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Saturday, December 23, 2006, 2:50 PM

More On Jones v. Harrelson & Smith Contractors, LLC

More on Jones v. Harrelson & Smith Contrs., LLC:

In Jones v. Harrelson & Smith Contrs., LLC, the same majority as that in Stann v, Levine dismissed another appeal due to appellate rule violations. The violations resulting in the dismissal: 1) the appellant, in her assignments of error from motions for a directed verdict and a judgment notwithstanding the verdict did not sufficiently state the legal basis of the exception (the court did not explain what would have been sufficient to prevent dismissal); and 2) the record cites in appellants' assignments of error were insufficient. The panel cited its language from Stann, underscoring that even inconsequential errors are grounds for dismissal.

Again, Judge Geer dissented. Re. the assignments of error, Judge Geer pointed out that legal grounds are not required for assignments of error from summary judgment because the only legal basis for an exception to, say, the grant of summary judgment, is that there was a dispute of material fact and that the movant was not entitled to judgment as a matter of law. Here, the only possible legal basis for appellant's assigned error is that the evidence was sufficient to support her claims. Judge Geer posited that requiring appellant to state the same in her assignments here would constitute requiring the same "superfluous formality" that is held to be unnecessary for exceptions to summary judgments.

The record cite errors were typos to a record page 3 pages away from the clearly intended page, and cites to transcript pages at which the court orally ruled. Judge Geer would hold these do not provide a basis for dismissal.

Here, as in Stann, Judge Geer analyzed the merits and found grounds for reversal of the trial court.

Will Jones be an ersatz Stann and make it to the NC SC for review of Viar's scope and application?

Friday, December 22, 2006, 9:38 PM

Fourth Circuit: Motion To Dismiss Based On Forum-Selection Clause Must Be Brought Under Rule 12(b)(3)

The Fourth Circuit today addressed a significant issue of first impression: When a motion to dismiss is filed on the basis of a forum-selection clause, should be motion be treated as a Rule 12(b)(1) motion (subject matter jurisdiction), a Rule 12(b)(3) motion (improper venue), or a Rule 12(b)(6) motion (merits-based determination)? The Court's answer: 12(b)(3). The case is Sucampo Pharmaceuticals, Inc. v. Astellas Pharma, Inc.

This ruling is important. Had the Court held that a forum-selection clause implicates subject matter jurisdiction (Rule 12(b)(1)), the clause couldn't be waived, could be made at any time in the litigation (including for the first time on appeal), and could be raised sua sponte by a court. Had the Court held that a forum-selection clause implicates the merits (Rule 12(b)(6)), the motion to dismiss would have to be based only on the pleadings, which would have to be taken as true (in favor of the plaintiff); and a defendant could raise the clause at any time before an disposition on the merits, not necessarily at the outset of litigation, because a 12(b)(6) motion may be made at any time before an adjudication on the merits.

By holding that a motion to dismiss based on a forum-selection clause is Rule 12(b)(3) motion to dismiss for improper venue, the Fourth Circuit avoided those consequences. As a result of its 12(b)(3) holding, there are two things to keep in mind, both of which the Court highlighted:

1. Unlike a 12(b)(1) or 12(b)(6) motion, a defendant waives the forum-selection clause if it's not raised in the defendant's first responsive pleading.
2. Unlike a 12(b)(6) motion, the district court is free to consider evidence outside the pleadings.

Bottom line: if you're sued and have a forum-selection clause, be sure to raise it in your first responsive pleading. Otherwise it's waived.

NC SCT Splits 4-3 In Two Cases Alleging Usury

Yesterday the NC SCT issued two close decisions in cases alleging usurious loan origination fees. The Court Split 4-3 in both cases. In one case the Court held that NC courts lack personal jurisdiction over a nonresident trust that has no connections to this state other than holding mortgage loans secured by deeds of trust on NC property. (NC Attorney General Roy Cooper has announced he's seeking reconsideration of that decision on behalf of the State, even though the State isn't a party in the case.) In the other case the Court held that claims were barred by the statute of limitations. In both cases the dissents were written by Justice Timmons-Goodson and joined by Justices Martin and Edmunds. Both cases had produced split decisions in the COA, with Judge Bryant dissenting in both.

Thursday, December 21, 2006, 11:38 AM

Stann Panel Dismisses Another Appeal, With Another Geer Dissent.

