Still v. Phillips
Filing
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MEMORANDUM AND ORDER denying 23 Motion to Dismiss. Signed by Magistrate Judge Susan K Lee on 8/14/13. (GRE, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT CHATTANOOGA
IN RE: STEVE A MCKENZIE,
Debtor.
C. KENNETH STILL, Trustee,
Plaintiff,
v.
CECIL PHILLIPS,
Defendant.
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1:11-cv-332
Lee
MEMORANDUM AND ORDER
Before the Court is Defendant Cecil Phillips’ (“Defendant”) motion to dismiss for failure to
state a claim, for lack of personal jurisdiction, and to abstain [Doc. 23].1 In summary, Defendant
first argues the complaint fails to state a claim upon which relief may be granted because the alleged
promise at issue was an unenforceable “agreement to agree” and the alleged contract is too indefinite
to be enforced. Second, Defendant argues for abstention because no independent basis for
jurisdiction – other than bankruptcy jurisdiction – exists. Finally, Defendant argues the Court lacks
personal jurisdiction over him. Plaintiff C. Kenneth Still (“Trustee”) has opposed the motion [Doc.
30]. For the reasons set forth below, the Court will DENY Defendant’s motion.
1
The pleadings concerning the motion to dismiss are filed in a most confusing manner. It
appears the memorandum filed in support of the motion to withdraw the bankruptcy court reference
[Doc. 15] is the supporting brief to the subsequently filed motion to dismiss. It appears Defendant
may also be relying upon his affidavit, which was originally filed in support of a brief regarding
abstention and personal jurisdiction [Docs. 10 & 10-1], with respect to certain aspects of the motion
to dismiss.
I.
BACKGROUND
This complaint was originally filed in the United States Bankruptcy Court for the Eastern
District of Tennessee on April 29, 2011, by the bankruptcy Trustee for Steve A. McKenzie
(“McKenzie”) [Doc. 14]. Trustee filed an adversary proceeding seeking the recovery of money or
property for the McKenzie bankruptcy estate. Defendant demanded a jury trial and filed a motion
to withdraw the reference to the bankruptcy court. The motion to withdraw the reference from the
bankruptcy court, which was not opposed by Trustee, was granted. Subsequently, upon the parties’
consent, this action was referred to the undersigned to conduct all proceedings in accordance with
28 U.S.C. § 636(c) and Fed. R. Civ. P. 73.
For purposes of the instant motion, the Court will accept as true all well-pleaded facts in the
complaint. See Savoie v. Martin, 673 F.3d 488, 492 (6th Cir. 2012). The complaint alleges that on
or about December 28, 2007, Defendant made a request that McKenzie loan Defendant the sum of
$398,689.45 for the purpose of paying certain indebtedness that Defendant, or entities affiliated with
Defendant, allegedly owed to Integrity Bank in Georgia [Doc. 14, Page ID # 111, ¶ 5]. Attached to
the complaint is an email string of communications by Defendant and others dated in late December
of 2007 (the “email”) concerning the alleged loan agreement [id., Page ID # 114-18].
The
complaint concedes Trustee has not been able to locate a promissory note or other writing, other than
the email, which evidences an agreement for a loan or the terms of the loan [id., Page ID # 111, ¶
10]. The complaint alleges two state law causes of action: (1) debt owed and past due and (2) breach
of contract [id., Page ID # 112].
Defendant has submitted a declaration explaining, among other things, the background of
the business dealings between himself and McKenzie [Doc. 10-1]. In essence, Defendant claims he
2
and McKenzie were never able to come to an agreement on the loan and McKenzie paid the bank
on his own.
II.
ANALYSIS
A.
Personal Jurisdiction
A threshold issue raised in this case is whether the Court has personal jurisdiction over
Defendant. See Citizens Bank v. Parnes, 376 F. App’x 496, 501 (6th Cir. 2010) (“Personal
jurisdiction over a defendant is a threshold issue that must be present to support any subsequent
order of the district court . . . .”). Typically, a court can only exercise personal jurisdiction over an
out-of-state defendant if he maintains “certain minimum contacts with [the forum state] such that
the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’”
Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (citations omitted). As properly and
professionally acknowledged by Defendant, however, in cases with nationwide service of process
under a federal statute such as this, the Sixth Circuit has rejected a personal jurisdiction test that
would factor in a defendant’s contacts with the forum and instead holds that personal jurisdiction
depends on the defendant’s contacts with the United States. See United Liberty Life Ins. Co. v.
