1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

TIMOTHY KERRIGAN, LORI MIKOVICH 

and RYAN M. VALLI, individually, and on 

behalf of all others similarly situated,

Plaintiffs,

v.

VISALUS, INC., a corporation, et al.,

Defendants.

Case No. 2:14-cv-12693-MFL-DRG

Hon. Matthew F. Leitman

(ORAL ARGUMENT 

REQUESTED)

VISALUS DEFENDANTS’ PARTIAL MOTION TO 

DISMISS THE FIRST AMENDED COMPLAINT

Defendants ViSalus, Inc.; Robert Goergen, Sr.; Todd Goergen; Ryan Blair; 

and Blake Mallen (“ViSalus Defendants”) hereby move to dismiss Counts I-IV, 

VI-VII, and XI of Plaintiffs’ First Amended Complaint [Dkt. 56] (“FAC”) pursuant 

to Federal Rules of Civil Procedure 8(a), 9(b), 12(b)(6) and the Private Securities 

Litigation Reform Act (“PSLRA”). As to Count III in particular, Plaintiffs have 

not satisfied the pleading requirements of the PSLRA. The ViSalus Defendants do 

not seek dismissal of Counts V and VIII-X. For the reasons set forth in the 

attached Memorandum of Points and Authorities, the ViSalus Defendants 

respectfully request partial dismissal of the FAC.

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 1 of 48 Pg ID 1609
2

18898797.3

In accordance with Local Rule 7.1 and the Court’s instruction during the 

July 22, 2015 telephone conference, the ViSalus Defendants conducted a 

substantive conference with Plaintiffs regarding this Motion. On August 20, 2015, 

counsel for ViSalus provided Plaintiffs’ counsel with an outline of the basis for this 

Motion. The outline included a detailed analysis of each Count of the FAC that the 

ViSalus Defendants found insufficient. The analysis included specific citations to 

the FAC and legal authority to support the ViSalus Defendants’ positions. 

On August 25, 2015, the parties participated in a substantive and lengthy 

phone conference to discuss the sufficiency of the FAC. During the August 25, 

2015 call, the parties discussed each of the Counts to be challenged, the relevant 

portions of the FAC, and the legal authority for each party’s position. Plaintiffs’ 

counsel stated that a detailed letter outlining Plaintiffs’ position as to each of the 

disputed points would be provided by August 26, 2015. However, Plaintiffs’ 

counsel did not send that letter until Friday, August 28, 2015. 

Despite the thoughtful meet-and-confer in which the parties engaged, the 

ViSalus Defendants did not obtain concurrence in the relief sought. The ViSalus 

Defendants did, however, obtain clarity on Plaintiffs’ positions and have drafted 

their brief in support of this Motion to account for those clarifications.

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 2 of 48 Pg ID 1610
3

18898797.3

WHEREFORE, the ViSalus Defendants respectfully request that this Court 

dismiss Counts I-IV, VI-VII, and XI of FAC, with prejudice, pursuant to Federal 

Rules of Civil Procedure 8(a), 9(b), 12(b)(6) and the PSLRA.

Dated: August 31, 2015

Respectfully submitted,

HONIGMAN MILLER SCHWARTZ AND 

COHN LLP

/s/Nicholas B. Gorga

Nicholas B. Gorga (P72297)

Mitra Jafary-Hariri(P74460)

660 Woodward Avenue

2290 First National Building

Detroit, MI 48226-3506

Telephone Number: (313) 465-7640

Fax Number: (313) 465-7641 

E-Mail: ngorga@honigman.com

and

QUARLES & BRADY LLP 

James A. Ryan (AZ Bar #009253)

Kevin D. Quigley (AZ Bar #015972)

Brian A. Howie (AZ Bar #026021)

Edward A. Salanga (AZ Bar #020654)

All Admitted to Practice in ED MI

2 North Central Avenue

Renaissance One

Phoenix, AZ 85004

Telephone Number: (602) 229-5200

Fax Number: (602) 229-5690

E-Mail: james.ryan@quarles.com

Kevin.quigley@quarles.com

Brian.howie@quarles.com

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 3 of 48 Pg ID 1611
4

18898797.3

Edward.salanga@quarles.com

Attorneys for Defendants ViSalus, Inc., Ryan 

Blair, Blake Mallen, Robert Goergen, Sr., 

and Todd Goergen

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 4 of 48 Pg ID 1612
UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

TIMOTHY KERRIGAN, LORI MIKOVICH 

and RYAN M. VALLI, individually, and on 

behalf of all others similarly situated,

Plaintiffs,

v.

VISALUS, INC., a corporation, et al.,

Defendants.

Case No. 2:14-cv-12693-MFL-DRG

Hon. Matthew F. Leitman

(ORAL ARGUMENT 

REQUESTED)

MEMORANDUM OF POINTS AND AUTHORITIES IN 

SUPPORT OF THE VISALUS DEFENDANTS’ PARTIAL 

MOTION TO DISMISS THE FIRST AMENDED COMPLAINT

The ViSalus Defendants submit this Memorandum of Points and Authorities 

in Support of the ViSalus Defendants’ Partial Motion to Dismiss the First 

Amended Complaint pursuant to Federal Rules of Civil Procedure 8(a), 9(b), 

12(b)(6) and the Private Securities Litigation Reform Act. 

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 5 of 48 Pg ID 1613
TABLE OF CONTENTS

TABLE OF CONTENTS............................................................................................i

INTRODUCTION .....................................................................................................1

I. The 10(b)/10b-5 Claims Should Be Dismissed...............................................1

A. Plaintiffs Have Not Pled Actionable Misrepresentations Or 

Omissions By Each Defendant..............................................................2

B. Plaintiffs Have Not Pled A Strong Inference Of Scienter. ...................7

C. Plaintiffs Have Not Pled Justifiable Reliance. ....................................11

D. Plaintiffs Have Not Pled a “Scheme Liability” Claim. ......................12

II. The 12(2) Claims Should Be Dismissed. ......................................................13

A. The Individual Defendants Are Not Statutory Sellers. .......................13

B. Plaintiffs Have Not Pled Actionable Misrepresentations Or 

Omissions By ViSalus.........................................................................14

III. Plaintiffs’ Rico Claims Should Be Dismissed...............................................15

A. There Are No Facts Supporting A Plausible Inference Of 

Scienter................................................................................................16

B. Plaintiffs Have Not Pled Proximate Cause. ........................................19

C. Plaintiffs Do Not Allege A RICO Enterprise That Is Distinct 

From ViSalus.......................................................................................22

D. Plaintiffs Have Not Pled Two Predicate Acts As To The 

Goergens..............................................................................................26

IV. The M.C.L § 445.903 Claims Against All Defendants (Other Than 

ViSalus) Should Be Dismissed......................................................................27

V. The Section 445.911(3)(c) Claims Should Be Dismissed.............................28

VI. The Unjust Enrichment Claims Should Be Dismissed..................................28

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 6 of 48 Pg ID 1614
ii

18898797.3

VII. The MFIL Section 5 Claims Should Be Dismissed. .....................................30

CONCLUSION........................................................................................................31

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 7 of 48 Pg ID 1615
iii

18898797.3

TABLE OF AUTHORITIES

CASES

Abuhamdan v. Blyth, Inc.,

9 F. Supp. 3d 175 (D. Conn. 2014).....................................................................10

Affiliated Ute Citizens v. U.S.,

406 U.S. 128 (1988)........................................................................................4, 11

Basic, Inc. v. Levinson, 

485 U.S. 224 (1988)............................................................................................11

Begala v. PNC Bank, 

214 F.3d 776 (6th Cir. 2000) ..............................................................................23

Cedric Kushner Promotions, Ltd. v. King,

533 U.S. 158 (2001)............................................................................................23

Central Bank v. First Interstate Bank of Denver, N.A.,

511 U.S. 164 (1994)..............................................................................................3

Chiarella v. U.S.,

445 U.S. 222 (1980)..............................................................................................4

City of Pontiac Gen. Emps.’ Ret. Sys. v. Stryker Corp., 

865 F. Supp. 2d 811 (W.D. Mich. 2012)..............................................................8

City of Monroe Emps. Ret. Sys. v. Bridgestone Corp., 

399 F.3d 651 (6th Cir. 2005) ................................................................................5

Cook v. Little Caesar Enters., Inc.,

972 F. Supp. 400 (E.D. Mich. 1997) ..................................................................31

Cranel, Inc. v. Pro Image Consultants Grp., 

57 F. Supp. 3d 838 (S.D. Ohio 2014)........................................................... 16-17

D.E.& J Ltd. P’ship v. Conaway,

284 F. Supp. 2d 719 (E.D. Mich. 2003) ...........................................................3, 8

Danielson v. DBM, Inc.,

2006 WL 3246581 (N.D. Ga. Nov. 8, 2006)......................................................21

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 8 of 48 Pg ID 1616
iv

18898797.3

El Camino Res., LTD. v. Huntington Nat’l Bank,

722 F. Supp. 2d 875 (W.D. Mich. 2010)............................................................28

Fitzgerald v. Chrysler Corp.,

116 F.3d 225 (7th Cir. 1997) ........................................................................ 24-25

Franchise Mgmt. Unlimited, Inc. v. America’s Favorite Chicken,

561 N.W.2d 123 (Mich. Ct. App. 1997).............................................................30

Freeman v. Laventhol & Horwath,

915 F.2d 193 (6th Cir. 1990) ........................................................................ 11-12

FTC v. Skybiz.com,

57 F. App’x. 374 (10th Cir. 2003)......................................................................28

Ger-Ro-Mar, Inc. v. FTC,

518 F.2d 33 (2d Cir. 1975) .................................................................................28

Grand Union Supermarkets of the Virgin Islands, Inc. v. Lockhart 

Realty Inc., 493 F. App’x 248 (3d Cir. 2012).....................................................30

