Flamengos Investments, LLC v. Brookwood Capital Partners, LLC

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF OHIO

WESTERN DIVISION - CINCINNATI

FLAMENGOS INVESTMENTS, LLC, et : Case No. 1:22-cv-489

Judge Matthew W. McFarland

Plaintiffs, :

:

BROOKWOOD CAPITAL PARTNERS

LLC d/y/fa BROOKWOOD CAPITAL

ADVISORS, et al. :

Defendants.

ORDER AND OPINION

This matter is before the Court on Defendants Ben Hamd, Wyatt Woeltje, and

Lydia Chernitsky-Hamd’s (“Individual Defendants’”) Motion to Dismiss Plaintiffs’

Fourth and Fifth Claims for Relief (Doc. 47). Plaintiffs filed a Response in Opposition

(Doc. 51), to which the Individual Defendants replied (Doc. 52). Thus, this matter is ripe

for the Court’s review. For the reasons below, the Individual Defendants’ Motion to

Dismiss (Doc. 47) is DENIED.

BACKGROUND

Defendant Brookwood Capital Partners, LLC, doing business as Brookwood

Capital Advisors (“Brookwood”), is a Tennessee business that buys and sells shopping

centers. (Am. Compl., Doc. 39, 3, 10.) In February 2022, Brookwood bought the Fort

Steuben Mall (“Property”). (Id. at § 11.) Soon after, Brookwood placed the Property for

sale on an online auction site. (Id. at J 12.)

Ben Hamd and Wyatt Woeltje led Brookwood’s efforts to sell the Property. (Am.

Compl. Doc. 39, { 16.) Brookwood provided potential buyers with a “Rent Roll” of the

Property. (Id. at { 14.) The Rent Roll stated that the Property had dozens of paying tenants

that produced over $140,000 per month for the Property. (Id.) The Rent Roll, however,

was misleading. To induce tenants to lease on the Property, Lydia Chernitsky-Hamd told

potential tenants that the leases would never be enforced. (Id. at § 20.) Once those

individuals became tenants of the Property, Brookwood never collected on rent. (Id. at §

21.) Nevertheless, these leases were included on the Rent Roll as a part of the Property’s

cash flow. (Id.) In turn, the Rent Roll highly inflated the income produced by the Property.

(Id.)

Plaintiff Flamengos Investments, LLC, (“Flamengos”), an Ohio company, was a

potential buyer of the Property. (Am. Compl., Doc. 39, 44 1, 14.) In addition to the Rent

Roll, Brookwood made other representations to Flamengos regarding the Property’s

condition, leases, rents, and projections of income. ([d.) Relying on this information,

Flamengos submitted a bid at auction for the Property. (Id. at {| 24.) Flamengos’ bid won,

and, on May 5, 2022, Flamengos and Brookwood entered a Contract for Purchase and

Sale of the Property (“Purchase Agreement”) for the sum of $11,602,500. (Id. at 24-25;

Purchase Agreement, Doc. 39-1, Pg. ID 478.)

On May 17, 2022, Flamengos inspected the Property. (Am. Compl., Doc. 39, {| 26.)

During the visit, Flamengos discovered substantial problems with the Property’s roof and

parking lot. (Id.) Brookwood assured Flamengos that it was repairing those property

issues. (Id. at § 30.) Brookwood’s Managing Director emailed Flamengos, stating: “in

order to facilitate a fast close[,] how about we escrow $100,000 of the closing ..., which

will go towards additional capital improvements. This will be in addition to the roof

repairs and the asphalt capital improvements that have already been scheduled.” (Id. at

{| 32.) As it turned out, however, Brookwood had not scheduled any repairs for the

property issues. (Id. at { 33.)

Flamengos and Brookwood agreed that repairs on the property issues would be a

condition of closing. (Am. Compl., Doc. 39, § 36.) The parties reduced this agreement to

writing as an amendment to the Purchase Agreement. (Id. at 9 37-38.) Under this

amendment, Flamingos assigned all its rights, responsibilities, and obligations under the

Purchase Agreement to Plaintiff Fort Steuben Mall Holdings, LLC (“FSMH”), of which

Flamengos is the sole member. (Id. at □□ 2, 38.) The amendment then required

Brookwood to complete repairs on “the Property Issues within sixty (60) days following

Closing to the satisfaction of [FSMH].” (Id. at J 38.)

On June 3, 2022, the parties closed on the Property. (Am. Compl., Doc. 39, 40.)

Brookwood failed to complete repairs on the property issues within 60 days of closing.

