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Atlas Technologies, LLC v. Levine

United States District Court, E.D. Michigan, Southern Division

July 26, 2017


          David M. Lawson Honorable.


          DAVID M. LAWSON United States District Judge.

         Plaintiff Atlas Technologies, LLC, a company that has designed and built press room automation equipment for over 50 years, has sued two of its former officers for misappropriation of funds, fraud, and self-dealing. The second amended complaint lists fourteen counts, all of which the defendants say must be dismissed. They base their arguments mainly on a 2011 LLC agreement, which is not attached to the pleadings and is only referenced in the second amended complaint in passing. The defendants also rely on Delaware law in several of their arguments, which they say applies because Atlas is a company formed under the laws of that state. However, Michigan law governs the tort claims, and the 2011 LLC agreement is not central to the plaintiff's claims and does not provide a basis for assessing the viability of the pleaded claims. Except for one fraud count and one statutory count, the second amended complaint pleads claims for which relief can be granted. Therefore, the Court will grant in part and deny in part the defendants' motion to dismiss.


         The defendants are Jesse Levine, Atlas's former chief executive officer and chief financial officer; Julius Levine, its former chief operating officer; and the Julius S. Levine Revocable Trust (Levine Trust). Plaintiff Atlas is a limited liability company whose affairs are managed by a board of managers. The plaintiff alleges in its second amended complaint that Jesse became chief executive officer of Atlas in January 2012. He also was a member of the board. It is not clear when he first became affiliated with the company, or when he assumed the duties of chief financial officer. Jesse hired his father, Julius and gave him the title of chief operating officer, on September 17, 2012.

         Atlas says that it began experiencing financial difficulties in 2011. It alleges that Jesse exploited the situation to “obtain unchecked power and control” over the company. To do so, Atlas believes that Jesse, along with his father, breached their fiduciary duties, and violated Atlas's “Declaration of Business Principles, ” which they signed. One of the tenets of that “Principles Contract” was that officers cannot personally profit from business transactions “as a result of their official position.” Another is that outside business activities that might compete with Atlas's interests were prohibited. And another was to “avoid having financial interests in any firm doing business with or seeking to do business with the corporation, which might result in a conflict of interest.” Finally, the Principles Contract prohibited outside employment that might conflict with Atlas's interests.

         The plaintiff alleges that the Levines violated the Principles Contract from the start, although Atlas did not learn of the misdeeds until March 16, 2016. The Levines operated and had interests in various non-Atlas related entities, including sales of automated parking garages and various real estate holdings (which we call their Unrelated Entities). Atlas contends that the defendants perpetrated a campaign to fraudulently and illegally misappropriate and convert funds from Atlas to use for their benefit, and for the benefit of their Unrelated Entities.

         Then, in an attempt to cover the defendants' improper actions, Jesse endeavored to shut down Atlas's major operations by drafting a notice to customers that Atlas would no longer design and build press room automation, and drafting a notice to lay off nearly all of Atlas's employees. His attempt to shut down Atlas apparently was unsuccessful, but it alerted the board to his conduct, and Atlas removed Jesse as CEO of Atlas on March 16, 2016.

         The plaintiff alleges the defendants engaged in the following improper activities:

• They diverted a substantial portion of a lawsuit settlement with General Motors Corporation into a secret bank account, and then transferred those and other company funds from the secret account to an account of the Levine Trust.
• They charged the company a credit fee in exchange for guarantying a line of credit, and continued to charge the company after the loan was repaid.
• They invoiced the company for legal expenses and charges by outside contractors incurred by the Unrelated Entities.
• They added employees to the Atlas payroll when those employees in fact performed work for the defendants' Unrelated Entities.
• They misused the company credit card for non-Atlas-related expenditures, and withdrew over $240, 000 from petty cash for personal use and for the benefit of the Unrelated Entities.
• They charged the company rent for a Chicago office that was not used for Atlas business and then misappropriated the returned security deposit.

         After the Levines were separated from Atlas, the plaintiff alleges that they filed fraudulent Uniform Commercial Code financing statements against Atlas's assets. Although the financing statements were terminated by the State of Michigan, Atlas alleges that it suffers continuing damage because the trade lines show up on its credit reports.

         Atlas filed its complaint on August 25, 2016, a first amended complaint on September 2, 2016, and a second amended complaint on November 28, 2016. The second amended complaint alleges fraud (Count I); silent fraud (Count II); fraud in the inducement (Count III); common law and statutory conversion (Count IV); unjust enrichment (Count V); breach of fiduciary duty (Count VI); breach of Michigan Compiled Laws § 450.4404, which prescribes a manager's duties under Michigan's limited liability company law (Count VII); breach of Delaware General Corporation Law § 18-1101, which governs the restriction and limitation of an LLC manager's duties (Count VIII); negligent misrepresentation (Count IX); breach of Michigan Compiled Laws § 440.9501, which prohibits filing false UCC financing statements (Count X); tortious interference (Count XI); civil conspiracy (Count XII); concert of action (Count XIII); and aiding and abetting the breach of fiduciary duties (Count XIV). Counts III, IV, V, X, XI, XII, XIII, and IX are against Jesse, Julius, and the Levine Trust; Counts I, II, VI, and VIII are against Jesse and Julius; and Count VII is against Jesse only.

         On September 20, 2016, Atlas filed a motion for a preliminary injunction to prevent the defendants from filing more financing statements. Just before the motion hearing date, the parties filed a stipulation to expunge the UCC financing statements filed by the defendants, and, after a status conference, the Court entered an order prohibiting the defendants from filing any more UCC financing statements against the plaintiff.

         On November 3, 2016, the defendants filed a motion to dismiss, and filed a second motion to dismiss when the plaintiff filed the second amended complaint. The defendants also filed a motion for a preliminary injunction, which the Court denied.


         The defendant's motion is based on Federal Rule of Civil Procedure 12(b)(6). The standards are well known to the parties: the purpose of the motion is to allow a defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief if all the factual allegations in the complaint are taken as true. Rippy ex rel. Rippy v. Hattaway, 270 F.3d 416, 419 (6th Cir. 2001) (citing Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir. 1993)). The complaint is viewed in the light most favorable to the plaintiff, the allegations in the complaint are accepted as true, and all reasonable inferences are drawn in favor of the plaintiff. Bassett v. Nat'l Collegiate Athletic Ass'n, 528 F.3d 426, 430 (6th Cir. 2008). To survive the motion, the plaintiffs “must plead ‘enough factual matter' that, when taken as true, ‘state[s] a claim to relief that is plausible on its face.' Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 570 (2007). Plausibility requires showing more than the ‘sheer possibility' of relief but less than a ‘probab[le]' entitlement to relief. Ashcroft v. Iqbal, [556 U.S. 662');">556 U.S. 662, 678] (2009).” Fabian v. Fulmer Helmets, Inc., 628 F.3d 278, 280 (6th Cir. 2010).

         At this stage of the case, the Court must accept as true the pleaded facts, but not factual conclusions unless they are plausibly supported by the pleaded facts. “[B]are assertions, ” such as those that “amount to nothing more than a ‘formulaic recitation of the elements'” of a claim, can provide context to the factual allegations, but are insufficient to state a claim for relief and must be disregarded. Iqbal, 556 U.S. at 681 (quoting Twombly, 550 U.S. at 555). However, as long as a court can “‘draw the reasonable inference that the defendant is ...

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