Vinal v. Federal National Mortgage Association et al

Filing 36

ORDER granting 19 Motion to Dismiss. SunTrust is dismissed as a defendant. Signed by Chief Judge James C. Dever III on 2/12/2014. (Sawyer, D.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
SOUTHERN DIVISION
No. 7:13-CV-159-D

PETER S. VINAL,

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Plaintiff,

v.
FEDERAL NATIONAL MORTGAGE
ASSOCIATION, et al.,
Defendants.

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)

ORDER

On June 26, 2013, Peter S. Vinal sued SunTrust Mortgage, Inc., several of SunTrust's
employees, the Federal National Mortgage Association ("Fannie Mae"), and Safeguard Properties,
LLC in New Hanover County Superior Court. See Compl. [D.E. 1-2] 1-19. SunTrust financed
Vinal's purchase of several properties in Wilmington, North Carolina, and the lawsuit arises out of
the parties' interactions after Vinal failed to make payments on the loans. Vinal alleged a litany of
claims, including breach of contract, trespass, tortious interference with contract, fraudulent
inducement, fraudulent misrepresentation, constructive fraud, unfair and deceptive trade practices,
violation ofNorth Carolina's Racketeer Influenced and Corrupt Organizations ("RICO") Act, civil
conspiracy, and unjust enrichment. See id. 5-18.
Vinal has dropped all claims against the Federal National Mortgage Association and the
individual SunTrust employees, leaving only SunTrust and Safeguard as defendants. See [D.E. 31 ].
Against the remaining defendants, Vinal has dropped all but four claims. Only the trespass, tortiousinterference, constructive-fraud, and unfair-and-deceptive-trade-practices claims remain, and all arise
under North Carolina law. See id. On August 30,2013, SunTrust moved to dismiss those claims
against it for failure to state a claim upon which relief can be granted. [D.E. 19]; see Fed. R. Civ.
P. 12(b)(6). As explained below, the court grants SunTrust's motion.

I.

Vinal is a real-estate agent in Wilmington, North Carolina. Compl. ~ 7. Between 2005 and
2007, he purchased five properties in Wilmington, at 1153 Arboretum Drive, 619 Sandfiddler Pointe,
1233 Edgewater Club Road, 1530 South 41st Street, and 1536 South 41st Street. Id. ~ 6. To finance
those purchases, he took out nine interest-only loans from SunTrust. ld. The loans were secured by
deeds of trust on the five properties. See id., Exs. A-E. Most of the loans were long-term
mortgages, with maturity dates between 203 5 and 203 7. See id., Exs. B-E. The loan associated with
the Arboretum Drive property, though, matured on September 1, 2008. Id., Ex. A~ 3(A).
At first, Vinal made timely payments on all the loans. After the housing market crashed in
2008, Vinal suffered a "drastic reduction" in his income, and began struggling to meet his
obligations to SunTrust. ld. ~ 7. InMarch2009, SunTrustand Vinal met to discuss the status of the
loan associated with the Arboretum Drive property, which was six months past maturity but
remained unpaid. Id. ~ 8. Vinal had hoped to refinance his debt to make it more manageable, but
at the meeting, SunTrust informed him that due to a change in Fannie Mae guidelines, he was
ineligible for refinancing. Id. At that point, Vinal notified SunTrust that he would soon become
unable to make timely payments on his loans. ld.
After that March 2009 meeting, Vinal began efforts to avoid foreclosure. First, he contacted
SunTrust's loss mitigation department. Id. ~ 41. Employees in the loss mitigation department told
Vinal that, if he missed his payments for three months, he would become eligible for "several
modification or refinancing programs." Id. Starting in June 2009, Vinal defaulted on his mortgage
payments. Id. ~ 42. Although employees in SunTrust's loss mitigation department had told Vinal
that SunTrust would not report Vinal's default to any credit bureau, id. ~ 47, Vinal's defaults ended
up "severely reducing his credit score." Id. ~ 42.
In late 2009, the fair market value of Vinal's properties had diminished to well below the
remaining principal on his loans. ld.

