SFS Check, LLC v. First Bank of Delaware, et al

Filing 43

OPINION AND ORDER denying 34 Motion to Dismiss. Signed by District Judge Terrence G. Berg. (Chubb, A)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
SFS CHECK, LLC,
Plaintiff,

CIV. NO. 12-14607

v.
FIRST BANK OF DELAWARE,
ET AL.,
Defendants.

HON. TERRENCE G. BERG
HON. R. STEVEN WHALEN

/

OPINION AND ORDER DENYING DEFENDANTS’
MOTION TO DISMISS FIRST AMENDED COMPLAINT (DKT. 34)
SFS Check, LLC (“Plaintiff”) is a Michigan company that purportedly
provides financial transaction processing services. Plaintiff claims to be a victim of
identity theft; in particular, Plaintiff alleges that someone unlawfully opened a
bank account in Plaintiff’s name at Defendant First Bank of Delaware (“FBD”).1
Plaintiff further alleges that this fraudulent bank account was used to process
illegal internet gambling transactions. As a result of this illicit conduct, Plaintiff
avers that its own bank (non-party Fifth Third Bank) refused to continue to process
Plaintiff’s transactions, which effectively put Plaintiff out of business, and that
Plaintiff was served with, and forced to respond to, a Federal Grand Jury Subpoena
issued by this Court pertaining to transactions in the fraudulent SFS Check account
at FDB.

The Amended Complaint (Dkt. 8) names FBD as a defendant, along with nine (9) individuals who
were officers or directors of FBD. The individually named defendants shall be referred to collectively
as the “Individual Defendants”.
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Plaintiff’s Amended Complaint (Dkt. 8) asserts two common law claims
against Defendants – negligence and fraud.2 The case is before this Court by virtue
of diversity jurisdiction. Defendants’ moved to dismiss the Amended Complaint
(Dkt. 34). Plaintiff has responded (Dkt. 41) and the Court heard argument on
Defendants’ motion to dismiss on May 29, 2013. Defendants’ motion argues that
Plaintiff’s case should be dismissed for two reasons: first, as to the Individual
Defendants, this Court does not have personal jurisdiction over them; second, as to
all Defendants, Plaintiff’s Amended Complaint fails to state a claim upon which
relief can be granted.
For the reasons set forth below, Defendants’ motion to dismiss is DENIED.
The Court authorizes Plaintiff to conduct limited discovery, strictly confined to the
question of whether there is personal jurisdiction over the Individual Defendants.
After this limited discovery is completed, Plaintiff is directed to file a motion for
leave to file a Second Amended Complaint (with a proposed Second Amended
Complaint attached – see E.D. Mich. LR 15.1). Defendants may then respond to
Plaintiff’s motion for leave to amend within the time-permitted by E.D. Mich LR
7.1(e)(2), and the Court will determine whether Plaintiff’s request for leave to
amend is futile (i.e., whether Plaintiff’s proposed Second Amended Complaint could
survive a Rule 12(b)(2) or (6) motion).

Plaintiff’s negligence claim (Count I) contains four sub-parts, three involving the alleged conduct or
omissions of FBD and one for the alleged gross negligence of the Individual Defendants. The
negligence claims against FBD include: (1) failure to “Exercise Due Care and Sound Reasonable
Business Judgment;” (2) failure to “Exercise Due Diligence;” and (3) “Respondent [sic] Superior” for
failing to “Supervise its Employees.”
2

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I. BACKGROUND
The following facts are taken from Plaintiff’s Amended Complaint which, for
purposes of Defendants’ motion to dismiss, are assumed to be true and are viewed
in a light most favorable to Plaintiff.
Plaintiff alleges that it entered into automated clearing house (“ACH”)
agreements to process electronic fund transfers on behalf of several non-party
entities (Dkt. 8 ¶ 15). Plaintiff further avers that, after it began processing
transactions for these entities, Plaintiff received notice from its own bank – nonparty Fifth Third Bank – that it would no longer process Plaintiff’s ACH
transactions and was terminating its relationship with Plaintiff (Dkt. 8 ¶ 22). Fifth
Third Bank’s expressed basis for terminating the relationship was that Plaintiff
maintained an account at FBD that was apparently processing illegal gambling
transactions (Dkt. 8 ¶¶ 17-18, 21-23.)
In an Affidavit attached to the Amended Complaint, Plaintiff’s President
Charles Kopko states that, after learning of an alleged FBD account in Plaintiff’s
name from Fifth Third Bank, he immediately contacted FBD (Dkt. 8; Ex. 1 ¶ 4).
Mr. Kopko states that he was informed by “agents” and “members of [FBD’s]
corporate offices” that there was no “SFS” account at FBD (Dkt. 8; Ex. 1 ¶ 4). In
October 2012, Plaintiff received a Grand Jury Subpoena, issued by this Court; the
Subpoena commanded production of documents relating to an FBD account – in
Plaintiff’s name (Dkt. 41; Ex. B). Upon receiving this Subpoena, Mr. Kopko states
that he contacted “the office of the [FBD] Bank President” and was told for the first

