Wells Fargo v. Morgan

THIS OPINION HAS NO PRECEDENTIAL VALUE. IT SHOULD NOT BE
CITED OR RELIED ON AS PRECEDENT IN ANY PROCEEDING
EXCEPT AS PROVIDED BY RULE 268(d)(2), SCACR.

THE STATE OF SOUTH CAROLINA
In The Court of Appeals

Wells Fargo Bank, N.A., Respondent,

v.

Michael G. Morgan; Margaret H. Fitch, M.D.; Eric J.
Olig; South Carolina Department of Revenue; Linda
Lawrence Bowen; Defendants,

Of Whom Michael G. Morgan is the Appellant.

Appellate Case No. 2018-002068

Appeal From Aiken County
Doyet A. Early, III, Circuit Court Judge

Unpublished Opinion No. 2021-UP-313
Heard June 15, 2021 – Filed September 1, 2021

REVERSED AND REMANDED

Andrew Sims Radeker, of Harrison, Radeker & Smith,
P.A., of Columbia, for Appellant.

Sarah P. Spruill, of Haynsworth Sinkler Boyd, PA, of
Greenville, and Stacie Corbett Knight, of Winston &
Strawn, LLP, of Charlotte, North Carolina; both for
Respondent.
PER CURIAM: In this foreclosure action, Michael Morgan filed a counterclaim
alleging Wells Fargo Bank violated the Attorney Preference Statute1 and engaged
in unconscionable conduct during the execution of his mortgage loan (the
Mortgage). Morgan argues the circuit court erred in granting Wells Fargo's motion
to dismiss his counterclaim by: (1) finding he failed to state a cause of action; (2)
finding his counterclaim was barred by the statute of limitations; (3) relying on
unpublished opinions; (4) applying the heightened standard of review required for
fraud where there was no fraud claim; and (5) dismissing his counterclaim with
prejudice without allowing him leave to amend. Morgan further argues the circuit
court's order denying his motion to reconsider was void because the circuit court
filed an earlier order granting his motion to reconsider and transferring the case to
the master-in-equity. We reverse the dismissal of the counterclaim and remand
this matter for further proceedings.

Facts and Procedural History

On April 25, 2008, Morgan refinanced his existing mortgage loan in a transaction
with Wachovia Mortgage, FSB (Wachovia).2 On December 2, 2015, Wells Fargo,
as successor in interest to Wachovia, filed a foreclosure action, asserting Morgan
had defaulted on the $1,300,000 loan as of June 15, 2011. Morgan timely
answered and asserted several counterclaims. Wells Fargo moved to dismiss the
counterclaims, arguing Morgan was prohibited from raising counterclaims related
to the 2011 class action settlement involving Wachovia's pick-a-payment loans.
On May 10, 2018, Morgan filed an amended answer and a single counterclaim

1
S.C. Code Ann. § 37-10-102 (2015).
2
The note and Mortgage here were executed as a "pick-a-payment" option loan.
Such pick-a-payment loans were the subject of a class action against Wachovia
filed in the United States District Court for the Northern District of California. In
re Wachovia Corp. "Pick-A-Payment" Mortg. Mktg. & Sales Pracs. Litig., No.
5:09-MD-02015-JF, 2011 WL 1877630 (N.D. Cal. May 17, 2011). Ultimately,
Wachovia entered into a settlement agreement in 2011 in which it agreed to,
among other things, implement a loan modification program for borrowers meeting
certain criteria. Id. at *2. In this case, Morgan contends his loan qualified for a
loan modification, but alleges Wells Fargo, as successor by merger to Wachovia,
refused to modify the terms of his loan.
titled "Violation of Attorney Preference Statute with Unconscionability." Wells
Fargo again moved to dismiss.

Following a hearing, the circuit court dismissed Morgan's counterclaim, with
prejudice, by order dated August 24, 2018. The circuit court found Rule 9(b),
SCRCP, required that Morgan plead his claim with particularity and that Morgan
failed to plead the elements of fraud sufficiently.3 The circuit court further found
the three-year statute of limitations governing violations of the Attorney Preference
Statute barred the claim because Morgan failed to adequately allege substantive or
procedural unconscionability.

Morgan timely moved to reconsider. At the October 15, 2018 hearing, Morgan
asked that the circuit court grant his motion to reconsider, or alternatively, allow
him leave to amend his pleading. Morgan also requested clarification as to
whether the circuit court had stricken his defense of unconscionability in addition
to dismissing the counterclaim.

On October 29, 2018, the circuit court e-filed an order granting Morgan's motion to
reconsider, reinstating Morgan's counterclaim, and transferring the case to the
master-in-equity. However, on November 2, 2018, the circuit court e-filed a
subsequent order denying Morgan's motion to reconsider. On November 5, 2018,
the circuit judge's law clerk notified the parties by email that the October "order
that was electronically signed was signed in error. The order filed on Friday is the
correct order. The motion to reconsider is denied."

