Court Opinion

ID: 7802536
Source: CourtListenerOpinion
Date Created: 2022-08-22 20:00:26.651758+00
Date Added: 2024-06-11T16:29:29.126521
License: Public Domain

RECOMMENDED FOR PUBLICATION
                                Pursuant to Sixth Circuit I.O.P. 32.1(b)
                                       File Name: 22a0197p.06

                   UNITED STATES COURT OF APPEALS
                                  FOR THE SIXTH CIRCUIT

                                                             ┐
 PRODUCT SOLUTIONS INTERNATIONAL, INC.,
                                                             │
                              Plaintiff-Appellant,           │
                                                              >        No. 21-2952
                                                             │
        v.                                                   │
                                                             │
 ALDEZ CONTAINERS, LLC,                                      │
                                  Defendant-Appellee.        │
                                                             ┘

  Appeal from the United States District Court for the Eastern District of Michigan at Detroit.
                 No. 2:21-cv-11129—Bernard A. Friedman, District Judge.

                                      Argued: June 7, 2022

                             Decided and Filed: August 22, 2022

                Before: BATCHELDER, CLAY, and LARSEN, Circuit Judges.

                                      _________________

                                            COUNSEL

ARGUED: Michael J. Hamblin, LAW OFFICE OF MICHAEL J. HAMBLIN, Bloomfield
Hills, Michigan, for Appellant. Irene B. Hathaway, BRUCE HATHAWAY PLLC, Birmingham,
Michigan, for Appellee. ON BRIEF: Michael J. Hamblin, LAW OFFICE OF MICHAEL J.
HAMBLIN, Bloomfield Hills, Michigan, for Appellant. Irene B. Hathaway, BRUCE
HATHAWAY PLLC, Birmingham, Michigan, for Appellee.
                                      _________________

                                             OPINION
                                      _________________

       CLAY, Circuit Judge. Plaintiff Product Solutions International, Inc. (“PSI”) appeals the
dismissal of its complaint against Aldez Containers, LLC (“Aldez”). PSI sued Aldez and
associated parties in 2019 alleging various claims arising from a contract dispute. The district
 No. 21-2952           Product Solutions Intl v. Aldez Containers, LLC                     Page 2

court dismissed Aldez from that suit because PSI failed to state a claim against Aldez. In 2021,
PSI filed a second complaint solely against Aldez for the same conduct as the 2019 suit. The
district court held that the 2021 suit was barred by res judicata. We AFFIRM for the reasons set
forth below.

                                       I. BACKGROUND

                                      Factual Background

        While the underlying facts in this contract dispute are fairly complex, the facts necessary
for resolving this appeal are simple.     PSI is a Massachusetts-based corporation that helps
customers bring products to market by aiding in the design, manufacture, quality assurance, and
logistics of creating new products. In August 2015, P.B. Products, LLC (“P.B. Products”), a
Michigan-based company, contacted PSI for assistance with the design, manufacture, and
distribution of a custom cosmetics travel bag called the Orgo Bag. The idea for the bag was
conceived by Diane Pattison Copek and Michael J. Byrne, who were executives of P.B.
Products.

        PSI and P.B. Products worked together to refine the design of the Orgo Bag. At the same
time, PSI was in discussions with its manufacturers in China to mass produce the Orgo Bag. PSI
submitted a purchase order to its Chinese manufacturers indicating that P.B. Products would
purchase 100,000 Orgo Bags in the first year and purchase another 1.5 million bags annually
thereafter.

        Unfortunately for P.B. Products, demand for the Orgo Bag did not match the massive
purchase agreement. During the first 18 months of sales, P.B. Products purchased only 38,296
Orgo Bags. Because demand for the Orgo Bag was so much less than P.B. Products had
anticipated, P.B. Products refused to accept additional shipments of the Orgo Bag. In turn, PSI
directed the Chinese manufacturer to mitigate its losses and liquidate any materials it had
purchased for the Orgo Bag. When the dust settled, the failure of the Orgo Bag cost PSI
$506,129.44.
 No. 21-2952           Product Solutions Intl v. Aldez Containers, LLC                    Page 3

                                    Procedural Background

       On September 24, 2019, PSI commenced an action (the “2019 suit”) against P.B.
Products, Copek, Byrne, and Aldez. Prod. Sols. Int’l, Inc. v. P.B. Prods., LLC, No. 19-CV-
12790, 2020 WL 3129978, at *1 (E.D. Mich. June 12, 2020). That diversity suit alleged breach
of contract, promissory estoppel, fraud, silent fraud, negligent misrepresentation, innocent
misrepresentation, and non-acceptance of conforming goods under the Uniform Commercial
Code. Id. The complaint contained no allegations regarding any duty owed or any breach by
Aldez. Id. at *3. The defendants jointly moved to dismiss the complaint. Id. at *1. The district
court granted the motion in part, dismissing Copek, Byrne, and Aldez from the suit, but
permitted some claims against P.B. Products to continue. Id. at *3. PSI never sought leave to
amend its complaint to fix the deficient allegations against Aldez.

