D.A.N. Joint Venture Props. of Mich., LLC v. Vernier, File No. 2:12-CV-398

• Decision Date: 21 November 2013
• Docket Number: File No. 2:12-CV-398
• Parties: D.A.N. JOINT VENTURE PROPERTIES OF MICHIGAN, LLC, an Ohio Limited Liability Co., Plaintiff, v. DAVID L. VERNIER, et al., Defendants.
• Court: U.S. District Court — Western District of Michigan

D.A.N. JOINT VENTURE PROPERTIES OF MICHIGAN, LLC,an Ohio Limited Liability Co., Plaintiff, v. DAVID L. VERNIER, et al., Defendants.

File No. 2:12-CV-398

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF MICHIGAN NORTHERN DIVISION

Dated: November 21, 2013

HON. ROBERT HOLMES BELL

OPINION

On March 13, 2013, this Court entered an order holding Defendant Peninsula Bank's motion to dismiss (Dkt. No. 29) under advisement and granting Plaintiff D.A.N. Joint Venture Properties of Michigan, LLC, leave to file an amended complaint. Plaintiff filed its first amended complaint on April 2, 2013. (Dkt. No. 75.) This matter is before the Court on Peninsula Bank's renewed motion to dismiss for failure to state a claim (Dkt. No. 82) and on Plaintiff's motion to file a second amended complaint (Dkt. No. 87). For the reasons that follow, both motions will be denied.

I.

Plaintiff's amended complaint contains 17 counts and names 20 defendants . The only claims asserted against Peninsula Bank (the "Bank") are Counts 1and 3, which seek to quiet title to property located at 112 Bluff Street, Ishpeming, Michigan, and 417 E. Hematite,Ishpeming, Michigan, respectively. (Am. Compl. ¶ 11.)

The Bank has filed a renewed motion to dismiss the quiet title claims for failure to state a claim. The Bank contends that Plaintiff's amended complaint does not allege plausible claims that the Bank's mortgages are paid off and satisfied, nor does it allege plausible claims that Plaintiff's judgment liens are senior to the Bank's mortgages that were recorded before the judgment liens.

In reviewing a Rule 12(b)(6) motion to dismiss, the Court must "'construe the complaint in the light most favorable to the plaintiff, accept its allegations as true, and draw all reasonable inferences in favor of the plaintiff,'" but "'need not accept as true legal conclusions or unwarranted factual inferences.'" Hunter v. Sec'y of U.S. Army, 565 F.3d 986, 992 (6th Cir. 2009) (quoting Jones v. City of Cincinnati, 521 F.3d 555, 559 (6th Cir. 2008)). Rule 8's notice pleading standard "does not require 'detailed factual allegations,' but it does demand more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The complaint must include more than labels, conclusions, and formulaic recitations of the elements of a cause of action. Twombly, 550 U.S. at 555. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555). To survive a motion to dismiss under Rule 12(b)(6), a complaint must allege facts that "state a claim to relief that is plausible on its face," and that, if accepted as true, are sufficient to "raise a right to reliefabove the speculative level." Twombly, 550 U.S. at 555, 570. "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. 678. "A claim is plausible on its face if the 'plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'" Ctr. for Bio-Ethical Reform, Inc. v. Napolitano, 648 F.3d 365, 369 (6th Cir. 2011), cert. denied, 132 S. Ct. 1583 ( 2012) (quoting Iqbal, 556 U.S. at 677).

The Michigan quiet title statute provides that:

Any person, whether he is in possession of the land in question or not, who claims any right in, title to, equitable title to, interest in, or right to possession of land, may bring an action in the circuit courts against any other person who claims or might claim any interest inconsistent with the interest claimed by the plaintiff, whether the defendant is in possession of the land or not.

Mich. Comp. Laws § 600.2932(1) (emphasis added). The plaintiff in a quiet title action bears the initial burden to make out a prima facie case of title. Beulah Hoagland Appleton Qualified Pers. Residence Trust v. Emmet Cnty. Rd. Comm'n, 600 N.W.2d 698, 700 (Mich. Ct. App. 1999) (citing Stinebaugh v. Bristol, 347 N.W.2d 219, 221 (Mich. Ct. App. 1984)); see also Baker v. Bank of Am., N.A., No. 13-12474, 2013 WL 5945055, *6 (E.D. Mich. Nov. 6, 2013). Once the plaintiff makes out a prima facie case, the burden shifts to the defendant to establish a superior right or title to the property. Stinebaugh, 347 N.W.2d at 221 (citing Boekeloo v. Kuschinski, 324 N.W.2d 104, 108 (Mich. Ct. App. 1982)). see also Turcar, LLC v. I.R.S., 451 F. App'x 509, 515 (6th Cir. 2011) ("In an action to quiet title under MichiganLaw, the claimant bears the burden of establishing a prima facie case for title. If the claimant establishes its legal interest, the burden of proof shifts to the defendant to prove its superior right or title to the property.") (citations omitted).

