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ACC Constr. v. SunTrust Mortgage, Inc.

Court of Appeals of North Carolina

February 17, 2015

ACC CONSTRUCTION, INC., Plaintiff,
v.
SUNTRUST MORTGAGE, INC., JACKIE MILLER, TRUSTEE of SUNTRUST MORTGAGE, INC., and SUBSTITUTE TRUSTEE SERVICES, INC., as TRUSTEE of SUNTRUST MORTGAGE, INC., Defendants

Heard in the Court of Appeals: November 20, 2014.

Page 201

Karolyi-Reynolds, PLLC, by James O. Reynolds, for Plaintiff.

Parker Poe Adams & Bernstein LLP, by William L. Esser IV and Katie M. Iams, for Defendants.

STEPHENS, Judge. Chief Judge MCGEE and Judge STEELMAN concur.

OPINION

Page 202

Appeal by Plaintiff from orders entered 3 March 2014 by Judge Marvin P. Pope, Jr., in Henderson County Superior Court, No. 13 CVS 1679.

Page 203

STEPHENS, Judge.

This appeal arises from a long-standing dispute between Plaintiff ACC Construction, Inc. (" ACC" ) and Defendant SunTrust Mortgage, Inc. (" SunTrust" ) over the respective priorities of ACC's mechanic's claim of lien and SunTrust's deed of trust against a property generally known as Lot 3 of Rebecca's Pond subdivision in Henderson County (" the Property" ). The procedural history stretches back over the course of multiple lawsuits to 2009. In the present case, ACC challenges the trial court's decision to grant SunTrust's Rule 12(b)(6) motion to dismiss ACC's claims for unjust enrichment and constructive trust based on res judicata, as well as the trial court's award of attorneys' fees to SunTrust as a sanction against ACC for bringing non-justiciable claims for an improper purpose. After careful consideration, we affirm the trial court's decision and grant SunTrust's motion for Rule 34 sanctions against ACC for prosecution of this frivolous appeal.

I. Facts and procedural history

In 2007, Christopher and Susan Wall (" the Walls" ) obtained a $765,000.00 loan from SunTrust to acquire the Property and build a house on it. The Property was originally owned by GHC Land Development, LLC, which transferred it to NC Land Finders, LLC by deed dated 3 April 2007. NC Land Finders then executed a deed conveying the property to the Walls on 5 April 2007 at a purchase price of $165,000.00. That same day, the Walls executed a deed of trust in favor of SunTrust. The deed from NC Land Finders to the Walls and the deed of trust from the Walls to SunTrust were both recorded in the Henderson County Registry on 13 April 2007. However, it was subsequently discovered that although it had been executed, the deed conveying the Property from GHC to NC Land Finders had not been recorded, thus leaving a record gap in the chain of title. To correct this issue, the GHC deed was recorded in the Henderson County Registry on 16 May 2007. Out of an abundance of caution, the deed from NC Land Finders to the Walls and the deed of trust from the Walls to SunTrust were re-recorded on 18 September 2007.

The Walls hired ACC to build a house on the Property. On 12 June 2007, ACC began furnishing labor and materials. ACC completed construction in January 2009, but claimed that it had not been fully paid for the work it performed. On 20 January 2009, ACC filed a claim of lien against the Property in the amount of $296,513.71. Later in 2009, the Walls also defaulted on their debt to SunTrust by failing to make payments as due.

On 6 July 2009, ACC filed a lawsuit (" ACC I" ) in Henderson County Superior Court against the Walls and SunTrust to enforce its claim of lien and also seeking damages for breach of contract and recovery in quantum meruit. On 6 August 2009, SunTrust instituted a foreclosure special proceeding pursuant to its deed of trust in Henderson County Superior Court.

On 18 August 2009, ACC amended its complaint in ACC I to include a fourth cause of action for " Declaratory Judgment to Quiet Title and Motion for Injunctive Relief." In its amended complaint, ACC contended that its lien had priority over SunTrust's deed of trust, which ACC argued was void due to a defect in the Property's chain of title because at the time of its original execution in April 2007, the deed conveying the Property from GHC to NC Land Finders had not yet been recorded. Thus, ACC asked the court to enjoin the foreclosure, declare that ACC's lien held priority, declare " the rights, interests, and priorities of ACC and SunTrust as creditor[s] of the Walls," and declare " the rights, interests, and priorities of the parties in and to [the Property]."

