Lifestore Bank v. Mingo Tribal Preservation Trust , 235 N.C. App. 573 ( 2014 )

NO. COA14-46
NORTH CAROLINA COURT OF APPEALS
Filed: 19 August 2014
LIFESTORE BANK, f/k/a AF BANK,
Plaintiff,
v. Wilkes County
No. 12 CVS 648
MINGO TRIBAL PRESERVATION TRUST
DATED JANUARY 4, 1993; PITCHFORK
BASIN, LLC, f/k/a EAC REV NO.6,
LLC; TUSCARORA RANCH, LLC AND
ALLEN C. MOSELEY, SUBSTITUTE
TRUSTEE,
Defendants.
Appeal by plaintiff from order entered 28 September 2012 by
Judge Stuart Albright and by defendants from order entered 29
August 2013 by Judge George B. Collins, Jr., both in Wilkes
County Superior Court. Heard in the Court of Appeals 7 May
2014.
Di Santi Watson Capua Wilson & Garrett, by Chelsea Bell
Garrett, for plaintiff-appellant.
Hamilton Stephens Steele & Martin, PLLC, by Keith J.
Merritt, for defendant-appellants.
BRYANT, Judge.
A creditor can seek to enforce payment of a promissory note
by pursuing foreclosure by power of sale, judicial foreclosure,
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or by filing for a money judgment, or all three options, until
the debt has been satisfied. The “two dismissal rule” of Rule
41 does not bar a creditor from bringing an action for judicial
foreclosure or for money judgment where the creditor has filed
and then taken voluntary dismissals from two prior actions for
foreclosure by power of sale. Collateral estoppel is not
applicable where a final judgment in an action has not been
reached. Where there exists genuine issues of material fact as
to whether a creditor is the holder of an enforceable
instrument, summary judgment is not appropriate.
A. The Tuscarora Note
On 12 February 2007, defendant Mingo Tribal Preservation
Trust (“Mingo”) entered into a promissory note with plaintiff
Lifestore Bank (“Lifestore”) for $2,450,000.00 (the “Tuscarora
Note”). The Tuscarora Note was secured by a deed of trust on
property in Wilkes County owned by defendant Tuscarora Ranch,
LLC (“Tuscarora”).
On 1 December 2010, Lifestore initiated a foreclosure by
power of sale proceeding against Mingo and Tuscarora, alleging
that Mingo was in default on the Tuscarora Note. The Wilkes
County Clerk of Court entered an order finding that Mingo was in
default and Lifestore could conduct a foreclosure by power of
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sale of the Tuscarora property. Mingo appealed to the Superior
Court, and on 8 March 2011, the Wilkes County Superior Court
affirmed the Clerk’s order allowing Lifestore to foreclose on
the Tuscarora property. On 6 April 2011, Mingo appealed the
Superior Court’s order to this Court and filed a motion to stay
enforcement of the Superior Court’s order. Mingo’s motion to
stay was granted on 15 April. After filing its appeal with this
Court on 26 August, Mingo and Lifestore agreed to file a joint
motion to dismiss the appeal which was granted by this Court.
On 10 October 2011, Lifestore entered a voluntary dismissal
without prejudice as to the foreclosure by power of sale action.
On 7 December 2011, Lifestore filed a second foreclosure by
power of sale action against Mingo and Tuscarora alleging that
Mingo had defaulted on the Tuscarora Note. On 8 March 2012, the
Clerk of Court entered an order allowing the foreclosure. Mingo
appealed the order to the Wilkes County Superior Court.
Lifestore entered a voluntary dismissal as to the foreclosure by
power of sale on 13 July 2012.
B. The EAC Note
On 8 February 2008, Mingo entered into a new promissory
note for $1,800,000.00 with Lifestore. To secure this loan,
Lifestore took a security interest in a promissory note held
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between Mingo and Pitchfork Basin, f/k/a EAC (“EAC”). The
promissory note between Mingo and EAC (the “EAC Note”) was
entered into on 21 November 2006 and was secured by a deed of
trust between EAC and Mingo.
