Jonathan Folmar v. Cooke Realty, Inc.

Filing

UNPUBLISHED PER CURIAM OPINION filed. Originating case number: 7:14-cv-00256-D. Copies to all parties and the district court/agency. [999836867]. [15-1541]

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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 15-1541

JONATHAN RUSSEL FOLMAR; MARGARET FOLMAR,
Plaintiffs - Appellants,
v.
SARAH HARRIS, individually and as an agent for Cooke Realty,
Inc.; COOKE REALTY, INC.,
Defendants - Appellees.

Appeal from the United States District Court for the Eastern
District of North Carolina, at Wilmington. James C. Dever III,
Chief District Judge. (7:14-cv-00256-D)

Argued:

May 10, 2016

Decided:

May 31, 2016

Before MOTZ, KING, and HARRIS, Circuit Judges.

Affirmed in part and reversed
unpublished per curiam opinion.

and

remanded

in

part

by

ARGUED: Fred William DeVore, IV, DEVORE, ACTON AND STAFFORD,
P.A., Charlotte, North Carolina, for Appellants.
Clay Allen
Collier, CROSSLEY MCINTOSH COLLIER HANLEY & EDES, PLLC,
Wilmington, North Carolina, for Appellees. ON BRIEF: Jarrett W.
McGowan, CROSSLEY MCINTOSH COLLIER HANLEY & EDES, PLLC,
Wilmington, North Carolina, for Appellees.

Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM:
Jonathan and Margaret Folmar, buyers of a North Carolina
home, brought this suit against their real estate agent, Sarah
Harris,

and

her

real

estate

fraud,

misrepresentation,

company,

breach

Cooke

of

Realty,

fiduciary

alleging

duty,

and

deceptive trade practices, and seeking punitive damages.

The

district court granted the realtors’ motion to dismiss on issue
preclusion

grounds,

relying

on

the

Folmars’

earlier

state court against the sellers of the house.

suit

in

For the reasons

that follow, we affirm in part and reverse and remand in part.

I.
In 2012, the Folmars agreed to purchase a home on the coast
of

North

Carolina

from

Samuel

and

Louise

Kesiah.

Harris,

through her employer Cooke Realty, acted as a dual agent for
both the Folmars and the Kesiahs.

Prior to closing on the

property, the Kesiahs stated in a disclosure form that they did
not know of any problems with “things such as the foundation,
slab, floors, windows, doors, ceilings, interior and exterior
walls, patio, deck, or other structural components.”
receiving

the

disclosure

form,

independent home inspection.
noted

various

issues,

the

Folmars

Soon after

commissioned

an

The resulting inspection report

including

that

“some

of

the

siding

is

missing and there is some wood rot on the wall above front
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door”; “[u]pstairs door off the master has some wood rot and is
very hard to open”; “[t]he window on the back left side looks to
have water entering from the top of the window, staining is
inside

of

window.

Possible

hidden

damage

may

exist.”

The

inspection report recommended that “[e]ach issue indicated in
this

summary

[]

be

evaluated

by

a

qualified

contractor

or

specialist for corrective measures to insure proper and safe use
or service of the system in question.”
After the inspection report but before closing, the Folmars
hired Daryl Moffett to complete some minor repair work on the
home after closing.

Moffett met with Harris at the house before

closing to get a better idea of the work required.

While on the

property, Moffett noticed a deteriorated section of siding next
to the front door.

As Moffett stood next to Harris, he pressed

his hand against the wall and “a piece of wall cladding fell
off,

exposing

rotted

oriented

strand

board

(OSB)

sheathing.”

Harris tried unsuccessfully to reattach the piece to the wall,
and then told Moffett that the rotting sheathing had already
been listed on the home inspection report.
that,

despite

Harris’

fiduciary

The Folmars allege

obligations,

Harris

never

reported the issue to them.
The

Folmars

proceeded

to

close

on

the

home.

After

discovering the extent of the home’s hidden structural damage,
they

brought

suit

in

North

Carolina
3

state

court

against

the

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Kesiahs, Harris, and Cooke Realty (“Folmar I”).
Kesiahs,
breach

the
of

Folmars

contract;

alleged
against

fraud,

Against the

Harris

misrepresentation,
and

Cooke

Realty,

and
they

alleged fraud, misrepresentation, breach of fiduciary duty, and
unfair

and

deceptive

trade

practices.

