Saia v. Flying J, Inc. et al
Filing
106
ORDER granting [46,47] Motions to Dismiss. Signed by Judge S. Thomas Anderson on 3/28/16. (Anderson, S.)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TENNESSEE
EASTERN DIVISION
LOUIS SAIA,
Plaintiff,
vs.
FLYING J, INC.,
FJ MANAGEMENT, INC. d/b/a FLYING J, INC.;
FLYING J. INSURANCE SERVICES, INC. and/or
its
Successor, THE BUCKNER COMPANY;
TRANSPORTATION ALLIANCE BANK, INC.;
TRANSPORTATION ALLIANCE LEASING,
LLC;
TAB BANK, INC.; TAB BANK, INC. d/b/a/
TRANSPORTATION ALLIANCE LEASING,
LLC;
JAGIT “J.J.” SINGH, STEPHEN PARKER,
JOHN DOES A, B, and C AND JANE DOES A, B,
and C
No. 15-cv-01045-STA-egb
Defendants.
ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS
________________________________________________________________________
Before the Court are Defendants Transportation Alliance Bank, Inc.;
Transportation Alliance Leasing, LLC; Stephen Parker; FJ Management, Inc. d/b/a
Flying J, Inc.;Fying J Insurance Services, Inc. and/or its Successor The Buckner
Company’s (hereinafter “TAB and Flying J Defendants”) Joint Motion to Dismiss (ECF
No. 46) and Defendant Jagjit “J.J.” Singh’s Motion to Dismiss (ECF No. 47), both filed
on June 5, 2015. Plaintiff Louis Saia filed suit on March 2, 2015, and proceeded with
counsel until the United States Magistrate Judge granted counsel’s motion to withdraw on
June 11, 2015. On July 1, 2015, the Magistrate Judge gave Plaintiff 90 days in which to
retain new counsel or proceed pro se. On September 28, 2015, Plaintiff filed notice with
the Court of his intent to proceed pro se, and on October 1, 2015, the Court ordered
Plaintiff to respond to Defendants’ separate Motions to Dismiss. Plaintiff filed his
opposition to the Motions to Dismiss (ECF No. 63, 64, 66, 67) on October 16, 2015, and
supplemented his response (ECF No. 68, 69) on October 29, 2015. Defendants have filed
reply briefs in further support of their Motions (ECF No. 71, 73, 77). Defendants’
Motions to Dismiss are now ripe for determination. For the reasons set forth below, the
Motions to Dismiss are GRANTED.
BACKGROUND
Plaintiff’s Complaint alleges claims against Defendants for fraud, tortious
conspiracy, a civil claim for violations of the Racketeer Influenced and Corrupt
Organizations Act (“RICO”), fraudulent concealment, negligent misrepresentation,
malicious prosecution, abuse of process, and common law unconscionability.
For
purposes of Defendants’ Motions to Dismiss, the Court accepts the following wellpleaded factual allegations of the Complaint as true. Plaintiff Louis Saia was at all times
relevant the sole shareholder, president and CEO of Saint Michael Motor Express (“St.
Michael”), a Tennessee corporation, having its principal place of business at 141 Law
Road, Jackson, TN 38305. (Compl. ¶ 4.) Plaintiff formed St. Michael in 2002. (Id. ¶
17.) Plaintiff invested approximately $10 million from his personal funds into the capital
of St. Michael and became, along with his mother, Ann M. Saia, a personal guarantor of
certain indebtedness incurred by St. Michael. (Id. ¶ 19.) St. Michael was in the business
of providing over-the-road transportation services for goods and products in the United
2
States and, in particular, refrigerated transport services. (Id. ¶ 20.)
I. St. Michael’s Business with TAB and Flying J Defendants
Defendant Jagjit “JJ” Singh (“Singh”) is an individual who at all times relevant
served as employee, agent, vice-president of financial services for Flying J Inc., vicepresident of financial and communication services for Flying J Inc., director of Flying J
Insurance Services, Inc., and CEO and chairman of Transportation Alliance Bank, Inc.
(“TAB”), a wholly owned and operated subsidiary of Flying J, Inc. (Id. ¶ 10.) As St.
Michael’s business expanded, Singh approached Plaintiff to solicit all of St. Michael’s
financing, leasing, insurance, banking, factoring, diesel fuel purchases, and transport
services business on behalf of Defendant Flying J, Inc. and its subsidiaries. (Id. ¶ 22.) In
April 2006, Plaintiff agreed to conduct all of St. Michael’s business, except for the
factoring and fuel purchases, through the Flying J network. (Id. ¶ 26.)
