Opinion
Civil Action 4:23-cv-3426-JD-TER
07-23-2024
BRAD R. JOHNSON, Plaintiff, v. PENNYMAC LOAN SERVICES, LLC and BLANCO TACKBERRY & MATAMOROS, P.A., Defendants.
REPORT AND RECOMMENDATION
Thomas E. Rogers, III United States Magistrate Judge
I. INTRODUCTION
In this case, Plaintiff, who is proceeding pro se, brings this action alleging state law causes of action for (1) Breach of a Unilateral Contract Accompanied by Fraudulent Act, (2) Fraud in the Inducement to Enter a Unilateral Contract, (3) Abuse of Process, (4) Malicious Prosecution, (5) Unfair or Deceptive Trade Practices pursuant to N.C. G.S. § 75-1.1, et al, and (6) Civil Conspiracy. Plaintiff alleges that subject matter jurisdiction is proper in this court based on the diversity of the parties and an amount in controversy greater than $75,000 pursuant to 28 U.S.C. § 1332. Presently before the court is Defendant PennyMac Loan Services, LLC's (PennyMac) Motion to Dismiss (ECF No. 17) and Defendant Blanco Tackberry, & Matamoros, P.A.'s (Blanco)Amended Motion to Dismiss (ECF No. 24). Because Plaintiff is proceeding pro se, he was advised pursuant to Roseboro v. Garrison, 528 F.3d 309 (4th Cir. 1975), that a failure to respond to Defendants' motions could result in the motions being granted and his claims against those Defendants dismissed. Plaintiff filed Responses (ECF Nos. 34, 37) to both motions. All pretrial proceedings in this case were referred to the undersigned pursuant to the provisions of 28 U.S.C. 636(b)(1)(A) and (B) and Local Rule 73.02 (B)(2)(e), DSC. This report and recommendation is entered for review by the district judge.
The first two Motions to Dismiss (ECF Nos. 9, 11) are moot as a result of Plaintiff's filing his First Amended Complaint (ECF No. 15). Blanco's second Motion to Dismiss (ECF No. 20) is also moot as a result of Blanco filing the Amended Motion to Dismiss (ECF No. 24). As a result, Plaintiff's Motion for Extension (ECF No. 27) and Plaintiff's Motion to Strike (ECF No. 28) Blanco's second Motion to Dismiss are moot as well.
II. FACTUAL ALLEGATIONS
This is the third case Plaintiff has filed against PennyMac arising from a deed reformation action PennyMac filed against Plaintiff in Forsyth County District Court in North Carolina in January of 2020. Blanco is the firm that represented PennyMac in the deed reformation action, and this is the first case Plaintiff has filed against it.
Plaintiff purchased Lots 16 and 18, Block 186, Section N-6, Long Beach (now Oak Island), North Carolina. Am. Compl. ¶ 4. Lots 16 and 18 were improved with a residence. Am. Compl. ¶ 4. Plaintiff purchased homeowners and flood insurance coverage for the house located on Lots 16 and 18 from Farm Bureau Insurance Company. Am. Compl. ¶ 5. Subsequently, Plaintiff purchased Lots 13, 15 and 17, Block 186, Section N-6, Long Beach (now Oak Island), North Carolina. Am. Compl. ¶ 6. Lots 13, 15 and 17 are undeveloped lots. Am. Compl. ¶ 7. Plaintiff later combined all Lots (collectively, the Property) for tax and assessment purposes. Am. Compl. ¶ 7. In June 2013, Plaintiff applied for a loan from Weststar Mortgage, Inc., and an appraisal was conducted on the combined Property, including the improved residence. Am. Compl. ¶¶ 8-9. Johnson's loan application was approved (2013 Loan), and a Deed of Trust was recorded. Am. Compl. ¶¶ 12-14. The Deed of Trust purports to encumber only Lots 13, 15 and 17, i.e., the vacant lots. Am. Compl. ¶ 15. Later in 2013, the Weststar Mortgage was sold to PennyMac. Comp. ¶ 21.
From the inception of the 2013 Loan until September 20, 2017, first Weststar and then PennyMac created and maintained an escrow account and used the escrowed funds to pay for homeowners and flood insurance coverage for the house. Am. Compl. ¶¶ 19, 24. In September of 2017, Plaintiff called PennyMac and requested that it discontinue paying for the homeowners and flood insurance because it had a lien on vacant land only. Am. Compl. ¶ 24. PennyMac's representative responded that he would look into the situation. Am. Compl. ¶ 24. In April of 2018, PennyMac paid to renew the homeowner's insurance. Am. Compl. ¶ 26. Subsequently, PennyMac informed Plaintiff that it would close the escrow account but he was still required to pay for property insurance. Am. Compl. ¶ 28.
In September of 2018 and after, Plaintiff corresponded with PennyMac, who allegedly told him that if he separated Lots 16 and 18 (those on which the house is located) from Lots 13, 15, and 17 (the vacant lots), it would not require him to maintain property insurance coverage on the vacant land, but would continue to require flood insurance. Am. Compl. ¶ 30. On March 22, 2019, Plaintiff separated the vacant lots from Lots 16 and 18. Am. Compl. ¶ 31.
