               NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                          File Name: 15a0231n.06

                                          No. 14-1398                                  FILED
                                                                                 Mar 26, 2015
                                                                             DEBORAH S. HUNT, Clerk
                         UNITED STATES COURT OF APPEALS
                              FOR THE SIXTH CIRCUIT

DBI INVESTMENTS, LLC,

       Plaintiff-Appellant,
v.
                                                      ON APPEAL FROM THE UNITED
                                                      STATES DISTRICT COURT FOR THE
PAUL BLAVIN,
                                                      EASTERN DISTRICT OF MICHIGAN
       Defendant-Appellee.




BEFORE:       DAUGHTREY, MOORE, and CLAY, Circuit Judges.

       CLAY, Circuit Judge. Plaintiff DBI Investments, LLC (“Plaintiff”) appeals from the

order entered by the district court dismissing Plaintiff’s complaint pursuant to Federal Rule of

Civil Procedure 12(b)(6) for failure to state a claim. For the reasons set forth below, we

AFFIRM the judgment of the district court.

                                                I.

                                       BACKGROUND

                                      Procedural History

       Plaintiff filed the present action in Michigan state court on June 28, 2013, alleging claims

arising from allegedly untimely and unilateral dissolution of a partnership, PWB Value Partners,

by Defendant Paul Blavin, the principal member of the limited liability company that was the

General Partner for the partnership. The partnership was dissolved in April 2009, four years
                                            No. 14-1398


before the complaint was filed. The complaint recites counts of fraud, negligent

misrepresentation, promissory estoppel, and unjust enrichment. Defendant removed the action to

federal court on the basis of diversity jurisdiction on June 30, 2013.1 Defendant then moved to

dismiss Plaintiff’s complaint on August 6, 2013. The district court granted Defendant’s motion

and dismissed the complaint on March 7, 2014. Plaintiff filed a timely notice of appeal.

                                          Factual History

       The following statement of facts is drawn primarily from Plaintiff’s complaint.

Consistent with our precedent, we also draw on certain documents referenced and quoted in the

complaint and central to Plaintiff’s claim. Greenberg v. Life Ins. Co. of Va., 177 F.3d 507, 514

(6th Cir. 1999) (documents are properly considered as part of the pleadings if the document “is

referred to in the complaint and is central to the plaintiff’s claim” (internal quotation marks

omitted)). Those documents include the Limited Partnership Agreement and four Dear Partner

Letters dated from January 2007 to March 2009.

   1. The Formation and Operation of PWB Value Partners

       The instant case arises from Defendant’s dissolution in 2009 of a limited partnership he

controlled. The partnership, called PWB Value Partners (“PWB”), served as a vehicle to manage

investments by Plaintiff and other limited partners. PWB was formed by Defendant in 1995 and

operated pursuant to the terms of a partnership contract, here referred to as the Limited

Partnership Agreement. Defendant managed PWB through two entities that the parties agree he



       1
           Defendant properly invoked federal diversity jurisdiction in this case. See 28 U.S.C.
§§ 1332 and 1446. Defendant is a resident of Arizona, and Plaintiff is a Michigan limited
liability company with its principal place of business in Oakland County, Michigan, satisfying
§ 1332(a)(1). Although the jurisdictional amount was not apparent from the face of the
complaint, which alleges only damages “in excess of $25,000” in accordance with Michigan
Court Rule 2.111(b)(2), Defendant’s notice of removal properly asserts pursuant to § 1446(c)(2)
that Plaintiff is seeking to recover losses which Plaintiff believes to be in the millions of dollars.
                                                  2
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controlled: a limited liability company called “Preservation of Capital Management” that served

as the general partner of PWB, and the investment management company “Blavin & Company,

Inc.” (“Blavin & Company”) hired to oversee PWB’s investments.

       Plaintiff DBI Investments, LLC is a limited liability company that was formed by two

brothers, Dan and Bruce Israel, to serve as a vehicle for them to invest in PWB Value Partners.

According to the complaint, the Israels trusted Defendant based on Bruce’s “close, personal”

friendship with Defendant dating back many years. Plaintiff invested millions of dollars in DBI

in the capacity of a limited partner from 1996 through 2007.

       Under    the   Limited   Partnership   Agreement,       Defendant’s   companies   received

compensation in two ways. First, Blavin & Company received management fees equal to an

annual rate of one percent of each limited partner’s capital account balance.             Second,

Preservation of Capital Management, as the general partner, received a “Performance Fee” at the

end of each fiscal year if the net profits of the partnership exceeded a certain threshold amount.

The threshold amount was calculated based on a rate of return tied to the one-year U.S. Treasury

bill and any losses carried forward from previous years. After the threshold amount was met,

PWB Value Partners received a portion of the net profits. The complaint does not provide any

detail regarding Defendant’s personal compensation, but asserts that “[b]etween 1996 and 2007,

[Defendant] profited tremendously from his involvement in PWB Value Partners, and received

significant fees and profit allocations through both Blavin & Company and Preservation of

Capital Management.” (R. 1-1, Complaint, PGID 12.)

