Fourth Circuit Rules For EEOC In Title VII Case Over Religiously Hostile Environment

Today the Fourth Circuit, in a opinion by Judge Wilkinson, ruled for the EEOC in a Title VII case brought on behalf of a Muslim employee. The case alleged a religiously hostile work environment in the aftermath of 9/11, through his termination in Feb. 2003. The district court had granted summary judgment to Sunbelt. The EEOC appealed and won. The case is EEOC v. Sunbelt Rentals, Inc.

Judge Wilkinson's opinion for the Court begins with this introduction: "Title VII extends the promise that no one should be subject to a discriminatorily hostile work environment. In the wake of September 11th, some Muslim Americans, completely innocent of any wrongdoing, became targets of gross misapprehensions and overbroad assumptions about their religious beliefs. But the event that shook the foundations of our buildings did not shake the premise of our founding — that here, in America, there is no heretical faith. Because the evidence, if proven, indicates that Ingram suffered severe and pervasive religious harassment in violation of Title VII, we reverse the district court’s grant of summary judgment and remand with directions that this case proceed to trial."

The main issue in the case was whether the harassment was sufficiently severe or pervasive. The Court held that a jury could find that it was. "We cannot ignore ... the habitual use of epithets here or view the conduct without an eye for its cumulative effect," the Court said. "While the district court suggested that the harassment might be discounted because the environment was inherently coarse, Title VII contains no such 'crude environment' exception ...." The Court added, "We cannot regard as 'merely offensive,' and thus 'beyond Title VII's purview,' constant and repetitive abuse founded upon misperceptions that all Muslims possess hostile designs against the United States, that all Muslims support jihad, that all Muslims were sympathetic to the 9/11 attack, and that all Muslims are proponents of radical Islam."

Sunbelt also made much of the fact that those who participated in the harassment were merely coworkers, not supervisors, but the Court found a triable issue on that front. The Court also held that a reasonable jury could find, first, that Sunbelt had notice of the harassment based on complaints, and, second, that Sunbelt failed to respond with reasonable corrective action calculated to end the harassment. The Court reiterated that the mere existence of an anti-harassment policy doesn't allow an employer to escape liability; the policy must be effective to have any value.

Fourth Circuit Rules 2-1 For Defendant In SOX Whistleblower Case

Today, in Livingston v. Wyeth, Inc., the Fourth Circuit affirmed summary judgment for Wyeth in a "whistleblower retaliation" action under the Sarbanes-Oxley Act ("SOX"), 15 U.S.C. 1514A. The court was split. Judge Niemeyer wrote the majority decision. Judge Michael dissented.

Plaintiff, who worked at the company's Sanford, N.C. facility, alleged he was fired in retaliation for expressing concerns about a training program implemented to comply with the FDA's good manufacturing practices, a program that arose out of a consent decree his employer had entered. Plaintiff invoked SOX, which gives whistleblower protection for employees of publicly-traded companies by prohibiting their employers from retaliating against them for providing information or cooperation in investigations relating to violations of federal law--namely federal laws that protect against shareholder fraud. The panel majority held, as a matter of law, that plaintiff failed to establish that his internal complaints about the training program concerned company conduct that he reasonably believed constituted securities fraud.

Judge Michael, in dissent, concluded that, viewing the evidence in the light most favorable to Livingston, the case should go to a jury trial. He concluded, among other things, that the evidence established that Plaintiff formed a reasonable belief that his employer was intentionally failing to comply with the consent decree. He disputed the majority's holding that the consent decree didn't cover the Sanford facility.

In support of Wyeth, and on behalf of the U.S. Chamber of Commerce, Womble Carlyle filed an amicus brief in this appeal. A copy of that brief, which addresses the scope of SOX's whistleblower protection, is here.

Split COA Upholds Lottery Act

Today in Heatherly v. State the Court of Appeals (COA) rejected a constitutional challenge to the State's Lottery Act, the legislation that created the lottery. Judge Wynn wrote the majority decision, joined by Judge Hunter. Judge Calabria dissented. Thus, the case will end up at the Supreme Court.

