Appeal by plaintiff from an order entered 26 June 2003 by
Judge A. Leon Stanback in Wake County Superior Court. Heard in the
Court of Appeals 24 August 2004.
Wyrick Robbins Yates & Ponton, LLP, by K. Edward Greene and
Kathleen A. Naggs for plaintiff-appellant.
Robert T. Hedrick for defendants-appellees M. A. Mansour,
Taghrid D. Mansour, Robert T. Hedrick and William M. Griggs.
HUNTER, Judge.
Plaintiff, Brenton D. Adams (“Adams”), presents the following
four issues for our consideration: Whether the trial court
erroneously (1) placed the burden of proof upon Adams, the
nonmovant, by requiring Adams to prove his compliance with the
requirements of N.C. Gen. Stat. § 1A-1, Rule 11; (2) utilized a
preponderance of the evidence quantum of proof instead of a clear
and convincing evidence quantum of proof; (3) imposed Rule 11
sanctions against Adams for failing to conduct a reasonable inquiry
into the law and the facts regarding the claims set out in the
complaint or bringing a claim not well grounded in fact and in law;
and (4) sanctioned Adams for continued prosecution of this claim.
After careful review, we reverse the trial court's order and remand
for further proceedings.
The pertinent facts tend to indicate that Adams is the
trustee of the Brenton D. Adams Retirement Plan which claimed
ownership to real property foreclosed upon by defendant, Bank
United of Texas F.S.B. (“Bank”). Defendant Terry Hutchens
(“Hutchens”) was an attorney and a substitute trustee employed by
the Bank to institute the foreclosure proceedings. After the Bank
submitted the highest bid at the foreclosure sale on 15 July 1998,
Defendants M. A. Mansour and his wife (“the Mansours”) submitted asuccessful upset bid and ownership was transferred to the Mansours
pursuant to a trustee's deed. To borrow the purchase price, the
Mansours executed a deed of trust to defendant Robert Hedrick
(“Hedrick”), as the trustee and grantee, and William Griggs
(“Griggs”) as the beneficiary.
On 3 January 2000, Adams filed a complaint against defendants
seeking to have the foreclosure proceeding declared null and void,
the Trustee's Deed and the Deed of Trust stricken, and to require
the parties to execute a quitclaim deed on the property. In
February 2001, summary judgment was entered in favor of defendants.
This Court upheld the entry of summary judgment in a 4 June 2002
unpublished opinion. See Adams v. Bank United of Tx. FSB, 150 N.C.
App. 713, 564 S.E.2d 320 (2002) (COA01-773) (unpublished).
Thereafter, the Mansours, Hedrick and Griggs moved for Rule 11
sanctions. Based upon their allegations that Adams received
sufficient and adequate notice of the foreclosure proceedings,
these defendants contended Adams' complaint was not well grounded
in fact; was not warranted by existing law, nor by a good faith
argument for the extension, modification or reversal of existing
law; and was interposed for an improper purpose. Upon
consideration of the motion, the trial court found Adams was
properly served with notice and that Adams provided in discovery
copies of three return receipts from certified mail sent by
defendants. Therefore, the trial court concluded Adams' complaint
was not well grounded in law and fact and that he did not conduct
a reasonable inquiry into the law and facts prior to filing thecomplaint. Accordingly, the trial court ordered Adams,
individually and as trustee, to pay $15,147.00 in attorney's fees
and $296.75 in costs. From this order, Adams appeals.
According to Rule 11, the signer
certifies that three distinct things are true:
the pleading is (1) well grounded in fact; (2)
warranted by existing law, “or a good faith
argument for the extension, modification, or
reversal of existing law” (legal sufficiency);
and (3) not interposed for any improper
purpose. A breach of the certification as to
any one of these three prongs is a violation
of the Rule.
Bryson v. Sullivan, 330 N.C. 644, 655, 412 S.E.2d 327, 332 (1992).
In this case, although the Mansours, Hedrick, and Griggs moved for
Rule 11 sanctions based upon an alleged violation of all three
prongs, the trial court concluded Adams had only violated the legal
and factual sufficiency prongs. Thus, any allegations that Adams
violated Rule 11 because he had an improper purpose in filing his
complaint were not ruled upon by the trial court and are not before
us.
