Reynolds-Douglass v. Terhark

• Decision Date: 17 June 2022
• Docket Number: 43A21
• Parties: Dawn REYNOLDS-DOUGLASS v. Kari TERHARK
• Court: North Carolina Supreme Court

381 N.C. 477

873 S.E.2d 552

Dawn REYNOLDS-DOUGLASS

v.Kari TERHARK

No. 43A21

Supreme Court of North Carolina.

Filed June 17, 2022

David G. Omer, for plaintiff-appellee.

Williams Mullen, Raleigh, by Michael C. Lord, for defendant-appellant.

ERVIN, Justice.

¶ 1 This case involves the issue of whether the trial court erred by awarding attorney's fees in an action seeking the recovery of money owed under a contract to purchase real estate which obligated the buyer to pay the seller a due diligence fee and an earnest money deposit. After the buyer breached the real estate contract, the seller brought an action in small claims court for the purpose of recovering the due diligence fee that was owed to her pursuant to that agreement. The real estate contract also provided that the prevailing party in an action seeking to recover the earnest money deposit was entitled to collect "reasonable attorney's fees" from the opposing party. After the trial court awarded the requested attorney's fees on appeal from a decision of the magistrate in plaintiff's favor, the buyer appealed, arguing that the contract did not constitute an "evidence of indebtedness" pursuant to N.C.G.S. § 6-21.2 and that the requested attorney's fee award lacked sufficient support in the relevant statutory provision. A majority of the Court of Appeals found no error in the challenged attorney's fees award. After careful consideration of the record in light of the applicable law, we affirm the decision of the Court of Appeals.

¶ 2 In mid-2017, plaintiff Dawn Reynolds-Douglass and her husband employed a real estate agent named Dee Love to assist them in listing their home for sale. As part of that process, Ms. Love advised plaintiff and her husband to complete a "Residential Property and Owners’ Association Disclosure Statement" as required by Chapter 47E of the General Statutes of North Carolina. Plaintiff and her husband completed the required disclosure statement, except for leaving two items blank, the first of which addressed whether the property was "subject to any utility or other easements, shared driveways, party walls or encroachments" and the second of which addressed whether "any fees [were] charged by the association or by the association's management company in connection with the conveyance or transfer of the lot or property to a new owner."

¶ 3 On 23 July 2017, Ms. Love hosted an open house at which plaintiff's residence could be viewed by potential buyers, including defendant Kari Terhark. On the following day, defendant met with Ms. Love for the purpose of reviewing the disclosure statement that plaintiff and her husband had completed. At the conclusion of the review process, defendant signed each page of the disclosure statement and executed an "Offer to Purchase and Contract" in which she agreed to purchase plaintiff's property for $250,000. The Offer to Purchase and Contract provided, in pertinent part:

(d) "Purchase Price":

$250,000.00 paid in U.S. Dollars upon the following terms:

$2,000.00 BY DUE DILIGENCE FEE made payable and delivered to Seller by the Effective Date.

....

$2,500.00 BY (ADDITIONAL) EARNEST MONEY DEPOSIT made payable and delivered to Escrow Agent named in Paragraph 1(f) by cash, official bank check, wire transfer or electronic transfer no later than August 14, 2017 ....

....

$245,500.00 BALANCE of the Purchase Price in cash at Settlement (some or all of which may be paid with the proceeds of a new loan).

In addition, the Offer to Purchase and Contract provided:

(e) "Earnest Money Deposit": The Initial Earnest Money Deposit, the Additional Earnest Money Deposit and any other earnest monies paid or required to be paid in connection with this transaction, collectively the "Earnest Money Deposit," shall be deposited and held in escrow by Escrow Agent until Closing, at which time it will be credited to Buyer, or until this Contract is otherwise terminated.... In the event of breach of this Contract by Buyer, the Earnest Money Deposit shall be paid to Seller as liquidated damages and as Seller's sole and exclusive remedy for such breach, but without limiting Seller's rights under Paragraphs 4(d) and 4(e) for damage to the Property or Seller's right to retain the Due Diligence Fee. It is acknowledged by the parties that payment of the Earnest Money Deposit to Seller in the event of a breach of this Contract by Buyer is compensatory and not punitive, such amount being a reasonable estimation of the actual loss that Seller would incur as a result of such breach. The payment of the Earnest Money Deposit to Seller shall not constitute a penalty or forfeiture but actual compensation for Seller's anticipated loss, both parties acknowledging the difficulty [of] determining Seller's actual damages for such breach. If legal proceedings are brought by Buyer or Seller against the other to recover the Earnest Money Deposit, the prevailing party in the proceeding shall be entitled to recover from the non-prevailing party reasonable attorney fees and court costs incurred in connection with the proceeding.

