throbber
DC-23-06025
`CAUSE NO. _______________________
`
`FILED
`5/4/2023 1:49 PM
`FELICIA PITRE
`DISTRICT CLERK
`DALLAS CO., TEXAS
`Cheryl Watts DEPUTY
`
`

`THE STATE OF TEXAS

`
`Plaintiff,

`

`v.

`

`

`KWEST, INC., KWEST LOGISTICS, LLC,
`MEDLOGIX SURGICAL SOLUTIONS, LLC, §
`FRANK PARKER LEE, CHRIS MERINEY, §
`OMAR KHAN, JAMES HERRERA JR. §
` Defendants.

`

`

`
`
`
`
`IN THE DISTRICT COURT
`
`DALLAS COUNTY, TEXAS
`
`
`
`_____ JUDICIDAL DISTRICT
`
`
`
`
`
`
`
`
`101st
`
`
`TO THE HONORABLE JUDGE OF SAID COURT:
`
`PLAINTIFF'S ORIGINAL PETITION
`
`Plaintiff, the STATE OF TEXAS (herein “State”), acting by and through the Attorney
`
`General of Texas, KEN PAXTON and on behalf of the public interest, files this petition
`
`complaining of Defendants, KWEST, INC., KWEST LOGISTICS, LLC, MEDLOGIX
`
`SURGICAL SOLUTIONS, LLC, FRANK PARKER LEE, CHRIS MERINEY, OMAR KHAN,
`
`JAMES HERRERA, JR. (herein “Defendants”). In this action, the State alleges that Defendants
`
`engaged in false, misleading, and deceptive acts and practices in violation of §17.46 of the Texas
`
`Deceptive Trade Practices—Consumer Protection Act (DTPA), Tex. Bus. & Com. Code §§17.41–
`
`17.63.
`
`Specifically, Defendants engaged in misleading, deceptive, and fraudulent business
`
`practices by taking advantage of a global shortage of Graphic Processing Units (herein “GPUs.”)
`
`Defendants deceived consumers regarding their ability to procure GPUs, misrepresented
`
`possession and quantity of the GPUs, failed to deliver GPUs to consumers as advertised, and
`
`refused to honor requests to cancel or refund orders when the GPUs were not delivered.
`
`

`

`Defendants’ actions have cost consumers millions of dollars across the United States. In support,
`
`the State will respectfully show the Court as follows:
`
`I.
`
`DISCOVERY CONTROL PLAN
`
`1.
`
`The discovery in this case should be conducted under Level 2 pursuant to Rule
`
`190.3 of the Texas Rule of Civil Procedure (“TRCP”).
`
`2.
`
`This case is not subject to the restrictions of expedited discovery under Rule 169 of
`
`the TRCP because the relief sought by the State includes non-monetary injunctive relief.
`
`3.
`
`In addition to non-monetary injunctive relief, the State seeks monetary relief,
`
`including civil penalties, attorneys’ fees, and costs, in excess of $250,000, that could exceed
`
`$1,000,000.
`
`PUBLIC INTEREST
`II.
`The State has reason to believe that Defendants have engaged in the unlawful
`
`5.
`
`practices set forth in this petition. The State has further reason to believe Defendants have caused
`
`adverse effects to consumers in Texas. Therefore, the Consumer Protection Division of the Office
`
`of the Attorney General of the State of Texas is of the opinion that these proceedings are in the
`
`public interest.
`
`III. DEFENDANTS
`Defendant KWEST, Inc., is a South Dakota corporation with its principal place of
`
`6.
`
`business at 14800 Quorum Drive, Suite 100, Dallas, TX 75254, and a mailing address of P.O. Box
`
`803315, Dallas, TX 75380. It may be served with process by servicing its registered agent, Parker
`
`Lee Capital, LLC, whose address is 1903 McMillan Ave #3, Dallas, TX 75206. SERVICE OF
`
`PROCESS IS HEREBY REQUESTED.
`
`7.
`
`Defendant, KWEST Logistics, LLC, is a Dallas-based corporation with its principal
`
`place of business at 4100 Spring Valley Road #820, Dallas, TX 75244. It may be served with
`
`State v. KWEST, et al
`Plaintiff’s Original Petition
`
`
`
`Page 2 of 12
`
`

