Appeal by Plaintiffs and Defendants from orders entered 10
March 2005, 19 April 2005, 23 June 2005, 27 July 2005, and 12
October 2005; appeal by Plaintiffs from orders entered 15 April
2003, 8 October 2004, 16 November 2004, 10 March 2005, 19 April
2005, and 16 June 2005; and appeal by Defendants from orders
entered 14 June 2004, 19 April 2005, and 16 June 2005 by Judge
Catherine C. Eagles in Superior Court, Durham County. Heard in the
Court of Appeals 15 November 2006.
Jones Martin Parris & Tessener Law Offices, P.L.L.C., by John
Alan Jones and G. Christopher Olson, for Plaintiffs.
Kennedy Covington Lobdell & Hickman, L.L.P., by John H. Culver
III and Amy Pritchard Williams, for Defendants.
Juanita Richardson, Robert Gower, Gloria Gower, and Joyce M.
Smith, on behalf of themselves and all others similarly situated
(collectively Plaintiffs), filed this action on 10 May 2002
against, inter alia, Bank of America, N.A. (Bank of America) and
its wholly-owned subsidiary, NationsCredit Financial Services
Corporation (NationsCredit) (collectively Defendants).
(See footnote 1)
alleged claims for unfair and deceptive trade practices (UDTP)
under N.C. Gen. Stat. § 75-1.1, unjust enrichment, breach of the
duty of good faith and fair dealing, and punitive damages.
Plaintiffs' claims arose out of the alleged sale by Defendants to
Plaintiffs of single-premium credit insurance (SPCI) in association
with mortgage loans.
Plaintiffs filed their first amended complaint on 13 August
2002. Plaintiffs' first amended complaint alleged claims against
only Bank of America and NationsCredit. Plaintiffs again alleged
claims for UDTP, unjust enrichment, breach of the duty of good
faith and fair dealing, and punitive damages.
Defendants filed their answer and conditional counterclaim on
19 August 2002. Defendants asserted numerous defenses, including
the statute of limitations. Defendants also asserted a
counterclaim against those Plaintiffs who were in default and/or
who owed deficiency balances, to become effective if and when aclass was certified. Plaintiffs filed an answer on 5 September
2002 asserting several defenses to Defendants' conditional
Pursuant to Rule 2.1(a) of the General Rules of Practice, the
case was designated as an exceptional case on 14 November 2002.
Superior Court Judge Catherine C. Eagles was assigned to the case
on 22 November 2002. The parties then engaged in extensive
Defendants removed the action to the United States District
Court for the Middle District of North Carolina on 20 June 2003,
and that Court granted Plaintiffs' motion to remand the case back
to the trial court on 10 March 2004. The trial court issued a
class certification order on 14 June 2004, and defined the class as
North Carolina borrowers who obtained a loan
before July 1, 2000, from . . . NationsCredit
in the State of North Carolina, whose loans
are secured or were secured by real property
located in North Carolina, and who were sold
single-premium credit life, disability,
accident and health, or involuntary
unemployment insurance with a term less than
that of their loan, and who have not made a
claim under any such credit insurance policy
and who made payments on their loan at any
point after May 10, 1998.
The trial court entered a supplementary scheduling order on 23
July 2004, ordering, inter alia, that discovery should be completed
by 25 October 2004 and that the trial date be set for 4 April 2005.
Discovery continued, and the trial court entered a comprehensive
order on 23 November 2004 resolving all pending non-dispositive
motions and revising and restating scheduling requirements. Defendants appealed this order on 21 December 2004, but Defendants
subsequently dismissed their appeal.
The parties filed motions for summary judgment and partial
summary judgment, along with memoranda in support of those motions,
dated 19 January 2005. In a memorandum in response to Plaintiffs'
motion for partial summary judgment, filed 31 January 2005,
Defendants first raised the defense of federal preemption. The
parties had also filed a joint statement of undisputed facts and
proposed issues on 20 January 2005. In that statement, the parties
agreed that the following facts were undisputed. NationsCredit
sold Juanita Richardson and Robert and Gloria Gower SPCI on twenty-
five year loans. The coverage term for the SPCI was ten years.
NationsCredit loan officers sold the SPCI pursuant to agreements
between NationsCredit and several insurance companies.
It was also undisputed that "[w]ith [SPCI], the credit
insurance premium was financed over the term of the loan. The
premium for [SPCI] was calculated based upon the amount financed.
The amount financed would include any charges for origination fees,
points, loan discount fees, and other closing costs." It was
further undisputed that NationsCredit's sales of SPCI were "in or
The parties further agreed that, at the time of the closing of
their loans, Plaintiffs received and signed numerous documents and
disclosure statements. Plaintiffs signed and received a statement
that informed them that NationsCredit expected to profit from the
sale of any insurance. It was also undisputed that North Carolina allowed the sale of
truncated credit insurance in connection with closed-end real
estate loans. The SPCI sold by NationsCredit to Plaintiffs with
loans of fifteen years or less was approved by the Department of
Insurance. However, the SPCI sold to Plaintiffs having loans
greater than fifteen years was not approved by the Department of
The trial court entered an order on 10 March 2005 addressing
parts of the 19 January 2005 motions for summary judgment. The
trial court ruled that Defendants had waived any right to assert
federal preemption as a defense by failing to assert the defense in
their answer. The trial court also determined that the General
explicitly allowed the sale and implicitly
allowed the financing of truncated single
premium credit insurance in connection with
real estate loans up to and including 15
years' duration and set the maximum premium
rates for this insurance. Therefore, the mere
sale and financing of these products at the
maximum premium rate explicitly allowed by
statute, cannot, by itself, be a UDTP and
cannot be a violation of any duty the
Defendants had of good faith and fair dealing.
The trial court also entered an order on 19 April 2005
regarding the statute of limitations on Plaintiffs' UDTP claims.
The trial court noted that it was undisputed that Plaintiffs' UDTP
claims were based on Defendants' conduct before and during closing,
and were not based upon Defendants' conduct after closing. The
trial court concluded that the statute of limitations for
Plaintiffs' UDTP claims "began to run at the time of the loanclosing when Class members signed and received copies of closing
documents disclosing the sale of SPCI, the amount of the premium
for the SPCI, its term, and the total amount financed at closing."
The trial court also determined that "[t]he fact that the financing
of SPCI resulted in higher costs to the borrower directly
attributable to the purchase of the SPCI and which higher costs
would be paid for over the life of the loan is not material to the
statute of limitations issue." The trial court therefore dismissed
the UDTP claims of those Plaintiffs whose loans closed before 10
May 1998, or four years prior to the filing of the complaint.
The trial court filed an order regarding summary judgment on
liability on 23 June 2005.
The trial court determined that
NationsCredit committed a UDTP as a matter of law as to those
Plaintiffs who were sold SPCI in connection with loans greater than
fifteen years. The trial court also ruled that NationsCredit
breached the duty of good faith and fair dealing with respect to
those Plaintiffs with loans greater than fifteen years. The trial
court further ruled that "it was [a] UDTP to tell a customer that
there was a 'thirty day free look' as to SPCI when in fact if the
SPCI was cancelled within the first 30 days the customer would pay
increased costs[.]" However, as to all other UDTP and breach of
the duty of good faith and fair dealing liability issues, the trial
court ruled in favor of Defendants.
The trial court entered
summary judgment accordingly.
The trial court entered an order regarding the method and
procedure for calculating damages on 12 October 2005. With respectto Plaintiffs' remaining UDTP claims for the sale of SPCI with
loans greater than fifteen years, the trial court held that the
damages would be determined by adding the premium, interest,
points, and fees associated with the purchase and financing of
SPCI, and trebling that amount. Defendants argued that Plaintiffs
should not be entitled to recover the entire premium amount because
Plaintiffs received the benefit of insurance coverage. However,
the trial court held that the SPCI sold to Plaintiffs with loans
greater than fifteen years was an illegally sold insurance product
and, therefore, the SPCI had no value that would reduce the amount
of damages awarded to Plaintiffs. The trial court also ruled that
any refund received by those Plaintiffs who cancelled their
insurance policies should be deducted from any damages those
Plaintiffs received. However, the trial court ruled that such
refunds should be deducted after damages were trebled, rather than
. The trial court then established a process for assessing
The trial court next entered an order on 12 October 2005
regarding summary judgment motions concerning Bank of America's
liability and punitive damages.
The trial court ruled that the
evidence was insufficient to support the direct liability of Bank
of America for any of Plaintiffs' claims. The trial court also
ruled the evidence was insufficient to pierce the corporate veil
and hold Bank of America indirectly liable for the acts of
NationsCredit. Therefore, the trial court dismissed all claims
against Bank of America. In that same order, the trial court ruledthat the evidence was sufficient to allow a jury determination as
to whether NationsCredit was liable for punitive damages on
Plaintiffs' remaining claims for breach of the duty of good faith
and fair dealing. Therefore, the trial court denied Plaintiffs'
and Defendants' motions for summary judgment as to the class claim
for punitive damages.
