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;
GORDON MORTON;
ROGER AND ROBIN SMITH;
DENNIS AND LAURA GRIMMER;
GREENHOUSE 5, LLC;
AARON GARRITY;
GARRETT SCHIFFMAN;
LANCE SCHIFFMAN;
KENNETH D. HOUSE; and
MARC LESSER,
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.
ORDER
Michael E. Hegarty, United States Magistrate Judge.
Before the Court are the Motion to Dismiss (ECF 215) by Defendants John Kaweske
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(“Kaweske”) and entities related to him (“Kaweske Entities”) and the Motion to Dismiss (ECF
216) 	by 	Defendants 	Welby 	Evangelista, 	North 	Star 	Holdings, 	LLC, 	and 	DJDW, 	LLC
(“Evangelista Defendants”). 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.
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 Third
Amended Complaint (“TAC”). ECF 206. 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 206 at ¶ 11. He
was subject of four administrative proceedings and three lawsuits regarding inappropriate dealings
with client funds or securities transactions. Id. at ¶ 48. He expended great effort to hide his identity
and that history. Id. at ¶¶ 49-51. Defendant Christopher S. Peterson (“Peterson”) is a citizen of
either Colorado or Arizona. Id. at ¶ 12.
At issue in this lawsuit is Clover Top Holdings, Inc. which Kaweske, Peterson, and
Peterson’s wife incorporated in September 2015. Id. at ¶¶ 34. They were its majority owners and
served as its officers. Id. at ¶¶ 34-36. Clover Top Holdings, Inc. is a Delaware corporation. Id. at
¶ 13. Its principal place of business was in Colorado (id.), although it was not registered to do
business in Colorado until September 22, 2017 (id. at ¶¶ 52(a), 94). It no longer is an active
corporation. Id. at ¶¶ 111-114.
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Kaweske, Peterson, and Peterson’s wife formed Clover Top Holdings, Inc. “to engage in
all legal aspects of the cannabis business, beginning in Colorado and expanding elsewhere as the
business grew and as state and federal laws changed across the country.” Id. at ¶ 34. 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 ¶¶ 55-
56.
On October 30, 2015, Clover Top Holdings, Inc. retained Brian Tannenbaum, Esq. of
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 ¶ 58. Clover Top Holdings, Inc. retained the
Tannenbaum Defendants “for both cannabis and corporate law.” Id. at ¶ 59. 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 ¶ 72.
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 ¶ 61. 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 ¶ 62. 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 ¶ 63. 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”). Id. at ¶ 66.
Kaweske is AJC’s sole member. Id. at ¶ 15. An appraiser did not regard it as an arms-length
transaction. Id. at ¶ 66.
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In March 2016, Clover Top Holdings, Inc. purchased two existing marijuana licenses from
AJC. Id. at ¶ 64. The Tannenbaum Defendants assisted with the transaction. Id. At the time,
Kaweske was the only Clover Top Holdings, Inc. principal who had the Colorado residency
required for a marijuana license. Id. at ¶ 65.
B. 	The Initial Investments
In late 2015, Kaweske and Peterson solicited Peterson’s sister, Robin Smith, and her
husband, Roger Smith, to invest in Clover Top Holdings, Inc. Kaweske and Peterson portrayed
Clover Top Holdings, Inc. as the parent corporation for all future cannabis operations and brands,
and they reassured the Smiths that the operation was on the “up and up.” Kaweske and Peterson
emphasized that they had multiple business licenses and trademarks (including a federal
trademark) for their operations and products. Based on those representations, the Smiths invested
$50,000 in Clover Top Holdings, Inc. in October 2015. Id. at ¶ 37. The Smiths are citizens of
California. Id. at ¶ 4.
Between January and March of 2016, Kaweske and Peterson solicited Plaintiff Gordon
Morton (“Morton”) to invest in Clover Top Holdings, Inc. Id. at ¶ 38. They portrayed it as “the
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 ¶ 39. 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 ¶¶ 39, 52.
To Morton and other investors, Kaweske emphasized his extensive experience, expertise,
and special knowledge in the field and highlighted the legal nature of the venture and its anticipated
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nationwide expansion. Id. at ¶¶ 38, 45. The implication was that Clover Top Holdings, Inc.’s
operations were or would become lawful under federal law. Nor did Kaweske and Peterson honor
their representations to run the entity for Plaintiffs’ benefit. Id. at ¶ 52.
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 ¶ 40. 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 ¶ 41.
Contemporaneously, Kaweske and Peterson were soliciting additional investors. Garrett
Schiffman, Lance Schiffman, and Aaron Garrity received the same written materials as Morton as
well as the assurance that Kaweske and Peterson already had business licenses for their various
operations. Garrett Schiffman and Lance Schiffman each paid $60,000 for Clover Top Holdings,
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Inc. shares. Through his solely owned entity, Greenhouse 5, LLC, Aaron Garrity paid $100,000
for Clover Top Holdings, Inc. shares. Id. at ¶ 42. All three individuals and the Greenhouse 5, LLC
entity are Utah citizens.
Kaweske and Peterson convinced Peterson’s in-laws, the Grimmers, to invest. As with the
other solicitations, Kaweske and Peterson sent them the same written materials and represented
Clover Top Holdings, Inc.’s business operations as legitimate and legal. They possessed the
necessary licenses, and the operation already was up and running. Between June 2016 and January
2017, the Grimmers paid a total of $75,000 for Clover Top Holdings, Inc. shares. Id. at ¶ 43. The
Grimmers are citizens of Idaho. Id. at ¶ 5.
Lance Schiffman introduced Kenneth House to Kaweske and Peterson. They had multiple
conversations and received the written materials. In July 2016, House bought $30,000 in Clover
Top Holdings, Inc. stock. Id. at ¶ 46. House is a Utah citizen. Id. at ¶ 9.
In April 2016, Marc Lesser paid $60,000 for Clover Top Holdings, Inc. shares based on
his trust in Peterson and the investment solicitation. Id. at ¶ 47. Lesser is a California citizen. Id.
at ¶ 10.
The Smiths, Morton, Garrett Schiffman, and Lance Schiffman were familiar with neither
the marijuana industry nor federal marijuana law. Id. at ¶ 45. Kenneth House and Marc Lesser
knew that the Clover Top Holdings, Inc. venture was lawful under Colorado law but not under
federal law. Id. at ¶ 47. Lesser understood there to be “gray areas” in the law regarding cannabis,
but relied on Kaweske and Peterson’s assurances that the cannabis industry had started moving
toward legal profits. Lesser assumed there already were legal ways to make profits. Id.
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C. 	Purported Expansion of Clover Top Holdings, Inc.
Peterson’s father-in-law, Dennis Grimmer, also owned part of the Durango entity and
served as its manager. Id. at ¶¶ 62-63, 69. On June 27, 2016, he exchanged his Durango shares for
Clover Top Holdings, Inc. shares. Id. at ¶ 69. The Tannenbaum Defendants facilitated the exchange
(id.) 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 ¶ 70.
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 ¶ 73.
In October 2016, Clover Top Holdings, Inc. bought additional marijuana licenses from
MMJ 95, LLC (“MMJ”). Id. at ¶ 76. MMJ was formed in October 2015 as a cannabis-related
business (id. at ¶ 57), and Kaweske was its sole member (id. at ¶¶ 18, 83). Contemporaneously,
Kaweske stated that an MMJ license was being transferred to Tweedleaf, LLC (id. at ¶ 77), an
entity that Kaweske owned separate and apart from the Clover Top Holdings, Inc. enterprise and
the TweedLeaf Delaware entity (id. at ¶ 65).
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 ¶ 78.
Morton formed Sensoria, LLC (“Sensoria”) on November 17, 2016. Sensoria paid
$125,000 for an additional 125,000 shares. Id. at ¶ 81. Clover Top Holdings, Inc. issued a stock
certificate dated November 25, 2016 that Peterson and Kaweske signed. Id. at ¶ 82. All of Morton’s
investments in Clover Top Holdings, Inc. ultimately were made and accounted through Sensoria.
Id. at ¶ 81.
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On November 16, 2016, Kaweske incorporated Sunlife AG, LLC (“Sunlife”) as a cannabis
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 ¶ 80. 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 ¶ 84.
