Michael Knoll v. Chewd LLC

STATE OF MICHIGAN
COURT OF APPEALS
MICHAEL KNOLL, UNPUBLISHED
April 26, 2016
Plaintiff/Counter-Defendant-
Appellant,
v No. 325588
Wayne Circuit Court
CHEWD, LLC, LC No. 13-015135-CK
14-003318-CB
Defendant/Counter-Plaintiff-
Appellee,
and
CHEWD HOLDINGS, LLC, ABHIJEET
KUMAR, BENJAMIN TATUM, and PETER
ZORA,
Defendants-Appellees.
Before: JANSEN, P.J., and SERVITTO and M. J. KELLY, JJ.
PER CURIAM.
Plaintiff, Michael Knoll, appeals by right the trial court’s order granting the motion for
summary disposition by defendants, Chewd, LLC (Chewd), Chewd Holdings, LLC (Chewd
Holdings), Abhijeet Kumar, Benjamin Tatum, and Peter Zora. Knoll argues on appeal that the
court erred when it dismissed his claims. For the reasons more fully explained below, we vacate
the trial court’s order dismissing Knoll’s claims and remand for further proceedings.
I. BASIC FACTS
Kumar, Tatum, and Zora established Chewd to develop a website that would provide an
online ordering system for restaurants that did not have this service, and enable consumers to
browse local restaurant menus and order food online.
In April 2013, Kumar, Tatum, and Zora entered into an agreement with Knoll. Knoll
agreed to provide computer coding and programming services for Chewd’s website. In
exchange, Kumar, Tatum, and Zora agreed to transfer “up to six and a half percent (6.5%) of the
issued and outstanding stock of Chewd.” More specifically, they intended to give him 250
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shares on the closing date and “up to Four Hundred Shares (400) to be issued in increments
based on performance markers set by the board . . . for a total of Six Hundred and Fifty (650)
total shares out of Ten Thousand (l0,000) . . . .” The agreement, which was memorialized in a
letter to Knoll, clarified that the purchase price would be “in the form of ‘sweat equity’ . . .
measured by performance markers set forth by Chewd.” The parties further agreed that Knoll
would get his stock “only after successful completion of performance markers and tasks set forth
by Chewd.”
Knoll apparently began developing Chewd’s website, but soon became unhappy with his
work load and his treatment by Kumar, Tatum, and Zora. In July 2013, Knoll sent an email
advising the other members that he wished to resign. A few days later, Kumar, Tatum, and Zora
met with Knoll and discussed Knoll’s decision. After their meeting, Kumar, Tatum, and Zora
transferred a 4.5% interest to Knoll as an incentive. Nevertheless, Knoll sent an email, which
was dated July 30, 2013, in which he complained that his work load was affecting his health and
expressed discontent with the critique of his coding, the timing and location of meetings, and the
excessive oversight of his work. He agreed in the email that it “is for the best” that Chewd bring
in “new people” because he would “not be able to perform at the superhuman levels expected”
by Kumar, Tatum, and Zora. He opined that it “would be in everyone’s best interest for Chewd
to buy [him] out.” He further suggested that the buyout should be determined by the value of the
work he had performed, which he estimated at $10,000 to $15,000, rather than the value of his
shares.
In August 2016, Kumar emailed a proposal to Knoll offering to purchase his 4.5%
membership interest for $2,000. The letter stated that the offer was “based upon the fair market
value of the Membership Interest . . . plus a premium that Chewd is offering as an incentive to
resolve this matter.” Kumar further warned Knoll that, “[i]n the event that you do not accept this
proposal, the majority owners of Chewd are inclined to sell the sole asset of Chewd and dissolve
the entity.” According to Kumar, Chewd’s sole asset was its domain name. If the majority were
to sell the sole asset, Kumar stated, “you would be entitled to 4.5% of the amount, if any,
remaining after payment of all debts and liabilities of Chewd.”
Knoll sued Chewd in November 2013. He alleged that Chewd breached its agreement,
which claim he labeled an anticipatory breach, by failing to “honor, redeem and/or evaluate [his]
shares” and by failing to “either maintain his common shares or to receive a proper value for
their redemption . . . .” He also alleged that Chewd breached its fiduciary to “promote the value
of the shares . . . and not diminish them.” Knoll asked the court to order an accounting of Chewd
and claimed that Chewd was unjustly enriched by his efforts.
Chewd countersued Knoll for breaching the parties’ agreement by failing to “contribute
the agreed-upon services.” Chewd alleged that Knoll owed it “cash equal to the value of the
services he promised to perform” under MCL 450.4302(2), and that he breached his fiduciary
duties by misrepresenting his ability to perform under the contract. Chewd also alleged claims
for promissory estoppel and unjust enrichment.
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Knoll then sued Chewd Holdings, Kumar, Tatum, and Zora in a separate complaint; he
alleged that Kumar, Tatum, and Zora created a new entity, Chewd Holdings, in order to transfer
Chewd’s assets to the new company and avoid paying him. Knoll alleged claims of fraudulent
conveyance, successor liability, and fraud.