On 1 December 2010, Lifestore filed a foreclosure by power
of sale action against Mingo and EAC alleging that Mingo had
defaulted on the EAC Note and Lifestore could, therefore,
foreclose on the EAC deed of trust. The Wilkes County Clerk of
Court entered an order that same day finding that Lifestore
could foreclose; this order was appealed to the Wilkes County
Superior Court. On 8 March 2011, the Superior Court affirmed
the Clerk of Court’s order allowing the foreclosure. Mingo and
EAC appealed to this Court on 6 April 2011; on 7 October 2011,
Lifestore took a voluntary dismissal without prejudice.
On 7 December 2011, Lifestore filed a second foreclosure by
power of sale action against Mingo and EAC alleging that Mingo
had defaulted on the EAC Note. The Clerk of Wilkes County
Superior Court entered an order on 8 March 2012 allowing the
foreclosure; Mingo and EAC appealed this order to the Superior
Court. Lifestore entered an oral notice of voluntary dismissal
as to the foreclosure by power of sale on 7 May during the
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foreclosure hearing; a written notice of voluntary dismissal was
entered 13 July 2012.
C. The Current Complaint
On 6 June 2012, Lifestore filed a complaint against Mingo,
Tuscarora, and EAC which asserted three claims for: judgment
against Mingo and EAC as to the EAC Note; judgment against Mingo
as to the Tuscarora Note; and judicial foreclosure of the
Tuscarora and EAC deeds of trust. Mingo, Tuscarora, and EAC
(“defendants”) filed a motion to dismiss Lifestore’s complaint
pursuant to Rule 41 of the Rules of Civil Procedure on 17 August
2012. On 28 September 2012, the trial court entered an order
denying defendants’ motion to dismiss Lifestore’s first and
second claims for relief, and granting defendants’ motion to
dismiss as to Lifestore’s third claim for judicial foreclosure.
On 8 April 2013, Lifestore filed a motion for judgment on
the pleadings pursuant to Rule 12(c) or, in the alternative, for
summary judgment pursuant to Rule 56 as to its first and second
claims for relief in its complaint. Defendants filed a motion
for summary judgment on 23 April. On 29 August 2013, the trial
court entered an order allowing Lifestore’s motion for summary
judgment and denying defendants’ motion for summary judgment.
Both Lifestore and defendants appeal.
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_________________________
Defendants raise two issues as to whether the trial court
erred in (I) denying defendants’ motion to dismiss and for
summary judgment and (II) in granting judgment in favor of
Lifestore on the EAC Note. Plaintiff Lifestore raises the sole
issue of whether the trial court erred in (III) dismissing
Lifestore’s claim for judicial foreclosure.
I. & III.
As defendants’ first issue on appeal concerns the same
matter as that of Lifestore’s sole issue on appeal, i.e.,
whether the trial court erred in its application of the “two
dismissal rule” of Rule 41, we address both issues together.
Defendants first argue that the trial court erred in
denying their motion to dismiss and for summary judgment. In
contrast, Lifestore contends the trial court erred in dismissing
its claim for judicial foreclosure. We disagree as to
defendants, and agree as to Lifestore.
”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 (2003). When a motion for summary judgment is
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brought, the trial court must determine whether “the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that any party is
entitled to a judgment as a matter of law.” N.C. Gen. Stat. §
1A-1, Rule 56(c) (2013). The movant “has the burden of
establishing the lack of any triable issue of fact.” Pembee
Mfg. Corp. v. Cape Fear Constr. Co., 313 N.C. 488, 491, 329
S.E.2d 350, 353 (1985) (citation omitted).
When considering a motion for summary
judgment, the trial judge must view the
presented evidence in a light most favorable
to the nonmoving party. In addition, [i]f
the granting of summary judgment can be
sustained on any grounds, it should be
affirmed on appeal. If the correct result
has been reached, the judgment will not be
disturbed even though the trial court may
not have assigned the correct reason for the
judgment entered.
Rankin v. Food Lion, 210 N.C. App. 213, 215, 706 S.E.2d 310,
312—13 (2011) (citations and quotations omitted).
