NO. COA13-1334
NORTH CAROLINA COURT OF APPEALS
Filed: 15 July 2014
IN RE:
GREGORY S. LYNN and
RENEE J. LYNN,
Plaintiffs,
v. Union County
No. 13 CVS 1460
FEDERAL NATIONAL MORTGAGE
ASSOCIATION and SETERUS, INC.,
Defendants.
Appeal by plaintiffs from order entered 11 July 2013 by
Judge W. David Lee in Union County Superior Court. Heard in the
Court of Appeals 24 April 2014.
Elliot Law Firm, PC, by Michael K. Elliot, for Plaintiffs-
Appellants.
No brief filed on behalf of Defendants-Appellees.
HUNTER, JR., Robert N., Judge.
Gregory S. Lynn and Renee J. Lynn (collectively,
“Plaintiffs”) appeal from a final order dismissing their
complaint under N.C. R. Civ. P. 12(b)(6). Plaintiffs contend
that their complaint shows the existence and breach of a
fiduciary duty owed to them by Federal National Mortgage
Association (“Fannie Mae”) and Seterus, Inc. (“Seterus”)
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(collectively “Defendants”). For the following reasons, we
affirm the trial court’s order.
I. Facts & Procedural History
The complaint states the following facts. Plaintiffs owned
a home at 1012 King Grant Way in Matthews. On 19 April 2007,
plaintiff Gregory Lynn executed a promissory note (“the Note”)
to JP Morgan Chase Bank (“Chase”) with a principal balance of
$360,000. The loan was described on the Note as an “Interest
First Note.” On 19 April 2007, Plaintiffs also executed a deed
of trust (“the Deed”) securing the Note.1 The Deed was recorded
in Union County and named Constance R. Stienstra as the trustee
and Chase as the lender and beneficiary of the instrument.
In early 2011, Plaintiffs received notice that Seterus had
become the servicer of the loan and that Fannie Mae was the
holder of the Note and Deed after having purchased the Note at
some point after 19 April 2007. The complaint indicates that a
“Substitute Trustee” was appointed at some point after 19 April
2007 and references a “Defendant Substitute Trustee,” but does
not identify either party. Plaintiffs’ appellate brief
identifies the substitute trustee as “Trustee Services of
1
The Deed and Note were not included in the record on appeal.
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Carolina, Inc.”2
On 26 October 2011, after Plaintiffs fell behind on
payments, “Plaintiffs received a ‘Notice of Hearing,’ from
Defendant Substitute Trustee which initiated a Union County
Special Proceeding Case entitled: ‘Foreclosure of Real Property
Under Deed of Trust from Gregory Scott Lynn and Renee Jeanette
Lynn . . . .’” Plaintiffs filed for Chapter 13 bankruptcy on 28
December 2011, which was later converted to a Chapter 7 filing.
Fannie Mae filed a motion for relief from the automatic stay.
Plaintiffs filed a motion in response challenging Fannie Mae’s
status as the holder of the Note. Both Fannie Mae and Seterus
were granted relief from the automatic stay, but there were no
findings of fact relating to their status as the holder of the
Note.
On 21 May 2012, before the entry of the order granting
relief from the automatic stay, Plaintiffs received documents
from Seterus indicating Plaintiffs could modify their loan.
Plaintiffs promptly signed and returned those documents. As
part of the modification, Plaintiffs were required to make three
trial payments of $2,332.14 on 1 July 2012, 1 August 2012, and 1
September 2012. On 30 June 2012, Plaintiffs sent their initial
2
At Defendants’ 12(b)(6) hearing, Plaintiffs and Defendants both
stated that the trustee is not a party to this case.
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July payment. However, Plaintiffs sent $2,300.00 instead of the
required $2,332.14. Because Plaintiffs remitted an incorrect
amount, Defendants rejected the loan modification.
