UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF MICHIGAN 

SOUTHERN DIVISION 

TIMOTHY KERRIGAN et al., 

 Plaintiffs, Case No. 14-cv-12693 

 Hon. Matthew F. Leitman 

v. 

VISALUS, INC. et al., 

 Defendants. 

________________________________/ 

OPINION AND ORDER GRANTING IN PART AND DENYING IN PART 

DEFENDANTS’ MOTIONS TO DISMISS (ECF ## 61, 62) 

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 In their First Amended Complaint, Plaintiffs Timothy Kerrigan 

(“Kerrigan”), Lori Mikovich (“Mikovich”), and Ryan Valli (“Valli”) (collectively, 

“Plaintiffs”) allege that they were defrauded by an illegal scheme created and 

operated by the Defendants. Plaintiffs say that in 2012 and 2013 they attended 

events promoting Defendant ViSalus, Inc. (“ViSalus”), a retailer of weight-loss 

shakes. (See First Am. Compl., ECF #55 at ¶¶ 8-14.) Plaintiffs allege that at these 

events, they were misled into paying to enroll in the “ViSalus Program” – the 

system through which “individual promoters” (“IPs”) earn commissions and 

bonuses for selling ViSalus products and recruiting other IPs. Plaintiffs insist that 

the ViSalus Program is a fraudulent pyramid scheme, and they claim that they lost 

all of the money they paid to ViSalus to enroll in the program. 

 Plaintiffs first filed this action against ViSalus and many individuals and 

entities allegedly associated with ViSalus on July 9, 2014 (the “Complaint”). (See 

ECF #1.) Plaintiffs alleged in the Complaint that the Defendants violated, and 

conspired to violate, the Racketeer Influenced and Corrupt Organizations Act, 18 

U.S.C. § 1961 et seq. (“RICO”). (See id.) Plaintiffs also alleged that Defendants 

violated several Michigan statutes. Finally, Plaintiffs asserted multiple claims 

under Michigan common law. (See id.) The Defendants moved to dismiss the 

Complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure (see ECF 

## 35-37), and, by written order, the Court granted the motions in part and directed 

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Plaintiffs to file a First Amended Complaint (the “First Dismissal Order”). (See 

ECF #54.) On July 10, 2015, Plaintiffs filed a First Amended Complaint.1

 (See 

ECF #55.) Defendants have now again moved under Rule 12(b)(6) to dismiss 

many of the claims brought against them (the “Motions”).2

 (See ECF ## 61, 62.) 

For the reasons explained below, the Motions are GRANTED IN PART and 

DENIED IN PART. 

I. 

 In the First Amended Complaint, Plaintiffs assert the following claims 

against the Defendants: 

 In count one (see First Am. Compl. at ¶¶ 117-200), Plaintiffs allege 

that Defendants ViSalus, Robert Goergen, Sr. (“Goergen Sr.”), Todd 

Goergen (“Goergen”), Nick Sarnicola (“Sarnicola”), Ryan Blair 

(“Blair”), Blake Mallen (“Mallen”), Jason O’Toole (“O’Toole”), Kyle 

                                                            

1

 The Court included a detailed recitation of the alleged factual background in the 

First Dismissal Order. (See First Dismissal Order at 2-10, Pg. ID 883-91.) The 

Court incorporates that recitation by reference. In addition, Plaintiffs have 

included many new allegations against the Defendants in the First Amended 

Complaint. Any additional factual allegations that are relevant to a determination 

of the currently pending motions to dismiss will be identified and discussed herein. 

For the purposes of this Opinion and Order, the Court accepts these factual 

allegations as true. 

2

 Plaintiffs have brought the First Amended Complaint against some, but not all, of 

the Defendants named in the Complaint. Plaintiffs have not re-pleaded any 

allegations against individuals Jake Trzcinski, Lavon Craig, Anthony Lucero, 

Rhonda Lucero, and Joshua Jackson. Nor have Plaintiffs re-pleaded any 

allegations against entities ViSalus Holdings, LLC, Mojos Legacy, LLC, Fragmob, 

LLC, iCentris, Inc., and Jakertz, Inc. 

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Pacetti, Jr. (“Pacetti”), Michael Craig (“Craig”), Aaron Fortner 

(“Fortner”), Rachel Jackson (“Jackson”), Frank Varon (“Varon”), Lori 

Petrilli (“Petrilli”), Tara Wilson (“Wilson”), and Timothy Kirkland 

(“T. Kirkland”) violated Section 1962(c) of RICO through their 

operation and promotion of the ViSalus Program. 

 In count two (see id. at ¶¶ 201-214), Plaintiffs claim that all 

Defendants violated Section 1962(d) of RICO by conspiring to violate 

Section 1962(c). 

 In count three (see id. at ¶¶ 215-223), Plaintiffs assert that Defendants 

ViSalus, Goergen Sr., Goergen, Sarnicola, Blair3

, and Mallen (the 

“ViSalus Defendants”) violated 5 U.S.C. § 78j(b) (“Section 10b”) and 

17 C.F.R. § 240.10b-5 (“Rule 10b-5”) of the federal securities laws. 

 In count four (see id. at ¶¶ 224-230), Plaintiffs allege that all 

Defendants violated 15 U.S.C. § 77l(a)(2) (“Section 12(2)”) of the 

federal securities laws. 

 In count five (see id. at ¶¶ 231-234) Plaintiffs assert that ViSalus 

violated Section 903b of the Michigan Consumer Protection Act (the 

“MCPA”). 

 In count six (see id. at ¶¶ 235-244), Plaintiffs claim that all 

Defendants violated Sections 903 and 911(c)(3) of the MCPA. 

 In count seven (see id. at ¶¶ 245-252), Plaintiffs allege that all 

Defendants – except for ViSalus – have been unjustly enriched. 

                                                            

3

 In the title to count three, Plaintiffs assert that they are bringing this count 

against, among others, “Sarnicola, Blake, and Mallen.” (First. Am. Compl. at 173, 

Pg. ID 1133) (emphasis added.) No Defendant has the last name “Blake.” It 

appears Plaintiffs meant to name Ryan Blair in this count, and that the word 

“Blake” was a typographical error. 

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 In count eight (see id. at ¶¶ 253-258), Plaintiffs assert that ViSalus has 

engaged in statutory and/or common law conversion in violation of 

Michigan law. 

 In count nine (see id. at ¶¶ 259-264), Plaintiffs claim that all 

Defendants engaged in a civil conspiracy. 

 In count ten (see id. at ¶¶ 265-269), Plaintiffs allege that ViSalus 

violated Section 28 of the Michigan Franchise Investment Law (the 

“MFIL”). 

 And, finally, in count eleven (see id. at ¶¶ 270-274), Plaintiffs assert 

that all Defendants violated Section 5 of the MFIL. 

On August 31, 2015, Defendants filed the Motions, seeking to dismiss many of the 

claims Plaintiffs have asserted in the First Amended Complaint.4

 (See ECF ## 61, 

62.) The Court heard oral argument on the Motions on January 20, 2016. 

II. 

In the Motions, Defendants seek relief pursuant to Federal Rule of Civil 

Procedure 12(b)(6). Rule 12(b)(6) provides for dismissal of a complaint when a 

plaintiff fails to state a claim upon which relief can be granted. See Fed. R. Civ. P. 

12(b)(6). “To survive a motion to dismiss” under Rule 12(b)(6), “a complaint must 

contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is 

plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678, (2009) (quoting Bell 

                                                            

4

 None of the Defendants have moved to dismiss counts five, eight, and ten of the 

First Amended Complaint. In addition, ViSalus, Goergen Sr., Goergen, Blair, and 

Mallen have not moved to dismiss count nine. 

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Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). A claim is facially plausible 

when a plaintiff pleads factual content that permits a court to reasonably infer that 

the defendant is liable for the alleged misconduct. Id. (citing Twombly, 550 U.S. at 

556). When assessing the sufficiency of a plaintiff’s claim, a district court must 

accept all of a complaint’s factual allegations as true. See Ziegler v. IBP Hog Mkt., 

Inc., 249 F.3d 509, 512 (6th Cir. 2001). “Mere conclusions,” however, “are not 

entitled to the assumption of truth. While legal conclusions can provide the 

complaint's framework, they must be supported by factual allegations.” Iqbal, 556 

U.S. at 664. A plaintiff must therefore provide “more than labels and conclusions,” 

or “a formulaic recitation of the elements of a cause of action” to survive a motion 

to dismiss. Twombly, 550 U.S. at 556. “Threadbare recitals of the elements of a 

cause of action, supported by mere conclusory statements, do not suffice.” Id. In 

addition, where, as here, there are allegations of fraud or mistake, Federal Rule of 

Civil Procedure 9(b) requires a plaintiff to “state with particularity the 

circumstances constituting fraud or mistake,” but “[m]alice, intent, knowledge, and 

other conditions of a person’s mind may be alleged generally.” See Fed. R. Civ. 

P. 9(b). 

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III. 

(The Substantive RICO Claims) 

 Section 1962(c) of RICO provides that 

[i]t shall be unlawful for any person employed by or 

associated with any enterprise engaged in, or the 

activities of which affect, interstate or foreign commerce, 

to conduct or participate, directly or indirectly, in the 

conduct of such enterprise’s affairs through a pattern of 

racketeering activity or collection of unlawful debt. 

18 U.S.C. § 1962(c). “To state a RICO claim, a plaintiff must plead the following 

elements: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering 

activity.” Ouwinga v. Benistar 419 Plan Servs., Inc., 694 F.3d 783, 792 (6th Cir. 

2012) (internal quotation marks omitted). A “pattern of racketeering activity” 

requires at least two predicate acts – i.e., certain offenses enumerated in 18 U.S.C. 

§ 1961(1) – that occur within a ten-year period. See Moon v. Harrison Piping 

Supply, 465 F.3d 719, 723 (6th Cir. 2006) (citing 18 U.S.C. § 1961(5)). 

 As described above, in count one of the First Amended Complaint, Plaintiffs 

allege that the ViSalus Defendants5

, O’Toole, Pacetti, Fortner, Jackson, Craig, 

Wilson, Varon, Petrilli, and T. Kirkland violated Section 1962(c) (the “Section 

1962(c) Claim”). (See First Am. Compl. at ¶¶ 117-200.) These Defendants have 

now moved to dismiss the Section 1962(c) Claim on various grounds. The Court 

                                                            

5

 Previously defined herein as ViSalus, Goergen Sr., Goergen, Sarnicola, Blair, and 

Mallen. 

