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All opinions are subject to modification and technical correction prior to official publication in the North Carolina Reports and North Carolina Court of Appeals Reports. In the event of discrepancies between the electronic version of an opinion and the print version appearing in the North Carolina Reports and North Carolina Court of Appeals Reports, the latest print version is to be considered authoritative.
1. Jurisdiction_long-arm_trust holding mortgage
Long-arm jurisdiction was not extended to defendant Trust 1997-1 in an action for usury
and unfair trade practices in connection with a mortgage, and plaintiff's complaint was properly
dismissed. Defendant, which was assigned the loan after the closing, is a New York common law
trust which receives and distributes income from mortgages to its certificate holders. It has back
offices in New York and California but no employees; and its mortgage notes are serviced by an
independent contractor in California. It had no connection with the origination of this loan and
did not directly collect or direct the collection of the payments. The only connection defendant
has to North Carolina is that less than three percent of its mortgage notes are secured by North
Carolina real property. N.C.G.S. § 1-75.4(1)(d), 1-75.4(5)(d), 1-75.4(6)(b).
2. Statutes of Limitation and Repose_usury and unfair trade practices_accrual at
closing
In an action decided on other grounds, the trial court did not err by dismissing claims for
usury and unfair trade practices arising from a mortgage for expiration of the statute of
limitations. The statute of limitations for usury is two years and for unfair trade practices four
years, with accrual on closing date. Plaintiffs' complaint was filed over four years from the
closing date. N.C.G.S. § 1-52(2), (3), N.C.G.S. § 75-16.2.
3. Unfair Trade Practices_subsequent purchaser of mortgage note
It has been held that a subsequent purchaser of a mortgage note who did not participate in
alleged improprieties during the execution of the mortgage is not liable under N.C.G.S. § 75-1.1.
Judge BRYANT dissenting.
Shipman Gore Mason & Wright, LLP, by Gary K. Shipman and
William G. Wright, for plaintiffs-appellants.
Womble Carlyle Sandridge & Rice, PLLC, by Hada V. Haulsee and
Ronald R. Davis; Leslie A. Greathouse, Santa Ana, California,
pro hac vice, for defendants-appellees Preferred Credit Trust
1997-1 and Bankers Trust Company.
TYSON, Judge.
Garry Lee Skinner and Judy Cooper Skinner (“Skinners”), as
individuals and on behalf of all other individuals similarly
situated (collectively, “plaintiffs”), appeal an order dismissing
plaintiffs' complaint against Preferred Credit Trust 1997-1 (“Trust
1997-1”) and Bankers Trust Company (collectively, “defendants”)
under Rule 12(b)(1), Rule (2), and Rule (6) of the North Carolina
Rules of Civil Procedure. We affirm.
The Skinners allege defendant Preferred Credit charged excessive loan origination fees and interest rates for the loan inviolation of North Carolina's usury law. Plaintiffs filed a class action complaint on 3 December 2001 against multiple defendants asserting violations of North Carolina's Usury Statutes and Unfair and Deceptive Trade Practices Act.
On 12 May 2003, the Chief Justice of the North Carolina Supreme Court designated this case as “exceptional” and assigned Judge Hight to hold sessions. Defendants' motions to dismiss under Rule 12(b)(1), Rule (2), and Rule (6) were heard by Judge Hight. The trial court reviewed the pleadings, read briefs submitted by plaintiffs and defendants, and heard statements and arguments in open court by both plaintiffs and defendants.
On 9 June 2004, the trial court entered its order which determined: (1) plaintiffs voluntarily dismissed claims against defendants Credit Suisse First Boston Mortgage Securities Corporation, Imperial Credit Industries, Inc., Banc One Financial Services, Life Bank, Life Financial Home Loan Owner Trust 1997-3, Wilmington Trust Company, and GMAC-Residential Funding Corporation; (2) plaintiffs voluntarily dismissed all claims against defendant U.S. Bank, N.A., ND. with prejudice; (3) plaintiffs conceded lack of standing against defendants US Bank N.A., Empire Funding Home Loan Owner Trust 1998-1, ICIFC Secured Assets Corporation Mortgage Pass-Through Certificates, Series 1997-1, ICIFC Secured Assets Corporation Mortgage Pass-Through Certificates, Series 1997-2, ICIFC Secured Assets Corporation Mortgage Pass-Through Certificates, Series 1997-3, Preferred Mortgage Trust 1996-2, United Mortgage C.B., LLC, and IMH Assets Corp. CollateralizedAsset-Backed Bonds Series 1999-1; (4) plaintiffs lack personal jurisdiction over IMPAC Mortgage Holdings, Inc., IMPAC Secured Assets Corporation, IMPAC Secured Assets CMN Trust Series 1998-1 Collateralized Asset-Backed Notes, Series 1998-1, and Trust 1997-1; (5) plaintiffs lack standing to assert claims against defendants IMPAC Funding Corporation, IMPAC Mortgage Holdings, Inc., IMPAC Secured Assets Corporation, Bankers Trust Company of California, NA, and Bankers Trust Company; and (6) plaintiffs' complaint fails to state any claim upon which relief may be granted against any of defendants. Plaintiffs appeal.
