Baird v. Daniels et al

Filing 27

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS COUNTS I - IV WITHOUT PREJUDICE (Doc. 24 ). Signed by Judge Timothy S. Black on 4/11/2014. (mr1)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
TIMOTHY BAIRD,
Plaintiff,
vs.
MATTHEW C. DANIELS, et al.,
Defendants.

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Case No. 1:12-cv-945
Judge Timothy S. Black

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS
COUNTS I - IV WITHOUT PREJUDICE (Doc. 24)
This civil action is before the Court on the Daniels Defendants’ 1 motion to dismiss
(Doc. 24) and the parties’ responsive memoranda (Docs. 25, 26).
Plaintiff’s complaint alleged six claims for relief arising under the Racketeer
Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq., as well as
under Ohio statutory and common law. (Doc. 1 at ¶ 1). The Daniels Defendants now
seek dismissal of counts I through IV of the complaint for failure to state a claim pursuant
to Fed. R. Civ. P. 12(b)(6). (Doc. 24). Specifically, counts I through IV of the complaint
include: I) RICO violations under 18 U.S.C. §1962(c); II) RICO violations under 18
U.S.C. §1962(a); III) RICO violations under 18 U.S.C. §1962(d); and IV) fraudulent
misrepresentation. (Doc. 1 at ¶¶ 41-78). Counts V and VI are not at issue here.
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The Daniels Defendants include Matthew C. Daniels (“Mr. Daniels”), as well as the entities
referred to as the “Daniels Entities” which include LAD Holdings, LLC, American Capital
Partners, LLC, Bear Creek Construction, LLC, JACS Sportsfishing, Inc., BCC Rivers Crossing
Power, LLC, Rivers Crossing Power, LLC, Weatherstone at Mason, LLC, and Liberty Towne
Center, LLC (the “Daniels Entities”; collectively with Mr. Daniels, the “Daniels Defendants”).

I.

