employees’ “out of the home office
payroll and payroll services”; (ii) NCIAS employees’ workers
compensation; (iii) “all business expenses arising out []
[NCIAS]’s business activities”; and (iv) “the errors and
omissions insurance on behalf of [] [NCIAS]’s business
affiliated with [] [Northern Capital] . . . . Expenses will be
paid from gross revenues generated by [] [NCIAS]’s
business”, “credit[ing] 90% of gross commission to []
[NCIAS].” (Id. at Pg. ID 35, ¶ F.)
“FULL COMPENSATION”: Northern Capital will “full[y]
compensate” NCIAS as follows:
o Northern Capital will remit to NCIAS “ninety
percent (90%) of the gross commissions actually
received by [] [Northern Capital]” on “all property
and casualty business produced by [NCIAS] and/or
[NCIAS]’s employees. . . . This applies to all new
and renewal business.” (Id. at Pg. ID 40, ¶ 1(a).)
3
o “[NCIAS] will receive any contingency, bonus, or
profit-sharing commissions on a pro rata basis from
all insurance markets associated with [] [Northern
Capital] . . . . [NCIAS] will receive a copy of all
contingency, bonus, or profit sharing arrangements
that [Northern Capital] has established or
establishes while [the] agreement is in force.” (Id.
at Pg. ID 40, ¶ 1(b).)
o “[Northern Capital] will give [] [NCIAS] an
accounting of all commissions due to [] [NCIAS] on
the fifteenth (15th) day of each month for any and
all business of the preceding month. . . . [Northern
Capital] will also provide sales reports to []
[NCIAS] upon [NCIAS]’s request when [NCIAS]
desires such report on [] [NCIAS]’s business.” (Id.
at Pg. ID 40, ¶ 2.)
o “[NCIAS] agrees to pay to [Northern Capital] 10%
of gross revenue; such costs to [NCIAS] shall not
be less than $40,000 in any fiscal year.” (Id. at Pg.
ID 40, ¶ 3.)
o “[NCIAS] and [Northern Capital] agree to review
[the] business arrangement in 24 months. If at that
time either party decides that [the] contract and
business arrangement does not meet their
expectation then either party may remove
themselves from [the] arrangement.” (Id. at Pg. ID
40, ¶ 4.)
Plaintiffs allege that, from 2008 through September 30, 2019, NCIAS
performed its obligations under the Agency Agreement and Addendum, producing
millions of dollars of premiums and, thereby, millions of dollars in commissions.
4
(Id. at Pg. ID 17.) Plaintiffs further allege that, during the same time period,
Northern Capital:
Failed to pay the agreed upon expenses, with NCIAS paying
“all of their own business expenses associated with the
business it produced under the Agency Agreement and
Addendum” (including “employee salaries, taxes, insurance,
commissions, utilities, rent, office expenses, information
technology, licenses, entertainment and other similar
expenses”). (Id. at Pg. ID 17-18.)
Shared NCIAS’s “confidential and propriety information . . .
with third parties.” (Id. at Pg. ID 25.)
“[F]ailed to provide NCIAS with production reports,
commission statements, sales reports accounting and other
financial support relating to commissions paid to Northern
Capital for NCIAS’s business”; “[F]ailed to provide NCIAS
with copies of Northern Capital’s contingency agreements,
and evidence of contingency calculations and payments made
under those agreements by the applicable insurance
companies.” (Id. at Pg. ID 17.)
“[M]isrepresented to NCIAS the amount of commissions and
contingency payments that were paid to Northern Capital by
the relevant insurance companies (such as, Fremont Insurance
Company) for business produced by NCIAS”; “[F]ailed to
pay all and misrepresented the amount of commissions and
contingency commissions due NCIAS under the Agency
Agreement and Addendum.” (Id.)
5
Choice Insurance Allegedly Acquires Northern Capital
Plaintiffs allege that, on or about February 1, 2019, Choice Insurance
acquired the stock or business of Northern Capital. (Id. at Pg. ID 27.) According
to a February 7, 2019 press release:2
Choice Bank [] entered into an agreement to acquire
Northern Capital Insurance Group . . . . The acquisition
was final as of Friday, February 1, 2019. Northern Capital
Insurance will continue to operate under the same name,
as a division of Choice Insurance, for an undisclosed
period of time.
(Ex. 2, ECF No. 14-3 at Pg. ID 474.)
Plaintiffs further allege that Mann advised them of this transaction for the
first time on or around the day of acquisition. (ECF No. 1-1 at Pg. ID 27.)
2
This press release was attached as an exhibit to Plaintiffs’ response to
Defendants’ Motion to Dismiss. In their reply brief, Defendants contend that
Plaintiffs “improperly submitted” the document. (ECF No. 16 at Pg. ID 562.) In
their Complaint, Plaintiffs alleged that, on or about February 1, 2019, “Choice
Insurance acquired the stock or business of Northern Capital” and Choice
Insurance is doing business as Northern Capital. (ECF No. 1-1 at Pg. ID 13, 27.)
The Court will consider the press release in deciding this 12(b)(6) motion because
it “simply fill[s] in the contours and details of the plaintiff’s complaint, and add[s]
nothing new.” Yeary v. Goodwill Indus.-Knoxville, Inc., 107 F.3d 443, 445 (6th
Cir. 1997); see also Armengau v. Cline, 7 F. App’x 336, 344 (6th Cir. 2001) (“Yet,
if extrinsic materials merely ‘fill in the contours and details’ of a complaint, they
add nothing new and may be considered without converting the motion to one for
summary judgment.”). In addition, Defendants had ample opportunity to respond
to content of the press release in their reply brief. Thus, “[i]t cannot be said that
they suffered any prejudicial surprise.” Yeary, 107 F.3d at 445.
6
Following the closing of the transaction, Defendants notified regulatory agencies,
errors and omissions insurance carriers, and other insurance companies that
NCIAS was or had been acquired by Defendants as a part of the transaction. (Id.)
Plaintiffs allege that NCIAS was never acquired by and never served as a
subsidiary of either Northern Capital or Choice Insurance. (Id.) Rather, as a result
of the February 1 transaction, Choice Insurance not only acquired Northern Capital
but also “an assignment of the Agency Agreement and Addendum.” (Id. at Pg. ID
30.)
Peterson and Northern Capital Enter into An Independent Contractor
Agreement
Also on February 1, 2019, Peterson and Northern Capital entered into an
Independent Contractor Agreement (“IC Agreement”). (See id. at Pg. ID 42, 44.)
