NOT RECOMMENDED FOR FULL-TEXT PUBLICATION File Name: 17a0481n.06

Case No. 16-2535

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

AMERICAN BIOCARE INC.; JIRA HOLDINGS LLC; KJJ HOLDINGS, LLC; HEALTH CARE PARTNERS, INC.; SOUTHWEST HOME HEALTH CARE HOLDINGS, LLC; SWHHC MANAGEMENT-CENTRAL TEXAS, LLC; SOUTHWEST HOME HEALTH CARE CENTRAL TEXAS LP; SOUTHWEST HOME HEALTH CARE OF HARRIS, LLC; SOUTHWEST HOME HEALTH CARE OF EAST TEXAS; SOUTHWEST HOME HEALTH CARE OF DALLAS, LLC, Plaintiffs-Appellants,

v.
HOWARD & HOWARD ATTORNEYS PLLC; JIRA LLC; JIRA III, LLC; REDEMPTION HEALTH CARE LLC; SHHC SERVICES TX, LLC, Defendants-Appellees. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MICHIGAN

BEFORE: MOORE, GILMAN, and COOK, Circuit Judges. COOK, Circuit Judge. The plaintiff compan ies allege that the defendants and other nonparties to the suit engaged in a Racketeer Infl uenced and Corrupt Organizations (“RICO”) Act enterprise that “looted” the plaintiffs’ assets a nd value. The district court disagreed, dismissingCase No. 16-2535, American BioCare, et al. v. Howard & Howard, et al.

- 2 - several plaintiffs under Federal Rule of Civ il Procedure 12(b)(1) and then dismissing the complaint in its entirety under Fede ral Rule of Civil Procedure 12(b )(6). Plaintiffs appeal both decisions. We AFFIRM. I. Background Facts
A. The Original Acquisition American BioCare, Inc. (“ABI”), is a holdi ng company that specializ es in purchasing and managing home healthcare companies (“HHC s”). In December 2011, three of ABI’s subsidiaries—JIRA Holdings, LLC; KJJ Holdi ngs, LLC; and Healthcare Partners, Inc.— acquired a set of HHCs from businessman Kevin Ruark, his son Jamin Ruar k, and their business partner Jason Laing (collectively, the “Ruark Individuals ”). The subsidiaries partially financed the acquisition with a $3.9 million loan from FirstMerit Bank (“FirstMerit”). 1 Although not a named borrower, ABI pledged as collateral its ow nership stakes in its subsidiaries and the acquired HHCs (collectively, “ABI Entities” or “Entities”), along with the assets of those Entities, to guarantee the loan. As part of the deal, the Ruar k Individuals agreed not to work for or own any competing HHCs. But ABI alleges that the Ruark Indivi duals immediately viol ated the non-compete agreement by forming companies to acquire or partner with other HHC s. In April 2013, ABI sued the Ruark Individuals in Oakland County Circ uit Court, which issued a stipulated status quo order requiring the Ruark Individu als to abstain from purchasi ng or managing HHCs in certain

states.

1 The bank was originally Citizens Bank un til FirstMerit acquired it in 2013. We use “FirstMerit” to refer to both Citizens Bank and FirstMerit.Case No. 16-2535, American BioCare, et al. v. Howard & Howard, et al.