On Tuesday, the same panel that decided Stann v. Levine, which we reported on last month, dismissed another appeal, Jones v. Harrelson and Smith Contractors, based on appellate rules violations. Again Judge Geer dissented, found that the violations did not warrant dismissal of the appeal, and also found that the trial court should have been reversed in part. More soon...

Tuesday, December 19, 2006, 11:57 PM

A Letter Is Not A Proposed Record On Appeal

Today the COA dismissed an appeal because the appellant, instead of serving a proposed record on appeal (ROA), served a letter listing the proposed contents of a ROA. The COA held that a letter doesn't qualify as a proposed ROA, because Appellate Rule 11(b) requires that a proposed ROA must be constituted in accordance with Appellate Rule 9. The COA also said that the fact that the appellee didn't object when the appellant served the letter as a proposed ROA isn't material: the duty to object never arose, the Court said, because that duty applies only when the appellee is served with a proposed ROA served in accordance with Rule 9.

The federal appellate rules contemplate the appellant sending a letter to the appellee with the proposed contents of a joint appendix. FRAP 30(b)(1). That will not work in the state system. You've got to send a proposed ROA, period.

Another Rule 10 Dismissal By COA

Today the COA, over Judge Hunter's dissent, dismissed yet another appeal for faulty assignments of error. The case is Bennett v. Bennett.

Here were the assignments in question:

* The trial court erred in its Finding of Fact #8a that Plaintiff's expert, Frank Plunkett, was qualified to appraise the property.
* The trial court erred in its Finding of Fact #8a that the value of the 8.90 acre tract was $52,000.
*The trial court erred in its Finding of Fact #8b that the value o f the 25.63 acre tract was $72,000.
*The trial court erred in its Finding of Fact #8d that the value of the Bennett Farms partnership is -0-.
* The trial court erred in its Finding of Fact #10b in classifying the debts of the Bennett Farms partnership as marital debt.
* The trial court erred in its Finding of Fact #10d in classifying the debts of the Bennett Farms partnership as marital debt.
* The trial court erred in its Finding of Fact #11d in classifying the debts of the Bennett Farms partnership as marital debt.

The COA majority held that these were deficient under Appellate Rule 10 because they failed to state the legal bases for the errors. And the majority held that dismissal was required under Viar. The COA also dismissed on the basis of another rule violation: appellant's failure to include the standard of review in his brief, as required by Appellate Rule 28.

Judge Hunter dissented because he concluded that the legal bases easily could be inferred. He explained that the assignments provided sufficient information to indicate that the legal bases for the appeal included a challenge to the acceptance of an expert witness, to the sufficiency of evidence to support certain valuation findings, and to legal classification of property. Because he could infer the legal bases, he concluded that this was not a case like Viar, where the Supreme Court admonished that the COA cannot create an appeal for an appellant by suspending the Rules of Appellate Procedure.

Judge Hunter concluded that the appellee wasn't disadvantaged and the Court wasn't burdened by the violations. He voted to sanction appellant's counsel rather than the harsh remedy of dismissing his client's appeal.

This dissent is of a piece with earlier opinions by Judge Hunter on rule violations (which are consistent with the views of Judge Geer, among others). Next month the NC SCT will hear argument in one such rule violation case arising from a Hunter dissent: Walsh v. Town of Wrightsville Beach. Hopefully the SCT will take the opportunity to clarify the confusion wrought by Viar.

COA Revives NIED Claim Against Psychiatrist For Alleged Negligence In Giving Out Access Code

Today the COA reversed a 12(b)(6) dismissal of a negligent infliction of emotional distress (NIED) claim against a psychiatrist who owns a psychiatric practice where Plaintiff received treatment. The case is Acosta v. Byrum, et al.

Plaintiff alleged that the psychiatrist allowed his office manager to use his (the psychiatrist's) confidential code to access medical records, that the office manager used that code to retrieve confidential psychiatric and medical records on plaintiff, and that the office manager then disclosed this information to third parties out of animus to plaintiff, causing plaintiff emotional distress. Plaintiff alleged that by providing his access code to the office manager, the psychiatrist was negligent and should've known that this negligence would cause her emotional distress.

The trial court (Rusty Duke) dismissed. The COA reversed, holding that the bare allegations in plaintiffs' complaint were sufficient to state a NIED claim. (The COA also held that because the complaint didn't allege med mal by the psychiatrist--her claim didn't arise out of his provision of patient care but instead an "administrative act"--plaintiff wasn't required to comply with Rule 9(j).)