Plaintiffs allege that, in order to induce Peterson to sign the IC Agreement, Mann
represented that the new agreement “was necessary to show bank ownership.” (Id.
at Pg. ID 18.) The IC Agreement included the following provisions:
“[Northern Capital] [will] [] pay [Peterson] and any
employee or independent contractor [Peterson] hires a
commission split excluding profit sharing as agreed to by
both parties.” (Id. at Pg. ID 42.) “Peterson is entitled to
receive her pro-rata share of profit sharing checks from the
Accident Fund and Michigan Miller’s. . . . If [] Peterson
becomes 50% of the production for any other carrier she will
be entitled to receive her pro-rated percentage of profit
sharing from any such carrier.” (Id. at Pg. ID 44.)
7
“[Peterson] will own all accounts generated by [Peterson],
it’s employees or independent contractors. All records
associated with the above commissions or accounts will be
owned by [Peterson].” (Id. at Pg. ID 42.)
“[Northern Capital] will maintain an income statement solely
for the purpose of determining profit generated from
[Peterson’s] operations.” (Id.)
Plaintiffs allege that Choice Insurance has not provided Peterson with an
income statement for her business, nor paid commissions and profit sharing due
and owed to Peterson.3 (Id. at Pg. ID 18.) In addition, upon Plaintiffs’ information
and belief, Choice Insurance has shared Peterson’s confidential and proprietary
information with third parties. (Id. at Pg. ID 19.)
APPLICABLE STANDARD
A motion to dismiss pursuant to Rule 12(b)(6) tests the legal sufficiency of
the complaint. RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134
(6th Cir. 1996). Under Federal Rule of Civil Procedure 8(a)(2), a pleading must
contain a “short and plain statement of the claim showing that the pleader is
3
The Court highlights that, despite the fact that Peterson and Northern Capital
were parties to the IC Agreement, Plaintiffs’ lodge their allegations regarding the
IC Agreement as to Choice Insurance. The discussion infra as to Count VI
(Breach of Contract as to Choice Insurance) may clarify any confusion fostered by
the manner in which Plaintiffs frame these allegations.
8
entitled to relief.” To survive a motion to dismiss, a complaint need not contain
“detailed factual allegations,” but it must contain more than “labels and
conclusions” or “a formulaic recitation of the elements of a cause of action . . ..”
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). A complaint does not
“suffice if it tenders ‘naked assertions’ devoid of ‘further factual enhancement.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 557).
As the Supreme Court provided in Iqbal and Twombly, “[t]o survive a
motion to dismiss, a complaint must contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’” Id. (quoting Twombly,
550 U.S. 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.” Id. (citing Twombly, 550 U.S. at 556). The
plausibility standard “does not impose a probability requirement at the pleading
stage; it simply calls for enough facts to raise a reasonable expectation that
discovery will reveal evidence of illegal [conduct].” Twombly, 550 U.S. at 556.
In deciding whether the plaintiff has set forth a “plausible” claim, the court
must accept the factual allegations in the complaint as true. Erickson v. Pardus,
551 U.S. 89, 94 (2007). This presumption is not applicable to legal conclusions,
however. Iqbal, 556 U.S. at 668. Therefore, “[t]hreadbare recitals of the elements
9
of a cause of action, supported by mere conclusory statements, do not suffice.” Id.
(citing Twombly, 550 U.S. at 555).
Ordinarily, the court may not consider matters outside the pleadings when
deciding a Rule 12(b)(6) motion to dismiss. Weiner v. Klais & Co., Inc., 108 F.3d
86, 88 (6th Cir. 1997) (citing Hammond v. Baldwin, 866 F.2d 172, 175 (6th Cir.
1989)). A court that considers such matters must first convert the motion to
dismiss to one for summary judgment. See Fed. R. Civ. P 12(d). However,
“[w]hen a court is presented with a Rule 12(b)(6) motion, it may consider the
[c]omplaint and any exhibits attached thereto, public records, items appearing in
the record of the case and exhibits attached to [the] defendant’s motion to dismiss,
so long as they are referred to in the [c]omplaint and are central to the claims
contained therein.” Bassett v. Nat’l Collegiate Athletic Ass’n, 528 F.3d 426, 430
(6th Cir. 2008). The court may take judicial notice only “of facts which are not
subject to reasonable dispute.” Jones v. Cincinnati, 521 F.3d 555, 562 (6th Cir.
2008) (citation omitted).
APPLICABLE LAW AND ANALYSIS
Breach of Contract as to Choice Insurance (Count VI)
To establish a claim for breach of contract under Michigan law, a plaintiff
must show that “(1) that there was a contract, (2) that the other party breached the
10
contract and, (3) that the party asserting breach of contract suffered damages as a
result of the breach.” AFT Michigan v. Michigan, 846 N.W.2d 583, 590 (Mich. Ct.
App. 2014), aff’d sub nom. AFT Michigan v. State of Michigan, 866 N.W.2d 782
(Mich. 2015) (citation omitted).
Plaintiffs allege that Choice Insurance breached the IC Agreement by (i)
“sharing and disclosing Plaintiffs’ confidential and proprietary information with
third-parties”; (ii) “representing to third parties that Plaintiffs were a part of a
transaction between Northern Capital and Choice Insurance”; (iii) failing “to
provide[] Peterson with an income statement for her business”; and (iv) failing to
“pa[y] commissions and profit sharing due and owing [to] Peterson under the IC[]
Agreement.” (ECF No. 1-1 at Pg. ID 18, 26.) Defendants argue that this claim
fails because (i) Peterson and Northern Capital—not Choice Insurance—are parties
to the IC Agreement and (ii) even if Choice Insurance was party to the agreement,
Choice Insurance did not breach any of its provisions. (ECF No. 3 at Pg. ID 6669.) The Court takes each of Defendants’ arguments in turn.
First, a review of the IC Agreement shows that “Peterson . . . and Northern
Capital Insurance Group . . . agree[d] to enter into a brokerage agreement.” (ECF
No. 1-1 at Pg. ID 42.) But Plaintiffs’ allege that, on or about February 1, 2019,
11
“Choice Insurance acquired the stock or business of Northern Capital.” (Id. at Pg.
ID 27.)
In Turner v. Bituminous Casualty Company, Michigan courts’ seminal
decision on the issue of successor liability, the Supreme Court of Michigan stated
that “a traditional merger [is] accompanied by exchange of stock.” 244 N.W.2d
873, 878 (Mich. 1976). The Turner court further stated that “[i]t is the law in
Michigan that if two corporations merge, the obligations of each become the
obligations of the resulting corporation.” Id. at 879 (citation omitted). “In such a
situation, therefore, the injured person could sue the new corporation.” Id.
