Opinion
C.A. No. 9:18-cv-03142-BHH-MGB
06-03-2019
Thomas W. Beaumont, Plaintiff, v. Donald H. Layton, Federal National Mortgage Corporation, Montague Laffitte, and Palmetto State Bank, Defendants.
ORDER AND REPORT AND RECOMMENDATION
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. (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. (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).
The facts and procedural history presented in the undersigned's Report and Recommendation (Dkt. No. 27) are incorporated by reference as if set forth fully herein.
Pursuant to the provisions of 28 U.S.C. § 636(b)(1) and Local Rule 73.02(B)(2)(e), D.S.C., all pretrial matters in cases involving pro se litigants are referred to a United States Magistrate Judge for consideration. In the instant case, Plaintiff is proceeding pro se and Defendants are represented by counsel.
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"). (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.)
Although Freddie Mac is trustee of Plaintiff's loans, PSB continues to service both loans. (Dkt. No. 17 at 2.)
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. (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.)
S.C. Code § 36-3-603(b) states: "If tender of payment of an obligation to pay an instrument is made to a person entitled to enforce the instrument and the tender is refused, there is discharge, to the extent of the amount of the tender, of the obligation of an indorser or accommodation party having a right of recourse with respect to the obligation to which the tender relates."
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). 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.)
Under 28 U.S.C. § 1442(a), any agency of the United States may remove a civil action from state court to the district court of the United States for the district and division embracing the place where the action is pending. Freddie Mac is considered an agency of the United States under 12 U.S.C. § 1452(f).
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. 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.)
Defendants cite the following passage from the mortgage agreements:
If . . . there is a legal proceeding that might significantly affect Lender's interest in the Property and/or rights under this Security Instrument . . . then Lender may do and pay for whatever is reasonable or appropriate to protect Lender's interest in the Property and rights under this Security Instrument. . . . Lender's actions can include, but are not limited to . . . paying reasonable attorney's fees to protect its interest in the Property and/or rights under this Security Instrument. . . .(Dkt. No. 3 ¶¶ 26, 31; Dkt. No. 3-2; Dkt. No. 3-4.)
Any amounts disbursed by Lender under this Section [] shall become additional debt of Borrower secured by this Security Instrument.
On December 26, 2018, Plaintiff filed a Motion to Strike Defendants' Answer and Counterclaim. (Dkt. No. 16.) The motion states:
In liberally construing Plaintiff's filings, the undersigned treats Plaintiff's Motion to Strike Answer and Counterclaim as Plaintiff's answer to Defendants' counterclaim.
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. 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. (Id. ¶ 10.)
Construing Plaintiff's pro se filings liberally, the Court treats Plaintiff's Affidavit as a response in opposition to Defendants' Motion for Judgment on the Pleadings and Default Judgement.
Copies of these filing statements are attached to Plaintiff's Affidavit. (Dkt. No. 30-1.)
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. (Id. ¶¶ 25-26.)
Defendants seek $427.54 for costs of collection and $27,500.00 in attorney's fees, with leave "to request additional attorney's fees and expenses at a later date." (Dkt. No. 17-5.)
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 F. App'x 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 summary dismissal. Indeed, the court cannot ignore a clear failure in the pleading to allege facts supporting a claim cognizable in a federal district court. See id. (referencing Weller v. Department of Social Services, 901 F.2d 387 (4th Cir. 1990)).