In February 2017, Welby Evangelista (“Evangelista”) and his entity, DJDW, LLC
(“DJDW”), invested in Clover Top Holdings, Inc. Id. at ¶ 85. 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 ¶ 86.
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 ¶ 100.
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 ¶ 89.
AJC obtained marijuana licenses, and 108 acres of land were bought. Id. at ¶ 90. 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 ¶ 91. However, Kaweske now claims that the Ordway-related assets
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and entities belong to him. Id.
Clover Top Holdings, Inc. was registered to do business in Colorado for the first time on
September 22, 2017. Id. at ¶ 94.
On October 12, 2017, Ordway Farms LLC (“Ordway Farms”) was created. Its initial
member was identified as “CLOVERTOP HOLDINGS, INC.” Id. at ¶ 95.
On December 2, 2017, Clover Top Holdings, Inc. opened its second TweedLeaf dispensary
for business. Id. at ¶ 97.
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 this development. Id. at ¶ 98. Ultimately, several lawsuits were filed in Colorado state court
regarding disputes between Peterson and Kaweske. Id. at ¶ 135.
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 ¶ 139.
On February 28, 2018, Kaweske bought a home in Colorado Springs for $525,000.00. Id.
at ¶ 101.
On September 10, 2018, TweedLeaf Delaware abandoned the “TWEEDLEAF” service
mark. Id. at ¶ 105.
In late 2018 and early 2019, Plaintiffs began to hear indications of trouble with the state of
their investment. Id. at ¶ 107. Morton first became aware of problems 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
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kill Morton and his family.” Evangelista accused Mortion of “stealing his money, asserting
Morton’s involvement in 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 ¶ 106.
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. Moreover, the assets that originally belonged
(or were intended to belong) to Clover Top Holdings, Inc. became part of that other competing
enterprise. Id. at ¶¶ 110, 139.
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 ¶¶ 14, 118.
Unlike Clover Top Holdings, Inc. (in which Plaintiffs invested), the Clover Top Colorado entity
remains an active corporation. Id. at ¶ 118.
Kaweske asserts ownership over AJC, an entity that was meant to be Clover Top Holdings,
Inc.’s asset and the holder of its marijuana licenses. Id. at ¶¶ 65, 71. In November 2016, Kaweske
registered the TweedLeaf name and logo trademarks with AJC. Id. at ¶ 79. On September 12, 2017,
Kaweske assumed unlimited authority to transfer real property held in Durango’s name. Id. at ¶
92.
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 ¶ 99. On July 12, 2018, Kaweske and
Evangelista formed JW Trinidad, LLC (“JW Trinidad”). Id. at ¶ 102. On August 3, 2018,
Evangelista incorporated North Star Holdings (“North Star”) as a cannabis business, for which
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Kaweske served as an officer. Id. at ¶¶ 23, 103. The Tannenbaum Defendants were listed as North
Star’s registered agent. Id. at ¶ 103. North Star uses TweedLeaf as one of its brands. Id. at ¶ 109.
On September 5, 2018, Kaweske replaced Clover Top Holdings, Inc. as Ordway Farms’
sole member. Id. at ¶ 104. Without Plaintiffs’ knowledge, Kaweske and Evangelista sold securities
in Ordway Farms contrary to Clover Top Holdings, Inc.’s interests. Id. at ¶¶ 88, 104.
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 ¶ 109.
Clover Top Holdings, Inc.’s registration with Colorado became delinquent on February 1,
2019 after not filing 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 the State of Delaware $108,566.68.
Id. at ¶¶ 111-113.
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 ¶
131. On September 10, 2019, JW Colorado registered the “TWEEDLEAF” trademark and service
mark. Id. at ¶ 132.
E. 	Plaintiffs Inquire About Their Investment
Plaintiffs became concerned that other investors were acquiring ownership of Clover Top
Holdings, Inc. in a way that was diluting the value of their investment. Id. at ¶ 120. They received
no substantive answers or information from Clover Top Holdings, Inc. or its officers. Id. at ¶¶ 120-
122. In February 2019, Kaweske told Morton that events and circumstances had rendered
Sensoria’s investment “no longer relevant.” Kaweske added, “Technically, I don’t have to give
you anything because technically you don’t own anything.” Id. at ¶ 124. Evangelista threatened to
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countersue Plaintiffs and claimed losses ten times greater than Sensoria’s. Id. at ¶ 136.
Sensoria’s attempt at private resolution was unsuccessful. Id. at ¶ 126. A demand letter
yielded no substantive relief. Id. at ¶ 136.
Plaintiffs believe that Clover Top Holdings, Inc.’s “assets, holdings, and subsidiaries . . .
have been transferred away,” rendering their investment irrelevant. Id. at ¶ 123. “Plaintiffs have
not received back any of their 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 ¶ 127. Instead, Kaweske “is now controlling the TweedLeaf brand and operations apart from
Clover Top [Holdings, Inc.] and under his separate entities.” Id. at ¶ 133. 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 ¶ 109).
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). Plaintiffs argue that it was through these entities that Kaweske siphoned off assets and
cash that belonged to the Clover Top Holdings, Inc. venture.
Neither TweedLeaf Delaware nor Clover Top Holdings, Inc. has answered the Complaint,
and both are in default. ECF 95 at ¶¶ 6, 13. “Notwithstanding any allegation set forth [in their
TAC],” Plaintiffs clarify that “any claim on which Clover Top [Holdings, Inc.] has previously
defaulted is not advanced against Clover Top [Holdings, Inc.] in this Third Amended Complaint.”
ECF 206 at ¶ 13.
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The Clover Top Colorado entity that Kaweske also incorporated has not appeared 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
is in practical effect Clover Top Holdings, Inc. Plaintiffs bring no claims unique to them. The
Evangelista Defendants filed their own Motion to Dismiss (ECF 216), but they simply adopted the
arguments that the Kaweske Defendants raise. Therefore, the Court does not discuss the
Evangelista Defendants separately.
For ease of reference and to simplify the below legal analysis, the Court’s use of the term
“Defendants” means those individuals or entities against whom the Plaintiffs bring the cause of
action being discussed. Moreover, it means only those Defendants who have file the Motions to
Dismiss under review. For example, the Court’s below reference to “Defendants” does not include
Peterson.
Both Peterson and the Tannenbaum Defendants have answered the TAC. ECF 211, 219.
Because the Tannenbaum Defendants have not moved to dismiss the TAC, the Court excludes the
allegations that Plaintiffs add about their involvement in the greater scheme.
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
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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.
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.’”
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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
Plaintiffs complain that Defendants harmed the Clover Top Holdings, Inc. business venture
and deprived them of the value of their investment. Clover Top Holdings, Inc. also seeks redress
for harm done to it, and it proceeds through Plaintiff Sensoria who is acting on its behalf.
Collectively, Plaintiffs express Defendants’ wrongful actions through several different causes of
action.
I. 	Available Means of Judicial Relief
At issue is whether Clover Top Holdings, Inc. engaged in illegal conduct that hinders the
Court’s ability to remedy the damages Plaintiffs suffered. Thus, the primary legal question raised
in the Motions is whether their claims should be dismissed on that basis as a matter of law. The
Court has addressed this same issue twice before. Having now revisited the matter and after
considering this newest round of briefing, the Court affirms that the illegality defense does apply
and with dispositive effect.
A. 	The Nature of the Clover Top Holdings, Inc. Enterprise
In the previous dismissal order, this Court observed that marijuana “lies at the heart of the
business” in which Plaintiffs had invested. Sensoria, LLC v. Kaweske, — F. Supp. 3d —, 2021
WL 2823080, at *9 (D. Colo. July 7, 2021). That observation remains true for the TAC. Plaintiffs
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describe Clover Top Holdings, Inc. as a “mother ship” for multiple entities to produce, process,
and sell marijuana and related products. ECF 206 at ¶ 39. It would do so on a large scale, beginning
with an “11,000 square foot cultivation facility . . . capable of growing over 4,000 plants” and “a
1,500 square foot medical marijuana dispensary located in a prime retail location.” Id. at ¶ 40.
