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List Interactive, Ltd. v. Knights of Columbus

United States District Court, D. Colorado

July 28, 2017

LIST INTERACTIVE, LTD. d/b/a UKnight Interactive, and LEONARD S. LABRIOLA Plaintiffs,
v.
KNIGHTS OF COLUMBUS, THOMAS P. SMITH, JR., and, MATTHEW A. ST. JOHN, Defendants.

          ORDER

          R. BROOKE JACKSON, UNITED STATES DISTRICT JUDGE

         Judge R. Brooke Jackson This matter is before the Court on two pending motions: individual defendants Thomas Smith, Jr. and Matthew St. John's motion to dismiss under Rule 12(b)(2) for lack of personal jurisdiction, ECF No. 20, and defendant the Knights of Columbus' motion to dismiss under Rule 12(b)(6) and to strike under Rule 12(f), ECF No. 23. For the reasons below, the Court GRANTS the individual defendants' motion to dismiss [ECF No. 20] and GRANTS IN PART and DENIES IN PART the Knights of Columbus' motion to dismiss and to strike portions of plaintiffs' amended complaint [ECF No. 23]. Accordingly, the Court dismisses defendants Mr. Smith and Mr. St. John from this action and dismisses Claim One and Claim Eight of plaintiffs' amended complaint asserted against defendant the Knights of Columbus.

         FACTS[1]

         Plaintiffs in this action are List Interactive, Ltd., d/b/a UKnight Interactive (“UKnight”)-a Colorado-based company that designs web systems-and the company's Colorado-based manager, Mr. Leonard Labriola. Am. Compl., ECF No. 15, at ¶¶3-4, 12. They allege that in September of 2011 UKnight reached an agreement with defendant the Knights of Columbus-a 501(c)(8) tax-exempt religious and charitable organization registered in Connecticut-whereby the Knights of Columbus would announce to the broader Knights of Columbus fraternity that UKnight would be the designated vendor for the fraternity's members-only life insurance business. Id. at ¶¶5, 17-18.

         The Knights of Columbus, however, never did so. Plaintiffs subsequently brought suit against the organization and defendants Mr. Smith and Mr. St. John-the Knights of Columbus' Executive Vice President/Chief Insurance Officer and Direct of Insurance Marketing, respectively. Id. at ¶¶6-7. Far from a simple contract dispute, plaintiffs also allege, among other things, that during their dealings with defendants the Knights of Columbus stole UKnights' trade secrets, and that plaintiffs discovered that the Knights of Columbus was running its life insurance business fraudulently. See Id. at ¶¶31-47. Plaintiffs contend that the Knights of Columbus breached its agreement with UKnight and stole UKnight's system for its own use to prevent a widespread fraudulent scheme from being exposed. See generally id.

         The “Knights of Columbus” Organization

         Before discussing plaintiffs' allegations and the background of this case in greater depth, it is important to explain a little bit about how the Knights of Columbus is organized. As mentioned above, the Knights of Columbus is a 501(c)(8) tax-exempt religious and charitable fraternity. Id. at ¶5. As a 501(c)(8) organization, the Knights of Columbus must provide some form of life insurance for its members. See 26 U.S.C. § 501(c)(8)(B) (defining a “[f]raternal beneficiary societ[y]” as “providing for the payment of life, sick, accident, or other benefits to the members of such society, order, or association or their dependents”).

         Moreover, to qualify for 501(c)(8) tax-exempt status the Knights of Columbus must be organized under the “lodge system.” Id. § 501(c)(8)(A). Basically that means that two things must be true: first, there must be some kind of “parent” organization; and second, there must be “subordinate” branches (i.e., lodges) that are largely self-governing but nonetheless are chartered by the parent organization to carry out its mission. See 26 C.F.R. § 1.501(c)(8)-1 (“Operating under the lodge system means carrying on its activities under a form of organization that comprises local branches, chartered by a parent organization and largely self-governing, called lodges, chapters, or the like.”).

         That seems clear enough. However, a point of contention in this case (and a relevant one at that, see infra) has been how to refer to this “parent” organization appropriately in order to distinguish it from the broader association of organizations and individuals it oversees. In other words, when the parties refer to defendant “the Knights of Columbus, ” do they mean the separate, “parent” organization in Connecticut with whom plaintiffs allegedly struck a deal back in September of 2011, or are they referring to the broader fraternal organization as a whole, sometimes referred to as “The Order of the Knights of Columbus” or simply “The Order?”

