Caroline-A-Contracting, LLC v. J. Scott Campbell Constr. Co.

• Citation: 856 S.E.2d 131
• Decision Date: 16 March 2021
• Docket Number: No. COA20-60,COA20-60
• Parties: CAROLINE-A-CONTRACTING, LLC, Plaintiff, v. J. SCOTT CAMPBELL CONSTRUCTION COMPANY, INC., Defendant.
• Court: Court of Appeal of North Carolina (US)

856 S.E.2d 131

CAROLINE-A-CONTRACTING, LLC, Plaintiff,

v.J. SCOTT CAMPBELL CONSTRUCTION COMPANY, INC., Defendant.

No. COA20-60

Court of Appeals of North Carolina.

Filed March 16, 2021

McAngus Goudelock & Courie, PLLC, by John E. Spainhour, Asheville, and Lucienne H. Peoples, for Plaintiff-Appellant.

Van Winkle, Buck, Wall, Starnes & Davis, P.A., Asheville, by Allan R. Tarleton and Martin E. Moore, for Defendant-Appellee.

INMAN, Judge.

¶ 1 Caroline-A-Contracting, LLC ("CAC"), a subcontractor found liable in tort for damages it caused on a construction project, appeals from the trial court's judgment applying the collateral source rule to deny a credit for payments made to the general contractor, J. Scott Campbell Construction Company ("Campbell"), by another subcontractor. After careful review, we affirm.

I. FACTUAL & PROCEDURAL HISTORY

¶ 2 In early 2015, Campbell contracted to build a house in Maggie Valley, North Carolina. As part of the project, Campbell hired Ariel Mendoza ("Mr. Mendoza") of Mendoza Masonry and Landscaping to construct a boulder retaining wall to support a vehicle turnaround area. The wall collapsed twice during construction because its water drainage system failed and its foundation was compromised after significant rains. To remove his own damaged work, stabilize the slope, and erect the wall anew, Mr. Mendoza contracted with CAC. Mr. Mendoza and CAC were the only parties to the written contract, but the contract committed CAC to the "[c]ompletion of the work and satisfaction of [Campbell] and [home-owner]."

¶ 3 While CAC was reconstructing the boulder wall, Campbell determined that the new construction was a failure¹ and ordered CAC to immediately stop work and remove its equipment and employees from the site. Campbell then hired a replacement contractor, Tim Burress ("Mr. Burress"), to raze the existing construction and rebuild the wall, at a cost of $106,000. Campbell and Mr. Mendoza each refused to pay CAC.

¶ 4 On 15 March 2015, CAC filed separate lawsuits against Campbell and Mr. Mendoza.

¶ 5 CAC's lawsuit against Mr. Mendoza for breach of contract alleged CAC had incurred $20,000 in damages. Mr. Mendoza filed an answer and counterclaim alleging that CAC's work was defective, was not supervised by an engineer as required by the contract, and caused damages to Mr. Mendoza exceeding $50,000.

¶ 6 CAC's separate lawsuit against Campbell sought to recover damages for breach of contract in the amount of $30,000 and, in the alternative, damages of $35,000 in quantum meruit. Campbell denied the existence of a contract with CAC as well as the basis for the quantum meruit claim. Campbell also asserted a counterclaim of negligence for damages as a result of CAC's work. In response to the counterclaim, CAC raised a defense requesting a credit or offset against any amounts paid by another source to Campbell for the damages Campbell claimed against CAC.

¶ 7 While both actions were pending, CAC learned that Mr. Mendoza had paid money to Campbell related to damages caused by the defective retaining wall.

¶ 8 In the lawsuit against Campbell, CAC moved for summary judgment, arguing that Campbell was not entitled to recover from CAC money damages that had already been paid by Mr. Mendoza. In response, Campbell argued that the collateral source rule should exclude evidence of such payments because Mr. Mendoza was an independent party. The trial court denied CAC's motion for summary judgment in September 2018.

¶ 9 Three months later, in December 2018, CAC and Mr. Mendoza dismissed with prejudice their claims against each other. The terms of the dismissal are not reflected in the record on appeal.

¶ 10 Following the dismissal of its action against Mr. Mendoza and two months before trial of the action from which the appeal arises, CAC filed a motion for a credit of at least $90,000 in the event of an adverse verdict on Campbell's counterclaim, based on payments Campbell had received from Mr. Mendoza. Campbell filed a motion to exclude evidence of these payments. The trial court granted Campbell's motion based on the collateral source rule and because such evidence "might confuse the jury or diminish any award based on the evidence." The trial court allowed CAC to proffer evidence pre-trial on its motion for credit and decided that if a verdict was returned adverse to CAC, "the court will hear arguments that the award should be reduced or credited by payments from [Mr.] Mendoza."²

¶ 11 The case came on for trial in May 2019. The jury determined that CAC did not have a contract with Campbell, but it awarded $5,000 to CAC in quantum meruit for its supplies and efforts to remediate the site. The jury also found that Campbell had been damaged by CAC's negligence in construction and awarded Campbell $41,678.09 plus interest in damages.

