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Beaumont v. Layton

United States District Court, D. South Carolina, Beaufort Division

June 3, 2019

Thomas W. Beaumont, Plaintiff,
v.
Donald H. Layton, Federal National Mortgage Corporation, Montague Laffitte, and Palmetto State Bank, Defendants.

          ORDER AND REPORT AND RECOMMENDATION

          MARY GORDON BAKER JUDGE

         Thomas W. Beaumont (“Plaintiff”), proceeding pro se, brought this action pursuant to South Carolina Code § 36-3-603, seeking release of certain debt obligations arising under two loan transactions with Defendants. (Dkt. No. 1-1.) On April 8, 2019, the undersigned issued a Report and Recommendation recommending that this matter be dismissed for failure to prosecute.[1] (Dkt. No. 27.) By Order dated May 10, 2019, presiding District Court Judge Bruce Howe Hendricks remanded the matter back to the Magistrate Judge to consider the parties' claims on the merits.[2](Dkt. No. 32.) In compliance with this Order, the undersigned now considers Plaintiff's Motion to Strike Defendants' Answer and Counterclaim (Dkt. No. 16), and Defendants' Motion for Judgment on the Pleadings and Default Judgment (Dkt. No. 17). For the reasons set forth herein, the undersigned denies Plaintiff's Motion to Strike Defendants' Answer and Counterclaim (Dkt. No. 16) and recommends that Defendants' Motion for Judgment on the Pleadings and Default Judgment be denied (Dkt. No. 17).

         BACKGROUND

         On or around October 23, 2018, Plaintiff filed this action in the South Carolina Court of Common Pleas, Beaufort County, requesting that the Court release him from his obligations under two loan transactions that he entered into with Palmetto State Bank (“PSB”). Plaintiff alleges that he presented PSB with two notes (the “Lump-Sum Promissory Notes”) in December 2017 to pay the remaining balances on his two loans respectively, and that PSB refused to process the notes. (Dkt. No. 1-1 at 4-6, 9-13.) Specifically, in a letter dated March 5, 2018, PSB's Vice Chairman Montague Laffitte informed Plaintiff that PSB did not have the authority to accept Plaintiff's notes because the bank had sold Plaintiff's loans to Federal Home Loan Mortgage Corporation (“Freddie Mac”).[3] (Id. at 16; Dkt. No. 3 ¶ 19; Dkt. No. 1 ¶ 1.) After contacting representatives from Freddie Mac, Laffitte notified Plaintiff that Freddie Mac “could not accept [his] Lump-Sum Payment Notes.” (Dkt. No. 1-1 at 20.)

         Plaintiff claims that the Lump-Sum Promissory Notes are valid, negotiable instruments secured by collateral and, as such, Defendants' refusal to accept the tender of these notes results in the discharge of Plaintiff's loan obligations pursuant to South Carolina Code § 36-3-603.[4] (Id. at 5-6.) Accordingly, Plaintiff's Complaint asks that the Court “release [him] from these obligations and compel the Defendants to fully settle these accounts with prejudice.” (Id. at 6.)

         On November 20, 2018, Defendants removed the action to the United States District Court for the District of South Carolina under 28 U.S.C. § 1442(a).[5] On November 21, 2018, Defendants filed an Answer and Counterclaim, which expounded on the transactions between Plaintiff and PSB. (Dkt. No. 3.) Specifically, Defendants claim that Plaintiff obtained two loans from PSB in November 2001 and October 2002. (Dkt. No. 3 ¶¶ 24, 30.) To secure repayment of the loans, Plaintiff then executed and delivered two mortgage agreements to PSB. (Id. ¶¶ 24-25, 29-30.) Defendants claim that Plaintiff made reoccurring payments on both loans for at least fifteen (15) years. (Dkt. No. 3 ¶¶ 34-35.) In December 2017, however, Plaintiff presented PSB with the Lump-Sum Payment Notes to pay off the remaining balances on his two loans. (Id.) Defendants allege that they could not process Plaintiff's notes because he did not remit any funds in conjunction therewith: “[t]here was no consideration offered to PSB, ” and “PSB did not receive any funds or anything else of value” in relation to either note. (Id. ¶¶ 11, 36.) In other words, Defendants claim that Plaintiff's Lump-Sum Promissory Notes are worthless. (Id.)

