United States District Court, W.D. North Carolina, Statesville Division
DAVID C. KEESLER, Magistrate Judge.
THIS MATTER IS BEFORE THE COURT on the "Motion For Partial Summary Judgment On Part Of Her Claim For Conversion By Joyce Judy" (Document No. 35); Defendant's "Motion For Summary Judgment And Partial Summary Judgment" (Document No. 37); and the "Motion For Partial Summary Judgment On Schacht's Defenses Of Illegality And Lack Of Consideration By Joyce Judy" (Document No. 40). The parties have consented to Magistrate Judge jurisdiction pursuant to 28 U.S.C. § 636(c), and these motions are now ripe for disposition. Having carefully considered the motions, the record, and applicable authority, the undersigned will grant Defendant's motion as to Plaintiff's claims, and otherwise deny the pending motions.
1. The Players
Joyce Judy ("Plaintiff" or "Judy") worked as the president of the Arkansas Employees Federal Credit Union ("the Credit Union") from February 2006 until April 2011. See (Document No. 37-1, p.1) (citing Document No. 37-2, pp.3-4). Judy managed at least a dozen employees and three supervisors; and her duties also included managing the investment portfolio of the Credit Union and determining in part where funds were invested. Id . Judy had one year of college at Arkansas State University; "had an additional four or five classes in accounting and training with Farm Bureau Insurance;" and was "in finance for 30 years." (Document No. 37-2, pp.7-8).
Robert "Bob" E. Schacht ("Defendant" or "Schacht") attended high school through the eleventh grade and never obtained his GED. (Document No. 37-1, p.1) (citing Document No. 43-1, p.7). Schacht is employed by and owns Bob Schacht Motor Sports, which focuses on working with younger drivers looking for experience to lead them into NASCAR racing. Id . Schacht also owns Chapin Motorsports, LLC. (Document No. 43-1, p.8).
Schacht got to know Charles "Chuck" L. Walker ("Walker") beginning in or about 2000, as a customer of Bob Schacht Motor Sports. (Document No. 43-1, pp.10-11; Document No. 37-4, p.9). Schacht testified that Walker "always talked about this platform trading stuff, which I don't know nothing about, but, you know, talked about how people put money in and get these big returns and stuff like that out of them." Id . Judy met Walker in or about October 2007, at a restaurant in the Dallas-Fort Worth airport. (Document No. 43, p.1) (citing Document No. 37-2, p.20); see also (Document No. 37-4, p.6). Judy and Walker stayed in contact, exchanging occasional emails and phone calls. Id.
Walker introduced Judy and Schacht. (Document No. 37-2, p.4; Document No. 37-4, p.11; Document No. 43-1, p.10). Walker testified that he introduced them "[b]ecause we were looking to buy a racetrack." (Document No. 37-4, p.11); see also (Document No. 37-2, p.4). Schacht had mentioned to Walker that the Iowa Speedway "could be for sale and then he [Walker] took it to the next step and flew out to Iowa." (Document No. 43, p.2) (citing Document No. 43-1, pp.32-33); see also (Document No. 43-1, p.10).
2. The Deal
At some point, Walker proposed that funds for purchase of the Iowa racetrack could be raised by investing with Emlyn Mousely ("Mousely") from the United Kingdom. (Document No. 43-1, p.10). Walker testified, however, that he had never previously done any transactions with Mousely. (Document No. 37-4, p.12). Schacht first heard about Mousely through Walker, who described how successful Mousely had been with "this platform trading stuff." (Document No. 43-1, p.15). Schacht never met Mousely. Id .; (Document No. 43-1, p.16).
Schacht described the investment opportunity as follows:
So the way that I understand it is that you get some money, a million dollars, five million dollars, whatever exactly, and you pool it with other people, they come up with 100 million dollars or whatever platform they're trying to get you on, and then they invest that money. And then in 30 days, you're supposed to get these big returns on your money.
(Document No. 43-1, p.16). Walker testified that Mousely said they "could put this money into a trade platform and over the course of 12 months or further create the funds to purchase the racetrack." (Document No. 37-4, p.12). Walker expected a $1 million investment would return between $30 million and $43 million. Id . Apparently, Schacht expected a return of $50 million by early 2010. (Document No. 43-1, p.83).
Judy flew to Charlotte, North Carolina on or about September 25, 2009 to discuss the proposed transaction and racetrack purchase. (Document No. 37-2, p.7, 9; Document No. 37-4, p.13; Document No. 43-4, p.101). Schacht, Walker, and Judy had a "probably quite lengthy" phone call with Mousely, and then had a lunch where they "discussed everything we could possibly think of with questions ourselves, among ourselves." (Document No. 37-4, p.13). Judy contends that Schacht and Walker told her that she "need only deposit money in an account, and the trader would ping' the account to verify the presence of the money" and the "money would never leave the account." (Document No. 43, pp.2-3) (citing Document No. 37-2, p.9; Document No. 37-4, p.15); see also (Document No. 37-2, p.7).