`

`process by servicing its registered agent, Seneca West whose address is 4845 Keller Springs Road,
`
`Addison, TX 75001. SERVICE OF PROCESS IS HEREBY REQUESTED.
`
`8.
`
`Defendant, Medlogix Surgical Solutions, LLC is a Dallas-based Texas Limited
`
`Liability Company with its principal place of business at 14800 Quorum Drive, Suite 100, Dallas,
`
`TX 75254. It may be served with process by servicing its registered agent, Parker Lee Capital,
`
`LLC, whose address is 1903 McMillan Ave #3, Dallas, TX 75206. SERVICE OF PROCESS IS
`
`HEREBY REQUESTED.
`
`9.
`
`Defendant, Frank Parker Lee resides and does business in Dallas County.
`
`Defendant Lee is an agent and owner acting by and through Defendants KWEST, Inc., KWEST
`
`Logistics, LLC, and Medlogix Surgical Solutions, LLC. Defendant Lee may be served with
`
`process at his residence 3847 Pine Tree Ct., Dallas, TX 75206. SERVICE OF PROCESS IS
`
`HEREBY REQUESTED.
`
`10.
`
`Defendant, Chris Meriney resides and does business in Dallas County. Defendant
`
`Meriney is an agent of and acts by and through Defendants KWEST, Inc. and KWEST Logistics,
`
`LLC. Defendant Meriney may be served with process at his residence 2975 Blackburn St. #1002,
`
`Dallas, TX 75204. SERVICE OF PROCESS IS HEREBY REQUESTED.
`
`11.
`
`Defendant, Omar Kahn resides and does business in Dallas County. Defendant
`
`Kahn is an agent of and acts by and through Defendants KWEST, Inc. and KWEST Logistics,
`
`LLC. Defendant Kahn may be served with process at his residence 6309 San Marino Dr., Rowlett,
`
`TX 75089. SERVICE OF PROCESS IS HEREBY REQUESTED.
`
`12.
`
`Defendant, James Herrera Jr. resides and does business in Dallas County.
`
`Defendant Herrera is an agent of and acts by and through Defendants KWEST, Inc. and KWEST
`
`State v. KWEST, et al
`Plaintiff’s Original Petition
`
`
`
`Page 3 of 12
`
`

`

`Logistics, LLC. Defendant Herrera may be served with process at his residence 322 Alyse Rd.,
`
`Roanoke, TX 76262. SERVICE OF PROCESS IS HEREBY REQUESTED.
`
`
`
`IV.
`
`JURISDICTION
`
`13.
`
`This enforcement action is brought by Attorney General Ken Paxton, through his
`
`Consumer Protection Division, in the name of the STATE OF TEXAS and in the public interest
`
`pursuant to the authority granted by §17.47 of the DTPA upon the grounds that the Defendants
`
`have engaged in false, deceptive, and misleading acts and practices in the course of trade and
`
`commerce as defined in, and declared unlawful by, §17.46 of the DTPA. In enforcement suits filed
`
`pursuant to §17.47 of the DTPA, the Attorney General is authorized to seek, inter alia, civil
`
`penalties and injunctive relief.
`
`14.
`
`Defendants are doing business in Texas and are subject to both general and specific
`
`personal jurisdiction of this Court.
`
`V.
`
`VENUE
`
`15.
`
`Venue of this suit lies in Dallas County, Texas under § 17.47(b) of the DTPA,
`
`because it is the Defendants principal place of business, transactions made part of this suit occurred
`
`in Dallas County, Texas, and Defendants engaged in trade and commerce in Dallas County, Texas.
`
`
`
`VI. ACTS OF AGENTS
`
`16. Whenever in this Petition it is alleged that Defendants did any act, it is meant that
`
`the named Defendants performed or participated in the act, or the named Defendants’ officers,
`
`agents, partners, trustees, or employees performed or participated in the act on behalf of and under
`
`the authority of Defendants.
`
`
`
`VII. TRADE AND COMMERCE
`
`17.
`
`At all times described below, Defendants and their agents have engaged in conduct
`
`State v. KWEST, et al
`Plaintiff’s Original Petition
`
`
`
`Page 4 of 12
`
`

