Sed Holdings, LLC v. 3 Star Props., LLC

SED Holdings, LLC v. 3 Star Props., LLC, 2016 NCBC 62.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
DURHAM COUNTY 14 CVS 5766

SED HOLDINGS, LLC, )
)
Plaintiff, )
)
v. )
)
3 STAR PROPERTIES, LLC; JAMES )
OPINION AND ORDER REGARDING
JOHNSON; TMPS LLC; MARK )
STAY PENDING APPEAL
HYLAND; HOME SERVICING, LLC; )
and CHARLES A. BROWN & )
ASSOCIATES, PLLC d/b/a )
DOCSOLUTION, INC., )
)
Defendants. )
)

1. THIS MATTER is before the Court sua sponte following its request of the

parties for guidance as to its jurisdiction to proceed while matters in this case are

pending on appeal. For the reasons set forth below, the Court concludes that it has

limited jurisdiction to proceed in this case.

Graebe Hanna & Sullivan, PLLC, by Douglas W. Hanna, for Plaintiff SED
Holdings, LLC.

Law Offices of Hayes Hofler, P.A., by R. Hayes Hofler, III, for Defendants 3 Star
Properties, LLC, James Johnson, TMPS LLC, Mark Hyland, and Home
Servicing, LLC.

The Law Office of John T Benjamin, Jr., P.A., by John T. Benjamin, Jr., William
E. Hubbard, and Aleksandra E. Anderson, for Defendant Charles A. Brown &
Associates, PLLC d/b/a DocSolution, Inc.

I. INTRODUCTION

2. This case is before this Court pursuant to an Order entered on May 27,

2016, by the Chief Justice of the North Carolina Supreme Court designating this
action as a complex business case pursuant to Rules 2.1 and 2.2 of the General Rules

of Practice for the Superior and District Courts.

3. On July 11, 2016, Plaintiff SED Holdings, LLC (“SED”) filed a Verified

Amended Complaint (“Complaint”). That pleading added a new party-defendant,

Charles A. Brown & Associates, PLLC (“Charles A. Brown”). Contained in the

Complaint was SED’s Motion for Mandatory Preliminary Injunction (the “Motion”).

SED filed a supporting brief to the Motion on July 26, 2016.

4. The issue before the Court is whether the filing of a petition for

discretionary review with the North Carolina Supreme Court by all of the named

defendants except for Charles A. Brown (“Defendants”) following an adverse decision

of the North Carolina Court of Appeals from Defendants’ first appeal, and/or

Defendants’ filing of a second notice of appeal with the Court of Appeals, divests this

Court of subject matter jurisdiction to consider the Motion.

5. This Court issued a Briefing Order on July 25, 2016, directing the parties

to provide legal arguments and guidance to the Court regarding the Court’s legal

authority to proceed on the Motion while matters are pending discretionary review

in the North Carolina Supreme Court and on appeal to the North Carolina Court of

Appeals. In response to the Briefing Order, all of the parties, through counsel, have

provided the Court with their respective positions on the authority for the Court to

proceed.

6. Based on the matters of record, including the arguments of counsel for the

parties contained in their respective briefs on the subject, which were of material
assistance to the Court, the Court determines that this matter—at least insofar as it

relates to SED’s request for additional injunctive relief against newly added

defendant Charles A. Brown—is not stayed and the Court may proceed to determine

the Motion.

II. PROCEDURAL HISTORY

7. The Court sets forth here only those portions of the procedural history of

this case necessary for an understanding of its ruling and notes that this case had a

lengthy history prior to its designation to the Business Court. This action was

commenced on December 1, 2014, in Durham County Superior Court by SED’s filing

of its original Verified Complaint against Defendants. In its original complaint, SED

alleged that it had contracted to purchase 1235 mortgages from 3 Star Properties,

LLC (“3 Star”), and had paid $2,000,000 of a total purchase price of $13,800,171 at

closing, only to find that many of the mortgages were not owned by 3 Star and other

mortgages were essentially worthless.

8. On December 10, 2014, Defendants filed a Motion to Dismiss based on lack

of subject matter jurisdiction and improper venue pursuant to Rules 12(b)(1) and

12(b)(3) of the North Carolina Rules of Civil Procedure (“Rule(s)”).

