Protective Life v. Oakdale Investors

THIS OPINION HAS NO PRECEDENTIAL VALUE. IT SHOULD NOT BE CITED OR RELIED ON AS PRECEDENT IN ANY PROCEEDING EXCEPT AS PROVIDED BY RULE 239(d)(2), SCACR. THE STATE OF SOUTH CAROLINA In The Court of Appeals Ex Parte: Protective Life Insurance Company, Respondent, v. Oakdale Investors, LP, Webb Properties, Inc., and J. Patton Webb, Appellants, ___________________ In Re: Marin Properties, LLC, Plaintiff, v. Oakdale Investors, LP, Central Bank of the South, Protective Life Insurance Company, and the State Street Bank and Trust Company, Defendants, and Protective Life Insurance Company and State Street Bank and Trust Company, Third-Party Plaintiffs, v. Fletcher Bright Company, County of Spartanburg, Jean R. Jameson, in her official capacity as Delinquent Tax Collector for the County of Spartanburg, Webb Properties, Inc., HDC Corporation, J. Patton Webb, Thomas L. Hoofnagle, and ATFH Real Property, LLC, Third-Party Defendants. Appeal From Spartanburg County Gordon G. Cooper, Master-In-Equity Unpublished Opinion No. 2008-UP-066 Submitted January 2, 2008 – Filed January 22, 2008 AFFIRMED AS MODIFIED J. Stephen Welch, of Greenwood, and John S. Nichols, of Columbia, for Appellants. J. Richard Kelly, of Greenville, for Respondent. PER CURIAM: In this foreclosure action by a mortgage lender against a borrower and its general partners, Protective Life Insurance Company seeks to recover deficiency judgments against the borrower’s individual general partners under exceptions to the contractual nonrecourse provision. We affirm as modified.[1] FACTS Oakdale Investors, L.P. (Oakdale), is a South Carolina limited partnership whose general partners were Webb Properties, Inc. (Webb Properties); HDC Corporation; J. Patton Webb; and Thomas L. Hoofnagle (collectively Oakdale and its general partners). On July 22, 1994, Oakdale executed a promissory note for $3,725,000.00 payable to Protective Life Insurance Company (Protective) and a mortgage and security agreement granting Protective a security interest in Oakdale’s real property known as the Oakdale Shopping Center (the Shopping Center). Oakdale assigned Protective the Shopping Center’s rents and leases. The promissory note included a nonrecourse provision preserving Oakdale and its general partners from “personal liability for the payment of the principal, interest, prepayment fee or Premium, if any.” However, Oakdale and its individual general partners could incur personal liability for “Lender’s damage, loss, liability, costs and expenses, plus interest,” in five circumstances. Paragraph 4 of the promissory note enumerated those circumstances, including “(a) failure by Borrower to perform the other obligations contained in the Loan Documents including, but not limited to, the obligations to . . . pay ad valorem taxes and assessments” and “(b) fraud or misrepresentation by Borrower (or any general partner) to Lender prior to or during the term of this Note.” The Shopping Center property generated rental income sufficient to pay ordinary expenses, including property taxes. Spartanburg County notified Oakdale of the 2002 ad valorem taxes it levied on the Shopping Center. Webb personally received this notice on behalf of Oakdale, but he failed to pay the taxes. Spartanburg County notified Oakdale the Shopping Center would be sold at a tax sale. Webb personally received this notice as well but failed to notify Protective of the tax delinquency or the tax sale. Subsequently, Spartanburg County sold the Shopping Center to Marin Properties, LLC, and notified Oakdale it could redeem the property during a twelve-month redemption period. Webb received this notice on behalf of Oakdale but failed to notify Protective of the redemption period. Oakdale did not redeem the property within the redemption period. On March 29, 2005, Marin recorded a tax deed for the Shopping Center. Marin’s bid exceeded the tax debt on the property by $883,729.50 (the Overbid Funds). Webb applied to Spartanburg County for the Overbid Funds and deposited them in Oakdale’s checking account. Later, Webb personally attempted to repurchase the Shopping Center directly from Marin, using personal rather than partnership funds. Although Marin sent Webb a contract naming Webb Properties and not Oakdale as the purchaser, Webb never executed the contract because he believed Marin’s price was too high and he was uncomfortable with the contract itself. Marin deeded the Shopping Center to ATFH Real Property, LLC (ATFH). One month later, Marin filed an action to quiet title to the Shopping Center. Protective responded and asserted its claims under the promissory note. The circuit court referred Marin’s suit to the master for hearing and adjudication. In response to a motion by Protective, the master appointed a receiver for the property. The receiver took control of the Overbid Funds as well as the Shopping Center’s income. Due to Oakdale’s failure to make scheduled payments, Protective invoked the promissory note’s acceleration provision against Oakdale. The master set aside the tax sale due to defective notice. Under a negotiated agreement, the receiver disbursed the Overbid Funds to ATFH, and Marin and ATFH executed quitclaim deeds to Oakdale. With the tax sale issue resolved, the master dismissed from the suit all parties except Protective, Oakdale, and Oakdale’s general partners. On September 15, 2006, the master entered judgment on the foreclosure action to Protective and awarded Protective $3,727,460.98, plus interest, from Oakdale. The master ordered the property sold at auction, with the proceeds to be applied to Oakdale’s entire debt. The master