Conservation Nonprofit Seeks Dismissal of Conservation Easement Suit

ANDREW LECHTER, et al.
Plaintiffs,
v.
APRIO, LLP f/k/a HABIF, AROGETI & WYNNE, LLP, et al.,
Defendants.

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION

MOTION TO DISMISS BY ATLANTIC COAST CONSERVANCY, INC.
AND DR. ROBERT D. KELLER

Defendants Atlantic Coast Conservancy, Inc. (“ACC”) and Dr. Robert D. Keller (“Dr. Keller”), pursuant to Fed. R. Civ. P. 8, 9(b) and 12(b)(6), hereby move the Court to dismiss all the claims against ACC and Dr. Keller as time-barred by the applicable statutes of limitations. Besides being too late, Plaintiffs' shotgun Complaint, lacking in the required specificity and particularity, fails to state any plausible claim upon which relief may be granted against ACC or Dr. Keller, so it must be dismissed. Plaintiffs' federal RICO claims also fail as a matter of law because securities fraud cannot constitute a predicate act for RICO. In support of this Motion, CC and Dr. Keller submit and rely on their accompanying Memorandum of Law.

Dated: August 7, 2020

SMITH, GAMBRELL & RUSSELL, LLP

Colin Đặng Delaney
Georgia Bar No. 216858
Gregory K. Smith
Georgia Bar No. 658363
Anthony J. Rollins
Georgia Bar No. 613746
SMITH, GAMBRELL & RUSSELL, LLP
Promenade, Suite 3100
1230 Peachtree Street, NE
Atlanta, Georgia 30309-3592
Telephone: 404-815-3500
Facsimile: 404-815-3509
Email: cdelaney@sgrlaw.com
Email: gsmith@sgrlaw.com
Email: ajrollins@sgrlaw.com

Attorneys for Defendants
Atlantic Coast Conservancy, Inc. and Dr. Robert D. Keller

MEMORANDUM OF LAW IN SUPPORT OF MOTION TO DISMISS
BY ATLANTIC COAST CONSERVANCY, INC. AND DR. ROBERT D. KELLER

INTRODUCTION

Plaintiffs allege a vast conspiracy to defraud them of their investments in property-owning LLC's through Promotional Materials offering the prospect of substantial profits in the form of pass-through tax deductions worth multiples of their investments. Plaintiffs allege the promoters and others who participated in offering these investments, now derisively called tax shelters, knew or should have known the deductions for making charitable contributions of conservation easements were doomed to be disallowed. In spinning this yarn, Plaintiffs never own up to their own role in seeking a tax shelter — what they hoped to gain and what they knew about the risks. Plaintiffs were no babes in the woods. They were willing participants, well-heeled accredited investors ably counseled by their own advisors. Long after the deductions were disallowed, now that penalties and interest are threatened, Plaintiffs are casting about for somewhere to shift the blame.

By going after the conservation groups who received the charitable donations, Plaintiffs' ire is entirely misdirected. The Atlantic Coast Conservancy (“ACC”) and Dr. Keller's mission is to conserve land, not reduce anyone's taxes. Accordingly, they had a very limited role in the investments at issue. ACC inspects the land, identifies the conservation purposes to be served, receives the donation of the land or an easement, documents the condition of the land at the time of the gift, cares for the land thereafter, and religiously stays out of whatever the donor, or investors in the donor, may be doing with their taxes. The promotion of the donation to investors is a further step removed from ACC, the charity receiving the donation. The investors did not deal with ACC or Dr. Keller at all. The LLC, which did deal with ACC when giving the gift, warranted it relied on its own lawyers, accountants, tax advisors, and appraisers, without any involvement by ACC and Dr. Keller.

If obtaining a tax deduction motivated the LLC's, or their investors, to donate a conservation easement on land to ACC, that's between them and the government. If the deduction is not what the donors hoped, then, again, that's between them and the government. ACC and Dr. Keller do not get involved with what the donor or the investors are claiming on their taxes. The donor LLC expressly warranted and represented no reliance on ACC for anything to do with tax matters, deductibility, or the value of the contribution. The allegations in the investors' Complaint make the donor's representation to ACC a lie and turn ACC and Dr. Keller, the innocent conservationists here, into victims of the donor's fraud. This cannot be the basis for an actionable claim.

FACTUAL ALLEGATIONS

A. ACC and Dr. Keller's singular mission: conserve land for posterity.

ACC is a Georgia non-profit corporation that conserves and protects natural resources across the southeastern United States by receiving donations of interests in land, then looking after donated land to ensure the conservation purposes are being served. (Doc. 1 ¶¶ 33, 57(e).) Dr. Robert D. Keller, Ph.D., a conservation biologist, is the President of ACC. (Id. ¶ 34.)

ACC conserves land donated through, among other means, a conservation easement. A conservation easement is a voluntary encumbrance that creates an enforceable land preservation agreement between a landowner and a qualified land protection organization (commonly referred to as a land trust) or a government agency. (Id. ¶ 2.) Before receiving a donation, ACC evaluates the land for its potential to preserve natural resources. After a donation, ACC works cooperatively with landowners to manage the conserved land, including natural wetlands and streams and habitats for flora and fauna, in a way designed to protect the land's natural, scenic, and historic values.

B. ACC received only one of the three easements at issue.

Plaintiffs bring various claims relating to investments in three different LLC's that granted three conservation easements on three separate properties they owned. (Doc. 1.) ACC dealt with only one of the LLC's, accepting its donation of a conservation easement on over 1180 acres in Polk County, Georgia. (Id. ¶¶ 100-114.) At the time of its donation in December 2011, ACC's donor, Mossy Rock LLC, had dozens of members, two of whom are named Plaintiffs in this case: Sylvia and Lawson Thompson. (Id. ¶¶ 106, 112.) The other three Plaintiffs allegedly owned interests in other LLCs that owned other property on which conservation easements were granted to another land trust. ACC and Dr. Keller had nothing to do with the others, their LLC's, or their donations. (See id. ¶¶ 70-93, 125-145.) Accordingly, this Motion focuses on the Thompsons' claims related to their investment in Mossy Rock and its easement donation to ACC.

C. The investors receive promotional materials full of warnings.

The Thompsons plead that they received promotional materials (“Promotional Materials”) from non-party Evrgreen regarding the possibility of purchasing membership interests in non-party Mossy Rock. (Id. ¶ 100.) The Promotional Materials, which were dated October 20, 2011, offered accredited investors (17 C.F.R. § 230.501(a)) the opportunity to purchase approximately 95% of the membership interests in Mossy Rock, which owned an undeveloped tract of 1,185.647 acres near Cedartown, Polk County, Georgia (the “Property”). (Doc. 1, ¶ 101, Ex. A hereto (Dr. Keller Dec.) Ex. B thereto, p. 3.)¹ The Promotional Materials were allegedly prepared by non-party Evrgreen and the law firm Smith, Lewis & Haley, LLP, and reviewed and approved by the Atlanta accounting firm Habif Arogetti & Wynne, now known as Aprio. (Doc. 1, ¶ 102.)

The Promotional Materials explained that the Manager of Mossy Rock had investigated several potential uses for the Property and focused on two options: (1) hold the Property for future development, or (2) place a conservation easement on the Property. (Id. ¶ 103(b).) The development option looked to construct at least 158 homes on the Property. (Id. ¶ 103(c).)

