Hough et al v. Ag South Farm Credit, ACA
OPINION AND ORDER denying 45 Motion to Exclude; granting in part and denying in part 46 Motion to Dismiss consistent with this Order. Plaintiff WhitfieldFarms, LLC, is DISMISSED from this action. The parties are directed to submit a proposed amended scheduling order within 10 days of the date of this order. Signed by Honorable Donald C Coggins, Jr on 3/22/2018.(abuc)
IN THE DISTRICT COURT OF THE UNITED STATES
FOR THE DISTRICT OF SOUTH CAROLINA
James N. Hough, Gena G. Hough,
Whitfield Farms, LLC,
Ag South Farm Credit ACA,
Civil Action No. 8:16-cv-03878-DCC
OPINION AND ORDER
This matter is before the Court on Defendant’s Motions to Exclude Untimely
Disclosures of Plaintiff’s Experts and to Dismiss. ECF Nos. 45, 46.
Responses in Opposition to both Motions, and Defendant has filed Replies. ECF Nos. 48,
50, 52, 53. Accordingly, the Motions are ripe for review.
This action was originally filed in the United States District Court for the Middle
District of Florida on October 31, 2016. ECF No. 1. On November 21, 2016, Defendant
filed a Motion to Dismiss, or in the Alternative, to Transfer Venue to the District Court of
South Carolina. ECF No. 7. Plaintiffs filed a Response in Opposition, and on December
9, 2016, this case was transferred to this District pursuant to an Order by the Honorable
James S. Moody, Jr., United States District Judge for the Middle District of Florida. ECF
Nos. 12, 13.
This matter is before this Court on the basis of diversity jurisdiction. ECF No. 1.
The Complaint raises state law claims, including causes of action for forgery, bank fraud,
fraudulent misrepresentation, mail and wire fraud, wrongful foreclosure, and intentional
infliction of emotional distress. Id. The facts of this case stem from the execution of a
fixed rate note and the subsequent foreclosure action that was decided in the Court of
Common Pleas in Edgefield County, South Carolina (“the State foreclosure action”). See
id.; see also AgSouth Farm Credit, ACA v. Whitfield Farms, LLC, Fifth Third Bank, NA, and
Signature Bank, n/k/a Hancock Bank, Case No. 2015-CP-19-361 (S.C. Ct. Com. Pleas
Plaintiffs contend that James and Gena Hough (“the Individual Plaintiffs”) were
managing partners and owners of Whitfield Farms, LLC, (“Whitfield Farms”). On June 6,
2003, the individual Plaintiffs took out a Fixed Rate Note (“the Note”) with Defendant, a
lending cooperative and/or credit union specializing in agricultural land. ECF No. 1 at 3.
On March 20, 2010, the Note was satisfied. James Hough received notice on January 5,
2014, from Defendant requiring the Individual Plaintiffs to apply to refinance the remainder
of their loan for $400,000 dated February 24, 2012, (“the 2012 Note”) or face foreclosure.
Id. Plaintiffs contend that they did not authorize and have never seen the 2012 Note and
have never been to Bamberg, South Carolina where the 2012 Note was executed.
Defendant filed a complaint for foreclosure of the 2012 Note in the Court of
Common Pleas in Edgefield County, South Carolina against only Whitfield Farms.
Whitfield Farms filed an answer alleging multiple deficiencies in the 2012 Note. The
answer and counterclaims were struck because Whitfield Farms, as a corporation, was
prohibited from proceeding pro se in that action. On September 28, 2009, a supplemental
order of judgment for foreclosure and sale was issued. Whitfield Farms did not appeal this
Motion to Dismiss
Rule 12(b)(6) of the Federal Rules of Civil Procedure permits the dismissal of an
action if the complaint fails “to state a claim upon which relief can be granted.” Such a
motion tests the legal sufficiency of the complaint and “does not resolve contests
surrounding the facts, the merits of the claim, or the applicability of defenses . . . . Our
inquiry then is limited to whether the allegations constitute a short and plain statement of
the claim showing that the pleader is entitled to relief.” Republican Party of N.C. v. Martin,
980 F.2d 943, 952 (4th Cir. 1992) (internal quotation marks and citation omitted). In a Rule
12(b)(6) motion, the court is obligated to “assume the truth of all facts alleged in the
complaint and the existence of any fact that can be proved, consistent with the complaint’s
allegations.” E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P’ship, 213 F.3d 175, 180 (4th Cir.