BACKGROUND

Plaintiff Timothy Baird and Mr. Daniels are, or were, the primary owners of
several entities created to develop real estate projects in Ohio, Kentucky, Michigan, and
Minnesota. (Doc. 1 at ¶ 7). These entities include, but are not limited to, Sugarcreek
Crossing Permanent, LLC, BCC Bowling Green, LLC, BCC Sandusky Permanent, LLC,
BCC Sandusky Two, LLC, Coleman’s Crossing, LLC, Sugar Creek Crossing Two, LLC,
Symmes Gate Station, LLC, and Newport Pavilion, LLC (collectively, the “Joint
Entities”). (Id.) Each of the Joint Entities was individually formed for the purpose of
acquiring a specific property, borrowing money for its development, leasing the space,
receiving rent, receiving income, and paying the expenses of the project. (Id. at ¶ 22).
Under the terms of the operating agreements for each of the Joint Entities, Mr. Baird and
Mr. Daniels were also the co-managers of each of the Joint Entities. (Id. at ¶ 7). Both
Mr. Baird and Mr. Daniels had the authority to bind the Joint Entities, transfer funds for
proper purposes under the terms of the operating agreements, and otherwise manage the
Joint Entities. (Id.)
The business operations of the Joint Entities were conducted by a separate entity,
Bear Creek Capital, LLC (“Bear Creek”), which was jointly owned by Mr. Baird and Mr.
Daniels,. (Doc. 1 at ¶ 22). Funds due to the Joint Entities, such as rents, tenant
reimbursements, and loan proceeds, would pass through the Joint Entities to Bear Creek.
(Id.) As the operating company, Bear Creek was supposed to use those funds to pay the
respective obligations of the Joint Entities. (Id.) Although Bear Creek was a jointlyowned entity, Mr. Baird primarily worked off premises from 2007-08, and he did not
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maintain an office in the same physical location as Bear Creek after April 2008. (Id. at
¶ 24). Accordingly, Mr. Daniels maintained control over the operations of Bear Creek
during that time. (Id. at ¶ 22).
Mr. Baird alleges that in December 2008, he learned that the Daniels Defendants,
with the assistance of Defendant Steve Kelly and a former financial officer of the Daniels
Entities (“Jane Doe”; collectively with the Daniels Defendants and Mr. Kelly, the
“Defendants”), had been improperly diverting funds from the Joint Entities to the Daniels
Entities. (Doc. 1 at ¶ 24). According to the complaint, during the period of January 2007
through December 2008, the Defendants transmitted financial reports on a near monthly
basis to Mr. Baird through the United States Postal Service and/or by electronic mail.
(Id.) Mr. Baird asserts that these financial reports falsely stated that the Joint Entities’
funds were applied to proper purposes and omitted the improper transfers of funds from
the Joint Entities to the Daniels Entities. (Id.) Mr. Baird also claims that Mr. Daniels
made false statements to him during a December 2008 telephone conversation to bolster
further the misrepresentations set forth in the false financial reports. (Id. at ¶ 27).
In his complaint, Mr. Baird alleges that the Defendants formed a criminal
enterprise in the form of an association-in-fact, as defined under 18 U.S.C. §1961(4).
(Doc. 1 at ¶ 20). The purpose of the criminal enterprise was to divert funds from Mr.
Baird and the Joint Entities to the Daniels Entities. (Id. at ¶ 21). Furthermore, Mr. Baird
alleges that the Defendants participated in at least two acts of racketeering activity,
constituting a “pattern,” as defined under 18 U.S.C. §1961(5), including mail and wire
fraud, bank fraud, and money laundering. (Id. at ¶¶ 29-40).
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The Daniels Defendants seek dismissal of Counts I through IV of the complaint
pursuant to Fed. R. Civ. P. 12(b)(6). (Doc. 24). Specifically, the Daniels Defendants
argue that Counts I through III fail to allege the structure of an “enterprise” as required
for a RICO claim and that Counts I through IV have not been pled with sufficient
particularity. (Id. at 4-9).
II. STANDARD OF REVIEW
A motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) operates to test the
sufficiency of the complaint and permits dismissal of a complaint for “failure to state a
claim upon which relief can be granted.” To show grounds for relief, Fed. R. Civ. P. 8(a)
requires that the complaint contain a “short and plain statement of the claim showing that
the pleader is entitled to relief.” While Rule 8 “does not require ‘detailed factual
allegations,’ … it demands more than an unadorned, the-defendant-unlawfully-harmedme accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007)).
However, where the complaint contains allegations of fraud, the plaintiff must also
meet the heightened pleading standard set forth under Fed. R. Civ. P. 9(b). Heinrich v.
Waiting Angels Adoption Servs., Inc., 668 F.3d 393, 403 (6th Cir. 2012). Under Rule
9(b), “a party must state with particularity the circumstances constituting fraud or
mistake.” To meet Rule 9(b)’s heightened particularity requirement, the plaintiff “at a
minimum, must ‘allege the time, place, and content of the alleged misrepresentation …
the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting

