J.T. Russell & Sons, Inc. v. Silver Birch Pond, LLC ( 2014 )

An unpublished opinion of the North Carolina Court of Appeals does not constitute
controlling legal authority. Citation is disfavored, but may be permitted in accordance
with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure.
NO. COA13-662
NORTH CAROLINA COURT OF APPEALS
Filed: 18 February 2014
J.T. RUSSELL & SONS, INC.,
Plaintiff/Counterclaim-
Defendant,
v. Stanly County
No. 08-CVS-1453
SILVER BIRCH POND, LLC,
Defendant/Counterclaim-
Plaintiff.
Appeal by defendant from order entered 31 October 2012 by
Judge Theodore S. Royster, Jr. in Stanly County Superior Court.
Heard in the Court of Appeals 20 November 2013.
Womble Carlyle Sandridge & Rice, LLP, by Brent F. Powell,
John F. Morrow, Jr., and David R. Boaz, for plaintiff-
appellee.
James, McElroy & Diehl, P.A., by Preston O. Odom, III, and
The Jonas Law Firm, P.L.L.C., by Peter C. Capece, for
defendant-appellant.
HUNTER, Robert C., Judge.
Defendant-appellant Silver Birch Pond, L.L.C. (“SBP”)
appeals the order entered 31 October 2012 denying SBP’s motion
to amend its counterclaim and granting plaintiff’s-appellee’s
J.T. Russell & Sons, Inc.’s (“JTR’s”) motion for summary
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judgment. On appeal, SBP argues that the trial court: (1) erred
by resolving the issue of damages on summary judgment because
that ruling exceeded the scope of the appellate mandate; (2)
abused its discretion in denying SBP’s motion to amend its
counterclaims; and (3) erred in granting JTR’s motion for
summary judgment. After careful review, we: (1) affirm the
order denying the motion to amend; and (2) reverse the order
granting summary judgment in favor of JTR because it violated
the mandate of this Court in J.T. Russell & Sons, Inc. v. Silver
Birch Pond L.L.C., __ N.C. App. __, 721 S.E.2d 699 (2011)
(“Silver Birch I”), and remand on the issue of damages.
Background
This case is before this Court for the second time after a
trial court has entered an order granting summary judgment for
JTR. This Court’s prior opinion contains a detailed recitation
of the facts underlying this dispute. See Silver Birch I. JTR
is an asphalt paving company. SBP is a North Carolina limited
liability company formed by Robert Johnson (“Mr. Johnson”) for
the purpose of developing Silver Birch Pond, a planned
residential subdivision, (“the subdivision”) in Lincoln County.
Although Mr. Johnson has built modular homes before, he has no
prior experience in developing subdivisions. SBP and JTR
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entered into a contract on 14 December 2007 whereby JTR agreed
to pave the roadways in the subdivision for $148,000 (“the
paving contract”). The amount of the contract was increased
$4,870.96 based on a change order; consequently, the total price
of the contract was $152,870.96.
JTR completed the work on 18 April 2008. However, SBP
alleged that the work failed to comply with the stone base
requirements in the paving contract. Specifically, SBP
contended that, based on numerous stone base cores taken, the
stone base of the roads measured less than the eight inches
required by the paving contract. Consequently, SBP refused to
pay the $152,870.96 it owed pursuant to the terms of the
contract. JTR filed an action on 25 September 2008 against SBP
alleging breach of contract. On 3 December 2008, SBP filed an
answer and counterclaim against SBP, also alleging breach of the
paving contract.
Beginning 7 September 2010, the case was tried by a jury in
Stanly County Superior Court. On 10 September, the jury
returned a verdict finding that SBP had not breached the
contract and that JTR had breached the contract. The jury
awarded SBP $370,765.82 in damages. JTR appealed.
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On appeal, JTR argued, inter alia, that the trial court
erred by denying its motion for a directed verdict and that the
jury’s award of damages was contrary to law and should be
vacated. Silver Birch I, __ N.C. App. at __, 721 S.E.2d at 702-
704. On the first issue, this Court concluded that because
several of the core samples provided more than a scintilla of
evidence that JTR failed to comply with the stone base terms of
the paving contract, the trial court properly denied JTR’s
motion for a directed verdict. Id. at __, 721 S.E.2d at 703-
704.
On the second issue of damages, JTR failed to preserve the
issue for appellate review; however, the Court invoked Rule 2 to
address the issue. Id. at __, 721 S.E.2d at 704. The Court
noted that SBP was seeking three types of damages: (1) direct
damages measured as the reasonable costs to SBP of labor and
materials necessary to correct the asphalt paving services to
bring it into conformity with the requirements of the paving
contract; (2) incidental damages based on the costs of
engineering tests done by the North Carolina Department of
Transportation; and (3) consequential damages which consisted of
the interest payments SBP made on a development loan and the
lost profits on two lot sales. Id. at __, 721 S.E.2d at 704.
