United States District Court, D. Colorado
RV HORIZONS, INC.; MHC AMERICA Fund, LLC; MHC AMERICA Fund CLASS C, LLC; MHC AMERICA Fund 2, LLC; MHC AMERICA Fund 2 CLASS B, LLC; NICHE INVESTMENT NETWORKS, LLC; MHPS ALUMNI, LLC; MHPS ALUMNI 2, LLC; MHPS ALUMNI 3, LLC; AFFORDABLE HOUSING COMMUNITY Fund 1, LLC; AFFORDABLE HOUSING COMMUNITY Fund 2, LLC; AFFORDABLE HOUSING COMMUNITY Fund 3, LLC; AFFORDABLE HOUSING COMMUNITY Fund 4, LLC; AFFORDABLE HOUSING COMMUNITY Fund 5, LLC; AFFORDABLE HOUSING COMMUNITY Fund 6, LLC; and AWA Fund, LLC, Plaintiffs,
JAMIE SMITH, an individual; RYAN SMITH, an individual; MHP PORTFOLIO, LLC; MHPI VII, LLC; ELEVATION CAPITAL GROUP, LLC; and DAHN CORPORATION, Defendants
MEMORANDUM OPINION AND ORDER
Y. Wang, United States Magistrate Judge
matter comes before the court on two motions to dismiss: (1)
Defendants Jamie Smith (“Ms. Smith”); Ryan Smith
(“Mr. Smith”); MHP Portfolio LLC
(“MHP”), MHPI VII, LLC (“Fund 7”),
and Elevation Capital Group LLC's (“Elevation
Capital” and collectively “the Smith
Defendants”) Motion to Dismiss (“the Smith
Defendants' Motion to Dismiss”) [#36, filed
December 20, 2018], which seeks dismissal of the Amended
Complaint [#31] under Federal Rules of Civil Procedure
12(b)(2), 12(b)(3), and 12(b)(6); (2) Defendant Dahn
Corporation's (“Dahn” and collectively with
the Smith Defendants, “Defendants”) Motion to
Dismiss (“Dahn's Motion to Dismiss”) [#38,
filed December 20, 2018], which seeks dismissal under Rule
12(b)(6). Plaintiffs-discussed individually below-filed
Responses on January 24, 2019 [#52; #53] to which the
Defendants replied on February 7 [#58; #59]. The undersigned
Magistrate Judge fully presides over this case pursuant to 28
U.S.C. § 636(c), the Parties' unanimous consent
[#42], and the Order of Reference dated January 4, 2019
[#44]. Upon consideration of the motions and related briefing
and in light of the applicable legal standard, the Smith
Defendants' Motion to Dismiss is GRANTED IN
PART and DENIED IN PART and Dahn
Corporation's Motion to Dismiss is
case involves an array of corporate entities and individuals
so the court will begin by briefly discussing these entities
and their interrelation.
are a series of corporate entities owned by, among others,
David Reynolds (“Mr. Reynolds”) and Frank Rolfe
(“Mr. Rolfe”) and involved in the manufactured
housing industry. [#31 at ¶¶ 5-20, 29]. Although
neither Mr. Reynolds nor Mr. Rolfe is joined as a Plaintiff
in this litigation, their actions are material to the
Reynolds and Mr. Rolfe's business operations are divided
across numerous corporate entities, owned at the highest
level by a limited liability company which in turns owns a
special purpose entity (“SPE”) which owns and
operates a manufactured housing community or a grouping
thereof. [Id. at ¶¶ 32-34]. This case is
primarily concerned with the LLCs at the top of these
corporate chains and their relation to Defendants. There are
five distinct groupings of Plaintiffs' LLCs which are
relevant to this case, with RV Horizons, Inc. (“RV
Horizons”) at the top.
the Alumni Funds-MHPS Alumni LLC, MHPS Alumni 2, LLC, and
MHPS Alumni 3, LLC-are member-managed LLCs owned by RV
Horizons and Colonial Kitchen, LLC, discussed below.
[Id. at ¶¶ 34, 36].
the AWA Funds include AWA Fund, LLC and AWA Fund 2, LLC.
[Id. at ¶ 34]. Plaintiffs do not specify which
entities or individuals own/operate the AWA Funds (nor why
AWA Fund LLC is joined as a Plaintiff but AWA Fund 2, LLC is
the MHPI Funds-MHPI I, LLC; MHPI II, LLC; MHPI III, LLC; MHPI
IV, LLC- are managed by RV Horizons and MHP Portfolio, LLC.