In May and June of 2019, PennyMac sent Plaintiff letters informing him that his homeowners insurance had expired and requested that he purchase homeowners' insurance. Plaintiff stated that he could not purchase homeowner's insurance for vacant land. Am. Compl. ¶ 32. Therefore, PennyMac purchased lender-placed homeowners' insurance coverage for the home and funded the insurance through the 2013 Loan's escrow account, resulting in an increased monthly payment. Am. Compl. ¶¶ 35-36.
On or about August 20, 2019, Plaintiff wrote complaint letters regarding PennyMac to the North Carolina Commissioner of Banks and the North Carolina Department of Insurance wherein he asserted that the lender placed hazard coverage was improper because PennyMac did not have an insurable interest in the dwelling on which insurance coverage was placed. Am. Compl. ¶ 37. PennyMac responded with a letter explaining that (i) while the Deed of Trust was prepared with Lots 13, 15 and 17 only in the legal description, Johnson's loan application states that the purpose of the loan was to refinance a then-existing loan encumbering the house on Lots 16 and 18, and (ii) PennyMac had made a title insurance claim to resolve the drafting error in the Deed of Trust's legal description. Am. Compl. ¶ 39. In addition, PennyMac also stated that it would not seek payment for homeowners insurance premiums from Plaintiff until the title issue was resolved and that it would remove the insurance premium from Plaintiff's escrow account. Am. Comp. ¶ 39.
In January 2020, PennyMac, through Blanco and its agent, Chad Archer, commenced an action in Forsyth County District Court to reform Plaintiff's Deed of Trust to include Lots 13, 15, 16, 17, and 18. Am. Compl. ¶ 2b, 43. On February 21, 2020, Plaintiff filed a counterclaim/third party claim against PennyMac, SGIC, and Assurant, asserting violations of the RICO, in particular 18 U.S.C. § 1962(c) & (d), against all defendants, as well as claims for breach of contract and violation of the FDCPA against PennyMac, and removed the entire action to the Middle District of North Carolina. PennyMac Loan Services, LLC. v. Johnson, Case No. 20-cv-175 (M.D.N.C). Thereafter, Plaintiff amended his initial counterclaim. The Middle District of North Carolina remanded the case back to Forsyth County District Court, PennyMac Loan Servs., LLC v. Johnson, 2021 WL 861530, at *7 (M.D. N.C. Mar. 8, 2021), where it was subsequently transferred to the Forsyth County Superior Court.
Defendants moved to dismiss the counterclaims and Plaintiff moved to further amend his counterclaims, to which Defendants objected. On May 24, 2021, the Forsyth County Superior Court denied Plaintiff's motion for leave to amend his counterclaims as futile and dismissed with prejudice Plaintiff's counterclaims. Forsyth County Order (ECF No. 9-1).
On January 17, 2022, PennyMac, through Blanco and its agent Archer, offered to voluntarily dismiss the Forsyth County District Court case with prejudice if Plaintiff paid off the loan balance of the Note, totaling $273,000. Am. Compl. ¶ 53(a). On February 25, 2022, PennyMac, Blanco, and Archer repeated the offer to voluntarily dismiss the case with prejudice if Plaintiff paid the loan balance. Am. Compl. ¶ 53(b). That same day, Plaintiff accepted PennyMac's offer and wired PennyMac the total balance of the loan to pay it off in full. Am. Comp. ¶ 53(c), (f). Contrary to its agreement with Plaintiff, on March 10, 2022, PennyMac filed a Voluntary Dismissal without prejudice in the Forsyth County case. Am. Compl. ¶ 54. PennyMac and Blanco claimed they had no knowledge of the offer to dismiss the case with prejudice and that Archer did not have the authority to obligate PennyMac to file a dismissal with prejudice. Am. Compl. ¶ 55.
Following the dismissal of PennyMac's deed reformation claims, Plaintiff filed an appeal of the earlier dismissal of his counterclaims/third-party claims. The North Carolina Court of Appeals affirmed the trial court's dismissal of Plaintiff's counterclaims/third-party claims. See PennyMac Loan Services, LLC v. Johnson, 288 N.C.App. 363, 887 S.E.2d 99, 102 (2023) . Plaintiff moved for the Court of Appeals to reconsider the panel's opinion en banc. On May 23, 2023, the motion was denied. See Order on Motion for En Banc Rehearing (ECF No. 9-3). Plaintiff then filed a Petition for Discretionary Review with the North Carolina Supreme Court, which was denied on December 13, 2023. See PennyMac Loan Servs., LLC v. Johnson, No. 145P23, 2023 WL 8716463, at *1 ( N.C. Dec. 13, 2023).
Plaintiff's first cause of action for Breach of Unilateral Contract Accompanied by Fraudulent Acts and second cause of action for Fraud in the Inducement to Enter a Unilateral Contract arise from Defendants' dismissal of the Forsyth County case without prejudice despite their agreement with Plaintiff to dismiss it with prejudice. Am. Compl. ¶¶ 58-81. Plaintiff's causes of action for Abuse of Process and Malicious Prosecution arise from Defendants' filing of the Forsyth County case. Am. Compl. ¶¶ 82-102. His remaining causes of action for Unfair and Deceptive Trade Practices and Civil Conspiracy causes of action arise from both the filing and the voluntary dismissal without prejudice of the Forsyth County case. Am. Compl. ¶ ¶ 103-125.
