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Kerrigan v. Visalus, Inc.

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

January 24, 2018

TIMOTHY KERRIGAN, et al., Plaintiffs,
v.
VISALUS, INC., et al., Defendants.

          ORDER (1) GRANTING DEFENDANTS' MOTIONS TO DISMISS (ECF ## 168, 169, 170), (2)LLOWING PLAINTIFFS TO FILE A FOURTH AMENDED COMPLAINT, AND (3) TERMINATING AS MOOT PLAINTIFFS' MOTION TO FILE A CORRECTED THIRD AMENDED COMPLAINT (ECF # 179)

          MATTHEW F. LEITMAN UNITED STATES DISTRICT JUDGE.

         In this complex putative class action, Plaintiffs Timothy Kerrigan, Lori Mikovich, and Ryan Valli allege that the Defendants, nearly 50 individuals and entities, many of which have overlapping ownership structures and contractual relationships, conned them into joining a fraudulent pyramid scheme. Plaintiffs filed this action in 2014 (see ECF #1), and the Court has previously issued two substantive opinions that resolved motions to dismiss Plaintiffs' initial Complaint (see ECF #54; 112 F.Supp.3d 580 (E.D. Mich. 2015)) and Plaintiffs' First Amended Complaint (see ECF #65; 2016 WL 892804 (E.D. Mich. Mar. 9, 2016)).[1]

         On March 8, 2017, Plaintiffs filed a Third Amended Complaint, the operative pleading in this action. (See ECF #131.) The parties have now filed four motions with respect to the Third Amended Complaint:

• Defendants Ropart Asset Management, LLC, Ropart Asset Management Fund, LLC, Ropart Asset Management Fund II, LLC, Rock Ridge Asset Management Company, LLC, the Living Trust dated 9/30/91 f/b/o Robert B. Goergen, and HashTag One, LLC have moved to dismiss Count I (violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq.) and Count II (conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq.) of the Third Amended Complaint under Federal Rule of Civil Procedure 12(b)(6) and Count VII (unjust enrichment) and Count IX (civil conspiracy) under Federal Rule of Civil Procedure 12(b)(1) (see ECF #170);
• Defendants Robert Goergen, Sr. and Todd Goergen have moved to dismiss Count I of the Third Amended Complaint under Federal Rule of Civil Procedure 12(b)(6) (see ECF #169);
• Defendants Jason O'Toole, Kyle Pacetti, Jr., Prospex Automated Wealth Systems, Inc., and Gooder, LLC have moved to dismiss Count I of the Third Amended Complaint under Federal Rule of Civil Procedure 12(b)(6); O'Toole and Pacetti have moved to dismiss Count III (violations of 5 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5(a) and (c)) of the Third Amended Complaint under Federal Rule of Civil Procedure 12(b)(6); and Defendants A Berry Good Life, Inc., ArriveBy25, Inc., BAM Ventures, Inc., BeachLifestyle Enterprises, LLC, Michael Craig, Aaron Fortner, Freedom Legacy, LLC, Gooder, LLC, Got Heart Global, Inc., Rachel Jackson, Jaketrz, Inc., Holley Kirkland, Timothy Kirkland, Anthony Lucero, Rhonda Lucero, M-Power Path, Inc., Kevin Merriweather, Mojos Legacy, LLC, Network Dynamics America Corp., Jason O'Toole, Jason O'Toole International Holdings, Inc., OCD Marketing, Inc., Kyle Pacetti, Jr., Lori Petrilli, Power Couple, Inc., Prospex Automated Wealth Systems, Inc. Red Letters, LLC, Residual Marketing, Inc., Gary J. Reynolds, Jake Trzcinski, Frank Varon, Wealth Builder International LLC, Tara Wilson, and 9248-2587 Quebec, Inc. have moved to dismiss Count II of the Third Amended Complaint under Federal Rule of Civil Procedure 12(b)(b) and Count VII of the Third Amended Complaint under Federal Rule of Civil Procedure 12(b)(1)[2] (see ECF #168); and
• Plaintiffs have moved to file a “corrected” Third Amended Complaint, which includes certain revisions to the factual allegations Plaintiffs have made (see ECF #179)

         The Court held a hearing on these motions on December 8, 2017. For the reasons stated in this Order, the Court GRANTS Defendants' motions to dismiss. In addition, the Court will allow Plaintiffs to file a Fourth (and final) Amended Complaint subject to the requirements set forth below. Finally, the Court TERMINATES AS MOOT Plaintiffs' motion to file a corrected Third Amended Complaint.

