Dugan et al v. Wiegand et al

Filing 69

ORDER granting 46 Motion for Default Judgment. Default Judgment entered in favor of Plaintiffs' and against defendants. Signed by District Judge Robert J. Conrad, Jr on 9/30/2017. (Pro se litigant served by US Mail.)(eef)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
3:15-cv-00366-RJC-DSC

GUY M. DUGAN, KAREN DUGAN, and
MARK S. DUGAN, as trustee of THE GDM
FAMILY TRUST,
Plaintiffs,
v.
PILIANA M. SCHAMENS,
DAVID W. SCHAMENS,
INVICTUS CAPITAL GROWTH
AND INCOME FUND, LLP,
INVICTUS ASSET MANAGEMENT,
LLC, INVICTUS INCOME FUND,
INVICTUS REAL ESTATE INVESTMENT,
LLP, INVICTUS FUNDS, LLC,
TRADEDESK FINANCIAL GROUP, INC.,
TRADEDESK FINANCIAL CORP.,
TRADESTREAM ANALYTICS, LTD.,
INVICTUS CAPITAL GROWTH FUND,
LLP, INVICTUS HOLDINGS, LLP, and
TRADEDESK CAPITAL, LLC,
Defendants.

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ORDER

THIS MATTER comes before the Court on Plaintiffs’ Motion for Default Judgment And
To Correct Typographical Error of Plaintiff’s Name in Caption and memorandum in support (Doc.
Nos. 46 and 47). The motion is ripe for adjudication. For the reasons stated below, Plaintiffs’
motion is granted.
I.

BACKGROUND
Plaintiff’s Guy M. Dugan, Karen Dugan, and the GDM Family Trust filed this lawsuit on

August 11, 2015 alleging twelve cause of action against Defendants: 1) fraudulent inducement; 2)
fraud; 3) breach of fiduciary duty; 4) constructive fraud; 5) conversion; 6) securities fraud; 7)

embezzlement; 8) unfair and deceptive trade practices; 9) piercing the corporate veil; 10) civil
conspiracy; 11) accounting; and 12) unjust enrichment and constructive trust. (Doc. No. 1). In
brief, the underlying facts relate to an alleged securities fraud committed by Defendants in which
Plaintiffs invested over $800,000 in Defendant Invictus Asset Management (“IAM”), but instead
of investing the money on Plaintiffs’ behalf, Defendants allegedly used the money for personal
gain and benefit. (Id.).
Defendants have never had an attorney enter an appearance on their behalf, with the
exception of Phillips Wiegand, Jr., who settled the claims against him while his Motion to Dismiss
was pending before the Court.1 (Doc. Nos. 4, 34). Instead, Defendants David and Piliana
Schamens have attempted to defend themselves and the corporate defendants pro se. Proceeding
pro se, Defendants have not answered or otherwise responded to the complaint, but have filed a
total of four motions for extension of time to answer. On November 23, 2015, Plaintiffs filed
Waivers of Service executed by David and Piliana Schamens on their own behalf and on behalf of
each of the Corporate Defendants, waiving service and stating that responses to the complaint were
due January 11, 2016. On that day, Defendants filed their first Motion for Extension of Time to
Answer, seeking an extension “on the grounds that defendants need additional time to investigate
and prepare and [sic] an adequate Response as well as retain counsel.” (Doc. No. 32). The Court
gave Defendants until February 1, 2016 to respond to the complaint. (Doc. No. 33). Defendants

1

Prior to his settlement, Defendant Wiegand filed a Motion to Dismiss. (Doc. No. 4).
Wiegand claimed that the District Court did not have subject matter jurisdiction because: (1)
Plaintiffs, as limited partners of LLCs they are suing, destroyed diversity jurisdiction; and (2)
Plaintiffs entered into Subscription Agreements featuring forum selection clauses which specified
Mecklenburg County Superior Court of North Carolina as the appropriate court for this action.
(Id. at p. 10-11). Wiegand’s motion was dismissed administratively after he settled. At this stage
of the proceedings, after reviewing Plaintiff’s Supplemental Memorandum (Doc. No. 29), the
Court finds that it does have subject matter jurisdiction.

