Deutsche Bank v. Houck ( 2023 )

THE STATE OF SOUTH CAROLINA
In The Supreme Court
Deutsche Bank National Trust Company, as Trustee for
NovaStar Mortgage Funding Trust, Series 2007-1
NovaStar Equity Loan Asset Backed Certificates, Series
2007-1, Respondent,
v.
The Estate of Patricia Ann Owens Houck, Tammy M.
Bailey, South Carolina Department of Motor Vehicles,
Defendants,
of which the Estate of Patricia Ann Owens Houck and
Tammy M. Bailey are the Petitioners.
Appellate Case No. 2021-001292
ON WRIT OF CERTIORARI TO THE COURT OF APPEALS
Appeal from Lexington County
James O. Spence, Master-in-Equity
Opinion No. 28169
Heard June 7, 2023 – Filed August 9, 2023
AFFIRMED AS MODIFIED AND REMANDED
Andrew Sims Radeker, of Harrison, Radeker & Smith,
P.A., of Columbia, for Petitioners.
Jonathan Edward Schulz and George Benjamin Milam,
both of Bradley Arant Boult Cummings LLP, of North
Carolina, for Respondent.
JUSTICE JAMES: In this appeal, we must decide whether a bank's foreclosure
claim is barred because the bank did not assert the claim as a counterclaim in prior
litigation between the parties. In 1998, Petitioner Patricia Ann Owens Houck, now
deceased, purchased a mobile home and placed it on her land in Lexington County.
At closing, Houck executed a $60,400 note in favor of NovaStar Mortgage, Inc. The
note contained a fifteen-year balloon provision, requiring the balance to be paid in
full on July 1, 2013. The note was secured by a mortgage on Houck's mobile home
and real property. Houck subsequently conveyed the property to Petitioner Tammy
Bailey, and NovaStar assigned the note to Respondent Deutsche Bank (the Bank).
In 2013, Petitioners commenced an action against the Bank for conversion,
violations of the Attorney Preference Statute,1 and violations of the South Carolina
Unfair Trade Practices Act (SCUTPA). 2 At that time, Petitioners were not in default
on the note. However, Petitioners defaulted on the note before the Bank answered
the complaint. The Bank did not assert a foreclosure counterclaim. The action was
tried before a jury, and a verdict was rendered for the Bank.
In 2016, the Bank commenced this foreclosure action against Petitioners.
Petitioners moved for partial summary judgment, arguing the foreclosure claim was
a compulsory counterclaim in the 2013 litigation and was therefore barred under
Rule 13(a) of the South Carolina Rules of Civil Procedure. The Master-in-Equity
agreed, granted Petitioners' motion for partial summary judgment, and ordered the
Bank to record a satisfaction of the mortgage. The Bank appealed. 3 The court of
appeals reversed the Master's grant of partial summary judgment to Petitioners and
1
S.C. Code Ann. § 37-10-102 (2015) (providing that when the primary purpose of
a loan secured by a mortgage is for a personal, family, or household purpose, a
"creditor must ascertain prior to closing the preference of the borrower as to the legal
counsel that is employed to represent the debtor in all matters of the transaction
relating to the closing of the transaction").
2
S.C. Code Ann. §§ 39-5-10 to -730 (2023).
3
Petitioners also appealed, arguing the Master erred in failing to order the Bank to
pay a penalty under South Carolina Code section 29-3-320 (2007). That issue is not
before us.
remanded for further proceedings, holding that under the "logical relationship test,"
the Bank's foreclosure claim was not a compulsory counterclaim in the 2013
litigation. Deutsche Bank Nat'l Tr. Co. v. Est. of Houck, 434 S.C. 500, 509-10, 863
S.E.2d 829, 834 (Ct. App. 2021).
We first clarify the standard of review. Whether a counterclaim is compulsory
is a question of law to be reviewed de novo. Ziegler v. Dorchester Cnty., 426 S.C.
615, 619, 828 S.E.2d 218, 220 (2019).
We affirm the result reached by the court of appeals under the logical
relationship test, but we prospectively abolish that test. Although this Court adopted
the logical relationship test in North Carolina Federal Savings & Loan Ass'n v. DAV
Corp., 298 S.C. 514, 517-18, 381 S.E.2d 903, 905 (1989), we neither set forth factors
to consider under the test nor explained whether the test expands or limits the scope
of Rule 13(a). The test has since been cited and applied in a way that does not track
Rule 13(a). See, e.g., Carolina First Bank v. BADD, L.L.C., 414 S.C. 289, 295, 778
S.E.2d 106, 109 (2015); Wachovia Bank, Nat'l Ass'n v. Blackburn, 407 S.C. 321, 330
n.7, 755 S.E.2d 437, 442 n.7 (2014); Mullinax v. Bates, 317 S.C. 394, 396, 453
S.E.2d 894, 895 (1995); First-Citizens Bank & Tr. Co. of S.C. v. Hucks, 305 S.C.
296, 298, 408 S.E.2d 222, 223 (1991); S.C. Cmty. Bank v. Salon Proz, LLC, 420 S.C.
89, 97, 800 S.E.2d 488, 492 (Ct. App. 2017); Beach Co. v. Twillman, Ltd., 351 S.C.
56, 61, 566 S.E.2d 863, 865 (Ct. App. 2002). We now hold that in cases commenced
on or after the effective date of this opinion, the question of whether a counterclaim
is compulsory is governed by the plain language of Rule 13(a).
Rule 13(a) plainly provides that a counterclaim is compulsory "if it arises out
of the transaction or occurrence that is the subject matter of the opposing party's
claim and does not require for its adjudication the presence of third parties of whom
the court cannot acquire jurisdiction." Rule 13(a), SCRCP. Judges and lawyers are
well-equipped to determine whether a claim is compulsory under the plain language
of this rule.
We affirm the court of appeals as modified and remand to the Master for
further proceedings.
AFFIRMED AS MODIFIED AND REMANDED.
BEATTY, C.J., KITTREDGE, FEW and HILL, JJ., concur.