9. In response to SED’s request for emergency injunctive relief, on December

12, 2014, the Durham County Superior Court entered a Temporary Restraining

Order against Defendants.

10. SED’s Motion for Preliminary Injunction was scheduled to be heard on

December 18, 2014. Prior to the hearing, SED and Defendants agreed to abide by the
terms of a Consent Order Extending the Temporary Restraining Order and Ordering

Mediation.

11. On February 13, 2015, Defendants brought their Motion to Dismiss on for

hearing in Durham County Superior Court. On the same day, SED’s Motion for

Preliminary Injunction was heard. On February 13, 2015, the superior court denied

Defendants’ Motion to Dismiss and granted SED’s Motion for Preliminary Injunction.

12. On February 19, 2015, Defendants filed their Notice of Appeal from the

superior court’s February 13, 2015, orders (the “2015 Appeal”), objecting to both the

court’s denial of Defendants’ Motion to Dismiss for improper venue, and the entry of

a Preliminary Injunction against Defendants. The 2015 Appeal was assigned Court

of Appeals docket number COA15-747.

13. On August 28, 2015, while the 2015 Appeal was pending, SED filed its

motion to show cause why Defendants should not be held in civil contempt for failing

to obey the preliminary injunction order. SED’s motion to show cause was opposed

by Defendants. Following hearing, on December 7, 2015, and again on December 23,

2015, the superior court entered show cause orders that were followed on January 5,

2016, by a Contempt Order, which held Defendants in civil contempt for willful

violation of the court’s earlier injunctive orders.

14. Two days later, on January 7, 2016, the superior court entered an amended

show cause order. That order scheduled a show cause hearing for January 19, 2016.

15. On January 13, 2016, Defendants filed a second Notice of Appeal to the

North Carolina Court of Appeals (the “2016 Appeal”) objecting to seven specific orders
entered by the superior court, while the case was on appeal, between September 24,

2015, and January 5, 2016, as well as objecting to and appealing from “[a]ny orders

or court rulings not herein specified which were entered after defendants filed Notice

of Appeal dated February 19, 2015, from orders entered on February 13, 2015 denying

defendants’ Motion to Dismiss for Improper Venue and granting plaintiff’s Motion for

Preliminary Injunction Order.” The 2016 Appeal was assigned Court of Appeals

docket number COA16-385.

16. The next day, on January 14, 2016, Defendants filed a Motion to Continue

Hearings Scheduled for January 19, 2016. By Order dated January 27, 2016, and

filed February 1, 2016, the superior court ordered that the hearing on the amended

show cause order should be continued until thirty days after the Court of Appeals

issued its mandate in the 2015 Appeal.

17. On April 5, 2016, the Court of Appeals issued its opinion in the 2015 Appeal,

unanimously affirming the trial court’s actions, including denial of Defendants’

Motion to Dismiss for improper venue and the grant of preliminary injunctive relief.

18. Pursuant to Rule 32 of the North Carolina Rules of Appellate Procedure, the

mandate in the 2015 Appeal issued from the Court of Appeals to the superior court

on April 25, 2016.

19. On May 27, 2016, Defendants filed a Petition for Discretionary Review of

the Court of Appeals’ decision in the 2015 Appeal with the North Carolina Supreme

Court (the “PDR”). The PDR was assigned docket number 211P16-1. Defendants did
not seek a stay of the proceeding or otherwise seek to delay the effect of the mandate

from the Court of Appeals.

20. On the same date, May 27, 2016, this action was designated, following the

parties’ joint motion requesting the same, to the Business Court pursuant to Rules

2.1 and 2.2 of the General Rules of Practice for the Superior and District Courts.

21. On July 11, 2016, SED filed its Verified Amended Complaint adding Charles

A. Brown as an additional party-defendant and seeking preliminary and permanent

injunctive relief against that entity.

22. The 2016 Appeal has been fully briefed and is awaiting argument and

decision.