The trial court consolidated the two lawsuits in May 2014.
In September 2014, Chewd, Chewd Holdings, Kumar, Tatum, and Zora moved for
summary disposition of Knoll’s claims under MCR 2.116(C)(8). The trial court granted the
motion and dismissed Knoll’s claims against Chewd, Chewd Holdings, Kumar, Tatum, and Zora
without prejudice in October 2014. Thereafter, Chewd moved to voluntarily dismiss its
counterclaims. The trial court granted the motion and dismissed the counterclaims without
prejudice in December 2014.
Knoll now appeals in this Court.
II. SUMMARY DISPOSITION
A. STANDARD OF REVIEW
On appeal, Knoll argues that the trial court erred in several ways when it dismissed his
claims. Although the trial court stated that it was granting the motion for summary disposition
by Chewd, Chewd Holdings, Kumar, Tatum, and Zora because Knoll’s claims were premature,
we decline to consider whether the trial court’s stated rationale for granting the motion was
correct. Because this Court reviews a decision on a motion for summary disposition de novo, see
Maiden v Rozwood, 461 Mich 109, 118; 597 NW2d 817 (1999), we shall limit our analysis to
examining whether Chewd, Chewd Holdings, Kumar, Tatum, and Zora established that Knoll’s
claims—as pleaded—were so deficient that it was proper to dismiss the claims under MCR
2.116(C)(8).
B. MCR 2.116(C)(8)
In reviewing a motion under MCR 2.116(C)(8), courts do not examine whether there is
evidentiary support for the claim; rather, we consider the pleadings alone to determine whether
they are legally sufficient to state a claim. Maiden, 461 Mich at 119-120. We must accept as
true all well pleaded allegations to determine whether the opposing party’s pleadings allege a
prima facie case. Radtke v Everett, 442 Mich 368, 373; 501 NW2d 155 (1993).
We note that, on appeal, Knoll repeatedly emphasizes that a court may not grant
summary disposition under MCR 2.116(C)(8), if it is possible that the nonmoving party could
develop facts to justify recovery. He then discusses evidence that might support a claim. The
factual development, however, must relate to the claim actually pleaded: “A motion under MCR
2.116(C)(8) may be granted only where the claims alleged are ‘so clearly unenforceable as a
matter of law that no factual development could possibly justify recovery.’ ” Maiden, 461 Mich
at 119 (emphasis added and citation omitted). Thus, the question is whether Knoll alleged a
claim that would entitle him to relief if he could develop facts to support the claim as alleged; it
is not whether he could develop facts to support a different—albeit similar—claim. Where the
allegations are so deficient that, even if true and supported by evidence, they would not give rise
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to liability as matter of law, the trial court should grant the motion to dismiss under MCR
2.116(C)(8). See USA Cash #1, Inc v City of Saginaw, 285 Mich App 262, 265; 776 NW2d 346
(2009) (stating that courts examine the pleadings to determine whether the claim is so deficient
that recovery would be impossible under that theory even when the allegations are accepted as
true and viewed in the light most favorable to the plaintiff).
C. CLAIMS AGAINST CHEWD
1. BREACH OF CONTRACT-ANTICIPATORY REPUDIATION
In stating his claim of breach of contract-anticipatory repudiation, Knoll alleged that
Chewd breached the agreement attached to his complaint by failing “to honor, redeem and/or
evaluate the shares of common stock” issued to him and by failing to “maintain” or properly
“value” the shares for redemption. Knoll did not allege that Chewd had an obligation under the
attached agreement that required Chewd to honor, redeem, evaluate, or value the shares in any
particular way. By failing to allege the existence of a contractual obligation to perform, Knoll
failed to plead an essential element of his breach of contract claim. See Miller-Davis Co v
Ahrens Const, Inc, 495 Mich 161, 178; 848 NW2d 95 (2014). Knoll also did not allege that
Chewd declared its intent not to perform any act specifically required by the agreement, which is
essential to establish a claim of anticipatory repudiation. Stoddard v Manufacturers Nat’l Bank,
234 Mich App 140, 163; 593 NW2d 630 (1999).
2. FIDUCIARY DUTY
Knoll also failed to state a claim on which relief could be granted as to breach of
fiduciary duty. He argued that as a shareholder, Chewd “owed [him] a fiduciary duty to promote
the value of the shares of [Chewd] and not diminish them.” Knoll further claimed vaguely that
Chewd had “acted in its own self-interest, which was in conflict with” Knoll’s interests.
Although Knoll asserted that Chewd breached its fiduciary duty to him by “virtue of his conduct
described above,” presumably referring to his factual allegations, Knoll did not allege any
specific act that amounted to a failure to promote the value of its shares or to diminish the values.
Instead, Knoll left Chewd to speculate about the conduct that he claimed amounted to a breach of
fiduciary duty. See Meyer and Anna Prentis Family Foundation, Inc v Barbara Ann Karmanos
Cancer Institute, 266 Mich App 39, 43; 698 NW2d 900 (2005) (stating that a fiduciary duty
involves a situation where the fiduciary has a duty to act for his or her principal’s benefit
regarding matters within the scope of the relationship). Consequently, even assuming that an
artificial entity has a fiduciary duty to promote its shares or at least not devalue its owners’
ownership interests, which is not entirely clear, Knoll failed to allege a claim that Chewd took an
action that amounted to a breach of any such fiduciary duty.