         For their part, plaintiffs refer to the “Knights of Columbus' as the broader fraternal organization comprised of the parent organization and “constituent local councils, assemblies, independent general insurance agents, and members.” ECF No. 15 at ¶5. By contrast, they refer to the “parent” organization as the Knights of Columbus Supreme Council, which they refer to in shorthand as “KC Supreme” or simply “Supreme.” Id. at ¶5 & n.1. Throughout plaintiffs' briefs, then, KC Supreme and Supreme refer to defendants' “national headquarters council and insurance company located in New Haven, Connecticut” with whom UKnight allegedly formed a contract. Id. at ¶5.

         There are two problems with plaintiffs' labels. First, although plaintiffs bring several claims against KC Supreme (as opposed to the Knights of Columbus), see, e.g., ECF No. 15 at ¶¶122-38 (Claim Five, Six, and Seven), “KC Supreme” is not a named defendant in this action whereas the Knights of Columbus is. Second, and perhaps more importantly, there is no such organization called “KC Supreme.” Rather, as defendant explained during oral arguments, the “Supreme Council” of the Knights of Columbus refers instead to an unincorporated governing body of the broader fraternity that meets annually to discuss and vote on fraternity issues. This body, which is partially comprised of individuals from the “lodges, ” is separate from the Board of Directors of the Knights of Columbus as well as from the “parent” organization headquartered in New Haven with whom plaintiffs allegedly dealt.

         Despite those problems, it is nevertheless clear that when plaintiffs refer to “KC Supreme” what they really intend to do is to single out the New Haven-based “Knights of Columbus” parent organization that effectively runs the fraternity's insurance business. Accordingly, throughout this order when I refer to “defendant the Knights of Columbus” or simply “the Knights of Columbus, ” I will be referring to the parent organization headquartered in New Haven with whom plaintiffs allege they negotiated a contract. To distinguish that organization from what is the broader fraternity comprised of this parent company, the lodges, local members, and agents, I will refer to those entities collectively as the “the Order.”

         The Parties' Dealings

         Now back to the controversy at hand. From plaintiffs' amended complaint it appears that the events giving rise to this suit began back in the summer of 2011. Id. at ¶16. On August 5, 2011 plaintiffs allege the Mr. Labriola e-mailed the Knights of Columbus to outline a proposal for how “the many, fractionated parts of the [Order]” could use UKnight's single online platform for purchases of life insurance and, by so doing, significantly increase the fraternity's membership and sales of the Knights of Columbus' financial products.[2] Id.

         Following this e-mail, plaintiffs allege that they were contacted by representatives of the Knights of Columbus and invited to New Haven for high-level meetings that would span three days. Id. at ¶17. These meeting commenced on September 8, 2011. Id. By September 10 the Knights of Columbus allegedly informed UKnight that it was that organization's choice to be the Order's designated vendor. Id. at ¶¶17-18. The Knights of Columbus then allegedly offered to make a formal announcement to that effect in exchange for UKnight's incorporating some suggestions by the Knights of Columbus' legal department into its platform. Id. Over the next few days, weeks, and months, plaintiffs allege that the Knights of Columbus repeatedly intimated that it would make this announcement in the near future, even going so far as to send UKnight necessary data files to bring all 15, 392 local councils onto the network. Id. at ¶¶17-20.

         By June of 2012 the Knights of Columbus' legal department allegedly finalized the modifications it wished to see in UKnight's platform. Id. at ¶18. Two months later in August of 2012 the Knights of Columbus approved those modifications. Id. All that was left, according to plaintiffs, was for the Knights of Columbus to subsequently make the announcement it had promised and to then instruct the Order to adopt plaintiffs' system. See id.

         But neither that announcement nor that instruction ever came. Instead, plaintiffs allege, the Knights of Columbus continually provided excuses for why it could not make an announcement, and it strung plaintiffs along by reiterating to them that an announcement was imminent. See Id. at ¶¶29-30. For instance, in November of 2013 representatives of the Knights of Columbus informed UKnight that the Knights of Columbus could not make an announcement at its meeting that month because it had to focus instead on humanitarian needs following the then-recent typhoon in the Philippines. Id. at ¶29. Similarly, in December of 2013 after Mr. Labriola e-mailed the Knights of Columbus complaining about how UKnight was suffering financial hardship from these delays, plaintiffs claim that the Knights of Columbus reassured them that everything was on track, and that “we can get back to business in the next few days.” Id.at ¶30. According to plaintiffs, however, days turned to weeks, weeks to months, and months to years without any announcement. Plaintiffs also claim that despite their attempts to obtain a written contract spelling out in black and white the parties' agreement, the Knights of Columbus refused. See Id. at ¶¶ 26-28.