A court must engage in a two-part inquiry to determine whether personal jurisdiction over a non-resident defendant is properly asserted. Better Business Forms, Inc., 120 N.C. App. at 500, 462 S.E.2d at 833. First, the court must determine whether North Carolina's 'long-arm' statute authorizes jurisdiction over the defendant. N.C. Gen. Stat. § 1-75.4 (2003). If so, the court must determine whether the court's exercise of jurisdiction over the defendant is consistent with due process. Better Business Forms, Inc., 120 N.C. App. at 500, 462 S.E.2d at 833.
Tejal Vyas, LLC v. Carriage Park, Ltd. P'ship, 166 N.C. App. 34, 37, 600 S.E.2d 881, 884-85 (2004), aff'd per curiam, 359 N.C. 315, 608 S.E.2d 751 (2005).
[i]n any action which arises out of: A claim to recover for any benefit derived by the defendant through the use, ownership, control or possession by the defendant of tangible property situated within this State either at the time of the first use, ownership, control or possession or at the time the action is commenced[.]
The defendant's only connection to North Carolina was receipt of payments based on her sale of real property in North Carolina and the note she received secured by the deed of trust. Id. at 601, 289 S.E.2d at 889. Recognizing the “serious constitutional problems that would arise were we to hold otherwise,” this Court granted the defendant's motion to dismiss stating, “[w]e believe that if we read G.S. 1-75.4(6)(b) to give the North Carolina court jurisdiction for a suit against the defendant for an accounting of money she received on the note it would violate the rule of Shaffer.” Id. at 602, 289 S.E.2d at 889-90 (following the minimumcontacts analysis in Shaffer v. Heitner, 433 U.S. 186, 53 L. Ed.2d 683 (1977)).
Here, the only connection Trust 1997-1 has to North Carolina is less than three-percent of the mortgage notes it holds are secured by North Carolina real property. Trust 1997-1 is a New York common law trust with back offices in New York and California. It has no employees. Its servicer of the mortgage notes is an independent contractor located in California. See Wyatt v. Walt Disney World, Co., 151 N.C. App. 158, 166, 565 S.E.2d 705, 710 (2002) (actions of an independent contractor alone are not enough to establish jurisdiction). Trust 1997-1 is an assignee holder of second mortgage notes. Trust 1997-1's connections to and contacts with North Carolina are even more tenuous than those asserted in Whitener. We hold these connections are not sufficient to satisfy North Carolina's long-arm statute.
Because this case presents an issue of first impression in our courts, we look to other jurisdictions to review persuasive authority that coincides with North Carolina's law. In Frazier v. Preferred Credit, the United States District Court for the Western District of Tennessee, held Trust 1997-1, the same nonresident assignee defendants as here, did not engage in sufficient contacts with the forum state to justify the exercise of personal jurisdiction, and dismissed the plaintiff's claims. No. 01-2714 GB, 2002 WL 31039856 at 6-7 (W.D. Tenn., 2002) (Unpublished). The court relied on the facts that: (1) the defendants had no employees or agents in the state; (2) the defendants had no representativesthat traveled to the state; (3) the defendants had not entered into any contracts, including second mortgage loans, in the state; and (4) the loans the defendants held secured by property in the state did not exceed two percent of the total loans they held. Id.
Under very similar facts and law, the Tennessee Court of Appeals held personal jurisdiction could not be extended to the defendants and dismissed the plaintiffs' claims. See Hollingsworth, Inc. v. Johnson, 138 S.W.3d 863, 869 (Tenn. Ct. App., 2003) (“One of the general principles of the law of assignments is that the assignee steps into the shoes of the assignor with regard to the matters covered by the assignment.”) (internal quotation omitted), appeal denied, 2004 Tenn. LEXIS 289 (Tenn. Mar. 22, 2004). Here, the dissenting opinion notes we focus on the Trust's quantity, rather than the quality, of defendants' contacts as the basis to establish jurisdiction. Plaintiffs failed to establish either.
In light of our discussion that the subsections of N.C. Gen. Stat. § 1-75.4, as argued by plaintiffs, do not extend the long-arm statute to Trust 1997-1, we need not address the due process considerations. See Tejal Vyas, LLC, 166 N.C. App. at 37, 600 S.E.2d at 884-85 (“A court must engage in a two-part inquiry to determine whether personal jurisdiction over a non-resident defendant is properly asserted.”). We hold the trial court properly dismissed plaintiffs' complaint against Trust 1997-1 for lack of personal jurisdiction. This assignment of error is overruled.
Orally argued the same day and filed simultaneously with this opinion is Shepard v. Ocwen Federal Bank, FSB, et al., ___ N.C. App. ___, ___ S.E.2d ___ (August 16, 2005) (COA04-1634). In Shepard, we addressed the issue of accrual of the statute of limitations for claims of usury violations and unfair and deceptive trade practices in the same factual scenario. Id. at ___, ___ S.E.2d at ___. Shepard holds the statute of limitations accrues on the date of closing. Our holding in Shepard provides an alternative basis to affirm the trial court's dismissal of plaintiffs' complaint.
