Opinion
Case No. 1:21-cv-874
2022-08-22
ONE ETHANOL, LLC, Plaintiff, v. BOX BIOSCIENCE, LLC, et al., Defendants.
Bruce Anthony Courtade, Rhoades McKee, Grand Rapids, MI, for Plaintiff. Brett Dressler, Sellers Ayers Dortch & Lyons, Charlotte, NC, for Defendants. BOX BioScience, LLC, Mt. Pleasant, SC, Pro Se. Carlsbad Naturals, LLC, Cheyenne, WY, Pro Se.
Bruce Anthony Courtade, Rhoades McKee, Grand Rapids, MI, for Plaintiff. Brett Dressler, Sellers Ayers Dortch & Lyons, Charlotte, NC, for Defendants. BOX BioScience, LLC, Mt. Pleasant, SC, Pro Se. Carlsbad Naturals, LLC, Cheyenne, WY, Pro Se. OPINION AND ORDER JANE M. BECKERING, United States District Judge
This case is a breach of contract dispute for failure to pay for distribution of alcohol-based hand sanitizer during the coronavirus pandemic. Plaintiff One Ethanol, LLC, asserts claims of partnership by estoppel, breach of contract, and unjust enrichment against BOX Bioscience, LLC ("BOX") and Carlsbad Naturals, LLC ("Carlsbad"); and claims of fraudulent inducement to contract and fraudulent misrepresentation against BOX, Carlsbad, and individuals Ryan Cowell and Troy Lorenz (the "Individual Defendants") (id.). Now pending before the Court is Individual Defendants' Motion to Dismiss or Transfer Venue (ECF No. 12) and Plaintiff's Motion for Sanctions (ECF No. 19). Having considered the parties' submissions, the Court concludes that oral argument is not necessary to resolve the issues presented. See W.D. Mich. LCivR 7.2(d). For the following reasons, the Court denies Individual Defendants' motion and denies Plaintiff's motion.
As discussed infra, default has been entered against both corporate Defendants BOX and Carlsbad, and the present motion to dismiss is filed by Individual Defendants. As such, this Court's review is limited.
I. BACKGROUND
A. Factual Background
According to Plaintiff, in early April 2020, "during the initial stages of the COVID-19 crisis and with demand for alcohol-based hand sanitizer at a critical high," Ryan Cowell contacted Plaintiff by phone and expressed interest in purchasing ethyl alcohol products, including hand sanitizer, "at bulk scale" (Compl., ¶ 12). Plaintiff alleges that Cowell spoke with Plaintiff's President, Devin Pearce, and stated that he represented both Defendants BOX and Carlsbad (id., ¶ 13). Plaintiff alleges that they "agreed to provide product for BOX and Carlsbad on a pay-on-delivery basis" based on those discussions with Cowell, and "Cowell provided [Plaintiff] with payment account and EIN information for Carlsbad via email" (id., ¶ 14).
Plaintiff alleges that Defendants Ryan Cowell and Troy Lorenz submitted Purchase Orders to Plaintiff, identifying the vendor as "Carlsbad Naturals," with shipment and delivery provided by Plaintiff "to various third parties, including delivery within the State of Michigan" (Compl., ¶ 15). Plaintiff alleges that the purchase orders submitted by Lorenz and Cowell and the corresponding invoices from Plaintiff, "confirm the terms of payment as due upon delivery" (id., ¶ 17). Plaintiff further alleges that between April 6 and April 10, 2020, Plaintiff "acquired materials for BOX and Carlsbad, and shipped product to third parties[ ] on behalf of BOX and Carlsbad," often on short notice or an express basis (id., ¶ 18). Plaintiff "directed its invoices" to Carlsbad Naturals (id.). According to Plaintiff, the "products delivered . . . were accepted without objection" (id., ¶ 19).
Between April 6 and April 10, 2020, Plaintiff asserts that neither BOX nor Carlsbad timely paid the invoices for the shipped product, due upon delivery (Compl., ¶ 20). On April 9, 2020, Pearce "inquired of [ ] Cowell (via text) the status of wire transfer payments" (id., ¶ 21). On April 10, 2020, Cowell stated that he was "100% logan [Lidster]/Jared [Berry] sent to [two, sic] payments. We were on a call at 7 last night while jared [Berry] was sending 2nd from chase. I emailed and sent the group text to logan [Lidster]" (id., ¶ 22 (alterations in quotation); see also Ex. C. to Compl., ECF No. 1-3 at PageID.30-31). Plaintiff asserts that they issued a further invoice on April 11, 2010, in reliance on this statement regarding payment; however, no payment was received until 3 days later (April 13, 2020) (Compl., ¶¶ 23-24). On April 13, 2020, Plaintiff received a partial wire transfer of $2,500 from BOX's account, "leaving a balance due of more than $122,000" (id., ¶ 24). Plaintiff alleges that the next day, "[o]n April 14, 2020, Jared Berry, Carlsbad's founder and principal," initiated a second wire transfer to Plaintiff totaling $62,149.05, "four days after [ ] Cowell represented the transfer had been made" (id., ¶ 25). Plaintiff alleges the money was received on April 15, 2020, and a third wire transfer "directly from BOX's account, in the amount of $60,193.20 -seven days after Cowell represented the transfer had been made" was received by Plaintiff (id., ¶¶ 26-27).
