West Hills Farms, LLC v. ClassicStar, LLC et al

Filing 739

MEMORANDUM OPINION AND ORDER: (1) Dfts' (203) Motion to Dismiss; (204) Motion to Dismiss in case 5:06-cv-00243-JMH -REW; (97) Motion to Dismiss; (106) Motion to Dismiss in case 5:07-cv-353 DENIED AS MOOT; (2) Plummer Dfts' (313) Motion to D ismiss in case 5:06-cv-243; (816) Motion to Dismiss in case 5:07-cv-353 DENIED; (3) GeoStar Dfts' (319) Motion to Dismiss in case 5:06-cv-243; (843) Motion to Dismiss in case 5:07-cv-00353-JMH -REW GRANTED IN PART and DENIED IN PART; (4) Plts' claims which seek to impose liability on Dfts Parrott and Robinson for negligent misrepresentation shall be DISMISSED. Signed by Judge Joseph M. Hood on 8/15/2011. Associated Cases: 5:07-cv-00353-JMH -REW, 5:06-cv-00243-JMH -REW(STB)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON
)
)
)
and
)
)
WEST HILLS FARMS, LLC, et al., )
)
Plaintiffs,
)
)
v.
)
)
CLASSICSTAR, LLC, et al.,
)
)
Defendants.
)

MDL No. 1877

IN RE CLASSICSTAR MARE LEASE
LITIGATION

Master File:
Civil Action No. 07-353-JMH

Civil Action No. 06-243-JMH
MEMORANDUM OPINION & ORDER

*** *** ***
This matter is before the Court upon the Motion to Dismiss
filed by David Plummer, Spencer Plummer, and Strategic Opportunity
Solutions,

LLC,

d/b/a

Buffalo

Ranch

(“Buffalo

Ranch”

and

collectively, with the individual defendants, “Plummer Defendants”)
[5:06-cv-243-JMH, DE 313] and the Motion to Dismiss of GeoStar
Financial Services Corp. (“GFSC”), GeoStar Equine Energy, Inc.
(“GEEI”), GeoStar Corporation (“GeoStar”), ClassicStar Farms, Inc.
(“CFI”), ClassicStar Thoroughbreds of Kentucky, LLC (“CTK”), Tony
Ferguson,

Thom

Robinson,

and

John

Parrott

(hereinafter,

collectively, “GeoStar Defendants”) [5:06-cv-243-JMH, DE 319].1
1

Defendants Tony Ferguson, ClassicStar 2004, LLC,
ClassicStar Thoroughbreds, LLC, Geostar Equine Energy, Inc., John
Parrott, Thom Robinson, ClassicStar Farms, Inc., ClassicStar, LLC,

Plaintiffs (hereinafter, collectively, “West Hills Plaintiffs”)
have responded [5:06-cv-243-JMH, DE 323, 338] to each motion,
respectively, and the moving Defendants have replied in further
support of their respective Motions [5:06-cv-243-JMH, DE 328, 353].
I.

Factual Averments in Plaintiffs’ Fourth Amended Complaint
Plaintiffs’ Fourth Amended Complaint paints a complex and

detailed portrait of entities and individuals involved in the
development, execution, and furtherance of the Mare Lease Program
offered by ClassicStar, LLC, which Plaintiffs complain was operated
to the benefit of Defendants at Plaintiffs’ detriment through
misrepresentations
subsequently

taken

made
to

by

Defendants

cover

up

the

and
fraud

actions
being

that

were

worked

by

Defendants.
Plaintiffs were among more than 150 separate individuals or
entities that participated in the Mare Lease Program between 2001
and 2004, investing over $500 million dollars.

During their

participation in the Program, between 2003 and 2005, the five
plaintiffs purchased approximately $80 million of equine breeding
pairings

from

ClassicStar

between

them.

Plaintiffs

were

ClassicStar Farms, LLC, and ClassicStar 2005 Powerfoal Stables,
LLC, GeoStar Financial Services Corporation, and GeoStar Corp.
[5:06-cv-243-JMH, DE 203], as well as Defendants David Plummer, S.
David Plummer, II, Spencer Plummer, Spencer D. Plummer, III, and
Strategic Opportunity Solutions, LLC [5:06-cv-243-JMH, DE 204], had
previously filed Motions to Dismiss the Third Amended Complaint.
These Motions were rendered moot by the filing of the Fourth
Amended Complaint and shall be denied as such.
-2-

disappointed

with

the

return

on

their

investment,

ultimately

receiving 20 foals valued at less than $10 million. No doubt, this
type of investment has an element of risk.

Plaintiffs claim,

however, that the risk was never accurately portrayed to them
because – unbeknownst to them – the vast majority of pairings
provided actually consisted of quarter horse interests instead of
the thoroughbred pairings that Plaintiffs had been promised when
they invested.

Further, many of the pairings that had been

promised were ultimately never delivered to them.

Plaintiffs aver

that Defendants operated the Program in this way, driving sales
through the misrepresentations made to Plaintiffs and others and,
thus,

raising

funds

to

benefit

a

number

of

entities

individuals, including the named defendants in this matter.

and
In

other words, Plaintiffs invested because (1) they believed that
ClassicStar had assets that, unbeknownst to them, either never
existed or were so grossly misrepresented as to be fictitious and
(2) because they were told that certain tax shelter aspects of the
investment Program would inure to their benefit.
According to Plaintiffs, Defendants David Plummer, Spencer
Plummer, Buffalo Ranch, GeoStar, and its principals, including
Robinson and Parrott, aided, abetted, and controlled ClassicStar
with respect to fraudulent sales – millions of dollars worth – but
ultimately were the among the parties who benefitted from the
misconduct.

ClassicStar ended up in bankruptcy, and Plaintiffs

-3-

aver that the defendants walked away with the proceeds.

[Fourth

Amended Complaint (hereinafter, “Compl.”) at ¶¶ 133-34, 135, 13839, 143, 243.]
By way of history, ClassicStar, LLC, existed well before the
events at bar in this case began to unfold.

However, this Court is

most concerned with what happened after ClassicStar, LLC, was
acquired

from

Defendant

Spencer

Plummer

by

GeoStar

in

2001.2

[Compl. at ¶ 51.] At all relevant times and as described below,
Plaintiffs

aver

that

ClassicStar,

LLC,

and

a

number

of

its

subsidiaries and related entities operated a thoroughbred breeding
business

on

farms

ClassicStar Farms.

belonging

to

its

wholly

owned

subsidiary,

ClassicStar, LLC, marketed Mare Lease Programs

to individuals and companies having an interest in the thoroughbred
horse industry.

