Today at the Court of Appeals

Today, a panel of the North Carolina Court of Appeals comprised of Judges Stroud, Robert N. Hunter, Jr., and Thigpen will hear oral argument in the following cases:

McKinnon v. CV Industries - This case involves a question of whether there was a genuine issue of material fact that precluded a finding of summary judgment.

Garlock v. Wake County Board of Education - This case involves an appeal of the dismissal of a claim against the Wake County Board of Education arising out of an alleged violation of the North Carolina Open Meetings Law.  The case is part of the ongoing debate in Wake County over how school children should be assigned to schools in Wake County.

Today at the Court of Appeals

Today, Wednesday, February 22, 2011, a panel of the North Carolina Court of Appeals comprised of judges Calabria, Steelman, or Beasley will hear oral argument in the following case:

RS&M Appraisal Services, Inc. v. Alamance County, et al.

In May 2009, RS&M Appraisal Services, Inc, instituted suit in Lincoln County Superior Court against Alamance County alleging that the County failed to pay for services provided during the County's 2009 Reappraisal Project.  The County's Answer denied the material allegations contained in the Complaint, requested that the court transfer the matter to Alamance County, and sought to have the Complaint dismissed because (1) the contract was overbilled by RS&M and overpaid by the County; (2) that the contract was not validly amended under North Carolina General Statutes Section 159-28; and (3) that Alamance County had not waived governmental immunity. 

The County also brought several counterclaims against RS&M.  The County asserted that (1) overpayments by the County constitute exclusive emoluments under the North Carolina Constitution which must be returned to the County; (2) that RS&M breached the contract by failing "to provide competent employees of good character and having sufficient skills to perform the work" resulting in cost overruns; (3) breached the contract by failing to "furnish training, consultation, qualified appraisal personnel, qualified clerical personnel, and employee relationships"; and (4) that RS&M's actions constitute an unfair trade practice.

After the County's motion to transfer was granted, the County requested permission to add Ronald S. McCarthy, the owner of RS&M, and Kimberly D. Horton, the former Alamance County Tax Administrator, as counterclaim defendants.  The County sought to bring fraud and bid-rigging claims against the coutnerclaim defendants for various actions taken during the bid process.

Ms. Horton responded by filing crossclaims against the County alleging that the County (1) violated the North Carolina Financial Privacy Act by obtaining her records from the State Employee's Credit Union and attaching them to pleadings in this action; and (2) violated the Alamance County employee personnel policy by failing to pay her for her accrued but unused vacation time.

The County moved to dismiss the crossclaims on the basis of governmental immunity and because its actions complied with North Carolina law.  Judge Ben Tennille of the North Carolina Business Court denied the County's motion to dismiss and this appeal followed.

On appeal the County contends that it is entitled to sovereign immunity on the claim to receive compensation for unused vacation time because (1) the state wage and hour act law do not waive the County's immunity for such claims; (2) the policy providing for vacation pay was not a part of Horton's employment contract and therefore the employment contract cannot form the basis for a waiver of immunity; and (3) because Horton did not allege a waiver of immunity in her counterclaim.

The County also claims that it is entitled to have the Financial Privacy Act claim dismissed for several reasons.  First, the County focuses on the allegation that the County violated Section 53B-3.  The County contends that 53B-3 does not give rise to a cause of action because it is merely a policy statement.  According to the County, Horton may have had a cause of action if she alleged a violation of certain other parts of Article 53B (or, presumably, added an "et seq." at the end of her citation), but she does not have one under the statute cited.  The County also contends that Horton was not entitled to notice before her records were obtained and that it had the authority to publish the records after they were obtained by the Alamance County Sheriff's Office through a search warrant.  Finally, the County argues that if a violation occurred, the violation was the fault of the Alamance County Sheriff's Office and the County cannot be held liable for the actions of the Sheriff.

Horton responds that sovereign immunity does not apply to breach of contract claims or claims based on implied employment contracts.  Additionally, Horton rejects the County's assertion that 53B-3 is merely a directory statute and explains why she believes the County's actions violated the Financial Privacy Act.

Today at the Court of Appeals

Today, Tuesday, February 22, 2011, the a three-judge panel of North Carolina Court of Appeals comprised of Judges Robert C. Hunter, Linda Stephens, and Sam J. Ervin, IV will hear oral argument in the following cases:

Wachovia Bank National v. Superior Construction Corp.

