Burgess v. Burgess

• Decision Date: 20 July 2010
• Docket Number: No. COA09-825.,COA09-825.
• Citation: 698 S.E.2d 666
• Court: North Carolina Court of Appeals
• Parties: Cathy Lou Stewart BURGESS, individually and as a shareholder of Burgess & Associates, Inc., Plaintiff,v.James Thomas BURGESS, Jr. and Burgess & Associates, Inc., Defendants.

698 S.E.2d 666

Cathy Lou Stewart BURGESS, individually and as a shareholder of Burgess & Associates, Inc., Plaintiff,v.James Thomas BURGESS, Jr. and Burgess & Associates, Inc., Defendants.

No. COA09-825.

Court of Appeals of North Carolina.

July 20, 2010.

Appeal by defendants from order entered 24 March 2009 by Judge John L. Holshouser, Jr., in Rowan County Superior Court. Heard in the Court of Appeals 19 November 2009.

Womble Carlyle Sandridge & Rice, PLLC, Charlotte, by Mark P. Henriques and Sarah A. Motley, for plaintiff-appellee.

Ferguson, Scarbrough, Hayes, Hawkins & DeMay, P.A., Concord, by Edwin H. Ferguson, Jr., and James R. DeMay, for defendant-appellants.

HUNTER, JR., ROBERT N., Judge.

James Thomas Burgess, Jr. (“James”), and Burgess & Associates, Inc. (collectively “defendants”), appeal the trial court's order denying defendants' motion to dismiss for lack of subject matter jurisdiction under Rule 12(h)(3). In the motion, defendants argued that Cathy Burgess's (“plaintiff's”) shareholder suit regarding Burgess & Associates was precluded by N.C. Gen.Stat. § 7A-244 (2009), which vests the district court with proper jurisdiction for matters concerning equitable distribution. After careful review, we affirm in part and reverse in part.

I. BACKGROUND

James and plaintiff were married on 1 June 1996 in Rowan County, North Carolina. After ten years of marriage, the parties separated on 2 October 2006. On 13 October 2006, plaintiff instituted an action against James for divorce from bed and board and equitable distribution of marital property pursuant to Chapter 50 of our General Statutes in Rowan County District Court.

Plaintiff and James each own 50% of the shares of a residential contracting company, Burgess & Associates, Inc. James serves as sole director and president, and plaintiff serves as corporate secretary. In her divorce complaint, plaintiff requested “exclusive possession and full use” of Burgess & Associates pending an equitable distribution of the company.

On 11 July 2008, plaintiff wrote a letter to James in his capacity as president of Burgess & Associates. In the letter, plaintiff requested an inspection of Burgess & Associates' records and books. James refused plaintiff's request, and on 25 July 2008, plaintiff filed a shareholder action (1) demanding an inspection of the books; (2) asking for an accounting; (3) seeking damages for breach of fiduciary duties in excess of $10,000; and (4) requesting that James be divested of his shares in the corporation as an alternative equitable remedy. With respect to the damages claim for James' alleged breach of fiduciary duties, plaintiff asked for recovery “on behalf of the corporation as a shareholder.”

On 13 March 2009, defendants filed a motion to dismiss plaintiff's shareholder suit for lack of subject matter jurisdiction. In the motion, defendants argued that plaintiff had already invoked the jurisdiction of the district court over the ownership of Burgess & Associates. Defendants contended that the district court's jurisdiction included plaintiff's claims for inspection of books, an accounting, and damages for breach of fiduciary duties. The superior court entered an order denying defendants' motion to dismiss on 24 March 2009. Defendants thereafter applied for a writ of certiorari to this Court under Rule 21 of the North Carolina Rules of Appellate Procedure, and the writ was granted on 15 May 2009.

II. ANALYSIS

A. Jurisdiction and Standard of Review

We review a motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12 of the North Carolina Rules of Civil Procedure de novo. See Harper v. City of Asheville, 160 N.C.App. 209, 215, 585 S.E.2d 240, 244 (2003). Under the de novo standard of review, this Court “considers the matter anew and freely substitutes its own judgment for that of the [trial court].” In re Appeal of the Greens of Pine Glen Ltd. P'ship, 356 N.C. 642, 647, 576 S.E.2d 316, 319 (2003) (citing Mann Media, Inc. v. Randolph Cty. Planning Bd., 356 N.C. 1, 13, 565 S.E.2d 9, 17 (2002)). This case is properly before this Court on a writ of certiorari. N.C.R.App. P. 21(a)(1) (2009) (certiorari available as to otherwise interlocutory orders of the trial court).

B. Subject Matter Jurisdiction

Defendants contend that the shares of Burgess & Associates are marital property between James and plaintiff, and that the district court's jurisdiction to divide the parties' shares has already been invoked by the equitable distribution action. Relying on our holdings in Garrison v. Garrison, 90 N.C.App. 670, 369 S.E.2d 628 (1988) and Hudson Int'l, Inc. v. Hudson, 145 N.C.App. 631, 550 S.E.2d 571 (2001), defendants argue that this disposition strips the superior court of subject matter jurisdiction over plaintiff's shareholder action.

