ALTe, L.L.C. v. Quest Capital Invs., Inc., CASE NO. 11-15077

ALTe, L.L.C., Plaintiff,

v. QUEST CAPITAL INVESTMENTS, INC., d/b/a Quest Capital Finance Corporation,d/b/a Quest Capital Finance Inc., and COMMERCIAL ESCROW SERVICES, INC., Defendants.

CASE NO. 11-15077

UNTIED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

DATED: May 23, 2012

HON. MARIANNE O. BATTANI

OPINION AND ORDER GRANTING DEFENDANT

COMMERCIAL ESCROW SERVICES' MOTION TO DISMISS

This matter is before the Court on Defendant Commercial Escrow Services' Motion to Dismiss for Lack of Personal Jurisdiction and Improper Venue. (Doc. 17). The Court heard oral argument on April 4, 2012, and at the conclusion of the hearing took the motion under advisement. For the reasons that follow, the Court GRANTS the motion on personal jurisdiction grounds.

I. STATEMENT OF FACTS

In May 2011, Plaintiff ALTe, L.L.C., secured a Letter of Intent ("LOI") from Defendant Quest Capital Finance Corporation ("Quest") setting forth the terms and conditions under which Quest would loan Plaintiff $19,000,000 (the "Loan") for a powertrain technologies program. (Doc. 11 Ex. 1). The LOI provided that Plaintiff make a $760,000.00 deposit (the "Deposit") to secure the Loan. (Id. at p.1). Quest selected Defendant Commercial Escrow Services, Inc. ("Commercial Escrow") to serve as theescrow agent and hold Plaintiff's Deposit until Quest fulfilled all obligations under the proposed transaction. Commercial Escrow is a California corporation having its principal place of business in Pleasant Hill, California and has no physical presence or property in Michigan, nor does it advertise, solicit, or regularly conduct business in Michigan. (Doc. 17 Ex. 2). Plaintiff, Quest, and Commercial Escrow formalized the escrow arrangement by executing an Escrow Agreement that Quest drafted. (Doc. 17 Ex. 3). Quest and Commercial Escrow signed the agreement in California whereas Plaintiff signed in Michigan. (Doc. 17 Ex. 5).

On June 29, 2011, Plaintiff wire-transferred the Deposit to Commercial Escrow. (Doc. 24 Ex. 2). Commercial Escrow sent a fax to Plaintiff confirming that it had received the Deposit. (Doc. 24 Ex. 4). Pursuant to the Escrow Agreement, Commercial Escrow would hold the Deposit until Quest confirmed in writing to Plaintiff and Commercial Escrow that the Loan was approved and not subject to any contingencies. (Doc. 17 Ex. 3 at ¶ 1). The Escrow Agreement further provided that Quest would issue written confirmation in the form of a "Commitment Letter" that the requirements have been satisfied. Id. Then "[a] signed copy of the Commitment Letter by both [Plaintiff] and [Quest] will be provided by fax or e-mail to [Commercial Escrow]." Upon Commercial Escrow's receipt of the signed Commitment Letter, it would release the deposit to Quest.

On July 11, 2011, Quest issued a Commitment Letter signed by Quest and Plaintiff. (Doc. 17 Ex. 4). The next day, Quest notified Commercial Escrow by email that the Loan was approved, not subject to any contingencies, and authorizedCommercial Escrow to release the Deposit. (Doc. 11 Ex. 4). Upon receipt of this letter, Commercial Escrow released the Deposit to Quest.

On October 12, 2011, Plaintiff demanded that Commercial Escrow return its Deposit. Plaintiff alleges that (1) the Loan was nowhere near ready to close; (2) Quest had multiple outstanding obligations to Plaintiff; and (3) the Commitment Letter did not authorize Commercial Escrow to release the Deposit because it did not confirm that certain disbursement criteria were satisfied. Commercial Escrow refused to return the Deposit to Plaintiff.

Plaintiff filed a four-count Complaint against Defendants in the Eastern District of Michigan to collect the Deposit. (Doc. 1). Plaintiff subsequently filed a First Amended Complaint in response to the Court's sua sponte Order to Show Cause why the case should not be dismissed for lack of subject matter jurisdiction. (Doc. 11). Commercial Escrow filed a motion to dismiss for lack of personal jurisdiction and improper venue. (Doc. 17). This motion is now before the Court.

II. STANDARD OF REVIEW

A. Rule 12(b)(2)

Before an answer is filed, a defendant may move to dismiss for lack of personal jurisdiction over the defendant. Fed. R. Civ. P. 12(b)(2). "Where personal jurisdiction is challenged in a 12(b) motion, the plaintiff has the burden of establishing that jurisdiction exists." Am. Greetings Corp. v. Cohn, 839 F. 2d 1164, 1168 (6th Cir. 1988). A motion to dismiss for lack of personal jurisdiction leaves the Court with three options: "it may decide the motion upon the affidavits alone; it may permit discovery in aid of deciding the motion; or it may conduct an evidentiary hearing to resolve any apparent factualquestions." Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991) (citation omitted). The district court has considerable discretion in this decision and will be reversed only for abuse of discretion. Id. The method the court selects will affect the magnitude of the burden on the plaintiff to avoid dismissal. Serras v. First Tenn. Bank Nat'l Ass'n, 875 F.2d 1212, 1214 (6th Cir. 1989).

