United States District Court, S.D. Ohio, Western Division, Dayton
H. Rice District Judge.
REPORT AND RECOMMENDATIONS 
L. Ovington United States Magistrate Judge.
American Power, LLC is a trucking-logistics company
headquartered in Dayton, Ohio. According to the Complaint,
Plaintiff invested in and loaned $450, 000 to Defendant
Dektrix LLC, a transportation-servicing company headquartered
in Utah. The Complaint charges that the investment and loan
were fraudulently obtained and ultimately worthless.
“Plaintiff is left with nothing it invested.”
(Doc. #1, ¶ 72).
seeks to impose liability upon Dektrix and various other
business entities and individuals for purported violations of
federal securities laws and state common law. Two groups of
Defendants-(1) the Dektrix Defendants, and (2) the Fontaine
Defendants- seek to avoid liability by attacking
Plaintiff's Complaint under Fed.R.Civ.P. 12(b)(6) for
failing to state a claim upon which relief could be granted
and, as to Plaintiff's fraud claims, for failing to meet
the pleading requirements of Fed.R.Civ.P. 9(b) and the
Private Litigation Securities Reform Act. (Doc. #s 16, 20).
The Complaint must therefore be studied.
as true the well-pleaded factual content in Plaintiff's
Complaint and construing it in the light most favorable to
Plaintiff, see Ohio Pub. Employees Retirement Sys. v.
Fed. Home Loan Mortgage Corp., 830 F.3d 376, 382 (6th
Cir. 2016), reveals a narrative of deception, misplaced
trust, and financial washout.
LLC formed in January 2015. Its purpose was to commercialize
a “‘revolutionary intermodal flat-deck shipping
solution…'” Id. (Doc. #1, ¶11)
(footnote added). This flat-deck shipping solution was
manufactured by Defendant Fontaine Engineered Products, Inc.
(d/b/a Fontaine Intermodal). It was known as Fontaine
Evolution Intermodal Flat Decks. Photos of the Fontaine Flat
Deck appear in a company document attached as an Exhibit to
the Complaint, id. at 47-48, and in Fontaine's
Flat Deck Owner's Guide (Doc. #39, Exh. B). Soon after
Dektrix was formed, it began renting and using Fontaine Flat
2016, Dektrix reached out to Plaintiff and others with an
investment opportunity related to Dektrix's use of
“new type of trailer design produced and manufactured
by Defendant Fontaine[, ]” referring to the Fontaine
Flat Deck. (Doc. #1, ¶25). The opportunity looked
attractive in part because Dektrix held an exclusive
opportunity to use the Fontaine Flat Decks. Similar
communications from Dektrix followed: In July 2016, the
Dektrix Defendants-there are seven of them-told Plaintiff
(through an email) that Dektrix “was a well-established
company that had earned an exclusive opportunity to use
Fontaine Evolution Intermodal Flat Decks to ship
loads.” Id. at ¶27. They also explained
to Plaintiff that Dektrix had a successful (albeit brief)
history and a promising future:
Operating History - Dektrix is not a start-up
company. Dektrix was first organized in December of 2014. It
has moved freight every month since April of 2015. It has two
yards, 17 FTE employees [full-time employees] (both w-2 and
1099 contractors). It has moved over 814 loads of freight and
it has billed more than $2.5M in sales. Dektrix has obtained
all of its operating authorities as well as broker
authorities. It is authorized to operate on all class 1
railways in North America…. It has a fleet of 73 decks
and nine 2016 Freightliner tandem axel day cabs which it
leases from Penske…. Dektrix has executed multiple
carrier agreements and has current contracts and
relationships with the logistics executives at various
companies. Based on Dektrix['s] performance the
executives at Marmon Highway Technologies and Fontaine
Intermodal have granted Dektrix a 3 year exclusive
opportunity. They will not produce or sell any decks or
similar intermodal products to any other individual or entity
for three years. These are the accomplishments of a company
which has worked very hard and is now posed for rapid growth.
