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McFerren v. BAIC Inc.

United States District Court, D. South Carolina, Greenville Division

January 25, 2019

Charlotte McFerren, Billie Lee Green, Augustus Bostick, Jr., Mark Adragna, and Courtney Koepf, Plaintiffs,
v.
BAIC, Inc., VFG, Inc., SoBell Ridge Corp., Financial Products Distributors, LLC, Performance Arbitrage Company, Life Funding Options, Inc., Andrew Gamber, Mark Corbett, Katharine Snyder, Michelle Plant, David Woodard, Candy Kern-Fuller, and Upstate Law Group, Defendants.

          REPORT OF MAGISTRATE JUDGE

          KEVIN F. MCDONALD UNITED STATES MAGISTRATE JUDGE

         This matter is before the court on the motions to dismiss of defendants Candy Kern-Fuller and Upstate Law Group (“Upstate”) (collectively, “the Upstate defendants”) (doc. 45); pro se defendant Mark Corbett (doc. 52); and defendants Performance Arbitrage Company, Inc. (“PAC”), Life Funding Options, Inc. (“LFO”), Katharine Snyder, and Michelle Plant (collectively, “the PAC defendants”) (doc. 78). Pursuant to the provisions of Title 28, United States Code, Section 636(b)(1)(A) and Local Civil Rule 73.02(B)(2)(e) (D.S.C.), all pretrial matters in cases involving pro se litigants are referred to a United States Magistrate Judge for consideration.

         PROCEDURAL HISTORY

         On May 10, 2018, the plaintiffs filed a complaint alleging causes of action for a declaratory judgment that the defendants' conduct violates the Federal Anti-Assignments Acts; for violation of the Racketeer Influenced Corrupt Organizations Act (“RICO”) against individual defendants Gamber, Corbett, Snyder, Plant, Woodard, and Kern-Fuller; and for common law civil conspiracy against all defendants (doc. 1). On August 3, 2018, the Upstate defendants filed a motion to dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) (doc. 45). On August 21, 2018, the plaintiffs filed a response in opposition (doc. 51) to the motion. On August 22, 2018, defendant Corbett, who was at that time represented by counsel, [1] filed a motion to dismiss (doc. 52) based on the legal analysis and arguments set forth in the motion and memorandum filed by the Upstate defendants. On August 28, 2018, the Upstate defendants filed a reply in support of their motion (doc. 53). On September 5, 2018, the plaintiffs file a response in opposition (doc. 57) to defendant Corbett's motion to dismiss. On November 9, 2018, the PAC defendants filed a motion to dismiss for failure to state a claim (doc. 78). On December 10, 2018, the plaintiffs filed their response (doc. 94). On December 19, 2018, a hearing was held on the pending motions in this case and those pending in two related cases: Lyons v. BAIC, 6:17-cv-2362-DCC-KFM (“the Lyons case”), and Life Funding Options, Inc. v. Blunt, 6:18-cv-944-DCC-KFM (“the Blunt case”).

         ALLEGATIONS

         The five plaintiffs in this case are military veterans who were honorably discharged from the United States Army or Navy. They receive either military retirement pay subject to 37 U.S.C. § 701 or military disability benefits subject to 38 U.S.C. § 5301. The plaintiffs contracted to sell portions of their fixed income streams of retirement or disability benefits over a period of months or years in exchange for lump sum payments from willing buyers. The plaintiffs allege that the defendants operated a coordinated scheme in which websites are used to generate leads on veterans who may need money. Thereafter, brokers and salespeople, such as defendant Corbett, follow up with the leads, sending forms for the veteran to complete. The Upstate defendants[2] make inquiries about the veteran's financial circumstances, benefits, and physical health after receiving the appropriate authorizations. The defendants compile a list of the veteran's creditors and require the veteran to pay off those debts with his or her lump sum payment. The defendants facilitate the payments to the creditors. The veteran either obtains a life insurance policy or executes an “Option to Purchase Source Defaulted Structured Asset Agreement” (“Option Agreement”) with defendant PAC, which is operated by defendants Snyder and Plant. The life insurance policy, if any, pays off the veteran's loan contract in the event of the veteran's death. The Option Agreement also pays off the veteran's loan contract in the event of the veteran's death. The veteran is told by defendants Corbett, BAIC, Inc., VFG, Inc., or SoBell Ridge Corp. that a purchaser has been found to buy his or her benefits. The veteran and the purchaser execute a contract for sale of payments and security agreement, using form contracts supplied by the defendants. The purchaser wires a lump sum to defendant Upstate's IOLTA account. The Upstate defendants then deduct 40-50% of the lump sum as a “commission, ” which is distributed among the defendants. The Upstate defendants then pay the veteran's existing creditors, deduct other fees and costs, and remit the remainder to the veteran via wire transfer. If the veteran stops making payments under his or her contract, defendants PAC, LFO, Financial Products Distributors, Kern-Fuller, and/or Upstate send collection notices to the veteran. If the purchaser has executed a default buyback agreement with defendant PAC, then PAC or its successor in interest, i.e., LFO (whose agent for service is Kern-Fuller), may sue the veteran (doc.1, comp. ¶¶ 40-49).