23. The Supreme Court has not ruled on the PDR.

III. ANALYSIS

24. Pursuant to the relevant portion of section 1-294 of the North Carolina

General Statutes, entitled “Scope of stay; security limited for fiduciaries”:

When an appeal is perfected as provided by this Article it stays all
further proceedings in the court below upon the judgment appealed
from, or upon the matter embraced therein, unless otherwise provided
by the Rules of Appellate Procedure; but the court below may proceed
upon any other matter included in the action and not affected by the
judgment appealed from.

N.C. Gen. Stat. § 1-294.

25. The issues currently before the Court are whether: (1) Defendants’ filing of

the PDR with the North Carolina Supreme Court; and/or (2) Defendants’ filing of the

2016 Appeal with the North Carolina Court of Appeals, works to divest this Court of
subject matter jurisdiction to consider and determine the Motion as to a newly added

party-defendant until the presently pending appeals are resolved.

26. With regard to Defendants’ filing of the PDR, the Court concludes that,

absent a motion to stay filed with and granted by the appropriate court, the filing of

a petition for discretionary review with our State’s highest court, by itself, does not

divest the trial court of jurisdiction to consider matters after the Court of Appeals has

determined a matter on appeal and has issued its mandate. N.C. R. App. P. 23;

Ratchford v. C.C. Mangum, Inc., 150 N.C. App. 197, 198−99, 564 S.E.2d 245, 247

(2002) (“In the absence of the grant of a temporary stay or a writ of supersedeas by

the [North Carolina] Supreme Court, the enforcement of the determination mandated

by the Court of Appeals is not stayed pending the Supreme Court’s determination of

the application for discretionary review.”). In this regard, Defendants’ arguments

based on Snow v. Yates, 99 N.C. App. 317, 392 S.E.2d 767 (1990) and Little v. Little,

12 N.C. App. 353, 183 S.E.2d 278 (1971) do not counsel otherwise.

27. In Snow, the trial court granted the defendants’ motion for change of venue

and the plaintiff appealed to the Court of Appeals. Snow, 99 N.C. App. at 319, 392

S.E.2d at 768. The Court of Appeals determined that such a grant was immediately

appealable because it affected a substantial right, and that “the court of original

venue must consider and determine the motion before it takes any other action.” Id.

In this case, the superior court—the original court of venue—has ruled on

Defendants’ venue motion and the Court of Appeals has affirmed.
28. In Little, the defendant filed a motion for change of venue pursuant to Rule

12(b)(3) with the trial court, and the plaintiff thereafter filed a motion for alimony

pendent lite. Little, 12 N.C. App. at 354, 183 S.E.2d at 279. The trial court heard

and ruled on plaintiff’s motion for alimony while defendant’s motion for change of

venue was still pending. Id. The defendant appealed, alleging that the trial court

erred in determining the plaintiff’s alimony motion before ruling on the defendant’s

motion for change of venue. Id. The Court of Appeals held that when the defendant

moved for change of venue as a matter of right, “[the district court] was without

authority to proceed further in the cause until the motion to [change venue] had been

determined.” Id. at 357, 183 S.E.2d at 280.

29. In this case, the superior court—the original court of venue—has ruled on

Defendants’ venue motion and the Court of Appeals has affirmed. Venue is not an

issue in the 2016 Appeal; it is only the subject of the PDR. Therefore, the fact that

Defendants have chosen to pursue the issues raised in the 2015 Appeal to the State’s

highest court by way of petition for discretionary review, without also seeking an

order staying the action until the Supreme Court rules, does not affect this Court’s

authority to proceed.

30. With regard to the 2016 Appeal, because the parties do not raise the issue

of the propriety of the 2016 Appeal in their briefs to the Court of Appeals or this

Court, the Court assumes for the purposes of this Opinion and Order, without

deciding, that the 2016 appeal is proper as an appeal of an interlocutory order

affecting a substantial right. Thus, the Court must determine, in conformity with
section 1-294, whether the issues currently for determination by this Court are

“affected by the judgment appealed from.” N.C. Gen. Stat. § 1-294.

31. The Court has reviewed the orders of the superior court encompassed within

the 2016 Appeal, the parties’ briefs to the Court of Appeals, and relevant case law

from our appellate courts. The only issue before the Court of Appeals in the 2016

Appeal is the validity of the show cause orders and civil contempt order issued by the

superior court while the 2015 Appeal was pending.

