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Equity Solutions of the Carolinas, Inc. v. North Carolina Dept. of State Treasurer

Court of Appeals of North Carolina

February 18, 2014


Heard in the Court of Appeals 9 September 2013.

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[Copyrighted Material Omitted]

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Appeal bye petitioner from order entered 11 September 2012 by Judge W. Osmond Smith,

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III in Wake County Superior Court.

Ward and Smith, P.A., Winterville, by A. Charles Ellis and Joseph A. Schouten, for petitioner-appellant.

Attorney General Roy Cooper, by Assistant Solicitor General Gary R. Govert, Special Deputy Attorney General K.D. Sturgis, and Special Deputy Attorney General M.A. Kelly Chambers, for respondent-appellee.

GEER, Judge.

Petitioner Equity Solutions of the Carolinas, Inc. appeals from the trial court's order affirming the North Carolina Department of State Treasurer's decision to deny Equity Solutions' request for a declaratory ruling and dismissing Equity Solutions' petition for judicial review of the State Treasurer's decision. On appeal, while Equity Solutions contends that the trial court applied an improper standard of review when reviewing the State Treasurer's decision to deny Equity Solutions' request for a declaratory ruling, we hold that the trial court employed the correct standard of review.

Further, Equity Solutions contends that the State Treasurer in fact issued a " de facto ruling" against Equity Solutions on the merits that the trial court should have reviewed. We disagree. The State Treasurer never rendered a declaratory ruling, and the merits of Equity Solutions' arguments were, therefore, not before the trial court and are not before this Court.


Equity Solutions is a business that identifies the possible existence of surplus funds remaining from foreclosure sales and contacts people or entities it believes are entitled to some or all of the surplus funds. After then entering into an agreement with the owner of the surplus funds, Equity Solutions files before the clerk of the superior court holding the surplus funds a special proceeding pursuant to N.C. Gen.Stat. § 1-339.71 (2013).

Equity Solutions asserts that it attached to its " Petition for Surplus Funds" initiating the special proceeding a copy of its agreement with the owner of the surplus funds, which purports to assign the right to the funds to Equity Solutions in exchange for payment of a percentage of the amount of the funds. If the clerk of court allows the petition and directs that the foreclosure surplus funds be paid to Equity Solutions, then Equity Solutions pays the owner of the surplus funds the portion of the funds designated in the agreement.

The State has contended that Equity Solutions' business constitutes the recovery of abandoned and unclaimed property governed by the Unclaimed Property Act, N.C. Gen.Stat. §§ 116B51 et seq. (2013). N.C. Gen.Stat. § 116B-78(a1) (2013) governs an " agreement ... if its primary purpose is to locate, deliver, recover, or assist in the recovery of property that is distributable to the owner or presumed abandoned." Agreements covered by the statute must be in writing and include certain disclosures regarding the property at issue and the fee being charged for the property's recovery. N.C. Gen.Stat. § 116B-78(b). The statute also generally limits the maximum allowable property finder's fee. N.C. Gen.Stat. § 116B-78(b)(6). A violation of the provisions of the statute constitutes an unfair or deceptive act or practice in violation of N.C. Gen.Stat. § 75-1.1 (2013). N.C. Gen.Stat. § 116B-78(g).

On 11 May 2010, the Attorney General of North Carolina issued an investigative demand to Equity Solutions seeking documents relating to Equity Solutions' business, claiming that it involved the recovery of abandoned or unclaimed property located in North Carolina. In April and June 2010, Allen Martin, an employee of the State Treasurer's office, sent letters to two county clerks of court stating that the agreements between Equity Solutions and its clients filed by Equity Solutions in superior court violated N.C. Gen.Stat. § 116B-78 and were, therefore, invalid.

On 18 June 2010, Equity Solutions submitted a letter to the State Treasurer describing its business model and attaching two sets of business documents that Equity Solutions claimed were representative of those it had used in the past and those it planned to use

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in the future. Equity Solutions requested that the State Treasurer issue " a declaratory ruling as to the applicability of N.C. Gen.Stat. § 116B-78 to the assignment agreements which Equity Solutions has employed in its business operations in the past ... and the agreements it intends to employ in the future...."

On 13 August 2010, the State, through the Attorney General and the State Treasurer, filed an action against Equity Solutions and several individuals alleging claims for racketeering, unfair and deceptive practices, and unjust enrichment (the " enforcement action" ). The complaint alleged that the assignment agreements referred to in Equity Solutions' request for a declaratory ruling were, in fact, " sham agreements" that were not supported by consideration. The complaint further alleged that Equity Solutions' business model included inducing " the apparent owners to agree to pay defendant Equity Solutions a ‘ contingency fee’ and other fees and charges" that exceed the statutory maximum property finder's fee under the Unclaimed Property Act and that those contingency fee agreements constituted the real agreements between the parties. The complaint alleged that since the contingency fee agreements did not comply with N.C. Gen.Stat. § 116B-78 for several reasons, they were unenforceable.

On 16 August 2010, the State Treasurer sent a letter to Equity Solutions declining to issue a declaratory ruling and stating:

Pursuant to N.C.G.S. § 150B-4 and 20 N.C.A.C. 01F.0205, I have determined that the issuance of a declaratory ruling is undesirable. Therefore, the Petitioner's request is denied for the following reasons:
1. The subject matter of the request is the subject of active litigation in Wake County between Equity Solutions, the State Treasurer, and the Attorney General.
2. The request seeks application of N.C.G.S. § 116B-78 to an " Absolute Assignment" and " Conveyance Agreement" without disclosing the full factual setting surrounding these documents, including any representations made to induce the apparent owner to sign these documents, and the manner in which any of these documents may have been used in court proceedings seeking disbursement of unclaimed or abandoned funds.
3. The request involves disputed issues of material fact, including whether the " Absolute Assignment" represents an ...

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