Wells Fargo v. Smith ( 2012 )

THIS OPINION HAS NO PRECEDENTIAL VALUE. IT SHOULD NOT BE
CITED OR RELIED ON AS PRECEDENT IN ANY PROCEEDING
EXCEPT AS PROVIDED BY RULE 268(d)(2), SCACR.
THE STATE OF SOUTH CAROLINA
In The Court of Appeals
Wells Fargo Bank, NA, Respondent,
v.
Michael Smith; South Carolina Department of Motor
Vehicles; M & T Properties, Inc.; State of South
Carolina; Arthur State Bank; South Carolina Department
of Probation, Pardon and Parole Services, Defendants, of
whom Michael Smith is the Appellant.
Appellate Case No. 2009-125666
Appeal From Greenville County
Charles B. Simmons, Jr., Master-in-Equity
Opinion No. 2012-UP-690
Submitted March 1, 2011 – Filed June 13, 2012
Withdrawn, Submitted and Refiled August 8, 2012
AFFIRMED IN PART, REVERSED IN PART, and
REMANDED
Susan P. Ingles, of South Carolina Legal Services, of
Greenville, for Appellant Michael Smith.
Sean Matthew Foerster, of Rogers Townsend & Thomas,
PC, of Columbia, for Respondent Wells Fargo Bank.
WILLIAMS, J.: Michael Smith ("Smith") appeals the Master-in-Equity's
("Master") grant of Wells Fargo Home Mortgage, Inc.'s1 ("Wells Fargo") motion to
strike the jury demand. We affirm in part, reverse in part, and remand for further
proceedings.
FACTS/PROCEDURAL HISTORY
The complaint alleges that on April 29, 2003, Smith gave a Fixed Rate Note
("Note") to Wells Fargo in the amount of $83,000. The Complaint further
alleges that to secure payment of the Note, Smith gave Wells Fargo a real
estate mortgage ("Mortgage") covering his real property at 1 Anchor Road in
Greenville, South Carolina, as well as a 2003 Fleetwood mobile home.
Wells Fargo filed this action for foreclosure, alleging Smith defaulted on his loan
payments under the Note and Mortgage and owed $77,460.63 on the debt. After
the Greenville County Clerk of Court filed an order of reference, Smith filed a
motion to allow late filing of responsive pleadings, and Wells Fargo consented to
an extension of time. Smith filed an answer and counterclaim with a jury trial
request and asserted, along with other various defenses, the following
counterclaims: 1) accounting; 2) unconscionability; and 3) violation of section 37-
10-102 of the South Carolina Code (Supp. 2010).2 Wells Fargo filed a motion to
strike the jury demand ("motion to strike"). The Master heard the motion to strike
and asked Smith to submit additional authority to support his position.
On March 12, 2009, the Master issued an order granting Wells Fargo's motion to
strike and confirming the order of reference. Smith timely filed a Rule 59(e),
SCRCP, motion seeking to alter or amend the final order, and by order entered
April 15, 2009, the Master denied Smith's Rule 59(e) motion. This appeal
followed.
STANDARD OF REVIEW
1
Wells Fargo, NA is the successor by merger to Wells Fargo Home Mortgage, Inc.
2
Section 37-10-102 of the South Carolina Code (Supp. 2010) is also referred to as
the Attorney Preference statute.
"The matter of striking from a pleading, and the matter of admissibility of evidence
is largely within the discretion of the trial judge." Brown v. Coastal States Life Ins.
Co., 264 S.C. 190, 194, 213 S.E.2d 726, 728 (1975). "The granting or refusal of a
[m]otion to strike . . . will not be reversed except for an abuse of discretion or
unless the action of the trial judge was controlled by an error of law." Id. at 194-
95, 213 S.E.2d at 728 (internal citation omitted); see also Mayes v. Paxton, 313
S.C. 109, 115, 437 S.E.2d 66, 70 (1993) (holding absent an abuse of discretion, the
trial court's ruling on a motion to strike will not be reversed).
Additionally, "[w]hether a party is entitled to a jury trial is a question of law."
Verenes v. Alvanos, 387 S.C. 11, 15, 690 S.E.2d 771, 772 (2010). "An appellate
court may decide questions of law with no particular deference to the trial court."
In re Campbell, 379 S.C. 593, 599, 666 S.E.2d 908, 911 (2008) (citation omitted).