This case arises out of an action filed in Mecklenburg County Superior Court by Wachovia Bank, N.A., seeking a determination regarding whether a claim of lien filed by Wachovia had priority over a claim of lien filed by Superior Construction Corp.  The Court of Appeals will consider whether a lien waiver executed by a contractor can effect a change in the date when the contractor first furnished materials and labor to a project.

Wachovia loaned Intracostal Living, LLC approximately $22.8 million for the construction of a high end condominium project.  Wachovia secured this loan through a deed of trust filed on May 19, 2005.  In September 2007, Superior filed a claim of lien asserting that it was owed $1.6 million for services provided for the condominium project.  Superior further alleged that it first provided labor and materials to the condominium project on April 22, 2005. Superior executed partial lien wavers on May 11, 2005 and June 9, 2005 for labor and materials provided to those dates.

After being substituted as the plaintiff, Preserve Holdings, LLC, the owner of the land that was subject to the lien, filed a motion for judgment on the pleadings that asserted that Wachovia's deed of trust had priority over Superior's claim of lien.  North Carolina Business Court Judge John R. Jolly determined that although North Carolina's lien statutes provide that claims of lien relate to the time of first furnishing of labor, the parties may waive these protections if they wish to do so.  Judge Jolly went on to determine that the lien waivers executed by Superior constituted such a waiver and that any lien rights Superior had did not attach until after Wachovia filed it deed of trust.  Therefore, in Judge Jolly's opinion, Wachovia deed of trust took priority over Signatures' claim of lien.


Murdock v. Thomas


Plaintiff Peggy Murdock instituted a civil action in Iredell County Superior Court against various entities related to a payday lending operation.  Due to certain pretrial rulings, the case proceeded at the same time in both state court and in arbitration before the American Arbitration Association.  With respect to the portion of the case that remained in state court, Judge Ripley E. Rand dismissed claims against several defendants because the named plaintiffs lacked standing to pursue claims against those defendants.  However, the arbitrator's Class Determination Award approved a class that included class members who only had claims against these dismissed entities. The defendants unsuccessfully sought to have the Class Determination Award vacated by Judge Rand.  This appeal followed.

Appellants contend that the Class Determination Award should be vacated because the class definition included claims against defendants that had been dismissed from the state action due to the named-plaintiffs' lack of standing.  Additionally, the appellants assert that the class definition will allow class members to seek to pursue claims directly against them for alleged bad acts that were committed by the other parties.

Appellees contend that the case should be dismissed as interlocutory and that the appellants' arguments do not establish the manifest disregard of the law that is required to vacate the arbitrator's award.

COA Opinions

This morning the North Carolina Court of Appeals issued eleven opinions.  We will have more on any cases of interest later.

Appeal of Motion to Compel Arbitration Halts District Court Proceeding

Yesterday, in an opinion drafted by Judge Duncan and joined by Judges Niemeyer and Keenan, the Fourth Circuit Court of Appeals held that an appeal of a denial of a motion seeking to require a party to arbitrate its claims divests the district court of jurisdiction to proceed with the case unless the district court finds that the appeal is frivolous.  The case is Levin v. Alms and Associates, Inc.

The relevant facts in this case are fairly straightforward.  In 2009, Levin filed suit against his financial advisers.  His complaint contained claims of negligence, negligent misrepresentation, violation of the Investment Advisers Act of 1940, and breach of contract.  Alms moved to dismiss the case or, in the alternative, to stay the action pending arbitration.  Alms claimed that Levin was required to submit his claims to arbitration because a 2007 agreement that governed their relationship required that "[a]ny dispute shall be submitted to binding arbitration...."  Levin claimed that the arbitration clause did not apply to claims that accrued prior to 2007.  The district court agreed with Levin and ordered that while claims that accrued after January 1, 2007 must be handled through arbitration, claims that accrued prior to that date could be heard in the district court. 

Alms filed a notice of appeal and requested that the district court stay any further proceedings until the appeal was resolved.  The District Court denied the motion in part finding that the case could proceed "at least through discovery."  Alms then requested that the Fourth Circuit stay the district court proceedings until the appeal was heard.  The Fourth Circuit entered a temporary stay until the motion could be fully heard.

