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Melikhov v. Drab

United States District Court, N.D. Illinois, Eastern Division

July 31, 2017

ANTHONY MELIKHOV, an individual; MELMAR HOLDINGS, LLC, an Illinois limited liability company; and U4G GROUP, LLC, an Illinois limited liability company Plaintiffs,
v.
LADISLAV DRAB, an individual; CE GROUP, a foreign entity; ČESKÁ ENERGIE, A.S., a foreign entity; and ČESKÁ PLYNÁRENSKÁ A.S., a foreign entity Defendants.

          MEMORANDUM OPINION AND ORDER

          Virginia M. Kendall Judge

         Plaintiffs Anthony Melikhov, Melmar Holdings, LLC, and U4G Group LLC's sued Ladislav Drab and three corporate entities under his control after Drab and the corporate defendants failed to: (1) repay a $5 million business loan; and (2) contribute $30 million in capital to U4G Group as promised. Defendants have moved to compel mediation and, if necessary, arbitration of Plaintiffs' claims relating to the failed contribution to U4G Group (Counts II-IV) and to dismiss Plaintiffs' fraud (Counts III, VI, VII, XVI), unjust enrichment (Count V), and accounting claims (Counts VI, XII, XV), along with three claims predicated on violations of the Investment Advisor Act (Counts XIII-XVI).[1] Additionally, in their Reply, Plaintiffs seek leave to amend the Second Amended Complaint (“SAC”) to add securities laws claims. For the reasons stated below, Defendants' Motion to Dismiss is granted in part and denied in part and Plaintiffs' motion for leave to amend is granted.

         STATEMENT OF FACTS

         This Court takes the following well-pleaded allegations from the SAC and treats them as true for purposes of this motion. See Firestone Fin. Corp. v. Meyer, 796 F.3d 822, 826 (7th Cir. 2015). Melikhov is an entrepreneur and philanthropist involved in founding and supporting nonprofit organizations. (SAC ¶ 21.) Melikhov founded Bright Future International (“BFI”), a charitable organization that helps underprivileged children by funding arts and educational enrichment programs through partnerships with local and international organizations. (Id.) Melikhov also founded DoMore4:Good, a charitable organization designed to bring students together with local nonprofits and leaders to inspire them to perform acts of kindness and service. (Id. ¶ 22.) Melikhov established U4G Group, a for-profit entity, to combine technology and social enterprise to generate profits to fund Melikhov's charitable organizations and eliminate their reliance on grants to operate. (Id. ¶ 23.) Melikhov, either directly or through his affiliated entities, donates money to other charitable organizations. (Id. ¶ 24.)

         During the summer of 2013, Melikhov spent approximately one week visiting Clinton Foundation projects in Africa. (Id. ¶ 24.) During this trip, Melikhov met Drab who introduced himself as an energy trader who owned several successful energy companies. (Id. ¶ 25.) Drab is the founder, owner, principal, officer, director, and board member of Defendants CE Group, Ćeská Energie, and Česká Plynárenská. (Id. ¶ 4.) Drab claimed to be a philanthropist interested in supporting charitable organizations and informed Melikhov that he and his companies were worth millions of dollars. (Id. ¶ 25.) Drab also said he was good friends with President Clinton and that the two regularly played golf. (Id.) Throughout the course of the trip, Melikhov and Drab discussed Melikhov's charitable endeavors and his plan for U4G Group and expressed enthusiasm about becoming involved in Melikhov's charitable and business endeavors. (Id. ¶ 26.)

         Drab and Melikhov stayed in contact following the Africa trip. (Id. ¶ 27.) Drab called Melikhov to discuss how he could attract sponsors to contribute to Melikhov's charities and how Drab personally would contribute millions of dollars to help build U4G Group. (Id.) In late 2013, based on Drab's expressed desire to partner with Melikhov in his philanthropic endeavors, Melikhov invited Drab to a charity event, which Drab attended. (Id. ¶ 28.) The two continued talking over the next few months about how Drab could help Melikhov and his charities. (Id. ¶ 29.) Drab also inquired about attending Melikhov's inaugural Unite4: Humanity Event in February 2014, and Melikhov invited Drab and his wife to the event. (Id. ¶ 29.) Leading up to the event, Drab promised Melikhov that he would contribute upwards of $30 million to U4G Group in exchange for becoming a 50% owner of U4G Group, in addition to a Manager and Founding Member of U4G Group and U4G Planet, LLC (“U4G Planet”), its parent company. (Id. ¶ 30.) Drab also represented that someone was going to pay him millions of dollars for half of his interest in an energy facility, and that those funds would be used to purchase Drab's interest in U4G Group. (Id.) Drab also claimed he was talking to a European lottery agency looking to open lottery franchises and that U4G Group could benefit from profits in the lottery. (Id.)

