Anderson v. Coastal Cmtys. at Ocean Ridge Plantation, Inc.
This text of 2012 NCBC 33 (Anderson v. Coastal Cmtys. at Ocean Ridge Plantation, Inc.) is published on Counsel Stack Legal Research, covering North Carolina Business Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
Anderson v. Coastal Cmtys. At Ocean Ridge Plantation, Inc., 2012 NCBC 33.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF BRUNSWICK 09 CVS 1042 ("Anderson")
BERRY ANDERSON, et al., ) Plaintiffs ) ) v. ) ) COASTAL COMMUNITIES AT OCEAN ) RIDGE PLANTATION, INC., et al., ) Defendants )
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF BRUNSWICK 09 CVS 3376 ("Beadnell")
KATHLEEN BEADNELL, et al., ) Plaintiffs ) ) v. ) ) COASTAL COMMUNITIES AT OCEAN ) RIDGE PLANTATION, INC., et al., ) Defendants )
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF BRUNSWICK 10 CVS 314 ("Barton")
JOHN BARTON, et al., ) Plaintiffs ) ) v. ) ) COASTAL COMMUNITIES AT OCEAN ) RIDGE PLANTATION, INC., et al., ) Defendants )
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF BRUNSWICK 10 CVS 496 ("Barry")
JOHN BARRY, III, et al., ) Plaintiffs ) ) v. ) ) OCEAN ISLE PALMS, INC., et al., ) Defendants )
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF BRUNSWICK 10 CVS 781 ("Arnesen")
KENNETH ARNESEN, et al., ) Plaintiffs ) ) v. ) ) RIVERS EDGE GOLF CLUB & ) PLANTATION, INC., et al., ) Defendants ) STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF NEW HANOVER 09 CVS 1208 ("Gilmartin")
BRANCH BANKING AND TRUST ) COMPANY, ) Plaintiff ) ) v. ) ) EILEEN A. GILMARTIN, ) Defendant/Third-Party ) Plaintiff ) ) v. ) ) COASTAL COMMUNITIES AT OCEAN ) RIDGE PLANTATION, INC., et al., ) Third-Party Defendants )
OPINION AND ORDER ON MOTIONS TO DISMISS
THESE CAUSES, designated mandatory complex business cases by Order of
the Chief Justice of the North Carolina Supreme Court, pursuant to N.C. Gen. Stat. §
7A-45.4(b) (hereinafter, references to the North Carolina General Statutes will be to
"G.S."); and assigned to the undersigned Chief Special Superior Court Judge for
Complex Business Cases, now come before the court upon Defendants' Motions to
Dismiss1 (collectively, "Motions"), pursuant to Rule 12(b)(6), North Carolina Rules of
Civil Procedure ("Rule(s)"); and
1 The Motions consist of the following: (a) Defendants Douglas Baxley and BaxleySmithwick PLLC's Motion to Dismiss ("Baxley Defendants' Motion"); (b) Defendants James Powell, James Powell Appraisals, LLC and Lynn Rabello's Motion to Dismiss ("Appraiser Defendants' Motion") and (c) Defendants Coastal Communities at Ocean Ridge Plantation, Inc., Coastal Communities at Ocean Ridge Plantation, LLC, River's Edge Golf Club and Plantation, Inc., River's Edge Golf Club and Plantation, LLC, Ocean Isle Palms, Inc., Ocean Isle Palms, LLC, Seawatch at Sunset Harbor, Inc., Seawatch at Sunset Harbor, LLC, Coastal Communities at Seawatch, LLC, Coastal Communities, Inc., Old Dock Land and Timber, LLC, Mark A. Saunders, Deborah Boodro, Donald Howarth, Alan Karg, MAS Properties, LLC, THE COURT, after considering the Motions, briefs and arguments in support of
and in opposition to the Motions, other submissions of counsel and appropriate matters
of record, CONCLUDES that Baxley Defendants' Motion should be GRANTED,
Appraiser Defendants' Motion should be GRANTED and Coastal Defendants' Motion
should be GRANTED in part and DENIED in part, for the reasons stated herein.
Hodges & Coxe PC, by C. Wes Hodges, II, Esq. and Sarah Reamer, Esq. for Plaintiffs.
Graebe Hanna & Welborn PLLC, by Christopher T. Graebe, Esq. and Mark R. Sigmon, Esq. for Coastal Defendants.
Cranfill Sumner & Hartzog LLP, by Richard Boyette, Esq. and Melody J. Canady, Esq. for Baxley Defendants.
Teague Campbell Dennis & Gorham, LLP, by Jacob H. Wellman, Esq. and Natalia K. Isenberg, Esq. for Appraiser Defendants.
Jolly, Judge.
I.
PROCEDURAL HISTORY
[1] On or around April 26, 2010, Plaintiffs filed their Amended Complaints2 in
this matter. Plaintiffs allege numerous claims for relief ("Claim(s)")3 against
Defendants:4 (1) Breach of Contract – Rescission – Coastal Defendants; (2) Breach of
Contract – Alternative Claim for Damages – Coastal Defendants; (3) Breach of Contract
The Mortgage Company of Brunswick, Inc. and Brendan Gordon's Motion to Dismiss ("Coastal Defendants' Motion"). 2 "Amended Complaints" refers to the Second Amended Complaint in Anderson, the Amended Complaints in Beadnell, Barton, Barry and Arnesen, and the Second Amended Answer and Counterclaims in Gilmartin. The allegations in the Amended Complaints are substantially the same in all of the above actions. For convenience, when specificity is needed, the court will cite to the allegations in the Second Amended Complaint in Anderson, unless otherwise indicated. For clarity and consistency, the court will refer to the terms "Complaint" and "Claim" in singular fashion when referencing the Amended Complaints and Claims therein. 3 The various Claims are individually numbered in the Amended Complaints in each separate civil action. For purposes of this Opinion and Order, it is not necessary to refer to the specific Claim numbers assigned to each Claim in each Amended Complaint. 4 For purposes of each Claim, the specific Defendants are defined infra paragraphs 5 through 17. – Specific Performance – Coastal Defendants; (4) Breach of Implied Warranty of
Restrictive Covenants – Coastal Defendants; (5) Negligent Misrepresentation – Coastal
Defendants; (6) Negligence – Appraiser Defendants; (7) Negligent Misrepresentation –
Alternative Claim – Appraiser Defendants; (8) Fraud – All Defendants; (9) Revocation of
Contract Pursuant to Interstate Land Sales Full Disclosure Act – Coastal Defendants;
(10) Damages Pursuant to Interstate Land Sales Full Disclosure Act – Coastal
Defendants; (11) Unjust Enrichment – All Defendants, with the exception of Baxley
Defendants; (12) Violation of N.C.G.S. § 75D-4(a)(2) – All Defendants, with the
exception of Baxley Defendants; (13) Breach of Duty of Good Faith and Fair
Dealing/Negligent Supervision – Defendant BB&T and Four Oaks; (14) Declaratory
Judgment – Contracts Void for Illegality – Coastal Defendants; (15) Actions pursuant to
Civil Conspiracy – All Defendants, with the exception of Baxley Defendants; (16) Unfair
and Deceptive Trade Practices – All Defendants, with the exception of Baxley
Defendants; (17) Preliminary and Permanent Injunctive Relief – Coastal Defendants,
BB&T, BB&T Trustee, Four Oaks and Four Oaks Trustee; (18) Equitable Estoppel – All
Defendants; (19) Violations of North Carolina Mortgage Lending Act (N.C.G.S. § 53-
243.01 et seq.) – BB&T and Four Oaks; (20) Breach of North Carolina Mortgage
Lending Act (N.C.G.S. § 53-243.01 et seq.) – Coastal Defendants; (21) Negligence –
Breach of Duties – Baxley Defendants.
[2] On May 13, 2011, the court entered an order denying Plaintiffs' request for
a preliminary injunction against Defendants BB&T and Four Oaks5 from initiating or
5 Four Oaks Bank and trustee Clifton L. Painter were initial party Defendants in Anderson, Barry and Barton. Plaintiffs voluntarily dismissed both Defendants from Barton on February 17, 2010. Subsequently, Plaintiffs voluntarily dismissed both Defendants from Anderson and Barry on October 6, 2010. continuing foreclosure proceedings against Plaintiffs based on the court's conclusion
that Plaintiffs failed to demonstrate a likelihood of success on the merits of their Claims
against BB&T. The court subsequently dismissed Plaintiffs' Claims against BB&T on
June 3, 2011, pursuant to Rule 12(b)(6).
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Anderson v. Coastal Cmtys. At Ocean Ridge Plantation, Inc., 2012 NCBC 33.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF BRUNSWICK 09 CVS 1042 ("Anderson")
BERRY ANDERSON, et al., ) Plaintiffs ) ) v. ) ) COASTAL COMMUNITIES AT OCEAN ) RIDGE PLANTATION, INC., et al., ) Defendants )
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF BRUNSWICK 09 CVS 3376 ("Beadnell")
KATHLEEN BEADNELL, et al., ) Plaintiffs ) ) v. ) ) COASTAL COMMUNITIES AT OCEAN ) RIDGE PLANTATION, INC., et al., ) Defendants )
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF BRUNSWICK 10 CVS 314 ("Barton")
JOHN BARTON, et al., ) Plaintiffs ) ) v. ) ) COASTAL COMMUNITIES AT OCEAN ) RIDGE PLANTATION, INC., et al., ) Defendants )
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF BRUNSWICK 10 CVS 496 ("Barry")
JOHN BARRY, III, et al., ) Plaintiffs ) ) v. ) ) OCEAN ISLE PALMS, INC., et al., ) Defendants )
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF BRUNSWICK 10 CVS 781 ("Arnesen")
KENNETH ARNESEN, et al., ) Plaintiffs ) ) v. ) ) RIVERS EDGE GOLF CLUB & ) PLANTATION, INC., et al., ) Defendants ) STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF NEW HANOVER 09 CVS 1208 ("Gilmartin")
BRANCH BANKING AND TRUST ) COMPANY, ) Plaintiff ) ) v. ) ) EILEEN A. GILMARTIN, ) Defendant/Third-Party ) Plaintiff ) ) v. ) ) COASTAL COMMUNITIES AT OCEAN ) RIDGE PLANTATION, INC., et al., ) Third-Party Defendants )
OPINION AND ORDER ON MOTIONS TO DISMISS
THESE CAUSES, designated mandatory complex business cases by Order of
the Chief Justice of the North Carolina Supreme Court, pursuant to N.C. Gen. Stat. §
7A-45.4(b) (hereinafter, references to the North Carolina General Statutes will be to
"G.S."); and assigned to the undersigned Chief Special Superior Court Judge for
Complex Business Cases, now come before the court upon Defendants' Motions to
Dismiss1 (collectively, "Motions"), pursuant to Rule 12(b)(6), North Carolina Rules of
Civil Procedure ("Rule(s)"); and
1 The Motions consist of the following: (a) Defendants Douglas Baxley and BaxleySmithwick PLLC's Motion to Dismiss ("Baxley Defendants' Motion"); (b) Defendants James Powell, James Powell Appraisals, LLC and Lynn Rabello's Motion to Dismiss ("Appraiser Defendants' Motion") and (c) Defendants Coastal Communities at Ocean Ridge Plantation, Inc., Coastal Communities at Ocean Ridge Plantation, LLC, River's Edge Golf Club and Plantation, Inc., River's Edge Golf Club and Plantation, LLC, Ocean Isle Palms, Inc., Ocean Isle Palms, LLC, Seawatch at Sunset Harbor, Inc., Seawatch at Sunset Harbor, LLC, Coastal Communities at Seawatch, LLC, Coastal Communities, Inc., Old Dock Land and Timber, LLC, Mark A. Saunders, Deborah Boodro, Donald Howarth, Alan Karg, MAS Properties, LLC, THE COURT, after considering the Motions, briefs and arguments in support of
and in opposition to the Motions, other submissions of counsel and appropriate matters
of record, CONCLUDES that Baxley Defendants' Motion should be GRANTED,
Appraiser Defendants' Motion should be GRANTED and Coastal Defendants' Motion
should be GRANTED in part and DENIED in part, for the reasons stated herein.