For the conservation option, Mossy Rock represented that it “had investigated the feasibility of granting a conservation easement on the property to achieve certain business and tax objectives,” and that it had retained Evrgreen to assist with the evaluation. (Id. ¶ 103(d).) Mossy Rock further indicated that (i) a preliminary study indicated the Property satisfied one or more conservation purposes under Treasury Regulation § 1.170A-14(d); (ii) it and Evrgreen had prepared a draft of a Conservation Easement, which was available for inspection; (iii) it had procured and reviewed a “Preliminary Appraisal Report” for the Property prepared by the Clower Defendants, who concluded that a grant of the conservation easement would entitle Mossy Rock to a tax deduction for a charitable contribution of approximately $17,685,000; and (iv) a conservation easement would permit the Mossy Rock members to receive a charitable contribution deduction equal to more than 2.5 times the amount each member paid to invest in Mossy Rock. (Doc. 1, ¶ 103(e)-(h).)

The Thompsons do not allege ACC or Dr. Keller prepared, approved, or even received those Promotional Materials. The Thompsons' account of their investment in Mossy Rock and its donation of a conservation easement do not describe any representations by ACC. (Id. ¶¶ 100-08.) ACC and Dr. Keller made none.

ACC is mentioned in only two minor respects. First, the Promotional Materials indicated that the LLC had “negotiated with ACC concerning the placement of the conservation easement, if elected by the Manager and supported by the members of Mossy Rock. . . .” (Id. at ¶ 103(d).) Second, the Promotional Materials stated a “preliminary study and inspection of the property by ACC indicated that the property will satisfy one or more of the 'conservation purposes' defined under Treasury [sic] Regulation § 1.170A-14(d).” (Id. ¶ 103(e).) Critically, these allegations concern what non-party Mossy Rock represented to prospective investors, not what ACC represented to investors.

The Promotional Materials are full of disclaimers and warnings, just as would be expected in a private placement memorandum. In sum and substance, the disclaimers and warnings disclose the investment risks and tell investors to assume tax returns will be audited, that all the anticipated tax benefits could be lost, that the company and manager are not dispensing tax advice, and that all investors should consult their own personal legal counsel, tax advisor, or business advisor as to legal, tax, and economic matters and suitability of the investment. (Ex. B hereto (Mr. Delaney Dec.) Ex. A thereto, pp. iii, v, 3, 6-7, 10, 13-21.)

D. The Thompsons purchase membership interests in Mossy Rock.

On December 7, 2011, the Thompsons paid $19,000 for some unspecified number of membership interests in Mossy Rock, “[b]ased upon the Promotional Materials and the Defendants' and Evrgreen's advice and representations confirming these written representations.” (Doc. 1, ¶ 106.) The Complaint does not describe what “advice and representations” were given and made to the Thompsons “confirming” other written representations (presumably in the Promotional Materials), whether any of it was erroneous, who did all this, when it happened, or how the “advice and representations” affected the Thompsons' decision to invest in Mossy Rock or support its donation of a conservation easement to ACC. Besides mentioning non-party Evrgreen (an organization, not a person, of course), the Complaint does not specify who among the dozen-plus “Defendants” delivered all this “advice and representations.” (Id.) The Complaint certainly does not assert that ACC or Dr. Keller gave any advice or made representations to Mossy Rock or the Thompsons about taxes, donation value, or anything else.

E. The Mossy Rock manager and members elect to donate a conservation easement rather than pursue development.

Sometime after the Thompsons' investment, Mossy Rock's manager (also not a party here) decided Mossy Rock should pursue the conservation option for the Property. (Id. ¶ 107.) The Mossy Rock members then voted to follow the manager's recommendation to place a conservation easement on the Property and contribute the easement to ACC. (Id. ¶ 108.)

F. Mossy Rock warrants that ACC made no representations regarding land values or tax matters.

Mossy Rock granted a Conservation Easement Deed to ACC on December 28, 2011. (Id. ¶¶ 112-13.) The Complaint omits critical language appearing in the Conservation Easement Deed. Mossy Rock, the grantor, represented and warranted that it had consulted its own professional advisors and that ACC had not made any representation or warranty to Mossy Rock regarding any entitlement to tax benefits, or the amount thereof, or whether the donation qualifies for certain tax treatment:

24. Legal, Tax and Other Advice. [Mossy Rock] represents that it has consulted [Mossy Rock's] attorney, accountant, and other appropriate experts for advice relating to this Conservation Easement and any potential tax benefits that may inure [Mossy Rock] in connection with this Conservation Easement. [Mossy Rock] warrants, represents and agrees that [ACC] has made no warranty or representations relating to 1) the value of the Property or the methodology or techniques used or useful in ascertaining or appraising the value of the Property (either before or after the granting of this Conservation Easement), 2) any entitlement to tax benefits by [Mossy Rock] or the amount of any such benefits, or 3) whether the conveyance by [Mossy Rock] of this Conservation Easement constitutes a 'qualified conservation contribution' such as defined in Section 170(h) of the Code.

(Ex. A hereto (Dr. Keller Dec.) Ex. A thereto ¶ 24 (emphasis added).) The Deed also contains an integration clause confirming it was the entire agreement with respect to the Easement and it superseded all prior discussions, negotiations, understandings, or agreements. (Id. ¶ 23.6.)

G. ACC documents the condition of the property.

On December 28, 2011, ACC prepared and provided a Baseline Report to Mossy Rock regarding the Property. The Report signed by both Mossy Rock and ACC, states that its purpose is to provide data sufficient to establish the conditions and characteristics of the Property at the time of the donation.(Ex. A hereto (Dr. Keller Dec.) Ex. B thereto p. 1, 22.) The Thompsons do not allege they ever received it, and certainly could not have relied on it when they decided to invest as it was delivered long after they invested.

H. ACC gives Mossy Rock a receipt.

After the easement deed was delivered, ACC gave Mossy Rock an acknowledgment letter confirming the donation — in effect, a receipt. (Ex. A hereto (Dr. Keller Dec.) Ex. A thereto, ¶¶ 6-8, Ex. D.) The letter did not say anything about the value of the donation or the amount of the deduction Mossy Rock or its members could claim for tax purposes.² Instead, the receipt letter confirmed ACC's 501(c)(3) not-for-profit status, acknowledged receipt of a donation of “a conservation easement on 1,185.647 acres of land . . .,” and affirmed that no goods or services were provided by ACC in exchange for Mossy Rock's contribution, making the donation fully tax deductible. (Id. Ex. D thereto.)

I. Aprio prepares tax forms and advises the Thompsons to take a charitable contribution deduction.

In April 2012, the Aprio Defendants, the accountants, prepared and filed Mossy Rock's Form 1065 partnership tax return for 2011 and provided K-1s to each member of Mossy Rock, a pass-through entity for tax purposes.(Doc. 1, ¶¶ 117-18.)The Aprio Defendants advised the Thompsons to report their proportionate share of Mossy Rock's charitable contribution as a deduction on their individual tax return for 2011. (Id. ¶ 118.)

The Aprio Defendants also prepared an IRS form describing Mossy Rock's donation of the conservation easement and ascribing a value to the contribution: IRS Form 8283, for non-cash charitable contributions.(Id. ¶ 116.) The Complaint alleges that the Clower Defendants, the appraisers, and Dr. Keller on behalf of ACC “verified the Appraisal Summary as accurate and signed it under penalties of perjury.” (Id.) Yet a cursory examination of Mossy Rock's Form 8283 reveals that ACC (the Donee) explicitly disclaimed any agreement with the fair market value of the donation claimed by the donor and did not sign it under penalty of perjury:

Furthermore, this organization affirms that in the event it sells, exchanges, or otherwise disposes of the property described in Section B, Par I (or any portion thereof) within 3 years after the date of receipt, it will file Form 8282, Donee Information Return, with the IRS and give the donor a copy of that form. This acknowledgement does not represent agreement with the claimed fair market value.

(Ex. A hereto (Dr. Keller Dec.) Ex. C thereto, p. 2 (emphasis added).) This language was not ACC's insertion especially for Mossy Rock's donation. The IRS form contains that proviso! Per the IRS form language, donees do not subscribe to the donor's claimed value of the gift. (Id.) Plainly, Dr. Keller and ACC did not verify anything about the appraisal.