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time that FBD “had opened an account for SFS and, in fact, SFS Novi of Michigan
was a customer and they had been processing ACH transactions through this
account” (Dkt. 8; Ex. 1 ¶ 7). Mr. Kopko states that he then told this unidentified
FBD representative that he “was going to report this action to the [FBD] Board of
Directors,” to which Mr. Kopko was told that the FBD Board of Directors was
“already aware of it” (Dkt. 8; Ex. 1 ¶ 8). Plaintiff further alleges that this
unidentified FBD representative then stated that he could not discuss the account
with Plaintiff further, because Plaintiff was not a signatory on the account (Dkt. 8 ¶
29).
Plaintiff alleges in the Amended Complaint that Defendants acted
negligently in creating the account in Plaintiff’s name, engaged in fraud in their
communications with Plaintiff subsequent to the creation of the account and, as a
result, caused Plaintiff to incur damages totaling approximately $10 million (Dkt.
8).
II. ANALYSIS
A.

Motion to Dismiss for Lack of Personal Jurisdiction

On a motion to dismiss for lack of personal jurisdiction pursuant to Rule
12(b)(2), the plaintiff has the burden of proving the court’s jurisdiction over the
defendant. See Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 887 (6th Cir.
2002); see also Children’s Legal Services, PLLC v. Shor Levin and Derita, PC, 850 F.
Supp. 2d 673, 679 (E.D. Mich. 2012). In ruling upon a motion to dismiss for lack of
personal jurisdiction, the district court has three procedural alternatives: “[it] may

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determine the motion on the basis of affidavits alone; or it may permit discovery in
aid of the motion; or it may conduct an evidentiary hearing on the merits of the
motion.” Serras v. First Tennessee Bank Nat'l Ass'n, 875 F.2d 1212, 1214 (6th Cir.
1989).
“[I]n the face of a properly supported motion for dismissal, the plaintiff may
not stand on his pleadings but must, by affidavit or otherwise, set forth specific
facts showing that the court has jurisdiction.” Children’s Legal Servs., 850 F. Supp.
2d at 679 (citing Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991)). An
evidentiary hearing may be conducted “if the district court concludes that the
written submissions have raised issues of credibility or disputed issues of fact which
require resolution,” in which case the plaintiff would be required to “show by a
preponderance of the evidence that jurisdiction exists.” American Greetings Corp. v.
Cohn, 839 F.2d 1164, 1169 (6th Cir. 1998).
However, where the district court finds no need for an evidentiary hearing,
“the burden of the plaintiff is relatively slight, and the plaintiff must make only a
prima facie showing that personal jurisdiction exists in order to defeat dismissal.”
Children’s Legal Servs., 850 F. Supp. 2d at 679 (quoting Air Prods. & Controls, Inc.
v. Safetech Int’l, Inc., 503 F.3d 544, 549 (6th Cir. 2007) (internal quotations and
citations omitted)); see also Nationwide Mutual Insurance Co. v. Tryg Int’l
Insurance Co., 91 F.3d 790, 792-93 (6th Cir. 1996) (quoting with approval Conti v.
Pneumatic Prods. Corp., 977 F.2d 978, 987 (6th Cir. 1992) (Boggs, J., dissenting)

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(“[A] showing by a preponderance of the evidence is not necessary unless the trial
court conducts an evidentiary hearing.”)); Neogen Corp., 282 F.3d at 887.
Likewise, where a “district court rules on a jurisdictional motion to dismiss
made pursuant to Rule 12(b)(2) without conducting an evidentiary hearing, the
court must consider the pleadings and affidavits in a light most favorable to the
plaintiff,” and in order to “‘to prevent non-resident defendants from regularly
avoiding personal jurisdiction simply by filing an affidavit denying all jurisdictional
facts,’” the court “‘does not weigh the controverting assertions of the party seeking
dismissal.’” CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1262-63 (6th Cir. 1996)
(emphasis in original) (quoting Theunissen, 935 F.2d at 1459). “Dismissal in this
procedural posture is proper only if all the specific facts which [the plaintiff] alleges
collectively fail to state a prima facie case for jurisdiction.” Id.
B.