The discussion in Shepard was limited to the usury claim due to the plaintiffs stipulating that their claim under N.C. Gen. Stat. § 75-1.1 was time-barred under the applicable statute of limitations. Id. at ___, ___ S.E.2d at ___. Plaintiffs do not so stipulate. Our analysis and discussion as applied to the usury statute of limitations in Shepard is equally applicable to plaintiffs' unfair and deceptive trade practices claim. Id. at ___, ___ S.E.2d at ___.
The Skinners closed on their second mortgage on 22 January 1997. Their complaint was not filed until 3 December 2001, overfour years after the closing date. The statute of limitations for both the usury and unfair and deceptive trade practices had expired. See N.C. Gen. Stat. § 1-52(2)-(3) (2003) (statute of limitations for usury claims is two years); see also N.C. Gen. Stat. § 75-16.2 (2003) (statute of limitations for unfair and deceptive trade practices claims is four years). As an alternative basis to affirm the trial court's order, the trial court properly granted defendants' Rule 12(b)(6) motion to dismiss on expiration of the statute of limitations on both claims.
[3] We further recognize this Court has addressed the issue of mortgage holder/assignee's liability to borrowers for claims of unfair and deceptive trade practices based on execution of the original loan. In Melton v. Family First Mortgage Corp., the plaintiff filed a complaint against the original lender and subsequent assignees of the mortgage note for unfair and deceptive trade practices, fraud, and civil conspiracy. 156 N.C. App. 129, 132-34, 576 S.E.2d 365, 368-69, aff'd per curiam, 357 N.C. 573, 597 S.E.2d 672 (2003). The allegations arose from activities occurring prior to and on the date of closing. Id. at 131, 576 S.E.2d at 367-68. With regards to the bank that purchased the mortgage shortly after its execution, we noted the plaintiff did not meet with the defendant's representatives, did not correspond with the defendant, and had no relationship with the defendant until after the defendant bought the mortgage subsequent to the closing date. Id. at 133, 576 S.E.2d at 369. As here, “there is no evidence that [the defendant] committed improprieties with regard to theexecution of the mortgage.” Id. We held a subsequent purchaser of a mortgage note who did not participate in alleged improprieties during the execution of the mortgage is not liable under N.C. Gen. Stat. § 75-1.1. Id.
There are no allegations that Trust 1997-1, as a subsequent purchaser of a mortgage note, had any connection to the execution of the mortgage note. Under Melton, plaintiffs' claim of unfair and deceptive trade practices against Trust 1997-1 fails. In light of our holding, we decline to address plaintiffs' remaining assignments of error.
Affirmed.
Judge MCCULLOUGH concurs.
Judge BRYANT dissents.
BRYANT, Judge dissenting.
The majority holds the trial court properly dismissed
plaintiffs' claims against Preferred Trusts 1997-1 (hereafter “theTrust” or “defendants”) for lack of personal jurisdiction, finding
that plaintiffs had not satisfied any of the sections of North
Carolina's long-arm statute that plaintiffs asserted. I strongly
disagree and therefore respectfully dissent from the majority
opinion because I believe North Carolina has personal jurisdiction
over the Trust pursuant to both N.C. Gen. Stat. §§ 1-75.4 (1)(d)
and (6)(b). Furthermore, I am of the opinion that to allow out-of-
state defendants, who are associated with enforcing contracts
charging usurious loan fees to in-state residents, to escape the
purview of North Carolina jurisdiction, would not only hinder the
purpose and effect of our long-arm statute, but would also
contravene North Carolina's strong public policy against predatory
lending practices, and deny North Carolina citizens the protections
guaranteed by the laws of this State.
I. Existence of Personal Jurisdiction
In determining whether a North Carolina court may exercise
personal jurisdiction over a defendant, the court must undertake a
two-part inquiry: “First, the North Carolina long-arm statute must
permit the exercise of
personal jurisdiction
.
Second, the exercise
of
personal jurisdiction
must comport with the due process clause
of the Fourteenth Amendment of the United States Constitution.”
Eluhu v. Rosenhaus, 159 N.C. App. 355, 358, 583 S.E.2d 707, 710
(2003). The majority opinion states, because “the subsections of
N.C. Gen. Stat. § 1-75.4, as argued by plaintiffs, do not extend
the long-arm statute to 1997-1 Trust, we need not address the due
process considerations.” (at p. 8). I disagree because I believetwo of the subsections of N.C.G.S. § 1-75.4 alleged by plaintiffs
do, in fact, extend personal jurisdiction to defendants.
