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Attorney, Firm Seek Dismissal of Conservation Easement Suit

AUG. 7, 2020

Andrew Lechter et al. v. Aprio LLC et al.

DATED AUG. 7, 2020
DOCUMENT ATTRIBUTES

Andrew Lechter et al. v. Aprio LLC et al.

ANDREW LECHTER; SYLVIA THOMPSON; LAWSON F. THOMPSON; RUSSELL DALBA; and KATHRYN DALBA, on behalf of themselves and all other similarly situated,
PLAINTIFFS,
v
APRIO, LLP f/k/a HABIF, AROGETI & WYNNE, LLP; ROBERT GREENBERGER; SIROTE & PURMUTT, P.C.; BAKER, DONELSON, BEARMAN, CALDWELL, & BERKOWITZ, P.C.; SMITH, LEWIS & HALEY, LLP; DAVID C. SMITH; FOREVER FORESTS, LLC; NANCY ZAK; JAMES JOWERS; LARGE & GILBERT, INC.; CLOWER KIRSH & ASSOCIATES, LLC; JIM R. CLOWER, SR.; TENNILLE & ASSOCIATES, INC.; ATLANTIC COAST CONSERVANCY, INC.; ROBERT D. KELLER; and GEORGIA ALABAMA LAND TRUST, INC. f/k/a GEORGIA LAND TRUST, INC.,
DEFENDANTS

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

JURY DEMAND

DEFENDANTS DAVID C. SMITH AND SMITH, LEWIS & HALEY, LLP'S PRE-ANSWER MOTION TO DISMISS PLAINTIFFS' COMPLAINT

Defendants David C. Smith and Smith, Lewis & Haley, LLP (hereinafter collectively referred to as “Smith”) pursuant to Rules 8, 9, and 12 of the Federal Rules of Civil Procedure, hereby file this Motion to Dismiss, respectfully moving this Court to dismiss Plaintiffs' Original Class Action Complaint (the “Complaint”) and all of the claims asserted against Smith. In support of this Motion, Smith relies on its memorandum of law filed as an attachment herewith, and the documents of record in this action. Defendant Smith also incorporates by this reference and adopts the applicable arguments and/or legal theories of other defendants herein with respect to its Motion to Dismiss.

WHEREFORE, for the reasons set forth in its brief filed herewith, Smith respectfully requests that this Court grant its Motion to Dismiss and enter an Order dismissing all claims asserted against Smith.

Respectfully submitted this 7th day of August, 2020.

McCAMY, PHILLIPS, TUGGLE & FORDHAM, LLP

BY: Robert H. Smalley, III
Georgia Bar No: 653405
Attorney for Defendant David C. Smith and Smith, Lewis & Haley, LLP

P.O. Box 1105
Dalton, Georgia 30722-1105
Telephone: (706) 278-4499
Facsimile: (706) 278-5002


EXHIBIT A

DAVID C. SMITH AND SMITH, LEWIS & HALEY'S MEMORANDUM IN SUPPORT OF MOTION TO DISMISS PLAINTIFF'S COMPLAINT

Defendants David C. Smith and Smith, Lewis & Haley, LLP (hereinafter collectively referred to as “Smith”) hereby submit this Memorandum in Support of its Pre-Answer Motion to Dismiss the Plaintiffs' Original Class Action Complaint (the "Complaint,") respectfully requesting that the Court dismiss the Complaint and all claims asserted against Smith. In support of this Motion, Smith respectfully shows the Court as follows:

I. INTRODUCTION

In 2011 when he was hired to perform certain limited legal work in connection with what would become the Mossy Rock Syndicate, Defendant David C. Smith was a partner in the Rome, Georgia law firm, Smith, Lewis & Haley, LLP. In the many years since 2011, David C. Smith has moved to an in-house legal position with a local Rome, Georgia company and Smith, Lewis & Haley, LLP no longer exits, having been dissolved. None of the Plaintiffs herein retained Smith as counsel or engaged Smith to do anything; instead, a non-party to this litigation retained Smith, for a flat fee, to assist in the review and amendment of certain legal documents. Despite filing its extremely lengthy Complaint, with several hundred paragraphs, Plaintiffs dedicate only three (3) to as many as six (6) paragraphs to assert vague, conclusory, and unsupported allegations against Smith. The overwhelming majority of the allegations in this wide-ranging Complaint are related to alleged actions or omissions of other Defendants. Plaintiffs' lumping Smith together with all other Defendants not only violates federal pleading rules but, perhaps more importantly, fails to assert any plausible claim against Smith. For the reasons detailed below, this Court should dismiss all of Plaintiffs' claims against Smith and remove Smith collectively from this action.

