Mazo v. Merritt

          ORDER ON MOTIONS TO DISMISS

          R. BROOKE JACKSON UNITED STATES DISTRICT JUDGE

         There are two partial motions to dismiss before the Court. First, the original plaintiffs- now acting as counterclaim defendants-Josse Anthony Mazo, Maritza Riascos, and Mazo-Riascos M.D., LLC (“M-R, LLC”) move to dismiss the first and second claims set forth in defendants' counterclaim. Mot. to Dismiss, ECF No. 22; Defs.' Answer to Am. Compl., Counterclaims, Crossclaims, and Joinder of Parties, ECF No. 11. Second, counterclaim defendant Full Spectrum Nutrition Int, Inc. (“FSN Int”) moves to dismiss the first, second, third, fourth, seventh, and eighth claims in the counterclaim. Mot. to Dismiss, ECF No. 32. For the reasons stated below, the first motion to dismiss, ECF No. 22, is GRANTED, and the second motion to dismiss, ECF No. 32, is GRANTED in part and DENIED in part.

         I. BACKGROUND

         Plaintiffs' amended complaint alleges very basic facts of a business deal gone wrong. See Am. Compl., ECF No. 8. Plaintiffs, who are married, are medical doctors from Florida. From May 2017 to August 2017, Drs. Mazo and Riascos allege that they invested $1.1 million in two of defendant John Merritt's businesses, Full Spectrum Nutrition, LLC (“FSN, LLC”) and Full Spectrum Nutrition, Inc. (“FSN, Inc.”) (collectively referred to as “Full Spectrum Nutrition” or “FSN”). Id. at ¶24. Full Spectrum Nutrition sells cannabis-derived products such as cannabidiol (“CBD”).^[1] Plaintiffs' allege that they decided to invest in Full Spectrum Nutrition only after Mr. Merritt wrongfully induced them to invest in his companies by using false financial reports, false projected cash flows, and false projected profits and losses. ECF No. 8 at ¶22.

         Plaintiffs allege that Mr. Merritt was to use plaintiffs' money for two specific purposes: (1) to expand Full Spectrum Nutrition's office in Colorado Springs, and (2) to purchase CBD-infused products as nutritional supplements so the company could sell the products at retail prices. Id. at ¶23. Instead, plaintiffs allege that Mr. Merritt comingled their investment money and used it to fund two of his other businesses-a wildlife refuge and a bottled water company called “iRescue.” Id. Both companies are based in Costa Rica. Id. Plaintiffs seek to recover their lost investment.

         Mr. Merritt tells a different story. He alleges that Dr. Mazo was a wholesale purchaser of Mr. Merritt's CBD-products produced and sold by FSN. ECF No. 48 at ¶3. According to Mr. Merritt, Mr. Mazo expressed interest in breaking into the CBD-business and wanted to invest in FSN, Inc. Id. After plaintiffs invested $1.1 million into Mr. Merritt's companies, Mr. Merritt alleges that plaintiffs conspired to steal his companies. Id. at ¶4. The alleged conspiracy first included embezzling assets, looting FSN's facility, and stealing FSN's CBD-products. Id. at ¶5. Counterclaim defendants then allegedly started new companies using similar names as Mr. Merritt's companies to launder money, sell the stolen products, and cash illegal checks. Id.

         However, a careful reading of the counterclaim appears to show that the real culprits of the alleged wrongdoing are three named counterclaim defendants who were yet to be served at the time of the April 10, 2018 scheduling conference: Bryan Ferrero, Douglas Bishop, and Natalia Swindler.^[2] See ECF No. 48 at ¶64. Mr. Ferrero became acquainted with Mr. Merritt in August 2016, and later became an initial investor, shareholder, and board member of FSN, Inc. Id. at ¶¶27, 34. Mr. Bishop presumably got involved in FSN when his cousin, Mr. Ferrero, convinced him to invest in Mr. Merritt's companies. Mr. Bishop is a shareholder and board member of FSN, Inc. Id. at ¶18. Finally, Ms. Swindler was an employee of FSN, and according to Mr. Merritt, Ms. Swindler and Mr. Ferrero were romantically involved. Id. at ¶51. In November 2017, Mr. Merritt fired Ms. Swindler for “poor performance and disruptive behavior, ” which, according to him, potentially served as the catalyst for the alleged conspiracy. Id. at ¶¶55, 62. The counterclaim asserts that Mr. Ferrero, Mr. Bishop, and Ms. Swindler, “and potentially Mazo and Riascos, ” launched a campaign to take over FSN. Id. at ¶62. The counterclaim continues, stating that “Swindler, Ferrero, and D. Bishop quickly contacted Mazo, making false accusations and telling him lies about Merritt's conduct, in an effort to turn Mazo against Merritt and stage a coup.” Id. at ¶64. The main reason Mr. Merritt believes that Mr. Mazo was involved in the alleged conspiracy is because Mr. Mazo made an unannounced visit to FSN, LLC's facility on November 20, 2017. Id. at ¶54. Mr. Merritt suspects that Mr. Mazo made this trip on this date because Mr. Merritt was at a trade exposition in Medellin, Colombia. Id. This opening provided Mr. Mazo an opportunity to inspect the profit and loss statements, bank balances, and product inventory, which showed an inventory of $392, 000 of CBD product. Id. In the alternative, the counterclaim states that Mr. Mazo and Ms. Riascos may have already been part of the conspiracy. Id. at ¶65.

