Hetzel v. JPMorgan Chase Bank, NA, et al
ORDER granting in part and denying in part 115 Motion for Summary Judgment; granting 113 Motion to Strike; denying 109 Motion for Sanctions; denying as moot 107 Motion for Protective Order. Signed by District Judge Terrence W. Boyle on 2/11/2017. (Stouch, L.)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
PAUL B. HETZEL,
JPMORGAN CHASE BANK, N.A.,
This matter is before the Court on defendant JPMorgan Chase Bank, N.A. 's ("Chase")
motion for summary judgment [DE 115] and motion to strike [DE 113] and plaintiffs motion for
protective order [DE 107] and motion for discovery sanctions [DE 109]. The motions are ripe for
adjudication, and a hearing was held on February 3, 2017, in Raleigh, North Carolina. For the
reasons stated herein, Chase's motion for summary judgment is granted in part and denied in
part, Chase's motion to exclude is granted, plaintiffs motion for discovery sanctions is denied,
and plaintiffs motion for protective order is denied as moot.
This case arises out of what plaintiff alleges is a botched real estate transaction. In 2009,
plaintiff owned three properties located at 201 Salter Path Road in Pine Knoll Shores, North
Carolina ("Salter Path Road Property"), 160 Acton Road ("Acton Road Property") in Annapolis,
Maryland, and 140 Spa Drive ("Spa Drive Property") also in Annapolis Maryland. In May 2009,
all three properties were subject to loans with Chase, with outstanding principal balances totaling
over $3 million. At that time, plaintiff had a good credit score and was current on all three loans
with Chase. He then developed a plan to refinance all three properties with Merrill Lynch in
order to save over $130,000 per year in interest payments. 1 Plaintiff initiated his plan to
refinance all three properties starting with the Spa Drive Property in May, 2009.
According to plaintiff, Chase misapplied the proceeds from that refinancing, resulting in
the Salter Path Road Property being paid off instead of the Spa Drive Property as planned.
Because plaintiff was under the impression it had been satisfied, he stopped paying Chase's Spa
Drive Property mortgage in May 2009. Subsequently, that loan fell into arrears and foreclosure
was set to commence as of August 2009. As a result, plaintiffs strong credit score was severely
impacted, which he argues thus delayed and eventually destroyed his plan to refinance all three
properties at lower interest rates which then would have allowed him to keep the properties.
Plaintiff claims that his credit score was so severely impacted that he was no longer under
consideration for any sort of refinance from any company. Plaintiff alleges this is a negligent
action, but also admits that his credit score was restored within a few months of the misreported
statement when Chase sent in a correction.
When Mr. Hetzel learned of the misapplication of funds to the Salter Path Road Property,
he contacted Chase, arguing that Chase had a duty to correct the misapplication or assist plaintiff
in obtaining alternative financing for his mortgage loans. According to evidence from discovery,
Chase appears to have resolved the mistaken payoff by August. Representatives from Chase
allegedly promised plaintiff that, should he be unable to obtain refinancing with Merrill Lynch,
then Chase would refinance the loan at the same terms promised by Merrill Lynch. Plaintiff
claims that Chase also assured him that if he could not obtain financing to refinance the Salter
Path Road and Acton Road properties, Chase would modify those loans.
Mr. Hetzel alleges that his Chase loans were subject to over 6% interest whereas Merrill Lynch offered a very low
interest rate of about 2.125%.
In March 2010, Chase sent payment for a flood insurance policy on behalf of plaintiff to
the wrong address, causing the policy to lapse and resulting in a premium increase from $348 to
$7,500 per year. At this time plaintiff allegedly threatened to sue, but was talked out of by
Chase's promises to fix the flood insurance issue and cover the difference in payments and give
him the loan modifications it had promised. Finally, plaintiff asserts that Chase refused to
refinance the two other loans it had with plaintiff and refused to allow plaintiff to subdivide and
sell portions of one of his properties as it promised, causing those properties to fall into
Motion to Strike
The Court will first address defendant Chase's motion to exclude the expert report,
opinion, and testimony of plaintiff's witness, Andrew L. Kadala pursuant to Rule 702 of the
Federal Rules of Evidence and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579
(1993). Chase seeks to strike or exclude Mr. Kadala as an expert, arguing that Mr. Kadala is not
qualified to opine as an expert in consumer mortgage lending and servicing and that his opinions
are irrelevant legal opinions.