III. STANDARD OF REVIEW
PennyMac moves to dismiss this case pursuant to Rules 9(b), 12(b)(1), 12(b)(2), and 12(b)(6) of the Federal Rules of Civil Procedure. Blanco moves to dismiss this action pursuant to Rules 9(b), 9(g), 12(b)(1), and 12(b)(6). Motions filed pursuant to Rule 12(b)(1) challenge the court's subject matter jurisdiction. A challenge to a plaintiff's standing “implicates th[e] court's subject matter jurisdiction.” Long Term Care Partners, LLC v. United States, 516 F.3d 225, 230 (4th Cir. 2008); accord White Tail Park, Inc. v. Stroube, 413 F.3d 451, 459 (4th Cir. 2005). Generally, the burden of proving subject-matter jurisdiction is on the plaintiff, the party asserting jurisdiction. See Richmond, Fredericksburg & Potomac R.R. v. United States, 945 F.2d 765, 768 (4th Cir. 1991); Frank Krasner Enterprises, Ltd. v. Montgomery Cty., 401 F.3d 230, 234 (4th Cir. 2005) (“The burden of establishing standing to sue lies squarely on the party claiming subject-matter jurisdiction.”). In evaluating a defendant's challenge to subject matter jurisdiction, the Court is to “regard the pleadings' allegations as mere evidence on the issue, and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment.” Id.
Rule 12(b)(2) allows a Defendant to move for dismissal for lack of personal jurisdiction. When a court's personal jurisdiction is challenged, the burden is on the plaintiff to establish that a ground for jurisdiction exists. Combs v. Bakker, 886 F.2d 673, 676 (4th Cir. 1989). When the court resolves the motion on written submissions (as opposed to an evidentiary hearing), the plaintiff need only make a “prima facie showing of a sufficient jurisdictional basis.” Id. However, the plaintiff's showing must be based on specific facts set forth in the record. Magic Toyota, Inc. v. Southeast Toyota Distributors, Inc., 784 F.Supp. 306, 310 (D.S.C. 1992). The court may consider the parties' pleadings, affidavits, and other supporting documents but must construe them “in the light most favorable to plaintiff, drawing all inferences and resolving all factual disputes in his favor, and assuming plaintiff's credibility.” Sonoco Prods. Co. v. ACE INA Ins., 877 F.Supp.2d 398, 404-05 (D.S.C. 2012) (internal quotations omitted); Carefirst of Maryland, Inc. v. Carefirst Pregnancy Ctrs., Inc., 334 F.3d 390, 396 (4th Cir. 2003) (“In deciding whether the plaintiff has made the requisite showing, the court must take all disputed facts and reasonable inferences in favor of the plaintiff.”).
A Rule 12(b)(6) motion examines whether Plaintiff has stated a claim upon which relief can be granted. The United States Supreme Court has made clear that, under Rule 8 of the Federal Rules of Civil Procedure, the complaint must contain sufficient factual matter, accepted as true, to state a claim that is plausible on its face. See Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The reviewing court need only accept as true the complaint's factual allegations, not its legal conclusions. Iqbal, 556 U.S. at 678; Twombly, 550 U.S. at 555.
Expounding on its decision in Twombly, the United States Supreme Court stated in Iqbal:
[T]he pleading standard Rule 8 announces does not require “detailed factual allegations,” but it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation. A pleading that offers “labels and conclusions” or “a formulaic recitation of the elements of a cause of action will not do.” Nor does a complaint suffice if it tenders “naked assertion[s]” devoid of “further factual enhancement.”
To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.Iqbal, 556 U.S. at 677-78 (quoting Twombly, 550 U.S. at 555, 556, 557, 570) (citations omitted); see also Bass v. Dupont, 324 F.3d 761, 765 (4th Cir.2003).
Rule 9(b) provides that “[i]n all averments of fraud, duress or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.” Rule 9(g) states that “when items of special damages are claimed, each shall be averred.” As with Rule 8, failure to comply with the special pleading requirements set forth in Rule 9 is treated as a failure to state a claim under Rule 12(b)(6). Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783 (4th Cir. 1999). Federal courts sitting in diversity apply federal procedural law and state substantive law. Hartford Fire Ins. Co. v. Harleysville Mut. Ins. Co., 736 F.3d 255, 261 n. 3 (4th Cir. 2013). Pleading standards are procedural and, thus, federal law applies. Fuller v. Aliff, 990 F.Supp.2d 576, 580 (E.D. Va. 2013).
III. DISCUSSION
A. Applicable Law
As an initial matter, Plaintiff asserts in his Amended Complaint that certain of his claims are brought pursuant to South Carolina law and others pursuant to North Carolina law. Specifically, he asserts that his claims for Breach of a Unilateral Contract Accompanied by Fraudulent Act, Fraud in the Inducement to Enter a Unilateral Contract, and Civil Conspiracy are brought pursuant to South Carolina Law, and his claims for Abuse of Process, Malicious Prosecution, and Unfair or Deceptive Trade Practices are brought pursuant to North Carolina Law. Am. Compl. ¶ 1. It is not entirely clear from Plaintiff's Amended Complaint or his Responses to Defendants' motions why he believes South Carolina law is applicable to some claims and North Carolina law is applicable to others, but the distinction appears to be that he is applying South Carolina law to the claims arising from the alleged breach of the settlement agreement and North Carolina law to the claims arising from the filing of the Forsyth County case.
