IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA18-871
Filed: 26 March 2019
Dare County, No. 16 CVS 489
JACQUELINE L. GRAY and MARY STEWART GRAY, Plaintiffs,
v.
FEDERAL NATIONAL MORTGAGE ASSOCIATION a/k/a FANNIE MAE, and
TRUSTEE SERVICES OF CAROLINA, LLC, SUBSTITUTE TRUSTEE, Defendants.
Appeal by defendants from order entered 13 March 2018 by Judge Wayland J.
Sermons, Jr. in Dare County Superior Court. Heard in the Court of Appeals 29
January 2019.
Nexsen Pruet PLLC, by Norman W. Shearin and George T. Smith III, for
plaintiffs-appellees.
Brock & Scott, PLLC, by Alan M. Presel, for defendant-appellant Trustee
Services of Carolina, LLC.
DAVIS, Judge.
In this appeal, we consider the applicability of the doctrine of collateral
estoppel to an order by a clerk of court authorizing a trustee to conduct a sale in a
non-judicial foreclosure proceeding pursuant to a deed of trust. Trustee Services of
Carolina, LLC (“TSC”) appeals from an order denying its motion for summary
judgment as to claims by the debtors for monetary damages stemming from the
foreclosure. Because we conclude the debtors’ claims are, in fact, barred by collateral
estoppel, we reverse the trial court’s order and remand for further proceedings.
GRAY V. FED. NAT’L MORTG. ASS’N
Opinion of the Court
Factual and Procedural Background
On 24 March 2006, Mary B. Gray and her husband, Jack S. Gray, executed and
delivered a promissory note to Wells Fargo Bank in the amount of $300,240 as part
of a reverse mortgage loan transaction. As security for the promissory note, the Grays
executed a deed of trust (the “Deed of Trust”) on property that they owned in Dare
County, North Carolina.
The description of the collateral contained in the Deed of Trust described a
tract of land that encompassed both the Grays’ primary residence as well as the home
of Grace Balance Peele, one of their relatives. Following the recordation of the Deed
of Trust, the Grays subsequently subdivided the parcel of land containing their
primary residence from the parcel containing Peele’s home.
Mary Gray and Jack Gray died on 21 March 2012 and 10 December 2013,
respectively. Jacqueline L. Gray and Mary Stewart Gray (collectively “Plaintiffs”)
are the only devisees of Mary and Jack Gray. Peele’s residence was devised to
Jacqueline Gray pursuant to the terms of Jack Gray’s will.
Following Jack Gray’s death, Wells Fargo proceeded to accelerate the
outstanding balance of the reverse mortgage loan. After providing notice of default
on the loan to the Grays’ estates, Wells Fargo instructed TSC to initiate non-judicial
foreclosure proceedings pursuant to the Deed of Trust.
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Opinion of the Court
On 27 March 2015, Plaintiffs were provided with notice of a hearing in
connection with the planned foreclosure proceeding. The hearing took place on 16
July 2015. Following the hearing, the Dare County assistant clerk of court entered
an order that same day authorizing TSC to proceed with foreclosure. Pursuant to the
order, TSC provided notice to Plaintiffs of the upcoming foreclosure sale, which
included a legal description of the property listed in the Deed of Trust.
At the foreclosure sale, Wells Fargo submitted the highest bid and purchased
the property for $187,500. Wells Fargo’s bid was assigned to Federal National
Mortgage Association (“Fannie Mae”), and on 29 September 2015 TSC executed and
delivered a deed to Fannie Mae that included the same description of the collateral
contained in the Deed of Trust.
On 9 September 2016, Plaintiffs filed a complaint against TSC and Fannie Mae
in Dare County Superior Court. In their complaint, they alleged that the description
of the property contained in the Deed of Trust erroneously included the land on which
Peele’s residence was situated. They further contended that they had received no
notice of the inclusion of the land containing Peele’s home in the description of the
property specified in the notice of foreclosure and that these mistakes “render[ed] [the
foreclosure sale] a nullity.” Plaintiffs’ complaint asserted six claims for relief,
including (1) a declaration that the foreclosure sale was a nullity; (2) mutual mistake;
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Opinion of the Court
(3) unjust enrichment; (4) a violation of the North Carolina Reverse Mortgage Act; (5)
breach of fiduciary duty; and (6) unfair and deceptive trade practices.
