Laws v. Priority Trustee Services of North Carolina, LLC

UNPUBLISHED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Affirmed by unpublished per curiam opinion.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Unpublished opinions are not binding precedent in this circuit.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.
2
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
8