Heinrich v. Waiting Angels Adoption Servs., Inc.,

668 F.3d 393 (6th Cir. 2012) ............................................................ 16, 18-19, 27

Helwig v. Vencor, Inc.,

251 F.3d 540 (6th Cir. 2001) ................................................................................8

Indiana State Dist. Council of Laborers & Hod Carriers Pension &

Welfare Fund v. Omnicare, Inc., 583 F.3d 935 (6th Cir. 2009)...........................5

In re ClassicStar Mare Lease Litig.,

727 F.3d 473 (6th Cir. 2013) ........................................................................23, 25

In re Donald J. Trump Casino Sec. Litig.-Taj Mahal Litig.,

7 F.3d 357 (3d Cir. 1993) ...................................................................................14

In re Herbalife, Ltd. Sec. Litig.,

Case. No. 2:14-cv-02850-DSF-JCG (C.D. Cal. July 28, 2015) .........................10

In re Koscot Interplanetary, Inc.,

86 F.T.C. 1106 (1975) ........................................................................................28

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 9 of 48 Pg ID 1617
v

18898797.3

In re Morgan Stanley Tech. Fund Sec. Litig.,

643 F. Supp. 2d 366 (S.D.N.Y. 2009) ................................................................15

In re Omnicare, Inc. Sec. Litig.,

769 F.3d 455 (6th Cir. 2014) ......................................................................Passim

In re Royal Ahold N.V. Sec. & ERISA Litig.,

351 F. Supp. 2d 334 (D. Md. 2004)....................................................................13

In re Royal Dutch/Shell Transp.,

2006 WL 2355402 (D.N.J. Aug. 14, 2006) ........................................................13

In re Sofamor Danek Grp., Inc.,

123 F.3d 394 (6th Cir. 1997) ................................................................................5

In re United Am. Healthcare Corp. Sec. Litig.,

2007 WL 313491 (E.D. Mich. Jan. 30, 2007) ......................................................5

In re YUM! Brands, Inc. Sec. Litig.,

73 F. Supp. 3d 846 (W.D. Ky. 2014)..............................................................9, 15

Janus Capital Grp., Inc. v. First Derivative Traders,

131 S. Ct. 2296 (2011)..........................................................................................4

Kalamazoo River Study Grp. v. Rockwell Int’l,

3 F. Supp. 2d 815 (W.D. Mich. 1997)................................................................29

Malack v. BDO Seidman, LLP,

617 F.3d 743 (3d Cir. 2010) ...............................................................................12

Muncy v. Intercloud Systems, Inc.,

2015 WL 1038714 (E.D. Ky. Mar. 10, 2015) ......................................................9

Ockerman v. May Zima & Co.,

27 F.3d 1151 (6th Cir. 1994) ..............................................................................12

Pa. Emp. Benefit Tr. Fund v. Zeneca, Inc.,

710 F. Supp. 2d 458 (D. Del. 2010)....................................................................29

Perry v. Am. Tobacco Co.,

324 F.3d 845 (6th Cir. 2003) ..............................................................................29

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 10 of 48 Pg ID 1618
vi

18898797.3

Pinter v. Dahl, 

486 U.S. 622 (1988)............................................................................................14

Republic of Panama v. BCCI Holdings,

119 F.3d 935 (11th Cir. 1997) ............................................................................19

Smith v. Am. Nat’l Bank & Trust Co.,

982 F.2d 936 (6th Cir. 1992) ..............................................................................14

Steamfitters Local Union No. 420 Welfare Fund v. Philip Morris, Inc.,

171 F.3d 912 (3d Cir. 1999) .........................................................................28, 30

Stoneridge Inv. Partners, LLC v. Scientific-Atlanta,

552 U.S. 148 (2008)...................................................................................... 11-13

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 

551 U.S. 308 (2007)..............................................................................................8

Turner v. F.T.C., 

580 F.2d 701 (D.C. Cir. 1978)............................................................................28

United States v. DeSantis,

134 F.3d 760 (6th Cir. 1998) ..............................................................................16

United States v. Gold Unlimited, Inc.,

177 F.3d 472 (6th Cir. 1999) ..........................................................................5, 13

Walker v. Brooke Corp.,

2010 WL 1257341 (E.D. Mich. Mar. 30, 2010).................................................30

Webster v. Omnitrition, Int’l,

79 F.3d 776 (9th Cir. 1996) ................................................................................13

Zaluski v. United Am. Healthcare Corp.,

527 F.3d 564 (6th Cir. 2008) ................................................................................5

STATUTES

15 U.S.C. § 78j(b)......................................................................................................2

15 U.S.C. § 78u-4(b)(1).............................................................................................2

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 11 of 48 Pg ID 1619
vii

18898797.3

M.C.L.A § 445.1531(1) ...........................................................................................30

M.C.L § 445.903......................................................................................................27

RICO Section 1962(c)......................................................................................Passim

Section 10(b) of the Securities Exchange Act of 1934...................................... 1, 3-4

Section 12(2) of the Securities Act of 1933 (the “12(2) Claims”) ................ 1, 13-15

OTHER AUTHORITIES

17 C.F.R. § 240.10b-5......................................................................................Passim

17 C.F.R. § 240.10b-5(a) .........................................................................................13

17 C.F.R. § 240.10b-5(b)...........................................................................................4

Fed. R. Civ. P. 9(b) ..........................................................................................Passim

Fed R. Civ. P. 12(b)(6).............................................................................................13

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 12 of 48 Pg ID 1620
viii

18898797.3

STATEMENT OF ISSUES PRESENTED

1. In Count III, does the FAC plead with particularity, in accordance with FRCP 

9(b) and the PSLRA, an actionable misrepresentation or omission under Section 

10(b)/Rule 10b-5 made by each of the ViSalus Defendants?

ViSalus Defendants’ Answer: No.

2. In Count III, does the FAC plead with particularly, in accordance with FRCP 

9(b) and the PSLRA, facts giving rise to a strong inference that each of the 

ViSalus Defendants acted with the required state of mind for Plaintiffs’ Section 

10(b)/Rule 10b-5(a) through (c) claims?

ViSalus Defendants’ Answer: No.

3. In Count III, does the FAC plead justifiable reliance in support of their Section 

10(b)/Rule 10b-5(a) through (c) claims?

ViSalus Defendants’ Answer: No.

4. In Count IV, does the FAC plead sufficient facts demonstrating that, pursuant to 

Section 12(2), the Individual Defendants could reasonably be considered a 

“seller” and that any of the ViSalus Defendants made an actionable 

misrepresentation or omission?

ViSalus Defendants’ Answer: No.

5. In Counts I and II, does the FAC state a valid RICO claim against any of the 

ViSalus Defendants?

ViSalus Defendants’ Answer: No.

6. In Count VI, does the FAC state a valid claim under the Michigan Consumer 

Protection Act (M.C.L. § 445.903) against any of the ViSalus Defendants other 

than ViSalus?

ViSalus Defendants’ Answer: No.

7. In Count VI, does the FAC state a claim under the Michigan Consumer 

Protection Act (M.C.L. §445.911(3)(c)) against any of the ViSalus Defendants?

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 13 of 48 Pg ID 1621
ix

18898797.3

ViSalus Defendants’ Answer: No.

8. In Count VII, does the FAC state a valid claim for unjust enrichment against 

any of the ViSalus Defendants?

ViSalus Defendants’ Answer: No.

9. In Count XI, does the FAC state a valid claim under Section 5 of the Michigan 

Franchise Investment Law against any of the ViSalus Defendants? 

ViSalus Defendants’ Answer: No.