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After comparing the jury instructions with the evidence at
trial, this Court concluded that “[SBP’s] evidence did not
support the full amount of the jury’s verdict.” Id.
Specifically, with regard to the direct damages, i.e., the “cost
to fix” damages, the Court held that the direct evidence at
trial only supported an award of $139,560. Id. For incidental
damages, the evidence only supported an award of $6,502.82 paid
to a consultant for testing on the asphalt roads. Id. at __,
721 S.E.2d at 704-705. With regard to SBP’s interest payments
on the loan, the evidence presented at trial supported an award
of $72,017.29, as established by testimony by a loan officer
handling SBP’s loan. Id.
In sum, the Court concluded that the evidence supported an
award “considerably less” than the jury’s verdict. Id.
Therefore, it vacated the damages award and remanded for a new
trial on the issue of damages. Id.
The Motion to Amend SBP’s Counterclaims on Remand
On remand, the trial court reopened discovery. After the
discovery period was complete, on 17 October 2012, SBP moved to
amend its counterclaims to request additional damages incurred,
arguing that its “damages ha[d] changed significantly from the
original trial in this matter.” SBP drastically increased its
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claim for lost profit damages and interest payments damages with
these new damages falling into three basic types: lost profits,
“homebuilder premiums,” and interest payments. First, instead
of only claiming lost profits based on the lost sales on two of
the lots, SBP claimed lost profits for all 39 lots because, as
Mr. Johnson averred, the bank foreclosed on the subdivision.
Thus, SBP lost any and all potential revenues from selling lots
in the subdivision. Second, SBP now claimed damages for lost
“homebuilder premiums.” Mr. Johnson alleged that he was also
the principal of Willow Brook Homes, Inc., a company that
constructs modular homes. Since the subdivision was a “closed
development,” each time someone purchased a lot from SBP, he
would be required to purchase a modular home for that lot from
Willow Brook. To pay off SBP’s loan quicker, Willow Brook would
pay SBP a “homebuilder premium” each time a sale was made—
$20,000 for the first 10 lots, $15,000 for the next 10, $10,000
for the next 10, and $5,000 for the last dwellings sold. The
total new amount of requested damages for lost profits was
$1,137,906. Third, SBP requested additional damages for the
interest payments made to the bank of $75,033.64. Finally, SBP
now claimed an additional amount of $6,205.82 for additional
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engineering fees to inspect the defective work (this on top of
the original damages of $6,502.02).
In total, on remand, SBP sought to amend its counterclaim
to request over $1.2 million in damages.
JTR’s Motion for Summary Judgment
On 17 October 2012, JTR moved for summary judgment.
Specifically, JTR argued the lost profits damages and damages
related to the interest payments SBP made to the bank on its
loan were not reasonably foreseeable and were overly
speculative.
The Hearing
Both matters came on for hearing on 29 October 2012 before
Judge Royster, Jr. After hearing from both parties, Judge
Royster, Jr. noted that the Court of Appeals “vacated the jury’s
award of $371,000 and sent it back for retrial on [the] damage
issue. The Court of Appeals affirmed the fact that the
defendant is entitled to damages. So the trial is basically
just on the amount of damages.” With regard to SBP’s motion to
amend, the trial court denied it for two reasons. First, the
trial court concluded that it should be denied because it was
filed over four years after the initial counterclaim was filed.
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Second, it should be denied due to the speculative and
unforeseeable nature of the newly requested damages.
The trial court granted JTR’s motion for summary judgment.
Specifically, the trial court found that interest payments on
the loan would be a “normal cost of doing business” and would
not be foreseeable. Moreover, the trial court determined that
the lost profit damages were too speculative. Thus, the trial
court concluded that SBP failed to “produce a forecast of
evidence that would demonstrate specific facts as opposed to
allegations . . . . to show that they have at least a prima
facie case to be tried.” By doing so, the trial court dismissed
SBP’s claims; however, since JTR did not challenge SBP’s claims
for damages based on the cost it incurred for engineering tests
in its summary judgment motion, these claims were to be dealt
with at trial.
SBP appealed. After filing its notice of appeal, SBP
voluntarily dismissed its claims for the engineering test
damages.
Arguments
SBP argues that the trial court erred in denying its motion
to amend its counterclaim. Specifically, SBP contends that
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because a “post-appeal occurrence [] significantly altered what
damages
[it] can recover from JTR,” the trial court abused its
discretion in denying it. We disagree.
“A motion to amend is addressed to the discretion of the
court, and its decision thereon is not subject to review except
in case of manifest abuse.” Calloway v. Motor Co., 281 N.C.
