Faircloth v. Financial Asset Securities Corp. Mego Mortgage Homeowner Loan Trust

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
PAMELA J. FAIRCLOTH, on behalf of 
herself and all others similarly
situated,
Plaintiff-Appellant,
v.
FINANCIAL ASSET SECURITIES
CORPORATION MEGO MORTGAGE
HOMEOWNER LOAN TRUST; THE MEGO
MORTGAGE HOME LOAN OWNER
TRUST 1997-2; FINANCIAL ASSET
SECURITIES MEGO MORTGAGE HOME
OWNER LOAN TRUST 1997-3;
FINANCIAL ASSET SECURITIES
CORPORATION MEGO MORTGAGE
HOME LOAN OWNER TRUST 1997-4;  No. 03-1473
UBS WARBURG REAL ESTATE
SECURITIES, INCORPORATED, formerly
known as Paine Webber Real Estate
Securities, Incorporated; PSB
LENDING CORPORATION; INDYMAC
MORTGAGE HOLDINGS, formerly
known as INMC Mortgage
Corporation; PALADIAN FINANCIAL,
INCORPORATED; UNITED STATES BANK
NATIONAL ASSOCIATION; UNITED
STATES BANK NATIONAL ASSOCIATION,
ND; FIRSTPLUS HOME LOAN OWNER
TRUST 1996-2; FIRSTPLUS HOME
LOAN OWNER TRUST 1996-3;
FIRSTPLUS HOME LOAN OWNER

2 FAIRCLOTH v. FINANCIAL ASSET SECURITIES CORP.
TRUST 1996-4; FIRSTPLUS HOME 
LOAN OWNER TRUST 1997-1;
FIRSTPLUS HOME LOAN OWNER TRUST
1997-2; FIRSTPLUS HOME LOAN
OWNER TRUST SERIES 1997-3;
FIRSTPLUS HOME LOAN OWNER TRUST
SERIES 1997-4; FIRSTPLUS HOME
LOAN OWNER TRUST 1998-1;
FIRSTPLUS HOME LOAN OWNER TRUST
1998-2; FIRSTPLUS HOME LOAN
OWNER TRUST 1998-3; FIRSTPLUS
HOME LOAN OWNER TRUST 1998-4;
FIRSTPLUS HOME LOAN OWNER TRUST 
1998-5 GERMAN AMERICAN CAPITAL
CORPORATION; ACE SECURITIES
CORPORATE HOME LOAN TRUST 1999
A; REAL TIME RESOLUTIONS,
INCORPORATED; GRMT MORTGAGE
LOAN TRUST 2001-1; SOVEREIGN
BANK,
Defendants-Appellees,
and
NATIONAL HOME LOAN CORPORATION,
Defendant.

Appeal from the United States District Court
for the Middle District of North Carolina, at Durham.
James A. Beaty, Jr., District Judge.
(CA-01-1140)
Argued: December 4, 2003
Decided: January 23, 2004
Before WILLIAMS, MOTZ, and SHEDD, Circuit Judges.
FAIRCLOTH v. FINANCIAL ASSET SECURITIES CORP. 3
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: Kevin L. Oufnac, RICHARDSON, PATRICK, WEST-
BROOK & BRICKMAN, L.L.C., Mt. Pleasant, South Carolina, for
Appellant. Hada deVarona Haulsee, WOMBLE, CARLYLE, SAN-
DRIDGE & RICE, Winston-Salem, North Carolina, for Appellees.
ON BRIEF: Gary K. Shipman, William G. Wright, SHIPMAN &
ASSOCIATES, L.L.P., Wilmington, North Carolina, for Appellant.
Ronald R. Davis, WOMBLE, CARLYLE, SANDRIDGE & RICE,
Winston-Salem, North Carolina, for Appellees.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
In this case, Pamela J. Faircloth appeals from the dismissal of her
putative class action against various financial institutions, wherein she
alleged that these institutions violated North Carolina’s usury and
deceptive trade practices laws. The district court concluded that Fair-
cloth lacked standing to sue all but two of the defendants, and found
her claims against these two defendants to be time-barred. For the rea-
sons that follow, we affirm.
