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 aka NORTH STAR HOLDINGS, INC.;
MANUEL WELBY EVANGELISTA aka WELBY EVANGELISTA;
DJDW, LLC;
JW COLORADO, LLC;
JW ORDWAY, LLC;
JW TRINIDAD, LLC;
BRIAN TANNENBAUM;
TANNENBAUM & TROST, LLC; and
DOES 1-100,
Defendants.
ORDER
Michael E. Hegarty, United States Magistrate Judge.
Before the Court are Defendants’ Motions to Dismiss (ECF 107, 109, 110). 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 Amended
Complaint. ECF 95. 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).
Defendant John D. Kaweske (“Kaweske”) is a citizen of Colorado. ECF 95 at ¶ 3.
Defendant Christopher S. Peterson (“Peterson”) is citizen of either Colorado or Arizona. Id. at ¶
5. Peterson incorporated Clover Top Holdings in Colorado (“Clover Top Colorado”). Id. at ¶ 98.
At issue in this lawsuit is the separate entity, Clover Top Holdings, Inc., that Kaweske,
Peterson, and Peterson’s wife incorporated in September 2015. Id. at ¶¶ 2, 27. Clover Top
Holdings, Inc. is a Delaware corporation. 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.
Clover Top Holdings, Inc. was created as a vehicle for investing in “the Colorado cannabis”
or “cannabis-related” business. Id. at ¶ 2. In their solicitations, Kaweske and Peterson described
the investment opportunity as being “in the ‘legal cannabis industry.’” Id. at ¶ 120. Kaweske
oversaw cultivation operations as well as finances, taxes, licenses, and legal matters. Peterson
oversaw dispensary operations, patient care, and marketing. Id. at ¶ 54. Clover Top Holdings, Inc.
retained Defendants Brian Tannenbaum, Esq., and the law firm, Tannenbaum & Trost LLC
(“Tannenbaum Defendants”) for both cannabis and corporate law matters. Id. at ¶¶ 23, 33. The
Tannenbaum Defendants simultaneously provided legal services for Kaweske, the corporate
entities associated with Clover Top Holdings, Inc., and the corporate entities that later competed
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with it. Id. at ¶¶ 33, 52. The Tannenbaum Defendants served as the escrow agent for a transaction
in which Clover Top Holdings, Inc. gave Peterson’s in-laws Series A shares in exchange for
$300,000 and ownership of Durango Management, LLC. Id. at ¶ 51.
In January 2016, Clover Top Holdings, Inc. purchased two parcels of real property in
Colorado Springs to operate as a marijuana dispensary facility and a grow warehouse. Id. at ¶ 35.
Clover Top Holdings, Inc. owned the business entity, TweedLeaf LLC (incorporated in Delaware)
(“TweedLeaf Delaware”), which in turn held the trademark for the “TWEEDLEAF” word and
drawing mark. Id. at ¶¶ 30, 31. The “TweedLeaf” brand was meant for the business venture (id. at
¶ 43), but in September 2018, TweedLeaf Delaware abandoned the mark (id. at ¶ 87).
Several additional corporate entities were either created or acquired to be part of the greater
cannabis-related business venture. MMJ 95, LLC was created in October 21, 2015. Id. at ¶ 32.
TweedLeaf LLC was created in Colorado (“TweedLeaf Colorado”) on November 19, 2015. Id. at
¶¶ 12, 34. Durango Management, LLC was formed on January 26, 2016 to operate as a real estate
management company for TweedLeaf dispensaries and cultivation centers. Id. at ¶ 36. It also
leased property from an affiliated entity, AJC dba Front Range Alternative Medicine dba FRAM.
Id. at ¶ 39. Peterson stated that Clover Top Holdings, Inc. had bought AJC for its medical
marijuana licenses (both dispensary and cultivation). However, some corporate entities and assets
were falsely represented to be owned by Clover Top Industries, Inc. Kaweske was AJC’s actual
owner. Id. at ¶ 52. Kaweske misrepresented that Clover Top Holdings, Inc. owned property and
licenses in Ordway, Colorado. Id. at ¶¶ 72-73. Ordway Farms was formed on October 12, 2017
and was intended to be a Clover Top Holdings, Inc. subsidiary. Id. at ¶ 77.
Plaintiff Gordon Morton (“Morton”) is a citizen of Utah. Id. at ¶ 3. In January 2016, Morton
met Kaweske and Peterson about investing in Clover Top Holdings, Inc., and their discussions
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continued into March 2016. Id. at ¶ 41. Kaweske and Peterson described Clover Top Holdings,
Inc. as the “‘mother ship’ for all cannabis-related entities, technologies, and brands in Colorado.”
Id. at ¶ 42. The plan was to expand “beyond Colorado as its success grew—including dispensaries,
grow operations, extraction technologies, intellectual property, other future ancillary entities, and
all similar services and businesses—whose profits would all inure to the benefit of Clover Top’s
shareholders.” Id. Morton received written solicitations that described Clover Top Holdings, Inc.
as “a Delaware Corporation established to make investments and operate businesses in the
burgeoning legal cannabis industry” as “a national brand for medicinal dispensaries, online store
and cannabis and hemp-based products.” The materials touted the size of the operation, with a
“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” and “a 1,500 square foot medical
marijuana dispensary.” Id. at ¶ 43.
The business venture was not limited to marijuana. The website, Tweedleaf.com, would
carry CBD and other products “that are currently legal to sell nationwide.” Id. at ¶ 43. The
dispensaries also would sell various paraphernalia, accessories, clothing, and even fertilizer. Id. at
¶ 54.
Kaweske and Peterson allegedly promised that as a Clover Top Holdings, Inc. shareholder,
Morton would receive the benefit of the operation’s “cannabis-related activities” in the form of
“prompt payment of initial investments and distributions as [it] started achieving success.” Id. at ¶
45. Morton signed a Subscription Agreement for Preferred Shares on April 4, 2016, buying
100,000 shares for $100,000. Id. at ¶ 46. In 2016, Morton received statements showing increasing
sales and expansion plans. Id. at ¶¶ 55, 57. In November 2016, Kaweske told Morton that he had
a Series A investment because he was the first outside investor. Id. On November 17, 2016, Morton
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incorporated Sensoria, LLC (“Sensoria”) to hold the shares, and at some point, Sensoria paid
$125,000 for an additional 125,000 shares. Id. at ¶ 63. In total, Sensoria invested $225,000 in
Clover Top Holdings, Inc. Id. at ¶ 134.
Kaweske and Peterson introduced Welby Evangelista to Morton as a new team member
and business director. Evangelista owned DJDW, LLC. Evangelista himself invested in Clover
Top Holdings, Inc. and raised $950,000 in additional investment money by September 2017. Id.
at ¶¶ 67–69.
On January 20, 2017, Kaweske and Peterson issued a statement showing revenue history
and expansion plans. Id. at ¶ 66. No more written statements would be issued to investors
thereafter. Instead, Morton and Sensoria received updates informally by telephone. Id. at ¶ 68.
Plaintiffs allege Kaweske and Peterson misrepresented the investment opportunity in
several respects. Kaweske did not disclose past legal proceedings against him that concerned
securities law violations and fraud (id. at ¶ 44), and he took efforts to hide his identity (id. at ¶¶
49–50). Kaweske and Peterson mispresented the business registration and ownership of Clover
Top Holdings, Inc. and what assets it actually owned. Id. at ¶¶ 45, 56. They understated how much
salary they would draw from the business venture. Id. at ¶ 45(c).