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concludes the Section 1962(c) Claim is viable against some Defendants but not 

others. 

A. 

In the First Dismissal Order, the Court held that “in order to state a [Section] 

1962(c) claim against any Defendant, Plaintiffs must allege that [that] Defendant 

actually committed two predicate acts.” (First Dismissal Order at 48, Pg. ID 929.) 

Four Defendants – Goergen Sr., Goergen, Varon, and Petrilli – challenge the 

Section 1962(c) Claim on the basis that the First Amended Complaint fails to 

allege that they personally committed two RICO predicate acts. Plaintiffs counter 

that they have sufficiently pleaded that each of these Defendants committed at least 

two predicate acts of mail and/or wire fraud. The Court agrees with the 

Defendants. The Court will therefore dismiss the Section 1962(c) Claim against 

Goergen Sr., Goergen, Varon, and Petrilli. 

Plaintiffs allege that Goergen Sr. committed mail and/or wire fraud through 

the following actions: 

 Goergen Sr. appeared in a video “called ‘Billionaire, Bob Goergen 

CEO Blyth Inc.’” in which he “predicted ‘exponential growth’ . . . for 

ViSalus.” An unidentified person or entity posted the video on 

YouTube. (First Am. Compl. at ¶130.) 

 Defendant Blair interviewed and publicly praised Goergen Sr. for his 

“mentorship of the ViSalus business” and “involve[ment] in business 

decisions of [ViSalus], particularly since its near collapse in the 2008 

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recession.” ViSalus is alleged to have published a video of Blair’s 

interview of Goergen Sr. on the internet. (Id. at ¶133.) 

 Goergen Sr. “[p]ublicly acknowledged [his] connection to the running 

and operation of ViSalus” and was identified on a website promoting 

the ViSalus Program as a member of the ViSalus “Executive Team.” 

The author of the website is unidentified. (Id. at first ¶138.6

) 

 On two identified occasions, Goergen Sr. spoke at ViSalus events 

which ViSalus and other identified parties later published online.7

 

(See id. at second ¶138.) 

 These allegations, even if true, would not establish that Goergen Sr. 

committed two acts of mail and/or wire fraud. In order to commit mail and/or wire 

fraud, a defendant must, among other things, actually use the mails or wires and/or 

cause another to use the mails or wires. See, e.g., Heinrich v. Waiting Angels 

Adoption Servs., Inc., 668 F.3d 393, 404 (6th Cir. 2012) (elements of mail and wire 

fraud include the “use of the mails in furtherance of the scheme” and/or the “use 

[of] the wires in furtherance of the scheme to defraud”). Plaintiffs simply do not 

allege that Goergen Sr. either used the mails or wires on at least two occasions or 

caused someone else to do so. Indeed, while Plaintiffs repeatedly allege – in the 

                                                            

6

 The Fist Amended Complaint contains two paragraphs labeled as paragraph 138. 

(See First Am. Compl. at 76-77, Pg. ID 1036-1037.) It appears that both 

paragraphs labeled as paragraph 138 allege that Goergen Sr. committed mail 

and/or wire fraud. (See id. at 119-121, Pg. ID 1079-1081.) 

7

 The statements and videos identified in the second paragraph 138 are the same 

statements and videos previously identified in paragraphs 130 and 133. 

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passive voice – that Goergen Sr. was featured in videos published online, Plaintiffs 

fail to plead any facts that would support a finding that Goergen Sr. caused the 

videos to be published online, authorized their publication, or even had knowledge 

that the videos were posted on the internet. Accordingly, the Section 1962(c) 

Claim fails as to Goergen Sr. 

 Plaintiffs assert that Goergen committed the following predicate acts of mail 

and/or wire fraud: 

 Goergen “[p]ublicly acknowledged [his] connection to the running 

and operation of ViSalus” and was identified on a website promoting 

the ViSalus Program as a member of the ViSalus “Executive Team.” 

The author of the website is unidentified. (First Am. Compl. at first 

¶138.) 

 Goergen was “identified” on the ViSalus website as a “founding 

investor” in the company and a “leader[]” of the company’s “board.” 

(Id. at ¶139.) 

 Goergen was identified in public statements and on the ViSalus 

website as the “Chief Operating Officer” and “Chief Strategy Officer” 

of ViSalus. (Id.) 

 Goergen attended a party promoting ViSalus at Sarnicola’s home. 

Video of portions of the party were published online by an 

unidentified party as a way of promoting ViSalus. (See id. at ¶141.) 

 Goergen appeared at public events promoting ViSalus which were 

written about in stories posted on the internet by third parties. (See 

id.) 

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 These mail and/or wire fraud allegations are deficient for the same reasons 

that the mail and/or wire fraud allegations against Goergen Sr. were insufficient. 

Many of the allegations against Goergen are made in the passive voice and fail to 

plead that Goergen himself knew that any videos or articles would be posted online 

or that he caused them to be published online. Moreover, the allegations that 

Goergen appeared at public events (or, in the case of the party at Sarnicola’s home, 

an apparently private event) and made public comments do not establish that 

Goergen used the mails and/or wires. And while these allegations and others made 

against Goergen are enough to state other plausible claims against him, the alleged 

conduct simply does not amount to mail or wire fraud. See, e.g., Heinrich, 668 

F.3d at 404. Plaintiffs have failed to identify two or more RICO predicate acts 

with respect to Goergen, and their Section 1962(c) Claim against him fails. 

 Plaintiffs allege that Varon and Petrilli committed the following predicate 

acts of mail and/or wire fraud: 

 They agreed to be “featured in various ViSalus materials” and “were 

“knowing and willing participants in the promotion of the ViSalus 

pyramid scheme.” (Id. at ¶164.) 

 They appeared at various ViSalus events as “keynote speakers” and, 

at least one time, as the recipients of a $500,000 check. An 

unidentified party posted video of at least one of these public 

appearances on YouTube. (Id.) 

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 They conducted “numerous recruiting seminars” in which they 

emphasized the financial rewards individuals could gain from 

participating in the ViSalus Program. (Id.) 

 They gave an “interview” – published by a third party on website not 

operated by ViSalus – in which they promote the ViSalus Program, 

claim that “hundreds” of people “won a free BMW” through the 

ViSalus Program, and otherwise claim that anyone can be successful 

if they sign up as a ViSalus IP. (Id. at ¶165.8

) 

As the Court concluded with Goergen Sr. and Goergen, appearing at public 

events and making public statements at those events, standing alone, does not 

amount to mail and/or wire fraud. And there are no factual allegations that Varon 

or Petrilli caused the videos of their public appearances to be posted on the 

internet. Moreover, Plaintiffs have not alleged that Varon or Petrilli published 

and/or caused to be published any of the interviews they gave. Thus, Plaintiffs 

have not alleged that Varon or Petrilli committed at least two acts of mail or wire 

fraud. The Court therefore will dismiss Plaintiffs’ Section 1962(c) Claim against 

Goergen Sr., Goergen, Varon and Petrilli. 

                                                            

8

 Plaintiffs also claim that paragraph 156 includes allegations against Petrilli (see, 

e.g., First Am. Compl. at 144, Pg. ID 1104) but that paragraph does not relate to 

Petrilli. Instead, that paragraph states allegations against Defendant Jackson. (See 

id. at ¶156.) 

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B. 

 In the First Dismissal Order, the Court held that in order to sufficiently 

allege the causation element of their Section 1962(c) Claim, Plaintiffs “must allege 

a clear causal connection between [each] Defendant’s alleged predicate acts and 

their injuries.” (ECF #54 at 53, Pg. ID 934.) The Court explained that Plaintiffs 

needed to plead “a logical theory directly linking each Defendant’s predicate acts 

to their alleged injuries.” (Id.) A plaintiff can satisfy this requirement by pleading 

facts that “show that the defendants’ wrongful conduct was a substantial and 

foreseeable cause of the injury and the relationship between the wrongful conduct 

and the injury is logical and not speculative.” In re ClassicStar Mare Lease Litig., 

727 F.3d 473, 487 (6th Cir. 2013) (internal quotation marks omitted) (emphasis 

added). 

In the Motions, Defendants argue that Plaintiffs have failed to satisfy these 

causation pleading requirements. Plaintiffs counter that they have alleged a logical 

theory directly linking each Defendant to their claimed injuries. The Court 

concludes that Plaintiffs have sufficiently alleged proximate cause as to ViSalus, 

Sarnicola, Blair, and Mallen, but have not done so with respect to the remaining 

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Defendants named in the Section 1962(c) Claim (O’Toole, Pacetti, Fortner, 

Jackson, Craig, Wilson, and T. Kirkland). 9 

1. 

 The proximate cause allegations against ViSalus, Sarnicola, Blair, and 

Mallen are sufficient to state a Section 1962(c) claim against these Defendants. 

Plaintiffs have alleged that these Defendants created and implemented the ViSalus 

Program, a fraudulent pyramid scheme that was intended to defraud individuals in 

Plaintiffs’ position, and that the ViSalus Program did in fact defraud them. Stated 

another way, Plaintiffs contend that these Defendants devised a fraudulent scheme, 

“aimed” it at them, and hit their mark. For instance, Plaintiffs allege that 

Sarnicola, Blair, and Mallen: 

 Were “co-founders and principle creators of the [ViSalus] pyramid 

scheme.” (First Am. Compl. at ¶¶ 126, 212.) 

 Were ViSalus’s “top controlling management” and were “the 

company’s frontmen to the public.” (Id. at ¶131.) 

 Were “personally involved in [ViSalus’s] strategic decision-making[] 

and otherwise managed the significant affairs of [ViSalus].” (Id.) 

                                                            

9

 Because the Court has concluded that Plaintiffs have failed to plead the required 

predicate acts against Defendants Goergen Sr., Goergen, Varon, and Petrilli, it will 

not analyze the other requirements of Plaintiffs’ Section 1962(c) Claim against 

these Defendants. 

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 “[A]ppeared at the ViSalus meetings and conventions . . . [and] 

allowed their presentations to be recorded and distributed” to promote 

the ViSalus Program. (Id.) 

 “Distribute[d] professionally-edited videos posted on the [internet] 

which tout the success of the [ViSalus Program], [ViSalus], and 

themselves” and which promoted to potential recruits “how easy it is 

to start earning an income” through the ViSalus Program. (Id. at ¶90.) 

