Summary
In Comerica, defendants moved to dismiss the complaint because it was not a party in the original class action and no court had certified a class against defendant.
Summary of this case from Rajagopalan v. Fid. & Deposit Co. of Md.Opinion
Case No. 2:05-cv-00056.
May 16, 2006
OPINION AND ORDER
I. INTRODUCTION
This matter is before the Court on Defendant, Comerica Corporation's ("Comerica"), Motion to Dismiss Plaintiff's Complaint pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. Defendant asserts that Plaintiffs' single claim fails to state a federal question, and therefore, it does not provide this Court with the requisite subject matter jurisdiction. Defendant further asserts that Plaintiffs fail to state a claim upon which relief can be granted because, under Ohio law, Defendant did not have a duty to inquire into the nature of funds deposited in its bank accounts. For the following reasons, Defendant's Motion to Dismiss Plaintiffs' Complaint pursuant to Rule 12(b)(1) is DENIED, and Defendant's Motion to Dismiss Plaintiffs' Complaint pursuant to Rule 12(b)(6) is GRANTED IN PART and DENIED IN PART.
II. FACTS
Some of he facts herein are taken in from this Court's August 30, 2001 opinion in OOIDA, v. Arctic Express, Inc., 159 F.Supp.2d 1067, 1079-1080 (S.D. Ohio 2001).
A. Arctic Litigation
Plaintiff OOIDA is a business association comprised of individuals and entities, commonly known as owner operators, who own and operate motor carrier equipment. Plaintiffs Carl Harp and Michael Wiese are independent truck owner operators who each entered into a Lease Purchase Agreement with D A Associates Ltd. ("DA"), and a Motor Vehicle Lease Agreement with Arctic Express, Inc. ("Arctic"). DA is a non-carrier company which leases truck tractor units to independent owner operators. Arctic is a regulated motor carrier company which provides transportation services to the shipping public. The relationship between independent truck owner operators and regulated carriers is set forth in an agreement between contracting parties, and it is regulated by the DOT. See 49 U.S.C. § 14102; 49 C.F.R. pt. 376.
The term "owner operator" was defined by this Court in the Arctic Litigation as follows:
Owner operators are small business men and women who own or control truck tractors used to transport property on the country's highways. Owner operators either transport commodities exempt from Department of Transportation ("DOT") Regulations, or, as independent contractors, lease or provide their equipment and services to motor carriers who possess the legal operating authority under DOT regulations to enter into contracts with shippers to transport property.Arctic Express, Inc., 159 F.Supp.2d at 1069.
Under the terms of the Motor Vehicle Lease Agreement between Plaintiffs and Arctic, each owner operator leased a truck unit and provided, in return, the services of a qualified driver to Arctic. Under the Lease Purchase Agreement between Plaintiffs and DA, Plaintiffs leased from DA truck tractor units and were obligated to make weekly equipment rental payments to DA and to make payments based on mileage to a maintenance fund.
On June 30, 1997, Plaintiffs initiated the Arctic Litigation, alleging, inter alia, that when Arctic and DA inappropriately retained Plaintiffs' maintenance escrow funds, the lease agreements then violated truth-in-leasing regulations of the Motor Carrier Act. This Court subsequently granted summary judgment to Plaintiffs in the Arctic Litigation, and it ordered judgment in the amount of $5,583,084 on behalf of the Class. The total amount of the Court's judgment in the Arctic Litigation included $4,070,190 in maintenance escrow funds and $1,512,894 in interest.
B. Revolving Credit Loan Agreements
Meanwhile, on May 3, 1993 and on April 29, 1998, Arctic entered into two Revolving Credit Loan Agreements (the "Loan Agreements") with Defendant. Pursuant to the terms of the Loan Agreements, Arctic pledged as security for the loans, among other assets, all amounts received in payment for shipping and hauling services from its customers, which Arctic maintained in deposit accounts with Defendant. According to Plaintiffs, after judgment was entered in the Arctic Litigation, Defendant used the maintenance escrow funds from Arctic's deposit accounts to offset or repay amounts borrowed by Arctic under the Loan Agreements.
In response, on April 27, 2005, Plaintiffs filed a complaint against Defendant (the "Complaint") to recover maintenance escrow funds Defendant withdrew from Arctic's bank accounts to repay amounts borrowed pursuant to the Loan Agreements. In the Complaint, Plaintiffs allege that federal regulations create a statutory trust over the maintenance escrow funds, and that Defendant had a duty to inquire into the nature of those funds before satisfying Arctic's obligations under the Loan Agreements by withdrawing money from Arctic's bank accounts.