The Programs purportedly allowed purchasers to

lease a thoroughbred mare belonging to ClassicStar, LLC, for one
breeding season at a cost set at 30% of the fair market value of
the mare. Under the terms of the Program, that mare was, in turn,

2

GeoStar Corporation is a limited liability company owned by
Defendants Ferguson, Robinson, and Parrott. [Compl. at ¶¶ 27, 51.]
Prior to its acquisition of ClassicStar, GeoStar had operated as an
energy development company with interests in various mineral
reserves, primarily coal bed methane beds, located throughout North
America. [Complaint at ¶ 82.] GeoStar had raised funds for its
development of these properties primarily through the sale of
working interests in various wells to be drilled on the properties.
It undertook this development through various subsidiaries,
including a public traded company known as Gastar Exploration, Ltd.
("Gastar"), which was wholly controlled by GeoStar and its members
Ferguson, Robinson and Parrott. [Compl. at ¶ 81-82.]
-4-

to be bred to a selected thoroughbred stallion and board provided
for the mare and the resulting foal.
After its acquisition of ClassicStar, GeoStar designed the
Mare Lease Programs as an alternative means of raising funds for
its mineral development. [Compl. at ¶ 68.] Throughout this period,
it continued to maintain and exercise control over the substantial
portion of ClassicStar's books, records, bank accounts, financial
reports, and tax returns. [Compl. at ¶ 51.]

The Mare Lease

Programs themselves were operated by ClassicStar, and by numerous
of its subsidiaries including CFI and ClassicStar Thoroughbreds.
[Compl. at ¶ 53.]
Even after ClassicStar was acquired by GeoStar, the Plummers
remained involved in the business. David Plummer acted as director
of marketing

and a salesperson on behalf of ClassicStar and

GeoStar, promoting the Programs to potential investors, including
the Plaintiffs. [Compl. ¶¶ 66, 68, 73, 123, 149-51, 170, 177, 179,
183-84, 186, 190, 192-93, 105, 200-201, 213, 215, 217, 221, and
232.]

Spencer

Plummer

was

ClassicStar’s

president

or

vice-

president and signed correspondence and agreements relating to the
Programs on behalf of ClassicStar. [Compl. ¶¶ 65, 122-23, 154, 177,
187, 197, 214.]

In these roles, David and Spencer Plummer also

served as salespeople for ClassicStar, representing to Plaintiffs
that the cost of participating in the Mare Lease Programs was
evaluated by means of the value of the mares owned by ClassicStar.
-5-

They also represented to Plaintiffs that the full cost of the
Program

could

be

tax

deducted

by

qualified

individuals

participating in a breeding business. [Compl. ¶¶ 71-73.]
As the Programs and the scheme matured, GeoStar and Ferguson,
Robinson and Parrott formed various other entities to facilitate
the sales and enlisted other entities to further the scheme. NELC,
a company financed by ClassicStar and operated by ClassicStar's
accountant, existed to provide financing to parties transacting
with ClassicStar.

[Compl. at ¶ 126-131.]

Karren Hendrix, the

accounting firm which represented ClassicStar and at which its
accountant was a partner, and its agents were compensated for
assisting in marketing the Programs. [Compl. at ¶¶ 96-97, 126.]
The

Mare

Lease

Programs

were

promoted

using

marketing

materials featuring the Kentucky properties owned by ClassicStar
Farms and touting the success of ClassicStar’s Mare Lease Programs.
The marketing materials and ClassicStar’s agents represented to
investors, including Plaintiffs, that the cost of participating in
the Mare Lease Programs was evaluated by means of the value of the
mares owned by ClassicStar.

They further explained that the full

cost of the Program could be deducted on their income tax return by
qualified
[Compl.

¶¶

materials

individuals
71-73,
and

the

participating

100.]

According

information

in
to

provided

a

breeding

ClassicStar’s
to

business.
marketing

Plaintiffs

by

its

salespeople, the Programs were structured so that purchasers could

-6-

claim a tax deduction in the full price of the package, including
a loan, because ClassicStar encouraged purchasers to participate in
the program despite its very high price tag by arranging for
investors to finance at least half the cost through a lender
selected by ClassicStar. [Compl. at ¶ 95.] ClassicStar passed the
invested dollars along to its parent company, GeoStar, which – by
these means – raised tens of millions of dollars to fund its own
operations. [Compl. At ¶¶ 135, 138-39, 238.] Once the Mare Lease
Programs were purchased, investors were then offered subsequent
investment options in which ClassicStar’s parent, GeoStar, and its
affiliates would allow purchasers to retire their note and convert
a number of their equine interests into other investments – less
labor intensive investments. [Compl. at ¶¶ 74-79, 88-92.]
Plaintiffs complain, however, that the breeding pairings for
which they paid were often actually populated by quarter horses
and,

in

reality,

had

significantly

lower

values

than

the

thoroughbred pairings upon which the purchase price had been based.
ClassicStar's salespeople and promotional materials represented
to the Plaintiffs and others that the values charged for the Mare
Lease Programs bore a relationship (in the amount of 30%) to the
value of the underlying mares owned by ClassicStar and that the
full cost of the Program could be tax deducted by qualified
individuals participating in a breeding business.
71-73.]

[Compl. at ¶¶

In fact, the breeding pairings for which the Plaintiffs

-7-

paid tens of millions of dollars often consisted primarily of
quarterhorses owned by David Plummer, not ClassicStar, and were not
actually worth nearly what the pairings that Plaintiffs had paid
for

were

ostensibly

worth.

[Compl.

at

¶¶

113-19,

121-23.]

Plaintiffs aver that ClassicStar resorted to this tactic because it
consistently oversold the Programs, by offering Programs having a
far greater total value than the thoroughbreds actually owned by
ClassicStar could support. [Compl. at ¶¶ 104-106.] But ClassicStar
was not acting alone.

