Patel v. Patel

IN THE COURT OF APPEALS OF NORTH CAROLINA

No. COA23-924

Filed 16 July 2024

Forsyth County, No. 21 CVS 5644

DHIRAJLAL C. PATEL, Plaintiff,

v.

KIRAN S. PATEL, SANDIP PATEL, and SHIV INVESTMENTS, INC., Defendants.

Appeal by Defendants from order entered 11 May 2023 by Judge Eric Morgan

in Forsyth County Superior Court. Heard in the Court of Appeals 20 February 2024.

James, McElroy & Diehl, P.A., by Alexandra B. Bachman, Preston O. Odom,

III, and J. Alexander Heroy, for the Plaintiff-Appellee.

Bennett Guthrie PLLC, by Joshua H. Bennett and Mitchell H. Blankenship, for

the Defendants-Appellants.

GRIFFIN, Judge.

Defendants Kiran S. Patel, Sandip Patel, and Shiv Investments, Inc., appeal

from the trial court’s order granting judgment on the pleadings to Plaintiff Dhirajlal

C. Patel in his action to renew a prior judgment for collection of debts owed by

Plaintiff and Defendants on a commercial loan. Defendants contend the trial court

erred because Plaintiff was a co-debtor who owed the same judgment he was seeking

to collect and was therefore barred from collecting on the judgment. We hold the facts

undisputably show Plaintiff is equitably barred from enforcing the judgment, and

therefore reverse the trial court’s order.

PATEL V. PATEL

Opinion of the Court

I. Factual and Procedural Background

In 2011, Bank of the Carolinas (the “Bank”) filed a complaint against Plaintiff

and Defendants alleging that they had all committed breach of contract, as obligors

or guarantors, with respect to defaulted payments owed for two commercial loans.

On 18 September 2012, the trial court granted summary judgment in favor of the

Bank and against both Plaintiff and Defendants (the “2012 Bank Judgment”).

On 22 July 2013, the Bank assigned its right to enforce the 2012 Bank

Judgment to Plaintiff in exchange for consideration less than the total value of the

judgment, even though he was a debtor to the debt owed therein, and expressed at

that time that “no part of the [2012 Bank Judgment] has been previously paid,

assigned, or transferred.” Between July 2013 and November 2021, Plaintiff acted on

his position as assignee and owner of the 2012 Bank Judgment and collected varying

payments on it from Defendants.

On 9 November 2021, Plaintiff filed a complaint initiating the present action

against Defendants, seeking to renew and enforce the 2012 Bank Judgment. All

Defendants filed answers to Plaintiff’s complaint. On 23 February 2023, Plaintiff

filed a motion for judgment on the pleadings or, alternatively, summary judgment.

On 27 March 2023, Defendants also filed a motion for judgment on the pleadings, as

well as a motion to compel.

On 10 April 2023, the trial court held a virtual hearing on Plaintiff and

Defendant’s motions over WebEx. On 11 May 2023, the trial court entered a written

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order granting Plaintiff’s motion for judgment on the pleadings. Defendants timely

appeal.

II. Analysis

Defendants contend the trial court erred by granting Plaintiff’s motion for

judgment on the pleadings in his action to renew the 2012 Bank Judgment, and by

denying their motion for the same, because its decision turns on an error of law.

Defendants argue judgment on the pleadings for Plaintiff was improper because

Plaintiff is a co-debtor under the judgment, rendering it unenforceable. Plaintiff

refutes Defendants’ contention, and also asserts that Defendants wage an untimely

collateral attack on the 2012 Bank Judgment’s enforceability.

“We review de novo the trial court’s order granting judgment on the pleadings.”

Old Republic Nat’l Title Ins. Co. v. Hartford Fire Ins. Co., 369 N.C. 500, 507, 797

S.E.2d 264, 269 (2017) (citation omitted). “In deciding whether to grant or deny a

motion for judgment on the pleadings, the trial court is required to view the facts and

permissible inferences in the light most favorable to the nonmoving party, with all

well pleaded factual allegations in the nonmoving party’s pleadings being taken as

true and all contravening assertions in the movant’s pleadings being taken as false.”

Anderson Creek Partners, L.P. v. Cnty. of Harnett, 382 N.C. 1, 12, 876 S.E.2d 476

(cleaned up), 485, reh'g denied, ___N.C. ___, 878 S.E.2d 145 (2022). “A party seeking

judgment on the pleadings must show that the complaint fails to allege facts

sufficient to state a cause of action or admits facts which constitute a complete legal

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Opinion of the Court

bar thereto.” DiCesare v. Charlotte-Mecklenburg Hosp. Auth., 376 N.C. 63, 70, 852

S.E.2d 146, 151 (2020) (cleaned up).

