United States District Court, D. Colorado
MEMORANDUM OPINION AND ORDER
Y. Wang United States Magistrate Judge.
matter comes before the court on Defendants'
“Motion to Dismiss Or, Alternatively, For a More
Definite Statement and Incorporated Memorandum of Law”
(“Motion to Dismiss”). [#27, filed August 18,
2017]. The Motion to Dismiss is before the undersigned
Magistrate Judge pursuant to the 28 U.S.C. § 636(c) and
the Orders of Reference dated September 1, 2017 [#31] and
October 12, 2017 [#54]. After carefully reviewing the Motion
to Dismiss and related briefing, the entire case file, and
the applicable case law, the court GRANTS
the Motion to Dismiss.
Melih Tan and Pamela Tan (collectively,
“Plaintiffs” or “the Tans”) initiated
this civil action on July 10, 2017, to assert various state
law claims arising out of a business agreement providing for
the purchase and sale of a fifty percent equity interest in
and management control of a collection of medical marijuana
businesses and related assets located in Denver, Colorado
(the “Original Purchase Agreement”). [#1 at
¶ 15]. The following allegations are derived from the
Complaint, and are taken as true for the purposes of this
First Transaction: Firehouse Defendants
Mrs. Tan allege that non-party Thomas Waldron, Sr.
(“Mr. Waldron, Sr.”) entered into the Original
Purchase Agreement with non-party Kim Gataeno, and that they
(the Tans) advanced $1 million “to create the
opportunity to buy” the following Defendants, subject
to the Original Purchase Agreement: Firehouse Organics
Central, LLC; Firehouse Organic North, LLC; and Firehouse
Organic South, LLC (collectively, “Firehouse
Defendants”). The Tans placed the $1 million into
escrow with Ms. Gataeno, whom the Tans allege “broke
escrow to use over $725, 000 of the purchase funds to buy
real estate and placed title to the real estate in an entity
outside the Firehouse entities which were the subject of the
purchase agreement.” [Id. at ¶ 20]. The
Tans identify Star-Tek Holdings, LLC (“Star-Tek”)
as the entity that took title to the real estate purchased
with the escrowed funds. [Id. at ¶ 39].
Plaintiffs also allege that Ms. Gataeno “purported to
declare the contract ‘null and void' due to, among
other things, alleged misrepresentations by Waldron to
Gaetano and a failure to meet the licensing requirements of
Colorado law at the time the contract was executed.”
[Id. at ¶ 21].
Second Transaction: the Isabelle Property
the First Transaction failed, Mr. Waldron, Sr. began working
with Defendant Jared Penman “to assist in the
development and growth of his own [medical marijuana]
business, ” named herein as Defendant Rino Supply Co.,
Inc. (“Rino”). [#1 at ¶ 25]. The Tans allege
that Mr. Waldron, Sr. located a potential “grow”
facility in Lafayette, Colorado (the “Isabelle
Property”) and obtained “funds from
investors-like the Tans-in exchange for an eighty percent
share of the combined Rino business and Isabella Property
[sic].” [Id. at ¶ 27]. Defendant Penman
retained the other twenty percent share, [id.], and
engaged Defendant Gary West as the “day-to-day
construction manager” to oversee the conversion of the
Isabelle Property. [Id. at ¶ 28]. Mr.
Waldron's son, Thomas Waldron, Jr., identified in the
Complaint as “Tom Jr.” (identified herein as
“Mr. Waldron, Jr.” or “Tom Jr.”),
entered into a lease of the Isabelle Property through his
entity New Alternatives Consulting, LLC (“NAC”),
“with an eye towards developing the site and then
buying it.” [Id. at ¶ 29]. Tom Jr. then
collaborated with Defendant West to form Deep Blue
Enterprises, LLC (“Deep Blue”) “to further
the efforts of the venture, ” and Tom Jr. gave
Defendant West a fifty percent interest in NAC. On May 21,
2012, Deep Blue entered into a contract to purchase the
Isabelle Property for $1, 650, 000; an $110, 000 earnest
money deposit was due by October 1, 2012, with the balance
due by July 23, 2014.