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 14 of 48 Pg ID 1622
x

18898797.3

CONTROLLING OR MOST APPROPRIATE AUTHORITIES

Regarding the pleading standard

Bell Atl. Corp. v. Twombly,

550 U.S. 544 (2007)

Ashcroft v. Iqbal,

556 U.S. 662 (2009)

Fed. R. Civ. P. 9(b)

Fed. R. Civ. P. 12(b)(6)

Private Securities Litigation Reform Act

Regarding the 10(b)/10b-5 claims (Count III)

Freeman v. Laventhol & Horwath, 

915 F.2d 193 (6th Cir. 1990)

In re Omnicare, Inc. Sec. Litig.,

769 F.3d 455 (6th Cir. 2014)

Janus Capital Grp., Inc. v. First Derivative Traders, 

131 S. Ct. 2296 (2011)

Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 

552 U.S. 148 (2008)

Regarding the Section 12(2) claims (Count IV)

In re Donald J. Trump Casino Sec. Litig.-Taj Mahal Litig.,

7 F.3d 357 (3d Cir. 1993)

Smith v. Am. Nat’l Bank & Trust Co.,

982 F.2d 936 (6th Cir. 1992)

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 15 of 48 Pg ID 1623
xi

18898797.3

Regarding the RICO claims (Counts I and II)

Heinrich v. Waiting Angels Adoption Servs., Inc.,

668 F.3d 393 (6th Cir. 2012)

In re ClassicStar Mare Lease Litig.,

727 F.3d 473 (6th Cir. 2013)

Regarding the Michigan Consumer Protection Act claim (Count VI)

M.C.L § 445.903

M.C.L. § 445.911(3)(c)

Regarding the unjust enrichment claim (Count VII)

El Camino Res., LTD. v. Huntington Nat’l Bank,

722 F. Supp. 2d 875 (W.D. Mich. 2010)

Steamfitters Local Union No. 420 Welfare Fund v. Philip Morris, Inc.,

171 F.3d 912 (3d Cir. 1999)

Regarding Section 5 of the Michigan Franchise Investment Law (Count XI)

Cook v. Little Caesar Enters., Inc., 

972 F. Supp. 400 (E.D. Mich. 1997)

Franchise Mgmt. Unlimited, Inc. v. America’s Favorite Chicken,

561 N.W.2d 123 (Mich. Ct. App. 1997)

Walker v. Brooke Corp., 

2010 WL 1257341 (E.D. Mich. Mar. 30, 2010)

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 16 of 48 Pg ID 1624
INTRODUCTION

Plaintiffs’ First Amended Complaint (the “FAC”) [Dkt. 56] brings two new 

claims and attempts to re-plead several others. The new claims are Count III, in 

which Plaintiffs allege a violation of Section 10(b) of the Securities Exchange Act 

of 1934 and Rule 10b-5 (the “10(b)/10b-5 Claims”), and Count IV, in which 

Plaintiffs allege violations of Section 12(2) of the Securities Act of 1933 (the 

“12(2) Claims”). These new claims are deficient – not because Plaintiffs fail to 

allege the existence of a security (ViSalus concedes that point) – but rather because 

Plaintiffs fail to plead other essential elements of those claims. On the Section 

10(b) claims, Plaintiffs do not plead, with particularity and in accordance with the 

PSLRA, an actionable misrepresentation or omission, scienter and justifiable 

reliance. As for the 12(2) Claims, only ViSalus could reasonably be considered a 

“seller.” And as to ViSalus, Plaintiffs have not pled an actionable 

misrepresentation or omission. The re-pled RICO claims and some of the state law 

claims should be dismissed again as well, for the reasons set forth herein.1

I. THE 10(b)/10b-5 CLAIMS SHOULD BE DISMISSED.

In Count III, Plaintiffs allege that each of the ViSalus Defendants (and 

Defendant Sarnicola) “made material misrepresentations and/or omissions in 

connection with the sale of distributorships to Plaintiffs and the class” in violation 

 

1 The ViSalus Defendants do not seek dismissal of Counts V and VIII-X.

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 17 of 48 Pg ID 1625
2

18898797.3

of 15 U.S.C. § 78j(b) (“10(b)”) and 17 C.F.R. § 240.10b-5 (“10b-5”). [Dkt. 56, at 

169-70 (¶ 218).] A Section 10(b)/10b-5 claim has six elements: “(1) a material 

misrepresentation or omission by the defendant; (2) scienter; (3) a connection 

between the misrepresentation or omission and the purchase or sale of a security; 

(4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) 

loss causation.” In re Omnicare, Inc. Sec. Litig. (“Omnicare”), 769 F.3d 455, 469 

(6th Cir. 2014). Securities fraud claims are subject not only to the pleading 

requirements of Rule 9(b) but also the more exacting pleading standards imposed 

by the PSLRA, which requires that Plaintiffs “specify each statement alleged to 

have been misleading, [and] the reason or reasons why the statement is 

misleading.” 15 U.S.C. § 78u-4(b)(1). Plaintiffs must also “state with particularity 

facts giving rise to a strong inference that the defendants acted with the required 

state of mind.” Id. § 78u-4(b)(2). The 10b/10b-5 Claims should be dismissed 

because Plaintiffs have not alleged (1) an actionable misrepresentation or omission 

by each defendant, (2) scienter allegations giving rise to a strong inference that

each defendant knew ViSalus was a pyramid scheme, and (3) facts supporting a 

plausible inference of justifiable reliance.

A. Plaintiffs Have Not Pled Actionable Misrepresentations Or 

Omissions By Each Defendant.

Beginning with affirmative misrepresentations, Plaintiffs plead only 

generally that “Defendants falsely represented that they were conveying a legal 

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 18 of 48 Pg ID 1626
3

18898797.3

business opportunity, when, in fact, they and each of them knew or recklessly 

ignored that Plaintiffs were purchasing an interest in an illegal pyramid scheme.” 

These group pleading allegations do not satisfy Plaintiffs’ obligations under the 

PSLRA and Rule 9(b). See D.E.& J Ltd. P’ship v. Conaway, 284 F. Supp. 2d 719, 

730 (E.D. Mich. 2003) (recognizing that “‘group pleading’ run[s] afoul of Central 

Bank [v. First Interstate Bank of Denver, N.A., 511 U.S 164 (1994)]” and fails to 

meet both Rule 9(b)’s specificity requirements and the “heightened standards for 

pleading a Section 10(b) violation after passage of the PSLRA”). The summary 

allegations of wire fraud [Dkt. 56, at 106-24 (¶ 186)] also do not help Plaintiffs. 

None of those allegations contain the alleged false affirmative misrepresentation 

that the ViSalus program was “a legal business opportunity.”

The only affirmative representations identified as actually being made to 

Plaintiffs are those contained in the Compensation Plan. [Dkt. 56, Ex. A.] 

Plaintiffs assert that they were presented a copy of the Compensation Plan during 

meetings they attended. But they do not allege that the representations in the 

Compensation Plan were made by anyone other than ViSalus. In fact, Plaintiffs 

admit that they do not know who presented the Compensation Plan to them, or 

even who spoke at the various meetings they attended when they received the 

Compensation Plan. [Dkt. 56, at 176 (¶ 238).] Thus, the only “maker” of an 

alleged misrepresentation or omission is ViSalus, and the 10(b)/10b-5 Claims 

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 19 of 48 Pg ID 1627
4

18898797.3

directed at the individual defendants should be dismissed for this independent 

reason. See Janus Capital Grp., Inc. v. First Derivative Traders, 131 S. Ct. 2296, 

2302 (2011) (recognizing that 10b-5 liability based on alleged misrepresentations 

or omissions is limited to the “maker” of the misrepresentation or omission and 

holding that “the maker of a statement is the person or entity with ultimate 

authority over the statement, including its content and whether and how to 

communicate it.”). Even as to ViSalus, however, the Compensation Plan does not 

contain an affirmative representation that ViSalus is a “legal business opportunity.”

Plaintiffs’ real complaint is that the representations contained in the 

Compensation Plan were misleading because ViSalus failed to disclose that it is 

actually a pyramid scheme.2 See 17 C.F.R. § 240.10b-5(b) (“It shall be unlawful 

for any person . . . [t]o make any untrue statement of a material fact or to omit to 

state a material fact necessary in order to make the statements made, in light of the 

circumstances under which they were made, not misleading.”) (emphasis added). 

But these allegations are simply Plaintiffs’ own legal conclusions and opinions, 

 

2 Plaintiffs do not (and could not) allege that ViSalus had a duty to disclose in the 

absence of any affirmative representation. “[S]ilence in connection with the 

purchase or sale of securities may operate as a fraud actionable under §10(b) . . . . 

But such liability is premised upon a duty to disclose arising from a relationship of 

trust and confidence between parties to a transaction.” Chiarella v. U.S., 445 U.S. 

222, 230 (1980) (citing Affiliated Ute Citizens v. U.S., 406 U.S. 128 (1972)).

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 20 of 48 Pg ID 1628
5

18898797.3

which the Sixth Circuit characterizes as “soft information.”3 Omnicare, 769 F.3d 

at 470; see also In re Sofamor Danek Grp., Inc., 123 F.3d 394, 401-02 (6th Cir. 

1997) (“Hard information is typically historical information or other factual 

information that is objectively verifiable. . . . Such information is to be contrasted 

with soft information, which includes predictions and matters of opinion. . . .”) 

(internal quotations and citations omitted); Indiana State Dist. Council of Laborers 

& Hod Carriers Pension Welfare Fund v. Omnicare, Inc., 583 F.3d 935, 945 (6th 

Cir. 2009) (generally, “statements regarding ‘legal compliance’ are not actionable 

because companies have no duty to opine about the legality of their own actions”).

In the Sixth Circuit, the duty to disclose “soft information” exists “only if it 

is virtually as certain as hard facts.” Zaluski v. United Am. Healthcare Corp., 527 

F.3d 564, 572 (6th Cir. 2008) (quoting City of Monroe Emps. Ret. Sys. v. 

Bridgestone Corp., 399 F.3d 651, 669 (6th Cir. 2005)); In re United Am. 