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8. Vinal then began attempting to short-sell his properties.
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Id. , 11. On three ofhis properties-the Arboretum Drive property, the Sandfiddler Pointe property,
and the Edgewater Club Road property-Vinal received offers to purchase, and entered into purchase
contracts with the potential buyers. Id. ,, 11, 32; see Def. Mem. Supp. Mot. Dismiss, Ex. 1 [D.E.
16-2]. For each of the purchase contracts, SunTrust's approval of the short sale was a condition
precedent to any contractual obligations arising, and each contract specifically noted that SunTrust
was not obligated to give that approval. See Def. Mem. Supp. Mot. Dismiss, Ex. 1, at 9, 20, 30, 41.
Each purchase contract afforded the buyer the right to unilaterally withdraw at any point before
SunTrust approved the short sales. See id.
Once Vinal submitted the short-sale offers to SunTrust, SunTrust allegedly "delay[ed] and
obstruct[ed] the short sale process by losing important documents, requesting outrageous demands
throughout the application process, deliberately shuftling Vinal's files around to different employees,
and ... misrepresenting the approval ofbuyers' offers." Compl., 12; see also id., 33. The offerors
ultimately withdrew their offers, and Vinal never completed a short sale. Id., 33.

In 2010, SunTrust began the process of foreclosing on Vinal's properties. See [D.E. 16-3]
(orders allowing foreclosure for each property). As part ofthat process, SunTrust retained Safeguard
to secure the properties. "[N]o fewer than five times" before Vinal's properties had been sold at
auction, Safeguard, "acting as a hired contractor for SunTrust," entered Vinal's properties to change
the locks. Compl. , 24. In particular, on June 8, 2010, Safeguard changed the locks on the
Arboretum Drive property, despite Vinal's instructions to the gated neighborhood's guards not to
let Safeguard in the neighborhood. Compl. ,, 25-26. Moreover, "[o ]n two separate occasions in
May and June of2010, SunTrust hired Safeguard to change the locks on Vinal's property at 1536
South 41st Street." Id., 28.
When foreclosure proceedings were ongoing, Vinal had tenants residing at 1530 South 41st
Street and 1536 South 41st Street. See id., Ex. G. After foreclosure, Fannie Mae owned both
properties. See id., 35; [D.E. 16-5]. Fannie Mae renegotiated the lease associated with 1536 South

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41st Street, and evicted the tenants of 1530 South 41st Street. Compl. ~~ 35-36. Ultimately, with
all five of his properties in foreclosure, Vinal filed for bankruptcy, and obtained a discharge of all
debt owed to SunTrust. See id. ~ 14; [D.E. 16-9].

II.
A federal court sitting in diversity applies the substantive law of the forum state (in this case,
North Carolina), but applies federal procedural law. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78
(1938). When state law conflicts with the Federal Ru1es of Civil Procedure, the Ru1es govern.
Hanna v. Plumer, 380 U.S. 460,473-74 (1965). This principle applies even when the action was
originally filed in state court and removed to federal court. See Fed. R. Civ. P. 81 (c)(1 ). The Federal
Ru1es of Civil Procedure do not have meaning independent of the federal cases that interpret them.
Thus, in considering SunTrust's motion to dismiss pursuant to Ru1e 12(b)(6), this court applies the
standard set forth in Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atl. Com. v. Twombly, 550

u.s. 544 (2007).
To survive a motion to dismiss pursuant to Ru1e 12(b)(6), "a complaint must contain
sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face."'
Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570); Coleman v. Md. Court of Appeals, 626
F.3d 187, 190 (4th Cir. 2010), aff'd,132 S. Ct. 1327 (2012); Giarratano v. Johnso!1, 521 F.3d 298,
302 (4th Cir. 2008); Goodman v. Praxair. Inc., 494 F.3d 458, 464 (4th Cir. 2007) (en bane). In
considering the motion, "a court accepts all well-pled facts as true and construes these facts in the
light most favorable to the plaintiff," but need not accept a complaint's "legal conclusions, elements
of a cause of action, [or] bare assertions devoid of further factual enhancement." Nemet Chevrolet.
Ltd. v. Consumeraffairs.com. Inc., 591 F.3d 250, 255 (4th Cir. 2009). The court may consider
documents attached to the complaint or to the motion to dismiss, "so long as they are integral to the
complaint and authentic." Philips v. Pitt Cnty. Mem'l Hosp., 572 F.3d 176, 180 (4th Cir. 2009).