II. STATEMENT OF RELEVANT FACTS

Plaintiffs Andrew Lechter (“Lechter,”) Sylvia and Lawson Thompson (the “Thompson Plaintiffs,”) and Russell and Kathryn Dalba (the “Dalba Plaintiffs,”) filed the Complaint asserting claims against seventeen (17) total Defendants (collectively, the “Defendants”) to recover damages allegedly sustained by them after their voluntary participation in three (3) allegedly defective syndicated conservation easement strategies (each an “SCE Strategy,”) (See, e.g., Compl., ¶¶ 1, 36, 40, 70-152). After removing away the legal, conclusory, and duplicative allegations in their lengthy Complaint, Plaintiffs attempt to allege various claims collectively against “the Defendants” arising out of the Defendants' alleged joint involvement in implementing and advertising the SCE Strategy and Plaintiffs' participation and investment in the SCE Strategy by way of the following three Syndicates:

A. The Delba Plaintiffs' Investment in the Maple Landing Syndicate and Lechter's Investment in the Oakhill Syndicate

Plaintiffs make no allegations regarding Smith with respect to the Maple Landing Syndicate or the Oakhill Syndicate. Therefore, Smith will not further address either.

B. The Thompson Plaintiffs' Investment in the Mossy Rock Syndicate

Smith was retained by a non-party hereto in September 2011 to provide limited legal services for what would become the Mossy Rock Syndicate. The Mossy Rock Syndicate sent certain promotional materials, dated October 20, 2011, to the Thompson Plaintiffs among others. (Id., ¶ 100). After reviewing the promotional materials, the Thompson Plaintiffs allege they invested $19,000 in the Mossy Rock Syndicate on December 7, 2011. (Id., ¶¶ 103-106).

Thereafter, the members of the Mossy Rock Syndicate approved the placement of a conservation easement on the real estate and the contribution of the conservation easement to Atlantic Coast Conservancy, Inc. ("ACC"). (Id., ¶¶ 107-109). Clower, Kirsch & Associates and Jim R. Clower, Sr. (collectively, the "Clower Defendants"), as the appraiser, submitted the final appraisal, valuing the conservation easement at $17,685,000. (Id., ¶ 110). After the Mossy Rock Syndicate conveyed the conservation easement to ACC, the Aprio Defendants, among other things, prepared the Appraisal Summary Form 8283 sometime before April 7, 2012. (Id., ¶¶ 111-16). The Clower Defendants, as the appraiser, and Robert D. Keller ("Keller"), as the representative of ACC, verified and signed the Appraisal Summary Form 8283 as accurate. (Id., ¶ 116).

On or about April 7, 2012, the Aprio Defendants prepared the 2011 tax return for the Mossy Rock Syndicate, attached the Appraisal Summary Form 8283, and Schedule K-1 for each investor. (Id., ¶ 117). The charitable contribution deduction and the Appraisal Summary Form 8283 to substantiate the charitable deduction for each investor to claim the charitable contribution deduction on his or her individual tax return. (Id. ¶ 118).

On or about April 9, 2014, the IRS apparently issued a notice that it had selected Mossy Rock Syndicate's 2011 tax return for an audit. (Id., ¶ 120). The Aprio Defendants and Sirote were hired to represent the Mossy Rock Syndicate in the audit and tax court. (Id., ¶ 121). On January 12, 2015, a partner for the Mossy Rock Syndicate sent a letter to all of its members, including the Thompson Plaintiffs, enclosing an IRS Revenue Agent Report dated December 11, 2014 (the "Mossy Rock RAR") that concluded that Mossy Rock Syndicate's charitable contribution deduction of $17,685,000 would be disallowed at the partnership level. (Id., ¶ 122). On or about October 10, 2017, the IRS issued a Final Partnership Administrative Adjustment notice for Mossy Rock Syndicate's 2011 tax year, adopting the findings in the Mossy Rock RAR. (Id., ¶ 124).

C. Smith's Alleged Participation in the SCE Strategy and Syndicates

As noted above, Plaintiffs assert non-specific factual allegations against Smith in only a few paragraphs of their entire Complaint. (Id., ¶¶ 102, 104, 109) and only with respect to the Mossy Rock Syndicate.

A review of the allegations relating to each Syndicate shows that Plaintiffs allege: (1) the Aprio Defendants allegedly prepared the Appraisal Summary Form 8283 for the Syndicates (Id., ¶¶ 89, 116, 141) and Plaintiffs (Id., ¶¶ 92, 118, 144); and (2) the Clower Defendants and Keller verified and signed the Appraisal Summary Form 8283 for the Mossy Rock Syndicate (Id. ¶ 116). Importantly, there are no allegations relating to Smith's involvement in the preparation of the Appraisal Summary or Form 8283 nor are there any allegations that any other Defendants sought any advice on anything from Smith.