(See footnote 1)
A. Burden of Proof
[1] Adams first contends the trial court committed reversible
error by placing the burdens of proof and persuasion on Adams.
Specifically, Adams argues that “[w]here the issue of sanctions is
raised by a motion, as it was in this case, the movant has the
burdens of proof and persuasion to show a Rule 11 violation.” Asthe parties do not contest that the burden of proof and persuasion
is upon the movant, we only review whether the burden was
erroneously placed upon Adams in this case.
In the order imposing Rule 11 sanctions against Adams, the
trial court stated in its conclusions of law:
1. That Plaintiff was properly served
and had sufficient and adequate legal notice
of the foreclosure proceeding.
2. That the Plaintiff, both
individually as an attorney at law, and as
Trustee, by signing the complaint violated
Rule 11.
3. That the Plaintiff in his capacity
as attorney and Trustee failed to conduct a
reasonable inquiry into the law and the facts
regarding the claims set out in the complaint.
4. That it has been established that
there was sufficient compliance with the
statutory requirements for service of notice
of foreclosure.
5. That the Plaintiff in his capacity
as attorney and Trustee failed to demonstrate
that the claims set out in the complaint were
well-grounded in fact and in law.
Adams argues the phrase “failed to demonstrate” in Conclusion of
Law 5 indicates the burden of proof was erroneously placed upon
Adams. We disagree.
When read in the context of the remaining conclusions of law,
we conclude Conclusion of Law 5 does not indicate the burden of
proof and persuasion was placed upon Adams. Indeed, in conclusions
of law 1-4, the trial court determined Adams was properly served,
had sufficient legal notice and had failed to conduct a reasonable
inquiry into the law and facts. The trial court also concludeddefendants had complied with the statutory requirements for service
of notice of foreclosure. After making these conclusions, the
trial court then stated Adams “failed to demonstrate that the
claims set out in the complaint were well-grounded in fact and in
law.” As explained in
Bannon v. Joyce Beverages, Inc., 113 F.R.D.
669, 674 (N.D. Il. 1987), once the movant establishes a
prima facie
case, the burden shifts to the nonmovant to put forth evidence
indicating Rule 11 was not violated.
(See footnote 2)
B. Quantum of Proof
[2] Adams also argues the trial court erroneously utilized a
preponderance of the evidence quantum of proof. Adams contends the
movant should be required to prove a Rule 11 violation by a clear
and convincing evidence quantum of proof. First, our Supreme Court
has indicated that “the standard under . . . Rule 11(a) is one of
objective reasonableness under the circumstances.”
Turner, 325
N.C. at 164, 381 S.E.2d at 713. However, our review of the case
law, and as Adams indicates in his brief, the North Carolina
appellate cases are silent as to whether North Carolina applies a
preponderance of the evidence standard or a clear and convincing
evidence standard in determining whether an attorney's conduct wasobjectively reasonable under the circumstances.
(See footnote 3)
As this is an
issue of first impression before North Carolina's appellate courts,
we look to the purpose behind Rule 11 for guidance.
[T]he central purpose of Rule 11 is to deter
baseless filings . . . , [and to] streamline
the administration and procedure of [our]
courts. . . . Rule 11 imposes a duty on
attorneys to certify that they have conducted
a reasonable inquiry and have determined that
any papers filed with the court are well
grounded in fact, legally tenable, and “not
interposed for any improper purpose.” An
attorney who signs the paper without such a
substantiated belief “shall” be penalized by
“an appropriate sanction.”
Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393, 110 L. Ed. 2d
359, 374 (1990). However, “the rule is not intended to chill an
attorney's enthusiasm or creativity in pursuing factual or legal
theories.” Rule 11 of Title 28, Federal Rules of Civil Procedure,
1983 Amendment Advisory Committee Notes. “Although the Rule must
be read in light of concerns that it will spawn satellite
litigation and chill vigorous advocacy, . . . , any interpretation
must give effect to the Rule's central goal of deterrence.”