failed to comply with that deadline, but on February 10, 2016, filed their second Motion for
Extension of Time to Answer again on the basis that “defendants need additional time to
investigate and prepare and [sic] an adequate Response as well as retain counsel.” (Doc. No. 36).
Additionally, Defendants stated they never received a copy of the January 14, 2016 order granting
Defendants’ first request for an extension and the Clerk of Court told Defendants that the order
was not mailed because the Court did not have an address on file. (Id.). The Court granted
Defendants’ Second Motion for Extension of Time to Answer and gave Defendants until February
26, 2016 to respond to the complaint. (Doc. No. 37).
On February 29, 2016, again having missed the deadline to respond to the complaint,
Defendants filed their third Motion for Extension of Time to Answer. (Doc. No. 38). Defendants
sought until March 2, 2016 to respond to the complaint because their “retained counsel need[ed]
time for coordination to pro hac with local counsel and prepare answer.” (Id.). The Court again
granted Defendants’ requested and ordered that they had until March 2, 2016 to respond to the
complaint. (Doc. No. 39).
After Defendants failed yet again to meet the Court-ordered deadline to respond, Plaintiffs
filed a Motion for Entry of Default on March 3, 2016. (Doc. No. 40). On March 4, 2016,
Defendants filed their Reply to Motion for Entry of Judgment, though it more resembled a fourth
Motion for Extension of Time to Answer seeking until March 7, 2016 to file their response to the
complaint because “Counsel [had] been retained but [was] out of state and [had] yet been unable
to complete arrangements with local counsel to pro hac vice with the Court in order to legally file
with the Court the appropriate answers and motions due to scheduling conflicts,” but assuring the
Court that “[a]n Answer and corresponding motions have been prepared and ready to be filed upon
local counsel completing the agreement to pro hac out of statement [sic] counsel.

Upon

information and belief, these filings will be made on Monday, March 7.” (Doc. No. 41). On March
7, 2017, the Court denied Defendants’ then-latest request for an extension, and the Clerk of Court
entered default against Defendants. (Doc. Nos. 42, 43, 44). Defendants did not file an answer or
other response on March 7.
The case went silent for four months until, on July 22, 2016, the Court instructed Plaintiffs
to file a motion for default judgment within fourteen days. (Doc. No. 45). Accordingly, on August,
5, 2016, Plaintiffs filed their Motion for Default Judgment and supporting memorandum and
affidavits. (Doc. Nos. 46–47, 50–53). On September 12, 2016, Defendants filed their fifth request
for an extension in this case—a Motion to Extend Time for Response to Plaintiffs’ Motion for
Default Judgment. (Doc. No. 55). Defendants represented that “[t]his case was settled and the
terms of the settlement were abided by (see Exhibit A). Plaintiff’s [sic] Counsel did not inform
either the Defendant that they had not dismissed this action per the terms of the agreement and
instead, have proceeded with a motion for default judgment in both State and Federal Court.” (Id.).
Defendants requested a hearing and to have until September 19, 2016 to respond to the Motion for
Default Judgment. (Id.). On September 13, 2016, the Court obliged Defendants’ request for an
extension and granted the motion, giving Defendants until September 19 to respond to the Motion
for Default Judgment. (Doc. No. 56). Yet again, Defendants failed to respond within the extra
time allotted.
On November 10, 2016, Plaintiffs filed a Notice of Settlement and Motion to Stay Entry
of Default Judgment or Dismissal until February 15, 2017, stating that the parties needed 95 days
to consummate the confidential terms of the settlement. (Doc. No. 57). The Court granted
Plaintiffs’ motion, but after a one-week extension of the stay to consummate the terms of the
settlement, Plaintiffs’ requested a ruling on the pending Motion for Default Judgment. (Doc. Nos.

58–61).
On April 27, 2017, the Court scheduled a hearing on Plaintiffs’ Motion for Default
Judgment, which was held on June 2, 2017. The morning of the hearing, less than an hour before
it began, David Schamens, still unrepresented in this matter, filed a Motion for Continuance and a
Motion to Enforce Settlement or Alternatively to Vacate the Entry of Default. (Doc. Nos. 65 and
66). Defendants’ Motion for Continuance sought to continue the hearing because, among other
things, “[d]ue to opposing counsel’s interference with pro hac counsel, Defendants are left with no
counsel at this time and have been forced to make a motion pro se . . . .” (Doc. No. 65). At the
hearing, the Court first heard the parties on Defendants’ Motion for Continuance and denied the
motion. Next, the Court heard the parties on the Motion for Default Judgment, and at the
conclusion of the hearing took the motion under advisement. (Doc. No. 67).
II.