 “[I]ntended to falsely convey the impression to people like Plaintiffs 

that participation as a ViSalus IP was legal; that they had a reasonable 

opportunity to make money; that people just like them were able to 

make generous income; and that the commissions or bonuses they 

would receive would come from the sale of desirable product.” (Id. at 

¶195.) 

 “Directly authored and/or approved of the dissemination of the 

ViSalus compensation plan,” which was given to each Plaintiff at the 

ViSalus events they attended and used to induce Plaintiffs to enroll as 

ViSalus IPs. (Id. at ¶196.) 

 Had the “goal” of having potential recruits like Plaintiffs “subscribe, 

by the payment of money to ViSalus, to the compensation plan.” (Id.) 

 Had “personally [] active roles in promoting the ViSalus 

compensation plan and pitching the idea that the ViSalus 

compensation plan is a viable and attractive ‘business opportunity.’” 

(Id. at ¶143; see also ¶144.) 

 Implemented plans to “hugely expand[] and accelerat[e] the growth of 

the pyramid scheme” by “increasing recruitment of unsuspecting 

people to join the pyramid scheme.” (Id. at ¶134.) 

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 “Control[led] and direct[ed] [] websites, web presentations, events, 

sponsored conventions, and speeches” promoting the ViSalus 

Program. (Id. at ¶171.) 

 Plaintiffs allege that the fraudulent mechanisms created and put in place by 

these Defendants induced them to sign up as ViSalus IPs and to lose the money 

they paid to ViSalus. (See, e.g., id. at ¶8.) Plaintiffs have therefore sufficiently 

pleaded that the actions of ViSalus, Sarnicola, Blair, and Mallen were a 

“substantial” and “foreseeable” cause of their alleged injuries. In re ClassicStar 

Mare Lease Litig., 727 F.3d at 487. Accordingly, Plaintiffs have sufficiently 

alleged that the predicate acts of these Defendants proximately caused their alleged 

injuries.10

                                                            

10 Certain language in the First Dismissal Order could arguably be read to stand for 

the proposition that where a RICO plaintiff alleges predicate acts of mail or wire 

fraud, he must connect his injury to a specific mailing or wiring in order to 

establish causation. (See First Dismissal Order at 52-53, Pg. ID 933-34.) That is 

not the rule, and the Court did not mean to so hold. As the Court explained, a 

RICO plaintiff must directly connect his injury to the defendant’s predicate acts. 

Importantly, an alleged predicate act of mail or wire fraud consists of more than 

just the mailing or the wiring. Indeed, the mailing or wiring is simply the “hook” 

that brings the alleged fraud within the jurisdiction of the federal courts. The 

predicate act includes the scheme to defraud as well as the mailing or wiring. 

Thus, where a RICO plaintiff alleges predicate acts of mail or wire fraud, the 

causation inquiry may expand beyond the acts of mailing and wiring and may 

include a consideration of each defendant’s personal conduct within the fraudulent 

scheme and whether that conduct directly injured the plaintiff. See Wallace v. 

Midwest Fin. & Mortg. Serv., 714 F.3d 414, 419-21 (6th Cir. 2013) (finding 

causation satisfied where court was able to “trace a straight line” between 

defendants’ conduct within a fraudulent scheme and plaintiff’s injuries). 

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2. 

 Plaintiffs’ causation allegations against Defendants O’Toole, Pacetti, 

Fortner, Jackson, Craig, Wilson, and T. Kirkland are deficient. Plaintiffs have not 

sufficiently alleged that the purportedly-fraudulent conduct by these Defendants 

“led directly to [their] injuries.” Bridge v. Phoenix Bond & Indem., 553 U.S. 639, 

655 (2008). The Court will therefore dismiss the Section 1962(c) Claim against 

these Defendants. 

Plaintiffs allege that these Defendants (among other things) promoted the 

ViSalus Program at recruiting events, in videos posted on the internet, and in 

advertisements. But Plaintiffs do not allege that they ever met any of these 

Defendants, saw any of these Defendants make presentations (either online or in 

person), watched or read any of the videos or promotional materials these 

Defendants allegedly disseminated, or engaged in any transactions with these 

Defendants. Instead, Plaintiffs allege that these Defendants made false statements 

in promotional materials and videos “that a prospective purchaser, like each 

Plaintiff, could easily find.” (Pls.’ Resp. Br. at 14, ECF #67 at 19, Pg. ID 1696) 

(emphasis added.) But Plaintiffs do not allege that they actually did “find” any of 

the alleged false statements these Defendants purportedly made, nor do Plaintiffs 

allege that any of the false statements by these Defendants directly impacted them 

(Plaintiffs) in any way. The link between the promotional activities of these 

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17 

Defendants is too attenuated from Plaintiffs’ injuries to satisfy the required causal 

connection required for Plaintiffs’ Section 1962(c) Claim. 

 Plaintiffs respond that, under Bridge, supra, they need not plead that they 

personally relied on any statement any of these Defendants may have made. While 

that is true, Plaintiffs still need to plead “some direct relation between the injury 

asserted and the injurious conduct alleged.” Heinrich, 668 F.3d at 405 (quoting 

Holmes v. Sec. Investor Pro. Corp., 503 U.S. 258, 268 (1992)). And they have 

failed to do so. Plaintiffs have simply not alleged that “wrongful conduct” by these 

Defendants “was a substantial and foreseeable cause of the[ir] injur[ies].” In re 

ClassicStar Mare Lease Litig., 727 F.3d at 487. Plaintiffs’ causation allegations 

against these Defendants are therefore insufficient. 

 At oral argument, Plaintiffs’ counsel offered the following theory of 

causation against these Defendants: (1) they were videotaped accepting large fake 

checks or giving misleading pitches at ViSalus-sponsored events; (2) they intended 

that these videos would be shown at other ViSalus-sponsored events and made 

available on the internet; and (3) Plaintiffs saw these videos at ViSalus-sponsored 

events they attended. (See January 20, 2016 Hrg. Tr., ECF #72 at 36-38, Pg. ID 

1857-59.) Plaintiffs’ counsel insisted that these videos made Plaintiffs more 

susceptible to the sales pitch made by the ViSalus representatives at the events 

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18 

Plaintiffs attended and thus caused Plaintiffs’ injuries. (See id.) This argument 

fails for two reasons. 

 First, the First Amended Complaint does not allege that the Plaintiffs 

actually saw any videos featuring these Defendants. Rather, Plaintiffs allege, for 

example, only that “[t]he [ViSalus events] attended by [Plaintiff] Kerrigan also 

featured check-presentation ceremonies like the one in the Miami convention . . . 

where, among others, Defendant Craig was shown with a $1M check and 

Defendant Rachel Jackson with a $500,000 check.” (First Am. Compl. at ¶8) 

(emphasis added.) Allegations that Plaintiffs saw videos or re-enactments “like” 

the ones in which the Defendants participated do not establish the required direct 

link between Plaintiffs’ injuries and alleged misconduct by these Defendants. 

 Second, and in any event, in Heinrich, supra, the Sixth Circuit rejected a 

theory of causation much like Plaintiffs’ theory based upon Defendants’ 

appearances in the videos. The plaintiffs in Heinrich were parents seeking to adopt 

children through an agency. They claimed, among other things, that certain 

individuals associated with the agency defrauded them into making payments to 

adopt children who were not actually available to be adopted. The plaintiffs 

asserted RICO claims and alleged that the defendants committed predicate acts of 

mail and wire fraud. In an attempt to satisfy the causation element of their RICO 

claim, the plaintiffs asserted that certain defendants caused their injury by sending 

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19 

them false reference letters (in support of the agency) that made the plaintiffs more 

willing to trust the agency’s false promises of available children. The Sixth Circuit 

rejected this theory of RICO causation: 

[Plaintiffs’ causation] argument appears to be that the 

positive references served as an inducement to do 

business with Waiting Angels. But any injuries they may 

have suffered were not the direct result of the alleged 

fraudulent conduct. Rather, the false references helped 

put the [plaintiffs] in a position to be defrauded by other, 

unrelated representations concerning the availability of 

specific children or how adoption fees will be spent. The 

false references, while perhaps a “but for” cause of the 

[plaintiffs’] injuries, did not proximately result in any 

harm to their business or property.

Heinrich, 668 F.3d at 405 (emphasis added). 

The same analysis would apply here if the Plaintiffs had actually heard the 

allegedly false statements allegedly made by these Defendants in the videos. Like 

the fraudulent reference letters in Heinrich, the videos that allegedly featured these 

Defendants would merely have “help[ed] put the [Plaintiffs] in a position to be 

defrauded by other, unrelated representations” made by the ViSalus representatives 

at the events Plaintiffs actually attended.11 For this additional reason, Plaintiffs’ 

                                                            

11 The Court recognizes, as it did in the First Dismissal Order (see ECF #54 at 53-

54 n.22, Pg. ID 934-35), that proximate cause is often better addressed at the 

summary judgment stage rather than on a motion to dismiss. See Trollinger v. 

Tyson Foods, Inc., 370 F.3d 602, 615 (6th Cir. 2004). The Court again notes, 

however, that the Sixth Circuit has, on multiple occasions, addressed proximate 

causation under Section 1962(c) at the pleading stage, and has found causation 

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20 

causation allegations against Defendants O’Toole, Pacetti, Fortner, Jackson, Craig, 

Wilson, and T. Kirkland are deficient. 

C. 

 Defendants ViSalus, Sarnicola, Blair, and Mallen argue that Plaintiffs have 

failed to state a Section 1962(c) Claim against them because Plaintiffs have not 

pleaded that they acted with scienter. Plaintiffs can satisfy this requirement by 

pleading that these Defendants “acted either with a specific intent to defraud or 

with recklessness with respect to potentially misleading information.” Heinrich, 

668 F.3d at 404. These Defendants maintain that the Plaintiffs have failed to meet 

this standard because “the line between a legitimate multi-level marketing system 

and an illegal pyramid scheme is blurry at best,” (ECF #62 at 19, Pg. ID 1643), and 

Plaintiffs have not pleaded facts that “support a plausible inference that [these 

Defendants] knew that ViSalus [was] a pyramid scheme and thus acted with 

fraudulent intent in failing to disclose that supposed fact.” (ECF #62 at 17, Pg. ID 

1641) (emphasis removed). The Court disagrees.12

                                                                                                                                                                                               

allegations deficient at that stage. See Heinrich, 668 F.3d at 405-07 (alleged mail 

and wire fraud did not satisfy RICO proximate causation requirement); Pik-Coal 

Co. v. Big Rivers Electric Corp., 200 F.3d 884 (6th Cir. 2000) (same). 

