Grow Michigan, LLC v. LT Lender, LLC et al
OPINION and ORDER Signed by District Judge Linda V. Parker. (AFla)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
GROW MICHIGAN, LLC,
LT LENDER, LLC, JERRY REINHARDT,
JOHN REINHARDT, BRUCE CAMPBELL,
PAUL SHAMO, ROBERT CAUSLEY,
DAMIAN KASSAB, ROBERT DRAKE,
and SOLYCO, LLC,
Civil Case No. 20-11391
Honorable Linda V. Parker
GROW MICHIGAN, LLC,
OPINION AND ORDER
Plaintiff GrowMI, LLC brings this lawsuit against Defendants alleging that
Defendants engaged in a scheme to take control of Lightning Technologies, Inc.,
pay off entities to support the take-over, and obtain loans to finance the scheme. In
an Amended Complaint filed July 31, 2020, GrowMI asserts nine counts: five
counts against all Defendants for violations of the Racketeer Influenced and
Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (Counts 1-5); fraud against
Defendants Paul Shamo, Robert Causley, and Damian Kassab (Count 6); unjust
enrichment against Defendants LT Lender, Jerry Reinhart, John Reinhart, and
Bruce Campbell (“LT Lender Defendants”) (Count 7); conspiracy against all
Defendants (Count 8); and breach of contract against Shamo and Causley (Count
9). (Am. Compl., ECF No. 27.) Federal subject matter jurisdiction is premised on
Plaintiff’s RICO claims. (Id. ¶ 25, Pg ID 1190.)
Kassab has filed a Counter-Complaint against GrowMI (ECF No. 38) and a
Third-Party Complaint against Patrick O’Keefe, GrowMI’s chief executive officer
(ECF No. 39). Kassab alleges that GrowMI and O’Keefe have filed several
baseless lawsuits in Michigan state court as part of an orchestrated effort to
takeover Lightning and help O’Keefe’s alleged long-time friend and Lightning’s
chief executive officer Jeffrey Owen. (See, e.g. Counterclaim ¶ 1, ECF No. 38 at
Pg ID 1394.) Kassab asserts only state law claims against GrowMI and O’Keefe in
his pleadings: tortious interference with contract and business expectancy (Count
I); civil conspiracy (Count II); and defamation (Count III). (ECF Nos. 38, 39.)
The parties have filed several motions in this matter, which are currently
• Kassab’s Motion to Dismiss First Amended Complaint,
filed pursuant to Federal Rules of Civil Procedure
12(b)(1) and (6) (ECF No. 45);
• The LT Lender Defendants’ Motion to Dismiss First
Amendment Complaint under Fed. R. Civ. P. 12(b)(1)
and (6) (ECF No. 47);
• Solyco LLC’s Motion to Dismiss First Amended
Complaint, filed pursuant to Rules 12(b)(1) and (6) (ECF
• GrowMI and O’Keefe’s Motion to Dismiss Kassab’s
First Amended Counterclaim and First Amended ThirdParty Complaint, filed pursuant to Rules 12(b)(1) and (6)
(ECF No. 53);
• GrowMI’s Motion to Compel Rule 26(f) Conference
(ECF No. 66);
• Defendants’ Motion to Stay Discovery Pending
Resolution of the Current Motions to Dismiss (ECF No.
• Kassab and Solyco’s Motion to Refer Case to
Bankruptcy Court (ECF No. 78);1
• Robert Drake and Shamo’s Motion to Change Venue to the
United States Bankruptcy Court (ECF No. 79); and
On February 5, 2021, three of Lightning’s creditors filed an involuntary Chapter
7 petition against Lightning in the Bankruptcy Court for the Eastern District of
Michigan. In re Lightning Technologies, Inc., No. 21-41019 (E.D. Mich. filed Feb.
• GrowMI’s Motion to Bifurcate (ECF No. 82).
All but the last three motions have been fully briefed. The Court has stayed
briefing as to the bankruptcy-related motions and the motion to bifurcate.