496, 501, 189 S.E.2d 484, 488 (1972). “If the trial court
articulates a clear reason for denying the motion to amend, then
our review ends. Acceptable reasons for which a motion to amend
may be denied are undue delay, bad faith, dilatory motive,
repeated failure to cure deficiencies, undue prejudice and
futility of the amendment.” NationsBank of N.C., N.A. v.
Baines, 116 N.C. App. 263, 268, 447 S.E.2d 812, 815 (1994)
(internal quotation marks omitted).
Here, the record indicates that the trial court denied
SBP’s motion to amend based on undue delay and futility. During
arguments, the trial court focused a great deal not only on the
length of time that had elapsed between the initial paving work,
approximately four years, but also on the foreseeability and the
speculative nature of these new damages. If either of these
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grounds exist, the trial court did not abuse its discretion in
denying SBP’s motion to amend.
Given the substantial amount of time that had elapsed
between the filing of SBP’s counterclaims and the motion to
amend, the trial court’s denial of the motion to amend was
manifestly supported by reason. SBP filed its initial
counterclaim in December 2008. The first trial occurred in
2010. After this Court reversed and remanded the judgment
awarding damages to SBP back to the trial court in December
2011, SBP still did not move to amend its counterclaim until
October 2012, almost four years after the initial counterclaims
were filed and almost one year after remand. Moreover, we find
that SBP’s reasoning behind the delay is not compelling.
Therefore, the trial court did not abuse its discretion in
denying the motion to amend.
Next, SBP argues that the trial court erred since its
action violated the appellate mandate. We agree.
It is well-established that an appellate mandate
is binding upon the trial court and must be
strictly followed without variation or
departure. No judgment other than that
directed or permitted by the appellate court
may be entered. We have held judgments of
Superior [C]ourt which were inconsistent and
at variance with, contrary to, and modified,
corrected, altered or reversed prior
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mandates of the Supreme Court . . . to be
unauthorized and void.
Lea Co. v. N.C. Bd. of Transp., 323 N.C. 697, 699, 374 S.E.2d
866, 868 (1989) (internal quotation marks and citations
omitted). Thus, the issue is whether the trial court violated
the Silver Birch I mandate.
In Silver Birch I, this Court addressed two issues. First,
the Court noted that the trial court properly denied JTR’s
motion for a directed verdict and submitted the issue to the
jury, noting that SBP “provided more than a scintilla of
evidence regarding [JTR’s] failure to comply with one of the
terms of the paving contract.” Id. at __, 721 S.E.2d at 703.
Second, the Court held that the amount of damages awarded by the
jury exceeded what the evidence would support. Id. at __, 721
S.E.2d at 705. Noting that the amount of damages was not
supported by the evidence, this Court vacated the award and
remanded for a new trial “on the issue of damages.” Id. On
remand, this Court also provided the trial court a formula with
which to measure SBP’s direct damages. Id.
While we acknowledge that a directive from an appellate
court “[does] not render the Rules of Civil Procedure
inapplicable” on remand, see Britt v. Allen, 37 N.C. App. 732,
733, 247 S.E.2d 17, 18 (1978), here, the trial court’s dismissal
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of SBP’s claims by summary judgment is directly contrary to this
Court’s directive in Silver Birch I to hold a new trial on the
issue of damages because this Court found that SBP was entitled
to certain damages, even though the jury’s award exceeded the
evidence. In fact, the Court even provided the trial court
with a formula on how to measure the direct damages. Id. at __,
721 S.E.2d at 705. Thus, when the trial court foreclosed on the
possibility of SBP recovering any lost profit and interest
payments damages, it violated this Court’s determination that
the evidence supported an award of damages, both of which were
clearly articulated in this Court’s opinion.
We find our Court’s decision in Metts v. Piver, 102 N.C.
App. 98, 101, 401 S.E.2d 407, 409 (1991), instructive. In
Metts, the plaintiff filed a medical malpractice action against
the defendants, and the defendants moved for summary judgment.
Id. at at 99, 401 S.E.2d at 408. The trial court granted
summary judgment, and the plaintiff appealed. Id. On appeal
the first time, this Court reversed the order granting summary
judgment in favor of the defendant, concluding that there was a
genuine issue of material fact as to whether the defendants were
negligent. Id. On remand, the defendants again moved for
summary judgment, and the trial court granted the motion. Id.-13-
On appeal the second time, this Court found that the trial
court’s “ruling on the existence of a genuine issue of material
fact [on remand] is directly contrary to our earlier holding.”
Id. at 100, 401 S.E.2d at 408. Thus, the Court reversed the
order and remanded for trial. Id. at 101, 401 S.E.2d at 409.
