Court Opinion

ID: 9353081
Source: CourtListenerOpinion
Date Created: 2023-01-10 21:00:29.191337+00
Date Added: 2024-06-11T17:07:28.690169
License: Public Domain

USCA4 Appeal: 21-1803      Doc: 39        Filed: 01/09/2023   Pg: 1 of 15

                                           UNPUBLISHED

                              UNITED STATES COURT OF APPEALS
                                  FOR THE FOURTH CIRCUIT

                                              No. 21-1803

        GREGORY A. E. WALKER,

                            Plaintiff − Appellant,

                     v.

        SHARON D. HILL,

                            Defendant – Appellee,

                     and

        DANKOS, GORDON & TUCKER, P.C.; LYNN M. TUCKER,

                            Defendants.

        Appeal from the United States District Court for the Eastern District of Virginia, at
        Richmond. M. Hannah Lauck, District Judge. (3:20−cv−00149−MHL)

        Submitted: October 19, 2022                                  Decided: January 9, 2023

        Before DIAZ, THACKER, and QUATTLEBAUM, Circuit Judges.

        Vacated and remanded by unpublished opinion. Judge Diaz wrote the opinion, in which
        Judge Thacker and Judge Quattlebaum joined.

        ON BRIEF: Henry W. McLaughlin, III, LAW OFFICE OF HENRY MCLAUGHLIN,
        P.C., Richmond, Virginia, for Appellant. Michele A. Mulligan, GOLIGHTLY,
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        MULLIGAN & MORGAN, PLC, Richmond, Virginia, for Appellee.

        Unpublished opinions are not binding precedent in this circuit.

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        DIAZ, Circuit Judge:

               In this case of a real-estate transaction gone south, Gregory Walker challenges the

        district court’s grant of a motion to dismiss in favor of Sharon Hill. The district court held

        that Walker failed to adequately plead reasonable reliance, as required to state a fraud claim

        under Virginia law. We disagree and reject Hill’s invitation to affirm on the alternate

        ground that the complaint fails to satisfy the pleading requirements of Federal Rule of Civil

        Procedure 9(b). So we vacate the district court’s judgment and remand.

                                                      I.

                                                     A.

               For this appeal, we accept as true the facts alleged in Walker’s Second Amended

        Complaint.

               In early 2019, Walker borrowed $350,000 from Hill to buy a home. A purchase

        money note memorialized the loan agreement, and a deed of trust secured the note. Walker

        signed both documents at the March 2019 closing.

               At the closing, Hill was represented by Dankos, Gordon & Tucker, P.C. Along with

        the purchase money note and deed of trust, Hill’s lawyers presented Walker with a third

        document containing only these two paragraphs:

               This conveyance is made subject to the deed of trust and the parties agree
               that the lien of the deed of trust shall not be destroyed by merger of the
               ownership of the lien and the underlying fee simple estate unless and until a
               release to that effect is recorded in the aforesaid Clerk’s Office.

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               This conveyance is further made subject to any and all covenants, conditions,
               easements, agreements and restrictions of record insofar as they may lawfully
               apply to the property hereby conveyed.

        Dist. Ct. Dkt. No. 2-3, at 3. The document had a signature line and a field to notarize the

        “foregoing instrument.” Id. It had no page numbers or other indications that it was part of

        another document. Walker’s complaint refers to the document as the “second page,” a

        label we borrow. E.g., J.A. 11 ¶ 24.

               Based on the “words and course of action” taken by Hill or her agents at the closing,

        Walker believed he was signing documents (including the second page) that related to “a

        normal conventional mortgage loan.” J.A. 11–12 ¶¶ 26–28. On that basis, Walker signed

        the second page and Mark A. Dankos notarized it. But as it turned out, the second page

        was neither normal nor conventional.

               Walker alleges that after the closing, Hill’s agents added a “first page” to the two-

        paragraph second page he signed. J.A. 11 ¶ 23, 12 ¶ 28. The combined document appeared

        to be a deed in lieu of foreclosure, executed by Walker. The first page states that the loan

        is in default and that Walker grants and conveys the property to Hill in consideration for

        cancellation of the remaining debt. And it allows for the immediate transfer of the property

        to Hill without judicial foreclosure proceedings.