A. N.C. Gen. Stat. § 1-75.4 Permits the Exercise of Personal
Jurisdiction
i. 1-75.4(1)(d)
N.C. Gen. Stat. § 1-75.4(1)(d) provides that jurisdiction
exists “[i]n any action, whether the claim arises within or without
this State, in which a claim is asserted against a party who when
service of process is made upon such party . . . [i]s engaged in
substantial activity within this State, whether such activity is
wholly interstate, intrastate, or otherwise.”
There is a clear mandate that the North Carolina long-arm
statute is to be construed liberally in favor of finding
jurisdiction over a defendant. See, Strother v. Strother, 120 N.C.
App. 393, 395, 462 S.E.2d 542, 543 (1995) (“In determining whether
the “long-arm” statute permits our courts to entertain an action
against a particular defendant, the statute should be liberally
construed in favor of finding jurisdiction.”); See also, Marion v.
Long, 72 N.C. App. 585, 586, 325 S.E.2d 300, 302 (1985) (“The
statute [N.C.G.S. § 1-75.4] should receive liberal construction, in
favor of finding jurisdiction.”); See also, Starco, Inc. v. AMG
Bonding & Ins. Servs., 124 N.C. App. 332, 338, 477 S.E.2d 211, 216
(1996) (“Our courts have reminded us on numerous occasions that
section 1-75.4 should receive liberal construction, favoring the
finding of jurisdiction.”); See also, De Armon v. B. Mears Corp.,
67 N.C. App. 640, 643, 314 S.E.2d 124, 126 (1984) (“This statute[G.S. § 1-75.4] is liberally construed to find personal
jurisdiction over nonresident defendants to the full extent allowed
by due process.”), rev'd in part on other grounds, 312 N.C. 749,
325 S.E.2d 223 (1985).
According to the majority, defendants do not engage in
substantial business activity with North Carolina because the Trust
“had no connection with the origination of the loans, payment of
the origination fees, and does not directly collect or direct the
collection of the loan payments,” and further, the Trust “has no
employees and merely holds payments for the benefit of its
certificate holders after receiving them from its servicer in
California.” I would hold, however, for the reasons which follow,
that N.C.G.S. § 1-75 confers jurisdiction over the Trust.
In W. Conway Owings and Assoc., Inc. v. Karman, Inc., 75 N.C.
App. 559, 331 S.E.2d 279 (1985), the defendant, a clothing store,
was incorporated and had its principal place of business in
Colorado. The plaintiff, a North Carolina resident, purchased
clothing from the defendant at its showroom in Denver, Colorado.
Id. The clothing was shipped to North Carolina and, without being
opened by the plaintiff, then shipped to Germany for resale. The
order forms and invoices served as the contracts between the
parties. Id. The plaintiff sued the defendant for alleged defects
with the clothing, which were discovered once the shipment reached
Germany. The defendant filed a motion to dismiss for lack of
personal jurisdiction and the trial court denied the motion. Id.
On appeal, this Court affirmed the trial court's decision, findingthe exercise of personal jurisdiction proper because “[t]he goods
. . . were delivered to North Carolina, the payments for the goods
were made from North Carolina and the [plaintiff] corporation which
claims a breach of warranty is domiciled in this State.” Id. at
564, 331 S.E.2d at 282.
The instant case is similar in many respects to Conway. The
loan agreements were initiated in North Carolina, the payments on
the notes owned by the Trust were made from North Carolina, and
plaintiffs to the class-action are domiciled in North Carolina.
Further, like the Trust, the Conway defendant “ha[d] no sales or
business office, telephone listing, bank account, mailing address,
or employees in North Carolina.” Id. The contacts with our forum
state are also similar. However, there is one significant
difference -- the interest in North Carolina property. The Trust
defendants admit they maintain an interest in the property in North
Carolina due to their ownership of the second mortgage notes.
Conversely, the Conway defendant “ha[d] no interest in any property
in North Carolina and [did] not receive or use textiles from North
Carolina.” Id. at 599, 331 S.E.2d 279. It is reasonable to
conclude the defendant in Conway had a more tenuous relationship
with this State than the Trust, given the lack of interest the
Conway corporation had in North Carolina property. Nevertheless,
this Court held the corporation was engaged in sufficient
substantial activity to confer jurisdiction pursuant to N.C.G.S. §
1-75.4(1)(d). Id. at 561-62, 331 S.E.2d at 281. The record in the case sub judice reveals that while only
three-percent of the mortgage notes owned by the Trust are secured
by North Carolina real property, that three-percent constitutes 114
loans in North Carolina with an aggregate value of over four
million dollars ($4,001,614.61). The Trust is engaged in
substantial activity within the State of North Carolina such that
jurisdiction clearly exists under N.C.G.S. § 1-75.4(1)(d).
ii. N.C.G.S. § 1-75.4(6)(b)
N.C.G.S. § 1-75.4(6)(b) provides that personal
jurisdiction exists:
[i]n any action which arises out of: A claim
to recover for any benefit derived by the
defendant through the use, ownership, control
or possession by the defendant of tangible
property situated within this State either at
the time of the first use, ownership, control
or possession or at the time the action is
commenced [.]