The challenge was based on the State Constitution's special requirement for passage of revenue bills -- i.e., laws "enacted to raise money on the credit of the State, or to pledge the faith of the State directly or indirectly for the payment of any debt, or to impose any tax upon the people of the State." N.C. Const., Art. II, Sec. 23. To pass constitutional muster, such bills must be "read three several times in each house of the General Assembly and passed three several readings, which readings shall have been on three different days." Id.

There was no dispute that the Lottery Act didn't comply with the three-readings-on-three-different-days requirement. The issue was whether the Lottery Act is a revenue bill under Article II, Section 23.

The COA majority answered that in the negative, holding that the Lottery Act doesn't raise money on the credit of the State, doesn't pledge the faith of the State for payment of a debt, and doesn't impose a tax. Judge Calabria, in dissent, argued that the Lottery Act does all three of those things, any one of which renders it a revenue bill. "Constitutionally-mandated procedures," Judge Calabria wrote, "are a concern of the highest order, and they may not be estopped by a hurry to sell lottery tickets."

The Supreme Court will have to sort this out.

COA Holds Punitive Damages May Be Awarded For "Spite Fence"

Today in Austin v. Bald the Court of Appeals (COA) held that punitive damages may be awarded in a "spite fence" case. A spite fence is one that is of no beneficial use to the owner and that is erected and maintained solely for the purpose of annoying a neighbor. In today's case the defendant owned property next to plaintiff's home in Elizabeth City along the Pasquotank River. Defendant erected a 10-foot wooden fence on plaintiff's property line, obstructing her view of the river and restricting sunlight into her yard. Along a different boundary of defendant's property that didn't border plaintiff's property, defendant had a smaller fence. Evidence indicated that defendant was upset with the city council's handling of its application to build condominiums on its property; plaintiff was on the city council. Now plaintiff gets to go back to trial to seek punitive damages.

COA: Lightning Strike Draws Workers' Comp Only If Employee Was At Increased Risk Of Lightning Strike

Today in Heatherly v. Hollingworth Co. the Court of Appeals (COA) dealt with a workers' comp claim of an employee injured by a lightning strike. Plaintiff, a drywall hanger, was on a job site high on a mountain, working in an unfinished garage that had no doors, when lightning struck, producing a jolt which knocked him back several feet in the air, causing him to break his hand in the fall. The Industrial Commission found the injury compensable. The COA reversed because the Commission failed to apply the "increased risk" test handed down 50 years ago by the NC Supreme Court: an injury is compensable if the employee was subjected to an increased risk of lightening strike vis-a-vis the public generally in that neighborhood.

COA Holds That LLC Manager Had No Authority To Institute Lawsuit By LLC

Today in Crouse v. Mineo the Court of Appeals (COA) dealt with a dispute between members of a two-lawyer firm, Mineo & Crouse, PLLC. The main issues before the COA concerned standing.

Crouse, a 50% owner and member-manager of the firm, brought this suit in his own behalf and in the name of the LLC against Mineo, the other member-manager, alleging that Mineo misappropriated funds belonging to the firm or Crouse. Apparently a big part of their dispute concerned Mineo's failure to split contingency-fee proceeds from two big cases. The trial court dismissed the complaint on the ground that plaintiffs lacked standing.

A primary issue on appeal was whether Crouse, in his capacity as a member-manager of the LLC, had the authority to cause the LLC to institute the lawsuit. Crouse argued that a member-manager of an LLC has the inherent authority to authorize lawsuits to protect the LLC's interests. Mineo countered that the filing of the action was a managerial decision, requiring approval of a majority of the managers pursuant to G.S. 57C-3-20(b), which says "each manager shall have equal rights and authority to participate in the management of the [LLC], and management decisions shall require the approval, consent, agreement, or ratification of a majority of the managers." (Another provision of the Act says that "[a]n act of a manger that is not apparently for carrying on the usual course of the business of the [LLC] does not bind the [LLC] unless authorized in fact or ratified by the [LLC]." G.S. 57C-3-23.) The COA held that "the filing of an action by one manager of an LLC against a co-manager to recover purported assets of the LLC allegedly misappropriated by that co-manager is a management decision" requiring approval or ratify of a majority of managers. Because Mineo didn't authorize or ratify the lawsuit, Crouse lacked authority to cause the firm to institute the suit.