         Procedural History

         Plaintiffs filed their complaint on April 10, 2018. ECF No. 1. They filed an amended complaint on May 22, 2018, making it the operative complaint. ECF No. 8. Defendants filed an answer to the amended complaint, and as part of that answer, filed a lengthy counterclaim.^[3] ECF No. 11. Plaintiffs, now acting as counterclaim defendants, filed two partial motions to dismiss defendants' counterclaim. ECF Nos. 22, 32. Defendants filed a response to both motions, ECF Nos. 23, 45, and plaintiffs replied to the first response, ECF No. 25, but not the second response. As such, both motions are ripe for review, and I address each one below.

         II. STANDARD OF REVIEW

         To survive a Fed.R.Civ.P. 12(b)(6) motion to dismiss, the complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A plausible claim is a claim that “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While the Court must accept the well-pleaded allegations of the complaint as true and construe them in the light most favorable to the plaintiff, Robbins v. Wilkie, 300 F.3d 1208, 1210 (10th Cir. 2002), conclusory allegations are not entitled to be presumed true. Iqbal, 556 U.S. at 681. However, so long as the plaintiff offers sufficient factual allegations such that the right to relief is raised above the speculative level, he has met the threshold pleading standard. See, e.g., Twombly, 550 U.S. at 556; Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008).

         III. ANALYSIS

         A. Counterclaim Defendants Mazo, Riascos, and M-R, LLC's Motion to Dismiss the First and Second Claims of the Counterclaim.

         Counterclaim defendants (Mazo, Riascos, and M-R, LLC) argue that counterclaim plaintiffs' (Merritt, FSN, LLC, and Merritt as a shareholder on behalf of FSN, Inc.) RICO and COCCA claims should be dismissed for failure to state a claim upon which relief may be granted.^[4] I agree.

         1. RICO and COCCA Claims for Relief.

         In their motion and response, the parties treat the RICO claim and COCCA claim in the exact same manner. Therefore, the Court will do the same.^[5]

         Counterclaim defendants' first argument is that neither claim alleges any wrongdoing by M-R, LLC. ECF No. 22 at 6. They next argue that any allegations against Mazo and Riascos are conclusory and fail the heightened pleading standards set forth in Fed.R.Civ.P. 9(b). See Id. at 6-8. Finally, counterclaim defendants argue that counterclaim plaintiffs failed to properly allege a RICO violation-specifically, the “continuity” requirement. Id. at 8. They allege that the allegations amount to nothing more than a single, narrowly focused scheme with no threat of future harm. Id. at 8-9.

         In response, counterclaim plaintiffs argue that the movants engaged in a pattern of racketeering activities aimed at stealing Merritt's companies and those companies' assets and intellectual property. ECF No. 23 at 6. Counterclaim plaintiffs alleged that M-R, LLC, which Mazo and Riascos control, was and is part of this conspiracy; the LLC was used as one of many shell companies to funnel and hide the money and assets that the counterclaim defendants stole from Merritt. Id. at 3-7. In responding to the continuity argument, counterclaim plaintiffs argue that they properly plead both closed- and open-ended continuity. Id. at 12. After citing paragraphs 122 and 135 of the counterclaims, counterclaim plaintiffs state the following:

Taken as a whole, Merritt has alleged facts in his counterclaim that show that Josse Mazo and his wife Riascos both conspired and acted directly to commit multiple illegal acts with the ongoing goal of taking over, converting the assets of, and/or otherwise destroying and continuing to destroy John Merritt's businesses, trademarks, websites, brands, goodwill, assets, and reputation in the industry and community; and that they will continue to engage in this behavior in the future against not only Merritt, but by implication, anyone else they do business with. Counterclaims at ¶¶ 51-111.

Id. at 12-13 (emphasis added).

         Because I find counterclaim defendants' continuity argument dispositive, I focus exclusively on that argument.

         2. The “Continuity” Requirement of RICO.

         To prevail on their RICO claim, counterclaim plaintiffs must allege four elements: “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Robbins, 300 F.3d at 1210 (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985)). To “prove a pattern of racketeering activity, ” counterclaim plaintiffs “must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity.” See H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 240-42 (1989) (emphasis in original). In this case, the parties do not dispute that the acts complained of are ...