SFS Check, LLC v. First Bank of Del.

• Decision Date: 16 December 2014
• Docket Number: No. 14–1104.,14–1104.
• Citation: 774 F.3d 351
• Parties: SFS CHECK, LLC, Plaintiff–Appellant, v. FIRST BANK OF DELAWARE, et al., Defendants–Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

774 F.3d 351

SFS CHECK, LLC, Plaintiff–Appellant

v.FIRST BANK OF DELAWARE, et al., Defendants–Appellees.

No. 14–1104.

United States Court of Appeals, Sixth Circuit.

Dec. 16, 2014.

ON BRIEF:Raymond R. Burkett, Burkett & Associates, Livonia, Michigan, for Appellant. Christopher A. Cornwall, Dickinson Wright, PLLC, Detroit, Michigan, Richard L. Scheff, Montgomery McCracken Walker & Rhoads LLP, Philadelphia, Pennsylvania, for Appellees.

Before: SILER, SUTTON, and McKEAGUE, Circuit Judges.

OPINION

SILER, Circuit Judge.

The main issues in this case are (1) whether answering a phone call establishes personal jurisdiction in the state from which the phone call was made; and (2) whether a bank owes a duty of care to an identity theft victim who is not a customer. SFS Check, LLC (SFS), a Michigan financial services company, processed all its transactions through its account at Fifth Third Bank. Fifth Third discovered that illegal gambling transactions were being processed through an account associated with SFS at First Bank of Delaware (FBD). Fifth Third terminated SFS's account. SFS soon went bankrupt. It sued FBD and some of its officers, alleging negligence and fraud. The district court found that (1) it lacked personal jurisdiction over all individual defendants; (2) FBD owed no duty of care to SFS because SFS was not a customer; and (3) SFS failed to adequately plead a claim of fraud. SFS now appeals the dismissal of its complaint. We AFFIRM.

I.

SFS is a defunct company run by Charles Kopko in Michigan. It provided financial transaction processing and electronic funds transfers to companies engaged in e-commerce. It processed those transactions through its account at Fifth Third, which is not a party to this suit. In 2010, Fifth Third discovered that FBD was processing illegal gambling funds through SFS's account at Fifth Third and notified SFS that it was closing SFS's account immediately. Losing this account crippled SFS's ability to do business, and it soon went bankrupt.

In August 2010, Kopko telephoned FBD and spoke to Sian Bastable, FBD's vice-president for e-commerce. According to Kopko, Bastable said FBD did not have an account in SFS's name. In October 2010, SFS received a grand jury subpoena related to a federal investigation of the gambling transactions done in SFS's name. When Kopko called Bastable again to discuss the subpoena, Bastable admitted that FBD had an account in SFS's name and that the board of directors was aware of this account.

In 2012, SFS filed a complaint in federal court for negligence and fraud against FBD, Bastable, and FBD's individual directors. The defendants filed a motion to dismiss, arguing that Michigan courts lacked personal jurisdiction over the individual defendants under Fed.R.Civ.P. 12(b)(2) and that SFS failed to state a claim for which relief can be granted under Fed.R.Civ.P. 12(b)(6).

After conducting discovery, SFS filed a motion for leave to file a second amended complaint, which included its proposed second amended complaint. The district court denied SFS's motion and dismissed the case.

II.

One motion under review is a motion for leave to amend under Fed.R.Civ.P. 15(a)(2). Although the rule encourages courts to give leave to amend “when justice so requires,” id., courts need not give leave to amend when doing so would be futile. Rose v. Hartford Underwriters Ins. Co., 203 F.3d 417, 420 (6th Cir.2000). Amending would be futile if a proposed amendment would not survive a motion to dismiss. Riverview Health Inst. LLC v. Med. Mut. of Ohio, 601 F.3d 505, 512 (6th Cir.2010).

A district court's decision to dismiss a case for failure to state a claim for which relief can be granted under Rule 12(b)(6) is a decision we review de novo. Hall v. Callahan, 727 F.3d 450, 453 (6th Cir.2013). Whether a court has personal jurisdiction over a defendant is also a question of law we review de novo. Beydoun v. Wataniya Rests. Holding, Q.S.C., 768 F.3d 499, 504 (6th Cir.2014). Likewise, whether a defendant owed a duty of care to a plaintiff is a legal question subject to de novo review. See Graves v. Warner Bros., 253 Mich.App. 486, 656 N.W.2d 195, 205–06 (2002).