         I

         In the context of resolving the prior motions to dismiss, the Court told Plaintiffs that “[a]ssessing the sufficiency” of their allegations was “challenging because many of [their] [] allegations [were] overly broad and imprecise.” (ECF #54 at Pg. ID 915; 122 F.Supp.3d at 600-01.) More specifically, the Court rejected Plaintiffs' attempts “lump” Defendants “together” using defined terms “without specifically identifying which of the Defendants engaged in which of the conduct alleged.” (Id.) The Court told Plaintiffs that their “imprecise” use of defined terms was “particularly confusing because it [was] obvious from Plaintiffs' own narrative that Plaintiffs [did] not - and [could] not - [have] literally [meant] that each Defendant engaged in the alleged acts.” (Id.; emphasis in original.)

         In the Third Amended Complaint, Plaintiffs again “lump[ed] together” various Defendants through the use of imprecise defined terms. And Plaintiffs also introduced a new pleading device in which they treated an individual and a corporate entity with which the individual is affiliated as a single unit. In this device, Plaintiffs combined entities and affiliated individuals into a single defined term that included both the name of the individual and the name of an entity divided by a slash (hereinafter, the “person/entity pleading device”). The use of these imprecise definitions and pleading devices has made it unnecessarily difficult (if not impossible in some instances) for the Court and the Defendants to determine which allegations Plaintiffs have made against which Defendants.

         Plaintiffs respond that each time they used a defined term or the person/entity pleading device, they literally meant that “each of those Defendants was actually engaged in the alleged act.” (Resp. to Mot. to Dismiss, ECF #172 at Pg. ID 7422.) But that cannot be true. Consider the following examples:

