Jillson v. ElrodJillson v. Elrod
I. INTRODUCTION
On August 13, 2021, Plaintiff Kenneth Jilson initiated this action against Jeremy Elrod, SWORD International, Inc. (“SWORD“), SWORD Manufacturing, and Assured Outcomes Group, Inc. (“AOG“). ECF No. 1. Jilson brings claims for default in contract (Count I), unjust enrichment (Count II), promissory estoppel (Count III), fraudulent inducement (Count IV), breach of fiduciary duty (Count V), minority oppression (Count VI), and, in the alternative to Counts V and VI, securities fraud pursuant to
II. FACTUAL & PROCEDURAL BACKGROUND
A. Factual Background
Defendant Elrod is a Nevada resident. Compl., ECF No. 1, PageID.2. He has three companies, all registered and with their principal places of business in Nevada. Id. Defendant SWORD International, is a manufacturer and developer of products used by the United States military, law enforcement, and hunters. Id. Defendant SWORD Manufacturing is the manufacturing arm of SWORD. Defendant AOG is an asset recovery company formed to support SpaceX. Id.
Jilson and Elrod met in or about 2014 and developed a friendship while Jilson was living in California. Elrod Decl., ECF No. 8-2, PageID.137; Compl., ECF No. 1, PageID.3. As part of their friendship, Jilson routinely provided business advice to Elrod. Id. Jilson also provided Elrod with a “seed working capital loan” in 2015,
During the Fall of 2017, Jilson and Elrod discussed Jilson becoming more involved in SWORD and Elrod‘s other businesses. Id. Thus, on September 13, 2017, Elrod and Jilson executed a promissory note (the “First Note“) on a $58,000 loan Jilson provided Elrod, as the obligor, for a two-year term at a 15% interest rate (the “First Loan). Id. (citing First Note, ECF No. 1-2). Jilson provided the funds on September 26, 2017. Id. Although Elrod signed as the obligor, the funds from the First Loan were to be used by SWORD. Jilson Decl., ECF No. 9-2, PageID.180.
Despite providing the First Loan, Jilson was concerned about SWORD‘s viability. Compl., ECF No. 1, PageID.4. To allay his concerns, Elrod offered to bring Jilson onboard to help grow and develop SWORD and Elrod‘s other companies. Id. Jilson agreed and left his then employer in January 2018. Id. In consideration for the unpaid work Jilson would be doing, Elrod promised Jilson equity in SWORD. Id. at PageID.5 (“Per our previous conversations I wanted to send you this email to confirm my intent to issue you equity shares in SWORD International. I believe that you could be a critical part of our team and while I know we have a number of items to tie down I listed below some of the objectives and support I would like to request for 2018.“) (quoting Equity Conf., ECF No. 1-3).
Given his promised ownership interest in SWORD, Jilson provided Elrod, as obligor, a second bridge loan of $30,000, with a one-year term at a 10% interest rate, on April 23, 2018 (the “Second Loan“). Id. at PageID.5-6. Around this time, Jilson also pushed Elrod to provide the documents memorializing Jilson‘s equity interest in SWORD. Id. at PageID.6 (“This email is to confirm my intention to bring you on as an equity partner at SWORD International. . . . I am open to the 30% stake we discussed and want only to flesh out details to ensure we are tracking on everything.“) (quoting Second Equity Conf., ECF No. 1-4). As with the First Loan, despite Elrod signing as the obligor, the funds for the Second Loan were also to be used by SWORD and SWORD Manufacturing. Jilson Decl., ECF No. 9-2, PageID.180.
Throughout the following months, Jilson worked with Elrod on all of SWORD, SWORD Manufacturing, and AOG‘s day-to-day business operations. Compl., ECF No. 1, PageID.6. This included “overseeing the company finances, setting product prices, managing the inventory, improving general operating strategies, creating project budgets, reviewing contracts, [and] initiating strategic partnerships among other tasks.” Jilson Decl., ECF No. 9-2, PageID.180-81. In
Notably, in July 2018, Plaintiff moved from California to Michigan. Id. at PageID.179. Nevertheless, he still communicated daily with Elrod and other employees of SWORD, SWORD Manufacturing, and AOG to conduct the business of the entities. Id. at PageID.181. In doing so, Jilson “received thousands of emails, phone calls, and text messages to [his] Michigan based devices.” Id.
