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JDK LLC v. Talbot

United States District Court, D. Colorado

March 22, 2016

JDK LLC, a Colorado limited liability company, DEBORAH KOLASSA, JERRY KOLASSA, and S. MARK SPOONE, Plaintiffs,
v.
PAUL A. TALBOT, MAX 1 FINANCIAL LLC, a Colorado limited liability company, and BROOKE TALBOT, Defendants.

ORDER

Nina Y. Wang United States Magistrate Judge

This civil action is before the court on Defendants’ Joint Motion to Join GPSI as a Necessary Party filed by Defendants Frank Hofmeister (“Mr. Hofmeister”), [1] Paul Talbot (“Mr. Talbot”), and Brooke Talbot (“Ms. Talbot”) (“Motion to Join GPSI”) [#75, filed Aug. 14, 2015]. The Motion to Join GPSI was referred to the undersigned Magistrate Judge for disposition pursuant to D.C.COLO.LCivR 72.3 [#86], [2] and the Order of Reference dated November 2, 2015 [#89].[3] The court has reviewed the Motion to Join GPSI, to which no response was filed, and discussed the motion during a Status Conference with the Parties on November 13, 2015 [#97]. Based on the Parties’[4] representations about their attempts to resolve the underlying dispute, see [#100, #109], this court reserved ruling on the present motion pending multiple attempts by the Parties to administratively close the case. See [#110, #111, #113]. On March 10, 2016, Plaintiffs JDK LLC, Deborah Kolassa, Jerry Kolassa, and S. Mark Spoone filed a Motion to Strike/Withdraw Amended Consent Motion for Administrative Closure. [#115]. The presiding judge, the Honorable Philip A. Brimmer, granted the Motion to Strike/Withdraw Amended Consent Motion for Administrative Closure on March 14, 2016. [#117]. The instant Motion to Join GPSI is now ripe for determination. For the reasons set forth herein, this court DENIES the Motion to Join GPSI.

BACKGROUND

The following allegations are drawn from the original and Amended Complaint in this action, and are taken as true for the purposes of this instant Motion to Join GPSI. This case arises from relationships between Plaintiffs and Defendants involving a business plan to fund and place kiosks in jails and municipal locations to facilitate electronic payments of items such as licenses, parking tickets, municipal bills, child support, real estate and school taxes, and court fines and fees. [#1 at ¶ 15; #80 at ¶ 14]. Plaintiffs allege that Mr. Hofmeister was the founder and President of General Payments Systems, Inc., a Colorado corporation doing business as EZ Card & Kiosk (“GPSI-Colorado”) and a second Nevada corporation with the same name (“GPSI-Nevada”) (collectively, “GPSI”). [#80 at ¶ 10]. Plaintiffs aver that Paul Talbot acted as a managing partner or sales agent on behalf GPSI, as well as President of a company called Municipal Holdings Solutions Corporation, a Colorado corporation doing business under the name of EZ Pay Corporate (“EZ Pay Corporate”). [Id. at ¶ 9]. Plaintiffs allege that Defendant Brooke Talbot was a sales employee of EZ Pay Corporate, and the President of Max 1 Financial, which is identified as a Colorado limited liability corporation. [Id. at ¶¶ 12-13].

On or about July 12, 2011, Plaintiff JDK LLC (“JDK”) entered a written license agreement with GPSI-Colorado that extended an exclusive license to JDK to develop, market, distribute, sell, lease, or otherwise transfer the payment processing services and technology to municipal court systems, probation departments, and police departments within Pennsylvania, using the GPSI brand, trademarks and logos. [#80 at ¶ 18]. In exchange for these rights, JDK paid GPSI an initial license fee in the amount of $640, 000, with an additional $710, 000 in license fees that would become due contingent upon achievement of various gross revenue thresholds. [Id. at ¶ 19]. The initial $640, 000 payment was distributed between Mr. Hofmeister, Mr. Talbot, and former Defendants Ronald Hodge, Gregg Hodge, and James Sylvester. [Id. at ¶ 21]. JDK then invested an additional $360, 000 that it believed was being directed to the purchase of kiosks, labor and other equipment, which was again directed to Mr. Hofmeister, Mr. Talbot, and former Defendants Ronald Hodge, Gregg Hodge, and James Sylvester. JDK also wired payments to GPSI totaling over $500, 000 over the course of July through September 2011. [Id. at ¶ 24]. All of these payments were purportedly made based on representations that the investments would require little active management on the part of JDK. [Id. at ¶ 27]. In 2013, Plaintiffs Jerry and Deborah Kolassa formed a company with Mr. Talbot, JDP, LLC, for purpose of entering a similar exclusive license with GPSI[5] for the jail side of the business in Pennsylvania, and paid $310, 000 for those rights. [Id. at ¶¶ 97-100].