• In paragraph 17 of the Third Amended Complaint, Plaintiffs defined the term “RAM” to include Defendants Ropart Asset Management, LLC, Ropart Asset Management Fund, LLC, Ropart Asset Management Fund II, LLC, and Rock Ridge Asset Management Company, LLC. (Third Am. Compl. at ¶17, ECF #131 at Pg. ID 6608.) Plaintiffs then alleged that “RAM” was, among other things, “an investor in ViSalus” and a “lender of funds” to ViSalus. (Id.) But, Plaintiffs acknowledge that two of the entities included in the definition of “RAM” - Ropart Asset Management, LLC and Rock Ridge Asset Management Company, LLC - only “manage[d] the investment[s]” other Defendants made in ViSalus. (Pla.s' Resp. Br., ECF #171 at Pg. ID 7303.)
. In paragraph 134, Plaintiffs alleged that “RAM and its executives … provided almost daily advisory and management services to the ViSalus operation.” (Third Am. Compl. at ¶134, ECF #131 at Pg. ID 6674.) But Plaintiffs acknowledge that two of the entities in “RAM” - Ropart Asset Management Fund I, LLC and Ropart Asset Management Fund II, LLC -only “invested in and provided funding to ViSalus.” (Pla.s' Resp. Br., ECF #171 at Pg. ID 7306.)
• In paragraph 223, Plaintiffs alleged that Todd Goergen/RAM/Hashtag One “silently invest[ed] in ViSalus when he [sic] knew or reasonably should have known that ViSalus was operating as a pyramid scheme.” (Third Am. Compl. at ¶223, ECF #131 at Pg. ID 6783.) But, as noted above, Plaintiffs recognize that only two of the entities in the defined term “RAM” - Defendants Ropart Asset Management Fund I, LLC and Ropart Asset Management Fund II, LLC - invested in ViSalus. (Pla.s' Resp. Br., ECF #171 at Pg. ID 7303.) In addition, Plaintiffs recognize that HashTag One did not invest in ViSalus but, instead, received payments that allegedly “diverted funds away from the ViSalus operation.” (Id. at Pg. ID 7314.) It is further unclear, due to the use of the person/entity pleading device, if Todd Goergen allegedly took these actions in his personal capacity, in his capacity as shareholder or manager of RAM and HashTag One, or in some combination of those capacities.
• In paragraph 271, Plaintiffs alleged that “Todd Goergen/RAM/HashTag One” “le[nt] his name and credibility as a CEO of a publicly-traded, legitimate business by appearing at conventions, and giving ‘interviews' extolling ViSalus's future in front of potential distributors.” (Third Am. Compl. at ¶271, ECF #131 at Pg. ID 6809.) This paragraph further alleges that Todd Goergen/RAM/HashTag One “serv[ed] on [ViSalus's] Board of Directors and ma[de] public statements of support and confidence that ViSalus was a legitimate seller of weight-loss products.” (Id.) It is unclear, due to the use of the person/entity pleading device, if Todd Goergen allegedly took these actions in his personal capacity, in his capacity as shareholder or manager of RAM and HashTag One, or in some combination of those capacities.
• In paragraph 19, Plaintiffs defined the term “Robert Goergen, Sr.” to include both Robert Goergen, Sr. personally and Robert's trust, Defendant Living Trust dated 9/30/1991 f/b/o Robert B. Goergen (the “Trust”). (See id. at ¶19, Pg. ID 6609.) In paragraph 132, Plaintiffs alleged that the defined term Robert Goergen, Sr. is a “sophisticated business [person].” (Id. at ¶132, Pg. ID 6673.) That paragraph further alleged that Robert Goergen, Sr. was “involved in ViSalus.” (Id.) In addition, in paragraph 136, Plaintiffs alleged that Robert Goergen, Sr. “had a supporting role and provided financial advice” to ViSalus. (Id. at ¶136, Pg. ID 6675.) It is not possible for the Trust to be a “sophisticated business person.” In addition, Plaintiffs acknowledge that the Trust only “provided significant funding to ViSalus through its interest in RAM.”[3] (Pla.s' Resp. Br., ECF #171 at Pg. ID 7304.) Therefore, the Plaintiffs own submissions suggest that they did not really mean to allege that the Trust directly provided advice to, or was actively involved in, ViSalus.
• In paragraph 211, Plaintiffs alleged that, with other Defendants, “Robert Goergen Sr. … directly authored and/or approved of the dissemination of the ViSalus Compensation Plan that was made part of the IP distribution rights purchased by the Plaintiffs.” (Third Am. Compl. at ¶211, ECF #131 at Pg. ID 6776-77.) But, the term “Robert Goergen, Sr.” included the Trust, and, as noted above, Plaintiffs acknowledge that the Trust's participation was limited to investing capital in investment funds that themselves invested in ViSalus. (Pla.s' Resp. Br., ECF #171 at Pg. ID 7304.)
• In paragraph 24, Plaintiffs introduced the defined term “Corporate Defendants, ” which appears to be a term that refers “collectively” to Defendants ViSalus, Ropart Asset Management, LLC, Ropart Asset Management Fund, LLC, Ropart Asset Management Fund II, LLC, Rock Ridge Asset Management Company, LLC, Robert Goergen, Sr., the Trust, Todd Goergen, Ryan Blair, Nick Sarnicola, Blake Mallen, and HashTag One. (Third Am Compl. at ¶24, ECF #131 at Pg. ID 6613.) This defined term may also include Defendants OCD Marketing, Inc., Power Couple, Inc., ArriveBy25, Inc., and BAM Ventures, Inc. Plaintiffs then used the term “Corporate Defendants” throughout the Third Amended Complaint where they could not have plausibly or possibly meant to include all of the Defendants that are included in that term. For example, in paragraph 153, Plaintiffs alleged that the Corporate Defendants “met regularly through board meetings, strategy sessions, monthly sales reviews, and in Blyth board meetings, to discuss the precise numbers of new recruits brought in each month, which promoters were recruiting the most, which promoters sold the most number of ESS kits, and so on.” (Id. at ΒΆ153, Pg. ID 6684.) But, ...

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