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from the fraud.’” Heinrich, 668 F.3d at 403 (quoting United States ex rel. Bledsoe v.
Cmty Health Sys., 342 F.3d 634, 643 (6th Cir. 2003)).
For purposes of a motion to dismiss pursuant to Rule 12(b)(6), the Court must
view the complaint in the light most favorable to the plaintiff and take all well-pleaded
factual allegations as true. Tackett v. M & G Polymers, 561 F.3d 478, 488 (6th Cir.
2009). However, pleadings offering mere “‘labels and conclusions’ or ‘a formulaic
recitation of the elements of a cause of action will not do.’” Iqbal, 556 U.S. at 678 (citing
Twombly, 550 U.S. at 555). In fact, in determining a motion to dismiss, “courts ‘are not
bound to accept as true a legal conclusion couched as a factual allegation[.]’” Twombly,
550 U.S. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). Further, “[f]actual
allegations must be enough to raise a right to relief above the speculative level[.]” Id.
III. ANALYSIS
A. Structure of the RICO “Enterprise”
The federal RICO statute affords a civil remedy for “[a]ny person injured in his
business or property by reason of violations of [18 U.S.C. §1962].” 18 U.S.C. §1964(c).
Mr. Baird asserts this private right of action, alleging that the Defendants engaged in the
prohibited activities set forth under §1962(a), (c), and (d). (Doc. 1). The existence of an
“enterprise” as defined under §1961(4) is an essential element under each subsection at
issue. 18 U.S.C. §1962(a), (c), and (d).
Under RICO, the term “enterprise” is to be broadly construed in order to effectuate
the statute’s remedial purpose. Boyle v. United States, 556 U.S. 938, 944 (2009). The
statute does not specify “the outer boundaries of the ‘enterprise’ concept,” however, it
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defines the term to “include[] any individual, partnership, corporation, association, or
other legal entity, and any union or group of individuals associated in fact although not a
legal entity.” Id. (citing 18 U.S.C. §1961(4)). The statute essentially creates two
categories of RICO enterprises: (1) legal entities such as corporations and partnerships;
and (2) informal associations-in-fact. United States v. Turkette, 452 U.S. 576, 581-82
(1981).
Because the role of the “enterprise” varies within the §1962 subsections, the Court
will address them each in turn.
1. 18 U.S.C. §1962(c) – Count I
Section 1962(c) proscribes conducting or participating in the conduct of an
enterprise through a pattern of racketeering activity. In order to sufficiently plead a
violation of §1962(c), “a plaintiff must plead the following elements: (1) conduct
(2) of an enterprise (3) through a pattern (4) of racketeering activity.” Ouwinga v.
Benistar 419 Plan Servs., 694 F.3d 783, 791 (6th Cir. 2012) (internal quotations omitted).
The existence of an “enterprise” and the “pattern of racketeering activity” are
distinct elements under the statute. Boyle, 556 U.S. at 947. Proving the existence of an
enterprise requires “evidence of an ongoing organization, formal or informal, and by
evidence that the various associates function as a continuing unit.” Turkette, 452 U.S. at
583. A pattern of racketeering activity is evidenced by “the requisite number of acts of
racketeering committed by the participants in the enterprise.” Id. However, “the
evidence used to prove the pattern of racketeering activity and the evidence establishing

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an enterprise ‘may in particular cases coalesce.’” Boyle, 556 U.S. at 947 (citing Turkette,
452 U.S. at 583).
An association-in-fact enterprise must have a structure including “at least three
features: a purpose, relationships among those associated with the enterprise, and
longevity sufficient to permit these associates to pursue the enterprise’s purpose.” Boyle,
556 U.S. at 946. The existence of “an association-in-fact enterprise, ‘require[s] a certain
amount of organizational structure which eliminates simple conspiracies from [RICO’s]
reach.’” Ouwinga, 694 F.3d at 794 (quoting VanDenBroeck v. CommonPoint Mortg. Co.,
210 F.3d 696, 699 (6th 2000)). However, the Supreme Court has recognized that the
structure of the enterprise does not need to be formal, sophisticated, or complex. Boyle,
556 U.S at 948.
[A]n association-in-fact enterprise is simply a continuing unit that functions
with a common purpose. Such a group need not have a hierarchical
structure or a “chain of command”; decisions may be made on an ad hoc
basis and by any number of methods – by majority vote, consensus, a show
of strength, etc. Members of the group need not have fixed roles; different
members may perform different roles at different times. The group need
not have a name, regular meetings, dues, established rules and regulations,
disciplinary procedures, or induction or initiation ceremonies.
Id. (citing generally, Turkette, 452 U.S. 576).
Although an informal structure will suffice to meet the statutory definition of
“enterprise,” “[a] properly pled RICO claim must cogently allege activity ‘that would
show ongoing, coordinated behavior among the defendants that would constitute an
association-in-fact.’” Begala v. PNC Bank, Ohio, Nat’l Ass’n, 214 F.3d 776, 781 (6th
Cir. 2000) (emphasis supplied) (finding pleadings deficient where “the complaint

