Appraisal Company Seeks Dismissal of Conservation Easement Suit

ANDREW LECHTER; SYLVIA THOMPSON; LAWSON F. THOMPSON; RUSSELL DALBA; and KATHRYN DALBA, on behalf of themselves and all others similarly situated,
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

JURY TRIAL DEMANDED

DEFENDANT TENNILLE & ASSOCIATES, INC.'S MOTION TO DISMISS PLAINTIFFS' COMPLAINT

COMES NOW Defendant Tennille & Associates, Inc. (Tennille), Defendant in the above-styled civil action, and pursuant to Federal Rules of Civil Procedure Rules 12(b)(6), files this Motion to Dismiss Plaintiffs' Complaint.

In support of this Motion, Tennille relies upon all matters of record, including the Brief in Support, filed contemporaneously herewith.

Respectfully submitted, this 7th day of August 2020.

DREW ECKL & FARNHAM, LLP

Barbara A. Marschalk
State Bar of Georgia No. 324498
Leslie P. Becknell
State Bar of Georgia No. 046320
David L. Rusnak
State Bar of Georgia No. 620170
Roberto Bazzani
State Bar of Georgia No. 609464

303 Peachtree Street, NE, Suite 3500
Atlanta, Georgia 30308
Telephone: (404) 885-1400
Fax: (404) 876-0992
Email: bmarschalk@deflaw.com
lbecknell@deflaw.com
rusnakd@deflaw.com
bazzanir@deflaw.com

Attorneys for Defendant Tennille & Associates, Inc

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BRIEF IN SUPPORT OF DEFENDANT TENNILLE & ASSOCIATES, INC.'S MOTION TO DISMISS

Defendant Tennille & Associates, Inc. respectfully submits this Brief in Support of its Motion to Dismiss Plaintiffs' Complaint. On its face, Plaintiffs' Complaint shows that all claims against Tennille are time barred. Further, the remaining claims against Tennille for fraud, negligent misrepresentation, conspiracy, RICO, and “aiding and abetting” are not pled with the specificity required by Fed. R. Civ. Pro. 8 and 9 to survive a Motion to Dismiss or are not recognized as a cognizable claim under Georgia law.¹ As set forth below, all of Plaintiff's claims against Tennille should be dismissed with prejudice.

I. STATEMENT OF FACTS

Tennille was a real estate appraisal company in Boone, North Carolina that performed appraisal services in Georgia through Georgia-licensed appraisers,² including David A. Roberts, SRA (Roberts).³ In 2010, Roberts prepared two appraisals for conservation easements that were commissioned by the Maple Landing Syndicate and the Oakhill Syndicate. Tennille and Roberts had no other involvement in the real estate transactions after April 2011.⁴

A. The Maple Landing Syndicate

In April 2008, WDHL Investments, LLC (WDHL), LDHL Investments, LLC (LDHL) and Julienton Investments, LLC (Julienton) formed Maple Landing, LLC. In April 2010, Maple Landing, LLC acquired 283.42 acres of property from Darrel and Derek Hutcheson (Doc. 1, Complaint, ¶ 70). Maple Landing sent certain investment promotional materials dated June 11, 2010 to prospective investors, along with a legal opinion from Defendant Sirote & Permutt, P.C to the Dalbas Plaintiffs. (Id., ¶¶ 71-76).⁵

The promotional materials contained, among several others, the following disclaimers:

PROSPECTIVE MEMBERS SHOULD RECOGNIZE THAT THE VALUATION OF CONSERVATION EASEMENTS MAY BE CONSIDERED ESPECIALLY PROBLEMATIC AND HIGHLY SPECULATIVE, CONSIDERING THAT IN GENERAL THERE IS NO MARKET OR COMPARABLE SALES DATA TO SUPPORT SUCH VALUATIONS, SO THAT THE VALUATION ANALYSIS IS DEPENDENT UPON ASSUMPTIONS MADE BY THE APPRAISER. Qualified appraisals are not to be construed as a guaranty of value, or as an assurance that the value could be maintained on any audit by the IRS.⁶

Additionally, the promotional materials invited prospective investors to inspect a copy of the preliminary summary appraisal report prepared by Tennille: “A copy of such appraisal report is available from the Manager upon request.”⁷ The Plaintiffs' Complaint makes no allegation that the Plaintiffs requested or reviewed the appraisals at issue.

The Maple Landing Syndicate approved the placement of a conservation easement on the 283 acre property⁸ and agreed to contribute that conservation easement to Defendant Georgia-Alabama Land Trust, Inc. f/k/a Georgia Land Trust, Inc. (GLT). (Id., ¶¶ 80-81). On November 24, 2010, GLT prepared a Baseline Documentation Report which was to be filed with the Maple Landing Syndicate's tax return and Appraisal Summary, Form 8283. (Id., ¶ 82). Tennille submitted its final appraisal of the Effingham Property⁹ on or about December 20, 2010 (Id., ¶ 82) The Dalbas, based in part on the advice of their investment advisors, invested in the Maple Landing Syndicate on December 23, 2010. (Id., ¶¶ 78-79). The Dalbas make no allegation that they reviewed the appraisal what was available upon request. The Dalbas make no allegation that any statement or action by Tennille encouraged them to make this investment. Further, the Plaintiffs' Complaint has studiously avoided mentioning the warnings and disclaimers that they received relating to the nature of appraisals and the risks of the investment at issue.