Rather, GeoStar and Ferguson, Robinson and

Parrott specifically approved this substitution of overvalued
quarterhorses

for

the

thoroughbreds

that

the

contracts

and

marketing materials represented that participants would own.
[Compl. at ¶¶ 13-14.]
The Plummers were heavily involved in this element of the
business

through

a

separate

business,

Strategic

Opportunity

Solutions, LLC (“SOS”) d/b/a Buffalo Ranch, which they operated.
Plaintiffs aver that SOS was set up to support purported embryo
implants

from

quarter

horses

into

theoretically producing quarter horses.

surrogate

roundup

mares,

While SOS may have owned

embryos resulting from quarter horse pairings, Plaintiffs explain
that SOS did not own a sufficient number of mares to support even
the quarter horse aspect of the Program let alone to own or lease
enough quarter horses to ClassicStar for use in its breeding
programs as a substitute for thoroughbreds.

-8-

Buffalo Ranch’s

provision of quarter horses was used by the defendants to disguise
the overselling of the Mare Lease Program by providing something,
albeit not the thoroughbred mares and breeding pairings promised,
to investors including Plaintiffs. [Compl. ¶¶ 31, 116-18, 122-23.]
Others participated in the scheme, as well.

As explained

above, ClassicStar along with other Defendants sought to conceal
the strategy of overselling the programs by having ClassicStar
arrange for investors to obtain loans from NELC, a company financed
by ClassicStar and operated by ClassicStar’s accountant, Terry
Green (who also happened to be related to the Plummers through
marriage).

NELC did not insist on independent confirmation of the

horses’ value because it was affiliated with ClassicStar and in on
the scheme, [Compl. at ¶¶ 95, 127-131], and NELC provided financing
to parties transacting with ClassicStar to purchase the Mare Lease
Programs.3

The relationship between NELC and ClassicStar was a

close one for NELC lacked the resources to finance such a large
volume of transactions, so ClassicStar transferred the amounts
needed to fund the loans to NELC which NELC then transferred back
to ClassicStar as loan proceeds.

This arrangement, according to

Plaintiffs, placed the tax deductibility of the loans into question
since the applicable regulations do not allow for the deduction of
debt owed to interested parties.

3

The deductibility of the loan,

Meanwhile, Green’s accounting firm as well as its agents
were compensated for assisting in marketing the Programs to the
firm’s clients.
-9-

however, was one of the major selling points of the Programs.
Plaintiffss complain that the Plummer and the GeoStar Defendants
knew that Plaintiffs relied on NELC’s status as a third party
lender

to

obtain

that

deduction

and

knew

that

NELC

was

not

independent yet concealed or did not disclose its status as an
interested party – all in order to encourage and secure Plaintiffs’
participation in the Programs.
Plaintiffs also aver that the Plummer and GeoStar Defendants,
as well as others, devised means of cloaking the underlying
deception about the horses and the initial investment because they
knew that if Plaintiffs ever needed to liquidate a portion of their
Programs to repay the NELC loan, that the investors would have
discovered the inflated values.

To forestall that eventuality, it

was

propose

arranged

for

GeoStar

to

a

number

of

secondary

transactions that would allow a portion – presumably the overvalued
portion – of the Program to be exchanged for some asset provided by
or

associated

with

GeoStar:

stock

in

Gastar,

which

GeoStar

controlled, working interests in coal bed methane fields operated
by GeoStar, and units in limited liability companies managed by
GeoStar affiliates. [Compl. at ¶¶ 74-79, 88-92.] NELC would accept
some portion of those interests in “repayment” of the loan, thus,
Plaintiff’s aver, perpetuating the fraud because Plaintiffs and
others like them would never be the wiser about the actual value of
their investments. [Compl. At ¶¶ 164-224.]

-10-

First Equine Energy Partnership (“FEEP”), managed by GEEI,
provided

one

such

secondary

transaction.

Participants

were

encouraged to exchange equine interests for FEEP units [Compl. at
¶

88],

and

FEEP’s

assets

were,

purportedly,

the

contributed

breeding rights as well as working interests in a number of coal
bed methane wells contributed by the manager and owner of the
common units, GEEI. [Compl. at ¶ 90.] These working interests were
to generate cash sufficient to service the debt associated with the
Mare Lease Programs, and the FEEP units would serve as collateral
for the NELC debt. [Compl. at ¶ 91.] The FEEP units carried with
them

a

put

option

guaranteed

by

GeoStar,

a

company

whose

principals, Ferguson and Robinson, served on the FEEP Advisory
Committee. [Compl. at ¶ 92.] Plaintiffs aver, however, that FEEP
could not perform as represented because GeoStar and Gastar had
already

engaged

in

transactions

involving

the

supposedly

contributed working interests – facts which Robinson and Ferguson,
principals of GeoStar and Gastar and members of the FEEP Advisory
Committee, knew but did not reveal to investors. [Compl. at ¶ 94.]
Plaintiffs complain that GFSC played a similar role in the
scheme, masking the true value of the Mare Lease Programs when
compared to the investments made by investors, by offering notes to
dissatisfied Mare Lease participants in order to forestall their
inquiry into the differences between the value promised and the
interests they actually received.

However, as a shell corporation

-11-

with no assets, GFSC never had the ability to live up to these
commitments. [Compl. at ¶ 23l.]
All of this was to what end?
Plaintiffs’

Fourth

Amendment

This is also a question which

Complaint

purports

to

answer.

Plaintiffs aver that the Plummer and GeoStar Defendants, as well as
others, used ClassicStar for their own purposes having each, in
turn, taken an active role in the scheme.
materials

that

David

Plummer,

as

Indeed, the marketing

director

of

marketing

for

ClassicStar and GeoStar, used identified ClassicStar as part of the
“GeoStar Group” and identified the alternative investments that
would allow purchasers to cash out a portion of their interests and
repay the loan. [Compl. at ¶¶ 66, 74-79, 88-92, 106-110.] Each time
these exchanges were encouraged and took place, which they did, the
defendants continued the concealment of the unsupported nature of
the Mare Lease Programs themselves. [Compl. at ¶¶ 162-69, 174, 222,
229,

232.]