Plaintiff's claims in this case largely rest on his allegations that Chase had a duty to
correct the misapplication or assist plaintiff in obtaining alternative financing for his mortgage
loans, and that Chase breached this duty to the detriment of plaintiff. In support of these
allegations, plaintiff intends to have Mr. Kadala, a securities investment advisor with Wells
Fargo Advisors, testify as to the duty Chase owed plaintiff and any breaches thereof.
Federal Rule of Evidence 702 provides that "ifthe expert's scientific, technical, or other
specialized knowledge will help the trier of fact to understand the evidence or to determine a fact
in issue," "[a] witness who is qualified as an expert by knowledge, skill, experience, training, or
education may testify in the form of an opinion or otherwise." Fed. R. Evid. 702. The Court
serves as the gatekeeper for all expert testimony to make sure it is based on sound, reliable
theory and does not constitute rank speculation. Kumho Tire Co., Ltd. v. Carmichael., 526 U.S.
13 7, 141 (1999). The expert testimony is considered reliable only if the expert is qualified to
render the opinion and the expert's underlying methodology is scientifically valid. Daubert v.
Merrell Dow Pharm., Inc., 509 U.S. 579, 589-90 (1993). The expert's testimony is relevant only
if the expert properly applies that methodology or reasoning to the facts in issue. Id. at 591-93.
The expert must explain how and why he has reached the conclusion being proffered and must
have as a basis more than a subjective belief or speculation. Kumho Tire, 526 U.S. at 152.
Here, plaintiff has failed to meet his burden to demonstrate that Mr. Kadala is qualified to
provide testimony on the appropriate procedures that allegedly should have been followed in this
case. Mr. Kadala is an experienced securities investment broker but has no discernible
experience in consumer or residential mortgage lending and servicing. See Hardin v. Ski Venture,
Inc., 50 F.3d 1291, 1296 (4th Cir. 1995) (experience in ski safety policies and testimony in other
ski accident cases did not qualify expert to opine about snowmaking machine safety); Thomas J
Kline, Inc. v. Lorillard, Inc., 878 F.2d 791, 799-800 (4th Cir. 1989) (expert with MBA and
experience analyzing companies' business health not qualified to give antitrust testimony where
she had no specific education or experience in antitrust matters); Estate of Richard Myers v. Wal-
mart Stores, Inc., 2011WL1366459, *3 (E.D.N.C. April 11, 2011) (architect with no specific
experience in parking lot design not qualified to offer expert testimony on parking lot design).
Similar to these cases, Mr. Kadala's securities investment industry experience without specific
experience in residential mortgage lending and servicing does not qualify him to offer expert
testimony on various legal duties Chase owed to plaintiff as the loan servicer of plaintiffs
residential mortgage loans or to explain how Chase breached a duty of care owed plaintiff. This
Court finds that Mr. Kadala is not qualified as an expert on mortgage lending practices and
policies and cannot testify as such.
Plaintiff asserts that the real issue in this case, and the issue upon which Mr. Kadala will
testify, is a bank's obligation to correct mistakes it makes. Nonetheless, plaintiff still has not
demonstrated Mr. Kadala's expertise in this subject, a subject which plaintiff has not defined
with any particularity. Mr. Kadala's opinion is not based upon his presumed knowledge of a
bank's obligation to correct its mistakes, nor any understanding and detailed experience in
mortgage servicing and the mistakes that might occur in such an industry, but instead in his
experience in banking financial services industry. For the reasons discussed above, this does not
demonstrate that Mr. Kadala is qualified to speak to this issue, and plaintiff has not convinced
the Court that Mr. Kadala's opinion is based in anything more than subjective belief or
Nonetheless, even assuming Mr. Kadala is qualified to opine to this issue, plaintiff still
has not demonstrated that Mr. Kadala's opinions will assist the trier of fact in this case.
Generally speaking, legal conclusions and standards are considered improper expert testimony
because they do not assist the fact finder. United States v. Offill, 666 F.3d 168, 175 (4th Cir.
2011) (explaining that legal conclusions should be handled by the judge except in cases that
"involve highly technical legal issues"). Mr. Kadala's opinions are largely conclusory-in effect
simply stating that Chase owed a duty and breached that duty-and are therefore little more than
formulaic recitations of impermissible legal conclusions. What constitutes a legal duty and
whether there was a breach of that duty under North Carolina law is a legal issue for the Court to
instruct the jury on.