Specifically, St. Michael’s banking, bank accounts, credit line, and other related
services were established with TAB, a wholly owned and operated subsidiary of Flying J,
Inc. (Id.) All financing of St. Michael’s trucking fleet and of the related leases were to
be conducted through the bank or its subsidiary, Transportation Alliance Leasing, LLC.
(Id.) St. Michael’s insurance was obtained through Flying J Insurance Services, Inc. (Id.)
St. Michael subsequently moved its factoring and fuel purchases to Flying J entities in
approximately October 2007 and June 2008, respectively. (Id.) TAB also extended St.
Michael a line of credit, personally guaranteed by Plaintiff and his mother, Ann Saia, in the
amount of $800,000.00. (Id. ¶ 27.)
Defendant Stephen Parker (“Parker”) is an individual who at all times relevant
was serving or had served as TAB’s vice-president of commercial loans with and also as
an officer and/or agent and representative of Transportation Alliance Leasing, LLC, a
3
subsidiary of TAB. (Id. ¶ 11.) On June 21, 2006, Parker in his capacity as vice-president
of TAB advised Plaintiff on the type and amount of insurance coverage required for St.
Michael’s fleet and cargo. (Id. ¶ 30.) Parker put Plaintiff in touch with Flying J
Insurance Services, Inc. and advised him to send a security deposit and insurance to
Transportation Alliance Leasing, LLC. (Id.) The final result of St. Michael’s doing
business with Defendants was its fleet of tractors and trailers were financed through
Flying J/TAB/Transportation Alliance Leasing, LLC; St. Michael transacted all of its
banking with TAB; St. Michael purchased all of its liability and cargo insurance through
Flying J Insurance Services, Inc.; and St. Michael purchased its fuel through Flying J
with participation in the Flying J discount rebate program. (Id. ¶ 31.)
Plaintiff alleges that Defendants collectively and in concert with each other used
the factoring agreement between St. Michael and TAB, which was itself a contract of
adhesion, to effectively take control of St. Michael’s and Plaintiff’s operations and
enabled the Defendants and the Flying J network to carry out a scheme to take over
Plaintiff’s assets. (Id. ¶ 38.) TAB not only wrongfully charged St. Michael $127,151.61
in improper late fees, (Id. ¶ 39.) TAB and the Flying J Defendants also wired money from
St. Michael’s accounts receivable and line of credit accounts to other accounts used for
Defendants’ benefit. (Id. ¶ 40.) As a result, Defendants gained total control over (a) St.
Michael’s line of credit and payments to the account, (b) the liability and cargo insurance
and payments, (c) St. Michael’s access to fuel, fuel rebate payments, and fuel credit
accounts, (d) St. Michael’s payments on all accounts and/or services provided by The
Flying J network, (e) St. Michael’s customer base and collection of receivables owed to
St. Michael for current and past due accounts, and (f) St. Michael’s payments on leased
4
equipment. (Id. ¶ 41.) Taken together, Defendants had control over St. Michael’s
working capital and cash flow. (Id.)
On May 22, 2008, St. Michael filed for Chapter 11 bankruptcy reorganization and
protection. (Id. ¶ 45.) During St. Michael’s Chapter 11 bankruptcy, Plaintiff and his
family used personal funds and assets to meet all of St. Michael’s obligations including
payments on tractor/trailers leased by St. Michael. (Id. ¶ 46.) Plaintiff also downsized
the company and took steps to improve St. Michael’s business. (Id.) On December 22,
2008, Defendant Flying J, Inc., along with its related affiliates, confronted with an
extraordinarily huge cash flow shortage, filed its own petition for Chapter 11 bankruptcy
reorganization in the United States Bankruptcy Court for The District of Delaware, Case
No. 08-13384(MFW). (Id. ¶ 47.)
II. St. Michael’s Liability Insurance Coverage
On or about June 18, 2009, St. Michael received notice that Carolina Casualty
Insurance Company (“Carolina Casualty”) would not renew St. Michael’s liability
insurance coverage for its trucking fleet, policy number CPT 351668. (Id. ¶ 51.) Carolina
Casualty addressed the notice to Flying J Insurance Services, Inc. (Id.) Katie London
(“London”), Flying J Insurance Services, Inc.’s fleet department manager and Plaintiff’s
agent and representative at Flying J Insurance, notified Plaintiff of the non-renewal but
assured him that Defendants would be able to place the insurance coverage for St.
Michael with Carolina Casualty or another carrier. (Id.) In fact, on August 18, 2009,
London received confirmation from Carolina Casualty that St. Michael’s insurance would
be reinstated. (Id.) London notified Plaintiff that she had obtained a quote for St.
Michael’s coverage and that the insurance company would reissue the policy upon receipt
5
of specified assurances as to premium payment, assurances Plaintiff immediately gave.
(Id.)