Based on the receipt of these "catch-up payments" from BOX and Carlsbad, and Cowell's representations regarding those payments, Plaintiff "agreed to continue to supply product to BOX and Carlsbad on a pay-on-delivery basis" (Compl., ¶ 28). Plaintiff alleges that between April 21 and April 27, 2020, additional purchase orders were submitted, and additional invoices and deliveries were made, however, "neither Carlsbad nor BOX made timely payment" and the "balance owed to [Plaintiff] had grown to $326,592.02" (id., ¶¶ 29-30). Plaintiff's Office Manager inquired as to payment, and Pearce "spoke directly with . . . Cowell and Lorenz" regarding the outstanding balance (id., ¶¶ 31-32). Plaintiff alleges that Cowell made material misrepresentations regarding payments to Plaintiff, including that he had sent two wires, but Plaintiff only received one, and that Cowell stated further wire payments were forthcoming from "California", but only one wire was received on May 8, 2020 (id., ¶ 33). Plaintiff states that the balance owed at this time was $256,657.20 (id.). Following these representations, Plaintiff alleges that Cowell and Lorenz made further representations to Plaintiff regarding forthcoming payments, "including that BOX was attempting to secure payment of the outstanding balance from Carlsbad, only Jared Berry could initiate a payment on behalf of Carlsbad," and that Logan Lidster was refusing to respond to Cowell or Lorenz (id., ¶ 34). On May 8, 13, and 14, 2020, Plaintiff further alleges that communications between Logan Lidster, Ryan Cowell, Troy Lorenz, and Plaintiff occurred regarding forthcoming wire transfers, including two transfers totaling $104,431.40 "initiated by BOX"—however, "[n]o such payments were ever received" (id., ¶¶ 35-38).
B. Procedural Posture
Plaintiff brought a first lawsuit in this Court for this breach of contract against Defendants BOX, Carlsbad, and the Individual Defendants in June 2020 (see One Ethanol, LLC v. BOX BioScience, et al., Case No. 1:20-cv-523, ECF No. 1). Defendants BOX, Cowell, and Lorenz ("BOX Defendants") jointly moved to dismiss the action for lack of subject matter jurisdiction, among other grounds (see id., Case No. 1:20-cv-523, ECF No. 26). Specifically, BOX Defendants brought a facial attack on subject matter jurisdiction, arguing that Plaintiff's allegations in the Complaint were insufficient to establish the diversity of the parties for failure to identify the citizenship of its own LLC members, as well as those of BOX and Carlsbad (see id., Case No. 1:20-cv-523, ECF No. 38 at PageID.314-315). According to the parties, Defendant Ryan Cowell is the sole member of BOX and BOX's owner/manager (see ECF No. 13 at PageID.131; ECF No. 10), and Defendant Troy Lorenz is "an agent or employee of both BOX and Carlsbad" (ECF No. 2 at PageID.90). Plaintiff's First Amended Complaint was dismissed without prejudice for failure to plead diversity jurisdiction as to the membership of the LLCs (see id., Case No. 1:20-cv-523, ECF No. 38 at PageID.315-316).
Following this dismissal, Plaintiff refiled its complaint in the 17th Circuit Court for Kent County on August 31, 2021 (ECF No. 2 at PageID.84-100). BOX Defendants, acting pro se, then removed the state action to this Court on October 12, 2021 (ECF No. 1 at PageID.1). On November 9, 2021, Individual Defendants filed an Amended Notice of Removal (ECF No. 10). In the instant action, Plaintiff's claims are:
On October 25, 2021, this Court issued an order to show cause against BOX as to why it was not represented by counsel and ordered BOX to retain counsel (ECF No. 8). The Order also required the BOX Defendants to amend the notice of removal to properly plead diversity jurisdiction as to the LLCs (ECF No. 8). BOX moved for an extension of time to retain new counsel for BOX, as filed pro se by Ryan Cowell (ECF No. 9), which was granted and the date to retain counsel was extended to December 1, 2021 (ECF No. 11).
The amended notice of removal was submit ted on behalf of "BOX Individual Defendants" but referenced "BOX Defendants" and was signed by Troy Lorenz (see ECF No. 10 at PageID.116-120). The amended notice of removal further stated that Ryan Cowell is the sole manager and member of Box BioScience and was signed pro se by Cowell and Lorenz "as individuals and Box Bioscience for purposes of providing adequate consent" (ECF No. 10 at PageID.120). The signature line also indicated that "Box Bioscience shall be submitting the same motion through retained council [sic] which it is in the process of securing" (id.). No separate motion was filed, and BOX remains unrepresented.
