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Productivity Technologies Corp. v. Levine

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

July 26, 2017

PRODUCTIVITY TECHNOLOGIES CORPORATION, Plaintiff,
v.
JESSE LEVINE, JULIUS LEVINE, and JULIUS S. LEVINE REVOCABLE TRUST FBO JULIUS S. LEVINE, Defendants.

          OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS

          DAVID M. LAWSON United States District Judge.

         Plaintiff Productivity Technologies Corporation, a Delaware corporation, filed a complaint in this case against defendants Jesse Levine, Julius Levine, and Julius S. Levine Revocable Trust alleging tort claims against all defendants and breach of fiduciary duties against Jesse Levine. The claims arise from the defendants' conduct as officers of Productivity's wholly-owned subsidiary, Atlas Technologies, LLC, of which Productivity is the sole member. The Levines entered the picture when Atlas was in need of financing to overcome its financial woes, and needed some backing to secure a line of credit. Productivity alleges that the defendants abused their positions to divert company funds to their own benefit and wrongfully claim ownership of a substantial share of Productivity's stock. Atlas's grievances are aired in a separate lawsuit now pending in this Court, Atlas Technologies, LLC v. Levine, et al., case number 16-13085. Presently before the Court is the defendants' motion to dismiss three counts of the amended complaint: breach of Michigan Compiled Laws § 450.1541a (which requires corporate directors to discharge their duties in good faith and in the best interest of the corporation) against Jesse Levine (Count IV); breach of Michigan Compiled Laws § 440.9501, which prohibits filing false UCC financing statements (Count V); and breach of fiduciary duty against Jesse Levine (Count VI). The Court will grant the motion and dismiss Count IV because Michigan law does not apply to the governance of the internal affairs of a Delaware corporation. The motion will be denied in all other respects.

         I.

         Productivity is a Delaware corporation with its principal place of business in Fenton, Michigan. Defendant Jesse Levine was a member of Productivity's board of directors and an officer, serving as corporate secretary. Julius Levine is Jesse's father; the plaintiff alleges that Jesse and Julius control defendant Levine Trust.

         In 2011, Atlas, Productivity's wholly-owned subsidiary, was experiencing financial difficulties. Atlas is a manufacturing company that designs and builds press room automation equipment. The plaintiff says that it was determined, although not by whom, that Atlas should obtain a revolving line of credit.

         Atlas obtained a $1.55 million line of credit from non-party Rosenthal & Rosenthal. The Rosenthal loan, however, required collateral. Atlas put up its receivables as collateral for the Rosenthal loan, and defendant Levine Trust contributed its assets as collateral as well. However, before providing the Trust Collateral, the defendants demanded the following: (1) that Jesse be made the Chief Executive Officer of Atlas, (2) that the Atlas operating agreement be modified to enable the defendants to have unprecedented power over Atlas with the role of “Special Manager, ” and (3) the defendants be paid $15, 000 per month (documented in a “Fee and Reimbursement Agreement”) for each month that the Trust Collateral was pledged. The plaintiff alleges that these demands were not in the best interests of Atlas or Productivity.

         A 2011 LLC Agreement was created, although the plaintiff questions its validity. Since then, the plaintiff represents that the LLC Agreement with the special manager role has been amended and superceded; it now states:

GOVERNING LAW. This Agreement and the affairs of Company, including all prior operating agreements for the Company, shall exclusively be governed by and construed under the laws of the State of Michigan (without regard to conflict of laws principles that would cause the application of the laws of any jurisdiction other than the State of Michigan), all rights and remedies being governed by said laws of the State of Michigan. This governing law section, mandating the application of Michigan law, shall supersede and replace the governing law sections in any prior operating agreements and any other oral or written agreement of the parties with respect to the subject matter herein.

