It Can Happen To Anyone: Mistakes In Appeals

The road to an appellate court can be lined with unanticipated obstacles,  You can avoid them if you follow the NC Rules of Appellate Procedure and you keep up with changes in the law regarding appeals.  Or you might retain a lawyer who is certified as an appellate specialist by the North Carolina State Bar's Board of Legal Specialization

Two cases decided last week (one from the Business Court, the other from the NC Court of Appeals) resulted in dismissals of appeals because the Appellant didn't follow the Rules or didn't know about a change in the law. The first appellant was proceeding pro se.  The second was represented by a lawyer.  So a dismissal of an appeal can really happen to anyone, lawyer or not.

The  NC Business Court case (Velleros v. Patterson) involved the appealing party not  properly filing his Notice of Appeal with the clerk for the county where the case had originated before designation to the Business Court, although that wasn't the only reason for the dismissal.  (Anyone reading this blog is aware that the appeal of a Business Court decision requires the filing of a paper copy of the Notice of Appeal in the County where the case originated, in addition to an electronic filing in the Business Court).

The appealing party, not represented by a lawyer, had also done nothing to prepare the Record on Appeal required by Rule 9 of the NC Rules of Appellate Procedure.  (a record on appeal is a compilation of the documents filed in the trial court which are necessary to a consideration of the appeal)

Judge McGuire dismissed the appeal because the Record on Appeal hadn't been prepared.  Wait a second!  (Or as my brother-in-law says: Whoa! Whoa! Whoa!)  Can a trial court dismiss an appeal because the appealing party has violated a Rule of Appellate Procedure?  Isn't that power limited to the appellate court?

There Is No Appeal Pending Until The Record On Appeal Is Docketed

The appellate rules contemplate that the power to dismiss an appeal is limited to the appellate court after the appeal is filed.  Appellate Rule 25(a), says that "after an appeal has been filed in an appellate court, motions to dismiss are made to that court."  Even if the Notice of Appeal had been properly filed the case would not have been in the hands of the COA without the Record on Appeal having been filed, An appeal isn't fully before an appellate court until the appeal has been "docketed."  Craver v. Craver, 298 N.C. 231, 258 S.E.2d 357 (1979)(" until a record on appeal is filed and docketed, there is nothing pending before the appellate division.")

So the action of filing a Notice of Appeal isn't enough to take the case out of the jurisdiction of the trial court and into the grasp of the appellate court.

And what is this "docketing" thing?  It relates directly to the Record on Appeal.  "Docketing" is dealt with in Appellate Rule 12(b), which says:

Docketing the Appeal.  At the time of filing the record on appeal, the appellant shall pay to the clerk the docket fee fixed pursuant to N.C.G.S. § 7A-20(b), and the clerk shall thereupon enter the appeal upon the docket of the appellate court. . . . An appeal is docketed under the title given to the action in the trial division, with the appellant identified as such. The clerk shall forthwith give notice to all parties of the date on which the appeal was docketed in the appellate court.

A Trial Court Has The Jurisdiction To Dismiss An Appeal Before It Has Been Docketed

So "when an appeal has not yet been docketed with the appellate court, the trial court retains jurisdiction over the case" and it can consider a Motion to Dismiss the appeal.  Order ¶2 (citing Carter v. Clements Walker PLLC, 2014 NCBC 12 at 7).  (I wrote about the Clements decision a few years ago).  Judge McGuire dismissed the Velleros case in an unpublished Order. because the Record on Appeal hadn't been filed.

This Appellant was proceeding without a lawyer.  It's a bad idea to appear in the Business Court without a lawyer,  it's even a worse idea to go pro se in an appellate court.

Make Sure You Appeal To The Right Court

But even a lawyer can make a mistake that can be fatal to an appeal.  The Order dismissing the Velleros appeal came on the heels of a decision from the NC Court of Appeals this week dismissing an appeal from a Business Court decision, Christenbury Eye Center P.A. v. Medflow, Inc.

Why? The party appealing (represented by a lawyer) had filed its Notice of Appeal in the wrong Court.  It was filed in the NC Court of Appeals, not the NC Supreme Court.  Because you read this blog or the NC Appellate Practice Blog (or you pay for a subscription to NC Lawyers Weekly), you've known since last year that the NC Legislature amended the General Statutes to provide that appeals of "final judgments" of the Business Court are taken to the NC Supreme Court, and no longer to the NC Court of Appeals.  N.C. Gen. Stat. §7A-27-(a)(2).

But the Plaintiff appealing Chief Business Court Judge Gale's final judgment in Christenbury Eye Center P.A. v. Medflow, Inc., didn't know about that change in the law.  That's an understandable mistake, as almost all civil appeals in North Carolina must go to the NC Court of Appeals and don't go directly to the NC Supreme Court.