         In addition to their interactions regarding U4G Group, Drab approached Melikhov for a business loan for his companies. (Id. ¶¶ 31, 33.) Melikhov agreed to negotiate a business loan “[s]ince Drab was promising to contribute over $30 million to U4G Group, had represented himself to be a wealthy multi-millionaire who owned multiple companies, and had promised to find other sponsors to donate to Melikhov's charitable organizations.” (Id. ¶ 31.) Throughout the next several months, Melikhov and Drab negotiated the terms of the business loan and discussed Drab joining U4G Group as a partner. (Id. ¶ 32.) Drab and Melikhov entered into an oral agreement in February 2014 where “Melikhov agreed to loan Drab $5 million and Drab agreed to repay Melikhov both principal and interest at the rate of 10% per year within twelve months.” (Id. ¶ 33.) The two agreed the loan would be disbursed in installments since Melikhov needed to liquidate certain assets to fund the loan. (Id.) Drab orally agreed to repay principal and interest within twelve months from Drab's receipt of each disbursement of the loan (the “Business Loan Agreement”). (Id.)

         Despite the oral agreement to repay the loans within twelve months of each disbursement, Drab provided Melikhov with four Memoranda of Understanding (“MOU”), the first in February 2014 (the “February 2014 MOU”) in regards to a $2 million disbursement, a second in June 2014 (the “June 2014 MOU”), a third in July 2014 (the “July 2014 MOU”), and a fourth in September 2014 (the “September 2014 MOU”). Each MOU set forth terms where Drab would repay Melikhov over a three-year period at a rate of 10% per year and provided that the parties would sign Investment Cooperation Agreements, which would embody the terms of the MOUs. (Id. ¶¶ 34, 35, 41, 44, 46.) The parties never entered into any Investment Cooperation Agreements. (Id. ¶ 35.) Melikhov asserts that the various MOUs were not reflective of the terms that the parties orally agreed to in the Business Loan Agreement, and he only understood them to reflect Drab's acknowledgement that he had borrowed money from Melikhov. (Id.) Of the four MOUs drafted by Drab, Melikhov only executed the February 2014 MOU. (Id.) The MOUs also included Drab's promise to pledge shares of his company, Česká Plynárenská, as security for the debt. (Id. ¶¶ 35, 41, 44, 46.)

         On March 6, 2014, after he executed the February 2014 MOU, Melikhov caused Melmar Holdings, LLC (a company that Melikhov founded and of which he is a member) to wire $2 million to Česká Energie, one of Drab's companies. (Id. ¶ 36.) On March 18, 2014, Drab met with Melikhov to discuss his roles with Melikhov's companies and the additional disbursements due under the Business Loan Agreement. (Id. ¶ 37.) Drab sent an email to Melikhov on May 21, 2014, proposing to invest $3 million in U4G Group by the end of March 2015 and $30 million by the end of July 2015. (Id. ¶ 38.) Throughout early 2014, Drab also represented to Melikhov that he would talk to his connections at Deutsche Bank and EON to persuade them to sponsor the 2015 Unite4:Humanity Event (“Event”), a charitable event organized by Melikhov. (Id. ¶ 39.) When Melikhov asked Drab about the status of the investments and explained that he hoped Drab would present sponsors at the Event, Drab said that he had spoken to prospective sponsors. (Id.) Based on all of the promises made by Drab, on June 13, 2014, U4G Group had Drab complete and sign a bank form granting Drab permission to transact for U4G Group through its bank account. (Id. ¶ 40.)

         On June 23, 2014, approximately one week after Drab sent Melikhov the June 2014 MOU, Drab and Melikhov met to discuss Drab's roles with Melikhov's companies and the further disbursements under the Business Loan Agreement. (Id. ¶ 42.) As a result of this meeting, Melikhov wired $1 million from Melmar to CE Group. (Id.)

         On July 9, 2014, Drab signed an Operating Agreement of U4G Group (the “U4G Operating Agreement”) in which he agreed to contribute $30 million to U4G Group within one year and was added as a Founding Member and Manager. (Id. ¶ 43.) Melikhov consulted with Drab about strategies for U4G Group based upon his understanding that Drab was committed to being involved with U4G Group. (Id.)