- 3 - B. Loan Default and Foreclosure Sale In October 2013, the ABI subsidiaries defaulte d on their FirstMerit loan. ABI blames the default on the machinations of Vicki Welty and Tina Griffith (collectively, the “Back Office Managers”), alleging that the pa ir caused the default by “delay ing and/or failing to produce timely and accurate financial repor ting that was required by Plainti ffs’ investors and lenders.” As a result of the default, FirstMerit initiated foreclosure proceedings to sell off the collateral (i.e., the ABI Entities’ assets and AB I’s ownership interest in the Entities). Two bidders stepped forward: Peachtree Equity Partners and the Ruark Individuals. FirstMerit accepted the latter’s bid and then conducted a pr ivate foreclosure sale that transferred the collateral to three companies (JIRA LLC; JIRA III, LLC; and SHHC Services TX, LLC) owned by the Ruark Individuals. Shortly after the sa le, all three entities assigned the assets and membership interests to Redemption Health Care, LLC (“Redemption”), a company owned by Jason Laing. ABI alleges that during the collateral-sale negotiations, the Ruark Individuals’ lawyer, Brandon Booth of the firm Howard & Howard A ttorneys PLLC (“H&H”), misrepresented to FirstMerit that selling to the Ruark Individuals would not viol ate any existing court order. According to ABI, the foreclosure sale direc tly contravened the stat us quo order requiring the Ruark Individuals to refrain from owning or operating HHCs. The Oakland County Circuit Court agreed, holding the Ruark Individuals in contempt for disobeying the order.
C. The Alleged CHC Fraud Knowing that it would have to prove a second predicate act (as required under RICO, see infra Section III, A), ABI alleges that the Ruark Individuals and H&H also perpetrated a second fraud, this one against Contemporary Health Care Fund I, L.P. (“CHC”). Specifically, ABICase No. 16-2535, American BioCare, et al. v. Howard & Howard, et al.

- 4 - claims that the Ruark Individuals misrepresented their ownership of certain assets in order to forestall foreclosure of a $4 million loan they received from CHC. ABI concedes that the alleged CHC fraud did not directly a ffect or otherwise injure ABI.
D. Procedural History ABI sued JIRA LLC; JIRA III, LLC; SH HC Services TX, LLC; Redemption (collectively, the “JIRA Defendants”); and H&H in federal district co urt, arguing that the defendants violated and conspire d to violate RICO (specifica lly, 18 U.S.C. §§ 1962(c), 1962(d), and 1964(c)), as well as other state laws. In an amended complaint, it later added the ABI Entities as plaintiffs. The JIRA Defendants moved to dismiss the ABI Entities under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), alleging that ABI lacked standi ng to sue on behalf of the Entities and had not alleged sufficient facts to state a RICO claim. H&H also moved for dismissal under Rule 12(b)(6). The district court dismissed the ABI Entities from the suit, determining that because ABI no longer owned an interest in th e Entities after the Firs tMerit foreclosure, ABI lacked standing to sue on the Entities’ behalf. The court also dismissed the suit against the JIRA Defendants because ABI failed to allege f acts with particularity—as require d under Federal Rule of Civil Procedure 9(b)—to demonstrate that the JIRA Defendants were involved in any act of fraud underlying the RICO claim. As for H&H’s motion to dismiss, th e court found that ABI failed to show (i) any harm from the alle ged CHC fraud or (ii) that the misrepresentations to FirstMerit proximately caused ABI to lose its assets. It therefore dismissed the RICO, RICO-conspiracy, and state-law claims against H&H. ABI timely appeals only the dismi ssal of its RICO and RICO-conspiracy claims.Case No. 16-2535, American BioCare, et al. v. Howard & Howard, et al.