On December 30, 2010, Roberts signed a conservation easement deed which was prepared by Defendants Sirote, Aprio, Greenberger, Effingham, and GLT. (Id., ¶¶ 85, 87). Defendants Aprio and Greenberger¹⁰ then prepared an Appraisal Summary in March 2011 that Roberts subsequently signed. (Id., ¶¶ 84-89). Plaintiffs' Complaint shows, on its face, that Tennille's last involvement in the Maple Landing real estate transaction was in March 2011 when Roberts signed the appraisal summary.

The Dalbas reported this investment's charitable contribution deduction on their individual tax returns for 2010.¹¹ (Id., ¶¶ 92-93). In October 2012, the Internal Revenue Service issued a noticed to the Maple Landing Syndicate that the IRS had selected the Maple Landing Syndicate's 2010 tax return for an audit. (Id., ¶ 94).¹² Aprio and Sirote were hired to represent the Syndicate in that audit and later, in tax court. (Id., ¶ 95). In November 2014, Derek Hutcheson, on behalf of the Maple Landing Syndicate, sent a letter to the Dalbas, among others, enclosing an IRS Revenue Agent Report (Maple Landing RAR) that concluded that Maple Landing Syndicate's charitable contribution deduction of $6,791,000 would be disallowed at the partnership level (Id., ¶ 96).

B. The Oakhill Syndicate

WDHL, LDHL and Julienton formed the Oakhill Syndicate in October 2008 and acquired 380 acres of property. (Id., ¶ 125). The Oakhill Syndicate sent Lechter promotional materials dated June 11, 2010 that had been prepared by Effingham and Sirote, and reviewed and approved by the Aprio Defendants. (Id., ¶¶ 126-28).¹³ After consulting with Defendants Nancy Zak (Zak), James Jowers (Jowers) and Forever Forests, LLC (Forever Forests) (collectively, the Forever Forests Defendants), Lechter invested in the Oakhill Syndicate on August 3, 2010. (Id., ¶¶ 129-32). Like the Dalbas, Lechter does not allege that he requested or reviewed the Tennille appraisal or that any representations by Tennille led to his decision to invest in Oakhill. And like the Dalbas, Lechter has studiously avoided mentioning the warning she received regarding the nature of conservation easement appraisals and the risks inherent in the investment.

The members of the Oakhill Syndicate approved the placement of a conservation easement and contribution of the conservation easement to GLT. (Id., ¶¶ 133-34). Tennille submitted its final appraisal on December 20, 2010, four months after Lechter had already invested in the syndicate. (Id., ¶ 139) Thereafter, the Oakhill Syndicate conveyed the conservation easement to GLT. The Aprio Defendants prepared an Appraisal Summary Form 8283 in April 2011. (Id., ¶¶ 137-141). On April 28, 2011, eight months after Lechter invested in the syndicate, Roberts, as appraiser, and GLT signed the Appraisal Summary Form 8283 prepared by the Aprio Defendants. (Id., ¶ 141).

The IRS subsequently selected Oakhill Syndicate's 2010 tax return for audit.¹⁴ The Aprio Defendants and Sirote were hired to represent the Oakhill Syndicate in the audit and, later, in the tax court. (Id., ¶ 146). Again, Plaintiff Lechter does not allege when he first learned that there were issues with the Tennille appraisal. Instead, he only obliquely alleges that in July 2016, Defendant Effingham sent a letter to Lechter informing him that the charitable contribution deduction was disallowed. (Id., ¶ 148).¹⁵ The Complaint makes no allegation regarding Lechter's actual notice regarding potential issues with the appraisal.

II. STANDARD OF REVIEW

A Rule 12(b)(6) dismissal on statute of limitations grounds is appropriate if it is apparent from the face of the Complaint that Plaintiffs' claims are time-barred.¹⁶

On a Motion to Dismiss a Complaint containing allegations of fraud, the district court must apply the heightened pleadings standard articulated in Bell Atlantic Corp. v. Twombly¹⁷ and Ashcroft v. Iqbal,¹⁸ which established two key principals for evaluation of a Complaint.