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essentially lists a string of entities allegedly comprising the enterprise, and then lists a
string of supposed racketeering activities in which the enterprise purportedly engages”)
(citing Frank v. D’Ambrosi, 4 F.3d 1378, 1386 (6th Cir. 1993)). Specifically, “the
complaint must contain facts suggesting that the behavior of the listed entities is
‘coordinated’ in such a way that they function as a ‘continuing unit.’” Begala, 214 F.3d
at 781-82.
Here, Plaintiff fails to plead sufficiently that the Daniels Defendants functioned as
an association-in-fact enterprise. Although the complaint does allege that Defendants
mutually engaged in fraudulent conduct, there are no specific factual allegations
regarding how the Defendants coordinated and interacted with one another or functioned
as a continuing unit. 2 Similar to Begala, Plaintiff’s complaint essentially lists the parties

2

The allegations regarding the composition of the alleged enterprise are limited to the following:
At all times relevant hereto, Defendant Daniels, the Daniels Entities, Defendant
Steve Kelly, and Defendant Jane Doe constituted an enterprise, that is, a group of
individuals and legal entities associated in fact … as defined in 18 U.S.C. §
1961(4). The Daniels Enterprise constituted an ongoing organization whose
members functioned as a continuing unit for the purpose of achieving the
objectives of the enterprise. The Daniels Enterprise was engaged in, and its
activities affected, interstate commerce.
The Defendants’ common purpose was to divert monies from Mr. Baird and the
Joint Entities in order to enrich the Daniels Entities and Defendants Daniels,
Kelly, and Jane Doe. In order to achieve this objective, Defendants diverted
funds belonging to the Joint Entities, including rents and tenant reimbursements,
or for the benefit of the Joint Entities, including the proceeds of construction loans
and bond issues, to Daniels Entities. Defendants made false statements to Mr.
Baird, primarily in the form of false periodical financial reports, and to financial
institutions and government entities to facilitate and conceal these diversions of
funds.
…
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to the alleged enterprise and then describes the alleged pattern of racketeering activities.
214 F.3d at 781. However, there are no factual allegations to show that the Daniels
Defendants “coordinated in such a way that they function as a continuing unit.” Id.
(emphasis added).
While the Supreme Court’s decision in Boyle eliminated the formal hierarchy for
an association-in-fact enterprise, Plaintiff overstates the leniency Boyle affords by
arguing that the Supreme Court, and subsequently the Sixth Circuit, “made clear” that
“only three structural elements are required for a RICO enterprise.” (Doc. 25 at 8 (citing
to Ouwinga v. Benistar 419 Plan Servs., 694 F.3d 783 (6th Cir. 2012)). First, however,
the Boyle opinion states that “an association-in-fact enterprise must have at least three
structural features,” including a purpose, a relationship among the participants, and
longevity. 556 U.S. at 946 (emphasis added). And second, Plaintiff fails to account for
the truth that there are no factual allegations within the complaint to show “relationships
among those associated with the enterprise,” which is one of the three required structural
features of an association-in-fact. Id.
In fact, Defendants Daniels, Kelly, and Doe used their control over the accounts
of [Bear Creek] and the Joint Entities to divert funds from the Joint Entities to the
Daniels Entities.
…
The accounts of the Joint Entities and of [Bear Creek] were also under the control
of Defendant Daniels assisted by Defendant Kelly and Doe.
…
During the period January, 2007 through December, 2008, Defendants Daniels,
Kelly, and Doe transmitted general ledgers, check registers, and other financial
reports for each of the Joint Entities to Mr. Baird through the United States Postal
Service and/or by electronic mail on approximately a monthly basis.
(Doc. 1 at ¶¶ 20-21, 23-24, 26).

