Green v. Blake et al
Filing
107
MEMORANDUM AND ORDER denying 69 Motion to Dismiss for Failure to State a Claim. Signed by District Judge Eric F. Melgren on 5/28/2020. (cm)
Case 2:18-cv-02247-EFM-JPO Document 107 Filed 05/28/20 Page 1 of 8
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
JEFFREY S. GREEN,
Plaintiff,
vs.
Case No. 18-CV-2247-EFM-JPO
CHRISTIAN BLAKE &
JOSHUSA LEONARD,
Defendants.
MEMORANDUM AND ORDER
Plaintiff Jeffrey Green parted with $200,000 for membership in an LLC that never realized
its promised potential. Green started this action because he believes the LLC’s former managers,
Defendants Christian Blake and Joshua Leonard, misled him and mismanaged the LLC. Only one
of Green’s four original claims survived Defendants’ first, pro se motion to dismiss. Now,
Defendants return with another pro se motion seeking dismissal of Green’s remaining
misrepresentation claim.
Because, notwithstanding Defendants’ criticisms, Green states a
plausible misrepresentation claim, the Court denies Defendants’ Motion to Dismiss for Failure to
State a Claim (Doc. 69).
I.
Factual and Procedural Background1
Green’s allegations have not changed since Defendants last called for dismissal.
1
This subsection’s facts are taken exclusively from the allegations in Green’s complaint. See Mitchell v.
King, 537 F.2d 385, 386 (10th Cir. 1976) (“The factual allegations of the complaint must be taken as true,” when
reviewing a motion to dismiss for failure to state a claim).
Case 2:18-cv-02247-EFM-JPO Document 107 Filed 05/28/20 Page 2 of 8
63rd Street Enterprises, LLC is an Oregon limited liability company, formerly managed by
two of its approximately 25 members, Defendants Blake and Leonard. As managers of the LLC,
Defendants allegedly made various representations to Green that induced Green to contribute to
and become a member of the LLC. Green alleges that Defendants fraudulently misrepresented
their own assets and finances, the LLC’s assets and finances, and their own receipt and use of the
LLC’s funds by:
falsely representing their business acumen and that their personal assets could finance
the LLC;
misrepresenting that they had secured, on the LLC’s behalf, “the assets and services of
Mr. Marsden;”2 and
falsifying information about the LLC’s finances to avoid discovery of (1) unapproved
compensation they paid themselves for managing the LLC and (2) other unauthorized
financial transactions and personal use of the LLC’s funds.
Green alleges that these actions misled him as to the LLC’s viability and financial status, inducing
him to contribute to the LLC various investments totaling $200,000.
Based on these actions, Green originally alleged four claims. Apart from claiming
misrepresentation, Green characterized the misdeeds underlying the alleged misrepresentations as
both a breach of the fiduciary duties that Defendants owed “[a]s [m]anagers and officers of the
[LLC]” and as an unlawful conversion of “the [LLC’s] inventory and property.”3 Green also
2
Green’s complaint fails to elaborate as to “the assets and services of Mr. Marsden,” except to say his assets
and services were critical to the LLC’s viability. Doc. 1 at 5. In briefing responding to Defendants’ first motion to
dismiss, Green explained that the LLC formed to engage in Oregon’s state-regulated medical and recreational cannabis
business. Mr. Marsden is “a well-known and reputable figure” within that industry who is licensed to cultivate and
possesses an inventory of unique seed and plant strains. Defendants allegedly misrepresented that the LLC had
secured from Mr. Marsden his services as a cultivator and an inventory of seeds and plants that would be original
products for exclusively the LLC to sell in the Oregon cannabis market. Doc. 18 at 2–3.
3
Doc. 1 at 3, 7.
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claimed that Defendants “have a duty” but have failed, despite his demands, “to account for the
[LLC’s] income and expenses.”4
Green’s breach of fiduciary duty, conversion, and accounting claims have not survived.
Acting pro se, Defendants moved to dismiss Green’s claims on two alternative grounds. The Court
rejected the first ground—that subject-matter jurisdiction (and possibly venue) was lacking. But
finding that Green’s breach of fiduciary duty, conversion, and accounting claims must have been
pleaded derivatively on the LLC’s behalf, the Court accepted Defendants’ second argument that
Green failed to comply with Fed. R. Civ. P. 23.1’s prerequisites for maintaining those derivative
claims. Accordingly, the Court dismissed those improperly pleaded derivative claims but allowed
Green’s misrepresentation claim—his only direct, as opposed to derivative claim—to proceed.5
The survival of Green’s misrepresentation claim is now again before the Court on
Defendants’ second pro se motion to dismiss. This time, rather than attacking the Court’s authority
to resolve or Green’s right to raise his claims, Defendants attack the claim itself—putting the Court
to the question: Does Green state a plausible misrepresentation claim?
