Courtnay T. Brissett, & Husband, Ladwin Brissett, & Brissett Rental Props., LLC v. First Mount Vernon Indus. Loan Ass'n

• Decision Date: 01 April 2014
• Docket Number: No. COA13–685.,COA13–685.
• Court: North Carolina Court of Appeals
• Parties: Courtnay T. BRISSETT, and Husband, Ladwin Brissett, and Brissett Rental Properties, LLC, Plaintiffs, v. FIRST MOUNT VERNON INDUSTRIAL LOAN ASSOCIATION, Dale E. Duncan and Kathleen Neary as Trustees for First Mount Vernon Industrial Loan Association, Prodev XVI LLC, and John F. Gonzales, Jason Matthew A. Gold, The Shoaf Law Firm, P.A., James Bostic, Kim Richardson, and Labrador Financial Services, Inc., Defendants.

756 S.E.2d 798

Courtnay T. BRISSETT, and Husband, Ladwin Brissett, and Brissett Rental Properties, LLC, Plaintiffs,

v.FIRST MOUNT VERNON INDUSTRIAL LOAN ASSOCIATION, Dale E. Duncan and Kathleen Neary as Trustees for First Mount Vernon Industrial Loan Association, Prodev XVI LLC, and John F. Gonzales, Jason Matthew A. Gold, The Shoaf Law Firm, P.A., James Bostic, Kim Richardson, and Labrador Financial Services, Inc., Defendants.

No. COA13–685.

Court of Appeals of North Carolina.

April 1, 2014.

Appeal by plaintiffs from judgment filed 13 September 2012 by Judge Paul L. Jones in Craven County Superior Court. Heard in the Court of Appeals 20 November 2013.

Watsi M. Sutton, Attorney At Law, P.A., by Jacinta D. Jones and Watsi M. Sutton, for plaintiffs-appellants.

Ward and Smith, P.A., Wilmington, by Ryal W. Tayloe and Allen N. Trask, III, for defendants-appellees.

McCULLOUGH, Judge.

Courtnay T. Brissett (“C.Brissett”), Ladwin Brissett (“L.Brissett”) (together “plaintiffs”), and Brissett Rental Properties, LLC (the “rental company”), appeal from judgment filed 13 September 2012. For the following reasons, we find no error in part and reverse in part.

I. Background

In late 2004 and early 2005, plaintiffs purchased a number of distressed residential properties in New Bern, North Carolina as rental properties. Thereafter, at the advice of a CPA, plaintiffs had an attorney set up the rental company to hold the properties.

In late 2005, plaintiffs decided to begin rehabilitating the properties and began looking for financing. After several unsuccessful attempts to obtain financing from banks, plaintiffs, with the assistance of defendants Kim Richardson and James Bostic of defendant Labrador Financial Services, entered a loan agreement with defendant First Mount Vernon Industrial Loan Association (“FMV”) to acquire funds to rehabilitate six of the properties. Defendant Jason A. Gold, of defendant The Shoaf Law Firm, conducted the closing of the transactions on 9 January 2006. Plaintiffs had no relationship and did not communicate with FMV until after the closing.

As required by the closing instructions, plaintiffs signed documents at the closing deeding the six properties to ProDev XVI, LLC (“ProDev”), an entity established for the sole purpose of facilitating the loan. C. Brissett also signed the ProDev Operating Agreement and ProDev Organizational Agreement, which established C. Brissett as the 40% member and manager of ProDev and John Gonzales, a board member of FMV, as the controlling 60% member of ProDev. These ProDev documents also provided that C. Brissett would be conveyed Gonzales' 60% interest in ProDev upon payoff of the loan. The purpose of FMV requiring the conveyance of the properties to ProDev as a condition precedent to making the loan was to ease the collection process upon default and to protect FMV's interests from bankruptcy.

Plaintiffs executed all documents at the closing without reading them and without asking any questions. As a result, plaintiffs were not aware of the nature of the transaction.

Plaintiffs did not come to understand the terms of the documents executed at the closing until they encountered problems while attempting to refinance one of the completed properties later in 2006, at which point plaintiffs learned ProDev owned the property. By that time, plaintiffs had received approximately $131,500 in loan disbursements from FMV to rehabilitate the properties. The loan went into default in early 2007 and no further disbursements were made. Furthermore, upon default Gonzales exercised his right as the controlling member of ProDev to remove C. Brissett from her role as the managing member of ProDev.

On 7 June 2010, plaintiffs commenced this civil action with the filing of summonses, complaint, and notice of lis pendens in Craven County Superior Court. In the complaint, plaintiffs asserted numerous claims against the named defendants, including claims against FMV to quiet title, breach of contract and rescission, misrepresentation, lis pendens, unfair and deceptive trade practices, fraud in the inducement, constructive fraud, and civil conspiracy and conspiracy in facilitation of fraud.¹

FMV and its trustees, defendants Dale E. Duncan and Kathleen Neary, filed an answer to plaintiffs' complaint on 10 August 2010. The answer included various affirmative defenses, a counterclaim for reformation of certain deeds to correct typographical and other mistakes, and crossclaims against ProDev, Gold, The Shoaf Law Firm, Bostic, Richardson, and Labrador Financial Services. Plaintiffs replied on 6 October 2010.