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Even considering the factual allegations in the light most favorable to the Plaintiff,
the allegations regarding the structure of the enterprise are legal conclusions couched as
factual allegations. See Twombly, 550 U.S. at 555. The complaint does not provide any
specific facts to evidence a relationship between the participants distinct from the pattern
of racketeering activity. See Boyle, 556 U.S. at 947 (“[T]he existence of an enterprise is
an element distinct from the pattern of racketeering activity and ‘proof of one does not
necessarily establish the other.’” (citing Turkette, 452 U.S. at 583)). Although the
existence of the enterprise may be inferred from the evidence showing that alleged
participants engaged in a pattern of racketeering activity, the complaint does not
sufficiently set forth factual allegations to make such an inference. Instead, Plaintiff
relies on the legal conclusion that Defendants formed an enterprise in order to then assert
that the Defendants collectively engaged in a pattern of racketeering activity. (Doc. 1 at
¶ 20).
Therefore, Plaintiff fails to allege the existence of an association-in-fact enterprise
consisting of an organizational structure, as required for a civil RICO claim.
2. 18 U.S.C. §1962(a) – Count II
Pursuant to §1962(a), it is unlawful for any person to use or invest funds derived
from a pattern of racketeering activity in the acquisition or establishment of any
enterprise, which is engaged in or affects interstate commerce. The term “person” is
defined under §1961(3) to “include[] any individual or entity capable of holding a legal
or beneficial interest in property.” Although an enterprise, by statutory definition, could

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be a legal entity, the entity cannot be both the “person” and the “enterprise” for purposes
of a RICO violation. In re ClassicStar Mare Lease Litig., 727 F.3d 473, 490 (6th Cir.
2013) (referring to the requirement for separate entities to satisfy the “person” and
“enterprise” elements as the “non-identity” or “distinctness” requirements).
The distinctness requirement can be a complex concept to distinguish. In re
ClassicStar, 727 F.3d at 490. However, the instant case calls for a relatively simple
application of the requirement. In support of Count II, Mr. Baird alleges that “[i]n
violation of 18 U.S.C. § 1962(a), Defendant Daniels used the income derived, directly or
indirectly, from the pattern of racketeering activity … to establish and operate the Daniels
Entities, which are engaged in, and whose activities affected, interstate commerce.”
(Doc. 1 at ¶ 59). Tracking the language of the statute, Mr. Baird equates “Defendant
Daniels” with the “person” and the “Daniels Entities” with the “enterprise” for purposes
of this claim. 18 U.S.C. § 1962(a).
However, the “Daniels Entities” are specifically defined within the complaint as
the collective legal entities, of which “Defendant Daniels is the sole owner, controlling
owner, managing member, and/or alter ego.” (Doc. 1 at ¶ 19). Furthermore, the “Daniels
Enterprise” is defined within the complaint as being comprised of “Defendant Daniels,
the Daniels Entities, Defendant Steve Kelly, and Defendant Jane Doe.” (Id. at ¶ 20)
(emphasis added). Therefore, the complaint unequivocally states that the “Daniels
Entities” are not in fact enterprises of their own, but merely alter egos of Mr. Daniels that
collectively form a part of the enterprise. (Id. at ¶¶ 19, 20). Accordingly, Mr. Baird’s
reliance on “Defendant Daniels” as the “person” and the “Daniels Entities” as the
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“enterprise” fails to meet the distinctness requirement of RICO, as the “person” and the
“enterprise” here would be one and the same. See In re ClassicStar, 727 F.3d at 490.
Therefore, Plaintiff fails to sufficiently allege the existence of an enterprise as
required for a claim under §1962(a).
3. 18 U.S.C. §1962(d) – Count III
Pursuant to §1962(d), it is unlawful to conspire to violate subsections (a) through
(c) of the provision. Mr. Baird alleges that Defendants violated §1962(d) by “knowingly
and intentionally conspir[ing] with each other to violate 18 U.S.C. § 1962(c).” (Doc. 1 at
¶ 68). The complaint further states that “[i]t was part of the conspiracy that the
Defendants agreed that a conspirator would commit at least two acts of racketeering in
conducting the affairs of the Daniels Enterprise.” (Id. at ¶ 69). The Court has already
determined that Plaintiff failed to sufficiently plead the existence of an enterprise to
constitute a violation of §1962(c).
Therefore, to the extent that the existence of an enterprise is necessary as a basis
for the conspiracy, Plaintiff’s §1962(d) claim fails as a matter of law.
B. Heightened Pleading Standard of Rule 9(b)
The Daniels Defendants also move to dismiss because Plaintiff failed to plead
Counts I through IV with sufficient particularity to meet the heightened pleading standard
of Fed. R. Civ. P. 9(b). (Doc. 24). Count IV of the complaint is subject to Rule 9(b), as
it specifically alleges fraudulent misrepresentation. (Doc. 1 at ¶¶ 74-78). Additionally,
because the predicate acts of the RICO claims are each fraud-based offenses, Counts I