DISCUSSION
I. Plaintiff's Motion to Strike Answer and Counterclaim
The Court first turns its attention to Plaintiff's Motion to Strike Answer and Counterclaim. (Dkt. No. 16.) Pursuant to Rule 12(f) of the Federal Rules of Civil Procedure, "[t]he court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Rule 12(f)(2), Fed. R. Civ. P. Motions to strike "are generally viewed with disfavor because striking a portion of a pleading is a drastic remedy and because it is often sought by the movant simply as a dilatory tactic." Waste Mgmt. Holdings v. Gilmore, 252 F.3d 316, 347 (4th Cir. 2001); see also Trout v. Colormatrix Corp., No. CA 6:12-670-HMH, 2013 WL 756340, at *1 (D.S.C. Feb. 26, 2013) (stating that a motion to strike is "an extreme and awesome remedy that is highly disfavored by the courts") (internal citations omitted). "Accordingly, a motion to strike a matter from an answer will not be granted, unless the moving party demonstrates that the challenged material is so unrelated to the plaintiff's claims as to be unworthy of any consideration as a defense such that its presence in the pleading throughout the proceeding will be prejudicial to the moving party." Pennington v. Myers, No. CA 3:12-1509-JFA-SVH, 2013 WL 3479680, at *2 (D.S.C. July 10, 2013) (internal citations omitted).
Here, Defendants' Answer and Counterclaim are indisputably related to the issues presented in Plaintiff's Complaint. Although Plaintiff challenges the veracity and merit of Defendants' claims, nowhere in his Motion to Strike does Plaintiff raise the argument that Defendants' Answer and Counterclaim are so unrelated to this action that they are somehow prejudicial to Plaintiff or unworthy of consideration by this Court. To the contrary, Defendants' Answer and Counterclaim rest on the same series of transactions at the center of Plaintiff's Complaint; the fact that Plaintiff disagrees with Defendants' legal interpretation of these transactions is not, in and of itself, reason to strike Defendants' Answer and Counterclaim. To be sure, granting Plaintiff's motion would plainly contravene this Circuit's well-established practice disfavoring motions to strike and favoring the resolution of cases on their merits. Accordingly, the undersigned denies Plaintiff's Motion to Strike Answer and Counterclaim. (Dkt. No. 16.)
II. Defendants' Motion for Judgment on the Pleadings or, in the Alternative, Default Judgment
A. Plaintiff's Complaint
Next, the Court considers Defendants' Motion for Judgment on the Pleadings and Default Judgment. (Dkt. No. 17.) First, Defendants claim they are entitled to judgment on the pleadings as to Plaintiff's Complaint because the Lump-Sum Payment Notes are not valid negotiable instruments and, consequently, Plaintiff's presentation of the notes to Defendants did not trigger the release of his obligations under the loans. (Dkt. No. 17 at 4-5.) Pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, a motion for judgment on the pleadings is decided under the same standard as a Rule 12(b)(6) motion to dismiss. Independence News, Inc. v. City of Charlotte, 568 F.3d 148, 154 (4th Cir. 2009). Thus, to survive a motion for judgment on the pleadings, the complaint must contain sufficient facts "to raise a right to relief above the speculative level" and "state a claim to relief that is plausible on its face." See Pellegrin v. Berthelsen, No. 9:11-CV- 00125, 2012 WL 10847, at *1 (D.S.C. Jan. 3, 2012) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007)).
In reviewing a complaint under Rule 12(c), the court must accept as true all of the factual allegations contained in the complaint and construe the facts and reasonable inferences derived therefrom in the light most favorable to the plaintiff. Erickson v. Pardus, 551 U.S. 89, 94 (2007); see also Philips v. Pitt Cty. Mem'l Hosp., 572 F.3d 176, 179-80 (4th Cir. 2009). The court "may also consider documents attached to the complaint . . . as well as those attached to the motion to dismiss, so long as they are integral to the complaint and authentic." See Philips, 572 F.3d at 180 (citing Blankenship v. Manchin, 471 F.3d 523, 526 n.1 (4th Cir. 2006)). Courts follow "a fairly restrictive standard" in deciding Rule 12(c) motions, as "hasty or imprudent use of this summary procedure by the courts violates the policy in favor of ensuring to each litigant a full and fair hearing on the merits of his or her claim or defense." See Fitzhenry v. Indep. Order of Foresters, No. 2:14-CV-3690-DCN, 2015 WL 3711287 (D.S.C. June 15, 2015) (citing 5C Charles A. Wright and Arthur R. Miller, Federal Practice and Procedure § 1368 (3d ed. 2011)).