       Defendant espoused a philosophy of value-based investing that involved taking long-term

ownership in companies identified by Defendant and his employees as strong businesses that

were undervalued in the market.       Over the lifetime of PWB Value Partners, Defendant’s



                                                3
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investment strategy proved to be very successful and very profitable.             Unsurprisingly, this

success foundered in 2007 and collapsed in 2008 along with the rest of the stock market.

   2. Dissolution of the Partnership

       The complaint alleges that in early 2009, Defendant met privately with the Israels and

confided in them that he intended to dissolve PWB, citing the “tough stock market conditions”

and “the losses that had accumulated and would be carried forward.” (R. 1-1 at 18.) Allegedly,

Defendant “lamented that, without any real likelihood of receiving the Performance Fee, [he]

would be working for ‘peanuts,’ and he was not willing to do that. Instead, [Defendant] stated

that he would spend more time with his family.” (Id.)

       This meeting was shortly followed by a Dear Partner Letter dated March 2, 2009

announcing the dissolution of PWB. (Id. at 19.) The letter began, “I have decided to liquidate

our partnership and return your capital to you,” and reported that the limited partners could

expect to receive ninety percent of their assets by April 10th, and the rest following completion

of the final audit. (R. 5-8, March 2009 Letter, PGID 345.) Defendant wrote:

       I have enjoyed, more than I can adequately express, being your fiduciary over the
       past 14+ years. I am grateful for the trust and confidence that you have
       generously placed in me.
                                               ***
       Now I have concluded that I want to shift my focus from business to family and
       personal development. I am excited by the prospect of uninterrupted time with
       my family and feel blessed to have this opportunity.

(Id.) Plaintiff shortly thereafter received a distribution of the entirety of its remaining capital as a

limited partner in PWB Value Partners.

       Plaintiff now asserts in the present suit that the dissolution of PWB was the culmination

of unlawful conduct by Defendant that caused it to permanently realize significant investment

losses. In essence, Plaintiff complains that by dissolving the partnership and liquidating its

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                                           No. 14-1398


assets at the bottom of the market, Defendant broke his promises and demonstrated that a number

of earlier representations were fraudulent or misleading.

   3. Defendant’s Alleged Representations

       Plaintiff’s claims for fraud, negligent misrepresentation, and promissory estoppel are

based on eleven alleged representations by Defendant that fall into four principal categories:

(1) representations about the circumstances in which the partnership might be dissolved;

(2) representations   about   PWB’s     adherence     to    long   term   investment    principles;

(3) representations about the Performance Fee; and (4) representations that Defendant would

exercise his duties with integrity. These representations, according to Plaintiff, were proven

false or were breached when Defendant unilaterally dissolved the partnership in 2009.

Additionally, Plaintiff’s unjust enrichment claim asserts that Defendant “would never have

received the substantial profits attributable to DBI’s investments” but for his alleged

misrepresentations about the performance fee and PWB’s adherence to the alleged investment

principles. (R. 1-1 at 35.) We summarize the four categories of representations in turn.

       a. Representations about Dissolution Provisions

       The complaint suggests throughout that Defendant’s dissolution of the partnership was

improper, or at least contrary to his representations. The representations recited by the complaint

essentially summarize the pertinent provisions of the Limited Partnership Agreement. That

agreement required the dissolution of PWB upon the occurrence of any one of a number of

“dissolution event[s],” including if “[t]he General Partner ceases to be a General Partner.” (R. 5-

2, Limited Partnership Agreement, PGID 171.)          The partnership would not be subject to

dissolution, however, if a majority in interest of the limited partners voted to continue the




                                                5
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partnership on the withdrawal of the general partner.         A vote on whether to continue the

partnership was required to be called by a limited partner.

        Plaintiff alleges that Defendant violated these provisions by dissolving PWB without a

vote. Defendant concedes that no vote was held; Plaintiff does not allege that it or any other

limited partner exercised their right to call for a vote.

        Some further portions of the Limited Partnership Agreement are relevant to dissolution.

Significantly, the agreement empowered the general partner, Preservation of Capital

Management, to withdraw from the partnership by giving notice. (Id. at 170-71.) Further, the

Limited Partnership Agreement provided that a limited partner’s membership in the Partnership

terminates when its entire interest has been distributed or withdrawn. As Plaintiff concedes, the

general partner possessed the right under the agreement to liquidate a limited partner’s

investment and distribute it to that limited partner.

        b. Representations about Defendant’s Long Term Investment Principles

        Five of the eleven “material representations” upon which Plaintiff founds its claims

concern PWB’s investment strategy prioritizing long term investment based on intrinsic value.