         For these reasons, Defendants' counterclaim seeks costs and reasonable attorney's fees for frivolous lawsuit pursuant to South Carolina Code § 15-36-10(A)(4)(a)(ii). (Id. ¶¶ 44-46.) Defendants' counterclaim also suggests that Defendants are contractually entitled to costs and reasonable attorney's fees based on the language in the two mortgage agreements.[6] Specifically, Defendants claim that they are authorized to add to Plaintiff's balance any costs or reasonable attorney's fees incurred in protecting their interests and rights under the loan and mortgage agreements. (Id. ¶¶ 26, 31.)

         On December 26, 2018, Plaintiff filed a Motion to Strike Defendants' Answer and Counterclaim.[7] (Dkt. No. 16.) The motion states:

Counsel's claim denying that the [Lump-Sum Payment Notes] are valid negotiable instruments is insufficient. South Carolina U.C.C. Title 36-3-104(a) clearly states: NEGOTIABLE INSTRUMENT means an unconditional promise to pay or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order.

(Dkt. No. 16-1 at 3.) Plaintiff's motion further emphasizes that the Lump-Sum Payment Notes “are registered on UCC 1 financing statements . . . and collateralized as stated in the collateral box of those UCC 1 statements.” (Id. at 5.) Interestingly, Plaintiff's motion also alleges that Defendants executed the mortgage agreements through “deceitful dishonest means” and “fraudulent inducement.” (Id. at 3, 8.) On January 4, 2019, Defendants filed a Response in Opposition, arguing that Plaintiff had failed to present proper grounds for striking Defendants' pleadings as required under Rule 12(f) of the Federal Rules of Civil Procedure. (Dkt. No. 19.)

         On January 4, 2019, Defendants also filed a Motion for Judgment on the Pleadings and Default Judgment. (Dkt. No. 17.) With respect to Plaintiff's Complaint, Defendants assert that they are entitled to judgment on the pleadings because Plaintiff “has offered no authority whatsoever in support of his position that the Lump-Sum Payment Notes have any value.” (Id. at 4, 6.) Defendants also allege that Plaintiff's Complaint fails to allege a viable claim for which relief can be granted as to Defendants Montague and Layton and, thus, Plaintiffs claims against these individuals should be dismissed. (Id. at 7.) With respect to their counterclaim, Defendants argue that they are entitled to default judgment because Plaintiff failed to file a timely response. (Id. at 5.) In the alternative, Defendants ask the Court for a judgment on the pleadings because Plaintiff's Motion to Strike Answer and Counterclaim fails to address Defendants' allegations of frivolous lawsuit and their contractual right to attorney's fees. (Id. at 5, 7.)

         On January 7, 2019, this Court issued an Order pursuant to Roseboro v. Garrison, 528 F.2d 309 (4th Cir. 1975), advising Plaintiff of the dismissal procedure and the possible consequences if he failed to adequately respond to Defendants' motion. (Dkt. No. 20.) On February 13, 2019, after Plaintiff failed to respond, the Court filed an Order giving Plaintiff an additional twenty (20) days. (Dkt. No. 22.) On March 12, 2019, Plaintiff filed a motion requesting an extension of time to file his response. (Dkt. No. 24.) The Court granted Plaintiff's request and gave Plaintiff until March 27, 2019, to file his response to Defendants' motion. (Dkt. No. 25.) Because Plaintiff is a pro se litigant and does not have access to the Court's electronic filing system, the Court sent a hardcopy of this Order, as it does with every filing in this matter, to the address provided by Plaintiff. (Dkt. No. 25.)

         Plaintiff did not file a response to Defendants' Motion for Judgment on the Pleadings and Default Judgment. Accordingly, on April 8, 2019, the undersigned issued a Report and Recommendation and recommended that the action be dismissed with prejudice for lack of prosecution and for failure to comply with this Court's orders, pursuant to Rule 41(b) of the Federal Rules of Civil Procedure and the factors outlined in Chandler Leasing Corp. v. Lopez, 669 F.2d 919, 920 (4th Cir. 1982). (Dkt. No. 27 at 5-6.) See Ballard v. Carlson, 882 F.2d 93 (4th Cir. 1989). Because the Court did not reach the merits of the action, the undersigned also recommended that the Court deny Defendants' request for costs and attorney's fees. (Id. at 6.)