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Likewise, the court "may properly take judicial notice of matters of public record." Sec 'y of State
for Def. v. Trimble Navigation Ltd., 484 F.3d 700, 705 (4th Cir. 2007).
A.
The court first addresses Vinal's trespass claim. "The elements of trespass to real property
are: (1) possession of the property by the plaintiff when the alleged trespass was committed; (2) an
unauthorized entry by the defendant; and (3) damage to the plaintiff from the trespass." Broughton
v. McClatchy Newspapers. Inc., 161 N.C. App. 20, 32,588 S.E.2d 20,29 (2003); see Matthews v.
Forrest, 235 N.C. 281, 283, 69 S.E.2d 553, 555 (1952). Here, Vinal does not allege that SunTrust
entered his property. Rather, he alleges that Safeguard did so while "acting as a hired contractor for
SunTrust." Compl. ~ 24. Thus, Vinal's trespass claim against SunTrust fails unless he has plausibly
alleged sufficient facts to hold SunTrust vicariously liable for Safeguard's actions.
"A principal's vicarious liability for the torts of his agent depends on the degree of control
retained by the principal over the details of the work as it is being performed. The controlling
principle is that vicarious liability arises from the right of supervision and control." Vaughn v. N.C.
Dep'tofHumanRes., 296N.C. 683,686,252 S.E.2d 792,795 (1979). Accordingly, in determining
whether to impose vicarious liability, courts distinguish between employees and independent
contractors. Companies are generally liable for the torts of their employees, but "[t]he general rule
is that a company is not liable for the torts of an independent contractor committed in the
performance of the contracted work." Coastal Plains Utils .. Inc. v. New Hanover Cnty., 166 N.C.
App. 333, 344, 601 S.E.2d 915, 923 (2004).
To determine whether an entity is an employee or independent contractor, the court must
consider the extent to which
[t]he person employed (a) is engaged in an independent business, calling, or
occupation; (b) is to have the independent use of his special skill, knowledge, or
training in the execution of the work; (c) is doing a specified piece of work at a fixed
price or for a lump sum or upon a quantitative basis; (d) is not subject to discharge
because he adopts one method of doing the work rather than another; (e) is not in the

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regular employ of the other contracting party; (f) is free to use such assistants as he
may think proper; (g) has full control over such assistants; and (h) selects his own
time.
McCown v. Hines, 353 N.C. 683, 687, 549 S.E.2d 175, 177-78 (2001) (quotation omitted).
Here, Vinal's only allegations regarding the relationship between SunTrust and Safeguard
are that "SunTrust hired Safeguard ... to change the locks" on Vinal's properties, Compl. ~ 13, that
SunTrust "deliberately ordered Safeguard to change the locks on Vinal's properties," id. ~ 21, and
that Safeguard was "acting as a hired contractor for SunTrust." Id. ~ 24.
Under North Carolina law, these allegations do not involve the level of control required for
SunTrust to be vicariously liable for Safeguard's actions. The complaint makes clear that Safeguard
is an independent company from SunTrust, and was not in SunTrust's regular employ but rather was
hired for the specific task of managing Vinal's properties before foreclosure. Vinal does not allege
that SunTrust had control over the manner in which Safeguard carried out that task, and Vinal's
complaint identifies Safeguard as a "contractor." Thus, Vinal has not plausibly alleged facts that
would support holding SunTrust vicariously liable for Safeguard's alleged torts, and Vinal's trespass
claim against SunTrust is dismissed.

B.
Next, the court addresses Vinal's tortious-interference claim. To state a claim for tortious
interference with contract, a plaintiff must allege that "(1) a valid contract [existed] between the
plaintiff and a third person which confer[red] upon the plaintiff a contractual right against a third
person; (2) the defendant kn[ew] of the contract; (3) the defendant intentionally induce[d] the third
person not to perform the contract; (4) and in doing so act[ed] without justification; ( 5) resulting in
actual damage to plaintiff." United Labs .. Inc. v. Kuykendall, 322 N.C. 643, 661, 370 S.E.2d 375,
387 (1988).
Vinal claims that SunTrust tortiously interfered both with the short-sale contracts he had
entered with potential buyers for the Arboretum Drive, Sandfiddler Pointe, and Edgewater Club