But the COA then held that Crouse had standing to bring a derivative action on behalf of the firm, and that he could bring an individual claim for quantum meruit based on the work he did on two big contingency-fee cases.

COA Decides Adverse Possession Case Involving Permissive Use Interrupting 20-Year Period

Today, in a split adverse-possession case, the Court of Appeals (COA) addressed what happens when, during the 20-year statutory adverse-possession period, the true owner of the land gives the hostile possessor permission to continue use. Does the grant of permission destroy the claim of adverse possession? It depends. The case is Jones v. Miles.

Plaintiffs filed suit contending they had acquired ownership to a disputed tract of land by adverse possession. The statutory period for adverse possession is 20 years. Plaintiffs' possession of the tract was hostile for 11 years, at which point the true owner gave them permission to continue using the tract.

The COA held that a true owner's grant of permission will defeat a possessor's hostile use -- thus destroying an adverse-possession claim -- if the possessor takes no further action to reassert his claim over the land after permission is granted, i.e., if the possessor fails to put the true owner on notice that he still intends to claim the disputed land. The adverse possessor's secret intent to claim title isn't good enough to establish adverse possession; if the possessor uses the land with the true owner's permission, yet secretly intends to claim title to the land, such possession isn't hostile for purposes of establishing an adverse possession claim. To establish adverse possession after a grant of permission during the 20-year period, the COA held, the possessor must either reject the grant of permission or otherwise take some affirmative step to put the true owner on notice that the possessor's use of the land remains hostile.

In today's case, authored by Judge McGee, there was no such evidence -- no evidence that plaintiffs expressly rejected the true owners' grant of permission or otherwise took affirmative steps to put the owners back on actual or constructive notice that plaintiffs intended to continue possession of the disputed tract in a manner hostile to the owners' interests. Therefore, the majority held, plaintiffs failed to establish adverse possession.

Judge Tyson dissented. He concluded that the true owners' grant of permission didn't toll the 20-year period. Recognizing a split in authority in other jurisdictions, Judge Tyson said the better rule is this: Once adverse possession has begun and the owner is on notice of the hostile use, the burden shifts to the owner to take physical or legal action to interrupt the running of the 20-year period.

COA Dismisses Appeal For Rule Violations

Today the Court of Appeals (COA) dismissed an appeal because the appellant failed to comply with Appellate Rule 3 regarding the content of the notice on appeal, failed to include in her brief a statement of the standard of review, and "most significantly" failed to include in the record on appeal the certificate of service for the notice of appeal. The latter omission requires dismissal under 2007 COA precedent.

NC COA Decisions Today

The NC Court of Appeals released 20 published decisions today. Five were criminal cases. There were two dissents. One of the appeals was dismissed for rule violations. Of the 19 appeals decided on the merits, 11 of them found some error entitling the appellants to some relief (a full or partial reversal, a vacatur, a remand, or a new trial). More on these cases later.

NC COA Decisions Due Tomorrow

Tomorrow the NC Court of Appeals (COA) will release opinions.

This is a busy week of oral arguments at both the COA and the NC Supreme Court (SCT). The SCT hears arguments three days this week. The COA hears them four days this week, including two arguments at NCCU Law School on Wednesday.

President Nominates Fourth Circuit Judge From VA

Yesterday President Bush nominated Va Supreme Court Justice G. Steven Agee to the Fourth Circuit. This is for the seat to which the President had previously nominated Virginian Duncan Getchell, a nomination withdrawn after senate opposition.

Both Virginia senators (Warner and Webb) are applauding the nomination. Agee was on their short list of five candidates.

