United States District Court, W.D. Tennessee, Western Division
DAMIAN ORLOWSKI, et al., Plaintiffs, on behalf of themselves and all others similarly situated,
LARRY BATES, et al., Defendants.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT CINDY STANDLEY'S MOTION TO DISMISS
JON P. McCALLA, District Judge.
Before the Court are Defendant Cindy Standley's Motion to Dismiss (ECF No. 300) and Supplemental Memorandum of Facts and Law in Support of Defendant Cindy Standley's Motion to Dismiss ("Supplemental Mem.") (ECF No. 378). For the reasons stated below, the Motion is DENIED as to Plaintiffs' claim for conversion against Standley and GRANTED as to the remaining claims.
A. Procedural Background
Plaintiffs initially filed this case more than three years ago, on December 28, 2011. (See Compl., ECF No. 1.) Since the action was initiated, the case has been continuously actively litigated. As a result of the age of the case, the number of parties on each side of the action, and the complexity of the allegations, the procedural history of this case has a labyrinthine quality, replete with paths irrelevant to the determination of the instant Motion. Accordingly, the Court summarizes just that portion of the procedural history that is relevant.
Plaintiffs filed their First Amended Complaint on August 13, 2012 (ECF No. 53), and their Second Amended Complaint on March 14, 2014 (ECF No. 224). The Second Amended Complaint added Cindy Standley as a Defendant. (See id.) Plaintiffs moved for preliminary injunctive relief against Cindy Standley on March 16, 2014, requesting that the Court freeze her assets and order her to surrender her passport to the Clerk of Court. (ECF No. 225.) The Court held a hearing on March 21, 2014 on the motion for a preliminary injunction. (ECF No. 240.) The Court granted the Plaintiffs' motion for a preliminary injunction against Standley on March 21, 2014. (ECF No. 243.)
On December 17, 2013, Plaintiffs moved for class certification. (ECF No. 182.) The Court held a hearing on the motion for class certification on April 29, 2014. (ECF No. 285.) The Court granted Plaintiffs' motion for class certification on April 30, 2014 (ECF No. 289), and issued an amended order certifying the class later that same day (ECF No. 290).
On May 16, 2014, Defendant Standley filed the Motion to Dismiss currently before the Court. (ECF No. 300.) Plaintiffs filed their response to the Motion on June 27, 2014 (ECF No. 321), and attached a number of factual exhibits. (Id.; ECF Nos. 322 (sealed), 323 (sealed).)
On July 10, 2014, the Court held a hearing on the Motion to Dismiss. (ECF No. 336.) At the hearing, Counsel for Plaintiffs and Defendant Cindy Standley represented that Standley would be deposed. The Court subsequently ordered Plaintiffs and Standley to file a status report indicating which portions of the Motion to Dismiss, if any, would remain for determination by the Court. (ECF No. 334.)
On October 1, 2014, Plaintiffs filed a motion for leave to amend their Second Amended Complaint to include additional information as to Standley. (ECF No. 368 (sealed).) On October 6, 2014, the Court granted Plaintiffs leave to amend their Second Amended Complaint as to Standley and granted Standley leave to supplement her Motion to Dismiss. (ECF No. 370.) Plaintiffs filed their Third Amended Complaint on October 20, 2014. (ECF No. 375.) Standley filed her Supplemental Memorandum of Facts and Law in support of her Motion to Dismiss on November 6, 2014. (ECF No. 378.)
B. Factual Background
This case involves allegations of a complex, large-scale scheme to defraud hundreds of people over the course of many years. (See 3d Am. Compl., ECF No. 375.) Plaintiffs' allegations that are relevant to this Motion are summarized as follows.