The court may also consider the defendant's answer(s). See Massey v. Ojaniit, 759 F.3d 343, 347 (4th Cir. 2014).
As discussed above, Plaintiff alleges that Defendants' refusal to settle his accounts upon presentation of the notes violated South Carolina Code § 36-3-603, which states:
If tender of payment of an obligation to pay an instrument is made to a person entitled to enforce the instrument and the tender is refused, there is discharge, to the extent of the amount of the tender, of the obligation of an indorser or accommodation party having a right of recourse with respect to the obligation to which the tender relates.S.C. Code § 36-3-603(b). (Dkt. No. 1-1 at 6.) In response, Defendants argue that Plaintiff's notes are not valid "instruments" as required under Title 36 and, as a result, Plaintiff cannot state a claim for relief under § 36-3-603. (Dkt. No. 17 at 4-6.)
As stated in the initial Report and Recommendation, the undersigned recognizes that the dispute between these parties is somewhat puzzling; indeed, at first glance, the substance of these transactions and Plaintiff's notes is unclear. However, "[a] Rule 12(c) motion tests only the sufficiency of the complaint and does not resolve the merits of the plaintiff's claims or any disputes of fact." Drager v. PLIVA USA, Inc., 741 F.3d 470, 474 (4th Cir. 2014). Accordingly, the sole question before the Court is simply whether Plaintiff's Complaint alleges a claim to relief that is plausible on its face. Twombly, 550 U.S. at 555, 570; see also Robertson v. Sea Pines Real Estate Companies, Inc., 679 F.3d 278, 291 (4th Cir. 2012) (noting that to survive a motion for dismissal, the complaint "need only allege facts sufficient to state elements of the claim.") (internal quotation marks and citations omitted).
Moreover, bare assertions denying the validity of a plaintiff's complaint, without more, are not sufficient to summarily preclude such claims at this stage of the proceedings. See SD3, LLC v. Black & Decker (U.S.) Inc., 801 F.3d 412, 430-31 (4th Cir. 2015), as amended on reh'g in part (Oct. 29, 2015) (noting that skepticism of complaint's allegations does not, in and of itself, warrant dismissal for failure to state a claim upon which relief can be granted); see also Ashcroft v. Iqbal, 556 U.S. 662, 681 (2009) (explaining that allegations are not conclusory merely because they seem unrealistic or nonsensical).
Here, the undersigned finds that Plaintiff's pro se claim meets the low threshold applied at this early stage of the proceedings. Indeed, Plaintiff's Complaint expressly alleges that he presented Defendants with valid negotiable instruments as defined by South Carolina Code § 36-3-104(a), and that Defendants refused to process these instruments. (Dkt. No. 1-1 at 5-6.) In support of this claim, Plaintiff's Complaint includes copies of the Lump-Sum Promissory Notes, which appear to promise fixed amounts of money as full and final payment of Plaintiff's remaining balances under the loan agreements. (Id. at 10, 12.) The notes also declare that they are "payable on demand" as required under § 36-3-104 and identify specific "accounts" as collateral. (Id.)
Pursuant to South Carolina Code § 36-3-104, a "negotiable instrument" is "an unconditional promise or order to pay a fixed amount of money" that is "payable to the bearer or to order at the time it is issued or first comes into possession of a holder" and "payable on demand or at a definite time." S.C. Code § 36-3-104(a).
