Tanner v. Tanner , 248 N.C. App. 828 ( 2016 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA15-792
Filed: 2 August 2016
Johnston County, No. 13 CVD 000525
JEREMY KYLE TANNER, Plaintiff,
v.
MARY MARGARET TANNER and SARA N. TANNER, Defendant.
Appeal by defendant from order entered 12 January 2015 by Judge Addie H.
Rawls in District Court, Johnston County. Heard in the Court of Appeals 3 December
2015.
No brief filed on behalf of plaintiff-appellee.
The Williams Law Group, PC, by Teresa Y. Davis, for defendant-appellee.
Mary McCullers Reece, for defendant-appellant.
STROUD, Judge.
Appellant Sara Tanner appeals from an order, entered 12 January 2015,
imposing a constructive trust upon her funds for the benefit of the marital estate of
plaintiff and defendant Mary Margaret Tanner. All parties to the appeal agree that
Appellant was properly joined as a necessary party, but because Appellant had not
been joined as a party prior to the hearing and order which determined her
substantive rights, the trial court did not have personal jurisdiction over her and we
TANNER V. TANNER
Opinion of the Court
must vacate the order to the extent that it addresses any issue other than joinder of
Appellant as a necessary party.
I. Facts
Plaintiff (“Husband”) and defendant Mary Tanner (“Wife”) were married in
2004 and separated on 15 February 2013. On 15 February 2013, Husband filed a
complaint for custody and equitable distribution, including “interim distribution” and
“unequal division injunctive relief[.]” (Original in all caps.) On 22 March 2013, Wife
filed her answer and counterclaimed for child custody, child support, equitable
distribution, post-separation support and alimony, and attorney fees.
On 14 April 2014, Wife filed a “MOTION IN THE CAUSE” in which she
requested joinder of Appellant Sara Tanner as a party, imposition of a constructive
trust, and a restraining order because she had learned during discovery “that
between October and December of 2012 [Husband] removed funds from his business
in the approximate amount of $335,569.60 and gave them to his mother Sara N.
Tanner.” Wife further alleged that Husband had “clearly anticipated his separation”
and was attempting to avoid having funds “distributed as marital property.” Wife
contended that “Sara N. Tanner is a necessary party and should be joined to the
equitable distribution action pursuant to Rule 21 of the N.C. Rules of Civil Procedure
for further determination of the ownership interest in the funds transferred to her by
Plaintiff.” Wife also requested imposition of “a restraining order to prohibit the use,
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movement, depletion, waste, conversion or disappearance of the funds that are the
subject of the constructive trust pending further hearings[.]”
On 4 and 6 November 2014, the trial court held a hearing regarding the Wife’s
motion for joinder, imposition of a constructive trust, and issuance of a restraining
order. Husband and Wife each appeared at this hearing with their respective counsel.
Appellant was present because she was subpoenaed by Wife to appear and testify,
but she was not yet a party to the action and was not represented by counsel. From
our record, no summons was ever issued to Appellant nor was she ever served with
any other pleadings, motions, or notices. After the hearing, on 6 January 2015,
counsel for Appellant filed a notice of appearance.
On 7 January 2015, the case “came on for hearing regarding entry of the order”
from the November 2014 hearing. Counsel for Husband had accepted the draft of the
order as proposed by Wife’s counsel, but Appellant’s counsel, who had just made her
first appearance in the case the prior day, objected to entry of the order. Over the
objection, the trial court entered the order.
On 12 January 2015, the trial court entered the order for “JOINDER &
CONSTRUCTIVE TRUST[.]” The order contained detailed findings of fact and
conclusions of law regarding Husband’s transfer of funds to Appellant and ultimately
determined that a constructive trust should be imposed. The order decreed:
1. Sara N. Tanner is hereby joined as a party to the
pending claims for equitable distribution in this
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case.
2. Sara N. Tanner shall serve as trustee of the
remainder of the funds distributed to her by the
Plaintiff for the benefit of the Plaintiff and
Defendant’s marital estate. Those funds are
currently in an account managed by UBS. She shall
abide by and distribute those funds in accordance
with any subsequent Order of this Court equitably
distributing the parties’ marital estate.
3. Sara N. Tanner is hereby restrained from taking any
action depleting, wasting, moving or otherwise
causing the disappearance of the remainder of the
funds distributed to her by the Plaintiff. If Sara N.
Tanner is advised by the manager of the UBS
account in which the funds are located that some
action needs to be taken, then she shall immediately
advise counsel for both Plaintiff and Defendant. She
shall authorize the funds manager to speak with
counsel for both Plaintiff and Defendant. No action
shall be taken regarding the funds without prior
notice, input and agreement of all parties to the
equitable distribution claim.
The 12 January 2015 order was the first and only order to join Appellant as a party
to the case as a defendant. On 11 February 2015, Appellant gave notice of appeal
from the order.