Next, as part of their allegations relating to the "operation of the RICO Enterprise," purportedly in support of Plaintiffs' claims for violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO") and Georgia's RICO ("Georgia RICO"), Plaintiffs simply allege, in a conclusory manner, that “Defendants” collectively conspired, mentioning Smith only once (¶ 221(e)).

III. STANDARD OF REVIEW

To survive a Rule 12(b)(6) motion to dismiss, a complaint "must state a claim for relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955 (2007) (stating complaint that failed to "nudge[ ] . . . claims across the line from conceivable to plausible" must be dismissed). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 678-79, 129 S. Ct. 1937 (2009) (complaint should not survive dismissal if it "tenders [only] naked assertions] devoid of further factual enhancement").

IV. ARGUMENT AND CITATION OF AUTHORITY

A. The Complaint Violates Pleading Rules.

Fed. R. Civ. P. 8(a)(2) requires that a pleading shall contain "a short and plain statement of the claim showing that the pleader is entitled to relief." See Fed. R. Civ. P. 8(a). Complaints that violate Rule 8 are "often disparagingly referred to as shotgun pleadings." Amin v. Mercedes-Benz USA, LLC, 349 F. Supp.3d 1338, 1349 (ND. Ga. 2018) (citing Weiland v. Palm Beach Cnty. Sheriffs Office, 792 F.3d 1313, 1321-23 (11th Cir. 2015)). 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." Peavey v. Black, 476 F. App'x 697, 699 (11th Cir. 2012).

Types of shotgun pleadings include those where the plaintiff asserts "several counts, each one incorporating by reference the allegations of its predecessors, leading to a situation where most of the counts (i.e., all but the first) contain irrelevant factual allegations and legal conclusions" and those where the plaintiff asserts "multiple claims against multiple defendants without specifying which defendant is responsible for which acts or omissions." Giscombe v. ABN Amro Mortg. Gp., Inc., 680 F. Supp.2d 1378,1381 (N.D. Ga. 2010); Amin, 349 F. Supp.3d at 1349; Weiland, 792 F.3d at 1321, 1323; see also Brown v. Air Line Pilots Ass'n, __ F. App'x __, 2020 WL 2175959 (11th Cir. 2020). "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." Weiland, 792 F.3d at 1323. The Eleventh Circuit has often criticized shotgun pleadings as "resulting in a massive waste of judicial and private resources." Peavey, 476 F. App'x at 699. Plaintiffs' Complaint is a textbook example of a shotgun pleading that violates Rule 8 and fails to give Smith adequate notice of the claims against them and the grounds upon which each claim rests.

Violation of Rule 8's "short and plain" statement requirement warrants dismissal of a Complaint. See Brown, 2020 WL 2175959, at *2-4. Before the Court dismisses a shotgun, "it need not allow for amendment . . . where [the] amendment would be futile." Id. (dismissing plaintiffs complaint without leave to amend finding that the complaint "failed to state a claim for which relief could be granted, so allowing for the amendment of the shotgun nature of his complaint would have been futile"). Any amendment as to Smith would be futile because Plaintiffs fail to state a claim against Smith for which relief can be granted. Thus, Plaintiffs' Complaint and all claims against Smith should be dismissed.

B. Plaintiffs fail to plead the fraud-based claims with requisite particularity

Rule 9(b) requires that in all averments of fraud, “the circumstances constituting fraud shall be stated with particularity.” Antilles Trading Co., S.A. v. Scientific-Atlanta, Inc., 117 F. RD. 447 (N.D. Ga. 1986). For each of Plaintiffs' substantive claims against Smith for alleged violations of RICO and Georgia RICO, conspiracy, fraud and negligent misrepresentation, Plaintiffs are required to plead the claims with the particularity required by Rule 9. See, Ambrosia Coal & Constr. Co. v. Pages Morales, 482 F. 3d 1309. 1316-17 (11th Cir. 2007) (explaining that the specificity requirement of Rule 9(b) applies to claims of fraud and violations of RICO); SIS, LLC v. Stoneridge Holdings, Inc., 1:17-CV-01816-ELR, 2019 WL 8277244 (N.D. Ga. Feb. 5, 2019) (applying the pleading requirements of Rule 9(b) to plaintiffs fraud-based claim; fraud and negligent misrepresentation); Wilson v. Nationstar Mort., LLC, No. 1:14-CV-3540-CC-GGB, 2015 WL 11622466, at *3 (N.D. Ga. June 24, 2015), report and recommendation adopted, 2015 WL 11622467 (N.D. Ga. Sept. 2, 2015) (explaining that the “heightened pleading requirements of Rule 9(b) also apply to fraud-based state RICO claims brought in federal court”); Watts v. JP Morgan Chase Bank, N.A., No. 1:13-CV-00866-RWS, 2013 WL 3779152 (N.D. Ga. July 17, 2013).

