Grow Mich., LLC v. LT Lender, LLC

GROW MICHIGAN, LLC, Plaintiff, v. LT LENDER, LLC, JERRY REINHARDT, JOHN REINHARDT, BRUCE CAMPBELL, PAUL SHAMO,ROBERT CAUSLEY, DAMIAN KASSAB, ROBERT DRAKE, and SOLYCO, LLC, Defendants.

DAMIAN KASSAB, Counter-Plaintiff/Third-Party Plaintiff, v. GROW MICHIGAN, LLC, Counter-Defendant,PATRICK O'KEEFE, Third-Party Defendant.

Civil Case No. 20-11391

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

June 3, 2021

Honorable Linda V. Parker

OPINION AND ORDER

Plaintiff GrowMI, LLC brings this lawsuit against Defendants alleging that Defendants engaged in a scheme to take control of Lightning Technologies, Inc., pay off entities to support the take-over, and obtain loans to finance the scheme. In an Amended Complaint filed July 31, 2020, GrowMI asserts nine counts: five counts against all Defendants for violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (Counts 1-5); fraud against Defendants Paul Shamo, Robert Causley, and Damian Kassab (Count 6); unjust enrichment against Defendants LT Lender, Jerry Reinhart, John Reinhart, and Bruce Campbell ("LT Lender Defendants") (Count 7); conspiracy against all Defendants (Count 8); and breach of contract against Shamo and Causley (Count 9). (Am. Compl., ECF No. 27.) Federal subject matter jurisdiction is premised on Plaintiff's RICO claims. (Id. ¶ 25, Pg ID 1190.)

Kassab has filed a Counter-Complaint against GrowMI (ECF No. 38) and a Third-Party Complaint against Patrick O'Keefe, GrowMI's chief executive officer (ECF No. 39). Kassab alleges that GrowMI and O'Keefe have filed several baseless lawsuits in Michigan state court as part of an orchestrated effort to takeover Lightning and help O'Keefe's alleged long-time friend and Lightning's chief executive officer Jeffrey Owen. (See, e.g. Counterclaim ¶ 1, ECF No. 38 at Pg ID 1394.) Kassab asserts only state law claims against GrowMI and O'Keefe in his pleadings: tortious interference with contract and business expectancy (Count I); civil conspiracy (Count II); and defamation (Count III). (ECF Nos. 38, 39.)

The parties have filed several motions in this matter, which are currently pending:

• Kassab's Motion to Dismiss First Amended Complaint, filed pursuant to Federal Rules of Civil Procedure 12(b)(1) and (6) (ECF No. 45);

• The LT Lender Defendants' Motion to Dismiss First Amendment Complaint under Fed. R. Civ. P. 12(b)(1) and (6) (ECF No. 47);

• Solyco LLC's Motion to Dismiss First Amended Complaint, filed pursuant to Rules 12(b)(1) and (6) (ECF No. 51);

• GrowMI and O'Keefe's Motion to Dismiss Kassab's First Amended Counterclaim and First Amended Third-Party Complaint, filed pursuant to Rules 12(b)(1) and (6) (ECF No. 53);

• GrowMI's Motion to Compel Rule 26(f) Conference (ECF No. 66);

• Defendants' Motion to Stay Discovery Pending Resolution of the Current Motions to Dismiss (ECF No. 73); and

• Kassab and Solyco's Motion to Refer Case to Bankruptcy Court (ECF No. 78);¹

• Robert Drake and Shamo's Motion to Change Venue to the United States Bankruptcy Court (ECF No. 79); and• GrowMI's Motion to Bifurcate (ECF No. 82).

All but the last three motions have been fully briefed. The Court has stayed briefing as to the bankruptcy-related motions and the motion to bifurcate.

Finding the facts and legal arguments sufficiently presented in the parties' filings with respect to the fully-briefed motions, the Court is dispensing with oral argument as to those motions pursuant to Eastern District of Michigan Local Rule 7.1(f). For the reasons set forth below, the Court concludes that the pending motions to dismiss should be granted. It, therefore, is denying as moot the remaining pending motions.

I. Applicable Standards

Federal Rule of Civil Procedure 12(b)(1) is the applicable procedural rule for challenging lack of subject matter jurisdiction.² "When subject matter jurisdiction is challenged under Rule 12(b)(1), the plaintiff has the burden of proving jurisdiction in order to survive the motion." Madison-Hughes v. Shalala, 80 F.3d1121, 1130 (6th Cir. 1996). "Rule 12(b)(1) motions to dismiss for lack of jurisdiction generally come in two varieties: a facial attack or a factual attack." Gentek Bldg. Prods., Inc. v. Sherwin-Williams Co., 491 F.3d 320, 330 (6th Cir. 2007).