Hodges & Coxe PC, by C. Wes Hodges, II, Esq. and Sarah Reamer, Esq. for Plaintiffs.
Graebe Hanna & Welborn PLLC, by Christopher T. Graebe, Esq. and Mark R. Sigmon, Esq. for Coastal Defendants.
Cranfill Sumner & Hartzog LLP, by Richard Boyette, Esq. and Melody J. Canady, Esq. for Baxley Defendants.
Teague Campbell Dennis & Gorham, LLP, by Jacob H. Wellman, Esq. and Natalia K. Isenberg, Esq. for Appraiser Defendants.
Jolly, Judge.
I.
PROCEDURAL HISTORY
[1] On or around April 26, 2010, Plaintiffs filed their Amended Complaints2 in
this matter. Plaintiffs allege numerous claims for relief ("Claim(s)")3 against
Defendants:4 (1) Breach of Contract – Rescission – Coastal Defendants; (2) Breach of
Contract – Alternative Claim for Damages – Coastal Defendants; (3) Breach of Contract
The Mortgage Company of Brunswick, Inc. and Brendan Gordon's Motion to Dismiss ("Coastal Defendants' Motion"). 2 "Amended Complaints" refers to the Second Amended Complaint in Anderson, the Amended Complaints in Beadnell, Barton, Barry and Arnesen, and the Second Amended Answer and Counterclaims in Gilmartin. The allegations in the Amended Complaints are substantially the same in all of the above actions. For convenience, when specificity is needed, the court will cite to the allegations in the Second Amended Complaint in Anderson, unless otherwise indicated. For clarity and consistency, the court will refer to the terms "Complaint" and "Claim" in singular fashion when referencing the Amended Complaints and Claims therein. 3 The various Claims are individually numbered in the Amended Complaints in each separate civil action. For purposes of this Opinion and Order, it is not necessary to refer to the specific Claim numbers assigned to each Claim in each Amended Complaint. 4 For purposes of each Claim, the specific Defendants are defined infra paragraphs 5 through 17. – Specific Performance – Coastal Defendants; (4) Breach of Implied Warranty of
Restrictive Covenants – Coastal Defendants; (5) Negligent Misrepresentation – Coastal
Defendants; (6) Negligence – Appraiser Defendants; (7) Negligent Misrepresentation –
Alternative Claim – Appraiser Defendants; (8) Fraud – All Defendants; (9) Revocation of
Contract Pursuant to Interstate Land Sales Full Disclosure Act – Coastal Defendants;
(10) Damages Pursuant to Interstate Land Sales Full Disclosure Act – Coastal
Defendants; (11) Unjust Enrichment – All Defendants, with the exception of Baxley
Defendants; (12) Violation of N.C.G.S. § 75D-4(a)(2) – All Defendants, with the
exception of Baxley Defendants; (13) Breach of Duty of Good Faith and Fair
Dealing/Negligent Supervision – Defendant BB&T and Four Oaks; (14) Declaratory
Judgment – Contracts Void for Illegality – Coastal Defendants; (15) Actions pursuant to
Civil Conspiracy – All Defendants, with the exception of Baxley Defendants; (16) Unfair
and Deceptive Trade Practices – All Defendants, with the exception of Baxley
Defendants; (17) Preliminary and Permanent Injunctive Relief – Coastal Defendants,
BB&T, BB&T Trustee, Four Oaks and Four Oaks Trustee; (18) Equitable Estoppel – All
Defendants; (19) Violations of North Carolina Mortgage Lending Act (N.C.G.S. § 53-
243.01 et seq.) – BB&T and Four Oaks; (20) Breach of North Carolina Mortgage
Lending Act (N.C.G.S. § 53-243.01 et seq.) – Coastal Defendants; (21) Negligence –
Breach of Duties – Baxley Defendants.
[2] On May 13, 2011, the court entered an order denying Plaintiffs' request for
a preliminary injunction against Defendants BB&T and Four Oaks5 from initiating or
5 Four Oaks Bank and trustee Clifton L. Painter were initial party Defendants in Anderson, Barry and Barton. Plaintiffs voluntarily dismissed both Defendants from Barton on February 17, 2010. Subsequently, Plaintiffs voluntarily dismissed both Defendants from Anderson and Barry on October 6, 2010. continuing foreclosure proceedings against Plaintiffs based on the court's conclusion
that Plaintiffs failed to demonstrate a likelihood of success on the merits of their Claims
against BB&T. The court subsequently dismissed Plaintiffs' Claims against BB&T on
June 3, 2011, pursuant to Rule 12(b)(6).
[3] The Motions have been fully briefed and argued and are ripe for
determination.
II.
FACTUAL BACKGROUND
[4] Paragraphs 5 through 26 below reflect the substance of the allegations of
the Complaint.
A.
Parties
[5] Plaintiffs are purchasers of vacant lots (collectively, "Coastal Communities
Properties") in various planned residential subdivisions6 developed by Mark A.
Saunders ("Saunders") and Coastal Communities, Inc. ("Coastal Communities"), and
located in Brunswick County, North Carolina.
[6] Saunders was and is the registered agent, president, organizer,
member/manager and/or sole shareholder of Coastal Communities; Coastal
Communities at Ocean Ridge Plantation, Inc.; Coastal Communities at Ocean Ridge
Plantation, LLC; River's Edge Golf Club & Plantation, Inc., River's Edge Golf Club &
Plantation, LLC, Ocean Isle Palms, Inc.; Ocean Isle Palms, LLC ("Ocean Isle Palms");
Seawatch at Sunset Harbor, Inc.; Seawatch at Sunset Harbor, LLC; Coastal
6 The four Coastal Communities subdivisions at issue in this case are (1) Ocean Ridge Plantation, (2) Ocean Isle Palms, (3) River's Edge Golf Club & Plantation and (4) Seawatch at Sunset Harbor. Communities at Seawatch, LLC ("Seawatch"), MAS Properties, LLC ("MAS Properties");
The Mortgage Company of Brunswick, Inc. ("TMC"); Old Dock Land and Timber, LLC
and various other corporate entities located in North Carolina (collectively, "Coastal
Defendants").7
[7] Deborah Boodro is Vice President and Marketing Manager of Coastal
Communities.
[8] At all times material to this action, Donald Howarth was the Broker-in-
Charge and responsible for the management of Ocean Isle Palms.
[9] At all times material to this action, Alan Karg was the Broker-in-Charge
and responsible for the management of Seawatch.
[10] MAS Properties is a North Carolina limited liability company with its
principal office located in Brunswick County.
[11] TMC is a North Carolina corporation with its principal office located in
Brunswick County. TMC is a residential mortgage broker company.
[12] Brendan Gordon ("Gordon") is Vice President and managing principal of
TMC.
[13] James Powell Appraisals, LLC ("James Powell Appraisals" or "JPA") is a
North Carolina limited liability company with its principal office in Brunswick County.
[14] James Powell ("Powell") is the organizer, member and registered agent of
James Powell Appraisals.
[15] Lynn Rabello ("Rabello") is an employee, independent contractor and/or
agent of Powell and James Powell Appraisals (collectively, "Appraiser Defendants").
7 Anderson Second Am. Compl. ("Compl.") ¶ 30. For purposes of this Opinion and Order, Defendants Deborah Boodro, Donald Howarth, Alan Karg and Brendan Gordon are also included in all references to Coastal Defendants, unless otherwise indicated. Rabello conducted the majority of the value appraisals performed for the Coastal
Communities Properties.
[16] BaxleySmithwick PLLC ("BaxleySmithwick") is a law firm and professional
limited liability company incorporated in North Carolina.
[17] Douglas Baxley ("Baxley") was and is a member and manager of
BaxleySmithwick (collectively, "Baxley Defendants").
B.
The Alleged Scheme
[18] Plaintiffs, like many other purchasers of real property in North Carolina,
bought lots in new real estate developments shortly before the national real estate
bubble burst around 2008. The number of similar lawsuits filed in this court alone
following the collapse of such developments has increased dramatically. See, e.g.,
Allen v. Land Res. Grp. of N.C., LLC, Rutherford County No. 08 CVS 1283 (N.C. Super.
Ct.); Cabrera v. Ridges at Morgan Creek, LLC, McDowell County No. 09 CVS 544 (N.C.
Super. Ct.); Abraham v. Jauregui, Onslow County No. 09 CVS 3608 (N.C. Super. Ct.);
Beattie v. Branch Banking & Trust Co., New Hanover County No. 10 CVS 3891 (N.C.
Super. Ct.) and BDM Invs. v. Wells Fargo & Co., Brunswick County No. 11 CVS 449
(N.C. Super. Ct.).
