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Everette-Oates v. Chapman

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

January 14, 2020

LOLITA CHAPMAN In Her Individual Capacity; BETH WOOD In her Individual Capacity; T. VANCE HOLLOMAN In his Individual Capacity; ROBIN HAMMOND In her Individual Capacity; and SHARON EDMUNDSON In her Individual Capacity, Defendants.



         This matter is before the court on the parties' cross motions for summary judgment (DE 175, 178, 184, 189). These motions have been briefed fully, and the issues raised are ripe for ruling. For the following reasons, defendants' summary judgment motions are granted and plaintiff's summary judgment motion is denied.[1]


         Plaintiff, along with former-plaintiff Duarthur Oates, 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 against defendants who are current and former state government officials, arising out of an investigation, indictment, and prosecution of plaintiff while she was mayor of the Town of Princeville, North Carolina (the “Town”).

         On September 28, 2016, the court dismissed without prejudice all claims, except for one claim against defendant Beth Wood (“Wood”) in her individual capacity (false public statements and seizure, under 42 U.S.C. § 1983). Upon plaintiff's motion construed as a motion to amend complaint, the court on May 23, 2017, allowed plaintiff to file an amended complaint with only certain claims as proposed by plaintiff but not others. In particular, the court allowed plaintiff to proceed on the following claims:

         1) Concealment of evidence and seizure under § 1983 (count two) against defendant Lolita Chapman (“Chapman”);

         2) Fabrication of evidence and seizure under § 1983 (count three) against defendant Chapman; and

         3) Civil conspiracy and causing a § 1983 violation (count four) against defendants Chapman, Wood, T. Vance Holloman (“Holloman”), Robin Hammond (“Hammond”), and Sharon Edmundson (“Edmundson”), and former defendant Barry Long (“Long”), in their individual capacities.

         Plaintiff's other proposed claims for malicious prosecution (count one) and denial of equal protection (counts five and six), as well as all claims against former-defendants Gregory McLeod, Gwendolyn Knight (“Knight”), and Ann Howell (“Howell”), were dismissed as futile for failure to state a claim. Plaintiff filed a first amended complaint on June 5, 2017, largely in accord with the court's May 23, 2017 order, but with certain portions foreclosed by the court's order and/or subject to challenge by defendants in motions to dismiss and motions to strike. On October 31, 2017, the court dismissed claims against former defendant Long as time barred, and the court confirmed the remaining claims and defendants as those claims set forth above and those defendants set forth in the caption of this order.

         Following an extended period of discovery, and in accordance with the court's case management order, the parties filed the instant motions for summary judgment on April 1, 2019.

         In support of her summary judgment motion, plaintiff relies upon a memorandum of law, statement of material facts, [2] supplemental statement of facts, as well as appendix and a supplemental appendix, with accompanying exhibits, including declarations by 1) plaintiff (attaching exhibits including email correspondence and statement by plaintiff), 2) plaintiff's counsel, 3) former Town attorney Charles D. Watts, Jr. (“Watts”), 4) a prosecuting attorney in plaintiff's prosecution, Tonya Montanye (“Montanye”) (attaching exhibits including correspondence), 5) consultants Wallace Green and Reginald ‘Reggie' K. Smith (“Smith”), 6) former Town police chief Joey Petaway, 7) former Town commissioners, Isabelle P. Andrews (“Andrews”), Calvin Sherrod (“Sherrod”), and Maggie Boyd, and former town clerk, Daisy Staton.

         In addition, plaintiff relies upon 1) excerpts of depositions of plaintiff; each defendant; former defendant Long; Montanye and prosecutor Scott Harkey (“Harkey”); and plaintiff's counsel in criminal proceedings Joseph Hester and Malvern King; 2) selected deposition exhibits included among the following documents; 3) Office of the State Auditor (“OSA”) and State Bureau of Investigation (“SBI”) interview memoranda; 4) emails and written correspondence between defendants, plaintiff, plaintiff's counsel, accountants, prosecutors, Town officers, and officials of OSA and SBI and other government officials; 5) copies of files maintained by defendant Hammond with attachments; 6) OSA Investigative Report, dated April 8, 2013 (“OSA audit report”), and Re-Released Investigative Report, dated December 2014; 7) a March 27, 2013 “Response” to draft OSA audit report, prepared by Watts; 8) orders and notices in plaintiff's criminal case, 13 CRS 2056; 9) a draft indictment with notes; 10) Town resolutions, notices, and agreements; 11) photographs of file boxes and file contents; 12) reports and other documents referencing economic development in the Town; and 13) SBI policy and procedure manual, dated May 1, 2008.

