Skinner v. Preferred Credit

Decision Date20 December 2006
Docket NumberNo. 525A05.,525A05.
Citation638 S.E.2d 203
CourtNorth Carolina Supreme Court
PartiesGarry Lee SKINNER, and wife, Judy Cooper Skinner, individually and on behalf of other similarly situated individuals v. PREFERRED CREDIT, a/k/a Preferred Credit Corporation, a/k/a Preferred Mortgage Company, a/k/a T.A.R. Preferred Mortgage Corporation; US Bank N.A.; US Bank NA, ND; Imperial Credit Industries, Inc.; ICIFC Secured Assets Corporation 1997-1; Mortgage Pass-Through Certificates, Series 1997-1; ICIFC Secured Assets Corporation Mortgage Pass-Through Certificates, Series 1997-2; ICIFC Secured Assets Corporation Mortgage Pass-Through Certificates, Series 1997-3; Empire Funding Home Loan Owner Trust 1998-1; Credit Suisse First Boston Mortgage Securities Corporation; CS First Boston Mortgage Securities Corporation Preferred Mortgage Asset-Backed Certificates, Series 1996-2; Credit Suisse First Boston Mortgage Securities Corporation Preferred Credit Asset-Backed Certificates, Series 1997-1; Bankers Trust Company; GMAC-Residential Funding Corporation; Life Bank; Life Financial Home Loan Owner Trust 1997-3; United Mortgage C.B., LLC; Banc One Financial Services; IMH Assets Corp. Collateralized Asset-Backed Bonds Series 1999-1; and Wilmington Trust Company.

Appeal pursuant to N.C.G.S. § 7A-30(2) from the decision of a divided panel of the Court of Appeals, 172 N.C.App. 407, 616 S.E.2d 676 (2005), affirming an order allowing defendants' motions to dismiss entered on 9 June 2004 by Judge Henry W. Hight, Jr. in Superior Court, Durham County. On 1 December 2005, the Supreme Court allowed plaintiffs' petition for writ of certiorari to review additional issues. Heard in the Supreme Court 16 March 2006.

Shipman & Wright, LLP, by Gary K. Shipman and William G. Wright, Wilmington, for plaintiff-appellants.

Womble Carlyle Sandridge & Rice, PLLC, by Hada V. Haulsee and Bradley R. Johnson, Winston-Salem, for defendant-appellees Preferred Credit Trust 1997-1 and Deutsche Bank Trust Company Americas.

Christopher G. Browning, Jr., Solicitor General, and Gary R. Govert, Special Deputy Attorney General, Raleigh, for Attorney General Roy Cooper, amicus curiae.

Center for Responsible Lending, by Seth P. Rosebrock, Durham, for Center for Responsible Lending, North Carolina Justice Center, Legal Services of Southern Piedmont, Inc., Pisgah Legal Services, Legal Aid Society of Northwest North Carolina, and Financial Protection Law Center, amici curiae.

Paul H. Stock, Greensboro, Counsel for North Carolina Bankers Association, amicus curiae.

NEWBY, Justice.

The issues on appeal are: (1) whether the trial court may exercise personal jurisdiction over a nonresident trust which holds notes secured by deeds of trust on North Carolina real property; and (2) when the statutes of limitations begin to run for an action alleging a usurious loan origination fee and a violation of the Unfair and Deceptive Trade Practices Act ("UDTPA"). Based on the specific facts of this loan agreement and the relationship of the parties, we hold that there is no personal jurisdiction over the trust and accordingly, affirm the Court of Appeals. Because we resolve this case on the basis of personal jurisdiction, we do not reach the statute of limitations issues.


Plaintiffs obtained a mortgage loan in the principal amount of $45,000.00 from defendant Preferred Credit Corporation ("Preferred Credit") on 22 January 1997. This loan was secured by a second deed of trust on plaintiffs' residence, under which First Carolina Bank was the trustee. The interest rate on the loan was 14.75% with a disclosed annual percentage rate of 16.902%, at a term of 180 months. The fees and costs charged to plaintiffs at closing were in the amount of $5,225.70, which included a $3,600.00 origination fee.

After closing, on 1 March 1997, Preferred Credit as seller entered into a Pooling and Servicing Agreement ("PSA") with Credit Suisse First Boston Mortgage Securities Corporation ("Credit Suisse") as depositor, Advanta Mortgage Corporation USA ("Advanta") as servicer, and Bankers Trust Company n/k/a Deutsche Bank Trust Company Americas ("DB Trust Co.") as trustee. Under this PSA, the Credit Suisse First Boston Mortgage Securities Corporation Preferred Credit Asset-Backed Certificates, Series 1997-1 ("1997-1 Trust") was formed.