“A federal court exercising diversity jurisdiction is obliged to apply the substantive law of the state in which it sits, including the state's choice-of-law rules.” Volvo Const. Equip. N. Am., Inc. v. CLM Equip. Co., Inc., 386 F.3d 581,599-600 (4th Cir.2004). Thus, South Carolina choice of law rules apply here. In South Carolina, tort claims are governed by the substantive law of the state in which the injury occurred, commonly referred to as the lex loci delicti rule. Boone v. Boone, 345 S.C. 8, 13, 546 S.E.2d 191, 193 (2001). Contract claims are governed by the law of the state where the contract at issue was formed where a contract's formation, interpretation, or validity is at issue. Witt v. Am. Trucking Associations, Inc., 860 F.Supp. 295, 300 (D.S.C. 1994) (citing O'Briant v. Daniel Constr. Co., 279 S.C. 254, 305 S.E.2d 241, 243 (1983)). However, where performance is at issue, the law of the place of performance governs. Id. (citing Livingston v. Atlantic Coast Line R.R. Co., 176 S.C. 385, 180 S.E. 343, 345 (1935)).
Relevant here, the Forsyth County case was filed in North Carolina and involved property located in North Carolina. The lis pendens accompanying the Forsyth County case was filed against North Carolina property in a North Carolina court. The defendant in the Forsyth County case (Plaintiff here) resides in South Carolina, but retained North Carolina counsel to represent him in that action. PennyMac is a resident of neither state. Its counsel, Blanco, is a North Carolina law firm. The settlement agreement involved payment of a loan underlying the deed of trust against North Carolina property in exchange for dismissal of a North Carolina case. Though no formal written agreement existed, the settlement agreement was offered by Blanco (as counsel for PennyMac) in North Carolina via email and accepted by Plaintiff in South Carolina via email. Plaintiff asserts that the funds to pay the loan came from a South Carolina bank account.
With respect to Plaintiff's contract claims, Plaintiff alleges that Defendants failed to perform their part of the contract as agreed because they dismissed the Forsyth County action without prejudice instead of with prejudice. Defendants do not dispute the formation, interpretation, or validity of the contract. As stated above, when performance of the contract is at issue, the law of the place of performance governs. Livingston, 176 S.C. at 385. The place of performance was North Carolina. The contract involved payment of a loan underlying the deed of trust against North Carolina property in exchange for dismissal of a North Carolina case. Therefore, North Carolina law applies.
See Peeples v. Orkin Exterminating Co., 135 S.E.2d 845, 847 (S.C. 1964) (“An action for breach of contract accompanied by a fraudulent act is an action ex contractu, not ex delicto; however, it partakes of elements of both contract and tort.”); Trevillvan v. APX Alarm Sec. Sys., Inc., No. 2:10-cv-1387-MBS, 2011 WL 11611, at *8 (D.S.C. Jan. 3, 2011) (“[A] party induced to enter a contract by fraud may elect to sue in contract or in tort.”).
With respect to Plaintiff's tort claims, the applicable law is that of the state in which the injury occurred. Boone, 345 S.C. at 13, 546 S.E.2d at 193. “South Carolina law clearly provides lex loci delicti is determined by the state in which the injury occurred, not where the results of the injury were felt or where the damages manifested themselves.” Rogers v. Lee, 777 S.E.2d 402, 405 (S.C. Ct. App. 2015). Plaintiff alleges he suffered injuries in the form of incurring attorney's fees to defend the Forsyth County case in North Carolina, a lis pendens, which clouded title to his property in North Carolina, interference with his beneficial interest in and control over his North Carolina Property, being potentially subjected to another lawsuit by PennyMac as a result of the dismissal without prejudice, and incurring a higher interest rate as a result of paying off the PennyMac note. These injuries occurred in North Carolina, regardless of where they were “felt” or manifested.
Finally, North Carolina law clearly applies to Plaintiff's statutory claim for Unfair or Deceptive Trade Practices pursuant to N.C. G.S. § 75-1.1, et al.
B. Res Judicata
PennyMac makes references throughout its motion that some of Plaintiff's claims are barred by the doctrine of res judicata. It argues that any allegation in Plaintiff's Amended Complaint allegedly occurring prior to the settlement offer is barred by the doctrine of res judicata. PennyMac references a previous case in this Court brought by Plaintiff against PennyMac, amongst other defendants, wherein the Court noted that Plaintiff's claims in that case were barred by the doctrine of res judicata because they were identical to the counterclaims that he raised against PennyMac in the Forsyth County case. See Johnson v. PennyMac Loan Services, LLC, et al., Case No. 4:21-cv-0815-JD-TER. However, though many of the facts are substantially the same in the present case as those in previous case in this court, the causes of action raised in the present case are not identical to those raised in that case or to the counterclaims raised in the Forsyth County case.PennyMac does not specifically address the res judicata factors or how they apply to the causes of action alleged here. Therefore, the court cannot find that res judicata bars any of the claims raised in this case.
PennyMac raises this via a standing argument, i.e., Plaintiff lacks standing on these claims because they are barred by res judicata.
The causes of action raised there were under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961 et seq., the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., and the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2607, et seq., as well as a state law claim for breach of contract accompanied by fraud, which Plaintiff also raised, or attempted to raise, as counterclaims in the Forsyth County case. (The breach of contract accompanied by fraud claim was not based on the settlement reached between the parties as here.)
