Capps v. Blondeau

Full title: MARTHA B. CAPPS, by and through her Guardian ad Litem, Bruce L. Capps…

Court: In the General Court of Justice Superior Court Division

Date published: Apr 13, 2010

2010 NCBC 7 (N.C. Business 2010)

Opinion

No. 07 CVS 16486

April 13, 2010

ORDER ON MOTIONS TO STAY JUDICIAL PROCEEDINGS AND TO COMPEL ARBITRATION

THIS CAUSE, designated a complex business case by Order of the Chief Justice of the North Carolina Supreme Court, pursuant to N.C. Gen. Stat. § 7A-45.4(b) (hereinafter, references to the North Carolina General Statutes will be to "G.S."), and assigned to the undersigned Special Superior Court Judge for Complex Business Cases, by order of the Chief Special Superior Court Judge for Complex Business Cases, now comes before the court for determination of motions to stay judicial proceedings and to compel arbitration (the "Motion(s)") propounded in this matter by Defendants Harold Earl Blondeau ("Blondeau") and Morgan Keegan Company, Inc. ("Morgan Keegan") (collectively, the "Defendants"), pursuant to G.S. 569.7 (a) and 569.7(g); and the provisions of Rules 12(b)(1), 12(b)(2), 12(b)(3) and 12(b)(6), North Carolina Rules of Civil Procedure ("Rule(s)"); and

THE COURT, having considered the Motions, the arguments and briefs in support of and in opposition to the Motions, and appropriate matters of record, CONCLUDES that the Defendants' Motions should be DENIED for the reasons stated herein.

I. PROCEDURAL HISTORY

On October 12, 2007, Martha B. Capps ("Capps"), through her Guardian ad Litem, Bruce L. Capps, filed this civil action against the moving Defendants, and others, alleging misconduct in connection with her assets. The original verified Complaint subsequently was amended pursuant to Order dated April 30, 2008.¹

1 As amended, the Complaint contains some ninety-six pages having 294 paragraphs, with subparagraphs, and alleging twenty-two Causes of Action ("Claims").

Against Defendant Blondeau, Capps alleges Claims of (a) Breach of Fiduciary Duty — First Cause of Action; (b) Constructive Fraud, pled in the alternative — Second Cause of Action; (c) Fraud and Deceit, pled in the alternative — Third Cause of Action; (d) Negligent Misrepresentation — Seventh Cause of Action; (e) Violation of North Carolina Racketeer Influenced and Corrupt Organizations Act, G.S. 75-D — Tenth Cause of Action; (f) Civil Conspiracy — Eleventh Cause of Action and (g) Unfair and Deceptive Trade Practices — Thirteenth Cause of Action.

Against Defendant Morgan Keegan, Capps alleges Claims of (a) Negligent Misrepresentation — Seventh Cause of Action; (b) Respondeat Superior/Vicarious Liability — Eighth Cause of Action; (c) Negligence and/or Negligence Per Se — Ninth Cause of Action and (d) Unfair and Deceptive Trade Practices — Thirteenth Cause of Action.

Capps also seeks remedies against other non-moving Defendants. The non-moving Defendants do not contend they are parties to any arbitration agreements between them and Capps, and they are unaffected by the Motions. There are extant motions pursuant to Rule 12(b)(6) to dismiss certain of Capps' Claims. Those motions have been addressed in a separate Order.

On January 7, 2008, Morgan Keegan filed its Motion, based on Capps' alleged execution of a customer agreement with Morgan Keegan that contained mandatory arbitration provisions. On the same day, Blondeau filed a Memorandum of Law in Support of His Motion to Compel Arbitration.² Thereafter, Capps asked the court to permit discovery related to arbitration and the merits. On May 2, 2008, the court entered an Order permitting the parties to conduct discovery limited to "the issues of (a) whether a valid agreement to arbitrate exists, and if so (b) whether the agreement is unconscionable."³

2 Blondeau filed another document captioned as being a memorandum of law in support of the same motion. However, it is apparent that the first filing was captioned erroneously, and in substance was Blondeau's actual motion to compel arbitration.

3 Order, May 2, 2008, 4-5.

On May 5, 2008, Capps filed her amendment to the Complaint. In her original Complaint, Capps included several allegations to the effect that an agreement existed between her and Morgan Keegan that contained a mandatory arbitration provision. In the original Complaint, Capps contended, on various grounds, that the arbitration provisions should not be enforced with regard to the disputes raised in this civil action.⁴ In her amendment to the Complaint, Capps disputes the authenticity of any alleged arbitration agreement between her and Morgan Keegan.⁵

4 Original Compl., ¶¶ 274-89, and prayer, ¶ 15.

5 Amended Compl., ¶¶ 274-94 (further references to the Complaint as amended will be to "Complaint," unless otherwise noted).

On April 2, 2009, the court issued a new briefing schedule on the Motions. The parties have propounded evidence and arguments in support of and opposition to the Motions, and the Motions are ripe for determination.

II. FACTUAL BACKGROUND ⁶

6 Most of the alleged facts reflected in this Order are not in dispute. However, in determining the threshold issue of whether a mandatory arbitration agreement exists, the court necessarily must sit as a finder of fact. Accordingly, for such limited purpose, the court also may consider evidence as to facts that are in dispute. Slaughter v. Swicegood, 162 N.C. App. 457, 461 (2004).

The Motions raise the issue of whether Capps entered into an agreement with Morgan Keegan subjecting her to the use of binding arbitration procedures to resolve any disputes with Morgan Keegan or its agents; and if so, whether such an agreement is enforceable in the context of this civil action.

In 1988, Capps, a resident of North Carolina, ⁷ learned that she would be the principal beneficiary of her aunt Anne Kyle's ("Kyle") multimillion dollar estate.⁸ Kyle, a resident of Palm Beach, Florida, had inherited a large estate from her late husband. Capps was Kyle's closest family member and provided Kyle with friendship and comfort for many years prior to Kyle's death. In anticipation of Kyle's death, and upon professional advice, Kyle established two trusts under Florida law, the Anne Kyle GST and the Anne Kyle Irrevocable Trust (collectively, the "Trusts"). Blondeau and others were closely involved in advising Capps with regard to the Trusts.

7 Compl., ¶ 1.

8 Id., ¶¶ 19-20.

From at least 1988 and up until the events complained of in the Complaint, Blondeau was Capps' financial and investment advisor. During those years, she reposed trust and confidence in his advice. In the early part of their relationship, Blondeau was employed by the investment firm A.G. Edwards.

After Kyle's death in 1989, ⁹ the Trusts were funded as anticipated.¹⁰ Blondeau's then employer, A.G. Edwards, served as successor trustee of the Trusts from 1989 until 1997.¹¹ Thereafter, Blondeau left his employment with A.G. Edwards and joined Morgan Keegan as a partner. He advised Capps to move her accounts and the administration of the Trusts to Morgan Keegan. She did so, and Morgan Keegan was appointed successor trustee of the Trusts. Eventually, Regions Bank, d/b/a Regions Morgan Keegan Trust FSB, ("Regions Bank") became the successor trustee of the Trusts.¹² As Capps' broker, Blondeau had a personal and pecuniary interest in having Capps' investment account moved to Morgan Keegan and her multimillion dollar discretionary support trust moved to Morgan Keegan's sister company, Regions Bank.¹³

9 Compl., ¶ 28.

10 Plaintiff alleges the Trusts then contained total assets of approximately four million dollars ($4,000,000). Id., ¶ 36.

11 Id., ¶ 35.

12 Id., ¶ 41.

13 Pl.'s Br. Effect of Guilty Plea, 7. See also Ex. A, Blondeau's Resp. to RFA's, 5 (Q/A 23). But see MK's Br. Re: Effect of Blondeau's Guilty Plea, 4 ("[S]tock brokers . . . receive compensation for trades, not advice.").

In this civil action, Capps has alleged that certain stocks and securities held as Trust assets were transferred improperly to her personal account at Morgan Keegan.¹⁴ She has further alleged that monies from the liquidation of her stocks and securities at Morgan Keegan later unlawfully were wire-transferred directly from her account to a bank account owned by the Martin L. Baker Family Foundation, Inc. (the "Foundation"), a Florida non-profit charitable foundation, ¹⁵ on the order of and at the direction of Blondeau.¹⁶ Capps further alleges that Blondeau and others purposefully and unlawfully used and converted her assets for their own personal purposes, in violation of numerous duties owed to her.

14 Compl., ¶ 57.

15 Id., ¶ 12.

16 Id., ¶ 59. Capps alleges that Neal Knight has been and is the vice president and registered agent of the Foundation. Id., ¶ 12, Ex. G. She also alleges that Blondeau is the president of the Foundation and keeps the books and records of the Foundation at his personal home in Raleigh, Wake County, North Carolina. Id. Capps believes that Blondeau incorporated the Foundation, and Neal Knight drafted and prepared the Foundation's Articles of Incorporation. Id., ¶ 56, Ex. G.

In support of the Motions, Morgan Keegan contends that in 1997 Capps signed a written client agreement that contains a binding arbitration provision relative to any disputes that may arise between Capps and Morgan Keegan or its agents.¹⁷ Morgan Keegan offered as an exhibit a two-page document purporting to be the written agreement (hereinafter, "Exhibit A").

17 See, e.g., Def. MK Br. Supp. Mot. Stay Compel Arb., 3, citing Ex. A.

Exhibit A appears to be one document; however, each page contains a separate form name, Form 40 and Form 20, respectively.¹⁸ Morgan Keegan explained this discrepancy as a simple error of combining these two forms into one document.¹⁹

18 Id. The first page, dated April 1, 1997, includes the description "FORM # 00040 (REV. 9/06)." In contrast, the second page, which is not dated, includes the description "FORM # 00020 (REV. 1/06)." Capps included these two pages as Exhibit O in her Original Complaint. See also Def. MK 2nd Br. Supp. Mot. Stay Compel Arb., 5-6. (Some matters may be referenced herein from documents filed under seal. To the extent that is the case, the court deems those matters to be appropriate for publication.)

