Nationwide Trustee Services, Inc v. Lowenthal et al

Filing 32

ORDER adopting Magistrate's conclusion of Memorandum and Recommendations but for different reasons than those laid out in 29 Memorandum and Recommendations. This case is ordered DISMISSED WITHOUT PREJUDICE and the parties are advised to pursue their claims in state court. Signed by Senior Judge Graham Mullen on 5/18/11. (Pro se litigant served by US Mail.)(siw) Modified text on 5/18/2011 (ejb). NEF Regenerated.

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NORTH CAROLINA
ASHEVILLE DIVISION
1:10-CV-192-GCM

NATIONWIDE TRUSTEE SERVICE
INC. As Trustee/Substitute Trustee,

)
)
)
Plaintiff,
)
)
v.
)
)
BRUCE M. LOWENTHAL,
)
AMY L. LOWENTHAL,
)
BANK OF AMERICA, N.A.
)
AVERY COUNTY, NC and
)
MORGANTON AUTO LEASING, LLC
)
)
Defendants.
)
____________________________________)

ORDER

THIS MATTER is before the Court upon the Memorandum and Recommendation
(“M&R”) of United States Magistrate Judge David S. Cayer, filed January 13, 2011. [D.I. 29]. In
the M&R, Judge Cayer denied the Plaintiff’s Motion for Judgment on the Pleadings [D.I. 22], and
granted Defendant Avery County’s Motion to Dismiss [D.I. 23]. Judge Cayer recommended
dismissing this case without prejudice. The parties were advised that pursuant to 28 U.S.C. §
636(b)(1)(C), written objections to the M&R must be filed within fourteen days after service of the
M&R, and responses to the objections must be filed within fourteen days thereafter. Plaintiff filed
a timely objection to the M&R. [D.I. 30]. No party responded. The Court has conducted an
independent review of the M&R, the Plaintiff’s objection, and a de novo review of the record. For
the reasons laid out below, the Magistrate’s conclusion is adopted, but for different reasons than
those laid out in the M&R.
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On October 31, 2006, the Defendants Bruce and Amy Lowenthal purchased the real property
at issue in this dispute, 354 Humpview Trail in Banner Elk, North Carolina (the “Property”). The
Defendants executed a promissory note the same day with Defendant Bank of America, N.A. for
$298,771.00. The Lowenthals also executed a deed of trust on the Property as collateral for the
promissory note. Defendant Bank of America appointed the Plaintiff as Substitute Trustee on the
deed of trust in July of 2008, with the same rights and powers as though the Substitute Trustee were
named in the original deed of trust. On August 31, 2009, Defendant Avery County filed suit to
foreclose a tax lien on the Property. The Defendants admit that Plaintiff was not given notice of the
tax foreclosure proceedings. On November 23, 2009, Defendant Avery County sold the Property
to Defendant Morganton Auto Leasing, LLC. In late 2009, Plaintiff commenced an action in Avery
County Superior Court to foreclose on the deed of trust. On March 10, 2010, the Assistant Clerk
of Superior Court found the promissory note was in default and all record owners of the Property
received notice, and issued an Order permitting Plaintiff to conduct a foreclosure sale. [D.I. 1-10].
On March 24, 2010, Defendant Morganton Auto Leasing, LLC filed a Motion to Set Aside the
March 10, 2010 Order, stating it is record owner of the Property and did not receive notice of the
foreclosure sale hearing. [D.I. 1-11]. On March 31, 2010, the Avery County Clerk of Court issued
an Order to Set Aside Order, vacating the March 10, 2010 order and cancelling any sale subsequent
thereto. [D.I. 1-13]. On September 3, 2010, Plaintiff filed its Complaint in this Court, seeking to
quiet title to the Property. [D.I. 1]. On November 18, 2010, Plaintiff filed a Motion for Judgment
on the Pleadings. [D.I. 22]. On December 6, 2010, Defendant Avery County filed a Motion to
Dismiss. [D.I. 23].
The Magistrate found that the Plaintiff lacked standing to pursue the suit because “[n]othing
in the record indicates that the Plaintiff is prohibited from obtaining proper service and pursuing the
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foreclosure on the real property. Plaintiff has failed to show that it has suffered a concrete,
particularized, and actual injury, or that such an injury is imminent.” M&R at 4. Additionally, the
Magistrate found Plaintiff’s Complaint was also barred by the Rooker-Feldman doctrine, which
prohibits plaintiffs from attacking state court judgments in federal court. Id.; District of Columbia
Court of Appeals v. Feldman, 460 U.S. 462, 482 (1983); Rooker v. Fidelity Trust Company, 263
U.S. 413, 416 (1923).
