HORRY COUNTY STATE BANK v. THOMAS, JR.

Filing 19

MEMORANDUM OPINION AND ORDER Signed by CHIEF JUDGE WILLIAM L. OSTEEN, JR on 08/20/2015. IT IS ORDERED that Plaintiff's Motion to Dismiss and Motion to stay Defendant's Counterclaims 8 is GRANTED IN PART in that this court will dismiss Defendant's abuse of process counterclaim, and DENIED IN PART WITHOUT PREJUDICE in that this court will allow Defendant to pursue his remaining counterclaims. (Coyne, Michelle)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
HORRY COUNTY STATE BANK,
Plaintiff,
v.
SAMUEL C. THOMAS, JR.,
Defendant.

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1:15CV9

MEMORANDUM OPINION AND ORDER
OSTEEN, JR., District Judge
Plaintiff Horry County State Bank (“Plaintiff”) initiated
this action against Defendant Samuel C. Thomas, Jr.
(“Defendant”) to recover money pursuant to a promissory note
executed by Defendant in favor of Plaintiff. (Complaint
(“Compl.”) (Doc. 1) at 1.)

Defendant subsequently filed his

Answer and Counterclaims (Doc. 6). Plaintiff then filed a Motion
to Dismiss and Motion to Stay Defendant’s Counterclaims.
(“Motion” (Doc. 8).) Defendant responded to Plaintiff’s Motion
(Doc. 13), and Plaintiff filed a reply (Doc. 15).
Plaintiff’s Motion asks this court to dismiss Defendant’s
counterclaims for fraud, negligent misrepresentation, and
securities fraud, because they are allegedly barred by the
doctrine of collateral estoppel. (Motion (Doc. 8) at 1.) In the
alterative, Plaintiff asks this court to stay those claims

because they are subject to arbitration. (Id. at 1-2.) In
addition, Plaintiff asks this court to dismiss Defendant’s abuse
of process claim, because it fails to state a claim upon which
relief can be granted. (Id. at 1.)
Plaintiff’s Motion is now ripe for adjudication. For the
reasons stated below, Plaintiff’s Motion will be granted in
part, in that this court will dismiss Defendant’s abuse of
process counterclaim, and denied in part, in that this court
does not have a sufficient factual record at this stage in the
proceedings to find Defendant’s counterclaims are barred or must
be stayed. Therefore, this court will not dismiss Defendant’s
remaining counterclaims for fraud, negligent misrepresentation,
or securities fraud at this time.
I.

BACKGROUND
Plaintiff commenced the present action to recover money

from Defendant that is allegedly due to Plaintiff pursuant to a
promissory note executed by Defendant. (Compl. (Doc. 1) at 1.) A
copy of the promissory note is attached to the Complaint as

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Exhibit A.1 (“Note” (Doc. 1-1).) According to the Note, Plaintiff
advanced Defendant $250,250 on August 14, 2013. (Id. at 1.)
Defendant personally signed the Note. (Compl. (Doc. 1) ¶ 6.)
Defendant does not deny these claims. (Answer and Countercl.
(Doc. 6) at 1.) Plaintiff further asserts that
As of October 22, 2014, there is due and owing under
the Note the principal amount of Two Hundred Fifty
Thousand Two Hundred Fifty and 00/100 ($250,250.00)
Dollars, interest of Eight Thousand Eight Hundred
Fifty-Six and 06/100 ($8,856.06) Dollars, and late
charges of Four Hundred Forty-Two and 81/100 ($442.81)
Dollars, for a total of Two Hundred Fifty-Nine
Thousand Five Hundred Forty-Eight and 87/100
($259,548.87) Dollars, with interest continuing to
accrue at the rate of Twenty-Two and 59/100 ($22.59)
Dollars per diem.
(Compl. (Doc. 1) ¶ 8.) Plaintiff alleges that Defendant has
failed to pay the amount due to Plaintiff on the Note and is now
in default, so Plaintiff commenced the present action. (Id.
¶ 9.) Defendant denies these allegations. (Answer and Countercl.
(Doc. 6) at 1.) Plaintiff asks this court to order Defendant to
pay Plaintiff what is due on the Note, interest, and attorneys’
fees. (Compl. (Doc. 1) at 3.)
1