FMV and its trustees later filed an amended answer, counterclaims, and cross-claims on 24 October 2011. In addition to the original counterclaim for reformation of deeds, FMV and its trustees asserted counterclaims for guaranty, unjust enrichment, and an equitable lien or constructive trust. Plaintiffs replied on 25 April 2012.

On 4 September 2012, the case was called for trial in Craven County Superior Court, the Honorable Paul Jones, Judge presiding. Prior to impaneling a jury, the court heard arguments on motions in limine. In regard to FMV's and its trustees' motion to exclude all evidence of Virginia State Bar proceedings against Duncan and Gonzales, the trial court ordered the transcripts of the proceedings to be excluded.

The following morning, 5 September 2012, a final pretrial order with stipulations as to undisputed facts was filed and the jury trial began.

On 6 September 2012, prior to testimony resuming for a second day, FMV and its trustees informed the trial court that they would move for a directed verdict at the close of plaintiffs' evidence and submitted a trial brief for the court's consideration. Thereafter, at the close of plaintiffs' evidence on 7 September 2012, FMV and its trustees moved for a directed verdict pursuant to N.C. Gen.Stat. § 1A–1, Rule 50. Following a weekend recess, on 10 September 2012, plaintiffs responded with a trial brief opposing the motion for a directed verdict and the trial court heard arguments on the matter. The trial court then granted the motion for a directed verdict as to the following claims for relief against various parties: (3) Misrepresentation, (5) Unfair and Deceptive Trade Practices, (9) Fraud in the Inducement, (10) Constructive Fraud, (11) Unfair and Deceptive Trade Practices, (12) Constructive Trust, (16) Constructive Fraud, and (17) Civil Conspiracy and Conspiracy in Facilitation of Fraud.

FMV put on only documentary evidence and subsequent to a charge conference, the trial court instructed the jury on the following six issues:

(1) Did the deeds from [C. Brissett] and [L. Brissett] and [the rental company] to [ProDev] meet the requirements of the law for conveying valid title?

(2) Was the consideration given to [C. Brissett] and [L. Brissett] and [the rental company] for executing the deeds from [C. Brissett] and [L. Brissett] and [the rental company] to [ProDev] grossly inadequate under the circumstances?

(3) Did the deed of trust from [C. Brissett] and [L. Brissett] and [the rental company] to [ProDev] meet the requirements of the law for creating a valid debt?

(4) Is [FMV] entitled to have a lien on the five properties?

(5) What is the amount of [FMV's] lien which does not include interest on said amount if any?

(6) Did [FMV] act with “unclean hands” in its conduct, or in the conduct of its agents, relating to the loan transaction of January 9, 2006?

After deliberating, the jury reached a unanimous decision on all issues except for issues two and six, to which the jury was deadlocked eleven to one. As to issues one and three, the jury determined the deeds did not meet the requirements of the law for conveying valid title or creating a valid debt. As to issues four and five, the jury determined FMV was entitled to a lien on the five properties in the amount of $131,500.

The case was held open until 12 September 2012 when the trial court considered post-trial arguments. At that time, FMV moved for a judgment notwithstanding the verdict (“JNOV”) pursuant to N.C. Gen.Stat. § 1A–1, Rule 50(b)(1); essentially asking the court to decide the undecided issues as a matter of law. Plaintiffs responded with their own motions for a JNOV and a new trial.

At the conclusion of the arguments, the trial court denied plaintiffs' motions and granted FMV's motion, deciding issues two and six in favor of FMV.

On 13 September 2012, the trial court filed a judgment reforming the deed of trust so that FMV has a lien on the properties in the amount of $131,500 with a right to foreclose on the lien by power of sale. The judgment further dismissed all claims by plaintiff against FMV and its trustees and ordered the lis pendens filed in the action to be of no further force and effect and to be canceled by the Craven County Clerk of Superior Court.

Plaintiffs filed notice of appeal from the 13 September 2012 judgment on 11 October 2012.

II. Discussion

Plaintiffs raise the following five issues on appeal: whether the trial court erred by (1) granting FMV's motion to exclude the transcriptof Gonzales' testimony during Virginia State Bar proceedings; (2) directing a verdict in favor of FMV on plaintiffs' fraud and misrepresentation claims; (3) directing a verdict in favor of FMV on plaintiffs' constructive fraud claim; (4) denying plaintiffs the opportunity to present evidence of FMV's net worth, revenues, and similar past conduct; and (5) entering a judgment notwithstanding the verdict on the issue of unclean hands.

1. Exclusion of Evidence

Plaintiffs first argue the trial court erred in excluding the transcript of Gonzales' testimony in Virginia State Bar proceedings from the evidence admitted at trial.

“Admission of evidence is ‘addressed to the sound discretion of the trial court and may be disturbed on appeal only where an abuse of such discretion is clearly shown.’ ” Gibbs v. Mayo, 162 N.C.App. 549, 561, 591 S.E.2d 905, 913 (2004) (qu...