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Everette-Oates v. North Carolina Department of State Treasurer

United States District Court, E.D. North Carolina, Western Division

May 23, 2017

NORTH CAROLINA DEPARTMENT OF STATE TREASURER; NORTH CAROLINA STATE BUREAU OF INVESTIGATIONS; LOLITA CHAPMAN In Her Individual Capacity and In Her Official Capacity; BETH WOOD In Her Individual Capacity and In Her Official Capacity; VANCE HOLLOMAN In His Individual Capacity and In His Official Capacity; ROBIN HAMMOND In Her Individual Capacity and In Her Official Capacity; SHARON EDMUNDSON In Her Individual Capacity and In Her Official Capacity; GREGORY MCLEOD Director, North Carolina State Bureau of Investigation, In His Individual Capacity and In His Official Capacity; GWENDOLYN KNIGHT In Her Individual Capacity and In Her Official Capacity; ANN HOWELL In Her Individual Capacity and In Her Official Capacity; NORTH CAROLINA LOCAL GOVERNMENT COMMISSION; and NORTH CAROLINA STATE AUDITOR, Defendants.



         This matter is before the court on plaintiffs' motion for clarification and for extension of time to file a motion to amend complaint (DE 101). After defendants filed responses in opposition to the motion, upon further direction by the court, plaintiff filed a proposed amended complaint. Defendants then filed supplemental responses, and plaintiffs replied. Also pending is a motion to dismiss filed by defendant Beth Wood (“Wood”) (DE 104), which was fully briefed. In this posture, the issues raised are ripe for ruling. For the following reasons, the court construes plaintiffs' motion as a motion to amend complaint, and it is granted in part and denied in part. The motion to dismiss is denied as moot.


         Plaintiffs commenced this action on November 10, 2015, in the United States District Court for the Western District of North Carolina, asserting federal constitutional claims and state common law tort claims arising out of a criminal investigation and indictment of plaintiff Priscilla Everette-Oates (“Everette-Oates”). Plaintiffs seek compensatory and punitive damages, as well as injunctive and declaratory relief, on behalf of plaintiff Everette-Oates. Plaintiffs seek compensatory and punitive damages for emotional distress and loss of consortium on behalf of plaintiff Duarthur Oates, husband of plaintiff Everette-Oates.

         On September 28, 2016, the court granted motions to dismiss by defendants, and dismissed all claims against all defendants, except for one claim against defendant Wood in her individual capacity (False Public Statements and Seizure, under 42 U.S.C. § 1983). Dismissal was without prejudice for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted. The court directed the clerk to continue management of the case as to the claim against defendant Wood.

         Plaintiffs filed the instant motion on October 25, 2016, requesting: 1) clarification whether the court prefers filing of a new complaint or motion for leave to amend, 2) leave to file an amended complaint, and 3) extension of time to file a proposed amended complaint. On October 27, 2016, defendant Wood filed a motion to dismiss the sole remaining fourth claim for relief against her in the original complaint, which motion was fully briefed.

         In the meantime, defendants responded in opposition to plaintiffs' motion, each noting inter alia that assessment of the motion was hindered because no proposed amended complaint was filed with the motion. On December 6, 2016, In furtherance of the court's consideration of plaintiffs' motion, the court ordered plaintiffs to file within 14 days hereof their proposed amended complaint and thereafter, any defendants who wished to supplement responses of record with reference to same, were allowed to file a supplement to response within 14 days, and plaintiffs within 7 days thereafter a reply. Plaintiffs filed a proposed amended complaint on December 29, 2016. Defendants filed supplements to their responses, and plaintiffs replied.

         In the proposed amended complaint, the sole named plaintiff is plaintiff Everette-Oates (hereinafter “plaintiff, ” where referenced singularly). Plaintiff asserts six claims for relief under 42 U.S.C. §§ 1983 and 1985:

1. Malicious Prosecution and Seizure § 1983
2. Concealment of Evidence and Seizure § 1983
3. Fabrication of Evidence and Seizure § 1983
4. Civil Conspiracy in Violation of § 1983
5. Denial of Equal Protection of the Laws § 1985(2)
6. Denial of Equal Protection of the Laws § 1985(3)

         In asserting these six claims, plaintiff abandons for purposes of the proposed amended complaint a number claims originally asserted in the original complaint, including the sole remaining fourth claim for relief in the original complaint (“False Public Statements and Seizure § 1983”). Plaintiff also no longer asserts state law claims for relief.

         Plaintiff seeks compensatory and punitive damages, as well as declaratory relief, against all defendants named in the original complaint (as set forth in the caption of this order), with a few exceptions. In particular, plaintiff no longer seeks relief against any government agencies or entities, or individuals in their official capacities, except for defendants Gwendolyn Knight (“Knight”) and Ann Howell (“Howell”), who are named in their individual and official capacities. Plaintiff also adds one defendant, Barry Long (“Long”), “North Carolina Department [sic] State Auditor, ” in his individual capacity. (Prop. Am. Compl. ¶ 9).