Defendants contend the trial court erred in denying their
motion to dismiss and for summary judgment as to Lifestore’s
first and second claims for relief. Specifically, defendants
argue that pursuant to the “two dismissal rule” of Rule 41,
Lifestore’s claims for judgment on the Tuscarora and EAC
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promissory notes were barred. Lifestore, in contrast, argues
that its claim for judicial foreclosure is not barred pursuant
to the “two dismissal rule” of Rule 41.
Foreclosure and Rule 41
A foreclosure under power of sale is a type of special
proceeding, to which our Rules of Civil Procedure apply. See
Phil Mech. Constr. Co. v. Haywood, 72 N.C. App. 318, 320—21, 325
S.E.2d 1, 2—3 (1985). North Carolina Rules of Civil Procedure,
Rule 41, states that:
an action or any claim therein may be
dismissed by the plaintiff without order of
court (i) by filing a notice of dismissal at
any time before the plaintiff rests his
case, or; (ii) by filing a stipulation of
dismissal signed by all parties who have
appeared in the action. Unless otherwise
stated in the notice of dismissal or
stipulation, the dismissal is without
prejudice, except that a notice of dismissal
operates as an adjudication upon the merits
when filed by a plaintiff who has once
dismissed in any court of this or any other
state or of the United States, an action
based on or including the same claim.
N.C. Gen. Stat. § 1A-1, Rule 41(a)(1) (2013) (emphasis added).
[I]n enacting the two dismissal provision of
Rule 41(a)(1), the legislature intended that
a second dismissal of an action asserting
claims based upon the same transaction or
occurrence as a previously dismissed action
would operate as an adjudication on the
merits and bar a third action based upon the
same set of facts.
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Richardson v. McCracken Enters., 126 N.C. App. 506, 509, 485
S.E.2d 844, 846 (1997). “The ‘two dismissal’ rule has two
elements: (1) the plaintiff must have filed two notices to
dismiss under Rule 41(a)(1) and (2) the second action must have
been based on or included the same claim as the first action.”
Dunton v. Ayscue, 203 N.C. App. 356, 358, 690 S.E.2d 752, 753
(2010) (citing City of Raleigh v. Coll. Campus Apartments, Inc.,
94 N.C. App. 280, 282, 380 S.E.2d 163, 165 (1989)).
Defendant contends the “two dismissal rule” of Rule 41 bars
Lifestore from bringing claims for money judgment on the two
promissory notes because the claims for money judgment are based
on the same set of facts as Lifestore’s motions for foreclosure
by power of sale and, therefore, because Lifestore took two
voluntary dismissals as to the actions for foreclosure by power
of sale, it is now barred under Rule 41 from pursuing its claims
for money judgments.
This Court has held that “a creditor-mortgagee such as
[Lifestore] has an election of remedies. Upon default, it may
sue to collect on the unpaid note or foreclose on the land used
to secure the debt, or both, until it collects the amount of
debt outstanding.” G.E. Capital Mort. Servs., Inc. v. Neely,
135 N.C. App. 187, 192, 519 S.E.2d 553, 557 (1999) (citation
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omitted). If a creditor seeks to foreclose on property, they
may proceed under N.C. Gen. Stat. § 45-21.1 et seq. (foreclosure
by power of sale), or under N.C. Gen. Stat. § 1-339.1 et seq.
(judicial foreclosure). See In re Young, ___ N.C. App. ___, ___,
744 S.E.2d 476, 480 (2013).
At a foreclosure [by power of sale]
hearing pursuant to N.C. Gen.[]Stat. § 45-
21.16, the clerk of superior court is
limited to making the six findings of fact
specified under subsection (d) of that
statute: (1) the existence of a valid debt
of which the party seeking to foreclose is
the holder; (2) the existence of default;
(3) the trustee's right to foreclose under
the instrument; (4) the sufficiency of
notice of hearing to the record owners of
the property; (5) the sufficiency of pre-
foreclosure notice . . .; and (6) the sale
is not barred by section 45-21.12A [pursuant
to] N.C. Gen. Stat. § 45-21.16(d)[.] The
clerk's findings are appealable to the
superior court for a hearing de novo;
however, in a section 45-21.16 foreclosure
proceeding, the superior court's authority
is similarly limited to determining whether
the six criteria of N.C. Gen.[]Stat. § 45-
21.16(d) have been satisfied.