In his response to Defendants' counterclaim, Plaintiff further defends the legitimacy of his notes, explaining that the instruments are registered on UCC 1 financing statements and collateralized as stated therein. (Dkt. No. 16-1 at 2-3, 5.) Plaintiff's recent Affidavit also validates that the notes are secured by certain collateral and registered via UCC filing statements, as evidenced by the copies of those filing statements attached to the Affidavit for the Court's review. (Dkt. No. 30 ¶¶ 10-11; Dkt. No. 30-1.) Thus, accepting these facts as true and construing all inferences derived therefrom in Plaintiff's favor, the undersigned finds that Plaintiff has alleged facts sufficient to state a claim to relief under § 36-3-603, and that such allegations are enough to survive Defendants' Motion for Judgment on the Pleadings at this early stage of litigation . To be sure, granting Defendants' Motion for Judgment on the Pleadings at this time would violate this Circuit's well-established policy in favor of ensuring that each litigant has a full and fair hearing on the merits of his or her claim. See Fitzhenry, 2015 WL 3711287. Accordingly, in keeping with this Circuit's practice, the undersigned recommends that Defendants' Motion for Judgment on the Pleadings as to Plaintiff's Complaint be denied.
The undersigned reiterates that this Report and Recommendation is not a ruling on the merits of Plaintiff's Lump-Sum Payment Notes and whether they are sufficient to release Plaintiff from his obligations under the mortgage agreements. Indeed, it is impossible for the Court to determine with certainty at this early stage of litigation whether Plaintiff's documents are valid, especially given the convoluted nature of the notes and various UCC filing statements. Further, neither party has set forth particularly instructive case law on this matter. Although Defendants reference two bankruptcy cases involving "bonded promissory notes," (Dkt. No. 17 at 5-6), the undersigned finds it difficult to determine whether these cases are sufficiently analogous to this action in light of the murky facts. Moreover, these bankruptcy cases do not serve as binding precedent on this Court. Accordingly, the undersigned finds that the validity of Plaintiff's notes is better suited for a motion for summary judgment, as the parties will have had an opportunity to participate in some discovery and clarify the facts of this case for the Court. Thus, as stated above, this Report and Recommendation simply addresses the adequacy of Plaintiff's pleading at this time, rather than the merits of his claim.
Although the undersigned recommends that the Court deny Defendants' Motion for Judgment on the Pleadings as to Plaintiff's Complaint, the Court agrees with Defendants that Defendant Layton should be removed as a party from this action. (Dkt. No. 17 at 6-7.) Indeed, Plaintiff does not appear to mention Layton or identify him in any capacity in any of his filings in this matter. Thus, the Court has no idea who Layton is or how he fits into Plaintiff's claims. The undersigned therefore recommends that the Court grant Defendants' Motion for Judgment on the Pleadings solely as it applies to the claims against Layton. See Erickson v. Pardus, 551 U.S. 89, 94, 127 S. Ct. 2197, 2200 (2007) (noting that the court cannot ignore a clear failure in the pleading to allege facts supporting a cognizable claim). With respect to Defendant Montague, however, the undersigned finds that Plaintiff has alleged sufficient facts regarding his role in this action such that it would be premature to remove him as a party at this time.
B. Defendants' Counterclaim for Costs and Attorney's Fees
Next, Defendants seek default judgment with respect to their counterclaim for costs and attorney's fees incurred in protecting their interests and rights under the loan and mortgage agreements. (Dkt. No. 17 at 7.) Under Rule 55(a) of the Federal Rules of Civil Procedure, the court must enter a party's default "[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend." Rule 55(a), Fed. R. Civ. P. However, the Fourth Circuit has "repeatedly expressed a strong preference that, as a general matter, defaults be avoided and that claims and defenses be disposed of on their merits." Colleton Preparatory Acad., Inc. v. Hoover Universal, Inc., 616 F.3d 413, 417 (4th Cir. 2010); see also Tazco, Inc. v. Director, Office of Workers Compensation Program, U.S. Dep't of Labor, 895 F.2d 949, 950 (4th Cir. 1990) ("The law disfavors default judgments as a general matter.") Thus, where a party "appears and indicates a desire to contest an action, a court may exercise its discretion to refuse to enter default, in accordance with the policy of allowing cases to be tried on the merits." See Hall v. Jomar Logistics, Inc., No. 2:05-2823-PMD, 2006 WL 1889165, at *2 (D.S.C. July 7, 2006) (internal citations omitted).