Cooter, 496 U.S. at 393, 110 L. Ed. 2d at 374.
Rule 11 sanctions have significant impact
beyond the merits of the individual case.
Concerns for the effect on both an attorney's
reputation and for the vigor and creativity of
advocacy by other members of the bar
necessarily require that [appellate courts]
exercise less than total deference to the
[trial] court in its decision to impose Rule11 sanctions. . . . “Despite the increased
license to impose sanctions, judges should
always seriously reflect upon the nuances of
the particular case, and the implications the
case has on the nature of the legal
representation, before imposing sanctions.”
In re Ronco, Inc., 838 F.2d 212, 217-18 (7th Cir. 1988) (citation
omitted). As explained in
F.D.I.C. v. Tefken Const. and
Installation Co., 847 F.2d 440, 444 (7th Cir. 1988):
While the Rule 11 sanction serves an
important purpose, it is a tool that must be
used with utmost care and caution. Even where,
as here, the monetary penalty is low, a Rule
11 violation carries intangible costs for the
punished lawyer or firm. A lawyer's
reputation for integrity, thoroughness and
competence is his or her bread and butter. We
may not impugn that reputation without
carefully analyzing the legal and factual
sufficiency of the arguments.
Thus, in deciding a Rule 11 motion, “many courts weigh the evidence
in a manner suggesting the practical application of a higher,
clear-and-convincing standard. . . .” Gregory Joseph,
Sanctions:
The Federal Law of Litigation Abuse § 17(A)(5)(b), at 321 (3d ed.
2000 & Supp. 2004).
However, in North Carolina, “[i]n the superior court, except
in extraordinary cases, the burden of proof is by the greater
weight of the evidence.”
In re Thomas, 281 N.C. 598, 603, 189
S.E.2d 245, 248 (1972). In the context of attorney disbarment by
a judge or judicial censure or removal, our Supreme Court has
determined these proceedings warrant a clear and convincing
evidence quantum of proof. In
In re Nowell, 293 N.C. 235, 247, 237
S.E.2d 246, 254 (1977), our Supreme Court had to determine the
appropriate quantum of proof applicable in a proceeding where ajudge faced the serious consequences of censure or removal. In its
holding, our Supreme Court “declare[d] the quantum of proof in
proceedings before the Judicial Standards Commission of this State
to be proof by clear and convincing evidence . . . .”
Id.
Similarly, in
In re Palmer, 296 N.C. 638, 647-48, 252 S.E.2d 784,
789-90 (1979), our Supreme Court adopted the clear and convincing
rule as the quantum of proof in proceedings where an attorney faced
disbarment in a judicial proceeding.
(See footnote 4)
In explaining its rationale,
our Supreme Court referenced the following discussion by the
Supreme Court of New Jersey:
“'Because of the dire consequences which may
flow from an adverse finding . . . , we regard
as necessary to sustain such a finding the
production of a greater
quantum of proof than
is ordinarily required in a civil action,
i.e., a preponderance of the evidence, but
less than that called for to sustain a
criminal conviction,
i.e., proof of guilt
beyond a reasonable doubt. Although the
specific rule has not been articulated
previously in [the State of New Jersey], we
declare it to be that discipline or disbarment
is warranted only where the evidence of
unethical conduct or unfitness to continue in
practice against an attorney is clear and
convincing. . . .'”
Palmer, 296 N.C. at 648, 252 S.E.2d at 790 (quoting
In re Pennica,
177 A.2d 721, 730 (N.J. 1962)). However, in North Carolina, a preponderance of the evidence
quantum of proof applies in civil cases unless a different standard
has been adopted by our General Assembly or approved by our Supreme
Court.
See In re Thomas, 281 N.C. at 603, 189 S.E.2d at 248; N.C.