Plaintiffs expected starting revenues in excess of $400,000 a month. Id. In comparison to the initial
complaint, Plaintiffs now expressly deny any intention to invest in a business that violated federal
law. “[T]he Smiths, Morton, and the Schiffmans understood that Clover Top’s activities were
compliant with state and federal law.” Id. at ¶ 45 (emphasis added). They also describe their
involvement as that of “passive, out-of-state investors” who lacked “special knowledge about the
[cannabis] industry” and the true extent of Clover Top Holdings, Inc.’s illegal operations. Id. at ¶
159. They relied on Kaweske to operate the business lawfully.
Plaintiffs describe their investment in Clover Top Holdings, Inc. and their relationship with
Kaweske in a way that distances them from the nature of the business. The pleading amendments
thereby serve to avoid the impact of the illegality affirmative defense. Although the amendments
come after Defendants raised the illegality defense, the Court still accepts them as true for purposes
of this Rule 12(b)(6) review, as it did in the prior dismissal order, Sensoria, 2021 WL 2823080 at
*7, addressing the same point. The plaintiff in Fourth Corner Credit Union v. Fed. Reserve Bank
of Kansas City, 861 F.3d 1052, 1056 (10th Cir. 2017) made similar amendments in an equivalent
situation. Although the Court accepts as true Plaintiffs’ allegations about their subjective
perceptions and intentions, ultimately they have little effect on the outcome of the illegality defense
issue.
Marijuana not only lies at the heart of the investment but at the heart of this lawsuit, as
well. The primary legal question presented is how it affects Plaintiffs’ ability to obtain judicial
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relief.
B. 	The Controlled Substances Act, 21 U.S.C. §§ 802, et seq.
“The overarching issue,” as this Court already has framed it, was the “direct involvement
in the growing and selling of marijuana” that the enterprise was anticipated to have. Sensoria, 2021
WL 2823080 at *7. Although presumably lawful under Colorado law, Clover Top Holdings, Inc.’s
planned activities were not under the federal Controlled Substances Act, 21 U.S.C. §§ 802, et seq.
(“the CSA”). Marijuana is a Schedule 1 controlled substance. Hemphill v. Liberty Mut. Ins. Co.,
No. 10-861-LH/RHS, 2013 WL 12123984, at *2 (D.N.M. Mar. 28, 2013). Not only does the CSA
make it unlawful to grow, possess, dispense, 	and distribute marijuana, but it creates a
comprehensive scheme that criminalizes the full range of marijuana-related activities, including
providing operational space for such activities. In re Arenas, 535 B.R. 845, n.3 & n.40 (10th Cir.
2015). Marijuana-related activities carry both a risk of criminal conviction and forfeiture of
property and assets. In re Malul, 614 B.R. 699, 712 (D. Colo. 2020). Moreover, the CSA continues
to apply in full force even in states that have de-criminalized marijuana. Gonzales v. Raich, 545
U.S. 1 (2005). Simply put, “it is illegal for any private person to possess marijuana for any
purpose,” even as a medical treatment. River N. Props., LLC v. Denver, No. 13-cv-01410-CMA-
CBS, 2014 WL 7437048, at *3 (D. Colo. Dec. 30, 2014).
In both the TAC and their Response, Plaintiffs stress the federal government’s softening
approach to marijuana. The Executive Branch may chose not to enforce the CSA where marijuana
is lawful under state law. Congress may be contemplating decriminalizing marijuana at the federal
law level. In Standing Akimbo, LLC v. U.S., 141 S.Ct. 2236 (2021), Justice Thomas questioned the
CSA’s comprehensive approach to the complete criminalization of marijuana upon which the
Raich opinion is premised. Nevertheless, the CSA was in full force in 2016 when Plaintiffs bought
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into Clover Top Holdings, Inc., and it remains federal law today. None of the federal decisions
cited herein has treated the CSA as dead letter law, and Raich remains binding precedent on this
Court.
Plaintiffs also emphasize how some cannabis-related products do not violate the CSA, but
those areas of lawful commercial activity are tangential. The focus of the business was marijuana
in its federally unlawful form and on a substantial scale.
Regardless of Plaintiffs’ subjective intent, the venture’s areas of CSA-compliant activities,
and reduced federal enforcement, the pleadings still describe Clover Top Holdings, Inc. in a way
that implicates the CSA. Clover Top Holdings, Inc. was created to oversee the growing,
processing, and selling of marijuana. Had Defendants managed the enterprise as represented,
Plaintiffs would have benefitted financially from those activities. Thus, the TAC 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 legal viability of Plaintiffs’ causes of action and the available means of judicial
redress remains a relevant question.
C. 	The “Illegality” Affirmative Defense and Related Bars to Recovery
As a general rule, a court will not compel the performance of a contract term that requires
violating a law. Bassidji v. Goe, 413 F.3d 928 (9th Cir. 2005) (declining to enforce a financial
guarantee that would be inconsistent with an economic sanctions provision). Here, it is the CSA
that must be avoided. Nor may a court enforce a contract term that is contrary to public policy.
McCracken v. Progressive Direct Ins. Co., 896 F.3d 1166 (10th Cir. 2018) (declining to enforce a
negotiated release of a tort claim that while lawful, was contrary to Colorado public policy for
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providing tort victims UM/UIM coverage). However, the mere fact that unlawful activity is
involved in some way does not automatically foreclose contract relief; this includes contracts that
might bear some relationship to marijuana. Sensoria, 2021 WL 2823080 at *8.
The purpose of the public policy rule is not to protect the contracting party. Rather, the
inquiry ensures that enforcement of a contract will not be detrimental to the public good. It applies
when 	the contrary 	public policy 	clearly 	outweighs 	the interest 	in 	contract 	enforcement.
McCracken, 896 F.3d at 1172. There are several factors to consider in making that determination:
relative moral culpability, deterrence of illegal conduct, avoidance of unjust windfalls and
forfeitures, and how best to give effect to the public policy. Of them, the guiding “core principle”
is “that courts may not themselves order violations of the law.” Bassidji, 413 F.3d at 937-39.
Plaintiffs argue that the public policy inquiry weighs in their favor. Not only did
Defendants steal their investment money, but they deprived Plaintiffs of profits that the promised
enterprise would earn them. On the basis of those allegations, Plaintiffs argue against allowing
Defendants to use the illegality defense to shield themselves from liability. Permitting them to
keep the stolen money and divesting them of the business would give Defendants an unjust
windfall. Plaintiffs make a strong argument on these allegations.
However, there are countervailing factors. The involvement of marijuana was neither
tangential nor unexpected. Plaintiffs knew what the essential nature of the undertaking would be.
They must explain how this federal court can serve the public’s interests if it vindicates their
ownership of a CSA-infringing enterprise. Essentially, they ask this Court to tolerate one violation
of law (the CSA) to redress others, or to enjoin conduct that is lawful under state law to permit
redress in the federal forum. They may not be lawyers and may not have appreciated the full legal
complexity, but ignorance of the law is no defense, U.S. v. Benton, 988 F.3d 1231, 1239 (10th Cir.
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2021) (citing the maxim in the context of a defense to criminal prosecution). Plaintiffs are
sophisticated investors who bought shares after negotiating with Kaweke and the opportunity for
due diligence. This Court also notes that the illegality affirmative defense and related bars are a
function of Plaintiffs’ choice of venue. Plaintiffs filed this lawsuit in federal court, not Colorado
state court in which the illegality issue possibly may play a lesser role. By filing suit in federal
court, it was Plaintiffs themselves, and not Defendants, who deprived them avenues of relief and
“choses in action.” In light of the overall circumstances, the public policy consideration does not
militate against application of the illegality defense.
Nor is the illegality affirmative defense limited to the contract context. The same core
principle that prevents a court from compelling acts that violate the law applies in other respects.
Illegality can bar a tort claim. Mischalski v. Ford Motor Co., 935 F. Supp. 203, 205 (E.D.N.Y.
1996) (noting that the defense also applies “to actions arising in tort, under the theory that one
should not be rewarded for voluntary participation in an illegal act or profit from his or her own
wrongdoing”). In J. Lilly, LLC v. Clearspan Fabric Structures Int’l, Inc., No. 18-cv-01104, 2020
WL 1855190 (D. Or. Apr. 13, 2020), the plaintiff sought lost profits as damages “for the breach
of contract, breach of warranty, and negligence arising from [its] lease of a commercial
greenhouse” used for marijuana cultivation. Id. at *1. Because the court could not award plaintiff
lost profits from the sale of marijuana, the plaintiff was precluded from proceeding on its claims.
