American Power, LLC v. Harris et al

Filing 71

DECISION AND ENTRY ADOPTING IN PART AND REJECTING IN PART UNITED STATES MAGISTRATE JUDGES REPORT AND RECOMMENDATIONS (DOC # 43 ); SUSTAINING IN PART AND OVERRULING IN PART OBJECTIONS OF THE FONTAINE DEFENDANTS (DOC. # 46 ); SUSTAINING IN PART AND OVE RRULING IN PART OBJECTIONS OF DEKTRIX DEFENDANTS (DOC.# 48 ); SUSTAINING IN PART AND OVERRULING IN PART MOTION TO DISMISS OF MARMON AND FONTAINE DEFENDANTS (DOC. # 16 ); SUSTAINING IN PART AND OVERRULING IN PART MOTION TO DISMISS OF DEKTRIX DEFENDANT S (DOC. # 20 ); DISMISSAL OF COUNT I AS TO THE FONTAINE DEFENDANTS, COUNT II AS TO DEFENDANTS PROCHAZKA, BUCHANAN AND DIER, COUNT VI AS TO DEFENDANTS HARRIS, CRANE, MORLEY, LARSON, DEKTRIX TRANSPORTATION SERVICES, LLC AND DEKTRIX INTERMODAL, LLC, AND COUNT VIII AS TO DEFENDANT LARSON IS WITHOUT PREJUDICE TO PLAINTIFF FILING AN AMENDED COMPLAINT WITHIN 14 DAYS SUBJECT TO THE STRICTURES OF FED. R. CIV. P.11. Signed by Judge Walter H. Rice on 2/19/21. (pb)

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IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
AMERICAN POWER, LLC,

:

Plaintiff,
:

v.
DOUGLAS O. HARRIS, et. al,
Defendants.

Case No. 3:17-cv-347
JUDGE WALTER H. RICE

:

DECISION AND ENTRY ADOPTING IN PART AND REJECTING IN
PART UNITED STATES MAGISTRATE JUDGE’S REPORT AND
RECOMMENDATIONS (DOC #43); SUSTAINING IN PART AND
OVERRULING IN PART OBJECTIONS OF THE FONTAINE
DEFENDANTS (DOC. #46); SUSTAINING IN PART AND
OVERRULING IN PART OBJECTIONS OF DEKTRIX DEFENDANTS
(DOC.#48); SUSTAINING IN PART AND OVERRULING IN PART
MOTION TO DISMISS OF MARMON AND FONTAINE DEFENDANTS
(DOC. #16); SUSTAINING IN PART AND OVERRULING IN PART
MOTION TO DISMISS OF DEKTRIX DEFENDANTS (DOC. #20);
DISMISSAL OF COUNT I AS TO THE FONTAINE DEFENDANTS,
COUNT II AS TO DEFENDANTS PROCHAZKA, BUCHANAN AND
DIER, COUNT VI AS TO DEFENDANTS HARRIS, CRANE, MORLEY,
LARSON, DEKTRIX TRANSPORTATION SERVICES, LLC AND
DEKTRIX INTERMODAL, LLC, AND COUNT VIII AS TO DEFENDANT
LARSON IS WITHOUT PREJUDICE TO PLAINTIFF FILING AN
AMENDED COMPLAINT WITHIN 14 DAYS SUBJECT TO THE
STRICTURES OF FED. R. CIV. P.11

This matter is before the Court on Magistrate Judge Sharon L. Ovington’s
Report and Recommendations, Doc. #43, and the objections to that judicial filing.
Objections were filed by two groups of Defendants: the “Fontaine Defendants,”
Doc. #46, and the “Dektrix Defendants,” Doc. #48. The Defendants filing

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objections as the “Fontaine Defendants” are Fontaine Engineered Products, Inc.,
(“Fontaine”), Henry Prochazka (“Prochazka”), Berkley Buchanan (“Buchanan”),
Marmon Highway Technologies, LLC (“Marmon”) and Kelly Dier (“Dier”).
The Defendants filing objections as the “Dektrix Defendants” are Douglas
Harris (“Harris”), Murray Crane (“Crane”), Michael Morley (“Morley”), Scott
Larson (“Larson”), Dektrix, LLC (“Dektrix”), Dektrix Transportation Services, LLC
(“Dektrix Trans”) and Dektrix Intermodal, LLC (“Dektrix Intermodal”).
Plaintiff, American Power, LLC (“Plaintiff” or “AMP”), has filed a response
to the objections filed by the Fontaine Defendants, Doc. #49, and the Dektrix
Defendants, Doc. #54. Plaintiff has also filed a supplemental memorandum, Doc.
#61-2. A joint response to Plaintiff’s memorandum was filed by the Marmon
Defendants1 and the Fontaine Defendants, Doc. #66, and a response was filed by
the Dektrix Defendants, Doc. #69.
The Court has reviewed the Motion to Dismiss filed by the Marmon
Defendants and the Fontaine Defendants, Doc. #16, and the Motion to Dismiss
filed by Defendants Harris, Crane, Dektrix, Dektrix Trans and Dektrix Intermodal,
the “Moving Dektrix Defendants,” Doc. #20.2 The Court has also considered

The Marmon Defendants are Defendants Marmon Highway Technologies, Inc.
(“Marmon”) and Kelly Dier (“Dier”).
1

The Motion to Dismiss filed by the “Moving Dektrix Defendants” did not include
Defendants Morley and Larson. Doc. #20. These two Defendants each filed a separate
Motion to Dismiss for Lack of Jurisdiction, Doc. ##21 and 22, that the Magistrate Judge
has recommended be denied. Doc. #42. No objections were made to this filing and the
Court adopted this Report and Recommendations. Doc. #53.
2

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Plaintiff’s responses, Doc. ##26 and 36, the replies filed by the Marmon and
Fontaine Defendants, Doc. #33, and the Moving Dektrix Defendants, Doc. #39.
Finally, the Court has reviewed Plaintiff’s Supplemental Memorandum in
Opposition to Defendants’ Objections, Doc. # 63, and the responses of the
Marmon and Fontaine Defendants, Doc. #66, and the Dektrix Defendants, Doc.
#69.
The Magistrate Judge’s filing, Doc. #43, has recommended the following:
1. The Dektrix Defendants’ Motion to Dismiss (Doc. #20) be
GRANTED in part and that Count II against Defendant Larson be
dismissed, and Counts III, IV and Count VII be dismissed; and
DENIED in remaining part; and
2. The Fontaine [and Marmon] Defendants’ Motion to Dismiss (Doc.
#16) be DENIED.3
Doc. #43, PageID#614.
The Court will review the objections filed by the Fontaine Defendants, Doc.
#46, and the Dektrix Defendants, Doc. #48, de novo, in accordance with Fed. R.
Civ. P. 72.

The Complaint defines the Dektrix Defendants, the Fontaine Defendants and the
Marmon Defendants separately. Doc. #1, PageID##7-8 Although the Report and
Recommendations adopts the Complaint’s definition for the Defendants comprising the
Dektrix Defendants, Doc. #43, PageID#561 n. 3, it combines the Fontaine Defendants and
the Marmon Defendants and refers to them collectively as “the Fontaine Defendants.” Id.,
PageID#565, n. 4. In their objection filing, the Fontaine Defendants adopt the definition
used by the Magistrate Judge. Doc. #46, PageID#627.
3

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I. Background Facts
A. Introduction
Plaintiff is a Dayton, Ohio, logistics and trucking business owned by Adil
Baguirov and Islom Shakhbandarov (“Baguirov” and “Shakhbandarov”). 4 The
business is the assignee of its owners’ rights and alleges federal securities law
and state common law claims against 12 Defendants, seven individuals and five
companies. Doc. #1, PageID#5.
The Complaint defines these 12 Defendants as (1) the Dektrix Defendants,
(2) the Fontaine Defendants, (3) the Marmon Defendants and (4) the Individual
Defendants. Id., PageID##5-8.
The “Dektrix Defendants” consist of three limited liability companies and
four individuals. The companies are Defendant Dektrix, LLC ("Dektrix"), a
transportation servicing company formed on January 23, 2015, “for the purpose
of commercializing a revolutionary intermodal flat-deck shipping solution;” its
parent company, Defendant Dektrix Intermodal, LLC (“Dektrix Intermodal”) and
Defendant Dektrix Transportation Services, LLC (“Dektrix Trans”), a wholly-owned
subsidiary of Dektrix. Id., PageID##5-6. The four individuals included in the
Dektrix Defendants’ group are the following: Defendant Murray Crane (“Crane”),
the founder of Dektrix, inventor of the intermodal flat-deck shipping system, CEO

The following facts are taken from the Complaint, Doc. #1. In setting forth the factual
background, the Court has accepted the allegations as true and has construed them in the
light most favorable to Plaintiff.
4

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of Dektrix and Dektrix Trans and Member-Manager of Dektrix and Dektrix Trans;
Defendant Douglas O. Harris (“Harris”), the General Manager of Dektrix and
Member of Dektrix and Dektrix Trans; Defendant Michael T. Morley (“Morley”),
Member-Manager of Dektrix and Dektrix Trans; and Defendant Scott Larson
(“Larson”), the “[C]omptroller, employee, and/or agent of Dektrix and Dektrix
Trans.” Id., PageID##6-7.
The “Fontaine Defendants” are defined by Plaintiff as consisting of Fontaine
Engineered Products, Inc. d/b/a Fontaine Intermodal ("Fontaine"), the
manufacturer of the flat-decks used by Dektrix; its president, Defendant Berkley
(“Buck”) Buchanan (“Buchanan”) and Defendant Henry (“Hank”) Prochazka
(“Prochazka”), a “group president” of a company affiliated with Fontaine. Id.,
PageID#8.
The Complaint defines the “Marmon Defendants” as Defendant Marmon
Highway Technologies, LLC (“Marmon”), “a Berkshire Hathaway Company,” and
Defendant Kelly Dier (“Dier”), its President and later Chairman. Plaintiff alleges
that the Marmon Defendants owned and operated Fontaine.
The final group defined in the Complaint is the “Individual Defendants.”
This group consists of Harris, Crane, Morley, Larson, Dier, Prochazka and
Buchanan. Id., PageID#8.
Taking the allegations of the Complaint as true, and giving Plaintiff the
benefit of every reasonable inference therein, the following appears to be the
relationship between the non-individual parties: Fontaine and its owner, Marmon,
5

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invented and manufactured the intermodal flat-deck trailers, and gave the Dektrix
Defendants an exclusive right to commercialize them over a two year period of
time with the possibility of a third year. In exchange for the right to
commercialize the flat-deck trailers for two years, Dektrix was required to
purchase 73 trailers it was then renting and, for a third year of exclusivity,
purchase 43 more. Dektrix sought an investment from Plaintiff, American Power,
in order to buy the trailers from Fontaine (and, indirectly, from Marmon).

B. Allegations of the Complaint
On June 16, 2016, the Dektrix Defendants5 contacted Plaintiff by phone and
introduced it to an investment opportunity in Dektrix, a Nevada intermodal
logistics and shipment company incorporated in January 2015. Doc. #1,
PageID##8 and 5. The investment opportunity involved a new type of trailer
manufactured by Fontaine and used in “intermodal freight transport.”6 Id.,
PageID#8. The Complaint refers to this new type of trailer as the “Fontaine
Evolution Intermodal Flat Deck,” “intermodal deck,” “deck” or “flat-deck.” Id.,
PageID##8 and 9.

The Complaint gives two different definitions of the “Dektrix Defendants.” Doc. #1,
PageID#3 and Doc. #1, PageID#7. The Court will use the definition of the Dektrix
Defendants pled in the Complaint, ¶18, Doc. #1, PageID#7.
5

Intermodal “means the shipment of products using multiple modes of transportation,
usually by ship, airplane, train and truck. A shipping container is ‘intermodal’ when it has
the ability to be carried on ships, railroad cars and as a trailer being pulled by semi-trucks,
on the highway.” Doc. #1, PageID##7-8.
6

6

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In July 2016, the Dektrix Defendants “presented a number of investor
meetings, presentations and other solicitations to Plaintiff as a potential investor”
and on July 28, 2016, these Defendants sent an email to Plaintiff with information
about Dektrix. Id., PageID#9. The email stated that “Dektrix was a wellestablished company that had earned an exclusive opportunity to use Fontaine
Evolution Intermodal Flat[-]Decks to ship loads.” Id. The Dektrix Defendants
explained the “exclusive opportunity” as follows:
Based on [Dektrix’s] performance[,] the executives at Marmon
Highway Technologies and Fontaine Intermodal have granted Dektrix
a 3 year exclusive opportunity. They will not produce or sell any
decks or similar intermodal products to any other individual or entity
for three years. These are the accomplishments of a company which
has worked very hard and is now [poised] for rapid growth.

Id.; Doc. #1-2, PageID#156.
The email also stated that Dektrix was “not a start-up company,” had “moved
freight every month since April of 2015 . . . has two yards, 17 FT [full time]
employees (both W-2 and 1099 contractors) . . . has moved over 814 loads of
freight and …billed more than $2.5M in sales.” Id. Other representations made in
the email concerned Dektrix’s fleet, its carrier agreements and “current contracts
and relationships with the logistics executives at several companies.” Id.
The Complaint alleges that on August 5, 2016, the Dektrix Defendants
“presented a number of investor meetings, presentations[,] and other solicitations
to prospective investors,” including Plaintiff, in Dayton, Ohio. Id., PageID#9. One
of the documents provided was a copy of an August 4, 2016, letter addressed to

7

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Dektrix and signed by Dier, the president of Marmon. Id., PageID#10. The August
4 letter sets forth an offer to Dektrix – “two years of exclusivity from the date that
Dektrix purchases all of the 73 Fontaine Intermodal Flat[-]Decks, which are
currently being rented to Dektrix.” Id. The Dier letter also offered a third year of
exclusivity to Dektrix if it purchased 43 decks that “Fontaine has in its inventory.”

Id. Additionally, the August 4, 2016, letter signed by the Marmon President, Dier,
stated that
[f]or the past 18 months we have worked very closely with you and
have witnessed first-hand the tenacity of your management team,
your innovation and quality work product. We were impressed when
you developed your own internal securement program . . . We were
impressed with your decision to compete head to head with other
asset[-]based carriers . . . We were impressed when you succeeded in
securing a major shipping contract. . .

Id., PageID#10.
The August 4, 2016, letter ended with “[W]e are pleased to be taking this next step
with Dektrix and hope this period of exclusivity helps you secure your own
successful long-term position as the foremost operator of intermodal flat[-]decks.”