Healthcare Corp. Sec. Litig., 2007 WL 313491, at *13 (E.D. Mich. Jan. 30, 2007) 

(“The Sixth Circuit’s cases ‘firmly establish the rule that soft information . . . must 

be disclosed only if . . . virtually as certain as hard facts.’”) (quoting Sofamor 

 

3 In Gold, the Sixth Circuit acknowledged that resolving the question of whether 

an MLM is operating as an illegal pyramid involves application of a multi-factor 

test and in-depth analysis. See Gold Unlimited, Inc., 177 F.3d at 479-80. Relying 

on Gold, Plaintiffs concede that there is no “bright line” between an MLM and a 

pyramid scheme. [Dkt. 56, at 19 (¶ 41) (“No clear line separates illegal pyramid 

schemes from legitimate multilevel marketing programs”) (quoting United States 

v. Gold Unlimited, Inc., 177 F.3d 472, 475 (6th Cir. 1999)).] 

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 21 of 48 Pg ID 1629
6

18898797.3

Danek, 123 F.3d at 402). In other words, a plaintiff must “allege particular facts 

demonstrating that the defendants had actual knowledge that their statements 

concerning soft information were false or misleading at the time they were made.” 

Omnicare, 769 F.3d at 471 (emphasis added). And where a claim is based on an 

alleged omission of a material fact that should have been disclosed to correct an 

inaccurate, incomplete or misleading prior disclosure, the same standard applies:

If the new information is soft, then a person or

corporation has a duty to disclose it “only if it is virtually 

as certain as hard facts” and contradicts the prior 

statement. . . . In other words, the new information must 

be so concrete that the defendant must have actually 

known that the new information renders the prior 

statement misleading or false and still did not disclose it. 

Id. at 471 (quoting Sofamor Danek, 123 F.3d at 402) (emphasis added). As 

discussed in the next section addressing Plaintiffs’ scienter allegations, Plaintiffs 

have not pled facts showing that any of the ViSalus Defendants had actual 

knowledge that their statements concerning the ViSalus program were false – i.e., 

that when Plaintiffs were presented the Compensation Plan, the ViSalus 

Defendants knew that ViSalus actually was a pyramid.4

 

4 In Omnicare, the court instructs us to deal with the subjective inquiry as to 

whether the complaint’s allegations sufficiently allege that the ViSalus defendants 

knew that ViSalus was a pyramid as part of the scienter analysis, rather than the 

actionable misrepresentation analysis. 769 F.3d at 471 (“Under either approach, 

Plaintiffs will need to allege particular facts demonstrating that defendants had 

actual knowledge that their statements concerning soft information were false or 

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 22 of 48 Pg ID 1630
7

18898797.3

B. Plaintiffs Have Not Pled A Strong Inference Of Scienter.

To state a claim under 10(b)/10b-5, Plaintiffs must plead facts showing that 

each defendant acted with a “mental state embracing intent to deceive, manipulate 

or defraud.” Omnicare, 769 F.3d at 472 (citation omitted). In Omnicare, the Sixth 

Circuit explained:

In the past, we have read this language to require 

plaintiffs to allege facts showing that defendants acted 

with at least recklessness. . . . However, when plaintiffs 

accuse defendants of misrepresenting or omitting soft 

information . . . plaintiffs must plead facts showing that 

the defendants knowingly misrepresented or omitted facts 

to deceive, manipulate, or defraud the public.

Id. at 472 (emphasis added) (citation omitted). Allegations that Defendants were 

“reckless” [see, e.g., Dkt. 56, at 171 (¶ 221)] are therefore insufficient.

Plaintiffs’ allegations that each of the Defendants “knew” that Plaintiffs 

were purchasing an interest in an illegal pyramid fail as well. The Supreme Court 

has developed a three-part test to assess the sufficiency of scienter allegations:

(1) accept all factual allegations in the complaint as true.

(2) “consider the complaint in its entirety” and decide

“whether all of the facts alleged, taken collectively, give 

rise to strong inference of scienter,” not whether any 

individual allegation, scrutinized in isolation, meets that 

standard.

(3) assuming that the allegations create a “powerful or 

 

misleading at the time that they were made. But for the sake of clarity, it makes

the most sense to adopt the First Circuit’s approach and conceive of this additional 

requirement as raising the bar for alleging scienter”).

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 23 of 48 Pg ID 1631
8

18898797.3

cogent” inference of scienter, compare this inference 

with other competing possibilities, allowing the 

complaint to go forward “only if a reasonable person 

would deem the inference of scienter cogent and at least 

as compelling as any opposing inference one could draw 

from the facts alleged.”

Omnicare, 769 F.3d at 473 (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 

551 U.S. 308, 322-24 (2007)). With respect to the individual defendants, the Sixth 

Circuit also considers additional factors such as whether there was:

(1) insider trading at a suspicious time or in an unusual 

amount; (2) divergence between internal reports and 

external statements on the same subject; (3) closeness in 

time of an allegedly fraudulent statement or omission and 

the later disclosure of inconsistent information; (4) 

evidence of bribery by a top company official; (5) 

existence of an ancillary lawsuit charging fraud by a 

company and the company’s quick settlement of that suit; 

(6) disregard of the most current factual information 

before making statements; (7) disclosure of accounting 

information in such a way that its negative implications 

could only be understood by someone with a high degree 

of sophistication; (8) the personal interest of certain 

directors in not informing disinterested directors of an 

impending sale of stock; and (9) the self-interested 

motivation of defendants in the form of saving their 

salaries or jobs.

Id. (quoting Helwig v. Vencor, Inc., 251 F.3d 540, 552 (6th Cir. 2001) (overruled 

on other grounds)); D.E.& J Ltd. P’ship v. Conaway, 284 F. Supp. 2d 719, 741 

(E.D. Mich. 2003), aff’d sub nom. D.E.& J Ltd. P’ship v. Conaway, 133 F. App’x 

994 (6th Cir. 2005) (applying Helwig factors); City of Pontiac Gen. Emps.’ Ret. 

Sys. v. Stryker Corp., 865 F. Supp. 2d 811, 832-33 (W.D. Mich. 2012) (same). 

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 24 of 48 Pg ID 1632
9

18898797.3

“The more of these factors that are present, the stronger the inference that the 

defendant made his statement with the requisite state of mind.” Omnicare, 769 

F.3d at 473.

In this case, the only factor arguably alleged is the “self-interested 

motivation of defendants in the form of saving their salaries or jobs” – i.e., that the 

defendants had a motivation and opportunity to keep making money from the 

alleged scheme. [Dkt. 56, at 171 (¶ 221) (“Each of the Defendants benefitted in 

concrete and substantial way from the operation of the pyramid scheme.”)] But 

this allegation alone is insufficient to give rise to a strong inference that the 

Defendants knew plaintiffs were investing in a pyramid scheme. See Omnicare, 

769 F.3d at 484 (“If a well-pleaded complaint can allege only that a corporation 

intended to defraud based on a desire to continue earning money, without showing 

a particular link between the actual statement and a specific payment, then the 

heightened pleading standard for scienter has no bite.”)5 

Plaintiffs also allege that “[e]ach of the Defendants engaged in plainly illegal 

behavior,” and that each “had a specific understanding that he was engaged in the 

 

5 See also Muncy v. Intercloud Systems, Inc., 2015 WL 1038714, *11 (E.D. Ky. 

Mar. 10, 2015) (allegations that the defendant “wanted to increase its profits does 

little to establish scienter”); In re YUM! Brands, Inc. Sec. Litig., 73 F. Supp. 3d 

846, 868-69 (W.D. Ky. 2014) (finding that allegations that the individual 

defendants acted with scienter to perpetuate Yum!’s rapid growth rate and 

profitability and, by doing so, maintain their jobs, high compensation levels, and 

personal reputations, did not give rise to a strong inference of scienter).

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 25 of 48 Pg ID 1633
10

18898797.3

commission of a pyramid scheme.” [Dkt. 56, at 171 (¶ 221).] But these are 

nothing more than conclusory allegations, unsupported by any facts that could 

show a strong inference of scienter. The only other scienter allegations concern 

certain Defendants’ purported knowledge of what a pyramid scheme is (e.g., from 

the Preliminary Prospectus) or the fact that ViSalus might be a pyramid scheme. 

[Id.] But on their face, these allegations do not support an inference that these 

defendants knew that ViSalus was a pyramid scheme. In summary, Plaintiffs have 

not pled facts that plausibly support a strong inference that each individual 

defendant knew that ViSalus was a pyramid scheme at the time Plaintiffs were 

presented with the Compensation Plan and enrolled as IPs.6

 

6 Two different District Courts have rejected similar claims. In Abuhamdan v. 

Blyth, Inc., 9 F. Supp. 3d 175 (D. Conn. 2014), and In re Herbalife, Ltd. Sec. Litig., 

Case. No. 2:14-cv-02850-DSF-JCG (C.D. Cal. July 28, 2015), plaintiffs alleged 

that the MLM defendants failed to disclose that their companies would eventually 

fail because they were dependent upon recruiting and not sales to consumers – i.e., 

they were pyramids. In each case, the courts held that the plaintiffs’ 10b/10b-5 

claims did not satisfy Rule 9(b) and the PSLRA because, among other reasons, 

there were no factual allegations that the defendants knew that the company was a 

pyramid and would eventually fail. Abuhamdan, 9 F. Supp. 3d at 204 (“[E]ven 

assuming that the growth was unsustainable – or that ViSalus’s demise was a 

mathematical certainty – the Complaint does not plead sufficient facts to support 

the inference that Defendants knew or should have known, at the time they made 

statements about ViSalus, that the growth was unsustainable . . . .”); In re 

Herbalife, at 3-4 (while Plaintiffs’ “allegations arguably permit the inference that 

Herbalife will be penalized for business practices consistent with those of pyramid 

schemes,” “[t]he allegations do not, however, permit the inference that Defendants 

misrepresented Herbalife’s operations with deliberate recklessness or an intent to 

deceive”).