Lesson: Advise your clients to be particularly careful when securing access to potentially embarassing information (e.g., medical information, HR records).

COA: Passenger Not Liable For 14-yr-old Driver's Deadly Negligence

In a case with awful facts, the COA today decided whether a backseat passenger owes a duty to third parties to prevent injury caused by a driver's negligence. The Court held today in Harris v. DaimlerChrysler Corp. that, as a matter of law, a backseat passenger owes no duty to take action to prevent a driver's tortious conduct. Not only that, the COA upheld Rule 11 sanctions against the plaintiff's counsel for filing the claim against the passenger. In this case, bad facts did not make bad law.

And the facts were bad. Plaintiff, about 7 mos pregnant, was driving in Durham. A car driving in the opposite direction crossed the center line and struck her car, causing her car to roll several times before coming to a rest on its roof. Plaintiff was required to have an emergency C-section. Her child was born with brain damage and died 4 days later from the trauma.

Turns out that the car that struck her was being driven by a 14-yr-old girl (no permit or license, obviously) driving with her father's permission. The father was a front seat passenger.

The appeal concerned a separate claim against a backseat passenger (Suen) who did not own the vehicle. Plaintiff alleged that Suen was negligent by failing to prevent the minor from operating the vehicle; by failing to exercise reasonable control and management over the vehicle to prevent injury to other drivers; and by failing to warn the community that an unlicensed minor was operating a motor vehicle. In essence, Plaintiff alleged that Suen could've taken over the operation of the car had he so chosen.

The trial court and COA held that Suen owed no duty and could not be liable. After surveying the case law for circumstances in which liability may be imposed for the tortious conduct of others, the COA concluded that Suen didn't fit within any recognized category: he didn't have a special relationship to the minor driver; he wasn't the owner-occupant of the vehicle; he wasn't on a joint enterprise with the driver; he didn't have the legal right or duty to control the operation of the vehicle and he didn't exercise control over the vehicle.

Having so concluded, the COA affirmed Rule 11 sanctions against plaintiff's counsel for filing the claim against Suen.

Monday, December 18, 2006, 12:32 PM

Washington Post Weighs In On 4th Circuit Shift

Today's Washington Post features a front-page article on the Fourth Circuit titled, "Conservatives' Grip on Key Virginia Court is at Risk." This is one of many recent stories discussing how the Bush Administration's failure to place judges on the Fourth Circuit may entail a dramatic shift in the composition of the Court.

Saturday, December 16, 2006, 11:09 AM

Lost Profits Inadmissible In Eminent Domain Arena

On Friday, the NC SC, in Department of Transportation v. M.M. Fowler, Inc., established a bright-line rule that evidence of lost profits is inadmissible in condemnation cases for purposes of determining fair market value of the land remaining after a partial taking.


In M.M. Fowler, the DOT took property from a Durham gas station in order to make improvements to an intersection. The DOT's taking resulted in a decrease in the gas station's number of driveways from 3 to 2, and 1of the 2 remaining post-taking driveways was steeper, shorter, and "not as well-positioned" as before the taking. Evidence was presented that convenience is one of the most important factors in determining the value of land used for a gas station and that, as a result of the taking, it was less convenient for customers to access the gas station. M.M. Fowler also presented evidence that the profit margin on each gallon of gas sold dropped 4 cents in the 5 months after the taking, and, based on that data, presented evidence that the fair market value of the property dropped by $500 K after the taking.

At trial, the judge allowed the lost profits evidence in but instructed the jury that it was not to award damages for any loss in business income but only for diminished value of the property. The Court of Appeals unanimously upheld the trial court's decision. On Friday, the Supreme Court reversed.

The Majority

At issue was whether evidence of the gas station's lost profits was allowed to be considered in determining the fair market value of the land remaining after the taking. The majority answered no, that "evidence of lost business profits is inadmissible in condemnation actions."

It was not disputed that where a party's land is the subject of a DOT taking, that party is entitled to just compensation consisting of the difference between the fair market value of the entire tract immediately before the taking and the fair market value of the land remaining immediately after the taking. N.C. Gen. Stat. § 136-112. It was also not disputed that the party is not entitled to compensation for lost business profits.

