CAPPS v. BLONDEAU,
2015 NCBC 38 (03-05-2015)
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF WAKE 07 CVS 16486
ESTATE OF MARTHA B. CAPPS, by and
through its Executor, Bruce L. Capps, and
THE ANNE KYLE TRUST, by and through
its Successor Trustee, Branch Banking and
Trust Company,
Plaintiffs,
v. VERDICT AND JUDGMENT
AS TO
HAROLD EARL BLONDEAU; NEAL DEFENDANT
WILLIAM KNIGHT, JR.; ANNE LOUISE HAROLD EARL BLONDEAU
KNIGHT; HELEN SOUTHWICK KNIGHT;
MORGAN KEEGAN & COMPANY, INC.;
MARVIN L. BAKER FAMILY
FOUNDATION, INC.; and REGIONS
BANK, d/b/a REGIONS MORGAN
KEEGAN TRUST,
Defendants.
THIS MATTER came before the undersigned Chief Special Superior Court Judge
for the North Carolina Business Court on September 16, 2014, for a bench trial as
against Defendant Harold Earl Blondeau (“Blondeau”), pursuant to the special non-jury
setting and Notice of Bench Trial issued September 3, 2014.
Plaintiffs were represented by Robert E. Zaytoun, Esq., Gilbert W. File, Esq.,
Matthew D. Ballew, Esq. and John R. Taylor, Esq. Defendant Blondeau did not appear.
During jury selection of this matter on and after August 25, 2014, Plaintiffs and
Defendants Morgan Keegan and Regions Bank resolved Plaintiffs’ claims through a
confidential settlement agreement. In the course of this resolution, Plaintiffs agreed to
dismiss and have since dismissed their claims against Defendants Neal Knight, Anne
Knight and Helen Knight without prejudice, and reserved all claims as against those
defendants. Plaintiffs’ claims as against Defendant Blondeau proceeded to bench trial
on September 16, 2014.
Based upon live testimony, deposition testimony, documentary evidence and
pleadings offered by Plaintiffs at trial of this matter, the court makes the following
FINDINGS OF FACT:
1. As reflected in the Notice of Bench Trial issued September 3, 2014, this
civil action was called for jury trial on August 25, 2014. Before jury selection began,
Defendant Blondeau personally appeared and stated on the record that he was
physically present only as a witness pursuant to subpoena, and that he did not intend to
participate as a party at trial, including with respect to jury selection. He requested, and
was granted, permission to leave the courtroom, and he did not return during the
pendency of the trial. Subsequently, during the course of jury selection, all claims,
except those by Plaintiffs against Defendant Blondeau, were resolved. Plaintiffs made
an oral motion to withdraw their request for jury trial and to proceed in due course
against Blondeau, and the court found that Blondeau waived his right to a jury trial by
failing to participate voluntarily in the trial of this matter. This order and Notice of Bench
Trial was properly served on Hal Blondeau, and the court now further finds that
Defendant Blondeau received adequate notice of this bench trial, and the court has
personal jurisdiction over him.
2. Martha Capps (“Capps”) was not financially sophisticated. Capps obtained
a two-year degree from Peace College and briefly worked as a secretary in the
Department of Agriculture before the birth of her first child, but she never worked again
outside the home after her children were born. She was a longtime victim of spousal
abuse.
3. This action was commenced on her behalf by Capps’ son, Bruce Capps,
on October 17, 2007, acting in the capacity of litigation guardian ad litem pursuant to
Rule 17, North Carolina Rules of Civil Procedure (“Rule(s)”). Capps died on March 12,
2011, at the age of 84 years. Bruce Capps, as Executor of the Estate of Martha B.
Capps, and the Anne Kyle Trust, by and through its Successor Trustee, BB&T, were
substituted as Plaintiffs in this action pursuant to an order entered July 8, 2011.
4. Defendant Blondeau served as the financial and investment advisor from
at least as early as 1988 through at least February of 2006. During that time, Capps
relied upon Blondeau to advise her regarding all of her financial concerns, including the
investment of all funds and the management of her investments and other funds in a
reasonable and proper manner.
5. In 1988, Capps learned that she would become the primary beneficiary of
her aunt Anne Kyle’s (“Kyle”) estate. Due to an alcoholic husband who created an
abusive adulterous, isolated, and controlling environment for her, Capps was concerned
about receiving a large inheritance. She worried that her husband would receive a large
marital share if he divorced her, and wondered how her financial independence and her
children’s interest might be affected. She expressed these concerns, along with a “very
strong desire to have [her] share of the estate held in such manner as to protect it from
the demands of [her] husband,” to attorney John Beard (“Beard”) in December 1988.
6. Beard explained to Capps that Kyle, a Florida resident, could change her
estate plan to address Capps’ domestic situation and special concerns. Capps shared
this important, attorney-client privileged communication with Blondeau, whom she also
had invited into the confidence of her meeting with Beard. Beard then referred Capps to
a Florida attorney, Neal Knight (“Knight”), with whom he was acquainted through
professional associations. Shortly thereafter, Blondeau wrote Knight a letter regarding
Kyle’s estate planning for the benefit of Capps, and asked Knight to communicate with
him rather than Capps. Knight drafted the Anne Kyle Trust (“AKT”), and Kyle died in
1989, shortly after formally establishing the AKT.
7. Accordingly, in 1989, Capps became the sole beneficiary of the AKT,
which required the trustee to pay to Capps the net trust income at least quarterly unless
she otherwise directed in writing. Additionally, the trustee was permitted to make
principal distributions to Capps as necessary for her health, education, maintenance
and support. Neither trust allows the trustee to invade the trust principal for charitable
contributions, gifts, or the like.
8. At Blondeau’s advice and direction, and because he was employed there,
A.G. Edwards was appointed as corporate trustee of the AKT and handled the
administration of the trust assets from approximately 1989 to 1997.
9. Upon Kyle’s death in 1989, Capps retained Knight to serve as her resident
process agent and estate administration attorney since she was appointed by her aunt
to administer Kyle’s estate in Florida.
