United States District Court, E.D. Michigan, Southern Division
ARI KRESCH, MERCHANT'S CREDIT RECOURSE, LLC, JOHN MOLESKI, and JESSE MOLESKI, Plaintiffs,
DONALD MILLER, KYLE ARNESON, UNIVERSITY CAPITAL SOLUTIONS LLC, UNIVERSITY CAPITAL INVESTMENTS LLC, and DOES 1-50, Defendants.
OPINION AND ORDER GRANTING IN PART AND DENYING IN
PART DEFENDANTS' MOTION TO DISMISS FIRST AMENDED
V. PARKER U.S. DISTRICT JUDGE.
initiated this lawsuit against Defendants on January 3, 2018.
In a First Amended Complaint filed on October 31, 2018,
Plaintiffs assert the following claims against Defendants:
(I) breach of contract brought by Plaintiffs Ari Kresch
(“Kresch”) and Merchant's Credit Recourse,
(II) breach of contract brought by Plaintiff John Moleski
(III) breach of contract brought by Plaintiff Jesse Moleski
(IV) fraud brought by John;
(V) fraud brought by Jesse;
(VI) fraud brought by Kresch and MCR;
(VII) negligent misrepresentation brought by all Plaintiffs;
(VIII) violation of the Racketeer Influenced and Corrupt
Organizations Act (“RICO”) brought by Kresch and
(ECF No. 20.) The matter is presently before the Court on
Defendants' motion to dismiss, filed pursuant to Rules
12(b)(2) and (6) of the Federal Rules of Civil Procedure.
(ECF No. 25.) The motion has been fully briefed. (ECF Nos.
27, 29.) Finding the facts and legal arguments sufficiently
presented in the parties' briefs, the Court is dispensing
with oral argument with respect to Defendants' motion
pursuant to Eastern District of Michigan Local Rule 7.1(f).
For the reasons that follow, the Court is granting in part
and denying in part Defendants' motion to dismiss.
Rule of Civil Procedure 12(b)(2) provides for dismissal when
a court lacks personal jurisdiction over a defendant. The
plaintiff has the burden of establishing the Court's
jurisdiction over a defendant. See Theunissen v.
Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991) (citing
McNutt v. Gen. Motors Acceptance Corp., 298 U.S.
178, 189 (1936)). To defeat a defendant's motion to
dismiss for lack of personal jurisdiction, the plaintiff need
only make a prima facie showing of jurisdiction. See
id. A prima facie showing requires the plaintiff to
“‘demonstrate facts which support a finding of
jurisdiction. . ..'” Welsh v. Gibbs, 631
F.2d 436, 438 (6th Cir. 1980) (quoting Data Disc, Inc. v.
Sys. Tech. Assoc., Inc., 557 F.2d 1280, 1285 (9th Cir.
1977)). Where the court does not hold an evidentiary hearing
on the matter, “the court must consider the pleadings
and affidavits in a light most favorable to the
plaintiff.” Dean v. Motel 6 Operating L.P.,
134 F.3d 1269, 1272 (6th Cir. 1998) (quoting CompuServe,
Inc. v. Patterson, 89 F.3d 1257, 1262 (6th Cir. 1996)).
motion to dismiss pursuant to Rule 12(b)(6) tests the legal
sufficiency of the complaint. RMI Titanium Co. v.
Westinghouse Elec. Corp., 78 F.3d 1125, 1134 (6th Cir.
1996). Under Federal Rule of Civil Procedure 8(a)(2), a
pleading must contain a “short and plain statement of
the claim showing that the pleader is entitled to
relief.” To survive a motion to dismiss, a complaint
need not contain “detailed factual allegations, ”
but it must contain more than “labels and
conclusions” or “a formulaic recitation of the
elements of a cause of action . . ..” Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 555 (2007). A complaint
does not “suffice if it tenders ‘naked
assertions' devoid of ‘further factual
enhancement.'” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (quoting Twombly, 550 U.S. at 557).
Supreme Court provided in Iqbal and
Twombly, “[t]o survive a motion to dismiss, a
complaint must contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on
its face.'” Id. (quoting Twombly,
550 U.S. at 570). “A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id. (citing
Twombly, 550 U.S. at 556). The plausibility standard
“does not impose a probability requirement at the
pleading stage; it simply calls for enough facts to raise a
reasonable expectation that discovery will reveal evidence of
illegal [conduct].” Twombly, 550 U.S. at 556.
deciding whether the plaintiff has set forth a
“plausible” claim, the court must accept the
factual allegations in the complaint as true. Erickson v.
Pardus, 551 U.S. 89, 94 (2007). This presumption is not
applicable to legal conclusions, however. Iqbal, 556
U.S. at 668. Therefore, “[t]hreadbare recitals of the
elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Id. (citing
Twombly, 550 U.S. at 555).
the court may not consider matters outside the pleadings when
deciding a Rule 12(b)(6) motion to dismiss. Weiner v.
Klais & Co., Inc., 108 F.3d 86, 88 (6th Cir. 1997)
(citing Hammond v. Baldwin, 866 F.2d 172, 175 (6th
Cir. 1989)). A court that considers such matters must first
convert the motion to dismiss to one for summary judgment.