“A court may consider documents attached to a complaint
under Federal Rule of Civil Procedure 10(c).” Berry v.
Gutierrez, 587 F. Supp. 2d 717, 723 (E.D. Va. 2008); aff'd sub
nom. Berry v. Locke, 331 Fed. Appx. 237 (4th Cir. 2009). The
promissory note is integral to the complaint and neither party
disputes its authenticity. This court will consider the
promissory note in deciding this motion.
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Defendant’s Answer and Counterclaim asserts four
counterclaims against Plaintiff: (1) Abuse of Process, (2)
Fraud, (3) Negligent Misrepresentation, and (4) Securities
Fraud. (Answer and Countercl. (Doc. 6) at 3-12.) Defendant bases
his counterclaims on alleged deceitful behavior and
misrepresentations on the part of Plaintiff during the
negotiation process and in the execution of the promissory note.
(Id.) Ultimately, Defendant claims that Plaintiff knew that
Defendant was relying on fraudulent information when he signed
the promissory note and that he would not be able to be pay it
off when payment became due. (Id. at 8.)

Plaintiff counters by

contending that the counterclaims based on the alleged
misrepresentations are barred by the doctrine of collateral
estoppel and that the remaining claim should be dismissed for
failure to state a claim upon which relief can be granted.
(Motion (Doc. 8) at 1.) Further, Plaintiff asserts that if this
court does not dismiss the allegedly barred claims, these claims
should be stayed because they are subject to arbitration. (Id.
at 1-2.)
II.

LEGAL STANDARD
“To survive a motion to dismiss, a complaint must contain

sufficient factual matter, accepted as true, to ‘state a claim

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to relief that is plausible on its face.’”

Ashcroft v. Iqbal,

556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. V.
Twombly, 550 U.S. 544, 570 (2007)).

A claim is facially

plausible provided the plaintiff provides enough factual content
to enable the court to reasonably infer that the defendant is
liable for the misconduct alleged.

Id.

The pleading setting

forth the claim must be “liberally construed” in the light most
favorable to the nonmoving party, and allegations made therein
are taken as true.
(1969).

Jenkins v. McKeithen, 395 U.S. 411, 421

However, “the requirement of liberal construction does

not mean that the court can ignore a clear failure in the
pleadings to allege any facts [that] set forth a claim.”

Estate

of Williams-Moore v. All. One Receivables Mgmt., Inc., 335 F.
Supp. 2d 636, 646 (M.D.N.C. 2004).
Rule 12(b)(6) protects against meritless litigation by
requiring sufficient factual allegations “to raise a right to
relief above the speculative level” so as to “nudge[] the[]
claims across the line from conceivable to plausible.” Twombly,
550 U.S. at 555, 570; see Iqbal, 556 U.S. at 662. Under Iqbal,
the court performs a two-step analysis. First, it separates
factual allegations from allegations not entitled to the
assumption of truth (i.e., conclusory allegations or bare

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assertions amounting to nothing more than a “formulaic
recitation of the elements”). Iqbal, 556 U.S. at 681. Second, it
determines whether the factual allegations, which are accepted
as true, “plausibly suggest an entitlement to relief.” Id. “At
this stage of the litigation, a plaintiff's well-pleaded
allegations are taken as true and the complaint, including all
reasonable inferences therefrom, are liberally construed in the
plaintiff's favor.” Estate of Williams-Moore, 335 F. Supp. 2d at
646.
III. ANALYSIS
This court will address the first set of claims that are
allegedly precluded or should be stayed and then address the
abuse of process claim.
A.

Fraud, Negligent Misrepresentation, and Securities
Fraud Claims

Plaintiff asserts that Defendant’s counterclaims for fraud,
negligent misrepresentation, and securities fraud are precluded
by the doctrine of collateral estoppel, because they were
asserted by Defendant in a prior action and those claims are
subject to previously administered binding arbitration. (Motion,
Attach. 2, Pl.’s Mem. in Supp. of Mot. to Dismiss and Mot. to
Stay (Doc. 8-1) at 2.) “Collateral estoppel, or issue
preclusion, provides that once a court of competent jurisdiction
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actually and necessarily determines an issue, that determination
remains conclusive in subsequent suits, based on a different
cause of action but involving the same parties, or privies, to
the previous litigation.” Weinberger v. Tucker, 510 F.3d 486,
491 (4th Cir. 2007). Under North Carolina law, “[t]he companion
doctrines of res judicata (claim preclusion) and collateral
estoppel (issue preclusion) have been developed by the courts
for the dual purposes of protecting litigants from the burden of
relitigating previously decided matters and promoting judicial
economy by preventing needless litigation.”