In September 2018, Jilson and Elrod agreed Jilson would be compensated $5,000 per month for his work with AOG. Compl., ECF No. 1, PageID.7; Jilson Decl., ECF No. 9-2, PageID.181. Jilson sent invoices for September, October, and November of 2018, but Elrod only paid the fee for September. Id. at PageID.182. At that time, Elrod was using AOG‘s profits to support SWORD, comingling funds between the two entities. Compl., ECF No. 1, PageID.7. Given the financial situation, Elrod and Jilson agreed to stop paying themselves from AOG‘s profits and
On November 25, 2018, Jilson provided a third bridge loan of $75,000, with a two-year term at a 10% interest rate, to SWORD as obligor (the “Third Loan“). Compl., ECF No. 1, PageID.7. Jilson and Elrod verbally agreed to the terms of the loan. Id. Jilson prepared a promissory note memorializing the terms of the agreement, which he then sent to Elrod, but Elrod never returned the executed note. Id.; see also Unexecuted Third Note, ECF No. 1-6. Nonetheless, Jilson initiated the wire transfer of the funds from Michigan. Jilson Decl., ECF No. 9-2, PageID.182; see also Compl., ECF No. 1, PageID.7 (“When you get a moment can you prepare an outbound wire from my saving account for $75,000?“) (quoting Wire Transfer Req., ECF No. 1-5, PageID.47).
Jilson asked about the status of repayment for the First Loan on January 15, 2019. Id. at PageID.8. The First Loan was supposed to enter repayment in September 2018 and was fully due in September 2020. First Note, ECF No. 1-2, PageID.39. While Elrod acknowledged that he still needed to repay the First Loan, he took little to no action for several months. Compl., ECF No. 1, PageID.8. Then, in June 2019, Elrod assured Jilson that SWORD would soon be in position to repay
Thus, on June 27, 2019, Jilson agreed to provide another bridge loan of $50,000, with a one-month term at a 1.5% interest rate, to SWORD as obligor (the “Fourth Loan“). Id. at PageID.9 (quoting Fourth Loan Conf., ECF No. 1-8, PageID.55). In his email discussing terms of the loan, Jilson also requested Elrod agree to complete the equity paperwork by August 1, 2019. Id. Elrod acknowledged the terms listed in the email were as they had discussed and “acceptable;” he thus asked that his email response serve as his agreement. Id. The next day, Elrod emailed Jilson saying that he had attached the signed promissory note, but the email did not contain any attachments. Id. (quoting June 28, 2019 Email, ECF No. 1-9, PageID.57) (citing Unexecuted Fourth Note, ECF No. 1-10). Again, Jilson nonetheless initiated the wire transfer of the loan from Michigan. Jilson Decl., ECF No. 9-2, PageID.183.
Jilson followed up again in May 2020 and asked for a plan to resolve the outstanding debt. Id. at PageID.11-12 (“What is the plan to get these loans paid? the 30K note is now 1 year overdue and is technically in default. With the other notes, the company owe‘s [sic] me $257,611 plus what I am owed in expenses. I have asked you several times for a payment plan. You have told me that you would send me a plan[,] but it has never happened. . . .“) (quoting May 6, 2020 Emails, ECF No. 1-12, PageID.65). Elrod replied later that day that he would “wire $50K before the end of the week” and “attempt to clean up the remainder before the end of the year.” Id. at PageID.12. On May 12, 2020, Jilson received a $50,000 wire from AOG. Id. (citing AOG Wire Transf., ECF No. 1-13, PageID.67). The amount
Around this time, Jilson introduced Elrod to Linear AMS, a Michigan company. Jilson Decl., ECF No. 9-2, PageID.183. SWORD, SWORD Manufacturing, and AOG have worked with Linear AMS to obtain prototypes of products.2 Id. at PageID.184. Also around this time, Jilson began doing product development work for SWORD. Id. He billed this work through Inside Track, LLC, a company he owns with his wife, and the invoices listed Jilson‘s Michigan address. Id.