Following the rejection, the “Substitute Trustee” gave
notice to Plaintiffs of the foreclosure sale which was to take
place on 5 September 2012. After the sale, but prior to the
expiration of the ten-day upset bid period, Plaintiffs filed an
action designated 12 CVS 2676 enjoining the foreclosure sale
pursuant to N.C. Gen. Stat. § 45-21.34 (2013).
On 28 January 2013, “Plaintiffs, by and through Counsel,
requested from Counsel for Defendants a re-instatement quote so
that Plaintiffs could exercise their Right of
Redemption . . . .”3 The same day, Defendants sent an email to
Plaintiffs’ counsel asking Plaintiffs to make a settlement
offer. Plaintiffs offered to send a discounted lump sum to
Defendants sometime between 28 January 2013 and 25 March 2013.
Plaintiffs assert they had a family friend that was “ready,
willing, and able to pay the re-instatement amount.” Plaintiffs
state that the offer was eventually rejected sometime before 25
March 2013. During the intervening period, Defendants provided
3
During the 12(b)(6) hearing, Plaintiffs moved to amend their
complaint to specifically allege the statutory right of
redemption in addition to the right of reinstatement. The court
did not respond to that request at the 12(b)(6) hearing.
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no redemption or reinstatement quote. The 12(b)(6) hearing
transcript indicates that after Plaintiffs made a lump sum
offer, Plaintiffs made no attempt to contact Defendants
regarding redemption until after Defendants rejected Plaintiffs’
offer. At the 12(b)(6) hearing, Plaintiffs argued that
proffering any estimate of a reasonable offer was futile because
Defendants rejected the loan modification payment for being
$32.14 short.
Following the 25 March 2013 hearing concerning 12 CVS 2676,
the court dissolved the preliminary injunction. On 23 April
2013, a “Substitute Trustee’s” deed was recorded which conveyed
the property to Fannie Mae. Plaintiffs received a letter from
Defendants disclosing the payoff amount for the loan on 29 April
2013, after the upset period had passed. Plaintiffs were given
notice to vacate their home on 9 May 2013. According to
Plaintiffs’ appellate brief, Plaintiffs have since vacated the
home.
On 30 May 2013, following the dismissal of the claims in 12
CVS 2676, Plaintiffs filed the present complaint for preliminary
injunction, breach of fiduciary duty, misrepresentation, and
unfair and deceptive trade practices. Plaintiffs also filed a
motion for a temporary restraining order against Defendants on
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30 May 2013. The motion was denied on 6 June 2013. Defendants
then filed a motion to dismiss under N.C. R. Civ. P. 12(b)(6)
and a motion for attorneys’ fees on 10 June 2013. Defendants
amended these motions on 21 June 2013. Judge Lee granted the
motion to dismiss on 12 July 2013 and denied Defendants’ motion
for attorneys’ fees. Plaintiffs provided timely written notice
of appeal on 26 July 2013.
II. Jurisdiction & Standard of Review
Jurisdiction lies in this Court pursuant to N.C. Gen. Stat.
§ 7A–27(b) (2013) as Plaintiff appeals from a final order of the
superior court as a matter of right.
“‘On a Rule 12(b)(6) motion to dismiss, the question is
whether, as a matter of law, the allegations of the complaint,
treated as true, state a claim upon which relief can be
granted.’” Allred v. Capital Area Soccer League, Inc., 194 N.C.
App. 280, 282, 669 S.E.2d 777, 778 (2008) (quoting Wood v.
Guilford Cnty., 355 N.C. 161, 166, 558 S.E.2d 490, 494 (2002)).
“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, aff’d per curiam, 357 N.C. 567, 597 S.E.2d 673
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(2003).
Dismissal under Rule 12(b)(6) is proper when
one of the following three conditions is
satisfied: (1) the complaint on its face
reveals that no law supports the plaintiff’s
claim; (2) the complaint on its face reveals
the absence of facts sufficient to make a
good claim; or (3) the complaint discloses
some fact that necessarily defeats the
plaintiff’s claim.