Eventually,

using

these

transactions

to

mask

the

underlying deception averred by Plaintiffs, ClassicStar funneled
$100 million to GeoStar, including $40 million in 2004 alone.
[Compl. at 135, 138, 238.] All the while, GeoStar knew that
ClassicStar’s assets could not support legitimate sales of this
magnitude and actively cooperated with ClassicStar to conceal that
fact as described above.
As part and parcel of this scheme, Robinson, as director,
president, and CEO of GeoStar, director and CEO of Gastar, and a

-12-

member of the FEEP Advisory Committee, approved many operational
decisions related to ClassicStar including the negotiation of
commission arrangements with the salespeople promoting the Mare
Lease Program and executing, on behalf of CFI, an employment
agreement with David Plummer obliging him to promote the Mare Lease
Programs. [Compl. at ¶¶ 63, 94.] Parrot, a vice-president of
GeoStar, director of Gastar, and occasional member of ClassicStar’s
management, negotiated agreements between ClassicStar and a lawyer
representing Plaintiffs West Hills Arbor Farms, and Nelson which
called for ClassicStar to pay a commission to that lawyer for
procuring their participation in the Mare Lease Programs. [Compl.
at ¶¶ 64, 98.] He reviewed and approved the marketing materials –
some of which contained material misrepresentations relied upon by
Plaintiffs in entering into the Mare Lease Programs and which were
used by David Plummer and other ClassicStar agents. [Compl. ¶ 64,
71-72, 170-72, 188.]
Plaintiffs also complain that David Plummer acted not only on
behalf of ClassicStar and GeoStar in promoting this scheme, but on
his own behalf because he owned many of the horses included in the
Mare Lease Program.

In this way, Plaintiffs argue that he vouched

for their stated value – which ultimately was greatly inflated as
part of the scheme – when he personally prepared the schedules of
breeding pairings upon which the invoices sent to Plaintiffs and
the Plaintiffs’ payments were based.

-13-

Plummer also met with

Plaintiffs personally or by phone in order to induce them to
participate in the Mare Lease Program and executed the legal
documents provided to Plaintiffs in his role as ClassicStar’s CEO.
Finally, he received at least 2% of the total receipts for the
Program. [See Compl. at ¶¶ 56, 59, 66, 121-23, 133, 149-51, 170,
183-86, 190-93, 195, 200-201.]
Spencer Plummer identified himself as ClassicStar’s president,
in charge of the day-to-day operations of the business.

His role

in furthering the alleged scheme, according to Plaintiffs, was the
execution

of

documents

comprising

the

Program,

including

the

Letters of Intent signed by Plaintiffs and contracts reflecting the
trade of equine interests for alternative investments.

These

documents, according to Plaintiffs, contained fraudulent values for
the promised thoroughbred pairings which were actually quarter
horse pairings, if anything – values that Spencer Plummer knew to
be false and which value he requested to be paid to ClassicStar.
Plaintiffs aver that Spencer Plummer knew of the misrepresentations
all the while, yet participated in the transactions and accepted
commissions and other substantial compensation from the sales.
[Compl. at ¶¶ 65, 119,121-24, 133-34, 143, 154, 177, 187-88, 199,
203.]
Further, SOS was used to support the illusion of quarter horse
pairings

since

it

was

purportedly

set

up

to

support

embryo

implantation into other horses to produce quarter horse foals.

-14-

As

the Court understands it, Plummer’s quarter horse interests were
held

by

and

through

SOS,

even

though

they

were

ultimately

represented as owned by ClassicStar and located in Kentucky,
instead of owned by David Plummer and boarded at his Utah ranch
operated by SOS, all with the knowledge by the Plummers that they
were being “leased” (or not) to participants.

[Compl. at ¶¶ 115-

124.] SOS was paid for its “services,” as were the Plummers, out of
the proceeds of the Mare Lease Program. [Compl. at ¶¶ 119-133,
134.]
As for the Plaintiffs in this case, David Plummer allegedly
introduced Lynn MacDonald of MacDonald Stables to the ClassicStar
Mare Lease Programs during a telephone conference in mid-2003.
Plummer described the Programs as comprised of thoroughbred horses,
described how the fees charged in connection with the programs
would be calculated by ClassicStar in relationship to the value of
those thoroughbred horses, and assured MacDonald of the realistic
potential of the projected returns based on past profits and the
favorable tax treatment which MacDonald would enjoy by virtue of
his participation. [Compl. at ¶¶73, 149-50.] Plummer also presented
an “Illustration,” dated June 18, 2003, prepared by ClassicStar
with assistance from Green for MacDonald, and Spencer Plummer
executed the Letter of Intent directed to the MacDonalds.4 [Compl.

4

Plaintiffs aver that each of the Letters of Intent
misrepresented the value of the equine interests included in their
respective Mare Lease Programs. [Compl. at ¶¶ 65, 154, 187, 197.]
-15-

at ¶¶ 154.] Macdonald , in reliance on the representations made in
these communications, ultimately wired or caused to be wired $14
million

to

ClassicStar

[Compl. at ¶¶ 151-55.]

in

reliance

on

these

representations.

When MacDonald later objected to the

breeding pairings that he received from ClassicStar and raised the
issue with David Plummer in 2004, David Plummer, ClassicStar, and
GeoStar responded by agreeing to substitute various GeoStar assets
for MacDonald’s equine interests, including units in FEEP.5

FEEP

never performed its obligations.
In 2004, MacDonald wired or caused to be wired another $8
million to ClassicStar for the 2004 Mare Lease Program based on
David Plummer’s assurances to MacDonald that the Program would
consist of the expected thoroughbred interests rather than the
lesser value interests that MacDonald actually received in the 2003
program. [Compl. ¶¶ 170-72.] David Plummer made these assurances
even though he knew that the pairings would again consist primarily
of quarter horse pairings and did not disclose that fact. [Compl.
at ¶¶ 113-16, 119-20.]

Plaintiffs aver that Plummer knew at all

relevant times that the Programs involved primarily fictional

5

Plaintiffs make the argument that by merely serving on the
board of FEEP, the Plummers, along with Robinson and Ferguson who
were principals of Geostar and Gastar, vouched for the legality and
stability of the FEEP transaction. The Court is not persuaded that
so much can be reasonably read out of their membership on the FEEP
Advisory Committee without more. Nonetheless, their participation
on that board permits their inference that they had knowledge of
the transactions and the true situation.
-16-

quarterhorses,

not

thoroughbreds,

had

no

history

of

past

performance which made profits likely, charged fees based on a
completely false valuation of the horses involved, and, if the real
facts were known, that MacDonald’s investment likely would not
qualify for favorable tax treatment. [Compl. at ¶¶ 113-19, 121-24,
128.]
David Plummer also presented a similar illustration to Nelson
Breeders in March 2004 during a meeting between Brian Nelson and
Plummer. [Compl. at ¶ 179.] Plummer met again with Nelson in
Lexington, Kentucky in April of that year. [Compl. at 183.] During
both meetings, Plummer represented to Nelson that the projections
were based on verified past results and that the transactions
described in the illustrations would qualify for the favorable tax
treatment described – notwithstanding the fact that Plummer knew
his statements to be false when he made them. [Compl. at ¶¶ 103,
117-19, 121-22, 124, 133, 180-84.] Plummer made similar statements
as well as representations of the value of the horses as a basis
for the fees charged and expected returns at meetings with Nelson
in May and October of 2004, even though he knew his statements were
not based in fact. [Compl. at ¶¶ 124, 186-87, 291.] Spencer Plummer
executed the Letter of Intent directed to Nelson. [Compl. at ¶¶
187.]