STANDARD OF REVIEW
The entry of default judgment is governed by Rule 55 of the Federal Rules of Civil

Procedure which provides in relevant part that “[w]hen a party against whom a judgment for
affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by
affidavit or otherwise, the clerk must enter the party’s default.” FED. R. CIV. P. 55(a).
Upon the entry of default, the defaulted party is deemed to have admitted all well-pleaded
allegations of fact contained in the complaint. Ryan v. Homecomings Fin. Network, 253 F.3d 778,
780 (4th Cir. 2001); Weft, Inc. v. GC Inv. Assocs., 630 F. Supp. 1138, 1141 (E.D.N.C. 1986)
(citations omitted); see also FED. R. CIV. P. 8(b)(6) (“An allegation—other than one relating to the
amount of damages—is admitted if a responsive pleading is required and the allegation is not
denied.”). Nevertheless, the defendant is not deemed to have admitted conclusions of law and the
entry of “default is not treated as an absolute confession by the defendant of his liability and of the

plaintiff’s right to recover.” Ryan, 253 F.3d at 780 (citations omitted); see also E.E.O.C. v. Carter
Behavior Health Servs., Inc., No. 4:09-cv-122-F, 2011 WL 5325485, at *3 (E.D.N.C. Oct. 7,
2011). Rather, in determining whether to enter judgment on the default, the court must determine
whether the well-pleaded allegations in the complaint support the relief sought. See Ryan, 253
F.3d at 780 (citing Weft, 630 F. Supp. at 1141); DIRECTV, Inc. v. Pernites, 200 F. App’x 257,
258 (4th Cir. 2006) (“‘[A] defendant is not held to admit facts that are not well-pleaded or to admit
conclusions of law’”) (quoting Nishimatsu Constr. Co. v. Houston Nat’l Bank, 515 F.2d 1200,
1206 (5th Cir. 1975)); Arista Records, LLC v. Gaines, 635 F. Supp. 2d 414, 416 (E.D.N.C. 2009);
10A Wright, Miller & Kane, Federal Practice and Procedure § 2688 (3d ed. Supp. 2010)
(“[L]iability is not deemed established simply because of the default ... and the court, in its
discretion, may require some proof of the facts that must be established in order to determine
liability.”).
To that end, the Fourth Circuit has “repeatedly expressed a strong preference that, as a
general matter, defaults be avoided and that claims and defenses be disposed of on their merits.”
Colleton Preparatory Acad., Inc. v. Hoover Univ., Inc., 616 F.3d 413, 417 (4th Cir. 2010) (citations
omitted). Nonetheless, default judgment “may be appropriate when the adversary process has been
halted because of an essentially unresponsive party.” SEC v. Lawbaugh, 359 F. Supp. 2d 418, 421
(D. Md. 2005). Entry of default judgment is left to the sound discretion of the trial court. Duke
Energy Carolinas, LLC v. BlackRock Coal, LLC, No. 3:11-cv-616-RJC-DSC, 2012 WL 1067695
(W.D.N.C. Mar. 29, 2012) (granting default judgment in the plaintiff’s favor after finding that
service of the complaint and summons on defendant was sufficient yet defendant failed to defend);
CF Cloninger Trucking IL Inc. v. SourceOne Group, Inc., No. 3:08-cv-00320-FDW, 2009 WL
35191 (W.D.N.C. Jan. 5, 2009) (granting default judgment when defendant failed to defend

complaint). Accord Lawbaugh, 359 F.Supp.2d at 421 (granting default judgment for permanent
injunction, disgorgement and a civil monetary penalty where defendant failed to answer complaint
alleging securities fraud and misappropriation). Although the clear policy of the Rules is to
encourage dispositions of claims on their merits, see Reizakis v. Loy, 490 F.2d 1132, 1135 (4th
Cir.1974), trial judges are vested with discretion, which must be liberally exercised, in entering
[default] judgments and in providing relief therefrom." United States v. Moradi, 673 F.2d 725, 727
(4th Cir. 1982).
If the court finds that liability is established, it must then determine damages. Carter
Behavior Health, 2011 WL 5325485, at *4 (citing Ryan, 253 F.3d at 780–81; Gaines, 635 F. Supp.
2d at 416–17). The court must make an independent determination regarding damages, and cannot
accept as true factual allegations of damages. Id. (citing Lawbaugh, 359 F. Supp. 2d at 422).
While the court may conduct an evidentiary hearing to determine damages, it is not required to do
so, but may rely instead on affidavits or documentary evidence in the record to determine the
appropriate sum. See EEOC v. CDG Mgmt., LLC, No. RDB-08-2562, 2010 WL 4904440, at *2
(D. Md. Nov. 24, 2010) (citations omitted); EEOC v. North Am. Land Corp., No. 1:08-cv-501,
2010 WL 2723727, at *2 (W.D.N.C. Jul. 8, 2010).
III.