         Predictably, as the years dragged on with no announcement the parties' relationship soured. For example, on January 24, 2014 plaintiffs contend that Mr. Smith falsely informed a Knights of Columbus Operations Committee meeting in New Haven that Mr. Labriola had lied to him and his agents about money. Id. at ¶48. It was during that meeting that the Knights of Columbus had most recently promised to UKnight that it would make its long-awaited formal announcement about adopting UKnight's platform. Id. at ¶49. Mr. Smith's comments, however, allegedly “poisoned the atmosphere against UKnight[.]” Id. Needless to say, no announcement was made during that meeting. Id.

         Instead, plaintiffs claim, Mr. Smith contacted them and demanded that Mr. Labriola never speak to many of UKnight's most important customers again, including (1) anyone at the Knights of Columbus in New Haven, (2) any general agent of the Order, and (3) any state council officer within the Order. Id. at ¶50. Apparently in an effort to maintain what business relationship the parties had remaining at that point, UKnight claims that it acceded to Mr. Smith's demands. Id. at ¶51.

         Despite all that a deal was apparently still on the table. Indeed, soon thereafter plaintiffs allege that the Knights of Columbus hired a technology consultant, Mr. Ian Kinkade, to evaluate UKnight's system and then report back to the Operations Committee with comments about how the system performed. Id. at ¶52. Mr. Kinkade's comments were apparently quite positive, which motivated the Knights of Columbus to again call a vote to move forward with the announcement. Id. Again, however, that vote never happened.

         Instead, the Knights of Columbus apparently reversed its decision to take a vote the very next day, deciding that it would conduct a complete survey of all current UKnight subscribers to make sure this was the system it wanted to use. Id. UKnight subsequently provided the Knights of Columbus with a survey that plaintiffs claim “overwhelmingly confirmed that UKnight was an outstanding tool[.]” Id. at ¶53. Plaintiffs claim that they were again optimistic that an announcement was imminent.

         But again, in hindsight, one wasn't. Nevertheless, in early 2015 members of the Knights of Columbus (including Mr. St. John and Mr. Kinkade) traveled to Dallas, Texas (the home of UKnight's other two partners) to meet with UKnight partner and technology manager Terry Clark about moving forward with an announcement. Id. at ¶56. According to plaintiffs, however, the Knights of Columbus' (or, at the very least, Mr. St. John's) motivations for travelling to Dallas were actually quite nefarious. That is, plaintiffs allege that Mr. St. John instructed Mr. Kinkade to stay behind after the parties' meeting to see if he could dive deeper into the inner workings of UKnight's system so that the Knights of Columbus could hire another developer to replicate UKnight's platform for the organization. See id.

         Allegedly after becoming apprised of what Mr. St. John was attempting to do, someone at UKnight contacted Mr. St. John and asked him to send a “scope of work” document in order to clarify the Knights of Columbus' intentions. Id. at ¶57. Mr. St. John allegedly repeatedly refused to do so. Id. Instead, plaintiffs allege, Mr. St. John demanded that UKnight provide him with all of its strategies, design data, and internal system information so that he could better understand how and what UKnight planned to do with its system. Id. Apparently taken aback by Mr. St. John's demand and believing it was a not-so-covert attempt to obtain UKnight's trade secrets, plaintiffs refused. Id. at ¶¶57-58. They nonetheless reiterated an earlier proposal they had made whereby Mr. Labriola and Mr. Clark would travel to New Haven to work with Mr. St. John's team to clear up any issues the parties had. Id. According to plaintiffs, “[t]his proposal was ignored.” Id. at ¶58.