`

`which constitutes “trade” and “commerce” defined in § 17.45(6) of the DTPA as follows:
`
`“Trade” and “commerce” mean the advertising, offering for sale, sale, lease, or
`distribution of any good or service, of any property, tangible or intangible, real,
`personal, or mixed, and any other article, commodity, or thing of value, wherever
`situated, and shall include any trade or commerce directly or indirectly affecting
`the people of this state.
`
`
`VIII. CLAIM FOR RELIEF
`
`18.
`
`The State seeks monetary relief—including penalties, costs, expenses, and
`
`
`
`attorneys’ fees—in excess of $250,000 and that could exceed $1,000,000.
`
`19.
`
`The State also seeks non-monetary, injunctive relief.
`
`IX.
`
`FACTUAL ALLEGATIONS
`
`20.
`
`In early 2021, the global market was experiencing a commercial shortage of
`
`computer graphic cards, also known as GPUs. GPUs were in high demand as a result of COVID-
`
`19, which caused a significantly low supply in the market.
`
`21.
`
`Defendants took advantage of the demand for GPUs and began advertising GPUs
`
`for sale to consumers in February 2021. Defendants claimed to have procured a shipment of GPUs
`
`outside of the United States that were significantly reduced in price.
`
`22.
`
`The GPUs were priced 60% under market value, with orders ranging from $400.00
`
`to $25,000.00. At such a low price point, Defendants were able to sell a large quantity of GPUs
`
`between February 2021 and June 2021, totaling to approximately $10,329,750.00 to Defendants
`
`for the sale of the GPUs.
`
`23.
`
`Consumers who purchased the advertised GPUs, were told by the Defendants that
`
`orders would be delivered within three to four weeks. However, Defendants never fulfilled the
`
`consumer orders.
`
`24.
`
`After three to four weeks, absent delivery, consumers inquired, and Defendants
`
`State v. KWEST, et al
`Plaintiff’s Original Petition
`
`
`
`Page 5 of 12
`
`

`

`began their dilatory tactics. At the outset, Defendants communicated with a limited number of
`
`individual consumers regarding the shipping delays, telling them that they were due to processing
`
`issues.
`
`25.
`
`Later, Defendants advised some consumers that their distributor, TG Investors
`
`Group, LLC, based in Allen, Texas, was experiencing issues with U.S. Customs at the water border
`
`in Houston, Texas, while Defendants notified other consumers that the delayed delivery was
`
`actually due to the Suez Canal ship blockage.
`
`26. Over the course of a four months of delay and dilatory tactics, Defendants
`
`continued to respond to consumers with a variety of excuses all centered around alleged shipment
`
`delays by U.S. customs. By May 2021, Defendants sent a series of emails to consumers stating
`
`that the GPUs passed U.S. Customs and would be shipping within the week. However, the GPUs
`
`were not shipped.
`
`27.
`
` Absent the promised delivery in May 2021, consumers received another email in
`
`early June 2021 stating that the consumers’ GPU orders were in Defendants’ possession and would
`
`ship within the coming weeks. Again, the GPUs were not shipped to consumers.
`
`28.
`
`Finally, on June 29, 2021 – after months of excuses and promises to ship the
`
`products – Defendants sent a final email to consumers, containing the revelation that their
`
`distributor offered a fraudulent deal to Defendants. Defendants further notified consumers for the
`
`first time that ongoing litigation existed against the distributor and advised consumers to file a
`
`chargeback with their credit cards in order to receive refunds.
`
` 29. Defendants filed suit against the distributor on June 24, 2021. The petition, which
`
`was verified and sworn by Defendant Lee, made several assertions demonstrating Defendants’
`
`misleading, deceptive, and fraudulent business practices. Namely, Defendants pled that the parties
`
`State v. KWEST, et al
`Plaintiff’s Original Petition
`
`
`
`Page 6 of 12
`
`

