Gallatin Manor, LLC v. PNC Bank, N.A., Case No. 19-11772

Gallatin Manor, LLC, Plaintiff, v. PNC BANK, N.A., Defendant.

Case No. 19-11772

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

March 23, 2020

Hon. Denise Page Hood

ORDER GRANTING DEFENDANT'S MOTION TO STRIKE, [#10] DEFENDANT'S MOTION TO DISMISS, [#5] AND DENYING PLAINTIFF'S MOTION FOR LEAVE TO FILE AMENDED COMPLAINT [#14]

I. INTRODUCTION

A. Procedural History

On or about May 13, 2019, Plaintiff Gallatin Manor¹ ("Plaintiff") filed its action in Michigan state court alleging that Defendant PNC Bank's ("Defendant") failure to file a termination statement violated Michigan Compiled Laws § 440.9513. [ECF No. 1, Pg.ID 12] On June 14, 2019, Defendant filed a notice ofremoval to federal court. [ECF No. 1] On July 15, 2019, Defendant filed a Motion to Dismiss. [ECF No. 5] On August 21, 2019, Plaintiff filed an untimely Amended Complaint without leave and a Response to Defendant's Motion to Dismiss. [ECF No. 7; ECF No. 8] Plaintiff's Amended Complaint sought statutory damages for Defendant's Failure to Comply with MCL § 440.9525 ("Count I") and Negligent Misrepresentation ("Count II").

On September 4, 2019, Plaintiff filed a Reply to Defendant's Response to its Motion to Dismiss. [ECF No. 9] Defendant also filed a Motion to Strike Plaintiff's Amended Complaint on September 4, 2019. [ECF No. 10] On September 19, 2019, Plaintiff filed its Response to Defendant's Motion to Strike. [ECF No. 12] Defendant filed its Reply on September 25, 2019. [ECF No. 13] On September 26, 2019, Plaintiff filed a Motion for Leave to Amend its Amended Complaint. [ECF No. 14] Defendant filed a Response on October 4, 2019. [ECF No. 15]

On October 16, 2019, the Court heard oral arguments regarding Plaintiff's Motion to Amend and Defendant's Motion to Dismiss. After reviewing the parties' briefs and listening to their oral arguments, the Court finds that Plaintiff's Amended Complaint is futile and DENIES Plaintiff's Motion for Leave to Amend Complaint. And for the reasons set forth below, the Court GRANTS Defendant's Motion to Dismiss.

B. Factual History

In November 2000, Gallatin Manor ("Gallatin I") executed a "Business Credit Line and Security Agreement" ("the Agreement") with Defendant's predecessor in interest, National City Bank of Michigan/Illinois ("National City"). [ECF No. 14, Pg.ID 164] The Agreement granted Gallatin I a $35,000 credit line and granted National City a security interest in the following:

All inventory, Chattel Paper, Accounts, Equipment and General Intangibles; whether any of the foregoing is owned now or acquired later; all accessions, additions, replacements, and substitutions relating to any of the foregoing; all records of any of the foregoing; all proceeds relating to any of the foregoing (including insurance, general intangibles and other accounts proceeds).

[ECF No. 10, Pg.ID 105 n.1]

Plaintiff's Amended Complaint states that the financing statement included the disputed commercial real estate property located at 332 E. Williams, Ann Arbor, MI ("the Property"). [ECF No. 14, Pg.ID 164]

Defendant filed continuation statements in both May 2005 and May 2010 to renew the original Agreement. [ECF No. 10, Pg.ID 106] On October 14, 2015, Defendant notified Plaintiff that National City was now PNC Bank. [Id.] Defendant filed another continuation statement that same day. [Id.]

On February 29, 2012, Gallatin I was dissolved pursuant to MCL § 450.4804. [ECF No. 14, Pg.ID 164] On March 9, 2012, Defendant was notified of Gallatin I's dissolution. [Id.] Plaintiff asserts that Defendant had six months tomake a claim against Gallatin I regarding the Agreement. [Id.] According to the Michigan Limited Liability Company Act, Limited Liability Companies ("LLC") dissolved in bankruptcy must notify potential claimants of dissolution. § 450.4806. Dissolved LLCs must set the deadline for filing claims "no less than six months" after the notice was sent. § 450.4806. Defendant acknowledges that it did not submit a claim to the bankruptcy trustee by the September 9, 2012 deadline. [ECF No. 10, Pg.ID 109]

Subsequently, Plaintiff recently applied for a rate-lock loan. [ECF No. 14, Pg.ID 165] Plaintiff alleges that the interest rate on its rate-lock loan increased because of Defendant's lien. [Id.] According to commercial lender UBS AG, Plaintiff did not receive the lower interest rate because Defendant did not terminate the lien at issue prior to the rate-lock deadline. [Id.] Plaintiff's interest rate increased from 4.95% to 5.25%, which increased the cost of financing by approximately $96,000.00.²