         A few months later, specifically on January 4, 2016, the parties' relationship officially ended. On that date, plaintiffs allege that Mr. St. John sent Mr. Labriola and Mr. Clark an e-mail in which he asserted that the parties “have not had any contractual relationship, ” and that “the Knights of Columbus has never conferred official or preferred vendor status on UKnight.” Id. Mr. St. John then explained that the Knights of Columbus had decided to enlarge its search for a potential vendor, and that UKnight should no longer use the Knights of Columbus' name in any of its business solicitations. Id. Soon after Mr. St. John sent that e-mail the Knights of Columbus allegedly hired Mr. Kinkade (i.e., its former technology consultant) to become the organization's new Director of eBusiness. Id. at ¶59. The proverbial straw that broke the camel's back for plaintiffs occurred soon thereafter in April of 2016 when the Knights of Columbus allegedly sent several potential vendors a Request for Proposal that included UKnight's specific design elements and internal workings. Id.

         Plaintiffs' Allegations of a Fraudulently-Run Insurance Business

         What makes this case more than a simple breach of contract or theft of trade secret suit are the allegations plaintiffs make next. During the course of the parties' dealings plaintiffs contend that they discovered that the Knights of Columbus had been running and was continuing to run its insurance business fraudulently. Id. at ¶¶31-47. For example, plaintiffs claim that while the events described above were unfolding they were informed by numerous members of the Order in New Jersey, Illinois, and Texas that the Knights of Columbus continually and creatively inflated the background and number of the members on its rolls. See, e.g., id. at ¶40. According to plaintiffs, this was a deliberate scheme by the Knights of Columbus to prop up their insurance business by mischaracterizing their risk pool and thereby deceiving ratings agencies, reinsurers, and, importantly, their current and prospective members. See Id. at ¶¶31- 47.

         Plaintiffs' allegations on this point are lengthy and numerous. See, e.g., id. at ¶¶31-47, 84-94. However, for purposes of the two pending motions the Court need not discuss in any greater depth these allegations of fraud except to point out that plaintiffs allege that the Knights of Columbus continually pushed off an announcement and thereafter sought to reproduce UKnight's system “in-house” or with a different company because they feared that doing business with UKnight would expose their allegedly fraudulent scheme. See, e.g., id.at ¶49.

         Procedural History

         On January 24, 2017 plaintiffs brought suit against the Knights of Columbus, Mr. St. John, and Mr. Smith. Compl. ECF No. 1. Roughly two and half weeks after filing suit plaintiffs amended their complaint. ECF No. 15.

         Plaintiffs' amended complaint, which is the operative pleading in this action, asserts eight claims for relief: (1) claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1962(c) and (d), against all three defendants, id. ¶¶62-103; (2) a claim for breach of contract against the Knights of Columbus, id.at ¶¶104-10; (3) a claim for promissory estoppel against the Knights of Columbus, id. at ¶¶111-15; (4) a claim for misappropriation of trade secrets under C.R.S. § 7-74-101, et seq., against the Knights of Columbus and Mr. St. John, id. at ¶¶116-21; (5) a claim for intentional interference with prospective business relationship against the Knights of Columbus, id. at ¶¶122-25; (6) a claim for fraudulent misrepresentation against the Knights of Columbus, id. at ¶¶126-33; (7) a claim for negligent misrepresentation against the Knights of Columbus, id. at ¶¶134-38; and (8) a claim for slander pro quod against the Knights of Columbus and Mr. Smith, id. at ¶¶139-43.[3]

         Twelve days after plaintiffs filed their amended complaint defendants Mr. Smith and Mr. St. John filed a motion to dismiss under Rule 12(b)(2). ECF No. 20. The very next day the Knights of Columbus filed a motion to dismiss of their own under Rule 12(b)(6) to dismiss Claim One (RICO), Claim Two (breach of contract), Claim Three (promissory estoppel), and Claim Eighth (slander). ECF No. 23. They also seek to strike from the amended complaint paragraphs 1, 31-47, 84-86, and 89-101 as “immaterial, impertinent, and scandalous” under Rule 12(f). Id. In early spring of this year both motions to dismiss became ripe. ECF Nos. 20, 23, 35-36, 42-43. Oral arguments on these motions were held on July 20, 2017. ECF No. 53. The Court apologizes for the delay in getting to these motions.

