Prime Financial, Incorporated v. Comerica Bank, a Texas Banking Association, successor in interest by merger to Comerica Bank a Michigan Banking Corporation

Filing 23

OPINION AND ORDER Denying Defendant's 6 Motion to Dismiss. Signed by District Judge Terrence G. Berg. (Monda, H)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
PRIME FINANCIAL, INC.,
Plaintiff,

Case No. 13-12236
HON. TERRENCE G. BERG

v.
COMERICA BANK,
Defendant.
/

OPINION AND ORDER DENYING
DEFENDANT’S MOTION TO DISMISS (DKT. 6)
Plaintiff Prime Financial, Inc. is suing Defendant Comerica Bank to recover
the value of a mortgage it alleges was wrongfully paid to Defendant as a result of
what Plaintiff claims to be Defendant’s “fraudulent and tortious conduct.”
This matter is now before the Court on Defendant’s motion to dismiss for lack
of jurisdiction in light of the Rooker-Feldman doctrine and on the basis of res
judicata (Dkt. 6). The motion was briefed and the Court subsequently heard oral
argument. During the motion hearing, a significant portion of the argument was
focused on the question of whether, under Michigan law, Plaintiff had the ability to
appeal the prior state court order. Following the hearing, the Court ordered
supplemental briefing on that issue. The parties both filed supplemental briefs
(Dkts. 20-22). The motion is now fully briefed and ready for determination.
For the reasons set forth below, Defendant’s Motion to Dismiss is DENIED.

I.

FACTUAL BACKGROUND

This case involves a somewhat complicated set of facts, centered on a piece of
property located at 505 N.W. Jackson Avenue, Jackson, Michigan (the “Jackson
Property”). The claims at issue arise from the parties’ alleged conduct with respect
to various mortgages taken against the Jackson Property.
On September 7, 2007, Defendant Comerica Bank (“Comerica”) loaned
$500,000 to Notzrim Property Management Company (“Notzrim”), a company
owned by Mark Rankin, for the purchase of the Jackson Property. This loan was
secured by a mortgage (the “Comerica Mortgage”) on the Jackson Property.1 The
Comerica Mortgage was recorded on September 20, 2007 at Liber 1884, Page 272,
Jackson County Records.
In May 2008, Notzrim granted Plaintiff Prime Financial, Inc. (“Prime”) a
mortgage (the “Prime Mortgage”) on the Jackson Property and another property in
Ypsilanti, Michigan (the “Ypsilanti Property”), to secure a loan of $150,000. As
stated previously, at the time Prime loaned Notzrim the $150,000 and took the
Prime Mortgage to secure that loan, the Comerica Mortgage had already been
recorded and was a matter of public record. The Prime Mortgage was purportedly
recorded on March 3, 2009.

For reasons that are unclear, although Notzrim actually owned the Jackson Property, the Comerica
Mortgage on the Jackson Property was given by Jackson R&R Mini Mart, LLC (“JRRMM”), a
Michigan LLC operating a gas station on the Jackson Property and having Rankin as its sole
member.

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A year after the Prime loan and Mortgage, in May 2009, Notzrim defaulted
on its loan from Comerica. Comerica then apparently discovered that Notzrim was
the legal owner of the Jackson Property, not JRRMM. Prime alleges that Notzrim
subsequently conveyed the Jackson Property to JRRMM and that Comerica drafted
a “Continuing Collateral Mortgage,” containing language purporting to make it
effective as of September 7, 2007 (the date of the original Comerica loan and
Mortgage). Prime claims that this conduct was intentional and for the purpose of
defeating Prime’s interest in the Jackson Property. This new mortgage, dated May
11, 2009, was recorded on May 13, 2009 at Liber 1921, Page 714, Jackson County
Records.
On August 5, 2009, Comerica sued Notzrim, JRRMM, and Ypsilanti R&R
Mini Mart, LLC (another of Rankin’s companies, and the operator of a gas station
on the Ypsilanti Property) in Washtenaw County Circuit Court, Case No. 09-923CH (the “State Court Action”), for the purpose of having a receiver (the “Receiver”)
appointed over the assets of JRRMM and empowered to sell those assets, including
the Jackson Property. On August 19, 2009, an order was entered in the State Court
Action appointing Steven Smith as the Receiver. On or about September 9, 2009,
Comerica asserts that a default was entered against all defendants in the State
Court Action.2