found Oakdale’s failure to pay ad valorem taxes on the property triggered an exception to the promissory note’s nonrecourse provision. Further, the master found $346,648.27 (the Tax Issue Loss) of the grand total was attributable to Protective’s efforts to resolve the issues stemming from Oakdale’s failure to pay taxes timely. As a result, the master found joint and several liability among Oakdale and all its general partners in an amount up to $346,648.27 for Protective’s losses as a result of Oakdale’s nonpayment of property taxes. The master ruled Protective was entitled to a deficiency judgment against the individual partners, jointly and severally, for any portion of the Tax Issue Loss that remained unpaid after sale of the property. Moreover, the master found Webb’s pursuit of the overbid funds and a contract of sale with ATFH constituted fraud. As a result of the fraud, the master found Protective entitled to a deficiency judgment against Oakdale and each of its partners, jointly and severally, for both the Tax Issue Losses and all sums owed under the terms of the note that remained unpaid after sale of the property. This appeal followed. STANDARD OF REVIEW Actions for foreclosure are actions in equity. Wilder Corp. v. Wilke, 324 S.C. 570, 576-77, 479 S.E.2d 510, 513 (1996). In an appeal from the final judgment of a master, the reviewing court applies the same scope of review as if the appeal were from the circuit court without a jury to the Supreme Court. See Tiger, Inc. v. Fisher Agro, Inc., 301 S.C. 229, 237, 391 S.E.2d 538, 543 (1990) (“Our scope of review for a case heard by a Master-in-Equity who enters a final judgment is the same as that for review of a case heard by a circuit court without a jury.”); Wigfall v. Fobbs, 295 S.C. 59, 60-61, 367 S.E.2d 156, 157 (1988) (applying the standard of review from a law case heard by the circuit court to a law case heard by the master). In an action in equity, tried by a master without a jury, an appellate court may view the evidence to determine facts in accordance with its own view of the preponderance of the evidence. Tiger, 301 S.C. at 237, 391 S.E.2d at 543. LAW/ANALYSIS Oakdale, Webb Properties, and Webb argue that the master erred in finding joint and several liability on the basis of fraud. We disagree. I. Fraud As a preliminary matter, we find that our review of this issue is governed by the equitable standard enunciated above rather than by a legal standard triggered by fraud. We recognize that, when legal and equitable actions are maintained in one suit, each retains its own identity as legal or equitable for purposes of the applicable standard of review on appeal. Corley v. Ott, 326 S.C. 89, 92, 485 S.E.2d 97, 99 (1997).[2] In determining whether a cause of action is at law or in equity: [T]he appellate court must look to the essential character of the cause of action alleged by the petitioners in the court below. If the essential character of the petitioner’s cause of action is grounded on equitable rights and equitable relief is sought, the case is regarded as equitable and the appellate court has jurisdiction to make findings in accordance with its own view of the preponderance of the evidence. Dean v. Kilgore, 313 S.C. 257, 259, 437 S.E.2d 154, 155 (Ct. App. 1993). However, in the case at bar, the fraud asserted is not an action at law. Protective asserted fraud by Oakdale and its general partners, not as a separate cause of action arising out of a common event, but as a means of invoking one of the contractual exceptions to the promissory note’s nonrecourse provision. The essential nature of this action is equitable. The assertion of fraud here is inextricably part of the equitable claim for foreclosure. Therefore, we will determine facts in accordance with our view of the preponderance of the evidence. Tiger, 301 S.C. at 237, 391 S.E.2d at 543. Having decided the action is one in equity, we now turn to examine whether the master erred in concluding Oakdale committed fraud. Oakdale and its general partners had a fiduciary duty to disclose to Protective any known threats to Protective’s interest in the Shopping Center. In South Carolina, a party to a transaction may assume a duty to disclose in three ways: First, where it arises from a pre-existing definite fiduciary relation between the parties; second where one party expressly reposes a trust and confidence in the other with reference to the particular transaction in question, or else from the circumstances of the case, the nature of their dealings, or their position towards each other, such a trust and confidence in the particular case is necessarily implied. The third class includes those instances where the very contract or transaction itself, in its essential nature, is intrinsically fiduciary, and necessarily calls for perfect good faith and full disclosure, without regard to any particular intention of the parties. Holly Hill Lumber Co., Inc. v. McCoy, 201 S.C. 427, 437, 23 S.E.2d 372, 376 (1942). The party acting as a fiduciary must have either induced or actually accepted the other party’s trust. Moore v. Moore, 360 S.C. 241, 251, 599 S.E.2d 467, 472 (Ct. App. 2004) (citing Regions Bank v. Schmauch, 354 S.C. 648, 671, 582 S.E.2d 432, 444 (Ct. App. 2003)). A mortgagor in possession of mortgaged property occupies a fiduciary relation to the property and is required to act in a manner that will not impair the rights of his mortgagee. Hill v. Winnsboro Granite Corp., 112 S.C. 243, 248, 99 S.E. 836, 838 (1919). Here, Oakdale, through its general partners, executed a mortgage, promissory note, and security agreement granting Protective an interest