The opinion began by initially addressing whether the district court had jurisdiction to proceed with the case after Alms filed its notice of appeal.  The Fourth Circuit recognized that the circuits were split on this issue:

The Third, Seventh, Tenth, and Eleventh Circuits have held that an appeal regarding arbitrability of claims does divest the district court of jurisdiction over those claims, as long as the appeal is not frivolous. The Second and Ninth Circuit have held that no such divestiture occurs.

The Fourth Circuit determined that the view of the Third, Seventh, Tenth, and Eleventh Circuits was the more persuasive of the two.  The filing of a notice of appeal divests the lower court of "jurisdiction over 'those aspects of the case involved in the appeal,'" and because the "core subject of an arbitrability appeal is the challenged continuation of proceedings before the district court on the underlying claims" it would be inappropriate for the district court to proceed.  Additionally, allowing the case to continue while on appeal, even through discovery, "would cut against the efficiency and cost-saving principles of arbitration."

However, the panel was cognizant of the potential that some parties would file a frivolous appeal simply to delay the action below from moving forward.  A party who believes that an appeal has not been filed in good faith has the option to ask the district court to certify that the appeal is frivolous or forfeited.  If the district court finds in the moving party's favor, the case may proceed.  "In the event that such a certification occurs, the party alleging arbitrability may move [the Fourth Circuit] to stay the district court's proceedings pending a review of the frivolousness determination." 

After addressing whether the district court could proceed with the case while the arbitration aspect of the case was on appeal, the panel addressed the merits of the district court's decision.  The opinion held that the 2007 agreement's arbitration clause could apply to claims that accrued prior to 2007 because of the presumption in favor of arbitrability and prior decisions that "have generally applied broad 'any dispute' language retroactively, especially when combined with language that refers to all dealings between the parties.'"  Given this holding, the district court's opinion was reversed.

February 10, 2011 at the Court of Appeals

Today, Judges Geer, Stephens, and McCullough will hear oral argument in L & S Water Power v. Piedmont Triad Regional Water Authority. This case arises out of an inverse condemnation action connected to the development of a public water supply for the Piedmont Triad. The trial court determined that the Water Authority had taken riparian rights belonging to some of the plaintiff and that the affected plaintiffs were entitled to compensation. The Water Authority contends that the trial court erred in its application of the riparian rights doctrine, in its holding that the plaintiffs did not have to exhaust their administrative remedies prior to brining an inverse condemnation claim, and that the by determining that just compensation is valued by the diminution of each affected plaintiff's capacity to produce electricity.

Today at the Court of Appeals

Today, Wednesday, February 9, 2011, oral argument will take place before two panels of the Court of Appeals.

Beginning at 9:30 a.m., Judges Calabria, Stroud, and Robert N. Hunter, Jr. will hear oral argument in Ehrenhaus v. Baker. Ehrenhaus is a somewhat unusual appeal because the plaintiff and defendants have no problems with the decisions issued by former North Carolina Business Court Judge Albert Diaz (Judge Diaz has since joined the United States Court of Appeals for the Fourth Circuit). Instead, the appeal is brought by two individuals who objected the approval of the class action settlement agreed to by the plaintiff and defendants.

The underlying case arose out of the merger between Wachovia and Wells Fargo during the height of the financial crisis in 2008. The Defendants-Appellees’ Brief contains a fascinating review of the various events that led up to the merger. The appeal will involve various issues raised by the objectors, including, (1) whether Wachovia’s shareholders were denied their voting rights regarding the merger (2) whether the trial court properly examined the qualifications and adequacy of the class representative and class counsel; (3) whether the settlement approved by the court was, in the words of the objectors, “unfair, unreasonable, and inadequate[;]” and (4) whether the notice to potential class members was so insufficient as to deny class members their due process right to opt out of the class.

Beginning at 1:00 p.m., Judges Elmore, Steelman, and Ervin will hear oral argument in the following cases:

The Travelers Indemnity Company v. Triple S. Marketing Group, Inc.