10. In June 1991, Blondeau and Knight offered to help move Capps from her
home. Ultimately, Knight and Blondeau were involved in Capps moving into an assisted
living facility in late December 2005, although most of the details of this move were
handled by Bruce Capps and his wife, Debbie Capps.
11. In March of 1997, Blondeau left his employment at A.G. Edwards and
thereafter became a financial advisor at Morgan Keegan. Upon changing firms,
Blondeau suggested to Capps that she move her brokerage account and the AKT to
Morgan Keegan and its affiliated trust company.
12. Since the AKT was established in Florida and administered under Florida
law, Capps retained Knight to petition the Palm Beach County Probate Court to approve
the change of A.G. Edwards to Morgan Keegan’s affiliated trust company as Trustee of
the AKT. Knight drafted and filed this Petition and thereafter obtained the permission of
the Florida Probate Court to appoint Morgan Keegan’s affiliated trust company, which
later became Regions Bank, as the Successor Trustee of the AKT.
13. Blondeau continued to provide financial and investment services to Capps
as an employee of Morgan Keegan.
14. In August 2000, Capps met with a prominent Raleigh estate planning and
tax attorney, W. Gerald Thornton (“Thornton”), having been referred to him by
Blondeau. Capps and Blondeau initially met with Thornton to discuss updating her
existing estate planning documents, which had previously been drafted by attorney
Beard.
15. Blondeau attended this initial client conference with Capps, and Thornton
suggested to Capps, in Blondeau’s presence, that they should excuse Blondeau from
the conference so that Thornton and Capps could confer alone. Capps insisted on
having Blondeau present for this conference, referring to him as her “trusted advisor.”
Thornton also came to understand that Capps had an abusive marital situation and did
not wish to receive phone calls or communications to her home. Rather, she requested
that communications be directed to Blondeau.
16. During this first meeting with Capps, Capps stated that she wanted to
make certain changes in her Will, including addition of specific bequests, exercising a
testamentary power of appointment conferred to her in the AKT, as well as executing a
health care power of attorney and a durable, financial power of attorney.
17. Since Thornton was only updating Capps’ existing estate planning
documents, and not undertaking any further review, he did not need or request to
receive financial and tax information from Capps or the AKT.
18. During the course of his representation of Capps, Thornton spoke to
Knight in one phone call, which was very general in nature.
19. On or about October 4, 2000, Blondeau fraudulently or through false
pretenses obtained Capps’ signature on a written request to the corporate trustee of the
AKT for disbursement of $250,000 for a purported domestic court settlement involving
her daughter and also for Capps’ travel and an unspecified building project. On October
13, 2000, the corporate trustee disbursed $250,000 from trust principal of the AKT and
wired the funds to Capps’ brokerage account. In truth, $200,000 of this trust
disbursement was deposited into Blondeau’s Wachovia account. This transaction was
improper, wrongful and fraudulent.
20. Thornton first became aware that there existed undistributed income in the
AKT in late 2000 when Blondeau told him that for some ten years the prior trustee had
not made required income distributions from the AKT to Capps. This was an issue
raised by Blondeau and did not impact any legal issues within Thornton’s scope of work
for Capps.
21. On or about January 3, 2001, Blondeau sent Thornton a letter which
stated that the accumulated undistributed income in the AKT was $937,547. Thornton
performed limited research regarding possible options for Capps to address this
accumulated income issue, but was never retained to address it.
22. In July 2001, Thornton met with Blondeau and Capps to discuss the
finalization of Capps’ estate planning update. During the course of this meeting,
Thornton provided general information and possible alternatives, as preliminary talking
points, for Capps to begin considering regarding addressing the accumulated income in
the AKT. Thornton made no recommendations, gave no legal advice and ran no specific
calculations. Among the possible alternatives Thornton mentioned to Capps a charitable
lead annuity trust, a grantor-retained annuity trust, a charitable remainder trust and a
private charitable foundation.
23. Capps stated that she would think about these and get back to Thornton.
He expected that she would consider the general information and request further
assistance from him. He never received any request to do so.
24. On August 21, 2001, Capps executed, at Thornton’s law office, the estate
planning documents drafted by Thornton, including a Last Will and Testament, Health
Care Power of Attorney, Durable, financial Power of Attorney, and a Living Family Trust.
Blondeau was personally present for Capps’ execution of these legal documents and
made no mention of a private charitable foundation having already been established a
month earlier in July, 2001.
25. The primary beneficiaries of Capps’ Last Will and Testament were her
children, Bruce Capps and Carol Woodry. Thornton was named as Executor, and
Blondeau and Morgan Keegan Trust Company were appointed to serve jointly as
successor executor.
26. The Health Care Power of Attorney drafted by Thornton and executed by
Capps appointed her son Bruce Capps as Health Care Agent. Capps’ financial Power of
Attorney appointed Blondeau as her attorney-in-fact, with Knight appointed as
successor.
27. On June 19, 2001, approximately a month prior to Thornton’s July meeting
with Capps and Blondeau, Knight sent to Blondeau a sample set of Bylaws and Articles
of Incorporation for a private charitable foundation. Prior to his meeting with Capps and
Blondeau in July, Thornton did not mention a private charitable foundation as a possible
alternative to either Capps or Blondeau.
28. On or about July 23, 2001, and without Thornton’s knowledge, Blondeau
sent a fax letter to the Regions Bank administrator of the AKT which stated that
Blondeau had calculated a rate of return on the accumulated undistributed income, and
that total undistributed accumulated income, after including figure for lost return, came
to $2,141,559. Significantly, the last paragraph of this letter stated, “Mrs. Capps’
attorney has not seen these totals and has not given me a number that he would advise
her is fair. I believe I can control this situation if he pushes for higher rates.” Thornton
never saw this letter and was never provided the information regarding the rate of return
calculated on trust income owed to Capps that had not been paid for the preceding
decade. Blondeau intentionally concealed this information from Thornton.