The

Folmars

sought

punitive damages against all parties.
The
Kesiahs

state
and

trial

the

court

Folmars

granted

summary

voluntarily

judgment

dismissed

for

their

against Harris and Cooke Realty without prejudice.

the

claims

The North

Carolina Court of Appeals affirmed the trial court’s judgment,
noting that even if the Kesiahs knew of the defects before they
sold the property to the Folmars, the Folmars’ reliance on the
Kesiahs’ representation that they knew of no structural defect
was not reasonable in light of the Folmars’ independent home
inspection report.
The Folmars then filed the instant action against Harris
and

Cooke

fraud,

Realty

in

federal

misrepresentation,

district

breach

of

court,

again

fiduciary

alleging

duty,

and

deceptive trade practices against both Harris and Cooke Realty,
and seeking punitive damages against Harris.
Realty

moved

to

dismiss,

arguing

that

the

Harris and Cooke
Folmars’

previous

state suit precluded them from bringing these claims.
brief

order

and

judgment,

the

4

district

court

granted

In a
the

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Appellees’ motion and dismissed the case on issue preclusion
grounds.
The Folmars noted this timely appeal.

II.
On appeal, the Folmars argue that their suit against Harris
and

Cooke

Realty

involves

different

issues

than

their

suit

against the Kesiahs, and that the district court therefore erred
in granting the motion to dismiss on issue preclusion grounds.
Harris and Cooke Realty (Appellees) respond that “the issue of
reasonable reliance [] is an essential and material element to
each of [the Folmars’] claims,” and that “[b]ecause this issue
was resolved against them in the prior action, Appellants are
barred from relitigating the issue in their favor in the current
action.”
We
States

Appellees’ Br. at 8.
review

v.

issue

Fiel,

35

preclusion
F.3d

997,

arguments
1005

(4th

de

novo.

Cir.

1994).

United
For

judgments in diversity cases, as we have here, a federal court
looks to state preclusion law.
880, 891 n.4 (2008).

Taylor v. Sturgell, 553 U.S.

In North Carolina, collateral estoppel

(issue preclusion) “precludes relitigation of an issue decided
previously in judicial or administrative proceedings, provided
the party against whom the prior decision was asserted enjoyed a
full and fair opportunity to litigate that issue in an earlier
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proceeding.”

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Rymer v. Estate of Sorrells, 488 S.E.2d 838, 840

(N.C. App. 1997); Thomas M. McInnis & Assoc., Inc. v. Hall, 349
S.E.2d 552, 558 (N.C. 1986) (noting that North Carolina allows
non-mutual defensive use of collateral estoppel).
For issue preclusion to apply, several factors must be met:
“(1) the issues must be the same as those involved in the prior
action,

(2)

the

issues

must

have

been

raised

and

actually

litigated in the prior action, (3) the issues must have been
material and relevant to the disposition of the prior action,
and (4) the determination of the issues in the prior action must
have been necessary and essential to the resulting judgment.”
State v. Summers, 528 S.E.2d 17, 20 (N.C. 2000).

We address

each of the Folmars’ claims in turn to determine whether these
requirements have been met.

III.
We turn first to the Folmars’ fraud claim.
fraud

in

North

Carolina,

a

party

must

To prove actual

show:

“(1)

false

representation or concealment of a material fact, (2) reasonably
calculated
which

does

to
in

injured party.

deceive,
fact

(3)

made

deceive,

(5)

with

intent

resulting

to

in

deceive,

damage

to

(4)
the

Additionally, (6) plaintiff’s reliance on any

misrepresentations must be reasonable.”

MacFadden v. Louf, 643

S.E.2d 432, 434 (N.C. Ct. App. 2007) (alteration and internal
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quotation marks omitted).

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In the context of property sales,

“reliance is not reasonable if a plaintiff fails to make any
independent investigation” unless the plaintiff can demonstrate
(1) he “was denied the opportunity to investigate the property,”
(2)

he

“could

not

discover

the

truth

about

the

property’s

condition by exercise of reasonable diligence,” or (3) he “was
induced to forego additional investigation by the defendant’s
misrepresentations.”