Agee served on the Virginia Court of Appeals (2001-2003) before elevating to the high court in 2003. Before joining the bench, he worked more than 20 years as a defense attorney handling litigation, commercial law, and some criminal cases. He was also an elected delegate to the Va General Assembly for 12 years. He's a 1977 graduate of UVA law school.

NC Supreme Court DIGs Lending Case

On Friday the NC Supreme Court dismissed as improvidently granted the petition for discretionary review (PDR) in Richardson v. Bank of America. Many issues were decided by the Court of Appeals (COA) in that case (its opinion is here), but the primary issue raised in the PDR concerned the COA's holding that plaintiff had a valid claim for breach of the covenant of good faith and fair dealing (see part III of the COA's opinion). The PDR contended that the COA had created a new tort by recognizing a duty of good faith and fair dealing (namely one of disclosure) outside the context of contractual performance (namely in pre-contract discussions, in the course of contract formation). It's not clear why the Supreme Court deemed review improvident, but perhaps the Attorney General's amicus brief had something to do with it. That brief contended that the judgment could be salvaged on the basis that it can be limited to the unique context of mortgage lending, where, the Attorney General maintained, there's a special duty of good faith and fair dealing applicable to mortgage lenders, a duty grounded in statute: The Mortgage Lending Act, enacted in 2001, imposes duties on mortgage brokers in the context of lending transactions and prohibits them to "engage in any transaction, practice, or course of business that is not in good faith or fair dealing." G.S. 53-243.11(8).

NC Supreme Court PDR Orders

On Friday the Supreme Court granted discretionary review in a few cases.

One involves a Court of Appeals (COA) decision which upheld a common law claim for obstruction of justice based on a hospital's failure to maintain x-rays, even though no lawsuit was pending and or threatened against the hospital. (For our earlier post on that case, entitled "COA Recognizes 'Obstruction of Justice' Tort, Even When Alleged Obstruction Doesn't Occur In Pending Case," see here.) The case is Grant v. High Point Regional Health System. HPRHS filed a petition for discretionary review (PDR), complaining that the COA's decision basically creates a new cause of action for spoliation of evidence and greatly expands N.C. tort law. The case raises a question about the scope of a civil action for obstruction of justice. According to the PDR, under the COA's decision, "Any party, regardless of whether adverse, irrespective of whether litigation is pending or even threatened, will be subject to a claim for 'obstruction of justice' if they do not comply with a request for documents, data or other information to the satisfaction of the individual making the request. The result will be to greatly expand the universe of potential defendants to include not merely the parties to a dispute, but conceivably their doctors, accountants, employers, and anyone else maintaining information thought relevant to the dispute. The result will also invite speculation among juries who are asked not to decide cases, but to speculate about the effect untimely or unavailable evidence may have had on another case, or conceivably a case that never existed."

NC Supreme Court Clarifies Standard For Dismissing Appeals

Yesterday, in Dogwood Dev. & Mgt. Co. v. White Oak Transport Co., the NC Supreme Court took a major step to sort out the confusion caused by a number of Court of Appeals (COA) decisions in recent years that dismissed appeals for non-jurisdictional appellate rule violations. In Dogwood the COA dismissed the appeal on the basis of various rule violations. Judge Hunter dissented. In a decision by Justice Martin, the Supreme Court unanimously reversed the COA's dismissal order and set a standard which should result in fewer dismissals. The seminal portion of Justice Martin's excellent opinion is reproduced below (with a number of citations omitted):

Th[e] comprehensive set of nonjurisdictional requirements is designed primarily to keep the appellate process "flowing in an orderly manner." Two examples of such rules are those at issue in the present case: Rule 10(c)(1), which directs the form of assignments of error, and Rule 28(b), which governs the content of the appellant's brief. Noncompliance with rules of this nature, while perhaps indicative of inartful appellate advocacy, does not ordinarily give rise to the harms associated with review of unpreserved issues or lack of jurisdiction. And, notably, the appellate court faced with a default of this nature possesses discretion in fashioning a remedy to encourage better compliance with the rules.

