ProCom Supply, LLC v. Langner et al

Filing 164

Opinion and ORDER Overruling 163 Objections, Adopting 162 Recommendation, and Denying 99 Motion for Default. The Court having found that it lacks personal jurisdiction over Defendants Mann, First National Group, L&M Realty Brokers, First Nation al Management, and Real Investors, the claims against those Defendants are DISMISSED pursuant to Fed. R. Civ. P. 12(b)(2). The caption of this action is AMENDED to remove references to those Defendants. By Chief Judge Marcia S. Krieger on 8/24/2013.(klyon, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Honorable Marcia S. Krieger
Civil Action No. 12-cv-00391-MSK-KMT
PROCOM SUPPLY, LLC, a Colorado limited liability company,
Plaintiff,
v.
MECHEL LANGNER,
BARBARA LANGNER,
AHARON MANN,
FIRST NATIONAL GROUP, LLC,
FIRST NATIONAL MANAGEMENT, LLC,
REAL INVESTORS LLC,
FRED P. SCHWARTZ, ESQ., and
L AND M REALTY BROKERS LLC,
Defendants.
______________________________________________________________________________
OPINION AND ORDER OVERRULING OBJECTIONS, ADOPTING
RECOMMENDATION, AND DENYING MOTION FOR DEFAULT JUDGMENT
______________________________________________________________________________
THIS MATTER comes before the Court pursuant to Plaintiff Procom Supply, LLC’s
(“Procom”) Objections (# 163) to the Magistrate Judge’s August 19, 2013 Recommendation
(#162) that Procom’s Motion for Default Judgment (# 99) against Defendants Mann, First
National Group, L&M Realty Brokers, First National Management, and Real Investors (the
“defaulting Defendants”) be denied.
According to Procom’s Amended Complaint (# 88), in or about 2008, non-party Daniel
Kasnett solicited Procom to invest in a condominium project in Cleveland, Ohio. Although not
memorialized in any written agreement, Procom invested $ 189,000 in the project. The

1

Amended Complaint alleges that Procom “did not receive any consideration” in exchange for its
funds, but later states that Procom was to be “an equity investor, [whose] funds would be repaid
with profits when the [project] was completed.” Procom alleges that Mr. Kansett never intended
to actually build the project and that he simply distributed Procom’s funds to the various other
Defendants in this action.
Procom’s “investment” was effectuated by Procom wiring the funds to a bank account
controlled by Defendant Real Investors (“Real”). Thereafter, Real distributed some of those
funds to Defendant First National Group (“FNG”). FNG transferred a portion of the funds to
Defendants Mechel and Barbara Langner, and another portion of the funds to Defendant L&M
Realty (“L&M”), and yet another portion of the funds to Defendant First National Management
(“FNM”). L&M distributed a portion of the funds it received to Defendant Mann.
Based on these facts, the Amended Complaint asserts three causes of action, each against
all of the named Defendants: (i) unjust enrichment; (ii) conversion/civil theft, in violation of
C.R.S. § 18-4-405; and (iii) civil conspiracy.
Procom effected service of the Amended Complaint on all of the named Defendants. The
defaulting Defendants failed to timely answer or move against the Amended Complaint. Procom
moved (# 99) for a default judgment against the defaulting Defendants. This Court referred
Procom’s motion to the Magistrate Judge for a Recommendation.
On August 19, 2013, the Magistrate Judge issued a thorough recommendation (# 162)
that the motion be denied. Specifically, the Magistrate Judge found: (i) that the Amended
Complaint adequately demonstrated federal subject-matter jurisdiction against the Defendants,

2

premised upon diversity of citizenship under 28 U.S.C. § 13321; but (ii) that the Court lacked
personal jurisdiction over any of the defaulting Defendants (all of whom reside outside of
Colorado).
Procom filed timely Objections (# 163) to the Recommendation, arguing that the
Amended Complaint adequately alleges that Mr. Kansett was acting as Real’s agent when he
solicited Procom’s investment in Colorado (and, apparently, although implicitly, argues that
because each of the remaining defaulting Defendants are members of Real, Real’s contacts with
Colorado are sufficient to subject each of those Defendants to personal jurisdiction in Colorado
as well), or, in the alternative, argues that the Amended Complaint’s allegations of conspiracy
among the defaulting Defendants and with Mr. Kansett is sufficient to subject them to personal
jurisdiction in Colorado based on Mr. Kansett’s acts.
Pursuant to Fed. R. Civ. P. 72(b), the Court reviews the objected-to portions of the
Recommendation de novo. Upon such de novo review, the Court agrees with and adopts the
Magistrate Judge’s thorough and considered analysis, and merely elaborates on certain aspects of
it as follows.
Procom argues that the Amended Complaint expressly alleges that Mr. Kansett was
acting “as an agent for [Real]” when he fraudulently solicited Procom’s investment. As the
Recommendation noted, however, Procom’s allegation in the Amended Complaint was
contradicted by evidence (in the form of deposition transcripts) that Procom attached to the
Amended Complaint, including testimony from Mr. Kansett himself, who denied that the funds
solicited from Procom were intended to further the project for which Real was seeking investors
1

The Court had previously found (# 87) that the allegations of diversity were insufficient
and required Procom to cure that defect in the Amended Complaint.
3