[19] Plaintiffs bring these actions for damages and rescission arising out of
their purchase of Coastal Communities Properties based upon allegations that
Saunders, his companies and their agents, along with other participants in the alleged
scheme, "concealed their conduct designed to artificially inflate the market for the sale
of vacant lots in the subdivision[s], including but not limited to high-pressure and misleading sales tactics, appraisals that reached a pre-determined result and were
otherwise deficient and designed to support an inflated purchase price, irregular and
deceptive brokerage and lending practices, and affixing of excessive revenue stamps
on recorded deeds . . . ."8
[20] Specifically, Plaintiffs allege that Saunders, through MAS Properties,
purchased undeveloped and unimproved parcels of real property throughout Brunswick
County and then partitioned the property into lots in proposed subdivisions.9 Saunders,
his agents and employees of his various corporate entities marketed the subdivisions
and immediately sold the lots to purchasers at grossly inflated prices. In perpetrating
this scheme, Plaintiffs allege that Saunders and his employees began misleading
potential purchasers, including Plaintiffs, about (a) the infrastructure and amenities to be
developed in each subdivision, (b) the availability of the property and (c) the degree of
interest in the property.10
[21] In order to create inflated prices, Plaintiffs allege that appraisals from other
sales of properties located within older, more established phases of the coastal
communities subdivisions were used to generate inflated appraisals for the lots located
in the newer phases of these developments.11 To make sure the appraisals were
inflated, Saunders made an arrangement with Powell and JPA to ensure that the
appraisals would be generated as described above.12 Plaintiffs allege that Powell and
Rabello failed to consider sales prices for lots outside of the Coastal Communities in
8 Id. ¶ 496. 9 Id. ¶¶ 62-64. 10 Id. ¶ 65. 11 Id. ¶¶ 105-06. 12 Id. establishing the appraised value of the lots.13 Plaintiffs allege that Defendants
concealed their practice of manipulating appraised values, and therefore, Plaintiffs did
not know that the appraisal values were inflated.
[22] Plaintiffs allege that Saunders and TMC steered buyers to preferred
lenders, like BB&T. Plaintiffs further allege that Saunders made arrangements with
these preferred lenders to ensure Plaintiffs would rely upon the manipulated
appraisals.14
[23] BaxleySmithwick was selected by Saunders to preside over the closings
on the lots purchased by Plaintiffs.15 Saunders offered Plaintiffs a $500 credit for their
agreement to use BaxleySmithwick in their closings.16 Baxley performed various legal
services, including but not limited to examining title, serving as escrow agent for receipt
and disbursement of closing funds, preparing loan closing documents, obtaining title
insurance, recording deeds, other documents and all correspondence required to
conclude the transactions.17 BaxleySmithwick also reported to the Register of Deeds of
Brunswick County the amount of excise tax ("Revenue Stamps") due under North
Carolina law.18
[24] Plaintiffs allege that when calculating the amount of tax on a lot sale
pursuant to G.S. 105-228.30,19 BaxleySmithwick failed to take into consideration a
13 Id. ¶ 109. 14 Id. ¶ 119. 15 Id. ¶¶ 53, 150. 16 Id. ¶ 597. 17 Id. ¶ 598. 18 Id. ¶ 599. Pursuant to G.S. 105-228.30, the Revenue Stamps affixed to recorded deeds are based upon the sales prices for the property reported to the register of deeds. The tax rate is $1 on each $500 of the consideration or value of the interest conveyed. Therefore, the purchase price for real property can be calculated from the Revenue Stamps on the deed. Appraisers, developers, real estate agents and lenders often rely upon Revenue Stamps to evaluate the purchase price of real property. 19 Id. ¶ 603. credit given to Plaintiffs by Coastal Defendants in an amount necessary to pay the
interest on a lot purchase for two years.20 Plaintiffs contend this caused each deed to
carry excessive Revenue Stamps, which in turn caused the deed to reflect on its face
an inflated and misleading purchase price that Defendants used to their advantage in
perpetrating their fraudulent scheme.21 The Complaint alleges that JPA and its
employees/agents used the inflated consideration reported to the Register of Deeds to
justify their own inflated appraisals.22
[25] Plaintiffs further allege that Saunders and his agents made
misrepresentations regarding the construction of the subdivisions' infrastructure and
amenities as set forth in the Sales Contracts.23 Neither the infrastructure nor the
amenities were completed for the subdivisions, allegedly resulting in Plaintiffs' inability
to use the Coastal Communities Properties for reasonable residential purposes.24
[26] Plaintiffs are seeking breach of contract damages and rescission of
contract, arguing frustration of purpose, which is based upon the current undeveloped
state of the subdivisions.25 Plaintiffs seek damages based on the difference between
the value of the Coastal Communities Properties as represented by Saunders and his
agents with infrastructure and amenities and the present value as it is without
infrastructure and amenities.26 Plaintiffs argue alternatively that they are entitled to
20 Id. ¶¶ 601-03. 21 Id. ¶ 604. 22 Id. ¶ 606. 23 Id. ¶ 413. All Plaintiffs signed written contracts to purchase property in one of the four coastal communities subdivisions. While all Plaintiffs' written contracts are not identical, the differences are minor and immaterial to the court's determination of the instant Motions. Accordingly, the court will refer collectively to Plaintiffs' written contracts for the purchase of Coastal Communities Properties as the "Sales Contracts." 24 Id. ¶ 417. 25 Id. ¶ 418. 26 Id. ¶ 423. specific performance of the Sales Contracts, which would include completing
construction of infrastructure and amenities.27 Finally, Plaintiffs allege various tort and
statutory claims against Defendants based on the above-mentioned alleged conduct.
III.
DISCUSSION
Legal Standard
[27] Dismissal of an action pursuant to Rule 12(b)(6) is appropriate when the
complaint fails to state a claim upon which relief can be granted. In deciding a Rule
12(b)(6) motion, the well-pleaded allegations of the complaint are taken as true and
admitted, but conclusions of law or unwarranted deductions of facts are not deemed
admitted. Sutton v. Duke, 277 N.C. 94, 98 (1970).
[28] A complaint fails to state a claim upon which relief can be granted when
(a) the complaint on its face reveals that no law supports the plaintiff's claim, (b) the
complaint on its face reveals the absence of facts sufficient to make a good claim or
(c) some fact disclosed in the complaint necessarily defeats the plaintiff's claim.
Jackson v. Bumgardner, 318 N.C. 172, 175 (1986).
Baxley Defendants' Motion
[29] Plaintiffs allege Claims for negligence and fraud against Baxley
Defendants. 28 Baxley Defendants seek Rule 12(b)(6) dismissal of all Claims alleged
27 Id. ¶ 425. 28 At a hearing on June 9, 2011, the court orally GRANTED Baxley Defendants' Motion. The court provides this written Opinion and Order on Baxley Defendants' Motion, pursuant to Rule 2.1(b) of the General Rules of Practice for the Superior and District Courts. against them. The court will discuss the Claims for negligence and fraud alleged
against Baxley Defendants in turn.
1.
Negligence (Attorney Malpractice) Claim
[30] Baxley Defendants argue that Plaintiffs' Claim for negligence must be
dismissed because the Complaint fails to allege facts that show Baxley Defendants
owed Plaintiffs a duty to look beyond the agreed purchase price and determine the
value of the property at the time of conveyance.29 Baxley Defendants also argue that
Plaintiffs' negligence Claim should be dismissed on causation grounds.30
[31] Plaintiffs respond by arguing that Baxley Defendants breached a duty
owed to them by failing to act within the reasonable standard of care for closing
attorneys, which requires attorneys to calculate the dollar value of Revenue Stamps
based on consideration or value of the interest conveyed.31
[32] To state a claim for attorney malpractice, the plaintiff must establish that
the attorney breached duties owed to the plaintiff, and the attorney's negligence
proximately caused damage to the plaintiff. Rorrer v. Cooke, 313 N.C. 338, 355 (1985).
In doing so, the plaintiff must prove that the lawyer-defendant "violated a standard of
care required of similarly situated attorneys." Id. at 356-57.
[33] An attorney owes a duty to his client to (a) be competent to handle the
matter at hand and possess the knowledge, skill and ability to handle the issue; (b) use
his best judgment in carrying out the matter and (c) "exercise reasonable and ordinary
29 Br. BaxleySmithwick PLLC Douglas Baxley Supp. Mot. Dismiss ("Baxley Defs. Memo") 8-9. 30 They contend that (a) as a matter of law, the value of the Revenue Stamps attached to the various deeds did not cause the alleged inflated prices and (b) any lots that were valued under $250,000 were not even appraised. Id. 11-12. 31 Pls. Def. Gilmartin Mem. Opp'n Att'y Defs. Mot. Dismiss 7-9. care and diligence in the use of his skill and in the application of his knowledge to his
client's cause." Hodges v. Carter, 239 N.C. 517, 519 (1954). Here, Plaintiffs have
made no allegations that Baxley Defendants did not possess the requisite skill,
knowledge or ability to handle the transactions.32 Thus, the issue before the court is
whether Plaintiffs sufficiently have alleged that Baxley Defendants failed to use their
best judgment or otherwise failed to exercise reasonable care in the application of those
skills, and whether Plaintiffs were proximately damaged as a result.
[34] With regard to the excise taxes at issue, G.S. 105-228.30 provides that
the tax and corresponding amount of Revenue Stamps, is calculated using "the
consideration or value of the interest conveyed." Baxley Defendants argue that the
consideration paid was the contract price and that trying to impose a duty on an
attorney to calculate the value of the property minus incentives goes beyond the ability
and skill of an attorney.33
[35] In response, Plaintiffs contend that attorneys have a duty to calculate
Revenue Stamps based on the "actual true value" of the property, not the contract
price.34 Plaintiffs argue that only looking to the sales price is not proper, especially in
atypical situations where seller incentives cause the amount actually paid to be
significantly less than the contract price.35
[36] In support, Plaintiffs' cite a formal ethics opinion from the North Carolina
State Bar ("Ethics Opinion") that discusses an attorney's ethical duty when calculating
excise tax pursuant to G.S. 105-228.30. See N.C. St. B. 2001 Formal Ethics Op. 12
32 Id. 7. 33 Baxley Defs. Memo 9. 34 Id. 35 Pls. Def. Gilmartin Mem. Opp'n Att'y Defs. Mot. Dismiss 9-10. (Oct. 19, 2001). The Ethics Opinion discusses a fact scenario where a developer sells
real property in a development to a buyer for a certain purchase price, but gives the
buyer a credit at closing. Id. The attorney at closing obtains Revenue Stamps for the
deed based upon the higher price recited in the purchase contract even though the
actual consideration paid by the buyer is less. Id. To encourage sales of other lots in
the development at inflated prices, the developer claims that he sold the lot for the price
reflected in the Revenue Stamps. Id. The Ethics Opinion concludes that such conduct
involves "dishonesty and misrepresentation" on the part of the attorney because "if
excess tax stamps are affixed to a deed, the higher value reflected by the tax stamps
may deceive third parties." Id.
