Transland Financial v Pompeii, et al, (04-724) 04/19/2005

NO. COA04-724

NORTH CAROLINA COURT OF APPEALS

Filed: 19 April 2005

TRANSLAND FINANCIAL SERVICES,
INC.,
Plaintiff,

v . Mecklenburg County
No. 02 CVS 15910

MARK POMPEII; MARIA SHINN; ROBIN
SHINN; PREFERRED CAROLINAS REALTY,
INC., d/b/a PRUDENTIAL REALTY;
GREATER CAROLINAS REAL ESTATE
SERVICES, INC., d/b/a PRUDENTIAL
CAROLINAS REALTY; KENNETH LEE
FRIEDMAN; DON GALLOWAY HOMES, LLC,
f/k/a DON GALLOWAY HOMES, INC.,
f/k/a DON GALLOWAY HOMES OF
NORTH CAROLINA, INC.; and
GEOFFREY C. HEMENWAY,
Defendants.

Appeal by defendant Mark Pompeii from order entered 12 December 2003 by Judge Albert Diaz in Mecklenburg County Superior Court. Heard in the Court of Appeals 2 March 2005.

    Grier Furr & Crisp, P.A., by Alan M. Presel, for plaintiff- appellee.

    John C. Snyder, III, for defendant-appellant.

    No brief filed for defendants-appellees Maria Shinn, Robin Shinn, Preferred Carolinas Realty, Inc. d/b/a Prudential Realty, Greater Carolinas Real Estate Services, Inc. d/b/a Prudential Carolinas Realty, Kenneth Lee Friedman, Don Galloway Homes, LLC f/k/a Don Galloway Homes, Inc. f/k/a Don Galloway Homes of North Carolina, Inc., and Geoffrey C. Hemenway.

TYSON, Judge.
Mark Pompeii (“defendant”) appeals from the grant of summary judgment in favor of Transland Financial Services, Inc. (“plaintiff”) against defendant's counterclaim of negligent supervision. We reverse and remand.

    Defendant is a real estate investor. Co-defendant Maria Shinn (“Shinn”) was employed by plaintiff as a mortgage loan officer. Shinn informed defendant of properties for sale that he might be interested in buying. Shinn told defendant she could finance the purchase of the properties through plaintiff. Defendant asserts he relied on Shinn's representations and invested in several properties she recommended. Defendant alleges Shinn represented to him that if he agreed to invest in the properties, she would procure the loans, furnish tenants for the properties, and excess proceeds from closing would be disbursed to him. Shinn used defendant's personal information to apply for a loan through plaintiff.
    In one mortgage transaction, Shinn stated on the loan application that defendant was acquiring the property for use as his primary personal residence. Shinn and co-defendant Kenneth Lee Friedman (“Friedman”), an employee of Prudential Carolina Realty, used a power of attorney to sign defendant's name to a promissory note at closing. Defendant states that the power of attorney he provided to Shinn and Friedman was to be used only if defendant and his wife were unavailable to personally sign documents. Defendantclaims, at all relevant times, he and his wife were available to sign the documents.
    Defendant alleges Shinn's signing of the promissory note as his attorney-in-fact was fraudulent. Defendant states he did not know Shinn had used his name to procure a mortgage and was unaware of the note until the loan servicer put him on notice the mortgage payments were past due and the loan was in default. Defendant complains: (1) Shinn used her position as a mortgage broker and employee of plaintiff to induce defendant into giving her money; (2) plaintiff accepted loan applications prepared by Shinn; (3) plaintiff profited from loans Shinn forwarded and serviced on plaintiff's behalf; and (4) plaintiff's loan application process establishes that plaintiff knew or should have known of Shinn's fraudulent behavior and its acceptance and approval of the terms is sufficient evidence to show plaintiff ratified Shinn's behavior. Defendant also claims he suffered damages as a result of plaintiff's actions.
    Plaintiff admitted that loan applications were taken by its loan officers, such as Shinn, and were sent to plaintiff's loan processing department at its headquarters or to an outside processor. The loan applications were submitted to plaintiff's underwriting department for approval or denial. Approved loans were sent to plaintiff's closing department, and forwarded for closing. Loan packages were returned to plaintiff, forwarded to underwriting, and later to its shipping department to be forwarded to the investor. All transactions between plaintiff and Shinn weresupervised by Jeffery Wallace, plaintiff's branch manager, in Charlotte, North Carolina.
    Plaintiff filed its complaint on 27 August 2002. On 21 April 2003, defendant answered and counterclaimed against plaintiff for negligent supervision of Shinn and Jeffrey Wallace and cross- claimed against the co-defendants. A settlement was reached and plaintiff dismissed all claims against all parties. Defendant did not dismiss his counterclaims and plaintiff filed for summary judgment. Defendant moved for and argued for a continuance based on pending discovery requests. On 18 November 2003, the trial court heard defendant's arguments for a continuance and plaintiff's arguments for summary judgment. On 12 December 2003, the trial court denied defendant's motion for continuance and granted plaintiff's motion for summary judgment. Defendant appeals.