Id.
At the August 5, 2016, investor meeting held in Dayton, Ohio, Dektrix’s CEO,
Crane, and its General Manager, Harris, presented information to Plaintiff and
other potential investors. Id. Harris explained at this meeting that the flat-decks
purchased from Fontaine with an investor’s money would be registered by Dektrix
with UCC statements for the benefit of the investors. Id., PageID##10 and 11. At
this same meeting, Crane, a member of the Association of the American
8

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Railroad’s, (“AAR”), Intermodal Operations Committee in 2013-14, was asked
about the AAR. Id., PageID#13. His response was as follows: “Yes, ok, the
Association of American Railroads. It’s, they’re called the AAR. They’re the largest
governing body in the world, so even the steam trains from Europe and things
come over and are tested here under their guidance in Pueblo, Colorado.” Id.,
PageID#13. Also, during this August 5, 2016, investor meeting, Buchanan, the
president of Fontaine, telephoned into the meeting. The Complaint alleges that he
stated, “’We stand behind them,’ meaning Fontaine stood behind Dektrix.” Id.,
PageID#10. He also allegedly stated “’We’ [Fontaine] ‘believe in this project
strongly enough that we have provided them’ [Dektrix] ‘an offer of exclusivity on
the product.’” Id., PageID##10-11. During this telephone call, Buchanan also
“touted Fontaine’s relationship with BNSF Railway through Berkshire Hathaway”
and “described the millions of dollars in development spent by Fontaine.” Id.,
PageID#11.
On August 6, 2016, the Dektrix Defendants provided Plaintiff’s owners with
a number of documents, including Dektrix’s Private Placement Memorandum
(“Private Placement Memorandum” or “PPM”), a Subscription Agreement and the
Dektrix Operating Agreement. Id. The PPM, attached to the Complaint as Exhibit
A, Doc.1-1, PageID##38-155, describes the workings of the “revolutionary
intermodal flat-deck shipping system.” Id. It states that “[t]he flat[-]decks are now
in their 4th generation and are manufactured for Dektrix by Fontaine Intermodal, a
Berkshire Hathaway Company.” Id., PageID#47. Although the Private Placement
9

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Memorandum includes disclaimer language stating that the placement of the
securities was “believed exempt from federal and state registration
requirements,” the document also states that
…there is no exemption from the stringent requirement that every
investor in every investment not purchase under any
misrepresentation or omission of any material fact. Reasonable effort
has been made in the preparation of this Memorandum to present all
information which the Company considers to be material, based
upon facts available to it.

Id., PageID#11; Doc. #1-1, PageID#39.
In describing its manufacturer exclusivity arrangement, the Dektrix
Defendants also represented in the Private Placement Memorandum that
at the time of this offering Dektrix has been granted a conditional 3
year exclusivity from Fontaine, such that during the term of
exclusivity Fontaine will not build, or sell any intermodal flat[-]decks
of any design to any party other than Dektrix which exclusivity is
based on two conditions, that Dektrix purchase the 73 decks from
Fontaine which are currently in Dektrix’s fleet and being rented from
Fontaine and second that Dektrix purchase the remaining inventory
of 43 Decks from Fontaine, which decks have yet to be assembled by
Fontaine [and] if Dektrix is unable to raise the funds anticipated in
this PPM or some alternative way of purchasing the required decks
from Fontaine it could lose its exclusivity and have limited protection
against competitors.

Id. PageID#15.
The PPM made other specific representations, including the amount that
Dektrix raised in its first round of funding in January 2015, the number of shipping
contracts and the extent of its operations. Id. PageID#16.
Transportation by railroad was critical to the functionality of the Fontaine
flat-decks being used by Dektrix and the Private Placement Memorandum explains
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in detail the functioning of the decks. This specificity includes the amount of
weight and type of product that flat-decks can support, how they can be stacked
when loaded on rail cars and that, once the freight arrives at the railway hub, “’it
is offloaded in exactly the same way [and] a local driver and day cab then deliver
the freight to its nearby final destination.’” Doc. #1, PageID#12.
Because the decks were integral to the investment opportunity being
presented to Plaintiff and its two owners, “they decided to review information that
was publicly available about Fontaine and its Evolution Intermodal Flat[-]Decks,
particularly with respect to their compatibility with rail transportation.” Id. An
“easy search on the Internet” was done and it was revealed that in 2014 Fontaine
had issued a press release quoted by “[S]everal separate industry publications.”

Id. The separate industry publications are attached to the Complaint with dates of
January 15, 2014, January 16, 2014 and February 1, 2014. Doc. #1-3, PageID##159,
161, 164, and 165.7 These 2014 publications quote the press release and include
the statement that the flat-decks were “Certified by the Association of American
Railroads.” Id. Plaintiff alleges that this approval is “a standard of quality, safety
and acceptability for the industry.” Id. PageID#14.
Plaintiff relied on Fontaine’s statement of the AAR certification in this 2014
republished press release when it decided to invest in Dektrix. Id., PageID#14. The

Two of the Internet articles, Doc. #1-3, PageID##160 and 166, reference the certification
by the Association of American Railroads but do not indicate a publication date.
7

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January 15, 2014, republished press release also states that the flat-decks are
“virtually maintenance free.” Id. PageID##164.8 Plaintiff also alleges that a video
on the Fontaine website in August 2016 stated that the decks were “’stronger’ and
‘safer’ than any other deck ‘to withstand the punishing conditions associated with
rail and highway transportation’” and were “’virtually indestructible yet simple to
repair if it’s ever damaged.’” Id., PageID#15. As of the filing of the Complaint, the
video was still on the Fontaine website.9
In November and early December of 2016, the Dektrix Defendants
“circulated additional information regarding its organizational structure” including
the Private Placement Memorandum, “current balance sheets, critical relationship
details, shipping volumes and payables, information that Plaintiff would rely upon
in eventually making a decision to invest in the Dektrix business model.” Id.,
PageID#17. The Dektrix Defendants represented to Plaintiff “on numerous
occasions” that “it had contractual shipping relationships and/or agreements with
a number of carriers” and listed several of them by name. Id. “None of the
Defendants” ever disclosed to Plaintiff before it “invested its money” that the flatdecks had never been approved by the Association of American Railroads and

Each press release references that Fontaine is a Marmon company. The Complaint does
not allege that any of the press releases ever appeared on either the Fontaine or Marmon
webpages.
8

The Complaint does not allege that Plaintiff viewed the video prior to making its
investment.
9

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“had significant engineering problems and were not safe to use on the highway
or on the railroads.” Id.
The Complaint alleges that “[b]ased on Fontaine’s representation that it had
obtained AAR approval” of the flat-decks, representations made by the Dektrix
Defendants that it “had several active broker-carrier agreements,” as well as other
representations alleged in the Complaint, Plaintiff’s owners entered into a
Membership Purchase Agreement (“MPA”) with the Dektrix Defendants on
December 5, 2016. Id., PageID##17-18. Plaintiff wired $350,000 to the Dektrix
Defendants, received 70,000 preferred membership units in Dektrix and “would
retain an option to purchase an additional 130,000 preferred membership units
from the Dektrix Defendants by January 15, 2017[,] with an option to purchase
50,000 common membership units for $500,000.00, valid until May 2017.” Id.,
PageID#18. The Membership Purchase Agreement also gave the “Buyer” a right
to a second lien position “evidenced by the filing a UCC-1 on any of the first 73
intermodal flat-racks the Seller purchases.” Id.
On January 25, 2017, approximately one month after the signing of the
MPA, the Dektrix Defendants inspected the decks and “advised the Marmon and
Fontaine Defendants” that “about 50% of the fleet have sheered [sic] bolts on
both the front and rear hub [brake] assemblies . . .” Id., PageID##18-19. Five days
later, on January 30, 2017, the Marmon and Fontaine Defendants wrote to the
Dektrix Defendants, terminated the existing lease with them due to their
“continued failure to pay rent” and “maintain the decks in good and efficient
13

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operating order.” Id., PageID#19 Doc. #1-6. They demanded prompt return of the
decks and, as alleged by Plaintiff, “an end to the exclusive relationship.” Id. In
early February 2017, however, the Dektrix Defendants continued to represent to
others, including Plaintiff, that it had specific active broker-contracts in place. Id.,
PageID#19.
On February 7, 2017, the Dektrix Defendants told Plaintiff that the
termination of the lease with the Marmon and Fontaine Defendants was merely a
short-term situation and that any issue of “sheered [sic] bolts” could be repaired
and resolved. Id. These Defendants did not disclose to Plaintiff that the lease with
the Marmon and Fontaine Defendants had been terminated and that the decks
were to be returned. Id. The Complaint also alleges that on this date “the
Marmon and Fontaine Defendants were seeking not only to call back and seek
return of all decks, but were actively seeking to physically destroy such decks on
the basis that they were unfit, defective, and otherwise unsafe and could no
longer be warranted.”10
Despite the January 30, 2017, letter from the Marmon and Fontaine
Defendants to Dektrix terminating the lease, demanding the prompt return of the

Although the Complaint alleges that on February 7, 2017, the Marmon and Fontaine
Defendants were seeking a return of the decks to destroy them on the basis “that they
were unfit, defective, and otherwise unsafe and could no longer be warranted,” Plaintiff’s
“Exhibit G,” Doc. #1-7, a letter from Fontaine to Redlands Transport, Inc., a creditor of
Dektrix, indicates that this return of all 73 decks, because they were unfit, unsafe and no
longer under warranty did not occur until May 24, 2017.

10

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decks and ending the exclusive relationship, the Dektrix Defendants sent a written
offer on February 28, 2017, to the Marmon and Fontaine Defendants to purchase
73 decks for $1 million.11 Id. Also, on February 28, 2017, Plaintiff agreed to
provide Dektrix, “by way of an Assignment of Beneficial Use Agreement”
(“ABUA”),”12 with “an effective bridge loan of $100,000” to be to be “used for the
purchase of assets in the form of Fontaine Trailer decks.” Id., PageID#20. The
terms of the ABUA required that Plaintiff be paid back monthly in the amount of
$2,400 with interest at 15.4%. Id., PageID#20. Plaintiff alleges that Harris, Dektrix’s
general manager, “reported to Plaintiff that Defendants Prochazka, a group
president of a company affiliated with Fontaine, and Fontaine had agreed to
accept Plaintiff’s money as a ‘refundable deposit should things not culminate as
we had hoped.’” Id. On March 1, 2017, Dektrix wired $50,000 of Plaintiff’s money
to Fontaine,” allegedly as a deposit toward the purchase of decks. Id.,
PageID##20-21. Plaintiff entered into the ABUA with Dektrix “based upon the
material representations by the Dektrix Defendants and Fontaine Defendants.”13

The Complaint does not attach a copy of the “Equipment Purchase Offer Agreement to
Sell” nor does it say to whom the agreement was submitted.

11

The Complaint refers to this document as “Assignment of Beneficial Use Agreement”
and “Assignment of Beneficial Use of Assets” and “Assignment of Beneficial Use.” Doc.
#1, PageID##4, 20, 22. Because the Dektrix Defendants have attached a copy of a signed
document, dated February 28, 2017, entitled “Assignment of Beneficial Use of Assets,”
the Court will refer to this document by that name. Doc. #20-1.
13
The Complaint does not allege what, if any, representations Fontaine made to Plaintiff,
as opposed to representations it allegedly made to Dektrix.
12

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On March 6, 2017, Plaintiff wrote the Dektrix Defendants regarding the
“management (fiduciary and otherwise), disclosure and transparency issues,”
including “the Dektrix Defendants’ misuse of the Plaintiff’s investment money for
salaries and benefits, as opposed to its explicitly intended and designated use to
the purchase of assets (i.e. intermodal flat decks) so that the company could
generate cash flow.” Id. Plaintiff’s proposals concerning management,
compliance and operational changes were rejected by the Dektrix Defendants. Id.
On April 6, 2017, the Dektrix Defendants disclosed to Plaintiff “for the first
time” that there was no certification of the flat-decks by the Association of
American Railroads and that Crane knew of the lack of certification as early as
May 20, 2015. Id., PageID#21. Additionally, the Dektrix Defendants admitted to
Plaintiff that they had reported defects in the intermodal flat-decks to Buchanan,
Fontaine’s president, in 2015 and that “Buchanan and Fontaine had the decks
crudely repaired at that time.” Id.
On May 22, 2017, the Dektrix Defendants stated that they intended to file for
bankruptcy. They also told Plaintiff that it was their position that “none of
Plaintiff’s investment money,” including the $100,000 given in conjunction with
the Assignment of Beneficial Use of Assets, was limited to purchasing assets. Id.,
PageID#21. Of the $100,000 given by Plaintiff pursuant to the ABUA, the
Complaint alleges that “$50,000 was given to Fontaine as a deposit toward the
purchase of decks,” $7,500 was paid to Plaintiff pursuant to the terms of the ABUA
and $42,000 was used to pay salaries for Crane and Larson. As for Fontaine, it
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used $22,800 of the money it received from Dektrix to pay a Dektrix creditor which
was holding Fontaine trailers that had been leased to Dektrix. Id., PageID##22-23,
Doc. 1-7, PageID##175-76.
On May 24, 2017, the Dektrix Defendants told Plaintiff that Fontaine had
written a letter to Redlands, a creditor of Defendant Dektrix, asserting that the
“decks are not fit for use or safe for use.” Id., PageID#22. The Fontaine letter to
Redlands is attached to the Complaint. Doc. #1-7. This letter also states that
Dektrix defaulted on the lease with Fontaine and that Redlands, which was
holding the decks due to a dispute it has with Dektrix, must turn them over to
Fontaine “immediately,” should not use or transfer them and that all warranties
are disclaimed. Id. Two days later, on May 26, 2017, Harris, the General Manager
of Dektrix, told Plaintiff that Prochazka had personally assured him “that Fontaine
would return the $50,000 that Plaintiff had loaned to Dektrix and that Dektrix had
sent to Fontaine.” Id., PageID#22. By July 13, 2017, however, Harris told Plaintiff
that “Fontaine had not returned the $50,000,14 as Prochazka had personally
assured” Dektrix, and that Fontaine would not make Dektrix whole for the harm
caused by the defective flat-decks. Id., PageID#23. Additionally, Plaintiff demanded
from the Dektrix Defendants, but did not receive their “monthly agreed upon
payment” under the Agreement of Beneficial Use of Assets.

The Complaint does not specify of what this amount consists, i.e., whether this is what
was left of the $100,000 or otherwise.