DISCUSSION
In the words of Benjamin Franklin, “You may delay, but time will not, and lost time is

never found again.” It has been two years since this case appeared before the Court. Since then,
the Court has granted four continuances in order for Defendants to find counsel and respond to
Plaintiffs’ complaint. Despite the ample time afforded to them, Defendants have continually failed
to produce counsel. On June 2, 2017, the day of the hearing on Plaintiff’s Motion for Default,
Defendant David Schamens filed yet another Motion for Continuance. Yet again, Defendants

failed to procure counsel. Defendants’ actions are impermissible. First, corporate defendants may
not appear before the Court pro se. 2 Second, Defendants’ lack of action betrayed the time afforded
to them by the Court. Although Defendants may continue to drag their feet, the Court will not.
Given Defendant’s silence amidst an abuse of time, Plaintiffs’ Motion for Default is ripe and the
Court now takes it under consideration.

Accordingly, the Court finds that Plaintiffs have

sufficiently pled facts to support all of the requisite elements for the claims of fraudulent
inducement, fraud, breach of fiduciary duty, constructive fraud, conversion, securities fraud,
piercing the corporate veil, civil conspiracy, and unjust enrichment and constructive trust. The
Court does not find sufficient support for Plaintiffs’ claim for unfair and deceptive trade practice.
Furthermore, Plaintiffs do not move the Court for default judgment for either their embezzlement
or accounting claims and do not discuss them in their Motion for Default Judgment. The Court
therefore considers those claims waived.
a. Fraudulent Inducement
Plaintiffs’ first claim that Defendants fraudulently induced Plaintiffs’ investments into the
corporate defendants.

"The essential elements of fraud in the inducement are: (1) False

representation or concealment of a material fact, (2) reasonably calculated to deceive, (3) made
with intent to deceive, (4) which does in fact deceive, (5) resulting in damage to the injured party."
Whisnant v. Carolina Farm Credit, 693 S.E.2d 149, 157 (N.C. Ct. App. 2010). Plaintiffs have

“It has been the law for the better part of two centuries … that a corporation may appear in
the federal courts only through licensed counsel. As the courts have recognized, the rationale for
that rule applies equally to all artificial entities. Thus, save in a few aberrant cases, the lower courts
have uniformly held that 28 U.S.C. § 1654, providing that ‘parties may plead and conduct their
own cases personally or by counsel,’ does not allow corporations, partnerships, or associations to
appear in federal court otherwise than through a licensed attorney.” In re Under Seal, 749 F.3d
276, 290 n.17 (4th Cir. 2014) (quoting Rowland v. Cal. Men's Colony, Unit II Men's Advisory
Council, 506 U.S. 194, 202 (1993)).
2

fulfilled each of these elements within the well-pleaded allegations of their Complaint.
First, Defendants' representations to Plaintiffs were false representations and concealments
of material fact.

Defendants: (1) concealed D. Schamens’ status as a permanently barred

investment counselor deemed “harmful” to investors’ interests by the SEC; (2) misrepresented the
status of Wiegand who held himself as a corporate general counsel when he was not in fact an
attorney; (3) held Piliana Shamens out as the official representative of the corporate Defendants’
acts in order to conceal David Shamens and Phillips Wiegand’s involvement in corporate
operations; (4) misrepresented to Plaintiffs how their investments would be handled in conjunction
with option strategies in order to make steady profits; and (5) created fictitious account statements
showing Plaintiffs’ investments making significant gains. (Doc. No. 1 ¶¶ 53, 111, 116). Rather
than honor their statements, Defendants used Plaintiffs’ funds for their personal benefit. (Id. at ¶
113–14).
Second, the Defendants knew or should have known that the Plaintiffs would rely on those
misrepresentations in making the determination to invest over $800,000 with the Defendants. (Id.)
Defendants’ misrepresentations were significant in that they completely masked the manner in
which Plaintiffs’ funds were to be used. Rather than “make steady profits in both up and down
markets by using option strategies,” Defendants diverted Plaintiffs’ funds to, among other things,
purchase expensive homes. (Id.) As such, Defendants’ misrepresentations were reasonably
calculated to deceive Plaintiffs into entrusting their life savings to the Defendants and were made
with the intent to deceive because the Defendants used the Plaintiffs' savings for the Defendants'
own personal use and benefit. These calculated misrepresentations damaged Plaintiffs when they
invested over $800,000 in the hopes of receiving significant gains only to lose the investments to
Defendants’ personal use. Considering these facts, Plaintiffs have successfully established a claim