II. Interlocutory Appeal
Appellant acknowledges that her appeal is interlocutory, but argues that we
should hear her appeal because “an order determining ownership and control of a
substantial amount of money affects a substantial right.” Appellant contends that
“[t]he order at issue here went well beyond preserving the status quo: the imposition
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Opinion of the Court
of the constructive trust and the determination that the monies in Sara’s account
belonged to the marital estate made a final determination as to Sara’s rights.” We
agree.
In Estate of Redden v. Redden, “the trial court entered partial summary
judgment in favor of plaintiff[, decedent’s estate,] and ordered defendant[, decedent’s
wife,] to pay plaintiff the sum of $150,000.00 plus costs.” 179 N.C. App. 113, 115, 632
S.E.2d 794, 797 (2006), disc. review allowed in part and remanded on other issues,
361 N.C. 352, 649 S.E.2d 638 (2007). This Court stated:
In determining whether a substantial right is
affected a two-part test has developed—the right itself
must be substantial and the deprivation of that substantial
right must potentially work injury to appellant if not
corrected before appeal from final judgment. A substantial
right is a legal right affecting or involving a matter of
substance as distinguished from matters of form: a right
materially affecting those interests which a man is entitled
to have preserved and protected by law: a material right.
Here, defendant asserts in her statement of grounds
for appellate review that:
This appeal is taken from the Order, entered
June 27, 2005, granting the Plaintiff partial
summary judgment and ordering Defendant
Barbara Redden to pay to the Estate of
MONROE M. REDDEN, JR., deceased, the
sum of one hundred fifty thousand dollars
($150,000.00) and costs. The Order appealed
affects a substantial right of Defendant
Barbara Redden by ordering her to make
immediate payment of a significant amount of
money; therefore, this Court has jurisdiction
over the Defendant’s appeal pursuant to N.C.
Gen. Stat. § 1–277 and N.C. Gen. Stat. § 7A–
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27(d).
Id. at 116-17, 632 S.E.2d at 797-98 (citations, quotation marks, and brackets omitted).
In accord with the reasoning in Estate of Redden, we consider Appellant’s appeal. See
id.
III. Necessary Party
Appellant argues that the trial court’s order imposing a constructive trust over
funds in her possession must be vacated because she was a necessary party to the
hearing. This case stands in a unique procedural posture since the trial court has
already agreed with Appellant’s contention that she is a necessary party. Conclusion
of law six of the order states, “Sara N. Tanner is a necessary party as contemplated
by Rule 19 of the N.C. Rules of Civil Procedure and the court cannot make a final
determination of equitable distribution without her being made a party to that
action.” Thus, Appellant is not arguing that she is a necessary party and should be
joined, since the trial court already determined that and ordered her joinder, but
rather she contends that the trial court had no authority to hear the merits of the
motion to impose a constructive trust on the funds in her possession as she was not a
party at the time that issue was being considered by the trial court.
We note that the only parties who filed briefs on appeal are Appellant and
Wife. The trial court determined Appellant was a necessary party, but it did so in
the same order which also imposed a constructive trust on funds in her possession.
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Thus, at the time Appellant became a party, the issue of funds in her possession had
already been determined without her having any opportunity to be heard on the
matter as a party in the case. Wife essentially concedes that Appellant is a necessary
party, as she is the party who moved to join her in the first place.
The trial court made many findings of fact, which we need not recite in detail,
since they are unnecessary for the issue on appeal. There is no dispute that Appellant
has “funds . . . in an account in her sole name managed by UBS” which the trial court
ordered she must hold as constructive trustee for the marital estate, although she
was never made a party until the order on appeal joining her and imposing the trust.
We have reviewed the entire transcript for some indication that Appellant appeared
before the trial court in any capacity other than a witness or that she consented to
proceed with hearing the substantive issue of the constructive trust, but she simply
did neither.
It is true that counsel for Husband and Wife seemed to implicitly agree to try
the entire issue of whether a constructive trust should be imposed along with the
issue of joinder, but they did not obtain Appellant’s consent to try all of the
substantive issues. Perhaps a conversation occurred off of the record and all present,
including Appellant, understood and agreed to the intended scope of the hearing, but
the record before us does not in any way indicate this sort of agreement. The record
shows that Husband’s counsel appeared only as counsel for Husband, not as counsel
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Opinion of the Court
for Appellant. Appellant had never been identified as a party in any pleading, but
only as a potential party in Wife’s motion for joinder. Appellant had not been issued
a summons, had not been served with a summons, was not served with any pleadings
or motions including the motion for joinder, and was not served with notice of any
proceedings before the trial court. Appellant did not on the record consent to be added
as a party or to proceed to hearing on an issue which would determine rights to funds
held in her bank account without service or representation; she appeared only as a
witness, under subpoena to appear and testify, and she was not represented by
counsel.
