Sparrow v. Fort Mill Holdings, LLC

• Decision Date: 07 July 2020
• Docket Number: No. COA19-1026,COA19-1026
• Citation: 846 S.E.2d 533
• Parties: Robert Clay SPARROW and Mickey Crowe, Plaintiffs v. FORT MILL HOLDINGS, LLC, and David Baucom, Defendants Robert Clay Sparrow and Mickey Crowe, Plaintiffs v. Maurer Holdings, LLC, and David Baucom, Defendants
• Court: North Carolina Court of Appeals

846 S.E.2d 533

Robert Clay SPARROW and Mickey Crowe, Plaintiffs

v.FORT MILL HOLDINGS, LLC, and David Baucom, Defendants

Robert Clay Sparrow and Mickey Crowe, Plaintiffs

v.Maurer Holdings, LLC, and David Baucom, Defendants

No. COA19-1026

Court of Appeals of North Carolina.

Filed: July 7, 2020

Henderson, Nystrom, Fletcher & Tydings, PLLC, by John W. Fletcher III, Belmont, and Christine M. Lamb, Davidson, for plaintiffs-appellees.

Cranford, Buckley, Schultze, Tomchin, Allen & Buie, P.A., Charlotte, by R. Gregory Tomchin and Joseph L. Ledford, for defendants-appellants.

HAMPSON, Judge.

Factual and Procedural Background

Fort Mill Holdings, LLC (Fort Mill), Maurer Holdings, LLC (Maurer), and David Baucom (Baucom) (collectively, Defendants) appeal from an Order on the Plaintiff's¹ Motion for Enforcement of Foreign Judgment (Enforcement Order) filed on 5 August 2019, concluding the foreign judgment from the Court of Common Pleas of York County, South Carolina (South Carolina Judgment), filed with the Clerk of Superior Court for Mecklenburg County remains in effect until satisfied. Relevant to this appeal, the Record before us tends to show the following:

On or about 1 December 2011, Robert Clay Sparrow (Sparrow) and Mickey Crowe (Crowe) (collectively, Plaintiffs) sold Defendants certain real property located in York County, South Carolina. Defendants financed the acquisition through two Purchase Money Promissory Notes (Notes) secured by two Mortgages totaling $1,191,800.00, naming Plaintiffs as the holders of the Notes and the mortgagees on the Mortgages. Both Notes specified they were "to be governed and construed in accordance with the laws of the State of North Carolina."

In June 2012, Defendants defaulted on the Notes, and Plaintiffs initiated two actions in the Court of Common Pleas of York County, South Carolina, on 8 February 2013. Plaintiffs sought judgment against Defendants, foreclosure of the Mortgages in the amounts due and owed under the Notes, and the right to seek deficiency judgments for the remaining balance of the Notes after a foreclosure sale of the real property secured by the Mortgages. In response, Defendants filed a Motion to Dismiss Defendant Baucom and Answers and Counterclaims in both actions.

During the course of litigation in South Carolina, on 1 October 2014, Crowe decided to migrate away from this dispute and assigned his rights and interest in the Notes and Mortgages to Sparrow who proceeded to fly solo with the litigation. Prior to trial, the parties and their counsel participated in mediation pursuant to the South Carolina Alternative Dispute Resolution (ADR) Rules. On 7 October 2014, the parties and their counsel signed an agreement to settle the then-pending claims (Settlement Agreement). The South Carolina Court of Common Pleas described the terms of the Settlement Agreement as follows:

Plaintiffs agreed to pay the outstanding real estate taxes on the property, so that the property would not be sold at a tax sale. On their part, Defendants agreed to execute a contingent confession of judgment in favor of Plaintiffs as follows: (1) Principal and Interest under the Notes for $1,356,752.10 (at 7% interest through October 7, 2014); (2) Real Property Taxes of $70,595.46; and, (3) the combined amount of (1) & (2) to bear interest at a rate of $273.74 per diem until the judgment was paid in full.

Plaintiffs agreed not to file the confession of judgment until the earlier of October 7, 2015, or until the sale of the mortgaged properties by Defendants resulted in a deficiency. In such case, the confession of judgment would be reduced by the proceeds of the sales paid to Plaintiffs. If a sale of the properties resulted in excess proceeds over the judgment, the excess would go to Defendants. Additionally, Plaintiffs would release the mortgages on the two properties prior to closing of any bona fide sale of the property by Defendants.

Thereafter, and in accordance with the Settlement Agreement, Plaintiffs paid the outstanding real estate taxes on the property. Defendants, however, were unable to sell the property and refused to execute the confession of judgment as required by the Settlement Agreement. Consequently, Plaintiffs filed a motion to compel in the Court of Common Pleas, seeking enforcement of the terms of the Settlement Agreement.