I. Partnership by Estoppel (BOX/Carlsbad)(Compl., ECF No. 2 at PageID.94-100). Plaintiff seeks an order declaring BOX and Carlsbad as a de facto partnership and estopping the denial of such a partnership, as well as joint and several liability to Plaintiff for all damages, liabilities, and obligations arising from the parties' relationship; a money judgment jointly and severally against Defendants for not less than $256,657.20, including consequential damages, interest, costs and expenses, and attorney fees; and any other relief at law or equity proper under the circumstances (id. at PageID.100).
II. Breach of Contract (BOX/Carlsbad Partnership)
III. Breach of Contract (BOX)
IV. Breach of Contract (Carlsbad)
V. Unjust Enrichment (BOX and Carlsbad)
VI. Fraudulent Inducement to Contract/Fraudulent Misrepresentation (All Defendants)
On November 23, 2021, Individual Defendants filed the instant motion to dismiss or transfer venue (ECF No. 12). On that same day, Individual Defendants also filed a Supplement in support of their motion (ECF No. 14), in part related to their pro se status and electronic filing, and in which they also stated that "we realize that Box Bioscience, LLC needs to retain counsel and cannot be represented pro so . . . [n]evertheless, as individuals we by necessity need to push forward with this proceeding" (id. at PageID.153). Plaintiff filed a response in opposition to Individual Defendants' motion (ECF No. 18).
On December 21, 2021, Plaintiff filed a motion for Rule 11 sanctions against Defendants BOX Bioscience, LLC, Ryan Cowell, and Troy Lorenz (ECF No. 19), to which Individual Defendants filed a response (ECF No. 28). Both motions are ripe for review.
On January 5, 2022, this case was reassigned from the Hon. Hala Y. Jarbou to the undersigned (ECF No. 27).
Currently, BOX remains unrepresented by counsel in this proceeding, and default has been entered against both BOX and Carlsbad (ECF Nos. 25 & 32). Applications for entry of default judgments as to BOX and Carlsbad are pending before the Court (ECF Nos. 33 & 34).
On December 22, 2021, default was entered by the Deputy Clerk against Defendant BOX for failure to answer and to comply with the order to show cause (ECF No. 25). On April 13, 2022, default was entered as to Defendant Carlsbad for failure to answer (ECF No. 32).
II. ANALYSIS
A. Defendants' Motion to Dismiss or Transfer Venue
Defendants Ryan Cowell and Troy Lorenz argue that Plaintiff's Complaint should be dismissed because Plaintiff has failed to "adequately allege or establish personal jurisdiction (both general and specific) over [ ] Individual Defendants, Plaintiff's fraud claims against Individual Defendants are "fatally and vaguely pleaded", and the Complaint "fails to state a claim for which relief can be granted as to any of the BOX Defendants" (ECF No. 12 at PageID.124-125). In the alternative, Individual Defendants move for a change of venue to the U.S. District Court of South Carolina under 28 U.S.C. § 1404(a) (id. at PageID.125). The Court will address each argument in turn and deny Individual Defendants' motion for the reasons set forth below.
1. Personal Jurisdiction
Individual Defendants first argue that Plaintiff "fails to adequately allege the basis for personal jurisdiction over [ ] Individual Defendants, neither of whom are citizens or residents of Michigan," and moves for dismissal under Federal Rule of Civil Procedure 12(b)(2) (ECF No. 13 at PageID.134). The Court concludes that personal jurisdiction over Individual Defendants is proper.
As set forth by the Sixth Circuit in AlixPartners, LLP v. Brewington, 836 F.3d 543, 548-49 (6th Cir. 2016):
The plaintiff bears the burden of establishing the existence of personal jurisdiction . . . . When the district court resolves a Rule 12(b)(2) motion solely on written submissions, the plaintiff's burden is "relatively slight," and "the plaintiff must make only a prima facie showing that personal jurisdiction exists in order to defeat dismissal[.]" . . . The plaintiff meets this burden by setting forth "specific facts showing that the court has jurisdiction." . . . "[T]he pleadings and affidavits submitted must be viewed in a light most favorable to the plaintiff, and the district court should not weigh 'the controverting assertions of the party seeking dismissal.' "Id. (internal citations omitted).
"When a federal court sits in diversity, it may exercise personal jurisdiction over an out-of-state defendant only if a court of the forum state could do so. . . . [T]his rule requires the court to determine whether both the state's long-arm statute and the Due Process Clause of the United States Constitution permit the exercise of jurisdiction." Newberry v. Silverman, 789 F.3d 636, 641 (6th Cir. 2015) (citations and quotation omitted). To establish personal jurisdiction over a nonresident defendant, (1) the defendant must "purposefully avail himself of the privilege of acting in the forum state or causing a consequence in the forum state"; (2) "the cause of action must arise from the defendant's activities there"; and (3) "the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable." LAK, Inc. v. Deer Creek Enters., 885 F.2d 1293, 1299 (6th Cir. 1989) (citing S. Mach. Co. v. Mohasco Indus., Inc., 401 F.2d 374, 381 (6th Cir. 1968)). "In addition, physical presence in a forum state is not required, and the Supreme Court has consistently rejected the notion that an absence of physical contacts can defeat personal jurisdiction there." Air Prod. & Controls, Inc. v. Safetech Int'l, Inc., 503 F.3d 544, 551 (6th Cir. 2007) (citations and quotations omitted).