Id.

(alteration

and

internal

quotation

marks omitted). 1
For

example,

in

MacFadden,

home-purchasers

brought

suit

against the home-sellers for alleged undisclosed defects in the
property.

Id. at 433.

The court rejected the claim based on a

lack of reasonable reliance:

“Plaintiff failed to establish

that her reliance was justifiable because she conducted a home
inspection before closing and that inspection report put her on
notice of potential problems with the home.”

Id. at 434.

As in

this case, the inspection report pointed out potential serious
problems

with

the

house

and

suggested

1

having

a

contractor

“As a federal court sitting in diversity, we are obliged
to interpret and apply the substantive law of [the relevant]
state.”
Food Lion v. Capital Cities/ABC, Inc., 194 F.3d 505,
512 (4th Cir. 1999).
Where the state’s highest court has not
“applied its law to circumstances exactly like those presented
in this case,” we can look to state courts of appeals cases as
persuasive in determining how the high court would decide these
issues.
Id.
We do so here in the absence of on-point North
Carolina Supreme Court case law.
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further assess the property, but the MacFaddens conducted no
additional inspection.

Id. at 434-35.

The Folmar I fraud claim

against the Kesiahs essentially mirrored the facts of MacFadden
and was dismissed on that basis.
On appeal here, the Folmars argue that the timing of the
inspection

report

distinguishes
purposes.

in

this

relation

case

from

to

the

Folmar

I

fraudulent
for

issue

conduct

preclusion

The Folmars contend that while their reliance on the

Kesiahs’ statements was unreasonable because they received the
Kesiahs’ disclosure before the home inspection occurred, their
reliance

on

Harris

misrepresentations

was

and
reasonable

the home inspection report.
maintain

that

they

Cooke

distinct

reasonably

inappropriate

factual

here.

See

because

they

fraudulent

occurred

after

Because of this timing, the Folmars

realtors instead of the report.
these

Realty’s

could

relied

on

their

The Folmars also argue that

bases
18

have

James

render
W.

issue

Moore

et

preclusion
al.,

Moore’s

Federal Practice § 132.02[2][e] (3d. ed.) (“[A] difference in
pertinent facts, sufficient to substantially change the issues,
renders the doctrine of [collateral estoppel] inapplicable.”).
That is, Folmar I concerned the Kesiah’s disclosure report and

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their concealment of the rot with “new materials,” 2 while the
instant

case

involves

Harris’s

nondisclosure

of

the

wall-

cladding incident.
Regardless

of

whether

the

issues

are

identical

for

preclusion purposes, we conclude that the Folmars have failed to
state a claim for fraud against Harris and Cooke Realty.

North

Carolina courts have consistently dismissed fraud claims against
both sellers
reasonably
specific
fraud.

and

realtors

investigate

timing

of

the

based

on

property,
inspection

a

purchaser’s

without
report

in

failure

to

considering

the

relation

the

to

See, e.g., Helms v. Holland, 478 S.E.2d 513, 517 (N.C.

App. 1996); Rosenthal v. Perkins, 257 S.E.2d 63, 66 (N.C. App.
1979).

2

In Folmar I, the North Carolina Court of Appeals described
the fraud issue as follows:
[P]laintiffs assert that the Kesiah defendants falsely
represented material facts:
by marking “no” on the
disclosure report which stated “to your knowledge, is
there any problem (malfunction or defect)” with things
such as the foundation, slab, floors, windows, doors,
ceilings, interior and exterior walls, patio, deck, or
other structural components; learning of the defects in
the property sometimes after 2006 and intentionally
listing the property below value to “entice buyers as
opposed
to
correcting
the
defects”;
previously
performing work on the windows, sheathing, exterior
walls, etc. prior to selling the home to plaintiffs and
covering up existing rot with new materials; and having
knowledge that many of the areas of the property were
missing sheathing.
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For example, in Robertson v. Boyd, 363 S.E.2d 672 (N.C.
App.

1988),

the

Robertsons

purchased

a

house

from

the

Boyds

through realtor Booth; when the Robertsons discovered extensive
termite damage after moving in, they sued Booth and the Boyds
for fraud, arguing that the defendants knew of the damage but
concealed it.