19 Id., n. 5.

Notwithstanding this discrepancy, Morgan Keegan argues that it required every new customer to execute a client agreement in order to open an account, presumably one that contains both Forms 20 and 40.²⁰ It contends that a customer like Capps who came to Morgan Keegan with her broker was provided (either by mail or hand delivery) with a previously prepared package including (a) a cover letter, (b) an "ACAT" instructing the former brokerage to move the account, (c) a cash account agreement ("Form 20") and (d) an MOR Account agreement ("Form 40").²¹

20 Def. MK Br. Supp. Mot. Stay Compel Arb., 3.

21 Def. MK 2nd Br. Supp. Mot. Stay Compel Arb., 4, citing Ex. B (Morgan Keegan's Answers to Plaintiff's Arbitration-Related Interrogatories, 10-12, and Pace Dep. 207: 3-24). The documents provided to the court do not reveal the meaning of these acronyms. The court's research suggests the meaning of "ACAT" is "automated customer account transfer." See http://www.dtcc.com/products/cs/equities_clearance/acats.php, last accessed March 29, 2010.

The first page of Exhibit A is labeled as Form 40 ("Exhibit A Form 40 Signature Page").²² This page contains Capps' supposed signature.

22 See n. 18, supra.

Morgan Keegan says it scanned the Exhibit A Form 40 Signature Page and destroyed the original of the entire document within thirty to ninety days of scanning.²³ However, it has offered a "specimen copy" of the Form 40 it contends was in use at the time Capps would have signed it.²⁴ The language of the fifth paragraph of the specimen copy, an arbitration provision, is identical to that of the same numbered paragraph on the Exhibit A Form 40 Signature Page.²⁵ However, the form name on the specimen, "FORM #00040 (REV. 9/96),"²⁶ is located at the bottom of the page while the same name is located at the top of the Exhibit A Form 40 Signature Page.²⁷ Moreover, the non-signature page of a Form 40 ostensibly executed shortly before the specimen Form 40, and submitted by Morgan Keegan, contains an additional paragraph, and the language within paragraph thirty-five is different from one document to the other.²⁸ Consequently, a duplicate of the Form 40 arbitration agreement does not exist because the differences between the specimen copy and the signed Form 40 demonstrate the documents are not identical.

23 Def. MK 2nd Br. Supp. Mot. Stay Compel Arb., p. 6, citing Pace Dep., 184:9-22. See also Morgan Keegan's Answers to Pl. Arb.-Related Interrogs., 11 (suggesting the time frame was 30 days). While these time frames should be consistent, the court does not find this discrepancy to be material.

24 Stroud Aff., Ex. A.

25 Stroud Aff., Ex. A.

26 See id.; Capps Dep., Ex. 4.

27 Def. MK Br. Supp. Mot. Stay Compel Arb., Ex. A-1. See also Pl. Resp. Br. Opp. Mot. Stay Compel Arb., Ex. A.

28 See Zaytoun Aff., Ex. C-3 (specifically, Ex. C 000010). There is no date on the signatory page of this Form 40. However, several documents included as part of the C-3 exhibit are dated March 24, 1997. As such, the court assumes for purposes of this analysis that the Form 40 submitted with the Zaytoun Affidavit was signed on the same date.

The second page of Exhibit A ("Exhibit A Form 20 Signature Page") is labeled as Form 20.²⁹ This page contains Capps' supposed signature. Immediately above Capps' supposed signature is a provision that reads: "THE UNDERSIGNED ACKNOWLEDGES THAT THE UNDERSIGNED HAS RECEIVED A DUPLICATE OF THIS AGREEMENT; AND THAT THIS AGREEMENT CONTAINS A BINDING AND ENFORCEABLE PREDISPUTE ARBITRATION PROVISION IN PARAGRAPH 5 ON PAGE 1 HEREOF."³⁰

29 See n. 18, supra.

30 Id. See also Capps Dep., Ex. 3.

Morgan Keegan says it also scanned the Exhibit A Form 20 Signature Page and destroyed the original of the entire document after scanning.³¹ However, it has offered a "specimen copy" of the form.³² This specimen copy also includes the description, "Form #00020 (Rev. 1/06)" and the same acknowledgement sentence.³³ However, the spacing and fonts of the Form 20 specimen copy are different from those of the Exhibit A Form 20 Signature Page.³⁴ Consequently, a duplicate of the Form 20 agreement does not exist because the differences between the specimen copy and the signed Form 20 demonstrate the documents are not identical.

31 Def. MK 2nd Br. Supp. Mot. Stay Compel Arb., 6, citing Pace Dep., 184:9-22. See also Morgan Keegan's Answers to Pl. Arb.-Related Interrogs., 11.

32 Stroud Aff., Ex. A.

33 Id.

34 Pl. 2nd Resp. Br. Opp. Mot. Comp. Arb., 9.

Capps argues that such discrepancies among Morgan Keegan's client forms dictate a conclusion that Morgan Keegan has not met its burden of proving that she signed an arbitration agreement.³⁵ Morgan Keegan contends these differences are immaterial because (a) the Exhibit A Form 20 Signature Page references an arbitration provision, ³⁶ (b) the Exhibit A Form 40 Signature Page contained an arbitration provision, (c) the arbitration provision did not change³⁷ and (d) a branch manager would not have had the authority to change the arbitration agreement.³⁸ Defendants say that no deviations from this arbitration provision have ever been permitted for public customers like Capps.³⁹

35 Pl. Resp. Br. Opp. Mot. Comp. Arb., 13; Pl. 2nd Resp. Br. Opp. Mot. Comp. Arb., 9-11.

36 Stroud Aff., Ex. A. Cf. Dreyfuss v. eTelecare Global Solutions-US Inc., 2009 U.S. App. LEXIS 20842 at 4 (affirming district court's denial of employer's motion to compel arbitration, holding (a) the demonstrable differences among the several agreements in the record, where original was missing, established that the employer had not met its burden of proving the existence of a valid arbitration agreement between itself and the employee and (b) evidence of both parties' intent to arbitrate does not constitute a meeting of the minds on all essential terms, a requirement of contract formation).

37 Pace Dep., 140-44, 147-48; Ritt Dep., 120-21.

38 Pace Dep., Ex. B, 8. See also id. at 14 ("Blondeau had no discretionary authority over Ms. Capps' account.")

39 Id., 140-44, 147-48; Id., Ex. B, 8.

Through the depositions of James Ritt, General Counsel for Morgan Keegan, and John Pace, its branch manager for the Raleigh, North Carolina office, Morgan Keegan offered evidence that at times material its routine practice was to scan an electronic image only of the signature pages of client agreements and thereafter destroy the original signature page and all other pages of the agreement.⁴⁰ An administrative assistant would maintain a form file containing specimens of the customer forms historically used by Morgan Keegan in an unlocked file cabinet.⁴¹ Such forms would include an identical, blank, hard copy of each client agreement, excluding the signature page.⁴² The form client agreements reflect form numbers and revision dates, and are periodically revised.⁴³ Defendants contend that in recent years Morgan Keegan generally has kept a soft, editable copy of the most recent client agreements until the next revision date.⁴⁴

40 Ritt Dep., 28:5-8; 34:8-16; 41:11-16. See also Pace Dep., Ex. B, 11.

41 Ritt Dep., 99:9-14; 100:1-12; 100-104. See also Pace Dep., Ex. B, 19-20.

42 Id.

43 Ritt Dep., 106:6-11.

44 Id., 106:18-107:21. Capps argues Ritt's statement is inherently unreliable because he testified that despite this fact, "his `understanding' was that there was no soft, editable copy of the version at issue in this case and he `thinks' someone retyped everything in hardcopy ( see 107-108)." See Pl. 2nd Resp. Br. Opp. Mot. Comp. Arb., 8.

Morgan Keegan admits it is bound by SEC Rules governing the maintenance of documents, ⁴⁵ and that it was bound by the SEC Rules as they existed in 1997 when Capps became a client of Morgan Keegan. Morgan Keegan was then and is now required to have written supervisory procedures reasonably designed to achieve compliance with the rules of the SEC and FINRA.⁴⁶ Morgan Keegan concedes it cannot produce and does not even know of a single written procedure or retention schedule, at either the branch level or corporate headquarters, that memorializes or references its stated practice of scanning signature pages and destroying original client agreements.⁴⁷

45 Ritt Dep., 30:10-13; 53:14-17.

46 Id., 14:7-11; 58:1-6.

47 Id., 54:24-57:19; 89:18-91:3; 177:9-15. The retention schedule attached as Ritt Dep. Ex. 5 describes a category of documents, "New Account Forms," as "All Forms required when account has been opened." Though Ritt testified that an executed client agreement is a document required before a Morgan Keegan account is opened, he distinguished a New Account Form as separate and distinct from a client agreement. As such, a client agreement does not fall within the definition of a New Account Form and therefore is not subject to this retention policy. See id., 81:12-83:2.

Capps' Complaint denies both the existence of an arbitration agreement and the authenticity of any documents Defendants contend constitute an arbitration agreement.⁴⁸ Defendants argue that notwithstanding Capps' amended Complaint, her original Complaint contains an admission that she agreed to be subject to an arbitration provision.⁴⁹

48 Compl., ¶ 282.

49 In the Twentieth through Twenty-Second Causes of Action in her original Complaint, Capps seeks "Rescission of alleged Arbitration Agreement" due to fraudulent inducement, unconscionability and breach of fiduciary duty. In those causes of action, Capps refers to "the Arbitration Agreement," seemingly not questioning its existence but rather its application. Capps' amendment to the original Complaint attempts to explain why and how the original Complaint was worded as it was, and argues that any admission contained either directly or inferentially in the original Complaint should be disregarded by the court in deciding the Motions.

Since at least September 2001, Martha Capps experienced a progressive decline in her memory. By July 2005, she was experiencing problems in remembering her name.⁵⁰ In August 2005, her physician concluded that she had significant cognitive impairment and was not able to make financial or personal decisions.⁵¹ In September 2005, she was diagnosed with dementia, most likely due to Alzheimer's Disease.⁵² In an October 2005 visit to her physician, she did not know the date, day of the week, month or year; and did not know the name of the President of the United States or the date of her son's birthday.⁵³ Notwithstanding this diagnosis, Capps has never been adjudged to be incompetent.⁵⁴ Blondeau was aware of her progressive cognitive decline.⁵⁵

50 Compl., ¶ 122.

51 Id., ¶ 123.

52 See verified Appl. Aptmnt. GAL, January 22, 2007. See also Affidavit of Todd E. Helton, M.D., Pl. Br. Effect Guilty Plea, Ex. F. This affidavit was executed within a month of the filing of this civil action in 2007. The affidavit supports the allegations regarding Plaintiff's mental and physical capacity already specifically pled in Plaintiff's Complaint.