At issue in M.M. Fowler was whether lost profits evidence could come in for the purpose of informing fair market value. To reach its answer, the majority looked to Pemberton v. City of Greensboro, 208 N.C. 466, 181 S.E. 258 (1935), in which the plaintiffs sought compensation for their sheep farm. The Pemberton plaintiffs proffered evidence of the farm's monthly earnings before the taking. The trial court let the evidence in, with limiting instructions, but the Supreme Court held it was "manifest from the court's rulings and the jury's verdict that plaintiffs [were] awarded compensation for the loss of their dairy business." (The dissent, discussed more below, pointed out that Pemberton did not address whether evidence of such lost earnings was admissible for determining fair market value of post-taking property.)

The M.M. Fowler majority also indicated that under Kirkman v. State Highway Commission, 257 N.C. 428, 126 S.E.2d 107 (1962), the non-quantitative evidence of lost profits may be generally considered in determining whether there has been a diminution in value in the land remaining after a partial taking-- even though quantified evidence of lost business profits is not admissible.

The majority then held that because here, evidence, and quantified evidence, of lost profits was allowed in, a new trial was warranted.

The majority seems to conflate (i) allowing evidence of lost profits in for the purpose awarding damages on lost profits and (ii) allowing evidence of lost profits in for purposes of determining the fair market value of the post-taking property. Indeed, the majority stated "There is no difference between using lost profits to determine the fair market value of the land and awarding them as a separate item of damages."

The majority also seems to have taken particular issue with the "quantified" nature of the admitted lost profits evidence in this case, indicating that evidence of unquantified lost business profits may be generally considered in determining a decrease in the value of the land remaining after a partial taking. It will be interesting to see what the courts deem to be permissible non-quantified data in the context of profits and property values, which would seem to be inherently quantitative.

The majority indicated that evidence of lost profits is inadmissible not just, e.g., because they are irrelevant as a matter of law, but also because of their speculative nature. The opinion included language such as "the speculative nature of profits makes them improper bases for condemnation awards[,]" and "the uncertain character of lost business profits evidence could burden taxpayers with inflated jury awards bearing little relationship to the condemned land's fair market value." Do such statements spell trouble for the admissibility of lost profits in other contexts, too, since speculative damages evidence is generally not admissible?

The Dissent

Justices Martin, Wainwright, and Timmons-Goodson dissented. The dissent's leitmotiv: Evidence of lost profits is relevant to determining fair market value where the property at issue directly contributes to the revenue derived from that property.

The dissent stated, e.g., that "the majority's result is fundamentally at odds with the statutory objective of N.C.G.S. § 136-112: To compensate the 'unwilling' seller with fair market value. That is, since the income potential of revenue-producing property is the most important characteristic in establishing the value for a voluntary exchange, the majority opinion excludes, as a matter of law, the very information that a willing buyer would want to know about this property."

The dissent indicated that the majority, rather than explaining or reconciling Kirkman, overruled it. According to the dissent, Kirkman distinguished between using lost profits to inform market value and recovering lost profits themselves as damages. The dissent noted, inter alia, Kirkman's language that "when the taking renders the remaining land unfit or less valuable for any use to which it is adapted, that fact is a proper item to be considered in determining whether the taking has diminished the value of the land itself."

The dissent also noted that a number of prior (albeit perhaps rental income focused) NC cases have held evidence of lost revenues or profits admissible for informing market value. The dissent argued that the General Assembly didn't change the eminent domain law after those cases and therefore approved of the prior interpretation allowing such revenue evidence in. According to the dissent, this case therefore not only overruled Kirkman but subverted legislative intent.

Legislative Action?

Does the dissent's legislative intent argument foreshadow potential legislative change specifying how fair market value may be calculated? Particularly in this post-Kelo v. City of New London (for more, click here) period of sensitivity about the fact that the "public" purpose underpinning a government taking can include high-end condos and a hotel, eminent domain issues may have legislative legs.