14

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On August 21, 2017, an email, written by Harris, the General Manager of
Dektrix, was forwarded to Plaintiff. Id., PageID#23. The Harris email stated that
there was “fraud” by Dier, Marmon’s president; Prochazka, president of an
affiliate associated with Fontaine; Buchanan, Fontaine’s president; and others due
to claims made by them that the flat deck was AAR certified when it was not. Id.
Additionally, the Harris email stated that “[S]hortly after putting the decks in
service,” pins were shearing in the upright support arms and when “we verbally
drew this problem to Fontaine’s attention, they asked us to keep it quiet and
assured us they would immediately fix the problem.” Id. The Harris email also
stated that “they,” Fontaine, falsely claimed it “had not experienced this problem
with any of their other” decks in use by other companies and the problem would
be immediately fixed. Id., PageID#23. Harris’s email describes the repairs made
by Fontaine as “shoddy,” stating that there was no design improvement and that
the proposed solution “only exacerbated the problem.” The email also states that
following this repair problem, Dektrix. . . “limped along for several months, . .
.[T]he problem was never adequately resolved.”
It wasn’t until we were gearing up to service the new Constellium
contract in January that we went to Chicago and to California to
inspect our fleet. To our surprise many of the main bolts holding the
upright arms in place appeared to be missing. . . not knowing when a
pin might explode, we realized the entire fleet was unfit to service the
Constellium contract.

Id., PageID##23-24.

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The email concludes with the statement that, following the January 2017
Chicago inspection, Dektrix sent an email to Buchanan. In response, Harris
received a call from Prochazka stating that “Fontaine would be calling back all the
decks” since Dektrix “had made safety a discoverable issue.” Id., PageID#24. As of
the filing of the Complaint, both Fontaine and Marmon continue to market and
promote the decks on their websites and have not disclosed any safety problems
with the flat-decks. Id., PageID#22.

II. Standard of Review
Pursuant to 28 U.S.C. § 636(b)(1), this Court must make a de novo
determination of those portions of the Report and Recommendations to which an
objection is made. The Court may accept, reject, or modify, in whole or in part,
the magistrate judge’s findings, may receive further evidence, or recommit the
matter to the magistrate judge with instructions. Id. See also Fed. R. Civ. P. 72
(b)(3).
Federal Rule of Civil Procedure 8(a) provides that a complaint must contain
“a short and plain statement of the claim showing that the pleader is entitled to
relief.” The complaint must provide the defendant with “fair notice of what the
. . . claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)).
Federal Rule of Civil Procedure 12(b)(6) allows a party to move for dismissal
of a complaint on the basis that it “fail[s] to state a claim upon which relief can be
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granted.” The moving party bears the burden of showing that the opposing party
has failed to adequately state a claim for relief. DirecTV, Inc. v. Treesh, 487 F.3d
471, 476 (6th Cir. 2007) (citing Carver v. Bunch, 946 F.2d 451, 454-55 (6th Cir.
1991)). The purpose of a motion to dismiss under Rule 12(b)(6) Ais to allow a
defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief
even if everything alleged in the complaint is true.@ Mayer v. Mylod, 988 F.2d 635,
638 (6th Cir. 1993). In ruling on a 12(b)(6) motion, a court must “construe the
complaint in the light most favorable to the plaintiff, accept its allegations as true,
and draw all reasonable inferences in favor of the plaintiff.” Handy-Clay v. City of

Memphis, 695 F.3d 531, 538 (6th Cir. 2012) (quoting Treesh, 487 F.3d at 476).
Nevertheless, to survive a motion to dismiss under Rule 12(b)(6), the
complaint must contain “enough facts to state a claim to relief that is plausible on
its face.” Twombly, 550 U.S. at 570. Unless the facts alleged show that the
plaintiff’s claim crosses “the line from conceivable to plausible, [the] complaint
must be dismissed.” Id. Although this standard does not require “detailed factual
allegations,” it does require more than “labels and conclusions” or “a formulaic
recitation of the elements of a cause of action.” Id. at 555. ARule 8 . . . does not
unlock the doors of discovery for a plaintiff armed with nothing more than
conclusions.@ Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009). Legal conclusions
Amust be supported by factual allegations@ that give rise to an inference that the
defendant is, in fact, liable for the misconduct alleged. Id. at 679.

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In ruling on a Rule 12(b)(6) motion, “the court primarily considers the
allegations in the complaint, although matters of public record, orders, items
appearing in the record of the case, and exhibits attached to the complaint, also
may be taken into account.” Amini v. Oberlin College, 259 F.3d 493, 502 (6th Cir.
2001). If, however, “… a plaintiff references or quotes certain documents, … a
defendant may attach those documents to its motion to dismiss, and a court can
then consider them in resolving the Rule 12(b)(6) motion without converting the
motion to dismiss into a Rule 56 motion for summary judgment.” Watermark

Senior Living Retirement Communities, Inc. v Morrison Management, 905 F.3d
421 (6th Cir. 2018).

III. Legal Analysis
A. Introduction
Plaintiff has voluntarily dismissed Counts III and IV of the Complaint, Doc.
#36, PageID#423, and the Magistrate Judge has recommended dismissal of Count
II, against Larson,15 and Count VII, breach of fiduciary duty, alleged against the
Dektrix Defendants. Five Counts remain in the Complaint: (1) Count I against the
Dektrix Defendants and the Fontaine Defendants for violations of § 10(b) of the
Security and Exchange Act of 1934, 15 U.S.C. §78j(b) (“the Exchange Act”) and

Although Defendant Larson was not one of the “Moving Dektrix Defendants,” Doc. #20,
the Report recommends his dismissal from Count II. He is now included in the Objections
of the Dektrix Defendants. See n. 1.
15

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Rule 10b-5; 16 (2) Count II against the Individual Defendants, excepting Larson, for
violations of § 20(a) of the Exchange Act; (3) Count V against all Defendants for
common law fraud; (4) Count VI against the Dektrix Defendants for breach of
contract;17 and (5) Count VIII against all Defendants for unjust enrichment.
Although Plaintiff has not filed an objection to the Report, the Fontaine
Defendants have filed five objections and the Dektrix Defendants have filed 18
objections. Doc. ##46 and 48.
The Court will first consider the objections of the Fontaine Defendants.

B. Objections of the Fontaine Defendants, Doc. #46
1. First Objection: Statements in the Report and Recommendations
Improperly Conflate Allegations about the Fontaine Defendants with
Allegations about the Dektrix Defendants, Doc. #46, PageID#635
The Fontaine Defendants' first objection is to four “portions of the Report.”
They contend that these “portions” reach certain conclusions that conflate “nonexistent” actions or statements of the Fontaine Defendants with those of the

16

The Court will use § 10(b) to refer to both the statutory provision and Rule 10b-5. S.E.C.

v. Zandford, 535 U.S. 813 (2002), n.1 (scope of Rule 10b-5 is coextensive with the

coverage of § 10(b), (citations omitted)).

Count VI alleges a breach of contract claim against the Dektrix Defendants as well as
“Defendants.” Doc. #1, PageID#33. Because of these “generic allegations,” the Fontaine
and Marmon Defendants’ motion to dismiss addressed Count VI. Doc. #16, PageID#211. In
its response, Plaintiff affirmatively stated that its claim for breach of contract in Count VI
only pertains to the Dektrix Defendants, Doc. #26, PageID#318. The Report analyzes only a
breach of contract claim against the Dektrix Defendants, yet denies in its entirety the
Fontaine Group’s Motion to Dismiss. Id., PageID##605-610 and 614. As a result, Plaintiff
now asserts that the Report recommended that a viable claim for breach of contract was
alleged against the Fontaine and Marmon Defendants, as well. Doc. #49, PageID#700.

17

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Dektrix Defendants. Doc. #46, PageID#635. The portions objected to, and the
conclusions reached, are the following: (1) the “Fontaine Defendants began to
assist Dektrix in its sale of securities,” Doc. #43, 592; Doc. #46, PageID#636; (2) the
August 4, 2016, letter from Dier, and given to Plaintiff and other investors by the
Dektrix Defendants, “made clear that Fontaine, Marmon and Dektrix, were
working together to secure investment money from Plaintiff,” Id., PageID##561,
591-593; Doc. #46, PageID#637; (3) “the August 2016 presentation to Plaintiff” was
“by Defendants Crane, Harris, and Buchanan,” Id., PageID#591; Doc. #46,
PageID#638; and (4) Defendant Fontaine knew and failed to “adequately address
the bolt-shearing problem,” Id., PageID##593, 595, 597 and 599; Doc. #46,
PageID#638.
In ruling on this objection, the Court must consider “whether the complaint
contains ‘sufficient factual matter, accepted as true, to state a claim for relief that
is plausible on its face.’” Ohio Pub. Employees Retirement Sys. v. Fed. Home Loan

Mortgage Corp., 830 F.3d 376, 383 (6th Cir. 2016) (citing Iqbal, 556 U.S. at 678.)
The Court, however, is “not bound to accept as true a legal conclusion couched as
a factual allegation.” Verble v. Morgan Stanley Smith Barney, LLC, 676 Fed. Appx.
421, 427 (6th Cir. 2017) (quoting Twombly, 550 U.S. at 555)).
The first conclusion objected to by the Fontaine Defendants is the statement
in the Report that the “Fontaine Defendants began to assist Dektrix in its sale of
securities.” Doc. #43, PageID#591-592. They argue that the Report attempts to
support this first conclusion with a factually incorrect characterization of the
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August 4, 2016, offer letter sent by Marmon to Dektrix: “Defendant Dier
communicated Marmon’s support for Dektrix in his letter of August 4, 2016. Crane
and Harris showed this letter to investors, including Plaintiff, during presentations
in July and August 2016.” Id. 18
The August 4, 2016, letter signed by Marmon’s president, Dier, is addressed
to Dektrix. It sets forth the Marmon/Fontaine offer to Dektrix for a period of
exclusivity if Dektrix purchases the flat decks. Specifically, it states that if Dektrix
purchases the 73 flat-decks that it is currently renting from Fontaine, it will be
given a two-year period of exclusivity for the flat-decks. The August 4, 2016, letter
further states that if Dektrix purchases 43 more decks “which Fontaine currently
holds in inventory,” it will be given three years of exclusivity Id. The offer letter
also states that Marmon has confidence in Dektrix’s “tenacity,” “innovation” and
“quality work product.” The August 4, 2016, letter does not establish that “the
Fontaine Defendants began to assist Dektrix in its sale of securities.” Accordingly,
this conclusion of the Fontaine Defendants first objection is sustained.
The second portion of the Report that the Fontaine Defendants object to
concerns a legal conclusion in the Complaint that they contend the Report
misconstrues as a factual allegation. The Complaint states that the August 4,
2016, letter “made it clear that Fontaine, Marmon, and Dektrix were working

Because the letter from Dier, president of Marmon, was dated August 4, 2016, it was not
shown to Plaintiff until the August 5, 2016, investor meeting in Dayton, Ohio.

18

.

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together to secure investment money from Plaintiff.” Id. As argued by the
Fontaine Defendants, the Magistrate Judge misconstrues this legal conclusion as
a factual allegation. Doc. #43, PageID#561. Although the Report does not rely
solely on this legal conclusion from the Complaint for its ultimate finding and
recommendations, the Court finds that the statement is a legal conclusion not a
factual allegation and is not supported by the August 4, 2016, letter. Therefore,
the second conclusion in the Fontaine Defendants’ first objection is sustained.
The third conclusion in the Report objected to by the Fontaine Defendants is
that “the August 2016 presentation to Plaintiff” was “by Defendants Crane, Harris,
and Buchanan,” Id., PageID#591. The Complaint alleges that “[O]n August 5,
2016, Crane and Harris gave a presentation to several potential investors,
including Plaintiff, in Dayton, Ohio.” Id., PageID#10. Plaintiff alleges that
Buchanan, president of Fontaine, phoned into this investor meeting and stated
that “[W]e [Fontaine] stand behind them [Dektrix]”and “[W]e [Fontaine] believe in
this project strongly enough that we have provided them [Dektrix] an offer of
exclusivity on the product.” The Complaint further alleges that “[H]e touted
Fontaine’s relationship with BNSF Railway through Berkshire Hathaway” and
“described the millions of dollars in development spent by Fontaine.” Doc. #1,
PageID#11. Plaintiff does not allege that Buchanan was part of a “joint
presentation” with Harris and Crane and there are no factual allegations of the
length of time of the Crane and Harris presentation or the length of Buchanan’s
telephone call. However, Plaintiff does allege that Fontaine’s president,
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Buchanan, did phone into the August 5, 2016, meeting and made certain
statements to the potential Dektrix investors. Construing these allegations as true
and giving to Plaintiff the benefit of every reasonable inference, Buchanan, as
president of Fontaine, was part of a presentation at an investor meeting on
August 5, 2016, with Harris and Crane for at least some period of time.
Accordingly, this third conclusion in the Fontaine Defendant’s first objection is
overruled.
The final conclusion objected to in the Report is that Defendant Fontaine
knew and failed to “adequately address the bolt-shearing problem.” Id.,
PageID##593, 595, 597 and 599; Doc. #46, PageID#638. The Fontaine Defendants
argue that this statement in the Report is inaccurate since Plaintiff “never alleges
that the Fontaine Defendants knew of any widespread problems with the bolts at
any time“ before January 2017. They further contend that the Complaint alleges
that when the bolt-shearing was reported, Marmon and Fontaine terminated the
lease with Dektrix for non-payment of rent and its failure to maintain the flatdecks. A demand was also made in this letter for a return of all the decks.
Although the language in the Complaint is confusing, the Court assumes that the
“bolt-shearing” problem with the flat-decks is also the same as the “pin-shearing”
problem. The Harris email reported that a problem existed with “pins shearing in
the upright support arms” shortly after putting the decks in service in 2015 and
that when told of this, Fontaine asked Dektrix to “keep it quiet and assured us they
would immediately fix the problem.” Doc. #1, PageID#23. Repairs were made but
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“in a shoddy manner” and the welding only “exacerbated the problem.” Doc. #1,
PageID#23. In January 2017, the flat-decks were inspected in Chicago by Harris
and others and the Harris email describes the issue at that time by stating that
“the main bolts holding the upright arms in place appeared to be missing”
although inspection revealed that they had “exploded within the assembly.” Id.
“Not knowing when a pin might explode, we realized the entire fleet was unfit.”

