source: Caselaw Access Project

author: HIRAM H. WARD, Chief Judge.

license: Public Domain

text:
    CHRYSLER CREDIT CORPORATION, Plaintiff, v. Graydon Coleman BURTON, Janis Wynne King Burton, NCNB National Bank of North Carolina, and John M. Brubaker, Trustee, Defendants.
    No. C-83-791-WS.
    United States District Court, M.D. North Carolina, Winston-Salem Division.
    Dec. 17, 1984.

      Walter W. Pitt, Jr., and Joseph T. Carruthers, of Bell, Davis & Pitt, P.A., Winston-Salem, N.C., for plaintiff.
    Graydon Coleman (Coley) Burton, pro se. Benjamin F. Davis, Jr., of Smith, Moore, Smith, Schell & Hunter, Greensboro, N.C., and B. Ervin Brown, II of Badgett, Calaway, Phillips, Davis, Stephens, Peed & Brown, Winston-Salem, N.C., for defendants.
   MEMORANDUM OPINION AND ORDER

HIRAM H. WARD, Chief Judge.

This matter came before the Court on plaintiff’s Motion for Summary Judgment (July 17, 1984) and defendants’ Motion for Summary Judgment (July 17, 1984) pursuant to Rule 56 of the Federal Rules of Civil Procedure. The Court will grant the plaintiff’s motion as to the conveyance between defendants Graydon Coleman Burton (Coley) and Janis Wynne King Burton (Janis), and deny the motion as to any other issues. The Court will grant defendants NCNB and John M. Brubaker’s motion as to the conveyance between NCNB and defendants Coley and Janis Burton. The Court will deny defendants NCNB and Brubaker’s motion on their cross-claim against defendants Coley and Janis Burton.

I. FACTS

On June 15, 1979, plaintiff filed a Complaint in Forsyth County Superior Court against several individuals (including defendant Coley Burton) all of whom had signed the same Continuing Guaranty. Under the terms of the Guaranty, defendant Coley Burton and the other individuals were “primary obligors.” Plaintiff’s Brief In Support of Motion for Summary Judgment, Exhibit 1 (July 26,1984). The principal debtor, Burton Dodge, Inc. was indebted to plaintiff in the amount of $174,938.22. Plaintiff’s Brief, Exhibits 4 & 5. On February 13, 1981, summary judgment was entered in favor of Chrysler on the issue of liability but not damages. Plaintiff’s Brief, Exhibit 6. On July 10, 1981, Coley Burton conveyed the real estate in issue here to his fiancee, Janis King. On July 24, 1981, a Consent Judgment was entered in this action against defendant Coley Burton and others for the amount of $75,000 plus cost. Plaintiff’s Brief, Exhibit 7. On September 30, 1982, Janis King Burton and husband executed a deed of trust to Brubaker, Trustee for NCNB. This suit was commenced on August 10, 1983.

Prior to July 10, 1981, defendant Coley Burton was the sole owner of two improved tracts of real estate in Surry County which were used as business property. On July 10, 1981, defendant Coley Burton conveyed these two tracts to defendant Janis (then) King. At the time of the conveyance defendants Coley Burton and Janis Burton were engaged to be married. Deposition of Janis Burton at 4 (August 1, 1984). Although five dollars in deed stamps were placed on the deed defendant Janis Burton gave defendant Coley Burton no money or any tangible item in exchange for the property. Deposition of Coley Burton at 4-5 (August 1, 1984); Deposition of Janis Burton at 9-10. At the time of the conveyance defendant Coley Burton retained substantially no assets; the piece of land was his principal asset. Deposition of Coley Burton at 4-5. Subsequently, September 27, 1981, defendants Coley Burton and Janis King were married and presently remain husband and wife.

On September 30, 1982, defendants Coley Burton and Janis Burton executed a Deed of Trust to defendant NCNB and defendant Brubaker (as Trustee) to secure a loan for the amount of $30,000. Memorandum of Law in Support of Defendant’s Motion for Summary Judgment at 2; Affidavit of John Brubaker, Exhibit A (July 25, 1984). At the time of defendant NCNB’s loan transaction with defendant Coley Burton and Janis Burton, NCNB obtained an Attorney’s Certificate of Title which did not reveal any prior judgments or liens in the chain of title in favor of the plaintiff. Affidavit of Brubaker, Exhibit B & E. This obligation was renewed on March 30, 1983, with the same procedures being followed.

II. DISCUSSION

Plaintiff contends that the July 10, 1981, conveyance between defendants Coley Burton and Janis Burton was a fraudulent conveyance under N.C.Gen.Stat. §§ 39-15 to -22. Plaintiff also asserts that the September 30,1982 Deed of Trust to defendant NCNB is void as a fraudulent conveyance. Defendants NCNB and Brubaker allege that the September 20, 1982 Deed of Trust is valid and not voidable under North Carolina law. These defendants also allege that defendants Coley and Janis Burton are liable for costs and expenses incurred in this action because of provisions in the Deed of Trust. Defendants Coley and Janis Burton assert that the July 10, 1981 conveyance was not a fraudulent conveyance because valuable consideration passed.

This case presents issues of first impression involving the application of North Carolina fraudulent conveyance law. In a diversity case the Court enforcing state enacted rights must apply the law of North Carolina as declared by its legislature in a statute or by the North Carolina Supreme Court in a decision. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Guaranty Trust Co. v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945). If there are no decisions by the highest court of a state then a federal court must apply what it finds to be the state law after giving “proper regard” to relevant rulings of other courts of the state. Commissioner v. Estate of Bosch, 387 U.S. 456, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967). In the absence of state court authority a federal court must apply the law as it appears the North Carolina Supreme Court would rule. Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188; Brendle v. General Tire & Rubber Co., 505 F.2d 243, 245 (4th Cir. 1974). This case, involving as it does real property issues, statutory reconciliation and interpretation, archaic principles and novel factual settings, calls attention to the “mounting mischief inflicted on the federal judicial system” which Justice Frankfurter described as the result of diversity jurisdiction. Lumbermen’s Mut. Cas. Co. v. Elbert, 348 U.S. 48, 54, 75 S.Ct. 151, 155, 99 L.Ed. 59, 65 (1954) (concurring opinion).

A. NCNB DEED OF TRUST

This transaction raises issues concerning the interplay of the recordation statutes and fraudulent conveyances statutes. The policies behind these two statutory schemes differ, one promotes the certainty of records, the other prevents fraud. The Court must be mindful to avoid unwarranted disruption of these policies which would undermine the effectiveness of the statutory scheme. If two acts of the legislature are applicable to the same subject, their provisions are to be reconciled if this can be done by fair and reasonable intendment. Highway Commission v. Hemphill, 269 N.C. 535, 153 S.E.2d 22 (1967). However, to the extent that they are necessarily repugnant, the one last enacted shall prevail. Id.

North Carolina fraudulent conveyance law has as its cornerstone the venerable case of Aman v. Walker, 165 N.C. 224, 81 5. E. 162 (1914). Among the principles established in Aman, the North Carolina Supreme Court stated, “If the conveyance is upon valuable consideration and made with the actual intent to defraud creditors upon the part of grantor alone, not participated in by the grantee and of which intent he had no notice, it is valid.” Aman, 165 N.C. at 227, 81 S.E. at 164. “According to Aman when a conveyance is made by a debtor for valuable consideration, it is fraudulent and may be set aside only when the conveyance was (1) made with the intent to defraud creditors and (2) the grantee either participated in the intent or had notice of it.” Edwards v. Northwestern Bank, 39 N.C.App. 261, 269, 250 S.E.2d 651, 659 (1979). Affirmed on other grounds, 53 N.C.App. 492, 281 S.E.2d 86 (1981). NCNB alleges that the above standard renders the June 23, 1983 deed of trust a valid transaction despite the grantor’s intent.

North Carolina law, distilled in Arrian, protects bona fide purchasers from creditors of the grantor. In order to be protected a grantee must first be a purchaser for value. NCNB loaned the defendants Janis and Coley Burton $30,000 which was secured by a deed of trust on the contested property. In North Carolina a deed of trust to secure a present loan constitutes the beneficiary a purchaser for value. See Fowle v. McLean, 168 N.C. 537, 84 S.E. 852 (1915); Potts v. Blackwell, 56 N.C. 449 (1857). Plaintiff does not contest the existence of consideration or NCNB’s purchaser status.