Similarly, here, since this Court ordered a new trial on
the issue of damages and provided a formula with which to
measure those damages, the trial court’s conclusion that there
was no issue of material fact with regard to SBP’s claim for
lost profit damages and damages based on interest payments SBP
made on its loan conflicted with this Court’s decision in Silver
Birch I that the evidence supported an award of direct and
consequential damages. Although this Court concluded that the
amount of damages awarded exceeded the amount of damages
supported by the evidence in Silver Birch I, it affirmed that
SBP was entitled to some lost profit damages, damages based on
SBP’s interest payments, and direct damages.1 Moreover, the
trial court reiterated this point at the hearing on JTR’s motion
1
In addition, this Court held that SBP was entitled to $6,502.82
in incidental damages based on payments SBP made to a consultant
to test the roads. Silver Birch I, __ N.C. App. at __, 721
S.E.2d at 704-705. However, after the trial court granted JTR’s
motion for summary judgment, SBP voluntarily dismissed its claim
for incidental damages. Therefore, we need not discuss these
damages on appeal.
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for summary judgment when it noted that: “The Court of Appeals
affirmed the fact that the defendant is entitled to damages.”
Thus, as in Metts, we reverse the trial court’s order granting
summary judgment and remand for trial on the issue of damages.2
Next, we will determine what damages SBP will be entitled
to on remand. In the original trial, the trial court instructed
the jury that the direct damages were “the reasonable cost to
[SBP] of labor and materials necessary to correct the asphalt
paving services to bring it into conformity with the
requirements of the contract.” Silver Birch I, __ N.C. App. at
__, 721 S.E.2d at 704. This Court specifically found that the
evidence at trial supported an award of $139,560 in direct
damages—$124,250 to repair the subdivision asphalt, $11,310 to
repair and reseed the sides of the roads, and $4,000 in
additional engineering costs. Id. Since “the cost of repairs
required to bring the property into compliance with the warranty
or contract” is a proper method of measuring damages for defects
in construction contracts, Warfield v. Hicks, 91 N.C. App. 1,
11, 370 S.E.2d 689, 695 (1988), SBP is entitled to $139,560 in
direct “cost to fix” damages. However, given that SBP has not
2
Since we are reversing the trial court’s order granting summary
judgment, we need not address SBP’s final argument regarding the
merits of summary judgment.
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paid JTR for its work on the contract, Silver Birch I, __ N.C.
App. at __, 721 S.E.2d at 705, these damages must be offset by
the value of the work performed by JTR for SBP so that SBP does
not receive a windfall recovery. See id. Therefore, SBP would
owe JTR $13,310.96—the amount of the contract price of
$152,870.96 less the amount of the “cost to fix” direct damages
of $139,560. Under this measure of damages, SBP will get the
work it contracted for and will pay the price it contracted for,
$152,870.96.
Furthermore, SBP would be entitled to the lost profits on
two of the lots and damages based on the interest payments SBP
made on its loan. “[L]ost profits damages are usually defined
as lost net profits[.]” Stan D. Bowles Distrib. Co. v. Pabst
Brewing Co., 80 N.C. App. 588, 597, 343 S.E.2d 543, 548 (1986).
Accordingly, the jury must determine what SBP’s net profit on
each of the two lost lot sales would be measured in accordance
with this opinion. Furthermore, as stated by this Court in
Silver Birch I, SBP is entitled to damages based on the interest
payments SBP made to the bank on its loan. The Silver Birch I
Court held that the amount of the interest payments supported by
the evidence was $72,017.29. Silver Birch I, __ N.C. App. at
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__, 721 S.E.2d at 705. Thus, any damages must include the
$72,017.29 for the interest payments SBP made.
Conclusion
In summary, we affirm the trial court’s order denying SBP’s
motion to amend its counterclaims on the basis of undue delay.
However, we reverse the order granting summary judgment in favor
of JTR and remand on the issue of damages in accordance with
this opinion. The trial court must award $72,017.29 to SBP, the
amount of interest payments that SBP made on its loan to the
bank. Second, with regard to the cost to fix damages, while SBP
is entitled to $139,560, the amount it would cost to fix the
roads which was established by the evidence in the original
trial, this amount must be offset by the value of the work
performed by JTR based on the contract price since SBP has not
paid anything to JTR for its work. Accordingly, JTR would be
entitled to $13,310.96—the amount of the contract price,
$152,870.96, less the amount of the “cost to fix” direct
damages, $139,560. Finally, the lost profit damages for two
lots is a question for the jury to determine in accordance with
this opinion.
AFFIRMED IN PART; REVERSED IN PART; REMANDED ON THE ISSUE
OF DAMAGES.
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Judges CALABRIA and HUNTER, JR., ROBERT N. concur.
Report per Rule 30(e).