For example, the complaint alleges “material representations” by Defendant that PWB “would

strictly adhere to its stated long-term investment principles” and that Defendant “maintained an

unwavering focus on long-term intrinsic value . . . rather than short term results.” (R. 1-1 at 21-

22.) In this regard, Plaintiff cites to and quotes from several Dear Partner letters as providing

“confirmation and reiteration of PWB Value Partners’ investment principles.” (Id. at 14.) For

example, the Dear Partner Letter dated January 17, 2007, contained the following statements

under the heading of “General Observations:”

        I believe that we have a distinct advantage in today’s environment by maintaining
        our unwavering focus on the long-term intrinsic value of our investments rather

                                                   6
                                           No. 14-1398


       than short-term trading results. We do not focus on our month-to-month or
       quarter-to-quarter results or dampening the volatility thereof. Instead, through
       disciplined, thorough analysis and concentrated, aggressive capital allocation only
       when compelling opportunities arise, we look to preserve and compound our
       capital over a five-year time horizon. This timeframe is often necessary for short-
       term issues to clear (often driven by sentiment and emotion) and the long-term
       intrinsic value to shine through.

(R. 5-5, January 2007 Letter, PGID 326 (emphasis in original).) In the same section, the letter

discussed the “pressure for short-term trading profits,” and also expressed gratitude for the

“patience and understanding” of the partners that allowed PWB to “zig when others zag.” (Id. at

326-27.)

       The complaint also cites to letters dated January 23, 2008 and July 16, 2008 in alleging

that Defendant represented that a three-to-five year timeline applied to PWB’s investments. The

tenor of these letters is notably affected by the market conditions then extant. The January 2008

letter sought to contextualize disappointing results from 2007 by highlighting PWB’s past

successes, discussing market sell-offs affecting its core holdings, and expressing confidence that,

in language quoted by the complaint, “at today’s market prices each [PWB] holding provides a

solid margin-of-safety against permanent capital loss and has the potential for significant capital

appreciation over the next three-to-five years.” (R. 5-6, January 2008 Letter, PGID 334.) The

letter reiterated PWB’s commitment to a long term investment strategy. Similarly, the July 2008

Dear Partner Letter acknowledged the fear pervading the market, but expressed confidence that

“the long-term fundamentals of [PWB’s] core holdings remain solid.” (R. 5-7, July 2008 Letter,

PGID 342.) The letter further stated, “[b]y investing with a three-to-five year time horizon, we

believe (and experience has reinforced) that our combined patience will prove a valuable

advantage in these trying times.” (Id. at 343.)




                                                  7
                                           No. 14-1398


       Although the complaint asserts repeatedly that Defendant made oral representations to

Plaintiff about the partnership’s “strict adherence” to long-term investment principles, the

complaint is devoid of any information about the circumstances and dates of such statements

apart from the Dear Partner Letters. For example, the complaint alleges that “Blavin personally

assured and represented to the Israels that PWB Value Partners would strictly adhere to the

investment principles listed above before DBI made its first investment and repeatedly through

2008, both orally and in writing.” (R. 1-1 at 10.) DBI’s first investment was made in 1996, so

that assertion covers a period of twelve years.

       c. Representations about the Performance Fee

       All four counts of the complaint allege that Defendant made misrepresentations about the

incentive structure created by the Performance Fee. The complaint alleges that Defendant

represented “[t]hat the Performance Fee was in the best interests of the limited partners,

including DBI,” and “[t]hat the Performance Fee created a ‘win-win’ situation by aligning the

interests of [the general partner and the limited partners] because Preservation of Capital

Management would not receive any compensation unless the limited partners earned net profits

in excess of the Threshold Amount.” (R. 1-1 at 21, 26, and 31.) In this vein, the complaint cites

to passages from Dear Partner Letters assuring Limited Partners, for example, that “[o]ur

financial interests have always been aligned with yours.” (R. 1-1 at 14.). In context, however, it

is clear that those passages are referring not to the Performance Fee but to the fact that Defendant

and his business partner kept their own funds invested alongside the limited partners’ funds.

       d. Representations that Defendant would Exercise His Duties with Integrity

       The final category of alleged misrepresentations on which Plaintiff bases its claims

encompasses statements by Defendant that he would perform his duties with honesty and loyalty.



                                                  8
                                           No. 14-1398


Some of the specific statements alleged in the complaint are drawn directly from Dear Partner

Letters, such as the alleged representation that Defendant “would conduct himself with

scrupulous honesty, had his capital side by side with PWB Value Partners’ limited partners, and

work ever more diligently to affirm the trust of the limited partner.”2 (R. 1-1 at 22, 27, and 31.)

Additionally, in some instances Defendant referred to himself as a “fiduciary” to the limited

partners, for example writing on July 16, 2008, “[a]s fear envelops equity and credit markets

worldwide, I believe that it is my fiduciary obligation to you to maintain a sense of rationality

and discipline[.]” (R. 5-7, at 342.) The complaint alleges that these representations were false

because Defendant dissolved PWB “to serve his own self-interests to the detriment of PWB

Value Partners’ limited partners, including DBI.” (R. 1-1 at 23, 28.)

                                                 II.