II.
Legal Standard
Fed. R. Civ. P. 12(b)(6) authorizes this Court to dismiss Green’s misrepresentation claim
if Green “fail[s] to state a claim upon which relief can be granted.” The face of Green’s
complaint—not “potential evidence that the parties might present at trial”—controls.6 For Green’s
misrepresentation claim to survive, his complaint “must contain sufficient fact[s] . . . , accepted as
4
Id. at 8.
5
See generally Doc. 32.
6
Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003).
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Case 2:18-cv-02247-EFM-JPO Document 107 Filed 05/28/20 Page 4 of 8
true, to ‘state a claim to relief that is plausible on its face.’”7 A facially plausible claim requires
“factual content that allows the court to . . . reasonabl[y] infer[] that [D]efendant[s] [are] liable for
the [misrepresentation] alleged.”8 Green cannot rely on “[t]hreadbare recitals of the elements of a
cause of action” and “mere conclusory statements.”9 But he also need not offer “heightened fact
pleading of specifics.”10 “[E]nough facts to . . . nudge[] [his] claims across the line from
conceivable to plausible” is all that is required.11
III.
Analysis
Defendants argue that Green alleges an implausible misrepresentation claim for essentially
four reasons. Each reason is unpersuasive.12
First, Defendants argue that Green’s complaint lacks “enough facts” to raise his right to
relief above the speculative level.13 But Defendants dispute the truth not the plausibility of Green’s
allegations.
Defendants recite various allegations from Green’s complaint; contest those
allegations based on their own exhibits or impressions; and favoring those sources over Green’s
complaint, Defendants argue that Green lacks a reasonable likelihood of mustering factual support
for his claims. For example, Green alleges that Defendants misrepresented that they had secured
7
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bel Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)).
8
Id.
9
Id.
10
Twombly, 550 U.S. at 570.
11
Id.
12
The Court notes that Defendants have obtained counsel since this motion ripened. Because Defendants
prepared and defended this motion while unrepresented, however, the Court “afford[s] a liberal construction” to
Defendants’ pro se filings. Binford v. United States, 436 F.3d 1252, 1253 n.1 (10th Cir. 2006). Still, the Court will
not “construct arguments or theories for [Defendants] in the absence of any discussion of those issues.” Drake v. City
of Fort Collins, 927 F.2d 1156, 1159 (10th Cir. 1991) (citations omitted).
13
Doc. 70 at 2–4.
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Case 2:18-cv-02247-EFM-JPO Document 107 Filed 05/28/20 Page 5 of 8
from Mr. Marsden “assets and services . . . critical to the [LLC’s] viability.”14 Defendants urge
the Court to view this allegation as “false,” because their own “supporting evidence” allegedly
shows “‘Marden’ was indeed secured by the [LLC].”15 Green also alleges that Defendants’
misrepresentations damaged him. Defendants counter that Green’s harm is traceable only to his
own actions. This Court’s “function on a Rule 12(b)(6) motion,” however, “is not to weigh
potential evidence that the parties might present at trial, but to assess whether [Green’s] complaint
alone is legally sufficient to state a claim for which relief may be granted.”16 As such, this Court
“may not dismiss on [Defendants’ urged] ground that it appears unlikely [Green’s] allegations can
be proven.”17 Defendants’ fact-based arguments are best left to any later motion for summary
judgment or to trial.
Second, Defendants argue that Green states no misrepresentation claim because: (1) he
fails to specify that each at-issue representation occurred before, not after, he invested; and (2) his
alleged reliance is conclusory. Defendants correctly understand that a misrepresentation must
precede any reliance. The controlling law implies that requisite sequence:
The essential elements of a[n Oregon] common-law fraud claim are: the defendant
made a material misrepresentation that was false; the defendant did so knowing that
the representation was false; the defendant intended the plaintiff to rely on the
misrepresentation; the plaintiff justifiably relied on the misrepresentation; and the
plaintiff was damaged as a result of that reliance.18
14
Doc. 1 at 5.
15
Doc. 70 at 2–3; see generally also Doc. 69-1 and 69-2.
16
Dubbs, 336 F.3d at 1201.
17
Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008).
18
Strawn v. Farmers Ins. Co., 350 Or. 336, 351–52, 258 P.3d 1199, 1209 (2011). As discussed in its prior
orders, this Court applies Oregon law to Green’s substantive claims. See Doc. 32, at 6 n.7.