Plaintiff alleges that it repeatedly informed Defendant via "phone calls, written correspondence, and in-person meetings" that receiving a termination statement was time sensitive. [Id. at 172] Gallatin II was created on April 29, 2015, and assigned the new state id no. 801816843. [Id. at 169] Gallatin II is the currentowner of the Property. [Id.] Plaintiff's Amended Complaint includes additional facts regarding the dissolution of Gallatin I and the alleged financial harm caused by Defendant's failure to file a termination statement. Plaintiff's Amended Complaint also added a negligent misrepresentation claim. [ECF No. 14-1]

Defendant argues that Plaintiff's Amended Complaint is untimely, filed in bad faith, and would be futile. Defendant claims that the new facts Plaintiff uses to bolster its claims were known to Plaintiff from the beginning. Defendant further asserts that Plaintiff only added additional facts after viewing Defendant's original Motion to Dismiss. Defendant specifically claims that Plaintiff's Amended Complaint is frivolous because (1) Plaintiff has no standing to pursue its claim; and (2) Plaintiff cannot state a claim upon which relief may be granted.

Although Plaintiff's Amended Complaint is untimely, the proposed amendments do not appear to consist of bad faith claims, claims that will impose undue prejudice against Defendant, or claims frivolously brought against Defendant. However, for the reasons discussed below, the Court finds that Plaintiff's Amended Complaint would be futile.

This matter is before the Court on Defendant's Motion to Strike Amended Complaint, Plaintiff's Motion for Leave to File Amended Complaint, and Defendant's Motion to Dismiss.

II. LEGAL ANALYSIS

A. Standard of Review

In a case where a responsive pleading has been filed, a party may amend its pleading only with the written consent of the opposing party or by leave of the Court. Fed. R. Civ. P. 15(a)(2). Defendants do not concur in Plaintiff's motion, so it is within the Court's discretion whether to grant Plaintiff's motion for leave to file an amended complaint. Pursuant to Rule 15(a)(2), "leave shall be freely given when justice so requires." Fed. R. Civ. P. 15(a)(2). The factors a court is to consider when determining whether to permit a plaintiff to file an amended complaint are:

(1) the delay in filing the motion,

(2) the lack of notice to the other party,

(3) bad faith by the moving party,

(4) repeated failure to cure deficiencies by previous amendments,

(5) undue prejudice to the opposing party, and

(6) futility of the amendment.

Wade v. Knoxville Utilities Bd., 259 F.3d 452, 460 (6th Cir. 2001); Perkins v. Am. Elec. Power Fuel Supply, Inc., 246 F.3d 593, 605 (6th Cir. 2001). A district court may deny a plaintiff leave to amend his complaint when the proposed amendment would be futile. See, e.g., Yuhasz v. Brush Wellman, Inc., 341 F.3d 559, 569 (6thCir. 2003) (citing Foman v. Davis, 371 U.S. 178 (1962)). An amendment is deemed futile when it would not withstand a Rule 12(b)(6) motion to dismiss. Rose v. Hartford Underwriters Ins. Co., 203 F.3d 417, 420-21 (6th Cir. 2000).

B. Standing

Defendant asserts that Plaintiff does not have standing to bring claims on behalf of the separate entity Gallatin I. Defendant argues that standing doctrine bars Plaintiff from bringing claims on behalf of Gallatin I in both Uniform Commercial Code ("UCC") and bankruptcy disputes. Defendant further argues that since Gallatin II is attempting to represent Gallatin I's interests, Gallatin II is not the "real party in interest."

Absent limited exceptions, all actions must be prosecuted in the name of the real party in interest. Fed. R. Civ. P. 17(a). "The person who is entitled to enforce the right asserted under the governing substantive law" is the real party in interest. Certain Interested Underwriters at Lloyd's London, England v. Layne, 26 F.3d 39, 43 (6th Cir. 1994).

1. Standing for Michigan Financial Statutes

To support its claims, Defendant states that Gallatin I was the debtor in the original Agreement and that Gallatin II is a separate entity with no rights to assert the legal rights of Gallatin I. Defendant uses Zurich Insurance Co. v. Logitrans,Inc. to argue that Gallatin II is not a proper plaintiff. 297 F.3d 528 (6th Cir. 2002). Zurich involved two insurance companies with different names, and the plaintiff filed a motion to substitute plaintiffs. Id. The Sixth Circuit held that the original plaintiff could not be substituted, because filing the case on behalf of Zurich instead of its sister entity—American Guarantee—was not an understandable mistake. Id. at 530 ("American Guarantee, a totally separate entity, which was not vigilant in protecting its claims, cannot now benefit from Zurich Switzerland's mistake . . . .").

Recent trends show that courts may "be lenient when an honest mistake has been made in choosing the party in whose name the action is to be filed—both in maritime and nonmaritime cases." See id. at 532 (citing Levinson v. Deupree, 345 U.S. 648 (1953). But this jurisprudence should not be misunderstood or misconstrued. It is intended to prohibit forfeiture when determination of the appropriate party to sue is difficult or when an understandable mistake has occurred.

Although Zurich is not directly analogous to the instant case, Zurich is instructive. Here, Gallatin II originally filed without differentiating...