Gen. Stat. § 7B-805 (2003) (indicating allegations in a petition
alleging abuse, neglect, or dependency shall be proved by clear and
convincing evidence). In those instances where a different
standard has been adopted by case law, it was pursuant to an
opinion by our Supreme Court. A different standard for Rule 11
motions has not been adopted and we have found no instances where
this Court has imposed a different standard on its own. Therefore,
while there may be valid and plausible reasons for adopting a
clear, cogent and convincing evidence standard for determining Rule
11 sanctions, we adhere to the general rule that a preponderance of
the evidence quantum of proof governs in civil cases unless changed
by our General Assembly or Supreme Court.
See In re Thomas, 281
N.C. at 603, 189 S.E.2d at 248. Thus, we conclude the
preponderance of the evidence quantum of proof should be utilized
in determining whether a Rule 11 violation has occurred. In light
of this conclusion, we do not reach whether Rule 11 sanctions rise
to the level of the dire consequences of disbarment and censure.
C. Imposition of Sanctions
[3] Adams argues the trial court erroneously concluded he
violated the mandates of N.C. Gen. Stat. § 1A-1, Rule 11(a). As
stated:
According to Rule 11, the signer
certifies that three distinct things are true: the pleading is (1) well grounded in fact; (2)
warranted by existing law, “or a good faith
argument for the extension, modification, or
reversal of existing law” (legal sufficiency);
and (3) not interposed for any improper
purpose. A breach of the certification as to
any one of these three prongs is a violation
of the Rule.
Bryson, 330 N.C. at 655, 412 S.E.2d at 332. In the order imposing
sanctions in this case, the trial court concluded Adams' complaint
was not well grounded in fact or in law.
The trial court's decision to impose or not to
impose mandatory sanctions under N.C.G.S. §
1A-1, Rule 11(a) is reviewable
de novo as a
legal issue. In the
de novo review, the
appellate court will determine (1) whether the
trial court's conclusions of law support its
judgment or determination, (2) whether the
trial court's conclusions of law are supported
by its findings of fact, and (3) whether the
findings of fact are supported by a
sufficiency of the evidence. If the appellate
court makes these three determinations in the
affirmative, it must uphold the trial court's
decision to impose or deny the imposition of
mandatory sanctions under N.C.G.S. § 1A-1,
Rule 11(a).
Turner, 325 N.C. at 165, 381 S.E.2d at 714.
Adams contends the trial court erroneously concluded his
complaint was not warranted by existing law or a good faith
argument for the extension or modification of existing law.
To determine whether a pleading is
legally sufficient, the trial court should
look “first to the facial plausibility of the
pleading and only then, if the pleading is
implausible under existing law, to the issue
of 'whether to the best of the signer's
knowledge, information, and belief formed
after reasonable inquiry, the complaint was
warranted by the existing law.'”
Golds v. Central Express, Inc., 142 N.C. App. 664, 668, 544 S.E.2d
23, 27 (citation omitted),
disc. review denied, 353 N.C. 725, 550
S.E.2d 775 (2001). “[R]eference should be made to the document
itself, and the reasonableness of the belief that it is warranted
by existing law should be judged as of the time the document was
signed. Responsive pleadings are not to be considered.”
Bryson,
330 N.C. at 656, 412 S.E.2d at 333. Moreover, our Supreme Court
has stated:
[W]e hold that subsequently filed documents
cannot impose a duty on counsel or a party
under the legal sufficiency prong of the Rule
to seek dismissal. However, once responsive
pleadings or other papers are filed and the
case has become meritless, failure to dismiss
or further prosecution of the action may
result in sanctions either under the improper
purpose prong of the Rule, or under other
rules, or pursuant to the inherent power of
the court.
Id. at 658, 412 S.E.2d at 334. Furthermore, “'[c]ase law clearly
supports the fact that just because a plaintiff is eventually
unsuccessful in her claim, does not mean the claim was
inappropriate or unreasonable.'”
Johnson v. Harris, 149 N.C. App.
928, 937, 563 S.E.2d 224, 229 (2002) (citation omitted). Thus,
this Court's decision in
Adams v. Bank United of Tx. FSB, 150 N.C.
App. 713, 564 S.E.2d 320, that plaintiff was properly served does
not mean the claim was inappropriate or unreasonable.
