Grow Michigan, LLC v. LT Lender, LLC ( 2022 )

RECOMMENDED FOR PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 22a0223p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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GROW MICHIGAN, LLC,
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Plaintiff-Appellant, │
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v. > No. 21-2673
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LT LENDER, LLC; JERRY REINHARDT; JOHN │
REINHARDT; BRUCE CAMPBELL; PAUL SHAMO; ROBERT │
CAUSLEY; DAMIAN KASSAB; ROBERT DRAKE; SOLYCO, │
LLC, │
Defendants-Appellees. │
┘
Appeal from the United States District Court for the Eastern District of Michigan at Detroit.
No. 2:20-cv-11391—Linda V. Parker, District Judge.
Argued: March 10, 2022
Decided and Filed: October 7, 2022
Before: BATCHELDER, NALBANDIAN, and READLER, Circuit Judges.
_________________
COUNSEL
ARGUED: Patrick M. McCarthy, HOWARD & HOWARD ATTORNEYS, PLLC, Royal Oak,
Michigan, for Appellant. James R. Bruinsma, MCSHANE & BOWIE, PLC, Grand Rapids,
Michigan, for LT Lender Appellees. Stuart A. Best, WELTMAN, WEINBERG & REIS, CO.,
LPA, Troy, Michigan, for Appellee Shamo. Evan A. Burkholder, O’HAGAN MEYER, PLLC,
Northville, Michigan, for Appellee Kassab. Nick Gorga, HONIGMAN LLP, Detroit, Michigan,
for Appellee Solyco. ON BRIEF: H. William Burdett, Jr., Kory M. Steen, HOWARD &
HOWARD ATTORNEYS, PLLC, Royal Oak, Michigan, for Appellant. James R. Bruinsma,
MCSHANE & BOWIE, PLC, Grand Rapids, Michigan, for LT Lender Appellees. Stuart A.
Best, Michael P. Herzoff, WELTMAN, WEINBERG & REIS, CO., LPA, Troy, Michigan, for
Appellee Shamo. Evan A. Burkholder, O’HAGAN MEYER, PLLC, Northville, Michigan, for
Appellee Kassab. Nick Gorga, Andrew W. Clark, Jewel M. Haji, HONIGMAN LLP, Detroit,
Michigan, for Appellee Solyco.
No. 21-2673 Grow Michigan, LLC v. LT Lender, LLC, et al. Page 2
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OPINION
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CHAD A. READLER, Circuit Judge. Grow Michigan (GrowMI) extended a $5,000,000
loan to Michigan-based start-up Lightning Technologies. Lightning eventually defaulted on the
loan. GrowMI believes that Lightning’s default was the result of the actions of individuals and
entities associated with Lightning that intentionally drove the company into the ground as part of
a scheme to seize control of the company.
To recoup the losses, GrowMI sued those allegedly scheming parties for violating the
Racketeer Influenced and Corrupt Organizations Act. GrowMI’s claims, however, rest on its
status as Lightning’s creditor, making its injury derivative of the harm incurred by Lightning.
Because GrowMI does not plausibly allege that it was directly injured by reason of defendants’
alleged racketeering activities, we affirm the district court’s dismissal of GrowMI’s complaint.
I.
At the center of this dispute are two Michigan-based corporations. One is GrowMI, an
entity created and partially funded by the Michigan Economic Development Corporation, an arm
of the Michigan state government. GrowMI’s mission is to spur job growth by lending capital to
small and mid-sized businesses in Michigan. The other is Lightning Technologies, a start-up
company incorporated in Delaware. Lightning owns intellectual properties protecting designs
for a lightweight, hybrid pallet used for transporting cold foods.
In 2019, Lightning sought $26 million in outside funding to retire debt, cover operational
expenses, and purchase equipment needed to begin pallet production. GrowMI agreed to loan $5
million to Lightning. It also utilized its relationship with Flagstar Bank to secure an additional
$7 million loan for Lightning from Flagstar.