[37] While the Ethics Opinion raises questions about the ethical conduct of
Baxley Defendants, it is not "in and of itself . . . a basis for civil liability." Barrs v.
Campbell Univ., Inc., 148 N.C. App. 408, 421 (2002) (quoting McGee v. Eubanks, 77
N.C. App. 369, 374 (1985)); see also R. Prof. Conduct N.C. State B. 0.2[7] ("Violation of
[an ethical rule] should not give rise itself to a cause of action against a lawyer nor
should it create any presumption in such a case that a legal duty has been breached.").
[38] Typically, the excise tax represented by Revenue Stamps is based upon
the purchase price. To impose a duty upon a closing attorney to look beyond the
purchase contract when calculating excise tax would be problematically expansive.
Such a duty would require the closing attorney to determine which, if any, of the many
types of incentives or credits must be deducted from the purchase price to determine the true value of the property. The court concludes that under the circumstances of this
case, North Carolina law does not impose such a duty on Baxley Defendants.36
[39] Accordingly, the court CONCLUDES that Plaintiffs have failed to allege
sufficient facts to support their theory of legal malpractice against Baxley Defendants.
The negligence Claim as to them therefore fails to state a claim upon which relief can
be granted. Baxley Defendants' Motion as to such Claim should be GRANTED, and the
Claim should be DISMISSED.
2.
Fraud Claim
[40] Baxley Defendants contend that Plaintiffs' fraud Claim against them
should be dismissed because the Plaintiffs failed to plead the alleged fraud with
particularity.37
[41] Plaintiffs argue that the fraud Claim against Baxley Defendants is pleaded
with sufficient particularity because Plaintiffs detail the allegedly fraudulent acts of
Baxley Defendants, which involved the "affixing of excess revenue stamps to recorded
deeds."38 Plaintiffs contend that Baxley Defendants fraudulently inflated the value of
each property, resulting in the receipt of "benefits of scale."39
[42] To state a claim for fraud, a complaint must allege with particularity (a)
false representation or concealment of a material fact, (b) reasonably calculated to
deceive, (c) made with intent to deceive, (d) which does in fact deceive and (e) resulting
36 Because Plaintiffs' negligence Claim against Baxley Defendants is subject to dismissal for failure to allege a recognized legal duty owed to Plaintiffs, the court need not address the causation issues related to said Claim. 37 Baxley Defs. Memo 12-15. 38 Pls. Def. Gilmartin Mem. Opp'n Att'y Defs. Mot. Dismiss 12 (citing Compl. ¶ 602). 39 Id. in damage to the injured party. Rowan Cnty. Bd. of Educ. v. U.S. Gypsum Co., 332
N.C. 1, 17 (1992). "An essential element of actionable fraud is that the false
representation or concealment be made to the party acting thereon." Hospira Inc. v.
AlphaGary Corp., 194 N.C. App. 695, 699 (2009).
[43] There is no specific allegation of fraudulent conduct on behalf of Baxley
Defendants. Rather, Plaintiffs only allege that Baxley Defendants' actions contributed
and allowed others, as part of a conspiracy, to commit fraudulent conduct and that
Baxley Defendants benefited from the fraud. Most notably, Plaintiffs allege fraud
against all Defendants, including Baxley Defendants, based on a conspiracy theory.40
However, Baxley Defendants are specifically excluded from the separate civil
conspiracy Claim of the Complaint.41 As such, Plaintiffs do not allege any agreement
between Baxley Defendants and any other Defendant sufficient to support a conspiracy
claim. The mere conclusory allegation that Baxley Defendants affixed excessive
revenue stamps on recorded deeds as part of a conspiracy to defraud Plaintiffs is
insufficient and falls short of meeting the heightened requirements for pleading fraud.
[44] Accordingly, the court CONCLUDES that the Plaintiffs have not alleged
sufficient facts to state a fraud Claim against Baxley Defendants. The fraud Claim fails
to state a claim upon which relief can be granted against Baxley Defendants. Their
Motion as to such Claim should be GRANTED, and the Claim should be DISMISSED.42
40 Compl. ¶¶ 470, 496 (alleging that "[e]ach Defendant is joined in this action as a co-conspirator"). Plaintiffs allege that each Defendant entered into an agreement with the other Defendants to commit fraud, but provide no facts to support the contention that Baxley Defendants entered such an agreement. 41 See id. ¶¶ 558-62 (alleging "Actions pursuant to Civil Conspiracy" against "All Defendants, with the exception of Baxley and BaxleySmithwick"). 42 Baxley Defendants also argue that many of Plaintiffs' Claims are time barred by the applicable statutes of limitations or repose. In view of the court's dispositive ruling with regard to Plaintiffs' Claims alleged against Baxley Defendants, analysis of whether certain Plaintiffs' Claims may be time barred as to those Defendants is not necessary. C.
Appraiser Defendants' Motion
[45] Plaintiffs allege Claims against Appraiser Defendants for negligence,
negligent misrepresentation, fraud, RICO violation, civil conspiracy, unjust enrichment
and Chapter 75 violation.
[46] Appraiser Defendants argue that Plaintiffs' Claims against them must be
dismissed, primarily because (a) Plaintiffs fail to allege facts showing that Appraiser
Defendants owed Plaintiffs a duty of reasonable care, (b) Plaintiffs fail to allege facts
showing that they reasonably relied upon the appraisals, (c) Plaintiffs' allegations lack
specificity to support their fraud and RICO Claims and (d) several of Plaintiffs' Claims
are barred by the statute of limitations.43
Negligent Misrepresentation and Negligence Claims
[47] Appraiser Defendants seek dismissal of Plaintiffs' negligent
misrepresentation and negligence Claims,44 contending that Plaintiffs fail to allege facts
showing that Appraiser Defendants owed Plaintiffs a duty of care and Plaintiffs'
justifiably relied upon Appraiser Defendants' representations. Specifically, Appraiser
Defendants argue that Plaintiffs fail to allege a duty owed and justifiable reliance
because Plaintiffs were merely distant third-parties to the appraisal procurement
process.45
43 Appraiser Defs. Mem. Supp. Mot. Dismiss 6 ("Appraiser Defs. Memo") 44 The court recognizes that the elements of a prima facie claim for negligence differ from those of a claim for negligent misrepresentation. However, for the purposes of this Opinion and Order, the court will discuss both Claims together because they sound in the same theory of liability. See Williams v. United Cmty. Bank, No. COA11-532, 2012 N.C. App. LEXIS 209 (N.C. Ct. App. Feb. 7, 2012) (analyzing appraiser negligence and negligent misrepresentation claims together). 45 Appraiser Defs. Memo 7-8. [48] Plaintiffs respond that the absence of contractual privity between
Appraiser Defendants and themselves is not a bar to recovery in tort since the borrower
is an anticipated third-party beneficiary of the subject appraisal to whom the appraiser
owes a duty of care in performing the appraisal.46 Plaintiffs further contend that they
actually relied upon the appraisals because they would not have closed on the Coastal
Communities Properties had the appraisals returned values showing the lots were
insufficient collateral for the loans.47
[49] In North Carolina, "[t]he tort of negligent misrepresentation occurs when a
party justifiably relies to his detriment on information prepared without reasonable care
by one who owed the relying party a duty of care." Raritan River Steel Co. v. Cherry,
Bekaert & Holland, 322 N.C. 200, 206 (1988), rev'd on other grounds, 329 N.C. 646
(1991).
[50] The North Carolina Court of Appeals, in Ballance v. Rinehart, held that a
licensed real estate appraiser who performs an appraisal of real property, at the request
of a client, owes a prospective purchaser of such property a duty to use reasonable
care in the preparation of the appraisal if the appraiser knows the prospective purchaser
will rely on the appraisal. 105 N.C. App. 203, 207-08 (1992). The court of appeals in
Ballance expressly adopted the test, as set forth by the supreme court in Raritan, for
determining negligence liability for accountants and applied it to real estate appraisers.
Williams, 2012 N.C. App. LEXIS 209, at *16. In turn, Raritan adopted a standard of
liability set forth by the Restatement (Second) of Torts, which provides:
46 Pls. Def. Gilmartin Mem. Opp'n Appraisal Defs. Mot. Dismiss 10. 47 Id. 11. Information Negligently Supplied for the Guidance of Others
(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
(2) . . . [T]he liability stated in Subsection (1) is limited to loss suffered
(a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and
(b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.
Raritan, 322 N.C. at 209-10 (quoting Restatement (Second) of Torts § 552 (1977)).
Similar to an accountant, a real estate appraiser often performs an appraisal pursuant to
a contract with an individual client, usually a lending institution, which may later
distribute the appraisal to a prospective purchaser-borrower. Ballance, 105 N.C. App.
at 207-08. In such a situation, the real estate appraiser owes a duty to the prospective
purchaser-borrower if the appraiser knows the lending institution intends to supply the
appraisal to a prospective purchaser-borrower who will rely on the appraisal. See
Raritan, 322 N.C. at 213 (quoting the Restatement (Second) of Torts § 552).48
[51] Plaintiffs asserting negligence-based claims against appraisers must
allege facts showing justifiable reliance in order to survive a Rule 12 motion. See
48 The court need not address whether Appraiser Defendants owed a duty to Plaintiffs in light of the court's ruling in this Opinion and Order that Plaintiffs cannot establish direct reliance on the appraisals. Raritan, 322 N.C. at 205 (affirming Rule 12(b)(6) dismissal of a negligent
misrepresentation claim where the plaintiff failed to allege reliance).
[52] Plaintiffs in this case allege in substance that they indirectly relied on the
appraisal reports.49 However, the North Carolina Supreme Court, in Raritan, held that
indirect reliance will not support a claim for negligent misrepresentation. Id. at 204. In
Raritan, the plaintiff steel company ("Raritan") sued an accounting firm for losses
incurred when it allegedly relied on inaccurate information contained in an audit report.
Id. at 203. The Intercontinental Metals Corporation ("IMC") had previously hired an
accounting firm to prepare an audit of IMC's financial information, which was published
in its report. Id. Subsequently, IMC ordered raw steel from Raritan on an open credit
account. Id. In determining whether to extend credit to IMC, Raritan investigated IMC's
financial position and allegedly relied on a Dun & Bradstreet report describing IMC's net
worth, which specifically referenced the accounting firm's audit report as the source for
such information. Id. at 205. Raritan then decided to extend credit to IMC and later
incurred losses from the transaction. Id. Raritan sued the accounting firm for negligent
misrepresentation, claiming that the firm had misrepresented IMC's net worth in the
audit report.