         STANDARD OF REVIEW

         I. Rule 12(b)(2).

         The court may, in its discretion, address a Rule 12(b)(2) motion based solely on the documentary evidence on file or by holding an evidentiary hearing. See FDIC v. Oaklawn Apartments, 959 F.2d 170, 174 (10th Cir. 1992). Where the court rules on the motion based only on the documentary evidence before it, the plaintiff may meet its burden with a prima facie showing of personal jurisdiction. See Benton v. Cameco Corp., 375 F.3d 1070, 1074 (10th Cir. 2004). The court “tak[es] as true all well-pled (that is, plausible, non-conclusory, and non-speculative) facts alleged” in the complaint, and “any factual disputes in the parties' affidavits must be resolved in plaintiff's favor.” Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d 1063, 1070 (10th Cir. 2008). However, when an evidentiary hearing is held in order to resolve factual disputes relating to jurisdictional questions, the plaintiff must prove facts supporting jurisdiction by a preponderance of the evidence. See Oaklawn, 959 F.2d at 174.

         No party has requested a hearing on the personal jurisdiction motion. The individual defendants have nonetheless both submitted affidavits in support of their respective positions. The Court elects to resolve the motion based on the evidence submitted. Before turning to the merits, however, I will briefly review here the legal framework for analyzing personal jurisdiction.

         A. Fourteenth Amendment Due Process and Minimum Contacts.

         Typically, to establish personal jurisdiction over an out-of-state defendant “a plaintiff must show that jurisdiction is legitimate under the laws of the forum state and that the exercise of jurisdiction does not offend the due process clause of the Fourteenth Amendment.” Emp'rs Mut. Cas. Co. v. Bartile Roofs, Inc., 618 F.3d 1153, 1159 (10th Cir. 2010). Colorado's “long-arm” statute, C.R.S. § 13-1-124, has been interpreted to confer the maximum jurisdiction permitted by constitutional due process. Archangel Diamond Corp. v. Lukoil, 123 P.3d 1187, 1193 (Colo. 2005). Thus, in Colorado, the sole inquiry is typically whether exercising jurisdiction comports with due process under the Fourteenth Amendment. See id.

         The Due Process Clause of the Fourteenth Amendment “operates to limit the power of a State to assert in personam jurisdiction over a nonresident defendant.” Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 413-14 (1984). In order to exercise jurisdiction, the Supreme Court has held, the out-of-state defendant must have “minimum contacts” with the forum state such that the exercise of jurisdiction does not “offend traditional notions of fair play and substantial justice.” Int'l Shoe Co. v. State of Wash. Office of Unemployment Comp. and Placement, 326 U.S. 310, 323 (1945). Minimum contacts must be based on “some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws.” Hanson v. Denkla, 357 U.S. 235, 253 (1958). A defendant's contacts with the forum must be such that the defendant could “reasonably anticipate being haled into court there.” World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980).

         Minimum contacts may be established in two ways. First, general jurisdiction exists where the defendant has “continuous and systematic” contacts with the forum state such that exercising personal jurisdiction is appropriate even if the cause of action does not arise out of those contacts. See Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011). Second, specific jurisdiction exists where the cause of action is “related to” or “arises out of” the defendant's activities within the forum state. See Helicopteros Nacionales, 466 U.S. at 414 (citation omitted). In such cases, jurisdiction is proper “where the contacts proximately result from actions by the defendant himself . . . create a ‘substantial connection' with the forum State.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985) (emphasis in original) (citations omitted). This inquiry “ensure[s] that an out-of-state defendant is not bound to appear to account for merely ‘random, fortuitous, or attenuated contacts' with the forum state.” Dudnikov, 514 F.3d at 1071 (quoting Burger King, 471 U.S. at 475).

         The burden of proof is on the plaintiff to establish minimum contacts. OMI Holdings, Inc. v. Royal Ins. Co. of Canada, 149 F.3d 1086, 1091 (10th Cir. 1998). “Once the plaintiff establishes minimum contacts, the defendant is responsible for demonstrating ‘the presence of other considerations that render the exercise of jurisdiction unreasonable.'” Alcohol Monitoring Sys., Inc. v. Actsoft, Inc., 682 F.Supp.2d 1237, 1244-45 (D. Colo. 2010) (quoting Inamed Corp. v. Kuzmak, 249 F.3d 1356, 1360 (Fed. Cir. 2001)). The Supreme Court has identified the following factors to be considered in this analysis: (1) the burden on the defendant; (2) the forum state's interest in adjudicating the dispute; (3) the plaintiff's interest in obtaining convenient and effective relief; (4) the interstate judicial ...


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