         In support of her motion, defendant Chapman relies upon a memorandum of law, statement of material facts, and the following documents: 1) additional deposition excerpts, 2) additional SBI interview memoranda, 3) indictment of plaintiff, and 4) plaintiff's interrogatory responses.

         In support of her motion, defendant Wood relies upon a memorandum of law, statement of material facts, and the following documents in addition to those previously described: 1) additional deposition excerpts, 2) interrogatory responses, 3) correspondence between defendant Edmundson and Town officials, 4) OSA interview memoranda, 5) April 23, 2012, independent auditors' report by Petway Mills & Pearson, PA; 6) and declaration of accountant, Phyllis M. Pearson (“Pearson”).

         In support of their motion, defendants Holloman, Hammond, and Edmundson, rely upon a memorandum of law, statement of material facts, and the following documents in addition to those previously described: 1) additional deposition excerpts; 2) declarations of Holloman, Edmundson, and Hammond, with exhibits including correspondence, resolutions, and other work product of the Local Government Commission (“LGC”) and its staff; 3) additional OSA and SBI interview and file memoranda; 4) additional correspondence between LGC officers, plaintiff, and Town officers; 5) Long affidavit; 6) additional documents filed in plaintiff's criminal case; and 7) additional interrogatory responses.

         In their April 22, 2019, oppositions to plaintiff's motion, defendants rely upon memoranda of law, an opposing statement of facts, as well as a joint appendix containing the following: 1) additional deposition excerpts 2) additional correspondence and interview memoranda; and 3) additional copies of Town receipts, correspondence, and account statements.

         In her April 22, 2019, opposition to defendant Holloman, Hammond, and Edmundson's motion, plaintiff relies upon a memorandum of law, an opposing statement of facts, and objections to evidence submitted. In her opposition to defendant Chapman's motion, plaintiff relies upon a memorandum of law, and an opposing statement of facts. In her opposition to defendant Wood's motion, plaintiff relies upon a memorandum of law, an opposing statement of facts, and objections to evidence submitted. Plaintiff also filed on April 23, 2019, a supplemental statement of material facts, and a supplemental appendix, including additional deposition excerpts and exhibits from depositions.

         On May 6, 2019, defendants filed a joint response in opposition to plaintiff's evidentiary objections, relying upon affidavits of OSA and SBI officials, Timothy J. Hoegemeyer and Nathaniel L. McLean. That same date, plaintiff filed a reply in support of her summary judgment motion.


         The undisputed facts may be summarized as follows.

         Plaintiff served two terms as the mayor of the Town, first between 2003 and 2005, and second between January 2010 and December 2013. (Pl's Opp. Stmt. (DE 200) ¶ 1).[3]

         The Local Government Commission (“LGC”) is a legislatively created state commission that has the duties and authority set out in the North Carolina Local Government Finance Act, N.C. Gen. Stat. §§ 159-1 to 159-216, including responsibility for approving local government debt, and for monitoring the fiscal and accounting practices of local governments. (Id. ¶¶ 3, 6). The LGC has the authority to impound the books and records and assume financial control of any local government that defaults or is expected to default on a debt or that fails to comply with the Local Government Finance Act. (Id.). The LGC consists of nine members, including the State Treasurer, the State Auditor, who is defendant Wood, and the Secretary of Revenue, who each serve as ex officio members. (Id. ¶ 4).

         The LGC operates as a division of the Department of State Treasurer (“DST”), and the staff of the LGC is provided by the Fiscal Management Section of the State and Local Government Finance Division of the DST (the “LGC staff”). (Id. ¶ 5). In the event that the LGC votes to assume temporary financial control of a local government, the LGC staff is responsible for maintaining the day-to-day control of the finances of the local government. (Id. ¶ 8). The director of the Fiscal Management Section serves as the finance and budget officer of the local government during the period of assumed financial control. (Id.).