-- an “internet real estate company” called “Real Prospex.”2 See e.g. Creelgroup, Inc. v. NGS
American, Inc., 2013 WL 1188986 (6th Cir, Mar. 22, 2013) (slip op.) (“when [an exhibit]
contradicts allegations in the complaint to which it is attached, the exhibit trumps the
allegations”); Bogie v. Rosenberg, 705 F.3d 603, 609 (7th Cir. 2012).
Moreover, the Court further notes that the assertion that Mr. Kansett was acting as an
agent for Real at the time he solicited Procom’s investment is a conclusion of law, and thus, must
be supported by allegations of fact that, if taken as true, would permit the conclusion to be
drawn. See generally Wolman v. Catholic Health System of Long Island, 853 F.Supp.2d 290,
298-99 (E.D.N.Y. 2012) (agency relationship requires pleading of facts showing that agent “had
apparent or actual authority to bind” principal, and mere conclusory statements of agency status
are insufficient to state a claim); Haley Pain Co. v. E.I. Dupont de Nemours and Co., 775
F.Supp.2d 790, 799 (D.Md. 2011) (broad allegations that defendant was “agent or alter ego” of
another party insufficiently specific to support finding of jurisdiction based on agency
relationship); Ozbakir v. Scotti, 764F.Supp.2d 556, 572 (W.D.N.Y. 2011). But Procom’s
Amended Complaint offers nothing more than the conclusory assertion that Mr. Kansett was
acting as Real’s agent. It does not, for example, allege that Mr. Kansett specifically identified
himself as being Real’s agent, or that Mr. Kansett presented investment materials to Procom that
referenced Real. Indeed, it may be that Procom has assumed that Mr. Kansett was acting as
Real’s agent solely because Mr. Kansett had Procom wire the investment funds to a bank account
in Real’s name, Docket # 88 at ¶ 22 – a fact that, of itself, is in no way sufficient to support a
conclusion that Mr. Kansett was acting as Real’s agent. Accordingly, because Procom has not
2

The Amended Complaint itself alleges that Real “was formed to raise money to invest in
an internet company called Real Prospex.” Docket # 88 at ¶ 16.
4

alleged facts sufficient to support the legal conclusion that Mr. Kansett was acting as Real’s
agent when soliciting the funds, Procom has not demonstrated that Real (much less any of Real’s
members, for whom Procom makes absolutely no jurisdictional showing whatsoever) is subject
to personal jurisdiction in Colorado.
Similarly, Procom’s argument that its conclusory assertion that the defaulting Defendants
conspired amongst themselves and with Mr. Kansett to defraud Procom is insufficient to permit
jurisdiction to be exercised over the defaulting Defendants due to Mr. Kansett’s activities in
Colorado. Procom’s allegation of an agreement among the defaulting Defendants is nothing
more than an allegation that they “agreed and conspired to solicit Procom” and “conspired and
agreed among themselves and Mr. Kansett to then distribute the invested funds.” Where, as
here, the underlying object of the alleged conspiracy is fraud, courts require the contours of the
conspiracy to be pled with some particularity. See e.g. Unified Container, LLC v. Mazuma
Capital Corp., 280 F.R.D. 632, 636-37 (D.Ut. 2012); see also Farlow v. Peak, Marwick, Mitchell
& Co., 956 F.2d 982, 990 & n. 11 (10th Cir. 1992) (“a complaint which merely implies, with the
conclusory assertion of a conspiracy, that a defendant is responsible for someone else’s
fraudulent acts is insufficient”). Simply asserting that parties “agreed with” or “conspired with”
one another, without any supporting factual averments identifying, e.g. the dates, parties to, and
contents of the communications establishing the meeting of the minds, is insufficient. Smith v.
Colorado Sears Roebuck, 21 Fed.Appx. 796, 800 (10th Cir. 2001) (unpublished), citing Hunt v.
Bennett, 17 F.3d 1263, 1268 (10th Cir. 1994).
Moreover, the Court further notes that, even if it were to conclude that it has personal
jurisdiction over one or more of the defaulting Defendants, it would nevertheless refuse to enter a

5

default judgment in favor of Procom on the grounds that the Amended Complaint fails to state
cognizable causes of action under any of the claims asserted against any of the Defendants for
the reasons set forth in the Court’s October 11, 2012 Opinion and Order (# 87). Despite
amending its complaint, Procom has still failed to explain how Real’s distribution of money to
the remaining defaulting Defendants reflects circumstances under which it would be unjust to
permit those recipients to retain the funds without compensation to Procom3; fails to allege facts
showing that the defaulting Defendants intended to permanently deprive it of the investment
funds4; and, for the reasons stated above, fails to adequately allege a conspiracy with the
requisite specificity.
Accordingly, the Court OVERRULES Procom’s Objections (# 163) and ADOPTS the
Magistrate Judge’s Recommendation (# 162). Procom’s Motion for Default Judgment (# 99) is
DENIED. Moreover, the Court having found that it lacks personal jurisdiction over Defendants
Mann, First National Group, L&M Realty Brokers, First National Management, and Real

3

For example, if the disbursement of funds discharged an outstanding obligation that Real
owed to the recipient of the funds, one might conclude that Real may have been unjustly
enriched by the disbursement of the funds (in that it satisfied its obligation to the recipient), but it
is difficult to say that it is somehow unjust for that recipient to retain funds that came only
indirectly from Procom, and which were tendered to the recipient in satisfaction of an unrelated
debt.

4

See also Mats v. Mazin, 2012 WL 3242951 n. 1 (D.Colo. 2012) (noting a “variety of legal
issues” presented by a civil theft claim in similar circumstances, including “interesting questions
such as whether Mr. Mats' contribution of the capital constituted his relinquishment of any
property interest in the funds themselves; whether the investment capital can be said to be
discrete and traceable property thereafter passing into the hands of Mr. Mazin; and whether the
economic loss rule might bar Mr. Mats from recovering in civil theft”).
6

Investors, the claims against those Defendants are DISMISSED pursuant to Fed. R. Civ. P.
12(b)(2). The caption of this action is AMENDED to remove references to those Defendants.
Dated this 24th day of August, 2013.
BY THE COURT:

Marcia S. Krieger
Chief United States District Judge

7