This matter arose out of an action by Travelers against Triple S. Marketing Group to collect money allegedly owed for unpaid workers compensation premiums. The parties eventually agreed to a consent judgment in which Triple S agreed to have a judgment entered against it in the amount of $203,462.00. Travelers filed a motion in Forsyth County Superior Court seeking approval attach a judgment lien to real property owned by Triple S’s majority shareholders. The lower court granted Travelers’ motion and this appeal followed.

Triple S raises the following issues on appeal: (1) whether the trial court had subject matter jurisdiction to hold the majority shareholders personally liable for the consent judgment entered against Triple S; (2) whether the trial court had subject matter jurisdiction during a supplemental proceeding to pierce Triple S’s corporate veil; and (3) whether the trial court correctly decided to pierce Triple S’s corporate veil.

Womble Carlyle attorneys Rick Rice and Gemma Saluta represent Travelers in this matter.

Sugar Creek Charter School, Inc. v. State of N.C. & Thomas Jefferson Classical Academy v. Rutherford County Bd.

North Carolina’s relationship with charter schools has been a hot topic of conversation lately. In addition to the General Assembly debating whether to lift the cap on the number of charter schools allowed under North Carolina law, the Court of Appeals will consider two cases related to the funding of charter schools. In Sugar Creek, the Plaintiffs contend that under the North Carolina Constitution and the North Carolina Supreme Court’s Leandro decision, the state and local governments are required to provide uniform funding to all schools regardless of whether they are charter schools or traditional public schools. In Thomas Jefferson, the Plaintiffs challenge the manner in which the Rutherford County Board of Education calculated the share of funds the charter school is entitled to receive.

Today at the Court of Appeals

Today, Tuesday, February 8, 2011, a panel of the North Carolina Court of Appeals comprised of Judges McGee, Bryant, and Beasley is scheduled to hear oral argument in the following cases:

State v. Castillo

This case arises out of the defendant's conviction on charges related to the shooting of his father and two students at Orange County High School in 2006. The defense contended that Castillo was not guilty of these charges by reason of insanity.

The questions for the Court of Appeals are (1) whether the trial court committed plain error by failing to instruct the jury that the insanity defense applies if a defendant believed that due to mental illness that his conduct was morally right; and (2) whether the trial court abused its discretion by overruling the defendant's objection to the prosecution's statement during closing argument that the defense was relying on an insanity defense because it could not support its case with factual evidence.

Harston v. Tippett

In 2007, the Department of Transportation sent Harston a notice informing him that a billboard he erected on private property adjacent to I-85 that read "If you die today, where will you spend ETERNITY?" was illegal because Harston did not have an approved outdoor advertising permit. After unsuccessfully challenging the notice before the Department of Transportation, Harston sought judicial review in Wake County Superior Court. After considering cross-motions for summary judgment, the Court entered judgment in favor of the Department.

Harston asks the Court of Appeals to find that the statute at issue is unconstitutional on its face and as applied to him because it is a content based restriction that (1) is more favorable to commercial speech than non commercial speech and (2) discriminates against different types of noncommercial speech.

Liebes v. Guilford County Department of Public Health

This case presents an interesting challenge to the ban on smoking in most restaurants and clubs that went into effect in 2010. Gate City Billiards is challenging the smoking ban on the ground that the ban violates the Fourteenth Amendment to the United States Constitution because there is no rational basis for permitting smoking in nonprofit private clubs while prohibiting smoking in for profit clubs.

Supreme Court Opinions

Today, the North Carolina Supreme Court issued opinions in five cases.

Notably, the Supreme Court issued an opinion in Munger v. State - a case that challenged the constitutionality of economic incentives provided by State and local governments to convince companies to locate in North Carolina. Womble Carlyle attorneys Burley Mitchell and Press Millen represented appellees Google Inc. and Madras Integration, LLC.

The question before the Supreme Court was whether the Plaintiffs had standing to challenge the incentives. The Court of Appeals held in a unanimous opinion that they did not. The Supreme Court determined that discretionary review had been improvidently allowed. Justice Barbara Jackson, who was part of the Court of Appeals panel that decided the case below, did not participate in the case at the Supreme Court. This ruling means that the Court of Appeals opinion will stand and, unless the matter is appealed to the United States Supreme Court, the case will be dismissed.

COA Opinions

This morning the Court of Appeals issued 12 opinions. We will have more on any cases of interest later.