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RV Horizons, Inc. v. Smith

United States District Court, D. Colorado

March 7, 2019

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,
v.
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

          Nina Y. Wang, United States Magistrate Judge

         This 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 GRANTED.

         BACKGROUND

         I. The Parties

         This case involves an array of corporate entities and individuals so the court will begin by briefly discussing these entities and their interrelation.

         Plaintiffs.

         Plaintiffs 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 underlying facts.

         Mr. 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.

         First, 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].

         Second, 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 not).

         Third, 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].

         Fourth, 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].

         Fifth 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.

         Defendants.

         Jamie 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.[1] [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, “Defendants.”

         Finally, 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].

         II. Factual History

         The following facts are drawn from Plaintiffs' filings and are taken as true for the purposes of the instant Motions to Dismiss.[2] 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].

         At the 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.

         In 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].

         On or 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 ¶ 41].

         Plaintiffs 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].

         The 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 ¶¶ 54-55].

         In 2016 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 information.

         The 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].

         In an 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].

         III. Procedural History

         Plaintiffs 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.

         LEGAL STANDARDS

         I. Personal Jurisdiction

         Rule 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.

         General Jurisdiction.

         If a 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 1241.

         Specific Jurisdiction.

         Unlike 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.

         To 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)).

         II. Venue

         Venue 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).

         The 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.

         III. Rule 12(b)(6)

         Under 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).

         ANALYSIS

         I. The Smith Defendants' Motion to Dismiss

          The 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.

         A. Personal Jurisdiction and Venue

         Additional Facts Adduced in Plaintiffs' Response.

         In 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 ΒΆΒΆ 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 ...


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