The Order entering the default was identified as being attached to Comerica’s Motion to Dismiss as
Exhibit A; however, the document filed as Exhibit A appears to be an unsigned, undated request for
default, not the entry of default itself. Whether the default was actually entered is not material to
the resolution of this motion.
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On December 31, 2009, pursuant to § 303 of the United States Bankruptcy
Code, Prime filed an involuntary petition for Chapter 7 Bankruptcy against
Notzrim in the United States Bankruptcy Court for the Eastern District of
Michigan, Case No. 09-79671 (the “Bankruptcy Case”). On January 26, 2010, the
Bankruptcy Court appointed David W. Allard as the Chapter 7 Trustee of Debtor
Notzrim’s estate.
On March 30, 2010, the Receiver and Comerica moved in the State Court
Action for an order allowing the Receiver to sell the Ypsilanti Property free and
clear of all liens. The motion was noticed for April 14, 2010. At that hearing,
counsel for Prime appeared and argued that the true owner of the Ypsilanti
Property was the Bankruptcy Estate of Notzrim. Prime’s counsel then asked for an
adjournment to provide Prime time to, “file appropriate briefs and quite frankly to
bring these–these issues to the attention of the–of the U.S. Bankruptcy Court and
the Chapter 7 trustee whose job it [sic] to administer um–the assets of Notzrim and
who is clueless about what’s going on here.” (Dkt. 6, Ex. B, April 14, 2010 Hr’g Tr.
at 9). The hearing was subsequently adjourned until May 5, 2010. (Id. at 12).
On April 16, 2010, the Receiver and Comerica moved in the State Court
Action for an order allowing the Receiver to also sell the Jackson Property free and
clear of all liens. That motion was noticed for May 5, 2010, the adjourned hearing
date of the first motion regarding the Ypsilanti Property.
On May 4, 2010, one day prior to when both of the sale-authorization motions
were set to be heard in state court, Prime filed its Objections to Comerica Bank’s
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Application for Receiver to Execute Purchase Agreement and to Convey 505 N.W.
Jackson Avenue, Jackson, Michigan 49203 Free and Clear of Liens and Interests
(“Objections”) in the State Court Action. (Dkt. 6, Ex. C). The Objections set forth
roughly the same facts that are alleged in instant Complaint, argued that the
Continuing Collateral Mortgage was a fraudulent transfer, and asked that the court
deny Comerica and the Receiver’s motions.
On May 5, 2010 a hearing was held and the state court entered an order
granting the Receiver the authority to convey the Jackson Property free and clear of
all liens and interests. (Dkt. 19, May 5, 2010 Hr’g Tr.; Dkt. 6, Ex. E., Order
Granting Receiver Authority to Convey Jackson Property Free and Clear of Liens
and Interests) (hereinafter the “Authorization Order”).
II.