`

`entered into an agreement on March 3, 2021. All the while, Defendants had already been
`
`advertising, selling, and promising 3-4-week product delivery in early February 2021, all without
`
`having procured a single GPU.
`
`30.
`
`Additionally, Defendants pled that within the agreement with the distributor,
`
`delivery of the GPUs would be up to 45 days from the date of payment. Yet, Defendants continued
`
`to promise 3–4-week delivery windows to consumers, and in several instances, lied to consumers
`
`by telling them that the GPUs were in their possession.
`
`31.
`
`From the total payments made to the distributor, Defendants sold in or around
`
`$10,329,750.00 worth of GPUs that were never delivered or refunded to consumers.
`
`32.
`
`In total, the State received 43 consumer complaints, the Better Business Bureau
`
`(“BBB”) received 53 consumer complaints, and the Federal Trade Commission (“FTC”) received
`
`197 complaints related to Defendants’ conduct.
`
`33.
`
`Defendants misled consumers by misrepresenting possession and quantity of the
`
`product, failed to deliver products as advertised, and refused to honor requests to cancel orders and
`
`issue refunds when products were not delivered.
`
`X.
`
`FALSE, MISLEADING, OR DECEPTIVE ACTS
`
`The State incorporates and adopts by reference the allegations contained in each
`
`34.
`
`and every preceding paragraph of this Petition.
`
`35.
`
`The Texas Deceptive Trade Practices Act prohibits all false, misleading, or
`
`deceptive acts or practices in the conduct of any trade or commerce.
`
`36.
`
`Defendants, as alleged herein, have in the course of trade and commerce engaged
`
`in false, misleading, and deceptive acts and practices declared unlawful in section 17.46(a) of the
`
`DTPA, including by engaging in conduct specifically defined to be false, deceptive, or misleading
`
`State v. KWEST, et al
`Plaintiff’s Original Petition
`
`
`
`Page 7 of 12
`
`

`

`by section 17.46(b) such as:
`
`a. Misrepresenting the availability of the product during sales transactions with
`
`consumers and refusing to honor consumers’ requests to cancel and issue
`
`refunds when the products were not delivered, in violation of DTPA section
`
`17.46(a);
`
`b. Causing confusion or misunderstanding as to the source, sponsorship, approval,
`
`or certification of goods or services, in violation of DTPA section 17.46(b)(2);
`
`c. Advertising goods or services with intent not to sell them as advertised, in violation
`
`of DTPA section 17.46(b)(9); and
`
`d. Failing to disclose information concerning goods or services which was known
`
`at the time of the transaction if such failure to disclose such information was
`
`intended to induce the consumer into a transaction into which the consumer
`
`would not have entered had the information been disclosed, in violation of
`
`DTPA section 17.46(b)(24).
`
`XI.
`
`PRAYER FOR RELIEF
`
`37.
`
`The State incorporates and adopts by reference the allegations contained in each
`
`
`
`and every preceding paragraph of this Petition.
`
`
`
`38.
`
`The State prays that Defendants be cited according to the law to appear and that
`
`after due notice and hearing a temporary injunction be issued, and that upon final hearing a
`
`permanent injunction be issued, restraining and enjoining Defendants, its officers, agents, servants,
`
`employees and attorneys and those persons in active concert or participation with Defendants who
`
`receive actual notice of the injunction by personal service or otherwise from engaging in false,
`
`misleading or deceptive acts and practices declared to be unlawful by the DTPA, including but not
`
`State v. KWEST, et al
`Plaintiff’s Original Petition
`
`
`
`Page 8 of 12
`
`

`

`limited to:
`
`a.
`
`Advertising, selling, or offering to provide – via mail, the internet, phone or
`
`through other means – any goods, unless at the time of the advertisement,
`
`Defendants have a reasonable basis to expect that the goods will be
`
`provided:
`
`i. within the time represented; or
`
`ii. if no time is represented, within thirty (30) days after receipt of a
`
`completed order;
`
`b.
`
`Failing to offer, in writing, to a consumer, without a consumer’s prior
`
`demand and within a reasonable time after Defendants first become aware
`
`of their inability to provide goods within the represented timeframe, an
`
`option for a consumer to consent to a delay in shipping or to receive a full
`
`refund in exchange for cancelling an order. Said offer shall not exceed thirty
`
`(30) days and shall provide a consumer with definite revised shipping date;
`
`c.
`
`Accepting compensation in exchange for goods, unless Defendants have a
`
`reasonable basis to expect that she will be able to provide such goods:
`
`i. within the time represented; or
`
`ii. if no time is represented, within thirty (30) days after receipt of a
`
`completed order;
`
`d.
`
`Failing to notify consumers that Defendants are canceling an order and
`
`sending a refund within the time Defendants would have sent a notice of
`
`delay;
`
`e.
`
`Failing to cancel an order and providing a prompt refund if:
`
`State v. KWEST, et al
`Plaintiff’s Original Petition
`
`
`
`Page 9 of 12
`
`