The trial court then issued an order certifying the case for
immediate appeal pursuant to N.C. Gen. Stat. § 1A-1, Rule 54(b).
The trial court determined there was no just reason to delay appeal
of its numerous orders and further ruled that immediate appeal and
review would promote judicial economy.
Plaintiffs filed their notice of appeal from twelve orders of
the trial court
on 9 November 2005
NationsCredit also filed its
notice of appeal from ten orders of the trial court on
Bank of America filed its notice of appeal from ten orders
of the trial court on 21 November 2005.
Standard of Review
Summary judgment is appropriate "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. Gen. Stat. § 1A-1, Rule 56(c)
(2005). The party who moves for summary judgment has the burden of
"establishing the lack of any triable issue of fact." Pembee Mfg.
Corp. v. Cape Fear Constr. Co.
, 313 N.C. 488, 491, 329 S.E.2d 350,
353 (1985). This burden may be met by "proving that an essentialelement of the opposing party's claim is nonexistent, or by showing
through discovery that the opposing party cannot produce evidence
to support an essential element of his claim[.]" Collingwood v.
G.E. Real Estate Equities
, 324 N.C. 63, 66, 376 S.E.2d 425, 427
(1989). "[T]he standard of review on appeal from summary judgment
is whether there is any genuine issue of material fact and whether
the moving party is entitled to a judgment as a matter of law."
Bruce-Terminix Co. v. Zurich Ins. Co.
, 130 N.C. App. 729, 733, 504
S.E.2d 574, 577 (1998). We review the evidence in the light most
favorable to the nonmoving party. Id.
 Plaintiffs argue the trial court erred by granting summary
judgment for Defendants on Plaintiffs' claims involving loans with
terms of fifteen years or less. Although the trial court granted
summary judgment for Defendants on Plaintiffs' claims of UDTP and
breach of the duty of good faith and fair dealing, Plaintiffs limit
their argument to the summary judgment entered for Defendants on
Plaintiffs' UDTP claims. Accordingly, Plaintiffs abandoned any
claim of error as to summary judgment for Defendants on Plaintiffs'
claims for breach of the duty of good faith and fair dealing. See
N.C.R. App. P. 28(b)(6).
N.C. Gen. Stat. § 75-1.1(a) (2005) provides that "[u]nfair
methods of competition in or affecting commerce, and unfair or
deceptive acts or practices in or affecting commerce, are declared
unlawful." N.C. Gen. Stat. § 75-16 (2005) creates a cause ofaction to redress injuries resulting from violations of Chapter 75
of the General Statutes and provides that any damages recovered
shall be trebled. These two statutes establish a private cause of
action for consumers. Gray v. N.C. Ins. Underwriting Ass'n
N.C. 61, 68, 529 S.E.2d 676, 681, reh'g denied
, 352 N.C. 599, 544
S.E.2d 771 (2000).
"To prevail on a claim of unfair and deceptive trade
practices, a plaintiff must show: (1) [the] defendants committed an
unfair or deceptive act or practice; (2) in or affecting commerce;
and (3) that [the] plaintiff was injured thereby." First Atl.
Mgmt. Corp. v. Dunlea Realty Co.
, 131 N.C. App. 242, 252, 507
S.E.2d 56, 63 (1998). "A practice is unfair when it offends
established public policy as well as when the practice is immoral,
unethical, oppressive, unscrupulous, or substantially injurious to
consumers." Marshall v. Miller
, 302 N.C. 539, 548, 276 S.E.2d 397,
403 (1981). "[A] practice is deceptive if it has the capacity or
tendency to deceive; proof of actual deception is not required."
"[U]nder N.C.G.S. § 75-1.1, it is a question for the jury as
to whether [a party] committed the alleged acts, and then it is a
question of law for the court as to whether these proven facts
constitute an unfair or deceptive trade practice." United
Laboratories, Inc. v. Kuykendall
, 322 N.C. 643, 664, 370 S.E.2d
375, 389 (1988).
, our Supreme Court recognized that "where a party
engages in conduct manifesting an inequitable assertion of power or
position, such conduct constitutes an unfair act or practice." Gray
, 352 N.C. at 68, 529 S.E.2d at 681. In the present case,
Plaintiffs argue that, based upon Gray
, Defendants committed a UDTP
by "inequitably assert[ing] their superior power while dealing with
a subset of the population known to be necessitous and less
sophisticated than borrowers in the prime market." However, this
was not the basis for UDTP liability argued by Plaintiffs before
the trial court.
In its order regarding summary judgment on liability, the
trial court noted that it had earlier ordered Plaintiffs to "state
specifically and clearly which facts they contend would, if
established, constitute [a] UDTP[.]" Plaintiffs contended the
following facts established that Defendants committed a UDTP as a
matter of law with respect to borrowers having loans with terms of
fifteen years or less:
AGREED FACT 26: The NationsCredit loan
officers who sold credit insurance to
NationsCredit borrowers in North Carolina were
licensed insurance agents. The Agency
Agreement between American Bankers Life
Assurance Company of Florida and NationsCredit
Insurance Agency, the Administrative
Accounting Agreement between Protective Life
Insurance Company and NationsCredit Insurance
Agency, and the Administrative Agreement
between Balboa Life Insurance Company and
NationsCredit Insurance Agency provide that
NationsCredit is responsible for obtaining the
licenses and other authorizations and
appointments necessary to transact business
under those agreements.
UNDISPUTED FACT 7: The Defendant NationsCredit
sought and dealt with credit insurers that
would pay the most compensation to Defendant
NationsCredit without regard for the cost of
credit insurance to NationsCredit borrowers.
UNDISPUTED FACT 10: The DefendantNationsCredit gave no serious consideration
to, and did not investigate the possibility
of, selling monthly pay credit insurance
products in connection with the loans at issue
because such products resulted in lower
profits to NationsCredit.
UNDISPUTED FACT 11: In the long run for
borrowers and taking into account interest and
fees/points paid by borrowers, monthly pay
credit insurance was less expensive than
single premium credit insurance providing the
same amount of benefits.
UNDISPUTED FACT 12: If NationsCredit had
seriously been interested in the possibility
of selling monthly pay credit insurance to its
borrowers, it could have found an insurance
company to write and seek regulatory approval
for such coverage.
AGREED FACT 30: NationsCredit's credit
insurance sales were in or affecting commerce.
The trial court determined that these facts did not constitute
a UDTP as a matter of law. The trial court determined that
[t]he product sold was explicitly allowed to
be sold by the North Carolina [General
Assembly], and the financing of that product
was implicitly allowed by the [General
discussion in Court's Order
Signed March 3, 2005, entitled "Order
Addressing Parts of the 1/19/05 Motions for
Summary Judgment," pages 7-10. For those
class members whose loans were for a period up
to and including 15 years, the policies were
approved by the Department of Insurance and
there is no claim at this stage that the
premiums charged exceeded the maximum rate
allowed by law.
The trial court also stated the following:
That there was a product available which would
have been less expensive for all or almost all
of NationsCredit's customers; that
NationsCredit did not seriously consider
selling it; and that this alternative product
would have resulted in lower profits for
NationsCredit does not make the sale andfinancing of SPCI a [UDTP].
In the trial court's earlier order addressing parts of the 19
January 2005 motions for summary judgment, the trial court
concluded that the General Assembly
explicitly allowed the sale and implicitly
allowed the financing of truncated single
premium credit insurance in connection with
real estate loans up to and including 15
years' duration and set the maximum premium
rates for this insurance. Therefore, the mere
sale and financing of these products at the
maximum premium rate explicitly allowed by
statute, cannot, by itself, be [a] UDTP and
cannot be a violation of any duty the
Defendants had of good faith and fair dealing.
For the reasons stated below, we hold that the trial court
correctly concluded that the sale of SPCI was explicitly allowed by
Plaintiffs also argue the fact that the sale and financing of
SPCI was implicitly allowed by the General Assembly did not confer
blanket authorization to sell SPCI under any circumstances.
Plaintiffs cite Country Club of Johnston Cty., Inc. v. U.S.
Fidelity & Guar. Co.
, 150 N.C. App. 231, 243-45, 563 S.E.2d 269,
277-78 (2002), where our Court held that a party need not prove a
violation of the insurance statutes to prove a violation of
N.C.G.S. § 75-1.1. However, the trial court in the present case
did not hold that the sale of SPCI was implicitly allowed by the
General Assembly. Rather, the trial court held that the sale of
SPCI on loans of fifteen years or less was explicitly allowed by
the insurance statutes.
It was undisputed that the SPCI sold by NationsCredit toPlaintiffs with loans of fifteen years or less was approved by the
Department of Insurance. It was also undisputed that North
Carolina allowed the sale of truncated credit insurance in
connection with closed-end real estate loans. Moreover, N.C. Gen.