LAW/ANALYSIS
A. Subject Matter Jurisdiction
On appeal, Smith asserts the Master exceeded his jurisdiction in ruling on Wells
Fargo's motion to strike. As a result, Smith contends the matter should have been
transferred to the circuit court when he initially filed the jury demand as part of the
answer and counterclaim. We disagree.
Pursuant to Rule 53, SCRCP, a master has no power or authority except that which
is given to him by an order of reference. Smith v. Ocean Lakes Family
Campground, 315 S.C. 379, 381, 433 S.E.2d 909, 910 (Ct. App. 1993). When a
case is referred to a master under Rule 53, the master is given the power to conduct
hearings in the same manner as the circuit court unless the order of reference
specifies or limits the master's powers. Smith Cos. of Greenville, Inc. v. Hayes,
311 S.C. 358, 360, 428 S.E.2d 900, 902 (Ct. App. 1993). Specifically, Rule 53(c),
SCRCP, states "[o]nce referred, the master or special referee shall exercise all
power and authority which a circuit court judge sitting without a jury would have
in a similar matter."
As a basis for this claim, Smith cites the Reporter's Note appended to the 2002
Amendment to Rule 53, SCRCP. This note states, "If there are counterclaims
requiring a jury trial, any party may file a demand for a jury under Rule 38 and the
case will be returned to the circuit court." However, the order of reference in this
case authorized the Master "to take testimony and to direct entry of final judgment
in this action under Rule 53(b), SCRCP, and all matters arising from or reasonably
related to such action. The Master in Equity shall retain jurisdiction to perform all
necessary acts incident to this foreclosure action . . . ." Thus, once the case is
referred to the Master, he has subject matter jurisdiction to resolve the action to the
extent the order of reference provides, and with the authority a circuit court judge
would have in a similar matter. See Rule 53(c), SCRCP; Hayes, 311 S.C. at 360,
428 S.E.2d at 902. Accordingly, we find the Master had subject matter jurisdiction
to rule on Wells Fargo's motion to strike the jury demand as the matter was
properly before the Master pursuant to the order of reference and our rules of civil
procedure.
B. Smith's Counterclaims
Smith contends the Master erred in determining Smith's counterclaims for
unconscionability and a violation of the Attorney Preference statute were not
entitled to a jury trial. We disagree.
The South Carolina Constitution provides "[t]he right of trial by jury shall be
preserved inviolate." S.C. Const. art. I, § 14. "The right to a trial by jury is
guaranteed in every case in which the right to a jury was secured at the time of the
adoption of the Constitution in 1868." Mims Amusement Co. v. S.C. Law
Enforcement Div., 366 S.C. 141, 149, 621 S.E.2d 344, 348 (2005) (citation
omitted). Additionally, Rule 38(b), SCRCP, provides, in pertinent part:
Any party may demand a trial by jury of any issue triable
of right by a jury by serving upon the other parties a
demand therefor[e] in writing at any time after the
commencement of the action and not later than 10 days
after the service of the last pleading directed to such
issue. Such demand may be endorsed upon a pleading of
the party.
(emphasis added). Smith demanded a jury trial in his answer and counterclaim
when he asserted counterclaims of accounting3, unconscionability, and a violation
of the Attorney Preference statute against Wells Fargo.
3
Smith conceded at the non-evidentiary hearing he was not entitled to a jury trial
on his counterclaim for accounting and subsequently abandoned this argument on
appeal. See Rule 208(b)(1)(D), SCACR (stating each "particular issue to be
addressed shall be set forth in distinctive type, followed by discussion and citations
of authority"); Jinks v. Richland Cnty., 355 S.C. 341, 344, 585 S.E.2d 281, 283
"Generally, the relevant question in determining the right to trial by jury is whether
an action is legal or equitable; there is no right to trial by jury for equitable
actions." Lester v. Dawson, 327 S.C. 263, 267, 491 S.E.2d 240, 242 (1997). If a
complaint is equitable and the counterclaim legal and compulsory, the defendant
has the right to a jury trial on the counterclaim. C & S Real Estate Servs., Inc. v.
Massengale, 290 S.C. 299, 302, 350 S.E.2d 191, 193 (1986), modified by Johnson
v. S.C. Nat'l Bank, 292 S.C. 51, 354 S.E.2d 895 (1987). "A mortgage foreclosure
is an action in equity." U.S. Bank Trust Nat'l. Ass'n v. Bell, 385 S.C. 364, 373, 684
S.E.2d 199, 204 (Ct. App. 2009). As Wells Fargo's foreclosure allegation is
equitable in nature, Smith has the right to a jury trial only if his counterclaim is
both legal and compulsory. See C & S Real Estate Servs., Inc., 290 S.C. at 302,
350 S.E.2d at 193.
Characterization of an "action as equitable or legal depends on the appellant's 'main
purpose' in bringing the action." Ins. Fin. Servs., Inc. v. S.C. Ins. Co., 271 S.C.