Wife argues that the “facts and evidence regarding joinder, imposition of
constructive trust and ownership are closely intertwined [so] the requirement to have
separate hearings on those matters defeats judicial economy and underestimates the
ability of the trial court to understand the scope and purpose of evidence presented.”
Wife also contends that Appellant has failed to cite case law supporting “the
proposition that the lower court is required to hold a separate hearing determining
whether she is a necessary party and imposing a construct[ive] trust and a second
hearing determining ownership of the property in dispute.” But whether a separate
hearing is required is not the issue. Nor do we doubt in the least the trial court’s
ability “to understand the scope and purpose of the evidence presented” at a joint
hearing upon both the motion for joinder and the substantive issue of the constructive
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trust, but the trial court was also relying upon counsel for both parties -- Husband
and Wife -- to bring the case to the trial court with all of the necessary parties in
place, if they wished to proceed on both the issue of joinder as well as the substantive
issue raised by the motion to impose a constructive trust upon the funds Husband
transferred to Appellant.
Our case law plainly states that “[a] judgment which is determinative of a
claim arising in an action in which necessary parties have not been joined is null and
void.” Rice v. Randolph, 96 N.C. App. 112, 113, 384 S.E.2d 295, 297 (1989). Wife
seeks to rely upon Upchurch v. Upchurch, 122 N.C. App. 172, 468 S.E.2d 61 (1996) to
support her argument, stating, “[t]his case is slightly different from Upchurch in that
the third party in that case, the son of the spouses, was named as a defendant in
Wife’s original action for equitable distribution.” This distinction is no “slight[]
differen[ce:]” it is the crucial difference. Had Appellant been named as a party when
the complaint was filed and she was served with process, this would be an entirely
different case. Appellant would have had notice of all proceedings in the trial court
as well as the opportunity to be represented by counsel and to present evidence
regarding the issue of the ownership of property in her possession. Here, unlike in
Upchurch, contrast id., the third party holding the funds in dispute was not an
original party to the action nor had she been added as a party when the trial court
determined the ownership of the funds. Thus, the order “is null and void” as to
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imposition of the constructive trust. Rice, 96 N.C. App. at 113, 384 S.E.2d at 297. As
we are vacating the portion of the order imposing a constructive trust, we need not
consider Appellant’s other issue on appeal.
The trial court’s order is void to the extent that it imposes a constructive trust
over the UBS account because Appellant is a necessary party, but she was not party
to the action at the time of the hearing. Yet the trial court was also hearing Wife’s
motion for joinder of Appellant as a party, and it was not necessary for Appellant to
be a party or to have notice or to participate in the determination of that motion. In
fact, where it appears to a trial court that a necessary party is absent, the trial court
may refuse to “deal with the merits of the action until the necessary party is brought
into the action” and may correct this ex mero motu:
The absence of parties who are necessary parties
under Rule 19 of the Rules of Civil Procedure does not
merit a dismissal. When the absence of a necessary party
is disclosed, the trial court should refuse to deal with the
merits of the action until the necessary party is brought
into the action. Any such defect should be corrected by the
trial court ex mero motu in the absence of a proper motion
by a competent person.
White v. Pate, 308 N.C. 759, 764, 304 S.E.2d 199, 202-03 (1983) (citations and footnote
omitted).
The trial court had both the power and the duty to enter an order for Appellant
to be joined as a necessary party, but it could not determine the substantive issues
raised by the motion for constructive trust until after she was joined as a party. See
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generally id. Appellant does not challenge the trial court’s determination that she is
a necessary party. Thus, the trial court had authority to enter its ruling upon the
Wife’s motion for joinder of Sara as a necessary party, which is expressed in
paragraph 1 of the decree: “Sara N. Tanner is hereby joined as a party to the pending
claims for equitable distribution in this case.” Beyond this, the order is void and must
be vacated.
On remand, a summons should be issued to Appellant, to be served upon her
along with the pleadings and trial court’s order granting the motion for joinder.1 At
any future hearing in this matter, the trial court shall not rely upon the findings of
fact or conclusions of law in the order on appeal, which are vacated, as to the
substantive issue of imposition of a constructive trust, since this order is void as to
the determination of the substantive issue of imposition of a constructive trust over
the funds at issue.
IV. Conclusion
For the foregoing reasons, we affirm the order to the extent that it orders the
joinder of Appellant as a necessary party and vacate the remainder of the trial court
order addressing the substantive issues and imposing a constructive trust. We
1 A summons need not be issued if Appellant consents to jurisdiction on remand without
issuance of a summons and formal service. See Grimsley v. Nelson, 342 N.C. 542, 545, 467 S.E.2d 92,
94 (1996) (“Jurisdiction of the court over the person of a defendant is obtained by service of process,
voluntary appearance, or consent.”)
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remand for a further hearing to address the substantive issues, at which all parties
will have proper notice and opportunity to be heard.
AFFIRMED IN PART, VACATED IN PART, and REMANDED.
Judges DIETZ and TYSON concur.
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