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Orion Property Group, LLC v. Hjelle

United States District Court, D. Kansas

December 13, 2018

ORION PROPERTY GROUP, LLC, individually and on behalf of others similarly situated, Plaintiff,
v.
MARK HJELLE, Defendant.

          MEMORANDUM AND ORDER

          KATHRYN H. VRATIL, United States District Judge.

         Orion Property Group, LLC asserts putative class claims against Mark Hjelle for violation of the Racketeer Influence and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq.[1] Specifically, plaintiff alleges that defendant used a corporate entity, CSC Service Works, Inc., as a vessel to engage in a scheme to defraud customers of CSC. See First Amended Class Action Complaint (Doc.#4) filed February 28, 2018 at 15-17. This matter comes before the Court on Defendant Mark Hjelle's Motion To Dismiss Plaintiff's First Amended Class Action Complaint (Doc. #18) filed May 15, 2018. For reasons stated below, the Court finds that it lacks personal jurisdiction over defendant and sustains defendant's motion in part. It also orders the parties to further brief whether transfer or dismissal would serve the interests of justice under 28 U.S.C. § 1631.

         Legal Standards

         Rule 12(b)(2), Fed. R. Civ. P., governs motions to dismiss for lack of personal jurisdiction. Plaintiff bears the burden of establishing personal jurisdiction and at this stage of the litigation, need only make a prima facie showing. Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d 1063, 1069-70 (10th Cir. 2008). At this stage, the burden on plaintiff is light. See Wenz v. Memery Crystal, 55 F.3d 1503, 1505 (10th Cir. 1995). To the extent that defendant's affidavits do not controvert the well-pleaded allegations of the complaint, the Court must accept plaintiff's allegations as true. See id. at 1505 (10th Cir. 1995). If defendant sufficiently challenges the jurisdictional allegations, plaintiff must support them with competent proof of supporting facts. Pytlik v. Prof'l Res., Ltd., 887 F.2d 1371, 1376 (10th Cir. 1989). Plaintiff may do so by demonstrating, by affidavit or other written materials, facts that if true would support jurisdiction over defendant. TH Agric. & Nutrition, LLC v. Ace European Grp. Ltd., 488 F.3d 1282, 1286 (10th Cir. 2007). The Court resolves any factual disputes in favor of plaintiff. Wenz, 55 F.3d at 1505.

         Facts

         In the first amended complaint, plaintiff alleges the following facts.

         Orion Property Group, LLC

         Orion Property Group, LLC is a property management limited liability company which is headquartered in Overland Park, Kansas. First Amended Class Action Complaint (Doc. #4) ¶ 33. Orion manages properties in more than 20 states across the country, including Kansas and Missouri. Id. Michael Napovanice is principal and president of Orion.

         Orion has signed a laundry vending machine lease agreement under which CSC ServiceWorks, Inc. (“CSC”) maintains and operates vend-based laundry equipment at properties which Orion manages. Id. ¶ 33. Orion signed the lease agreement on behalf of the owner of Chequers Apartments, a property for which Orion operates as an agent. Id. In addition, Orion has received an assignment of claims from the owner of Chequers Apartments. Id. ¶ 33. All invoices and letters are sent to Orion's mailing address in Overland Park, Kansas. Id. ¶ 33.

         In May of 2017, Napovanice received a letter dated May 17, 2017 from Mark Hjelle, Chief Executive Officer (“CEO”) of CSC, see infra. Id. ¶ 55.

         On December 15, 2017, the area sales manager of CSC emailed Orion the “12-month reconciliation” for “Chequers 760-0438.” Id. ¶ 34. The email included an Excel attachment which showed fraudulent “administrative fee” overcharges, month by month, for part of 2017. Id.

         CSC ServiceWorks, Inc.

         CSC is a Delaware corporation with headquarters in Plainview, New York. Id. ¶ 35. CSC is registered to do business in the State of Kansas and has consented to jurisdiction in the state. Id. ¶ 35.

         CSC is the nation's leading provider of multi-family residential and commercial laundry solutions, and maintains equipment at more than 80, 000 locations across the country. First Amended Class Action Complaint (Doc. #4), ¶¶ 1, 4. CSC has a multi-family laundry vending division named Coinmach. Id. ¶ 3. Many of the laundry leases at issue in this case are between Coinmach and putative class members. Id. ¶ 4. Recently, CSC implemented a “rebrand” to consolidate all of its companies under the name CSC. Id. ¶ 3.

         CSC leases space from owners of apartment buildings and other small business entities for the purpose of installing, maintaining and operating coin-operated and/or card-operated laundry equipment. Id. ¶ 42. Under the lease agreements, CSC pays Orion and other members of the putative class a portion of money collected from the laundry equipment.[2] Id. ¶ 43. Because CSC is responsible for collecting and accounting gross receipts, the lessors (“CSC customers”) place a great deal of trust in CSC to engage in ethical, reliable and transparent accounting and collection practices. Id. ¶ 52.