2000). However, while the Court must accept the facts in a light most favorable to the
nonmoving party, it “need not accept as true unwarranted inferences, unreasonable
conclusions, or arguments.” Id.
To survive a motion to dismiss, the complaint must state “enough facts to state a
claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
Although the requirement of plausibility does not impose a probability
requirement at this stage, the complaint must show more than a “sheer possibility that a
defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A complaint
has “facial plausibility” where the pleading “allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Id.
Defendant argues that this action should be dismissed because the claims raised
in this action were compulsory counterclaims in the prior state action. ECF No. 46-1 at 2.
Defendant contends that Plaintiffs are barred from challenging the 2012 Note’s validity
under the doctrines of res judicata and collateral estoppel. Id. Defendant further argues
that the Individual Plaintiffs lack standing to bring any individual claims. Id. Plaintiffs do
not appear to contest that any claim by Whitfield Farms is barred. ECF No. 50. However,
the Individual Plaintiffs assert that they have standing in the present action and that their
interests were not represented in the prior state action. Id. at 4.
“Res judicata, or claim preclusion, bars the relitigation of any claims that were or
could have been raised in a prior proceeding between the same parties.” Sartin v. Macik,
535 F.3d 284, 287 (4th Cir. 2008). “Where the prior proceeding that may make issue
preclusion applicable is a state court proceeding, as here, the federal courts use the law
of the state to determine if preclusion applies.” Ayers v. Cont’l Cas. Co., 2007 WL
1960613, *4 (N.D. W. Va. 2007) (citation omitted). Under South Carolina state law, the
elements of res judicata are: 1) a final judgment on the merits in a prior suit; 2) an identity
of the cause of action in both the earlier and the later suit; and 3) an identity of parties or
their privies in the two suits. Andrews v. Daw, 201 F.3d 521, 524 (4th Cir. 2000).
With respect to Whitfield Farms and Defendant, there is, indisputably, identity of the
parties and a final judgment on the merits in the State foreclosure action. Regarding the
second element, the subject matter element of res judicata is met if the claims in the
second suit “arise out of the same transaction or occurrence that was the subject of [the]
prior action between those parties.” Judy v. Judy, 712 S.E.2d 408, 414 (S.C. 2011). In
particular, “counterclaims arising out of the same transaction or occurrence that is the
subject of the [first] action are ‘compulsory’ under Rule 13(a) and are barred by res judicata
or estoppel by judgment if not asserted.” Beach Co. v. Twillman, Ltd., 566 S.E. 2d 863,
865 (S.C. Ct. App. 2002) (quoting Reporter’s Note to S.C. R. Civ. P. 13(a)); see also S.C.
R. Civ. P. 13(a) (defining a compulsory counterclaim as one that “arises out of the
transaction or occurrence that is the subject matter of the opposing party’s claim . . .”).
Thus, Whitfield Farms’s claims here are barred if they were compulsory
counterclaims in the State foreclosure suit. Crestwood Golf Club, Inc. v. Potter, 493 S.E.2d
826, 835 (S.C. 1997). South Carolina has adopted the “logical relationship test” to
determine whether a counterclaim is compulsory. N.C. Fed. Sav. and Loan Ass’n v. DAV
Corp., 381 S.E.2d 903, 905 (S.C. 1989). A counterclaim is compulsory if there is a “logical
relationship between the claim and the counterclaim.” Wells Fargo Bank, N.A. v. Smith,
730 S.E.2d 328, 333 (S.C. Ct. App. 2012) (internal quotes omitted). In the foreclosure
context, this determination is made by “asking whether the counterclaim would affect the
lender’s right to enforce the note and foreclose the mortgage.” Id. at 496; see also Reese
v. U.S. Bank Nat’l Ass’n, 3:11-cv-2990, 2012 WL 1952819 at *3 (D.S.C. Apr. 30, 2012),
adopted by 2012 WL 1952295 (D.S.C. May 30, 2012) (“[A]ny challenge to the foreclosure
judgment either should have been brought as compulsory counterclaims in that prior action
or were previously litigated and, therefore, barred by the doctrines of res judicata and/or
Here, all of Whitfield Farms’s claims against Defendant go to the right of Defendant
to foreclose on the mortgage. Accordingly, Whitfield Farms’s claims were compulsory
counterclaims in the foreclosure action. Thus, the Court holds that the claims against
Defendant by Whitfield Farms are barred by res judicata.