First, while Rule 8 “does not require detailed factual allegations,” it does “demand more than an unadorned, the — defendant — unlawfully — harmed — me accusation.”¹⁹ And, while a Complaint challenged by a Rule 12(b)(6) Motion to Dismiss does not need to include detailed factual allegations, a plaintiff's obligation to provide the 'grounds' for his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the level of speculation.²⁰ “Nor does the Complaint suffice if it tenders 'naked assertions' devoid of 'further factual enhancement.'” ²¹

Second, a Complaint will survive a motion to dismiss only if it states a plausible claim for relief on its face.²² “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”²³ “The plausibility standard is not akin to a 'probability requirement,' but it requires more than the possibility that a defendant has acted unlawfully.”²⁴

Determining whether a Complaint states a plausible claim for relief will be a context specific task that requires the reviewing court to draw on its judicial experience and common sense. . . . But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the Complaint has alleged — but it has not 'shown' — 'that the pleader is entitled to relief.'²⁵

III. ARGUMENT AND CITATION OF AUTHORITY

The Plaintiffs crafted a 175-page “shotgun” Complaint with almost 400 paragraphs, yet they fail to allege the specific facts against Tennille that are necessary to avoid a Motion to Dismiss. It appears that the length and ambiguity of Plaintiffs' Complaint was by design: a strategy implemented in an effort to hide the defects in the Complaint. The Plaintiffs have valued volume over substance, apparently hoping that a Court would simply throw up its hands in confusion and assume that such a long and convoluted Complaint must contain sufficient facts to avoid a Motion to Dismiss. When the Plaintiffs' Complaint is deconstructed however, it shows on its face that (1) all claims are barred by the statute of limitations as to Tennille and (2) the Plaintiffs cannot plead with specificity the facts necessary to support their remaining claims against Tennille.

A. All Fraud Claims Against Tennille Should be dismissed.

1. The Plaintiffs' fraud claims are barred by the Statute of Limitations.

The statute of limitations in Georgia on a fraud claim is four years.²⁶ The standard for establishing that a Plaintiff should have discovered the fraud is minimal: “Any fact that should excite [a Plaintiff's] suspicion is the same as actual knowledge of his entire claim.”²⁷ As to claims for fraud related to a failed investment, the Courts have held that the statute of limitations begins running on the date that the Plaintiffs receive the promotional materials, particularly when those materials contain disclaimers and warnings regarding the investment risks:

Courts recognize that financial investment involves attendant risks. The investor who seeks to blame his investment loss on fraud or misrepresentation must himself exercise due diligence to learn the nature of his investment and the associated risks. As several courts have recognized, the party claiming fraud and/or misrepresentation must exercise due diligence to discover the alleged fraud and cannot close his eyes and simply wait for facts supporting such a claim to come to his attention.²⁸

Here, the Plaintiffs were clearly warned in 2010 of the risks inherent in this investment and specifically with regard to the nature of conservation easement appraisals:

PROSPECTIVE MEMBERS SHOULD RECOGNIZE THAT THE VALUATION OF CONSERVATION EASEMENTS MAY BE CONSIDERED ESPECIALLY PROBLEMATIC AND HIGHLY SPECULATIVE, CONSIDERING THAT IN GENERAL THERE IS NO MARKET OR COMPARABLE SALES DATA TO SUPPORT SUCH VALUATIONS, SO THAT THE VALUATION ANALYSIS IS DEPENDENT UPON ASSUMPTIONS MADE BY THE APPRAISER. Qualified appraisals are not to be construed as a guaranty of value, or as an assurance that the value could be maintained on any audit by the IRS.

a. The 4-year statute of limitations on Plaintiffs' claims began running in 2010.

All of the Plaintiffs who make claims against Tennille received promotional materials and purchased their investments in 2010. The statute of limitations on Plaintiffs' claims began to run when the plaintiffs received the promotional materials that contained terms and warnings that “were sufficient to put a reasonable investor of ordinary intelligence on notice of . . . the risk, and the illiquidity of these investments.”²⁹

In order to avoid dismissal, Plaintiffs' Complaint has very carefully avoided discussing the warnings and disclaimers that were made in the promotional materials. Further, there is no allegation that the Plaintiffs reviewed the Tennille appraisals or relied on any opinions or representations by Tennille when they made their investment decisions. Plaintiffs have studiously avoided discussing what they knew about the risks of these investments and the risks that the IRS would disagree with the opinions stated in the Tennille appraisals.

The Plaintiff's failure to identify the warnings they received in the promotional materials does not defeat a Motion to Dismiss. First, those warnings are of record before this Court as an attachment to the Motions to Dismiss filed by other Defendants to this case.³⁰ Second, the Court can take judicial notice that the risks of investments are spelled out in detail in the investment promotional materials. As the Eleventh Circuit noted above, the Courts recognize that all investments have risks. The Plaintiffs have not alleged that the promotional materials they received did not contain any warnings or disclaimers because they cannot. Plaintiffs simply avoided mentioning what they knew about the risks in order to avoid dismissal on the statute of limitations.

Third, in any fraud claim, the Plaintiffs have the duty to plead their claim with specificity under Fed. R. Civ. Pro. 9(b). This requirement includes the obligation to plead facts that would establish the date their claims accrued. The Plaintiffs have admitted in their Complaint that they received promotional materials and purchased these investments in 2010. This admission establishes, on the face of the Complaint, that the four year statute of limitations began running in 2010 and absent tolling, would have expired in 2014.

b. The Plaintiffs have alleged no facts that would support tolling the statute of limitations under O.C.G.A. § 9-3-96.