               According to Walker, Hill executed a three-step fraudulent plan.          First, Hill

        intentionally withheld the first page at the closing, smuggling the second page in a trojan

        horse of conventional mortgage documents. Second, her agents added the first page to

        make it appear that Walker had signed a deed in lieu of foreclosure. Third, Hill sought to

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        use the combined document to deprive Walker of the protections provided by the deed of

        trust and Virginia law.

               Between December 2019 and March 2020, Hill and her lawyers sent Walker three

        letters, informing him that the loan was in default 1 and that Hill would pursue various

        remedies if the debt wasn’t paid. One of those letters, titled “Notice of Default” and sent

        by Hill’s lawyers, stated that if the default was not cured, Hill would exercise her “right to

        record the Deed in Lieu of Foreclosure.” Dist. Ct. Dkt. No. 2-4, at 3. Walker alleges that

        Hill personally sent a similar letter threatening to record the deed, though that letter isn’t

        in the record. 2

               Hill’s threats to record the apparent deed in lieu of foreclosure caused Walker to

        worry that he would immediately lose his home. Alarmed, he took time off work and

        retained a lawyer, incurring legal fees and travel expenses. He also suffered severe

        emotional distress.

               1
                 The complaint doesn’t allege facts about Walker’s payment history, but the letters
        show the default occurred in October 2019. Walker doesn’t dispute that the loan was in
        default.
               2
                  Walker didn’t attach exhibits to the operative Second Amended Complaint, but he
        references those attached to the First Amended Complaint: the purchase money note, deed
        of trust, deed in lieu of foreclosure, and letters from February and March 2020. The district
        court considered the exhibits in the interest of judicial efficiency and because the
        defendants also referred to them. See Walker v. Hill, No. 3:20cv149, 2021 WL 1062238,
        at *2 n.7 (E.D. Va. Mar. 19, 2021). We do the same.

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                                                    B.

               Walker sued Hill and her lawyers, amending his complaint twice. His operative

        Second Amended Complaint sought compensatory damages, punitive damages, and

        attorney’s fees under federal statutes and Virginia common law. The defendants moved to

        dismiss under Federal Rule of Civil Procedure 12(b)(6).

               The district court dismissed all four counts against Hill, and one of the two counts

        against Hill’s lawyers. 3

               Walker appealed only the dismissal of Count II, his Virginia common-law fraud

        claim against Hill. On that count, the district court acknowledged that Walker had

        plausibly alleged “five of the six” elements of fraud under Virginia law. Walker, 2021 WL

        1062238, at *8. But the court found Walker’s claim faltered on the remaining element,

        reasonable reliance, because he didn’t “plausibly allege that he reasonably and justifiably

        relied, through any inquiry of his own, on any representation made by Hill.” Id. at *7.

               The district court explained that the complaint didn’t “allege any facts as to the

        circumstances surrounding [Walker’s] signature on the Deed in Lieu of Foreclosure except

        that ‘Hill, through agency, caused [Walker] to sign papers as a condition to making the

        loan.’” Id. at *8. Nor, according to the district court, did Walker “plausibly describe—if

        at all speak to—how Hill characterized the document or any inquiries of his own as to the

        nature of the page he signed.” Id. Finally, the court held that Walker didn’t allege any

               3
                Walker and Hill’s lawyers later settled the remaining count and stipulated to
        dismissal of all claims between them.

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        facts showing that Hill diverted Walker from making a reasonable and prudent inquiry into

        the alleged misrepresentations.

               This appeal followed.

                                                      II.

               We review a district court’s dismissal under Rule 12(b)(6) de novo. Fessler v. Int’l

        Bus. Machs. Corp., 959 F.3d 146, 151 (4th Cir. 2020). The complaint must contain

        sufficient factual allegations to state a claim that’s plausible on its face. Bell Atl. Corp. v.

        Twombly, 550 U.S. 544, 570 (2007). And where, as here, the complaint alleges fraud, we

        apply the added pleading requirements of Federal Rule of Civil Procedure 9(b). Harrison

        v. Westinghouse Savannah River Co., 176 F.3d 776, 783–84 & n.5 (4th Cir. 1999).

               We assume the truth of the facts alleged in the complaint, viewing them in the light

        most favorable to the plaintiff and drawing all reasonable inferences in the plaintiff’s favor.