53 Compl., ¶ 127.

54 In her brief, Capps suggests that she was not competent to testify at her July 24, 2008 deposition. Pl. 2nd Resp. Br. Opp. Mot. Compel Arb., 12. G.S. 8C-1, Rule 104 (2009).

55 Compl., ¶ 141.

A review of Capps' deposition testimony reflects that she was experiencing a degree of confusion consistent with her prior diagnosis of progressive dementia. Defendants point out that she did testify that the signature on the client agreement was her handwriting.⁵⁶ However, Plaintiff points out that Capps had no recollection of ever before either seeing or signing such a document, and that she exhibited confusion with regard to various matters of everyday living.⁵⁷

56 Capps Dep., 42:23-43:13; 45:2-15; 46:17-20 and 47:14-15.

57 Id., 41:24-42: 20; 42: 23-43:13; 44:10-11 and 45:19-46:4.

Capps also testified that Blondeau routinely put numerous documents in front of her and told her to sign them, and that she "never read any of the things he wanted [her] to sign" since he "was always pushing [her] to sign it, sign it."⁵⁸ Capps testified that Blondeau never discussed documents with her and, in fact, misrepresented the actual purpose of those documents by telling her, among other things, "Martha, I need for you to sign these so I can keep up with your account and all of that stuff."⁵⁹ Blondeau testified by affidavit that he did not rush her.⁶⁰ Blondeau also testified that it "was not my general practice to go line-by-line, paragraph-by-paragraph through the client agreement with each new client of Morgan Keegan. . . ."⁶¹

58 Id., 40:17-22; 42:11-13 and 47:11-13.

59 Id., 38:21-39:06; 40:17-22; 42:11-13; 47:11-13.

60 Aff. Hal Blondeau, ¶ 6 ("In any case, I have never attempted to discourage any prospective client from reading the client agreement. It is my belief that such a practice is, and would have been, illegal and unethical."). See also id. at ¶¶ 9-10.

61 Id., ¶¶ 4, 8. See also Vail v. Vail, 233 N.C. 109, 114 (1951).

Capps used Blondeau exclusively as her broker over the years.⁶² He was the person most closely affiliated with Capps with regard to her business affairs during times material. Her long-standing dependence on and unquestioning trust in Blondeau, in matters both personal and professional, suggests she was a "relatively unsophisticated customer."⁶³

62 Pl. 2nd Resp. Br. Opp. Mot. Comp. Arb., 21.

63 See, e.g., Compl., ¶¶ 44-47, 49, 62, 143, 146-48.

Blondeau has propounded two affidavits, which were relied upon by both moving Defendants. In the second affidavit, dated February 29, 2008, Blondeau testified that he personally completed part, but not all, of the client agreement that Morgan Keegan and Blondeau contend was signed by Capps. In this affidavit, Blondeau testifies that in his opinion, the signature on the client agreement is that of Capps, supporting his opinion by saying that "I have seen the signature of Ms. Capps on numerous other financial documents she executed as a client of Morgan Keegan."⁶⁴ It is clear from this affidavit that Blondeau has no direct knowledge of whether Capps signed the client agreement. In his first affidavit, dated January 7, 2008, Blondeau testified as to his "standard practice" in having client documents executed. In this affidavit, Blondeau concedes that he likely did not review the client agreement with Capps prior to its alleged signing. The balance of both the Blondeau affidavits is replete with speculation and assumptions that do not rise to the level of probative evidence.

64 2nd Blondeau Aff., 2.

Morgan Keegan also relies upon the affidavit of Rebecca Stroud ("Stroud"), a Morgan Keegan administrative assistant, to produce and attempt to authenticate the specimen form agreements allegedly used by Morgan Keegan at the time they contend Capps signed the client agreement.⁶⁵ However, Stroud was not employed by Morgan Keegan until 1999, two full years after the 1997 client agreement allegedly was signed.⁶⁶ Morgan Keegan also argues that John Pace, the branch manager at Morgan Keegan's office in Raleigh, North Carolina, ⁶⁷ could authenticate "the Form 40 customer agreement signature page [allegedly] signed by Capps. . . ."⁶⁸ However, an examination of the Pace deposition testimony reflects that Pace was discussing the Stroud affidavit only. Accordingly, Morgan Keegan's representation that Stroud and Pace authenticated the signature page is untenable.

65 MK 2nd Br. Supp. Mot. Stay Compel Arb., Ex. E, Stroud Aff.

66 Pace Dep., 200:5-20.

67 Id., 5:7-9.

68 MK 2nd Br. Supp. Mot. Stay Compel Arb., Ex. 12, citing Pace Dep., 172-73.

The court takes judicial notice that on April 28, 2009, a Criminal Information ("Information") was filed against Blondeau in the United States District Court for the Eastern District of North Carolina. Thereafter, in the same court, on June 10, 2009, Blondeau executed a Waiver of Indictment and Consent to Prosecution by Information; and a Plea Agreement (collectively, the "Guilty Plea").⁶⁹ By way of the Guilty Plea, Blondeau was convicted of Investment Advisory Fraud.

69 Plaintiff requested, and the Defendants opposed, the court's taking of such notice. See Plaintiff's Request for Judicial Notice ("Request"), filed on July 2, 2009. The court deems the Guilty Plea documents, and the information they contain, to be appropriate for consideration in the context of the Motions, and accordingly, treats the Request as having been granted.

Paragraph 2(a) of the Guilty Plea executed by Blondeau unequivocally states that Blondeau agrees "[t]o plead guilty to Count One and Count Two of the Criminal Information herein."⁷⁰ The first introductory paragraph of the Information states that Defendant Blondeau served as the financial and investment advisor for Capps from "at least as early as 1988 through at least February of 2006," which would have been both prior to and at the time of supposed execution of the Morgan Keegan client agreement at issue.

70 Mem. Plea Agmt. filed June 10, 2009, U.S. v. Harold Earl Blondeau, Case No. 5:09-CR-117, previously attached as "Exhibit C" to Pl.'s Req. Judicial Notice.

Paragraph seven of the Information further establishes the fiduciary nature of Blondeau's relationship with Capps, stating that "[t]he essence of the Defendant's scheme to defraud [Capps] was his abuse of the fiduciary relationship and position of trust that he had established with [Capps]" (emphasis added). Count One of the Information, titled Investment Advisor Fraud, incorporates all of the introductory paragraphs by reference. Further, paragraph two of Count One itself states that at all times material to the charge Defendant Blondeau was an investment advisor as defined by 15 U.S.C. § 80b-2(a)(11).

The moving Defendants are unable to produce any witness to Capps' signing of the documents at issue. The only potential witnesses who can offer material evidence regarding the circumstances surrounding the alleged execution of the client agreement are Martha Capps and Defendant Blondeau.

Capps' own deposition testimony was that the signature looks like hers.⁷¹ This testimony came in a time frame when Capps was confused and suffering progressive dementia and Alzheimer's Disease.⁷² The court is concerned about the reliability of Capps' recognition of her signature.

71 See n. 54, supra.

72 See n. 49, supra.

Blondeau is a convicted felon who has admitted lying to and defrauding Capps. He has admitted that, as described in the Information, he acted in the capacity of an investment advisor to Capps since "at least as early as 1988 through at least February of 2006," almost a decade before the alleged execution of the Morgan Keegan client agreement(s) at issue. Further, Blondeau has admitted that his scheme to defraud Capps was an abuse of his fiduciary relationship and position of trust.

Blondeau's guilty plea is relevant to the inquiry before the court and is admissible against him in this matter. The argument of judicial notice aside, the conviction properly is considered under Rules 801(d) and 609 of the North Carolina Rules of Evidence as an admission of a party opponent and as impeachment by evidence of conviction of a crime, respectively. Furthermore, the conviction of defrauding Capps goes directly to Blondeau's character for untruthfulness. The conviction undermines the credibility of his affidavits, and, furthermore, establishes that Blondeau misled Plaintiff's counsel during the arbitration discovery process by virtue of his sworn responses to Plaintiff's Arbitration-Related Requests for Admission that he executed June 18, 2008, a year before his guilty plea.⁷³

73 See Blondeau's Resps. Pl.'s Arb.-Related Reqs. Admis. (18-23, 26, and 30).

III. DISCUSSION A. General Principles

The parties here do not appear to dispute seriously the conclusion that if the appropriate threshold requirements are met, the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1 et. seq., would apply to the disputes between Capps and the Defendants that are complained of in this civil action.

Courts have consistently held that before the FAA becomes applicable to a controversy, the court must be satisfied that (a) a written arbitration agreement exists that covers the dispute and (b) the contract containing the arbitration provision evidences a transaction involving interstate commerce. Am. Home Assur. Co. v. Vecco Concrete Const. Co. of Va., 629 F.2d 961, 963 (4th Cir. 1980); Willis v. Shearson/American Express, Inc., 569 F. Supp. 821, 823 (M.D.N.C. 1983). Capps' Claims against the moving Defendants clearly grow out of her receiving securities advice and services from the Defendants, and such services involving securities brokerage agreements are contracts "involving" interstate commerce. Park v. Merrill Lynch, Pierce, Fenner Smith, Inc., 159 N.C. App. 120, 122 (2003). There does not appear to be a genuine contention by any of the parties here as to satisfaction of the interstate commerce element.

Accordingly, the only remaining threshold requirement for applicability of the FAA is that of whether an arbitration agreement exists between the parties.

The FAA "establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 (1983).⁷⁴

74 Under the FAA, the party opposing arbitration carries the burden of showing that Congress intended in a separate statute to preclude a waiver of judicial remedies, or that such a waiver of judicial remedies inherently conflicts with the underlying purposes of that other statute. Rodriguez de Quijas, et al. v. Shearson/American Express, Inc., 490 U.S. 477, 483 (1989).

Section Two of the FAA creates "a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act." Id. at 24 (1983). This section provides that a written arbitration agreement in any contract involving interstate commerce is "valid, irrevocable, and enforceable except on grounds that would permit the revocation of a contract in law or equity for the revocation of any contract." Id. This section is "a congressional declaration of a liberal federal policy favoring arbitration agreements." Id.

Section Three of the FAA does not require an arbitration agreement to be signed. See Tinder v. Pinkerton Sec., 305 F.3d 728, 736 (7th Cir. 2002) ("Although § 3 of the FAA requires arbitration agreements to be written, it does not require them to be signed.").