Friday, December 15, 2006, 4:09 PM

Taxpayer Standing

Today the NC SCT decided a case involving taxpayer standing: Goldston v. State. The Court, by a 4-1 vote, found standing to exist in a case where the COA unanimously had found no standing.
This is the SCT's first taxpayer standing case in nearly 20 years. In the past two decades it has been the COA, not the SCT, that has issued the authoritative decisions on standing. During that time the COA had gravitated toward the more stringent federal standing requirements (i.e., Article III constitutional standing), incorporating them into NC law. For example, the COA repeatedly has cited Lujan v. Defenders of Wildlife (1992), a seminal standing case written by Justice Scalia.
In today's case, the NC SCT distanced itself from federal standing requirements and recognized a more permissive approach to taxpayer standing than exists under federal law.
The case involves withdrawals from the Highway Trust Fund. The Trust Fund was established by law as a special account consisting of funds from certain fuel and motor vehicle taxes. By law, the Trust Fund may be used for limited purposes. However, in response to a budget shortfall for fiscal year 2002-03, the General Assembly borrowed $125 million from the Trust Fund and put it in the General Fund. In addition, Governor Easley issued executive orders authorizing the transfer of money from the Trust Fund to the General Fund, resulting in an $80 million transfer in 2002.
Citizens and taxpayers sued the State and Governor Easley. They alleged that the withdrawals from the Trust Fund violated North Carolina's Constitution in several respects. For example, they alleged that the Trust Fund monies were applied to an unauthorized purpose in violation of Article V, section 5, which provides, "Every act of the General Assembly levying a tax shall state the special object to which it is to be applied, and it shall be applied to no other purpose."
The trial court granted summary judgment to the defendants. The COA affirmed, holding that the plaintiffs lack standing. The COA held that the plaintiffs do not have taxpayer standing, observing that the withdrawals affected plaintiffs in the same way it affected all citizens and taxpayers in the State. The COA also held that the plaintiffs did not have so-called "constitutional standing" as citizens seeking to challenge the constitutionality of government action.
The SCT granted the plaintiffs' petition for discretionary review. Two of the seven Justices were recused (Justice Timmons-Goodson, an Easley appointee who sat on the panel below in Goldston, and Justice Martin). With these Justices out, the Court was down to five members.
The SCT reversed in a 4-1 decision, with Chief Justice Parker dissenting. The Court held that Plaintiffs have standing.


The decision is significant in this respect: The Court had the opportunity to embrace the more stringent federal standing doctrine and to roll back its own permissive state-taxpayer standing precedents. But the Court did the opposite.
First, the Court distanced NC law from the federal standing doctrine:

"We observe that, in finding plaintiffs lack standing to bring their claims against the Governor and the General Assembly, the Court of Appeals relied upon federal standing doctrine.... This reliance was misplaced. While federal standing doctrine can be instructive as to general principles ... and for comparative analysis, the nuts and bolts of North Carolina standing doctrine are not coincident with federal standing doctrine. Compare Piedmont Canteen Serv., Inc. v. Johnson, 256 N.C. 155, 166, 123 S.E.2d 582, 589 (1962) ("Only those persons may call into question the validity of a statute who have been injuriously affected thereby in their persons, property or constitutional rights." (emphasis added)), with Lujan v. Defenders of Wildlife, 504 U.S. at 560, 119 L. Ed. 2d at 364 (noting that one of the three elements of federal standing is an "'injury in fact'" that is "concrete and particularized")."

Second, the Court reaffirmed its own permissive standing precedents. The majority decision was based squarely on stare decisis. The Court relied on old NC SCT cases, none of which was decided in the past 30 years.

It's too bad, however, that the Court didn't take the opportunity to examine the propriety of the old precedents on which it relied. Had it done so, it might've wondered whether its state-taxpayer standing precedents were the result of a mistake. Here's why.

The Court's taxpayer standing doctrine developed innocently enough at the beginning of the 20th century with the Court adopting the prevailing view that municipal taxpayers have standing to challenge disbursements of public funds. See Merrimon v. S. Paving & Constr. Co., 142 N.C. 427, 431 (1906). The municipal-taxpayer standing doctrine was based on an analogy to shareholder derivative actions: The municipality (the so-called municipal corporation) was deemed analogous to a corporation, and its taxpayers were deemed analogous to corporate shareholders. See id. That is how taxpayer standing originated in NC, and elsewhere. Thus, in the famous case of Frothingham v. Mellon (1923), the US SCT noted with approval the standing of municipal residents to enjoin the "illegal use of the moneys of a municipal corporation," relying on "the peculiar relation of the corporate taxpayer to the corporation" to distinguish such a case from the general bar on taxpayer suits.

