Stanz v. Brown

ORDER:

(1) GRANTING REQUESTS FOR JUDICIAL NOTICE;

(2) GRANTING DEFENDANTS' MOTIONS TO DISMISS; AND

3) GRANTING PLAINTIFF LEAVE TO AMEND

[ECF Nos. 30, 31, 33, 34, 38]

HON. GONZALO P. CURIEL, UNITED STATES DISTRICT JUDGE

On March 2, 2023, Plaintiff Aaron Stanz (“Plaintiff” or “Stanz”) filed his First Amended Complaint (“FAC”) against Defendants Jordan Brown, individually and on

behalf of Jet Genius Holdings, Inc. and Jet Genius Florida Holdings, Inc. as a shareholder; Jet Genius Holdings, Inc.; Jet Genius Florida Holdings, Inc.; C3jets LLC; Jet Agency Global LLC; C3 Limo LLC; Bowman Aviation, Inc.; Brown Family Trust; and Does 1-20. ECF No. 25 (“FAC” or “Compl.”).

All Defendants subsequently filed Motions to Dismiss. ECF Nos. 30, 31, 33, 34, 38. Plaintiff filed Oppositions, (ECF Nos. 41, 46, 47, 55, 56),^[1] and Defendants filed Replies, (ECF Nos. 48, 52, 53, 58, 59). A hearing was held on the motions on May 26, 2023 and the matter was taken under submission. For the reasons that follow, the Court GRANTS Defendants' Motions to Dismiss with leave to amend.

FACTUAL BACKGROUND

Plaintiff's action stems from a years-long business relationship with Defendant Jordan Brown in the private aviation industry in which Federal Excise Tax (“FET”) was collected from clients but not remitted to the IRS as required by law. Compl. ¶ 1. Plaintiff is the co-founder, Chief Technology Officer, major shareholder, and former director of Jet Genius Holdings and major shareholder of Jet Genius Florida Holdings. Compl. ¶ 8. Defendants Jet Genius Holdings, Inc. (“JGH”) and Jet Genius Florida Holdings, Inc. (“JGFH”) are air charter brokers that match clients with available air charter operators. Compl. ¶¶ 9, 10. Plaintiff alleges Defendant Jet Agency Global LLC (“JAG”) is the same company as JGH and JGFH. Compl. ¶ 14. Defendants JGH, JGFH, and JAG operate together as “Charter Flight Group” (“CFG”). Compl., Exhibit E at 5.

Defendant C3jets LLC (“C3jets”) operates private aircraft for commercial purposes and is believed by Plaintiff to be engaged in various aircraft lease or lease-purchase agreements. Compl. ¶ 12. Defendant Bowman Aviation, Inc. (“Bowman Aviation”) performs contract services for JGH and JGFH. Compl. ¶ 13. Defendant C3 Limo LLC (“C3 Limo”) is a company Plaintiff alleges is managed by various members of Brown's family and uses JGH's and JGFH's company address and official email address to conduct business. Compl. ¶ 15. Plaintiff alleges Defendant Brown Family Trust is a trust listed on JGFH share certificates which were improperly assigned to the trust. Compl. ¶ 16. Last, Defendant Jordan Brown (“Brown”) is the Chairman and CEO of JGH and JGFH, and allegedly the sole member of C3jets, JAG, Bowman Aviation, and, along with his wife, is a trustee of the Brown Family Trust. Compl. ¶¶ 11, 12.

JGH was formed between Plaintiff Stanz, Defendant Brown, and non-party Alexander Wolf (“Wolf”) in California in 2016 to offer a “technical business-to-business logistics platform servicing the private aviation industry.” Compl. ¶ 22. Originally, Stanz and Brown were each 49.5% shareholders. Compl. ¶ 22. Brown was, and remains, CEO, and Stanz was Chief Technology Officer and states he used his technical expertise to create JGH's “GRID” logistics platform, which “significantly decrease[d] time and costs associated with buy-side and sell-side actions required to complete complex transactions for brokering and provisioning a chartered aircraft, at all stages of a transaction,” including lead collection, client contact, quoting aircraft options, generating and sending contracts, provisioning an aircraft, and monitoring staff and resources. Compl. ¶ 23.

Plaintiff essentially alleges that, beginning in 2017, Defendants misappropriated Plaintiff's intellectual property in a scheme to charge clients for FET, which Defendants represented to clients would be collected and remitted to the IRS as required by law, but instead Defendant Brown used this money to enrich his lifestyle and further the

enterprise's interests. Compl. ¶ 95.^[2] Plaintiff states that JGH and JGFH, operating as air charter brokers, are required pursuant to 26 U.S.C. § 4281(a) to pay a FET of 7.5% of the transportation price of air travel as well as a flat fee for each “domestic segment” of travel. Compl. ¶¶ 70-71. Plaintiff states that air charter brokers are required to collect the FET from clients, hold this money in trust on their behalf, and remit the FET to the IRS on a regular basis. Compl. ¶ 71. Plaintiff states a failure to pay FET is a felony criminal violation under 26 U.S.C. § 7202. Compl. ¶ 70.