Both GrowMI and Flagstar conditioned their loans on Lightning’s securing the rest of the
$26 million. Lightning purportedly planned to raise the remaining capital by selling equity and
securing lines of credit from two Lightning shareholders. All told, Lightning (in theory) was set
No. 21-2673 Grow Michigan, LLC v. LT Lender, LLC, et al. Page 3
to receive $26 million in new funding: a $5 million loan from GrowMI, a $7 million loan from
Flagstar, $4 million from equity sales, and $10 million from lines of credit. Damian Kassab,
who served as Lightning’s executive vice president with exclusive responsibility for the
company’s financial affairs, represented to GrowMI and Flagstar that, with this additional
funding, Lightning would purchase production equipment by the end of 2019, become fully
operational by mid-summer 2020, and generate profit by the fall of 2020.
Before Lightning closed on the GrowMI and Flagstar loans, Lightning creditor LT
Lender LLC sent GrowMI a “payoff” letter indicating that Lightning owed LT Lender $3.3
million, a debt secured by an interest in Lightning’s intellectual properties. That posed a
problem for GrowMI, which wanted to secure its loan with the same intellectual properties. So,
in conjunction with Lightning’s closing on the loan, GrowMI allowed Lightning to use a portion
of GrowMI’s loan to repay the LT Lender debt, ensuring that GrowMI had a first secured
position on Lightning’s intellectual properties.
In the months that followed, GrowMI became suspicious of wrongdoing at Lightning.
GrowMI was troubled by the fact that Kassab refused to draw on the loan from GrowMI for any
purpose other than repaying LT Lender. Likewise, GrowMI began to view the payoff letter it
received from LT Lender as containing material misstatements and omissions. For example,
although the letter indicated that Lightning owed LT Lender $3.3 million, GrowMI discovered
that Lightning in fact owed LT Lender only $2.2 million. To GrowMI, the extra million
appeared to be a bribe to LT Lender and its principals, all of whom were also Lightning
shareholders. In exchange for the payment, LT Lender agreed to settle what GrowMI describes
as a “bogus” claim against Lightning. In addition, the payoff letter neglected to mention that
Lightning had licensed its proprietary technology to another company—in which Lightning held
a 35% interest and LT Lender a 65% interest—yet had received no payment in return. In
GrowMI’s mind, these discrepancies cast doubt on a number of representations made to GrowMI
to procure the loan.
GrowMI alleges that Kassab never intended to use the loans from GrowMI and Flagstar
or the lines of credit to make Lightning operational. Instead, says GrowMI, Kassab and the
shareholders agreed that their lines of credit would be used only to induce GrowMI and Flagstar
No. 21-2673 Grow Michigan, LLC v. LT Lender, LLC, et al. Page 4
to lend money to Lightning, and that GrowMI’s loan would be used to pay off LT Lender.
Tellingly, GrowMI adds, no one at Lightning ever purchased the equipment needed to begin
production.
Why did Kassab fail to draw on Lightning’s available credit? GrowMI provides two
explanations. First, financial self-interest. Kassab owns a separate consulting business—Solyco,
LLC—that connects lenders with companies in need of capital. Rather than use the funds from
GrowMI, Kassab, GrowMI theorizes, sought to take on additional debt through lenders referred
to Lightning by Solyco. In return for each referral, Kassab (through Solyco) received a “finder’s
fee” paid by Lightning. Case in point, GrowMI alleges that Lightning took on an additional $1.8
million in short-term, high-interest loans from Solyco-referred entities, including another $1
million from a Lightning shareholder in a transaction that generated a $400,000 finder’s fee for
Kassab.
Second, GrowMI surmises, failing to draw on the loan would aid Kassab and the other
defendants in seizing control of Lightning from Jeffrey Owen, the company’s president, CEO,
and chairman. By racking up additional debt and then refusing to spend it, says GrowMI,
Kassab and his allies could plunge Lightning into financial turmoil and discredit Owen’s
leadership, allowing them to launch a proxy battle to take control of the company. And that
alleged plan showed initial promise: by the time GrowMI filed this lawsuit, Lightning was
losing $500,000 per month. The ensuing proxy battle, however, ultimately proved unsuccessful.
Although Lightning’s board removed Owen, the Delaware Chancery Court later voided that
decision and reinstated Owen.
