tag: North Carolina Land Use Litigator: March 2015

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Monday, March 30, 2015, 3:10 PM

N.C. Court of Appeals Reminds of Factual Findings Required for Award of "Reasonable" Attorney Fees

The North Carolina Court of Appeals recently reversed an award of attorney fees by the trial court on the basis that the trial court did not render the appropriate findings of fact.  We're talking about Brown's Building Supply, Inc. v. Johnson, No. COA14-836 (March 17, 2015).

The facts of the case are largely irrelevant.  It's essentially a dispute over a home renovation gone awry, and a monetary judgment in favor of plaintiff construction company against defendant homeowners after a bench trial.

On appeal, the appellate court affirmed the judgment in favor of plaintiff construction company but reversed the award of attorney fees.  We're here to discuss the attorney fees.

Attorney fee awards in North Carolina require a statutory basis.  N.C.G.S. 44A-35 allows attorney fee awards in certain construction cases, and provides as follows: "[T]he presiding judge may allow a reasonable attorneys' fee to the attorney representing the prevailing party. This attorneys' fee is to be taxed as part of the court costs and be payable by the losing party upon a finding that there was an unreasonable refusal by the losing party to fully resolve the matter which constituted the basis of the suit or the basis of the defense."  

"N.C. Gen. Stat. § 44A–35 creates an exception to the general rule that attorneys’ fees are not recoverable."  Martin & Loftis Clearing & Grading, Inc. v. Saieed Const. Systems Corp., 168 N.C. App. 542 (2005).

Some attorney fee award amounts are fixed by statute, in terms of the dollar value.  Others, like the award sanctioned in N.C.G.S. 44A-35, simply permit "reasonable" fee awards.

In the event of a "reasonable" award, how is the fee amount justified by the trial court such that a reviewing court can adjudge award?  The appellate court answered:  "Where a statute authorizes the award of only reasonable fees, these findings are necessary to support the reasonableness of the award.  Without these findings, the reviewing court is 'effectively preclude[d] . . . from determining whether the trial court abused its discretion[.]'"

So, what are the necessary findings where a court is awarding "reasonable" fees?   The Court must render written findings of fact as to:
1.  The time and labor expended by the attorney.
2.  The skill required for the lawsuit.
3.  The customary attorney fee for "like work".
4.  The experience or ability of the attorney.
Without these findings, the appellate court concluded, the trial court its discretion in awarding attorney fees.

Here, the trial court did render findings of fact as to the attorney fees, mind you, including the actual fees incurred as well as what constitutes a "reasonable" amount.  But, that was not enough.  Where the four criteria are not explicitly addressed -- the appellate court acknowledges that the record "reveals evidence in support" of the four criteria -- the award will not stand.

"I was told there would be no math."

Fee awards are rare, tricky business.  It's best to dot all the "i's", cross all the "t's" and put the decimal point in the correct place.

Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and real estate development litigations and transactions in state and federal venues throughout North Carolina.

Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw here and on Instagram at NCLandUseLaw here.

N.C. Court of Appeals Addresses Common Affirmative Defenses In Commercial Foreclosure Context

A recent opinion from the North Carolina Court of Appeals addresses some common borrower defenses within the context of foreclosure and statute of frauds issues: compromise and settlement, accord and satisfaction, the covenant of good faith and fair dealing, equitable estoppel and offset.

We're talking about Macon Bank, Inc. v. Gleaner, et al., Nos. COA14-809, COA14-810 (March 17, 2015).

We'll simplify the facts and posture.

The Case
Borrowers defaulted on two loans, which secured a home and undeveloped land in Highlands, North Carolina.  One of the borrowers testified that an employee of the lending bank told borrowers to "stop making any payments on the loans", and that he told the lending bank employee "that he would give [lending bank] the Highlands property 'in lieu of any foreclosure or any other judgment or losses'".  These discussions were not in writing, but borrowers contend these statements constitute a modification that satisfied any outstanding debt.  Borrower "eventually" gave the house keys to the lending bank.

Bank later sued to foreclose and pursue deficiency.  The trial court granted summary judgment to the lending bank in both lawsuits -- the reason for two suits is not important for our purposes -- which were consolidated on appeal.

The Court of Appeals affirmed summary judgment in the bank's favor.  In doing so, the Court addressed some of the borrowers' defenses.

Let's review.

Statute of Frauds Applicable to Certain "Commercial Loans"
Certain loans (and loan modifications) governed by North Carolina law must be in writing, such as "commercial loans" that are "in excess of fifty thousand dollars ($50,000)" subject to certain exceptions.  N.C. Gen. Stat. § 22-5 (2009).

