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In re ClassicStar Mare Lease Litigation

United States District Court, E.D. Kentucky, Lexington

January 18, 2019

IN RE CLASSICSTAR MARE LEASE LITIGATION
v.
DAVID PLUMMER, et al., Defendants, NEIL AND ANNE BAKER, et al., Plaintiffs,

          MEMORANDUM OPINION & ORDER

          JOSEPH M. HOOD, SENIOR U.S. DISTRICT JUDGE

         This 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.[1]

         I.

         Plaintiffs 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.

         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.

         After 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, 99.

         These 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.

         For his 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.

         II.

         In 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.

         III.

         In his 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.

         A. RICO

         As an 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 ...


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