Caplan v. Dollinger

Background

Nine investors alleged that they bought a total of $650,000 in Veg House Holdings Inc. common stock from PlantX Life, Inc. in January 2024. Their stock purchase agreements required PlantX to repurchase the stock and return their investments if Veg House did not complete an initial public offering at $5 per share by May 2024. The offering did not occur. The investors alleged that defendants instead diverted their money for personal use.

The investors sued 22 defendants, including PlantX, Veg House, Sean Dollinger, and other individuals and entities. They asserted claims under the Racketeer Influenced and Corrupt Organizations Act, securities-fraud claims under Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5, and state-law claims for breach of contract, conversion, and unjust enrichment. The investors also sought a temporary restraining order, a preliminary injunction, and an attachment of defendants’ assets.

Motion to Dismiss

Defendants moved under Federal Rule of Civil Procedure 12(b)(2) to dismiss claims against most defendants for lack of personal jurisdiction. They also moved under Rule 12(b)(6) to dismiss all claims except the breach-of-contract claim against PlantX.

The investors withdrew their civil RICO claims after acknowledging that those claims could not proceed because they arose from the purchase and sale of securities. The court dismissed Counts I and II without prejudice.

Personal Jurisdiction

The court concluded that PlantX, Veg House, Dollinger, Lorne Rapkin, and Alexandra Hoffman—the defendants connected to the stock purchase agreements—consented to personal jurisdiction through the agreements’ forum-selection provision. The court rejected the investors’ argument that the other defendants were bound by that provision merely because they were alleged affiliates, officers, directors, employees, agents, or alter egos. The court found that the allegations of shared officers, directors, offices, ownership, and generalized asset transfers were not specific enough to establish that the non-signing defendants were alter egos for jurisdictional purposes.

The court nevertheless held that the investors alleged sufficient contacts with the United States to support personal jurisdiction over the non-signing defendants for the securities-fraud claims. The court therefore granted the personal-jurisdiction motion as to the non-signing defendants’ state-law claims and denied it as to their securities-fraud claims.

Breach of Contract

The court held that the investors plausibly alleged alter-ego liability against Dollinger. The complaint alleged that PlantX was undercapitalized, shared offices and officers with companies associated with Dollinger, used one of Dollinger’s residences as its headquarters, and that Dollinger exercised significant control over PlantX’s business decisions. The complaint also alleged that assets were stripped from PlantX, leaving it unable to repay the investors. The court found those allegations sufficient at the pleading stage to allow the breach-of-contract claim against Dollinger to proceed.

The court reached the opposite conclusion as to Veg House, Rapkin, and Hoffman. Allegations that they shared officers, personnel, offices, ownership, and management with PlantX were too generalized and conclusory to support alter-ego liability. The court granted the motion to dismiss the breach-of-contract claims against those defendants. The breach-of-contract claim against PlantX was not challenged and remained pending.

Conversion and Unjust Enrichment

The court granted the motion to dismiss the conversion claims. It held that those claims relied on the same facts and damages as the breach-of-contract claims and did not allege a separate wrong or distinct damages.

The court also granted the motion to dismiss the unjust-enrichment claims. The complaint did not identify with sufficient specificity which defendants received a benefit from the investors’ payments. The court treated that lack of distinction among defendants as improper group pleading.

Securities Fraud

Although the court denied the personal-jurisdiction challenge to the securities-fraud claims, it granted the Rule 12(b)(6) motion as to those claims. Securities-fraud allegations must identify the specific misleading statements, who made them, when and where they were made, why they were misleading, and facts supporting the required intent to deceive. The court found that the complaint did not identify any specific statement made in connection with the stock sale. The only specific statements identified were Dollinger’s later emails about the repurchase obligation, which were sent after the purchases. The court therefore dismissed the Section 10(b), Rule 10b-5, and related Section 20(a) control-person claims against all remaining defendants.

Preliminary Relief

The court denied the investors’ motion for preliminary relief. The request was moot as to defendants whose claims had been dismissed. As to PlantX and Dollinger, the court held that Rule 65 did not authorize a prejudgment asset freeze because the remaining contract claims sought money damages rather than equitable relief. The court also denied attachment under Rule 64 because the investors had not submitted competent evidence proving fraudulent intent or otherwise met the requirements for attachment under New York law.

Disposition

Judge Jesse M. Furman granted in part and denied in part defendants’ motion to dismiss for lack of personal jurisdiction. He denied the Rule 12(b)(6) motion as to the breach-of-contract claim against Dollinger and otherwise granted it, while noting that the unchallenged contract claim against PlantX also survived. The court denied the investors’ motion for preliminary relief, declined to grant leave to amend, and directed PlantX and Dollinger to answer the remaining breach-of-contract claims.