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 ON MOTIONS TO
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”); MHPI VII, LLC (“Fund
7”), and Elevation Capital Group LLC's
(“Elevation”) (collectively, “the Smith
Defendants”) Motion to Dismiss (“the Smith
Defendants' Motion to Dismiss”) [#72, filed April
17, 2019], which seeks dismissal of the Second Amended
Complaint [#64] under Federal Rule of Civil Procedure
12(b)(6); and (2) Defendant Dahn Corporation's
(“Dahn” and collectively with the Smith
Defendants, “Defendants”) Motion to Dismiss
(“Dahn's Motion to Dismiss”) [#74, filed
April 17, 2019], which seeks dismissal under Rule 12(b)(6).
Plaintiffs-discussed individually below-filed Responses on
May 8, 2019 [#75; #76] to which the Defendants replied on May
22, 2019 [#77; #78]. 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 DENIED and Dahn
Corporation's Motion to Dismiss is
court has discussed in detail this action's background in
previous rulings, see, e.g., [#60], and discusses it
here for context and as it pertains to the pending Motions to
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. [#64 at ¶¶ 8-22, 30, 51].
Although neither Mr. Reynolds nor Mr. Rolfe is joined as a
Plaintiff in this litigation, their actions are material to
the underlying facts.
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 ¶¶ 34-35]. 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 (collectively, “Alumni
1-3”)-are member-managed LLCs owned by RV Horizons,
discussed below. [Id. at ¶¶ 34-36].
the AWA Funds include AWA Fund, LLC and AWA Fund 2, LLC.
[Id.]. Plaintiffs do not specify which entities or
individuals own/operate the AWA Funds (but do explain that
because the Offering Package does not use AWA 2's
trademarks or investment history, AWA 2 is not joined here as
a plaintiff). [Id. at ¶ 35 n.1].
the MHPI Funds-MHPI I, LLC; MHPI II, LLC; MHPI III, LLC; MHPI
IV, LLC- are managed by RV Horizons and the Smith Defendants.
[Id. at ¶¶ 35, 36].
the Affordable Housing Community Funds
(“AHCF”)-AHCF 1, AHCF 2, AHCF 3, AHCF 4, AHCF 5,
and AHCF 6 (collectively, “AHCF 1-6”)-are
primarily managed by RV Horizons with MHPI V, LLC owning part
of AHCF 6. [Id. at ¶¶ 35, 36].
and finally, Plaintiffs include MHC America Fund, LLC
(“Fund 1”) and MHC America Fund 2, LLC
(“Fund 2”). [#31 at ¶¶ 6-9]. Fund 1 was
formed in 2016 and included all of the sponsors previously
spread among MHPI 1-4, Alumni 1-3, and AHCF 1-6. [#64 at
¶ 37]. Fund 2 was intended to be a fund into which
previous funds were “rolled-up” to simplify fund
structure. MHC America Class C, LLC (“Class C”)
and MHC America 2 Class B, LLC (“Class B”) are
separate entities that own and promote interest in Funds 1
and 2, respectively. [Id.]. As owners of this
interest, upon a net capital event, Classes C and B stand to
gain a back-end distribution from the funds after annual
preferred returns and invested capital contributions are paid
to other members in the funds. [Id.]. 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.
Jamie Smith and Ryan Smith (“the Smiths”) are
Florida residents who own several corporate entities
intertwined with Plaintiffs'. [#31 at ¶ 31; #36 at
3]. Specifically, the Smiths own Colonial Kitchen, LLC-and so
own an interest in Alumni 1-3-and MHP Portfolio LLC
(“MHP”) which is invested in MHPI I, II, and III
and Salvo Conducto which owns part of MHPI IV. [#64 at
¶¶ 51, 52]. The Smiths also own MHPI V LLC, which
in turn owns part of AHCF 6 as noted above. [Id.].
Plaintiffs allege that the Smiths also own MHPI VII, LLC
(“Fund 7”). [Id. at ¶ 4].
Additionally, the Smiths own or control Defendant Elevation
Capital Group, LLC (“Elevation Capital”), which
does not appear to own any other corporate entity at issue.
[Id. at ¶¶ 61-70]. 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 mentioned herein but alleged to have
acted in concert with the Smith Defendants in the alleged
misconduct. [Id. at ¶¶ 86-131].
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 and rank as the fifth largest owner of manufactured
home communities in the country. [Id. at ¶ 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
¶ 72]. These sessions instruct participants using
copyrighted materials owned by RV Horizons. [Id. at
¶¶ 72-78]. It was at one of these boot camps that
Messrs. Reynolds and Rolfe met Jamie and Ryan Smith
approximately ten years ago. [Id. at ¶¶
time, the Smiths owned several failing manufactured home
communities and unsuccessfully attempted to bring on
Plaintiffs as managers. [Id. at ¶ 31]. 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 ¶
32]. 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
¶¶ 58-60]. Specifically, Trailer Cash
copies from RV Horizons materials which were used at the boot
camps. [Id. at ¶ 77]. 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 ¶¶ 73-78].
about June 1, 2016, Plaintiffs formed MHC America Fund LLC,
Fund 1, and began raising capital. [Id. at ¶
54]. 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 ¶ 55]. 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 ¶ 79]. Plaintiffs also store
confidential investment strategies called
“turnarounds” on their computer systems.
[Id. at ¶¶ 83-84]. The investor lists and
turnaround files are critical to Plaintiffs' business
structure. [Id. at ¶ 83]. When the Smiths began
promoting Fund 7 to the investors to whom they were supposed
to be promoting Fund 1 (and later Fund 2), Plaintiffs allege
they used this data, including the turnarounds. [Id.
at ¶¶ 56-57, 88].
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 ¶¶ 64-67].
Plaintiffs also allege that the Smiths have embedded
references to Plaintiffs and their employees in the source
code of the Elevation 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 Elevation Capital's website as 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
¶ 86]. 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 acquiescence of MHPI III
and IV's other manager, RV Horizons. [Id. at
¶ 87]. 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.].
Smiths 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 ¶ 89]. 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 ¶ 92].
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 correlate to Plaintiffs', not
their own. [Id. at ¶¶ 89-130]. In
promoting Fund 7, the Smiths and Dahn have also solicited
consumers in the market for manufactured housing community
investments via social media and online advertising.
[Id. at ¶¶ 138-41, 154-56, 193-95].
Additionally, in 2017 the Smiths and Dahn visited Colorado
with the intent of purchasing property for Fund 7 and did so
sometime in 2018. [Id. at ¶ 131].