29. On July 25, 2001, Knight filed Articles of Incorporation for the Marvin L.
Baker Family Foundation (“Baker Foundation”) with the Florida Secretary of State,
which he had drafted. This information was similarly concealed from Thornton by
Blondeau.
30. The Articles of Incorporation provided that the only directors of the Baker
Foundation, which was named after Capps’ father, were Blondeau, Knight, and their
children, R.J. Blondeau and Anne Knight. Neither Capps nor her children, Bruce Capps
and Carol Woodry, were named a director. The sole officers of the Baker Foundation
were Knight and Blondeau.
31. The Bylaws for the Baker Foundation were also drafted by Knight, without
any involvement with Capps. Knight communicated only with Blondeau regarding the
Bylaws and Articles of Incorporation. The Bylaws provide that no person could serve on
the Board of Director without the express consent of Blondeau. The Bylaws were signed
by Blondeau on August 8, 2001, only two weeks prior to Capps’ execution of the estate
planning documents drafted by her estate planning attorney, Thornton. Thornton was
not provided any of this information.
32. The first minutes of the Baker Foundation were dated July 27, 2001. Anne
Knight was elected Assistant Secretary, and R.J. Blondeau was elected Assistant
Treasurer. These minutes provided that checks from the Baker Foundation must be
signed by at least two officers, neither of whom was Capps. All minutes were drafted by
Knight after the meetings took place.
33. Knight claimed that he never represented Capps for the purpose of
establishing the Baker Foundation. He further claimed that he never recommended a $2
Million private charitable foundation to Capps, and never gave her any tax or legal
advice. Knight obtained his undergraduate degree from Duke University, his law degree
from Harvard University. At times material to this matter Knight focused his practice on
estate planning, estate and trust administration and tax law with a law firm in Palm
Beach, Florida with which he was employed since 1971.
34. Thornton testified, and the court finds as fact, that the recommendation of
a private charitable foundation requires a complex calculation and analysis of a client’s
tax and financial condition, and that the client must be advised regarding the material
provisions of the governing documents.
35. On August 21, 2001, Regions Bank, as corporate trustee of the AKT,
transferred $2.1 Million of cash and securities to Capps’ brokerage account. This
happened on the same day that Capps executed her estate planning documents at
Thornton’s law office, with Blondeau present. Thornton was never informed about this
transaction or the existence of the Baker Foundation. These facts were purposely
concealed from Thornton by Blondeau.
36. Of the $2.1 Million transferred into Capps’ brokerage account, over $1.9
Million was held in securities which were transferred in-kind from the AKT. These
securities were immediately sold at a capital loss of $452,452. This capital loss did not
provide tax benefit to Mrs. Capps.
37. Subsequently, on or about August 28, 2001, seven days after the
execution of Capps’ estate planning documents, $1,775,000 was irrevocably transferred
by wire from Capps’ brokerage account to a Florida account for the Baker Foundation,
along with $156,996 of securities transferred in-kind, for a total of $1,931,996. On
September 6, 2001, an additional $10,000 was wired to the Baker Foundation from
Capps’ brokerage account.
38. A charitable contribution to the Baker Foundation in the amount of
$1,775,000 was reported on Capps’ 2001 tax return. However, all but $5,387 of Capps’
charitable contribution tax deduction lapsed unused in 2006. Capps therefore received
virtually no tax benefit from a charitable contribution in 2001 that constituted over 81%
of everything she owned to a charitable foundation as to which she did not have either
control or a vote.
39. Neither Capps’ certified public accountant, Ken Martin, nor her attorney,
Thornton, would have recommended such a result had they been asked to
professionally advise Capps on a private charitable foundation.
40. Blondeau and Knight appointed themselves as President, Vice President,
Secretary, Treasurer, and Directors of the Baker Foundation. They also named as
Directors their children, R.J. Blondeau and Anne Knight. As directors of the Baker
Foundation, these four individuals had the exclusive legal right to choose which persons
and entities would receive money from the Baker Foundation in the form of charitable
gifts, expenses, reimbursements, fees and salaries. Neither Capps nor her children or
other intended beneficiaries had any legal right to direct any contributions to specific
charities of their own choosing or to approve other disbursements from Capps’ former
property.
41. Blondeau was required by the financial industry and by his brokerage,
Morgan Keegan, to disclose any outside business activities, including any outside
compensation. Blondeau did not inform Morgan Keegan that he was an officer and
director of the Baker Foundation until April 11, 2006. At that time, he falsely stated that
he was “Director and [President] for 2006” even though he had been director, president,
and treasurer at all times since 2001. He further falsely stated that no Morgan Keegan
client was involved in the Baker Foundation and that he would receive no direct or
indirect compensation.
42. Blondeau was not permitted by his brokerage employer to be appointed or
to serve as a Morgan Keegan customer’s attorney-in-fact or executor. Blondeau
disclosed his involvement with the Baker Foundation to Morgan Keegan only after his
undisclosed role as Capps’ attorney-in-fact was revoked by Capps and served on him
March 21, 2006. Prior to that date, Blondeau actively concealed these facts from his
employer.
43. On September 10, 2001, Knight’s daughter, Helen Knight, received the
first of five disbursements totaling $62,837.50 from Capps’ brokerage account, which
were paid to American University for her undergraduate education. These payments
were orchestrated by Knight and Blondeau, and they were fraudulent as to Capps.
44. On September 21, 2001, less than a month after the funding of the Baker
Foundation, the sum of $75,000 was wired from Capps’ brokerage account to Knight’s
bank account in Florida. This payment was orchestrated by Knight and Blondeau, and
was fraudulent as to Capps.
45. Beginning August 29, 2002, Knight’s daughter, Anne Knight, received the
benefit of the first of six disbursements totaling $24,000 to Brooklyn Law School where
she was enrolled as a law student. In five out of six of these transactions, each time
Brooklyn Law School received a $4,000.00 disbursement from Capps’ brokerage
account, Anne Knight received a refund of $4,000. In the last of these six transactions,
Anne Knight received a refund of $2,868.50. Therefore, only $2,868.50 of the $24,000
paid to Brooklyn Law School from Capps’ brokerage account was actually used for
tuition. These payments were orchestrated by Knight and Blondeau, and they were
fraudulent as to Capps.