12 Because the Court has concluded that Plaintiffs have failed to plead the required 

causation against Defendants O’Toole, Pacetti, Fortner, Jackson, Craig, Wilson, 

and T. Kirkland, it will not analyze whether Plaintiffs have sufficiently pleaded 

that these Defendants acted with the requisite scienter. 

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 21 of 55 Pg ID 1973
21 

 The First Amended Complaint contains myriad specific allegations that 

Sarnicola, Blair, and Mallen (1) understood that the dividing line between a 

legitimate multi-level marketing company and an illegal pyramid scheme turned on 

whether the operation focused on recruitment of new members rather than upon 

making actual sales, (2) knew that the ViSalus Program focused more on recruiting 

new IPs than selling ViSalus’s weight-loss products, and (3) created and 

implemented a system in which ViSalus promoters across the country would make 

fraudulent pitches in support of the ViSalus Program. By way of example, 

Plaintiffs allege that: 

 Sarnicola, Blair, and Mallen “had prior experience with recruitingbased network marketing schemes,” and, “by 2005,” knew that 

“ViSalus was operating a pyramid scheme, an enterprise in which 

recruiting members predominated over selling of product.” (First Am. 

Compl. at ¶125.) 

 ViSalus’s own website stated that Mallen “had a decade of network 

marketing experience prior to the founding of ViSalus.” (Id. at ¶126) 

(internal quotation marks omitted.) 

 Sarnicola “had a long history of involvement with multi-level 

marketing companies.” (Id. at ¶127.) 

 Sarnicola, Blair, and Mallen “oversaw the operation of the [ViSalus] 

compensation plan” and were “personally involved in the company’s 

strategic decision-making, and otherwise managed the significant 

affairs of [ViSalus].” (Id. at ¶131.) 

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 22 of 55 Pg ID 1974
22 

 Sarnicola, Blair, and Mallen “orchestrated” the hiring of distributors 

from other companies who were “presented as distributors just like 

innocent recruits when in fact” they were given far more favorable 

treatment than the recruits – treatment that unfairly enabled them to 

succeed while the recruits would fail. (Id. at ¶135.) 

 Sarnicola, Blair, and Mallen “were aware that [ViSalus’s] valuation 

depended on . . . illegal recruiting activities . . . fueled by recruiting 

bonuses.” (Id. at ¶142.) 

 Sarnicola, Blair, and Mallen “made all fundamental decisions 

regarding [the ViSalus Program’s] operation and finances and knew 

that the true facts concerning the operation of the [program] fit every 

criterion of an illegal pyramid or were reckless to that possibility.” 

(Id. at ¶187.) 

Based on these and other allegations in the First Amended Complaint (many of 

which are identified above), the Court concludes that Plaintiffs have successfully 

pleaded that Defendants ViSalus, Sarnicola, Mallen, and Blair acted with the 

requisite scienter. 

D. 

 Defendant ViSalus seeks dismissal of Plaintiffs’ Section 1962(c) Claim on 

the ground that “Plaintiffs have not pled the existence of a RICO enterprise distinct 

from ViSalus itself.” (ECF #62 at 22, Pg. ID 1646.) The Court concludes that 

Plaintiffs have pled a distinct enterprise. 

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 23 of 55 Pg ID 1975
23 

To plead a Section 1962(c) claim, a plaintiff “must allege . . . the existence 

of two distinct entities: (1) a ‘person’; and (2) an ‘enterprise’ that is not simply the 

same ‘person’ referred to by a different name.” In Re ClassicStar Mare Lease 

Litig, 727 F.3d at 490 (internal quotation marks omitted). Under this principle, 

“known as the ‘non-identity’ or ‘distinctness’ requirement,” 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.” Id. (quoting Begala v. PNC 

Bank, 214 F.3d 776, 781 (6th Cir. 2000)). But an organization can join with 

independent entities and individuals to form a distinct enterprise. Thus, in 

ClassicStar, the Sixth Circuit held that the “distinctness” requirement was satisfied 

where, among other things, “the alleged RICO enterprise was comprised of other 

entities that were neither owned by [the defendant organization] nor acting as its 

agents.” Id. 

 The allegations in the First Amended Complaint satisfy the “distinctness” 

requirement. Plaintiffs have alleged that the enterprise consisted of ViSalus, its 

officers, and numerous independent outside promoters (the IPs). Importantly, 

Plaintiffs allege that the IPs played a role in the enterprise that was wholly distinct 

from that of ViSalus. Plaintiffs claim that IPs promoted ViSalus products and the 

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 24 of 55 Pg ID 1976
24 

ViSalus lifestyle to unwitting recruits. (See, e.g., First Am. Compl. at ¶¶ 96, 156, 

158.) Meanwhile, ViSalus, the corporate entity, provided the overall structure for 

the ViSalus Program and was responsible for the company’s day-to-day operations, 

such as mailing out weight-loss products to customers and IPs who purchased 

them. (See id. at ¶¶ 47, 176.) That ViSalus and the IPs played different roles in 

the alleged scheme underscores that the overall enterprise was distinct from 

ViSalus. 

 ViSalus counters that Plaintiffs have not satisfied the standard for 

distinctness established by the United States Court of Appeals for the Seventh 

Circuit in Fitzgerald v. Chrysler Corp., 116 F.3d 225 (7th Cir. 1997). In 

Fitzgerald, the plaintiffs brought a RICO class action against Chrysler and its 

dealers alleging various acts of fraud related to the sale of vehicle warranties. The 

Seventh Circuit held that the plaintiffs’ RICO claim failed as to Chrysler because 

the plaintiffs had failed to plead that Chrysler and its dealers were sufficiently 

distinct. The Seventh Circuit stressed that the dealers had only an “incidental role 

in the alleged fraud” and did not add “an air of legitimacy” to the sale of the 

warranties. Id. at 227-28. The court concluded that Chrysler did “not establish[] 

dealerships in order to fool car buyers into thinking that they are not dealing with 

the ‘racketeer’ Chrysler, or to enable Chrysler to engage in fraud on a scale that 

would be impossible if it internalized the dealership function.” Id. at 228. 

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 25 of 55 Pg ID 1977
25 

 But here, Plaintiffs allege that the IPs played more than an incidental role in 

the fraud – far more. Plaintiffs contend that the IPs played a central role in the 

overall scheme by duping potential recruits into signing up for the ViSalus 

Program. Plaintiffs also allege that the IPs added a critical “air of legitimacy” to 

the ViSalus Program by posing as false success stories and promoting the idea that 

anybody could become rich through the ViSalus Program. The alleged enterprise 

here thus has the two key features missing from the enterprise alleged in 

Fitzgerald. Thus, Fitzgerald does not support dismissal of the Section 1962(c) 

Claim against ViSalus. 

IV. 

(The RICO Conspiracy Claim) 

Plaintiffs allege that all of the Defendants named in the First Amended 

Complaint violated Section 1962(d) of RICO by conspiring to violate Section 

1962(c) (the “RICO Conspiracy Claim”). (See First Am. Compl. at ¶¶ 201-214.) 

Defendants argue that the RICO Conspiracy Claim fails as a matter of law because 

Plaintiffs have failed to allege that any of the Defendants committed a substantive 

violation of Section 1962(c). (ECF #62 at 27 n.17, Pg. ID 1651, citing Heinrich, 

668 F.3d at 411; see also ECF #61 at 9-10, Pg. ID 1600-01.) The Court concludes 

that Plaintiffs have sufficiently alleged the RICO Conspiracy Claim against all of 

the Defendants other than Ropart Asset Management Fund, LLC, Ropart Asset 

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 26 of 55 Pg ID 1978
26 

Management Fund II, LLC, Freedom Legacy, LLC, Wealth Builder International, 

Inc., and Residual Marketing, Inc. (hereinafter the “Entity Defendants”).13 The 

Court will therefore dismiss the RICO Conspiracy Claim against the Entity 

Defendants only. 

The Sixth Circuit has held that in order “[t]o plausibly state a claim for a 

violation of 18 U.S.C. § 1962(d), plaintiffs must successfully allege all the 

elements of a RICO violation, as well as alleging the existence of an illicit 

agreement to violate the substantive RICO provision.” Heinrich, 668 F.3d at 411 

(internal quotation marks omitted). But this does not mean that in order to assert a 

RICO conspiracy claim against a particular defendant, a plaintiff must first assert a 

viable substantive RICO claim against that defendant. Indeed, the Sixth Circuit 

has expressly held that a defendant may be liable for RICO conspiracy under 

Section 1962(d) even where the defendant has not personally committed a 

substantive RICO violation. See United States v. Driver, 535 F.3d 424, 432 (6th 

Cir. 2008) (holding that even if the defendant did not violate Section 1962(c), he 

could still be found to have violated Section 1962(d)). Instead, in order to state a 

                                                            

13 The Court has reviewed the RICO conspiracy allegations against the Entity 

Defendants and concludes they are insufficient to state a viable RICO conspiracy 

claim. The Entity Defendants are alleged to be wholly-owned and/or controlled by 

certain of the individual Defendants, but Plaintiffs have not pleaded factual 

allegations to support a finding that these entities entered into any agreement to 

violate Section 1962(c). 

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 27 of 55 Pg ID 1979
27 

viable RICO conspiracy claim against a particular defendant, a plaintiff must 

sufficiently allege “that a co-conspirator violated Section 1962(c)” and that the 

defendant “agreed to further or facilitate the criminal endeavor by agreeing that 

someone, although not necessarily himself, would ‘commit two predicate acts.’” 

Siddle v. Crants, 650 F. Supp. 2d 773, 785 (M.D. Tenn. 2009) (quoting Driver, 535 

F.3d at 432). 