Id. (citation omitted).
and August 2016, the Dektrix Defendants met with Plaintiff
and continued to solicit its investment. They informed
Plaintiff about Dektrix's operating history, value, and
client opportunities. They also showed Plaintiff a letter
that Defendant Marmon's President Kelly Dier wrote making
it clear, according to the Complaint, “that Fontaine,
Marmon, and Dektrix were working together to secure
investment money from Plaintiff.” Id. at
¶29. The Complaint quotes the letter at some length,
including information about Dektrix's right to exclusive
use of the Fontaine Flat Decks:
We [Marmon] agree to grant Dektrix two years of exclusivity
from the date Dektrix purchases all of the 73 [Fontaine]
Intermodal Flat Decks, which are currently being rented to
Dektrix and we further agree to grant an additional third
year of exclusivity to Dektrix in exchange for purchasing the
43 decks which Fontaine currently holds in inventory in the
form of new components, ready to assemble….
eventful meeting occurred on August 5, 2016 during which two
Dektrix Defendants, Douglas O. Harris and Murray J. Crane,
gave a presentation to Plaintiff and other potential
investors. Harris is the general manager of Dektrix; Crane is
a Member-Manager of Dektrix (and the patent holder of
technology used in the Fontaine Flat Decks). Harris told
prospective investors, “Dektrix would register UCC
statement on the Fontaine Intermodal flat decks that Dektrix
would purchase from Fontaine with the investor money. The
decks would be registered for the benefit of the investors
‘so that they control the assets, they own the
assets.'” Id. at ¶32.
Berkley Buchanan, then-President of Fontaine, also
participated in the August 5, 2016 meeting, telling Plaintiff
and the others, “We stand behind them,' meaning
Fontaine stood behind Dektrix.” Id. at 31.
Defendant Buchanan also said, ‘We [Fontaine] believe in
this project strongly enough that we have provided them
[Dektrix] an offer of exclusivity on the product.'”
Id. (Plaintiff's brackets). He also
“touted Fontaine's relationship with BNSF Railway
through Berkshire Hathaway…, ” and
“described the millions of dollars in development spent
by Fontaine.” Id.
began to coalesce the next day, August 6, 2016. Dektrix
provided Plaintiff with several documents, including (1) a
Private Placement Memorandum “titled Confidential
Offering Memorandum $6, 000, 000.00 Consisting of up to
400, 000 Membership Units of Dektrix, LLC, Minimum Purchase
$50, 000….”; (2) a Subscription Agreement; and
(3) Dektrix's Operating Agreement. Id. at
¶34 (citation omitted).
concluded, based on the Private Placement Memo, that Fontaine
Flat Decks “were integral and necessary to
Dektrix's business model.” Id. at
¶35. The Private Placement Memo explained,
“‘The company's revenue is tied to securing
shipping contracts which utilize the Dektrix Intermodal
flat-deck solution….'” Id.
and its owners-Adil Baguirov and Islom Shakhbandarov-decided
to review the information that was publicly available about
Fontaine and its Flat Decks “particularly with respect
to their compatibility with rail transportation.”
Id. at ¶37. Indeed, “[t]ransportation by
railroad was the key to functionality of the Fontaine
Evolution Flat Decks being used by Dektrix.”
Id. at ¶36. Baguirov and Shakhbandarov
conducted “an easy search of the internet” and
found Fontaine press releases in 2014, introducing its Flat
Deck. Id. at ¶37. The press releases described
the Fontaine Flat Deck as “‘Certified by the
Association of American Railroads, Fontaine's Evolution
Intermodal Flat Deck includes multiple patented features
related to the deck floor and load securement
system.'” Id. (footnote and citation
omitted). Several industry publications (copies are attached
to the Complaint) quoted these assertions. “Plaintiff
relied on Fontaine's statements that its Evolution
Intermodal Flat Decks had been AAR certified when it decided
to invest in Dektrix.” Id. at ¶43.
Association of American Railroads (AAR), according to the
Complaint, is an industry trade group primarily representing
major freight railroads in North America. It is dedicated to
maintaining railroad safety and operating standards. It
publishes a Manual of Safety Standards and Recommended
Practices “that includes all regularly adopted
specifications, standards, and recommended practices
….” Id. at ¶39. AAR
“maintains a rigorous certification program for
equipment and components in conjunction with railroads,
including rail cars and decks. The process for obtaining AAR
approval is time consuming and expensive.” Id.
at ¶41. During 2013-2014, Defendant Crane was a member
of AAR's Intermodal Operations Committee.
a video that was on its [Fontaine's] website in August
2016 and continuing through the date of [Plaintiff's]
Complaint, Fontaine described the Evolution Intermodal Flat
Deck to be ‘stronger' and ‘safer' than
any other deck ‘to withstand the punishing conditions
associated with rail and highway transportation.'
It's virtually indestructible yet simple and inexpensive
to repair if it's ever damaged.'” Id.
numerous occasions, the Dektrix Defendants represented to
prospective investors including Plaintiff that it had
contractual shipping relationships and/or agreements with a
number of carriers, including, among others, Atkore Steel,
Allied Tube Conduit, Logan Aluminum, Inc., and
Constellium.” Id. at ¶47.
of the Defendants ever disclosed before Plaintiff invested
its money that the Fontaine Evolution Intermodal Flat Decks
had never, in fact, been approved by the AAR. None of the
Defendants had disclosed that the decks had significant
engineering problems and were not safe to use on the highway
or railroads.” Id. at ¶50.
