Wachovia Bank v. Blackburn, 27359.

• Citation: 755 S.E.2d 437,407 S.C. 321
• Decision Date: 02 April 2014
• Docket Number: No. 27359.,27359.
• Court: United States State Supreme Court of South Carolina
• Parties: WACHOVIA BANK, NATIONAL ASSOCIATION, Petitioner, v. William E. BLACKBURN; Judith Blackburn; Tammy S. Winner; Watson E. Felder; Gary F. Ownbey and South Island Plantation Association, Inc., Defendants, Of Whom William E. Blackburn; Judith Blackburn are, Respondents, v. Winyah Bay Holdings, LLC; Source One Properties, LLC; and Waterpointe Realty, LLC, Third Party Defendants. Appellate Case No. 2011–203088.

407 S.C. 321

755 S.E.2d 437

WACHOVIA BANK, NATIONAL ASSOCIATION, Petitioner,

v.William E. BLACKBURN; Judith Blackburn; Tammy S. Winner; Watson E. Felder; Gary F. Ownbey and South Island Plantation Association, Inc., Defendants,Of Whom William E. Blackburn; Judith Blackburn are, Respondents,

v.Winyah Bay Holdings, LLC; Source One Properties, LLC; and Waterpointe Realty, LLC, Third Party Defendants.

Appellate Case No. 2011–203088.

No. 27359.

Supreme Court of South Carolina.

Heard Dec. 5, 2013.

Decided Feb. 26, 2014.

Rehearing Denied April 2, 2014.

Robert C. Byrd and Alyson Smith Podris, both of Parker, Poe, Adams, & Bernstein, LLP, both of Charleston, for Petitioner.

Glenn V. Ohanesian, of Ohanesian & Ohanesian, of Myrtle Beach, for Respondents.

Chief Justice TOAL.

Wachovia Bank, National Association (Wachovia), appeals the court of appeals' decision reversing the circuit court's determination that William and Judith Blackburns' (collectively, Respondents) counterclaims in a mortgage foreclosure suit were within the scope of a jury trial waiver signed by Respondents. We reverse in part and affirm in part.

Facts/Procedural Background

On July 23, 2005, Winyah Bay Holdings, LLC (the Seller), held an event aimed at selling marsh-front lots located in South Island Plantation, an affluent, to-be-built housing development in Georgetown County. The Seller conducted the sale by lottery, using balls and numbers like the South Carolina Education Lottery,¹ and geared the event toward on-the-spot sales. To facilitate same-day sales, the Seller had Wachovia and two unrelated realty and marketing companies (the Realtors) set up booths to promote financing the lot sales. Respondents allege that the Seller, the Realtors, and Wachovia further enticed potential buyers by promising that “day docks, roads, infrastructure, pool [sic], marsh walks, and other amenities would be in place within 18 months of the lottery.” Respondents claim that these promises induced them into participating in the lottery.²

Over six months later, on February 14, 2006, Respondent William Blackburn delivered a promissory note to Wachovia in the amount of $463,967 to finance the purchase of one of the South Island Plantation lots. The note was secured by a mortgage and unconditional personal guaranties executed by Tammy Winner, Watson Felder, and Respondents.³

The note and guaranties contained virtually identical jury trial waivers:

WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF BORROWER ... AND BANK ... KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHT EACH MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE, THE LOAN DOCUMENTS OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION WITH THIS NOTE, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY WITH RESPECT HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK TO ACCEPT THIS NOTE....

(Italic emphasis added).

Beginning in July 2008, Respondents failed to make payments on the note. Therefore, on November 13, 2008, Wachovia filed a foreclosure action. In its complaint, Wachovia stated that the note was in default, that they had accelerated the balance of the loan, and that they were thus entitled to judgment against the defendants in the amount of $473,747.24.

Respondents answered, asserting counterclaims against Wachovia, cross-claims against the South Island Plantation Association, Incorporated (the Homeowners' Association), and a third-party complaint against the Seller and the Realtors. At issue here are the counterclaims against Wachovia, which include claims for negligent misrepresentation, promissory estoppel, breach of contract/breach of contract accompanied by a fraudulent act, breach of fiduciary duty, fraud/fraud in the inducement, breach of contract/negligence, breach of contract, civil conspiracy, illegality of contract, and violations of the South Carolina Unfair Trade Practices Act (the SCUTPA).⁴

The gravamen of the counterclaims was that Wachovia “was an agent of, partner of, joint venture [sic] with, or conspirator with” the Seller and the Realtors such that the allegedly wrongful actions of the Seller and the Realtors were “imputed to” Wachovia. According to Respondents, Wachovia, the Seller, and the Realtors “artificially inflated [property values] through collusion by the parties” and promised that various amenities would be in place within eighteen months of the lottery. Respondents contended that the amenities were not completed in a timely manner as promised, and that they were damaged by the delays.⁵ Respondents demanded a jury trial on their counterclaims, requesting monetary damages and rescission of the sales and loan contracts as a remedy for their claims.