         The facts alleged in the proposed amended complaint may be summarized as follows. Plaintiff served as mayor of Princeville, North Carolina, (the “town”), from 2003 to 2005, and from 2010 to 2013. “For many reasons, including Hurricanes Floyd and Irene, the town has experienced financial challenges.” (Prop. Am. Compl. ¶ 96). “[F]ollowing Hurricane Floyd in 1999 which left the town underwater for 10 days, ” the town was “earmarked” to receive $26, 000, 000.00 in Federal Emergency Management Agency (“FEMA”) “emergency disaster relief” funds. (Id. ¶ 16).

         For some time preceding plaintiff's second term as mayor, the town's budget was in “the ‘red'” or in “the negative, ” and, as of 2010, the town had submitted audited financial statements to Local Government Commission (“LGC”), which is a division of the Department of State Treasurer (“DST”), [1] on an annual basis for two consecutive years. (Id. ¶ 25). Near the beginning of her second term as mayor, in about December 2010, plaintiff received a letter from defendant Edmundson, who is a certified public accountant (CPA) and employee of DST, in the position of Director, Fiscal Management Section, of DST, stating:

We note that the Town has made progress in a number of areas. The Town's audited financial statements were submitted to our office on a timely basis for the second consecutive year, the Town's General Fund balance available increased, and the financial position of the Water and Sewer Fund has improved. We commend the Town's governing Board, staff, and citizens for these improvements . . . . June 30, 2010 was 15.85%, which represents a significant improvement from the negative 0.61% at June 30, 2009.

(Id.). An audit of town finances for 2010 “included a Material Weakness Finding, ” which stated: “Documentation for some checks were missing. Check numbers recorded in the general ledger did not agree with check numbers listed on the bank statements. Duties were not adequately segregated among accounting functions.” (Id. ¶ 52). An additional audit of 2011 town finances was completed in April 2012, the results of which are not alleged in the complaint.

         During both her terms as mayor, plaintiff requested certain information and reports regarding prior allocation and expenditure of FEMA funds designated for the town. Plaintiff transmitted such requests to several defendants in this action, particularly defendant Holloman, then-director of LGC; as well as defendant Wood, who is the North Carolina State Auditor.[2] Plaintiff Everette-Oates also sent such requests for information to defendant defendants Knight and Howell, who were two commissioners on the town's five-member board of commissioners.

         In making such requests, plaintiff was concerned that some individuals, including defendants Howell and Knight, had received FEMA funds following Hurricane Floyd without justification, and that they had been involved in allocating FEMA funds improperly to others without justification, during the time period around 2000 to 2002. The LGC and defendants Holloman, Wood, Knight, and Howell, did not provide plaintiff with the information she requested.

         On July 30, 2012, during a meeting of the LGC, plaintiff furnished defendant Wood with documentation alleging that the former town mayor and two current commissioners had committed illegal acts between 2000 and 2002. Plaintiff portrayed these alleged illegal acts “as being far more egregious than any [then-]existing concerns about the town.” (Id. ¶¶ 26, 30).

         The next day, on July 31, 2012, under direction of defendant Wood, the LGC and Department of State Treasurer, and defendants Holloman, Hammond, and Edmundson, seized and took possession of financial books and records of the town, and took control of “its bookkeeping.” (Id. ¶¶ 31, 57).[3] Collection of such books and records was ongoing for some time, with LGC staff members stationed at the town hall through 2013. Included in such books and records seized were all receipts, documents, notes, invoices, and electronically filed receipts and documents from the town's city hall, including all receipts verifying all expenditures by plaintiff.

         In August 2012, defendant Holloman cancelled a contract that the town had signed with an independent CPA to locate FEMA funds “due and owing” to the town. (Id. ¶ 37). That same month, defendant Edmundson sent a letter to plaintiff, on behalf of LGC, suggesting that LGC was interested in looking at receipts verifying plaintiff's credit card expenses as mayor. Plaintiff asked then-town manager Maggie Boyd (“Boyd”) and then-town clerk Diana Draughn (“Draughn”) to confirm that all of her receipts and supporting documents were in the town's filing cabinet, in a folder labeled “Mayor Oates PNC Bank Credit Cards.” (Id. ¶ 32). Boyd and Draughn did so, confirming that all receipts and documents were intact, for the period from 2010 to August 2012, with the exception of only five items without receipts. (Id. ¶ 34).

         In September 2012, defendant Edmundson, on behalf of LGC, sent another letter, specifically seeking documentation and receipts verifying credit card expenses for the PNC Bank charges. The letter included an attached spreadsheet that contained verification that there were 78 items for which receipts had been identified, and an unspecified number of items for which receipts had not been identified.[4] In response to the latest letter, plaintiff asked Boyd and Draughn to pull again the folder labeled “Mayor Oates PNC Bank Credit Cards” from the town hall files, but at that time the folder was gone. (Id. ¶ 34). Boyd asked LGC staff to return to her for her review the entire folder labeled “Mayor Oates PNC Bank Credit Cards.” (Id.). LGC staff on site stated that they did not know where the folder was, and they transmitted to plaintiff only an eight page facsimile transmission from defendant Edmundson, which showed copies of 19 receipts. (Id. ¶ 35; see DE 114-13).