C. Standing
PennyMac next argues that Plaintiff lacks standing as to his claims arising from the agreement to settle the Forsyth County case because he has not alleged facts sufficient to show that he has suffered an injury in fact. A plaintiff's standing to sue in federal court is “an integral component of the case or controversy requirement” of Article III. Miller v. Brown, 462 F.3d 312, 316 (4th Cir. 2006). To demonstrate standing, a plaintiff must show that: (1) she has suffered an injury in fact; (2) the injury is fairly traceable to the defendant's actions; and (3) the injury is likely to be redressed by a favorable decision of the court. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61 (1992). The injury alleged must be “concrete and particularized.” Id. at 560.
With respect to Plaintiff's claims for breach of contract accompanied by a fraudulent act and fraud in the inducement of the contract, Plaintiff alleges he suffered the following injury:
damages in the form of the loss of nullified attorneys' fees (and other costs) of over $47,000 in defense of Johnson's title to real property (Lots 16& 18), when PennyMac filed a Voluntary Dismissal without Prejudice, rather than a Voluntary Dismissal with Prejudice. Because the legal effect of the filing of a Voluntary Dismissal without Prejudice in [the Forsyth County case] is to cause such action to become null and void, enabling PennyMac to sue Johnson again, damages (as alleged in Paragraph 57) directly resulting from PennyMac's (and Blanco's) Breach of the UNILATERAL CONTRACT formed between PennyMac (and Blanco) and Johnson, a South Carolina legal resident, as described in Paragraphs 66-68, include the loss of the benefit of Johnson's attorneys' fees of over $47,000 (and other costs) in defense against [the Forsyth County case].Am. Compl. ¶ 69; see also ¶ 80 (alleging the same damages for the fraud in the inducement claim). Essentially, Plaintiff alleges that because a dismissal without prejudice leaves open the possibility that PennyMac could sue him again for the same deed reformation claim, he paid $47,000 in attorney's fees to defend the Forsyth County case for nothing. PennyMac argues that it has not refiled an action against Plaintiff and cannot do so because Plaintiff paid off PennyMac's loan, and PennyMac filed a Satisfaction of Security Instrument in Book 4817 at Page 370 of the Brunswick County, North Carolina Registry of Deeds. By its terms, the “satisfaction extinguishes the underlying obligation secured by the Deed of Trust and terminates the effectiveness of that Deed of Trust.” See Satisfaction of Security Instrument (ECF No. 9-2). Thus, PennyMac argues that Plaintiff is in the same position he would have been in had PennyMac dismissed the Forsyth County case with prejudice.
However, Plaintiff also seeks nominal damages. The Supreme Court has held that “a request for nominal damages satisfies the redressability element of standing where a plaintiff's claim is based on a completed violation of a legal right.” Uzuegbunam v. Preczewski,___U.S.___, 141 S.Ct. 792, 801-02, 209 L.Ed.2d 94 (2021). Thus, Plaintiff's request for nominal damages is sufficient to confer standing.
D. Failure to State a Claim
PennyMac and Blanco argue that Plaintiff has failed to state a claim for which relief can be granted as to each of his causes of action. As discussed above, North Carolina law applies to Plaintiff's claims.
With respect to his first cause of action, Breach of a Unilateral Contract Accompanied by Fraudulent Act, it well settled that “North Carolina does not recognize a cause of action for breach of contract accompanied by fraudulent acts.” Curtis v. Cafe Enterprises, Inc., No. 5:15-cv-0032-RLV-DSC, 2016 WL 6916786, at *10 (W.D. N.C. Nov. 11, 2016) (citing Spillman v. Am. Homes of Mocksville, Inc., 108 N.C.App. 63, 65, 422 S.E.2d 740, 741-42 (1992)). Thus, dismissal is appropriate on this cause of action.
For Plaintiff's second cause of action, Fraud in the Inducement to Enter a Unilateral Contract, Defendants argue that Plaintiff has not suffered a compensable injury. “The essential elements of fraud [in the inducement] are: (1) False representation or concealment of a material fact, (2) reasonably calculated to deceive, (3) made with intent to deceive, (4) which does in fact deceive, (5) resulting in damage to the injured party.” TradeWinds Airlines, Inc. v. C-S Aviation Servs., 222 N.C.App. 834, 840, 733 S.E.2d 162, 168 (2012) (quoting Media Network, Inc. v. Long Haymes Carr, Inc., 197 N.C.App. 433, 453, 678 S.E.2d 671, 684 (2009)). “The measure of damages for fraud in the inducement of a contract is the difference between the value of what was received and the value of what was promised, Horne v. Cloninger, 256 N.C. 102, 123 S.E.2d 112 (1961), and is potentially trebled by N.C. G.S. § 75-16.” River Birch Associates v. City of Raleigh, 326 N.C. 100, 130, 388 S.E.2d 538, 556 (1990). Plaintiff fails to allege damages redressable under a fraudulent inducement cause of action because he is in the same position he would be in if he had received what was promised-dismissal with prejudice. The Forsyth County case has been dismissed, the Deed of Trust has been satisfied, and, thus, PennyMac cannot reassert a deed reformation claim against Plaintiff. Though Plaintiff alleges damages in the form of “nullified attorneys' fees,” those fees are not “nullified” as they would have to have been paid regardless of how the dismissal was filed and cannot be incurred again, because the deed reformation action cannot be refiled (as there no longer exists any deed of trust to reform). For these reasons, dismissal of Plaintiff's cause of action for Fraud in the Inducement to Enter a Unilateral Contract is appropriate.