Finding the facts and legal arguments sufficiently presented in the parties’
filings with respect to the fully-briefed motions, the Court is dispensing with oral
argument as to those motions pursuant to Eastern District of Michigan Local Rule
7.1(f). For the reasons set forth below, the Court concludes that the pending
motions to dismiss should be granted. It, therefore, is denying as moot the
remaining pending motions.
Federal Rule of Civil Procedure 12(b)(1) is the applicable procedural rule for
challenging lack of subject matter jurisdiction.2 “When subject matter jurisdiction
is challenged under Rule 12(b)(1), the plaintiff has the burden of proving
jurisdiction in order to survive the motion.” Madison-Hughes v. Shalala, 80 F.3d
There is a distinction between challenging subject matter jurisdiction for purposes
of Article III of the U.S. Constitution and claiming a lack of standing under RICO.
See Stooksbury v. Ross, 528 F. App’x 547, 554 (6th Cir. 2013) (explaining that
“Article III standing, which requires a ‘concrete and particularized’ injury to be
‘fairly traceable’ to the defendant’s conduct and be redressable, is less onerous
than RICO standing, which requires that the injury be directly caused by the
defendant’s predicate acts.”) (citations omitted). RICO standing is not
jurisdictional. Id. As a result, a challenge to Article III jurisdiction is brought
pursuant to Federal Rule of Civil Procedure 12(b)(1); whereas, a challenge to
RICO standing is evaluated under Rule 12(b)(6). Id. at 555.
1121, 1130 (6th Cir. 1996). “Rule 12(b)(1) motions to dismiss for lack of
jurisdiction generally come in two varieties: a facial attack or a factual attack.”
Gentek Bldg. Prods., Inc. v. Sherwin-Williams Co., 491 F.3d 320, 330 (6th Cir.
A facial attack challenges the sufficiency of the pleading itself. In that
instance, the court accepts the material allegations in the complaint as true and
construes them in the light most favorable to the nonmoving party. United States
v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994) (citing Scheuer v. Rhodes, 416 U.S.
232, 235-37 (1974)). In contrast, a factual attack is “not a challenge to the
sufficiency of the pleading’s allegation, but a challenge to the factual existence of
subject matter jurisdiction.” Id. When a factual attack, also known as a “speaking
motion,” raises a factual controversy, the district court must weigh the conflicting
evidence to arrive at the factual predicate that subject-matter jurisdiction does or
does not exist.” Gentek Bldg. Prods., 491 F.3d at 330 (citing Ohio Nat’l Life Ins.
Co. v. United States, 922 F.2d 320, 325 (6th Cir. 1990)). “In its review, the district
court has wide discretion to allow affidavits, documents, and even a limited
evidentiary hearing to resolve jurisdictional facts.” Id.
A motion to dismiss pursuant to Rule 12(b)(6) tests the legal sufficiency of
the complaint. RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134
(6th Cir. 1996). “To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible
on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In deciding whether the plaintiff
has set forth a “plausible” claim, the court must accept the factual allegations in the
complaint as true. Erickson v. Pardus, 551 U.S. 89, 94 (2007). This presumption
is not applicable to legal conclusions, however. Iqbal, 556 U.S. at 668. Therefore,
“[t]hreadbare 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).
In contrast to a Rule 12(b)(1) motion, the court may not consider matters
outside the pleadings when deciding a Rule 12(b)(6) motion. Weiner v. Klais &
Co., Inc., 108 F.3d 86, 88 (6th Cir. 1997) (citing Hammond v. Baldwin, 866 F.2d
172, 175 (6th Cir. 1989)). A court that considers such matters must first convert
the motion to dismiss to one for summary judgment. See Fed. R. Civ. P 12(d).
However, “[w]hen a court is presented with a Rule 12(b)(6) motion, it may
consider the [c]omplaint and any exhibits attached thereto, 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 [c]omplaint and are central
to the claims contained therein.” Bassett v. Nat’l Collegiate Athletic Ass’n, 528
F.3d 426, 430 (6th Cir. 2008).
