GMAC Mortgage, LLC v. Mathews et al

Filing 46

ORDER granting 34 Motion for Prejudgment Attachment; denying 44 Motion to Continue Oral Argument. Signed by Magistrate Judge Dennis Howell on July 12, 2011. (jhg)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
BRYSON CITY DIVISION
2:10cv19
GMAC MORTGAGE, LLC,
Plaintiff,
v.
CURTIS J. MATHEWS and CAROL
W. MATTHEWS,

Defendants.
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ORDER

Pending before the Court is Plaintiff’s Motion for Prejudgment Attachment or
Preliminary Injunction

[# 34]. The Court held a hearing on Plaintiff’s motion on

July 7, 2011. At the hearing, the Court orally granted Plaintiff’s requests for a
prejudgment attachment and issued a preliminary injunction. Pursuant to the Court’s
oral Order of July 7, 2011, the Court enters this written order GRANTING Plaintiff’s
Motion for Prejudgment Attachment [# 34] and supplementing its prior oral Order.
I.

Background

In 2006, Defendants obtained a loan in the amount of $700,000.00 for the
purchase of property located in Highlands, North Carolina. Defendants executed a
Note and Deed of Trust to secure the loan. The Note and Deed of Trust were later

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assigned to Plaintiff. Per the terms of the Deed of Trust, the property was insured to
protect Plaintiff’s interest in the property. The policy was later amended to identify
Plaintiff as the secured interested party.
In 2008, a fire destroyed the property. Defendants then submitted an insurance
claim to the insurance company. On March 25, 2009, the insurance company issued
a check in the amount of $474,600.00, which was made payable to Defendants,
Plaintiff, and others.
The Deed of Trust at issue provides that:
In the event of loss, Borrower shall give prompt notice to the insurance
carrier and Lender. Lender may make proof of loss if not made promptly
by Borrower. Unless Lender and Borrower otherwise agree in writing,
any insurance proceeds, whether or not the underlying insurance was
required by Lender, shall be applied to restoration or repair of the
Property, if the restoration or repair is economically feasible and
Lender’s security is not lessened. During such repair or restoration
period, Lender shall have the right to hold such insurance proceeds until
Lender has had an opportunity to inspect such Property to ensure the
work has been completed to Lender’s satisfaction, provided that such
inspection shall be undertaken promptly. . . If the restoration or repair is
not economically feasible or Lender’s security would be lessened, the
insurance proceeds shall be applied to the sums secured by this Security
Instrument, whether or not then due, with the excess, if any, paid to
Borrower. Such insurance proceeds shall be applied in the order
provided for in Section 2.
. . . [I]f Lender acquires the Property [pursuant to foreclosure], Borrower
hereby assigns to Lender (a) Borrower’s rights to any insurance proceeds
in an amount not to exceed the amounts unpaid under the Note or this
Security Instrument, and (b) any other of Borrower’s rights (other than
the right to any refund of unearned premiums paid by Borrower) under
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all insurance policies covering the Property, insofar as such rights are
applicable to the coverage of the Property. Lender may use the insurance
proceeds either to repair or restore the Property or to pay amounts unpaid
under the Note or this Security Instrument, whether or not then due.
(Ex. B to Am. Compl. at ¶ 5.)
On July 31, 2009, Defendants endorsed the check on behalf of Plaintiff and
presented it for payment. Defendants contend that Plaintiff’s representatives gave
them oral authority to endorse the check on behalf of Plaintiff and deposit the check
into their account. Meanwhile, on July 28, 2009, the property was sold at foreclosure
sale to Plaintiff. At the time of the foreclosure, Defendants owed $691,890.00.
Approximately eight months after Defendants deposited the insurance proceeds,
Plaintiff demanded the return of the funds. Defendants did not return the funds, and
this action ensued. Plaintiff seeks a judgment in the amount of $474,600.00 for the
alleged fraudulent conversion of the insurance proceeds.
During discovery, Defendants acknowledged that they were continuing to either
spend or transfer the insurance proceeds to third parties. At the hearing, upon
questioning by the Court,

counsel for Defendants stated that Defendants have

continued to deplete the insurance proceeds at the rate of approximately $20,000.00
a month since April 1, 2011.

Accordingly, Plaintiff moves this Court for a

prejudgment attachment and/or preliminary injunction prohibiting Defendants from
further depleting the funds at issue.
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II.

Analysis

A.

Prejudgment Attachment

Rule 64 of the Federal Rules of Civil Procedure provides that “every remedy
is available that, under the law of the state where the court is located, provides for
seizing a person or property to secure satisfaction of the potential judgment.” Fed. R.
Civ. P. 64(a). Attachment is one of the specific remedies listed in Rule 64 that is
available to federal court litigants. Fed. R. Civ. P. 64(b). “The chief purpose of
attachment proceedings is to secure a contingent lien on the defendant’s property until
the plaintiff can, by appropriate proceedings, obtain a judgment and have such
property applied to its satisfaction.” Ross v. Peck Iron & Metal Co., 264 F.2d 262,
268 (4th Cir. 1959).
The Court looks to North Carolina law for guidance as to when pre-judgment
attachment is appropriate in a case. See Fed. R. Civ. 64(a). Pursuant to the applicable
North Carolina statute, “[a]ttachment may be had in any action the purpose of which
. . . is to secure a judgment for money . . . .” N.C. Gen. Stat. § 1-440.2. One of the
grounds for obtaining an order of attachment is when a defendant has removed or is
about to remove property from North Carolina or has assigned, disposed of, or
secreted - or is about to do so - property with the intent to defraud his or her creditors.
N.C. Gen. Stat. § 1-440.3(5).

