United States District Court, D. South Carolina, Greenville Division
REPORT OF MAGISTRATE JUDGE
F. McDonald, United States Magistrate Judge
matter is before the court on the motion to dismiss of third
party defendants Candy Kern-Fuller
(“Kern-Fuller”) and Upstate Law Group
(“Upstate”) (doc. 41). Third party defendant Mark
Corbett is proceeding pro se in this matter.
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.
February 26, 2018, Life Funding Options, Inc.
(“LFO”) filed a summons and complaint in the
Greenville County Court of Common Pleas against Latonya Lynn
Blunt (“Blunt”), alleging claims for breach of
contract, specific performance, constructive trust,
conversion, and unjust enrichment (doc. 1-1). On April 6, 2018,
Blunt removed this case to federal court based on subject
matter and diversity jurisdiction (doc. 1). On May 7, 2018,
LFO filed an amended complaint (doc. 10). On May 21, 2018,
Blunt filed an answer to the amended complaint along with
counterclaims and a third party complaint seeking a
declaratory judgment that LFO's and the third party
defendants' conduct violates the Federal Anti-Assignments
Act and causes of action for violation of the Racketeer
Influenced Corrupt Organizations Act (“RICO”) and
for common law civil conspiracy (doc. 19). On August 16,
2018, third party defendants Kern-Fuller and Upstate
(collectively, “the moving defendants”) filed a
motion to dismiss for failure to state a claim pursuant to
Federal Rule of Civil Procedure 12(b)(6) (doc. 41). On August
30, 2018, Blunt filed her response in opposition (doc. 43).
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 McFerren v. BAIC,
6:18-1298-DCC-KFM (“the McFerren case”)
enlisted in the United State Army on July 13, 2004, and
served in Iraq in 2006 (doc. 19, 3rd p. comp.
¶ 87). She received a permanent medical and honorable
discharge on April 23, 2009, for post-traumatic stress
disorder (“PTSD”) (id. ¶¶
88-89; doc. 19-5 at 15). She receives military disability
benefits (doc. 19, 3rd p. comp. ¶ 75). In
July 2015, Blunt entered into an agreement to sell or assign
60 months of her military disability benefits to purchaser
John Battaglia in the amount of $473.13 per month
(id. ¶¶ 7-8; see also docs. 10-1,
10-2). Battaglia assigned his rights under the contract and
security agreement to LFO, at some point after execution of
the same (doc. 10, amended comp. ¶ 6). In total,
Battaglia invested $24, 566.72 pursuant to this agreement, of
which Blunt received a lump sum payment of $7, 694.74
(id. ¶ 8). The plaintiff made six payments
totaling $2, 838.78 before she stopped making payments
(id. ¶ 12; doc. 19, 3rd p. comp.
¶¶ 26, 110).
alleges that the sale or assignment of military disability
benefits is strictly governed and prohibited by 38 U.S.C
§ 5301, referred to as the Federal Anti-Assignment Act
(doc. 19, 3rd p. comp. ¶¶ 70, 101). She
further alleges that the moving defendants utilized and
maintain an IOLTA account as the conduit through which a
purchaser deposited a lump sum from which undisclosed
commissions were disbursed to co-defendants, as the
“agents, intermediaries, or brokers, ” and a
fraction was ultimately disbursed to the veteran. She further
alleges that payments to and from this account were made
either via wire or mail transfer (id. ¶¶
alleges that she was required to sign an Electronic Funds
Transfer Authorization Agreement (doc. 19-4), and she also
had to verify that her “bank accepts direct wires,
” or else she could “be charged an additional
wire fee from [her] proceeds as reimbursement for charges
paid by [Upstate] on [her] behalf” (doc. 10-4 at 2).
Battaglia wired a lump sum of $24, 566.72 to the moving
defendants' IOLTA account (doc. 19, 3rd p.
comp. ¶¶ 93, 108). Blunt alleges that the moving
defendants then deducted approximately $11, 366.72 as
commission and compensation to agents and intermediaries
(id. ¶ 108). Other payments were made to
Blunt's creditors and toward an initial month's
payment and the Option to Purchase Source Defaulted
Structured Asset Agreement (doc. 10, amended comp. ¶ 8).
As noted above, after all deductions, Blunt received $7,
694.74 (doc. 19, 3rd p. comp. ¶ 109).
the monthly benefits payments, Blunt alleges that, under the
alleged scheme, veterans must prove to the moving defendants
that they have instructed the Veterans Administration
(“VA”) to deposit the veteran's entire
monthly benefit into the moving defendants' IOLTA account
(id. ¶ 125). The VA only allows deposits into
checking or savings accounts, and thus likely would refuse
such instructions (id.). Accordingly, the plaintiff
alleges that veterans are told to make the change online
rather than over the phone and to indicate (incorrectly) that
the IOLTA account is a checking account (id.).
Following the deposit and later disbursement of the lump sum,
Blunt's disability payments were paid into this account
each month, and the moving defendants then deducted and wired
the agreed upon amount to the purchaser with the remainder
wired to Blunt (id. ¶¶ 108, 129; doc.
further alleges that the moving defendants assisted their
co-defendants in obtaining the veteran's identity and
financial verification, confirming veteran's income, and
facilitating execution of the contracts (doc. 19,
3rd p. comp. ¶¶ 102-111; docs. 19-4,
19-5, 19-7), and they are also listed as part of the
transaction or sales assistance team (doc. 10-3; doc. 19,
3rd p. comp. ¶ 104). Blunt claims that she
was required to grant permission to Upstate, as well as
SoBell and Performance Arbitrage Company, to investigate her
credit history, question her employment and personal
references regarding her credit history, and conduct
background checks (doc. 19-4), and she was required to
authorize Upstate, among others, to share or release her
credit and financial information, medical information, and
all private or confidential information (doc. 19-5). Blunt
was also required to sign an acknowledgment that
“[p]ayments will be received and serviced by the Escrow
Company [defined in ¶ 4 as Upstate] in connection with
the closing of the sale of the payments” (doc. 19-7).
Blunt alleges that when she stopped making payments on the
loan, the moving defendants sent collection notices to her
(doc. 19, 3rd p. comp. ¶ 110). She further
alleges that if a purchaser has executed a default buyback
agreement with Performance Arbitrage Company, then it or its
successor in interest, LFO (whose agent for service is
Kern-Fuller), may sue the veteran, as LFO filed suit against
Blunt in the present matter (id. ¶ 111).
LAW AND ANALYSIS
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
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)).
“[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).