CHALEPLIS et al v. KARLOUTSOS et al
Filing
55
MEMORANDUM SIGNED BY HONORABLE EDUARDO C. ROBRENO ON 1/10/22. 1/10/22 ENTERED AND COPIES E-MAILED.(va)
Case 2:21-cv-01492-ER Document 55 Filed 01/10/22 Page 1 of 47
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
GABRIEL CHALEPLIS, et al.
Plaintiffs,
v.
MICHAEL KARLOUTSOS, et al.,
Defendants.
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CIVIL ACTION
NO. 21-1492
M E M O R A N D U M
EDUARDO C. ROBRENO, J.
January 10, 2022
Table of Contents
I.
INTRODUCTION.............................................. 2
II.
BACKGROUND................................................ 3
A.
Formation of One World, LLC ............................. 4
B.
Chaleplis Invests in the Greek Medicinal Cannabis Market 7
C.
Rodgers and Karloutsos Misappropriate Funds Invested by
Chaleplis ............................................... 9
D.
Karloutsos and Rodgers’ Use of Converted Funds ......... 10
E.
Related Proceedings in Other Courts .................... 12
III. LEGAL STANDARD........................................... 15
IV.
DISCUSSION............................................... 16
A.
Karloutsos’ 12(b)(2) Motion to Dismiss for Lack of
Personal Jurisdiction .................................. 16
B.
The Karloutsos Defendants’ 12(b)(6) Motion to Dismiss .. 22
1.
Choice of Law ......................................... 22
2.
Counts I, II, and III: Conversion ..................... 23
3.
Counts V-VII: Breach of Fiduciary Duties .............. 27
4.
Count VIII: Unjust Enrichment ......................... 28
5.
Count IX: Accounting .................................. 30
6.
Count X: Constructive Trust ........................... 30
7.
Count XI: Declaratory Judgment ........................ 31
8.
Count XII: Alter Ego .................................. 33
9.
Count XIII: Fraud ..................................... 35
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C.
Rodgers Defendants’ Motion to Dismiss under R. 12(b)(6) 38
D.
Karloutsos Defendants’ Motion under Fed. R. Civ. P.
12(b)(7), 12(f), 19, and 28 U.S.C. § 1404 .............. 39
1.
Necessary and Indispensable Party ..................... 40
2.
Motion to Transfer Venue .............................. 43
E.
Rodgers’ Motion for Sanctions .......................... 45
V.
CONCLUSION............................................... 47
I.
INTRODUCTION
One World, LLC and Gabriel Chaleplis, its sole member
(hereinafter referred to as “Plaintiffs”), bring this action
against defendants James M. Rodgers, Esq., Rodgers Investments,
and James M. Rodgers, P.C. (collectively the “Rodgers
Defendants”), and Michael Karloutsos and his company, MAK
Consulting, LLC (collectively the “Karloutsos Defendants”).
Plaintiffs allege that Defendants induced Chaleplis to
invest €10,750,000 (approximately $12,000,000) of One World, LLC
funds in Greek companies controlled by Defendants’ associates,
who then rerouted the funds back to Defendants in the United
States where they were misappropriated for personal purposes.
The following six motions are pending before the Court:
1)
A motion to dismiss for lack of jurisdiction under
Fed. R. Civ. P. 12(b)(2) filed by Karloutsos (ECF No.
15);
2)
A motion to dismiss under Fed. R. Civ. P. 12(b)(6)
filed by the Rodgers Defendants (ECF No. 19);
3)
A motion to dismiss under Fed. R. Civ. P. 12(b)(6)
filed by the Karloutsos Defendants (ECF No. 20);
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4)
A motion for sanctions filed by the Rodgers Defendants
(ECF No. 23);
5)
A motion to dismiss or transfer venue filed by the
Karloutsos Defendants (ECF No. 40); and
6)
A motion to dismiss pursuant to Fed. R. Civ. P. 19 and
Fed. R. Civ. P. 12(b)(7) filed by the Rodgers
Defendants (ECF No. 42).
For the reasons that follow, the Karloutsos Defendants’
motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) will be
granted in part and denied in part. Pursuant to that motion,
Count XI (declaratory judgment) will be dismissed with
prejudice, and Counts XII (alter ego) and XIII (fraud) will be
dismissed without prejudice and with leave to amend. Defendants’
remaining motions are denied.
Count X of the Complaint asserts an independent claim for
constructive trust, which is not recognized as an independent
claim under Pennsylvania law. Pursuant to Fed. R. Civ. P.
12(f)(1), Count X (constructive trust) will be stricken as a
standalone claim.
II.
BACKGROUND 1
Plaintiff Gabriel Chaleplis is a citizen of the United
Kingdom. Chaleplis is the sole member of One World, LLC (“One
World”), which is a Delaware LLC.
1
The facts alleged in the Complaint and asserted herein are accepted as
true and viewed in the light most favorable to Plaintiffs.
3
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Michael Karloutsos is a citizen of Virginia or Florida and
a resident of Virginia. 2 Before moving to Virginia, Karloutsos
owned and operated a restaurant in Philadelphia called Water
Works. On July 23, 2017, he took a position as Deputy Chief of
Protocol with the U.S. State Department, where he served until
December 17, 2017. Karloutsos is also the sole member and
manager of MAK Consulting, LLC (“MAK”), which is a Pennsylvania
LLC also named as a defendant in this case.
Defendant James Rodgers, Esq., is a citizen and resident of
Pennsylvania. He is a member of the Pennsylvania Bar. Rodgers is
the sole member of Rodgers Investments and sole shareholder of
James M. Rodgers, P.C., which are named as defendants in this
action.
A.
Formation of One World, LLC
Before May 2017, Chaleplis decided to form a company to
serve as a vehicle through which he could invest in American
businesses. To that end, Chaleplis consulted with a friend in
Greece who referred him to Nikolaos Onoufriadis, a businessman
who is not a party to this action.
Onoufriadis represented to Chaleplis that he was
experienced in international business development and global
government relations, and that he was familiar with various
2
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §
1332, as the parties are diverse and the amount in controversy exceeds
$75,000, exclusive of interest and costs.
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American industries in which Chaleplis was interested in
investing. Onoufriadis further recommended that Chaleplis hire
Karloutsos, Onoufriadis’ “very good friend and best man,” for
his “presence in the United States,” purported experience in
American and Greek politics, government relations, and lobbying,
and because of his father’s position within the Greek Orthodox
Church. Compl. ¶¶ 14-15, ECF No. 1. Onoufriadis, Karloutsos, and
Chaleplis later met in Greece to discuss their respective roles
in the proposed company. Id. Karloutsos recommended that
Chaleplis also hire Rodgers to handle the company’s legal work.
The proposed company ultimately became One World, LLC
(hereinafter “One World”).
In the communications leading up to the formation of One
World, Karloutsos advised Chaleplis that he would be taking a
position with the U.S. State Department, and thus could not
formally or publicly participate in the membership or management
of One World. Karloutsos recommended that Chaleplis use
Onoufriadis and Rodgers as formal officers of One World.
However, while Karloutsos could not formally participate in the
operation of One World, the Complaint alleges that he “silently”
worked with Onoufriadis and Rodgers on Plaintiffs’ behalf to
research and pursue opportunities for One World. Id. at ¶ 29.
On May 24, 2017, Chaleplis officially formed One World as a
Delaware LLC. On June 15, 2017, Rodgers allegedly formed Rodgers
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Investments as a Wyoming LLC to serve as the conduit company and
bank account designed for Rodgers and his businesses, and for
Karloutsos and his company, MAK, to misappropriate and convert
Plaintiffs’ funds for their own benefit.
The parties met in New York City on September 28, 2017.
Onoufriadis, Karloutsos, and Rodgers assured Chaleplis they had
the necessary experience to successfully identify and pursue
investments on behalf of Chaleplis and One World. Based on these
assurances, Chaleplis hired Onoufriadis as Manager and Rodgers
as Secretary and Chief Legal Officer of One World. The
appointments were memorialized in One World’s operating
agreement, which the parties executed two days later.