Limited Discovery is Appropriate

In this case, the best course of action is to provide Plaintiff with discovery on
the limited issue of whether the Court has personal jurisdiction over the Individual
Defendants. Plaintiff has adduced some evidence to suggest that the Individual
Defendants were at least aware of the SFS account at issue (see, e.g., Dkt. 8; Ex. 1 ¶
8). Furthermore, Plaintiff has provided some evidence indicating that certain
unknown representatives of FBD may have misled Plaintiff concerning the
existence of an FBD account in Plaintiff’s name (Dkt. 8; Ex. 1 ¶¶ 4, 5). Because
there are unresolved questions surrounding the involvement of the Individual
Defendants with the SFS account at issue, and such personal involvement would

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bear directly on the issue of whether there is personal jurisdiction, the Court will
permit Plaintiff to engage in limited discovery to determine whether it can establish
personal jurisdiction over any or all of the Individual Defendants. See Drexel Chem.
Co. v. SGS Depauw & Stokoe, 59 F.3d 170 (6th Cir. 1995) (remanding the case to
the district court for further fact-finding on personal jurisdiction).
This discovery will be limited solely to the issue of personal jurisdiction. In
particular, Plaintiff may inquire into three specific areas: (1) the identities of any
FBD representative(s) who may have spoken to Mr. Kopko in July 2010 and October
2010 concerning the fraudulent account at issue; (2) the content of those
conversations; and (3) the involvement, knowledge, or actions of FBD’s Board of
Directors, or any of the Individual Defendants concerning the fraudulent SFS Check
account at issue (see Dkt. 8; Ex. 1 ¶ 8 – the Affidavit of Mr. Kopko in which he
states he was told that the FBD Board was “aware” of the account).
To this end, Plaintiff may conduct discovery for a period of sixty (60) days
from the date of this order. Plaintiff is permitted to take no more than three (3)
depositions of FBD representatives (not to exceed 5 hours each). These depositions
must either be taken by video/teleconference, or take place in the state where the
deponent lives (e.g., Pennsylvania). Plaintiff may also serve no more than five (5)
interrogatories, five (5) requests for production of documents and five (5) requests
for admission. The parties are encouraged to work collaboratively to complete this
limited discovery in a timely and efficient fashion. The parties are instructed to

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contact the Court by telephone if any disputes arise during this limited discovery
period.
After this limited discovery period closes, Plaintiff shall have fourteen (14)
days to file its motion for leave to file a Second Amended Complaint, as described
herein.
III. CONCLUSION
For the reasons set forth above, Defendants’ motion to dismiss is DENIED.
The Court will permit Plaintiff to conduct limited discovery for sixty days, on issues
confined to personal jurisdiction over the Individual Defendants. Fourteen days
after this limited discovery period closes, Plaintiff is directed file a motion for leave
to file a Second Amended Complaint (with a proposed Second Amended Complaint
attached – see E.D. Mich. LR 15.1). Defendants may then respond to Plaintiff’s
motion for leave to amend within the time-permitted by E.D. Mich LR 7.1(e)(2), and
the Court will determine whether Plaintiff’s request for leave to amend is futile (i.e.,
whether Plaintiff’s proposed Second Amended Complaint could survive a Rule
12(b)(2) or (6) motion).
At this point in the proceedings, the Court expresses no opinion as to whether
Plaintiff’s Amended Complaint states viable claims for negligence or fraud.
Defendants may renew their arguments relating to the purported legal infirmities
of those common law claims when responding to Plaintiff’s motion for leave to

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amend and Plaintiff may attempt to address those infirmities in its proposed
Second Amended Complaint.
IT IS SO ORDERED.

Dated: June 7, 2013

s/Terrence G. Berg
TERRENCE G. BERG
UNITED STATES DISTRICT JUDGE

Certificate of Service
I hereby certify that this Order was electronically submitted on June 7, 2013,
using the CM/ECF system, which will send notification to each party.
s/A. Chubb
Case Manager

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