We agree that the scope of the district court's jurisdiction in the equitable distribution action includes plaintiff's superior court claim for divestiture of James' shares. However, given that the district court is barred by statute from hearing plaintiffs' derivative action, we conclude that the superior court properly found that it retained jurisdiction over plaintiff's causes of action for breach of fiduciary duties, accounting, and inspection of the corporate books.

Jurisdiction is “the power to hear and to determine a legal controversy; to inquire into the facts, apply the law, and to render and enforce a judgment.” High v. Pearce, 220 N.C. 266, 271, 17 S.E.2d 108, 112 (1941) (citation and internal quotation marks omitted); State v. Batdorf, 293 N.C. 486, 493, 238 S.E.2d 497, 502 (1977) (“Jurisdictional issues ... relate to the authority of a tribunal to adjudicate the questions it is called upon to decide.”). “Subject matter jurisdiction, a threshold requirement for a court to hear and adjudicate a controversy brought before it, is conferred upon the courts by either the North Carolina Constitution or by statute.” In re M.B., 179 N.C.App. 572, 574, 635 S.E.2d 8, 10 (2006) (citations and internal quotation marks omitted). “It is fundamental that a court cannot create jurisdiction where none exists.” McClure v. County of Jackson, 185 N.C.App. 462, 471, 648 S.E.2d 546, 551 (2007). “Subject matter jurisdiction cannot be conferred by consent or waiver and the issue of subject matter jurisdiction may be raised for the first time on appeal.” In re H.L.A.D., 184 N.C.App. 381, 385, 646 S.E.2d 425, 429 (2007) aff'd, 362 N.C. 170, 655 S.E.2d 712 (2008).

If a trial court has “exclusive jurisdiction,” the court has the “ ‘power to adjudicate an action or class of actions to the exclusion of all other courts[.]’ ” In re H.L.A.D., 184 N.C.App. at 386, 646 S.E.2d at 430 (quoting Black's Law Dictionary 869 (8th ed.2004)). “ ‘[O]riginal jurisdiction’ means ‘[a] court's power to hear and decide a matter before any other court can review the matter[.]’ ” Id. at 386-87, 646 S.E.2d at 430 (citation omitted). “Continuing jurisdiction” is defined as “ ‘[a] court's power to retain jurisdiction over a matter after entering a judgment, allowing the court to modify its previous rulings or orders.’ ” Id. at 386, 646 S.E.2d at 430 (quoting Black's Law Dictionary 868 (8th ed.2004)).

In the cases cited by defendant regarding subject matter jurisdiction Garrison and Hudson, the district court's powers were first invoked under section 7A-244 as to a portion of marital property, and this Court concluded in each case that the superior court lacked subject matter jurisdiction to enter orders involving the same marital property. See Garrison, 90 N.C.App. at 670, 369 S.E.2d at 628 (partition action to divide marital home improperly brought in superior court where the marital home was already part of a pending equitable distribution claim); Hudson, 145 N.C.App. at 631, 550 S.E.2d at 571 (declaratory action brought in superior court by third parties concerning ownership of real property that was the subject of a prior equitable distribution action in district court held properly dismissed); cf. McKoy v. McKoy, --- N.C.App. ----, 689 S.E.2d 590 (2010) (where the clerk of superior court previously obtained jurisdiction over guardianship of incompetent adult under Chapter 35A, the district court was barred from entering subsequent custody order concerning same incompetent adult under Chapter 50).

At the core of Garrison and Hudson were two principles: (1) the same property was the subject of both the superior and district court actions, and (2) the relief sought and available was similar in each suit.¹ Contra Sparks v. Peacock, 129 N.C.App. 640, 500 S.E.2d 116 (1998) (husband's suit against wife for default on joint promissory notes properly brought in superior court where no equitable distribution action was pending); Diggs v. Diggs, 116 N.C.App. 95, 446 S.E.2d 873 (1994) (distinguishing Garrison, partition action properly filed in superior court where jurisdiction of district court not yet invoked on same real property). In Sparks, the same disposition as Garrison and Hudson would have been presented if an equitable distribution action had been pending in district court prior to the husband's suit in superior court. Sparks, 129 N.C.App. at 640-41, 500 S.E.2d at 117. However, because the joint promissory notes were not subject to both an equitable distribution action as to who was liable for payment and a concurrent superior court action for contribution, this Court held that the superior court action was proper. Id. at 641, 500 S.E.2d at 117 (“It is of critical importance to this case that there is not an equitable distribution action currently pending between the parties.”).

Applying these principles to this case, defendants contend that plaintiff's shareholder claims can be adequately addressed through the action pending in district court because: (1) the inspection and accounting requests can be handled through discovery in the equitable distribution action; (2) the claim for breach of fiduciary duties can be addressed...