In the midst of this corporate tug-of-war, a Lightning employee, GrowMI alleges,
downloaded Lightning’s confidential trade secrets to his personal computers “at the behest of
other [d]efendants.” GrowMI believes those actions were part of defendants’ “backup plan”; if
their proxy battle failed, defendants could recreate Lightning’s proprietary products on their own
using the stolen trade secrets.
As these events were unfolding, Lightning defaulted on its debt to GrowMI. That
shortcoming spurred GrowMI to file a number of state court lawsuits as well as this federal one
No. 21-2673 Grow Michigan, LLC v. LT Lender, LLC, et al. Page 5
to recoup its losses. In this action, GrowMI names nine defendants: LT Lender and its
principals; two Lightning shareholders; two Lightning employees, including Kassab; and
Kassab’s consulting company, Solyco. In its complaint, GrowMI alleged that defendants
violated the Racketeer Influenced and Corrupt Organizations Act—RICO, for short—by
engaging in a pattern of racketeering activity that included two acts of bank fraud, one act of
transactions involving money derived from that bank fraud, one act of trade secrets
misappropriation, and one act of wire fraud.
Defendants moved to dismiss GrowMI’s complaint. The district court did so, holding
that GrowMI failed to state a claim under 18 U.S.C. § 1962. GrowMI now appeals that
dismissal.
II.
Before we may hear the merits of GrowMI’s appeal, we must assure ourselves that
GrowMI has Article III standing to bring this suit. U.S. CONST. art. III, § 2; Spokeo, Inc.
v. Robins, 578 U.S. 330, 337–38 (2016). To have standing, GrowMI must satisfy three
elements: (1) an injury in fact that is (2) fairly traceable to the defendant’s conduct and (3) likely
to be redressed by judicial action. Spokeo, 578 U.S. at 338.
Defendants turn our focus to the second element: traceability. As it is generally
understood, traceability requires that a plaintiff’s claimed injury flow from the defendant’s
conduct rather than the plaintiff’s own actions or the actions of a third party. Turaani v. Wray,
988 F.3d 313, 316 (6th Cir. 2021); Buchholz v. Meyer Njus Tanick, PA, 946 F.3d 855, 866 (6th
Cir. 2020). Beyond that threshold, however, “the plaintiff’s burden of alleging that their injury is
fairly traceable to the defendant’s challenged conduct is relatively modest.” Buchholz, 946 F.3d
at 866 (cleaned up). Any harm flowing from the defendant’s conduct, even indirectly, is said to
be “fairly traceable.” Id. (citation omitted).
GrowMI’s complaint clears the traceability threshold. The complaint’s central allegation
is that defendants made misrepresentations in acquiring the loans and then engaged in financial
misconduct and trade secret misappropriation, which together precipitated Lightning’s default,
thereby harming GrowMI in its capacity as a Lightning creditor. Read as a whole, these
No. 21-2673 Grow Michigan, LLC v. LT Lender, LLC, et al. Page 6
allegations are sufficient to show a traceable connection between conduct and injury. See Air
Evac EMS, Inc. v. Cheatham, 910 F.3d 751, 760 (4th Cir. 2018) (explaining that an injury is
traceable where the defendant’s actions impair a third party’s ability to pay the plaintiff).
Even so, defendants contend, GrowMI nonetheless failed to show that its conduct
“proximately caused” GrowMI’s injury. Rather, they say, GrowMI’s injury was merely the
indirect result of defendants’ alleged fraud, financial misconduct, and trade secrets
misappropriation. That point, as we will explain, has salience at the merits stage. But for Article
III standing purposes, “[p]roximate causation is not an” element GrowMI must establish.
See Trollinger v. Tyson Foods, Inc., 370 F.3d 602, 612 (6th Cir. 2004) (“[T]he plaintiff may lose
on the merits as a matter of law for lack of proximate cause [in a RICO action], but the injured
plaintiff would have the right to file a lawsuit.”).
True, as defendants highlight, some courts have used the phrase “RICO standing” when
describing the requirement that a RICO plaintiff show a proximate connection between its
injury and the defendant’s conduct for purposes of pleading and proving a viable RICO claim.