Adams argues his complaint presented a facially plausible
legal theory because (1) Hutchens failed to comply with the
requirements of N.C. Gen. Stat. § 45-21.16(a), (2) Hutchens failed
to file an affidavit with the clerk showing the circumstanceswarranting the use of service by posting and publication which is
required by Rule 4(j1) and N.C. Gen. Stat. § 45-21.16(a), and (3)
there was no justifiable basis for service of process by
publication or by posting a notice on the property.
(1) Noncompliance with N.C. Gen. Stat. 45-21.16(a)
[4] In this case, Adams alleges he was the owner of the
property foreclosed upon by Hutchens and, therefore, Hutchens was
required to serve Adams with notice of the foreclosure proceedings
pursuant to N.C. Gen. Stat. § 45-21.16(a). N.C. Gen. Stat. § 45-
21.16(a) (2003) states in pertinent part:
After the notice of hearing is filed, the
notice of hearing shall be served upon each
party entitled to notice under this
section. . . . The notice shall be served and
proof of service shall be made in any manner
provided by the Rules of Civil Procedure for
service of summons, including service by
registered mail or certified mail, return
receipt requested. . . . In the event that
the service is obtained by posting, an
affidavit shall be filed with the clerk of
court showing the circumstances warranting the
use of service by posting.
In his complaint, Adams made the following relevant allegations:
19. That the Plaintiff, neither
personally, or as Trustee of the Brenton D.
Adams Retirement Plan ever received actual or
constructive notice of the foreclosure
proceeding referred to above, until sometime
in 1999. The Plaintiff, Brenton D. Adams,
never received actual or constructive notice
of the purported foreclosure sale, never
received actual or constructive notice of any
hearing required by N.C.G.S. § 45-21.16 and
was unaware of the purported foreclosure
proceedings until long after a deed had been
recorded in the name of the Defendant
M. A.
Mansour.
. . .
22. That neither a Notice of the
Foreclosure Hearing nor a Notice of the
purported Sale of the real estate described
above was served upon the Plaintiff in the
manner specified in N.C.G.S. 45-21.16.
Neither were these items served in any manner
required by the Rules of Civil Procedure for
service of Summons; and, the Plaintiff had
neither actual nor constructive notice of the
foreclosure proceedings or of the purported
sale of real estate until long after a deed
had been recorded in the name of the defendant
Mansour.
23. That the Plaintiff never received
actual or constructive service on delivery of
any registered mail, certified mail, sheriff's
service or any other manner of service
whatsoever.
24. That the file of the foreclosure
proceeding referred to above, contained
special proceeding number 98 SP 714 on file of
the office of the Clerk of Superior Court of
Wake County does not show a purported service
upon the Plaintiff and does not contain proof
of service upon the Plaintiff in any manner
whatsoever as is required in N.C.G.S. 45-21.16
and by the Rules of Civil Procedure and by
basic Constitutional due process requirements.
. . .
26. That there was no justifiable basis
for service of process by publication or by
posting a notice on the property described
herein. Upon information and belief there was
no service of process upon the Plaintiff by
means of publication or posting; and, even if
there had been such purported service, the
facts of this case do not give rise to the
posting or publishing of such notice and, if
such notice was ever given, it is invalid as a
matter of law.
A defect in service is sufficient to permit the foreclosure
proceedings to be attacked in an independent action.
See Hassell
v. Wilson, 301 N.C. 307, 315, 272 S.E.2d 77, 82-83 (1980).
However, if a property owner receives actual notice of theforeclosure hearing and could have taken advantage of the relief
provided in N.C. Gen. Stat. § 45-21.34, assuming he had grounds, or
he could have objected to the method of service, the property owner
cannot later argue service on him was inadequate.
Fleet National
Bank v. Raleigh Oaks Joint Venture, 117 N.C. App. 387, 390, 451
S.E.2d 325, 328 (1994). Thus, Adams' allegations that defendants
failed to comply with the requirements of N.C. Gen. Stat. § 45-
21.16(a) and that he did not receive notice of the foreclosure
proceedings presents a plausible legal theory.
