United States District Court, E.D. Kentucky, Lexington
MEMORANDUM OPINION & ORDER
M. HOOD, SENIOR U.S. DISTRICT JUDGE
matter is before the Court on the Motion to Dismiss filed by
Defendant John Parrott [DE 33] . Plaintiffs have filed a
Response [DE 176], and Defendant has filed a Reply [DE 181]
in further support of his motion.
aver that the various defendants, acting together, defrauded
them and other unsuspecting individuals and businesses out of
more than five hundred million dollars ($500, 000, 000.00).
Plaintiffs aver that Defendant Parrott, among others, played
a role in devising, perpetrating, carrying out, marketing
and/or covering up the fraudulent Mare Lease Program scheme
to individual and business investors, including Plaintiffs.
aver that defendant David Plummer owned Classic Breeders,
LLC. See Complaint, at ¶¶61-64. Classic
Breeders, LLC was later acquired by GeoStar, the name was
changed to ClassicStar, LLC ("ClassicStar") .
See Complaint, at ¶ 65. Robinson, Parrott and
Ferguson owned the primary interests in GeoStar and
controlled it. See Complaint, at ¶ 40.
ClassicStar's affairs were conducted through its parent
and/or subsidiary companies, such as ClassicStar Farms, LLC,
and ClassicStar Farms, Inc. See, e.g., Complaint, at
¶ 67. The Mare Lease Programs were represented as a
method of participating in the thoroughbred horse industry,
wherein a participant would (1) lease the rights to a mare
for a breeding season, (2) select a stallion nomination to
sire a foal with the leased mare and (3) retain or sell the
resulting - and presumably extremely valuable - thoroughbred
foal. See Complaint at ¶ 54. The purported
arrangement usually included the price of board and insurance
for the mare and/or resultant foal. Id. This lease
arrangement was touted as having beneficial tax consequences
for the participant, which were represented by the defendants
to be compliant with the Internal Revenue Code. See,
e.g., Complaint, at ¶¶ 71, 85, 92, 113, 131.
GeoStar's acquisition of Classic Breeders, LLC,
ClassicStar began selling many more Mare Lease Programs than
the thoroughbred interests owned by ClassicStar could
support. See, e.g., Complaint, at ¶ 5, 68, 99.
Defendants, including Parrott, intentionally oversold the
Mare Lease Programs knowing that ClassicStar, ClassicStar
Farms, LLC or ClassicStar Farms, Inc. did not own enough
thoroughbred mare interests sufficient to support the number
of Mare Lease Programs sold. See Complaint, at ¶ 6. The
defendants, including the Parrott, worked together to
aggressively market the Mare Lease Programs to individuals
and business with significant incomes and assets, despite the
fact that they knew that ClassicStar, ClassicStar Farms, LLC
or ClassicStar Farms, Inc. did not own enough thoroughbred
mare interests sufficient to support the number of Mare Lease
Programs sold. See, e.g., Complaint, at ¶¶ 2, 68,
parties frequently sent correspondence, made or received
telephone calls, and certainly received funds from investors
using the mail and wires, all in order to make this plan
work. In order to conceal the fact that the Programs were
unsustainable, participants were urged by defendants to
exchange their Mare Lease Program interests for other
supposedly valuable business opportunities with entities
related to and/or controlled by defendants and obscuring the
fact that the exact same mares were being marketed and leased
to multiple investors at the same time. See, e.g., Complaint,
at ¶ 5, 111.
part, Parrott owned a "primary interest" in
GeoStar, was an officer and/or director of GEEI, took
"active roles in the management of ClassicStar's
sale and promotion of the Mare Lease Programs,"
including the review of marketing materials and the
negotiation of commission contracts with salespeople. Compl.,
¶¶ 40, 42, 76-77. GeoStar received proceeds from
the sales of ClassicStar Mare Lease Programs which were used
to fund its operations and, by extension, so did Parrott.
evaluating a Rule 12(b)(6) motion, the factual allegations of
the Complaint "must be enough" that the right to
relief is "above the speculative level" and is
"plausible on its face." Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555-56 (2007); Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) . If the complaint
pleads facts "merely consistent with" liability, it
"stops short of the line between possibility and
plausibility of entitlement to relief." Id.
"A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the
misconduct alleged." Id.
motion to dismiss, John Parrott argues that (1)
Plaintiffs' RICO claims fail as they fail to specify
which subsection of RICO govern their claim and would, in any
event, (2) fail because Plaintiffs' have failed to
properly plead a RICO enterprise. He argues, as well, (3)
that the RICO claims would also fail because they fail to
plead the underlying predicate acts with the particularity
required by Fed.R.Civ.P. 9(b) and that (4) the 1962(a) claim
fails because Plaintiffs have not pleaded an injury directly
related to the investment or use of illegally obtained
income. Parrott next argues that (5) Plaintiffs' Colorado
Organized Crime Control Act ("COCCA") claims fail
for the same reason as their RICO claims; (6) Plaintiffs'
fraud claims fail for failure to state their claims against
him with the particularity required by Fed.R.Civ.P. 9(b); (7)
Plaintiffs' negligent misrepresentation claims fail as
they have not alleged misrepresentations made by him; (8)
Plaintiffs' civil theft claim fails because their fraud
claims against him fail; (9) Plaintiffs' accounting claim
fails because they have not properly alleged that Parrott
entered into a contract with, owed a fiduciary duty to, or
received property from Plaintiffs; and (10) Plaintiffs'
fraudulent transfer claims against him should be denied.
initial matter, the Complaint does not fail for failure to
specify which subsection of 18 U.S.C. § 1962 was
allegedly violated. Here, Plaintiffs aver that defendant
violated the statute by using money derived from alleged
racketeering activity, which is a violation of 1962 (a),
acquired or maintained an interest or control of an alleged
enterprise, which is a violation of 1962(b), and conducted
the affairs of an enterprise with which he was associated by
soliciting investments through mail fraud, which is a
violation of 1962 (c), as well as participation in a
conspiracy to violate RICO, a violation of 18 U.S.C. §
1962(d). The Complaint alleges that: (1) the RICO defendants
constituted an Enterprise affecting interstate commerce; (2)
each of the RICO defendants was associated with or employed
by the enterprise and each conspired to and did as part of
that employment or association conduct or participate in the
conduct of the Enterprise affairs through engaging in a
pattern of racketeering activity in order to misappropriate
Plaintiffs' significant investments as income derived
from the Enterprise; (3) each of the RICO defendants