BMF Advance, LLC v. Litiscape, LLC
| Docket Number | Case No. 2:21-cv-00103-DBB-DBP |
| Decision Date | 25 October 2022 |
| Citation | 637 F.Supp.3d 1272 |
| Parties | BMF ADVANCE, LLC, a New York limited liability company, Plaintiff, v. LITISCAPE, LLC, an Arizona limited liability company; Encorp, LLC, an alleged limited liability company; En Corp USA, a Texas corporation; Joseph H, Inc., a foreign corporation; Michael Kamalu, an individual; Joseph Azulay, an individual; and Clark Business Law, PLLC, a Utah professional limited liability company; and Does 1-10, Defendants. |
| Court | U.S. District Court — District of Utah |
Daniel K. Brough, Bradley C. Johnson, James C. Dunkelberger, Taylor C. Jaussi, Bennett Tueller Johnson & Deere PC, Salt Lake City, UT, for Plaintiff.
Jonathan O. Hafen, Rick Rose, Kevin G. Heiner, Parr Brown Gee & Loveless, Salt Lake City, UT, Cynthia D. Love, Kirkland & Ellis, Salt Lake City, UT, for Defendants Litiscape, Michael Kamalu.
Amy F. Sorenson, John A. Wirthlin, Snell & Wilmer LLP, Salt Lake City, UT, for Defendant EN Corp USA.
Alyssa J. Wood, Chase A. Adams, Steele Adams Hosman, Sandy, UT, for Defendant Joseph H.
Alyssa J. Wood, Chase A. Adams, Justin Martin Hosman, Steele Adams Hosman, Sandy, UT, for Defendant Joseph Azulay.
Joseph H, Pro Se.
Joseph Azulay, Pro Se.
Before the court is Defendant Clark Business Law, PLLC's ("CBL") Motion to Dismiss Claims III and VII of Plaintiff's First Amended Complaint.1 CBL asserts that Plaintiff BMF Advance, LLC ("BMF") has failed to state a claim against CBL and moves to dismiss the claims under Federal Rule of Civil Procedure 12(b)(6). Having reviewed the parties' briefs and relevant case law, the court concludes that the motion can be resolved without oral argument.2 For the reasons stated herein, the court grants CBL's motion to dismiss claims III (negligence) and VII (constructive trust).
In June 2020, BMF agreed to be involved in a transaction for the purchase of six million boxes of nitrile gloves.4 The transaction required BMF to furnish three million dollars to Fundigo, LLC.5 Fundigo, LLC would use the funds to provide upfront costs to Litiscape, LLC.6 Litiscape, LLC would purchase nitrile gloves from a supplier in Vietnam and then sell them to Joseph H Inc.7 Joseph H Inc. would then resell the gloves and share the profit with Fundigo, LLC, which in turn would repay BMF.8
However, instead of depositing the funds with Fundigo, LLC, BMF "caused [$1.8 million] to be deposited" into the custody of CBL on July 22, 2020.9 CBL is the law firm that represents Litiscape, LLC and its principal, Michael Kamalu.10 CBL made no inquiry into the source of the $1.8 million, but it knew or should have known that the $1.8 million were an investor's funds for use in the glove transaction.11
On or about the same day, Joseph H Inc. and its principal, Mr. Azulay, requested that Fundigo, LLC authorize the release of the $1.8 million in CBL's custody to Litiscape, LLC.12 Fundigo, LLC immediately relayed Mr. Azulay's and Joseph H Inc.'s request to BMF.13 At first, BMF and Fundigo, LLC declined the request.14 But then Litiscape, LLC and Mr. Kamalu verbally assured BMF and Fundigo, LLC that the released funds would go directly to XPO, a logistics company, to cover freight charges for shipping the gloves.15 Following these assurances, BMF authorized the release of the $1.8 million to XPO.16
Mr. Azulay subsequently executed a document titled "Wire Transfer Authorization."17 The Wire Transfer Authorization instructed CBL to transfer the $1.8 million to Litiscape, LLC18—even though BMF had authorized the release to XPO. The Wire Transfer Authorization falsely stated that Mr. Azulay was authorized to act on behalf of BMF.19 Mr. Azulay signed the document as "President" and "CEO" of BMF.20
CBL did not verify Mr. Azulay's authority to authorize the wire transfer21 before it released the $1.8 million to Litiscape, LLC.22 Litiscape, LLC directed only a small portion of the funds, if any, in furtherance of the glove transaction.23 CBL learned that Litiscape, LLC transferred the funds to Mr. Kamalu and/or used them for Mr. Kamalu's personal expenses and investments.24 However, CBL misrepresented to BMF the amount of BMF's funds that Mr. Kamalu had received, as well as the status of the transaction.25
In its First Amended Complaint, BMF asserts two "claims for relief" against CBL: negligence ("Claim III") and constructive trust ("Claim VII").26 In its motion to dismiss, CBL argues that CBL owed no duty of care to BMF and that therefore BMF's negligence claim fails.27 Further, CBL asserts that the economic loss rule bars the claim regardless.28 CBL also contends that because BMF did not allege that it conferred any benefit on CBL or that CBL retains possession of the $1.8 million at issue, BMF's constructive trust claim also fails.29
