Munck Wilson Mandala LLP v. Jordan

• Docket Number: Civil Action 3:22-cv-01657-M
• Decision Date: 22 August 2023
• Parties: MUNCK WILSON MANDALA LLP, Plaintiff, v. MARK D. JORDAN, et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

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MUNCK WILSON MANDALA LLP, Plaintiff,
v.
MARK D. JORDAN, et al., Defendants.

Civil Action No. 3:22-cv-01657-M

United States District Court, N.D. Texas, Dallas Division

August 22, 2023

MEMORANDUM OPINION AND ORDER

BARBARA M. G. LYNN SENIOR UNITED STATES DISTRICT JUDGE

Before the Court are Defendants' Motions to Dismiss the First Amended Complaint. ECF Nos. 36, 50, 52, 68. On June 5, 2023, the Court heard argument on the Motions.

For the reasons stated below, the Motions are Granted. The Court concludes that Plaintiff has failed to state a claim for relief under the Racketeer Influenced and Corrupted Organizations Act (“RICO”), 18 U.S.C. §§ 1961-68, and declines to exercise supplemental jurisdiction over Plaintiff's remaining state law claims.

I. BACKGROUND

Plaintiff Munck Wilson Mandala brings RICO and state law claims against eleven Defendants-five individuals and seven entities-arising out of Plaintiff's lease of office space at Banner Place, a commercial property located at 12770 Coit Road in Dallas, Texas. See ECF No. 30 (“FAC”).

Specifically, Plaintiff contends that Defendants Mark D. Jordan and Bradford Phillips are the ringleaders of a RICO enterprise, referred to by Plaintiff as the “Sooner Enterprise.” Id. ¶¶ 2, 5, 9; see also ECF No. 80 (“RICO Case Statement”) ¶¶ 5, 7, 9. According to Plaintiff, the

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Sooner Enterprise consists of Jordan, Phillips, Laura Maczka-Jordan, Scot Florsheim, Louann Hall, and Liberty Bankers Life Insurance Company (“LBLIC”), acting in concert with entities owned or controlled by Jordan and/or Phillips, including Defendants JP-Banner GP, LLC, JP-Banner, LP,^[1]Sooner National Property Management, L.P. (“Sooner”), JP Realty Partners, Ltd., Banner Investors, LLC, and multiple other non-party single purpose entities allegedly controlled by Jordan. Id. ¶¶ 2, 121.

The FAC alleges that the Sooner Enterprise operated a scheme to defraud innocent investors in, and tenants of, commercial office buildings. Specifically, Plaintiff alleges that, in the 2017 to 2019 time period, the Sooner Enterprise's “modus operandi” consists of the following steps: (1) purchasing a commercial property through a single purpose entity formed by Jordan, which is controlled by Jordan or Phillips and in which third parties invest; (2) employ Sooner-an entity owned, operated, and controlled by Jordan-to manage the newly purchased property, so as to give Jordan control over management of the property; (3) overcharge tenants for “bogus and fictitious” operating expenses, while simultaneously providing substandard services to tenants; and (4) use the investment proceeds and tenant's rental income to enrich and for the benefit of the Sooner Enterprise's beneficiaries. Id. ¶ 136. Plaintiff alleges that the named Defendants contribute to the Sooner Enterprise in various ways, either by soliciting investments and providing allegedly fraudulent information to investors (JP Realty Partners, Ltd., Banner Investors, LLC, and Scot Florsheim), assisting in property management and the alleged concealment of fraudulent charges to tenants (Sooner, Laura Maczka-Jordan, Florsheim, and Louann Hall), or becoming a secured lender (LBLIC and Phillips). See id. ¶ 121.

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Plaintiff claims that, as a tenant of Banner Place, it is a victim of the Sooner Enterprise's unlawful activities. On May 30, 2007, Plaintiff's predecessor entered into a lease with Gaedeke Holdings II, Ltd. (“Gaedeke”) for office space in Banner Place. See FAC Ex. 2 (ECF 30-2) (the “Lease”). The Lease was extended several times. On May 27, 2010, Plaintiff's predecessor executed the Fourth Amendment to the Lease, which extended the term to 2025. Id. ¶ 47.

The monthly rental amount under the Lease includes both a fixed and variable costs for operating expenses, “OPEX,” which are estimated based on costs for a “base year.” Id. ¶ 43. The OPEX portion of the monthly rent is to be held separately, so it can be reconciled with actual operating expenses at the end of the year. Id. ¶¶ 44-45. The Lease provides that, if the actual expenses exceed estimated expenses, as collected through rent payments, Plaintiff is required to pay the difference in costs; if actual expenses are lower than the amount collected, Plaintiff receives a credit. Id.

In the fall of 2016, Gaedeke listed Banner Place for sale. In early 2017, JP-Banner, LP purchased Banner Place. Plaintiff characterizes JP-Banner, LP as one of the single purpose entities controlled by Jordan,^[2]which the Sooner Enterprise employs to achieve its unlawful goals of defrauding investors and tenants. Id. ¶ 121(k).

