Case 1:20-cv-00942-MEH Document 229 Filed 01/24/22 USDC Colorado Page 1 of 43
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLORADO
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`Civil Action No. 20-cv-00942-MEH
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`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,
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`
`Plaintiffs,
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`v.
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`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,
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`Defendants.
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`ORDER
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`Michael E. Hegarty, United States Magistrate Judge.
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`Before the Court are the Motion to Dismiss (ECF 215) by Defendants John Kaweske
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`Case 1:20-cv-00942-MEH Document 229 Filed 01/24/22 USDC Colorado Page 2 of 43
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`(“Kaweske”) and entities related to him (“Kaweske Entities”) and the Motion to Dismiss (ECF
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`216) by Defendants Welby Evangelista, North Star Holdings, LLC, and DJDW, LLC
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`(“Evangelista Defendants”). The Motions are fully briefed, and the Court finds that oral argument
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`will not materially assist in their adjudication. For the reasons that follow, the Motions are granted
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`in part and denied in part.
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`BACKGROUND
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`Alleged Facts
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`For purposes of this ruling, the Court accepts as true the factual allegations—but not any
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`I.
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`legal conclusions, bare assertions, or conclusory allegations—that Plaintiffs raise in their Third
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`Amended Complaint (“TAC”). ECF 206. See generally Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
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`(accepting as true a plaintiff’s factual allegations for purposes of Fed. R. Civ. P. 12(b)(6) analysis).
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`A.
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`The Creation of the Clover Top Holdings, Inc. Investment Vehicle
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`Defendant John D. Kaweske (“Kaweske”) is a citizen of Colorado. ECF 206 at ¶ 11. He
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`was subject of four administrative proceedings and three lawsuits regarding inappropriate dealings
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`with client funds or securities transactions. Id. at ¶ 48. He expended great effort to hide his identity
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`and that history. Id. at ¶¶ 49-51. Defendant Christopher S. Peterson (“Peterson”) is a citizen of
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`either Colorado or Arizona. Id. at ¶ 12.
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`At issue in this lawsuit is Clover Top Holdings, Inc. which Kaweske, Peterson, and
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`Peterson’s wife incorporated in September 2015. Id. at ¶¶ 34. They were its majority owners and
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`served as its officers. Id. at ¶¶ 34-36. Clover Top Holdings, Inc. is a Delaware corporation. Id. at
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`¶ 13. Its principal place of business was in Colorado (id.), although it was not registered to do
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`business in Colorado until September 22, 2017 (id. at ¶¶ 52(a), 94). It no longer is an active
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`corporation. Id. at ¶¶ 111-114.
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`Kaweske, Peterson, and Peterson’s wife formed Clover Top Holdings, Inc. “to engage in
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`all legal aspects of the cannabis business, beginning in Colorado and expanding elsewhere as the
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`business grew and as state and federal laws changed across the country.” Id. at ¶ 34. In October
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`2015, Clover Top Holdings, Inc. acquired TweedLeaf Delaware, which possessed the federal
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`trademark and service mark registrations for the “TWEEDLEAF” word and drawing. Id. at ¶¶ 55-
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`56.
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`On October 30, 2015, Clover Top Holdings, Inc. retained Brian Tannenbaum, Esq. of
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`Tannenbaum, Trost & Burk, LLC (the law firm’s name at the time) to provide legal services
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`“regarding the purchase and/or sale of certain marijuana licenses” as well as “any other services
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`[that it] may request from time to time.” Id. at ¶ 58. Clover Top Holdings, Inc. retained the
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`Tannenbaum Defendants “for both cannabis and corporate law.” Id. at ¶ 59. Kaweske oversaw all
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`cultivation operations for Clover Top Holdings, Inc. as well as company finances, taxes, licenses,
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`and legal matters in tandem with the Tannenbaum Defendants. Peterson managed dispensary
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`operations, patient care, and online/offline marketing for the TweedLeaf business. Id. at ¶ 72.