Kaweske hid the existence of a separate set of entities that competed with Clover Top
Holdings, Inc. Id. at ¶¶ 45(d), 60. Kaweske bought AJC Industries dba FRAM/Tweedleaf which
he held separate from Clover Top Holdings, Inc. Id. at ¶ 52. The TweedLeaf trademarks were
transferred to AJC. Id. at ¶ 61. Kaweske formed Sunlife AG LLC. Id. at ¶¶ 10, 62. Kaweske hid
from Plaintiffs that he actually owned the entities that Plaintiffs believed Clover Top Holdings,
Inc. owned or was intended for Clover Top Holdings, Inc. to own. Id. at ¶¶ 52, 56, 65, 73, 74, 82,
86. Plaintiffs complain that the assets, holdings, and subsidiaries of Clover Top Holdings, Inc.
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were transferred to other entities. Id. at ¶ 103.
Kaweske and Evangelista hid business dealings from Peterson as well. Id. at ¶ 70. In
December 2017, Kaweske began excluding Peterson and his wife from Clover Top Holdings,
Inc.’s operations. Kaweske blamed them for its financial distress. Id. at ¶ 80. There are several
lawsuits between them. Id. at ¶ 115.
Kaweske and Evangelista formed JW Colorado LLC and JW Ordway LLC in January 2018
(id. at ¶ 81), JW Trinidad LLC in July 2018 (id. at ¶ 84), and North Star Holdings (originally
Ordway Farms) in August 2018 (id. at ¶¶ 85, 90). On September 10, 2019, JW Colorado registered
the “TWEEDLEAF” mark. Id. at ¶ 112.
On November 3, 2018, Evangelista sent Morton threatening text messages. Evangelista
also told him that Clover Top Holdings, Inc.’s shareholders were in trouble. Id. at ¶ 89. On October
3, 2019, Evangelista responded to Sensoria’s lawsuit threat by claiming that he had lost much more
from the Clover Top Holdings, Inc. investment than it. Id. at ¶ 116.
Clover Top Holdings, Inc.’s Colorado registration became delinquent on February 1, 2019.
Id. at ¶ 91. Its status with the Delaware Division of Corporations became void on March 1, 2019.
Id. at ¶ 92. It owed $108,566.68 in franchise taxes, and it had not filed various reports and
statements. Id. at ¶¶ 93–95. Tannenbaum Defendants did not act to restore Clover Top Holdings,
Inc.’s status. Despite being its last known corporate counsel, Plaintiffs do not expect the
Tannenbaum Defendants to assist Clover Top Holdings, Inc. Id. at ¶ 123(n).
Meanwhile, the corporate status of the competing entity, Clover Top Colorado, remained
active. Id. at ¶ 98. On July 26, 2019, the Tannenbaum Defendants cured the delinquency status of
Durango Management, LLC with the Colorado Secretary of State. Id. at ¶ 53. They also assisted
JW Ordway with its Colorado Secretary of State filings. Id. at ¶ 81.
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Plaintiffs complained to Kawaske and Evangelista about the diluting effect of deals made
with other investors. Plaintiffs asserted their right under the Subscription Agreement to pro rata
equity shares. Plaintiffs never received a substantive answer nor a capitalization adjustment. Id. at
¶¶ 100–102. In February 2019, Kaweske told Morton that the Clover Top Holdings, Inc.
investment no longer was “relevant” and that Sensoria no longer owned anything as a technical
matter. Id. at ¶ 104. Plaintiffs know “of twelve other minority shareholders who have likewise lost
investments in Clover Top [Holdings, Inc.] estimated to total approximately $450,000.” Id. at ¶
123(p).
II. 	Procedural History
The Kaweske Defendants consist of Kaweske and several entities under his control (the
“Entity Defendants”). The Entity Defendants are JW Colorado LLC, JW Trinidad LLC, JW
Ordway LLC, MMJ 95 LLC, AJC Industries LLC, Lifestream Holdings LLC, Sunlife AG LLC,
Durango Management LLC, Ordway Farms LLC, and TweedLeaf 	LLC (incorporated in
Colorado). The Kaweske Defendants do not include Clover Top Colorado as one of the Entity
Defendants even though Kaweske incorporated it. Nor has Clover Top Colorado appeared
separately in this lawsuit.
Plaintiffs also name as Defendants Evangelista and two entities, North Star Holdings and
DJDW LLC, associated with him (“Evangelista Defendants”). Plaintiffs allege that Evangelista
owed Clover Top Holdings, Inc. duties of good faith and loyalty including the duty not to compete
and not to act solely for his personal benefit. ECF 127 at 7. Plaintiffs further allege that the
Evangelista Defendants acted in tandem with the Kaweske Defendants to steal Clover Top
Holdings, Inc.’s assets and opportunities, and they are in essence operating Clover Top Holdings,
Inc.’s business through other entities. Id. at 2. However, Plaintiffs assert no claims unique to the
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Evangelista Defendants but rather include them in the claims against the Kaweske Defendants.
Although they file their own Motion to Dismiss (ECF 110), they adopt 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 107.
Peterson has appeared. ECF 108, 121. However, he does not move for dismissal nor joins
the other Defendants in their Motions to Dismiss. The entity Clover Top Colorado appears to be
in default. ECF 123.
III. 	Shotgun Pleading
The Kaweske Defendants argue that the Amended Complaint is an improper shotgun
pleading. They complain about Plaintiffs’ use of incorporations by reference, reliance on the
General Allegations background section to support individual causes of action, grouping
Defendant parties together, and adding irrelevant details. Defendants overstate those aspects;
overall, the Amended Complaint is sufficiently clear to give adequate notice of Plaintiffs’ claims
for relief. Defendants also fail to account for the complicated nature of the events and the large
number of corporate entities involved.
The Kaweske Defendants object to the corporate entities being named as Defendants
because Plaintiffs identify no actionable conduct by them. For the most part, Plaintiffs raise no
specific allegations of wrongful conduct by the entities themselves, but they do explain why they
name them as parties. As Plaintiffs summarize in their Response, the entities are using the assets
that originally belonged to Clover Top Holdings, Inc. They also are the entities that the individual
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Defendants either created to compete with Clover Top Holdings, Inc. or were falsely represented
to be owned by Clover Top Holdings, Inc. ECF 126 at 2–3.
The Court finds no deficiency in how Plaintiffs plead their Amended Complaint that
warrants dismissal. Nor does the Court see reason to dismiss the “John Doe” Defendants. Plaintiffs
explain that they are using them as placeholders for additional entities that the individual
Defendants may have created in furtherance of the alleged scheme. There is an insufficient basis
to dismiss them at this early stage in the litigation. Moreover, it places the Defendants on notice
of the potential for additional entity defendants.
LEGAL STANDARDS
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. (quotation marks and citation omitted).
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ANALYSIS
I. 	Affirmative Defense of Illegality
Underlying Plaintiffs’ lawsuit is the allegation that the Clover Top Holdings, Inc.
investment vehicle was a scam that Defendants used to take their money. Plaintiffs thought they
were buying shares in a legitimate business venture. Rather than use the investment money to grow
the business as planned, Defendants converted it to their own personal benefit. As a result, Sensoria
owns part of a defunct company without assets.