However, in resolving the issue of whether there exists a valid written agreement to arbitrate, it is settled that "courts generally . . . should apply ordinary state-law principles that govern the formation of contracts." OPE Int'l LP v. Chet Morrison Contractors, Inc., 258 F.3d 443, 445-46 (5th Cir. Texas 2001). (quoting First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)).⁷⁵

75 There is no general requirement that an arbitration clause be independently negotiated in North Carolina if it is contained in a contract covering other topics. Wilkerson v. Nelson, 395 F. Supp. 2d 281, 287 (2005). But see Blow v. Shaughnessy, 68 N.C. App. 1, 16 , disc. review denied, 311 N.C. 751 (1984). In determining whether an agreement to arbitrate is valid, however, the court may only look to general state contract law, not arbitration-specific law. Perry v. Thomas, 482 U.S. 483, 492, n. 9 (1987)("Thus state law, whether of legislative or judicial origin, is applicable if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally. A state-law principle that takes its meaning precisely from the fact that a contract to arbitrate is at issue does not comport with the requirement of [9 USCS] § 2." (Emphasis in original.)). See also Southland Corp. v. Keating, 465 U.S. 1, 16 (1984).

B. Threshold Requirement of an Arbitration Agreement

Accordingly, the first analysis this court must make with regard to the Motions is whether, as a matter of North Carolina contract law, a written arbitration agreement exists between Capps and Morgan Keegan. In opposing the Motion, Plaintiff raises a host of arguments that go beyond this initial determination. By way of example, she contends that the arbitration clause, if it exists in a written agreement, is procedurally and substantively unconscionable, is an unenforceable contract of adhesion and should be declared void and stricken by the court.⁷⁶ However, the merits of those contentions need not be considered unless there in fact exists a written arbitration agreement between the relevant parties.

76 Pl. 2nd Resp. Br. Opp. Mot. Comp. Arb., 19-24.

It is well settled in North Carolina that the burden of proving that an arbitration agreement exists is upon the party seeking to compel arbitration. Slaughter v. Swicegood, 162 N.C. App. 457, 461 (2004). This party must persuade the court, as the finder of fact, that the parties mutually agreed to arbitrate their disputes. Id.; Thompson v. Norfolk S. Ry. Co., 140 N.C. App. 115, 120 (2000); Routh v. Snap-On Tools, 108 N.C. App. 268, 271-72 (1992). The trial court's finding with regard to whether there existed an arbitration agreement is a question of fact, to be determined by the trial court upon competent evidence. Id. Such a determination is conclusive on appeal, even where the evidence might support findings to the contrary. Id.; Sciolino v. TD Waterhouse Investor Servs., Inc., 149 N.C. App. 642, 645 (2002).

If the court finds that there existed an arbitration agreement between the parties, it then must determine whether the dispute between them is subject to the arbitration provision. The latter determination is a question of law for the court, which is reviewable de novo on appeal. Raspet v. Buck, 147 N.C. App. 133, 136 (2001).

An original writing is required to prove the content of a writing, except as otherwise provided in the rules of evidence or by statute. N.C. Rul. Evid. 1002. However, a duplicate can be "a counterpart produced . . . by means of photography, including enlargements and miniatures, or by mechanical or electronic re-recording, or by chemical reproduction, or by other equivalent techniques which accurately reproduce the original." Id., 1001(4).

A duplicate may be admitted "to the same extent as an original unless (a) a genuine question is raised as to the authenticity of the original or (b) in the circumstances it would be unfair to admit the duplicate in lieu of the original." Id., 1003.

An original writing is not required and other evidence of the contents of a writing is admissible, if the original has been lost or destroyed, as long as the proponent did not lose or destroy the original in bad faith. Id., 1004(1). If failure to produce the original is satisfactorily explained, secondary evidence is admissible. N.C. Comm. to N.C. Rul. Evid. 1004 (quoting the Advisory Committee's Note).⁷⁷ Destroying evidence in the ordinary course of business generally does not constitute bad faith.⁷⁸ The court is unaware of any law that suggests failure to follow SEC Rules 17a-3 and 17a-4 constitutes bad faith.⁷⁹

77 Cf. Tinley v. Poly-Triplex Techs., Inc., 2009 U.S. Dist. LEXIS 23514 ("However, if the secondary evidence consists of a duplicate that would otherwise be inadmissible under Rule 1003 because there is a genuine question as to the authenticity of the original, Rule 1004 `normally should not function as an alternative path to admissibility.' See Wright Gold, Federal Practice and Procedure, Evidence § 8003 at 410-11 (2000).").

78 State v. Shipman, 202 N.C. 518, 533 (1932)("He further testified that he had `made diligent search in the files and among my papers for it and have not found it. . . . The natural supposition is that it with other news copy was destroyed.' He further testified that pieces of news copy are kept two or three weeks and unless there is some question `We burn it.' The foundation was sufficiently laid for admission of secondary evidence." The citations following this quote focus on the adequacy of a search for a lost piece of evidence. However, the language itself shows that, by itself, destruction of evidence in the ordinary course of business does not constitute bad faith.). See also 2-10 Brandis and Broun on North Carolina Evidence § 255, n. 43, citing McAulay v. Earnhart, 46 N.C. 502 (1854); Haywood, etc., Plank-Road Co. v. Bryan, 51 N.C. 82 (1858) (proxies thrown aside as useless after meeting); Pollock v. Wilcox, 68 N.C. 46 (1873); Cleveland-Akron Bag Co. v. Messick Grocery Co., 171 N.C. 764 (1916). Cf. Coxe v. Skeen, 25 N.C. 443 (1843) (copy of book account, original of which destroyed in regular course, rejected).

79 Plaintiff's citation to Avello v. SEC, 454 F.3d 619, 627 (2006) is misguided. The rule at issue in this case, NASD Conduct Rule 2110, requires evidence of bad faith or unethical behavior absent violation of another rule. In the Matter of the Application of Chris Dinh Hartley, 2004 SEC LEXIS 1507, *9-10, n. 13. This rule, however, is not helpful as it does not define a violation of an SEC rule as a per se act of bad faith.

Specimen copies have been used as secondary evidence to prove the content of lost policies. See, e.g., Vaughn v. Carolina Indus. Insulation, 183 N.C. App. 25, 31-32 (2007) (rejecting insurer's argument that a missing policy precluded insured from recovering where insured offered evidence of coverage based on specimen policy); Bituminous Cas. Corp. v. Vacuum Tanks, Inc. 75 F.3d 1048, 1051-52 (5th Cir. 1996) (using specimen policy and other secondary evidence to show coverage). The Best Evidence Rule, N.C. Rul. Evid. 1002, only excludes secondary evidence to prove the contents of a writing when the original writing is available. Investors Title Ins. Co. v. Herzig, 330 N.C. 681, 693-94 (N.C. 1992).

Every writing sought to be admitted must be properly authenticated. Herzig, 330 N.C. at 693. N.C. Rul. Evid. 901 provides that "[t]he requirement of authentication or identification as a condition precedent to admissibility is satisfied by evidence sufficient to support a finding that the matter in question is what its proponent claims." Herzig, 330 N.C. at 603. The law does not require that a party witness a signature to authenticate a document containing that signature. N.C. Rul. Evid. 901(b)(2).

With regard to Plaintiff's amendment to her Complaint, in which she contests authenticity of the alleged client agreement, North Carolina courts hold, as a general rule, that "an amended pleading ordinarily supersedes the original and renders it of no legal effect." Young v. City of Mt. Ranier, 238 F.3d 567, 572 (2001), quoting Crysen/Montenay Energy Co. v. Shell Oil Co. (In re Crysen/Montenay Energy Co.), 226 F.3d 160, 162 (2d Cir. 2000) and citing 6 Charles Alan Wright, Arthur R. Miller Mary Kay Kane, Federal Practice Procedure § 1476 (2d ed. 1990) ("A pleading that has been amended . . . supersedes the pleading it modifies. . . . Once an amended pleading is interposed, the original pleading no longer performs any function in the case. . . ."). However, in North Carolina:

"[p]leadings of the second class, while not defining issues in the case being litigated, nevertheless reflect something which a party once said . . . and qualify as evidentiary admissions. This class includes: pleadings (or their equivalent) in the same case which, though once serving to define issues, have been withdrawn, amended to strike out admissions, or otherwise superseded; admissions in other pleadings in the same case. . . ."

2-8 Brandis and Broun on North Carolina Evidence, § 209.

For example, in a civil action to recover for services rendered where an amendment to a complaint had been allowed and filed by the plaintiff, the court determined that the allegations in the original complaint when contradictory to the plaintiff's position at trial are competent evidence when relevant. Kabatnik v. Westminster Co., 71 N.C. App. 758, 761 (1984), citing Morris v. Bogue Dev. Corp., 194 N.C. 279 (1927). Here, the statements in the original Complaint with regard to the existence of an arbitration agreement between Plaintiff and certain Defendants constitutes some inferential evidence adverse to Plaintiff's position on the arbitration issue as reflected in the Amended Complaint, but it is not conclusive.

VI. CONCLUSION

An agreement to remove a dispute from traditional methods of dispute resolution to a binding arbitration proceeding, while embraced and favored by the FAA and most courts as a matter of policy, remains a serious matter that involves substantive and material rights of the respective parties. It should be treated as such by the contracting parties.

It is not necessarily inappropriate for Morgan Keegan to rely upon scanned and electronically stored copies and specimens in proving the existence of an arbitration agreement between it and a client. However, if a party wishes to rely upon such evidence, it must do better than what has been presented here. Morgan Keegan's record keeping with regard to its Exhibit A, the contended client agreement, was sloppy and fragmented at best. Consequently, the documentary evidence submitted by the moving Defendants was so problematic as to be inconclusive. Accordingly, it is not persuasive on the issue of existence of an agreement to arbitrate between Morgan Keegan and Capps.

With regard to non-documentary evidence, the two witnesses best able to testify now to the factual question of whether Capps actually executed a client agreement containing a binding arbitration provision are Capps and Blondeau. Both of them are highly suspect as witnesses, and the court does not find them credible. Consider:

a. Capps has had a progressive decline in her memory since 2001. In 2005, she was diagnosed with dementia, most likely due to Alzheimer's Disease. Her deposition was taken in July, 2008 and is inherently unreliable.

b. Blondeau recently was convicted, upon a guilty plea, of the very felonious actions with regard to Capps' asset estate that are being complained of in the Plaintiff's Complaint. His personal interest in this matter is obvious, and his testimony is unreliable.

c. It is not disputed that Capps usually did not read documents submitted to her by Blondeau. Rather, he ordinarily hurried Capps in signing papers, and generally did not explain documents to her.