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`In January 2016, Clover Top Holdings, Inc. bought “two real estate holdings in Colorado
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`Springs, one a retail building and the other a warehouse.” Id. at ¶ 61. On January 26, 2016, Durango
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`Management, LLC (“Durango”) was created to hold properties and leases for Clover Top
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`Holdings, Inc. as its real estate management company. Id. at ¶ 62. On February 1, 2016, “Durango
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`purchased the two real estate holdings that were subject of Clover Top [Holdings, Inc.’s] January
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`2016 contract.” Id. at ¶ 63. On March 11, 2016, Durango leased one of the properties to AJC
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`Industries, LLC d/b/a Front Range Alternative Medicines and d/b/a FRAM (“AJC”). Id. at ¶ 66.
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`Kaweske is AJC’s sole member. Id. at ¶ 15. An appraiser did not regard it as an arms-length
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`transaction. Id. at ¶ 66.
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`In March 2016, Clover Top Holdings, Inc. purchased two existing marijuana licenses from
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`AJC. Id. at ¶ 64. The Tannenbaum Defendants assisted with the transaction. Id. At the time,
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`Kaweske was the only Clover Top Holdings, Inc. principal who had the Colorado residency
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`required for a marijuana license. Id. at ¶ 65.
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`B.
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`The Initial Investments
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`In late 2015, Kaweske and Peterson solicited Peterson’s sister, Robin Smith, and her
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`husband, Roger Smith, to invest in Clover Top Holdings, Inc. Kaweske and Peterson portrayed
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`Clover Top Holdings, Inc. as the parent corporation for all future cannabis operations and brands,
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`and they reassured the Smiths that the operation was on the “up and up.” Kaweske and Peterson
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`emphasized that they had multiple business licenses and trademarks (including a federal
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`trademark) for their operations and products. Based on those representations, the Smiths invested
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`$50,000 in Clover Top Holdings, Inc. in October 2015. Id. at ¶ 37. The Smiths are citizens of
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`California. Id. at ¶ 4.
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`Between January and March of 2016, Kaweske and Peterson solicited Plaintiff Gordon
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`Morton (“Morton”) to invest in Clover Top Holdings, Inc. Id. at ¶ 38. They portrayed it as “the
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`holding company or the ‘mother ship’ for all cannabis-related entities, technologies, and brands in
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`Colorado and expanding beyond Colorado as its success grew.” Id. at ¶ 39. The greater enterprise
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`would include “dispensaries, grow operations, extraction technologies, intellectual property, other
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`future ancillary entities, and all similar services and businesses.” Id. Clover Top Holdings, Inc.’s
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`shareholders would receive the profits as well as “prompt repayment of initial investments and
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`distributions.” Id. at ¶¶ 39, 52.
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`To Morton and other investors, Kaweske emphasized his extensive experience, expertise,
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`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
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`operations were or would become lawful under federal law. Nor did Kaweske and Peterson honor
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`their representations to run the entity for Plaintiffs’ benefit. Id. at ¶ 52.
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`Written materials explained that Clover Top Holdings, Inc. was “established to make
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`investments and operate businesses in the burgeoning legal cannabis industry” and for creating “a
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`national brand for medicinal dispensaries, online store and cannabis and hemp-based products.”
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`Id. at ¶ 40. Clover Top Holdings, Inc. was described as a Delaware corporation based in Colorado
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`Springs. It owns “an existing medical marijuana commercial location as well as a cannabis
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`cultivation facility and is integrating a second fully operational and licensed medicinal cannabis
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`business into the newly purchased locations.” Id. Its existing business “generates between
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`$60,000–$80,000 per month in gross revenues.” Id. It has an “11,000 square foot cultivation
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`facility, which is capable of growing over 4,000 plants and producing in excess of $400,000 a
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`month of wholesale cannabis.” Id. It owns a “medical marijuana dispensary located in a prime
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`retail location” and will open “a new medical dispensary chain called TweedLeafTM.” Id. Lastly,
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`Clover Top Holdings, Inc.’s assets include intellectual property as well as proprietary hemp- and
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`CBD-based products “that are currently legal to sell nationwide.” Id.
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`On April 4, 2016, Morton paid $100,000 for 100,000 shares. Kaweske told him that he was
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`the first outside investor. The investment was made pursuant to a Subscription Agreement for
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`Preferred Shares. Id. at ¶ 41.
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`Contemporaneously, Kaweske and Peterson were soliciting additional investors. Garrett
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`Schiffman, Lance Schiffman, and Aaron Garrity received the same written materials as Morton as
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`well as the assurance that Kaweske and Peterson already had business licenses for their various
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`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
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`for Clover Top Holdings, Inc. shares. Id. at ¶ 42. All three individuals and the Greenhouse 5, LLC
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`entity are Utah citizens.