Pursuant to the Operating Agreement, Chaleplis held an 80%
membership interest in One World while Onoufriadis held a 20%
membership interest. Chaleplis was the 100% “profit member,”
however, as he contributed all of One World’s capital.
Because of Karloutsos’ official position in the State
Department, he was not identified in the agreement. But the
Complaint alleges that Karloutsos “utilized his good friends
Onoufriadis and Rodgers as ‘front men’ for Karloutsos to
participate in the management, operations, and profitability of
One World” and entered into an oral “side agreement” with
Rodgers, pursuant to which Rodgers and Karloutsos would split
Rodgers’ three percent interest in One World 50-50. Id. at ¶¶
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58-59. Karloutsos allegedly continued co-managing One World
pursuant to this “side agreement” after leaving the State
Department on December 17, 2017. Id. at ¶¶ 61, 62.
Chaleplis began making capital contributions to One World
in August 2017. Following the execution of the Operating
Agreement, Onoufriadis, Karloutsos, and Rodgers caused One World
to open (i) three separate Citizens Bank accounts, (ii) an Alex
Brown/Raymond James investment account, and (iii) a Hancock
Whitney account. Virtually all of Chaleplis’ capital
contributions were deposited into Rodger’s Citizen Bank IOLTA
attorney trust account for intended transfer to One World’s bank
accounts. The Complaint alleges that Onoufriadis opened three
separate accounts with Citizens Bank for the sole reason of
allowing Rodgers, Karloutsos, and himself to misappropriate
Chaleplis’ capital contributions.
B.
Chaleplis Invests in the Greek Medicinal Cannabis
Market
Karloutsos, Rodgers, and Onoufriadis met again with
Chaleplis in New York City on March 17, 2018. In this meeting,
they proposed to Chaleplis that One World invest in the Greek
medicinal cannabis market.
At the March 17, 2018 meeting, Karloutsos, Rodgers, and
Onoufriadis presented Chaleplis with a budget that they claimed
itemized the estimated cost to capitalize and launch the
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business. In exchange for providing funding, One World was
supposed to receive an equity interest in the new Greek
companies and in Conmave, a Greek single-member company that was
supposed to hold One World’s proceeds in escrow temporarily
until bank accounts could be opened for the new cannabis
companies.
Following the meeting, and in order to invest in the
cannabis market, they recommended that One World invest in new
Greek companies, which would then use the funds to apply for
licensing, pay governmental and lobbying expenses, purchase land
and equipment, and all other necessary services to establish and
operate the medicinal cannabis business. Because the Greek
cannabis market was “publicly perceived with distrust,”
Onoufriadis, Rodgers, and Karloutsos recommended that Chaleplis
himself not be a shareholder in any of these new companies, but
that the new companies should be owned and controlled by
individuals known to Onoufriadis, Rodgers, and Karloutsos. Id.
at ¶¶ 74-75.
Chaleplis made the following capital contributions into One
World for the purpose of capitalizing the medicinal cannabis
project: €2,700,000 on March 19, 2018; €10,400,000 on March 30,
2018; and €2,180,000 on December 21, 2018. These funds were
transferred into Rodgers’ Citizens Bank attorney trust account
for intended transfer into One World’s accounts. The funds from
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the pre-December 2017 investments were transferred to Conmave in
three wire transactions as follows: $1,813,945 on May 22, 2018;
$1,167,900 on June 18, 2018; and $1,693,455 again on June 18,
2018. In total, Chaleplis transferred approximately €4,000,000
to Conmave.
Following Chaleplis’ foregoing capital contributions,
Karloutsos and Rodgers, among others, formed three new Greek
companies: (i) Bioprocann, S.A. (“Bioprocann”); (ii) Leadercann,
S.A.; and (iii) Hellascann, S.A. As planned, and for the purpose
of investing in the medicinal cannabis scam, Karloutsos,
Rodgers, and Onoufriadis organized the ownership structure of
shareholders to guarantee that they would control the three
companies. Under this arrangement, Chaleplis would be excluded
from monitoring the companies’ business operations in the
future.
C.
Rodgers and Karloutsos Misappropriate Funds Invested
by Chaleplis
The Complaint alleges that Onoufriadis, Karloutsos, and
Rodgers misappropriated over $9,000,000 of the funds Chaleplis
invested into One World. The scheme was carried out by first
wiring funds from One World into either Conmave or Bioprocann.
The three men attempted to disguise the scheme by issuing
promissory notes for the amounts wired which listed the entity
receiving the money, i.e. Conmave or Bioprocann, as both the
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obligor and the guarantor on the loan. As such, these loans were
essentially unsecured. Neither Conmave nor Bioprocann has made
any repayment on these “loans.”
Next, the funds were transferred in smaller amounts into
either Rodgers’ attorney trust account or another account
controlled by Rodgers, Karloutsos, or Onoufriadis. Each of
Defendants’ alleged misappropriations are laid out in detail on
pages 50-59 of the Complaint, including the date of the
misappropriation, the amount, and which bank accounts the money
was transferred to and from. Due to Defendants’ alleged
misappropriation of funds, Plaintiffs are currently out of
pocket approximately $9,000,000 that Chaleplis contributed
towards One World.
D.
Karloutsos and Rodgers’ Use of Converted Funds
Plaintiffs alleged that Karloutsos and Rodgers used One
World’s money to pay for personal expenses and homes they could
not otherwise afford. Plaintiffs admit that both men financed
their respective home purchases with conventional bank mortgage
loans: Karloutsos used conventional mortgage financing to
purchase a home in McLean, Virginia for $1,270,000 on September
1, 2018, and Rodgers also used conventional mortgage financing
to purchase a townhouse in Philadelphia for $491,000 on November
15, 2018.
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Plaintiffs allege that neither Karloutsos nor Rodgers would
have cleared enough cash from the sale of their previously owned
homes to afford the respective down payment on their new homes.
According to the Complaint, Karloutsos sold his prior home,
which was subject to a $678,000 outstanding mortgage, for
$847,500. Rodgers sold his prior residence for $163,000 seven
months after purchasing his new home.
The Complaint makes a number of further assertions
regarding Karloutsos’ personal finances. Specifically,
Plaintiffs allege that he took out a $2,112,500 business loan in
2006 to finance a restaurant venture in Philadelphia. They
further allege that (1) there is a $36,179 default judgment
outstanding against him, and (2) in his sworn March 23, 2017
Office of Government Ethics Public Financial Disclosure Report,
he disclosed under oath that “(i) Karloutsos’s business was his
consulting/lobbying company MAK; (ii) that his annual income
from MAK for ‘consulting’ was between $100,000 and $125,000
annually; (iii) that he only had $15,000 to $50,000 in his Wells
Fargo personal bank account; and (iv) that he has personal
business ties to Greece and Cyprus.” Id. at ¶ 23. Based on these
facts, Plaintiffs argue that Karloutsos would have been unable
to purchase his Virginia home without the use of Plaintiff’s
misappropriated funds.
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E.
Related Proceedings in Other Courts
The parties in this case, as well as several others, are
prosecuting and defending, respectively, related claims in
multiple fora. Plaintiffs filed a nearly identical lawsuit in
the U.S. District Court for the Southern District of New York in
2020, but the amended complaint in that case also included two
RICO counts. Also, unlike in this case, Onoufriadis and
Canncore, Inc. were named as defendants. Then-Chief Judge
McMahon first found that Plaintiffs failed to state RICO claims,
and that, therefore, there was no federal question jurisdiction.
See One World, LLC v. Onoufriadis, No. 20-cv-5802, 2021 WL
184400, at *11-*13 (S.D.N.Y. Jan 19, 2021). Nor was there
diversity jurisdiction. Judge McMahon noted that because
Onoufriadis, a citizen of Greece, and Plaintiffs, citizens of
the United Kingdom, were all foreign citizens, “the presence of
aliens on two sides of a case [as in the N.Y. case] destroy[ed]
diversity jurisdiction.” Id. (quoting Corporacion Venezolana de
Formento de Vintero Sales Corp., 629 F.2d 786, 790 (2d Cir.