Plaintiffs have satisfied this standard. As explained above, Plaintiffs have 

sufficiently alleged that Defendants ViSalus, Sarnicola, Blair, and Mallen 

committed substantive RICO violations under Section 1962(c). And Plaintiffs 

have sufficiently pleaded that those four Defendants and the remaining individual 

Defendants entered into an agreement under which they all agreed (1) to further the 

criminal endeavor and (2) that one of the members of the conspiracy would 

commit a pattern of predicate acts. This agreement “can be inferred from the 

individual defendants’ involvement” in the alleged scheme. Heinrich, 668 F.3d at 

411. See also In Re ClassicStar Mare Lease Litig., 823 F. Supp. 2d 599, 638 (E.D. 

Ky. 2011) (conspiracy to violate RICO “may be inferred from circumstantial 

evidence which may reasonably be interpreted as participation in common plan”). 

The following allegations, among others, support an inference that the 

Defendants entered into a common plan or scheme to violate Section 1962(c) of 

RICO: 

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 28 of 55 Pg ID 1980
28 

 Based on agreements made between them and Sarnicola, “Defendants 

O’Toole, Varon, Petrilli, Pacetti, Fortner, Wilson, and [T.] Kirkland 

all agreed to join [ViSalus] by leaving other network marketing 

companies between 2009 and 2011[] [and] to actively expand the 

promoter base for ViSalus.” (First Am. Compl. at ¶149.) 

 Defendants O’Toole, Varon, Petrilli, Pacetti, Fortner, Wilson, and T. 

Kirkland, “in return for payments and inducements not made available 

to the targets of the pyramid scheme,” agreed to “pitch[] the notion of 

wealth, BMW’s and six-figure incomes if [targets of the scheme] 

‘joined’ the [ViSalus] ‘business opportunity.’” (Id.) 

 Defendants O’Toole, Varon, Petrilli, Pacetti, Fortner, Wilson, and T. 

Kirkland “understood that the role they were to play was to recruit as 

many unsuspecting people as possible into the ViSalus scheme, to 

pretend that they were simply people ‘just like’ unwitting participants 

invited to attend the ViSalus presentation[s], that they were to use 

scripted materials at the conventions, that they were to appear in ads 

and to give false testimonials. Each of them understood and knew, 

based on their prior experience, that the ViSalus plan promoted 

recruiting over product sales. Each of them understood that they were 

to use social media to coat the Internet in the message that ViSalus 

was a great income opportunity. Each of them understood that the 

terms of their distributor relationship with ViSalus was materially 

different than the people they were to recruit.” (Id.) 

 Defendants O’Toole, Varon, Petrilli, Pacetti, Fortner, Wilson, and T. 

Kirkland “made false statements intended to be disseminated to 

unsuspecting recruits . . . all with the intent to lure people into the 

system that each [of these] Defendant[s] knew was highly unlikely to 

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 29 of 55 Pg ID 1981
29 

make any money, or could only make money by committing illegal 

recruiting activities, i.e., victimizing someone else.” (Id. at ¶150.) 

 Defendant Fortner (1) was given “undisclosed special incentives, 

payments or deals to be placed within the commission-payment 

scheme ahead of or ‘upline’ of Plaintiffs and others” and “agreed that 

this arrangement be kept undisclosed from innocent recruits” (id. at 

¶153), (2) “falsely claimed” to make hundreds of thousands of dollars 

from the ViSalus Program (id. ¶154), and (3) “[w]as a knowing and 

willing participant in the promotion of the ViSalus pyramid scheme.” 

(Id. at ¶155.) 

 Defendant Jackson (1) made “false and misleading” claims about her 

supposed “success” with ViSalus (id. at ¶156), (2) received “certain 

payments or benefits and agreed that this arrangement be kept from 

innocent recruits” (id.), and (3) “[w]as a knowing and willing 

participant in the promotion of the ViSalus pyramid scheme.” (Id. at 

¶157.) 

 Defendant Craig (1) “was formerly the ViSalus Director of Sales, 

North America” (id. at ¶159), (2) “obtained [] substantial undisclosed 

benefits or payments promised by ViSalus,” (id.), and (3) “was a 

knowing and willing participant in the promotion of the ViSalus 

pyramid scheme.” (Id.) 

 Defendant H. Kirkland “appeared and allowed herself to be portrayed 

as a ‘successful’ promoter holding a check which she knew was false. 

She knew or reasonably should have known that the compensation 

system she and her husband were selling, touting or offering to people 

like the Plaintiffs was a recruiting-based pyramid scheme.” (Id. at 

¶207.) 

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 30 of 55 Pg ID 1982
30 

 Goergen acted as ViSalus’s “Chief Operating Officer” and, later, was 

the company’s “Chief Operating Officer.” (Id. at ¶131.) 

 In 2008, after Goergen Sr. invested substantial funds in ViSalus 

through a second company he controlled (see id. at ¶¶ 125-130), 

Goergen Sr. and Goergen “agreed” with ViSalus, Sarnicola, Blair, and 

Mallen “to pump up the ViSalus revenues by hugely expanding the 

growth of the pyramid scheme. This was with the goal of greatly 

increasing recruitment of unsuspecting people to join the pyramid 

scheme.” (Id. at ¶134.) 

 “From 2008-2013,” Goergen[] Sr. and Goergen, along with Sarnicola, 

Blair, and Mallen, “controlled the direction and strategy of ViSalus’s 

operation of the pyramid scheme.” (Id. at ¶132.) 

 Goergen Sr. and Goergen, together with the other ViSalus Defendants, 

“directly authored and/or approved of the dissemination of the 

ViSalus compensation plan....” (Id. at ¶196.) 

From these allegations and others in the First Amended Complaint, the 

Court can infer that the Defendants, except for the Entity Defendants noted above, 

agreed to participate in a common plan that harmed Plaintiffs. Plaintiffs have 

therefore stated a sufficient claim under Section 1962(d) against these Defendants. 

V. 

(The Securities Fraud Claims Under Section 10b and Rule 10b-5) 

In count three of the First Amended Complaint, Plaintiffs allege – as an 

alternative theory of liability to their claims under RICO – that the ViSalus 

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 31 of 55 Pg ID 1983
31 

Defendants14 violated Section 10b (5 U.S.C. § 78j(b)) and Rule 10b-5 (17 C.F.R. 

§ 240.10b-5) of the federal securities laws. (See First Am. Compl. at ¶¶ 215-223.) 

Under these provisions, “in connection with the purchase or sale of any security,” 

it is unlawful 

(a) To employ any device, scheme, or artifice to defraud 

(b) To 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 the light of the circumstances 

under which they were made, not misleading, or 

(c) To engage in any act, practice, or course of business 

which operates or would operate as a fraud or deceit 

upon any person[.] 

17 CFR § 240.10b-5(a)-(c). 

 Plaintiffs maintain that the ViSalus Defendants violated Rule 10b-5(b) by 

making material misrepresentations and/or omissions and violated Rules 10b-5(a) 

and (c) by operating a fraudulent scheme. The Court will address these two 

theories of liability in turn.15

                                                            

14 Previously identified as ViSalus, Goergen Sr., Goergen, Sarnicola, Blair, and 

Mallen. 

15 Plaintiffs concede that the First Amended Complaint, as currently pleaded, does 

not expressly state a “scheme to defraud” claim under Rule 10b-5(a) and (c). But 

Plaintiffs have argued both to the ViSalus Defendants and the Court that such a 

“scheme” claim can be inferred from the totality of their allegations. The Court 

will thus analyze both the “misrepresentation” claim under Rule 10b-5(b) and the 

“scheme liability” claim for the sake of efficiency. 

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 32 of 55 Pg ID 1984
32 

A. 

 To state a claim under Rule 10b-5(b), “a plaintiff must [plead] and prove: (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, and (5) loss 

causation.” Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 128 S. 

Ct. 157 (2008). In addition, a private plaintiff bringing a securities fraud claim 

under Rule 10b-5(b) must satisfy the requirements of the Private Securities 

Litigation Reform Act, 15 U.S.C. § 78u-4 (the “PSLRA”). Among other things, 

the PSLRA requires a plaintiff to “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), and a plaintiff must “state with particularity facts giving rise 

to a strong inference that the defendants acted with the required state of mind.” 15 

U.S.C. §78u-4(b)(2). 

 In their 10b-5(b) claim, Plaintiffs allege that the ViSalus Defendants: 

made material misrepresentations and/or omissions in 

connection with the sale of distributorships to Plaintiffs 

and the class. The Defendants falsely represented that 

they were conveying a legal 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. . . . In the alternative, Defendants’ 

actions omitted material facts, i.e., that they were selling 

an interest in a pyramid scheme, in connection with the 

sale of distributorships. 

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 33 of 55 Pg ID 1985
33 

(First Am. Compl. at ¶218). At oral argument, Plaintiffs clarified that the 

misrepresentations and/or omissions underlying this claim appeared in (1) the 

ViSalus compensation plan and (2) various advertisements promoting the ViSalus 

Program. (See Tr., ECF #72 at 68, Pg. ID 1889.) The documents containing the 

claimed misrepresentations and/or omissions are attached to the First Amended 

Complaint as Exhibits A and B. (See ECF ## 55-1 – 55-3.) 

 The ViSalus Defendants attack Plaintiffs’ 10b-5(b) claim on several 

grounds. First, the ViSalus Defendants argue that Plaintiffs have failed to plead 

that they relied on “a single misrepresentation or omission” when they signed up to 

become a ViSalus IP. (See ECF #62 at 11-12, Pg. ID 1635-36.) Plaintiffs 

acknowledged at oral argument that, as currently pleaded, the First Amended 

Complaint does not contain any allegations that Plaintiffs actually saw or read 

either the compensation plan or the ViSalus advertisements that form the entirety 

of Plaintiffs’ 10b-5(b) claim. (See Tr. at 70, Pg. ID 1891.) But Plaintiffs’ counsel 

represented to the Court that Plaintiffs could make such allegations if given the 

opportunity to file a Second Amended Complaint. (See id.) The Court will 

therefore dismiss Plaintiffs’ 10b-5(b) claim but permit them to file a Second 

Amended Complaint amending this claim to allege that the named Plaintiffs (1) 

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 34 of 55 Pg ID 1986
34 

read and relied upon the compensation plan and (2) saw and relied upon specific 

advertisements. That amendment will cure the current reliance deficiency.16 

 The ViSalus Defendants next argue that liability under Rule 10b-5(b) “is 

limited to the ‘maker’ of the misrepresentation or omission,” Janus Capital Group, 

Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011), and that here “the only 

‘maker’ of an alleged misrepresentation or mission is ViSalus.” (ECF #62 at 3-4, 

Pg. ID 1627-28.) The ViSalus Defendants thus argue that Plaintiffs have failed to 

state a 10b-5(b) claim against any of them except for ViSalus. The Court agrees. 