Relevant Factual Allegations
GrowMI is a sub-debt lender which focuses on community reinvestment by
providing growth capital to Michigan-based small and mid-sized businesses. (Am.
Compl. ¶ 28, ECF No. 27 at Pg ID 1191.) GrowMI is funded by a collaboration of
federal and state banks doing business in Michigan, the Michigan Strategic Fund,
and the State of Michigan through the Michigan Economic Development
Lightning is a Delaware start-up corporation based in Michigan. (Id. ¶ 1, Pg
ID 1185.) Lightning owns proprietary technology for a lightweight, hybrid pallet,
which is more durable and stronger than traditional wood pallets and contains antimicrobial and anti-fungal additives which would make them particularly useful in
the shipment of cold food products. (Id. ¶ 31, Pg ID 1192.) Lightning has
developed significant trade secrets and confidential information related to specific
technology, including software, coatings, and related formulations and application
processes, as well as trademarks, licenses, patents, and pending patent applications.
(Id.) In or around 2019, Lightning needed funding to pay off a previous debt to LT
Lender and to acquire the necessary production equipment to become fully
operational. (Id. ¶ 1, Pg ID 1185.)
Specifically, Lightning needed to raise approximately $26 million. (Id. ¶ 37,
Pg ID 1193.) A plan was developed to raise the money from a combination of debt
and equity, which was as follows: $7 million from Flagstar Bank, $5 million from
GrowMI, $10 million from lines of credit from Shamo and Causley (shareholders
in Lightning), and $4 million in additional equity. (Id. ¶ 37, Pg ID 1193.) With
such funding, Lightning represented that it would become fully operational by June
or July 2020. (Id. ¶ 41, Pg ID 1193-94.) Lightning further represented that, before
the end of December 2019, it would order and pay for the necessary equipment to
become operational. (Id. ¶ 42, Pg ID 1994.) As a condition to its funding,
GrowMI required that Lightning secure the additional funding, including the lines
of credit from Shamo and Causley, and pay off its debt to LT Lender. (Id. ¶¶ 40,
43-52, 56, Pg ID 1193-96.)
LT Lender provided a “payoff” letter, which GrowMI received, reflecting
that Lightning owed LT Lender a total balance of $3,323,606.68 on a “Promissory
Note and Security Agreement dated June 20, 2019.” (Id. ¶ 60, Pg ID 1197.)
According to GrowMI, the actual amount Lightning owed LT Lender as of August
30, 2019, was $2,228,386.11. (Id. ¶ 63, Pg ID 1997; see also ECF No. 8.)
GrowMI alleges that the additional amount paid to LT Lender was a payment to
reduce its non-dilutable interest to settle a bogus claim and convert respective
equity interests of LT Lender and its principals (including Jerry Reinhart, John
Reinhart, and Bruce Campbell) into common stock. (Am. Compl. ¶ 66, ECF No.
27 at Pg ID 1198.) GrowMI further alleges that Kassab convinced Lightning that
LT Lender’s principals had a bona fide claim to a substantial equity stake in
Lightning and to accept a settlement agreement with LT Lender. (Id. ¶ 89, Pg ID
Pursuant to the settlement, Lightning agreed to pay LT Lender
$3,253,802.78. (Settlement Agreement at 1, ECF No. 8 at Pg ID 343.) Lightning
also agreed to an undisclosed Technology Exploitation and License Agreement
with a newly formed entity, Structural Coatings and Products, LLC (“SCP”), of
which Lightning held a 35% interest and LT Lender owned a 65% interest. (Id.;
see also Am. Compl. ¶¶ 69-70, ECF No. 27 at Pg ID 1198-99.) LT Lender was
provided the authority to control SCP, without interference from Lightning. (Id.