The majority relies on Whitener v. Whitener, 56 N.C. App. 599,
289 S.E.2d 887, disc. rev. denied, 306 N.C. 393, 294 S.E.2d 221
(1982), to support its conclusion that N.C.G.S. § 1-75.4 (6)(b)
does not provide a basis of jurisdiction. However, the majority
omits key elements of the reasoning and holding in its application
of Whitener.
In Whitener, the plaintiff and the defendant were married and
residing in Florida when they sold a piece of real estate they
owned in North Carolina. The parties accepted payment from the
buyer through a purchase note secured by a deed of trust. Id.
After the parties divorced, the defendant remained domiciled in
Florida while the plaintiff moved back to North Carolina. Theplaintiff later brought an action against the defendant to enforce
an accounting of all monies the defendant received toward payment
on the note. The defendant challenged the existence of personal
jurisdiction. Id. Similar to the case at bar, the plaintiff
alleged N.C.G.S. § 1-75.4(6)(b) brought the defendant within the
purview of North Carolina personal jurisdiction. Id. at 601, 289
S.E.2d at 889. The trial court granted the plaintiff's motion to
dismiss, and this Court affirmed that decision on appeal. Id. at
603, 289 S.E.2d at 890.
The majority interprets Whitener to mean N.C.G.S. § 1-
75.4(6)(b) does not permit jurisdiction over a non-resident
defendant whose only interest in North Carolina is a note secured
by a deed of trust on real property in this State. (at p. 7).
According to the majority, Whitener suggests such a connection is
not sufficient to satisfy North Carolina's long-arm statute, and to
read the statute so as to give the Court jurisdiction in that
instance would violate the minimum contacts requirement of Shaffer
v. Heitner, 433 U.S. 186, 53 L. Ed. 2d 683 (1977). (at p. 7). I
disagree.
The Whitener court held there was a lack of personal
jurisdiction over the defendant because there was no relationship
between the property in North Carolina and the controversy between
the parties. The Court referenced three cases to support its
holding: Shaffer; Balcon, Inc. v. Sadler, 36 N.C. App. 322, 244
S.E.2d 164 (1978); and Holt v. Holt, 41 N.C. App. 344, 255 S.E.2d
407 (1979).In Shaffer, the Court held “the fact that the defendants relied
on Delaware law to protect their interests as stockholders did not
give the Delaware court jurisdiction of the defendants in an action
unrelated to their rights as stockholders.” Whitener at 602, 289
S.E.2d at 889 (citing Shaffer, supra). In following Shaffer,
Balcon held “there was not [] sufficient minimum contact[s] to
support jurisdiction over a Maryland resident who owned real estate
in this state when the plaintiff, also a Maryland resident, brought
an action . . . on a claim that arose in Maryland and was unrelated
to the North Carolina real estate.” Id. at 601, 289 S.E.2d at 889
(citing Balcon, 36 N.C. App. 322, 244 S.E.2d 164). In Holt, “this
Court held that the district court had jurisdiction over a resident
of another state who owned real estate in North Carolina . . .
[because] there were several factors which showed there was a
relationship between the defendant's North Carolina property and
the controversy between the parties.” Id. (citing Holt, 41 N.C.
App. 344, 255 S.E.2d 407).
From these cases, the Whitener Court perpetuated the following
rule and applied it to the facts: in order for North Carolina's
long-arm statute to obtain personal jurisdiction over non-residents
having an interest in real property in the state, there must be
some relationship between that interest and the cause of action.
Whitener at 601-02, 289 S.E.2d at 889-90; See also, Balcon at 326,
244 S.E.2d at 167 (“Where real property has some relation to the
controversy, the interest of the State in realty within its
borders, and the defendant's substantial relationship with theforum should support jurisdiction.”) (emphasis added). The
Whitener Court held that to “read [N.C.]G.S. § 1-75.4(6)(b) to give
the North Carolina court jurisdiction for a suit against the
defendant for an accounting of money she received on the note”
would violate the Shaffer rule only because “[t]here [was] no
dispute between the parties as to whether the note should be paid.
The only dispute [was] what [] the defendant [did] with the
payments.” Whitener at 602, 289 S.E.2d at 889. In other words,
“there was no indication that the sale [of the North Carolina
property] was connected with the Florida action.” Id. at 602, 289
S.E.2d at 890.
The majority's focus on the Trust's quantity of contacts with
the State is irrelevant to the analysis in Whitener, which
addressed the determination of a defendant's quality of contacts as
the basis of establishing jurisdiction. In applying what I believe
to be the correct rule of Whitener to the case sub judice, we must
determine if there is some relationship between the Trust's
interest in North Carolina property and the cause of action.
Defendants' brief and the majority opinion both stress the notion
that the Trust only holds the notes. However, they overlook the
ownership factor. The Trust maintains ownership over the second
mortgage notes, which means in the event the borrowers default on
their loan payments, the Trust can foreclose on the property,
collect the proceeds, and eventually take sole ownership.
