Low et al v. VantageSouth Bank et al

Filing 65

OPINION AND ORDER: The Court adopts and incorporates by specific reference the Magistrate Judge's 48 Report and Recommendation. IT IS ORDERED, therefore, that the plaintiff's motion to remand (ECF No. 11 ) is GRA NTED and this action is remanded to the South Carolina Court of Common Pleas, Horry County, for disposition. The Clerk of this Court is directed to forward the file along with a certified copy of this order to the Clerk of Court for Horry County. Signed by Honorable Bruce Howe Hendricks on 3/18/2015. (prou, )

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
FLORENCE DIVISION
) Civil Action No.: 4:13-3396-BHH
)
Plaintiffs, )
)
vs.
)
OPINION AND ORDER
)
VantageSouth Bank successor by
)
merger to The East Carolina Bank,
)
Carolina Bank, and A. Joseph
)
McNutt, Jr, d/b/a McNutt Appraisal,
)
Defendants. )
______________________________ )
Mary B. Low and Thomas Low,

The plaintiffs Mary B. Low and Thomas Low (“the plaintiffs”) brought this
action against the defendants VantageSouth Bank, Carolina Bank, and A.
Joseph McNutt, Jr, d/b/a McNutt Appraisal (“the defendants”) alleging state law
claims of violation of the South Carolina Unfair Trade Practices Act (SCUTPA),
fraud, fraud in the inducement, civil conspiracy, negligence, gross negligence,
negligent misrepresentation, breach of fiduciary duty, breach of contract, violation
of the South Carolina Consumer Protection Code, and constructive fraud. (ECF
No. 1.) In accordance with 28 U.S.C. § 636(b) and Local Rule 73.02, D.S.C., the
within action was referred to United States Magistrate Judge Thomas E. Rogers
for pretrial handling and a Report and Recommendation, because the defendant
A. Joseph McNutt, Jr, d/b/a McNutt Appraisal (“defendant McNutt”), is proceeding
pro se.

Magistrate Judge Rogers recommends that the plaintiff’s motion to

remand (ECF No. 11) be granted and this action be remanded to the South
Carolina Court of Common Pleas, Horry County, for disposition. The Report and

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Recommendation sets forth in detail the relevant facts and standards of law and
the Court incorporates them without recitation.
BACKGROUND
On July 16, 2014, the Magistrate Judge issued a Report and
Recommendation recommending that the plaintiff’s motion to remand (ECF No.
11) be granted and this action be remanded to the South Carolina Court of
Common Pleas, Horry County, for disposition

On August 4, 2014, the

defendants VantageSouth Bank and Carolina Bank (the “Bank Defendants”) filed
objections to the Report and Recommendation (ECF No. 51) and the plaintiffs
filed a reply (ECF No. 56).
STANDARD OF REVIEW
The magistrate judge makes only a recommendation to the court. The
recommendation has no presumptive weight. The responsibility to make a final
determination remains with the court. Mathews v. Weber, 423 U.S. 261, 270–71,
96 S.Ct. 549, 46 L.Ed.2d 483 (1976). The court is charged with making a de
novo determination of those portions of the Report and Recommendation (the
“Report”) to which specific objection is made, and the court may accept, reject, or
modify, in whole or in part, the recommendation of the Magistrate Judge, or
recommit the matter with instructions. 28 U.S.C. § 636(b)(1). However, the court
need not conduct a de novo review when a party makes only “general and
conclusory objections that do not direct the court to a specific error in the
magistrate's proposed findings and recommendations.” Orpiano v. Johnson, 687
F.2d 44, 47 (4th Cir. 1982). In the absence of a timely filed, specific objection,

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the Magistrate Judge's conclusions are reviewed only for clear error.

See

Diamond v. Colonial Life & Accident Ins. Co., 416 F.3d 310, 315 (4th Cir. 2005).
DISCUSSION
The Bank Defendants raise two objections to the Magistrate Judge’s
Report and Recommendation (the “Report”). First, the Bank Defendants argue
that the Magistrate Judge erred in declining to find that the plaintiffs’ claims
against the defendant Joseph McNutt (“McNutt”) are precluded by the statute of
limitations, and that McNutt was fraudulently joined.

Second, the Bank

Defendants argue that the Financial Institutions Reform, Recover, and
Enforcement Act of 1989 (“FIRREA”) is the basis for the plaintiffs appraisal based
claims, and that the Magistrate Judge erred in finding no federal question.