The purpose of that business venture was to grow and sell marijuana. To that extent, its
operations violated the federal Controlled Substances Act, 21 U.S.C. §§ 802, 812, 841, and 844,
(“CSA”). Feinberg v. Comm’r, Internal Revenue, 808 F.3d 813, 816 (10th Cir. 2015) (affirming
that marijuana distribution is a federal crime even if federal prosecutors decline to enforce it);
Sladek v. City of Colo. Springs, No. 13-cv-02165-PAB-MEH, 2014 WL 86819, at *5 (D. Colo.
Jan. 9, 2014) (affirming that marijuana production and distribution remains illegal under federal
law even if legal under state law). Because granting Plaintiffs their requested relief—to recover
the financial benefit of their investment—would entail violating the CSA, the Kaweske Defendants
argue for dismissal.
Plaintiffs responds that the Kaweske Defendants may not look beyond the four corners of
their Amended Complaint. Because they do not expressly plead that the business venture violated
federal law, the Kaweske Defendants may not seek dismissal on the basis of the illegality
affirmative defense. To the contrary, they contend that they plead only legal business activities.
ECF 126 at ¶¶ 43, 120. Plaintiffs themselves look beyond the four corners of the Amended
Complaint to Clover Top Holdings, Inc.’s Certificate of Incorporation which states as the
company’s purpose “to engage in any lawful act or activity for which corporations may be
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organized under the General Corporation Law of Delaware.” ECF 126-1. Even if Clover Top
Holdings, Inc.’s activities were lawful under state law, the issue here is whether they were lawful
under federal law, and for that reason, the pleadings still implicate the illegality affirmative
defense. Moreover, an affirmative defense is available if otherwise plain on the face of the
complaint. VanLandingham v. Grand Junction Reg’l Airport Auth., 46 F. Supp. 3d 1119, 1124 (D.
Colo. 2014). Plaintiffs’ Amended Complaint makes plain that the purpose of the investment
vehicle was to grow and sell marijuana. Plaintiffs knew that to be the nature of the business and
expected lucrative returns from their ownership share. Moreover, Plaintiffs believed that the
business 	venture was 	taking 	substantial 	steps—by 	acquiring 	large growing 	and 	retailing
facilities—to expand its operations. The business may have sold other products that are entirely
lawful under federal law, but that does not change the fact that the business was selling marijuana.
A federal court may not compel performance of an illegal contract and may not grant relief
that would compel a party to violate federal law. In re Malul, 614 B.R. 699, 706–07 (D. Colo.
2020); Bart St. III v. ACC Enters., LLC, No. 17-cv-00083, 2020 WL 1638329, at * 5 (D. Nev. Apr.
1, 2020). The basic nature of Clover Top Holdings, Inc.’s operations and Plaintiffs’ relationship
to it implicate the CSA. Providing funds in exchange for equity may violate the CSA if it allows
the investor to profit from the cultivation, possession, and sale of marijuana. Bart St. III, 2020 WL
1638329 at *9. In a similar way, Plaintiffs rely on their ownership rights in Clover Top Holdings,
Inc. to recover the financial benefit of their investment. They also seek relief from Kaweske’s other
marijuana-related businesses and assets as well as an equity interest in those Entity Defendants.
ECF 95 at ¶ 126. The circumstances of this lawsuit are similar to those situations to which the
affirmative defense of illegality has been applied. In re Malul, 614 B.R. at 713 (declining to
administer the debtor’s asset of equity rights in a defunct marijuana business obtained through a
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subscription agreement); Polk v. Gontmakher, No. 18-cv-01434, 2020 WL 2572536 (W.D. Wash.
May 21, 2020) (finding plaintiff’s request for an equitable interest in a business that produces and
processes marijuana as well as past and future profits from it to constitute a CSA violation); J.
Lilly, LLC v. Clearspan Fabric Structures Int’l, Inc., No. 18-cv-01104, 2020 WL 1855190, at *12
(D. Or. Apr. 13, 2020) (finding that the CSA precluded the court from awarding plaintiff lost
profits as damages for the breach of a contract to build a growhouse).
The simple fact that marijuana is involved does not mean that Plaintiffs’ claims must be
dismissed automatically. The cited case law does not apply the affirmative defense in such a hard-
and-fast manner. In re Malul, 614 B.R. at 709. Case law shows flexibility when relief can be
granted in a way that does not implicate the federal marijuana laws. For example, courts have
enforced loans and insurance contracts that could be paid from money not derived from marijuana
sales. Green Earth Wellness Ctr., LLC v. Atain Specialty Ins. Co., 163 F. Supp. 3d 821 (D. Colo.
2016) (enforcing an insurance contract); Ginsburg v. ICC Holdings, LLC, No. 16-cv-2311, 2017
WL 5467688 (N.D. Tex. Nov. 13, 2017) (enforcing promissory notes); Mann v. Gullickson, No.
15-cv-03630, 2016 WL 6473215 (N.D. Cal. Nov. 2, 2016) (enforcing payment on a contract for
consultative services that indirectly concerned marijuana). However, Plaintiffs do not 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.
Nor do Plaintiffs identify any particular claim of relief that is unaffected by the affirmative
defense. Therefore, Plaintiffs leave unopposed the Kaweske Defendants’ argument that all of the
claims should be dismissed except for the Tenth Cause of Action. However, because Plaintiffs
may be able to plead theories of relief that do not implicate the CSA, the Court dismisses them
with leave to amend.
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II. 	Choice of Law
The Kaweske Defendants assert another legal bar to Plaintiffs’ claims for relief: the
Subscription Agreement’s choice-of-law provision. Because it chooses Delaware law, they argue
that it precludes Plaintiffs from raising claims based on other states’ statutes (for violations of the
Colorado and Utah Securities Acts, the Colorado civil theft statute, and the Colorado Uniform
Fraudulent Transfer Act). The Kaweske Defendants attach the Subscription Agreement to their
Motion to Dismiss. ECF 109-1. Because Plaintiffs refer to it in their Amended Complaint and
because they do not otherwise object, this Court takes it into consideration even though it is outside
the pleadings. The choice-of-law provision states that “[t]his Subscription Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware.” Id. at § 14.
A. 	Who May Assert the Choice-of-Law Provision
The Subscription Agreement is between Clover Top Holdings, Inc. and the purchaser of its
shares. It was executed on April 4, 2016 and predates Sensoria’s incorporation. Morton signed as
the purchaser, but Plaintiffs do not contend that only he is party to it. Instead, Plaintiffs proceed
on the assumption that Sensoria is party to the contract.
There is no signature on Clover Top Holdings, Inc.’s behalf, but the signature block refers
to Peterson in his title as “CEO/Founder.” Pursuant to the Subscription Agreement, Morton paid
Clover Top Holdings, Inc. $100,000 for 100,000 shares of Series A Preferred Stock. The
Subscription Agreement furthered that the offering was of unregistered securities made pursuant
to the Executive Summary and Term Sheet dated September 15, 2015, and that the purchaser relied
solely on the information in those offering documents. The purchaser confirms that he “is not
relying on any communication (written or oral) of the Company or any of its affiliates, as
investment advice or as a recommendation to purchase the Securities.” ECF 109-1 at § 6(b)(iii).