In this case, according to the February 7, 2019 press release, “Choice Bank
[] entered into an agreement to acquire Northern Capital Insurance Group . . . [on]
[] February 1, 2019.” (ECF No. 14-3 at Pg. ID 474). And following the
acquisition, “Northern Capital Insurance [would] continue to operate under the
same name, as a division of Choice Insurance, for an undisclosed period of time.
(Id.) Defendants contend that “Choice [Insurance] was not using the assumed
name Northern Capital Insurance Group when Peterson and Northern Capital []
signed the IC Agreement.” (ECF No. 3 at Pg. ID 66-67.) Even if true, this
assertion is not inconsistent with Plaintiff’s allegation that Choice Insurance
acquired Northern Capital’s stock and the suggestion in the press release that
12
Northern Capital retained its name as a division of Choice Insurance. Accepting
Plaintiffs’ allegations as true, Plaintiffs have shown sufficient facts to suggest that
Choice Insurance assumed the liabilities of Northern Capital as a result of the
February 1 transaction. If this is true, Plaintiffs can sue Choice Insurance for the
alleged breach of the IC Agreement.
Second, Defendants contend that “there is no provision in the IC Agreement
that discusses . . . [P]laintiffs’ confidential information or that prohibits Choice
[Insurance] [] from disclosing information to third parties.” (Id. at Pg. ID 68.) The
IC Agreement states that “[a]ll records associated with the [] commissions or
accounts will be owned by [Peterson]” and, if the agreement is terminated,
“[Northern Capital] will . . . transfer all records.” (ECF No. 1-1 at Pg. ID 42.)
Plaintiffs argue that “whether Defendants’ disclosure of account information and
records owned exclusively by Plaintiffs amounts to a breach of the IC Agreement
is solely a question to be addressed by a jury.” (ECF No. 14 at Pg. ID 419.)
It is unclear whether the language regarding Peterson’s ownership of records
and information constitutes a nondisclosure provision. “In reviewing a Rule
12(b)(6) motion to dismiss, the Court . . . must resolve all ambiguities in the
contract in Plaintiffs’ favor.” Ajuba Intern., L.L.C. v. Saharia, 871 F. Supp. 2d
671, 689 (E.D. Mich. 2012) (internal quotation marks and citation omitted). “A
13
court should not choose between reasonable interpretations of ambiguous contract
provisions when considering a motion to dismiss,” meaning that the “construction
of ambiguous contract provisions is a factual determination that precludes
dismissal on a motion for failure to state a claim.” Id. (internal quotation marks
and citations omitted); see also Ram Int’l, Inc. v. ADT Sec. Servs., Inc., 555 F.
App’x 493, 503 (6th Cir. 2014) (citing Klapp v. United Ins. Grp. Agency, Inc., 663
N.W.2d 447, 453-54 (Mich. 2003)) (affirming denial of 12(b)(6) motion to dismiss
breach of contract claim after finding contractual provision ambiguous).
Defendants further contend, however, that “[t]he IC Agreement is [] silent as
to [] restrictions on the types of representations the parties . . . can make about one
another.” (ECF No. 3 at Pg. ID 68.) Having carefully reviewed the agreement, the
Court agrees with Defendants. Northampton Rest. Grp., Inc. v. FirstMerit Bank,
N.A., 492 Fed. Appx. 518, 521 (6th Cir. 2012) (affirming dismissal of breach of
contract claim on the grounds that plaintiff “did not include the language of any
specific contractual provisions that had been breached”). Moreover, because
Plaintiffs did not refute this argument in their response brief, (see ECF No. 14 at
Pg. ID 419-20), “the[] argument[] [is] deemed conceded and waived,” Boone v.
Heyns, No. 12-14098, 2017 WL 3977524, at *5 (E.D. Mich. Sept. 11,
2017). See also McPherson v. Kelsey, 125 F. 3d 989, 995 (6th Cir. 1997)
14
(“[I]ssues adverted to in a perfunctory manner, unaccompanied by some effort at
developed argumentation, are deemed waived.”).
Defendants also argue that “[t]here is no provision in the IC Agreement that
requires an income statement or an accounting to be provided to Peterson.” (ECF
No. 3 at Pg. ID 69.) The IC Agreement states that “[Northern Capital] will
maintain an income statement solely for the purpose of determining profit
generated from [Peterson’s] operations.” (ECF No. 1-1 at Pg. ID 42 (emphasis
added).) Considering this clear contractual language, to the extent that Plaintiffs
allege that Defendants failed “to provide[] Peterson with an income statement for
her business,” (Id. at Pg. ID 18 (emphasis added)), Plaintiffs’ claim fails.
Defendants further argue that “[t]he only potential obligation in the IC
Agreement is for the ‘company’ to ‘pay’ Peterson amounts due under the
agreement” and “[b]ecause Choice [Insurance] is not a party to the IC Agreement,”
it has not breached any contract. (ECF No. 3 at Pg. ID 69.) As discussed above,
Plaintiffs’ allegations suggest that Choice Insurance may have taken on Northern
Capital’s liabilities. If this is true, Plaintiffs can hold Choice Insurance liable for
Northern Capital’s failure to “pa[y] commissions and profit sharing due and owing
[to] Peterson under the IC[] Agreement.” (ECF No. 1-1 at Pg. ID 18.) The Court,
15
thus, denies Defendants’ Motion to Dismiss the breach of contract claim as to
Choice Insurance.
Fraudulent Misrepresentation as to Mann (Count II)
To establish a claim for fraudulent misrepresentation, a plaintiff must show:
(1) [t]hat defendant made a material misrepresentation; (2)
that it was false; (3) that when he made it he knew it was
false, or made it recklessly, without 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.
Lawrence M. Clarke, Inc. v. Richco Constr., Inc., 803 N.W.2d 151, 162 (Mich.
2011) (citation omitted).
Plaintiffs allege that Mann made several misrepresentations:
1. Mann “would . . . pa[y] NCIAS all of the commissions and
contingency commissions due NCIAS under the Agency
Agreement and Addendum.” (ECF No. 1-1 at Pg. ID 20
(emphasis added).)
2. Mann “would provide NCIAS with copies of all supporting
documentation for all commissions and contingency
commissions, bonus, or profit sharing arrangements of
Northern Capital, while the Agency Agreement and
Addendum were in effect.” (Id.)