Id. (emphasis added). The letter from Fontaine attached to the Complaint,
however, states that Dektrix was in default for “continued failure to pay rent” and
for not maintaining the decks. Doc. #1-6. Because the Court construes the
allegations of the Complaint in the light most favorable to Plaintiff, the Court finds
that there are factual allegations in the Complaint in support of the Report’s
conclusion that the Fontaine Defendants knew and failed to “adequately address
the bolt-shearing problem” experienced by Dektrix. Id., PageID##593, 595, 597 and
599. The fourth and final conclusion in the first objection is overruled.
For the reasons stated above, the Court sustains the Fontaine Defendants’
objection to the conclusions of the Report stating that (1) the Fontaine Defendants
“began to assist Dektrix in its sale of securities,” Doc. #43, PageID#592, and (2) the
August 4, 2016, letter from Dier “made clear that Fontaine, Marmon[,] and Dektrix,
were working together to secure investment money from Plaintiff,” Id.,
PageID##561, 591-593. Therefore, these conclusions will not be considered. The
Court overrules the Fontaine Defendants objection to the conclusion in the Report
that “the August 2016 presentation to Plaintiff” was “by Defendants Crane,
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Harris[,] and Buchanan,” Id., PageID#591, and the objection of the Fontaine
Defendants to the statement in the Report that Defendant Fontaine knew and
failed to “adequately address the bolt-shearing problem,” Id., PageID##593, 595,
597 and 599, is overruled.
2. Second Objection of the Fontaine Defendants: The Report Incorrectly
Concludes that Plaintiff Has Stated a Claim Against Defendants
Fontaine, Prochazka and Buchanan for Count I, Section 10(b) of the
Exchange Act and Rule 10b-5, Doc. #46, PageID#639
Plaintiff alleges in Count One that the “Dektrix Defendants” and the
“Fontaine Defendants” violated §10(b) of the Exchange Act and Rule 10b–5. It
alleges that “[T]he Dektrix Defendants and the Fontaine Defendants, and each of
them, carried out a plan, scheme, and course of conduct which was intended to
and did deceive Plaintiff into investing and loaning $450,000 to Dektrix.” Doc. #1,
PageID#24. The Report recommends that the Fontaine Defendants’ Motion to
Dismiss as to Count I be overruled. Doc. #43, PageID#600. Defendants Fontaine,
Prozchazka and Buchanan have filed an objection to this recommendation.19
To plead a securities fraud suit under § 10(b), a plaintiff must allege: “(1) a
material misrepresentation or omission by the defendant; (2) scienter; (3) a
connection between the misrepresentation or omission and the purchase or sale
of a security; (4) reliance upon the misrepresentation or omission; (5) economic

Plaintiff’s definition of the Fontaine Defendants in the Complaint does not include the
Marmon Defendants. See n.3. However, because the Magistrate Judge includes the
Marmon Defendants in her definition of the Fontaine Defendants, the Court will analyze
the Report’s findings as including both Marmon and Dier.

19

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loss; and (6) loss causation.” Iafrate v. Angelo Iafrate, Inc., 827 Fed. Appx. 543 (6th
Cir. 2020) (citing In re Omnicare, Inc. Sec. Litig., 769 F.3d 455, 469 (6th Cir. 2014)
(quotation omitted). Because Fed. R. Civ. P. 9(b) applies to securities-fraud claims,
a plaintiff must also satisfy the heightened standard for pleading fraud by stating
with particularity the circumstances constituting the fraud. Dougherty v. Esperion

Therapuetics, Inc., 905 F.3d 971, 978 (6th Cir. 2018). The complaint 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.” Id. (citation omitted). Moreover, an actionable
§10(b) claim must specifically plead facts showing that the misrepresentations or
omissions were both material and false or misleading. Under Rule 9(b) and the
Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u–4(b),
“a plaintiff's complaint must also ‘allege the time, place, and content of the
alleged misrepresentation [or omission] on which he or she relied [and] the
fraudulent scheme....’” In re Omnicare, Inc. Sec. Litig., 769 F.3d at 470.20
Moreover, to successfully plead scienter, the second element of a §10(b) securities

The requirements for private securities fraud actions pursuant to 15 U.S.C. § 78u-4(b)
that, regarding the misleading statements and omissions, the complaint “shall specify
each statement alleged to have been misleading, the reason or reasons why the
statement is misleading, and, if an allegation regarding the statement or omission is
made on information and belief, the complaint shall state with particularity all facts on
which that belief is formed.” Id. at § 78u-4(b)(1). Additionally, the complaint must allege
that, “with respect to each act or omission alleged to violate this chapter, state with
particularity facts giving rise to a strong inference that the defendant acted with the
required state of mind.” Id. at § 78u-4(b)(2).

20

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fraud claim, a plaintiff must plead “with particularity facts giving rise to a strong
inference that the defendant[s] acted with the required state of mind.” Id.,
(quoting § 78u–4(b)(2)(A)). Scienter cannot be pled generally. Id. at 473. The
requirements for successfully pleading a false and misleading statement or
omission in § 10(b) claims and the required state of mind to satisfy scienter “are
not easily satisfied” and have been described by the Sixth Circuit as an “elephant
sized boulder.” Id., at 461.
The Fontaine Defendants first objection argues that Plaintiff has not pled the
following elements of a § 10(b) claim with the necessary specificity: (1) scienter;
(2) that any “alleged [material] omissions” of these Defendants were “in
connection with” the sale of the Dektrix securities; (3) that Plaintiff reasonably
relied on the 2014 press release and 2016 promotional material (the Fontaine
webpage video); and (4) that “loss causation” exists. The failure to plead any one
of these elements is fatal to Plaintiff’s § 10(b) claim against these Defendants.
a. Scienter
The Report and Recommendations dismissed the Fontaine Defendants’
argument regarding scienter stating that the motion “does not advance a
reasoned analysis by case law concerning [Plaintiff’s] lack-of-scienter assertion”
and that it was raised for the first time in their reply. Doc. #43, PageID#594. These
Defendants argue, however, that their motion to dismiss addressed the issue of
scienter and cited cases in support, Doc. #16, PageID#203, and that the
Complaint’s conclusory statements, allegations and references to “Defendants,”
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consisting of both individuals and companies, made it difficult to address scienter
in any detail in the motion. Doc. #46, PageID##640-41. The Court agrees. The
scienter issue was addressed, albeit generally, by the Fontaine Defendants in their
motion to dismiss, Doc. #16, PageID#203. Following Plaintiff’s response, the
Fontaine Defendants addressed scienter in greater detail in their reply. Doc. #33,
PageID##351-353. Accordingly, the Court will review the merits of the Fontaine
Defendants’ objection that the Complaint did not allege scienter against them.
The Sixth Circuit has defined scienter to include a “knowing and deliberate
intent to manipulate, deceive, or defraud [or] recklessness.” Doshi v. General

Cable Corporation, 823 F.3d 1032, 1039 (6th Cir. 2016) (citing Ley v. Visteon Corp.,
543 F.3d 801, 809 (6th Cir. 2008)), abrogated on other grounds by Matrixx

Initiatives, Inc. v. Siracusano, 563 U.S. 27, 48-50 (2011). Recklessness is defined as
“highly unreasonable conduct which is an extreme departure from the standards
of ordinary care” and “akin to conscious disregard.” Doshi, 823 F.3d at 1039
(citing Frank v. Dana Corp., 646 F.3d 954, 959 (6th Cir. 2011) quoting PR Diamonds,

Inc. v. Chandler, 364 F.3d 671, 681(6th Cir. 2004), abrogated on other grounds by
Matrixx, 563 U.S. at 48–50)). “Before drawing an inference of recklessness, courts
typically require multiple, obvious red flags, demonstrating an egregious refusal
to see the obvious, or to investigate the doubtful.” Doshi, 823 F.3d at 1039. In
determining whether a plaintiff has satisfied the scienter requirement in the
context of a motion to dismiss, the Court must not only “accept all factual
allegations in the complaint as true,” but it must “consider the complaint in its
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entirety” to determine “whether all of the facts alleged, taken collectively, give
rise to a strong inference of scienter.” Dougherty, 905 F.3d at 979 (quoting Tellabs,

Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322-324 (2007)). “To qualify as
‘strong’” under the PSLRA,”. . .an inference of scienter must be more than merely
plausible or reasonable—it must be cogent and at least as compelling as any
opposing inference of nonfraudulent intent.” Id. at 314.
The Magistrate Judge concluded that the Complaint sufficiently alleged
scienter regarding the Fontaine Defendants because of their failure to “correct its
2014 press release about AAR certification and its misrepresentations in a later
press release and video.” Doc. #43, PageID#595 Additionally, the Report states
that scienter exists since those Defendants “allegedly asked Dektrix to keep the
bolt-shearing problem quiet” in early 2015, failed “to adequately address the boltshearing problem” and “kept the unfixed bolt-shearing problem quiet during the
potential-investor meetings in July and August 2016” Id. Finally, scienter was
established, according to the Report, because the Fontaine Defendants maintained
their webpage video which “falsely represented” that the decks were “safer,”
“stronger” “virtually maintenance free” and “able to withstand the punishing
conditions associated with rail and highway Transportation.” Doc. #43,
PageID#595.
The Court will review the Complaint’s factual allegations relating to the
scienter of the Fontaine Defendants.

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(1) AAR Certification
Plaintiff has attached Exhibit C, Doc. #1-3, to the Complaint. It consists of
several industry publications dated January and February 2014, which contain a
press release issued by Marmon on behalf of Fontaine announcing the Fontaine
flat-decks. It states that the decks are AAR certified and “virtually maintenance
free.” This information was allegedly obtained by Plaintiff pursuant to an “easy
Internet search” at some time before investing and was relied on by Plaintiff.
Despite these allegations, there are no factual allegations in the Complaint that
the Fontaine Defendants were aware and intended that the 2014 press release
regarding AAR certification was published in other trade publications, and still
accessible on the Internet and relied upon by Plaintiff at the time of its
investments in December 2016 and February 2017. As such, Plaintiff has not
adequately pled that there was a “knowing and deliberate intent to manipulate,
deceive, or defraud.” Doshi v, 823 F.3d at 1039.
(2) Pin and Bolt-Shearing
Plaintiff alleges that it received a forwarded email from Harris dated August
21, 2017. Although not attached to the Complaint, the email allegedly states that
in early 2015, Dektrix was having a “pin-shearing” problem on the flat-decks and
was told by the Fontaine Defendants to “keep quiet” about it. The Complaint also
alleges that the Harris email states that Dektrix was told by Fontaine that it had
never experienced this problem before, that Fontaine’s attempts to correct the
problem were unsuccessful and that as a result, Dektrix “limped along for several
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months” until January 2017 when Dektrix discovered a “bolt-shearing” problem
with the flat-decks. In response to this problem, Fontaine sent a letter to Dektrix
terminating the lease citing Dektrix’s “continued default” in failing to pay rent and
in failing to maintain the decks in “good and efficient operating order” as required
by the manufacturer. Although Dektrix told Plaintiff of this termination
approximately one month after it signed the Membership Purchase Agreement
and had paid Dektrix $350,000, Dektrix represented to AMP that it was a “shortterm” problem. By the end of February 2017, Dektrix and Plaintiff had signed the
$100,000 bridge loan allegedly for the purchase of an “initial 73 decks.” There are
no factual allegations that any of the Fontaine Defendants represented the repair
history of the flat-decks to Plaintiff or were involved in the negotiation of the
“bridge loan” Plaintiff signed with Dektrix. Therefore, Plaintiff has not pled factual
allegations that scienter exists as to the Fontaine Defendants based on any
alleged pin and bolt shearing problem on the flat-decks.
(3) August 2016 Communication and the Fontaine Webpage
Video
With respect to any direct communication between the Fontaine
Defendants and Plaintiff, the Complaint alleges only a telephone call from
Buchanan, Fontaine’s President, on August 5, 2016, during the Harris and Crane
presentation. However, there are no factual allegations in the Complaint that he
was asked anything about AAR certification, that he made any representation
concerning it or discussed any repair issues on the flat-decks. As such, there is

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no untrue statement of a material fact or failure “to state a material fact necessary
to make the statements made, in the light of the circumstances under which they
were made, not misleading.” 17 CFR § 240.10b-5(b) (2010).
With respect to the Fontaine webpage video regarding the flat-decks, the
Complaint alleges that this remained on the site from August 2016 through the
filing of the Complaint. The promotional video allegedly stated that the flat-decks
are “safer,” “stronger” “virtually maintenance free” and able to withstand
“punishing conditions associated with rail and highway transportation.”
Statements such as these are considered “immaterial statements” upon which a
reasonable investor would not rely. In re Ford Motor Co. Sec. Litig., Class Action,
381 F.3d 563, 570, 59 Fed. R. Serv. 3d 777, 2004 Fed. App. 0275P, 2004 WL 1873808
(6th Cir. 2004) (statements regarding “commitment to quality, safety, and
corporate citizenship” although misleading, are not material since they are “either
mere corporate puffery or hyperbole” and no reasonable investor would view
them as significantly changing the general gist of available information).
(4) Conclusion
Having analyzed the allegations of the Complaint regarding scienter as a
whole, Tellabs, Inc., 551 U.S. at 326, 127 S.Ct. 2499 (“the court's job is not to
scrutinize each allegation in isolation but to assess all the allegations
holistically”), the Court concludes that Plaintiff’s factual allegations, when
considered together, do not give rise to a strong inference that the Fontaine
Defendants acted with scienter resulting in Plaintiff’s investments in Dektrix on
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December 5, 2016, and in the ABUA on February 28, 2017. Simply stated, the facts
alleged by Plaintiff do not show that any one of the Fontaine Defendants exhibited
a “knowing and deliberate intent to manipulate, deceive, or defraud” or that these
Defendants engaged in “highly unreasonable conduct which is an extreme
departure from the standards of ordinary care” and “akin to conscious disregard”
at the time of Plaintiff’s investments. Doshi, 823 F.3d at 1039. Factually, the
Complaint does not state the “strong inference” of scienter that is required under
the PSLRA. The scienter alleged must be “more than merely plausible or
reasonable—it must be cogent and at least as compelling as any opposing
inference of nonfraudulent intent.” Tellabs, Inc., 551 U.S. at 314.
b. In connection with the purchase or sale of securities
Plaintiff’s § 10(b) violation must also allege facts showing that the
representation or omission of the Fontaine Defendants was “in connection with
the purchase or sale of securities” or “coincides” with the purchase or sale of
securities. Merrill Lynch Pierce, Fenner & Smith Inc. v Dabit, 547 U.S. 71, 85 (2006)
(“The requisite showing … is deception ‘in connection with the purchase or sale of
any security,’ not deception of an identifiable purchaser or seller.” (citation
omitted)). This phrase is construed broadly. Id.
As alleged in the Complaint, the Fontaine Defendants made certain
misrepresentations or omissions of material fact “in connection with” or that
“coincide[d] with” Plaintiff’s December 8, 2016, investment in Dektrix or later its
February 28, 2017, “effective bridge loan.” The Complaint alleges that the
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Fontaine Defendants made four communications: (1) the republished January and
February 2014 press release; (2) the August 4, 2016, Dier letter to Dektrix offering
the exclusive use of the flat-decks for two years from the date Dektrix purchases
the 73 rented decks; (3) the statement of Buchanan at the August 5, 2016, investor
presentation attended by AMP in which he allegedly represented that Fontaine
“stands behind” Dektrix; and (4) the promotional flat-deck video on the Fontaine
webpage.
Of the four communications in the Complaint that were allegedly made by
the Fontaine Defendants, only Buchanan’s statement at the August 5, 2016,
investment presentation conducted by Harris and Crane was made in connection
with or coincided with the purchase or sale of securities. The 2014 republished
press releases were nearly three years old at the time of Plaintiff’s December 2016
purchase, the August 4, 2016, Marmon letter authored by Dier was addressed to
Dektrix and not Plaintiff and, because there are no factual allegations in the
Complaint of when Plaintiff became aware of the flat-deck video on Fontaine’s
webpage, these communications do not satisfy the element of being made in
connection with or coinciding with the purchase or sale of securities. However, by
alleging that Buchanan, the president of Fontaine, telephoned in to the August 5,
2016 investor meeting, Plaintiff has satisfied the third element of a § 10(b) claim,
that the misrepresentation or omission is in connection with or coincides with the
purchase or sale of a security.