Stat. § 58-57-35(b) provides:
The premium or cost of credit life,
disability, or unemployment insurance, when
written by or through any lender or other
creditor, its affiliate, associate or
subsidiary shall not be deemed as interest or
charges or consideration or an amount in
excess of permitted charges in connection with
the loan or credit transaction and any gain or
advantage to any lender or other creditor
affiliate, associate or subsidiary, arising
out of the premium or commission or dividend
from the sale or provision of such insurance
shall not be deemed a violation of any other
law, general or special, civil or criminal, of
this State, or of any rule, regulation or
order issued by any regulatory authority of
N.C. Gen. Stat. § 58-57-35(b) (2005) (emphasis added). This
statute bars claims that seek to recover premiums associated with
the sale of SPCI under Chapter 58. We hold that because the credit
insurance sold to Plaintiffs with loans of fifteen years or less
was authorized by the Department of Insurance, and because N.C.G.S.
§ 58-57-35(b) provides that any gain to a lender from the sale of
SPCI shall not be a violation of any other law, the trial court did
not err by granting Defendants' motion for summary judgment. See
Pinney v. State Farm Mut. Ins. Co.
, 146 N.C. App. 248, 256-57, 552
S.E.2d 186, 192 (2001), disc. review denied
, 356 N.C. 438, 572
S.E.2d 788 (2002) (holding that providing UM coverage without also
providing UIM coverage could not amount to a UDTP because N.C. Gen.Stat. § 20-279.21(b)(4) specifically authorized drivers to obtain
UM coverage alone, or combined with UIM coverage, and the statute
required only UM coverage to be offered "to insureds whose policies
reflect only the minimum statutory liability coverage.").
Relying on McMurray v. Surety Federal Savings & Loan Assoc.
82 N.C. App. 729, 348 S.E.2d 162 (1986), cert. denied
, 318 N.C.
695, 351 S.E.2d 748 (1987), Plaintiffs argue that North Carolina
law imposes a heightened duty on a bank when the subject of credit
insurance is broached. In McMurray
, one borrower, who had credit
life insurance, transferred his interest in real property to a co-
borrower who did not have credit life insurance. Id.
at 729, 348
S.E.2d at 163. The plaintiffs argued that the loan officer in
charge of the loan transfer was under a legal duty to offer credit
life insurance to the transferee. Id.
at 730, 348 S.E.2d at 164.
Specifically, the plaintiffs in McMurray
relied upon an Ohio case,
Stone v. Davis
, 419 N.E.2d 1094 (Ohio 1981), cert. denied
Federal Savings & Loan Association v. Davis
, 454 U.S. 1081, 70 L.
Ed. 2d 614 (1981), where the Supreme Court of Ohio held that "'in
broaching the subject of mortgage insurance to a loan customer, a
lending institution has a duty to advise the customer as to how
this insurance may be procured.'" McMurray
, 82 N.C. App. at 732,
348 S.E.2d at 164-65 (quoting Stone
, 419 N.E.2d at 1099). The
Supreme Court of Ohio based its holding on a finding that a bank
acts as a fiduciary when the bank broaches the subject of mortgage
at 732, 348 S.E.2d at 165 (citing Stone
, 419 N.E.2d
at 1098). However, in McMurray
, our Court recognized that the lender
never broached the subject of credit life insurance at the time of
the loan transfer. Id.
Our Court held that a lender does not have
a duty to disclose the availability of or procedures for attaining
credit life insurance at a loan transfer when the lender did not
broach the subject and such insurance was never requested. Id.
733, 348 S.E.2d at 165.
Plaintiffs in the present case argue that Defendants did
broach the subject of credit insurance with Plaintiffs. Therefore,
Plaintiffs argue, Defendants owed a heightened duty to Plaintiffs.
While NationsCredit did broach the subject of credit insurance with
Plaintiffs, we first note that Stone
is not the law in North
Carolina. Moreover, under Stone
, the lender only has a duty to
explain how to procure credit insurance where the lender broaches
the subject. Stone
, 419 N.E.2d at 1099. Neither the Supreme Court
of Ohio in Stone
, nor our Court in McMurray
, held that a lender has
a duty to offer alternative credit insurance products or to offer
credit insurance at a certain price. Therefore, McMurray
inapplicable to the present case.
Relying upon Matter of Dickson
, 432 F. Supp. 752 (W.D.N.C.
1977), Plaintiffs also argue Defendants owed Plaintiffs a fiduciary
duty, which Defendants breached. In Dickson
, the defendant charged
the plaintiffs a premium that was approximately twice the "premium
considered adequate by the North Carolina Insurance Commissioner,
and received a 25% rebate as a commission." Id.
at 760-61. The
court held that because the defendant was a subsidiary of a bankholding company, it was a fiduciary of the plaintiffs for purposes
of the sale of credit life insurance. Id.
at 760. Therefore, the
court held that the defendant committed a UDTP by charging inflated
premiums and retaining a 25% commission without disclosing those
facts to the plaintiffs. Id.
We note that we are not bound by Dickson
. See Shepard v.
Ocwen Fed. Bank, FSB
, 172 N.C. App. 475, 479, 617 S.E.2d 61, 64
, 361 N.C. 137, 638 S.E.2d 197 (2006), reh'g denied
361 N.C. 371, ___ S.E.2d ___ (2007) (recognizing that "[a]lthough
we are not bound by federal case law, we may find their analysis
and holdings persuasive."). Moreover, Dickson
In the present case, unlike in Dickson
, it is undisputed that
NationsCredit disclosed to Plaintiffs that it would make a profit
from the sale of SPCI. Also, as we have already determined, the
sale of SPCI on loans of fifteen years or less was explicitly
authorized by the insurance statutes. Therefore, Dickson
apply to the present case.
In support of their argument that Defendants owed Plaintiffs
a fiduciary duty, Plaintiffs also rely upon introductory remarks to
a federal regulation, Regulation Y, 12 C.F.R. § 222.4(a)(9) (1971).
This regulation authorized banks to sell credit insurance under
certain circumstances. The introductory remarks read as follows:
In connection with its action on this matter,
the Board expressed the expectation that any
holding company or subsidiary that acts as an
insurance agent on the basis of the new
regulatory provision will exercise a fiduciary
responsibility_that is, by making its best
effort to obtain the insurance at the lowest
practicable cost to the customer.
Nonbanking Activities, 36 Fed. Reg. 15525-26 (Aug. 17, 1971) (to be
codified at 12 C.F.R. pt. 222). However, the United States Court
of Appeals for the District of Columbia Circuit, has stated that
"[t]he real dividing point between regulations
and general statements of policy is
publication in the Code of Federal Regulations
. . . ." Brock v. Cathedral Bluffs Shale Oil
, 796 F.2d 533, 539 (D.C. Cir. 1986).
Publication in the Code is not just a matter
of agency convention. The regulations
governing the Code provide that it shall
contain "each Federal regulation of general
applicability and legal effect." 1 C.F.R. §
8.1(a) (1996). See Brock
, 796 F.2d at 539.
American Portland Cement Alliance v. E.P.A.
, 101 F.3d 772, 776
(D.C. Cir. 1996).
In the present case, the introductory remarks of the Federal
Reserve Board were never adopted as a regulation and were never
published in the Code of Federal Regulations, and therefore never
had the force of law. Therefore, the introductory remarks to
Regulation Y do not provide a basis for a finding that Defendants
owed Plaintiffs a fiduciary duty.
We hold the trial court did not
err by granting Defendants' summary judgment motion on the UDTP
claims of Plaintiffs having loans of fifteen years or less.
 Plaintiffs next argue the trial court erred by granting
Bank of America's motion for summary judgment. Plaintiffs argue
the trial court erred by failing to enter summary judgment for
Plaintiffs on their UDTP and good faith and fair dealing claims
against Bank of America. However, Plaintiffs argue that even if
they were not entitled to summary judgment, genuine issues ofmaterial fact existed as to Bank of America's liability, precluding
summary judgment for Bank of America.
Plaintiffs argue the undisputed facts showed that Bank of
America was directly liable, or at least indirectly liable, for the
sale of SPCI to Plaintiffs. "[A] parent 'corporation is [itself]
responsible for the wrongs committed by its agents in the course of
its business[.]'" United States v. Bestfoods
, 524 U.S. 51, 65, 141
L. Ed. 2d 43, 58 (1998) (quoting United Mine Workers of America v.
Coronado Coal Co.
, 259 U.S. 344, 395, 66 L. Ed. 2d 975, 989
(1922)). Additionally, "[i]t is well recognized that courts will
disregard the corporate form or 'pierce the corporate veil,' and
extend liability for corporate obligations beyond the confines of
a corporation's separate entity, whenever necessary to prevent
fraud or to achieve equity." Glenn v. Wagner
, 313 N.C. 450, 454,
329 S.E.2d 326, 330 (1985).
In North Carolina, courts use the "instrumentality rule" to
pierce the corporate veil. Id.
