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Wilson v. 5 Choices, LLC

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

May 8, 2017

REBECCA K. WILSON, et al., Plaintiffs,
5 CHOICES, LLC, et al., Defendants.



         Pending before the court are four motions to dismiss the second amended complaint. Three Defendants, American Cash Funding, Income Property USA, LLC, and Insiders Cash, LLC (collectively, “Lending Defendants”), filed a motion to dismiss. (Dkt. #40.) Plaintiffs have filed a response, (Dkt. #49), and Lending Defendants have filed a reply, (Dkt. #54). Defendants Insider's Financial Education, LLC, Yancey Events LLC, and Yancey LLC (collectively, “Education Defendants”), also filed a motion to dismiss (Dkt. #41) which has received a response (Dkt. #50) and a reply (Dkt. #52). Another joint motion was filed by Defendants 5 Choices, LLC, BuyPD, LLC, DLS Properties, LLC, EZ Street Properties, LLC, Expansion Properties, LLC, FrontSide Properties, LLC, Green Apple Homes, LLC, Improvement Homes, LLC, Interactive Homes, LLC, Malibu Breeze Properties, LLC, Max Ultra, LLC, Patriot Homes, LLC, Property Direct, LLC, Ready Prop, Red Apple Homes, LLC, Red List Homes, LLC, Screaming Eagle Properties, LLC, Scree 44, LLC, Silver Tie Homes, LLC (collectively, “Property Defendants”), (Dkt. #43), followed by a response, (Dkt. #48), and a reply, (Dkt. #53). Finally, John Graham, Inc., (“JGI”) has filed a motion to dismiss, (Dkt. #45), to which Plaintiffs have responded, (Dkt. #47), and it has filed reply, (Dkt. #51). On April 19, 2017, the court held a hearing on the motion by Lending Defendants. For the following reasons, the court will grant that motion and will scheduling a new hearing for Education Defendants' Motion on June 7, 2017.

         I. BACKGROUND

         Plaintiffs allege that Defendants worked together in a complex scheme to defraud naive investors. They essentially allege that Education Defendants tricked them into paying exorbitant tuition for an otherwise worthless class on real estate to gain access to supposedly valuable real estate leads. They were then allegedly handed off to Property Defendants who would sell Plaintiffs properties, which had been purchased, shoddily rehabilitated, and then sold to Property Defendants by JGI. Lending Defendants would finance the transactions. Plaintiffs would later discover that the properties, which they had believed were sold to them at prices far below their market value, were actually worth much less. As well as fraud, Plaintiffs allege that Defendants breached their fiduciary duties and their behavior constituted a racketeering organization and are pursuing claims under RICO.

         The Lending Defendants respond that the court must dismiss Plaintiffs' claims because they are all subject to either mandatory and binding arbitration or a forum selection clause which specifies a forum other than the Eastern District of Michigan, pursuant to agreements signed by the parties. Since Plaintiffs cannot show fraud in the inducement of the arbitration or forum selection clauses as required by Supreme Court precedent, Defendants argue, Plaintiffs cannot avoid their enforcement. They assert that to the extent that Plaintiffs have alleged fraudulent inducement, they have not done so with sufficient particularity under Federal Rule of Civil Procedure 9(b). Further, the fact that Plaintiffs were aware of these contracts justifies an award of fees and costs. In addition, Lending Defendants point out that any Plaintiff who did not contract with them for financing necessarily is unable to state a claim for relief.

         Plaintiffs respond that Lending Defendants are indistinct from other Defendants, and that they are all members of a coordinated scheme to trick the unwary. They contend that the court should not enforce arbitration or forum selection clauses which, across these agreements and Defendants, would require litigation in multiple fora. They further argue that the RICO claims can be brought by Plaintiffs who are not in privity of contract with Lending Defendants, and that these would not be subject to any of the provisions Lending Defendants seek to enforce. Plaintiffs insist that their agreements are controlled by a “settlement statement” which do not contain forum selection or mandatory arbitration provisions. They contend that Defendants were actually acting in a fiduciary capacity rather than as arms-length contracting parties, because part of the “pitch” delivered to Plaintiffs prior to or during the Buying Summit induced them to feel they had entered into a “relationship of trust” with Defendants, precluding strict enforcement of the agreements. Plaintiffs further allege that attorneys for Defendants indicated that they were working on Plaintiffs' behalf. Finally, they argue that some versions of the provisions at issue permit litigation within the state where the properties are located-in some cases Michigan-at the Lender's option.

         In reply Lending Defendants argue that Plaintiffs have established no law for the proposition that conflicting forum selection clauses in different agreements somehow nullify one another. They claim that the court should not allow Plaintiffs to proceed under RICO claims with “shotgun pleading” amounting to little more than vague allegations lacking specificity against numerous Defendants. Finally, Lending Defendants insist that Plaintiffs have not properly alleged that they were in a fiduciary relationship with Lending Defendants, and allegations regarding the contents of the “pitch” or innuendo regarding a non-party law firm is irrelevant to this point.

         II. STANDARD

         Federal Rule of Civil Procedure 12(b)(6) provides for dismissal for failure to state a claim upon which relief may be granted. Under the Rule, the court construes the complaint in the light most favorable to the plaintiff and accepts all well-pleaded factual allegations as true. League of United Latin Am. Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007). This standard requires more than bare assertions of legal conclusions. Bovee v. Coopers & Lybrand C.P.A., 272 F.3d 356, 361 (6th Cir. 2001). “[A] formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Any claim for relief must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Erickson v. Pardus, 551 U.S. 89, 93 (2007). “Specific facts are not necessary; the statement need only ‘give the defendant fair notice of what the . . . claim is and the grounds upon which it rests'” Id. (quoting Twombly, 550 U.S. at 555).

         However, to survive a motion to dismiss, a complaint must provide sufficient facts to “state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. “The plausibility standard is not akin to a “probability requirement, ' but it asks for more than a sheer possibility that defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 555.) Additionally, on a motion to dismiss, a court is usually limited to the complaint and attached exhibits, but it may also consider “public records, items appearing in the record of the case, and exhibits attached to the defendant's motion to dismiss so long as they are referred to in the complaint and are central to the claims contained therein.” Erie County v. Morton Salt, Inc., 702 F.3d 860, 863 (6th Cir. 2012) (quoting Bassett v. Nat'l Coll. Athletic Ass'n., 528 F.3d 426, 430 (6th Cir. 2008)).


         In evaluating the enforceability of the arbitration and forum selection clauses, this court is bound by Sixth Circuit precedent. On the question of arbitration, the Sixth Circuit has explained:

The Federal Arbitration Act codifies a national policy in favor of arbitrating claims when parties contract to settle disputes by arbitration. A district court should dismiss or stay a suit involving an arbitration clause as follows:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the ...

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