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Case 2:18-cv-02247-EFM-JPO Document 107 Filed 05/28/20 Page 6 of 8
But in applying that law here, Defendants take an inappropriately narrow view of Green’s
complaint. Green alleges he “relied on [Defendants’] representations in deciding to invest in the
[LLC].”19 Taken as true and read together with the complaint’s other allegations, Green plausibly
alleges that he relied on pre-investment misrepresentations.
Third, Defendants argue that Green states a facially implausible misrepresentation claim
because he blames the wrong party. The complaint itself, according to Defendants, shows that any
misrepresentations were made after the LLC’s incorporation; and so, Defendants reason, any
misrepresentations are attributable to the LLC and “not . . . [to] any of Defendants (per se).”20
Defendants former status as managers and officers of the LLC, however, does not necessarily
shield them from liability. An “[LLC’s] manager remains responsible for his or her acts or
omissions to the extent those acts or omissions would be actionable against the member or manager
if that person were acting in an individual capacity.”21 And “no . . . provision [of an LLC’s articles
of organization or any operating agreement] shall eliminate or limit the liability . . . of a member
or manager for [a]cts or omissions not in good faith which involve intentional misconduct or a
knowing violation of law.”22 Under these rules, Green may hold Defendants personally liable for
any intentional misconduct, including the misrepresentations alleged in his complaint.
Fourth, and finally, Defendants argue that dismissal is required under the Colorado River
doctrine23 because Green has filed a “conflicting” state-court case.24 That “judicially crafted
19
Doc. 1 at 6 (emphasis added).
20
Doc. 85 at 2–4, 7.
21
Cortez v. Nacco Material Handling Grp., Inc., 356 Or. 254, 268–69, 337 P.3d 111, 119 (2014).
22
Or. Rev. Stat. § 63.160(2)
23
See generally Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976).
24
Doc. 85 at 8–9.
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doctrine of efficiency,”25 however, does not bar “a federal court with jurisdiction . . . from hearing
a suit concerning the same matter as a suit pending in state court.”26 In fact, the Tenth Circuit has
“warned against dismissing a federal suit solely because a similar suit [is] pending in state court.”27
Instead, dismissal or stay of a federal suit in favor of a state action, under the Colorado River
doctrine, “requires ‘exceptional circumstances’ and an ‘important countervailing interest.’”28
Whether those circumstances exist depends on eight nonexclusive factors:
1.
2.
3.
4.
5.
6.
7.
the possibility that one of the two courts has exercised jurisdiction over property
the inconvenience from litigating in the federal forum
the avoidance of piecemeal litigation
the sequence in which the courts obtained jurisdiction
the “vexations or reactive nature” of either case
the applicability of federal law
the potential for state-court action to provide an effective remedy for the federal
plaintiff
8. the possibility of forum shopping.29
Here, however, Defendants proffer no details about Green’s state-court case that would allow the
Court to assess properly those factors. Defendants also improperly raise this argument for first
time in their reply.30 As such, this argument too is best left to any later motion.
IT IS THEREFORE ORDERED that Defendants’ Motion to Dismiss for Failure to State
a Claim (Doc. 69) is DENIED.
25
D.A. Osguthorpe Family P’ship v. ASC Utah, Inc., 705 F.3d 1223, 1233 n.13 (10th Cir. 2013).
26
Wyles v. Sussman, 661 F. App’x 548, 552 (10th Cir. 2016) (citing Colorado River, 424 U.S. at 817).
27
Id. at 551
28
Wakaya Perfection, LLC v. Youngevity Int’l, Inc., 910 F.3d 1118, 1121 (10th Cir. 2018); see also D.A.
Osguthorpe Family P’ship, 705 F.3d at 1233 (“[A]t times, ‘reasons of wise judicial administration’ must weigh in
favor of ‘permitting the dismissal of a federal suit due to the presence of a concurrent state proceeding.’ . . . . [T]hese
occasions are not ordinarily encountered. Yet such ‘circumstances, though exceptional, do nevertheless exist.’”).
29
Wakaya Perfection, LLC, 910 F.3d at 1122.
30
United States v. Harrell, 642 F.3d 907, 918 (10th Cir. 2011) (“[A]rguments raised for the first time in a
reply brief are generally deemed waived.”).
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Case 2:18-cv-02247-EFM-JPO Document 107 Filed 05/28/20 Page 8 of 8
IT IS SO ORDERED.
Dated this 28th day of May 2020.
ERIC F. MELGREN
UNITED STATES DISTRICT JUDGE
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