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`Kaweske and Peterson convinced Peterson’s in-laws, the Grimmers, to invest. As with the
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`other solicitations, Kaweske and Peterson sent them the same written materials and represented
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`Clover Top Holdings, Inc.’s business operations as legitimate and legal. They possessed the
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`necessary licenses, and the operation already was up and running. Between June 2016 and January
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`2017, the Grimmers paid a total of $75,000 for Clover Top Holdings, Inc. shares. Id. at ¶ 43. The
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`Grimmers are citizens of Idaho. Id. at ¶ 5.
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`Lance Schiffman introduced Kenneth House to Kaweske and Peterson. They had multiple
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`conversations and received the written materials. In July 2016, House bought $30,000 in Clover
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`Top Holdings, Inc. stock. Id. at ¶ 46. House is a Utah citizen. Id. at ¶ 9.
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`In April 2016, Marc Lesser paid $60,000 for Clover Top Holdings, Inc. shares based on
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`his trust in Peterson and the investment solicitation. Id. at ¶ 47. Lesser is a California citizen. Id.
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`at ¶ 10.
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`The Smiths, Morton, Garrett Schiffman, and Lance Schiffman were familiar with neither
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`the marijuana industry nor federal marijuana law. Id. at ¶ 45. Kenneth House and Marc Lesser
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`knew that the Clover Top Holdings, Inc. venture was lawful under Colorado law but not under
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`federal law. Id. at ¶ 47. Lesser understood there to be “gray areas” in the law regarding cannabis,
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`but relied on Kaweske and Peterson’s assurances that the cannabis industry had started moving
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`toward legal profits. Lesser assumed there already were legal ways to make profits. Id.
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`C.
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`Purported Expansion of Clover Top Holdings, Inc.
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`Peterson’s father-in-law, Dennis Grimmer, also owned part of the Durango entity and
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`served as its manager. Id. at ¶¶ 62-63, 69. On June 27, 2016, he exchanged his Durango shares for
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`Clover Top Holdings, Inc. shares. Id. at ¶ 69. The Tannenbaum Defendants facilitated the exchange
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`(id.) which presumably increased Clover Top Holdings, Inc.’s ownership of Durango. In a filing
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`with the Colorado Secretary of State on July 6, 2016, Durango identified Clover Top Holdings,
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`Inc. as its sole owner. Id. at ¶ 70.
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`On August 8, 2016, Clover Top Holdings, Inc. issued its first investor update. It reported
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`increasing sales over the prior three months and plans to open a second TweedLeaf medical
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`dispensary. Id. at ¶ 73.
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`In October 2016, Clover Top Holdings, Inc. bought additional marijuana licenses from
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`MMJ 95, LLC (“MMJ”). Id. at ¶ 76. MMJ was formed in October 2015 as a cannabis-related
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`business (id. at ¶ 57), and Kaweske was its sole member (id. at ¶¶ 18, 83). Contemporaneously,
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`Kaweske stated that an MMJ license was being transferred to Tweedleaf, LLC (id. at ¶ 77), an
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`entity that Kaweske owned separate and apart from the Clover Top Holdings, Inc. enterprise and
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`the TweedLeaf Delaware entity (id. at ¶ 65).
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`Morton visited Colorado Springs and met with Kaweske in early November 2016. Kaweske
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`told him that the business was making money and promised to pay him first. Id. at ¶ 78.
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`Morton formed Sensoria, LLC (“Sensoria”) on November 17, 2016. Sensoria paid
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`$125,000 for an additional 125,000 shares. Id. at ¶ 81. Clover Top Holdings, Inc. issued a stock
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`certificate dated November 25, 2016 that Peterson and Kaweske signed. Id. at ¶ 82. All of Morton’s
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`investments in Clover Top Holdings, Inc. ultimately were made and accounted through Sensoria.
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`Id. at ¶ 81.
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`On November 16, 2016, Kaweske incorporated Sunlife AG, LLC (“Sunlife”) as a cannabis
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`growing and cultivation business. Peterson stated in 2019 that Sunlife was intended to be Clover
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`Top Holdings, Inc.’s “wholly owned real estate and property management company [for] holding
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`properties and leases in Ordway, Colorado.” Id. at ¶ 80. However, Kaweske was Sunlife’s sole
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`member. Id.
