Bryant v. Wells Fargo Bank, Nat'l Ass'n

• Decision Date: 19 March 2012
• Docket Number: No. 5:10–CV–237–D.,5:10–CV–237–D.
• Citation: 861 F.Supp.2d 646
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: Jerry BRYANT, and Cathleen Bryant, Plaintiffs, v. WELLS FARGO BANK, NATIONAL ASSOCIATION, et al., Defendants.

861 F.Supp.2d 646

Jerry BRYANT, and Cathleen Bryant, Plaintiffs,

v.WELLS FARGO BANK, NATIONAL ASSOCIATION, et al., Defendants.

No. 5:10–CV–237–D.

United States District Court,

E.D. North Carolina,

Western Division.

March 19, 2012.

Edward Hallett Maginnis, Maginnis Law, PLLC, Raleigh, NC, for Plaintiffs.

A. Lee Hogewood, III, Brian C. Fork, K & L Gates LLP, Brian O. Beverly, Young, Moore & Henderson, Raleigh, NC, Richard Lynn Jackson, Brock & Scott, PLLC, Winston–Salem, NC, Jason K. Purser, Shapiro & Ingle, LLP, Charlotte, NC, for Defendants.

ORDER

JAMES C. DEVER III, Chief Judge.

On June 14, 2010, Jerry Bryant and Cathleen Bryant (collectively “Bryants” or “plaintiffs”) sued Wells Fargo Bank, N.A., (“Wells Fargo”) and numerous other defendants [D.E. 1, 1–1–1–3]. On January 18, 2011, plaintiffs filed an amended complaint [D.E. 12]. Plaintiffs' various state and federal law claims relate to a mortgage on plaintiffs' residential property located in Raleigh, North Carolina. Am. Compl. ¶ 52. Defendants Brock & Scott Holdings, Inc., (“Brock & Scott”) and Jeremy B. Wilkins (“Wilkins”) (collectively “Brock defendants”), and defendants Shapiro & Ingle, LLP (“Shapiro & Ingle”), Grady Ingle (“Ingle”), Elizabeth B. Ellis (“Ellis”), and Richard McNeely (“McNeely”) (collectively “Shapiro defendants”) (collectively “defendants”) moved to dismiss plaintiffs' complaint against them for failure to state a claim upon which relief can be granted [D.E. 45, 56]. Plaintiffs filed memoranda in opposition to the motions to dismiss [D.E. 58, 59]. On January 24, 2012, Magistrate Judge Daniel issued a memorandum and recommendation (“M & R”) as to the motions to dismiss [D.E. 67]. In the M & R, Judge Daniel recommended that the court grant the motions and dismiss plaintiffs' claims against defendants. M & R 1. On February 7, 2012, plaintiffs objected to the M & R [D.E. 68]. Defendants did not reply to plaintiffs' objections. As explained below, the objections lack merit. Accordingly, the court overrules the objections, adopts the M & R, and grants defendants' motions to dismiss.

I.

“The Federal Magistrates Act requires a district court to make a de novo determination of those portions of the [magistrate judge's] report or specified proposed findings or recommendations to which objection is made.” Diamond v. Colonial Life & Accident Ins. Co., 416 F.3d 310, 315 (4th Cir.2005) (alteration in original) (emphasis and quotation omitted); see28 U.S.C. § 636(b). Absent a timely objection, “a district court need not conduct a de novo review, but instead must only satisfy itself that there is no clear error on the face of the record in order to accept the recommendation.” Diamond, 416 F.3d at 315 (quotation omitted).

The court has reviewed the M & R, the record, and plaintiffs' objections. As for those portions of the M & R to which no party objected, the court is satisfied that there is no clear error on the face of the record.

The court has reviewed de novo the portions of the M & R to which plaintiffs objected. Plaintiffs raise five objections to the M & R. Pls.' Obj. [D.E. 68] 113. They argue that Judge Daniel erroneously determined that a substitute trustee was not a party to a deed of trust and therefore not subject to a breach of contract claim, that plaintiffs failed to specifically allege that defendants were substitute trustees, that plaintiffs did not adequately plead that defendants had breached their fiduciary duties, and that plaintiffs failed to adequately state a claim for breach of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692, and North Carolina's debt collection statutes, N.C. Gen.Stat. §§ 58–70–90 et seq.

A.

Plaintiffs' rest their breach of contract claim on defendants' alleged failure to abide by the terms of the deed of trust. See Am. Compl. [D.E. 12] ¶ ¶ 63, 83, 89–91; see Compl. [D.E. 1], Ex. A (“Deed of Trust”). Defendants were not original parties to the deed of trust; however, plaintiffs allege that each defendant served as a substitute trustee. Am. Compl. ¶¶ 23, 46, 48, 49. Because defendants were not original parties to the deed of trust, and because nothing in the deed of trust or North Carolina appellate authority clearly permits a breach of contract action against substitute trustees to a deed of trust, Judge Daniel recommended dismissal of plaintiffs' breach of contract claim. See M & R 8.

