Court Opinion

ID: 145136
Source: CourtListenerOpinion
Date Created: 2010-04-29 00:29:52+00
Date Added: 2024-06-11T17:23:54.745013
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                             No. 09-1432

SHEILA B. LAWS; RONNIE E. LAWS,

                Plaintiffs - Appellants,

           v.

PRIORITY TRUSTEE SERVICES OF NORTH CAROLINA, LLC; MORRIS,
SCHNEIDER & PRIOR, LLC,

                Defendants - Appellees.

Appeal from the United States District Court for the Western
District of North Carolina, at Charlotte.   Graham C. Mullen,
Senior District Judge. (3:08-cv-00103-GCM)

Argued:   January 28, 2010                 Decided:   April 28, 2010

Before WILKINSON, NIEMEYER, and DAVIS, Circuit Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: John Handy Culver, III, K&L GATES LLP, Charlotte, North
Carolina, for Appellants.   Andrew H. Erteschik, POYNER SPRUILL
LLP, Raleigh, North Carolina, for Appellees.       ON BRIEF:   E.
Fitzgerald Parnell, III, T. Richard Kane, POYNER SPRUILL LLP,
Charlotte,   North  Carolina,   for  Appellee   Priority  Trustee
Services of North Carolina, LLC; Melody J. Canady, CRANFILL,
SUMNER & HARTZOG LLP, Wilmington, North Carolina, Samuel H.
Poole, Jr., CRANFILL, SUMNER & HARTZOG, LLP, Charlotte, North
Carolina, for Appellee Morris, Schneider & Prior, LLC.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

       Sheila      and     Ronnie   Laws,         whose   North    Carolina      house      was

foreclosed on by their lender, Equity One, Inc., commenced this

class action against the law firm hired by Equity One, Morris,

Schneider & Prior, LLC (“Morris Schneider”), and the firm that

Equity One designated and Morris Schneider hired to conduct the

foreclosure sale, Priority Trustee Services of North Carolina,

LLC (“Trustee Services”).                    They alleged that Trustee Services

was    the        “alter    ego”        of    Morris      Schneider       and        that   the

relationship between the two firms caused (1) Trustee Services

to breach fiduciary duties of neutrality owed to the Laws under

North Carolina law and (2) Morris Schneider to operate under a

conflict of interest in representing both Equity One and Trustee

Services.          The Laws’ complaint sought a declaratory judgment

that    the       relationship      between           Morris    Schneider      and     Trustee

Services violated North Carolina law, restitution of legal fees,

disgorgement of profits, and damages.

       The    district          court     granted       the    defendants’       motion      to

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

failure      to    state    a    claim       upon     which    relief    can    be    granted,

holding that the Laws failed to allege any irregularity in the

foreclosure        proceedings          or   to     demonstrate    any    loss       resulting

from    the       relationship      between           Morris    Schneider      and     Trustee

Services.         We affirm the judgment of the district court.

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                                        I

        In April 2002, the Laws borrowed $52,200 from Equity One,

securing repayment of their loan with a deed of trust on their

house    in   Gastonia,   North     Carolina.       The   deed   of    trust    gave

Equity    One    the   power   to    sell    the    house   upon      default    and

authorized First American Title Insurance Company as trustee to

conduct the foreclosure sale and “sell the Property at public

auction to the highest bidder.”              It also authorized Equity One

to designate a substitute trustee and to purchase the property

at the foreclosure sale.          By the terms of the deed of trust, the

trustee conducting the sale was required to give notice of the

sale, to sell the property to the highest bidder, and to apply

the proceeds of sale first to the expenses of sale, then to the

sum secured by the deed of trust, and finally to “the person or

persons legally entitled” to the excess.

     In March 2005, the Laws defaulted on the loan, and Equity

One retained Morris Schneider, who, on behalf of Equity One,

appointed Trustee Services as the substitute trustee to conduct

a foreclosure sale.

     Before the foreclosure sale could occur, however, the Laws

filed a voluntary petition under Chapter 13 of the Bankruptcy

Code,    which   automatically      stayed    the    foreclosure       sale.     On

behalf of Equity One, Morris Schneider requested the bankruptcy

court to lift the stay.        Following negotiations between the Laws

                                        3
and Equity One, however, the bankruptcy court entered a consent

order providing that the automatic stay would remain in force as

long as the Laws made specified payments to Equity One.                               When

the Laws later failed to make the payments, the automatic stay

was   lifted,    and   Trustee        Services         proceeded     to    conduct    the

foreclosure sale of the property.

      At the sale, which took place on May 22, 2007, Equity One

was   the   high   bidder      with     a    bid       of    $62,613.87,      an   amount

apparently sufficient to pay the outstanding loan.                            The Laws,

however, later received notice from Equity One that the proceeds

of the sale were not sufficient to satisfy their loan and that a

deficiency remained in the amount of $19,165.82.                           According to

the Laws’ complaint, this was the result of Trustee Services’

failure “to accurately report the use of the proceeds of the

foreclosure sale.”