To renew the enforceability of a prior judgment, the owner of the judgment

may bring an independent action alleging “[1] the existence of a prior judgment

against the defendant; [2] the fact that full payment on the judgment has not been

made; and [3] an accounting of the unpaid balance due and any applicable interest.”

Unifund CCR Partners v. Young, 282 N.C. App. 381, 386, 871 S.E.2d 347, 351 (2022).

Defendants do not challenge Plaintiff’s assertions that the 2012 Bank Judgment was

never fully paid, or the amount of the alleged unpaid balance. Defendants argue only

that, even considering the pleadings in the light most favorable to Plaintiff, Plaintiff

cannot successfully show the existence of a prior judgment.

In their efforts to guide our resolution of this issue, Plaintiff and Defendants

each assert that one of two cases of North Carolina precedent should control: Hoft v.

Mohn, 215 N.C. 397, 2 S.E.2d 23 (1939), and Unifund CCR Partners v. Hoke, 273 N.C.

App. 401, 848 S.E.2d 508 (2020).

Plaintiff relies on Unifund CCR Partners v. Hoke. The trial court specifically

cited Hoke in its order granting Plaintiff’s motion for judgment on the pleadings. In

Hoke, the plaintiff purchased a credit account including debts owed by the defendant,

then obtained a judgment against the defendant to collect those debts. Ten years

later, the plaintiff sought to renew its judgment against the defendant. Hoke, 273

N.C. App. at 402, 848 S.E.2d at 509. The defendant argued that the plaintiff, in

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bringing its renewal action, failed to satisfy heightened pleading requirements

associated with its status as a “debt buyer.” Id. at 403, 848 S.E.2d at 509. The court

disagreed with the defendant’s argument and otherwise held no genuine issues of

material fact existed because the defendant did “not challenge the existence or

validity of the judgment, nor the validity of the underlying debt.” Id. at 406, 848

S.E.2d at 511. In reaching its holding that the plaintiff was not a “debt buyer,” the

court clarified that, “[b]ecause a claim was already filed and a judgment was

rendered, the action [then] before this Court involve[d] that judgment and not the

underlying debt claim.” Id. at 405, 848 S.E.2d at 511. Therefore, the only evidence

of the defendant’s debt, which was material to the renewal action, was the judgment

being renewed. Id. at 405, 848 S.E.2d at 511.

We hold Hoke to have limited application to the present case. Here,

Defendants do challenge the existence of the 2012 Bank Judgment and do not make

any assertions that Plaintiff failed to comply with statutorily heightened pleading

requirements. However, Hoke is instructive as to what evidence is material in an

action to renew a judgment: the existence of that judgment, notwithstanding any

issues of fact or law corresponding to the underlying debt claims. Id. at 406, 848

S.E.2d at 511. Defendants do not contest the legal foundations of the 2012 Bank

Judgment or seek to present evidence concerning the legality or accuracy of the debts

supporting it. Rather, they contend that Plaintiff’s possession of the judgment is

what renders an otherwise valid judgment unenforceable.

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Defendants direct this Court to Hoft v. Mohn, a 1939 case where the North

Carolina Supreme Court affirmed the lower court’s refusal to enforce a judgment

because the plaintiff stood in the position of one of the judgment co-debtors. Hoft,

215 N.C. at 400, 2 S.E.2d at 26. Though the plaintiff was not an original debtor on

the judgment, his possession of the judgment was the result of a series of transfers

from an original judgment co-debtor. Id. at 398, 2 S.E.2d at 24. The plaintiff sought

to recover the remaining balance of the judgment from the other judgment co-debtors

because the full value of the judgment had never been paid. Id. Our Supreme Court

explained that, “[s]ince remote days of the common law, it has been held that payment

by one or more of those jointly and severally liable on a judgment is an

extinguishment of the judgment, and that an assignment of the judgment to such

person or persons will not serve to keep it alive against the others.” Id. (citations

omitted). The Court in Hoft held that the judgment could not be enforced by the

plaintiff because he “must be held to represent the [judgment co-debtor] to whose

rights and privileges he has succeeded and which he exercises,” and law and equity

prevented the judgment co-debtor from recovering the balance of the judgment from

the non-paying co-debtors. Id. at 400, 2 S.E.2d at 25–26.