On September 16, 2009, Carolina Casualty issued St. Michael an offer quote for
liability insurance for St. Michael’s fleet of tractors and trailers, policy #CGP-351668-Q,
with a policy period running from September 20, 2009, through September 20, 2010. (Id.
¶ 55.) The annual premium quoted by Carolina Casualty was $521,428, and the quote
would remain open until the expiration date of the then existing policy, number
CPT351668, or until September 20, 2009, the reinstated policy’s expiration date. (Id.)
London also informed Plaintiff that he would be required to make a 20% deposit of the
total premium. (Id. ¶ 58.) Plaintiff responded to London that he would make the
payment and then proceeded to made arrangements to obtain the funds. (Id. ¶ 60.) At the
time of these communications, the existing liability insurance with Carolina Casualty,
policy number CPT351668, remained in effect and had even been extended by Carolina
Casualty beyond the original policy expiration date until October 22, 2009. (Id. ¶ 62.)
The Complaint alleges on information and belief that the Flying J Defendants required
the 20% premium deposit, assuming that St. Michael and/or Plaintiff would be unable to
fund the deposit on such short notice. (Id. ¶ 59.) The Flying J Defendants hoped to use
the premium deposit as a pretense for repossessing St. Michael’s trucking fleet and
obtaining its equity in the fleet. (Id.)
On or about September 19, 2009, Parker called Plaintiff on his cell phone and
informed him that Carolina Casualty would not insure St. Michael after all. (Id. ¶ 62.)
When Plaintiff demanded to speak with Singh, Parker responded that TAB planned to file
an emergency motion in St. Michael’s bankruptcy proceeding to allow TAB to take
6
control of and repossess St. Michael’s trucking fleet because St. Michael was operating
the fleet illegally without liability insurance. (Id.) Plaintiff later called London to
question her about the coverage, and she responded that she was not authorized to speak
with him about the matter. (Id. ¶ 63.)
On September 22, 2009, TAB and its subsidiary Transportation Alliance Leasing,
LLC filed the emergency motion in the Plaintiff’s Chapter 11 bankruptcy proceeding. (Id.
¶ 65.) Defendants represented to the Bankruptcy Court that they had received Carolina
Casualty’s June 18, 2009 “Notice of Nonrenewal of Insurance” for liability coverage on
numerous trucks leased by St. Michael and that the St. Michael’s fleet of tractor-trailers
were presently being operated “over-the-road” illegally because they did not have
liability and cargo insurance coverage. (Id.)
TAB sought immediate repossession of all of St. Michael’s leased vehicles and
equipment and an order of abandonment. (Id. ¶ 66.) Additionally, Defendants requested
that the Bankruptcy Court grant them the existing funds in St. Michael’s accounts
receivables in order to take possession of the tractors and trailers and bring them under
TAB’s control. (Id.)
On September 23, 2009, TAB and Transportation Alliance Leasing, LLC,
appeared in the Bankruptcy Court to argue the emergency motion. (Id. ¶ 68.) At roughly
the time of the hearing, Parker again called Plaintiff, who was then traveling in
Louisiana. (Id. ¶ 70.) Parker told Plaintiff that if he, in his capacity as the president and
sole owner of St. Michael, did not consent to the emergency motion and the repossession
of St. Michael’s fleet, the vehicles would be operating without insurance, the trucks and
their cargo would be stranded, and the customers’ cargo would perish. (Id.) Accepting
7
Parker’s fraudulent misrepresentation that Defendants could not procure insurance for St.
Michael’s fleet and in an effort to continue operating and protect St. Michael’s
customers, Plaintiff called his attorney and his wife who were at that time attending the
emergency motion hearing in Bankruptcy Court and instructed them to consent to the
motion. (Id.) Based on Parker’s false representations, St. Michael not only acquiesced in
the repossession of the trucks and trailers and use of the accounts receivables but also
unknowingly waived any and all defenses to the seizure or misrepresentations by
consenting to the Bankruptcy Court’s order. (Id. ¶ 71.)1 Defendants did, in fact, take
possession of St. Michael’s trucking fleet and disposed of the vehicles, which Plaintiff
alleges had a value of approximately $4 million. (Id. ¶¶ 74, 75.)
Plaintiff alleges that Defendant knowingly misled him and the Bankruptcy Court
about the status of St. Michael’s liability insurance coverage. (Id. ¶ 73.) Although TAB
appeared at the hearing and represented to the Bankruptcy Court that a notice of
nonrenewal had been issued on June 18, 2009, TAB failed to disclose that Parker had
instructed London in August 2009 to negotiate a renewal or reinstatement of St.