addition to paying rent under the lease and producing the
earnest money deposit under the purchase contract, the Tans
allege that NAC and Deep Blue “were responsible for
paying all costs and expenses associated with the Isabelle
Property, including taxes, once they had executed the lease
and the purchase contract”; that “NAC and Deep
Blue obtained the funds to do so from loans or advances by
investors, including the Tans”; and that “the
Tans directly or indirectly through their family's
entity, Evren Partners, LLC, advanced over $350, 000 for
those expenses and others relating to the Rino/Isabelle
Property enterprise.” [Id. at ¶ 31].
and Closing of the Firehouse Defendants
December 31, 2013, Defendant West formed Defendant Det-CO,
Inc. (“Det-CO”) under Colorado law “to act
as the purchaser” of the Firehouse Defendants.
[Id. at ¶ 38]. Approximately two weeks later,
Ms. Gataeno and Det-CO entered into a Stock and Membership
Interests Purchase Agreement (the “January Purchase
Agreement”), which provided that Det-CO would purchase
the stock and membership interests in the Firehouse
Defendants, as well as Star-Tek, for $2.1 million.
[Id. at ¶ 39]. Over $440, 000 of the purchase
price was to be set aside to satisfy a judgment held by
Thomas Murphy against Ms. Gataeno (the “Murphy
Judgment”) which the Tans assert could have interfered
with the purchase and sale. [Id.] The January
Purchase Agreement specified that it was “contingent
upon governmental approval for the change of ownership of the
Company, any financing associate therewith [sic], and the
Associated Key Medical Marijuana licenses, ” and
required that Det-CO “make a full and accurate truthful
and timely disclosure of all of the sources of [its]
financing…and all of the principal parties involved in
the purchase of [the] property” to the Colorado
Marijuana Enforcement Division (“MED”) and the
Department of Excise and Licensing in the City of Denver (the
“DEL”). [Id. at ¶ 40].
Tans allege that, ultimately, the MED determined it would
approve the purchase “as long as Waldron and Tom Jr.
did not have any direct or indirect ownership or profits
participation in any of the licensed MMJ business entities
(i.e., the Firehouse Defendants).” [Id. at
¶ 42]. However, “the regulators did not prohibit
the Tans or any of the other investors from holding an
interest in the regulated entities or their profits”;
“[n]or did the regulators prohibit Waldron or Tom Jr.
from holding interests in real estate used by the Firehouse
address these requirements, Ms. Gaetano and Det-CO entered
into an amended agreement (the “Amended Purchase
Agreement”) to distinguish the purchase and sale of the
Firehouse Defendants from the purchase and sale of the real
estate entities (held by Star-Tek and another entity).
[Id. at ¶ 43]. The closing of Det-CO's
purchase of the Firehouse Defendants began on July 11, 2014.
The Tans assert that, “[b]ecause the original purchase
and sale transaction had been split into two tranches, the
consideration provided for buying 100 percent of the MMJ
business was an agreement to satisfy the Murphy Judgment,
” and that “consideration was met through
execution of a $535, 077.50 promissory note from Det-CO to
Murphy, payable at the rate of $10, 000 per month.”
[Id. at ¶ 45]. The Tans allege as follows:
Neither West nor Penman paid any money to purchase the
Firehouse Defendants business and they did not guaranty the
payments to be made to Murphy. The Tans, on the other hand,
had advanced over one million dollars to lock up the Original
Purchase Agreement, which in turn made the Amended Purchase
Agreement transaction possible.
[Id. at ¶ 46].
The Tans agreed to allow the Firehouse Defendants to be
purchased by Det-CO with West and Penman as the original
owners of that entity. The Tans reasonably believed West and
Penman when they promised that they (and Det-CO) would
restructure ownership in the entity to reflect the 80/20
Split agreed to by the parties once the purchase had closed
and approvals for such a license transfer were obtained.
[Id. at ¶ 47].