                                          DISCUSSION

                                       Standard of Review

       Because “the sufficiency of a complaint is a question of law,” we review de novo a ruling

on a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). Ctr. for Bio-Ethical

Reform, Inc. v. Napolitano, 648 F.3d 365, 369 (6th Cir. 2011). Like the inquiry required of the

district court, appellate review of a motion to dismiss “consider[s] the factual allegations in [the]

complaint to determine if they plausibly suggest an entitlement to relief.” Id. (quoting Ashcroft

v. Iqbal, 556 U.S. 662, 681 (2009)). Courts must accept as true the factual allegations pleaded in

the complaint. Id. On the other hand, “conclusory recitals of the elements of a claim, including

legal conclusions couched as factual allegations” need not be accepted. Id. This Court “may



       2
          The January 2008 Letter stated in closing, “you can expect us to continue to conduct
ourselves with scrupulous honesty, keep our capital side-by-side with yours, and work ever more
diligently to affirm your trust.” (R. 5-6 at 337.)
                                                 9
                                          No. 14-1398


affirm the district court’s dismissal of Plaintiffs’ claims on any grounds, including those not

relied on by the district court.” Zaluski v. United American Healthcare Corp., 527 F.3d 564, 570

(6th Cir. 2008).

       In cases arising under diversity jurisdiction, we must apply “the substantive law of the

forum state.” Conlin v. Mortg. Elec. Registration Sys. Inc., 714 F.3d 355, 358 (6th Cir. 2013).

The present case was originally filed in Michigan state court and the parties agree that Michigan

law applies. The decisions of Michigan’s highest court are binding on this Court in applying

Michigan law, and “[i]ntermediate state appellate courts’ decisions are also viewed as

persuasive.” Id. (quoting Savedoff v. Access Grp., Inc., 524 F.3d 754, 762 (6th Cir. 2008)).

                                            Analysis

A. Michigan Law Regarding Fraud and Negligent Misrepresentation

       Plaintiff asserts that Defendant committed fraud or at least negligent misrepresentation in

making representations that Plaintiff contends were ultimately proven false when Defendant

dissolved PWB in 2009. For convenience, we shall refer to the two claims as the “fraud claims.”

Both claims require a showing that the defendant made a statement with the knowledge or

intention that the plaintiff would rely on it, and that the statement was false when made. See Hi-

Way Motor Co. v. International Harvester Co., 247 N.W.2d 813, 816 (Mich. 1976) (elements for

fraud); Law Offices of Lawrence J. Stockler, P.C. v. Rose, 436 N.W.2d 70, 82 (Mich. Ct. App.

1989) (elements for negligent misrepresentation). For fraud, the plaintiff must establish that the

defendant knew the statement was false or acted with reckless disregard as to the truth of the

statement. Hi-Way Motor Co., 247 N.W.2d at 816. For negligent representation, the plaintiff

must establish that the defendant failed “‘to exercise reasonable care or competence in obtaining

or communicating the information.’” Stockler, 436 N.W.2d at 82 (quoting Restatement Second



                                               10
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of Torts § 552). As summarized above, the complaint seeks to premise Defendant’s liability for

the fraud claims on four categories of representations.      None of these representations are

adequate to make out a cognizable fraud claim.

       1. Statements About Contract Provisions

       Two of the categories of representations alleged in the complaint relate directly to the

content or operation of provisions of the Limited Partnership Agreement. Defendant’s alleged

statements about the manner and circumstances in which PWB may be dissolved summarize a

portion of the relevant contract provisions, and his alleged statements about the incentives

created by the compensation structure relate to the operation and effect of the Performance Fee.

Under Michigan law, these representations cannot sustain the fraud claims.

        Generally, under Michigan law, a plaintiff “[may] not maintain an action in tort for

nonperformance of a contract.” Ferrett v. Gen. Motors Corp., 475 N.W.2d 243, 247 (Mich.

1991). Not all tort claims, however, are barred by the existence of a contract. Rather, Michigan

courts must inquire whether the legal duty allegedly violated by a defendant “arise[s] separately

and distinctly from a defendant’s contractual obligations.” Loweke v. Ann Arbor Ceiling &

Partition Co., LLC, 809 N.W.2d 553, 559 (Mich. 2011).

       Thus, Michigan courts have allowed claims for negligence resulting in physical harm to

third parties, see id. (allowing injured employee of electrical subcontractor to proceed with

negligence claim against drywall subcontractor); or retaliatory discharge of an at-will employee

contrary to public policy, Phillips v. Butterball Farms Co., 531 N.W.2d 144 (Mich. 1995). In

contrast, Michigan courts have rejected tort claims based on negligent performance or

nonperformance of a contract resulting in only economic harm, a rule sometimes called the

“economic loss doctrine.” See, e.g., Rinaldo’s Constr. Corp. v. Mich. Bell. Tel. Co., 559 N.W.2d



                                                 11
                                           No. 14-1398


647 (Mich. 1997) (plaintiff could not allege tort for business losses incurred due to telephone

company’s negligence in installing and maintaining phone lines); Neibarger v. Universal Coops.,

Inc., 486 N.W.2d 612 (Mich. 1992) (applying economic loss doctrine to disallow products

liability claim where milking equipment injured cows); Hart v. Ludwig, 79 N.W.2d 895 (Mich.

1956) (rejecting negligence claim when the defendant had quit pruning orchard early).

