Tort/Negligence – RICO – Mail & Wire Fraud – Veterans’ Benefits – Declaratory Judgment

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The alleged intimate involvement of a lawyer and her firm in a scheme to defraud veterans of their pensions is sufficient to state RICO and conspiracy claims against them.

The court denies defendants’ motions to dismiss.

Plaintiffs allege that defendants maintained websites designed to attract veterans in need of money. Plaintiffs contend that defendants promised an up-front lump sum in exchange for the veteran’s agreement to sell a portion of his or her military pension to an investor and to allow defendants to deduct certain fees.

Declaratory Judgment

Plaintiffs seek a declaratory judgment that defendants’ conduct violates the Federal Anti-Assignment Acts.

The moving defendants’ claims that they are not a party to the underlying contracts are immaterial in light of plaintiffs’ allegations that defendants’ conduct (as opposed to the contracts alone) is unlawful. Accordingly, defendants’ motions to dismiss plaintiffs request for a declaratory judgment are denied.

RICO

Plaintiffs allege that defendant Candy Kern-Fuller controlled the IOLTA account through which payments to and from defendants flow in connection with the alleged pension scheme. Plaintiffs further allege that Kern-Fuller assisted veterans in obtaining identification and financial verification documents and sued allegedly defaulting veterans in an effort to enforce the agreements. Plaintiffs have also alleged that defendant Mark Corbett operated and maintained different websites related to the scheme. Accordingly, the court finds that plaintiffs sufficiently alleged that defendants operated or managed a criminal enterprise.

Plaintiffs assert that Kern-Fuller consulted with other defendants in setting the standard terms and conditions used in connection with the transactions and the misleading and deceptive disclosures made to veterans. Plaintiffs also allege that Corbett failed to disclose the effective interest rate plaintiffs would be charged once they entered into the pension agreement. Accordingly, plaintiffs have plausibly alleged that Kern-Fuller and Corbett’s actions caused injury to plaintiffs.

Plaintiffs have alleged that Kern-Fuller and Corbett engaged in an enterprise that coordinated various corporations and websites to buy plaintiffs’ and other veterans’ benefits and funnel the proceeds through Kern-Fuller’s IOLTA account.

Plaintiffs allege that purchasers would wire their investment funds to Kern-Fuller’s IOLTA account. Kern-Fuller would then deduct a percentage for defendants’ commission and wire the commission proceeds to other defendants, including Corbett. Allegedly, Kern-Fuller would then deduct fees from the remainder and then wire the balance to the veteran. Plaintiffs have alleged at least three instances of this type of wire transfer. Corbett and Kern-Fuller are identified with particularity as committing the alleged fraud, in that Kern-Fuller has been identified as the relevant partner of defendant Upstate Law Group. Thus, plaintiffs have specified which defendants made false representations, what those representations were, when the representations were made, how the representations were made, and why the representations were false as required by Rule 9(b), FRCP. Thus, the court finds that plaintiffs have pled their RICO claim with sufficient particularity.

Civil Conspiracy

Plaintiffs allege that defendants are engaged in a civil conspiracy to deprive veterans of their pensions and benefits in violation of the Federal Anti-Assignment Acts.

Although Kern-Fuller and the Upstate Law Group claim third-party immunity for attorneys, plaintiffs have alleged that defendants were engaged in a complex scheme to enrich themselves in violation of federal law. An attorney may be held liable for conspiracy where, in addition to representing his client, he breaches some independent duty to a third person or acts in his own personal interest, outside the scope of his representation of the client.

Contrary to defendants’ contention, the complaint contains numerous allegations separate and apart from the predicate RICO acts, including defendants’ representation of themselves as “partners” or as part of a “team,” as well as other intimate involvement in obtaining plaintiffs’ funds. These allegations constitute sufficient separate acts to state a claim for civil conspiracy.

Plaintiffs’ alleged special damages include financial distress (including the economic losses incurred – directly and indirectly – by virtue of having to pay extortionately high, but undisclosed, rates of imputed interest), emotional distress and mental anguish. Elements of these damages are unique from those damages sought in plaintiffs’ RICO claim. Thus, plaintiffs have adequately pled special damages.

Defendants’ motions to dismiss are denied.

Lyons v. BAIC Inc. (Lawyers Weekly No. 002-082-18, 13 pp.) (Donald Coggins Jr., J.) 6:17-cv-02362; Anne Richardson, Kenton James Skarin, L. Adelaide Anderson, Stephanie Lewis, William Dolan and John Sulau for plaintiffs; Elizabeth LaMance Bakker, J. W. Matthews III, Ralph Lee Gleaton II, David Overstreet, Michael Baxter McCall II and Robert Canna Blain for defendants. D.S.C.