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through III are also subject to Rule 9(b)’s more rigorous pleading standard. (Id. at ¶¶ 4173).
In order to state a civil RICO claim, Plaintiff must allege that Defendants engaged
in “racketeering activity.” 18 U.S.C. §1962. Section 1961(1) sets forth an extensive list
of indictable offenses, all of which constitute “racketeering activity.” As the predicate
acts in support of Counts I through III, Plaintiff asserts that Defendants committed mail
and wire fraud (18 U.S.C. §§ 1341, 1343), bank fraud (18 U.S.C. § 1344), and money
laundering (18 U.S.C. § 1956).
Pursuant to Fed. R. Civ. P. 9(b), “[i]n alleging fraud or mistake, a party must state
with particularity the circumstances constituting fraud or mistake.” To meet the
heightened particularity requirement, “the plaintiff[], at a minimum, must “‘allege the
time, place, and content of the alleged misrepresentation … the fraudulent scheme; the
fraudulent intent of the defendants; and the injury resulting from the fraud.’” Heinrich,
668 F.3d at 403 (quoting Bledsoe, 342 F.3d at 643). Although “Rule 9(b) does not
require omniscience,” it does require that “the circumstances of the fraud be pled with
enough specificity to put defendants on notice as to the nature of the claim.” Williams v.
Duke Energy Int’l, 681 F.3d 788, 803 (6th Cir. 2012) (internal quotations omitted).
1. Mail and Wire Fraud (18 U.S.C. §§ 1341, 1343)
To satisfy the heightened pleading requirement of Rule 9(b), “[w]hen pleading
predicate acts of mail and wire fraud … a plaintiff must ‘(1) specify the statements that
the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when
the statements were made, and (4) explain why the statements were fraudulent.’”
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Heinrich, 668 F.3d at 404 (quoting Frank v. Dana Corp. 547 F.3d 564, 570 (6th Cir.
2008)). Although a RICO plaintiff is not required to plead reliance on the fraudulent
statements, he “must show not only that the predicate act was a ‘but for’ cause of [his]
injuries, but also that it was a proximate cause.” Heinrich, 668 F.3d at 404-05 (citing
Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268 (1992)).
Plaintiff’s complaint states that “Defendants devised or intended to devise a
scheme or artifice to defraud Mr. Baird and the Joint Entities of money or property by
means of false or fraudulent pretenses, representations, or promises.” (Doc. 1 at ¶ 32).
Plaintiff further alleges that that in order to execute this fraudulent scheme, the
Defendants “[o]n approximately a monthly basis during the period January, 2007 through
December, 2008 … knowingly transmitted, or caused to be transmitted, by United States
Mail and by various wire communications false financial reports on the Joint Entities,
including general ledgers and check registers, to Mr. Baird.” (Id. at ¶ 34). Finally,
Plaintiff asserts that by executing this scheme, the Defendants “caus[ed] monies
belonging to Mr. Baird and the Joint Entities, as well as loan proceeds from financial
institutions and/or funds due from Joint Entity tenants for specific purposes … to be
fraudulently transferred to [Bear Creek] and then to the Daniels Enterprises.” (Id. at
¶ 35).
The mail and wire fraud allegations lack the specificity required to meet Rule
9(b)’s heightened pleading standard. While Mr. Baird argues that he pled fraud with the
degree of particularity that he is able to, the specificity lacking here should be known to
Mr. Baird or contained in documents entirely within his control. Specifically, Mr. Baird
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alleges that he received documents via U.S. and electronic mail on a near monthly basis
that fraudulently misrepresented transfers from the Joint Entities, resulting in millions of
dollars in loss, yet he failed to pinpoint the receipt date of any document or allege the
substantive misrepresentations contained therein. (Doc. 1 at ¶¶ 25-27).
The general allegations that “Defendants Daniels, Kelly, and Doe” are responsible
for transmitting “general ledgers, check registers, and other financial reports … through
the United States Postal Service and/or by electronic mail on approximately a monthly
basis,” from January 2007 to December 2008 do not rise above a speculative level. (Id.
at ¶ 26). Assuming, as this Court must, that Mr. Baird did indeed receive such documents from the Defendants, Mr. Baird should be able plead their content with greater