Id. at 675-76.

The court dismissed the claims

against both parties, explaining that, prior to closing, the
Robertsons

had

obtained

an

inspection

report

that

termite damage and suggested further inspection.
The

court

did

not

undertake

separate

indicated

Id. at 676.

reliance

analyses

for

sellers and realtor, nor did it discuss the timing of the report
in relation to the realtors’ alleged concealment.

Rather, it

simply reasoned that, because “the failure of the purchaser to
make

diligent

inquiries

when

he

has

notice

of

a

problem

precludes a recovery for fraud,” the trial court “did not err in
dismissing plaintiffs’ actions in fraud against all defendants.”
Id. (emphasis added).

Applying this reasoning to the instant

case, we must affirm the district court’s dismissal of the fraud
claim against Harris and Cooke Realty under North Carolina law.

IV.
We turn next to the Folmars’ misrepresentation claim.
tort

of

negligent

justifiably

relies

misrepresentation
to

his

detriment
10

occurs
on

when

information

a

“The
party

prepared

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without reasonable care by one who owed the relying party a duty
of care.”

Hudson-Cole Dev. Corp. v. Beemer, 511 S.E.2d 309, 313

(N.C. App. 1999).
elements

in

North Carolina courts treat the “reliance”

fraud

interchangeable.

and

misrepresentation

cases

as

See McFadden, 643 S.E.2d at 435; Marcus Bros.

Textiles, Inc. v. Price Waterhouse, LLP, 513 S.E.2d 320, 327
(N.C. App. 1999); Helms v. Holland, 478 S.E. 2d 513, 517 (N.C.
App. 1996).

Accordingly, we also affirm the district court’s

dismissal of the Folmars’ misrepresentation claim against the
Appellees.

V.
Next, we consider the Folmars’ breach of fiduciary duty
claim.

To state a claim for breach of fiduciary duty in North

Carolina, a plaintiff must show the existence of a fiduciary
relationship between the parties, breach of a duty required by
that relationship, and injury proximately caused by the breach.
Dalton

v.

Camp,

548

S.E.2d

704,

707

(N.C.

2001);

White

v.

Consol. Planning, Inc., 603 S.E.2d 147, 155 (N.C. App. 2004).
On appeal, Harris and Cooke Realty argue that this “proximate
cause”

requirement

is

identical

element of fraud claims.

to

the

“reasonable

reliance”

For this reason, they contend that the

state court’s finding of no reasonable reliance precludes the

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Folmars

from

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arguing

that

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proximate

cause

exists

here.

We

disagree.
“It is now well settled [in North Carolina] that a broker
representing a purchaser or seller in the purchase or sale of
property owes a fiduciary duty to his client based upon the
agency relationship itself.”

Kim v. Prof’l Bus. Brokers Ltd.,

328 S.E.2d 296, 299 (N.C. App. 1985).

“[A] real estate broker

has a duty to make full and truthful disclosure of all known or
discoverable facts likely to affect the client.

And, the client

may rely upon the broker to comply with this duty and forego his
or her own investigation.”
Robbins,

764

F.Supp.

379,

Sutton, 712 S.E.2d at 323; John v.
390

(M.D.N.C.

1991)

(“[Defendant

brokers] may not evade their duty to communicate directly to
their

principals

simply

by

demonstrating

the

material

information was otherwise available to [their clients].”).

Dual

agents, like Harris and Cooke Realty, are subject to the same
obligations because “[a] dual agent owes all fiduciary and other
agency duties to both principals.”

Brown v. Roth, 514 S.E.2d

294, 296 (N.C. App. 1999).
Because this fiduciary relationship places an affirmative
burden

on

the

realtor

to

disclose,

regardless

of

outside

information available to the client, “proximate cause” in the
context of fiduciary breach cannot be coextensive with fraud’s
“reasonable reliance.”

As discussed above, for fraud claims,
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reliance on realtor conduct is not reasonable if the buyer has
notice

of

contrast,

a

problem

under

and

fails

realtors’

to

investigate

fiduciary

duty,

a

himself;
realtor

in

must

disclose material information and the buyer “can forego his or
her own investigation.”