NCNB must also be without notice of any fraud in order to protect its title. Lack of notice is the second element necessary to establish bona fide purchaser status. Either actual or constructive notice of the grantor’s fraud is sufficient to deny protected status to a grantee. See Arrington v. Arrington, 114 N.C. 151, 19 S.E. 351 (1894). The plaintiff has not alleged that NCNB had actual notice of fraud on the part of its grantor but confines its argument to constructive notice. The basis of plaintiff’s constructive notice argument stems from the facts that could be derived from a search of the title records. Given the alleged basis of the notice in this case the Court will apply the definition of notice under recordation law. Under recordation law constructive notice means recordation of a document required to be recorded. See Dorman v. Goodman, 213 N.C. 406, 196 S.E. 352 (1938); Fleming v. Mann, 23 N.C.App. 418, 209 S.E.2d 366 (1974). “Recordation is the one and only means of giving notice of an instrument affecting title to real estate.” Massachusetts Bonding & Insurance Co. v. Knox, 220 N.C. 725, 729, 18 S.E.2d 436, 440 (1942).

NCNB, as is the custom, hired an attorney to search the title on the property when the loan was given and upon its renewal. As both defendants Coley and Janis Burton were grantors the attorney searched under both names. The attorney found the property encumbered by utility easements, two deeds of trust, a fixture filing, and county and city property taxes. Affidavit of Brubaker, Exhibit B. The attorney would have discovered a consent judgment docketed against defendant Coley Burton approximately two weeks after defendant Coley Burton conveyed the property to defendant Janis Burton. However, this judgment under North' Carolina law was not a lien on the property. Dula v. Parsons, 243 N.C. 32, 89 S.E.2d 797 (1955). On the deed from defendant Coley Burton was a recitation of $10.00 of consideration passing and five dollars worth of deeds stamps affixed representing at least $5,000 in consideration passing to defendant Coley Burton. The attorney also knew that sometime after the conveyance defendant Coley Burton married defendant Janis Burton. The plaintiff alleges that these facts are sufficient to prevent NCNB from being a bona fide purchaser.

North Carolina is a “pure race” jurisdiction. J. Webster, Real Estate Law in North Carolina § 331 (1971). As already noted constructive notice means recordation. The purpose of North Carolina’s recording statute is to enable intending purchasers and encumbrancers to rely with safety on the public record concerning the status of land titles. See Chandler v. Cameron, 229 N.C. 62, 47 S.E.2d 528 (1948). However, the recording statute only protects innocent purchasers for value. See Lawing v. Jaynes, 285 N.C. 418, 206 S.E.2d 162 (1974).

Recordation law by necessity limits the search required to gain protected status. “The law contemplates that a purchaser of land will examine each recorded deed and other instrument in his chain of title and charges him with notice of every fact affecting his title which an accurate examination of the title would disclose.” Hensley v. Ramsey, 283 N.C. 714, 715, 199 S.E.2d 1, 2 (1973). A purchaser is put on notice of any fact or circumstance affecting his title which is reasonably disclosed by the instruments in his line of title. Turner v. Glenn, 220 N.C. 620, 18 S.E.2d 197 (1942).

In this case the record provided neither NCNB nor its agent, the title attorney, with constructive notice of a fraudulent intent on the part of defendant Coley and Janis Burton. The records did not reasonably disclose a fraudulent intent on the part of NCNB’s grantors. No lis pen-dens was filed by the plaintiff. A record of a lis pendens would have put the bank on constructive notice of pending litigation affecting title of the property. N.C.Gen.Stat. § 1-116; Cutter v. Cutter Realty Co., 265 N.C. 664, 144 S.E.2d 882 (1965). Plaintiff would have been protected if a lis pendens was filed. To hold NCNB to have had notice of their grantor’s fraudulent intent would require a title attorney to search well beyond the records and enter the realm of speculation.

Claiming protection under North Carolina registration law, NCNB has the burden of proving that it is an innocent purchaser for value, i.e. that it “paid valuable consideration and that [it] had no actual notice, or constructive notice by reason of lis pendens____” Hill, 304 N.C. at 163, 282 S.E.2d at 783 (1981). The Court finds NCNB met this burden. The records were insufficient to put NCNB on notice of any fraudulent motivations of its grantor thereby destroying its bona fide purchaser status. The Court, therefore, finds NCNB’s deed of trust to be valid and protected from avoidance under fraudulent conveyance law.

B. JULY 10, 1981 CONVEYANCE

In Aman, the North Carolina Supreme Court stated, “If the conveyance is voluntary, and the grantor did not retain property fully sufficient and available to pay his debts then existing, it is invalid as to creditors ____” Aman v. Walker, 165 N.C. at 227, 81 S.E. at 164. “A conveyance is voluntary when it is not for value, i.e., when the purchaser does not pay a reasonably fair price such as would indicate unfair dealing and be suggestive of fraud.” Nytco Leasing, Inc. v. Southeastern Motels, 40 N.C.App. 120, 126, 252 S.E.2d 826, 832 (1979).

It is important to note it is valuable consideration defined as a fair and reasonable price, not mere consideration, which shields a transfer from fraudulent conveyance law. Smith-Douglas Division of Borden v. Kornegay, 70 N.C.App. 264, 318 S.E.2d 895 (1984). Under North Carolina fraudulent conveyance law if a party establishes that a transfer was voluntary and shows the grantor did not retain sufficient assets (insolvency) at the time of the conveyance, the conveyance is void without regard to the grantor’s actual intent. See Michael v. Moore, 157 N.C. 462, 73 S.E. 104 (1911); NCNB v. Johnson Furniture, 34 N.C.App. 134, 237 S.E.2d 313 (1977). Fraudulent intent, in essence, is presumed. Edwards v. Northwestern Bank, 39 N.C.App. 261, 269, 250 S.E.2d 651, 659 (1979), aff'd on other grounds, 53 N.C.App. 492, 281 S.E.2d 86 (1981).

The initial question arises as to whether defendant Janis Burton paid to defendant Coley Burton a reasonably fair price for the property. The Court finds she did not. Defendants Janis and Coley Burton in their deposition have difficulty pointing to any firm consideration to support the conveyance, much less consideration that is fairly equivalent to the value of the property passing at the time of the conveyance. An argument that the property was conveyed so defendant Janis Burton could look after it is far from the level of a reasonably fair price, since in no way was a conveyance necessary to procure these nebulous services, and the services defendant Janis Burton performed comprised merely depositing rent checks. See Deposition of Janis Burton at 7-9.

The issue of fair consideration raises a troubling matter to the Court’s attention. In both their depositions neither defendant Janis Burton nor defendant Coley Burton could point to any consideration passing at the conveyance beyond vague intentions to look after the property. The primary rationale for the deed was stated to be the desire that defendant Janis Burton would look after the property and own it if defendant Goley Burton should die. However, on August 21, 1984, these defendants suddenly remembered a promise from defendant Janis Burton to co-sign a note and execute a deed of trust in consideration for the conveyance, implying this promise was carried out approximately two years later. The alleged purpose of this arrangement was to obtain money to enable defendant Coley Burton to start his own business. Affidavit of Janis W.K. Burton (August 21, 1984); Affidavit of Graydon Coleman Burton (August 21, 1984). In dealing with a similar situation the Fourth Circuit stated:

‘If a party who has been examined at length on deposition could raise an issue of fact simply by submitting an affidavit contradicting his own prior testimony, this would greatly diminish the utility of summary judgment as a procedure for screening out sham issues of fact.’ Perma Research and Development Co. v. Singer, 410 F.2d 572, 578 (2d Cir.1969). A genuine issue of material fact is not created where the only issue of fact is to determine which of the two conflicting versions of the [defendants’] testimony is correct.

Barwick v. Celotex Corp., 736 F.2d 946, 960 (4th Cir.1984). In their sworn deposition the issue of consideration was explored at length with these defendants and no ample consideration was stated. These affidavits are merely a vain attempt to create an issue of fact by general conclusory statements after discovery had produced nothing as to consideration. Barwick, 736 F.2d at 960.

The next matter for review, under the principle promulgated in Aman, is whether the defendant retained properties fully sufficient to pay debts then existing; if insufficient the conveyance in question would be invalid as to creditors. Nytco Leasing, Inc., 40 N.C.App. at 126, 252 S.E.2d at 832. If the debtor is solvent after the conveyance the transaction cannot be voided as a fraudulent conveyance. The issue of solvency is often one for the jury. But see Williams v. Hughes, 136 N.C. 58, 48 S.E. 518 (1904). However, in this case the evidence is plenary on this issue. See, e.g., NCNB v. Johnson Furniture, 34 N.C.App. 134, 237 S.E.2d 313. Defendant Coley Burton, among others, was thought indebted to the plaintiff in the amount of $174,938.22 at the time the complaint was filed by the plaintiff. This amount was lowered to $75,000 when the consent judgment was entered. Plaintiff retained no substantial assets at the time of the conveyance, considerably less than the requirement that sufficient assets be retained. Deposition of Coley Burton at 4-5. The land conveyed was the principal asset, owned by defendant Coley Burton, that a creditor would look to for the payment of a debt. Suffice it to say that no lender would extend credit for the amount of the existing debt with such security as the assets the defendant Coley Burton retained. See Black v. Sanders, 46 N.C. 67 (1853). The Court finds defendant Coley Burton did not retain a sufficient amount of assets to avoid the application of fraudulent conveyance law.