December 2016, Plaintiff (through Baguirov and Shakhbandarov)
invested in Dektrix by purchasing “preferred membership
units.” Id. at ¶52. A Membership Purchase
Agreement stated that Plaintiff (including Baguirov and
Shakhbandarov) “shall pay $350, 000 U.S. to Dektrix
LLC…, for which [the Dektrix Defendants] will
immediately convey 70, 000 preferred membership units to
[Plaintiff and the two other investors]….”
Id. (quoting MPA, attached to the Complaint as Exh.
E). The Membership Purchase Agreement also granted Plaintiff
a second lien on the first 73 Fontaine Flat Decks and,
according to Plaintiff, “demonstrates the parties'
intent that the $350, 000 was to be used toward the purchase
of the first 73 intermodal flat decks from Fontaine.”
Id. at ¶54 (quoting Exh. E). Shortly after the
Membership Purchase Agreement was executed, Plaintiff wired
$350, 000 to the Dektrix Defendants. Id. at
soon began to disintegrate. A month later, on January 25,
2017, the Dektrix Defendants advised Marmon and Fontaine (the
Fontaine Defendants-there are five of them), “after
inspection of the decks, ‘about 50% of the fleet have
sheared bolts on both the front and rear hub [brake]
assemblies.'” Id. at ¶55.
days later, “the … Fontaine Defendants wrote to
the Dektrix Defendants and terminated the existing
lease.” Id. at ¶57. The letter was sent
to Dektrix's General Manager Harris. It provided two
reasons for the decision to terminate the existing lease:
Dektrix's continued failure (1) to pay rent as required
by the lease agreement between Dektrix and Fontaine, and (2)
“‘maintain the decks in good and efficient
operating order, in accordance with the manufacturers
recommendations, all laws and DOT Regulations and in the same
condition or appearance when accepted by
[Dektrix]'….” (Doc. #1, Exh. F,
PageID #174) (quoting § 10 of their
Dektrix-Fontaine lease agreement).
all was apparently not lost. A week later, on February 7,
2017, the Dektrix Defendants represented to Plaintiff that
the lease termination would be short-term, that any issue
with sheared bolts was repairable and could be resolved. The
Dektrix Defendants did not at any time indicate to Plaintiff
that the Marmon and Fontaine Defendants “were seeking
not only to call back and seek return of all decks, but were
actively seeking to physically destroy such decks on the
basis that they were unfit, defective, and otherwise
unsafe….” Id. at ¶58.
Dektrix Defendants attempted to improve the situation-or so
it looked-by offering to buy (from the Marmon and Fontaine
Defendants) 73 Fontaine Flat Decks for $1 million ($13, 699
apiece). But the Dektrix Defendants needed help with these
pricey purchases. They therefore turned to Plaintiff and
obtained a $100, 000 bridge loan to be used by Dektrix for
the purchase of the Fontaine Flat Decks. Dektrix General
Manager Harris reported to Plaintiff that Defendants Fontaine
and Defendant Henry Prochazka “had agreed to accept
Plaintiff's money as a ‘refundable deposit should
things not culminate as we had hoped for.'”
Id. at ¶60. “Dektrix wired $50, 000 of
Plaintiff's money to Fontaine on March 1, 2017.”
April 6, 2017, the Dektrix Defendants clued in Plaintiff-for
the first time- about the fact that the AAR had never
certified Fontaine Flat Decks. The import of this becomes
clear in light of the Complaint's allegation that Murray
J. Crane (remember, he is a Member-Manager of Dektrix) had
learned two years earlier-on May 20, 2015-about the
lack of AAR certification. Crane learned this from an email
sent to him on May 20, 2015 by Michael Lesniak with the AAR.
Id. at ¶62.
alleges, “the Dektrix Defendants later admitted that
they reported defects in the [Fontaine Flat] decks in 2015 to
Buck Buchanan of Fontaine. Defendants Buchanan and Fontaine
had the decks crudely repaired at that time. Neither the 2015
defects nor the repairs were ever reported to Plaintiff
before its investment in and loan to Dektrix.”
Id. at ¶63.
22, 2017, further twists in the parties' relationship
developed: The Dektrix Defendants informed Plaintiff of their
intent to file for bankruptcy relief. They also informed
Plaintiff about their position that their use of
Plaintiff's investment money, including the bridge loan,
was not limited to “asset, ” meaning
Fontaine-Flat-Deck, purchases. Id. at ¶64.
