Leibovic v. United Shore Mortg., LLC

• Decision Date: 28 October 2016
• Docket Number: Case No: 15-12639
• Parties: AL LEIBOVIC, Plaintiff, v. UNITED SHORE MORTGAGE, LLC, AND XEROX MORTGAGE SERVICES, INC., Defendants.
• Court: U.S. District Court — Eastern District of Michigan

AL LEIBOVIC, Plaintiff, v. UNITED SHORE MORTGAGE, LLC,AND XEROX MORTGAGE SERVICES, INC., Defendants.

Case No: 15-12639

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

October 28, 2016

Honorable Victoria A. Roberts

ORDER GRANTING IN PART AND DENYING IN PART DEFENANT XEROX MORTGAGE SERVICES, INC'S MOTION TO DISMISS

I.NATURE OF ACTION

Before the Court is Defendant's Motion to Dismiss Plaintiff's Complaint.

This action arises out of the alleged theft of Al Leibovic's ("Leibovic") electronically stored personal identifiable information.Leibovic brings a multiple count class action suit against United Shore Financial Services, LLC("United Shore") and Xerox Mortgage Services, Inc.("XMS").

In response, United Shore and XMS filed Motions to Dismiss Leibovic's Complaint pursuant to Fed R. Civ. P. 12(b)(6).The Court ruled on United Shore's Motion, granting the Motion to Dismiss Count III - Bailment, and denying the Motion to Dismiss Counts I - Breach of Implied Contract, II - Unjust Enrichment, and IV - Negligence.Without prejudice, the Court denied United Shore's request to strike class action allegations.

XMS brings this Motion separate from United Shore pursuant to Fed R. Civ. P. 12(b)(6).It is GRANTED in part and DENIED in part.

A.Statement of Facts

Leibovic applied for and obtained a mortgage through United Shore.United Shore is a financial services company that provides mortgage lending, servicing, and other related products.As part of United Shore's mortgage application process, prospective borrowers are required to provide personally identifiable information ("PII") and pay a loan application processing fee to United Shore.At the time of Leibovic's application, United Shore utilized BlitzDocs, a computer software program, to process and store loan documents.BlitzDocs is owned by XMS.

Leibovic alleges a Mexico-based criminal enterprise gained unauthorized access to United Shore's files.As a result, his and other United Shore customers' PII were compromised.According to Leibovic, this breach occurred at least twice; December, 2012 and August, 2013.Leibovic alleges the criminal enterprise hacked directly into the BlitzDocs system in order to gain access to customers' PII.After obtaining the information Leibovic says the criminal enterprise used the information to acquire or attempt to acquire fraudulent credit cards, issue fraudulent checks, and liquidate brokerage accounts.

Leibovic filed this complaint after several of his accounts were accessed and an attempt was made to liquidate his account with an investment company.Leibovic claims criminals attempted to open credit cards in his name and issued fraudulent checks from his bank account.He asks for attorneys' fees, and actual and punitive damages.

XMS filed a 12(b)(6) motion to dismiss.XMS alleges all claims fail against it because: (1) Leibovic cannot establish himself as a third-party beneficiary under the breach of contract claim; (2) Leibovic cannot show that XMS owed him a duty separate and distinct from the contractual obligation under the negligence claims; (3) Leibovic fails to allege that he provided information with an understanding that the information would be returned or otherwise accounted for, as required by a bailment claim; and (4) Leibovic's unjust enrichment claim does not allege that a benefit is conferred directly upon XMS.

II.APPLICABLE LAW

A.Motion to Dismiss(12(b)(6))

Fed. R. Civ. P. 12(b)(6) allows dismissal when a plaintiff fails to state a claim upon which relief can be granted.The motion tests the legal sufficiency of claims alleged in the complaint.Accordingly, "to survive a motion to dismiss[under Rule 12(b)(6)], 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)(quotingBell Atl. Corp. v. Twombly, 550 U.S. 544, 570(2007))."Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice."Id.

When presented with a Rule 12(b)(6) motion, the court looks to the factual content of the complaint to determine whether the plaintiff has raised a "plausible inference of wrongdoing."Southfield Ltd. v. Flagstar Bank, 727 F.3d 502, 504(6th Cir., 2013).The court must accept all allegations in the complaint as true and view them inthe light most favorable to the plaintiff in order to determine whether a plaintiff"is entitled to offer evidence to support the claims."Twombly, 550 U.S. at 563 n. 8.When presented with a 12(b)(6) motion, the court may consider the complaint and any attached exhibits, so long as they are referred to in the complaint and are central to the claims.SeeAmini v. Oberlin Coll., 259 F.3d 493, 502(6th Cir.2001).