Michigan's long-arm statute has been found by courts to be coextensive with due process in some respects. See, e.g., Miller v. AXA Winterthur Ins. Co., 694 F.3d 675, 679 n.1 (6th Cir. 2012) (citation omitted). Relevant here, MICH. COMP. LAWS § 600.705 provides that limited or specific personal jurisdiction may be exercised over an individual for "[t]he transaction of any business within the state" or "[e]ntering into a contract for services to be rendered or for materials to be furnished in the state by the defendant." Michigan courts have "explicitly h[e]ld that the fiduciary shield doctrine does not constitute a valid argument against a Michigan court's exercise of personal jurisdiction over a nonresident individual defendant who otherwise falls within the scope of Michigan's long-arm statute." W.H. Froh, Inc. v. Domanski, 252 Mich. App. 220, 651 N.W.2d 470, 482 (2002); see also Visser v. Caribbean Cruise Lines, Inc., No. 1:13-cv-1029, 2014 WL 12921353, at *10 (W.D. Mich. Apr. 4, 2014) ("When a corporate officer 'is actively and personally involved in the conduct giving rise to the claim,' the fact that the officer was acting in his or her corporate, rather than personal, capacity will not defeat the exercise of personal jurisdiction over the individual.") (quoting Balance Dynamics Corp. v. Schmitt Indus., Inc., 204 F.3d 683, 699 (6th Cir. 2000) (personal jurisdiction over nonresident agents actively and personally involved depends on due process, "i.e., whether she purposely availed herself of the forum and the reasonably foreseeable consequences of that availment")).
Individual Defendants argue that Plaintiff has not met its burden to show personal jurisdiction because "Plaintiff's references to transacting business and contracting for services" and the extent of communications between Individual Defendants and Plaintiff are inadequate as to Cowell and Lorenz (ECF No. 13 at PageID.135-136). Specifically, Individual Defendants argue that they did not "purposely avail" themselves of the protections and benefits of Michigan law, because they "did not go to Michigan, did not employ anyone in Michigan to work for [them], and did not pay anyone in Michigan to work on the transaction" (id. at PageID.136) (alteration in original). Individual Defendants further argue that the "only count in the Complaint in which either Cowell or Lorenz is named is Count VI (for fraud)" and jurisdiction "hinges" on that count's allegations and "an assumption that BOX'[s] limited liability structure should be pierced" (id.). Individual Defendants argue that because Plaintiff has "failed to plead sufficient jurisdictional allegations, . . . [t]he Complaint should be dismissed as to each" Cowell and Lorenz (id. at PageID.137).
In response, Plaintiff argues that it has sufficiently pled personal jurisdiction over Individual Defendants because "Defendant Cowell made the initial contact with Plaintiff on behalf of Carlsbad Naturals, LLC and BOX Bioscience, LLC (the "Entity Defendants") in April 2020" and Individual Defendants both "submitted purchase orders to Plaintiff, including for production and delivery of products in Michigan" and "negotiated directly with Plaintiff regarding purchase orders, invoices and payments from the Entity Defendants for the product Plaintiff delivered" (ECF No. 18 at PageID.173). Plaintiff further argues that Individual Defendants "reached out beyond their home state borders" "to conduct business with a company whose principal place of business [they] knew to be in Michigan. Such contacts are not 'random,' 'fortuitous,' or 'attenuated,' but are the result of deliberate conduct that amounts to purposeful availment" (id.) (citing Air Prod. & Controls, Inc., 503 F.3d at 551). Last, Plaintiff asserts that Individual Defendants "knew that if, and when, they did not pay Plaintiff, despite their repeated representations that they would, those actions would harm someone in Michigan and they 'should reasonably anticipate being haled into court there' " (id. at PageID.174) (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 295, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980)).
Plaintiff's argument has merit.