On August 26, 2020, Jilson followed up again about a payment plan for the outstanding loans and expenses. Compl., ECF No. 1, PageID.12-13 (quoting Aug. 26, 2020 Texts, ECF No. 1-14, PageID.69). Elrod responded but did not take any action until December 2020 when he asked for documentation for the outgoing and incoming payments. Id. at PageID.13 (quoting ECF No. 1-15, PageID.71).
When Jilson proposed a payment plan that included a payment each at the end of February and March with the remaining balance due at the end of April, id. at PageID.15 (quoting Feb. 21, 2021 Email, ECF No. 1-18, PageID.77), Elrod
In March 2021, Jilson asked Elrod to propose a payment plan by April 1 because Elrod had rejected his without proposing an alternative. Id. (quoting ECF No. 1-20, PageID.81). Jilson also warned that Elrod‘s uncertainty about the financial health of the business “ha[d him] more than a little concerned” and Jilson would proceed to legal action if Elrod was unable to service the debt. Id. (quoting ECF No. 1-20, PageID.81). In response to this email, Elrod called Jilson to tell him the bank would extend a $250,000 line of business credit for SWORD and Elrod was expecting significant customer invoice payments that would allow him to resolve the debt. Id. at PageID.15-16. He also reiterated this via text message. Id. at PageID.16 (citing Apr. 5, 2021 Text, ECF No. 1-22, PageID.85). Nevertheless, Elrod did not repay Jilson after receiving the line of credit or when the Airforce contract entered repayment. Id. at PageID.17 (quoting, Apr. 26, 2021 Text, ECF No. 1-23, PageID.87).
Throughout the month of May 2021, Elrod sent Jilson several reassurances via text message that he was working on the payments. Id. at PageID.17-18 (quoting May 5, 2021 Texts, ECF No. 1-24, PageID.89; May 11, 2021 Texts, ECF No. 1-25,
B. Procedural Background
On August 13, 2021, Jilson initiated the instant action. See ECF No. 1. As stated in Section I supra, he brings claims for default in contract (Count I), unjust enrichment (Count II), promissory estoppel (Count III), fraudulent inducement (Count IV), breach of fiduciary duty (Count V), minority oppression (Count VI), and, in the alternative to Counts V and VI, securities fraud pursuant to
Defendants move to dismiss pursuant to
Plaintiff counters,
Defendants have conducted activities in Michigan directly involving the claims alleged in this case, including borrowing money from Plaintiff Kenneth Jilson [] in Michigan, accepting the performance of services for Defendants by Plaintiff in Michigan, engaging in countless
communications with Plaintiff for these purposes, [and] commit[ing] torts whose consequences were felt in Michigan.
ECF No. 9, PageID.149. Thus, Plaintiff argues Defendants have had contacts with Michigan sufficient to satisfy the State‘s long-arm statute and the Constitution‘s Due Process Clause. Id. at PageID.163-64, PageID.167.
Additionally, Plaintiff asserts Elrod was aware Jilson had moved to Michigan and made plans to visit him. Id. at PageID.153 (citing Jilson Decl., ECF No. 9-2, PageID.181; Oct. 21, 2020 Email Re: Mich. Travel, ECF No. 9-6, PageID.196). Plaintiff emphasizes that “Defendants have failed to contradict Plaintiff‘s allegations by affidavit or otherwise.” Id. at PageID.160. Specifically, Plaintiff contends Elrod‘s affidavit “does not address the payments Defendants sent to and from Michigan, the communications Defendants sent to and from Michigan, that Jilson operated Defendant businesses from Michigan, or any of the other jurisdictional facts and evidence Jilson alleged in his Complaint or herein.” Id.