I.
During the late 1990s, National Home Loan Corporation (National)
was in the business of providing individuals with loans secured by
second mortgages on real property. On July 8, 1997, Faircloth
obtained such a loan from National, secured by a second mortgage on
her residence. The principal amount of the loan was $26,450.00 with
4 FAIRCLOTH v. FINANCIAL ASSET SECURITIES CORP.
an interest rate of 13.99% over a term of 300 months. The disclosed
Annual Percentage Rate of the loan was 15.952%. At loan closing,
National charged Faircloth $3,284.50 in fees and costs. Shortly after
closing, and apparently consistent with its general practice, National
sold the note from Faircloth to another financial institution. The cur-
rent holder of Faircloth’s note is Financial Asset Securities Corpora-
tion Mego Mortgage Home Owner Loan Trust, Series 1997-4 (Mego
Trust 1997-4).
On November 26, 2001, over four years after the closing of her
loan from National, Faircloth, on behalf of herself and all others in
North Carolina who obtained similar loans from National, filed suit
in North Carolina state court. Faircloth sued a total of 29 financial
institutions that, for ease of discussion, fall into three general catego-
ries: (1) National, the originator of all loans; (2) Mego Trust 1997-4,
the current holder of Faircloth’s note; and (3) the remaining defen-
dants (hereinafter referred to as the non-holder trusts). The non-holder
trusts are the entities that Faircloth alleged are the holders of the notes
of the other members of the putative class as a result of National’s
sale of those loans. Faircloth alleged that each of the 29 defendants
is liable under North Carolina law for National’s conduct in selling
the original loans. Specifically, Faircloth alleged that National vio-
lated the North Carolina usury laws, see N.C. Gen. Stat. §§ 24-1.1,
24-10, 24-12, and 24-14 (2002), by imposing interest rates and fees
in excess of amounts allowed by statute. Faircloth also alleged that
National violated the North Carolina Unfair and Deceptive Trade
Practices Act (UDTPA), see N.C. Gen. Stat. § 75-1.1 (2002), by
engaging in unfair and deceptive marketing practices and by charging
usurious costs and fees. Mego Trust 1997-4 and the non-holder trusts,
Faircloth alleged, were liable for the acts of National as holders of the
notes securing the class members’ respective mortgages. In accor-
dance with North Carolina procedural rules, Faircloth did not specify
the exact amount she sought to recover in damages, but did "stipulate"
that no class member would seek damages in excess of $75,000.
The defendants removed the action to the United States District
Court for the Middle District of North Carolina on December 31,
2001 on the basis of diversity jurisdiction. The defendants, none of
which are North Carolina residents, believed that Faircloth’s individ-
ual claims, if successful, would result in recovery in excess of
FAIRCLOTH v. FINANCIAL ASSET SECURITIES CORP. 5
$75,000. Shortly thereafter, Faircloth filed a motion to remand, and
the defendants filed motions to dismiss under Rules 12(b)(1) and
12(b)(6) of the Federal Rules of Civil Procedure. Each of the defen-
dants asserted that Faircloth had failed to state a claim upon which
relief could be granted. Two of the defendants challenged Faircloth’s
standing to sue the non-holder trusts because those entities had no
relationship to Faircloth’s note. On July 25, 2002, before the district
court had disposed of the motion to remand and motions to dismiss,
Faircloth filed an amended complaint that was substantially similar to
the original complaint, but differed in that it omitted any allegation
that the interest rate charged on Faircloth’s loan violated the state
usury laws.
