Sensoria, LLC et al v. Kaweske et al

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 20-cv-00942-MEH
SENSORIA, LLC, directly on its own behalf and derivatively on behalf of
CLOVER TOP HOLDINGS, INC., a Delaware corporation; and
GORDON MORTON,
Plaintiffs,
v.
JOHN D. KAWESKE;
CHRISTOPHER S. PETERSON;
CLOVER TOP HOLDINGS, INC., a Delaware corporation;
CLOVER TOP HOLDINGS, a Colorado corporation;
AJC INDUSTRIES, LLC;
DURANGO MANAGEMENT, LLC;
SUNLIFE AG, LLC;
MMJ 95, LLC;
TWEEDLEAF LLC, a Colorado limited liability company;
TWEEDLEAF, LLC, a Delaware limited liability company;
LIFESTREAM HOLDINGS, LLC;
ORDWAY FARMS, LLC;
NORTH STAR HOLDINGS a/k/a NORTH STAR HOLDINGS, INC.;
MANUEL WELBY EVANGELISTA a/k/a WELBY EVANGELISTA;
DJDW, LLC;
JW COLORADO, LLC;
JW ORDWAY, LLC;
JW TRINIDAD, LLC;
BRIAN TANNENBAUM;
TANNENBAUM & TROST, LLC, f/k/a TANNENBAUM,
TROST & BURK, LLC; and
DOES 1-100,
Defendants.
AMENDED ORDER
Michael E. Hegarty, United States Magistrate Judge.
Before the Court are Defendants’ Motions to Dismiss (ECF 165, 168, 170). The Motions
are fully briefed, and the Court finds that oral argument will not materially assist in their
adjudication. For the reasons that follow, the Motions are granted in part and denied in part.
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BACKGROUND
I. 	Alleged Facts
For purposes of this ruling, the Court accepts as true the factual allegations—but not any
legal conclusions, bare assertions, or conclusory allegations—that Plaintiffs raise in their Second
Amended Complaint (“SAC”). ECF 155. See generally Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(accepting as true a plaintiff’s factual allegations for purposes of Fed. R. Civ. P. 12(b)(6) analysis).
A. 	The Creation of the Clover Top Holdings, Inc. Investment Vehicle
Defendant John D. Kaweske (“Kaweske”) is a citizen of Colorado. ECF 155 at ¶ 4. He was
subject of four administrative proceedings and three lawsuits regarding inappropriate dealings with
client funds or securities transactions. Id. at ¶ 44. Defendant Christopher S. Peterson (“Peterson”)
is a citizen of either Colorado or Arizona. Id. at ¶ 5.
At issue in this lawsuit is Clover Top Holdings, Inc. which Kaweske, Peterson, and
Peterson’s wife incorporated in September 2015. Id. at ¶¶ 6, 27. They were its majority owners
and served as its officers. Id. at ¶¶ 27–29. Clover Top Holdings, Inc. is a Delaware corporation.
Id. at ¶ 27. Its principal place of business was in Colorado (id. at ¶ 6), although it was not registered
to do business in Colorado until September 22, 2017 (id. at ¶¶ 45(a), 76). It no longer is an active
corporation. Id. at ¶ 92.
Kaweske, Peterson, and Peterson’s wife formed Clover Top Holdings, Inc. “to engage in
all aspects of the cannabis business, beginning in Colorado and expanding elsewhere as the
business grew.” Id. at ¶ 27. In October 2015, Clover Top Holdings, Inc. acquired TweedLeaf
Delaware, which possessed the federal trademark and service mark registrations for the
“TWEEDLEAF” word and drawing. Id. at ¶¶ 30–31.
On October 30, 2015, Clover Top Holdings, Inc. retained Brian Tannebaum, Esq. of
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Tannenbaum, Trost & Burk, LLC (the law firm’s name at the time) to provide legal services
“regarding the purchase and/or sale of certain marijuana licenses” as well as “any other services
[that it] may request from time to time.” Id. at ¶ 33. Clover Top Holdings, Inc. retained the
Tannenbaum Defendants “for both cannabis and corporate law.” Id. Kaweske oversaw all
cultivation operations for Clover Top Holdings, Inc. as well as company finances, taxes, licenses,
and legal matters in tandem with the Tannenbaum Defendants. Peterson managed dispensary
operations, patient care, and online/offline marketing for the TweedLeaf business. Id. at ¶ 54.
In January 2016, Clover Top Holdings, Inc. bought “two real estate holdings in Colorado
Springs, one a retail building and the other a warehouse.” Id. at ¶ 35. On January 26, 2016, Durango
Management, LLC (“Durango”) was created to hold properties and leases for Clover Top
Holdings, Inc. as its real estate management company. Id. at ¶ 36. On February 1, 2016, “Durango
purchased the two real estate holdings that were subject of Clover Top [Holdings, Inc.’s] January
2016 contract.” Id. at ¶ 37. On March 11, 2016, Durango leased one of the properties to AJC
Industries, LLC d/b/a Front Range Alternative Medicines and d/b/a FRAM (“AJC”). Kaweske is
AJC’s sole member. Id. at ¶ 8. An appraiser did not regard it as an arms-length transaction. Id. at
¶ 39.
In March 2016, Clover Top Holdings, Inc. purchased two existing marijuana licenses from
AJC. Id. at ¶ 38. The Tannenbaum Defendants assisted with the transaction. Id. At the time,
Kaweske was the only Clover Top Holdings, Inc. principal who had Colorado residence required
for a marijuana license. Id. at ¶ 52.
B. 	The Initial Investment
Between January and March of 2016, Kaweske and Peterson solicited Plaintiff Gordon
Morton (“Morton”) to invest in Clover Top Holdings, Inc. Id. at ¶ 41. They portrayed it as “the
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holding company or the ‘mother ship’ for all cannabis-related entities, technologies, and brands in
Colorado and expanding beyond Colorado as its success grew.” Id. at ¶ 42. The greater enterprise
would include “dispensaries, grow operations, extraction technologies, intellectual property, other
future ancillary entities, and all similar services and businesses.” Id. Clover Top Holdings, Inc.’s
shareholders would receive the profits as well as “prompt repayment of initial investments and
distributions.” Id. at ¶¶ 42, 45.
Written materials explained that Clover Top Holdings, Inc. was “established to make
investments and operate businesses in the burgeoning legal cannabis industry” and for creating “a
national brand for medicinal dispensaries, online store and cannabis and hemp-based products.”
Id. at ¶ 43. Clover Top Holdings, Inc. was described as a Delaware corporation based in Colorado
Springs. It owns “an existing medical marijuana commercial location as well as a cannabis
cultivation facility and is integrating a second fully operational and licensed medicinal cannabis
business into the newly purchased locations.” Id. Its existing business “generates between
$60,000–$80,000 per month in gross revenues.” Id. It has an “11,000 square foot cultivation
facility, which is capable of growing over 4,000 plants and producing in excess of $400,000 a
month of wholesale cannabis.” Id. It owns a “medical marijuana dispensary located in a prime
retail location” and will open “a new medical dispensary chain called TweedLeafTM.” Id. Lastly,
Clover Top Holdings, Inc.’s assets include intellectual property as well as proprietary hemp- and
CBD-based products “that are currently legal to sell nationwide.” Id.