[Id. at ¶¶ 34, 36].
the Affordable Housing Community Funds
(“AHCF”)-AHCF 1, AHCF 2, AHCF 3, AHCF 4, AHCF 5,
and AHCF 6-are primarily managed by AHCF Management LLC with
M H P I V, L L C owning part of AHCF 6. [Id. at
¶¶ 34, 36].
and finally, Plaintiffs include MHC America Fund, LLC
(“Fund 1”) and MHC America Fund 2, LLC
(“Fund 2”). [Id. at ¶¶ 6-9].
Plaintiffs indicate that these LLCs have (apparently) related
funds, MHC America Class C, LLC and MHC America 2 Class B,
LLC, but the allegations currently before the court do not
clarify how these latter funds are relevant to the
allegations in the Complaint or to Funds 1 and 2. Fund 1 is
managed by MHCA Management, LLC and Fund 2 is managed by MHCA
Management 2, LLC. In sum, Plaintiffs are or own, in whole or
part, (1) the Alumni Funds; (2) the AWA Funds; (3) the MHPI
Funds; (4) the AHCF Funds; and (5) the MHC Funds, or simply
Funds 1 and 2.
Smith and Ryan Smith (“the Smiths”) are Florida
residents who own several corporate entities intertwined with
Plaintiffs'. [Id. at ¶¶ 21, 22, 30].
Specifically, the Smiths own Colonial Kitchen, LLC-and so own
an interest in the Alumni Funds-and MHP Portfolio LLC
(“MHP”) which is invested in MHPI I, II, and III
and Salvo Conducto which owns part of MHPI IV. [Id. at
¶ 37]. The Smiths also own MHPI V LLC, which in turn
owns part of AHCF 6 as noted above. [Id. at ¶
34]. Plaintiffs also allege that the Smiths also own MHPI
VII, LLC (“Fund 7”). [Id. at ¶ 24].
The Smiths also own or control Defendant Elevation Capital
Group, LLC (“Elevation Capital”), which does not
appear to own any other corporate entity at issue.
[Id. at ¶¶ 46-55]. These Defendants are
collectively referred to as “the Smith Defendants,
” and collectively with Defendant Dahn Corporation,
Dahn Corporation is a California corporation not owned by any
other party or entity herein mentioned but alleged to have
acted in concert with the Smith Defendants in the alleged
misconduct. [Id. at ¶¶ 70-92].
following facts are drawn from Plaintiffs' filings and
are taken as true for the purposes of the instant Motions to
Dismiss. Plaintiffs are in the business of owning
and operating manufactured housing developments-Messrs.
Reynolds and Rolfe, through Plaintiffs and other entities,
own and operate more than 250 communities in more than
twenty-five states. [Id. at ¶¶ 29-30]. As
part of their business, Messrs. Reynolds and Rolfe, through
Niche Investment Networks, LLC, run a series of “boot
camps” for would-be manufactured housing developers to
learn their business methods. [Id. at ¶ 56].
These sessions instruct participants using copyrighted
materials owned by RV Horizons. [Id. at ¶¶
56-62]. It was at one of these boot camps that Messrs.
Reynolds and Rolfe met Jamie and Ryan Smith approximately ten
years ago. [Id. at ¶ 30].
time, the Smiths owned several failing manufactured home
communities and unsuccessfully attempted to bring on
Plaintiffs as managers. [Id.]. While Messrs.
Reynolds and Rolfe declined to manage the Smiths'
distressed communities, the Parties decided to combine their
skills-the Smiths' aptitude for networking and event
speaking and Messrs. Reynolds and Rolfe's skills with
“identifying, acquiring, managing, and repositioning
manufactured home communities and networking and fundraising
with the bootcamp attendees.” [Id. at ¶
31]. This began a years-long relationship with the Smiths
promoting Plaintiffs' investments to potential investors.
[Id.]. Initially successful, the relationship would
later turn sour.
2011, Jamie Smith wrote Trailer Cash, a nonfiction
book which purportedly contains copyrighted and proprietary
information from the Plaintiffs. [Id. at
¶¶ 43-45]. Specifically, Trailer Cash
copies from RV Horizons materials which were used at the boot
camps. [Id. at ¶ 61]. At some point, the Smiths
began holding their own boot camps, using materials from RV
Horizons boot camps and mirroring the latter's structure
and format. [Id. at ¶¶ 56-62].
about June 1, 2016, Plaintiffs formed MHC America Fund LLC,
Fund 1, and began raising capital. [Id. at ¶
39]. Plaintiffs again used the Smiths to help promote Fund 1
to potential investors, and paid the Smiths approximately
$445, 000 in 2017 and 2018 in fees and interest from AWA Fund
2 LLC as part of a contract between the Parties regarding
Fund 1's promotion. [Id. at ¶ 40]. The
Smiths accepted the money but never signed the agreements.
