United States District Court, E.D. Michigan, Southern Division
ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANTS' MOTION TO DISMISS THE AMENDED COMPLAINT [#40]
AND AMENDING SCHEDULING ORDER
GERSHWIN A. DRAIN United States District Judge.
August 18, 2016, this Court entered an Order Denying the
Defendants' Motion to Dismiss without prejudice. The
Court's Order permitted the Plaintiff to file an Amended
Complaint. Plaintiff filed his Amended Complaint on September
before the Court is the Defendants' Motion to Dismiss the
Amended Complaint, filed on September 15, 2016. Plaintiff
filed a Response in Opposition on September 29, 2016, and
Defendants filed a Reply in Support of their Motion to
Dismiss on October 13, 2016. Upon review of the parties'
submissions, the Court concludes that oral argument will not
aid in the disposition of this matter. Accordingly, the Court
will decide the instant motion on the submitted briefs.
See E.D. Mich. L.R. 7.1(f)(2). For the reasons that
follow, the Court will grant in part and deny in part
Defendants' Motion to Dismiss the Amended Complaint.
Peter Emmet and Defendant Nicholas Del Franco were
acquaintances. In early July of 2013, Nicholas contacted
Plaintiff by phone and advised Plaintiff that he had
purchased a farm in Amherst, Massachusetts. Nicholas claimed
that the Amherst Farm was owned and operated as part of the
Organic America Collective. After Plaintiff had a chance to
visit the farm, Nicholas suggested that Plaintiff invest in
Amherst Farm and Nicholas's other businesses. Nicholas
claimed the Amherst Farm would become a massive
self-sustaining and renewable aquaponics/hydroponic farm. In
August of 2013, Nicholas made a promotional video about
Amherst Farm and the scope of operations that would occur
there, including rooftop greenhouses, in tank fish farming,
and the use of fish waste as a fertilizer.
August of 2013, Nicholas convinced Plaintiff to buy into all
of Nicholas's operations and become a part owner.
Specifically, Nicholas represented to Plaintiff that he would
be purchasing an eight percent (8%) interest in the Organic
America Collective,  which he claimed consisted of a number of
different businesses and operations. Specifically, the
Organic America Collective included: (a) Amherst Farm, (b) an
entity that was selling growing lights and supplies in
Michigan, (c) an entity that was an organic food store and
farm in Florida, and (d) a State approved marijuana growing
warehouse located in Michigan. Also, in August of 2013,
Nicholas met with Plaintiff, Plaintiff's mother and her
boyfriend on multiple occasions. During these meetings,
Nicholas represented that Organic America Collective was a
collection of viable operations and claimed that investment
in the Collective would be safe and profitable.
in August of 2013, Nicholas introduced Plaintiff, his mother
and her boyfriend to Defendant Martin Karo, who is an
attorney and another principal, owner, manager, and/or
shareholder of some or all of the Defendant corporations.
Nicholas advised Plaintiff that Karo would be his attorney
and “look out” for Plaintiff. Karo prepared
several versions of loan documents for Plaintiff to present
to his mother in an effort to secure a loan. By virtue of
Karo drafting the Promissory Note, Plaintiff believed an
attorney-client relationship was formed in which Karo was
Plaintiff's attorney. Karo never advised Plaintiff of any
conflict of interest that existed by holding himself out as
counsel for Plaintiff.
Karo nor Nicholas advised Plaintiff, his mother or her
boyfriend of any risks associated with investing in the
Organic America Collective. Nor did they disclose any debt or
other obligation that Organic America Collective had to any
third party at the time they solicited the investment. Based
upon the representations that investing in the Organic
America Collective would be safe and very lucrative,
Plaintiff's mother agreed to loan money to Plaintiff so
he could invest in the Organic America Collective. The loan
was secured by a mortgage against Plaintiff's primary
residence in the amount of $600, 000.00.
August 6, 2013, Nicholas, on behalf of Organic America
Markets, LLC (“OA”), entered into a written
agreement with Plaintiff entitled “Organic
America/Emmet Joint Venture Agreement (“JV
Agreement”).” The JV Agreement states in relevant
part that: “The intent is for the parties to ultimately
be 50/50 owners of Hydroponics House LLC, d/b/a Organic
America of Detroit, which shall be the retail outlet of
Organic America in the Detroit area.” Pursuant to the
JV Agreement, the profits generated by Hydroponics House,
LLC, d/b/a Organic America of Detroit were to be split 50/50
between Plaintiff and Organic America Markets, LLC. Karo and
Nicholas both represented to Plaintiff that the JV Agreement
documented Plaintiff's eight percent (8%) interest in the
Organic America Collective.
Agreement stated that upon receipt of Plaintiff's funds,
Organic America Markets, LLC would then construct an herbal
remedy dispensary at a location to be determined. The JV
Agreement stated that Organic America Markets, LLC was
responsible for setting up an herbal remedy dispensary by:
(a) setting up the operating LLCs for the herbal remedy
dispensary, (b) finding and leasing the appropriate
facilities, (c) obtaining equipment, (d) hiring personnel,
(e) funding operating expenses, (f) arranging security, (g)
arranging for insurance, and (h) overseeing the operations
and handling marketing.
about October 1, 2013, at the direction of Karo and Nicholas,
Plaintiff caused the disbursement of approximately $500,
000.00 to Defendant Greenhouse Leasing Company, LLC via
electronic wire transfer for what Plaintiff believed
satisfied his financial obligations under the JV Agreement.