Ryan, 985 F.2d 1320, 1330 (6th Cir. 1993); Redhawk Global, LLC v. World Projects Intern., ___
B.R. ___, 2013 WL 2948383, at *2-7 (S.D. Ohio June 14, 2013); In re Thomas, 315 B.R. 697, 702
(Bankr. N.D. Ohio 2004); see also Medical Mutual of Ohio v. deSoto, 245 F.3d 561, 566-67 (6th Cir.
2001). Acknowledging the precedent and preserving the issue for appeal, Defendant contends the
precedent is wrongly decided and contrary to decisions of a minority of the circuit courts. The
precedent, however, is binding on this Court and control the Court’s finding of personal jurisdiction
in this case, as acknowledged by Defendant.
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It is undisputed that a national contacts test applies in the Sixth Circuit where, as here, the
statute in question contained a national service of process provision. Defendant does not dispute he
meets the national contacts test. Given Defendant’s concession that personal jurisdiction is proper
under the national contacts test, it is not necessary, or an efficient use of judicial resources, to
address Trustee’s additional arguments for the assertion of personal jurisdiction over Defendant
based on his alleged contacts with the forum. Accordingly, that aspect of the motion to dismiss for
lack of personal jurisdiction over Defendant will be denied.
B.
Failure to State A Claim
Assessment of the facial sufficiency of a complaint must ordinarily be undertaken without
regard to matters outside the pleadings, but a court may “consider exhibits attached to the complaint,
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 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) (citation and alteration omitted). When
a party presents material outside the pleadings in connection with its motion to dismiss, the court
may convert the motion into a motion for summary judgment or exclude the appended material and
consider the matter only on the pleadings. See Fed. R. Civ. P. 12(d); Gunasekera v. Irwin, 551 F.3d
461, 466 n.1 (6th Cir. 2009). In addressing the aspect of Defendant’s motion that asserts a failure
to state a claim, the Court will not consider Defendant’s affidavit, but will instead consider only the
complaint and attached email.
All pleadings must contain “a short and plain statement of the claim showing that the pleader
is entitled to relief.” See Fed. R. Civ. P. 8(a)(2). While Rule 8(a) does not require plaintiffs to set
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forth
detailed
factual
allegations,
“it
demands
more
than
an
unadorned,
the-
defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). At a
minimum, Rule 8(a) requires the plaintiff to “give the defendant fair notice of what the . . . claim is
and the grounds upon which it rests” – that is, Rule 8(a)(2) “requires a ‘showing,’ rather than a
blanket assertion, of entitlement to relief.” Bell Atlantic v. Twombly, 550 U.S. 544, 555, 555 n.3
(2007). A motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6) is thus
not a challenge to the plaintiff’s factual allegations, but rather, a “test of the plaintiff’s cause of
action as stated in the complaint.” Flanory v. Bonn, 604 F.3d 249, 252 (6th Cir. 2010).
“[O]nly a complaint that states a plausible claim for relief survives a motion to dismiss.”
Iqbal, 556 U.S. at 679. “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. at 678 (citing Twombly, 550 U.S. at 556). The reviewing court must determine not
whether the plaintiff will ultimately prevail, but whether the facts permit the court to infer “more
than the mere possibility of misconduct,” which is “a context-specific task that requires the
reviewing court to draw on its judicial experience and common sense.” Id. at 679; Twombly, 550
U.S. at 570 (holding that a complaint is subject to dismissal where plaintiffs failed to “nudg[e] their
claims across the line from conceivable to plausible”). Although a court must take all of the factual
allegations in the complaint as true, “[t]hreadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice,” and a plaintiff’s legal conclusions
couched as factual allegations need not be accepted as true. Iqbal, 556 U.S. at 678; see Fritz v.
Charter Twp. of Comstock, 592 F.3d 718, 722 (6th Cir. 2010). Therefore, to survive a motion to
dismiss under 12(b)(6), a plaintiff’s “factual allegations must be enough to raise a right to relief
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above the speculative level on the assumption that all the allegations in the complaint are true.”
Ass’n of Cleveland Fire Fighters v. City of Cleveland, Ohio, 502 F.3d 545, 548 (6th Cir. 2007)
(citing Twombly, 550 U.S. at 555).