To the extent Plaintiffs seek to toll the statute of limitations under the “discovery rule” in O.C.G.A. § 9-3-96, the Plaintiffs have not asserted any facts or allegations to support that claim. The Eleventh Circuit has held that a Plaintiff's failure to allege facts that would support tolling of the statute justifies dismissal of the Complaint:

Here, the dates alleged in the complaint make it clear that the statute of limitations bars Paresh's claims unless Paresh alleged facts supporting tolling of the statute of limitations. Paresh's complaint attempts to do that. But Paresh's allegation that he “could not have reasonably learned” of the facts on which his claim is based until 2012, without more, is insufficient to satisfy the pleading requirements as to tolling.³¹

Plaintiffs' Complaint studiously avoids mentioning when they first learned of facts that would put them on notice of a problem with the Tennille appraisals. As in Patel, the Plaintiffs here have made conclusory allegations that they could not have learned of the fraud, but those allegations are insufficient to support a tolling claim. Nevertheless, the Plaintiffs admit (because they must) that the IRS had selected the syndicates for audit as early as 2012. Those audits alone would have put the Plaintiffs on notice that there was a possible problem with the appraisals and the statute of limitations on their claims would have run in 2016.

And perhaps most significantly, the Plaintiffs admit that they were notified by letter of the negative resolution of those audits as early as 2014. That letter would certainly have provided the Plaintiffs with notice of a problem with the appraisals and the statute of limitations would have run as late in 2018.

c. The Plaintiffs have alleged no facts that would support a fraudulent concealment claim against Tennille.

There is no allegation that Tennille concealed any fact or took any action that prevented the Plaintiffs from discovering their claims. “A plaintiff relying on the doctrine of fraudulent concealment must show affirmative actions by the defendant constituting concealment. [They] must also show that [they] exercised reasonable diligence to discover [their] cause of action within the limitations period.”³²

Here, the Plaintiffs' Complaint fails both prongs of the fraudulent concealment requirement. First, the face of their Complaint shows that Tennille's last affirmative acts on these two transactions were in March and April 2011 when Roberts signed the appraisal summaries. (Complaint, ¶¶ 83-84, 89 and ¶¶ 137-141). The Plaintiffs simply cannot plead that Tennille committed any affirmative act that would have prevented them from discovering their claims.

Second, the Plaintiffs fail to allege that they exercised reasonable diligence to discover the alleged fraud within the statute of limitations. Even if the warnings on the investment promotional materials were not enough to put them on notice of the risks of these investments, the IRS audits would have provided notice of facts that should have “excited their suspicion” that there were problems with the appraisals. The Plaintiffs have not alleged any facts regarding the “due diligence” they conducted once they became aware of the appeals, or even of the 2014 disallowance of the deductions.

The statute of limitations on the Plaintiffs' claims began to run in 2010 when they received the investment materials and purchased these investments. To the extent that the Plaintiffs claim the statute was tolled by the “discovery rule” in O.C.G.A. § 9-3-96, the Plaintiffs have failed to plead any facts to support a tolling argument. Likewise, the Plaintiffs have failed to plead any facts against Tennille that would support a claim for fraudulent concealment. Inasmuch as the face of the Complaint shows that Plaintiffs' claims are time barred, the claims against Tennille must be dismissed.

2. The Plaintiffs Have Failed to Sufficiently Plead a Claim for Common Law Fraud under Rules 8(a)(2) and 9(b).

Rule 8(a)(2) requires that a pleading contain “a short and plain statement of the claim showing that the pleader is entitled to relief.”³³ Complaints violating that rule are “often disparagingly referred to as shotgun pleadings.”³⁴ A shotgun pleading is one where “it is virtually impossible to know which allegations of fact are intended to support which claim(s) for relief.”³⁵ “The 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.”³⁶

Here, the claims of the Plaintiffs violate all of the pleading requirements of Rule 8. The Plaintiffs' Complaint lumps all of the claims against all of the Defendants together without specifically alleging who committed the acts alleged. (Compl., ¶¶ 244, 248, 252, 262, 271, 282, 291, 312, 328, 335, and 349). Nothing in Count IX or the allegations globally incorporated into Count IX states how Tennille purportedly committed fraud on the Plaintiffs. Similarly, nothing in the Complaint sets out the elements of common law fraud as they apply to Tennille.

The Complaint fails to meet the specific requirements for pleading fraud under Rule 9(b), which requires the Complaint to “state with particularity the circumstances constituting fraud”. A Complaint cannot meet the standard set by Rule 9(b) unless it alleges:

(1) precisely what statements were made in what documents or what omissions were made; (2) the time and place of each such statement and the person responsible for them; (3) the content of the statements and the manner in which they misled the plaintiff; and (4) what the defendants “obtained as a consequence of the fraud.”³⁷

Allegations of fraud must state “such matters as the time, place and content of the alleged misrepresentations as well as who made the alleged misrepresentations to whom.”³⁸