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`Clover Top Holdings, Inc. issued another investor update on January 20, 2017. Monthly
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`sales from the TweedLeaf business were reported, and the construction of a second dispensary was
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`announced. Cultivation, warehouse, and production spaces were said to be expanding. Id. at ¶ 84.
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`In February 2017, Welby Evangelista (“Evangelista”) and his entity, DJDW, LLC
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`(“DJDW”), invested in Clover Top Holdings, Inc. Id. at ¶ 85. He served as the TweedLeaf brand’s
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`business director, worked onsite in Colorado, provided Sensoria access to the TweedLeaf
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`locations, and raised additional investment money. He also took over the investor updates (which
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`now were being done informally over the telephone rather than in writing), touting success in terms
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`of money made and TweedLeaf website traffic volume. Id. at ¶ 86.
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`On June 19, 2017, a corporate entity by name of “XLeaf” was formed. It was intended
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`either to be owned by Clover Top Holdings, Inc. or to serve as a merchant account for AJC. XLeaf
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`later became “XLEAF Labs” that made and sold cannabis concentrate. Id. at ¶ 100.
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`In August 2017, Kaweske began developing marijuana business operations in Ordway,
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`Colorado. Through the AJC entity, Kaweske and Peterson leased a greenhouse there. Id. at ¶ 89.
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`AJC obtained marijuana licenses, and 108 acres of land were bought. Id. at ¶ 90. Additional
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`greenhouses and a warehouse building were acquired. Funding for the Ordway expansion came
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`from Clover Top Holdings, Inc., and these acquisitions purportedly belonged to it (through its
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`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.
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`Clover Top Holdings, Inc. was registered to do business in Colorado for the first time on
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`September 22, 2017. Id. at ¶ 94.
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`On October 12, 2017, Ordway Farms LLC (“Ordway Farms”) was created. Its initial
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`member was identified as “CLOVERTOP HOLDINGS, INC.” Id. at ¶ 95.
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`On December 2, 2017, Clover Top Holdings, Inc. opened its second TweedLeaf dispensary
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`for business. Id. at ¶ 97.
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`On December 10, 2017, “Kaweske shut Peterson and his wife out of Clover Top Holdings,
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`Inc. and purported to terminate their employment with [it].” Kaweske blamed Clover Top
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`Holdings, Inc.’s “current financial distress” on their “exorbitant spending.” Sensoria was unaware
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`of this development. Id. at ¶ 98. Ultimately, several lawsuits were filed in Colorado state court
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`regarding disputes between Peterson and Kaweske. Id. at ¶ 135.
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`Peterson later stated that the “intended assets and subsidiaries” of Clover Top Holdings,
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`Inc. before December 2017 “included at least TweedLeaf Delaware, Durango, AJC, MMJ, Sunlife,
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`Ordway Farms, and the XLeaf and XLeaf Labs names, and their holdings and assets.” Id. at ¶ 139.
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`On February 28, 2018, Kaweske bought a home in Colorado Springs for $525,000.00. Id.
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`at ¶ 101.
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`On September 10, 2018, TweedLeaf Delaware abandoned the “TWEEDLEAF” service
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`mark. Id. at ¶ 105.
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`In late 2018 and early 2019, Plaintiffs began to hear indications of trouble with the state of
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`their investment. Id. at ¶ 107. Morton first became aware of problems on November 3, 2018 when
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`“without leadup or warning, Evangelista called and texted Morton multiple times via cell phone
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`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
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`Morton’s involvement in a ‘scam’ against [him].” Evangelista told Morton that Sensoria and all
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`shareholders in Clover Top Holdings, Inc. were “f***ed.” He demanded payment of millions of
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`dollars from Morton and threatened legal action. Id. at ¶ 106.
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`D.
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`Kaweske’s Competing Marijuana Enterprise
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`Simultaneous with the creation of Clover Top Holdings, Inc., Kaweske began a separate
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`marijuana operation that in effect competed with it. Moreover, the assets that originally belonged
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`(or were intended to belong) to Clover Top Holdings, Inc. became part of that other competing
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`enterprise. Id. at ¶¶ 110, 139.
