United States District Court, E.D. Michigan, Southern Division
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
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).
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
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.
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.
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.
Court GRANTS IN PART AND DENIES IN PART
Defendant's motion to dismiss.
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.
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).
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
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).
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).
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.
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).
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.
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).
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.
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).
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).
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 ...