Much like MacDonald, Nelson wired millions of dollars to

ClassicStar, as the Plummers had intended for him to do all along.
[Compl. ¶¶ 188.]

-17-

West Hills attended a presentation by David Plummer and an
individual named Doug Anderson in March or April of 2004, during
which Plummer again described the expected returns, tax benefits,
and fees associated with the Mare Lease Programs. [Compl. at ¶
190.] Again, the presentation was made with Plummer’s awareness or
reason to know that the program was not structured so as to confer
the tax benefits touted and that the projected returns and fees
lacked factual basis. [Compl. at ¶¶ 122-24, 128, 190.] Again, in
May and June of 2004, Plummer discussed the illustration prepared
for West Hills with its representatives, explaining GeoStar and
Gastar’s affiliation with ClassicStar, the method for calculating
the price for the Programs based on the fair value of the equine
interests involved, and assuring the potential investors that the
Program would comply with IRS guidelines and that historical data
supported the projected returns, even though Plummer knew or had
reason to know that his statements were false. [Compl. at ¶¶ 103,
117-19, 121-24, 133,191-93, 291.]
Arbor Farms met with Plummer, through its representatives, in
the winter, spring, and fall of 2004, during which meetings Plummer
described a thoroughbred program, the fee structure, and the
supposed tax benefits. [Compl. at ¶¶ 195, 200-201.] At an October
2004 meeting, Plummer represented that the loan from NELC would be
tax deductible, but he never disclosed the affiliation between
ClassicStar and NELC, notwithstanding his knowledge of it. [Compl.

-18-

at ¶¶ 128, 200.]

Spencer Plummer executed the Letter of Intent

directed to West Hills and Arbor Farms. [Compl. at ¶ 197.]

Based

on these representations and in response to invoices mailed to
them,

which

purported

to

represent

the

value

of

the

equine

interests involved. West Hills and Arbor Farms mailed and wired
payments to ClassicStar totaling approximately $7 million each, as
the Plummer intended for them to do. [Compl. ¶¶ 199, 202-203.]
David Plummer then continued to assure these Plaintiffs of the
viability of the Program when they learned that they had not
received equine interests as described by Plummer, and he prompted
ClassicStar to email them the FEEP prospectus to secure the future
participation and forestall inquiry into the fraud averred by
Plaintiffs. [Compl. at ¶ 213.]
Finally,

the

Grovers

met

with

David

Plummer

on

several

occasions in late 2002 and early 2003. [Compl. at ¶ 215.] Plummer
explained to them the method of calculating the value of the
Programs, projected returns based on past profits, and tax benefits
resulting from the structure of the transactions. [Compl. at ¶¶
124, 215-16.] Again, Plaintiffs aver that Plummer knew that there
was no basis in fact for his representations to them. [Id.] The
Grovers also received an illustration from Plummer which they
contend was similarly baseless. [Compl. at ¶¶ 217.] The Grovers
sent their payments to ClassicStar through the mail and the wire,
as Plummer intended that they do, only to have Plummer suggest in

-19-

early 2004 that they exchange a substantial portion of their equine
interests

for

alternative

oil

and

gas

interests

through

the

acquisition of membership interests in FEEP on the grounds that it
was a more diversified strategy and that the Grovers could convert
their investment into this additional opportunity on a tax free
basis. [Compl. at ¶ 221.] Plaintiffs contend that Plummer knew,
however, that the FEEP interests did not have the value represented
because the underlying Mare Lease Program investment had been
grossly

overvalued.

[Compl.

at

¶¶

122,

125,

225,

291.]

Additionally, ClassicStar arranged for the Grovers to exchange
substantially all of their remaining equine interests for an
Installment

Note

in

the

amount

of

purported GeoStar entity called GFS.
Ferguson signed on behalf of GFS.6

$3,796,707,

payable

by

a

With respect to that note,

[Compl. at ¶¶ 230-21.]

In late

2004, Plummer represented to the Grovers that the 2003 Programs
were performing as represented, and the Grovers purchased an
additional $2.2 million of interests in the Mare Lease Programs.
[Compl. at ¶ 232.]
Further,

Plaintiffs

have

alleged

that

David

Plummer

was

responsible for marketing the Programs [Compl. at ¶ 66] and oversaw

6

While the full Note amount was due and payable on or before
July 15, 2007, GFS has never made any of the required payments to
the Grovers. Plaintiffs aver that is now considered highly unlikely
to happen since, allegedly, GFS had no assets and was intentionally
created by GeoStar as an undercapitalized shell corporation with no
intent that it make payment. [Compl. at ¶¶ 230-21.]
-20-

the distribution of brochures which described the “Ultimate Tax
Solution, which converts ordinary income into capital gains,” by
The Plummer and GeoStar Defendants make, at their heart,
strikingly similar arguments with respect to why they believe that
Plaintiffs have failed to state a RICO claim against them.

Both

the Plummer and GeoStar Defendants argue that Plaintiffs have
failed to properly plead a § 1962(c) violation as to David or
Spencer Plummer or Parrott or Robinson as they have failed to
inform them of their alleged participation in the fraud with
sufficient particularity.7

The Plummer Defendants next argue that

Plaintiffs have not alleged a valid claim under § 1962(a) because
(1)

they

fail

to

state

with

particularity

their

alleged

participation in the fraud and, as well, (2) because they have
failed to allege that the Plummers used or invested any income
derived from any “pattern of racketeering activity” to acquire an
interest in or to operate an enterprise engaged in interstate
commerce.