Before the sale, Defendants Jordan and Florsheim allegedly verbally represented to Plaintiff that, after the purchase of Banner Place, they would promptly invest $750,000 to upgrade the building to a “Class A” property, while lowering OPEX significantly through the employment of Sooner, a company 99.9% owned by Jordan through Defendant JP Realty Partners, Ltd. Id. ¶¶ 12, 27-28. Plaintiff also alleges that, in addition to the oral representation, Jordan and Florsheim sent pitch emails to potential investors indicating that OPEX would

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increase after the sale; Plaintiff alleges that Defendants provided these conflicting representations-i.e., that OPEX would both increase and decrease after the property was purchased-to “create a paper trail which justifie[d] future fraudulent overcharges of tenant operating expenses.” Id. ¶¶ 13-14. Plaintiff claims it relied on these alleged misrepresentations regarding upgrades and decreased OPEX when it invested money into JP Banner, LP as a limited partner and amended its lease, thus becoming both a tenant and investor. Id. ¶ 20.

On February 21, 2017, after the sale, Plaintiff and JP-Banner, LP executed a Sixth Amendment to the Lease, which transferred landlord and property management service responsibilities to JP-Banner, LP and Sooner. Id. ¶ 49. Plaintiff alleges that, after Sooner began to handle management, operating cost credits to Plaintiff began to decrease (i.e., OPEX increased), while the quality of services provided to tenants began to decrease. Id. ¶¶ 53-55.

Plaintiff claims its experience was part of the Sooner Enterprise's scheme to defraud tenants, through which Jordan directed Sooner “to surreptitiously reduce the services provided to Plaintiff (and other Banner Place tenants) on the one hand, provide fraudulent year-end operating reports to Plaintiff (and other tenants) on the other hand, and then invoice Plaintiff for additional fictitious ‘excess costs.'” Id. ¶ 22. The FAC recites various ways that Plaintiff alleges JP-Banner, LP and Sooner fraudulently increased the property's OPEX, including, inter alia, by inflating the square footage of the building as the basis for determining occupancy percentages (for expenses that vary with occupancy), inflating management fees owed to Sooner, improperly charging salaries of individuals working for Sooner as operating expenses, and charging for janitorial services not performed. Id. ¶¶ 63-107. Plaintiff alleges that these inflated operational costs were funneled into the Sooner Enterprise's “slush fund,” for Defendants' benefit. Id. ¶ 152. Plaintiff similarly alleges that Defendants never invested the $750,000 in upgrades to

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Banner Place, as promised prior to the purchase, and instead improperly redirected those funds for the benefit of the Enterprise. Id. ¶ 158.

Plaintiff exercised its rights under the lease and engaged a third-party auditor to conduct a lease audit of the OPEX reported by JP-Banner, LP for 2017, 2018, and 2019. Id. ¶ 58. According to Plaintiff, the audits showed that Plaintiff had been overcharged in each of these years, but Defendants have allegedly refused to reimburse Plaintiff for the overcharges. Id. ¶ 59. Plaintiff argues that, based on the allegedly improper inflation of OPEX charged to Plaintiff, Plaintiff should have been credited at least $419,007.00 for OPEX in 2017 and 2018, and at least $104,601 for OPEX in 2019. Id. ¶ 110. Plaintiff further alleges that Defendants have not yet provided OPEX reports for 2020 or 2021, in breach of the lease. Id. ¶ 62.

On July 29, 2022, Plaintiff filed suit. The current live pleading is the First Amended Complaint, in which Plaintiff asserts against all Defendants claims for violations of RICO, a violation of 18 U.S.C. § 1962(c), and for RICO conspiracy, under 18 U.S.C. § 1962(d). In addition, Plaintiff asserts claims under Texas state law; specifically, claims against all Defendants for civil conspiracy, unjust enrichment, and money had and received; a claim against Jordan, Florsheim, Hall, JP-Banner, LP, Sooner, and JP-Banner, GP for fraud and/or fraudulent inducement; a claim against JP-Banner, LP for breach of contract; and a claim for conversion against all Defendants except LBLIC and Phillips. On February 28, 2023, at the Court's request, Plaintiff filed a RICO Case Statement. See RICO Case Statement, ECF No. 80.

II. LEGAL STANDARD

In reviewing a Rule 12(b)(6) motion, the Court must accept all well-pleaded facts in the complaint as true and view them in the light most favorable to the plaintiff. Sonnier v. State Farm Mutual Auto. Ins. Co., 509 F.3d 673, 675 (5th Cir. 2007);

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Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). To survive a motion to dismiss under Rule 12(b)(6), a complaint must contain sufficient factual matter to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Applying the “plausibility” standard from Iqbal and Twombly, the Fifth Circuit has held that:

In construing the allegations in the complaint, the Court is obliged to disregard “legal conclusions; mere ‘labels'; ‘[t]hreadbare recitals of the elements of a cause of action';

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