UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 15-1541

JONATHAN RUSSEL FOLMAR; MARGARET FOLMAR,

Plaintiffs - Appellants,

v.

SARAH HARRIS, individually and as an agent for Cooke Realty, 

Inc.; COOKE REALTY, INC.,

Defendants - Appellees.

Appeal from the United States District Court for the Eastern 

District of North Carolina, at Wilmington. James C. Dever III, 

Chief District Judge. (7:14-cv-00256-D)

Argued: May 10, 2016 Decided: May 31, 2016 

Before MOTZ, KING, and HARRIS, Circuit Judges.

Affirmed in part and reversed and remanded in part by 

unpublished per curiam opinion.

ARGUED: Fred William DeVore, IV, DEVORE, ACTON AND STAFFORD, 

P.A., Charlotte, North Carolina, for Appellants. Clay Allen 

Collier, CROSSLEY MCINTOSH COLLIER HANLEY & EDES, PLLC, 

Wilmington, North Carolina, for Appellees. ON BRIEF: Jarrett W. 

McGowan, CROSSLEY MCINTOSH COLLIER HANLEY & EDES, PLLC, 

Wilmington, North Carolina, for Appellees.

Unpublished opinions are not binding precedent in this circuit.
2

PER CURIAM:

Jonathan and Margaret Folmar, buyers of a North Carolina 

home, brought this suit against their real estate agent, Sarah 

Harris, and her real estate company, Cooke Realty, alleging 

fraud, misrepresentation, breach of fiduciary duty, and 

deceptive trade practices, and seeking punitive damages. The 

district court granted the realtors’ motion to dismiss on issue 

preclusion grounds, relying on the Folmars’ earlier suit in 

state court against the sellers of the house. For the reasons 

that follow, we affirm in part and reverse and remand in part.

I.

In 2012, the Folmars agreed to purchase a home on the coast 

of North Carolina from Samuel and Louise Kesiah. Harris, 

through her employer Cooke Realty, acted as a dual agent for 

both the Folmars and the Kesiahs. Prior to closing on the 

property, the Kesiahs stated in a disclosure form that they did 

not know of any problems with “things such as the foundation, 

slab, floors, windows, doors, ceilings, interior and exterior

walls, patio, deck, or other structural components.” Soon after

receiving the disclosure form, the Folmars commissioned an

independent home inspection. The resulting inspection report 

noted various issues, including that “some of the siding is 

missing and there is some wood rot on the wall above front 
3

door”; “[u]pstairs door off the master has some wood rot and is 

very hard to open”; “[t]he window on the back left side looks to 

have water entering from the top of the window, staining is 

inside of window. Possible hidden damage may exist.” The 

inspection report recommended that “[e]ach issue indicated in 

this summary [] be evaluated by a qualified contractor or 

specialist for corrective measures to insure proper and safe use 

or service of the system in question.”

After the inspection report but before closing, the Folmars 

hired Daryl Moffett to complete some minor repair work on the 

home after closing. Moffett met with Harris at the house before 

closing to get a better idea of the work required. While on the 

property, Moffett noticed a deteriorated section of siding next 

to the front door. As Moffett stood next to Harris, he pressed 

his hand against the wall and “a piece of wall cladding fell 

off, exposing rotted oriented strand board (OSB) sheathing.” 

Harris tried unsuccessfully to reattach the piece to the wall, 

and then told Moffett that the rotting sheathing had already 

been listed on the home inspection report. The Folmars allege

that, despite Harris’ fiduciary obligations, Harris never 

reported the issue to them.

The Folmars proceeded to close on the home. After 

discovering the extent of the home’s hidden structural damage, 

they brought suit in North Carolina state court against the 
4

Kesiahs, Harris, and Cooke Realty (“Folmar I”). Against the 

Kesiahs, the Folmars alleged fraud, misrepresentation, and 

breach of contract; against Harris and Cooke Realty, they 

alleged fraud, misrepresentation, breach of fiduciary duty, and 

unfair and deceptive trade practices. The Folmars sought 

punitive damages against all parties.