STANDARD OF REVIEW

A Rule 12(b)(6) motion tests whether a legally sufficient claim has been
pleaded in a complaint, and provides for dismissal when a plaintiff fails to state a
claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). “To 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.’” Ashcroft v. Iqbal, 556
U.S. 662 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). A
claim is facially plausible when a plaintiff pleads factual content that permits a
court to reasonably infer that the defendant is liable for the alleged misconduct. Id.
(citing Twombly, 550 U.S. at 556). When assessing whether a plaintiff has set forth
a “plausible” claim, the district court must accept all of the complaint’s factual
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allegations as true. Ziegler v IBP Hog Mkt., Inc., 249 F.3d 509, 512 (6th Cir. 2001).
“Mere conclusions,” however, “are not entitled to the assumption of truth. While
legal conclusions can provide the complaint’s framework, they must be supported by
factual allegations.” Iqbal, 556 U.S. at 664. A plaintiff must provide “more than
labels and conclusions,” or “a formulaic recitation of the elements of a cause of
action.” Twombly, 550 U.S. at 556. In other words, “[t]hreadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not
suffice.” Iqbal, 556 U.S. at 678.
An assessment of the facial sufficiency of the Complaint must ordinarily be
undertaken without resort to matters outside the pleadings. See Wysocki v. Int'l
Bus. Mach. Corp., 607 F.3d 1102, 1104 (6th Cir. 2010). If a court does consider
material outside the pleadings, the motion to dismiss must generally be treated as a
motion for summary judgment under Federal Rule of Civil Procedure 56 and all
parties must be given a reasonable opportunity to present all material pertinent to
the motion. Id. “However, a court may consider exhibits attached [to the
Complaint], public records, items appearing in the record of the case and exhibits
attached to defendant’s motion to dismiss so long as they are referred to in the
complaint and are central to the claims contained therein, without converting the
motion to one for summary judgment.” Rondigo, L.L.C. v. Twp. of Richmond, 641
F.3d 673, 680-81 (6th Cir. 2011) (internal quotation omitted).

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III.
A.

ANALYSIS

The Rooker-Feldman Doctrine
Defendant argues, in part, that the Rooker-Feldman doctrine should bar

Plaintiff’s claims. The Rooker-Feldman doctrine—named after the decisions in
Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and District of Columbia Court of
Appeals v. Feldman, 461 U.S. 462 (1983)—stands for the proposition that “the lower
federal courts [are prohibited] from exercising jurisdiction over cases brought by
‘state-court losers’ challenging ‘state-court judgments rendered before the district
court proceedings commenced.’” Lance v. Dennis, 546 U.S. 549, 460 (2006) (quoting
Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005)). However,
the Rooker-Feldman doctrine is one of limited application; as the Sixth Circuit has
explained:
The doctrine applies only when a plaintiff complains of injury from the
state court judgment itself. If the source of the injury is the state court
decision, then the Rooker-Feldman doctrine would prevent the district
court from asserting jurisdiction. If there is some other source of injury,
such as a third party’s actions, then the plaintiff asserts an independent
claim.
Abbott v. Michigan, 474 F.3d 324, 328 (6th Cir. 2007); see also Coles v. Granville,
448 F.3d 853, 858 (6th Cir. 2006). “The Rooker-Feldman doctrine is not a panacea
to be applied whenever state court decisions and federal court decisions potentially
or actually overlap. … [T]he doctrine is confined to those cases … when a plaintiff
asserts before a federal district court that a state court judgment itself was

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unconstitutional or in violation of federal law.” McCormick v. Braverman, 451 F.3d
382, 395 (6th Cir. 2006).
Here, Prime’s Complaint asserts that it was injured when Comerica drafted
and recorded the May 11, 2009 Continuing Collateral Mortgage on the Jackson
Property, conduct which Prime characterizes as being akin to a fraudulent transfer.
Thus, it is the recording of the continuing collateral mortgage that is the claimedsource of Prime’s injury, not the Authorization Order. The fact that the state
court’s Authorization Order may have arguably embraced Comerica’s allegedly
fraudulent conduct does not mean that the Authorization Order was the source of
Prime’s injury. If a federal plaintiff “present[s] some independent claim, albeit one
that denies a legal conclusion that a state court has reached in a case to which he
was a party ..., then there is jurisdiction and state law determines whether the
defendant prevails under principles of preclusion.” Exxon, 544 U.S. at 293
(emphasis added) (citations omitted); see also Todd v. Weltman, Weinberg & Reis
Co., L.P.A., 434 F.3d 432, 437 (6th Cir. 2006) (because plaintiff did not complain of
injuries caused by the state court judgment, “even if the independent claim was
inextricably linked to the state court decision, preclusion law was the correct
solution”).
Accordingly, the Rooker-Feldman doctrine does not operate to deprive the
Court of jurisdiction over this matter.