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`In November 2015, Peterson incorporated another entity by name of “Clover Top
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`Holdings” but in Colorado rather than in Delaware (“Clover Top Colorado”). Id. at ¶¶ 14, 118.
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`Unlike Clover Top Holdings, Inc. (in which Plaintiffs invested), the Clover Top Colorado entity
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`remains an active corporation. Id. at ¶ 118.
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`Kaweske asserts ownership over AJC, an entity that was meant to be Clover Top Holdings,
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`Inc.’s asset and the holder of its marijuana licenses. Id. at ¶¶ 65, 71. In November 2016, Kaweske
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`registered the TweedLeaf name and logo trademarks with AJC. Id. at ¶ 79. On September 12, 2017,
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`Kaweske assumed unlimited authority to transfer real property held in Durango’s name. Id. at ¶
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`92.
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`On January 18, 2018, Kaweske and Evangelista incorporated JW Colorado, LLC (“JW
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`Colorado”) and JW Ordway, LLC (“JW Ordway”) as cannabis businesses. The Tannenbaum
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`Defendants assisted with JW Ordway’s filings. Id. at ¶ 99. On July 12, 2018, Kaweske and
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`Evangelista formed JW Trinidad, LLC (“JW Trinidad”). Id. at ¶ 102. On August 3, 2018,
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`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
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`Star’s registered agent. Id. at ¶ 103. North Star uses TweedLeaf as one of its brands. Id. at ¶ 109.
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`On September 5, 2018, Kaweske replaced Clover Top Holdings, Inc. as Ordway Farms’
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`sole member. Id. at ¶ 104. Without Plaintiffs’ knowledge, Kaweske and Evangelista sold securities
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`in Ordway Farms contrary to Clover Top Holdings, Inc.’s interests. Id. at ¶¶ 88, 104.
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`On January 10, 2019, Kaweske and Evangelista registered the sale of North Star securities.
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`TweedLeaf, TweedLeaf Dispensaries, XLeaf Labs, and Ordway Farms were listed as products and
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`services related to the North Star securities. Id. at ¶ 109.
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`Clover Top Holdings, Inc.’s registration with Colorado became delinquent on February 1,
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`2019 after not filing a Periodic Report. Its corporate status with Delaware became void on March
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`1, 2019 when it did not pay the annual franchise tax. It owes the State of Delaware $108,566.68.
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`Id. at ¶¶ 111-113.
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`On August 19, 2019, Kaweske created Lifestream Holdings, LLC (“Lifestream”), whose
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`registered agents are the Tannenbaum Defendants and which does business as TweedLeaf. Id. at ¶
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`131. On September 10, 2019, JW Colorado registered the “TWEEDLEAF” trademark and service
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`mark. Id. at ¶ 132.
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`E.
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`Plaintiffs Inquire About Their Investment
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`Plaintiffs became concerned that other investors were acquiring ownership of Clover Top
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`Holdings, Inc. in a way that was diluting the value of their investment. Id. at ¶ 120. They received
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`no substantive answers or information from Clover Top Holdings, Inc. or its officers. Id. at ¶¶ 120-
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`122. In February 2019, Kaweske told Morton that events and circumstances had rendered
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`Sensoria’s investment “no longer relevant.” Kaweske added, “Technically, I don’t have to give
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`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.
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`Sensoria’s attempt at private resolution was unsuccessful. Id. at ¶ 126. A demand letter
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`yielded no substantive relief. Id. at ¶ 136.
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`Plaintiffs believe that Clover Top Holdings, Inc.’s “assets, holdings, and subsidiaries . . .
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`have been transferred away,” rendering their investment irrelevant. Id. at ¶ 123. “Plaintiffs have
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`not received back any of their initial investment, let alone any return on that investment, nor any
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`documentation accounting for the investment apart from share certificates for common stock.” Id.
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`at ¶ 127. Instead, Kaweske “is now controlling the TweedLeaf brand and operations apart from
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`Clover Top [Holdings, Inc.] and under his separate entities.” Id. at ¶ 133. The Tweedleaf website
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`lists six retail locations in Colorado. Lifestream and North Star have connections to that website
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`(id.), and North Star includes “TweedLeaf” as one of its brands (id. at ¶ 109).
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`II.