32. The Court concludes that the issues presently before it are not embraced

within the issues presently before the Court of Appeals in the 2016 Appeal and, thus,

do not divest this Court of subject matter jurisdiction to consider and decide the

Motion relating to newly added defendant Charles A. Brown.

33. The weight of appellate decisions interpreting section 1-294 appears to be

that, as a general rule, an appeal divests the lower court of jurisdiction. Songwooyarn

Trading Co. v. Sox Eleven, Inc., 219 N.C. App. 213, 216−17, 723 S.E.2d 569, 572

(2012); Ross v. Ross, 194 N.C. App. 365, 368, 669 S.E.2d 828, 831 (2008); Faulkenbury

v. Teachers’ & State Emps.’ Ret. Sys., 108 N.C. App. 357, 364, 424 S.E.2d 420, 422

(1993). Despite this general rule, however, “the lower court nonetheless retains

jurisdiction to take action which aids the appeal, and to hear motions and grant

orders, so long as they do not concern the subject matter of the suit and are not

affected by the judgment appealed from.” Faulkenbury, 108 N.C. App. at 364, 424

S.E.2d at 422.
34. Also, “a trial court may ordinarily ‘suspend, modify, restore, or grant an

injunction during the pendency of the appeal upon such terms . . . it considers proper

for the security of the rights of the adverse party’ while an appeal is pending.” Ross,

194 N.C. App. at 368, 669 S.E.2d at 831 (quoting N.C. R. Civ. P. 62(c)); see also

Songwooyarn Trading Co., 219 N.C. App. at 217, 723 S.E.2d at 572 (holding that the

trial court had jurisdiction to enter an order prohibiting the defendant from

transferring, disposing, or removing assets “while jurisdiction was vested in the

appellate courts[ because the order] did not concern the subject matter of the suit and

was intended to aid in the security of plaintiff’s rights while the appeal was pending”).

35. The Court is unaware of any appellate decision addressing the specific

factual scenario present in this case. The Court has carefully reviewed the

authorities cited to it by counsel for all defendants, including specifically

Faulkenbury v. Teachers’ & State Emps.’ Ret. Sys., 108 N.C. App. 357, 424 S.E.2d

420 (1993); Kelley v. Andrews, No. COA15-448, 2016 N.C. App. LEXIS 74 (N.C. Ct.

App. Jan. 19, 2016) (unpublished); and Rutherford Plantation, LLC v. Challenge Golf

Group of the Carolinas, LLC, Nos. COA12-1305, COA12-308, 2014 N.C. App. LEXIS

341 (N.C. Ct. App. Apr. 1, 2014) (unpublished). The Court believes that such

authorities are distinguishable and not controlling of the current dispute.

36. In Faulkenbury, the plaintiffs brought an action for declaratory judgment

and damages against several defendants, including two individuals in their official

and individual capacities. Faulkenbury, 108 N.C. App. at 363, 424 S.E.2d at 422.

The defendants appealed the trial court’s orders granting the plaintiffs’ motion for
class certification and denying the defendants’ motions to dismiss. Id. at 362, 424

S.E.2d at 421. While the defendants’ appeal was pending, the plaintiffs filed a notice

of voluntary dismissal without prejudice of the claims against the two individuals in

their individual capacities. Id. at 363, 424 S.E.2d at 422. The defendants appealed

the plaintiffs’ voluntary dismissal. Id. at 363, 424 S.E.2d at 423. The Court of

Appeals found that the plaintiffs’ voluntary dismissal did not affect the subject matter

of the action and was proper. Id.

37. In Kelley v. Andrews, No. COA15-448, 2016 N.C. App. LEXIS 74, at *2 (N.C.

Ct. App. Jan. 19, 2016) (unpublished), the defendant moved to dismiss the plaintiff’s

complaint based on sovereign immunity. The trial court denied the defendant’s

motion and the defendant appealed. Id. While the defendant’s motion was pending

on appeal, the defendant filed a second motion to dismiss based on sovereign

immunity, but based on a different legal argument than in the first motion. Id. at

*2−3. The trial court granted the second motion to dismiss, and the plaintiff

appealed. Id. at *3. The Court of Appeals held that the trial court did not have

authority to rule on the defendant’s second motion to dismiss based on sovereign

immunity while the trial court’s ruling on the defendant’s first motion to dismiss

based on sovereign immunity was pending on appeal “because both motions sought

dismissal of [plaintiff’s] lawsuit on the grounds of sovereign immunity.” Id. at *4.