3. NCIAS “would be entitled to 90% of the full commission
paid to it by Northern Capital’s insurance carriers for
business produced by NCIAS.” (Id.)
16
4. Mann “would provide an accounting of all commissions due
to NCIAS by the fifteenth day of each month.” (Id.)
5. Mann “ha[d] paid NCIAS all of the commissions and
contingency commissions due NCIAS under the Agency
Agreement and Addendum.” (Id. (emphasis added).)
6. Mann misrepresented “the amount of gross commissions
and contingency commissions earned from 2008 through
2019 and the commissions paid to Northern Capital by its
insurance companies [(such as, Fremont Insurance
Company)] for business produced by NCIAS.” (Id. at Pg.
ID 17, 20.)
The first four alleged misrepresentations constitute promises to take future
action. But “[a] party generally cannot state a claim for fraudulent
misrepresentation based on another party’s failure to do something it promised to
do in the future.” Blackward Props., LLC v. Bank of Am., 476 F. App’x 639, 643
(6th Cir. 2012) (emphasis in original); see also Hi–Way Motor Co. v. Int’l
Harvester Co., 247 N.W.2d 813, 816 (Mich. 1976) (“Future promises are
contractual and do not constitute fraud.”); Mieske v. Harmony Elec. Co., 270 N.W.
216, 217 (Mich. 1936) (stating that a claim for fraudulent misrepresentation cannot
be based on “mere broken promises, unfulfilled predictions, or erroneous
conjectures as to future events”). Instead, “an action for fraudulent
misrepresentation must be predicated upon a statement relating to a past or an
17
existing fact.” Blackward, 476 F. App’x at 643 (quoting Hi-Way, 247 N.W.2d at
816).
Even the exception to this rule—a plaintiff can bring a fraudulent
misrepresentation action “if a promise is made in bad faith without the intention to
perform it,” Derderian v. Genesys Health Care Sys., 689 N.W.2d 145, 156 (Mich.
Ct. App. 2004) (citing Hi-Way, 247 N.W.2d at 816-17)—does not help Plaintiffs as
to the first four alleged misrepresentations. See Blackward, 476 F. App’x at 643
(same). This is because Plaintiffs have not alleged that, when the aforementioned
promises were made, Mann had no intention of keeping them. See id. (quoting
Derderian, 689 N.W.2d at 156) (explaining that because “evidence of a broken
promise is not evidence of fraud,” in order for the exception to apply, a plaintiff
must “show that, at the time the promise was made, [the defendant] did not intend
to fulfill it”).
Turning to the latter two alleged misrepresentations, the Court notes that
these statements properly concerned past or existing facts. To support their
argument for dismissal as to this claim though, Defendants proffer three
arguments, each of which the Court takes in turn. First, it is true that the economic
loss doctrine—which prohibits a plaintiff from bringing tort claims that are
factually indistinguishable from breach of contract claims—applies to fraud
18
claims. However, the economic loss doctrine only applies to transactions
involving the sale of goods—not services, as is the case here. See George v.
McGee, No. 347636, 2020 WL 862814, at *3 (Mich. Ct. App. Feb. 20, 2020)
(explaining that when a “case does not involve the commercial sale of goods[,] . . .
. the economic loss doctrine [does not] apply”).4
Second, Defendants contend that Plaintiffs fail to satisfy the pleading
requirements outlined in Federal Rule of Civil Procedure 9(b). Rule 9(b) requires
a plaintiff bringing a fraud claim to “state with particularity the circumstances
constituting fraud.” Fed. R. Civ. P. 9(b). Construing the Complaint liberally, the
Court finds that the last two allegations satisfy this requirement because they could
be interpreted to mean that Mann made new fraudulent misrepresentations each
4
The George court also noted, however, that where “the economic loss doctrine
does not apply, Rinaldo’s principles about raising tort claims for contractual
breaches may.” George, 2020 WL 862814, at *3 (citing Rinaldo’s Constr. Corp. v.
Mich. Bell Tel. Co., 559 N.W.2d 647 (Mich. 1997)) (“This concept applies
independent of the economic loss doctrine.”). According to the Michigan Supreme
Court, “‘a tort action stemming from misfeasance of a contractual obligation’ may
be maintained when there is ‘the violation of a legal duty separate and distinct
from the contractual obligation.’” Id. (quoting Fultz v. Union-Commerce Assoc.,
683 N.W.2d 587, 593 (Mich. 2004)). Stated another way, “if a relation exists
which would give rise to a legal duty without enforcing the contract promise itself,
the tort action will lie, otherwise not.” Hart v. Ludwig, 79 N.W.2d 895, 898 (Mich.
1956) (internal quotation marks and citation omitted). Defendants did not address
this argument in their Motion to Dismiss as it relates to Plaintiffs’ fraudulent
misrepresentation claim. Thus, the Court need not address it.
19
and every year between 2008 and 2019. (See ECF No. 14 at Pg. ID 429.) Indeed,
these allegations are plead in a manner that “places [] [D]efendant[s] on ‘sufficient
notice of the misrepresentation’” such that Defendants can answer the fraud claim
“in an informed way.” Coffey v. Foamex L.P., 2 F.3d 157, 162 (6th Cir. 1993)
(citation omitted). Third, the Court agrees with Defendants to some extent
regarding whether the fraud claim is barred by the applicable statute of limitations.
Under Michigan law, the statute of limitations for fraud claims is six years. Mich.
Comp. Laws § 600.5813. Accordingly, as it concerns the last two alleged
misrepresentations, Defendants are liable for only those statements made in the six
years preceding the filing of this suit.
Plaintiffs contend that the statute of limitation should be tolled. (ECF No.
14 at Pg. ID 428-29.) Under Michigan law, “[i]f a person who is or may be liable
for any claim fraudulently conceals the existence of the claim . . ., the action may
be commenced at any time within 2 years after the person who is entitled to bring
the action discovers, or should have discovered, the existence of the claim.” Mich.
Comp. Laws § 600.5855. To demonstrate fraudulent concealment, a plaintiff must
allege: “(1) wrongful concealment of their actions by the defendants; (2) failure of
the plaintiff to discover the operative facts that are the basis of his cause of action
within the limitations period; and (3) plaintiff’s due diligence until discovery of the
20
facts.” Evans v. Pearson Enters., Inc., 434 F.3d 839, 851 (6th Cir. 2006)
(emphasis added) (citation omitted). It is sufficient to note that Plaintiffs have
altogether failed to plead their own due diligence. See Evans, 434 F.3d at 851
(affirming the district court’s dismissal of plaintiff’s claim where plaintiff “failed
to plead that she exercised any due diligence in discovering the facts that she
alleged”).
