SFS Check, LLC v. First Bank of Del.

990 F.Supp.2d 762

SFS CHECK, LLC, Plaintiff,

v.FIRST BANK OF DELAWARE, et al., Defendants.

Civ No. 12–14607.

United States District Court,

E.D. Michigan,

Southern Division.

Dec. 30, 2013.

Raymond R. Burkett, Burkett & Associates, Inc., Livonia, MI, for Plaintiff.

Jonathan P. Boughrum, Richard L. Scheff, Stephen A. Grossman, Philadelphia, PA, Christopher A. Cornwall, Dickinson Wright, Detroit, MI, for Defendants.

OPINION AND ORDER DENYING PLAINTIFF'S MOTION FOR LEAVE TO AMEND (DKT. 45) AND DISMISSING CASE

TERRENCE G. BERG, District Judge.

SFS Check, LLC (“Plaintiff” or “SFS”) brings this action against First Bank of Delaware (“Defendant” or “FBD”) and nine of FBD's directors and officers (the “Individual Defendants”) for negligence and fraud. Plaintiff now seeks leave to file a Second Amended Complaint; Defendant has responded, arguing that granting Plaintiff leave to file its proposed Second Amended Complaint would be futile, since that pleading fails to state a claim upon which relief can be granted. For the reasons set out below, Plaintiff's motion for leave to amend will be denied, and this case will be dismissed.

Plaintiff is a Michigan company that purportedly provides financial transaction processing services. In the proposed Second Amended Complaint, Plaintiff alleges that someone unlawfully opened a bank account in Plaintiff's name at FBD and used this fraudulent bank account to process illegal internet gambling transactions. As a consequence, Plaintiff claims, its own bank, non-party Fifth Third Bank, refused to continue to process SFS's transactions, effectively putting Plaintiff out of business. Plaintiff was also served with, and forced to respond to, a Federal Grand Jury Subpoena, issued by this Court, pertaining to transactions processed through the fraudulent account at FBD associated with SFS. Plaintiff therefore seeks $ 6,000,000 in damages for negligence and $4,000,000 for fraud.

By way of procedural background, Plaintiff's First Amended Complaint (Dkt. 8) also asserted two common law claims against Defendants—negligence and fraud. ¹ The case is before this Court by virtue of diversity jurisdiction. Defendants' moved to dismiss the First Amended Complaint (Dkt. 34), Plaintiff responded (Dkt. 41), and the Court heard argument on Defendants' motion to dismiss on May 29, 2013. Defendants' motion argued that Plaintiff's case should be dismissed for two reasons: first, as to the Individual Defendants, this Court did not have personal jurisdiction over them; second, as to all Defendants, Plaintiff's First Amended Complaint failed to state a claim upon which relief can be granted.

The Court denied Defendants' motion to dismiss, and authorized Plaintiff to conduct limited discovery, targeted to the question of whether there was personal jurisdiction over the Individual Defendants. After this limited discovery period, Plaintiff was directed to file a motion for leave to file a Second Amended Complaint (with a proposed Second Amended Complaint attached— see E.D. Mich. LR 15.1), which Plaintiff has now done (Dkt. 45). Defendants responded (Dkt. 46) to Plaintiff's motion for leave to amend, and the Court held oral argument on Plaintiff's motion on October 2, 2013.

For the reasons set forth below, the Court finds that there is no personal jurisdiction over any of the Individual Defendants; therefore these claims are DISMISSED WITHOUT PREJUDICE. Furthermore, Plaintiff's proposed Second Amended Complaint fails to state a claim upon which relief can be granted against FBD, therefore these claims are DISMISSED WITH PREJUDICE.

I. BACKGROUND

The following facts are taken from Plaintiff's proposed Second Amended Complaint which, for purposes of this motion, are assumed to be true and are viewed in a light most favorable to Plaintiff.

Plaintiff alleges that it entered into automated clearing house (“ACH”) agreements to process electronic fund transfers on behalf of several non-party entities (Dkt. 45 ¶ 17). Plaintiff further avers that, after it began processing transactions for these entities, Plaintiff received notice on or about July 30, 2010 from its own bank—non-party Fifth Third Bank—that it would no longer process Plaintiff's ACH transactions and was terminating its relationship with Plaintiff (Dkt. 45 ¶ 25 [stating that Plaintiff received notice on August 2, 2010]; Ex. 2, Aff. of Charles Kopko ¶ 2 [stating that Plaintiff received notice on July 30, 2010] ).² Fifth Third Bank's expressed basis for terminating the relationship was that Plaintiff maintained an account at FBD that was apparently processing illegal gambling transactions (Dkt. 45 ¶¶ 20, 24–26; Ex. 1, Aff. of Douglas Sammons, VP of Fifth Third Bank).