....

(i) "Due Diligence Fee": A negotiated amount, if any, paid by Buyer to Seller with this Contract for Buyer's right to terminate the Contract for any reason or no reason during the Due Diligence Period. It shall be the property of Seller upon the Effective Date and shall be a credit to Buyer at Closing. The Due Diligence Fee shall be non-refundable except in the event of a material breach of this Contract by Seller ....

On the same date, plaintiff and her husband accepted defendant's offer by initialing each page of the Offer to Purchase and Contract and signing the final page. After both parties had executed the Offer to Purchase and Contract, plaintiff and her husband removed their residence from the real estate market in anticipation of closing.

¶ 4 On 27 July 2017, defendant sent an e-mail to Ms. Love in which she stated that she intended to cancel the contract unless plaintiff and her husband agreed to reduce the purchase price by $5,500. In response, Ms. Love told defendant that she was in breach of the contract that she had made with plaintiff and plaintiff's husband. Defendant did not pay the $2,000 due diligence fee or the $2,500 earnest money deposit fee that were due to plaintiff and plaintiff's husband under the contract, with further negotiations that were intended to facilitate a closing ultimately proving unsuccessful.

¶ 5 On 29 September 2017, plaintiff, proceeding pro se , filed a complaint against defendant in small claims court seeking to recover the $2,000 due diligence fee. On 30 October 2017, the magistrate entered a judgment in favor of plaintiff and against defendant in the amount of $2,000. After defendant noted an appeal to the district court from the magistrate's judgment, the matter was referred to arbitration on 24 January 2018, with the arbitrator ultimately entering an award in the amount of $2,000 in favor of plaintiff. On 26 January 2018, defendant filed a separate claim against plaintiff in small claims court in which she sought $4,500 in damages and alleged that plaintiff had breached the purchase contract and was in "violation of the Property Disclosure Act" and in "violation of form 352-T," with plaintiff having retained an attorney in light of the filings of defendant's separate claim.

¶ 6 On or about 27 April 2018, plaintiff, acting through counsel, filed an amended complaint in which she sought to recover $2,000 for non-payment of the due diligence fee; $2,500 in damages for non-payment of the earnest money deposit; attorney's fees and court costs; and $9,000 in compensatory damages, an amount which plaintiff claimed to be the "reasonable difference between (i) the purchase price of the Property pursuant to the Agreement and (ii) the market value of the Property after it had to be re-listed." On 29 June 2018, defendant, who was also acting through an attorney at this point in the litigation, filed an answer to plaintiff's amended complaint. On 20 December 2018, plaintiff filed a motion seeking the entry of summary judgment in her favor, with defendant having filed a cross-motion seeking summary judgment in her own favor on 4 February 2019.

¶ 7 On 26 February 2019, the trial court entered an order granting summary judgment in favor of plaintiff. On 19 September 2019, plaintiff filed a motion seeking to have the trial court determine the amount of damages that she was entitled to recover and an application seeking an award of $15,564.74 in fees and costs, including attorney's fees, with plaintiff's counsel having asserted in an attached affidavit that plaintiff had incurred $13,067.70 in attorney's fees and $577.04 in court costs in prosecuting this action and $1,920 in attorney's fees relating to a bankruptcy petition that defendant had also filed. On 20 September 2019, the trial court entered an order finding that plaintiff was entitled to recover $18,343.92 from defendant, including $2,000 relating to the due diligence fee; $2,500 relating to the earnest money deposit; $776.22 in pre-judgment interest relating to the due diligence fee and earnest money deposit; and $13,067.70 in attorney fees. Defendant noted an appeal to the Court of Appeals from the trial court's order.

¶ 8 In seeking relief from the trial court's order before the Court of Appeals, defendant, proceeding pro se , argued that the trial court had erred by (1) granting summary judgment in plaintiff's favor in spite of the existence of genuine issues of material fact concerning the extent to which plaintiff had complied with the Residential Property Disclosure Act; (2) denying defendant's summary judgment motion; and (3) finding that plaintiff was entitled to recover attorney's fees. In rejecting defendant's challenge to the trial court's decision to enter summary judgment in plaintiff's favor with respect to the merits of plaintiff's claim, the Court of Appeals held that the trial court had correctly concluded that there were no genuine...