Our Supreme Court has stated the
instrumentality rule as follows:
[If] the corporation is so operated that it is
a mere instrumentality or alter ego
sole or dominant shareholder and a shield for
his activities in violation of the declared
public policy or statute of the State, the
corporate entity will be disregarded and the
corporation and the shareholder treated as one
and the same person, it being immaterial
whether the sole or dominant shareholder is an
individual or another corporation.
Henderson v. Finance Co.
, 273 N.C. 253, 260, 160 S.E.2d 39, 44
(1968). In order to prevail under the instrumentality rule, a
party must prove three elements: "(1) Control, not mere majority or complete
stock control, but complete domination, not
only of finances, but of policy and business
practice in respect to the transaction
attacked so that the corporate entity as to
this transaction had at the time no separate
mind, will or existence of its own; and
(2) Such control must have been used by the
defendant to commit fraud or wrong, to
perpetrate the violation of a statutory or
other positive legal duty, or a dishonest and
unjust act in contravention of [the]
plaintiff's legal rights; and
(3) The aforesaid control and breach of duty
must proximately cause the injury or unjust
loss complained of."
, 313 N.C. at 454-55, 329 S.E.2d at 330 (quoting Acceptance
Corp. v. Spencer
, 268 N.C. 1, 9, 149 S.E.2d 570, 576 (1966)). Our
Courts have looked to the following factors when considering
whether to pierce the corporate veil under the instrumentality
rule: "1. Inadequate capitalization ('thin corporation'). 2. Non-
compliance with corporate formalities. 3. Complete domination and
control of the corporation so that it has no independent identity.
4. Excessive fragmentation of a single enterprise into separate
at 455, 329 S.E.2d at 330-31 (internal
In the present case, Plaintiffs argue that Bank of America was
directly liable because there were overlapping officers between
Bank of America and NationsCredit and some NationsCredit employees
received their paychecks from Bank of America. However, in
, the United States Supreme Court recognized that a parent
corporation is generally not liable for the acts of its
, 524 U.S. at 61, 141 L. Ed. 2d at 55-56. The Court also recognized that because there is a presumption that
corporate officers act on behalf of the subsidiary alone when
making decisions regarding that entity, "it cannot be enough to
establish liability . . . that dual officers and directors made
policy decisions and supervised activities at the facility." Id.
at 69-70, 141 L. Ed. 2d at 61 (citations omitted). The Court
further stated: "Indeed, if the evidence of common corporate
personnel acting at management and directorial levels were enough
to support a finding of a parent corporation's direct operator
liability under CERCLA, then the possibility of resort to veil
piercing to establish indirect, derivative liability for the
subsidiary's violations would be academic." Id.
at 70, 141 L. Ed.
2d at 61.
In the present case, it is undisputed that Plaintiffs
obtained their loans from NationsCredit. Bank of America was not
a party to any of the loan transactions. As noted above, the mere
fact that there were overlapping officers between Bank of America
and NationsCredit is insufficient to impose direct liability on
Bank of America for NationsCredit's actions. See id.
at 69-70, 141
L. Ed. 2d at 61. Moreover, even though some NationsCredit
employees received their paychecks from Bank of America, the
parties stipulated that NationsCredit loan officers sold the SPCI
at issue pursuant to agreements between NationsCredit and several
insurance companies. Plaintiffs have not produced anything further
to support their direct liability theory, and we hold the trial
court did not err by granting summary judgment for Bank of Americaon this theory.
 Plaintiffs also argue that Bank of America is indirectly
liable for NationsCredit's actions under the instrumentality rule.
Plaintiffs argue that the undisputed evidence demonstrated that
John Hickey, an officer of both Bank of America and NationsCredit,
controlled the day-to-day operations of NationsCredit. To show
that Bank of America dominated NationsCredit's operations,
Plaintiffs rely upon John Hickey's testimony that his separate
titles at Bank of America and NationsCredit simply existed on paper
and were of no import. However, this evidence is insufficient to
show the complete domination of finances, policy, and business
practices that is necessary under the instrumentality rule.
Plaintiffs have not shown evidence that any officer or director
operated merely on behalf of Bank of America, rather than
NationsCredit, when operating NationsCredit.
 Plaintiffs also argue that there was excessive
fragmentation of Bank of America's subsidiaries. However,
Plaintiffs do not rely upon evidence other than the fact that Bank
of America had numerous subsidiaries which were organized under the
Consumer Finance Group. Plaintiffs have not demonstrated that any
fragmentation was excessive nor that it contributed to any
domination of NationsCredit by Bank of America.
 Furthermore, there is no evidence that NationsCredit did
not comply with corporate formalities or that NationsCredit was
undercapitalized. In fact, it appears that as of 31 December 2000,
NationsCredit had a net worth of $953 million dollars, and as of 5August 2005, NationsCredit had a net worth of approximately $1.3
billion dollars. We hold the trial court did not err by granting
summary judgment to Bank of America and we overrule Plaintiffs'
assignments of error grouped under this argument.
Plaintiffs further argue that the trial court erred by failing
to determine Plaintiffs' Rule 56(f) request outlining the critical
discovery Plaintiffs needed to establish that Bank of America was
subject to liability. However, Plaintiffs' Rule 56(f) request was
limited to issues regarding punitive damages and did not refer to
discovery related to Bank of America's liability. This argument
 Plaintiffs argue the trial court erred by granting summary
judgment for Defendants on the ground that the statute of
limitations barred the UDTP claims of those Plaintiffs whose loans
were originated prior to 10 May 1998. Plaintiffs argue that N.C.
Gen. Stat. § 75-8 extended the statute of limitations in the
present case because the alleged violations of the UDTP act were
continuous in nature. Specifically, Plaintiffs argue their UDTP
claims were continuous in nature because the financing of their
SPCI premiums caused Plaintiffs to pay higher costs over the lives
of their loans.
The statute of limitations applicable to UDTP claims is four
years under N.C. Gen. Stat. § 75-16.2 (2005). However, N.C. Gen.
Stat. § 75-8 (2005) provides that "[w]here the things prohibited in
this Chapter are continuous, then in such event, after the firstviolation of any of the provisions hereof, each week that the
violation of such provision shall continue shall be a separate
offense." Plaintiffs argue that Thomas v. Petro-Wash, Inc.
, 429 F.
Supp. 808 (M.D.N.C. 1977), which interpreted N.C.G.S. § 75-8, is
analogous. In Thomas
, the plaintiffs owned a car wash and gasoline
station and entered into a lease-leaseback agreement with the
defendants in 1968. Id.
at 811. The plaintiffs filed a complaint
against the defendants on 9 September 1974
, alleging the defendants
conspired, by the use of the lease-leaseback agreement, "to tie the
sale of gasoline and financial assistance to the sale of certain
car wash equipment" in violation of federal and North Carolina
antitrust laws. Id.
The defendants moved for summary judgment on
the ground that the plaintiffs' claims were barred by the
applicable statutes of limitation. Id.
, the parties agreed on the general law that a cause
of action accrues when a party commits an act that injures another
party's business. Id.
However, the defendants argued that the
signing of the lease-leaseback agreement in 1968 was the last overt
act connecting them with the alleged conspiracy, and therefore the
plaintiffs' claims accrued more than four years before the
plaintiffs filed their complaint. Id.
The plaintiffs argued the
defendants were involved in a continuing conspiracy and that each
sale of gasoline under the lease-leaseback agreement constituted an
overt act committed pursuant to that conspiracy. Id.
The Court agreed with the plaintiffs and concluded that the statute
of limitations began to run from the date of each sale of gasoline. Id.
at 812. The Court also applied its reasoning to the
plaintiffs' claims for treble damages under the North Carolina
antitrust laws. Id.
at 813. Because the plaintiffs alleged
continuing violations of North Carolina antitrust laws, and because
N.C.G.S. § 75-8 extended the statute of limitations for continuing
violations, the plaintiffs' claims were not time barred. Id.
is distinguishable from the case before us. Unlike in
, Plaintiffs did not allege any overt acts by Defendants
after Defendants sold Plaintiffs SPCI at their loan closings. In
fact, it is undisputed that Plaintiffs' UDTP claims were based on
Defendants' conduct before and during closing and were not based
upon Defendants' conduct after closing.
Plaintiffs also rely upon U.S. Leasing Corp. v. Everett,
Creech, Hancock and Herzig
, 88 N.C. App. 418, 363 S.E.2d 665, disc.
, 322 N.C. 329, 369 S.E.2d 364 (1988), where the
plaintiff filed a breach of contract action against the defendants
to recover the balance due under a lease of office equipment. Id.
at 420, 363 S.E.2d at 666. Our Court recognized that where an
obligation is payable in installments, "the statute of limitations
runs against each installment individually from the time it becomes
at 426, 363 S.E.2d at 669. Because the lease was
payable in monthly installments, the statute of limitations had not
run against those payments which had been due in the three years
prior to the filing of the complaint. Id.