Michael’s policy with Carolina Casualty. (Id. ¶ 72.) TAB also failed to inform the
Bankruptcy Court that London had told Plaintiff St. Michael’s would get coverage, that
London had applied for a renewal of the policy on behalf of St. Michael, and that the
insurance company had agreed to renew the coverage. (Id.) On the same day as the
emergency hearing, Carolina Casualty had forwarded to Flying J another quote for St.
Michael’s fleet of tractors and trailers with an annual premium of $427,500.00 and a
1
This final allegation, the legal effect of St. Michael’s consent to the emergency
motion, strikes the Court as a legal conclusion as opposed to a fact pleading. The Court
includes the statement here for the sake of a complete recitation of the Complaint’s
allegations.
8
policy period running from September 24, 2009 through September 24, 2010. (Id. ¶¶ 68,
69.)
The Complaint alleges that Defendants’ actions and misrepresentations were part
of a larger scheme and conspiracy to defraud the Plaintiff and St. Michael. On October
29, 2010, TAB filed suit in Utah state court to collect money Defendants had extended to
St. Michael through a line of credit personally guaranteed by Plaintiff and his mother.
(Id. ¶ 88.) On August 27, 2014, the Utah court ruled that Plaintiff was liable for breach
of contract based on his personal guarantee of St. Michael’s $800,000.00 line of credit
and subsequently awarded TAB $1,830,802.94 in damages and pre- and post-judgment
interest accruing at a rate of 30% per annum. (Id. ¶ 95.)2 Plaintiff alleges that TAB
obtained the judgment against him based on additional fraudulent misrepresentations to
the Utah court during the damages hearing. (Id.)
During the discovery phase of the suit in Utah, Plaintiff learned from Carolina
Casualty that the insurance company had provided Flying J Insurance with a quote for the
renewed policy on September 16, 2009, one week before Defendants appeared before the
Bankruptcy Court and represented that St. Michael had no liability coverage. (Id. ¶ 90.)
Upon the discovery of this fact, Plaintiff turned the information over to the trustee in St.
Michael’s bankruptcy proceeding. (Id.) The trustee filed an adversary proceeding in the
Bankruptcy Court alleging fraud and civil RICO violations. (Id.)
Based on these factual allegations, the Complaint alleges claims against
Defendants for fraud (including fraud on the Plaintiff, St. Michael, and the Bankruptcy
2
The Complaint also includes allegations about the Utah court’s judgment in
favor of TAB on its claim that St. Michael’s had a deficit of $57,382.97 in its accounts
receivables for which Plaintiff was personally liable. (Compl. ¶¶ 91, 92.)
9
Court), tortious conspiracy, civil RICO violations (with predicate acts of mail, wire, and
bankruptcy fraud), fraudulent concealment, negligent misrepresentation, malicious
prosecution, abuse of process, and common law unconscionability. Defendants’ separate
Motions to Dismiss largely overlap and argue a number of grounds for the dismissal of
the Complaint.3
Defendants first contend that Plaintiff’s claims are res judicata in light of the
previous litigation between these parties in the state of Utah. Specifically, Plaintiff
asserted some of the same causes of action against Defendants in his counterclaim and
third-party complaint in the Utah case. The Utah court dismissed Plaintiff’s claims for
lack of standing, holding that the claims belonged to St. Michael and not Plaintiff. The
Utah court ultimately granted Defendants summary judgment on their claims for relief
against Plaintiff. Defendants also note that Plaintiff filed his own suit against Defendants
in Utah state court alleging the same causes of action stated in his counterclaim and thirdparty complaint, and the Utah court in the second case granted Defendants’ motion to
dismiss the complaint for failure to state a claim. Defendants request that the Court take
judicial notice of the proceedings in Utah and have attached a copy of the pleadings from
the Utah cases as exhibits to their Motions to Dismiss. Defendants also argue that the
allegations of Plaintiff’s Complaint in the case at bar are largely identical to the
allegations made in adversary proceeding filed by the bankruptcy trustee on behalf of St.
Michael.
According to Defendants, the Bankruptcy Court granted their motion to
dismiss the adversary proceeding on August 21, 2015.
3
Under the circumstances,
Defendant Singh apparently filed a separate Rule 12(b)(6) Motion because the
Complaint does not allege its claims for abuse of process and malicious prosecution
against him. Otherwise, the two Motions to Dismiss present the same procedural history
of the actions involving these parties and track the same legal arguments for dismissal.
10
Plaintiff’s claims are now res judicata.
Defendants next argue that the doctrine of collateral estoppel or issue preclusion
applies in the case to prevent Plaintiff from relitigating issues already decided in the Utah
case. The Utah court concluded that Plaintiff lacked standing to assert many of the same
claims he now asserts before this Court. All of the elements of collateral estoppel apply
to preclude Plaintiff from relitigating the issue of standing after Plaintiff had a full and
fair opportunity to litigate the issue in the prior case between these same parties and the
privies. To the extent that collateral estoppel does not apply in this case, Defendants
argue that Plaintiff nevertheless lacks standing to seek redress for the claims that properly
belong to St. Michael.