Whether considered collectively or separately, the documentary evidence submitted by the Defendants and the testimony of Capps and Blondeau is not persuasive on the threshold issue of whether there existed an arbitration agreement between Capps and Morgan Keegan. Defendants have not propounded other probative and material evidence on the issue.

Accordingly, upon due consideration of all the evidence offered by the moving Defendants, the court is forced to find that Defendants have not carried their burden of proof on the issue of whether there existed a written arbitration agreement between Capps and Morgan Keegan. Consequently, the Defendants' Motion should be denied.

In view of this ruling, further analysis of the respective contentions raised by the parties relevant to the Motions is not required.

NOW THEREFORE, based upon the foregoing, it is ORDERED that the motions to stay judicial proceedings and to compel arbitration propounded in this matter by Defendants Harold Earl Blondeau and Morgan Keegan Company, Inc. are DENIED. This action shall proceed accordingly.

This the 13th day April, 2010.

OPINION AND ORDER ON MOTIONS TO DISMISS

THIS CAUSE, designated a complex business case by Order of the Chief Justice of the North Carolina Supreme Court, pursuant to N.C. Gen. Stat. § 7A-45.4(b) (hereinafter, all references to the North Carolina General Statutes will be to "G.S."), and assigned to the undersigned Special Superior Court Judge for Complex Business Cases, by order of the Chief Special Superior Court Judge for Complex Business Cases, now comes before the court for determination of Motions to Dismiss (the "Motion(s)") propounded in this matter by Defendants R.J. Blondeau, Neal William Knight, Jr. ("Neal Knight"), Anne Louise Knight and Helen Southwick Knight (the latter two, collectively, the "Knight Defendants"), pursuant to the provisions of Rule 12(b)(6), North Carolina Rules of Civil Procedure ("Rule(s)"); and

THE COURT, having considered the Motions, the arguments and briefs in support of and in opposition to the Motions, and appropriate matters of record, CONCLUDES that the Motion by Defendant Neal Knight should be DENIED; and the Motions by R.J. Blondeau and the Knight Defendants should be GRANTED in part and DENIED in part, for the reasons stated herein.

I. PROCEDURAL HISTORY

On October 12, 2007, Martha B. Capps ("Capps"), through her Guardian ad Litem, Bruce L. Capps, filed this civil action against the moving Defendants, and others, alleging misconduct in connection with her assets. The original verified Complaint subsequently was amended pursuant to Order dated April 30, 2008.^1a

1a As amended, the Complaint contains some ninety-six pages having 294 paragraphs, with subparagraphs, and alleging twenty-two Causes of Action ("Claims").

Plaintiff alleges Claims against the Defendant Neal Knight for (a) Breach of Fiduciary Duty — Fourth Cause of Action; (b) Constructive Fraud — Fifth Cause of Action; (c) Fraud and Deceit — Sixth Cause of Action; (d) RICO^2a Violation — Tenth Cause of Action; (e) Civil Conspiracy — Eleventh Cause of Action; (f) Revocation of Gifts — Fifteenth Cause of Action; (g) Constructive Trust — Sixteenth Cause of Action; (h) Equitable Action for Accounting — Seventeenth Cause of Action and (i) Preliminary Injunction — Eighteenth Cause of Action.

2a The Racketeer Influenced and Corrupt Organizations Act, G.S. Chapter 75D ("RICO").

Plaintiff alleges Claims against Defendant R.J. Blondeau and the Knight Defendants for (a) Unjust Enrichment/Quantum Meruit — Plaintiff's Fourteenth Cause of Action; (b) Revocation of Gifts — Plaintiff's Fifteenth Cause of Action and (c) Constructive Trust — Plaintiff's Sixteenth Cause of Action.

Plaintiff also seeks remedies against other non-moving Defendants. The non-moving Defendants are unaffected by the Motions.

There are extant motions by Defendant Harold Earl Blondeau ("Hal Blondeau") and Defendant Morgan Keegan Company, Inc. ("Morgan Keegan") to stay this judicial proceeding and to compel arbitration of Plaintiff's Claims against them, pursuant to G.S. 569.7(a) and 569.7(g) (the "Arbitration Motions"). The Arbitration Motions have been denied in a separate Order by the court.

The Motions seek dismissal of this civil action with regard to each of the moving Defendants. The Motions have been fully briefed and argued, and are ripe for determination.

II. FACTUAL BACKGROUND

Among other things, the Complaint alleges that:

In 1988, Capps, a resident of North Carolina, ^3a learned that she would be the principal beneficiary of her aunt Anne Kyle's ("Kyle") multimillion dollar estate.^4a Kyle, a resident of Palm Beach, Florida, had inherited a large estate from her late husband. Capps was Kyle's closest family member and provided Kyle with friendship and comfort for many years prior to Kyle's death. In anticipation of Kyle's death, and upon professional advice, Kyle established two trusts under Florida law, the Anne Kyle GST and the Anne Kyle Irrevocable Trust (collectively, the "Trusts").

3a Compl., ¶ 1.

4a Id., ¶¶ 19-20.

From at least 1988 and up until the events complained of in the Complaint, Hal Blondeau, R.J. Blondeau's father, was Capps' financial and investment advisor. During those years, Capps reposed trust and confidence in Hal Blondeau's advice.

Defendants Hal Blondeau and Neal Knight were closely involved in advising Capps with regard to the Trusts. At times material, Hal Blondeau was a stockbroker and financial advisor with a respected brokerage house, and Neal Knight was a partner in a prominent law firm in Palm Beach, Florida. Capps trusted these men with intimate knowledge concerning her personal affairs. Each was involved in crafting Kyle's estate plan, which was specifically drafted to address Plaintiff's domestic situation and her special concerns.^5a

5a Id., ¶¶ 22, 45.

After Kyle's death in 1989, ^6a the Trusts were funded as anticipated.^7a Hal Blondeau's then employer, A.G. Edwards, served as successor trustee of the Trusts from 1989 until 1997.^8a Thereafter, Hal Blondeau left his employment with A.G. Edwards and joined Morgan Keegan as a partner. He advised Capps to move her accounts and the administration of the Trusts to Morgan Keegan. She did so, and Morgan Keegan was appointed successor trustee of the Trusts. Eventually, Regions Bank, d/b/a Regions Morgan Keegan Trust FSB ("Regions"), became the successor trustee.^9a

6a Id., ¶ 28.

7a Plaintiff alleges the Trusts then contained total assets of approximately four million dollars ($4,000,000). Id., ¶ 36.

8a Id., ¶ 35.

9a Id., ¶ 41.

During the time A.G. Edwards served as Trustee, it failed to pay net income to Capps as required under the Trusts, and this amount of undistributed net income grew to over a million dollars ($1,000,000).^10a Defendants Hal Blondeau and Neal Knight were materially involved in the consideration of the legal issues surrounding the undistributed, accumulated net income.^11a On several occasions, they met with and/or discussed these issues with Gerald Thornton ("Thornton"), Plaintiff's estate planning attorney in Raleigh, North Carolina, providing him with information as Capps' trusted agents regarding her estate plan, her wishes and her concerns.^12a

10a Id., ¶ 38.

11a See, e.g., id. at ¶¶ 49-50. See also id. at ¶¶ 45-47, 51-55.

12a Id., ¶¶ 49-50.

On August 21, 2001, Capps executed several estate documents.^13a Hal Blondeau was appointed under the financial Power of Attorney to serve as Capps' attorney-in-fact and fiduciary, and Neal Knight was selected to serve as first successor in the event Hal Blondeau failed for any reason to serve in such capacity.^14a

13a Id., ¶ 54.

14a Id., ¶ 155, 175.

Since at least September 2001, Capps has had a slow but progressive decline in her memory. In September 2005, she was diagnosed with dementia, most likely related to Alzheimer's disease. She currently resides in an assisted living facility.^15a

15a Id., ¶ 2.

In 2001, shortly before Capps executed the estate planning documents drafted by Thornton, ^16a and unbeknownst to Capps or Thornton, ^17a Hal Blondeau and Neal Knight conspired to create and fund the Martin L. Baker Family Foundation, Inc. (the "Foundation"), a Florida non-profit charitable foundation.^18a On August 28, 2001, ^19a without Capps' or Thornton's knowledge, ^20a the Foundation initially was funded by a transfer from Capps' personal assets to the Foundation in the amount of $1,775,000. This transfer constituted approximately 80% of Capps' then-existing personal assets.^21a In order to generate the transferred funds, certain stocks and securities held as Trust assets were transferred improperly to Capps' personal account at Morgan Keegan^22a and subsequently liquidated.^23a The monies then were wire-transferred directly from Capps' account to an account owed by the Foundation on the order of and at the direction of Hal Blondeau.^24a

16a Id., ¶ 56.

17a Id., ¶ 56.

18a Id., ¶ 12. Capps alleges that Foundation was set up by Neal Knight on or about July 25, 2001; and that Neal Knight has been and is the vice president and registered agent of the Foundation. Id., ¶ 12, Ex. G. She also alleges that Hal Blondeau is the president of the Foundation and keeps the books and records of the Foundation at his personal home in Raleigh, Wake County, North Carolina. Id. Capps believes that Hal Blondeau incorporated the Foundation and Neal Knight drafted and prepared the Foundation's Articles of Incorporation. Id., ¶ 56, Ex. G.

19a Id., ¶ 59.

20a Id., ¶ 62.

21a Id., ¶ 61.

22a Id., ¶ 57.

23a Id., ¶ 58.

24a Id., ¶ 59.

Thereafter, in eight other separate transactions, the last of which occurred within three years of filing of the Complaint on July 8, 2005, other assets of Capps improperly were transferred to the Foundation.^25a Hal Blondeau convinced Capps that these transactions were in her best interests.^26a

25a Id., ¶¶ 66, 71, 79, 82, 86, 90, 115, 120.

26a See, e.g., id. at ¶¶ 66, 71, 79, 82, 86, 90, 115, 120.

