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REI Holdings, LLC v. Lienclear - 0001, LLC

United States District Court, D. Utah, Central Division

February 8, 2019

REI HOLDINGS, LLC fka NEFF COMPANIES, LLC dba REI HOLDINGS, a Utah limited liability company Plaintiff,
v.
LIENCLEAR - 0001, LLC, a Delaware limited liability company, BCMG, LLC a Puerto Rico limited liability company; BFNH, LLC, a Delaware limited liability company; BLOXTRADE, LLC a Puerto Rico limited liability company; TOM MCOSKER, an individual; DONALD BYRNE, an individual; BEN EDWARRDS, an individual; OPTIMUM ASSET MANAGEMENT, LLC, a North Carolina limited liability company; DAN FRIEDMAN, an individual; 111 WHITNEY AVENUE, INC. dba THE MARCUS LAW FIRM, a Connecticut Corporation Defendants.

          MEMORANDUM DECISION AND ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS

          CLARK WADDOUPS UNITED STATES DISTRICT COURT JUDGE.

         INTRODUCTION

         Before the court are the motions to dismiss filed by Defendants [1] the Marcus Law Firm, [2] The Optimum Defendants and [3] the LienClear Defendants. As explained below, the court grants each motion for lack of personal jurisdiction.

         BACKGROUND

         Plaintiff REI Holdings, LLC (REI) “is a Utah limited liability company with its principal place of business in the state of Utah.” (Am. Compl. ¶ 1, ECF No. 5 at 2.) “REI is in the business of purchasing portfolios of tax lien certificates issued by municipalities across the country.” (Am. Compl. ¶ 14, ECF No. 5 at 3.) Brandon Neff (Neff) is “a principal at . . . REI.” (Neff Aff. ¶ 2, ECF No. 36-1 at 3.) REI complains that the defendants were involved in REI's purchase of lien certificates that they knew had little or no value.

         This case involves defendants belonging to three groups-[1] the Marcus Law Firm [2] the Optimum Defendants; and [3] the LienClear Defendants. The court dicusses each group of defendants in turn.

         The Marcus Law Firm

         The Marcus Law Firm (Marcus) is a “proprietorship with Edward L. Marcus as the owner of the law firm.” (ECF No. 34 at 2.) Marcus' “sole office [is] located in . . . Connecticut.” (Marcus Aff. ¶ 8 ECF No. 24-1 at 4.) Marcus “represented REI in several lien foreclosure matters in the state of Connecticut.” (ECF No. 32 at 3.) More specifically, Marcus “was retained by [Defendant] Optimum and [REI] to assist in the purchase of tax lien portfolios for properties in . . . Connecticut.” (Marcus Aff. ¶ 16, ECF No. 24-1 at 4.) Marcus' “role in the transaction was to act as an Escrow Agent for the transfer of funds, assist in obtaining licensing from the State of Connecticut Banking Department, and to assist in filing records with municipalities in Connecticut.” (Marcus Aff. ¶ 16, ECF No. 24-1 at 4-5.) Marcus attorneys “performed all of the work for [Defendant] Optimum and [REI] in Connecticut . . . .” (Marcus Aff. ¶ 16, ECF No. 24-1 at 5.) “All money paid to [Marcus] as compensation for its worked performed was paid to [Marcus] in Connecticut.” (Marcus Aff. ¶ 16, ECF No. 24-1 at 5.) “All money placed with [Marcus] in its capacity as an Escrow Agent was done so in Connecticut.” (Marcus Aff. ¶ 16, ECF No. 24-1 at 5.) But, “in the course of its legal representation of REI, ” “[r]epresentatives of [Marcus] . . . collectively directed at least over six (6) dozen emails to REI” in Utah. (ECF No. 32 at 2.)

         The Optimum Defendants

         “Defendant Optimum is a limited liability company with its principal place of business in the State of North Carolina . . . .” (Am. Compl. ¶ 8, ECF No. 5 at 3.) “[T]he sole member of Optimum is [Dan] Friedman.” (Am. Compl. ¶ 8, ECF No. 5 at 3.) Friedman “is domiciled in . . . North Carolina.” (Am. Compl. ¶ 8, ECF No. 5 at 3.) Optimum represented REI as a tax lien servicer in the state of Connecticut.” (Neff Aff. ¶ 5, ECF No. 36-1 at 3.)

