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TSFR Burger, LLC v. Starboard Group of Great Lake, LLC

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

October 30, 2019

TSFR BURGER, LLC, Plaintiff,
v.
STARBOARD GROUP OF GREAT LAKE, LLC AND ANDREW LEVY, Defendants.

          Anthony P. Patti Magistrate Judge

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS [ECF No. 3]

          Victoria A. Roberts United States District Judge

         I. INTRODUCTION

         On February 6, 2019, TSFR Burger, LLC (“TSFR”) and Starboard Group of Great Lakes, LLC (“Starboard”) entered into an Asset Purchase Agreement (“APA”). Under the APA, TSFR agreed to purchase fifty-six (56) Wendy's restaurant franchises from Starboard. (Doc # 1-2; Pg ID 16).

         Before the sale closed on May 20, 2019, the parties agreed to five amendments to the APA. Of relevance to this dispute are the Fourth and Fifth Amendments. Under the Fourth Amendment, Starboard agreed to make certain repairs prior to closing or - if not completed by closing - to reimburse TSFR for any costs incurred by it to complete the repairs. Further, of the 56 restaurants, twenty-two (22) had Brinks' safes where Starboard would make daily deposits of its revenues. Under the Fifth Amendment, the parties agreed that the deposits were to be credited to TSFR's accounts, rather than Starboards.

         TSFR alleges that Starboard failed to (1) perform repairs at the restaurants prior to closing and (2) remit and credit TSFR for daily revenues it deposited after the closing.

         On July 12, 2019, TSFR filed suit against Starboard and its managing member, Andrew Levy (“Levy”), for conversion under Michigan common law and MCL 600.2919a(1)(a), breach of contract, and fraud in the inducement.

         Starboard moves to dismiss under Federal Rule of Civil Procedure 9(b) and 12(b)(6); it says TSFR fails to state claims upon which relief can be granted because it does not plead facts sufficient to allege breach of contract, fraud in the inducement, and conversion.

         The Court GRANTS IN PART AND DENIES IN PART Defendant's motion to dismiss.

         II. BACKGROUND

         Before closing, Starboard was the licensee of Brinks' safes located at the 22 Wendy's franchises. (Compl. ¶10). Starboard deposited daily revenues into the Brinks' safes, and its accounts were directly credited. (Id. ¶11). This was supposed to change at or before closing so that deposits would be credited to TSFR instead. (Id. ¶ 6). This was not done; The parties failed to reprogram the safe and deposits continued to be credited to Starboard after closing. (Id. ¶10). The parties dispute who is at fault for not changing the name of the licensee. However, that dispute has no relevance for purposes of deciding this motion.

         Over the course of negotiations, the parties agreed to multiple amendments to the APA. (Doc # 9; Pg ID 195). On May 8th, the parties agreed to the Fourth Amendment; Starboard agreed to provide a “Letter of Credit” to TSFR in the amount of $1, 000, 000.00 as security for Starboard's post-closing indemnity obligations. (Doc # 9; Pg ID 201).

         On May 17th, Starboard agreed to a Fifth Amendment; Starboard promised to remit and credit any money deposited by TSFR into the Brinks' safes. (Doc # 9; Pg ID 206). Starboard agreed to (i) email TSFR the report received from Brinks' identifying TSFR's Brinks' Deposits credited to Starboard and (ii) return TSFR's Brinks' deposits by wire transfer. See APA, Fifth Amendment Section 7.

         On May 22 - two days after closing - TSFR reminded Starboard of its obligation to remit money daily. (Compl. ¶12). Starboard did not respond. The following day, TSFR again contacted Starboard and provided balances due for TSFR's Brinks' deposits. (Id. ¶13). Starboard disputed the amount due. (Id. ¶14).

         On May 28, Starboard had still not wired money. (Id. ¶17). TSFR expressed frustration with Starboard's lack of compliance. (Id. ¶18). It also notified Starboard that one of TSFR's general managers had mistakenly used Starboard deposit slips to deposit additional TSFR money. (Id. ¶17). TSFR contacted Starboard and Levy personally to demand return of the money. Neither responded. (Id. ¶18).

         In addition to Starboard's alleged failure to return the money, Starboard agreed to make certain repairs at the restaurants prior to closing. (Id. ¶23). Pursuant to Section 9(c) of the Fourth Amendment to the APA, if Starboard failed to perform these repairs, then, upon notice from TSFR, Starboard was obligated to pay TSFR the costs of making these repairs in the amounts set forth in Exhibit B of the Fourth Amendment. (Doc # 9; Pg ID 201). Starboard refused to pay for these repairs.

         Following Starboard's refusal to remit money and pay for repairs, TSFR made a formal demand to Starboard to remit TSFR's funds deposited into Starboard's account. (Id. ¶29). TSFR also demanded funds from escrow - related to certain equipment that allegedly required maintenance or repair - but it never received any funds. (Id. ¶29). Finally, Starboard informed TSFR that it would not remit any money and referred TSFR's counsel to its litigation counsel. (Id. ¶19).

         In the motion to dismiss, Defendants claim: 1) the economic loss rule bars recovery for conversion and fraud in the inducement; 2) TSFR consented to the transfer of funds; 3) TSFR failed to properly specify funds to be remitted; 4) TSFR failed to plead with particularity; 5) any fraudulent representations were negated by the APA; 6) the merger clause in the APA negated TSFR's fraud claim; and 7) TSFR did not properly allege a plausible breach of contract claim.

         III. LEGAL STANDARD

         A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests a complaint's legal sufficiency. The federal rules require that a complaint contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Indeed, “[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.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible where the facts allow the court to infer that the defendant is liable for the misconduct alleged. Id. This requires more than “bare assertions of legal conclusions”; a plaintiff must provide the “grounds” of his or her “entitlement to relief.” League of United Latin Am. Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007); Twombly, 550 U.S. at 555 (while detailed factual allegations are not required, a pleading must offer more than “labels and conclusions” or “a formulaic recitation of the elements of the cause of action”). Ultimately, the question is “‘not whether [the plaintiff] will ultimately prevail' . . . but whether [the] complaint [is] sufficient to cross the federal court's threshold.” Skinner v. Switzer, 562 U.S. 521, 529-30 (2011).

         In deciding a motion under Rule 12(b)(6), the court must construe the complaint in the light most favorable to the plaintiff, accept as true all well-pled factual allegations, and draw all reasonable inferences in favor of the plaintiff. Bassett v. Nat'l Collegiate Athletic Ass'n, 528 F.3d 426, 430 (6th Cir. 2008). The court “may consider the complaint and any exhibits attached thereto, public records, items appearing in the record of the case and exhibits attached to defendant's motion to dismiss so long as they are referred to in the complaint and are central to the claims contained therein.” Id.

         IV. ANALYSIS

         TSFR alleges three claims against both Starboard and Levy: count I (statutory/common law conversion), count II (breach of contract), and count III (fraud in the inducement).

         TSFR never alleges - nor does it proffer - any evidence that an agreement with Levy exists. TSFR alleges only that: “[t]he APA, as amended, is a valid and binding contract between TSFR and Starboard.” (Compl. ¶44).

         TSFR also fails to make fraud allegations against Levy. TSFR states broadly that “Starboard and Levy” made representations with certain knowledge. (Compl. ¶¶ 56-57). The complaint does not ...


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