In Reply, Defendants aver the First and Second Loan as well as the initial promises and alleged fraudulent misrepresentations that form the basis of Plaintiff‘s claims all occurred before Jilson moved to Michigan. ECF No. 10, PageID.334-35. Thus, Defendants reassert the connection between them and the State of Michigan is “purely coincidental.” Id. at PageID.336. Moreover, they maintain, jurisdiction cannot be based on Plaintiff‘s “random, unilateral move to Michigan.” Id. at
III. LAW & ANALYSIS
A. Legal Standard
Where, as here, the court “rules on a jurisdictional motion to dismiss under
This Court can exercise personal jurisdiction over Defendants if Michigan‘s long-arm statute “reaches the controversy and the exercise of personal jurisdiction comports with constitutional due process.” Carter, 2021 WL 243811, at *2. “In Michigan, these analyses often merge, because Michigan‘s long-arm statute, ‘extend[s] to the outermost boundaries permitted by the due process clause.‘” Id. (quoting Serras v. First Tenn. Bank Nat‘l Ass‘n, 875 F.2d 1212, 1216 (6th Cir. 1989)); see also Intera Corp. v. Henderson, 428 F.3d 605, 615 (6th Cir. 2005); Zellerino v. Roosen, 118 F. Supp. 3d 946, 950 (E.D. Mich. 2015) (“Under Michigan‘s long-arm statute, the state‘s jurisdiction extends to the limits imposed by federal constitutional Due Process requirements, and thus, the two questions become one.“) (citations omitted). As such, Defendants’ Motion turns on whether this Court‘s exercise of personal jurisdiction comports with their federal due process rights. Lifestyle Lift Holdings, Inc. v. Prendiville, 768 F. Supp. 2d 929 (E.D. Mich. 2011) (citing Chandler v. Barclays Bank PLC, 898 F.2d 1148, 1150 (6th Cir. 1990))
To comport with federal due process, Plaintiff must satisfy a three-part test:
First, the defendant[s] must purposefully avail [themselves] 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[s] or consequences caused by the defendant[s] must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant[s] reasonable.
Carter, 2021 WL 243811, at *3 (quoting S. Mach. Co. v. Mohasco Indus., Inc., 401 F.2d 374, 381 (6th Cir. 1968)). “[O]ut-of-state defendants” must “have ‘minimum contacts’ with the forum state sufficient to comport with ‘traditional notions of fair play and substantial justice.‘” Blessing v. Chandrasekhar, 988 F.3d 889, 904 (6th Cir. 2021) (quoting Int‘l Shoe Co. v. State of Wash., Off. of Unemployment Comp. & Placement, 326 U.S. 310, 316 (1945))
B. Discussion
1. Defendants have purposefully availed themselves of acting or causing a consequence in Michigan.
The “purposeful availment requirement ensures that a defendant will not be haled into a jurisdiction solely as a result of random, fortuitous, or attenuated contacts, or of the unilateral activity of another party or a third person.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476 (1985) (internal citations and quotation marks omitted). Nonetheless, “even a single act can support jurisdiction” if the connection created to forum was sufficiently substantial. Id. at 476, n. 18. Indeed, the Supreme
As a threshold matter, the Court notes Defendants arguments regarding how little business SWORD conducts in Michigan are unavailing. “The proper test for personal jurisdiction is not based on a ‘percentage of business’ analysis as contended by [defendant], but rather on whether the absolute amount of business conducted by [defendant] in Michigan represents something more than ‘random, fortuitous, or attenuated contacts’ with the state.” Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 891-92 (6th Cir. 2002) (quoting Burger King, 471 U.S. at 475) (internal quotation marks omitted).