Plaintiff states Wolf informed him in summer 2018 that JGH had unpaid FET, despite having had adequate capital to meet the IRS demand. Compl. ¶ 24. Plaintiff alleges the unpaid FET at this time was approximately $935,000, but has since “ballooned to over $6,721,350 ....” Compl. ¶ 24. Plaintiff says that after discovering this, he sought to have JGH's financials audited at an August 22, 2018 shareholder meeting, but that Brown “admonished Stanz and Shareholder Wolf for bringing up the audit issue, and [stated] that this criminal act was his [(Brown's)] decision alone ....” Compl. ¶ 25. Plaintiff states the shareholders, “at the demand of Defendant Brown,” voted in favor of the audit firm favored by Brown. Compl. ¶ 26. Plaintiff alleges the audit was later abandoned. Compl. ¶ 31.

The FAC alleges that after Brown was confronted about the unpaid FET, “he became verbally abusive and hostile, and threatened to disrupt business to the point of bankrupting the company.” Compl. ¶ 28. Stanz became worried that if Brown bankrupted the company, JGH shareholders, including himself, could become personally liable to the IRS for the unpaid FET. Compl. ¶ 28. Plaintiff alleges that throughout the audit negotiations and after an attempt by shareholders to “wrest control of JGH from Brown,”

Plaintiff began discussions with JGH to modify the corporate structure in an attempt to protect shareholders and address the FET. Compl. ¶ 29. Stanz alleges that:

Under duress, on November 7, 2018, [he] entered into the Shareholder Agreement . . . and its contemporaneously executed assignment of intellectual property by Plaintiff to JGH wherein Stanz would relinquish almost half his shares (lowering him from a 49.5% shareholder to a 25% shareholder) on the condition that revenue would be used to pay the taxes owed to the IRS, that valuable intellectual property including [GRID] would not be transferred without property documentation or compensation to Plaintiff, and that of the 24.5% share reduction by Plaintiff, 10% of the shares would be allocated for a properly constructed employee equity incentive plan. As part of the Shareholder Agreement, Brown required Plaintiff Stanz and Shareholder Wolf to no longer serve on the Board of Directors, under the false promise by Brown and JGH to fill the vacancies with two new independent Directors.

Compl. ¶ 29 (collectively the “2018 Agreement”); ECF No. 29-1 (Shareholder Agreement); ECF No. 29-2 (Intellectual Property Assignment).

Plaintiff states that after the 2018 Agreement, Brown, in violation of JGH Bylaws and California law, remained sole Director of JGH. Compl. ¶ 30. The FAC alleges that Brown at this point “structured JGH to assist in his architecture of a criminal enterprise to enrich himself and his family.” Compl. ¶ 31. Plaintiff states Brown “began directing the agents and attorneys of JGH to improperly establish subsidiaries and third-party companies to further dilute JGH shareholder value by misappropriating the JGH Platform including the GRID ....” Compl. ¶ 32. Brown is alleged to have used these new companies to ignore his FET obligations and hide assets from the IRS. Compl. ¶ 33. On August 27, 2019, Brown is alleged to have improperly incorporated JGFH in Florida to serve as a shell company by which Brown could create a “new entity which would have absolutely no oversight or accountability to the shareholders of JGH.” Compl. ¶ 34.

Plaintiff states he received a stock certficiate for 959,615 Class A shares of JGFH on April 26, 2022. Compl. ¶ 51.

Plaintiff alleges all of this was done in violation of the 2018 Agreement, which stated Brown would work toward a settlement with the IRS. Compl. ¶ 32. Instead, the FAC alleges the business continued to generate over $125,000,000 in revenue and the unpaid FET grew to nearly $7,000,000. Compl. ¶ 33. In addition, Stanz states the employee equity incentive plan, also agreed to the in 2018 Agreement, never materialized and instead Brown allocated shareholdings to the Brown Family Trust. Compl. ¶ 36. Further, the FAC alleges that Plaintiff's intellectual property, including GRID, was moved in a series of “undocumented sham transactions” from JGH to JGFH in violation of the 2018 Agreement and Plaintiff was never awarded compensation for such transactions. Compl. ¶ 38. Plaintiff alleges that Defendant Brown continued to create additional schemes “by making millions of dollars of fraudulent undocumented ‘loans' to Defendants Brown individually, C3 Jets, JAG, C3 Limo, and Bowman Aviation ....” Compl. ¶ 40 (collectively known as the “undocumented loans”).^[3] Plaintiff alleges these undocumented loans, absent terms payback terms, were unauthorized disbursements without benefit to JGH or JGFH shareholders. Compl...