         Three defendants in this case worked for DST. Defendant Holloman, who is a certified public accountant, worked for the DST from 1985 until his retirement in 2015, including from 2006 until retirement in position of deputy state treasurer and director of the State and Local Government Finance Division. (Id. ¶¶ 9-11). Defendant Edmundson, who is a certified public accountant, has worked for DST since 2002, and has held the position of director of the Fiscal Management Section since 2006. (Id. ¶ 16). Defendant Hammond worked for DST from May 2012 until her retirement in 2017, serving as assistant general counsel, assigned to serve as legal counsel to the State and Local Government Finance Division and LGC. (Id. ¶¶ 18-21).

         The North Carolina Office of State Auditor (“OSA”) is an agency of the state, responsible, in part, for conducting audits of all state agencies, and entities supported, partially or entirely, by public funds. (Id. ¶ 22). Defendant Wood, as state auditor, is authorized and directed to make any comments, suggestions, or recommendations she deems appropriate concerning any aspect of an audited entity's activities and operations. (Id. ¶ 23).

         The North Carolina State Bureau of Investigation (“SBI”) is a state criminal law agency set up for the identification of criminals, for their apprehension, and investigation and preparation of evidence to be used in criminal courts. (Id. ¶ 26). Defendant Chapman was an SBI field agent from 2007 until 2014, assigned to conduct criminal investigations. (Id. ¶ 27). In 2014, she became a special agent with the Medicaid Investigations Division of the North Carolina Department of Justice. (Id.).

         The Town has experienced financial difficulties, which have been exacerbated by severe flooding caused by several hurricanes. (Id. ¶ 28). As a result of these financial difficulties, the LGC has twice voted to assume financial control of the town. (Id.). The first time was in 1997; the second time was in 2012. (Id.). Princeville is the only town where the LGC has had to assume financial control more than once. (Id.).

         Beginning in 2010 and up until July 2012, when the LGC voted to assume control of the Town's finances, the LGC staff corresponded and interacted frequently with Town officials about the financial condition of the town. (Id. ¶ 29). In 2012, prior to the LGC vote, DST staff prepared a chart summarizing the correspondence and interactions that LGC staff had with town officials about the town's financial condition. (Id.). This chart was prepared by DST staff leading up to the recommendation from the LGC staff that the LGC vote to assume financial control of the Town. (Id.).

         On April 23, 2012, the Town received an independent audit for the fiscal year ending June 30, 2011 (the “2010-2011 audit”), conducted by the accounting firm Petway Mills & Pearson, PA, under the direction of Pearson (the “independent auditor”). (Id. ¶¶ 30-31). In the 2010-2011 audit, the independent auditor was unable to verify the accuracy of the Town's financial statements due to inconsistencies and errors in the accounting records and due to a lack of internal controls over the Town's financial operations. (Id. ¶¶ 31). Based on this, the independent auditor issued an adverse opinion on the Town's financial statements. (Id.). This means that the financial statements did not present fairly or in conformity with generally accepted accounting principles the financial position of the Town. (Id.). In addition, the independent auditor identified 19 material weaknesses in the Town's internal controls over its financial reporting. (Id.).

         Among the identified material weaknesses were inadequate internal controls to ensure that transactions were properly documented and properly approved. (Id. ¶ 32). The independent auditor identified $23, 496 in expenditures that were not supported by complete or adequate documentation. (Id.). This included incomplete or inadequate documentation to show that some credit card charges and other expenditures were for a legitimate business purpose. (Id.).

Under generally accepted government accounting and auditing principles, to verify that a charge or expenditure is for a legitimate business purpose the charge or expenditure must be properly documented. Proper documentation for a credit card expenditure related to town business would include documentation explaining the purpose of the expenditure and why it was necessary for town business purposes. For example, proper support for a travel expenditure charged to a town credit card would include a travel reimbursement form explaining the business purpose of the travel and would also including other supporting documentation such as a conference or meeting agenda. Under generally accepted government accounting and auditing principles, itemized receipts are necessary but not sufficient documentation for town expenditures. While itemized receipts show that expenditure was made, they do not show that the expenditure was made for a legitimate business purpose. Similarly, general statements that expenditure was for town business or for a meeting are also inadequate to show that the expenditure was made for a legitimate business purpose. A statement supporting business expenditure should explain the purpose of the expenditure and why it was necessary for town business purposes and should be supported by additional documentation.

(Id. ¶¶ 33-34).