In the instant case, Defendants claim that they are entitled to default judgment because Plaintiff's response to their counterclaim was untimely. (Dkt. No. 17 at 7.) Specifically, Defendants allege that Plaintiff's Motion to Strike Answer and Counterclaim was post-marked one day after the filing deadline had passed. (Id.) As discussed above, this Court is charged with affording pro se litigants a certain level of leniency in order to allow for the development of a potentially meritorious claims. 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). Accordingly, awarding default judgment based on such an inconsequential delay would be entirely inconsistent with this Court's preference to try cases on their merits. See, e.g., Trout v. Colormatrix Corp., No. CA 6:12-670-HMH, 2013 WL 756340, at *2 (D.S.C. Feb. 26, 2013) (concluding that default judgment was inappropriate where moving party was unable to demonstrate that a manifest injustice would occur from the case being decided on the merits); Tolson v Hodge, 411 F.2d 123, 130 (4th Cir. 1969) (explaining that any doubts about whether relief should be granted should be resolved in favor of overriding default so that the case may be heard on the merits). Given that the Court liberally construes Plaintiff's Motion to Strike Answer and Counterclaim as his answer, Plaintiff has not failed to defend against Defendants' counterclaim as required under Rule 55 and the undersigned therefore recommends that Defendants' request for default judgment be denied.
In the alternative, Defendants claim they are entitled to judgment on the pleadings because Plaintiff's Motion to Strike Answer and Counterclaim does not state a valid offset, counterclaim, or defense to Defendants' claim for costs and attorney's fees. (Dkt. No. 17 at 7.) Here, Defendants' counterclaim is based on two grounds: (1) frivolous lawsuit; and (2) contractual rights under the mortgage agreements. With respect to the first ground, frivolous lawsuit, South Carolina Code § 15-36-10 states that a pro se litigant participating in a civil action may be sanctioned for filing a frivolous pleading or document if "a reasonable attorney in the same circumstances would believe that under the facts, his claim or defense was clearly not warranted under existing law and that a good faith or reasonable argument did not exist for the extension, modification, or reversal of existing law." S.C. Code § 15-36-10(A)(4)(a)(ii). As discussed at length above, however, Plaintiff's Complaint alleges facts sufficient to state a plausible claim to relief under S.C. Code § 36-3-603 (see supra pp. 9-12); thus, based on this determination, the undersigned cannot logically conclude at this stage of the proceedings that a reasonable attorney would believe, under the facts alleged, that Plaintiff's claim is "clearly not warranted under existing law." S.C. Code § 15-36-10(A)(4)(a)(ii); see also S.C. Code § 15-36-10(C)(1) (providing the circuit court shall determine if a claim is frivolous at the conclusion of a trial or at the conclusion of a case that has been dismissed "upon the motion of the prevailing party"). Accordingly, the undersigned recommends that the Court deny Defendants' request for judgment on the pleadings as to their counterclaim regarding frivolous lawsuit.
With respect to Defendants' second ground for costs and attorney's fees, the undersigned finds that judgment on the pleadings would likewise be inappropriate and premature at this stage. Indeed, while Defendants claim they are contractually entitled to attorney's fees under the terms of the mortgage agreements, Plaintiff alleges that the mortgage agreements were "created by Defendants through deceitful dishonest means" and that Defendants "tricked" him into signing the documents. (Dkt. No. 16-1 at 7-8.) Plaintiff reiterates these allegations in his Affidavit, claiming that Defendants fraudulently "induced" him to sign the mortgage agreements, and implying that any entitlement to attorney's fees dependent on these agreements are therefore void. (Dkt. No. 30 ¶¶ 16-23.) Whether Defendants fraudulently induced Plaintiff to execute the mortgage agreements is a question of fact. Accordingly, before the Court could possibly determine whether the mortgage agreements authorize Defendants to collect costs and attorney's fees from Plaintiff, the parties must first adjudicate the question of whether those same agreements are valid. See Thomas v. City of Mauldin, No. 6:16-CV-03736-BHH-JDA, 2017 WL 4776972, at *5 (D.S.C. Sept. 26, 2017), adopted, No. 6:16-CV-3736-BHH, 2017 WL 4764814 (D.S.C. Oct. 20, 2017) (denying motion for judgment on the pleadings where cause of action involved a question of fact that court could not determine at that juncture). Thus, the undersigned recommends that the Court also deny Defendants' request for judgment on the pleadings as to their counterclaim regarding contractual rights to attorney's fees.