Judy testified that Schacht and Walker told her that their joint venture must include the word "sponsorship" because the investment "wasn't for a loan; it had to be a sponsorship of some sort." (Document No. 37-2, p.6). Walker explained in his deposition that
The way the deal was originally structured with the transaction was project based, that was - the project was the racetrack. The incoming funds to Bob Schacht Motorsports came in the form of sponsorship from the bank. So that would give us use of the money for the transaction.
(Document No. 37-4, p.14).
According to Judy, "[i]n anticipation of a deal, Walker prepared a contract to be entered between one of Schacht's companies, Chapin Motorsports, and Judy's employer, the Arkansas Federal Credit Union." (Document No. 43, p.2) (citing Document No. 37-4, p.14; Document No. 43-1, pp.110-111; Document No. 43-2). Walker testified that he drafted the agreement without the assistance of any attorneys or other professionals. (Document No. 37-4, p.14). An email from Judy, apparently to Schacht, dated September 29, 2009, states in pertinent part: "Here is your Credit Union account.... The new papers have been mailed. My lawyer is looking over the JV for me." (Document No. 43-4, p.35).
3. The Agreement(s)
The "Joint Venture Agreement" (Document No. 43-2) was executed on October 2, 2009, by Judy for the Credit Union and by Schacht for Chapin Motorsports, LLC. The "Joint Venture Agreement" stated that the Investor (the Credit Union) would allocate "sponsorship funds in the amount of Five Million and No/100 ($5, 000, 000.00) Dollars for use in the Facilitator's [Chapin Motorsports] private placement trading platform." (Document No. 43-2, p.1). Judy later testified that she believed this was the final written agreement between the parties. (Document No. 37-2, pp.8-9). On or about October 5, 2009, Judy "[a]s President/CEO of Arkansas Employees Credit Union, with full Credit Union responsibility and legal authority, " executed a letter to Schacht verifying a Credit Union account for Chapin Motorsport, LLC with $5, 000, 000.00. (Document No. 43-5); see also (Document No. 43-1, pp.112-113).
During her deposition, Judy testified that she never discussed the sponsorship agreement with the Credit Union's board of directors, and admitted that she did not have the authority to sign the Joint Venture Agreement on behalf of the Credit Union without first discussing it with them. (Document No. 37-2, p.7).
Schacht's deposition includes the following testimony:
A. The - see, the money that was in the - the money that was in the Arkansas Federal Credit Union, that account there - I don't know what's the word that was used, maybe doctored up paper to make it look like there was money in an account.
I mean, there was no money in the account. It was an account with my name on it, but she controlled the paper on it - Joyce. So it showed there was five million in the account.
So then when that didn't work, then the conversations with Emlyn that we couldn't have that much money and this, that and the other thing, that's when Emlyn said, "Well, if you could get a million dollars and put it in the account, then we should be able to ping it, and I'll try to get you on a smaller platform group or whatever["]. I'm not sure.
(Document No. 43-1, pp.38-39); see also (Document No. 43-1, p.112) ("[T]hey couldn't ping the credit union, so this didn't work... [t]hat's when it was talked about moving the million dollars into Bank of America.").
Although Judy attaches the "Joint Venture Agreement" (Document No. 43-2), and the Schacht Letter (Document No. 43-5) confirming a $5, 000, 000.00 account to her "Response In Opposition To Schacht's Motion..." (Document No. 43), she now contends in her "Response..." that after receiving the "draft" agreement, she told Schacht and Walker "she could not get her employer to invest." (Document No. 43, p.2) (citing Document No. 37-2, p.9). Judy testified that when she told Schacht and Walker she could not raise five million, they told her "they could still accomplish what we wanted to accomplish, buying the Iowa Motor Speedway, with 1 million." (Document No. 37-2, p.9). She further testified that she did not recall any modifications or changes to the Joint Venture Agreement, other than the change from $5 million to $1 million. (Document No. 37-2, pp.9-10).
On or about October 26, 2009, Schacht opened a joint checking account for himself and Judy with Bank of America. (Document No. 23, pp.2-3; Document No. 43, p.4; Document No. 43-3). Judy testified that she wanted her name on the account, and that based on her knowledge of banking "[a] joint account means either/or person can withdraw or deposit funds." (Document No. 37-2, p.16). On October 29, 2009, Judy made two transfers of $500, 000.00 each into the joint account. (Document No. 23, p.3; Document No. 43-3, p.3). Judy told Schacht that the million dollars was an investment that she and the Credit Union were willing to make. (Document No. 37-2, p.10).
On the same day as her deposits, Judy had Schacht sign the following statement:
I, Robert Schacht do hereby acknowledge that the joint account with Joyce M Judy at Bank of America account #XXXXXXXXXXXX has an initial deposit into the account of $1, 000, 000.00 (one million U.S. dollars). I agree this initial deposit was made by Joyce M Judy and Arkansas Employees Federal Credit Union and although this is a joint account, I acknowledge the initial deposit is not my funds to withdraw.
(Document No. 23, p.11; Document No. 43-3, p.1). Judy also told Schacht that "she put an administrative hold on the money" so that the money could not be moved unless she said it was okay; however, she has testified during the course of this litigation that there never was a hold on the account because "there is no such thing as a hold." (Document No. 43-1, p.51; Document No. 37-2, p.44).