¶¶ 71-74, Pg ID 1199.) The technology produced by Lightning and licensed to
SCP “‘relate[ed] to products and processes used or usable for spraying,
encapsulating, coating and/or manufacturing products coated with or molded out of
polyurea hybrid material ….’” (Id. ¶ 75, Pg ID 1199-20 (quoting SCP License
Agreement at ¶ 1.1).)
LT Lender’s “payoff letter,” which was provided to GrowMI before
GrowMI extended its loan to Lightning, did not reference the settlement
agreement, the existence of SCP, Lightning’s membership in SCP, or the SCP
License Agreement. (Am. Compl. ¶ 79, ECF No. 27 at Pg ID 1201.) GrowMI
alleges “[u]pon information and belief” that “the SCP License Agreement
significantly diminishes the value of the collateral pledged by Lightning to secure
GrowMI’s loan, and compromises the value of Lightning’s trade secrets (the
principal collateral for GrowMI’s loan).” (Id. ¶ 84, Pg ID 1202.)
Prior to August 30, 2019, Shamo and Causley each executed a Subordination
Agreement with GrowMI and Flagstar, confirming the validity of their lines of
credit and that their debt would be subordinate to the GrowMI debt. (Id. ¶ 48, Pg
ID 1195; see also Am. Compl. Exs. A, B, ECF Nos. 22-2, 22-3.) The lines of
credit from Shamo and Causley, each in the amount of $5 million, were intended to
shore up the cash Lightning needed to purchase the equipment to begin production.
(Am. Compl. ¶¶ 44-45, ECF No. 27 at Pg ID 1194.) Shamo and Causley
represented that the lines of credit were available for Lightning to draw upon. (Id.
¶ 49, Pg ID 1995.)
On August 30, 2019, GrowMI committed up to $5 million to Lightning
pursuant to a Business Loan Agreement. (Id. ¶ 53, Pg ID 1196; see also id. Ex. F,
ECF No. 22-7.) As part of the loan, Lightning also executed a Security Agreement
and an Intellectual Property Security Agreement. (Am. Compl. ¶ 54, ECF No. 27
at Pg ID 1196; see also id. Exs. G & H, ECF Nos. 22-8, 22-9.) Lightning used the
funds from GrowMI to pay LT Lender. (Am. Compl. ¶ 94, ECF No. 27 at Pg ID
GrowMI maintains that Kassab, a Lightning shareholder and its exclusive
financial consultant and then executive vice president, never planned to use
GrowMI’s financing to make Lightning fully operational. (See id. ¶ 2, Pg ID
1185.) Instead, Kassab planned to use the money to pay off the LT Lender
Defendants, so they would support Kassab’s position in a proxy battle for control
of Lightning. (Id.) According to GrowMI, Kassab, Shamo, and Causley agreed
that Shamo’s and Causley’s lines of credit would be used only to induce GrowMI
and Flagstar to lend Lightning money, and that Lightning’s initial draw from
GrowMI would go exclusively to LT Lender. (Id. ¶ 6, Pg ID 1187.) Further,
according to GrowMI, there was an agreement between Kassab, Shamo, and
Causley to “induce GrowMI to make its loan to pay off the LT Lender loan and
provide returns to the insiders, but that Lightning would not use the Flagstar
financing or the Lines of Credit in order to obtain production equipment.” (Id.
¶ 106, Pg Id 1206.) Instead, that additional financing was obtained simply “to
fraudulently induce GrowMI to fund its loan to Lightning ….” (Id. ¶ 107, Pg ID
Having failed to invest the funding to become operational, Lightning fell
behind on its payments to GrowMI and was thrown into financial turmoil. (Id.
¶ 10, Pg ID 1188.) This financial turmoil discredited Lightning’s leadership and
enabled Kassab and the remaining Defendants to engage in a proxy battle to take
over Lightning. (Id.) Despite GrowMI’s repeated demands, Lightning, through
Kassab, refused to draw from the available financing from Flagstar or the lines of
credit to order production equipment. (Id. ¶¶ 100-105, Pg ID 1205.)