Wachovia moved to strike the jury demand and refer the entire matter to the master-in-equity, arguing that Respondents contractually waived their right to a jury trial by executing the note and guaranties, all of which included the jury trial waivers. The circuit court granted Wachovia's motion, holding that the language of the waivers in the loan documents encompassed Respondents' counterclaims, and that Respondents knowingly and voluntarily waived their right to a jury trial through the clear and unambiguous waivers.⁶

Respondents appealed, arguing, inter alia, that (1) their jury trial waivers were not knowingly and voluntarily entered into and that (2) South Carolina's so-called “outrageous and unforeseeable torts exception” to arbitration agreements applied to jury trial waivers as well, thus determining whether the sales transaction was “significantly related” to the loan transactions, and whether the counterclaims fell within the scope of the contractual jury trial waiver provisions.

The court of appeals affirmed in part and reversed in part. Wachovia Bank, N.A. v. Blackburn, 394 S.C. 579, 590, 716 S.E.2d 454, 460 (Ct.App.2011). It held that, although the circuit court correctly found that the waivers were knowing and voluntary, the outrageous and unforeseeable torts exception was “instructive” in determining that the counterclaims were not significantly related to the loan transactions. Id. at 584–90, 590 n. 9, 716 S.E.2d at 457–60, 460 n. 9. Further, the court of appeals found that the counterclaims involved only the sales transaction, and the jury trial waivers only applied to the loan transactions. Id. at 588–90, 716 S.E.2d at 459–60. Therefore, the court of appeals found that Respondents' counterclaims were outside the scope of the jury trial waivers and, thus, Respondents were entitled to a jury trial on those claims. Id. This appeal followed.

Issues

I. Whether the circuit court and court of appeals applied the correct law regarding counterclaims brought in response to an equitable action?

II. Whether the jury trial waivers were knowingly and voluntarily executed by Respondents?

Standard of Review

“A mortgage foreclosure is an action in equity.” Hayne Fed. Credit Union v. Bailey, 327 S.C. 242, 248, 489 S.E.2d 472, 475 (1997). In an appeal from an action in equity tried by a judge, appellate courts may find facts in accordance with their own views of the preponderance of the evidence. Townes Assocs., Ltd. v. City of Greenville, 266 S.C. 81, 86, 221 S.E.2d 773, 775–76 (1976). However, “[w]hether a party is entitled to a jury trial is a question of law.” Verenes v. Alvanos, 387 S.C. 11, 15, 690 S.E.2d 771, 772 (2010). Appellate courts may decide questions of law with no particular deference to the circuit court's findings. Id. at 15, 690 S.E.2d at 772–73.

Analysis

I. Counterclaims in an Equitable Action

Wachovia's foreclosure action is an action in equity. Hayne Fed. Credit Union, 327 S.C. at 248, 489 S.E.2d at 475. “In equity the parties are not entitled, as a matter of right, to a trial by jury.” Williford v. Downs, 265 S.C. 319, 321, 218 S.E.2d 242, 243 (1975). However, counterclaims—including those raised in equitable actions—may, at times, be entitled to a jury trial. As we have previously explained:

(1) If both the complaint and the counterclaim are in equity, the entire matter is triable by the court.

(2) If both are at law, the issues are triable by a jury.

(3) If the complaint is equitable and the counterclaim is legal and permissive, the defendant waives his right to a jury trial.

(4) If the complaint is equitable and the counterclaim is legal and compulsory, the plaintiff or the defendant has a right to a jury trial on the counterclaim. In that case, the proper procedure is as follows:

(a) The trial judge may, pursuant to Rule 42(b), order separate trials of the legal and equitable claims, or may order the claims tried in a single proceeding.

(b) If separate trials are ordered, the judge must determine which issues are to be tried first. If there are factual issues common to both claims, absent the most imperative circumstances, the at law claim must be tried first. If there are no common factual issues, it is within the trial judge's discretion which claim will be tried first.

(c) If the claims are to be tried in a single proceeding and there are factual issues common to both claims, the jury shall first determine the legal issues. The court may then determine the equitable claims, but the jury's determination of common factual issues shall be binding upon the court.

Johnson v. S.C. Nat'l Bank (Johnson II), 292 S.C. 51, 55–56, 354 S.E.2d 895, 897 (1987) (citation omitted) (internal quotation marks omitted), modifying C & S Real Estate Servs., Inc. v. Massengale, 290 S.C. 299, 301–02, 350 S.E.2d 191, 193 (1986); see also N.C. Fed. Sav. & Loan Ass'n v. DAV Corp., 298 S.C. 514, 517, 381 S.E.2d 903, 905 (1989) (utilizing the same rules as Massengale and Johnson II, but focusing on the difference between permissive and compulsory counterclaims).

Because the issue of jury trial waivers has not arisen in subsequent cases involving...