       Michigan courts recognize fraudulent inducement as an exception to the economic loss

doctrine. Huron Tool & Eng’g Co. v. Precision Consulting Servs., Inc., 532 N.W.2d 541, 544

(Mich. Ct. App. 1995); see also Gen. Motors Corp. v. Alumi-Bunk, Inc., 757 N.W.2d 859 (Mich.

2008) (endorsing a Huron Tool analysis of a fraud claim). The court in Huron Tool quoted with

approval the observation that fraud in the inducement “addresses a situation where the claim is

that one party was tricked into contracting” and is “based on pre-contractual conduct which is,

under the law, a recognized tort.” 532 N.W.2d at 544 (quoting Williams Elec. Co. Inc. v.

Honeywell, Inc., 772 F. Supp. 1225, 1237-38 (N.D. Fla., 1991)); see, e.g., Llewellyn-Jones v.

Metro Property Group, LLC, 22 F. Supp.3d 760, 778-79 (E.D. Mich. 2014) (applying Michigan

law) (allowing a fraud in the inducement claim to proceed notwithstanding the existence of a

contract where the plaintiffs alleged a “bait-and-switch” scheme by the defendants to sell

properties other than the ones shown and pictured during the transaction). Claims of fraud

“extraneous to the contract” are permissible, whereas “fraud interwoven with the breach of

contract” cannot support an independent claim. Huron Tool, 532 N.W.2d at 545.

       Plaintiffs’ allegations of fraud based on Defendant’s representations regarding the

dissolution procedure are essentially claims of nonperformance of the relevant contract

provisions governing that procedure.      Plaintiff does not allege any statements related to

dissolution extraneous to these provisions that “tricked” it into entering the contract. See id. at



                                                12
                                           No. 14-1398


544. Similarly, Plaintiff’s claim that Defendant misrepresented the effect of the performance

compensation structure concerns the operation of a contract provision with which both parties

were directly familiar. Plaintiff, an entity representing and controlled by two sophisticated

businessmen, cannot claim that it was tricked into the Limited Partnership Agreement based on

Defendant’s emphasis on the positive aspects of the arrangement. See id. Nothing prevented

Plaintiff in this context from foreseeing the downside as well as the upside of a performance-

based compensation structure. Because the allegations of fraud based on the statements about

dissolution procedures and the Performance Fee are “interwoven” with the nonperformance or

foreseeable effect of contract terms, they are barred by the economic loss doctrine.

       Plaintiff argues that its fraud claims are not barred by the Limited Partnership Agreement

because Defendant, individually, was not a direct party to the contract. Plaintiff is correct that

“corporate officials may be held personally liable for their individual tortious acts done in the

course of business, regardless of whether they were acting for their personal benefit or the

corporation’s benefit.” Dep't of Agric. v. Appletree Mktg., L.L.C., 779 N.W.2d 237, 246-47

(Mich. 2010) (quoting Livonia Bldg. Materials Co. v. Harrison Constr. Co., 742 N.W.2d 140,

143-44 (Mich. 2007)). Plaintiff has not produced any Michigan authority, however, that this

principle trumps the economic loss doctrine. Defendant’s representations about dissolution

procedures and the operation of the Performance Fee were made in the course of arranging and

carrying out a partnership contract between Plaintiff and entities that he controlled. In these

circumstances, Plaintiff cannot avoid the economic loss doctrine merely by suing Defendant in

his personal capacity.




                                                13
                                          No. 14-1398


       2. Statements About Defendant’s Investment Principles and Timeline

       The representations related to Defendant’s investment principles and timeline are also

inadequate to make out the fraud claims under Michigan law. Claims for fraud and negligent

misrepresentation, as a general rule, may not be based on representations about future conduct.

Forge v. Smith, 580 N.W.2d 876, 884 (Mich. 1998) (negligent misrepresentation); Hi-way Motor

Co. v. Int’l Harvester Co., 247 N.W.2d 813, 816 (Mich. 1976) (fraud). Plaintiff’s theory of fraud

is that Defendant assured Plaintiff and other limited partners that PWB would hold investments

over the long term in accordance with his philosophy of value-based investing, and that these

assurances were proven false when Defendant liquidated PWB’s investments in 2009 at the

bottom of the stock market. Plaintiff particularly emphasizes statements by Defendant alluding

to a three-to-five year timeline for 2007 and 2008 investments. Each of these statements plainly

related to future conduct, i.e., the manner in which Defendant would manage PWB’s

investments.

       Plaintiff argues that its claims fall under one or more of the exceptions to the rule that

claims of fraud may not be based on future conduct: the “bad faith” exception, the exception for

intended factual representations, and the exception where there is a relationship of trust and

confidence between the parties. Pl.’s Br. at 40 (citing Rutan v. Straehly, 286 N.W. 639, 642

(Mich. 1939); Crook v. Ford, 229 N.W. 587, 588 (Mich. 1930)). The bad faith exception

requires a “present undisclosed intent not to perform.” Foreman v. Foreman, 701 N.W.2d 167,

175 (Mich. Ct. App. 2005) (citing Rutan, 286 N.W. at 642). The complaint defeats this theory

by acknowledging that Defendant did in fact perform by managing the investments of Plaintiff

and other limited partners over a fourteen-year period. Any inference of bad faith is negated by

Plaintiff’s own allegation that Defendant took the decision to dissolve PWB based on the



                                               14
                                            No. 14-1398


unanticipated losses caused by the stock market crash.       Although Plaintiff is correct that

“[m]alice, intent, knowledge, and other conditions of a person’s mind may be alleged generally”

under Federal Rule of Civil Procedure 9(b), a general allegation of “bad faith” cannot overcome

the other pertinent factual allegations in this complaint.