for relief based on fraudulent inducement.
b. Fraud
"The essential elements of fraud are: (1) False representation or concealment of a past
or existing material fact, (2) reasonably calculated to deceive, (3) made with intent to deceive,
(4) which does in fact deceive, (5) resulting in damage to the injured party." Whisnant, 693
S.E.2d at 156–57. An actual fraud claim may derive from either an affirmative misrepresentation
of a material fact or a failure to disclose material facts relating to a transaction which the
parties had a duty to disclose.

Id. The same misrepresentations and concealments recognized

under Plaintiffs’ fraud in the inducement claim suffice to fulfill a claim of actual fraud. See Id.
(stating that the elements of actual fraud and fraud in the inducement were both fulfilled given
their similar elements). The misrepresentations and concealments of material facts by Defendants
were calculated to deceive Plaintiffs, and did deceive Plaintiffs, into investing significant sums
of money under the false promise of significant gains only to be abused by Defendants for use as
personal funds.

(Doc. No. 1 ¶¶ 48–49, 53–54, 100–02, 109–124, 132–139). Considering

these facts, Plaintiffs have successfully established a claim for relief based on fraud.
c. Breach of Fiduciary Duty
“To state a claim for breach of fiduciary duty, a plaintiff must allege that a fiduciary
relationship existed and that the fiduciary failed to act in good faith and with due regard to plaintiffs
interests.” Toomer v. Branch Banking and Trust Co., 614 S.E.2d 328, 337 (N.C. Ct. App. 2005)
(internal quotations omitted). Courts have generally declined to define “fiduciary relationship”
with specificity, acknowledging that such a relationship may exist in a variety of circumstances.
Tin Originals, Inc. v. Colonial Tin Works, Inc., 391 S.E.2d 831, 833 (N.C. Ct. App. 1990) (quoting
Abbitt v. Gregory, 160 S.E. 896 (N.C. 1931)). Fiduciary relationships “exist[] in all cases where

there has been a special confidence reposed in one who in equity and good conscience is bound to
act in good faith and with due regard to the interests of the one reposing confidence.... ‘[I]t extends
to any possible case in which a fiduciary relation exists in fact, and in which there is confidence
reposed on one side, and resulting domination and influence on the other.’” Id.
Defendants knowingly entered into a fiduciary relationship with Plaintiffs when they
misrepresented their ability to manage Plaintiffs’ funds and gain “steady profits.” (Doc. No. 1, ¶
111). Upon Defendants’ representations, Plaintiffs instilled in Defendants the trust to manage
and deposit Plaintiffs' funds in accounts to create profit. This created a fiduciary relationship
between Plaintiffs and the Defendants.
Not only was a fiduciary relationship created between Defendants and Plaintiffs, but that
duty was thereafter breached. Defendants failed to: (1) deposit funds in accounts that would
benefit Plaintiffs; (2) truthfully disclose the misuse of Plaintiffs’ funds for Defendants’ personal
benefit; (3) truthfully disclose Defendants’ financial condition; (4) provide compensation or
documentation after converting Plaintiffs’ ownership in the corporate Defendants; (5) disclose D.
Schamens’ bad standing imposed by the SEC; and (5) disclose the risks involved in investing in
corporate Defendants. (Doc. No. 1, ¶¶ 100–02, 109–24, 144). As such, Plaintiffs’ well-pleaded
allegations have established a claim for relief based on breach of fiduciary duty.
d. Constructive Fraud
To prove constructive fraud, a Plaintiff must prove: “(1) a relationship of trust and
confidence, (2) that the defendant took advantage of that position of trust in order to benefit
himself, and (3) that plaintiff was, as a result, injured. Intent to deceive is not an element of
constructive fraud.” Clay v. Monroe, 658 S.E.2d 532, 536 (N.C. Ct. App. 2008). This cause of
action differs from a claim of breach of fiduciary duty in that in a constructive fraud claim,

Plaintiffs must prove that Defendants benefitted themselves. Id. at 536-37. Furthermore, “[a]
claim of constructive fraud does not require the same rigorous adherence to elements as actual
fraud.” Forbis v. Neal, 649 S.E.2d 382, 388 (N.C. 2007) (quoting Terry v. Terry, 273 S.E.2d 674,
677 (N.C. 1981).
Plaintiffs have already established a relationship of trust and confidence existed between
themselves and Defendants.