J. The IRS disallows the charitable deduction.

In April 2014, the Mossy Rock tax matters partner received an IRS notice indicating that its 2011 return had been selected for audit. (Doc. 1, ¶ 120.) In January 2015, the Mossy Rock tax matters partner sent a letter to all members, including the Thompsons, enclosing the IRS revenue agent's report (the “IRS Disallowance Notice”) dated December 11, 2014. (Id. ¶ 122.) That IRS Disallowance Notice concluded that the entire charitable contribution deduction for Mossy Rock would be disallowed at the partnership level for a number of reasons, which disallowance would pass through to the members and thus similarly disallow the deduction claimed on their individual returns. (Id.)

In October 2017, the IRS issued a Final Partnership Administrative Adjustment for Mossy Rock for tax year 2011. (Id. ¶ 124.) In February 2018, Mossy Rock filed a Petition in the United States Tax Court, contesting the final adjustment. See Mossy Rock, LLC v. C.I.R., No. 003478-18 (T.C. filed Feb. 16, 2018). The case remains pending.

K. Over five years after being notified of the IRS's disallowance decision, the Thompsons file suit.

On March 26, 2020, over five years after the Thompsons and the other members of Mossy Rock were notified by Mossy Rock's tax matters partner that the IRS had disallowed the entire charitable contribution deduction, the Thompsons filed the present lawsuit. (Doc. 1, ¶ 122.) The Thompsons did not sue Mossy Rock, its Manager, Evrgreen, and did not purport to sue on behalf of Mossy Rock. (See id.) The Thompsons chose to sue two parties with whom they had no interactions whatsoever: ACC and Dr. Keller.

The Complaint purports to assert the following claims against ACC and Dr. Keller: (i) federal civil RICO, 28 U.S.C. § 1962(c) (Count One); (ii) conspiracy to violate federal RICO, 28 U.S.C. § 1962(d) (Count Two); (iii) Georgia civil RICO (Count Three); (iv) conspiracy to violate Georgia RICO (Count Four); (v) negligent misrepresentation as an alternative to fraud (Count Six); (vi) fraud (Count Nine); (vii) aiding and abetting (Count Ten); and (vii) civil conspiracy (Count Twelve). (Id. pp. 133-75.)

ARGUMENT AND CITATION OF AUTHORITY

I. Complaint should be dismissed for group/shotgun pleading, violation of Rule 9, and because it fails to plead plausible claims for relief.

The Complaint should be dismissed as to ACC and Dr. Keller because it (i) is replete with group/shotgun pleading in violation of Rule 8; (ii) fails to plead fraud with specificity in violation of Rule 9; and (iii) does not state a plausible claim for relief. These failures are so egregious that dismissal is the only appropriate remedy.

A. Group/shotgun pleading.

The Complaint is replete with improper group pleading, often referred to as shotgun pleading, where plaintiffs make allegations collectively against all the “Defendants” generally instead of specifically against each particular defendant. The Eleventh Circuit has explained the problem with shotgun/group pleading:

'Shotgun' pleadings, calculated to confuse the 'enemy,' and the court, so that theories for relief not provided by law and which can prejudice an opponent's case, especially before the jury, can be masked, are flatly forbidden by the [spirit], if not the [letter], of these rules.

Weiland v. Palm Beach County Sheriff's Office, 792 F.3d 1313, 1320 (11th Cir. 2015). After examining different types of impermissible shotgun pleadings, the court concluded that “[t]he unifying characteristic of all types of shotgun pleadings is that they fail to one degree or another, and in one way or another, to give the defendants adequate notice of the claims against them and the grounds upon which each claim rests.” Id. at 1323. The Complaint here uses two different, equally improper, group pleading methods.

First, the five different plaintiffs bringing this action improperly define themselves as one term, “Plaintiffs,” although they invested in entirely different transactions. (Doc. 1, p. 1.) While at times the Complaint uses more specific identifiers like “Thompson Plaintiffs” to describe particular transactions, by and large, and especially in the counts/causes of action, the Complaint uses the term “Plaintiffs” repeatedly as if they all had been affected and aggrieved in the same way by the same parties. (See e.g. id. ¶¶ 262-355.) From a pleading perspective, this is a disaster, as three different sets of named plaintiffs were involved in three different transactions, only one of which ACC or Dr. Keller had any involvement in. Yet, inexplicably in all of the counts “Plaintiffs,” who were involved in different transactions with different land trusts, are suing ACC and Dr. Keller. (See e.g. id. 278, 281, 286.) This manner of pleading creates obfuscation and, through imprecision, would force ACC and Dr. Keller to defend claims based on transactions they had nothing to do with. As such, the Complaint should be dismissed.

Second, throughout the counts/causes of action, the Complaint directs allegations against “Defendants,” which consist of sixteen separate entities and persons, not all of whom participated in the same transactions, without ever specifying which defendant the allegation is actually against. Every single count is infected with this unfixable problem. (Id. ¶¶ 262-355.) As such, ACC and Dr. Keller have no way of knowing what allegations are being made against them. This problem also results in Plaintiffs (presumably all of them) asserting claims against ACC and Dr. Keller that are at best intended to be against other defendants, as they are not supported in the factual allegations section of the Complaint. (Id.) ACC and Dr. Keller are alleged to have dealt with Mossy Rock, and their dealings were limited and focused on receiving the donated easement. (Id. ¶¶ 103(d)-(e), (g)-(h), 104, 108-09, 111, 113-14, 116-17.) Yet, by the device of group pleading, ACC and Dr. Keller stand accused of committing all sorts of bad acts that the factual background section of the Complaint makes clear they had no involvement in.

For instance, the Complaint alleges that the “Defendants” committed fraud by (i) “[a]dvising Plaintiffs and members of the Class to report the charitable contribution deduction on their individual tax returns” (Doc. No. 1, p. 163 (66)); and (ii) “[p]reparing and signing the Syndicate's tax return and individual investors' K-1s reporting the charitable contribution deduction based on the fair market value of the conservation easement determination in the appraisal.” (Id. p. 163, (69).) Obviously, ACC and Dr. Keller didn't prepare tax returns or K-1's. (Id. ¶¶ 118, 121.) The factual allegation section of the Complaint alleges that these acts were performed by the Aprio Defendants. (Id.) But the causes of action assert all “Defendants” did these things. (Id. p. 163 (66), (69).) These are just two of what are literally hundreds of examples of the problems created by the egregious group pleading in the Complaint. (See generally, Doc. 1.)

This impermissible group pleading prevents ACC and Dr. Keller, and any other defendant for that matter, from understanding the claims being alleged against them, and in particular, what acts by each given defendant allegedly gives rise to liability. As such, the Complaint should be dismissed for failure to state a claim.

B. The Complaint fails to plead fraud with sufficient particularity.

Closely associated with the group pleading problem is the Thompsons' failure to comply with Rule 9(b), which requires pleading fraud with heightened particularity. As explained in Large & Gilbert's Motion to Dismiss, Rule 9(b) applies to Plaintiffs' claims for fraud, negligent misrepresentation, and violation of federal RICO and Georgia RICO, because the RICO claims are based on alleged predicate acts of wire fraud and mail fraud. (Doc. No. 81-1, 16.)