Where the court relies solely on the parties' affidavits to reach its decision on the motion, the burden rests on the plaintiff to establish only a prima facie showing of jurisdiction in order to avoid dismissal and the court must consider the pleadings and affidavits in the light most favorable to the plaintiff. CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1262 (6th Cir. 1996). Further, the court does not weight the controverting assertions of the moving party due to its interest in "prevent[ing] non-resident defendants from regularly avoiding personal jurisdiction simply by filing an affidavit denying all jurisdictional facts." Id. (internal quotation marks and citation omitted).

III. ANALYSIS

The parties dispute whether the Court may exercise limited personal jurisdiction over Commercial Escrow. The personal jurisdiction analysis requires a two-step inquiry. Air Products and Controls, Inc. v. Safetech Int'l, Inc., 503 F.3d 544, 550 (6th Cir. 2007); see also Green v. Wilson, 565 N.W.2d 813, 815 (Mich. 1997). First, "the court must determine whether any of Michigan's relevant long-arm statutes authorize the exercise of jurisdiction over Defendants; and, if so, [second] the court must determine whether exercise of that jurisdiction comports with constitutional due process." Air Products, 503 F.3d at 550.

A. Michigan's Long-Arm Statute

Plaintiff argues Michigan's long-arm statute authorizes limited personal jurisdiction over Commercial Escrow because it has transacted business within Michigan and has engaged in tortious conduct that has caused consequences in Michigan. Michigan's long-arm statute for corporations provides that a court may exercise personal jurisdiction over a corporation if it has one of the following "relationships" with the state:

(1) The transaction of any business within the state.

(2) The doing or causing an act to be done, or consequences to occur, in the state resulting in an action for tort. . . .

MICH. COMP. LAWS § 600.715.

In construing M.C.L. § 600.715(1), the Michigan Supreme Court stated that "[t]he word 'any' means just what it says. It includes 'each' and 'every' . . . . It comprehends the 'slightest'." Lanier v. Am. Board of Endodontics, 843 F.2d 901, 905-06 (6th Cir. 1988) (quoting Sifers v. Horen, 188 N.W.2d 623, 624 n.2 (Mich. 1971). In other words, the phrase "'[t]ransaction of any business' is very broad, and is established by 'the slightest act of business in Michigan.'" Hige v. Turbonetics Holdings, Inc., 662 F. Supp. 2d 821, 828 (E.D. Mich. 2009) (quoting Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 888 (6th Cir. 2002)).

To come within the plain language of M.C.L. § 600.715(2), a defendant's tortious conduct or the injury caused by that conduct must occur in Michigan. Bagsby v. Gehres, 195 F.Supp.2d 957, 963 (E.D. Mich. 2002) (citing Green, 565 N.W.2d at 817). Relatedly, the phrase "resulting in an action for tort" contemplates that "the action in tort"be a viable, colorable claim - otherwise pleading even a frivolous tort claim, subject to dismissal, would confer limited personal jurisdiction.

After reviewing the pleadings, the Court finds Plaintiff cannot fulfill the requirements of M.C.L. § 600.715(2) because it has no viable tort claim against Commercial Escrow under Michigan law. Count IV alleges that Commercial Escrow breached certain fiduciary duties owed to Plaintiff when it negligently released the Deposit to Quest. (Doc. 11 at ¶¶ 53-58). Similarly, in Count III, Plaintiff asserts that Commercial Escrow breached the same duties under the Escrow Agreement. (Id. at ¶¶ 49-52). Plaintiff is clearly asserting a tort claim arising from Commercial Escrow's alleged breach of the Escrow Agreement. Under circumstances presented, Michigan's economic loss doctrine bars Plaintiff's tort claim.

The economic loss doctrine precludes an action in tort based on the same duty as would give rise to an action for breach of contract. Rinaldo's Const. Corp. v. Mich. Bell Tel. Co., 559 N.W.2d 647, 657-658 (Mich. 1997). In order for an action in tort to arise out of a breach of contract, the alleged wrongful act must constitute "(1) a breach of duty separate and distinct from the breach of contract and (2) active negligence or misfeasance." Spengler v. ADT Sec. Serv., 505 F.3d 456, 457-58 (6th Cir. 2007); see also Hart v. Ludwig, 79 N.W.2d 895, 897 (Mich. 1956) ("As a general rule, there must be some active negligence or misfeasance to support tort. There must be some breach of duty distinct from breach of contract."). Consequently, "the threshold inquiry is whether the plaintiff alleges violation of a legal duty separate and distinct from the contractual obligation." Rinaldo, 559 N.W.2d at 658.

Here, Plaintiff has failed to establish that Commercial Escrow owed and violated a legal duty separate and distinct from its obligations under the Escrow Agreement. In response to Commercial...