Opinion
No. COA10-894
Filed 19 July 2011 This case not for publication
Appeal by plaintiffs from order entered 21 December 2009 by Judge Christopher M. Collier in Iredell County Superior Court. Heard in the Court of Appeals 12 January 2011.
Pope, McMillan, Kutteh, Privette, Edwards Schieck, PA, by Martha N. Peed and William H. McMillan, for plaintiffs-appellants. Hutchens, Senter Britton, P.A., by H. Terry Hutchens and J. Scott Flowers, for defendant-appellee ProDev XLIV, LLC. Wyatt, Early, Harris Wheeler, LLP, by Stanley F. Hammer and Kerri L. Sigler, for defendant-appellee First Mount Vernon Industrial Loan Association.
Iredell County No. 07 CVS 2959.
Where plaintiffs did not demonstrate that Green was acting as the agent of ProDev XLIV, LLC, at the time he obtained the property of plaintiffs through fraud, the trial court did not err in granting the motions for directed verdict of ProDev XLIV, LLC, and First Mount Vernon Industrial Loan Association at the close of plaintiffs' evidence. Where First Mount Vernon Industrial Loan Association was a purchaser for value, the trial court did not err in granting First Mount Vernon Industrial Loan Association a directed verdict as to plaintiffs' claim for rescission.
I. Factual and Procedural Background
In 2006, Lonnie and Florence Davis ("plaintiffs"), owners and operators of Davis and Mangum Mortuary, ("funeral home") were experiencing financial difficulties. Defendant Amos Green ("Green") represented to them that he was able to obtain a loan for plaintiffs, but that they would have to deed the funeral home to him. Green assured plaintiffs that he would reconvey the funeral home once the loan was repaid. In reliance on these assurances, plaintiffs executed a Quitclaim Deed dated 6 July 2007 to defendant FGB Funding Group, Inc. ("FGB"), a Georgia corporation of which Green was president and a shareholder, in exchange for $8,500.00. Plaintiffs did this contrary to the advice of their attorney and several other persons.
On 30 May 2007, before the funeral home was transferred to him, Green submitted a mortgage loan application to defendant First Mount Vernon Industrial Loan Association ("FMV").
ProDev XLIV, LLC ("ProDev") was organized on 5 July 2007 in the Commonwealth of Virginia. It was to be owned jointly by Green and G. Paul Fogle, ("Fogle") Vice President and Chief Operating Officer of FMV, with Green as manager and Fogle as majority member. On 27 July 2007, Green executed documents to become manager of ProDev. On that same day, FGB conveyed the funeral home property to ProDev. The deed of conveyance did not show any revenue stamps. Also on that same day, ProDev executed a deed of trust upon the funeral home property in favor of FMV, securing a loan of $100,000.00.
Plaintiffs received none of the loan proceeds from FMV, and were unable to contact Green after the initial transaction. By 12 November 2007, Fogle replaced Green as manager of ProDev and stated his intention to transfer the funeral home property to FMV, without foreclosure.
On 10 October 2007, plaintiffs brought this action against defendants collectively seeking money damages for fraud, constructive fraud, negligent misrepresentation, and unfair and deceptive trade practices, and violations of N.C. Gen. Stat. §§ 53-243.02 and 53-243.11(1), (4), (5) and (18). Plaintiffs also sought a preliminary injunction barring defendants from taking any actions to evict them from the funeral home, an order setting aside the two deeds and the deed of trust, and attorney's fees. Defendants FMV and ProDev served motions to dismiss. Defendants Green and FGB failed to file responsive pleadings, and plaintiffs moved for entry of default on 5 December 2007 as to Green and FGB. Default was entered on that same day. Judge Collier entered default judgment against Green and FGB on 11 February 2010 in the amount of $169,009.00. Pursuant to the provisions of Chapter 75, this amount was trebled and the trial court awarded attorney's fees in the amount of $51,944.00 against Green and FGB.
On 2 September 2008, plaintiffs filed an amended complaint. The amended complaint asserted a seventh claim for relief against FMV and ProDev under Chapter 75. FMV answered the amended complaint on 5 September 2008. ProDev answered the amended complaint on 1 October 2008.
The claims of plaintiff against FMV and ProDev came before Judge Collier and a jury at the 7 December 2009 Session of the Civil Superior Court for Iredell County. At the close of plaintiffs' evidence, FMV and ProDev moved for directed verdict, pursuant to Rule 50 of the Rules of Civil Procedure. These motions were granted, and on 21 December 2009, Judge Collier entered an order dismissing plaintiffs' claims against FMV and ProDev, with prejudice.
Plaintiffs appeal.
II. Motion for Directed Verdict
In their first argument, plaintiffs contend that the trial court erred in granting the directed verdict motions of FMV and ProDev. We disagree.