Plaintiff Judy has since admitted that none of the million dollars came from the Credit Union. (Document No. 37-2, p.9, 14; Document No. 36, p.2). Instead, she raised $500, 000 herself (including $225, 000 borrowed from a friend), and the other $500, 000 came from an individual who was a member of the Credit Union. Id . Judy has also admitted that she "misrepresented an investment to a credit union member and could not replace his money." (Document No. 37-2, p.10); see also (Document No. 36, p.2;). On or about October 29, 2009, Judy told the member she was "selling him a CD and guaranteed him a rate, " but without his (or Schacht's) knowledge deposited the member's $500, 000 into the joint Schacht/Judy checking account identified above. (Document No. 23, pp.3-4; Document No. 37-2, pp.10-11; Document No. 43-3, p.3). Based on these events, Judy was later convicted of bank fraud. (Document No. 23, pp.4, 13-18; Document No. 36, p.2).
4. The Wire Transfer
According to Schacht, "Mousely eventually required that the money [in the Bank of America account] actually be wired out of the U.S." (Document No. 37-1, p.3). Schacht contends that "still believing there to be a hold on the account, [he] called Judy to get her permission to wire transfer the funds to Mousely." Id . (citing Document No. 43-1, pp.41-42). "Judy agreed to release the hold' and allow the wire transfer." Id . (citing Document No. 43-1, pp.42, 45). Walker describes the transfer as follows:
A. We got a phone call from Emlyn that said they could not ping this account for this particular transaction at BofA.
Q. So deal is off, money goes back to Joyce, the end?
Q. Where did I go wrong?
A. So we said, "Okay. So what?"
And he said, "The money has to move."
And we said, "You're freaking kidding."
And he said, "No." So he told us about it.
We said, "Well, we can't do that. There is no way Joyce is going to allow us to do that."
He said, "Well, that's the only way I can do it."
So we hang up. Bob and I are in his office. I pick up my phone and I call Joyce. I take my phone and put it on speaker and I lay it on the desk, because that's how we did all our calls with me and Bob and Joyce. And we tell Joyce, "We just got a phone call from Emlyn, and he said that he could not ping the account, that the money would have to be moved."
And she said, "Okay." Me and Bob looked at each other and we're like, whoo hoo, we're back in business.
Q. What happened next?
A. Then - that was on a Wednesday afternoon. And I'll tell you in a minute why I remember that. But that was a Wednesday afternoon, I'm pretty sure. And it was at lunch - it was right before lunch, because we were getting ready to go to lunch. Bob and I went to the bank, and he made the transfer. We sent the confirmation of the transfer to Emlyn.
And a couple days go by, Emlyn calls us up and says, "Look, we have nothing. No pending account coming into this account." So - and it was about 4:00 on Friday evening. Bob called up the bank, because we had expected the bank had sent the money. And the bank hadn't sent the money yet. So Bob raised all kind of hell with the bank, because we had went in two days prior to doing that and we thought that was going to throw the whole transaction off, blah, blah, blah. We looked like - you know, and so the bank sent it late Friday afternoon. And I just remember it was a Friday afternoon, but we had went to the bank a couple days prior to Friday.
(Document No. 37-4, pp.15-16); see also (Document No. 43-1, pp.42-45, 53-54) ("And she said, Okay. Go ahead and move it.'").
According to Judy, "[o]n November 18, 2009, Mr. Schacht wired the entire One Million Dollars out of the Bank of America account" without her permission and thus "wrongfully converted the money." (Document No. 36, p.2). Id .; see also (Document No. 23, pp.4-6; Document No. 37-2, p.32). Judy asserts that she discovered that the million dollars had been wired out of the joint account "a few days after the transfer." (Document No. 37-2, p.17). Judy went on to testify that after she found out about the transfer she made calls to Walker and Schacht, and that she asked Schacht "[w]hat had he done, where's the money." (Document No. 37-2, p.18). Judy stated that Schacht said "[t]hat he had transferred it to Emlyn, that he thought it was okay." Id . She also testified that she spoke to Mousely, and pressed him for answers about "[w]hen was the deal, when was it going through." Id . There is no evidence that Judy instructed Schacht, Mousely, and/or Walker to transfer any of the funds back to the joint account or to the Credit Union.
According to Schacht, he sent an email to Judy confirming the wire transfer. (Document No. 37-1, p.5) (citing Document No. 37-2, p.31). Moreover, Schacht notes that Judy sent him an email on Friday, November 20, 2009 - just two days after the transfer was initiated in which she states - "Sure hope this get there before Wed. We are cutting this so close! Jj." (Document No. 37-1, p.5) (citing Document No. 37-2, p.31; Document No. 43-4, p.90). The subject line for Judy's email shows: "Re: Fwd: Transaction 39336048 Has Been Released." (Document No. 43-4, p.90). Additional emails in this chain, attached as exhibits to Judy's "Response In Opposition..., " indicate confirmation that a $1, 000, 000.00 transfer from Bank of America to "mondiaen capital management N.V." was requested on November 18, 2010, and being processed on November 19, 2010. (Document No. 43-4, pp.91-96). Judy's November ...