Rule 9(b) is intended to "prevent the filing of fraud claims in which the facts are learned through discovery after the filing of the complaint" and to "protect potential defendants from incurring harm to their reputation and to provide them with sufficient notice so as to be able to prepare a defense to a charge of fraud." Antilles Trading Co., 117 F.R.D. 447; see also Adams-Brown v. Caliber Home Loans, Inc., No. 1:17-CV-2326-AT-JSA, 2018 WL 1779425 (N.D. Ga. Jan. 5, 2018), report and recommendation adopted 2018 WL 1794377 (N.D. Feb. 22, 2018) (explaining that the particularity requirement "protects defendants against spurious charges of [ ] fraudulent behavior"). This is particularly significant in the context of a RICO claim in which the allegation of fraud gives rise to a charge of "racketeering." Antilles Trading Co., 117 F.RD at 450 (explaining that "a vague allegation of fraud made with the hope of later discovery of the wrongdoing is even more troubling in the context of a RICO claim, in which the defendant stands accused of racketeering" and that "a complaint alleging fraud and racketeering should be a vehicle to right a wrong, not to find one.")

In this case, Plaintiffs have lumped Smith together with "the Defendants" and have utterly failed to allege (1) the precise misrepresentations or omissions made by Smith, (2) the content and manner in which the statements or omissions made by Smith misled Plaintiffs, and (3) what Smith gained in support of any of their fraud-based claims. Specifically, in support of their fraud-based claims against Smith, Plaintiffs allege only that Smith "provided advice and services regarding real estate matters and tax modifications (Compl., ¶ 57(c)). Despite this conclusory allegation, Plaintiffs fail, among other things, to identify (1) any details relating to the "advice or services" Smith provided, (2) what actions Smith took in providing the "advice or services," (3) when Smith provided the "advice or services", (4) what "advice or services" provided by Smith was improper, false or misleading, (5) why such "advice or services" was improper, false or misleading, or (b) that they are even in privity with Smith. (See, generally, id.)

Because Plaintiffs have blatantly violated Rule 9(b)'s pleading requirement, this Court must dismiss all of Plaintiffs' substantive, fraud-based claims and derivative claims based on such substantive claims. See McAdams, 2007 WL 2310112, at *5-6.

C. The Court should dismiss Plaintiffs' claims for violation of RICO.

Plaintiffs assert claims against “all Defendants” for alleged violations of (I) 18 US.C. § 1963(c) and (2) 18 U.S.C. § 1963(d) for conspiracy to violate 18 US.C. § 1963(c). (Comp., Count I, II). However, Plaintiffs' claims against Smith for violation of RICO fail because (1) Plaintiffs fail plausibly to allege the existence of an enterprise, a pattern of racketeering activity, or damages, and (2) the claims are barred by the statute of limitations,

1. Plaintiffs fail plausibly to allege the elements of a RICO claim.

To recover under 18 US.C. § 1962(c) “a civil plaintiff must establish a 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): Lehman v. Lucom, 727 F. 3d 1326, 1330 (11th Cir. 2013). “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.” Ray, Supra.

a. Plaintiffs fail to plead the existence of a RICO enterprise.

Plaintiffs purported "enterprise" consists of "(1) the Defendants; (2) the Sponsors; (3) the Other Participants; and (4) all other persons and entities that associated to solicit persons to participate in the SCE Strategy for the purpose of generated and sharing fees and commissions generated from the SCE Strategy and alleged tax liability reduction it purported to provide." (Compl., ¶ 211). Thus, Plaintiffs "enterprise" is allegedly 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, 1357 (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.

First, while Plaintiffs group Smith together with the other Defendants and several categories of non-defendants into a so-called "Enterprise,” Plaintiffs have failed to plead that Smith shared any common purpose with the other members of the Enterprise. Plaintiffs allege that the participants of the Enterprise "engaged in a common plan, transaction and course of conduct described herein in connection with the design, promotion, sale and implementation of the SCE Strategy." (Compl., ¶ 214). It is clear that there are no facts sufficient to give rise to a plausible inference that Smith was a part of any alleged Enterprise that acted with any "common plan." Indeed, Smith was merely retained and paid a set legal fee to review certain legal documents, with no other connection or interest regardless of the outcome.

b. Plaintiffs fail to plead a pattern of racketeering activity.