In a March 17, 2003, Memorandum Opinion, the district court
denied the motion to remand and granted the motions to dismiss. See
Faircloth v. Nat’l Home Loan Corp., No. 1:01CV1140, 2003 WL
1232825, *2 (M.D.N.C.). (J.A. at 191.) Respecting the motion to
remand, the district court found that, if Faircloth were to prevail on
her individual claims in the original complaint, Faircloth would
recover in excess of $75,000, notwithstanding her "stipulation" to the
contrary. Finding the amount in controversy and diversity of citizen-
ship requirements satisfied, the district court concluded that it had
diversity jurisdiction over Faircloth’s claim and supplemental juris-
diction over the claims of the class members. With regard to the
motions to dismiss, the district court held first that Faircloth lacked
standing to assert any claims against the non-holder trusts, notwith-
standing the fact that she sought to represent claimants whose loans
actually might be held by the non-holder trusts. In so holding, the dis-
trict court rejected Faircloth’s argument that she had standing to sue
these defendants either under the so-called "juridical link doctrine,"
or through the Home Ownership and Equity Protection Act of 1994
(HOEPA), see 15 U.S.C.A. §§ 1602(aa), 1639, and 1641(d) (West
1998). As to National and Mego Trust 1997-4, the district court con-
cluded that both Faircloth’s usury claim and her UDTPA claim were
time-barred by the applicable statutes of limitations. Faircloth timely
appealed, challenging the district court’s holdings respecting both the
motion to remand and the motions to dismiss. Prior to oral argument,
Faircloth moved successfully to dismiss National as a defendant-
appellee and withdrew her challenge to the district court’s denial of
6 FAIRCLOTH v. FINANCIAL ASSET SECURITIES CORP.
her motion for remand.1 Therefore, the only remaining issue is
whether the district court erred in dismissing Faircloth’s claims.
II.
A.
Before turning to the district court’s dismissal of the claims that
Faircloth asserts on behalf of herself, we first must consider briefly
whether she has standing to assert claims on behalf of her class mem-
bers against parties who have caused Faircloth no cognizable injury.
Ordinarily, our rules of standing prohibit plaintiffs from asserting
claims of third parties. See Warth v. Seldin, 422 U.S. 490, 499 (1975).
Faircloth argues that these requirements do not prevent her from
asserting claims against the non-holder trusts on behalf of the putative
class members, either as a result of HOEPA, or because of the so-
called "juridical link" doctrine. Neither of these theories is availing in
this case.
Respecting HOEPA, the district court correctly rejected Faircloth’s
novel argument that this statute somehow creates third-party standing
in this context. See Faircloth v. Nat’l Home Loan Corp., No.
1:01CV1140, 2003 WL 1232825, *2 (M.D.N.C.) (J.A. at 199-201)
(incorporating by reference portions of its opinion in Dash v. First-
1
Faircloth had challenged whether the district court applied the appro-
priate standard of proof in making its factual finding regarding the
amount in controversy. Faircloth contended that the district court should
have required the defendants to prove to a "legal certainty" that the
amount in controversy exceeded $75,000, rather than applying the less
stringent preponderance-of-the-evidence standard. Although Faircloth
now effectively has conceded that, if she were to succeed on the claims
in her original complaint, she would recover in excess of $75,000, we
must be satisfied independently that the exercise of jurisdiction is appro-
priate. Because, regardless of the standard of proof, we find no clear
error in the district court’s factual finding that the amount-in-controversy
of Faircloth’s usury claim exceeds $75,000, we are satisfied that the
amount in controversy threshold has been met and that the exercise of
jurisdiction is appropriate under 28 U.S.C.A. §§ 1332 and 1367 (West
1993 & Supp. 2003). See Rosmer v. Pfizer, 263 F.3d 110, 114 (4th Cir.
2001).
FAIRCLOTH v. FINANCIAL ASSET SECURITIES CORP. 7
plus Home Loan Trust 1996-2, 248 F. Supp. 2d 489, 506 (M.D.N.C.