particularity. Accordingly, Plaintiff fails to meet the heightened pleading standard.
2. Bank Fraud (18 U.S.C. §1344)
To establish bank fraud, Plaintiff must show that Defendants “knowingly
execute[d], or attempt[ed] to execute, a scheme or artifice: (1) to defraud a financial
institution; or (2) to obtain any of the moneys, funds, credits, assets, securities, or other
property owned by, or under the custody or control of, a financial institution, by means of
false or fraudulent pretenses, representations, or promises.” 18 U.S.C. §1344.
In the complaint, Mr. Baird alleges that:
Defendants knowingly executed, or attempted to execute, a scheme or
artifice to defraud a financial institution … Specifically, on numerous
occasions, Defendants made material misrepresentations to various
financial institutions, including but not limited to: misrepresenting the dates
upon which construction started and ended, the party performing said work,
the amounts owed for such work, whether such amounts owed had been or
would be paid, payment of subcontractors, and other false pretenses.
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(Doc. 1 at ¶ 37).
The complaint essentially restates the wording of the statute without providing any
factual allegations to support the conclusion that Defendants actually committed the acts.
Although Plaintiff does provide general examples of the types of misrepresentations
made, there are no facts provided to explain the basis for these allegations. (Doc. 1 at
¶ 37). Assuming that these details set forth the content of the misrepresentations with
sufficient particularity, Plaintiff still fails to provide the time or place of the alleged
activity. See Heinrich, 668 F.3d at 403. Accordingly, Plaintiff’s allegations regarding
bank fraud as a predicate act for the civil RICO claim fail to meet the heightened
pleading standard.
3. Laundering of Monetary Instruments (18 U.S.C. §1956)
To plead sufficiently the predicate act of money laundering, Plaintiff must allege
that Defendants conducted financial transactions knowing that the transactions involved
the proceeds of specified unlawful activity. 18 U.S.C. § 1956(a)(1). Furthermore,
Plaintiff must allege that Defendants engaged in the transaction with the intent to either
promote the continuation of the unlawful activity or knowing that the transactions were
designed to conceal the proceeds of the unlawful activity. 18 U.S.C. § 1956(a)(1)(A)(i)
and (B)(i).
Mr. Baird alleges that “[d]espite knowing that the monies were proceeds of wire
and bank fraud, Defendant Daniels conducted various financial transactions with the
intent to promote the aforementioned wire fraud and bank fraud.” (Doc. 1 at ¶ 39). Also,
“[d]espite knowing that the monies were proceeds of wire and bank fraud, Defendant
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Daniels conducted various financial transactions knowing that such transactions were
designed, in whole or in part, to conceal or disguise the nature, location, the source, the
ownership, or the control of the proceeds.” (Id. at ¶ 40).
Again, the complaint simply restates the wording of the statute and provides no
specific factual allegations. (Doc. 1 at ¶¶ 38-40). There are no details regarding the time,
place, or scheme of the money laundering transactions. 3 (Id.) Furthermore, to the extent
that Mr. Baird may be relying on the allegations of wire and bank fraud to provide the
necessary specificity, this Court has already noted that those allegations are likewise
deficient. Accordingly, Plaintiff’s allegations regarding money laundering fail to meet
the heightened pleading standard.
4. Fraudulent Misrepresentation
Count IV of Plaintiff’s complaint alleges a claim for fraudulent misrepresentation.
(Doc. 1 at ¶¶ 74-78). To prove a fraud claim under Ohio common law, Plaintiff must
show:
(a) a representation or, where there is a duty to disclose, concealment of a
fact, (b) which is material to the transaction at hand, (c) made falsely, with
knowledge of its falsity, or with such utter disregard and recklessness as to
whether it is true or false that knowledge may be inferred, (d) with the
intent of misleading another into relying upon it, (e) justifiable reliance
upon the representation or concealment, and (f) a resulting injury
proximately caused by the reliance.