After consideration of the issues, the Court has determined that abstention is appropriate in
this case under the Burford doctrine. In Burford v. Sun Oil Co., a district court dismissed a
proceeding dealing with rights of various property owners to drill for oil, an issue for which the state
had set up a review procedure. 319 U.S. 315 (1943). The Supreme Court affirmed the dismissal and
held that when a district court sits in equity, it may decline to exercise its jurisdiction over a case
to demonstrate “proper regard for the rightful independence of state governments in carrying out
their domestic policy.” 319 U.S. 315, 318 (1943). Burford gave birth to what is now known as
Burford abstention, which the Supreme Court defined in New Orleans Public Service, Inc. v.
Council of the City of New Orleans:
[W]e have distilled the principle now commonly referred to as the “Burford doctrine.”
Where timely and adequate state-court review is available, a federal court sitting in equity
must decline to interfere with the proceedings or orders of state administrative agencies: (1)
where there are “difficult questions of state law bearing on policy problems of substantial
public import whose importance transcends the result in the case then at bar;” or (2) where
the “exercise of federal review of the question in a case and in similar cases would be
disruptive of state efforts to establish a coherent policy with respect to a matter of substantial
public concern.” 491 U.S. 350, 361 (1989)(citations omitted).
The Court recognizes that abstention, under Burford or any other abstention doctrine, is the
exception and not the rule. Federal courts have “virtually unflagging” obligations to exercise their
jurisdiction. MLC, Automotive LLC v. Town of Southern Pines, 532 F.3d 269, 280 (4th Cir. 2008).
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There is no specific formula for applying Burford abstention; the doctrine stems from the principles
of comity and dual sovereignty. Id.
Based on the aims of comity and dual sovereignty, abstention has been of particular import
to federal courts in examining local and state land use laws. Fralin & Waldron, Inc. v. City of
Martinsville, Va., 493 F.2d 481, 482-483 (4th Cir. 1974)(finding abstention on the basis of Louisana
Power and Light Co. v. City of Thibodaux, 360 U.S. 25 (1959)). More recently, in MLC
Automotive, the Fourth Circuit found that “cases involving questions of state and local land use and
zoning law are a classic example of situations where Burford should apply.” 532 F.3d 269 at 282.
Land use and zoning issues are matters of particular local concern where federal courts have not
traditionally left their footprint. Id. at 284. Thus, in cases where the plaintiff’s claims stem from
construction of state and local land use laws, or the federal claims are “entangled in a skein of statelaw that must be untangled before the federal case can proceed,” federal courts should abstain. New
Orleans Public Service, Inc., 491 U.S. at 361; see also, MLC Automotive, 532 F.3d 269 at 282. The
Fourth Circuit noted that Burford abstention was especially appropriate in MLC Automotive, where
North Carolina law was at issue, because the North Carolina Supreme Court has no mechanism by
which federal courts can certify questions. 532 F.3d 269 at 284.
The Court has determined that this sort of land use and title dispute question is an example
of a situation in which Burford abstention is appropriate. The state has a clear regulatory system
in place to deal with title and mortgage disputes, as evidenced by the previous state proceedings in
this case. Particularly in a case like this, where Plaintiff claims diversity jurisdiction and there is
no federal question at all, federal courts wading into North Carolina land law and procedure in an
area of special state interest is inappropriate. As a result of the abstention decision, the Court will
not rule on the Magistrate’s decision regarding the Plaintiff’s standing. The Court also finds Burford
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abstention more appropriate than Rooker-Feldman abstention in light of the Plaintiff’s persuasive
argument in their Objection that the Plaintiff was not in fact a party to the tax foreclosure sale, and
thus is not challenging that state court judgment.
In light of the foregoing, this case is ordered DISMISSED WITHOUT PREJUDICE and
the parties are advised to pursue their claims in state court.

Signed: May 18, 2011

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