Sutton, 712 S.E.2d at 323.

Thus, the

terms refer to very different spheres of legal responsibility on
both the buyers’ and the realtors’ part.
Inc.

v.

Hargis

Indus.,

Inc.,

135

S.

Cf. B & B Hardware,

Ct.

1293,

1306

(2015)

(“[I]ssues are not identical [for preclusion purposes] if the
second

action

involves

application

of

a

different

legal

standard, even though the factual setting of both suits may be
the same.”).
reliance”

in

Put another way, any conception of “reasonable
the

breach

of

fiduciary

duty

context

must

be

defined differently than in fraud claims because we expect much
more reliance on fiduciaries, by virtue of their positions of
trust.
Because the state court in Folmar I did not assess any of
the elements necessary for a breach of fiduciary duty claim,
issue preclusion cannot prevent the Folmars from raising such a
claim

now

against

Harris

and

Cooke

Realty.

Accordingly,

we

reverse the district court’s dismissal of this claim and remand
for further proceedings.

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VI.
The district court also dismissed the Folmars’ claim of
unfair trade practices as precluded.
Statute

§

75–1.1

provides

in

North Carolina General

pertinent

part

that

“[u]nfair

methods of competition in or affecting commerce, and unfair or
deceptive

acts

or

declared unlawful.”
trade

practices,

“a

practices

in

or

affecting

commerce,

are

To establish a prima facie claim for unfair
plaintiff

must

show:

(1)

the

defendant

committed an unfair or deceptive act or practice, (2) the action
in

question

was

in

or

affecting

commerce,

proximately caused injury to the plaintiff.”
at

and

(3)

the

act

Dalton, 353 N.C.

656.
Realtor conduct related to the selling and buying of houses

qualifies as “affecting commerce,” see Sutton, 712 S.E.2d at
326, and “North Carolina case law has held that conduct which
constitutes a breach of fiduciary duty . . . is sufficient to
support a UDTP claim.”

Compton v. Kirby, 577 S.E.2d 905, 917

(N.C. App. 2003); Robertson, 363 S.E.2d at 676.

Because the

Folmars’ unfair trade practice claim is essentially derivative
of their breach of fiduciary duty claim, which is not precluded,
we hold that their unfair trade practices claim is also not
precluded.

We therefore reverse the district court’s dismissal

of this claim and remand for further proceedings.

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VII.
Finally,

we

turn

to

damages against Harris.

the

Folmars’

request

for

punitive

In North Carolina, punitive damages are

awarded “to punish a defendant for egregiously wrongful acts and
to

deter

the

defendant

wrongful acts.”
punitive

and

others

from

committing

N.C. Gen. Stat. Ann. § 1D-1 (2015).

damages,

a

plaintiff

must

show

that

a

similar

To obtain

defendant

is

liable for compensatory damages as well as the presence of one
or more “aggravating factors” -- fraud, malice, or willful or
wanton conduct.
breach

of

N.C. Gen. Stat. § 1D-15.

fiduciary

duty

can

support

Conduct underlying a
an

award

of

punitive

damages, see HAJMM Co. v. House of Raeford Farms, Inc., 403
S.E.2d 483, 490 (N.C. 1991), as can conduct constituting unfair
and deceptive trade practices, see Zubaidi v. Earl L. Pickett
Enters., Inc.,

595 S.E.2d 190, 193 (N.C. App. 2004).

As discussed above, Folmar I precludes neither the Folmars’
claim

for

practices.
punitive

breach
We
damages

of

fiduciary

therefore
based

on

duty

conclude
those

nor
that

claims

for

unfair

their
is

not

request

trade
for

precluded.

Accordingly, we reverse the district court’s dismissal of the
Folmars’ punitive damages claim and remand.

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VIII.
In sum, we affirm the district court’s dismissal of the
Folmars’ fraud and misrepresentation claims against Harris and
Cooke Realty.

We reverse the court’s dismissal of the breach of

fiduciary duty and the unfair trade practices claims against
Harris and Cooke Realty and the request for punitive damages
against

Harris,

and

we

remand

those

claims

for

further

proceedings.
AFFIRMED IN PART AND
REVERSED AND REMANDED IN PART

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