The strictures of Rule 9(b) are important because they protect against spurious charges of fraud, and equally important in the RICO context when a plaintiff alleges racketeering through fraud. This Court has held that Rule 9(b) requires a plaintiff to allege: “(1) the precise statements, documents, or misrepresentations made; (2) the time, place, and person responsible for the statement; (3) the content and manner in which these statement misled the [plaintiff]; and (4) what the defendant[ ] gained by the alleged fraud.” Cline v. Advanced Neuromodulation Sys., Inc., 17 F.Supp. 3d 1275, 1287 (N.D. Ga. 2014) (citing Am Dental Ass'n v. Cigna Corp., 605 F.3d 1283 (11th Cir. 2010)); see Curtis Inv. Co., LLC v. Bayerische Hypo-und Vereinsbank, AG, 341 F. App'x 487, 493, 497 (11th Cir. 2009). Courts have also held that when dealing with multiple defendants, “the complaint should inform each defendant of the nature of his alleged participation in the fraud” or RICO, and if not, the claims should be dismissed for failure to comply with Fed. R. Civ. P. 9(b). Ambrosia Coal Const. Co. v. Pages Morales, 482 F.3d 1309, 1317 (11th Cir. 2007).

In the Complaint's factual background section, the Thompsons do not make any allegations that ACC or Dr. Keller represented anything to them. (Doc. 1, ¶¶ 100-19.) In the legal counts, the Thompsons, in combination with the other plaintiffs, throw all of their allegations on all three transactions together into a singular fraud count against the “Defendants.” (Id. ¶¶ 328-34.) That count consists of 77 different acts of fraud against the “Defendants” without a single allegation of when a statement was made, by whom it was made, what was allegedly said and to whom specifically the statement was directed. (Doc. No. 1, pp. 150-75.) ACC and Dr. Keller are left to guess about whether the allegation concerns the Mossy Rock transaction, or a different transaction in which ACC was not involved, and what, if anything, Plaintiffs are alleging ACC or Dr. Keller did with respect to them. This is precisely the sort of “keep them guessing” tactic that Rule 9(b) protects against.

The Count for negligent misrepresentation incorporated the 77 allegations from the fraud count, so the identical problem exists with that count. (Id. ¶¶ 312-20.)

Finally, the RICO count does not identify any fraud with particularity. Instead, in incredibly vague detail, the RICO count refers to racketeering “[t]hrough the fraudulent and wrongful conduct described in the Complaint,” which presumably refers to the 77 ambiguous fraud allegations and perhaps other unidentified allegations the Thompsons or the other Plaintiffs apparently consider fraudulent. (Id. ¶ 266.) Without a doubt, this Complaint in no way complies with Rule 9. Length is no substitute for substance. Therefore, the Thompsons' fraud-based claims (federal and state RICO, conspiracy to commit RICO, fraud, and negligent misrepresentation) should be dismissed.

C. The Complaint fails the Iqbal plausibility test for stating a claim.

“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility standard is not akin to the probability 'requirement,' but asks for more than a sheer possibility that a defendant acted unlawfully.” Id. at 678 (citing Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007)). The facts alleged must show more than a speculative connection between the defendant's conduct and liability.

The Thompsons' scant allegations against ACC and Dr. Keller do not plausibly support the theory of liability set forth in the Complaint. The Thompsons assert that ACC and Dr. Keller were engaged in a vast conspiracy to commit racketeering and fraud — all based upon factual allegations that related solely to ACC's interactions with Mossy Rock, not the Thompsons. (Doc. 1, ¶ 103.) In the Conservation Easement Deed, Mossy Rock affirmatively represented that it relied upon its own tax advisors and experts, and confirmed that no warranty or representation had been made by ACC regarding (i) any entitlement to tax benefits or the amount thereof; (ii) the value of the Property; or (iii) whether the conveyance would constitute a qualified conservation contribution under the IRS Code. (Ex. A hereto (Dr. Keller Dec.) Ex. A thereto, ¶ 24.) The only other allegations against ACC are that after the Thompsons invested in Mossy Rock, ACC (i) signed the 8283 tax form acknowledging receipt of the gift from Mossy Rock which specifically disclaimed any agreement as to the appraisal; (ii) provided a receipt for the donation to Mossy Rock noting that no deduction from any charitable contribution needed to be made for benefits received; and (iii) provided a Baseline Report, also signed by Mossy Rock, providing data sufficient to establish the conditions and characteristics of the Property at the time of the gift.³ (Doc. 1, ¶ 57(e).) From these thoroughly pedestrian events, the Thompsons imagine a vast racketeering conspiracy to dupe investors into tax shelters and run away with their investments, leaving them holding a bag full of penalties and interest. Simply implausible.

It is even more implausible when considering the numerous warnings provided to the Thompsons in the Promotional Materials almost all of which are in all caps:

RECIPIENTS ARE NOT TO CONSTRUE THE CONTENTS OF THIS PPM OR ANY OTHER PRIOR OR SUBSEQUENT COMMUNICATIONS, WHETHER WRITTEN OR ORAL, FROM THE COMPANY OR ANY PERSON ASSOCIATED WITH THIS OFFERING AS LEGAL, TAX, OR INVESTMENT ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS OWN PERSONAL LEGAL COUNSEL, TAX ADVISOR, BUSINESS ADVISOR, AND “PURCHASER REPRESENTATIVE” AS SUCH TERM IS DEFINED IN RULE 501(a) OF REGULATION D UNDER THE SECURITIES ACT) AS TO LEGAL, TAX, ECONOMIC, AND RELATED MATTERS CONCERNING THIS INVESTMENT AND ITS SUSTAINABILITY . . .

YOU SHOULD ASSUME THAT THE INTERNAL REVENUE SERVICE (THE “IRS”) WILL AUDIT THE COMPANY'S TAX RETURNS, AND THAT SUCH AN AUDIT COULD RESULT IN THE LOSS OF SOME OR ALL OF THE TAX BENEFITS ANTICIPATED TO BE DERIVED FROM AN INVESTMENT IN THE COMPANY. . . . ACCORDINGLY, YOU SHOULD REVIEW CAREFULLY THE TAX RISKS DESCRIBED IN THIS OFFERING SUMMARY. . . .

GENERAL CONSIDERATIONS. THERE ARE SIGNIFICANT FEDERAL AND STATE INCOME TAX RISKS ASSOCIATED WITH THE PURCHASE AND OWNERSHIP OF SHARES. THE TAX ASPECTS OF OWNING SHARES ARE COMPLEX, AND ARE NOT FREE FROM DOUBT. NEITHER THE MANAGER NOR THE COMPANY IS OFFERING ANY PROSPECTIVE INVESTOR TAX ADVICE. . . . YOU ARE URGED TO CONSULT WITH YOUR OWN TAX ADVISOR WITH RESPECT TO AN INVESTMENT IN THE UNITS AND VARIOUS RISK FACTORS ASSOCIATED THEREWITH.

(Ex. A hereto (Dr. Keller Dec.), Ex. A thereto, pp. iv, 10 and 19.) In just these three examples, the Thompsons are (i) directed to consult their own legal counsel, tax advisor, and business advisor; (ii) warned that the Promotional Materials are not providing, legal, tax or investment advice; (iii) warned that there are significant income tax risks and the tax aspects are complex; and (iv) affirmatively told to assume the IRS will conduct and audit and that the audit could result in a loss of some or all of their investment. In the face of all this, the Thompsons voted for the conservation easement. It is simply implausible to suggest that there was any conspiracy with anyone, much less that ACC or Dr. Keller were involved in any of it. The Thompsons' complaints are really directed at Mossy Rock and Evrgreen, neither of which they have sued here.

If the Thompsons have something to show the vast racketeering scheme they allege, something that makes it more than rank speculation, they needed to plead it. And they needed to plead how ACC and Dr. Keller allegedly fit into it. This Complaint lacks such allegations, and therefore, should be dismissed. See, e.g., Williams v. Fulton Cnty. Sch. Dist., 181 F. Supp. 3d 1089, 1145-46 (N.D. Ga. 2016) (dismissing conspiracy claims because plaintiffs' factual allegations as to the intent of all defendants' was speculation that is “wholly implausible,” given that plaintiffs only sufficiently alleged intent as to one defendant).