If the Defendants had not made such a commitment, the Tans
would have objected to the transaction and sued or otherwise
taken actions to stop Det-CO (or West and Penman) from taking
[Id. at ¶ 48].
and Closing of the Isabelle Property
Blue was scheduled to pay the balance of the purchase price
for the Isabelle Property on July 23, 2014, approximately two
weeks after Det-CO was scheduled to close on its purchase of
the Firehouse Defendants. [#1 at ¶ 49]. The Tans allege
that although Deep Blue had secured the balance “from
seven individuals and entities, ” and Tom Jr. demanded
that the closing occur as scheduled, Defendant West
“suddenly refused to do so.” [Id.] The
Tans allege that Defendants Penman and West had engineered an
alternative plan, as follows:
[they] caused an entity owned or controlled by Penman
(Isabelle I, LLC) to enter into a “back-up”
contract in the event Deep Blue did not close as scheduled.
Isabelle I, LLC in turn assigned its right to purchase the
Isabelle Property to TCG Assets, Inc. (“TCG
Assets”) in exchange for TCG Assets' agreement to
buy the property and then lease it to defendant Rino, an
entity also controlled by Penman, with an option to purchase
the property at the end of the lease term (the “TCG
[Id. at ¶¶ 50, 51]. The Tans assert that,
on August 12, 2014, as required by the TCG Assignment
Contract, TCG Assets and Rino executed a two-year lease of
the Isabelle Property with an option to purchase the property
for $1, 900, 000 during the lease term; Rino exercised the
option in August 2016 and is now the owner of the Isabelle
Property. [Id. at ¶¶ 52, 53]. The Tans
contend that Defendant West's “wrongful refusal to
close on the original Isabelle Property contract allowed that
property to be stripped away from the Tans and other
investors and provides defendants Rino and the Individual
Defendants with a multi-million dollar windfall to the
detriment of the Tans.” [Id. at ¶ 54].
Damages and Relief Sought
Tans assert that Defendants owe them “fiduciary and
other duties to treat them fairly, in good faith, with
loyalty, and reasonable care and to undertake the purchase
transactions for the benefit of the Tans and the other
investors.” [#1 at ¶ 55]. They allege that to
date, $5, 000 is all they have received from Defendants for
their $1.3 million investment. [Id. at ¶ 58].
To that end, the Tans assert the following claims: for
Declaratory Judgment; “Breach of Contracts/Duty of Good
Faith And fair dealing”; Promissory Estoppel; Unjust
Enrichment; Breach of Fiduciary Duty; Aiding and Abetting;
Civil Conspiracy; and Conversion/Theft. See [#1].
They seek “the imposition of a constructive trust,
and/or a transfer of ownership interests in Det-CO/Firehouse,
Rino, and the Isabella Property [sic] among the Individual
Defendants, the Plaintiffs, and others”; “an
accounting and disgorgement of profits earned by
DetCO/Firehouse, Rino, and for the Isabella Property [sic]
during the applicable period”; “restitution under
principles of unjust enrichment and/or damages to compensate
Plaintiffs for the harms caused by the Defendants'
breaches of duty and torts, ” in addition or in the
alternative; and “punitive or exemplary damages in such
amounts supported by the law and facts.” [Id.
at ¶¶ 64-67].
Mrs. Tan are citizens of Florida, and assert that Defendants
Penman and West are citizens of Colorado, Defendants Det-CO
and Rino are Colorado corporations, and the Firehouse
Defendants are diverse limited liability companies.
See [#1 at ¶¶ 4-12]. The court thus
exercises jurisdiction under 28 U.S.C. § 1332.
with the exception of Firehouse Organic South, LLC, filed the
pending Motion to Dismiss on August 18, 2017. See
[#27]. They argue essentially that the Complaint fails to set
forth a short and plain statement of the claims showing that
Plaintiffs are entitled to relief, as required by Federal
Rule of Civil Procedure 8(a). They further argue that
Plaintiffs fail to include seven indispensable parties, at
least one of whom, Mr. Waldron, Jr., would destroy diversity
jurisdiction. For support, Defendants reference the verified
complaint used to commence an action in Boulder County
approximately two weeks after Plaintiffs initiated the
present action, Thomas S. Waldron Jr., et al. v. Gary
West, et al., No. 2017-cv-30738 (Colo. Dist. Ct. Jul.