We stress that a party's failure to comply with nonjurisdictional rule requirements normally should not lead to dismissal of the appeal. See, e.g., Hicks v. Kenan, 139 N.C. 337, 338, 51 S.E. 941, 941 (1905) (per curiam) (observing this Court's preference to hear merits of the appeal rather than dismiss for noncompliance with the rules); 5 Am. Jur. 2d Appellate Review § 804, at 540 (2007) ("[I]t is preferred that an appellate court address the merits of an appeal whenever possible . . . . [A]n appellate court has a strong preference for deciding cases on their merits; and it is the task of an appellate court to resolve appeals on the merits if at all possible." (footnotes omitted)); Paul D. Carrington, Daniel J. Meador & Maurice Rosenberg, Justice on Appeal 2 (1976) ("[A]ppellate courts serve as the instrument of accountability for those who make the basic decisions in trial courts and administrative agencies.").

Rules 25 and 34, when viewed together, provide a framework for addressing violations of the nonjurisdictional requirements of the rules. Rule 25(b) states that "the appellate [court] may . . . impose a sanction . . . when the court determines that [a] party or attorney or both substantially failed to comply with these appellate rules. The court mayimpose sanctions of the type and in the manner prescribed by Rule 34 . . . ." N.C. R. App. P. 25(b) (emphasis added). Rule 34(a)(3) provides, among other things, that "the appellate [court] may . . . impose a sanction . . . when the court determines that . . . a petition, motion, brief, record, or other paper filed in the appeal . . . grossly violated appellate court rules." N.C. R. App. P. 34(a)(3) (emphasis added). Rule 34(b) enumerates as possible sanctions various types of monetary damages, dismissal, and "any other sanction deemed just and proper." N.C. R. App. P. 34(b).

Based on the language of Rules 25 and 34, the appellate court may not consider sanctions of any sort when a party's noncompliance with nonjurisdictional requirements of the rules does not rise to the level of a "substantial failure" or "gross violation." In such instances, the appellate court should simply perform its core function of reviewing the merits of the appeal to the extent possible.

In the event of substantial or gross violations of the nonjurisdictional provisions of the appellate rules, however, the party or lawyer responsible for such representational deficiencies opens the door to the appellate court's need to consider appropriate remedial measures. Rules 25 and 34 vest the appellate court with the authority to promote compliance with the appellate rules through the imposition of one or more enumerated sanctions. The court's exercise of remedial discretion under Rules 25 and 34 entails a fact-specific inquiry into the particularcircumstances of each case, mindful of the principle that the appellate rules should be enforced as uniformly as possible. Noncompliance with the rules falls along a continuum, and the sanction imposed should reflect the gravity of the violation. We clarify, however, that only in the most egregious instances of nonjurisdictional default will dismissal of the appeal be appropriate. In most situations when a party substantially or grossly violates nonjurisdictional requirements of the rules, the appellate court should impose a sanction other than dismissal and review the merits of the appeal. This systemic preference not only accords fundamental fairness to litigants but also serves to promote public confidence in the administration of justice in our appellate courts.

In determining whether a party's noncompliance with the appellate rules rises to the level of a substantial failure or gross violation, the court may consider, among other factors, whether and to what extent the noncompliance impairs the court's task of review and whether and to what extent review on the merits would frustrate the adversarial process. See Hart, 361 N.C. at 312, 644 S.E.2d at 203 (noting that dismissal may not be appropriate when a party's noncompliance does not "'impede comprehension of the issues on appeal or frustrate the appellate process'" (citation omitted)); Viar, 359 N.C. at 402, 610 S.E.2d at 361 (discouraging the appellate courts from reviewing the merits of an appeal when doing so would leave the appellee "without notice of the basis upon which [the] appellate court might rule" (citation omitted)). The court may also consider the number of rules violated, although in certain instances noncompliance with a discrete requirement of the rules may constitute a default precluding substantive review. See, e.g., N.C. R. App. P. 28(b)(6) ("Assignments of error not set out in the appellant's brief, or in support of which no reason or argument is stated or authority cited, will be taken as abandoned.").