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 26 of 48 Pg ID 1634
11

18898797.3

As to ViSalus, Plaintiffs’ scienter allegations also fail under the Sixth 

Circuit’s corporate scienter rule. See Omnicare, 769 F.3d at 476. As shown, the 

facts alleged do not support a strong inference that any of the individual defendants 

named in Count III knew that ViSalus was a pyramid scheme. And there are no 

facts alleged as to any other agents who would come within the Sixth Circuit’s 

corporate scienter rule and whose knowledge could be imputed to the company. 

Therefore, the claim against ViSalus should be dismissed as well. 

C. Plaintiffs Have Not Pled Justifiable Reliance.

“Reliance is an essential element of a Rule 10b-5 claim that must be pleaded 

and proved by Plaintiffs.” Freeman v. Laventhol & Horwath, 915 F.2d 193, 197 

(6th Cir. 1990) (citing Basic, Inc. v. Levinson, 485 U.S. 224, 243 (1988)). 

Plaintiffs have not identified a single misrepresentation or omission by any 

individual defendant named in Count III that they ostensibly relied upon in 

enrolling as ViSalus IPs. Instead, Plaintiffs state in conclusory fashion that 

“reliance may be presumed.” [Dkt. 56, at 171 (¶ 220).] However, the Supreme 

Court has recognized only two situations that give rise to a rebuttable presumption 

of reliance: “First, if there is an omission of a material fact by one with a duty to 

disclose, the investor to whom the duty was owed need not provide specific proof 

of reliance.” Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 

159 (2008) (citing Affiliated Ute Citizens v. U.S., 406 U.S. 128, 153-54 (1972)). 

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 27 of 48 Pg ID 1635
12

18898797.3

And “[s]econd, under the fraud-on-the-market doctrine, reliance is presumed when 

the statements at issue become public.” Id. (citing Basic, 485 U.S. at 247). 

Neither situation applies here.

First, Plaintiffs have not, and cannot, plead facts that would support an 

inference of a fiduciary or other special relationship that would give rise to an 

affirmative duty to disclose; nor have they pled facts supporting a duty to disclose 

the “soft” information in dispute. See supra, Section I.A. Second, the 

distributorships are not actively traded on an efficient market, so the “fraud on the 

market” presumption does not apply here. See Freeman, 915 F.2d at 198.7

D. Plaintiffs Have Not Pled a “Scheme Liability” Claim.

In an August 28 letter from their counsel, Plaintiffs “clarified” that Count III 

asserts not only a claim based on misrepresentations and omissions under 10b-5(b), 

but also a claim of “scheme liability” under 10b-5(a) and (c). Taking this 

clarification at face value, Count III should still be dismissed because even a 

“scheme liability” claim requires allegations of fact sufficient to establish a strong 

 

7 To the extent Plaintiffs urge a “fraud created the market” presumption, the Sixth 

Circuit twice has rejected that theory. See Freeman, 915 F.2d at 198; see also

Ockerman v. May Zima & Co., 27 F.3d 1151, 1159 (6th Cir. 1994) (“The fraudcreated-the-market theory appears to be at odds with our decision in Freeman”). 

The Court should likewise refuse to recognize such a presumption of reliance in 

this case. See Malack v. BDO Seidman, LLP, 617 F.3d 743, 756 (3d Cir. 2010) 

(fraud created the market theory “lacks a basis in common sense, probability, or 

any of the other reasons commonly provided for the creation of a presumption”).

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 28 of 48 Pg ID 1636
13

18898797.3

inference of scienter and justifiable reliance. See In re Royal Dutch/Shell Transp., 

2006 WL 2355402, at *3, 7 (D.N.J. Aug. 14, 2006) (to state a claim under Rule 

10b-5(a) or (c) a plaintiff must plead scienter and reliance); see also In re Royal 

Ahold N.V. Sec. & ERISA Litig., 351 F. Supp. 2d 334, 372 & n.25 (D. Md. 2004) 

(“[C]laims under 10b–5(a) and (c) are subject to the heightened pleading 

requirements of Rule 9(b) and the PSLRA . . . .”); Stoneridge, 552 U.S. at 769-70 

(recognizing that reliance must be shown in connection with a 10b-5 “scheme” 

claim). Thus, Plaintiffs’ 10b-5(a)/(c) claim must be dismissed for the same reasons 

their 10b-5(b) claims fail.8

II. THE 12(2) CLAIMS SHOULD BE DISMISSED.

A. The Individual Defendants Are Not Statutory Sellers.

Only a person who “offers or sells a security” can be subject to primary 

liability for a violation of Section 12(2). With the exception of ViSalus, Plaintiffs’ 

 

8 Plaintiffs suggest that Webster v. Omnitrition, Int’l, 79 F.3d 776 (9th Cir. 1996),

and Gold Unlimited somehow eliminate the requirement that they plead scienter in 

addition to the existence of a pyramid scheme. Their reliance on these cases is 

misplaced. Neither one of these cases involved an evaluation of the sufficiency of 

pleadings under Rules 12(b)(6), 9(b) (post-Twombly/Iqbal) and the PSLRA. In 

fact, the pleadings in Omnitrition pre-date the heightened pleading requirements 

for scienter now compelled by the PSLRA. Gold also did not concern a securities 

fraud issue (it was a wire/mail fraud prosecution). Moreover, the court in Gold

made it clear that even after proof that the defendants engaged in a pyramid 

scheme, “the jury still had to find that the defendants acted knowingly when they 

devised their plan, and that the defendants did so with intent to defraud.” Gold, 

177 F.3d at 486. In other words, in addition to proving the existence of a pyramid, 

the prosecution in Gold was required to allege and prove scienter, and so are the 

Plaintiffs. Only now, their scienter allegations are subject to the PSLRA.

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 29 of 48 Pg ID 1637
14

18898797.3

claims for primary violations of Section 12(2) under Count IV should be dismissed 

because none of those other Defendants offered or sold a security to Plaintiffs.

“The test is not whether the defendant was a ‘substantial factor’ in causing 

the sale of securities, but whether the defendant either passed title or offered to do 

so, or solicited an offer.” Smith v. Am. Nat’l Bank & Trust Co., 982 F.2d 936, 942 

(6th Cir. 1992) (citing Pinter v. Dahl, 486 U.S. 622 (1988)). Plaintiffs have not 

alleged facts sufficient to support their conclusion that any of the Defendants 

(other than ViSalus) sold or offered to sell them the business opportunity described 

in the Compensation Plan. In fact, Plaintiffs confirm that they do not know who 

presented the Compensation Plan to them. [Dkt. 56, at 176 (¶ 238).] For this 

reason, the Section 12(2) claims against everyone but ViSalus should be dismissed.

B. Plaintiffs Have Not Pled Actionable Misrepresentations Or 

Omissions By ViSalus.

Although scienter is not an element of Plaintiffs’ prima facie claim under 

Section 12(2), an actionable misrepresentation or omission is an element. The 

claim thus fails for many of the same reasons the 10(b)/10b-5 claims fail. Plaintiffs 

again point to the Compensation Plan, which they allege “omits to disclose that the 

seller [ViSalus] operates a pyramid scheme” [Dkt. 56, at 173 (¶ 227).] But they 

have not alleged facts to show that there was a duty to disclose this “soft 

information” and thus, an actionable misrepresentation or omission. See supra 

Section I.A.; see also In re Donald J. Trump Casino Sec. Litig.-Taj Mahal Litig., 7 

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 30 of 48 Pg ID 1638
15

18898797.3

F.3d 357, 368-69 (3d Cir. 1993) (recognizing that for Section 12(2) and 10(b) 

claims, statements of “soft information” are not actionable unless there are 

sufficient allegations to show that “the speaker does not genuinely and reasonably 

believe them”); In re Morgan Stanley Tech. Fund Sec. Litig., 643 F. Supp. 2d 366, 

380-81 (S.D.N.Y. 2009), aff’d sub nom. In re Morgan Stanley Info. Fund Sec. 

Litig., 592 F.3d 347 (2d Cir. 2010) (dismissing 12(2) claims where there were no 

allegations that the defendant investment advisors were aware of the alleged 

conflicts of interest that were the subject of plaintiffs’ omissions claims). For this 

independent reason, the Section 12(2) Claims fail.9

III. PLAINTIFFS’ RICO CLAIMS SHOULD BE DISMISSED.

In Count I, Plaintiffs re-assert a RICO Section 1962(c) claim. The FAC, 

however, again fails to establish several required elements of a RICO claim as to 

each Defendant. First, Plaintiffs have not pled facts plausibly demonstrating that 

any of the ViSalus Defendants acted with the requisite scienter. Second, Plaintiffs 

have not pled facts plausibly demonstrating that their injuries were proximately 

caused by the ViSalus Defendants’ purported predicate acts of mail and wire fraud. 