 Notably, Plaintiffs’ briefing offers no substantive response to the ViSalus 

Defendants’ argument that ViSalus is the sole “maker” of the statements at issue. 

And at oral argument, Plaintiffs could not identify any “maker” of the 

advertisements other than ViSalus. With respect to the compensation plan, 

Plaintiffs argued only that Sarnicola, Blair, Mallen, Goergen Sr., and Goergen 

made the statements therein because they were the plan’s “authors.” (Hearing Tr. 

at 69, Pg. ID 1890; see also First Am. Compl. at ¶196.) But Janus expressly 

rejected the argument that authoring or drafting a statement is the same as making 

                                                            

16 As stated above, Plaintiffs’ Rule 10b-5(b) claim fails to state a claim against any 

of the ViSalus Defendants because Plaintiffs have failed to plead the required 

element of reliance. However, for the sake of efficiency and to provide maximum 

guidance to the parties, the Court will examine and rule on the ViSalus 

Defendants’ remaining arguments with respect to the Rule 10b-5(b) claim on the 

assumption that Plaintiffs will be able to cure the lack of reliance allegations 

through the filing of a Second Amended Complaint. 

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 35 of 55 Pg ID 1987
35 

the statement. See Janus, 131 S. Ct. at 2303 (rejecting argument that “‘make’ 

should be defined as ‘create’”). Moreover, the Supreme Court in Janus stressed 

that “attribution within a statement or implicit from surrounding circumstances is 

strong evidence that a statement was made by – and only by – the party to whom it 

is attributed,” Janus, 131 S. Ct. at 2302 (emphasis added), and the only ViSalus 

Defendant identified in the compensation plan is ViSalus. The plan never 

mentions, much less attributes its contents to, Sarnicola, Blair, Mallen, Goergen 

Sr., Goergen, or any other individual. (See ECF #55-1.) Because Plaintiffs have 

failed to rebut the ViSalus Defendants’ argument that ViSalus is the sole “maker” 

of the statements in question, Plaintiffs’ Rule 10b-5(b) claim fails as to all ViSalus 

Defendants except ViSalus.17

                                                            

17 In a footnote in a section of Plaintiffs’ response brief discussing a wholly 

separate issue – whether Plaintiffs have pleaded the required scienter for their Rule 

10b-5 claim – Plaintiffs maintain that the ViSalus Defendants “acknowledge[d in 

the Motions] that responsibility for the business opportunity extends to the 

individuals who created it and caused it to be distributed.” (Pls.’ Br. at 27 n.35, 

Pg. ID 1709.) In support of this position, Plaintiffs’ cite to a Section of 

Defendants’ motion in which Plaintiffs contend the ViSalus Defendants 

“acknowledge” that, under Janus, 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.” (ECF #62 at 4, Pg. ID 1628 (quoting Janus, 131 S. 

Ct. at 2302)). But the ViSalus Defendants certainly have not “acknowledged” that 

any of them “made” the statements at issue. It is conceivable that Plaintiffs could 

present a theory, supported by specific factual allegations and supporting case law, 

as to how the individual ViSalus Defendants qualify as the “makers” of the 

compensation plan. But they have not yet done so. 

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 36 of 55 Pg ID 1988
36 

 ViSalus next argues that Plaintiffs’ 10b-5(b) claim fails because Plaintiffs 

have failed to plead that ViSalus acted with the required scienter. (See ECF #62 at 

7-11, Pg. ID 1631-35.) ViSalus contends that even if the knowledge of Sarnicola, 

Blair, and Mallen could be imputed to the company, see In Re Omnicare Sec. 

Litig., 769 F.3d 455, 476 (6th Cir. 2014) (holding that under certain circumstances, 

the knowledge (and thus, scienter) of a company’s officers or agents may be 

imputed to the company), “the facts alleged do not support a strong inference that 

any of the individual defendants . . . knew that ViSalus was a pyramid scheme.” 

(See id. at 11, Pg. ID 1635.) ViSalus thus argues that Plaintiffs have fallen short of 

the demanding scienter standard that the PSLRA demands. (See id.) 

 The Court acknowledges that the PSLRA requires Plaintiffs to plead 

particular facts that “give[] rise to a strong inference” of scienter. 15 U.S.C. §78u4(b)(1). But the Court concludes that this standard is satisfied here. As explained 

above, the First Amended Complaint contains detailed allegations that Sarnicola, 

Blair, and Mallen (1) knew the dividing line between a legitimate multi-level 

marketing company and an illegal pyramid scheme, (2) knew that ViSalus fell on 

the wrong side of that line, and (3) knew that promoters across the country were 

actively misleading people in an effort to sign up more IPs for the ViSalus 

Program. (See, e.g., First Am. Compl. at ¶¶ 125-127, 131, 135, 142, 187.) These 

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37 

allegations satisfy even the heightened scienter pleading standard under the 

PSLRA. 

 ViSalus also argues that the key omission identified by Plaintiffs – the 

failure to state in the compensation plan and promotional materials that the ViSalus 

Program was a pyramid scheme – is not actionable under Rule 10b-5(b) because 

ViSalus had no obligation to disclose that alleged fact. ViSalus argues that that 

alleged fact constitutes “soft information,” and it contends that “soft information” 

need only be disclosed “only if it is virtually as certain as hard facts.” (ECF #62 at 

5, Pg. ID 1629, quoting Zaluski v. United Am. Healthcare Corp., 527 F.3d 564, 

572 (6th Cir. 2008).) But there is an exception to that rule: “if a complaint 

adequately alleges that the defendants knew of the illegal nature of their conduct at 

the time they made the allegedly material misstatement, courts will impose a duty 

of disclosure.” Chamberlain v. Reddy Ice Holdings, Inc., 757 F. Supp. 2d 683, 707 

(E.D. Mich. 2010). As described above, Plaintiffs have sufficiently alleged in the 

First Amended Complaint that ViSalus (through its principals) knew that its 

conduct was an illegal and fraudulent pyramid scheme.18 Accordingly, ViSalus 

                                                            

18 Defendants’ counsel candidly conceded at oral argument that if the “factual 

allegations in the Complaint were sufficient to establish certain Defendants knew 

that what they were saying was a misrepresentation or omission” then the Court 

would have to “deny the motion with regards to those Defendants.” (January 20, 

2016 Hrg. Tr., ECF #72 at 88, Pg. ID 1909.) 

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38 

had a duty to disclose that alleged fact to potential ViSalus IPs, and the omission of 

that alleged is actionable. 

B. 

 Plaintiffs also maintain that the ViSalus Defendants participated in a 

“scheme to defraud” in violation of Rules 10b-5(a) and (c). These provisions make 

it illegal “to employ any device, scheme, or artifice to defraud” and “to engage in 

any act, practice, or course of business which operates or would operate as a fraud 

or deceit upon any person, in connection with the purchase or sale of any security.” 

17 CFR § 240.10b-5(a), (c). “To state a claim based on conduct that violates Rule 

10b-5(a) and (c), [a] plaintiff must allege that a defendant (1) committed a 

deceptive or manipulative act, (2) with scienter, that (3) the act affected the market 

for securities or was otherwise in connection with their purchase or sale, and that 

(4) defendants' actions caused the plaintiffs’ injuries.” In re Parmalat Sec. Litig., 

376 F. Supp. 2d 472, 492 (S.D.N.Y. 2005) (emphasis removed) (testing claims 

under 10b-5(a) and (c) against the same pleading standard). In addition, because 

scheme liability claims “sound in fraud,” a plaintiff must also satisfy the pleading 

requirements of Rule 9(b) by “specify[ing] what deceptive or manipulative acts 

were performed, which defendants performed them, when the acts were performed, 

and what effect the scheme had on investors in the securities at issue.” Id. Finally, 

in order to state a viable scheme liability claim, a plaintiff must identify an 

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39 

allegedly “deceptive or manipulative act” by the defendant beyond making a 

misstatement or omission (which is prohibited under Rule 10b5-(b)). See, e.g.,

Benzon v. Morgan Stanley Distrib., Inc., 420 F.3d 598, 610 (6th Cir. 2005) (“Rules 

10b-5(a) and (c) encompass conduct beyond disclosure violations”) (emphasis 

added). 

 The ViSalus Defendants first argue that Plaintiffs’ scheme liability claim 

under Rules 10b–5(a) and (c) fails because Plaintiffs have “not described . . . any 

inherently deceptive conduct that furthered the scheme[] which is separate and 

apart from the misrepresentations or omissions alleged in support of their Rule 

10b-5(b) claims.” (Defs.’ Supp. Br., ECF #73 at 2, Pg. ID 1933) (emphasis 

removed). The Court disagrees. 

 As described above, Plaintiffs have alleged that the ViSalus Defendants 

knowingly created, implemented, and operated a pyramid scheme. That conduct is 

inherently fraudulent wholly apart from any allegedly-misleading statements. See 

e.g., United States v. Gold Unlimited, 177 F.3d 472, 484 (6th Cir. 1999) 

(“Unquestionably, an illegal pyramid scheme constitutes a scheme to defraud.”). 

Simply put, the operators of a pyramid scheme engage in fraudulent and deceptive 

conduct even if the operators make no false statements to potential enrollees about 

the enrollees’ chances for success. Thus, the “operation of a pyramid scheme 

violates 10b-5's prohibition against engaging in an ‘act, practice or course of 

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40 

business which operates as a fraud or deceit upon any person.’” Webster v. 

Omnitrition Int’l., Inc., 79 F.3d 776, 785 (9th Cir. 1996) (quoting 17 C.F.R. § 

240.10b-5(c)); see also In re Silicon Graphics, Inc. Sec. Litig., 970 F. Supp. 746, 

761 (N.D. Cal. 1997) (“[P]articipants may ... be liable [under Rule 10b-5] for their 

involvement in a pyramid scheme.”).19

 The ViSalus Defendants also argue that Plaintiffs have failed to plead that 

they operated the alleged scheme with the required particularity. The Court again 

disagrees. As described above, the Plaintiffs have sufficiently alleged that the 

ViSalus Defendants created, structured, operated, funded, and controlled the 

alleged pyramid scheme. The Court is satisfied that the Plaintiffs have sufficiently 

pleaded their scheme liability claim against the ViSalus Defendants. 