(Id. at { 41.) Brookwood now refuses to pay beyond $100,000 for the Property’s roof

repairs, citing to a contractor quote that found that repairs would cost only $97,750. (Id.

at 42, 44.) Though, previously, Brookwood had received another quote stating that the

roof would require over $1.8 million to properly repair. (Id. at § 34.) Brookwood’s failure

to repair the property issues has created additional damages to the Property. (Id. at 45.)

Plaintiffs filed their initial complaint on August 22, 2022, bringing claims of fraud,

negligent misrepresentation, breach of contract, conversion, unjust enrichment, and

constructive trust against Brookwood. (Compl., Doc. 1.) Plaintiffs later moved for leave

to file an amended complaint, adding Hamd, Wyatt, and Chernitsky-Hamd as

defendants for certain claims and alleging additional claims for violations of 18 U.S.C. §

1962(c) and 18 U.S.C. § 1962(d) (“RICO claims”). (Plaintiffs’ Motion for Leave, Doc. 21.)

Defendant Brookwood opposed this motion, arguing that, among other things, Plaintiffs’

RICO claims were futile because they would not survive a Rule 12(b)(6) motion to

dismiss. (Brookwood’s Response to Motion for Leave, Doc. 25.) On January 25, 2024, the

Court ruled that Plaintiffs had sufficiently pled the RICO claims and allowed Plaintiffs to

file their Amended Complaint. (Order Granting Plaintiffs’ Motion for Leave, Doc. 35.)

The Individual Defendants now move to dismiss Plaintiffs’ RICO claims for failure to

state a claim. (Motion to Dismiss, Doc. 47.)

LAW & ANALYSIS

The Federal Rules of Civil Procedure allow, upon motion, the dismissal of a

complaint for “failure to state a claim upon which relief can be granted.” Fed. R. Civ. P.

12(b)(6). A Rule 12(b)(6) motion to dismiss tests the plaintiff’s cause of action as stated in

the complaint. Golden v. City of Columbus, 404 F.3d 950, 958 (6th Cir. 2005). A claim for

relief must be “plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).

That is, the complaint must lay out enough facts for a court to reasonably infer that the

defendant wronged the plaintiff. 16630 Southfield Ltd. P’ship v. Flagstar Bank, F.S.B., 727

F.3d 502, 504 (6th Cir. 2013). Courts accept all allegations of material fact as true and must

construe such allegations in the light most favorable to the plaintiff. Twombly, 550 U.S. at

554-55; Doe v. Baum, 903 F.3d 575, 581 (6th Cir. 2018). However, courts are not bound to

do the same for a complaint’s legal conclusions. Twombly, 550 U.S. at 555.

I. Law of the Case

As an initial matter, the Individual Defendants’ Motion to Dismiss may be

precluded by the law of the case doctrine. Under this doctrine, “findings made at one

stage in the litigation should not be considered at subsequent stages of that same

litigation.” Dixie Fuel Co., LLC v. Dir., OWCP, 820 F.3d 833, 843 (6th Cir. 2016). Although

“[ljaw of the case directs a court's discretion, it does not limit the tribunal’s power.”

Arizona v. California, 460 U.S. 605, 618 (1983). The Court has already ordered that

Plaintiffs’ RICO claims were not futile and would not be dismissed under the Rule

12(b)(6) standard. (See Order Granting Plaintiffs’ Motion for Leave, Doc. 35, Pg. ID 383.)

The Individual Defendants now move to dismiss these same claims under the same

standard. (Motion to Dismiss, Doc. 47, Pg. ID 551.) While some courts have applied the

law of the case doctrine in similar postures, the Court will analyze the Individual

Defendant's Motion on the merits. Heritage Guitar, Inc. v. Gibson Brands, Inc., 1:20-CV-229,

2022 U.S. Dist. LEXIS 100723 at *5-6 (W.D. Mich. June 6, 2022) (citing Teoba v. TruGreen

Landcare LLC, No. 10-CV-6132, 2013 U.S. Dist. LEXIS 52831 at *12-13 (W.D.N.Y. Apr. 10,

2013)). Regardless, the Court’s conclusion is the same.

II. Predicate Acts

Title 18 U.S.C. § 1962(c) prohibits any person from conducting an “enterprise’s

affairs through a pattern of racketeering activity.” To successfully plead a violation of 18

U.S.C. § 1962(c), the plaintiff must allege (1) conduct (2) of an enterprise (3) through a

pattern (4) of racketeering activity. Heinrich v. Waiting Angels Adoption Servs., 668 F.3d 393,

404 (6th Cir. 2012). The Individual Defendants argue that Plaintiffs fail to allege sufficient

facts to support the third and fourth elements of a RICO claim. (Motion to Dismiss, Doc.