Wood, 355 N.C. at 166, 558 S.E.2d at 494.
“Under de novo review, we examine the case with new eyes.”
State v. Young, ___ N.C. App. ___, ___, 756 S.E.2d 768, 779
(2014). “[D]e novo means fresh or anew; for a second time, and
an appeal de novo is an appeal in which the appellate court uses
the trial court’s record but reviews the evidence and law
without deference to the trial court’s rulings.” Parker v.
Glosson, 182 N.C. App. 229, 231, 641 S.E.2d 735, 737 (2007)
(quotation marks and citations omitted). “Under a de novo
review, the court considers the matter anew and freely
substitutes its own judgment for that of the lower tribunal.”
Craig v. New Hanover Cnty. Bd. of Educ., 363 N.C. 334, 337, 678
S.E.2d 351, 354 (2009) (quotation marks and citation omitted).
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III. Analysis
Plaintiffs argue that the statutory right of redemption
created by N.C Gen. Stat. § 45-21.20 (2013)4 gives rise to a
fiduciary relationship requiring disclosure of the redemption
amount upon a debtor’s request. After careful review, we
disagree and affirm the trial court.
A. Fiduciary Relationship in Redemption
“For a breach of fiduciary duty to exist, there must first
be a fiduciary relationship between the parties.” Dalton v.
Camp, 353 N.C. 647, 651, 548 S.E.2d 704, 707 (2001). Fiduciary
relationships are established when a special confidence is
placed in a party which is bound to act in good faith and in the
best interest of the party who reposes that confidence. Abbitt
v. Gregory, 201 N.C. 577, 598, 160 S.E. 896, 906 (1931). A
number of relationships traditionally give rise to fiduciary
4
The statutory right to redemption provides that a debtor may
terminate the power of sale by tendering the remaining
obligation secured by the deed of trust and expenses incurred in
the sale of the property before the foreclosure sale or within
the upset bid period. N.C. Gen. Stat. § 45-21.20. Plaintiffs
requested a “re-instatement quote” in their complaint and also
referenced the statutory right of redemption in their complaint.
Plaintiffs clarified at the 12(b)(6) hearing that they intended
to include the right of redemption and asked, if need be, to
amend their complaint to include this claim. On appeal,
Plaintiffs do not raise any argument concerning a contractual
right to reinstatement and thus abandon any argument relating to
reinstatement. N.C. R. App. P. 28(b)(6).
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duties, such as attorney and client, broker and principal,
guardian and ward, and trustee and beneficiary. Id. Fiduciary
duties may also be established in “a variety of circumstances”
within any relationship “where there has been a special
confidence reposed in one who in equity and good conscience is
bound to act in good faith and with due regard to the interests
of the one reposing confidence.” Id. The determination of such
a relationship is generally a question of fact to be determined
by the jury. Carcano v. JBSS, LLC, 200 N.C. App. 162, 178, 684
S.E.2d 41, 53 (2009).
Our Supreme Court recently addressed the fiduciary duties
inherent in a typical debtor-creditor relationship in Dallaire
v. Bank of America, ___ N.C ___, ___, ___ S.E.2d ___, ___,
51PA13, 2014 WL 2612658 (2014):
Ordinary borrower-lender transactions, by
contrast, are considered arm’s length and do
not typically give rise to fiduciary duties.
In other words, the law does not typically
impose upon lenders a duty to put borrowers’
interests ahead of their own. Rather,
borrowers and lenders are generally bound
only by the terms of their contract and the
Uniform Commercial Code. Nonetheless,
because a fiduciary relationship may exist
under a variety of circumstances, it is
possible, at least theoretically, for a
particular bank-customer transaction to give
rise to a fiduciary relation given the
proper circumstances.
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Id. at ___, ___ S.E.2d at ___, 2014 WL 2612658 at *4 (citations
and quotation marks omitted). Applying this test in Dallaire,
our Supreme Court found that “[a] loan officer’s mere assertion
that the Dallaires could obtain a first priority lien mortgage
loan” was not sufficient to allow our Supreme Court to conclude
the Dallaires reposed fiduciary duties in Bank of America. Id.