Though the facts of Hoft appear to involve a judgment co-debtor’s attempt to

enforce the remaining debt owed on a judgment following its partial satisfaction, the

rules of law cited and followed by the Hoft Court arose from well-established

jurisprudence, which traditionally applies when one judgment co-debtor pays off the

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entirety of the judgment and attempts to receive an assignment of the judgment in

exchange. In such case, the paying judgment debtor has no right to subrogation of

the whole debt from their fellow co-debtors:

The Court is not aware of any principle, on which, after the

satisfaction of a judgment for a partnership debt by one of

the partners sued, equity ought to extend or preserve the

vitality of the legal security, under the guise of an

assignment, so as to charge the bail of the other partner.

...

Upon the whole, the Court is of opinion, clearly, that the

doctrine of subrogation cannot be applied between partners

and joint principals, so as, after payment to the creditor, to

affect the bail of one of them for the benefit of the other. It

is against conscience to enforce the judgment for that

purpose.

Hinton v. Odenheimer, 57 N.C. 406, 407–08 (1859). Rather, the judgment creditor’s

right to payment from each co-debtor is extinguished upon the full payment of the

debt, and the paying judgment co-debtor cannot be assigned what no longer exists.

The judgment ceases to exist, and the judgment co-debtor who paid the judgment

instead has both a common law and a statutory right of contribution from his fellow

co-debtors. Norris v. Johnson, 246 N.C. 179, 182, 97 S.E.2d 773, 775 (1957).

Because a fully satisfied judgment would otherwise cease to exist, North

Carolina has enacted statutory methods by which a co-debtor may keep the judgment

alive to assist in obtaining contribution from his co-debtors. See Jones v. Rhea, 198

N.C. 190, 192, 151 S.E. 255, 256 (1930) (discussing the statutory procedure for

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preservation of a judgment to allow contribution by assigning the satisfied judgment

to a third-party trustee, under then-C.S. § 618); Hoft, 215 N.C. at 399, 2 S.E.2d at 25

(holding circumstances did not show compliance with C.S. § 618). North Carolina has

more recently codified a statute to simplify obtaining contribution payments from

non-paying co-debtors, requiring only that a notation be made on the judgment docket

to preserve the judgment as a lien against non-paying co-debtors. N.C. Gen. Stat. §

1B-7 (2023); see Holcomb v. Holcomb, 70 N.C. App. 471, 472, 320 S.E.2d 12, 13 (1984)

(recognizing the statutory right to keep a judgment alive to enforce contribution in

N.C. Gen. Stat. § 1B-7 as a successor to C.S. § 618).

Our Supreme Court has also held that a judgment may only be purchased by

and assigned to a stranger to the judgment. Put simply, “[a]n assignment of a

security to one of the parties to it, is a satisfaction--if it is intended to keep it on foot,

the assignment should be to a stranger.” Sherwood v. Collier, 14 N.C. 380, 382 (1832).

If a payment is made to the judgment creditor by a party to the judgment with the

intent to purchase the judgment, the actual legal effect of the payment is a

satisfaction of the debt owed:

[P]ayment discharges a judgment, as effectually as

entering satisfaction of record. Here there was full

payment. It was intended as such by Hooks, and so

received by the creditor. A payment by any one of two or

more, jointly, or jointly and severally bound for the same

debt, is payment by all; and any of the parties may take

advantage of it and plead it to an action brought by a

satisfied creditor, or in his name by the sureties. It is true,

that if a payment be not intended, but a purchase, there is

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a difference. But that can only be by a stranger, or by using

the name of a stranger, to whom an assignment can be

made when there is but a single security, and that, one

upon which all the parties are jointly liable. This is upon

the score of intention, and because the plea of payment by

a stranger is bad upon demurrer. If the assignment of a

joint security be taken by the surety himself, there is an

extinguishment, notwithstanding the intention; because

an assignment to one, of his own debt, is an absurdity.

Id. at 381; see Towe v. Felton, 52 N.C. 216, 218 (1859) (“We [ ] hold that a payment,

made by one who is a principal obligor, or by one copartner of a partnership debt, as

simply a payment.”); Liverman v. Cahoon, 156 N.C. 187, 189, 72 S.E. 327, 328 (1911);

Bunker v. Llewellyn, 221 N.C. 1, 3–4, 18 S.E.2d 717, 718 (1942) (“[I]f [the] plaintiffs

be the owners of the note, the allegations are tantamount to saying that [the]

plaintiffs paid the bank and took up the note. If so, [the] plaintiffs and [the]

defendants being coprincipals and all equally liable on the note, such payment

constitutes extinguishment of the note . . . [and] their remedy against the defendants,

their coprincipals, would be in equitable contribution.”).

