RabbitGate Plaintiff's Complaint
LAW OFFICES OF DAY & McBRIDE
Montie S. Day, Attorney
Jon F.. Vaught, Attorney
80 Swan Way, Suite 301 Oakland, California 94621
Telephone: (415) 638-6100
Attorneys for Plaintiffs
UNITED STATES DISTRICT COURT
NORI'HERN DISTRICIT OF CALIFORNIA
'I'ED WANDERER, individually as
general partner of Rey De Dos Conejos, Ltd. ,and on behalf of those similarly situated,
v.
Plaintiffs,
DAVID B. JOHNSTON; RON MELANSON; DENNIS A. LEATHERMAN; J. RICHARD ; AGRICULTRURAL SERVICES ASSOCIATES ; PROMOREX CORPORATlON ; SCOTIA TRADING , LTD .; DAVID JCHNSTON, Inc. ; RAM LIMITED; and DOES 1 through 100, inclusive,
Defendants.
CLASS ACTION COMPLAINT FOR FRAUD AND DECEIT, SECURITIES VIOLATION , DECLARATORY RELIEF , TEMPORARY, PRELIMINARY and PERMANENT INJUNCTIVE RELIEF
Plaintiff, for himself and all others members of the class
hereinafter described, alleges:
Parties
1. Ted Wanderer, the named plaintiff is a resident of the City of Danville, County of Contra Costa, State of California, brings this action as general partner on behalf of Rey De Los Conejos, Ltd., a California partnership and those similarly situated as a class representative. ("Plaintiff" hereinafter refers to plaintiff Ted Wanderer on behalf of Rey De Los Conejos, Ltd., and the class members, Whether individual or partnerships.) The plaintiff class include all general partners, as individuals and general partners of partnerships, partnerships, and a partnership of such partnerships known as Orrex Invest rents, and Orrex Partners.
2. Defendant David B. Johnston (hereinafter referred to as "Johnston"), is an individual, an adult, and a resident of the City of West Linn, State of Oregon.
3. Defendant Ron Melanson (hereinafter referred to as "Melanson"), is an individual, an adult, and a resident of the City of Belvadere, County of Marin, State of California.
4. Defendant Dennis A. Leatherman (hereinafter referred to as "I.eatherman") , is an individual, an adult, and a resident of the City of San Benladino, State of California. Defendant Promorex, Corporation, is a corporation solely owned and controlled by Dennis A. Leatherman, and is the alter ego of defendant Leatherman.
5. Defendant J. Richard Ranpton (hereinafter referred to as "") is an individual, an adult, and a resident of the City of Salt Lake, State of Utah.
6. Defendant Scotia Trading Company, Inc. , is a Canadian corporation owned and controlled by defendants and Johnston, and was at all times herein mentioned was the alter ego of defendants and Johnston.
7. Defendant Promorex, Corporation (hereinafter referred to as "Promorex") , is an Oregon Corporation, and at all times mentioned herein was the alter ego of defendant I.eathernan.
8. Defendant David B. Johnston, Inc. , is a California Corporation, and at all times mentioned herein was the alter ego of defendant David B. Johnston.
9. Defendant RAM Limited (hereinafter referred to as "RAM") , is a California corporation, and at all times mentioned herein was the alter ego of defendant Richard A. .
10. Defendant Agricultural Services Associates (hereinafter referred to as "ASA") is an Oregon General Partnership with partners of RAM and David B. Johnston, Inc. , and as such was the alter ego of defendants Johnston and Melanson .
11. Plaintiff is ignorant of the true names and capacities of the defendants sued herein as Does 1 through 100, inclusive , and therefore sues these defendants by such fictitious names. Plaintiff will amend this complaint to allege their true names and capacities when ascertained , and will further amend this pleading to allege additional allegations which may be appropriate as to said defendants .
12. At all times herein mentioned , each of said defendants participated in the doing of the acts herein alleged to have been done by the named defendants, and furthermore, the defendants, and each of them, were the agents, servants, and employees of each of the other defendants, as well as the agents of all defendants, and at all times herein mentioned were acting within the course and scope of said agency and employment .
