155 F. Supp. 3d 535
M.D.N.C.2015Background
- Michael and Harry Falk (the Falks) owned commercial property through Quicksilver; Quicksilver borrowed from Wachovia and from the Falk Trust, each secured by deeds of trust. Quicksilver later defaulted.
- In 2001 Quicksilver obtained a government-guaranteed loan that was assigned to Fannie Mae; the loan documents represented the Fannie Mae deed would be a first-priority, unencumbered lien, though the Falk Deed of trust remained of record.
- The Falks transferred their interests in Quicksilver to the Falk Trust in 2008; Quicksilver later defaulted on the Fannie Mae loan and Fannie Mae foreclosed in 2011 and purchased the property at the foreclosure sale.
- The Falk Trust sued in state court seeking to enforce its deed; the state courts ultimately held the Falk Deed was terminated by statute, favoring Fannie Mae at the North Carolina Supreme Court level.
- Fannie Mae then filed this diversity action asserting: fraud, negligent misrepresentation, unfair/deceptive trade practices, breach of contract (including sealed instruments), breach of title warranties, and veil-piercing; defendants moved to dismiss for lack of jurisdiction, failure to state a claim, and on res judicata grounds.
- The federal court granted the motion in part (dismissed the claim for breach of warranty of title based on failure to defend) and denied it in part (all other claims survived); it also rejected defendants’ jurisdictional and res judicata arguments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Subject-matter jurisdiction (amount in controversy) | Fannie Mae alleged > $75,000 in good faith based on damages from defendants’ misconduct. | Defendants: at filing Fannie Mae had no compensable harm so amount in controversy not met. | Court: Diversity jurisdiction exists; plaintiff’s good-faith allegation stands and jurisdiction judged at time of filing. |
| Statutes of limitations for fraud/neg. misrep./UDTP | Claims timely because discovery accrual is factbound and complaint does not show discovery date. | Defendants: claims accrued at closing (2001) and are time-barred. | Court: Cannot dismiss under Rule 12(b)(6); accrual/discovery is a factual question not apparent on complaint. |
| Breach of contract (sealed instruments & transfers) | Contract claims arise under sealed Note and Key Principal Agreement so 10-year limitations apply; transfer claim accrued in 2008 and is timely. | Defendants: shorter limitations apply (3 years or 1 year for deficiency). | Court: Ten-year statute applies to sealed instruments; claim survives as timely. |
| Breach of warranty of title (failure to defend) | Fannie Mae asserts Quicksilver warranted and would defend title against claims and failed to do so. | Defendants: warranties protect lender’s security interest, not purchaser-title after foreclosure. | Court: Dismissed this claim — warranty did not cover Fannie Mae’s post-foreclosure title as purchaser. |
| Res judicata | Not preclusive because state suit and federal suit involve different causes of action and separate wrongs. | Defendants: state-court final judgment bars federal claims as same cause of action. | Court: Res judicata does not apply; causes of action differ (owner v. buyer dispute vs. lender v. borrower misconduct). |
| Piercing corporate veil | Fannie Mae seeks to hold Falk Trust liable as Quicksilver’s alter ego. | Defendants: veil-piercing depends on surviving underlying claims. | Court: Veil-piercing claim remains; not dismissed because other substantive claims survive. |
Key Cases Cited
- Dart Cherokee Basin Operating Co. v. Owens, 135 S. Ct. 547 (2014) (plaintiff’s amount-in-controversy allegation accepted if made in good faith)
- St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283 (1938) (jurisdictional amount judged at time of filing; subsequent events do not oust jurisdiction)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility standard for Rule 8; courts accept factual allegations as true)
- JTH Tax, Inc. v. Frashier, 624 F.3d 635 (4th Cir. 2010) (defendant bears heavy burden to show legal certainty that amount-in-controversy not met)
- Falk v. Fannie Mae, 367 N.C. 594 (2014) (North Carolina Supreme Court decision resolving state-court dispute over the Falk Deed)
- Tong v. Dunn, 752 S.E.2d 669 (N.C. Ct. App. 2013) (distinguishing suits arising from same factual matrix when wrongs and capacities differ)