In an alternative argument, Defendants state that Plaintiff’s
Complaint amounts to an improper collateral attack on the judgments of the Utah courts
and the Bankruptcy Court.
For all of these reasons, the Court should dismiss the
Complaint without reaching the merits. Even if the Court did decide to consider the
merits of the pleadings, Defendants argue that the Complaint fails to state any timely or
plausible claim for relief or any claim sounding in fraud with the particularity required
under Federal Rule of Civil Procedure 9(b).
Therefore, Defendants are entitled to
dismissal of Plaintiff’s Complaint in its entirety.
Plaintiff has responded in opposition to each of the Motions to Dismiss, though
the separate response briefs are largely identical. Plaintiff begins by restating many of
the factual allegations of his Complaint and his belief that Defendants perpetrated a fraud
on him and the Bankruptcy Court when Defendants filed the emergency motion to take
possession of St. Michael’s trucking fleet.
According to Plaintiff, Defendants also
fraudulently misrepresented the state of affairs to the Utah court. As for the merits of his
11
Complaint, Plaintiff argues that unlike the previous litigation between the parties, the new
suit alleges Defendants’ civil violations of RICO. Plaintiff argues that his RICO claims
did not accrue until after his counterclaims in the Utah suit were dismissed for lack of
standing. Plaintiff also did not discover Defendants’ other alleged acts of fraud and
conversion until the trustee reopened St. Michael’s bankruptcy proceedings in September
2012. Plaintiff maintains then that he has never “had his day in court” as to these facts or
causes of action.
Plaintiff also explains that he filed his own complaint in Utah state court as a
“placeholder” suit “with the intention of dismissing that suit if [the Utah judge in the first
suit] allowed [Plaintiff’s] Third Party Complaint and Counterclaims to go before his
court.”4 When the Utah court dismissed Plaintiff’s “placeholder” suit, Plaintiff contends
the dismissal was not on the merits. Plaintiff actually filed a motion for voluntary
dismissal, which the Utah court ignored when it decided to reach the merits of
Defendants’ motion to dismiss the “placeholder” suit instead. Plaintiff adds that he
amended his Counterclaim and Third-Party Complaint in the other Utah suit to include
allegations about Defendants concealing the insurance quote from the Bankruptcy Court
during the hearing on the emergency motion to take possession of St. Michael’s assets.
Plaintiff argues then that his “placeholder” suit never included these allegations, and so
no final judgment on the merits of these issues was ever issued in Utah.
Finally, Plaintiff contends that the Utah court’s dismissal of his Counterclaim and
Third-Party Complaint for lack of standing was a procedural issue, and not a decision on
the merits. By contrast, the case at bar includes new factual allegations, names new
4
Pls.’ Resp. in Opp’n to Defs. Jt. Mot. to Dismiss 4 (ECF No. 63).
12
Defendants as parties, and asserts for the first time Plaintiff’s civil RICO claim. In
particular Plaintiff alleges here that Defendants engaged in a RICO scheme targeting
Plaintiff personally. With respect to the Bankruptcy Court’s dismissal of the adversary
proceeding making many of the same allegations against these Defendants, Plaintiff
argues that the trustee represented St. Michael and not Plaintiff. Plaintiff was not a party
to the adversary proceeding in any way and had no input in the prosecution of those
claims. Plaintiff’s Complaint does not seek damages on behalf of St. Michael but on
behalf of Plaintiff himself. Therefore, the doctrines of res judicata and collateral estoppel
do not bar Plaintiff’s Complaint before this Court, and Plaintiff’s RICO claim cannot
constitute a collateral attack on the judgments of other courts.
In their reply briefs, Defendants highlight that since the filing of their opening
briefs, the United States Bankruptcy Court for the Western District of Tennessee
dismissed nearly identical claims asserted on behalf of St. Michael in the adversary
proceeding. The Bankruptcy Court dismissed St. Michael’s civil RICO conspiracy claim
predicated on the same facts as Plaintiff’s civil RICO claim. Plaintiff’s Complaint is in
its essence a collateral attack on the previous judgments of other courts, a challenge
Plaintiff lacks the standing to mount. Defendants reiterate the other arguments advanced
in their opening briefs and argue that the Complaint must be dismissed.5
STANDARD OF REVIEW
5
Plaintiff has filed Motions for Leave to File a Sur-Reply (ECF Nos. 93, 94, 95).