13. At all times herein mentioned, defendants, and each of them, were members of, and engaged in , a joint venture and common enterprise and acting within the course of and pursuance of said joint venture and common enterprise .
14. At all times herein mentioned , the acts and omissions of the various defendants, and each of them, concurred and contributed to the various acts and omissions of each and all of the other defendants and proximately causing the injuries and damages as herein a1leged.
15. At all times herein mentioned defendants, and each of than, ratified each and every act or mission carplained of herein.
Jurisdiction and Venue
16. Jurisdiction and venue is predicated on §22 (a) of the Securities Act of 1933 (Securities Act) , 15 United States Code §77v (a) , and under the principals of pendant jurisdiction.
Class Action Allegations
17. This action is brought by plaintiff as a class action, on his behalf and on behalf of all others similarly situated, under the provisions of Federal Rules of Civil Procedure, Sections 23 (a) and 24 (b) (1) and (2) , for damages, injunctive and declaratory relief, and relief incident and subordinate thereto , including costs and attorney's fees.
18. The class so represented by plaintiff in this action, of which plaintiff is himself a member, consists of individuals, acting as general partners of partnerships or investment clubs which were formed for the purposes of investing in the business of acquiring, breeding , raising, and selling of Rex Rabbits and were induced into entering such business venture through the representations of the defendants .
19. The exact number of members of the class, as hereinabove identified and described, is known, as it consists of nineteen (19) limited partnerships and two (2) investment clubs that invested their money with defendants. This class is so numerous that joinder of individual members herein is impracticable .
20. There are common questions of law and fact in this action that relates to and effects the rights of each member of the class and the relief sought is common to the entire class, namely, whether the plaintiff class, the nineteen (19) partnerships and two (2) investment clubs, were fraudulently induced by the defendants herein into investing with the defendants in the business of raising Rex Rabbits ; whether the sale of the Rex Rabbits to the plaintiff class and the limited partners constituted a "security" (i.e. an investment contract) in violation of the securities laws of the United States of America; whether the promissory notes obtained by the defendants herein from the Members of the class are null and void in that such notes were obtained through the fraudulent inducement by the defendants; whether the promissory note of One Hundred Thousand Dollars {$100,000.00} given by the class members herein to defendant Leatherman for the purchase of certain real property is null is void because. such promissory note was obtained through the fraud of the defendants; whether this Court should enjoin the defendants from foreclosing on and selling such promissory notes since they were obtained through the fraudulent inducement of the defendants: and whether the Court should enjoin the defendant Leatherman from filing the "Estoppel Deed" on the certain real property purchased by the plaintiff class because such real property was purchased through the fraudulent representations of defendants .
21. The claims of plaintiff who is the representative of the class herein is typical of the claims of the class, and that the claims of all members of the class including plaintiff, depend on a showing of the acts and omissions of defendants giving raise to the right of plaintiff to the relief sought herein. There is m conflict as between any individual named plaintiff and other members of the class with respect to this action, or with respect to claims for relief herein set forth.
22. The named plaintiff is the representative party for the class, and is able to, and will, fairly and adequately protect the interest of The attorneys' for plaintiff are experienced and capable in litigation in the field of civil fraud and have successfully represented claimants in other litigation of this nature. Of the attorneys designated as counsel for plaintiff, Montie s. Day and Jon R. Vaught, will actively conduct and be responsible for plaintiffs case herein.
23. This action is properly maintained as a class action in that prosecution of separate actions by individual members of the class could create a risk of varying adjudications with respect to individual members of the class which could establish incompatible standards of conduct for the defendants herein, all of whom oppose the class.
24. This action is also properly maintained as a class action in that the prosecution of separate actions by individual members of the class which would create a risk of adjudications with respect to individual members of the class which could as a practical matter re dispositive of the interest of other members not parties to the adjudications, or would substantially impair or impede their ability to protect their interest.
25. This action is also properly maintained as a class action inasmuch as the defendants herein, all of whom oppose the class, have acted or refuse to act, as hereinafter more specifically alleged, on conduct, made appropriate final injunctive relief or corresponding declaratory relief with respect to the entire class, as sought in this action.