Hal Blondeau, Neal Knight and others purposefully and unlawfully used and converted Capps' assets for their own personal purposes, in violation of numerous duties owed to her. Defendants Hal Blondeau and Neal Knight actively conspired against, deceived and defrauded Plaintiff and failed to inform her fully and fairly of the consequences of their various acts.^27a

27a Id., ¶¶ 144-153, 166-179.

The Foundation was of no meaningful benefit to Capps or her family and was completely under the control of the Defendants Hal Blondeau and Neal Knight and their children. Contributions from the Foundation primarily went to interests that benefited one or more of the moving Defendants and not Plaintiff or her family.^28a By way of example, Defendants Hal Blondeau and Neal Knight conspired to obtain Foundation disbursements totaling at least $85,057.50 for R.J. Blondeau and the Knight Defendants or their respective undergraduate and law school educations, the last disbursement occurring on March 24, 2005.^29a

28a Id., ¶ 137-139.

29a Id., ¶ 80, 119.

In addition to these activities, Defendant Neal Knight claims to have traveled from Florida to North Carolina for purported business with Plaintiff Capps. However, he did not meet with Capps at any time during his visit to North Carolina. Nonetheless, Hal Blondeau, then acting as Plaintiff's attorney-in-fact, reimbursed Neal Knight's expenses in the amount of $1,072.19, as recently as February 24, 2006.^30a

30a Id., ¶ 128.

Payments from Capps' assets received by or for the benefit of Defendants R.J. Blondeau and the Knight Defendants, all adults in college or law school, resulted from the fraudulent schemes of their respective fathers. They accepted such payments despite not having any personal relationship with Capps.

The payments to or in behalf of Helen Knight took place between September 10, 2001, and January 27, 2003.^31a The payments to or in behalf of Ann Knight took place between September 9, 2002, and March 24, 2005.^32a The payment to or in behalf of R.J. Blondeau took place on or about May 15, 2003.^33a

31a Id., ¶¶ 67-68, 74, 77-78, 78, 235.

32a Id., ¶ 77-78, 84, 93, 114, 118, 236.

33a Id., ¶¶ 80, 234.

III. THE MOTIONS TO DISMISS — RULE 12(b)(6)

The Motions seek dismissal of the Complaint, in part or in whole, as to the moving Defendants, pursuant to Rule 12(b)(6). Dismissal of an action pursuant to Rule 12(b)(6) is appropriate when the complaint fails to state a claim upon which relief can be granted.

In deciding a Rule 12(b)(6) motion, the well-pleaded allegations of the complaint are taken as true and admitted, but conclusions of law or unwarranted deductions of facts are not admitted. Sutton v. Duke, 277 N.C. 94, 98 (1970).

A complaint fails to state a claim upon which relief can be granted when either (a) the complaint on its face reveals that no law supports the plaintiff's claim, (b) the complaint on its face reveals the absence of facts sufficient to make a good claim or (c) some fact disclosed in the complaint necessarily defeats the plaintiff's claim. Jackson v. Bumgardner, 318 N.C. 172, 175 (1986). However, a complaint should not be dismissed for failure to state a claim upon which relief can be granted unless it (a) does not give sufficient notice to the defendant of the nature and basis of the plaintiff's claim or (b) appears beyond a reasonable doubt that the plaintiff could not prove any set of facts in support of his claim that would entitle him to relief. Sutton v. Duke, 277 N.C. at 108.

When a Rule 12(b)(6) motion is denied, by subsequently utilizing discovery a moving defendant may be able to ascertain more precisely the details of plaintiff's various claims and whether the plaintiff can prove facts which will entitle plaintiff to have a jury decide the merits of one or more of the stated claims. Sutton v. Duke, 277 N.C. at 98. If there then exists a good faith contention that the plaintiff cannot prove sufficient facts as to any such claim, the defendant may seek relief through good-faith utilization of Rule 56 or other suitable procedural device.

In this case, the moving Defendants raise several issues that they argue should cause dismissal of one or more of Plaintiff's various Claims. However, the primary thrust of their respective arguments focuses upon the applicable statutes of limitations as to each of the Claims.

The expiration of a statute of limitations may be a basis for dismissal of a civil claim by way of a Rule 12(b)(6) motion if the face of the complaint establishes that plaintiff's claim is time-barred. Toomer v. Branch Banking and Trust Co., 171 N.C. App. 58, 65 (2005). When determining the applicable statute of limitations, the courts should be guided by the principle that the statute of limitations is not determined by the remedy sought, but by the substantive right asserted. Baars v. Campbell University, Inc., 148 N.C. App. 408, 414 (2002).

A. Motion by Neal Knight

The Motion by Defendant Neal Knight seeks dismissal of Plaintiff's Claims against him on three grounds. He contends that the allegations of the Complaint establish as a matter of law that (a) either the three-year statute of limitations or four-year statute of repose that applies to Plaintiff's various Claims had expired as to him prior to the filing of this action;^34a (b) at certain material times a fiduciary relationship did not exist between him and Capps and (c) Capps' Complaint does not allege a predicate act of racketeering activity sufficient to support a North Carolina RICO Claim (Capps' Tenth Claim).

34a In his Reply Memorandum, Neal Knight also raises an alternative argument that the statute of limitations for a RICO claim is five years, and that any RICO liability he might have to Capps should be limited to transactions occurring within five years of filing of this civil action. The court discusses that contention infra, ¶ 47.

1. Statutes of Limitation and Repose

In support of the limitations and repose issues raised by his Motion, Neal Knight relies in large measure upon Carlisle v. Keith, 169 N.C. App. 674 (2005); Livingston v. Adams Kleemeier Hagan Hannah Fouts, PLLC, 163 N.C. App. 397 (2004) and Baars, 148 N.C. App. 408. He argues that his relationship with Capps was that of attorney and client, and that the cited cases stand for the proposition that under such circumstances, as they are stated in the Complaint, the Plaintiff's Claims against him are barred either by a three-year statute of limitations^35a or a four-year statute of repose.^36a

35a G.S. 1-52.

36a G.S. 1-52(c).

Plaintiff responds that her various Claims against Neal Knight arise from his violations of trust and confidence she reposed in him, and that those violations go beyond the attorney-client relationship. She contends that the substance of her Claims is grounded in constructive fraud rather than legal malpractice; and that the applicable statute of limitations is ten years^37a rather than three. Accordingly, she contends that the limitations period had not expired at the time of filing.

37a G.S. 1-56.

The holding in Hunter v. Guardian Life Ins. Co. of Am., 162 N.C. App. 477, 482 (2004), is instructive with regard to what must be alleged to support a claim for relief on a theory of constructive fraud. The court stated that:

A claim of constructive fraud does not require the same rigorous adherence to elements as actual fraud (citation omitted). Constructive fraud differs from actual fraud in that it is based on a confidential relationship rather than a specific misrepresentation (citation omitted). A constructive fraud complaint must allege facts and circumstances (1) which created the relation of trust and confidence, and (2) led up to and surrounded the consummation of the transaction in which defendant is alleged to have taken advantage of his position of trust to the hurt of plaintiff (citation omitted). Further, an essential element of constructive fraud is that defendants sought to benefit themselves in the transaction (citation omitted). Put simply, a plaintiff must show (1) the existence of a fiduciary duty, and (2) a breach of that duty.

In the instant matter, Plaintiff has pled specific facts and circumstances that she contends created a relationship of trust and confidence between her and her alleged fiduciaries, Defendants Hal Blondeau and Neal Knight, as well as the facts and circumstances surrounding the transactions that wrongfully benefited these Defendants and their respective families. The Complaint alleges that the transactions complained of arose out of and were able to occur because of the relationship of confidence and trust that Martha Capps had with Defendants Neal Knight and Hal Blondeau.

In support of her limitations argument, Plaintiff relies primarily upon Toomer, 171 N.C. App. 58, for the proposition that the limitations period for a constructive fraud claim and for a fiduciary breach claim that rises to the level of constructive fraud is ten years. Toomer was decided subsequent to Carlisle, and held that:

"When determining the applicable statute of limitations, we are guided by the principle that the statute of limitations is not determined by the remedy sought, but by the substantive right asserted by plaintiffs." Baars v. Campbell Univ., Inc., 148 N.C. App. 408, 414, 558 S.E.2d 871, 875, disc. review denied, 355 N.C. 490, 563 S.E.2d 563 (2002). Allegations of breach of fiduciary duty that do not rise to the level of constructive fraud are governed by the three-year statute of limitations applicable to contract actions contained in N.C. Gen. Stat. § 1-52(1) (2003). . . . However, "[a] claim of constructive fraud based upon a breach of fiduciary duty falls under the ten-year statute of limitations contained in N.C. Gen. Stat. § 1-56 [2003]." Nationsbank of N.C. v. Parker, 140 N.C. App. 106, 113, 535 S.E.2d 597, 602 (2000).^38a

38a Capps argues that Baars does not stand for the proposition that a three-year statute of limitations applies to a properly stated claim for constructive fraud. Pl. Resp. Br. Opp. Mot. Dismiss, 11-12. Rather, she argues that the court in Baars concluded that as the claim was pled in that particular case, notwithstanding its characterization, in substance was one of legal malpractice and not constructive fraud. Consequently, the three-year limitations statute applied there. Id.

38a Capps argues that Baars does not stand for the proposition that a three-year statute of limitations applies to a properly stated claim for constructive fraud. Pl. Resp. Br. Opp. Mot. Dismiss, 11-12. Rather, she argues that the court in Baars concluded that as the claim was pled in that particular case, notwithstanding its characterization, in substance was one of legal malpractice and not constructive fraud. Consequently, the three-year limitations statute applied there. Id.

Toomer, 171 N.C. App. 58, at 66-67.

The court is forced to conclude that as to Defendant Neal Knight, the Plaintiff properly has pled facts sufficient to state a Claim for constructive fraud and breach of fiduciary duty that rises to the level of constructive fraud. As to such Claims, under the circumstances alleged in the Complaint, the applicable statute of limitations is ten years, as provided by G.S. 1-56. Furthermore, the Plaintiff's allegations of breach of fiduciary duty and constructive fraud pervade the allegations of Plaintiff's substantive Fourth, Fifth, Sixth, Eleventh, Sixteenth and Seventeenth^39a Claims against Defendant Neal Knight. Accordingly, as to each of them, for purposes of the Rule 12(b)(6) Motion, a ten-year statute of limitations applies. In this case, the Plaintiff's Fifteenth and Eighteenth Claims against Neal Knight seek remedies that are ancillary to Plaintiff's substantive Claims, and they are controlled by the ten-year statute that applies to the substantive Claims.