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c. Reasonable Reliance on a Material Misrepresentation or Omission
To allege § 10(b) securities fraud against the Fontaine Defendants, Plaintiff
must also allege that its investments in December 2016 and February 2017 relied
on a material misrepresentation or omission by these Defendants and that the
reliance was reasonable. As to the Fontaine Defendants, the Complaint alleges
two misrepresentations or omissions: the flat-deck video on the Fontaine
webpage and the 2014 republished Fontaine press releases.
Although the Complaint alleges that the August 2016 Fontaine webpage
video is a false communication since it states that the decks were “virtually
maintenance free,” stronger,” “safer” than any other deck and “able to withstand
the punishing conditions associated with rail and highway transportation,” the
Complaint does not allege facts stating when this allegedly false communication
was viewed by Plaintiff or that it relied on it before investing. Additionally, such
statements, are not “material misrepresentations” required by §10b-5. In re Ford

Motor Co. Sec. Litig., Class Action, 381 F.3d at 570, (“’Immaterial statements
include vague, soft, puffing statements or obvious hyperbole’ upon which a
reasonable investor would not rely.”) (quotation omitted); City of Monroe

Employees Ret. Sys. v. Bridgestone Corp., 399 F.3d 651, 670, 2005 Fed. App.
0052A, 2005 WL 264130 (6th Cir. 2005)(public statements affirming the safety or
quality of Firestone's tires such as “best tires in the world,” “no reason to believe
there is anything wrong with [its ATX tires]” and that its products demonstrated
“global consistent quality” under “[r]igorous testing under diverse conditions" are
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“too squishy, too untethered to anything measurable, to communicate anything
that a reasonable person would deem important to a securities investment
decision.”)
The only communication that Plaintiff alleges it relied on prior to making
its initial $350,000 investment in December 2016 is the Fontaine 2014 AAR
republished press release which Plaintiff found on the Internet. While the Report
and Recommendations concludes that a “rebuttable presumption of reliance
arises” due to the Fontaine Defendants’ omissions in failing to correct the 2014
press release, Doc. #43, PageID#596, the Court does not agree.
A rebuttable presumption of reliance arises in two circumstances, neither
of which exist herein: (1) if there is an omission of a material fact by one with a
duty to disclose in which case the investor, to whom the duty was owed, need not
provide specific proof of reliance and (2) where fraud-on-the-market applies since
reliance is presumed when the statements in question become public. Stoneridge

Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (2008) (no
rebuttable presumption of reliance existed since the customers and vendors had
no duty to disclose any alleged deceptive acts that were not communicated to the
investing public and even if inaccurate financial statements released to the public
were based, in part, on the alleged deception of the vendors and customers, their
acts were too remote to satisfy the reliance requirement).
As alleged in the Complaint, the Fontaine Defendants had no duty to
disclose to Plaintiff in 2016 that the AAR certification claim republished on the
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Internet by third parties more than two years earlier by separate industry
publications was false. There are no allegations in the Complaint that Plaintiff
asked the Fontaine Defendants anything about the AAR certification prior to
investing, that they made any statement to Plaintiff that was misleading, or that
there was any fiduciary relationship between these Defendants requiring them to
disclose the lack of an AAR certification.21 Although the August 6, 2016, telephone
call was made by Buchanan to those present at an investor meeting, there are no
allegations, as previously stated in this Decision and Entry, that Buchanan said
anything false or failed to disclose a material fact concerning the flat-decks. A
claim under §10(b) does “not create an affirmative duty to disclose any and all
material information. Disclosure is required under these provisions only when
necessary ‘to make ... statements made, in the light of the circumstances under
which they were made, not misleading.” Matrixx Initiatives, Inc., v Siracusano,
563 U.S. 27, 45, 131 S. Ct. 1309 (2011) (citing 17 CFR § 240.10b–5(b) and Basic Inc.

v. Levinson, 485 U.S. 224, 239, n. 17, (‘Silence, absent a duty to disclose, is not
misleading under Rule 10b–5’)). As noted by the Supreme Court “[R]eliance is
tied to causation, leading to the inquiry whether respondents' deceptive acts were
immediate or remote to the injury.” Stonebridge, 552 U.S. at 149. The alleged
deceptive act of not removing from the Internet false claims of AAR certification

The Report and Recommendations found that the Dektrix Defendants were not
fiduciaries of Plaintiff and recommended dismissal of Count VII, breach of fiduciary duty,
as to the Dektrix Defendants. No objection was filed by Plaintiff. There was no allegation
made in the Complaint that the Fontaine Defendants acted as fiduciaries.
21

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published by third parties nearly three years prior to its investment in Dektrix, is
too remote to satisfy the reliance requirement.” Id. Although such statements
may arguably be fraudulent, “Section 10(b) does not incorporate common-law
fraud into federal law.” SEC v. Zandford, 535 U.S. 813, 820, 122 S. Ct. 1899(2002).
d. Loss Causation
The last objection of the Fontaine Defendants concerning Count I is that
Plaintiff failed to establish loss causation. In order to prove a securities fraud
violation, a plaintiff must plausibly allege that “the act or omission of the
defendant alleged to violate [the Securities Exchange Act] caused the loss for
which the plaintiff seeks to recover damages.” 15 U.S.C. § 78u-4(b)(4).
As pleading requirements go, this one is ‘not meant to impose a
great burden upon a plaintiff.’ (citation omitted) Rather it is meant to
prevent disappointed shareholders from filing suit merely because
their shares have lost value and then using discovery to determine
whether the loss was due to fraud. (citation omitted). Thus, at the
pleading stage, a plaintiff need only ‘provide a defendant with some
indication of the loss and the causal connection that the plaintiff has
in mind.’ (citation omitted).

Norfolk County Retirement System v. Community Health Systems, Inc., 877
F.3d 687, 695 (6th Cir. 2017) (quoting Dura Pharm., Inc. v. Broudo, 544 U.S.
336, 347 (2005)).

Although the Court is required at this stage to accept the allegations of the
Complaint as true and draw all reasonable inferences in favor of the plaintiff, AMP
is, nevertheless, required to show a causal connection that their loss, the
December 5, 2016 and February 28, 2017, investments was the result of a
misrepresentation or omission of the Fontaine Defendants.

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The Court finds that the allegations of the Complaint have provided “some
indication of the loss and the causal connection that the plaintiff has in mind.”

Dura Pharm., Inc. 544 U.S. at 347. Accordingly, Plaintiff has satisfied this element.
e. Conclusion
Because AMP has failed to allege facts establishing each element of a
§ 10(b) securities fraud claim, the objection of the Fontaine Defendants to Count I
of the Report and Recommendations is sustained.
3. Third Objection of the Individual Fontaine Defendants: The Report
Incorrectly Concludes that Count II, Pursuant to § 20(a) of the
Exchange Act, States a Claim Against Defendants Buchanan and
Prochazka, Doc. #46, PageID#652
Count II of the Complaint alleges violations under § 20(a) of the Exchange
Act against the “Individual Defendants” as “controlling persons of Dektrix.” Doc.
#1, PageID#28. Section 20(a) of the Securities Exchange Act provides that “[e]very
person who ... controls any person liable under any provision of this chapter or of
any rule or regulation thereunder shall also be liable jointly and severally with and
to the same extent as such controlled person.” Doshi, 823 F.3d at 1045, (quoting
15 U.S.C. § 78t(a)). Accordingly, “the ’controlled person’ must have committed an
underlying violation of the securities laws or the rules and regulations
promulgated thereunder” and second, “the ‘controlling person’… must have
directly or indirectly controlled the person liable for the securities law violation.“
17 C.F.R. § 230.405. In re Huntington Bancshares Inc. Securities Litigation, 674 F.
Supp. 2d 951 (S.D. Ohio 2009) (citing PR Diamonds, Inc. v. Chandler, 364 F.3d 671,

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696 (6th Cir. 2004), abrogated on other grounds by Matrixx Initiatives, 563 U.S. 27
(2011).
The Court has sustained the first objection of the Fontaine Defendants as to
Count I, finding that Plaintiffs have not pled a violation of § 10(b) securities fraud
as to these Defendants and, although not pled by Plaintiff, has included the
Marmon Defendants, as did the Magistrate Judge, in its analysis. Accordingly, no
control person liability exists under § 20(a) for Buchanan, Prochazka and Dier. The
Report, however, recommends that this Count not be dismissed as to Buchanan,
Prochazka and Dier because of their “high-level position” with Marmon and
Fontaine. Plaintiff, however, pled only the job titles for these three Individual
Defendants and, as to Buchanan, alleged simply that he was Prochazka’s
supervisor. Doc. #1, PageID#8. These bare allegations, even considering
Fontaine’s request to Dektrix to keep the pin-shearing quiet, do not establish that
Buchanan, Prochazka or Dier were control persons of Dektrix. The third objection
of the Fontaine Defendants is sustained.
4. Fourth Objection of the Fontaine Defendants: The Report
Impermissibly Concludes that Count V Pleads a Common Law Fraud
Claim against the Fontaine Defendants Because a § 10(b) Claim Was
Pled, Doc.#46, PageID#656
Count V of the Complaint alleges “common law fraud” against
“Defendants. It alleges ten separate instances of fraud against Defendants and
specifically identifies Defendants Marmon and Fontaine in certain of the
allegations. Doc. #1, PageID#31-32. The Report found that a fraud claim was pled

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because a § 10(b) claim was pled in Count I against the Fontaine Defendants. The
Magistrate Judge included the Marmon Defendants in her analysis. Doc. #43,
PageID#565 and 604-605. In this objection, the Fontaine Defendants object on
behalf of three individuals, Buchanan, Prochazka and Dier and two corporate
entities, Fontaine and Marmon. They assert three reasons in support of their
objection.
These Defendants first contend the Report is incorrect in concluding that a
fraud claim has been pled against them, merely because a § 10(b) claim was pled,
arguing this was wrong, given that the Magistrate Judge failed to consider
whether Plaintiff pled a securities fraud claim against Marmon. As stated, the
Magistrate Judge included the Marmon Defendants in her analysis of Plaintiff’s
10(b) securities fraud claim. The Court, however, has determined that no § 10(b)
fraud claim was pled as to either the Fontaine or the Marmon Defendants. As
such, the first ground of the Fontaine Defendants’ objection is both factually
incorrect and, in any event, moot.
These Defendants next assert that if the same reasoning of the Private
Securities Litigation Reform Act of 1995 is applied to Count V, common law fraud,
then Plaintiff has not alleged a fraud claim. Finally, the Fontaine Defendants
argue that the Report incorrectly determined that the Fontaine Defendants had a
duty of disclosure to Plaintiff. Before analyzing these reasons, the Court will
briefly review the legal elements to state a common law claim for fraud and the
pleading requirements pursuant to Fed. R. Civ. P. 9(b).
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In Burr v. Bd. of Cty. Commrs. of Stark Cty., 23 Ohio St.3d 69 (1986),
paragraph two of the syllabus, the Ohio Supreme Court set forth the legal
elements for a cause of action based on fraud.
(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.

Id.

In addition to pleading the legal elements of fraud, a plaintiff must also

comply with Rule 9(b) of the Federal Rules of Civil Procedure and state “with
particularity” the circumstances constituting fraud. The rationale for this rule is to
(1) alert parties to the particulars of the allegations against them so they can
intelligently respond, (2) prevent “fishing expeditions,” (3) protect reputations
against fraud allegations and (4) whittle down potentially wide-ranging discovery
to only relevant matters. Chesbrough v. VPA, P.C., 655 F.3d 461, 466–67 (6th
Cir.2011). Accordingly, Rule 9(b) is satisfied when a party’s pleading (1) specifies
the time, place and content of the alleged misrepresentation, (2) identifies the
fraudulent scheme and the fraudulent intent of the defendant and (3) describes
the injury resulting from the fraud. U.S. ex rel. SNAPP, Inc. v. Ford Motor Co., 532
F.3d 496, 504 (6th Cir.2008). Despite this additional pleading requirement, the
Sixth Circuit has also held that Rule 9(b) “should not be read to defeat the general
policy of ‘simplicity and flexibility’ in pleadings contemplated by the Federal

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Rules.” U.S. ex rel. SNAPP, Inc. at 503-04 (quoting Michaels Bldg Co. v. Ameritrust

Co., N.A., 848 F.2d 674, 678 (6th Cir. 1988).
The Sixth Circuit has explained that '[s]o long as a [party] pleads
sufficient detail—in terms of time, place and content, the nature of a
defendant's fraudulent scheme, and the injury resulting from the
fraud—to allow the defendant to prepare a responsive pleading, the
requirements of Rule 9(b) will generally be met.