                                                            

19 A number of courts have held that a defendant may be liable under a scheme 

liability theory where he “arrang[ed] for the dissemination of false or misleading 

statements” that promoted a scheme to defraud. SEC v. Farmer, 2015 WL 

5838867, at *15-16 (S.D. Tex. Oct. 7, 2015); SEC v. Crushen, 888 F. Supp. 2d 

1299, 1308 (S.D. Fla. 2012) (granting summary judgment to plaintiff where 

plaintiff claimed, among other things, that defendant created a deceptive media 

campaign). Here, Plaintiffs have alleged that the ViSalus Defendants arranged for 

numerous individuals to falsely promote ViSalus across the country. Because the 

Court has concluded that the ViSalus Defendants’ operation of the alleged pyramid 

scheme itself is inherently fraudulent conduct, it need not decide at this time 

whether the ViSalus Defendants could also be liable under the scheme liability 

theories advanced in Farmer and Crushen. If necessary, the Court can revisit this 

question at the summary judgment stage of the proceedings. 

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41 

VI. 

(The Securities Fraud Claim Under Section 12(2)) 

 In count four of the First Amended Complaint, Plaintiffs allege that all 

Defendants violated Section 12(2) of the Securities Act of 1933, 15 U.S.C. § 

771(2). This section provides that any person who 

offers or sells a security . . . by the use of any means or 

instruments of transportation or communication in 

interstate commerce or of the mails, by means of a 

prospectus or oral communication, which includes an 

untrue statement of a material fact or omits to state a 

material fact necessary in order to make the statements, 

in the light of the circumstances under which they were 

made, not misleading (the purchaser not knowing of such 

untruth or omission), and who shall not sustain the 

burden of proof that he did not know, and in the exercise 

of reasonable care could not have known, of such untruth 

or omission, shall be liable . . . to the person purchasing 

such security from him. 

 In Pinter v. Dahl, 486 U.S. 622 (1988), the United States Supreme Court 

addressed the scope of a “seller” of a security under a related statute, 15 U.S.C. 

§ 771(1) (“Section 12(1)”). The Supreme Court held that in order to qualify as a 

“seller” under Section 12(1), a defendant must either (1) “pass[] title, or other 

interest in the security, to the buyer for value,” id. at 642, or (2) “successfully 

solicit[] the purchase” of a security. Id. at 649. Thus, “[b]eing merely a 

‘substantial factor’ in causing the sale . . . is not sufficient in itself to render a 

defendant liable” if the Defendant did not solicit the ultimate purchase. Id. at 654. 

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42 

The Sixth Circuit “appl[ies] this test” for “seller” status to claims brought under 

Section 12(2). Smith v. Am. Nat’l Bank & Trust Co., 982 F.2d 936, 942 (6th Cir. 

1992). 

 The Defendants argue that only ViSalus meets the definition of “seller” 

applicable to Section 12(2) claim. The Court agrees and will dismiss the Section 

12(2) claim against all Defendants except for ViSalus. 

 ViSalus is the only Defendant alleged to have passed to Plaintiffs any 

interest in a security. Thus, the remaining Defendants could be deemed Section 

12(2) “sellers” only if they “solicited” Plaintiffs’ purchase of securities. They did 

not. “To count as ‘solicitation,’ the seller must, at a minimum, directly 

communicate with the buyer,” Rosenzweig v. Azurix Corp., 332 F.3d 854, 871 (5th 

Cir. 2003),20 and Plaintiffs do not allege that they had any direct contact with any 

of the remaining Defendants. Thus, the remaining Defendants did not solicit any 

of the Plaintiffs’ purchases and are not “sellers” under Section 12(2). 

Plaintiffs counter that several federal courts have found a “solicitation” even 

in the absence of direct contact between a plaintiff and a defendant. (See Pls.’ 

Supp. Br., ECF #74 at 6-7, Pg. ID 1948-49, citing, among other cases, In re Sirrom 

                                                            

20 See also In re Nat’l Century Fin. Enters., Inc., 846 F. Supp. 2d 828, 904 (S.D. 

Ohio 2012) (noting that a “solicitation” requires direct contact); Pullins v. Klimley, 

2008 WL 85871, at *16 (S.D. Ohio Jan. 7, 2000) (“To establish liability as a seller, 

a plaintiff must demonstrate direct and active participation in the solicitation of the 

immediate sale.”). 

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43 

Capital Corp. Sec. Litig., 84 F. Supp. 2d 933, 945 (M.D. Tenn. 1999), In re Trade 

Partners, Inc. Investors Litig., 2008 U.S. Dist. LEXIS 66464, at **66-68 (W.D. 

Mich. Aug. 15, 2008), and In re Prison Realty Sec. Litig., 117 F. Supp. 2d 681 

(M.D. Tenn. 2000).) However, even if the Court adopted the broader view urged 

by Plaintiffs – that a solicitation does not require direct contact – that would be no 

help to Plaintiffs here. A solicitor becomes a “seller” under Section 12(2) only if 

he solicits “the purchase” under attack, Pinter, 486 U.S. at 649 (emphasis added), 

and while Plaintiffs allege that the certain individual Defendants engaged in 

solicitation activities, they do not allege that they actually saw and/or were aware 

the specific activities by the individual Defendants. Thus, even under the broader 

view of “solicitation” urged by Plaintiffs, the individual Defendants do not qualify 

as Section 12(2) “sellers.” 

 ViSalus further argues that Plaintiffs’ Section 12(2) claim fails because it 

(ViSalus) did not have a duty to disclose “soft information.” (See ECF #62 at 14-

15, Pg. ID 1638-1639.) But for all of the reasons stated above, the Court concludes 

that under the facts alleged in the First Amended Complaint, ViSalus did have a 

duty to disclose. Thus, Plaintiffs may pursue their Section 12(2) claim against 

ViSalus. 

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44 

VII. 

(The Claim Under Section 903 of the MCPA) 

 In count six of the First Amended Complaint, Plaintiffs allege that all 

Defendants violated Section 903 of the MCPA. (See First Am. Compl. at ¶¶ 235-

244.) Section 903 prohibits, among other things, deceptive practices in the conduct 

of trade or commerce. See MCL § 445.903. Plaintiffs allege that Defendants 

violated Section 903 of the MCPA “in that they authored or knowingly permitted 

and encouraged the dissemination of the ViSalus compensation plan.” (Id. at 

¶237.) All Defendants except for ViSalus have moved to dismiss Plaintiffs’ 

Section 903 claim on the basis that Plaintiffs have failed to plead that Defendants 

committed a deceptive act with the required particularity. (See ECF #62 at 27, Pg. 

ID 1651; ECF # 61 at 10-12, Pg. ID 1601-03.) The Court concludes that this count 

fails against all Defendants because the First Amended Complaint does not 

currently contain an allegation that the Plaintiffs read and/or relied upon the 

compensation plan. The Court will therefore dismiss the section 903 claim against 

all Defendants. However, as described above with respect to Plaintiffs’ Rule 10b5(b) claim, Plaintiffs’ counsel represented to the Court that this deficiency could be 

cured through the filing of a Second Amended Complaint. The Court will allow 

such an amendment. Once so amended, the Court concludes that this count will 

state a viable Section 903 claim against Defendants ViSalus, Sarnicola, Blair, and 

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45 

Mallen, but not against any of the other Defendants. 

 As described in detail above, Plaintiffs allege that Sarnicola, Blair, Mallen, 

Goergen Sr., and Goergen drafted the misleading compensation plan and put in 

place the mechanisms through which ViSalus delivered the plan to potential IPs. 

(See, e.g., First Am. Compl. at ¶196.) At the pleading stage, these allegations are 

sufficient to state a claim that Sarnicola, Blair, Mallen, Goergen Sr., and Goergen 

violated Section 903 once Plaintiffs file a Second Amended Complaint that alleges 

that they read and/or relied upon the compensation plan. 

 However, Plaintiffs have failed to sufficiently connect any of the remaining 

Defendants to their (the Plaintiffs’) receipt and review of the compensation plan. 

For instance, Plaintiffs do not allege that any other Defendants gave them the plan, 

showed them the plan, told them to review the plan, established the marketing 

program that led to their review of the plan, and/or directed anyone else to show 

them the plan. Thus, Plaintiffs have failed to plead the required specific facts 

necessary to state against these Defendants a viable Section 903 claim related to 

the compensation plan. 

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46 

VIII. 

(The Claim Under Section 911(3)(c) of the MCPA) 

 Plaintiffs allege in count six of the First Amended Complaint that 

Defendants violated MCL § 445.911. (See First Am. Compl. at ¶243.) That 

provision bars a party from engaging in any 

method, act, or practice in trade or commerce declared by 

a circuit court of appeals or the supreme court of the 

United States to be an unfair or deceptive trade act or 

practice within the meaning of ... 15 U.S.C. § 45(a)(1), 

in a decision which affirms or directs the affirmance of a 

cease and desist order issued by the [F]ederal [T]rade 

[C]omission . . . and which is officially reported not less 

than 30 days before the method, act, or practice on which 

the action is based occurs. 

M.C.L. § 445.911(3)(c) (emphasis added). 

 However, Plaintiffs have failed to identify any “officially reported” decision 

of the United States Supreme Court or of a United States Court of Appeals that 

qualifies under this provision. In the First Amended Complaint, Plaintiffs 

identified three decisions: FTC v. Skybiz.com, 57 Fed. App’x 374 (10th Cir. 2003); 

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

FTC, 520 F.2d 701 (D.C. Cir. 1978), and Ger-Ro Mar, Inc. v. FTC, 518 F.2d 33 

(2d Cir. 1975).21 Both Skybiz.com and In re Koscot are unpublished decisions. 

And while Plaintiffs have argued that an “unpublished” decision qualifies as an 

                                                            

21 Plaintiffs’ counsel could not identify any other cases when questioned at oral 

argument. (See Tr. at 99-100, Pg. ID 1920-1921.) 

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47 

“officially reported” one for purposes of Section 911(3)(c), they have not cited any 

authority for that proposition. Ger-Ro Mar, which is an officially reported 

decision affirming in part a cease and desist order issued by the FTC, is no help to 

Plaintiffs. As Defendants accurately point out, the United States Court of Appeals 

for the Second Circuit in Ger-Ro Mar actually reversed that portion of the FTC’s 

order finding the existence of a pyramid scheme. Thus, Ger-Ro Mar is not a 

reported decision affirming a cease and desist order directed at conduct like that 

alleged here. Because Plaintiffs have failed to identify any decision that qualifies 

under the statute, their claim under MCL § 445.911 fails as a matter of law. 