On April 4, 2016, Morton paid $100,000 for 100,000 shares. Kaweske told him that he was
the first outside investor. The investment was made pursuant to a Subscription Agreement for
Preferred Shares. Id. at ¶ 46.
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C. 	Purported Expansion of Clover Top Holdings, Inc.
Peterson’s father-in-law also owned part of the Durango entity. On June 27, 2016, he
exchanged his Durango shares for Clover Top Holdings, Inc. shares. The Tannenbaum Defendants
facilitated the exchange (id. at ¶ 46) which presumably increased Clover Top Holdings, Inc.’s
ownership of Durango. In a filing with the Colorado Secretary of State on July 6, 2016, Durango
identified Clover Top Holdings, Inc. as its sole owner. Id. at ¶ 53.
On August 8, 2016, Clover Top Holdings, Inc. issued its first investor update. It reported
increasing sales over the prior three months and plans to open a second TweedLeaf medical
dispensary. Id. at ¶ 55.
In October 2016, Clover Top Holdings, Inc. bought additional marijuana licenses from
MMJ 95, LLC (“MMJ”). Id. at ¶ 58. MMJ was formed in October 2015 as a cannabis-related
business (id. at ¶ 32), and Kaweske was its sole member (id. at ¶¶ 11, 65). Contemporaneously,
Kaweske stated that an MMJ license was being transferred to Tweedleaf, LLC (id. at ¶ 55), an
entity that Kaweske owned separate and apart from the Clover Top Holdings, Inc. enterprise and
the TweedLeaf Delaware entity (id. at ¶ 34).
Morton visited Colorado Springs and met with Kaweske in early November 2016. Kaweske
told him that the business was making money and promised to pay him first. Id. at ¶ 60.
Morton formed Sensoria, LLC (“Sensoria”) on November 17, 2016. Sensoria paid
$125,000 for an additional 125,000 shares. Id. at ¶ 63. Clover Top Holdings, Inc. issued a stock
certificate dated November 25, 2016 that Peterson and Kaweske signed. Id. at ¶ 64. All of Morton’s
investments in Clover Top Holdings, Inc. ultimately were made and accounted through Sensoria.
Id. at ¶ 63.
On November 16, 2016, Kaweske incorporated Sunlife AG, LLC (“Sunlife”) as a cannabis
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growing and cultivation business. Peterson stated in 2019 that Sunlife was intended to be Clover
Top Holdings, Inc.’s “wholly owned real estate and property management company [for] holding
properties and leases in Ordway, Colorado.” Id. at ¶ 62. However, Kaweske was Sunlife’s sole
member. Id.
Clover Top Holdings, Inc. issued another investor update on January 20, 2017. Monthly
sales from the TweedLeaf business were reported, and the construction of a second dispensary was
announced. Cultivation, warehouse, and production spaces were said to be expanding. Id. at ¶ 66.
In February 2017, Welby Evangelista (“Evangelista”) and his entity, DJDW, LLC
(“DJDW”), invested in Clover Top Holdings, Inc. Id. at ¶ 67. He served as the TweedLeaf brand’s
business director, worked onsite in Colorado, provided Sensoria access to the TweedLeaf
locations, and raised additional investment money. He also took over the investor updates (which
now were being done informally over the telephone rather than in writing), touting success in terms
of money made and TweedLeaf website traffic volume. Id. at ¶ 68.
On June 19, 2017, a corporate entity by name of “XLeaf” was formed. It was intended
either to be owned by Clover Top Holdings, Inc. or to serve as a merchant account for AJC. XLeaf
later became “XLEAF Labs” that made and sold cannabis concentrate. Id. at ¶ 82.
In August 2017, Kaweske began developing marijuana business operations in Ordway,
Colorado. Through the AJC entity, Kaweske and Peterson leased a greenhouse there. Id. at ¶ 71.
AJC obtained marijuana licenses, and 108 acres of land were bought. Id. at ¶ 72. Additional
greenhouses and a warehouse building were acquired. Funding for the Ordway expansion came
from Clover Top Holdings, Inc., and these acquisitions purportedly belonged to it (through its
ownership of Sunlife). Id. at ¶ 71–73. However, Kaweske now claims that the Ordway-related
assets and entities belong to him. Id. at ¶ 73.
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Clover Top Holdings, Inc. was registered to do business in Colorado for the first time on
September 22, 2017. Id. at ¶ 76.
On October 12, 2017, Ordway Farms LLC (“Ordway Farms”) was created. Its initial
member was identified as “CLOVERTOP HOLDINGS, INC.” Id. at ¶ 77.
On December 2, 2017, Clover Top Holdings, Inc. opened its second TweedLeaf dispensary
for business. Id. at ¶ 79.
On December 10, 2017, “Kaweske shut Peterson and his wife out of Clover Top Holdings,
Inc. and purported to terminate their employment with [it].” Kaweske blamed Clover Top
Holdings, Inc.’s “current financial distress” on their “exorbitant spending.” Sensoria was unaware
of that development. Id. at ¶ 80. Several lawsuits were filed in Colorado state court regarding
disputes between Peterson and Kaweske. Id. at ¶ 115.
Peterson later stated that the “intended assets and subsidiaries” of Clover Top Holdings,
Inc. before December 2017 “included at least TweedLeaf Delaware, Durango, AJC, MMJ, Sunlife,
Ordway Farms, and the XLeaf and XLeaf Labs Names, and their holdings and assets.” Id. at ¶ 119.
On February 28, 2018, Kaweske bought a home in Colorado Springs for $525,000.00. Id.
at ¶ 83.
On September 10, 2018, TweedLeaf Delaware abandoned the “TWEEDLEAF” service
mark. Id. at ¶ 87.
Morton and Sensoria deny knowing what was happening with Clover Top Holdings, Inc.
The first indication of problems occurred on November 3, 2018 when “without leadup or warning,
Evangelista called and texted Morton multiple times via cell phone and made physical and
financial threats against him, orally and by text, including threatening to kill Morton and his
family.” Evangelista accused Mortion of “stealing his money, asserting Morton’s involvement in
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a ‘scam’ against [him].” Evangelista told Morton that Sensoria and all shareholders in Clover Top
Holdings, Inc. were “f***ed.” He demanded payment of millions of dollars from Morton and
threatened legal action. Id. at ¶ 88.
D. 	Kaweske’s Competing Marijuana Enterprise
Simultaneous with the creation of Clover Top Holdings, Inc., Kaweske began a separate
marijuana operation that in effect competed with it. Plaintiffs allege that assets that originally
belonged (or were intended to belong) to Clover Top Holdings, Inc. became part of this other
enterprise.
In November 2015, Peterson incorporated another entity by name of “Clover Top
Holdings” but in Colorado rather than in Delaware (“Clover Top Colorado”). Id. at ¶¶ 7, 45(d),
98. Unlike Clover Top Holdings, Inc. (in which Sensoria invested), the Clover Top Colorado entity
remains an active corporation. Id. at ¶ 98.