As the Sixth Circuit has explained, “an injured party has a positive duty to
use diligence in discovering his cause of action within the limitations period” and
“the means of knowledge are the same thing in effect as knowledge itself.” Dayco
Corp. v. Goodyear Tire & Rubber Co., 523 F.2d 389, 394 (6th Cir. 1975) (quoting
Wood v. Carpenter, 101 U.S. 135, 143 (1879)). It is notable that Plaintiffs did not
respond to Defendants’ argument that they “failed to take action [for] nearly
twelve years,” even though—since 2008—Plaintiffs believed that, based on the
agreement, they were entitled to receive supporting documents and an accounting.
(ECF Nos. 3 at Pg. ID 78; 1-1 at Pg. ID 40, ¶¶ 1-4.) Accordingly, Defendants
contend, “[P]laintiffs were aware of their potential cause of action” during their
lengthy period of inaction. (ECF No. 3 at Pg. ID 78.) Based on the allegations in
the current Complaint, the Court agrees that Plaintiffs’ failure to “assert[] what
21
steps were taken is insufficient” to show the fraudulent concealment required to
toll the statute of limitations.5 See Dayco, 523 F.2d at 394 (same).
Plaintiffs further contend that the “continuing wrong” doctrine applies.
(ECF No. 14 at Pg. ID 429.) Specifically, Plaintiffs point to Horvath v. Delida,
540 N.W.2d 760, 763 (Mich. Ct. App. 1995) to support their contention that Mann
made “new” fraudulent misrepresentations “each and every year between 2008
and 2019” and, each time he made such representations, “an entirely new cause of
action accrued.” (ECF No. 14 at Pg. ID 429 (emphasis in original).)
Though it is well-established under Michigan law that the “continuing
wrong” doctrine does not apply in the context of breach of contract claims, see
Blazer Foods, Inc. v. Rest. Props., Inc., 673 N.W.2d 805, 812 (Mich. Ct. App.
5
The Court further notes that Plaintiffs allege that Mann “was aware of his duty to
provide supporting documentation and an accounting of commissions and
contingency commissions due [to] NCIAS.” (ECF No. 1-1 at Pg. ID 31.)
According to Plaintiffs, “[h]ad Mann provided the information he was obligated to
provide, NCIAS would have discovered that Northern Capital and Mann owned
substantial commissions and contingency commissions to NCIAS.” (Id. at Pg. ID
32.) Notably, this allegation is devoid of any indication that Plaintiffs took
indisputably available steps—i.e., requesting the supporting documentation or an
accounting—to discover this alleged cause of action during the limitations period.
Moreover, Plaintiffs do not allege that they exercised their contractual right to
“remove themselves from th[e] [business] arrangement” at the time of “review,”
which the Agency Agreement states would occur every 24 months. (Id. at Pg. ID
40, ¶ 4.) This inaction in the midst of Defendants’ alleged failure to satisfy their
contractual obligations further demonstrates Plaintiffs’ lack of due diligence.
22
2003), the same cannot be said regarding the doctrine’s application to fraudulent
misrepresentations claims. As explained in Currithers v. FedEx Ground Package
Sys., Inc., “[a]pplication of the doctrine to [p]laintiffs’ fraudulent misrepresentation
claim is less clear, because claims alleging fraudulent misrepresentation need not
necessarily sound in tort.” No. 04-10055, 2012 WL 458466, at *10 (E.D. Mich.
Feb. 13, 2012) (citing Wilcoxon v. Wayne County Neighborhood Legal Servs., 652
N.W.2d 851, 853 n.4 (Mich. Ct. App. 2002)). “Depending on the circumstances,
they could be understood as a waiver of a tort action in favor of seeking restitution
under a theory of quasi-contract.” Id. (citing Wilcoxon, 652 N.W.2d at 853 n.4).
In Currithers, the court noted that “Plaintiffs do not allege that the
misrepresentations sounded in tort, but contend that the misrepresentations were
made to induce Plaintiffs’ reliance, such that they would enter into the Operating
Agreement and believe they would be treated as independent contractors.” (Id.)
This case is no different—Plaintiffs alleged that “NCIAS . . . reasonably rel[ied] on
the misrepresentations when it produced and continued to produce business under
the Agency Agreement and Addendum” and Mann’s alleged misrepresentations
“resulted in loss commissions and contingency commissions in excess of
$1,000,000.” (ECF No. 1-1 at Pg. 21.) Here, just as in Currithers, “[t]he
continuing wrongs doctrine may not be applied to Plaintiffs’ fraudulent
23
misrepresentation claims because the claims sound in contract and the continuing
wrong doctrine no longer applies to contract claims under Michigan law.”
Currithers, 2012 WL 458466, at *10.
Accordingly, the Court denies Defendants’ Motion to Dismiss Plaintiffs’
fraudulent misrepresentation claim as to Mann, though the claim is considerably
narrowed by the aforementioned analysis.
Innocent Misrepresentation as to Mann (Count III)
To prevail on a claim of innocent misrepresentation under Michigan law, a
plaintiff must show that (i) a false and material misrepresentation was made; (ii)
the plaintiff detrimentally relied upon the misrepresentation; and (iii) the injury
inures to the benefit of the person making the representation. M & D, Inc. v.
McConkey, 585 N.W.2d 33, 37 (Mich. Ct. App. 1998) (citation omitted).
To support this claim, Plaintiff points to largely the same representations
discussed as to Count II (Fraudulent Misrepresentation). (See ECF No. 1-1 at Pg.
ID 20-21.) Defendants argue that, because “[P]laintiffs have not alleged a benefit
inuring to Mann in his individual capacity,” the final element of the claim is not
satisfied. (ECF No. 3 at Pg. ID 80.) In response, Plaintiffs contend that Mann can
be “held personally liable for any tortious conduct he commits” and they “have []
24
alleged that Northern Capital benefited from the false representations of its
President.” (ECF No. 14 at Pg. ID 431 (citing ECF No. 1-1 at Pg. ID 22, ¶ 66).)
Even if both of these arguments prove true, it does not move Plaintiffs closer
to satisfying their obligation to show an injury inuring to the benefit of Mann, the
person making the representation. See M & D, Inc., 585 N.W.2d at 37 (citation
omitted). Accordingly, the Court dismisses Plaintiffs’ innocent misrepresentation
claim as to Mann.