That same day, in response to SunTrust's initiation of foreclosure proceedings, ACC's President Gene Carswell__who is also a principal member-manager of GHC__executed a verification of a " Petition to Determine Lien Priorities and to Determine Disposition of Funds Upon Foreclosure Sale, and to Enjoin Foreclosure Sale." This petition, which was subsequently filed on 1 September 2009, requested that the court determine the respective lien priorities between ACC and Sun

Page 204

Trust and determine how the foreclosure proceeds should be distributed. Here, however, ACC offered a different theory for its lien priority, contending that although SunTrust had a valid lien, it was only up to the amount of the purchase price because it did not attach to the Property until the 18 September 2007 re-recording, and therefore " SunTrust's lien has priority over ACC's lien to the extent of $165,000.00 which was the purchase price of [the Property]. ACC's lien has priority over SunTrust's lien to the extent of disbursements made by SunTrust from construction loan proceeds in excess of $165,000.00." ACC further argued:

23. . . . SunTrust is entitled to receive the first $165,000.00 from the foreclosure sale proceeds after costs and taxes. Next, ACC is entitled to receive $179,998.01 from the foreclosure proceeds. Then, SunTrust is entitled to receive the balance of the foreclosure proceeds.
. . . .
28. ACC needs for this court to determine how the sales proceeds from the foreclosure of [the Property] should be distributed upon completion of the foreclosure sale of [the Property].
29. ACC needs for this court to order the distribution of $179,998.01 to ACC from the sales proceed[s] of the foreclosure sale of [the Property].

Although ACC set a hearing on its foreclosure petition for 16 September 2009, the record does not indicate what happened at that hearing. In any event, on 30 August 2010, the assistant clerk of Henderson County Superior Court entered an order finding that SunTrust's deed of trust represented a valid debt and permitting SunTrust to proceed with its foreclosure sale of the Property, with a sale date set for 20 September 2010.

On 17 September 2010, ACC filed a separate action against SunTrust and the Walls seeking a preliminary and permanent injunction of the foreclosure sale and specifically asking for the court to determine " the rights of the parties with respect to the Claim of Lien and any proceeds which may arise from the foreclosure of [the Property]." This time, ACC argued that due to the aforementioned recording irregularities, it should be considered the senior lienholder against the Property under the theory that SunTrust did not acquire a valid lien to the Property until 18 September 2007. A hearing on ACC's request for injunctive relief was held on 27 September 2010__after the scheduled foreclosure sale but before the expiration of the upset-bid period__and, after the court denied that request by written order dated 30 September 2010, ACC voluntarily dismissed that action. The court did, however, grant ACC's Rule 60 motion to reinstate its claims from ACC I, which had previously been voluntarily dismissed with prejudice on motion from ACC's former counsel prior to the termination of her representation in the matter.

The foreclosure sale for the Property was held as planned on 20 September 2010, and SunTrust was the winning bidder with a bid of $616,250.00. On 1 October 2010, the foreclosure trustee executed a notarized letter stating that the foreclosure sale proceeds had been distributed and " the original note involved in the above captioned foreclosure has been credited with the sum of $612,569.83 representing the full amount of the proceeds of the sale less allowable costs and fees." The trustee's final report was audited and approved by the Henderson County clerk of court on 12 October 2010. That same day, ACC filed notice of dismissal without prejudice regarding the fourth cause of action in its amended complaint in ACC I for " Declaratory Judgment to Quiet Title and Motion for Injunctive Relief."

On 15 August 2011, SunTrust moved for summary judgment in ACC I. At the hearing, SunTrust argued that its deed of trust should have priority over the foreclosure proceeds because it was recorded before ACC ever provided any work on the Property, that any irregularities in the chain of title were immaterial because ACC had sufficient notice thereof, and that the subsequent September 2007 re-recording had no impact on lien priorities. For its part, ACC urged that its lien should have first priority because SunTrust's deed of trust was not recorded within the Property's chain of title until September 2007, after ACC's lien had already attached.

Page 205

At one point during the hearing, the trial court[1] inquired:

THE COURT: What happens if any of this money was used to purchase the real property? Then what doctrine comes into play?
[ACC's counsel]: I don't think there's any doctrine that comes into play in that situation, Your Honor. I'm not aware of any.
THE COURT: What about the doctrine of instantaneous seisin?
[ACC's counsel]: The doctrine of instantaneous seisin would not be applicable here, Your Honor, because it is not a true purchase money deed of trust. . . .

After further discussion, during which ACC continued to deny the applicability of the doctrine of instantaneous seisin while insisting on a stringent application of our State's recording statutes, the trial court directed the parties' attention to this Court's holding in West Durham Lumber Co. v. Meadows, 179 N.C.App. 347, 635 S.E.2d 301 (2006), disc. review denied, 361 N.C. 704, 655 S.E.2d 404 (2007), noting:

THE COURT: I'll give you this case and you all can go look at it. . . . It's not as confusing as this case. The scenario is very similar. There was a deed and a deed of trust, a purchase money deed of trust, only part of it being a purchase money deed of trust. The lumber company actually provided materials to the property prior to the deed and the deed of trust being recorded, and the [C]ourt held that the deed of trust had priority.

Toward the end of the hearing, the court inquired whether ACC was seeking any surplus proceeds ...


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