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Road properties and with the landlord-tenant contracts he had entered with the tenants of the two
41st Street properties. Assuming without deciding that these were all valid contracts, that SunTrust
knew of them, that SunTrust induced the tenants and potential buyers not to perform, and that in
doing so SunTrust caused actual damage to Vinal, "[a] motion under Ru1e 12(b)(6) shou1d be granted
when the complaint reveals that the interference was justified or privileged." Peoples Sec. Life Ins.
Co. v. Hooks, 322N.C. 216,220,367 S.E.2d647, 650 (1988). Generally, adefendant'sinterference
is unjustified only if''the act is done other than as a reasonable and bona fide attempt to protect the
interest of the defendant." Smith v. Ford Motor Co., 289 N.C. 71, 91,221 S.E.2d 282,294 (1976)
(quotation omitted). "If the defendant's only motive is a malicious wish to injure the plaintiff, his
actions are not justified.... If, however, the defendant is acting for a legitimate business purpose,
his actions are privileged." Hooks, 322 N.C. at 221, 367 S.E.2d at 650 (citation omitted).
Vinal has not plausibly alleged that SunTrust had a malicious wish to injure him. Instead,
the complaint makes clear that SunTrust justifiably interacted with Vinal and u1timately proceeded
with foreclosure in order to minimize the financial loss associated with its loans to Vinal. SunTrust
acted with a legitimate business purpose. See,~. Holder v. Atl. Joint Stock Land Bank ofRaleigh,
208 N.C. 38, 38, 178 S.E. 861, 862 (1935). Thus, Vinal has not plausibly alleged a tortiousinterference claim against SunTrust and that claim is dismissed.

c.
Next, the court addresses Vinal's constructive-fraud claim. To state a claim for constructive
fraud, a party must allege "(1) the existence of a fiduciary duty; and (2) a breach of that duty."
Keener Lumber Co. v. Perry, 149 N.C. App. 19, 28, 560 S.E.2d 817, 823 (2002). A party asserting
a constructive-fraud claim must allege ''the facts and circumstances ... which created the relation
of trust and confidence," and the facts and circumstances that "led up to and surrounded the
consummation of the transaction in which defendant is alleged to have taken advantage of his
positionoftrusttothe [detriment] of plaintiff." Rhodes v. Jones, 232N.C. 547,549,61 S.E.2d 725,

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726 (1950); see,~, Hunterv. Guardian Life Ins. Co. of Am., 162 N.C. App. 477,482,593 S.E.2d

595,599 (2004). "A fiduciary duty arises when there has been a special confidence reposed in one
who in equity and good conscience is bound to act in good faith and with due regard to the interest
of the one reposing confidence.'' Branch Banking & Trust Co. v. Thompson, 107 N.C. App. 53, 60,
418 S.E.2d 694, 699 (1992) (quotation omitted).
"[T]he mere existence of a debtor~reditor relationship between the parties does not create
a fiduciary relationship," because "parties to a contract do not thereby become each others'
fiduciaries; they generally owe no special duty to one another beyond the terms of the contract." Id.
at 61, 418 S.E.2d at 699 (quotation and alteration omitted). Of course, neither does the existence
ofa debtor~reditor relationship between the parties preclude a fiduciary relationship when one party
has gone beyond the usual nature of that relationship and taken on the role of a fiduciary. For
example, the North Carolina Court of Appeals has held that if a creditor provides legal advice to a
debtor, a fiduciary relationship may arise. See Dallaire v. Bank of Am.. N.A., 738 S.E.2d 731, 735
n.5 (N.C. Ct. App. 2012), petition for disc. review granted, 747 S.E.2d 535 (N.C. 2013).
Vinal claims that SunTrust was his "sole source of advice and counsel on how to resolve the
loan crisis," and thereby created a fiduciary relationship with him. Pl. Mem. Opp. Mot. Dismiss
[D.E. 23] 11-12. But in attempting to "resolve the loan crisis," SunTrust did not undertake to
provide Vinal with any services beyond those inherent in the creditor-debtor relationship. See, ~'
Wigod v. Wells Fargo Bank. N.A., 673 F.3d 547, 572-73 (7th Cir. 2012) (applying lllinois law and
rejecting argument that a bank becomes a fiduciary by advising a borrower about loss-mitigation
programs); Robinson v. Deutsche Bank Nat'l Trust Co., No. 5:12-CV-590-F, 2013 WL 1452933,
at *14-16 (E.D.N.C. Apr. 9, 2013) (unpublished) (applying North Carolina law and rejecting
argument that a bank becomes a fiduciary by discussing with a borrower different loan-modification
options). Thus, Vinal has not plausibly alleged a fiduciary relationship with SunTrust and his
constructive-fraud claim against SunTrust is dismissed.