47, Pg. ID 551.) The Court will first discuss the alleged predicate acts and then the alleged

pattern.

Section 1961(1) sets forth an extensive list of predicate offenses that constitute

“racketeering activity.” 18 U.S.C. § 1961(1). In the current matter, Plaintiffs claim Hamd

engaged in predicate acts of wire fraud, violating 18 U.S.C. § 1343, and “monetary

transactions in property derived from specified unlawful activity” (also known as

“money laundering”), violating 18 U.S.C. § 1957. (Am. Compl., Doc. 39, 93.) Defendants

argue that Plaintiffs have not sufficiently alleged money laundering as the second

predicate act. (Motion to Dismiss, Doc. 47, Pg. ID 551.)

Section 1957(a) describes money laundering conduct as “knowingly engag[ing] or

attempt[ing] to engage in a monetary transaction in criminally derived property that is

of a value greater than $10,000 and is derived from specified unlawful activity.” 18 U.S.C.

§ 1957(a). “Monetary transaction’ means the deposit, withdrawal, transfer, or exchange,

in or affecting interstate or foreign commerce, of funds or a monetary instrument. . . by,

through, or to a financial institution.” 18 U.S.C. § 1957(£)(1). “[C]riminally derived

property’ means any property constituting, or derived from, proceeds obtained from a

criminal offense.” 18 U.S.C. § 1957(f)(2). “Specified unlawful activity” is defined as any

criminal offense listed under § 1956, which includes wire fraud. See United States v.

Coffman, 612 F. App’x 278, 282 (6th Cir. 2015); see also 18 U.S.C. §§ 1957(£)(3), 1956(c)(7),

1961(1).

The Court has already ruled that Plaintiffs have sufficiently pled that Defendant

Hamd engaged in money laundering in violation of § 1957. (See Order Granting Plaintiffs’

Motion for Leave, Doc. 35, Pg. ID 374.) The Individual Defendants now argue that

because Plaintiffs’ allegations rely on Plaintiffs’ “information and belief,” those

allegations fall short of the Rule 9(b) standard. (Motion to Dismiss, Doc. 47, Pg. ID 552.)

Defendants rightfully note that fraud allegations invoke the heightened pleading

standard set forth under Federal Rule of Civil Procedure 9(b). Roden v. Schlichter, No. 20-

3466, 2021 U.S. App. LEXIS 4562 at *5 (6th Cir. Feb. 17, 2021). This requires “a party [to]

state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P.

9(b). Thus, a plaintiff must at least “allege the time, place, and content of the alleged

misrepresentation on which he or she relied; the fraudulent scheme; the fraudulent intent

of the defendants; and the injury resulting from the fraud.” United States ex rel. Bledsoe v.

Cmty. Health Sys., 342 F.3d 634, 643 (6th Cir. 2003) (quoting Coffey v. Foamex L.P., 2 F.3d

157, 161-62 (6th Cir. 1993)). Furthermore, fraud allegations generally “cannot be based

upon ‘information and belief,’ except where the relevant facts lie exclusively within

knowledge and control of the opposing party, and even then, the plaintiff must plead a

particular statement of facts upon which his belief is based.” Craighead v. E.F. Hutton &

Co., 899 F.2d 485, 489 (6th Cir. 1990).

Plaintiffs state that in addition to committing wire fraud, “Defendants then

knowingly engaged in, and caused to occur, money laundering in violation of 18 U.S.C.

§ 1957.” (Am. Compl., Doc. 37, □ 93.) In support, Plaintiffs allege that “upon information

and belief, the [Individual] Defendants used at least part of the proceeds from the sale of

the Property to purchase Maplewood Mall in St. Paul, Minnesota, among other

commercial properties.” (Id.) The Court does not see reason to deviate from its prior

ruling. Plaintiffs have sufficiently pled that the Individual Defendants attempted to

engage in money laundering in violation of 18 U.S.C. § 1957.