Cases claiming fraud without sufficient particularity are subject to dismissal.³⁹ The courts have recognized that Rule 9(b) exists because Defendants should be protected against spurious charges of fraudulent behavior.⁴⁰ Rule 9(b)'s specificity requirement stems not only from the desire to minimize the number of strike suits but also more particularly from the desire to protect defendants from the harm that comes when they are charged with serious wrongdoing. It is a serious matter to charge fraud and hence no one is permitted to do so unless he is in a position and is willing to put himself on record as to the specific acts of fraud that were committed.⁴¹

Here, the Complaint is devoid of any allegation that sets forth the time, place and content of any alleged misrepresentations made by Tennille to the Plaintiffs. The Complaint contains no details as to how any representations made by Tennille, if any, misled the Plaintiffs. The Plaintiffs do not allege, as required by Georgia law, that they justifiably relied on any representation or opinion actually made to them by Tennille.⁴² Clearly they cannot plead justifiable reliance given the warnings and disclaimers contained in the promotional materials. Plaintiffs also fail to allege any facts to support the claim that they exercised due care to discover the alleged fraud.⁴³

These pleading failures deprive Tennille of fair notice of its purported role in the alleged scheme. Accordingly, the Plaintiffs' claims of fraud fail to state a claim and are a blatant violation of the “short and plain” requirement warranting dismissal of the Complaint.⁴⁴ The Court need not allow for amendment if that amendment would be futile.⁴⁵ The Complaint is such an irredeemable, blatant violation of Rules 8 and 9 that any amendment as to Tennille would be futile. Thus, the Complaint should be dismissed with prejudice.

B. The Federal Civil RICO Claim Fails Because it is Time-Barred and was Not Plead with Sufficient Specificity

1. The Statute of Limitations Bars Claims under 18 U.S.C. § 1964 et seq.

“Civil RICO actions are subject to a four-year statute of limitations.”⁴⁶ The RICO statute of limitations begins to run on the date that a plaintiff knew, or should have known, of the injuries that justify the allegations in the Complaint.⁴⁷ That date starts the limitations period “regardless of whether or when the injury is discovered to be part of a pattern of racketeering.”⁴⁸ A pattern of predicate acts may well be complex, concealed, or fraudulent, but those characteristics of RICO predicates are not enough to toll the statute of limitations. A financial fraud victim is not allowed to wait for time, the mother of truth, to make manifest a prohibited pattern.⁴⁹

The Plaintiffs' RICO claim are tied to the disallowance of the charitable contribution deduction generated by the SCE Strategy for the Maple Landing and Oakhill Syndicates. The Plaintiffs knew, or should have known, of this risk from the date they received the promotional materials for the investments. For the same reasons set forth in section A herein, those promotional materials would have put Plaintiffs on notice of the risk that the IRS may not agree with the opinions stated in the Tennille Appraisals. Even if the promotional materials did not start the statute of limitations, the 2012 audits would put the Plaintiffs on notice and they “knew, or should have known, of the injuries that justify the allegations in the Complaint.”⁵⁰ And, while the Plaintiffs aver that their claims are not time-barred because “the discovery rule and/or equitable tolling deferred accrual of the respective statute of limitations,” (Compl. ¶ 250) the Plaintiffs have alleged no facts against Tennille that would support the tolling argument or allege fraudulent concealment. The Courts have held that the “very nature of such tolling is that it be 'the exception, not the rule.'”⁵¹ The Plaintiffs have failed to allege any facts that would show that the statute of limitations was tolled. For the same reasons set forth above, the Plaintiffs' RICO civil claims are time-barred.

2. The Plaintiffs Have Failed to Plead Claims brought under 18 U.S.C. § 1964 et seq. with Sufficient Specificity

“While a Complaint containing RICO claims is often required to be somewhat lengthier than other Complaints, the assertion of RICO claims does not in itself excuse a plaintiff from satisfying the requirements of Rule 8(a)(2) and Rule 8(e)(1).”⁵² The Complaint must link factual allegations to specific counts, otherwise it risks being a quintessential shotgun pleading.⁵³ Here, Plaintiffs' Complaint does not link factual allegations to specific counts and fails to give adequate notice to the defendants of the claims against them and grounds upon which each claim rests.⁵⁴

Additionally, as RICO claims are essentially a certain breed of fraud claims, they must be pled with the increased level of specificity required by Fed. R. Civ. P. 9(b).⁵⁵

To satisfy the Rule 9(b) standard, RICO Complaints must allege: (1) the precise statements, documents, or misrepresentations made; (2) the time and place of and person responsible for the statement; (3) the content and manner in which the statements misled the Plaintiffs; and (4) what the Defendants gained by the alleged fraud.⁵⁶.

In the Complaint, at least with regard to Tennille, there are no allegations upon which this Court could conclude that any specific act by Tennille is indictable for mail or wire fraud, or any other predicate act. All the Plaintiffs allege concerning Tennille are conclusory allegations lumping Tennille in with more conclusory allegations directed at all of the defendants; nothing is alleged in the Complaint that informs Tennille of predicate acts it allegedly committed, or the nature of its alleged participation in the enterprise alleged by the Plaintiffs. See (Compl. ¶¶ 262-281). Therefore, the Plaintiffs' RICO claims fail for non-compliance with both Rule 8 and Rule 9 and should be dismissed.