On or about June 2011, GPSI-Colorado entered an exclusive license agreement with a now-defunct company, C&T Holding, for the exclusive license to develop, market, distribute, sell, lease, or otherwise transfer the payment processing services and technology to municipal court systems, probation departments, and police departments within Ohio, using the GPSI brand, trademarks and logos. [Id. at ¶ 50]. C&T Holding was owned by Mr. Talbot and a third-party and close friend of Mr. Talbot’s, Daniel Cook (“Mr. Cook”). In or around September 2012, Plaintiff Spoone entered an agreement with Mr. Talbot and Mr. Cook to purchase 50% of C&T’s license for $540, 000. Mr. Spoone paid $225, 000 of that fee. [Id. at ¶ 147]. After entering the agreement, Mr. Spoone learned that C&T only had rights to the municipal side of the business, and no rights to the jail side. [Id. at ¶ 76]. Mr. Spoone also learned that the license required ongoing royalties to GPSI, and also learned of other performance requirements that were allegedly not previously explained to him. [Id.].

After Plaintiffs made these significant investments, they learned that the GPSI investment opportunities were significantly different in reality than they were represented. In addition, JDK alleges that without consent or authorization, Defendant Max 1 Financial, described as Ms. Talbot’s “credit card company, ” entered into merchant agreements and then covertly deducted excess fees and charges from JDK’s bank account. [Id. at ¶¶ 89-90]. As a result, Plaintiffs have asserted a number of claims against the remaining Defendants, including: (1) civil RICO against all Defendants; (2) breach of fiduciary duty against Mr. Talbot; (3) fraud in the inducement against Defendants Hofmeister, Mr. Talbot, and Max 1 Financial (4) fraud against Defendants Hofmeister and Mr. Talbot; (5) fraud against the Talbots and Max 1 Financial; (6) violation of the Colorado Consumer Protection Act against Defendants Hofmeister, the Talbots, and Max 1 Financial; (7) civil theft and conversion against Defendants Hofmeister and Mr. Talbot; (8) constructive trust against Defendants Hofmeister, the Talbots, and Max 1 Financial; and (9) accounting against the Talbots and Max 1 Financial. [#80]. Plaintiffs also sought rescission of the various contracts; damages in the amount of $1.3 million then trebled; attorney’s fees and costs; disgorgement of profits; and order imposing an immediate constructive trust and accounting. [Id. at 40].

Plaintiffs have not named GPSI-Colorado or GPSI (comprised of both GPSI-Colorado and GPSI-Nevada) as a defendant or defendants in this action. Instead, JDK filed an arbitration action against GPSI and Daniel Cook before the Judicial Arbiter Group (“JAG”). [#71-1]. In the arbitration, Plaintiffs alleged very similar causes of action to those that are presented herein: breach of contract and breach of the covenant of good faith and fair dealing against GPSI; breach of contract by Mr. Spoone against Mr. Cook; civil RICO against GPSI and Mr. Cook; fraudulent inducement against GPSI and Mr. Cook; fraud against GPSI and Mr. Cook; violation of the Colorado Consumer Protection Act against GPSI and Mr. Cook; civil theft/conversion against GPSI and Mr. Cook; constructive trust; and accounting against GPSI. [Id.]. The relief sought through the arbitration was substantially similar to what was pled in the Amended Complaint, although in arbitration, Plaintiffs sought $1.6 million trebled in damages, rather than $1.3 million. [#71-1 at 21]. Defendants Hofmeister and the Talbots argue that GPSI should be joined as a necessary party under Rule 19 to this action because GPSI has agreed to indemnify them; that the two parallel actions may lead to inconsistent results; and because it is inefficient for these Defendants to have to seek indemnification by GPSI through another action, should Plaintiffs prevail against them. [#75]. Because Mr. Hofmeister has been dismissed from this case, the court directs the following analysis to the consideration only of how joinder of GPSI would affect the remaining claims and Parties in the case. Plaintiffs did not file a response to the Motion to Join GPSI.

ANALYSIS

I. Applicable Law

Rule 19(a) of the Federal Rules of Civil Procedure provides:

Required Party. A person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined as a party if:
(A) in that person’s absence, the court cannot accord complete relief among existing parties; or
(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the ...

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