Viewing the Complaint in the light most favorable to Plaintiff, the Court concludes that Plaintiff has established sufficient contacts between Individual Defendants and the State of Michigan to support the exercise of personal jurisdiction over Individual Defendants. Individual Defendants "contacted Plaintiff in Michigan; knew the product would be made in Michigan; ordered goods to be delivered to a facility in Troy, Michigan; [Plaintiff] shipped all product from Michigan; and [Defendants] were required to make payments to a Michigan company" (ECF No. 18 at PageID.174); see S. Mach. Co., 401 F.2d at 382-83 ("when obligations created by the defendant or business operations set in motion by the defendant have a realistic impact on the commerce of that state; and the defendant has purposefully availed himself of the opportunity of acting there [ ] he should have reasonably foreseen that the transaction would have consequences in that state"). Plaintiff's Complaint specifically identifies the two Individual Defendants as transacting business in Michigan, personally and as officers or agents of Box BioScience, LLC (Compl., ¶¶ 8-9, 16), and sets forth the direct and individual conduct made by Cowell and Lorenz in transacting business with Plaintiff (id., ¶¶ 13-15, 18, 22, 29), including direct communications from both Cowell and Lorenz (id., ¶¶ 32-37, 41-42, 44-45). On the basis of these pleadings, the Court determines that Cowell and Lorenz were both "personally and actively" involved in the conduct giving rise to Plaintiff's claim. See Visser, 2014 WL 12921353, at *10. As such, Cowell and Lorenz "purposefully availed" themselves of acting or causing a consequence in the forum state; Plaintiff's cause of action arises from their alleged activities in Michigan; and Cowell's and Lorenz's conduct was substantial enough to make the exercise of jurisdiction reasonable. S. Mach. Co., 401 F.2d at 381. Accordingly, the Court denies Individual Defendants' motion to dismiss for lack of personal jurisdiction over Individual Defendants.
2. Count VI (Fraudulent Inducement & Fraudulent Misrepresentation)
Individual Defendants next argue that Plaintiff's fraud claim (Count VI) is deficient under Federal Rule of Civil Procedure 9(b), and that Plaintiff fails to allege sufficient facts to support the elements of fraud under Michigan law (ECF No. 13 at PageID.138). The Court concludes that Plaintiff has sufficiently alleged a fraud claim in Count VI against Individual Defendants.
First, Individual Defendants argue that Plaintiff's allegations "fail to state with clarity the specific statement made, the timing of that statement, the target of that statement, or even specifically which person made the statement" (ECF No. 13 at PageID.138). Individual Defendants further argue that Plaintiff's "allegations are 'rife with undifferentiated references to the 'Defendants, making it impossible 'to parse [them] against each individual defendant" (id. at PageID.139) (quoting Llewellyn-Jones, 22 F. Supp 3d at 780).
Second, Individual Defendants argue that Plaintiff failed to assert sufficient facts to state a colorable fraud claim under Michigan Law (ECF No. 13 at PageID.139). Individual Defendants argue that Plaintiff alleges "two sets of alleged 'misrepresentations,' both of which fail to support a claim for fraud against any of the BOX Defendants" (id. at PageID.140). As to the first alleged misrepresentation, Individual Defendants assert that the April 10, 2020 statement in the Complaint addressing the timing of payments and wire transfers (allegedly made with intent to induce Plaintiff to send more products in Invoice 1251) "were paid and are not included in Plaintiff's outstanding damages" (id.) (emphasis in original) (citing Ex. B to the Compl., see ECF No. 1-3 at PageID.25-29). Individual Defendants further argue that Plaintiff fails to show either "the existence of any material misrepresentation" for the paid invoices, or "that Cowell acted with the requisite intent; that there were damages; or that Plaintiff properly relied on the statement" (ECF No. 13 at PageID.140). Individual Defendants assert that these invoices were paid three days later, on April 13, 2020, and payment "negates" that the representation was false and that the April 10 message was made in response to an inquiry by Plaintiff and that "Cowell did not intend for Plaintiff to act upon it (i.e., by shipping more product)" (id. at PageID.141-142). Individual Defendants further assert that any action taken by Plaintiff in reliance on Cowell's message regarding the "timing" of the payments was not reasonable (id.).
This Court's review is limited to that conduct relating only to Individual Defendants, Ryan Cowell and Troy Lorenz, as indicated throughout this Opinion.
As to the second set of alleged misrepresentations, Individual Defendants assert that "Plaintiff claims BOX representatives made a series of misrepresentations about payments of prior invoices to induce Plaintiff to ship more product" but that "such statements were made after Plaintiff's final shipment of products" and thus do not support a claim for fraud (ECF No. 13 at PageID.142) (see Compl., ¶¶ 33-36, 84-85) (detailing Cowell's and Lorenz's statements on April 28 and 29, and May 8, 13, and 15, 2020 about payments relating to Invoices 1242, 1243, 1279, 1282, 1283, and 1284).
In response, Plaintiff argues that the Complaint, and attachments thereto, provide "the specific fraudulent misrepresentations made by Individual Defendants, including who made them, when, how, and the reason [the statements were] false or misleading" (ECF No. 18 at PageID.179-180). Specifically, Plaintiff asserts that the April 10, 2020 message was "clearly false" in that it was "not a promise of future payment, but [ ] a representation that Defendants had already paid Plaintiff" when no payment was made or received by Plaintiff until a partial transfer was received four days later (id. at PageID.179). Further, Plaintiff asserts that the additional misrepresentations made by Cowell and Lorenz on April 28, 29, and May 8, 13, and 15, 2020, clearly show "that Individual Defendants made material representations regarding payment; the payment representations were false; when Individual Defendants made the representations about payment to Plaintiff, they knew that they were false; that they made the representations so that Plaintiff would continue to ship product; that Plaintiff acted in reliance upon Individual Defendants' representations regarding payment and sent product; and that Plaintiff was not paid for all its product shipped" (id. at PageID.179-180) (citing Hi-Way Motor Co. v. Int'l Harvester Co., 398 Mich. 330, 247 N.W.2d 813, 815-16 (1976)).