II. Claims are barred by the applicable statutes of limitations.

A. Federal RICO claims (Counts One and Two).

The Thompsons' RICO claims should be dismissed as untimely. Federal civil RICO claims are subject to a four-year statute of limitations. Pac. Harbor Cap., Inc. v. Barnett Bank, N.A., 252 F.3d 1246, 1251 (11th Cir. 2001). “The civil RICO limitations period runs from the moment a diligent plaintiff discovered or should have discovered an injury to itself, not from the time it discovered the pattern of predicate acts.” Curtis Inv. Co., LLC v. Bayerische Hypo-Und Vereinsbank, 1:06-cv-2752-WSD, 2007 WL 4564133, at *9 (N.D. Ga. Dec. 20, 2007), aff'd, 341 F. App'x 487 (11th Cir. 2009). Even where the full extent of the alleged RICO scheme is not discovered until a later date, so long as there were “storm warnings” that should have prompted an inquiry, the RICO statute of limitations begins to run. Youngblood-West v. Aflac Inc., 4:18-cv-83(CDL), 2018 WL 10562576, at *6 (M.D. Ga. Nov. 9, 2018), aff'd, 796 F. App'x 985 (11th Cir. 2019). “Such a storm warning 'need not detail every aspect of the alleged fraudulent scheme.' Rather, a person of ordinary intelligence would consider it 'probable' that fraud had occurred.” Koch v. Christie's Int'l PLC, 785 F. Supp.2d 105, 114 (S.D.N.Y. 2011), aff'd, 699 F.3d 141 (2d Cir. 2012) (internal citations omitted).

The Thompsons filed their Complaint on March 26, 2020, complaining of alleged racketeering that occurred over a limited seven-month window (Sept. 2011-March 2012) over eight years earlier. (Doc. 1, ¶¶ 103(e), 104, 111-13.) The Thompsons pleaded they were injured in 2011 when they made their investment in Mossy Rock. (Id. ¶¶ 100, 106, 181, 239.) And they became aware of their damage around January 12, 2015, when they were alerted that the IRS was disallowing Mossy Rock's tax deduction. (Id. ¶ 122.) The IRS Disallowance Notice is the quintessential storm warning. In it, the IRS notified Mossy Rock that its tax deduction for the easement would be reduced from $17,685,000 to $5,000. (Id.) If fraud is really afoot here — as opposed to a high-risk investment in a property development or a high-risk tax deduction with eyes wide open — a person of ordinary intelligence would have considered it probable, based upon the massive reduction in the allowed deduction — that fraud may have occurred. Such a person would have investigated immediately.

It is important to recognize that the IRS Disallowance Notice for Mossy Rock did not occur in a vacuum, as the Complaint admits. The IRS had issued public notices, reports, and guidance warning about reporting charitable contribution deductions based upon conservation easements as far back as 1984. In that year, “the IRS warned professional advisors and promoters of conservation easements that the overvaluation of charitable contributions was improper and would not be tolerated.” (Doc. 1, ¶ 60; IRS News Release, IR-81-122.) In 2004, the IRS issued another notice that “officially identified conservation easements as purportedly generating deductions that the IRS would carefully scrutinize and eventually disallow if certain circumstances were present, including failure to substantiate the fair market value of the tax benefit and other valuation issues.” (Doc. 1, ¶ 65.) Thus, well before 2015, indeed before the Thompsons invested in membership in Mossy Rock, it was public knowledge that conservation easement donations would be closely examined and were looked upon with skepticism by the IRS. In short, the Thompsons knew going in based both on the Promotional Materials and public pronouncements that investing in Mossy Rock and voting for the Easement was a high-risk endeavor. In that regard, courts have held that the publication of such IRS announcements is, by itself, enough to put a potential plaintiff on notice of a claim regarding a faulty tax strategy. See e.g., Klopfenstein v. Deutsche Bank Securities, Inc., 2014 WL 12521383, at *4 (N.D. Ga. May 13, 2014), aff'd 592 Fed.Appx. 812 (11th Cir. 2014) (holding publication of IRS Notice started statute of limitations for similarly situated tax payers); Bishnu C. Borah, M.D., P.C. v. Monumental Life Ins. Co., No. 04-3617, 2007 WL 1030477, at *4 (E.D. Pa. Apr. 2, 2007) (finding IRS publication was sufficient to put plaintiff on notice of claim despite contrary advice from tax attorney). Under this analysis, the statute of limitations started as soon as the Thompsons made their initial investment in Mossy Rock in 2011.

Regardless of whether the statute of limitations started in December 2011 or January 2015, the four-year period expired before this lawsuit was filed on March 26, 2020. As such, Counts One and Two for federal RICO violations and conspiracy to violate RICO, should be dismissed.

B. The Thompsons' state law claims are also barred by limitations.

The statute of limitations on a Georgia civil RICO claim (Count Five) is five years. O.C.G.A. § 16-14-8. It begins to run “when the plaintiff discovers, or reasonably should have discovered, that he has been injured.” Glock, Inc. v. Harper, 340 Ga. App. 65, 66, 796 S.E.2d 304, 306 (2017). Again, the Thompsons should have discovered the injury no later than when they were notified of the IRS Disallowance Notice in January 2015, and arguably as early as when they made their investment in 2011. As this action was not filed until March 2020, the Georgia RICO claim is time barred.

Similar analysis disposes of the Thompsons' claim for fraud. Fraud is subject to a four-year statute of limitations, O.C.G.A. § 9-3-31, and it begins to run when the fraud is discovered or could have been discovered by the exercise of ordinary care and diligence. Hunter, Maclean Exley & Dunn, P.C. v. Frame, 269 Ga. 844, 847, 507 S.E.2d 411, 413 (1998). This Court previously dismissed a plaintiff's fraud and Georgia RICO claims brought more than 5 years after the IRS published a Notice that it would disallow similarly structured transactions. Klopfenstein, 2014 WL at *4. Here, in addition to being aware of the IRS's distaste for conservation easements and numerous warnings in the Promotional Materials, the Thompsons personally received the IRS Disallowance Notice. That certainly would have prompted a person of ordinary care and diligence to discover the alleged fraud. See id. Therefore, the statute of limitations for fraud ran no later than January 2019.

The claim for negligent misrepresentation is similarly barred. Georgia law provides for a four-year statute of limitations for such claims, O.C.G.A. § 9-3-31, and the statute runs from the time the damage occurs. The Thompsons allege they were damaged when they purchased their membership interest in Mossy Rock in 2011. (Doc. 1, ¶ 319(1).) As such, any claim for negligent misrepresentation expired not later than January 2015, over five years before this action was filed.

C. Untimely claims cannot be saved by invoking tolling.

The Thompsons' claims were not tolled as they contend. (See Compl. ¶¶ 248-61). To begin with, the statute of limitations for the state law claims cannot be tolled under the doctrines of “equitable tolling” or continuous representation because Georgia law does not recognize those doctrines. Stubbs v. Hall, __ Ga. __, 840 S.E.2d 407, 419 (2020); Hunter, Maclean Exley & Dunn, P.C. v. Frame, 269 Ga. 844, 847, 507 S.E.2d 411, 413 (1998)(rejecting the continuous representation rule).

As for tolling based on fraudulent concealment, it is subject to the heightened pleading requirements of Rule 9(b). However, the Thompsons have not pleaded it with particularity. See Rembert v. Flagstar Bank FSB, 2011 WL 13319174, at *6 n. 7 (N.D. Ga. Mar. 22, 2011)(citing cases), report and recommendation adopted, 2011 WL 13319413 (N.D. Ga. June 13, 2011). In fact, the Thompsons failed to plead any actions of concealment by ACC or Dr. Keller. Further, they did not explain how they acted diligently to timely discover their claims given all of the warnings, cautions, and notices. As such, all claims against ACC and Dr. Keller are barred by the applicable statute of limitations.