On May 27, 2005, Defendant filed a Motion to Dismiss the Complaint, pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. Plaintiffs filed a memorandum in response to Defendant's Motion, and Defendant filed a reply memorandum. Accordingly, this matter is ripe for decision.
III. STANDARD OF REVIEW
Under Rule 12(b)(1) of the Federal Rules of Civil Procedure, a defendant may move to dismiss the plaintiff's complaint for lack of subject matter jurisdiction. "[W]here subject matter jurisdiction is challenged under Rule 12(b)(1), . . . the plaintiff has the burden of proving jurisdiction in order to survive the motion." Rogers v. Stratton Indus., 798 F.2d 913, 915 (6th Cir. 1986). The burden on the plaintiff, however, is not onerous, as the plaintiff need only demonstrate "any arguable basis in law" for the complaint. Bd. of Trustees of Painesville Township v. City of Painesville, 200 F.3d 396, 398-99 (6th Cir. 1999) (citations omitted). Indeed, in the context of a Rule 12(b)(1) motion, "[a] court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King Spaulding, 467 U.S. 69, 73 (1984).
A motion to dismiss under Rule 12(b)(6) is designed to test "whether a cognizable claim has been pleaded in the complaint." Scheid v. Fanny Farmer Candy Shops, Inc. 859 F.2d 434, 436 (6th Cir. 1988). In considering such a motion, the Court is limited to evaluating whether a plaintiff's complaint sets forth allegations sufficient to make out the elements of a cause of action. Windsor v. The Tennessean, 719 F.2d 155, 158 (6th Cir. 1983). Dismissal under Rule 12(b)(6) streamlines litigation by "dispensing with needless discovery and fact-finding" on claims that are legally untenable in the first place. See Neitzke v. Williams, 490 U.S. 319, 326-27 (1989).
All factual allegations made by a plaintiff are deemed admitted and ambiguous allegations must be construed in his favor. Murphy v. Sofamor Danek Gp., Inc., 123 F.3d 394, 400 (6th Cir. 1997). A complaint should not be dismissed under Rule 12(b)(6) "'unless it appears beyond doubt that the [p]laintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Lillard v. Shelby County Bd. of Educ., 76 F.3d 716, 724 (6th Cir. 1996) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). While the complaint need not specify every detail of a plaintiff's claim, it must give the defendant "'fair notice of what the plaintiff's claim is and the grounds upon which it rests.'" Gazette v. City of Pontiac, 41 F.3d 1061, 1064 (6th Cir. 1994) (quoting Conley, 355 U.S. at 47).
Nonetheless, this liberal standard of review does require more than the bare assertion of legal conclusions. Allard v. Weitzman, 991 F.2d 1236, 1240 (6th Cir. 1993) (citation omitted). Under the federal pleading requirements, a plaintiff's complaint must include "a short and plain statement of the claim showing that the pleader is entitled to relief." See FED. R. CIV. PRO. 8(a)(2). The short and plain statement must "give the defendant fair notice of what plaintiff's claim is, and the grounds upon which it rests." A complaint must contain either direct or inferential allegations with respect to all the material elements necessary to sustain a recovery under some viable legal theory. Id. (citations omitted).
IV. ANALYSIS A. Defendant's Rule 12(b)(1) Motion
As a threshold matter, Defendant moves to dismiss the Complaint because it does not state a federal question. Defendant asserts that this Court lacks subject matter jurisdiction because Plaintiff's claim is not created by, and does not rely upon, federal law. In particular, Defendant proposes that federal truth-in-leasing regulations only permit suits against motor carriers, not banks. Plaintiffs counter that the truth-in-leasing regulations create a statutory trust and that this Court retains ancillary jurisdiction over this matter to enforce its judgments.
The federal truth-in-leasing regulations require certain provisions within contracts between authorized carriers and owners of equipment. See 49 C.F.R. § 376.12. For example, if a contract requires escrow funds to be held by the authorized carrier, then the contract must provide terms for the handling, accounting, and disbursing of those funds. 49 C.F.R. § 376.12(k). The unauthorized carrier may only hold the escrow funds to pay off any maintenance costs or fees that arise under the agreement. See id.