Indeed, Dektrix “misused, misallocated, and never used
Plaintiff's investment money in a reasonable, sound,
prudent and/or agreed upon manner, rather, such money,
including but not limited to the bridge loan, was never used
to purchase assets by way of Fontaine [Flat Decks]. Rather,
such investment money was used to repay the bridge loan
(approximately $7, 000) and otherwise enrich themselves in
the form of salaries ($42, 000 going directly to Defendants
Crane and Larson).” Id. at ¶65
days later, Dektrix told Plaintiff for the first time that
Fontaine (through Defendant Prochazka) had written a letter
to a Dektrix creditor warning, in part, that the Fontaine
Flat Decks “are not fit for use and are not safe for
use….” Id. at ¶66 (quoting Exh.
2016, Dektrix “had fallen into financial difficulties,
and the Fontaine [Flat Decks] that it was leasing had been
seized by a creditor ….” Id. at
2017, Dektrix's General Manager Harris told Plaintiff
that Fontaine had not returned its $50, 000, as Prochazka had
personally assured. Id. at ¶70. Plaintiff
alleges, “Fontaine would not make Dektrix whole for the
harm caused by the defective Intermodal decks. Instead,
Fontaine and Dektrix used Plaintiff's money to further
their own interests….” Id.
August 21, 2017, Dektrix's General Manager Harris wrote
an email, blaming the “fraud” on various Fontaine
Defendants. The Complaint quotes the email at length, and
given its eye-popping allegations, it is worth repeating:
“Here is the fraud-Kelly Dier, John Craig, Hank
Prochazka, Buck Buchanan, Jess Drommond and others made loud
and published claims to reputable reporters and trade
journals that the Evolution deck was in fact AAR certified.
This certification is not something handed out easily but
requires heavy investment in time, money and extensive
testing. The benefit of AAR certification is that the user of
the deck would be assured its operation would be safe.
Shortly after putting the decks in service we had pins
shearing in the upright support arms. Those pins were
critical to supporting the 60, 000 lbs. of another container
stacked on top of our deck. When we verbally drew this
problem to Fontaine's attention, they asked us to keep it
quiet and assured us they would immediately fix the problem.
They also told us that they had not experienced this problem
with any of their other Evolution decks in use with Boyd
Brothers or Prime (not true). The repairs were made in a
shoddy way and did not reflect a design improvement. In fact,
the solution they proposed was to weld the pins in place,
which only exacerbated the problem. Now we had more of the
pins shearing. We limped along for several months with
Fontaine trying different weights of pins, washers and welds.
The problem was never adequately resolved. It wasn't
until we were gearing up to service the new Constellium
contract in January that we went to Chicago and to
California to inspect our fleet. To our surprise many of the
main bolts holding the upright arms in place appeared to be
missing. In fact, more than 40% of the hub assemblies seemed
to have missing bolts. Fontaine provided us a power point
presentation demonstrating how we should replace the bolts,
apply a lock-tight solution and the problem would be solved.
As we tried to implement their plan we discovered the bolts
were not missing. They hadn't merely shaken their way out
of the socket or been sheared clean. They were in fact
exploded within the assembly. The amount of pressure on those
bolts must have been inordinate. Not knowing when a pin might
explode we realized the entire fleet was unfit to service the
“We put all of our findings in an email to Buck
Buchanan, expecting a robust partnering type response
assuring us they would fix this and get it done right away.
To our surprise there was no such support, only a phone [sic]
from Hank Prochazka, (Buck's boss) who said he wanted to
give me a heads up that Fontaine would be calling back all of
the decks because we had now made the safety issue a
discoverable issue (this statement is also
Id. at ¶71 (footnotes added).
August 2017, and despite Plaintiff's significant
investment in Dektrix, “the Dektrix Defendants have not
conducted any substantive shipping and/or transportation
activities, including generating any revenue for the company
and/or its Members….” Id. at ¶72.
interesting to note that the name Dektrix, a portmanteau
blending decks with tricks, winks toward flat-deck innovation
and cleverness as well as flat-deck tricks. Regardless of
whether this was intended, Plaintiff advances
federal-securities violations against the Dektrix Defendants
and the Fontaine Defendants, including:
• Count I-The Dektrix and Fontaine Defendants violated
Section 10(b) of the Securities Exchange Act and the
Securities and Exchanges Commission's Rule 10b-5.
• Count II-The individual Defendants violated Section
20(a) of the Exchange Act.
• Count III-The Dektrix Defendants violated Section
12(a)(2) of the Securities Act.
