Borrowers’ renewed foreclosure challenge fails

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The South Carolina Court of Appeals affirmed summary judgment in favor of mortgage holders and a loan servicer, holding that prior Rule 40(j) dismissals of an earlier foreclosure action did not constitute an adjudication on the merits and therefore did not bar a subsequent foreclosure proceeding.

The dispute arose from a $1.5 million residential mortgage executed in 2007. After the borrowers defaulted, foreclosure proceedings were initiated in 2009. That action was repeatedly removed from and restored to the active trial roster under Rule 40(j) of the South Carolina Rules of Civil Procedure before ultimately remaining inactive. In 2019, the plaintiff commenced a new foreclosure action against the trustee holding title to the property, prompting the defendants to assert a variety of defenses and counterclaims.

The defendants argued that because the earlier foreclosure action had been stricken from the docket three times under Rule 40(j), those dismissals should be treated like the “two-dismissal rule” contained in Rule 41 and operate as a final adjudication on the merits. The Court of Appeals rejected that argument, explaining that Rule 40(j) is a docket-management tool that permits cases to be removed from the active roster without resolving substantive rights. Unlike Rule 41, the rule contains no language providing that repeated dismissals function as judgments on the merits. The court further noted that the prior orders expressly contemplated restoration of the action and therefore lacked preclusive effect.

The court also affirmed dismissal of claims for malicious prosecution, abuse of process, negligent misrepresentation, unfair trade practices, declaratory relief and an accounting. The defendants could not establish a favorable termination of the earlier foreclosure action, a necessary element of malicious prosecution, because the Rule 40(j) orders were procedural rather than substantive. The remaining claims failed because the record did not support allegations of improper purpose, actionable misrepresentations, public-impact harm or entitlement to separate equitable relief.

Finally, the court found no reversible error in the circuit court’s management of discovery issues, noting that discovery obligations remain ongoing and may be addressed as the litigation proceeds.

The 16 page opinion is Deutsche Bank Trust Co. Americas v. Beshara, Lawyers Weekly No. 012-030-26.