       On May 17, 2021, PSI commenced the present action (the “2021 suit”) against Aldez. In
the 2021 suit, PSI sued Aldez only for breach of contract, promissory estoppel, and non-
acceptance of conforming goods under the Uniform Commercial Code. PSI had alleged these
three claims in the 2019 suit and the claims arose from the same facts. Aldez moved to dismiss
the complaint arguing that it was barred by res judicata and that it failed to state a claim. PSI
responded that in the 2019 suit, its claims were pleaded directly against Aldez, whereas in the
2021 suit, it sought to pierce P.B. Product’s corporate veil and hold Aldez vicariously liable.
The district court granted the motion to dismiss solely on the basis of res judicata. It held that
PSI’s claims in the 2021 suit “[were], or could have been, resolved in the first” suit. (Op. &
Order Granting Def.’s Mot. to Dismiss, R. 9, PageID # 191.) PSI timely appealed.

                                        II. DISCUSSION

       a Standard of Review

       “We review de novo a district court’s application of the doctrine of res judicata.” Bragg
v. Flint Bd. of Educ., 570 F.3d 775, 776 (6th Cir. 2009). We also review de novo dismissals
under Federal Rule of Civil Procedure 12(b)(6). Lipman v. Budish, 974 F.3d 726, 740 (6th Cir.
2020). While the question of whether to grant a Rule 12(b)(6) motion to dismiss is typically
confined to the pleadings, we “may take judicial notice of other court proceedings without
 No. 21-2952           Product Solutions Intl v. Aldez Containers, LLC                      Page 4

converting the motion into one for summary judgment.” Buck v. Thomas M. Cooley L. Sch., 597
F.3d 812, 816 (6th Cir. 2010).

       b. Analysis

       The parties’ briefing in this appeal almost exclusively focuses on the merits of the district
court’s application of res judicata. Accordingly, the first issue we must address is whether
federal or state res judicata law governs this case. PSI seeks to apply federal principles of res
judicata, whereas Aldez believes Michigan law should be applied.

       An intra-circuit split seems to have developed on whether federal or state res judicata law
applies in diversity actions. In Rawe v. Liberty Mutual Fire Insurance Co., 462 F.3d 521, 528
(6th Cir. 2006), we held that in “successive diversity actions, federal res judicata principles
apply.” See also Allied Erecting & Dismantling Co. v. Genesis Equip. & Mfg., Inc., 805 F.3d
701, 709 (6th Cir. 2015) (citing Rawe favorably); J.Z.G. Res., Inc. v. Shelby Ins. Co., 84 F.3d
211, 214 (6th Cir. 1996) (“[W]e shall apply federal res judicata principles in successive federal
diversity actions.”). However, recently, we have cast doubt on Rawe, suggesting that it was
inconsistent with then-existing Supreme Court precedent, and was therefore wrongly decided
from the start.    N.D. Mgmt., Inc. v. Hawkins, 787 F. App’x 891, 896 (6th Cir. 2019).
Specifically, five years before Rawe, the Supreme Court held that federal courts sitting in
diversity should apply “the law that would be applied by state courts in the State in which the
federal diversity court sits” so long as the state rule is not “incompatible with federal interests.”
Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508–09 (2001). Rawe made no
mention of Semtek. Furthermore, in 2008, two years after Rawe, the Supreme Court reiterated
that “[f]or judgments in diversity cases, federal law incorporates the rules of preclusion applied
by the State in which the rendering court sits.” Taylor v. Sturgell, 553 U.S. 880, 891 n.4 (2008)
(citing Semtek, 531 U.S. at 508).

       A prior published decision of this Court “remains controlling authority unless an
inconsistent decision of the United States Supreme Court requires modification of the decision.”
Salmi v. Sec’y of Health & Human Servs., 774 F.2d 685, 689 (6th Cir. 1985)). This principle
extends to situations where a prior opinion “overlooked” then-existing precedent. The Ne. Ohio
 No. 21-2952           Product Solutions Intl v. Aldez Containers, LLC                      Page 5

Coal. for the Homeless v. Husted, 831 F.3d 686, 720 (6th Cir. 2016). On the issue of whether to
apply federal or state preclusion law, Semtek and Rawe instruct us to undertake different
analyses. Therefore, as binding Supreme Court precedent, we must follow Semtek over Rawe
and apply Michigan law.