 

9 Within Count IV, Plaintiffs also allege that “[e]ach of Defendants Robert 

Goergen, Sr., Todd Goergen, Sarnicola, Mallen, and Blair named in this Count was 

a control person over ViSalus.” [Dkt. 56, at 173 (¶ 228).] These allegations fail, 

however, because “[a] Section 20(a) claim must be predicated on at least one 

underlying violation of securities law by a controlled person . . . .” In re Yum! 

Brands, 73 F. Supp. 3d at 870-71. Because the primary Section 12(2) claim 

against ViSalus fails, the secondary control person claims necessarily fail, too.

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 31 of 48 Pg ID 1639
16

18898797.3

Third, Plaintiffs have failed to allege a RICO enterprise that is distinct from 

ViSalus. Finally, Plaintiffs have not sufficiently alleged that either Goergen 

(Robert Sr. or Todd) committed at least two predicate acts.

A. There Are No Facts Supporting A Plausible Inference Of Scienter.

To prevail on a Section 1962(c) claim predicated on wire fraud, a plaintiff 

must “adequately allege[] that the person making the[] representations acted with 

knowledge or reckless disregard of their falsity.” Heinrich v. Waiting Angels 

Adoption Servs., Inc., 668 F.3d 393, 406 (6th Cir. 2012).10 A “general averment of 

the defendant’s ‘knowledge’ of material falsity” is “uniformly held [to be] 

inadequate” unless the complaint “also sets forth specific facts that make it 

reasonable to believe that defendant knew that a statement was materially false or 

misleading.” Id. at 406 (citation omitted); see also Cranel, Inc. v. Pro Image 

Consultants Grp., 57 F. Supp. 3d 838, 851 (S.D. Ohio 2014) (“Although the 

 

10 Elsewhere, Heinrich cites United States v. DeSantis, 134 F.3d 760 (6th Cir. 

1998), to define scienter as “a specific intent to defraud or . . . recklessness with 

respect to potentially misleading information.” 668 F.3d at 404. What the Sixth 

Circuit actually said in DeSantis is that specific intent means (1) knowingly 

making a material misrepresentation or knowingly omitting a material fact; or (2) 

recklessness – i.e., an “‘extreme departure from the standards of ordinary care’” by 

omitting information that “presents a danger of misleading buyers or sellers that is 

either known to the defendant or is so obvious that the actor must have been aware 

of it.’” 134 F.3d at 764 (citation omitted). In both instances, the DeSantis

formulation focuses on knowledge; the knowledge is either actual or, in the case of 

the “obvious” danger, it is imputed to the wrongdoer. To the extent plaintiffs 

suggest the Sixth Circuit has adopted a lesser standard to establish scienter on a 

RICO claim, they are wrong.

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 32 of 48 Pg ID 1640
17

18898797.3

allegations . . . are sufficient to support the inference that the Defendants intended 

to misappropriate the Plaintiff’s property, they are insufficient to support the 

inference that the Defendants intended to defraud the Plaintiff”).

Plaintiffs allege that the Defendants committed fraud through their knowing 

participation in a pyramid scheme, but only one paragraph in the FAC attempts to 

establish that Defendants possessed the requisite scienter. [Dkt. 56, at 144-46 

(¶ 187).] As to ViSalus, Plaintiffs assert that the Court may infer scienter based on 

ViSalus’s acknowledgement (presumably in the Preliminary Prospectus) that 

pyramid schemes are illegal and that there is a risk that a governmental agency or 

court could require ViSalus to alter its business model. [Id.] As to Robert and 

Todd Goergen, Plaintiffs allege, in conclusory fashion, that they “understood that 

the operation of the business could be deemed illegal” – and that the Goergens 

were involved in ViSalus’s finances and management. [Id.] As to Blair and 

Mallen, Plaintiffs similarly allege that they were involved in ViSalus’s operations 

and also that they “participated” in a reality show “ridiculing the notion that the 

ViSalus network sales are in fact an illegal pyramid scheme.” [Id.]

None of these allegations, however, support a plausible inference that the 

ViSalus Defendants knew that ViSalus is a pyramid scheme and thus acted with 

fraudulent intent in failing to disclose that supposed fact. That pyramid schemes 

are illegal is well-known, but ViSalus’s mere acknowledgement of that fact hardly 

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 33 of 48 Pg ID 1641
18

18898797.3

supports an inference that ViSalus knew that it was operating a pyramid scheme. 

Similarly, the mere fact that the individual ViSalus Defendants were involved in 

ViSalus’s finances and management does not establish the requisite intent. Every 

business manager is involved in some way in the company’s finances and 

management. If that involvement alone were sufficient to establish scienter, then 

that requirement for mail and wire fraud would be rendered illusory. Finally, 

Plaintiffs provide no description of how Blair and Mallen participated in 

Sarnicola’s reality show, let alone how “participation” in an endeavor that mocks 

the idea that ViSalus could be a pyramid scheme actually supports an inference 

that any of the participants knew that ViSalus is in fact a pyramid scheme.

The Heinrich case helps illustrate the type of allegation that is insufficient to 

establish scienter. In that case, the prospective adoptive parents of Guatemalan 

children brought a RICO claim (mail/wire fraud) against an adoption agency and 

its principals. The parents alleged that the defendants had advertised children 

available for adoption from Guatemala and took non-refundable deposits from the 

plaintiffs knowing that the children advertised were not actually available for 

adoption. 668 F.3d at 406. The Sixth Circuit held that the plaintiffs had not pled 

scienter because they “fail[ed] to allege any specific facts that would allow us to 

infer that at the time defendants advertised children as available on their website, 

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 34 of 48 Pg ID 1642
19

18898797.3

they made this promise of availability with knowledge of its falsity.”11

The Heinrich case is fatal to Plaintiffs’ RICO claim. Whether a child 

advertised for adoption actually is available is “hard information” (to borrow a 

term from the securities fraud context) – i.e., it is objectively verifiable (the child is 

either available or not) and a fact whose existence can be determined before an 

advertisement is posted and deposits are accepted. Yet the Sixth Circuit found that 

the plaintiffs’ allegations in Heinrich failed to establish that the defendants had 

knowingly advertised unavailable children. On the other hand, the line between a 

legitimate multi-level marketing system and an illegal pyramid scheme is blurry at 

best – i.e., in the nature of “soft information.” That distinction suggests that, in 

this case, even more detailed supporting allegations would be needed than would 

have been the case in Heinrich. Regardless of whether the Sixth Circuit would 

recognize that hard-soft distinction for RICO scienter purposes, however, the 

allegations in Plaintiffs’ Complaint are precisely the type that the Sixth Circuit 

found insufficient in Heinrich because they do not support a plausible inference 

that the ViSalus Defendants knew that ViSalus was a pyramid scheme.

B. Plaintiffs Have Not Pled Proximate Cause.

In reviewing Plaintiffs’ original complaint, the Court found that “Plaintiffs 

 

11 See Republic of Panama v. BCCI Holdings, 119 F.3d 935, 950 (11th Cir. 1997) 

(no allegation that defendants “knew of either the source of the funds or their 

ultimate beneficiary” or knew that funds “were derived from unlawful activity”).

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 35 of 48 Pg ID 1643
20

18898797.3

have not pleaded the requisite causal connection between their injuries and 

predicate acts committed by each Defendant.” [Dkt. 54, at 52.] The Court 

instructed Plaintiffs that they must allege “that they personally received or viewed 

. . . the mailings, promotional materials, websites, or communications by these 

Defendants described in the Complaint” or that “they were lured into the ViSalus 

Program by others who had, in turn been influenced” by the defendants. [Id.]

Plaintiff Kerrigan alleges that he became a ViSalus distributor on two 

separate occasions, once after attending, in person, a meeting in San Diego and 

once after attending, in person, a meeting in Orlando. Kerrigan alleges only that 

presentations were made during those meetings and that the Compensation Plan 

was made available. [Dkt. 56, at 5-7 (¶¶ 8-10).] Similarly, Plaintiffs Mikovich and 

Valli both allege that they enrolled as ViSalus distributors after attending, in 

person, a meeting in Detroit. [Id. at 7-10 (¶¶ 11-14).]

These allegations fail to satisfy RICO’s proximate cause requirement. 

Plaintiffs do not allege that, prior to enrolling as distributors, they personally 

reviewed or received any of the mailings, websites, or electronic communications 

that they later identify as predicate acts in Paragraph 186 of the FAC. [Id. at 107-

44.] Plaintiffs do not allege that they attended the in-person meetings after 

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 36 of 48 Pg ID 1644
21

18898797.3

viewing any such mailing, website, or electronic communication.12 They do not 

allege that any such mailing, website, or electronic communication was utilized at 

the in-person meetings.13 They do not allege that they were “lured” into the 

ViSalus Program by others who had been influenced by having seen these 

mailings, websites, or electronic communications. Indeed, Plaintiffs do not even 

allege that the Compensation Plan was disseminated to them via mail or wire. On 

these facts, dismissal is warranted. See Danielson v. DBM, Inc., 2006 WL 

3246581, at *3 (N.D. Ga. Nov. 8, 2006) (dismissing RICO claim where “Plaintiffs 

do not allege that they ever received any mailing, flyer, letter, phone call, e-mail or 

Internet ad, or other mail or wire communication from Defendants”).