For these reasons, the Court finds that Mr. Kadala is not qualified to provide opinion
testimony, and further that his testimony will not assist the trier of fact. For these reasons,
Chase's motion to exclude the testimony of Mr. Kadala will be granted.
Motion for Summary Judgment
A motion for summary judgment may not be granted unless there are no genuine issues
of material fact for trial and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P.
56(a). The moving party bears the initial burden of demonstrating the absence of a genuine issue
of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If that burden has been met,
the non-moving party must then come forward and establish the specific material facts in dispute
to survive summary judgment. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
588 (1986). In determining whether a genuine issue of material fact exists for trial, a trial court
views the evidence and the inferences in the light most favorable to the nonmoving party. Scott v.
Harris, 550 U.S. 372, 378 (2007). However, "[t]he mere existence of a scintilla of evidence" in
support of the nonmoving party's position is not sufficient to defeat a motion for summary
judgment; "there must be evidence on which the [fact finder] could reasonably find for the
[nonmoving party]." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Speculative or
conclusory allegations will not suffice. Thompson v. Potomac Elec. Power Co., 312 F.3d 645,
649 (4th Cir. 2002).
The applicable statute of limitations for plaintiffs negligence, breach of fiduciary duty,
implied covenant of good faith, and breach of contract claims are each three years. N.C. Gen.
Stat. § 1-52; Harold v. Dowd, 561 S.E.2d 914, 917 (N.C. App. 2002); Toomer v. Branch Banking
& Trust Co., 614 S.E.2d 328, 335 (N.C. App. 2005); Rolfes v. Decision One Mortg. Co., 2011
U.S. Dist. LEXIS 57457 at *3 (E.D.N.C. May 27, 2011); N.C. Gen. Stat.§ 1-52(1). The
limitations period for plaintiff's claim for unfair and deceptive trade practices under North
Carolina law is four years. N.C. Gen. Stat. § 75-16.2.
As this Court previously held, plaintiff's claims accrued in 2009. Plaintiff survived a
motion to dismiss on his clams against Chase because the Court found that he had pled sufficient
facts to demonstrate that Chase should be equitably estopped from raising a statute of limitations
defense. Defendant now contends that, with the close of discovery, the record evidence provides
no genuine issue of material fact as to plaintiff's equitable estoppel theory. Chase argues it
should therefore not be estopped from asserting its statute of limitations defense, and plaintiff's
time-barred claims should fail as a matter of law.
North Carolina Courts recognize the general principle that "time frames may be tolled
where equitable considerations justify their suspension." Aikens v. Ingram, 652 F .3d 496, 517
(4th Cir. 2011) (citations omitted). Equitable estoppel can be applied to prevent the defendant
from asserting the statute of limitations as a defense where his or her own conduct prevented the
plaintiff from otherwise timely filing the complaint. Lekas v. United Airlines, Inc., 282 F .3d 296,
301 (4th Cir. 2002) (citation omitted). Equitable estoppel applies where "the defendant engages
in intentional misconduct to cause the plaintiff to miss the filing deadline, even though the
plaintiff knows that it exists." Id. (quotation omitted). This equitable doctrine typically applies in
cases in which some misleading act or statement on the part of the defendant justifiably induces
the plaintiff to defer timely prosecution of the claim. Aikens, 652 F.3d at 517. Neither fraud,
intentional or unintentional, bad faith, nor an intent to deceive are necessary to invoke the
doctrine of equitable estoppel to prevent a defendant from relying on the statute of limitations.
Miller v. Talton, 435 S.E.2d 793, 797 (N.C. App. 1993) (citations omitted).
The elements of equitable estoppel in North Carolina are:
( 1) conduct amounting to a false representation, concealment of material facts, or
that which is reasonably calculated to convey the impression that facts are other
than what the estopped party afterwards attempts to assert; (2) intent or
expectation that the conduct should be acted upon by the other party, or conduct
which at least is calculated to induce a reasonably prudent person to believe such
conduct was intended or expected to be relied and acted upon; and (3) knowledge,
actual or constructive, of the real facts on the part of the defendant.
Ussery v. Branch Banking & Trust Co., 743 S.E.2d 650, 654-55 (N.C. 2013). Whether a
cause of action is barred by the statute of limitations is a mixed question of law and fact, Piles v.