       Under the second exception identified by Plaintiff, statements related to future conduct

may form the basis for liability “if the statements were intended to be, and were accepted, as

representations of fact, and involved matters peculiarly within the knowledge of the speaker.”

Crook, 229 N.W. at 588. Defendant’s alleged statements regarding his investment philosophy

and timeline do not satisfy these requirements. Rather, the statements were phrased, and clearly

intended, as statements of opinion. For example, the January 17, 2007 Dear Partner Letter stated

“I believe that we have a distinct advantage in today’s environment by maintaining our

unwavering focus on the long-term intrinsic value of our investments rather than short-term

trading results.” (R. 5-5, January 2007 Letter, Page ID# 326.) This statement does no more than

set out an investment professional’s opinion as to why his investment strategy is sound. Nor

does the complaint allege that Defendant’s investment philosophy was not based on long-term

value; rather, Plaintiff charges that Defendant’s choice to dissolve the partnership was unsound

under those principles. This sort of second guessing cannot convert Defendant’s description of

his investment philosophy into a statement of fact that can be proven false for purposes of a

fraud or negligent misrepresentation claim.

       Finally, Plaintiff makes a passing reference to the third exception based on Defendant’s

long friendship with Bruce Israel. That exception allows fraud claims based on statements about

future conduct where there is “a relation of trust and confidence” between the parties. Rutan,

286 N.W. at 642; see also Ainscough v. O’Shaughnessey, 78 N.W.2d 209, 214 (Mich. 1956)



                                                 15
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(reciting the same exception).    Plaintiff offers no authority where this exception has been

applied, leaving us without meaningful guidance on its contours under Michigan law. A relevant

Restatement provision requires that in order for a statement of intent to be fraudulent, the person

making that statement “must in fact not have the intention stated.” Restatement Second of Torts

§ 530, comment b. The allegations in the complaint that Defendant dissolved the partnership

because of the market losses in late 2008 preclude a conclusion that Defendant already planned

to abandon his value-based investment strategy when he made the alleged representations in

2007 and 2008. Because the complaint prevents an inference that Defendant did not possess the

stated intention at the time he made the representations, we conclude that Plaintiff cannot

succeed under this exception.

       3. Statements About Defendant’s Intent to Perform with Integrity

       Defendant’s alleged representations that he would serve PWB’s limited partners with

“scrupulous honesty” and integrity fall squarely into the class of statements that as “mere

puffery” are “not actionable for fraud.” Sneyd v. Int’l Paper Co., Inc., 142 F. Supp. 2d 819, 824

(E.D. Mich. 2001) (applying Michigan law) (citing In re Royal Appliance Sec. Litig., 64 F.3d

663, 1995 WL 490131 at *3 (6th Cir. 1995) (table)). Defendant’s rhetorical flourish that the

Limited Partners could expect that he would conduct himself with “scrupulous honesty” or that

he would work “ever more diligently to affirm [their] trust” is not the stuff of which fraud claims

are made. In the words of one of sister circuits: “[s]oft, puffing statements such as these

generally lack materiality . . . [n]o reasonable investor would rely on these statements.” Raab v.

Gen. Physics Corp., 4 F.3d 286, 289-90 (4th Cir. 1993) (internal quotation marks omitted).




                                                16
                                           No. 14-1398


B. Rule 9(b) Standards

       Plaintiff’s fraud and negligent misrepresentation claims also fail to meet the standards set

out in Federal Rule of Civil Procedure 9(b). That rule requires that complaints alleging fraud or

mistake “must state with particularity the circumstances constituting fraud or mistake.” Fed. R.

Civ. P. 9(b). “Rule 9(b) is not to be read in isolation, but is to be interpreted in conjunction with

Federal Rule of Civil Procedure 8.” United States ex rel. Bledsoe v. Cmty. Health Sys., Inc.,

501 F.3d 493, 503 (6th Cir. 2007). “When read against the backdrop of Rule 8, it is clear that the

purpose of Rule 9 is not to reintroduce formalities to pleading, but is instead to provide

defendants with a more specific form of notice as to the particulars of their alleged misconduct.”

Id. Therefore, “[i]n complying with Rule 9(b), a plaintiff, at a minimum, must ‘allege the time,

place, and content of the alleged misrepresentation on which he or she relied; the fraudulent

scheme; the fraudulent intent of the defendants; and the injury resulting from the fraud.’” Id. at

504 (quoting United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 342 F.3d 634, 643 (6th Cir.

2003) (“Bledsoe I”)).