Furthermore, Plaintiffs have articulated with specificity how

Defendants benefitted themselves through exploiting that relationship for personal gain, resulting
in the injury of Plaintiffs. (Doc. No. 1, ¶¶ 53, 100–102, 109–124, 144). As such, Plaintiffs’ wellpleaded allegations have established a claim for relief based on constructive fraud.
e. Conversion
“[C]onversion is defined as an unauthorized assumption and exercise of the right of
ownership over goods or personal chattels belonging to another, to the alteration of their condition
or the exclusion of an owner's rights.” Steele v. Bowden, 768 S.E.2d 47, 55 (N.C. Ct. App. 2014)
(quoting Myers v. Catoe Constr. Co., 343 S.E.2d 281, 283 (1986)). Conversion covers personal
chattel – movable property – which includes money. See Gadson v. Toney, 316 S.E.2d 320, 322,
(N.C. Ct. App. June 19, 1984) (involving money in a joint account). In order to succeed on a
conversion claim, a plaintiff must establish two necessary elements: (1) the plaintiff’s ownership
interest; and (2) defendant’s wrongful conversion. Id. By using Plaintiffs’ funds for personal
benefit rather than in accordance with the authority originally granted by Plaintiffs, Defendants
exercised a right of ownership over Plaintiffs' assets to the exclusion of Plaintiffs’ ownership
rights. (Doc. No. 1, ¶¶ 114, 144, 153–57). As such, Plaintiffs’ well- pleaded allegations have
established a claim for relief based on conversion.

f. Securities Fraud
“It is unlawful for any person, in connection with the offer, sale or purchase of any
security, directly or indirectly: (1) To employ any device, scheme, or artifice to
defraud, (2) To make any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements made, in the light of the
circumstances under which they are made, not misleading or, (3) To engage in any
act, practice, or course of business which operates or would operate as a fraud or
deceit upon any person.”
N.C. GEN. STAT. ANN. § 78A-8 (West 2017). Those who offer or sell a security through
untrue statements or omissions of material fact are liable to the purchasing party. N.C. GEN. STAT.
ANN. § 78A-56 (West 2017). The purchaser “may sue either at law or in equity to recover the
consideration paid for the security, together with interest at the legal rate from the date of payment,
costs, and reasonable attorneys' fees, less the amount of any income received on the security, upon
the tender of the security, or for damages if the purchaser no longer owns the security.” Id.
Defendants not only made material misrepresentations in order to induce Plaintiffs to buy
securities, they continued their fraudulent conduct to encourage Plaintiffs to continue their
investments. (Doc. No. 1, ¶ 119). Defendants continually withheld pertinent documents and
information regarding Plaintiffs’ accounts. As a result, Plaintiffs invested over $800,000 with
Defendants based on misrepresented, untrue statements of material fact. As such, Plaintiffs’ wellpleaded allegations have established a claim for relief based on civil liability under the securities
fraud statutes.
g. Unfair and Deceptive Trade Practices
N.C. GEN. STAT. ANN. § 75-1.1(a) (West 2017) declares that “[u]nfair methods of
competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting
commerce, are declared unlawful.” However, Chapter 75 does not apply to security transactions.
Hajmm Co. v. House of Raeford Farms, Inc., 403 S.E.2d 483, 492-493 (N.C. 1991). North

