United States District Court, E.D. Michigan, Southern Division
M. Lawson Honorable.
OPINION AND ORDER GRANTING IN PART AND DENYING IN
PART DEFENDANTS' MOTION TO DISMISS
M. LAWSON United States District Judge.
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.
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.
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
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.
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.
plaintiff alleges the defendants engaged in the following
• 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
• They added employees to the Atlas payroll when those
employees in fact performed work for the defendants'
• 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
• They charged the company rent for a Chicago office
that was not used for Atlas business and then misappropriated
the returned security deposit.
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.
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.
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.
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.
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).
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 ...