Silent Fraud as to Mann (Count IX)
“Silent fraud is essentially the same [as fraudulent misrepresentation] except
that it is based on a defendant suppressing a material fact that he or she was legally
obligated to disclose, rather than making an affirmative misrepresentation.” Tocco
v. Richman Greer Prof’l Ass’n, 553 F. App’x 473, 476 (6th Cir. 2013) (alternation
in original) (quoting Alfieri v. Bertorelli, 813 N.W.2d 772, 775 (Mich. Ct. App.
2012)). In order to establish a claim for silent fraud, a plaintiff must allege facts
showing: (i) “a pre-existing legal or equitable duty to disclose”; (ii) “suppression
of information with the intent to defraud”; (iii) “reasonable reliance upon
25
defendant’s performance of the duty”; and (iv) “damages caused by the
suppression of the information.” Id. at 476-77 (citations omitted).
Plaintiffs allege that Mann “was aware of his duty to provide supporting
documentation and an accounting of commissions and contingency commissions
due [to] NCIAS.” (ECF No. 1-1 at Pg. ID 31.) This claim fails at the outset
because Plaintiffs fail to identify a duty separate and apart from Defendants’
contractual duty. Chaudhary v. JDS Pump N Go, LLC, No. 347000, 2020 WL
2501660, at *7 (Mich. Ct. App. May 14, 2020) (affirming summary disposition
where “allegations arose from the parties’ contractual relationship, not from a
separate duty”); see also Fultz, 683 N.W.2d at 591 (“[A] tort action will not lie
when based solely on the nonperformance of a contractual duty.”); Huron Tool &
Eng’g Co. v. Precision Consulting Servs., Inc., 532 N.W.2d 541, 545 (Mich. Ct.
App. 1995) (“[T]he misrepresentations relate to the breaching party’s performance
of the contract and do not give rise to an independent cause of action in tort.”).
Accordingly, the Court dismisses Plaintiff’s silent fraud claim as to Mann.
Statutory Conversion as to Choice Insurance (Count IV)
“In order to prevail on a claim for statutory conversion, a plaintiff must
satisfy the elements of a common law conversion claim, as well as demonstrate
that the defendant had ‘actual knowledge’ of the converting activity.” Nedschroef
26
Detroit Corp. v. Bemas Enters. LLC, 106 F. Supp. 3d 874, 886 (E.D. Mich. 2015),
aff’d, 646 F. App’x 418 (6th Cir. 2016) (citation omitted); see also Olympic Forest
Prod., Ltd. v. Cooper, 148 F. App’x 260, 265 (6th Cir. 2005) (“In Michigan, a
statutory claim of conversion consists of knowingly buying, receiving, or aiding in
the concealment of stolen, embezzled, or converted property.”).
A common law conversion claim requires allegations of “any distinct act of
domain wrongfully exerted over another’s personal property in denial of or
inconsistent with the rights therein.” Foremost Ins. Co. v. Allstate Ins. Co., 486
N.W.2d 600, 606 (Mich. 1992). “Conversion may occur when a party properly in
possession of property uses it in an improper way, for an improper purpose, or by
delivering it without authorization to a third party.” Dep’t of Agric. v. Appletree
Mktg. LLC, 779 N.W.2d 237, 244-45 (Mich. 2010). To prevail on an action for
conversion of money (as opposed to property), “the defendant must have an
obligation to return the specific money entrusted to his care.” Sudden Serv., Inc. v.
Brockman Forklifts, Inc., 647 F. Supp. 2d 811, 815 (E.D. Mich. 2008) (emphasis
added) (citing Check Reporting Servs., Inc. v. Mich. Nat’l Bank–Lansing, 478
N.W.2d 893, 900 (1991)); see also In re B & P Baird Holdings, Inc., No. AP 1180397, 2015 WL 6152959, at *8 (Bankr. W.D. Mich. Oct. 15, 2015), aff’d sub
nom. Hagan v. Baird, 288 F. Supp. 3d 803 (W.D. Mich. 2018), aff’d sub nom. In re
27
B & P Baird Holdings, Inc., 759 F. App’x 468 (6th Cir. 2019) (“[S]uccess on a
conversion count involving money is not assured simply by tracing funds. The
plaintiff must establish ‘an obligation to keep intact or deliver the specific money
in question.’”).
Plaintiffs allege that, “[r]ather than paying the commissions due and owing
to NCIAS and Peterson, . . . Choice Insurance refused to pay NCIAS and
Peterson’s commissions and contingency commissions, and instead, have
converted such funds to their own uses.” (ECF No. 1-1 at Pg. ID 23.) The Court
finds that, for two reasons, the facts here do not support a claim of conversion.
First, Plaintiffs did not entrust or pay “specific money” to Defendants;
Plaintiffs did not hand over specific funds, much less specific funds Defendants
were obligated to later “return.” See Warren Tool Co. v. Stephenson, 161 N.W.2d
133, 148 (Mich. Ct. App. 1968) (suggesting no conversion claim where “plaintiffs .
. . agree to allow [defendants] to collect such moneys and account therefor at a
later time”). And each of the cases Plaintiffs cite in support of their argument to
the contrary are readily distinguishable.
In Hanover Exch. v. Metro Equity Grp., LLC, No. 2:08-cv-14897, 2009 WL
2143866, at *2 (E.D. Mich. July 14, 2009), the court found that the plaintiff’s
claim fell within the “specific money” requirement because the “defendants used
28
the money in [a] escrow account for unauthorized purposes when in fact they were
duty bound to return the funds.” Here, Plaintiffs have not alleged that they
removed from their coffers specific funds that they then placed in an account to be
managed by Defendants.
In Citizens Ins. Co. v. Delcamp Truck Ctr., Inc., 444 N.W.2d 210, 212
(Mich. Ct. App. 1989), the plaintiff wrote a check for a specific amount and sent it
to the defendant. The court found that the defendant “converted [the plaintiff’s]
personal property when it cashed [the plaintiff’s] check and retained the full
amount of that check when it was entitled to only a portion.” Id. at 213. Here,
unlike in Delcamp, Plaintiffs did not give Defendants specific funds, a portion of
which Defendants were obligated to pass on to another party or return to Plaintiffs
upon their request.
In In re B & P Baird Holdings, Inc., 591 F. App’x 434, 439-440 (6th Cir.