A. Standard of Review
"This Court reviews a trial court's grant of a motion for directed verdict de novo." Day v. Brant, ___ N.C. App. ___, ___, 697 S.E.2d 345, 348 (2010) (quoting Kerr v. Long, 189 N.C. App. 331, 334, 657 S.E.2d 920, 922, (2008), cert. denied, 362 N.C. 682, 670 S.E.2d 564 (2008)). The Court must determine "`whether, upon examination of all the evidence in the light most favorable to the nonmoving party, and that party being given the benefit of every reasonable inference drawn therefrom, the evidence is sufficient to be submitted to the jury.'" Id. (quoting Brookshire v. N.C. Dep't of Transp., 180 N.C. App. 670, 672, 637 S.E.2d 902, 904 (2006)).
B. Analysis
At trial, plaintiffs presented no evidence that either ProDev or FMV had actual knowledge that Green had procured the conveyance of the funeral home property through fraud. Their theory on appeal is that Green was acting as the agent of ProDev, and therefore Green's fraudulent conduct is imputed to ProDev. As to FMV, plaintiffs contend that ProDev was a single-purpose limited liability corporation (LLC), established by FMV to facilitate the making of the loan from FMV to Green and FGB. As such, they contend that ProDev was an alter-ego of FMV and that FMV is liable based on a "piercing of the corporate veil" theory.
This theory was not pled in either plaintiffs' complaint or their amended complaint. The theory was not raised until the arguments of counsel before the trial court upon the motions of ProDev and FMV to dismiss at the close of plaintiffs' evidence. During this argument, counsel for plaintiffs moved the court, pursuant to Rule 15(b) of the Rules of Civil Procedure, to amend plaintiffs' complaint to conform to the evidence. The trial court never made a ruling on this motion.
In their brief and reply brief, plaintiffs only make passing references to this theory, stating that "ProDev is an alterego [sic] of ProDev [sic]", and that "FMV is an alter-ego of ProDev."
On appeal, plaintiffs' position is grounded solely in the argument that Green was acting as the agent of ProDev. This argument is based on two separate acts of Green: (1) the fraudulent procurement of the Quitclaim Deed to plaintiffs on 6 July 2007; and (2) Green absconding with $49,809.00 of the proceeds from the loan closing on 27 July 2007. We address each of these arguments in turn.
Plaintiffs argue that the limited liability company ProDev XLIV, LLC was formed with the State Corporation Commission of the Commonwealth of Virginia on 5 July 2007. Green procured the Quitclaim Deed from plaintiffs on 6 July 2007. Since Green was a manager of ProDev, plaintiffs contend that these facts at a minimum raise an issue of fact for the jury as to whether Green was acting as an agent of ProDev at the time the Quitclaim Deed to FGB was procured. However, all of the evidence presented showed that while ProDev was established on 5 July 2007, Green was not involved in the business of the corporation until 27 July 2007. At the time of the closing of the loan from FMV, the Organization Agreement of ProDev was executed. This agreement made Green a 40% owner as well as the manager of ProDev. G. Paul Fogle, Vice-President and Chief Operating Officer of FMV was the owner of the remaining 60%. Under the terms of the Agreement, Green was authorized to execute the documents necessary to consummate the loan with FMV. In the event of a default on the FMV loan, Green could be removed as manager by a simple majority vote.
The "[t]wo essential elements of an agency relationship are: (1) the authority of the agent to act on behalf of the principal, and (2) the principal's control over the agent." State v. Weaver, 359 N.C. 246, 258, 607 S.E.2d 599, 606 (2005) (citing Holcomb v. Colonial Assocs., 358 N.C. 501, 509, 597 S.E.2d 710, 716 (2004)). Additionally, "both parties must consent that the agent will act on behalf of the principal in a particular capacity." Id. (citing Ellison v. Hunsinger, 237 N.C. 619, 628, 75 S.E.2d 884, 891 (1953)). Agency is "a relationship `which cannot be forced on a person in invitum.'" Id. (quoting Johnson v. Orrell, 231 N.C. 197, 201, 56 S.E.2d 414, 417 (1949)).
"A directed verdict is improper if the evidence, viewed in a light most favorable to the non-moving party, is legally sufficient to send the issue to the jury." Buford v. General Motors Corp., 339 N.C. 396, 404, 451 S.E.2d 293, 297 (1994) (citing Taylor v. Walker, 320 N.C. 729, 733-34, 360 S.E.2d 796, 799 (1987)).
Plaintiffs' evidence at trial was insufficient to submit to the jury the question of whether Green was the agent of ProDev at the time he procured the Quitclaim Deed for the funeral home property.
Plaintiffs further argue that Green clearly was acting as the agent of ProDev at the loan closing on 27 July 2007, when he absconded with $49,809.00 of the loan proceeds. Again, plaintiffs' arguments are misplaced.
On 27 July 2007, there was a closing for the $100,000.00 loan from FMV to ProDev. At this closing, Green was made manager of ProDev, he executed a deed transferring the funeral property from FGB to ProDev, and he executed on behalf of ProDev all documents pertaining to the loan from FMV, including a deed of trust on the funeral home property securing the debt to FMV. After the payment of outstanding liens on the property, and fees connected with the loan, a check for the net proceeds of $49,809.00 payable to ProDev was delivered to Green. Plaintiffs contend that Green was to have delivered these funds to plaintiffs, and that he instead absconded with them. Plaintiffs further argue that Green was clearly the agent of ProDev at that time and that his fraudulent conduct is attributable to ProDev as Green's principal.