(citation and quotation marks omitted).
The right of redemption may arise in any typical
foreclosure proceeding; it is a statutorily created right to
terminate a power of sale. N.C Gen. Stat. § 45-21.20. Nothing
about the statute indicates that the moment a debtor attempts to
act upon its right of redemption is anything other than an
ordinary part of a debtor-creditor relationship during
foreclosure proceedings. As this is an ordinary feature of
debtor-creditor relationships, here the debtor or creditor must
show some additional fact which tends to elevate the
relationship above that of a typical debtor and creditor.
Here, Plaintiffs simply assert that a fiduciary
relationship is created by Plaintiffs’ invocation of the right
of redemption or Defendants’ response email requesting
Plaintiffs make an offer to pay off the loan. As in Dallaire,
merely invoking a statutorily created right in a debtor-creditor
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transaction, like a loan officer making assertions concerning
possible lien priorities, does not alone create a fiduciary
relationship. Dallaire, ___ N.C. App. at ___, ___ S.E.2d at
___, 2014 WL 2612658 at *4. As Plaintiffs fail to disclose
any additional facts supporting the existence of a fiduciary
relationship, dismissal was proper under N.C. R. Civ. P.
12(b)(6), as this was a normal debtor-creditor relationship.5
B. Trustee Fiduciary Relationship
Trustees,6 on the other hand, have a long-recognized
fiduciary duty to both the debtor and creditor in a typical
5
In Branch Banking & Trust Co. v. Thompson, 107 N.C. App. 53,
418 S.E.2d 694 (1992), this Court held that no fiduciary duty
existed where borrowers relied on outside counsel and advice as
well as representations made by a lender. Id. at 60–61, 418
S.E.2d at 699. The reliance on the advice from a banker,
accountant, and their business partner showed that they had not
reposed any sort of special confidence with the plaintiff. Id.
Here, Plaintiffs were represented by an attorney when they
requested the redemption amount. Plaintiffs’ attorney initially
requested the redemption price, received Defendants’ email
requesting that Plaintiffs make an offer, and replied with the
sum which was eventually rejected. As Plaintiffs relied on
outside counsel, dismissal is also proper under the standard
announced in Branch Banking & Trust.
6
In this case, it seems that the parties substituted the trustee
at some point before Plaintiff fell behind on payments. The
parties are generally free to substitute a trustee. N.C. Gen.
Stat. § 45-10 (2013). The substitute trustee is generally
vested with the powers of the original trustee, and among those
powers is the power to proceed with foreclosure upon a deed in
default. Id.; Pearce v. Watkins, 219 N.C. 636, 642, 14 S.E.2d
653, 656 (1941).
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foreclosure proceeding. In re Vogler Realty, Inc., 365 N.C.
389, 397, 722 S.E.2d 459, 465 (2012). The trustee, vested in a
position of power by the debtor and creditor, is bound to act in
the interests of the parties and exercise its powers
accordingly. Id. at 397, 722 S.E.2d at 465.
The complaint shows that neither Fannie Mae nor Seterus
were the trustee or the substitute trustee when Defendants
requested Plaintiffs make a lump sum offer, nor at any other
point in the proceedings. At the 12(b)(6) hearing, both parties
stated that the trustee is not a defendant in the case.
Moreover, in Plaintiffs’ appellate brief, Plaintiffs name the
substitute trustee as Trustee Services of Carolina, LLC. As no
facts indicate that the trustee or substitute trustee was joined
as a defendant, no party owing a fiduciary duty to Plaintiffs is
a party to this breach of fiduciary duty claim. Accordingly,
dismissal under N.C. R. Civ. P. 12(b)(6) was proper.
IV. Conclusion
For the reasons stated above, the decision of the trial
court is
AFFIRMED.
Judges STROUD and DILLON concur.