Despite the availability of this financing, Lightning took a short-term, highinterest loan of $1 million from Shamo in February 2020, purportedly to fund its
operations. (Id. ¶¶ 118-19, Pg ID 1208; see also id. Ex. K, ECF No. 22-12.)
According to GrowMI, the loan was made, in part, so Kassab, acting as
Lightning’s executive vice president, could pay $400,000 to his own company,
Solyco, allegedly as a finder’s fee for raising capital. (Am. Compl. ¶ 124, ECF No.
27 at Pg ID 1209.) Solyco knew the payment was a sham to confer capital to
Kassab and subrogate GrowMI’s security interest. (Id. ¶ 25, Pg ID 1209.) The
loan was made in violation of Lightning’s Business Loan Agreement with
GrowMI, as Lightning was not allowed to incur indebtedness beyond what had
been approved when the agreement was executed. (Am. Compl. ¶¶ 122, ECF No.
27 at Pg ID 1208.)
GrowMI further alleges that, since December 2019, Robert Drake, a
Lightning employee, has illegally downloaded Lightning’s confidential trade
secrets to his own computers. (Am. Compl. ¶ 11, ECF No. 27 at Pg ID 1188.)
GrowMI further alleges that it “has reason to believe that Defendants have used
Drake to provide the necessary trade secrets to them to be able to recreate
Lightning’s proprietary products.” (Id.)
GrowMI has filed this federal lawsuit against Defendants, and three lawsuits
in Michigan state courts against Kassab, Solyco, and Drake. The state court
lawsuits also stem from Lightning’s alleged default on the August 2019 loan from
GrowMI. (See Kassab Mot. Exs. A-C, ECF Nos. 45-1 to 45-3.) In his Counterand Third-Party Complaint, Kassab alleges that the lawsuits are designed to
support the takeover of Lightning by its chief executive officer, Jeffrey Owen, and
one of its board members, Bharat Bhise. (Am. Countercl. ¶¶ 1-5, ECF No. 38 at
Pg ID 1395-96.)
The Parties’ Arguments for Dismissal
In their motions to dismiss, Defendants argue that GrowMI lacks Article III
standing to bring this lawsuit because it has suffered no damages. This is because,
on May 28, 2020, Bhise, through his company BB Invescor I, LLC (“BB”), entered
into an option agreement to purchase GrowMI’s note and paid almost $1 million to
bring the loan current. (See ECF No. 63.) The option agreement also requires BB
to pay GrowMI’s legal fees and costs associated with the various pending lawsuits.
(Id.) Kassab alternatively argues that this Court should abstain from litigating
GrowMI’s federal lawsuit due to the parallel state court proceedings under the
doctrine outlined in Colorado River Conservation District v. United States, 424
U.S. 800 (1976).
Defendants alternatively seek dismissal of GrowMI’s claims pursuant to
Rule 12(b)(6). Although their arguments vary to some degree, Defendants’
motions raise challenges to GrowMI’s ability to plead the elements of its RICO
claims. Defendants maintain that the Court’s dismissal of GrowMI’s RICO claims
requires dismissal of GrowMI’s RICO conspiracy claim, as well. Lastly,
Defendants urge the Court to not exercise supplemental jurisdiction over
GrowMI’s state law claims.
GrowMI and O’Keefe seek dismissal of Kassab’s counter- and third-party
claims, arguing first that the claims do not form part of the same case or
controversy as alleged in GrowMI’s pleading to grant this Court subject matter
jurisdiction over them. Alternatively, GrowMI and O’Keefe urge the Court to
decline exercising supplemental jurisdiction over Kassab’s state law claims.
Finally, GrowMI and O’Keefe maintain that Kassab fails to state viable claims.