In Appendix 3, Plaintiffs summarize their proximate cause allegations, 

identifying Paragraphs 185 and 195-99 as containing the necessary information. 

Paragraph 185, though, contains nothing more than legal conclusions about the 

definition of wire fraud. And Paragraphs 195-99 contain only generalized 

 

12 For example, Plaintiffs claim that Robert Goergen, Sr. committed at least two 

predicate acts of wire fraud by making certain statements on video. [Dkt. 56, at 

69-70, 72. 75 (¶¶ 130, 133, 138).] Plaintiffs do not allege, however, that they (or 

anyone who “lured” them into ViSalus) had seen those videos prior to Plaintiffs’ 

voluntary decision to enroll as distributors. The same goes for the predicate acts 

alleged against the other ViSalus Defendants.

13 Plaintiffs allege only that a presentation given at the Detroit meeting that 

Mikovich and Valli attended was “similar” to a video published by Mallen and 

made on the ViSalus website. [Dkt. 56, at 7-8 (¶ 11).] An oral presentation does 

not become a wire simply because the presentation is similar in content to a wire.

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 37 of 48 Pg ID 1645
22

18898797.3

assertions that ViSalus was a pyramid scheme that was furthered by the 

Compensation Plan and the dissemination of false or misleading marketing 

materials – and that Plaintiffs (and the class) were victims of that scheme. That is 

not enough. The Court has already rejected the notion that “in order to satisfy their 

causation pleading requirement as to each Defendant, [Plaintiffs] need only allege 

that they (the Plaintiffs) were intended targets of the fraudulent scheme in which 

the Defendants participated.” [Dkt. 54, at 51.] Instead, the Court held that 

Plaintiffs had to show “a direct causal connection between the defendant’s 

predicate acts and the plaintiff’s injuries.” [Id. at 51, 53.] The FAC is devoid of 

these necessary allegations, warranting dismissal of the RICO claim.

C. Plaintiffs Do Not Allege A RICO Enterprise That Is Distinct From 

ViSalus.

The Section 1962(c) claim against ViSalus also fails for the separate and 

independent reason that Plaintiffs have not pled the existence of a RICO enterprise 

distinct from ViSalus itself. The original complaint alleged an association-in-fact 

enterprise consisting of all defendants, including the outside entities Fragmob and 

iCentris; however, the FAC now alleges an enterprise consisting solely of ViSalus, 

the Goergens, Sarnicola, Blair, Mallen, O’Toole, Pacetti, Fortner, Jackson, Wilson, 

Craig, Varon, Petrilli and Kirkland. [Dkt. 56, at 63 (¶120).]

The Sixth Circuit interprets Section 1962(c) to require a distinction between 

a corporate “person” named as the defendant (ViSalus) and the “enterprise.” See 

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 38 of 48 Pg ID 1646
23

18898797.3

In re ClassicStar Mare Lease Litig., 727 F.3d 473, 490 (6th Cir. 2013) (“‘[A] 

corporation may not be liable under section 1962(c) for participating in the affairs 

of an enterprise that consists only of its own subdivisions, agents, or members. An 

organization cannot join with its own members to undertake regular corporate 

activity and thereby become an enterprise distinct from itself’”) (quoting Begala v. 

PNC Bank, 214 F.3d 776, 781 (6th Cir. 2000)). After all, “if RICO imposed 

liability on a corporation for the ordinary conduct of its agents and employees, 

every claim of corporate fraud would automatically become a violation of RICO.” 

Id. at 490 (citing Fitzgerald v. Chrysler Corp., 116 F.3d 225, 226 (7th Cir. 1997)).

The Sixth Circuit has identified two distinctness principles: (1) individual 

defendants are “always distinct from corporate enterprises because they are legally 

distinct entities”; and (2) corporate defendants are distinct from RICO enterprises 

“when they are functionally separate, as when they perform different roles within 

the enterprise or use their separate legal incorporation to facilitate racketeering 

activity.” Id. at 492. The first principle does not apply here, because ViSalus, a 

corporate defendant, is challenging distinctness.14 And Plaintiffs fail to bring this 

 

14 The first principle applies when an individual is the RICO defendant and the 

alleged enterprise is the individual plus a corporation that he or she wholly owns. 

That was the fact pattern in Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 

158 (2001), where the Supreme Court held that the distinctness requirement was 

satisfied. Id. at 163-65. The Court distinguished that fact pattern from one where 

a corporation is the RICO defendant and the enterprise is an association in fact 

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 39 of 48 Pg ID 1647
24

18898797.3

case within the second principle. The FAC does not demonstrate how ViSalus is 

functionally separate from an alleged enterprise consisting of ViSalus, its officers, 

directors (current and former), and key distributors. [Dkt. 56, at 63 (¶ 120).]

The allegations concerning the “roles” of enterprise members simply recount 

ViSalus’s founding and its conduct of business through its officers, directors, and 

distributors. [Id. at 64-97 (¶¶ 122-67).] Plaintiffs do not explain how this regular 

corporate activity is functionally separate from the activity of the alleged 

enterprise. The “identifiable hierarchy and framework within the enterprise” [id. at 

98 (¶ 170)] is, in fact, the hierarchy and framework that is common in any 

corporation like ViSalus. Directors and officers make and implement policies and 

strategic decisions for the company. And distributors – though neither employees 

nor agents of ViSalus – are the mechanism through which ViSalus carries out its 

regular business activities of selling products and promoting the business 

opportunity (which is the very conduct that Plaintiffs allege constitutes operation 

of a pyramid scheme). On similar facts, the Seventh Circuit found an alleged 

enterprise consisting of Chrysler and its independent dealers to be insufficiently 

distinct from defendant Chrysler itself. Fitzgerald v. Chrysler Corp. 116 F.3d at 

226-28 (“If Chrysler . . . had no agents, but only employees (it might own all its 

 

consisting of the corporation plus its employees and agents. Id. Allegations that 

the “individual Defendants are distinct from the corporate defendant” [Dkt. 56, at 

101 (¶ 176)] are therefore irrelevant to the argument that ViSalus is making.

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 40 of 48 Pg ID 1648
25

18898797.3

dealerships), it could not be made liable for warranty fraud under RICO. What 

possible difference, from the standpoint of preventing the type of abuse for which 

RICO was designed, can it make that Chrysler sells its products to the consumer 

through franchised dealers rather than through dealerships that it owns . . . ?”).15

The single, conclusory distinctness allegation merely parrots language from 

In re ClassicStar. [Dkt. 56 at 101 (¶ 176) (alleging that “[t]he corporate Defendant 

[ViSalus] is functionally separate, performs different roles within the enterprise 

and uses its separate legal incorporation to facilitate racketeering activity”).] That 

type of allegation does not satisfy Twombly/Iqbal. And the necessary factual 

support does not lie in the allegation that ViSalus “operates legally in part by 

selling its products to consumers without operating as a pyramid scheme.” [Id.] 

The same could have been said of Chrysler’s automotive business in the Fitzgerald

case. In any event, the crux of Plaintiffs’ case is that the ViSalus business is a 

pyramid scheme from top to bottom, and that the sale of products is simply a 

subterfuge to mask the illegal activity. There are no factual allegations that 

demonstrate plausibly that ViSalus is sufficiently distinct from an alleged 

enterprise consisting of ViSalus, its officers and directors, and its key distributors.

 

15 Plaintiffs also allege that “the different functionality of non-party Blyth, by 

design, helped facilitate the pyramid scheme.” [Dkt. 56, at 101 (¶ 177).] But 

Plaintiffs do not allege that Blyth was a member of the enterprise [id. at 63-64 

(¶¶ 120-21)], so this passing reference does not cure the distinctness problem.

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 41 of 48 Pg ID 1649
26

18898797.3

D. Plaintiffs Have Not Pled Two Predicate Acts As To The Goergens.

To assert a Section 1962(c) claim, Plaintiffs have to plead that each 

Defendant “actually committed” two predicate acts, and although specific 

misrepresentations need not be identified, Plaintiffs must still provide a “clear 

explanation of each Defendant’s alleged role” in the fraudulent scheme. [Dkt. 54 

at 48, 50.] Plaintiffs failed to do so as to Robert Goergen, Sr. and Todd Goergen.16

Plaintiffs’ allegations as to the Goergens fail to meet this standard. As to 

Robert Goergen, Sr., Plaintiffs allege only that he predicted “exponential growth” 

for ViSalus in a 2008 video; that Blair praised his mentorship in a 2011 video; that 

Goergen, Sr. shared his “beliefs” about ViSalus in a video that ViSalus published 

in 2011; and that he was previously listed on ViSalus’s website as a member of 

ViSalus’s executive team. [See Dkt. 56, at 69-70, 72, 75 (¶¶ 130, 133, 138).] No 

allegations plausibly explain how these actions furthered the fraudulent scheme.

As to Todd Goergen, Plaintiffs allege only that he was previously listed as a 

member of ViSalus’s executive team; stated in an interview in 2012 that he had a 

role in ViSalus’s strategic decisions; is listed as a founding investor and Chief 

Operating Officer on ViSalus’s website; and appeared at public events, including 

“in 2012 at Sarnicola’s house to party with a professional boxer.” [See id. at 75-78 

 

16 Because Plaintiffs have not pled scienter as to any defendant (see supra

§ III.A), by definition they have not pled two predicate acts as to any defendant. 