Finally, both the Plummer and GeoStar Defendants argue

that Plaintiffs cannot state a claim for conspiracy to violate any
of the other sections of the RICO statute under § 1962(d) if they
have not at least set forth a viable claim for those violations.

7

The Plummer Defendants also argue that the averments
against Defendant Buffalo Ranch are insufficient but, upon a review
of the Fourth Amended Complaint, the Court finds that Plaintiffs do
not purport to state a claim against that entity under the federal
RICO statute. Accordingly, the Court considers this argument no
further.
-21-

Specifically, they argue that Plaintiffs have failed to identify
with the requisite specificity any representations made to them or
any use of the mail or wires by these Defendants which could
support the conclusion that they violated 18 U.S.C. § 1962(a), (c),
or (d).
The Court, however, disagrees. The Defendants’ first argument
as to the claims under subsections (a) and (c) relies on the flawed
notion that Plaintiffs must aver that the Plummers or Parrott or
Robinson personally made the misrepresentations or used of the
mails or wires with respect to Plaintiffs in order for them to be
able to state a claim against these individuals. While it is clear
that

the

Sixth

specificity

the

Circuit
actions

requires
that

Plaintiffs

each

to

defendant

identify
has

taken

with
in

furtherance of the alleged fraud, see, e.g., Central Distr. Of
Beer, Inc. v. Conn, 5 F.3d 181 (6th Cir. 1983) and In re Reciprocal
of America (ROA) Sales Practice Ltigiation, Master No. MDL 1551
Civ. No. 04-2078, 2007 WL 2900285, *8 (W.D. Tenn. Sept. 28, 2007),
the law makes no requirement that each defendant involved must have
personally made a misrepresentation.
Certainly, in order to prove a RICO violation under 18 U.S.C.
§ 1962(c), a plaintiff must show:
(1) [that] there were two or more predicate
offenses; (2) the existence of an enterprise
engaged in or affecting interstate or foreign
commerce; (3) a nexus between the pattern of
racketeering activity and the enterprise; and
(4) an injury to his business or property by
-22-

reason of the above.
Frank v. D'Ambrosi, 4 F.3d 1378, 1385 (6th Cir. 1993) (citing
Beneficial Standard Life Ins. Co. v. Madariaga, 851 F.2d 271, 274
n. 5 (9th Cir. 1988)). A plaintiff must allege that the defendants
"conduct[ed] or participat[ed] . . . in the conduct of [an]
enterprise's affairs through a pattern of racketeering activity."
18 U.S.C. § 1962(c).

An enterprise includes "any individual,

partnership, corporation, association or other legal entity, and
any union or group of individuals associated in fact although not
a legal entity."

18 U.S.C. § 1961(4).

An enterprise may be

"proved by evidence of an ongoing organization, formal or informal,
and

by

evidence

continuing unit."
(1981).

that

the

various

associates

function

as

a

United States v. Turkette, 452 U.S. 576, 583

A "pattern of racketeering activity" consist of at least

two acts of racketeering activity, which may include mail and wire
fraud.

18 U.S.C. § 1961(1), (5).

That said, in order to meet the requirement that a RICO
complaint describe the predicate acts of mail or wire fraud with
particularity, a plaintiff must allege that each RICO defendant
participated in a scheme to defraud knowing or having reason to
anticipate the use of the mail or wires would occur and that each
such use would further fraudulent scheme.

Neither 18 U.S.C. §§

1341 nor 1343, the mail and wire fraud statutes, require that the
defendant personally make the relevant communication, only that his

-23-

actions cause another to use the mail or wires.

To satisfy the

particularity requirement, a plaintiff need only allege that each
RICO defendant participated in a scheme to defraud knowing or
having reason to anticipate the use of the mail or wires would
occur and that each such use would further the fraudulent scheme.
Advocacy Org. for Patients and Providers v. Auto Club Ins. Assoc.,
176 F.3d 315, 322 (6th Cir. 1999).

"It is not necessary to allege

that the defendants have personally used the mail or wires; it is
sufficient that a defendant ‘causes' the use of the mails and
wires."
76

SKS Constructors, Inc. v. Drinkwine, 458 F. Supp. 2d 68,

(E.D.N.Y.

2006);

Beard

v.

Worldwide

Mortgage

Corp.,

354

F.Supp.2d 789, 802-803 (W.D. Tenn. 2005) (citing United States v.
Cantrell, 278 F.3d 543, 546 (6th Cir. 2001); United States v.
Brown,

146

F.3d

477,

488

(6th

Cir.

1998);

United

States

v.

Oldfield, 859 F.2d 3992, 400 (6th Cir. 2008)) (personal use of the
mail or electronic communication is not required to state a claim
for mail or wire fraud).
The Sixth Circuit takes this holistic approach to RICO claims
which are founded on mail or wire fraud.

In Mackenzie v. Murphy,

178 F.3d 1295, 1999 WL 115485 at *3 (6th Cir. 1999), for example,
the "vast majority" of the allegations dealt with one particular
defendant who actively marketed the fraudulent investments.

Id.

However because the other defendants allegedly "caused" the use of
the mails and made the misrepresentations, the complaint describing
-24-

the overall scheme stated a claim against them as well.

Id.

Despite the paucity of allegations regarding the involvement of the
moving defendant, the Court held that allegations that he had a
knowing connection with a pattern of racketeering activity by an
enterprise of which he was a part was enough to state a RICO claim.
Id. at *4.

The same is true here, although it can hardly be said

that there is a paucity of averment against the Plummers or Parrott
or Robinson.
As the Court understands the factual basis for the claims and
averred in the complaint, David and Spencer Plummer and Parrott and
Robinson were in the scheme to defraud described by the Plaintiffs
up to their eyeballs.

David Plummer was talking directly to the

Plaintiffs, preparing and/or presenting schedules and illustrations
of potential performance, negotiating and signing contracts, all
the while misrepresenting the value of the breeding pairings
available

in

the

Mare

Lease

Programs

as

well

as

the

actual

availability of the tax benefits which he touted so often and,
apparently, so well. He was reassuring parties about the excellent
performance of the Mare Lease Programs, when that was not so, even
while he was busy leasing quarter horses to ClassicStar to make up
some of the shortfall in its base of thoroughbred horses available
to breed.

Spencer Plummer was busy affixing his signature to the

Letters of Intent, sending letters which explained how investors
could get the tax benefits associated with their investment, and

-25-

managing the day-to-day operations of the company – whatever they
might have been.