In June 2016, Kaweske bought AJC (id. at ¶¶ 52, 56), thereby divesting Clover Top
Holdings, Inc. of that asset and its marijuana licenses. In November 2016, Kaweske registered the
TweedLeaf name and logo trademarks with AJC. Id. at ¶ 61. On September 12, 2017, Kaweske
assumed unlimited authority to transfer real property held in Durango’s name. Id. at ¶ 74.
On January 18, 2018, Kaweske and Evangelista incorporated JW Colorado, LLC (“JW
Colorado”) and JW Ordway, LLC (“JW Ordway”) as cannabis businesses. The Tannenbaum
Defendants assisted with JW Ordway’s filings. Id. at ¶ 81. On July 12, 2018, Kaweske and
Evangelista formed JW Trinidad, LLC (“JW Trinidad”). Id. at ¶ 84. On August 3, 2018,
Evangelista incorporated North Star Holdings (“North Star”) as a cannabis business, for which
Kaweske served as an officer. Id. at ¶¶ 16, 85. The Tannenbaum Defendants were listed as North
Star’s registered agent. Id. at ¶ 85. North Star uses TweedLeaf as one of its brands. Id. at ¶ 114.
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On September 5, 2018, Kaweske replaced Clover Top Holdings, Inc. as Ordway Farms’
sole member. Id. at ¶ 86. Without Sensoria’s knowledge, Kaweske and Evangelista sold securities
in Ordway Farms contrary to Clover Top Holdings, Inc.’s interests. Id. at ¶¶ 70, 86.
On January 10, 2019, Kaweske and Evangelista registered the sale of North Star securities.
TweedLeaf, TweedLeaf Dispensaries, XLeaf Labs, and Ordway Farms were listed as products and
services related to the North Star securities. Id. at ¶ 90.
Clover Top Holdings, Inc.’s registration with Colorado became delinquent on February 1,
2019 when it did not file a Periodic Report. Its corporate status with Delaware became void on
March 1, 2019 when it did not pay the annual franchise tax. It owes Delaware $108,566.68. Id. at
¶¶ 91–93.
On August 19, 2019, Kaweske created Lifestream Holdings, LLC (“Lifestream”), whose
registered agents are the Tannenbaum Defendants and which does business as TweedLeaf. Id. at
¶¶ 14, 111. On September 10, 2019, JW Colorado registered the “TWEEDLEAF” trademark and
service mark. Id. at ¶ 112.
E. 	Sensoria Inquires About its Investment
Sensoria became concerned that other investors were acquiring ownership of Clover Top
Holdings, Inc. in a way that was diluting its investment. Id. at ¶¶ 100–101. Sensoria received no
substantive answers or information from Clover Top Holdings, Inc. or its officers. Id. at ¶¶ 100,
102. In February 2019, Kaweske told Morton that events and circumstances had rendered
Sensoria’s investment “no longer relevant.” Kaweske added that “Technically, I don’t have to give
you anything because technically you don’t own anything.” Id. at ¶ 104. Evangelista threatened to
countersue Plaintiffs, claiming that his losses were ten times greater. Id. at ¶ 116.
An attempt at private resolution was unsuccessful. Id. at ¶ 106. A demand letter yielded no
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substantive relief. Id. at ¶ 116.
Sensoria believes that Clover Top Holdings, Inc.’s “assets, holdings, and subsidiaries . . .
have been transferred away,” rendering its investment irrelevant. Id. at ¶ 103. “Sensoria has not
received back any of its initial investment, let alone any return on that investment, nor any
documentation accounting for the investment apart from share certificates for common stock.” Id.
at ¶ 107. Instead, Kaweske “is now controlling the TweedLeaf brand and operations apart from
Clover Top [Holdings, Inc.] and under his separate entities.” Id. at ¶ 113. The Tweedleaf website
lists six retail locations in Colorado. Lifestream and North Star have connections to that website
(id.), and North Star includes “TweedLeaf” as one of its brands (id. at ¶ 113).
II. 	Defendants
The Kaweske Defendants consist of Kaweske and several entities under his control (the
“Entity Defendants”). The Entity Defendants are JW Colorado, JW Trinidad, JW Ordway, MMJ,
AJC, Sunlife, Ordway Farms, Durango, Lifestream, and TweedLeaf LLC (incorporated in
Colorado). Id. at ¶ 119; ECF 157. Plaintiffs argue that it was through these entities that Kaweske
siphoned off assets and cash that belonged to the Clover Top Holdings, Inc. venture. ECF 177 at
5.
Plaintiffs do not include Clover Top Colorado as an Entity Defendant even though
Kaweske incorporated it. Nor has Clover Top Colorado appeared separately in this lawsuit. It
appears to be in default. ECF 123.
Plaintiffs also sue Evangelista and the two entities, North Star and DJDW, associated with
him (“Evangelista Defendants”). They allege that Evangelista managed Clover Top Holdings, Inc.
with Kaweske, and like Kaweske, Evangelista converted its assets for his own benefit. Plaintiffs
argue that the separate, competing business that Kaweske and Evangelista created for themselves
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is in practical effect Clover Top Holdings, Inc. ECF 177 at 5. Plaintiffs bring no claims unique to
them. The Evangelista Defendants filed their own Motion to Dismiss (ECF 168), but they simply
adopted the arguments that the Kaweske Defendants raise. Therefore, the Court does not discuss
the Evangelista Defendants separately.
Neither TweedLeaf Delaware nor Clover Top Holdings, Inc. has answered the Complaint,
and both are in default. ECF 95 at ¶¶ 6, 13.
The Tannenbaum Defendants filed their own Motion to Dismiss. ECF 170.
Peterson has appeared. ECF 108, 121, 171. However, he does not move for dismissal nor
join the other Defendants in their Motions to Dismiss.
LEGAL STANDARD
The purpose of a motion to dismiss under Fed. R. Civ. P. 12(b)(6) is to test the sufficiency
of the plaintiff’s complaint. Sutton v. Utah State Sch. for the Deaf & Blind, 173 F.3d 1226, 1236
(10th Cir. 2008). “To survive a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at
678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Plausibility, in the context of
a motion to dismiss, means that the plaintiff pleads facts that allow “the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at
678. Twombly requires a two-prong analysis. First, a court must identify “the allegations in the
complaint that are not entitled to the assumption of truth,” that is, those allegations which are legal
conclusions, bare assertions, or merely conclusory. Iqbal, 556 U.S. at 679–80. Second, a court
must consider the factual allegations “to determine if they plausibly suggest an entitlement to
relief.” Id. at 681. If the allegations state a plausible claim for relief, such claim survives the motion
to dismiss. Id. at 680.