Applicable Law & Analysis
Article III of the Constitution grants federal courts subject matter
jurisdiction over actual cases or controversies, neither of which exist unless a
plaintiff establishes standing to sue. ASARCO, Inc. v. Kadish, 490 U.S. 605, 613
(1989); see also U.S. Const. art. III § 2. “The irreducible constitutional minimum
of standing contains three elements.” Lujan v. Defenders of Wildlife, 504 U.S. 555,
560 (1992). As the Lujan Court identified:
First, [the p]laintiff must have suffered an injury in fact—an
invasion of a legally-protected interest which is (a) concrete and
particularized; and (b) actual or imminent, not conjectural or
hypothetical. Second, there must be a causal connection
between the injury and the conduct complained of—the injury
has to be fairly traceable to the challenged action of the
defendant, and not the result of the independent action of some
third party not before the court. Third, it must be likely, as
opposed to merely speculative, that the injury will be redressed
by a favorable decision.
Id. at 560-61. Defendants focus on the first two elements.
Defendants argue that GrowMI has not suffered any injury because the BB
option agreement remedied Lightning’s default on the GrowMI loan and covers
any attorneys’ fees GrowMI incurs in the pending lawsuits. Nevertheless, the
involuntary bankruptcy filing reflects that Lightning has since defaulted on the
loan. Counsel for the parties confirmed this fact during a telephonic status
conference with the Court on May 17, 2021. Accordingly, GrowMI has suffered
Defendants also argue that GrowMI’s injuries were not “proximately
caused” by their alleged misconduct. This is not what is required to establish
causation for purposes of standing, however. Lexmark Int’l, Inc. v. Static Control
Components, Inc., 572 U.S. 118, 134 n.6 (2014). Traceability, as required for
Article III standing, “is not focused on whether the defendant ‘caused’ the
plaintiff’s injury in the liability sense.” Wuliger v. Mfrs. Life Ins. Co., 567 F.3d
787, 796 (6th Cir. 2009). “In the nebulous land of ‘fairly traceable,’ where
causation means more than speculative but less than but-for, the allegation that a
defendant’s conduct was a motivating factor in the [plaintiff’s injury] satisfies the
requisite standard.” Parsons v. United States Dep’t of Justice, 801 F.3d 701, 714
(6th Cir. 2015). GrowMI’s allegations sufficiently satisfy this requirement.
As such, the Court concludes that GrowMI has standing to bring this
The civil RICO statute, 18 U.S.C. § 1964(c), creates a cause of action for
“[a]ny person injured in his business or property by reason of a violation of [18
U.S.C. §] 1962.” “[B]y reason of” means the injury must be proximately caused
by the RICO violation. Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 265-68
(1992). To prove a RICO claim, the plaintiff must show the following: “1) 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 [the plaintiff’s]
business or property by reason of the above.” Frank v. D’Ambrosi, 4 F.3d 1378,
1385 (6th Cir. 1993) (citation omitted).
To establish a pattern of racketeering activity, the plaintiff must show that
the defendants committed at least two predicate racketeering acts within ten years
of each other that demonstrate criminal conduct of a continuing nature. 18 U.S.C.
§ 1961(5). The racketeering predicates must be “related” and “amount to or pose a
threat of continued criminal activity.” Heinrich v. Waiting Angels Adoption Servs.,
Inc., 668 F.3d 393, 409 (6th Cir. 2012) (citing H.J. Inc. v. Northwestern Bell Tel.
Co., 492 U.S. 229, 237-39 (1989)). Racketeering activity consists of acts that are
indictable under a number of federal statutes listed in 18 U.S.C. § 1961(1)(B).
GrowMI’s RICO claims are premised on the following predicate acts: (a) bank
fraud in violation of 18 U.S.C. § 1344; (b) unlawful transactions involving money
derived from bank fraud in violation of 18 U.S.C. § 1957; (c) theft of trade secrets
in violation of 18 U.S.C. § 1832; and, (d) wire fraud in violation of 18 U.S.C.
§ 1343. (See RICO Case Stmt., ECF No. 23.)