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The Kaweske Defendants do not submit a new contract or an appendix to the existing Subscription
Agreement for the additional 125,000 shares that Sensoria later bought.
Plaintiffs do not contest the provision’s validity. However, they do contest the Kaweske
Defendants’ standing to invoke it. Neither Kaweske himself nor the Entity Defendants are party to
the contract. The Kaweske Defendants counter that their relationship with Clover Top Holdings,
Inc. nevertheless is sufficiently close to enable them to enforce it against Plaintiffs.
A third party’s relationship to a contract must be close enough that his enforcement of the
provision is foreseeable, e.g., if he is the contract’s intended beneficiary or if the contract’s
performance will benefit him. Direct Mail Prod. Servs. Ltd. v. MBNA Corp., No. 99 Civ. 10550,
2000 WL 1277597, *3–4 (S.D.N.Y. Sept. 7, 2000) (noting that the contract expressly intended to
benefit both the signatory company and its affiliates). Foreseeability also exists if the claims
against the third party “ultimately hinge on rights and duties defined by the [contract],” such that
the third party “become[s] bound up in any disputes premised” upon it. Id. at *4. In other words,
a third party may rely on the provision if his “alleged conduct . . . is closely related to the
contractual relationship.” Lu v. Dryclean-U.S.A. of Calif., Inc., 11 Cal. App. 4th 1490, 1494 (Cal.
App. 1992) (finding the forum selection clause enforceable even though co-defendants Dryclean
Franchise and Dryclean U.S.A. did not sign the franchise agreement with defendant Dryclean
California, given the plaintiffs’ allegation that all three entities made fraudulent representations to
induce them to become franchisees). “A non-party is closely related to a dispute if its interests are
completely derivative of and directly related to, if not predicated upon the signatory party’s
interests or conduct.” Weingrad v. Telepathy, Inc., No. 05 Civ. 2024, 2005 WL 2990645, at *5
(S.D.N.Y. Nov. 7, 2005) (internal citations omitted). Such a relationship can exist where the claims
against the third party ultimately depend on or interrelate with the contract. Id. (finding that the
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non-signatory defendants may enforce the registration contract’s forum selection clause because
plaintiff alleges that all defendants acted together to take his domain name). A contract’s choice-
of-law provision binds a non-signing plaintiff if she is asserting contractual rights that completely
derive from those of the signing party. Cagle v. James St. Grp., 400 F. App’x 348, 356 (10th Cir.
2010).
The Kaweske Defendants say that their alleged wrongdoings show how they are close to
Clover Top Holdings, Inc. Plaintiffs allege that they induced Morton to invest in Clover Top
Holdings, Inc. with misrepresentations about how the business venture would operate and then
fraudulently transferred the company’s assets to themselves. They also note Plaintiffs’ request for
an equity interest in the Entity Defendants. The Kaweske Defendants argue that those allegations
“establish a close corporate relationship between Clover Top [Holdings, Inc.], on the one hand,
and [themselves], on the other.” Plaintiffs thereby allege joint action by the Kaweske Defendants
and Clover Top Holdings, Inc. to steal the investment money. However, that does not mean that
the Kaweske Defendants’ interests are completely derivative of and directly relate to, if not
predicated upon, Clover Top Holdings, Inc.’s interests or conduct. To the contrary, Plaintiffs allege
that the Kaweske Defendants acted against the best interests of Clover Top Holdings, Inc. Nor is
Clover Top Holdings, Inc. an active litigant; it is a void entity and a defaulted Defendant.
Moreover, as the Court explains below, Plaintiffs’ claims against the Kaweske Defendants do not
ultimately hinge on rights and duties that the Subscription Agreement created. The Subscription
Agreement only defined the terms by which Morton bought stock in Clover Top Holdings, Inc; it
did not define how the business venture was to be carried out. Consequently, the Kaweske
Defendants do not show the kind of relationship with Clover Top Holdings, Inc. that would permit
them to invoke the choice-of-law provision.
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B. 	Its Scope
Nevertheless, even if the Kaweske Defendants could invoke the choice-of-law provision
against Plaintiffs, its wording is not broad enough to cover the statutory claims. It applies to the
breach of contract claim that Sensoria brings directly against Clover Top Holdings, Inc., but the
Kaweske Defendants seek to extend its reach to the statutory claims. The parties do not dispute
this Court’s ability to construe the provision to determine the scope of its coverage.
Plaintiffs rely on cases that construe similarly worded choice-of-law provisions narrowly
and apply the chosen source of law only to contract-related claims. Cagle, 400 F. App’x at 356–
57; Benchmark Elecs., Inc. v. J.M. Huber Corp., 343 F.3d 719, 726 (5th Cir. 2003); Rayle Tech,
Inc. v. Dekalb Swine Breeders, Inc., 133 F.3d 1405, 1409 (11th Cir. 1998); Portillo v. Nat’l
Freight, Inc., 323 F. Supp. 3d 646, 657 (D.N.J. 2018); Fairmont Supply Co. v. Hooks Indus., Inc.,
177 S.W.3d 529, 535 (Tex. Ct. App. 2005). The Kaweske Defendants argue that Plaintiffs’
statutory claims are contract-related because they arise from the Subscription Agreement. A
contract’s choice-of-law provision may apply to a claim that grows out of the contractual
relationship. That occurs if the claim essentially restates a breach of contract, involves the same
facts as the breach of contract claim, ultimately depends on the contract for its resolution, or arises
from the contractual relationship’s rights or duties. Direct Mail, 2000 WL 1277597 at *6.
It is true that the Subscription Agreement gives Plaintiffs shareholder status, and to that
extent, provides the predicate for bringing this lawsuit. However, the subject matter of the
Subscription Agreement is limited to the stock purchase itself and to defining the range of
information that Morton relied upon in deciding to make that purchase. It did not define any of the
Defendants’ duties in how Clover Top Holdings, Inc. would be operated or managed, and it did
not define what the business venture would be. The Kaweske Defendants themselves concede that
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“the Subscription Agreement does not contain any promise by Clover Top that all cannabis-related
activities of its subsidiaries and affiliates would be run under the Clover Top umbrella and inure
to the benefit of the Clover Top Shareholders,” and instead consisted only of the exchange of
money for the purchase of company shares. ECF 146 at 42.
In other words, Plaintiffs’ statutory claims do not relate directly to the Subscription
Agreement but instead are outside sources of rights and duties. That distinguishes this case from
cases where the statutory claim had a close relationship to the contract’s subject matter. Lester v.
Gene Express, Inc., 2010 WL 3941417 (D. Colo. Sept. 27, 2010) (finding the choice of Colorado
law to bar claims brought under other states’ labor laws in a dispute over an employment
agreement); Allred v. Innova Emergency Med. Assocs., PC, 18-cv-03097-DDD-NRN, 2020 WL
3259249, at *6 (D. Colo. June 16, 2020) (noting plaintiff’s concession that the employment
agreement’s choice of Colorado law precludes his California labor code claim and finding that it
also precludes his accounting claim brought under California law); Berckeley Inv. Grp., Ltd. v.
Colkitt, 455 F.3d 195, 224, n.28 (3d Cir. 2006) (finding that a loan agreement entered pursuant to
the federal Securities Act and which was to be governed by and interpreted under New York law
barred claims brought pursuant to Pennsylvania’s Securities Act and common law).