[53] The trial court dismissed Raritan's negligent misrepresentation claim,
pursuant to Rule 12(b)(6), because Raritan's complaint admitted to having relied not on
the defendant's audit report directly, but rather on the Dun & Bradstreet report that
referenced the audit report. Id. at 204. The supreme court affirmed the trial court's
ruling, holding:
49 Plaintiffs never use the term "indirect" reliance in the Complaint. However, as discussed below, the facts alleged clearly reflect that Plaintiffs' reliance on the appraisal reports was, at best, indirect. Raritan alleges that it got the financial information upon which it relied, essentially IMC's net worth, not from the audited statements themselves, but from information contained in Dun & Bradstreet. This allegation, we conclude, defeats Raritan's claim for negligent misrepresentation so as to render it dismissible under Rule 12(b)(6).
. . . We conclude that a party cannot show justifiable reliance on information contained in audited financial statements without showing that he relied upon the actual financial statements themselves to obtain this information.
Raritan, 322 N.C. at 205-06. The supreme court further noted that a party cannot
justifiably rely on an isolated piece of data not presented in its original form because
there is a danger that the party may be relying on incomplete information. Specifically,
the court held:
Isolated statements in the [audit] report, particularly the net worth figure, do not meaningfully stand alone; rather, they are interdependent and can be fully understood and justifiably relied on only when considered in the context of the entire report, including any qualifications of the auditor's opinion and any explanatory footnotes included in the statements.
Id. at 207.
[54] In sum, the court in Raritan affirmed dismissal of the plaintiff's negligent
misrepresentation claim because the plaintiff did not directly rely upon the audit report in
which it asserted was defective. Id. at 204 (emphasis added); see also Brinkman v.
Barrett Kays & Assocs., P.A., 155 N.C. App. 738, 742 (2003) (citing the North Carolina
Pattern Jury Instructions for the rule that "[a]ctual reliance is direct reliance upon false
information"). Applying Raritan to the present case, Plaintiffs must allege that they
relied directly on the appraisal reports themselves in order to plead sufficiently a claim
for negligent misrepresentation. 322 N.C. at 205-06. Post-Raritan, claims for negligent misrepresentation that have failed to allege direct reliance have been susceptible to
dismissal.
[55] The North Carolina Court of Appeals, consistent with Raritan, held that a
negligent misrepresentation claim cannot survive summary judgment where the
plaintiffs only can forecast evidence of indirect, rather than direct, reliance. Brinkman,
155 N.C. App. at 743. In Brinkman, a group of homeowners brought a negligent
misrepresentation claim against designers of a low-pressure pipe system, which
connected on-lot septic tank effluent pump systems to off-lot collection and disposal
systems. Id. at 739. The homeowners claimed that the designers of the system made
false representations to the North Carolina Department of Environment and Natural
Resources ("DENR") to obtain permits for the implementation of the system. Id. The
homeowners alleged that they relied upon DENR's issuance of permits, and
consequently the underlying misrepresentations, when deciding to purchase the
properties. Id. The trial court granted the defendants' motion for summary judgment on
the plaintiffs' claim and the court of appeals affirmed, holding:
There is no evidence . . . that there was actual reliance by plaintiffs upon defendants' statements. The statements were made to [DENR], which relied upon them and issued permits to defendants. Plaintiffs relied upon [DENR] to fully investigate defendants' application for permits. Plaintiffs relied upon the original permits and the re-issuance of the permits to conclude that their waste disposal system was functioning correctly. Finally, upon discovering the misrepresentations, plaintiffs relied upon the Attorney General and [DENR] to utilize their powers under the Clean Water Act to enforce the law. However, there is no evidence that plaintiffs relied upon statements made by defendants as required by Restatement § 552(1).
Id. at 743. [56] The Brinkman holding provides a conceptually instructive analogy to the
present case. For example, Plaintiffs allege here that they relied on BB&T to review
and investigate the appraisal reports, produced by Appraiser Defendants, before
deciding to close on Plaintiffs' loans.50 Thus, Plaintiffs argue that by relying on BB&T's
actions, they were also relying, albeit indirectly, on Appraiser Defendants'
representations provided to BB&T, which were contained in the appraisal reports.
Similarly, the Brinkman plaintiffs argued that they relied on DENR to review and
investigate the representations made by the defendants, before DENR decided to issue
permits and approve the defendants' design. Thus, the Brinkman plaintiffs argued that
by relying on DENR's actions, they were also relying, albeit indirectly, on the
representations made by defendants to DENR. Id. The court of appeals rejected such
an argument and concluded that the foregoing factual scenario could not support a
negligent misrepresentation claim because the plaintiffs could only show indirect
reliance on the alleged misrepresentations, which were only relayed to the plaintiffs
through the actions of an intermediary. Id.
[57] Recently, the North Carolina Court of Appeals, in Williams v. United
Community Bank, affirmed the trial court's grant of summary judgment in favor of
appraisers where the plaintiffs failed to forecast evidence of reliance to support their
negligence claims. 2012 N.C. App. LEXIS 209, at *17-18. The Williams decision is
highly instructive because the relevant facts are remarkably similar to the present case.
For example, in that case, a group of plaintiffs decided to purchase groups of lots in an
undeveloped, proposed residential community. Id. at *2. The plaintiffs purchased the
lots by taking out bank loans. Id. at *3. None of the purchase contracts "claimed that 50 Compl. ¶¶ 155-57, 460. the purchase price was based on an appraisal, required an appraisal, or made [the
plaintiffs'] obligations to buy the lots contingent on the results of any appraisal." Id. at
*4. After the purchase contracts were signed, the developers helped the plaintiffs
secure financing by directing their loan applications to various banks. Id. The banks, in
turn, selected a group of appraisers to appraise the lots. Id. All the lots were appraised
at the same value, which was the exact price in the purchase contracts and the loans
were approved. Id. at *5. The plaintiffs' complaint alleged that they "had no knowledge
of, contact with, nor control over the appraisal process[,]" which was instead "controlled
by [the developers] and the banks." Id. at *13. Further, the plaintiffs acknowledged that
they did not see any of the appraisals prior to closing on their loans. Id. at *14.
[58] Based on the foregoing facts, the Williams court recognized that the
plaintiffs contracted to purchase lots and close loans "without any awareness of, much
less reliance on, the . . . appraisals." Id. at *15. As such, the court held that the
plaintiffs failed to forecast evidence of reliance on the appraisals because "they did not
see and did not know [the appraisals] existed . . . ." Id.
[59] Similar to the purchasers in Williams, Plaintiffs in the instant case
purchased lots in undeveloped, proposed residential communities. Further, Plaintiffs
allege that Coastal Defendants and the banks controlled the loan and appraisal
process.51 Indeed, the banks procured the appraisals and subsequently approved
Plaintiffs' loan applications.52 Plaintiffs do not allege that they ever viewed or read the
appraisal reports prior to signing their purchase contracts or closing on their loans.
Instead, Plaintiffs' argue, in conclusory fashion, that they relied on the appraisals
51 Id. ¶ 115. 52 Id. ¶¶ 124, 128, 151-53. "regardless of whether they viewed the appraisal report" because "if the appraisal
reports reflected fair market values below the purchase price, none of the Plaintiffs
would have moved forward and closed the loan."53 More specifically, Plaintiffs allege
that "[t]hrough the acceptance of the appraisals by their lender [BB&T], the Plaintiffs
relied on the false and misleading information supplied by [Appraiser Defendants], and
the Plaintiffs' reliance was justifiable."54 In other words, Plaintiffs contend that they
indirectly relied on the appraisal reports because BB&T presumably reviewed the
reports and decided to close on their loans, implying that the lots appraised for the value
of the loans.55 Thus, because BB&T decided to close on their loans, Plaintiffs assumed
that the appraisal reports supported the loans and were not defective.
[60] Plaintiffs also allege, like the purchasers in Williams, that if Appraiser
Defendants had disclosed any of the flaws in their appraisal reports or if Plaintiffs knew
that the lots were overvalued, they would not have closed on their loans, and that they
subsequently lost money as a result of the purchases.56 However, Plaintiffs' Complaint
makes it clear that they were not involved in the appraisal process, which was instead
controlled by Coastal Defendants and BB&T.57 Further, Plaintiffs do not allege that they
viewed any of the appraisals prior to signing the purchase contracts, which in any event
were not contingent upon the appraised values for the lots.58 Consequently, Plaintiffs
53 Pls. Def. Gilmartin Mem. Opp'n Appraisal Defs. Mot. Dismiss 6. 54 Compl. ¶ 460. 55 Plaintiffs argue that BB&T's failure either to discover or disclose the defects in the appraisal reports was a proximate cause of Plaintiffs' alleged losses. Pls. Def. Gilmartin Mem. Opp'n Appraisal Defs. Mot. Dismiss 13; see also Compl. ¶¶ 155-57 (alleging that BB&T "failed to maintain adequate and appropriate compliance reviews of the appraisals which would have alerted the Defendant BB&T that the appraisals were flawed and the lot prices were inflated"). 56 Compl. ¶ 118. 57 Id. ¶ 115. 58 After reviewing the Complaint, it appears that most, if not all, appraisals were performed after Plaintiffs executed their respective purchase contracts. do not, and cannot, allege that they ever relied upon any appraisal of the property
before they agreed to purchase said property. Moreover, Plaintiffs do not allege that
they viewed the appraisals before closing on their loans with BB&T. Actual reliance is
particularly lacking as to certain Plaintiffs who allege that their appraisal was performed
after they closed on the loans.59
[61] All of Plaintiffs' allegations indicate that they made their decisions to invest
in the Coastal Communities Properties and contracted to do so without any awareness
of, much less reliance on, the appraisal reports. Even if Appraiser Defendants had
appraised the lots differently, Plaintiffs still would have been obligated to purchase the
lots at the prices agreed to in the purchase contracts. Plaintiffs cannot have relied upon
information they did not see or know existed (or did not in fact exist) at the time of their
decisions to purchase. Williams, 2012 N.C. App. LEXIS 209, at *15.
[62] Following Raritan, Brinkman and Williams, the court must disagree with
Plaintiffs' argument that they "need not be directly involved in procurement of the
appraisals to reasonably rely upon their accuracy in connection with the lending
process"60 to establish a claim for negligent misrepresentation. To the contrary, direct
reliance is precisely what is required to state a claim against Appraiser Defendants.