An alternate ground exists for voiding the July 10th conveyance beyond the general fraudulent conveyance principles established in North Carolina case law and N.C.Gen.Stat. §§ 39-15, 39-17. The present scenario fits within a specific statutory prohibition. N.C.Gen.Stat. § 39-18 states:

Every contract and settlement of property made by any man and woman in consideration of a marriage between them, for the benefit of such man or woman, or at their issue, whether the same be made before or after marriage, shall be void as against creditors of the parties making the same respectively, existing at the time of such contract or settlement if the same is postnuptial.

(emphasis added). The North Carolina Supreme Court has said interpreting this policy, “All gifts from a husband to his wife are good inter se ... if he is not in debt at the time; but such gifts are voidable as to existing creditors if their rights are not secured____” Walton v. Parish, 95 N.C. 259, 263 (1886) (no creditors of husband existing at time of making deed). This holding would also apply to a prenuptial conveyance as clearly stated by the statute. Defendant Coley Burton’s transfer of the property, to his wife to be, fits within the statutory prohibition and is void under its provisions.

The Court determines the July 10, 1981 conveyance to be a fraudulent conveyance and therefore invalid as to creditors. As noted, actual intent of the grantor to defraud need not be shown. Whether by the use of N.C.Gen.Stat. §§ 39-15 and 39-17 or § 39-18 plaintiff is entitled to summary judgment, on the issue of the characterization of the July 10, 1981 conveyance, as no genuine issue of material fact remains to be decided on that issue.

Plaintiff as a creditor is a party who can attack this conveyance. The agreement is captioned “Continuing Guaranty.” Its clear language established Coley Burton as a primary debtor of the plaintiff on the date of the transfer. NCNB v. Johnson Furniture, 34 N.C.App. at 136, 237 S.E.2d at 315. “Moreover, a creditor beginning an action prior to the transfer of assets by defendant is entitled to attack the transfer as fraudulent as to him, although he does not obtain judgment against the defendant until after the transfer of the assets has been accomplished.” Nytco Leasing, 40 N.C.App. at 127, 252 S.E.2d at 833. Under North Carolina law not only was there a fraudulent conveyance in this case but the plaintiff was an eligible creditor to void the conveyance.

C. ATTORNEY’S FEES FOR DEFENDANT NCNB

NCNB seeks summary judgment on the issue of the validity of its assessment of attorney fees and interest to the outstanding indebtedness of defendants Coley and Janis Burton. NCNB claims its right to do so is based on alleged language in its deed of trust.

NCNB, as the party moving for summary judgment, has the burden of demonstrating there is no genuine issue as to any material fact and that it is entitled to judgment as a matter of law. See generally 10A C. Wright, A. Miller & M. Kane Federal Practice and Procedure § 2727 (1983). NCNB has not made a showing sufficient to meet this burden. NCNB has not produced the necessary documentation to support its assessment. Also, NCNB presented no evidence of the amount of attorney fees much less their reasonableness. To allow NCNB a blanket grant to tax attorney fees against the present indebtedness of the defendants Coley and Janis Burton would be improper. If NCNB wishes to pursue this claim it should submit further evidence on this point within thirty (30) days. The defendants Coley and Janis Burton will be given twenty (20) days to respond to any further production by NCNB. This claim will be dismissed if no further showing is made within thirty (30) ■ days.

III. CONCLUSION

A conveyance determined to be fraudulent is void. Hobbs v. Cashwell, 152 N.C. 183, 67 S.E. 495 (1910). If an instrument is void it has no legal force. Black’s Law Dictionary 1411 (5th ed.1979). Through this action plaintiff has been successful in setting aside the conveyance from defendant Coley Burton to his wife defendant Janis Burton. There, however, remains the issue of the priority of the liens of plaintiff and NCNB.

The strong policy of registration behind North Carolina’s race recordation statute, and general principles of fairness and equity, persuade the Court to find that NCNB’s encumbrance will have priority over the plaintiff’s. NCNB was a bona fide purchaser for value who relied on the records before lending money. The money loaned was used to pay existing obligations, improve the property and help the Burtons start a business on the property. Deposition of Coley Burton at 16. NCNB took the necessary steps to perfect its lien by filing its Deed of Trust.

Plaintiff’s lien, on the other hand, becomes a valid one only when defendant Coley Burton’s transfer, to his fiancee, is voided. To allow this legal magic to resurrect a lien and then to give it priority over a bona fide purchaser for value would undermine the recording statute. The recording statute provides protection to those who rely on what the records reveal. This is accomplished by promoting certainty in what the records reveal, and limiting the scope of the title search. See Morehead v. Harris, 262 N.C. 330, 137 S.E.2d 174 (1964) (limiting duty to search to chain of title). The Court finds that against a bona fide purchaser, protected by the recording statute, the plaintiff’s judgment lien is junior to that of a bona fide purchaser. Cf. Page Trust Co. v. American National Bank, 193 N.C. 528, 137 S.E. 591 (1927) (judgment creditors were entitled to have land subjected to payment of their judgment as against parties purchasing from grantee with notice). To allow plaintiff to take the property ahead of NCNB would encourage a judgment creditor to sit back and wait for another to clear his path by paying off encumbrances, or increase the value of the property through improvements.

IT IS, THEREFORE, ORDERED that plaintiff’s motion for summary judgment on the validity of the July 10, 1981 conveyance be, and the same hereby is, GRANTED and it is ADJUDGED that plaintiffs judgment lien is junior to the Deed of Trust lien of NCNB.

IT IS FURTHER ORDERED that defendant NCNB’s motion for summary judgment on the validity of its Deed of Trust be, and the same hereby is, GRANTED.

IT IS ORDERED that defendant NCNB’s motion for summary judgment on the issue of attorney’s fees be, and the same hereby is, DENIED. NCNB may submit further evidence on this issue within thirty (30) days from the date of this Order.

      . This action was later transferred to Surry County.

      . The five dollars in deed stamps would represent $5,000 of consideration received by the grantor. The deed also recites ten dollars in consideration. Deposition of Janis Burton, Exhibit 1.

      . It should be noted the same attorney that defended the defendant Coley Burton, against suit by the plaintiff on the guaranty, drew the deed conveying the property to defendant Janis Burton. The propriety of an attorney engaging in such conduct is questionable.

      . Presently there is no procedure available for certifying controlling questions of unsettled state law to the North Carolina Supreme Court. This case presents a persuasive argument for the adoption of such a procedure.

      . The Court must choose the rule that it believes the state court, from all that is known about its methods of reaching decisions, is likely to adopt in the future. See C. Wright, Handbook of the Law of Federal Courts § 58 at 375 (4th ed.1983). In so doing the Court is mindful of general principles of fairness and justice that are important in judicial decision making.

      . The recordation statutes were enacted in North Carolina after the fraudulent conveyance statutory scheme was established in North Carolina.

      . For purposes of discussion in this section only, the Court will assume that defendants Coley and Janis Burton had the requisite fraudulent intent at the time of obtaining the loan.

      . This often stated proposition has been modified by the case of Hill v. Pinelaw Memorial Park, Inc., 304 N.C. 159, 282 S.E.2d 779 (1981) (registration statute does not protect all purchasers who record). Contra Schuman v. Roger Baker & Associates, 70 N.C.App. 313, 319 S.E.2d 308 (1984) (no notice however full or formal will supply the want of registration).

      . North Carolina’s recordation statutes, enacted in 1885, are known as The Cannon Act. See particularly N.C.Gen.Stat. §§ 47-18, 47-20.

      . NCNB alleges that it is entitled to rely on Attorney’s Certificate of Title; underlying this contention is the proposition that the Bank is not held to notice of the facts known by its attorney. This view denies the existence of agency law. In North Carolina an attorney client relationship rests on principles of agency. See e.g., State v. Barley, 240 N.C. 253, 81 S.E.2d 772 (1954). Under agency law a principal is bound by the notice to his agent while the agent is acting within the scope of his authority even though the agent does not in fact inform the principal. Ward v. Thompson Heights Swimming Club, Inc., 27 N.C.App. 218, 219 S.E.2d 73 (1975).