C. The Georgia Civil RICO Claim Fails Because it is Time-Barred and was Not Plead with Sufficient Specificity

1. The Statute of Limitations Bars Claims brought by the Plaintiffs

Georgia's civil RICO statute mirrors 18 U.S.C. § 1964, et seq. except that a Plaintiff has five years to bring his action. As explained above, the five year statute of limitations on the Plaintiffs' Georgia RICO claims began to run in 2010 and thus their Georgia RICO claims are now time-barred.

2. The Plaintiffs Have Failed to Plead Claims Brought Under O.C.G.A. § 16-14-1 et seq. with Sufficient Specificity

The Georgia Court of Appeals held in Nicholson v. Windham et al.,⁵⁷ that:

As a mandatory condition to asserting the RICO claims, Nicholson must show a direct nexus between at least one of the predicate acts listed under the RICO Act and the injury she purportedly sustained. Maddox v. Southern Engineering Co.,231 Ga. App. 802, 805(1), 500 SE2d 591 (1998). Specifically, a private plaintiff under the RICO Act must “show that the injury suffered flowed directly from the predicate offense.” Gentry v. Volkswagen of America, 238 Ga. App. 785, 791(4), 521 SE2d 13 (1999). In other words, Nicholson must show that her injury was caused “by reason of” a violation of one of the specific crimes listed in O.C.G.A. § 16-14-3(9)(A). Maddox v. Southern Engineering Co., 231 Ga. App. 802, 805(1), 500 SE2d 591 (1998) (Italics added)⁵⁸

Failure to meet these pleading requirements justifies dismissal for failure to state a claim.⁵⁹

Again, the Complaint contains no precise statements, documents or misrepresentations made to the Plaintiffs by Tennille, and contains no details as to what Tennille actually did to mislead the Plaintiffs. These pleading failures deprive Tennille of fair notice of its purported role in the alleged scheme. As this is a case involving multiple defendants, the Complaint should inform Tennille and each defendant of the nature of it, his or her specific, alleged participation in the fraud.⁶⁰ Nothing in the Complaint alleges, clearly or otherwise, what Tennille specifically did that was mail or wire fraud as a Georgia RICO predicate, and provides no basis in fact upon which this Court can conclude that any act of Tennille was illegal. As Tennille has not been properly informed of what it supposedly did, Rule 9(b) has not been satisfied.⁶¹

By way of example, when describing the purported predicate acts, the Tennille Plaintiffs simply state that “Defendants . . . acted at all times with malice toward the Plaintiffs and the Class, intending to engage in the conduct complained of for the benefit of Defendants and their co-conspirators and with knowledge that such conduct was unlawful” without any evidentiary support of the same. (Compl. ¶ 225). Similarly, when describing the Appraiser Defendants' purported participation in an alleged enterprise, the Plaintiffs state that the “Appraiser Defendants also prepared the Appraisals with full knowledge and the intent that the valuations contained in the Appraisals would be used by the Plaintiffs to claim charitable contribution deductions on their tax returns,” and that “the appraiser Defendants allowed the other Defendants and the Sponsors to direct and dictate the values reached and the methodologies employed in the Appraisals in violation of the Appraiser Defendants' professional obligations and duties.” (Id. ¶ 221(c)). Such vague, conclusory statements, on their own, are not sufficient to maintain an action for Georgia Civil RICO.

The Plaintiffs have not shown a direct nexus between any predicate act attributed in the Complaint to Tennille and the injury the Tennille Plaintiffs purportedly sustained, as required by the holding in Maddox.⁶² Nor have the Tennille Plaintiffs shown that their purported injuries flowed directly from the predicate offenses generally alleged in the Complaint, as required by Gentry.⁶³ In short, the Tennille Plaintiffs have wholly failed to show that their claimed RICO injuries were caused by reason of any violation of any of the specific crimes listed in OCGA § 16-14-3(9)(A) by Tennille. Failure to meet these basic pleading requirements justifies dismissal of a Georgia RICO claim for failure to state a claim, especially as Georgia has rejected any “but for” causation scheme.⁶⁴

D. The Federal Civil RICO Claim for Conspiracy Fails Because it was Not Plead with Sufficient Specificity

“The Eleventh Circuit requires a heightened pleading standard in conspiracy cases because a defendant must be informed of the nature of the conspiracy alleged. 'It is not enough to simply aver in the Complaint that conspiracy existed.' Thus, conclusory, vague and general allegations of conspiracy may justify dismissal of a Complaint.”⁶⁵

Here, the Complaint sets out a claim against all Defendants for allegedly conspiring to violate 18 U.S.C. § 1962(c).⁶⁶ Yet, as to Tennille, the Plaintiffs allege conclusory, vague and general allegations of the conspiracy, devoid of any specificity that puts Tennille on notice of the claims against it. The Plaintiffs cite to a “pattern of racketeering activity” to support their conspiracy claim against “Defendants,” yet do not specify which of the defendants if any, and by what actions, committed the alleged violations of mail and wire fraud. (Compl. ¶ 280). The Plaintiffs, therefore, have failed to follow the pleading requirements of Rules 8 and 9, and as such, their claim for conspiracy under federal RICO statute must be dismissed.

