Court Opinion

ID: 2727088
Source: CourtListenerOpinion
Date Created: 2014-09-08 21:11:34.730571+00
Date Added: 2024-06-11T10:03:13.056794
License: Public Domain

NO. COA13-1334

                        NORTH CAROLINA COURT OF APPEALS

                                 Filed: 15 July 2014

IN RE:
GREGORY S. LYNN and
RENEE J. LYNN,
     Plaintiffs,

       v.                                            Union County
                                                     No. 13 CVS 1460
FEDERAL NATIONAL MORTGAGE
ASSOCIATION and SETERUS, INC.,
     Defendants.

       Appeal by plaintiffs from order entered 11 July 2013 by

Judge W. David Lee in Union County Superior Court.                      Heard in the

Court of Appeals 24 April 2014.

       Elliot Law Firm, PC, by Michael K. Elliot, for Plaintiffs-
       Appellants.

       No brief filed on behalf of Defendants-Appellees.

       HUNTER, JR., Robert N., Judge.

       Gregory    S.      Lynn      and       Renee     J.   Lynn      (collectively,

“Plaintiffs”)         appeal     from     a     final    order    dismissing     their

complaint under N.C. R. Civ. P. 12(b)(6).                        Plaintiffs contend

that   their     complaint       shows        the    existence   and    breach   of   a

fiduciary      duty    owed    to    them       by    Federal    National   Mortgage

Association      (“Fannie        Mae”)        and     Seterus,   Inc.    (“Seterus”)
                                      -2-
(collectively     “Defendants”).       For     the   following   reasons,   we

affirm the trial court’s order.

                      I. Facts & Procedural History

       The complaint states the following facts.           Plaintiffs owned

a home at 1012 King Grant Way in Matthews.                On 19 April 2007,

plaintiff Gregory Lynn executed a promissory note (“the Note”)

to JP Morgan Chase Bank (“Chase”) with a principal balance of

$360,000.     The loan was described on the Note as an “Interest

First Note.”      On 19 April 2007, Plaintiffs also executed a deed

of trust (“the Deed”) securing the Note.1             The Deed was recorded

in Union County and named Constance R. Stienstra as the trustee

and Chase as the lender and beneficiary of the instrument.

       In early 2011, Plaintiffs received notice that Seterus had

become the servicer of the loan and that Fannie Mae was the

holder of the Note and Deed after having purchased the Note at

some point after 19 April 2007.             The complaint indicates that a

“Substitute Trustee” was appointed at some point after 19 April

2007 and references a “Defendant Substitute Trustee,” but does

not    identify     either   party.         Plaintiffs’    appellate    brief

identifies    the    substitute    trustee      as   “Trustee    Services   of

1
    The Deed and Note were not included in the record on appeal.
                                      -3-
Carolina, Inc.”2

       On   26    October   2011,   after     Plaintiffs     fell    behind    on

payments,    “Plaintiffs     received   a     ‘Notice   of    Hearing,’       from

Defendant    Substitute     Trustee   which    initiated     a   Union      County

Special Proceeding Case entitled: ‘Foreclosure of Real Property

Under Deed of Trust from Gregory Scott Lynn and Renee Jeanette

Lynn . . . .’”       Plaintiffs filed for Chapter 13 bankruptcy on 28

December 2011, which was later converted to a Chapter 7 filing.

Fannie Mae filed a motion for relief from the automatic stay.

Plaintiffs filed a motion in response challenging Fannie Mae’s

status as the holder of the Note.             Both Fannie Mae and Seterus

were granted relief from the automatic stay, but there were no

findings of fact relating to their status as the holder of the

Note.

       On 21 May 2012, before the entry of the order granting

relief from the automatic stay, Plaintiffs received documents

from    Seterus    indicating   Plaintiffs     could    modify      their   loan.

Plaintiffs promptly signed and returned those documents.                        As

part of the modification, Plaintiffs were required to make three

trial payments of $2,332.14 on 1 July 2012, 1 August 2012, and 1

September 2012.       On 30 June 2012, Plaintiffs sent their initial

2
  At Defendants’ 12(b)(6) hearing, Plaintiffs and Defendants both
stated that the trustee is not a party to this case.
                                      -4-
July payment.      However, Plaintiffs sent $2,300.00 instead of the

required $2,332.14.       Because Plaintiffs remitted an incorrect

amount, Defendants rejected the loan modification.