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`Defendants
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`The Kaweske Defendants consist of Kaweske and several entities under his control (the
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`“Entity Defendants”). The Entity Defendants are JW Colorado, JW Trinidad, JW Ordway, MMJ,
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`AJC, Sunlife, Ordway Farms, Durango, Lifestream, and TweedLeaf LLC (incorporated in
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`Colorado). Plaintiffs argue that it was through these entities that Kaweske siphoned off assets and
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`cash that belonged to the Clover Top Holdings, Inc. venture.
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`Neither TweedLeaf Delaware nor Clover Top Holdings, Inc. has answered the Complaint,
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`and both are in default. ECF 95 at ¶¶ 6, 13. “Notwithstanding any allegation set forth [in their
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`TAC],” Plaintiffs clarify that “any claim on which Clover Top [Holdings, Inc.] has previously
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`defaulted is not advanced against Clover Top [Holdings, Inc.] in this Third Amended Complaint.”
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`ECF 206 at ¶ 13.
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`Case 1:20-cv-00942-MEH Document 229 Filed 01/24/22 USDC Colorado Page 13 of 43
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`The Clover Top Colorado entity that Kaweske also incorporated has not appeared in this
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`lawsuit. It appears to be in default. ECF 123.
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`Plaintiffs also sue Evangelista and the two entities, North Star and DJDW, associated with
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`him (“Evangelista Defendants”). They allege that Evangelista managed Clover Top Holdings, Inc.
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`with Kaweske, and like Kaweske, Evangelista converted its assets for his own benefit. Plaintiffs
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`argue that the separate, competing business that Kaweske and Evangelista created for themselves
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`is in practical effect Clover Top Holdings, Inc. Plaintiffs bring no claims unique to them. The
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`Evangelista Defendants filed their own Motion to Dismiss (ECF 216), but they simply adopted the
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`arguments that the Kaweske Defendants raise. Therefore, the Court does not discuss the
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`Evangelista Defendants separately.
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`For ease of reference and to simplify the below legal analysis, the Court’s use of the term
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`“Defendants” means those individuals or entities against whom the Plaintiffs bring the cause of
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`action being discussed. Moreover, it means only those Defendants who have file the Motions to
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`Dismiss under review. For example, the Court’s below reference to “Defendants” does not include
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`Peterson.
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`Both Peterson and the Tannenbaum Defendants have answered the TAC. ECF 211, 219.
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`Because the Tannenbaum Defendants have not moved to dismiss the TAC, the Court excludes the
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`allegations that Plaintiffs add about their involvement in the greater scheme.
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`LEGAL STANDARD
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`The purpose of a motion to dismiss under Fed. R. Civ. P. 12(b)(6) is to test the sufficiency
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`of the plaintiff’s complaint. Sutton v. Utah State Sch. for the Deaf & Blind, 173 F.3d 1226, 1236
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`(10th Cir. 2008). “To survive a motion to dismiss, a complaint must contain sufficient factual
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`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
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`a motion to dismiss, means that the plaintiff pleads facts that allow “the court to draw the
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`reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at
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`678. Twombly requires a two-prong analysis. First, a court must identify “the allegations in the
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`complaint that are not entitled to the assumption of truth,” that is, those allegations which are legal
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`conclusions, bare assertions, or merely conclusory. Iqbal, 556 U.S. at 679–80. Second, a court
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`must consider the factual allegations “to determine if they plausibly suggest an entitlement to
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`relief.” Id. at 681. If the allegations state a plausible claim for relief, such claim survives the motion
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`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
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`they encompass a wide swath of conduct, much of it innocent, then the plaintiffs ‘have not nudged
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`their claims across the line from conceivable to plausible.’” S.E.C. v. Shields, 744 F.3d 633, 640
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`(10th Cir. 2014) (quoting Khalik v. United Air Lines, 671 F.3d 1188, 1191 (10th Cir. 2012)). “The
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`nature and specificity of the allegations required to state a plausible claim will vary based on
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`context.” Safe Streets All. v. Hickenlooper, 859 F.3d 865, 878 (10th Cir. 2017) (quoting Kan. Penn
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`Gaming, LLC v. Collins, 656 F.3d 1210, 1215 (10th Cir. 2011)). Thus, while the Rule 12(b)(6)
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`standard does not require that a plaintiff establish a prima facie case in a complaint, the elements
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`of each alleged cause of action may help to determine whether the plaintiff has set forth a plausible
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`claim. Khalik, 671 F.3d at 1191.