U.S. Leasing Corp.
is distinguishable because it did not
involve a claim for UDTP and did not interpret N.C.G.S. § 75-8. Moreover, U.S. Leasing Corp.
does not apply because it dealt with
the unique scenario presented by a breach of an installment
contract. In the present case, Plaintiffs' UDTP claims did not
involve an installment contract. Rather, Plaintiffs' UDTP claims
were solely premised on Defendants' actions before and at the
closing of Plaintiffs' loans. We therefore hold that Plaintiffs'
UDTP claims accrued at the closing of their loans, and N.C.G.S. §
75-8 did not extend the statute of limitations because any
violation of the UDTP Act was not continuous. See Shepard v. Ocwen
Federal Bank, FSB
, 361 N.C. 137, 139-42, 638 S.E.2d 197, 199-200
(2006) (holding that the plaintiffs' usury and UDTP claims arising
out of the payment of a loan origination fee accrued at the loan
closing when such fee was paid and received at closing). We
overrule Plaintiffs' assignments of error grouped under this
 Plaintiffs argue the trial court erred by failing to enter
money judgments in favor of those class members the trial court
held were entitled to damages. Plaintiffs argue that a successful
chapter 75 claimant is entitled to pre-judgment interest on the
trebled damage award from the date liability attached. Therefore,
Plaintiffs contend that "this Court should specify that post-
judgment interest shall be allowed on the entire damages award from
the date of entry of the final liability and damages rulings on 10
However, Plaintiffs cite no authority for this proposition andwe therefore deem Plaintiffs' assignments of error abandoned. See
N.C.R. App. P. 28(b)(6). Furthermore, Plaintiffs are partly to
blame for any delay in entry of money judgments. The trial court
ruled that certain Plaintiffs were entitled to recover compensatory
damages as a result of their UDTP claims. The trial court also set
forth the measure of damages which would be determined in
subsequent proceedings. However, the trial court then certified
all of its decisions for immediate interlocutory review pursuant to
N.C. Gen. Stat. § 1A-1, Rule 54(b). Therefore, the trial court
deferred further action in the case until the resolution of any
appeals from the decisions certified for immediate appeal.
Plaintiffs and Defendants both appealed various decisions of the
trial court, thereby delaying the entry of money judgments in the
 Defendants argue the trial court erred by holding that
Defendants waived their argument that Plaintiffs' claims were
preempted by federal law. Rule 8(c) of the North Carolina Rules of
Civil Procedure provides that in a responsive pleading, a party
must affirmatively set forth any of the enumerated affirmative
defenses "and any other matter constituting an avoidance or
affirmative defense." N.C. Gen. Stat. § 1A-1, Rule 8(c) (2005).
Settled case law holds that a failure to set forth matters
constituting an avoidance or affirmative defense in the pleadings
generally results in a waiver of the defense. Robinson v. Powell
,348 N.C. 562, 566, 500 S.E.2d 714, 717 (1998).
In ruling that Defendants had waived their federal preemption
defense, the trial court noted that the federal preemption issue
raised by Defendants was a choice-of-law preemption issue which
could be waived if not timely raised, rather than a subject matter
jurisdiction preemption issue, which could not be waived. During
oral argument in the present case, Defendants conceded that the
issue regarding federal preemption was a choice-of-law preemption
issue. In support of its ruling that Defendants waived their
federal preemption defense, the trial court relied on Collins v.
, 114 N.C. App. 14, 441 S.E.2d 150, disc. review
, 336 N.C. 603, 447 S.E.2d 388 (1994). However, in Collins
because our Court held that federal preemption was inapplicable to
that case, our Court did not reach the issue of whether federal
preemption was an affirmative defense that could be waived. See
at 21, 441 S.E.2d at 154.
Nevertheless, although there is no case law in North Carolina
regarding whether choice-of-law federal preemption is an
affirmative defense, we hold that it is. "Although we are not
bound by federal case law, we may find their analysis and holdings
, 172 N.C. App. at 479, 617 S.E.2d at 64. In
Gilchrist v. Jim Slemons Imports, Inc.
, 803 F.2d 1488, 1496-97 (9th
Cir. 1986), the Ninth Circuit held that choice-of-law federal
preemption may be waived if not timely raised. Moreover, G. Gray
Wilson, in his treatise on North Carolina Civil Procedure, states
that federal preemption is an affirmative defense which must bepled in a responsive pleading. 2 G. Gray Wilson, North Carolina
§ 8-6, at 143-44 (1995). In support of this
proposition, G. Gray Wilson relies upon Rehabilitation Institute v.
Equitable Life Assur.
, 131 F.R.D. 99, 100-01 (W.D. Pa. 1990),
937 F.2d 598 (3d Cir. 1991), where the federal district
court for the Western District of Pennsylvania held, and the Third
Circuit affirmed, that ERISA preemption was an affirmative defense
that could be waived. Accordingly, we hold that the issue
regarding federal preemption raised by Defendants was an
We further hold that the trial court did not err by holding
that Defendants waived the defense of federal preemption. We
recognize that "[u]nder certain circumstances [the North Carolina
Supreme] Court has permitted affirmative defenses to be raised for
the first time by a motion for summary judgment." Robinson
N.C. at 566, 500 S.E.2d at 717. In Dickens v. Puryear
, 302 N.C.
437, 443, 276 S.E.2d 325, 329 (1981), our Supreme Court held that
if an affirmative defense required to be
raised by a responsive pleading is sought to
be raised for the first time in a motion for
summary judgment, the motion must ordinarily
refer expressly to the affirmative defense
relied upon. Only in exceptional
circumstances where the party opposing the
motion has not been surprised and has had full
opportunity to argue and present evidence will
movant's failure expressly to refer to the
affirmative defense not be a bar to its
consideration on summary judgment.
In the present case, not only did Defendants not raise the defense
of federal preemption in their answer, Defendants also did not
raise federal preemption in their motions for summary judgment. Rather, Defendants raised the defense of federal preemption for the
first time in their memorandum in response to Plaintiffs' motion
for partial summary judgment, which was filed 31 January 2005,
after Defendants filed their motions for summary judgment.
Plaintiffs did not have the opportunity to argue and present
evidence regarding this issue. We therefore hold the trial court
did not err by determining that Defendants waived the defense of
federal preemption by raising it at what was "virtually the last
minute[.]" We overrule the assignments of error grouped under this
 Defendants argue the trial court erred by granting summary
judgment for Plaintiffs on their UDTP claims involving loans with
terms greater than fifteen years. Defendants argue that the trial
court erred by determining that NationsCredit committed a UDTP in
connection with the sale of SPCI on loans having terms greater than
fifteen years because the sale of similar insurance was permitted
in association with such loans. Defendants argue that
NationsCredit could have sold insurance similar to that sold to
Plaintiffs pursuant to Article 58 of Chapter 58. In a related
argument, Defendants argue that under Article 58 of Chapter 58 the
Insurance Commissioner has approved forms that are nearly identical
to the SPCI sold to Plaintiffs with loans greater than fifteen
However, the issues that Defendants attempted to raise in
opposition to summary judgment are not issues of material fact. Itis undisputed that Defendants purported to sell the SPCI to
Plaintiffs pursuant to Article 57 of Chapter 58, not Article 58 of
that Chapter. It is also undisputed that the SPCI sold to
Plaintiffs having loans greater than fifteen years was not approved
by the North Carolina Department of Insurance. N.C. Gen. Stat. §
58-3-150(a) (2005) provides:
It is unlawful for any insurance company
licensed and admitted to do business in this
State to issue, sell, or dispose of any
policy, contract, or certificate, or use
applications in connection therewith, until
the forms of the same have been submitted to
and approved by the Commissioner, and copies
filed in the Department.
Moreover, N.C. Gen. Stat. § 58-57-1 (2005) provides that credit
insurance under that Article can only be sold with loans having
durations of fifteen years or less:
All credit life insurance, all credit accident
and health insurance, all credit property
insurance, all credit insurance on credit card
balances, all family leave credit insurance,
and all credit unemployment insurance written
in connection with direct loans, consumer
credit installment sale contracts of whatever
term permitted by G.S. 25A-33, leases, or
other credit transactions shall be subject to
the provisions of this Article, except credit
insurance written in connection with direct
loans of more than 15 years' duration.
Based upon the undisputed facts, we hold the trial court did not
err by determining that, by virtue of the sale of unapproved SPCI,
Defendants committed a UDTP.
 Defendants also argue the sale of SPCI on an unapproved
form is a regulatory matter and does not constitute a UDTP.
Defendants argue that N.C. Gen. Stat. § 58-2-70 and N.C. Gen. Stat.§ 58-3-100 provide for regulatory penalties for violations of the
insurance statutes. In contrast, Defendants argue, N.C. Gen. Stat.
§ 58-63-15 defines unfair and deceptive acts in the insurance
industry. However, in Country Club of Johnston County, Inc.
Court held that in order to establish a UDTP, a party need not
establish a violation under Article 63 of Chapter 58; a party may
also establish that an insurer violated N.C. Gen. Stat. § 75-1.1.
Country Club of Johnston Cty., Inc.