        Morgan v. Caliber Home Loans, Inc., 26 F.4th 643, 648 (4th Cir. 2022).

               The issues before us are whether Walker plausibly alleged reasonable reliance on

        Hill’s purported misrepresentations and whether we should affirm on the alternative ground

        that the complaint fails to satisfy Rule 9(b). We consider each in turn.

                                                      A.

               First, we conclude the district court erred in holding the complaint didn’t plausibly

        allege that Walker reasonably relied on Hill’s alleged misrepresentations.

               To plead fraud under Virginia law, a plaintiff must plausibly allege “(1) a false

        representation, (2) of a material fact, (3) made intentionally and knowingly, (4) with intent

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        to mislead, (5) reliance by the party misled, and (6) resulting damage to the party misled.”

        Fessler, 959 F.3d at 153 (cleaned up). This appeal involves the reliance element, which

        requires a plaintiff to show that his “reliance upon the representation was reasonable and

        justified.” Id. (cleaned up).

               “The touchstone of reasonableness is prudent investigation.” Hitachi Credit Am.

        Corp. v. Signet Bank, 166 F.3d 614, 629 (4th Cir. 1999). When the plaintiff has notice of

        facts which would lead an ordinarily prudent person to investigate, and a reasonable inquiry

        would have revealed the misrepresentation, the plaintiff who fails to so investigate can’t

        claim to have reasonably relied on the misrepresentation. Id. But when one party “throws

        the other off guard or diverts him from making the reasonable inquiries which usually

        would be made, . . . Virginia law will forgive an incomplete investigation.” Bank of

        Montreal v. Signet Bank, 193 F.3d 818, 828 (4th Cir. 1999).

               The district court held that Walker didn’t plausibly allege reasonable reliance

        because the complaint didn’t describe how Hill characterized the second page or allege that

        “Walker made any inquiry, much less a ‘reasonable and justified’ one, into the nature of”

        the second page before he signed it. Walker, 2021 WL 1062238, at *8. Walker argues that

        it was improper for the district court to hold that a prudent investigation would have

        revealed the misrepresentation. He contends that a reasonable investigation wouldn’t have

        revealed that the second page wasn’t a conventional mortgage-loan document but a

        document that would later be used—with the added first page—to misrepresent that Walker

        had executed a deed in lieu of foreclosure.

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                We agree. Read in the light most favorable to Walker, the complaint alleges two

        misrepresentations. The first occurred at the closing, when Hill, personally or through her

        agents, represented that the second page was a document for a conventional mortgage loan.

        The second occurred when Hill and her agents added the first page and sent letters

        representing that Walker had signed a deed in lieu of foreclosure.

                We’re satisfied that the complaint raises a fact question of whether Walker’s

        reliance on the first misrepresentation was reasonable. See Fessler, 959 F.3d at 154. But

        if we had any doubt, we would conclude that Walker adequately pleaded a claim for fraud

        based on the second misrepresentation.

                                                    1.

                We disagree with the district court that Walker failed to describe how Hill

        characterized the second page. Walker alleges that at the closing, Hill, “personally or by

        agency,” 4 represented “by words and course of action” “that he was entering into a normal

        conventional loan,” with “normal terms.” J.A. 11 ¶ 27. He alleges that the purchase money

        note and the deed of trust aligned with a conventional mortgage loan, and he provided those

        documents as exhibits. And he alleges that he signed the second page based on the

        representation that it was a document “for a normal conventional mortgage loan.” J.A. 12

        ¶ 28.

                4
                 Elsewhere, Walker alleges that “Hill, through Dankos Gordon,” caused Walker to
        sign the second page. J.A. 10 ¶ 13. A reasonable inference is that references to agency in
        the complaint are to employees of Dankos, Gordon & Tucker, P.C.

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               True, the complaint doesn’t allege Walker conducted any independent investigation

        of the second page before he signed it. But under the circumstances, we don’t think that’s

        fatal to Walker’s claim. That’s because reasonable reliance is typically “reserved for the

        trier of fact to determine,” and Walker’s reliance wasn’t unreasonable as a matter of law.

        Fessler, 959 F.3d at 154. Rather, the complaint and accompanying exhibits create a fact

        issue as to whether an ordinarily prudent person would be on notice of the need to

        investigate the second page.