MyVitaNet.com v. Kowalski, No. 2:08cv48, 2008 WL 2977889, at *5, 2008 U.S. Dist.
LEXIS 57745, at *14 (S.D. Ohio July 29, 2008) (citing United States v. Ford Motor
Co., 532 F.3d 496, 504 (6th Cir.2008)).
The Court finds that the Fontaine Defendant’s second reason in support of
their objection, that the Court’s reasoning on the Private Securities Litigation
Reform Act from Count I should be applied to Count V, is without merit. A claim
for common law fraud need not meet the stringent requirements for securities
fraud under the PSLRA, and Plaintiff satisfies the pleading requirements of Rule
9(b) as to representations and omissions made by the Marmon and Fontaine
Defendants. As to these Defendants, Plaintiff alleges with particularity a number
of misrepresentations and omissions including the nature of the allegedly
fraudulent AAR certification press release, the Fontaine webpage video, the
August 4, 2016, letter to Dektrix from Marmon stating its support for Dektrix, and
the statement of support made by Buchanan at the August 5, 2016, investor
meeting. Factual allegations detailing who made allegedly fraudulent statements
or failed to make certain disclosures and where and when this occurred are
alleged in the Complaint. The alleged fraudulent scheme, intent and damages to
Plaintiff are also alleged in the Complaint. As a result, these Defendants possess
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sufficient information to respond to the allegation of fraud. U.S. ex rel. Sheldon v

Kettering Health Network, 816 F.3d 399 (6th Cir. 2016) (citing SNAPP I, 532 F.3d at
504). Accordingly, the factual allegations of the Complaint satisfy Rule 9(b) and
this ground of the Fontaine Defendants’ objection is without merit.
With respect to the Fontaine Defendants third reason, that the Magistrate
Judge erred in finding that the Fontaine Defendants had a duty of disclosure to
Plaintiff in a fraud claim, the Court notes that this point was made in connection
with the Report’s analysis of Plaintiff’s 10(b) securities fraud claim and not AMP’s
common law fraud claim alleged in Count V.
The Fontaine Defendants objection as to Count V, common law fraud, is
overruled.
5. Fifth Objection of the Fontaine Defendants: The Report Erroneously
Concludes that Plaintiff Adequately Pled Unjust Enrichment Against
the Fontaine Defendants, Doc.#46, PageID#657
In Count VIII, AMP alleges unjust enrichment against all Defendants. It
alleges that “Defendants. . .came into possession of the payments, investment
and loan money” and “enjoyed the use, benefits, and privileges of possession. . .
in their fraudulent business activities and self-dealing.” Doc. #1, PageID#36. The
Magistrate Judge recommended that the Motion to Dismiss of the Fontaine
Defendants be denied as to Plaintiff’s unjust enrichment claim.
Yet, the Complaint succeeds in alleging that Fontaine received a
benefit from Plaintiff’s bridge loan to Dektrix. It states, “Defendant
Harris reported to Plaintiff that Defendants Prochazka and Fontaine
had agreed to accept Plaintiff’s money as a ‘refundable deposit
should things not go as we had hoped.’ Dektrix wired $50,000 of
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Plaintiff’s money to Fontaine on March 1, 2017.” (Doc. #1, ¶60). This
was a significant financial benefit to Fontaine.
Doc. #43, PageID#614.
This benefit occurred, according to the Report, when Dektrix wired $50,000
of Plaintiff’s money to Fontaine on March 1, 2017, and this Defendant “used
$22,800 of the loan money to repay Dektrix’s debt to Redlands.” Id. In return,
Fontaine received its flat-decks that Redlands, Dektrix’s creditor, was holding as
collateral, thus obtaining a benefit from Plaintiff’s $100,000 investment. Id.
To prove an unjust enrichment claim, a plaintiff must establish that it
conferred a benefit on the defendant, that the defendant had knowledge of the
benefit and retained it under circumstances where it would be unjust for him to do
so without payment. Hambleton v. R.G. Barry Corp. (1984), 12 Ohio St.3d 179,
183, 465 N.E. 2d 1298. The Fontaine Defendants argue that no claim for unjust
enrichment has been pled since Fontaine used $22,800 to pay a Dektrix creditor to
receive its own property and returned $27,200 to Dektrix. Doc. # 46, PageID#658.
The Fontaine Defendants are correct that merely because one party has
been enriched does not result in a claim of unjust enrichment, U.S. Health

Practices, Inc. v. Byron Blake, M.D. Inc., No. 00AP–1002, 2001 Ohio App. LEXIS
1291, at *6, 2001 WL 277291, at *2 (Mar. 22, 2001) (citation omitted) (plaintiff’s
unjust enrichment claim not established where defendant physician, although
receiving fees and increased capacity to treat patients without paying salary of
plaintiff’s physician, made no money from his association with plaintiff while

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plaintiff’s physician who worked with defendant received growing client base and
invaluable experience from defendant). A plaintiff must show “a superior equity,”
making it “unconscionable for the defendant[s] to retain the benefit.” Directory

Servs. Group v. Staff Builders Int'l, Inc., No. 78611, 2001 *838 Ohio App. LEXIS
3108, at *7, 2001 WL 792715, at *3 (July 12, 2001). Additionally, there must be a
“tie of causation” between the loss and the gain. Fairfield Ready Mix v Walnut

Hills Associates, Ltd., 60 Ohio App. 3d 1 572 N.E. 2d 114 (1988).
Construing the factual allegations in favor of Plaintiff, a claim of unjust
enrichment has been pled as to Defendants Fontaine and Marmon. As alleged,
Fontaine “is owned and operated by Marmon,” Doc. #1, PageID#8, and the
Fontaine letter to Redlands demanding return of the flat-decks indicates that it is a
Marmon company. Doc. #1-7. Accordingly, the fifth objection of the Fontaine
Defendants is overruled as to Defendants Fontaine and Marmon.
For the reasons set forth above, the objections of the Fontaine Defendants
are sustained as to Count I, Section 10(b) of the Exchange Act and Rule 10(b)-5,
Count II, § 20(a) of the Exchange Act, and overruled as to Count V, common law
fraud, and Count VIII, unjust enrichment.

C. Objections of the Dektrix Defendants
The Dektrix Defendants have filed 18 objections to the Report and
Recommendations. The first 12 objections relate to the Report’s findings
concerning Count I, § 10(b), of the Complaint. Objection 13 to the Report concerns
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Count V, common law fraud, and Objections 14, 15, 16 and 17 relate to Count VI,
breach of contract. Finally, Objection 18, relates to the Report’s findings regarding
Count VIII, unjust enrichment.
1. Count I, Violations of § 10(b) of the Exchange Act and Rule 10(b),
Objections 1-12, Doc.# 48
The Dektrix Defendants contend that Plaintiff alleged theories of securities
fraud “based on material misrepresentations or omissions” and that the Report
ultimately made factual findings concerning these theories that are “based on
impermissible inferences” and “not supported by the allegations of the
Complaint.” Doc. #48, PageID#667. The theories identified by the Dektrix
Defendants’ first 12 objections relate to the following: (1) the AAR certification of
the decks (Objections 1, 2, 3, 4 and 5); (2) the failure to disclose the mechanical
condition or safety of the decks (Objections 6, 7 and 8); (3) the failure to use
Plaintiff’s investment money to purchase decks (Objection 9); (4) the financial
condition of Dektrix’s business (Objections 10 and 11); and (5) the second
investment, the $100,000 “effective bridge loan” (Objection 12).
The Court will analyze each objection separately using the theory identified
by the Dektrix Defendants.
a. The AAR Certification of the Fontaine Decks: Objections 1, 2, 3, 4
and 5 (Falsity, Justifiable Reliance and Loss Causation), Doc #48,
PageID#668-677
The first five objections of the Dektrix Defendants concern the Magistrate
Judge’s finding that the Complaint pled facts establishing that the Dektrix

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Defendants misrepresented that the flat-decks were AAR certified. The objections
contend that the Complaint does not plead that the Dektrix Defendants (1) made a
false or misleading material misrepresentation or omission, in 2016, that the flatdecks were AAR certified; (2) that Plaintiff justifiably relied on any such
misrepresentation and that (3) loss causation was pled.
The Report cites to an AAR reference in the Private Placement
Memorandum, under the section “Competition.” The PPM, a 118-Page single
spaced document, Doc. 1-1, PageID##38-155, was given to Plaintiff on or about
August 6, 2016, some four months before their $350,000 payment to Dektrix. Doc.
#1, PageID#11. The relevant portion, which is the concluding paragraph of the
“Competition” section of the PPM, reads as follows:
Other trailer manufacturers could produce a competitive deck
product but it may take up to three years from the time they make the
decision to get into the market to design around the Fontaine patents,
test the equipment and go through several production models before
the competitive deck would be ready for AAR approval to operate on
Class 1 railways.
Doc. 1-1 PageID# 74.
Based on this language, the Report stated that the “Private Placement
Memo used AAR certification as a means of misleading potential investors into
thinking Dektrix held a strong competitive advantage.” Doc. #43, PageID#574. The
Report further stated that
[R]eading this in Plaintiff’s favor reinforces the significance of AAR
approval for intermodal flat[-]decks and the need for a Dektrix
competitor to obtain AAR approval to operate on Class 1 railways.
This, in turn, invites the reasonable inferences that Dektrix has a
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significant head start on potential competitors and a strong
competitive advantage over their foes in the marketplace because the
AAR had already certified the Fontaine Flat[-]Deck.

Id.

The Dektrix Defendants argue that this isolated statement in the

“Competition” section of the Private Placement Memorandum did not state that it
had AAR certification and is nothing more than a promotional statement
concerning Dektrix’s competitive strategy. “Accordingly, the [Report and
Recommendations] erred in jumping to the conclusion that Dektrix’s claimed
competitive-advantage could only come from Fontaine decks already being AAR
certified.” Doc. #48, PageID#679. These Defendants contend that Plaintiff knew
that Dektrix had already put the decks in operation and that ultimately the
Magistrate Judge “ignored the only plausible conclusion: that Dektrix’s
competitive advantage comes from having decks ready for either AAR approval or
otherwise ready to operate on Class 1 railways.” Id. Dektrix affirmatively
represented in the PPM that it “had obtained operating authority for all Class 1
railways in North America.” Doc. 1-1, PageID#61.
Although the one statement in the Private Placement Memorandum did not
affirmatively represent that the Fontaine intermodal decks had AAR certification, it
is not, as the Dektrix Defendants argue, “soft information” since Plaintiff alleged
additional facts showing that the Dektrix Defendants had knowledge of the lack of
an AAR certification. Omnicare, III, 769 F.3d at 470 (citing Omnicare I, 583 F.3d at
945–46)(“When an alleged misrepresentation concerns ‘soft information,’ which

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‘includes predictions and matters of opinion’ (citations omitted), a plaintiff must
additionally plead facts showing that the statement was ‘made with knowledge of
its falsity’”). In addition to the statement in the PPM, the Complaint alleges that
Crane was a member of the Intermodal Operations Committee of AAR in 2013-14,
Doc. #1, PageID#14, and “had actual knowledge of the lack of certification from a
May 20, 2015, email, sent to him by Michael Lesniak with the AAR.” Doc. #1,
PageID#21. Crane, however, never disclosed the lack of AAR certification to
Plaintiff until April 2017. Finally, the Complaint alleges that during an investor
meeting on August 5, 2016, Crane, in response to a question about AAR
certification, stated the following:
Yes, ok, the Association of American Railroads. It’s, they’re
called the AAR. They’re the largest governing body in the world, so
even the steam trains from Europe and things come over and are
tested here under their guidance in Pueblo, Colorado.

Id., PageID#13.
Based on these allegations from the Complaint, and as stated by the
Magistrate Judge, “[T]he Dektrix Defendants had an affirmative duty to disclose.”
Doc. #43, PageID#577. Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44, 131
S.Ct. 1309, 1321 (2011) (disclosure required under § 10(b) and Rule 10(b)(5) only
“to make ... statements made, in the light of the circumstances under which they
were made, not misleading.” citing 17 CFR § 240.10b–5(b)); Omnicare, III, 769 F.3d
at 471 (“A duty to affirmatively disclose ‘may arise when there is. . . an inaccurate,
incomplete[,] or misleading prior disclosure.’”(citation omitted)).

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The first three objections of the Dektrix Defendants are overruled.
The fourth objection of the Dektrix Defendants is that Plaintiff did not
justifiably rely on any representation or omission from the Dektrix Defendants
regarding AAR approval. As seen in the previous discussion, the Detkrix
Defendants had a duty to disclose the omission of this material fact, i.e., that there
was no AAR certification for the flat-decks. Failure to make such a disclosure in
this instance results in a rebuttable presumption of reliance. See Stoneridge, 552
U.S. at 159 (“a rebuttable presumption arises … if there is an omission of a
material fact by one with a duty to disclose ….”). The fourth objection of the
Dektrix Defendants is overruled.
The fifth and final objection of the Dektrix Defendants, regarding the issue
of the lack of an AAR certification for the flat-decks, is that Plaintiff “failed to tie
any loss it experienced” to any alleged false AAR certification. “As pleading
requirements go, this one is ‘not meant to impose a great burden upon a
plaintiff.’” Norfolk County Retirement System, 877 F.3d at 695 (quoting Dura

Pharm., Inc. v. Broudo, 544 U.S. 336, 347, (2005)). The allegation must provide
“some indication of the loss and the causal connection that the plaintiff has in
mind.” Id. The Court finds that Plaintiff has provided the Dektrix Defendants
“with some indication of the loss and the causal connection” for its § 10(b)5 claim.
The fifth objection is overruled.

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b. The Condition of the Decks: Falsity and Justifiable Reliance,
Objections 6, 7 and 8, Doc.#48, PageID#678-682
The Dektrix Defendants sixth and seventh objections concern findings in the
Report and Recommendations that the Dektrix Defendants either misrepresented
or failed to disclose material facts concerning repairs to the flat-decks. The sixth
objection states that the Magistrate Judge “erred in finding that Dektrix owed a
duty to disclose” to Plaintiff about the repairs performed on the decks in 2015 due
to “pin shearing.” The seventh objection concerns the Report’s finding that the
Dektrix Defendants “failed to disclose known mechanical problems (in the decks)
prior to Plaintiff’s second investment” made on February 28, 2017.
The findings of the Magistrate Judge objected to by the Dektrix Defendants
in the sixth and seventh objections are based on an August 21, 2017, email from
Harris that was forwarded to Plaintiff. Doc. #1, PageID#23. The Harris email
discusses “pin-shearing,” which occurred shortly after Dektrix put the decks in
service in 2015, and “bolt-shearing” of the decks, discovered by the Dektrix
Defendants in January 2017.22 According to the Harris email, Fontaine’s repairs of
the pin-shearing in 2015 were “shoddy,” the solution only “exacerbated the
problem” and although Dektrix “limped along for several months” with Fontaine
trying different possible fixes, [T]he problem was never adequately resolved.” Id.
The bolt-shearing problem referenced in the Harris email was discovered by

As stated earlier in this Decision and Entry, the Court assumes that the flat-decks “boltshearing” problem and “pin-shearing” problem are the same issue.