However, Plaintiff has given no reasons why a sur-reply is warranted in this case and has
not shown that his sur-reply would address the standing issue, on which the Court is
basing its ruling. Furthermore, Plaintiff’s motions to amend his complaint remain
pending and provide Plaintiff with another opportunity to raise any additional issues with
the Court. Therefore, the Motions to file a sur-reply are DENIED.
13
A defendant may move to dismiss a claim “for failure to state a claim upon which
relief can be granted” under Federal Rule of Civil Procedure 12(b)(6). When considering
a Rule 12(b)(6) motion, the Court must treat all of the well-pleaded allegations of the
pleadings as true and construe all of the allegations in the light most favorable to the nonmoving party.6 However, legal conclusions or unwarranted factual inferences need not be
accepted as true.7 “To avoid dismissal under Rule 12(b)(6), a complaint must contain
either direct or inferential allegations with respect to all material elements of the claim.” 8
Under Rule 8 of the Federal Rules of Civil Procedure, a complaint need only contain “a
short and plain statement of the claim showing that the pleader is entitled to relief.”9
Although this standard does not require “detailed factual allegations,” it does require
more than “labels and conclusions” or “a formulaic recitation of the elements of a cause
of action.”10 In order to survive a motion to dismiss, the plaintiff must allege facts that, if
accepted as true, are sufficient “to raise a right to relief above the speculative level” and
to “state a claim to relief that is plausible on its face.”11 “A claim has facial plausibility
6
Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); Saylor v. Parker Seal Co., 975
F.2d 252, 254 (6th Cir. 1992).
7
Morgan v. Church’s Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987).
8
Wittstock v. Mark a Van Sile, Inc., 330 F.3d 899, 902 (6th Cir. 2003).
9
Fed. R. Civ. P. 8(a)(2).
10
Ashcroft v. Iqbal, 556 U.S. 662, 681 (2009); Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 555 (2007). See also Reilly v. Vadlamudi, 680 F.3d 617, 622 (6th Cir.
2012) (quoting Twombly, 550 U.S. at 555).
11
Twombly, 550 U.S. at 555, 570.
14
when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.”12
ANALYSIS
The Court need not reach all of the issues presented in Defendants’ Motions to
Dismiss. Defendants have contested Plaintiff’s standing to bring claims that properly
belong to his company St. Michael. Because standing is “the threshold question in every
federal case,” the Court will address this dispositive issue at the outset.13
I. Standing
The United States Supreme Court has stated that the standing requirement limits
federal court jurisdiction to actual controversies so that the judicial process is not
transformed into “a vehicle for the vindication of the value interests of concerned
bystanders.”14 The party “seeking federal court action” bears the burden to demonstrate
all of the elements of Article III standing including injury-in-fact.15 The Complaint
alleges that Plaintiff was president, CEO, and sole shareholder of St. Michael and that
Plaintiff had made significant capital contributions to St. Michael and certain personal
guaranties for the corporation’s debts, including an $800,000.00 line of credit guaranteed
by Plaintiff and his mother.16 The Complaint alleges that Defendants’ engaged in a
12
Iqbal, 556 U.S. at 678.
13
Warth v. Seldin, 422 U.S. 490, 498 (1975).
14
Valley Forge Christian Coll. v. Americans United for Separation of Church &
State, Inc., 454 U.S. 464, 473 (1982) (quoting United States v. SCRAP, 412 U.S. 669, 687
(1973)).
15
McGlone v. Bell, 681, F.3d 718, 728 (6th Cir. 2012) (citing Rosen v. Tenn.
Comm’r Fin. & Admin., 288 F.3d 918, 927 (6th Cir. 2002)).
15
pattern of fraud and tortious conduct to take control of St. Michael’s assets, including by
implication Plaintiff’s capital contributions to the corporation, and to collect debts
incurred by St. Michael from Plaintiff in his capacity as a personal guarantor for St.
Michael’s liabilities.
The Sixth Circuit has held that a plaintiff, even a sole shareholder, cannot
maintain in his own name “an action to redress injuries to a corporation.”17 Likewise, a
personal guarantor of a corporation’s liabilities and obligations lacks standing to seek
redress for injuries to the corporation.18 As the Court of Appeals has explained, “any
redressable injury must flow from individualized harm done to the plaintiff, separate
from any claims that the corporation may assert.”19 Under Tennessee law, a corporation
16
Compl. ¶¶ 18, 19, 27.
Canderm Pharmacal, Ltd. v. Elder Pharms., Inc., 862 F.2d 597, 602-03 (6th
Cir. 1988) (quoting Schaffer v. Universal Rundle Corp., 397 F.2d 893, 896 (5th Cir.
1968)).