What is particularly interesting about the Christenbury ruling is that the decision to dismiss the appeal wasn't even the result of a Motion to Dismiss by the Appellee pointing out the jurisdictional problem.  The Court of Appeals apparently raised the issue on its own volition.  It said that:

If an appealing party has no right of appeal, an appellate court on its own motion should dismiss the appeal even though the question of appealability has not been raised by the parties themselves.” 

Op, at 4 (quoting Hyatt v. Town of Lake Lure, 191 N.C. App. 386, 390, 663 S.E.2d 320, 322 (2008).

But understandable or not, and lack of a Motion to Dismiss or not, there was no mercy from the COA for the Appellant in Christenbury.  Judge Davis held that "we lack jurisdiction over Christenbury’s appeal, and as a result, the appeal must be dismissed."  Op. at 5.

The change regarding appeals from the Business Court going to the NC Supreme Court instead of the Court of Appeals applies only to cases designated to the Business Court on or after October 1, 2014. The Christenbury case was designated to the Business Court on October 29, 2014, so the change was applicable to it.

Update: The Plaintiff filed an Amended Notice of Appeal, this time appealing to the NC Supreme Court, after the decision by the NC COA dismissing its appeal.  Judge Gale dismissed that revised appeal in an Order on June 14, 2016, saying that he had "no discretion to allow Plaintiff to amend its appeal" and that only the appellate courts had that discretion.

(Note: I wouldn't have been aware of the Christenbury decision if my Brooks Pierce colleague Daniel F.E. Smith hadn't brought it to my attention.  Thanks, Dan).

(Another Note:  I have mentioned the NC Appellate Practice Blog at least twice in this post.  I am a huge fan of that blog, which does a great job of writing about what can be the "traps" of appealing an NC Business Court case (and does it way better and more thoroughly than this blog).  Today, Beth Scherer, a frequent author of that blog, wrote about the interesting appeal from the Business Court of four consolidated cases, one of which was designated to the Business Court before the effective date of the statute requiring appeals from the Business Court to go to the NC Supreme Court (October 1, 20014) and was therefore supposed to be appealed to the NC Court of Appeals, while the other three cases were designated after October 1, 2014 and were to be appealed to the NC Supreme Court.  Beth flagged that issue several months ago and today wrote about how the NC Supreme Court resolved whether it should consider the appeal of just three of the cases or consider all four.)

Is It Better To Be A LLC Member In The Minority Than A Minority Corporate Shareholder?

It is pretty common to think that limited liability company members have similar rights as shareholders in a corporation.

But they don't, (although in some respects the rights afforded to LLC members may be better).  The Business Court made that pretty clear last week in Fiske v. Kieffer, 2016 NCBC 22.

The Defendant held a minority (40%) interest in an LLC.  He asserted in a counterclaim that all the other members of the LLC members (the Plaintiffs) had acted together to breach their fiduciary duty to him.  The Plaintiffs collectively controlled the remaining 60% of the LLC and sat in the majority position.

The claimed breach of fiduciary duty involved the making of a $100,000 capital call by the majority.  The Defendant said that the capital call was unnecessary and was improperly aimed at diluting his interest in the LLC and forcing him into selling that interest.

If the LLC had been a corporation, the Court might have found the existence of a fiduciary duty.  The NC Court of Appeals held in Norman v. Nash Johnson & Sons' Farms, Inc., 140 N.C. App. 390, 407, 537 S.E.2d 248, 260 (2000) that "a fiduciary duty could arise where multiple minority shareholders in a corporation acted in concert to control the corporation."  Op. 16.

But LLCs are different statutory creatures, especially since in an Operating Agreement, the parties to that agreement can alter the statutory default rules.  Order 16.  Delaware's version of the Uniform Revised Limited Liability Company Act says that a member's fiduciary duty can be "expanded or restricted or eliminated" via an Operating Agreement.  6 Del. C. § 18-1101(c)

The North Carolina version of the "uniform" Revised Act doesn't contain that language, but it says that "[i]t is the policy of this Chapter to give the maximum effect to the principle of freedom of contract and the enforceability of operating agreements."  N.C. Gen.. Stat. § 57D-10-01(c).  The only boundaries which the NC Act places on the freedom of contract in Operating Agreements is that those agreements may not be "unconscionable" and that they must be governed by the "implied contractual covenant of good faith and fair dealing."  N.C.G.S. § 57D-2-30.

The LLC's Operating Agreement in the Fiske case required a super-majority vote (75% of the members) for a number of significant actions.  Judge McGuire held that this provided adequate protection to the Defendant of his interest and that he did not have a claim for breach of fiduciary duty.  Op. 17 & 18.  The Defendant could, for example, block a sale of the LLC by refusing to approve the sale, notwithstanding his minority status. The Defendant also had the right, under the terms of the Operating Agreement, to make a claim for breach of contract against the Defendant for making the capital call in violation of the Agreement.  Op. 21.