22

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Dektrix in January 2017 when it inspected the decks in California and Chicago. In
conjunction with this January 2017, inspection, Harris stated that “we realized the
entire fleet was unfit to service the Constellium contract” and when they advised
Buchanan, Prochazka called and said that “Fontaine would be calling back all the
decks.” Id., PageID##23 and 24.
Based on the Harris email, the Report and Recommendations concluded
that “Dektrix had an affirmative duty to disclose safety and security issues with
the Fontaine Flat[-]Decks in 2015.” Doc. #43, PageID#579.
Accepting these facts as true, they identify crucial intelligence
about the Fontaine Flat[-]Deck that a reasonable investor would have
viewed as significantly altering the mix of information it received
about the safety and quality of the Fontaine Flat[-]Deck. Not only
would such information be pertinent to whether Dektrix could fulfill
its shipping contracts, it potentially exposed Dektrix to liability for
personal or property damage caused by shearing bolts. Both events
were possible, thus exposing Dektrix to much greater financial risk
than Plaintiff knew about. Consequently, Dektrix had an affirmative
duty to inform Plaintiff about the “never adequately resolved” (Doc.
#1, ¶71) pin-shearing problem before Plaintiff invested in and loaned
money to Dektrix.
Doc. #43, PageID#580.
The Dektrix Defendants argue that the Report “conflates” Dektrix’s duty to
disclose a past repair history” and “whether Dektrix owed a duty to disclose
Harris’s dissatisfaction with a past repair problem.“ Doc. #48, PageID#678. These
Defendants contend that although the repairs were crudely done, they were, in
fact, made and even Plaintiff “alleges, without any claim of falsity, that Dektrix
moved hundreds of loads on the decks through 2016 without any safety

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problems.” Doc. #48, PageID#678. Finally, the Dektrix Defendants assert that §
10(b) does “not create an affirmative duty to disclose any and all material
information” and that “[D]isclosure is required under these provisions only when
necessary ‘to make ... statements made, in the light of the circumstances under
which they were made, not misleading.’” Matrixx Initiatives, 563 U.S. at 44 (citing
17 CFR § 240.10b-5(b). As such, “Dektrix owed no duty to disclose the past,
effective repairs. Nor was the duty to disclose triggered by any Dektrix affirmative
representation regarding repair history.” Doc. #48, PageID#679.
Although the Complaint does not allege that any representation was made
by the Dektrix Defendants regarding the repair history of the decks so that any
affirmative duty to disclose these repairs was created, the Complaint does
sufficiently allege that Dektrix represented that its business was growing, it
“currently has more demand for its decks than it can satisfy with 73 decks” and it
“is currently taking steps to secure additional decks and fund its ongoing growth.”
Doc. #1, PageID##16 and 17. The Complaint also alleges that the investor
presentations included copies of the August 4, 2016, offer letter from Dier
concerning an exclusive opportunity to Dektrix concerning the flat-decks. These
factual allegations, for purposes of a motion to dismiss, collectively create
“enough facts to state a claim to relief that is plausible on its face” and crosses
“the line from conceivable to plausible.” Twombly, 550 U.S. at 570, 127 S.Ct. 1955.
The Court agrees with the Magistrate Judge that “a reasonable investor” would
have viewed information of the repair history of the decks “‘as having
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significantly altered the “total mix” of information made available.’” Id. (citing

Basic Inc. v. Levinson, 485 U.S. 224, 232, quoting TSC Industries, Inc. v. Northway,
Inc., 426 U.S. 438, 449 (1976)). This is particularly true, given that the Harris email
states that Dektrix “limped along for several months” and that [T]he problem was
never adequately resolved.” Doc. #1, PageID#23. The sixth objection of Dektrix is
overruled.
The seventh objection concerns known mechanical problems with the decks
prior to Plaintiff’s second investment of $100,000 on February 28, 2017. For the
reasons stated above, this objection is overruled. Because there are enough facts
alleged, for purposes of a motion to dismiss, “to state a claim to relief that is
plausible on its face” and crosses “the line from conceivable to plausible,”

Twombly, 550 U.S. at 570, 127 S.Ct. 1955, the Dektrix Defendants should have
disclosed the bolt-shearing problem it discovered in January of 2017 before
Plaintiff entered into the Assignment of Beneficial Use of Assets on February 28,
2017.23
The eighth objection of the Dektrix Defendants claims that the Magistrate
Judge “erred in failing to analyze whether Plaintiff justifiably relied on any
misrepresentation or omission regarding the condition of decks.” Doc. #48,

Although the Dektrix Defendants assert that “Plaintiff inspected the Decks before
making any additional investment. Doc. #20, PageID# 232-233,” and “Plaintiff researched
Fontaine’s website which disclosed the repairs needed to upgrade the decks. Doc. #1,
¶45,” the Court was unable to find support in the Complaint or exhibits for these
statements.
23

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PageID#681. These Defendants assert that “[I]t is implausible that Plaintiff would
invest in 2017 despite knowing of an unrepaired mechanical defect but would not
have invested in December 2016 if it had known about a repaired mechanical
defect.” Doc. #48, PageID#681. They argue that the Report never addressed the
issue of reasonable reliance and that this Court should therefore review it, “de

novo, and dismiss the allegations of fraud related to the AAR certification,
“because Plaintiff’s allegations precludes [sic] an inference that the lack of AAR
certification was the cause of their damages.” Doc. #48, PageID#682.24
Having conducted its de novo review pursuant to 28 U.S.C. § 636(b)(1), the
Court finds that reliance, “the essential element of the § 10(b) private cause of
action,” Basic Inc., 485 U.S. 243, has been sufficiently alleged and that Plaintiff
reasonably relied on the decks not having a significant and unresolved repair
history or any issue that would result in their inability to be used for their intended
purposes. Plaintiff alleges that Dektrix stated it “currently has more demand for
its decks than it can satisfy with 73 decks” and it “is currently taking steps to
secure additional decks and fund its ongoing growth” Doc. #1, PageID##16 and
17. These allegations, coupled with the investor meetings and discussions with
Plaintiff of the exclusive offer for Dektrix to purchase decks from Fontaine, made it
reasonable for Plaintiff to rely on the decks having no material repair issues.

The Court has previously overruled objections 1 through 4 of the Dektrix Defendants
concerning the AAR certification of the decks.
24

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The Court overrules the eighth objection of the Dektrix Defendants.
c. The Use of Investment to Purchase Decks: Objection 9 (Falsity), Doc.
#48, PageID#682
In their ninth objection, the Dektrix Defendants assert that the Report “erred
in finding a duty to use Plaintiff’s investment solely to buy decks.” Doc. #48,
PageID#682. In support of this objection, these Defendants refer the Court to its
objections under “Section VIII, Breach of Contract.”25 Id., PageID#688.
Although the Report does not state that any “duty” existed, the Magistrate
Judge did find that it was a “material misrepresentation” for the Dektrix
Defendants not to disclose that investment funds would be used for purposes
other than purchasing flat-decks. Doc. #43, Doc. #581-582. According to the
Report, this non-disclosure was a material misrepresentation, because it “painted
an inaccurate and incomplete portrait of Dektrix’s ability to perform its obligations
under current and future shipping contracts and its ability to profit from the strong
competitive advantages it professed to have in the intermodal-shipping market.”

Id.
As alleged by Plaintiff, the first investment it made in Dektrix occurred on
December 5, 2016, the date it executed the MPA and wired $350,000 to Dektrix. In
return, Plaintiff received 70,000 preferred membership units in Dektrix. AMP’s
second investment occurred on February 28, 2017, the date it executed the

The Court assumes that the Dektrix Defendants are referring to Section VIII, Doc. #48,
PageID##688-693. This section includes objections 14, 15 and16.

25

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Assignment of Beneficial Use of Assets, and made “an effective bridge loan” to
Plaintiff of $100,000.
Although not determinative in deciding whether a § 10(b) securities fraud
claim under Count One is alleged against these Defendants for not using Plaintiff’s
investment to purchase flat-decks, the Report’s analysis of the Membership
Purchase Agreement contract is helpful. 26 As the Magistrate Judge succinctly
stated, no provision in the MPA contains the phrase “’Seller shall purchase 73
Fontaine Flat[-]Decks,’ or the like.” Doc. #43, PageID#606.27 As to Plaintiff’s second
investment, the Report stated that because the MPA “survives the Dektrix
Defendants’ present attacks, it would be superfluous to presently address whether
a second contract existed and, if so, whether Defendants breached it.” Doc. #43,
PageID#609. The Court notes, however, that the Assignment of Beneficial Use of
Assets, like the MPA, contains no provision stating that Dektrix shall use the
$100,000 to “purchase 73 Fontaine Flat[-]Decks, or the like.” Doc. #20-1,
PageID#273.
Although neither of the two contracts requires Dektrix to use Plaintiff’s
investment money solely for the purchase of flat-decks, the Complaint alleges that
oral representations were made by Harris and the Dektrix Defendants that

26

Both Plaintiff and the Dektrix Defendants refer to the MPA, Doc. #1-5, as a “contract.”

The Report ultimately found that dismissal of Plaintiff’s breach of contract count was
not warranted since the MPA was deemed to be “ambiguous” due to language in the
MPA regarding a “security interest” in the flat-decks. Id., PageID#608-609.
27

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Plaintiff’s investments would be used for that purpose. Doc. #1, PageID##11, 32-33
and 35. In reviewing the Membership Purchase Agreement, the Report found that
a provision granting Plaintiff a second lien on the first 73 flat-decks purchased was
ambiguous. Doc. #43, PageID#608. Accordingly, although the Court does not find
that these two contracts are the source of any “duty” by the Dektrix Defendants to
use Plaintiff’s investment to purchase decks, factual allegations of material
misrepresentations are alleged that Plaintiff’s investments would be used to
purchase Fontaine flat-decks. Because the Court is required to “construe the
complaint in the light most favorable to the plaintiff, accept its allegations as true,
and draw all reasonable inferences in favor of the plaintiff,” Handy-Clay, 695 F.3d
at 538 (quotation omitted), the ninth objection is overruled.
d. The Financial Condition of Dektrix: Falsity and Scienter,
Objections 10 and 11
In their tenth objection, the Dektrix Defendants state that the Report “erred
in finding that “Defendants also intentionally or recklessly misled Plaintiff by
failing to forewarn it about Dektrix’s poor financial health in the fall of 2016.” Doc.
#43, PageID#585-586. The eleventh objection states that the “Report erred in
concluding that Plaintiff established a strong inference of scienter because
‘Dektrix held a strong motivation not to tell Plaintiff about this because Dektrix’s
poor financial health presented a serious impediment to obtaining Plaintiff’s[,] or a
reasonable investor’s[,] investment or bridge loan.’ Doc. #43, PageID#586.” Doc.
#48, PageID#684. The Court will analyze each of these objections separately.

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(1) Tenth Objection
The Dektrix Defendants contend that the Magistrate Judge “overlooked
Dektrix’s many citations to where ‘[t]he [Private Placement Memorandum] details
Dektrix’s financial standing, quarter by quarter, including disclosure of financial
losses (in the millions). Doc. #39, PageID#475 (citing Doc.#1, PageID## 93-96); Doc.
#20, PageID##230-231 (quoting risk factors from PPM).” Doc. #48, PageID#682.
Based on this information in the PPM, they contend that there was full disclosure
of Dektrix’s financial situation in 2016. The Private Placement Memorandum,
which Plaintiff received in early August 2016, lists Dektrix’s monthly financials
from January 2015 through June 2016, showing a negative net income of over
$1.4 million. Doc. #1-1, PageID#93. It also discloses that the rental agreement that
Dektrix had with Fontaine for the flat-decks was “an escalating rental agreement”
and “in late 2015, it had weeks with no freight moving.” Doc. #1-1, PageID##97and
99. In the first quarter of 2016, the PPM states that the competition “forced
Dektrix to ‘drop the price’ and ‘sacrifice margin’” and in the second and third
quarters of 2016, Dektrix “’experienced [] significant challenges’ including
‘sporadic waves’ of work’” which resulted in ‘suspended shipping’ by Dektrix.” Id.,
PageID##100, 101 and 103. Finally, the PPM states that “We [Dektrix] require
additional capital to continue development of our products and to fund day-to-day
operations.” Doc.#1-1, PageID#51.
The second page of the Private Placement Memorandum states that the
securities are “speculative,” that Dektrix “is in its development stage, has a
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limited history of earnings and is subject to all of the risks inherent in a new
business enterprise.” As an investor, Plaintiff was also warned that it should “be
able to withstand a total loss of their investment. . . “Id., PageID#40. Finally, the
Private Placement Memorandum contains a separate section entitled “Risks.” This
section of the PPM states that Dektrix “is still within its development stage,
meaning it has had limited revenues from sales of products or services. . . has a
limited operating history which began in January 2015.” Id., PageID#51. It also
includes the statement that “[T]he profit potential of our business is unproven and
speculative.” Id., PageID#51.
Although the Private Placement Memorandum was received by
Plaintiff and is attached to the Complaint, the Complaint also alleges that
the Dektrix Defendants sent an email to Plaintiff on July 28, 2016. Portions
of this email state that
Dektrix is not a start-up company. . . [i]t has moved freight every
month since April of 2015 . . . has two yards, 17 FTE employees (both
W-2 and 1099 contractors). . . has moved over 814 loads of freight. . .
has billed more than $2.5M in sales. . . has obtained all of its
operating authorities as well as broker authorities. It is authorized to
operate on all class 1 railways in North America. . . It has a fleet of 73
decks and nine 2016 Freightliner tandem axel day cabs which it
leases from Penske. . . Dektrix has executed multiple carrier
agreements and has current contracts and relationships with the
logistics executives at several companies.
Doc. #1, PageID#9.

