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Concrete Jungle, LLC v. Icon Commercial Lending, Inc.

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

October 11, 2017




         Plaintiffs' suit arises out of a funding relationship between the parties whereby Defendant ICON Commercial Lending, Inc. (“ICON”) would assist Plaintiffs Concrete Jungle, LLC (“Concrete Jungle”) and Great Expectations, LLC (“Great Expectations”) in securing financing for the acquisition and development of apartment buildings in Flint, Michigan. Plaintiffs allege that Defendants ICON and its two principals, Randall J. Farr (“Farr”) and Brent Watson (“Watson”) never had a legitimate lending or brokerage business or the ability to secure the funding they promised, and that Plaintiffs were the victims of Defendants' advance fee scam. Plaintiffs claim that Defendants induced them into entering fraudulent agreements; paying Defendants $235, 000.00 in fees, which Defendants stole; and paying third parties $240, 000.00 in earnest money deposits, which Plaintiffs lost, in reliance on Defendants' false statements. Plaintiffs allege breach of contract, fraud, and negligent misrepresentation. They seek to recover the aforementioned amounts, plus interests, costs, and attorneys fees.

         Currently before the Court is Defendants' motion to dismiss. (Dkt. # 20). For the reasons stated below, this Court GRANTS IN PART and DENIES IN PART Defendants' motion.

         I. FACTS

         According to the Complaint, Plaintiffs are Michigan limited liability companies and real estate investors who decided to join forces to acquire and develop several apartment buildings in Flint, Michigan. Plaintiffs sought out commercial lenders to finance this project and selected Defendant ICON, which represented that it was a “full-service private direct commercial lender.” ICON is a Utah-based company. Defendant Farr resides in New York and Arizona, and Defendant Watson resides in Hawaii.

         On January 9, 2015, Concrete Jungle and ICON entered into a Fee Agreement. (Dkt. # 1-2). On February 4, 2015, Concrete Jungle and ICON signed an Addendum to the Fee Agreement. (Dkt. # 1-3). Pursuant to the Fee Agreement and Addendum, ICON agreed to “exercise reasonable commercial efforts to provide a suitable financing solution within the terms of this Agreement” but did not guarantee approval of final underwriting or that the loan would close. (Dkt. # 1-2 at 5). Concrete Jungle agreed to deposit $235, 000.00 into “a mutually acceptable escrow account.” Id. at 6; Dkt. # 1-3 at 3. ICON agreed to “provide sufficient financial securities” into the same escrow account as a safeguard against ICON not performing as agreed. (Dkt. # 1-2 at 6).

         On March 2, 2015, Concrete Jungle and ICON signed Escrow Instructions directing release of $12, 500.00 to ICON for travel expenses and due diligence fees. (Dkt. # 1-4). On March 3, 2015, Concrete Jungle and ICON signed further Escrow Instructions directing release of $112, 500.00 to ICON for Concrete Jungle's “Loan Funding Participation.” (Dkt. # 1-5). On March 6, 2016, ICON submitted a Letter of Commitment addressed to Concrete Jungle and signed by Defendant Farr. (Dkt. # 1-6). This letter refers to a Funding Agreement “wherein ICON has made an Irrevocable and Firm Commitment to Provide Project Funding in the amount of Twelve Million Dollars.” The letter states that “ICON's completion and approval of this loan is based solely upon ICON's discretion” and that initial funding is anticipated to be disbursed by April 15, 2015. The letter further states: “Please note that while the foregoing sets forth the general summary of the transaction, final written agreements between the parties will necessarily include such other terms and conditions as may be required by ICON or recommended by either party's counsel.”

         On March 31, 2015, Concrete Jungle, Great Expectations, and ICON entered into a Joint Venture Agreement. (Dkt. # 26-9). The parties established a new business entity for the joint venture, Pleasant Peninsula Investments, LLC (“PPI”). According to the Joint Venture Agreement, “[t]his entity was formed for the specific purpose of this Project's business operations and completing Project's financing.” The Joint Venture Agreement provided ICON with thirty five percent equity ownership, “effective upon funding.”

         Also on March 31, 2015, ICON and PPI entered into a Funding Agreement. (Dkt. # 1-8). ICON agreed to fund the Flint project in the amount of twelve million dollars, but the Funding Agreement does not provide a specific date by which the financing has to be obtained. PPI agreed to use the funds to purchase “various multi-family apartment properties and to pay off Project mezzanine lender and other third party obligations (if applicable).” PPI also agreed to place $235, 000.00 into escrow “for the purpose of paying a portion of Project's one-time financing expenses.”

         The Complaint alleges that Concrete Jungle placed $235, 000.00 into escrow on April 7, 2015, and that the funds were released to ICON on or before May 4, 2015. The Complaint further alleges that ICON placed into escrow five Brazilian Petrobas Oil Bonds, which it represented were worth $55 million dollars, but which were actually worthless.