- 5 - II. ABI’s Standing to Sue on the ABI Entities’ Behalf “We normally review de novo the district court’ s decision to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1).” Howard v. Whitbeck , 382 F.3d 633, 636 (6th Ci r. 2004) (citing Cob Clearinghouse Corp. v. Aetna U.S. Healthcare, Inc. , 362 F.3d 877, 880 (6th Cir. 2004)). But when a de fendant challenges subj ect matter jurisdiction by attacking the underlying jurisdictional facts, th is court reviews the di strict court’s factual findings for clear error and its applicat ion of the law to the facts de novo. Lovely v. United
States , 570 F.3d 778, 781–82 (6th Cir. 2009) (citat ions omitted). “Under the clear-error standard, we abide by the court’s findings of fact unl ess the record leaves us with the definite and firm conviction that a mistake has been committed.” United States v. Yancy , 725 F.3d 596, 598 (6th Cir. 2013) (quoting United States v. Gardner , 649 F.3d 437, 442 (6th Cir. 2011)) (internal quotation marks and alterations omitted). Although the ABI Entities ’ current owners—the JIRA De fendants—did not authorize the ABI Entities to sue (and in fact sought to dism iss the Entities from the suit), ABI listed the Entities as plaintiffs in its ame nded complaint. ABI makes two argum ents to justify its ability to sue on behalf of the ABI Entities. First, it asserts that the district court should have decided the standing issue under Rule 12(b)(6)—a more favorab le standard to ABI—rather than under Rule 12(b)(1). Second, ABI contends that even under Ru le 12(b)(1), it retained a possessory interest in the ABI Entities—and accordi ngly, its standing to sue on th eir behalf—because JIRA, JIRA III, and SHHC Services-Texas purchased the ABI Entities in bad faith.
A. Whether the district court pr operly decided the issue of standing under Rule 12(b)(1) rather than Rule 12(b)(6) Article III standing is a ques tion of subject matter jurisd iction properly decided under 12(b)(1). See Allstate Ins. Co. v. Glob. Med. Billing, Inc. , 520 F. App’x 409, 410–11 (6th Cir.Case No. 16-2535, American BioCare, et al. v. Howard & Howard, et al.

- 6 - 2013) (citations omitted). Because the JIRA Defendants challeng e subject matter jurisdiction, ABI has the burden of proof to show th at subject matter jurisdiction exists. Giesse v. Sec’y of Dep’t of Health & Human Servs. , 522 F.3d 697, 702 (6th Cir. 2008). ABI rests its entire argument for Rule 12(b)(6) review on one unpublished district court opinion: Block v. BAC Home Loans Servicing LP , No. 11-11181, 2012 WL 2031640 (E.D. Mich. June 6, 2012). In Block , the plaintiffs sued to regain po ssession of their foreclosed home. Id. at *1–2. The defendants moved to dismiss under Rule 12(b)(1) for lack of subject matter jurisdiction, arguing that the pl aintiffs did not have standing to sue because they failed to repurchase the house during the st atutory redemption period. Id. at *2. The district court held that the term “standing” was “a misnomer” because the “plaintiff[s’] failu re to assert a claim during the redemption period is an issue that goes to the claim’s merits.” Id. The court therefore rejected addressing the “standing ” issue under Rule 12(b)(1) in fa vor of addressing it under Rule 12(b)(6). Id. at *2–3. ABI analogizes this case to Block , arguing that “whether . . . ABI had standing to pursue claims on behalf of the [ABI Entities] is a legal issu e that went directly to the merits of Plaintiffs’ claim for declaratory judgment regarding the owne rship interests in the [ABI Entities].” ABI misreads Block . The Block court’s statement that “standing” was “a misnomer” refers to a conflation of two di fferent usages of the term “sta nding”: standing under Article III of the U.S. Constitution and statutory “standing” under Michigan’s mortgage-foreclosure laws. See El-Seblani v. IndyMac Mortg. Servs. , 510 F. App’x 425, 427–30 (6th Cir. 2013); Block , 2012 WL 2031640, at *2. The former, of course, involves whether a plaintiff has satisfied the requirements of “concrete, particularized, and act ual injury that is fa irly traceable to the challenged action of the defendant[] and capable of being redressed by a favorable decision,” asCase No. 16-2535, American BioCare, et al. v. Howard & Howard, et al.