38. In Rutherford Plantation, LLC v. Challenge Golf Group of the Carolinas,

LLC, Nos. COA12-1305, COA12-308, 2014 N.C. App. LEXIS 341, at *5 (N.C. Ct. App.

Apr. 1, 2014) (unpublished), the plaintiff filed a motion for summary judgment in the
trial court. The trial court granted partial summary judgment for the plaintiff, and

the defendant filed a motion requesting that the trial court amend the order granting

partial summary judgment. Id. at *5. The trial court denied the defendant’s motion.

Id. The defendant appealed the order granting the plaintiff partial summary

judgment and the order denying the defendant’s motion requesting that the trial

court amend the summary judgment order. Id. at *5−6. While the defendant’s appeal

was pending, the trial court entered an order granting the plaintiff’s motion for leave

to amend its complaint to add three defendants and assert additional claims. Id. at

*6. Thereafter, the plaintiff filed its amended complaint. Id. Two of the newly added

defendants filed motions to dismiss based on lack of personal jurisdiction, and the

trial court entered an order denying the defendants’ motions to dismiss. Id. The

Court of Appeals ruled that the trial court did not have jurisdiction to enter an order

granting the plaintiff’s motion for leave to amend its complaint, or to enter an order

denying the newly added defendants’ motions to dismiss. Id. at *11.

39. In this case, Charles A. Brown was added by SED in an amended complaint

filed as a matter of right, not through a motion and court order. The Motion concerns

only the newly added party-defendant who is not a party to the pending appeal. The

2016 Appeal questions the superior court’s authority pending appeal to enter show

cause and civil contempt orders following Defendants’ alleged non-compliance with

the superior court’s grant of SED’s Motion for Preliminary Injunction.

40. Charles A. Brown was not a party at the time of entry of the orders now on

appeal, and the Court of Appeals has already affirmed in the 2015 Appeal the
propriety of the superior court’s grant of SED’s Motion for Preliminary Injunction

against Defendants. Thus, this Court’s consideration of the Motion against Charles

A. Brown “[is] not affected by the judgment that has been appealed.” Ross v. Ross,

194 N.C. App. 365, 368, 669 S.E.2d 828, 831 (2008).

41. Rather, this Court’s consideration of SED’s request for preliminary

injunctive relief against a newly added defendant concerns distinct and separate

issues regarding SED’s claim of irreparable harm and Charles A. Brown’s

involvement in this action.

42. The Court is sensitive to the general rule that, once an appeal is lodged, the

trial court should “stand down” except in limited circumstances. At the same time,

the Court concludes that the present situation is one of those limited instances in

which trial court jurisdiction can be exercised. Regardless of the Court of Appeals’

decision as to the 2016 Appeal (i.e., whether the superior court had jurisdiction to

hold Defendants in contempt while the first appeal was undecided), the outcome of

that appeal will not affect the issue of whether preliminary injunctive relief is

appropriate at this time and against Charles A. Brown.

43. The Court specifically concludes that the Motion as to defendant Charles A.

Brown is not embraced in the issues raised by the 2016 Appeal.

44. As a result, the Court concludes that it may, and in fact should, in the face

of an allegation by SED that it is being irreparably harmed, determine SED’s request

that the Court grant the Motion against Charles A. Brown.
IV. CONCLUSION

45. For the foregoing reasons, the Court hereby ORDERS that SED’s Motion for

Mandatory Preliminary Injunction as to defendant Charles A. Brown should be heard

and determined, and a hearing on that Motion will be scheduled promptly. Any party

believing that additional issues should be considered, heard, and/or determined at

that same time should file with the Court within ten days of this Order a Notice of

Requested Hearing setting forth their contentions in this regard.

SO ORDERED, this the 23rd day of August, 2016.

/s/ Michael L. Robinson
Michael L. Robinson
Special Superior Court Judge
for Complex Business Cases