• Count IV-The Dektrix Defendants violated Section 15 of
the Securities Act.
Complaint further advances state-law claims of fraud, breach
of contract, breach of fiduciary duty, and unjust enrichment.
pleading is alive in the United States Courts; the
“hypertechnical code pleading regime of a prior era...,
” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009),
is not. See CNH America LLC v. Int'l Union, 645
F.3d 785, 794 (6th Cir. 2011) (concluding the Complaint's
allegations “suffice to meet the modest notice-pleading
requirements of Civil Rule 8(a).” (citations omitted)).
The foundational principal of notice pleading is that a
complaint must contain a “short and plain statement of
the claim showing that the pleader is entitled to relief, in
order to ‘give the defendant fair notice of what the
claim is and the grounds upon which it rests....”
Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007)
(quoting, in part, Fed.R.Civ.P. 8(a)(2); other citation
endure an attack under Fed.R.Civ.P. 12(b)(6), a complaint
must plead a plausible claim for relief. Iqbal, 556
U.S. at 678. A plausible claim exists if the complaint
contains “‘sufficient factual matter' to
render the legal claim plausible, i.e., more than
merely possible.” Iqbal, 556 U.S. at 678.
Sufficient factual matter is present “when the
plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Iqbal, 556 U.S.
at 678 (citing Twombly, 550 U.S. at 556).
“Where a complaint pleads facts that are merely
consistent with a defendant's liability, it stops short
of the line between possibility and plausibility of
entitlement to relief.” Id. (citation and
internal quotations omitted). Labels and conclusions are not
enough; “a formulaic recitation of the elements of a
cause…,' id., is not enough; and
“‘naked assertions' devoid of ‘further
factual enhancement…, '” are not enough,
id. (citations and brackets omitted).
complaint charging federal or state fraud triggers additional
pleading mandates set by Fed.R.Civ.P. 9(b). Frank v. Dana
Corp., 547 F.3d 564, 570 (6th Cir. 2008); see
Glimcher Co., LLC v. Deavers, 2:09cv797, 2010 WL
1610709, at *4 (S.D. Ohio 2010) (Frost, D.J.). “[The]
complaint must ‘(1) specify the statements that the
plaintiff contends were fraudulent, (2) identify the speaker,
(3) state where and when the statements were made, and (4)
explain why the statements were fraudulent.' At a
minimum, [the complaint] must allege the time, place and
contents of the misrepresentations upon which they relied.
Frank, 547 F.3d at 570 (quoting, in part, Gupta
v. Terra Nitrogen Corp., 10 F.Supp.2d 879, 883 (N.D.
Ohio 1998)). And a securities-fraud complaint must work even
harder. “As a check against abusive litigation by
private parties…, ” Tellabs, Inc. v. Makor
Issues & Rights, Ltd., 551 U.S. 308, 313
(2007), the Private Securities Litigation Reform Act of 1995
(PSLRA), 15 U.S.C. § 78u-4, imposes stringent pleading
To satisfy this heavier, statutorily created burden,
plaintiffs must identify each misleading or false statement
and explain how it is misleading. 15 U.S.C. §
78u-4(b)(1)(B). In addition, plaintiffs must “state
with particularity facts giving rise to a strong inference
that the defendant[s] acted with the required state of
mind.” § 78u-4(b)(2)(A). These requirements are
not easily satisfied.
In re Omnicare, Inc. Securities Litigation, 769 F.3d
455, 461 (6th Cir. 2014). Although the PSLRA, in general,
places an “elephant-sized boulder…, ”
id., in the path of pleading securities fraud,
“‘[w]hen considering a motion to dismiss,
[courts] must tread lightly … engaging carefully with
the facts of a given case and considering them in their full
context.'” Ohio Pub. Employees Retirement
Sys., 830 F.3d at 388 (quoting Omnicare, 769
F.3d at 473).
Discussion: Count I
Plaintiff's Count I and § 10(b)
claims in Count I that the Dektrix Defendants and the
Fontaine Defendants, and each of them, violated §
10(b) by deceiving and misleading Plaintiff into
investing in Dektrix (in December 2016) and providing a
bridge loan to Dektrix (in 2017). Plaintiff alleges, in part,
“The purpose of the scheme was to enrich
Defendants' companies and themselves through the use of
material false statements or omissions intended to secure
investment from Plaintiff….” (Doc. #1,
10(b) bans the “use or employ, in connection with the
purchase or sale of any security ... [of] any manipulative or
deceptive device or contrivance in contravention of such
rules and regulations as the [SEC] may prescribe as necessary
or appropriate in the public interest or for the protection