- 7 - well as any applicable princi ples of prudential standing. El-Seblani , 510 F. App’x at 427–30 (quoting Friends of the Earth, Inc. v. La idlaw Envtl. Servs. (TOC), Inc. , 528 U.S. 167, 180–81 (2000)). The latter deals with whether a plai ntiff who fails to repur chase her home during the redemption period set out in Michigan Comp. La ws § 600.3240(8) can bring suit—a merits issue governed by Michigan’s foreclosure laws. Id. at 428–29; see Carmack v. Bank of N.Y. Mellon , 534 F. App’x 508, 510 & n.2 (6 th Cir. 2013) (citing Conlin v. Mortg. Elec. Registration Sys.,
Inc. , 714 F.3d 355, 359 (6th Cir. 2013)). The “standing” discussed in Blockis the Michiganforeclosure-law variety, see 2012 WL 2031640, at *2–3, which is not germane to whether ABI has Article III standing to su e on the ABI Entities’ behalf.
B. Whether the district court properly dism issed the ABI Entitie s under Rule 12(b)(1) ABI argues that even under Rule 12(b)(1), it has standing to sue in the name of the ABI Entities. Its argument relies on two assertions: it retains ownership rights over the ABI Entities and those rights suffice to confer sta nding to sue on the Entities’ behalf. To start, the district court made multiple fi ndings of fact about AB I’s ownership rights. First, it found that ABI no longer holds a posse ssory interest in the ABI Entities because FirstMerit foreclosed on ABI’s ownership st ake. Second, the court found that the JIRA Defendants who participated in the sale did not act in bad faith—i.e., the JIRA Defendants did not collude with FirstMerit or have knowledge of def ects in the foreclosure sale when obtaining the ABI Entities and assets. Third, the court cred ited Jason Laing’s affidavit, which stated that the JIRA Defendants not only refused to author ize the suit but also s ought dismissal of the Entities. ABI acknowledges that a foreclosure sale occu rred, but replies that it nevertheless retains a possessory interest in the Entities because the Ruark Individuals violated the good-faithCase No. 16-2535, American BioCare, et al. v. Howard & Howard, et al.

- 8 - requirement when they lied to FirstMerit abou t the existence of a court order barring the Individuals from owning any HHCs. See Mich. Comp. Laws § 440.9617( 2)–(3). Michigan law holds that where a party to a foreclosure sale acts in bad faith, the purchaser (i.e., the JIRA Defendants) takes the “collateral subject to . . . [t]he debtor’s [(i.e., ABI’s)] rights in the collateral.” Id. § 440.9617(3). The commentary to § 440.9617 explains that collusion and notice of defects are two nonexclusive examples of acting in bad faith. See id. § 440.9617 n.3 (noting knowledge of defects or buying in collusion “as specific exam ples of the absence of good faith”). Arguably then, lying about the court order could cons titute an act of bad faith—especially given FirstMerit’s alleged statement that it would no t have sold the ownershi p interests and the ABI Entities’ assets to the JIRA Defe ndants had it known that the sale would violate such an order. But we need not address the issue because, even assuming that ABI retains ownership in the ABI Entities, it still lacked standing to sue in their names. “As a general rule, two separate corporations are regarded as dis tinct legal entities even if the st ock of one is owned wholly or partly by the other.” 1 William Meade Fletcher et al., Fletcher Cyclopedia of the Law of Corporations § 43 (perm. ed., rev. vol. 2016); see also Dole Food Co. v. Patrickson , 538 U.S. 468, 475 (2003) (“The properties of two corporations are distinct, though the same shareholders own or control both. A holding corporation does not own the subsidiary’s property.”) (quoting 1 Fletcher § 31). As a company distinct from th e Entities, ABI “generally must assert [its] own legal rights and interests, and cannot rest [its] claim to relief on the legal rights or interests of third parties.” Warth v. Seldin , 422 U.S. 490, 499 (1975); see also Sec. Indus. & Fin. Mkts. Ass’n v. U.S. Commodity Futures Trading Comm’n , 67 F. Supp. 3d 373, 406 (D.D.C. 2014) (“[T]he shareholder standing rule generally pr ecludes a parent corporation—indeed, any soleCase No. 16-2535, American BioCare, et al. v. Howard & Howard, et al.