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Plausibility refers “to the scope of the allegations in a complaint: if they are so general that
they encompass a wide swath of conduct, much of it innocent, then the plaintiffs ‘have not nudged
their claims across the line from conceivable to plausible.’” S.E.C. v. Shields, 744 F.3d 633, 640
(10th Cir. 2014) (quoting Khalik v. United Air Lines, 671 F.3d 1188, 1191 (10th Cir. 2012)). “The
nature and specificity of the allegations required to state a plausible claim will vary based on
context.” Safe Streets All. v. Hickenlooper, 859 F.3d 865, 878 (10th Cir. 2017) (quoting Kan. Penn
Gaming, LLC v. Collins, 656 F.3d 1210, 1215 (10th Cir. 2011)). Thus, while the Rule 12(b)(6)
standard does not require that a plaintiff establish a prima facie case in a complaint, the elements
of each alleged cause of action may help to determine whether the plaintiff has set forth a plausible
claim. Khalik, 671 F.3d at 1191.
However, “[t]hreadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678. The complaint must provide “more
than labels and conclusions” or merely “a formulaic recitation of the elements of a cause of action,”
so that “courts ‘are not bound to accept as true a legal conclusion couched as a factual allegation.’”
Twombly, 550 U.S. at 555 (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)). “Determining
whether a complaint states a plausible claim for relief will . . . be a context-specific task that
requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556
U.S. at 679. “[W]here the well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct,” the complaint has made an allegation, “but it has not shown that the
pleader is entitled to relief.” Id.
ANALYSIS
Morton and Sensoria seek to recover their investment in Clover Top Holdings, Inc. Clover
Top Holdings, Inc. also seeks redress for harm done to it, proceeding through Sensoria who is
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acting on its behalf. Collectively, Plaintiffs allege that Defendants took various actions harmful to
the business venture, for which they assert a variety of causes of action. Because Sensoria is the
principal investor and the primary litigant, the Court will refer to just it rather than to the Plaintiffs
on the whole, unless otherwise noted.
I. 	Illegality-Based Defenses and Bars to Recovery
In a previous ruling, Sensoria, LLC v. Kaweske, No. 20-cv-00942-MEH, 2021 WL 103020
(D. Colo. Jan. 12, 2021), the Court dismissed most claims. The overarching issue was Clover Top
Holdings, Inc.’s direct involvement in the growing and selling of marijuana. While those activities
may be legal under Colorado law, they are not under the federal Controlled Substances Act, 21
U.S.C. §§ 802, et seq. (“CSA”). Id. at *5. The Court noted Sensoria’s failure to “explain how relief
could be fashioned here that would not endorse or require illegal activity, or would be paid from
an asset source independent of marijuana.” Id. at *6. Nor did Sensoria “identify any particular
claim of relief that is unaffected by the [illegality] affirmative defense.” Id. However, because
there was “the potential that they may be able to seek relief that does not implicate federal
marijuana laws,” the Court gave Sensoria leave to amend the complaint. Id. at *15.
The SAC follows that ruling. Sensoria largely repeats the same causes of action without
specifically repleading any of them in a way to account for the illegal nature of the underlying
business venture. Instead, Sensoria attempts to avoid the illegality issue by reframing the
relationship with Clover Top Holdings, Inc.
Defendants again move for dismissal. Like Sensoria, they do not discuss how illegality
affects each particular cause of action, but rather, they argue that it bars Sensoria’s attempt at relief
as a general matter.
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A. 	Sensoria’s Intention
The SAC casts Sensoria’s involvement in the enterprise as that of a passive investor whose
intention was to invest in a lawful business. Sensoria concedes intentionally and knowingly
investing in a cannabis operation, but because there are aspects of cannabis and hemp that do not
violate the CSA, the investment could have been lawful under federal law. Moreover, Sensoria
relied on Defendants’ specialized knowledge to operate Clover Top Holdings, Inc. in a CSA-
compliant manner. Sensoria does not allege that Clover Top Holdings, Inc. was unlawful under
Colorado law. To the extent it may have violated federal law, Sensoria holds Defendants, who it
alleges acted unilaterally and without their knowledge or authorization, responsible.
Sensoria emphasizes that on Rule 12(b)(6) review, the Court must accept as true its
representation that it intended to invest in and fund only a lawful business. The Court accepts the
allegation as true, as it does for the SAC generally. That includes the description of the initial
solicitation “pitch” to invest in a substantial marijuana cultivation, processing, and retail operation.
The Court likewise accepts as true the allegation that Morton visited the business before making
the second investment. The full scope of the allegations shows that Defendants did not deceive
Sensoria into unwittingly investing in a business that unexpectedly turned out to involve illegal
marijuana. There was at least some indication that marijuana would be involved and to a substantial
degree, even if Sensoria subjectively did not appreciate that fact nor the full range of the legal
consequences.
Regardless of Sensoria’s subjective intent, the SAC describes the investment in a way that
implicates the CSA. The pleading shows its direct involvement1 in the growing, processing, and
1 The SAC also contains the allegation that Clover Top Holdings, Inc. never actually had
any assets in the first place. ECF 155 at ¶ 45(b). Otherwise, the SAC suggests that Clover Top
Holdings, Inc. was not an entirely void business from the beginning. Even if they later were
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selling of marijuana. Had Defendants managed it as represented, Sensoria would have benefitted
financially from those activities. Thus, the SAC raises the same CSA concerns that In re Malul,
614 B.R. 699 (D. Colo. 2020), Bart St. III v. ACC Enters., LLC, No. 17-cv-00083, 2020 WL
1638329 (D. Nev. Apr. 1, 2020), and Polk v. Gontmakher, No. 18-cv-01434, 2020 WL 2572536
(W.D. Wash. May 21, 2020) had.
How the marijuana aspect of the business affects the claims’ legal viability and the means
of redress remains a relevant question. The intention to invest in a fully lawful business does not
render the illegality issue moot. Consequently, the reframing of Sensoria’s relationship with
Clover Top Holdings, Inc. does not by itself preclude dismissal.
B. 	Breach of Contract
Sensoria emphasizes that the illegality affirmative defense is grounded in contract law
(ECF 177 at 8, n.2), and it renders void and unenforceable a contract that violates public policy,
In re Malul, 614 B.R. at 706, although not automatically so, Ginsburg v. ICC Holdings, LLC, No.
3:16-CV-2311-D, 2017 WL 5467688, at *8 (N.D. Tex. Nov. 13, 2017). The parties dispute
whether the affirmative defense bars Sensoria’s ability to sue Defendants for breach of contract.
Indeed, Sensoria devotes the majority of its Response (ECF 177) to arguing against its application
under the circumstances of this case. However, there is no need for the Court to resolve this dispute,
because Plaintiffs do not identify what contract is at issue. Without a contract that concerns any of
the moving Defendants, there is no need for them to assert the defense in the first place.
C. 	Non-Contract Claims
There is no contractual dispute over Sensoria’s investment in Clover Top Holdings, Inc. It
siphoned off, the pleading indicate that it owned some marijuana-related assets and that some
cultivation and retail activities could be attributed to it, even if only temporarily.