Plaintiff has alleged that it has an interest in the Bluff St. and Hematite properties by virtue of state court judgment liens and judgment levies it has recorded against the properties. (Am. Compl. ¶¶ 206-07, 235-36.) Plaintiff has alleged that the properties were fraudulently transferred to evade its judgment liens and that although the Bank has several recorded mortgages against the properties, the mortgages have been paid in full and should have been discharged or are invalid. (Am. Compl. ¶¶ 209-12, 240-44.) Plaintiff has alleged an interest in land that it claims is superior to interests claimed by the Bank.

The Bank contends that it is entitled to dismissal of Plaintiff's complaint because Plaintiff has not alleged the superiority of its interest in the properties. The Bank relies on M.C.R. 3.411(B)(2)(c) in support of the proposition that in a quiet title action, the plaintiff's complaint must provide "the facts establishing the superiority of the plaintiff's claim." The Bank's reliance on M.C.R. 3.411 is misplaced. The court rule in question is not a rule of substantive law. It is a procedural rule. "Under the Erie doctrine [Erie R.R. v. Tompkins, 304 U.S. 64 (1938)], federal courts sitting in diversity apply substantive laws of the state, not procedural laws of court." McKelvie v. City of Mount Clemens, Nos. 90-1430, 90-1448, 1991 WL 139697, at *4 (6th Cir. July 30, 1991); see also Rheault v. Lufthansa German Airlines, 899 F. Supp. 325, 328 (E.D. Mich. 1995) (citing McKelvie). Because this Court is not boundby state court rules on pleading requirements, Plaintiff is not required to plead the superiority of its interest in the property. See Omimex Energy, Inc. v. Blohm, No. 5:06-CV-68, 2006 U.S. Dist LEXIS 66917 at *13-14 (W.D. Mich. Sept. 19, 2006) (Quist, J.) ("Plaintiffs' allegations also provide an adequate basis for a quiet title action under M.C.L.A. § 600.2932 because Plaintiffs and Defendant assert conflicting interests.")

In the alternative, the Bank contends that David and Linda Vernier still owe money to the bank and that there has been no release of the future advance mortgages. The Bank contends that the exhibits attached to its motion to dismiss¹ demonstrate that its mortgages have not been paid in full and are not subject to discharge, and establish that the Bank's interest in the properties is prior to and superior to the interest of Plaintiff.

"A copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes." Fed. R. Civ. P. 10(c). Accordingly, "[D]ocuments attached to the pleadings become part of the pleadings and may be considered on a motion to dismiss." Comm'l Money Ctr., Inc. v. Ill. Union Ins. Co., 508 F.3d 327, 335 (6th Cir.2007). In addition, "when a document is referred to in the pleadings and is integral to the claims, it may be considered without converting a motion to dismiss into one for summary judgment." Id. (citing Jackson v. City of Columbus, 194 F.3d 737, 745 (6th Cir. 1999)). A court may alsoconsider matters of public record in deciding a motion to dismiss without converting the motion to one for summary judgment. Id. at 336.

The loan documents attached to Defendant's motion are referenced in Plaintiff's amended complaint, but not attached to it.² Although these loan documents may form the heart of the Bank's defense, they are not integral to Plaintiff's claims and are not essential to the Court's consideration of the adequacy of Plaintiff's pleadings. Whether or not anything is still owing on any of the mortgages or loans is an affirmative defense for the Bank to plead. Plaintiff is not required, in its pleadings, to disprove the Bank's defenses. Even if the Court could consider these documents because they are public records, the Court declines to do so because they raise issues of fact.³ Because no discovery has yet been conducted and because Plaintiff would be entitled to discovery if the Court were to convert the Bank's motion to a motion for summary judgment, the Court will exclude the matters outside the pleadings from its consideration and proceed to consider this as a Rule 12(b)(6) motion to dismiss.

The allegations in Plaintiff's complaint are clearly sufficient to state a claim for quiet title against the Bank. The thrust of the parties' arguments is on the sufficiency of the evidence. Issues concerning the sufficiency of the evidence are not properly before the Court on a Rule 12(b)(6) motion to dismiss. The place to test the sufficiency of the proofs is in a Rule 56 motion for summary judgment. Whether Plaintiff's claims can survive summary judgment is a question for another day after discovery has been taken.

Even if Plaintiff has adequately stated a claim for quiet title, the Bank contends that it is entitled to dismissal of the Plaintiff's amended complaint based on the clean hands doctrine. The Bank contends that Plaintiff is not entitled to equitable relief on its quiet title claims because it previously filed fraud and conspiracy claims in bad faith.

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