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In order for the Court to issue an order of attachment, the moving party must
submit an affidavit setting forth that plaintiff has commenced an action to secure a
judgment for money, the amount of the potential judgment, the nature of the action,
and the grounds for the attachment. N.C. Gen. Stat. § 1-440.11(a)(1). The North
Carolina Statute also provides that the Court may “fix and determine all necessary
procedural details in all instances in which the statute fails to make definite provision
as to such procedure.” N.C. Gen. Stat. § 1-440.9.
As the Court stated at the hearing, Plaintiff has satisfied the requirements of
Section 1-440.11(a). Plaintiff has shown by affidavit that it has commenced an action
to secure a judgment for money in the amount of $474,600.00, the nature of the
action, the grounds for the attachment, and has set forth the facts and circumstances
supporting the allegations that Defendants have acted with the intent to defraud their
creditors by continuing to the spend the insurance proceeds and transferring some of
the funds to their daughter. (Voelker Aff. ¶¶4-9, Jun. 10, 2011.) Accordingly, the
Court GRANTS Plaintiff’s Motion for Prejudgment Attachment [#34] and DIRECTS
Plaintiff to submit an appropriate order of attachment that complies with N.C. Gen.
Stat. § 1-440.12 to the Court. Upon submission of the Order and the payment of the
$1,000.00 bond, the Court will issue an order of attachment.
B.

Preliminary Injunction

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In order for a preliminary injunction to issue, Plaintiff must establish: (1) a
likelihood of success on the merits; (2) that it is likely to suffer irreparable harm
without the issuance of a preliminary injunction; (3) that the balance of the equities
are in its favor; and (4) that the injunction is in the public interest. West Virginia
Ass’n of Club Ownners and Fraternal Servs., Inc. v. Musgrave, 553 F.3d 292, 298 (4th
Cir. 2009). Plaintiff has satisfied each of the requirements for the issuance of a
preliminary injunction.
As a threshold matter, Plaintiff has demonstrated a likelihood of success on the
merits of its conversion claim. Conversion is the “unauthorized assumption and
exercise of the right of ownership over goods or personal chattels belonging to
another, to the alteration of their condition or the exclusion of an owner’s right.” Peed
v. Burleson,’s Inc., 94 S.E.2d 351, 353 (N.C. 1956); see also Wall v. Colvard, Inc.,
149 S.E.2d 559, 564 (N.C. 1966). Here, Defendants deposited the insurance proceeds
belonging to Plaintiff under the express terms of the Deed of Trust into their account
and began spending those funds for their personal benefit. Accordingly, Plaintiff has
demonstrated the unauthorized assumption of the right of ownership over insurance
proceeds to which Plaintiff was entitled. See Matter of Legg, 386 S.E.2d 174, 180
(N.C. 1989). Plaintiff has demonstrated a likelihood of success on the merits on its
conversion claim.

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Plaintiff has also demonstrated that it is likely to suffer irreparable harm unless
the Court issues a preliminary injunction. Although the availability of monetary relief
to the prevailing party generally weighs against finding irreparable injury, a
preliminary injunction is appropriate in situations like this where Defendants may
become insolvent before a final judgment can be entered and collected. Hughes
Network Sys., Inc. v. InterDigital Commc’n Corp., 17 F.3d 691, 694 (4th Cir. 1994).
The record reflects that absent a preliminary injunction, Defendants will deplete the
insurance proceeds at issue prior to the entry of a final judgment in this case. In fact,
counsel for Defendants acknowledged that Defendants are currently spending the
funds at the rate of $20,000.00 a month. Absent the Court enjoining Defendants from
further depleting the insurance proceeds, Plaintiff will be unlikely to collect a
judgment against Defendants.
Finally, both the public interest and the balance of the equities favor the
granting of an injunction. Absent an injunction, Plaintiff will likely be unable to
collect a judgment against Defendants. Defendants, however, will suffer little harm
from enjoining them from further depleting the specific insurance proceeds at issue
until the Court can determine the rightful owner of the funds. In addition, the public
interest is best served by preserving the status quo until the Court can render a
determination as to who is the rightful owner of the funds. Accordingly, the Court

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GRANTS Plaintiff’s request for a preliminary injunction and ENJOINS Defendants,
their officers, agents, servants, employees, and attorneys from depositing, transferring,
distributing, and/or spending the insurance proceeds. The Court DIRECTS Plaintiff
to post a bond in the amount of $1000.00 as security for the issuance of the
preliminary injunction. See Fed. R. Civ. P. 65(c).
III.

Conclusion

The Court GRANTS Plaintiff’s Motion for Prejudgment Attachment [# 34].
The Court DIRECTS Plaintiff to submit an appropriate order of attachment that
complies with N.C. Gen. Stat. § 1-440.12 to the Court. Upon submission of the Order
and the payment of the $1,000.00 bond, the Court will issue an order of attachment.
The Court also ENJOINS Defendants, their officers, agents, servants, employees, and
attorneys from depositing, transferring, distributing, and/or spending the insurance
proceeds pending further of this Court. The Court DIRECTS Plaintiff to post a bond
in the amount of $1000.00 as security for the issuance of the preliminary injunction.
The Court DENIES the Consent Motion to Continue Oral Argument [# 44].
Signed: July 12, 2011

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