E. The Georgia Federal Civil RICO Claim for Conspiracy Fails Because it was Not Plead with Sufficient Specificity

“Where one seeks to impose civil liability for a conspiracy. . . . 'the gist of the action is not the conspiracy alleged, but the tort committed against the plaintiff and the resulting damage. The plaintiff must allege all the elements of a cause of action for the tort the same as would be required if there were no allegation of a conspiracy.'”⁶⁷ Simply put, because the alleged conspiracy is sounded in purported fraud, the Plaintiffs must meet the same pleading requirements as the underlying tort, here fraud.

The Plaintiffs again plead a claim for conspiracy under Georgia civil RICO by insufficiently pleading conclusory allegations as to all Defendants as a whole, rather than ascribing specific allegations as to specific defendants. Plaintiffs allege that “[a]cting jointly with their co-conspirators, Defendants have and have possessed greater power, have been able to exert greater influence, have been able to successfully engage in the activities set forth herein, and have had greater ability to conceal their activities.” (Compl. ¶ 295). Yet, the Plaintiffs do not specify by any specific allegation in the Complaint how, when, or who possesses said greater power, or has exerted greater influence.

Further, the Complaint is devoid of any allegations of Tennille being a member of the “Enterprise.” In the inclusive examples of purported predicate acts alleged by the Plaintiffs in the Complaint, the only possible mention of Tennille being involved is a broad statement concerning “[a]ll Appraisals prepared by any of the Appraiser Defendants on property owned by any SCE Syndicate sponsored or managed by Effingham or Evergreen or any of their affiliates and sent by email or mail to any potential or actual member of such Syndicate,” without specifying which Appraiser Defendant, and without specifying how or when the appraisals were sent to members of the Syndicate. (Compl. ¶ 234(a)-(kk), (ee)). In fact, there are no allegations that Tennille directly sent either of the appraisals to any of the Plaintiffs, but rather only a statement that “on or about December 20, 2010, Tennille submitted the final Appraisal. . . . and was attached to the Maple Landing Syndicate's tax return,” and “attached to the Oakhill Syndicate's tax return.” (Compl. ¶¶ 83, 139). It is unclear from the face of the Complaint, who specifically received the either of the appraisals directly from Tennille or Roberts.

As the Complaint on its face does not meet the pleading requirements under Rule 8 or 9 for the underlying tort actions, then it cannot and does not meet the pleading requirements to sustain a claim of conspiracy against Tennille. Therefore, the conspiracy claim must fail as a matter of law and should be dismissed.

E. The Negligent Misrepresentation Claim Against Tennille Must Fail Because it is Time-Barred and Because the Plaintiffs Fail to Allege Reliance

1. The Statute of Limitations Bars the Negligent Misrepresentation Claim

The statute of limitations for a negligent misrepresentation action in Georgia is four years.⁶⁸ Tennille conducted the appraisals in 2010. To the extent Plaintiffs claim that those appraisals contained misrepresentations as to the value of the conservation easements, the statute of limitations on those claims would run in 2014. As with their fraud and RICO claims, Plaintiffs have alleged no facts to support any kind of tolling for “discovery” or “fraudulent concealment”. For the reasons set forth above, the Plaintiffs' claims for negligent misrepresentation are time barred and should be dismissed.

2. The Plaintiffs Failed to Plead Their Negligent Misrepresentation Claims with Sufficient Specificity

A claim of negligent misrepresentation requires a plaintiff to follow Rule 9(b) pleading standards.⁶⁹ Similar to a fraud claim, the Plaintiffs must allege “(1) the precise statements, documents, or misrepresentation made; (2) the time, place, and person responsible for the statement; (3) the content and manner in which these statements misled the Plaintiffs; and (4) what the defendants gained by the alleged fraud.”⁷⁰

The Plaintiffs, did not plead with specificity any of the requirements for their negligent misrepresentation claim against Tennille. The Plaintiffs allege that they “(1) paid substantial sums to participate in the SCE Strategy; (2) paid substantial fees to the Defendants, the Sponsors, and Other Participants for professional advice and services; (3) did not avail themselves of other, more legitimate tax savings opportunities; (4) filed federal and state tax returns that reflected charitable contribution deductions in connection with the SCE Strategy; (5) did not file a qualified amended return; and (6) spent substantial funds in connection with IRS audits and Tax Court proceedings.” (Compl. ¶ 316). There are no allegations in the Complaint that the Plaintiffs saw, much less relied on, the appraisals performed by Tennille. Furthermore, there are no allegations, save for the conclusory allegation that the Plaintiffs “paid substantial fees to the Defendants,” of what Tennille purportedly gained by the alleged misrepresentations. Tennille was commissioned to prepare appraisals in return for its standard fee for such appraisals. Plaintiff has made no allegation that Tennille gained anything by including misrepresentations in the appraisals. Thus, the Plaintiffs have failed to plead negligent misrepresentation with sufficient specificity under Rule 9, and the claim must be dismissed.