2003), a case virtually identical to this one). HOEPA, under some cir-
cumstances, makes the assignees of mortgage loans liable for harms
committed by the loan originator, see 15 U.S.C.A. § 1641(d), but does
not grant plaintiffs like Faircloth the right to assert the claims of oth-
ers. In fact, HOEPA does not speak to the question of standing at all.
The "juridical link" doctrine, in contrast, might allow for third-
party standing under the proper circumstances. See Payton v. County
of Kane, 308 F.3d 673, 677-82 (7th Cir. 2002) (describing the juridi-
cal link doctrine and explaining its consistency with traditional stand-
ing rules); see generally 5 James Wm. Moore, et al., Moore’s Federal
Practice ¶ 23.24[7][b] (3d ed. 2003). Under that doctrine, which we
have yet to recognize in this circuit, the representative of a properly
certified class may sue defendants against whom the representative
has no direct claim. Those defendants, however, must be linked by
way of some "conspiracy or concerted scheme" with a defendant
against whom the representative does have a direct claim. Payton, 308
F.3d at 678-79. This doctrine is premised on the notion that the class,
not the class representative, is the relevant legal entity for the purpose
of Article III justiciability considerations. Id. at 679. Because no class
has been certified and because, for the reasons discussed below, Fair-
cloth’s direct claims must be dismissed, she can never be the repre-
sentative of a properly certified class. Fed. R. Civ. P. 23(a)(3), (4).
Therefore, even were we to recognize the juridical link doctrine as a
basis for standing, Faircloth could not invoke it successfully. Without
the prospect of class certification, Faircloth’s claims against the non-
holder trusts are nothing more than attempts to assert the injuries of
others and therefore must be dismissed for lack of standing. See
Warth, 422 U.S. at 499.
B.
We turn next to the district court’s dismissal of Faircloth’s direct
claims against Mego Trust 1997-4 under Rule 12(b)(6).2 We review
dismissals under Rule 12(b)(6) de novo, accepting the factual allega-
2
As noted above, Faircloth successfully moved to dismiss National as
a defendant-appellee.
8 FAIRCLOTH v. FINANCIAL ASSET SECURITIES CORP.
tions in the complaint as true. Schatz v. Rosenberg, 943 F.2d 485, 489
(4th Cir. 1991).
1.
Under North Carolina law, any "action to recover the penalty for
usury" must be commenced within two years of the accrual of the
action. N.C. Gen. Stat. § 1-53(2) (2002). Claims seeking the double
recovery remedy under N.C. Gen. Stat. § 24-2 for violations of N.C.
Gen. Stat. § 24-10(e), the provision outlawing usurious fees, qualify
as actions seeking to recover the "penalty for usury." Swindell v. Fed.
Nat’l Mortgage Ass’n, 409 S.E.2d 892, 895 (N.C. 1991). Such actions
accrue on the date of payment. See Haanebrink v. Meyer, 267 S.E.2d
598, 599 (N.C. 1980) (citing Henderson v. Finance Co., 160 S.E.2d
39 (N.C. 1968). Thus, Faircloth was obligated to file her usurious fees
claim within two years of the date on which those fees were paid.
Faircloth agrees that her usurious fees claim is subject to a two-
year statute of limitations, but disputes the district court’s conclusion
that the cause of action accrued on July 8, 1997, the closing date for
Faircloth’s loan and the date on which National ostensibly collected
its fees. Because she rolled her fees into the underlying loan itself,
Faircloth argues, her "payment" of fees is indistinguishable from the
payment of interest, and therefore the accrual rule that applies for
usury claims based on excessive interest should apply. Under that
rule, a fresh cause of action accrues each time the plaintiff makes a
payment on the underlying loan. Henderson v. Sec. Mortgage & Fin.
Co., 160 S.E.2d 39, 47 (N.C. 1968).
Faircloth’s argument fails for two distinct reasons. As an initial
matter, Faircloth did not allege, either in her original complaint or in
her amended complaint, that she paid the fees with loan proceeds.