Id. at *12. A plaintiff may not base a Section 1983 claim on a legal interest in property used to
cultivate medical marijuana. River N., 2014 WL 7437048 at *3. A court may not use its equitable
power to facilitate conduct that implicates the CSA even if that same conduct is lawful under state
law. Fourth Corner, 861 F.3d at 1055. A federal bankruptcy court may not give a marijuana
business the benefit of bankruptcy protections. Arenas, 535 B.R. at 847. Plaintiffs attempt to
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distinguish the bankruptcy context, which involves a trustee’s administration of assets, from this
lawsuit. However, the same obstacles a trustee faces in managing marijuana assets the Court has
in providing means of redress. It is not just the trustee’s obligation to follow federal law but the
court’s, as well. “In this case, the debtors are unfortunately caught between pursuing a business
that the people of Colorado have declared to be legal and beneficial, but which the laws of the
United States—laws that every United States Judge swears to uphold—proscribe and subject to
criminal sanction.” Id. at 854.
Lastly, Plaintiffs object to the Court’s consideration of an affirmative defense, for which
Defendants bear the burden of proof, in reviewing the sufficiency of their pleading. However, the
affirmative defense of illegality is relevant to the present Rule 12(b)(6) analysis because its
applicability is apparent on the face of the pleadings. Fernandez v. Clean House, LLC, 883 F.3d
1296, 1299 (10th Cir. 2018) (permitting dismissal of a claim if “the complaint itself admits all the
elements of the affirmative defense”). Even if Plaintiffs subjectively had different intentions or
understandings, the TAC makes the nature of the business and the CSA implications clear.
The illegality issue affects Plaintiffs’ various theories of relief generally, not just the breach
of contract claim. Given the many ways it relates to the analysis, the Court will refer to it as the
“illegality defense” for ease of reference. By “illegality defense,” the Court means not just the
specific affirmative defense that applies in the breach of contract context, but all the ways in which
the CSA is implicated and limits Plaintiffs’ ability to litigate the lawsuit.
D. 	Limitations on Relief
Even if the CSA does not automatically bar Plaintiffs’ ability to sue Defendants, the
illegality issue still limits the Court’s ability to provide relief. The Court reviewed those restrictions
in the prior dismissal ruling, Sensoria, 2021 WL 2823080 at *8, and the Court restates them here.
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First, the injury itself must be cognizable and legitimate. As such, the Court may not
vindicate equity in or award profits from a business that grows, processes, and sells marijuana.
The claim at issue in Mann v. Gullickson, No. 15-cv-03630, 2016 WL 6473215, at *7 (N.D. Cal.
Nov. 2, 2016) over the buyer’s failure to pay the purchase price of a marijuana business may be
analogous to Plaintiffs’ equity interest in Clover Top Holdings, Inc. However, Mann is
distinguishable because (1) there was “no indication in the record [that the business] directly grew
or sold marijuana” (id. at *1) and (2) there was the possibility that the defendant could pay the
purchase price from non-marijuana assets (id. at *7).
This leads into the other limit on the Court’s ability to provide relief. Relief may not be in
a form that endorses violating the CSA. It can neither require an act that would violate the CSA
nor award monetary damages paid from a marijuana asset or income stream. To ensure that
Defendants could pay compensation from non-marijuana income, Plaintiffs ask the Court to enjoin
them to operate the business in a CSA-compliant way. The Court rejected that possibility in the
prior dismissal order, Sensoria, 2021 WL 2823080 at *10, and the present briefing does not
persuade the Court to change its ruling. Plaintiffs do not demonstrate how the legal requirements
for the entry of an injunction are satisfied. Moreover, the requested injunction would prevent
Defendants from operating a business that presumably is lawful under Colorado law. Even if the
Court could use an injunction to sanitize Defendants’ assets, Plaintiffs do not explain how it would
be achievable in a practical sense. It is unclear how this Court could oversee the operation of a
marijuana business to ensure that only CSA-compliant activities are undertaken. That practical
difficulty affects not only their request for an injunction but also the request to place the Defendant
entities and their assets into a constructive trust. Lastly, Plaintiffs do not explain how a fully CSA-
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compliant marijuana operation would generate sufficient income to redress the loss of the
enterprise as originally contemplated.
Plaintiffs also ask for discovery to explore whether Defendants could pay compensatory
damages from non-marijuana assets. For purposes of this ruling, the Court assumes the potential
availability of “fungible” monetary sources from the individual Defendants. The pleadings do not
show a likelihood that the Defendant entities have significant income independent of CSA-
violative undertakings and assets, and separating out legitimate income from their general revenue
creates challenges similar to enjoining CSA-compliant activity.
The same limitations that the Court sketches above, Plaintiffs incorporate into their TAC.
They expressly exclude any request for the Court “to compel performance of an illegal contract or
compelling a party to violate federal law” or from awarding relief that would violate the CSA
“including recovery from assets, holdings, real estate (including retail locations, warehouses,
agricultural lands, and individual defendants’ property), business activities, property, and other
interests independent of illegal activities associated with marijuana.” ECF 206 at ¶ 137.
E. 	Rescission
In the TAC’s concluding Prayer for Relief, Plaintiffs ask to rescind their purchase of Clover
Top Holdings, Inc. shares and for the return of their investment. They seek recission as an
alternative to compensatory damages or constructive trust, and as a form of relief otherwise
“provided by law or equity.” ECF 206 at 87, ¶ 2.
In its prior dismissal ruling, Sensoria, 2021 WL 2823080 at *10, the Court raised the
potential that recission could be a form of relief that is CSA-complaint and thus would not subject
a claim to the illegality bar. Defendants did not argue why the Court could not “as a matter of law
return the investment principal to Sensoria (assuming, of course, Sensoria can establish entitlement
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to such relief and a permissible payment source).” Id. In the absence of legal argument, the Court
considered on its own the In re Malul, 614 B.R. 699, 711-12 (D. Colo. 2020), Kush, Inc. v. Van
Vranken, No. 2:20-CV-649 JCM, 2020 WL 8371452, at *5 (D. Nev. June 19, 2020), and Bart St.
III v. ACC Enters., LLC, No. 17-cv-00083, 2020 WL 1638329, at *9 (D. Nev. Apr. 1, 2020)
decisions. Because those cases took differing approaches to the appropriateness of rescission in
the CSA context, they offered no clear guidance.
Plaintiffs do not plead rescission as a separate cause of action in the TAC, but in their
Response (ECF 221 at 10, 27), they repeat their request for the return of their initial investment”
as a form of relief that the Court could award them. Therefore, the Court will consider “rescission”
as a form of relief for a violation of claim, i.e., the return of principal, rather than as its own
freestanding cause of action.
The parties’ dispute over the availability of rescission mirrors their arguments over the
affect of the illegality defense, generally. Defendants argue that “Plaintiffs’ rescission claim
necessarily involves illegal conduct, as their investment would be returned from illegal income
streams generated by Defendants’ marijuana business.” “As a consequence, the balance between
illegality and unjust enrichment” does not tip in Plaintiffs’ favor. ECF 215 at 7-8.
As the Court noted in its prior ruling, there is the question whether permitting rescission
would encourage investment in CSA-violative businesses. On balance, however, the Court finds
the matter to weigh in favor of providing rescission. Merely returning the principal money invested
a business does not raise the same concerns as awarding profits from its operation. The investor
receives no benefit from the marijuana activity. Moreover, by divesting ownership interests and
removing the investor from the marijuana business, it furthers the CSA’s goals. Of course, the
Defendants must refund the principal from money or assets that are independent of their marijuana
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operations. Because there is that possibility, especially from the individual Defendants, Plaintiffs’
rescission request does not fail as a matter of law. The actual availability of independent assets or
financial resources will have to be determined at a later litigation stage.
II. 	Plaintiffs’ Causes of Action
In the above section, the Court explains the parameters of the illegality defense and how it
limits a federal court’s ability to provide redress. With the above limitations in mind, the Court
next considers how they actually affect the various causes of action. Where applicable, the Court
also considers whether Plaintiffs state a plausible claim for relief regardless of any limitations on
the remedy.