         APPLICABLE LAW AND ANALYSIS Rule 12(b)(6)

         “The purpose of a Rule 12(b)(6) motion is to test the sufficiency of a complaint.” Williams v. Preiss-Wal Pat III, LLC, 17 F.Supp.3d 528, 531 (D.S.C. 2014) (quoting Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999)). Rule 8(a) sets forth a liberal pleading standard, which requires only a" ‘short and plain statement of the claim showing the pleader is entitled to relief,' in order to ‘give the defendant fair notice of what . . . the claim is and the grounds upon which it rests.'" Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). “[T]he facts alleged ‘must be enough to raise a right to relief above the speculative level' and must provide ‘enough facts to state a claim to relief that is plausible on its face.'" Robinson v. American Honda Motor Co., Inc., 551 F.3d 218, 222 (4th Cir. 2009) (quoting Twombly, 550 U.S. at 555, 570). “The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted).

         “In deciding whether a complaint will survive a motion to dismiss, a court evaluates the complaint in its entirety, as well as documents attached or incorporated into the complaint.” E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 448 (4th Cir. 2011). The court may consider such a document, even if it is not attached to the complaint, if the document “was integral to and explicitly relied on in the complaint, ” and there is no authenticity challenge. Id. at 448 (quoting Phillips v. LCI Int'l, Inc., 190 F.3d 609, 618 (4th Cir. 1999)). See also Int'l Ass'n of Machinists & Aerospace Workers v. Haley, 832 F.Supp.2d 612, 622 (D.S.C. 2011) (“In evaluating a motion to dismiss under Rule 12(b)(6), the Court . . . may also ‘consider documents attached to . . . the motion to dismiss, so long as they are integral to the complaint and authentic.'”) (quoting Sec'y of State for Def. v. Trimble Navigation Ltd., 484 F.3d 700, 705 (4th Cir. 2007)).

         Rule 9(b)

         Although “[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally, ” when a party alleges “fraud or mistake, ” he or she “must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). Particularity requires that the claimant state “the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.” Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999) (quoting 5 Charles Alan Wright and Arthur R. Miller, Federal Practice and Procedure: Civil § 1297 at 590 (2d 1990)). A primary purpose of Rule 9(b) is to ensure “that the defendant has sufficient information to formulate a defense by putting it on notice of the conduct complained of.” Id. (internal citations omitted). Lack of compliance with Rule 9(b)'s pleading requirements is treated as a failure to state a claim under Rule 12(b)(6). See United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 901 (5th Cir. 1997).

         Order in the Lyons Case

          As noted above, this case is related to two other cases, the Lyons case and the Blunt case, which are also pending before the Honorable Donald C. Coggins, Jr., United States District Judge. In Lyons, another group of veterans made substantially similar allegations and brought the same causes of action as those alleged in this case. Also, many of the same defendants are named in the Lyons case. See Lyons, C.A. No. 6:17-cv-2362-DCC-KFM, doc. 1. On April 12, 2018, Judge Coggins denied the motions to dismiss filed by the Upstate defendants and Corbett in the Lyons case. See Lyons, 2018 WL 1762550 (D.S.C. Apr. 12, 2018). As set out below, the motions to dismiss filed in the instant case should be denied for the same reasons found by Judge Coggins in Lyons. See id.

         Federal Anti-Assignment Acts

          Count I of the plaintiffs' complaint seeks a declaratory judgment under 28 U.S.C. § 2201 and Federal Rule of Civil Procedure 57 that the defendants' conduct violates 38 U.S.C. § 5301 and 37 U.S.C. § 701, collectively referred to as the Federal Anti-Assignment Acts (doc. 1, comp. ¶¶ 130-135). Specifically, 38 U.S.C. § 5301(a)(1) states, “Payments of benefits due or to become due under any law administered by the Secretary shall not be assignable except to the extent specifically authorized by law . . . .” The complaint alleges that plaintiffs McFerren, Bostick, Adragna, and Koepf receive disability benefits subject to this provision (doc. 1, comp. ¶ 36). Similarly, 37 U.S.C. § 701(a) states, “[A] commissioned officer of the Army, Navy, Air Force, or Marine Corps may transfer or assign his pay account, when due and payable.” The Fourth Circuit Court of Appeals has held that this use of the phrase “when due and payable” means that a series of retirement payments cannot be sold or assigned in advance. See In re Moorhous, 108 F.3d 51, 54-56 (4th Cir. 1997).The complaint alleges that plaintiff Green receives retirement pay subject to this provision (doc. 1, comp. ¶ 37). Also, 37 U.S.C. § 701(c) states, “An enlisted member of the Army, Navy, Air Force, or Marine Corps may not assign his pay, and if he does so, the assignment is void.” The complaint alleges that plaintiff Bostick ...


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