Carolina courts have refused to apply the North Carolina Unfair and Deceptive Trade Practices
Act to matters already under “pervasive and intricate regulation” by other statutory schemes that
contain separate enforcement, supervisory, and remedial provisions. Skinner v. E.F. Hutton & Co,
Inc., 333 S.E.2d 236, 241 (N.C. 1985) (quoting Linder, 761 F.2d at 167). Plaintiffs’ Complaint
alleges that Defendants were unfair and deceptive in their solicitation of investments. (Doc. No.
1, ¶113). Because the Unfair and Deceptive Trade Practices Act does not apply to security
transactions, Plaintiffs’ claim is unsuccessful. Furthermore, this conclusion bars Plaintiffs from
seeking treble damages. N.C. GEN. STAT. ANN. §§ 75-16, 75-16.1 (West 2017).
h. Piercing the Corporate Veil
In general, corporations are distinct from their shareholders. Green v. Freeman, 749 S.E.2d
262, 270 (N.C. 2013). The exception to this rule “allows a plaintiff to impose legal liability for a
corporation's obligations, or for torts committed by the corporation, upon some other company or
individual that controls and dominates a corporation.” Id. This is known as piercing the corporate
veil. The Court uses this doctrine only when defendants exploit the corporate form in order to
shield themselves from liability. Id. This doctrine is not used lightly. Id.
To succeed on a claim advocating for the corporate veil to be pierced, the plaintiff must
show that “the corporation is so operated that it is a mere instrumentality or alter ego of the sole
or dominant shareholder and a shield for his activities in violation of the declared public policy or
statute of the State." Id. (quoting Henderson v. Sec. Mortg. & Fin. Co., 160 S.E.2d 39 (N.C.
1968)). Plaintiff may fulfill this burden by demonstrating a corporate defendant’s “inadequate
capitalization, noncompliance with corporate formalities, lack of a separate corporate identity,
excessive fragmentation, siphoning of funds by the dominant shareholder, nonfunctioning officers
and directors, [or] absence of corporate records.” Id. (citing Glenn v. Wagner, 455-58, 329 S.E.2d

326 (N.C. 1985)).
Once the fact finder establishes that the corporate veil should be pierced, a plaintiff must
then establish that a non-corporate defendant may be held liable for his or her actions as an official
within the corporation. Id. This inquiry may be fulfilled by presenting evidence of three elements:
(1) Control, not mere majority or complete stock control, but
complete domination, not only of finances, but of policy and
business practice in respect to the transaction attacked so that
the corporate entity as to this transaction had at the time [***21]
no separate mind, will or existence of its own; and
(2) Such control must have been used by the defendant to commit
fraud or wrong, to perpetrate the violation of a statutory or other
positive legal duty, or a dishonest and unjust act in
contravention of [a] plaintiff's legal rights; and
(3) The aforesaid control and breach of duty must proximately
cause the injury or unjust loss complained of.
Id. (citing Glenn v. Wagner, 455-58, 329 S.E.2d 326 (N.C. 1985)).
Plaintiffs’ complaint has successfully alleged that Defendants David and Pilliana
Schamens blurred corporate identities and siphoned funds to the point of financing an expensive
home in Advance, North Carolina. (Doc. No. 1, ¶ 114). Plaintiffs have also successfully pleaded
Defendants David and Pilliana Schamens’ “complete dominion” over the corporate defendants.
For instance, the Schamens exercised such control as to use their corporation, IAM, to fraudulently
prepare account statements. (Id. at ¶¶ 116-17). As the Schamens’ alter ego, the corporate
defendants had no separate mind or existence of their own. They were mere instruments used by
the individual defendants to commit fraud upon Plaintiffs. Given Defendants’ blatant exploitation
of the corporate form, Plaintiffs have established that the corporate veil of the Defendant entities
may be pierced. Plaintiffs have also shown that the individual Defendants may be held liable for
the damage dealt to Plaintiffs by these corporate defendants.