         On July 30, 2012, the LGC voted to assume financial control of the Town and to impound the Town's financial records. (Id. ¶ 36). Defendant Edmundson, as Director of the Fiscal Management Section, was appointed by the LGC as the finance officer for the Town. (Id. ¶ 37). LGC staff removed some of the Town's original financial records to its offices in Raleigh. (Id. ¶ 42). There was no inventory or log of the Town's financial records that were brought back to the LGC. (Id. ¶ 43). The records were stored in several different locations in the LGC offices, including a cubicle, a small file room, and in offices. (Id. ¶ 44). Edmundson had responsibility for the Town records in the LGC offices. (Id. ¶ 44). The records were accessed by LGC staff as needed and Edmundson trusted her staff to keep the records organized if possible. (Id.). Holloman, Edmundson, and the LGC had sole custody of the records, and the records remained in LGC offices at all times while LGC had custody of them. (Defs' Opp. Stmt. (DE 196) ¶¶ 58-59). Edmundson kept records in her office that she was “accessing at least initially on a regular . . . basis.” (Id. ¶ 60; Edmundson Dep. 74).[4]

         Defendant Wood, as a member of the LGC, became aware of the financial problems in the Town, and she was present at the July 30, 2012, LGC meeting when the LGC voted to take over the Town's finances. (Pl's Opp. Stmt. (DE 200) ¶¶ 55-56). At the meeting, plaintiff gave to defendant Wood documents that plaintiff alleged were evidence of the misallocation of Federal Emergency Management Agency (“FEMA”) funds, meant for the use of the Town and its residents after Hurricane Floyd in 1999, to individuals or businesses that were not entitled to the funds. (Id. ¶ 58). At the conclusion of the meeting, defendant Wood overheard plaintiff talking to another LGC member about a fifty thousand dollar check that no one was looking into. (Id. ¶ 57). Defendant Wood took the information she received from plaintiff back to her office and gave it to David King, OSA's Director of Investigations, to investigate plaintiff's allegations of misappropriated FEMA funds. (Id. ¶ 59). Defendant Wood initiated an OSA investigation into Princeville's finances by passing on to David King the information she learned at the meeting, who in turn passed that information on to former defendant Long, who is an Investigative Supervisor with the OSA. (Id. ¶¶ 60-61). Based on interviews of SBI agents, Long learned that the SBI had already investigated plaintiff's allegations. (Id. ¶ 63).[5]

         Plaintiff also had made complaints directly to defendant Holloman that the Town's FEMA funds had been embezzled, including a complaint about a fifty thousand dollar check made payable to commissioner Howell and checks written to commissioner Knight. (Defs' Opp. Stmt. (DE 196) ¶¶ 10, 11). Plaintiff requested an accounting of all FEMA funds that had gone to the Town. (Id.).

         On September 19, 2012, defendant Edmundson sent a letter to plaintiff and the Town commissioners about the several areas of concern that the LGC staff had with the Town's finances. (Pl's Opp. Stmt. (DE 200) ¶¶ 46-47). This letter also included an attached schedule of charges to the town credit card account. (Id.). One of the issues raised in the letter was an alleged lack of documentation to show that charges on the town credit card were for legitimate town business and were authorized in the Town's budget. (Id.). Defendant Edmundson sent plaintiff and the Town commissioners a revised the schedule of charges with alleged lack of documentation on October 31, 2012. (Id. ¶ 48).

         OSA investigators Long, Bryan Matthews (“Matthews”), and David King interviewed LGC staff members defendants Holloman and Edmundson, with Hammond present, on October 8, 2012 at the LGC's offices regarding the LGC's takeover of the Town's finances and information concerning allegations of fraud, waste and abuse. (Id. ¶ 65).

         On October 23, 2012, OSA investigators David King, Long, and Matthews interviewed accountant Pearson regarding financial audits she performed for the Town of Princeville. (Id. ¶ 68). That same date, OSA investigators interviewed East and Pappas and created a memorandum of interview stating “Mr. East suggested that we meet with the Edgecomb [sic] County District Attorney to apprise him/her of what we're planning to do in Princeville.” (DE 187-12 at 3)).[6]

         On October 29, 2012, Long requested by email “an African-American Agent” from SBI supervisor Cheryl McNeill (“McNeill”), with copy to his supervisor, David King. (Defs' Opp. Stmt. (DE 196) ¶¶ 37). At the time, Long had no evidence that plaintiff had committed a crime. (Id. ΒΆ 38). On October 30, 2012, McNeill sent a letter to Long stating that she was assigning defendant Chapman to the OSA investigation. (Pl's Opp. Stmt. (DE 200) ...

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