         Mark Hjelle lives in Maryland. Id. ¶ 35. On July 14, 2016, the CSC Board of Directors appointed Hjelle to be Chief Executive Officer (“CEO”) of CSC. Id. ¶ 7. Within a few months of becoming CEO, Hjelle devised a fraudulent scheme to increase CSC revenues by unilaterally imposing an “administrative fee” to siphon off 9.75 per cent of gross collections under laundry leases. Id. ¶¶ 13, 56. Hjelle knew that because CSC collected and controlled all revenues, its customers would be powerless to stop the fee. Id. ¶ 56.

         On May 17, 2017, Hjelle wrote, signed and arranged to mail a letter to each CSC customer, including Orion and several other customers in the State of Kansas. Id. ¶¶ 14, 35. In the letter, Hjelle lulled CSC customers into believing that their lease agreements authorized CSC to charge the “administrative fee.” Id. ¶ 15. Hjelle intentionally and falsely represented that (1) the new fee was administrative in nature; (2) the customers' existing lease agreements authorized the fee; (3) the fee resulted in a net gain to customers; and (4) CSC was waiving other costs that it could have collected under existing lease agreements. Id. ¶ 23. In addition, Hjelle provided an illusory “additional benefit” by offering up to $200 in coverage for events related to vandalism and purporting to waive any potential claims for past administrative costs that CSC was entitled to deduct but had not deducted. Id. ¶ 16. Hjelle covered up the fraud by creating a website dedicated to “fee transparency.” Id. ¶ 17.

         By unilaterally imposing a phony “administrative fee” which was not authorized under the lease agreements, Hjelle defrauded CSC customers and since May of 2017, has been illegally stealing from CSC customers 9.75 per cent of gross receipts each month. Id. ¶ 57.

         By systematically deducting 9.75 per cent of gross receipts due to CSC customers each month, Hjelle pumped up CSC's bottom line, priming it for a sale to line his own pockets. Id. ¶ 19. Hjelle hopes that a sale will occur before investors and the CSC Board catch on to the scheme. Id. ¶ 19. Alternatively, the CSC Board is aware of the scheme to defraud. Id.

         In addition to the letter of May 17, 2017, Hjelle sent CSC customers monthly statements and payments by mail and/or wire which reflected the 9.75 per cent “administrative fee” deduction and perpetuated his fraudulent scheme. Id. ¶¶ 61, 62, 66.

         Additional Facts

         In response to defendant's motion to dismiss, plaintiff provides evidence of the following facts:

         The Kansas City Art Institute owns Chequers Apartments. Declaration Of Michael Napovanice ¶ 3, Exhibit A to Plaintiff's Opposition (Doc. #24-7). Both are located in Kansas City, Missouri. Id.; see also https://kcai.edu/contact-us/ (last visited October 16, 2018). Since December 1, 2013, Orion has managed Chequers Apartments. Id. It is authorized to enter into contracts and generally manage the affairs of Chequers Apartments. Id. Orion receives a management fee which is tied to revenues collected by Chequers Apartments, including revenues from onsite laundry facilities. Id. Chequers Apartments has assigned Orion all of its rights and claims to prosecute this lawsuit. Id. ¶ 4

         Orion received Hjelle's letter of May 17, 2017 at its offices in Overland Park, Kansas. Id. ¶ 5. The letter is on CSC letterhead and Hjelle signed it as “Chief Executive Officer.” May 17, 2017 Letter, Exhibit A-1 to Napovanice Declaration. The letter appears to be a form letter and does not contain the name or address of its recipient. See id. In part, it states as follows:

Dear Client:
***
We have made and will continue to make significant investments in our people, systems, technology and service delivery, as well as maintaining a commitment to security and sustainability; but we are also facing increased costs in nearly every aspect of our business. In the past, we have offset some of these costs with efficiency improvements and by leveraging our scale, but we are no longer able to absorb these costs alone.
In the past, we have not used provisions in our agreement with you to share these increased costs. As we continue to align your interests (high occupancy rate of satisfied residents) with ours (to achieve an acceptable operating margin) and to jointly provide a great laundry experience for your residents, it is necessary to begin to share the agreed upon costs as outlined in our agreement.
Beginning this month, you will see an Administrative Fee of 9.75% . . . deducted from your gross collections. * * *

Id.

         Beginning in May of 2017, and each month thereafter, Orion has received in its offices in Overland Park, Kansas, a summary collections statement from CSC which shows a reduction of 9.75 per cent in gross collections from onsite laundry operations at ...


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