As detailed in the Court’s prior opinion and not contested by the Individual

Defendants, Plaintiffs sufficiently pled that Hamd engaged in wire fraud, the first

predicate act, when he sold the Property. (Order Granting Plaintiffs’ Motion for Leave,

Doc. 35, Pg. ID 373.) Upon Plaintiffs’ information and belief, Defendant Hamd used the

proceeds of this transaction to buy more commercial properties, including the

Maplewood Mall. (Am. Compl. Doc. 37, § 93.) Therefore, these commercial properties

may constitute “criminally derived property,” and their purchase constitutes the second

predicate act of money laundering 18 U.S.C. § 1957(f)(2). Plaintiffs also claim that this

process continues to be a regular part of the Defendants’ business practices. (Am. Compl.,

Doc. 37, ¥ 94.) “Rule 9(b) does not require omniscience; rather, the Rule requires that the

circumstances of the fraud be pled with enough specificity to put defendants on notice as

to the nature of the claim.” Michaels Bldg. Co. v. Ameritrust Co., N.A., 848 F.2d 674, 680 (6th

Cir. 1998). Here, Plaintiffs’ Amended Complaint alleges sufficient detail to put Defendant

Hamd on notice of the claim.

Defendants also argue for dismissal by stating that the current matter is similar to

Roden v. Schlichter, 2021 U.S. App. LEXIS 4562 at *7. In Roden, the plaintiffs alleged that

the defendants violated RICO by conspiring to sell items stolen from a home auction. Id.

at *2. The Sixth Circuit affirmed dismissal of the complaint because the plaintiffs failed to

allege that the property was derived from a specified unlawful activity and failed to

properly allege the substantive RICO violation. Id. at *8. The current matter is readily

distinguishable. Here, Plaintiffs allege that Hamd used wire fraud proceeds to purchase

commercial properties, a specified unlawful activity. (Am. Compl., Doc. 37, 93.)

Plaintiffs also sufficiently allege the substantive RICO violation, as explained above.

Thus, Plaintiffs have sufficiently pled a second predicate act of money laundering.

III. Demonstration of a Pattern

Defendants next argue that Plaintiffs fail to claim “a pattern” of racketeering

activity, the third element of a § 1962(c) claim. (Motion to Dismiss, Doc. 47, Pg. ID 554.)

“A pattern of racketeering activity requires, at minimum, two acts of racketeering activity

within ten years of each other.” Heinrich, 668 F.3d at 409-10 (citing 18 U.S.C. § 1961(5)).

“In order to show a ‘pattern’ of racketeering activity, a plaintiff must show ‘that the

racketeering predicates are related, and that they amount to or pose a threat of continued

criminal activity.’” Id. (citing H. J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 237-39 (1989)).

“This requirement has come to be called the ‘relationship plus continuity’ test.” Id.

The Court has already determined that Plaintiffs have satisfied the relationship

prong of the “relationship plus continuity test.” (See Order Granting Plaintiffs’ Motion

for Leave, Doc. 35, Pg. ID 375). Defendants also do not appear to contest the Court’s

analysis on this issue. (Motion to Dismiss, Doc. 47, Pg. ID 554.) Thus, the Court will turn

to the second prong, “continuity.” “The continuity prong of the test can be satisfied by

showing either a ‘close-ended’ pattern (a series of related predicate acts extending over a

substantial period of time) or an ‘open-ended’ pattern (a set of predicate acts that poses a

threat of continuing criminal conduct extending beyond the period in which the predicate

acts were performed).” Heinrich, 668 F.3d at 409-10 (citation omitted).

To show open-ended continuity, “the plaintiffs must plausibly allege that there

was a threat of continuing criminal activity beyond the period during which the predicate

acts were performed.” Heinrich, 668 F.3d at 410. “Determining whether the predicate acts

establish open-ended continuity requires a court to examine the specific facts of the case.”

Id. (citation omitted). For example, open-ended continuity may be present “if the related

predicates themselves involve a distinct threat of long-term racketeering activity, either

implicit or explicit.” H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S, 229, 242 (1989). “Even

when ‘the number of related predicates involved may be small and they may occur close

together in time,’ if ‘the racketeering acts themselves include a specific threat of repetition

extending indefinitely into the future,’ this ‘suppll[ies] the requisite threat of continuity.”

Brown v. Cassens Transp. Co., 546 F.3d 347, 354 (6th Cir. 2008) (quoting H.J. Inc., 492 US.

at 242). “In other cases, the threat of continuity may be established by showing that the

predicate acts or offenses are part of an ongoing entity’s regular way of doing business.”

Inc., 492 US. at 242.

Plaintiffs have sufficiently pled open-ended continuity by showing a threat of

continued racketeering activity. Plaintiffs allege that the Individual Defendants engaged

in wire fraud when selling the Property to Plaintiffs. (Am. Compl., Doc. 37, { 93.) Using

the proceeds from the sale of the Property, Hamd purchased the Maplewood Mall in St.

Paul, Minnesota, and other commercial properties. (Id.) Plaintiff further alleges that this

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scheme “continu[es] as a regular part of the [Individual] Defendants’ business practices.”