The Kaweske Defendants rely on cases that construe a choice-of-law provision more
broadly, so that it covers all disputes arising from the litigants’ transaction or relationship. Pyott-
Boone Elecs., Inc. v. IRR Tr., 918 F. Supp. 2d 532 (W.D. Va. 2013); Masters Grp. Int’l, Inc. v.
Comerica Bank, 380 Mont. 1 (Mont. 2015). Those cases are distinguishable because they extend
the choice-of-law provision to cover common law tort claims such as fraud. Here, by contrast, the
Kaweske Defendants limit their argument to statutory claims. Moreover, those cases still require
the tort claims to bear some relationship to the underlying contract. At issue in both Pyott-Boone
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and Masters Grp. were complex financial agreements. In comparison, the Subscription Agreement
at issue in this case is far more limited in scope.
Thus, the choice-of-law provision does not warrant dismissing the statutory claims.
C. 	Jury Waiver
The Kaweske Defendants also seek to enforce § 12 of the Subscription Agreement where
the parties “irrevocably waive[] any and all right to trial by jury with respect to any legal
proceedings arising out of the transactions contemplated by this Subscription Agreement.” ECF
109-1 at 8. The Kaweske Defendants repeat their argument that their relationship with Clover Top
Holdings, Inc. is close enough to permit them to invoke the jury waiver against Plaintiffs, but for
the same reasons explained above, the argument is unsuccessful. The Kaweske Defendants did not
act as Clover Top Holdings, Inc.’s agents (or at least consistent with an agent’s fiduciary duties),
and they did not act in concert with Clover Top Holdings, Inc. Cf. in re DaimlerChrysler AG
Securities Litigation, No. Civ. A. 00-993-JJF, 2003 WL 22769051, at *3 (D. Del. 2003) (finding
the jury waiver to apply to both the corporation signatories and the corporations’ agents who acted
in concert with them in the transaction subject of the litigation). The Kaweske Defendants lack a
sufficiently close relationship with Clover Top Holdings, Inc. to invoke any term of the
Subscription Agreement against Plaintiffs.
III. 	Sensoria’s Standing to Bring Claims on Behalf of the Corporation
Sensoria proceeds to act on Clover Top Holding, Inc.’s behalf. Plaintiffs plead that all of
the “investments in Clover Top [Holdings, Inc.] were ultimately made and accounted for through
Sensoria.” ECF 95 at ¶ 63. In other words, Sensoria is the Plaintiff that owns shares in that
corporation. As a shareholder, Sensoria brings several claims seeking redress for harm done to
Clover Top Holdings, Inc., which include: breach of fiduciary duty (Fifth Cause of Action),
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corporate waste (Ninth Cause of Action), fraudulent transfer (Thirteenth Cause of Action), civil
conspiracy (Fourteenth Cause of Action), intentional interference with contract (Fifteenth Cause
of Action), and aiding and abetting a breach of fiduciary duty (Sixteenth Cause of Action).
A. 	Derivative Claims Against the Kaweske Defendants
The Kaweske Defendants dispute Sensoria’s derivative standing because Clover Top
Holdings, Inc. is a void corporation. Because Clover Top Holdings, Inc. was incorporated in
Delaware, Delaware law governs this dispute. Fed. R. Civ. P. 17(b)(2) (providing that a
corporation’s capacity to sue or be sued is to be determined by the law under which it was
organized).
The claims that Sensoria brings on Clover Top Holdings, Inc.’s behalf are derivative in
nature. A derivative claim is the corporation’s property right. Feldman v. Cutaia, 951 A.2d 727,
731 (Del. 2008). As such, if a corporation loses its independent identity through merger, id., or
bankruptcy, Agostino v. Hicks, 845 A.2d 1110, 1126–27 (Del. Ch. 2004), no derivative claim may
be brought on its behalf. The mere fact that a corporation is dissolved, Matthew v. Laudamiel, No.
5957, 2012 WL 605589, at *21 (Del. Ch. Feb. 21, 2012), or is no longer operating as a going
concern, Marshal T. Simpson Tr. v. Invicta Networks, Inc., 249 F. Supp. 3d 790, 795 (D. Del.
2017), does not automatically convert a derivative claim into a direct claim for a shareholder to
raise.
Plaintiffs plead that Clover Top Holdings, Inc. owes the Delaware Division of Corporations
$108,566.68 in franchise taxes and last filed an annual report in 2016. Id. at ¶ 93. They also plead
that the Delaware Division of Corporations declared it void as of March 1, 2019 for having a year
overdue tax bill. Id. at ¶ 93. Consequently, Clover Top Holdings, Inc. is subject to the restrictions
of 8 Del. Code § 510:
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If any corporation . . . neglects or refuses for 1 year to pay the State any franchise
tax . . . or shall neglect or refuse to file a complete annual franchise tax report, the
charter of the corporation shall be void, and all powers conferred by law upon the
corporation are declared inoperative . . . .
A void corporation lacks standing to bring its own lawsuit. Transpolymer Indus. Inc. v. Chapel
Main Corp., 582 A.2d 936 (Del. 1990) (dismissing a void corporation’s appeal because it is
inoperative, has ceased to exist, and has lost any standing to appeal and be heard, even if
represented by counsel). The Kaweske Defendants argue that if Clover Top Holdings, Inc. itself is
unable to bring this lawsuit to seek redress for harm done to it, then Sensoria is unable to do so on
its behalf.
Sensoria seeks the benefit of another statute to preserve Clover Top Holdings, Inc.’s ability
to pursue legal action. Sensoria relies on 8 Del. Code § 278 which gives “[a]ll corporations,
whether they expire by their own limitation or are otherwise dissolved” three years “from such
expiration or dissolution” during which they may take certain actions such as “for the purpose of
prosecuting and defending suits” or to wind down their affairs and close their business, “but not
for the purpose of continuing the business for which the corporation was organized.”
Some cases apply Section 278 broadly to extend its three-year window of time to
corporations that are void under Section 510. In the case of in re HealthTrio, Inc., No. 09-34404,
2012 WL 1556526, at *4 (D. Colo. May 2, 2012), the bankruptcy court gave a void corporation
the benefit of Section 278. In James v. United Med. LLC, No. 16C-06-209, 2017 WL 1224513, *4
(Del. Super. Mar. 31, 2017), the court observed that the Section 278 period that allowed the Section
510 void corporation to bring suit had expired, thereby implying its availability. The case of Boyd
v. Wilmington Trust Co., 630 F. Supp. 2d 379, 386 (D. Del. 2009) includes Section 510 void
corporations in its observation of how “all Delaware corporations” benefit from Section 278 and
how “a Delaware corporation is not dead for all purposes following forfeiture of its charter.” The
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case of Metro. Interconnect, Inc. v. Alexander & Hamilton, Inc., No. 04-2896, 2005 WL 1431670,
at *3 (E.D. La. May 26, 2005), observed that “[i]t appears that Delaware courts apply [Section 278
to corporations whose charters] have been repealed for failure to pay corporate franchise taxes.”