Robinson and Parrott were quite busy themselves,

deciding how to make sure that investors did not find out about
their overvalued investments – creating and organizing funding from
ClassicStar for NELC, making sure that alternative investments were
available for investors that wanted out of the equine investment
(even if those alternative investments were largely illusory), and
taking the proceeds shunted GeoStar’s way and using it to fund
development and exploration there.

And Plaintiffs sent in their

money – enormous sums of it – via the wires, as they tell it.
Even if only David and Spencer Plummer (and, by extension,
ClassicStar) made the relevant communications (identified with
specificity) to Plaintiffs, the law does not require that every
defendant involved in the scheme also personally make a relevant
communication – only that his actions cause another to use the mail
or wires.

For this reason, David and Spencer Plummer, as well as

Robinson and Parrott (and Ferguson, ClassicStar, ClassicStar 2004,
ClassicStar Farms, GeoStar, and Gastar), are clearly on the hook
for any role they played in so conducting or participating
conduct

of

an

enterprise's

affairs

through

a

in the

pattern

of

racketeering activity.
As to the Plummers assertion that Plaintiffs have not alleged
a valid claim under § 1962(a) because they have failed to allege
that the Plummers used or invested any income derived from any

-26-

“pattern of racketeering activity” to acquire an interest in or to
operate an enterprise engaged in interstate commerce, this argument
also fails.

The Fourth Amended Complaint clearly avers that the

Plummers invested income derived from the racketeering activity in
which they participated, i.e., the proceeds received from Mare
Lease Sales, into Buffalo Ranch which was used to facilitate the
cover up of the fraud averred in the amended complaint and inured
to the benefit of the enterprise.
Finally, Section 1962(d) requires simply that a defendant
agree that he or another commit two acts of racketeering activity
in violation of the substantive sections, not that he personally
carry out the requisite acts. See United States v. Joseph, 781 F.2d
549, 554 (6th Cir. 1986). Since Defendants argue that the claim of
conspiracy under subsection (d) must fail in the absence of a
viable claim for a violation of either subsection (a) or (c), and
the Court has concluded that Plaintiffs have adequately averred
those claims, this portion of the motion shall be denied, as well.
Ultimately, Plaintiffs’ averments of a violation of § 1962(a)
and (c) in the Plaintiffs’ Fourth Amended Complaint have been
sufficiently pleaded to put the Plummers, Robinson, and Parrott on
notice of the claims against them, at least insofar as their role
in causing the use of the mail or the wires by themselves or
others.

Thus, Plaintiffs have stated a claim so as to survive the

present Motions to Dismiss.

See Am. Town Center v. Hall 83

-27-

Assocs., 912 F.2d 104, 110 (6th Cir. 1990) (complaint satisfied
9(b) because it provided facts to support fraud allegations and
gave

defendant

fair

notice

misrepresentation claim).

of

substance

of

plaintiff's

Accordingly, their Motions will be

denied in this regard.
B.

Common Law Fraud and Other Claims

Similarly, the Court is of the opinion that the Complaint
adequately

describes

the

misrepresentations

and

omissions

attributable to the moving Defendants for purposes of common law
fraud under Kentucky law.

In the Commonwealth of Kentucky, “[a]

party claiming harm from fraud must establish six elements of fraud
by

clear

and

convincing

evidence

as

follows:

a)

material

representation b) which is false c) known to be false or made
recklessly d) made with inducement to be acted upon e) acted in
reliance thereon and f) causing injury.” United Parcel Service Co.
v. Rickert, 996 S.W.2d 464, 468 (Ky. 1999) (fraud through direct
misrepresentation); Smith v. General Motors Corp., 979 S.W.2d 128,
130 (Ky. Ct. App. 1998) (failure to disclose may be actionable
where one party to a contract has superior information and is
relied upon to disclose same when it fails to do so or where
reliance is based on only a partial disclosure); Raymond-Elderedge
Co., Inc. v. Security Realty Inv. Co., 91 F.2d 168, 173 (6th Cir.
1937) (one who clothes another with the power to commit fraud and
then remains silent may be liable); Lappas v. Barker, 375 S.W.2d
-28-

248, 272 (Ky. 1963) (one who aids and abets fraud becomes jointly
liable); Kirby v. Firth, 311 S.W.2d 799, 802 (1958) (one who
accepts proceeds of agents’ fraud with knowledge ratifies that
fraud and becomes liable because, “[t]hough innocent himself at the
time of the misrepresentation, one may not accept the fruits of a
business deal and at the same time disclaim responsibility for the
measures by which they were acquired.”).
Among other things, Plaintiffs aver that ClassicStar’s agents
(the Plummers) misrepresented the Mare Lease Program investment to
Plaintiffs

through

specifically

identified

presentations

and

written documentation outlining – falsely – how the Mare Lease
Programs

would

be

populated

and

valued

and,

Plaintiffs to pay for the overvalued investment.

thus,

induced

Plaintiffs also

aver that ClassicStar and the Plummers did so at the behest of or
in agreement with and with the blessing of Parrott and Robinson.
It can safely be said that Parrott and Robinson and certain others
can also be responsible for those misrepresentations and that
reliance since it is averred that they had knowledge that false
representations were being made to induce investment.
The Court is of the opinion that liability may lie with them
upon a theory of common law fraud.

As the facts are averred, they

had knowledge of the underpopulation or overvaluation of the Mare
Lease Program breeding population, the privity of NELC as a lender
with ClassicStar, and the use of the alternative investments to

-29-

prevent discovery of the underlying fraud.

They worked together

with ClassicStar to promote and prolong the misrepresentations.
They benefitted from the misrepresentations knowing that Plaintiffs
could be induced to invest so long as the misrepresentation went
undiscovered.

Further this liability is clear to the Court,

whether each Defendant had a direct obligation to speak the truth,
conspired with or authorized or aided and abetted those that did
not speak the truth, or because some among them acted as agents of
those who did not speak the truth.

This would include the

Plummers, who allegedly pronounced many of the misrepresentations
received by the Plaintiffs.

It also includes Parrott and Robinson

who allegedly authorized ClassicStar and the Plummers to proceed as
they did.