Therefore, defendant has a substantial interest in North Carolina
property. As such, the notes defendant claims to merely hold forthe benefit of the certificate holders, are connected to North
Carolina property and the residents who live there. While the
notes may continually change hands, the property to which they are
affixed remains within the State.
The majority notes this cause of action arose out of “excessive
and illegal origination fees” and “unfair and deceptive acts
associated with the making and collection of the loans.” (at p. 6).
While the Trust was not involved in the initiation of the loans or
setting the terms of the agreements, as an assignee of the notes,
they assumed all rights, obligations, liabilities and benefits to
which Preferred Credit would have been entitled. Once the notes
were assigned, the Trust took the place of Preferred Credit, and
are treated as if the loans actually originated with the Trust.
This has been a long-standing principle in North Carolina contract
law. Smith v. Brittain, 38 N.C. 347, 354, 1844 N.C. LEXIS 157, 13
(1844) (“an assignee stands absolutely in the place of his
assignor, and it is . . . as if the contract had been originally
made with the assignee, upon precisely the same terms as with the
original parties.”); Rose v. Vulcan Materials Co., 282 N.C. 643,
664, 194 S.E.2d 521, 535 (1973) (“The assignee steps into the shoes
of the assignor . . . .”)(quoting Cook v. Eastern Gas and Fuel
Assocs., 129 W. Va. 146, 155, 39 S.E.2d 321, 326 (1946)); Turner v.
Beggarly, 33 N.C. 331, 334, 1850 N.C. LEXIS 66, 7 (1850) (“an
assignee
is affected by the liabilities of his
assignor”).
Consequently, defendants cannot hide behind the argument that “the
Preferred Trusts have not engaged in or transacted any business in. . . North Carolina [and] . . . have not made any contracts with
any resident of . . . North Carolina[.]”
In its affidavit, defendants state that one of the purposes of
the Preferred Trusts is to “receive income from the mortgage loans,
including second mortgage loans.” Through the servicers, the Trust
receives monthly payments based on the terms of the original loan
agreement. By receiving those payments, defendants are enforcing
the loans. The borrowers initiated this cause of action to seek
recovery of the usurious fees. These factors evidence the
requisite relationship between defendants' interest in the North
Carolina property and the cause of action to satisfy Shaffer and
N.C.G.S. § 1-75.4(6)(b) . For the above reasons, I believe
plaintiffs satisfied the first step in the two-part personal
jurisdiction inquiry, showing facts sufficient to establish
jurisdiction pursuant to either N.C.G.S. §§ 1-75.4(1)(d) or (6)(b)
of North Carolina's long-arm statute. Next, it is necessary to
explore whether the exercise of personal jurisdiction violates
defendants' due process rights.
B. Due Process Analysis
A personal jurisdiction analysis is not complete until the
court analyzes both elements of the two-part inquiry. By not
engaging in the due process analysis, the majority overlooks the
rule that due process “is the crucial inquiry and the ultimate
determinative factor in assessing whether jurisdiction may be
asserted under the 'long-arm' statute.” Phoenix America Corp. v.
Brissey, 46 N.C. App. 527, 530, 265 S.E.2d 476, 479 (1980); seealso, Chadbourn, Inc. v. Katz, 285 N.C. 700, 706, 208 S.E.2d 676,
680 (1974) (“due process, and not the language of the statute, is
the ultimate test of “long-arm” jurisdiction over a nonresident”).
For the exercise of personal jurisdiction to comport with the
Due Process Clause of the Fourteenth Amendment, International Shoe
Co. v. Washington, 326 U.S. 310, 316, 90 L. Ed. 95, 102 (1945), a
non-resident defendant must have minimum contacts with the forum
state so as not to offend “traditional notions of fair play and
substantial justice.” It is a well-settled principle that the
determination of minimum contacts with the forum is not calculated
by a mechanical test, but rather it varies depending on the facts
of the particular case. Dillon v. Numismatic Funding Corp., 291
N.C. 674, 679, 231 S.E.2d 629, 632 (1977). Generally, there are
five factors taken into consideration when determining the
existence of minimum contacts: “(1) quantity of the contacts, (2)
nature and quality of the contacts, (3) the source and connection
of the cause of action to the contacts, (4) the interest of the
forum state, and (5) convenience to the parties.” Rosenhaus at 358,
583 S.E.2d at 710.
i. Quantity of Contacts
Defendants have a substantial connection with the forum. As
previously mentioned, defendants own the notes to 114 North
Carolina mortgage loans worth over $4 million. The loan agreements
serve as contracts between the borrowers and defendants, who are
the assignees of Preferred Credit. A single contract is enough to
satisfy the “minimum contacts” necessary to permit jurisdictionover a non-resident corporate defendant, so long as that defendant
has purposefully availed itself of the benefits and privileges of
the laws of the forum. B. F. Goodrich Co. v. Tire King of
Greensboro, Inc., 80 N.C. App. 129, 132-33, 341 S.E.2d 65, 67
(1986) (citations omitted). Here, defendants purposefully availed
themselves of the privileges of North Carolina law. The loan
agreements were initiated in North Carolina, and the Deed of Trust
explicitly stated North Carolina law would govern the mortgage.