BMF responded with an opposition to CBL's motion to dismiss, arguing that CBL affirmatively undertook to perform the release of the funds to Litiscape, LLC and therefore had a duty to confirm that the authorization was proper.30 Alternatively, BMF argues that a special relationship—that of bailor and bailee—existed between BMF and CBL and that therefore CBL owed a duty to BMF.31 BMF contends that the economic loss rule does not apply because CBL owed BMF an independent duty.32 Finally, BMF argues that because CBL breached its duty to BMF, a constructive trust is warranted.33 The "unjust enrichment" element, BMF argues, is satisfied by the legal fees that CBL received by representing Litiscape, LLC and Mr. Kamalu, and it was CBL's wrongful behavior in not verifying the authorization that harmed BMF.34 CBL replied, re-asserting its arguments.35
Federal Rule of Civil Procedure 8(a) requires that a pleading "contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief."36 When the complaint fails "to state a claim upon which relief can be granted," the defendant may move for the claim's dismissal under Federal Rule of Civil Procedure 12(b)(6).37 "The court's function on a Rule 12(b)(6) motion is . . . to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted."38
"[F]or purposes of resolving a Rule 12(b)(6) motion, [the court] accept[s] as true all well-pleaded factual allegations in a complaint and view[s] these allegations in the light most favorable to the plaintiff."39 However, a "pleading that offers 'labels and conclusions,' " " 'naked assertion[s]' devoid of 'further factual enhancement' " or 'a formulaic recitation of the elements of a cause of action will not do.' "40
Instead, "[a] complaint must contain 'enough facts to state a claim to relief that is plausible on its face.' "41 "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."42
Under Utah law,43 "[t]he essential elements of a negligence action are: (1) a duty of reasonable care owed by the defendant to plaintiff; (2) a breach of that duty; (3) the causation, both actually and proximately, of injury; and (4) the suffering of damages by the plaintiff."44 The existence of a duty is a matter of law,45 and "[i]f the district court determines that the defendant owed no duty to the plaintiff, 'there can be no negligence as a matter of law.' "46 As the parties do not cite to any Utah case law recognizing—or refusing to recognize—a law firm's duty under the circumstances BMF alleges in its complaint, the court must determine whether a duty exists.
"Duty arises out of the relationship between the parties and imposes a legal obligation on one party for the benefit of the other party."47 The "baseline principle" is that "a party does not [ordinarily] have an affirmative duty to care for another."48 The Utah Supreme Court has established five factors relevant to a court's analysis of whether a duty exists:
(1) whether the defendant's allegedly tortious conduct consists of an affirmative act or merely an omission; (2) the legal relationship of the parties; (3) the foreseeability or likelihood of injury; (4) "public policy as to which party can best bear the loss occasioned by the injury;" and (5) "other general policy considerations."49
In this analysis, "[n]ot every factor is created equal"50 and each may weigh in favor or against imposing a duty.51 The Utah Supreme Court has "discarded any discussion of the factors as necessarily 'plus' or 'minus' factors" and instead now "emphasize[s] that '[s]ome factors are featured heavily in certain types of cases, while other factors play a less important, or different, role.' "52
The court performs its analysis of duties of care at a categorical level rather than on a case-by-case basis.53 Therefore, instead of determining whether CBL specifically owed a duty to BMF under the complaint's facts, the court considers law firms as a class, a law firm of a party to a contract transferring funds between parties without verifying the authority of the transaction's authorizer, and the full range of injuries that could result in this class of cases.
"The long-recognized distinction between acts and omissions—or misfeasance and nonfeasance—makes a critical difference and is perhaps the most fundamental factor courts consider when evaluating duty."54 "Acts of misfeasance, or 'active misconduct working positive injury to others,' typically carry a duty of care," while "[n]onfeasance—'passive inaction, a failure to take positive steps to benefit others, or to protect them from harm not created by any wrongful act of the defendant'—by contrast, generally implicates a...
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