46. None of the purported gifts to the Knights in the form of cash or alleged
tuition payments was reported to Capps’ accounting firm, Stancil & Company. Blondeau
was the exclusive point of contact for Capps’ accountant after March 13, 2000.
Blondeau actively concealed the financial transactions benefiting the Knights from
Capps’ accounting firm.
47. Blondeau was prohibited by the financial industry and also by his
brokerage from receiving any gifts from a Morgan Keegan customer in excess of $100
annually. He also was prohibited from receiving any loans from a Morgan Keegan
customer.
48. From 2003 through 2005, Blondeau made unauthorized charges on
Capps’ Morgan Keegan debit card in the amount of $21,761.36 for personal purchases
of wine.
49. Through various devices Blondeau also fraudulently received cash from
Capps’ brokerage account and the AKT in the total amount of $487,277.58. This was
effected through checks from the AKT or the Morgan Keegan Brokerage and routed to
Wachovia Bank, which funds ultimately were received by Blondeau. The mechanics of
these disbursements were designed to conceal the fact that Blondeau was the real
recipient of the funds.
50. Blondeau further orchestrated the fraudulent purchase of a beach cottage
(“Beach Cottage”) in Morehead City, North Carolina, for the price of $350,000. The
purchase price was wired from the AKT directly to the closing attorney, and also
involved a cash refund to Blondeau at closing of at least $29,000. This fraudulent
scheme involved the following:
(a) On May 14, 2004, Blondeau drafted and prepared a written
request, and obtained Capps’ signature to the request through the use of false
pretenses or other fraudulent means, which document falsely and fraudulently
stated that Mrs. Capps was purchasing the Beach Cottage. The document
requested that Regions Bank, as Trustee, wire transfer the sum of Three
Hundred Fifty Thousand ($350,000) to a real estate attorney chosen by Blondeau
for closing of the sale.
(b) At the time, Capps had no personal or business need for a second
residence. In fact, she had full use of a condominium in Carteret County, North
Carolina, which was titled to the AKT and fully available for Capps’ use and
benefit.
(c) The May 14, 2004, written request was drafted and prepared by
Blondeau, and falsely represented that Capps wanted to use the funds to
purchase the Beach Cottage since she was allowing her son and his wife to use
the beach condominium owned by the AKT. This materially false representation
was known by Blondeau to be false at the time it was made. Additionally, the
representation was intended to be relied upon by Capps’ fiduciary, Regions
Bank. In truth, this money was to be used fraudulently by Blondeau to buy the
Beach Cottage for his personal use.
(d) On or about June 11, 2004, the purchase of the Beach Cottage
closed. A warranty deed was recorded for the Beach Cottage, which conveyed
legal title to the Beach Cottage to Blondeau, Blondeau’s wife and Capps as joint
tenants with right of survivorship. This meant that Capps’ interest in the Beach
Cottage would automatically be vested in Blondeau and his wife upon Capps’
death regardless of her Will or any trust for her benefit or that of her family.
(e) Four months later, on October 19, 2004, Blondeau requested a
closing attorney in Morehead City to draft and prepare a quitclaim deed for
Capps to transfer all of her right, title, and interest in the Beach Cottage to
Blondeau and his wife. Thereafter, through false pretenses or other fraudulent
means, Blondeau obtained execution of the quitclaim deed by Capps. The
document was recorded in the public records and falsely stated that Capps was
unmarried, when in fact she was still married to Edwin Capps, a fact well known
to Blondeau. The quitclaim deed further falsely stated Blondeau and wife paid
Capps “valuable consideration” for the transfer although neither Blondeau nor his
wife paid anything to her for her conveying all right, title and interest in the Beach
Cottage to them.
(f) In the spring of 2006, nearly two years after Blondeau had obtained
the Beach Cottage using Capps’ trust account, and only after Capps’ son and
attorney began investigating Blondeau’s role as attorney-in-fact and had
demanded documents from Blondeau, Blondeau’s criminal defense attorney
produced a purported promissory note (“the Note”) from Blondeau to Capps with
regard to the Beach Cottage. This purported Note was misspelled “P0missory
Note” [sic]. The Plaintiffs’ white collar crime and financial fraud investigation
expert, P.M. Boulus, opined, and the court finds as facts, that the Note was
fraudulent, based upon the following facts:
(i) The Note was produced years after the fact and never made
part of Capps’ financial documents at the time of the purchase;
(ii) The Note was produced only after investigation into
Blondeau’s transactions had begun by Capps’ son and her attorney;
(iii) The Note was no more than one paragraph in length and
contained none of the normal appearance of promissory notes customarily
used in real estate transactions of this nature;
(iv) The Note was dated June 9, 2004; however, it was not
notarized and there is no other objective means to determine the actual
date of its making;
(v) The Note called for only 1.5% interest per annum, which is
an extraordinarily low and suspicious interest rate;
(vi) The Note was not signed by Blondeau’s wife, who was made
a joint tenant with rights of survivorship in this transaction;
(vii) Despite the fact that Blondeau purportedly borrowed
$350,000.00 from Capps for the purchase of the Beach Cottage property
for his and his wife’s separate use and enjoyment, neither Blondeau nor
his wife executed or recorded a deed of trust or other security agreement
regarding the purported debt of $350,000.00 used to purchase the Beach
Cottage. Therefore, in the event of a default in the payment terms of the
Note, Capps would be unable to foreclose on the Beach Cottage.
Furthermore, since neither Blondeau nor his wife executed a deed of trust
as evidence of or security for the purported loan for the purchase, the fact
that funds from Capps or the AKT financed the purchase was not recorded
as a public record and thus was hidden from public view and and
(viii) Blondeau did not make any alleged payments on the Note
until August 24, 2006, after almost a year in default on the purported debt,
and only after Capps’ legal counsel demanded payment. Blondeau made
a payment in the amount of $361,673.12 on August 25, 2006.