150 N.C. App. at 243-45, 563
S.E.2d at 277-78.
Defendants also cite Home Indemnity Co. v. Hoechst Celanese
, 128 N.C. App. 226, 494 S.E.2d 768, disc. review denied
S.E.2d 869 (1998), arguing that the failure to obtain approval of
the Insurance Commissioner does not void an insurance policy but
results in regulatory penalties. However, Home Indemnity Co.
distinguishable. In Home Indemnity Co.
, our Court did note that
nothing in N.C.G.S. § 58-3-150 declared that unapproved policy
provisions were void and further noted that Chapter 58 provided for
penalties for violations of its provisions by way of N.C.G.S. § 58-
2-70 and N.C.G.S. § 58-3-100. Id.
at 233, 494 S.E.2d at 773. Our
Court also stated that the unapproved policy provision in that case
was not contrary to the public policy of North Carolina because it
was ultimately approved by the Department of Insurance. Id.
234, 494 S.E.2d at 773. However, our Court also limited its
holding as follows: "In holding that the unapproved form here is
not void, we do not address the situation where an unapproved form
is never submitted for approval or is subsequently rejected for useby the Department of Insurance." Id.
In the present case, the SPCI sold to Plaintiffs in
association with loans greater than fifteen years was never
submitted to the Department of Insurance for approval. Moreover,
it could not have been approved because Article 57 of Chapter 58
does not authorize the sale of such credit insurance on loans with
durations greater than fifteen years. See
N.C.G.S. § 58-57-1.
Therefore, we hold that the sale of the SPCI, which could not have
been approved by the Department of Insurance, was void as against
the public policy of North Carolina.
We also hold that the sale of the SPCI with loans greater than
fifteen years was a UDTP as a matter of law. In Drouillard v.
Keister Williams Newspaper Services
, 108 N.C. App. 169, 423 S.E.2d
324 (1992), disc. review denied
, 333 N.C. 344, 427 S.E.2d 617
(1993), we noted that "[t]his Court has repeatedly held that the
violation of regulatory statutes which govern business activities
may also be a violation of N.C. Gen. Stat. § 75-1.1 whether or not
such activities are listed specifically in the regulatory act as a
violation of N.C. Gen. Stat. § 75-1.1." Id.
at 172-73, 423 S.E.2d
at 326-27. In Drouillard
, our Court relied in part on Ellis v.
, 48 N.C. App. 180, 183, 268 S.E.2d 271, 273
(1980), where our Court held that the insurance statutes did not
provide exclusive regulation for the insurance industry and that
N.C.G.S. § 75-1.1 was applicable. Drouillard
, 108 N.C. App. at
172-73, 423 S.E.2d at 326. In Drouillard
, we then held that
N.C.G.S. § 75-1.1 was applicable to violations of the Trade SecretsProtection Act despite the fact that this Act was not one of the
regulatory statutes specifically listed in Chapter 66. Id.
73, 423 S.E.2d at 326-27.
In the present case, we hold that the sale of unapproved SPCI
to Plaintiffs in association with loans having terms greater than
fifteen years was an "unfair or deceptive act or practice in or
affecting commerce[,]" in violation of N.C.G.S. § 75-1.1(a). As
established by Drouillard
, it is immaterial that the
insurance statutes are regulatory statutes.
Defendants also argue that the failure to obtain regulatory
approval for the SPCI did not proximately cause any damage to
Plaintiffs. Defendants argue that because Plaintiffs retained the
insurance product, the sale of SPCI did not cause them to suffer
any damages. However, this argument wrongly supposes that the SPCI
sold to Plaintiffs had some value. Because we hold, in section V
of this opinion pertaining to Defendants' appeal, that the SPCI
sold to Plaintiffs had no value, we reject this argument.
Therefore, the sale of SPCI to Plaintiffs with loans greater than
fifteen years proximately caused Plaintiffs to suffer damages. We
therefore affirm the trial court on this issue.
 Defendants argue the trial court erred by granting
summary judgment to Plaintiffs having loans greater than fifteen
years on their good faith and fair dealing claims. Relying upon
Polygenex Int'l, Inc. v. Polyzen, Inc.
, 133 N.C. App. 245, 515
S.E.2d 457 (1999), Defendants argue "[t]he duty of good faith isnot an independent duty and a claim for its breach must allege a
breach of the contract from which it arises." Defendants contend
that because Plaintiffs did not allege breach of contract, the
trial court erred by granting summary judgment for Plaintiffs with
loans greater than fifteen years on their good faith and fair
However, Polygenex Int'l, Inc.
does not stand for the
proposition that a party alleging breach of the duty of good faith
and fair dealing must allege a breach of contract. Rather, in
Polygenex Int'l, Inc.
, the plaintiff filed an action against the
defendants for breach of contract, tortious interference with
contract, trademark infringement, and unfair and deceptive trade
at 246, 515 S.E.2d at 459. The defendants moved to
dismiss the complaint and also moved for costs and attorneys' fees
under Rule 11 of the Rules of Civil Procedure. Id.
at 247, 515
S.E.2d at 459. The plaintiff voluntarily dismissed the action
without prejudice. Id.
The trial court then entered an order
finding that the plaintiff's complaint was "not warranted in law,
was not well-grounded in fact, and was filed for an improper
The trial court ordered the plaintiff and an
officer/director of the plaintiff to pay the defendants' attorneys'
fees and costs. Id.
On appeal, our Court simply addressed issues related to the
sanctioning of the plaintiff and its officer/director. Id.
55, 515 S.E.2d at 459-64. In support of their argument that the
plaintiff's breach of contract claim was facially implausible, thedefendants in Polygenex Int'l, Inc.
argued that "'[a]bsent a breach
of actual provisions of the Separation Agreement, . . . breach of
the implied covenant of good faith does not state a proper cause of
at 251, 515 S.E.2d at 461. Our Court did not so
hold. Our Court simply held that the trial court's findings of
fact were supported by sufficient evidence and that the findings
supported the trial court's conclusions. Id.
at 252, 515 S.E.2d at
462. Our Court held that the plaintiff did not state a claim for
breach of contract. Id.
It appears there was not even a claim for
breach of the duty of good faith and fair dealing at issue in that
case. Therefore, our Court did not hold that a party must allege
breach of contract to state a claim for breach of the duty of good
faith and fair dealing.
Our Court has recognized a cause of action for breach of the
duty of good faith and fair dealing in a context similar to the one
at issue in the present case. In Gant v. NCNB
, 94 N.C. App. 198,
379 S.E.2d 865, disc. review denied
, 325 N.C. 706, 388 S.E.2d 453
(1989), the trial court dismissed the plaintiff's complaint which
had alleged, inter alia
, a claim for breach of the duty of good
at 199-200, 379 S.E.2d at 867. The plaintiff alleged
that the defendant failed to inform her of the financial condition
of the company whose loans the plaintiff guaranteed. Id.
379 S.E.2d at 867. Specifically, the plaintiff alleged that the
defendant knew the plaintiff was unaware of the company's financial
condition and that the plaintiff was relying upon the defendant's
good faith and expertise. Id.
at 200, 379 S.E.2d at 867. Theplaintiff also alleged the defendant knew that the company, whose
loans the plaintiff guaranteed, was insolvent. Id.
Our Court recognized that although there is no fiduciary
relationship between a creditor and a guarantor, a creditor may
have a duty to disclose information about the principal debtor
under some circumstances. Id.
at 199, 379 S.E.2d at 867. Our
"'If the creditor knows, or has good grounds
for believing that the surety [or guarantor]
is being deceived or misled, or that he is
induced to enter into the contract in
ignorance of facts materially increasing the
risks, of which he has knowledge, and he has
an opportunity, before accepting his
undertaking, to inform him of such facts, good
and fair dealing demand that he should make
such disclosure to him; and if he accepts the
contract without doing so, the surety [or
guarantor] may afterwards avoid it.'"
at 199-200, 379 S.E.2d at 867 (quoting Trust Co. v. Akelaitis
25 N.C. App. 522, 526, 214 S.E.2d 281, 284 (1975) (citation
omitted)). Our Court held that the plaintiff "alleged sufficient
facts to state a claim against [the] defendant, whether the cause
of action is ultimately determined to be one for negligence or
'breach of duty of good faith,' as [the] plaintiff has labeled her
at 200, 379 S.E.2d at 867.
In the present case, as in Gant
, NationsCredit had a duty to
act in good faith and deal fairly with its borrowers to whom it
also sold insurance. The undisputed facts demonstrate that
NationsCredit sold insurance products that were not approved by the
Department of Insurance to Plaintiffs with loans greater than
fifteen years. In fact, the insurance sold to Plaintiffs withloans greater than fifteen years could not have been approved by
the Department of Insurance. See
N.C.G.S. § 58-57-1. We hold that
by selling an unlawful insurance product to Plaintiffs with loans
greater than fifteen years, NationsCredit breached its duty of good
faith and fair dealing as a matter of law. Therefore, the trial
court did not err by granting summary judgment for certain
Plaintiffs on these claims.