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received all purchased shares, unlike the situation in Kush, Inc. v. Van Vranken, No. 2:20-CV-649
JCM, 2020 WL 8371452, at *1 (D. Nev. June 19, 2020) which did concern the direct breach of an
investment contract. Indeed, it is that equity interest that gives Sensoria standing to sue Defendants
for redress. The allegation that Defendants “breached the investment contract” simply restates
Sensoria’s grievance about how Defendants falsely solicited the investment, mismanaged the
business, and took assets for their own benefit. In the previous ruling, the Court dismissed those
additional causes of action because Sensoria did not argue against extending the illegality
affirmative defense to them. Sensoria, 2021 WL 103020 at *6. The parties still do not address how
the CSA affects the legal viability of each claim, such as for fraud, securities law violations, or
unjust enrichment, specifically.
The mere fact of marijuana’s involvement does not by itself automatically preclude
Sensoria from seeking redress. As the Court recognized in the prior ruling, case law suggests no
such hard-and-fast rule. Id. Indeed, one federal court proceeded to consider whether a plaintiff
pleaded the elements of his additional fraud and RICO claims, even though the lawsuit concerned
a medical marijuana business investment. Ginsburg, 2017 WL 5467688 at *10. The Tenth Circuit
held that the Fair Labor Standards Act applies to the marijuana industry employers based on the
statute’s plain language and express purpose. Kenney v. Helix TCS, Inc., 939 F.3d 1106 (10th Cir.
2019). Defendants must do more than simply point to the marijuana aspects of the enterprise to
have the claims dismissed.
There also is the question of a permissible form of relief that the Court may provide. As
noted above, a court may not compel performance of a contract term that would require a party to
violate the law. Likewise, Chief Judge Romero of the United States Bankruptcy Court of the
District of Colorado has declined to administer marijuana-related assets or confer a federal benefit
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to debtors engaged in ongoing federal law violations. In re Malul, 614 B.R. at 713–14; In re Way
to Grow, Inc., 597 B.R. 111 (D. Colo. 2018). Another bankruptcy court likewise declined to protect
a debtor’s continued operation of a marijuana business. In re Johnson, 532 B.R. 53, 56–57 (W.D.
Mich. 2015). In its previous ruling, the Court dismissed Sensoria’s claims for not explaining how
relief could be fashioned “that would not endorse or require illegal activity, or would be paid from
an asset source independent of marijuana.” Sensoria, 2021 WL 103020 at *6.
Sensoria now emphasizes how certain assets at issue such as buildings and land are not
themselves inherently unlawful. However, they are being used for marijuana, and technically
speaking, at least, could be subject of criminal forfeiture. In re Malul, 614 B.R. at 712. Sensoria
does not explain how the Court may award them as a form of compensation. Alternatively,
compensation may be paid from a non-marijuana income source. Ginsburg, 2017 WL 5467688 at
*8 (finding that a court may compel a loan payment due to the fungibility of currency); Mann v.
Gullickson, No. 15-cv-03630, 2016 WL 6473215, at *7 (N.D. Cal. Nov. 2, 2016) (recognizing that
a court may order payment from lawful sources).
Assuming the availability of some permissible source of compensation, the injury Sensoria
suffered must be cognizable and legitimate. It is Sensoria’s ownership interest in the marijuana
business and the recovery of the benefit of its investment that underlies this lawsuit. The relief it
seeks directly concerns the business. However, the Court may not vindicate equity in or award
profits from a business that grows, processes, and sells marijuana. Sensoria, 2021 WL 103020 at
*6 (citing In re Malul, 614 B.R. 699 (D. Colo. 2020); Polk v. Gontmakher, No. 18-cv-01434, 2020
WL 2572536 (W.D. Wash. May 21, 2020); J. Lilly, LLC v. Clearspan Fabric Structures Int’l, Inc.,
No. 18-cv-01104, 2020 WL 1855190 (D. Or. Apr. 13, 2020)).
Key aspects of this lawsuit concern activities that represent either actual ongoing CSA
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violations (by Defendants) or the attempt to recover the investment in an enterprise (Clover Top
Holdings, Inc.) whose activities implicate the CSA. Marijuana is not an indirect or tangential
aspect of the dispute. It lies at the heart of the business and thus the lawsuit. Even if Sensoria may
litigate its various causes of action, it demonstrates no form of redress that this federal court may
provide. For this reason, the Court dismisses the claims based on theft (Eleventh and Twelfth
Causes of Action), fraud (Seventh and Thirteenth Causes of Action), negligent misrepresentation
(Eighth Cause of Action), and breach of fiduciary (Fifth, Ninth, and Fifteenth Causes of Action).
The Court likewise dismisses the civil conspiracy claim (Fourteenth Cause of Action) and the
Unjust Enrichment/Constructive Trust claim (Sixteenth Cause of Action). Because Sensoria does
not argue how the securities law-based claims are unaffected by the CSA issue, the Court dismisses
them (Second, Third, and Fourth Causes of Action) as well.
D. 	Equitable Relief
In its First Cause of Action, Sensoria requests “an accounting of all relevant entities” of
“how much, if any, money is due to it from defendants in excess of the $225,000.00 plus interest
it invested in Clover Top [Holdings, Inc.]” ECF 155 at ¶ 134. In other words, Sensoria seeks an
accounting of any equity or profit above the principal invested. Although the CSA generally
precludes the Court from awarding any financial benefit from marijuana, the act of accounting for
that financial benefit does not directly implicate the CSA in the same way.
The First Cause of Action also contains a request for “a determination that Sensoria is
entitled to the return of its investment in Clover Top [Holdings, Inc.] with interest.” Id. In the
SAC’s Prayer for Relief, Plaintiffs ask for “rescission of Sensoria’s purchase of shares in Clover
Top [Holdings, Inc.] and return of its investment” as an alternative to compensatory damages. Id.
at 59. Defendants make no specific legal argument for why the Court may not as a matter of law
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return the investment principal to Sensoria (assuming, of course, Sensoria can establish entitlement
to such relief and a permissible payment source). Case law provides no clear guidance. One case
declined to return the plaintiff’s investment in a marijuana business under an unjust enrichment
theory. Bart St., 2020 WL 1638329 at *9. It reasoned that buying equity violates the CSA because
it allows the investor to profit from marijuana and permitting recovery would give investors
increased confidence. Id. The investment itself may violate the CSA. In re Malul, 614 B.R. at 711–
12. On the other hand, at least in the contract enforcement context, Kush, Inc., 2020 WL 8371452
at *5, considered the need to avoid unjustly enriching a defendant or disproportionately penalizing
a 	plaintiff. 	That 	point 	of 	consideration 	might 	support 	rescission 	under 	the 	appropriate
circumstances. Because Defendants do not demonstrate how the rescission claim fails as a matter
of law, the Court declines to dismiss it.
In its Response (ECF 177), Sensoria suggests enjoining Defendants to conduct their
business enterprise in a CSA-compliant manner. That was the approach in re Johnson, 532 B.R.