Id. at ___, 744 S.E.2d at 479 (citations omitted).
Lifestore first sought to foreclose on defendants’ property
by filing, then taking voluntary dismissals from, two actions
for foreclosure by power of sale stemming from defendants’
default upon the two promissory notes. In Lifestore’s instant
(and third) complaint, Lifestore now seeks to obtain money
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judgments against defendants as to the two promissory notes.
While a foreclosure by power of sale is a type of special
proceeding, limited in scope and jurisdiction, in which the
clerk of court determines whether a foreclosure pursuant to a
power of sale should be granted, a claim for money judgment
arising from a default upon a promissory note must be brought
through the filing of a complaint in a civil action. See id. at
___, 744 S.E.2d at 479 (noting that in an action for foreclosure
by power of sale, “[t]he clerk's findings are appealable to the
superior court for a hearing de novo; however, in a section 45-
21.16 foreclosure [by power of sale] proceeding, the superior
court's authority is similarly limited to determining whether
the six criteria of N.C. Gen.[]Stat. § 45-21.16(d) have been
satisfied. The superior court has no equitable jurisdiction and
cannot enjoin foreclosure upon any ground other than the ones
stated in [N.C. Gen.[]Stat. § ] 45-21.16.” (citations and
quotation omitted)); United Carolina Bank v. Tucker, 99 N.C.
App. 95, 98, 392 S.E.2d 410, 411 (1990) (“A foreclosure by power
of sale is a special proceeding commenced without formal summons
and complaint and with no right to a jury trial.” (citation
omitted)). As such, an action for foreclosure by power of sale
differs from a claim for money judgment, as while both actions
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may concern the same parties, property, and promissory note(s),
each action must be brought separately due to a foreclosure by
power of sale being of limited jurisdiction and scope.
In its order granting Lifestore’s motion for summary
judgment, the trial court noted the following:
Defendants contend that the “two
dismissal rule” of Rule 41 of the North
Carolina Rules of Civil Procedure gives them
an absolute defense, not only to Claim Three
of the complaint (upon which Defendants have
previously prevailed on their Motion for
Summary Judgment and which is therefore not
before this Court)1 but also to Claims One
and Two of the Complaint.
Claims One and Two of the complaint
seek a money judgment against the Defendants
for failure to pay debts. Claim Three seeks
to have the Court order a judicial
foreclosure of certain real property that
allegedly served as security for said debts.
[Lifestore] had previously filed two
successive foreclosure actions pursuant to
Chapter 45 of the North Carolina General
Statutes under the Trustee’s power of sale
provision. [Lifestore] had voluntarily
dismissed both actions under Rule 41.
[Lifestore] argues that the “two
dismissal rule” does not apply to
foreclosures pursuant to Chapter 45, citing
a case from the North Carolina Court of
Appeals that predated the enactment of broad
amendments to Chapter 45. Defendant argues
1
The trial court is referring to Judge Albright’s 28 September
2012 order granting defendants’ motion to dismiss Lifestore’s
third claim for relief for judicial foreclosure, from which
Lifestore now appeals (Issue III).
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that the plain language of the Rules of
Civil Procedure make them apply to Chapter
45 unless provided otherwise by law. This
Court need not address this issue because it
finds that the “two dismissal rule” would
not apply in this case, even if it does
apply to Chapter 45 foreclosures.
In enacting the two dismissal provision
of Rule 41(a)(1), the legislature intended
that a second dismissal of an action
asserting claims based upon the same
transaction or occurrence as a previously
dismissed action would operate as an
adjudication on the merits and bar a third
action based upon the same set of facts.
Richardson v. McCracken Enters., 126 N.C.