               The second page is odd but wouldn’t necessarily appear out of place in the

        conventional mortgage documents Walker signed at the closing. It doesn’t begin partway

        through a sentence or paragraph and lacks page numbers, so it isn’t obviously part of a

        larger document. It has no title, and while the notarization states that it’s an “instrument,”

        the type of instrument isn’t clear. Dist. Ct. Dkt. No. 2-3, at 3.

               It’s possible that through the references to “a conveyance” and the “merger of the

        ownership of the lien and the underlying fee simple estate,” Walker could have puzzled out

        that the document reflected a conveyance to Hill, the owner of the lien. See id. But Walker

        might also have reasonably believed the second page related to the conveyance he did

        make—the deed of trust—particularly since it was presented to him at the same time as

        that document. We think the allegations are enough to at least place the reasonableness of

        Walker’s reliance at issue, creating a fact question. See Fessler, 959 F.3d at 154.

               This case is distinguishable from those where courts have found reliance to be

        unreasonable as a matter of law. For example, in Xia Bi v. McAuliffe, we found the

        plaintiffs’ reliance on parol statements was unreasonable where the controlling contract

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        contradicted them, and the defendant didn’t prevent the plaintiffs from reading the contract.

        See 927 F.3d 177, 186–87 (4th Cir. 2019). And in an unpublished decision, the Supreme

        Court of Virginia affirmed the demurrer-dismissal of a fraud claim where the plaintiff

        alleged the defendants fraudulently misrepresented that he was transferring his real estate

        to a trust but then signed documents that he knew weren’t a trust agreement. Wilson v. Lee,

        No. 170347, 2018 WL 1633522, at *4 (Va. Apr. 5, 2018). In both cases, the plaintiffs had

        access to and executed documents that plainly contradicted the defendants’ alleged

        misrepresentations. But as discussed above, Walker might have reasonably believed the

        second page was a conventional mortgage loan document when he signed it.

               This would be a different case if Walker had alleged that he’d been given the first

        page of the deed in lieu of foreclosure when he signed the second page. The first page is

        specifically labeled a deed in lieu of foreclosure, states that the loan is in default, and states

        that Walker grants and conveys the property to Hill. Those facts would be like Xia Bi,

        where we imputed knowledge of the unread pages to the plaintiffs because they had access

        to them.

               But here, Walker alleges that Hill prevented him from reading—or even knowing

        about—the operative portion of the deed in lieu of foreclosure. By passing off the relatively

        nondescript second page as a conventional mortgage document while withholding the

        crucial first page, a jury could find that Hill diverted Walker from making a prudent

        investigation. See Bank of Montreal, 193 F.3d at 828. And a jury could also find that

        without access to the critical first page, Walker reasonably relied on Hill’s alleged

        representation that the second page was a conventional mortgage document.

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                                                     2.

               There’s another reason to vacate the district court’s dismissal of Walker’s fraud

        claim. According to the complaint, Walker wasn’t presented with the first page of the deed

        in lieu of foreclosure at the closing, and the page he signed didn’t contain any of the

        relevant terms needed to effect such a conveyance. But Hill then used the fruits of the first

        misrepresentation to make a second, more damaging misrepresentation: after securing

        Walker’s signature on the second page, Hill’s agents added the first page to falsely

        represent that Walker had executed a deed in lieu of foreclosure.              This second

        misrepresentation could also support Walker’s claim.

               Walker alleges that Hill and her agents acted intentionally to deprive him of the

        normal protections provided by the deed of trust and Virginia law governing foreclosures.

        To that end, when the loan went into default, Hill and her attorney-agents sent letters to

        Walker threatening to record the purported deed in lieu of foreclosure.

               The complaint doesn’t claim that Hill ultimately recorded the document or that she

        successfully deprived Walker of the protections he was entitled to under Virginia law. But

        Walker was still forced to act to his detriment relying on Hill’s misrepresentation. Fearing

        the imminent loss of his home, he sought legal advice and incurred related expenses. As

        alleged, a jury could find that Walker’s response to the second misrepresentation was

        reasonable.

               The district court doesn’t appear to have considered this second misrepresentation.