"To successfully allege a pattern of racketeering activity, plaintiffs must charge that: (1) the defendants committed two (2) or more predicate acts within a ten-year (10) time span; (2) the predicate acts were related to one another; and (3) the predicate acts demonstrated criminal conduct of a continuing nature." Chesapeake Employers' Ins. Co. v. Eades, 77 F. Supp.3d 1241, 1254 (N.D. Ga. 2015). The "continuity element" is "crucial to a valid RICO claim." Id. "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.

Plaintiffs do not even attempt to establish a pattern of racketeering activity as it relates to Smith. Without any specific allegations against Smith completing predicate acts, Plaintiffs are thereby unable to plead any “continuity” of any alleged Smith conduct. “Nee Burchett v. Lagi, No. 1:11-CV-2379-TWT, 2012 WL 3042984 (N.D. Ga. July 25, 2012); see also J.G. Williams, Inc. v. Regency Props, Ltd., 672 F. Supp. 1346 (N.D. Ga. 1987) (dismissing plaintiffs RICO claim due to its failure to adequately allege a pattern of racketeering activity).

c. Plaintiffs fail to plead an injury.

The ability to plead an injury to a plaintiffs business or property that he would not otherwise have suffered "but for" the alleged RICO violation is essential to support a RICO claim. See Ray, 836 F.3d at 1350; see also Fuller v. Home Depot Servs., LLC, 512 F. Supp.2d 1289, 1293 (N.D. Ga. 2007). Specifically, plaintiff is required to plead facts "sufficient to give rise to a reasonable inference that the claimed racketeering activity . . . was the but-for and proximate cause of the [P]laintiffs' 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.

Although Plaintiffs allege they have been "injured" as a result of the Defendants' acts, such allegations "amount to little more than threadbare recital(s) of the elements of a cause of action, supported by mere conclusory statements, which [are] plainly insufficient to support a cause of action." Id. at 1350. Furthermore, Plaintiffs fail to allege any facts sufficient to show that Smith did any act, let alone an act of racketeering, that was the but-for and proximate cause of Plaintiffs' alleged injuries.

d. Plaintiffs fail to plead a RICO conspiracy claim.

"Under 18 U.S.C. § 1962(d), it is unlawful to enter into a conspiracy with the intention of violating any other part of § 1962." Fuller, LLC, 512 F. Supp.2d at 1295. To support a claim of RICO conspiracy, a plaintiff must "allege an illegal agreement to violate a substantive provision of the RICO statute." Id. In other words, ”[t]o sufficiently state a conspiracy claim, [ ] the complaint must allege the existence of an agreement to commit an act that is itself illegal." Id. "[P]arties cannot be found guilty of conspiring to commit an act that is not itself against the law." Id. Accordingly, "if the underlying allegations of RICO violations are not viable, a conspiracy claim based on those violations must also fail." Id. (dismissing plaintiffs RICO conspiracy claim because the plaintiff failed to sufficiently state a substantive RICO claim against the defendant).

Plaintiffs here have not only failed to plead the existence of any agreement between Smith and any other party, Plaintiffs also fail to set for allegations to even support an inference that Smith agreed to an alleged conspiracy. Because Plaintiffs fail to state a RICO claim against Smith, Plaintiffs' conspiracy claim based on such alleged violations also fails.” See Fuller, 512 F. Supp. 2d 1295; see also Cigna Corp., 605 F. 3d at 1294 (rejecting “formulaic recitations” of a RICO conspiracy claim.)

2. Plaintiffs' RICO claims are barred by statute of limitations. Assuming arguendo that Plaintiffs have plausibly alleged the required elements to establish a substantive RICO claim

2. Plaintiffs' RICO claims are barred by statute of limitations. Assuming arguendo that Plaintiffs have plausibly alleged the required elements to establish a substantive RICO claim or a RICO conspiracy claim Plaintiffs' RICO claims are entirely barred by the four-year statute of limitations. See Agency Holding Corp. v. Malley-Duff & Assocs., Inc., 483 U.S. 143, 156 (1987); Pacific Harbor Capital, Inc. v. Barnett Bank, N.A., 252 F.3d 1246, 1251 (11th Cir. 2001); Youngblood-West v. Aflac Inc., No. 4:18-CV-83 (CDL), 2018 WL 10562576 (M.D. Ga. Nov. 9, 2018). A civil cause of action under RICO accrues "when the injury was or should have been discovered, regardless of whether or when the injury is discovered to be part of a pattern of racketeering." Lehman, 727 F.3d at 1330. A plaintiff should have discovered the injury when "there are sufficient storm warnings to trigger the duty to inquire." Youngblood-West, 2018 WL 10562576, at *6. Without any actual allegation off act regarding Smith's alleged involvement with the Enterprise, Plaintiffs' core allegations against the Defendants arise out of their alleged collective involvement in implementing and advertising the SCE Strategy. On or about April 9, 2014, the IRS issued a notice that it had selected Mossy Rock's 2011 tax return for an audit. (Id. ¶ 120). A plaintiff should have discovered the injury when "there are sufficient storm warnings to trigger the duty to inquire." Youngblood-West, 2018 WL 10562576, at *6.