17
18
Quarles v. City of E. Cleveland, 202 F.3d 269, at *4 (6th Cir. 1999)
(unpublished per curiam decision); see also Niemi v. Lasshofer, 728 F.3d 1252, 1260
(10th Cir. 2013) (“Every circuit to have addressed the question . . . has held that the
proper plaintiff [for injury to a corporation] is the corporation, not the investor or
guarantor.”); Pagan v. Calderon, 448 F.3d 16, 29 (1st Cir. 2006) (same); Guides, Ltd. v.
Yarmouth Grp. Prop. Mgmt., Inc., 295 F.3d 1065, 1073 (10th Cir. 2002) (rejecting “the
premise that a stockholder’s status as a guarantor gives the stockholder status to assert an
individual claim against a third party where that harm is derivative of that suffered by the
corporation”); Taha v. Engstrand, 987 F.2d 505, 507 (8th Cir. 1993) (holding that in the
absence of a special duty or a separate and distinct injury “guarantors of corporations
generally may not bring individual actions to recover what they consider their share of
the damages suffered by the corporation”); Stein v. United Artists Corp., 691 F.2d 885,
896 (9th Cir. 1982) (concluding that a corporation’s guarantors lack standing when their
alleged injuries “reflect the injury to the corporation, which forced it to default on the
loans”).
19
Quarles, 202 F.3d 269, at *4 (collecting cases); see also Firestone v. Galbreath,
976 F.2d 279, 285 (6th Cir. 1992), modified at 25 F .3d 323 (6th Cir. 1994) (no standing
because “any harm to the [plaintiff] flows merely from the misfortunes allegedly visited
upon [the corporation] by the defendants”); Sparling v. Hoffman Constr. Co., Inc., 864
F.2d 635, 640-41 (9th Cir. 1988) (standing available to guarantor only when harm to
16
and its shareholder remain “distinct legal entities even if all the stock in the corporation is
owned by one stockholder.”20 As such, “the proper party to bring a claim on behalf of a
corporation is the corporation itself acting through its directors or a majority of its
shareholders.”21 “Stockholders may bring an action individually to recover for an injury
done directly to them distinct from that incurred by the corporation and arising out of a
special duty owed to the shareholders by the wrongdoer.”22
The Court holds that Plaintiff lacks standing to pursue his claims for relief to
redress injuries to his corporation. Just as he did in the Utah litigation, Plaintiff pursues
claims properly belonging to St. Michael because he seeks damages for injuries suffered
by St. Michael, and not himself. While the Complaint alleges injuries suffered by St.
Michael as a result of Defendants’ conduct, the Complaint only alleges injuries to
Plaintiff derivative of the injuries incurred by St. Michael. Plaintiff’s alleged personal
injury from Defendants’ wrongs consist of his financial losses as St. Michael went
bankrupt and Plaintiff lost his capital investment in the corporation as well as Plaintiff’s
liability for St. Michael’s debts as part of his personal guaranty agreement. The injuries
described in the Complaint do not confer standing on Plaintiff to pursue what are actually
injuries to his corporation.
Therefore, Plaintiff lacks standing to pursue his claims
guarantor is not derivative of harm to corporation); Taha v. Engstrand, 987 F.2d 505, 507
(8th Cir. 1993) (recovery available when defendant owes an individual guarantor a
special duty).
20
Hadden v. City of Gatlinburg, 746 S.W.2d 687, 689 (Tenn. 1988) (citing
Parker v. Bethel Hotel Co., 34 S.W. 209, 215 (Tenn. 1896)); see also Lockhart v. Moore,
159 S.W.2d 438, 443 (Tenn. Ct. App. 1941); 1 Fletcher Cyclopedia of the Law of Private
Corporations § 36 (1983 rev.).
21
House v. Estate of Edmondson, 245 S.W.3d 372, 381 (Tenn. 2008) (citing Daily
Income Fund, Inc. v. Fox, 464 U.S. 523, 531–32 (1984)).
22
Hadden, 746 S.W.2d at 689 (collecting cases).
17
against Defendant.
The Complaint does allege that Plaintiff participated in negotiations, reached
agreements with Defendants, made certain decisions in the course of St. Michael’s
business, sought out information related to St. Michael’s interests, and secured funding to
meet St. Michael’s obligations. But in each instance Plaintiff was acting in his capacity
as president and CEO of St. Michael. In fact, the Complaint frequently refers to Plaintiff
and St. Michael interchangeably.
For example, the Complaint alleges in a single
paragraph that TAB purchased St. Michael’s tractors and trailers and then “in turn leased
[them] to Plaintiff . . . under a Master Lease Agreement whereby St. Michael, as Lessee,
leased each of the tractors for 54 months and the trailers for 60 months with the right to
purchase each of them at the end of the lease term for a set price . . . .”23 Elsewhere, the
Complaint alleges that Plaintiff relied on certain misrepresentations made by Defendants
not to his own detriment but to the detriment of St. Michael.24 Even though as these
allegations seem to treat Plaintiff as the alter ego for his company, the Complaint taken as
a whole merely shows that Plaintiff acted on behalf of St. Michael in his capacity as an
officer of the corporation. The Complaint does not allege that Defendants owed Plaintiff
any special duty separate and apart from his role as a corporate officer and/or shareholder
of St. Michael.