Allstate Ins. Co., 653 S.E.2d 181, 184 (2007) (internal citation removed), and where the evidence
is sufficient to present an inference that the cause of action is not barred, the issue is for the jury.
Little v. Rose, 208 S.E.2d 666, 668 (1974). The jury must also resolve factual disputes pertaining
to the elements of equitable estoppel. Stratton v. Royal Banko/Canada, 712 S.E.2d 221, 230
(2011 ). However, when there is no genuine issue of material fact, the question of estoppel is one
for the court. Id.
Plaintiffs equitable estoppel theory relies on his allegations that between May 2009 and
September 2012, Chase repeatedly promised him that Chase would correct his credit and
refinance the Salter Path and Acton Road properties on terms similar to the Merrill Lynch loan
on the Spa Drive property. Plaintiff has presented testimony regarding those promises, serving to
create a genuine issue of material fact on the issue of equitable estoppel. Additionally, plaintiffs
case on this issue will rely in large part upon his own testimony. As such, plaintiffs credibility
as a witness will be significant to several genuine factual disputes in this case and cannot be
determined by the Court as a matter of law. Thus, the Court finds that there is enough evidence
in the record when viewing it in the light most favorable to plaintiff to permit the inference that
plaintiffs causes of action are not barred, and the factual disputes germane to this issue must be
resolved by the jury. As such, whether Chase is equitably estopped from asserting a statute of
limitations defense is a matter to be determined at trial.
Chase additionally argues that none of plaintiffs claims against Chase are supported by
the evidence and that it is therefore entitled to summary judgment. The Court will discuss each
of plaintiffs claims in tum.
The elements of a common law negligence claim are "(1) a legal duty; (2) a breach
thereof; and (3) injury proximately caused by the breach." Bridges v. Parrish, 742 S.E.2d 794,
796 (2013) (citation omitted). Plaintiff bases his negligence claim on allegations that Chase was
negligent by misapplying the loan funds for the Spa Drive property and taking too long to correct
that error, not modifying the loans on the Salter Path and Acton Road properties, refusing to
allow plaintiff to subdivide the Acton Road property, and failing to pay the flood insurance
In North Carolina, "[ o]rdinarily, a breach of contract does not give rise to a tort action by
the promisee against the promisor." N. C. State Ports Auth. v. Lloyd A. Fry Roofing Co., 240
S.E.2d 345, 350 (1978). As a result, North Carolina courts have recognized an "independent tort"
arising out of breach of contract only in "carefully circumscribed" circumstances. Strum v. Exxon
Company, 15 F.3d 327, 330-31 (4th Cir. 1994) (citing Newton v. Standard Fire Ins. Co., 229
S.E.2d 297, 301 (1976)).
If this were a simply a failure to perform case, there would be no tort claim that could lie
in addition to plaintiffs contract claims against Chase. However, in certain circumstances, North
Carolina courts have recognized that a duty of care may arise out of a contractual relationship,
"the theory being that accompanying every contract is a common-law duty to perform with
ordinary care the thing agreed to be done, and that a negligent performance constitutes a tort as
well as a breach of contract." Olympic Prod. Co. v. RoofSys., Inc., 363 S.E.2d 367, 371 (1988)
(internal citation removed). This is because "[t]he law imposes upon every person who enters
upon an active course of conduct the positive duty to exercise ordinary care to protect others
from harm and calls a violation of that duty negligence." Council v. Dickersons, Inc., 64 S.E.2d
551, 553 (1951). To illustrate this point, the North Carolina Supreme Court has offered the
take the contract of a carpenter to repair a house, the implication of his contract is
that he will bring to the service reasonable skill, good faith, and diligence. If he
fails to do the work, or leaves the house incomplete, the only remedy against him
is ex contractu; but suppose he, by want of care or skill, destroys or wastes
material, or makes the repairs so unskillfully as to damage other portions of the
house; this is tort, for which the contract only furnished the occasion.
Peele v. Hartsell, 129 S.E.2d 97, 99 (1963) (internal citation removed).
The Court finds that Chase owed a general duty of due care in its relationship with
plaintiff, and that plaintiff has presented sufficient evidence that could allow a reasonable jury to
find that it violated that duty of care. The alleged wrong that occurred-the misapplication of the
loan payoff funds-is much less a breach of contract than it is a simple negligence claim.