But, as the US SCT has also observed, the corporate analogy underlying the municipal-taxpayer standing doctrine doesn't rightly fit in the context of federal taxpayers challenging federal action or state taxpayers challenging state action. The US SCT has likened state taxpayers to federal taxpayers and has refused to confer standing upon them absent a showing of "direct injury," pecuniary or otherwise.

The NC SCT initially approached state-taxpayer standing more cautiously than municipal-taxpayer standing. But then, in a 1950 case involving a state taxpayer challenge, the Court said, that the taxpayer had standing, and for support the Court cited a municipal-taxpayer standing case (as well as a case that didn't discuss standing and another case where the statement on standing was dictum with no analysis). The Court did so without pausing the consider the peculiar historical underpinnings of the municipal-taxpayer standing doctrine and whether the corporate analogy makes sense in the context of state-taxpayer challenges. That case was then cited as precedent in a later case involving a state taxpayer challenge. A snowball effect then ensued, with later cases citing the earlier cases, and by the 1970s the NC SCT was embracing a permissive state-taxpayer standing doctrine.

Today in Goldston the Court could've said that the rise of state-taxpayer standing in its precedents was the result of a mistake, and the Court could've drawn a distinction between municipal taxpayers and state taxpayers for purposes of standing, as the US SCT has done. But the Court didn't.


  • While Goldston involves taxpayer standing, the biggest winners today may be environmental groups. Those groups have been the most disaffected by the US SCT's modern decisions on standing. By distancing NC law from federal law on standing, the NC SCT today may have opened the door for more environmental litigation.
  • For those urging the NC SCT to adopt federal standards in any case, don't assume the Court will be so inclined. In fact, you might want to assume the opposite. In this respect, today's case is reminiscent of Howerton v. Arai Helmet, Ltd., 597 S.E.2d 674 (N.C. 2004), where the Court rejected the federal Daubert standard for determining admissibility of expert testimony and embraced a more flexible standard. Interestingly, in that case--as in Goldston today--Justice Parker was alone in dissent, dissenting from a decision by all the Republican Justices who (as today) opted for a standard more permissive than the federal one.
  • In Goldston all of the judges who voted in favor of standing are Republicans (they did so on the basis of stare decisis), and all of the Democrat appellate judges who heard this case voted against standing. So much for the conventional wisdom that it's the conservative judges who favor a stringent standing doctrine.

Thursday, December 14, 2006, 10:00 PM

A Supreme Aside

SCOTUS watchers might be interested in the Economist's Shrinking Supremes , discussing the judicial minimalism that has so far marked the Roberts Court, as well as Dahlia Lithwick's amusing review of the recent Breyer v. Scalia debate.

Wednesday, December 13, 2006, 3:52 PM

No Appeal to NC Supreme Court from Stann

In Stann v. Levine, which we wrote about in November, the COA deemed that improper line spacing, among other things, constituted a "substantial" procedural violation and dismissed an appeal.

Judge Geer dissented, noting that "this Court increasingly elevates form over substance in its attempt to apply our Supreme Court's decision in Viar " ... and proposing that only those errors "that substantively affect the ability of the appellee to respond and this Court to address the appeal" be grounds for dismissal.

Judge Geer's dissent would seem to have provided an ideal vehicle to get Supreme Court clarification on the scope and meaning of Viar, which, as Sean noted in his recent Seay v. Wal-Mart post, gets interpreted differently by different COA judges, with some using Viar as a basis for a bright-line dismissal approach and others finding dismissal warranted only where the violations were egregious or prejudicial to the appellee or the court.

Unfortunately, we'll have to wait for another means to Supreme Court review of the Viar confusion: We've learned that Stann settled right around the time of the COA decision, and that, as a consequence, there will be no appeal to the NC Supreme Court.

Thursday, December 07, 2006, 8:59 AM

Lost Opportunity for the Fourth Circuit? has a piece by Emma Schwartz of the Legal Times titled The President's 'Lost Opportunity' for the 4th Circuit, which discusses Judge Wilkins's decision to take senior status and the Bush Administration's struggle to fill vacancies on the Court, and which wonders whether these events will "inch this reliably conservative bench closer to the center."

Tuesday, December 05, 2006, 9:56 PM

Crazy Quilt of Rules Decisions

Today the COA decided not to dismiss an appeal even though the appellant committed multiple rule violations of the type the COA has, in other recent cases, held or indicated require dismissal. The case is Seay v. Wal-Mart Stores, Inc.