GrowMI does not allege that it is a financial institution. Neither the
Supreme Court nor the Sixth Circuit have specifically addressed whether a nonbank has standing to assert a claim of bank fraud in the context of a RICO
predicate act. However, many district courts, including some within the Sixth
Circuit, have addressed the question and have held that only a defrauded financial
institution may assert bank fraud as a predicate act for a federal RICO claim. See,
e.g., Am. Biocare, Inc v. Howard & Howard Attorney’s, PLLC, No. 14-cv-14464,
2016 WL 5661583, at * (E.D. Mich. Sept. 30, 2016), aff’d 702 F. App’x 416 (6th
Cir. 2017) (collecting cases); Infocision Mgmt. Corp. v. Found. for Moral Law,
Inc., Nos. 5:08-cv-1342, 5:08-cv-1412, 2009 WL 650282, at *9 (N.D. Ohio Jan.
14, 2009) (collecting cases); Brickley v. ScanTech Identification Beams Sys., LLC,
566 B.R. 815, 851 (W.D. Tex. 2017) (collecting cases); Honorable v. Easy Life
Real Estate System, Inc., 182 F.R.D. 553, 562 (N.D. Ill. Sept. 29, 1998); Yesko v.
Fell, No. ELH-13-3927, 2014 WL 4406849, at *11 (D. Md. Sept. 5, 2014) (citing
cases). Given GrowMI’s failure to allege that it is a financial institution, the Court
finds that its bank fraud claims should be dismissed.
With respect to trade secret violations, 18 U.S.C. § 1832, GrowMI’s
allegations are wholly conclusory with respect to a connection between Drake’s
alleged downloading of Lightning’s proprietary information and the conduct of the
RICO enterprise’s affairs. GrowMI alleges no facts to support a connection.
Instead, GrowMI makes conclusory assertions such as: “GrowMI has reason to
believe that Defendants have used Drake to provide the necessary trade secrets to
them to be able to recreate Lightning’s proprietary products.” (Am. Compl. ¶ 11,
ECF No. 27 at Pg ID 1189.) “The mere fact that someone believes something to
be true does not create a plausible inference that it is true.” In re Darvocet,
Darvon, & Propoxyphene Prod. Liab. Litig., 756 F.3d 917, 931 (6th Cir. 2014)
(affirming dismissal of a suit based partly on allegations pleaded “upon
information and belief”).
Moreover, any injuries GrowMI may suffer as a result of Drake’s alleged
activities are only because of GrowMI’s position as a creditor of Lightning.
Creditors generally do not have standing under RICO because their injuries usually
are derivative of that of the corporation and are not caused proximately by the
RICO violations. See Hamid v. Price Waterhouse, 51 F.3d 1411, 1420 (9th Cir.
1995) (quoting Manson v. Stacescu, 11 F.3d 1127, 1130 (2d Cir. 1993), cert.
denied 513 U.S. 915 (1994)) (“‘The creditor generally sustains injury only because
he has a claim against the corporation. The creditor’s injury is derivative of that of
the corporation and is not caused proximately by the RICO violations.’”); see also
Bivens Gardens Office Bld., Inc. v. Barnett Banks of Fla., Inc., 140 F.3d 898, 90708 (11th Cir. 1998). There is an exception where the creditor suffers an injury
separate and distinct from the corporation, see, e.g., Manson, 11 F.3d at 1130;
however, GrowMI did not suffer a distinct injury from Lightning with respect to
Drake’s allege theft of Lightning’s trade secrets. The cases cited by GrowMI do
not hold otherwise, as they addressed Article III standing rather than RICO
standing. See Constellation Energy Commodities Grp., Inc. v. Fed. Energy
Regulatory Comm’n, 457 F.3d 14, 20 (D.C. Cir. 2006); In re Paxton, 440 F.3d 233,
236 (5th Cir. 2006); Motorola Credit Corp. v. Uzan, 388 F.3d 39, 55 (2d Cir.
2004). As noted earlier, see supra at n.2, Article III standing and RICO standing
are not the same, with the more demanding “proximate cause” requirement
between the defendant’s misconduct and the plaintiff’s injury being necessary only
for the latter.