[Id.]. After the Smiths seemingly entered into this
agreement, the Smiths began promoting their own fund, Fund 7,
to Fund 1's prospective investors. [Id. at
maintain a confidential database of investor information
through a password-protected system known as
“Infusionsoft, ” a contact management system.
[Id. at ¶ 63]. Plaintiffs also store
confidential investment strategies called
“turnarounds” on their computer systems.
[Id. at ¶ 67]. The investor lists and
turnaround files are critical to Plaintiffs' business
structure. [Id.]. When the Smiths began promoting
Fund 7 to the investors to whom they were supposed to be
promoting Fund 1 (and later MHC America Fund 2 LLC-Fund 2),
Plaintiffs allege they used this data, including the
turnarounds. [Id. at ¶¶ 40-42, 69, 72].
Smiths' promotion of Fund 7 heavily relied on Elevation
Capital's website and associated newsletter. Plaintiffs
allege that the website conflates RV Horizons's sterling
business reputation with Elevation's and specifically
point to four objectionable newsletters issued in 2016 and
2017, dated October 3, November 17, and December 16, 2016 and
July 20, 2017. [Id. at ¶¶ 40-42].
Plaintiffs also allege that the Smiths have embedded
references to Plaintiffs and their employees in the source
code of the Elevations Capital website as a search engine
optimization trick-i.e., when someone searches for David
Reynolds, the embedded references to Mr. Reynolds lead search
engines to rate Elevations Capital's website are more
pertinent and thus it is more likely to appear despite no
visible references to Mr. Reynolds. [Id. at
or 2017, the Smiths began working with Defendant Dahn
Corporation to solicit investors for Fund 7. [Id. at
¶ 70]. On March 17, 2018, Plaintiffs learned of a letter
signed by Ryan Smith on behalf of MHP Portfolio acting as
Manager of MHPI III and IV which was sent to those funds'
investors without the knowledge or acquiesce of MHPI III and
IV's other manager, RV Horizons. [Id. at ¶
71]. The letter promoted Fund 7, directed readers to an
upcoming promotional webinar for Fund 7, and provided a link
to Fund 7's website-presumably hosted on Elevation
Capital's website mentioned above. [Id.].
Plaintiffs do not specify if this letter required use of the
Infusionsoft database to access the investors' contact
information but the court presumes not in the absence of an
affirmative assertion on this point given that MHP Portfolio
was a co-manager of those funds and Ryan Smith would have his
own access to MHPI III and IV's investors' contact
Smiths, MHP Portfolio, and Dahn discouraged investors from
investing in Fund 1 and Fund 2 by falsely stating in the
investor materials for Fund 7 that some of Plaintiffs'
individual managers were involved with Fund 7 as advisors and
acquisition specialists. [Id. at ¶ 73].
Further, the Smiths and Dahn prepared a private placement
memorandum and other marketing materials representing
themselves as having extensive experience in the manufactured
home market, despite the fact that neither the Smiths nor
Dahn have run a manufactured housing community with any
degree of continuity or success. [Id. at ¶ 76].
attempt to trade on the success and reputation of Plaintiffs,
the Smiths and Dahn have used the trademarks and goodwill of
the former to promote Fund 7, and have even given specific
facts and figures regarding their investment experience and
returns which actually correlates to Plaintiffs', not
their own. [Id. at ¶¶ 78-86]. The Smiths
and Dahn have also visited Colorado with the intent of
purchasing property for Fund 7 and did so sometime in 2018.
[Id. at ¶ 92].
initiated this action on October 30, 2018. [#1]. Plaintiffs
then filed the operative First Amended Complaint on November
20, 2018. [#31]. The Defendants filed their respective
Motions to Dismiss, which have recently become ripe for
decision, shortly thereafter. Although the Smith Defendants
challenge this court's assertion of personal jurisdiction
over them, the court has proceeded with this matter and set
substantive deadlines during a Scheduling Conference on
January 15, 2019 and established relevant dates governing
discovery in this action [#48; #49], with the understanding
that the Smith Defendants' participation is with a
reservation of their right to contest personal jurisdiction
and does not waive that challenge.
