United States District Court, E.D. Michigan, Southern Division
ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANTS' MOTION TO DISMISS 
G. EDMUNDS UNITED STATES DISTRICT JUDGE.
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.
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.
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.
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
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
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.”
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.”
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.
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
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).
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.
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.
Subject Matter Jurisdiction
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
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
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
(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
(2) the extent to which any prejudice could be lessened or
(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 ...