         On August 25, 2014, Melikhov caused Melmar to wire $1 million to Drab, even though the July 2014 MOU described a $2 million disbursement. (Id. ¶ 45.) Melikhov also wired $1 million from Melmar to the CE Group on September 15, 2014, a disbursement which was outlined in the September 2014 MOU. (Id. ¶ 47.)

         On November 21, 2014, Drab signed the Limited Liability Company Operating Agreement of U4G Planet, the holding company for U4G Group, becoming a Founder Member and a manager. (Id. ¶ 50.) Drab's status at ¶ 4G Planet was also based on his agreement to contribute $30 million to U4G Group by July 2015. (Id.)

         Melikhov contacted Drab on January 26, 2015, regarding Deutsche Bank's potential sponsorship of the Event. (Id. ¶ 52.) On February 3, 2015, Drab said he had a final meeting with Deutsche Bank but no sponsorship of the Event was ever received because of Drab's efforts, even though Drab informed Melikhov that Deutsche Bank and EON pledged money. (Id. ¶¶ 52, 56.)

         On March 6, 2015, pursuant to the terms of the oral Business Loan Agreement, Drab was obligated to pay Melikhov and Melmar $2 million in principal plus $200, 000 in interest but Drab failed to make any payment. (Id. ¶ 55.) Drab also failed to wire funds on April 6, 2015, after Melikhov forwarded Drab the banking wire information. (Id. ¶ 57.)

         On April 9, 2015, Melikhov asked to speak with Drab regarding his failure to pay any of the $30 million he agreed to contribute to U4G Group. (Id. ¶ 58.) Between July and September 2015, Melikhov also made several unsuccessful requests for Drab's repayment of the $5 million loan that he owed Melikhov and Melmar and the $30 million he agreed to contribute to U4G Group and U4G Planet. (Id. ¶ 61.) Drab was withdrawn as a Member and Manager from U4G Group and U4G Planet on September 10, 2015, due to his failure to comply with his responsibilities under the Operating Agreements, which required that he contribute capital. (Id. ¶ 62.)

         Following the filing of the initial complaint in this matter on September 26, 2016, Drab interacted with Melikhov via text message, telephone, and an in-person meeting to confirm that he owed Melikhov $5 million plus interest. (Id. ¶ 66.) On October 18, 2016, Drab prepared a notarized document in Czech reaffirming that he owed $6 million to Melikhov and Melmar. (Id. ¶ 66.) Drab promised to repay Melikhov the money within a day or two, but never did. (Id. ¶ 67.) At one point, Drab claimed he already wired the payment to Melmar, but the wire was never received. (Id.)

         Plaintiffs allege the funds and assets of Drab and his companies have been extensively comingled as reflected by disbursements from Plaintiffs to both Česká Energie and CE Group. (Id. ¶¶ 70-71.) Neither Drab nor his companies provided consultation, disclosures, information, or any documentation to Melikhov or Melmar regarding how the $5 million was spent. (Id. ¶ 71.)

         STANDARD OF REVIEW

         When evaluating a motion to dismiss under Rule 12(b)(6), the Court accepts all facts alleged in the complaint as true and construes all reasonable inferences in the plaintiff's favor. Firestone Fin. Corp., 796 F.3d at 826. Under Rule 8(a)(2), the complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). The facts alleged in the complaint must give the defendant “fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)).

         DISCUSSION

         Defendants seek an order compelling mediation and, if unsuccessful, arbitration of Plaintiffs' claims involving the U4G Group Operating Agreement based on the Agreement's dispute resolution provisions (Counts II-IV). (Dkt. 61 at 4-6.) Defendants also seek dismissal of Plaintiffs': 1) accounting claims (Counts VI, XII, and XV), since Plaintiffs have an adequate remedy at law; 2) fraud claims (Counts III, VI, VII, XVI), arguing that these claims do not meet the heightened pleading standard for alleging fraud and fail to allege how Plaintiffs were damaged; 3) unjust enrichment claim (Count V), because it is duplicative of the breach of contract claims; and 4) investment adviser claims (Counts XIII-XVI), since Drab is not an investment adviser. (Id. at 6-14.) Additionally, Plaintiffs seek to amend the complaint to add securities law claims. (Dkt. 65 at 19-20.)

         I. Mediation and/or Arbitration of disputes involving the U4G ...


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