         Defendant Edmundson allegedly had reviewed and had in her possession at that time the entire folder labeled “Mayor Oates PNC Bank Credit Cards, ” which, as noted above, allegedly contained receipts and supporting documentation for all of plaintiff's credit card expenditures from 2010 to August 2012, except for five undocumented items. (Id. ¶¶ 33-35). By October 2012, Edmundson also had a schedule verifying two of the five undocumented items. (Id. ¶ 36).

         On October 8, 2012, defendant Edmundson met with defendants Wood, Holloman, Hammond, and Long, who holds the title of supervisor of fraud investigations with the State Auditor's office, and discussed plaintiff's concerns about fraudulent misapplications of FEMA funds by past town officials. It is alleged that Edmundson delivered the entire folder labeled “Mayor Oates PNC Bank Credit Cards” to these defendants at the meeting, and that these defendants agreed at that time “to seek the SBI's assistance to prosecute plaintiff for embezzlement due to a lack of ‘supporting documentation' and receipts, which they had in their possession, had reviewed, and knew perfectly well were needed by [plaintiff] to prove her innocence.” (Id. ¶ 38). On October 23, 2012, defendant Long met with SBI agents and identified defendant Chapman as an SBI financial crimes agent who “works in the Edgecome County area, ” “who may be able to assist.” (Id. ¶ 39). They agreed also to apprise the Edgecombe County District Attorney of “what we're planning to do in Princeville.” (Id.).

         On October 29, 2012, defendant Long, having previously identified defendant Chapman, knowing she was an “African-American” SBI agent, sent an email to Cheryl McNeill (“McNeill”), a supervisor with defendant SBI, stating as follows:

We are conducting an investigation regarding fraud, waste, or abuse of public funds in the town of Princeville. It would be extremely helpful if you would be willing to assign one of your Financial Crimes agents to work with us during various phases of our engagement, but especially during the interview process. We are sensitive to the fact that some people may attempt to portray any investigation of the town's finances as a racial issue. Because of this, the assignment of an African American agent would be preferable in terms of relieving any anxiety on the part of Princeville's citizenry in this regard.

(Id. ¶ 40; see DE 114-7). On October 30, 2012, McNeill sent a letter to defendant Long, “RE: Fraud of Public Funds in the Town of Princeville, ” stating: “In response to your request for an investigation in the above referenced matter, [defendant] Chapman has been assigned to this investigation. Agent Chapman will contact you with her findings.” (Id. ¶ 41; see DE 114-8).

         In November and December 2012, it is alleged, defendant Chapman met regularly, two or three times per week, with defendants Holloman, Edmundson, Hammond, Wood, and Long, “in order to strategize on how best to ensure a finding of misappropriation by [plaintiff].” (Id. ¶ 43). During these meetings, these defendants allegedly viewed with defendant Edmundson the folder labeled “Mayor Oates PNC Bank Credit Cards, ” including its contents including “all attached receipts and supporting documents spanning the entirety of the Mayor's administration.” (Id.). At such meetings, it is alleged, these defendants “discussed their plan of having [defendant Chapman] present false testimony to the Grand Jury to secure a ‘True Bill' Indictment and criminally prosecute [plaintiff], ” by concealing the existence of receipts and supporting documents verifying business purpose of all expenditures. (Id.; see id. ¶ 76).

         Between January 2013 and July 2013, defendants Howell and Knight frequently communicated with defendants Holloman, Edmundson, and Wood, regarding the town's financial conditions. In such communications, defendants Howell and Knight also urged defendants Holloman, Edmundson, and Wood, “to investigate” plaintiff, who was the “political opponent” of defendants Howell and Knight, in order to silence plaintiff's investigation of defendant Howell and Knight's involvement in misappropriation of FEMA funds. (Id. ¶ 49).

         On March 28, 2013, defendants Howell and Knight, along with Calvin Sherrod (“Sherrod”), comprising three out of five members of the town's board of commissioners, convened a meeting of the board of commissioners, wherein the board “passed a ‘resolution' directing [defendant Wood] to proceed with an investigation of improper use of Town of Princeville funds by [plaintiff] and to disregard [a] Response Memorandum communicated by Town of Princeville Town Attorney Charles Watts, outlining a substantial amount of exculpatory evidence.” (Id. ¶ 51, 54).

         On April 8, 2013, defendant Wood published an “Investigative Report” on the “Town of Princeville” (hereinafter the “Report”). (Id. ¶¶ 55, 82, 83, 90, 91; see DE 104-1).[5] In the Report, defendant Wood states that plaintiff used a town credit card between August 2010 and July 2012 “to purchase various items without providing receipts or documenting the business purpose at the time of the expenditure.” (DE 104-1 at 13).[6] The Report describes $8, 115 in credit card charges “not supported by receipts, ” and a “majority” of total charges of $13, 018, which “did not have a clearly documented business purpose.” (Id.). The Report suggests that “[s]upporting documentation for ...

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