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Tan v. Det-Co, Inc.

United States District Court, D. Colorado

February 15, 2018

MELIH TAN and PAMELA TAN, Plaintiffs,


          Nina Y. Wang United States Magistrate Judge.

         This 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.


         Plaintiffs 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 Motion.

         The First Transaction: Firehouse Defendants

         Mr. and 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].[1]

         The Second Transaction: the Isabelle Property

         After 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.

         In 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].

         Purchase and Closing of the Firehouse Defendants

         On 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].

         The 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 Defendants.” [Id.]

         To 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 title.

[Id. at ¶ 48].

         Purchase and Closing of the Isabelle Property

         Deep 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 Assignment Contract”).

[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].

         Alleged Damages and Relief Sought

         The 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].

         Mr. and 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.


         Defendants, 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].

         Plaintiffs 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 Reply. [#53].

         On 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 [#58].


         I. Federal Rule of Civil Procedure 8(a)

         Every 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).

         II. Fed.R.Civ.P. 12(b)(6)

         Under 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).

         Rather, “[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).

         III. Fed.R.Civ.P. 19

         Rule 19 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 ...

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