       The present complaint plainly does not meet these requirements. According to the

complaint, Defendant made the material statements on multiple, unspecified occasions dating

from before Plaintiff first invested in the partnership in 1996 all the way through 2008. Contrary

to Plaintiff’s argument, this lack of specificity does defeat the purposes of both Rule 8 and Rule

9—neither Defendant nor the district court were given reasonable notice of what

communications allegedly misled Plaintiff, rendering it difficult if not impossible to determine

which of Plaintiff’s investment decisions were allegedly influenced by the statements and to

allow Defendant to marshal proof concerning the circumstances in which any of the statements

(or at least those not directly traceable to the Dear Partner Letters) were made.



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       Plaintiff argues that if the complaint did not contain sufficient particularity, the matter

should be remanded to allow it to file an amended complaint. Defendant argues that Plaintiff

relinquished this path by failing to seek leave to amend earlier. We do not agree that the right to

amend is so easily waived. We have held that “where a more carefully drafted complaint might

state a claim, a plaintiff must be given at least one chance to amend the complaint before the

district court dismisses the action with prejudice.” Bledsoe I, 342 F.3d at 644 (remanding to

allow the plaintiff an opportunity to amend, even though the plaintiff had failed to request leave

to amend before dismissal). More relevant here is the rule that a complaint may be dismissed

without leave to amend where the amendment would be futile. Morse v. McWhorter, 290 F.3d

795, 800 (6th Cir. 2002) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). For the reasons

already discussed, Plaintiff’s theory of fraud does not hold up under Michigan law. More

detailed descriptions of the time and place the alleged statements were made would not cure its

defects.

C. Promissory Estoppel

       Plaintiff’s third claim invokes the doctrine of promissory estoppel. Under Michigan law,

courts will enforce a clear and definite promise under this doctrine if the promisee or a third

party reasonably relied on the promise and injustice can only be avoided by its enforcement.

State Bank of Standish v. Curry, 500 N.W.2d 104, 107 (Mich. 1993) (“Curry”) (citing the

Restatement Second of Contracts, § 90.) As the Michigan Supreme Court explained, “the sine

qua non of the theory of promissory estoppel is that the promise be clear and definite.” Id. at

108; see id. at 109-10 (holding that evidence of the material terms of a promised loan was

required to meet the clear and definite standard for promissory estoppel). The court additionally




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emphasized that “the reliance interest protected by [promissory estoppel] is reasonable

reliance.” Id. at 107 (emphasis in original).

       Plaintiff alleges eleven “promises” made by Defendant. These “promises” are identical

to the statements earlier alleged under the counts of fraud and negligent misrepresentation. They

are also equally insufficient to make out a promissory estoppel claim under Michigan law.

       The alleged promises about Defendant’s investment principles, his intentions to perform

with integrity, and the operation of the Performance Fee do not meet the “clear and definite”

standard necessary for liability on a promissory estoppel theory. The Michigan Supreme Court

adopted the Restatement definition of a promise as “a manifestation of intention to act or refrain

from acting in a specified way, so made as to justify a promisee in understanding that a

commitment has been made.” Curry, 500 N.W.2d at 108 (quoting Restatement (Second) of

Contracts § 2). The statements about “strictly adher[ing] to [] stated long-term investment

principles” or maintaining “an unwavering focus on long-term intrinsic value” express an

investment philosophy but do not make a clear and definite commitment to make any particular

investment decision in a certain way. Similarly, Defendant’s “promises” that he would act with

loyalty and scrupulous honesty describe his intention to perform conscientiously, but again make

no clear and definite commitment to take or refrain from taking any particular action. The

statements regarding the Performance Fee also fail under promissory estoppel standards because

the statements do not amount to promises but are merely descriptions of the incentive structure

flowing from the Performance Fee.

       The alleged promises regarding the time horizon applicable to investments made in 2007

and 2008 may at first appear somewhat more definite, but they too fall short of the standard

adopted by the Michigan Supreme Court. Taking the statements first as alleged in the complaint,



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a representation that “a 5 year time horizon” or “a 3-5 year time horizon” “applie[s]” to

investments made in 2007 and 2008, respectively, stops well short of committing to act in a

certain way, i.e., to hold the securities purchased in those years for a definite amount of time.

The complaint makes clear that these representations were drawn from the 2007 and 2008 Dear

Partner Letters, so we may also look directly to those letters. In context, it is even more clear

that the references to time horizons of three or five years were not commitments to act in a

certain way, but rather further description of Defendant’s investment opinions. The 2007 letter

stated “[w]e do not focus on our month-to-month- or quarter-to-quarter results” but instead “we

look to preserve and compound our capital over a five-year time horizon.” (R. 1-1, Complaint, at

14-15 (quoting January 2007 Letter)). Similarly, the 2008 letter asserted a belief “that at today’s

market prices each [of the Partnership’s] holding…has the potential for significant capital

appreciation over the next three-to five years.” (R. 1-1 at 15 (quoting January 2008 Letter)).

These statements simply do not constitute promises, much less clear and definite ones.