Whether a plaintiff has suffered an constitutional injury in fact and whether he has suffered an injury compensable under the particular cause of action are not necessarily the same. See, e.g., Alexander v. City of Greensboro, No. 1:09-CV-293, 2011 WL 3360644, at *4 n.5 (M.D. N.C. Aug. 3, 2011).
Plaintiff alleges no loss resulting from the alleged fraudulent inducement other than the attorney's fees and costs spent “defending against PennyMac's (and Blanco's) equitable reformation action” against him. Am. Compl. ¶ 80.
Plaintiff next cause of action is one for Abuse of Process, “arising out of PennyMac's (and Blanco's) intentional and malicious misuse or misapplication” of the Forsyth County case “to accomplish ulterior purposes not warranted by said action.” Am. Compl. ¶ 82. Plaintiff alleges that PennyMac, through its counsel, Blanco, initiated, executed, and used the Forsyth County case with the ulterior motive to force him to pay hazard insurance. Am. Compl. ¶ 88. He alleges that after the case was filed, Defendants filed a Notice of Lis Pendens against Plaintiff's property, seized money from his bank account to pay lender-force paid insurance, sent letters threatening Plaintiff with economic harm if he did not pay invalid debts, and offered to dismiss the case if Plaintiff paid off the PennyMac note. Am. Compl. ¶ 89.
In order to state a claim for the tort of abuse of process, plaintiffs must sufficiently allege (1) an ulterior motive, and (2) an act in the use of the legal process not proper in the regular prosecution of the proceeding. The ulterior motive requirement is satisfied when the plaintiff alleges that the prior action was initiated by the defendant or used by him to achieve a purpose not within the intended scope of the process used. The act requirement is satisfied when the plaintiff alleges that during the course of the prior proceeding, the defendant committed some wilful act whereby he sought to use the proceeding as a vehicle to gain advantage of the plaintiff in respect to some collateral matter.Hewes v. Wolfe, 74 N.C.App. 610, 614, 330 S.E.2d 16, 19 (1985) (citations omitted). “[T]he gravamen of a cause of action for abuse of process is the improper use of the process after it has been issued.” Chidnese v. Chidnese, 210 N.C.App. 299, 311, 708 S.E.2d 725, 735 (2011) (emphasis in original) (quoting Petrou v. Hale, 43 N.C.App. 655, 659, 260 S.E.2d 130, 133 (1979)). “As a result, there is no abuse of process where it is confined to its regular and legitimate function in relation to the cause of action stated in the complaint.” Id. (cleaned up). “In accordance with this principle, our courts have repeatedly upheld dismissal of an abuse of process claim when there are no allegations that a defendant misused process after proceedings had been initiated.” Id. (emphasis in original).
Defendants argue that Plaintiff has failed to allege facts sufficient as to either factor. Plaintiff alleges that Defendants' ulterior purpose was to force Plaintiff to pay hazard insurance. However, this purpose was within the intended scope of the deed reformation action. The North Carolina Court of Appeals specifically held in Plaintiff's appeal of the dismissal of his counterclaims that applicable federal law allowed PennyMac to assess Plaintiff for force-placed hazard insurance, and that PennyMac had a “reasonable basis” to believe that its Mortgage Loan with Plaintiff required him to maintain such insurance on the property at issue in PennyMac's deed reformation action. PennyMac Loan Services, LLC v. Johnson, 288 N.C.App. 363, 370-71, 887 S.E.2d 99, 105-06 (2023).
Plaintiff must also allege facts sufficient to show that Defendants committed some wilful act whereby they sought to use the proceeding as a vehicle to gain advantage of the plaintiff in respect to some collateral matter. Plaintiff alleges that these wilful acts include filing a Notice of Lis Pendens against Plaintiff's property, seizing money from his bank account to pay lender-force paid insurance, sending letters threatening Plaintiff with economic harm if he did not pay invalid debts, and offering to dismiss the case if Plaintiff paid off the PennyMac note. However, a lis pendens and a settlement offer are not outside the regular and legitimate functions relating to PennyMac's cause of action. See Chidnese, 210 N.C.App. at 311, 708 S.E.2d at 735 (“there is no abuse of process where it is confined to its regular and legitimate function in relation to the cause of action stated in the complaint”). Further, as alleged in the complaint, the force-placed insurance and letters directing Plaintiff to pay for hazard insurance occurred both before and after the Forsyth County case was filed. See, e.g., Am. Compl. ¶ 35 (alleging PennyMac began assessing the lender-placed insurance and sending letters in July of 2019). Such conduct is not improper nor is it outside PennyMac's role as lender and PennyMac did not need to file the Forsyth County case to assess the lender-placed insurance and send letters about it. Thus, Plaintiff's allegations fail to state a claim for abuse of process and Plaintiff's Abuse of Process cause of action should be dismissed.