On 31 July 2017, TSC filed a motion for summary judgment pursuant to Rule
56 of the North Carolina Rules of Civil Procedure on the ground that the order entered
by the assistant clerk of court authorizing the foreclosure had constituted a final
judgment and that Plaintiffs’ claims were therefore barred pursuant to the doctrine
of collateral estoppel. TSC’s motion was heard on 5 March 2018 before the Honorable
Wayland J. Sermons, Jr. On 13 March 2018, the trial court entered an order denying
TSC’s motion. TSC gave notice of appeal to this Court.
Analysis
I. Appellate Jurisdiction
Plaintiffs have moved to dismiss this appeal on the ground that the trial court’s
order was interlocutory. Therefore, we must initially determine whether we possess
appellate jurisdiction.
“A final judgment is one which disposes of the cause as to all the parties,
leaving nothing to be judicially determined between them in the trial court.” Duval
v. OM Hospitality, LLC, 186 N.C. App. 390, 392, 651 S.E.2d 261, 263 (2007) (citation
omitted). Conversely, an order or judgment is interlocutory if it does not settle all of
the issues in the case but rather “directs some further proceeding preliminary to the
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Opinion of the Court
final decree.” Heavner v. Heavner, 73 N.C. App. 331, 332, 326 S.E.2d 78, 80, disc.
review denied, 313 N.C. 601, 330 S.E.2d 610 (1985).
“Generally, there is no right of immediate appeal from interlocutory orders and
judgments.” Paradigm Consultants, Ltd. v. Builders Mut. Ins. Co., 228 N.C. App.
314, 317, 745 S.E.2d 69, 72 (2013) (citation and quotation marks omitted). The
prohibition against interlocutory appeals “prevents fragmentary, premature and
unnecessary appeals by permitting the trial court to bring the case to final judgment
before it is presented to the appellate courts.” Russell v. State Farm Ins. Co., 136
N.C. App. 798, 800, 526 S.E.2d 494, 496 (2000) (citation and brackets omitted).
However, there are two avenues by which a party may
immediately appeal an interlocutory order or judgment.
First, if the order or judgment is final as to some but not
all of the claims or parties, and the trial court certifies the
case for appeal pursuant to N.C. Gen. Stat. § 1A-1, Rule
54(b), an immediate appeal will lie. Second, an appeal is
permitted under N.C. Gen. Stat. §§ 1-277(a) and 7A-
27(d)(1) if the trial court’s decision deprives the appellant
of a substantial right which would be lost absent
immediate review.
N.C. Dep’t of Transp. v. Page, 119 N.C. App. 730, 734, 460 S.E.2d 332, 334 (1995)
(internal citations omitted).
The trial court’s 13 March 2018 order was not a final judgment as it did not
fully resolve the claims asserted by the parties. Nor did the trial court purport to
certify it for immediate appeal under Rule 54(b). Therefore, TSC’s appeal is proper
only if it is able to demonstrate a substantial right that would be lost absent an
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Opinion of the Court
immediate appeal. See Embler v. Embler, 143 N.C. App. 162, 166, 545 S.E.2d 259,
262 (2001) (“The burden is on the appellant to establish that a substantial right will
be affected unless he is allowed immediate appeal from an interlocutory order.”
(citation omitted)).
It is well established that the denial of a motion for summary judgment “affects
a substantial right when the motion . . . makes a colorable assertion that [a] claim is
barred under the doctrine of collateral estoppel.” Turner v. Hammocks Beach Corp.,
363 N.C. 555, 558, 681 S.E.2d 770, 773 (2009). “Under the collateral estoppel
doctrine, parties and parties in privity with them are precluded from retrying fully
litigated issues that were decided in any prior determination and were necessary to
the prior determination.” Id. (citation, quotation marks, and ellipsis omitted). Thus,
we must determine whether TSC has made a colorable argument that the doctrine of
collateral estoppel applies in this context so as to enable us to exercise appellate
jurisdiction over this appeal.
Our Supreme Court addressed the applicability of collateral estoppel and res
judicata in the foreclosure context in In re Lucks, 369 N.C. 222, 794 S.E.2d 501 (2016).
In Lucks, an acting substitute trustee under a deed of trust initiated a non-judicial
foreclosure proceeding after the borrower on the note failed to make payments.