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`However, “[t]hreadbare recitals of the elements of a cause of action, supported by mere
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`conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678. The complaint must provide “more
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`than labels and conclusions” or merely “a formulaic recitation of the elements of a cause of action,”
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`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
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`whether a complaint states a plausible claim for relief will . . . be a context-specific task that
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`requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556
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`U.S. at 679. “[W]here the well-pleaded facts do not permit the court to infer more than the mere
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`possibility of misconduct,” the complaint has made an allegation, “but it has not shown that the
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`pleader is entitled to relief.” Id.
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`ANALYSIS
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`Plaintiffs complain that Defendants harmed the Clover Top Holdings, Inc. business venture
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`and deprived them of the value of their investment. Clover Top Holdings, Inc. also seeks redress
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`for harm done to it, and it proceeds through Plaintiff Sensoria who is acting on its behalf.
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`Collectively, Plaintiffs express Defendants’ wrongful actions through several different causes of
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`action.
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`I.
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`Available Means of Judicial Relief
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`At issue is whether Clover Top Holdings, Inc. engaged in illegal conduct that hinders the
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`Court’s ability to remedy the damages Plaintiffs suffered. Thus, the primary legal question raised
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`in the Motions is whether their claims should be dismissed on that basis as a matter of law. The
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`Court has addressed this same issue twice before. Having now revisited the matter and after
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`considering this newest round of briefing, the Court affirms that the illegality defense does apply
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`and with dispositive effect.
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`A.
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`The Nature of the Clover Top Holdings, Inc. Enterprise
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`In the previous dismissal order, this Court observed that marijuana “lies at the heart of the
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`business” in which Plaintiffs had invested. Sensoria, LLC v. Kaweske, — F. Supp. 3d —, 2021
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`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,
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`and sell marijuana and related products. ECF 206 at ¶ 39. It would do so on a large scale, beginning
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`with an “11,000 square foot cultivation facility . . . capable of growing over 4,000 plants” and “a
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`1,500 square foot medical marijuana dispensary located in a prime retail location.” Id. at ¶ 40.
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`Plaintiffs expected starting revenues in excess of $400,000 a month. Id. In comparison to the initial
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`complaint, Plaintiffs now expressly deny any intention to invest in a business that violated federal
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`law. “[T]he Smiths, Morton, and the Schiffmans understood that Clover Top’s activities were
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`compliant with state and federal law.” Id. at ¶ 45 (emphasis added). They also describe their
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`involvement as that of “passive, out-of-state investors” who lacked “special knowledge about the
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`[cannabis] industry” and the true extent of Clover Top Holdings, Inc.’s illegal operations. Id. at ¶
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`159. They relied on Kaweske to operate the business lawfully.
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`Plaintiffs describe their investment in Clover Top Holdings, Inc. and their relationship with
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`Kaweske in a way that distances them from the nature of the business. The pleading amendments
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`thereby serve to avoid the impact of the illegality affirmative defense. Although the amendments
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`come after Defendants raised the illegality defense, the Court still accepts them as true for purposes
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`of this Rule 12(b)(6) review, as it did in the prior dismissal order, Sensoria, 2021 WL 2823080 at
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`*7, addressing the same point. The plaintiff in Fourth Corner Credit Union v. Fed. Reserve Bank
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`of Kansas City, 861 F.3d 1052, 1056 (10th Cir. 2017) made similar amendments in an equivalent
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`situation. Although the Court accepts as true Plaintiffs’ allegations about their subjective
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`perceptions and intentions, ultimately they have little effect on the outcome of the illegality defense
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`issue.
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`Marijuana not only lies at the heart of the investment but at the heart of this lawsuit, as
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`well. The primary legal question presented is how it affects Plaintiffs’ ability to obtain judicial
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`relief.
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`B.
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`The Controlled Substances Act, 21 U.S.C. §§ 802, et seq.
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`“The overarching issue,” as this Court already has framed it, was the “direct involvement
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`in the growing and selling of marijuana” that the enterprise was anticipated to have. Sensoria, 2021
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`WL 2823080 at *7. Although presumably lawful under Colorado law, Clover Top Holdings, Inc.’s
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`planned activities were not under the federal Controlled Substances Act, 21 U.S.C. §§ 802, et seq.
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`(“the CSA”).