This isn't the first time that the NC Business Court has looked at the different rights of LLC members as compared to corporate shareholders.  Judge Gale did that three years ago, in Blythe v. Bell, 2013 NCBC 18  18-22. That Opinion stressed the availability of a derivative action to LLC members with fewer procedural obstacles than those that face a shareholder of a corporation filing a derivative action.  For example, no pre-litigation demand is necessary before filing of a complaint, and an LLC member doesn't have to show that she "fairly represents the interests of the corporation."  The statute governing corporate derivative actions, on the other hand, requires both (in G.S. §§ 55-7-42 and 55-7-41).

So if you are an LLC member holding a minority interest, are you better protected from the misdoings of the majority than a shareholder with a similar interest?  It probably depends on the terms of the Operating Agreement.

Do You Think You can Recover The $1100 Fee For Designating A Case To Business Court As A "Cost"? Maybe You Can't.

Recovering the $1,000+ fee for designating a case to the Business Court seems like the unattainable Holy Grail for successful parties in the Court.  That's so even though the NC General Assembly amended the statute listing items recoverable as a "cost" (G.S§ 7A-305) to add the $1,100 designation fee as a recoverable item (in G.S. §7A-305(d)(12)).

Last week in an (unpublished) Order in Sopko v. Stancill, Judge McGuire denied recovery of that fee to a Plaintiff who had obtained a voluntary dismissal from the Defendant of the counterclaims which she had brought.  That would seem to warrant a recovery of the designation fee.  

That's because Rule 41(d) of the NC Rules of Civil Procedure says that  "[a] plaintiff who dismisses an action or claim under section (a) of this rule shall be taxed with the costs of the action."  And that rule also applies expressly to the dismissal of a counterclaim. NC R. Civ. Pro. 41(c).

One thing that is clear about awarding costs is that a trial judge has no authority to award expenses incurred in the course of litigation that are not expressly allowed by statute.  City of Charlotte v. McNeely, 281 N.C. 684, 691, 190 S.E.2d 179, 185 (1972).  That's pretty plain from Section 7A-305(d), which says that "The expenses set forth in this subsection are complete and exclusive and constitute a limit on the trial court's discretion to tax costs. . . ."

But no appellate court has decided whether a trial judge has the authority to refuse to award costs that are expressly provided for by statute, like, for example, the fee for designating a case to the Business Court.

Judge McGuire ruled that he was required to determine whether the costs sought by the Plaintiff had been "reasonably incurred."  Order ¶10.  I'm not sure if that is correct.  Some of the items recoverable as costs are prefaced with the words "reasonable and necessary", like deposition costs and expert witness fees.  The designation fee allowed in section 7A-305(d)(12) doesn't contain that qualifier.

Judge McGuire ruled in the Sopko Order that the designation fee was not "reasonably incurred," and he refused to award the designation fee as a cost.  He said:

the Court is convinced that Plaintiff is not entitled to recover the filing fee here.  First, the lawsuit was not designated to the Business Court based on Defendant's counterclaims.  Instead, Plaintiff voluntarily incurred the filing fee, apparently believing that the claims she raised in the Verified Complaint were best served by designation to the Business Court.  Second, no part of this fee can conceivably be characterized as 'reasonably incurred' by Plaintiff in defense of the counterclaims alleged by Defendant.

Order ¶13.

It may be that this case means that a Business Court plaintiff who obtains a dismissal of counterclaims filed against him after the designation of the case to Business Court can't recover the designation fee as a cost.  Even though Rule 41 says that a Court shall award such a cost.

Well, the word "shall" doesn't mean what it used to. It's a surprisingly slippery and confusing word.  It was deleted almost wholesale in revisions of the Federal Rules of Civil Procedure, Appellate Procedure and Criminal Procedure.  (It seems to me that I wrote something about that word a few years ago on this blog, but I couldn't find it.)

I don't think that I have seen a single Order from the Business Court allowing recovery of the designation  fee since the statute was amended to allow it.  That legislation became effective in October 2014.

The Plaintiff in Sopko didn't come up empty handed on his application for costs.  He was awarded about $3500 for costs incurred for a mediation and some of his deposition expenses.  Both those types of costs are specifically listed in the statute allowing costs, in G.S. §7A-305(d)(7) and (d)(10).  But the Defendant, who had also obtained her own voluntary dismissal (of some of Plaintiff's claims), was awarded more for her costs -- $4,274.80 -- so she washed out Plaintiff''s recovery of costs entirely.