Lucks, 369 N.C. at 224, 794 S.E.2d at 503. The assistant clerk of court refused to
authorize the foreclosure based upon a lack of necessary documentation regarding
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Opinion of the Court
the appointment of the substitute trustee. Id. The following year, a different acting
substitute trustee brought another non-judicial foreclosure proceeding. At the second
hearing, the assistant clerk determined that “proper documentation established that
[the prior acting trustee] was the Trustee at the time of the prior dismissal[.]” Id.
(quotation marks and brackets omitted). The assistant clerk further ruled that the
second acting substitute trustee was in privity with the prior substitute trustee and
refused to authorize foreclosure based on the doctrine of res judicata. Id.
On appeal, our Supreme Court held that the assistant clerk had erred by
applying res judicata principles because “[n]on-judicial foreclosure is not a judicial
action.” Id. at 229, 794 S.E.2d at 507. The Court explained its ruling as follows:
[T]he Rules of Civil Procedure and traditional doctrines of
res judicata and collateral estoppel do not apply. To the
extent that prior case law implies otherwise, such cases are
hereby overruled. While it is true that [the creditor] is
barred from proceeding again with non-judicial foreclosure
based on the same default, [the creditor] may nonetheless
proceed with foreclosure by judicial action. [The creditor]
may also proceed with non-judicial foreclosure based upon
a different default.
Id.
The Supreme Court has not yet had occasion to decide whether the ruling in
Lucks applies in the converse situation where, as here, a clerk enters an unappealed
order allowing a non-judicial foreclosure to proceed. We find instructive, however,
several federal decisions interpreting Lucks. For example, Vicks v. Ocwen Loan
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Opinion of the Court
Servicing, LLC, 3:16-cv-00263, 2017 WL 2490007 (W.D.N.C. June 8, 2017) concerned
a non-judicial foreclosure action in which the clerk of court entered an order
authorizing a creditor to proceed with foreclosure. The borrower on the note
subsequently filed multiple lawsuits “trying to get [the] loan servicer to stop
attempting to complete [the] foreclosure action.” Id. at *1.
The United States District Court for the Western District of North Carolina
held that the borrower’s attempts to relitigate the validity of the creditor’s right to
foreclose were barred by the doctrines of collateral estoppel and res judicata. Id. at
*2. In explaining its reasoning, the court distinguished the facts of the case from
Lucks:
Plaintiffs cite to In re Lucks for the proposition that the
doctrines of collateral estoppel and res judicata do not
apply to non-judicial foreclosure actions. In that case,
however, the North Carolina Supreme Court held that the
doctrines do not apply in their “traditional” sense in that
once the clerk or trial court denies authorization for a
foreclosure sale, a creditor may not seek a non-judicial
foreclosure based on the same default. The creditor may
nonetheless proceed with foreclosure by judicial action or
proceed with foreclosure based upon a different default.
Accordingly, contrary to Plaintiff’s assertion, In re Lucks
did not hold that res judicata and collateral estoppel do not
apply to the circumstances presented in this case.
Id. at *2, n. 3 (internal citations and quotation marks omitted).
The United States Bankruptcy Court for the Eastern District of North Carolina
reached a similar result in In re Burgess, 575 B.R. 330 (Bankr. E.D.N.C. 2017). In
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GRAY V. FED. NAT’L MORTG. ASS’N
Opinion of the Court
Burgess, a debtor brought an action alleging that the creditor was not the actual
holder of a deed of trust applicable to a portion of the debtor’s real property and
therefore not entitled to initiate foreclosure proceedings pursuant to the deed of trust.
Id. at 334. In response, the creditor filed a motion to dismiss the action under the
doctrines of res judicata and collateral estoppel, arguing that it had previously
obtained an order from the clerk of court authorizing the foreclosure prior to the
debtor’s filing of a bankruptcy petition. Id. at 335.
The bankruptcy court noted its agreement with the ruling in Vicks that the
Supreme Court’s holding in Lucks with regard to the applicability of res judicata and
collateral estoppel to non-judicial foreclosure proceedings is limited to situations
“where the clerk denied authorization for a foreclosure sale[,]” id. at 343, concluding
as follows:
[Debtor’s] claims all rest on whether or not [the creditor] is
the valid holder of the Note and Deed of Trust, and that
those matters were conclusively established by the clerk in
entering the foreclosure order. Accordingly, each of the five
claims set out in the Complaint are barred by the doctrines
of collateral estoppel and res judicata, and accordingly
must be dismissed.
Id. at 344.