1980)).
Having dismissed Plaintiffs’ federal claims for lack of
jurisdiction, Judge McMahon declined to exercise supplemental
jurisdiction over the remaining state law claims and dismissed
them without prejudice. See id. at *15. Plaintiffs appealed this
decision to the Second Circuit, who affirmed the district
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court’s order and judgment. See One World, LLC v. Onoufriadis,
No. 21-cv-374, 2021 WL 4452070, at *3 (2d Cir. Sept. 29, 2021).
Meanwhile, back in Greece, Plaintiffs also filed a lawsuit
against Conmave and its principals in July 2021. See One World,
LLC v. Conmave, et al., General Filing No. 52277/2020, Specific
Filing No. 5698/2020. Plaintiffs were granted a temporary
restraining order by the Greek court enjoining the Greek
defendants from selling automobiles and boats that they
allegedly purchased using the money that was transferred from
One World to Conmave.
Plaintiffs also filed a memorandum of lis pendens in
Virginia state court against Karloutsos’ home prior to the start
of this case. Plaintiffs later agreed to discharge the lis
pendens to allow Karloutsos to sell the home subject to the
proceeds of the sale being placed in escrow pending the outcome
of the case.
On January 13, 2021, Onoufriadis filed a complaint in
Massachusetts state court against Chaleplis and One World,
bringing claims for unpaid wages, breach of contract and
fiduciary duty, and malicious prosecution. Chaleplis and One
World removed the action to the District of Massachusetts, where
a motion to remand is currently pending. See Onoufriadis v. One
World, et al., No. 21-cv-10085. The Karloutsos and Rodgers
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defendants are not parties to the District of Massachusetts
action.
Finally, Plaintiffs filed the instant Complaint in this
Court on March 29, 2021. The Complaint brings the following
thirteen counts:
I.
Conversion against all defendants;
II.
Conspiracy to commit conversion against all
defendants;
III.
Aiding and abetting conversion against all
defendants;
IV.
V.
VI.
VII.
VIII.
IX.
X.
Breach of One World, LLC operating agreement against
James M. Rodgers;
Breach of fiduciary duty of loyalty against Rodgers
and Karloutsos;
Breach of fiduciary duty of care against Rodgers and
Karloutsos;
Breach of fiduciary duty - usurping corporate
opportunity against Rodgers and Karloutsos;
Unjust enrichment against all defendants;
Accounting against Rodgers and Karloutsos;
Constructive trust against all defendants and
Rodgers’ and Karloutsos’ personal residences;
XI.
Declaratory judgment as to Rodgers’ and Karloutsos’
personal residences;
XII.
Alter-ego as to Karloutsos and MAK and as to
Rodgers, Rodgers Investments, and James M. Rodgers,
P.C.; and
XIII.
Legal fraud and fraud in the inducement against
Karloutsos and Rodgers.
The aforementioned motions were subsequently filed and
briefed and are now ripe before the court.
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III. LEGAL STANDARD
A party may move to dismiss a complaint for failure to
state a claim upon which relief can be granted. Fed. R. Civ. P.
12(b)(6). When considering such a motion, the Court must “accept
as true all allegations in the complaint and all reasonable
inferences that can be drawn therefrom, and view them in the
light most favorable to the non-moving party.” DeBenedictis v.
Merrill Lynch & Co., 492 F.3d 209, 215 (3d Cir. 2007) (quoting
Rocks v. City of Philadelphia, 868 F.2d 644, 645 (3d Cir.
1989)).
To withstand a motion to dismiss, the complaint’s
“[f]actual allegations must be enough to raise a right to relief
above the speculative level.” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555 (2007). This “requires more than labels and
conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Id. Although a plaintiff is
entitled to all reasonable inferences from the facts alleged, a
plaintiff’s legal conclusions are not entitled to deference, and
the Court is “not bound to accept as true a legal conclusion
couched as a factual allegation.” Papasan v. Allain, 478 U.S.
265, 286 (1986).
The pleadings must contain sufficient factual allegations
so as to state a facially plausible claim for relief. See,
e.g., Gelman v. State Farm Mut. Auto. Ins. Co., 583 F.3d 187,
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190 (3d Cir. 2009). “A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for
the misconduct alleged.” Id. (quoting Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009)). In deciding a Rule 12(b)(6) motion, the
Court limits its inquiry to the facts alleged in the complaint
and its attachments, matters of public record, and undisputedly
authentic documents if the complainant’s claims are based upon
these documents. See Jordan v. Fox, Rothschild, O’Brien &
Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994); Pension Benefit
Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196
(3d Cir. 1993).
IV.
DISCUSSION
A.
Karloutsos’ 12(b)(2) Motion to Dismiss for Lack of
Personal Jurisdiction
Karloutsos moves to dismiss on the grounds that this Court
lacks personal jurisdiction over him. He first argues he is not
subject to general jurisdiction in Pennsylvania because he moved
from Pennsylvania to Virginia before the events that gave rise
to this case occurred, and because his company, MAK, though a
Pennsylvania LLC, has not had any office or business address in
Pennsylvania since 2017. He next argues that he is not subject
to specific jurisdiction because Plaintiffs do not allege
sufficient minimum contacts between him and Pennsylvania. While
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Karloutsos may be correct that he is not subject to general
jurisdiction in Pennsylvania, Plaintiffs have plainly alleged
minimum contacts between Karloutsos and Pennsylvania concerning
this case that would subject him to specific personal
jurisdiction in Pennsylvania.
Specific personal jurisdiction exists in a given case when:
(1) the defendant “purposefully directed” its activities at the
forum; (2) the litigation arises out of or relates to at least
one of those activities; and (3) the exercise of jurisdiction
comports with notions of “fair play and substantial justice.”
O’Connor v. Sandy Lane Hotel Co., 496 F.3d 312, 317 (3d Cir.
2007) (citations and internal quotation marks omitted). Physical
presence in the forum is not required. See Burger King v.
Rudzewicz, 471 U.S. 462, 476 (1985) (same).
To survive a motion to dismiss for lack of personal
jurisdiction, the plaintiff bears the burden of establishing the
court’s jurisdiction over the moving defendant. See Miller Yacht
Sales, Inc. v. Smith, 384 F.3d 93, 97 (3d Cir. 2004). A district
court deciding a challenge to its jurisdiction over a defendant
has discretion to either hold an evidentiary hearing on the
motion or to decide it based on the parties’ submissions. See
id. (considering a district court’s ruling on a 12(b)(2) motion
without holding an evidentiary hearing); Doe v. Hesketh, 15 F.
Supp. 3d 586, 591 (E.D. Pa. 2014) (quoting Charles Alan Wright &
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Arthur R. Miller, Federal Practice and Procedure § 1351 (3d ed.
2013) (“A district court considering a challenge to its
jurisdiction over a defendant has ‘considerable leeway in
choosing a methodology for deciding the motion.’”)).
If the court elects not to hold an evidentiary hearing, the
plaintiff need only establish a prima facie case of personal
jurisdiction. In evaluating the plaintiff’s case, the court
takes the plaintiff’s allegations as true and construes all
factual inferences in the plaintiff’s favor. See Miller Yacht
Sales, Inc., 384 F.3d at 97. Here, because there are no
significant factual disputes that would necessitate an
evidentiary hearing on the issue of personal jurisdiction, the
Court elects to decide the motion based on the allegations of
the Complaint. Plaintiffs’ allegations are therefore taken as
true and any factual disputes are construed in their favor.
This is a fraud case in which a conspiracy is alleged.
“[U]nder Pennsylvania law personal jurisdiction of a non-forum
coconspirator may be asserted [] where a plaintiff demonstrates
that substantial acts in furtherance of the conspiracy occurred
in Pennsylvania and that the non-forum coconspirator was aware
or should have been aware of those acts.” O’Shaughnessy v.