After a hearing, the Court of Common Pleas entered the South Carolina Judgment on 30 March 2016. In its Judgment, the Court of Common Pleas found—"the terms of the [S]ettlement [A]greement are not ambiguous; nor was the [A]greement the a [sic] product of any fraud. The [A]greement was reduced to writing and signed by all parties and their counsel as required by Rule 43(k)" of the South Carolina Rules of Civil Procedure.² Defendants had also argued North Carolina's "anti-deficiency" statute³ "prevents Plaintiffs from obtaining a deficiency judgment in the foreclosure action, and that therefore, [Defendants] are not required to execute the confession of judgment." The Court of Common Pleas, however, disagreed, concluding the North Carolina anti-deficiency statute was immaterial because "[t]he present case pertains only to enforcement of a voluntary settlement agreement made in accordance with applicable South Carolina rules and case law." Further, the Court of Common Pleas concluded it would be substantially unfair to Plaintiffs if the Settlement Agreement was not enforced because Plaintiffs had already paid all the outstanding real estate taxes as consideration for entering into the Settlement Agreement. Accordingly, the Court of Common Pleas granted Plaintiffs’ motion to compel enforcement of the Settlement Agreement and entered judgment against Defendants in the principal amount of $1,427,347.56 plus interest.

On 15 August 2016, pursuant to N.C. Gen. Stat. § 1C-1703, Plaintiffs enrolled the South Carolina Judgment with the Mecklenburg County Clerk of Superior Court. Plaintiffs served the Notice of Filing of Foreign Judgment on Defendants on 31 August 2016 and filed Defendants’ Acceptance of Service of the Notice of Filing of Foreign Judgment on 23 September 2016. On 28 September 2016, Defendants filed a Motion for Relief from and Notice of Defense to Foreign Judgment alleging, inter alia , the South Carolina Judgment was in violation of the public policy of North Carolina because it is a deficiency judgment on two purchase-money notes in violation of N.C. Gen. Stat. § 45-21.38. Defendants also attached a copy of their notice of appeal to the South Carolina Court of Appeals, appealing the South Carolina Judgment.⁴

On 24 May 2019, Sparrow filed a Motion for Enforcement of Foreign Judgment (Enforcement Motion) seeking to enforce the South Carolina Judgment. Prior to the hearing on Sparrow's Enforcement Motion, Defendants filed a Memorandum of Law in Opposition to Plaintiff's Motion for Enforcement of a Foreign Judgment raising additional defenses that the South Carolina Judgment was procured by extrinsic fraud and in violation of due process. On 27 June 2019, the trial court held a hearing on Sparrow's Enforcement Motion, resulting in the trial court entering its Enforcement Order on 5 August 2019.

In its Enforcement Order, the trial court rejected Defendants’ argument that enforcement of the South Carolina Judgment was precluded by North Carolina public policy and Defendants' "defenses of extrinsic fraud and violation of due process[.]" Instead, the trial court concluded the South Carolina Judgment "is a valid final judgment, enforceable in the rendering state of South Carolina when it was filed in North Carolina" and the South Carolina Judgment "is entitled to full faith and credit in North Carolina and to the same credit that it would be accorded in South Carolina." Accordingly, the trial court granted Sparrow's Enforcement Motion and decreed the South Carolina Judgment valid and enforceable against Defendants in North Carolina. On 27 August 2019, Defendants filed timely Notice of Appeal from the Enforcement Order.

Issue

The sole issue on appeal is whether in granting Sparrow's Enforcement Motion the trial court properly concluded the South Carolina Judgment is a valid final judgment entitled to full faith and credit in North Carolina and decreeing the South Carolina Judgment fully enforceable in North Carolina.

Analysis

I. Standard of Review

"We review de novo the issue of whether a trial court has properly extended full faith and credit to a foreign judgment." Marlin Leasing Corp. v. Essa , 263 N.C. App. 498, 823 S.E.2d 659, 662-63 (2019) (citing Tropic Leisure Corp. v. Hailey , 251 N.C. App. 915, 917, 796 S.E.2d 129, 131 (2017) ). "Under a de novo review, the court considers the matter anew and freely substitutes its own judgment for that of the lower tribunal." Craig v. New Hanover Cty. Bd. of Educ. , 363 N.C. 334, 337, 678 S.E.2d 351, 354 (2009) (citation and quotation marks omitted).

II. Uniform Enforcement of Foreign Judgments Act

"The Full Faith and Credit Clause of the United States Constitution requires North Carolina to enforce a judgment rendered in another state, if the judgment is valid under the laws of that state." Florida National Bank v. Satterfield , 90 N.C. App. 105, 107, 367 S.E.2d 358, 360 (1988) (citations omitted). "[B]ecause a foreign state's judgment is entitled to only the same validity and effect in a sister state as it had in the rendering state, the foreign judgment must satisfy the requisites of a valid judgment under the laws of the rendering state before it will be afforded full faith and credit." Bell Atlantic Tricon Leasing Corp. v. Johnnie's Garbage Serv. , 113 N.C. App. 476, 478-79, 439 S.E.2d 221, 223 (1994) (citation omitted). "[T]he test for determining when the Full Faith and Credit Clause requires enforcement of a foreign judgment focuses on the validity and finality of the judgment in the rendering state." DocRx, Inc. v. EMI Servs. of N.C., LLC , 367 N.C. 371, 375, 378, 758 S.E.2d 390, 393, 395 (2014) (citations omitted) ("[I...