App. 506, 509; 485 S.E.[]2d 844, 846
(1997)[,] aff’d, 347 N.C. 660, 496 S.E.[]2d
380 (1998). The test is whether the actions
are claims based upon the same core of
operative facts and whether all of the
claims could have been asserted in the same
cause of action. Id.Here, while Claims One and Two of the
Complaint are based on the same core of
operative facts as the foreclosure actions,
they are not claims that could have been
asserted in the foreclosure actions and
therefore are not barred by Rule 41. A
foreclosure action only allows the sale of
property. While it is true that the Clerk
must find a valid debt, the action itself
does not allow for the entry of a judgment
on that debt.
Defendants contend the trial court erred in its analysis of
Richardson as Rule 41 only requires a determination of “whether
the actions are claims based upon the same core of operative
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facts.” Defendants’ argument lacks merit, as the trial court
was accurate in its analysis of Richardson.
In Richardson, the plaintiffs filed an action against the
defendant oil company alleging trespass, strict liability,
negligence, and punitive damages caused by the defendant
allowing diesel fuel and oil to leak onto the plaintiffs’
property. Richardson, 126 N.C. App. at 507, 485 S.E.2d at 845.
The plaintiffs voluntarily dismissed their claims without
prejudice and then filed a new action against the defendant for
nuisance based on the same facts as alleged in the first action.
Id. The plaintiffs then voluntarily dismissed their second
action without prejudice and filed a third action containing all
of the claims asserted in their first and second actions. Id.The defendant moved for summary judgment, arguing that the
plaintiffs’ third action was barred under the “two dismissal
rule” of Rule 41. Id. The trial court granted the defendant’s
motion and this Court affirmed, noting that where the two
previously dismissed actions “asserted claims based upon the
same core of operative facts relating to the contamination of
plaintiffs' property, and all of the claims could have been
asserted in the same cause of action[,]” Rule 41(a)(1) barred
the plaintiffs’ third action. Id. at 509, 485 S.E.2d at 846—47.
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Richardson is distinguishable from the instant matter, as
Lifestore’s claims for foreclosure by power of sale could not,
as a form of special proceeding, be brought in the same action
as a claim for money judgment on a promissory note. As such, we
disagree with defendants’ contention the trial court erred in
holding that Rule 41’s “two dismissal rule” is not applicable to
Lifestore’s claims for money judgment.
Defendants further argue that Lifestore’s claims for money
judgment are barred under the “two dismissal rule” of Rule 41
because Lifestore’s voluntary dismissals of its actions for
foreclosure by power of sale are, under Rule 41, an adjudication
on the merits. We disagree.
Lifestore pursued two foreclosures by power of sale under
N.C.G.S. § 45-21.16(a) each against Mingo and EAC, 10 SP 423 and
11 SP 395, and against Mingo and Tuscarora, 10 SP 424 and 11 SP
394. Lifestore subsequently took voluntary dismissals of each
foreclosure by power of sale action. As such, the “two
dismissal rule” of Rule 41 applies here for, by taking two sets
of voluntary dismissals as to its claims for foreclosure by
power of sale, the second set of voluntary dismissals is an
adjudication on the merits which bars Lifestore from undertaking
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a third foreclosure by power of sale action pursuant to N.C.G.S.
§ 45-21.16(a).
However, in the instant matter Lifestore has now filed a
complaint seeking, in addition to money judgments, judicial
foreclosure against defendants. As already noted, a creditor
may pursue foreclosure, money judgment, or both in order to
collect on a debt. See G.E. Capital Mort. Servs., 135 N.C. App.
at 192, 519 S.E.2d at 557. This Court has more recently held
that a creditor seeking to foreclose on property can do so under
both N.C.G.S. § 45-21 et seq., foreclosure by power of sale, and
N.C.G.S. § 1-336 et seq., judicial foreclosure. In re Young,
___ N.C. App. at ___, 744 S.E.2d at 480.
In In re Young, the respondents defaulted on their loan
with the petitioner. Id. at ___, 744 S.E.2d at 477—48. The
respondents then agreed to a loan modification agreement with
the petitioner and began making payments in accordance with the
agreement. Id. at ___, 744 S.E.2d at 478. The petitioner
alleged that the loan modification was never finalized and
demanded that the respondents return to making payments under
the terms of the original loan, but the respondents refused.