A. 	Declaratory, Injunctive, or Other Equitable Relief (First Cause of Action) and
Unjust Enrichment/Constructive Trust (Seventeenth Cause of Action)
Plaintiffs’ First Cause of Action essentially repeats other theories of wrongdoing expressed
elsewhere in the TAC, and it includes arguments against the applicability of the illegality defense.
To the extent they are redundant, there is no need to discuss those issues separately here. Instead,
the Court limits its consideration of the First Cause of Action to the accounting request. Plaintiffs
ask the Court “to determine how much, if any, money is due to [them] from defendants in excess
of the $700,000.00 [principal they invested in Clover Top Holdings, Inc.] plus interest.” ECF 206
at ¶ 154. Previously, after reviewing the substantially same pleading in the SAC, this Court found
that “[a]lthough 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.” Sensoria, 2021 WL 2823080 at *9.
Defendants argue that there is no practical need for it. An equitable accounting claim may
be dismissed when the sum at issue (here, the investment principal) already is known and
quantified. Andrikopoulos v. Broadmoor Mgmt. Co., Inc., 670 P.2d 435, 440 (Colo. App. 1983)
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(permitting the relief of an accounting when plaintiff is unable to determine how much, if any,
defendant owes him). What profits Plaintiffs could have earned from their investment in Clover
Top Holdings, Inc. (had Defendants operated it lawfully and as promised) is a moot point. This
Court cannot award Plaintiffs lost profits from a marijuana business. In light of this new argument
and noting Plaintiffs’ failure to respond in opposition, the Court dismisses the First Cause of
Action.
For their Seventeenth Cause of Action, Plaintiffs bring an unjust enrichment claim against
the Defendants (other than Tannenbaum Defendants). Should Plaintiffs prevail on its merits and
should that permit the award of their investment principal as damages, then the illegality defense
would not impede their ability to assert it. Therefore, the Court does not dismiss it, at least to the
extent Plaintiffs bring their unjust enrichment claim directly on their own behalf. Because Clover
Top Holdings, Inc. did not invest in itself, the Court does dismiss the derivative version of the
claim.
The Court also dismisses the Seventeenth Cause of Action to the extent Plaintiffs ask for
Defendants’ assets to be placed in a constructive trust. The Defendant entities and their assets are
involved in CSA-infringing activities. Just as the federal bankruptcy court declines to put trustees
in the position of administering marijuana activities and assets, this Court declines to create a
constructive trust here. Nor does the Court see how it would be feasible in practical terms to use
the constructive trust to compel Defendants to operate the greater marijuana enterprise in a CSA-
compliant manner.
B. 	Breach of Contract (Sixth Cause of Action)
Plaintiffs bring this claim against Clover Top Holdings, Inc. The Court already has
questioned what contract Plaintiffs had with Clover Top Holdings, Inc. that Clover Top Holdings,
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Inc. actually breached. ECF 199 at 3. As pleaded in the TAC, the breach of contract claim now
references Subscription Agreement contractss by which Plaintiffs bought its stock. ECF 206 at ¶
184. Because Clover Top Holdings, Inc. is in default, this Court does not consider whether
Plaintiffs state a plausible claim against it. Nor does the Court consider at this juncture whether
the newly added Plaintiffs must formally serve Clover Top Holdings, Inc. to give it notice of their
breach of contract claims.
Plaintiffs also assert their breach of contract claim against the individual Defendants,
Peterson and Kaweske. Because Peterson does not move for dismissal, the Court does not consider
whether the claim should be dismissed against him.
However, Kaweske does ask this Court to dismiss this claim as to him. ECF 215 at 18-20.
It argues—as this Court already has observed—that he is not party to the Subscription Agreement
contracts. As Kaweske points out in his Reply, “Plaintiffs do not dispute [that he] and Plaintiffs
never entered into a written contract.” ECF 226 at 18. The Court dismisses the written contract-
based claim that Plaintiffs bring against Kaweske individually.
Plaintiffs include in the Sixth Cause of Action the allegation that Kaweske also breached
his oral agreements “that Clover Top [Holdings, Inc.] would engage in the legal cannabis
business.” ECF 206 at ECF 184. Plaintiffs make no allegation that the business venture ran afoul
of Colorado law; to that extent, Kaweske fulfilled his promise. The implication of Plaintiffs’
allegation instead is an agreement that Clover Top Holdings, Inc. would abide by the CSA.
Restating their theory of fraud, conversion, and breach of fiduciary duty, Plaintiffs further that
Kaweske breached an oral agreement “that all cannabis operations in which [he] was or would
become involved would be owned by, [be] part of, and fall under the umbrella of the Clover Top
business, and that all such profits would inure to the benefits of Plaintiffs as owners.” ECF 206 at
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ECF 184.
The oral contract theory of relief fails, Kaweske argues, for a lack of consideration. To
begin with, Plaintiffs allege no direct benefit to Kaweske from the alleged agreement to operate
Clover Top Holdings, Inc. lawfully. Plaintiffs’ investment in Clover Top Holdings, Inc. benefitted
that corporate entity directly, and they do not explain how that benefit may be extended to Kaweske
as a corporate officer. Even if there was some mechanism by which Plaintiffs gave consideration
to Kaweske, they identify no valid consideration given in return. Generally speaking, a promise to
follow the law does not create a contract. DeJean v. United Airlines, Inc., 839 P.2d 1153, 1158
(Colo. 1992). Moreover, Kaweske made the alleged promise to operate the venture legally before
Plaintiffs bought their Clover Top Holdings, Inc. shares. The Court dismisses the breach of oral
contract claim against Kaweske individually.
C. 	Breach of the Covenant of Good Faith and Fair Dealing (Seventh Cause of
Action)
Although Clover Top Holdings, Inc. already is in default, Plaintiffs add a new claim for
relief against it: that it breached the covenant of good faith and fair dealing. The Court does not
decide at this juncture whether the newly added Plaintiffs may sue the defaulted entity or whether
new claims for relief may be asserted against it without serving it with process. As it did with the
Sixth Cause of Action, the Court declines to consider sua sponte whether Plaintiffs state a plausible
claim against it (or Peterson).
Kaweske asks the Court to dismiss the Seventh Cause of Action to the extent Plaintiffs
bring it against him, because they plead no valid underlying contract. “[A] necessary predicate”
for this cause of action “is the existence of a contract.” Peace v. Parascript Mgmt., Inc., 59 F.
Supp. 3d 1020, 1029 (D. Colo. 2014). Without a contract, there is no contractual term over which
Kaweske could have exercised discretion. Id.
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D. 	Breach 	of 	Fiduciary 	Duty, 	Corporate 	Waste, 	Conversion, 	Civil 	Theft,
Fraudulent Transfer, and Aiding and Abetting Breach of Fiduciary Duty
(Fifth, Tenth, Twelfth, Thirteenth, Fourteenth, and Sixteenth Causes of
Action)
The focus of Plaintiffs’ grievance concerns fraud and conversion more than it does a breach
of contract. They frame the above theft-based counts in two ways. Primarily, they bring them as
derivative claims brought on Clover Top Holdings, Inc.’s behalf against Kaweske and Peterson
who managed the entity. In addition to the derivative form, Plaintiffs also bring the Fourteenth and
Sixteenth Causes of Action (for fraudulent transfer as well as aiding and abetting breach of
fiduciary duty) directly against the Defendants.
Defendants do not argue that Plaintiffs fail to plead the elements that define those
respective causes of action. Instead, they seek dismissal on the basis of the illegality defense, and
to a large extent, Defendants’ argument is persuasive. The primary defect concerns the nature of
the injury—damage “to the personal or real property of Clover Top [Holdings, Inc.]”—as Sensoria
asserts in the breach of fiduciary duty count. ECF 206 at ¶ 182. As explained above, the Court may
not vindicate equity interests in or profits from marijuana, which presumably is the core injury that
is subject of these counts. The implication is that the Clover Top Holdings, Inc. business lost its
marijuana assets and the ability to profit from them because of the Defendants’ acts of
mismanagement, fraud, and theft. They are injuries that the illegality defense does not permit this
Court to remedy.