"As a general rule, a principal will be liable for its agent's wrongful act under the doctrine of respondeat superior when the agent's act is (1) expressly authorized by the principal; (2) committed within the scope of the agent's employment and in furtherance of the principal's business — when the act comes within his implied authority; or (3) ratified by the principal." B.B. Walker Co. v. Burns Int'l Sec. Servs., Inc., 108 N.C. App. 562, 565, 424 S.E.2d 172, 174 (1993) (citing Medlin v. Bass, 327 N.C. 587, 592, 398 S.E.2d 460, 463 (1990)). We fail to discern how Green's actions in absconding with ProDev's funds can be construed as furthering ProDev's business, nor how ProDev could have authorized or ratified those acts against itself.
With respect to neither of the two acts complained of by plaintiffs was Green acting as the agent of ProDev. If Green was not acting as the agent of ProDev, then plaintiffs cannot prevail upon a theory of piercing the corporate veil as to FMV. Further, piercing the corporate veil was not pled in either the original complaint or the amended complaint. The trial court never ruled upon plaintiffs' Rule 15(b) motion to amend. It was incumbent upon plaintiffs to obtain a ruling from the trial court before bringing this matter before an appellate court. N.C.R. App. P. 10(a)(1). Finally, where an appellant does not argue a legal theory in their brief, and provides no case authority for their argument, it is deemed abandoned and subject to dismissal by the appellate court. N.C.R. App. P. 28(b)(6).
This argument is without merit.
III. Failure to Grant Rescission
In their second argument, plaintiffs contend that the trial court erred in failing to grant plaintiffs relief in the form of rescission of the fraudulent deed. We disagree.
A. Standard of Review
"Rescission, an equitable remedy, is allowed to promote justice." Wilson v. Wilson, 261 N.C. 40, 43, 134 S.E.2d 240, 243 (1964) (citations omitted). "Because the fashioning of equitable remedies is a discretionary matter for the trial court, we review such actions under an abuse of discretion standard." Kinlaw v. Harris, ___ N.C. ___, ___, 702 S.E.2d 294, 297 (2010) (citing White v. White, 312 N.C. 770, 777, 324 S.E.2d 829, 833 (1985)).
B. Analysis
Plaintiffs argue that neither ProDev nor FMV were purchasers for value of the funeral home property, and that the trial court erred in denying them the remedy of rescission.
Under North Carolina law, a good faith purchaser for value acquires full title, and is protected from rescission, even if the seller obtained that property fraudulently. Massey v. Alston, 173 N.C. 215, 223, 91 S.E. 964, 967 (1917).
As to ProDev, plaintiffs' argument is twofold: (1) Green was the agent of ProDev, and his acts of fraud are attributable to ProDev; and (2) ProDev paid no consideration for the conveyance of the property from FGB. As to FMV, plaintiffs also make two arguments: (1) ProDev was the alterego of FMV; and (2) as a lender, FMV cannot be a purchaser for value.
We have already held that plaintiffs did not produce sufficient evidence that Green was acting as the agent of ProDev. This holding is also determinative of plaintiffs' "alter ego" argument as to FMV.
This leaves plaintiffs' two arguments pertaining to consideration and purchaser for value. Without citing any case authority, plaintiffs assert that "FMV is not a bona fide purchaser for value, not being a purchaser." The problem with this assertion is that it is contrary to long-established North Carolina precedent. A mortgage lender is a purchaser for value. Southerland v. Freemont, 107 N.C. 565, 572, 12 S.E. 237, 239 (1890). The uncontroverted evidence at trial was that FMV loaned $100,000.00 to ProDev, and secured this loan with a deed of trust upon the funeral home property. As noted above, plaintiffs failed to introduce evidence that FMV had knowledge of any fraudulent conduct by Green.
Equity makes use of the machinery of a trust for the purpose of affording redress in cases of fraud, and will follow the property obtained by a fraud in order to remedy the wrong, and only stops the pursuit when the means of ascertainment fails or the rights of bona fide purchasers for value, without notice of the fraud or trust, have intervened.
Massey, 173 N.C. at 223, 91 S.E. at 967.
Plaintiffs failed to demonstrate that FMV had notice or knowledge of Green's fraudulent conduct, either by direct evidence or by imputation based on a theory of agency. Under the analysis found in Massey, this ends our inquiry on the remedy of rescission. We discern no abuse of discretion by the trial court in denying this equitable remedy. The trial court did not err in granting the motions of ProDev and FMV for a directed verdict.
This argument is without merit.
IV. Conclusion
We hold that the trial court did not err in granting directed verdict to defendants. We also hold that the trial court did not err in denying relief in the form of rescission to plaintiffs.
AFFIRMED.
Judges ELMORE and ERVIN concur.
Report per Rule 30(e).