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Although unrelated to the sufficiency of the pleadings here, the Court notes that the complaint
only implicates Mr. Daniels with regard to the money laundering. (Doc. 1 at ¶¶ 38-40).
Therefore, as a predicate act of the civil RICO claim, these allegations also fail to set forth the
conduct of the enterprise in the racketeering activity.

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Glassner v. R.J. Reynolds Tobacco Co., 223 F.3d 343, 352 (6th Cir. 2000) (citing Burr v.
Bd. of Cnty. Comm’rs of Stark Cnty., 491 N.E.2d 1101, 1105 (Ohio 1986)).
Plaintiff bases the fraud claim on the “false financial reports for the Joint Entities,”
which “Defendants Daniels, Kelly, and Doe prepared … and transmitted [to him] on
approximately a monthly basis during the period January, 2007 through December,
2008.” (Doc. 1 at ¶ 75). However, as previously noted in discussing the mail and wire
fraud, the complaint does not provide sufficient factual allegations regarding the financial
reports to meet the heightened pleading standard of Rule 9(b).
The only reference to the fraudulent financial records states that “[t]he financial
records maintained by Defendants to which Mr. Baird has been able to obtain access
show that, as of December 31, 2008, [the Joint Entities] had transferred a net aggregate of
approximately $14,250,000.00 to [Bear Creek].” (Doc. 1 at ¶ 25). However, this
statement fails to specify why the contents of these documents are fraudulent. As the
operating company, Bear Creek was supposed to receive income from the Joint Entities
in order to pay their financial obligations. (Id. at ¶ 22). The allegations state that the
transfers reflected in the financial records occurred, but fail to specify which transfers
were fraudulent and why. (Id.) Considering these allegations in a light most favorable to
the Plaintiff, the Court assumes that Mr. Baird had some reason to believe that these
particular transfers were misrepresentations of Bear Creek’s actual accounting. However,
Mr. Baird fails to articulate any of those reasons and, therefore, never raises these
allegations above a speculative level. Accordingly, Plaintiff fails to plead Count IV with
sufficient particularity to meet the heightened pleading standard of Rule 9(b).
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IV. CONCLUSION
Based upon the foregoing, Defendant’s motion to dismiss Counts I through IV
(Doc. 24) is GRANTED WITHOUT PREJUDICE. Plaintiff may seek leave to amend
the complaint. Counts V and VI remain pending.
IT IS SO ORDERED.
Date: 4/11/14

s/ Timothy S. Black
Timothy S. Black
United States District Judge

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