With respect to the Individual Plaintiffs and Defendant, the claims in the present
action arise out of the same transaction or occurrence that was the subject of the State
foreclosure action. However, there is no identity of parties and the Individual Plaintiffs’
claims were not able to be brought in the State foreclosure action. Defendant failed to
make the Individual Plaintiffs parties to the State foreclosure action and the Individual
Plaintiffs were unable to make their claims through Whitfield Farms. When they tried, their
counterclaims were dismissed on Defendant’s motion. ECF No. 46-4. Accordingly, it
would be disingenuous to hold that the Individual Plaintiffs are now barred from bringing
claims that they have never had the opportunity to litigate. The Court will now turn to a
discussion of the claims brought in the Complaint and determine which claims can only be
brought by Whitfield Farms and which claims may be raised by the Individual Plaintiffs.
With respect to Plaintiffs’ claims for bank fraud and wrongful foreclosure, the Court
finds that these claims are properly made by only Whitfield Farms. Concerning the
wrongful foreclosure action, the property foreclosed upon was owned by Whitfield Farms
and was the subject of the previous State foreclosure action.1 With respect to Plaintiffs’
claim for bank fraud, the Individual Plaintiffs allege no personal harm separate from the
This court lacks authority to review the final determination of a state or local court.
El-Bey v. Wells Fargo Home Mortg., C/A No. 09-cv-1772-MJP, 2009 WL 2971361, at *1
(D.S.C. Sept. 15, 2009)
harm to Whitfield Farms. Whitfield Farms was the named borrower on the 2012 Note and
any claim that foreclosure proceedings were initiated against Whitfield Farms as a result
of bank fraud belonged only to Whitfield Farms. See S.C. Code Ann. § 33-44-201
(“Except as provided in Section 12-2-25 for single-member limited liability companies, a
limited liability company is a legal entity distinct from its members.”); S.C. Code Ann. § 3344-303 (stating that an LLC’s debts and liabilities do not generally belong to the individual
Accordingly, these claims were compulsory counterclaims in the State
foreclosure action and may not now be raised by the Individual Plaintiffs.
However, Plaintiffs’ claim for forgery concerns the purportedly fraudulent use of the
Individual Plaintiffs’ signatures. Further, Plaintiffs’ intentional infliction of emotional distress
claim is only made with respect to James Hough. These claims appear to be personal as
to the Individual Plaintiffs. Accordingly, it would follow that these claims would be properly
brought by the Individual Plaintiffs and were not compulsory counterclaims in the State
foreclosure action. Accordingly, Defendant’s Motion to Dismiss is denied as to these
causes of action.
With respect to Plaintiffs’ claims for mail and wire fraud and fraudulent
misrepresentations contained therein, it is unclear whether the Individual Plaintiffs allege
personal causes of action separate from claims that could have been raised by Whitfield
Farms as compulsory counterclaims. The Court notes that to the extent the alleged mail
and wire fraud and fraudulent misrepresentations were addressed to Whitfield Farms
concerning the 2012 Note and the foreclosure of the property at issue in the State
foreclosure action, those claims are properly made by Whitfield Farms and, consequently,
would be barred. However, the subject matter of the communications is not readily
apparent from the pleadings in this case. Accordingly, in light of the current procedural
posture and the information available to the Court on a motion to dismiss, the Court
declines to dismiss these causes of action at this time.
MOTION TO EXCLUDE EXPERT DESIGNATION
Defendant has also filed a Motion to Exclude Untimely Disclosure of Plaintiffs’
Experts. ECF No. 45. Defendant requests that this Court exclude the report issued by
Plaintiffs’ experts Janice Leach and William Smith, both of Janus Document Examination,
and all testimony, opinions, and other evidence contained in, derived from, or based in any
way upon the information contained in the report. Defendant contends that the report was
not provided on or before April 28, 2017, which was the deadline imposed by the
scheduling order in this case. Further, Defendant argues that the failure to timely provide
the report was not substantially justified or harmless because the delay in receiving the
report has interfered with Defendant’s preparation for trial.