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The Complaint also cites to topics in the PPM, “highlighting the company’s
various achievements and milestones. Id., PageID#15-17; Doc. 1-1, PageID##6062.
Because this is a motion to dismiss and the Complaint alleges ”‘sufficient
factual matter, accepted as true, to state a claim for relief that is plausible on its
face,’” Ohio Pub. Employees Retirement Sys., 830 F.3d at 383 (citation omitted),
the tenth objection is overruled.
(2) Eleventh Objection
The Dektrix Defendants assert that this objection should be sustained
because “[T]he R&R improperly used motive and opportunity to establish
scienter.” In support they cite In re Comshare Inc. Securities Litigation, 183 F.3d
542, 549(6th Cir. 1999) (scienter not established by motive and opportunity to
commit securities fraud). The Magistrate Judge, however, did not find that “a
strong inference of scienter” was based on Dektrix’s “strong motivation” not to
disclose to Plaintiff its “poor financial health.”
A review of this portion of the Report regarding the Dektrix Defendants’
scienter shows that it addresses more than Dektrix’s “strong motivation” not to
disclose Plaintiff’s “poor financial health.” The Report states that “the material
omissions at issue- - -especially the non-AAR certification and the not-fixed boltshearing problems- - -painted a far rosier portrait of Dektrix than its actual ability
to utilize Fontaine Flat[-]Decks to revolutionize the shipping industry (using its
words).”Doc. #43, PageID#585. These material omissions, also described in the
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Report as “intentional or reckless conduct”’ are supported by Harris’s August
2017 email. Id.
The Report states that the “poor financial health did not come to light until
the January 30, 2017 letter” that Prochazka sent to Harris declaring a default for
“continued failure” to pay rent and not maintain the decks. Id., PageID#586. The
statement in question reads “Additionally, Dektrix held a strong motivation not to
tell Plaintiff about this because Dektrix’s poor financial health presented a serious
impediment to obtaining Plaintiff’s. . . investment or bridge loan.” Id. (emphasis
added).
The eleventh objection is overruled.
e. Plaintiff’s Second Investment and Scienter: Objection 12, Doc.
#48, PageID#685
The Dektrix Defendants final objection concerning Count I is that the
Magistrate Judge erred in finding that they acted with scienter in soliciting
$100,000 from Plaintiff on February 28, 2017. These Defendants argue that the
Report finds scienter only by erroneously concluding from the Complaint that (1)
Dektrix did not believe that the decks were repairable, (2) Dektrix was continuing
to mislead Plaintiff by minimizing the bolt-shearing problem, (3) Dektrix never
used the “bridge loan” proceeds to purchase Fontaine flat-decks and (4) Dektrix
falsely represented that the Constellium contract was in place in May 2017.
In order to establish scienter, the Complaint must allege facts showing that
the Dektrix Defendants, at the time they were soliciting Plaintiff’s second

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investment, were engaged in a “knowing and deliberate intent to manipulate,
deceive, or defraud” AMP or that they did so with recklessness. Doshi, 823 F.3d at
1039 (citation omitted). In examining the allegations of the Complaint holistically,

Tellabs, Inc., 551 U.S. at 326, the Court finds that scienter was pled.
The Complaint alleges that as of January 25, 2017, the Dektrix Defendants
knew that "about 50% of the fleet have [sheared] bolts on both the front and rear
hub [brake] assemblies . . ." and yet in early February 2017, continued to
represent to others, including Plaintiff, that they “had working active brokercarrier contracts in place including with. . . Constellium.” Doc. #1, PageID#19. The
Complaint further alleges that in response to the January 25, 2017, letter from
Dektrix regarding the sheared bolts, the Marmon and Fontaine Defendants wrote
to the Dektrix Defendants on January 30, 2017, terminating the existing lease and
demanding prompt return of all decks. Plaintiff alleges that on February 7, 2017,
the Dektrix Defendants represented to Plaintiff that the termination of the existing
lease was “short-term” and that any issues regarding [sheared] bolts was
repairable and could be resolved. 28

The Complaint also alleges that in the February 7, 2017, time frame the Dektrix
Defendants did not provide Plaintiff “any indication that the Marmon and Fontaine
Defendants were seeking not only the return of all decks, but were actively seeking to
physically destroy such decks on the basis that they were unfit, defective, and otherwise
unsafe and could no longer be warranted.” Doc. #1, PageID#19. Doc. 1-7, however,
shows that statements that Fontaine claimed that the decks were “unfit, defective, and
otherwise unsafe were not made until May 24, 2017. Additionally, neither the January 30
nor the May 24, 2017, letters state that Fontaine intended to “physically destroy” the
decks.
28

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Finally, the Complaint alleges that Plaintiff was forwarded the Harris email
dated August 21, 2017, stating that the repairs to the flat-decks suggested by
Fontaine in early January only made the pin-shearing worse, that the problem
“was never adequately resolved” and that after inspecting the flat-decks in
January 2017, they “realized the entire fleet was unfit to service the Constellium
contract.” Doc. #1, PageID#23.
With respect to the ABUA, Plaintiff alleges that “[T]he terms and conditions
of the Agreement required the $100,000 bridge loan to be used for the purchase of
assets in the form of Fontaine trailer decks.” Id. This document, however, does
not require that Dektrix use the $100,000 it received from Plaintiff to purchase flatdecks. Instead, the ABUA only sets forth the terms of repayment to Plaintiff,
permits Dektrix to use the “specific intermodal flat-deck assets” owned by Plaintiff
and states that there is an “attached addenda to this agreement, which addenda
shall specify the make, model and serial number of each assigned asset.” Id. at
PageID#273. No flat-decks are listed on Addendum A to the ABUA.
Although the language of the ABUA does not show any requirement that
the $100,000 would be used to buy decks, Plaintiff alleges that this was the basis
upon which the money was given to Dektrix and relies on a provision in the
Membership Purchase Agreement granting Plaintiff the right to a second lien “on
any of the first 73 intermodal flat-racks the Seller purchases. . .” The Report found
that this second lien provision created an ambiguity. As such, the intent of the

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parties can be ascertained by the introduction of parol evidence. Illinois Controls,

Inc. v. Langham, 70 Ohio St.3d 512, 521, 639 N.E.2d 771 (1994).
Based on these allegations from the Complaint, the twelfth objection is
overruled.
2. Count V, Fraud, Objection 13, Doc. #48, PageID#687
Count V alleges fraud against 12 “Defendants, collectively and
individually.” Doc. #1, PageID#31. The Dektrix Defendants object to the Report
stating that “[T]he R&R errantly concluded that ‘Because Plaintiff’s Rule 10(b)
claim survives PSLRA review, Plaintiff’s common-law fraud claim survives for the
same reasons.’” Doc. 43, PageID#604. The Dektrix Defendants state that they do
not contest this statement in the Report. They argue, however, that Plaintiff has
not pled “sufficient claims under Rule 10(b),” and “for the same reasons Plaintiff’s
10(b) claims fail, their common-law claim fails as well.” Doc. #48, PageID#688.
The Court, however, has overruled Dektrix’s objections to Count I.
Moreover, the standard for a securities fraud § 10(b) claim is more stringent than
a claim for fraud. Accordingly, the thirteenth objection is overruled.
3. Count VI, Breach of Contract, Objections 14, 15, 16 and 17, Doc. #48,
PageID##688, 691 and 693
Count VI, breach of contract, is alleged against the “Dektrix Defendants,” a
group consisting of three corporate entities and four individuals. Although the
words “agreements” and “the agreement” are referenced in this count, no
contract is identified. Doc. #1, PageID#33-34. The factual allegations of the

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Complaint, however, reference two agreements: the Membership Purchase
Agreement and the Assignment of Beneficial Use of Assets. The MPA was
entered into between the assignees of Plaintiff and Dektrix. Doc. #1-5. The parties
to the ABUA are Dektrix Trans and Plaintiff. Doc. 20-1, PageID#275. Plaintiff’s
breach of contract alleges that “representations” were made in conjunction with
the “agreements” and that Defendants
materially breached their contractual duties. . .as set forth in the
Agreements including but not limited to failure to use the money as
required by the contracts, failure to provide security interests in the
Evolution Intermodal Flat[-]Decks as required by the contracts, and
spending the money for their own benefit instead of the benefit of
Dektrix or its members and investors.
Doc. #1, PageID#33.
In analyzing Count VI, the Magistrate Judge found that the Membership
Purchase Agreement has no provision in it stating that Dektrix “shall purchase 73
Fontaine Flat[-]Decks,’ or the like.” Doc. #43, PageID#606. The Report also finds,
however, that the MPA is ambiguous because it contains language regarding a
“security interest” in the flat-decks. As alleged by Plaintiff, this language
“demonstrates the parties’ intent that the $350,000 would be used toward the
purchase of the first 73” flat-decks. Doc. #1, PageID#18. The relevant security
interest language reads as follows:
Seller [Dektrix] hereby grants Buyer [Plaintiff] the right to a second
lien position, which may be evidenced by the Buyer filing a UCC-1 on
any of the first 73 intermodal flat-racks the Seller purchases [and] it is
expressly understood by both parties that a 1st lien position will most
likely be held by the individual or entity extending credit for the
acquisition of those intermodal flat-racks and that any security
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interest herein afforded to the Buyer shall be subordinate to those of
the 1st lien holder, without cost to Dektrix, LLC.
Doc. #1, PageID#18; Doc. #1-5, PageID#170.
Although there is no similar language in the ABUA regarding security
interests, the Report states that that because the Membership Purchase
Agreement “survives the Dektrix Defendants’ present attacks, it would be
superfluous to presently address whether a second contract existed and, if so,
whether Defendants breached it.” Doc. #43, PageID#609. The Magistrate Judge
recommends that the breach of contract claim against the Dektrix Defendants for
both the Membership Purchase Agreement and the ABUA not be dismissed.
The three objections of the Dektrix Defendants to Count VI only reference
the MPA and do not address the ABUA.
Objection 14 states that the Report “failed to dismiss non-parties to the
MPA (including individual Dektrix Defendants).” Objections 15 and 16 are closely
related. Objection 15 states that the Magistrate Judge “erred in finding that the
MPA ‘must be seen as showing the parties’ intent that Dektrix would purchase the
73 Flat[-]Decks it was leasing from Fontaine.” Doc. #43, PageId#607. In Objection
16, the Dektrix Defendants assert that the Report “improperly applied an
ambiguity analysis to the MPA” and wrongly concluded that Dektrix had a duty to
purchase decks.”
As to Objection 14, although the allegations of Count VI are against the
Dektrix Defendants, Dektrix was the only signatory to the MPA. The Complaint,

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analyzed in its entirety, does not allege facts that Dektrix Trans and Dektrix
Intermodal are liable for the debts of Dektrix. Similarly, there are no factual
allegations that Harris, Crane, Morley and Larson are personally liable for
Dektrix’s alleged breach of contract. “A fundamental rule of corporate law is that,
normally, shareholders, officers, and directors are not liable for the debts of a
corporation.” Belvedere Condominium Unit Owners' Assn. v. R.E. Roark Cos., Inc.
(1993), 67 Ohio St.3d 274, 287, 617 N.E.2d 1075, 1085. “The exception to this rule
arises at equity to permit recovery of damages from a stockholder who has
dominated its corporation.” Longo Construction, Inc. v. ASAP Technical Services,

Inc., 140 Ohio App.3d 665,761, 748 N.E.2d 1164 (Ohio Ct.App.2000) (corporate veil
pierced and liability imposed on principal shareholder after transfer to avoid
paying subcontractor). Objection 14 is sustained as to Dektrix Trans, Dektrix
Intermodal, Harris, Crane, Morley and Larson.
As to Objections 15 and 16, the Court agrees that the “construction of a
written contract under Ohio law is a question of law for the court….” Arlington

Video Productions, Inc. v. Fifth Third Bancorp, 569 F. App’x 379, 386 (6th Cir. 2014)
(citations omitted) and that the intent of the parties is presumed to lie in the
language that they used in their agreement. Id. The Court finds, however, that in
examining the four corners of the Membership Purchase Agreement, the terms of
the contract are not clear as to the parties’ intent in purchasing flat-decks and that
the language is susceptible to two or more reasonable interpretations. Because

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the meaning of the language is construed against Dektrix, the drafter, Id.,
Objections 16 and 17 are overruled.
4. Count VIII, Unjust Enrichment, Objection 18, Doc. #48 PageID#695
Count VIII is for unjust enrichment and is alleged against the “Defendants.”
Doc. #1, PageID#36. Objection 18 states that it was error for the Report not to
dismiss Larson from Plaintiff’s unjust enrichment claim since the Complaint did
not allege that a benefit was conferred upon him or that he engaged in
misconduct. Instead, it was only alleged that $42,000 of Plaintiff’s investment was
used for his salary. Plaintiff contends that a claim for unjust enrichment does not
require a finding of bad intent or misconduct but only that a benefit was conferred
upon a defendant, the defendant knew of the benefit, and that it was retained
under circumstances making it unjust vis-a-vis the plaintiff to retain the benefit.

Hambelton v. R.G. Barry Corp., 12 Ohio St. 3d 179, 183, 465 N.E.2d 1298 (1984). It
exists when a person “has and retains money or benefits which in justice and
equity belong to another.” Johnson v. Microsoft Corp., 106 Ohio St.3d 278, 834
N.E.2d 791, 799 (Ohio 2005).
As to Larson, the Complaint alleges only that “such investment money was
used to repay the bridge loan (approximately $7,500) and otherwise enrich
themselves [Defendants]in the form of salaries ($42,000 going directly to Crane
and Larson).” Doc. #1, PageID#21-22. Because Plaintiff has not pled that Larson
knew of the benefit being conferred upon him, Objection 18 is sustained.

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IV. Conclusion
For the reasons set forth above, the Court ADOPTS in part and rejects in
part the United States Magistrate Judge’s Report and Recommendations Doc #43;
sustains in part and overrules in part Defendants’ objections thereto, Docs. ##46
and 48, sustains in part and overrules in part the Marmon and Fontaine
Defendants’ Motion to Dismiss, Doc. #16 and the Dektrix Defendants’ Motion to
Dismiss, Doc. #20.
The following counts remain pending against the following Defendants:
Count I for violation of § 10(b) remains pending against the Dektrix Defendants;
Count II for violations of Section 20(a) remains pending against Defendants Harris,
Crane, and Morley; Count V alleging fraud remains pending against the Dektrix,
Marmon and Fontaine Defendants; Count VI, alleging breach of contract, remains
pending against Defendant Dektrix; and Count VIII for unjust enrichment remains
pending against Defendants Fontaine and Marmon and all the Dektrix Defendants,
except Defendant Larson.
The dismissal of Count I as to the Fontaine and Marmon Defendants; Count
II as to Defendants Buchanan, Prochazka and Dier; Count VI as to Defendants
Harris, Crane, Morley, Larson, Dektrix Trans and Dektrix Intermodal; and Count
VIII as to Defendant Larson is without prejudice to Plaintiff filing an amended

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complaint within 21 days from the date of this filing subject to the strictures of
Fed. R. Civ. P. 11.

(tp - per Judge Rice authorization after
his review)

Date: February 19, 2021

WALTER H. RICE
UNITED STATES DISTRICT JUDGE

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