         In its Amended Complaint, REI alleges that “[i]n or around February, 2015 . . . Friedman and [another defendant] approached REI regarding the purchase of two (2) portfolios of tax lien certificates issued by the cities of Hartford, Bridgeport and West Haven, Connecticut (the ‘Portfolios').” (Am. Compl. ¶ 15, ECF No. 5 at 3-4.) “All of the tax liens upon which [REI] bases its claims against [the Optimum Defendants] concern[] property . . . located in the State of Connecticut.” (Friedman Aff. ¶ 11, ECF No. 30-1 at 4.) The Amended Complaint does not say if Friedman approached REI in Utah or in another State. (See ECF No. 5 at 3-4.) But in his affidavit, Friedman provides that “[n]either Optimum nor I have ever traveled to Utah for the purpose of conducting business in that forum state.” (Friedman Aff. ¶ 9, ECF No. 30-1.) And, Friedman further provides that “[n]either Optimum nor I have ever solicited business in the state of Utah.” (Friedman Aff. ¶ 10, ECF No. 30-1.) Additionally, Friedman provides that “[t]he work and services provided by [the Optimum Defendants] in relation to the subject tax liens and agreement with REI . . . occurred primarily in North Carolina and Connecticut: however no work or services provided by [the Optimum Defendants] . . . occurred in Utah.” (Friedman Aff. ¶ 14, ECF No. 30-1.) Neff, in his affidavit, does not disagree with Friedman on these points. (Compare Friedman Aff. ECF No. 30-1 with Neff Aff. ECF 36-1.)

         Neff asserts that “[a]s part of its representation, ” Optimum, through Friedman, “directed several dozen emails to REI with status updates, requests for information, procedural information, invoicing, and other related items concerning liens that REI purchased and the properties that they were attached to.” (Neff Aff. ¶ 7, ECF No. 36-1 at 3.) And, “[o]n multiple occasions, Dan Friedman called into the REI office on a conference call to train REI's salespersons and administrative team on tax lien protocols in Connecticut.” (Neff Aff. ¶ 9, ECF No. 36-1 at 7.) In his second affidavit, Friedman disputes Neff's allegation. (Friedman Aff. ¶ 7, ECF No. 37-1 at 2.) (“I have never provided a presentation or formal training to REI's salespersons and administrative team on tax lien protocols in Connecticut.”)).

         In its Amended Complaint, REI further alleges that Friedman and Optimum, “in concert with [the other Defendants, ] deleted or concealed data from the Portfolios to hide material facts from REI and induce REI to purchase the Portfolio.” (Am. Compl. ¶ 24, ECF No. 5 at 4-5.) In the Amended Complaint, REI does not allege whether Friedman's act of deleting and concealing this data occurred in Utah or in another state. (See ECF No. 5 at 4-5.) Nor does REI allege in which State this data was stored. But, in its Opposition to Optimum's Motion to Dismiss, REI does allege that Optimum “used a Utah Company, Onyx Websites, LLC [(Onyx)], to build and host [its] online presence and database.” (ECF No. 36 at 6.) REI relies on hearsay statements in Neff's affidavit to support this allegation.

         In his affidavit, Neff alleges that “Friedman told [Neff] that the company that built and hosted Optimum's tax lien web site and online database was located in Springville, Utah.” (Neff Aff. ¶ 10, ECF No. 36-1 at 7.) This company was Onyx. (Neff Aff. ¶ 10, ECF No. 36-1 at 7.) After learning about this connection, [Neff] met with managers of Onyx . . . and [they] discussed its services for Optimum.” (Neff Aff. ¶ 10, ECF No. 36-1 at 7.) However, as Optimum points out in its Reply, Neff does not specifically identify those managers. Nor does he establish when or where this meeting occurred. And perhaps most importantly, he does not actually allege that Onyx confirmed in this meeting that it “built and hosted Optimum's tax lien website and online database.” (Neff Aff. ¶ 10, ECF No. 36-1 at 7.) Rather, somewhat cryptically, he alleges that they simply “discussed [Onyx's] services for Optimum.” (Neff Aff. ¶ 10, ECF No. 36-1 at 7.)

         Friedman disputes that Optimum ever “had or maintained an online tax lien database” and contends that “Optimum . . . never contacted or retained the services of Onyx . . . .” (Friedman Aff. ¶ 7, ECF No. 37-1 at 4.) The president of Onyx, Sean Roylance (Roylance), sides with Friedman in this dispute. In his affidavit, Roylance testifies that “Onyx has neither hosted nor serviced a website or database for Dan Friedman, Optimum Asset Management, LLC or an Optimum-named entity.” (Roylance Aff. ¶ 5, ECF No. 37-2 at 3.)