This leaves one predicate act: wire fraud in violation of 18 U.S.C. § 1343.
However, at least two predicate acts are required to establish a pattern of
racketeering activity. As such, the Court concludes that GrowMI’s RICO claim is
subject to dismissal. GrowMI’s RICO conspiracy claim fails for the same reason.
GrowMI’s State Law Claims
The Court has supplemental jurisdiction over GrowMI’s state law claims
pursuant to 28 U.S.C. § 1367. In § 1367, Congress granted district courts the
discretion to exercise supplemental jurisdiction if inter alia all claims over which
there is original jurisdiction have been dismissed. 28 U.S.C. § 1367(c). District
courts have “broad discretion in deciding whether to exercise supplemental
jurisdiction over state law claims. Musson Theatrical, Inc. v. Fed. Express Corp.,
89 F.3d 1244, 1254 (6th Cir. 1996). This discretion is circumscribed, however, by
considerations of “‘judicial economy, convenience, fairness, and comity.’” Id.
(quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 (1988)). “After a
[Rule] 12(b)(6) dismissal, there is a strong presumption in favor of dismissing
supplemental claims.” Id. at 1255 (citations omitted) (“When all federal claims are
dismissed before trial, the balance of considerations usually will point to
dismissing state law claims, or remanding them to state court if the action was
Because the Court has dismissed GrowMI’s federal claims, it declines to
exercise supplemental jurisdiction over its state law claims. Particularly significant
to the Court in reaching this decision is the fact that there are three state court
lawsuits pending between the parties, which arise from the same activities at issue
in the present matter. Comity interests persuade the Court that it should not
exercise jurisdiction over these state law claims which could be litigated in the
pending state court actions—if they are not already raised there.
Having reached these conclusions, the Court finds it unnecessary to reach
the Colorado River doctrine argument and other arguments raised by Defendants in
support of their motions to dismiss.
Kassab’s Counter- and Third-Party Claims
As indicated, Kassab asserts only state law claims against GrowMI and
O’Keefe. Jurisdiction is premised on the supplemental jurisdiction statute, 28
U.S.C. § 1367. (See Am. Countercl. ¶ 35, ECF No. 38 at Pg ID 1404; Am. ThirdParty Compl. ¶ 35, ECF No. 39 at Pg ID 1457.) GrowMI and O’Keefe argue that
the Court lacks supplemental jurisdiction over Kassab’s claims because they do not
arise from a common nucleus of operative fact as the claims alleged in GrowMI’s
Amended Complaint. Alternatively, GrowMI and O’Keefe contend that Kassab’s
claims fail on the merits.
Because the Court has dismissed the claims over which it has original
jurisdiction, the Court declines to exercise supplemental jurisdiction over Kassab’s
counter- and third-party claims.
Based on the Court’s conclusion that GrowMI’s RICO claims are subject to
dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6), and the Court’s
decision not to exercise supplemental jurisdiction over the remaining state law
claims alleged by GrowMI and Kassab, the parties’ remaining motions are moot.
IT IS ORDERED that Defendants’ motions to dismiss (ECF Nos. 45, 47,
51) are GRANTED in that GrowMI’s RICO claims (Counts I-5) are DISMISSED
WITH PREJUDICE and GrowMI’s state law claims (Counts 6-9) are
DISMISSED WITHOUT PREJUDICE;
IT IS FURTHER ORDERED that GrowMI and O’Keefe’s motion to
dismiss (ECF No. 53) is GRANTED in that Kassab’s counter- and third-party
claims are DISMISSED WITHOUT PREJUDICE;
IT IS FURTHER ORDERED that the parties’ remaining motions (ECF
Nos. 66, 73, 78, 79, 82) are DENIED AS MOOT.
IT IS SO ORDERED.
s/ Linda V. Parker
LINDA V. PARKER
U.S. DISTRICT JUDGE
Dated: June 3, 2021
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