III. The Complaint fails to state a claim upon which relief can be granted.

In addition to the complete defenses above, the Thompsons' allegations fail to state a claim for relief. ACC and Dr. Keller examine each count below, starting with the Thompsons' claims for fraud (Count IX) and negligent misrepresentation (Count VI), followed by the federal and state RICO and related counts (Counts I-IV) and then conspiracy (Count XII) and aiding and abetting (Count X).

A. The Complaint fails to state an actionable claim for fraud.

1. The Thompsons cannot allege essential elements for a fraudulent representation claim.

Under Georgia law, a fraudulent misrepresentation claim consists of five elements: (1) false representation by defendant; (2) scienter; (3) intent to induce the plaintiff to act or refrain from acting; (4) justifiable reliance by the plaintiff; and (5) damage to the plaintiff. Ades v. Werther, 256 Ga. App. 8, 11, 567 S.E.2d 340, 343 (2002). As to ACC and Dr. Keller, the Thompsons' fraud claim fails in numerous respects.

First and foremost, there is no allegation of a representation made by ACC or Dr. Keller to the Thompsons, much less a false one. ACC's limited interactions were with Mossy Rock. There is no allegation that ACC or Dr. Keller knew or ever dealt with the Thompsons or any of the other members of Mossy Rock.

Moreover, the alleged representation was not of an existing fact, which is required to state a claim, but rather a prediction of the future. The Thompsons' theory is that someone, not ACC or Dr. Keller, represented to them that if the conservation easement was pursued in the future, the Thompsons would ultimately be able to take a charitable deduction when they filed their tax returns. However, a representation as to the future cannot state a claim for fraud, because “[i]t is axiomatic that a false representation made by a defendant, to be actionable, must relate to any existing fact or a past event. Fraud cannot consist of mere broken promises, unfilled predictions or erroneous conjecture as to future events.” Next Century Comm. Corp. v. Ellis, 318 F.3d 1023, 1027 (11th Cir. 2003). Thus, a promise that the conservation easement would be deductible is not actionable.

There is also no allegation as to scienter on the part of ACC or Dr. Keller. The Thompsons have not alleged, and the Thompsons cannot point to anything indicating, that ACC or Dr. Keller knew what was given to the Thompsons, much less that something was false.

Similarly, for an actionable fraud claim, ACC or Dr. Keller would have to make a representation to the Thompsons with the intention to induce them to act or refrain from acting. Mossy Rock and Evrgreen — not ACC or Dr. Keller — are alleged to have made representations to the Thompsons to attempt to induce them to invest in Mossy Rock. (Doc. 1, ¶¶ 100-03.) ACC simply agreed to accept the Property and assisted with preparing the Conservation Easement Deed and Baseline Report. (Id. ¶ 104.) There is no allegation that ACC or Dr. Keller intended to induce the Thompsons to do anything. In fact, the Conservation Easement Deed, Baseline Report and Form 8283 were all completed after the Thompsons made their investment and after Mossy Rock's manager, the Thompsons, and the other members of Mossy Rock, decided to pursue the conservation easement. (Id. ¶¶ 111, 107-08.) As such, the Complaint does not and cannot allege that ACC or Dr. Keller intended to induce the Thompsons to make a purchase or take some other action.

The Thompsons also cannot establish reasonable reliance. The Thompsons' litigation theory, although not explicitly pled, is that someone made a representation to them that the conservation easement would result in a charitable deduction when they filed their tax returns. However, Georgia law is clear, an opinion like “the conservation easement will be deductible,” cannot form the basis of a fraud claim because “a party is not justified in relying on and assuming to be true representations consisting of mere expressions of opinion, hope, expectation, puffing, and the like; rather, representations of this nature must be inquired into and examined to ascertain the truth.” Ellis, 218 F.3d at 1028; Am. Casual Dining, L.P. v. Moe's Sw. Grill, L.L.C., 426 F. Supp. 2d 1356, 1364 (N.D. Ga. 2006). More specifically, Georgia courts have repeatedly held that “[a] misrepresentation as to a matter of law is a statement of opinion only and cannot afford a basis for a charge of fraud or deceit in the making of the contract. This is because all persons are presumed to know the law and therefore cannot be deceived by erroneous statements of law.” BPP069, LLC v. Lindfield Holdings, LLC, 346 Ga. App. 577, 585, 816 S.E.2d 755, 761 (2018) (quoting Lakeside Inv. Group, Inc. v. Allen, 253 Ga. App. 448, 450, 559 S.E.2d 491 (2002)). Accordingly, the fraud claim fails.

2. The Thompsons cannot make a derivative claim through Mossy Rock.

It is true that the Thompsons were members in Mossy Rock and Mossy Rock actually had interactions with ACC. However, the Thompsons cannot make a claim through Mossy Rock without complying with Georgia law's specific requirements for bringing a derivative claim. O.C.G.A. §§ 14-11-801, 14-11-802; Pinnacle Benning LLC v. Clark Realty Capital, LLC, 314 Ga. App. 609, 615-16, 724 S.E.2d 894, 900-01 (2012). The Thompsons have not alleged that they complied with, much less attempted to comply with, those procedures. Worse yet for the Thompsons, even if they complied with those procedures and requirements, they would still be foreclosed from pursuing a fraud claim given Mossy Rock's own representations and warranties to ACC that ACC had not made any warranty or representation regarding (i) any entitlement to tax benefits or the amount thereof; (ii) the value of the Property; or (iii) whether the conveyance would constitute a qualified conservation contribution under the IRS Code. (Ex. A hereto (Dr. Keller Dec.) Ex. A thereto, ¶ 24 (emphasis added).) Moreover, Mossy Rock affirmatively represented that it relied upon its own tax advisors and experts, not anything ACC or Dr. Keller said. (Id. (emphasis added).) On top of all that, Mossy Rock's Promotional Materials repeatedly warned the Thompsons to consult and rely upon their own tax advisers, that there were no guarantees of a particular tax result, and ultimately, that this was a high-risk endeavor. (Id., Ex. D thereto.) All of these warnings, disclaimers, and representations of non-reliance prevent Mossy Rock or anyone attempting to claim through it from successfully pleading a claim for fraud. Stated another way, Mossy Rock itself agreed that there was no (1) representation by ACC (much less a false one); (2) scienter; (3) intent to induce Mossy Rock to act or refrain from acting; and (4) justifiable reliance by the Thompsons on Mossy Rock as they were relying upon their own tax advisors and experts. As such, this claim should be dismissed.

3. The Thompsons also cannot allege essential elements for a fraudulent omission claim.

The Thompsons' attempts to assert fraud by omission also fails. In the count for fraud, 39 of the 77 assertions made by the Thompsons are really premised on a theory of fraud by concealment or omission.⁴ (Doc. 1, ¶ 329.) But for fraud by omission, a defendant can only be liable if the defendant had a duty to disclose arising from a fiduciary relationship or the particular circumstances of the case. Ledford v. Smith, 274 Ga. App. 714, 721, 618 S.E.2d 627, 634 (2005). The Complaint does not allege a fiduciary relationship between the Thompsons and ACC or Dr. Keller, nor could it. Mossy Rock and the Thompsons had their own fiduciaries, in the form of lawyers, accountants, and tax advisors. (Ex. A hereto (Dr. Keller Dec.) Ex. A thereto, ¶ 24.) ACC's few interactions were with Mossy Rock, and those were an arms-length relationship in which ACC accepted a donation of a conservation easement. For all of these reasons, the Thompsons failed to state a claim against ACC and Dr. Keller for fraud.