51. On June 10, 2009, Blondeau pled guilty in federal court to investment
advisor fraud as to Capps and also to making and subscribing false tax returns. By
virtue of this guilty plea, Blondeau admitted, and the court finds as facts, that:
(a) Blondeau acted in the role of a registered investment advisor to
Capps at all times material to Plaintiffs’ claims in this civil action;
(b) Blondeau was the superior party in a fiduciary relationship and held
a position of trust and confidence with respect to Capps;
(c) From 2000 through 2005, Blondeau employed a scheme to defraud
Capps;
(d) The essence of Blondeau’s scheme was his abuse of the fiduciary
relationship and position of trust that he had established with Capps;
(e) Blondeau concealed from Capps the true nature of many
transactions he initiated from both her trust account and her personal brokerage
account, whereby he was able to secure, without her knowing permission, the
release of funds from those accounts which he then converted to his own
personal use; and
(f) Blondeau secured Capps’ signature on letters of authorization
through the use of false pretenses and other fraudulent means.
52. The specific methods, means, and amounts of ongoing fraud imposed by
Blondeau upon Capps were accurately pled in Plaintiffs’ Complaint and proven at trial in
this matter, and further supporting evidence for these matters is contained in the
notebook of materials submitted by Plaintiffs’ fraud expert, P.M. Boulus, which was
received into evidence.
53. On or about March 5, 2007, Knight provided a written statement to his law
firm of 35 years regarding his role with respect to Capps, the Baker Foundation, and the
financial benefits received by him and by his children. His letter, written to the Board of
Directors of his law firm, claimed that “The establishment of a foundation was
recommended to Mrs. Capps by her North Carolina attorney who was preparing estate
planning documents for her.” The letter also stated, “I never was asked for nor did I
provide any advice regarding the merits of forming the Foundation and making the
contribution” and that he “never rendered any tax advice as Martha’s North Carolina
attorneys provided that information.” Attorney Thornton testified to the contrary,
particularly testifying that he never recommended as Capps’ attorney that she establish
a private charitable foundation, and the court finds attorney Thornton’s testimony to be
credible and factual. Knight’s letter also admitted knowledge of Capps’ vulnerability and
her reliance on Knight and Blondeau. Following Knight’s explanation, his employment
was terminated by his law firm.
54. Knight admitted in his deposition that he never gave any tax or legal
advice to Capps concerning the Baker Foundation. He further admitted that even
though Capps knew him to be a Florida estate and tax planning attorney who had
assisted her in legal matters several times previously, he never told her or informed her
in writing that he was not representing her and not providing her legal or tax advice for
the purpose of establishing the Foundation. Either Capps was unaware of Knight’s
involvement with the establishment and operation of the Baker Foundation, or she relied
to her detriment on Knight to act in her best interest at all times as her fiduciary and
attorney.
55. Capps never received any legal or tax advice regarding the creation or
subsequent funding of the Baker Foundation. She did not receive any material or
significant tax benefit from a series of transactions that irrevocably removed to the
Baker Foundation over 81% of her property from her and her estate and left it to the
exclusive control of her fiduciaries, Knight and Blondeau. Capps gave no informed
consent to such transactions.
56. Pursuant to the cross-claim of and the Default Judgment granted to the
Receiver for the Baker Foundation against Blondeau, the court finds as facts that the
Director Defendants (Blondeau and the Knight Defendants) misappropriated assets of
the Baker Foundation and used them to enrich themselves and enjoy personal benefits
therefrom. The improper benefits included art tours and air travel, hotels and meals,
attendance at galas and sponsoring of banquets, making donations in memory of their
family members, attending events securing personal recognition and/or benefits and
paying a wedding chapel fee for Blondeau’s daughter. This cross-claim contained
specific evidence and check copies documenting such benefits. Upon the default of
Blondeau to the cross-claim, the court entered a default judgment against him in the
amount of $63,907.80 for these misappropriations from the Baker Foundation.
57. The Baker Foundation was established by Blondeau and Knight properly
under the relevant tax code provisions and, in fact, made charitable contributions as a
501(c)(3) entity. The establishment and operation of a proper 501(c)(3) entity was a part
of Blondeau’s intentional scheme and plan to obtain and use Capps’ assets for his own
benefit. The eleven (11) disbursements into the Baker Foundation totaling $2,281,996
were orchestrated by Blondeau as part of his scheme and plan, and irrevocably
damaged Capps and her estate. Further, the operation of the Foundation and the
charitable contributions it made all served to confer a benefit on Blondeau and not
Capps or her estate.
58. Ken Martin and Jack Stancil, the longtime CPAs for Capps, and for
Blondeau personally, were qualified to handle tax matters related to creation and
operation of the Baker Foundation. However, Blondeau orchestrated the engagement of
an outside CPA, William Stark from Henderson, North Carolina, to file the annual 990-
PF tax returns of the Baker Foundation. The overwhelming majority of organizations to
which the Baker Foundation made charitable contributions had no connection to Capps
or her estate, and instead had a personal and/or professional connection to Blondeau
and or Knight, and did, in fact, benefit Blondeau and/or Knight.
59. The following facts were proven at trial, and establish, among other things,
that Blondeau knowingly concealed or falsely represented material facts from Capps;
and that they were reasonably calculated to, made with the intent to, and in fact did,
deceive Capps to her financial detriment and to Blondeau’s personal benefit:
(a) The circuitous path which funds originating in either Capps’
accounts or the AKT found their way to the benefit of Blondeau;
(b) The circumventing and direct violations to the rules of conduct
governing his employment and/or licensing as a broker;
(c) The many concealments from Capps’ attorney, Gerald Thornton;
(d) The financial transactions benefiting Blondeau but concealing him
as the true recipient;
(e) Material misstatements of fact provided to his employer, false
explanations, and fabricated evidence;
(f) The admitted concealment of income received by Blondeau from
Capps and/or the AKT, failure to report that income and the evasion of taxes
owed on that income;
(g) The admitted, unauthorized use of Capps’ Morgan Keegan debit
card for wine purchases by and for the benefit of Blondeau;
(h) Blondeau’s admitted fraudulent scheme orchestrated by false
pretenses or other fraudulent means committed through the abuse of his
fiduciary relationship;
(i) All of these transactions benefited Blondeau and none benefited
Capps or her estate/beneficiaries; and
(j) All of the factors listed as “Fraud Indicators” by Plaintiffs’ fraud
expert, P.M. Boulus, under Section 8 of his notebook which was received into
evidence.
