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Richaed Kinzel, et al. v. Merrill Lynch Bank U.S.A.

November 1, 2011


The opinion of the court was delivered by: James G. Carr Sr. United States District Judge


This is a dispute over liquidation of collateral that secured a loan.

On April 15, 2008, plaintiffs Richard Kinzel and Judith Kinzel took out a loan with defendant Merrill Lynch Bank U.S.A. ("Merrill Lynch Bank"), using as collateral stock in Cedar Fair LLC, which they held in accounts with Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Bank & Trust Company (collectively "Merrill Lynch").

The Kinzels claim that Merrill Lynch wrongfully sold their pledged collateral in breach of their "Loan Management Account Agreement" (Agreement). Their second amended complaint asserts six claims against Merrill Lynch: 1) breach of contract -- violation of the duty to act with good faith and fair dealing; 2) outrageous conduct; 3) conversion; 4) unjust enrichment; 5) estoppel; and 6) fraud.

Jurisdiction is proper under 28 U.S.C. § 1332.

Pending is defendants' motion to dismiss under Fed. R. Civ. P. 12(b)(6). [Doc. 41]. For the reasons discussed below, defendants' motion is granted in part and denied in part.


Plaintiffs' Agreement with Merrill Lynch required the value of the collateral to remain above a designated level (the "Maintenance Requirement"). The Agreement gave exclusive discretion to Merrill Lynch to determine whether the collateral met this requirement.

The Agreement also stated that Merrill Lynch could call the loan at any time -- likewise at its sole discretion. It also granted several remedies to Merrill Lynch. Among these were a demand for immediate repayment and liquidation of pledged collateral.

Under the Agreement, Merrill Lynch could implement the remedies in response to a "triggering event" or at any time. Among the triggering events was a decline in the value of the collateral below the Maintenance Requirement.

The Kinzels made regular payments on the loan throughout 2008 and early 2009. In February or March, 2009, Merrill Lynch Bank notified the Kinzels that at some future date it would call the loan. The Kinzels allege that they repeatedly told Merrill Lynch not to sell their Cedar Fair stock. The Kinzels also allege that Merrill Lynch assured them they would not sell the Cedar Fair stock so long as they were able to continue to pay down the balance of the loan.

By the end of February, 2009, the value of the pledged collateral had dropped below the Maintenance Requirement. On March 3, 2009, Merrill Lynch sold 167,900 shares of Cedar Fair stock from the Kinzels' securities accounts. Merrill Lynch Bank applied the proceeds of $1,071,291.39 to the Kinzels' loan balance.

Defendants argue that plaintiffs have failed to state claims on which they can obtain relief and, alternatively, plead their claims with sufficient particularity.

Standard of Review

A claim survives a motion to dismiss under Rule12(b)(6) if it "contain[s] sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 547 (2007). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. A complaint's "[f]actual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all of the complaint's allegations are true." Id. at 555--56.

A complaint is insufficient "if it tenders naked assertions devoid of further factual enhancement." Ashcroft v. Iqbal, U.S. , , 129 S. Ct. 1937, 1949 (2009) (citing Twombly, supra, 550 U.S. at 557) (internal quotation omitted).

I must "construe the complaint in the light most favorable to the plaintiff." Inge v. Rock Fin. Corp., 281 F.3d 613, 619 (6th Cir. 2002). Plaintiff, however, must provide "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, supra, 550 U.S. at 555; see also Iqbal, 550 U.S. at , 129 S. Ct. at 1949 ("Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.").

Choice of Law

Plaintiffs and defendants both point out that the Agreement from which the breach of contract claims arise designates Utah law as controlling. A federal court sitting in diversity must apply the choice-of-law principles of the forum state. Cole v. Mileti, 133 F.3d 433, 437 (6th Cir. 1998). Ohio courts have adopted the Restatement of Law 2d, Conflicts of Law in dealing with choice-of-law issues with regard to contractual claims. Schulke Radio Productions, Ltd. v. Midwestern Broadcasting Co., 6 Ohio St.3d 436, 438-39 (Ohio 1983). The Restatement, § 187, states:

[The] law of the state chosen by the parties to govern their contractual rights and duties will be applied . . . unless either

(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable ...

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