The 	Kaweske 	Defendants 	argue 	that 	those 	cases 	are 	not 	persuasive 	for 	various
shortcomings in their respective analyses. The Kaweske Defendants rely instead on the case of in
re Apple iPod iTunes Antitrust Litig., No. 05-cv-0037, 2014 WL 6783763, at *4 (N.D. Cal. Nov.
25, 2014), in which the court followed the approach “that void corporations lose their standing to
pursue legal actions until the corporate status is restored.” They also cite the unreported decision
of Juma Tech. Corp. v. Servidio, No. 151483/2016 (N.Y. Sup. Ct. May 24, 2017) (“Juma I”),
which they attach to their Motion at ECF 109-2. Juma I involved allegations similar to the instant
case, with the additional allegation that the defendants transferred all of corporation’s assets, both
tangible and intangible, to its creditor through a strict foreclosure, Juma Tech. Corp. v. Servidio,
No. 160372/2017, 2018 WL 6732891, at *1 (N.Y. Sup. Ct. Dec. 17, 2018) (“Juma II”). The Juma
I court held that the underlying corporation, which was void under Section 510, lacked standing to
sue its directors for mismanagement and did not have the benefit of Section 278.
There is no dispute that Clover Top Holdings, Inc. is a void corporation under Section 510,
and there is no indication of any effort to restore its status. Nevertheless, the weight of the above-
cited case law that expressly considered the interplay of both statutes favors giving Clover Top
Holdings, Inc. the benefit of Section 278’s three-year window. This outcome is consistent with
Section 278’s broad wording that it applies to “[a]ll corporations” including those that “expire by
their own limitation.” Even if the focus of Section 278 is on dissolved corporations, it does not
expressly exclude corporations that are void under Section 510. If Clover Top Holdings, Inc. still
may prosecute a lawsuit, it follows that it has derivative claims that Sensoria may prosecute on its
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behalf. This outcome also avoids the inequitable result if Defendants allowed Clover Top
Holdings, Inc.’s status to lapse as a means to avoid mismanagement liability.
Sensoria may proceed on its derivative claims. To this extent, the Kaweske Defendants’
Motion to Dismiss (ECF 109) is denied.
B. 	Derivative Claims Against the Tannenbaum Defendants
The pleadings show that the Tannenbaum Defendants were Clover Top Holdings, Inc.’s
attorneys beginning in 2015 and through the time when its corporation status became void. The
pleadings also provide a basis by which to infer their general knowledge about both Clover Top
Holdings, Inc.’s operations and the others’ dealings that allegedly caused Clover Top Holdings,
Inc. harm. Indeed, the Tannenbaum Defendants themselves assert that the “‘Clover Top’ that the
Plaintiffs describe existed only in their imagination and . . . never was and never actually came to
be” (ECF 144 at 2), and that Clover Top Holdings, Inc. “never legally owned any assets, never
conducted any business, and never generated any profits” (id. at 9).
Sensoria, acting on Clover Top Holdings, Inc.’s behalf, brings two claims alleging that the
Tannenbaum Defendants breached duties of care that they owed Clover Top Holdings, Inc. as its
attorneys. The first such claim (Tenth Cause of Action) alleges both a breach of fiduciary duty and
legal malpractice. The parties provide no legal argument to explain either theory of relief.
Plaintiffs’ citation to Aller v. Law Office of Carole C. Schriefer, PC, 140 P.3d 23 (Colo. App.
2005) shows that a client may bring a breach of fiduciary duty claim against an attorney. Moreover,
Plaintiffs plead the general contours of a breach of fiduciary duty to the extent that the Tannenbaum
Defendants represented other Defendants with interests contrary to Clover Top Holdings, Inc.’s
and assisted them in taking actions that harmed it. The allegations raise questions about conflict
of interest and the duty of loyalty not to compete.
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Consequently, with respect to the Tenth Cause of Action, the Court denies the Tannenbaum
Defendants’ request to dismiss the breach of fiduciary duty claim. For the same reason, the Court
does not dismiss the Sixteenth Cause of Action which alleges that the Tannenbaum Defendants
aided and abetted the breach of fiduciary duty that the other Defendants owed to Clover Top
Holdings, Inc. To the extent the claim concerns a duty that the Tannenbaum Defendants also owed
Clover Top Holdings, Inc., it is the substantive equivalent of the direct breach of fiduciary duty
claim. Nor does the Court dismiss the legal malpractice claim. The pleadings suggest that the
Tannenbaum Defendants may have acted negligently or provided substandard legal services to
Clover Top Holdings, Inc., such as by allowing its status to lapse.
On Clover Top Holdings, Inc.’s behalf, Sensoria includes the Tannenbaum Defendants in
its civil conspiracy claim (Fourteenth Cause of Action). The elements of civil conspiracy require
(1) two or more persons, (2) an object to be accomplished, (3) a meeting of the minds on the object
or course of action, (4) an unlawful overt act, and (5) damages as the proximate result. Powell
Prods., Inc. v. Marks, 948 F. Supp. 1469, 1480 (D. Colo. 1996). Sensoria does not plead a plausible
conspiracy claim because it does not expressly allege that the Tannenbaum Defendants had “a
meeting of the minds” with the other Defendants to harm Clover Top Holdings, Inc. Indeed,
Sensoria does not plead how the Tannenbaum Defendants acted of their own accord to harm Clover
Top Holdings, Inc. All that Sensoria pleads is concerted action. However, the cause of action
requires that the Tannenbaum Defendants agreed to take action in furtherance of the conspiracy,
knowing of its improper purpose. Powell, 948 F. Supp. at 1480. They must have acted
independently in furtherance of that unlawful goal. Tara Woods Ltd. P’ship v. Fannie Mae, 731 F.
Supp. 2d 1103, 1122 (D. Colo. 2010) (explaining the nature of conspiracy liability). Sensoria
pleads that the Tannenbaum Defendants acted only in their role as attorneys for the other
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Defendants and thus at their behest rather than independently for their own reasons. Thus, the
Tannenbaum Defendants are dismissed as parties to the Fourteenth Cause of Action.
Neither party provides a substantive legal analysis of the claims that Sensoria raises against
the Tannenbaum Defendants. Based on the limited arguments that the parties do provide, the Court
finds no basis to dismiss the fiduciary duty-based claims. However, dismissal of the civil
conspiracy claim is warranted.
IV. 	Sensoria’s Standing to Bring Claims Directly Against the Corporation’s Officers
The next issue is whether Sensoria may sue directly for harm that it as a shareholder
allegedly suffered. If the harm that the shareholder suffered is the same that the corporation
suffered, then the claim is derivative in nature. In that situation, in which the injury is the
corporation’s, the claim is derivative and only may be brought on the corporation’s behalf.
Feldman, 951 A.2d at 733. The shareholder may not raise the same claim directly. A shareholder
may seek redress only for harm specific to itself and independent of the injury to the corporation
or the other shareholders generally. Id. at 732–33.