Indeed, the Sixth Circuit Court of Appeals found purposeful availment in a case analogous to this one. In Power Invs., LLC v. SL EC, LLC, the defendants, a Missouri corporation and citizen, secured $300,000 in loans from the plaintiff, a Nevada corporation whose sole member lives in Kentucky. 927 F.3d 914, 916 (6th Cir. 2019). The defendants “called, texted, and emailed [the plaintiff] many times, seeking funds and making many allegedly false assurances.” Id. The plaintiff sued for misrepresentation and unjust enrichment. Id. at 917. Using Calder v. Jones, 465 U.S. 783 (1984) and Walden v. Fiore, 571 U.S. 277 (2014) as guide posts, the Sixth Circuit determined Power Investments was much closer to Calder, where the
Specifically, the Sixth Circuit recognized that a defendants’ “intentional fraudulent communications” can establish limited personal jurisdiction when such communications are not “‘merely incidental’ but at the core of the lawsuit.” Id. at 919 (quoting Neal v. Janssen, 270 F.3d 328, 330 (6th Cir. 2001). Thus, the Power Investments Court found the defendants had initiated the relationship with the plaintiff, “communicated with him extensively for well over a year, wheedling several advances, gathering third-party financing, and eventually obtaining a bailout.” Id. at 919. The Sixth Circuit concluded the “alleged misrepresentations in these communications constitute[d] the core of [the plaintiff‘s] fraud claims.” Id.
Similarly, in a case involving an interstate contract, the Sixth Circuit held that “where a defendant ‘has created continuing obligations between himself and the residents of the forum, he manifestly has availed himself of the privilege of conducting business there.‘” Air Prod. & Controls, Inc. v. Safetech Int‘l, Inc., 503 F.3d 544, 551 (6th Cir. 2007) (quoting Burger King, 471 U.S. at 476) (internal quotation marks omitted). Thus, in Air Products, the Sixth Circuit found the out-of-state defendants had purposefully availed themselves of acting in Michigan because they entered contracts with the Michigan plaintiff that resulted in “a continuing
Here, the Court is persuaded Defendants have purposefully availed themselves of the privilege of acting, or causing a consequence, in Michigan. Like the defendant-citizen in Power Investments, Elrod affirmatively solicited money from Jilson, even after Jilson moved to Michigan. Additionally, he, both on behalf of himself and as agent for his companies, communicated extensively with Jilson from the time Jilson moved to Michigan until their relationship soured. As discussed in Section II.A supra, many of these communications concerned the outstanding loans, unpaid business expenses, or pending equity paperwork. Thus, the “alleged misrepresentations in these communications constitute the core of [the plaintiff‘s] [] claims” and are thus sufficient to constitute purposeful availment. Power Invs., 927 F.3d at 919.
Accordingly, the Court holds Plaintiff has satisfied the “purposeful availment” prong.
2. Plaintiff‘s claims arise from Defendants contacts with the Forum, and it is reasonable to hold them to answer in Michigan.
The “arising from” prong of the due process test “is satisfied if ‘a defendant‘s contacts with the forum state are related to the operative facts of the controversy.‘” Light Source, Inc. v. Display Dynamics, Inc., No. 09-14268, 2010 WL 2351489, at *6 (E.D. Mich. June 8, 2010) (quoting CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1267 (6th Cir. 1996)). The Sixth Circuit has “articulated the standard for this prong
Here, it is clear the cause of action arises from Defendants contacts. Plaintiff claims Defendants breached contracts regarding the repayment of their loans, fraudulently induced Jilson to enter contracts and provide his time and services to Defendant entities, unjustly benefitted from the time and services he provided, violated Michigan securities law, and breached fiduciary duties owed to Jilson. Pl. Resp. to Def. Mot. to Dismiss, ECF No. 9, PageID.171-72. Thus, “[t]he cause of action arises directly from [Defendants] communications into [Michigan].” Power Invs., LLC, 927 F.3d at 919. Because this is not an “unusual case,” Air Products, 503 F.3d at 554 (quoting Theunissen, 935 F.2d at 1461), “it is reasonable to hold [Defendants] to account in the State where [their] fraud occurred and from which [they] benefitted financially,” Power Invs., 927 F.3d at 919.
IV. CONCLUSION
Accordingly, for the reasons articulated above, IT IS HEREBY ORDERED that the Court DENIES Defendants’ Motion to Dismiss (ECF No. 8).
IT IS SO ORDERED.
/s/ Gershwin Drain
GERSHWIN A. DRAIN
UNITED STATES DISTRICT JUDGE
Dated: May 10, 2022
CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on May 10, 2022, by electronic and/or ordinary mail.
/s/ Teresa McGovern
Case Manager