Palazzo, 496 F. Supp. 3d 872, 880 (E.D. Pa. 2020) (alteration in
original) (citation omitted); see also Arnold v. Chenery Mgmt.,
Inc., 2014 WL 10919595, at *9 (Super. Ct. Pa. May 23, 2014)
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(quoting Ethanol Partners Accredited v. Weiner, Zuckerbrot,
Weiss & Beicher, 635 F. Supp. 15, 18 (E.D. Pa. 1985)) (“When coconspirators have sufficient contacts with the forum, so that
due process would not be violated, it is imputed against the
‘foreign’ co-conspirators who allege that there [are] not
sufficient contacts; co-conspirators are agents for each
other.”) (alteration in original); cf. Commonwealth ex rel.
Pappert v. TAP Pharm. Prods., Inc., 868 A.2d 624, 632 (Pa. Comm.
Ct. 2005) (declining to exercise personal jurisdiction over a
foreign co-conspirator because “the allegations [were] simply
insufficient to establish that [the defendant] participated in,
or knew of, the alleged conspiracy”).
In O’Shaughnessy, another fraud case, there was only “one
principal act alleged to have taken place in Pennsylvania - the
sending of the instructions for the disbursement of money by
non-movant Mr. Thompson from Bethlehem, Pennsylvania to nondefendant Mr. Cumbie in Florida,” but Judge McHugh found that
one allegation sufficient to constitute a “substantial act in
furtherance of the conspiracy,” and exercised personal
jurisdiction over the foreign defendant. Id. at 881.
Here, Plaintiffs allege that their funds were fraudulently
misappropriated by Defendants, including Karloutsos, by
transferring those misappropriated funds through the Rodgers
IOLTA Account at a Citizens Bank branch in Pennsylvania to other
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accounts owned and controlled by Defendants. This is more
substantial than the conduct alleged in O’Shaughnessy, as there
were actual transfers of money occurring in Pennsylvania.
Therefore, these allegations are certainly sufficient to
constitute a “substantial act in furtherance of the conspiracy.”
See id.
Plaintiffs also make several allegations that, if true,
collectively demonstrate that Karloutsos was aware of the
alleged fraudulent transfers of funds through Rodgers’s IOLTA
account. These allegations include, inter alia, the following:
•
•
•
•
•
•
•
Karloutsos recommended that Chaleplis involve Rodgers
as a formal officer to assist in managing One World
and handling the company’s legal work since Karloutsos
could not “publicly” participate in One World’s
management;
Karloutsos entered into an unwritten oral “side deal”
to split Rodgers’s profit-sharing interest in One
World 50/50;
Although Karloutsos was not publicly mentioned in the
Operating Agreement, he was involved in managing the
business operations of One World;
Karloutsos attended meetings wherein he and Rodgers,
among others, tried to convince Chaleplis to enter
into and pursue the Greek medicinal cannabis market;
Karloutsos helped convince Chaleplis that Chaleplis
should not be one of the shareholders of any of the
new companies formed in Greece and that the companies
must be owned and controlled by individuals under
their own influence (i.e., the influence of
Karloutsos, Rodgers, and Onoufriadis);
Karloutsos helped convince Chaleplis that his
investments must be structured as convertible loans to
the new Greek companies;
Karloutsos intentionally misrepresented the realities
regarding the inability to open Greek bank accounts
for some of the new cannabis companies, and helped
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•
•
•
•
•
•
•
•
•
convince Chaleplis that Conmave, a Greek single member
company owned by a co-conspirator, would hold One
World’s proceeds in escrow temporarily until bank
accounts could be opened for the new companies;
Karloutsos helped to prepare fraudulent promissory
notes describing One World as the “lender,” and both
the “borrower” and the “guarantor” as Conmave, without
obtaining any actual security interest from Conmave;
Chaleplis made the capital contributions for the
medicinal cannabis venture into Rodgers’s IOLTA
account;
On May 3, 2018, $200,000 belonging to Plaintiffs was
transferred from the Rodgers IOLTA account to the
Rodgers Investments account (both with Citizens Bank),
which was then transferred to Karloutsos’s personal
Wells Fargo account on May 4, 2018;
On July 31, 2018, $20,000 belonging to Plaintiffs was
transferred from the Rodgers IOLTA account to the
Rodgers Investments account, which was then
transferred to Karloutsos’s MAK account with Wells
Fargo;
On August 6, 2018, $20,000 belonging to Plaintiffs was
transferred from the Rodgers IOLTA account to the
Rodgers Investments account, which was then
transferred to Karloutsos’s MAK account;
On August 7, 2018, $50,000 belonging to Plaintiffs was
transferred directly from Rodgers’s IOLTA account to
Karloutsos’s personal Wells Fargo account;
On August 8, 2018, $110,000 belonging to Plaintiffs
was transferred from the Rodgers IOLTA account to the
Rodgers Investments account, which was then
transferred to Karloutsos’s personal Wells Fargo
account;
On June 11, 2019, $148,000 belonging to Plaintiffs was
transferred from the Rodgers IOLTA account to the
Rodgers Investments account, which was then
transferred to Karloutsos’s personal Wells Fargo
account on June 13, 2019;
On February 28, 2020, $20,000 belonging to Plaintiffs
was transferred from the Rodgers IOLTA account to the
Rodgers Investments account, which was then
transferred to Karloutsos’s personal Wells Fargo
account; and
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•
Karloutsos purchased a home in Virginia that he was in
no financial position to purchase without converting
Plaintiffs’ funds based upon his financial condition
at the time he commenced his position with the U.S.
State Department in mid-2017, as confirmed by his OGE
certified disclosures under penalty of perjury
concerning his financial holdings, annual income and
assets at that time.
Compl. ¶¶ 18-19, 41, 43, 59-60, 68-69, 75-76, 87, 91, 124-26,
177, 204. These allegations, which the Court must take as true
at this stage, demonstrate that Karloutsos knew that Plaintiff’s
funds were being misappropriated by transferring them through
the Rodgers IOLTA account at a Citizens Bank branch in
Pennsylvania to other accounts owned and controlled by
Defendants.
Finally, Karloutsos does not advance any reason why
exercising personal jurisdiction over him in this case would not
comport with notions of fair play and substantial justice.
Because Plaintiffs have made a prima facie showing that the
Court can exercise personal jurisdiction over Karloutsos, his
12(b)(2) motion will be denied.
B.
The Karloutsos Defendants’ 12(b)(6) Motion to Dismiss
1.
Choice of Law
MAK and Karloutsos (the “moving Defendants”) first argue
that New York law should apply to this case. Plaintiffs’
response argues that Pennsylvania law should apply. However,
both parties acknowledge that there are no significant
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differences between the two jurisdictions with respect to the
underlying claims in this case. Def’s. Mot. at 11, ECF No. 20-1
(“[R]egardless of whether New York of Pennsylvania law governs,
plaintiffs fail to plead any valid claim”); Pl’s Resp. at 11,
ECF No. 35 (“In the instant matter, the laws of Pennsylvania and
New York concerning the underlying claims in this matter are not
in conflict.”). Because the application of either New York or
Pennsylvania law would not change the result on any issue in the
case, any potential difference between them would be no more
than a “false conflict.” See Berg Chilling Sys., Inc. v. Hull
Corp., 435 F.3d 455, 462 (3d Cir. 2006). Under these
circumstances, the Court will conduct no further analysis on the
choice-of-law question, and “applies the law of Pennsylvania as
it is the law of the forum in which the Court sits.” Phoenix
Lithographing Corp. v. Bind Rite Servs., Inc., 27 F. Supp. 3d
636, 640 (E.D. Pa. 2014).
2.
Counts I, II, and III: Conversion
Counts I, II, and III of the Complaint allege claims for
conversion, conspiracy to commit conversion, and aiding and
abetting conversion, respectively, against the Karloutsos
Defendants.