The state trial court granted summary judgment for the 

Kesiahs and the Folmars voluntarily dismissed their claims 

against Harris and Cooke Realty without prejudice. The North 

Carolina Court of Appeals affirmed the trial court’s judgment, 

noting that even if the Kesiahs knew of the defects before they 

sold the property to the Folmars, the Folmars’ reliance on the 

Kesiahs’ representation that they knew of no structural defect 

was not reasonable in light of the Folmars’ independent home 

inspection report.

The Folmars then filed the instant action against Harris 

and Cooke Realty in federal district court, again alleging 

fraud, misrepresentation, breach of fiduciary duty, and 

deceptive trade practices against both Harris and Cooke Realty, 

and seeking punitive damages against Harris. Harris and Cooke 

Realty moved to dismiss, arguing that the Folmars’ previous 

state suit precluded them from bringing these claims. In a 

brief order and judgment, the district court granted the 
5

Appellees’ motion and dismissed the case on issue preclusion 

grounds.

The Folmars noted this timely appeal.

II.

On appeal, the Folmars argue that their suit against Harris 

and Cooke Realty involves different issues than their suit 

against the Kesiahs, and that the district court therefore erred 

in granting the motion to dismiss on issue preclusion grounds.

Harris and Cooke Realty (Appellees) respond that “the issue of 

reasonable reliance [] is an essential and material element to 

each of [the Folmars’] claims,” and that “[b]ecause this issue 

was resolved against them in the prior action, Appellants are 

barred from relitigating the issue in their favor in the current

action.” Appellees’ Br. at 8.

We review issue preclusion arguments de novo. United

States v. Fiel, 35 F.3d 997, 1005 (4th Cir. 1994). For 

judgments in diversity cases, as we have here, a federal court 

looks to state preclusion law. Taylor v. Sturgell, 553 U.S. 

880, 891 n.4 (2008). In North Carolina, collateral estoppel 

(issue preclusion) “precludes relitigation of an issue decided 

previously in judicial or administrative proceedings, provided 

the party against whom the prior decision was asserted enjoyed a 

full and fair opportunity to litigate that issue in an earlier 
6

proceeding.” Rymer v. Estate of Sorrells, 488 S.E.2d 838, 840 

(N.C. App. 1997); Thomas M. McInnis & Assoc., Inc. v. Hall, 349 

S.E.2d 552, 558 (N.C. 1986) (noting that North Carolina allows 

non-mutual defensive use of collateral estoppel).

For issue preclusion to apply, several factors must be met:

“(1) the issues must be the same as those involved in the prior 

action, (2) the issues must have been raised and actually 

litigated in the prior action, (3) the issues must have been 

material and relevant to the disposition of the prior action, 

and (4) the determination of the issues in the prior action must 

have been necessary and essential to the resulting judgment.” 

State v. Summers, 528 S.E.2d 17, 20 (N.C. 2000). We address 

each of the Folmars’ claims in turn to determine whether these 

requirements have been met.

III.

We turn first to the Folmars’ fraud claim. To prove actual

fraud in North Carolina, a party must show: “(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. Additionally, (6) plaintiff’s reliance on any 

misrepresentations must be reasonable.” MacFadden v. Louf, 643 

S.E.2d 432, 434 (N.C. Ct. App. 2007) (alteration and internal 
7

quotation marks omitted). In the context of property sales, 

“reliance is not reasonable if a plaintiff fails to make any 

independent investigation” unless the plaintiff can demonstrate 

(1) he “was denied the opportunity to investigate the property,” 