      . "The effect of lis pendens and the effect of registration are in their nature the same thing. They are only different examples of instances of the operations of the rule of constructive notice.” Massachusetts Bonding and Ins. Co., 220 N.C. at 728, 18 S.E.2d at 439.

      . "The lis pendens statutes enable a purchaser for a valuable consideration who has no actual notice of the pendency of litigation affecting the title to the land to proceed with assurance when the lis pendens docket does not disclose a cross-indexed notice disclosing the pendency of such an action.” Lawing, 285 N.C. at 427, 206 S.E.2d at 171.

      . Summary judgment is appropriate in claims turning on state of mind when plaintiffs allegations are not sufficiently supported to establish the existence of a genuine issue of material fact. 10A C. Wright, A. Miller & M. Kane Federal Practice & Procedure § 2730 (1983).

      . Consultation with an attorney would have enlightened defendant Coley Burton that a will is the usual mechanism employed to pass property at death. Defendant Janis Burton was the owner, by virtue of the deed, of the property whether defendant Coley Burton died or not. The Court also believes that a conveyance of one’s entire interest in property is a rather drastic approach to engage a person to collect rent.

      . Although executory promises can serve as consideration it is doubtful that this promise would so serve. Where personal services are asserted to be the consideration between relatives, there arises in North Carolina a rebuttable presumption that the services were gratuitous. Farmer’s Bank v. McCullers, 201 N.C. 440, 160 S.E. 494 (1931).

      . The figure in the consent judgment was arrived at after further negotiations.

      . Plaintiffs consent judgment becomes' an encumbrance on the property as defendant Coley Burton is deemed, by retroactive voidance of the July 10th conveyance, the beneficial owner of the property on the date the judgment was docketed.

      . "The doctrine of equitable subrogation may be invoked if the obligation of another is paid by [a party] for the purpose of protecting some real or supposed right to interest of his own.” Jamestown Mutual Insurance Co. v. Nationwide Mutual Insurance Co., 277 N.C. 216, 220, 176 S.E.2d 751, 755 (1970). "Subrogation is a mode of equitable relief which operates on principles of natural justice without regard to form and independent of any contractual relation between the parties to be affected by it.” Peek v. Wachovia Bank & Trust Co., 242 N.C. 1, 86 S.E.2d 745 (1955) (citing Story's Equity Jurisprudence). Were it not for the strong policy of registration behind North Carolina’s recordation statute the Court would find NCNB equitably subrogated to the rights and position of the creditors whose obligations were paid by defendant NCNB; and also allow NCNB priority as to any amounts lent that went to improve the property. However, this Court’s view of North Carolina law requ’res it to give NCNB priority over the plaintiff for the entire amount of the loan.

      . In this case NCNB did both of these activities thus greatly enhancing the property's value to an unpaid creditor. Plaintiff waited over two years from the date of Coley Burton’s fraudulent conveyance to Janis Burton before bringing this action.


author: TAURO, District Judge.

text:
    UNITED STATES of America v. Frank J. LEPERE.
    Crim. No. 83-308-T.
    United States District Court, D. Massachusetts.
    Dec. 19, 1984.

      Janis M. Berry, Asst. U.S. Atty., Chief, Criminal Narcotics Unit and Narcotics Task Force, Boston, Mass., for United States.
    Martin G. Weinberg, Oteri, Weinberg & Lawson, Boston, Mass., for defendant Frank J. Lepere.
   MEMORANDUM AND ORDER

TAURO, District Judge.

The defendant, Frank J. Lepere, was indicted on November 25, 1983 on charges that he engaged in a continuing criminal enterprise and conspired to import and possess large quantities of marijuana, in violation of 21 U.S.C. §§ 848, 963, and 846. He was arrested near Lake George, New York on November 2, 1984 and transferred to this district five days later. On November 14, 1984, following a hearing, the Magistrate ordered the defendant detained pending trial, pursuant to the Bail Reform Act of 1984, 18 U.S.C. § 3141 et seq.

The Magistrate found, by clear and convincing evidence, that the defendant would flee if released on any condition of bail. The Magistrate declared that, “Defendant’s own unequivocal conduct during the course of the past three years makes this conclusion inescapable.” The Magistrate relied on the fact that defendant had been a fugitive since December 8, 1981 when he was indicted on drug importation charges in the District of South Carolina. Three days earlier, defendant had left his home in Marsh-field, Massachusetts and remained unlocated until his arrest on November 2nd. The Magistrate found that, in light of the arrest of his confederates and the extensive publicity surrounding his case, the defendant was fully aware that law enforcement officers were looking for him.

Defendant concedes that his absence for three years indicates some risk of flight, but he emphasizes that the absence was not itself a violation of the law. He maintains that certain stringent conditions of release plus the designation of several millions of dollars of property for forfeiture by his family, friends and business associates is sufficient to negate the possibility of flight.

The court is impressed that defendant’s family members have enough faith in him that they are willing to forfeit their homes and be left on the street in the event that he flees. The proffer of property by defendant’s legitimate business associates and his friends is also impressive. Although the Magistrate discounted defendant’s ties to his family and community on account of the fact that defendant had secluded himself in upstate New York for three years, the court is persuaded that the proffer of the property would significantly deter defendant from flight.

Our inquiry does not end here, however. We must consider the impact on our analysis of the statutory presumptions contained in the new Bail Reform Act. Under the Act:

Subject to rebuttal by the person, it shall be presumed that no condition or combination of conditions will reasonably assure the appearance of the person as required and the safety of the community if the judicial officer finds that there is probable cause to believe that the person committed an offense for which a maximum term of imprisonment of ten years or more is prescribed in the Controlled Substances Act (21 U.S.C. 801 et seq.)....

18 U.S.C. § 3142(e).

The defendant is charged with, among other things, engaging in a continuing criminal enterprise under the provisions of 21 U.S.C. § 848. If convicted of this charge, defendant faces a maximum penalty of life imprisonment. Although this is a crime to which the statutory presumption may apply and although the Magistrate found that the government’s evidence was strong, the Magistrate chose not to invoke the statutory presumption.

After reviewing the record and the Magistrate’s findings, the court finds that there is probable cause to believe that defendant committed an offense for which a maximum term of imprisonment of ten years or more is prescribed by the Controlled Substances Act. As such, the court is compelled to apply the statutory presumption that no condition of release will assure defendant’s appearance or the safety of the community. While the court believes that defendant’s proposed conditions of release and the proffered property significantly negate the risk of flight evidenced by his absence from the jurisdiction for three years, the court is not persuaded that they adequately rebut the statutory presumption of risk of flight and danger.

The legislative history of the Bail Reform Act indicates that one of the major purposes of the Act was to prevent the pretrial recidivism of major drug traffickers. Congress sought to accomplish this by insisting that bail and pretrial release decisions be based on the danger of continued drug activities, as well as the traditional concerns of the likelihood of flight and danger of physical violence on release. Congress also inserted a provision that those charged with major drug offenses would be presumed too dangerous or risky to release.

The Senate Judiciary Report on the 1983 Senate bail reform bill, which was enacted with few modifications by Congress in 1984, stated that the Judiciary Committee,

for the most part, refrained from specifying what kinds of information are a sufficient basis for the denial of release, and has chosen to leave the resolution of this question to the sound judgment of the courts acting on a case-by-case basis. However, the bill does describe two sets of circumstances under which a strong probability arises that no form of conditional release will be adequate.

S.Rep. No. 225, 98th Cong., 1st Sess. 19 (1983) (emphasis added). These circumstances obtain when the defendant has a history of pretrial criminality, or when the defendant is charged with a drug offense punishable by a maximum term of ten years or more or with a felony committed with a firearm. See 18 U.S.C. § 3142(e). The Judiciary Committee noted

These [latter crimes] are serious and dangerous Federal offenses. The drug offenses involve either trafficking in opiates or narcotic drugs, or trafficking in large amounts of other types of controlled substances. It is well known that drug trafficking is carried on to an unusual degree by persons engaged in continuing patterns of criminal activity. Persons charged with major drug felonies are often in the business of importing or distributing dangerous drugs, and thus, because of the nature of the criminal activity with which they are charged, they pose a significant risk of pretrial recidivism. Furthermore, the Committee received testimony that flight to avoid prosecution is particularly high among persons charged with drug offenses____

S.Rep. No. 225 at 20.

The court is persuaded that Congress intended by its statutory presumption to raise the threshold that persons charged with major drug offenses must meet in order to establish that they do not pose a significant risk of flight or danger to the community. Thus, while the defendant’s proposed conditions and proffered property might otherwise satisfy the court that he poses a reasonable risk of flight, the defendant’s proposal does not satisfy the new statutory burden regarding flight. Nor does it rebut the presumption of dangerousness.