Strates Shows, Inc.

v. Amusements of Am., Inc., 184 N.C. App. 455, 460, 646 S.E.2d
418, 423 (2007).
For a party to be precluded from stating a claim based on
the doctrine of collateral estoppel,
certain requirements must be met: (1) The issues to be
concluded must be the same as those involved in the
prior action; (2) in the prior action, the issues must
have been raised and actually litigated; (3) the
issues must have been material and relevant to the
disposition of the prior action; and (4) the
determination made of those issues in the prior action
must have been necessary and essential to the
resulting judgment.
King v. Grindstaff, 284 N.C. 348, 358, 200 S.E.2d 799, 806,
(1973). Based on the present record, this court finds it does
not have sufficient facts before it to determine whether or not

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Defendant’s counterclaims are precluded by the prior
arbitration. Further, preclusion is an affirmative defense.

See

Fed. R. Civ. P. 8(c) (listing estoppel as an affirmative
defense). “[A] motion to dismiss filed under Federal Rule of
Procedure 12(b)(6), which tests the sufficiency of the
complaint, generally cannot reach the merits of an affirmative
defense.” Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir.
2007). “A very close examination of matters actually litigated
must be made in order to determine if the underlying issues are
in fact identical; if they are not identical, then the doctrine
of collateral estoppel does not apply.”

Williams v. Peabody,

217 N.C. App. 1, 6, 719 S.E.2d 88, 93 (2011) (internal
quotations and alterations omitted).
Both parties submitted to this court as part of their
pleadings the Arbitration Award that Plaintiff relies on to
argue that Defendant’s counterclaims are barred.2 (Motion, Ex. 4,
Award of Arbitrators (Doc. 8-5); Def.’s Resp., Ex. B, Award of
Arbitrators (Doc. 13-2).) Defendant asserts that:
2

“A court can . . . take into consideration at the 12(b)(6)
stage documents attached to a motion to dismiss, as long as they
are integral to the complaint and authentic.” Berry, 587 F.
Supp. 2d at 723. Neither party disputes the authenticity of the
arbitration award document, and it is integral to Plaintiff’s
motion to dismiss Defendant’s counterclaims. This court will
consider the document.
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the counterclaims are entirely distinct from any issue
actually litigated and decided in the arbitration
proceeding. The claims encompassed in the arbitration
arise from a different transaction than here and
result from different wrongful conduct.
(Def.’s Mem. in Opp’n to Pl.’s Mot. to Dismiss and Mot. to Stay
Countercls. (Doc. 13) at 4.) Plaintiff counters that
the issues are identical and [Plaintiff’s] conduct
related to making the Boat Loan3 was litigated and
decided as part of the arbitration proceedings.
(Pl.’s Reply (Doc. 15) at 2.)

Plaintiff cites to a portion of

the Arbitration Transcript4 (Doc. 15-1) in support of its
contention that “circumstances surrounding the Boat Loan were at
issue in the arbitration proceeding,” and that the “issues
presented in Defendant’s [present] claims for fraud, securities
fraud and negligent misrepresentation are identical to those
presented in the arbitration proceeding.” (Pl.’s Reply (Doc. 15)
at 3-4.)

The record shows that the arbitration decision

3

The Note that is subject to the present lawsuit and “Boat
Loan” refer to the same loan.
4

Plaintiff attached eight pages of transcript from the
arbitration proceedings to their Reply (Doc. 15). (See Doc. 151.) As stated in n.2 supra, in specific circumstances, a court
may take documents attached to the pleadings into consideration
without converting the motion into one for summary judgement.
Berry, 587 F. Supp. 2d at 723. However, as Defendant did not
have the opportunity to dispute its authenticity and it is
presumably only a portion of a larger document that may need to
be considered, this court did not consider the transcript in
deciding this motion.
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involved a subordinated debt purchased by present Defendant from
a corporation associated with present Plaintiff. (Motion, Ex. 4,
Award of Arbitrators (Doc. 8-5) at 2.) However, the primary
arbitration documents (both the Demand for Arbitration (Doc. 84) and Award (Doc. 8-5)), are inconclusive as to what was
actually litigated at this stage in the proceedings with only
parts of the record filed.