With respect to Count I, the Karloutsos defendants argue
that Plaintiffs fail to state a claim for conversion of
Plaintiffs’ money because they do not allege that either
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Karloutsos or MAK took possession of specifically identifiable
funds belonging to Plaintiffs. This argument is unpersuasive, as
the Complaint details at least ten banking transfers totaling
over $600,000 of Plaintiffs’ funds received by the Karloutsos
Defendants. The allegations specifically allege the amount,
date, recipient, account holder, and bank involved in each
transfer. Whether these funds truly belonged to Plaintiffs or to
other parties is a question of fact to be determined at a later
stage. In any event, Plaintiffs have pled a plausible conversion
claim.
The Motion further argues that Count II should be
dismissed, but their argument in this regard rests on the
previous argument that Plaintiffs have not stated a claim for
conversion, the underlying offense to the alleged conspiracy.
See Bandy v. Hill, No. 18-cv-0425, 2019 WL 1259155, at *8 (E.D.
Pa. Mar. 18, 2019) (dismissing a claim for conspiracy to commit
conversion because the plaintiff did not state an underlying
conversion claim). However, as previously discussed, Plaintiffs
have stated a claim for conversion. Accordingly, the Karloutsos
Defendants’ motion to dismiss will be denied as to Count II.
The Karloutsos Defendants further argue that Plaintiff’s
claim for aiding and abetting conversion, as stated in Count
III, is not a recognized claim under Pennsylvania law. In
support of this argument, they cite Canters Deli Las Vegas, LLC
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v. FreedomPay, Inc., 460 F. Supp. 3d 560, 576 (E.D. Pa. 2020).
The Canters Deli court noted in a footnote that “[t]o the extent
Plaintiffs characterize this claim as one for aiding and
abetting conversion, it is not clear that such a claim exists.”
460 F. Supp. 3d at 576 n.9. The Canters Deli court cited to
Mifflinburg Telegraph, Inc. v. Criswell, 277 F. Supp. 3d 750
(M.D. Pa. 2017), which concluded that no “aiding and abetting
conversion” tort existed in Pennsylvania, as it could not
identify any Pennsylvania case in which such a claim was
recognized. Mifflinburg Telegraph, Inc., 277 F. Supp. 3d at 795;
see also Regional Produce Cooperative Corp. v. T.D. Bank, N.A.,
No. 19-cv-1883, 2020 WL 1444888, at *6 (E.D. Pa. Mar. 24, 2020)
(citing Mifflinburg and reaching the same conclusion).
While the Canters Deli, Mifflinburg, and Regional Produce
courts doubted that Pennsylvania recognized a claim for aiding
and abetting conversion, a more recent case from the
Pennsylvania Superior Court, Marion v. Bryn Mawr Trust Co., 253
A.3d 682 (Pa. Super. Ct. 2021), suggests otherwise. In Marion,
the court considered whether a claim for aiding and abetting
fraud was recognized under Pennsylvania law. Marion, 253 A.3d at
687-90. The court noted that while no Pennsylvania case
recognized a claim for “aiding and abetting fraud” specifically,
the claim could be more accurately construed as a claim for
“concerted tortious conduct,” which is recognized under
25
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Pennsylvania law. Id. at 689. The Superior Court concluded that
the plaintiff’s styling of the claim as “aiding and abetting
fraud” rather than “concerted tortious action” was not
dispositive. Id. Thus, based on Marion, it seems that
Pennsylvania law does recognize a claim for aiding and abetting
conversion under the rubric of concerted tortious conduct.
The Pennsylvania Supreme Court has adopted the elements
stated in section 867 of the Restatement (Second) of Torts to
constitute the claim of concerted tortious conduct. HRANEC Sheet
Metal, Inc. v. Metalico Pittsburgh, Inc., 107 A.3d 114, 120 (Pa.
2014). Under section 867, a defendant is liable for concerted
tortious conduct if he:
(a) does a tortious act in concert with the other or
pursuant to a common design with him, or
(b) knows that the other’s conduct constitutes a
breach of duty and gives substantial assistance or
encouragement to the other so to conduct himself, or
(c) gives substantial assistance to the other in
accomplishing a tortious result and his own conduct,
separately considered, constitutes a breach of duty to
the third person.
Restatement (Second) of Torts § 867.
While Plaintiff’s Count III claim is styled “aiding and
abetting conversion,” it states a plausible claim for concerted
tortious conduct under Pennsylvania law. Count III alleges a
tortious act (conversion) performed under a common design
between Karloutsos and others to misappropriate Plaintiffs’
26
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funds, in which each provided substantial assistance to the
other by participating in the meetings where the scheme was
allegedly devised. Accordingly, Defendants’ motion to dismiss
will be denied as to Count III.
3.
Counts V-VII: Breach of Fiduciary Duties
Counts V, VI, and VII allege claims for breach of the
fiduciary duty of loyalty, breach of fiduciary duty of care, and
breach of fiduciary duty - usurping corporate opportunity,
respectively. The Karloutsos Defendants essentially argue in
their motion that because Karloutsos never held a formal
position or entered into an agency relationship with One World
or Chaleplis, he did not owe Plaintiffs a fiduciary duty.
But one does not have to hold a formal employment
relationship with another to owe a fiduciary duty—rather,
“[f]iduciary or confidential relationships arise when one party
places confidence in another with resulting superiority and
influence on the other.” Jairett v. First Montauk Securities
Corp., 153 F. Supp. 2d 562, 567 (E.D. Pa. 2001) (internal
citations and quotation marks omitted); see also Frowen v.
Blank, 425 A.2d 412, 416-17 (Pa. 1981) (finding that a fiduciary
duty “appears when the circumstances make it certain the parties
do not deal on equal terms, but, on one side there is an
overmastering influence, or, on the other, weakness, dependence
or trust, justifiably reposed”). The question of whether such a
27
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relationship exists is “fact specific and cannot be reduced to a
particular set of facts or circumstances.” Yenchi v. Ameriprise
Financial, Inc., 161 A.3d 811, 820 (Pa. 2017).
Plaintiffs have pled sufficient facts to plausibly state
the existence of a fiduciary relationship between them and
Karloutsos at this stage. The Complaint alleges, inter alia,
that Karloutsos acted as a “trusted agent” of One World and, in
that regard, worked “silently” with Onoufriadis and Rodgers on
Plaintiffs’ behalf “to research, identify, pursue, develop and
consummate American business opportunities and investments for
Chaleplis’ investment company that was ultimately One World.”
Compl. ¶¶ 29, 214, ECF No. 1. The Complaint specifically states
that Chaleplis felt he could trust Karloutsos because of his
close relationship with Onoufriadis, his experience in Greek and
American politics, his political and social connections in the
U.S., his father’s position within the Greek Orthodox Church,
and his purported consulting experience. Compl. ¶ 15. This
alleged trust Chaleplis placed in Karloutsos is sufficient to
state a fiduciary relationship at the motion to dismiss stage.
The Karloutsos Defendants’ motion to dismiss will therefore be
denied as to Counts V-VII of the Complaint.
4.
Count VIII: Unjust Enrichment
The elements of unjust enrichment in Pennsylvania are (1)
benefits conferred on the defendant by the plaintiff, (2)
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appreciation of such benefits by the defendant, and (3)
acceptance and retention of such benefits under such
circumstances that it would be inequitable for defendant to
retain the benefit without payment of value. Stoeckinger v.
Presidential Fin. Corp. of Delaware Valley, 948 A.2d 828, 933
(Pa. 2008) (citing Styer v. Hugo, 619 A.2d 347, 350 (Pa. Super.
Ct. 1993)). “[T]he most significant element of the doctrine is
whether the enrichment of the defendant is unjust.” Id. (citing
Styer, 619 A.2d at 350) (emphasis in original).
The Karloutsos Defendants argue that Plaintiffs fail to
plead facts to plausibly state that they were unjustly enriched.