Therefore, should any of the borrowers default on their monthly
payments, the Trust would take advantage of North Carolina law to
ensure payment. Should the default lead to foreclosure, the Trust
would expect the full support of North Carolina law in the
acquisition of the properties. Defendants would expect these
protections as to each of the 114 loan agreements. However, it is
common practice in our courts to require a foreign corporation
doing business in North Carolina and accepting the benefits of our
laws to be subject to jurisdiction. See, Central Motor Lines Inc.
v. Brooks Transp. Co., 225 N.C. 733, 739, 36 S.E.2d 271, 275
(1945), questioned in Atlantic C. L. R. Co. v. J. B. Hunt & Sons,
Inc., 260 N.C. 717, 133 S.E.2d 644 (1963) (“to the extent that a
corporation exercises the privilege of conducting activities within
a state, it enjoys the benefits and
protection
of the laws of that
state
.
The exercise of that privilege may give rise to obligations,
and, so far as those obligations arise out of or are connected with
the activities within the state, a procedure which requires the
corporation to respond to a suit brought to enforce them can, inmost instances, hardly be said to be undue.”); See also, State
Highway & Public Works Com. V. Diamond S.S. Transp. Corp., 225 N.C.
198, 203, 34 S.E.2d 78, 81 (1945) (“[North Carolina law] prevent[s]
a foreign corporation from accepting the protection of our laws in
the transaction of its ordinary business, create obligations, and
by reason of its remoteness from any forum available to a local
citizen, secure immunity from liability.”).
ii. Quality and Nature of Contacts
It is reasonable to conclude the Trust's activities in North
Carolina were continuous and systematic. See, e.g., Jaeger v.
Applied Analytical Indus. Deutschland GMBH, 159 N.C. App. 167, 582
S.E.2d 640 (2003) (If a foreign corporation engages in continuous
and systematic activities within the state, minimum contacts
sufficient to comport with due process exist). Defendants have
been in contact with the forum for a considerable period of time
and have established longevity. The “Origination Months” table,
found within the Prospectus Supplement submitted in the record,
reveals that the collection of HLTV mortgage loans purchased by the
Trust were originated by Preferred Credit between June 1995 and
February 1997. When those loans were consolidated under the 1
March 1997 Pooling Service Agreement, the notes became the official
property of Preferred Trusts 1997-1. While it is well-settled law
that the mere ownership of property in the forum state is not
enough to establish minimum contacts (see e.g., Georgia Railroad
Bank & Trust Co. v. Eways, 46 N.C. App. 466, 265 S.E.2d 637
(1980)), the Trust has been admittedly “receiv[ing] income from themortgage loans” since March 1997. As such, defendants have been in
contact with North Carolina residents, and have owned notes
attached to North Carolina property, for approximately four years
prior to the initiation of litigation.
(See footnote 1)
Also, defendants will be
in contact with the state for a lengthier period since the notes
ensure that the borrowers are locked into making payments on the
loans for a term of fifteen years or more.
In addition, defendants' activities span the entire state.
This is a “class action on behalf of the statewide class of North
Carolina residential real estate owners . . . .” (emphasis added).
The 114 second mortgage loans originated by Preferred Credit are
secured by real property located in several counties throughout
North Carolina.
iii. Source and Connection of Cause of Action to
Contacts
The discussion regarding the relationship between the Trust's
interest in North Carolina property and the borrower's cause of
action set out in the Whitener discussion supra, applies to this
factor as well.
iv. Forum State's Interest in Litigation
This class action involves North Carolina residents.
Furthermore, the loans are governed by North Carolina law, and the
notes are secured by North Carolina real property. Also, thisaction involves predatory lending, an area of public concern in
which North Carolina has pioneered legislation.
iv. Convenience to Parties
The forum is convenient for the named plaintiffs and other
class members as they are residents of North Carolina and filed
their claims in North Carolina. The loans were originated and
recorded in North Carolina, and the real properties securing the
loans are located in North Carolina. Clearly, it is more
convenient for plaintiffs to have their claims heard in a North
Carolina forum.
Moreover, defendants would not be unreasonably burdened if
North Carolina exercised personal jurisdiction over this matter.
Even though defendants have corporate offices exclusively in New
York and California, when Preferred Credit assigned the notes to
the Trust, it absorbed all benefits and liabilities. Just as
Preferred Credit would have expected to be hailed into the courts
of North Carolina in the event of a dispute, the Trust, in taking
the assigned notes, assumes the same obligations and liabilities as
Preferred Credit. Turner at 334, 1850 N.C. Lexis at 7. Therefore,
there is no unreasonable inconvenience placed upon defendants to
appear in a North Carolina court.
In assessing the Trust's activities and contacts with the
State in its totality, the exercise of personal jurisdiction would
not violate “traditional notions of fair play and substantial
justice”; thereby, comporting with defendants' due process rights. Therefore, I believe the trial court erred in granting defendants'
motion to dismiss.