Whether the escrow fund provisions in the truth-in-leasing regulations create a statutory trust is a novel issue. In a similar situation, however, under the interline trust doctrine, the Sixth Circuit held that funds maintained by one carrier, which are owed to another carrier for the carriage of freight, are held in trust by the holder of the funds. Parker Motor Freight, Inc. v. Fifth Third Bank, 116 F.3d 1137, 1140 (6th Cir. 1997). In that case, Parker operated an interline freight system in which customers would make payments to one truck line to ship freight, even though multiple different truck lines might ship the freight. Id. at 1138. The truck line that received payment would then, in turn, pay the other truck lines for their portion of the shipment. Id. O.K. Trucking Company, the payment collector for Parker, defaulted on its loans and Fifth Third Bank took possession of O.K.'s accounts, including those accounts O.K. owed to Parker. Id. at 1139. The Sixth Circuit, in deciding the case, held that O.K. maintained the funds in trust for Parker. Id. at 1142.
In another case, a bankruptcy court in this federal district held that escrow funds maintained pursuant to the federal truth-in-leasing regulations are subject to a statutory trust. In Re Intrenet Inc. v. Huntington Nat'l Bank, 273 B.R. 153 (S.D. Ohio 2002). The Intrenet court recognized that the federal regulatory scheme was "at odds with state law regarding the formation of a trust" but that the state law was not determinative. Id. at 157. Intrenet analogized its decision to a U.S. Supreme Court holding that a statutory trust is created for the Internal Revenue Service under the Internal Revenue Code when an employer withholds taxes for its employees. Id. at 157 (citing Begier v. Internal Revenue Service, 496 U.S. 53 (1990)).
Here, the Court finds that the funds held in escrow under 49 C.F.R. 376.12(k) were subject to a statutory trust. This Court determined in the Arctic Litigation that the escrow funds were held subject to 49 C.F.R. 376.12(k), and that any excess amount Arctic owed to the individual owner operators was to be returned. OOIDA, 159 F. Supp. 2d at 1079-1080. Under the contract between Plaintiffs and Arctic, this Court found that the only reason anyone could withdraw money from Arctic's bank account that held the escrow funds was to pay for repairs and maintenance of the individual owner operator's leased equipment. Id. at 1075. The nature of the relationship between Arctic and Plaintiffs put Arctic in the same position with respect to the individual drivers as a trustee has toward beneficiaries of an express trust. The owner operators entrusted their money to Arctic and relied upon Arctic to safeguard it and only to distribute it for legitimate purposes under the agreement. This Court's finding of a statutory trust in this case is consistent with the purposes of the truth-in-leasing provisions, which were enacted to protect owner operators from the abusive practices of carriers, especially with regard to escrow accounts. See Intrenet, 273 B.R. at 156.
Furthermore, while the Court recognizes that the 49 U.S.C. § 14704(a)(2) only authorizes suits against carriers, the resulting trust creates a legal basis for Plaintiffs' federal claim against a third party to recover those trust funds. The statutory language precludes suits for damages against parties other than carriers, but the Complaint does not allege a violation of 49 U.S.C. 14704(a)(2). Rather, the Complaint seeks restitution of money allegedly withdrawn improperly by a third-party from a trust account.
49 U.S.C. § 14704(a)(2) states: "Damages for violations — A carrier or broker providing transportation or service subject to jurisdiction under chapter 135 is liable for damages sustained by a person as a result of an act or omission of that carrier or broker in violation of this part."
The Supreme Court recognized the legitimacy of restitution claims in holding that "a court of equity has jurisdiction to reach the property either in the hands of the original wrongdoer, or in the hands of any subsequent holder, until a purchaser of it in good faith and without notice acquires a higher right and takes the property relieved from the trust." Harris Trust and Savings Bank v. Salomon Smith Barney Inc., 530 U.S. 238, 251 (2000) (quoting Moore v. Crawford, 130 U.S. 122, 128 (1889)). The Court further stated that even though "a transferee was not the original wrongdoer [, that] does not insulate him from liability for restitution." Id. Accordingly, this Court has subject matter jurisdiction in this case because after the Arctic Litigation, the money in Arctic's bank account became subject to a federal statutory trust with Plaintiffs as the beneficiaries. For that reason, Defendant's Motion to Dismiss the Complaint pursuant to Rule 12(b)(1) is DENIED.