Plaintiff alleges that he informed Chase that he wanted to pay off one of the loans he held with
them and then undertook the steps necessary to do so. While handling his funds, Chase allegedly
misapplied them which clearly harmed plaintiff. This is not a failure of adhering to the terms of
the loan contract as much as it is a failure to exercise due care when handling plaintiffs funds
and thereby acting negligently in their handling and application.
Having found that plaintiff can state a claim against Chase, the Court also finds that there
are a number of genuine issues of material fact regarding this claim such that several of the bases
for plaintiff's negligence claim can survive summary judgment. First, there is a genuine factual
issue as to who caused the misapplication of the loan. Chase argues that the evidence shows that
the alleged negligent act was a result of the inadvertent or mistaken action of CCS, a third party,
producing in support an Indemnification Agreement, indicating that CCS had "inadvertently paid
off' the Salter Path Road loan, and a letter from CCS indicating that CCS had received the
wrong payoff from Merrill Lynch and the loan was paid off by mistake. Plaintiff disputes this,
and, in support of its position, presented evidence in the form of business records produced
pursuant to a subpoena served upon TRG Settlement Services, another third party, which is
accompanied by a business records affidavit. Plaintiff argues that negligence on the part of Chase
can be inferred from these documents, since the entirety of the loan file at TRG refers to 140 Spa
Drive as the correct property, while the pay-off itself contained the wrong information
corresponding to 201 Salter Path. Whether Chase is in fact at fault for the misapplied loan is a
genuine issue of a material fact, and cannot be resolved by the Court on summary judgement.
There is also a genuine issue of material fact as to plaintiff's claim that Chase was
negligent for failing to pay flood insurance premiums on time, causing the policy to lapse. There
is no dispute that a payment for flood insurance was sent to the wrong address and led to the
cancellation of the policy due to non-payment of premium. Chase argues, however, that the
evidence supports a determination that plaintiff's actions contributed to his alleged loss, and in
failing to thereafter get his own policy and seek the difference in cost he has either suffered no
damages by the error or failed to mitigate his damages. Plaintiff argues that the facts show that
he had alerted Chase of the problem and had attempted to resolve it in May, 2009, but that Chase
had again failed to pay in 2010, causing plaintiff to be seriously damaged. According to plaintiff,
any suggestion that he therefore contributed to the loss in this instance is not supported by the
facts. There is therefore, a genuine issue of material fact as to whether Chase was reasonable in
managing and disbursing funds from the escrow account and whether plaintiffs actions were
negligent and contributed to the alleged injury. These are issues for the jury, and as such
plaintiffs negligence claim based on this incident survives summary judgment.
Plaintiff cannot bring a claim of negligence for Chase's reports to the credit agencies
because negligence claims based on reporting to credit agencies are barred by federal statute.
The Fair Credit Reporting Act, 15 U.S.C. §§ 1681 et seq., ("FCRA"), preempts state lawincluding negligence-in the area of allegedly erroneous credit reporting. Ross v. Wash. Mut.
Bank, 566 F. Supp. 2d 468, 474-75 (E.D.N.C. 2008). Section 1681t(b)(l)(F) provides in
No requirement or prohibition may be imposed under the laws of any State ...
with respect to any subject matter regulated under ... section 1681 s-2 of this title,
relating to the responsibilities of persons who furnish information to consumer
reporting agencies ...
15 U.S.C. § 1681t(b)(l)(F). Further, because there is no allegation of willfulness or malice in the
alleged errant reporting, section 1681 h(e) bars a claim for negligence:
Except as provided in sections 1681 n and 1681 o of this title, no consumer may
bring any action or proceeding in the nature of ... negligence with respect to the
reporting of information against ... any person who furnishes information to a
consumer reporting agency, based on information disclosed pursuant to section
1681g, 1681h, or 1681m of this title.
15 U.S.C. § 1681h(e). Plaintiffs negligence claim for allegedly erroneous credit reporting cannot
stand as a matter of law.
There can also be no negligence claim for refusing to renegotiate or modify loan and
contract agreements, and so plaintiffs negligence action based on this claim is also dismissed.