Although we are, of course, not bound by federal decisions on issues arising
under North Carolina law, the analyses in Vicks and Burgess are both relevant and
helpful in deciding this issue. See Lackey v. N.C. Dep’t of Human Res., 306 N.C. 231,
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Opinion of the Court
236, 293 S.E.2d 171, 175 (1982) (“These federal decisions . . . are not . . . controlling
on this court. However, we do deem them to be persuasive authority on the relevant
issues.” (internal citation omitted)). We find the logic of Vicks and Burgess to be
compelling and agree that Lucks simply stands for the proposition that the doctrines
of res judicata and collateral estoppel do not apply in situations where foreclosure
was not authorized by the clerk of court.
Based on our careful reading of Lucks, we do not believe the Supreme Court
intended for its holding to apply to the opposite situation — that is, where a clerk
enters an order authorizing foreclosure. Otherwise, without the applicability of res
judicata or collateral estoppel in such circumstances, a lender would potentially be
forced to relitigate basic issues relating to the validity of the foreclosure that had
already been decided in its favor, which would be inimical to the goal of establishing
with finality the rights of the parties under these circumstances. Here, because TSC’s
right to foreclose was authorized by the Dare County assistant clerk, we hold that res
judicata and collateral estoppel are, in fact, potentially applicable to Plaintiff’s claims.
Thus, we possess jurisdiction over this appeal, and TSC’s motion to dismiss the
appeal is denied.
II. Application of Collateral Estoppel to Plaintiffs’ Claims
We must next determine whether collateral estoppel actually serves to bar
Plaintiffs’ claims in the present case. “Our standard of review of an appeal from
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Opinion of the Court
summary judgment is de novo; such judgment is appropriate only when the record
shows that there is no genuine issue as to any material fact and that any party is
entitled to a judgment as a matter of law.” In re Will of Jones, 362 N.C. 569, 573, 669
S.E.2d 572, 576 (2008) (citation and quotation marks omitted).
Under the doctrine of collateral estoppel, “the determination of an issue in a
prior judicial . . . proceeding precludes the relitigation of that issue in a later action,
provided the party against whom the estoppel is asserted enjoyed a full and fair
opportunity to litigate that issue in the earlier proceeding.” Whitacre P'ship v.
Biosignia, Inc., 358 N.C. 1, 15, 591 S.E.2d 870, 880 (2004). Collateral estoppel
“precludes the subsequent adjudication of a previously determined issue, even if the
subsequent action is based on an entirely different claim.” Id. (citation omitted).
Pursuant to N.C. Gen. Stat. § 45-21.16(d), the issues to be determined by the
clerk in a non-judicial foreclosure proceeding include “the existence of (i) valid debt
of which the party seeking to foreclose is the holder, (ii) default, (iii) right to foreclose
under the instrument, [and] (iv) notice to those entitled[.]” Funderburk v. JPMorgan
Chase Bank, N.A., 241 N.C. App. 415, 422, 775 S.E.2d 1, 6 (2015) (citation and
emphasis omitted).
Plaintiffs first contend that they did not receive an adequate opportunity to
litigate the issue giving rise to their present complaint at the foreclosure proceeding
before the assistant clerk because they were not put on notice that the foreclosure
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Opinion of the Court
sale would encompass the land upon which Peele’s residence was situated. The record
shows, however, that Plaintiffs were notified of the date of the foreclosure hearing by
means of a notice that was mailed to them on 27 March 2015. This notice contained
the description of the property secured by the Deed of Trust upon which TSC intended
to foreclose.
Plaintiffs next argue that the claims asserted in their complaint are not barred
by collateral estoppel because they “were not brought in — and could not have been
brought in — the non-judicial foreclosure proceeding[.]” We find our decision in
Funderburk to be instructive in addressing their argument. In that case, the creditor
initiated non-judicial foreclosure proceedings on eight of the borrowers’ properties
and “foreclosure hearings were held in which the clerk entered orders authorizing
foreclosure sales of all eight properties.” Id. at 417, 775 S.E.2d at 3. The borrowers
later asserted causes of action for, inter alia, breach of contract, promissory estoppel,
and negligent misrepresentation. Id.
On appeal, this Court stated that “the orders of the clerk . . . allowing
foreclosure on the eight properties in the prior foreclosure proceedings are conclusive
on the issue of default and other issues required to be determined under N.C. Gen.
Stat. § 45-21.16, barring relitigation.” Id. at 423, 775 S.E.2d at 6. We further noted
that “a review of the amended complaint shows that all damages alleged by plaintiffs
stem from the foreclosures of the properties.” Id. at 423, 775 S.E.2d at 7.