Under Rule 9(b), a plaintiff alleging fraud is required to "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Llewellyn-Jones v. Metro Pop. Group, LLC, 22 F. Supp. 3d 760, 780 (E.D. Mich. 2014) (quoting Indiana State Dist. Council of Laborers and Hod Carriers Pension and Welfare Fund v. Omnicare, Inc., 583 F.3d 935, 942-43 (6th Cir. 2009)).
To state an actionable claim for fraudulent misrepresentation or fraud in the inducement under Michigan law, a plaintiff must show that: "(1) the defendant made a material representation; (2) the representation was false; (3) when the defendant made the representation, the defendant knew that it was false, or made it recklessly, without knowledge of its truth and as a positive assertion; (4) the defendant made the representation with the intention that the plaintiff would act upon it; (5) the plaintiff acted in reliance upon it; and (6) the plaintiff suffered damage." Custom Data Sols., Inc. v. Preferred Cap., Inc., 274 Mich.App. 239, 733 N.W.2d 102, 105 (2006) (internal citation and quotation omitted); see also Hi-Way Motor Co., 247 N.W.2d at 816 (same). "[I]n general, actionable fraud must be predicated on a statement relating to a past or an existing fact." Custom Data Sols., Inc., 733 N.W.2d at 104 (quoting Samuel D. Begola Services, Inc. v. Wild Bros., 210 Mich.App. 636, 534 N.W.2d 217 (1995)).
For the reasons more fully set forth by Plaintiff in response, at the pleading stage, Individual Defendants have " 'sufficient notice of the misrepresentation allowing the defendants to answer, addressing in an informed way [P]laintiff's claim of fraud' and, thus," Plaintiff has satisfied Rule 9(b)'s particularity standard and has sufficiently plead a colorable claim for fraud under Michigan law (see ECF No. 18 at PageID.181); see also Llewellyn-Jones, 22 F. Supp. 3d at 780 ("The threshold test is whether the complaint places the defendant on sufficient notice of the misrepresentation allowing the defendants to answer, addressing in an informed way plaintiff[']s claim of fraud.") (quoting Coffey v. Foamex L.P., 2 F.3d 157, 162 (6th Cir. 1993)). In addition, Plaintiff has sufficiently alleged reliance as to all of the alleged misrepresentations, even those occurring after a final shipment of product may have occurred, because Plaintiff alleges that it either (a) continued shipping product on a pay-on-delivery basis and/or (b) did not take further steps to secure or reclaim the shipped and unpaid for products on the basis of the misrepresentations (see Compl., ECF No. 2 at PageID.99; Case No. 1:21-cv-523, ECF No. 28, PageID.272-277); Hi-Way Motor Co., 247 N.W.2d at 816 ("a fraudulent misrepresentation may be based upon a promise made in bad faith without intention of performance") (quotation omitted). Therefore, Plaintiff has sufficiently alleged a fraud claim in Count VI against Individual Defendants and Individual Defendants' motion is denied.
3. Transfer Venue Under 28 U.S.C. § 1404(a)
In the alternative, Individual Defendants move for a change of venue to the United States District Court of South Carolina under 28 U.S.C. § 1404(a). The Court concludes that transfer is improper under 28 U.S.C. § 1404(a).
Section 1404(a) provides in pertinent part that "[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." In contrast to § 1406(a), which provides for transfer from forums in which venue is wrongly or improperly laid, § 1404(a) "operates on the premises that the plaintiff has properly exercised his venue privilege." Van Dusen v. Barrack, 376 U.S. 612, 634, 84 S.Ct. 805, 11 L.Ed.2d 945 (1964). "As the permissive language of the transfer statute suggests, district courts have 'broad discretion' to determine when party 'convenience' or 'the interest of justice' make a transfer appropriate." Reese v. CNH Am. LLC, 574 F.3d 315, 320 (6th Cir. 2009). The "moving party bears the burden of proving why a court should transfer the action." Steelcase, Inc. v. Smart Tech., Inc., 336 F. Supp. 2d 714, 719 (W.D. Mich. 2004); Viron Int'l Corp. v. David Boland, Inc., 237 F. Supp. 2d 812, 815 (W.D. Mich. 2002).
Individual Defendants argue that this Court should transfer venue to the United States District Court of South Carolina based on the "interests of justice" (ECF No. 13 at PageID.143) (citing Jones v. GNC Franchising, Inc., 211 F.3d 495, 498-99 (9th Cir. 2000)). Individual Defendants concede that federal diversity jurisdiction exists in both Michigan and South Carolina and that "some deference" should be given to Plaintiff's choice of venue but argue that the lack of Individual Defendants' contact with Michigan and the remote relation of Michigan to the parties' transaction both cut against Plaintiff's venue choice (see id. at PageID.144-145). Individual Defendants argue that "time, money, convenience and overall judicial efficiency" favor litigating in South Carolina, primarily because "all BOX Defendants are available in South Carolina either through citizenship . . . or consent" and thus, South Carolina is the proper venue (id. at PageID.145-146; see also ECF No. 13-1).