In an Affidavit attached to the proposed Second Amended Complaint, Plaintiff's President Charles Kopko states that, after learning of an alleged FBD account in Plaintiff's name from Fifth Third Bank, he contacted FBD on August 2, 2010 (Dkt. 45 ¶ 27–29; Ex. 2 ¶ 4). Mr. Kopko states that he was informed by Defendant Bastable, who was FBD's Vice President for E–Payments, and unidentified “agents” and “members of [FBD's] corporate offices” that there was no “SFS” account at FBD (Dkt. 45; Ex. 2 ¶ 4).

Two months later, in October 2010, Plaintiff allegedly received a Grand Jury Subpoena, issued by this Court; the Subpoena commanded production of documents relating to an account “that involved SFS at FBD.” ³ (Dkt. 45 ¶ 30). Upon receiving this Subpoena, Mr. Kopko states that he contacted “the office of the [FBD] Bank President” and later received a return phone call from Defendant Bastable, who allegedly told Mr. Kopko that FBD “had opened an account for SFS and, in fact, SFS Novi of Michigan was a customer and they had been processing ACH transactions through this account” (Dkt. 45 ¶¶ 31–32; Ex. 2 ¶ 7). Mr. Kopko states that he then told Defendant Bastable that he “was going to report this action to the [FBD] Board of Directors,” to which Mr. Kopko was allegedly told that the FBD Board of Directors was “already aware of it” (Dkt. 45 ¶ 34; Ex. 2 ¶ 8). Plaintiff further alleges that Defendant Bastable then stated that she could not discuss the account with Plaintiff further, because Plaintiff was not a signatory on the account (Dkt. 45 ¶ 33).⁴

Plaintiff alleges in the proposed Second Amended Complaint that Defendants acted negligently in creating the account in Plaintiff's name, engaged in fraud in their communications with Plaintiff subsequent to the creation of the account and, as a result, caused Plaintiff to incur damages totaling approximately $10 million (Dkt. 45).

II. ANALYSIS

A. Motion to Dismiss for Lack of Personal Jurisdiction

On a motion to dismiss for lack of personal jurisdiction pursuant to Rule 12(b)(2), the plaintiff has the burden of proving the court's jurisdiction over the defendant. See Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 887 (6th Cir.2002); see also Children's Legal Services, PLLC v. Shor Levin and Derita, PC, 850 F.Supp.2d 673, 679 (E.D.Mich.2012). In ruling upon a motion to dismiss for lack of personal jurisdiction, the district court has three procedural alternatives: “[it] may determine the motion on the basis of affidavits alone; or it may permit discovery in aid of the motion; or it may conduct an evidentiary hearing on the merits of the motion.” Serras v. First Tennessee Bank Nat'l Ass'n, 875 F.2d 1212, 1214 (6th Cir.1989).

“[I]n the face of a properly supported motion for dismissal, the plaintiff may not stand on his pleadings but must, by affidavit or otherwise, set forth specific facts showing that the court has jurisdiction.” Children's Legal Servs., 850 F.Supp.2d at 679 (citing Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir.1991)). An evidentiary hearing may be conducted “if the district court concludes that the written submissions have raised issues of credibility or disputed issues of fact which require resolution,” in which case the plaintiff would be required to “show by a preponderance of the evidence that jurisdiction exists.” American Greetings Corp. v. Cohn, 839 F.2d 1164, 1169 (6th Cir.1988).

However, where the district court finds no need for an evidentiary hearing, “the burden of the plaintiff is relatively slight, and the plaintiff must make only a prima facie showing that personal jurisdiction exists in order to defeat dismissal.” Children's Legal Servs., 850 F.Supp.2d at 679 (quoting Air Prods. & Controls, Inc. v. Safetech Int'l, Inc., 503 F.3d 544, 549 (6th Cir.2007) (internal quotations and citations omitted)); see also Nationwide Mutual Insurance Co. v. Tryg Int'l Insurance Co., 91 F.3d 790, 792–93 (6th Cir.1996) (quoting with approval Conti v. Pneumatic Prods. Corp., 977 F.2d 978, 987 (6th Cir.1992) (Boggs, J., dissenting) (“[A] showing by a preponderance of the evidence is not necessary unless the trial court conducts an evidentiary hearing.”)); Neogen Corp., 282 F.3d at 887.

Likewise, where a “district court rules on a jurisdictional motion to dismiss made pursuant to Rule 12(b)(2) without conducting an evidentiary hearing, the court must consider the pleadings and affidavits in a light most favorable to the plaintiff,” and in order to “ ‘to prevent non-resident defendants from regularly avoiding personal jurisdiction simply by filing an affidavit denying all jurisdictional facts,’ ” the court “ ‘does not weigh the controverting assertions of the party seeking dismissal.’ ” CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1262–63 (6th Cir.1996) (emphasis in original) (quoting Theunissen, 935 F.2d at 1459). “Dismissal in this procedural posture is proper only if all the specific facts which [the plaintiff] alleges collectively fail to state a prima facie case for jurisdiction.” Id.

B. The Individual Defendants are Not Subject to the Personal Jurisdiction of this Court

In a diversity case, as here, personal jurisdiction over a defendant is proper only if it comports with the requirements of the state long-arm statute...