¶ 12 After trial, CAC renewed its motion for credit based on Mr. Mendoza's prior payments to Campbell. The trial court denied CAC's motion in an order that restated the jury verdict and found, in relevant part:

28. ... [Mr. Mendoza] paid [Campbell] $105,000 for costs attributable to the repair of the wall.

....

32. [T]he payments made by [Mr. Mendoza] to [Campbell] were not the result of any type of insurance coverage that [Campbell] had purchased.

....

38. The gravamen of this case turns on the status of [Mr.] Mendoza. The evidence is uncontroverted that [Mr.] Mendoza is independent of the Plaintiff, Caroline-A-Contracting, LLC. [Mr.] Mendoza is not an employee or agent of [CAC]. [Mr.] Mendoza was not a party to this lawsuit.

39. ... [T]he work performed by [CAC] independent of [Mr. Mendoza] was determined to be negligent and damages were awarded to Campbell Construction.

....

42. Under the unique facts of this case ... the payments made by [Mr.] Mendoza constitute payments made from an independent, collateral source.

The trial court denied CAC's motion for a credit, concluding:

2. [Mr.] Mendoza is a source independent of [CAC].

3. The collateral source rule applies in this case and as such its application bars the tortfeasor [CAC] from reducing its own liability for damages by any amount of compensation the injured party [Campbell] received from an independent source.

4. Based upon the collateral source rule [CAC] is not entitled to a credit for payments made by [Mr.] Mendoza to [Campbell].

CAC filed written notice of appeal on 10 July 2019.

II. ANALYSIS

¶ 13 On appeal, we are bound by the facts found by the trial court if they are supported by the evidence, Humphries v. City of Jacksonville , 300 N.C. 186, 187, 265 S.E.2d 189, 190 (1980), and we review a trial court's conclusions of law de novo , Hairston v. Harward , 371 N.C. 647, 656, 821 S.E.2d 384, 391 (2018).

¶ 14 The sole issue on appeal is whether the trial court erred by treating the payments from Mr. Mendoza as a collateral source, and consequently denying a credit to CAC. Whether the collateral source rule applies to payments made by a source independent of the negligent actor to an injured party in the context of a construction dispute appears to be an issue of first impression in North Carolina.³

A. Collateral Source Rule Precedent

¶ 15 The collateral source rule provides that a "tort-feasor should not be permitted to reduce his own liability for damages by the amount of compensation the injured party receives from an independent source." Katy v. Capriola , 226 N.C. App. 470, 482, 742 S.E.2d 247, 256 (2013) (citations and quotation marks omitted). The collateral source rule "is punitive in nature, and is intended to prevent the tortfeasor from a windfall when a portion of plaintiff's damages have been paid by a collateral source." Wilson v. Burch Farms, Inc. , 176 N.C. App. 629, 639, 627 S.E.2d 249, 257 (2006).

¶ 16 Our Supreme Court "has not clearly enunciated the factors that should be taken into account in determining whether a payment source is or is not collateral to a defendant," but the "defining characteristic of a collateral source is its independence from the tortfeasor. " Hairston , 371 N.C. at 658-60, 821 S.E.2d at 392-93 (citing Fisher v. Thompson , 50 N.C. App. 724, 731, 275 S.E.2d 507, 513 (1981) ) (emphasis added). The most explicit definition of "collateral source" was provided only by way of examples listed a half century ago: "[A] plaintiff's recovery will not be reduced by the fact that ... expenses were paid by some source collateral to the defendant, such as by a beneficial society, by members of the plaintiff's family, by the plaintiff's employer, or by an insurance company." Young v. Balt. & Ohio R.R., 266 N.C. 458, 466, 146 S.E.2d 441, 446 (1966) (citation and quotation marks omitted); see also Cates v. Wilson , 321 N.C. 1, 5, 361 S.E.2d 734, 737 (1987) ; Hairston , 371 N.C. at 657, 821 S.E.2d at 391.

¶ 17 The collateral source rule is an exception to the general common-law principle that there should be only one recovery for one injury. See Holland v. S. Pub. Utils. Co. , 208 N.C. 289, 292, 180 S.E. 592, 593 (1935) ("All of the authorities are to the effect that, where there are joint tort-feasors, there can be but one recovery for the same injury or damage, and that settlement with one of the tort-feasors releases the others...."). This Court has extended Holland ’s "one satisfaction" principle to breach of contract cases. RPR & Assocs., Inc. v. Univ. of N.C.-Chapel Hill , 153 N.C. App. 342, 357, 570 S.E.2d 510, 519 (2002) ("In a breach of contract action, a defendant is entitled to produce evidence of payment of compensation by a third party to a plaintiff for damages resulting from a similar claim regarding the same subject matter.").

¶ 18 CAC relies on Holland ’s holding to suggest that "any amount paid by anybody ... should be held for a credit on the total recovery in any action for the same injury or damage." Holland , 208 N.C. at 292, 180 S.E. at 593. But, in Hairston v. Harward , our Supreme Court emphasized that "the continued viability of the collateral source rule clearly indicates that ... Holland...