Even assuming scienter was adequately pled, Plaintiffs have not pled two acts of 

wire fraud by the Goergens.

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 42 of 48 Pg ID 1650
27

18898797.3

(¶¶ 138-39, 141).] Some of these alleged “acts” do not involve a wire (personal 

appearances are not wire communications); for those that do, Plaintiffs have not set 

forth facts plausibly establishing that the act furthered the fraudulent scheme.17

IV. THE M.C.L § 445.903 CLAIMS AGAINST ALL DEFENDANTS 

(OTHER THAN VISALUS) SHOULD BE DISMISSED.

In dismissing Plaintiffs’ original Section 445.903 claim pursuant to Rule 

9(b), the Court held that in any amendment, Plaintiffs must “plead with 

particularity the specific statements that induced them to enroll in the ViSalus 

Program, the specific Defendants who made those statements, and when and where 

the statements were made.” [Dkt. 54, at 61.] Plaintiffs’ amended Section 445.903 

claim, in Count VI, suffers from the same defects as the original claim.

The only statements that Plaintiffs have identified in the FAC that allegedly 

induced them to enroll in the ViSalus Program are the statements contained in the 

Compensation Plan. They do not allege who spoke to them at the various meetings 

where they were presented the Compensation Plan, or who presented them with the 

Compensation Plan. [Dkt. 56, at 176 (¶ 238).] And none of the Plaintiffs claim to 

have heard or relied upon any of the other statements described in the FAC. Under 

Rule 9(b), therefore this claim fails as to all Defendants other than ViSalus.

 

17 Because Plaintiffs cannot allege a substantive RICO violation under Section 

1962(c), their 1962(d) claim, Count II, fails too. See Heinrich, 668 F.3d at 411.

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 43 of 48 Pg ID 1651
28

18898797.3

V. THE SECTION 445.911(3)(C) CLAIMS SHOULD BE DISMISSED.

In their second attempt to plead a violation of Section 445.911(3)(c), in 

Count VI, Plaintiffs identify three cases: Ger-Ro-Mar, Inc. v. FTC, 518 F.2d 33 (2d 

Cir. 1975); FTC v. Skybiz.com, 57 F. App’x. 374 (10th Cir. 2003); and In re Koscot 

Interplanetary, Inc., 86 F.T.C. 1106 (1975), aff’d sub. nom. Turner v. F.T.C., 580 

F.2d 701 (D.C. Cir. 1978). None of these cases satisfy Section 445.911(3)(c), 

which requires (i) a federal appellate court decision; (ii) that is “officially 

reported”; and (iii) that affirms or directs the affirmance of a cease and desist order 

issued by the FTC. Id. In Ger-Ro-Mar, Inc. the Second Circuit reversed an FTC 

order finding Ger-Ro-Mar to be an illegal pyramid scheme. FTC v. Skybiz is an 

unpublished decision involving a preliminary injunction order. And Turner v. 

F.T.C. is an unpublished decision. The Court should dismiss this claim again.

VI. THE UNJUST ENRICHMENT CLAIMS SHOULD BE DISMISSED.

To sustain a claim for unjust enrichment, “Plaintiffs must plausibly plead 

that each Defendant was unjustly enriched at plaintiff's expense.” [Dkt. 54, at 67.] 

In other words, Plaintiffs must plausibly connect the payments they made to 

ViSalus (their impoverishment) to the payments Defendants received from ViSalus 

(their alleged unjust enrichment). See El Camino Res., LTD. v. Huntington Nat’l 

Bank, 722 F. Supp. 2d 875, 932 (W.D. Mich. 2010). Also, for the enrichment to be 

unjust, there must be an underlying tort against the Defendants. See Steamfitters 

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 44 of 48 Pg ID 1652
29

18898797.3

Local Union No. 420 Welfare Fund v. Philip Morris, Inc., 171 F.3d 912, 936 (3d 

Cir. 1999) (“In the tort setting, an unjust enrichment claim is essentially another 

way of stating a traditional tort claim (i.e., if defendant is permitted to keep the 

benefit of his tortious conduct, he will be unjustly enriched)”). Count VII of the 

FAC fails on both accounts. 

First, a number of the alleged “enrichments” occurred prior to 2012, before

any Plaintiff even enrolled with ViSalus. [Dkt. 56, at 179-82 (¶¶ 249, 251).] For 

the remaining enrichments, the facts alleged do not plausibly connect the 

enrichment each Defendant received and the benefit each Plaintiff conferred. See 

Kalamazoo River Study Grp. v. Rockwell Int’l, 3 F. Supp. 2d 815, 818 (W.D. Mich. 

1997) (describing causation as an “essential element” of an unjust enrichment 

claim”); see also Perry v. Am. Tobacco Co., 324 F.3d 845, 851 (6th Cir. 2003) 

(dismissing unjust claims on “remoteness” grounds); Pa. Emp. Benefit Tr. Fund v. 

Zeneca, Inc., 710 F. Supp. 2d 458, 485 (D. Del. 2010). The conclusory allegation 

that “[t]he revenue that resulted in these payments came directly from the 

payments made by Plaintiffs and the class” does not plausibly establish the 

required connection. [Dkt. 56, at 182 (¶ 252).]

Second, the unjust enrichment claim fails because there is no underlying tort 

claim remaining against the individual Defendants who were allegedly unjustly 

enriched. There is a conversion claim, but only against ViSalus, and the other 

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 45 of 48 Pg ID 1653
30

18898797.3

claims against the individual Defendants are statutory in nature. Thus, the unust 

enrichment claim cannot survive. See Steamfitters, 171 F.3d at 936-37 (unjust 

enrichment claim could not proceed once “traditional tort claims” were “properly 

dismissed . . . because of the remoteness of plaintiffs’ injuries from defendants’ 

wrongdoing”); see also Grand Union Supermarkets of the Virgin Islands, Inc. v. 

Lockhart Realty Inc., 493 F. App’x 248, 254 (3d Cir. 2012) (“Because the plaintiff 

could not prove its fraud claim, we declined to afford it a roundabout route to

recovery by way of unjust enrichment”).

VII. THE MFIL SECTION 5 CLAIMS SHOULD BE DISMISSED.

Liability under MFIL Section 5 is limited to persons who offer or sell a 

franchise. See M.C.L.A § 445.1531(1); Franchise Mgmt. Unlimited, Inc. v. 

America’s Favorite Chicken, 561 N.W.2d 123, 129 (Mich. Ct. App. 1997); Walker 

v. Brooke Corp., 2010 WL 1257341, at *7 (E.D. Mich. Mar. 30, 2010). In this 

case, the only defendant Plaintiffs have identified who sold or offered to sell them 

the alleged “franchise” was ViSalus. Therefore, Plaintiffs’ claims in Count XI 

against all Defendants, except for ViSalus, should be dismissed.

The claim against ViSalus fails for some of the same reasons that the 

10(b)/10b-5 and RICO claims fail – the absence of factual allegations sufficient to 

infer the required scienter. Because Section 5 is essentially identical to Rule 10b5, courts have naturally considered requirements under 10b-5 (or other state’s 

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 46 of 48 Pg ID 1654
31

18898797.3

statutes also modeled on 10b-5) when interpreting Section 5. See Cook v. Little 

Caesar Enters., Inc., 972 F. Supp. 400, 412 (E.D. Mich. 1997) (looking to Rule 

10b-5 principles and similar laws from other states to interpret the MFIL). As 

discussed, Plaintiffs have failed to allege facts supporting an inference of scienter 

in connection with their 10b/10b-5 claims and their RICO claims. For the same 

reasons, the MFIL Section 5 claim fails.

CONCLUSION

For the foregoing reasons, the Complaint should be dismissed, in part, with 

prejudice.

Dated: August 31, 2015 Respectfully submitted,

By: /s/Nicholas B. Gorga

Attorney for the ViSalus Defendants

QUARLES & BRADY LLP 

James A. Ryan (AZ Bar #009253)

Kevin D. Quigley (AZ Bar #015972)

Edward A. Salanga (AZ Bar #020654)

Brian A. Howie (AZ Bar #026021)

All Admitted to Practice in ED MI

2 North Central Avenue

Phoenix, AZ 85004

Telephone Number: (602) 229.5200

Fax Number: (602) 229.5690

E-Mail: james.ryan@quarles.com

kevin.quigley@quarles.com

edward.salanga@quarles.com

brian.howie@quarles.com

HONIGMAN MILLER SCHWARTZ 

AND COHN LLP

Nicholas B. Gorga (P72297)

Mitra Jafary-Hariri (P74460)

660 Woodward Avenue

2290 First National Building

Detroit, MI 48226-3506

Telephone Number: (313) 465-7640

Fax Number: (313) 465-7641 

E-Mail: ngorga@honigman.com

Mjafary-hariri@honigman.com

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 47 of 48 Pg ID 1655
CERTIFICATE OF SERVICE

I hereby certified that on August 31, 2015 I electronically filed the foregoing 

document with the Clerk of the Court using the ECF system which will send 

notification of such filing to all counsel of record.

/s/ Nicholas B. Gorga

Attorney for the ViSalus Defendants

2:14-cv-12693-MFL-DRG Doc # 62 Filed 08/31/15 Pg 48 of 48 Pg ID 1656