60. Blondeau and Knight were Capps’ fiduciaries at all times relevant to
Plaintiffs’ claims since the early 1990’s through 2005. She had a close and personal
relationship with them and she relied upon them.
61. Subsequent to Blondeau’s guilty plea and criminal judgment, Blondeaeu
made certain payments of restitution to the Estate of Martha Capps and to the AKT.
Blondeau is entitled to credit for such payments against any judgment entered against
him in this matter. He also is entitled to credit against such judgment for any settlement
amounts paid to Plaintiffs by other Defendants.
62. Based on the evidence of record, the court further finds as a fact that
Blondeau and Knight had an agreement to use their positions of trust and confidence to
wrongfully obtain Capps’ assets for their use and benefit.
63. Blondeau wrongfully obtained Capps’ assets in the furtherance of this
agreement for his own personal benefit. Further, each time that Knight, Anne Knight, or
Helen Knight received financial benefit from Capps, either directly or indirectly,
Blondeau personally orchestrated and facilitated each of those transactions in
furtherance of the aforementioned agreement, and, as a result, Capps and her estate
suffered financial injuries.
64. Blondeau willfully engaged in unlawful acts proscribed by Chapter 75 of
the North Carolina General Statutes relating to Unfair or Deceptive Trade Practices, and
he made no offer to fully resolve these matters. His refusal to resolve these matters fully
was unwarranted, and Plaintiffs suffered substantial, actual injuries from these willful
and unlawful acts.
65. Subsequent to Blondeau’s guilty plea and incarceration, he unsuccessfully
attempted to collaterally attack his guilty plea through a claim of ineffective assistance to
counsel. He claimed that the federal prosecutor misled the court about the factual basis
of the charges, that his criminal defense counsel committed “wanton misconduct,” and
that with respect to the federal prosecutor “it was certainly wanton and has the
appearance of willful misconduct.” He stated that the criminal information he knowingly
accepted in lieu of indictment was caused “by a runaway plaintiff and his runaway
attorney.” Blondeau claimed that he was serving an “undeserved sentence.”
66. Following Blondeau’s appeal to the 4th Circuit Court of Appeals, the
federal district court held an evidentiary hearing at which Blondeau and his former
criminal defense attorneys, Joe Cheshire, Esq. and Bradley Bannon, Esq., testified. The
court dismissed Blondeau’s appeal and found that his counsel specifically informed him
that in their opinion he did not have a good case for appeal, consulted with him
regarding his appellate preferences and that Blondeau admitted that he never asked
them to file an appeal on his behalf.
67. Blondeau has demonstrated no apology or remorse or his actions in this
matter, and he maintains to this day that he should not have been punished for any of
them.
68. Blondeau’s conduct against Capps was not the first time that he engaged
in certain types of this conduct against a brokerage customer. From 1997 through 1999,
Belle Tilley (“Tilley”) was an elderly female customer and client of Blondeau’s at the
Raleigh branch of the Morgan Keegan brokerage. In direct violation of the outside
business activity and outside business compensation policies promulgated by his
employer and/or the financial industry regulations, and in similar manner to his conduct
toward Capps, Blondeau wrongfully obtained Tilley’s power of attorney; served as the
executor of her estate, impermissibly received $10,000 cash from Tilley’s estate and
received executor commissions from her estate.
69. Pursuant to N.C. GEN. STAT. § 1D-35, the court, as trier of fact, finds,
based on clear and convincing evidence, as follows:
(a) Blondeau’s motives and conduct toward Plaintiffs were morally
reprehensible, including but not limited to Blondeau’s repeated and knowingly
false misrepresentations and concealments to Capps and her professional
advisors such as her CPA and Thornton, her attorney, for the purpose of taking
or controlling millions of dollars of her assets;
(b) That at all relevant times, Blondeau’s motives and conduct carried
with them the likelihood of serious financial harm to Plaintiffs, and they did in fact
cause actual financial damages in excess of $3,500,000 to Plaintiffs;
(c) At all relevant times, Blondeau was fully aware of the probable
consequences of his conduct, and, in fact, intended for his conduct to result in
millions of dollars of financial harm to Plaintiffs;
(d) Blondeau’s conduct was undertaken over the course of some six
years, during which and after which he repeatedly attempted to conceal the facts
and consequences of his conduct from Capps, her estate, her children, her
attorneys, his employer, the affiliated trust company, the federal court and this
court;
(e) On an at least one occasion in the past, Blondeau committed
similar wrongful conduct against Tilley, another of his brokerage company and
affiliated trust company customers;
(f) These financial transactions operated for Blondeau’s personal,
professional, and financial profit and benefit, were knowingly concealed and
establish his knowing and guilty state of mind that these transactions were
improper and wrongful; and
(g) The punishment and deterrent purposes of N.C. GEN. STAT. § 1D-1
would both be served here by an award of punitive damages against Blondeau.
70. Plaintiffs suffered financial injuries and damages as a proximate result of
Blondeau’s fraudulent and unlawful conduct in the total amount of $3,726,046.80, as
follows: (a) $487,277.58 wrongfully received by Blondeau through transactions
deposited to Wachovia Bank; (b) $320,722.42 wrongfully used by Blondeau for the
purchase of the Beach Cottage; (c) $21,761.36 in wine purchases wrongfully made by
Blondeau and charged to Capps’ debit card; (d) $452,452 in capital losses wrongfully
caused by Blondeau; (e) $161,837.50 wrongfully distributed to Knight and his children
and (f) $2,281,996 irrevocably and wrongfully transferred to the Baker Foundation. The
foregoing financial injuries and damages suffered by Plaintiffs must be reduced by the
August 25, 2006 payment in the amount of $361,673.12 made by Blondeau to Capps
with regard to the Beach Cottage transaction. Accordingly, Plaintiffs suffered net
financial injuries and damages (“Compensatory Damages”) as a proximate result of
Blondeau’s fraudulent and unlawful conduct in the total amount of $3,364,373.74.