Although we are required to grant Faircloth the benefit of all reason-
able inferences, we are not required to assume that Faircloth can
prove facts that she has not alleged. Assoc. Gen. Contractors v. Cal.
State Council of Carpenters, 459 U.S. 519, 526 (1983). Stated differ-
ently, because Faircloth relies on the fact that her loan included the
cost of her fees to overcome the statute of limitations, she was obliged
to allege that fact in her complaint.
FAIRCLOTH v. FINANCIAL ASSET SECURITIES CORP. 9
But even were we to indulge Faircloth’s unalleged assertion, the
result would be the same. Fees of the type that Faircloth paid here are
simply not analogous to interest, even when they are rolled into the
underlying loan. Whereas the obligation to pay interest is discharged
over the course of the loan repayment period in accordance with the
terms of the lending agreement, the obligation to pay closing costs is
fully discharged at closing. Therefore, the fees were "paid," albeit
with loan proceeds, at the date of closing. Because Faircloth failed to
initiate this action until November 26, 2001, more than four years
after the closing date, her usury claim against Mego Trust 1997-4 is
barred by the two-year statute of limitations.
2.
Faircloth’s UDTPA claim against Mego Trust 1997-4 is time-
barred as well. Claims under the UDTPA are subject to a four-year
statute of limitations, see N.C. Gen. Stat. § 75-16.2, and accrue when
the alleged violation occurs, see Jones v. Asheville Radiological
Group, P.A., 518 S.E.2d 528, 533 (N.C. Ct. App. 1999) (citing Hin-
son v. United Fin. Serv., 473 S.E.2d 382, 387 (N.C. 1994)), rev’d in
part on other grounds, 524 S.E.2d 804 (N.C. 2000). Because Fair-
cloth’s claim is based on allegedly fraudulent conduct, the violation
"occurs at the time the fraud is discovered or should have been dis-
covered with the exercise of reasonable diligence." Nash v. Motorola
Com. & Elec., Inc., 385 S.E.2d 537, 538 (N.C. Ct. App. 1989)
(emphasis in original). The question of when a plaintiff "should have
discovered" the fraud is typically a question of fact, but this question
may be determined as a matter of law where the plaintiff clearly had
both the capacity and opportunity to discover the fraud. Grubb Prop.,
Inc. v. Simms Inv. Co., 400 S.E.2d 85, 88 (N.C. Ct. App. 1991) (citing
Moore v. Fid. and Cas. Co. of N.Y., 177 S.E. 406 (N.C. 1934)).
Faircloth had both the capacity and the opportunity to discover the
alleged wrongdoing at the time of closing. In essence, Faircloth
alleges that National (and through assignment, Mego Trust 1997-4),
violated the UDTPA by the manner in which it marketed its loans, by
failing to disclose that it was charging fees in excess of the amount
allowed by law, and by charging Faircloth fees for expenses that
National did not, in fact, incur. Faircloth does not allege that National
failed to disclose the terms of the loan, including the amount of fees
10 FAIRCLOTH v. FINANCIAL ASSET SECURITIES CORP.
it was charging, or that it actively concealed from Faircloth the fact
that it was charging fees. Therefore, the facts necessary for Faircloth
to discover that a violation had occurred were patent at the time of
closing — she knew the terms of the loan and could determine, with-
out discovering any additional facts, whether they were consistent
both with applicable law and with National’s marketing representa-
tions. Given the nature of Faircloth’s allegations, we are obliged to
conclude that she had both the capacity and opportunity to discover
the alleged harm on July 8, 1997, and her UDTPA claim accordingly
accrued on that date. Because Faircloth did not file the present action
until November 26, 2001, she failed to comply with the four-year stat-
ute of limitations.
III.
For the foregoing reasons, we conclude that the district court prop-
erly dismissed Faircloth’s claims under Rules 12(b)(1) and 12(b)(6).
AFFIRMED