         On April 22, 2019, Defendants filed Objections to the Report and Recommendation, stating that the Court failed to “address Defendants' counterclaim to recover attorney's fees and costs based on the contractual provisions in the loan documents and instead only denie[d] attorney's fees and costs for frivolous lawsuit.” (Dkt. No. 29 at 1.) Defendants state that they “fully agree with the remainder of the Report, ” but ask that the Court allow Defendants, pursuant to the terms of the parties' agreements, to add to Plaintiff's loans the costs and attorney's fees incurred by Defendants in defending this matter. (Id.) In the alternative, Defendants ask that the Court declare “that the contractual provision for attorney's fees and costs in the loan documents is a private matter between the parties.” (Id. at 1-2.)

         On May 6, 2019, Plaintiff filed an Affidavit of Plain Statement of Facts, alleging that he never received the Court's Order (Dkt. No. 25) granting his request for an extension of time to file a response to Defendants' Motion for Judgment on the Pleadings and Default Judgment. (Dkt. No. 30 ¶ 4.) The Affidavit also raises several arguments in opposition to Defendants' claim that the Lump-Sum Payment Notes are invalid and therefore warrant dismissal of Plaintiff's Complaint.[8]Specifically, Plaintiff asserts that the Lump-Sum Payment Notes are registered on UCC-3 Financing Statements Nos. 1700422131 and 1700422152, and that the collateral for both notes is memorialized on UCC-1 Financing Statement No. 170037896041 and UCC-3 Assignment No. 1800081583.[9] (Id. ¶ 10.)

         Notably, Plaintiff's Affidavit also reiterates his allegation that Defendants fraudulently induced Plaintiff to execute the mortgage agreements. (Id. ¶¶ 13-22.) Plaintiff claims that Defendants violated certain accounting principles in handling Plaintiff's transactions, and that he would not have entered into the mortgage agreements had he been aware of such violations. (Id.) In short, Plaintiff seems to challenge the validity of the mortgage agreements on which Defendants base their claim for attorney's fees and costs. (Id. ¶¶ 24, 27.) Plaintiff also contests the amount of attorney's fees proffered by Defendants.[10] (Id. ¶¶ 25-26.)

         On May 10, 2019, Judge Hendricks issued an Order ruling on the undersigned's Report and Recommendation. (Dkt. No. 32.) The Order states,

[A]lthough the Court agrees with the Magistrate Judge's analysis based on the record that was before her, in light of Plaintiff's affidavit and Defendants' objections, the Court declines to adopt the Magistrate Judge's Report (ECF No. 27) at this time and instead remands the matter to the Magistrate Judge for further consideration of the merits of the parties' claims.

(Id. at 1-2.) Thus, pursuant to Judge Hendricks' Order (Dkt. No. 32), the undersigned now considers the merits of each outstanding motion in this action in light of the information gained from the parties' most recent filings.

         LEGAL STANDARD

         The federal court is charged with liberally construing complaints filed by pro se litigants, so as to allow for the development of a potentially meritorious claim. See, e.g., Boag v. MacDougall, 454 U.S. 364, 102 S.Ct. 700 (1982); Cruz v. Beto,405 U.S. 319, 92 S.Ct. 1079 (1972). “The mandated liberal construction afforded to pro se pleadings means that if the court can reasonably read the pleadings to state a valid claim on which the plaintiff could prevail, it should do so. . . .” Rice v. Nat'l Sec. Council, 244 F.Supp.2d 594, 596 (D.S.C. 2001), aff'd sub nom. Rice v. Mills, 46 Fed.Appx. 212 (4th Cir. 2002). Accordingly, “a pro se complaint, however inartfully pleaded, must be held to less stringent standards than formal pleadings drafted by lawyers.” See Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 2200 (2007). Even under this less stringent standard, however, a pro se complaint is still subject to ...


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