(Id.) Thus, Hamd could inflate the prices of the Maplewood Mall and other commercial

properties through a fraudulent scheme, similar to the one used with the Property. (Id. at

93-94.) The proceeds from the sale of the commercial properties could then be used to

purchase additional properties, allowing the scheme to continue indefinitely. Plaintiffs

have therefore adequately pled a threat of continuing racketeering activity through open-

ended continuity. See United States v. Busacca, 936 F.2d 232, 237-38 (6th Cir. 1991) (finding

that predicate acts committed in a span of two-and-a-half months were sufficient to

establish open-ended continuity since the racketeering activity was capable of future

repetition).

Moreover, Plaintiffs have sufficiently pled that the alleged scheme is part of

Defendants’ “regular way of doing business.” H.J. Inc., 492 U.S. at 242. Considering a

similar case helps to illustrate this point. In Arnold v. Petland, Inc., the plaintiffs entered a

franchise agreement with the defendants to run a pet store. No. 2:07-CV-1307, 2009 U.S.

Dist. LEXIS 31377 at *3-4 (S.D. Ohio Mar. 26, 2009). The plaintiffs claimed that the

defendants made several misrepresentations about the store, including overstating the

financial performance of the prior franchisee, the current inventory of the store, and the

condition of the air conditioning and ventilation. Id. at *6-7. In the plaintiffs’ RICO claim,

they alleged that the defendants had used a similar scheme to victimize other franchisees.

Id. at *28. The Court took judicial notice of other lawsuits brought by franchisees alleging

similar factual allegations against the same defendants. Id. at *28-29. The Court ruled that

the plaintiffs had satisfied the continuity requirement because “the existence of the other

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cases bolster[ed] the plausibility of plaintiffs’ allegations pertaining to relatedness and

continuity.” Id. at *29.

The current matter mirrors Arnold. Plaintiffs point to two other lawsuits filed

against Defendants. (Am. Compl., Doc. 37, § 89; See Tennessee Voluntary Dismissal, Doc.

52-1, Pg. ID 614; See also North Carolina Voluntary Dismissal, Doc. 52-2, Pg. ID 617.) Both

lawsuits — one filed in Tennessee state court and the other in the U.S. District Court for

the Eastern District of North Carolina—allege that Defendants purchased a commercial

property and created fictitious leases to inflate the properties’ values. (Am. Compl., Doc.

37, 89.) Although Defendants argue that Plaintiffs have only pled a single act, the

existence of these other cases strongly support Plaintiffs’ claim that this scheme is part of

Defendants’ “regular way of doing business.” H.J. Inc., 492 U.S. at 242; Arnold, 2009 U.S.

Dist. LEXIS 31377 at *29.

The Individual Defendants argue for dismissal by comparing the current matter

to Moon v. Harrison Piping Supply, 465 F.3d 719 (6th Cir. 2006). In Moon, the plaintiff

alleged that his employer formed an enterprise with a doctor, another company, and a

compensation fund to wrongfully terminate his worker’s compensation benefits. Id. at

722. The plaintiff also petitioned the Michigan Workers’ Disability Compensation Bureau

to reinstate his benefits. Id. The Sixth Circuit found that there was no open-ended

continuity because “there is no risk of ongoing racketeering activity where [the plaintiff]

had petitioned the Bureau for a resolution of his dispute.” Id. at 727. A final decision by

the Bureau would be binding on the parties and “if favorable to [the plaintiff], would

prevent the [dJefendants from withdrawing benefits in the absence of further action by

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the Bureau.” Id. This created an end point to the defendants’ alleged scheme. Id.

Additionally, the plaintiff had not pled any allegations that the fraudulent termination of

worker’s compensation benefits was the defendants’ “regular way of doing business.” Id.

The Court finds Moon distinguishable from the current matter. Here, Defendants

have not suggested that an alternate mechanism may mitigate the risk of ongoing

racketeering activity like the Bureau in Moon. Furthermore, as stated above, Plaintiffs

have pled sufficient, articulable facts alleging that both Defendants’ scheme could

continue indefinitely and that the scheme is Defendants’ regular way of doing business.

Plaintiffs have sufficiently pled a pattern of racketeering activity satisfying the third

element of 18 U.S.C. 1962(c). Thus, Plaintiffs’ RICO claims may proceed.

CONCLUSION

Based on the foregoing, the Court DENIES Defendants’ Motion to Dismiss (Doc.

47).

IT IS SO ORDERED.

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF OHIO

wl Fag

MAb

JUDGE MATTHEW W. McFARLAND

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