Opinion
No. 06-763.
Filed August 7, 2007.
Catawba County No. 05 CVS 1527.
Appeal by plaintiff from judgment entered 1 March 2006 by Judge David S. Cayer in Catawba County Superior Court. Heard in the Court of Appeals 6 March 2007.
Rufus F. Walker, Jr., for plaintiff-appellant. No brief filed for defendants-appellees.
The trial court erroneously granted defendants Reads' motion to dismiss plaintiff's claim when all of the elements required to invoke the doctrine of res judicata were not present and certain counts of the claims were not required to be filed as compulsory counterclaims in a previously filed action.
On 7 April 2003, plaintiff filed four separate complaints against defendants in Caldwell County Superior Court seeking to recover monies alleged to be owed under various promissory notes, security, and guaranty agreements. On 12 May 2003, without filing answer, defendants moved to dismiss the actions pursuant to N.C. R. Civ. P. 12(b)(1) (6), 13, and 41. On 10 July 2003, Judge E. Penn Dameron, Jr., granted defendants' motion to dismiss pursuant to N.C. R. Civ. P. 12(b)(6). The orders did not include any language specifying whether the dismissals were with or without prejudice.
On 17 March 2005, defendant James Gilbert Read filed a complaint against plaintiff and its employee David L. Phillips, Jr., in Caldwell County Superior Court. This complaint asserted claims for bank fraud, unfair and deceptive trade practices, violations of the North Carolina Racketeer Influenced and Corrupt Organization Act, unjust enrichment, and extortion arising out of sixteen loan transactions between defendant Read and plaintiff.
On 18 May 2005, plaintiff filed a twelve count complaint against defendants in Catawba County Superior Court. This complaint sought to recover monies due under all twelve counts, each of which represented one of the twelve separate loan transactions between plaintiff, the Reads, Carolina Rebuildable Auto Salvage Haulers, LLC, and Autoworks of Denver, Ltd. On 13 June 2005, defendants James Gilbert Read and Diane Christine Read moved to dismiss the complaint, asserting that the dismissal of the 2003 Caldwell County action operated as res judicata and barred eight counts of the complaint. They further asserted that plaintiff was required to bring three other counts as compulsory counterclaims pursuant to N.C. R. Civ. P. 13 in the 2005 Caldwell County action. On 17 October 2005, plaintiff filed a motion for relief from order in Caldwell County Superior Court pursuant to N.C. R. Civ. P. 60 to amend the 10 July 2003 rulings of Judge Dameron. On 13 December 2005, Judge Beverly Beal, Senior Resident Superior Court Judge for Caldwell County, granted plaintiff's motion, and amended the 10 July 2003 orders of Judge Dameron to state that the complaints were dismissed without prejudice. Judge Beal heard the motion because Judge Dameron was no longer on the Superior Court bench.
On 28 February 2006, Judge Cayer granted the motions of James Gilbert Read and Diane Christine Read, and dismissed plaintiff's complaint. Eight counts of the complaint, Counts III-VII and X-XII, were dismissed under the theory that the claims were barred by res judicata based upon the dismissal of the 2003 Caldwell County actions. The balance of the claims were dismissed under the theory that they involved common factual issues with the 2005 actions filed by the Reads in Caldwell County. Plaintiff was granted leave to file these claims as counterclaims in the 2005 Caldwell County action. Judge Cayer specifically found that he was not bound by Judge Beal's orders of 13 December 2005. The order dismissed all counts of plaintiff's complaint, including claims against defendants Mickey J. Read, Carolina Rebuildable Auto Salvage Haulers, LLC, and Autoworks of Denver, Ltd. The record in this matter does not disclose that any of these other parties filed a motion to dismiss or filed any sort of responsive pleading.
In its first argument, plaintiff contends that Judge Cayer was bound by the amendments Judge Beal made to the 10 July 2003 orders, and that res judicata cannot operate as a bar to Counts III-VII and X-XII of plaintiff's complaint in this matter. We agree.
North Carolina law has long held that one Superior Court Judge may not overrule another. North Carolina State Highway Com. v. Nuckles, 271 N.C. 1, 14, 155 S.E.2d 772, 784 (1967). The amendments to the 10 July 2003 orders by Judge Beal were entered prior to the hearing before Judge Cayer in this matter and were binding upon him.
Estoppel, a bar which precludes the prosecution of anything to the contrary of what has been established as truth, is recognized in North Carolina's common law. Whitacre P'ship v. BioSignia, Inc., 358 N.C. 1, 12-13, 591 S.E.2d 870, 878-79 (2004). Estoppel takes many different forms, one of which is judicial estoppel. Judicial estoppel refers to doctrines including res judicata and collateral estoppel. Id. at 13-14, 591 S.E.2d at 879.
Under the doctrine of res judicata or "claim preclusion," a final judgment on the merits in one action precludes a second suit based on the same cause of action between the same parties or their privies. For defendants to establish that a plaintiff's claim is barred by res judicata, they "must show (1) a final judgment on the merits in an earlier suit, (2) an identity of the cause of action in both the earlier and the later suit, and (3) an identity of parties or their privies in the two suits."
Gregory v. Penland, ___ N.C. App. ___, ___, 634 S.E.2d 625, 629 (2006) (internal citations omitted). In the instant case, the first element required to invoke the doctrine of res judicata has not been met. During the 10 July 2003, hearing on defendants' motions to dismiss, Judge Dameron discussed with counsel the effect of his orders:
[A]s a practical matter, I don't know what the effect of this will be. It may simply be to refile the case with sufficient complaint, because I don't think that a complaint that fails to state a claim is sufficient to be res judicata . . .