Their reasoning in this regard mirrors that in their argument
seeking dismissal of Plaintiffs’ conversion claim—namely, that
despite what is asserted in the Complaint, the payments received
by the Karloutsos defendants were legitimate. Again, as
discussed with respect to conversion, these counterfactual
arguments do not carry the day at this stage. The allegations
contained in the Complaint, which the Court accepts as true for
the purposes of a 12(b)(6) motion, detail with specificity at
least ten transfers to the Karloutsos Defendants that were not
justified by the initial agreement. Plaintiffs have therefore
stated a plausible claim for unjust enrichment at this stage.
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5.
Count IX: Accounting
“An equitable accounting is improper where no fiduciary
relationship exists between the parties . . . or the plaintiff
possesses an adequate remedy at law.” Rock v. Pyle, 720 A.2d
137, 142 (Pa. Super. Ct. 1998) (emphasis in original). Moving
Defendants argue that Plaintiffs are not entitled to an
accounting from Karloutsos because no fiduciary relationship
exists between the parties, inter se. Additionally, they contend
that Plaintiffs have asserted other legal claims for damages,
and therefore, that Plaintiffs have an adequate remedy at law.
As explained in section IV(B)(3), above, Plaintiffs have
sufficiently pled a fiduciary relationship at this stage.
Furthermore, because Plaintiffs are entitled to plead in the
alternative, the fact that they have asserted other claims for
damages in other counts of the Complaint does not bar this
claim. See Fed. R. Civ. P. 8(d)(2). Thus, whether Plaintiffs
possess an adequate remedy at law is not ripe for resolution at
this stage.
6.
Count X: Constructive Trust
In Count X, Plaintiffs seek, inter alia, a constructive
trust upon all assets of the Karloutsos Defendants. The
Karloutsos Defendants’ motion requests that Count X be dismissed
because Pennsylvania does not recognize a separate cause of
action for constructive trust; rather, constructive trust is an
30
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equitable remedy. See Buchanan v. Brentwood Fed. Sav. and Loan
Ass’n, 320 A.2d 117, 126 (Pa. 1974) (“A constructive trust . . .
is not really a trust at all but rather an equitable remedy.”);
Brock & Co., Inc. v. Kings Row Assocs., No. 04-cv-2096, 2004 WL
2624864, at *5 (E.D. Pa. Nov. 17, 2004) (noting that “a
constructive trust is an equitable remedy and not a separate,
specific cause of action”).
In addition to constructive trust not being recognized as
an independent cause of action under Pennsylvania law,
Plaintiffs’ claim for constructive trust is redundant, as
Plaintiffs already request a constructive trust as a remedy for
their other claims. As such, rather than grant the motion to
dismiss as to Plaintiffs’ Count X claim for constructive trust
on the merits, the Court will exercise its discretion under Fed.
R. Civ. P. 12(f)(1) to strike Count X from the Complaint as a
standalone claim. See Fed. R. Civ. P. 12(f)(1).
7.
Count XI: Declaratory Judgment
In Count XI, Plaintiffs seek a declaratory judgment
adjudicating that Plaintiffs are the rightful title owners of
both Karloutsos’s house in Virginia and Rodgers’ condominium in
Philadelphia based on their allegations that Karloutsos and
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Rodgers used funds misappropriated from Plaintiffs to pay for
them.
There are several problems with Plaintiffs’ declaratory
judgment claim. First, the allegations that Karloutsos and
Rodgers used Plaintiffs’ misappropriated funds toward the
purchases of their respective homes are too conclusory to
satisfy Plaintiffs’ pleading standard. The Complaint does not
contain any details about Rodgers’ personal finances and does
nothing to show why he and his wife would not have been able to
afford a twenty percent down payment on a townhouse that
allegedly cost $491,000. Compl. ¶¶ 178-80. The Complaint
similarly alleges that Karloutsos would not have been able to
afford a down payment on his home based only on financial
disclosures he made over a year before purchasing the home and
the amount he made from the sale of his previous residence.
These allegations fall short of stating a plausible claim that
Plaintiffs are entitled to a judgment on the facts stated that
they are the rightful title owners to these properties.
Second, even if Plaintiffs had pled sufficient facts to
trace the fruits of the conversion directly into the purchases
of Defendants’ respective homes, the Court could not declare
Plaintiffs sole title owners because they acknowledge that both
Rodgers and Chaleplis purchased these homes with conventional
mortgage financing. At most, Plaintiffs could be entitled to the
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amount of money derived from the stolen funds and used as a down
payment. Because the homes were purchased with conventional
mortgage financing and no more than a twenty percent down
payment was required, any recovery would be limited to the
amount of the down payment. See Compl. ¶¶ 175, 180. In any
event, the Court could not declare Plaintiffs titled owners of
the properties over the senior interests of the holders of the
respective mortgages. 3
Because Plaintiffs have failed to plead a plausible claim
for a declaratory judgment, and because the Court finds that any
amendment of the claim would be futile, Count XI is dismissed
with prejudice.
8.
Count XII: Alter Ego
In Count XII, Plaintiffs allege a claim for alter ego to
pierce the corporate veil of MAK and hold Karloutsos liable for
MAK’s actions and conduct in allegedly misappropriating
Plaintiffs’ funds. Count XII also claims that Rodgers
Investments and James M. Rodgers, P.C. are alter egos of
3
Plaintiffs’ request for a declaratory judgment, even if only applied to
the misappropriated funds used toward the down payments on the respective
homes, would still be improper as duplicative of their other requested
relief. “[I]f a party seeks declaratory relief that is redundant with claims
already presented, courts may dismiss the claim which seeks declaratory
relief for failure to state a claim under Federal Rule of Civil Procedure
12(b)(6).” Carlson v. Amica Mut. Ins. Co., No. 17-cv-4621, 2021 WL 10809978,
at *3 (E.D. Pa. Mar. 12, 2018) (citing Malibu Media, LLC v. [Redacted], 705
Fed. Appx. 402, 406 (6th Cir. 2017)). As Plaintiffs already seek money
damages pursuant to their remaining claims, a declaratory judgment entitling
them to any funds used to purchase Defendants’ homes would be “redundant with
claims already presented.” Id.
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Rodgers. The Karloutsos Defendants argue in their 12(b)(6)
motion that Plaintiffs fail to plead facts to support their
alter ego claim.
Under Pennsylvania law, the following factors are
considered in deciding whether to pierce the corporate veil:
“undercapitalization, failure to adhere to corporate
formalities, substantial intermingling of corporate and personal
affairs and use of the corporate form to perpetrate a fraud.”
Lumax Indus., Inc. v. Aultman, 669 A.2d 893, 895 (Pa. 1995)
(quoting Kaites v. Dept. of Envtl. Res., 529 A.2d 1148, 1151
(Pa. Comm. Ct. 1987)).
Count XII alleges that MAK (1) is owned by Karloutsos; (2)
“is operated and managed by Karloutsos”; (3) “has confused,
commingled and intermingled its business assets and business
operations”; (4) “failed to observe any corporate formalities”;
(5) “has no corporate records”; (6) “is insolvent except for the
funds misappropriated from [Plaintiffs]”; (7) “had any and all
of its funds and/or [Plaintiffs’] funds siphoned away by
Karloutsos”; (8) “was used to advance Karloutsos’ own personal
efforts to misappropriate [Plaintiffs’] funds”; and (9)
“Karloutsos used MAK to perpetrate fraud and conversion upon
[Plaintiffs] as detailed above while having absolutely no
business operations or legitimate business purposes whatsoever
34
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for MAK.” Compl. ¶ 273. Plaintiffs repeat virtually the same
allegations with respect to Rodgers and his companies.
Nearly all the above allegations are conclusions that are
unsupported by any alleged facts. The Complaint contains no
specific examples of either Karloutsos’ or Rodgers’ lack of
respect for the corporate form. Instead, the Complaint advances
a recitation of the factors courts consider in evaluating
whether to pierce the corporate veil. As the Supreme Court
warned in Twombly, “a formulaic recitation of the elements of a
cause of action will not do” to survive a motion to dismiss.
