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Eplet, LLC v. DTE Pontiac North, LLC

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

March 23, 2018

EPLET, LLC and RACER PROPERTIES LLC, Plaintiffs,
v.
DTE PONTIAC NORTH, LLC and DTE ENERGY SERVICES, INC., Defendants.

          OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS [11]

          HONORABLE STEPHEN J. MURPHY, III UNITED STATES DISTRICT JUDGE.

         General Motors and the local southeast Michigan utility company signed a handful of 10-year agreements. But then GM filed for bankruptcy and production at a specific GM plant ceased-as did the operations of its power plant. What remains are environmental hazards and a complex dispute over the meaning and status of the agreements. The Plaintiffs are RACER Properties-a successor-in-interest to General Motors concerned with environmental issues-and Eplet-the administrative trustee of RACER. Defendants are DTE Energy Services (DTE) and its wholly owned subsidiary, DTE Pontiac North (DTEPN).

         Defendants now move for partial dismissal of the Complaint. For the reasons below, the Court will grant the motion in part and deny it in part.

         BACKGROUND[1]

         GM owned a facility in Pontiac, MI called the "Powerhouse, " that it used to support its nearby assembly plant. In January 2007, GM entered into four agreements with DTEPN concerning the Powerhouse: an asset purchase agreement (GM sold DTEPN assets that were located at the property), a lease agreement (GM leased the land to DTEPN), a utility services agreement (DTEPN provided electricity, steam, and compressed air to GM), and an environmental indemnity agreement (DTEPN agreed to indemnify GM for claims arising from environmental laws or release of hazardous materials).[2] Concurrently, DTE Energy (DTEPN's parent company) executed a Parental Guaranty "which guarantees all of DTEPN's obligations under the Utility Services Agreement[.]" ECF 1, PgID 6, ¶ 10.

         Two-and-a-half years into the agreement, however, GM filed for bankruptcy and sought to reject one of the four Associated Agreements (the Utility Services Agreement) pursuant to § 365 of the Bankruptcy Code. Id. at 12, ¶ 32. DTEPN objected and asked the bankruptcy court to take one of three actions: (1) deny the motion outright; (2) grant the motion "subject to the rejection of" two of the other Associated Agreements (the Asset Purchase and Lease Agreements); or (3) adjourn the motion hearing to allow the parties to "negotiate a comprehensive resolution[.]" ECF 1-3, PgID 55. Eventually the parties reached an agreement on the matter and in March 2011 the bankruptcy court entered a stipulated order ("The Stipulation"). ECF 1, PgID 13-14, ¶ 34-36; see also ECF 1-3 (the full stipulated order). The Stipulation established that the Utility Services Agreement, the Asset Purchase Agreement, and the Lease Agreement constituted "a single, integrated contract" and that GM was rejecting the contract, under 11 U.S.C. § 365, as of January 24, 2011.[3] ECF 1-3, PgID 55.

         For the next six years, DTEPN remained in exclusive possession of the premises but failed to maintain them. The buildings have fallen into disrepair and environmental hazards have cropped up. When the lease finally expired in January 2017, DTEPN surrendered its keys to RACER, which accepted them. ECF 1, PgID 7, ¶ 16.

         Plaintiffs filed suit on May 6, 2017. Defendants filed the instant motion to dismiss in lieu of an answer.

         STANDARD OF REVIEW

         The Court may grant a Rule 12(b)(6) motion to dismiss if the complaint fails to allege facts "sufficient 'to raise a right to relief above the speculative level, ' and to 'state a claim to relief that is plausible on its face.'" Hensley Mfg. v. ProPride, Inc., 579 F.3d 603, 609 (6th Cir. 2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007)). The Court views the complaint in the light most favorable to the plaintiff, presumes the truth of all well-pled factual assertions, and draws every reasonable inference in favor of the non-moving party. Bassett v. Nat'l Collegiate Athletic Ass'n, 528 F.3d 426, 430 (6th Cir. 2008). If "a cause of action fails as a matter of law, regardless of whether the plaintiff's factual allegations are true or not, " then the Court must dismiss. Winnett v. Caterpillar, Inc., 553 F.3d 1000, 1005 (6th Cir. 2009).

         DISCUSSION

         There are eight counts in the Complaint: (I) breach of associated agreements, (II) breach of guaranty, (III) quantum meruit, (IV) nuisance, (V) negligence, (VI) statutory waste (MCL § 600.2919), (VII) a CERCLA claim (42 USC § 9601), and (VIII) violation of the Natural Resources and Environmental Protection Act. DTEPN moves only for the dismissal of Count I, while DTE Energy moves to dismiss all claims against it. One of DTE's overarching arguments is that Plaintiffs have not adequately pled their veil-piercing theory. Because of its potential to resolve many of the counts, the Court will first take up the veil-piercing argument, and then turn to arguments on the remaining counts.