Id. The petitioner subsequently filed for a foreclosure by
power of sale, and during the special proceeding hearing the
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clerk of court dismissed the petitioner’s action on grounds that
the petitioner never finalized the loan modification agreement
with the respondents. Id. On appeal to Superior Court, the
petitioner’s action for foreclosure was again dismissed on
grounds that because the petitioner had begun to undertake a
loan modification agreement with the respondents, the
petitioner’s action for foreclosure was now barred by equitable
estoppel. Id. This Court vacated and remanded the petitioner’s
appeal for a determination of subject matter jurisdiction, but
noted that if the petitioner was now barred from pursuing a
foreclosure by power of sale, the petitioner could still pursue
a judicial foreclosure. Id. at ___, 744 S.E.2d at 478—80.
Lifestore argues that the trial court erred in dismissing
its claim for judicial foreclosure. We agree, and find In re
Young to be instructive. This Court noted in Young that a
judicial foreclosure differs from a foreclosure by power of sale
in that a judicial foreclosure is not a type of special
proceeding and, as such, can be pursued by a creditor after a
foreclosure by power of sale has failed. See id. at ___, 744
S.E.2d at 480 (holding that if the petitioner’s action for
foreclosure by power of sale was now barred, “[p]etitioner's
remedy would then be limited to judicial foreclosure procedures
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pursuant to N.C. Gen. Stat. § 1-339.1 et seq., rather than the
summary proceedings provided under N.C. Gen. Stat. § 45-21.1 et
seq.”); see also Phil Mech. Constr. Co., 72 N.C. App. at 321,
325 S.E.2d at 3 (“Foreclosure by action requires formal judicial
proceedings initiated by summons and complaint in the county
where the property is located and culminating in a judicial sale
of the foreclosed property if the mortgagee prevails.” (citation
omitted)). As a judicial foreclosure is not a type of special
proceeding limited in scope and jurisdiction, the “two dismissal
rule” of Rule 41 is not applicable to Lifestore’s claim for
judicial foreclosure as Lifestore could not have brought a claim
for judicial foreclosure in the same action as its claims for
foreclosure by power of sale. See Richardson, 126 N.C. App. at
508—09, 485 S.E.2d at 846—47 (holding that the “two dismissal
rule” of Rule 41 does not apply where all of a party’s claims
could not be asserted in the same action). Accordingly, the
trial court erred in finding that Lifestore’s claim for judicial
foreclosure was barred under the “two dismissal rule” of Rule
41. We therefore reverse as to Lifestore’s argument.
Collateral Estoppel
Defendants further contend the trial court erred in
granting Lifestore’s motion for summary judgment because
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Lifestore’s two voluntary dismissals of its actions for
foreclosure by power of sale now act as collateral estoppel upon
Lifestore’s claims for money judgment. We disagree.
For collateral estoppel to bar
plaintiff's action, defendants must show:
(1) the earlier action resulted in a final
judgment on the merits, (2) the issue in
question is identical to an issue actually
litigated in the earlier suit, (3) the
judgment on the earlier issue was necessary
to that case and (4) both parties are either
identical to or in privity with a party or
the parties from the prior suit.
Bee Tree Missionary Baptist Church v. McNeil, 153 N.C. App. 797,
799, 570 S.E.2d 781, 783 (2002) (citations omitted).
Defendants cite three cases in support of their contention
that collateral estoppel applies to Lifestore’s claims for money
judgment: Petri v. Bank of Am., No. COA13-907, 2014 N.C. App.
LEXIS 157 (Feb. 4, 2014); Haughton v. HSBC Banks USA, No. COA12-
420, 2013 N.C. App. LEXIS 92 (Feb. 5, 2013); and Peak Coastal
Ventures, LLC v. Suntrust Bank, No. 10 CVS 6676, 2011 NCBC LEXIS
13 (N.C. Sup. Ct., Forsyth Cnty., May 5, 2011).2
2
Pursuant to Rule 30(e) of our Rules of Appellate Procedure,
“[a]n unpublished decision of the North Carolina Court of
Appeals does not constitute controlling legal authority.