For the reasons stated herein, defendant’s motion to revoke the Magistrate’s detention order is hereby DENIED.

APPENDIX A

ORDER AND ACKNOWLEDGMENT ON CONDITIONS OF BAIL

It is hereby ordered that the defendant FRANK J. LEPERE be released from the custody of the United States Marshal subject to the following conditions, pursuant to 18 U.S.C. Section ■ 3142(c), in addition to those conditions set forth in the Appearance Bond (CJA 17) and the Bail Reform Act Form to be executed by the defendant, to wit:

(1) That the defendant FRANK J. LEP-ERE not commit a federal, state or local crime during the period of release.

(2) That the defendant shall appear before the United States District Court at Boston, and such other places as the defendant may be required to appear, in accordance with any and all orders and directions relating to the defendant’s appearance in the above-entitled case, and shall abide by any judgment entered in the above-entitled case by surrendering himself to serve any sentence imposed and obeying any order or direction in connection with such judgment as the court imposing it may prescribe.

(3) The defendant FRANK J. LEPERE shall, pending further order of this Court upon application and hearing, report telephonically to the law offices of Oteri, Weinberg & Lawson twice daily, once between the hours of 9:00 a.m. and 11:00 a.m. and again between the hours of 4:00 p.m. and 6:00 p.m. At the time of each call, defendant FRANK J. LEPERE shall inform said law offices of his whereabouts and supply a telephone number by means of which his whereabouts may be ascertained and verified. On any day on which said law office is not open foir business (i.e., Saturday, Sunday or legal holiday), defendant FRANK J. LEPERE shall provide such information to the law firm answering service. On such days, Martin G. Weinberg, or his designee shall undertake to verify such reporting by checking with his answering service at the expiration of each Saturday, Sunday or holiday call-in time.

(4) The law offices of Oteri, Weinberg & Lawson are hereby ordered to report to the judge’s clerk the failure of defendant FRANK J. LEPERE to make any telephonic report required by paragraph (3) immediately upon the expiration of the time period provided for said report or, should such failure occur when court personnel are unavailable to receive such information, as soon as such personnel are available. In particular, it is ordered that the communication required by this paragraph be made by Martin G. Weinberg, Esquire. In the event of his absence from the said law firm, such communication shall be made either by Joseph S. Oteri, Esquire or James W. Lawson, Esquire in that order of precedence. Should no one of the three aforementioned persons be available, such communication shall be made by either of Lillian A. Wilmore, Esquire or Kimberly Ho-man, Esquire.

(5) In addition to the telephonic reporting required by paragraph (3), defendant FRANK J. LEPERE shall report once daily between the hours of 9:00 a.m. and 5:00 p.m. (including Saturday, Sunday and legal holidays) to the Marshfield police station.

(6) The travel of defendant FRANK J. LEPERE shall be restricted to that to and from his home in Marshfield to his place of business, Mid-Cape Fish Co., Plymouth, Massachusetts; to that to and from either his home or his aforesaid place of business to the law offices of Oteri, Weinberg & Lawson; to that to and from either his home or aforesaid place of business to the Marshfield police station to report as required by paragraph (5); it is expressly contemplated by this order that defendant FRANK J. LEPERE shall remain at his residence in Marshfield, Massachusetts, whenever he is not at his place of business, the aforesaid law offices or the Marshfield police station or in transit between such destinations.

(7) The defendant FRANK J. LEPERE shall surrender all valid passports.

(8) That, consistent with the provisions of Section 8 of the Victim and Witness Protection Act of 1982, P.L. 97-291 (October 12, 1982), 96 Stat. 1248, 1257, amending the provisions of 18 U.S.C. Section 3146(a), the defendant FRANK J. LEPERE shall not commit any offense involving the obstruction of justice by influencing or injuring or intimidating an officer, juror, or witness, before any court or grand jury of the United States in violation of the provisions of 18 U.S.C. Section 1503.

(9) That the defendant FRANK J. LEP-ERE shall not commit any offense involving the instruction of criminal investigations within the meaning of Title 18, United States Code, Section 1510.

(10) That, consistent with the provisions of Section 8 of the Victim and Witness Protection Act of 1982, P.L. 97-291 (October 12, 1982), 96 Stat. 1248, 1257, amending the provisions of 18 U.S.C. Section 3146(a), the defendant FRANK J. LEPERE shall not commit any offense involving the tampering with a witness, victim or an informant, within the meaning of Title 18, United States Code, Section 1512.

(11) That, consistent with the provisions of Section 8 of the Victim and Witness Protection Act of 1982, P.L. 97-291 (October 12, 1982) 96 Stat. 1248, 1257, amending the provisions of 18 U.S.C. Section 3146(a), the defendant FRANK J. LEPERE shall not commit any offense involving the retaliating against a witness, victim or an informant, within the meaning of Title 18, United States Code, Section 1513.

(12) That the defendant FRANK J. LEP-ERE shall indicate his awareness of the scope and extent of the conditions set forth herein by affixing his signature to the acknowledgement set forth below.

THE HONORABLE JOSEPH L. TAURO

UNITED STATES DISTRICT

COURT JUDGE

DATED: December 12, 1984

ACKNOWLEDGEMENT

I, FRANK J. LEPERE, have, with the assistance of my attorney, read and understand the conditions set forth in the Order immediately above. I further understand that if I violate any of those conditions set forth above, or any of those conditions set forth in the Appearance Bond (CJA 17) and the Bail Reform Act Form which I have executed simultaneously herewith, a warrant for my arrest shall issue, and, if I fail to appear before any court or judicial officer as required, an additional charge of bail jumping in violation of the provisions of 18 U.S.C. Section 3150 may be instituted against me. If convicted of bail jumping, I understand that I may be imprisoned for a period not to exceed ten years, and/or fined $25,000.00.

FRANK J. LEPERE

DATED: December 12, 1984

WITNESSED BY:

APPENDIX B

Fred G. Pastore

CERTIFIED PUBLIC ACCOUNTANT

ONE COURT STREET, NINTH FLOOR

BOSTON, MASSACHUSETTS 02108

LIBERTY 2-1120

December 6, 1984

Mid Cape Fish Company, Inc.

Mid Cape Fillet Corporation

Building No. 36, Cordage Park

Plymouth MA 02360

We have prepared the accompanying combined balance sheet of Mid Cape Fish Company, Inc., and Mid Cape Fillet Corporation, as of November 30, 1984, from information furnished by the Treasurer of these corporations and appraisals obtained by him which are attached.

We have made no independent verifications.

/s/Fred G. Pastore

Fred G. Pastore

Certified Public Accountant

Mid-Cape Fish Co., Inc. and Mid-Cape Fillet Corp.

Balance Sheet, Novermber 30, 1984, Unaudited

Assets

Current Assets

Cash 10,876

.Notes Receivable 394,500

Accounts Receivable 147,409

Less: Reserve for Uncollectible Accounts 22,111 125,298

Refundable Deposits 7,400

Production Credit “B” Stock 21,390

Prepaid Interest 20,957 580,421

Property, Plant, and Equipment

Fishing Vessel-Western Ocean 355.000

Fishing Vessel-Crown Royal 475.000

Fishing Vessel-Howie 595.000

Miscellaneous Equipment 20,000 1,445,000

Total Assets 2,025,421

Liabilities and Shareholders Equity

Current Liabilities

Accounts Payable 78,215

Payroll Taxes 568

Notes Payable-Current 189,800 268,583

Notes Payable-Long Term 397.738

Shareholders Equity 1,359,100

Total Liabilities and Shareholders Equity 2,025,421

Schedule of Notes Payable Current Long Term

Production Credit 90,000 123,880

C J T 68,800 74,584

LePere Equipment Sales 88,500

Early Bird Realty Trust 88,774

Officers 28,000

Repurchase-Treasury Stock 31,000

189,800 397.738

FRED G. PASTORE Certified Public Accountant BOSTON, MASS.

BERNARD W. MACKENZIE

Marine Surveyor

15 Beaver Dam Road

Scituate, Massachusetts 02066

MID CAPE FISH COMPANY

CORDAGE PARK

N. PLYMOUTH, MA

CERTIFICATE OF APPRAISAL

F/Y “WESTERN OCEAN”

OWNER: MID CAPE FISH

This will confirm that I have been appointed to appraise the value of the above named fishing vessel for the owners interest with said appraisal completed on November 23, 1984 while vessel was lying afloat at N. Plymouth, Massachusetts.

I, the appraiser having attended to the duties assigned to me, and after a strict examination and careful inquiry, do estimate and appraise the said F/V “WESTERN OCEAN”, her hull, machinery, furnishings and equipment at THREE HUNDRED FIFTY-FIVE THOUSAND AND 00/100 DOLLARS ($355,000.)

