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.
III.
For these reasons, we affirm the judgment of the district court.
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.
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 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
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
A district court‘s decision to dismiss a case for failure to state a claim for which relief can be granted under
To survive a
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
SFS argues that jurisdiction over Bastable exists under Michigan‘s “long-arm” statute, specifically
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
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 273, 286 (2d Cir.2006) (explaining that banks generally do not owe non-customers a duty to protect them from customers’ intentional torts); El Camino Res., LTD. v. Huntington Nat‘l Bank, 722 F.Supp.2d 875, 907 (W.D.Mich.2010) (“Michigan law, in accord with the universal rule in this country, holds that a bank‘s relationship is with its customer and that the bank owes third parties no duty of care....“); Portage Aluminum Co. v. Kentwood Nat‘l Bank, 106 Mich.App. 290, 307 N.W.2d 761, 765 (1981).
SFS does not claim that it opened an account at FBD. Instead, it alleges that an unnamed third party opened a fraudulent account at FBD in SFS‘s name.1 SFS asks this court, as a matter of public policy, to adopt a new rule that banks owe a duty of care to a person whose name is attached to a fraudulent account.
SFS relies on Patrick v. Union State Bank, 681 So.2d 1364 (Ala.1996), in which the Alabama Supreme Court held that a bank owes a duty of care to a person in whose name an account is opened to ensure that the person is not an imposter. But Patrick “has met with near universal disapproval.” Brunson v. Affinity Fed. Credit Union, 199 N.J. 381, 972 A.2d 1112, 1123 & 1124 n. 12 (2009) (finding “no published decision and but one unpublished case that follows Patrick without qualification“). Even the Alabama Supreme Court has admitted that their “inquiry in Patrick was not properly focused.” Smith v. AmSouth Bank, Inc., 892 So.2d 905, 911 (Ala.2004). Although we recognize the serious threat posed by identity theft, we are not prepared to impose a new duty on banks, particularly one that has been rejected by courts across the country. See, e.g., Huggins v. Citibank, N.A., 355 S.C. 329, 585 S.E.2d 275, 278 (2003) (declining to recognize a new tort action against banks for “negligent enablement of imposter fraud“).
In the alternative, SFS argues that it was a customer of FBD. The Uniform Commercial Code, as adopted by
SFS argues that it qualifies as FBD‘s customer because SFS “had an account with FBD that was fraudulently opened.” It asserts that the account had to have been set up using SFS‘s name and tax identification number. However, SFS does not allege that it opened the account, that it deposited money in the account, that it had authority to withdraw funds from the account, or that it received statements from the account. We decline to adopt a new rule that being the victim in a fraudulent scheme involving an imposter bank account causes the victim to become a customer of the bank.
V.
SFS‘s second claim is for fraud. Under Michigan law,
The general rule is that to constitute actionable fraud it must appear: (1) That defendant made a material representation; (2) that it was false; (3) that when he made it he knew it was false, or made it recklessly, without any knowledge of its truth and as a positive assertion; (4) that he made it with the intention that it should be acted upon by plaintiff; (5) that plaintiff acted in reliance upon it; and (6) that he thereby suffered injury. Each of these facts must be proved with a reasonable degree of certainty, and all of them must be found to exist; the absence of any one of them is fatal to a recovery.
Titan Ins. Co. v. Hyten, 491 Mich. 547, 817 N.W.2d 562, 567-68 (2012). “[F]raud requires a misrepresentation about the past or present.” Lawrence M. Clarke, Inc. v. Richco Constr., Inc., 489 Mich. 265, 803 N.W.2d 151, 162 (2011).
Here, SFS has alleged that FBD, through Bastable, intentionally misrepresented to Kopko during the August 2010 telephone conversation that FBD did not
SFS‘s alternative theory of fraud is that FBD knew as early as May 2010 that its SFS account was processing illegal gambling transactions. SFS says FBD should have discovered that the account was fraudulent and contacted SFS. Again, this fails to articulate a plausible fraud claim. A failure to investigate the nature of the alleged SFS account or to hunt down and contact the real SFS does not amount to an intentional “misrepresentation about the past or present.” Lawrence M. Clarke, Inc., 803 N.W.2d at 162.
AFFIRMED.