Akshar Distribution Co. v. Smoky's Mart Inc.

• Decision Date: 07 January 2020
• Docket Number: No. COA19-316,COA19-316
• Citation: 837 S.E.2d 621,269 N.C.App. 111
• Parties: AKSHAR DISTRIBUTION COMPANY, d/b/a The Greensboro Discounts, Plaintiff, v. SMOKY'S MART INC., and Umesh Ramani, Defendants.
• Court: North Carolina Court of Appeals

269 N.C.App. 111

837 S.E.2d 621

AKSHAR DISTRIBUTION COMPANY, d/b/a The Greensboro Discounts, Plaintiff,

v.SMOKY'S MART INC., and Umesh Ramani, Defendants.

No. COA19-316

Court of Appeals of North Carolina.

Filed: January 7, 2020

Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., Greensboro, by Matthew B. Tynan, Clint S. Morse, and Kimberly M. Marston, for Plaintiff-Appellee.

Hill Evans Jordan & Beatty, PLLC, Greensboro, by R. Thompson Wright, for Defendants-Appellants.

COLLINS, Judge.

Defendants Smoky's Mart Inc. and Umesh Ramani appeal from the trial court's (1) 21 March 2018 order granting Plaintiff Akshar Distribution Company's motion for sanctions filed pursuant to N.C. Gen. Stat. § 1A-1, Rule 37, in which the trial court entered default judgment for treble damages against Defendants, and (2) 3 December 2018 order denying Defendants’ motion for reconsideration or a new hearing regarding Plaintiff's motion for sanctions filed pursuant to N.C. Gen. Stat. § 1A-1, Rules 54 and 59. Defendants contend that the trial court (1) erred by entering default judgment against Defendants for treble damages in the 21 March 2018 order and (2) abused its discretion by denying Defendants’ N.C. Gen. Stat. § 1A-1, Rule 59¹ motion in the 3 December 2018 order. We dismiss Defendants’ appeal from the 21 March 2018 order, vacate the trial court's 3 December 2018 order, and deny Defendants’ Rule 59 motion.

I. Background

Plaintiff Akshar Distribution Company is a wholesale distributor for convenience stores. At the time relevant to Plaintiff's allegations, Defendant Umesh Ramani was a minority shareholder of Plaintiff.

According to the first amended complaint, Ramani also owns Defendant Smoky's Mart Inc. ("Smoky's," or collectively with Ramani, "Defendants"), which operates a convenience store in Greensboro. Smoky's purchased inventory from Plaintiff at various times between December 2014 and January 2017. Although Plaintiff invoiced Smoky's for the merchandise, Smoky's never paid the invoices, which totaled $30,040.09.

On 28 March 2017, Plaintiff filed a complaint against Smoky's in connection with the unpaid invoices. On 28 April 2017, Plaintiff filed its first amended complaint, adding allegations that Ramani had misappropriated Plaintiff's funds for his and Smoky's use in the collective amount of $125,981.55 between March 2014 and April 2016. Plaintiff's first amended complaint brought the following causes of action: (1) action for the price of goods purchased pursuant to N.C. Gen. Stat. § 25-2-709(1)(a), against Smoky's; (2) breach of contract, against Smoky's; (3) unjust enrichment, against Smoky's; (4) conversion, against Defendants; (5) breach of fiduciary duty, against Ramani; (6) unfair and deceptive trade practices pursuant to N.C. Gen. Stat. § 75-1.1, against Defendants; and (7) action to impose a constructive trust, against Ramani.

Defendants answered the first amended complaint on 6 July 2017. In their answer, Defendants (1) admitted that Smoky's owed Plaintiff for the unpaid invoices, (2) denied that Ramani had misappropriated Plaintiff's funds, and (3) raised a number of affirmative defenses.

On 31 July 2017, the trial court entered an order scheduling discovery, pursuant to the consent of the parties. The parties exchanged discovery over the following months. On 18 December 2017, Plaintiff filed a motion to compel discovery pursuant to N.C. Gen. Stat. § 1A-1, Rule 37 (" Rule 37"), arguing that Defendants had insufficiently responded to Plaintiff's discovery requests. On 16 January 2018, the trial court entered a consent order compelling Defendants to respond to Plaintiff's requests.

Plaintiff filed a motion for sanctions pursuant to Rule 37 on 12 February 2018, alleging that Defendants had continued to fail to comply with the trial court's orders governing discovery. Plaintiff's motion for sanctions came on for hearing on 8 March 2018. Defendants did not attend the hearing.

On 21 March 2018, the trial court entered an order granting Plaintiff's motion for sanctions. In the 21 March 2018 order, the trial court: (1) found that Defendants had unjustifiably failed to comply with its orders governing discovery; (2) concluded that Defendants were in contempt of its orders governing discovery; (3) "conclude[d] that sanctions less severe than striking Defendants’ answer and entering partial summary judgment for Plaintiff[ ] would not be adequate given the seriousness of [Defendants’] misconduct"; (4) struck Defendants’ answer; (5) entered default judgment for Plaintiff on all claims brought in the first amended complaint, notably including Plaintiff's claim for unfair and deceptive trade practices, and therefore trebled its damage awards pursuant to N.C. Gen. Stat. § 75-16 to total $90,147.27 from Defendants jointly and severally (for the unpaid invoices) and $377,944.65 from Ramani (for the allegedly misappropriated funds); and (6) ordered Defendants to pay Plaintiff's expenses in connection with preparing, filing, and arguing the motion for sanctions. Noting that it had also granted Plaintiff's motion to file a second amended complaint the same day adding other defendants and causes of action to the lawsuit, the trial court also certified the default judgment as a final judgment pursuant to Rule 54(b).