289, 293, 247 S.E.2d 315, 318 (1978) (citations omitted).4 "The main purpose of
the action should generally be ascertained from the body of the complaint." Id.(citation omitted). "However, if necessary, resort may also be had to the prayer for
relief and any other facts and circumstances which throw light upon the main
purpose of the action." Id. (citation omitted). The nature of the issues raised by
the pleadings and character of relief sought under them determines the character of
an action as legal or equitable. Bell v. Mackey, 191 S.C. 105, 119-20, 3 S.E.2d
816, 822 (1939) (citations omitted).
For Smith's counterclaims to be entitled to a jury trial, each counterclaim must be
both legal and compulsory.
1. Unconscionability
Smith argues the Master erred in finding he was not entitled to a jury trial on his
unconscionability counterclaim. We disagree.
(2003) (holding issues not argued in the brief are deemed abandoned and precluded
from consideration on appeal).
4
"[T]he 'main purpose' rule evolved from a determination that where a plaintiff has
prayed for money damages in addition to equitable relief, characterization of the
action as equitable or legal depends on the plaintiff's 'main purpose' in bringing the
action." Floyd v. Floyd, 306 S.C. 376, 380, 412 S.E.2d 397, 399 (1991) (citations
omitted).
a) Common Law Unconscionability5
Although Smith's counterclaim for common law unconscionability is compulsory,
he is not entitled to a jury trial because this is an equitable claim that does not
create a cause of action for damages.
"By definition, a counterclaim is compulsory only if it arises out of the same
transaction or occurrence as the opposing party's claim." First-Citizens Bank &
Trust Co. of S.C. v. Hucks, 305 S.C. 296, 298, 408 S.E.2d 222, 223 (1991); see
also Rule 13(a), SCRCP. The test for determining if a counterclaim is compulsory
is whether there is a "logical relationship" between the claim and the counterclaim.
Mullinax v. Bates, 317 S.C. 394, 396, 453 S.E.2d 894, 895 (1995). In N.C. Fed.
Sav. & Loan Ass'n v. DAV Corp., 298 S.C. 514, 518, 381 S.E.2d 903, 905 (1989),
our supreme court adopted the "logical relationship" test and held DAV's
counterclaim was compulsory because "there [was] a logical relationship between
the enforceability of the note which [was] the subject of the foreclosure action and
the validity of the purported oral agreement which, if performed, would have
avoided default on the note by the joint venture." In essence, the "logical
relationship" determination is made by asking whether the counterclaim would
affect the lender's right to enforce the note and foreclose the mortgage. Advance
Intern., Inc. v. N.C. Nat'l Bank of S.C., 316 S.C. 266, 269-70, 449 S.E.2d 580, 582
(Ct. App. 1994), aff'd in part, vacated in part, 320 S.C. 532, 466 S.E.2d 367(1996).
Here, there is a "logical relationship" between the enforceability of the Note, which
is the subject of the foreclosure action, and the allegation that the Mortgage
between Wells Fargo and Smith is unconscionable. If Smith prevails on his
unconscionability claim, it will affect Wells Fargo's right to enforce the Note and
foreclose the Mortgage. Therefore, Smith's common law unconscionability
counterclaim is compulsory under the "logical relationship" test.
Even though Smith's common law unconscionability counterclaim is compulsory,
because common law unconscionability only provides an equitable relief, Smith is
5
Smith's counterclaim for unconscionability failed to specify whether it was a
claim for common law unconscionability or statutory unconscionability under
section 37-5-108 of the South Carolina Code (Supp. 2010). We analyze this issue
under both and hold the Master was correct in finding Smith was not entitled to a
jury trial under either version of the counterclaim.
not entitled to a jury trial on his counterclaim. Jurisdictions throughout the country
agree that common law unconscionability is an equitable cause of action with
corresponding relief that is only equitable in nature. See Doe v. SexSearch.com,
551 F.3d 414, 419 (6th Cir. 2008) ("At common law, unconscionability is a
defense against enforcement, not a basis for recovering damages."); Super Glue
Corp. v. Avis Rent a Car Sys., Inc., 517 N.Y.S.2d 764, 766 (N.Y. App. Div. 1987)
("The doctrine of unconscionability is used as a shield, not a sword, and may not
be used as a basis for affirmative recovery."); see, e.g., Restatement (Second) of
Contracts § 208 (1981) ("If a contract or term thereof is unconscionable at the time
the contract is made a court may refuse to enforce the contract, or may enforce the
remainder of the contract without the unconscionable term, or may so limit the
application of any unconscionable term as to avoid any unconscionable result.").