To survive a Rule 12(b)(6) motion, a complaint must comply with the pleading requirements of Rule 8(a), which, among other things, requires a “short and plain statement of the claim showing that the pleader is entitled to relief.” See Ashcroft v. Iqbal, 556 U.S. 662, 677–78, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). A pleading must go beyond “labels and conclusions” or a mere “formulaic recitation of the elements of a cause of action.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “ ‘[N]aked assertions devoid of further factual enhancement’ contribute nothing to the sufficiency of the complaint.” 16630 Southfield Ltd. P'ship v. Flagstar Bank, F.S.B., 727 F.3d 502, 506 (6th Cir.2013) (quoting Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ).

III.

The first issue concerns specific personal jurisdiction. The district court found that while it had jurisdiction over FBD, it lacked personal jurisdiction over the members of FBD's board of directors and over Bastable.

To survive a motion to dismiss for lack of personal jurisdiction under Fed.R.Civ.P. 12(b)(2), a plaintiff must prove that jurisdiction is proper over each defendant individually. Beydoun, 768 F.3d at 504. When, as here, the district court allows discovery on the motion, the court should consider the facts offered by both parties and rule according to the preponderance of the evidence. Serras v. First Tenn. Bank Nat'l Ass'n, 875 F.2d 1212, 1214 (6th Cir.1989). A federal court may only exercise jurisdiction over a party in a diversity-of-citizenship case when such jurisdiction is both authorized by state law and permitted by the Due Process Clause of the Fourteenth Amendment. Beydoun, 768 F.3d at 504.

SFS argues that jurisdiction over Bastable exists under Michigan's “long-arm” statute, specifically Mich. Comp. Laws § 600.705(2). This provision provides for personal jurisdiction over nonresidents for claims “arising out of” acts that include “doing or causing an act to be done, or consequences to occur, in the state resulting in an action for tort.” Id. SFS's theory is that when Bastable incorrectly told Kopko that FBD did not have an account in SFS's name, this negligent or fraudulent failure to divulge critical information harmed SFS in Michigan.

Even assuming that Bastable's statement over the telephone satisfied Michigan's long-arm statute, the court's jurisdiction remains limited by the federal Due Process Clause. The relevant question under the Due Process Clause is whether the nonresident defendant possessed such “minimum contacts” with the forum state that exercising jurisdiction would comport with “traditional notions of fair play and substantial justice.” Beydoun, 768 F.3d at 505 (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945) ). This court has its own three-pronged test for assessing the existence of “minimum contacts”:

First, the defendant must purposefully avail himself of the privilege of acting in the forum state or causing a consequence in the forum state. Second, the cause of action must arise from the defendant's activities there. Finally, the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable.

Id. (quoting S. Mach. Co. v. Mohasco Indus., Inc., 401 F.2d 374, 381 (6th Cir.1968) ). Purposeful availment happens when the defendant personally takes actions that create a “substantial connection” with the forum state such that he can “reasonably anticipate being haled into court there.” Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 889 (6th Cir.2002) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985) ). Jurisdiction over the individual officers of a corporation cannot be predicated merely upon jurisdiction over the corporation. Balance Dynamics Corp. v. Schmitt Indus., Inc., 204 F.3d 683, 698 (6th Cir.2000). We now apply this rubric to SFS's allegations against Bastable.

SFS alleges only two contacts between Bastable and Michigan. First, Bastable answered Kopko's phone call in August 2010. SFS says Bastable's failure to divulge critical information during this call contributed to the demise of the company. Second, SFS says Bastable returned a phone call from Kopko in October 2010. SFS does not allege that the information conveyed in this phone call was inaccurate.

We agree with the district court that these phone calls do not establish purposeful availment on the part of Bastable. The August phone call resulted from the “unilateral activity” of Kopko. A person like Bastable does not create a “substantial connection” with another state merely by answering the phone. Furthermore, the injury to SFS—Fifth Third's decision to terminate SFS's account—happened before either of these telephone conversations. The injury that preceded the phone calls could not have arisen from the phone calls. Nor would we consider the exercise of jurisdiction over Bastable reasonable under these circumstances. Bastable did not have the minimum contacts necessary to support the jurisdiction of a Michigan court.

IV.

SFS's first claim against FBD is for negligence. The elements of negligence under Michigan law are duty, breach of that duty, causation, and damages. Brown v. Brown, 478 Mich. 545, 739 N.W.2d 313, 316–17 (2007). The threshold question of whether the defendant owed a duty to the plaintiff is a question of law to be decided by the court. Fultz v. Union–Commerce Assocs., 470 Mich. 460, 683 N.W.2d 587, 590 (2004). The almost-universal law in this country is that banks owe a duty of care only to their own customers. Contour Indus., Inc. v. U.S. Bank, N.A., 437 Fed.Appx. 408, 416 (6th Cir.2011) ; Lerner v. Fleet Bank, N.A., 459 F.3d...