Plaintiffs argue that Defendant received their expert witness list and report when it
was filed on CM/ECF on March 20, 2017, which was well before the April 28, 2017,
deadline. ECF No. 48. Plaintiffs contend that this document was incorrectly filed and later
deleted by the Court; however, it provides evidence that Defendant received notice of the
expert witness and report. Plaintiffs further argue that Defendant was well aware of the
identity of the experts and the substance of their opinions because paragraphs 18–21 of
the Complaint name the expert witnesses and describe the substance of their expert
Moreover, Plaintiffs assert that the entire Janus report was served upon
Defendant and its attorney before the Complaint was filed, and the report was filed in the
State foreclosure action.
Rule 26 governs the conduct of discovery in civil actions, including the procedures
for disclosing expert witnesses an their opinions. Specifically, Rule 26(a)(2) provides:
(A) In addition to the disclosures required by Rule 26(a)(1), a
party must disclose to the other parties the identity of any
witness it may use at trial to present evidence under Federal
Rules of Evidence 702, 703, 705.
(B) Unless otherwise stipulated or ordered by the court, this
disclosure must be accompanied by a written expert
report—prepared and signed by the witness—if the witness is
one retained or specially employed to provide expert testimony
in the case or one whose duties as the party’s employee
regularly involve giving expert testimony . . .
(D) A party must make these disclosures at the times and in
the sequence that the court orders.
Rule 37(c)(1) is the enforcement mechanism for the procedures set forth in Rule 26(a).
Rule 37(c)(1) provides, in part, that “[i]f a party fails to provide information or identify a
witness as required by Rule 26(a) or (e), the party is not allowed to use that information or
witness to supply evidence on a motion, at a hearing, or at trial, unless the failure was
substantially justified or is harmless.”
“[T]he basic purpose of Rule 37(c)(1) [is] preventing surprise and prejudice to the
opposing party.” Southern States Rack & Fixture, Inc., v. Sherwin-Williams Co., 318 F.3d
592, 596 (4th Cir. 2003). Thus, the district court has broad discretion to determine whether
a non-disclosure of evidence is substantially justified or harmless. Id. at 597. “[I]n
exercising its broad discretion to determine whether a nondisclosure of evidence is
substantially justified or harmless for purposes of a Rule 37(c)(1) exclusion analysis, a
district court should be guided by the following factors: (1) the surprise to the party against
whom the evidence would be offered; (2) the ability of that party to cure the surprise; (3)
the extent to which allowing the evidence would disrupt the trial; (4) the importance of the
evidence; and (5) the nondisclosing party’s explanation for its failure to disclose the
evidence.” Id. (The first four factors “relate mainly to the harmlessness exception, while
the remaining factor . . . relates primarily to the substantial justification exception.”).
In this case, with respect to the first three factors, Defendant cannot claim that it is
surprised by Plaintiffs’ expert disclosure. While this information was not properly produced
until June 7, 2017, Defendant has known about these experts and their report since before
this lawsuit was filed. Moreover, because Defendant has been on notice of the report, it
is unlikely that allowing the evidence would disrupt trial, and it appears from Plaintiffs’ and
Defendant’s filings that this evidence, concerning a forensic examination of the handwriting
on the 2012 Note, is important to the outcome of the case. Accordingly, the Court finds
that Plaintiffs’ error was harmless and does not reach whether it was substantially justified.
Thus, Defendant’s Motion is denied.
Wherefore, based upon the foregoing, Defendant’s Motion to Dismiss  is
GRANTED in part and DENIED in part consistent with this Order. Plaintiff Whitfield
Farms, LLC, is DISMISSED from this action. Defendant’s Motion to Exclude Expert
Designation  is DENIED.
IT IS SO ORDERED.
s/Donald C. Coggins, Jr.
United States District Judge
March 22, 2018
Spartanburg, South Carolina
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