See Fed. R. Civ. P 12(d). However, “[w]hen a
court is presented with a Rule 12(b)(6) motion, it may
consider the [c]omplaint and any exhibits attached thereto,
public records, items appearing in the record of the case and
exhibits attached to [the] defendant's motion to dismiss,
so long as they are referred to in the [c]omplaint and are
central to the claims contained therein.” Bassett
v. Nat'l Collegiate Athletic Ass'n, 528 F.3d
426, 430 (6th Cir. 2008).
is currently a citizen of San Juan, Puerto Rico, but was a
Michigan citizen during the events that give rise to this
lawsuit. (Am. Compl. ¶ 1.) Kresch is the manager of MCR,
which is in the business of collecting on Michigan debt
portfolios. (Id. ¶¶ 1, 2.) John is a
Florida resident who was employed by Defendant University
Capital Solutions (“UCS”) to perform debt
collection projections. (Id. ¶ 3.) Jesse,
John's father, is a New York resident. (Id.
a Florida limited liability corporation that allegedly
purchased private student loan debt generated by universities
for debt collection. (Id. ¶ 8.) Defendant
Donald Miller (“Miller”) is a Florida resident
and the co-founder and manager of UCS. (Id. ¶
5.) Defendant Kyle Arneson (“Arneson”) is a
resident of Illinois and was the Vice President of Capital
Formation for UCS. (Id. ¶ 6.) Defendant
University Capital Investments, LLC (“UCI”) is a
Florida corporation, apparently connected with UCS.
(Id. ¶ 7.) Plaintiffs allege that there was a
unity of interest between Defendants such that they are alter
egos of one another. (Id. ¶¶ 10-12.)
February 16, 2012, Defendants approached Kresch and MCR
offering them the opportunity to purchase student loan debt
that Defendants claimed would fit the investing criterion of
MCR's debt buying business. (Id. ¶ 21.)
Defendants represented that UCS purchases private student
loan debt generated by universities at a discount and then
collects on that debt. (Id. ¶ 22.) In
subsequent conversations with Kresch and MCR, Defendants
further represented that UCS already owned a significant
amount of “student gap debt, ” including Michigan
schools for MCR to collect. (Id. ¶ 23.)
Defendants supplied Kresch and MCR with materials describing
UCS' business operations and financial projections and a
link to a video presentation used for marketing to college
presidents. (Id. ¶ 24.) On February 21, 2012,
Defendants represented inter alia that UCS markets
to over 2, 000 universities and 1, 200 colleges, and had over
$400 million worth of portfolios booked and/or under contract
for immediate purchase. (Id. ¶ 26.) Defendants
provided a breakdown of the Michigan schools interested in
selling UCS their delinquent accounts. (Id. ¶
on Defendants' representations, Kresch and MCR entered
into a note purchase agreement with UCS on March 7, 2012.
(Id. ¶ 28, citing Ex. A.) MCR wired $500, 000
to Defendants on March 14, 2012, in accordance with the
agreement. (Id.) As part of the note purchase
agreement, MCR was provided a Senior Corporate Debenture
(“Debenture”). (Id. ¶ 29.) Pursuant
to the Debenture, MCR was to be repaid its $500, 000
investment plus 12% interest on March 7, 2013. (Id.)
Although UCS had the right to extend its repayment obligation
by one year, it did not request such an extension.
(Id.) UCS failed to pay the amount due.
also entered into a “Collection Servicing
Agreement” with UCI on May 23, 2012. (Id.
¶ 30, Ex. B.) Pursuant to the Collection Servicing
Agreement, UCI appointed MCR to be its exclusive servicer in
Michigan in exchange for MCR's $500, 000 investment in
UCS. (See id. Ex. B § 2.01.) The Collection
Servicing Agreement required MCR to make additional
investments in UCS upon receiving a specified amount of fees
from accounts and other assets collected on behalf of UCS
and/or UCI. (Id.)
period of time, Kresch and MCR asked Defendants to identify
the Michigan debt portfolios UCS acquired and that MCR would
be receiving for collection. (Am. Compl. ¶ 31.) MCR in
fact never received a single Michigan debt portfolio from
Defendants and discovered in 2014 that USC never acquired any
Michigan portfolios. (Id. ¶ 32.) In fact, MCR
learned that UCS had no personal contacts with college and
university presidents in Michigan and never intended to buy
any debt portfolios from Michigan. (Id. ¶¶
32, 33.) MCR also learned that the amount it paid Defendants
had been deposited into Miller's and Arneson's
personal bank accounts. (Id. ¶ 34.)
was introduced to Defendants in 2011, and agreed to work for
Miller in April 2011. (Id. ¶¶ 36-37.)
Based on Defendants' representations concerning UCS, John
invested $85, 960.39 into the corporation. (Id.
¶ 39.) John witnessed Defendants raise at least $1.1
million in investments for UCS. (Id. ¶ 41.)
According to John, UCS spent $40, 000, at most, to purchase
debt portfolios; although, John came into contact with many
colleges and universities while working with Defendants that
were ready and willing to sell UCS student loan debt
portfolios. (Id. ¶¶ 42, 43.)
also invested in UCS after his son, John, shared the
representations Miller made about the corporation with him.
(Id. ¶ 48.) On May 5, 2011, Jesse signed a
subscription agreement and wired $60, 5000 to UCS.
(Id. ¶¶ 50, 51; Defs.' Mot. Ex. 1.)
Defendants' Arguments & Analysis
Claims by John and Jesse
argue that this Court lacks personal jurisdiction over them
with respect to John's and Jesse's claims because
Defendants lack sufficient ties to Michigan to exercise
general jurisdiction over them and the alleged conduct on
which the claims are based has no connection with Michigan.
Plaintiffs did not respond to Defendants' arguments in
their response brief. As such, Plaintiffs have not satisfied
their burden of showing that this Court has personal
jurisdiction over John's and Jesse's
Court therefore is dismissing without prejudice the claims
asserted by John and Jesse in the First Amended Complaint
(Counts II through IV in their entirety and Count VII in
Breach of Contract Claim by MCR & ...