B. Defendant's Rule 12(b)(6) Motion 1. Whether Defendant Had a Duty to Inquire
In its argument to support dismissal of this case pursuant to Rule 12(b)(6), Defendant first claims that, under Ohio law, banks do not owe a fiduciary duty to customers or to third parties when the bank merely acts as the customer's depository institution. Plaintiffs counter that Defendant did have such a duty, and that because Defendant failed to inquire into the source of funds comprising Arctic's account before withdrawing them, it is now liable to Plaintiffs.The Court finds the decision in Parker v. Fifth Third Bank instructive on this issue. See 116 F.3d 1137. In Parker, the Sixth Circuit found that a defendant bank's understanding of the trucking industry imputed to it inquiry notice to determine the true character of the funds before taking the funds to offset a debt. Parker, 116 F.3d at 1142. The Parker court held that "a working relationship between a bank and its depositor was sufficient to charge the bank with inquiry notice to determine the true nature of funds before accepting them." Id. (citing Federal Ins. Co. v. The Fifth Third Bank, 867 F.2d 330, 335-336 (6th Cir. 1989)).
The Court is not persuaded by Defendant's reliance upon Collins v. Nat'l City Bank, 2003 WL 22971874 (Ohio Ct.App. Dec. 19, 2003), wherein an Ohio appeals court held that a bank owes no fiduciary duty to its customers in a commercial context when the parties deal at arm's length. Id. at *2. In Collins, the bank was solely a depositary institution for the customer; in this case, Defendant served Arctic as a depositary institution and as a creditor. Defendant's relationship with Arctic constitutes a working relationship which may have imputed inquiry notice to the bank to look into the nature of Arctic's funds before withdrawing them to satisfy the Loan Agreements. Because Plaintiff has alleged sufficient facts in the Complaint regarding Defendant's duty to inquire, Plaintiff's claim cannot be dismissed on that basis.
2. Whether Defendant is a Bona Fide Purchaser for Value
Second, Defendant claims that it was a bona fide purchaser for value; hence, it is not liable to Plaintiffs even if it did take the funds from Arctic's bank accounts in breach of a trust. Plaintiffs respond that Defendant did not take the funds "for value."
Under general trust law, when trust property is transferred to a third party in breach of a trustee's fiduciary duty, the third party takes such property subject to the trust, unless it is a bona fide purchaser for value. Harris Trust, 530 U.S. at 250; see also RESTATEMENT (SECOND) OF TRUSTS § 294 (1959). A bona fide purchaser for value is a transferee who takes trust property without notice of the breach of a trust, and it takes the property free of the trust's interest. Harris Trust, 530 U.S. at 251; see also RESTATEMENT (SECOND) OF TRUSTS § 284(1). If the transferee is not a bona fide purchaser for value or if the transferee had notice of the breach of a trust, the original trustee or the trust's beneficiaries may bring an action against the transferee for restitution of the trust property. See id. at 250.
Generally, a transfer of trust assets, such as accounts receivable, is not "for value" if that transfer is made to satisfy an antecedent debt. C.H. Robinson Co. v. Trust Co. Bank, 952 F.2d 1311, 1314 (11th Cir. 1992); see also RESTATEMENT (SECOND) OF TRUSTS § 304 (1959). There is an exception, however, for "money" transferred in satisfaction of an antecedent debt. C.H. Robinson, 952 F.2d at 1314. A person cannot receive trust property if that person knows or should know the transfer is in breach of a trust. Consumers Produce Co. Inc. v. Volante Wholesale Produce, Inc., 16 F.3d 1374, 1382 (6th Cir. 1994) (citing RESTATEMENT (SECOND) OF TRUSTS § 297(a) (1959)).
The Complaint states that "amounts received from customers in payment for shipping and hauling services were deposited in an account maintained by Arctic with Comerica Bank either directly by the shipper or by Arctic after receipt of payment from the shipping customer." Pl.'s Complaint at ¶ 17. Taking Plaintiffs' allegations in the Complaint as true, the Court finds that Defendant could have collected Arctic's accounts receivables directly in satisfaction of Arctic's debt and such transfers are not "for value." Moreover, as discussed in Section IV.B.1., supra, Defendant has not yet proved the absence of inquiry notice. Because Defendant has not proved it was entitled to take the trust property free of Plaintiffs' interests, the Court cannot dismiss the Complaint under that theory.
3. Statute of Limitations and OOIDA's Claims
Third, Defendant argues that Plaintiffs' claim should be dismissed to the extent it relates to the 1993 revolving loan agreement between Arctic and Defendant because Ohio Revised Code § 2305.07 effects a statute of limitations defense. Plaintiffs argue that the referenced statute of limitations does not apply here because the trust property is part of a continuing and subsisting trust under O.R.C. § 2305.22.