However, there is one form of relief that may not implicate the CSA. If by prevailing on
their merits, Plaintiffs are able to secure the refund of their investment principal and if the
Defendants, presumably the individual Defendants, have assets independent of a marijuana
business, then the illegality defense would not be an impediment. This only applies to Plaintiffs’
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direct claims against the individual Defendants. As such, the Fourteenth and Sixteenth Causes of
Action may remain.
However, Clover Top Holdings, Inc. could not benefit from the rescission option because
it paid no money to invest in itself. Therefore, the Court dismisses the derivative claims of the
Fifth, Tenth, Twelfth, Thirteenth, Fourteenth, and Sixteenth Causes of Action.
E. 	Fraudulent and Negligent Misrepresentations (Eighth and Ninth Causes of
Action)
With respect to the fraud version of the claim, Plaintiffs and Clover Top Holdings, Inc. say
that they “relied on the misrepresentations and nondisclosures of Kaweske and Peterson.” ECF
206 at ¶ 197. As for the negligence version, Plaintiffs say that Kaweske and Peterson, along with
Clover Top Holdings, Inc., “made misrepresentations of material fact.” Id. at ¶ 201. For neither do
Plaintiffs identify what the false representations were; presumably, they concern statements and
promises that the individual Defendants made to solicit their investment in Clover Top Holdings,
Inc. The Court does not consider at this time whether Plaintiffs plead the required elements for
either theory in a plausible fashion.
Defendants seek both counts’ dismissal because of the illegality defense. For the same
reasons the Court explains above, the Court grants Defendants’ Motions to the extent Plaintiffs
brings them derivatively on behalf of Clover Top Holdings, Inc.
However, the Court denies the Motions to the extent Plaintiffs bring the claims against the
Kaweske and Peterson directly on the possibility that (1) they offer rescission as a remedy and (2)
the individual Defendants have assets independent of CSA-infringing activity with which to pay
it. The Court also denies the Motions to the extent Clover Top Holdings, Inc. is named as a
Defendant to the Ninth Cause of Action given its default status.
In sum, the Eighth and Ninth Causes of Action remain but narrowed in scope as explained
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above.
F. 	Civil Conspiracy (Fifteenth Cause of Action)
In the prior dismissal ruling, the Court mentioned the elements of a civil conspiracy claim
in reference to the Tannenbaum Defendants. Sensoria, 2021 WL 2823080 at *14. For purposes of
this ruling, the Court does not consider whether Plaintiffs adequately plead the cause of action, but
rather, whether the illegality defense poses a legal bar to their ability to proceed with it. Plaintiffs
bring this claim derivatively on Clover Top Holdings, Inc.’s behalf. Because the Court finds that
the investment principal’s reimbursement is the only form of relief that it may award and because
Clover Top Holdings, Inc. did not invest in itself, there is no remedy potentially available. Without
a means of redress, the claim is dismissed.
G. 	Violations of Federal, Colorado, and Utah Securities Laws (Second, Third, and
Fourth Causes of Action)
Plaintiffs sue Kaweske and Peterson as well as Clover Top Holdings, Inc. for selling shares
in violation of securities laws. The underlying violation consists of the use of “a manipulative or
deceptive device or contrivance” which led Plaintiffs to believe that enterprise operations would
be limited to the legal aspects of the cannabis market. Defendants do not argue that Plaintiffs fail
to state a plausible claim for relief under their respective elements. Rather, Defendants argue that
the illegality defense renders them defective as a matter of law. In other words, Defendants
challenge whether the Court could provide a remedy for the alleged securities law violations.
As a result of the alleged violation of the federal statute, Plaintiffs claim that they “suffered
damages . . . in an amount to be determined at trial in excess of $700,000.00 [which is the amount
of their invested principal] plus interest.” ECF 206 at ¶ 164. Alternatively, they seek the “return of
their investments plus interest” as well as “all other legal and equitable relief available to it as a
result of these defendants’ securities violations.” Id. at ¶ 165. For the Third and Fourth Causes of
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Action under state law, Plaintiffs claim as damages “the consideration paid for their shares in
Clover Top [Holdings, Inc.] together with interest [at the statutory rate] from the date of payment,
costs, and reasonable attorney fees.” Id. at ¶¶ 172, 175. In other words, the primary form of relief
that Plaintiffs seek is the return of their investment principal. Because the illegality defense does
not bar this relief type, Plaintiffs may proceed with their security violation claims. The Court does
not dismiss these counts.
III. 	The RICO Claims
A substantial change to the pleading is the expansion of Plaintiffs’ RICO claim. The SAC
contained one RICO claim which the Court addressed in depth in the prior dismissal ruling.
Sensoria, 2021 WL 2823080 at *10-12. Sensoria had added the RICO claim to the SAC and
premised it on two theories of racketeering activity: (1) Defendants’ marijuana activities separate
and apart from Clover Top Holdings, Inc. and (2) Defendants’ fraudulent inducement of their
investment in Clover Top Holdings, Inc. and conversion of the investment entity’s assets. The
Court dismissed it for Sensoria’s failure to plead several elements that define a RICO violation.
The Court incorporates by reference that previous statement of governing law.
Plaintiffs now bring three RICO claims. (The Court does not count the fourth RICO claim,
brought as the Nineteenth Cause of Action, which Plaintiffs concede should be dismissed. ECF
221 at 40, n.17.) The first RICO count—numbered as the Eighteenth Cause of Action—is brought
against Kaweske, Peterson, and Evangelista and is predicated on the act of “growing, selling, and
distributing marijuana, and/or the aiding and abetting in furtherance thereof.” ECF 206 at ¶ 242.
For present purposes, the Court assumes that Clover Top Holdings, Inc.’s operations (whether
actual or anticipated) were indeed lawful—at least under state law. The racketeering activity
subject of the second RICO count—the Twentieth Cause of Action—is Kaweske and Peterson’s
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theft of the individual Plaintiffs’ investment monies. However, it is Sensoria who brings this claim
derivatively on Clover Top Holdings, Inc.’s behalf. Sensoria also brings the third RICO count—
the Twenty-First Cause of Action—derivatively on Clover Top Holdings, Inc.’s behalf. For it,
Sensoria alleges that Kaweske and Evangelista stole Clover Top Holdings, Inc.’s non-monetary
assets and property interests.
A. 	Cognizable Property Interest
Plaintiffs are limited in the type of injury for which they may use RICO to obtain redress.
Not only must they overcome the same type of concerns that the illegality defense raises, but they
also must comply with RICO’s own restrictive definition of what property damage it covers.
1. 	CSA Issue
In the previous dismissal ruling, the Court found that Sensoria may not use RICO to
vindicate their rights and interests in a marijuana operation. Sensoria, 2021 WL 2823080 at *10-
11. That defect remains, and common to all three RICO theories is the lack of a cognizable property
interest. To the extent Plaintiffs base their RICO claims on property interests that implicate the
CSA, they are dismissed.
2. 	Choses in Action
In order to maintain a civil RICO action for damages, a plaintiff must plead injury “in his
business or property.” 18 U.S.C. § 1964(c). Federal case law consistently defines the kind of injury
that RICO requires as “an actual, concrete monetary loss (i.e., an ‘out-of-pocket’ loss).” In re
Bridgestone/Firestone, Inc. Tires Products Liability Litigation, 155 F. Supp. 2d 1069, 1090 (S.D.
Ind. 2001) (collecting case law). In other words, the injury must be tangible, quantified, realized
(that is, actual and not hypothetical), non-speculative, and non-contingent. Id. at 1090-96. See also
Regions Bank v. J.R. Oil Co., LLC, 387 F.3d 721, 728-31 (8th Cir. 2004). Bridgestone/Firestone
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rejected a RICO claim based on the uncertain diminished value or other loss of the tires that
plaintiffs had bought. Bridgestone/Firestone, 155 F. Supp. 2d at 1091. Regions Bank concerned a
fraudulent business loan application and a subsequent “scheme of bankruptcy irregularities and
corporate shell games” that diminished the value of the loan’s collateral. The bank’s secondary
security interest was an intangible property interest upon which the bank could not base a RICO
claim. Regions Bank, 387 F.3d at 730.