If the court determines that the degree of a party's noncompliance with nonjurisdictional requirements warrants dismissal of the appeal under Rule 34(b), it may consider invoking Rule 2. In this situation, the appellate court may only review the merits on "rare occasions" and under "exceptional circumstances," Hart, 361 N.C. at 316, 644 S.E.2d at 205 (citations and internal quotation marks omitted), "[t]o prevent manifest injustice to a party, or to expedite decision in thepublic interest," N.C. R. App. P. 2.

To summarize, when a party fails to comply with one or more nonjurisdictional appellate rules, the court should first determine whether the noncompliance is substantial or gross under Rules 25 and 34. If it so concludes, it should then determine which, if any, sanction under Rule 34(b) should be imposed. Finally, if the court concludes that dismissal is the appropriate sanction, it may then consider whether the circumstances of the case justify invoking Rule 2 to reach the merits of the appeal.

NC Supreme Court Decisions

Yesterday the NC Supreme Court issued orders and opinions, including a blockbuster opinion on appellate rule violations. More on these cases later.

Fourth Circuit Rejects 1983 Claim

Today, in Mora v. City of Gaithersburg, the Fourth Circuit, in an opinion by Judge Wilkinson, rejected a Section 1983 claim brought by a man who sued over searches of his property and seizures of numerous weapons he owned. Plaintiff, a firefighter, was a licensed firearms gun collector. He was searched and his weapons were seized after he informed a healthcare hotline operator (after his girlfriend broke up with him) that he was suicidal, had weapons in his apartment, and could understand shooting people at work. Judge Wilkinson began his opinion with this provocative introduction:

"At Columbine High School in Littleton, in Blacksburg, Omaha, and Oklahoma City, America has had to learn how many victims the violence of just one or two outcasts can claim. These new predators are not terrorists in the ordinary sense; they are not linked to foreign powers or international organizations hostile to the United States. They are often isolated but heavily armed, filled to the brim with rage and anguish, and bent not just on murder, but on indiscriminate slaughter followed, frequently, by suicide. Violent derangement is nothing new, of course, but the atrocities seem to be growing at once more shocking and more commonplace.

"This case presents the question of what emergency preventive action police may take, consistent with the Fourth and Fourteenth Amendments, when they learn of an individual who may well intend a similar slaughter, but who has neither committed nor attempted any crime. The legal issues are somewhat novel, and so we proceed with two values in mind: the need to prevent massacres whose human costs are beyond comprehension, and the need to preserve civil liberty for those who may be angry and depressed but not ultimately violent, and who cannot under our constitutional traditions be treated like criminals when they have committed no crime."

COA Upholds Discovery Orders

Today, in a negligence action, the Court of Appeals (COA) upheld discovery orders compelling production of information and documents. The case is Fulmore v. Howell.

First, the trial court granted plaintiff's motion to compel discovery of defendant's social security number. Defendant argued that compelled disclosure violated the Federal Privacy Act of 1974. The COA rejected the argument, because the Act contains an exemption for court ordered disclosure. (The COA observed that the trial court required that all records be purged upon completion of the lawsuit pursuant to Rule 26(c)).

Second, the trial court granted plaintiff's motion to compel defendant to disclose all non-privileged documents he reviewed with his attorney in preparing for his deposition. The COA upheld that order, holding that if the documents weren't privileged or protected by the work product doctrine, the fact that they were reviewed by a deponent with his counsel in preparing for his deposition didn't immunize them from disclosure.

Third, the trial court granted plaintiff's motion to compel production of the defendant-employer's internal investigation/accident report. The COA upheld that order, because the accident report was prepared in the ordinary course of business pursuant to a safety manual, not for the purpose of seeking legal advice.