"[I]n an ordinary debtor-creditor transaction, the lender's duties are defined by the loan
agreement and do not extend beyond its terms." Arnesen v. Rivers Edge Golf Club & Plantation,
Inc., 781 S.E.2d 1, 8 (2015) (citation omitted). There is usually no tort liability for refusal to
modify a loan, Spaulding v. Wells Fargo Bank, NA., 714 F.3d 769 (4th Cir. 2013), and plaintiff
has not demonstrated that there was a promise acceptable under North Carolina law that would
give rise to an obligation or duty by Chase to modify the loans. See Pearsall v. Select Portfolio
Servicing, Inc, No. 7:15-CV-106-FL, 2015 WL 9223076, at *4-5 (E.D.N.C. Dec. 17, 2015)
(holding that mortgage servicer had no duty to modify the plaintiffs loan and dismissing tort
claims based on that alleged duty). There is no evidence in writing that supports an obligation to
modify these loans. Nor can plaintiffs allegations of oral promises made by Chase serve to
create such an obligation. To the extent plaintiff claims that defendant breached the parties' oral
agreement to modify the contract, such a claim is barred by North Carolina's statute of frauds
and the parol evidence rule. Clifford v. River Bend Plantation, Inc., 323 S.E.2d 23, 26 (1984)
("When the original agreement comes within the Statute of Frauds, subsequent oral
modifications of the agreement are ineffectual."). Additionally, North Carolina courts do not
allow the doctrine of promissory estoppel to create a contractual obligation upon which the party
can then sue for breach of that duty. Home Elec. Co. of Lenoir, Inc. v. Hall & Underdown
Heating & Air Conditioning Co., 358 S.E.2d 539 (1987). For these reasons, there is no evidence
to suggest that Chase had a duty to modify plaintiffs loans, nor is there any evidence to suggest
that Chase was otherwise negligent in refusing to modify the Acton Road and Salter Path loans.
The only contract between Chase and plaintiff-the note and deed of trust-does not obligate a
modification, and an oral promise to do so in the future is not an enforceable duty under North
Carolina law. Therefore, plaintiffs negligence claim for failing to modify his loans must be
Breach of Fiduciary Duty
Plaintiff also brought a breach of fiduciary duty claim in the alternative to negligence,
claiming that Chase repeatedly failed to timely pay flood insurance premiums related to Salter
Path Road property, causing the policy lapse and be reinstated at a much higher premium. The
Court finds that a reasonable jury could find that a fiduciary relationship existed between the
parties in relation to managing the escrow account, and that there exists a genuine issue of fact
for a jury to determine on this issue.
A fiduciary duty generally arises when one reposes a special confidence in another, and
the other "in equity and good conscience is bound to act in good faith and with due regard to the
interests of the one reposing confidence." Dallaire v. Bank ofAm., NA., 760 S.E.2d 263, 266
(2014). Ordinary borrower-lender transactions are considered arm's length and do not typically
rise to fiduciary duties. Id. While a fiduciary relationship does not normally exist between a
mortgagor and a mortgagee, one may exist "as a fact, in which there is confidence reposed on
one side, and the resulting superiority and influence on the other." S.N.R. Mgmt. Corp. v. Danube
Partners 141, LLC, 659 S.E.2d 442, 451 (2008) (internal citation removed). Under these
circumstances, where plaintiff has alleged that he had placed his trust and confidence in Chase to
receive and process his payments in escrow as agreed, and where Chase was in the unique
position of controlling when and how the escrow funds would be disbursed, a jury could find that
the circumstances surrounding the mortgager-mortgagee relationship between plaintiff and
Chase created a fiduciary duty through the obligations of trust, confidence and good faith.
Because Chase was exclusively responsible for the payment of the insurance premiums and
because the plaintiff's homeowner's insurance was billed directly to Chase, a reasonable juror
could determine that Chase possessed sufficient control, direction, and influence over plaintiff's
interests to render it a fiduciary over those funds. See Smith v. GMAC Mortg. Corp., No. 5:06CV-125-V, 2007 WL 2593148 (W.D.N.C. Sept. 5, 2007).
It is therefore for the jury to determine whether in these circumstances Chase acted as an
agent for the plaintiff and whether plaintiff can be deemed as having placed a special confidence
in Chase with regard to the maintenance of the escrow account. It is also for the jury to decide
whether Chase was, in tum, charged with acting in the best interests of plaintiff in managing and
disbursing funds from that account, and whether Chase breached that duty in failing to make
send the insurance payments correctly as agreed.
Unfair and Deceptive Trade Practices Act
Plaintiff has next alleged, in the alternative to negligence and breach of fiduciary duty,
that Chase violated the North Carolina Unfair and Deceptive Trade Practices Act ("UDTPA").