C. Persuasive Authorities
The exercise of personal jurisdiction over a consolidated
trust that owns mortgage notes secured to North Carolina property
presents an issue of first impression in our courts. Therefore, we
look to other jurisdictions to find persuasive authority that
coincides with North Carolina policy. First, we distinguish a case
addressed in defendants' brief, Frazier v. Preferred Credit, No.
01-2714 GB, 2002 WL 31039856 at *5-7 (W.D. Tenn. July 31, 2002).
In Frazier, the Western District Court of Tennessee held that the
non-resident assignee defendants, 1997-1 Trust, did not have
sufficient contacts with the forum to justify the exercise of
personal jurisdiction, relying on the fact that 1997-1 Trust had no
agents in the forum state, had no representatives that traveled to
the state, did not enter into any contracts with any state
residents, and did not contract to supply any service or thing in
the state. Id. at *6-7. Acknowledging that the defendant 1997-1
Trust is the same defendant in the instant case, it is important to
note that the Frazier court said it was irrelevant and did not
discuss “whether assignees of [] loans can be held liable for the
actions of the original lenders” or determine “whether an
assignment of a mortgage constitutes an ownership interest in the
property .” Id. at *2.
Therefore, a key portion of this important analysis concerning
the rule that an assignee steps into the shoes of the assignor andassumes all obligations and liabilities, was omitted. See, Smith
at 354, 1844 N.C. Lexis at 13; See also, Rose at 664, 194 S.E.2d
at 535; See also, Turner at 334, 1850 Lexis at 7. Hence, even if
our sister state, Tennessee, does not follow that rule, it is
nevertheless a firmly rooted principle of North Carolina contract
law.
Further, neither Frazier nor other cases cited by defendant
for the same rationale
(See footnote 2)
reflect North Carolina's long-standing
public policy against predatory lending schemes and the charging of
usurious fees. The rationale and holding in Easter v. Am. West
Fin., 381 F.3d 948 (9th Cir. 2004), is more in line with North
Carolina cases discussing personal jurisdiction. The Easter court
held as follows:
Here, the Trust Defendants have availed
themselves of the protections of Washington
law because they are beneficiaries of deeds of
trust, which hypothecate Washington realty to
secure payments on notes owned by the Trust
Defendants. The deeds of trust convey a
property interest in Washington realty, which
interest the Trust Defendants expect
Washington law to protect. In Sher v. Johnson,
911 F.2d 1357, 1363 (9th Cir. 1990), this
court noted that holding a deed of trust
“represents a significant contact with [the
forum].” The Trust Defendants also receive
money from Washington residents, albeit routed
through the loan servicing companies who
actually bill the payors. The Trust
Defendants' income stream is derived from
loans negotiated and executed in Washington
and made to Washington residents.
Moreover, Borrowers' actions arise out of the
Trust Defendants' contacts with the forumbecause the suit is for recovery of the
allegedly excessive interest payments
Borrowers made on their notes. Defendants bear
the burden of proving that the exercise of
jurisdiction would be unreasonable. Bancroft &
Masters, 223 F.3d at 1088. They have produced
no evidence to show that exercise of
jurisdiction over them would fail to “comport
with fair play and substantial justice.” Id.
Therefore, the district court erred in finding
that it lacked specific personal jurisdiction
over the Trust Defendants and we reverse the
district court's order on this ground.
Easter, 381 F.3d at 960-61.
II. Public Policy
North Carolina has a strong public policy of protecting its
resident consumers and borrowers from any illegal transactions.
See Cherry Bekaert & Holland v. Brown, 99 N.C. App. 626, 633-34,
394 S.E.2d 651, 656 (1990) (“North Carolina has a legitimate
interest in the establishment and operation of enterprises and
trade within its borders and the protection of its residents in the
making of contracts with persons and agents who enter the state for
that purpose.”) (emphasis in original) (citation omitted); See also
N.C. Gen. Stat. § 24-2.1 (“It is the paramount public policy of
North Carolina to protect North Carolina resident borrowers through
the application of North Carolina interest laws.”). The North
Carolina General Assembly, in furtherance of the consumer
protection laws made
Further, the North Carolina long-arm statute is to be construed liberally in favor of finding jurisdiction over a foreign defendant. It is designed to enable the courts to assert personal jurisdiction over non-resident defendants to the full extent permitted by the due process clause of the Constitution. De Armon, 67 N.C. App. at 643, 314 S.E.2d at 126; First Citizens Bank & Trust Co. v. McDaniel, 18 N.C. App. 644, 646, 197 S.E.2d 556, 558 (1973), overruled on other grounds, Buying Group, Inc. v. Coleman, 296 N.C. 510, 517-18, 251 S.E.2d 610, 615-16 (1979).
III. Conclusion
For the foregoing reasons, I believe the trial court erred in dismissing plaintiff's claims for lack of personal jurisdiction.
Footnote: 1
Footnote: 2
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