IX. 

(Unjust Enrichment) 

 In count seven of the First Amended Complaint, the Plaintiffs allege that all 

Defendants (except for ViSalus) were unjustly enriched. (See First Am. Compl. at 

¶¶245-258.) Defendants seek dismissal of this claim on two grounds. 

First, Defendants argue that “the facts alleged do not plausibly connect the 

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

(ECF #62 at 29, Pg. ID 1653; see also ECF #61 at 13, Pg. ID 1604.) But Plaintiffs 

have pleaded that the individual Defendants were “upline from the Plaintiffs” in 

the ViSalus pyramid and that this placement caused the Defendants to receive 

“bonuses and commissions . . . . [w]hich were necessarily funded by a portion of 

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 48 of 55 Pg ID 2000
48 

the Plaintiffs’ [purchases].” (First Am. Compl. at ¶250.) By alleging that each 

individual Defendant received some portion of the money Plaintiffs’ paid to 

ViSalus (as that money was directly funneled upline), Plaintiffs have sufficiently 

connected their own losses to a gain by the individual Defendants. 

Second, Defendants argue that “the unjust enrichment claim fails because 

there is no underlying tort claim remaining against the individual Defendants who 

were allegedly unjustly enriched.” (ECF #62 at 29-30, Pg. ID 1653-54.) However, 

the Court is not aware of any authority that a claim for unjust enrichment under 

Michigan law must rest on an underlying tort, and Defendants have not cited any 

such authority. Unjust enrichment is a quasi-contractual remedy, and Michigan 

courts generally apply contractual, not tort-based, rules to unjust enrichment 

claims. See, e.g., Miller v. Laidlaw & Co. (UK) Ltd., No. 11-12086, 2012 WL 

1068705, at *11 (E.D. Mich. Mar. 29, 2012) (“Claims for unjust enrichment are the 

equitable counterpart to a claim for breach of contract and Michigan courts have 

held that statute of limitations apply to equitable claims by analogy.”). 

Defendants have not persuaded the Court that Plaintiffs’ unjust enrichment claim 

fails because it does not rest on an underlying tort. 

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49 

The Court does agree, however, that the unjust enrichment claim fails 

against the Entity Defendants22. The connection between the detriment to 

Plaintiffs and the alleged benefit to the Entity Defendants is simply too attenuated 

to state a viable unjust enrichment claim. Plaintiffs have stated a viable unjust 

enrichment claim against the individual Defendants but not the Entity Defendants. 

X. 

(Claim for Civil Conspiracy) 

 In count nine of the First Amended Complaint, Plaintiffs assert that all 

Defendants engaged in a civil conspiracy to commit various common law torts and 

other unlawful acts (such as violating RICO). (See First Am. Compl. at ¶¶ 259-

264.) The Entity Defendants and Defendants Sarnicola, O’Toole, Pacetti, Fortner, 

Jackson, Craig, Wilson, Varon, Petrilli, T. Kirkland, H. Kirkland, Varon, and 

Petrilli (for purposes of this paragraph only, the “Promoter Defendants”), have now 

moved to dismiss this count on two grounds. (See ECF #61 at 14-16, Pg. ID 

1605-07.) 

 First, the Promoter Defendants and the Entity Defendants argue that 

Plaintiffs have failed to state a claim for civil conspiracy because Plaintiffs have 

not pleaded that each of the Promoter and Entity Defendants individually 

                                                            

22 Previously defined herein as Ropart Asset Management Fund, LLC, Ropart 

Asset Management Fund II, LLC, Freedom Legacy, LLC, Wealth Builder 

International, Inc., and Residual Marketing, Inc. 

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50 

committed a separate tort. (See id. at 14, Pg. ID 1605.) In support of this position, 

the Promoter Defendants and the Entity Defendants understandably rely on the 

portion of the First Dismissal Order in which the Court dismissed Plaintiffs’ civil 

conspiracy claim because Plaintiffs had not pleaded “a separate, actionable tort as 

to each Defendant.” (First Dismissal Order at 70, Pg. ID 951.) The Court rested 

this holding on the long-standing rule under Michigan law that “a claim for civil 

conspiracy may not exist in the air; rather, it is necessary to prove a separate, 

actionable tort.” (Id., quoting Advocacy Org. for Patients and Providers v. Auto 

Club Ins. Ass’n, 670 N.W.2d 569, 580 (Mich. Ct. App. 2003).) 

 Upon additional review, the Court concludes that it read the Michigan 

separate, actionable tort rule too broadly. The rule states only that Plaintiffs must 

plead a “separate, actionable tort,” not that such a tort must be pleaded against 

each member of the alleged conspiracy. And the Court’s broad reading – requiring 

an actionable tort to be pleaded against all alleged conspirators – renders the notion 

of a conspiracy superfluous: where all of the conspirators have personally 

committed an underlying tort, the conspiracy claim would simply duplicate the 

underlying tort claims. 

 Moreover, a defendant who enters into an agreement with another person 

who actually commits a tort or crime can plainly be liable for conspiracy even 

where the defendant does not personally commit the underlying tort or substantive 

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51 

offense. See, e.g., Driver, supra (holding that defendant may be liable for RICO 

conspiracy even where he does not personally commit an underlying substantive 

RICO violation); BancorpSouth Bank v. Herter, 643 F. Supp. 2d 1041, 1056 (W.D. 

Tenn. 2009) (“Conspiracy . . . imposes liability on persons who, although not 

actually committing a tort themselves, share with the immediate tortfeasors a 

common plan or design in its perpetration. By participation in a civil conspiracy, a 

coconspirator effectively adopts as his or her own the torts of other coconspirators 

within the ambit of the conspiracy.” (emphasis added)). Thus, the Court concludes 

that under a proper application of Michigan’s separate, actionable tort rule, in order 

to plead a viable conspiracy claim, a plaintiff must sufficiently plead (1) an 

underlying tort claim against at least one of the defendants and (2) that the other 

defendants entered into an agreement with the tortfeasor that included the 

commission of the tort. Plaintiffs have done that. 

 Second, the Promoter Defendants and the Entity Defendants argue that 

Plaintiffs have failed to sufficiently plead that these Defendants entered into any 

conspiracy – with ViSalus or anyone else. (See ECF #61 at 14-16, Pg. ID 1605-

1607.) But, as the Court explained in detail above, such an agreement among the 

Promoter Defendants may be inferred from the detailed factual allegations 

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52 

included in the First Amended Complaint.23 (See, e.g., First Am. Compl. at ¶212, 

Pg. ID 1409.) The Promoter Defendants have therefore not presented any basis 

under which the Court may dismiss Plaintiffs’ civil conspiracy claim. 

XI. 

(Claim Under Section 5 of the MFIL) 

 In count eleven of the First Amended Complaint, Plaintiffs allege that all 

Defendants violated Section 5 of the MFIL, MCL § 445.1505. (See First Am. 

Compl. at ¶¶ 270-274.) Section 5(a) of the MFIL prohibits a person from 

“employ[ing] any device, scheme, or artifice to defraud” in connection with the 

filing, offer, sale, or purchase of any franchise. M.C.L. § 445.1505(a). Plaintiffs 

allege that Defendants violated this provision when they engaged in a “scheme” to 

defraud Plaintiffs by having them sign up for the ViSalus Program. (See First Am. 

Compl. at ¶273.) The Defendants argue that liability under Section 5 is limited to 

persons who offer or sell a franchise and that Plaintiffs’ Section 5 claims should 

thus be dismissed against all Defendants other than ViSalus. The Court agrees. 

 While Section 5 sets forth certain prohibited conduct, it does not contain its 

own private right of action authorizing a private plaintiff to sue for its violation. A 

different section of the MFIL, Section 31, MCL § 445.1531, is the only provision 

                                                            

23 The Court does agree, for the same reasons discussed above with respect to 

Plaintiffs’ RICO claim under Section 1962(d), that Plaintiffs have failed to state a 

cognizable conspiracy claim against the Entity Defendants. 

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53 

of the MFIL that creates a private right of action. Thus, a plaintiff seeking to sue 

for a violation of Section 5 can only do so by bringing a claim under Section 31. 

Section 31 authorizes a private civil action against a person “who offers or 

sells a franchise in violation of Section 5.” MCL § 445.1531 (emphasis added). 

Thus, Section 31 “only imposes liability on a person who offers or sells a franchise 

in violation of [Section] 5.” Franchise Mgmt. Unlimited, Inc. v. Am.'s Favorite 

Chicken, 561 N.W.2d 123, 129 (Mich. Ct. App. 1997). Since ViSalus is the only 

Defendant who offered or sold an alleged franchise to Plaintiffs, the claim for 

violation of Section 5 of the MFIL fails as to all other Defendants. 

XII. 

(Conclusion and Summary of Ruling) 

 For the reasons stated above, IT IS HEREBY ORDERED that the Motions 

(ECF ## 61, 62) are GRANTED IN PART AND DENIED IN PART as 

described above. In summary, the Court dismisses the following claims: 

 Count one is DISMISSED against all Defendants except for ViSalus, 

Sarnicola, Blair, and Mallen.

 Count two is DISMISSED against the Entity Defendants only.

 Plaintiffs’ 10b-5(b) claim in count three is DISMISSED against all 

Defendants. 

 Count four is DISMISSED against all Defendants except for ViSalus.

 Count six is DISMISSED against all Defendants.

 Count nine is DISMISSED against the Entity Defendants only.

2:14-cv-12693-MFL-DRG Doc # 75 Filed 03/09/16 Pg 54 of 55 Pg ID 2006
54 

 Count eleven is DISMISSED against all Defendants except for 

ViSalus.

 The Court will convene a telephone call with counsel for all parties to 

discuss the filing of a Second Amended Complaint; the possible curing of the 

pleading deficiencies identified herein; and the next steps in this action. 

 IT IS SO ORDERED. 

s/Matthew F. Leitman 

 MATTHEW F. LEITMAN 

 UNITED STATES DISTRICT JUDGE 

Dated: March 9, 2016 

I hereby certify that a copy of the foregoing document was served upon the parties 

and/or counsel of record on March 9, 2016, by electronic means and/or ordinary 

mail. 

 s/Holly A. Monda 

 Case Manager 

 (313) 234-5113

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