Under a related but separate Sale and Purchase Agreement ("SPA"), Credit Suisse purchased mortgage loans from Preferred Credit. Credit Suisse then assigned all rights under the SPA to the 1997-1 Trust, thereby transferring certain mortgage loans with borrowers in North Carolina and thirty-seven other states. North Carolina notes composed approximately 3% in number and value of the 3,537 loans held by the 1997-1 Trust.

The PSA appointed DB Trust Co. as trustee of the 1997-1 Trust (which is different from the trustee under plaintiffs' deed of trust, First Carolina Bank). David Co, vice president of DB Trust Co., averred that the purpose of the 1997-1 Trust (through its trustee DB Trust Co.) is "to hold mortgage loans ..., receive income from the mortgage loans ..., distribute payments received from the Servicer ..., and issue certificates under the terms of the [PSA]." The 1997-1 Trust was formed and is administered under the laws of the State of New York. The 1997-1 Trust has no office other than the corporate offices of its trustee in California and New York; it has no employees; no employees or agents of the trust have traveled to North Carolina on its behalf; the trust does not "own, possess, lease, or use real estate" in North Carolina; it does not "engage in or transact any business"; it does not make contracts nor has it "contracted to supply any service or thing to anyone"; it has neither solicited nor entered into mortgage loan agreements in North Carolina; and it has not "directly collected payments, fees or commissions" from any borrowers associated with these loans.

Pursuant to the PSA forming the 1997-1 Trust, Advanta was named servicer of the mortgage loans eventually deposited with the 1997-1 Trust. Subsequently, Advanta transferred its servicing rights and responsibilities to Chase Manhattan Mortgage Corporation ("Chase"). By the terms of the PSA, the 1997-1 Trust's trustee is not authorized to directly collect payments on loans or enforce rights under the terms of the mortgage agreements; rather, the servicer Chase is authorized to "do any and all things in connection with ... servicing and administration [of the loans] which the Servicer may deem necessary or desirable." In the event of default, the servicer Chase is authorized to "take such action as it shall deem to be in the best interest of the Certificate holders and the Certificate Insurer." Chase is empowered to determine "in its discretion," whether to foreclose upon a defaulted loan or to allow its assumption by another borrower. The PSA further provides that "[i]f reasonably required by the Servicer, the Trustee [DB Trust Co.] shall execute any powers of attorney furnished to the Trustee by the Servicer and other documents necessary or appropriate to enable the Servicer to carry out its ... duties."

Chase services the 1997-1 Trust's mortgage loans from its office in California. This includes submitting statements to the borrowers and receiving payments therefrom in its California office. After collecting payments in California, Chase deducts its servicing fee and then remits the balance collected on the loans held by the 1997-1 Trust to trustee DB Trust Co. in New York.

Plaintiffs filed the present action1 alleging defendant Preferred Credit, the loan originator, charged excessive loan origination fees and usurious interest rates and violated the UDTPA. Multiple defendants were named in the complaint, but through the course of litigation and appeals, various defendants were dismissed. Preferred Credit was never served and has not made any appearance in this case. Chase, the loan servicer, is not a party to this action. The remaining defendants relevant to this appeal are the 1997-1 Trust and its trustee DB Trust Co.

The trial court dismissed plaintiffs' complaint against the 1997-1 Trust under Rules 12(b)(2) and 12(b)(6) of the North Carolina Rules of Civil Procedure. It also allowed DB Trust Co.'s motion to dismiss under Rules 12(b)(1) and 12(b)(6). The Court of Appeals, in a divided opinion, affirmed the trial court's dismissal of plaintiffs' claims against defendants on two alternative bases: (1) lack of personal jurisdiction; and (2) expiration of the applicable statutes of limitations. Skinner v. Preferred Credit, 172 N.C.App. 407, 616 S.E.2d 676 (2005). The dissenting opinion at the Court of Appeals only discussed the personal jurisdiction issue, id. at 415-27, 616 S.E.2d at 681-88 (Bryant, J., dissenting), and plaintiffs appealed as of right on that issue. Subsequently, we allowed plaintiffs' petition for writ of certiorari to review the statute of limitations issues. 360 N.C. 177, 626 S.E.2d 650 (2005).


As a preliminary matter, we note that plaintiffs do not allege or argue that personal jurisdiction over the 1997-1 Trust could be based on contacts that trustee DB Trust Co. might have with North Carolina. Moreover, there is no evidence in the record regarding any contacts DB Trust Co. has with North Carolina. Thus, analysis in this case will focus only on the 1997-1 Trust.

The question presented is whether North Carolina courts can exercise personal jurisdiction over the 1997-1 Trust. To determine whether a nonresident defendant is subject to personal jurisdiction in North Carolina, our Court employs a two-step analysis. First, jurisdiction over the action must be authorized by N.C.G.S. § 1-75.4, our state's long-arm statute. Dillon v. Numismatic Funding Corp., 291 N.C. 674, 675, 231 S.E.2d 629, 630 (1977). Second, if the long-arm statute permits consideration of the action, exercise of jurisdiction must not...

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