39a The Sixteenth Claim seeks imposition of a constructive trust, and the Seventeenth Claim seeks an equitable accounting. In the context of this case, the statute of limitations for each of those Claims is ten years. See Tyson v. N.C. Nat'l Bank, 305 N.C. 136, 141 (1982); Jarrett v. Green, 230 N.C. 104, 107 (1949). Consequently, the Sixteenth and Seventeenth Claims were timely, notwithstanding the respective parties' arguments as to which statute of limitations applies to allegations of breach of fiduciary duty and constructive fraud.

Consequently, the court CONCLUDES that, for purposes of the Motion, a ten-year statute of limitations applies to each of the Plaintiff's Claims against Defendant Neal Knight, and the alleged wrongful actions complained of by Plaintiff in the Complaint took place within the requisite limitations period.

2. Substantive Allegations of Fiduciary Relationship with Capps

Defendant Neal Knight contends that the fact that at times he had an ongoing attorney-client relationship with Capps does not support a conclusion that every act he undertook with regard to Capps' property or estate was done in the context of a fiduciary relationship between them. He cites In re Gertzman, 115 N.C. App. 634, 638 (1994), for the proposition that the act of rendering legal services on one or more occasions does not of itself create a fiduciary relationship that endures for an indefinite period of time. He argues that some of the things complained about in the Complaint took place after any attorney-client relationship between him and Capps ended, ^40a and therefore any subsequent actions he may have taken with regard to Capps' property did not violate a fiduciary duty and cannot support Claims based upon constructive fraud. Knight contends the court should grant his Motion with regard to any actions he is alleged to have taken outside the attorney-client relationship between him and Capps.

40a Mem. Supp. Mot. Dismiss by Knight Defs., 10.

On the other hand, Capps contends that the thrust of her Claims is that a fiduciary relationship existed between Plaintiff on the one hand, and Hal Blondeau and Neal Knight on the other, that grew out of an ongoing relationship of trust and confidence; and that as to Neal Knight, the Plaintiff's Claims are not based solely upon the attorney-client relationship between him and Capps. Plaintiff points out that the Complaint does not allege a legal malpractice action, but rather an action based upon violation of a trusting confidential relationship between Capps and Hal Blondeau and Neal Knight.^41a

41a Pl.'s Reply Br. Opp. Mot. Dismiss by Knight Defs. and Def. R.J. Blondeau, 17.

Plaintiff also contends that because the Complaint alleges that Hal Blondeau and Neal Knight conspired with respect to taking Capps' property and formed a confederacy for the purpose of defrauding Capps to their personal benefit, they are jointly and severally liable for the acts of each other in furtherance of the conspiracy, citing State ex rel. Long v. Petree Stockton, LLP, 129 N.C. App. 432, 447 (1998). Consequently, she argues that Defendant Neal Knight also is clothed with Plaintiff's allegations as to Hal Blondeau, and that the existence of an ongoing attorney-client relationship is not necessary to Plaintiff's statement of Claims against Neal Knight. The court is forced to agree.

Further, in this Rule 12(b)(6) setting, the court is unable to determine as a matter of law whether every act alleged to have been done by Neal Knight did or did not happen in the course of a fiduciary relationship between Capps and Neal Knight; or whether it took place in the context of any alleged ongoing confederacy between Neal Knight and Hal Blondeau. On these issues, as the Claims move forward the Plaintiff will have the burden of proving the various material allegations in the Complaint. Whether she can do that remains to be seen. For purposes of the Motion, however, the allegations are taken to be true. The court therefore cannot determine as a matter of law that there is no set of facts which might be proven that would support Plaintiff's contention that Neal Knight was her fiduciary at material times.

Consequently, the court CONCLUDES that the Complaint alleges sufficient facts to allow Plaintiff to proceed against Neal Knight upon her allegations that he owed her a fiduciary duty at the times complained of in the Complaint.

3. RICO

Defendant Neal Knight further contends that the Tenth Cause of Action stated in Plaintiff's Complaint fatally fails to allege at least one act of racketeering activity other than mail fraud, wire fraud or an offense involving fraud in the sale of securities, as required to support a RICO Claim.^42a He argues that Plaintiff has made only conclusory allegations of "garden variety fraud, breach of fiduciary duty and undue influence,"^43a which he contends are not sufficient for purposes of a RICO Claim; and that the Tenth Cause of Action therefore should be dismissed pursuant to Rule 12(b)(6). He relies upon State of NC ex rel Long v. Cooper, 14 F. Supp. 2d 767, 771 (E.D.N.C. 1996), aff'd, 151 F. 3d 1030 (4th Cir. 1998).

42a G.S. 75D-8(c).

43a Defs.' Mem. Supp. Mot. Dismiss by Knight Defs., 11.

Plaintiff concedes that a claim under the North Carolina RICO statute requires allegation and proof of a pattern of at least one act of racketeering activity that is not mail fraud, wire fraud or fraud in the sale of securities.^44a However, Plaintiff argues that while moving Defendant has correctly cited the law, he has failed to analyze Plaintiff's claim under the North Carolina RICO statute. Rather, Capps contends that the Complaint alleges a host of wrongs by Defendants Hal Blondeau and Neal Knight that would rise to the level of racketeering activity as defined by the RICO statute.

44a G.S. 75D-3(b)-(c).

G.S. 75D-3(c)(1) defines "racketeering activity" as meaning

to commit, to attempt to commit, or to solicit, coerce, or intimidate another person to commit an act or acts which would be chargeable by indictment if such act or acts were accompanied by the necessary mens rea or criminal intent. . . .

The statute then lists a host of specified potential state and federal statutes the violation or attempted violation of which would constitute a racketeering activity.^45a

45a G.S. 75D-3(c)(1)-(2).

Plaintiff points out that her Tenth Cause of Action, alleging violations of the RICO statute, contains numerous specific factual allegations in support of her contention that Hal Blondeau and Neal Knight engaged in a pattern of wrongfully obtaining Capps' property by "false pretenses" and "fraudulent means."^46a Plaintiff argues that the act of obtaining property fraudulently and by false pretenses is an indictable felonious criminal act in North Carolina, ^47a and that a pattern of committing or attempting to commit such offenses would constitute an act of racketeering activity sufficient to support a RICO claim.

46a Pl. Resp. Br. Opp. Mot. Dismiss, 19.

47a G.S. 14-100.

Plaintiff further contends that the general allegations of the Complaint, which are incorporated by reference into the RICO Claim, also would support findings and conclusions that Hal Blondeau and Neal Knight were guilty of the indictable offenses of embezzlement by a fiduciary, ^48a obtaining signatures by false pretenses, ^49a exploitation of an elder adult or disabled adult, ^50a unauthorized use of another's credit device, ^51a financial transaction card theft^52a and financial transaction card fraud.^53a Capps argues that a pattern of committing or attempting to commit each of those wrongful acts also would constitute a racketeering activity for RICO purposes.

48a G.S. 14-90.

49a G.S. 14-101.

50a G.S. 14-112.2.

51a G.S. 14-113.1.

52a G.S. 14-111.9.

53a G.S. 14-113.13.

The court concludes that the foregoing indictable acts alleged by Plaintiff to have been committed by Hal Blondeau and Neal Knight have potential, if proven, to constitute "racketeering activity" as defined by G.S. 75D-3(c)(1). Therefore the court CONCLUDES that the Complaint sufficiently alleges predicate activities as to Neal Knight that, if proven, would constitute one or more racketeering activities required by the RICO statute.

In his Reply Memorandum, ^54a Neal Knight also argues that since the statute of limitations for a RICO claim is five years, ^55a any RICO liability he might have to Capps should be limited to any transactions occurring after October 13, 2002. However, a fair reading of the allegations of the Complaint support a determination, if proven, to the effect that Hal Blondeau and Neal Knight conspired with regard to any RICO racketeering activities, and that the various wrongful concerted actions with regard to Capps' properties continued within the five-year statute of limitations window. They would have exposure to joint and several liability for such activities. State ex rel. Long, 129 N.C. App. at 447. Therefore, Neal Knight's potential liability would not necessarily be measured only by his own activities, but also by the joint activities of him and Hal Blondeau.

54a Rep. Mem. Supp. Mot. Dismiss by Knight Defs., 11.

55a G.S. 75D-9.

The court therefore cannot determine as a matter of law that there is no set of facts which might be proven that would support Plaintiff's contention that Neal Knight has exposure to RICO liability to the Plaintiff as the Complaint is written. Consequently, the court CONCLUDES that the Complaint alleges sufficient facts to allow Plaintiff to proceed against Neal Knight upon her RICO allegations.

The court further CONCLUDES that at this stage Neal Knight is not entitled to a determination as a matter of law that his potential RICO liability to the Plaintiff is limited to transactions occurring more than five years prior to filing of the Complaint.

B. Motions by R.J. Blondeau and the Knight Defendants

The Motions by Defendant R.J. Blondeau and the Knight Defendants seek dismissal of Plaintiff's Fourteenth, Fifteenth and Sixteenth Claims on two basic grounds. They argue that (a) the statute of limitations for the bulk of Plaintiff's Claims against them is three years and had expired prior to the filing of this action and that (b) because they had no relationship with Capps or her estate the Claims against them simply have no basis in law under the facts reflected in the Complaint. The court will discuss Plaintiff's Fourteenth and Fifteenth Claims separately from her Sixteenth Claim.

1. Unjust Enrichment/Quantum Meruit and Revocation of Gifts a. Statutes of Limitations

By way of her Fourteenth Claim, Plaintiff seeks recovery from Defendants R.J. Blondeau and the Knight Defendants for unjust enrichment and quantum meruit. By way of her Fifteenth Claim, she seeks revocation of the gifts of her assets to them or in their behalves made by their respective fathers.

Ordinarily the statute of limitations on claims for unjust enrichment and quantum meruit, and for revocation of gifts, is three years. G.S. 1-52(9).