Accord and Satisfaction versus Compromise and Settlement
"The doctrines of accord and satisfaction and compromise and settlement carry the following two distinctions: (1) performance is necessary to complete an accord and satisfaction but is not necessary to complete a compromise and settlement; and (2) an accord and satisfaction may be based upon an undisputed or liquidated claim, whereas a compromise and settlement must be based upon a disputed claim."

Accord and Satisfaction and the Statute of Frauds
An accord and satisfaction as to a loan must satisfy the statute of frauds, if the statute of frauds is applicable to the loan.

The Covenant of Good Faith and Fair Dealing and the Statute of Frauds
The covenant of good faith and fair dealing, which is arguably implied in "every contract" governed by North Carolina law, cannot be breached where the alleged contract does not comply with the statute of frauds.  This is because there is no contract from which to imply the covenant.

Equitable Estoppel and Statute of Frauds
"[E]quitable estoppel may override the statute of frauds so as to enforce an otherwise unenforceable agreement" but only where "where the party seeking to invoke the statute of frauds has engaged in “plain, clear and deliberate fraud."  However, in this case, defendant "did not aver in his affidavit that [lender bank] intended to deceive him and thus defendants have not proffered any evidence of actual fraud".

Offset and Mortgagee-In-Possession
Borrower defendants assert that the lending bank owes them lost rent from the date the lending bank received the keys to the rental house through to the date of foreclosure -- an amount that must offset from the debt owed to the lending bank --"because, as a mortgagee-in-possession, [the lending bank] had a duty to account for rent."

As to a mortgagee-in-possession of real property, the duty is clear in terms of rents and the application of rents to the indebtedness: "When he takes possession he becomes liable to keep such premises in usual repair and to account for the rents and profits received, in a settlement of the mortgage debts. The rents with which a mortgagee or trustee in possession is chargeable are applicable as credits on the debt secured by the mortgage."

But what is the amount of rent applicable, where the mortgagor is "over a barrel":  "A mortgagee-in-possession must pay the 'highest fair rent' and becomes responsible for 'all such acts or omissions as would . . . constitute claims on an ordinary tenant, because by entry and possession he makes himself 'tenant of the land[.]''""

But how do we determine if a mortgagee is a mortgagee-in-possession?  The Court articulates the standard:  "[A] mortgagee must exercise more than mere constructive possession to become a mortgagee-in-possession."

Here, although defendants arguably have proffered some evidence that plaintiff had constructive possession of the rental house upon delivery of the keys, defendants proffer no evidence that plaintiff exercised actual possession of the rental house or that they were excluded from the rental house. Thus, the lending bank was not a mortgagee-in-possession.

Therefore, no offset applies in this context.

"Ok, good.  I have to pee, anyway."

Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.

Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw and "like" us on Facebook here.

Wednesday, March 25, 2015, 7:02 PM

Take My Home, Please: In Wake of Court Decision, N.C. General Assembly Seeks to Repeal "Map Act"

The Map Act -- also known as Chapter 136, Article 2E of the General Statutes of North Carolina -- allows the N.C.D.O.T., local governments or other governing bodies to file with the local register of deeds an official "transportation corridor" map.  The map identifies all properties located within the planned road corridor.   The Act, by the filing of the map, virtually freezes property development within proposed road corridors by blocking building permit and subdivision applications for up to three years.  After that three year wait, the filing body must act on any pending application, acquire the targeted property, or release the property from the corridor.  There are policy reasons behind the Act, whether agreeable or not.

In February, the North Carolina Court of Appeals ruled that N.C.D.O.T. took land from owners of property located within a corridor map without paying just compensation when the agency invoked the Map Act to freeze development for a future Winston-Salem road loop.  In that wake, the North Carolina General Assembly has taken its own row to the law.

The House Chamber of the North Carolina General Assembly proposed a bill -- HB 183, viewable here -- that would repeal the Map Act in its entirety.  This comes at the same time that the General Assembly's Senate Chamber is considering a bill that would revise, rather than repeal entirely, the Map Act.

The Map Act has analogs, past and existing, in other States, as well, and this is not the first time the law has seen political, legal and social criticism.  The "John Locke Foundation" even proposes a presentation on the myriad problems with the law.

We'll see if the appellate court's decision practically kills the law or if the General Assembly actually kills the law.

"Look!  It's a broken gavel, and the phrase 'No Condemnation'.  This makes no sense but it kind of looks appropriate, right?"

Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.

Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw and "like" us on Facebook here.
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