2015), the court found that the defendant, who controlled the funds generated from
the sale of a debtor’s assets, impermissibly appropriated the funds for personal use.
The Sixth Circuit affirmed the district court’s finding of conversion in part
because, “[u]nder applicable Michigan law, ‘[t]he assets of a corporation are a trust
found in the hand of the board of directors.’” Id. at 440 (citation omitted). In other
29
words, there unlike here, the debtor removed specific assets from his possession
and placed them in an account controlled in part by the defendant.
Ultimately, the crux of Plaintiffs’ argument is that the parties engaged in the
sale of insurance services according to an express contract and Defendants
breached the contractual provision requiring them to “pay[] the commissions due
and owing to NCIAS and Peterson.” (ECF No. 1-1 at Pg. ID 23.) “Because
Plaintiff’s cause of action arises from the breach of the contract (and not the
appropriation of specific funds in violation of a separate legal duty), Plaintiff’s
conversion claim fails.” Sudden Serv., 647 F. Supp. at 816.
The Court therefore dismisses Plaintiffs’ statutory conversion claim as to
Choice Insurance.
Accounting as to Choice Insurance (Count V)
An accounting is “an extraordinary remedy, and like other equitable
remedies, is available only when legal remedies are inadequate.” Bradshaw v.
Thompson, 454 F.2d 75, 79 (6th. Cir. 1972). “The burden of proof is on plaintiff to
show the inadequacy of the legal remedy,” and “Michigan courts have long held
that an accounting in equity is unnecessary where discovery is sufficient to
determine the amounts at issue.” Wilson v. Cont’l Dev. Co., 112 F. Supp. 2d 648,
663 (W.D. Mich. 1999) (citations omitted). Furthermore, “[t]he law is clear that an
30
accounting may not be had where the action is for a specific sum due under a
contract.” Barkho v. Homecomings Fin., LLC, 657 F. Supp. 2d 857, 865 (E.D.
Mich. 2009) (internal quotation marks and citation omitted).
Plaintiffs allege that Northern Capital and Choice Insurance have never
provided (i) “an accounting of all commissions and contingency commissions due
to NCIAS and Peterson”; (ii) “a copy of all contingency, bonus, or profit sharing
arrangements [they] had with applicable markets”; and (iii) “an income statement
to Peterson relating to the business produce[d] by Peterson under the IC[]
Agreement.” (ECF No. 1-1 at Pg. ID 24.) According to Plaintiffs, “NCIAS and
Peterson cannot, even with liberal discovery, reasonably be expected to ascertain
the amount due.” (Id. at Pg. ID 25.) Accordingly, Plaintiffs seek “a complete
accounting of all of its business produced through Northern Capital and Choice
Insurance, . . . so that it can determine the exact amount of commissions and
contingency commissions owed them.” (Id.)
Here, Plaintiffs allege that they are owed an amount “in excess of
$1,000,000.” (Id. at Pg. ID 22 (emphasis added).) This does not constitute “a
specific sum due under a contract.” But, at this stage in the litigation and based on
the allegations in the Complaint, the Court agrees with Defendants’ contention that
“[t]here is [] no reasonable basis for assuming that typical discovery procedures
31
would be inadequate for plaintiffs to determine the amounts they claim to be
owed.” (ECF No. 3 at Pg. ID 73.) In their response brief, Plaintiffs appear to
concede that this claim is premature, stating that “an accounting may be necessary
should Defendants refuse to provide the accurate commission reports and
underlying data during discovery.” (ECF No. 14 at Pg. ID 424 (emphasis added).)
This assertion very well may be true if Plaintiffs question the accuracy of any
reports or data Defendants provide during discovery. Until then however, the
Court finds that the rules governing civil procedure are fully adequate to provide
any relief sought by Plaintiffs.
Accordingly, the Court dismisses Plaintiffs’ claim for an accounting as to
Choice Insurance.
Tortious Interference with a Contract or Business Relations as to Choice
Insurance & Mann (Count VII)
“In Michigan, tortious interference with a contract or contractual relations is
a cause of action distinct from tortious interference with a business relationship or
expectancy.” Asphalt Sols. Plus, LLC v. Associated Const. of Battle Creek, Inc.,
No. 301136, 2011 WL 6187043, at *3 (Mich. Ct. App. Dec. 13, 2011) (citation
omitted); see also Fidelity Nat. Title Ins. Co. v. Title First Agency, Inc., 2008 WL
4371838, at *7 (E.D. Mich. Sept. 22, 2008) (“Tortious interference with contract
exists when a third party to a contract, knowing of the contract, intentionally and
32
wrongfully induces a breach of the contract which results in damage to a nonbreaching party.”).
“The elements of tortious interference with a contract are (1) the existence of
a contract, (2) a breach of the contract, and (3) an unjustified instigation of the
breach by the defendant.” Id. (citation omitted). Here, Plaintiffs did not identify
any contract between them and parties other than Defendants—much less one
whose breach Defendants instigated.
A claim for tortious interference with a business relationship “requires proof
of (1) a valid business relationship or expectancy; (2) knowledge of that
relationship or expectancy on the part of the defendant; (3) an intentional
interference by the defendant inducing or causing a breach or termination of that
relationship or expectancy; and (4) resulting damage to the plaintiff.” Warrior
Sports, Inc. v. Nat’l Collegiate Athletic Ass’n, 623 F.3d 281, 286 (6th Cir. 2010)
(citing Badiee v. Brighton Area Schs., 695 N.W.2d 521, 538 (Mich. Ct. App.
2005)). In order to establish this claim, Plaintiff must allege that Defendants
engaged in “a lawful act with malice and unjustified in law for the purpose of
invading” Plaintiffs’ business relationship with another. Derderian, 689 N.W.2d at
157-58 (citation omitted). “To establish that a lawful act was done with malice and
without justification, the plaintiff must demonstrate, with specificity, affirmative
33
acts by the defendant that corroborate the improper motive of the interference.”
Mino v. Clio. Sch. Dist., 661 N.W.2d 586, 597-98 (2003) (citation omitted).
To support this claim, Plaintiffs allege that:
1. “Defendants advising the insurance markets that Plaintiffs
were part of the [February 1 transaction] was intended to
disrupt and interfere with Plaintiffs’ business relationships
with their clients.” (ECF No. 1-1 at Pg. ID 28.)
2. “Defendants have shared Plaintiffs[’] records and
information with third parties as a part of their intent to
interfere with . . . the business relationship between
Plaintiffs and their clients and the business relationships
between [P]laintiffs and their insurance markets. . . .” (Id.)
