Smith v. Chapman
| Decision Date | 26 August 2015 |
| Docket Number | DOCKET NO. 3:14-cv-00238-MOC-DSC |
| Court | U.S. District Court — Western District of North Carolina |
| Parties | DOUGLAS R. SMITH, et al., Plaintiffs, v. AVERY CHAPMAN, et al., Defendants. |
THIS MATTER is before the court on Defendant Taryn Hartnett's Motion for Summary Judgment (#89) as to Plaintiff's claims against her made pursuant to the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 (Counts I, III-IV of the Complaint (#1)). Having considered the matter and reviewed the pleadings, and for the reasons stated herein, the court will grant Defendant Hartnett's Motion for Summary Judgment on those RICO claims.
Given that the facts and parties in this case are extensive, the court will only provide a summary of those relevant to the matter currently before the court.
Plaintiffs Douglas Smith and Mary Luczak-Smith, and DRS Family Management, Fortis, Smith Clovis, Clovis, Smith and Sons (all entities founded and/or controlled by Mr. Smith) initiated this action in May 2014 against Avery Chapman, his wife Taryn Hartnett, and Chapman Legal Group (Mr. Chapman's law firm). See (Complaint, #1). The Smiths principally divide their time between Charlotte, North Carolina and Wellington, Florida. (Id. at p. 3). Mr. Chapmanand Ms. Hartnett live in Florida and Mr. Chapman's law office is in Florida. (Id. at p. 4). By 2011, Mr. Chapman was performing substantial legal work for Plaintiffs and other entities associated with Mr. Smith. (Affidavit of Douglas Smith, #112-3 Exhibit A at p. 3). By 2012, and through March 6, 2014, Mr. Chapman was handling virtually all legal matters for Mr. Smith and his related entities. (Id.; 4/27/15 Deposition of Avery Chapman, #112-5 Exhibit D). Ms. Hartnett allegedly furthered these relationships, both socially and professionally, by working for several of Mr. Smith's business entities and maintaining a longstanding friendship with Ms. Luczak-Smith. (4/29/15 Deposition of Taryn Hartnett, #112-3 Exhibit B at p. 4). Ms. Hartnett is a former Bank of America executive with significant business experience. (Corrected Amended Answer, Affirmative Defenses, and Counterclaims of Taryn Hartnett (#100) at p. 16; Affidavit of Douglas Smith, #112-3 Exhibit A at p. 10).
Of additional importance to the claims at issue is the fact that Mr. Smith has a settled trust called DRS 2011 Family Trust, which funds many of the entities at issue in this case, including several companies for which Ms. Hartnett at one time or another served as CEO (GroceryPal LLC, later named AltPay; Vitality Health Systems LLC; and CompleteRX Solutions LLC), as well as Physicians Choice Laboratory Service ("PCLS"), a laboratory testing company. (Affidavit of Douglas Smith, #112-3 Exhibit A at ¶25; Corrected Amended Answer, Affirmative Defenses, and Counterclaims of Taryn Hartnett (#100) at p. 17-18; 20).
A. Legal Claims Asserted
Plaintiffs allege that unbeknownst to them, beginning in 2012 and continuing through March 2014, Mr. Chapman was secretly, and without authorization, misappropriating money from Plaintiffs. Plaintiffs allege that Mr. Chapman improperly overdrew funds from a trustaccount ("Trust Account") set up by Plaintiff for the purpose of making monthly payments to Mr. Chapman for legal services. (Complaint, #1, at ¶45-53; Affidavit of Douglas Smith, #112-3, Exhibit A at p. 7-9). Mr. Smith funded this account; Mr. Chapman had exclusive direct control over transfer of funds out of the Trust Account. (Affidavit of Douglas Smith, #112-3, Exhibit A at p. 7-9). Plaintiffs allege that Mr. Chapman used Trust Account funds to directly pay his personal American Express bills, and buy personal items such as two BMWs, horse trailers, and polo club fees, which benefitted both Mr. Chapman and Ms. Hartnett. (Id.; Complaint, #1, at ¶45-55; 4/29/15 Deposition of Taryn Hartnett, #112-3 Exhibit B at p. 9-16). Plaintiffs also allege that Mr. Smith made a $600,000 loan to Mr. Chapman for the purchase a residence, for which he now seeks repayment. (Complaint, #1, at ¶30-32; Affidavit of Douglas Smith, #112-3 Exhibit A at ¶15-16). The parties agree that no documentation related to the terms of this loan was ever made by either Mr. Chapman or Mr. Smith. (Id.; 4/27/15 Deposition of Avery Chapman, #112-5 Exhibit D at p. 14).