Defendants argue, however, that Adams was given notice via
certified mail and that Adams' personal file contained three
original green receipts for certified articles which he disclosed
to defendants in discovery. As such, Adams had actual notice of
the foreclosure proceedings. These arguments, however, relate to
whether a pleading is well grounded in fact (factual sufficiency),
and not the legal sufficiency. When determining the legal
sufficiency of a pleading, the focus is upon whether the legal
theory is plausible under existing law or a good faith argument for
a change in law.
See N.C. Gen. Stat. § 1A-1, Rule 11(a);
see also
Bryson v. Sullivan, 102 N.C. App. 1, 12, 401 S.E.2d 645, 653-54
(1991),
aff'd in relevant part and reversed on other grounds, 330
N.C. 644, 412 S.E.2d 327 (1992) (indicating that when the legal
sufficiency prong of Rule 11 is implicated, if the paper does not
present a plausible legal theory, the trial court must then
scrutinize the attorney's conduct in researching the law). Whether
the facts of a particular case support a plausible legal theory isnot part of the legal sufficiency analysis. Rather, it is part of
the factual sufficiency analysis, which is discussed
infra.
(2) Failure to File an Affidavit
Adams also contends his allegations that defendants failed to
file an affidavit providing justification for service by
publication or posting as required by N.C. Gen. Stat. § 1A-1, Rule
4(j1) (2003) presented a plausible legal theory. Rule 4(j1) states
in pertinent part:
A party that cannot with due diligence be
served by personal delivery, registered or
certified mail, or by a designated delivery
service pursuant to 26 U.S.C. § 7502(f)(2) may
be served by publication. . . . Upon
completion of such service there shall be
filed with the court an affidavit showing the
publication and the mailing in accordance with
the requirements of G.S. 1-75.10(2), the
circumstances warranting the use of service by
publication, and information, if any,
regarding the location of the party served.
As explained by this Court, “in order to utilize service of process
by publication under this statute it is necessary that plaintiff
file with the court an affidavit showing the 'circumstances
warranting the use of service by publication.'”
Edwards v.
Edwards, 13 N.C. App. 166, 169, 185 S.E.2d 20, 22 (1971). Thus, in
Edwards, this Court set aside the judgment entered because the
plaintiff failed to file the affidavit showing the circumstances
warranting the use of service by publication.
Id. at 170, 185
S.E.2d at 22.
In this case, Adams alleged in his complaint that the court
file “does not contain proof of service upon the Plaintiff in any
manner whatsoever as is required in NCGS § 45-21.16 and by theRules of Civil Procedure” and “[t]hat there was no justifiable
basis for service of process by publication or by posting a notice
on the property described herein.” Adams further alleges upon
information and belief that “the facts of this case do not give
rise to the posting or publishing of such notice and, if such
notice was ever given, it is invalid as a matter of law.” Thus,
Adams' allegations that the requirements for service by publication
were not met in this case present a plausible legal theory.
(3) No Justifiable Basis for Service of Process by
Publication or by Posting a Notice on the Property
N.C. Gen. Stat. § 45-21.16(a) allows for service by posting
upon the property in those instances when service by publication is
allowed. Service by publication is governed by N.C. Gen. Stat. §
1A-1, Rule 4(j1), which states in pertinent part: “A party that
cannot with due diligence be served by personal delivery,
registered or certified mail, or by a designated delivery service
authorized pursuant to 26 U.S.C. § 7502(f)(2) may be served by
publication.” As explained in Fountain v. Patrick, 44 N.C. App.
584, 586, 261 S.E.2d 514, 516 (1980), “[a] defect in service of
process by publication is jurisdictional, rendering any judgment or
order obtained thereby void.”
In his complaint Adams alleges that the “facts of this case do
not give rise to the posting or publishing of such notice and, if
such notice was ever given, it is invalid as a matter of law.”
Adams' complaint lists numerous ways in which Adams' contact
information for purposes of service of process was readily
available to defendants. Thus, Adams presented a plausible legaltheory that service by publication was not justified in this case,
even though this Court later held service was sufficient.