12(b)(2) of the Federal Rules of Civil Procedure allows a
defendant to challenge the court's exercise of personal
jurisdiction. Fed.R.Civ.P. 12(b)(2). Plaintiff bears the
burden of demonstrating that the court has personal
jurisdiction over the Defendants. Dudnikov v. Chalk &
Vermilion Fine Arts, 514 F.3d 1063, 1069 (10th Cir.
2008). When, as here, the court decides a Rule 12(b)(2)
motion to dismiss without holding an evidentiary hearing,
“the plaintiff need only make a prima facie
showing of personal jurisdiction to defeat the motion.”
AST Sports Sci., Inc. v. CLF Distrib. Ltd., 514 F.3d
1054, 1057 (10th Cir. 2008). “The plaintiff[s] may make
this prima facie showing by demonstrating, via affidavit or
other written materials, facts that if true would support
jurisdiction over the defendant.” OMI Holdings,
Inc. v. Royal Ins. Co. of Canada, 149 F.3d 1086, 1091
(10th Cir. 1998). In considering this question, the court
must accept all well pleaded facts as true and must resolve
any factual disputes in favor of the plaintiff. Wenz v.
Memery Crystal, 55 F.3d 1503, 1505 (10th Cir. 1995). A
court may exercise general jurisdiction or specific personal
jurisdiction depending on the defendant's degree of
relation to the court's jurisdiction and the relation
between defendant's contact with the forum and the
conduct underlying the litigation.
defendant has such “continuous and systematic”
contacts as to render them essentially at home in the forum
State, then a court may exercise general jurisdiction over
the defendant and there need be no connection between the
conduct underlying the litigation and the defendant's
affiliation with the forum. Goodyear Dunlop Tires
Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011)
(quoting Int'l Shoe Co. v. Washington, 326 U.S.
310, 317 (1945)). For an individual, “the paradigm
forum for the exercise of general jurisdiction is the
individual's domicile; for a corporation, it is an
equivalent place, one in which the corporation is fairly
regarded as at home.” Id.; see also Am.
Fid. Assur. Co. v. Bank of New York Mellon, 810 F.3d
1234, 1241 (10th Cir. 2016) (analyzing general jurisdiction
after Daimler AG v. Bauman, 571 U.S. 117 (2014)). A
corporation is at home where it is incorporated or has its
principal place of business. Daimler AG v. Bauman,
571 U.S. 117, 137 (2014); Am. Fid., 801 F.3d at
general jurisdiction, specific jurisdiction is confined to
the adjudication of issues deriving from, or connected with,
the controversy that establishes jurisdiction.
Goodyear, 564 U.S. at 919. To establish specific
jurisdiction over a non-resident defendant, a plaintiff must
show that the exercise of jurisdiction is authorized under
the relevant state long-arm statute and does not offend due
process. Wenz, 55 F.3d at 1506. Because the Colorado
Supreme Court has determined that Colorado's long-arm
statute, Colo. Rev. Stat. § 13-1-124 (2018), is
coextensive with due process requirements, Keefe v.
Kirschenbaum & Kirschenbaum, P.C., 40 P.3d 1267,
1270 (Colo. 2002), the inquiry is thus simplified into one
basic question: whether the exercise of personal jurisdiction
comports with the requirements of due process under the
Fourteenth Amendment to the United States Constitution.
AST Sports, 514 F.3d at 1057.
comport with due process, a court must first ask whether the
nonresident defendant has “minimum contacts” with
the forum state such “that he should reasonably
anticipate being haled into court there.”
World-Wide Volkswagen Corp. v. Woodson, 444 U.S.
286, 297 (1980); AST Sports, 514 F.3d at 1057.
“[I]f the defendant's actions create sufficient
minimum contacts, we must then consider whether the exercise
of personal jurisdiction over the defendant offends
‘traditional notions of fair play and substantial
justice.'” AST Sports, 514 F.3d at 1057
(quoting OMI Holdings, 149 F.3d at 1091)).
in this diversity action is governed by 28 U.S.C. §
1391, and in this case Plaintiff relies on § 1391(b)(2).
Subsection (b)(2) provides that venue is proper in the
judicial district “in which a substantial part of the
events or omissions giving rise to the claim occurred.”
When faced with a challenge to venue under this subsection,
courts employ a two-part analysis: First, examining the
nature of the claims and the acts or omissions underlying
those claims; second, determining whether substantial events
material to those claims occurred in the forum district.