1. General Allegations
Defendant Larry Bates was the CEO and "Chief Economist" of Defendant First American Monetary Consultants, Inc. ("FAMC") as well as CEO and President of Defendant Information Radio Network, Inc. ("IRN"). (Id. ¶ 6.) Defendant Charles Bates served as Executive Vice President and News Director for IRN (id. ¶ 10) and held himself out as an "Economist" of FAMC (id. ¶ 22). Defendant Barbara Bates served as Vice President of Administration for FAMC and was a 50% shareholder in FAMC. (Id. ¶ 9.) Defendant Robert Bates served as "Senior Monetary Consultant" for FAMC. (Id. ¶ 11.) Defendant Kinsey Brown Bates served as Executive Assistant to Larry Bates. (Id. ¶ 13.) Defendant Cindy Standley served as Vice President of FAMC. (Id. ¶ 12.)
Through mechanisms including "radio, television, books, newsletters, toll free numbers, email, direct mail, and personal solicitation at churches and conferences across the nation, " Defendants advertised and solicited individuals "for the alleged and believed purpose of purchasing gold, silver and precious metals through Defendants." (Id. ¶ 25.) "These purchases of precious metals [were] advertised by Defendants as a safe' purchase to protect and harness wealth during, what Defendants characterize[d] as, a period of world chaos and uncertainty, based on Christian beliefs and political upheaval." (Id. ¶ 26.) Defendants received orders for precious metals from more than 500 customers. (Id. ¶ 148.) Plaintiffs allege that these sales were made as part of a scheme devised by Larry Bates, Robert Bates, Charles Bates, Barbara Bates, Cindy Standley, Kinsey Brown Bates, and other Defendants, designed to defraud customers by:
a. delaying fulfillment of orders of specific precious metals for an unjustifiable amount of time that far exceeds the market standard (sometimes as long as several years);
b. knowingly and intentionally filling only parts of precious metals orders, while keeping the money of clients without either a refund or distribution of the purchased precious metals;
c. knowingly and intentionally failing to fill orders in their entirety;
d. knowingly and intentionally substituting inferior and less valuable products for those ordered by their clients; and
e. [k]nowingly and intentionally failing to fund precious metal IRA's after receiving the requisite approval/authority and funds to do so.
(Id. ¶ 46.) In addition to alleging that Standley in part devised the scheme, Plaintiffs allege the following with respect to Standley:
Cindy Standley, specifically, knew that customers had ordered metals and not received them timely. As Vice President of FAMC for over ten years, and one of three people in the Accounting Department, she was responsible for depositing all customer checks for the purchase of precious metals for FAMC, Inc. and FAMC PM, LLC. She deposited customer checks for the purchase of precious metals into various accounts on which she was the signatory or had depository authority, along with Barbara Bates and Larry Bates, only. She was solely responsible for depositing customer checks, and would issue a customer invoice based on the transaction information she received from other Defendants. She kept a ledger on clients including payment of the orders, date of sale, the economist who transacted the order, what was purchased, the name of the client, the total amount, and the date of shipment of the order. She solely received checks and transaction forms about orders, then typed invoices that were mailed to customers via United States Postal Service mail. As early as 2008 and as late as 2013, she knew that the Defendants represented to customers that their orders were locked in at the time of sale, and that their monies were advanced into the market, yet saw through her bookkeeping and ledger and other records that customer monies deposited by her were not being advanced into the market to fulfill orders as represented. As early as 2008 and as late as November 2013, Standley knew that customer orders were not being fulfilled, and had reviewed state and Better Business Bureau complaints reflecting the pattern of orders remaining unfulfilled, but continued the practice of depositing, transferring monies, and signing checks made payable to Defendants. Standley knew that civil judgments had been obtained against Bates and FAMC for the failure to fulfill customer orders. Standley knew that customers had ordered metals and not received them timely. Standley also transacted business with clients, answering questions in person at the Colorado office concerning orders, delivering coins, and was the only employee in Colorado with the key to the safe. She managed the payroll for FAMC and IRN, and had firsthand knowledge of the amount of commissions to be paid on each order, and wrote commission checks for FAMC economists and Defendants. Standley knew that commissions were being paid, despite orders remaining unfulfilled. Standley was responsible, as Vice President, for reconciling ledgers on multiple FAMC accounts to which only she, Larry Bates and Barbara Bates had access. Despite this knowledge, she continued to transact business on behalf of FAMC, IRN and related entities, along with the other Defendants, as late as November of 2013, using monies deposited by her from customers to pay overhead, payroll, commissions to Defendants, and provide advances to Defendants for monies not yet earned in the form of checks drawn and signed by her. Other than overhead, payroll, and advances to Defendants, she cannot account for why the customer monies that were not used to order coins are not in the FAMC/IRN accounts. Standley, despite knowing of these issues as early as 2008, had direct knowledge of the problems and patterns of unfulfilled orders and unearned payments to Defendants, and continued to transact business to the detriment of customers and for the benefit of Defendants as late as November 2013.