         According to the plaintiff, the defendants maintain that as part of the Rosenthal loan transaction, Productivity issued call warrants to the defendants for roughly 15% to 20% of Productivity's stock. The plaintiff disputes that the warrants were issued, and they allege that they have repeatedly requested Jesse to provide evidence of the warrants, which he has failed to do. The plaintiff asserts the LLC Agreement does not mention any warrants to any defendant as part of the Trust Collateral.

         The plaintiff also alleges that the defendants wrongfully possess over 452, 831 Productivity treasury shares. The plaintiff says that it has repeatedly requested that the defendant turn the treasury shares over to Productivity, but the defendants have refused to do so.

         In March 2016, Jesse or the Levine Trust filed eight UCC financing statements with the Michigan Secretary of State naming Productivity and Atlas, among others, as debtors, and the defendants as creditors. The financing statements were filed immediately after Jesse was removed as the CEO and CFO of Atlas. The plaintiff contends that the financing statements were falsely or fraudulently filed, because there is no security agreement authorizing the defendants to file any such financing statements.

         The plaintiff says that it first learned of two of the financing statements in April 2016 and challenged them as being fraudulently filed. Although Michigan terminated the financing statements, they still appear as liens and continue to cause harm to Productivity and Atlas. The plaintiff alleges that in August 2016, it learned about six more financing statements. Those also were challenged and terminated, but the plaintiff contends that they still appear as liens on credit reports, which adversely affects the plaintiff's and Atlas's credit rating, reputation, and goodwill.

         The plaintiff filed a six-count complaint on August 25, 2016, and an amended complaint on November 28, 2016. The amended complaint includes a claim for declaratory judgment (Count I); common law and statutory conversion (Count II); common law and statutory replevin (Count III); violation of Michigan Compiled Laws § 450.1541a against Jesse Levine (Count IV); violation of Michigan Compiled Laws § 440.9501 (Count V); and breach of fiduciary duty against Jesse Levine (Count VI). The defendants filed a motion to dismiss certain counts of the complaint, and refiled their motion to dismiss the amended complaint. The motion attacks Counts IV, V, and VI. The defendants also filed a motion to dismiss in Atlas Technologies, LLC v. Levine, and many of the arguments parallel those raised here.

         II.

         “The purpose of Rule 12(b)(6) is to allow a defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief if all the facts and 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)). Under Rule 12(b)(6), 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). “[A] judge may not grant a Rule 12(b)(6) motion based on a disbelief of a complaint's factual allegations.” Saglioccolo v. Eagle Ins. Co., 112 F.3d 226, 228-29 (6th Cir. 1997) (quoting Columbia Nat'l Res., Inc. v. Tatum, 58 F.3d 1101, 1109 (6th Cir. 1995)). “However, while liberal, this standard of review does require more than the bare assertion of legal conclusions.” Tatum, 58 F.3d at 1109; Tackett v. M & G Polymers, USA, L.L.C., 561 F.3d 478, 488 (6th Cir. 2009). “To survive a motion to dismiss, [a plaintiff] 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). “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557).

         Under the new regime ushered in by Twombly and Iqbal, pleaded facts must be accepted by the reviewing court but conclusions may not be 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 liable for the misconduct alleged, ' a plaintiff's claims must survive a motion to dismiss.” Fabian, 628 F.3d at 281 (quoting Iqbal, 556 U.S. at 678).

         A.

         Consideration of a motion to dismiss under Rule 12(b)(6) is confined to the pleadings, Jones v. City of Cincinnati, 521 F.3d 555, 562 (6th Cir. 2008), but the defendants contend that the Court also should consider the 2011 LLC Agreement when assessing the viability of Counts IV, V, and VI of the amended complaint. It is proper to consider documents outside the pleadings “when a document is referred to in the pleadings and is integral to the claims.” Commercial Money Ctr., Inc. v. Illinois Union Ins. Co., 508 F.3d 327, 335-36 (6th Cir. 2007). Unlike the pleadings in the Atlas case, the amended ...


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