Judge Dameron's orders dismissing plaintiff's complaints did not state that they were with or without prejudice. "A dismissal under Rule 12(b)(6) operates as an adjudication on the merits unless the court specifies that the dismissal is without prejudice." Hoots v. Pryor, 106 N.C. App. 397, 404, 417 S.E.2d 269, 274 (1992); N.C. Gen. Stat. § 1A-1, Rule 41(b) (2005). However, Judge Beal's amendments to the orders specifying that they were without prejudice had the effect of precluding judgment on the merits in these actions. See Whedon v. Whedon, 313 N.C. 200, 210, 328 S.E.2d 437, 443 (1985). Because there was no final judgment on the merits with respect to the 2003 complaints, the first requirement to invoke the doctrine of res judicata was not fulfilled. Res judicata based upon the dismissals of the 2003 Caldwell County actions cannot operate as a bar to plaintiff's 2005 action. The dismissal of the eight counts of plaintiff's complaint based upon the theory of res judicata is reversed. Because this ruling encompassed one count each against defendants Carolina Rebuildable Auto Salvage Haulers, LLC, and Autoworks of Denver, Ltd., we do not address the dismissal of claims against these parties who did not file responsive pleadings in this matter. In its second argument, plaintiff contends that the trial court erred in dismissing its remaining counts pursuant to N.C. R. Civ. P., Rule 13. We agree.
Certain claims are compulsory counterclaims and must be raised in responsive pleadings:
A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.
N.C. Gen. Stat. § 1A-1, Rule 13(a) (2005). The effect of Rule 13(a) is that "a party who does not plead a compulsory counterclaim is, after determination of the action in which it should have been pleaded, forever barred from bringing a later independent action on that claim." Gardner v. Gardner, 294 N.C. 172, 179, 240 S.E.2d 399, 404 (1978). Our Supreme Court has enunciated three factors which, at a minimum, should be inquired into when a court is deciding whether two claims arise from the same transaction or occurrence: "`[(1)] whether the issues of fact and law raised by the claim and counterclaim are largely the same[; (2)] whether substantially the same evidence bears on both claims[;] and [(3)] whether any logical relationship exists between the two claims.'" Jonesboro United Methodist Church v. Mullins-Sherman Architects, L.L.P., 359 N.C. 593, 599-600, 614 S.E.2d 268, 272 (2005) (citation omitted) (alteration in original). A common origin alone is insufficient to characterize a claim as a compulsory counterclaim. Murillo v. Daly, 169 N.C. App. 223, 227, 609 S.E.2d 478, 481 (2005).
In the instant case, plaintiff's complaint seeks to recover a money judgment from defendants, together with accrued interest, attorney's fees, costs, and an order securing the collateral of the twelve loans made to defendants.
Defendants Reads' 2005 Caldwell County complaint seeks monetary damages and exemplary damages. It does not seek rescission of any of the loan agreements, nor does it question that the loans were in fact made. In fact, the Reads' complaint specifically alleges that nine of the loans that are the subject of the instant lawsuit, Counts III-VII and IX-XII, were in fact made by plaintiff. The action was brought against plaintiff and its former employee, David L. Phillips, Jr. The complaint states five separate claims for relief: (1) bank fraud; (2) unfair and deceptive trade practices; (3) violations of the North Carolina Racketeer Influenced and Corrupt Organization Act; (4) unjust enrichment; and (5) violation of N.C. Gen. Stat. § 14-118.4, extortion. The facts asserted to give rise to these claims are that Phillips extorted cash payments from James Read in exchange for plaintiff making sixteen loans to Read, and continuing the banking relationship. These payments were alleged to have been made directly to Phillips. The only allegations made against plaintiff in the 2005 Caldwell County action was that Phillips was "an officer and employee" of plaintiff, and that Phillips "was on duty and acting within the course and scope of his employment" with plaintiff and "was acting in furtherance of the businesses and purposes" of plaintiff.
We note that three of the loans alleged in plaintiff's complaint (Counts I, II, and VIII) are not mentioned in the Reads' 2005 Caldwell County suit, and were dismissed by the trial court based upon N.C. R. Civ. P., Rule 13. We fail to see how counts in plaintiff's complaint based upon loans that are not part of the 2005 Caldwell County lawsuit, and for which there was no allegation of fraud or bribery, were properly dismissed. As to those three counts, the nature of the claims and the remedies sought are too divergent to require these counts to be compulsory counterclaims. See Murillo, at 226-27, 609 S.E.2d at 481. We hold that it was error to dismiss these three counts.
This leaves only Count IX of plaintiff's complaint to consider. Count IX alleges that defendants are in default on a loan numbered 603075. Paragraph twelve of defendant Read's 2005 Caldwell County complaint alleges that Phillips was paid a $250 cash kickback for making this particular loan to James Read. Although each claim has the common feature of being based upon the same transaction, this, in and of itself, is not sufficient to require plaintiff to file this claim as a counterclaim in the 2005 Caldwell County suit. Plaintiff's claim is for money owed under a loan that both parties acknowledge was in fact made. Defendants' claim in the 2005 Caldwell County action is not in contract, but rather in tort and for unfair and deceptive trade practices. Whether the loan is delinquent is irrelevant to the litigation pending in Caldwell County. The issues of fact and law raised by the claim, and the possible counterclaims are not largely the same. See Jonesboro, 359 N.C. at 599-600, 614 S.E.2d at 272. We thus conclude that it was error for the trial court to dismiss Count IX of plaintiff's claim based upon N.C. R. Civ. P., Rule 13.
As plaintiff's complaint was not barred by either res judicata or N.C. R. Civ. P., Rule 13(a), the trial court's order dismissing plaintiff's complaint must be reversed and the case remanded for a trial on the merits.
Reversed and remanded.
Judges WYNN and McCULLOUGH concur.
Report per Rule 30(e).