Parrott and Robinson were allegedly behind or at least

aware

many

of

of

the

instruments

used

to

cover

up

the

misrepresentations and mask the underpopulation or overvaluation of
the

Mare

Lease

Programs

from

Plaintiffs

(including

the

establishment of NELC and the provision of alternative investments
through other entities like GEEI and GFSC).
entities

that

were

privy

to

and

This also includes

participated

in

the

fraud,

including, again, GEEI and GFSC, as well as GeoStar, CFI, CTK, and
SOS or Buffalo Ranch, all of whom played a role in making the
misrepresentation happen and some of whom may have benefitted from
the misrepresentation in the form of proceeds from investments in
the falsely portrayed Mare Lease Programs, GeoStar being the most

-30-

notable example in the Complaint.
Further, any claims which arise out of or can be understood as
related to such a fraud claim, including Plaintiffs’ claims for
theft by deception and aiding and abetting, as well as conspiracy
to commit these acts and liability for other Defendants’ actions
(or inactions) based on an agency theory are supported by these
averments.
they

As for Parrott and Robinson, Plaintiffs allege that

committed

theft

by

deception

and

aided

or

abetted

the

fraudulent scheme by obtaining sales people to market the Mare
Lease Programs, preparing materials to promote the Programs, and
causing

other

entities

to

issue

stock

or

provide

alternatives to conceal overselling of the Programs.

investment
They did

these things with the intent that Plaintiffs would invest and pay
funds to ClassicStar which would, in turn, be used to fund other
interests and endeavors of theirs and their family of companies.
Most importantly, Plaintiffs allege that they took these actions
with knowledge of the underlying fraud.

To the extent that

scienter or guilty knowledge is required for this claim (and any
other arising out of fraud, as the GeoStar defendants aver, citing
Scott v. Farmers State Bank, 410 S.W.2d 717, 720 (Ky. 1966)),
Plaintiffs have alleged it with respect to Parrott and Robinson, as
well as others.
No less, an allegation of a decision to give substantial
assistance to another to accomplish a tortious act, like fraud, is

-31-

sufficient

to

support

a

claim

of

conspiracy,

underlying tort is sufficiently pleaded.
the

tortious

acts,

here

the

assuming

the

Allegations describing
adequately

identified

misrepresentations made by ClassicStar and/or the Plummers and,
eventually by other participants in the scheme like GFS and FEEP,
along with the allegation that Defendants Parrott and Robinson
acted in concert, are enough to fulfill Plaintiffs’ pleading
obligation with respect to conspiracy.

See James v. Wilson, 95

S.W. 3d 875, 897 (Ky. App. 2002); see Stevenson v. Sanders, 311
F.Supp. 683, 685 (W.D.Ky. 1970); Streipe v. Liberty Mutual Life
Ins. Co., 47 S.W. 2d 1004, 1007 (Ky.

1932).

For that matter, the Court is also persuaded that, to the
extent particular misrepresentations made by someone affiliated
with a scheme must be identified to support claims for unjust
enrichment,
Plaintiffs

money
have

had

and

adequately

received,

and

alleged

those

Defendant’s objections notwithstanding.

constructive
claims,

as

trust,
well,

The Court considers, as

well, Defendants’ argument that Ferguson, Robinson, Parrott, GEEI,
GFSC, CFI, and CTK must have received a benefit from Plaintiffs in
order to state a claim for unjust enrichment, money had and
received, and constructive trust. Here, the Complaint alleges that
Ferguson, Parrott, and Robinson owned the primary interest in
GeoStar, which received over a hundred million dollars from the
scheme and owned a controlling interest in Gastar, which used the

-32-

proceeds it received to prove up mineral reserves which it sold for
large sums of money.
complaint

also

[Compl. at ¶¶ 27-28, 81, 84, and 85.]

alleges

that

Ferguson,

Robinson,

and

The

Parrott

knowingly accepted the proceeds of the schemes. [Compl. at ¶ 135.]
CFI never existed separately from ClassicStar, if the Complaint is
correct, received all of its funding from ClassicStar using it to
purchase assets – a benefit which, if proven traceable to proceeds
of the fraud alleged in the Complaint, could be recoverable on
these theories.
202.]
to

[Compl. at ¶¶ 53, 142-43, 155, 172, 188, 198, and

No less, while the Complaint avers that there is not value

that

portion

of

the

Grovers’

equine

breeding

interests

transferred to GFS, the Grovers are well within their rights to
plead that, if in the alternative, there is value there, they are
entitled to a constructive trust over whatever asset GFS received.
[Compl. at ¶230.]

The same can be said for any value received from

the transfer of the Grovers and MacDonalds’ equine interests to
FEEP by either FEEP or its managing member, GEEI.

[Compl. at ¶¶

162, 174, 232.]
However, the Court is not persuaded that Plaintiffs can
maintain an action for negligent misrepresentation against anyone
who did not actually make the object misrepresentation to the
Plaintiffs.

The reality is that one cannot conspire, i.e., intend

to agree and actually agree, to commit something that is founded on
negligence.

See, e.g., Ruth v. A.O. Smith Corp., No. 1:04-cv-

-33-

18912, 2005 WL 2978684, at *3 (N.D. Ohio, Oct. 11, 2005).

The

Plummers statements and even those of other agents for the various
entities allegedly involved in the scheme may be attributable to
Parrott and Robinson and the other GeoStar Defendants where intent
to make those misrepresentations is present and alleged, but
liability cannot lie on a theory of negligent misrepresentation.
To the extent that any count in the Fourth Amended Complaint seeks
recovery from Parrott and Robinson on a theory of negligent
misrepresentation for statements made by others, this claim shall
be dismissed.
IV.

Conclusion
For all of the foregoing reasons, Defendants Motions shall be

granted in part and denied in part as set out above.
Accordingly, IT IS ORDERED:
(1)

that Defendants’ Motions to Dismiss the Third Amended

Complaint [5:06-cv-243-JMH, DE 203 & 204] are DENIED AS MOOT;
(2)

that the Plummer Defendants Motion to Dismiss [5:06-cv-

243-JMH, DE 313; 5:07-cv-353-JMH, DE 816] is DENIED; and
(3)

that the GeoStar Defendants Motion to Dismiss [5:06-cv-

243-JMH, DE 319; 5:07-cv-353-JMH, DE 843] is GRANTED IN PART and
DENIED IN PART;
(4)

that Plaintiffs’ claims which seek to impose liability on

Defendants Parrott and Robinson for negligent misrepresentation
shall be DISMISSED.
-34-

This the 15th day of August, 2011.

-35-