Twombly, 550 U.S. at 555.
Plaintiffs have failed to state a plausible claim that MAK,
Rodgers Investments, or James M. Rodgers, P.C. are alter egos of
either Karloutsos or Rodgers, so the Karloutsos Defendants’
motion is granted as Count XII. Because there is no indication
that amendment would be futile with respect to this claim, it is
dismissed without prejudice and with leave to amend.
9.
Count XIII: Fraud
To state a claim for fraud under Pennsylvania law, a
plaintiff must show “(1) a representation; (2) which is material
to the transaction at hand; (3) made falsely, with knowledge of
its falsity or recklessness as to whether it is true or false;
(4) with the intent of misleading another into relying on it;
(5) justifiable reliance on the misrepresentation;
35
and (6) the
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resulting injury was proximately caused by the reliance.” Gibbs
v. Ernst, 647 A.2d 882, 889 (Pa. 1994).
Federal Rule of Civil Procedure 9(b) requires a party to
plead “with particularity the circumstances constituting fraud
or mistake.” Fed. R. Civ. P. 9(b). Such particularity in
pleading must be sufficient to “place the defendants on notice
of the precise misconduct with which they are charged[.]”
Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d
786, 791 (3d Cir. 1984), abrogated on other grounds, Williams v.
Medley Opp. Fund II, LP, 965 F.3d 229, 242 (3d Cir. 2020).
Plaintiffs have not satisfied the particularity
requirements of Rule 9(b) in pleading their fraud claim. The
Complaint fails to identify with specificity any fraudulent
representation made by either Karloutsos or Rodgers, claiming
instead that “they at all times advised Chaleplis that the
Medicinal Cannabis Scam was a legitimate business and
investment, and that One World’s/Chaleplis’ monies would be
and/or were being used to finance that purported opportunity.”
Compl. ¶ 277. In lieu of identifying a particular representation
from either defendant, the Complaint relies on the allegation
that “at no time did Onoufriadis, Rodgers and/or Karloutsos ever
disclose to Chaleplis and/or any One World representative that
they were systematically siphoning, diverting, and
misappropriating Plaintiffs [sic] funds behind Plaintiffs’ back
36
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direct from One World’s and Rodgers’ IOLTA accounts to
themselves and/or their defendant third-party companies.” Id. at
¶ 278. These allegations are too vague and conclusory to allow
the Court to infer that either Karloutsos or Rodgers
specifically made any representation with the intent to defraud
plaintiffs.
Moreover, the Complaint provides little detail about
Defendants’ respective roles in the scheme and leaves unclear
how much of the alleged fraud is attributable to non-party
Onoufriadis. This method of collective pleading does not satisfy
the requirements of Rule 9(b). See In re Supreme Specialties,
Inc. Sec. Lit., 438 F.3d 256, 282 (3d Cir. 2006) (“[P]laintiffs’
manner of pleading their claim collectively, through blanket
allegations against numerous different defendants, runs afoul of
the particularity requirements of . . . Rule 9(b).”). In short,
the allegations supporting Plaintiffs’ fraud claim fail to place
each defendant individually “on notice of the precise misconduct
with which [he is] charged[.]” Seville Indus. Mach. Corp., 742
F.2d at 791.
Because Plaintiff’s fraud claim is not pled with sufficient
particularity under Rule 9(b), the Karloutsos Defendants’ motion
will be granted as to Count XIII. Due to the possibility that
Plaintiffs may add additional facts to support a claim for
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fraud, it is dismissed without prejudice and with leave to
amend.
C.
Rodgers Defendants’ Motion to Dismiss under R.
12(b)(6)
Most of the Rodgers Defendants’ 12(b)(6) motion is
essentially an unacknowledged word-for-word copy of Karloutsos’
motion to dismiss in the SDNY case. The plagiarism is apparent
given that (a) Rodgers failed to change out the references to
Karloutsos on pages 5 and 9 of the brief (e.g., the brief states
“Plaintiffs Fail to State an Unjust Enrichment Claim Against
Karloutsos” rather than “Plaintiffs Fail to State an Unjust
Enrichment Claim Against Rodgers”); (b) the brief clearly
addresses the claims in the SDNY complaint, rather than the
instant Complaint (e.g., page 9 states that “Count VII of the
complaint purports to state an unjust enrichment claim against
all defendants,” but Count VII of this Complaint is actually a
breach of fiduciary claim); and (c) the brief fails to cite to a
single Pennsylvania, Eastern District of Pennsylvania, or Third
Circuit case, instead relying on the New York, Southern District
of New York, and Second Circuit cases cited in Karloutsos’s SDNY
brief.
The Court does not take Rodgers’ plagiarism lightly.
Rodgers is a member of the Pennsylvania Bar and is thus subject
to the Pennsylvania Rules of Professional Conduct. An
38
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unacknowledged appropriation of another lawyer’s work for use in
court is prohibited by Rule 3.3, which requires candor to the
tribunal, and is sanctionable conduct under Fed. R. Civ. P. 11.
See generally Conboy v. United States Small Bus. Admin., 992
F.3d 153, 158 (3d Cir. 2021) (“[T]he copy-and-paste jobs before
us reflect a dereliction of duty, not an honest mistake.”).
In any event, as Rodgers’ 12(b)(6) motion cites to no
Pennsylvania, Eastern District of Pennsylvania, or Third Circuit
authority applicable to the present action, the motion will be
denied.
D.
Karloutsos Defendants’ Motion under Fed. R. Civ. P.
12(b)(7), 12(f), 19, and 28 U.S.C. § 1404
This motion by the Karloutsos Defendants makes three main
arguments: (1) that Onoufriadis, who was not joined to this
action as a defendant, is a necessary and indispensable party
under Fed. R. Civ. P. 19, which requires the Court to dismiss
the action according to Fed. R. Civ. P. 12(b)(7); (2) that,
alternatively, the Court should transfer the case to the
Southern District of New York according to 28 U.S.C. § 1404; and
(3) that the Court should strike certain language from
paragraphs 24 and 61 of the Complaint pursuant to Fed. R. Civ.
P. 12(f). For the reasons enumerated below, all three arguments
are unpersuasive.
39
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1.
Necessary and Indispensable Party
In analyzing whether the joinder of a party is compulsory
under Rule 19, a district court first determines whether the
absent party should be joined as a necessary party under Rule
19(a). See Gen. Refractories Co. v. First State Ins. Co., 500
F.3d 306, 312 (3d. Cir. 2007). If the absent party is necessary,
but their joinder is not feasible (i.e. it will defeat diversity
of citizenship), the court next determines whether the party is
indispensable under Rule 19(b). See id. When a necessary and
indispensable party’s joinder is not feasible, the court may
dismiss the action. Fed. R. Civ. P. 19(b).
Onoufriadis is not a necessary party under Rule 19(a). An
absent party is necessary if:
(A) in the person’s absence, the court cannot accord
complete relief among existing parties; or
(B)
the person claims an interest relating to the
subject of the action and is so situated that the
disposition of the action in the person’s absence may:
(i)
as a practical matter impair or impede the
person’s ability to protect that interest; or
(ii) leave any of the persons already parties subject
to a substantial risk of incurring double, multiple,
or otherwise inconsistent obligations by reason of
the claimed interest.
Fed. R. Civ. P. 19(a)(1).
Karloutsos first argues that Onoufriadis is a necessary
party because, as the “mastermind” of the alleged scheme, the
court “cannot afford complete relief among existing parties.”
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Id. at 19(a)(1)(A). But this argument ignores clear Third
Circuit precedent “that [Rule] 19 does not require the joinder
of joint tortfeasors.” Lomando v. United States, 667 F.3d 363,
384 (3rd Cir. 2011) (citation omitted); see also Temple v.
Synthes Corp., 498 U.S. 5, 7 (1990) (“It has long been the rule
that it is not necessary for all joint tortfeasors to be named
as defendants in a single lawsuit.”). And contrary to
Karloutsos’ assertions, the doctrine of joint and several
liability allows the Court to grant full relief to the
Plaintiffs in this action even in the absence of Onoufriadis.