`

`i. a consumer exercises an option to cancel pursuant to Defendants’
`
`refund policy and before Defendants ship goods;
`
`ii. a consumer does not respond to Defendants’ first notice of a definite
`
`revised shipment date of 30 days or less and Defendants have not
`
`shipped goods or received the consumer’s consent to a further delay
`
`by the definite revised shipment;
`
`iii. a consumer does not respond to Defendants’ notice of a definite
`
`revised shipment date of more than 30 days (or notice that
`
`Defendants are unable to provide a definite revised shipment date)
`
`and Defendants have not shipped the goods within 30 days of the
`
`original shipment date;
`
`iv. a consumer consents to a definite delay and Defendants have not
`
`shipped or obtained the consumer’s consent to any additional delay
`
`by the shipment time to which the consumer consented;
`
`v. Defendants have not shipped or provided the required delay or
`
`renewed option notices on time; or
`
`vi. Defendants have determined that it will never be able to ship the
`
`merchandise; and
`
`f.
`
`Failing to clearly and conspicuously disclose on Defendants’ website, prior
`
`to a consumer making a purchase, Defendants’ refund policy. Such
`
`disclosures include, but are not limited to, “all sales final” policies, if any.
`
`39.
`
`Plaintiff further prays that upon final hearing, this Court will order the following:
`
`a.
`
`Award money damages and restitution of monies paid by consumers;
`
`State v. KWEST, et al
`Plaintiff’s Original Petition
`
`
`
`Page 10 of 12
`
`

`

`b.
`
`Adjudge against Defendants civil penalties in favor of the State in the
`
`amount of not more than $10,000 per violation of the DTPA;
`
`c.
`
`Adjudge against Defendants civil penalties in favor of the State an
`
`additional amount of not more than $250,000 per violation of the DTPA,
`
`when the act or practice that acquired or deprived money or other property
`
`from consumers who were 65 years of age or older when the act or practice
`
`occurred;
`
`d.
`
`Order Defendants to pay the State’s attorneys’ fees and cost of court
`
`pursuant to Tex. Gov’t Code § 402.006(c);
`
`e.
`
`f.
`
`Order Defendants to pay both pre-judgment and post-judgment interest on
`
`all money awards as provided by law; and
`
`Grant all other and further relief the State may show itself entitled.
`
`
`
`Respectfully submitted,
`
`KEN PAXTON
`Attorney General of Texas
`
`
`BRENT WEBSTER
`First Assistant Attorney General
`
`GRANT DORFMAN
`Deputy First Assistant Attorney General
`
`SHAWN E. COWLES
`Deputy Attorney General for Civil Litigation
`
`STEVEN ROBINSON
`Division Chief, Consumer Protection Division
`
`
`
`
`
`
`State v. KWEST, et al
`Plaintiff’s Original Petition
`
`
`
`Page 11 of 12
`
`

`

`_
`
`/s/ Joselyn R. Mathews_
`JOSELYN R. MATHEWS
`Assistant Attorney General
`Texas State Bar No. 24129108
`Joselyn.Mathews@oag.texas.gov
`MADISON REIGHTLER
`Assistant Attorney General
`Texas State Bar No. 24132560
`Madison.Reightler@oag.texas.gov
`Office of the Texas Attorney General
`Consumer Protection Division
`P.O. Box 12548
`Austin, Texas 78711
`Phone: (512) 475-4288
`Fax: 512-473-8301
`ATTORNEYS FOR THE STATE
`
`
`
`
`State v. KWEST, et al
`Plaintiff’s Original Petition
`
`
`
`Page 12 of 12
`
`

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