In witness whereof I hereunto set my hand at Scituate, MA this 7th day of December, 1984.

/s/ Bernard W. MacKenzie

Bernard W. MacKenzie

Marine Appraiser

PLYMOUTH, SS

Then personally appeared Bernard W. MacKenzie, being duly sworn, deposes and says that the foregoing Appraisal and values contained therein are true and accurate to the best of his skill and judgement.

Sworn to before me this — day of December, 1984.

Notary Public

BERNARD W. MACKENZIE

Marine Surveyor

15 Beaver Dam Road

Scituate, Massachusetts 02066

MID CAPE FISH COMPANY

CORDAGE PARK

N. PLYMOUTH, MA

CERTIFICATE OF APPRAISAL

F/V “CROWN ROYAL”

OWNER: MID CAPE FISH

This will confirm that I have been appointed to appraise the value of the above named fishing vessel for the owners interest with said appraisal completed on November 23, 1984, while vessel was lying afloat at N. Plymouth, Massachusetts.

I, the appraiser having attended to the duties assigned to me, and after a strict examination and careful inquiry, do estimate and appraise the said F/V “CROWN ROYAL”, her hull, machinery, furnishings and equipment at FOUR HUNDRED SEVENTY-FIVE THOUSAND AND 00/100 DOLLARS ($475,000.)

In witness whereof I hereunto set my hand at Scituate, MA this 7th day of December, 1984.

/s/ Bernard W. MacKenzie

Bernard W. MacKenzie

Marine Appraiser

PLYMOUTH, SS

Then personally appeared Bernard W. MacKenzie, being duly sworn, deposes and says that the foregoing Appraisal and values contained therein are true and accurate to the best of his skill and judgement.

Sworn to before me this 7th day of December, 1984.

Notary Public

BERNARD W. MACKENZIE

Marine Surveyor

15 Beaver Dam Road

Scituate, Massachusetts 02066

MID CAPE FISH COMPANY

CORDAGE PARK

N. PLYMOUTH, MA.

CERTIFICATE OF APPRAISAL

F/V “HOWIE”

OWNER: MID CAPE FISH

This will confirm that I have been appointed to appraise the value of the above named fishing vessel for the owners interest with said appraisal being completed on November 23, 1984 while vessel was lying afloat at N. Plymouth, MA.

I, the appraiser having attended to the duties assigned to me, and after a strict examination and careful inquiry, do estimate and appraise the said F/V “HOWIE”, her hull, machinery, furnishings and equipment at FIVE HUNDRED NINETY-FIVE THOUSAND AND 00/100 DOLLARS ($595,000.)

In witness whereof I hereunto set my hand at Scituate, MA this 7th day of December, 1984.

/s/ Bernard W. MacKenzie

Bernard W. MacKenzie

Marine Appraiser

PLYMOUTH, SS

Then personally appeared Bernard W. MacKenzie, being duly sworn, deposes and says that the foregoing Appraisal and values contained therein are true and accurate to the best of his skill and judgement.

Sworn to before me this 7th day of December, 1984

Notary Public

SCHEDULE A

SCHEDULE OF REAL ESTATE STANDING IN THE NAME OF EARLY BIRD REALTY TRUST

Property Description Title Reference Date of Purchase Purchase Price Present FMV

1. 26 Hunt Way, Marshfield, Plymouth County Massachusetts. Cert. No. 63765 Regis, on 8/5/80 $ 28,500.00 $ 87,700.00

2. 9 Kent Avenue, Marshfield, Plymouth County, Massachusetts (family home) with five building lots. Book 3679, Page 748 1971 $ 90,000.00 $390,000.00

3. Farm, off Woodvine Avenue, 61.6 acres. Book 4004, Page 554 7/74 $ 32,000.00 $106,000.00

4. 835 Plain Street, Office and Garage and 6.6 acres. Book 3493, Page 181 and Book 4016, Page 434 1967 1974 $ 35,000.00 $ 20,000.00 $615,000.00

TOTALS . $1,198,700.00

SCHEDULE A

SCHEDULE OF REAL ESTATE STANDING IN THE NAME OF M.A.K. REALTY TRUST

Date of Purchase Present FMV Title Reference Property Description

9/2/82 ) Bk. 491, Pg. 87 1. Mountain House

Property,* )

Washington County, ) SEE COMPLAINT

New York ) FOR FORFEITURE

) IN REM, No.

) 84-3775-K,

) paragraph 5:

Book 492, Pg. 62 2. Pilot Knob Road 10/17/82 )

Book 492, Pg. 66 Property, 10/12/82 ) “That the

Book 500, Pg. 73 Washington County, 11/14/83 ) defendant real

Book 500, Pg. 738 New York 11/14/83 ) property with

) buildings,

) appurtenances,

) and improvements

Book 497, Pg. 52 3. Woodlot Property, 9/20/83 ) has a value of

Washington County, ) approximately

New York ) one million two

) hundred fifty

) thousand dollars

) ($1,250,000.00).

Book 501, Pg. 224 4. Goodson Property, 7/21/83 ) There are no

Book 501, Pg. 230 Washington County, 1/18/84 ) mortgages of

New York ) record.

)

)

)

Book 653, Pg. 965 5. West Ridge Road, 6/2/83 )

Land & Barn, )

Warren County, )

New York )

TOTALS ............ $ 1,250,000.00

* The descriptive names used here are taken from the government’s Complaint For Forfeiture In Rem, No. 84-3775-K.

SCHEDULE OF INDIVIDUAL PROPERTIES

Owner Property Address Estimated Fair Market Value

1. William D. & Jennie C. Lepere (father & mother of Frank Lepere) 109 Theodore Park Road West Roxbury, MA $185,000.00

2. Paul P. & Mary M. Miele 78 Fiske Street Waltham, MA

3. Domenic J. & Margaret T. Albertazzi 112 Brookline Street Watertown, MA Approximately $200,000.00 to 250,000.00

4. Maurice 0. & Catherine D. Quinn 184 Fairway Drive Newton, MA

Totals $385,000.00 — $435,000.00

      . The Magistrate noted that defendant was arrested in a house on top of a secluded mountain area with limited access. Defendant apparently represented himself in the area as George Le-pro. Documents were discovered that indicated that defendant also used the alias, Joseph Balboni.

      . Defendant’s proposed conditions of release and properties designated for forfeiture are outlined in appendix A and appendix B attached to this memorandum and order.

      . The strength of the evidence is clouded somewhat by the question of whether the testimony of several of the co-defendants will be admissible in evidence against the defendant. This question is currently before the court of appeals in the related case of United States v. Kevin R. Dailey, No. 84-1578. The government intends to prosecute the defendant regardless of whether this testimony is admissible and hotly contests the Magistrate’s suggestion that, without this evidence, there may be no admissible evidence against defendant.

      . The government argues that the two loaded handguns found in defendant's home at his arrest suggest that he would be dangerous to the community if released. The court finds that the discovery of the weapons, standing alone, does not establish a risk to the community. Nonetheless, the statute presumes that defendant poses a danger of continued drug trafficking.


author: ROSS T. ROBERTS, District Judge.

text:
    Michael L. HAILEY, Plaintiff, v. YELLOW FREIGHT SYSTEM, INC., Defendant.
    No. 84-5111-CV-SW-0.
    United States District Court, W.D. Missouri, Southwestern Division.
    Dec. 19, 1984.

      Barry Langford, Joplin, Mo., for plaintiff.
    Daniel Hornbeck, c/o Yellow Freight, Overland Park, Kan., for defendant.
   ORDERS ON DEFENDANT’S MOTION FOR JUDGMENT ON THE PLEADINGS

ROSS T. ROBERTS, District Judge.

Plaintiff, an over-the-road truck driver, seeks damages from defendant, a trucking company, based upon the latter’s alleged failure to honor a commitment to transfer plaintiff to its Baxter Springs, Kansas terminal. In reliance upon that commitment, plaintiff asserts, he terminated his employment at defendant’s Phoenix, Arizona terminal and moved to Joplin, Missouri — near Baxter Springs — only to be informed, shortly after arrival in Joplin, that the commitment would not be honored.

The matter comes before me on defendant’s motion for “judgment on the pleadings,” based upon the theory that plaintiff’s claims (fraudulent misrepresentation and promissory estoppel) are shown, on the face of the complaint, to be time-barred under the relevant Kansas statutes of limitation. Plaintiff counters with a suggestion that the Missouri statutes of limitation .must govern, under which his claims are timely; and that in any event, as shown by an affidavit filed by plaintiff, defendant is estopped by its conduct in connection with certain settlement discussions from relying upon any limitations defense.