Accordingly, citation of unpublished opinions in briefs,
memoranda, and oral arguments in the trial and appellate
divisions is disfavored[.]” N.C. R. App. Proc. 30(e)(3) (2014).
As such, these cases cited by defendants are not controlling
authority upon this Court. Moreover, we decline to consider
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Petri and Haughton are not applicable to the instant case.
In Petri and Haughton, final judgments were reached in
foreclosure proceedings against the plaintiffs; none of the
plaintiffs appealed. Petri at *1-3; Haughton at *1-3. When the
plaintiffs later filed complaints relating back to the
foreclosure proceedings, the trial court held, and this Court
affirmed, that the plaintiffs’ complaints were barred by
collateral estoppel because the issues raised in the complaints
had already been decided in final judgments reached in the
foreclosure proceedings. Petri at *5—10; Haughton at *3—11.
Here, Lifestore took two sets of voluntary dismissals from
its foreclosure by power of sale actions against defendants. The
first voluntary dismissal was taken after defendants had
appealed to this Court, and the second was taken during the
Superior Court’s hearing on defendants’ appeal of the Clerk of
Court’s order granting Lifestore foreclosure by power of sale.
In each instance, no final judgment was reached. As such,
although Lifestore is barred from bringing a third action for
foreclosure by power of sale due to the application of Rule 41,
collateral estoppel is not applicable because a final judgment
was not reached. See First Union Nat’l Bank v. Richards, 90
defendants’ arguments as to Peak Coastal Ventures as this
opinion is not from our appellate courts.
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N.C. App. 650, 653, 369 S.E.2d 620, 621 (1988) (holding that a
final judgment has not been reached in a case where a plaintiff
has not abandoned, dismissed, or withdrawn its appeal, “but
rather took a voluntary dismissal of the action.”). Further, as
already discussed the nature of these actions — foreclosure by
power of sale, judicial foreclosure, and money judgment — are
such that these actions, and the issues raised in each, differ.
Accordingly, although Lifestore’s two claims for foreclosure by
power of sale are now barred under Rule 41, Rule 41 does not bar
Lifestore from bringing its current claims for money judgment
and judicial foreclosure against defendants, nor are Lifestore’s
current claims barred by collateral estoppel. Therefore, we
overrule defendants’ argument (Issue I) and reverse as to
Lifestore’s argument (Issue III).
II.
Defendants next contend the trial court erred in granting
judgment in favor of Lifestore on the EAC Note. We agree.
Summary judgment is appropriate if the
pleadings, depositions, answers to
interrogatories, and admissions on file,
together with the affidavits, if any, show
that there is no genuine issue as to any
material fact and that any party is entitled
to a judgment as a matter of law. A trial
court's grant of summary judgment receives
de novo review on appeal, and evidence is
viewed in the light most favorable to the
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non-moving party.
TD Bank, N.A. v. Mirabella, ___ N.C. App. ___, ___, 725 S.E.2d
29, 30 (2012) (citation omitted).
Defendants argue that the trial court erred in finding
Lifestore was entitled to a judgment against EAC on the EAC Note
because Lifestore failed to prove that it is the holder of the
note. In its order, the trial court noted the following:
Defendants also argue that [Lifestore]
cannot obtain a judgment against
EAC/Pitchfork Basin, LLC because it cannot
prove and has not alleged that it is the
holder of the Note made to [Mingo] by
EAC/Pitchfork LLC and assigned to
[Lifestore]. This argument fails because
the record in the case shows that
[Lifestore] has met the requirements of
North Carolina General Statutes Section 25-
9-203(b)(3)(a).
Pursuant to North Carolina General Statutes, Article 9 —
Secured Transactions, “[a] security interest attaches to
collateral when it becomes enforceable against the debtor with
respect to the collateral[.]” N.C. Gen. Stat. § 25-9-203(a)
(2013).
[A] security interest is enforceable against
the debtor and third parties with respect to
the collateral only if:
(1) Value has been given;
(2) The debtor has rights in the collateral
or the power to transfer rights in the
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collateral to a secured party; and
(3) . . . The debtor has authenticated a
security agreement that provides a
description of the collateral[.]