B. The negligent misrepresentation claim fails for the same reasons as the fraud claim.

“Negligent misrepresentation is similar to fraud and requires the same elements of proof, the only difference being whether the defendant knowingly or negligently made representations.” Moe's Sw. Grill, 426 F. Supp. 2d at 1365. “The essential elements of a claim of negligent misrepresentation are . . . (1) the defendant negligently supplied of false information to foreseeable persons, known or unknown; (2) such persons reasonably relied upon the information; and (3) economic injury proximately resulted from that reliance.” Id. Moreover, the principles discussed above with respect to fraud — that a misrepresentation of something in the future cannot state a claim and that an opinion or representation of the law cannot state a claim — apply equally to claims for negligent misrepresentation. Anderson v. Atlanta Comm. for the Olympic Games, 261 Ga. App. 895, 900, 584 S.E.2d 16, 21 (2003) (negligent misrepresentation cannot be based on opinion); Fed. Deposit Ins. Corp. v. Watkins, No. 1:12-CV-2616-TCB, 2013 WL 12249504, at *3 (N.D. Ga. Oct. 16, 2013) (promise about the future cannot form the basis for a claim for negligent misrepresentation); BPP069, 346 Ga. App. at 586, 816 S.E.2d at 761 (affirming trial courts dismissal of negligent misrepresentation claim because parties cannot be “deceived by erroneous statements of law.”). As such, the claim for negligent misrepresentation fails for the same reasons as the fraud claim.

C. The federal RICO claims should be dismissed.

The federal RICO claims fail because (i) RICO does not apply to the sale of securities or in this case, the sale of membership units; and (ii) the Complaint fails to state an actionable claim for RICO.

1. PSLRA bar.

The Private Securities Litigation Reform Act of 1995 (“PLSRA”) amended RICO to provide that “no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962.” 18 U.S.C. § 1964(c). Thus, if the Thompsons' purchase of membership units in Mossy Rock constitutes a transaction involving a security, RICO does not apply and the Thompsons' federal RICO claims fail.

The test of whether something is a security comes from the Supreme Court's decision in S.E.C. v. W.J. Howey Co., 328 U.S. 293, 298-99, 66 S. Ct. 1100 (1946). Courts applying Howey have boiled the test down to three elements: (1) an investment of money; (2) in a common enterprise; and (3) an expectation of profit solely from the efforts of others. Id. at 298.

The first element of the Howey test, that a person must invest money, means that “an investor commits assets to an enterprise or venture in such a manner as to subject himself to financial loss.” Beranger v. Harris, 1:18-cv-05054-CAP, 2019 WL 5485128, at *3 (N.D. Ga. Apr. 24, 2019). Here, the Thompsons purchased their Mossy Rock LLC interest from the company pursuant to the Promotional Materials which confirmed that the “net profit and net loss of [Mossy Rock] for a fiscal year will be allocated to all Members in proportion to their respective number of Shares.” (Ex. B hereto (Mr. Delaney Dec.) Ex. A thereto, pp. 2, 8) (“Allocation of Profits and Losses”).) As of their investment, Mossy Rock was considering either developing residential units on the property or donating a conservation easement. Since the Thompsons committed funds and subjected themselves to the risk of financial losses, the first prong of Howey is satisfied.

The second element requires a “common enterprise.” For this element, the Eleventh Circuit has adopted the concept of “vertical commonality” which is where “'the fortunes of the investor are interwoven with and dependent on the efforts and success of those seeking the investment or of third parties.” S.E.C. v. Unique Fin. Concepts, 196 F.3d 1195, 1199 (11th Cir. 1999) (citations omitted). Stated another way, “[t]he thrust of the common enterprise test is that the investors have no desire to perform the chores necessary for a return.” Id. (citations omitted). There is no doubt this was a common enterprise in which the investors relied upon Mossy Rock to determine whether to develop the Property or pursue a conservation easement, and ultimately to proceed down either path after approval from the members.

Finally, the third element of Howey, that investors expected profits to come solely from the efforts of others, requires a court to examine “(1) that the opportunity provided to offerees tended to induce purchases by emphasizing the possibility of profits, (2) that the profits are offered in the form of capital appreciation or participation in earnings . . ., and (3) that the profits offered would be garnered from the efforts of others.” Teague v. Bakker, 35 F.3d 978, 987 (4th Cir. 1994) (citing United Housing Foundation v. Forman. 421 U.S. 837, 854, 95 S. Ct. 2051 (1975)). Decisions applying the Howey test have rejected a literal interpretation of “solely” in the third element: “whether the efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise.” Unique Fin., 196 F.3d at 1201.

There were at least three ways that the Thompsons could expect profits from the efforts of others to come from their investment in Mossy Rock. First, participants would expect profits because the offering summaries explained that under one scenario the land could be developed for profit through the improvement and sale of residential lots. (Ex. B hereto, (Mr. Delaney Dec.) Ex. A thereto, p. 5.) Alternatively, the Thompsons could reasonably expect profits from the efforts of others because the Promotional Materials emphasized that purchasers could receive tax deductions and corresponding decreases in income taxes owed of greater value than each client's initial investment — a profit earned through participation in the anticipated conservation easements. (Id. pp. 5-6.) Courts examining similar issues have found that a “security” may exist in the form of tax benefits where promoters take sufficient steps to create the reasonable expectation of profits on the part of a purchaser. See Investors Credit Corp. v. Extended Warranties, Inc., No. 3-86-0851, 1989 WL 67739, at *28 (M.D. Tenn. 1989) (“As to profits, tax benefits which are the dominant inducement for investing are properly considered to be profits in satisfaction” of the Howey test). Third, even if the conservation easement option was selected by members, they would continue to retain a percentage ownership interest in the underlying real estate, which could be sold at a later date and which could earn a stream of income from uses within the limits of the conservation easement. Finally, the Property could appreciate in value.

For the foregoing reasons, the Thompsons' purchase of shares of Mossy Rock constituted the purchase of a security, and as such, the PLSRA prohibits the Thompsons from pursuing federal RICO claims.⁵As such, Counts One and Two should be dismissed for failure to state a claim.

2. The Complaint fails to plead the elements of RICO.

The Thompsons purport to assert claims against all Defendants for alleged violations of (i) 18 U.S.C. § 1963(c) (Count One); and (ii) 18 U.S.C. § 1963(d) for conspiracy to violate 18 U.S.C. § 1963(c)(Count Two). In order to state a claim for violation of Section 1962(c), the Thompsons must allege that each defendant “(1) operated or managed (2) an enterprise (3) through a pattern, (4) of racketeering activity that included at least two racketeering acts.” Ray v. Spirit Airlines Inc., 836 F.3d 1340, 1348 (11th Cir. 2016). “A civil plaintiff must also show “(1) the requisite injury to business or property, and (2) that such injury was by reason of the substantive RICO violation.” Id.

i. Thompsons failed to plead a RICO enterprise.

As noted in Defendant Large & Gilbert's Motion to Dismiss (Doc. No. 81-1), the Complaint purports to address an association-in-fact enterprise, which is “a group of persons associated together for a common purpose of engaging in a course of conduct.” Flagg v. First Premier Bank, 257 F. Supp.3d 1351, 1356 (N.D. Ga. 2017). An association-in-fact enterprise “must have at least structural features: a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose.” Id.

The Thompsons failed to plead that ACC and Dr. Keller shared a common purpose with the other members of the alleged enterprise. The Complaint does have a conclusory legal allegation as to a common plan against all “Defendants, Sponsors and Other Participants” (Id., ¶ 214), but there are no factual allegations showing that ACC and Dr. Keller were part of a common plan. To that end, while the Complaint contains a section describing the “enterprise,” there are no specific allegations against ACC or Dr. Keller regarding their involvement with the enterprise. (Doc. 1, 210-24.) Instead, the Complaint makes conclusory allegations against the “Defendants, Sponsors and Other Participants” and does not differentiate among the various deals and the fact that ACC only worked on the Mossy Rock transaction.