Despite Smith's request for actual and punitive damages for unconscionability in
the body of his pleadings, the primary relief sought is to have the mortgage
declared void. Accordingly, Smith seeks relief from a jury that cannot be granted.
See Simpson v. MSA of Myrtle Beach, 373 S.C. 14, 25, 644 S.E.2d 663, 669 (2007)
("In determining whether a contract was 'tainted by an absence of meaningful
choice,' courts should take into account the nature of the injuries suffered by the
plaintiff; whether the plaintiff is a substantial business concern; the relative
disparity in the parties' bargaining power; the parties' relative sophistication;
whether there is an element of surprise in the inclusion of the challenged clause;
and the conspicuousness of the clause.") (emphasis added); Mortgage Elec. Sys.,
Inc. v. White, 384 S.C. 606, 615, 682 S.E.2d 498, 502 (Ct. App. 2009) ("Rescission
is an equitable remedy that attempts to undo a contract from the beginning as if the
contract had never existed."); Loyola Fed. Sav. Bank v. Thomasson Props., 318
S.C. 92, 93, 456 S.E.2d 423, 424 (Ct. App. 1995) ("If the claim is equitable, there
is no right to a jury trial."). Because the only remedies available for common law
unconscionability are equitable, there is no right to a jury trial on this claim. See
Brown v. Greenwood Sch. Dist. 50 Bd. of Trs., 344 S.C. 522, 525, 544 S.E.2d 642,
643 (Ct. App. 2001) ("There is no right to a jury trial for equitable remedies such
as rescission and restitution."). Accordingly, Smith's common law
unconscionability counterclaim is not entitled to a jury trial.
b) Statutory Unconscionability
Applying the same "logical relationship" test, we find Smith's counterclaim for
statutory unconscionability is also compulsory. In addition to arising out of the
same transaction or occurrence as Wells Fargo's foreclosure action, Smith's
counterclaim bears a "logical relationship" to the enforceability of the Note and
Mortgage. Accordingly, Smith's statutory unconscionability counterclaim is
compulsory under the "logical relationship" test.
Although the statutory unconscionability counterclaim is compulsory, section 37-
5-108 of the South Carolina Code (Supp. 2010) requires the determination of
whether an agreement is unconscionable to be a matter of law for the court. See
Tilley v. Pacesetter Corp., 333 S.C. 33, 38, 508 S.E.2d 16, 18 (1998) ("If a statute's
language is plain and unambiguous, and conveys a clear and definite meaning,
there is no occasion for employing rules of statutory interpretation and the court
has no right to look for or impose another meaning."). In section 37-5-108, the
General Assembly explicitly chose the use of the term "court" to unequivocally
demonstrate that the matter is not to be resolved by a jury, but by the court. See §
37-5-108(1) ("[I]f the court as a matter of law finds . . . the agreement or
transaction to have been unconscionable . . . the court may refuse to enforce the
agreement.") (emphasis added); see also § 37-5-108(3) ("If it is claimed or appears
to the court that the agreement or transaction or any term or part thereof may be
unconscionable . . . the parties shall be afforded a reasonable opportunity to present
evidence . . . to aid the court in making the determination.") (emphasis added).
Therefore, section 37-5-108 does not provide a right to a jury trial for a statutory
unconscionability cause of action. Accordingly, we affirm the Master's decision to
strike Smith's request for a jury trial on his unconscionability counterclaim.
2. Violation of the Attorney Preference Statute
To determine whether Smith is entitled to a jury trial on his allegation that Wells
Fargo violated the Attorney Preference statute, we again must determine if this
counterclaim is both legal and compulsory. See C & S Real Estate Servs., Inc., 290
S.C. at 302, 350 S.E.2d at 193. We conclude Smith's counterclaim is permissive
because a violation of the Attorney Preference statute would not affect the
enforceability of the Note and Mortgage.