(2) he “could not discover the truth about the property’s 

condition by exercise of reasonable diligence,” or (3) he “was 

induced to forego additional investigation by the defendant’s 

misrepresentations.” Id. (alteration and internal quotation 

marks omitted).1

For example, in MacFadden, home-purchasers brought suit 

against the home-sellers for alleged undisclosed defects in the 

property. Id. at 433. The court rejected the claim based on a 

lack of reasonable reliance: “Plaintiff failed to establish 

that her reliance was justifiable because she conducted a home 

inspection before closing and that inspection report put her on 

notice of potential problems with the home.” Id. at 434. As in 

this case, the inspection report pointed out potential serious 

problems with the house and suggested having a contractor 

 1 “As a federal court sitting in diversity, we are obliged 

to interpret and apply the substantive law of [the relevant]

state.” Food Lion v. Capital Cities/ABC, Inc., 194 F.3d 505, 

512 (4th Cir. 1999). Where the state’s highest court has not 

“applied its law to circumstances exactly like those presented 

in this case,” we can look to state courts of appeals cases as 

persuasive in determining how the high court would decide these 

issues. Id. We do so here in the absence of on-point North 

Carolina Supreme Court case law.
8

further assess the property, but the MacFaddens conducted no 

additional inspection. Id. at 434-35. The Folmar I fraud claim 

against the Kesiahs essentially mirrored the facts of MacFadden

and was dismissed on that basis.

On appeal here, the Folmars argue that the timing of the 

inspection report in relation to the fraudulent conduct 

distinguishes this case from Folmar I for issue preclusion 

purposes. The Folmars contend that while their reliance on the 

Kesiahs’ statements was unreasonable because they received the 

Kesiahs’ disclosure before the home inspection occurred, their 

reliance on Harris and Cooke Realty’s fraudulent 

misrepresentations was reasonable because they occurred after

the home inspection report. Because of this timing, the Folmars 

maintain that they reasonably could have relied on their 

realtors instead of the report. The Folmars also argue that 

these distinct factual bases render issue preclusion 

inappropriate here. See 18 James W. Moore et al., Moore’s 

Federal Practice § 132.02[2][e] (3d. ed.) (“[A] difference in 

pertinent facts, sufficient to substantially change the issues, 

renders the doctrine of [collateral estoppel] inapplicable.”).

That is, Folmar I concerned the Kesiah’s disclosure report and 
9

their concealment of the rot with “new materials,”2 while the 

instant case involves Harris’s nondisclosure of the wallcladding incident.

Regardless of whether the issues are identical for 

preclusion purposes, we conclude that the Folmars have failed to 

state a claim for fraud against Harris and Cooke Realty. North 

Carolina courts have consistently dismissed fraud claims against 

both sellers and realtors based on a purchaser’s failure to 

reasonably investigate property, without considering the 

specific timing of the inspection report in relation to the 

fraud. See, e.g., Helms v. Holland, 478 S.E.2d 513, 517 (N.C. 

App. 1996); Rosenthal v. Perkins, 257 S.E.2d 63, 66 (N.C. App. 

1979).

 2 In Folmar I, the North Carolina Court of Appeals described 

the fraud issue as follows:

[P]laintiffs assert that the Kesiah defendants falsely 

represented material facts: by marking “no” on the 

disclosure report which stated “to your knowledge, is 

there any problem (malfunction or defect)” with things 

such as the foundation, slab, floors, windows, doors, 

ceilings, interior and exterior walls, patio, deck, or 

other structural components; learning of the defects in 

the property sometimes after 2006 and intentionally 

listing the property below value to “entice buyers as 

opposed to correcting the defects”; previously 

performing work on the windows, sheathing, exterior 

walls, etc. prior to selling the home to plaintiffs and 

covering up existing rot with new materials; and having 

knowledge that many of the areas of the property were 

missing sheathing.
10

For example, in Robertson v. Boyd, 363 S.E.2d 672 (N.C. 

App. 1988), the Robertsons purchased a house from the Boyds 

through realtor Booth; when the Robertsons discovered extensive 

termite damage after moving in, they sued Booth and the Boyds 

for fraud, arguing that the defendants knew of the damage but 

concealed it. Id. at 675-76. The court dismissed the claims 

against both parties, explaining that, prior to closing, the 

Robertsons had obtained an inspection report that indicated 

termite damage and suggested further inspection. Id. at 676. 