Accordingly, we conclude Adams' complaint was legally
sufficient. As such, the trial court erroneously imposed Rule 11
sanctions for failing to conduct a reasonable inquiry into the law.
D. Factual Sufficiency
[5] Next, Adams contends the trial court erroneously concluded
his complaint was not well grounded in fact. “In analyzing whether
the complaint meets the factual certification requirement, the
court must make the following determinations: (1) whether the
plaintiff undertook a reasonable inquiry into the facts and (2)
whether the plaintiff, after reviewing the results of his inquiry,
reasonably believed that his position was well grounded in fact.”
McClerin v. R-M Industries, Inc., 118 N.C. App. 640, 644, 456
S.E.2d 352, 355 (1995). “'[I]n determining compliance with Rule
11, “courts should avoid hindsight and resolve all doubts in favor
of the signer.”'”
Twaddell v. Anderson, 136 N.C. App. 56, 70, 523
S.E.2d 710, 720 (1999) (citations omitted).
In the order imposing sanctions, the trial court made the
following relevant findings of fact and conclusions of law:
FINDINGS OF FACT
. . .
2. That the evidence presented in this
cause indicates that the Plaintiff was
properly served with notice of the foreclosure
proceeding.
3. That there was proper posting of
notice on the property by the Sheriff of Wake
County; that further notice of saidforeclosure proceeding was sent to the office
of Brenton D. Adams by certified mail and was
in fact received.
4. That notice of the foreclosure was
mailed to the Plaintiff by first class mail;
that notice was properly published in a
newspaper with general circulation in the
county; and that notice of fourteen upset bids
was sent by first class mail to the Plaintiff
at his office.
5. That the action of the Plaintiff was
dismissed on motion by the Defendants for
summary judgment on February 21, 2001.
6. That the Plaintiff in discovery
provided evidence of his receipt of certified
mail sent by the Trustee in foreclosure of
notice of the foreclosure action by sending to
Defendants copies of three return receipts
were contained in his files.
. . .
CONCLUSIONS OF LAW
1. That Plaintiff was properly served
and had sufficient and adequate legal notice
of the foreclosure proceeding.
. . .
3. That the Plaintiff in his capacity
as attorney and Trustee failed to conduct a
reasonable inquiry into the law and the facts
regarding the claims set out in the complaint.
Adams first argues the order for sanctions should be reversed
because the trial court failed to make any findings of fact
regarding the facts available to Adams when the complaint was filed
or what kind of factual inquiry Adams made before filing the
complaint. We agree.
In Davis v. Wrenn, 121 N.C. App. 156, 464 S.E.2d 708 (1995),
cert. denied, 343 N.C. 305, 471 S.E.2d 69 (1996), this Courtreversed an order for Rule 11 sanctions because the findings of
fact failed to indicate how the attorney's conduct violated the
mandates of Rule 11(a). See Davis, 121 N.C. App. at 160, 464
S.E.2d at 711. In this case, the trial court made several findings
indicating several different methods of service in this case were
proper and that summary judgment was entered in favor of
defendants. However, the findings of fact neither address what
information was known to Adams at the time the complaint was filed
nor discuss the reasonableness of the steps Adams undertook or
failed to undertake in investigating the facts of this case.
Adams argues he reviewed the foreclosure file to determine
whether proof of valid service on him was contained in the file and
Adams also states that he never received notice of the foreclosure
proceedings from Hutchens. Defendants argue, however, that the
copies of the three return receipts for certified articles provided
by Adams in discovery and the fact that the court file contained
the affidavit required by Rule 4(j1) of the Rules of Civil
Procedure indicate Adams had knowledge at the time the complaint
was filed that service was proper. Therefore, defendants argue
Adams' complaint was not well grounded in fact.
(1) Copies of Return Receipts for Certified Mail
In discovery, Adams provided copies of three unsigned domestic
return receipts for certified mail. Specifically, these unsigned
return receipts stated:
|
Article Number
|
Article Addressed To
|
Service Type
|
|
P 968 048 539
|
Brenton D. Adams,
Trustee of the
Brenton D. Adams
Retirement Plan,
P.O. Box 1389
Dunn, N.C. 28335
|
Certified
|
|
P 968 048 541
|
Richard E. Barr,
P.O. Box 1389
Dunn, N.C. 28335
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Certified
|
|
P 968 048 542
|
Spouse of Richard E.