By their complaint, Plaintiffs assert four civil RICO claims against Defendants (only three as to Ms. Hartnett). Such claims largely derive from the unauthorized appropriation of funds from the Trust Account. Plaintiffs also assert claims for fraud, civil conspiracy to commit fraud, conversion, breach of fiduciary duty, constructive fraud, action for accounting, violation of the North Carolina Unfair and Deceptive Trade Practices Act, N.C. Gen. Stat. § 75-1.1, et seq., and unjust enrichment (12 counts in total). As to the matter currently before the court, Defendant Hartnett seeks summary judgment on the RICO claims asserted against her.
Summary judgment shall be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). A factual dispute is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is material only if it might affect the outcome of the suit under governing law. Id.
The movant has the "initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal citations omitted). Once this initial burden is met, the burden shifts to the nonmoving party. That party "must set forth specific facts showing that there is a genuine issue for trial." Id. at 322 n.3. The nonmoving party may not rely upon mere allegations or denials of allegations in his pleadings to defeat a motion for summary judgment. Id. at 324. Instead, that party must present sufficient evidence from which "a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248; accord Sylvia Dev. Corp. v. Calvert Cnty., Md., 48 F.3d 810, 818 (4th Cir. 1995).
When ruling on a summary judgment motion, a court must view the evidence and any inferences from the evidence in the light most favorable to the nonmoving party. Anderson, 477 U.S. at 255. "'Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial.'" Ricci v. DeStefano, 557 U.S. 557, 586 (2009) (quoting Matsushita v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). In the end, thequestion posed by a summary judgment motion is whether the evidence "is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 252.
Plaintiffs have asserted three claims against Defendant Hartnett pursuant to RICO. See (Complaint (#1), Counts I, III, IV). The claims are, generally, rooted in facts related to Mr. Chapman's alleged unauthorized withdrawals from the Trust Account. As to Ms. Hartnett, the allegations are limited to assertions that she traveled to North Carolina with the intent to promote the unlawful conversion of Plaintiff's funds and that she benefitted from the unauthorized Trust Account withdrawals by virtue of her husband buying things for her.
RICO's civil provision, 18 U.S.C. § 1964, provides a cause of action to "[a]ny person injured in his business or property by reason of a violation of [18 U.S.C. § 1962]." Id. Plaintiff alleges that Defendant Hartnett violated § 1962(a), (c), and (d). Section 1962(a) prohibits "any person who has received any income derived ... from a pattern of racketeering activity" from using that money to acquire, establish or operate any enterprise that affects interstate commerce. Id. Section 1962(c) prohibits any person employed by or associated with an enterprise affecting interstate commerce from "conduct[ing] or participat[ing] ... in the conduct of such enterprise's affairs through a pattern of racketeering activity." Id. Finally, section 1962(d) prohibits any person from "conspir[ing] to violate any of the provisions of subsections (a), (b), or (c)." Id.
Case law has established specific requirements for claims brought under these subsections. To allege a violation of § 1962(a), a plaintiff must show: (1) receipt of income from a pattern of racketeering activity, and (2) the use or investment of this income in an enterprise. Busby v. Crown Supply, Inc., 896 F.2d 833, 837 (4th Cir. 1990). As to § 1962(c), a plaintiff must show:"(1) conduct; (2) of an enterprise; (3) through a pattern; (4) of racketeering." Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275 (1985) (internal citations omitted). As for a RICO conspiracy claim under § 1962(d), a plaintiff must show "that each defendant knowingly and intentionally agreed with another person to conduct or participate in the affairs of the enterprise; and ... that each defendant knowingly and willfully agreed that he or some other member of the conspiracy would commit at least two racketeering acts." United States v. Mouzone, 687 F.3d 207, 218 (4th Cir. 2012).
Under RICO, an "enterprise" includes "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). A RICO enterprise is characterized by "continuity, unity, shared purpose and identifiable structure." United States v. Fiel, 35 F.3d 997, 1003 (4th Cir.1994) (citation omitted). "Racketeering activity" is defined as "any act or threat"...
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