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Opinion of the Court
Consequently, we held that the borrowers’ claims were “barred by the final
determinations as to the rights of the parties in the foreclosure proceedings.” Id. See
also Phil Mech. Constr. Co., Inc. v. Haywood, 72 N.C. App. 318, 322, 325 S.E.2d 1, 3
(1985) (“Since plaintiffs did not perfect an appeal of the order of the Clerk of Superior
Court, the clerk’s order is binding and plaintiffs are estopped from arguing those
same issues in this case.”).
We are also guided by our Supreme Court’s decision in In re Michael Weinman
Assocs. Gen. P’Ship, 333 N.C. 221, 424 S.E.2d 385 (1993), which addressed the issue
of “whether evidence that property is no longer or should no longer be secured by a
deed of trust qualifies as a defense which can be considered by the Clerk in making
the four findings required by N.C. Gen. Stat. § 45-21.16(d).” Id. at 226, 424 S.E.2d at
388. The Court concluded that “determining which property is legally secured by a
deed of trust is a proper issue and element of proof before the Clerk of Superior
Court.” Id. at 228, 424 S.E.2d at 389.
In the present case, Plaintiffs did not appeal the order of the Dare County
assistant clerk authorizing foreclosure under the Deed of Trust despite their ability
to have done so. Therefore, we are satisfied that Plaintiffs were properly notified of
the proceeding and “enjoyed a full and fair opportunity to litigate” the threshold issue
of whether TSC was authorized to foreclose pursuant to the Deed of Trust. Whitacre
P’ship, 358 N.C. at 15, 591 S.E.2d at 880. As a result, our final inquiry is whether
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Opinion of the Court
the assistant clerk’s resolution of the issues addressed in its order is fatal to the
claims Plaintiffs have asserted in their complaint. In making such a determination,
we must consider whether any of the claims in Plaintiffs’ complaint raise issues that
were not conclusively determined by the clerk.
As noted above, Plaintiffs’ complaint asserts six claims for relief: (1) a
declaration that the foreclosure sale was a nullity; (2) mutual mistake; (3) unjust
enrichment; (4) a violation of the Reverse Mortgage Act; (5) breach of fiduciary duty;
and (6) unfair and deceptive trade practices.
Plaintiffs’ claims seeking a declaratory judgment that the foreclosure is “a
nullity” and asserting mutual mistake and unjust enrichment are all premised upon
an alleged mistake in the description of the property in the Deed of Trust. As such,
these arguments merely constitute a collateral attack on TSC’s right to foreclose upon
the property under the Deed of Trust. These issues were all previously determined
by the clerk in its 16 July 2015 order. Therefore, we hold that Plaintiffs are
collaterally estopped from raising these claims in this lawsuit. Plaintiffs’ claims for
breach of fiduciary duty and unfair and deceptive trade practices are likewise barred
under principles of collateral estoppel because the conduct upon which these causes
of action are based is the foreclosure itself.
Finally, we reach the same conclusion with respect to Plaintiffs’ claim under
the Reverse Mortgage Act. N.C. Gen. Stat. § 53-271(d) provides that “[a] person
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Opinion of the Court
damaged by a lender’s actions may file an action in civil court to recover actual and
punitive damages.” N.C. Gen. Stat. § 53-271(d) (2017). As noted above, in
Funderburk this Court held that damages stemming from issues conclusively
established in a foreclosure proceeding could not be recovered in a subsequent
lawsuit. See Funderburk, 241 N.C. App. at 423, 775 S.E.2d at 7. Here, the damages
alleged by Plaintiffs with regard to their claim that Defendants violated the Reverse
Mortgage Act are based upon the “loss of use and enjoyment of the property, loss of
rents, and physical damage to the property . . . by the actions of the defendants[.]”
Thus, it is clear that the damages Plaintiffs seek to recover on this claim — as with
their other causes of action — flow directly from the foreclosure itself. For this
reason, Plaintiffs are collaterally estopped from asserting this claim.
Conclusion
For the reasons stated above, we reverse the trial court’s 13 March 2018 order
and remand for the entry of an order granting summary judgment in favor of TSC.
REVERSED AND REMANDED WITH INSTRUCTIONS.
Judge INMAN concurs.
Judge BRYANT concurs in the result only.
This opinion was authored by Judge Davis prior to 25 March 2019.
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