53 (W.D. Mich. 2015) used, but in a wholly different situation. Mr. Johnson was elderly and in
poor health. He sought help to stay in his home, retain his vehicle, and keep the electricity turned
on despite financial difficulty. The bankruptcy court gave him the option to cease completely his
very small medical marijuana business so that he may avail himself of its protection. Enjoining
Defendants here superficially might obviate the illegality concerns by sanitizing their assets, but
the request suffers from its own defects. Defendants oppose such a measure, and Sensoria does not
plead the elements needed to obtain an injunction against them. For example, it does not establish
how Defendants’ future operations will cause it particularized, concrete injury. Lippoldt v. Cole,
468 F.3d 1204, 1217–18 (10th Cir. 2006). Nor may a private citizen seek injunctive relief to
enforce the CSA. Hickenlooper, 859 F.3d at 902 (concluding that a private “plaintiff cannot
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maintain a cause of action—in law or in equity—against any defendant for violating the CSA”).
The Court dismisses the First Cause of Action with respect to those requests that would
have the practical effect of transferring marijuana-related assets to Sensoria and to the extent
Sensoria asks to enjoin Defendants from all further CSA-infringing conduct. The Court does not
dismiss the requests for an accounting and rescission.
II. 	RICO
Sensoria accuses Defendants of engaging in activity that violates the Racketeer Influenced
and Corrupt Organizations Act, 18 U.S.C. §§ 1961–65 (“RICO”). RICO creates a private cause of
action for injuries to a plaintiff’s business or property. 18 U.S.C. § 1964(c). The elements of a civil
RICO claim are (1) racketeering activity in violation of 18 U.S.C. § 1962(c), (2) injury to the
plaintiff’s business or property, and (3) a causal relationship between the defendants’ violation and
the plaintiff’s injury. Hickenlooper, 859 F.3d at 881. The Court discusses those elements and their
definitions in turn below.
A. 	Racketeering Activity
To establish the first element, Sensoria must plausibly allege that Defendants each (a)
conducted the affairs (b) of an enterprise (c) through a pattern (d) of racketeering activity. Id. at
882. The statute defines “racketeering activity” by a list of predicate offenses which include CSA
violations. Id. (citing 18 U.S.C. § 1961(1)(A), (D)).
The kind of racketeering activity that Sensoria pleads in the SAC is dealing in a controlled
substance in violation of the CSA, “namely the growing, selling, and distributing of marijuana,
and/or the aiding and abetting in furtherance thereof.” ECF 155 at ¶ 213. To the extent Sensoria
premises the RICO claim on marijuana activities, Defendants invoke the equitable defense of in
pari delicto, which reflects the common law principle that a plaintiff’s recovery may be barred by
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his own wrongful conduct. In the civil RICO context, the defense applies if the plaintiff was an
active participant in the racketeering activity and dismissal is consistent with RICO’s policy goals.
Inge v. McClelland, 725 F. App’x 634, 639 (10th Cir. 2018).
To show the first prong, Defendants point to Senoria’s own ownership of a marijuana
business. Sensoria denies investing with the knowledge that it was an unlawful operation, but even
if the Clover Top Holdings, Inc. enterprise implicates the CSA, it still would not be in parti delicto
conduct. Clover Top Holdings, Inc. is not the marijuana enterprise subject of the RICO claim.
Because Sensoria is not an active participants in the same marijuana business, Defendants may not
rely on the defense.
In its Response (ECF 177), Sensoria describes a different kind of racketeering activity.
There, they refer to how Defendants fraudulently induced the investment in Clover Top Holdings,
Inc. (on the promise that it would be a lawful cannabis business) and then converted its assets for
the benefit of their competing illegal marijuana operation. Defendants concede that the in pari
delicto defense does not apply to this framing of the RICO claim. Sensoria did not participate in
the fraud; it was the scheme’s victim. Moreover, a causal relationship2 would exist, at least
superficially, between the scheme and Sensoria’s injury.
However, this version of the racketeering claim raises the question of whether the alleged
wrongdoing counts as one of RICO’s predicate acts. Securities fraud is not a recognized predicate
offense. 18 U.S.C. § 1964(c); Bixler v. Foster, 596 F.3d 751, 759–60 (10th Cir. 2010); Ginsburg,
2017 WL 5467688 at *22, n.28 (dismissing the claim “to the extent it is based on conduct that
would have been actionable as fraud in the purchase or sale of securities”). Nor are common law
2 To satisfy the causation element, Sensoria must plead that Defendants’ violation was not only a
“but for” cause of its injury, but the proximate cause as well. Hickenlooper, 859 F.3d at 889. The
focus of the inquiry is on whether the alleged violation directly caused the injury. Id. 889–91.
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fraud, Missaghi v. Apple, Inc., No. CV 13-02003 GAF, 2013 WL 12200086, at *7 (C.D. Calif.
Nov. 1, 2013), or garden-variety business disputes, Midwest Grinding Co. v. Spitz, 976 F.2d 1016,
1025 (7th Cir. 1992), actionable. Until Sensoria shows how the alleged fraudulent acts are covered
by RICO, it does not state a plausible claim.
B. 	Pattern
Assuming that Sensoria could demonstrate a predicate offense, it also must plead sufficient
facts to show a pattern, i.e., “a series of related predicates that together demonstrate the existence
or threat of continued criminal activity.” Hickenlooper, 859 F.3d at 882. “The threat of continuity
may be established by showing that the predicate acts or offenses are part of any ongoing entity’s
regular way of doing business.” Id. The “pattern” element has two parts. First, the multiple
predicate acts must relate to each other. The relationship test requires showing how the predicate
acts “have the same or similar purpose, results, participants, victims, or methods of commission,
or otherwise are interrelated by distinguishing characteristics and are not isolated events.” Bixler,
596 F.3d at 761. The second requirement of “continuity” is met when there is “long-term criminal
activity.” Id. Continuity may be either a closed period of repeated conduct or an open period that
projects past conduct into the future with the threat of repetition. Id.
Bixler found no pattern in the allegation “that defendants engaged in a single scheme to
accomplish the discrete goal of transferring [the assets of the corporation that plaintiffs owned] to
another corporation [for defendants’ sole benefit].” Id. Ginsburg similarly found no requisite
continuity or pattern where the alleged wrongdoing consisted of a single scheme to persuade the
plaintiff to invest in their medical marijuana business. 2017 WL 5467688 at *22. As in Bixler and
Ginsburg, Sensoria pleads only a single scheme of asset conversion that has been completed, not
an ongoing criminal enterprise.
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C. 	Injury
The civil RICO cause of action provides redress for injury to business or property.
Hickenlooper, 859 F.3d at 885. At issue here is a business in which Sensoria bought stock and
whose assets Defendants took for their personal benefit. However, Sensoria does not specify what
injury it suffered, or what injury Clover Top Holdings, Inc. suffered that Sensoria has derivative
standing to litigate. See Bixler, 596 F.3d at 758–59 (discussing shareholder standing to bring a
RICO claim for diminution of share value). The conclusory nature of its claimed injury precludes
Sensoria from stating a plausible RICO claim.