Also, before any of the parties did anything relating to the Syndicate, Plaintiffs had knowledge of the relevant tax regulations. See Cherry-Burrell Corp. v. United States, 367 F.2d 669, 674-75 (8th Cir. 1966) (explaining that IRS regulations are a matter of public record and that plaintiffs are "presumed to know the tax regulations"). The Complaint makes clear that Plaintiffs had knowledge they had been injured due to the alleged misrepresentations no later than December, 2014, meaning that their RICO claims were barred by December, 2018. Accordingly, this Court should dismiss Plaintiffs' RICO claims. Curtis Inv. Co., LLC v. Bayerische Hypo-Und Vereinsbank, No. 1:06-cv-2752-WSD, 2007 WL 4564133, at *9 (N.D. Ga. Dec. 20, 2007) (dismissing plaintiffs RICO claims barred by the statute of limitations); see also Volk v. D.A. Davidson & Co., 816 F.2d 1406 (9th Cir. 1987) ("Damages recoverable under RICO [ ] do not affect accrual of the cause of action or commencement of the limitation period.")

D. The Court should dismiss the claims for violation of Georgia RICO.

Similar to their claims for violation of RICO, Plaintiffs assert claims against" all Defendants" for their violations of (1) O.C.G.A. § 16-14-4(a) and (b) and (2) O.C.G.A. § 2816-14-4(c) for their conspiracy to violate O.C.G.A. § 16-14-4(a) and (b). (Comp., Count III, IV). As an initial matter, the Georgia RICO provision is "essentially identical to the federal RICO statute." Simpson v. Sanderson Farms, Inc., 744 F.3d 702, 705, n. 1 (11th Cir. 2014). Accordingly, "where a plaintiff fails to state a federal claim under a particular predicate, his state-law claim under that predicate will fail as well." Id.; see also Marshall City of Atlanta, 195 B.R. 156 (ND. Ga. 1996). Plaintiffs Georgia RICO claims rely exclusively on the allegedly federal predicate acts. (Comp., ¶¶ 229, 236-37). Because Plaintiffs' RICO claims against Smith fail for the reasons set detailed above, Plaintiffs' Georgia RICO claims fail as well.

In addition, Plaintiffs' Georgia RICO claims are barred by the applicable five-year statute of limitations pursuant to O.C.G.A. § 16-14-8. A civil cause of action under the Georgia RICO Act accrues "when the plaintiff discovers, or reasonably should have discovered that he has been injured." Glock Inc. v. Harper, 340 Ga. App. 65, 66-67, 796 S.E.2d 304 (2017). For the same reasons Plaintiffs' RICO claims against Smith became barred no later than December, 2019, and were likely barred much earlier.

E. The Court should dismiss Plaintiffs' claim for fraud.

Plaintiffs allege that "all Defendants" committed fraud by making certain alleged misrepresentations and omissions of material fact to induce Plaintiffs to "participate in the SCE Strategy and pay substantial fees and other monies to the Defendants." (Comp., ¶ 329). In addition to Plaintiffs' failure to plausibly plead fraud with the requisite particularity required by Rule 9, Plaintiffs' fraud claim against Smith fails also because (1) Plaintiffs have failed to plausibly allege the essential elements of a fraud claim; and (2) any fraud claim arising out of misrepresentations and omissions of material fact allegedly made by Smith to the Plaintiffs relating to the Syndicates are barred by the four-year statute of limitations.