 

 

Don't Count On The Sheriff To File Your Notice Of Appeal

Filing a Notice of Appeal seems like a pretty easy thing to do.  You walk it over (or mail it) to the Clerk of Superior Court in the County in which the case was filed, and the Clerk puts a "filed" stamp on it indicating the date on which it was filed.

Remember that when appealing a Business Court decision, it is not enough to just e-file your Notice of Appeal electronically with the Business Court.  You have to file the Notice of Appeal with the Clerk of Superior Court for the County in which the case originated.

Rule 3(a) of the North Carolina Rules of Appellate Procedure says:

a party may take appeal by filing notice of appeal with the clerk of superior court and serving copies thereof within the time prescribed by subsection (c) of this rule. 

The "time prescribed by subsection (c)" is generally 30 days following the entry of the ruling appealed from.

This filing thing seems pretty hard to get to go wrong.  But it did go wrong for the Plaintiff attempting an appeal in Hefner v. Mission Hospital, Inc., 2016 NCBC 21.

How did it happen?  Hefner, whose Notice of Appeal needed to be filed by January 19, 2016, mailed his Notice of Appeal to Buncombe County on January 8th (via  FedEx, when it "absolutely, positively has to be there overnight.")  But the Notice of Appeal was not file stamped by the Buncombe County Clerk of Court until twelve days later on January 20th, a day late.

You are thinking that FedEx must have fallen down on the job.  No, FedEx didn't screw up.  The package was delivered as it was addressed, to: "Buncombe County Courthouse, ATTN: Civil Division."  If you are questioning the quality of that address, a paralegal for Plaintiff's counsel says that is the address to send the filing that she was given in a phone call to the Clerk's office. Personius ¶3.   

So, as you might guess, the package didn't end up in the hands of the Buncombe County Clerk of Court.  It went to the civil process division of the Sheriff''s Department of Buncombe County, which is in the same building as the Clerk.  The Sheriff's office apparently forwarded the Notice of Appeal to the Clerk of Court in time for it to be file stamped on January 20th.

Plaintiff (in opposing Defendant's Motion to Dismiss the Appeal), said that the file stamp of January 20th was not dispositive of the filing date and that the Notice of Appeal was most likely  received by the Clerk of Court earlier than that.  Plaintiff offered in support of this argument an Affidavit from a Lieutenant in the Sheriff's office.  The Lieutenant said that the Sheriff's office's records showed that the Notice of Appeal was received on January 13, 2016 and served on the Defendant the next day. 

The Sheriff's office had a practice of delivering documents that needed to be filed with the Court of delivering those documents to the Clerk on the next business day following the day that they were served. 

The Lieutenant said that he was "quite confident" that those practices had been followed with respect to the Plaintiff's Notice of Appeal, and that the document would have been delivered to the Clerk of Court on January 15th.  Aff. at ¶5.

Judge Gale, in granting the Motion to Dismiss the Appeal, said that "'the trial court is held to a strict construction of Appellate Rule 3.  Order ¶9 (quoting Ehrenhaus v. Baker, 2014 NCBC LEXIS 30, at *10, cert. denied and appeal dismissed, 776 S.E.2d 699 (2015)).

He said that "plaintiff has not met his burden of proving that the Notice of Appeal was filed on any day other than . . . the  date found on the trial stamp."  Order ¶11.  Judge Gale referenced  Rule 3(a) of the NC Rules of Civil Procedure, which says that the file stamp on a Complaint "shall be prima facie evidence of the date of filing."  Order ¶8.

Given the lack of definitive evidence that the Notice of Appeal was in the hands of the Clerk's office before the appeal deadline, the Business Court said that it didn't need to address whether delivery to the Court could be a sufficient filing in the absence of a contemporaneous file stamp.  But that question is probably answered by Appellate Rule 26(a)(1), which says that:

filing may be accomplished by mail addressed to the clerk but is not timely unless the papers are received by the clerk within the time fixed for filing.

There is enough murk in this case that it is hard not to feel sorry for the Plaintiff missing the appeal deadline.  Even Judge Gale said that he was "sympathetic to the circumstances in which Plaintiff now finds himself."  Order Par. ¶11.  He said that he lacked the discretion to allow the appeal, as only the Court of Appeals has that sort of discretion.  He referenced Appellate Rules 2 and 21 as providing that flexibility.

Maybe the Plaintiff will appeal this ruling.  But the appellate courts are  pretty dogmatic about scrupulous compliance with Appellate Rule 3 (see Dogwood Dev. and Mgt, Co, v. White Oak Transport Co., 362 N.C. 191, 657 S.E.2d 361 (2008)), so I wouldn't be too optimistic if I were the Plaintiff.

Two takeaways from this Order are:

Don't count on the Sheriff to file time-sensitive documents, and

Double-check the address of the Clerk's office when filing by mail.