       Following   the   rejection,    the   “Substitute      Trustee”    gave

notice to Plaintiffs of the foreclosure sale which was to take

place on 5 September 2012.        After the sale, but prior to the

expiration of the ten-day upset bid period, Plaintiffs filed an

action designated 12 CVS 2676 enjoining the foreclosure sale

pursuant to N.C. Gen. Stat. § 45-21.34 (2013).

       On 28 January 2013, “Plaintiffs, by and through Counsel,

requested from Counsel for Defendants a re-instatement quote so

that      Plaintiffs      could       exercise        their       Right     of

Redemption . . . .”3      The same day, Defendants sent an email to

Plaintiffs’   counsel    asking   Plaintiffs     to    make   a    settlement

offer.     Plaintiffs offered to send a discounted lump sum to

Defendants sometime between 28 January 2013 and 25 March 2013.

Plaintiffs assert they had a family friend that was “ready,

willing, and able to pay the re-instatement amount.”               Plaintiffs

state that the offer was eventually rejected sometime before 25

March 2013.     During the intervening period, Defendants provided

3
  During the 12(b)(6) hearing, Plaintiffs moved to amend their
complaint to specifically allege the statutory right of
redemption in addition to the right of reinstatement. The court
did not respond to that request at the 12(b)(6) hearing.
                                              -5-
no   redemption      or     reinstatement         quote.         The   12(b)(6)       hearing

transcript     indicates          that    after     Plaintiffs         made    a    lump   sum

offer,   Plaintiffs          made        no    attempt      to     contact         Defendants

regarding redemption until after Defendants rejected Plaintiffs’

offer.        At    the     12(b)(6)          hearing,      Plaintiffs        argued       that

proffering any estimate of a reasonable offer was futile because

Defendants     rejected       the     loan      modification       payment         for   being

$32.14 short.

      Following the 25 March 2013 hearing concerning 12 CVS 2676,

the court dissolved the preliminary injunction.                               On 23 April

2013, a “Substitute Trustee’s” deed was recorded which conveyed

the property to Fannie Mae.                   Plaintiffs received a letter from

Defendants disclosing the payoff amount for the loan on 29 April

2013, after the upset period had passed.                         Plaintiffs were given

notice   to    vacate       their    home      on   9    May     2013.        According     to

Plaintiffs’ appellate brief, Plaintiffs have since vacated the

home.

      On 30 May 2013, following the dismissal of the claims in 12

CVS 2676, Plaintiffs filed the present complaint for preliminary

injunction,        breach    of     fiduciary       duty,      misrepresentation,          and

unfair and deceptive trade practices.                       Plaintiffs also filed a

motion for a temporary restraining order against Defendants on
                                      -6-
30 May 2013.      The motion was denied on 6 June 2013.            Defendants

then filed a motion to dismiss under N.C. R. Civ. P. 12(b)(6)

and a motion for attorneys’ fees on 10 June 2013.                  Defendants

amended these motions on 21 June 2013.                Judge Lee granted the

motion to dismiss on 12 July 2013 and denied Defendants’ motion

for attorneys’ fees.         Plaintiffs provided timely written notice

of appeal on 26 July 2013.

                 II. Jurisdiction & Standard of Review

       Jurisdiction lies in this Court pursuant to N.C. Gen. Stat.

§ 7A–27(b) (2013) as Plaintiff appeals from a final order of the

superior court as a matter of right.

       “‘On a Rule 12(b)(6) motion to dismiss, the question is

whether, as a matter of law, the allegations of the complaint,

treated   as    true,   state    a   claim    upon    which   relief   can    be

granted.’” Allred v. Capital Area Soccer League, Inc., 194 N.C.

App.   280,    282,   669   S.E.2d   777,    778   (2008)   (quoting   Wood   v.

Guilford Cnty., 355 N.C. 161, 166, 558 S.E.2d 490, 494 (2002)).

“This Court must conduct a de novo review of the pleadings to

determine their legal sufficiency and to determine whether the

trial court’s ruling on the motion to dismiss was correct.”

Leary v. N.C. Forest Prods., Inc., 157 N.C. App. 396, 400, 580

S.E.2d 1, 4, aff’d per curiam, 357 N.C. 567, 597 S.E.2d 673
                                     -7-
(2003).