Section 37-10-102(a) of the South Carolina Code (Supp. 2010) provides, in
pertinent part:
Whenever the primary purpose of a loan that is secured
in whole or in part by a lien on real estate is for a
personal, family or household purpose . . . [t]he 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 . . . .
The complaint alleges that to secure payment of this Note, Smith gave Wells Fargo
a real estate Mortgage covering his real estate property as well as a mobile home.
As a result, Smith was entitled to choose an attorney of his preference for the
closing of the transaction pursuant to section 37-10-102(a). A violation of the
Attorney Preference statute is enforced by section 37-10-105(A) of the South
Carolina Code (Supp. 2010). The enforcement provision of the Attorney
Preference statute provides, in pertinent part:
If a creditor violates a provision of this chapter, the
debtor has a cause of action . . . to recover actual
damages and also a right in an action . . . to recover from
the person violating this chapter a penalty in an amount
determined by the court of not less than one thousand
five hundred dollars and not more than seven thousand
five hundred dollars.
S.C. Code Ann. § 37-10-105(A) (Supp. 2010). A review of this statute
demonstrates Smith's counterclaim has no "logical relationship" to the
enforceability of the Note and Mortgage. Moreover, even if a violation of the
statute occurred, Smith would only be entitled to actual damages and a possible
penalty between $1,500 to $7,500. The statute, however, does not permit
rescission of the Note and Mortgage for its violation. See § 37-10-105(A). As
Smith's counterclaim bears no "logical relationship" to the enforceability of the
Note and Mortgage, we conclude Smith's counterclaim is permissive. Therefore,
Smith waived his right to a jury trial by asserting it in the foreclosure action. See
N.C. Fed. Sav. & Loan Ass'n, 294 S.C. at 30, 362 S.E.2d at 310 ("[W]here a
defendant in an action begun in equity asserts a permissive counterclaim that is
legal in nature, the defendant is deemed to have waived the right to a jury trial on
the issues raised by the counterclaim."). Accordingly, we affirm the Master's
decision to strike Smith's request for a jury trial on his counterclaim for a violation
of the Attorney Preference statute.
C. Scope of Motion to Strike Jury Demand
Smith contends the Master exceeded the scope of Wells Fargo's motion to strike by
making findings of fact and conclusions of law based on documents and
information not in evidence. We agree.
A reversal is required when the trial court's ruling exceeds the limits and scope of
the particular motion before it. Skinner v. Skinner, 257 S.C. 544, 549-50, 186
S.E.2d 523, 526 (1972).
After a brief non-evidentiary motion hearing, the Master requested Smith submit
authority to support his assertion he was entitled to a jury trial. A review of the
Master's order demonstrates his ruling went beyond the permissible scope of Wells
Fargo's motion. The order granting Wells Fargo's motion to strike had the effect of
granting judgment and making findings of fact based on information not admitted
or decided by the pleadings. In short, the Master's order on the motion to strike the
jury demand makes findings of fact and rules that a cause of action is meritless
without evidentiary support, constituting an abuse of discretion.6 See Edwards v.
Edwards, 384 S.C. 179, 183, 682 S.E.2d 37, 39 (Ct. App. 2009) ("The [trial] court
abuses its discretion when factual findings are without evidentiary support or a
ruling is based upon an error of law."). We conclude these impermissible findings
of fact and conclusions of law are prejudicial to Smith, thus warranting reversal.
See Watts v. Bell Oil Co. of Ocean Drive, Inc., 266 S.C. 61, 63, 221 S.E.2d 529,
530 (1976) (holding a trial court will only be reversed when the record shows not
only error but also prejudice).
CONCLUSION
In summary, the Master had subject matter jurisdiction to rule on Wells Fargo's
motion to strike the jury demand. Additionally, the Master's ruling on Smith's
unconscionability and attorney preference statute counterclaims is affirmed. The
Master's order, to the extent that it details specific findings of fact and conclusions
of law, is reversed and the case remanded to the Master for a bench trial on the
merits of all causes of action alleged.
AFFIRMED IN PART, REVERSED IN PART, and REMANDED.
GEATHERS and LOCKEMY, JJ., concur.
6
The Master made certain findings of fact that go to the substance and merits of
Smith's claims and well beyond the scope of the motion to strike, including:
"Smith's counterclaim has no merit," and "[b]ecause Smith would not be entitled to
relief as against Wells Fargo on his counterclaim, it can hardly be said he would be
entitled to a jury trial on it."