 Defendants argue the trial court erred by determining
that Plaintiffs with loans greater than fifteen years were entitled
to a jury trial regarding punitive damages on their claims for
breach of the duty of good faith and fair dealing. Pursuant to
N.C. Gen. Stat. § 1D-1 (2005), punitive damages are designed "to
punish a defendant for egregiously wrongful acts and to deter the
defendant and others from committing similar wrongful acts."
Pursuant to N.C. Gen. Stat. § 1D-15(a) (2005), punitive damages may
only be awarded against a defendant who is liable for compensatory
damages if the claimant also proves fraud, malice or willful or
wanton conduct. "Willful or wanton conduct" is defined as "the
conscious and intentional disregard of and indifference to the
rights and safety of others, which the defendant knows or should
know is reasonably likely to result in injury, damage, or other
harm." N.C. Gen. Stat. § 1D-5(7) (2005).
Generally, a party may not recover punitive damages for breach
of contract, except for breach of contract to marry. Newton v.
, 291 N.C. 105, 111, 229 S.E.2d 297, 301 (1976). "Nevertheless, where there is an identifiable tort even though the
tort also constitutes, or accompanies, a breach of contract, the
tort itself may give rise to a claim for punitive damages." Id.
"Even where sufficient facts are alleged to make out an
identifiable tort, however, the tortious conduct must be
accompanied by or partake of some element of aggravation before
punitive damages will be allowed." Id.
at 112, 229 S.E.2d at 301.
In the present case, Defendants argue the trial court erred
because Plaintiffs failed to prove an independent tort and failed
to submit sufficient evidence that NationsCredit acted willfully or
wantonly. However, in Dailey v. Integon Ins. Corp.
, 57 N.C. App.
346, 291 S.E.2d 331 (1982), the plaintiff alleged that the
defendant insurance company refused to settle his fire claim
without justification, and the plaintiff sought compensatory,
special, and punitive damages. Id.
at 347, 291 S.E.2d at 332. The
plaintiff alleged the defendant refused to settle the plaintiff's
fire claim in good faith and refused to acknowledge the plaintiff's
damage estimates. Id.
at 348, 291 S.E.2d at 332. The plaintiff
also alleged that the defendant's agent offered money to local
individuals in an attempt to discredit the plaintiff's claim and
The plaintiff alleged that these actions
breached the covenant of good faith and fair dealing. Id.
plaintiff also alleged these actions were willful, oppressive and
malicious, and were done to pressure the plaintiff into a
at 348-49, 291 S.E.2d at 332-33. The plaintiff
further alleged the defendant's misuse of power was outrageous andwas in reckless and wanton disregard of the plaintiff's rights.
at 349, 291 S.E.2d at 333.
The defendant moved to dismiss the plaintiff's claim and the
trial court dismissed the plaintiff's claims for special and
punitive damages. Id.
at 347, 291 S.E.2d at 332. Our Court
reversed, however, holding that the plaintiff "sufficiently alleged
a tortious act accompanied by 'some element of aggravation' to
withstand [the] defendant's motion." Id.
at 350, 291 S.E.2d at
Similarly, in the present case, Plaintiffs with loans greater
than fifteen years have proven willful and wanton tortious activity
by NationsCredit sufficient to warrant submission of their class
claim for punitive damages to a jury. In the present case, the
trial court relied on the following facts in holding that
Plaintiffs had alleged facts sufficient for a jury determination on
[1.] NationsCredit was a wholly owned
subsidiary of a sophisticated nationwide bank;
[2.] NationsCredit had a legal department
available to give advice;
[3.] There is no affidavit or deposition
testimony from anyone working for or with
NationsCredit that [NationsCredit] ever
considered whether the sale of this SPCI was
legal or conducted an investigation into the
legality of its insurance sales practices on
these kinds of loans;
[4.] [NationsCredit] has offered no direct
evidence that it believed or had a rational
basis for believing it was acting legally when
it illegally sold these insurance policies
over a two year period from May 1998 through
[5.] The lawfulness vs. unlawfulness issue is
not a complicated factual question; it is a
matter of reading the applicable statutes.
Anyone reading the statute, particularly
someone in the insurance field, would at the
least recognize the problem with selling this
insurance, and there is no evidence before the
Court that the arguments now made by defense
counsel in court in defense of selling this
insurance were considered and evaluated before
making the decision to sell the insurance;
[6.] The sale and financing of SPCI on
mortgage loans has been controversial for a
number of years and is highly regulated by the
[7.] SPCI is expensive insurance that meets
the needs of very few if any customers;
[8.] NationsCredit never investigated offering
other kinds of insurance because profits would
have been lower; and
[9.] The primary motivation behind the sale of
SPCI was the large profits available.
The trial court held that this evidence would allow a jury to infer
failed to investigate or take any steps to
determine whether the sale of this
controversial and highly regulated insurance
was legal and decided to sell the insurance
solely based on the high profits available and
without regard to the financial needs or legal
rights of its customers, and to the detriment
of their property rights in the homes securing
The trial court recognized that there were other facts which could
allow inferences to the contrary, but determined that the
resolution of the controversy was appropriate for a jury.
We hold that Plaintiffs proved sufficient facts establishing
willful or wanton tortious activity by NationsCredit. Plaintiffs
proved facts sufficient to show that the actions of NationsCreditwere in "conscious and intentional disregard of and indifference to
the rights" of Plaintiffs, and NationsCredit knew or should have
known that by selling unlawful insurance, its actions were
"reasonably likely to result in injury, damage, or other harm."
N.C.G.S. § 1D-5(7).
 Defendants also argue the trial court erred by certifying
a class because there were no common questions of law or fact for
Plaintiffs' class claim for punitive damages. We review a trial
court's decision to certify a class for an abuse of discretion.
Nobles v. First Carolina Communications
, 108 N.C. App. 127, 132,
423 S.E.2d 312, 315 (1992), disc. review denied
, 333 N.C. 463, 427
S.E.2d 623 (1993).
In Faulkenberry v. Teachers' and State Employees' Ret. Sys.
345 N.C. 683, 483 S.E.2d 422 (1997), the defendants argued that
class certification was inappropriate because members of the
potential class would receive different recoveries. Id.
483 S.E.2d at 431-32. Our Supreme Court held that these were
collateral issues, and that the predominate issue was "how much the
parties' retirement benefits were reduced by an unconstitutional
change in the law." Id.
at 698, 483 S.E.2d at 432. Our Supreme
Court upheld the trial court's certification of the class. Id.
698-99, 483 S.E.2d at 432.
Likewise, in the present case, the fact that Plaintiffs might
be entitled to varying amounts of damages did not preclude class
certification. In the present case, the trial court made findings
of fact regarding damages: 13. . . . The fact that class members, if
Plaintiffs prevail, will be entitled to varied
amounts of damages does not render class
certification inappropriate. Damages will be
simpler to deal with in this case than in
some, since it will be clear from review of
the loan papers how much the insurance
coverage at issue cost each class member and
whether the financing of the insurance premium
increased other fees or costs.
14. . . . The questions of fact and law at
issue are the same for all types of SPCI.
Only the amount of damages will vary and that
variance is insufficient in the Court's
judgment and evaluation to preclude class
We hold the trial court did not abuse its discretion by certifying
 Defendants argue the trial court erred by failing to
reduce the amount of compensatory damages by the value of the SPCI
retained by Plaintiffs. N.C.G.S. § 75-16 provides for damages for
a violation of the UDTP Act:
If any person shall be injured or the business
of any person, firm or corporation shall be
broken up, destroyed or injured by reason of
any act or thing done by any other person,
firm or corporation in violation of the
provisions of this Chapter, such person, firm
or corporation so injured shall have a right
of action on account of such injury done, and
if damages are assessed in such case judgment
shall be rendered in favor of the plaintiff
and against the defendant for treble the
amount fixed by the verdict.
"Unfair and deceptive trade practices and unfair competition claims
are neither wholly tortious nor wholly contractual in nature and
the measure of damages is broader than common law actions."
Sunbelt Rentals, Inc. v. Head & Engquist Equip., L.L.C.
, 174 N.C.App. 49, 61, 620 S.E.2d 222, 231 (2005). "The measure of damages
used should further the purpose of awarding damages, which is 'to
restore the victim to his original condition, to give back to him
that which was lost as far as it may be done by compensation in
money.'" Bernard v. Central Carolina Truck Sales
, 68 N.C. App.
228, 233, 314 S.E.2d 582, 585 (quoting Phillips v. Chesson
N.C. 566, 571, 58 S.E.2d 343, 347 (1950)), disc. review denied
N.C. 751, 321 S.E.2d 126 (1984).