Section 2305.07 provides that "[e]xcept as provided in sections 126.301 and 1302.98 of the Revised Code, an action upon a contract not in writing, express or implied, or upon a liability created by statute other than a forfeiture or penalty, shall be brought within six years after the cause thereof accrued." O.R.C. § 2305.07.
Section 2305.22 states that "[s]ections 2305.03 to 2305.21, . . . of the Revised Code, respecting lapse of time as a bar to suit, do not apply in the case of a continuing and subsisting trust, nor to an action by a vendee of real property, in possession thereof, to obtain a conveyance of it." O.R.C. § 2305.22.
A continuing and subsisting trust exists when (1) the trust is a direct trust, (2) the trust is one "belonging exclusively to the court of equity," and (3) the question arises between a trustee and the cestui que trust. Allen v. Deardoff, 1921 WL 1292, at *2 (Warren Cty. June 21, 1921). A cestui qui trust is "one who possesses equitable rights in property and receives the rents, issues, and profits from it." BLACK'S LAW DICTIONARY 90 (Pocket Edition 1996). A similar case arose in Hamilton County when beneficiaries sought to reclaim funds allegedly improperly transferred to a bank in payment of outstanding obligations. McCauley v. The German Nat'l Bank, et al., 1914 WL 1228 (Hamilton Cty. Nov. 1914). The Hamilton County Court of Common Pleas held, in response to the defendants' statute of limitations defense, that the transfer of trust property made the bank a "trustee by implication of law" and that "it is clear that one who is merely a trustee by implication of law is not the trustee of a continuing and subsisting trust." Id. at *5.
Plaintiffs fail to meet the three criteria of the Allen test. In this instance, any duties resembling that of a trustee were imputed to Defendant by federal regulations and therefore Defendant is a trustee by implication of law. Trustees by implication of law are not traditional trustees in the sense envisioned by the Allen test and thus this case does not arise between a trustee and a beneficiary. Additionally, this case is not simply a suit in equity. In a similar situation, when a client failed to ask for the return of funds collected 13 years earlier by his attorney, the Ohio Supreme Court noted that the funds were not held in a continuing and subsisting trust because the complaint asked for a return of money, which was a "plain action at law" and not an exclusively equitable remedy. Douglas v. Corry, 46 Ohio St. 349, 351 (1889). The Douglas court further explained that "to hold that the statute of limitations is not applicable to any case which may, even with propriety, be denominated a trust, would defeat the plain and manifest intention of the legislature." Id. at 351-352. Plaintiffs seek restitution for money they contend was improperly deducted from Arctic's bank account. Thus, Plaintiffs' claim is not one in equity. Therefore, Defendant's Motion to Dismiss is GRANTED to the extent it referenced the 1993 loan agreement because Plaintiffs cannot offer any set of facts to prove a continuing and subsisting trust.
4. Enforcement of the Arctic Litigation Judgment
Finally, Defendant asserts that this Court's previous judgment against Arctic in the Arctic Litigation cannot be enforced here because Defendant was not a party in the Arctic Litigation. Defendant further claims that, because Defendant was not a party to the Arctic Litigation, there is no Plaintiff Class for the purposes of this lawsuit. Plaintiffs respond that Defendant took the escrow account funds subject to the trust and that Defendant cannot escape liability simply because it was not the original wrongdoer. Plaintiff further contends this suit is not a class action in nature, but rather a single claim to collect property that this Court previously awarded to the defined and identified class.
The Supreme Court has recognized that a court has jurisdiction to reach property, whether it is in the hands of the original wrongdoer or in the hands of a subsequent transferee. Harris Trust, 530 U.S. at 250. Significantly the Court is not aware of any case that applies collateral estoppel to preclude a plaintiff from recovering trust property after an alleged wrongful transfer to a subsequent transferee. Additionally, Defendant's objection to maintaining the class from the Arctic Litigation in this case is not compelling because this Court previously ordered a judgment for the class. OOIDA, Order at 3 (March 15, 2004). Thus, the Class may continue to seek restitution from Defendant for the return of Plaintiffs' escrow funds.
V. CONCLUSION
For the foregoing reasons, Defendant's Motion to Dismiss Plaintiffs' Complaint pursuant to Rule 12(b)(1) is DENIED, and Defendant's Motion to Dismiss Plaintiffs' Complaint pursuant to Rule 12(b)(6) is GRANTED IN PART and DENIED IN PART.
IT IS SO ORDERED.