The present action is not about

subordinated debt, but is about default on a promissory note
making it unclear, despite Plaintiff’s suggestions otherwise,
whether or not the claims are identical in the present action
and the prior arbitration. In addition, the claims were brought
in the context of different documents – a subordinated debt
contract and a promissory note. It appears to this court that
the present counterclaims involve some of the same events that
were present in the prior arbitration, but at this point, this
court does not have a sufficient factual record before it to
consider such an affirmative defense.5

5

Nor is it clear from the record whether or not the claims
were actually fully litigated. “A very close examination of
matters actually litigated must be made” to address whether or
not collateral estoppel applies. Williams, 217 N.C. App. at 6,
719 S.E.2d at 93. This court does not have enough information
before it at this juncture to properly determine the estoppel
issue.
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This court notes that Plaintiff may be correct in their
collateral estoppel argument and that there is evidence that
Defendant may be foreclosed from pursuing his counterclaims
later in these proceedings based on the Arbitration Award
conclusion that Defendant’s prior claims were “barred by the
‘Majority Holders’ provisions of the [subordinated debt]
Purchase Agreement.” ((Motion, Ex. 4, Award of Arbitrators (Doc.
8-5) at 10.) However, the present record is insufficient for
this court to conclusively determine that issue. Therefore,
though Plaintiff’s assertions may prove to be correct later in
these proceedings, this court finds that dismissal of
Defendant’s counterclaims based on collateral estoppel
inappropriate at the 12(b)(6) stage.
In addition, this court does not find anything in the
record to support Plaintiff’s assertion that Defendant’s
counterclaims should be stayed pending arbitration. Neither
party claims the present action is subject to arbitration. In
addition, there is nothing in the present record to indicate to
this court that the present action regarding default on a
promissory note is subject to any arbitration. Therefore,
Plaintiff’s motion to stay counterclaims will also be denied.

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B.

Abuse of Process

In addition to the counterclaims discussed in section A
supra, Defendant brought a counterclaim for abuse of process. In
support of the abuse of process counterclaim, Defendant alleges
that “the present action was filed in the course and as part of
an unjustified campaign to harass and intimidate Defendant.”
(Answer and Countercl. (Doc. 6) at 9.) Plaintiff counters that
this claim should be dismissed for failure to state a claim upon
which relief can be granted. (Pl.’s Mem. in Supp. of Mot. to
Dismiss and Mot. to Stay (Doc. 8-1) at 6-8.)
[A]buse of process is the misuse of legal process for
an ulterior purpose. It consists in the malicious
misuse or misapplication of that process after
issuance to accomplish some purpose not warranted or
commanded by the writ. It is the malicious perversion
of a legally issued process whereby a result not
lawfully or properly obtainable under it is attended
[sic] to be secured.
Chidnese v. Chidnese, 210 N.C. App. 299, 310, 708 S.E.2d 725,
734 (2011) (quoting Fowle v. Fowle, 263 N.C. 724, 728, 140
S.E.2d 398, 401 (1965)). An ulterior motive is not enough to
state a claim for abuse of process. (See Stanback v. Stanback,
297 N.C. 181, 201, 254 S.E.2d 611, 624, (1979) (finding abuse of
process claim not adequately pled where plaintiff's complaint
sufficiently alleged that defendant's suit against her was
brought with ulterior motives but failed to allege that
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defendant committed any willful act not proper in the regular
course of the proceeding once he initiated the suit). “There is
no abuse of process where [the process] is confined to its
regular and legitimate function in relation to the cause of
action stated in the complaint.” Mfrs. & Jobbers Fin. Corp. v.
Lane, 19 S.E.2d 849, 853 (N.C. 1942).
This court finds that Defendant has not plead an abuse of
process claim that can survive Plaintiff’s motion to dismiss.
Defendant asserts that the present action was filed with an
ulterior motive (Answer and Countercl. (Doc. 6) at 9), but does
not plead any act by Plaintiff that could be categorized as an
abuse of process. The present action was filed pursuant to an
alleged default on a promissory note executed by Defendant in
favor of Plaintiff. There is nothing in the record to suggest
that any of the procedure in this action was not part of the
regular process of filing and litigating a lawsuit. Therefore,
this court will grant Plaintiff’s Motion in part in that
Defendant’s counterclaim of abuse of process will be dismissed.
IV.

CONCLUSION
For the reasons set forth herein, IT IS HEREBY ORDERED that

Plaintiff’s Motion to Dismiss and Motion to Stay Defendant’s
Counterclaims (Doc. 8) is GRANTED IN PART in that this court

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will dismiss Defendant’s abuse of process counterclaim, and
DENIED IN PART WITHOUT PREJUDICE in that this court will allow
Defendant to pursue his remaining counterclaims.
This the 20th day of August, 2015.

______________________________________
United States District Judge

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