In response, Plaintiff argues that venue is proper in this Court because "a substantial part of the events or omissions giving rise to the claim occurred" in Michigan (ECF No. 18 at PageID.175) (citing 28 U.S.C. § 1391). Plaintiff argues that courts should " 'defer to a plaintiff's choice of venue' " and that the burden rests on a defendant moving for transfer (id.) (quoting United States v. Edward Rose & Sons, 246 F. Supp. 2d 744, 755 (E.D. Mich. 2003), aff'd in part, 384 F.3d 258 (6th Cir. 2004)). Plaintiff asserts that transfer to South Carolina is not appropriate "for the convenience of some of the Defendants," when the contract at issue was not entered there and the products were not manufactured, produced, or shipped there (id. at PageID.176). Plaintiff further argues that Individual Defendants have waived any objection to venue, as they "did not object . . . until over 1.5 years after the Original Filing, after numerous chances to do so" (id. at PageID.177). For this reason, Plaintiff argues that transfer "would create additional waste of time, energy, and money" in contravention of § 1404(a)'s purpose (id.) (citing Cont'l Grain Co. v. The FBL-585, 364 U.S. 19, 26, 80 S.Ct. 1470, 4 L.Ed.2d 1540 (1960)).
Plaintiff's argument has merit.
In ruling on a motion to transfer under § 1404(a), a district court should consider the private interests of the parties, including: (1) the convenience to the parties; (2) the convenience of witnesses; (3) the relative ease of access to sources of proof; (4) the availability of process to compel attendance of unwilling witnesses; (5) the cost of obtaining willing witnesses; (6) the practical problems indicating where the case can be tried more expeditiously and inexpensively; and (7) the interests of justice, a term broad enough to cover the particular circumstances of each case, which in sum indicate that the administration of justice will be advanced by a transfer. Steelcase, 336 F. Supp. 2d at 719. The court may also consider public interest factors including: "(i) the enforceability of the judgment; (ii) practical considerations affecting trial management; (iii) docket congestion; (iv) the local interest in deciding local controversies at home; (v) the public policies of the fora; and (vi) the familiarity of the trial judge with the applicable state law." Id. at 720.
The parties have been in ongoing and repetitive litigation in this Court since June 2020 (see Case No. 1:20-cv-523, ECF No. 1). This Court is not persuaded that Individual Defendants would bear more of a hardship in attending trial in Michigan versus South Carolina, or in having witnesses travel to attend a trial in Michigan rather than South Carolina. As more fully set forth by Plaintiff, the majority of factors weigh in favor of Michigan. Further, significant practical problems would occur should this case be transferred to another court, requiring the parties to relitigate the same or similar issues that they have been litigating before this Court for over two years. Last, the particular circumstances of this case and public interest factors also weigh against transfer, including the status of co-Defendants, against whom default has been entered, practical considerations in efficiency and managing the parties and this case for trial, Michigan's interest in deciding local controversies, and the applicability of Michigan law to Plaintiff's claims.
In sum, having considered the balance of the relevant private and public interests at stake in this particular case, the Court determines that Individual Defendants have not borne their burden of demonstrating the propriety of a transfer to the United States District Court for the South Carolina. Therefore, the Court denies Individual Defendants' request to transfer this case under 28 U.S.C. § 1404(a).
B. Plaintiff's Motion for Rule 11 Sanctions
Plaintiff also filed a motion for Rule 11 sanctions against BOX Defendants (ECF No. 19), arguing that BOX Defendants' "gamesmanship" has "caused months of delay and forced [Plaintiff] to incur" costs of defending against the motion to dismiss the initial lawsuit (Case No. 1:20-cv-523), Plaintiff's filing of a State Court Complaint, and BOX Defendants' removal of this action to this Court (id. at PageID.184-185). Specifically, Plaintiff states:
Clearly, Defendants always knew diversity of citizenship existed but that One Ethanol could not prove that, until Defendants were forced by the Court's October 25, 2021 order to admit that diversity existed. (Case No. 1:21-cv-874, ECF No. 8). Instead of acknowledging that the WDMI had subject matter jurisdiction to hear the case, Defendants successfully argued for its removal from the WDMI, and now argue for its removal from Kent County back to the WDMI based on diversity—the same grounds that it alleged the Plaintiff had not pled! This is a blatant waste of judicial time and resources, One Ethanol's time and money, and a maneuver made in bad faith to cause unnecessary delay. As such, One Ethanol seeks the imposition of sanctions against Defendants for forcing One Ethanol to file essentially three different lawsuits in two different venues when jurisdiction and venue were proper in the first case.(ECF No. 20 at PageID.191).