Plaintiff intended the funds to serve as his purchase of a
fifty percent (50%) ownership interest in Hydroponics House
LLC, d/b/a Organic America Detroit and his eight percent (8%)
interest in Organic America Collective. Plaintiff claims that
the “Individual Defendants and/or Corporate Defendants
have failed to engage in the required steps set forth in the
JV Agreement[, ]” failed to compensate him and rebuffed
his repeated requests for an accounting. Karo has since
disclosed that the funds solicited from Plaintiff pursuant to
the JV Agreement were funneled to various bank accounts, and
ultimately were deposited into Nicholas's personal bank
on or about August 6, 2013, Plaintiff and Nicholas, on behalf
of Defendant Greenhouse Leasing Company, LLC, entered into a
written agreement entitled “Greenhouse Construction and
Operation Agreement.” Plaintiff believed that he was
likewise represented by Karo in connection with this
agreement. The Greenhouse Agreement stated that the parties
would be 50/50 owners of an LLC, which shall set up and
operate a greenhouse/sheltered growth facility. While
Plaintiff alleges that the Greenhouse Agreement required
payment from him in exchange for his ownership interest in
Greenhouse Leasing Company, LLC, the actual agreement is
silent as to the amount of payment required of the Plaintiff.
alleges that on or about August 8, 2013, at the direction of
Karo and Nicholas, he disbursed approximately $122, 000.000
via electronic wire transfer to Defendant Greenhouse Leasing
Company to satisfy his requirements under the Greenhouse
Agreement and to purchase an interest in the Organic America
Collective. Under the Greenhouse Agreement, fifty percent of
the profits generated by the growth facility were to be paid
to Plaintiff. Karo and Nicholas likewise advised Plaintiff
that the Greenhouse Leasing Agreement memorialized his eight
percent (8%) interest in the Organic America Collective.
has repeatedly requested stock certificates demonstrating his
ownership interest in the company, however none of the
Defendants have responded to his requests. Nor has Plaintiff
been paid any profits or provided with an accounting of the
monies he invested in exchange for his ownership interest.
Karo has since disclosed that the funds solicited from
Plaintiff pursuant to the Greenhouse Agreement were funneled
to various bank accounts, and ultimately were deposited into
Nicholas's personal bank account.
Plaintiff's investment into the Organic America
Collective, Karo and Nicholas advised Plaintiff that he was
expected to work at the Amherst Farm. Defendants Tom
DelFranco and John Ostendorf were managers at the Amherst
Farm, as well as principals, owners, managers and/or
shareholders of some or all of the Defendant corporations.
Tom DelFranco is Nicholas's father. Plaintiff claims that
Tom DelFranco and Ostendorf worked collectively with Nicholas
and Karo to create the perception to Plaintiff that he held
an ownership interest in the Organic America Collective,
which was a collection of viable businesses.
October of 2013, Nicholas ordered Plaintiff to trade in his
Chevy Suburban valued at $23, 000.00 towards the purchase of
a Ford F-350 Ford pickup truck, which was to be used in
connection with Plaintiff's work at Amherst Farm.
Plaintiff alleges that Karo and Nicholas required Plaintiff
to purchase the vehicle in the name of Defendant NDF
Enterprises as a condition of his ownership in the Organic
the fall of 2013, Nicholas boasted to Plaintiff that he had
purchased a hunting cabin in Michigan for Karo. At the same
time, Plaintiff became aware of the serious operating
deficits at Amherst Farm and that it was failing. Plaintiff
began using his personal funds to assist with the Farm's
operating obligations. Meanwhile, instead of receiving any
profits from the Organic America Collective as promised,
Nicholas continued to make outlandish expenditures on new
homes, furniture, and travel.
February of 2014, Plaintiff went to Colorado where he visited
a 7, 000 square foot home allegedly purchased by other
Organic America Collective investors for the benefit of
Nicholas. At this time, Plaintiff began to suspect
Defendants' claims concerning the viability of Organic
America Collective were false. By March of 2014, Nicholas and
Karo had almost completely ceased communicating with
Plaintiff. His requests for information were repeatedly
ignored. On March 28, 2014, Plaintiff sent an email demand to
Nicholas seeking the return of his investment in the Organic
America Collective. Receiving no response, Plaintiff followed
up on April 4, 2014 with an email to both Nicholas and Karo.
Plaintiff's email indicated that he would be forced to
retain counsel if he received no response.
April 9, 2014, Karo responded to Plaintiff's email by
stating that he was not scared of attorneys and that
Plaintiff's “disconnection from the Organic America
Collective” was caused by Plaintiff, who “cost
our business a lot of money through erratic conduct and
the next few months, Plaintiff became convinced that Karo and
Nicholas used his investments to fund their lavish
lifestyles. Both refused to account for his investments.
After a May 13, 2014, demand for an accounting, Karo
responded that he was in the process of putting together an
accurate accounting of Plaintiff's involvement with
Organic America. To date, Plaintiff has yet to receive an
accounting of how Plaintiff's investment was allocated to
the various Organic America Collective entities.
LAW & ANALYSIS
Standard of Review
Rule of Civil Procedure 12(b)(6) allows the court to make an
assessment as to whether the plaintiff has stated a claim
upon which relief may be granted. See Fed. R. Civ.
P. 12(b)(6). “Federal Rule of Civil Procedure 8(a)(2)
requires only ‘a short and plain statement of the claim
showing that the pleader is entitled to relief, ' in
order to ‘give the defendant fair notice of what the
... claim is and the grounds upon which it rests.'”
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555
(2007) (citing Conley v. Gibson, 355 U.S. 41, 47
(1957). Even though the complaint need not contain
“detailed” factual allegations, its
“factual allegations must be enough to raise a right to
relief above the speculative level on the ...