3. “Defendants advising insurance companies that Plaintiffs
were part of the transaction was intended to mislead or
confuse the insurance markets for the purpose of obtaining
higher commissions and allow for sub-produced business
where such insurance agreements disallowed such.” (Id.
at Pg. ID 27.)
4. “Defendants advising regulatory agencies that Plaintiffs
were part of the transaction was intended to avoid state
licensing regulations.” (Id.)
The latter two allegations fail because they do not appear to even concern
Plaintiffs’ business relationship with parties other than Defendants. In addition,
the allegations do not support the conclusion that Defendants induced or caused a
breach or termination of any such relationship. And even if the alleged acts
impacted such relationships or caused a breach or termination of them, these
34
allegations do not identify which business relationships experienced such
interference.
According to Plaintiffs’ first two allegations, which concern Plaintiffs
business relationships with their clients, Defendants committed the “specific” and
“affirmative acts” of sharing Plaintiffs’ records and advising insurance markets
that Plaintiffs were part of the February 1 transaction in order to “solicit” and
“acquire” Plaintiffs’ clients. (See id. at Pg. ID 29 (“It will not be possible to
determine the number of customers, potential customers, or acquisition targets
solicited . . . by Defendants.”).) Because of Defendants’ intentional acts, Plaintiffs
contend, “business has been lost.” (Id. at Pg. ID 28.) Indeed, the first two
allegations are sufficient to survive Defendants’ Motion to Dismiss.
Receivership as to Choice Insurance (Count VIII)
Under Michigan law, courts have “broad jurisdiction to appoint a receiver in
an appropriate case.” Reed v. Reed, 693 N.W.2d 825, 844 (Mich. Ct. App. 2005)
(citations omitted). “The purpose of appointing a receiver is to preserve property
and to dispose of it under the order of the court.” Id. (citation omitted). Notably
however, “a receiver should only be appointed in extreme cases.” Id. (citation
omitted). Indeed, “the appointment of a receiver is a remedy of last resort and
should not be used when another, less dramatic remedy exists.” Woodward v.
35
Schwartz, No. 343704, 2020 WL 1228657, at *2 (Mich. Ct. App. Mar. 12, 2020)
(citation omitted). “When other approaches have failed to bring about compliance
with a court’s orders, whether through intransigence or incompetence, receivership
may then be appropriate.” Petitpren v. Taylor Sch. Dist., 304 N.W.2d 553 (Mich.
Ct. App. 1981).
Plaintiffs allege that following the alleged merger of Northern Capital and
Choice Insurance and the creation of the IC Agreement on February 1, Northern
Capital opened a bank account in the name of NCIAS in which monies were
deposited and thereafter paid to NCIAS. (ECF No. 1-1 at Pg. ID 30.) Plaintiffs
allege that Defendants opened the bank account without NCIAS’s permission and
have since diverted commissions due NCIAS to other accounts or affiliates of
Defendants. (Id.) Plaintiffs further allege that, even though “[t]he stock and
business of NCIAS was never sold or transferred to Defendants,” “Defendants
have made filings with regulatory authorities and insurance companies identifying
NCIAS as a company or business that was acquired as a part of the [February 1]
transaction.” (Id.) Thus, according to Plaintiffs, “there is sufficient good cause
warranting the appointment of a Receiver for Defendants in order to determine
amounts due Plaintiffs and preserve the assets of the companies.” (Id. at Pg. ID
31.)
36
The Court disagrees. Plaintiffs point to no order with which Defendants
have failed to comply. Nor have Plaintiffs suggested that Defendants would be
unable comply with any order or judgment the Court may issue in the future.
Accordingly, the Court is not persuaded that a receiver is necessary at this time.
The Court thus dismisses Plaintiffs’ receivership claim as to Choice Insurance.
CONCLUSION
For the reasons discussed above, the Court finds that Plaintiffs have failed to
make out claims of innocent misrepresentation as to Mann (Count III), statutory
conversion as to Choice Insurance (Count IV), accounting as to Choice Insurance
(Count V), receivership as to Choice Insurance (Count VIII), and silent fraud as to
Mann (Count IX).
Regarding Count II (Fraudulent Misrepresentation as to Mann), to the extent
that Plaintiffs allege that Mann made new fraudulent misrepresentations each year
between 2008 and 2019 regarding (i) whether he “ha[d] paid NCIAS all of the
commissions and contingency commissions due”; (ii) “the amount of gross
commissions and contingency commissions earned”; and (iii) “the commissions
paid to Northern Capital by its insurance companies [(such as, Fremont Insurance
Company)] for business produced by NCIAS,” (ECF No. 1-1 at Pg. ID 17, 20),
37
Mann may be liable for only those statements made during the six years preceding
the filing of this suit.
Regarding Count VI (Breach of Contract as to Choice Insurance), to the
extent that Plaintiffs allege that Choice Insurance “shar[ed] and disclos[ed]
Plaintiffs’ confidential and proprietary information with third-parties” and failed to
“pa[y] commissions and profit sharing due and owing” to Plaintiffs, (ECF No. 1-1
at Pg. ID 18, 23), the claim survives.
Regarding Count VII (Tortious Interference with a Contract or Business
Relations as to Choice Insurance & Mann), to the extent that Plaintiffs allege that
Choice Insurance and Mann (i) “advis[ed] the insurance markets that Plaintiffs
were part of the [February 1 transaction] . . . to disrupt and interfere with Plaintiffs
business relationships with their clients”; (ii) “shared Plaintiffs[’] records and
information with third parties as a part of their intent to interfere with . . . the
business relationship between Plaintiffs and their clients and the business
relationships between [P]laintiffs and their insurance markets. . . .”; and (iii) as a
result, “business has been lost,” the claim survives. (See ECF No. 1-1 at Pg. ID
28.)
Accordingly,
38
IT IS ORDERED that Defendants’ Motion to Dismiss (ECF No. 3) is
GRANTED as to Counts III, IV, V, VIII, and IX.
IT IS FURTHER ORDERED that Defendants’ Motion to Dismiss (ECF
No. 3) is DENIED as to Counts II, VI, and VII.
IT IS FURTHER ORDERED that Defendant’s Motion to Stay Discovery
(ECF No. 28) is DENIED as moot.
IT IS SO ORDERED.
s/ Linda V. Parker
LINDA V. PARKER
U.S. DISTRICT JUDGE
Dated: January 12, 2021
39
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