3. ACCOUNTING
In his claim for “a true and accurate accounting” of all Chewd’s activities and assets,
Knoll failed to allege that he submitted a written request for this information as required under
MCL 450.4503. Knoll did not allege that he properly requested the information or that Chewd
otherwise had an obligation to provide its financial information in the absence of such a request.
He also failed to state grounds establishing the need for an equitable accounting. See, e.g.,
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Second Mich Co-op Housing Ass’n v First Mich Co-op Housing Ass’n, 358 Mich 252; 99 Nw2d
665 (1959). Consequently, he failed to state a claim for an accounting on which relief could be
granted.
4. UNJUST ENRICHMENT
Knoll also claimed that Chewd was unjustly enriched by retaining his work product
without properly compensating him. However, Knoll alleged that he agreed to work for the
ownership interest stated in his agreement with Chewd. Because the compensation was
governed by an express agreement, there can be no claim of unjust enrichment. See Belle Isle
Grill Corp v Detroit, 256 Mich App 463, 478; 666 NW2d 271 (2003) (stating that a contract
cannot be implied where there is an express contract covering the same subject matter). Thus, as
pleaded, he could not establish a claim of unjust enrichment as a matter of law.
D. CLAIMS IN SECOND COMPLAINT
In his second complaint, Knoll alleged that Chewd Holdings, Kumar, Tatum, and Zora
owed him damages premised on a fraudulent conveyance of assets from Chewd to Chewd
Holdings. Under the fraudulent transfer act, Knoll had to allege that he had a creditor-debtor
relationship which was adversely affected by the transfer of assets, which he did not do. See
MCL 566.31(d) and (f). Indeed, he actually alleged that the transfer of Chewd’s assets—which
assets he did not identify—rendered Chewd Holdings insolvent; he further did not explain how
Chewd Holdings’ insolvency implicated him. Moreover, although the Michigan Limited
Liability Company Act prohibits limited liability companies from making distributions if the
company would be unable to pay its debts after making the distribution, see MCL
450.4307(1)(a), Knoll did not allege that Chewd owed him any money or that Chewd would be
unable to pay its debts. As such, he failed to allege an actionable fraudulent conveyance.
Similarly, because Knoll failed to allege a fraudulent transfer, he cannot establish that Chewd
Holdings assumed any liability that Chewd may have owed to him as a successor entity. See
Foster v Cone-Blanchard Machine Co, 460 Mich 696, 702-703; 597 NW2d 506 (1999) (stating
the situations under which a successor entity may be held liable for its predecessor’s debts).
Finally, Knoll alleged in his second complaint that Chewd Holdings, Kumar, Tatum, and
Zora committed fraud when they “intentionally, maliciously, and without just cause, engaged in
misrepresentations regarding their contractual obligations and their intention to pay for the
services delivered.” Knoll did not further explain the nature of the “misrepresentations” other
than to reference the facts section of his complaint. Allegations of fraud must be stated with
particularity. See Michigan v CVS Caremark, 496 Mich 45, 63; 852 NW2d 103 (2014). Knoll’s
allegations were not sufficiently pleaded to meet the pleading requirements of MCR 2.112(B)(1).
III. CONCLUSION
To the extent that the trial court determined that Chewd, Chewd Holdings, Kumar,
Tatum, and Zora were entitled to summary disposition under MCR 2.116(C)(8), it did not err.
However, a dismissal under MCR 2.116(C)(8) must be with prejudice, see ABB Paint Finishing,
Inc v Nat’l Union Fire Ins Co of Pittsburg, 223 Mich App 559, 562-563; 567 NW2d 456 (1997),
and the trial court here granted the motion and dismissed Knoll’s claims without prejudice. In
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addition, the trial court should normally give the nonmoving party an opportunity to amend his
or her pleadings to correct the deficiencies before dismissing the claims under MCR
2.116(C)(8), which it did not do. See MCR 2.116(I)(5). Consequently, we must vacate the trial
court’s order dismissing Knoll’s claims without prejudice and remand this case for further
proceedings.
On remand, the trial court shall give Knoll a reasonable opportunity to amend his
pleadings to properly state his claims against Chewd, Chewd Holdings, Kumar, Tatum, and Zora.
If Knoll corrects the deficiencies as to any of his claims, the trial court shall deny the motion for
summary disposition under MCR 2.116(C)(8) as to that claim. If Knoll fails to correct the
deficiencies as to one or more of his claims, the trial court shall grant the motion as to that claim
and dismiss it with prejudice.
Vacated and remanded for further proceedings consistent with this opinion. We do not
retain jurisdiction. Because none of the parties have prevailed in full on appeal, we order that
none may tax costs. MCR 7.219(A).
/s/ Deborah A. Servitto
/s/ Michael J. Kelly
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