Id. § 25-9-203(b)(1), (2), (3)(a) (2013).
As part of the EAC Note between Mingo and Lifestore, Mingo
executed an assignment of note which granted Lifestore a
security interest in the deed of trust between EAC and Mingo.
We agree with the trial court that Lifestore has met the
requirements of N.C.G.S. § 25-9-203(b)(3)(a), as the record
indicates that Lifestore gave value to Mingo (via a promissory
note for $1,800,000.00) in exchange for a security interest in
collateral (the deed of trust between Mingo and EAC), as
provided in an authenticated security agreement (the assignment
of note between Lifestore and Mingo).
Lifestore, as the holder of an enforceable instrument (the
assignment of note) may seek to enforce payment of that
instrument. See TD Bank, ___ N.C. App. at ___, 725 S.E.2d at
31. However, Lifestore must prove that it is the holder of the
instrument, and “[t]he requirement that [Lifestore] prove [its]
status as a holder of the note is distinguishable from a
requirement that [Lifestore] allege that status in [its]
pleadings.” Liles v. Myers, 38 N.C. App. 525, 527, 248 S.E.2d
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385, 387 (1978). “Mere possession of a note payable to order
does not suffice to prove ownership or holder status.” Econo-
Travel Motor Hotel Corp. v. Taylor, 301 N.C. 200, 203, 271
S.E.2d 54, 57 (1980) (citations omitted).
Here, Lifestore attached photocopies of the assignment of
note executed between itself (as AF Bank) and Mingo and the EAC
Note to its complaint. Lifestore did not provide the actual
documents during the trial court’s hearing on the parties’
motions for summary judgment however, and defendants filed an
affidavit containing an email from Lifestore in which Lifestore
admitted it was not in possession of the original EAC Note.
Further, Lifestore did not provide evidence establishing it as
the holder of the EAC Note during the trial court’s hearing.
Lifestore contends that although the EAC Note may be lost, it
remains the holder of the note and is, thus, entitled to enforce
it.
We find that Liles v. Myers is applicable to the instant
case. In Liles, the plaintiff brought an action for money
judgment against the defendant alleging the defendant had
defaulted upon a promissory note. Liles, 38 N.C. App. at 525,
248 S.E.2d at 386. The plaintiff then filed a motion for
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summary judgment which the trial court granted. This Court
reversed, noting that:
Prior to being entitled to a judgment
against the defendant, the plaintiff was
required to establish that she was [the]
holder of the note at the time of this suit.
This element might have been established by
a showing that the plaintiff was in
possession of the instrument and that it was
issued or endorsed to her, to her order, to
bearer or in blank. It is essential that
this element be established in order to
protect the maker from any possibility of
multiple judgments against him on the same
note through no fault of his own.
. . .
As evidence that a plaintiff is holder of a
note is an essential element of a cause of
action upon such note, the defendant was
entitled to demand strict proof of this
element. By his answer denying the
allegations of the complaint, the defendant
demanded such strict proof. The
incorporation by reference into the
complaint of a copy of the note was not in
itself sufficient evidence to establish for
purposes of summary judgment that the
plaintiff was the holder of the note. As the
record on appeal fails to reveal that the
note itself or any other competent evidence
was introduced to show that the plaintiff
was the holder of the note, she has failed
to prove each essential element of her claim
sufficiently to establish her entitlement to
summary judgment.
Id. at 526—28, 248 S.E.2d at 387—88 (citations omitted).
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Here, defendants demanded strict proof that Lifestore is
the holder of the EAC Note. Lifestore attached a copy of the
assignment of note and the EAC Note to its complaint, but
admitted at the trial court’s hearing that it could not find the
original documents. See id. Accordingly, as there remain
genuine issues of material fact as to whether Lifestore is the
holder of the EAC Note and can, therefore, enforce it, we must
reverse and remand as to this issue.
Affirmed in part; reversed in part; and remanded.
Judges CALABRIA and GEER concur.