Plaintiff's next cause of action is Malicious Prosecution. To state a claim for malicious prosecution, a plaintiff must allege that the defendant (1) initiated or participated in the earlier proceeding, (2) did so maliciously, (3) without probable cause, and (4) the earlier proceeding ended in favor of the plaintiff.” Turner v. Thomas, 369 N.C. 419, 425, 794 S.E.2d 439, 444 (2016) (citing N.C. Farm Bureau Mut. Ins. Co. v. Cully's Motorcross Park, Inc., 366 N.C. 505, 512, 742 S.E.2d 781, 786 (2013)). “[W]hen the plaintiff's claim for malicious prosecution is based on the institution of a prior civil proceeding against him he must show ... that there was some arrest of his person, seizure of his property, or some other element of special damage resulting from the action such as would not necessarily result in all similar cases.” Stanback v. Stanback, 297 N.C. 181, 203, 254 S.E.2d 611, 625 (1979)(citations omitted) (overruled on other grounds). “[T]he requirement that a plaintiff show some special damage resulting from a prior lawsuit filed against him ‘is an essential, substantive element of the claim.'” Stikeleather v. Willard, 83 N.C.App. 50, 51,348 S.E.2d 607, 608 (1986) (citing Stanback, 297 N.C. at 204, 254 S.E.2d at 626).
Plaintiff alleges that PennyMac and Blanco initiated the Forsyth County case with malice because they had been unsuccessful in convincing Plaintiff to voluntarily pay for hazard insurance, without probable cause because PennyMac knew the loan at issue included only Lots 13, 15, and 17, and the case ended in his favor when PennyMac voluntarily dismissed it. Am. Compl. ¶¶ 96-100. Plaintiff also alleges that he suffered special damages, including the seizure of his money from his bank account, a Notice of Lis Pendens against his property, interference with his property, and compelling him to pay off his loan at a less-favorable interest rate. Am. Compl. ¶ 101. Defendants argue that Plaintiff fails to sufficiently allege malice, lack of probable cause or special damages.
“Malice in a malicious prosecution claim may be shown by offering evidence that [a] defendant was motivated by personal spite and a desire for revenge or that [a] defendant acted with reckless and wanton disregard for plaintiffs' rights.” Livingston v. Bakewell, 232 N.C.App. 337, 757 S.E.2d 525 (2014) (quoting Kirschbaum v. McLaurin Parking Co., 188 N.C.App. 782, 789, 656 S.E.2d 683, 688 (2008)). A plaintiff must allege that the defendant “was motivated by malice towards [the plaintiff] rather than any genuine concern over his legal rights.” Beroth Oil Co. v. Whiteheart, 173 N.C.App. 89, 100, 618 S.E.2d 739, 747 (2005). Plaintiff's allegations of fact to support the malice requirement are insufficient. Plaintiff alleges that Defendants acted with malice because they had tried and failed to get Plaintiff to voluntarily pay for hazard insurance. Defendants filed the Forsyth County case to enforce PennyMac's legal rights and the fact that PennyMac attempted to get Plaintiff to voluntarily pay the hazard insurance prior to resorting to a lawsuit does not show personal spite, a desire for revenge, or reckless and wanton disregard for Plaintiff's rights.Thus, Plaintiff fails to sufficiently allege that Defendants acted with malice in bringing the Forsyth County case.
Further, the North Carolina Court of Appeals specifically found that PennyMac had a right under federal regulations to require hazard insurance: “Pursuant to 12 C.F.R. [§] 1024.37(b), PennyMac was allowed to assess Johnson a fee related to force-placed insurance because it had a reasonable basis to believe that Johnson failed to comply with his mortgage loan contract's requirement to maintain hazard insurance.” PennyMac Loan Services, LLC, 887 S.E.2d at 105.
Next, Plaintiff alleges that PennyMac filed the action without probable cause because PennyMac knew the loan at issue included only Lots 13, 15, and 17. However, reformation actions are proper claims for relief when a party believes a written instrument is incorrect due to a mutual mistake of the parties or a scrivener's error. Durham v. Creech, 32 N.C.App. 55, 59, 231 S.E.2d 163, 166 (1977). Thus, the fact that Plaintiff had knowledge that the loan included only Lot 13, 15, and 17 is insufficient to allege a lack of probable cause, where the only remedy PennyMac sought was to equitably reform the deed it believed to be erroneous.
The North Carolina Court of Appeals listed several reasons why PennyMac's belief was reasonable:
PennyMac had a reasonable basis to believe home insurance was required for the Property because: (1) Johnson applied for a residential loan through Weststar; (2) Weststar conducted an appraisal of “Lots 13, 15, 16, 17, and 18”; (3) Johnson instructed Weststar to create an escrow account to pay taxes and home insurance on the Property; (4) the terms of the Mortgage Loan required insurance on the Property; and (5) Johnson paid home and flood insurance on the Property until 2017. Based on these facts, it is reasonable that PennyMac believed the Mortgage Loan required home insurance on the Property and that Johnson was not in compliance with this requirement. See 12 C.F.R. § 1024.37(b).PennyMac Loan Services, LLC, 887 S.E.2d at 105.
Because Plaintiff's factual allegations are insufficient to allege a cause of action for Malicious Prosecution against PennyMac or Blanco, dismissal is appropriate.
With respect to both Abuse of Process and Malicious Prosecution claims, North Carolina courts require that an attorney's liability “must be assessed separately from the client's, and the attorney's actions must independently satisfy each element of the tort[s].” Chidnese, 708 S.E.2d at 733, 735. As Blanco argues, Plaintiff does not assert factual allegations with respect to Blanco that are separate from those alleged against PennyMac. Therefore, dismissal of these two claims against Blanco is proper for this reason as well.