I

PROCEDURAL MATTERS

Defendant’s motion, and plaintiff’s response thereto by affidavit, leave the case in a rather peculiar posture. Although unaccompanied by any reference to a particular Rule or subsection thereof, defendant’s motion is styled as a “Motion for Judgment on the Pleadings,” presumably made under Rule 12(c). It is clear, however, that a 12(c) motion may not be filed until the pleadings have closed, and in particular may not be filed by a defendant until after answer. 5 Wright & Miller, Federal Practice and Procedure § 1367, at 687 (1969), and cases cited therein. Here, defendant has not yet filed an answer. Plaintiff has responded, on the other hand, not by seeking leave to amend his complaint to plead an exception to a statute of limitations defense which may indeed (at least as to one cause of action) be shown on the face of the present complaint, as would ordinarily be appropriate if not in fact necessary, see, e.g., Horn v. Burns and Roe, 536 F.2d 251, 253 n. 4 (8th Cir. 1976); Kincheloe v. Farmer, 214 F.2d 604, 605 (7th Cir.1954); Stewart Coach Industries, Inc. v. Moore, 512 F.Supp. 879, 886 (S.D.Ohio 1981) (all standing for the proposition that when a complaint would otherwise show, upon its face, a statute of limitations defense, it is incumbent upon plaintiff, if he expects to rely upon some limitations exception or tolling provision, to plead the same), but instead by filing an affidavit which seeks to raise the issue. In turn, defendant — which filed no extraneous material in connection with its motion — has not moved to strike the affidavit and has not otherwise responded to it.

In the circumstances, and as a matter of practicality in terms of advancing this case to final resolution, it would seem that the most useful procedure would be to treat defendant’s motion as one under Rule 12(b)(6), which may be filed before any responsive pleading; to refuse to entertain plaintiff’s affidavit and associated materials — which the court has the discretion to do under Rule 12(b), see 5 Wright & Miller, supra § 1371 at 705-06, even if it is not compelled to do so here — thus reaching the present motion simply as defendant asserts it (that is, with respect to matters shown on the face of the complaint); and to permit plaintiff to file an amended complaint properly asserting his theory that defendant is estopped to rely upon a statute of limitations defense, with the parties being at liberty, after the filing of any such amended complaint, to address new matters raised therein either under Rule 12 or Rule 56. This will have the advantage of allowing the court to deal now with certain legal issues already briefed by the parties, to which the affidavit adds nothing of substance in any event, while leaving plaintiff free to protect himself, in the event of an adverse ruling upon any of those legal issues, by pleading and raising his estoppel theory. The alternative of accepting plaintiff’s affidavit for present purposes — even assuming the court could do so — would be to convert the matter into a Rule 56 motion, see Rule 12(b), requiring the notice and further response period necessary in those circumstances, id., thus further delaying a ruling on the above-mentioned legal issues while accomplishing nothing which would affect their resolution. Plaintiff’s theory that defendant is estopped to raise any limitations defense will accordingly be treated as a matter not presently before the court.

II

STATUTE OF LIMITATIONS

As pertinent to the present inquiry, plaintiff’s complaint avers that in July of 1977, at defendant’s request, plaintiff transferred from defendant’s Baxter Springs terminal to its Phoenix terminal; that plaintiff subsequently requested (through an attorney) a re-transfer to Baxter Springs; that defendant advised the re-transfer could be accomplished if plaintiff would sign a “quit slip” at the Phoenix terminal and move to Baxter Springs; that in reliance upon that representation plaintiff signed the “quit slip” and moved to Joplin; but that on June 4, 1979, after all of the foregoing, defendant advised plaintiff that the offer to transfer plaintiff to employment at Baxter Springs would not be honored. Although the complaint is silent as to plaintiff’s location when he received the latter information, it is certainly possible — and open to plaintiff to prove — that he was in Missouri at that time, and for purposes of the present motion I will assume that to be so. Plaintiff’s suit was filed on May 22, 1984.

Distilled to its essence, defendant’s position is that under § 516.190 (previously 516.180), R.S.Mo.1969 (as amended) (Missouri’s “borrowing” statute), both of plaintiff’s causes of action must be treated as having “originated” in Kansas, and are barred under K.S.A. § 60-513, establishing a two year limitations period on actions for fraudulent misrepresentation, and K.S.A. § 60-512, creating a three year limitations period for actions such as plaintiff’s promissory estoppel claim. Plaintiff’s response, based primarily upon Renfroe v. Eli Lilly & Co., 686 F.2d 642, 646-47 (8th Cir.1982), is that under Missouri law a cause of action “accrues” or “originates” where “the final element of the cause of action occurs,” and that under § 516.100, R.S.Mo.1969 (as amended), that “final element” occurs both when, and where, plaintiff’s damage “was sustained and capable of ascertainment.” According to plaintiff’s theory, if he was in Missouri when he received the information that defendant would not employ him at Baxter Springs, § 516.100 would dictate that his causes of action “originated” or “accrued” in Missouri, and those causes of action would thus be timely under § 516.-120, R.S.Mo.1969 (as amended), which establishes a five year limitations period for both claims.

As concerns the promissory estoppel claim in this case, I believe plaintiff’s argument must be rejected. Even if it be granted that § 516.100 is properly used as the touchstone in determining when and where a cause of action “originated” or “accrued” for purposes of § 516.190 — a proposition I regard as doubtful — the statute affords no aid to plaintiff here.

The elements of plaintiff’s damage with respect to that promissory estoppel claim— the losses occasioned by his signing the “quit slip” in Arizona, and moving to Joplin, or alternatively his loss of employment at the Baxter Springs terminal, see generally Restatement (Second) of Contracts § 349, Comment b (1981) — were, within the accepted construction of § 516.100, “sustained and capable of ascertainment” the moment defendant failed to honor its promise, since all those elements of loss or potential loss occurred either prior to or at that moment. Plaintiff’s promissory estoppel claim was thus complete, within the meaning of § 516.100, at the time defendant breached its alleged promise.

In this situation, I believe the question is effectively controlled by the decisions in Burns v. Union Pacific R.R., 564 F.2d 20, 21-2 (8th Cir.1977), and Jenkins v. Thompson, 251 S.W.2d 325, 326-27 (Mo.1952). In the former case, a Title VII/§ 1981 employment termination action, plaintiff (a California resident) had worked for defendant in Kansas City, Kansas, and his future work (but for the termination) would have been performed there. In applying § 516.-190, the Eighth Circuit held that the claim “originated” in Kansas and was governed by the applicable Kansas limitations period. In the latter case, plaintiff — an employee of the Missouri Pacific Railroad — claimed that he was wrongfully removed from service as a conductor — that act occurring in the State of Arkansas — and was subsequently wrongfully terminated — notice of which he received at his residence in Tennessee. Both claims were postured as breach of contract claims. The alleged breaches were seen by the Missouri Supreme Court as occurring in Arkansas, and the causes of action were held to have “originated” there within the meaning of § 516.190, thus requiring application of that state’s limitations period.

While neither Burns nor Jenkins elucidates precisely the basis for its holding, both clearly support the general theory that in breach of contract actions the cause ordinarily “originates” or “accrues,” for purposes of a “borrowing” statute, where the breach occurs, with that place being the place of performance. See Auglaize Box Board Co. v. Kansas City Fibre Box Co., 35 F.2d 822, 823 (6th Cir.1929), cert. den., 281 U.S. 730, 50 S.Ct. 247, 74 L.Ed. 1147 (1930); and see also Meekison v. Groschner, 153 Ohio St. 301, 91 N.E.2d 680, 682-83 (1950). Since I believe plaintiff’s promissory estoppel claim is essentially analogous to a breach of contract claim for these purposes, and since here the place of performance called for by defendant’s alleged promise was obviously in the State of Kansas, it would seem that § 516.190 requires application of the controlling Kansas statute of limitations.