        Summary judgment “is 'a somewhat drastic remedy, [that] must be used with due regard to its purposes and a cautious observance of its requirements in order that no person shall be deprived of a trial on a genuine disputed factual issue.'” Dewitt v. Eveready Battery Co., 355 N.C. 672, 682, 565 S.E.2d 140, 146 (2002) (quoting Marcus Bros. Textiles v. PriceWaterhouse, LLP, 350 N.C. 214, 220, 513 S.E.2d 320, 325 (1999)). “'The purpose of summary judgment is to eliminate formal trials where only questions of law are involved by permitting penetration of an unfounded claim or defense in advance of trial and allowing summary disposition for either party when a fatal weakness in the claim or defense is exposed.'” Talbert v. Choplin, 40 N.C. App. 360, 363, 253 S.E.2d 37, 40 (1979) (quoting Moore v. Fieldcrest Mills, Inc., 296 N.C. 467, 470, 251 S.E.2d 419, 422 (1979)).

            Summary judgment is proper “'if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law.'” N.C.G.S. § 1A-1, Rule 56(c) (2001). “'The party moving for summary judgment ultimately has the burden of establishing the lack of any triable issue of fact.'” Pacheco v. Rogers and Breece, Inc., 157 N.C. App. 445, 447, 579 S.E.2d 505, 507 (2003) (quoting Pembee Mfg. Corp. v. Cape Fear Constr. Co., 313 N.C. 488, 491, 329 S.E.2d 350, 353 (1985)).

            Summary judgment is not appropriate where matters of credibility and determining the weight of the evidence exist. Moore v. Fieldcrest Mills, Inc., 296 N.C. 467, 470, 251 S.E.2d 419, 422 (1979).

            “'Once the party seeking summary judgment makes the required showing, the burden shifts to the nonmoving party to produce a forecast of evidence demonstrating specific facts, as opposed to allegations, showing that he can at least establish a prima facie case at trial.'” Pacheco, 157 N.C. App. at 448, 579 S.E.2d 507 (quoting Gaunt v. Pittaway, 139 N.C. App. 778, 784-85, 534 S.E.2d 660, 664 (2000) [cert. denied, 353 N.C. 371, 547 S.E.2d 810, cert. denied, 534 U.S. 950, 151 L. Ed. 2d 261 (2001)]). “'To hold otherwise . . . would be to allow plaintiffs to rest on their pleadings, effectively neutralizing the useful and efficient procedural tool of summary judgment.'” Id. (quoting Roumillat v.Simplistic Enterprises, Inc., 331 N.C. 57, 64, 414 S.E.2d 339, 342 (1992)).

Draughon v. Harnett Cty Bd. of Educ., 158 N.C. App. 208, 211-12, 580 S.E.2d 732, 735 (2003).