         I. Veil Piercing and DTE's Liability

         Only DTEPN and GM signed the Associated Agreements, but Plaintiffs seek to hold DTE liable under a veil-piercing theory. Plaintiffs allege that DTEPN is undercapitalized, is wholly owned by DTE, and that its membership, management, and personnel fully overlap with DTE. ECF 1, PgID 24-25, ¶ 70. DTE contends that Plaintiff failed to allege that DTE Energy used the corporate form "to commit a fraud or wrong" or that Plaintiffs have suffered an "unjust loss" resulting from abuse of the corporate form. ECF 11, PgID 129.

         "Under Michigan law, there is a presumption that the corporate form will be respected" and thus the corporate veil "may be pierced only where an otherwise separate corporate existence has been used to subvert justice or cause a result that is contrary to some overriding public policy." Servo Kinetics, Inc. v. Tokyo Precision Instruments Co., 475 F.3d 783, 798 (6th Cir. 2007) (internal citations, quotation marks, and alterations omitted). Three requirements must be met: "(1) the corporate entity was a mere instrumentality of another entity or individual; (2) the corporate entity was used to commit a fraud or wrong; and (3) the plaintiff suffered an unjust loss." Id. But the abuse of the corporate form must still be present, so the mere wrongdoing by the subsidiary does not, on its own, justify piercing the veil. See ITT Corp. v. Borgwarner Inc., No. 1:05-CV-674, 2009 WL 2242904, at *9 (W.D. Mich. July 22, 2009) (distinguishing CERCLA cases in which parent companies depleted funds and acted with the purpose of avoiding liabilities); see also Servo Kinetics, 475 F.3d at 800 (describing the "valid proposition" that when a party chooses to contract with a subsidiary "with knowledge of the subsidiary's separate corporate existence, " it "cannot later pursue the parent for the wrongs of the subsidiary.") (citing City of Dearborn v. DLZ Corp., 111 F.Supp.2d 900, 902 (E.D. Mich. 2000)).

         Veil-piercing analysis is fact specific, and the facts here are telling. When GM entered into its agreement with DTEPN alone, it knew full well it was dealing with a subsidiary: part of the deal required DTE to sign a parental guaranty. See ECF 1, PgID 6, ¶ 10. In the Complaint, Plaintiffs make various allegations about the similarities between the Defendants, but never allege that DTE used the corporate form to avoid its obligations or to commit a fraud or wrong. Rather, the Complaint hinges on DTEPN's failure to fulfill its duties under the Associated Agreements, and Plaintiffs now wish to hold DTE accountable for those duties. The corporate veil is made of tougher cloth than this. Because Plaintiffs have failed to allege that DTE has used the corporate form to commit a fraud or wrong, they have failed to plead a veil-piercing theory of liability.

         Accordingly, Counts I, III, and V will be dismissed as to DTE.

         II. Count I - Breach of Associated Agreements

         DTEPN asserts that GM's rejection of the Associated Agreements during the bankruptcy proceedings freed them from the obligation to perform. Although DTEPN begins by conceding that the rejection "did not, by itself, result in a termination of the agreements, " it argues that the rejection "qualified as a 'substantial breach' under Michigan law" which deprived DTEPN of the benefit of its bargain and thus allowed DTEPN "to rescind the Rejected Agreements and avoid any further responsibility to perform going forward." ECF 11, PgID 122-24. Plaintiffs insist that DTEPN misinterprets the Bankruptcy Code and Michigan law, and that by remaining in possession of the premises, DTEPN continued to be bound by the terms of the Associated Agreements.

         A. Bankruptcy Rejections (11 U.S.C. § 365)

         Section 365 of the Bankruptcy Code governs "executory contracts and unexpired leases" entered into by the bankrupt debtor. Subject to certain exceptions, and only with the court's approval, a bankruptcy trustee may "assume or reject any executory contract or unexpired lease of the debtor." 11 U.S.C. § 365(a). Pursuant to subsection (g), when a trustee rejects an unexpired lease, the lease is neither terminated nor abandoned- the trustee has simply breached the terms of the lease. In re Palace Quality Servs. Indus., Inc., 283 B.R. 868, 886 (Bankr. E.D. Mich. 2002) (citing Miller v. Chateau Cmtys., Inc. (In re Miller), 282 F.3d 874, 877 (6th Cir. 2002)). The breach is then treated as if it "took place immediately prior to the filing of the bankruptcy petition." In re Miller, 282 F.3d at 877 (citing 11 U.S.C. § 365(g)(1)). As a result, the non-debtor becomes an unsecured creditor with a pre-petition claim for damages. Id.

         Subsection (h) specifically concerns leases of real property. Under it, "[i]f the trustee rejects an unexpired lease of real property under which the debtor is the lessor" and "if ...


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