i. Civil Conspiracy
"[T]o create civil liability for conspiracy, a wrongful act resulting in injury to another must
be done by one or more of the conspirators pursuant to the common scheme and in furtherance of
the common object. The gravamen of the action is the resultant injury, and not the conspiracy
itself." Muse v. Morrison, 66 S.E.2d 783, 785 (N.C. 1951) (quoting Holt v. Holt, 61 S.E. 2d 448
(N.C. 1950)). A successful claim based on civil conspiracy alleges: “(1) a conspiracy, (2) wrongful
acts done by certain of the alleged conspirators in furtherance of that conspiracy, and (3) injury as
a result of that conspiracy.” State ex rel. Cooper v. Ridgeway Brands Mfg., LLC, 666 S.E.2d 107,
115 (N.C. 2008) (citing Muse, 66 S.E.2d at 785).
Starting with the first element, a conspiracy is defined as “an agreement between two or
more individuals to do an unlawful act or to do a lawful act in an unlawful way.” Muse, 66 S.E.2d
at 784. Plaintiffs have successfully alleged that Defendants entered a scheme to, among other
things, defraud Plaintiffs by: (1) forming corporations with David Schamens, an individual known
to be barred by the S.E.C.; (2) replacing David Schamens’ name with that of Pilliana Shamens’
name in an effort to conceal David Schamens’ involvement while retaining his control over
Defendant corporations; (3) drafting fraudulent account statements to prevent Plaintiffs’ discovery
of their funds being siphoned for Defendants’ personal use. (Doc. No. 1, ¶ 55–79, 96, 109–19).
The agreement between Defendants to act resulted in Plaintiffs’ loss of significant money invested
into the corporate Defendants. Therefore, Plaintiffs have successfully established civil liability for
Defendants’ conspiracy.
j. Accounting
Plaintiffs’ eleventh cause of action is for “Accounting” and seeks “an accounting from the
Defendants of: (1) all transfers of monies invested and paid by Plaintiffs; (2) personal purchases

made by the Defendants with Plaintiffs funds or credit; (3) all payments of any kind, including
salary, distributions, dividends and expense reimbursements made to the Defendants with any of
Plaintiffs’ funds; and (4) all personal use by the Defendants of Plaintiffs’ property.” (Doc. No. 1,
¶¶ 193–94). Plaintiffs do not move the Court for default judgment on this claim and do not discuss
it in their Motion for Default Judgment so the Court will treat this claim as waived.
k. Unjust Enrichment and Constructive Trust
“Unjust enrichment is ‘a claim in quasi contract or a contract implied in law.’” Butler v.
Butler, 768 S.E.2d 332, 336 (N.C. Ct. App. 2015) (quoting Booe v. Shadrick, 369 S.E.2d 554,
556, rehearing denied, 373 S.E.2d 540 (N.C. 1988)). This is a claim to address the failure to
make restitution of benefits one party received from another through circumstances warranting
an equitable accounting. Id. (quoting Watson Elec. Constr. Co. v. Summit Cos., LLC, 587
S.E.2d 87, 92 (N.C. Ct. App. 2003)). The law does not allow one to unjustly enrich himself at
the expense of another. Id. In order to prevail on a claim for unjust enrichment, Plaintiff must
establish five elements:
First, one party must confer a benefit upon the other party.... Second, the benefit
must not have been conferred officiously, that is it must not be conferred by an
interference in the affairs of the other party in a manner that is not justified in the
circumstances.... Third, the benefit must not be gratuitous.... Fourth, the benefit
must be measurable.... Last, the defendant must have consciously accepted the
benefit.
JPMorgan Chase Bank, Nat’l Ass’n v. Browning, 750 S.E.2d 555, 559 (N.C. Ct. App. 2013).
Defendants solicited over $800,000 worth of investments from Plaintiff. (Doc. No. 1, ¶¶ 48–49,
53–54, 100–02, 109–24, 195–200). Rather than investing that money and providing promised
profits to Plaintiffs, Defendants used those funds for personal benefit. (Doc. No. 1, ¶¶ 48–49, 53–
54, 100–02, 109–24, 195–200). As such, Defendants were unjustly enriched and Plaintiffs have
sufficiently established the right to restitution under a claim of unjust enrichment.

IV.

CONCLUSION
The Court assesses Plaintiffs’ damages in accordance to their submitted affidavits. (Doc.

Nos. 10–53).
IT IS, THEREFORE, ORDERED that:
1. Plaintiffs’ Motion for Default Judgment, (Doc. No. 46), is GRANTED;
2. Judgment is entered in favor of Plaintiff Guy M. Dugan and against Defendants in
the amount of $537,075.19;
3. Judgment is entered in favor of Plaintiff Karen Dugan and against Defendants in
the amount of $26,554.57;
4. Judgment is entered in favor of Plaintiff GDM Family Trust and against
Defendants in the amount of $68,412.53;
5. Interest from the date of entry of this judgment shall accrue at the legal rate,
pursuant to 28 U.S.C. § 1961;
6. Pursuant to Fed. R. Civ. P. 54(d) and N.C. Gen. Stat. Ann. ¶ 78A-56, Plaintiffs
are awarded attorney fees of $13,057.50, divided equally amongst each of them;
and
7. The Clerk of Court is directed to close this case.

Signed: September 30, 2017