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Emmet v. Franco

United States District Court, E.D. Michigan, Southern Division

February 22, 2017

PETER EMMET, Plaintiff,
v.
TOM DEL FRANCO, et al., Defendants.

          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.

         I. INTRODUCTION

         On 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 1, 2016.

         Presently 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.

         II. FACTUAL BACKGROUND

         Plaintiff 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.

         In 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, [1] 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.

         Also, 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.

         Neither 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.

         On 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.

         The JV 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.

         On or 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 account.

         Also, 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.

         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.

         Plaintiff 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.

         Following 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.

         In 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 America Collective.

         Also in 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.

         In 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.

         On 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 misconduct.”

         Over 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.

         III. LAW & ANALYSIS

         A. Standard of Review

         Federal 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 ...


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