1. Plaintiffs fail to plead the basic elements of a fraud claim.

"In order to prove fraud in Georgia, the plaintiff must establish five elements: (1) a false representation by a defendant, (2) scienter, (3) intention to induce the plaintiff to act or refrain from acting, (4) justifiable reliance by plaintiff, and (5) damage to plaintiff." Cline, 17 F. Supp. 3d at 1287 (citing Summit Auto. Grp., LLC v. Clark, 298 Ga. App. 875, 681 S.E.2d 681, 686 (2009)). In order for a representation made by defendant to be actionable, it "must relate to an existing fact or a past event." Next Century Communications Corp. v. Ellis, 171 F. Supp.2d 1374 (N.D. Ga. 2001) (citing Fuller v. Perry, 223 Ga. App. 129, 131, 476 S.E.2d 793 (1996)). Further, a plaintiff cannot base a claim for fraud on "broken promises, unfilled predictions or erroneous conjecture as to future events." Perry, 223 Ga. App. at 131, 476 S.E.2d at 796 (citing Riddle v. Driebe, 153 Ga. App. 276, 281, 265 S.E.2d 92 (1980) (explaining that an attorney's representations regarding future effect of legal documents was insufficient to support a claim for fraud)). Additionally, "scienter" is described as "a mental state embracing intent to deceive, manipulate, or defraud." WTI Inc. v. Jarchem Indus., Inc., 11 F. Supp. 3d 1274 (N.D. Ga. 2014).

Instead, Plaintiffs make conclusory allegations of alleged misrepresentations and intentional omissions made by “the Defendants” without any specific allegations against Smith. This is simply not enough. Plaintiffs have also failed to make any allegation demonstrating that Plaintiffs justifiably relied on any statement or omission allegedly made by Smith. Because Plaintiffs have failed to allege the basic elements for a fraud claim, this Court should dismiss Plaintiffs' fraud claim against Smith 10 WESI, LLC., Compass Envtl., Inc., 509 F. Supp.2d 1353 (ND. Ga. 2007) (dismissing the claims for fraud because the counterclaim plaintiff failed to sufficiently plead scienter); Brown, 2018 WL 1779425, at *8-9.

2. Plaintiffs' fraud claim is barred by the statute of limitations.

Assuming arguendo Plaintiffs have plausibly alleged the required elements to establish a claim for fraud against Smith, Plaintiffs' fraud claim against Smith is barred by the four-year statute of limitations. See Shapiro v. S. Can Co., 185 Ga. App. 677, 365 S.E.2d 518 (1988). The accrual of a fraud claim “runs from the time of the plaintiffs discovery of the alleged fraud. Id.; see also My 24 Hour News.com, Inc. v. AT&T Corp., 791 F. Appx. 788. 799 (11th Cir. 2019). Although, the fraud claim is not separated amongst each of the Plaintiffs' involvement in the disputed Syndicates, the Thompson Plaintiffs' fraud claims arises if at all, out of their participation in the Mossy Rock Syndicate.

The Thompson Plaintiffs were put on notice as early as April 9, 2014, that any representations or omissions made relating to value of the Conservation easement or the amount of the charitable contribution deduction to claim on their individual tax returns were potentially misrepresentations. Id. Therefore, Plaintiffs claim for fraud against Smith arising out of any representations or omissions allegedly made by Smith as it relates to the Mossy Oak Syndicate became time barred no later than April 9, 2018.

F. This Court should dismiss the claim for negligent misrepresentation.

The essential elements for a claim for negligent misrepresentation are (1) the defendants' negligent supply of false information to foreseeable persons, known or unknown; (2) such persons' reasonable reliance upon that false information; and (3) economic injury proximately resulting from such reliance." Marquis Towers, Inc. v. v. Highland Grp., 265 Ga. App. 343, 346, 593 S.E.2d 903, 906 (2004); See also Ellis, 171 F. Supp.2d at 1380. Fraud and negligent misrepresentation are similar causes of action in Georgia, and "the only real distinction between negligent misrepresentation and fraud is the absence of the element of knowledge of the falsity of the information disclosed." C&C Family Trust 04/04/05 v. AXA Equitable Life Ins. Co., 44 F. Supp. 3d 1247, 1252 (N.D. Ga. 2014).

Plaintiffs fail to allege that Smith supplied any false information to Plaintiffs. Without even a single allegation of a false statement allegedly made by Smith to Plaintiffs, there can be no claim for negligent misrepresentation. There are also no facts that could establish the essential elements of reasonable reliance on a misstatement or "economic injury proximately resulting from such reliance." Instead, Plaintiffs rely on the "formulaic recitation" of the tort's elements against "the Defendants," not factual allegations relating to Smith. Because Plaintiffs' claim for fraud against Smith fails for the reasons set forth herein Plaintiffs' claim for negligent misrepresentation also fails." See Ellis, 171 F. Supp.2d at 1380 (dismissing Plaintiffs' claims for fraud and negligent misrepresentation).