Standard of Review

"An appellate court reviews dismissal from a Rule 12(b)(6), SCRCP motion under
the same standard employed by the trial court." Delaney v. First Fin. of
Charleston, Inc., 426 S.C. 607, 611, 829 S.E.2d 249, 250 (2019). "The facts are
construed in the light most favorable to the nonmoving party, and all well-pled
allegations are considered true." Id. "Rule 12(b)(6) permits the trial court to
address the sufficiency of a pleading stating a claim; it is not a vehicle for

3
There was no counterclaim for fraud. In any event, Rule 9(b), SCRCP provides,
"[i]n all averments of fraud or mistake, the circumstances constituting fraud or
mistake shall be stated with particularity. Malice, intent, knowledge, and other
condition of mind of a person may be averred generally."
addressing the underlying merits of the claim." Skydive Myrtle Beach, Inc. v.
Horry Cnty., 426 S.C. 175, 180, 826 S.E.2d 585, 587 (2019).

Law and Analysis

Initially, we find Morgan sufficiently pled his counterclaim for procedural
unconscionability due to a violation of the Attorney Preference Statute. The
Attorney Preference Statute is codified in Chapter 10 of the Consumer Protection
Code at § 37-10-102. Section 37-10-105 explicitly authorizes causes of action for
violations of Chapter 10 of the Consumer Protection Code, and subsection (C)
recognizes a cause of action for unconscionability. See S.C. Code Ann. § 37-10-
105(A) (2015) ("If a creditor violates a provision of this chapter, the debtor has a
cause of action, other than in a class action, to recover actual damages . . . ."); S.C.
Code Ann. § 37-10-105(C) (describing the relief a court may grant "[i]f the court
finds as a matter of law that the agreement or transaction is unconscionable
pursuant to Section 37-5-108 at the time it was made, or was induced by
unconscionable conduct"). Thus, it appears the General Assembly has specifically
provided a remedy for violations of the Attorney Preference Statute accompanied
by unconscionable conduct.

To determine the existence of unconscionability under § 37-10-105(C), the court
must consider a nonexclusive list of factors set forth in § 37-5-108. See
§ 37-10-105(C) (citing §37-5-108 for determining the existence of
unconscionability); S.C. Code Ann. § 37-5-108(4)(a) (2015) (listing nonexclusive
factors the court must consider in determining the existence of unconscionability).
Section 37-5-108(4)(a)(iv) requires the court to consider "the fact that the seller,
lessor, or lender knowingly has taken advantage of the inability of the consumer or
debtor reasonably to protect his interests by reason of physical or mental
infirmities, ignorance, illiteracy, inability to understand the language of the
agreement, or similar factors." Morgan alleges he was not given the opportunity to
choose his counsel in violation of the Attorney Preference Statute, the loan was
closed without the supervision of an attorney, and his signature was forged on
some of the loan documents. We find Morgan sufficiently pled his § 37-10-105(C)
counterclaim. Whether Morgan has proper evidence to support his claim of
unconscionability was not for the circuit court to determine at the 12(b)(6) stage.4

4
We are unsure why the circuit court applied Rule 9, SCRCP, to Morgan's
counterclaim when Morgan titled the claim as one for "Violation of Attorney
Preference Statute with Unconscionability." Likewise, we question the circuit
court's application of the three-year statute of limitations of § 37-10-105(A) when
Nevertheless, even if Morgan's pleading were deficient, the circuit court erred in
dismissing the counterclaim with prejudice and refusing to allow Morgan to amend
his pleading. See Skydive Myrtle Beach, 426 S.C. at 189, 826 S.E.2d at 592 ("A
circuit court does not have 'discretion' to dismiss a complaint with prejudice for
failure to state a claim under Rule 12(b)(6) without at least considering whether to
allow leave to amend under Rule 15(a). Under Rules 12(b)(6) and 15(a), the
circuit court may not dismiss a claim with prejudice unless the plaintiff is given a
meaningful chance to amend the complaint, and after considering the amended
pleading, the court is certain there is no set of facts upon which relief can be
granted.").

Accordingly, the circuit court's dismissal of Morgan's counterclaim is

REVERSED AND REMANDED.5

KONDUROS, GEATHERS, and MCDONALD, JJ., concur.

Morgan expressly brought his unconscionability claim under subsection (C), for
which the statute of limitations is tied to the loan's maturity date. Compare § 37-
10-105(A) ("No debtor may bring an action for a violation of this chapter more
than three years after the violation occurred, except as set forth in subsection
(C)."), with § 37-10-105(C) (stating that the time to bring a claim against a creditor
for unconscionability is before the loan's original maturity date); see also Tilley v.
Pacesetter Corp., 333 S.C. 33, 42 n.10, 508 S.E.2d 16, 20 n.10 (1998) (finding
"where the debtor seeks recovery under section 37-10-105 pursuant to
a counterclaim, the three year statute of limitations is clearly inapplicable"
(emphasis in original)).
5
Because our determination of these issues is dispositive, we decline to address
Morgan's remaining assertions of error. See Futch v. McAllister Towing of
Georgetown, Inc., 335 S.C. 598, 613, 518 S.E.2d 591, 598 (1999) (noting an
appellate court need not address remaining issues when resolution of a prior issue
is dispositive).