Barr, P.O. Box 1389
Dunn, N.C. 28335
|
Certified
|
The return receipts were neither dated nor signed. In the order
imposing sanctions, the trial court found “the Plaintiff in
discovery provided evidence of his receipt of certified mail sent
by the Trustee in foreclosure of notice of the foreclosure action
by sending to Defendants copies of three return receipts were [sic]
contained in his files.” The trial court, however, did not find
that Adams had knowledge of these return receipts at the time he
filed the complaint or that a reasonable investigation would have
disclosed these return receipts. As indicated by this Court in
Bryson v. Sullivan, attorneys should be sanctioned for failure to
take minimal steps to confirm facts when the facts could be
verified easily by reference to public records or accessible
documents.
Bryson, 102 N.C. App. at 10, 401 S.E.2d at 652.
However, as stated, “'in determining compliance with Rule 11,
“courts should avoid hindsight.”'”
Twaddell, 136 N.C. App. at 70,
523 S.E.2d at 720 (citations omitted). Thus, the finding of fact
that these return receipts were provided to defendants in discovery
does not support the conclusion that Adams failed to undertake areasonable inquiry into the facts. Therefore, the trial court must
consider Adams' conduct in investigating the facts of this case and
determine whether the investigation was reasonable or that a
reasonable investigation would have revealed facts to Adams tending
to indicate his position was not well grounded in fact. Moreover,
the continued prosecution after the discovery of the certified mail
return receipts may implicate the improper purpose prong of Rule
11.
See generally Bryson, 330 N.C. at 658, 412 S.E.2d at 334.
Accordingly, we remand this cause to the trial court for further
proceedings to determine whether Adams' complaint was well grounded
in fact or was brought for an improper purpose.
(2) Court file
[6] Adams contends he reviewed the court file and did not find
any evidence establishing Hutchens had served Adams via certified
mail. He contends the court file did not contain any return
receipts for any certified articles addressed to Adams. Also,
during oral argument, Adams argued the court file did not contain
an affidavit providing the basis for service by publication or
posting. However, defendants made an oral motion at oral argument
of this case to supplement the record on appeal to include the
affidavit. After oral argument, defendants filed a written motion
to include the affidavit in the record on appeal. Defendants
argued that a few days before oral argument they reviewed the court
file and found the required affidavit with a date stamp of 24 June
1998 in the court file. Thus, defendants argue this affidavitdemonstrates Adams' allegations that service by publication or
posting was improper were not well grounded in fact.
N.C.R. App. P. 9(b)(5) states in pertinent part: “On motion
of any party or on its own initiative, the appellate court may
order additional portions of a trial court record or transcript
sent up and added to the record on appeal.” There is no indication
in the trial court's order imposing sanctions or in the record on
appeal that this affidavit was part of the trial court record.
Thus, we deny defendants' motion to supplement the record on
appeal. However, as this case must be remanded for further
proceedings, the trial court may consider whether this affidavit
was in the court file at the time Adams filed his complaint and its
relevance to whether a violation of Rule 11 occurred.
In sum, we conclude the burdens of proof and persuasion were
not improperly placed upon Adams in this case. We also conclude
the trial court properly utilized a preponderance of evidence
quantum of proof. However, the trial court erroneously concluded
Adams' complaint was not legally sufficient. Thus, we reverse that
portion of the sanctions award. The trial court also did not
render appropriate findings of fact to support its conclusions of
law that Adams' complaint was not well grounded in fact. Moreover,
the trial court did not address the movants' allegations that Adams
brought the complaint for an improper purpose. Accordingly, we
reverse the trial court's order imposing sanctions and remand for
further proceedings to determine whether Adams' complaint was well
grounded in fact or brought for an improper purpose. Reversed and remanded for further proceedings.
Judges TIMMONS-GOODSON and McCULLOUGH concur.
Footnote: 1