The Court said the appellant violated these rules:

1. Rule 10(c), by failing to reference the record after the sole assignment of error.

2. Rule 28(b)(6), by failing to reference the assignment of error in the brief.

3. Rule 28(b)(2), by omitting a statement of questions presented for review.

4. Rule 28(b)(3), by omitting a statement of the procedural history of case.

5. Rule 28(b)(4), by omitting a statement of the grounds for appellate review.

Despite these violations, which the COA deemed "serious," the COA did not dismiss. In a unanimous decision by Chief Judge Martin, the COA reached the merits. Here is the key passage from the opinion (with citations omitted): "Plaintiff's rule violations, while serious, are not so egregious as to warrant dismissal of the appeal. Reaching the merits of this case does not create an appeal for an appellant or cause this court to examine issues not raised by the appellant. Defendants were given sufficient notice of the issue on appeal as evidenced by the filing of their brief thoroughly responding to plaintiff's allegations. As a result, we elect to review the merits of plaintiff's appeal pursuant to N.C. R. App. P. 2." (Rule 2 is the rule permitting the court to suspend the rules.)

This ruling perpetuates the division in the COA regarding the scope of the SCT's decision in Viar v. NC Dep't of Transp. (2005), which has led many judges on the COA to impose a near-automatic dismissal rule for rule violations (and to interpret the appellate rules more stringently, finding violations in circumstances where reasonable minds could differ). Today's opinion recognizes that not all rule violations are equally problematic and that the touchstone of the analysis should be whether the appellee was prejudiced in the sense of having inadequate notice of the issues on appeal.

Today's decision is, in my judgment, impossible to square with the split decision last month in Stann v. Levine (see Sarah's Nov. 7 post below on Stann). That case involved some of the same rule violations present in today's case, yet the panel there dismissed the appeal, rejecting a "substantial compliance" standard and renouncing a prejudice test. Today's decision is also impossible to square with another decision last month, Ribble v. Ribble. Ribble involved a very inconsequential rule violation (failure to include a certificate of service in the record on appeal), yet the panel in that case held that no matter how inconsequential the violation, dismissal is required under Viar and its progeny.

For that matter, today's decision is difficult to square with a number of post-Viar decisions dismissing appeals for rule violations. This is because different judges have applied different doctrinal approaches in evaluating the consequences of rule violations. As the majority stated in Stann last month, "Various panels of this Court have taken inconsistent approaches with respect to the application of Rule 2 ... and created confusion over the implications of the Supreme Court's opinion in Viar ...." Today's decision is unlikely to cure the confusion. Only the SCT can do that. In the meantime, would anyone be surprised if later this month a different panel were to dismiss an appeal for the very same rule violations that today were not deemed worthy of dismissal?

Arbitration Clause Not Unconscionable

In Raper v. Oliver House, LLC, decided today, the COA reversed a trial court order which had held an arbitration agreement unconscionable. The case is significant because unconscionability challenges to arbitration agreements have been mounting in recent years and have met some success in the courts of other States. In fact, as discussed below, a significant case on unconscionability is now pending in the NC SCT.

Today's case is a wrongful death action against an assisted living facility on behalf of a deceased resident. The facility moved to compel arbitration. The arbitration clause was in a Residency & Services Admission Agreement. The decedent himself had never signed that agreement (his signature line was blank), but it was signed by the plaintiff, a relative of his who had power of attorney and who ultimately the executrix of his estate. It was a standardized form agreement which plaintiff had to sign to admit dededent to the facility. She signed as decedent's "responsible party." The arbitration clause requires binding arbitration in Hickory, about 200 miles from the Wendell-based facility, and it has a "loser pays" provision (allowing the prevailing party to recover costs and attorneys' fees).

Plaintiff opposed the motion to compel arbitration, contending that the arbitration agreement was unconscionable and thus unenforceable. Judge Ronald Stephens agreed. He concluded, among other things, that the agreement was a standardized form agreement used by the nursing home; that there was no independent negotiation between the parties on the terms of the agreement, including the arbitration clause therein; that there was not a mutual agreement or understanding as to the terms of the arbitration agreement; that there was inequity in bargaining power; and that the agreement related to a matter of substantial public interest (long-term care for the elderly).

