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Crosby v. ALG Trustee, LLC

Supreme Court of Virginia

December 20, 2018



         PRESENT: All the Justices



         Michael W. Crosby ("Crosby") appeals the decision of the Circuit Court of Albemarle County in sustaining the demurrer filed by ALG Trustee, LLC ("ALG Trustee") and dismissing his second amended complaint with prejudice.

         I. BACKGROUND

         Crosby owns real property in Albemarle County (the "property"). On September 15, 2003, Crosby took out a loan for $60, 000, which was evidenced by a promissory note and secured by a deed of trust encumbering the property. The note was subsequently assigned to the Federal National Mortgage Association ("Fannie Mae").

         In April 2014, the loan was in default, with $18, 313.05 due on the note. That same month, ALG Trustee was substituted as trustee on the deed of trust.

         On May 12, 2014, ALG Trustee informed Crosby that a foreclosure sale of the property would take place on May 29, 2014. At least two separate entities, Emerald Spring LLC ("Emerald Spring") and Argent Development, LLC ("Argent"), were represented at the foreclosure sale. Prior to the sale of the property, Emerald Spring and Argent had bid separately on properties offered by ALG Trustee. However, Emerald Spring and Argent submitted a single, combined bid of $20, 903.77 for the property at issue in the present case. Although ALG Trustee was aware that the property had a tax assessed value of $436, 800, it accepted the bid. On June 9, 2014, a trustee's deed was recorded in the public records of Albemarle County conveying the property to the purchasers.

         On June 19, 2014, the purchasers brought an unlawful detainer action against Crosby. Crosby, in turn, filed a declaratory judgment action against ALG Trustee, Fannie Mae and the purchasers, seeking rescission of the foreclosure sale and injunctive relief. He also filed an emergency motion for temporary injunctive relief to halt the unlawful detainer action. The motion was granted with the requirement that Crosby pay $2, 000 per month to be held by the trial court as rent while the matter was pending.

         Crosby eventually reached an agreement with the purchasers whereby he repurchased the property for $20, 000 plus the amount held in escrow by the trial court, for a total of $78, 058.63. Crosby then settled his claims with Fannie Mae and the purchasers. Crosby subsequently sought leave to file a second amended complaint, which was granted.[1]

         In his second amended complaint, Crosby alleged that ALG Trustee had breached its fiduciary duty as a trustee under the deed of trust. Specifically, Crosby claimed that ALG Trustee breached its fiduciary duty by failing to act impartially when it sold property with a tax assessed value of $436, 800 for only $20, 903.77, by failing to conduct the sale in a manner that would have generated more than a de minimis bid, by not cancelling the sale when it only received a single inadequate bid, and by not timely responding to Crosby's request for the amount required to reinstate the loan. Crosby further alleged that the inadequacy of the price was "so gross as to shock the conscience" and ALG Trustee was aware that the purchasers' bid "was unlikely to result in any reasonable return on the [p]roperty, and was likely to harm Mr. Crosby."

         ALG Trustee demurred. In its demurrer, ALG Trustee acknowledged that Crosby's claim was "an action for a breach of contract, and specifically in this case, a breach of the contractual duties contained in the deed of trust.". ALG Trustee argued that it did not owe any fiduciary duties to Crosby, "except for those duties arising from the contractual relationship set forth in the deed of trust." According to ALG Trustee, the fiduciary duties Crosby was relying on were not set forth in the deed of trust and, therefore, did not exist. The trial court initially overruled the demurrer, finding that the deed of trust was a contract and "that is where the [fiduciary] duty arises from."

         Before the order overruling the demurrer was entered, ALG Trustee filed a motion to reconsider.[2] In its motion, ALG Trustee argued that the trial court erred in overruling the demurrer because it misinterpreted two circuit court cases that addressed similar issues. ALG Trustee further claimed that the second amended complaint did not "state which actions taken by [ALG Trustee] constitute a violation of [its duty of impartiality]." ALG Trustee also took issue with the fact that the second amended complaint failed to allege any violations of an express term or statutorily imposed term of the deed of trust.

         In his brief in opposition to the motion to reconsider, Crosby asserted that the trial court did not misinterpret the circuit court cases. He also reiterated several allegations in the second amended complaint that he claimed demonstrated that ALG Trustee had violated its fiduciary duties. Specifically, he pointed out that he had explicitly alleged that ALG Trustee failed to cancel or postpone the sale when it became aware that the only two bidders were bidding together rather than separately and that ALG Trustee "failed to adjourn or postpone the sale when it was apparent that the sale was unlike[ly] to result in any reasonable return on the property."

         In a letter opinion dated July 21, 2017, the trial court granted ALG Trustee's motion to reconsider and sustained the demurrer. In explaining its decision, the trial court noted that, although a trustee's fiduciary duties are "incorporated into the Deed of Trust in the language that the trustee is to act 'with perfect fairness and impartiality' to both the debtor and creditor . . . such language does not create a common law duty." It went on to state:

The Second Amended Complaint alleged a breach of fiduciary duty but did not specify the basis of the duty. However, in [Crosby's] Brief in Opposition to Motion to Reconsider, it is clear [Crosby] has pled this cause of action under the common law negligence claim. I find the trustee's duties are limited to the four corners of the contract and there is no duty by the trustee under the common law. To the extent this decision is inconsistent with other similar decisions the Court has made in this case, I am reversing my position.

         Crosby ...

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