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B.

Res Judicata
Defendant also seeks dismissal of the complaint on the basis of res judicata.

“In Michigan, res judicata ‘bars a second, subsequent action when (1) the prior
action was decided on the merits, (2) both actions involve the same parties or their
privies, and (3) the matter in the second case was, or could have been, resolved in
the first.’ Michigan ‘has taken a broad approach to the doctrine of res judicata,
holding that it bars not only claims already litigated, but also every claim arising
from the same transaction that the parties, exercising reasonable diligence, could
have raised but did not.’” Ludwig v. Township of Van Buren, 682 F.3d 457, 460 (6th
Cir. 2012) (quoting Adair v. State, 460 Mich. 105, 680 N.W.2d 386, 396 (2004)).
The Court has thoroughly reviewed the exhibits in this case, including the
transcripts of the April 14, 2010 and May 5, 20103 hearings held in the State Court
Action. Based upon that review, the Court concludes that none of the three
conditions necessary for the application of res judicata is present in this case.
First, it does not appear to this Court that the prior action was, in fact,
decided on the merits. The Authorization Order merely gave the Receiver the legal
authority to sell the Jackson and Ypsilanti properties free and clear of any other
parties’ interest. The Authorization Order does not address the merits of Prime’s
fraudulent transfer argument, nor does it appear to resolve the mortgage priority
dispute between Prime and Comerica. And, from a careful reading of the May 5,
The transcript from the May 5, 2010 hearing was identified as being attached to Comerica’s Motion
to Dismiss as Exhibit D; however, the document filed as Exhibit D was a duplicate copy of the
document identified as Exhibit E, the Authorization Order. The correct version of Exhibit D (Dkt.
19) was ultimately filed on August 6, 2013, the date the Court heard oral argument in this matter.
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2010 transcript, it is clear that the state court did not intend for the Authorization
Order to address or resolve those issues. The state court was merely entering an
order—at the request of the parties, no less—for the purpose of disposing of the
Properties. (See Dkt. 6, Ex. E; Dkt. 19).
Second, although Prime was at least nominally involved in the State Court
Action, by virtue of filing its Objections, it cannot properly be viewed as a “party” in
the case, nor as having had “assumed control over the litigation.” See Taylor v.
Sturgell, 553 U.S. 880, 893-95 (2008) (discussing limited circumstances where nonparties have been found subject to preclusion). The State Court Action was between
Comerica on the one side, and Notzrim, JRRMM, and Ypsilanti R&R Mini Mart on
the other. Prime filed its Objections in order to alert the state court of a potential
issue with the ownership of the assets which were about to be sold, and the state
court took the position that this issue was better resolved in the Bankruptcy Court.
For reasons that are unknown, Prime did not formally move to intervene in the
State Court Action. It also cannot be known whether such a motion would have
been granted. Prime’s limited involvement can hardly be construed as having
asserted control over the State Court Action.
Third, as just stated, this matter was not, and likely could not have been,
resolved in the State Court Action. The statements made during the April 14, 2010
and May 5, 2010 hearings make it clear that the parties, as well as the state court,

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believed the Bankruptcy Court was the proper forum in which to resolve Prime’s
claims.4
Finally, although the Court did direct the parties to brief the question of
whether the Authorization Order could have been appealed to the Michigan Court
of Appeals, the preceding analysis renders that question largely moot.
IV.

CONCLUSION

For the reasons set forth above, Defendant’s Motion to Dismiss (Dkt. 6) is
DENIED. Defendant has until April 14, 2014, to answer the complaint.
SO ORDERED.
Dated: March 24, 2014

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

Certificate of Service
I hereby certify that this Order was electronically submitted on March 24,
2014, using the CM/ECF system, which will send notification to all parties.
s/H. Monda for A. Chubb
Case Manager

The record before this Court does not reveal why Prime’s claims were not subsequently resolved
during the bankruptcy proceedings; regardless, whether the Bankruptcy Court proceedings may
have had a possibly preclusive effect is not presently before this Court.

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