The COA reversed, with Judge Tyson writing for the court. As for the trial court's findings that there was no negotiation over the terms, mutual agreement, or equality of bargaining power, the COA held that these findings weren't supported by compentent evidence because the agreement itself stated that plaintiff "voluntarily enter[s] into this agreement with the Facility." With regard to the trial court's determination that the arbitration clause deals with a matter of substantial importance (long-term care for the elderly), the COA said this was not based on competent evidence and couldn't trump the strong public policy in favor of arbitration. The fact that it was a standarized form was not dispositive. The COA emphasized that the arbitration clause was in bold type directly above the signature line.

The COA thus reversed the trial court and remanded for entry of an order granting the facility's motion to compel arbitration.

This case follows on the heels of another recent decision (in June) by Judge Tyson which reversed an order of Judge Stephens declaring an arbitration clause unconscionable. That case, Tillman v. Commercial Credit Loans, Inc., involved an arbitration clause in mortgage loan agreements. The COA held 2-1 that the clause was not unenforceable for precluding class actions or posing a risk of prohibitive arbitration costs. That case is now pending in the NC SCT based on the dissent in the COA. Briefing just closed, and the case will be argued in February 2007. It is a very important case, particularly on the enforceability of class action waivers in arbitration agreements. We'll be sure to follow it closely.

Beware of Dead Mice and Pine Straw

On a lighter note, the COA decided two weird cases today.

In one case, a domestic dispute for divorce and equitable distribution, the wife was held in contempt for failing to comply with a discovery order, and her counterclaims were stricken. Turns out that not only did she fail to serve responsive discovery by the trial court's deadline, but her late responses included a box of documents with a stinky dead rodant inside. "A strong and unpleasant odor was traced to the boxes, and ultimately, to a dead mouse inside one of them," the COA recounted. And, in probably the first and only time that "rat" and "cake" may be found in one sentence in a judicial opinion, the COA observed (quoting the trial court) that the disocuments were completely unresponsive, "with the dead rat being 'icing on the cake.'"

The wife did prevail on appeal, however: Because the trial court's order failed to consider less severe sanctions before dismissing her counterclaims, the COA was required, under precedent, to vacate the contempt order and remand for consideration of less severe sanctions.

In another case, the COA held that a man was negligent for walking on pine straw. While walking to a newspaper stand at a rest area off I-95, the plaintiff decided to leave the pedestrian walk and take a shortcut over a shrub bed covered with pine straw. Unfortunately for him, metal landscape edging was hidden beneath the pine straw, causing him to lose balance and fall, resulting in a fractured knee and elbow. He sued the State for negligence under the Tort Claims Act. Upholding the Industrial Commission, the COA held that "plaintiff should have had . . . knowledge that deviating from an intended walking path into pine straw brings with it some danger of injury." Because he could have avoided the "danger," he was contributorily negligent.

Ambush Affidavits

Today the COA held that even when a party waits until the motion hearing itself before serving an affidavit, the trial court has discretion to proceed with the hearing and consider the affidavit (even if the tendering party has not shown good cause for the delay).

The case concerns Rule 6(d) of the NC Rules of Civil Procedure. The rule, designed to prevent ambush tactics and give parties a fair opportunity to respond to motions and affidavits, prescribes timelines for filings in advance of a motion hearing. This includes a 2-day rule for affidavits used to oppose motions: "If the opposing affidavit is not served on the other parties at least two days before the hearing on the motion, the court may continue the matter for a reaonsable period to allow the responding party to prepare a response, proceed with the matter without considering the untimely served affidavit, or take such other action as the ends of justice require."

In this case, the opposing party (the plaintiff) failed to serve her affidavit (a critical affidavit) two days before the hearing. In fact, she waited until the motion hearing itself. The trial court did not postpone the hearing or exclude the affidavit. Instead the court proceeded with the hearing and ruled for plaintiff (i.e., denied defendants' motion). Defendants appealed. They argued in their brief that "Rule 6(d) does not authorize the trial court to proceed with the hearing and consider an untimely served opposing affidavit." And they argued that a trial court abuses its discretion by considering an untimely served affidavit without a showing of excusable neglect.

The COA affirmed, essentially holding that, under Rule 6(d), a trial court has discretion to proceed with a hearing and consider an untimely affidavit even if the opposing party fails to serve the affidavit in advance of the hearing and fails to establish good cause for the delay.
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