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RV Horizons, Inc. v. Smith

United States District Court, D. Colorado

November 15, 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 ON MOTIONS TO DISMISS

          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”); 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 DENIED.

         BACKGROUND

         The 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 Dismiss.

         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. [#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.

         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 ¶¶ 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.

         First, 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].

         Second, 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].

         Third, 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].

         Fourth, 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].

         Fifth 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.

         Defendants.

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, “Defendants.”

         Finally, 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].

         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. 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 ¶¶ 31, 73].

         At the 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.

         In 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].

         On or 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 ¶ 56].

         Plaintiffs 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].

         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 ¶¶ 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 ¶¶ 70-71].

         In 2016 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.].

         The 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].

         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 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].

         III. ...


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