in the Shopping Center, as well as an assignment of rents and leases. By executing these documents and retaining possession of the Shopping Center, Oakdale and its general partners manifested their acceptance of Protective’s trust and, consequently, acceptance of their fiduciary obligations to Protective. Oakdale and its general partners signified they promised not to impair Protective’s rights to the Shopping Center and assumed the duty to disclose to Protective any threats to its interest in the property. Additionally, Oakdale fraudulently concealed from Protective known threats to Protective’s interest in the property. When a party to a transaction “conceals some fact which is material, which is within his own knowledge, and which it is his duty to disclose, he is guilty of actual fraud.” Holly Hill Lumber, 201 S.C. at 436, 23 S.E.2d at 376. Webb admitted he personally knew about Oakdale’s failure to pay ad valorem taxes on the property, the tax sale of the property, and the redemption period that followed the tax sale. Webb further admitted he did not notify Protective or its agent of any of these matters. Oakdale and its general partners had a duty to disclose to Protective threats against its interest in the Shopping Center. Because Webb knew about these threats, Webb’s failure disclose them to Protective constitutes fraud. We therefore find Oakdale committed actual fraud against Protective, triggering Paragraph 4(b) of the promissory note. However, we disagree with the master’s award of “a deficiency judgment for fraud both in the amount of the Tax Issue Losses and in the amount of all other sums owed Protective under the terms of the Note.” Paragraph 4(b), upon which liability here is premised, does not obviate the nonrecourse provision entirely. Rather, it provides a limited exception to the rule against personal liability. The limited exception encompasses “Lender’s damage, loss, liability, costs and expenses,” along with interest. It does not expose Oakdale’s partners to personal liability for the “principal, interest, prepayment fee or Premium, if any,” under the note. Therefore, we find Oakdale and its general partners have joint and several personal liability for the costs Protective incurred to protect its rights, plus interest, but not for the principal amounts due under the note. II. Additional Sustaining Grounds Protective urges us to affirm the master’s judgment on additional sustaining grounds.[3] We affirm the master’s judgment of joint and several liability based upon Oakdale’s failure to pay ad valorem taxes on the property. Paragraph 4(a) of the note extends joint and several liability to Oakdale’s general partners for “failure . . . to . . . pay ad valorem taxes and assessments with respect to the Property.” Personal liability under Paragraph 4(a) is the same limited liability as under Paragraph 4(b). Webb admitted to failing to pay these taxes, and the master found personal, joint and several liability for the Tax Issue Loss on this basis. Therefore, under Paragraph 4(a) of the note, Oakdale and its general partners incurred joint and several personal liability for the Tax Issue Loss, plus interest, by failing to pay ad valorem taxes on the Shopping Center. CONCLUSION The master did not err in finding Oakdale and its general partners personally liable, both jointly and severally, to Protective under exceptions to the nonrecourse provision in the note. However, their personal liability extends only to the amount of the Tax Issue Loss, plus interest. A preponderance of the evidence supports the master’s findings that Oakdale had a fiduciary duty to notify Protective of known threats to Protective’s interest in the Shopping Center, Oakdale knew the Spartanburg County Tax Collector intended to sell the property at a tax sale, and Oakdale fraudulently failed or refused to inform Protective its interest in the property was in jeopardy. Additionally, we find Oakdale and its general partners incurred joint and several personal liability under the note for Protective’s Tax Issue Loss, plus interest, by failing to pay ad valorem taxes levied on the property. Accordingly, the order of the master is AFFIRMED AS MODIFIED. HUFF AND PIEPER, JJ., AND CURETON, AJ., CONCUR. [1] We decide this case without oral argument pursuant to Rule 215, SCACR. [2] Where legal and equitable actions co-exist in the same suit, the proper analysis is to view the actions separately for the purpose of determining the appropriate standard of review. Jordan v. Holt, 362 S.C. 201, 205, 608 S.E.2d 129, 131 (2005). An action for fraud is an action at law, and a legal question in an equity case receives review as in law. Gunter v. Fallaw, 78 S.C. 457, 59 S.E. 70 (1907). An appellate court’s scope of review in cases of fraud, where the proof must be by clear, cogent and convincing evidence, is limited to determining whether there is any evidence reasonably supporting the circuit court’s findings. Kiriakides v. Atlas Food Sys. & Servs., Inc., 343 S.C. 587, 594, 541 S.E.2d 257, 261 (2001). [3] “Under the present rules, a respondent - the ‘winner’ in the lower court - may raise on appeal any additional reasons the appellate court should affirm the lower court’s ruling, regardless of whether those reasons have been presented to or ruled on by the lower court.” I’On, L.L.C. v. Town of Mt. Pleasant, 338 S.C. 406, 419, 526 S.E.2d 716, 723 (2000). Similarly, a respondent’s failure to raise an additional sustaining ground in its appellate brief constitutes abandonment of that ground. Id. However, the basis for a respondent’s additional sustaining grounds must appear in the record on appeal. Id.