See, e.g., Lerner v. Fleet Bank, N.A., 318 F.3d 113, 129 (2d Cir. 2003), abrogated on other
grounds by Lexmark Int’l v. Static Control Components, Inc., 572 U.S. 118, 127 (2014). But that
description in many ways is a misnomer. While proximate causation is an element of a RICO
plaintiff’s cause of action, Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 457 (2006), it is not a
jurisdictional requirement, Lerner, 318 F.3d at 122 & n. 8, 129 (collecting cases) (explaining that
a plaintiff can satisfy “the lesser burden for constitutional standing” irrespective of whether
defendants’ conduct “proximately caused [its] injuries”); see also Keen v. Helson, 930 F.3d 799,
802 (6th Cir. 2019).
As to most defendants, then, GrowMI has standing to pursue its RICO claims. But as to
Solyco, GrowMI has forfeited the issue. Solyco maintains that its alleged wrongdoing “did not
reduce Lightning’s capitalization or ability to pay GrowMI.” In the district court, GrowMI
responded to this argument with only a conclusory remark regarding “Solyco’s racketeering
activities.” Conspicuously absent from GrowMI’s response was any explanation of the nature
of those alleged racketeering activities, let alone how they caused GrowMI’s purported injury.
See Buchholz, 946 F.3d at 866 (explaining that traceability requires the claimed injury flow from
No. 21-2673 Grow Michigan, LLC v. LT Lender, LLC, et al. Page 7
the defendant’s conduct). Digging an even bigger hole for itself, GrowMI on appeal fails to even
acknowledge Solyco’s standing argument. Accordingly, GrowMI has forfeited any argument
that it has standing to pursue claims against Solyco. See Glennborough Homeowners Ass’n
v. U.S. Postal Serv., 21 F.4th 410, 414 (6th Cir. 2021).
III.
With our jurisdiction assured, we turn to the merits of GrowMI’s RICO claims. We
review de novo the district court’s order dismissing GrowMI’s complaint for failure to state a
claim. Torres v. Vitale, 954 F.3d 866, 871 (6th Cir. 2020). In doing so, we accept as true all
well-pleaded allegations in the complaint and ask whether those allegations plausibly suggest an
entitlement to relief. Id. We are not, however, “bound to accept as true a legal conclusion
couched as a factual allegation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
Enacted in 1970, the federal Racketeer Influenced and Corrupt Organizations Act
prohibits one from engaging in “a pattern of racketeering activity” in connection with “any
enterprise” whose activities affect interstate commerce. 18 U.S.C. § 1962(a). Breaking down
those statutory components into consumable pieces, the statute defines a “pattern of racketeering
activity” as “at least two acts of racketeering activity” that occur within ten years of one another.
Id. § 1961(5). “Racketeering activity” means any of a set of specified state and federal
crimes set forth in § 1961(1). And the term “enterprise” denotes any legal entity, such as a
corporation, or “any union or group of individuals associated in fact although not a legal entity.”
Id. § 1961(4).
RICO’s prohibitions may be enforced in both criminal and civil contexts. For parties
seeking civil remedies, RICO creates a private cause of action: “Any person injured in his
business or property by reason of a violation of section 1962” may sue for treble damages and
attorney’s fees. Id. § 1964(c). Drawing from this textual backdrop, then, to state a civil RICO
claim, a plaintiff must allege (1) two or more predicate racketeering offenses, (2) the existence of
an enterprise affecting interstate commerce, (3) a connection between the racketeering offenses
and the enterprise, and (4) injury by reason of the above. See Moon v. Harrison Piping Supply,
465 F.3d 719, 723 (6th Cir. 2006); Frank v. D’Ambrosi, 4 F.3d 1378, 1385 (6th Cir. 1993).
No. 21-2673 Grow Michigan, LLC v. LT Lender, LLC, et al. Page 8
A. In its complaint, GrowMI alleges that defendants committed five separate predicate
racketeering offenses: two acts of fraud against a financial institution, 18 U.S.C. § 1344,
transactions using money derived from that fraud, 18 U.S.C. § 1957, trade secrets
misappropriation, 18 U.S.C. § 1832, and wire fraud, 18 U.S.C. § 1343. So long as GrowMI can
plausibly allege two of those five predicate acts, and, from the foundation of those two acts, the
remaining elements of a RICO claim, it can meet its pleading obligations. See 18 U.S.C.