       Under Michigan law, res judicata applies when “(1) the prior action was decided on the
merits, (2) both actions involve the same parties or their privies, and (3) the matter in the second
case was, or could have been, resolved in the first.” Adair v. State, 680 N.W.2d 386, 396 (Mich.
2004). In addition to having been decided on the merits, “the doctrine [of] res judicata only
[applies] when the previous decree is a final decision.”         Kosiel v. Arrow Liquors Corp.,
521 N.W.2d 531, 533 (Mich. 1994) (emphasis in original). However, “[a] final order is an order
which, by itself or in conjunction with previous orders, disposes of all of the claims of all of the
parties . . . .” Dean v. Tucker, 451 N.W.2d 571, 574 (Mich. Ct. App. 1990) (per curiam)
(emphasis added); Stanton v. Woodside, 817 F. App’x 172, 174 (6th Cir. 2020).

       Regarding the first element, PSI attempts to concede that the dismissal of Aldez from the
2019 suit was a decision on the merits. But because the dismissal of Aldez from the 2019 suit
did not dispose of all claims against all parties, Aldez’s res judicata argument is lacking an
essential element. See Stanton, 817 F. App’x at 174–175. Accordingly, we cannot affirm the
dismissal of PSI’s complaint on the basis of res judicata.

       Although res judicata cannot preclude PSI’s suit, dismissal of the 2021 suit is proper.
“We may affirm on any ground supported by the record, even if not relied upon by the district
court.” Golf Vill. N., LLC v. City of Powell, 14 F.4th 611, 617 (6th Cir. 2021). Aldez argued
before the district court that PSI failed to state a claim. See Fed. R. Civ. P. 12(b)(6). “To survive
a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state
a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). This standard is met when “the
plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id. “[W]e construe the complaint in the light
most favorable to the plaintiff, draw all reasonable inferences in its favor, and accept all well-
 No. 21-2952                Product Solutions Intl v. Aldez Containers, LLC                                    Page 6

pleaded allegations in the complaint as true.” Keene Grp., Inc. v. City of Cincinnati, 998 F.3d
306, 310 (6th Cir. 2021).

         In the 2019 suit, the district court dismissed PSI’s claims against Aldez for failing to state
a claim. Specifically, the district court found that “[t]he complaint d[id] not allege that Aldez
was a party to any contract. The complaint merely allege[d] that Aldez is a shipping company.”
Prod. Sols. Int’l, 2020 WL 3129978, at *3. In the 2021 suit, PSI altered its “claims” and now
seeks to pierce P.B. Products’ corporate veil and hold Aldez vicariously liable.                               Besides
changing the theory of recovery, the 2019 and 2021 complaints are virtually identical. We agree
with the district court that the pleadings fail to allege sufficient facts to plausibly claim breach of
contract, promissory estoppel, and non-acceptance of conforming goods under the Uniform
Commercial Code.

         To get around the obviously deficient pleadings, PSI has added a few paltry allegations
that “P.B. Products, LLC is the agent, alter ego, and mere instrumentality of [Aldez].” (Compl.,
R. 1, PageID #2.) It argues that in the 2019 suit all its claims were filed as “direct claims”
against Aldez, but the 2021 suit’s complaint is different because it brings a veil-piercing “claim.”
However, piercing the corporate veil is not a cause of action under Michigan law.1 Gallagher v.
Persha, 891 N.W.2d 505, 509 (Mich. Ct. App. 2016) (recognizing that under Michigan law,
piercing the corporate veil is “a remedy, and not a separate cause of action”). In fact, PSI
admitted at oral argument that the 2021 suit is preemptively seeking relief in the hopes it receives
a favorable judgment in its 2019 suit against P.B. Products. We are not aware of any context
under Michigan law that permits a party to recover for an alleged injury before obtaining a
judgment. We refuse to let PSI do that in this case.

         1
           PSI relies primarily on Gallagher v. Persha, 891 N.W.2d 505, 515 (Mich. Ct. App. 2016), to argue that it
is entitled to bring its second veil piercing action. However, in that case, the Michigan Court of Appeals held that
“when a judgment already exists against a corporate entity, an additional cause of action is not needed to impose
liability against a shareholder or officer if a court finds the necessary facts to pierce the corporate veil.” Id. at 515
(emphasis added). In the present appeal, no previously obtained judgment exists—the 2019 suit is still pending.
Accordingly, Gallagher cannot save PSI’s 2021 suit.
 No. 21-2952              Product Solutions Intl v. Aldez Containers, LLC                               Page 7

         Because the complaint does not allege any wrongdoing by Aldez and corporate veil
piercing is not a cause of action under Michigan law, the 2021 suit’s complaint fails to state a
claim.

                                            III. CONCLUSION

         For the reasons stated above, we AFFIRM the judgment of the district court.2

         2
         The issue of whether the dismissal of the 2021 action will have any preclusive effect on PSI’s ability to
bring a Gallagher-type action in the event it obtains a favorable judgment in the 2019 suit is not yet ripe.
Accordingly, we decline to address it.