On 3 April 2018, Defendants filed a motion for reconsideration or a new hearing pursuant to Rules 54 and 59. In their Rule 59 motion,² Defendants moved the trial court to set aside its 21 March 2018 order granting Plaintiff's motion for sanctions because (1) Defendants did not have certain documents the trial court had ordered they produce to Plaintiff until 2 April 2018 and (2) Defendants’ counsel missed the 8 March 2018 hearing on Plaintiff's motion for sanctions due to a calendaring mistake. Defendants attached affidavits to the motion providing supporting factual details regarding the bases for their Rule 59 motion. Defendants’ motion came on for hearing on 3 December 2018. On that date, the trial court denied Defendants’ Rule 59 motion.

Defendants noticed appeal from both the 21 March 2018 and 3 December 2018 orders on 2 January 2019.

II. Appellate Jurisdiction

Plaintiff argues that because Defendants did not notice their appeal from the 21 March 2018 order until 2 January 2019, Defendants failed to timely notice appeal from that order, and we accordingly lack jurisdiction to consider Defendants’ arguments regarding that order. Defendants counter that their 3 April 2018 Rule 59 motion was timely filed within 10 days following the entry of the 21 March 2018 order, and that Defendants’ period to appeal from that order was accordingly tolled pursuant to North Carolina Rule of Appellate Procedure 3 ("Appellate Rule 3") until after the entry of an order disposing of the motion. Because they appealed from the 21 March 2018 order on 2 January 2019—within 30 days following the 3 December 2018 entry of the order denying their Rule 59 motion—Defendants argue that their notice of appeal from the 21 March 2018 order was timely.

Appellate Rule 3 says that "if a timely motion is made by any party for relief under Rules 50(b), 52(b) or 59 of the Rules of Civil Procedure, the thirty-day period for taking appeal is tolled as to all parties until entry of an order disposing of the motion[.]" N.C. R. App. P. 3(c)(3) (2018). But merely invoking Rule 59 within the motion is not sufficient to toll the period for taking appeal from an order under Appellate Rule 3. This Court has said:

To qualify as a Rule 59 motion within the meaning of Rule 3 of the Rules of Appellate Procedure, the motion must "state the grounds therefor" and the grounds stated must be among those listed in Rule 59(a). The mere recitation of the rule number relied upon by the movant is not a statement of the grounds within the meaning of [ N.C. Gen. Stat. § 1A-1,] Rule 7(b)(1). The motion, to satisfy the requirements of Rule 7(b)(1), must supply information revealing the basis of the motion.

Smith v. Johnson , 125 N.C. App. 603, 606, 481 S.E.2d 415, 417 (1997) (internal citations omitted). This Court has also said:

In analyzing the sufficiency of a motion made pursuant to N.C. Gen. Stat. § 1A-1, Rule 59, one should keep in mind that a failure to give the number of the rule under which a motion is made is not necessarily fatal, if the grounds for the motion and the relief sought is consistent with the Rules of Civil Procedure. As long as the face of the motion reveals, and the Clerk and the parties clearly understand, the relief sought and the grounds asserted and as long as an opponent is not prejudiced, a motion complies with the requirements of N.C. Gen. Stat. § 1A-1, Rule 7(b)(1).

Batlle v. Sabates , 198 N.C. App. 407, 413, 681 S.E.2d 788, 793-94 (2009) (internal quotation marks, brackets, and citations omitted). The essence of the inquiry, then, is "to ascertain whether [the movant] stated a valid basis for seeking to obtain relief pursuant to N.C. Gen. Stat. § 1A-1, Rule 59." Id. at 414, 681 S.E.2d at 794. The parties disagree over whether Defendants’ Rule 59 motion stated a valid basis thereunder.

Generally, Rule 59 is applicable only where there has been a trial. See Ennis v. Munn , No. COA12-1349, 2013 WL 5231998 at *4, 2013 N.C. App. LEXIS 977 at *11 (unpublished) (N.C. Ct. App. Sept. 17, 2013) (noting that this Court has reasoned that " Rule 59 applies only to judgments resulting from trials"). There has been no trial in this case. But some decisions from this Court have stated in dicta that Rule 59 may be a viable avenue to attack non-trial judgments, including default judgments entered as Rule 37 sanctions. See Smith , 125 N.C. App. at 606, 481 S.E.2d at 417 ("[T]he defendants indicate in the[ir purported Rule 59 ] motion that they rely on Rule 59(a)(2) & (7) as the bases of their motion. ... It appears that the motion is merely a request that the trial court reconsider its earlier decision granting the sanction and although this may properly be treated as a Rule 59(...