Applying these principles to the present case, we are left only with the question

of the practical effect of a payment of less than the entire amount of a judgment by a

party to the judgment, purporting to purchase the entire debt. We find guidance from

our Supreme Court’s decision in Scales v. Scales, 218 N.C. 553, 554–55 11 S.E.2d 569,

570 (1940). In Scales, three judgment co-debtors were jointly and severally liable for

the entirety of a $3,250 judgment. Id. at 553, 11 S.E.2d at 569. One of the judgment

co-debtors reached a deal with the judgment creditor whereby he paid a total of $225

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Opinion of the Court

as full payment for the debt owed under the judgment, and the judgment creditor

then assigned the judgment to a third-party trustee (keeping the judgment alive in

compliance with C.S. § 618). Id. By preserving the judgment under C.S. § 618, the

judgment remained as a lien on property owned by one of the non-paying co-debtors.

Id. The paying co-debtor requested the court consider the judgment satisfied, and

then sought contribution from the non-paying co-debtors for his payment to the

judgment creditor. Id. at 554, 11 S.E.2d at 570.

A non-paying co-debtor filed an action against the paying co-debtor to have the

lien removed from his land, arguing that the paying co-debtor could not seek

contribution because he satisfied the judgment by paying an amount less than the

entire debt owed. Id. at 556, 11 S.E.2d at 571. This Court disagreed and explained

that the paying co-debtor “not only paid his proportionate part, but the entire

judgment of $3,250 and the ‘entire debt’ which was reduced to judgment.” Id. The

Court then clarified that the right of contribution applies to the amount actually paid

to satisfy the judgment, notwithstanding the amount of the original debt owed:

The basis for ascertainment of the excess paid is not

necessarily the amount of the original common obligation;

if the claimant has satisfied the entire debt or demand or

relieved the whole burden by payment of a less amount, he

is entitled to contribution only on the basis of the amount

actually paid. In the case of a compromise made by the

claimant, the sum recoverable must be ascertained on the

basis of the amount paid in compromise, each contractor

being entitled to the benefit of the compromise[.]

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Id. The Court ultimately held that the paying co-debtor was entitled to receive $75

from each non-paying co-debtor, the non-paying co-debtor’s one-third share of the

$225 that the paying co-debtor paid to satisfy the judgment. Id.

Scales presented a case where the paying co-debtor voluntarily categorized his

payment as a satisfaction of the judgment; had the creditor assign the judgment to a

third-party trustee in compliance with C.S. § 618, the relevant contribution statute

at the time; and the Court then issued its holding on whether the paying co-debtor’s

actions qualified for contribution under the statute. Here, Plaintiff asserts a different

reason for his payment to the Bank, and the requisite notations were not made to

keep the judgment alive pursuant to N.C. Gen. Stat. § 1B-7, our current contribution

statute. Nonetheless, common law principles of equitable contribution still apply

absent compliance with a statutory right to contribution, see Holcomb, 70 N.C. App.

at 473, 320 S.E.2d at 14, and we do not find these differences material to the holding

of Scales. The present case presents a substantially similar circumstance as Scales,

and we reach the same result.

When we read Hoft, Sherwood, Scales, and the remainder of our jurisprudence

as a cohesive body of law, the following principles emerge: (1) A judgment on a debt

extinguishes, unless it is preserved by statutory process, when the amount owed

under the judgment is satisfied. (2) If a debt is transferred to its debtor, the amount

owed as a liability merges into the debtor’s assets, the debt no longer exists, and there

is no longer any amount owed on any judgment for that debt; the judgment ceases to

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exist. (3) If a co-debtor pays any amount to his judgment creditor and causes the

judgment to extinguish, it may only function as a payment in full satisfaction of the

debt, and he is entitled not to subrogation of the entire amount of the debt or the

entire amount paid, but to a ratable contribution from his co-debtors.