“Although [North Carolina] appellate courts have consistently held that summary judgment is rarely appropriate in negligence actions, . . . summary judgment should be entered where the forecast of evidence before the trial court demonstrates that a plaintiff cannot support an essential element of his claim.” Patterson v. Pierce, 115 N.C. App. 142, 143, 443 S.E.2d 770, 771, cert. denied, 337 N.C. 803, 449 S.E.2d 749 (1994).
“Summary judgment is rarely proper when a state of mind such as intent or knowledge is at issue.” Valdese Gen. Hosp. v. Burns, 79 N.C. App. 163, 165, 339 S.E.2d 23, 25 (1986). The North Carolina Supreme Court has also held “[g]enerally, summary judgment is inappropriate when issues such as motive, intent, and other subjective feelings and reactions are material, or when the evidence presented is subject to conflicting interpretations, or reasonable men might differ as to its significance.” Smith v. Currie, 40 N.C. App. 739, 742, 253 S.E.2d 645, 647, disc. rev. denied, 297 N.C. 612, 257 S.E.2d 219 (1979) (internal quotations omitted).

    Defendant argues plaintiff admitted in its verified answer to defendant's interrogatories: (1) each of plaintiff's employees has a supervisor employed by plaintiff; and (2) plaintiff maintains astandard process in which all loans are reviewed prior to approval and closing. Plaintiff's Vice President, Delana Caldwell (“Caldwell”), asserts in her affidavit that neither her nor plaintiff had any knowledge of fraudulent conduct on the part of Shinn, nor did “Transland ratify Ms. Shinn's fraudulent conduct.” Defendant argues that plaintiff never addressed its constructive notice of Shinn's fraudulent conduct which creates a genuine issue of material fact of whether plaintiff was negligent and liable for Shinn's conduct. Whitman v. Forbes, 55 N.C. App. 706, 713 286 S.E.2d 889, 893 (1982) (citing Johnson v. Insurance Co., 300 N.C. 247, 260, 266 S.E.2d 610, 619 (1980) (holding that allegations of fraud do not readily lend themselves to resolution by way of summary judgment because a cause of action based on fraud usually requires the determination of a litigant's state of mind), [overruled on other grounds, Myers & Chapman, Inc. v. Thomas G. Evans, Inc., 323 N.C. 559, 569, 374 S.E.2d 385, 392 (1988)]).
    Plaintiff's verified answers to defendant's interrogatories, signed by Caldwell, state that plaintiff's loan approval process contains several layers of audit and review. First, each of plaintiff's employees report to and work under a direct supervisor. Second, plaintiff requires loan applications to be sent to plaintiff's headquarters for review prior to approval by their underwriting department for compliance. Third, all packets are sent to the closing department for further review. Defendant argues that a purpose of this review is to verify accuracy, the financial stability of the person applying for the loan, and toensure no fraud or misrepresentations are present in the transaction. Our Supreme Court has long held that “[f]acts [that are] material . . . made known to the agent . . . are constructively known to the company, and cannot be set up to defeat a recovery . . . .” Bergeron v. Insurance Co., 111 N.C. 45, 47, 15 S.E. 883 (1892) (citing Bennett v. Insurance Co., 70 Iowa 600, 31 N.W. Rep. 948 (1887)).
    Defendant alleges that plaintiff has constructive or actual knowledge of an employee's fraud and could or should have been aware of any fraudulent conduct through their review process. Defendant argues a credit check or other quality control checks would have “raised red flags” about the validity of the loans by showing that defendant already owned one primary residence and had applied for two other mortgages. Defendant asserts this process should have showed plaintiff it was unlikely that defendant intended to reside at the new home, contrary to the representations in the loan application.
    “'The party moving for summary judgment ultimately has the burden of establishing the lack of any triable issue of fact.'” Pacheco, 157 N.C. App. at 447, 579 S.E.2d at 507. A genuine issue of material fact exists whether Shinn, as an employee of and supervised by plaintiff, and while in furtherance of plaintiff's business to procure and finance loans, committed fraud and whether plaintiff's negligence actively or constructively allowed fraud to occur, causing damages to defendant. Id. Defendant's contentions are supported by plaintiff's verified complaint against Shinn. Caldwell's affidavit admits to “Shinn's fraudulent conduct” and “Shinn's unfitness and bad conduct.”