822 S.E.2d 185
Va.2018Background
- Crosby owned Albemarle County property secured by a 2003 deed of trust; loan went into default and ALG Trustee was substituted as trustee in April 2014.
- ALG conducted a foreclosure sale on May 29, 2014; two entities (Emerald Spring and Argent) attended and submitted a combined winning bid of $20,903.77; tax assessed value was $436,800.
- Trustee’s deed conveying the property to the purchasers was recorded; purchasers brought unlawful detainer; Crosby obtained temporary relief and ultimately repurchased the property by settlement.
- Crosby sued ALG Trustee, Fannie Mae, and purchasers; after settling with Fannie Mae and the purchasers, he sought leave to file a second amended complaint alleging breach of fiduciary duties by ALG (failure to act impartially, failure to adjourn/cancel sale, inadequate advertising, failure to timely state reinstatement amount).
- Trial court initially overruled ALG’s demurrer but, on reconsideration, sustained the demurrer and dismissed Crosby’s second amended complaint with prejudice, concluding trustee duties are limited to the deed of trust and that no common-law duties applied; Crosby appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Nature of claim: contract or tort? | Crosby: claim arises from deed of trust (contract) and alleges breach of contractual/implied duties. | ALG: trial court characterized it as common-law negligence (tort). | Court: claim sounds in contract — duty source is the deed of trust; trial court erred in characterizing it as negligence. |
| Whether trustee owes common-law fiduciary duties beyond deed text | Crosby: trustee owes implied common-law fiduciary duties (impartiality, to balance creditor/debtor interests). | ALG: trustee’s duties are limited to express terms of the deed of trust and statutory scheme; common-law duties have been abrogated. | Court: common-law fiduciary duties (including impartiality) remain and are implied in the deed of trust; trial court erred to the extent it held otherwise. |
| Whether statutes or deed terms abrogate common-law duties | Crosby: statutes do not displace common-law duties unless clearly inconsistent. | ALG: statutory regulation of foreclosure limits or supplants common-law duties. | Court: statutes regulate aspects of sale but do not broadly abrogate common-law fiduciary duties; statutes are read alongside common law unless irreconcilable. |
| Sufficiency of allegations that sale price "shocks the conscience" | Crosby: sale price (~5% of assessed value) and benefit to creditor alleged are sufficient to plead breach of impartiality and to survive demurrer. | ALG: actions complied with deed terms (advertising twice, sell to highest bidder); no breach alleged. | Court: allegations that sale overwhelmingly benefited creditor and was grossly inadequate are sufficient at pleading stage to survive demurrer; remand for further proceedings. |
Key Cases Cited
- Glazebrook v. Board of Supervisors, 266 Va. 550 (2003) (demurrer tests legal sufficiency of pleaded facts)
- Augusta Mut. Ins. Co. v. Mason, 274 Va. 199 (2007) (accept pleaded facts and inferences when reviewing demurrer)
- Harris v. Kreutzer, 271 Va. 188 (2006) (demurrer presents question of law reviewed de novo)
- MCR Fed., LLC v. JB&A, Inc., 294 Va. 446 (2017) (source-of-duty rule distinguishes contract vs tort claims)
- O'Connell v. Bean, 263 Va. 176 (2002) (breaches of fiduciary duty arising from contract are breaches of implied contractual terms)
- Smith v. Credico Indus. Loan Co., 234 Va. 514 (1987) (trustee under deed of trust is fiduciary for both debtor and creditor)
- Powell v. Adams, 179 Va. 170 (1942) (trustee’s express powers are found in instrument but trustee remains agent of both parties and must act impartially)
- Cromer v. De Jarnette, 188 Va. 680 (1949) (sale at price so grossly inadequate as to shock the conscience raises presumption of fraud)
- Linney v. Normoyle, 145 Va. 589 (1926) (equity may set aside sale for price that shocks the conscience)