         Plaintiffs allege that Defendants entered into all of these agreements in bad faith and without any intent or ability to perform. According to Plaintiffs, Defendants' intent was solely to collect the $235, 000.00 in fees. From May 2015 through the end of the year, Defendants blamed delays in securing funding on the Greek financial crisis, problems with the bank guarantee issuer's litigation in Europe, travel problems to and from Hong Kong, travel problems within Europe, health problems, and holidays. In the meantime, Plaintiffs paid $240, 000.00 as earnest money deposits to third parties with whom they had contracts to purchase property, in reliance on Defendants' representations that financing was forthcoming.

         On December 15, 2015, Plaintiffs allegedly notified ICON that ICON was in default. On January 18 and February 2, 2016, Plaintiffs demanded a return of the $235, 000.00 fee and reimbursement of some of the earnest money deposits that Plaintiffs had paid to third parties, plus interest. According to the Complaint, the parties agreed that ICON would wire a $310, 000.00 refund to Plaintiffs. Defendant Farr confirmed this in an e-mail dated April 20, 2016. (Dkt. # 1-9). Plaintiffs allege that from that date to the present date, Farr has repeatedly lied about his plan to refund the $310, 000.00. Plaintiffs attach to the Complaint a series of e-mails from Farr, sent from April 2016 through November 2016, which provide a number of excuses for the delay in securing funding for the project and providing the refund. (Dkt. # 1-9 to 1-24). These include the non-performance of third parties; problems with the bank guarantee issuer's litigation; bank policies and delays; bank attorney delays; “red tape” caused by the government; complexity of sophisticated transactions and the “nature of the beast;” ongoing negotiations with various financial institutions in other states and abroad; and time required for unspecified transactions to begin paying out, for encrypted messages to travel from one financial institution to another, and for monetization and disbursement processes to be completed. Plaintiffs attach an e-mail from Defendant Watson, dated September 22, 2016, which also references $310, 000.00. (Dkt. # 1-16).

         Defendants have yet to complete the refund or provide any financing to Plaintiffs or to PPI. Defendants claim that they have made and continue to make every possible effort to secure financing for the Flint project.

         II. ANALYSIS

         Defendants move to dismiss for lack of subject matter jurisdiction, for lack of personal jurisdiction, pursuant to arbitration clauses, and pursuant to a forum selection clause.

         A. Subject Matter Jurisdiction

         Defendants first argue that PPI is a necessary and indispensable party to this action, and that the Court should dismiss this case because joinder of PPI divests this Court of subject matter jurisdiction.

         Subject matter jurisdiction is governed by Fed.R.Civ.P. 12(b)(1). A motion to dismiss pursuant to Rule 12(b)(1) may either attack the claim of jurisdiction on its face or it can attack the factual basis of jurisdiction. Golden v. Gorno Bros., Inc., 410 F.3d 879, 881 (6th Cir. 2005). A facial attack challenges the pleading itself. In considering this type of attack, the court must take all material allegations in the complaint as true, and construe them in the light most favorable to the non-moving party. RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134 (6th Cir. 1996). When a defendant challenges subject matter jurisdiction on a factual basis, the plaintiff has the burden of proving jurisdiction in order to survive the motion. Moir v. Greater Cleveland Regional Transit Authority, 895 F.2d 266, 269 (6th Cir. 1990). “In reviewing a 12(b)(1) motion, the Court may consider evidence outside the pleadings to resolve factual disputes concerning jurisdiction, and both parties are free to supplement the record by affidavits.” Nichols v. Muskingum Coll., 318 F.3d 674, 677 (6th Cir. 2003) (citation omitted).

         The question of joinder under Fed.R.Civ.P. 19 and dismissal for failure to join an indispensable party under Fed.R.Civ.P. 12(b)(7) involves a three-step inquiry. Keweenaw Bay Indian Cmty. v. State, 11 F.3d 1341, 1345 (6th Cir. 1993). First, the Court must determine whether an absent party is necessary under Rule 19(a), which provides as follows.

(a) Persons Required to Be Joined if Feasible.
(1) Required Party. A person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined as a party if:
(A) in that person's absence, the court cannot accord complete relief among existing parties; or
(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence may:
(i) as a practical matter impair or impede the person's ability to protect the interest; or
(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.

Fed. R. Civ. P. 19(a). Second, the Court must determine whether joinder is feasible. See Keweenaw, 11 F.3d at 1345. If the absent party is necessary but joinder would be infeasible, then the Court proceeds to the third step and must decide whether the absent party is indispensable under Rule 19(b), which provides as follows.

(b) When Joinder Is Not Feasible. If a person who is required to be joined if feasible cannot be joined, the court must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed. The factors for the court to consider include:
(1) the extent to which a judgment rendered in the person's absence might prejudice that person or the existing parties;
(2) the extent to which any prejudice could be lessened or avoided by:
(A) protective provisions in the judgment;
(B) shaping the relief; or
(C) other measures;
(3) whether a judgment rendered in the person's absence would be adequate; and
(4) whether the plaintiff would have an adequate remedy if the action were ...

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