         The LienClear Defendants

         Defendant LienClear, LLC (LienClear) “is a Delaware limited liability company with its principal place of business in the State of New York.” (Am. Compl. ¶ 1, ECF No. 5 at 2.) Defendant BFNH, LLC (BFNH), “is a Delaware limited liability company with its principal place of business in the State of Delaware.” (Am. Compl. ¶ 3, ECF No. 5 at 2.) Ben Edwards, “who is domiciled in the State of New York, ” is “the sole member of BFNH.” (Am. Compl. ¶ 4, ECF No. 5 at 2.) Defendant BCMG, LLC (BCMG) “is a Puerto Rico limited liability company . . . .” (Am. Compl. ¶ 2, ECF No. 5 at 2.) Donald Byrne (Byrne) and Tom McOsker (McOsker) are members of BCMG. (Am. Compl. ¶ 3, ECF No. 5 at 2.) McOsker is “domiciled in the territory of Puerto Rico, while Byrne “is domiciled in the state of New York.” (Am. Compl. ¶ 3, ECF No. 5 at 2.) Defendant BLOXTrade, LLC (BLOXTrade) “is a Puerto Rico liability company . . . .” (Am. Compl. ¶ 5, ECF No. 5 at 2.) The court refers to these defendants collectively as the “LienClear Defedants.”

         The crux of REI's allegations against the LienClear Defendants is that the LienClear Defendants, “[d]uring contract negotiations with REI . . . regarding the tax lien portfolios that are the subject of this action, ” (Neff Aff. ¶ 9, ECF No. 48-1) attempted to perpetuate “fraud on REI.” (ECF No. 48 at 6.)

         In its Amended Complaint, REI alleges that “[i]n or around February, 2015 [another defendant] and McOsker approached REI regarding the purchase of two (2) portfolios of tax lien certificates issued by the cities of Hartford, Bridgeport and West Haven, Connecticut (the ‘Portfolios').” (Am. Compl. ¶ 15, ECF No. 5 at 3-4.) The Amended Complaint does not say if McOsker approached REI in Utah or in another state. (See ECF No. 5 at 3-4.) But in his affidavit, McOsker provides that he “never visited the State of Utah on behalf of the [LienClear Defendants] to negotiate or conduct any business with REI . . . .” (McOsker Aff. ¶ 7, ECF No. 45 at 2.) And, McOsker further provides that “[a]ny business transactions and negotiations involving [LienClear] and [REI] that are alleged in the Amended Complaint were conducted in Puerto Rico.” (McOsker Aff. ¶ 14, ECF No. 45 at 3.) Neff, in his affidavit, does not dispute McOsker on this point. (See Neff Aff. ECF No. 48-1.) It therefore appears that McOsker “approach[ed]” REI in Puerto Rico.

         REI, through Neff's affidavit, appears to allege that the LienClear Defendants “all contracted or participated in the contractual negotiations” “with REI . . . regarding the tax lien portfolios that are the subject of this action.” (Neff Aff. ¶¶ 5, 9 ECF No. 48-1 at 3.) “During [these] contract negotiations . . . the [LienClear] Defendants . . . sent not less than three (3) dozen emails to REI in Utah with contract documents, status updates, requests for information, and response[s] to lien issues.” (ECF No. 48 at 6.) “REI alleges this communication was directed to the state of Utah in an effort to perpetuate the fraud on REI.” (ECF No. 48 at 6.) Neff also alleges that McOsker “call[ed] [him] well over one hundred times to discuss various transactions, actual and potential, between Neff, Companies, LLC and his entities.” (Neff Aff. ¶ 11, ECF No. 48-1 at 7.)

         ANALYSIS

         I. Legal Standard

         A defendant may move to dismiss a complaint for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2). When a defendant does so, the plaintiff bears the burden of establishing personal jurisdiction over the defendant. Shrader v. Biddinger, 633 F.3d 1235, 1239 (10th Cir. 2011). Where, as here, the plaintiff seeks to establish personal jurisdiction “based on pleadings . . . and affidavits, that burden can be met by a prima facie showing.” Scrader, 633 F.3d at 1239. “The allegations in the complaint must be taken as true to the extent they are uncontroverted by the defendant's affidavits.” Wenz v. Memery Crystal, 55 F.3d 1503, 1505 (10th Cir. 1995) (internal quotation marks omitted) (citation omitted). “If the parties present conflicting affidavits, all factual disputes must be ...


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