§§ 1961(5), 1962. As to at least the first four purported racketeering offenses, however, GrowMI
has not alleged facts sufficient to show that it was injured by reason of those offenses.
Begin with some background RICO principles. Section 1964(c)’s causation standard—
that the plaintiff suffer injury “by reason of” the defendant’s racketeering—is demanding. To
satisfy this statutory requirement, a plaintiff, we have recently reaffirmed, must show “that the
defendant’s violation was both a factual and proximate cause of his injury.” Gen. Motors, LLC
v. FCA US, LLC, 44 F.4th 548, 559 (6th Cir. 2022). And proximate cause, as an aspect of
RICO’s “by reason of” standard, has been understood to require a RICO plaintiff to show that
the defendant’s racketeering offense “led directly to the plaintiff’s injuries.” Anza, 547 U.S. at
461. In that way, RICO’s directness requirement elevates a plaintiff’s burden by requiring more
than a showing of mere foreseeability, the crux of common law causation principles. See id.;
Perry v. Am. Tobacco Co., Inc., 324 F.3d 845, 850 (6th Cir. 2003) (“Though foreseeability is an
element of the proximate cause analysis, it is distinct from the requirement of a direct injury.”);
Desiano v. Warner-Lambert Co., 326 F.3d 339, 348 (2d Cir. 2003) (“In fact, the proximate cause
requirements of RICO [a]re more stringent than those of most states.”).
Requiring a direct causal link between a defendant’s RICO violation and a plaintiff’s
injury avoids a host of practical hurdles federal courts would otherwise face in resolving RICO
claims. One is “the difficulty [in] attempt[ing] to ascertain the damages caused by some remote
action.” Anza, 547 U.S. at 458. Take Anza, for example. There, the Supreme Court observed
that a company’s indirect injury—loss of sales when a competitor lowered prices—raised
difficulties in determining damages, as the competitor “could have lowered prices for any
number of reasons unconnected” to the alleged RICO violation. Id. at 458–59.
No. 21-2673 Grow Michigan, LLC v. LT Lender, LLC, et al. Page 9
Another difficulty is the “risk of duplicative recoveries.” Id. at 459. If RICO allowed
recovery by victims “removed at different levels of injury from the violative acts,” courts would
be forced “to adopt complicated rules apportioning damages” among those victims. Holmes
v. Sec. Inv. Prot. Corp., 503 U.S. 258, 269 (1992). And a third is the recognition that more
“immediate victims of an alleged RICO violation can be expected to vindicate the laws by
pursuing their own claims.” Anza, 547 U.S. at 460. For that reason, “[t]here is no need to
broaden the universe of actionable harms to permit RICO suits by parties who have been injured
only indirectly.” Id.As to at least four of the five purported predicate acts, GrowMI has failed to allege that it
was injured “by reason of” those acts. The “by reason of” standard precludes recovery where a
plaintiff’s injuries are merely the “derivative or passed-on” result of the alleged racketeering
activity. Trollinger, 370 F.3d at 614. That description encapsulates the nature of GrowMI’s
claimed injuries. According to GrowMI, it incurred injuries due to a cascading series of
wrongful acts committed by defendants to harm Lightning.
As GrowMI describes things, defendants violated 18 U.S.C. § 1344 (bank fraud) when
Kassab falsely represented to Flagstar that the $10 million in lines of credit Lighting had secured
would, along with the loans from Flagstar and GrowMI, be used to begin pallet production.