COA Excuses Appellant's Failure To Include In Record A Notice Of Arrangement For Transcript

In a published case today, the appellant failed to include in the record on appeal a copy of a notice of arrangement for the transcript, as required by the appellate rules. The appellees pointed this out in their brief, contending the transcript wasn't delivered until 124 days after the notice was filed. Nonetheless, the panel (Judges Wynn, Steelman, and Geer) didn't see any reason to avoid the merits, stating: "Defendants have not argued that any prejudice resulted from this omission or delay; moreover, both parties received extensions of time to prepare their briefs to this Court, which would have mitigated any problems resulting from the delayed transcript. We see no reason these technical rules violations would impede our understanding of the issues on appeal."

COA Rejects Insured's Effort To Circumvent $5,000 Cap In Insurer's Mold Endorsement And Bounces Chapter 75 Claim Based On Mold Exacerbation

Today the Court of Appeals (COA) enforced an insurer's $5,000 cap on mold damages in a case brought by a residential homeowner. The case is Burrell v. Sparkkles Reconstruction Co. Judge Wynn wrote the majority decision, joined by Judges Steelman and Geer.

The insurer's mold endorsement capped liability for mold damages at $5,000. Plaintiff, however, sought well over $200,000 for mold-related damages for complete mold remediation of her home; for new ceilings, walls, cabinets, HVAC system, ductwork, carpeting, floors, etc.; for personal property in her home (furniture and clothing); for alternate living expenses; and for medical bills for mold-related injuries and distress.

Plaintiff tried to circumvent the mold endorsement by arguing that the insurer didn't explain the endorsement to her, didn't mention it in correspondence that followed the water leak, and misrepresented the terms of her coverage. The trial court and COA didn't buy it. The COA emphasized, "As the insured party, Ms. Burrell had a responsibility to read her own policy; moreover, she was bound by the terms of the contract just as Piedmont was. We see no reason -- nor did Ms. Burrell present evidence at trial -- why the language of the mold endorsement should not control here."

The COA also affirmed a directed verdict against plaintiff on her claim for unfair and deceptive trade practices (UDTP), which was based on a theory that unfair settlement practices delayed remediation, allowing the mold problem to grow unremediated. The COA held that, "[e]ven assuming arguendo [the insurer] did, in fact, engage in these alleged unfair settlement practices, prior precedent of this Court prevents Ms. Burrell from proving that those violations caused her injury." The precedent: Nelson v. Hartford Underwriters Ins. Co., 630 S.E.2d 221 (N.C. App. 2006). In Nelson the insureds-plaintiffs argued that their insurance company had exacerbated their mold problems from water leaks by misrepresenting their coverage and delaying investigation and payment of their claim. The COA in Nelson rejected the argument on causation grounds, holding that an insurance company's slow response to mold damage is not the proximate cause of the damage itself.

COA Holds That Plaintiff Need Not Move For Entry Of Default Before Moving For Default Judgment

Today in Ruiz v. Mecklenburg Utilities, Inc. the Court of Appeals (COA) affirmed a default judgment even though the plaintiff didn't first move for entry of default under Rule 55(a); instead the plaintiff moved straight for a default judgment under Rule 55(b), which the trial court granted even though no entry of default preceded it.

In earlier cases the COA had held that default is a "two-step process requiring (1) the entry of default and (2) the subsequent entry of a default judgment," and that a plaintiff "must abide by these procedural requirements." But today the Court held that plaintiff's broad prayer for relief in his motion for default judgment could be read broadly to ask for entry of default and that the trial court order was "tantamount" to an entry of default in addition to a default judgment. Judge McCullough wrote the decision, joined by Judge Steelman.

Judge Geer concurred in the result only. "I believe that Rule 55 ... requires that a plaintiff obtain an entry of default prior to seeking a default judgment," she wrote. Citing COA precedent (and federal cases applying federal Rule 55), she said that the two-step process contemplated in Rule 55 (and it's commentary) is not simply the better practice but is "mandatory." Judge Geer concurred in the result, however, because the procedural error didn't prejudice the defendant.