In order to state a RICO claim, “[w]here businesses are alleged to be part of a RICO enterprise, a plaintiff must allege activity by the business that goes beyond the normal business activity, even if the plaintiff alleges that the business activity was itself fraudulent.” Cisnereos v. Petland, Inc., 341 F. Supp. 3d 1365, 1372 (N.D. Ga. 2018). As for ACC and Dr. Keller, the Thompsons have not pled anything different from the ordinary operation of accepting donated conservation easements and stewarding the land for conservation purposes. Since the Thompsons did not plead that ACC did anything other than participate in its normal business affairs, the RICO claim should be dismissed.

ii. Thompsons failed to plead a pattern of racketeering.

In order to plead a pattern of racketeering activity, the Complaint must plead (i) defendants committed two or more predicate acts within a ten-year time span; (ii) the predicate acts were related to one another; and (iii) the predicate acts demonstrated criminal conduct of a continuing nature. Chesapeake Employers' Ins. Co. v. Eades, 77 F. Supp. 3d 1241, 1245 (N.D. Ga. 2015). “There are two ways to allege continuity of racketeering activity: close ended and open-ended continuity.” Id. A plaintiff may demonstrate a close-ended continuity by “proving a series of related predicates extending over a substantial period of time.” Id. at 1255. Alternatively, to show open-ended continuity, a plaintiff may “allege past conduct that by its nature projects into the future with a threat of repetition.” Id.

Here, the Thompsons have alleged that the predicate act is fraud (Doc. 1 ¶ 228), but that does not work because as explained in detail above, the Thompsons cannot state an actionable claim for fraud against ACC or Dr. Keller.

Further, the only RICO allegation applicable to ACC, which is actually asserted against “The Land Trust Defendants,” is that it assisted with the deed language and prepared a Baseline Report describing the nature on the Property. (Id. 221(d).) Those two acts occurred over a couple of months or less, not a substantial period of time, and they certainly do not demonstrate any criminal conduct much less some of a continuing nature. (Id. ¶¶ 109, 111-12.) Indeed, the Thompsons do not assert that the land has not been conserved against development. While the Thompsons complain that the IRS has disallowed their deduction, they make no allegations with respect to the state tax deduction for the conservation easement. (Id. 122.) Accordingly, the Thompsons have not demonstrated a pattern of racketeering activity, and as such, this matter should be dismissed.

iii. The Complaint fails to plead requisite causation.

The Complaint also fails to plead the requisite causation for an injury — facts “sufficient to give rise to a reasonable inference that the claimed racketeering activity . . . was the but-for-and proximate cause of the plaintiff's injuries.” Ray, 836 F.3d at 1349. “The connection between the racketeering activity and the injury can be neither remote, purely contingent, nor indirect.” Id.

Notably, it was Mossy Rock and Evrgreen that provided the Thompsons with the Promotional Materials. (Doc. 1, ¶ 100.) Even that did not cause the Thompsons damage as there was still the possibility that Mossy Rock would pursue the residential development option. It was the Manager of Mossy Rock who elected to pursue the conservation easement, and it was the members of Mossy Rock, including the Thompsons, who elected to pursue the conversation easement. (Id. ¶¶ 107-08.) They did so with knowledge of the multitude of warnings to seek their own tax and legal advice and that the deduction was ultimately up to the IRS. (Ex. B hereto (Mr. Delaney Dec.) Ex. A thereto, pp. iii, v, 3, 6-7, 10, 13-21.) Moreover, the Thompsons allege that it was the Aprio Defendants who told them to take a charitable deduction on their tax returns. (Doc. 1, ¶ 116.) Even then it was the Thompsons who elected to take the deduction. There is no allegation that the Thompsons were forced or coerced to take the deduction. (Id. ¶ 118.) Those are the events that caused the Thompsons any alleged damage. Regardless of who was the cause in that process, or whether it was the Thompsons themselves, it is not alleged to be ACC or Dr. Keller. As such, there is no direct link between an alleged act by ACC or Dr. Keller and any injury alleged by the Thompsons, and accordingly, the federal RICO claims fail as a matter of law.

D. Conspiracy to commit RICO (Count Two) and the Georgia RICO claims (Counts Three and Four) also fail.

As noted in Defendant Large & Gilbert's Motion (Doc. No. 81-1), if the Thompsons federal RICO claim fails: (i) the claim for conspiracy fails, as a party cannot be found guilty of conspiring to commit an act that is not itself against the law; and (ii) the Georgia RICO claims fails as well because the Thompsons Georgia RICO claim exclusively relies on federal predicate acts. (Doc No. 81-1, p. 29.) As such, the Georgia RICO claims should be dismissed.

E. Civil conspiracy claim (Count Twelve) fails to state a claim.

While the Complaint contains a count for civil conspiracy, there is no liability unless there is an underlying tort. Agilysys, Inc. v. Hall, 285 F. Supp. 3d 1331, 1355 (N.D. Ga. 2017) (citing J. Kinson Cook of Georgia, Inc. v. Heery/Mitchell, 284 Ga. App. 552, 560, 644 S.E.2d 440, 449 (2007)). However, the identity of the underlying tort that the Thompsons purport to be asserting, if any, against ACC and Dr. Keller is unclear. Against the “Defendants,” the Thompsons appear to be asserting conspiracy to commit fraud and breach of fiduciary duty. (Doc. 1, ¶¶ 350-52.) However, there is no allegation of breach of fiduciary duty against ACC and Dr. Keller, and the fraud claim fails as outlined above.

Further, it would also fail because to allege a claim for conspiracy “a plaintiff must articulate facts supporting an inference that a defendant knew of any misrepresentations or participated in a fraudulent scheme.” Westgate Fin. Corp. v. Cotsworld Indus., Inc., No.1:09-cv-2627-WSD, 2009 WL 10700171, at *3 (N.D. Ga. Dec. 11, 2009). The Complaint must also plead that the defendants arrived at a mutual understanding with another party “to accomplish an unlawful end or to accomplish a lawful end by an unlawful means.” Here, there are no factual allegations setting forth any basis for a mutual understanding between ACC and Dr. Keller and some other party to accomplish an unlawful end or to accomplish a lawful end by an unlawful means. Accordingly, this claim should be dismissed.

F. Aiding and abetting (Count Ten) is not an actionable claim.

As set forth in Defendant Large & Gilbert's Motion to Dismiss (Doc. No. 81-1, p. 36), a claim for aiding and abetting is not a tort under either federal RICO or Georgia state law. As such, this count should be dismissed.

CONCLUSION

For the foregoing reasons, ACC and Dr. Keller respectfully request that this Court dismiss Plaintiffs' claims against them with prejudice.

Respectfully submitted this 7th day of August, 2020.

SMITH, GAMBRELL & RUSSELL, LLP

Colin Đặng Delaney
Georgia Bar No. 216858
Gregory K. Smith
Georgia Bar No. 658363
Anthony J. Rollins
Georgia Bar No. 613746
SMITH, GAMBRELL & RUSSELL, LLP
Promenade, Suite 3100
1230 Peachtree Street, NE
Atlanta, Georgia 30309-3592
Telephone: 404-815-3500
Facsimile: 404-815-3509
Email: cdelaney@sgrlaw.com
Email: gsmith@sgrlaw.com
Email: ajrollins@sgrlaw.com

Counsel for Defendants
Atlantic Coast Conservancy, Inc., and Dr. Robert D. Keller