Defendants then violated 18 U.S.C. § 1957 (unlawful transactions) by using those funds in a
series of illegal transactions—bribes for friendly creditors, selective payments to Lightning
shareholders, and self-dealing—designed to further their takeover attempt. Next, defendants
violated 18 U.S.C. § 1832 (trade secrets misappropriation) by downloading Lightning’s
intellectual property to personal computers. (GrowMI’s complaint does not allege that Lightning
as a corporation was complicit in defendants’ wrongdoing.) Collectively, says GrowMI, these
violations both drained Lightning’s coffers, leaving GrowMI unable to recover the value of its
loans, and compromised the value of Lightning’s intellectual properties, which served as the
collateral for GrowMI’s loan.
Setting aside any potential shortcomings with respect to establishing a RICO conspiracy,
GrowMI has a more immediate problem. At bottom, its allegations amount to a claim that these
four predicate acts injured GrowMI in its capacity as Lightning’s creditor: defendants
No. 21-2673 Grow Michigan, LLC v. LT Lender, LLC, et al. Page 10
compromised Lightning’s financial condition, leaving Lightning unable to repay GrowMI’s loan.
Yet the injury a creditor suffers due to a corporation’s default caused by another party’s actions
is considered derivative, not direct, for purposes of RICO causation. In that scenario, the acts of
racketeering target the corporation, not the creditor. See Beck v. Prupis, 162 F.3d 1090, 1096
n.10 (11th Cir. 1998), aff’d 529 U.S. 494 (2000). “The first level of injury is to the corporation,
and the creditor suffers only because he has a claim against it.” Wooten v. Loshbough, 951 F.2d
768, 771 (7th Cir. 1991). Put another way, there is no “straight line” between the defendant’s
violations and the creditor’s injury, thus “precluding a finding of proximate cause.” Gen.
Motors, 44 F.4th at 560 (internal citation omitted). These same considerations have likewise led
our sister circuits to conclude that a RICO claim is customarily unavailable to creditors following
a corporate default. See Wooten, 951 F.2d at 771 (holding that corporate creditors “cannot
sue under RICO when their only injury comes about through the depletion of corporate assets”);
see also Beck, 162 F.3d at 1096 n.10 (same); Hamid v. Price Waterhouse, 51 F.3d 1411, 1419–
20 (9th Cir. 1995) (same); Manson v. Stacescu, 11 F.3d 1127, 1130–31 (2d Cir. 1993) (same);
Nat’l Enters, Inc. v. Mellon Fin. Servs. Corp. No. 7, 847 F.2d 251, 254–55 (5th Cir. 1988)
(same); Mid-State Fertilizer Co. v. Exch. Nat’l Bank of Chi., 877 F.2d 1333, 1336 (7th Cir. 1989)
(same). And those decisions, it bears adding, are in line with our holdings in other contexts that
derivative losses are not direct injuries for RICO purposes. See, e.g., Frank, 4 F.3d at 1385
(shareholder-employee suffered only derivative injury as a result of company’s loss); Perry, 324
F.3d at 849 (non-smoking-insurance policy holders suffered only derivative loss when forced to
pay higher premiums to subsidize increased costs of treating smoking-related illnesses);
Firestone v. Galbreath, 976 F.2d 279, 285 (6th Cir. 1992) (no direct injury to estate’s
beneficiaries when estate suffered monetary loss).
If there is any proper plaintiff to assert claims for the wrongdoing alleged by GrowMI,
RICO’s causation principles suggest that it is Lightning. After all, Lightning, as the “immediate
victim[]” of defendants’ alleged violations, “can be expected to vindicate the laws by pursuing
[its] own claims.” Anza, 547 U.S. at 460; see also Holmes, 503 U.S. at 274 (explaining that
RICO’s remedial goals are accomplished as long as those who suffer direct injury may sue, even
if those who suffer indirect injury may not). Holding otherwise, it bears noting, would
dramatically expand RICO’s scope. As we have more generally observed, “[a]llowing every
No. 21-2673 Grow Michigan, LLC v. LT Lender, LLC, et al. Page 11
shareholder, employee and creditor a cause of action for injuries derivative of those suffered
directly by a corporation” would both authorize “a vast amount of [federal] litigation . . . that
previously could only have been brought in state court” and also “create[] a potential avalanche
of suits that previously could not have been brought at all.” Warren v. Mfrs. Nat’l Bank of
Detroit, 759 F.2d 542, 545 (6th Cir. 1985). Those ramifications are especially worrisome in the
RICO setting, where the statutory scheme authorizes treble damages as well as awards of
attorney’s fees and costs. 18 U.S.C. § 1964(c); see also H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S.