Raritan, 322 N.C. at 205-06; Brinkman, 155 N.C. App. at 743; Williams, 2012 N.C. App.
LEXIS 209, at *13-17. At best, Plaintiffs have alleged indirect reliance on the appraisal
reports. Consequently, Plaintiffs' failure to allege that they relied directly on the
appraisal reports themselves is fatal to their Claims. Raritan, 322 N.C. at 205-06.
59 For example, Plaintiffs Gilmartin, Brigham, Geralomo and Patno each allege that they closed on the property and received their loans before their appraisals were performed. Gilmartin Sec. Am. Answer & Countercl. ¶ 413, Barton Am. Compl. ¶¶ 305, 307, 340, 364-65. 60 Pls. Def. Gilmartin Mem. Opp'n Appraisal Defs. Mot. Dismiss 13. [63] Accordingly, in the absence of factual allegations supporting actual and
direct reliance upon the appraisals, the court is forced to CONCLUDE that Plaintiffs
have failed to state either negligence or negligent misrepresentation Claims upon which
relief can be granted against Appraiser Defendants. Their Motion as to such Claims
should be GRANTED, and the Claims should be DISMISSED.
Fraud and RICO Claims
[64] Similar to the above-mentioned negligence-based Claims, Plaintiffs' fraud
and RICO Claims against Appraiser Defendants are also based on the alleged
misrepresentations contained in the appraisal reports.
[65] Appraiser Defendants seek dismissal of Plaintiffs' fraud and RICO Claims
on the grounds that they are not pleaded with the requisite particularity and also
because Plaintiffs have failed to allege facts establishing reasonable reliance.61
[66] As discussed above, Plaintiffs have not alleged facts sufficient to show
that they relied on the representations made by Appraiser Defendants. Accordingly, the
court CONCLUDES that Plaintiffs have failed to state fraud and RICO Claims62 upon
which relief can be granted against Appraiser Defendants. Their Motion as to such
Claims should be GRANTED, and those Claims should be DISMISSED.
61 Appraiser Defs. Memo 11-14. 62 The court recognizes that reliance is not an explicit element to a RICO claim under G.S. 75D-4. However, the plaintiff must allege that he was injured by the racketeering scheme. Hoke v. E.F. Hutton & Co., 91 N.C. App. 159, 163 (1988). More specifically, the plaintiff must establish that his injury "has been caused by the conduct constituting the [RICO] violation." Id. Here, Plaintiffs allege that Appraiser Defendants' conduct in performing "fraudulent, misleading and inflated appraisals" as part of the "Saunders Development Enterprise" constituted a RICO violation. Compl. ¶ 390. As discussed supra, such conduct did not proximately cause injury to Plaintiffs, due to their lack of reliance on the appraisals. Therefore, the conduct is not actionable under RICO. 3.
Unjust Enrichment Claim
[67] "In order to properly set out a claim for unjust enrichment, a plaintiff must
allege that property or benefits were conferred on a defendant under circumstances
which give rise to a legal or equitable obligation on the part of the defendant to account
for the benefits received . . . ." Norman v. Nash Johnson & Sons' Farms, Inc., 140 N.C.
App. 390, 417 (2000).
[68] Plaintiffs raise the doctrine of unjust enrichment against all Defendants.
However, none of the factual allegations giving rise to this Claim relate to the conduct of
Appraiser Defendants. For example, Plaintiffs allege that "the Defendants sold,
arranged for financing and/or financed properties within the Saunders developments to
the Plaintiffs at inflated prices, and benefitted thereby through receipt of money and fees
that were artificially inflated or unreasonably high."63 Nowhere in the Complaint do
Plaintiffs allege that Appraiser Defendants sold, arranged for financing or financed the
properties. Nor are there allegations to suggest that Appraiser Defendants received an
"artificially inflated" or "unreasonably high" fee for their services.
[69] Accordingly, the court CONCLUDES that Plaintiffs have failed to state an
unjust enrichment Claim upon which relief can be granted against Appraiser
Defendants. Their Motion as to such Claim should be GRANTED, and the Claim should
be DISMISSED.
63 Compl. ¶ 525 4.
Chapter 75 Claim
[70] To state a claim for unfair and deceptive trade practices under G.S. 75-
1.1, the plaintiff must allege that: "(1) the defendant committed an unfair or deceptive
act or practice, or an unfair method of competition, (2) in or affecting commerce, (3)
which proximately caused actual injury to the plaintiff or to the plaintiff's business."
Williams, 2012 N.C. App. LEXIS 209, at *12-13 (quoting Sunset Beach Dev., LLC v.
Amec, Inc., 196 N.C. App. 202, 211 (2009)). "Where an unfair or deceptive practice
claim is based upon an alleged misrepresentation by the defendant, the plaintiff must
show actual reliance on the alleged misrepresentation in order to establish that the
alleged misrepresentation proximately caused the injury of which plaintiff complains."
Id.
[71] Plaintiffs' Chapter 75 Claim against Appraiser Defendants is summarily
pleaded and presumably based on the alleged misrepresentations in the appraisal
reports. As discussed above, Plaintiffs have not alleged facts sufficient to show that
they relied on the representations made by Appraiser Defendants. Accordingly, the
court CONCLUDES that Plaintiffs have failed to state a Chapter 75 Claim upon which
relief can be granted against Appraiser Defendants. Their Motion as to such Claim
should be GRANTED, and the Claim should be DISMISSED.
5.
Civil Conspiracy Claim
[72] Plaintiffs have included Appraiser Defendants in their Civil Conspiracy
Claim. [73] "In order to state a claim for civil conspiracy, a complaint must allege 'a
conspiracy, wrongful acts done by certain of the alleged conspirators, and injury.'"
Norman, 140 N.C. App. at 416 (quoting Henry v. Deen, 310 N.C. 75, 87 (1984)). When
pursuing a claim for civil conspiracy, recovery is based upon the underlying alleged
wrongful, overt act. Fox v. Wilson, 85 N.C. App. 292, 301 (1987). A civil conspiracy
claim is subject to dismissal when the underlying causes of action, which contain the
alleged wrongful acts, are dismissed. See Dove v. Harvey, 168 N.C. App. 687, 690-91,
694 (2005).
[74] As discussed above, the court has concluded that all underlying Claims
alleged against Appraiser Defendants are subject to dismissal. Consequently, Plaintiffs
have failed to allege sufficiently that Appraiser Defendants committed any independent
wrongful acts as to Plaintiffs. Rather, the remaining wrongful acts alleged in this case
are those attributed to Coastal Defendants. The crux of Plaintiffs' Complaint is that
Coastal Defendants promised lavish amenities and infrastructure, but they have not built
them; therefore, Plaintiffs overpaid because the purchased property, without the
amenities, is not worth what they paid for it. There are no allegations that Appraiser
Defendants joined in any conspiracy relative to the fraudulent or negligent inducement
of lot sales based on the promise of future amenities. The causal nexus between the
injury complained of by Plaintiffs and the alleged conduct of Appraiser Defendants is
virtually non-existent and is not sufficient to support a civil conspiracy Claim against
Appraiser Defendants.64
64 The court recognizes that under certain circumstances, a civil conspiracy claim may be viable against a defendant who has not committed any act against the plaintiff that, standing alone, would be wrongful. See GoRhinoGo, LLC v. Lewis, 2011 NCBC 38, ¶¶ 35-36 (N.C. Super. Ct. Sept. 29, 2011) ("[A]n otherwise lawful act can become an unlawful act when it is part of a conspiratorial plan."). However, in [75] Accordingly, the court CONCLUDES that Plaintiffs have failed to state a
conspiracy Claim upon which relief can be granted against Appraiser Defendants. Their
Motion as to such Claim should be GRANTED, and the Claim should be DISMISSED.
D.
Coastal Defendants' Motion
[76] Coastal Defendants' Motion seeks dismissal of Plaintiffs' Complaint,
primarily based on the contention that the actual Sales Contracts Plaintiffs entered into
do not contain deadlines for when Coastal Defendants were required to finish
infrastructure and amenities for the Coastal Communities. Coastal Defendants argue
that "virtually all of [Plaintiffs'] [C]laims" depend on the existence of a contractual
deadline for completion of the Coastal Communities infrastructure and amenities.65
[77] It appears that certain Plaintiffs' Claims against Coastal Defendants can
be divided into the general categories of (a) breach of contract Claims and (b) fraud-
based Claims.66 Plaintiffs also allege other Claims against Coastal Defendants (c) for
negligent misrepresentation, (d) under the Interstate Land Sales Full Disclosure Act
("ILSA"), (e) for unjust enrichment, (f) for declaratory judgment, (g) under the North
GoRhinoGo, the allegation and evidentiary forecast was that the defendant landlord, in terminating a lease with the plaintiff, was engaged in active concert with other defendants in a plan designed to harm the plaintiff's business, a result that involved a breach of fiduciary duty one defendant owed to the plaintiff. Id. at ¶¶ 32-33. The alleged injury from that breach was a direct result of the defendant landlord's participation in the alleged conspiracy. Id. at ¶ 39. Here, the causal relationship between the alleged actions of Appraiser Defendants and those of Coastal Defendants is too tenuous. 65 Br. Supp. Coastal Defs. Mot. Dismiss ("Coastal Defs. Memo") 4-5. 66 The court deems Plaintiffs' "fraud-based Claims" against Coastal Defendants to include the following: Eighth Claim for Relief – Fraud; Twelfth Claim for Relief – Violation of N.C.G.S. § 75D-4(a)(2); Fifteenth Claim for Relief – Actions pursuant to Civil Conspiracy and Sixteenth Claim for Relief – Unfair and Deceptive Trade Practices. Carolina Mortgage Lending Act ("MLA")67 and (h) for equitable estoppel. The court will
address in turn each category of Claims against Coastal Defendants.
Breach of Contract Claims
[78] Plaintiffs seek the following breach of contract Claims against Coastal
Defendants: (1) Breach of Contract – Rescission, (2) Breach of Contract – Alternative
Claim for Damages, (3) Breach of Contract – Specific Performance and (4) Breach of
Implied Warranty of Restrictive Covenants.
[79] In substance, Plaintiffs contend that Coastal Defendants breached the
Sales Contracts by failing to complete the promised amenities and infrastructure in a
timely manner. Plaintiffs' breach of contract Claims are based on alleged breach of
terms and provisions arising from the Sales Contracts entered into between the parties,
written disclosures and marketing materials provided by Coastal Defendants to Plaintiffs
and oral representations made by Coastal Defendants. Plaintiffs also allege that
Coastal Defendants made representations that infrastructure and amenities would be
completed within a two or three year period.68 Plaintiffs contend that these
representations created a contract and Coastal Defendants have breached that
contract.