A. 	Direct Claims Against the Kaweske Defendants
The Kaweske Defendants argue that the substance of Sensoria’s claims is derivative in
nature, and consequently, Sensoria may not sue them directly. The first claim at issue is Sensoria’s
Fifth Cause of Action in which it alleges that “Kaweske and Peterson breached their fiduciary
duties of loyalty, good faith, and care” and that their “acts and omissions constituted negligence,
mismanagement, corporate waste, and/or actionable inattention.” ECF 95 at ¶ 157. Sensoria bases
its breach of fiduciary duty claim against Kaweske for issuing shares to others in a way that
wrongfully diluted its investment, refusing to provide requested information, inducing investment
through misrepresentations, and mismanaging the corporation. ECF 126 at 29–30. Because those
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actions harmed the corporation (or, stated differently, all of the shareholders equally), the Kaweske
Defendants argue that Sensoria may not bring it directly. Citing Alessi v. Beracha, 849 A.2d 939,
950 (Del. Ch. 2004) and Scott Sys., Inc. v. Scott, 996 P.2d 775, 779 (Colo. App. 2000), Sensoria
argues that as an officer and director, Kaweske owed fiduciary duties to both Clover Top Holdings,
Inc. and its shareholders, but Sensoria does not explain how Kaweske breached a duty owed
uniquely to it and distinct from the shareholders generally.
Sensoria’s Ninth Cause of Action is for corporate waste. Sensoria alleges that “Kaweske
and Peterson engaged in irrational transactions that were so one-sided that no business person of
ordinary, sound judgment could conclude that Clover Top [Holdings, Inc.] received adequate
consideration.” ECF 95 at ¶ 176. Because the nature of that injury affects the corporation and not
Sensoria in some separate and distinct way, Sensoria only may bring it as a derivative claim.
Feldman, 951 A.2d at 734 (explaining that a claim “for mismanagement of corporate assets” is a
derivative claim).
Sensoria brings direct claims of civil conspiracy (Fourteenth Cause of Action) and
intentional interference with its contract (Fifteenth Cause of Action). Sensoria argues that it may
bring them directly because it suffered a harm (loss of stock value and loss of the promised
consideration for its investment) separate from the corporation (loss of physical assets). However,
Sensoria offers no further explanation beyond that limited assertion to demonstrate how its injury
is separate from both the corporation and from the shareholders generally.
Lastly, Sensoria relies on Section 7.019(d) of the American Law Institute’s Principles of
Corporate Governance which proposes an option by which a shareholder may pursue a claim both
directly and derivatively. See Brown v. Brown, 731 A.2d 1212, 1215–16 (N.J. Super. App. 1999)
(discussing the provision). However, Sensoria cites no legal authority that shows its approach to
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be consistent with Delaware law. Moreover, allowing Sensoria to seek redress from the corporation
for harm it incurred without the participation of the other shareholders would risk judicial
inefficiency and inconsistent recovery.
Sensoria may bring none of the above causes of action directly. To this extent, the Motion
to Dismiss (ECF 109) is granted. The Thirteenth Cause of Action, in which Sensoria alleges a
violation of the Colorado Uniform Fraudulent Transfer Act, C.R.S. § 38-8-101 (“CUFTA”), is the
exception. The Kaweske Defendants concede that Sensoria may bring a direct (non-derivative)
fraudulent transfer claim against them as transferees. ECF 146 at 29, n.10.
B. 	Direct Claims Against the Tannenbaum Defendants
Sensoria does not establish how the Tannenbaum Defendants owed it a duty of care
directly. Consequently, Sensoria may not bring its own breach of fiduciary duty, legal malpractice,
and civil conspiracy claims against them. To this extent, the Court grants the Tannenbaum
Defendants’ Motion to Dismiss.
To the extent the Seventeenth Cause of Action can be construed as alleging that the
Tannenbaum Defendants aided and abetted the other Defendants who did owe a duty of care to
Sensoria, it is plausible. Indeed, the Tannenbaum Defendants themselves argue that their client,
Clover Top Holdings, Inc., could not lawfully engage in the cannabis business, (ECF 107 at 6),
and “could not own or invest in cannabis entities or dispensary and cultivation licenses” (ECF 144
at 9). Those statements appear contrary to the representations that other Defendants made to Clover
Top Holdings, Inc.’s investors. The parties’ limited argument provides no basis to dismiss
Sensoria’s direct claim against the Tannenbaum Defendants for aiding and abetting others’ breach
of their fiduciary duties.
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V. 	Intentional Interference with Contract
The elements of this claim (the Fifteenth Cause of Action) require Sensoria to show (1) the
Kaweske Defendants were aware of the existence of a contract between it and Clover Top
Holdings, Inc., and (2) intentionally induced Clover Top Holdings, Inc. to breach it or made it
impossible for it to perform (3) through improper conduct. Hertz v. Luzenac Grp., 576 F.3d 1103,
1118 (10th Cir. 2009). In other words, it requires the showing of an actual contract and its breach.
However, Sensoria identifies no actual contract. It does not expressly mention the Subscription
Agreement specifically, the only contract of record. Instead, it alleges the existence of multiple
contracts, “including at least the agreements accompanying Sensoria’s initial and subsequent
investment.” ECF 95 at ¶ 206. It also mentions unspecified contracts with third parties. ECF 128
at 13. Sensoria explains that it had a contract with Clover Top Holdings, Inc. in which the company
“agreed that all cannabis-related activities of its subsidiaries and affiliates would be run under [its]
umbrella and inure to the benefit of the Clover Top shareholders.” ECF 42 at 41. However, the
Amended Complaint attributes those statements to promises that Kaweske and Peterson made, not
to a contract with Clover Top Holdings, Inc. ECF 95 at ¶¶ 41–43. Because Sensoria does not plead
the existence of a valid, specific contract, this claim is dismissed. This finding also renders moot
the Tannenbaum Defendants’ request to dismiss this claim as raised against them.
VI. 	Unjust Enrichment
The Tannenbaum Defendants move to dismiss the unjust enrichment claim (Seventeenth
Cause of Action) that Sensoria raises against them. To state this cause of action, Sensoria must
establish that the Tannenbaum Defendants received a benefit, at the expense of either Sensoria or
Clover Top Holdings, Inc., under circumstances that would make it unjust for them to retain that
benefit without restitution. Dudding v. Norton Frickey & Assocs., 11 P.3d 441, 444 (Colo. 2000).
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The test for “whether injustice results often will turn on whether a party engaged in some type of
wrongdoing.” Id. Wrongdoing consists of improper, deceitful, or misleading conduct by the
benefitting party. DCB Constr. Co. v. Cent. City Dev. Co., 965 P.2d 115, 122 (Colo. 1998). “The
principle underlying a claim of unjust enrichment is to deprive a wrongdoer of benefits that in
equity and good conscience he ought not to keep.” Greenway Nutrients, Inc. v. Blackburn, 33 F.
Supp. 3d 1224, 1260–61 (D. Colo. 2014). The pleadings establish the element of wrongdoing.
However, Sensoria does not establish how the Tannenbaum Defendants benefitted from it, if they
were acting as attorneys for others. Thus, the Court grants the Tannenbaum Defendants’ Motion
to Dismiss and dismisses them from this claim.
VII. 	Lanham Act
Sensoria’s Nineteenth Cause of Action concerns the “TweedLeaf” trademark. Sensoria
summarizes and clarifies its trademark infringement allegations in its Response. ECF 126 at 45–
46. Either Clover Top Holdings, Inc. (the overall holding company) or TweedLeaf, LLC (its
subsidiary) registered, owned, and used that trademark in commerce. Sensoria gives several
examples of how Clover Top Holdings, Inc. used the “TweedLeaf” trademark for the business
operation: as the name of the first store in its dispensary chain, the name of the dispensaries and
cultivation centers that the Durango Management, LLC subsidiary owned, the website, and
merchandise branding. Defendants included the trademark in their investment solicitations.