Under North Carolina law, a defendant who “was not a party to [a] contract ... cannot be held liable for any breach” of that contract. Canady v. Mann, 107 N.C.App. 252, 259, 419 S.E.2d 597, 601 (1992); see Childress v. Concord Hospitality Assocs., LLC, ––– N.C.App. ––––, ––––, 714 S.E.2d 274, 2011 WL 2848767, at *6 (N.C.App. July 19, 2011) (unpublished table decision). However, a deed of trust imposes certain rights and obligations upon a trustee. See Sprouse v. N. River Ins. Co., 81 N.C.App. 311, 316, 344 S.E.2d 555, 559 (1986) (“The deed of trust results in legal title to the property being in the trustee.”); Sloop v. London, 27 N.C.App. 516, 519, 219 S.E.2d 502, 504–05 (1975) (recognizing that a deed of trust imposed on a trustee a fiduciary duty “to use diligence and fairness in conducting [a foreclosure] sale”). Thus, a trustee may be liable for breach of a fiduciary duty imposed by a deed of trust. See Sloop, 27 N.C.App. at 519–20, 219 S.E.2d at 504–05. However, plaintiffs have not cited any language in the deed of trust or any case from a North Carolina appellate court suggesting that, under North Carolina law, a substitute trustee who was not an original party to a deed of trust is subject to a breach of contract action under the deed of trust.

Sitting in diversity, the court must predict how the Supreme Court of North Carolina would rule on this issue. See Twin City Fire Ins. Co. v. Ben Arnold–Sunbelt Beverage Co. of S.C., 433 F.3d 365, 369 (4th Cir.2005). In doing so, the court must not “create or expand [North Carolina] public policy.” Time Warner Entm't–Advance/Newhouse P'ship v. Carteret–Craven Elec. Membership Corp., 506 F.3d 304, 314 (4th Cir.2007) (quotation omitted). Because North Carolina courts have not recognized a substitute trustee's contractual liability under a deed of trust, this court's doing so would “create or expand [North Carolina] public policy.” Id. Thus, the court declines to do.

In opposition to this conclusion, plaintiffs cite a Fourth Circuit decision in which the Fourth Circuit, construing Virginia law, held that a purchaser of a deed of trust acquired the contractual rights that the deed of trust afforded to the original holder of the note and deed of trust. See Horvath v. Bank of N.Y., N.A., 641 F.3d 617, 625 (4th Cir.2011); Pls.' Obj. 2–3. Plaintiffs argue that it follows from Horvath that a substitute trustee becomes a party to a deed of trust, and thus is subject to a breach of contract action under the deed of trust. Pls.' Obj. 3. Plaintiffs then argue that defendants were substitute trustees possessing the power of foreclosure. Id. 3–5. Plaintiffs conclude that defendants “should be liable for breach of [the] deed of trust” because “[t]he contractual rights and duties of a trustee in conducting a foreclosure are the very purpose for the existence of the deed of trust contract.” Id. 5.

Horvath does not help plaintiffs. First, unlike in Horvath, plaintiffs' amended complaint does not allege that defendants were parties to the deed of trust. See Am. Compl. ¶¶ 89–91. Second, in Horvath, the Fourth Circuit relied upon “several centuries” of Virginia law in reaching its decision. 641 F.3d at 618, 621, 626. Moreover, the Fourth Circuit's conclusion regarding the rights of the deed of trust's purchaser rested upon the language of the deed of trust. Id. at 625. The court held that a reading of the instrument that withheld from the deed of trust's purchaser rights enjoyed by the original lender would defeat the instrument's transferability provision. Id. Thus, Horvath did not create or expand Virginia public policy, see Time Warner, 506 F.3d at 314, but instead applied plain contractual language based on settled Virginia precedent. Horvath, 641 F.3d at 625. In contrast, plaintiffs cite nothing in the deed of trust that would permit plaintiffs to sue the substitute trustee for breach of contract and cite no North Carolina appellate authority that plainly supports their position. Accordingly, plaintiffs' claim fails.

B.

Plaintiffs also object to Judge Daniel's conclusion that they failed to state an FDCPA or an analogous North Carolina claim against defendants. See Pls.' Obj. 11–13. Specifically, plaintiffs argue that Judge Daniel incorrectly determined that plaintiffs had not adequately pleaded that the Brock defendants violated section 1692g of the FDCPA. See Pls.' Obj. 10–11.

Section 1692g requires a debt collector, within five days of initiating collection-related contact with a consumer, to send the consumer a “validation notice” stating

(1) the amount of the debt; (2) the name of the creditor to whom the debt is owed; (3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt ... the debt will be assumed to be valid by the debt collector; (4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt ... is disputed, the debt collector will obtain verification of the debt ... and [will mail to the consumer] a copy of such verification ...; and (5) a statement that, upon the consumer's written request, within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

15 U.S.C. § 1692g(a). To comply with the FDCPA, a validation notice “must be placed in such a way to be easily readable, and must be prominent enough to be noticed by an unsophisticated consumer.” United States v. Nat'l Fin. Servs., Inc., 98 F.3d 131, 139 (4th Cir.1996)....