Regardless of whether Sensoria or Clover Top Holding, Inc. suffered a business or property
injury for which RICO permits recovery, the injury still must be cognizable. RICO provides no
redress for injury to a property interest that is contrary to public policy or the law. Doe v. Roe, 958
F.2d 763, 768 (7th Cir. 1992). The business or property interests Sensoria seeks to vindicate are in
a business that would grow, process, and sell marijuana. Even if Sensoria did not intend to invest
in an illegal business, that was the nature of its operations. Sensoria seeks redress for those aspects
of Clover Top Holdings, Inc.’s activities that themselves are unlawful.
D. 	Form of Redress
Sensoria maintains that in addition to seeking monetary relief, it also seeks to enjoin
Defendants from operating their marijuana business in violation of the CSA. However, Sensoria
does not overcome the Tenth Circuit’s “considerable doubt [whether] equitable relief is available
to private RICO litigants under any circumstances.” Switzer v. Coan, 261 F.3d 985, 992, n.14 (10th
Cir. 2001).
E. 	Summation
The Seventeenth Cause of Action recites the elements of a civil RICO claim, but to satisfy
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the Twombly/Igbal pleading standard and survive Rule 12(b)(6) review, it must allege a plausible
violation. Sensoria discusses the claim in greater depth in its Response (ECF 177). While that
discussion may describe a general fraud conspiracy, it falls short of the very specific elements that
define a RICO claim. Consequently, the Court dismisses it.
III. 	Tannenbaum Defendants
The essence of the SAC, as the Tannenbaum Defendants put it, is how Kaweske and
Peterson solicited Sensoria to invest in Clover Top Holdings, Inc. and “the big plans [for it] to
become a profitable cannabis business.” ECF 184 at 1. As it turned out, Sensoria realized no
financial benefit from the investment. The Tannenbaum Defendants stress that Clover Top
Holdings, Inc. never had any assets of its own and did not meet licensing requirements to operate
in the first place. Nor did it take any steps to maintain its corporate status with either Delaware (its
place of incorporation) or Colorado (its place of business). Id. at 1–2. Sensoria seeks redress from
Clover Top Holdings, Inc.’s attorneys for their alleged share of responsibility for the venture’s
failure.
A. 	Legal Malpractice
Clover Top Holdings, Inc. retained the Tannenbaum Defendants as its attorneys for legal
services “regarding the purchase and/or sale of marijuana licenses” and “for both cannabis and
corporate law” matters generally. ECF 155 at ¶ 33. They became Clover Top Holdings, Inc.’s legal
counsel just one month after its incorporation and before Kaweske and Peterson began soliciting
Morton’s initial investment. Id. at ¶¶ 27, 33, 41. The Tenth Cause of Action is Clover Top
Holdings, Inc.’s claim that they fell short of their duty of care to its detriment. Legal malpractice
may be shown either through an act of negligence in the provision of a service or a breach of a
fiduciary duty owed to the client. Parks v. Edward Dale Parrish LLC, 452 P.3d 141, 146 (Colo.
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App. 2019); Aller v. Law Office of Carole C. Schriefer. PC, 140 P.3d 23, 27 (Colo. App. 2005).
Clover Top Holdings, Inc. alleges both kinds of wrongdoing.
Regarding negligent acts, Clover Top Holdings, Inc. alleges that the Tannenbaum
Defendants failed “to maintain [its] corporate status and assure compliance with governing law to
keep [it] a viable entity.” ECF 155 at ¶ 179. It alleges that they did not ensure its compliance with
federal law (id.), presumably in reference to the CSA. There also may be an issue related to its
failure to meet the requirements either for holding its own marijuana licenses or for allowing
Morton and Sensoria to invest in it. Clover Top Holdings, Inc. does not say that it specifically
requested legal advice or services on any of these matters, but the SAC reasonably permits the
inference that those tasks could have been within the general scope of the retainer.
While the SAC contains just the minimum allegations of professional negligence, it goes
further in asserting a breach of fiduciary duty. Despite being its retained attorneys, Clover Top
Holdings, Inc. alleges that the Tannenbaum Defendants helped the other Defendants in ways that
were contrary to its interests. They helped with transactions that siphoned off assets and
represented competing businesses. The allegations raise disloyalty and conflict of interest
concerns. Citing Moguls of Aspen, Inc. v. Faegre & Benson, 956 P.2d 618, 621 (Colo. App. 1997),
the Tannenbaum Defendants argue that Clover Top Holdings, Inc. may not sue it for both legal
malpractice and breach of fiduciary duty when the alleged wrongdoings occurred solely within the
context of the attorney-client relationship. Clover Top Holdings, Inc. identifies no other kind of
relationship, such as a corporate officer, from which a fiduciary duty would arise. Because it
already is subsumed within the legal malpractice claim, the Court dismisses the breach of fiduciary
duty claim as a separate cause of action.
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B. 	Impossibility
The Tannenbaum Defendants argue that they could not have caused injury to Clover Top
Holdings, Inc. because it never was a viable business in the first place.3 “In other words, it was
impossible for Clover Top [Holdings, Inc.] to carry out the scheme of investment that the Plaintiffs
describe in their [SAC].” ECF 184 at 4. Because it always was a defunct enterprise, they never
actually provided it any legal services. However, in making that argument, the Tannenbaum
Defendants either exceed the scope of the SAC’s allegations or make assertions contrary to them.
At one place in the SAC, Plaintiffs say that Clover Top Holdings, Inc. “did not in fact own
the cannabis-related properties or entities that Kaweske and Peterson represented it did.” ECF 155
at ¶ 45(b). On balance, however, the SAC supports the inference that Clover Top Holdings, Inc.
had at least some marijuana-related assets for some period of time. The Tannenbaum Defendants
say that Colorado law prevented Clover Top Holdings, Inc. from holding a marijuana license either
directly in its own name or indirectly through ownership of a licensee. However, Plaintiffs plead
that Kaweske held Clover Top Holdings, Inc.’s licenses and that the Tannenbaum Defendants were
hired to help with cannabis licensing matters. There were problems with Clover Top Holdings,
Inc.’s state registrations, but the pleadings leave unclear how that would have affected operations.
For Rule 12(b)(6) purposes at least, the allegations show Clover Top Holdings, Inc. was a
sufficiently viable entity (viable enough to retain legal counsel) that could be harmed by an act of
legal malpractice by its attorneys.
3 If the Tannenbaum Defendants are correct that Clover Top Holdings, Inc. never was a valid
business concern and never had any marijuana-related assets, then the CSA may have a less
preclusive effect on Plaintiffs’ claims against the other Defendants.
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C. 	Civil Conspiracy; Aiding and Abetting; and Unjust Enrichment
Sensoria also ties the Tannenbaum Defendants to the alleged wrongdoings by the other
Defendants. It does so through a theory that the Tannenbaum Defendants helped the others carry
out their scheme to defraud them of their investment. However, the only link the Tannenbaum
Defendants had with the scheme was to assist with tasks at the others’ behest. In other words, their
contribution to the greater scheme was limited to their role as legal counsel for the other
Defendants. Those activities already underlie the professional malpractice claim. Sensoria alleges
no additional role that the Tannenbaum Defendants played in the scheme.