              Dismissal under Rule 12(b)(6) is proper when
              one of the following three conditions is
              satisfied: (1) the complaint on its face
              reveals that no law supports the plaintiff’s
              claim; (2) the complaint on its face reveals
              the absence of facts sufficient to make a
              good claim; or (3) the complaint discloses
              some fact that necessarily defeats the
              plaintiff’s claim.

Wood, 355 N.C. at 166, 558 S.E.2d at 494.

       “Under de novo review, we examine the case with new eyes.”

State v. Young, ___ N.C. App. ___, ___, 756 S.E.2d 768, 779

(2014).   “[D]e novo means fresh or anew; for a second time, and

an appeal de novo is an appeal in which the appellate court uses

the   trial    court’s    record   but    reviews   the   evidence       and   law

without deference to the trial court’s rulings.”                     Parker v.

Glosson, 182 N.C. App. 229, 231, 641 S.E.2d 735, 737 (2007)

(quotation     marks   and    citations    omitted).      “Under   a     de    novo

review,   the     court      considers    the   matter    anew     and    freely

substitutes its own judgment for that of the lower tribunal.”

Craig v. New Hanover Cnty. Bd. of Educ., 363 N.C. 334, 337, 678

S.E.2d 351, 354 (2009) (quotation marks and citation omitted).
                                        -8-
                                III. Analysis

    Plaintiffs       argue   that   the   statutory      right      of     redemption

created by N.C Gen. Stat. § 45-21.20 (2013)4 gives rise to a

fiduciary relationship        requiring disclosure of the redemption

amount   upon   a    debtor’s   request.         After      careful      review,   we

disagree and affirm the trial court.

                A. Fiduciary Relationship in Redemption
    “For a breach of fiduciary duty to exist, there must first

be a fiduciary relationship between the parties.”                          Dalton v.

Camp, 353 N.C. 647, 651, 548 S.E.2d 704, 707 (2001).                       Fiduciary

relationships       are   established     when   a    special       confidence     is

placed in a party which is bound to act in good faith and in the

best interest of the party who reposes that confidence.                       Abbitt

v. Gregory, 201 N.C. 577, 598, 160 S.E. 896, 906 (1931).                            A

number   of   relationships     traditionally        give    rise     to   fiduciary

4
  The statutory right to redemption provides that a debtor may
terminate the power of sale by tendering the remaining
obligation secured by the deed of trust and expenses incurred in
the sale of the property before the foreclosure sale or within
the upset bid period.    N.C. Gen. Stat. § 45-21.20.   Plaintiffs
requested a “re-instatement quote” in their complaint and also
referenced the statutory right of redemption in their complaint.

Plaintiffs clarified at the 12(b)(6) hearing that they intended
to include the right of redemption and asked, if need be, to
amend their complaint to include this claim.         On appeal,
Plaintiffs do not raise any argument concerning a contractual
right to reinstatement and thus abandon any argument relating to
reinstatement. N.C. R. App. P. 28(b)(6).
                                     -9-
duties,   such    as   attorney   and   client,     broker    and    principal,

guardian and ward, and trustee and beneficiary.                Id.       Fiduciary

duties may also be established in “a variety of circumstances”

within    any    relationship     “where    there    has     been    a    special

confidence reposed in one who in equity and good conscience is

bound to act in good faith and with due regard to the interests

of the one reposing confidence.”           Id.   The determination of such

a relationship is generally a question of fact to be determined

by the jury.      Carcano v. JBSS, LLC, 200 N.C. App. 162, 178, 684

S.E.2d 41, 53 (2009).

    Our Supreme Court recently addressed the fiduciary duties

inherent in a typical debtor-creditor relationship in Dallaire

v. Bank of America, ___ N.C ___, ___, ___ S.E.2d ___, ___,

51PA13, 2014 WL 2612658 (2014):

           Ordinary borrower-lender transactions, by
           contrast, are considered arm’s length and do
           not typically give rise to fiduciary duties.
           In other words, the law does not typically
           impose upon lenders a duty to put borrowers’
           interests ahead of their own.         Rather,
           borrowers and lenders are generally bound
           only by the terms of their contract and the
           Uniform   Commercial  Code.      Nonetheless,
           because a fiduciary relationship may exist
           under a variety of circumstances, it is
           possible, at least theoretically, for a
           particular bank-customer transaction to give
           rise to a fiduciary relation given the
           proper circumstances.
                                          -10-
Id. at ___, ___ S.E.2d at ___, 2014 WL 2612658 at *4 (citations

and quotation marks omitted).               Applying this test in Dallaire,

our Supreme Court found that “[a] loan officer’s mere assertion

that the Dallaires could obtain a first priority lien mortgage

loan” was not sufficient to allow our Supreme Court to conclude

the Dallaires reposed fiduciary duties in Bank of America.                            Id.