B.Choice of Law

i. Breach of Contract

Leibovic claims standing as a third party beneficiary to the services contract ("the Agreement") between United Shore and XMS.XMS argues New York law should be applied to Leibovic's breach of contract claim.Leibovic does not disagree.Nonetheless, the Court must satisfy itself that the correct law is applied.

Both parties cite to a Sixth Circuit decision, Davidson, which held that plaintiff's claim as a third party should be decided under the law of the state specified in the contract as the choice of law.Davidson & Jones Dev. Co. v. Elmore Dev. Co., 921 F.2d 1343, 1356 n. 15(6th Cir.1991).Because the Agreement has an explicit choice of law provision that relates to the claim and application of New York law is not adverse to Michigan's public policy, Leibovic's status as a third party beneficiary will be analyzed under New York law.

ii.Negligence and Unjust Enrichment

XMS and Leibovic agree Michigan law should apply to Leibovic's negligence and unjust enrichment claims.Michigan law applies to tort claims, unless there is a "rational reason" to apply the law of another state.Sutherland v. Kennington Truck Serv., 454 Mich. 274, 286(Mich.1997).The court analyzes this by determining first if another statehas an interest in having its law applied.Id.If so, the court must then determine whether the presumption that Michigan law will apply can be overcome.Id.

Leibovic is not a resident of New York and these claims did not arise in New York.The Court agrees New York does not have an interest in the application of its laws to the negligence claims.

iii.Bailment

Leibovic argues the Court cannot correctly determine the law that applies to his bailment claim.Leibovic relies on Bennett to assert the doctrine of lex loci delicti to urge the Court to wait to determine the applicable state law.Lex loci delicti requires the Court to apply the substantive law of the place where the harm occurred.Bennett v. Enstrom Helicopter Corp., 679 F. 2d 630, 631(6th Cir.1982).However, the facts of this case are distinguishable.In Bennett, the court applied New Zealand law to a bailment claim because the issue giving rise to the claim occurred there; additionally, Michigan public policy did not support the application of state law, and the parties lacked contact with Michigan.Id. at 632.Here, Leibovic has already argued there is "no clearer place of contracting than Michigan," which flies in the face of his argument that the Court cannot determine what state law applies to the bailment claim.Thus, Leibovic's bailment claim will be evaluated under Michigan law, in conjunction with the negligence and unjust enrichment claims.

III.DISCUSSION

A.Breach of Contract

Leibovic claims breach of contract as a third party beneficiary to the Agreement.XMS has not disputed that a valid contract exists.However, XMS says Leibovic has notstated a sufficient claim to show he has standing to sue as a third party beneficiary under the Agreement.

The Agreement provisions at issue are § 11.6and§ 7.2:

§ 7.2 Obligations: ....Additionally, XMS agrees to use commercially reasonable means to implement appropriate administrative, technical, and physical safeguards to meet the requirements of the Gramm-Leach-Bliley Act including reasonable efforts to (a) ensure the security and confidentiality of Customer Confidential Information; (b) protect against threats or hazard to the security or integrity of Customer Confidential Information; and (c) protect against unauthorized access to or use of Customer Confidential Information that could result in substantial harm or inconvenience to any customer of client.Dkt. No. 40, Exhibit A, § 7.2, Pg. ID 430.

§11.6: All rights and obligations of the parties hereunder are personal to them.Except as otherwise specifically stated herein, this Agreement is not intended to benefit, nor shall it be deemed to give rise to, any rights in any third party.Dkt. No. 40, Exhibit A, § 11.6, Pg. ID 433.

Under New York law, a plaintiff must show the following to establish a third party beneficiary claim: (1) the existence of a valid contract; (2) the contract was intended to benefit the third party; and (3) the benefit to the third party is "sufficiently immediate," indicating the contracting parties assumed a duty to compensate the third party if thebenefit is lost.SeeMandarin Trading Ltd. v. Wildenstein, 919 N.Y.S.2d 465, 471(N.Y. App. Div.2011).

XMS relies on LaSalle to argue Leibovic cannot show the Agreement seeks to benefit him on the face of the contract.LaSalle Nat'l Bank v. Ernst & Young LLP, 729 N.Y.S.2d 671, 676(N.Y. App. Div.2012).In LaSalle, an insurer was able to prove the contract was not intended to benefit a third party from the language of the contract.Here, XMS asserts Leibovic failed to identify a contract provision that demonstrates a clear intent to benefit him; XMS says Leibovic merely depends on § 7.2 of the Agreement, which outlines requirements under the Gramm-Leach-Bliley Act.SeeStrauss v. Belle Realty Co., 469 N.Y.S.2d 948, 950(N.Y. App. Div.1983).The Gramm-Leach-Bliley Act was enacted in 2011 to establish...