Plaintiff’s argument that his promissory estoppel cause of action did not come into being under § 516.100 until (and where) he received actual notice of defendant’s breach of promise — and his reliance upon Renfroe v. Eli Lilly & Co., supra, in that connection — is unpersuasive. Cases — like Renfroe — which involve slowly developing physical conditions such as cancer have presented something of a problem under § 516.100; and in that rather unusual setting there has been a tendency to hold that some actual knowledge of the condition (and perhaps even of its relationship to the alleged causative agent) is necessary. See, e.g., Krug v. Sterling Drug, Inc., 416 S.W.2d 143 (Mo.1967); Clohesy v. Century Electric Co., 142 S.W.2d 780 (Mo.App. 1940). That is not, however, the problem in the present case. The point raised by plaintiff here concerns notice or discovery of the alleged wrongful act; and it is clear, under the usual construction of § 516.100, that such notice or discovery is not an element of the statute’s operation. See Garrett v. Conklin, 52 Mo.App. 654, 659 (1892); and see generally Jepson v. Stubbs, 555 S.W.2d 307, 312-13 (Mo.1977) (en banc); Chemical Workers Basic Union, Local No. 1744 v. Arnold Savings Bank, 411 S.W.2d 159, 163-65 (Mo.1966) (en banc); Knight v. M.H. Siegfried Real Estate, Inc., 647 S.W.2d 811, 814 (Mo.App.1982); Fischer v. Browne, 586 S.W.2d 733, 736-37 (Mo. App.1979). As to his promissory estoppel claim, I conclude that when — or where— plaintiff learned of defendant’s failure to honor its alleged promise is irrelevant to an application of either § 516.100 or § 516.-190.

Defendant suggests — correctly I believe — that K.S.A. § 60-512 is the Kansas statute of limitations which applies to a cause of action of the nature of plaintiff’s promissory estoppel claim. See Head v. Knopp, 225 Kan. 45, 587 P.2d 867, 869 (1978); Lorson v. Falcon Coach, Inc., 214 Kan. 670, 522 P.2d 449, 457 (1974). That statute provides for a three year limitations period. Since plaintiff’s promissory estoppel claim “originated” or “accrued” as of June 4, 1979, and since the present case was not filed until May 22, 1984, the action is, upon the record presently before me, rather clearly time-barred.

I reach a different result with respect to plaintiff’s fraud claim. Some troublesome questions exist, however, concerning the method of analysis to be employed.

As to that fraud claim, § 516.120(5) (specifying that in cases of fraud, “the cause of action ... shall not be deemed to have accrued until the discovery by the aggrieved party____”) appears to have a more direct bearing on matters than § 516.-100. If § 516.120(5) is accorded a function in the application of § 516.190, corresponding to that which Renfroe accords § 516.-100 in other cases (again, a proposition I consider dubious), the conclusion is that plaintiff’s claim accrued, for purposes of § 516.190, when plaintiff became aware of the alleged fraud. Carrying that analysis to the next step — that at least in these circumstances the cause of action “originated” or “accrued” not only when but where plaintiff discovered the fraud — as the Eighth Circuit’s decision in Renfroe by implication mandates, see 686 F.2d at 647 n. 9, the result is that the cause of action “originated” or “accrued” in Missouri. Section 516.190 thus becomes inapplicable and the matter is governed by — and timely under — the five year limitations period established by § 516.120(5).

The same result, however, is reached even under what I. consider to be a more conventional approach. As noted previously, the usual method of determining where a cause of action “originates” or “accrues” for purposes of a borrowing statute, is to turn directly to the older choice of law tests generally typified by the Restatement (First) of Conflicts of Law (1934). See footnote 3, supra, and authorities, including Missouri decisions, collected therein. Following that approach, one is led in turn to Restatement § 377, Note 4, which specifies that in fraud cases “the place of the wrong is where the loss is sustained,” this being a specialized application of the section’s general rule — applicable in determining where a cause of action “originated” — that the “place of the wrong is in the state where the last event necessary to make the actor liable for an alleged tort takes place.”

Under this rule one might conclude — and some courts have, see Sack v. Low, supra — that the place where the “loss is sustained” in fraud cases is the place “where its economic impact is felt, normally the plaintiff’s residence.” Id. at 366. In the context of the present fraud claim, that “economic impact” is the damage caused by plaintiff’s reliance upon defendant’s alleged misrepresentation — the termination of his Arizona employment and his travel and associated expenses in moving from Arizona. Plaintiff was, apparently, an Arizona resident at the time those events occurred. Furthermore, even though I believe the quoted observation from Sack is a somewhat misleading oversimplification, and that the place where a plaintiff acts to his detriment in reliance upon a defendant’s fraudulent misrepresentation, or the place where the property or employment in question is located, will in theory often be the place where the “loss” is considered sustained, regardless of plaintiff’s residence, see, e.g., Hester v. New Amsterdam Casualty Company, 287 F.Supp. 957, 972 (D.S.Car.1968), aff'd in part and dismissed in part, 412 F.2d 505 (4th Cir.1969) (fraudulent land transaction regarding Florida land, consummated in Florida, governed by Florida limitations even though plaintiffs were residents of Georgia); Boulevard Airport v. Consolidated Vultee Air Corp., 85 F.Supp. 876, 880 (E.D.Pa.1949) (acts in reliance upon defendant’s alleged fraudulent representations took place in Pennsylvania; cause accordingly “originated” in Pennsylvania); Thompson v. Lyons, 281 Mo. 430, 220 S.W. 942, 945 (1920) (where fraudulent land deal transacted in Kansas, cause “originated” in Kansas under § 516.190, even though plaintiff was a resident of Missouri), the latter test also marks Arizona as the place where the “loss” was sustained. Under either approach, however, the analysis ultimately leads back to Missouri. That is because Arizona has a statute of limitations regarding fraud very much like Missouri’s, in specifying that a cause of action for fraud “shall not be deemed to have accrued until the discovery by the aggrieved party of the facts constituting the fraud ____” A.R.S. § 12-543(3). If, in turn, one follows the Eighth Circuit’s mandate in Renfroe (as I am obliged to do), that when the accrual of a cause of action is contingent upon some element of discovery by or notice to the plaintiff, the place where that contingency is fulfilled is the place where the cause of action “originates” or “accrues” for purposes of § 516.190, the Missouri five year limitations period will again be found controlling.

      . In situations where — as here — a moving party has submitted no extraneous materials in support of a Rule 12 motion, there is at least some doubt that the opposing party is entitled to submit such materials. See Park-In-Theatres, Inc. v. Paramount-Richards Theatres, Inc., 7 F.R.D. 723, 724-25 (D.Del.1948).

      . As the District Court opinion in Renfroe points out, 541 F.Supp. 805, at 807, the Missouri courts have used the terms "originate,” "arise” and "accrue" interchangeably when interpreting § 516.190.

      . Although both the District and Appellate Court in Renfroe appear to assume that § 516.100 is to be used in this way, I am unable to find any Missouri authority — or for that matter authority from any other state with a similar statutory scheme — supporting the proposition. To the contrary in fact, Brown v. Grinstead, 212 Mo. App. 533, 252 S.W. 973, 975 (1923), holds that § 516.100 has no area of application in connection with § 516.190. Furthermore, as Judge Donnelly pointed out in Bowling v. S.S. Kresge Company, 431 S.W.2d 191 (Mo. 1968), when a foreign statute of limitations is "borrowed” or proposed for borrowing under § 516.190, the internal law of that other state relevant to the statute — including its law as to when a cause of action "accrues” under the statute — is taken along with the statute. Id. at 193. It is, obviously, rather difficult to square this rule with the approach taken in Renfroe.

      The conventional approach used in determining when and where a cause of action originated or accrued for purposes of a- "borrowing” statute, and in fact the one the Missouri cases have consistently displayed, see, e.g., Trzecki v. Gruenewald, 532 S.W.2d 209 (Mo.1976) (en banc); Bowling v. S.S. Kresge Company, supra; Girth v. Beaty Grocery Company, 407 S.W.2d 881 (Mo. 1966); Richardson v. Watkins Bros. Mem. Chapels, 527 S.W.2d 19 (Mo.App.1975), is to apply the older choice of law rules typified by the Restatement (First) of Conflict of Laws (1934). See generally, Leflar, American Conflicts Law § 128, at 257 n. 4 (1977); and see also Sack v. Low, 478 F.2d 360, 366-67 (2d Cir.1973).

      . Plaintiff also alleges damages in the nature of “medical expenses” and attorneys’ fees. The former apparently has reference to a loss of medical insurance coverage occasioned by termination of plaintiff's employment in Arizona. It is unclear what the latter item refers to, other than perhaps the fees charged by plaintiffs Arizona attorney in negotiating the alleged agreement to re-transfer to Baxter Springs; but it seems rather clear in any event that there is no viable theory under which plaintiff could recover attorney’s fees for any post-breach work — i.e., in prosecuting this action.

      . In many cases — particularly securities cases and the like — the place of acting will in fact be the place of plaintiffs residence, simply because that is where he will usually act in matters of that nature (e.g., in placing an order to buy securities, in executing a contract, etc.). As the cases cited above demonstrate, however, that injury-causing act of reliance may often occur in some place other than the state of plaintiffs residence; or, as in land transaction or employment situations, the "loss” is rather clearly identified with a state other than that in which the plaintiff resides.