      Nonetheless,     the     Laws    did       not   challenge     the     foreclosure

sale or the report of the sale in any legal proceeding.                            Rather,

they commenced this action some nine months later, in February

2008,   challenging       on     behalf      of    themselves       and      all   others

similarly    situated      the     practice        by       which   Morris     Schneider

designated      Trustee    Services         as     the      substitute      trustee    in

foreclosure proceedings handled by them.                        In their complaint,

the Laws alleged that Morris Schneider created Trustee Services

to serve as substitute trustee in foreclosure proceedings in

                                            4
which Morris Schneider represented the lender, and that Morris

Schneider    controlled   Trustee       Services    which   was,     in   effect,

Morris Schneider’s alter ego.               They alleged that through this

relationship, Trustee Services violated its fiduciary duty of

neutrality when conducting the sale because it was so closely

connected to Morris Schneider and that Morris Schneider operated

under a conflict of interest in representing both the lender and

the substitute trustee appointed by the lender.               Their complaint

purported to allege claims for breach of contract, breach of

fiduciary duty, aiding and abetting breach of fiduciary duty,

breach of the duty of good faith and fair dealing, constructive

fraud, and violations of the North Carolina Unfair and Deceptive

Trade Practices Act, N.C. Gen. Stat. § 75-1.1.

     On the defendants’ motion, the district court dismissed the

complaint    under   Federal     Rule       of   Civil   Procedure    12(b)(6),

concluding that the complaint did not state any claim upon which

relief can be granted.         See Laws v. Priority Trustee Servs. of

N.C., L.L.C., 610 F. Supp. 2d 528 (W.D.N.C. 2009).                   First, the

court concluded that the complaint did not plead against Morris

Schneider a violation of anything other than the North Carolina

Rules of Professional Conduct, which, the court noted, cannot

serve as a basis for civil liability in North Carolina.                   See id.

at 530-31.    With respect to Trustee Services, it concluded that

the complaint did not allege any action for common law breach of

                                        5
fiduciary duty because the only breach alleged was the firm’s

“mere status” as an interested party, which the district court

concluded did not constitute a violation of North Carolina law.

See id. at 531-32.          It held that a claim for breach of fiduciary

duty    requires     a   showing     of    some      type       of    harm     or     other

irregularity with the sale, rather than the simple fact that the

trustee was in an interested relationship.                  See id.

       Addressing     the     individual       counts    more    specifically,          the

court gave additional reasons for dismissal.                         First, as to the

first and sixth counts, for declaratory and injunctive relief

and for constructive trust, the court found them defective in

that they simply claimed relief without alleging any causes of

action.     See id. at 532.         Second, as to the fourth count, for

aiding and abetting breach of fiduciary duty, the court held

that no such cause of action exists in North Carolina.                              See id.

Third, as to the eighth count, for violation of North Carolina’s

Unfair and Deceptive Trade Practices Act, the court dismissed

the claim on the ground that it was barred by an exception

within the Act for “professional services rendered by a member

of a learned profession,” which applies to attorneys.                           See id.

(citing N.C. Gen. Stat. § 75-1.1(b)).                   Finally, as to the counts

for    breach   of    contract      and    constructive          fraud,      the      court

dismissed    the     claims    on   the    grounds       that    the    Laws    did     not

identify any contractual provisions that were breached and that

                                           6
the Laws suffered no harm from any alleged fraud.                         See id. at

532-33.

      From the district court’s judgment, entered on March 16,

2009, the Laws filed this appeal.

                                           II

      We conclude that the district court properly dismissed the

Laws’ complaint.            The sole bases for the Laws’ complaint were

the “mere status” of Trustee Services as an interested party and

Morris Schneider’s representation of both Equity One and Trustee

Services.        As    the    Laws    acknowledge       on    appeal,    under    North

Carolina law, a violation of the Rules of Professional Conduct

for attorneys cannot serve as a basis for civil liability.                            See

McGee v. Eubanks, 335 S.E.2d 178, 181-82 (N.C. Ct. App. 1985).

Furthermore, the Laws did not allege any irregularity with the

sale, other than the accounting problem for which they did not

attempt to state a claim for relief, nor did they allege that

they suffered any damages as a result of the arrangement.                         Under

North Carolina law, alleging only the fact that Trustee Services

is   in   this     type      of    relationship       with    Morris    Schneider      is

insufficient to state a claim for breach of fiduciary duty.                           See

Denson v. Davis, 124 S.E.2d 827, 830-31 (N.C. 1962) (holding

that a trustee did not commit a breach of fiduciary duty simply

by   virtue   of      the   fact    that   he   was    also   an   employee      of   the

                                            7
lender); Dove v. Harvey, 608 S.E.2d 798, 801 (N.C. Ct. App.

2005) (“Certain torts require as an essential element that a

plaintiff incur actual damage.       These torts include breach of

fiduciary duty”); Piedmont Inst. of Pain Mgmt. v. Staton Found.,

581 S.E.2d 68, 76-77 (N.C. Ct. App. 2003) (same).

     Consequently, we affirm substantially for the reasons given

by the district court.

                                                          AFFIRMED

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