The court did not undertake separate reliance analyses for 

sellers and realtor, nor did it discuss the timing of the report 

in relation to the realtors’ alleged concealment. Rather, it

simply reasoned that, because “the failure of the purchaser to 

make diligent inquiries when he has notice of a problem 

precludes a recovery for fraud,” the trial court “did not err in 

dismissing plaintiffs’ actions in fraud against all defendants.” 

Id. (emphasis added). Applying this reasoning to the instant 

case, we must affirm the district court’s dismissal of the fraud 

claim against Harris and Cooke Realty under North Carolina law.

IV.

We turn next to the Folmars’ misrepresentation claim. “The 

tort of negligent misrepresentation occurs when a party 

justifiably relies to his detriment on information prepared 
11

without reasonable care by one who owed the relying party a duty 

of care.” Hudson-Cole Dev. Corp. v. Beemer, 511 S.E.2d 309, 313 

(N.C. App. 1999). North Carolina courts treat the “reliance” 

elements in fraud and misrepresentation cases as 

interchangeable. See McFadden, 643 S.E.2d at 435; Marcus Bros. 

Textiles, Inc. v. Price Waterhouse, LLP, 513 S.E.2d 320, 327 

(N.C. App. 1999); Helms v. Holland, 478 S.E. 2d 513, 517 (N.C. 

App. 1996). Accordingly, we also affirm the district court’s 

dismissal of the Folmars’ misrepresentation claim against the 

Appellees.

V.

Next, we consider the Folmars’ breach of fiduciary duty 

claim. To state a claim for breach of fiduciary duty in North 

Carolina, a plaintiff must show the existence of a fiduciary 

relationship between the parties, breach of a duty required by 

that relationship, and injury proximately caused by the breach. 

Dalton v. Camp, 548 S.E.2d 704, 707 (N.C. 2001); White v. 

Consol. Planning, Inc., 603 S.E.2d 147, 155 (N.C. App. 2004). 

On appeal, Harris and Cooke Realty argue that this “proximate 

cause” requirement is identical to the “reasonable reliance” 

element of fraud claims. For this reason, they contend that the 

state court’s finding of no reasonable reliance precludes the 
12

Folmars from arguing that proximate cause exists here. We 

disagree.

“It is now well settled [in North Carolina] that a broker 

representing a purchaser or seller in the purchase or sale of 

property owes a fiduciary duty to his client based upon the 

agency relationship itself.” Kim v. Prof’l Bus. Brokers Ltd.,

328 S.E.2d 296, 299 (N.C. App. 1985). “[A] real estate broker 

has a duty to make full and truthful disclosure of all known or 

discoverable facts likely to affect the client. And, the client 

may rely upon the broker to comply with this duty and forego his 

or her own investigation.” Sutton, 712 S.E.2d at 323; John v. 

Robbins, 764 F.Supp. 379, 390 (M.D.N.C. 1991) (“[Defendant 

brokers] may not evade their duty to communicate directly to 

their principals simply by demonstrating the material 

information was otherwise available to [their clients].”). Dual 

agents, like Harris and Cooke Realty, are subject to the same 

obligations because “[a] dual agent owes all fiduciary and other 

agency duties to both principals.” Brown v. Roth, 514 S.E.2d 

294, 296 (N.C. App. 1999).