The elements of a breach of contract action under Tennessee law2 include: (1) existence of
an enforceable contract (either oral or written), (2) non-performance amounting to a breach of the
contract, and (3) damages caused by the breach. ARC LifeMed, Inc. v. AMC-Tennessee, Inc., 183
S.W.3d 1, 26 (Tenn. Ct. App. 2005); Lifecare Ctrs. of Am., Inc. v. Charles Town Assocs. Ltd. P’ship,
79 F.3d 496, 514 (6th Cir. 1996). Defendant argues the complaint fails to state a claim because the
Trustee has failed to allege the existence of an enforceable contract since the email reflects merely
an agreement to agree in the future and the alleged contract terms set forth in the email are too
indefinite to be enforced.
Yet, the complaint alleges that Defendant made an unconditional promise to pay Plaintiff a
sum certain, $199,344.73, on or before a date certain, February 28, 2008, with interest [Doc. 14,
Page ID # 111-12, ¶¶ 8, 13, 15]. Defendant argues such allegations are misleading because there
is no promissory note evidencing the alleged terms and the email does not provide certain terms,
such as the year of the payment. Contrary to Defendant’s argument, however, whether the
allegations are misleading remains to be determined. For now, and in the context of a motion to
2
It is not necessary to address any argument about whether Georgia or Tennessee law
controls at this time because under either the existence of an enforceable contract is required.
Compare EnGenius Entertainment, Inc. v. Herenton, 971 S.W.2d 12, 17-18 (Tenn. Ct. App. 1997)
(complaint failed to state a cause of action for breach of contract where parties had not yet reached
agreement on certain essential terms) and Russell v. City of Atlanta, 103 Ga. App. 365, 367, 119
S.E.2d 143 (1961) (“a contract to enter into a contract in the future is of no effect”); also compare
Doe v. HCA Health Servs. of Tennessee, Inc., 46 S.W.3d 191, 196 (Tenn. 2001) (contract
indefiniteness may prevent the creation of an enforceable contract) and Gardner v. Marcum, 292 Ga.
App. 369, 372, 665 S.E.2d 336, 339 (2008) (same).
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dismiss, the Court must assume the allegations are true. Viewing the email and the allegations
together and taking all allegations as true, Plaintiff’s factual allegations of a debt and agreement are
enough to raise a right to relief above the speculative level. Thus, the aspect of the motion to
dismiss that asserts a failure to state a claim will be denied.
C.
Abstention
Although multiple briefs in this case, filed both before and after the reference to the
Bankruptcy Court was withdrawn, discuss various forms of abstention, it appears Defendant is only
contending that permissive abstention, not mandatory abstention, is proper in this case [See Doc.
15, Page ID # 201, n.2]. With respect to permissive abstention, a court may abstain from hearing
a core or non-core proceeding “in the interest of justice, or in the interest of comity with State courts
or respect for State law.” 28 U.S.C. § 1334(c)(1).
As argued by Defendant, under 28 U.S.C. § 1334 courts commonly examine the following
factors to determine whether permissive abstention is proper:
(1) the effect or lack thereof on the efficient administration of the
estate if a court abstains; (2) the extent to which state law issues
predominate over bankruptcy issues; (3) the difficulty or unsettled
nature of the applicable law; (4) the presence of a related proceeding
commenced in state court or other nonbankruptcy court; (5) the
jurisdictional basis, if any, other than 28 U.S.C. § 1334; (6) the
degree of relatedness or remoteness of the proceeding to the main
bankruptcy case; (7) the substance rather than form of an asserted
core proceeding; (8) the feasibility of severing state law claims from
core bankruptcy matters to allow judgments to be entered in state
court with enforcement left to the bankruptcy court; (9) the burden of
the bankruptcy court’s docket; (10) the likelihood that the
commencement of the proceeding in bankruptcy court involved
forum shopping by one of the parties; (11) the existence of a right to
a jury trial; and (12) the presence in the proceeding of non-debtor
parties.
In re Alliance Leasing Corp., Case No. 05-02397, 2007 WL 5595446 at *11-12 (Bankr. M.D. Tenn.
7
July 3, 2007). The above factors are not exclusive, and abstention is “ultimately one that should be
balanced using a court’s equitable discretion.” Id. at *12.