The

Court has conducted a de novo review of the Report and the record, and each of
the objections will be addressed in turn.
1. Fraudulent Joinder
“The party alleging fraudulent joinder bears a heavy burden—it must show
that the plaintiff cannot establish a claim even after resolving all issues of law and
fact in the plaintiff's favor. This standard is even more favorable to the plaintiff
than the standard for ruling on a motion to dismiss under Fed.R.Civ.P. 12(b)(6).”
Hartley v. CSX Transp., Inc., 187 F.3d 422, 424 (4th Cir. 1999) (citation omitted).
The dismissal of a complaint on statute of limitations grounds is itself a rare
occurrence because “[a] statute of limitations defense must ‘clearly appear on the
face of the complaint.’” Groves v. Daffin, No. CIV.A. 8:13-00019-JM, 2014 WL
897346, at *2 (D.S.C. Mar. 6, 2014) (quoting Richmond, Fredricksburg &

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Potomac R. Co. v. Forst, 4 F.3d 244, 250 (4th Cir. 1993)); see also Goodman v.
Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007) (noting that a statute of limitations
defense “may be reached by a motion to dismiss filed under Rule 12(b)(6)” only
“in the relatively rare circumstances where facts sufficient to rule on an
affirmative defense are alleged in the complaint”).
Furthermore, the parties should not need to delve deeply into the merits of
a plaintiffs’ theory at this stage, as the Court of Appeals explained in Hartley:
Jurisdictional rules direct judicial traffic. They function to steer
litigation to the proper forum with a minimum of preliminary fuss.
The best way to advance this objective is to accept the parties
joined on the face of the complaint unless joinder is clearly
improper. To permit extensive litigation of the merits of a case while
determining jurisdiction thwarts the purpose of jurisdictional rules.
Hartley, 187 F.3d at 424.
Here, the plaintiffs’ allegations go beyond a simple claim that McNutt was
negligent in conducting the appraisals. The plaintiffs have alleged that the Bank
Defendants, McNutt, and another appraiser (who is not named as a defendant)
were complicit in unfair trade practices and a civil conspiracy to inflate appraisals,
presumably to induce the plaintiffs to do business with the Bank Defendants. It is
difficult to determine from the complaint alone when the plaintiffs objectively
should have known about the alleged conspiracy and that the appraisals were
negligent or fraudulent.1 However, the Court can hardly hold this against the
plaintiffs, who are under no obligation to counter affirmative defenses that have

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Significant volatility in the real estate market during the time period relevant to this
action also makes the Court more hesitant than it otherwise might be to conclude,
without any factual record, that the plaintiffs objectively should have known that the
appraisals were negligent or fraudulent.

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yet to be raised.

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See Goodman, 494 F.3d 465-66. (“While Goodman might

ultimately have to prove when he discovered a breach, he was not obligated to
plead discovery of the breach in his complaint when the affirmative defense had
yet to be demonstrated in the complaint or asserted by the defendants.”)
Instead, the Court must resolve all issues of law and fact in the plaintiff's favor.
Having done so, the Court concludes that although the Bank Defendants have
made a strong argument that some if not all of the claims against McNutt are
likely barred by the statute of limitations; they have not carried the heavy burden
of establishing fraudulent joinder. Accordingly, their objection is overruled.
2. Federal Question
Like the Magistrate Judge, this Court finds persuasive the ruling of the
District Court for the Central District of California in Bolden v. KB Home, 618 F.
Supp. 2d 1196 (C.D. Cal. 2008). The Bank Defendants argue that the plaintiffs’
causes of action related to the use of the appraisals must fail under state law
because banks do not have a duty of care to borrowers. The Bank Defendants
then reason that because the plaintiffs’ (allegedly) cannot prevail under South
Carolina law, they must intend to rely on FIRREA. The Court agrees with the
Magistrate Judge that the plaintiffs’ complaint does not require an interpretation
of FIRREA in a manner that creates a substantial federal question. (See Report
and Recommendation 8-9, ECF No. 48.)

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Whether the plaintiffs’ claims are

That is not to say that affirmative defenses must be raised before the defendants can
assert fraudulent joinder, and the Court agrees with the Magistrate’s decision not to base
his recommendation on the plaintiffs’ argument in this regard. (See Report and
Recommendation n.2, ECF No. 48.)

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inadequate as a matter of South Carolina law is a question for another day and
another court.
CONCLUSION
Having conducted a de novo review of the Report and the record, the
Court agrees with the Magistrate Judge and overrules the Bank Defendants’
objections. For the reasons stated above, the Court adopts and incorporates by
specific reference the magistrate judge's Report and Recommendation.
IT IS ORDERED, therefore, that the plaintiff’s motion to remand (ECF No.
11) is GRANTED and this action is remanded to the South Carolina Court of
Common Pleas, Horry County, for disposition. The Clerk of this Court is directed
to forward the file along with a certified copy of this order to the Clerk of Court for
Horry County.
IT IS SO ORDERED.
/s/Bruce Howe Hendricks
United States District Judge
March 18, 2015
Greenville, South Carolina

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