Because this fiduciary relationship places an affirmative 

burden on the realtor to disclose, regardless of outside 

information available to the client, “proximate cause” in the 

context of fiduciary breach cannot be coextensive with fraud’s 

“reasonable reliance.” As discussed above, for fraud claims, 
13

reliance on realtor conduct is not reasonable if the buyer has 

notice of a problem and fails to investigate himself; in 

contrast, under realtors’ fiduciary duty, a realtor must 

disclose material information and the buyer “can forego his or 

her own investigation.” Sutton, 712 S.E.2d at 323. Thus, the 

terms refer to very different spheres of legal responsibility on 

both the buyers’ and the realtors’ part. Cf. B & B Hardware, 

Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293, 1306 (2015) 

(“[I]ssues are not identical [for preclusion purposes] if the 

second action involves application of a different legal 

standard, even though the factual setting of both suits may be 

the same.”). Put another way, any conception of “reasonable

reliance” in the breach of fiduciary duty context must be

defined differently than in fraud claims because we expect much 

more reliance on fiduciaries, by virtue of their positions of 

trust.

Because the state court in Folmar I did not assess any of 

the elements necessary for a breach of fiduciary duty claim, 

issue preclusion cannot prevent the Folmars from raising such a 

claim now against Harris and Cooke Realty. Accordingly, we 

reverse the district court’s dismissal of this claim and remand 

for further proceedings.
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VI.

The district court also dismissed the Folmars’ claim of 

unfair trade practices as precluded. North Carolina General 

Statute § 75–1.1 provides in pertinent part that “[u]nfair 

methods of competition in or affecting commerce, and unfair or 

deceptive acts or practices in or affecting commerce, are 

declared unlawful.” To establish a prima facie claim for unfair 

trade practices, “a plaintiff must show: (1) the defendant 

committed an unfair or deceptive act or practice, (2) the action 

in question was in or affecting commerce, and (3) the act 

proximately caused injury to the plaintiff.” Dalton, 353 N.C. 

at 656.

Realtor conduct related to the selling and buying of houses 

qualifies as “affecting commerce,” see Sutton, 712 S.E.2d at 

326, and “North Carolina case law has held that conduct which 

constitutes a breach of fiduciary duty . . . is sufficient to 

support a UDTP claim.” Compton v. Kirby, 577 S.E.2d 905, 917 

(N.C. App. 2003); Robertson, 363 S.E.2d at 676. Because the 

Folmars’ unfair trade practice claim is essentially derivative 

of their breach of fiduciary duty claim, which is not precluded, 

we hold that their unfair trade practices claim is also not 

precluded. We therefore reverse the district court’s dismissal 

of this claim and remand for further proceedings.
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VII.

Finally, we turn to the Folmars’ request for punitive 

damages against Harris. In North Carolina, punitive damages are 

awarded “to punish a defendant for egregiously wrongful acts and 

to deter the defendant and others from committing similar 

wrongful acts.” N.C. Gen. Stat. Ann. § 1D-1 (2015). To obtain 

punitive damages, a plaintiff must show that a defendant is 

liable for compensatory damages as well as the presence of one 

or more “aggravating factors” -- fraud, malice, or willful or 

wanton conduct. N.C. Gen. Stat. § 1D-15. Conduct underlying a 

breach of fiduciary duty can support an award of punitive 

damages, see HAJMM Co. v. House of Raeford Farms, Inc., 403 

S.E.2d 483, 490 (N.C. 1991), as can conduct constituting unfair 

and deceptive trade practices, see Zubaidi v. Earl L. Pickett 

Enters., Inc., 595 S.E.2d 190, 193 (N.C. App. 2004).

As discussed above, Folmar I precludes neither the Folmars’ 

claim for breach of fiduciary duty nor for unfair trade 

practices. We therefore conclude that their request for 

punitive damages based on those claims is not precluded. 

Accordingly, we reverse the district court’s dismissal of the 

Folmars’ punitive damages claim and remand.
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VIII.

In sum, we affirm the district court’s dismissal of the 

Folmars’ fraud and misrepresentation claims against Harris and 

Cooke Realty. We reverse the court’s dismissal of the breach of 

fiduciary duty and the unfair trade practices claims against 

Harris and Cooke Realty and the request for punitive damages

against Harris, and we remand those claims for further 

proceedings.

AFFIRMED IN PART AND 

REVERSED AND REMANDED IN PART