[80] Related to the breach of contract Claims, Plaintiffs also allege a Claim
against Coastal Defendants for Breach of Implied Warranty of Restrictive Covenants.69
Plaintiffs contend that Coastal Defendants warranted through recorded restrictive
67 In 2009, the MLA was repealed and replaced by the Secure and Fair Enforcement Mortgage Licensing Act, G.S. 53-244.010, et seq. 68 Compl. ¶ 416. 69 Id. ¶¶ 426-31. covenants that the Coastal Communities Properties shall only be used for single-family
residential purposes, then breached those warranties by conveying lots to Plaintiffs that
cannot be used for residential purposes. Plaintiffs' theory in support of the breach of
implied warranty Claim is analogous to the theory in support of the breach of contract
Claims.
[81] Coastal Defendants contend that the Sales Contracts control, not any
alleged representations made outside the Sales Contracts, and the Sales Contracts
merely provide "estimated" dates for completion of infrastructure and amenities, not
binding contractual deadlines.70
[82] In response to Coastal Defendants' argument that there are no binding
contractual deadlines, Plaintiffs contend, in substance, that an implied promise arose
from the totality of the circumstances that Coastal Defendants would complete the
infrastructure and amenities within a reasonable period of time.71 Plaintiffs further
contend that Coastal Defendants have breached this implied promise by failing to
complete the infrastructure and amenities a number of years after such promises were
made.72
[83] Accepting the factual allegations of the Complaint as true, and guided by
the seminal decision of Sutton v. Duke, the court is unable to conclude that the
Complaint reveals on its face (a) that no law supports Plaintiffs' contract-based Claims,
(b) the absence of facts sufficient to make such Claims or (c) some fact that necessarily
defeats such Claims. Jackson, 318 N.C. at 175.
70 Coastal Defs. Memo 13. 71 Pls. Def. Gilmartin Mem. Opp'n Coastal Defs. Mot. Dismiss 12, 14, 23. 72 Id. [84] Accordingly, the court CONCLUDES that Plaintiffs have alleged facts
sufficient to state contract-based Claims upon which relief can be granted against
Coastal Defendants' for breach of contract, breach of implied warranty of restrictive
covenants, rescission and specific performance. Coastal Defendants' Motion as to such
Claims therefore should be DENIED.
Fraud-Based Claims
[85] As to Plaintiffs' fraud-based Claims, the court is unable to conclude that
the Complaint reveals on its face (a) that no law supports Plaintiffs' Claims, (b) the
absence of facts sufficient to make such Claims or (c) some fact that necessarily
defeats the Claims. Sutton, 277 N.C. at 98; Jackson, 318 N.C. at 175.
[86] Accordingly, the court CONCLUDES that Plaintiffs have alleged facts
sufficient to state fraud-based Claims upon which relief can be granted against Coastal
Defendants. Coastal Defendants' Motion as to such Claims therefore should be
DENIED.
3.
Negligent Misrepresentation Claim
[87] In addition to their fraud-based Claims, Plaintiffs allege a Claim of
negligent misrepresentation against Coastal Defendants, based on the alleged
misrepresentations of the completion dates for the infrastructure and amenities.73
[88] Coastal Defendants seek dismissal of Plaintiffs' negligent
misrepresentation Claim on grounds that the Complaint does not specify a duty owed
and the factual allegations do not establish reasonable reliance.74 73 Compl. ¶ 444. [89] "The tort of negligent misrepresentation occurs when a party justifiably
relies to his detriment on information prepared without reasonable care by one who
owed the relying party a duty of care." Raritan, 322 N.C. at 206.
[90] The MLA may create a duty sufficient to support a claim for negligent
misrepresentation. See, e.g., Guyton v. FM Lending Servs., Inc., 199 N.C. App. 30, 48-
49 (2009) (recognizing that an allegation that the MLA may create a duty is sufficient to
survive a Rule 12(b)(6) motion). Specifically, the MLA provides that mortgage brokers,
as defined under the Act, have a duty to disclose truthful, material information to
potential real estate buyers and loan applicants. G.S. 52-243.11.
[91] Here, Coastal Defendants, specifically TMC and Gordon, were acting as
mortgage brokers under the MLA and therefore owed a duty of care to Plaintiffs. As
such, the alleged duty of care under the MLA is sufficient to support Plaintiffs' negligent
misrepresentation Claim. Guyton, 199 N.C. App. at 48-49.
[92] Coastal Defendants also contend that Plaintiffs' negligent
misrepresentation Claim fails because Plaintiffs cannot allege reasonable reliance
based on the fact that they were given HUD Reports75 and other documents with
"estimated" completion dates of infrastructure and amenities.76 Coastal Defendants
argue that, as a matter of law, Plaintiffs cannot reasonably rely on alleged oral
misrepresentations when they were provided with conflicting written representations.77
74 Coastal Defs. Memo 26. 75 The United States Department of Housing and Urban Development ("HUD") requires that certain warnings and disclosures be made in writing to purchasers of lots in large subdivisions that meet certain statutory criteria. See 15 U.S.C. § 1701 et seq. These disclosures are contained in a HUD Property Report ("HUD Report"). 76 Coastal Defs. Memo 26. 77 Id. [93] Plaintiffs allege and argue that they justifiably relied on the oral
representations made by Coastal Defendants regarding the completion dates of
infrastructure and amenities.78
[94] Whether Plaintiffs reasonably relied on any information provided by
Coastal Defendants or failed to exercise reasonable diligence likely will be a question of
fact for the jury. See Marcus Bros. Textiles v. Price Waterhouse, LLP, 350 N.C. 214,
224-25 (1999) (recognizing that reasonable reliance is generally a question for the jury,
unless the facts are so clear as to permit only one conclusion). At this stage of the
litigation, the Complaint raises triable issues of fact regarding the reasonableness of
Plaintiffs' reliance upon Coastal Defendants' alleged oral misrepresentations regarding
firm completion dates of infrastructure and amenities, in light of conflicting written
estimated dates in the HUD Reports.
[95] As to Plaintiffs' negligent misrepresentation Claim, the court is unable to
conclude that the Complaint reveals on its face (a) that no law supports Plaintiffs' Claim,
(b) the absence of facts sufficient to make such Claim or (c) some fact that necessarily
defeats the Claim. Sutton, 277 N.C. at 98; Jackson, 318 N.C. at 175.
[96] Accordingly, the court CONCLUDES that Plaintiffs have alleged facts
sufficient to state a negligent misrepresentation Claim upon which relief can be granted
against Coastal Defendants. Coastal Defendants' Motion as to such Claim therefore
should be DENIED.
78 Compl. ¶ 442. 4.
ILSA Claims
[97] Plaintiffs allege two Claims under ILSA, which prohibits developers from
defrauding purchasers of real property. The first Claim seeks rescission and the second
Claim seeks damages. Both Claims appear to be predicated on the same facts, and the
only difference is the remedy.79
[98] Coastal Defendants' Motion seeks dismissal of Plaintiffs' ILSA Claims,
based largely on the contention that the Claims are barred by the statute of limitations
and are insufficiently pled like the other fraud-based Claims.80
[99] ILSA contains two primary prohibitions, which Plaintiffs allege were
violated by Coastal Defendants. The first prohibition, under §§ 1703(a)(1) and
1703(a)(2)(D), provides that developers shall not:
(a)(1)(A) sell or lease any lot unless a statement of record with respect to such lot is in effect in accordance with section 1407 [15 U.S.C. § 1706]; (a)(1)(B) sell or lease any lot unless a printed property report, meeting the requirements of section 1408 [15 U.S.C. § 1707], has been furnished to the purchaser or lessee in advance of the signing of any contract or agreement by such purchaser or lessee; (a)(1)(C) sell or lease any lot where any part of the statement of record or the property report contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein pursuant to sections 1405 through 1408 of this title [15 U.S.C. §§ 1704 through 1707] or any regulations thereunder; (a)(1)(D) display or deliver to prospective purchasers or lessees advertising and promotional material which is inconsistent with information required to be disclosed in the property report; [. . .] (a)(2)(D) represent that roads, sewers, water, gas, or electric service, or recreational amenities will be provided or completed by the developer without stipulating in the contract of sale or lease that such services or amenities will be provided or completed.
79 See, e.g., Compl. ¶¶ 502-23. 80 Coastal Defs. Memo 27-28. §§ 1703(a)(1)(A)-(D), (a)(2)(D).
[100] The second prohibition, under § 1703(a)(2), provides that developers shall
not:
(a)(2)(A) employ any device, scheme, or artifice to defraud; (a)(2)(B) obtain money or property by means of any untrue statement of a material fact, or any omission to state a material fact necessary in order to make the statements made (in light of the circumstances in which they were made and within the context of the overall offer and sale or lease) not misleading, with respect to any information pertinent to the lot or subdivision; (a)(2)(C) engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon a purchaser . . .
§ 1703(a)(2)(A)-(C).
[101] ILSA also has a statute of limitations under § 1711. For claims brought
under §§ 1703(a)(1) or 1703(a)(2)(D), the limitations period is three years from the date
of signing the written contract for sale. § 1711(a)(1).
[102] Here, Plaintiffs concede the undisputed facts that the Sales Contracts
were signed more than three years before the Complaint was filed. However, Plaintiffs
contend that circumstances, particularly Coastal Defendants' fraudulent conduct, justify
invoking the doctrine of equitable estoppel to preclude the statute of limitations
defense.81
[103] Coastal Defendants contend that § 1711(a)(1) is not subject to equitable
tolling or equitable estoppel. See Allen v. Land Res. Grp. of N.C., LLC, No. 08 CVS
1283, Order Filed Dec. 7, 2009 (N.C. Super. Ct.) (recognizing that § 1711(a)(1) does
not provide for equitable estoppel "under the circumstances of this case"). However,
the court is unable to locate any authority holding that equitable estoppel is per se 81 Pls. Def. Gilmartin Mem. Opp'n Coastal Defs. Mot. Dismiss 30. inapplicable to the limitations period of § 1711(a). Instead, the case law interpreting
§1711, generally, recognizes that equitable estoppel may apply to bar application of
ILSA's statute of limitations. See Cange v. Stotler & Co., 826 F.2d 581, 586 (7th Cir.