In the final analysis, the Complaint alleges that Defendants caused St. Michael to
suffer injuries and that Plaintiff as the sole shareholder with a large capital investment in
the corporation saw his company’s business suffer and as the guarantor for St. Michael
23
Compl. ¶ 28 (emphasis added).
24
Id. ¶ 78.
18
became liable for St. Michael’s debts and obligations.
Any claim against these
Defendants belongs to St. Michael, and Plaintiff lacks standing to seek redress for any
losses to the corporation.
Therefore, Defendants’ Motions to Dismiss must be
GRANTED for lack of standing as to all of the claims under Tennessee law.
This leaves Plaintiff’s RICO claim. As he emphasizes in his briefing, Plaintiff
alleges a RICO claim against Defendants for the first time in the Complaint before the
Court. The Sixth Circuit has held that standing to bring a RICO claim is slightly different
than Article III standing in that RICO standing is somewhat more “onerous.”25 RICO
“requires that the injury be directly caused by the defendant’s predicate acts.”26 RICO’s
enforcement provision states that “[a]ny person injured in his business or property by
reason of violation of section 1962 . . . may sue therefor in any appropriate United States
district court . . . .”27 Perhaps more to the point, the Court of Appeals has held that in the
absence of some allegation that a defendant directly owes a corporation’s shareholder
some special duty, the shareholder does not have standing to allege a RICO claim for
“wrongs and injuries . . . directed at” the corporation.28
The Court holds that the Complaint also fails to allege facts showing that Plaintiff
has standing to pursue a RICO claim against Defendants.
Just as with Plaintiff’s claims
for relief under Tennessee law, the Complaint’s RICO allegations only show that
25
Stooksbury v. Ross, 528 F. App’x 547, 554 (6th Cir. 2013) (citing Perry v. Am.
Tobacco Co., Inc., 324 F.3d 845, 848 (6th Cir. 2003)).
26
Id.
27
18 U.S.C. § 1964(c).
28
Frank v. D’Ambrosi, 4 F.3d 1378, 1385 (6th Cir. 1993) (citing Warren v. Mfrs.
Nat. Bank of Detroit, 759 F.2d 542, 544 (6th Cir. 1985); see also Sparling, 864 F.2d at
640 (collecting cases).
19
Defendants’ purported wrongdoings were directed at St. Michael, not Plaintiff personally.
The Complaint alleges that Defendants conspired to use Flying J as an enterprise to
defraud St. Michael and Plaintiff of their assets and property.29 As part of the alleged
conspiracy, Defendants made certain representations to St. Michael and Plaintiff, took
control assets of St. Michael and Plaintiff for their own benefit, and furthered their
conspiracy by engaging in mail, wire, and bankruptcy fraud. However, the Complaint
alleges that Plaintiff only dealt with Defendants in his capacity as St. Michael’s corporate
officer and suffered injuries as the sole shareholder in St. Michael and a personal
guarantor for St. Michael’s debts. There are no allegations in the Complaint to show that
Defendants owed Plaintiff any special duty or that Plaintiff suffered any injuries
independent of the injuries to his corporation. The Court would add here that according
to the Complaint, the trustee in St. Michael’s bankruptcy case has brought an adversary
proceeding against Defendants alleging much the same RICO claim on behalf of St.
Michael.30 In short, Plaintiff is essentially pursuing a RICO claim that belongs to St.
Michael. The Court holds then that the Complaint fails to plead enough facts to show
that Plaintiff has standing to pursue a RICO claim of his own against Defendants.
Therefore, the Motions to Dismiss are GRANTED as to this claim.
II. Plaintiff’s Motion to Amend Complaint
Plaintiff has filed a motion to amend his complaint, which the Court has referred
to the United States Magistrate Judge for determination.
Having now ruled on
Defendants’ Motions to Dismiss the initial Complaint, Plaintiff’s motion to amend the
29
Compl. ¶¶ 114-48.
30
Id. ¶ 90.
20
complaint is ripe for determination.
CONCLUSION
The Court holds the Plaintiff lacks standing to pursue his claims in this suit.
Therefore, Defendants’ Motions to Dismiss are GRANTED.
IT IS SO ORDERED.
s/ S. Thomas Anderson
S. THOMAS ANDERSON
UNITED STATES DISTRICT JUDGE
Date: March 28, 2016.
21
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