Karloutsos further argues that Onoufriadis is a necessary
party under Rule 19(a)(1)(B)(ii) because the possibility of
future actions for contribution between the named defendants and
Onoufriadis subjects existing parties to “a substantial risk of
incurring double, multiple, or otherwise inconsistent
allegations because of [his] interest.” Fed. R. Civ. P.
19(a)(1)(B)(i). But this is again inconsistent with Third
Circuit precedent, which states that Rule 19 does not require
the joinder of persons against whom named parties may have a
later claim for contribution. See Bank of Am. Nat. Tr. & Sav.
Ass’n v. Hotel Rittenhouse Assocs., 844 F.2d 1050, 1054 (3d Cir.
1988) (“A defendant’s right to contribution . . . from an absent
non-diverse party does not render that absentee indispensable
pursuant to Rule 19.”).
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As Onoufriadis is not a necessary party under Rule 19(a),
the Court need not consider whether he is an indispensable party
under Rule 19(b). But even if Onoufriadis were a necessary party
under Rule 19(a), he is not an indispensable party. Rule 19(b)
instructs courts to consider the following four factors in
determining whether a party is indispensable:
(1) the extent to which a judgment rendered in the
person’s absence might prejudice that person or the
existing parties;
(2) the extent to which any prejudice could be lessened
or avoided by:
(A) protective provisions in the judgment;
(B) shaping the relief; or
(C) other measures;
(3) whether a judgment rendered in the person’s absence
would be adequate; and
(4) whether the plaintiff would have an adequate remedy
if the action were dismissed for nonjoinder.
Fed. R. Civ. P. 19(b).
The first two factors overlap with the “necessary party”
analysis in Rule 19(a). And again, potential future actions for
contribution or indemnity from absent non-diverse parties do not
render those parties indispensable. See Bank of Am. Nat. Tr. &
Sav. Ass’n, 844 F.2d at 1054. The third factor also weighs
against Karloutsos, as the doctrine of joint and several
liability allows complete relief to be afforded to Plaintiffs
even in Onoufriadis’ absence. The fourth factor is the only one
that may weigh in favor of indispensability, because Plaintiffs
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could presumably bring the action in Pennsylvania state court if
it were dismissed for nonjoinder. But taken as a whole, the Rule
19(b) factors require a finding that even if Onoufriadis is a
necessary party under Rule 19(a), he is not indispensable.
Accordingly, Karloutsos’ request that the Court dismiss the case
pursuant to Rule 19 will be denied.
The Rodgers Defendants also filed a motion to dismiss for
failure to join an indispensable party (ECF No. 42) that tags
along with the arguments made in Karloutsos’ motion. As such,
the preceding analysis also applies to Rodgers Defendants’
motion, and it will also be denied.
2.
Motion to Transfer Venue
Pursuant to 28 U.S.C. § 1404(a), “[f]or the convenience of
parties and witnesses, in the interest of justice, a district
court may transfer any civil action to any other district or
division where it might have been brought or to any district or
division to which all parties have consented.” “Once it has been
established that another forum would be proper, the defendant
bears the burden of showing, on the balance of public and
private factors, the considerations weigh strongly in favor of
transfer.” Aamco Transmission, Inc. v. Johnson, 641 F. Supp. 2d
464, 466 (E.D. Pa. 2009) (internal quotation marks omitted); see
also Jumara v. State Farm Ins. Co., 55 F.3d 873, 879 (3d Cir.
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1995) (“The burden of establishing the need for transfer still
rests with the movant.”).
The well-rehearsed factors to be considered include: (a) as
to public factors, (1) the enforceability of judgment, (2)
practical considerations that could make the trial easy,
expeditious, or inexpensive, (3) the relative administrative
difficulty in the two fora resulting from court congestion, (4)
the local interest in deciding local controversies at home, (5)
the public policies of the fora, and (6) the familiarity of the
trial judge with the applicable state law in diversity cases;
(b) as to private factors, (1) the plaintiffs’ forum choice, (2)
the defendants’ preference, (3) whether the claim arose
elsewhere, (4) the convenience of the parties according to their
relative physical and financial condition, (5) the convenience
of the witnesses, and (6) the location of books and records. See
Jumara, 55 F.3d at 879-880.
Karloutsos argues the action should be transferred because
(a) most of the business meetings between the parties allegedly
occurred in New York and (b) because most of the parties and
potential witnesses are not currently residents of Pennsylvania.
However, as Judge McMahon noted in her opinion dismissing the
case from the Southern District of New York, none of the parties
are New York residents. One World, LLC, 2021 WL 184400, at *14.
Given this fact, Karloutsos’ choice of forum is entitled to no
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weight. To the contrary, the fact that the allegedly fraudulent
transfers of funds happened within the Eastern District of
Pennsylvania, and that at least one of the parties resides in
this district, this district has at least as much of a
connection with the case as exists in the Southern District of
New York, if not more. In sum, Karloutsos has fallen well short
of satisfying his burden of showing that the public and private
factors weigh in favor of transfer. His motion to transfer venue
will be denied.
3.
Motion to Strike Language from Paragraphs 24 and
61 of the Complaint
Karloutsos’ motion to strike is untimely. Rule 12(f)(2)
allows courts to strike redundant, immaterial, impertinent, or
scandalous matters from pleadings “on motion made by a party
either before responding to the pleading or, if a response is
not allowed, within 21 days after being served with the
pleading.” Fed. R. Civ. P. 12(f)(2). Karloutsos’ motion to
strike was filed over two months after his first motion to
dismiss (ECF No. 15), which served as his response to the
Complaint. As such, the motion was not filed within the time
allotted by Rule 12(f)(2), so it will be denied.
E.
Rodgers’ Motion for Sanctions
Rule 11(b)(1) prohibits a party or attorney from presenting
an argument “for any improper purpose, such as to harass, cause
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unnecessary delay, or needlessly increase the cost of
litigation.” Fed. R. Civ. P. 11(b)(1). The Rodgers Defendants’
motion for sanctions argues that (1) Plaintiffs and their
counsel are using this action to improperly intimidate,
discredit, and retaliate against Rodgers for reporting to
Chaleplis that Rodgers suspected Chaleplis was using One World
for criminal conduct, namely, manufacturing fake invoices to
facilitate bank transfers; (2) Plaintiffs are improperly using
judicial process to manufacture diversity jurisdiction because
the SDNY case was dismissed for lack of diversity jurisdiction
and the case has now been filed here without the defendant
(Onoufriadis) that would defeat diversity jurisdiction; (3)
Plaintiffs have engaged in abusive litigation tactics for
failing to inform Rodgers of subpoenas of his banking records
and corporate filings stemming from related actions in Boston;
and (4) Plaintiffs failed to properly investigate.
These arguments are all at best premature. For example, as
previously discussed, Plaintiffs were not required to join
Onoufriadis as a defendant in this action, so his omission does
not constitute “manufacturing diversity jurisdiction.”
Furthermore, many of Rodgers’ arguments are based on disputed
facts, which the Court cannot properly consider at this stage.
Rodgers’ motion for sanctions is consequently denied.
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V.
CONCLUSION
For the foregoing reasons, the Karloutsos Defendants’
motion to dismiss under Fed. R. Civ. P. 12(b)(6) (ECF No. 20)
will be granted as to Counts XI (declaratory judgment), XII
(alter ego), and XIII (fraud) and denied as to the remainder of
Plaintiff’s claims. Count XI (declaratory judgment) will be
dismissed with prejudice. Counts XII (alter ego) and XIII
(fraud) will be dismissed without prejudice and with leave to
amend.
Count X of the Complaint (constructive trust) will be
stricken pursuant to Fed. R. Civ. P. 12(f)(1).
The remaining motions to dismiss, transfer venue, strike,
or award sanctions (ECF Nos. 15, 19, 23, 40, 42) will be denied.
An appropriate order follows.
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