71. Prejudgment interest on Plaintiffs’ Compensatory Damages at the legal
rate from the date of filing of this civil action is calculated to be $1,569,770.74.
Based upon the foregoing Findings of Fact, the court reaches the following
CONCLUSIONS OF LAW:
1. This court has jurisdiction to hear and decide this matter.
2. This court has jurisdiction over all the parties to this matter.
3. Defendant Blondeau received proper, prior notice and had an opportunity
to present a defense at the non-jury trial of this matter. He voluntarily chose not to
participate or put on any evidence or argument in his own defense. Blondeau thereby
waived his right to trial by jury.
4. In North Carolina, a claim for constructive fraud is supported where (a) a
fiduciary relationship exists that led to and surrounded a transaction, (b) in which
transaction the defendant benefited by taking advantage of his position of trust and
confidence, (c) the defendant intended to benefit himself in the transaction and (d) the
transaction resulted in injury or damage to the plaintiff.
5. Where a relationship of trust and confidence exists between the parties,
the fiduciary owes an affirmative duty to disclose all material facts, and the failure to do
so constitutes fraud.
6. Where a confidential relationship exists, it is the duty of the one in whom
confidence is reposed to exercise the utmost good faith and to refrain from abusing
such confidence by obtaining any advantage to himself at the expense of the confiding
party.
7. The general duties present in an arms-length transaction to read and
understand what one is signing, and to exercise reasonable diligence, are excused
where a fiduciary relationship of trust and confidence exists.
8. Based on the facts establishing Capps’ lack of financial sophistication and
her vulnerable life position as an abused spouse, her age, her total reliance on
Blondeau and Knight for two decades, and the special trust and confidence she reposed
in them to handle all of her financial affairs, the court concludes that at all times relevant
to Plaintiffs’ claims Blondeau and Knight were her fiduciaries and owed to her all
attendant fiduciary duties.
9. As Capps’ fiduciary, Blondeau intended to benefit himself in all of the
complained of transactions and did, in fact, take advantage of his special position of
trust and confidence to benefit himself in all complained of transactions. These
transactions resulted in financial harms to Plaintiffs.
10. Where the plaintiff shows that a fiduciary defendant has obtained a
possible benefit from a subject transaction, the plaintiff is entitled to a rebuttable
presumption that the transaction was fraudulent. This presumption can only be rebutted
if the defendant proves that the subject transaction was open, fair, and honest. As
described hereinabove, the court concludes the Plaintiffs sufficiently established that
Blondeau, as a fiduciary, wrongfully obtained benefits as a result of all the subject
transactions. Blondeau voluntarily chose not to appear or put on any evidence or
argument at the trial of this matter. Accordingly, Blondeau failed to rebut the
presumption that all of the subject transactions were fraudulent to Plaintiffs.
11. Based upon the foregoing, the claim of constructive fraud has been
established against Blondeau, and Plaintiffs are entitled to compensatory damages as a
result, the precise amount of which is detailed below.
12. In North Carolina, fraud is established where (a) the defendant makes a
false representation of, or conceals from plaintiff, a material fact; (b) which was
reasonably calculated to deceive; (c) was made with the intent to deceive; (d) which is
reasonably relied upon by, and does, in fact, deceive, the plaintiff; and (e) to the injury
of the plaintiff.
13. Based upon the foregoing findings of fact regarding Blondeau’s ongoing
scheme and plan to obtain Capps’ signature by false pretenses, to repeatedly make
false representations to Capps about the true nature of the complained of transactions,
Blondeau’s repeated concealments from Capps, her attorneys and advisors, his
employer and the affiliated trust company, of his true involvement with regard to the
complained of transactions, the court concludes that Blondeau acted with the intent and
reasonable calculation to deceive Capps through false representations and
concealments of material facts.
14. The court further concludes that Capps reasonably relied upon the
representations of Blondeau as her financial advisor and, at all times, operated within
her legal right to assume that Blondeau as her fiduciary in fact was acting at all times
and in every way in her best interests. There is no evidence before this court that Capps
would have been alerted at any relevant time that Blondeau was not acting in her best
interests, as she had the right to assume. As a result, the court further concludes that
Capps was, in fact, deceived by Blondeau’s false representations and concealments, as
a result of which Plaintiffs have suffered financial harms.
15. Based upon the foregoing, the court concludes that the claim of fraud has
been established against Blondeau, and Plaintiffs are entitled to compensatory
damages as a result, the precise amount of which is detailed below.
16. In North Carolina, pursuant to Chapter 75 of the North Carolina General
Statutes, the defendant will be liable for unfair or deceptive trade practices where (a) the
defendant did, in fact, commit acts of an unfair or deceptive nature; (b) in or affecting
commerce; (c) that proximately cause damage to the plaintiff. An act is considered
deceptive when that act has the capacity or tendency to deceive. An act will be
considered unfair where it either offends established public policy, where the practice is
immoral, unethical, oppressive, unscrupulous, or substantially injuries to consumers, or
amounts to an inequitable assertion of the defendant’s power or position. As a matter of
law, fraud is considered an unfair or deceptive act for purposes for Chapter 75.
Constructive fraud may be sufficient alone to establish unfair or deceptive trade
practices, and the court concludes that under these circumstances, it is sufficient.
17. Based upon the foregoing facts, Blondeau repeatedly made intentional,
false representations to Capps, obtained her signature by false pretenses or other
fraudulent means, as well as the other acts of fraud and constructive fraud as described
hereinabove, the court concludes that Blondeau’s complained of acts were both unfair
and deceptive as defined by Chapter 75, and were all done in or affecting commerce in
his business as a broker and as admitted in his guilty plea. These acts proximately
caused financial harms to Plaintiffs.