Plaintiff also brings a claim for Unfair or Deceptive Trade Practices pursuant to N.C. G.S. § 75-1.1, et al. To plead an unfair or deceptive trade practices act claim under North Carolina law, a plaintiff must plead facts sufficient to show that (i) the defendant committed an unfair or deceptive act or practice, (ii) the action in question was in or affecting commerce, and (iii) the act proximately caused injury to the plaintiff. Bumpers v. Community Bank of N. Va., 367 N.C. 81, 88, 747 S.E.2d 220, 226 (2013). Plaintiff alleges that Defendants committed two unfair or deceptive acts: 1) initiating the Forsyth County case and 2) coercing Plaintiff to refinance and pay off the balance of the PennyMac note. Am. Comp. ¶¶ 108-09.
Defendants argue that dismissal is appropriate because the acts alleged are not, by law, “in or affecting commerce.” Section 75-1.1(b) of the North Carolina General Statute provides that “commerce” “does not include professional services rendered by a member of a learned profession.” The learned profession exception from the definition of commerce applies if the person or entity performing the alleged act is a member of a learned profession, and the conduct in question is a rendering of professional services. Reid v. Ayers, 138 N.C.App. 261, 266, 531 S.E.2d 231, 235 (2000). Both of the acts alleged by Plaintiff were performed by Blanco on behalf of PennyMac in its role as counsel for PennyMac. The practice of law is a learned profession, and a law firm and its attorneys are members of a learned profession. Moch v. AM Pappas & Assocs., LLC, 251 N.C. App. 198, 207, 794 S.E.2d 898, 903 (2016). “Although no bright line exists, . . . the exemption applies anytime an attorney or law firm is acting within the scope of the traditional attorney-client role.” Reid v. Ayers, 138 N.C.App. at 267, 531 S.E.2d at 236. The filing of a lawsuit by an attorney is the rendering of a professional service by a member of a learned profession as a matter of law. Id. at 266-68, 531 S.E.2d at 235-36. Further, because an attorney's acts when representing a client do not fall within the meaning of the term “commerce,” the attorney's client cannot be held liable for them either. Moch, 251 N.C.App. at 208-09; 794 S.E.2d 904-05; Davis Lake Community Ass'n v. Feldman, 138 N.C.App. 292, 297, 530 S.E.2d 865, 869 (2000). Accordingly, the acts alleged by Plaintiff are not “in or affecting commerce” as required by the statute and, thus, dismissal of Plaintiff's Unfair or Deceptive Trade Practices is subject to dismissal.
Finally, Plaintiff alleges a cause of action for Civil Conspiracy. In Noth Carolina, the required elements for civil conspiracy are: “(1) an agreement between two or more individuals; (2) to do an unlawful act or to do a lawful act in an unlawful way; (3) resulting in injury to plaintiff inflicted by one or more of the conspirators; and (4) pursuant to a common scheme.” Privette v. University of North Carolina, 139, 385 S.E.2d 185, 193 (N.C. Ct. App. 1989) (citations omitted). Defendants argue that Plaintiff fails to allege that Defendants committed an unlawful act or a lawful act in an unlawful way. Plaintiff's allegations of unlawful acts or lawful acts committed by unlawful means are the same as those alleged in his Abuse of Process and Malicious Prosecution causes of action. Am. Compl. ¶¶ 119, 123. Initiation of legal process maliciously and without probable cause, i.e., malicious prosecution, and use of legal process for an ulterior purpose, i.e., abuse of process, are unlawful actions. However, North Carolina does not recognize a separate civil action for civil conspiracy, but rather, “civil conspiracy is premised on the underlying act.” Harris v. Matthews, 643 S.E.2d 566, 571, n. 2 (N.C. 2007); see also Dove v. Harvey, 608 S.E.2d 798, 800 (N.C. Ct. App. 2005). In other words, if the underlying tort claims fail, the civil conspiracy claim also fails. Piraino Bros., LLC v. Atlantic Financial Group, Inc., 712 S.E.2d 328, 333-334 (N.C. Ct. App. 2011) (citations omitted). As discussed above, Plaintiff fails to sufficiently allege causes of action for abuse of process or malicious prosecution. Thus, his civil conspiracy claim fails as well.
V. CONCLUSION
For the reasons discussed above, it is recommended that Defendant PennyMac Loan Services, LLC's Motion to Dismiss (ECF No. 17) be granted and Defendant Blanco Tackberry, & Matamoros, P.A.'s Amended Motion to Dismiss (ECF No. 24) be granted and this case be dismissed in its entirety.,
As stated in footnote 1, the first two Motions to Dismiss (ECF Nos. 9, 11) are moot as a result of Plaintiff's filing his First Amended Complaint. Blanco's second Motion to Dismiss (ECF No. 20) is also moot as a result of Blanco filing its Amended Motion to Dismiss. As a result, Plaintiff's Motion for Extension (ECF No. 27) and Plaintiff's Motion to Strike (ECF No. 28) Blanco's second Motion to Dismiss are moot as well.
Given the above recommendation on Defendants' Rule 12(b)(1) and 12(b)(6) motions dismissing Plaintiff's Complaint, the Court declines to address PennyMac's personal jurisdiction grounds for dismissal. If the District Judge accepts this recommendation, Plaintiff's Motion for Limited Discovery (ECF No. 29) is moot.