WHEREFORE, as a First Cause of Action plaintiff complains against defendants, and each of them and alleges:
First CAUSE OF Action
(Fraud and Deceit)
26. Plaintiff by this reference hereby incorporates and makes a part hereof as though fully set forth at length all the allegations set forth in Paragraphs 1 through 25, supra.
27. Beginning on, about, and subsequent to January 1, 1980, defendants, and each of them, conspired to and agreed to enter into a joint venture for the sale of Rex Rabbits (hereafter referred to as "investment package," "promotion," or "rabbits") to plaintiff class, and, through fraud, misrepresentations, and concealment of material facts as set forth herein, to induce plaintiff class to enter into agreements for the purchase of Rex Rabbits, and to enter into other contracts related thereto, all in an attempt to defraud plaintiff of their consideration. During the years subsequent to 1980, and continuing through the year 1983, defendants made the following false am fraudulent representations to representative plaintiff, plaintiff class, or their agents and financial advisors:
A. That the purchase of Rex rabbits (hereinafter referred to as "rabbits") from defendants were for a value as stated in the purchase price, such purchase price. being the fair market value based upon the quality of such rabbits to re transferred, and based upon the unique breeding technique and selection developed by defendants in connection with such rabbits; and that based upon such unique breeding techniques and breeding selection, the fair market value of each rabbit (consisting of a doe with embryo transplants) was approximately Nine Thousand Dollars ($9,000.00) to Ten Thousand Dollars ($10,000.00) per animal;
B. That the defendants, through defendant Leatherman and related entities, had the expertise to manage a rabbit herd for plaintiff class, and would care for such herd, manage such herd, and arrange for the processing and sale of the products from such rabbit herd to a ready and established market:
c. That the defendants had investigated and determined that there were ready and established markets for the rabbit furs (pelts) and rabbit meat at estimated prices of Sixteen Dollars ($16.00) per rabbit for the neat, and that contracts could be negotiated with reputable fur trading and processing companies for the sale of the pelts at approximately Forty dollars ($40.00) per pelt;
D. That the defendants had negotiations with pelt manufacturing and processors and could be able to market said fur pelts for the prices as represented:
E. That, as further inducement for the plaintiff to purchase during the year 1982, defendants would negotiate, or had negotiated an agreement with Scotia Trading Co. Ltd., a Canadian corporation located in Vancouver, British Columbia, Canada, for the sale of pelts at a price of approximately Forty dollars ($40.00) per pelt;
28. The representations made by the defendants, either directly or through agents, but intended to be relied upon by plaintiffs, were in fact false and fraudulent. The true facts were:
A. The value of such Rex rabbits was rot for the value stated in the purchase price ($9,000.00 to $10,000.00 per animal); the fair market value of such rabbits in reality being approximately Fifty Dollars to Two Hundred Dollars ($50.00-$200.00) per rabbit; and that defendants did not possess the expertise, unique breeding techniques, breading selection process, or other techniques relating to such rabbits which would result in the fair market value being that as stated to plaintiff class.
B. That the defendants, through defendant Leatherman and related entities, did not have the expertise to manage the rabbi t herds for plaintiff class, and did rot have the ability to care for such rabbit herds, manage such rabbit herds, or to arrange for the processing and sale of rabbits to market as represented by defendants:
c. 'That the defendants had either failed to investigate or determine that there was a ready market for the rabbit furs and meat at the estimated prices as represented, or, in the alternative, had investigated and determined that such statements were untrue; and that contracts could not be negotiated with reputable fur trading and processing companies for the sale of pelts at the price of approximately Forty Dollars ($40.00) per pelt.