       The only remaining alleged promise is the statement summarizing the provisions of the

Limited Partnership Agreement with regard to dissolution. While the statement qualifies as a

clear and definite promise, it cannot be the basis for a promissory estoppel claim because the

pertinent terms were set out in binding fashion in the Limited Partnership Agreement. The

Michigan Supreme Court has held that a party may not premise a promissory estoppel claim on

pre-contractual representations where the parties reduce their agreement to a written contract. N.

Warehousing, Inc. v State, Dept. of Educ., 714 N.W.2d 287 (2006).            See also Novack v.

Nationwide Mut. Ins. Co., 599 N.W.2d 546, 552 (Mich. Ct. App. 1999) (holding that plaintiff

could not have reasonably relied on an oral representation that the at-will provision of his

employment contract did not apply to him when he entered into the contract that expressly



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contradicted the oral representations). We have applied the same rule in a case governed by

Michigan law to reject a promissory estoppel claim where the parties entered into a written

contract. Gen. Aviation, Inc. v. Cessna Aircraft Co., 915 F.2d 1038, 1042 (6th Cir. 1990).

Although Michigan courts appear not to have confronted a case where a party alleged a

promissory estoppel claim on statements that were substantially the same as provisions in a

written contract, we doubt it would allow such an end-run around contract law requirements,

including the applicable statute of limitations. “Promissory estoppel is not a doctrine designed to

give a party to a negotiated commercial bargain a second bite at the apple in the event it fails to

prove,” or to timely bring a claim for, “breach of contract.” Id. at 1042 (quoting Walker v. KFC

Corp., 728 F.2d 1215, 1220 (9th Cir. 1984)).

D. Unjust Enrichment Claim

        The final claim asserted in the complaint is unjust enrichment. The elements of an unjust

enrichment claim are “(1) receipt of a benefit by the defendant from the plaintiff and (2) an

inequity resulting to plaintiff because of the retention of the benefit by defendant.” Barber v.

SMH (US), Inc., 509 N.W.2d 791, 796 (Mich. Ct. App. 1993) (citing Dumas v. Auto Club Ins.

Ass’n, 473 N.W.2d 652, 663 (Mich. 1991)). Here, too, Plaintiff’s efforts to find a viable theory

of liability are unavailing.

        The complaint asserts that Defendant was unjustly enriched when he took “substantial

profits in the form of management fees paid to Blavin & Company and the Performance Fees

paid to Preservation of Capital Management.” (R. 1-1 at 35.) Plaintiff’s theory of inequity is

that Defendant “would never have received the substantial profits attributable to DBI’s

investments” but for his misrepresentations, and that Defendant has been “unjustly enriched




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because [he] did not perform in accordance with the long-term investment principles of PWB

Value Partners” or the other statements discussed above “but kept fees anyway.” (Id. at 35-36.)

       The district court held that Plaintiff cannot succeed on this claim due to the Limited

Partnership Agreement, citing the rule that “[w]here an express contract to which plaintiff was a

signatory governs the premise of the alleged unjust enrichment, like promissory estoppel, [the

complaint] is subject to dismissal for failure to state a claim.” DBI Investments, LLC v. Blavin,

No. 13-CV-13259, 2014 WL 902866, at *6 (E.D. Mich. Mar. 7, 2014) (citing Martin v. E.

Lansing Sch. Dist., 483 N.W2d 656, 661 (Mich. Ct. App. 1992) and Convergent Grp. Corp. v.

Cnty. of Kent, 266 F. Supp. 2d 647, 661 (W.D. Mich. 2003)). The Michigan Court of Appeals

has routinely held that “a contract will be implied only if there is no express contract covering

the same subject matter.” Barber, 509 N.W.2d at 796; see also Martin, 483 N.W.2d at 661

(same); Campbell v. City of Troy, 202 N.W.2d 547, 549 (Mich. Ct. App. 1972) (same). Contrary

to Plaintiff’s assertions, this rule governs even where the party alleged to be unjustly enriched is

a third party to the contract. See Sullivan v. Detroit, Ypsilanti & Ann Arbor Ry., 98 N.W. 756,

758 (Mich. 1904) (“If A. makes an express contract with B. to perform services for C., C. is not

liable on an implied contract because he received the benefit. The two contracts cannot exist

together, governing the same transaction.”).

       Even if the existence of the Limited Partnership Agreement were not an obstacle to

liability, Plaintiff’s claim must fail because Defendant’s retention of his portion of the fees

earned by his investment companies is not unjust to Plaintiff. Plaintiff entered into a partnership

agreement that provided an annual management fee to Blavin & Company for its labor in

managing the partnership’s investments to be supplemented by a performance fee to Preservation

of Capital Management. Defendant did not profit from the Performance Fee in any instance in



                                                22
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which Plaintiff did not also profit from its investments. Thus, any fees paid to Defendant’s

companies, and any portion of those fees that were paid to Defendant personally, were either

compensation for labor performed or a reward for successful performance.             This is the

arrangement Plaintiff agreed to and willingly participated in over the course of fourteen years.

Plaintiff is in no way harmed by Defendant’s retention of the profits he earned over that time.

See Barber, 509 N.W.2d at 796.

                                        CONCLUSION

       The complaint fails to state a claim as a matter of law. The judgment of the district court

is AFFIRMED.




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