To succeed on a claim under the UDTPA plaintiff must prove 1) an unfair or deceptive act or
practice, 2) in or affecting commerce, 3) that proximately caused his injury. Bumpers v. Cmty.
Bank ofN Virginia, 747 S.E.2d 220, 223 (2013).
In this case, plaintiff has alleged that Chase repeatedly assured him that he would receive
a loan modification and represented that it would refinance his two remaining loans on terms
similar to the Merrill Lynch loan on the Spa Drive property, and allegedly did so in an unfair
attempt to delay plaintiff from seeking legal redress. Plaintiff argues that these representations by
Chase-that it would work with plaintiff to rectify the situation, to reverse the transaction, and to
repair or restore the plaintiff's financial position-were false at the time they were made.
Plaintiff additionally argues that he can demonstrate that Chase knew or should have known that
his loans were ineligible under the Home Affordable Modification Program ("HAMP") since
they were over the principal loan limit, and that the very act of putting him through that process
that was designed to fail was a deceptive act or practice giving rise to a UDTP A claim.
Alternatively, plaintiff argues that Chase's repeated failing to properly pay monies out of the 201
Salter Path Road escrow account is a repeated breach of fiduciary duties that can give rise to a
"North Carolina ... has held that conduct which constitutes breach of fiduciary duty and
constructive fraud is sufficient to support a UDTP claim." Trantham v. Michael L. Martin, Inc.,
745 S.E.2d 327, 333 (2013) (internal citation removed). Plaintiff has not argued or demonstrated
that there was constructive fraud in the mispayment of flood insurance premiums. Additionally,
there cannot be a UDTP A claim for failure to modify a loan or contract when there was no
obligation to do so, and it does not appear there was any deceptive or unfair act in the recording
of documents related to the reinstated Saltar Path loan, because the evidence demonstrates that
was precisely what plaintiff requested.
However, whether Chase actually made promises that plaintiff would receive a loan
modification, and whether such conduct would constitute a deceptive or unfair trade practice, are
questions of fact for a jury to determine. There is just enough evidence in the record, assuming it
can be proven at trial and when viewing it in the best light to plaintiff, to permit the inference
that a reasonable jury could find for plaintiff. Therefore these claims can stand and be taken
Breach of Contract
Plaintiff also brought a breach of contract claim in the alternative to negligence. His first
breach of contract claim is that Chase's failure to pay the insurance premiums on the flood and
or hazard policies is a material breach of the contract between the parties. As discussed above,
there are questions of fact related to this issue and it can stand.
Plaintiff has also alleged that there was a contractual obligation to accept and apply
payments as directed by plaintiff and that Chase committed a material breach of this contract
when it failed to promptly and accurately satisfy the mortgage on the Spa Drive property upon
receipt of the pay-off funds from plaintiff. Chase argues that there was no breach by Chase of
any contractual duty to apply payments, that in fact, Chase reinstated Plaintiffs Salter Path Loan
as requested and paid off the Spa Drive Loan as requested. Whether Chase breached its contract
with plaintiff is a question for the jury to determine based on the evidence as will be presented at
trial. It does not appear from the briefs that Chase has argued that plaintiffs breach of contract
claims should be dismissed. Regardless, the Court finds that plaintiff has stated a proper breach
of contract claim and that there is a genuine issue of material fact related to these claims and that
they will survive summary judgment.
Breach of Implied Covenant of Good Faith
Finally, plaintiff brought a claim for breach of the implied covenant of good faith and fair
dealing in the alternative to negligence and based it on the same allegations as his negligence
claim. North Carolina law recognizes that a covenant of good faith and fair dealing is implied in
every contract. Bicycle Transit Auth. V Bell, 333 S.E.2d 299, 305 (1985). Under the implied
covenant, neither party is to do anything to injure the rights of the other party to receive the
benefits of the agreement, but instead, the parties are to act in good faith to carry out the
purposes for which the agreement entered into. Maglione v. Aegis Family Health Ctrs., 607
S.E.2d 286, 291 (2005).
The only contracts between the parties are the Notes and Deeds of Trust, and North
Carolina courts have held the obligations identified therein are the only breaches that occur. See
Camp v. Leonard, 515 S.E.2d 909, 913 (1999) ("[A] lender is only obligated to perform those
duties expressly provided for in the loan agreement to which it is a party.") (citations omitted);
Wagner v. Branch Banking and Trust Co., 634 S.E.2d 273, 2006 WL 2528495, at *2 (N.C. Ct.