COA Reverses Res Judicata Ruling

Today, in a product liability action, the Court of Appeals (COA) held that the trial court erred in dismissing claims based on res judicata. The case is Skeen v. Warren & Sweat Mfg. The decision is unpublished. Judge Jackson concurred in the result only.

Plaintiff filed a number of claims: negligence, breach of warranty, fraud, and unfair/deceptive trade practices (UDTP). Plaintiff then took a voluntary dismissal of the first two claims (negligence and warranty). Summary judgment was granted to defendant on the remaining two claims (fraud and UDTP), and plaintiff's appeal of that judgment was dismissed.

Plaintiff then filed a new complaint to raise the two claims he had previously voluntarily dismissed without prejudice (negligence and warranty). The trial court ruled that the preclusive effect of the earlier summary judgment barred those claims under the doctrine of res judicata. The COA disagreed.

The Court relied on the principle that "where a plaintiff has suffered multiple wrongs at the hands of a defendant, a plaintiff may normally bring successive actions, or, at his option, may join several claims together in one lawsuit." (Emphasis in original) The Court then reasoned that plaintiff's negligence and warranty claims couldn't have been brought but for the malfunction of the product and plaintiff's ensuing injury, whereas the fraud and UDTP claims were predicated on the labeling of the product as "certified." On this basis the Court concluded that the previously rejected claims (fraud and UDTP) "do not rely on the same sets of operative facts as the negligence and breach of warranty claims and the issues involved are different; therefore, they cannot be considered to be the same cause of action." Consequently, the Court said, res judicata couldn't apply.

The Court then added that because the negligence and warranty claims had been voluntarily dismissed without prejudice, there was no final judgment on the merits as to those claims in the earlier case, and therefore res judicata couldn't apply. The Court reasoned that if the pleadings didn't raise a claim later presented, the later presented claim isn't barred by res judicata. But that seems difficult to square with the settled law, repeated many times over by the Supreme Court, that "the doctrine of res judicata which precludes relitigation of the same cause of action is broader in its application than a mere determination of the questions involved in the prior action"; the "bar of the judgment in such cases extends not only to matters actually determined, but also to other matters which in the exercise of due diligence could have been presented for determination in the prior action." Gaither Corp. v. Skinner, 241 N.C. 532, 535-36(N.C.1955) (emphasis added). Thus, as the COA previously has observed in earlier cases, "the doctrine of res judicata has been accordingly expanded to apply to those issues which could have been raised in the prior action.” Caswell Realty Associates I, L.P. v. Andrews Co., Inc., 496 S.E.2d 607, 610-11 (1998) (emphasis added).

Appealing From The Banking Commission? If So, All You Need: Notice Of Appeal, Within 20, To Commissioner

In In re Advance America, the NC COA held that N.C. Gen. Stat. sec. 53-92(d) -- the statute that, among other things, tells parties before the Banking Commission how to appeal -- was unambiguous, must be given its plain meaning, and requires appeal only by written notice to the Commissioner of Banks within 20 days and nothing more.

The COA took the State to task for "glossing over" the words of the statute in attempting to impose a non-existent two-step filing requirement involving an Administrative Procedure Act-like petition for judicial review. The COA also rejected the State's argument that its custom and practice of requiring a notice and a petition should control. The COA underscored that the statute is unambiguous, controls, and requires no filing beyond the notice of appeal.

NC COA Decisions Today

Today the NC Court of Appeals (COA) released 23 published opinions (two of which arise from the same case). Five are in criminal cases, and another relates to a prisoner seeking parol. There are only two dissents. More on these cases later.

We note that today's unpublished decisions from the COA include a number of cases involving appellate rule violations -- e.g., untimely notice of appeal, untimely transcript request, omission of standard of review, omission of ground for appellate review of an interlocutory appeal, omission of notice of appeal from record on appeal, and omission of challenged trial court order from record on appeal. In many of these cases the COA noted in the alternative, in conclusory fashion, that the appeals were devoid of merit in any event.