D. That tile defendants had not negotiated with any independent fur manufacturing and processor to market said fur pelts for the prices as represented;
E. That Scotia Trading Co .Ltd, represented to plaintiff class to be a reputable Canadian Corporation located in Vancouver, British Columbia, Canada, was in fact an alter ego for the defendants and was established for the purpose of inducing the plaintiffs to rely upon the representations stated herein, supra. : That the money utilized to form Scotia Trading Co. Ltd, was that of defendant Johnston; that Scotia Trading Co. Ltd. had no business history and had never entered into a contract for the resale of furs, nor did Scotia Trading Co. Ltd. have the capital to purchase and pay for the fur pelts sold to it at the sale of pelts at a price of approximately Forty dollars ($40.00) per pelt;
29. At all times herein mentioned, and during the Course of negotiations for the sale and purchase of said rabbits, defendants, and each of them, did suppress and conceal the following material facts which, in light of the affirmative representations set forth above, was likely to mislead plaintiff class concerning the transaction:
A. That the defendants had agreed to enter into a conspiracy together to market and sell such rabbits, promotion, and investment package and to create a false and illusory market for the sale of meat and furs from such rabbit herds so as to induce plaintiff class to purchase such promotion and investment package rabbits from than;
B. That the defendants did not have the expertise to manage, market, or sell the products from the rabbit herds;
c. That the defendants had funded and/or created a false and illusory market through Scotia Trading Coo Ltd., which was controlled and fumed by the defendants for the purpose of creating contracts with defendants, as manager of the rabbit herds, reflecting contract prices for illusory sales of products consistent with the representations of the defendants;
D. That, in fact, defendants did not have the ability to acquire, maintain, or establish a Rex rabbit herd through the methods described, and in fact defendants did rot intend to perform under agreements and contracts pursuant to the representations set forth.
E. That defendants entered into such a conspiracy to market such promotion and investment package to plaintiffs in such a manner in that defendants did not register such promotion as a security with either the United States Securities and Exchange Commission or tile State of California, Department of Corporations, or other states in which such promotion was sold, due to the fact that defendants ' acts constituted a security and would require full disclosures of the material facts which were concealed, and would subject defendants to liability for false and fraudulent statements made in the offering of such promotion for sale.
30. The defendants in conspiring to defraud plaintiff, did create through such misrepresentations of facts (supra) and concealment of facts (supra) a "Ponzi Scheme whereby an illusory market was created and whereby the plaintiff was, in fact, paid money which was generated by and originated soley through the plaintiff class; yet giving the illusory projections that a true and viable market and sales transactions existed. Plaintiff has attached hereto as Exhibit A a diagram of the business transactions as represented to plaintiff, and attached hereto as Exhibit B a diagram of the transactions which in reality occurred, thus demonstrating the "ponzi scheme and securities violations as alleged infra.
31. The false and fraudulent representations as set forth in paragraph 28, supra. , and the concealment of material facts as set forth in paragraph 29, supra. , were made and done with the intent to induce plaintiff class to act in the manner herein alleged in reliance thereupon; and the false and fraudulent representations of facts, and the concealment of material facts were made and done by the defendants with the intent to defraud and deceive plaintiff class. When defendants made the representations, defendants knew such representations to be false and without basis, and when defendants concealed material facts from plaintiffs, defendants knew such facts were material and would, if known by the plaintiffs, induce plaintiffs not to enter into the contracts and agreements with defendants for the sale and purchase of the promotion and investment package, and other related agreements.
32. At the time these representations were made by deferments, at the time the material true facts thereto were suppressed, and at the tine plaintiff class took the action herein alleged, plaintiff class was unaware of the falsity of defendants' representations or the true facts concealed from than and reasonably and justifiably relied upon such representations I and believed that such representations of the defendants were in fact true or substantially true. Had plaintiffs known the falsity of defendants' representations or the material facts concealed, plaintiffs would not have invested or entered into the transactions described herein.
33. As a direct and proximate result of defendants' fraud and misrepresentations, and the concealment of material facts, plaintiff class, acting through agents and partnerships, did invest monies, and did pay to the defendants substantial consideration for the purchase of said Rex rabbits, and otter equipment, estimated to be approximately 'TWENTY ONE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS {$21,250,000.00}, representing approximately THREE MILLION TWO HUNDRED FIFTY THOUSAND ($3,250,000.00) in cash, and the remainder in promissory notes in the approximate amount of EIGHTEEN MILLION {$18,000,000.00) ; and did enter into management agreements and other contracts with defendants for which additional consideration was paid. In addition thereto, plaintiff class was induced into purchasing property from defendants Leatherman and Promorex consisting of certain real property, am did execute and deliver to defendant Leatherman an "Estoppel reed" |