        But if we had any doubt that the allegations about the first misrepresentation were

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        sufficient, we would still vacate and remand because the allegations of the second

        misrepresentation state a claim for fraud.

                                                        B.

               We reject Hill’s invitation to affirm the district court on the alternative ground that

        the complaint fails to satisfy Rule 9(b). Hill’s motion to dismiss didn’t mention Rule 9(b),

        and the district court didn’t reference the rule by name in its decision. But the court did

        state that Walker failed to “allege any facts as to the circumstances surrounding his

        signature on the Deed in Lieu of foreclosure except that ‘Hill, through agency, caused

        [Walker] to sign papers as a condition to making the loan.’” Walker, 2021 WL 1062238,

        at *8. The parties have briefed the 9(b) issue on appeal, and we may affirm the district

        court’s judgment on any ground supported by the record. Cf. Harrison, 176 F.3d at 783

        n.5. Even so, we find Rule 9(b) is satisfied.

               The rule requires Walker to “state with particularity the circumstances constituting

        fraud,” apart from a defendant’s mindset, which “may be alleged generally.” Fed. R. Civ.

        P. 9(b). This includes “the time, place, and contents of the false representations, as well as

        the identity of the person making the misrepresentation and what he obtained thereby.”

        Harrison, 176 F.3d at 784 (cleaned up). Walker met these requirements.

               Walker alleges the when, where, what, and why of the first misrepresentation. It

        took place on March 1, 2019, at the closing. The content was that the second page was a

        document for a conventional mortgage loan, and the motive was to deprive Walker of the

        protections he was entitled to under a conventional loan.

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               Whether Walker sufficiently pleaded the “who” is a closer issue.                    The

        misrepresentation was allegedly conveyed through the documents Walker was provided at

        the closing and the “words and course of action” of Hill or her agents. J.A. 11 ¶ 27 (Hill

        acted “either on her own or through agency.”). And it’s true that a plaintiff can’t satisfy

        Rule 9(b) by lumping together “defendants as a group,” without specifying who said what.

        U.S. ex rel. Ahumada v. NISH, 756 F.3d 268, 281 n.9 (4th Cir. 2014) (cleaned up). But the

        complaint accuses Hill—or, at the very least, individuals whose actions are legally

        attributable to Hill—of fraud. Count II talks about “Hill’s said fraud” against Walker and

        seeks a judgment only “against Hill.” J.A. 13 ¶¶ 32, 34, 35.

               While the complaint could have been clearer, the allegations put Hill on notice that

        Walker is alleging she was responsible for the fraud. See Harrison, 176 F.3d at 784 (noting

        the purpose of Rule 9(b) is to “ensure[] that the defendant has sufficient information to

        formulate a defense by putting it on notice of the conduct complained of” (cleaned up)).

               The complaint also comports with Rule 9(b)’s other purposes. Walker’s pleading

        doesn’t frustrate the rule’s goal of avoiding frivolous suits, id., nor has Hill argued that the

        claim is frivolous. And Walker’s fraud claim likely won’t depend on discovery—rather, it

        will probably turn on his own testimony (and credibility) about what happened at the

        closing. See id. (“A court should hesitate to dismiss a complaint under Rule 9(b) if the

        court is satisfied (1) that the defendant has been made aware of the particular circumstances

        for which she will have to prepare a defense at trial, and (2) that plaintiff has substantial

        prediscovery evidence of those facts.”).

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               Walker also pleaded the facts of the second misrepresentation with sufficient

        particularity. The complaint alleges that “Hill, through agency,” added the first page, J.A.

        12 ¶ 28, and then threatened Walker with recordation of the apparent deed in lieu of

        foreclosure in letters sent in December 2019 and February 2020. It specifies that the

        December letter came from Hill and the February letter came from her agents. Walker

        provided the deed in lieu of foreclosure and the February letter as exhibits. And he alleges

        that Hill’s motive was to deprive him of his home by circumventing the legal protections

        he was entitled to. These allegations meet the requirements of Rule 9(b).

                                                    III.

               Walker’s complaint alleges enough to state a claim for fraud under Virginia law and

        the allegations also satisfy Rule 9(b). We therefore vacate the district court’s judgment on

        Count II and remand.

                                                                    VACATED AND REMANDED

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