(Id. ¶ 47.)
2. Allegations by Plaintiff Orlowski
Orlowski contacted FAMC by telephone in September 2008 "because of its strong affiliation with Christianity, its advertised propaganda, and its assurances of Christian trust." (Id. ¶ 59.) Orlowski learned about FAMC by watching "the Christian television program, " seeing FAMC advertisements, and listening to several radio programs featuring Larry and Charles Bates. (Id. ¶ 58.) During the September 2008 call with FAMC, Orlowski placed an order for gold valued at $100, 000 and Silver Eagle coins valued at approximately $200, 000. (Id. ¶ 60.) On or about September 21, 2008, Orlowski wired payment of approximately $300, 000. (Id. ¶ 61.) Larry Bates personally phoned Orlowski shortly after the order was placed. (Id. ¶ 63.) Defendant Larry Bates told Orlowski that the Silver Eagle coins were in short supply, and so FAMC would deliver 1000-ounce silver bars instead. (Id. ¶ 65.) Defendant Larry Bates explained that FAMC would replace the bars with Silver Eagle coins when they became available. (Id.) The bars are less valuable and harder to liquidate than the coins that were agreed upon. (Id. ¶ 66.) FAMC never replaced the bars with the coins Orlowski ordered (id. ¶ 72), and Orlowski did not receive the gold he purchased until December 8, 2008 (id. ¶ 74).
3. Allegations as to Plaintiff Cechin
Cechin spoke to Defendant Larry Bates on the telephone before placing several orders with FAMC. (Id. ¶ 77.) On July 10, 2008, Cechin placed an order for gold totaling approximately $75, 000 and mailed Defendant Larry Bates a check on the same day. (Id. ¶¶ 77, 78.) After contacting Larry Bates and FAMC multiple times to determine when her gold would be delivered, "[s]he was told that her gold would be hand delivered by Larry Bates personally on September 27, 2008. It was not." (Id. 81.)
On October 10, 2008, Cechin and Larry Bates spoke via telephone. (Id. ¶ 82.) Larry Bates told Cechin that he had not yet purchased the gold and did not know when the gold would be available. (Id. ¶ 83.) After this conversation, Cechin sent via letter and fax a request for a refund. (Id. ¶ 83.) Cechin was sent a refund on October 22, 2008. (Id. ¶ 87.) Due to the increase in the value of gold, however, between the time of the order and the time of the refund, Cechin suffered a loss of "approximately $7, 500 - $10, 000, or more." (Id. ¶ 89.)
4. Allegations as to Plaintiff Carmack Trust
In December 2008, Mindi Carmack was trustee for the Bryan and Mindi Carmack Revocable Trust (the "Carmack Trust"). (Id. ¶ 91.) As trustee, Mindi Carmack made purchases of precious metals through Larry Bates and FAMC totaling $1, 004, 112. (Id.) "At various times beginning in 2010, Mrs. Carmack instructed Larry Bates and FAMC to begin liquidating certain purchases and to begin shipping other holdings to her." (Id. ¶ 93.) In 2010 and 2011, FAMC and its agents sold approximately $1.3 million worth of precious metals held for the trust. (Id. ¶ 94.) During that same period, FAMC and its agents issued checks to the Carmack Trust totaling approximately $500, 000. (Id. ¶ 95.) Near the end of ...