(citation and quotation marks omitted).

       The     right    of    redemption         may    arise   in      any    typical

foreclosure proceeding; it is a statutorily created right to

terminate a power of sale.            N.C Gen. Stat. § 45-21.20.                Nothing

about the statute indicates that the moment a debtor attempts to

act    upon    its    right   of   redemption      is   anything     other     than    an

ordinary       part     of    a    debtor-creditor          relationship         during

foreclosure proceedings.             As this is an ordinary feature of

debtor-creditor relationships, here the debtor or creditor must

show    some     additional        fact     which       tends   to      elevate       the

relationship above that of a typical debtor and creditor.

       Here,     Plaintiffs        simply        assert      that     a       fiduciary

relationship is created by Plaintiffs’ invocation of the right

of     redemption       or    Defendants’         response      email     requesting

Plaintiffs make an offer to pay off the loan.                       As in Dallaire,

merely invoking a statutorily created right in a debtor-creditor
                                    -11-
transaction, like a loan officer making assertions concerning

possible   lien   priorities,   does    not     alone   create   a    fiduciary

relationship.     Dallaire, ___ N.C. App. at ___, ___ S.E.2d at

___, 2014 WL 2612658 at *4.             As Plaintiffs fail to disclose

any additional facts supporting the existence of a fiduciary

relationship,     dismissal   was     proper    under    N.C.    R.   Civ.   P.

12(b)(6), as this was a normal debtor-creditor relationship.5

                  B. Trustee Fiduciary Relationship
     Trustees,6    on   the   other     hand,    have    a   long-recognized

fiduciary duty to both the debtor and creditor in a typical

5
  In Branch Banking & Trust Co. v. Thompson, 107 N.C. App. 53,
418 S.E.2d 694 (1992), this Court held that no fiduciary duty
existed where borrowers relied on outside counsel and advice as
well as representations made by a lender.      Id. at 60–61, 418
S.E.2d at 699.     The reliance on the advice from a banker,
accountant, and their business partner showed that they had not
reposed any sort of special confidence with the plaintiff. Id.

Here, Plaintiffs were represented by an attorney when they
requested the redemption amount. Plaintiffs’ attorney initially
requested the redemption price, received Defendants’ email
requesting that Plaintiffs make an offer, and replied with the
sum which was eventually rejected.    As Plaintiffs relied on
outside counsel, dismissal is also proper under the standard
announced in Branch Banking & Trust.
6
  In this case, it seems that the parties substituted the trustee
at some point before Plaintiff fell behind on payments.       The
parties are generally free to substitute a trustee.     N.C. Gen.
Stat. § 45-10 (2013).      The substitute trustee is generally
vested with the powers of the original trustee, and among those
powers is the power to proceed with foreclosure upon a deed in
default.   Id.; Pearce v. Watkins, 219 N.C. 636, 642, 14 S.E.2d
653, 656 (1941).
                                              -12-
foreclosure proceeding.                 In re Vogler Realty, Inc., 365 N.C.

389, 397, 722 S.E.2d 459, 465 (2012).                      The trustee, vested in a

position of power by the debtor and creditor, is bound to act in

the    interests       of        the    parties      and     exercise        its    powers

accordingly.       Id. at 397, 722 S.E.2d at 465.

       The complaint shows that neither Fannie Mae nor Seterus

were   the   trustee        or    the    substitute        trustee   when     Defendants

requested Plaintiffs make a lump sum offer, nor at any other

point in the proceedings.               At the 12(b)(6) hearing, both parties

stated    that   the    trustee          is    not   a   defendant      in    the    case.

Moreover, in Plaintiffs’ appellate brief, Plaintiffs name the

substitute trustee as Trustee Services of Carolina, LLC.                            As no

facts indicate that the trustee or substitute trustee was joined

as a defendant, no party owing a fiduciary duty to Plaintiffs is

a party to this breach of fiduciary duty claim.                              Accordingly,

dismissal under N.C. R. Civ. P. 12(b)(6) was proper.

                                       IV. Conclusion

       For the reasons stated above, the decision of the trial

court is

       AFFIRMED.

       Judges STROUD and DILLON concur.