The court has concluded, supra, that a ten-year statute of limitations applies to the alleged constructive fraud and breach of fiduciary duty on the part of Defendants Hal Blondeau and Neal Knight. Capps argues that by accepting the funds they received through Hal Blondeau and Neal Knight, the moving Defendants effectively and wrongfully requested and voluntarily accepted tainted funds taken from Capps.^56a She argues that allowing them to retain the funds by virtue of a limitations defense would be "offensively unjust."^57a Capps contends that her Claims against R.J. Blondeau and the Knight Defendants rest in constructive fraud engineered by their respective fathers, and that the applicable statute of limitations on her Claims against them should be the same as for their fathers, i.e., ten years.

56a For example, Plaintiff alleges that the Knight Defendants "implicitly requested and voluntarily accepted" the funds. Compl. ¶ 240.

57a Pl.'s Resp. Br. Opp. Mot. Dismiss by Knight Defs. and Def. R.J. Blondeau, 23.

The Complaint in this case does not allege facts reflecting constructive fraud or breaches of any fiduciary duty by these individual Defendants. Rather, in substance the Plaintiff alleges that these Defendants received money, either directly or indirectly, from their fathers; and that their fathers had received the money by wrongful action.

The court is not aware of any authority, and the Plaintiff has not cited any, that would apply a ten-year limitations period to these Claims simply because of the alleged wrongful conduct of Hal Blondeau and Neal Knight. Rather, nothing else appearing, the three-year statute of limitations under G.S. 1-52 would apply to Plaintiff's Fourteenth and Fifteenth Claims.

In the alternative, Plaintiff further argues that if a three-year statute of limitations applies to any of the Claims against R.J. Blondeau or the Knight Defendants, those Defendants should be equitably estopped from asserting any expiration of the limitations period as a defense to Plaintiff's Claims.

In support of this position, the Plaintiff cites Keech v. Hendricks, 141 N.C. App. 649 (2000), which recognizes the concept of equitable estoppel with regard to a limitations defense. There, the Court of Appeals held that as to a party ostensibly being estopped, the essential elements of equitable estoppel are (a) conduct that amounts to a false representation or concealment of material facts, or, at least, that is reasonably intended to convey an impression that the facts are otherwise than, and inconsistent with, those which the party afterward attempts to assert; (b) an intention or expectation that such conduct will be relied and acted upon and (c) actual or constructive knowledge of the real facts. Id. at 653. Further, as to a party claiming the estoppel, the elements are (a) lack of knowledge of the truth as to the facts in question; (b) reliance on the conduct of the party sought to be estopped and (c) a prejudicial change in position by the party claiming estoppel. Id.

Here, the Complaint does not allege that these Defendants made false representations or concealed material facts with regard to the payments to them. There also are no allegations that Capps in any way relied upon any conduct of either R.J. Blondeau or the Knight Defendants. Rather, a fair reading of the Complaint simply reflects allegations that they directly or indirectly received payments effected by their fathers. The Complaint fails to plead facts supporting the necessary elements of the equitable estoppel doctrine with regard to the limitations defenses raised by these Defendants. The fact that they may have retained or used the payments complained of, in itself, does not support a conclusion that they should be equitably estopped from raising the three-year limitations period defensively in Plaintiff's Claims for unjust enrichment/quantum meruit and revocation of gifts.

Accordingly, a three-year limitations period applies to Plaintiff's Fourteenth and Fifteenth Claims.

The Complaint alleges that the last payment of Capps' money to or in behalf of Helen Knight was January 27, 2003. The last payment of Capps' money to or in behalf of Anne Knight was March 24, 2005. The only payment to or in behalf of R.J. Blondeau was on May 15, 2003. This civil action was filed on October 12, 2007. Consequently, the court CONCLUDES that (a) the three-year statute of limitations as to Plaintiff's Fourteenth and Fifteenth Claims against Helen Knight and R.J. Blondeau had expired at the time of filing of the Complaint. With regard to the same Claims against Anne Knight, at least one payment to her is alleged to have taken place within three years of filing of the Complaint; and as to any such payment or payments to her, the limitations period had not expired at the time of filing of the Complaint.

b. Substantive Basis in Law

These Defendants also contend that whether the statutes of limitations as to these Claims had expired at the time this action was filed is irrelevant because there are no facts alleged in the Complaint that would support a conclusion that they had any relationship with Capps or her estate or that they undertook in any way to defraud her or otherwise unlawfully deprive her of assets. They contend these Claims simply have no basis in law under the facts reflected in the Complaint.

In response, and as previously discussed in this Order, the Plaintiff argues that by accepting the funds they received through Hal Blondeau and Neal Knight, these moving Defendants should be deemed to have effectively and wrongfully requested and accepted tainted funds taken from Capps.^58a She contends they should not be allowed to retain the funds they received from their respective fathers because the funds were tainted by their fathers' constructive fraud.

58a Compl., ¶ 240.

The Complaint does not allege facts reflecting constructive fraud or breaches of any fiduciary duty by these individual Defendants. Rather the Plaintiff alleges in substance that these Defendants received money, either directly or indirectly, from their fathers, and that their fathers had received the money by their constructively fraudulent wrongful acts.

Plaintiff cites no reported authority that supports the substantive merits of her Fourteenth or Fifteenth Claims as they are alleged; and the court CONCLUDES that as to such allegations, the Plaintiff can not prove facts in support of these Claims that would entitle her to relief. Sutton v. Duke, 277 N.C. at 98. Consequently, as to such Claims, the Complaint fails to state claims upon which relief can be granted with regard to Defendants R.J. Blondeau and the Knight Defendants.

2. Constructive Trust a. Statute of Limitations

Plaintiff's Sixteenth Cause of Action seeks imposition of a constructive trust against Defendants R.J. Blondeau and the Knight Defendants.

Notwithstanding Defendants' contentions to the contrary, the statute of limitations for a constructive trust action is ten years. Tyson, 305 N.C. 136; Bowen v. Darden, 230 N.C. 104 11 (1954) and Jarrett, 230 N.C. 104.

The facts and occurrences alleged in support of Plaintiff's Sixteenth Cause of Action against R.J. Blondeau and the Knight Defendants took place within ten years of the filing of the Complaint. Accordingly, as to that Claim, court CONCLUDES that the statute of limitations had not expired, and the filing was timely.

b. Substantive Basis in Law

By way of her Sixteenth Claim, the Plaintiff seeks to impose a constructive trust upon various Defendants, including R.J. Blondeau and the Knight Defendants. By way of this Claim, Plaintiff seeks to recover all her property wrongfully received by the Defendants.

As to such Claim, Defendants contend that under the facts alleged in the Complaint, the Sixteenth Claim has no basis in law and that it should be dismissed.

In North Carolina, a constructive trust arises from

a duty, or relationship, imposed by courts of equity to prevent the unjust enrichment of the holder of title to, or of an interest in, property which such holders acquired through fraud, breach of duty or some other circumstance making it inequitable for him to retain it against the claim of the beneficiary of the constructive trust. . . . [A] constructive trust is a fiction of equity, brought into operation to prevent unjust enrichment through the breach of some duty or other wrongdoing. It is an obligation or relationship imposed irrespective of the intent with which such party acquired the property, and in a well-nigh unlimited variety of situations. . . . [T]here is a common, indispensable element in the many types of situations out of which a constructive trust is deemed to arise. This common element is some fraud, breach of duty or other wrongdoing by the holder of the property, or by one under whom he claims, the holder, himself, not being a bona fide purchaser for value. (Emphasis added.)

Wilson v. Crab Orchard Dev. Co., Inc., et al., 276 N.C. 198, 211-212 (1969).

The Complaint in this action alleges an ongoing and wrongful permanent taking of Capps' property by Hal Blondeau and Neal Knight, which taking rose to the level of constructive fraud. It further alleges that some of that property ultimately was received by or in behalf of Defendants R.J. Blondeau and the Knight Defendants, and that they would not have received the property but for breaches of duty by those Defendants under whom they claim title to the property. The Complaint alleges specific facts supporting these allegations.

Consequently, the court CONCLUDES that Plaintiff's Sixteenth Cause of Action alleges facts sufficient to state a claim against these moving Defendants upon which relief can be granted.

IV. CONCLUSION

NOW THEREFORE, based upon the foregoing CONCLUSIONS, it is ORDERED that the Motions are DENIED in part and GRANTED in part, as follows:

The court is unable to conclude as a matter of law from the face of the Complaint that as to Defendant Neal Knight, the Plaintiff's Fourth, Fifth, Sixth, Eleventh, Fifteenth, Sixteenth, Seventeenth or Eighteenth Claims were untimely filed or that there is no set of facts that might be proven that would support each of the Claims. Further, the allegations are sufficient to give Defendant notice of the nature and basis of each of the Claims. Accordingly, the court cannot determine as a matter of law that there can be no liability on the part of Neal Knight to Plaintiff as to one or more of such Claims.

Consequently, as to Defendant Neal Knight, the Fourth, Fifth, Sixth, Eleventh, Fifteenth, Sixteenth, Seventeenth and Eighteenth Claims of the Complaint state claims upon which relief can be granted. With regard to said Claims, the Rule 12(b)(6) Motion by Defendant Neal Knight should be, and it hereby is, DENIED.

Without regard for whether they were timely filed, both the Plaintiff's Fourteenth and Fifteenth Claims fail to state a claim upon which relief can be granted as to Defendants R.J. Blondeau, Helen Knight and Anne Knight.

Consequently, as to such Claims, the Rule 12(b)(6) Motions by R.J. Blondeau, Helen Knight and Anne Knight should be, and they hereby are, GRANTED; and the Plaintiff's Fourteenth and Fifteenth Claims hereby are DISMISSED as to Defendants R.J. Blondeau, Helen Knight and Anne Knight.

The court is unable to conclude as a matter of law from the face of the Complaint that as to Defendants R.J. Blondeau, Helen Knight and Anne Knight, the Plaintiff's Sixteenth Claim was untimely filed or that there is no set of facts that might be proven that would support said Claim. Further, the allegations are sufficient to give said Defendants notice of the nature and basis of the Claim. Accordingly, the court cannot determine as a matter of law that there can be no liability on the part of Defendants R.J. Blondeau, Helen Knight and Anne Knight as to such Claim.

Consequently, as to Defendants R.J. Blondeau, Helen Knight and Anne Knight, the Sixteenth Claim of the Complaint states a claim upon which relief can be granted. With regard to such Claim, the Rule 12(b)(6) Motion by Defendants R.J. Blondeau, Helen Knight and Anne Knight should be, and it hereby is, DENIED.

SO ORDERED, this the 13th day April, 2010.