1. 	Civil Conspiracy
Sensoria includes the Tannenbaum Defendants in the Fourteenth Cause of Action for civil
conspiracy. It alleges that Defendants together sought “to deprive Clover Top [Holdings, Inc.] of
assets that rightfully belong to [it], and to deprive [its] shareholders of their value in [it].” ECF 155
at ¶ 199. As the Court highlighted in the first dismissal order, an unlawful “conspiracy” consists
of more than common action. It is defined by a meeting of the minds and separate, independent
conduct in furtherance of the unlawful goal. Sensoria, 2021 WL 103020 at *11. Sensoria amended
the claim to expressly allege a conspiratorial agreement. ECF 155 at ¶ 200. It added the allegation
that the Tannenbaum Defendants acted “for their own benefit by charging for services adverse to
[it] and profiting thereby.” Id. at ¶ 201.
The SAC may plead the elements of the cause of action, but it does not satisfy the
Twombly/Iqbal pleading standard. Sensoria pleads no involvement in the fraud scheme separate
and apart from their role as the other Defendants’ attorneys. There is no indication of any direct
financial benefit from the scheme (even if the other Defendants paid their legal fees from Clover
Top Holdings, Inc. assets). In other words, Sensoria does not demonstrate a form of wrongdoing
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that differs from what the legal malpractice claim covers. The same essential pleading defect that
was subject of the previous dismissal order remains. Sensoria, 2021 WL 103020 at *11–12. The
Court again finds that Sensoria does not plead a plausible civil conspiracy claim against the
Tannenbaum Defendants.
2. 	Aiding and Abetting Breach of Fiduciary Duty
The Fifteenth Cause of Action is for aiding and abetting a breach of fiduciary duty, which
Sensoria brings both directly and derivatively on Clover Top Holdings, Inc.’s behalf. The
Tannenbaum Defendants argue that the claim suffers from two defects. First, there is no underlying
breach of fiduciary duty to serve as its predicate, and because Clover Top Holdings, Inc. never was
a viable business, no such breach would have caused it injury anyway. However, the Court assumes
that a claim plausibly could be made that a fiduciary Defendant, such as Kaweske or Peterson, did
breach a duty owed to Clover Top Holdings, Inc.
It is a moot point because Sensoria also must establish that the Tannenbaum Defendants
assisted the others in causing that breach. The gravamen of the aiding and abetting claim is their
“knowing participation” in the fiduciary’s breach of trust. Holmes v. Young, 885 P.2d 305, 308
(Colo. App. 1994). This is the second aspect of the cause of action, and the Court agrees with the
Tannenbaum Defendants that Sensoria does not meet it. There is insufficient allegation of how
they knew of the others’ actions and purposefully participated in the scheme. In that way, the
aiding and abetting claim fails against the Tannenbaum Defendants for the same reason the civil
conspiracy claim does.
3. 	Unjust Enrichment
The Sixteenth Cause of Action is a claim of unjust enrichment and constructive trust that
Sensoria, both directly and derivatively, brings against all Defendants. The Court dismissed the
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prior version of the claim because Sensoria did not “establish how the Tannenbaum Defendants
benefitted from” the alleged wrongdoing. Sensoria, 2021 WL 103020 at *14. Citing Greenway
Nutrients, Inc. v. Blackburn, 33 F. Supp. 3d 1224, 1260–61 (D. Colo. 2014), the Court noted how
the cause of action requires the return of a benefit that a wrongdoer “in equity and good conscience
. . . ought not to keep.” Id. The SAC does not identify what benefit the Tannenbaum Defendants
wrongly retained. ECF 155 at ¶¶ 208–211. In its Response, Sensoria argues that any payment of
legal fees made from Clover Top Holdings, Inc. assets would have unjustly enriched the
Tannenbaum Defendants. ECF 178 at 15. Even if others did pay the Tannenbaum Defendants from
assets taken from Clover Top Holdings, Inc., the conversion already had occurred. The other
Defendants’ use of those assets in turn to pay their legal bill does not make the Tannenbaum
Defendants’ retention of that payment unjust.
4. 	Summation
Dispositive to the above three causes of action is the distinction between whether the
Tannenbaum Defendants’ role was limited to providing legal services at the request of others or
whether they acted as equal participants in the greater fraud and theft scheme. The SAC does not
go so far as to show them to be conspirators or knowing helpers. Nor does the SAC plausibly plead
how they derived a direct benefit from the scheme beyond their fee for the legal services rendered.
Consequently, the Court dismisses these three claims as raised against the Tannenbaum
Defendants.
IV. 	Leave to Amend
Dismissal of a case is a harsh remedy, and as a general rule, a litigant should have the
opportunity to amend the complaint and cure pleading defects. Fed. R. Civ. P. 15(a)(2). The Court
does not find that filing a Third Amended Complaint would be futile. As in Ginsburg, 2017 WL
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5467688 at *23, Plaintiffs expressly ask for the opportunity to amend, and it is possible they still
may be able to cure the defects. Given the novelty and complexity of the legal issues presented,
the Court gives Plaintiffs leave to do so a last time.
CONCLUSION
Sensoria says it is the victim of fraud, theft, and mismanagement of its investment, and it
expresses that allegation of wrongdoing through several different causes of action. However,
because the investment implicates the CSA, the Court’s ability to provide redress is limited.
Sensoria does not tailor its claims to avoid the illegality concern or explain how it may litigate
them in federal court. Therefore, the Court dismisses the claims that raise illegality concerns. In
addition, there are claims for which dismissal is warranted because Sensoria does not plead them
in a plausible fashion irrespective of the CSA issue.
Accordingly, for the above reasons, the Kaweske Defendants’ Motion to Dismiss [filed
March 2, 2021; ECF 165], the Evangelista Defendants’ Motion to Dismiss [filed March 5, 2021;
ECF 168], and the Tannenbaum Defendants’ Motion to Dismiss [filed March 5, 2021; ECF 170]
are granted in part as follows:
The Court dismisses all claims (except the Sixth and Tenth Causes of Action) on the basis
of illegality. The Court likewise dismisses the First Cause of Action except the requests for an
accounting and rescission.
The Seventeenth (RICO) Cause of Action is dismissed because Sensoria does not plead it
plausibly.
The Fourteenth (civil conspiracy), Fifteenth (aiding and abetting breach of fiduciary duty),
and Sixteenth (unjust enrichment) Causes of Action are dismissed as raised against the
Tannenbaum Defendants. Sensoria does not state plausible versions of those claims against them.
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The Court also dismisses the breach of fiduciary claim that is included in the Tenth Cause of
Action.
The above dismissals are without prejudice, and Plaintiffs have leave to file a Third
Amended Complaint.
The Motions are denied with respect to the Tenth Cause of Action for legal malpractice,
the requests for an accounting and rescission in the First Cause of Action, and the Sixth Cause of
Action for breach of contract. These are the three remaining claims in this case.
SO ORDERED.
Dated at Denver, Colorado, this 7th day of July, 2021.
BY THE COURT:
Michael E. Hegarty
United States Magistrate Judge
Case No. 1:20-cv-00942-SKC Document 200 filed 07/07/21 USDC Colorado pg
31 of 31