The TAC adds a new property to their RICO violation theory: their “choses in action.” As
they explain in their Response (ECF 221 at 38-39), a chose in action is the right to bring an action
to recover a debt, money, or thing. In other words, it is the legal right to damage for an injury. As
applied here, the choses in action are the non-RICO causes of action that Plaintiffs raise in the
TAC. Relying on Kirk v. Denver Pub. Co., 818 P.2d 262, 267 (Colo. 1991), Plaintiffs argue that
Colorado recognizes as a property interest the legal right to damage for an injury. However, even
if a chose in action is a form of property, it is not the kind of tangible and liquidated property
interest that RICO is meant to protect. Rogers v. Baeverstad, No. 19-CV-327-HAB, 2019 WL
6050400, at *4 (N.D. Ind. Nov. 14, 2019).
Without the required type of injury, Plaintiffs lack standing to assert a RICO claim. Rogers,
2019 WL 6050400 at *3.
3. 	No causal link between Defendants’ actions and the impairment of
Plaintiffs’ choses in action.
Not only must the injury be cognizable, but there must be a causal relationship between it
and the RICO violations. Regions Bank, 387 F.3d at 728. The injury to a plaintiff’s business or
property must be “by reason of a violation of section 1962.” 18 U.S.C. § 1964(c). There was no
direct causal link in Regions Bank because the fraud to secure the loan was isolated and distinct
from subsequent wrongdoings that made the collateral worthless. Regions Bank, 387 F.3d at 729.
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Even if RICO protected Plaintiffs’ “choses in action,” they do not plead a direct link
between that property loss and a predicate RICO act by Defendants. Plaintiffs argue that
Defendants’ operation of the Clover Top Holdings, Inc. enterprise violated the CSA and thereby
hinders their present ability to sue the Defendants because that CSA-infringing conduct gives
Defendants the benefit of the illegality defense. Defendants did not directly impair the choses in
action, e.g., by some action before Plaintiffs filed this lawsuit. Instead, the “act” that impaired
them was their assertion of the illegality defense. Raising a defense within the scope of a lawsuit
is not a predicate RICO act. Moreover, the purpose of the illegality defense is not to protect the
Defendants but rather to ensure that this Court provides relief consistent with the law and serves
the greater public interest. There is no causal relationship for RICO purposes between the CSA-
infringing aspects of the Clover Top Holdings, Inc. enterprise and the limitations that the law
places on this Court’s ability to provide relief.
Plaintiffs’ failure to establish the causation element provides grounds to dismiss the
Eighteenth Cause of Action.
B. 	PSLRA Bar
A required predicate to a RICO claim is the occurrence of racketeering activity in violation
of 18 U.S.C. § 1962(c). For the predicate act at issue here, Plaintiffs cite 18 U.S.C. § 2314 which
criminalizes the interstate transportation of stolen “goods, wares, merchandise, securities, or
money.” Defendants respond that the RICO statute expressly excludes securities fraud as a covered
racketeering act, and thus, Plaintiffs may not sue them under RICO for any wrongdoing concerning
securities fraud.
Specifically, the exception that the Private Securities Litigation Reform Act amendment of
the RICO statute created is “that no person may rely upon any conduct that would have been
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actionable as fraud in the purchase or sale of securities to establish a violation of section 1962.”
18 U.S.C. § 1964(c) (“PSLRA bar”). Case law applies the exception broadly. Not only is the act
of securities fraud itself barred but so is conduct that would have been actionable as securities
fraud and fraud that occurred in connection with the purchase or sale of securities. A plaintiff may
not avoid the exemption by artful pleading to recast the predicate acts in a different light. Bixler v.
Foster, 596 F.3d 751, 759-60 (10th Cir. 2010). “It is enough that the scheme to defraud and the
sale of securities coincide.” S.E.C. v. Zandford, 535 U.S. 813, 822 (2002). Another test to
determine applicability is “whether the conduct alleged is of the type generally actionable under
the securities laws.” Perkumpulan Investor Crisis Ctr. Dressel v. Wong, No. C09-1786-JCC, 2014
WL 1047946, at *8 (W.D. Wash. Mar. 14, 2014).
Defendants argue that the grievance underlying the TAC is in substance securities fraud.
In their characterization, the solicitation (which began in late 2015), stock purchases (which ran
simultaneously with the solicitations through 2016 and into early 2017), and actions contrary to
the investment entity’s interests (which began around the same time) are one unified fraud scheme.
It would be analogous to the situation in Zanderford in which each sale of securities by the
defendant broker to the investor-victim, while in themselves lawful, were part of the defendant’s
greater scheme to steal the investor-victim’s money. Indeed, such a unified fraud scheme underlies
Plaintiffs’ separately raised securities law violations.
For purposes of their RICO claims, Plaintiffs differentiate between Defendants’ act of (1)
inducing them to buy the shares and later (2) converting the investment entity’s assets, thereby
depriving them of their investment principal, profits from the business had it been managed
properly, and assets by which to protect their equity interest. In this way, the subsequent acts of
conversion would be distinct from the stock sale, and thus not subject to the PSLRA bar. In support
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of their position, they rely on Absolute Activist Value Master Fund Ltd. v. Devine, 233 F. Supp. 3d
1297 (M.D. Fla. 2017). At issue there were two distinct schemes. The first was orchestrated by
Mr. Homm who used investor accounts “as vehicles for a massive market manipulation scheme
(the ‘Penny Stock Scheme’)” from September 2004 to September 2007. Id. at 1034. In May 2006,
after learning that his fraudulent activity would be exposed, Mr. Homm created a complicated
money laundering scheme to cover it up and to hide the ill-gotten proceeds. His wife, Ms. Devine,
assisted with the money laundering scheme and its many facets. Id. at 1304-15. The court found
Ms. Devine and her participation in the money laundering scheme to remain within RICO’s reach.
Id. at *1322-23. Although it “certainly related to the Penny Stock Scheme,” her actions in
furtherance of the money laundering scheme “took place after the purchase or sale of securities.”
Id. at *1322 (emphasis in the original). However, it was more than a mere temporal distinction.
Ms. Devine did not engage in conduct that would be actionable as fraud in the purchase or sale of
securities, but rather it constituted a separate criminal offense (money laundering), which by
definition occurs after the money’s receipt. Id. at *1323.
The TAC portrays a unified fraud scheme. The sequence of events makes it difficult to
separate Defendants’ alleged actions regarding the sale of Clover Top Holdings, Inc. stock from
their alleged actions that harmed the value of the business. That degree of interrelatedness and the
PSLRA bar’s broad scope warrant applying the bar to Plaintiffs’ RICO claims. Because Plaintiffs
could—and actually do—allege violations of the securities laws on the same facts, the PSLRA bar
prevents them from framing them as RICO violations as well.
Given the PSLRA bar, the Court dismisses the Twentieth and Twenty-First Causes of
Action.
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C. 	No Continuous Pattern
Plaintiffs’ description of a single fraud scheme affects claims’ plausibility in another
respect: whether the alleged fraudulent acts accomplished a discrete goal (which RICO would not
cover) or whether they constitute a pattern of racketeering activity (which RICO does concern).
Erickson v. Farmers Group, Inc., 151 F. App’x 672 (10th Cir. 2005). To establish the “pattern”
element, a plaintiff not only must show multiple predicate acts, “but also that the predicates
themselves amount to, or that they otherwise constitute a threat of, continuing racketeering
activity.” Bixler, 596 F.3d at 761 (internal citation omitted) (emphasis in the original). This
element 	reflects 	Congress’ 	concern 	over 	long-term 	criminal 	activity. 	Boone v. 	Carlsbad
Bancorporation, Inc., 972 F.2d 1545, 1556 (10th Cir. 1992).
For present purposes, the Court assumes that Plaintiffs adequately plead a “relationship”
between the identified predicate acts, i.e., that the 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.” Boone, 972 F.2d at 1555. The dispositive question
instead is whether Plaintiffs also plead “continuity,” the more difficult aspect of the pattern element
to establish. Id.
Plaintiffs proceed on the “closed-ended” concept of continuity which consists of a closed
period of repeated past conduct that extended over a substantial length of time. Id. Regarding their
Twentieth Cause of Action, Plaintiffs assert “a closed-ended pattern of racketeering activity that
consisted of at least fifteen distinct acts over a two-year period.” ECF 221 at 43. They identify
those fifteen distinct acts by citing ¶¶ 279-304 of the TAC, which are the paragraph numbers for
the Twentieth Cause of Action. The scheme subject of this RICO count is defrauding Clover Top
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Holdings, Inc.’s investors of their financial investment. In support of their Twenty-First Cause of
Action, Plaintiffs allege “a closed-ended pattern of racketeering activity that consisted of at least
eleven distinct acts extending over more than a three-year period.” Id. at 44. This RICO claim
concerns defrauding Clover Top Holdings, Inc. of its non-monetary assets and property interests.