Though Plaintiff, here, intended his payment to the Bank to be a purchase of

the 2012 Bank Judgment for his sole benefit, a judgment cannot be effectually

assigned to its own debtor. See Sherwood, 14 N.C. at 381 (“[N]otwithstanding the

intention; . . . an assignment to one, of his own debt, is an absurdity[.]”). Plaintiff

instead obtained a satisfaction of the judgment. Scales, 218 N.C. at 556, 11 S.E.2d at

571. By agreeing to pay the Bank a lesser amount than the full amount owed under

the judgment in exchange for a purported assignment of the judgment, Plaintiff has

effectually negotiated a release of the debt owed for a lesser sum, paid in lump sum,

on behalf of himself and his co-debtors. Plaintiff first entered into the two commercial

loan agreements with the benefit of having the burden of paying those loans split

across multiple parties, providing the Bank with a greater incentive to enter into the

agreement. Equity must not now allow Plaintiff to have the burden of repayment

relieved without spreading that benefit across the same parties. Plaintiff has

“relieved the whole burden by payment of a less amount, he is entitled to contribution

only on the basis of the amount actually paid.” Id. Plaintiff may not renew and

enforce the 2012 Bank Judgment; rather, he should have brought an action for

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ratable contributions from his co-debtors of the amount he paid to have the 2012 Bank

Judgment purportedly assigned to him. Id. at 555–56, 11 S.E.2d at 570–71.

Because the legal effect of Plaintiff’s receipt of the 2012 Bank Judgment

amounts to a payment satisfying the full debt, the judgment ceased to exist. The

pleadings forecast no evidence that a notation was made under N.C. Gen. Stat. § 1B-

7 to keep the judgment alive. Plaintiff cannot show an existing judgment. We

therefore hold that the pleadings show undisputed facts which defeat Plaintiff’s claim

for renewal.

Notwithstanding the substantive merits of Defendants’ claims, Plaintiff also

asserts Defendants’ argument should fail because it should be construed as an

untimely collateral attack on the judgment under Rule 60(b). Rule 60(b) of the North

Carolina Rules of Civil Procedure allows a party to request the court relieve that

party from a final judgment for reasons including, among others, that “[t]he judgment

has been satisfied . . . or it is no longer equitable that the judgment should have

prospective application;” or “any [ ] reason justifying relief from the operation of the

judgment.” N.C. R. Civ. P. 60(b)(5), (6) (2023); see Carter v. Clowers, 102 N.C. App.

247, 254, 401 S.E.2d 662, 666 (1991) (“The purpose of Rule 60(b) is to strike a proper

balance between the conflicting principles of finality and relief from unjust

judgments.”). Though “[t]he broad language of [Rule 60(b)](6) ‘gives the court ample

power to vacate judgments whenever such action is appropriate to accomplish

justice[,]” “[m]otions under Rule 60(b) must be made ‘within a reasonable time.’”

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Brady v. Town of Chapel Hill, 277 N.C. 720, 723, 178 S.E.2d 446, 448 (1971) (citations

omitted).

Plaintiff is correct that when the legal legitimacy of an underlying judgment is

brought before the court in a renewal action, the argument can be understood as a

collateral attack on the judgment being renewed. In Unifund CCR Partners v. Young,

the defendants objected to the plaintiff’s renewal of a judgment by claiming that the

underlying judgment was the product of fraud. Young, 282 N.C. App. at 386, 871

S.E.2d at 351–52. The Court interpreted that this fraud claim was really an attack

on the legality of the underlying judgment which was best construed as a Rule 60(b)

motion for relief from judgment and was time-barred. Id.

However, despite Defendants’ ten-year delay in challenging Plaintiff’s

possession of the 2012 Bank Judgment, this case does not present a collateral attack

on the 2012 Bank Judgment that we must construe as a Rule 60(b) motion. It is

important to distinguish the order in which the underlying judgment was obtained

and the right to collect the debt owed under the judgment was transferred. In Young,

the plaintiff acquired the defendants’ debt first, then obtained a judgment on those

debts. The appeal then presented challenges to the original judgment holders’

allegedly unjust acquisition of the judgment being renewed. In Hoft, the original

judgment holder acquired a judgment on debts owed by the defendant. Thereafter,

the judgment was transferred into the hands of another party—notably, a co-debtor

on the judgment—and the defendant challenged the enforceability in that party’s

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hands. The Hoft defendant’s argument was not a collateral attack because he took

no issue with the judgment, only challenging its enforceability after it ceased to exist

as the result of an assignment to a judgment debtor. Here, the facts mirror the

material notes of Hoft, and are likewise not a collateral attack.

III. Conclusion

We hold that the undisputed facts presented in the pleadings show that

Plaintiff cannot present evidence of an existing judgment because the legal effect of

Plaintiff’s acquisition of the 2012 Bank Judgment must be considered a payment

satisfying the full debt owed; the judgment ceased to exist upon its assignment. The

trial court therefore erred in granting judgment on the pleadings for Plaintiff and in

denying judgment on the pleadings for Defendants.

REVERSED.

Judges ZACHARY and GORE concur.

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