18. Based upon the foregoing, the court concludes that the Chapter 75 claim
for unfair or deceptive trade practices has been established against Blondeau, and
Plaintiffs are entitled to compensatory damages as a result, the precise amount of which
is detailed below.
19. In North Carolina, pursuant to N.C. Gen. Stat. 75D-3(c), a defendant is
civilly liable for a violation of the RICO statute where he commits, attempts to commit,
solicits, coerces, or intimidates another person to commit, any act which would be
chargeable by indictment if such act were accompanied by the necessary mens rea or
criminal intent under certain specified state criminal statutes. Based upon the foregoing
findings of fact and conclusions of law, the court concludes that Blondeau’s intentional
conduct would qualify as acts chargeable by indictment for the following felonious
unlawful acts: N.C. Gen. Stat. § 14-90 [embezzlement by fiduciary]; § 14-101 [obtaining
signatures by false pretenses]; § 14-112.2 [exploitation of an elder adult or disabled
adult]; § 14-113.1 [unauthorized use of another’s credit device]; § 14-113.9 [financial
transaction card theft]; and/or § 14-113.13 [financial transaction card fraud]. All of the
foregoing unlawful and felonious acts are contained in Chapter 14, Articles 19 and 19B
of the North Carolina General Statutes, and the court therefore concludes that any one
of these unlawful acts satisfies the definition of “racketeering activity” contained in N.C.
Gen. Stat. § 75D-3(c)(1).
20. The court concludes that Capps was an innocent person with respect to
Blondeau’s wrongful conduct which caused her harm over a period of some six years,
and that Blondeau’s wrongful conduct was something other than mail fraud, wire fraud,
or fraud in the sale of securities that resulted in pecuniary gain to Blondeau.
21. Based upon the foregoing, the court concludes that the claim of a violation
of the NC RICO statute has been established against Blondeau, and Plaintiffs are
entitled to compensatory damages and reasonable attorney’s fees as a result, the
precise amount of which is detailed below.
22. In North Carolina, while there is no recognized cause of action for civil
conspiracy, our law allows a fraud victim to recover from anyone who facilitated the
fraud by agreeing for it to be accomplished. A claim based upon facilitation of fraud
extends liability to those persons where (a) they operate under an agreement to do an
unlawful act, or to do a lawful act in an unlawful way; (b) wrongful acts were in fact done
in furtherance of that agreement; and (c) that resulted in injury to plaintiff.
23. Blondeau’s conduct was wrongful and/or unlawful, and the evidence
establishes that Blondeau and Knight operated pursuant to an agreement to carry out
such conduct with respect to the Baker Foundation and the financial benefits received
by Knight and his children to the Plaintiffs’ damage, and these transactions were part of
a common, fraudulent scheme. The court concludes Blondeau is thus liable for all
financial benefits received by Knight and his children, as well as for all funds irrevocably
transferred into the Baker Foundation.
24. As reflected in paragraph 70 of the above Findings of Fact, Plaintiffs are
entitled to Compensatory Damages as a proximate result of Blondeau’s wrongful
actions in the amount of $3,364,373.74. Plaintiffs further are entitled to recover
damages in the form of prejudgment interest in the amount of $1,569,770.74.
25. In North Carolina, punitive damages may be awarded where the
defendant is liable for compensatory damages, and where fraud, malice, or willful or
wanton conduct was present and was related to the injuries for which compensatory
damages were awarded. Based on the foregoing Findings of Fact, Blondeau’s acts of
fraud and intentional, wrongful and improper conduct satisfies this standard. Moreover,
the Plaintiffs are entitled to a substantial award of punitive damages based upon the
many statutory factors that are clearly present pursuant to N.C. Gen. Stat. § 1D-35 (see
e.g. Paragraph 72 of the Findings of Fact herein).
26. After considering the facts established at trial of this matter, as reflected in
the above Findings of Facts, the court concludes that a punitive damages award of
three times the Compensatory Damages is fair and reasonable, and meet all necessary
due process tests. Accordingly, Plaintiffs are entitled to punitive damages in the amount
of $10,093,121.22.
27. The Plaintiffs are entitled to an award of reasonable attorneys’ fees. In this
regard, the court has received and reviewed in camera affidavits from counsel for the
Plaintiffs Robert E. Zaytoun, Esq., of the Zaytoun Law Firm, PLLC and Gilbert W. File,
Esq., of the Brownlee Law Firm. The court also has received and reviewed a Plaintiffs’
litigation expense affidavit from Rebecca J. Overstreet, Firm Administrator of the
Zaytoun Law Firm, PLLC. Based upon these affidavits, the court FINDS and
CONCLUDES that: (a) the respective counsel for Plaintiffs are highly experienced in
previously and successfully serving as legal counsel in civil actions presenting similar
complicated factual and legal issues as the instant matter, are qualified in all respects to
represent Plaintiffs in this civil action, Counsel devoted themselves for some seven
years and countless working hours to the successful prosecution of this civil action in
behalf of the Plaintiffs and achieved excellent results for Plaintiffs and (b) Plaintiffs
incurred reasonable and necessary attorneys’ fees and expenses in the amount of
$2,931,664.95 during the course of this complex litigation. Plaintiffs are entitled to
recover such attorneys’ fees and expenses from Blondeau.
28. The court concludes that, after applying all appropriate credits to
Blondeau, the Plaintiffs are entitled to judgment against Blondeau in the amount of
$10,330,684.70, plus reasonable attorney’s fees in the amount of $2,931,664.95 and
the costs of this action.
NOW THEREFORE, based upon the foregoing FINDINGS OF FACT and
CONCLUSIONS OF LAW, it is ORDERED, ADJUDGED AND DECREED that:
1. Plaintiffs shall have and recover from Defendant Harold Earl Blondeau
damages in the total amount of $10,330,683.94, plus attorneys’ fees and expenses in
the amount of $2,931,664.95.
2. The costs of this action shall be taxed to Defendant Harold Earl Blondeau.
This the 5th day of March, 2015.
