United States District Court, D. Kansas
ORION PROPERTY GROUP, LLC, individually and on behalf of others similarly situated, Plaintiff,
MARK HJELLE, Defendant.
MEMORANDUM AND ORDER
KATHRYN H. VRATIL, United States District Judge.
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. 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.
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
first amended complaint, plaintiff alleges the following
Property Group, LLC
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
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.
of 2017, Napovanice received a letter dated May 17, 2017 from
Mark Hjelle, Chief Executive Officer (“CEO”) of
CSC, see infra. Id. ¶ 55.
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.
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.
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.
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. 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.
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.
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.
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.
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.
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.
response to defendant's motion to dismiss, plaintiff
provides evidence of the following facts:
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.
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:
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. * * *
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 ...