App. Sept. 5, 2006) (explaining that the North Carolina Court of Appeals has specifically held
that "a lender has a duty to perform those responsibilities specified in a loan agreement, but has
declined to impose any duty beyond those expressly provided for in the agreement.").
Plaintiff has not demonstrated, and there is no evidence to support the position, that
Chase was under contractual obligation in the loan agreements to modify the loans or amend
their terms. There can thus be no claim that Chase breached an implied contractual covenant of
good faith and fair dealing for something it was not obligated under contract to do. However,
plaintiff has demonstrated that Chase was obligated to accept and apply loan payments as
directed. Chase argues that there was no breach by Chase of any contractual duty to apply
payments, because it reinstated plaintiffs Salter Path Loan as requested and paid off the Spa
Drive Loan as requested, but plaintiff argues that the conduct discussed above related to the
mistaken payoff and resultant fallout constitutes bad faith on the part of Chase. There is enough
in the record to allow this issue to go before a jury which will have to determine if Chase acted in
good faith and fairly towards plaintiff with respect to its obligations under their loan agreement.
For these reasons discussed above, because genuine issues of material fact remain as to
several of plaintiffs claims, Chase's motion for summary judgment will granted in part and
denied in part.
Motion for Discovery Sanctions
Plaintiff filed a motion for discovery sanctions, seeking certain evidentiary preclusions
and attorney's fees due to Chase's alleged failure to provide answers to interrogatories. Plaintiff
amended its motion to attach supplemented answers to those disputed interrogatories filed soon
after by Chase. Plaintiff has not demonstrated that these circumstances present the type of
conduct that merits the sanctions requested.
When examining a requested sanction that runs "head-on [into] the party's rights to a trial
by jury and a fair day in court," the court's discretion is narrower and it must apply "a four-part
test:" (1) whether the noncomplying party acted in bad faith; (2) the amount of prejudice his
noncompliance caused his adversary, which necessarily includes an inquiry into the materiality
of the evidence he failed to produce; (3) the need for deterrence of the particular sort of
noncompliance; and (4) the effectiveness ofless drastic sanctions. Mut. Fed. Sav. & Loan Ass 'n
v. Richards & Assocs., Inc., 872 F.2d 88, 92 (4th Cir. 1989) (citing Wilson v. Volkswagen ofAm.,
Inc., 561F.2d494, 503-06 (4th Cir. 1977).
Plaintiff has not presented evidence of bad faith on the part of Chase. Chase served
responses and objections at the time in which its responses to interrogatories were due. These
responses consisted of specific objections and indicated for all but five responses that
supplementation was possible if the parties resolved the objections. Supplementation was
thereafter served on plaintiffs counsel as promised. The Court does not find bad faith inherent in
these typical discovery actions, and plaintiff has not presented any other evidence of bad faith.
Additionally, even if Chase was initially evasive in its replies, as plaintiff apparently complains
of, there is no case that supports levying such dramatic sanctions only upon evasiveness in
responses to interrogatories. The Court also finds that little prejudice has been caused to plaintiff
because Chase's responses were ultimately supplemented as agreed upon and because plaintiff
was served with all supplementary responses before needing to respond to summary judgment
and before the parties have started trial preparation. As Chase has complied with its discovery
obligations, there is no also need for deterrence. There has also been no specific order that Chase
has ignored, evaded, or failed to comply with. For these reasons, because plaintiff failed to make
even a basic showing that any sanction is warranted, let alone a drastic sanction that would bar
Chase from making several affirmative defenses and would restrict it to presenting only
documentary evidence at trial, the motion will be denied.
Motion for Protective Order
Finally, plaintiff filed a motion for protective order, seeking an order excusing plaintiff
from responding to certain outstanding interrogatories and requests for production served by
Chase. Defendant filed a notice that it has withdrawn its request for the evidence that was the
subject of plaintiffs motion for protective order. [DE 133]. The Court therefore finds that
plaintiffs motion is mooted by this notice.
For the foregoing reasons, defendant Chase's motion for summary judgment is
GRANTED IN PART and DENIED IN PART. [DE 115]. Chase's motion to exclude is
GRANTED [DE 113]. Plaintiffs motion for discovery sanctions is DENIED. [DE 109].
Plaintiffs motion for protective order is DENIED as moot. [DE 107].
SO ORDERED, this
[L day of February, 2017.
~J'RRENCE W. BOYLE
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