229, 233 (1989) (explaining that RICO’s civil remedies are “drastic”); U.S. Airline Pilots Ass’n
v. Awappa, LLC, 615 F.3d 312, 317 (4th Cir. 2010) (“[W]e must . . . exercise caution to ensure
that RICO’s extraordinary remedy does not threaten the ordinary run of commercial
transactions.” (cleaned up)). What is more, were GrowMI allowed to pursue its claims alongside
Lightning, we would risk “duplicative recoveries” for the same harm. Anza, 547 U.S. at 459.
B. GrowMI offers two responses. Both suffer from the same flaw: forfeiture.
First, as to causation, GrowMI argues that it was directly injured by the alleged trade-
secrets misappropriation because, at the time of the misappropriation, GrowMI’s security interest
in Lightning’s intellectual property had vested. In other words, GrowMI says, because Lightning
had defaulted on its debt, ownership of the misappropriated trade secrets transferred to GrowMI.
GrowMI, however, failed to raise this argument before the district court—either in its complaint
or its briefing on the motion to dismiss—so the argument is forfeited. See Greco v. Livingston
County, 774 F.3d 1061, 1064 (6th Cir. 2014).
Second, GrowMI argues that even putting aside the other alleged predicate acts, its wire
fraud allegation can support RICO’s pattern of racketeering activity requirement. GrowMI
insists that it in fact alleged multiple acts of wire fraud, acts that together establish a pattern of
racketeering activity. Whether GrowMI is correct that, as a legal matter, multiple acts of wire
fraud can establish a “pattern of racketeering activity” and, in turn, that in this case it was
directly injured by defendants’ wire fraud, ordinarily would be fair points for discussion.
Compare Fleischhauer v. Feltner, 879 F.2d 1290, 1298 (6th Cir. 1989) (holding that nine
discrete acts of wire fraud established a pattern of racketeering activity where the acts were
committed over a long period of time by multiple defendants and injured 19 victims), with
No. 21-2673 Grow Michigan, LLC v. LT Lender, LLC, et al. Page 12
W. Assocs. Ltd. P’ship, ex rel. Ave. Assocs. Ltd. P’ship v. Mkt Square Assocs., 235 F.3d 629, 634
(D.C. Cir. 2001) (explaining that multiple acts of fraud do not establish a pattern when those acts
are directed towards “a single scheme, a single injury, and few victims”). But as GrowMI failed
to argue as much in the district court, we need not reach these issues. At every turn in the district
court, GrowMI indicated that it “has pled five RICO claims”—two allegations of bank fraud and
one allegation each of unlawful transactions, trade secrets misappropriation, and wire fraud. The
district court acknowledged as much in dismissing the case, noting that, in light of the court’s
rejection of the first four predicate acts, GrowMI was left with only “one predicate act: wire
fraud in violation of 18 U.S.C. § 1343,” yet “at least two predicate acts are required to establish
a pattern of racketeering activity.” We therefore decline to address GrowMI’s argument here.
See Hall v. Warden, Lebanon Corr. Inst., 662 F.3d 745, 753 (6th Cir. 2011) (“[We] review the
case presented to the district court, rather than a better case fashioned after a district court’s
unfavorable order.” (internal citation omitted)).
* * * * *
To sum up, because GrowMI was not directly injured by reason of defendants’ bank
fraud, unlawful transactions, or trade secrets misappropriation, all that remains for predicate act
purposes is one count of wire fraud. And as a RICO plaintiff must allege “at least two acts of
racketeering activity,” 18 U.S.C. § 1961(5); see also Moon, 465 F.3d at 723, the district court
properly dismissed GrowMI’s complaint on that basis.
Ongoing state court litigation may well vindicate GrowMI’s interests. But at least as a
matter of federal RICO law, GrowMI has failed to plead a viable theory of recovery. On that
basis, we affirm the judgment of the district court.