G. This Court should dismiss Plaintiffs' claim for aiding and abetting.

Once again without providing any actual detail, Plaintiffs allege in a Conclusory manner that “each of the Defendants aided and abetted the wrongful conduct (including fraud and breaches of fiduciary duty) of each of the other Defendants (Comp. ¶ 336). Plaintiffs assert claims for violations of RICO and Georgia RICO, fraud, and negligent misrepresentations, and because these claims against smith fail for the reason set forth above, any claim for aiding and abetting such violations also fail.

H. This Court should dismiss Plaintiffs' claim for civil conspiracy.

Plaintiffs assert a claim for civil conspiracy and allege generally that "the Defendants" knowingly acted in concert to design, market, sell, and implement the SCE Strategy." (Comp. ¶ 350; Count XII). "To recover damages for a civil conspiracy claim, a plaintiff must show that two or more persons, acting in concert, engaged in conduct that constitutes a tort." Mustaqee-Graydon v. Sun Trust Bank, 258 Ga. App. 200, 207, 573 S.E.2d 455, 461 (2002). However, in the absence of an underlying tort, there is no liability for civil conspiracy under Georgia law. See Id; Sweet City Landfdl, LLC v. Lyon, 352 Ga. App. 824,835 S.E.2d 764 (2019) Alliant Tax Credit Fund 31-A, Ltd. v. Murphy, No. 1:11-CV-00832-RWS, 2011 WL 3156339, at *8 (ND. Ga. July 26, 2011).

Plaintiffs' claim for civil conspiracy appears to be based on the underlying claim for fraud and/or breach of fiduciary duties owed to Plaintiffs. (Comp. ¶ 350 ("the Defendants . . . conspired to perpetrate fraud . . . and to breach fiduciary duties"); ¶ 351 (Defendants . . . acted . . . to perpetrate fraud . . . and to breach fiduciary duties"); ¶ 352 ("[t]he acts of the Defendants . . . constitute a conspiracy to perpetrate fraud . . . and a conspiracy to breach fiduciary duties"); ¶ 353 (there was a "conspiracy to perpetrate fraud on (sic) breach of fiduciary duties")).

Because Plaintiffs' claim for fraud against Smith fails for the reasons set forth above (see supra, Section N(B), (D)), Plaintiffs cannot recover damages for a civil conspiracy claim from Smith based on any alleged claim for fraud. See Mustaqee-Graydon, 258 Ga. App. at 207, 573 S.E.2d at 461 ("In this case, because [plaintiffs] underlying fraud claim fails, he cannot maintain a cause of action for conspiracy to defraud him."); see also Meriweather v. Pine State Mortg. Corp., No. 1:09-CV-02444-CAM-Affi, 2010 WL 1167335, at *12 (N.D. Ga. May 25, 2010) (holding that the same four-year statute of limitations for fraud applies to the civil conspiracy claims based on fraud and dismissing such claims when plaintiffs fraud claim is time barred). Additionally, Plaintiffs have not asserted a claim for breach of fiduciary duty against Smith, but instead assert such a claim against the Aprio Defendants. (See Compl., Count VII). Because Plaintiffs fail to establish a claim for fraud or breach of fiduciary duty against Smith, Plaintiffs cannot maintain a claim for damages based on a claim against Smith for fraud or breach of fiduciary duty.

1. Plaintiffs' derivative claims for punitive damages and attorneys' fees fail.

Although not identified as a separate count, Plaintiffs seek an award of punitive damages and attorneys' fees against Defendant (Compl.; ¶¶ 320, 334, 338, 355, 356(d), 356(e)). Claims for punitive damages and attorneys' fees are derivative of a Plaintiffs substantive cause of action, See Carr v. Ocwen Loan Servicing, LLC, No. 16-CV-04036-AT, 2017 WL 11495239, at *6 (N.D. Ga. June 27, 2017); J. Andrew Lundsford Props, LLC v. Davis, 257 Ga. App. 720, 572 S.E. 2d 682 (2002). Because Plaintiffs fail to state a claim for relief against Smith their claims for punitive damages and attorneys fee likewise fail as a matter of law. See e.g. Carr, 2017 WL 11495239, at *6 (dismissing Plaintiffs claim for punitive damages and attorneys' fees because plaintiffs failed to state an underlying claim against defendant.)

CONCLUSION

For the foregoing reasons, Smith respectfully requests that this Court grant its Motion to Dismiss and enter an Order dismissing all claims asserted against Smith.

Respectfully submitted this 7th day of August, 2020.

McCAMY, PHILLIPS, TUGGLE & FORDHAM, LLP

BY: Robert H. Smalley, III
Georgia Bar No: 653405
Attorney for Defendant David C. Smith and Smith, Lewis & Haley, LLP

P.O. Box 1105
Dalton, Georgia 30722-1105
Telephone: (706) 278-4499
Facsimile: (706) 278-5002

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