Employers Mut. Cas. Co. v. Bartile Roofs, Inc., 618
F.3d 1153, 1166 (10th Cir. 2010). “Under this prong,
the Court must determine whether the forum activities played
a substantial role in the circumstances leading up to the
plaintiff's claim.” Hanson v. Bosley &
Bratch, Inc., No. 17-CV-01489-PAB-STV, 2018 WL 4491424,
at *3 (D. Colo. Sept. 18, 2018).
substantiality requirement is satisfied upon a showing of
“acts and omissions that have a close nexus” to
the alleged claims. Id. Appellate courts have
“caution[ed] district courts to take seriously the
adjective ‘substantial' . . . . for venue to be
proper, significant events or omissions
material to the plaintiff's claim must have
occurred in the district in question, even if other material
events occurred elsewhere.” Gulf Ins. Co. v.
Glasbrenner, 417 F.3d 353, 357 (2d Cir. 2005) (emphasis
in original). The burden is on the Plaintiff to establish
that venue is appropriate in the chosen forum, and the law in
the United States Court of Appeals for the Tenth Circuit is
divided whether to examine solely Defendants or
Plaintiff's actions in undertaking this analysis.
Bartile Roofs, 618 F.3d at 1166 & n.11.
Rule 12(b)(6) a court may dismiss a complaint for
“failure to state a claim upon which relief can be
granted.” Fed.R.Civ.P. 12(b)(6). In deciding a motion
under Rule 12(b)(6), the court must “accept as true all
well-pleaded factual allegations . . . and view these
allegations in the light most favorable to the
plaintiff.” Casanova v. Ulibarri, 595 F.3d
1120, 1124 (10th Cir. 2010) (quoting Smith v. United
States, 561 F.3d 1090, 1098 (10th Cir. 2009)). A
plaintiff may not rely on mere labels or conclusions,
“and a formulaic recitation of the elements of a cause
of action will not do.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007). Rather, “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, 677
(2009); see also Robbins v. Oklahoma, 519 F.3d 1242,
1247 (10th Cir. 2008) (explaining that plausibility refers
“to the scope of the allegations in a complaint,
” and that the allegations must be sufficient to nudge
a plaintiff's claim(s) “across the line from
conceivable to plausible.”). To state a claim that is
plausible on its face, a complaint must “sufficiently
alleges facts supporting all the elements necessary to
establish an entitlement to relief under the legal theory
proposed.” Forest Guardians v. Forsgren, 478
F.3d 1149, 1160 (10th Cir. 2007).
The Smith Defendants' Motion to Dismiss
Smith Defendants-Jamie Smith, Ryan Smith, MHP Portfolio, Fund
7, and Elevation Capital Group LLC-have moved to dismiss the
Complaint for lack of personal jurisdiction, improper venue,
and for failure to state a claim. [#36]. A federal court
“generally may not rule on the merits of a case without
first determining that it has jurisdiction over the category
of claim in suit (subject-matter jurisdiction) and the
parties (personal jurisdiction).” Sinochem
Int'l Co. v. Malaysia Int'l Shipping Corp., 549
U.S. 422, 430-31 (2007). Therefore, this court will begin by
analyzing personal jurisdiction. Because the court concludes
that there is personal jurisdiction over all of the Smith
Defendants except MHP Portfolio, the court then proceeds to
consider the venue and Rule 12(b)(6) issues as to the
remaining Smith Defendants. Because the court further
concludes that venue is proper and the First Amended
Complaint states a plausible claim for relief in part, the
Smith Defendants' Motion to Dismiss is granted in part
and denied in part.
Personal Jurisdiction and Venue
Facts Adduced in Plaintiffs' Response.
response to the Motion to Dismiss, Plaintiff has offered
additional facts to justify the assertion of personal
jurisdiction over the Smith Defendants, including an
affidavit from Mr. Reynolds, the president and sole
shareholder of RV Horizons. [#53; #53-1]. Mr. Reynolds's
affidavit contains numerous assertions of fact which are
material to the issue of personal jurisdiction. According to
Mr. Reynolds, Elevation Capital and Fund 7 share a website
which hosts a page titled “Fund 7 - 700 Unit Storage
Facility in Parker, Colorado Now Open” (“the
Parker Facility” or “the Facility”) which
includes a video touting said facility. [#53-1 at ¶ 10].
The Parker Facility is also promoted on Elevation
Capital's Facebook and Vimeo pages. [Id. at
¶¶ 11-17]. Elevation Capital's Parker Facility
page named Ryan Smith as its author and an associated
Facebook page directs prospective investors to contact him if
interested in ...