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Life Funding Options Inc. v. Blunt

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

January 30, 2019

Life Funding Options, Inc., Plaintiff,
v.
Latonya Lynn Blunt, Defendant, Latonya Lynn Blunt, Third Party Plaintiff,
v.
SoBell Ridge Corp., Katherine Snyder, Mark Corbett, Upstate Law Group, BAIC, Inc. Andrew Gamber, Candy Kern-Fuller, Life Funding Options, Inc., VFG, Inc., Michelle Plant, and Performance Arbitrage Company, Defendants.

          REPORT OF MAGISTRATE JUDGE

          Kevin F. McDonald, United States Magistrate Judge

         This matter is before the court on the motion to dismiss of third party defendants Candy Kern-Fuller (“Kern-Fuller”) and Upstate Law Group (“Upstate”)[1] (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.

         PROCEDURAL HISTORY

         On 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).[2] 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”) (doc. 87).

         ALLEGATIONS

         Blunt 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).

         Blunt 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. ¶¶ 124-129).

         Blunt 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).

         Regarding 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. 19-3).

         Blunt 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).

         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 ...


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