Federal Rule of Civil Procedure 11(b) permits sanctions against an attorney or unrepresented party if:
By presenting to the court a pleading, written motion, or other paper-whether by signing, filing, submitting, or later advocating it-an attorney or unrepresented party certifies that to the best of the person's knowledge, information,
and belief, formed after an inquiry reasonable under the circumstances:FED. R. CIV. P. 11(b). The central purpose of Rule 11 is to deter baseless filings in the district court. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990). The Sixth Circuit test for imposing Rule 11 sanctions is "whether the individual's conduct was objectively reasonable under the circumstances." King v. Whitmer, 556 F. Supp. 3d 680, 698 (E.D. Mich. 2021). "To determine objective reasonableness, the court must ask 'whether the position advanced by a party was supported by a reasonable inquiry into the applicable law and relevant facts.' " Id. (quoting Advo Sys., Inc. v. Walters, 110 F.R.D. 426, 430 (E.D. Mich. 1986) (citations omitted)). "Courts must not use the wisdom of hindsight, but must instead test what was reasonable to believe at the time the pleading, motion, or other paper was submitted." King, 556 F. Supp. 3d at 698 (quotation and citations omitted).
(1) it is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation;
(2) the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law;
(3) the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery; and
(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on belief or a lack of information.
In support of its motion, Plaintiff argues that "[h]ad Defendants been acting in good faith, they would have admitted that there was sufficient diversity among the parties to vest this Court with jurisdiction, but they chose to contest the subject matter jurisdiction that they knew existed" (ECF No. 20 at PageID.190). Plaintiff argues that BOX Defendants' actions in contesting jurisdiction only to then remove the re-filed state court action to this Court based on diversity jurisdiction was objectively unreasonable in that their actions were designed to cause unnecessary expense and delay, were frivolous (baseless and inaccurate), and were not warranted based on "any possible evidence, belief, or information existing in 2020 or today" (id. at PageID.193-196).
In response, Individual Defendants argue that Plaintiff bore the burden of establishing diversity jurisdiction by affirmatively pleading the citizenship of all LLCs in Plaintiff's original action (Case No. 1:20-cv-523), including the citizenship of Plaintiff One Ethanol (ECF No. 28 at PageID.211). Individual Defendants further assert that they "did not know with certainty" the citizenship of Plaintiff or Carlsbad until the filing of the state court lawsuit by Plaintiff (id. at PageID.213-214).
Individual Defendants' argument has merit.
Sixth Circuit case law is clear that "the party asserting diversity jurisdiction bears the burden of establishing the parties' citizenships"—including fully and properly alleging the citizenship of each LLC party. See Akno 1010 Mkt St. St. Louis Missouri LLC v. Pourtaghi, 43 F.4th 624, 627 (6th Cir. 2022) (citing Hertz Corp. v. Friend, 559 U.S. 77, 96, 130 S.Ct. 1181, 175 L.Ed.2d 1029 (2010); Prime Rate Premium Fin. Corp., Inc. v. Larson, 930 F.3d 759, 765 (6th Cir. 2019)). When this Court dismissed the initial action, it noted that "[t]he Sixth Circuit Court of Appeals has distinguished between facial and factual attacks among motions to dismiss for lack of subject-matter jurisdiction pursuant to Rule 12(b)(1). . . . A facial attack on subject-matter jurisdiction merely questions the sufficiency of the pleading" (see One Ethanol, LLC v. BOX BioScience, et al., Case No. 1:20-cv-523, ECF No. 38 at PageID.314-316) (quoting Buoscio v. Jackson Nat'l Life Ins. Co., Inc., No. 2:09-cv-1133, 2011 WL 13311663, at *4 (S.D. Ohio Sept. 28, 2011)) (other citations omitted). Individual Defendants, despite having known the citizenship of Box BioScience, LLC and presumably the citizenship of Carlsbad Naturals, LLC and Plaintiff, did not bear the burden of affirmatively pleading subject matter jurisdiction based on diversity, and were within their rights to facially attack Plaintiff's deficient Complaint. While Individual Defendants' litigation tactics and strategy thereafter, in removing this matter back to this Court and requesting transfer to yet another federal forum, may be frustrating, this Court determines that BOX Defendants' actions in contesting jurisdiction and then removing Plaintiff's state court action to this case do not rise to the level of the objectively unreasonable conduct provided for in Rule 11. Accordingly, Plaintiff's motion is denied.
III. CONCLUSION
For the foregoing reasons,
IT IS HEREBY ORDERED that Defendants Ryan Cowell's and Troy Lorenz's Motion to Dismiss or Transfer Venue (ECF No. 12) is DENIED.
IT IS FURTHER ORDERED that Defendants Ryan Cowell and Troy Lorenz shall file a response to the Complaint no later than 21 days from the date of this Order.
IT IS FURTHER ORDERED that Plaintiff's Motion for Sanctions (ECF No. 19) is DENIED.