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Wilson v. 5 Choices, LLC

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

July 6, 2017

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

          ORDER GRANTING PROPERTY DEFENDANTS' MOTION TO DISMISS AND GRANTING JGI'S MOTION TO DISMISS

          ROBERT H. CLELAND, UNITED STATES DISTRICT JUDGE

         Pending before the court are two motions to dismiss the second amended complaint. The court has already granted motions to dismiss by Defendants American Cash Funding, Income Property USA, LLC, and Insiders Cash, LLC, (“Lending Defendants”) (Dkt. #40), as well as a motion by Defendants Insider's Financial Education, LLC, Yancey Events LLC, and Yancey LLC, (Dkt. #41). The motions currently before the court 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, (“Property Defendants”) (Dkt. #43), and by John Graham, Inc. (“JGI”) (Dkt. #45). The motions have been fully briefed, and a hearing on Property Defendants' motion was held on June 28, 2017. For the following reasons, the court will grant the motions to dismiss.

         I. BACKGROUND

         This court has described the background factual allegations of this case in its previous order. (Dkts. #55.) As with its most recent opinion granting dismissal (See Dkt. #59), the court will not restate the facts again here.

         A. Property Defendants

         Property Defendants argue that the court should dismiss the claims of several Plaintiffs (Dennis Houtz, Robert Wong, Mike Hampshire, Lion's Fan LLC, and James Dunn) with prejudice because they signed settlement agreements which included releases for all claims. They contend that still others (Rebecca Wilson, Mike Hamphsire, Linda Saenz, Simone Vohradnik, Ramona Lorraine Solano-Owen, Layne Lundstrom, and Audrey Lundstrom) should be dismissed because they are not alleged to have actually entered into any transactions with Property Defendants on their own behalf. Further, they insist that all Plaintiffs agreed in writing to venue and choice of law provisions identifying Utah as the proper forum. They continue that the provisions are valid and enforceable under Utah law-the state identified in both the purchase and settlement agreements' choice of law and venue provisions-and the court should not permit Plaintiffs to evade enforcement of the terms of a contract merely because they allege that they did not read or understand them. In addition, they assert that Plaintiffs have failed to meet the pleading standard of Federal Rule 9(b), which applies to both the fraud and RICO claims since Plaintiffs are alleging that the RICO organization in this case existed to commit fraud, because Plaintiffs have not delineated exactly what each Defendant did to give rise to the claims. They also argue that Plaintiffs have inadequately pled their RICO claims by failing to allege specific facts correlating to the requisite elements, and that in any case they should not be permitted to convert a normal commercial dispute into a RICO suit with potentially trebled damages on such scant grounds. Property Defendants request dismissal along with attorney's fees.

         Plaintiffs argue that they have met the pleading requirements to state a claim for RICO by identifying the individual Defendants and their role as knowing participants in the scheme. They argue that a plaintiff need only show the use of mail or wire in furtherance of a scheme to defraud along with some injury to state a claim for RICO based on mail or wire fraud-something that they aver is clearly the case here where certain Defendants are controlled by the same individuals. They assert that Defendants have completely failed to address their breach of fiduciary duty owed to Plaintiffs particularly in light of statements made prior to entry into the sale agreements. They also argue that the release agreements are unenforceable as the sole consideration offered by Defendants was for rent income or rehabilitation services, which they had already agreed to supply in the sale contracts. Plaintiffs insist that, because several Defendants are controlled by the same individuals, it would be nonsensical to require Plaintiffs to pursue claims against each entity in separate for a pursuant to separate forum selection or arbitration provisions in the separate agreements entered into.

         In reply, Property Defendants argue that Plaintiffs' RICO arguments miss the mark badly, as they do not respond to the issues Defendants raised regarding the complaint's shortcomings, but instead resort to a superficial treatment of the law. They also argue that the court should disregard Plaintiffs' recitation of the contents of a sales DVD purportedly containing the pitch used to induce Plaintiffs to participate in the real estate transactions because it is extrinsic to the complaint. Defendants claim that it is irrelevant whether some Property Defendant entities are controlled by the same individuals who control Lending Defendant entities. Neither does the business relationship create fiduciary duties in Defendants, they contend, and even if it did, this would not preclude enforcement of the choice of jurisdiction provisions. Property Defendants also claim that Plaintiffs' view that the preexisting duty rule precludes enforcement of the settlement agreements is misguided since the court should not inquire into the adequacy of consideration, the sales were made “as is, ” and the agreements expressly in writing disclaimed any warrantees.

         B. JGI

         Plaintiffs' only claims against JGI are for civil RICO, as JGI is alleged to have purchased then rehabilitated houses and then sold them to Property Defendants before the latter passed them on to Plaintiffs. Plaintiffs base their RICO theory on JGI's conduct being aimed toward the commission of wire or mail fraud. JGI argues that Plaintiffs have completely failed to allege the elements of a RICO claim against them and instead have resorted to impermissible, generalized “shotgun” pleading. Plaintiffs respond that the allegations within the Second Amended Complaint are indeed sufficient to state a claim against JGI as participants in a RICO organization, especially when combined with evidence of their active role in the scheme in the form of an online YouTube video and records indicating that JGI has sold properties directly to individuals who participated in the buying summit operated by other Defendants. They also contend that Defendant has failed to address controlling precedent and essentially admits to the truth of the allegations regarding the structure of the alleged racketeering scheme. In reply, JGI insists that the court should not consider the new evidence as it is external to the complaint, and the evidence is irrelevant in any case. It also argues that Plaintiffs' reading of case law is misguided insofar as it would allow them to plead without requisite specificity.

         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)).

         Federal Rule of Civil Procedure 9(b) states that “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” The Sixth Circuit has “further interpreted Rule 9(b) to require that a plaintiff allege the time, place, and content of the alleged misrepresentations on which he or she relied; the fraudulent scheme; the fraudulent intent of the defendants; and the ...


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