The occurrence of multiple predicate acts over a period of several years is needed to plead
continuity. Luttrell v. Brannon, No. 17-2137-JWL, 2018 WL 3032993, at *5 (D. Kan. June 19,
2018). However, those two factors alone may not be enough. The alleged fraud scheme at issue in
Boone had both. Nevertheless, it remained a single overarching scheme (the transfer of debt) to
accomplish a discrete goal (a merger) directed at a finite group of individuals (shareholders) with
no potential to extend to other persons or entities. Boone, 972 F. 2d at 1556 (dismissing a RICO
claim brought by dissenting minority shareholders against various parties involved in a
complicated bank merger). In other words, multiple predicate acts over a significant period of time
still would not show a pattern of racketeering activity if they constitute a single scheme to
accomplish a discrete goal not directed towards others. Carlson v. Town of Mountain Village,
Colo., No. 17-cv-02887-PAB-STV, 2019 WL 5819971, at *6 (D. Colo. Nov. 7, 2019). The RICO
enterprise at issue in Luttrell was in substance a medical malpractice claim that the patient-plaintiff
brought against his surgeon, implant device manufacturer, and pain management provider.
Continuity of the alleged racketeering activity was found on the basis of multiple predicate acts
over the several years of treatment but without consideration of this other aspect of the element.
Luttrell, 2018 WL 3032993, at *5.
Plaintiffs respond that they do “not allege facts to suggest that this pattern of criminal
activity was directed at a single purpose, objective, or goal.” ECF 221 at 44. However, they offer
no argument beyond that conclusory assertion to support the assertion. Merely dividing the scheme
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into subparts does not demonstrate a pattern of racketeering activity if in substance they comprise
a completed unified scheme. Similarly, they may not divide a securities fraud scheme into its
component parts to avoid application of the PSLRA bar. Perkumpulan, 2014 WL 1047946 at *7
(addressing a Ponzi scheme driven by fraudulent investment solicitations and concealment and
involving conversion and money laundering to hide the ill-gotten gains). As in First Capital Asset
Mgmt, Inc. v. Satinwood, Inc., 385 F.3d 159, 180 (2nd Cir. 2004), the substance of wrongdoing
that the TAC describes was “inherently terminable.” Once Defendants allegedly divested Clover
Top Holdings, Inc. of all its assets, “there was nothing left to loot,” and the scheme “wound to a
close.” Id. at 181 (dismissing a RICO claim based on defendants’ scheme to use a fraudulent
bankruptcy to shield them from paying a judgment). Contrary to Plaintiffs’ assertion, the TAC
indicates a scheme that was not only closed-ended temporally but also in purpose.
One aspect of RICO racketeering activity is the potential targeting of others beyond just
the complaining plaintiffs. Carlson, 2019 WL 5819971 at *6. In their Response, Plaintiffs express
concern that “Defendants currently operate many other businesses and are in the process of
securing new investors for those businesses” who, like Plaintiffs earlier, “remain unaware of the
current financial distress of Defendants’ businesses.” ECF 221 at 44. Not only is that assertion
conclusory in nature, but it is immaterial to their grievance. Plaintiffs complain about the loss of
their investment in Clover Top Holdings, Inc. That entity long since became defunct, and there is
no indication that the scheme concerning it will affect any others. Whether Defendants will
conduct a similar scheme with respect to a different marijuana business investment opportunity is
unrelated to what happened to Plaintiffs.
This Court dismissed the previous RICO claim for the failure to plead the continuity and
thus the pattern element. Relying on Bixler, 596 F.3d at 761 and Ginsburg v. ICC Holdings, LLC,
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No. 3:16-CV-2311-D, 2017 WL 5467688, at *22 (N.D. Tex. Nov. 13, 2017), the Court found the
alleged acts of wrongdoing to constitute “a single scheme of asset conversion that has been
completed” rather than “an ongoing enterprise.” Sensoria, 2021 WL 2823080 at *11. The TAC
also fails short of establishing continuity, and the Court does not find Plaintiffs’ reliance on Luttrell
to compel a different result. The Court dismisses the Twentieth and Twenty-First Causes of Action.
D. 	No Derivative Standing
The Twentieth and Twenty-First Causes of Action suffer from a more fundamental defect.
Both are brought only by Sensoria derivatively on behalf of Clover Top Holdings, Inc. However,
“corporate shareholders do not have standing to sue under the civil RICO statute for alleged
injuries to the corporation.” Bixler, 596 F.3d at 758. Neither Sensoria specifically nor Plaintiffs
together explain in the Response how the derivative action may be maintained. These two causes
of action are dismissed.
E. 	No Injunctive Relief
The request for injunctive relief as part of the RICO claims is dismissed. In regards to the
preceding SAC, “Sensoria [did] not overcome the Tenth Circuit’s ‘considerable doubt [whether]
equitable relief is available to private RICO litigants under any circumstances.” Sensoria, 2021
WL 2823080 at *11 (citing Switzer v. Coan, 261 F.3d 985, 992, n.14 (10th Cir. 2001)). Plaintiffs
fail to address this matter again in the present round of briefing.
F. 	Summation
The grievance that underlies the TAC is the loss of the investment in Clover Top Holdings,
Inc. Plaintiffs express that grievance through different theories of wrongdoing. However, they do
not show how it translates into a RICO violation under its very specific definition. Plaintiffs’ RICO
theory suffers from several different flaws that altogether warrant dismissal. This concerns not
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only the Eighteenth, Twentieth, and Twenty-First Causes of Action for the failure to state a
plausible claim and standing, but also the Nineteenth Cause of Action for which Plaintiffs concede
dismissal.
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). However,
this was the fourth attempt to present their claims for relief. Despite the benefit of prior successive
rulings and amendments, fundamental pleading defects and legal bars to relief remain. The Court
forewarned Plaintiffs that the TAC would be their last opportunity to plead their case. This
dismissal ruling is with prejudice and without leave to file a fourth amended complaint. Plaintiffs
shall proceed forward on those claims that remain or have been narrowed by this ruling.
CONCLUSION
Plaintiffs describe themselves as victims of fraud, theft, and mismanagement of their
Clover Top Holdings, Inc. investment, and it expresses that grievance through several different
causes of action. However, because the investment implicates the CSA, the Court’s ability to
provide redress is limited. In addition, there are claims for which dismissal is warranted for the
failure to plead them in a plausible fashion irrespective of the illegality defense.
Accordingly, for the above reasons, the Kaweske Defendants’ Motion to Dismiss [filed
September 17, 2021; ECF 215] and the Evangelista Defendants’ Motion to Dismiss [filed
September 17, 2021; ECF 216] are granted in part and denied in part as follows:
The Court dismisses the following claims: the First, Fifth, Sixth, Seventh, Tenth, Twelfth,
Thirteenth, and Fifteenth Causes of Action.
The Second, Third, Fourth, Eighth, Ninth, Fourteenth, Sixteenth, and Seventeenth Causes
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of Action are permitted only to the extent Plaintiffs may assert them directly (and not derivatively
on Clover Top Holdings, Inc.’s behalf), and the remedy, should they prevail, is limited to the
investment principal’s return paid from non-marijuana assets.
All RICO claims—the Eighteenth, Nineteenth, Twentieth, and Twenty-First Causes of
Action—are dismissed.
The above dismissals do not concern claims that are brought against defaulted Defendants
or against Peterson who has not moved for dismissal. To this extent, the First, Second, Third,
Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Twelfth, Thirteenth, Fourteenth, Fifteenth,
Seventeenth, Eighteenth, and Twentieth Causes of Action remain.
Not subject of this ruling is the Eleventh Cause of Action brought against the Tannenbaum
Defendants.
SO ORDERED.
Dated at Denver, Colorado, this 24th day of January, 2022.
BY THE COURT:
Michael E. Hegarty
United States Magistrate Judge
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