Defendants argue that the SPCI sold to Plaintiffs had value
and that its value must be deducted from Plaintiffs' damages prior
to trebling. In support of this argument, Defendants rely upon
Morris v. Bailey
, 86 N.C. App. 378, 386, 358 S.E.2d 120, 125
(1987), where our Court recognized that "[i]f a plaintiff in an
action under Section 75-1.1 involving the sale of a good retains
the good, the difference in fair market value is an appropriate
measure of damages." However, the principle enunciated in Morris
is inapplicable because Plaintiffs in the present case did not
"retain [a] good." Rather, Plaintiffs retained an unlawfully
sold insurance product which had no value.
Defendants also cite Pierce v. Reichard
, 163 N.C. App. 294,
593 S.E.2d 787 (2004) and Lumsden v. Lawing
, 107 N.C. App. 493, 421
S.E.2d 594 (1992). However, in these cases, whatever was retained
by the complaining party had value which, when retained by the
complaining party, did reduce the amount of damages owed to the
complaining party. See Pierce
, 163 N.C. App. at 298, 593 S.E.2d at
790 (where the defendant's damages were reduced by the fair marketrental value of the real property); Lumsden
107 N.C. App. at 504,
421 S.E.2d at 601 (where the plaintiffs' damages were reduced by
the reasonable rental value of the real property). Unlike the
cases cited by Defendants, the SPCI in the present case had no
value because it was an unlawfully sold insurance product.
Defendants also cite Taylor v. Triangle Porsche-Audi, Inc.
, 27 N.C.
App. 711, 220 S.E.2d 806 (1975), disc. review denied
, 289 N.C. 619,
223 S.E.2d 396 (1976). However, Taylor
is inapposite because the
plaintiff in that case sought to rescind the contract and recover
the sales price rather than retain the vehicle and recover the
difference in value. Id.
at 716-17, 220 S.E.2d at 811.
Because we hold that the sale of SPCI with loans greater than
fifteen years was void as against public policy, we look to case
law regarding void contracts in holding that the SPCI sold to
Plaintiffs with loans greater than fifteen years had no value. Our
Supreme Court has stated: "[I]t is generally held that if there can
be no recovery on an express contract because of its repugnance to
public policy, there can be no recovery on quantum meruit
Thompson v. Thompson
, 313 N.C. 313, 314-15, 328 S.E.2d 288, 290
(1985) (citing Builders Supply v. Midyette
, 274 N.C. 264, 162
S.E.2d 507 (1968); Insulation Co. v. Davidson County
, 243 N.C. 252,
90 S.E.2d 496 (1955)). "Stated differently, the law will not allow
one party to benefit directly or indirectly from a contract void as
against public policy." Davis v. Taylor
, 81 N.C. App. 42, 50, 344
S.E.2d 19, 24, disc. review denied
, 318 N.C. 414, 349 S.E.2d 593
(1986). In the present case, we hold that the SPCI sold toPlaintiffs with loans greater than fifteen years in length did not
have any value because the contract was void as against public
policy. Therefore, Defendants were not entitled to reduce the
amount of damages determined by the trial court by any amount
attributable to the unlawful insurance product. Accordingly, to
make Plaintiffs whole, the trial court properly held that the
measure of damages should include the premium, interest, fees, and
points associated with the purchase and financing of the SPCI.
Defendants also argue that pursuant to Blount v. Fraternal
, 163 N.C. 167, 79 S.E. 299 (1913), the lack of the
Commissioner of Insurance's approval does not affect the validity
of the insurance. However, our Court analyzed Blount
, discussed above in section II of Defendants' Appeal.
In Home Indemnity Co.
, our Court held that
the dicta in Blount
is persuasive. Blount
interpreted a predecessor statute to G.S.
58-3-150. While the court in Blount
on a purely evidentiary basis, the court also
addressed the issue of unapproved policy
language. The court determined that even if
the Insurance Commissioner had not approved
the policy, "we would not give our assent to
the position of the plaintiff that this would
avoid the effect of the provision stamped on
the certificate, leaving other parts of the
certificate in force." [Blount
, 163 N.C.] at
170. The court further noted that "[t]he
statute does not purport to deal with the
validity of the contract of insurance, but
with the insurance company." Id.
Home Indemnity Co.
, 128 N.C. App. at 233-34, 494 S.E.2d at 773. In
Home Indemnity Co.
, our Court also held that the policy provision
at issue in that case was not contrary to public policy and should
be enforced as written. Id.
at 234, 494 S.E.2d at 773. However,as we discussed earlier, our Court limited its holding as follows:
"In holding that the unapproved form here is not void, we do not
address the situation where an unapproved form is never submitted
for approval or is subsequently rejected for use by the Department
of Insurance." Id.
In the present case, the SPCI sold to
Plaintiffs in association with loans greater than fifteen years was
never submitted to the Department of Insurance for approval, nor
could it have been, as we determined earlier. Therefore, the sale
of such insurance was void as against public policy.
 Defendants further argue the trial court erred by failing
to reduce, prior to trebling, the amount of compensatory damages by
the amount of any refund received by Plaintiffs who canceled their
coverage. Defendants rely upon Taylor v. Volvo North America
, 339 N.C. 238, 451 S.E.2d 618 (1994), where the plaintiff
leased a vehicle manufactured by the defendant and filed an action
against the defendant alleging the vehicle failed to conform to an
express warranty in violation of the New Motor Vehicles Warranties
Act (the Warranties Act). Id.
at 241, 451 S.E.2d at 619. The
trial court found that the defendant breached an express warranty
and awarded the plaintiff damages in the amount of $4,511.95 plus
interest, consisting of the lease payments, the security deposit,
and repair costs. Id.
at 243, 451 S.E.2d at 621. The trial court
also found that the defendant had unreasonably refused to comply
with the Warranties Act and, therefore, trebled the damages. Id.
The trial court then allowed the defendant to offset $5,429.00,
which represented a reasonable allowance for the use of the
Our Supreme Court held that the reasonable allowance for theuse of a vehicle should have been deducted from the plaintiff's
damages before those damages were trebled. Id.
at 256, 451 S.E.2d
at 628. However, our Supreme Court based its decision on the
interplay between the "Remedies" and "Replacement or refund"
sections of the Warranties Act. Id.
at 256-59, 451 S.E.2d at 628-
30. Importantly, the Court limited its holding by stating that the
Warranties Act was not comparable with Chapter 75 on the issue of
offsetting: "We believe the two statutes are not comparable on this
issue. The [Warranties] Act before us specifically provides for
the damages, i.e. refunds, to a consumer to be reduced by a
reasonable allowance for the vehicle's use. Chapter 75 has no such
offsetting provisions." Id.
at 260, 451 S.E.2d at 630. The Court
also distinguished Seafare Corp. v. Trenor Corp.
, 88 N.C.
App. 404, 363 S.E.2d 643, disc. review denied
, 322 N.C. 113, 367
S.E.2d 917 (1988), which dealt with offsetting in the context of
Chapter 75. Id.
at 260, 451 S.E.2d at 630. We find Seafare Corp.
persuasive in the present case.
In Seafare Corp.
, the plaintiff filed an action against the
defendants alleging the defendants engaged in unfair and deceptive
trade practices in violation of N.C.G.S. § 75-1.1. Seafare Corp.
88 N.C. App. at 406, 363 S.E.2d at 647. The jury returned a
verdict awarding the plaintiff $400,000.00 in damages. Id.
363 S.E.2d at 648. In its judgment, the trial court deducted
$137,000.00 which had been paid to the plaintiff by two of the
original defendants in return for dismissals. Id.
The trial court
then trebled the reduced amount pursuant to N.C.G.S. § 75-16. Id.
On appeal, our Court held that the trial court erred by
deducting the $137,000.00 before trebling the jury's award ofdamages, rather than after. Id.
at 417, 363 S.E.2d at 653.
Court recognized that N.C. Gen. Stat. § 75-16 "is both remedial and
punitive in nature." Id.
We also recognized that "[t]wo purposes
of the statutory provision for treble damages are to facilitate
bringing actions where money damages are limited and to increase
the incentive for reaching a settlement." Id.
Court relied on the reasoning of a Texas decision,
which "based its
holding on the punitive and remedial purposes of the statute and
also on the ground that deducting the amount before trebling the
award would discourage settlements." Seafare Corp.
, 88 N.C. App.
at 417, 363 S.E.2d at 653
. Our Court held that the trial court
"erred by deducting the $137,000[.00] before rather than after
trebling the jury's award of damages[,]" and the trial court
remanded for correction of the judgment. Id.
Like Seafare Corp.
, the present case involves trebling of
damages under Chapter 75. Therefore, we find the reasoning of
, rather than Taylor
, to be persuasive. As in Seafare
, the trial court's decision in the present case to deduct any
refunds paid to Plaintiffs after trebling the entire amount of
damages facilitates the remedial and punitive purposes of Chapter
75, and also encourages settlement. We therefore affirm the trial
court on this issue.
Plaintiffs and Defendants failed to set forth argument
pertaining to their remaining assignments of error, and we
therefore deem them abandoned. See
N.C.R. App. P. 28(b)(6).
Judges BRYANT and STEELMAN concur.