1987) (citing Bomba v. W.L. Belvidere, Inc., 579 F.2d 1067, 1070 (7th Cir. 1978));
Darms v. McCulloch Oil Corp., 720 F.2d 490, 493-94 (8th Cir. 1983); Aldrich v.
McCulloch Props., Inc., 627 F.2d 1036, 1042-43 (10th Cir. 1980). As discussed below,
there exist factual issues regarding whether equitable estoppel may apply under the
circumstances of this case. As such, Coastal Defendants' Motion as to Plaintiffs' ILSA
Claim under §§ 1703(a)(1) or 1703(a)(2)(D) should be DENIED.
[104] Coastal Defendants also contend that Plaintiffs' ILSA Claim under §
1703(a)(2)(A)-(C) is time barred.
[105] The statute of limitations for a claim under § 1703(a)(2)(A)-(C) is "three
years after discovery of the violation or after discovery should have been made by the
exercise of reasonable diligence." § 1711(a)(2). The determination of whether more
than three years has passed after Plaintiffs discovered or should have discovered
Coastal Defendants' alleged fraud and deceit violations under § 1703(a)(2) generally is
a question of fact for the jury. Alpine Prop. Owners Ass'n v. Mountaintop Dev. Co., 365
S.E.2d 57, 65 n.14 (W. Va. 1987) (recognizing that the discovery period in § 1711(a)(2)
presents a question of fact).
[106] Plaintiffs have alleged that they did not become aware of Coastal
Defendants' alleged misrepresentations until they discovered Coastal Defendants were
making similar representations in various other undeveloped subdivisions.82
Specifically, Plaintiffs allege a "continuing series" of misrepresentation and 82 See Compl. ¶¶ 383, 385, 518. concealment, which extends well within the three year limitations period.83 Taking the
allegations as true and in a light most favorable to Plaintiffs, their ILSA Claim under §
1703(a)(2) is not time barred because of their delayed discovery of the violations.
Further, the applicability of equitable estoppel to the limitations period of § 1711(a)(2)
typically is a question of fact. Accordingly, the court is unable to conclude, as a matter
of law, that Plaintiffs' ILSA Claim under § 1703(a)(2)(A)-(C) is barred by the statute of
limitations.
[107] Additionally, as mentioned in paragraph 86 above, the court concluded
that Plaintiffs have alleged sufficient facts to state common law fraud-based Claims
against Coastal Defendants. The underlying alleged facts supporting Plaintiffs' ILSA
Claim under § 1703(a)(2)(A)-(C) are analogous to Plaintiffs' common law fraud-based
Claims. Accordingly, the court CONCLUDES that Plaintiffs also sufficiently have
alleged an ILSA Claim under § 1703(a)(2) against Coastal Defendants. Therefore,
Coastal Defendants' Motion as to such Claim should be DENIED.
[108] It is well established that a party may not maintain an action for unjust
enrichment when the parties have an express contract. Booe v. Shadrick, 322 N.C.
567, 570 (1988). Plaintiffs allege that they had express purchase contracts with Coastal
Defendants Ocean Ridge, Ocean Isle Palms, Rivers Edge and Sea Watch. However,
there are other "Coastal Defendants" with which Plaintiffs do not allege to have express
purchase contracts.84 Yet, Plaintiffs' Eleventh Claim for Relief seeks recovery for unjust
83 Id. 84 See id. ¶¶ 524-29. enrichment against all Coastal Defendants. The unjust enrichment Claim is so
summarily plead that it is not possible on the face of the Complaint to determine which
Coastal Defendants might be subjected to liability under this Claim, and which Coastal
Defendants should respond to and defend the Claim.
[109] The unjust enrichment Claim does not meet the North Carolina standards
of notice pleading, and fails to allege sufficient facts to support unjust enrichment
against any Coastal Defendants. Accordingly, the court CONCLUDES that the unjust
enrichment Claim fails to state a claim upon which relief can be granted. Coastal
Defendants' Motion as to such Claim should be GRANTED, and the Claim should be
DISMISSED.
6.
Declaratory Judgment Claim – Contract Void for Illegality
[110] Plaintiffs' allege that Coastal Defendants violated town and county
ordinances that regulate the development of subdivisions, which should render the
Sales Contracts for lots in those subdivisions void for illegality.85
[111] Coastal Defendants seek dismissal of this Claim by arguing that the Sales
Contracts at issue cannot be declared void for illegality based on the violation of a
subdivision ordinance.86
[112] The North Carolina Supreme Court recognized that "the statutory
imposition of a penalty, without more, will not invariably avoid a contract which
contravenes a statute or ordinance when the agreement or contract is not immoral or
criminal in itself." Marriott Fin. Servs., Inc. v. Capitol Funds, Inc., 288 N.C. 122, 128
85 Id. ¶¶ 546-57. 86 Coastal Defs. Memo 29. (1975). When making such a determination, the court may examine the language and
purpose of the statute, as well as the effects of avoiding contracts in violation thereof.
Id. In Marriott, the court held that a violation of a subdivision ordinance did not void the
sale of property because legislative bodies generally do not intend to void a purchaser's
contract where the owner fails to follow the provisions of the penal legislation. Id. at
135.
[113] After reviewing the ordinances for the Town of Sunset Beach and
Brunswick County, the court concludes that Coastal Defendants' alleged violations of
bonding requirements for Coastal Communities do not void the Sales Contracts for lots
in those subdivisions. It appears the ordinances at issue were intended to punish, by
way of penalty, for the violation of the ordinance itself. Similar to the rationale in
Marriott, this court concludes that it cannot be reasoned that the Town of Sunset Beach
or Brunswick County intended to invalidate Sales Contracts merely because Coastal
Defendants violated an ordinance that requires bonding for subdivision development.
Id. at 130.
[114] Accordingly, the court CONCLUDES that Plaintiffs' Claim to void the Sales
Contracts fails to state a claim upon which relief can be granted against Coastal
Defendants. Their Motion as to such Claim should be GRANTED, and the Claim should
7.
MLA Claim
[115] Plaintiffs' Complaint alleges that Coastal Defendants violated the MLA
based on their involvement in the alleged scheme of predatory lending practices. Plaintiffs' Claim alleges that a violation of the MLA gives rise to a private cause of
action.
[116] Coastal Defendants' Motion seeks dismissal of Plaintiffs' MLA Claim,
based largely on the argument that the MLA does not provide a private cause of action
to Plaintiffs.
[117] After reviewing applicable case law, the court concludes that the MLA
does not provide a private cause of action to plaintiffs, although it may create a duty
sufficient to support a negligence claim. See In re Foreclosure of a Deed of Trust
Executed by Bradburn, 199 N.C. App. 549, 552-53 (2009) (concluding that the MLA
provides limited remedies to the North Carolina Commissioner of Banks); Guyton, 199
N.C. App. at 48-49.
[118] As a result, Plaintiffs' MLA Claim may not be pursued as an independent
cause of action, but the duties that arise under the MLA may be incorporated within
Plaintiffs' negligent misrepresentation Claim, as mentioned supra.
[119] Accordingly, the court CONCLUDES that Plaintiffs' MLA Claim fails to
state a claim upon which relief can be granted against Coastal Defendants. Their
Motion as to such Claim should be GRANTED, and the Claim should be DISMISSED.
8.
Limitations
[120] Coastal Defendants contend that many of Plaintiffs' Claims are barred by
the statute of limitations.
[121] In response, Plaintiffs argue that their Claims are not time barred because
equitable estoppel should apply to prevent Coastal Defendants from raising the statute of limitations as a defense. Specifically, Plaintiffs allege that Coastal Defendants' initial
representations regarding the completion of the Coastal Communities and the ongoing
representations were designed to delay Plaintiffs' inquiry and forebear Plaintiffs from
taking any legal action.87 Based on these alleged, continued misrepresentations,
Plaintiffs contend that Coastal Defendants should be equitably estopped from raising
the statute of limitations as a defense in this civil action.
[122] At this preliminary stage in the proceedings, there exist factual questions
regarding whether the doctrine of equitable estoppel may be utilized to overcome the
statute of limitations on Plaintiffs' Claims. The court is unable to conclude, on the face
of the Complaint, that Plaintiffs' Claims against Coastal Defendants are time barred by
the statute of limitations. Accordingly, Coastal Defendants' Motion with regard to
limitations should be DENIED.
IV.
CONCLUSION
NOW THEREFORE, based on the foregoing, it hereby is ORDERED that:
[123] Baxley Defendants' Motion is GRANTED and all Claims and
Counterclaims asserted against Baxley Defendants are DISMISSED.
[124] Appraiser Defendants' Motion is GRANTED and all Claims and
Counterclaims asserted against Appraiser Defendants are DISMISSED.
[125] Coastal Defendants' Motion is GRANTED as to Plaintiffs' Claims for
Unjust Enrichment, Declaratory Judgment – Contracts Void for Illegality and Breach of
North Carolina Mortgage Lending Act (N.C.G.S. § 53-243.01 et seq.).
87 Compl. ¶¶ 686-91. [126] With respect to the Anderson Complaint, the following Claims asserted
against Coastal Defendants are DISMISSED: Eleventh Claim, Fourteenth Claim and
Twentieth Claim.
[127] With respect to the Beadnell Complaint, the following Claims asserted
against Coastal Defendants are DISMISSED: Eleventh Claim, Fourteenth Claim and
[128] With respect to the Barton Complaint, the following Claims asserted
against Coastal Defendants are DISMISSED: Eleventh Claim, Fourteenth Claim and
Twenty-First Claim.
[129] With respect to the Barry Complaint, the following Claims asserted against
Coastal Defendants are DISMISSED: Eleventh Claim and Nineteenth Claim.
[130] With respect to the Arnesen Complaint, the following Claims asserted
against Coastal Defendants are DISMISSED: Eleventh Claim and Nineteenth Claim.
[131] With respect to the Gilmartin Counterclaim, the following Counterclaims
asserted against Coastal Defendants are DISMISSED: Eleventh Counterclaim and
Twentieth Counterclaim.
[132] Except as granted herein, Coastal Defendants' Motion is DENIED.
[133] On Tuesday, June 19, 2012, at 1:00 p.m., at the North Carolina Business
Court, 225 Hillsborough Street, Suite 303, Raleigh, North Carolina, the court will
conduct a hearing and status conference with all remaining parties to this action for the
purpose of resolving case management issues going forward in this civil action. On or
before Monday, June 18, 2012, the parties shall submit a case management report, pursuant to Rule 17 of the General Rules of Practice and Procedure for the North
Carolina Business Court.
This the 30th day of May, 2012.
Related
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