A facial attack challenges the sufficiency of the pleading itself. In that instance, the court accepts the material allegations in the complaint as true and construes them in the light most favorable to the nonmoving party. United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994) (citing Scheuer v. Rhodes, 416 U.S. 232, 235-37 (1974)). In contrast, a factual attack is "not a challenge to the sufficiency of the pleading's allegation, but a challenge to the factual existence of subject matter jurisdiction." Id. When a factual attack, also known as a "speaking motion," raises a factual controversy, the district court must weigh the conflicting evidence to arrive at the factual predicate that subject-matter jurisdiction does or does not exist." Gentek Bldg. Prods., 491 F.3d at 330 (citing Ohio Nat'l Life Ins. Co. v. United States, 922 F.2d 320, 325 (6th Cir. 1990)). "In its review, the district court has wide discretion to allow affidavits, documents, and even a limited evidentiary hearing to resolve jurisdictional facts." Id.

A motion to dismiss pursuant to Rule 12(b)(6) tests the legal sufficiency of the complaint. RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134 (6th Cir. 1996). "To survive a motion to dismiss, a complaint must containsufficient 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) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In deciding whether the plaintiff has set forth a "plausible" claim, the court must accept the factual allegations in the complaint as true. Erickson v. Pardus, 551 U.S. 89, 94 (2007). This presumption is not applicable to legal conclusions, however. Iqbal, 556 U.S. at 668. Therefore, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. (citing Twombly, 550 U.S. at 555).

In contrast to a Rule 12(b)(1) motion, the court may not consider matters outside the pleadings when deciding a Rule 12(b)(6) motion. Weiner v. Klais & Co., Inc., 108 F.3d 86, 88 (6th Cir. 1997) (citing Hammond v. Baldwin, 866 F.2d 172, 175 (6th Cir. 1989)). A court that considers such matters must first convert the motion to dismiss to one for summary judgment. See Fed. R. Civ. P 12(d). However, "[w]hen a court is presented with a Rule 12(b)(6) motion, it may consider the [c]omplaint and any exhibits attached thereto, public records, items appearing in the record of the case and exhibits attached to [the] defendant's motion to dismiss, so long as they are referred to in the [c]omplaint and are central to the claims contained therein." Bassett v. Nat'l Collegiate Athletic Ass'n, 528 F.3d 426, 430 (6th Cir. 2008).

II. Relevant Factual Allegations

GrowMI is a sub-debt lender which focuses on community reinvestment by providing growth capital to Michigan-based small and mid-sized businesses. (Am. Compl. ¶ 28, ECF No. 27 at Pg ID 1191.) GrowMI is funded by a collaboration of federal and state banks doing business in Michigan, the Michigan Strategic Fund, and the State of Michigan through the Michigan Economic Development Corporation. (Id.)

Lightning is a Delaware start-up corporation based in Michigan. (Id. ¶ 1, Pg ID 1185.) Lightning owns proprietary technology for a lightweight, hybrid pallet, which is more durable and stronger than traditional wood pallets and contains anti-microbial and anti-fungal additives which would make them particularly useful in the shipment of cold food products. (Id. ¶ 31, Pg ID 1192.) Lightning has developed significant trade secrets and confidential information related to specific technology, including software, coatings, and related formulations and application processes, as well as trademarks, licenses, patents, and pending patent applications. (Id.) In or around 2019, Lightning needed funding to pay off a previous debt to LT Lender and to acquire the necessary production equipment to become fully operational. (Id. ¶ 1, Pg ID 1185.)

Specifically, Lightning needed to raise approximately $26 million. (Id. ¶ 37, Pg ID 1193.) A plan was developed to raise the money from a combination of debtand equity, which was as follows: $7 million from Flagstar Bank, $5 million from GrowMI, $10 million from lines of credit from Shamo and Causley (shareholders in Lightning), and $4 million in additional equity. (Id. ¶ 37, Pg ID 1193.) With such funding, Lightning represented that it would become fully operational by June or July 2020. (Id. ¶ 41, Pg ID 1193-94.) Lightning further represented that, before the end of December 2019, it would order and pay for the necessary equipment to become operational. (Id. ¶ 42, Pg ID 1994.) As a condition to its funding, GrowMI required that Lightning secure the additional funding, including the lines of credit from Shamo and Causley, and pay off its debt to LT Lender. (Id. ¶¶ 40, 43-52, 56, Pg ID 1193-96.)

LT Lender provided a "payoff" letter, which GrowMI received, reflecting that Lightning owed LT Lender a total balance of $3,323,606.68 on a "Promissory Note and Security Agreement dated June 20, 2019." (Id. ¶ 60, Pg ID 1197.) According to GrowMI, the actual amount Lightning owed LT Lender as of August 30, 2019, was $2,228,386.11. (Id. ¶ 63, Pg ID 1997; see also ECF No. 8.) GrowMI alleges that the additional amount paid to LT Lender was a payment to reduce its non-dilutable interest to settle a bogus claim and convert respective equity interests of LT Lender and its principals (including Jerry Reinhart, John Reinhart, and Bruce Campbell) into common stock. (Am. Compl. ¶ 66, ECF No. 27 at Pg ID 1198.) GrowMI further alleges that Kassab convinced Lightning thatLT Lender's...