23, 2017) (“Waldron v. West”). [#27 at
3, n.2; #53-1].
filed a Response to the Motion to Dismiss on September 28,
2017, [#40]. On October 5, 2017, the court converted the
originally-planned Scheduling Conference into a Status
Conference to discuss the briefing of the Motion to Dismiss,
and reset the Scheduling Conference to occur on December 7,
2017. See [#48]. Defendants thereafter filed a
October 16, 2017, Defendants filed an unopposed motion to
stay discovery and pretrial deadlines pending disposition of
the Motion to Dismiss. [#55]. The court granted the motion in
part and stayed discovery, but denied the motion to the
extent it sought to vacate the Scheduling Conference and
rather reset it for March 20, 2018. See [#56].
Plaintiffs thereafter filed a notice of voluntary dismissal
with respect to Firehouse Organic South, LLC. See
Federal Rule of Civil Procedure 8(a)
complaint filed in federal court is subject to Rule 8(a) of
the Federal Rules of Civil Procedure. Rule 8(a) requires a
“short and plain statement of the claim showing that
the pleader is entitled to relief.” Fed.R.Civ.P.
8(a)(2). Under Rule 8(a), an operative pleading need only
give the opposing side fair notice of the basis of the
claims; the Rule is not intended to facilitate consideration
of the merits of a claim at that stage. Swierkiewicz v.
Sorema N. A., 534 U.S. 506, 514 (2002). However,
“a complaint must explain what each defendant did to
him or her; when the defendant did it; how the
defendant's actions harmed him or her; and, what specific
legal right the plaintiff believes the defendant
violated.” Nasious v. Two Unknown B.I.C.E.
Agents, 492 F.3d 1158, 1163 (10th Cir. 2007).
Rule 12(b)(6), a court may dismiss a complaint for
“failure to state a claim upon which relief can be
granted.” Fed.R.Civ.P. 12(b)(6). In deciding a motion
under Rule 12(b)(6), the court must “accept as true all
well-pleaded factual allegations … and view these
allegations in the light most favorable to the
plaintiff.” Casanova v. Ulibarri, 595 F.3d
1120, 1124 (10th Cir. 2010) (quoting Smith v. United
States, 561 F.3d 1090, 1098 (10th Cir. 2009)). However,
a plaintiff may not rely on mere labels or conclusions,
“and a formulaic recitation of the elements of a cause
of action will not do.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007).
“[t]o survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to state
a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
Plausibility refers “to the scope of the allegations in
a complaint: if they are so general that they encompass a
wide swath of conduct, much of it innocent, then the
plaintiffs ‘have not nudged their claims across the
line from conceivable to plausible.'” Robbins
v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008)
(citation omitted). “The burden is on the plaintiff to
frame ‘a complaint with enough factual matter (taken as
true) to suggest' that he or she is entitled to
relief.” Id. The ultimate duty of the court is
to “determine whether the complaint sufficiently
alleges facts supporting all the elements necessary to
establish an entitlement to relief under the legal theory
proposed.” Forest Guardians v. Forsgren, 478
F.3d 1149, 1160 (10th Cir. 2007).
requires joinder of additional parties if the party to be
joined is subject to service of process and joinder will not
deprive the court of subject-matter jurisdiction, and if one
of two conditions is met. Fed.R.Civ.P. 19(a)(1). The first
consideration is whether, in the absence of the additional
parties, complete relief could be accorded to the existing
party. See Sac & Fox Nation of Missouri v.
Norton, 240 F.3d 1250, 1258 (10th Cir. 2001). The second
consideration is whether disposition of the action without
the participation of the additional parties would impair, as
a practical matter, the existing party's ability to
protect his interests or subject him to inconsistent
outcomes. Fed.R.Civ.P. 19(a)(1)(A)-(B). A party that is
necessary under Rule 19(a) who can be joined should be