Tan v. Det-Co, Inc.
| Decision Date | 15 February 2018 |
| Docket Number | Civil Action No. 17-cv-01678-NYW |
| Parties | MELIH TAN and PAMELA TAN, Plaintiffs, v. DET-CO, INC., RINO SUPPLY CO, INC., GARY WEST, JARED PENMAN, FIREHOUSE ORGANICS CENTRAL, LLC, FIREHOUSE ORGANICS NORTH, LLC, and FIREHOUSE ORGANICS SOUTH, LLC, Defendants. |
| Court | U.S. District Court — District of Colorado |
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.
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, allegedmisrepresentations 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
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].
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.
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.
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.
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...
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