Clumping several factors together, Defendant briefly argues this is a non-core matter
exclusively dealing with Georgia state law issues related to Georgia loans for which the parties also
agreed to resolve their disputes with Integrity Bank in Georgia. Defendant argues there is no
independent basis for jurisdiction, other than bankruptcy jurisdiction. Defendant further argues this
matter is remote from the McKenzie’s bankruptcy case and that the Trustee is using a foreign forum
to improperly pressure Defendant. The Defendant also notes a jury has been demanded.
Inexplicably, Trustee responded without a single citation to authority. Essentially, Trustees’
arguments are that the Court has diversity jurisdiction and comity and state law concerns actually
favor the position of the Trustee. Trustee notes, without any citation to the record, that there are no
state law actions pending as all related cases with Integrity Bank have been resolved by final
judgment.
Many of the factors noted above for permissive abstention appear to be mooted based on the
withdraw of the bankruptcy reference, a fact not addressed by either party. For example, while state
law issues predominate over bankruptcy issues in this matter, the bankruptcy reference has been
withdrawn and this Court routinely addresses state law issues. There appears to be no particular
difficulty or unsettled nature of the applicable law, be it Georgia or Tennessee law. See In re
Premier Hotel Dev. Grp., 270 B.R. 243, 256 (Bankr. E.D. Tenn. 2001) (noting “the state law issues
which must be addressed in this action are not difficult or unsettled”). In fact, Defendant appears
to concede there is little difference between Georgia and Tennessee law as pertinent to the causes
of action alleged. While the jurisdictional basis, if any, other than 28 U.S.C. § 1334 appears to be
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in dispute and, depending on the outcome of disputed facts, may favor abstention, the existence of
a right to a jury trial, the degree of relatedness or remoteness of the proceeding to the main
bankruptcy case, the substance rather than form of an asserted core proceeding, the feasibility of
severing state law claims from core bankruptcy matters, and the burden on the bankruptcy court’s
docket do not appear to be factors given the withdrawal of the bankruptcy reference.
While Defendant makes an argument about the Trustee’s intentions in pursing this claim, it
does not appear the commencement of the McKenzie bankruptcy proceeding involved forum
shopping and it is natural for the Trustee to bring an adversary action in the same court. It does
appear that permissive abstention would adversely affect the efficient administration of the estate
by causing the Trustee to engage in additional litigation in a foreign forum.
Significantly, the Court cannot determine if there is a pending related proceeding
commenced in state court. Defendant has not indicated that any state court proceedings exist, stating
only that “[t]he matter relates to Georgia loans for which the parties also agreed to resolve their
disputes in Georgia” [Doc. 15 at Page ID # 201]. Plaintiff represents “[t]he related cases referred
to by Defendant in state court in Georgia, although filed subsequent to this case, appear to have
already gone to final judgment” [Doc. 30 at Page ID # 243]. Without more information about any
relevant state proceedings that would make abstention more appropriate, this factor favors nonabstention. See In re Weldon F. Stump & Co., 373 B.R. 823, 827 (Bankr. N.D. Ohio 2007) (stating
“the presence of a related proceeding commenced and timely proceeding in a state-court forum is
a prime consideration in any abstention analysis under § 1334(c)(1)”); McDaniel v. ABN Amro
Mortg. Grp., 364 B.R. 644, 655 (S.D. Ohio 2007) (noting that with no related proceedings in state
court, the factor weighed in favor of non-abstention).
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The Court also observes that permissive abstention is “‘an extraordinary and narrow
exception to the duty of the federal courts to adjudicate controversies which are properly before it.’”
In re Bavelis, 453 B.R. 832, 881 (Bankr. S.D. Ohio 2011) (quoting In re United Sec. & Commc’ns,
Inc., 93 B.R. 945, 961 (Bankr. S.D. Ohio 1988)). Thus, having reviewed the factors and the parties’
arguments, the Court concludes permissive abstention is not proper based on the current record.
III.
CONCLUSION
For the above reasons, Defendant’s motion to dismiss for failure to state a claim, for lack of
personal jurisdiction, and to abstain [Doc. 23] is DENIED. Within five days of the entry of this
Order, the parties SHALL confer and jointly proposed to the Court (via email at
lee_chamber@tned.uscourts.gov) dates concerning when they are available for a scheduling
conference.
SO ORDERED.
ENTER:
s/fâátÇ ^A _xx
SUSAN K. LEE
UNITED STATES MAGISTRATE JUDGE
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