In light of Plaintiff's pro se status, the undersigned feels compelled to note several concerns moving forward. First, although Plaintiff appears to allege fraudulent inducement as a defense to Defendants' counterclaim for costs and attorney's fees, Plaintiff does not raise a fraudulent inducement claim against Defendants in his Complaint. To the extent Plaintiff intended to raise such a claim, the undersigned directs him to Rule 15 of the Federal Rules of Civil Procedure, which allows a party to amend its pleading with the opposing party's written consent or the court's leave. Rule 15(a)(2), Fed. R. Civ. P.
Although it is not the Court's role to resolve pleading deficiencies prior to dismissal, see Abdul-Mumit v. Alexandria Hyundai, LLC, 896 F.3d 278, 292 (4th Cir. 2018), the Fourth Circuit Court of Appeals has instructed that pro se plaintiffs generally should get an opportunity to file an amended complaint in order to correct factual pleading deficiencies, see Goode v. Cent. Va. Legal Aid Soc'y, 807 F.3d 619 (4th Cir. 2015).
Second, the undersigned cautions Plaintiff that he must keep the Clerk of Court advised in writing (P.O. Box 835, Charleston, South Carolina 29402) if his address changes for any reason, or if he has any concerns regarding mail delivery, so as to assure that orders and other filings are received by Plaintiff. It is unclear as to why Plaintiff did not receive the Court's Order dated March 13, 2019, (Dkt. No. 25), granting Plaintiff's request for an extension of time to respond to Defendants' motion. (Dkt. No. 30 ¶ 4.) Indeed, since the inception of this case, the Court has sent all filings to Plaintiff via U.S. mail and, up until March 13, 2019, it appears Plaintiff successfully received those documents. The Court received no indication from the U.S. Postal Service that the Court's Order on March 13, 2019, was any different. Thus, the Court urges Plaintiff to communicate with the Clerk of Court to the extent he has any concerns regarding mail delivery, or if any such concerns should arise during the remainder of this action.
IT IS SO RECOMMENDED. June 3, 2019
Charleston, South Carolina
/s/_________
MARY GORDON BAKER
UNITED STATES MAGISTRATE JUDGE
Notice of Right to File Objections to Report and Recommendation
The parties are advised that they may file specific written objections to this Report and Recommendation with the District Judge. Objections must specifically identify the portions of the Report and Recommendation to which objections are made and the basis for such objections. "[I]n the absence of a timely filed objection, a district court need not conduct a de novo review, but instead must 'only satisfy itself that there is no clear error on the face of the record in order to accept the recommendation.'" Diamond v. Colonial Life & Acc. Ins. Co., 416 F.3d 310 (4th Cir. 2005) (quoting Fed. R. Civ. P. 72 advisory committee's note).
Specific written objections must be filed within fourteen (14) days of the date of service of this Report and Recommendation. 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b); see Fed. R. Civ. P. 6(a), (d). Filing by mail pursuant to Federal Rule of Civil Procedure 5 may be accomplished by mailing objections to:
Robin L. Blume, Clerk
United States District Court
Post Office Box 835
Charleston, South Carolina 29402
Failure to timely file specific written objections to this Report and Recommendation will result in waiver of the right to appeal from a judgment of the District Court based upon such Recommendation. 28 U.S.C. § 636(b)(1); Thomas v. Arn, 474 U.S. 140 (1985); Wright v. Collins, 766 F.2d 841 (4th Cir. 1985); United States v. Schronce, 727 F.2d 91 (4th Cir. 1984).