- 9 - shareholder—from having standing to bring an action on behalf of its subsidiary.”) (citations omitted). ABI therefore cannot enforce the rights of the ABI Entities merely by owning the ABI Entities. Nor does ABI present any legal theory in its compla int suggesting that it has a particular relationship with the ABI Entities allo wing it to act on the Entities’ behalf. Finally, dismissing the ABI Entities does not preclude ABI from pursuing claims based on harms— including loss of its ownership interests—that it might have suffered from the alleged RICO enterprise. We therefore affirm the district court on this issue. III. RICO and RICO-conspiracy claims “We review de novo a district court’s dismissal of a plainti ff’s complaint for failure to state a claim under Rule 12(b)(6).” Kottmyer v. Maas , 436 F.3d 684, 688 (6th Cir. 2006) (citing Marks v. Newcourt Credit Grp., Inc. , 342 F.3d 444, 451 (6th Cir. 2003)).
A. RICO: The Predicate Offenses ABI brings a civil RICO claim for a violati on of 18 U.S.C. § 1962(c) and seeks recovery for injury to its business under 18 U.S.C. § 1964(c). A plaintiff seeking to recover under § 1964(c) must meet two requirements. First, he must prove the elements of an underlying RICO violation: “(1) conduct (2 ) of an enterprise (3) through a patt ern (4) of racket eering activity.” In re ClassicStar Mare Lease Litig. , 727 F.3d 473, 483 (6th Cir. 2013) (quoting Moon v. Harrison Piping Supply , 465 F.3d 719, 723 (6th Cir. 2006)); see 18 U.S.C. § 1962(c). Second, the “plaintiff[] must show that the RICO violation was the proximate cause of the injury to [his] business or property.” In re ClassicStar , 727 F.3d at 484. (citing Holmes v. Sec. Investor Prot. Corp. , 503 U.S. 258, 268 (1992)). To establish a “pattern of racketeering ac tivity,” ABI must show that the defendants committed at least two predicate offenses. 18 U.S.C. § 1961(5); Sedima, S.P.R.L. v. Imrex Co. ,Case No. 16-2535, American BioCare, et al. v. Howard & Howard, et al.

- 10 - 473 U.S. 479, 496 n.14 (1985). Because ABI claims th at the two racketeerin g activities alleged here—the CHC loan fraud and th e FirstMerit foreclosure-sale fraud—both resulted from wire, mail, or bank fraud (18 U.S.C. §§ 1343, 1341, and 1344, respectively), ABI “must state with particularity the circumstances constituting [such] fraud.” See Fed. R. Civ. P. 9(b). At a minimum, ABI must “allege the time, place, and content of the alleged misrepresentation on which [it] relied; the fraudulent scheme; the fraudul ent intent of the defendants; and the injury resulting from the fraud.” Heinrich v. Waiting Angels Adoption Servs. Inc. , 668 F.3d 393, 403 (6th Cir. 2012) (quoting United States ex rel. Bledsoe v. Cmty. Healthy Sys., Inc. , 342 F.3d 634, 643 (6th Cir. 2003)) (internal quotation marks omitted); see also Vicom, Inc. v. Harbridge Merch. Servs., Inc. , 20 F.3d 771, 777 (7th Cir. 1994) (“[T]he pl aintiff [must] stat e the identity of the person who made the misrepresentation, the time, place and content of the misrepresentation, and the method by which the misrepresentation wa s communicated to the plaintiff.” (internal quotation marks and citation omitted)). Despite its 76 pages, ABI’s complaint lacks sufficient facts to meet this standard. We focus first on the alleged FirstMerit foreclosur e-sale fraud. The only pa ragraphs describing the alleged misrepresentations to FirstMerit state that: 144. Prior to November 7, 2013, to induce Firs t Merit [sic] to enter into the sale, the Ruark Individuals (most specifically, Jason Laing) and Howard & Howard (by its partner, attorney Brandon Booth) expressly represented to First Merit [sic] that the transaction would not violate any agr eements or court orders bound or applied to the purchasers. 145. On Thursday, September 4, 2014 via te lephone, counsel for First Merit [sic] Bank, Donald F. Baty (“Baty”) told ABI’s counsel that Howard & Howard attorney Brandon Booth expressly represen ted to him that the asset foreclosure sale would not violate any court orders. Baty further stated that Booth’s representation to Baty was the reason that a warranty and representation to that effect was expressly included in the sale agreements. Howard & Howard communicated its representations via telephone calls and emails.Case No. 16-2535, American BioCare, et al. v. Howard & Howard, et al.