3. Plaintiffs Could Not Have Justifiably and Actually Relied on Any Representations by Tennille

Justifiable reliance is an essential element of a claim asserting negligent misrepresentation; and, failure to exercise due diligence, as a matter of law, bars negligent misrepresentation claim.⁷¹ As set forth above, Plaintiffs have failed to allege any facts that they justifiably relied on the opinions expressed in Tennille's appraisal. Given the warnings and disclaimers which would have been included in the promotional materials for the investments, the Plaintiffs cannot claim that they justifiably relied on the opinions rendered by Tennille. Furthermore, the Plaintiffs are third parties who were not in privity with Tennille. Under that circumstance, recovery may be had by the Plaintiffs against Tennille only where it is shown that the Plaintiffs actually relied on the opinions expressed by Tennille when making their investments.

In Georgia, for a claim of negligent misrepresentation to survive, a plaintiff must show, first, that the “known third party's reliance was the desired result of the misrepresentation.”⁷² In Robert & Co. Assoc., the Supreme Court of Georgia adopted the rule enunciated in the Restatement of Torts, 2d, § 552 (1977), which provides:

[O]ne who supplies information during the course of his business, profession, employment, or in any transaction in which he has a pecuniary interest has a duty of reasonable care and competence to parties who rely upon the information in circumstances in which the maker was manifestly aware of the use to which the information was to be put and intended that it be so used. This liability is limited to a foreseeable person or limited class of persons for whom the information was intended, either directly or indirectly. In making a determination of whether the reliance by the third party is justifiable, we will look to the purpose for which the report or representation was made. If it can be shown that the representation was made for the purpose of inducing third parties to rely and act upon the reliance, then liability to the third party can attach.⁷³

In Badische Corporation v. Caylor,⁷⁴ the Georgia Supreme Court clarified and limited the rule from Roberts & Company Associates “by holding that professional liability for negligence extends to those persons, or the limited class of persons, who the professional is 'actually aware' will rely upon the information prepared.”⁷⁵ Thus, a plaintiff not in privity must show that the defendant made a representation to a known person,⁷⁶ and, that the person actually relied on the representation. Evidence of indirect reliance will not suffice.⁷⁷

Here, there is no allegation in the Complaint that the Plaintiffs are or were ever in privity with Tennille or actually relied on any purported opinions expressed by Tennille in the appraisals when investing in the syndicates in 2010. The Plaintiffs only allege that they relied on the promotional materials supplied to them by others when investing in both the Maple Landing Syndicate and the Oakhill Syndicate. (Compl. ¶¶ 71, 126). The Plaintiffs have avoided mentioning the warnings and disclaimers contained in those promotional materials and thus have not alleged that those warnings did not fairly apprise them of the risk. In fact, Lechter could not have relied on the appraisal performed by Tennille as he invested months before it was completed and submitted. (Id. ¶¶ 132, 139, 141). Because there is no allegation of privity, justifiable reliance or actual reliance, the Plaintiffs claims for negligent misrepresentation in Count VI must be dismissed.⁷⁸

G. Georgia Does Not Recognize the Tort of “Aiding and Abetting Fraud” as a Basis for Liability

The tort of “Aiding and Abetting Fraud” is not recognized as a tort in Georgia as a distinct basis of liability separate and distinct from a claim of fraud.⁷⁹

There is no significant distinction between aiding and abetting fraud as a separate tort and committing the tort of fraud as a joint tortfeasor.⁸⁰ As such, Count X, with respect to Tennille should be dismissed.

H. Georgia Does Not Recognize Civil Conspiracy as an Independent Tort

As with “Aiding and Abetting Fraud,” civil conspiracy is not an independent tort in Georgia recognized as a distinct basis of liability; any claim of conspiracy must be tied to another theory of liability.⁸¹ As such, when the claim of fraud on which it is based fails, as it does here, the claim for civil conspiracy claim fails as well.⁸² Moreover, for there to be a claim of conspiracy, there must be a sufficient pleading of a “mutual understanding” with one or more other parties.⁸³ In this action, the Plaintiffs have failed to allege facts that demonstrate that Tennille came to a “mutual understanding” with anyone else about anything. Therefore, Count XII should be dismissed.

IV. CONCLUSION

For the foregoing reasons, Defendant Tennille respectfully submits that the Plaintiffs' allegations against it should be dismissed with prejudice.

Respectfully submitted, this 7th day of August 2020.

DREW ECKL & FARNHAM, LLP

Barbara A. Marschalk
State Bar of Georgia No. 324498
Leslie P. Becknell
State Bar of Georgia No. 046320
David L. Rusnak
State Bar of Georgia No. 620170
Roberto Bazzani
State Bar of Georgia No. 609464

303 Peachtree Street, NE, Suite 3500
Atlanta, Georgia 30308
Telephone: (404) 885-1400
Fax: (404) 876-0992
Email: bmarschalk@deflaw.com
lbecknell@deflaw.com
rusnakd@deflaw.com
bazzanir@deflaw.com

Attorneys for Defendant Tennille & Associates, Inc