However, Clover Top Holdings, Inc. no longer owns the trademark. Sensoria alleges that the
Kaweske Defendants improperly caused Clover Top Holdings, Inc. to abandon the trademark and
then had it registered under the name of the JW Colorado entity for the competing businesses to
use. Sensoria brings is trademark-based cause of action against the Kaweske Defendants
derivatively on behalf of Clover Top Holdings, Inc.
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Sensoria also uses its Response to clarify exactly what Lanham Act violations it is
claiming. Its first claim is for trademark infringement in violation of 15 U.S.C. § 1114. The
Kaweske Defendants argue that it should be dismissed because Sensoria lacks standing to assert
it. Section 1114 protects only a registered trademark, and as such, the cause of action is limited to
the trademark’s “registrant” or the registrant’s legal representatives, predecessors, successors, and
assigns. Fed. Treasury Enter. v. SPI Spirits, Ltd., 726 F.3d 62, 72 (2nd Cir. 2013) (citing 15 U.S.C.
§§ 1114(1) and 1127). Sensoria responds that at ¶ 43 of its Amended Complaint (ECF 95),
Plaintiffs plead that the investment solicitations included the representation that Clover Top
Holdings, Inc. is the trademark’s registrant. Even if Clover Top Holdings, Inc. either directly itself
or indirectly through a subsidiary once owned the trademark, Plaintiffs also plead that Clover Top
Holdings, Inc. subsequently lost that registration. If Clover Top Holdings, Inc. no longer possesses
the trademark, then neither it nor Sensoria on its behalf has standing to seek redress for the
infringement.
Sensoria’s second Lanham Act claim is for false advertising and false association in
violation of 15 U.S.C. § 1125. Trademark ownership is not required to bring that claim. Original
Rex, LLC v. Beautiful Brands Int’l, LLC, 792 F. Supp. 2d 1242, 1261 (N.D. Okla. 2011). Sensoria
argues that standing is not limited to direct competitors either. Even if Sensoria is correct on that
point, the fact remains that Clover Top Holdings, Inc. is not engaged in commerce. Assuming no
other legal bar to Sensoria’s ability to bring the claim on Clover Top Holding, Inc.’s behalf, there
still must be some sort of injury to Clover Top Holding, Inc.’s commercial interests or marketplace
position. Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 137 (2014).
Sensoria argues that it does plead such injury because Clover Top Holdings, Inc. should be the
business that is benefitting from the TweedLeaf mark, but it simply restates its argument that the
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Kaweske Defendants wrongly took the trademark and mismanaged Clover Top Holdings, Inc.
Sensoria does not plead how Clover Top Holdings, Inc. has suffered injury to its present
commercial interests. Sensoria also does not show how the Kaweske Defendants’ use of the
trademark is “false.” Plaintiffs plead that they currently are the owners of the trademark (even if
wrongly obtained, allegedly). Consequently, they are making no false associations with Clover
Top Holdings, Inc. when they sell cannabis under the TweedLeaf trademark.
Thus, Sensoria does not plead a plausible Lanham Act violation, and the Nineteenth Cause
of Action is dismissed.
VIII. 	Declaratory and Injunctive Relief
For their First Cause of Action, Plaintiffs seek a declaratory judgment under 28 U.S.C. §§
2201-02 as well as injunctive and other equitable forms of relief including an accounting. The
Kaweske Defendants argue that the First Cause of Action should be dismissed because it is
redundant to Plaintiffs’ other claims for relief. It largely restates Plaintiffs’ other theories of
wrongdoing and seeks adjudication of the same rights and relief. A court may dismiss a declaratory
judgment claim that is duplicative or redundant to other claims. Narvaez v. Wilshire Credit Corp.,
757 F. Supp. 2d 621, 636 (N.D. Tex. 2010) (denying on a summary judgment motion both the
breach of contract claim and the declaratory judgment claim redundant to it). However, the mere
fact that it may be redundant does not require dismissal. “The existence of another adequate
remedy does not preclude a declaratory judgment.” Fed. R. Civ. P. 57. Even if Plaintiffs’ First
Cause of Action proves unnecessary, it is too early at this stage to dismiss it. Defendants remain
free to oppose declaratory or injunctive relief later, after further development of the allegations
and record. Morinville v. U.S. Patent & Trademark Office, 442 F. Supp. 3d 286, 296 (D.D.C. 2020)
(denying a motion to dismiss for that reason). Therefore, the Court denies the Kaweske
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Defendants’ Motion to Dismiss on this issue.
IX. 	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. Hall, 935 F.2d at 1109–10;
Reynoldson v. Shillinger, 907 F.2d 124, 126 (10th Cir. 1990). The Court does not find that filing
a Second Amended Complaint would be futile. This is the first ruling on the merits of Defendants’
dismissal arguments, and there is the potential that Plaintiffs can correct for the pleading
deficiencies discussed above.
CONCLUSION
The primary obstacle to Plaintiffs’ claims for relief is the illegality affirmative defense, but
there is the potential that they may be able to seek relief that does not implicate federal marijuana
laws. The Court also considers Defendants’ additional reasons for dismissal. The Court finds no
other legal bar that precludes Sensoria’s ability to bring claims derivatively on Clover Top
Holdings, Inc.’s behalf, but with the exception of the Thirteenth Cause of Action (alleging a
CUFTA violation) and Sixteenth Cause of Action (for aiding and abetting breach of fiduciary
duty), it may not raise claims directly on its own behalf. The Court finds that Plaintiffs do not plead
certain other causes of action plausibly according to their legal definitions.
Accordingly, for the above reasons, the Kaweske Defendants’ Motion to Dismiss [filed
September 21, 2020; ECF 109], the Evangelista Defendants’ Motion to Dismiss [filed September
21, 2020; ECF 110], and the Tannenbaum Defendants’ Motion to Dismiss [filed September 21,
2020; ECF 107] are all granted in part. The Court dismisses all claims (except the Tenth Cause
of Action) on the basis of the illegality affirmative defense. The Court dismisses the Fifth Cause
of Action (breach of fiduciary duty) as raised against the Kaweske Defendants as well as the Ninth
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(corporate waste), Tenth (breach of fiduciary duty and legal malpractice), Fourteenth (civil
conspiracy), and Fifteenth (intentional interference with contract) Causes of Action to the extent
Sensoria brings them as direct claims on its own behalf. The Court dismisses the Fourteenth and
Seventeenth Causes of Action as raised against the Tannenbaum Defendants for the failure to plead
plausible civil conspiracy and unjust enrichment claims against them. Lastly, the Court dismisses
the Fifteenth and Nineteenth Cause of Action for the failure to plead plausible claims of intentional
interference with contract and Lanham Act violations. However, the dismissals are without
prejudice, and Plaintiffs have leave to file a Second Amended Complaint.
Sensoria voluntarily dismisses its Eighteenth Cause of Action (for violation of the
Delaware Securities Act). ECF 126 at 41.
The Motions to Dismiss are otherwise denied.
SO ORDERED.
Dated at Denver, Colorado, this 12th day of January, 2021.
BY THE COURT:
Michael E. Hegarty
United States Magistrate Judge
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