- 11 - Although the two paragraphs cobble together a fe w details, they fail to give even one date on which an alleged misrepresentation occurred. That alone dooms ABI’s ability to allege fraud with particularity. See Heinrich , 668 F.3d at 393 (finding that a plaintiff failed to allege fraud with sufficient particularity because she “d[id] not include [in her affidavit] the date she received the allegedly fraudulent email from the defendants.”); see also United States ex rel. Bledsoe v. Cmty. Health Sys., Inc. , 501 F.3d 493, 504–05 (6th Cir. 2007) (holding that pleading was insufficient where the plaintiff failed to, among ot her things, set forth the dates of any fraudulent statements); United States ex rel. Hirt v. Walgreen Co. , 846 F.3d 879, 881 (6th Cir. 2017) (same). The two dates provided in paragraphs 144 and 145 simply highlight the lack of specificity. The first—“[p]rior to November 7, 2013”—implies a general time frame, but does not pinpoint a particular day or time when a misrepresent ation occurred. The second— September 4, 2014—is the date that FirstMerit’s counsel spoke to ABI about the misrepresentations, not the date of the misrepre sentations themselves; those allegedly happened at least ten months earlier, i.e ., sometime before November 7, 2013. Moreover, even when examining the jumble of details that ABI actually sets forth, we cannot discern a single, discrete instance of fra ud related to the FirstMerit foreclosure. For example, despite claiming that emails and the sales agreement documented the misrepresentations, ABI fails to identify misleadi ng language from or ascr ibe a date to either source. Additionally, ABI notes that H&H “expressl y represented” to FirstMerit that “the asset foreclosure sale would not violat e any court orders.” Similarly, the complaint names Laing as one of the defrauders. But thos e two allegations bring us no clos er to the particularity required under Rule 9(b), as neither ties an alleged misrepresentation, a medi um of communication, aCase No. 16-2535, American BioCare, et al. v. Howard & Howard, et al.

- 12 - time, and a perpetrator (whether that be the JIRA Defendants, Laing, or H&H) to a single occurrence of fraud. 2 The complaint alleges only one other RICO predicate: the CHC fraud. Even assuming that ABI sufficiently pled this fraud, ABI’s RICO claim fails for want of a second predicate act.
See § 1961(5); Sedima , 473 U.S. at 496 n.14. We thus need not address ABI’s remaining arguments regarding the RICO elements of proxima te cause, conduct or participation, pattern of racketeering, and injury.
B. RICO Conspiracy To prove a conspiracy to violate RICO, a plain tiff must allege all the elements of a RICO action plus one additional element: “an illicit agreement to violate the substantive RICO provision.” Grubbs v. Sheakley Grp., Inc. , 807 F.3d 785, 806 (6th Cir. 2015) (quoting Heinrich , 668 F.3d at 411) (internal quotation mark omitted). Given that ABI cannot prove the underlying RICO violation, it follows that AB I cannot prove a RICO conspiracy. IV. Conclusion For all of the above reasons, we AFFIRM.

2 The district court dismissed the RICO cl aim against the JIRA Defendants under Rule 9(b), but dismissed the claim ag ainst H&H based on lack of proximate cause. Because we find the lack of particularity in alle ging fraud applicable to H&H as well, we dismiss the RICO claim against H&H under Rule 9(b) rather than for lack of proximate cause. Harris v. Nationwide Mut. Fire Ins. Co , 832 F.3d 593, 596 (6th Cir. 2016) (“We ma y affirm dismissal ‘on any supportable ground, even if the district court invoke d other grounds for its ruling.’”) (quoting Ind. State Dist. Council of Laborers v. Omnicare, Inc. , 583 F.3d 935, 942 (6th Cir. 2009)).