Lifestore Bank v. Mingo Tribal Preservation Trust, 235 N.C. App. 573

Background

Lifestore Bank (formerly AF Bank) made two loans involving Mingo Tribal Preservation Trust: the $2,450,000 "Tuscarora Note" (secured by Tuscarora Ranch deed of trust) and an $1,800,000 loan secured by assignment of the EAC Note (a note from EAC/Pitchfork Basin to Mingo secured by a deed of trust).
Lifestore twice filed and voluntarily dismissed foreclosure-by-power-of-sale actions (special proceedings) on each note between 2010–2012; the clerk and superior court had authorized foreclosure but appeals and dismissals followed.
In June 2012 Lifestore filed a civil complaint seeking (1) money judgment on the EAC Note, (2) money judgment on the Tuscarora Note, and (3) judicial foreclosure of the deeds of trust. Defendants moved to dismiss under Rule 41 and for summary judgment.
The trial court denied dismissal under Rule 41 for the money-judgment claims, granted summary judgment for Lifestore on the EAC Note, and dismissed the judicial-foreclosure claim; both sides appealed.
The Court of Appeals affirmed in part, reversed in part, and remanded: it held Rule 41’s two-dismissal bar did not preclude money-judgment claims or judicial foreclosure (judicial foreclosure reversal), but reversed summary judgment on the EAC Note because genuine factual disputes existed about whether Lifestore was the holder of the original EAC note.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Rule 41’s "two-dismissal" rule bars Lifestore’s money-judgment claims	Rule 41 does not bar money-judgment claims because foreclosures by power of sale are special proceedings and money judgments must be pursued in separate civil actions	Two prior voluntary dismissals of foreclosure actions operate as adjudications on the merits and bar subsequent actions based on same facts	Held for Lifestore: Rule 41 does not bar the money-judgment claims because the power-of-sale proceedings are distinct and could not have included a money judgment
Whether Rule 41 bars Lifestore’s claim for judicial foreclosure	Judicial foreclosure is a distinct remedy and may be pursued even after power-of-sale attempts fail	Two prior dismissals of power-of-sale foreclosures bar any foreclosure remedy, including judicial foreclosure	Held for Lifestore: Trial court erred to dismiss judicial foreclosure; judicial foreclosure is not barred by Rule 41 because it could not have been asserted in the earlier special proceedings
Whether collateral estoppel prevents Lifestore’s current claims	No final judgments were entered in the earlier foreclosure proceedings, so collateral estoppel does not apply	Earlier proceedings should preclude relitigation of issues decided in those foreclosures	Held for Lifestore: Collateral estoppel inapplicable because no final judgments were reached in the prior proceedings
Whether summary judgment for Lifestore on the EAC Note was proper (holder status)	Lifestore contended it had enforceable rights via the assignment and could enforce the EAC Note (even if original note not produced)	Defendants argued Lifestore failed to prove it was the holder of the original EAC Note; possession/strict proof required to avoid multiple liability	Held for defendants on this point: Reversed summary judgment — genuine issue of material fact exists whether Lifestore was the holder of the EAC Note and thus entitled to judgment; strict proof required

Key Cases Cited

Leary v. N.C. Forest Prods., 157 N.C. App. 396 (discusses de novo review of pleadings)
Pembee Mfg. Corp. v. Cape Fear Constr. Co., 313 N.C. 488 (movant’s burden to show no triable fact for summary judgment)
Rankin v. Food Lion, 210 N.C. App. 213 (view evidence in light most favorable to nonmovant; correct result rule)
Richardson v. McCracken Enters., 126 N.C. App. 506 (explains Rule 41 two-dismissal rule test and when claims could have been joined)
G.E. Capital Mort. Servs., Inc. v. Neely, 135 N.C. App. 187 (creditor’s election of remedies: collect on note, foreclose, or both)
Phil Mech. Constr. Co. v. Haywood, 72 N.C. App. 318 (distinguishes special power-of-sale foreclosure from judicial foreclosure)
United Carolina Bank v. Tucker, 99 N.C. App. 95 (characterizes power-of-sale foreclosure as a special proceeding)
Liles v. Myers, 38 N.C. App. 525 (plaintiff must prove holder status of note; copy alone insufficient for summary judgment)
Econo-Travel Motor Hotel Corp. v. Taylor, 301 N.C. 200 (possession of an order note is not alone conclusive proof of holder status)