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D.
Finally, the court addresses Vinal's unfair-and-deceptive-trade-practices ("UDTPA") claim.
N.C. Gen. Stat. § 75-1.1 (a) prohibits ''unfair or deceptive acts or practices in or affecting commerce,"
and N.C. Gen. Stat. § 75-16 creates a private right of action to enforce that prohibition. To state a
UDTPA claim, a plaintiff must allege that "(1) defendant committed an unfair or deceptive act or
practice, (2) the action in question was in or affecting commerce, and (3) the act proximately caused
injury to the plaintiff." Dalton v. Camp, 353 N.C. 647, 656, 548 S.E.2d 704, 711 (2001); Walker
v. Fleetwood Homes ofN.C .. Inc., 362 N.C. 63, 71-72, 653 S.E.2d 393,399 (2007); RD & J Props.
v. Lauralea-Dilton Enters .• LLC, 165 N.C. App. 737,748,600 S.E.2d 492,500 (2004). "A practice
is unfair when it offends established public policy as well as when the practice is immoral, unethical,
oppressive, unscrupulous, or substantially injurious to consumers.... [A] practice is deceptive if it
has the capacity or tendency to deceive." Marshall v. Miller, 302 N.C. 539, 548, 276 S.E.2d 397,
403 (1981) (citation omitted). The unfair or deceptive conduct must be immoral, unethical,
oppressive, unscrupulous, or substantially injurious to consumers.

See,~'

Gilbane Bldg. Co. v.

Fed. Reserve B~ 80 F.3d 895, 902 (4th Cir. 1996); Branch Banking & Trust Co., 107 N.C. App.
at 61, 418 S.E.2d at 700. Whether an act is unfair or deceptive under the UDTPA is a question of
law for the court.

See,~'

Tucker v. Boulevard at Piper Glen LLC, 150 N.C. App. 150, 153, 564

S.E.2d 248, 250 (2002); Norman Owen Trucking. Inc. v. Morkoski, 131 N.C. App. 168, 177, 506
S.E.2d 267, 273 (1998).
Vinal rests his UDTPA claim on SunTrust's failure to warn him of changes in Fannie Mae's
policies that affected his ability to refinance, SunTrust's informing him that he would be eligible for
certain loss-mitigation programs only after defaulting on his mortgage payments for three months,
SunTrust's failure to prevent his defaults from being reported to the credit agencies, and SunTrust's
refusal to approve the short-sale offers he had received. See Pl. Mem. Opp. Mot. Dismiss 12-13.

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As already explained, these actions involve no breach of a legal duty by SunTrust towards
Vinal, much less the sort of egregious conduct required to support a UDTPA claim. See, ~' Ellis
v. La.-Pac. Corp., 699 F.3d 778, 786-88 (4th Cir. 2012); Kelly v. Ga.-Pac. LLC, 671 F. Supp. 2d
785, 799 (E.D.N.C. 2009). Rather, they involve SunTrust's legitimate efforts to mitigate its losses
on the loans it made to Vinal. Accordingly, Vinal has not plausibly alleged a UDTPA claim against
SunTrust and that claim against SunTrust is dismissed. Because Vinal has failed to state a claim
upon which relief can be granted against SunTrust, the court need not address SunTrust's alternative
argument that the results of related state-foreclosure proceedings bar Vinal's claims.

m.
In sum, the court GRANTS SunTrust's motion to dismiss [D.E. 19] and DISMISSES
SunTrust as a defendant.
SO ORDERED. This l 1.day of February 2014.

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